<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 1998
REGISTRATION NO. 333-38651
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
BNC MORTGAGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
--------------
<TABLE>
<CAPTION>
DELAWARE 6162 33-0661303
<S> <C> <C>
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. IDENTIFICATION NUMBER)
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)
</TABLE>
1063 MCGAW AVENUE
IRVINE, CALIFORNIA 92614
(714) 260-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
EVAN R. BUCKLEY
CHIEF EXECUTIVE OFFICER
BNC MORTGAGE, INC.
1063 MCGAW AVENUE
IRVINE, CALIFORNIA 92614
(714) 260-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
THOMAS J. POLETTI, ESQ. ROBERT E. DEAN, ESQ.
KATHERINE J. BLAIR, ESQ. GIBSON, DUNN & CRUTCHER LLP
DARREN O. BIGBY, ESQ. 4 PARK PLAZA
FRESHMAN, MARANTZ, ORLANSKI, COOPER & IRVINE, CALIFORNIA 92614
KLEIN TELEPHONE (714) 451-3948
9100 WILSHIRE BOULEVARD, 8TH FLOOR EAST FACSIMILE (714) 451-4220
BEVERLY HILLS, CALIFORNIA 90212
TELEPHONE (310) 273-1870
FACSIMILE (310) 274-8357
</TABLE>
--------------
Approximate Date of Commencement of Proposed Sale to the Public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The Registrant estimates that expenses in connection with the offering
described in this registration statement will be as follows:
<TABLE>
<CAPTION>
AMOUNT TO
BE PAID
---------
<S> <C>
Securities and Exchange Commission registration fee............... $ 12,975
NASD filing fee................................................... 4,898
Nasdaq National Market Listing fee................................ 64,000
Printing expenses................................................. 200,000
Accounting fees and expenses...................................... 200,000
Legal fees and expenses........................................... 300,000
Fees and expenses (including legal fees) for qualifications under
state securities laws............................................ 50,000
Transfer agent's fees and expenses................................ 10,000
Miscellaneous..................................................... 8,127
--------
Total......................................................... $850,000*
========
</TABLE>
- --------
* Of this amount, $465,000 is payable by the Selling Stockholder.
All amounts except the Securities and Exchange Commission registration fee
and the NASD filing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits the Registrant
to, and Article 8 of the Certificate of Incorporation provides that the
Registrant may, indemnify each person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was, or has agreed to become, a director or
officer of the Registrant, or is or was servicing, or has agreed to serve, at
the request of the Registrant, as a director, officer or trustee of, or in a
similar capacity with, another corporation, partnership, joint venture, trust
or other enterprise (including any employee benefit plan), or by reason of any
action alleged to have been taken or omitted in such capacity, against all
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or on his behalf in
connection with such action, suit or proceeding and any appeal therefrom. The
Company will enter into indemnification agreements with its executive officers
and directors which require the Company to indemnify each in certain
circumstances, in the manner and to the fullest extent permitted by the
Delaware General Corporation Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years the Registrant issued unregistered securities in
the following transactions (shares and dollar amounts have not been adjusted
to reflect the reincorporation of the Registrant in Delaware to be effected by
the Registrant prior to the consummation of this Offering whereby each
outstanding share of the Registrant's Class A and Class B Common Stock will be
exchanged for 4,123.71134 shares of $.001 par value Common Stock):
(a) In October 1995, in connection with its organization, the Registrant
issued 350 shares of its Class A Common Stock and 25 shares of its Series A
Preferred Stock to Evan R. Buckley for an aggregate consideration of
$250,000.
II-1
<PAGE>
(b) In October 1995, in connection with its organization, the Registrant
issued 350 shares of its Class A Common Stock, 80 shares of its Class B
Common Stock and 80 shares of its Series A Preferred Stock to DLJ Mortgage
Capital Inc. for an aggregate consideration of $800,004.
(c) In October 1995, in connection with its organization, the Registrant
issued 55 shares of Class B Common Stock and 55 shares of its Series A
Preferred Stock to BNC Equity Investors, LLC for an aggregate consideration
of $250,000.
(d) In January 1996, the Registrant issued 80 shares of its Class B
Common Stock to two of its employees for an aggregate consideration of
$1,600.
(e) In February 1996, the Registrant issued 20 shares of its Class B
Common Stock to one of its employees for an aggregate consideration of
$400.
(f) In June 1996, the Registrant issued 20 shares of its Class B Common
Stock to four of its employees for an aggregate consideration of $400.
(g) In July 1996, the Registrant issued 20 shares of its Class B Common
Stock to four of its employees for an aggregate consideration of $5,500.
(h) In September 1996, the Registrant issued 5 shares of its Class B
Common Stock to one of its employees for an aggregate consideration of
$100.
The aforementioned issuances of stock were deemed to be exempt from
registration under the Securities Act in reliance in Section 4(2) promulgated
under the Securities Act as transactions by an issuer not involving a public
offering or on Rule 701 promulgated under the Securities Act. In addition, the
recipients of securities in each such transaction represented their intentions
to acquire the securities for investment only and not with a view to or for
sale in connection with any distribution thereof and appropriate legends were
affixed to the share certificates issued in such transactions. All recipients
had adequate access, through their relationships with the Company, to
information about the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
1.1 Form of Underwriting Agreement
1.2 Form of Representatives' Warrant
2.1+ Agreement of Reorganization and Plan of Merger
3.1+ Certificate of Incorporation of BNC Mortgage, Inc., a Delaware
corporation
3.2+ Bylaws of BNC Mortgage, Inc., a Delaware corporation
4.1 Specimen Stock Certificate
5.1+ Opinion of Freshman, Marantz, Orlanski, Cooper & Klein
10.1+ Office Lease, as amended, between the Registrant and Shuwa
Investments Corporation dated June 15, 1997
10.2 1997 Stock Option Plan and form of agreements
10.3+ Form of Indemnification Agreement
10.4+ Employment Agreement between the Registrant and Evan R. Buckley
10.5 Employment Agreement between the Registrant and Kelly W. Monahan
10.6(a) Letter Agreement, dated October 22, 1997, from DLJ Mortgage
Capital, Inc. to the Registrant.
(b) Form of Commitment Letter addressed to the Registrant from DLJ
Mortgage Capital, Inc.
(c) Form of Whole Loan Financing Facility between the Registrant and
DLJ Mortgage Capital, Inc.
II-2
<PAGE>
(d) Form of Promissory Note, by the Registrant made in favor of DLJ
Mortgage Capital, Inc.
(e) Form of Pledge Agreement, between the Registrant and DLJ Mortgage
Capital, Inc.
(f) Whole Loan Financing Program Tri-Party Custody Agreement, dated
September 26, 1995, among the Registrant, DLJ Mortgage Capital, Inc.
and Bankers Trust Company
(g) Form of Master Mortgage Loan Purchase Agreement, between the
Registrant and DLJ Mortgage Capital, Inc.
(h) Form of Subordinate Certificate Financing Agreement between the
Registrant and DLJ Mortgage Capital, Inc.
11.1+ Statement re: Computation of Per Share Earnings
21.1+ Subsidiaries
23.1+ Consent of Ernst & Young LLP
23.2+ Consent of Freshman, Marantz, Orlanski, Cooper & Klein (contained in
Exhibit 5.1)
24.1+ Power of Attorney
27+ Financial Data Schedule
- --------
+ Previously filed
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required by
the Underwriter to permit prompt delivery to each purchaser.
(b) insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b) (1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it is declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF SANTA ANA, STATE OF
CALIFORNIA ON MARCH 6, 1998.
By /s/ Evan R. Buckley
_____________________________________
Evan R. Buckley
Chief Executive Officer (Principal
Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITY INDICATED ON
MARCH 6, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Evan R. Buckley Chief Executive Officer
____________________________________ and Director
Evan R. Buckley (Principal Executive
Officer)
/s/ Kelly W. Monahan President, Chief Financial
____________________________________ Officer and Director
Kelly W. Monahan (Principal Accounting
Officer)
* Director
____________________________________
Keith C. Honig
* Director
____________________________________
Joseph R. Tomkinson
*By: /s/ Kelly W. Monahan
____________________________________
Kelly W. Monahan
Attorney in fact
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
------- -------------------- ------------
<C> <S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Representatives' Warrant
2.1+ Agreement of Reorganization and Plan of Merger
3.1+ Certificate of Incorporation of BNC Mortgage, Inc., a
Delaware corporation
3.2+ Bylaws of BNC Mortgage, Inc., a Delaware corporation
4.1 Specimen Stock Certificate
5.1+ Opinion of Freshman, Marantz, Orlanski, Cooper &
Klein
10.1+ Office Lease, as amended, between the Registrant and
Shuwa Investments Corporation dated June 15, 1997
10.2 1997 Stock Option Plan and form of agreements
10.3+ Form of Indemnification Agreement
10.4+ Employment Agreement between the Registrant and Evan
R. Buckley
10.5 Employment Agreement between the Registrant and Kelly
W. Monahan
10.6(a) Letter Agreement, dated October 22, 1997, from DLJ
Mortgage Capital, Inc. to the Registrant.
(b) Form of Commitment Letter addressed to the Registrant
from DLJ Mortgage Capital, Inc.
(c) Form of Whole Loan Financing Facility between the
Registrant and DLJ Mortgage Capital, Inc.
(d) Form of Promissory Note, by the Registrant made in
favor of DLJ Mortgage Capital, Inc.
(e) Form of Pledge Agreement, between the Registrant and
DLJ Mortgage Capital, Inc.
(f) Whole Loan Financing Program Tri-Party Custody
Agreement, dated September 26, 1995, among the
Registrant, DLJ Mortgage Capital, Inc. and Bankers
Trust Company
(g) Form of Master Mortgage Loan Purchase Agreement,
between the Registrant and DLJ Mortgage Capital,
Inc.
(h) Form of Subordinate Certificate Financing Agreement
between the Registrant and DLJ Mortgage Capital,
Inc.
11.1+ Statement re: Computation of Per Share Earnings
21.1+ Subsidiaries
23.1+ Consent of Ernst & Young LLP
23.2+ Consent of Freshman, Marantz, Orlanski, Cooper &
Klein (contained in Exhibit 5.1)
24.1+ Power of Attorney
27+ Financial Data Schedule
</TABLE>
- --------
+ Previously filed
<PAGE>
EXHIBIT 1.1
3,173,196 SHARES/1/
BNC MORTGAGE, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
March_[10], 1998
CIBC Oppenheimer Corp.
Piper Jaffray Inc.
c/o CIBC Oppenheimer Corp.
580 California Street
Suite 2300
San Francisco, California 94104
On behalf of the several
Underwriters named on
Schedule I attached hereto
Ladies and Gentlemen:
BNC Mortgage, Inc., a Delaware corporation (the "Company"), and DLJ
-------
Mortgage Capital, Inc., a Delaware corporation (the "Selling Stockholder"),
-------------------
propose to sell to you and the other underwriters named on Schedule_I to this
Agreement (the "Underwriters"), for whom you are acting as Representatives (in
------------
such capacity, the "Representatives"), an aggregate of 3,173,196 shares (the
---------------
"Firm Shares") of the Company's Common Stock, $0.01 par value (the "Common
- ------------
Stock"), with the Company selling an aggregate of 1,400,000 of such Firm Shares
and the Selling Stockholder selling an aggregate of 1,773,196 of such Firm
Shares. In addition, the Company proposes to grant to the Underwriters an
option to purchase up to an additional 475,979 shares (the "Option Shares") of
-------------
Common Stock for the purpose of covering over-allotments in connection with the
sale of the Firm Shares. The Firm Shares and the Option Shares are together
called the "Shares."
------
1. SALE AND PURCHASE OF THE SHARES. On the basis of the
-------------------------------
representations, warranties and agreements contained in, and subject to the
terms and conditions of, this Agreement:
(a) The Company and the Selling Stockholder, severally and not
jointly, agree to sell to the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company and the Selling
Stockholder, at $__________ per share (the
----------
- -------------------------
/1/ Plus an option to purchase from BNC Mortgage, Inc. up to 475,979 additional
shares to cover over-allotments, if any.
<PAGE>
"Initial Price"), the number of Firm Shares set forth opposite the name of such
-------------
Underwriter on Schedule I to this Agreement, subject to adjustments under
Section 10. The number of Firm Shares to be purchased by each Underwriter from
the Company and the Selling Stockholder shall be as nearly as practicable in the
same proportion as the number of Firm Shares being sold by the Company and the
Selling Stockholder bears to the total number of Firm Shares to be sold
hereunder.
(b) The Company grants to the several Underwriters an option (the
"Option") to purchase, severally and not jointly, all or any part of the Option
- -------
Shares at the Initial Price. The number of Option Shares to be purchased by each
Underwriter from the Company shall be as nearly as practicable in the same
proportion as the number of Firm Shares being sold by the Company to such
Underwriter bears to the total number of Firm Shares to be sold hereunder. Such
option may be exercised only to cover over-allotments in the sales of the Firm
Shares by the Underwriters and may be exercised in whole or in part from time to
time within 30 days after the date of this Agreement, in each case upon written
or telegraphic notice, or verbal or telephonic notice confirmed by written or
telegraphic notice, by the Representatives to the Company no later than 12:00
noon, New York City time, at least two business days before the Option Shares
Closing Date (as defined below), setting forth the number of Option Shares to be
purchased and the time and date of such purchase.
(c) The Company agrees to issue, on the Firm Shares Closing Date (as
defined below), to CIBC Oppenheimer Corp. and Piper Jaffray Inc. (for their own
account and not as the Representatives of the several Underwriters), for an
aggregate price of $3,173, warrants (the "Warrants") to purchase an aggregate of
317,319 shares of Common Stock (the "Warrant Shares"), exercisable at a price
per Warrant Share equal to 110% of the price the Shares are first offered to the
public by the Underwriters. The Warrants will be exercisable at any time and
from time to time on or after the first anniversary of the date of this
Agreement up to the fifth anniversary thereof. Each Warrant shall be
substantially identical to the form of Warrant filed as an exhibit to the
Registration Statement (as defined below).
2. DELIVERY AND PAYMENT. The closing of the transactions
--------------------
contemplated by this Agreement (including upon exercise of the Option) shall
take place at the offices of Freshman, Marantz, Orlanski, Cooper & Klein, 9100
Wilshire Boulevard, 8th Floor East, Beverly Hills, California 90212; provided,
--------
however, that delivery by the Company and the Selling Stockholder of the Firm
- -------
Shares to the Representatives for the respective accounts of the Underwriters,
and payment of the purchase price by certified or official bank checks payable
in New York Clearing House (next day) funds to the Company and to the order of
the Attorney-in-Fact (as defined below), shall take place at the offices of CIBC
Oppenheimer Corp., at Oppenheimer Tower, World Financial Center, New York, New
York 10281, at 10:00 a.m., New York City time, on the fifth business day
following the date of this Agreement, or at such time on such other date, not
later than 10 business days after the date of this Agreement, as shall be agreed
upon by the Company, the Attorney-in-Fact and the Representatives (such time and
date of delivery and payment are called the "Firm Shares Closing
-------------------
<PAGE>
Date").
- -----
In the event the Option is exercised, delivery by the Company of the
Option Shares to the Representatives for the respective accounts of the
Underwriters and payment of the purchase price by certified or official bank
checks payable in New York Clearing House (next day) funds to the Company shall
take place at the offices of CIBC Oppenheimer Corp. specified above at the time
and on the date (which may be the same date as, but in no event shall be earlier
than, the Firm Shares Closing Date) specified in the notice referred to in
Section 1(b) (such time and date of delivery and payment are called the "Option
------
Shares Closing Date"). The Firm Shares Closing Date and the Option Shares
- -------------------
Closing Date are called, individually, a "Closing Date" and, together, the
------------
"Closing Dates."
- --------------
Certificates evidencing the Shares shall be registered in such names
and shall be in such denominations as the Representatives shall request at least
two full business days before the Firm Shares Closing Date or, in the case of
Option Shares, on the day of notice of exercise of the Option as described in
Section 1(b) and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, at least one
full business day before the Firm Shares Closing Date (or the Option Shares
Closing Date in the case of the Option Shares).
3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING. The
------------------------------------------------------
Company has prepared in conformity with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and the published rules and
--------------
regulations thereunder (the "Rules") adopted by the Securities and Exchange
-----
Commission (the "Commission"), a registration statement on Form S-1 (No. 333-
----------
38651), including a preliminary prospectus relating to the Shares, and has filed
with the Commission the Registration Statement (as hereinafter defined) and such
amendments thereof as may have been required to the date of this Agreement.
Copies of such Registration Statement (including all amendments thereof) and of
the related preliminary prospectus have heretofore been delivered by the Company
to you. The term "Preliminary Prospectus" means any preliminary prospectus (as
----------------------
described in Rule 430 of the Rules) included at any time as a part of the
Registration Statement. The Registration Statement as amended at the time and
on the date it becomes effective (the "Effective Date"), including all
--------------
exhibits and information, if any, deemed to be part of the Registration
Statement pursuant to Rule 424(b) and Rule 430A of the Rules, is called the
"Registration Statement." The term "Prospectus" means the prospectus in the
- ----------------------- ----------
form first used to confirm sales of the Shares (whether such prospectus was
included in the Registration Statement at the time of effectiveness or was
subsequently filed with the Commission pursuant to Rule 424(b) of the Rules).
The Company understands that the Underwriters propose to make a public
offering of the Shares, as set forth in and pursuant to the Prospectus, as soon
after the Effective Date and the date of this Agreement as the Representatives
deem advisable. The Company hereby confirms that the Underwriters and dealers
have been authorized to distribute or cause to be distributed each Preliminary
Prospectus and are authorized to distribute the Prospectus (as from time to time
<PAGE>
amended or supplemented if the Company furnishes amendments or supplements
thereto to the Underwriters).
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
---------------------------------------------
hereby represents and warrants to each Underwriter as follows:
(a) On the Effective Date, the Registration Statement complied, and,
(i) on the date of the Prospectus, (ii) on the date any post-effective amendment
to the Registration Statement shall become effective, (iii) on the date any
supplement or amendment to the Prospectus is filed with the Commission and
(iv) on each Closing Date, the Registration Statement and the Prospectus (and
any amendment thereof or supplement thereto) will comply, in all material
respects, with the applicable provisions of the Securities Act and the Rules and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
------------
rules and regulations of the Commission thereunder. The Registration Statement
did not, as of the Effective Date, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading, and on the
other dates referred to above neither the Registration Statement nor the
Prospectus, nor any amendment thereof or supplement thereto, will contain any
untrue statement of a material fact or will omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. When any related Preliminary Prospectus was first filed
with the Commission (whether filed as part of the Registration Statement or any
amendment thereto or pursuant to Rule 424(a) of the Rules) and when any
amendment thereof or supplement thereto was first filed with the Commission,
such Preliminary Prospectus as amended or supplemented complied in all material
respects with the applicable provisions of the Securities Act and the Rules and
did not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. Notwithstanding the foregoing, the Company
makes no representation or warranty as to (1) the paragraph with respect to
stabilization on the inside front cover page of the Prospectus and (2) the
statements contained under the caption "Underwriting" in the Prospectus. The
Company acknowledges that the statements referred to in the previous sentence
constitute the only information furnished in writing by the Representatives on
behalf of the several Underwriters specifically for inclusion in the
Registration Statement, any Preliminary Prospectus or the Prospectus.
(b) There is no document or contract of a character required to be
described in the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required.
(c) The financial statements of the Company (including all notes and
schedules thereto) included in the Registration Statement and Prospectus present
fairly the financial position, the results of operations and cash flows and the
stockholders' equity and the other
<PAGE>
information purported to be shown therein of the Company at the respective dates
and for the respective periods to which they apply. Such financial statements
have been prepared in conformity with generally accepted accounting principles,
consistently applied throughout the periods involved, and all adjustments
necessary for a fair presentation of the results for such periods have been
made.
(d) Ernst & Young LLP, whose reports are filed with the Commission as
a part of the Registration Statement, are and, during the periods covered by its
reports, were independent public accountants as required by the Securities Act
and the Rules.
(e) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware. The
Company has no direct or indirect "significant subsidiaries" (as defined in Rule
1-02(v) of Regulation S-X) other than those listed on Exhibit 21.1 to the
Registration Statement (collectively, the "Subsidiaries") and, other than the
------------
Subsidiaries, does not control, directly or indirectly, any corporation,
partnership, joint venture, association or other business organization. Each
Subsidiary has been duly incorporated and is validly existing as a corporation
or limited partnership, as the case may be, in good standing under the laws of
its jurisdiction of incorporation. The Company and each Subsidiary are duly
qualified and in good standing as a foreign corporation or limited partnership,
as the case may be, in each jurisdiction in which the character or location of
their respective assets or properties (owned, leased or licensed) or the nature
of their respective businesses makes such qualification necessary, except for
such jurisdictions where the failure to so qualify would not have a material
adverse effect on the assets or properties, business, results of operations or
financial condition of the Company and the Subsidiaries, taken as a whole (a
"Material Adverse Effect"). The Company and the Subsidiaries have all requisite
- ------------------------
corporate or limited partnership power and authority, and all necessary
authorizations, approvals, consents, orders, licenses, certificates and permits
of and from all governmental or regulatory bodies or any other person or entity,
to own, lease and license their respective assets and properties and conduct
their respective businesses as now being conducted and as described in the
Registration Statement and the Prospectus, except for such authorizations,
approvals, consents, orders, licenses, certificates and permits of which the
failure to so obtain would not result in a Material Adverse Effect. No such
authorization, approval, consent, order, license, certificate or permit contains
a materially burdensome restriction other than as disclosed in the Registration
Statement and the Prospectus. The Company has all such corporate power and
authority, and such authorizations, approvals, consents, orders, licenses,
certificates and permits, to enter into, deliver and perform this Agreement and
to issue and sell the Shares (except as may be required under the Securities Act
and state and foreign Blue Sky laws).
(f) The Company and each Subsidiary own or possess adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how and other similar
<PAGE>
rights and proprietary knowledge (collectively, "Intangibles") necessary for the
-----------
conduct of their respective businesses as described in the Registration
Statement and the Prospectus. Neither the Company nor any Subsidiary has
received any notice of any conflict with asserted rights of others with respect
to any Intangibles which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a Material Adverse
Effect.
(g) The Company and each Subsidiary have (i) good title to each of the
items of personal property which are reflected in the financial statements
referred to in Section 4(c) or are referred to in the Prospectus as being owned
by it and (ii) valid and enforceable leasehold interests in each of the items of
real and personal property which are referred to in the Prospectus as being
leased by it, in each case free and clear of all liens, encumbrances, claims,
security interests and defects, other than those described in the Prospectus or
those the existence of which would not result in a Material Adverse Effect.
(h) There is no legal or governmental or other proceeding or
investigation before any court or before or by any public body or board pending
or, to the Company's knowledge, threatened, against, or involving the assets,
properties or business of, the Company or any Subsidiary which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in a Material Adverse Effect.
(i) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as disclosed or
described therein, (i) there has not been any material adverse change in the
assets or properties, business, results of operations, prospects or condition
(financial or otherwise), of the Company or any Subsidiary, whether or not
arising from transactions in the ordinary course of business; (ii) neither the
Company nor any Subsidiary has sustained any material loss or interference with
its assets, businesses or properties (whether owned or leased) from fire,
explosion, earthquake, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or any court or legislative or other
governmental action, order or decree; and (iii) since the date of the latest
balance sheet included in the Registration Statement and the Prospectus, except
as disclosed or described therein, neither the Company nor any Subsidiary has
(a) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, except such liabilities or obligations incurred
in the ordinary course of business or (b) declared or paid any dividend or made
any distribution on any shares of its stock or redeemed, purchased or otherwise
acquired or agreed to redeem, purchase or otherwise acquire any shares of its
stock.
(j) Each agreement listed in the Exhibits to the Registration
Statement is in full force and effect and is valid and enforceable by and
against the Company or the Subsidiary, or both, as the case may be, assuming the
due authorization, execution and delivery thereof by each of the other parties
thereto, except as such enforceability may be limited by
<PAGE>
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles. Neither the Company, any
Subsidiary, nor to the Company's knowledge, any other party, is in default in
the observance or performance of any term or obligation to be performed by it
under any such agreement, and no event has occurred which with notice or lapse
of time or both would constitute such a default, except for such defaults or
events the occurrence of which would not result in a Material Adverse Effect. No
default exists, and no event has occurred which with notice or lapse of time or
both would constitute a default, in the due performance and observance of any
term, covenant or condition by the Company or any Subsidiary of any other
agreement or instrument to which the Company or any Subsidiary is a party or by
which it or its properties or business may be bound or affected, except for such
defaults or events the occurrence of which would not result in a Material
Adverse Effect.
(k) Neither the Company nor any Subsidiary is in violation of any term
or provision of its charter or by-laws or of any franchise, license, permit,
judgment, decree, order, statute, rule or regulation, except for such violations
the occurrence of which would not result in a Material Adverse Effect.
(l) Neither the execution, delivery and performance of this Agreement
and the Warrants by the Company nor the consummation of any of the transactions
contemplated hereby (including, without limitation, the issuance and sale by the
Company of the Shares and the Warrants) will give rise to a right to terminate
or accelerate the due date of any payment due under, or result in the breach or
violation of any term or provision of, or constitute a default (or an event
which with notice or lapse of time or both would constitute a default) under, or
require any consent or waiver under, or result in the execution or imposition of
any lien, charge or encumbrance upon any properties or assets of the Company or
any Subsidiary pursuant to the terms of, any indenture, mortgage, deed of trust
or other agreement or instrument to which the Company or any Subsidiary is a
party or by which it or any of its properties or businesses is bound, or any
franchise, license, permit, judgment, decree, order, statute, rule or regulation
applicable to the Company or any Subsidiary or violate any provision of the
charter or by-laws of the Company or any Subsidiary, except: (1) for such
consents or waivers which have already been obtained and are in full force and
effect or (2) where the failure to obtain such consents and waivers, either
singly or in the aggregate, would not result in a Material Adverse Effect.
(m) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus (including footnote
(3) thereto with respect to employee benefit plans). All of the outstanding
shares of Common Stock have been duly and validly issued and are fully paid and
nonassessable and none of them was issued in violation of any preemptive or
other similar right. The Company has reserved and kept available for the
exercise of the Warrants such number of authorized but unissued shares as are
sufficient
<PAGE>
to permit the exercise in full of the Warrants. The Shares, when issued and sold
pursuant to this Agreement, and the Warrant Shares, when issued and sold
pursuant to the Warrants, will be duly and validly issued, fully paid and
nonassessable and none of them will be issued in violation of any preemptive or
other similar right. Except as disclosed in the Registration Statement and the
Prospectus, there is no outstanding option, warrant or other right calling for
the issuance of, and there is no commitment, plan or arrangement to issue, any
share of stock of the Company or any security convertible into, or exercisable
or exchangeable for, such stock. The Common Stock, the Warrants and the Shares
conform in all material respects to all statements in relation thereto contained
in the Registration Statement and the Prospectus.
(n) Except as disclosed in the Registration Statement, there are no
persons with registration or other similar rights to have any securities
registered pursuant to the Registration Statement or otherwise registered by the
Company under the Securities Act. Each director and officer of the Company has
delivered to the Representatives his enforceable written agreement that he will
not, for a period of 180 days after the date of this Agreement, offer for sale,
sell, distribute, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, or exercise any registration rights with respect to, any
shares of Common Stock (or any securities convertible into, exercisable for, or
exchangeable for any shares of Common Stock) owned by him or her, without the
prior written consent of CIBC Oppenheimer Corp.
(o) All necessary corporate action has been duly and validly taken by
the Company to authorize the execution, delivery and performance of this
Agreement and the Warrants and the issuance and sale of the Shares and the
Warrant Shares by the Company. This Agreement has been, and the Warrants on the
Firm Shares Closing Date will be, duly and validly authorized, executed and
delivered by the Company and constitutes and will constitute the legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as the enforceability thereof may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally and
by general equitable principles.
(p) Except as disclosed in the Prospectus, neither the Company nor any
of its Subsidiaries is engaged in any unfair labor practice which could result
in a Material Adverse Effect. Except as disclosed in the Prospectus and for
matters which, singly or in the aggregate, would not result in a Material
Adverse Effect, (i) there is (1) no unfair labor practice complaint pending, or
to the Company's knowledge, threatened, against the Company or any of its
Subsidiaries before the National Labor Relations Board, and no grievance or
arbitration proceeding arising out of or under collective bargaining agreements
is pending or, to the Company's knowledge, threatened, (2) no strike, labor
dispute, slowdown or stoppage pending or, to the Company's knowledge,
threatened, against the
<PAGE>
Company or any of its Subsidiaries and (3) no union representation question
existing with respect to the employees of the Company or any of its Subsidiaries
and, to the Company's knowledge, no union organizing activities are taking place
and (ii) there has been no violation by the Company of any federal, state, local
or foreign law relating to discrimination in the hiring, promotion or pay of
employees, or any applicable wage or hour laws, nor any provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") or the rules and
regulations promulgated thereunder. -----
(q) No transaction has occurred between or among the Company or any
Subsidiary and any of the Company's or any Subsidiary's officers or directors or
any affiliate or affiliates of any such officer or director that is required to
be described in and is not described in the Registration Statement and the
Prospectus.
(r) The Company and each of its Subsidiaries has obtained all permits,
licenses and other authorizations that are required under all environmental
laws, including but not limited to, the Federal Water Pollution Control Act (33
U.S.C. (S) 1251 et seq.), Resource Conservation & Recovery Act (42 U.S.C.
-------
(S) 6901 et seq.), Safe Drinking Water Act (21 U.S.C. (S)(S) 201, 300f), Toxic
-- ----
Substances Control Act (15 U.S.C. (S) 349, 42 U.S.C. (S) 7401 et seq.),
-- ----
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
(S) 9601 et seq.), and any other laws of any applicable jurisdiction, relating
-- ----
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or wastes
into the environment (including, without limitation, ambient air, surface water,
ground water or land), or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes or under any regulation, code, plan, order, decree, judgment,
injunction, notice or demand letter issued, entered, promulgated or approved
thereunder (collectively, the "Environmental Laws"), except as otherwise set
------------------
forth in the Prospectus or to the extent that the failure to have any such
permit, license or authorization, singly or in the aggregate, would not result
in a Material Adverse Effect. Except as described in the Prospectus, each of
the Company and the Subsidiaries is in compliance with all terms and conditions
of any required permits, licenses and authorizations, and is also in compliance
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
Environmental Laws, except to the extent the failure to comply would not result
in a Material Adverse Effect.
(s) There are no past or present events, conditions, circumstances,
activities, facts, practices, incidents, actions, or plans relating to the
business as presently being conducted by the Company or the Subsidiaries that
interfere with or prevent material compliance or continued material compliance
with the Environmental Laws, or which would be reasonably likely to give rise to
any legal liability (whether statutory or common law) or otherwise would be
reasonably likely to form the basis of any claim, action, demand, suit,
<PAGE>
proceeding, hearing, notice of violation, study, investigation, remediation or
cleanup based on or related to the generation, manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling, or the
emission, discharge, release into the workplace, the community or the
environment of any pollutant, contaminant, chemical or industrial, toxic or
hazardous substance or waste, except for any liabilities or any claims, demands
or other actions specified above that would not, singly or in the aggregate,
result in a Material Adverse Effect.
(t) The Company and each Subsidiary have filed all Federal, state,
local and foreign tax returns which are required to be filed through the date
hereof, or have received extensions thereof, and have paid all taxes shown on
such returns and all assessments received by each to the extent that the same
are material and have become due.
(u) The Company has filed a registration statement pursuant to
Section 12(b) of the Exchange Act to register the Common Stock. The Shares have
been duly authorized for listing on the NASDAQ National Market, subject to
official notice of issuance.
(v) Neither the Company nor any Subsidiary is an "investment company"
or an entity "controlled" by an "investment company," as such terms are defined
in the Investment Company Act of 1940, as amended.
(w) None of the Company or any of its directors, officers or
controlling persons has taken or will take, directly or indirectly, any action
designed to or which might reasonably be expected to cause or result, under the
Securities Act or otherwise, in, or which has constituted or which reasonably
might be expected to constitute, the stabilization or manipulation of the price
of any securities of the Company or facilitation of the sale or resale of the
Shares.
(x) None of the Company, any Subsidiary or any officer or director
purporting to act exclusively on behalf of the Company or any Subsidiary has at
any time (i) made any contributions to any candidate for political office, or
failed to disclose fully any such contributions, in violation of law; (ii) made
any payment to any Federal, state, local or foreign governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or allowed by applicable law; (iii) made any
payment in violation of law outside the ordinary course of business to any
purchasing or selling agent or person charged with similar duties of any entity
to which the Company or any Subsidiary sells or from which the Company or any
Subsidiary buys products for the purpose of influencing such agent or person to
buy products from or sell products to the Company or any Subsidiary; or (iv)
engaged in any material transaction, maintained any material bank account or
used any material corporate funds except for transactions, bank accounts and
funds which have been and are reflected in the normally maintained books and
records of the Company and the Subsidiaries, taken as a whole, and except for
any of the foregoing, the occurrence of which would not be reasonably likely to
result in a Material Adverse Effect.
<PAGE>
(y) The Company and each Subsidiary have adequate liability and other
insurance policies insuring them against the risks of loss arising out of or
related to their respective businesses, as described in the Registration
Statement and Prospectus, issued by insurers of recognized financial
responsibility except where the failure to have such insurance would not result
in a Material Adverse Effect.
(z) Other than as provided to the Underwriters under this Agreement,
the Company has not incurred any liability for finder's or broker's fees or
agent's commissions in connection with the execution and delivery of this
Agreement, the offer and sale of the Shares or the transactions hereby
contemplated.
(aa) The Company and each Subsidiary maintain a system of internal
accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(bb) The Company and the Subsidiaries are in compliance with Florida
blue sky law relating to disclosure of issuers doing business with Cuba.
Neither the Company nor any of the Subsidiaries is presently doing business with
the government of Cuba or with any person or affiliate located in Cuba and will
notify the Florida Department of Banking and Finance, Division of Securities and
Investor Protection, if the Company or any such Subsidiary commences doing
business with the government of Cuba or any person or affiliate located in Cuba.
(cc) The merger of the Company with and into BNC Mortgage, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Company ("Merger
Sub"), in order to effect the reincorporation of the Company in Delaware (the
"Reincorporation Merger"), has been approved by all necessary corporate action
on behalf of the Company and Merger Sub and the merger agreement and related
certificates, in appropriate form to effect the Reincorporation Merger, have
been filed with the Secretary of State of Delaware and the Secretary of State of
California in order to permit the Reincorporation Merger to become effective at
8:00 A.M., New York City time, on the Firm Shares Closing Date.
In addition, the Selling Stockholder represents and warrants to each Underwriter
as follows:
(a) Such Selling Stockholder has all requisite power to enter into
this Agreement and to sell, assign, transfer and deliver to the Underwriters the
Shares to be sold by such Selling Stockholder hereunder in accordance with the
terms of this Agreement. This Agreement has been duly executed and delivered by
such Selling Stockholder and constitutes
<PAGE>
and will constitute the legal, valid and binding obligation of such Selling
Stockholder enforceable against such Selling Stockholder in accordance with its
terms, except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, fraudulent conveyances, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and by general
equitable principles.
(b) Such Selling Stockholder has duly executed and delivered a power
of attorney and custody agreement (with respect to such Selling Stockholder, the
"Power-of-Attorney" and the "Custody Agreement," respectively), each in the form
----------------- -----------------
heretofore delivered to the Representatives, appointing each of Evan_R. Buckley
and Kelly_W. Monahan as such Selling Stockholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to execute, deliver and perform this
- ------------------
Agreement on behalf of such Selling Stockholder and appointing U.S. Stock
----------
Transfer Corporation as custodian thereunder (the "Custodian"). Certificates in
- -------------------- ---------
negotiable form, endorsed in blank or accompanied by blank stock powers duly
executed, with signatures appropriately guaranteed, representing the Shares to
be sold by such Selling Stockholder hereunder have been deposited with the
Custodian pursuant to the Custody Agreement for the purpose of delivery pursuant
to this Agreement. Such Selling Stockholder has full power to enter into the
Custody Agreement and the Power-of-Attorney and to perform its obligations under
the Custody Agreement. The Custody Agreement and the Power-of-Attorney have
been duly executed and delivered by such Selling Stockholder and are the legal,
valid, binding and enforceable instruments of such Selling Stockholder
enforceable against such Selling Stockholder in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyances, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles. Such Selling Stockholder agrees that each of the Shares
represented by the certificates on deposit with the Custodian is subject to the
interests of the Underwriters hereunder, that the arrangements made for such
custody, the appointment of the Attorney-in-Fact and the right, power and
authority of the Attorney-in-Fact to execute and deliver this Agreement and to
carry out the terms of this Agreement, are to that extent irrevocable and that
the obligations of such Selling Stockholder hereunder shall not be terminated,
except as provided in this Agreement or the Custody Agreement, by any act of
such Selling Stockholder, by operation of law or otherwise, whether in the case
of any individual Selling Stockholder by the death or incapacity of such Selling
Stockholder, in the case of a trust or estate by the death of the trustee or
trustees or the executor or executors or the termination of such trust or
estate, or in the case of a corporate or partnership Selling Stockholder by its
liquidation or dissolution or by the occurrence of any other event. If any
individual Selling Stockholder, trustee or executor should die or become
incapacitated or any such trust should be terminated, or if any corporate or
partnership Selling Stockholder shall liquidate or dissolve, or if any other
event should occur, before the delivery of such Shares hereunder, the
certificates for such Shares deposited with the Custodian shall be delivered by
the Custodian in accordance with the respective terms and conditions of this
Agreement as if such death, incapacity, termination,
<PAGE>
liquidation or dissolution or other event had not occurred, regardless of
whether or not the Custodian or the Attorney-in-Fact shall have received notice
thereof.
(c) Such Selling Stockholder is the lawful record and beneficial owner
of the Shares to be sold by such Selling Stockholder hereunder. Upon sale and
delivery of, and payment for, such Shares, as provided herein, such Selling
Stockholder will convey good and marketable title to such Shares, free and clear
of any security interests, liens, encumbrances, equities, claims, options,
rights of third parties or other defects.
(d) To the extent that any statements or omissions are made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto in reliance upon and in conformity with written
information furnished to the Company by the Selling Stockholder specifically for
use therein, such Preliminary Prospectus did, and the Registration Statement and
the Prospectus and any amendments or supplements thereto, when they become
effective or are filed with the Commission, as the case may be, will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they are made, not misleading. The
Selling Stockholder has reviewed the information regarding the Selling
Stockholder set forth therein under the caption "Principal and Selling
Stockholders" in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus) and the Registration Statement, and the
information regarding the Selling Stockholder set forth therein under the
caption "Principal and Selling Stockholders" is complete and accurate.
(e) The sale of the Shares to the Underwriters by such Selling
Stockholder pursuant to this Agreement, the compliance by such Selling
Stockholder with the other provisions of this Agreement, the Custody Agreement
and the consummation of the other transactions herein contemplated do not
(a) require the consent, approval, authorization, registration or qualification
of or with any governmental authority, except such as have been obtained, such
as may be required under state and foreign Blue Sky laws and, if the
Registration Statement is not effective under the Securities Act as of the time
of execution hereof, such as may be required (and shall be obtained as provided
in this Agreement) under the Securities Act and the Exchange Act, or (b) result
in a material breach or violation of any of the terms and provisions of, or
constitute a material default under, any indenture, mortgage, deed of trust,
lease or other agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any of such Selling
<PAGE>
Stockholder's properties are bound, or any statute or any judgment, decree,
order, rule or regulation of any court or other governmental authority or any
arbitrator applicable to such Selling Stockholder.
(f) The Selling Stockholder has not, directly or indirectly (except
for the sale of Firm Shares by the Selling Stockholder under this Agreement),
(i) taken any action designed to cause or result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares or (ii) since the filing of the Registration Statement
(A) sold, bid for, purchased, or paid anyone any compensation for soliciting
purchases of, the Shares or (B) paid or agreed to pay to any person any
compensation for soliciting another to purchase any other securities of the
Company.
(g) The Selling Stockholder has not distributed and, prior to the
later of (i) the Closing Date and (ii) the completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement or any
amendment thereto, any Preliminary Prospectus or the Prospectus or any amendment
or supplement thereto, or other materials, if any, permitted by the Securities
Act.
(h) In order to document the Underwriters' compliance with the
reporting and withholding provisions of the Internal Revenue Code of 1986, as
amended, with respect to the transactions herein contemplated, the Selling
Stockholder agrees to deliver to you prior to or on the Firm Closing Date (as
hereinafter defined) a properly completed and executed United States Treasury
Department Form W-8 or W-9 (or other applicable form of statement specified by
Treasury Department regulations in lieu thereof).
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of
-------------------------------------------
the Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:
(a) The Prospectus shall have been timely filed with the Commission in
accordance with Section 6(a) of this Agreement.
(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been or shall be in effect and no order
suspending the effectiveness of the Registration Statement shall be in effect
and no proceedings for such purpose shall be pending before or threatened by the
Commission, and any requests for additional information on the part of the
Commission (to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Representatives.
<PAGE>
(c) The representations and warranties of the Company and the Selling
Stockholder contained in this Agreement and in the certificates delivered
pursuant to Sections 5(d) and 5(e) shall be true and correct when made and on
and as of each Closing Date as if made on such date and the Company and the
Selling Stockholder shall have performed in all material respects all covenants
and agreements and satisfied all the conditions contained in this Agreement
required to be performed or satisfied by them at or before such Closing Date.
(d) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives and dated such Closing Date, of
the chief executive or chief operating officer and the chief financial officer
or chief accounting officer of the Company to the effect that the signers of
such certificate have carefully examined the Registration Statement, the
Prospectus and this Agreement and that the representations and warranties of the
Company in this Agreement are true and correct on and as of such Closing Date
with the same effect as if made on such Closing Date and the Company has
performed all covenants and agreements and satisfied all conditions contained in
this Agreement required to be performed or satisfied by it at or prior to such
Closing Date.
(e) The Representatives shall have received on each Closing Date a
certificate, addressed to the Representatives and dated such Closing Date, of
the Selling Stockholder to the effect that the signers of such certificate have
carefully examined this Agreement and that the representations and warranties of
such Selling Stockholder in this Agreement are true and correct on and as of
such Closing Date with the same effect as if made on such Closing Date and such
Selling Stockholder has performed all covenants and agreements and satisfied all
conditions contained in this Agreement required to be performed or satisfied by
him at or prior to such Closing Date.
(f) The Representatives shall have received at the time this Agreement
is executed and on each Closing Date a signed letter from Ernst & Young LLP
addressed to the Representatives and dated, respectively, the date of this
Agreement and each such Closing Date, in form and substance reasonably
satisfactory to the Representatives, confirming that they are independent
accountants within the meaning of the Securities Act and the Rules, that the
response to Item 10 of the Registration Statement is correct insofar as it
relates to them and stating in effect that:
(i) in their opinion the audited consolidated financial
statements and financial statement schedules included in the Registration
Statement and the Prospectus and reported on by them comply as to form in
all material respects with the applicable accounting requirements of the
Securities Act and the Rules;
(ii) on the basis of a reading of the amounts included in the
Registration Statement and the Prospectus under the headings "Summary
Consolidated Financial
<PAGE>
and Other Data" and "Selected Consolidated Financial Data," carrying out
certain procedures (but not an examination in accordance with generally
accepted auditing standards) which would not necessarily reveal matters of
significance with respect to the comments set forth in such letter, a
reading of the minutes of the meetings of the stockholders and directors of
the Company, and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company as to
transactions and events subsequent to the date of the latest audited
financial statements, except as disclosed in the Registration Statement and
the Prospectus, nothing came to their attention which caused them to believe
that:
(A) the unaudited financial statements and supporting schedules
of the Company included in the Registration Statement are not presented
on a basis substantially consistent with that of the audited financial
statements included in the Registration Statement;
(B) any material modifications should be made to the unaudited
consolidated financial statements and supporting schedules of the
Company included in the Registration Statement and the Prospectus do
not agree with the corresponding amounts in the audited and unaudited
consolidated financial statements from which such amounts were derived;
or
(C) (i) at January 31, 1998, there was any change in the Capital
Stock, increase in long-term debt or decrease in consolidated assets or
shareholders' equity of the Company, as compared with the amounts shown
on, or derived from, the Company's audited balance sheet for the six
months ended June 30, 1995 and the Company's unaudited balance sheet
for the nine months ended September 30, 1995 included in the
Registration Statement or (ii) for the period from January 1, 1998 to
January 31, 1998 there was any decrease, as compared with the
corresponding period in the preceding year, in consolidated revenues or
in consolidated net income; and
(iii) they have performed certain other procedures as a result of which
they determined that certain information of an accounting, financial or
statistical nature (which is limited to accounting, financial or statistical
information derived from the
<PAGE>
general accounting records of the Company) set forth in the Registration
Statement and the Prospectus and specified by the Representatives agrees
with the accounting records of the Company.
References to the Registration Statement and the Prospectus in this
paragraph (f) are to such documents as amended and supplemented at the date
of the letter.
(g) The Representatives shall have received on each Closing Date an
opinion from Freshman, Marantz, Orlanski, Cooper & Klein, counsel for the
Company, to the effect that:
(i) the Company and each of the Subsidiaries have been duly
organized and are validly existing as corporations in good standing under
the laws of their respective jurisdictions of incorporation and are duly
qualified to transact business as foreign corporations and are in good
standing under the laws of all other jurisdictions where the ownership or
leasing of their respective properties or the conduct of their respective
businesses requires such qualification, except where the failure to be so
qualified would not be reasonably likely to result in a Material Adverse
Effect;
(ii) the Company and each of the Subsidiaries have all requisite
corporate power to own or lease their respective properties and conduct
their respective businesses as described in the Registration Statement and
the Prospectus, and the Company has all requisite corporate power to enter
into, deliver and perform this Agreement and the Warrants and to issue and
sell the Shares and the Warrant Shares, other than those required under the
Securities Act and state and foreign Blue Sky laws;
(iii) the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable and are owned beneficially by the Company free and clear
of any perfected security interests or, to the knowledge of such counsel,
any other security interests, liens, encumbrances or claims;
(iv) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus; all of the issued shares of
capital stock of the Company have been duly authorized and validly issued
and are fully paid and nonassessable, all of the shares of capital stock of
the Company issued since October 2, 1997 have been issued in compliance with
all applicable federal and state securities laws and were not issued in
violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities; each of the Shares and the Warrant
Shares have been duly authorized by all necessary corporate action of the
Company
<PAGE>
and, when issued and delivered to and paid for by the Underwriters pursuant
to this Agreement, will be validly issued, fully paid and nonassessable; the
Shares have been duly included for trading on the Nasdaq National Market; to
the knowledge of such counsel, no holders of outstanding shares of capital
stock of the Company are entitled as such to any preemptive or other rights
to subscribe for any of the Shares; and, to the knowledge of such counsel,
no holders of securities of the Company, other than the Selling Stockholder,
are entitled to have such securities registered under the Registration
Statement;
(v) the statements set forth under the heading "Description of
Capital Stock" in the Prospectus, insofar as such statements purport to
summarize certain provisions of the capital stock of the Company, provide a
fair summary of such provisions; and the statements set forth under the
heading "Shares Eligible for Future Sale" in the Prospectus, insofar as such
statements constitute a summary of the legal matters, documents or
proceedings referred to therein, provide a fair summary of such legal
matters, documents and proceedings in all material respects;
(vi) the execution and delivery of this Agreement and the Warrants
have been duly authorized by all necessary corporate action of the Company,
this Agreement has been, and the Warrants on the Firm Shares Closing Date
will be, duly executed and delivered by the Company, and the Warrants, when
so executed and delivered, will constitute the legal, valid and binding
obligations of the Company, enforceable against the Company in accordance
with their terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
and by general equitable principles;
(vii) to the knowledge of such counsel, (A) no legal or
governmental proceedings are pending to which the Company or any of the
Subsidiaries is a party or to which the property of the Company or any of
the Subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not described therein, and
no such proceedings have been threatened against the Company or any of the
Subsidiaries or with respect to any of their respective properties and
(B) no contract or other document is required to be described in the
Registration Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as required;
(viii) the issuance, offering and sale by the Company of the Firm
Shares to the Underwriters and the Warrants to CIBC Oppenheimer Corp. and
Piper Jaffray Cray Inc., in each case pursuant to this Agreement, the
compliance by the Company with the other provisions of this Agreement and
the Warrants and the consummation of the other transactions contemplated
herein or therein, do not (A) require the consent,
<PAGE>
approval, authorization, registration or qualification of or with any
governmental authority, except such as have been obtained and such as may be
required under state securities or blue sky laws, or (B) conflict with or
result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, lease or
other agreement or instrument known to such counsel to which the Company or
any of the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound, except for
such breaches, violations or defaults the occurrence of which would not be
reasonably likely to result in a Material Adverse Effect, or the charter
documents or by-laws of the Company or any of the Subsidiaries, or, so far
as it is known to such counsel, any statute or any judgment, decree, order,
rule or regulation of any court or other governmental authority or any
arbitrator having jurisdiction over the Company or any of the Subsidiaries;
(ix) the Registration Statement is effective under the Securities Act;
any required filing of the Prospectus, or any Term Sheet that constitutes a
part thereof, pursuant to Rules 434 and 424(b) has been made in the manner
and within the time period required by Rules 434 and 424(b); and, to such
counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and, to
such counsel's knowledge, no proceedings for that purpose have been
instituted or threatened or are contemplated by the Commission;
(x) the Registration Statement originally filed with respect to the
Securities and each amendment thereto, any Rule 462(b) Registration
Statement and the Prospectus (in each case, other than the financial
statements and other financial and statistical information contained
therein, as to which such counsel need express no opinion) comply as to form
in all material respects with the applicable requirements of the Securities
Act and the Rules;
(xi) the Company is not, and the transactions contemplated by this
Agreement will not cause the Company to become, an investment company
subject to registration under the Investment Company Act of 1940, as
amended;
(xii) the specimen stock certificate of the Company filed as an
exhibit to the Registration Statement is in due and proper form to evidence
shares of Common Stock, has been duly authorized and approved by the Board
of Directors of the Company and complies with all legal requirements
applicable under the Delaware General Corporation Law; and
(xiii) the execution and delivery of the merger agreement effecting
the Reincorporation Merger have been duly authorized by all necessary
corporate action on the part of the Company and Merger Sub; the
Reincorporation Merger has been
<PAGE>
consummated and is effective in accordance with Delaware and California law
subject only to confirmation of the acceptance of the filing of the merger
agreement and related certificates by the State of California.
Such counsel shall also state that they have no reason to believe that the
Registration Statement, as of its effective date, contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or the date of such opinion, included or includes any
untrue statement of a material fact or omitted or omits to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of fact,
to the extent such counsel deem(s) proper, on certificates of responsible
officers of the Company and public officials. References to the Registration
Statement and the Prospectus in this paragraph (g) shall include any amendment
or supplement thereto at the date of such opinion.
(h) The Representatives shall have received an opinion, dated the Firm
Closing Date, of Michael A. Boyd, Esq., counsel to the Selling Stockholder, to
the effect that:
(i) the Selling Stockholder has full corporate power to enter into
this Agreement and the Custody Agreement and to sell, transfer and deliver
the Firm Shares being sold by the Selling Stockholder hereunder in the
manner provided in this Agreement and to perform its obligations under the
Custody Agreement; the execution and delivery of this Agreement and the
Custody Agreement have been duly authorized by all necessary corporate
action of the Selling Stockholder; this Agreement and the Custody Agreement
have been duly executed and delivered by the Selling Stockholder; assuming
due authorization, execution and delivery by the Agent, the Custody
Agreement is the legal, valid and binding agreement of the Selling
Stockholder, enforceable against the Selling Stockholder in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other similar laws affecting the enforcement of creditors' rights generally
and by general equitable principles;
(ii) the delivery by the Selling Stockholder to the several
Underwriters of certificates for the Firm Shares being sold hereunder by the
Selling Stockholder against payment therefor as provided herein, will convey
good and marketable title to such Firm Shares to the several Underwriters,
free and clear of all security interests, liens, encumbrances, equities or
claims to each of the several Underwriters who have purchased such Firm
Shares in good faith and without notice of any such
<PAGE>
security interest, lien, encumbrance, equity or claim or other adverse claim
within the meaning of the Uniform Commercial Code as in effect in the State
of New York; and
(iii) the sale of the Firm Shares to the Underwriters by the Selling
Stockholder pursuant to this Agreement, the compliance by the Selling
Stockholder with the other provisions of this Agreement and the Custody
Agreement and the consummation of the other transactions herein contemplated
do not (i) require the consent, approval, authorization, registration or
qualification of or with any governmental authority, except such as have
been obtained and such as may be required under state securities or blue sky
laws, or (ii) conflict with or result in a breach or violation of any of the
terms and provisions of, or constitute a default under any indenture,
mortgage, deed of trust, lease or other agreement or instrument to which the
Selling Stockholder or any of its subsidiaries is a party or by which the
Selling Stockholder or any of its subsidiaries or any of their respective
properties are bound, or the charter documents or by-laws of the Selling
Stockholder or any of its subsidiaries, so far as is known to such counsel,
or any statute, judgment, decree, order, rule or regulation of any court or
other governmental authority or any arbitrator applicable to the Selling
Stockholder or any of its subsidiaries.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deem(s) proper, on certificates of responsible
officers of the Selling Stockholder and public officials. References to the
Registration Statement and the Prospectus in this paragraph (h) shall include
any amendment or supplement thereto at the date of such opinion.
(i) All proceedings taken in connection with the sale of the Firm
Shares, the Warrants and the Option Shares as herein contemplated shall be
reasonably satisfactory in form and substance to the Representatives and their
counsel and the Underwriters shall have received from Gibson, Dunn & Crutcher
LLP a favorable opinion, addressed to the Representatives and dated such Closing
Date, with respect to the Warrants, the Shares, the Registration Statement and
the Prospectus, and such other related matters, as the Representatives may
reasonably request, and the Company shall have furnished to Gibson, Dunn &
Crutcher LLP such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
<PAGE>
6. ADDITIONAL COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDER.
---------------------------------------------------------------
(A) The Company covenants and agrees as follows:
(a) The Company shall prepare the Prospectus in a form approved by the
Representatives and file such Prospectus pursuant to Rule 424(b) under the
Securities Act not later than the Commission's close of business on the second
business day following the execution and delivery of this Agreement, or, if
applicable, such earlier time as may be required by Rule 430A(a)(3) under the
Securities Act, and shall promptly advise the Representatives (i) when any
amendment to the Registration Statement shall have become effective, (ii) of any
request by the Commission for any amendment of the Registration Statement or the
Prospectus or for any additional information, (iii) of the prevention or
suspension of the use of any preliminary prospectus or the Prospectus or of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening of any proceeding for
that purpose and (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose. The Company shall not file or prepare any amendment of the
Registration Statement or supplement to the Prospectus unless the Company has
furnished the Representatives a copy for its review within a reasonable amount
of time prior to filing or use and shall not file or use any such proposed
amendment or supplement to which the Representatives reasonably object. The
Company shall use its best efforts to prevent the issuance of any such stop
order and, if issued, to obtain as soon as possible the withdrawal thereof.
(b) If, at any time when a prospectus relating to the Shares is
required to be delivered under the Securities Act and the Rules, any event
occurs as a result of which the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, or if it shall be necessary to amend
or supplement the Prospectus to comply with the Securities Act or the Rules, the
Company promptly shall notify the Representatives and prepare and file with the
Commission, subject to the second sentence of paragraph (a) of this Section 6,
an amendment or supplement that shall correct such statement or omission or an
amendment that shall effect such compliance.
(c) The Company shall make generally available to its security holders
and to the Representatives as soon as practicable, but not later than 45 days
after the end of the 12-month period beginning at the end of the fiscal quarter
of the Company during which the "effective date" (as defined in Rule 158 of the
Rules) of the Registration Statement occurs (or 90 days if such 12-month period
coincides with the Company's fiscal year), an earnings statement (which need not
be audited) of the Company, covering such 12-month period,
<PAGE>
which shall satisfy the provisions of Section 11(a) of the Securities Act and
Rule 158 of the Rules.
(d) The Company shall furnish to the Representatives and counsel for
the Underwriters, without charge, signed copies of the Registration Statement
(including all exhibits thereto and amendments thereof) and to each other
Underwriter a copy of the Registration Statement (without exhibits thereto) and
all amendments thereof and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Securities Act or the Rules, as
many copies of any Preliminary Prospectus and the Prospectus and any amendments
thereof and supplements thereto as the Representatives may reasonably request.
(e) The Company shall cooperate with the Representatives and their
counsel in endeavoring to qualify the Shares for offer and sale under the laws
of such jurisdictions as the Representatives may designate and shall maintain
such qualifications in effect so long as required for the distribution of the
Shares; provided, however, that the Company shall not be required in connection
-------- -------
therewith, as a condition thereof, to qualify as a foreign corporation or to
execute a general consent to service of process in any jurisdiction or subject
itself to taxation as doing business in any jurisdiction. In each jurisdiction
in which the Shares have been so qualified, the Company will file such
statements and reports as may be required by the laws of such jurisdiction to
continue such qualification in effect for a period of not less than one year
from the effective date of the Registration Statement.
(f) For a period of five years after the date of this Agreement, the
Company shall supply to the Representatives, and to each other Underwriter who
may so request in writing, copies of such financial statements and other
periodic and special reports as the Company may from time to time distribute
generally to the holders of any class of its capital stock and to furnish to the
Representatives a copy of each annual or other report it shall be required to
file with the Commission.
(g) Without the prior written consent of CIBC Oppenheimer Corp. for a
period of 180 days after the date of this Agreement, the Company shall not
issue, sell or register with the Commission (other than on Form S-8 or on any
successor form thereto), or otherwise dispose of, directly or indirectly, any
equity securities of the Company (or any securities convertible into or
exercisable or exchangeable for equity securities of the Company), except for
the issuance of the Shares pursuant to the Registration Statement the issuance
of shares of Common Stock pursuant to the Company's existing stock option plan
in the form filed as an exhibit to the Registration Statement. In the event
that during this period, (i) any shares are issued pursuant to the Company's
existing stock option plan or (ii) any registration is effected on Form S-8 or
on any successor form thereto, the Company shall obtain the written agreement of
such grantee or purchaser or holder of such registered securities that, for a
period of 180 days after the date of this Agreement, such person will not,
without the prior written consent of CIBC Oppenheimer Corp., offer for sale,
sell, distribute,
<PAGE>
grant any option for the sale of, or otherwise dispose of, directly or
indirectly, or exercise any registration rights with respect to, any shares of
Common Stock (or any securities convertible into, exercisable for, or
exchangeable for any shares of Common Stock) owned by such person.
(h) On or before completion of this offering, the Company shall make
all filings required under applicable securities laws and by the Nasdaq National
Market (including any required registration under the Exchange Act).
[(i) Prior to a Closing Date, the Company will not issue, directly or
indirectly, without the Representatives' prior written consent which shall not
be unreasonably withheld, any press release or other communication or hold any
press conference with respect to the Company or its activities or this offering,
other than trade releases issued in the ordinary course of the Company's
business with respect to the Company's operations.]
(j) The Company will comply with all of the provisions of any
undertakings contained in the Prospectus or the Registration Statement.
(k) The Company will apply the net proceeds from the sale of the
Shares substantially in accordance with the description set forth in the
Prospectus.
(l) Except as stated in this Agreement and in the Prospectus, the
Company will not take, directly or indirectly (except for any action taken by
the Underwriters), any action designed to or that might reasonably be expected
to cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(m) The Company and the Selling Stockholder (on the basis of __% and
__%, respectively) agree to pay, or reimburse if paid by the Representatives,
whether or not the transactions contemplated hereby are consummated or this
Agreement is terminated, all costs and expenses incident to the public offering
of the Shares and the performance of the obligations of the Company and the
Selling Stockholder under this Agreement including those relating to: (i) the
preparation, printing, filing and distribution of the Registration Statement
including all exhibits thereto, each preliminary prospectus, the Prospectus, all
amendments and supplements to the Registration Statement and the Prospectus, and
the printing, filing and distribution of this Agreement; (ii) the preparation
and delivery of certificates for the Shares to the Representatives and the
Underwriters and the Warrants to CIBC Oppenheimer Corp. and Piper Jaffray Inc.;
(iii) the registration or qualification of the Shares for offer and sale under
the securities or Blue Sky laws of the various jurisdictions referred to in
Section 6(e), including the reasonable fees and disbursements of counsel for the
Underwriters in connection with such registration and qualification and the
preparation, printing, distribution and shipment of preliminary and
supplementary Blue Sky memoranda; (iv) the furnishing (including costs of
shipping and mailing) to the Representatives and to
<PAGE>
the Underwriters of copies of each preliminary prospectus, the Prospectus and
all amendments or supplements to the Prospectus, and of the several documents
required by this Section to be so furnished, as may be reasonably requested for
use in connection with the offering and sale of the Shares by the Underwriters
or by dealers to whom Shares may be sold; (v) the filing fees of the National
Association of Securities Dealers, Inc. in connection with its review of the
terms of the public offering; (vi) the furnishing (including costs of shipping
and mailing) to the Representatives and to the Underwriters of copies of all
reports and information required by Section 6(f); (vii) inclusion of the Shares
for listing on the Nasdaq National Market; and (viii) all transfer taxes, if
any, with respect to the sale and delivery of the Shares by the Company and the
Selling Stockholder to the Underwriters.
(B) The Selling Stockholder agrees with the several Underwriters as follows:
(a) As soon as such Selling Stockholder is advised thereof, such
Selling Stockholder will advise CIBC Oppenheimer Corp. and confirm such advice
in writing of (i) receipt by such Selling Stockholder, or by any representative
of such Selling Stockholder, of any communication from the Commission relating
to the Registration Statement, the Prospectus or any Preliminary Prospectus, or
any notice or order of the Commission received by such Selling Stockholder
relating to the Company or such Selling Stockholder and (ii) the happening of
any event during the period from and after the effective date of the
Registration Statement that, in the reasonable judgment of such Selling
Stockholder, makes any statement made in the Registration Statement or the
Prospectus in reliance on written information furnished by the Selling
Stockholder untrue or that requires the making of any change in the Registration
Statement or the Prospectus in order to make such statements, in light of the
circumstances in which they were made, not misleading.
(b) Such Selling Stockholder will deliver to CIBC Oppenheimer Corp.,
prior to the effective date of the Registration Statement, a properly completed
and executed United States Treasury Department Form W-9 (or other applicable
form or statement specified by Treasury Department regulations in lieu thereof).
7. INDEMNIFICATION.
---------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act against any
and all losses, claims, damages and liabilities, joint or several (including any
reasonable investigation, legal and other expenses incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other Federal or state law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact
<PAGE>
contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto, or arise out of or
are based upon any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
benefit of any Underwriter (or any person controlling such Underwriter) on
account of any losses, claims, damages or liabilities arising from the sale of
the Shares to any person by such Underwriter if such untrue statement or
omission or alleged untrue statement or omission was made in such Preliminary
Prospectus, the Registration Statement or the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with information furnished in
writing to the Company by the Representatives on behalf of any Underwriter
specifically for use therein and provided, further, that with respect to any
Preliminary Prospectus, the foregoing indemnification shall not inure to the
benefit of any Underwriter from whom the person asserting any loss, claim,
damage, liability or expense purchased Shares, or to any person controlling such
Underwriter, if copies of the Prospectus were timely delivered to such
Underwriter pursuant to the terms hereof and a copy of the Prospectus (as then
amended or supplemented if the Company shall have timely furnished any
amendments or supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law to have been so delivered, at or
prior to the written confirmation of the sale of the Shares to such person, and
if such Prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage, liability or expense. This indemnity
agreement will be in addition to any liability which the Company may otherwise
have.
(b) The Selling Stockholder agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
against any and all losses, claims, damages and liabilities, joint or several
(including any reasonable investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they, or any of them, may become
subject under the Securities Act, the Exchange Act or other Federal or state law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact based on written information
furnished by or on behalf of the Selling Stockholder and contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto, or arise out of or are based upon any
omission or alleged omission by the Selling Stockholder to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading. This indemnity agreement will be in addition to any
liability which the Selling Stockholder may otherwise have. In no event,
however, shall the liability of the Selling Stockholder for indemnification
under this Section 7(b) exceed the net proceeds received by the Selling
Stockholder from the Underwriters in the offering.
<PAGE>
(c) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company and each Selling Stockholder, each person, if any,
who controls the Company or such Selling Stockholder within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act, and each of
their respective partners, directors, officers (if the Selling Stockholder is
not an individual) and each person who signs the Registration Statement, to the
same extent as the foregoing indemnity from the Company and the Selling
Stockholder to each Underwriter, but only insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, contained in the last paragraph of the
cover page, in the paragraph relating to stabilization on the inside front cover
page of the Prospectus and the statements contained under the caption
"Underwriting" in the Prospectus; provided, however, that the obligation of each
Underwriter to indemnify the Company and the Selling Stockholder (including any
of their respective controlling persons, directors or officers) shall be limited
in the aggregate to the net proceeds received by the Company from such
Underwriter.
(d) Any party that proposes to assert the right to be indemnified
under this Section will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim is to
be made against an indemnifying party or parties under this Section, notify each
such indemnifying party of the commencement of such action, suit or proceeding,
enclosing a copy of all papers served. No indemnification provided for in
Section 7(a), 7(b) or 7(c) shall be available to any party who shall fail to
give notice as provided in this Section 7(d) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have related and
was prejudiced by the failure to give such notice but the omission so to notify
such indemnifying party of any such action, suit or proceeding shall not relieve
it from any liability that it may have to any indemnified party for contribution
or otherwise than under this Section. In case any such action, suit or
proceeding shall be brought against any indemnified party and it shall notify
the indemnifying party of the commencement thereof, the indemnifying party shall
be entitled to participate in, and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and the approval by the indemnified
party of such counsel, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses, except as provided below and
except for the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified party
shall have the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (ii) the indemnified party
shall have reasonably concluded, based on the advice of its counsel, that
<PAGE>
there may be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which case
the indemnifying parties shall not have the right to direct the defense of such
action on behalf of the indemnified party) or (iii) the indemnifying parties
shall not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which cases
the fees and expenses of counsel shall be at the expense of the indemnifying
parties, it being understood, however, that the indemnifying parties shall not
be liable for the expenses of more than one separate counsel, which counsel
shall be reasonably approved by the indemnifying parties. An indemnifying party
shall not be liable for any settlement of any action, suit, proceeding or claim
effected without its written consent.
8. CONTRIBUTION. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnification provided for in
Section 7(a) and 7(b) is due in accordance with its terms but for any reason is
held to be unavailable from the Company or the Selling Stockholder, the Company,
the Selling Stockholder, and the Underwriters shall contribute to the aggregate
losses, claims, damages and liabilities (including any investigation, legal and
other expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted, but after
deducting any contribution received by the Company or the Selling Stockholder
from persons other than the Underwriters, such as persons who control the
Company or the Selling Stockholder within the meaning of the Securities Act,
officers of the Company who signed the Registration Statement and directors of
the Company, who may also be liable for contribution) to which the Company, the
Selling Stockholder and one or more of the Underwriters may be subject in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Selling Stockholder on the one hand and the Underwriters on the
other from the offering of the Shares or, if such allocation is not permitted by
applicable law or indemnification is not available as a result of the
indemnifying party not having received notice as provided in Section 7 hereof,
in such proportion as is appropriate to reflect not only the relative benefits
referred to above but also the relative fault of the Company and the Selling
Stockholder on the one hand and the Underwriters on the other in connection with
the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company, the Selling Stockholder and the
Underwriters shall be deemed to be in the same proportion as (x) the total
proceeds from the offering (net of underwriting discounts but before deducting
expenses) received by the Company, and the Selling Stockholder, as set forth in
the table on the cover page of the Prospectus, bear to (y) the underwriting
discounts received by the Underwriters, as set forth in the table on the cover
page of the Prospectus. The relative fault of the Company, the Selling
Stockholder or the Underwriters shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact
related to information supplied by the Company and the Selling Stockholder or
the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Stockholder and the Underwriters agree that it would
not be just and equitable if contribution
<PAGE>
pursuant to this Section 8 were determined by pro rata allocation (even if the
Underwriters were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to above. Notwithstanding the provisions of this Section 8, (i) in no
case shall any Underwriter (except as may be provided in the Agreement Among
Underwriters) be liable or responsible for any amount in excess of the
underwriting discount applicable to the Shares purchased by such Underwriter
hereunder, and (ii) the Company and the Selling Stockholder shall be
proportionately liable and responsible for any amount in excess of such
underwriting discount; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 8, each person, if
any, who controls an Underwriter within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act shall have the same rights
to contribution as such Underwriter, and each person, if any, who controls the
Company or the Selling Stockholder within the meaning of the Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, each officer of the Company
who shall have signed the Registration Statement and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to clauses (i) and (ii) in the immediately preceding sentence of this
Section 8. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against another party or
parties under this Section, notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties from whom
contribution may be sought shall not relieve the party or parties from whom
contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section 8. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its written consent. The Underwriter's obligations to contribute
pursuant to this Section 8 are several in proportion to their respective
underwriting commitments and not joint.
9. TERMINATION. This Agreement may be terminated with respect to
-----------
the Shares to be purchased on a Closing Date by the Representatives by notifying
the Company at any time
(a) in the sole and absolute discretion and judgment of the
Representatives at or before any Closing Date: (i) if the Company or any
Subsidiary shall have sustained a material or substantial loss by fire, flood,
accident, hurricane, earthquake, theft, sabotage or other calamity or malicious
act which, whether or not said loss shall have been insured, will make it
inadvisable to proceed with the offering; (ii) if there has been, since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, any material adverse change in the operations, earnings,
properties or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole, whether or not arising in the ordinary course of
business; (iii) if on or prior to such date, any domestic or international event
or act or occurrence has materially disrupted, or in the opinion of the
Representatives will in the future materially disrupt, the securities markets;
(iv) if there has occurred any new outbreak or material escalation of
hostilities or other
<PAGE>
calamity or crisis the effect of which on the financial markets of the United
States is such as to make it, in the judgment of the Representatives,
inadvisable to proceed with the offering; (v) if there shall be such a material
adverse change in general financial, political or economic conditions or the
effect of international conditions on the financial markets in the United States
is such as to make it, in the judgment of the Representatives, inadvisable or
impracticable to market the Shares; (vi) if trading in the Shares has been
suspended by the Commission or trading generally on the New York Stock Exchange,
Inc. or on the American Stock Exchange, Inc. has been suspended or limited, or
minimum or maximum ranges for prices for securities shall have been fixed, or
maximum ranges for prices for securities have been required, by said exchanges
or by order of the Commission, the National Association of Securities Dealers,
Inc., or any other governmental or regulatory authority; or (vii) if a banking
moratorium has been declared by any state or Federal authority, the effect of
which is to make it, in the judgment of the Representatives, inadvisable or
impracticable to proceed with the offering; or
(b) at or before any Closing Date, that any of the conditions
specified in Section 5 shall not have been fulfilled when and as required by
this Agreement.
If this Agreement is terminated pursuant to any of its provisions, the
Company and the Selling Stockholder shall not be under any liability to any
Underwriter, and no Underwriter shall be under any liability to the Company or
the Selling Stockholder, except that (y) if this Agreement is terminated by the
Representatives or the Underwriters because of any failure, refusal or inability
on the part of the Company or the Selling Stockholder to comply with the terms
or to fulfill any of the conditions of this Agreement, the Company and the
Selling Stockholder (on the basis of __% and __%, respectively) will reimburse
the Underwriters for all actual out-of-pocket expenses (including the reasonable
fees and disbursements of their counsel) incurred by them in connection with the
proposed purchase and sale of the Shares or in contemplation of performing their
obligations hereunder, up to a maximum of $150,000; provided, however, that the
-------- -------
Company and the Selling Stockholder shall not in such circumstances be liable to
any of the Underwriters for loss of anticipated profits from the transactions
contemplated by this Agreement, and (z) no Underwriter who shall have failed or
refused to purchase the Shares agreed to be purchased by it under this
Agreement, without some reason sufficient hereunder to justify cancellation or
termination of its obligations under this Agreement, shall be relieved of
liability to the Company, the Selling Stockholder or to the other Underwriters
for damages occasioned by its failure or refusal.
10. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
----------------------------
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representatives may find one or more substitute underwriters
to purchase such Shares or make such other arrangements as the Representatives
may deem advisable or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth
<PAGE>
in this Agreement. If no such arrangements have been made by the close of
business on the business day following such Closing Date,
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then each of
the nondefaulting Underwriters shall be obligated to purchase such Shares on the
terms herein set forth in proportion to their respective obligations hereunder;
provided, that in no event shall the maximum number of Shares that any
Underwriter has agreed to purchase pursuant to Section 1 be increased pursuant
to this Section 10 by more than one-ninth of such number of Shares without the
written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all the
Underwriters are obligated to purchase on such Closing Date, then the Company
and the Selling Stockholder shall be entitled to an additional business day
within which they may, but are not obligated to, find one or more substitute
underwriters reasonably satisfactory to the Representatives to purchase such
Shares upon the terms set forth in this Agreement.
In any such case, the Representatives, the Company or the Selling
Stockholder shall have the right to postpone the applicable Closing Date for a
period of not more than five business days in order that necessary changes and
arrangements (including any necessary amendments or supplements to the
Registration Statement or Prospectus) may be effected by the Representatives,
the Company and the Selling Stockholder. If the number of Shares to be
purchased on such Closing Date by such defaulting Underwriter or Underwriters
shall exceed 10% of the Shares that all the Underwriters are obligated to
purchase on such Closing Date, and none of the nondefaulting Underwriters, the
Company or the Selling Stockholder shall make arrangements pursuant to this
Section within the period stated for the purchase of the Shares that the
defaulting Underwriters agreed to purchase, this Agreement shall terminate with
respect to the Shares to be purchased on such Closing Date without liability on
the part of any nondefaulting Underwriter to the Company and the Selling
Stockholder and without liability on the part of the Company and the Selling
Stockholder, except in both cases as provided in the last paragraph of Section 6
and in Sections 7, 8 and 9. The provisions of this Section shall not in any way
affect the liability of any defaulting Underwriter to the Company and the
Selling Stockholder or the nondefaulting Underwriters arising out of such
default. A substitute underwriter hereunder shall become an Underwriter for all
purposes of this Agreement.
11. MISCELLANEOUS. The respective agreements, representations,
-------------
warranties, indemnities and other statements of the Company or its officers, of
the Selling Stockholder and of the Underwriters set forth in or made pursuant to
this Agreement shall remain in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter, the Company or the
Selling Stockholder or any of the officers, directors or controlling persons
referred to in Sections 7 and 8 hereof, and shall survive delivery of and
payment for the Shares. The provisions of the last
<PAGE>
paragraph of Section 6 and of Sections 7, 8 and 9 shall survive the termination
or cancellation of this Agreement.
This Agreement has been and is made for the benefit of the
Underwriters, the Company and the Selling Stockholder and their respective
successors and assigns, and, to the extent expressed herein, for the benefit of
persons controlling any of the Underwriters or the Company, and directors and
officers of the Company, and their respective successors and assigns, and no
other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include any purchaser of
Shares from any Underwriter merely because of such purchase.
All notices and communications hereunder shall be in writing and
mailed or delivered or by telephone or telegraph if subsequently confirmed in
writing, (a) if to the Representatives, c/o CIBC Oppenheimer Corp., World
Financial Center, 200 Liberty Street, New York, NY 10281, Attention: General
Counsel, (b) if to the Company, to its agent for service as such agent's address
appears on the cover page of the Registration Statement, with a copy to
Freshman, Marantz, Orlanski, Cooper & Klein, 9100 Wilshire Boulevard, 8th Floor
East, Beverly Hills, California 90212, Attention: Thomas J. Poletti, Esq., and
(c) if to the Selling Stockholder, to Donaldson, Lufkin & Jenrette Mortgage
Capital, Inc., 277 Park Avenue, New York, New York 10172. Attention: N. Dante
LaRocca, Senior Vice President.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York without regard to principles of conflict of
laws.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
BNC MORTGAGE, INC.
By:
Title:
DLJ MORTGAGE CAPITAL, INC.
By:
Title:
Confirmed:
CIBC OPPENHEIMER CORP.
PIPER JAFFRAY INC.
Acting severally on their behalf and
as representatives of the several Underwriters
named in Schedule I annexed hereto.
By: CIBC OPPENHEIMER CORP.
By:
Title:
<PAGE>
SCHEDULE I
Name Number of
- ---- Firm Shares to
Be Purchased
--------------
CIBC Oppenheimer Corp.
Piper Jaffray Inc.
--------------
Total:
--------------
<PAGE>
EXHIBIT 1.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD
OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT.
VOID AFTER 5:00 P.M., NEW YORK TIME, ON MARCH ____, 2003 OR IF NOT A BUSINESS
DAY, AS DEFINED HEREIN, AT 5:00 P.M., NEW YORK TIME, ON THE NEXT FOLLOWING
BUSINESS DAY.
WARRANT TO PURCHASE
___________ SHARES OF COMMON STOCK
NO. 1
WARRANT TO PURCHASE
COMMON STOCK
OF
BNC MORTGAGE, INC.
TRANSFER RESTRICTED -- SEE SECTION 5.02
This certifies that, for good and valuable consideration, CIBC
Oppenheimer Corp., and its registered, permitted assigns [NOTE: SEPARATE
WARRANT TO BE ISSUED TO PIPER JAFFRAY INC.] (collectively, the "Warrantholder"),
is entitled to purchase from BNC Mortgage, Inc., a Delaware corporation (the
"Company"), subject to the terms and conditions hereof, at any time on or after
9:00 A.M., New York time, on March ____, 1999, and before 5:00 P.M., New York
time, on March ____, 2003 (or, if such day is not a Business Day, at or before
5:00 P.M., New York time, on the next following Business Day), the number of
fully paid and non-assessable shares of Common Stock stated above at the
Exercise Price. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as provided in Article III
hereof.
ARTICLE I
SECTION 1.01: DEFINITION OF TERMS. As used in this Warrant, the
------------ -------------------
following capitalized terms shall have the following respective meanings:
(a) Business Day: A day other than a Saturday, Sunday or other day on
------------
which banks in the State of New York are authorized by law to remain closed.
(b) Common Stock: Common Stock, $.01 par value per share, of the
------------
Company.
(c) Common Stock Equivalents: Securities that are convertible into or
------------------------
exercisable for shares of Common Stock.
<PAGE>
(d) Demand Registration: See Section 6.02.
-------------------
(e) Exchange Act: The Securities Exchange Act of 1934, as amended
------------
from time to time.
(f) Exercise Price: $[_____________] per Warrant Share, as such price
--------------
may be adjusted from time to time pursuant to Article III hereof.
(g) Expiration Date: 5:00 P.M., New York time, on March ____, 2003 or
---------------
if such day is not a Business Day, the next succeeding day which is a Business
Day.
(h) 25% Holders: At any time as to which a Demand Registration is
-----------
requested, the Holder and/or the holders of any other Warrants and/or the
holders of Warrant Shares who have the right to acquire or hold, as the case may
be, not less than 25% of the combined total of Warrant Shares issuable and
Warrant Shares outstanding at the time such Demand Registration is requested.
(i) Holder: A Holder of Registrable Securities.
------
(j) NASD: National Association of Securities Dealers, Inc.; and
----
NASDAQ: NASD Automatic Quotation System.
- ------
(k) Person: An individual, partnership, joint venture, corporation,
------
trust, unincorporated organization or government or any department or agency
thereof.
(l) Piggyback Registration: See Section 6.01.
----------------------
(m) Prospectus: Any prospectus included in any Registration
----------
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Registration Statement and all other amendments and supplements
to the Prospectus, including post-effective amendments and all material
incorporated by reference in such Prospectus.
(n) Public Offerings: A public offering of any of the Company's
----------------
equity or debt securities pursuant to a registration statement under the
Securities Act.
(o) Registration Expenses: Any and all expenses incurred in
---------------------
connection with any registration or action incident to performance of or
compliance by the Company with Article VI, including, without limitation,
(i) all SEC, national securities exchange and NASD registration and filing fees;
all listing fees and all transfer agent fees; (ii) all fees and expenses of
complying with state securities or blue sky laws (including the fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of
<PAGE>
the Registrable Securities; (iii) all printing, mailing, messenger and delivery
expenses and (iv) all fees and disbursements of counsel for the Company and of
its accountants, including the expenses of any special audits and/or "cold
comfort" letters required by or incident to such performance and compliance, but
excluding underwriting discounts and commissions, brokerage fees and transfer
taxes, if any, and fees of counsel or accountants retained by the holders of
Registrable Securities to advise them in their capacity as Holders of
Registrable Securities.
(p) Registrable Securities: Any Warrant Shares issued to CIBC
----------------------
Oppenheimer Corp. and Piper Jaffray Inc. and/or their designees or transferees
as permitted under Section 5.02 and/or other securities that may be or are
issued by the Company upon exercise of this Warrant, including those which may
thereafter be issued by the Company in respect of any such securities by means
of any stock splits, stock dividends, recapitalizations, reclassifications or
the like, and as adjusted pursuant to Article III hereof.
(q) Registration Statement: Any registration statement of the Company
----------------------
filed or to be filed with the SEC which covers any of the Registrable Securities
pursuant to the provisions of this Agreement, including all amendments
(including post-effective amendments) and supplements thereto, all exhibits
thereto and all material incorporated therein by reference.
(r) SEC: The Securities and Exchange Commission or any other federal
---
agency at the time administering the Securities Act or the Exchange Act.
(s) Securities Act: The Securities Act of 1933, as amended from time
--------------
to time.
(t) Transfer: See Section 5.02.
--------
(u) Warrants: This Warrant, all other warrants issued on the date
--------
hereof and all other warrants that may be issued in its or their place (together
evidencing the right to purchase an aggregate of [ ] shares of Common Stock),
originally issued as set forth in the definition of Registrable Securities.
(v) Warrantholder: The person(s) or entity(ies) to whom this Warrant
-------------
is originally issued, or any successor in interest thereto, or any assignee or
transferee thereof, in whose name this Warrant is registered upon the books to
be maintained by the Company for that purpose.
(w) Warrant Shares: Common Stock, Common Stock Equivalents and other
--------------
securities purchased or purchasable upon exercise of the Warrants.
<PAGE>
ARTICLE II
DURATION AND EXERCISE OF WARRANT
--------------------------------
SECTION 2.01: DURATION OF WARRANT. Subject to the limitations
------------ -------------------
specified in (S) 2.02.(a)(ii) regarding a Cashless Exercise, the Warrantholder
may exercise this Warrant at any time and from time to time after 9:00 A.M., New
York time, on March___, 1999, and before 5:00 P.M., New York time, on the
Expiration Date. If this Warrant is not exercised on or prior to the Expiration
Date, it shall become void, and all rights hereunder shall thereupon cease.
SECTION 2.02: EXERCISE OF WARRANT.
------------ -------------------
(a) The Warrantholder may exercise this Warrant, in whole or in part,
as follows:
(i) By presentation and surrender of this Warrant to the Company
at its principal executive offices or at the office of its stock
transfer agent, if any, with the Subscription Form annexed hereto
duly executed and accompanied by payment of the full Exercise Price
for each Warrant Share to be purchased; or
(ii) By presentation and surrender of this Warrant to the Company
at its principal executive offices with a Cashless Exercise Form
annexed hereto duly executed (a "Cashless Exercise"). In the event of
a Cashless Exercise, the Warrantholder shall exchange its warrant for
that number of shares of Common Stock determined by multiplying the
number of Warrant Shares by a fraction, the numerator of which shall
be the amount by which the then current market price per share of
Common Stock exceeds the Exercise Price, and the denominator of which
shall be the then current market price per share of Common Stock. For
purposes of any computation under this Section 2.02(a)(ii), the then
current market price per share of Common Stock at any date shall be
deemed to be the average of the daily closing prices for 20
consecutive trading days commencing 30 trading days before such date.
The closing price for each day shall be the last sale price regular
way or, in case no such reported sales take place on such day, the
average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which
the Common Stock is admitted to trading or listed, or if not listed
or admitted to trading on any such exchange, the representative
closing bid price as reported by NASDAQ, or other similar
organization if NASDAQ is no longer reporting such information, or if
not so available, the fair market price as determined by the Board of
Directors of the Company.
(b) Upon receipt of this Warrant, in the case of Section 2.02 (a) (i),
with the Subscription Form duly executed and accompanied by payment of the
aggregate Exercise Price for the Warrant Shares for which this Warrant is then
being exercised, or, in the case
<PAGE>
of Section 2.02 (a) (ii), with the Cashless Exercise Form duly executed,
the Company shall cause to be issued certificates for the total number of
whole shares of Common Stock for which this Warrant is being exercised
(adjusted to reflect the effect of the anti-dilution provisions contained
in Article III hereof, if any, and as provided in Section 2.04 hereof) in
such denominations as are requested for delivery to the Warrantholder, and
the Company shall thereupon deliver such certificates to the Warrantholder.
The Warrantholder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually
delivered to the Warrantholder. If at the time this Warrant is exercised, a
Registration Statement is not in effect to register under the Securities
Act the issuance of the Warrant Shares upon exercise of this Warrant, the
Company may require the Warrantholder to make such representations, and may
place such legends on certificates representing the Warrant Shares, as may
be reasonably required in the opinion of counsel to the Company to permit
the Warrant Shares to be issued without such registration.
(c) In case the Warrantholder shall exercise this Warrant with respect
to less than all of the Warrant Shares that may be purchased under this
Warrant, the Company shall execute a new warrant in the form of this
Warrant for the balance of such Warrant Shares and deliver such new warrant
to the Warrantholder.
(d) The Company shall pay any and all stock transfer and similar taxes
which may be payable in respect of the issue of this Warrant or in respect
of the issue of any Warrant Shares; provided, however, that the Company
shall not-be required to pay any tax which may be payable in
respect of any transfer of this Warrant, or the Warrant Shares, by any
Warrantholder.
SECTION 2.03: RESERVATION OF SHARES. The Company hereby agrees
------------- ---------------------
that at all times there shall be reserved for issuance and delivery upon
exercise of this Warrant such number of shares of Common Stock or other shares
of capital stock of the Company from time to time issuable upon exercise of this
Warrant. All such shares shall be duly authorized, and when issued upon such
exercise, shall be validly issued, fully paid and nonassessable, free and clear
of all liens, security interests, charges and other encumbrances or restrictions
on sale and free and clear of all preemptive rights (except the restrictions
imposed by the legend appearing at the top of Page 1 of this Warrant).
SECTION 2.04: FRACTIONAL SHARES. The Company shall not be required
------------- -----------------
to issue any fraction of a share of its capital stock in connection with the
exercise of this Warrant, and in any case where the Warrantholder would, except
for the provisions of this Section 2.04, be entitled under the terms of this
Warrant to receive a fraction of a share upon the exercise of this Warrant, the
Company shall, upon the exercise of this Warrant and tender of the Exercise
Price (as adjusted to cover the balance of the share), issue the larger number
of whole shares purchasable upon exercise of this Warrant. The Company shall not
be required to make any cash or other adjustment in respect of such fraction
<PAGE>
of a share to which the Warrantholder would otherwise be entitled.
SECTION 2.05: LISTING. Prior to the issuance of any shares of
------------- -------
Common Stock upon exercise of this Warrant, the Company shall secure the listing
of such shares of Common Stock upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance upon exercise of this Warrant)
and shall maintain, so long as any other shares of Common Stock shall so be
listed, such listing of all shares of Common Stock from time to time issuable
upon the exercise of this Warrant; and the Company shall so list on each
national securities exchange or automated quotation system, and shall maintain
such listing of, any other shares of capital stock of the Company issuable upon
the exercise of this Warrant if and so long as any shares of the same class
shall be listed on such national securities exchange or automated quotation
system.
ARTICLE III
ADJUSTMENT OF SHARES OF COMMON STOCK PURCHASABLE AND OF EXERCISE PRICE
----------------------------------------------------------------------
The Exercise Price and the number and kind of Warrant Shares shall be
subject to adjustment from time to time upon the happening of certain events as
provided in this Article III.
SECTION 3.01: MECHANICAL ADJUSTMENTS.
------------- ----------------------
(a) If at any time prior to the exercise of this Warrant in full, the
Company shall (i) declare a dividend or make a distribution on the Common
Stock payable in shares of its capital stock (whether shares of Common
Stock or of capital stock of any other class); (ii) subdivide, reclassify
or recapitalize outstanding Common Stock into a greater number of shares;
(iii) combine, reclassify or recapitalize its outstanding Common Stock
into a smaller number of shares; or (iv) issue any shares of its capital
stock by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or a merger in which
the Company is the continuing corporation), the Exercise Price in effect
at the time of the record date of such dividend, distribution,
subdivision, combination, reclassification or recapitalization shall be
adjusted so that the Warrantholder shall be entitled to receive the
aggregate number and kind of shares which, if this Warrant had been
exercised in full immediately prior to such event, it would have owned
upon such exercise and been entitled to receive by virtue of such
dividend, distribution, subdivision, combination, reclassification or
recapitalization. Any adjustment required by this paragraph 3.01(a) shall
be made successively immediately after the record date, in the case of a
dividend or distribution, or the effective date, in the case of a
subdivision, combination, reclassification or recapitalization, to allow
the purchase of such aggregate number and kind of shares.
(b) If at any time prior to the exercise of this Warrant in full, the
Company shall fix a record date for the issuance or making a distribution
to all holders of Common Stock
<PAGE>
(including any such distribution to be made in connection with a
consolidation or merger in which the Company is to be the continuing
corporation) of evidences of its indebtedness, any other securities of the
Company or any cash, property or other assets (excluding a combination,
reclassification or recapitalization referred to in Section 3.01(a),
regular cash dividends or cash distributions paid out of net profits
legally available therefor and in the ordinary course of business and
subscription rights, options or warrants for Common Stock or Common Stock
Equivalents (any such nonexcluded event being herein called a "Special
Dividend"), (i) the Exercise Price shall be decreased immediately after
the record date for such Special Dividend to a price determined by
multiplying the Exercise Price then in effect by a fraction, the numerator
of which shall be the then current market price of the Common Stock (as
defined in Section 3.01(e)) on such record date less the fair market value
(as determined by the Company's Board of Directors) of the evidences of
indebtedness, securities or property, or other assets issued or
distributed in such Special Dividend applicable to one share of Common
Stock or of such subscription rights, options or warrants applicable to
one share of Common Stock and the denominator of which shall be such then
current market price per share of Common Stock (as so determined) and (ii)
the number of shares of Common Stock subject to purchase upon exercise of
this Warrant shall be increased to a number determined by multiplying the
number of shares of Common Stock subject to purchase immediately before
such Special Dividend by a fraction, the numerator of which shall be the
Exercise Price in effect immediately before such Special Dividend and the
denominator of which shall be the Exercise Price in effect immediately
after such Special Dividend. Any adjustment required by this paragraph
3.01(b) shall be made successively whenever such a record date is fixed
and in the event that such distribution is not so made, the Exercise Price
shall again be adjusted to be the Exercise Price that was in effect
immediately prior to such record date.
(c) If at any time prior to the exercise of this Warrant in full, the
Company shall make a distribution to all holders of the Common Stock of
stock of a subsidiary or securities convertible into or exercisable for
such stock, then in lieu of an adjustment in the Exercise Price or the
number of Warrant Shares purchasable upon the exercise of this warrant,
each Warrantholder, upon the exercise hereof at any time after such
distribution, shall be entitled to receive from the Company, such
subsidiary or both, as the Company shall determine, the stock or other
securities to which such Warrantholder would have been entitled if such
Warrantholder had exercised this Warrant immediately prior thereto, all
subject to further adjustment as provided in this Article III, and the
Company shall reserve, for the life of the Warrant, such securities of
such subsidiary or other corporation; provided, however, that no
-------- -------
adjustment in respect of dividends or interest on such stock or other
securities shall be made during the term of this Warrant or upon its
exercise.
(d) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to one or more of paragraphs (a) and (b) of this
Section 3.01, the Warrant Shares shall simultaneously be adjusted by
multiplying the number of Warrant Shares
<PAGE>
initially issuable upon exercise of each Warrant by the Exercise Price in
effect on the date of such adjustment and dividing the product so obtained
by the Exercise Price, as adjusted.
(e) For the purpose of any computation under this Section 3.01, the
current market price per share of Common Stock at any date shall be deemed
to be the average of the daily closing prices for 20 consecutive trading
days commencing 30 trading days before such date. The closing price for
each day shall be the last sale price regular way or, in case no such
reported sales take place on such day, the average of the last reported
bid and asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading or
listed, or if not listed or admitted to trading on any such exchange, the
representative closing bid price as reported by NASDAQ, or other similar
organization if NASDAQ is no longer reporting such information, or if not
so available, the fair market price as determined by the Board of
Directors of the Company.
(f) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least ten cents
($.10) in such price; provided, however, that any adjustments which by
-------- -------
reason of this paragraph (f) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All
calculations under this Section 3.01 shall be made to the nearest cent or
to the nearest one-hundredth of a share, as the case may be.
Notwithstanding anything in this Section 3.01 to the contrary, the
Exercise Price shall not be reduced to less than the then existing par
value of the Common Stock as a result of any adjustment made hereunder.
(h) In the event that at any time, as a result of any adjustment made
pursuant to Section 3.01(a), the Warrantholder thereafter shall become
entitled to receive any shares of the Company other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of
any Warrant shall be subject to adjustment from time to time in a manner
and on terms as nearly equivalent as practicable to the provisions with
respect to the Common Stock contained in Section 3.01(a).
SECTION 3.02: NOTICE OF ADJUSTMENT. Whenever the number of Warrant
------------ --------------------
Shares or the Exercise Price is adjusted as herein provided, the Company shall
prepare and deliver forthwith to the Warrantholder a certificate signed by its
President, and by any Vice President, Treasurer or Secretary, setting forth the
adjusted number of shares purchasable upon the exercise of this Warrant and the
Exercise Price of such shares after such adjustment, a brief statement of the
facts requiring such adjustment and the computation by which adjustment was
made.
SECTION 3.03: NO ADJUSTMENT FOR DIVIDENDS. Except as provided in
------------ ---------------------------
Section 3.01 of this Agreement, no adjustment in respect of any cash dividends
paid by the Company shall be made during the term of this Warrant or upon the
exercise of this Warrant.
<PAGE>
SECTION 3.04: PRESERVATION OF PURCHASE RIGHTS IN CERTAIN
------------ ------------------------------------------
TRANSACTIONS. In case of any reclassification, capital reorganization or other
- ------------
change of outstanding shares of Common Stock (other than a subdivision or a
combination of the outstanding Common Stock and other than a change in the par
value of the Common Stock or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which the Company is the continuing corporation and said merger does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant)) or in case of any sale, lease, transfer or conveyance to another
corporation of the property and assets of the Company as an entirety or
substantially as an entirety, the Company shall, as a condition precedent to
such transaction, cause such successor or purchasing corporation, as the case
may be, to execute with the Warrantholder an agreement granting the
Warrantholder the right thereafter, upon payment of the Exercise Price in effect
immediately prior to such action, to receive upon exercise of this Warrant the
kind and amount of shares and other securities and property which he would have
owned or have been entitled to receive after the happening of such
reclassification, change, consolidation, merger, sale or conveyance had this
Warrant been exercised immediately prior to such action. Such agreement shall
provide for adjustments in respect of such shares of stock and other securities
and property, which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article III. In the event that in connection
with any such reclassification, capital reorganization, change, consolidation,
merger, sale or conveyance, additional shares of Common Stock shall be issued in
exchange, conversion, substitution or payment, in whole or in part, for, or of,
a security of the Company other than Common Stock, any such issue shall be
treated as an issue of Common Stock covered by the provisions of Article III.
The provisions of this Section 3.04 shall similarly apply to successive
reclassification, capital reorganizations, consolidations, mergers, sales or
conveyances.
SECTION 3.05: FORM OF WARRANT AFTER ADJUSTMENTS. The form of this
------------ ---------------------------------
Warrant need not be changed because of any adjustments in the Exercise Price or
the number or kind of the Warrant Shares, and Warrants theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in this Warrant, as initially issued.
SECTION 3.06: TREATMENT OF WARRANTHOLDER. Prior to due presentment
------------ --------------------------
for registration of transfer of this Warrant, the Company may deem and treat the
Warrantholder as the absolute owner of this Warrant (notwithstanding any
notation of ownership or other writing hereon) for all purposes and shall not be
affected by any notice to the contrary.
ARTICLE IV
OTHER PROVISIONS RELATING TO RIGHTS OF WARRANTHOLDER
----------------------------------------------------
SECTION 4.01: NO RIGHTS AS SHAREHOLDERS; NOTICE TO WARRANTHOLDERS.
------------ ---------------------------------------------------
Nothing contained in this Warrant shall be construed as conferring upon the
Warrantholder or his or its transferees the right to vote or to receive
dividends or to consent to or receive notice as a shareholder in respect of any
meeting of shareholders for the election of directors of the Company or any
other matter, or any
<PAGE>
other rights whatsoever as shareholders of the Company. The Company shall give
notice to the Warrantholder by registered mail if at any time prior to the
expiration or exercise in full of the Warrants, any of the following events
shall occur:
(a) the Company shall authorize the payment of any dividend upon
shares of Common Stock payable in any securities or authorize the making
of any distribution (other than a cash dividend subject to the
parenthetical set forth in Section 3.01(b)) to all holders of Common
Stock;
(b) the Company shall authorize the issuance to all holders of Common
Stock of any additional shares of Common Stock or Common Stock Equivalents
or of rights, options or warrants to subscribe for or purchase Common
Stock or Common Stock Equivalents or of any other subscription rights,
options or warrants;
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger, or sale or conveyance of
the property of the Company as an entirety or substantially as an
entirety); or
(d) a capital reorganization or reclassification of the Common Stock
(other than a subdivision or combination of the outstanding Common Stock
and other than a change in the par value of the Common Stock) or any
consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the
continuing corporation and that does not result in any reclassification or
change of Common Stock outstanding) or in the case of any sale or
conveyance to another corporation of the property of the Company as an
entirety or substantially as an entirety.
Such giving of notice shall be initiated (i) at least 10 Business Days
prior to the date fixed as a record date or effective date or the date of
closing of the Company's stock transfer books for the determination of the
shareholders entitled to such dividend, distribution or subscription
rights, or for the determination of the shareholders entitled to vote on
such proposed merger, consolidation, sale, conveyance, dissolution,
liquidation or winding up. Such notice shall specify such record date or
the date of closing the stock transfer books, as the case may be. Failure
to provide such notice shall not affect the validity of any action taken
in connection with such dividend, distribution or subscription rights, or
proposed merger, consolidation, sale, conveyance, dissolution, liquidation
or winding up.
SECTION 4.02: LOST, STOLEN, MUTILATED OR DESTROYED WARRANTS. If
------------ ---------------------------------------------
this Warrant is lost, stolen, mutilated or destroyed, the Company may, on such
terms as to indemnity or otherwise as it may in its discretion impose (which
shall, in the case of a mutilated Warrant, include the surrender thereof), issue
a new Warrant of like denomination and tenor as and in substitution for this
Warrant.
<PAGE>
ARTICLE V
SPLIT-UP, COMBINATION EXCHANGE AND TRANSFER OF WARRANTS
SECTION 5.01: SPLIT-UP, COMBINATION, EXCHANGE AND TRANSFER OF WARRANTS.
------------ --------------------------------------------------------
Subject to the provisions of Section 5.02 hereof, this Warrant may be split up,
combined or exchanged for another Warrant or Warrants containing the same terms
to purchase a like aggregate number of Warrant Shares. If the Warrantholder
desires to split up, combine or exchange Warrants, he or it shall make such
request in writing delivered to the Company and shall surrender to the Company
any Warrants to be so split up, combined or exchanged. Upon any such surrender
for a split up, combination or exchange, the Company shall execute and deliver
to the person entitled thereto a Warrant or Warrants, as the case may be, as so
requested. The Company shall not be required to effect any split up, combination
or exchange which will result in the issuance of a Warrant entitling the
Warrantholder to purchase upon exercise a fraction of a share of Common Stock or
a fractional Warrant. The Company may require such Warrantholder to pay a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any split up, combination or exchange of Warrants.
SECTION 5.02: RESTRICTIONS ON TRANSFER. Neither this Warrant nor
------------ ------------------------
the Warrant Shares may be disposed of or encumbered (any such action, a
"Transfer"), except (i) to CIBC Oppenheimer Corp., any successor to the business
of such company, or any officer of such company, or (ii) to any underwriter in
connection with a Public Offering of the Common Stock, provided (as to (ii))
that this Warrant is exercised upon such Transfer and the shares of Common Stock
issued upon such exercise are sold by such underwriter as part of such Public
Offering and, as to both (i) and (ii), only in accordance with and subject to
the provisions of the Securities Act and the rules and regulations promulgated
thereunder. If at the time of a Transfer, a Registration Statement is not in
effect to register this Warrant or the Warrant Shares, the Company may require
the Warrantholder to make such representations, and may place such legends on
certificates representing this Warrant, as may be reasonably required in the
opinion of counsel to the Company to permit a Transfer without such
registration.
ARTICLE VI
REGISTRATION UNDER THE SECURITIES ACT OF 1933
---------------------------------------------
Section 6.01: PIGGYBACK REGISTRATION.
----------------------
(a) Right to Include Registrable Securities. If at any time or from
---------------------------------------
time to time after March___, 1999 and prior to the Expiration Date, the
Company proposes to register any of its securities under the Securities
Act on any form for the registration of securities under such Act, whether
or not for its own account (other than by a registration statement on Form
S-8 or other form which does not include substantially the same
information as would be required in a form for the general registration of
securities or would not be available for the
<PAGE>
Registrable Securities) (a "Piggyback Registration"), it shall as
expeditiously as possible give written notice to all Holders of its
intention to do so and of such Holders' rights under this Section 6.01.
Such rights are referred to hereinafter as "Piggyback Registration
Rights." Upon the written request of any such Holder made within 20 days
after receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such Holder), the
Company shall include in the Registration Statement the Registrable
Securities which the Company has been so requested to register by the
Holders thereof and the Company shall keep such registration statement in
effect and maintain compliance with each Federal and state law or
regulation for the period necessary for such Holder to effect the proposed
sale or other disposition (but in no event for a period greater than 120
days).
(b) Withdrawal of Piggyback Registration by Company. If, at any time
-----------------------------------------------
after giving written notice of its intention to register any securities in
a Piggyback Registration but prior to the effective date of the related
Registration Statement, the Company shall determine for any reason not to
register such securities, the Company shall give written notice of such
determination to each Holder and, thereupon, shall be relieved of its
obligation to register any Registrable Securities in connection with such
Piggyback Registration. All best efforts obligations of the Company
pursuant to Section 6.04 shall cease if the Company determines to
terminate prior to such effective date any registration where Registrable
Securities are being registered pursuant to this Section 6.01.
(c) Piggyback Registration of Underwritten Public Offerings. If a
-------------------------------------------------------
Piggyback Registration involves an offering by or through underwriters,
then, (i) all Holders requesting to have their Registrable Securities
included in the Company's Registration Statement must sell their
Registrable Securities to the underwriters selected by the Company on the
same terms and conditions as apply to other selling shareholders and
(ii) any Holder requesting to have his or its Registrable Securities
included in such Registration Statement may elect in writing, not later
than three Business Days prior to the effectiveness of the Registration
Statement filed in connection with such registration, not to have his or
its Registrable Securities so included in connection with such
registration.
(d) Payment of Registration Expenses for Piggyback Registration. The
-----------------------------------------------------------
Company shall pay all Registration Expenses in connection with each
registration of Registrable Securities requested pursuant to a Piggyback
Registration Right contained in this Section 6.01.
(e) Priority in Piggyback Registration. If a Piggyback Registration
----------------------------------
involves an offering by or through underwriters, the Company shall not be
required to include Registrable Shares therein if and to the extent the
underwriter managing the offering reasonably believes in good faith and
advises each Holder requesting to have Registrable Securities included in
the Company's Registration Statement that such inclusion would materially
adversely affect such offering; provided that (i)
<PAGE>
any such reduction of elimination shall be pro rata to all other holders
--------
of the securities of the Company exercising "piggyback registration
rights" similar to those set forth herein in proportion to the respective
number of shares they have requested to be registered, and (ii) in such
event, such Holders may delay any offering by them of all Registrable
Shares requested to be included (or that portion of such Registrable
Shares eliminated for such period, not to exceed 90 days, as the managing
underwriter shall request) and the Company shall file such supplements and
post-effective amendments and take such other action necessary under
Federal and state law or regulation as may be necessary to permit such
Holders to make their proposed offering for a period of 90 days following
such period of delay.
SECTION 6.02: DEMAND REGISTRATION.
------------ --------------------
(a) Request for Registration. If, at any time subsequent to March
------------------------
___, 1999 and prior to the Expiration Date, any 25% Holders request that
the Company file a registration statement under the Securities Act, the
Company as soon as practicable shall use its best efforts to file a
registration statement with respect to all Warrant Shares that it has been
so requested to include and obtain the effectiveness thereof, and to take
all other action necessary under any Federal or state law or regulation to
permit the Warrant Shares that are then held and/or that may be acquired
upon the exercise of the Warrants specified in the notices of the Holders
or holders thereof to be sold or otherwise disposed of, and the Company
shall maintain such compliance with each such Federal and state law and
regulation for the period necessary for such Holders or holders to effect
the proposed sale or other disposition (but in no event for more than 120
days); provided, however, the Company shall be entitled, no more than
-------- -------
once during such period, to defer such registration for a period of up to
60 days if and to the extent that its Board of Directors shall determine
that such registration would interfere with a pending corporate
transaction or would require the disclosure, pursuant to such
registration, of material information, which disclosure has been
determined, by the Board of Directors of the Company in good faith, to be
not in the best interests of the Company (any cash request being a "Demand
Registration"). The Company shall also promptly give written notice to the
Holder and the holders of any other Warrants and/or the holders of any
Warrant Shares who or that have not made a request to the Company pursuant
to the provisions of this subsection (a) of its intention to effect any
required registration or qualification and shall use its best efforts to
effect as expeditiously as possible such registration or qualification of
all other such Warrant Shares that are then held and/or that may be
acquired upon the exercise of the Warrants, the Holder or holders of which
have requested such registration or qualification, within 15 days after
such notice has been given by the Company, as provided in the preceding
sentence. The Company shall be required to effect a registration or
qualification pursuant to this subsection (a) on one
<PAGE>
occasion only.
(b) Payment of Registration Expenses for Demand Registration. The
--------------------------------------------------------
Company shall pay all Registration Expenses in connection with the Demand
Registration.
[(c) Selection of Underwriters. If, within three years of the date
-------------------------
hereof, any Demand Registration is requested to be in the form of an
underwritten offering, the managing underwriter shall be CIBC Oppenheimer
Corp., the co-manager shall be Piper Jaffray Inc. and the independent
pricer required under the rules of the NASD (if any) shall be selected and
obtained by the Holders of a majority of the Warrant Shares to be
registered. Such selection shall be subject to the Company's consent,
which consent shall not be unreasonably withheld. All fees and expenses
(other than Registration Expenses otherwise required to be paid) of any
managing underwriter, any co-manager or any independent underwriter or
other independent pricer required under the rules of the NASD shall be
paid for by such underwriters or by the Holders or holders whose shares
are being registered. If CIBC Oppenheimer Corp. should decline to serve as
managing underwriter, then Piper Jaffray Inc. shall be the managing
underwriter. If Piper Jaffray Inc. also declines to serve as managing
underwriter, then the Holders of a majority of the Warrant Shares to be
registered may select and obtain one or more managing underwriters. Such
selection shall be subject to the Company's consent, which consent shall
not be unreasonably withheld. Neither CIBC Oppenheimer Corp. nor Piper
Jaffray Inc. shall have more than one opportunity to waive or terminate
any rights under this Section 6.02(c) in consideration of any payment or
fee (any such payment or fee, a "Waiver Fee"). CIBC Oppenheimer Corp. or
Piper Jaffray Inc. shall in no event be entitled to a Waiver Fee which has
a value in excess of one percent (1%) of the proceeds of the Offering or
five percent (5%) of the underwriting discount or commissions paid in
connection with such underwritten demand registration.]
SECTION 6.03: BUY-OUTS OF REGISTRATION DEMAND. In lieu of carrying
------------ -------------------------------
out its obligations to effect a Piggyback Registration or Demand Registration of
any Registrable Securities pursuant to this Article VI, the Company may carry
out such obligation by offering to purchase and purchasing such Registrable
Securities requested to be registered at an amount in cash equal to the
difference between (a) the last sale price of the Common Stock on the day the
request for registration is made and (b) the Exercise Price in effect on such
day.
SECTION 6.04: REGISTRATION PROCEDURES. If and whenever the Company
------------ -----------------------
is required to use its best efforts to take action pursuant to any Federal or
state law or regulation to permit the sale or other disposition of any Warrant
Shares that are then held or that may be acquired upon exercise of the Warrants,
in order to effect or cause the registration of any Registrable Securities under
the Securities Act as provided in this Article VI, the Company shall, as
expeditiously as practicable:
(a) furnish to each selling Holder of Registrable Securities and the
underwriters, if any, without charge, as many copies of the Registration
Statement, the Prospectus or the Prospectuses (including each preliminary
prospectus) and any amendment or supplement thereto as they may reasonably
request;
(b) enter into such agreements (including an underwriting agreement)
and take all such other actions reasonably required in connection
therewith in order to expedite or facilitate the disposition of such
Registrable Securities and in such connection, if the
<PAGE>
registration is in connection with an underwritten offering (i) make such
representations and warranties to the underwriters in such form, substance
and scope as are customarily made by issuers to underwriters in
underwritten offerings and confirm the same if and when requested; (ii)
obtain opinions of counsel to the Company and updates thereof (which
counsel and opinions in form, scope and substance shall be reasonably
satisfactory to the underwriters) addressed to the underwriters and the
Holders covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably
requested by such underwriters; (iii) obtain "cold comfort" letters and
updates thereof from the Company's accountants addressed to the
underwriters such letters to be in customary form and to cover matters of
the type customarily covered in "cold comfort" letters to underwriters and
the Holders in connection with underwritten offerings; (iv) set forth in
full, in any underwriting agreement entered into, the indemnification
provisions and procedures of Section 6.06 hereof with respect to all
parties to be indemnified pursuant to said Section; and (v) deliver such
documents and certificates as may be reasonably requested by the
underwriters to evidence compliance with clause (i) above and with any
customary conditions contained in the underwriting agreement or other
agreement entered into by the Company; the above shall be done at each
closing under such underwriting or similar agreement or as and to the
extent required thereunder;
(c) make available for inspection by one or more representatives of
the Holders of Registrable Securities being sold, any underwriter
participating in any disposition pursuant to such registration, and any
attorney or accountant retained by such Holders or underwriter, all
financial and other records, pertinent corporate documents and properties
of the Company, and cause the Company's officers, directors and employees
to supply all information reasonably requested by any such representatives
in connection with such;
(d) otherwise use its best efforts to comply with all applicable
Federal and state regulations; and take such other action as may be
reasonably necessary or advisable to enable each such Holder and each such
underwriter to consummate the sale or disposition in such jurisdiction or
jurisdiction, in which any such Holder or underwriter shall have requested
that the Registrable Securities be sold; provided, however, that the
-------- --------
Company shall not be required in connection therewith to qualify to do
business as a foreign corporation or take any action that would subject it
to taxation or general service of process in any jurisdiction where it is
not then so qualified or subject.
Except as otherwise provided in this Agreement, the Company shall have
sole control in connection with the preparation, filing, withdrawal, amendment
or supplementing of each Registration Statement, the selection of underwriters,
and the distribution of any preliminary prospectus included in the Registration
Statement, and may include within the coverage thereof additional shares of
Common Stock or other securities for its own account or for the account of one
or more of its other security holders;
<PAGE>
Each seller of Registrable Securities as to which any registration is
being effected shall furnish to the Company such information regarding the
distribution of such securities and such other information as may otherwise be
required by the Securities Act to be included in such Registration Statement.
SECTION 6.05: WITHDRAWAL OF REGISTRATION RIGHTS. The Company shall not
------------- ---------------------------------
be required by this Article VI to file any Registration Statement if, in the
opinion of counsel for the Warrantholders and the Company (or, should they not
agree, in the opinion of another counsel experienced in securities law matters
acceptable to counsel for such holders and the Company), the proposed public
offering or other transfer as to which such Registration Statement is requested
is exempt from applicable federal and state securities laws and would result in
all purchasers or transferees obtaining securities which are not "restricted
securities," as defined in Rule 144 under the Act. This Article VI shall
terminate and be of no further force or effect at the first date as of which all
of the Warrant Shares then issuable upon exercise of the Warrants may be sold
publicly pursuant to Rule 144(k).
SECTION 6.06: INDEMNIFICATION.
------------ ---------------
(a) Indemnification by Company. In connection with each Registration
--------------------------
Statement relating to disposition of Registrable Securities, the Company
shall indemnify and hold harmless each Holder and each underwriter of
Registrable Securities and each Person, if any, who controls such Holder
or underwriter (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) against any and all losses, claims,
damages and liabilities, joint or several (including any reasonable
investigation, legal and other expenses incurred in connection with, and
any amount paid in settlement of any action, suit or proceeding or any
claim asserted), to which they, or any of them, may become subject under
the Securities Act, the Exchange Act or other Federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, or arise out of or are based upon
any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that such indemnity shall not inure to the
-------- -------
benefit of any Holder or underwriter (or any Person controlling such
Holder or underwriter within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) on account of any losses, claims,
damages or liabilities arising from the sale of Registrable Securities if
such untrue statement or omission or alleged untrue statement or omission
was made in such Registration Statement, Prospectus or preliminary
prospectus, or such amendment or supplement, in reliance upon and in
conformity with information furnished in writing to the Company by the
Holder or underwriter specifically for use therein and provided, further,
-------- -------
that with respect to any Preliminary Prospectus, the foregoing
indemnification shall not inure to the benefit of any Underwriter from
whom the person asserting any loss, claim, damage, liability or expense
purchased Shares, or to any person controlling such Underwriter, if copies
of the Prospectus were timely delivered to such Underwriter pursuant to
the terms hereof and a copy of the Prospectus (as then amended or
supplemented if the Company shall have timely furnished any amendments or
supplements thereto) was not sent or given by or on behalf of such
Underwriter to such person, if required by law to have been so delivered,
at or prior to the written confirmation of the sale of the Shares to such
person, and if such Prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage, liability or
expense. This indemnity agreement shall be in addition to any liability
which the Company may otherwise have.
<PAGE>
(b) Indemnification by Holder. In connection with each Registration
-------------------------
Statement, each Holder shall indemnify, to the same extent as the
indemnification provided by the Company in Section 6.06(a), the Company,
its directors and each officer who signs the Registration Statement and
each Person who controls the Company (within the meaning of Section 15 of
the Securities Act and Section 20 of the Exchange Act) but only insofar as
such losses, claims, damages and liabilities arise out of or are based
upon any untrue statement or omission or alleged untrue statement or
omission which was made in the Registration Statement, the Prospectus or
preliminary prospectus or any amendment thereof or supplement thereto, in
reliance upon and in conformity with information furnished in writing by
such Holder to the Company specifically for use therein. In no event shall
the liability of any selling Holder of Registrable Securities hereunder be
greater in amount than the dollar amount of the net proceeds received by
such Holder upon the sale of the Registrable Securities giving rise to
such indemnification obligation. The Company shall be entitled to receive
indemnities from underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the
distribution, to the same extent as provided above, with respect to
information so furnished in writing by such Persons specifically for
inclusion in any Prospectus, Registration Statement or preliminary
prospectus or any amendment thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that proposes to
------------------------------------
assert the right to be indemnified hereunder will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such
party in respect of which a claim is to be made against an indemnifying
party or parties under this Section, notify each such indemnifying party
of the commencement of such action, suit or proceeding, enclosing a copy
of all papers served. No indemnification provided for in Section 6.06(a)
or 6.06(b) shall be available to any party who shall fail to give notice
as provided in this Section 6.06(c) if the party to whom notice was not
given was unaware of the proceeding to which such notice would have
related and was prejudiced by the failure to give such notice, but the
omission so to notify such indemnifying party of any such action, suit or
proceeding shall not relieve it from any liability that it may have to any
indemnified party for contribution or otherwise than under this Section.
In case any such action, suit or proceeding shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof and the approval by the
indemnifying party to such indemnified party of its election so to assume
the defense thereof and the approval by the indemnified party of such
counsel, the indemnifying party shall not be liable to such indemnified
party for any legal or other expenses, except as provided below and except
for the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified
party shall have the right to employ its counsel in any such action, but
the fees and expenses of
<PAGE>
such counsel shall be at the expense of such indemnified party unless (i)
the employment of counsel by such indemnified party has been authorized in
writing by the indemnifying parties, (ii) the indemnified party shall have
reasonably concluded, based on the advice of its counsel, that there may
be a conflict of interest between the indemnifying parties and the
indemnified party in the conduct of the defense of such action (in which
case the indemnifying parties shall not have the right to direct the
defense of such action on behalf of the indemnified party) or (iii) the
indemnifying parties shall not have employed counsel to assume the defense
of such action within a reasonable time after notice of the commencement
thereof, in each of which cases the fees and expenses of counsel shall be
at the expense of the indemnifying parties, it being understood,
however, that the indemnifying parties shall not be liable for the
expenses of more than one separate counsel, which counsel shall be
reasonably approved by the indemnifying parties. An indemnifying party
shall not be liable for any settlement of any action, suit, proceeding or
claim effected without its written consent.
(d) Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnification provided for in
Section 6.06(a) and 6.06(b) is due in accordance with its terms but for
any reason is held to be unavailable from the Company or any Holder, the
Company and the Holders shall contribute to the aggregate losses, claims,
damages and liabilities (including any investigation, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of any action, suit or proceeding or any claims asserted, but
after deducting any contribution received by the Company from persons
other than the Holders, such as persons who control the Company within the
meaning of the Securities Act, officers of the Company who signed any
Registration Statement and directors of the Company, who may also be
liable for contribution) to which the Company and one or more of the
Holders may be subject in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and each such
holder on the other from the offering of the Warrant Shares or, if such
allocation is not permitted by applicable law or indemnification is not
available as a result of the indemnifying party not having received notice
as provided in Section 6.06(c) hereof, in such proportion as is
appropriate to reflect not only the relative benefits referred to above
but also the relative fault of the Company on the one hand and each such
Holder on the other in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or expenses, as well
as any other relevant equitable considerations. The relative benefits
received by the Company and each such Holder shall be deemed to be in the
same proportion as (x) the total proceeds from the offering (net of
underwriting discounts but before deducting expenses) received by the
Company, bear to (y) the dollar amount of the net proceeds received by
such Holder upon the sale of the Registrable Securities giving rise to
such indemnification obligation. The relative fault of the Company or any
such Holder shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact related
to information supplied by the Company or any such Holder and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and the Holders
agree that it would not be just and equitable if contribution pursuant to
this Section 6.06(d) were determined by pro rata allocation (even if the
Holders were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
Section 6.06(d), (i) in no case shall any Holder be liable or responsible
for any amount in excess of the dollar amount of the net proceeds received
by such Holder upon the sale of the Registrable Securities giving rise to
such indemnification obligation, and (ii) the Company shall be liable and
responsible for any amount in excess of such dollar amount; provided,
however, that no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 6.06, each person, if any,
who controls a Holder within the meaning of Section 15 of the Securities
Act or Section 20(a) of the Exchange Act shall have the same rights to
contribution as such Holder, and each person, if any, who controls the
Company within the meaning of the Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, each officer of the Company who shall
have signed any Registration Statement and each director of the Company
shall have the same rights to contribution as the Company, subject in each
case to clauses (i) and (ii) in the immediately preceding sentence of this
Section 6.06(d). Any party entitled to contribution will promptly after
receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be
made against another party or parties under this Section, notify such
party or parties from whom contribution may be sought, but the omission so
to notify such party or parties from whom contribution may be sought shall
not relieve the party or parties from whom contribution may be sought
shall not relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have hereunder or
otherwise than under this Section 6.06. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its written consent. Each Holder's obligations to contribute
pursuant to this Section 6.06(d) are several in proportion to their
respective underwriting commitments and not joint.
(e) Specific Performance. The Company and the Holder acknowledge that
--------------------
remedies at law for the enforcement of this Section 6.06 may be inadequate
and intend that this Section 6.06 shall be specifically enforceable.
ARTICLE VII
OTHER MATTERS
-------------
SECTION 7.01: AMENDMENTS AND WAIVERS. The provisions of this
------------ ----------------------
Warrant, including the provisions of this sentence, may not be amended, modified
or supplemented, and waiver or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of holders
of at least a majority of the outstanding Registrable Securities. Holders shall
be bound by any consent authorized by this Section whether or not certificates
representing such Registrable Securities have been marked to indicate such
consent.
<PAGE>
SECTION 7.02: COUNTERPARTS. This Warrant may be executed in any
------------ ------------
number of counterparts and by the parties hereto in separate counterparts, each
of which so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
SECTION 7.03: GOVERNING LAW. This Warrant shall be governed by and
------------ -------------
construed in accordance with the laws of the State of New York.
SECTION 7.04: SEVERABILITY. In the event that any one or more of
------------ ------------
the provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provisions in every other respect and of the
remaining provisions contained herein shall not be affected or impaired thereby.
SECTION 7.05: ATTORNEYS' FEES. In any action or proceeding brought
------------ ---------------
to enforce any provisions of this Warrant, or where any provisions hereof or
thereof is validly asserted as a defense, the successful party shall be entitled
to recover reasonable attorneys' fees and disbursements in addition to its costs
and expenses and any other available remedy.
SECTION 7.06: NOTICE. Any notices or certificates by the Company
------------ ------
to the Holder and by the Holder to the Company shall be deemed delivered if in
writing and delivered in person or by registered mail (return receipt requested)
to the Holder addressed to him in care of CIBC Oppenheimer Corp., Oppenheimer
Tower, World Financial Center, New York, New York 10281 or, if the Holder has
designated, by notice in writing to the Company, any other address, to such
other address, and if to the Company, addressed to it at BNC Mortgage, Inc.,
1063 McGaw Avenue, Irvine, California 92614, Attn: President. The Company may
change its address by written notice to the Holder and the Holder may change his
or its address by written notice to the Company.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company
under its corporate seal as of the ___ day of March, 1998.
BNC MORTGAGE, INC.
By:
Name: Kelly W. Monahan
Title: President
Attest:______________________
Secretary
<PAGE>
ASSIGNMENT
(TO BE EXECUTED ONLY UPON ASSIGNMENT OF WARRANT CERTIFICATE)
For value received, ____________________ hereby sells, assigns and
transfers unto _________________________ the within Warrant Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ___________________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company with respect to the number
of Warrants set forth below, with full power of substitution in the premises:
Name (s) of
Assignees (s) Address No. of
------------- ------- ------
Warrants
- --------
And if said number of Warrants shall not be all the Warrants
represented by the Warrant Certificate, a new Warrant Certificate is to be
issued in the name of said undersigned for the balance remaining of the Warrants
represented by said Warrant Certificate.
Dated: __________________
Note: The above signature should
correspond exactly with the name
on the face of this Warrant
Certificate.
<PAGE>
SUBSCRIPTION FORM
(TO BE EXECUTED UPON EXERCISE OF WARRANT PURSUANT TO SECTION 2.02 (a) (i))
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder ____________ shares of Common Stock, as provided for therein, and
tenders herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of $ ____________.
Please issue a certificate or certificates for such Common Stock in
the name of:
Name:__________________________________
_______________________________________
_______________________________________
_______________________________________
(Please Print Name, Address and
Social Security Number)
Signature_____________________________
NOTE: The above signature should respond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee appearing in
the assignment form below.
And if said number of shares shall not be all the shares purchasable
under the within Warrant Certificate, a new Warrant Certificate is to be issued
in the name of said undersigned for the balance remaining of the shares
purchasable thereunder rounded up to the next higher number of shares.
<PAGE>
CASHLESS EXERCISE FORM
(TO BE EXECUTED UPON EXERCISE OF WARRANT PURSUANT TO SECTION 2.02 (a) (ii))
The undersigned hereby irrevocably elects to Exchange its Warrant for
such shares of Common Stock pursuant to the Cashless Exercise provisions of the
within Warrant Certificate, as provided for in Section 2.02 (a) (ii) of such
Warrant Certificate.
Please issue a certificate or certificates for such Common Stock in
the name of:
Name:__________________________________
_______________________________________
_______________________________________
_______________________________________
(Please Print Name, Address and
Social Security Number)
Signature_____________________________
NOTE: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee appearing in
the assignment form below.
And if said number of shares shall not be all the shares exchangeable
or purchasable under the within Warrant Certificate, a new Warrant Certificate
is to be issued in the name of the undersigned for the balance remaining of the
shares purchasable rounded up to the next higher number of shares.
<PAGE>
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
INCORPORATED UNDER THE LAWS [LOGO OF MORTGAGE, INC.] SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 05561Y 10 5
</TABLE>
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
_____________________________ BNC MORTGAGE, INC. _______________________________
transferable on the books of the Corporation by the holder herein in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be subject to all provisions of the Certificates of Incorporation and the
Bylaws of this Corporation, and all amendments therein, copies of which are on
file at the principal office of the Corporation and the Transfer Agent, all of
which the holder of this certificate by acceptance hereof assents. This
certificate is not valid and countersigned by the Transfer Agent and registered
by the Registrar.
WITNESS the facsimile seal of the Coporation and the facsimile signatures of
its duly authorized officers.
DATED:
COUNTERSIGNED AND REGISTERED:
U.S. STOCK TRANSFER CORPORATION
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
/s/EVAN BUCKLEY /s/KELLY MONAHAN
SEAL
SECRETARY PRESIDENT
<PAGE>
The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
UNIF GIFT MIN ACT - ..........Custodian................
TEN COM - as tenants in common (Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors
JT TEN - as joint tenants with right of Act................................
survivorship and not as tenants (State)
in common UNIF TRF MIN ACT - .........Custodian (until age.....)
(Cust)
............under Uniform Transfers
(Minor)
to Minors Act......................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OR ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ____________________________
X ___________________________________________
X ___________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By___________________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 10.2
BNC MORTGAGE, INC.
1997 STOCK OPTION, DEFERRED STOCK
AND
RESTRICTED STOCK PLAN
Section 1. General Purpose of Plan; Definitions.
------------------------------------
(a) This plan is intended to implement and govern the 1997 Stock Option,
Deferred Stock and Restricted Stock Plan (the "Plan") of BNC Mortgage , Inc., a
California corporation (the "Company"). The Plan was adopted by the Board of
Directors as of October 23, 1997, subject to the approval of the Company's
shareholders. The purpose of the Plan is to enable the Company and its
Subsidiaries to obtain and retain competent personnel who will contribute to the
Company's success by their ability, ingenuity and industry, and to provide
incentives to such personnel and members that are linked directly to increases
in shareholder value, and will therefore, inure to the benefit of all
shareholders of the Company.
(b) For purposes of the Plan, the following terms shall be defined as set
forth below:
(1) "Administrator" means the Board, or if the Board does not
-------------
administer the Plan, the Committee in accordance with Section 2.
(2) "Award" means any award of Deferred Stock, Restricted Stock, Stock
-----
Appreciation Right, Limited Stock Appreciation Right or Stock Option.
(3) "Board" means the Board of Directors of the Company.
-----
(4) "Code" means the Internal Revenue Code of 1986, as amended from
----
time to time, or any successor thereto.
(5) "Committee" means the Compensation Commit tee of the Board, or any
---------
other Committee the Board may subsequently appoint to administer the Plan. If
at any time the Board shall
1
<PAGE>
administer the Plan, then the functions of the Board specified in the Plan shall
be exercised by the Committee.
(6) "Company" means BNC Mortgage, Inc., a corporation organized under the
-------
laws of the State of California(or any successor corporation).
(7) "Deferred Stock" means an award made granted pursuant to Section 7
--------------
below of the right to receive Stock at the end of a specified deferral period.
(8) "Disability" means permanent and total disability as determined under
----------
the Company's disability program or policy.
(9) "Effective Date" shall mean the date provided pursuant to Section 16.
--------------
(10) "Eligible Employee" means an employee, consultant or advisor of the
-----------------
Company, any Subsidiary or Parent Corporation eligible to participate in the
Plan pursuant to Section 4.
(11) "Fair Market Value" means, as of any given date, with respect to any
-----------------
Awards granted hereunder, at the discretion of the Administrator and subject to
such limitations as the Administrator may impose, (A) the closing sale price of
the Stock on such date as reported in the Western Edition of the Wall Street
Journal Composite Tape, or (B) the average of the closing price of the Stock on
each day on which the Stock was traded over a period of up to twenty trading
days immediately prior to such date, or (C) if the Stock is not publicly traded,
the fair market value of the Stock as otherwise determined by the Administrator
in the good faith exercise of its discretion.
(12) "Incentive Stock Option" means any Stock option intended to be
----------------------
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
(13) "Limited Stock Appreciation Right" means a Stock Appreciation Right
--------------------------------
that can be exercised only in the event of a Change of Control as defined in
Section 10.
2
<PAGE>
(14) "Non-Qualified Stock Option" means any Stock Option that is not an
--------------------------
Incentive Stock Option, including any Stock Option that provides (as of the time
such option is granted) that it will not be treated as an Incentive Stock
Option.
(15) "Parent Corporation" means any corporation (other than the Company) in
------------------
an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.
(16) "Participant" means any Eligible Employee selected by the
-----------
Administrator pursuant to the Administrator's authority in Section 2 below, to
receive grants of Stock Options or Awards or any combination of the foregoing.
(17) "Restricted Period" means the period set by the Administrator as it
-----------------
pertains to Deferred Stock or Restricted Stock awards pursuant to Section 7.
(18) "Restricted Stock" means an award of shares of Stock granted pursuant
----------------
to Section 7 subject to restrictions that will lapse with the passage of time or
upon the attainment of performance objectives.
(19) "Stock" means the Common Stock, no par value per share, of the
-----
Company.
(20) "Stock Appreciation Right" means the right pursuant to an award
------------------------
granted under Section 6 below to receive an amount equal to the difference
between (A) the Fair Market Value, as of the date such Stock Appreciation Right
or portion thereof is surrendered, of the shares of Stock covered by such right
or such portion thereof and (B) the aggregate exercise price of such right or
such portion thereof.
(21) "Stock Option" means an option to purchase shares of Stock granted
------------
pursuant to Section 5.
(22) "Subsidiary" means any corporation (other than the Company) in an
----------
unbroken chain of corporations beginning with the Company, if each of the
corporations (other than the last
3
<PAGE>
corporation) in the unbroken chain owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in the chain.
Section 2. Administration.
(a) The Plan shall be administered by the Board or by a Committee appointed
by the Board, which shall serve at the pleasure of the Board; provided, however,
that if the Committee does not consist solely of "Non-Employee Directors," as
defined in Rule 16b-3 as promulgated by the Securities and Exchange Commission
(the "Commission") under the Securities Exchange Act of 1934 (the "Exchange
Act"), and as such Rule may be amended from time to time, or any successor
definition adopted by the Commission, then the Plan shall be administered, and
each grant shall be approved, by the Board.
(b) The Administrator shall have the power and authority to grant to
Eligible Employees, pursuant to the terms of the Plan: (A) Stock Options, (B)
Stock Appreciation Rights or Limited Stock Appreciation Rights , (C) Deferred
Stock, (D) Restricted Stock, or (E) any combination of the foregoing.
In particular, the Administrator shall have the authority;
(1) to select those employees of the Company or any Subsidiary or
Parent Corporation who are Eligible Employees;
(2) to determine whether and to what extent Stock Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights, Deferred Stock,
Restricted Stock or a combination of the foregoing, are to be granted to
Eligible Employees of the Company or any Subsidiary hereunder;
(3) to determine the number of shares of Stock to be covered by each
such Award;
(4) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any such Award including, but not limited to, (x) the
restricted period applicable to Deferred Stock or Restricted Stock awards, (y)
the date or dates on which restrictions applicable to such Deferred Stock or
Restricted Stock shall lapse during such period, and (z) when and
4
<PAGE>
in what increments shares covered by Stock Options may be purchased; and
(5) to determine the terms and conditions, not inconsistent with the
terms of the Plan, which shall govern all written instruments evidencing the
Stock Options, Stock Appreciation Rights, Limited Stock Appreciation Rights,
Deferred Stock, Restricted Stock or any combination of the foregoing.
(c) The Administrator shall have the authority, in its discretion, to
adopt, alter and repeal such administrative rules, guidelines and practices
governing the Plan as it shall from time to time deem advisable; to interpret
the terms and provisions of the Plan and any Award issued under the Plan (and
any agreements relating thereto); and to otherwise supervise the administration
of the Plan.
(d) All decisions made by the Administrator pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company, any
Subsidiaries, Parent Corporation and the Participants.
Section 3. Stock Subject to Plan.
(a) The total number of shares of Stock reserved and available for issuance
under the Plan shall be 800,000 shares. Such shares shall consist of authorized
but unissued shares.
(b) To the extent that (i) a Stock Option expires or is otherwise
terminated without being exercised or (ii) any shares of Stock subject to any
Deferred Stock or Restricted Stock award granted hereunder are forfeited, such
shares shall again be available for issuance in connection with future Awards
under the Plan. If any shares of Stock have been pledged as collateral for
indebtedness incurred by a Participant in connection with the exercise of a
Stock Option and such shares are returned to the Company in satisfaction of such
indebtedness, such shares shall again be available for issuance in connection
with future Awards under the Plan.
(c) In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, a substitution or
5
<PAGE>
adjustment may be made in (i) the aggregate number of shares reserved for
issuance under the Plan, and (ii) the kind, number and option price of shares
subject to outstanding Stock Options granted under the Plan as may be determined
by the Administrator, in its sole discretion, provided that the number of shares
subject to any Award shall always be a whole number. Such other substitutions
or adjustments shall be made as may be determined by the Administrator, in its
sole discretion; provided, however, that with respect to Incentive Stock
Options, such adjustment shall be made in accordance with Section 424 of the
Code. An adjusted option price shall also be used to determine the amount
payable by the Company upon the exercise of any Stock Appreciation Right or
Limited Stock Appreciation Rights associated with any Stock Option.
Section 4. Eligibility.
(a) Officers and other key employees, directors and consultants and
advisors of the Company, any Subsidiary or Parent Corporation who are
responsible for or contribute to the management, growth and/or profitability of
the business of the Company, shall be eligible to be granted Non-Qualified Stock
Options, Stock Appreciation Rights, Limited Stock Appreciation Rights, and
Deferred Stock or Restricted Stock awards hereunder. Officers and other key
employees of the Company, any Subsidiary or Parent Corporation shall also be
eligible to be granted Incentive Stock Options hereunder. The Participants
under the Plan shall be selected from time to time by the Administrator, in its
sole discretion, from among the Eligible Employees recommended by the senior
management of the Company, and the Administrator shall determine, in its sole
discretion, the number of shares covered by each Award.
Section 5. Stock Option for Eligible Employees.
(a) Stock Options may be granted to Eligible Employees alone or in addition
to other Awards granted under the Plan. Any Stock Option granted under the Plan
shall be in such form as the Administrator may from time to time approve, and
the provisions of Stock Option awards need not be the same with respect to each
optionee. Recipients of Stock Options shall enter into a stock option agreement
with the Company, in such form as the Administrator shall determine, which
agreement shall set forth, among other things, the exercise price of the option,
the term of
6
<PAGE>
the option and provisions regarding exercisability of the option granted
thereunder.
The Stock Options granted under the Plan to Eligible Employees may be of
two types: (x) Incentive Stock Options and (y) Non-Qualified Stock Options.
(b) The Administrator shall have the authority under this Section 5 to
grant any optionee Incentive Stock Options, Non-Qualified Stock Options, or both
types of Stock Options (in each case with or without Stock Appreciation Rights
or Limited Stock Appreciation Rights); provided, however, that Incentive Stock
Options may not be granted to any individual who is not an employee of the
Company, its Subsidiaries or Parent Corporation. To the extent that any Stock
Option does not qualify as an Incentive Stock Option, it shall constitute a
separate Non-Qualified Stock Option. More than one option may be granted to the
same optionee and be outstanding concurrently hereunder.
(c) Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:
(i) Option Price. The option price per share of Stock purchasable
------------
under a Stock Option shall be determined by the Administrator in its sole
discretion at the time of grant but shall be not less than 100% of the Fair
Market Value of the Stock on such date, and shall not, in any event, be less
than the par value of the Stock. The option price per share of Stock
purchasable under a Non-Qualified Stock Option may be less than 100% of such
Fair Market Value. If an employee owns or is deemed to own (by reason of the
attribution rules applicable under Section 424(d) of the Code) more than 10% of
the combined voting power of all classes of stock of the Company or any Parent
Corporation or Subsidiary and an Incentive Stock Option is granted to such
employee, the option price of such Incentive Stock Option (to the extent
required by the Code at the time of grant) shall be no less than 110% of the
Fair Market Value of the Stock on the date such Incentive Stock Option is
granted.
7
<PAGE>
(ii) Option Term. The term of each Stock Option shall be fixed by
-----------
the Administrator, but no Stock Option shall be exercisable more than ten years
after the date such Stock Option is granted; provided, however, that if an
-------- -------
employee owns or is deemed to own (by reason of the attribution rules of Section
424(d) of the Code) more than 10% of the combined voting power of all classes of
stock of the Company or any Parent Corporation or Subsidiary and an Incentive
Stock Option is granted to such employee, the term of such Incentive Stock
Option (to the extent required by the Code at the time of grant) shall be no
more than five years from the date of grant.
(iii) Exercisability. Stock Options shall be exercisable at such
--------------
time or times and subject to such terms and conditions as shall be determined by
the Administrator at or after grant; provided, however, that, except as provided
-------- -------
herein or unless otherwise determined by the Administrator at or after grant,
Stock Options shall be exercisable one year following the date of grant of the
option, but in no case, less than six (6) months following the date of the grant
of the option. To the extent not exercised, installments shall accumulate and
be exercisable in whole or in part at any time after becoming exercisable but
not later than the date the Stock Option expires. The Administrator may
provide, in its discretion, that any Stock Option shall be exercisable only in
installments, and the Administrator may waive such installment exercise
provisions at any time in whole or in part based on such factors as the
Administrator may determine in its sole discretion.
(iv) Method of Exercise. Subject to Section 5(c), Stock Options may
------------------
be exercised in whole or in part at any time during the option period, by giving
written notice of exercise to the Company specifying the number of shares to be
purchased, accompanied by payment in full of the purchase price in cash or its
equivalent, as determined by the Administrator. As determined by the
Administrator, in its sole discretion, payment in whole or in part may also be
made (i) in the form of unrestricted Stock already owned by the optionee, or, in
the case of the exercise of a Non-Qualified Stock Option, Restricted Stock
subject to an Award hereunder (based, in each case, on the Fair Market Value of
the Stock on the date the option is exercised), (ii) by cancellation of any
indebtedness owed by the Company to the optionee, (iii) by a full recourse
promissory note executed by the optionee, (iv) by requesting that the Company
withhold whole shares of Common Stock
8
<PAGE>
then issuable upon exercise of the Stock Option (based on the Fair Market Value
of the Stock on the date the option is exercised), (v) by arrangement with a
broker which is acceptable to the Administrator where payment of the option
price is made pursuant to an irrevocable direction to the broker to deliver all
or part of the proceeds from the sale of the shares underlying the option to the
Company, or (vi) by any combination of the foregoing; provided, however, that in
-------- -------
the case of an Incentive Stock Option, the right to make payment in the form of
already owned shares may be authorized only at the time of grant. Any payment
in the form of stock already owned by the optionee may be effected by use of an
attestation form approved by the Administrator. If payment of the option
exercise price of a Non-Qualified Stock Option is made in whole or in part in
the form of Restricted Stock, the shares received upon the exercise of such
Stock Option (to the extent of the number of shares of Restricted Stock
surrendered upon exercise of such Stock Option) shall be restricted in
accordance with the original terms of the Restricted Stock award in question,
except that the Administrator may direct that such restrictions shall apply only
to that number of shares equal to the number of shares surrendered upon the
exercise of such option. An optionee shall generally have the rights to
dividends and other rights of a shareholder with respect to shares subject to
the option only after the optionee has given written notice of exercise, has
paid in full for such shares, and, if requested, has given the representation
described in paragraph (a) of Section 11.
(d) The Administrator may require the voluntary surrender of all or a
portion of any Stock Option granted under the Plan as a condition precedent to a
grant of a new Stock Option. Subject to the provisions of the Plan, such new
Stock Option shall be exercisable at the price, during such period and on such
other terms and conditions as are specified by the Administrator at the time the
new Stock Option is granted; provided, however, that should the Administrator so
-------- -------
require, the number of shares subject to such new Stock Option shall not be
greater than the number of shares subject to the surrendered Stock Option. Upon
their surrender, the Stock Options shall be canceled and the shares previously
subject to such canceled Stock Options shall again be available for grants of
Stock Options and other Awards hereunder.
9
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(e) Loans. The Company may make loans available to Stock Option holders in
-----
connection with the exercise of outstanding options granted under the Plan, as
the Administrator, in its discretion, may determine. Such loans shall (i) be
evidenced by promissory notes entered into by the Stock Option holders in favor
of the Company, (ii) be subject to the terms and conditions set forth in this
Section 5(e) and such other terms and conditions, not inconsistent with the
Plan, as the Administrator shall determine, (iii) bear interest, if any, at such
rate as the Administrator shall determine and (iv) be subject to Board approval.
In no event may the principal amount of any such loan exceed the sum of (x) the
exercise price less the par value of the shares of Stock covered by the option,
or portion thereof, exercised by the holder and (y) any Federal, state, and
local income tax attributable to such exercise. The initial term of the loan,
the schedule of payments of principal and interest under the loan, the extent to
which the loan is to be with or without recourse against the holder with respect
to principal or interest and the conditions upon which the loan will become
payable in the event of the holder's termination of employment shall be
determined by the Administrator; provided, however, that the term of the loan,
-------- -------
including extensions, shall not exceed seven years. Unless the Administrator
determines otherwise, when a loan is made, shares of Common Stock having a Fair
Market Value at least equal to the principal amount of the loan shall be pledged
by the holder to the Company as security for payment of the unpaid balance of
the loan, and such pledge shall be evidenced by a pledge agreement, the terms of
which shall be determined by the Administrator, in its discretion; provided,
--------
however, that each loan shall comply with all applicable laws, regulations and
- -------
rules of the Board of Governors of the Federal Reserve System and any other
governmental agency having jurisdiction.
(f) Limits on Transferability of Options.
------------------------------------
(i) Subject to Section 5(f)(ii), no Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution or, with respect to Non-Qualified Stock Options, pursuant to a
"qualified domestic relations order," as such term is defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Incentive Stock
Options shall be exercisable, during the optionee's lifetime, only by the
optionee or, with respect to Non-Qualified Stock Options, in accordance with the
terms of a qualified domestic relations order.
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(ii) The Administrator may, in its discretion, authorize all or a
portion of the options (other than Incentive Stock Options) to be granted to an
optionee to be on terms which permit transfer by such optionee to (A) the
spouse, qualified domestic partner, children or grandchildren of the optionee
and any other persons related to the optionee as may be approved by the
Administrator ("Immediate Family Members"), (B) a trust or trusts for the
exclusive benefit of such Immediate Family Members, (C) a partnership or
partnerships in which such Immediate Family Members are the only partners, or
(D) any other persons or entities as may be approved by the Administrator,
provided that (x) there may be no consideration for any transfer unless approved
by the Administrator, (y) the stock option agreement pursuant to which such
options are granted must be approved by the Administrator, and must expressly
provide for transferability in a manner consistent with this Section 5(f)(ii),
and (z) subsequent transfers of transferred options shall be prohibited except
those in accordance with Section 5(f)(i) or expressly approved by the
Administrator. Following transfer, any such options shall continue to be subject
to the same terms and conditions as were applicable immediately prior to
transfer, provided that, except for purposes of Sections 5(g), (h) and (i) and
11(c) hereof, the terms "optionee," Stock Option holder" and "Participant" shall
be deemed to refer to the transferee. The events of termination of employment
under Sections 5(g), (h) and (i) hereof shall continue to be applied with
respect to the original optionee, following which the options shall be
exercisable by the transferee only to the extent, and for the periods specified
under such sections unless the option agreement governing such options otherwise
provides. Notwithstanding the transfer, the original optionee will continue to
be subject to the provisions of Section 11(c) regarding payment of taxes,
including the provisions entitling the Company to deduct such taxes from amounts
otherwise due to such optionee. "Qualified domestic partner" for the purpose of
this Section 5(f)(ii) shall mean a domestic partner living in the same household
as the optionee and registered with, certified by or otherwise acknowledged by
the county or other applicable governmental body as a domestic partner or
otherwise establishing such status in any manner satisfactory to the
Administrator.
(g) Termination by Death. If an optionee's employment with the Company,
--------------------
any Subsidiary or Parent Corporation terminates by reason of death, the Stock
Option may thereafter be immediately
11
<PAGE>
exercised, to the extent then exercisable (or on such accelerated basis as the
Administrator shall determine at or after grant), by the legal representative of
the estate or by the legatee of the optionee under the will of the optionee, for
a period of twelve months (or such shorter period as the Administrator shall
specify at grant) from the date of such death or until the expiration of the
stated term of such Stock Option, whichever period is shorter.
(h) Termination by Reason of Disability. If an optionee's employment with
-----------------------------------
the Company, any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of such termination (or on such
accelerated basis as the Administrator shall determine at the time of grant),
for a period of twelve months (or such shorter period as the Administrator shall
specify at grant) from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is shorter;
provided, however, that, if the optionee dies within such twelve-month period
- -------- -------
(or such shorter period as the Administrator shall specify at grant) and prior
to the expiration of the stated term of such Stock Option, any unexercised Stock
Option held by such optionee shall thereafter be exercisable to the extent to
which it was exercisable at the time of termination for a period of twelve
months (or such shorter period as the Administrator shall specify at grant) from
the time of death or until the expiration of the stated term of such Stock
Option, whichever period is shorter. In the event of a termination of
employment by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, such Stock Option shall thereafter be treated as a Non-
Qualified Stock Option.
(i) Other Termination. Except as otherwise provided in this paragraph or
-----------------
otherwise determined by the Administrator, if an optionee's employment with the
Company, any Subsidiary or Parent Corporation terminates for any reason other
than death or Disability, the Stock Option may be exercised until the earlier to
occur of (i) three months from the date of such termination or (ii) the
expiration of the stated term of such Stock Option.
12
<PAGE>
(j) Annual Limit on Incentive Stock Options. To the extent that the
---------------------------------------
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of the shares of Stock with respect to which Incentive Stock
Options granted to an optionee under this Plan and all other option plans of the
Company, its Parent Corporation and any Subsidiary become exercisable for the
first time by the optionee during any calendar year exceeds $100,000, such Stock
Options shall be treated as Non-Qualified Stock Options.
Section 6. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights and Limited Stock
------------------
Appreciation Rights may be granted either alone ("Free Standing Rights") or in
conjunction with all or part of any Stock Option granted under the Plan
("Related Rights"). In the case of a Non-Qualified Stock Option, Related Rights
may be granted either at or after the time of the grant of such Stock Option.
In the case of an Incentive Stock Option, Related Rights may be granted only at
the time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted in conjunction with a
given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that, unless
otherwise provided by the Administrator at the time of grant, a Related Right
granted with respect to less than the full number of shares covered by a related
Stock Option shall only be reduced if and to the extent that the number of
shares covered by the exercise or termination of the related Stock Option
exceeds the number of shares not covered by the Stock Appreciation Right.
A Related Right may be exercised by an optionee, in accordance with
paragraph (b) of this Section 6, by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in paragraph
(b) of this Section 6. Stock Options which have been so surrendered, in whole or
in part, shall no longer be exercisable to the extent the Related Rights have
been so exercised.
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<PAGE>
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
--------------------
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Administrator, including the
following:
(i) Related Stock Appreciation Rights.
(A) Stock Appreciation Rights that are Related Rights ("Related
Stock Appreciation Rights") shall be exercisable only at such time or times
and to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 and this Section
6; provided, however, that any Related Stock Appreciation Right shall not
-------- -------
be exercisable during the first six months of its term, except that this
additional limitation shall not apply in the event of death or Disability
of the optionee prior to the expiration of such six-month period.
(B) Upon the exercise of a Related Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an amount
in cash or that number of shares of Stock (or in some combination of cash
and shares of Stock) equal in value to the excess of the Fair Market Value
of one share of Stock as of the date of exercise over the option price per
share specified in the related Stock Option multiplied by the number of
shares of Stock in respect of which the Related Stock Appreciation Right is
being exercised, with the Administrator having the right to determine the
form of payment.
(C) Related Stock Appreciation Rights shall be transferable or
exercisable only when and to the extent that the underlying Stock Option
would be transferable or exercisable under paragraph (f) of Section 5 of
the Plan.
(D) Upon the exercise of a Related Stock Appreciation Right, the
Stock Option or part thereof to which such Related Stock Appreciation Right
is related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 of the Plan on the number of shares of
Stock to be issued under the Plan, but only to the extent of the number of
shares issued under the Related Stock Appreciation Right.
14
<PAGE>
(E) A Related Stock Appreciation Right granted in connection with
an Incentive Stock Option may be exercised only if and when the Fair Market
Value of the Stock subject to the Incentive Stock Option exceeds the
exercise price of such Stock Option.
(ii) Free Standing Stock Appreciation Rights.
(A) Stock Appreciation Rights that are Free Standing Rights
("Free Standing Stock Appreciation Rights") shall be exercisable at such
time or times and subject to such terms and conditions as shall be
determined by the Administrator at or after grant; provided, however, that
-------- -------
Free Standing Stock Appreciation Rights shall not be exercisable during the
first six months of its term, except that this limitation shall not apply
in the event of death or Disability of the recipient of the Free Standing
Stock Appreciation Right prior to the expiration of such six-month period.
(B) The term of each Free Standing Stock Appreciation Right shall
be fixed by the Administrator, but no Free Standing Stock Appreciation
Right shall be exercisable more than ten years after the date such right is
granted.
(C) Upon the exercise of a Free Standing Stock Appreciation
Right, a recipient shall be entitled to receive up to, but not more than,
an amount in cash or that number of shares of Stock (or any combination of
cash or shares of Stock) equal in value to the excess of the Fair Market
Value of one share of Stock as of the date of exercise over the price per
share specified in the Free Standing Stock Appreciation Right (which price
shall be no less than 100% of the Fair Market Value of the Stock on the
date of grant) multiplied by the number of shares of Stock with respect to
which the right is being exercised, with the Administrator having the right
to determine the form of payment.
(D) Free Standing Stock Appreciation Rights shall be transferable
or exercisable subject to the provisions governing the transferability and
exercisability of Stock Options set forth in paragraphs (c) and (f) of
Section 5.
15
<PAGE>
(E) In the event of the termination of an employee who has
received Free Standing Stock Appreciation Rights, such rights shall be
exercisable to the same extent that a Stock Option would have been
exercisable in the event of the termination of the optionee.
(F) For the purpose of the limitation set forth in Section 3 on
the number of shares to be issued under the Plan, the grant or exercise of
Free Standing Stock Appreciation Rights shall be deemed to constitute the
grant or exercise, respectively, of Stock Options with respect to the
number of shares of Stock with respect to which such Free Standing Stock
Appreciation Rights were so granted or exercised.
(iii) Limited Stock Appreciation Rights.
(A) Limited Stock Appreciation Rights may only be exercised
within the 30-day period following a "Change of Control" (as defined in
Section 10 below), and, with respect to Limited Stock Appreciation Rights
that are Related Rights ("Related Limited Stock Appreciation Rights"), only
to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 and this Section
6; provided, however, that no Related Limited Stock Appreciation Right
shall be exercisable during the first six months of its term, except that
this additional limitation shall not apply in the event of death or
Disability of the optionee prior to the expiration of such six-month
period.
(B) Upon the exercise of a Limited Stock Appreciation Right, the
recipient shall be entitled to receive an amount in cash equal in value to
the excess of the "Change of Control Price" (as defined in Section 10) of
one share of Stock as of the date of exercise over (1) the option price per
share specified in the related Stock Option, or (2) in the case of a
Limited Stock Appreciation Right which is a Free Standing Stock
Appreciation Right, the price per share specified in the Free Standing
Stock Appreciation Right, such excess to be multiplied by the number of
shares in respect of which the Limited Stock Appreciation Right shall have
been exercised.
16
<PAGE>
Section 7. Deferred Stock and Restricted Stock.
(a) General. Deferred Stock and Restricted Stock awards may be issued to
-------
Eligible Employees either alone or in addition to other Awards granted under the
Plan. The Administrator shall determine the Eligible Employees, and the time or
times at which, grants of Deferred Stock or Restricted Stock awards shall be
made; the number of shares to be awarded; the price, if any, to be paid by the
recipient of Deferred Stock or Restricted Stock awards; the Restricted Period
(as defined in paragraph 7(c) hereof) applicable to Deferred Stock or Restricted
Stock awards; the performance objectives applicable to Deferred Stock or
Restricted Stock awards; the date or dates on which restrictions applicable to
such Deferred Stock or Restricted Stock awards shall lapse during such
Restricted Period; and all other conditions of the Deferred Stock or Restricted
Stock awards. The Administrator may also condition the grant of Deferred Stock
or Restricted Stock awards upon the exercise of Stock Options, or upon such
other criteria as the Administrator may determine, in its sole discretion. The
provisions of Deferred Stock or Restricted Stock awards need not be the same
with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a Deferred
-----------------------
Stock or Restricted Stock award shall not have any rights with respect to such
Award, unless and until such recipient has executed an agreement evidencing the
Award (a "Deferred Stock Award Agreement" or Restricted Stock Award Agreement"
as appropriate) and has delivered a fully executed copy thereof to the Company,
within a period of sixty days (or such other period as the Administrator may
specify) after the Award date.
Except as provided below in this Section 7(b), (i) each Participant who is
awarded Restricted Stock shall be issued a stock certificate in respect of such
shares of Restricted Stock; and (ii) such certificate shall be registered in the
name of the Participant, and shall bear an appropriate legend referring to the
terms, conditions, and restrictions applicable to such Award, substantially in
the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the BNC Mortgage, Inc., 1997 Stock Option, Deferred Stock
and Restricted
17
<PAGE>
Stock Plan and a Restricted Stock Award Agreement entered into between the
registered owner and BNC Mortgage, Inc. Copies of such Plan and Agreement
are on file in the offices of BNC Mortgage, Inc."
The Company shall require that the stock certificates evidencing such
shares be held in the custody of the Company until the restrictions thereon
shall have lapsed, and that, as a condition of any Restricted Stock award, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Stock covered by such Award.
With respect to Deferred Stock awards, at the expiration of the Restricted
Period, stock certificates in respect of such shares of Deferred Stock shall be
delivered to the Participant, or his legal representative, in a number equal to
the shares of Stock covered by the Deferred Stock award.
(c) Restriction and Conditions. The Deferred Stock or Restricted Stock
--------------------------
awards granted pursuant to this Section 7 shall be subject to the following
restrictions and conditions:
(i) Subject to the provisions of the Plan and the Deferred Stock or
Restricted Stock Award Agreements, during such period as may be set by the
Administrator commencing on the grant date (the "Restricted Period"), the
Participant shall not be permitted to sell, transfer, pledge or assign shares of
Deferred Stock or Restricted Stock awarded under the Plan. Within these limits,
the Administrator may, in its sole discretion, provide for the lapse of such
restrictions in installments and may accelerate or waive such restrictions in
whole or in part based on such factors and such circumstances as the
Administrator may determine, in its sole discretion, including, but not limited
to, the attainment of certain performance related goals, the Participant's
termination, death or Disability or the occurrence of a "Change of Control" as
defined in Section 10 below.
(ii) Except as provided in paragraph (c)(i) of this Section 7, the
Participant shall have, with respect to the shares of Restricted Stock, all of
the rights of a shareholder of the Company, including the right to vote the
shares, and the right to receive any dividends thereon during the Restricted
Period. With respect to Deferred Stock awards, the Participant shall generally
18
<PAGE>
not have the rights of a shareholder of the Company, including the right to vote
the shares during the Restricted Period; provided, however, that dividends
-------- -------
declared during the Restricted Period with respect to the number of shares
covered by a Deferred Stock award shall be paid to the Participant.
Certificates for shares of unrestricted Stock shall be delivered to the
Participant promptly after, and only after, the Restricted Period shall expire
without forfeiture in respect of such shares of Deferred Stock or Restricted
Stock, except as the Administrator, in its sole discretion, shall otherwise
determine.
(iii) Subject to the provisions of the Deferred Stock or Restricted
Stock Award Agreement and this Section 7, upon termination of employment for any
reason during the Restricted Period, all shares subject to any restriction as of
the date of such termination shall be forfeited by the Participant, and the
Participant shall only receive the amount, if any, paid by the Participant for
such Deferred Stock or Restricted Stock, plus simple interest on such amount at
the rate of 8% per year.
Section 8. Amendment and Termination.
(a) The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights of the
Participant under any Award theretofore granted without such Participant's
consent, or that without the approval of the shareholders (as described below)
would:
(i) except as provided in Section 3, increase the total number of
shares of Stock reserved for the purpose of the Plan;
(ii) change the employees or class of employees eligible to
participate in the Plan;
(iii) extend the maximum option period under Section 5 of the Plan.
(b) Notwithstanding the foregoing, shareholder approval under this Section
8 shall only be required at such time and under such circumstances as
shareholder approval would be required under applicable laws, regulations and
exchange requirements.
19
<PAGE>
(c) The Administrator may amend the terms of any Award theretofore granted,
prospectively or retroactively, but, subject to Section 3, no such amendment
shall impair the rights of any holder without his or her consent.
Section 9. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a Participant or
optionee by the Company, nothing contained herein shall give any such
Participant or optionee any rights that are greater than those of a general
creditor of the Company.
Section 10. Change of Control.
The following acceleration and valuation provisions shall apply in the
event of a "Change of Control", as defined in paragraph (b) of this Section 10:
(a) In the event of a "Change of Control," unless otherwise determined by
the Administrator or the Board in writing at or after grant (including under any
individual agreement), but prior to the occurrence of such Change of Control;
(i) any Stock Appreciation Rights outstanding for at least six
months and any Stock Options awarded under the Plan not previously exercisable
and vested shall become fully exercisable and vested;
(ii) the restrictions applicable to any Restricted Stock or Deferred
Stock awards under the Plan shall lapse, and such shares and Awards shall be
deemed fully vested;
(iii) any indebtedness incurred pursuant to Section 5(e) above shall
be forgiven and the collateral pledged in connection with any such loan shall be
released; and
(iv) the value of all outstanding Stock Options, Stock Appreciation
Rights, Limited Stock Appreciation Rights, Restricted Stock and Deferred Stock
awards shall, to the extent determined by the Administrator at or after grant,
be cashed out by a payment of cash or other property, as the Administrator may
determine, on the basis of the "Change of Control Price" (as defined in
paragraph (c)
20
<PAGE>
of this Section 10) as of the date the Change of Control occurs or such other
date as the Administrator may determine prior to the Change of Control.
(b) For purposes of paragraph (a) of this Section 10, a "Change of Control"
shall be deemed to have occurred if:
(i) any "person," as such term is used in Sections 13(d) and 14(d) of
the Exchange Act(other than the Company; any trustee or other fiduciary holding
securities under an employee benefit plan of the Company; or any company owned,
directly or indirectly, by the shareholders of the Company in substantially the
same proportions as their ownership of the Stock of the Company) is or becomes
after the Effective Date the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company (not
including in the securities beneficially owned by such person or any securities
acquired directly from the Company or its affiliates) representing 30% or more
of the combined voting power of the Company's then outstanding securities; or
(ii) during any period of two consecutive years (not including any
period prior to the Effective Date), individuals who at the beginning of such
period constitute the Board, and any new director (other than a director
designated by a person who has entered into an agreement with the Company to
effect a transaction described in clause (i), (iii) or (iv) of this Section
10(b)) whose election by the Board or nomination for election by the Company's
shareholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute at least a majority thereof; or
(iii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than (A) a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity), in combination with the ownership of any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, at
least 75% of the combined voting power of the voting securities
21
<PAGE>
of the Company or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no person
acquires more than 50% of the combined voting power of the Company's then
outstanding securities; or
(iv) the shareholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
(c) For purposes of this Section 10, "Change of Control Price" means the
higher of (i) the highest price per share paid or offered in any transaction
related to a Change of Control of the Company or (ii) the highest price per
share paid in any transaction reported on the exchange or national market system
on which the Stock is listed, at any time during the preceding sixty day period
as determined by the Administrator, except that, in the case of Incentive Stock
Options and Stock Appreciation Rights or Limited Stock Appreciation Rights
relating to Incentive Stock Options, such price shall be based only on
transactions reported for the date on which the Administrator decides to cash
out such options.
Section 11. General Provisions.
(a) The Administrator may require each person purchasing shares pursuant to
a Stock Option to represent to and agree with the Company in writing that such
person is acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the Administrator
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Commission, any stock exchange upon which the Stock is then
listed, and any applicable Federal or state securities law, and the
Administrator may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
22
<PAGE>
(b) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to shareholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases.
(c) Each Participant shall, no later than the date as of which the value of
an Award first becomes includable in the gross income of the Participant for
Federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any Federal, state, or
local taxes of any kind required by law to be withheld with respect to the
Award. The obligations of the Company under the Plan shall be conditional on
the making of such payments or arrangements, and the Company (and, where
applicable, its Subsidiaries) shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due to the
Participant.
(d) No member of the Board or the Administrator, nor any officer or
employee of the Company acting on behalf of the Board or the Administrator,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Board or the Administrator and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
(e) No Enlargement of Employee Rights. This Plan is purely voluntary on
the part of the Company, and while the Company hopes to continue it
indefinitely, the continuance of the Plan shall not be deemed to constitute a
contract between the Company and any employee, or to be consideration for or a
condition of the employment of any employee. Nothing contained in the Plan
shall be deemed to give any employee the right to be retained in the employ of
the Company, its Subsidiaries, or its Parent Corporation to interfere with the
right of the Company, or it Subsidiaries to discharge or retire any employee
thereof at any time. No employee shall have any right to or interest in Stock
Options, Stock Appreciation Rights or Limited Stock Appreciation Rights,
Restricted Stock, or Deferred Stock, authorized hereunder prior to the grant of
such a Stock Option or other award described herein to such employee, and upon
such grant he or she shall have only such
23
<PAGE>
rights and interests as are expressly provided herein, subject, however, to all
applicable provisions of the Company's Articles of Incorporation, as the same
may be amended from time to time.
Section 12. Specific Performance.
The Stock Options granted under this Plan and the Shares issued pursuant to
the exercise of such Stock Options cannot be readily purchased or sold in the
open market, and, for that reason among others, the Company and its shareholders
will be irreparably damaged in the event that this Plan is not specifically
enforced. In the event of any controversy concerning the right or obligation to
purchase or sell any such Option or Optioned Stock, such right or obligation
shall be enforceable in a court of equity by a decree of a specific performance.
Such remedy shall, however, be cumulative and not exclusive, and shall be in
addition to any other remedy which the parties may have.
Section 13. Invalid Provision.
In the event that any provision of this Plan is found to be invalid or
otherwise unenforceable under any applicable law, such invalidity or
unenforceability shall not be construed as rendering any other provisions
contained herein invalid or unenforceable, and all such other provisions shall
be given full force and effect to the same extent as though the invalid
unenforceable provision was not contained herein.
Section 14. Applicable Law.
This Plan shall be governed by and construed in accordance with the laws of
the State of California.
Section 15. Successors and Assigns.
This Plan shall be binding on and inure to the benefit of the Company and
the employees to whom an Option is granted hereunder, and such employees' heirs,
executors, administrators, legatees, personal representatives, assignees and
transferees.
24
<PAGE>
Section 16. Effective Date of Plan.
The Plan became effective (the "Effective Date") on October 23, 1997.
Section 17. Term of Plan.
No Stock Option, Stock Appreciation Right, Limited Stock Appreciation
Right, Deferred Stock or Restricted Stock award shall
be granted pursuant to the Plan on or after the tenth anniversary of the
Effective Date, but Awards theretofore granted may extend beyond that date.
IN WITNESS WHEREOF, pursuant to the due authorization and adoption of this
plan by the Board on the day and year first above written, the Company has
caused this Plan to be duly executed by its duly authorized officers.
BNC MORTGAGE, INC.
By: /s/ KELLY W. MONAHAN
------------------------------
Name: Kelly W. Monahan
Title: Chief Financial Officer
25
<PAGE>
BNC MORTGAGE, INC.
1997 STOCK OPTION, DEFERRED STOCK
AND RESTRICTED STOCK PLAN
DEFERRED STOCK OR
RESTRICTED STOCK AWARD AGREEMENT
Participant Name:___________________
This AGREEMENT dated as of the _____ day of _______________, ____, between
BNC MORTGAGE, INC., a ______________ corporation (the "Company") and
________________ (the "Participant").
RECITALS
WHEREAS, the Company has established the 1997 Stock Option, Deferred Stock
and Restricted Stock Plan (the "Plan") effective as of ________________, and
WHEREAS, pursuant to Section 2 of the Plan, the Administrator has granted
to the Participant by action duly taken on __________, ______,(the "Award Date")
a deferred stock award (the "Deferred Stock Award") and/or a restricted stock
award (the "Restricted Stock Award") based upon the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of services rendered and to be rendered by
the Participant and the mutual promises made herein, the mutual benefits to be
derived therefrom and other good and valuable consideration, the parties agree
as follows:
AGREEMENT
1. Grant. Subject to the terms of this Agreement, the Company grants to
-----
the Participant the following:
(a) Deferred Stock Award:
__________ shares of Common Stock of the Company (the
"Deferred Stock")
Price (optional): $_____________ per share
Restricted Period: ____________________ to __________________
-1-
<PAGE>
Performance Objectives (optional):
Other Restrictions:
(b) Restricted Stock Award:
__________ shares of Common Stock of the Company (the
"Restricted Stock")
Price (optional): $_____________ per share
Restricted Period: ____________________ to __________________
Performance Objectives (optional):
Other Restrictions:
2. Deferred Stock.
--------------
(a) Restriction. Subject to the provisions of the Plan and this
Agreement, during the Restricted Period, Participant is not permitted to sell,
transfer, pledge or assign shares of Deferred Stock awarded hereunder.
(b) Voting Rights, Dividends and Certificates. Participant shall
generally not have the rights of a shareholder of the Company, including the
right to vote the shares during the Restricted Period; provided, however, that
-------- -------
dividends declared during the Restricted Period with respect to the number of
shares covered by the Deferred Stock Award shall be paid to Participant.
Certificates for shares of unrestricted Stock shall be delivered to Participant
promptly after, and only after, the Restricted Period expires without forfeiture
in respect of such shares of Deferred Stock, except as the Participant otherwise
determines.
(c) Termination. Subject to the provisions of Section 7 of the Plan
and this Agreement, upon termination of employment for any reason during the
Restricted Period, all shares still subject to restriction shall be forfeited by
Participant, and
-2-
<PAGE>
Participant shall only receive the amount, if any, paid by Participant for such
Deferred Stock, plus simple interest at 8% per year.
(d) Expiration. At the expiration of the Restricted Period, stock
certificates in respect of such shares of Deferred Stock shall be delivered to
Participant, or his legal representative, in a number equal to the shares of
Stock covered by the Deferred Stock Award.
3. Restricted Stock.
----------------
(a) Restriction. Subject to the provisions of the Plan, Participant
is not permitted to sell, transfer, pledge or assign the shares of Restricted
Stock during the Restricted Period.
(b) Certificates and Legend. Participant shall be issued a stock
certificate in respect of such shares of Restricted Stock; and such certificate
shall be registered in the name of Participant, and shall bear an appropriate
legend referring to the terms, conditions, and restrictions applicable to such
Award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the BNC Mortgage, Inc., 1997 Stock Option, Deferred Stock
and Restricted Stock Plan and a Restricted Stock Award Agreement entered
into between the registered owner and BNC Mortgage, Inc. Copies of such
Plan and Agreement are on file in the offices of BNC Mortgage, Inc."
The stock certificates evidencing such shares shall be held in the
custody of the Company until the restrictions thereon shall have lapsed, and
that, as a condition of any Restricted Stock award, Participant shall have
delivered a stock power, endorsed in blank, relating to the Stock covered by
such Award, a form of which is attached here to as Exhibit A.
(c) Voting Rights. Except as provided herein, Participant shall have
all of the rights of a shareholder of the Company, including the right to vote
the shares, and the right to receive any dividends thereon during the Restricted
Period.
-3-
<PAGE>
(d) Termination. Subject to the provisions of this Agreement and
Section 7 of the Plan, upon termination of employment for any reason during the
Restricted Period, all shares still subject to restriction shall be forfeited by
Participant, and Participant shall only receive the amount, if any, paid by the
Participant for such Restricted Stock, plus simple interest at 8% per year.
4. Governing Plan. This Agreement hereby incorporates by reference the
--------------
Plan and all of the terms and conditions of the Plan as heretofore amended and
as the same may be amended from time to time hereafter in accordance with the
terms thereof, but no such subsequent amendment shall adversely affect
Participant's rights under this Agreement and the Plan except as may be required
by applicable law. Participant expressly acknowledges and agrees that the
provisions of this Agreement are subject to the Plan; the terms of this
Agreement shall in no manner limit or modify the controlling provisions of the
Plan, and in case of any conflict between the provisions of the Plan and this
Agreement, the provisions of the Plan shall be controlling and binding upon the
parties hereto. Participant also hereby expressly acknowledges, represents and
agrees as follows:
(a) Acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto and by reference incorporated herein, and represents that he/she
is familiar with the terms and provisions of said Plan, and hereby accepts this
Agreement subject to all the terms and provisions of said Plan.
(b) Agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions arising under the Plan.
(c) Acknowledges that he/she is familiar with Sections of the Plan
regarding the issuance of the [Deferred Stock and/or Restricted Stock].
5. Representations and Warranties. As a condition to the issuance of any
------------------------------
portion of shares of [Restricted Stock/Deferred Stock] the Company may require
Participant receiving such shares to make any representation and/or warranty to
the Company as may, in the judgment of counsel to the Company, be required under
any applicable law or regulation, including but not limited to a representation
and warranty that the shares are being acquired only for investment and without
any present intention to sell or
-4-
<PAGE>
distribute such shares if, in the opinion of counsel for the Company, such a
representation is required under the Securities Act of 1933 or any other
applicable law, regulation or rule of any governmental agency. Participant
hereby represents to the Company that the shares issuable pursuant to this
Agreement are being acquired only for investment and without any present
intention to sell or distribute such securities.
6. No Enlargement of Employee Rights. Nothing in this Agreement shall be
---------------------------------
construed to confer upon Participant(if an employee) any right to continued
employment with the Company, any Parent or Subsidiary, or to restrict in any way
the right of the Company, a Subsidiary or Parent to terminate his/her
employment. Participant acknowledges that in the absence of an express written
employment agreement to the contrary, Participant's employment with the Company
may be terminated by the Company at any time, with or without cause.
7. Execution and Delivery. Participant acknowledges that Participant
----------------------
shall have no rights with respect to any Award granted by the Company unless and
until Participant executes an Award Agreement and delivers it to the Company
within sixty days of such award (or such other period as the Participant may
specify after the Award Date).
8. Withholding of Taxes. Participant authorizes the Company to withhold,
--------------------
in accordance with any applicable law, from any compensation payable to him any
taxes required to be withheld by federal, state or local law as a result of the
grant of Deferred Stock and/or Restricted Stock Award.
9. Laws Applicable to Construction. This Agreement shall be construed
-------------------------------
and enforced in accordance with the laws of the State of California.
10. Agreement Binding on Successors. The terms of this Agreement shall be
-------------------------------
binding upon the executors, administrators, heirs, successors, transferees and
assignees of the Participant.
11. Costs of Litigation. In any action at law or in equity to enforce any
-------------------
of the provisions or rights under this Agreement or the Plan, the unsuccessful
party to such litigation, as determined by the court in a final judgment or
decree, shall pay the successful party or parties all costs, expenses and
reasonable attorneys' fees incurred by the successful party or parties
-5-
<PAGE>
(including without limitation costs, expenses end fees on any appeals), and if
the successful party recovers judgment in any such action or proceeding such
costs, expenses and attorneys' fees shall be included as part of the judgment.
12. Necessary Acts. The Participant agrees to perform all acts and
--------------
execute and deliver any documents that may be reasonably necessary to carry out
the provisions of this Agreement, including but not limited to all acts and
documents related to compliance with federal and/or state securities laws.
13. Counterparts. For convenience this Agreement may be executed in any
------------
number of identical counterparts, each of which shall be deemed a complete
original in itself and may be introduced in evidence or used for any other
purpose without the production of any other counterparts.
14. Invalid Provisions. In the event that any provision of this Agreement
------------------
is found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid and unenforceable provision was not contained herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written. By Participant's execution of this Agreement, Participant
agrees to the terms and conditions hereof and of the Plan.
BNC MORTGAGE, INC. Participant
By: _________________________ _______________________
Name: (Signature)
Title:
_______________________
(Print Name)
_______________________
(Address)
_______________________
(City, State, Zip Code)
_______________________
(Social Security)
-6-
<PAGE>
By his or her signature below, the spouse of the Participant, of such
Participant be legally married as of the date of his execution of this
Agreement, acknowledges that he or she has read this Agreement and the Plan and
is familiar with the terms and provisions thereof, and agrees to be bound by all
the terms and conditions of said Agreement and said Plan document.
___________________________________
Spouse
Dated: ____________________________
By his or her signature below the Participant represents that he or
she is not legally married as of the date of execution of this Agreement.
___________________________________
Participant
Dated: ____________________________
Instruction: Sign and complete two copies of this Agreement and return one in
the enclosed, addressed envelope to the Company.
-7-
<PAGE>
EXHIBIT A
STOCK ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, the undersigned hereby sell, assign and transfer unto:
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------
- --------------------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
_______________________________________________) Shares of the _________________
Stock of the _______________________________________________________ Corporation
standing in ___________________________ name(s) on the books of said Corporation
represented by certificate(s) No._______________________________________________
herewith and do hereby irrevocably constitute and appoint ______________________
_______________________________________________________________________ attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitute.
Dated _______________________________ _______________________________________
_______________________________________
THE SIGNATURE(S) ON THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) ON THE FACE
OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR
ANY CHANGE.
THE SIGNATURE(S) OF THE ASSIGNOR(S) MUST BE GUARANTEED HEREON.
<PAGE>
BNC MORTGAGE, INC.
1997 STOCK OPTION, DEFERRED STOCK
AND RESTRICTED STOCK PLAN
STOCK APPRECIATION RIGHTS AGREEMENT
Participant Name: ___________________
This AGREEMENT dated as of the _____ day of _______________, _____, between
BNC MORTGAGE, INC., a ___________________________ corporation (the "Company")
and ___________________________ (the "Participant").
RECITALS
WHEREAS, the Company has established the 1997 Stock Option, Deferred Stock
and Restricted Stock Plan (the "Plan") effective as of ____________________; and
WHEREAS, pursuant to Section 2 of the Plan, the Administrator of the Plan
by action duly taken on ___________, ______, granted to Participant Stock
Appreciation Rights ("SARs") on the terms and set forth in the Plan and the term
and conditions set forth herein.
NOW, THEREFORE, in consideration of services rendered and to be rendered by
the Participant and the mutual promises made herein, the mutual benefits to be
derived therefrom and other good and valuable consideration, the parties agree
as follows:
AGREEMENT
1. Grant. Subject to the terms of this Agreement, the Company grants to
-----
Participant SARS covering a total of _______________ shares of Common Stock of
the Company subject to the terms and conditions set forth in the Plan and the
terms and conditions set forth herein at a price of $____________ per share (the
"SAR Price").
2. Type of SAR and Exercise Dates. SARs that are granted in conjunction
------------------------------
with all or part of a Stock Option granted under the Plan shall be marked below
as such and designated as a "Related SAR." In the case of an Incentive Stock
Option, Related SARs may be granted only at the time of the grant of the
Incentive Stock
1
<PAGE>
Option. SARs that are granted alone shall be marked below as such and
designated as a "Free Standing SAR." The SAR shall be exercisable as to the
specified number of shares on and after the "First" dates and on or before the
"Last" dates set forth below:
<TABLE>
<CAPTION>
Exercise Dates
--------------
<S> <C> <C> <C>
Type of SAR Number of Shares First Last
----------- ---------------- ----- ----
- ---------------- -------------------- --------- ---------
- ---------------- -------------------- --------- ---------
- ---------------- -------------------- --------- ---------
- ---------------- -------------------- --------- ---------
- ---------------- -------------------- --------- ---------
</TABLE>
If Participant is granted a Related SAR, the Stock Option with which it was
granted is specified below.
Grant date of Stock Option: _____________
Shares Underlying Stock Option: _____________
Price per share of Stock Option: $____________
Participant acknowledges that he/she understands he/she has no right
whatsoever to exercise the SAR(s) granted hereunder with respect to any Shares
covered by any installment until such installment accrues as provided above.
3. Governing Plan. This Agreement hereby incorporates by reference the
--------------
Plan and all of the terms and conditions of the Plan as heretofore amended and
as the same may be amended from time to time hereafter in accordance with the
terms thereof, but no such subsequent amendment shall adversely affect
Participant's rights under this Agreement and the Plan except as may be required
by applicable law. Participant expressly acknowledges and agrees that the
provisions of this Agreement are subject to the Plan; the terms of this
Agreement shall in no manner limit or modify the controlling provisions of the
Plan, and in case of any conflict between the provisions of the Plan and this
Agreement, the provisions of the Plan shall be controlling and binding upon the
parties hereto. Participant also hereby expressly acknowledges, represents and
agrees as follows:
2
<PAGE>
(a) Acknowledges receipt of a copy of the Plan, a copy of which is attached
hereto and by reference incorporated herein, and represents that he/she is
familiar with the terms and provisions of said Plan, and hereby accepts this
Agreement subject to all the terms and provisions of said Plan.
(b) Agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions arising under the Plan.
(c) Acknowledges that he/she is familiar with Sections of the Plan
regarding the exercise of the SAR(s) and represents that he/she understands that
said SAR(s) must be exercised on or before the earliest of the following dates,
whichever is applicable: (i) the "Last" exercise date noted above in Section 2;
(ii) if a Related SAR, then upon the termination or exercise of the related
Stock Option;(iii) the effective date of a sale or other disposition of all or
substantially all of the stock or assets of the Company, as provided in Section
10 of the Plan; (iv) the date which is the earlier of (A) three months from the
date of termination or (B) the expiration of such SAR's term following the
Participant's termination of directorship or consulting or other arrangement
(unless extended) for any reason other than death or disability as provided
under Subsection 5(i) of the Plan; or (v) the date that is one year following
the Participant's termination of employment, directorship or consulting or other
arrangement by reason of his/her death, or the date that is one year following
his/her termination of employment, directorship or consulting or other
arrangement by reason of disability, whichever is applicable, as provided in
Subsections 5(g) and 5(h) of the Plan.
4. Representations and Warranties. As a condition to the exercise of any
------------------------------
portion of an SAR, the Company may require, if issuing shares of stock, the
person exercising such SAR to make any representation and/or warranty to the
Company as may, in the judgment of counsel to the Company, be required under any
applicable law or regulation, including but not limited to a representation and
warranty that the shares are being acquired only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required under the Securities
Act of 1933 or any other applicable law, regulation or rule of any governmental
agency. If Participant receives stock upon exercise of an SAR, Participant
hereby represents to the Company that each of the SARs evidenced hereby and the
shares issuable upon exercise
3
<PAGE>
thereof is being acquired only for investment and without any present intention
to sell or distribute such securities.
5. No Enlargement of Employee Rights. Nothing in this Agreement shall be
---------------------------------
construed to confer upon Participant (if an employee) any right to continued
employment with the Company, any Parent or Subsidiary, or to restrict in any way
the right of the Company, a Subsidiary or Parent, to terminate his/her
employment. Participant acknowledges that in the absence of an express written
employment agreement to the contrary, Participant's employment with the Company
may be terminated by the Company at any time, with or without cause.
6. Related SARs.
------------
(a) Term. A Related SAR or applicable portion thereof granted with respect
to a given Stock Option will terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that, unless
otherwise provided by the Administrator at the time of grant, a Related SAR
granted with respect to less than the full number of shares covered by a related
Stock Option will only be reduced if and to the extent that the number of shares
covered by the exercise or termination of the related Stock Option exceeds the
number of shares not covered by the SAR.
(b) Exercise. Related SARs are exercisable only at such time or times and
to the extent that the Stock Options to which they relate are exercisable;
provided, however, that any Related SAR is not exercisable during the first six
- -------- -------
(6) months of its term, except that this additional limitation shall not apply
in the event of death or Disability (as defined in the Plan) of the Participant
prior to the expiration of such six-month period.
Upon the exercise of a Related SAR, Participant is entitled to receive up
to, but not more than, an amount in cash or that number of shares of Stock (or
in some combination of cash and shares of Stock) equal in value to the excess of
the Fair Market Value (as defined in the Plan) of one share of Stock as of the
date of exercise over the option price per share specified in the related Stock
Option multiplied by the number of shares of Stock in respect of which the
Related SAR has been exercised, with the Administrator having the right to
determine the form of payment.
4
<PAGE>
Upon the exercise of a Related SAR, the Stock Option or part thereof to
which such Related SAR is related is deemed to have been exercised for the
purpose of the limitation set forth in Section 3 of the Plan on the number of
shares of Stock to be issued under the Plan, but only to the extent of the
number of shares issued under the Related SAR.
A Related SAR granted in connection with an Incentive Stock Option may be
exercised only if and when the Fair Market Value of the Stock subject to the
Incentive Stock Option exceeds the exercise price of such Stock Option.
(c) Transferability. Related SARs are transferable only when and to the
extent that the underlying Stock Option would be transferable under Section 5(f)
of the Plan.
7. Free Standing SARs.
------------------
(a) Term. The term of a Free Standing SAR is fixed by the Administrator
and set forth herein, but no Free Standing SAR is exercisable more than ten
years after the date such right is granted.
(b) Exercise. Free Standing SARs are not be exercisable during the first
six (6) months of its term, except that this limitation does not apply in the
event of death or Disability (as defined in the Plan) of Participant prior to
the expiration of such six-month period.
Upon the exercise of a Free Standing SAR, Participant is entitled to
receive up to, but not more than, an amount in cash or that number of shares of
Stock (or any combination of cash or shares of Stock) equal in value to the
excess of the Fair Market Value (as defined in the Plan) of one share of Stock
as of the date of exercise over the price per share specified in the Free
Standing SAR (which price shall be no less than 100% of the Fair Market Value of
the Stock on the date of grant) multiplied by the number of shares of Stock in
respect to which the right is being exercised, with the Administrator having the
right to determine the form of payment.
(c) Transferability. No Free Standing SAR is transferable by Participant
otherwise than by will or by the laws of descent and distribution, or pursuant
to a "qualified domestic
5
<PAGE>
relations order," as such term is defined in the Employee Retirement Income
Security Act of 1974, as amended.
[Alternative; replace section (c) with the following to allow for transferable
SARs:]
SARs are transferable by Participant to (A) the spouse, qualified domestic
partner, children or grandchildren of the Participant and any other persons
related to Participant as may be approved by the Administrator ("Immediate
Family Members"), (B) a trust or trusts for the exclusive benefit of such
Immediate Family Members, (C) a partnership or partnerships in which such
Immediate Family Members are the only partners, or (D) any other persons or
entities as may be approved by the Administrator, provided that (x) there may be
no consideration for any transfer unless approved by the Administrator, (y) the
agreement pursuant to which such SARs are granted must be approved by the
Administrator, and must expressly provide for transferability in a manner
consistent with this paragraph, and (z) subsequent transfers of transferred
options shall be prohibited except those in accordance with Section 5(f)(i) of
the Plan or expressly approved by the Administrator. Following transfer, any
such SARs shall continue to be subject to the same terms and conditions as were
applicable immediately prior to transfer, provided that, except for purposes of
Sections 5(g), (h) and (i) and 11(c) of the Plan, the terms "optionee," Stock
Option holder" and "Participant" shall be deemed to refer to the transferee. The
events of termination of employment under Sections 5(g), (h) and (i) of the Plan
shall continue to be applied with respect to Participant, following which the
SARs shall be exercisable by the transferee only to the extent, and for the
periods specified under such sections unless the agreement governing such SARs
otherwise provides. Notwithstanding the transfer, the Participant will continue
to be subject to the provisions of Section 11(c) of the Plan regarding payment
of taxes, including the provisions entitling the Company to deduct such taxes
from amounts otherwise due to Participant. "Qualified domestic partner" for the
purpose of this paragraph shall mean a domestic partner living in the same
household as the optionee and registered with, certified by or otherwise
acknowledged by the county or other applicable governmental body as a domestic
partner or otherwise establishing such status in any manner satisfactory to the
Administrator.
(d) Termination of Participant. In the event of the termination of
Participant, such rights shall be exercisable to the
6
<PAGE>
same extent that a Stock Option would have been exercisable in the event of the
termination of the optionee.
8. Execution and Delivery. Participant acknowledges that Participant
----------------------
shall have no rights with respect to any Award granted by the Company unless and
until Participant executes an Award Agreement and delivers it to the Company
within sixty days of such award (or such other period as the Committee may
specify after the Award Date).
9. Withholding of Taxes. Participant authorizes the Company to withhold,
--------------------
in accordance with any applicable law, from any compensation payable to him any
taxes required to be withheld by federal, state or local law as a result of the
grant of the SARs.
10. Laws Applicable to Construction. This Agreement shall be construed
-------------------------------
and enforced in accordance with the laws of the State of California.
11. Agreement Binding on Successors. The terms of this Agreement shall be
-------------------------------
binding upon the executors, administrators, heirs, successors, transferees and
assignees of the Participant.
12. Costs of Litigation. In any action at law or in equity to enforce any
-------------------
of the provisions or rights under this Agreement or the Plan, the unsuccessful
party to such litigation, as determined by the court in a final judgment or
decree, shall pay the successful party or parties all costs, expenses and
reasonable attorneys' fees incurred by the successful party or parties
(including without limitation costs, expenses end fees on any appeals), and if
the successful party recovers judgment in any such action or proceeding such
costs, expenses and attorneys' fees shall be included as part of the judgment.
13. Necessary Acts. The Participant agrees to perform all acts and
--------------
execute and deliver any documents that may be reasonably necessary to carry out
the provisions of this Agreement, including but not limited to all acts and
documents related to compliance with federal and/or state securities laws.
14. Counterparts. For convenience this Agreement may be executed in any
------------
number of identical counterparts, each of which shall be deemed a complete
original in itself and may be introduced in evidence or used for any other
purpose without the production of any other counterparts.
7
<PAGE>
15. Invalid Provisions. In the event that any provision of this Agreement
------------------
is found to be invalid or otherwise unenforceable under any applicable law, such
invalidity or unenforceability shall not be construed as rendering any other
provisions contained herein invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid and unenforceable provision was not contained herein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written. By Participant's execution of this Agreement, Participant
agrees to the terms and conditions hereof and of the Plan.
BNC MORTGAGE, INC. Participant
By:
-------------------------- ----------------------------------------
Name: (Signature)
Title:
----------------------------------------
(Print Name)
----------------------------------------
(Address)
----------------------------------------
(City, State, Zip Code)
----------------------------------------
Social Security No.
8
<PAGE>
By his or her signature below, the spouse of the Participant, of such
Participant be legally married as of the date of his execution of this
Agreement, acknowledges that he or she has read this Agreement and the Plan and
is familiar with the terms and provisions thereof, and agrees to be bound by all
the terms and conditions of said Agreement and said Plan document.
---------------------------------------
Spouse
Dated:
---------------------------------
By his or her signature below the Participant represents that he or she is
not legally married as of the date of execution of this Agreement.
---------------------------------------
Participant
Dated:
---------------------------------
Instruction: Sign and complete two copies of this Agreement and return one in
the enclosed, addressed envelope to the Company.
9
<PAGE>
BNC MORTGAGE, INC.
1997 STOCK OPTION, DEFERRED STOCK
AND RESTRICTED STOCK PLAN
STOCK OPTION AGREEMENT
EMPLOYEE NAME:___________________
This AGREEMENT is made effective as of the ______ day of _______________,
_______ (the "Option Grant Date"), by and between BNC Mortgage, Inc., a
_______________ corporation (the "Company") and _________________ (the
"Optionee").
RECITALS
WHEREAS, the Board of Directors of the Company has established the 1997
Stock Option, Deferred Stock and Restricted Stock Plan (the "Plan") effective as
of ________________, and
WHEREAS, pursuant to the provisions of said Plan, the Board of Directors of
the Company, by action duly taken on ______________, _____, granted to the
Optionee an option or options (the "Option(s)") to purchase shares of the Common
Stock of the Company on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants set forth herein and other good and valuable consideration, the
parties hereto agree as follows:
1. The Option(s). The Optionee may, at his/her option, purchase all or
-------------
any part of an aggregate of __________ shares of Common Stock (the "Optioned
Shares"), at the price of $_________ per share (the "Option Price"), on the
terms and conditions set forth herein.
2. Option Type; Exercise Dates and Exercise. Options intended to qualify
----------------------------------------
as Incentive Stock Options are designated by an "ISO" under the category "Type."
Options intended as separate Non-Qualified Stock Options are designated by a
"NQSO" under the category "Type." Stock Appreciation Rights ("SAR") that are
granted in conjunction with all or part of a Stock Option are designated under
the category "SAR" with the amount of shares the
1
<PAGE>
SAR relates to set forth below and a Stock Appreciation Rights Agreement shall
be executed as well. The Option(s) shall be exercisable as to the specified
number of Optioned Shares on and after the "First" dates and on or before the
"Last" dates set forth below:
<TABLE>
<CAPTION>
Number of Exercise Dates
--------- --------------
Type Shares First Last SAR
- ---- ------ ----- ---- ---
<S> <C> <C> <C> <C>
- ----------- ---------- --------------------- ----------------
- ----------- ---------- --------------------- ----------------
- ----------- ---------- --------------------- ----------------
- ----------- ---------- --------------------- ----------------
- ----------- ---------- --------------------- ----------------
</TABLE>
Optionee acknowledges that he/she understands he/she has no right
whatsoever to exercise the Option(s) granted hereunder with respect to any
Optioned Shares covered by any installment until such installment accrues as
provided above. Optionee further understands that the Option(s) granted
hereunder shall expire and become unexercisable as provided in Section 3(c)
below.
3. Method of Exercise. This Option shall be deemed exercised as to the
------------------
shares to be purchased when written notice of such exercise has been given to
the Company at its principal business office by the Optionee with respect to the
Common Stock to be purchased. Such notice shall be accompanied by full payment
in cash or cash equivalents as determined by the Administrator. As determined
by the Administrator, in its sole discretion, payment in whole or part may also
be made (i) by cancellation of any indebtedness owed by the Company to the
Optionee,(ii) by a full recourse promissory note executed by the Optionee, (iii)
in the form of unrestricted Stock owned by the Optionee, or, in the case of the
exercise of a Non-Qualified Stock Option, Restricted Stock subject to an award
under the Plan (based, in each case, on the Fair Market Value of the Stock on
the date the option is exercised); provided, however, that in the case of an
Incentive Stock Option, the right to make payment in the form of already owned
shares may be authorized only at the time of grant, (iv) by requesting that the
Company withhold whole shares of Common Stock then issuable upon exercise of the
Stock Option (based on the Fair Market Value of the Common Stock on the date the
option is exercised), (v) by arrangement with a broker which is acceptable to
2
<PAGE>
the Administrator where payment of the option price is made pursuant to an
irrevocable direction to the broker to deliver all or part of the proceeds from
the sale of the shares underlying the option to the Company, or (vi) by any
combination of the foregoing.
4. Governing Plan. This Agreement hereby incorporates by reference the
--------------
Plan and all of the terms and conditions of the Plan as heretofore amended and
as the same may be amended from time to time hereafter in accordance with the
terms thereof, but no such subsequent amendment shall adversely affect the
Optionee's rights under this Agreement and the Plan except as may be required by
applicable law. The Optionee expressly acknowledges and agrees that the
provisions of this Agreement are subject to the Plan; the terms of this
Agreement shall in no manner limit or modify the controlling provisions of the
Plan, and in case of any conflict between the provisions of the Plan and this
Agreement, the provisions of the Plan shall be controlling and binding upon the
parties hereto. The Optionee also hereby expressly acknowledges, represents and
agrees as follows:
(a) Acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto and by reference incorporated herein, and represents that he/she
is familiar with the terms and provisions of said Plan, and hereby accepts this
Agreement subject to all the terms and provisions of said Plan.
(b) Agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions arising under the Plan.
(c) Acknowledges that he/she is familiar with Sections of the Plan
regarding the exercise of the Option(s) and represents that he/she understands
that said Option(s) must be exercised on or before the earliest of the following
dates, whichever is applicable: (i) the "Last" exercise date noted above in
Section 2; (ii) the day prior to the fifth anniversary, in certain
circumstances, of the Option(s) Grant Date with respect to Options granted as
Incentive Stock Options pursuant to Subsection (5)(b) and the day prior to the
tenth anniversary of the Option(s) Grant Date with respect to Options granted as
Non-Qualified Stock Options; (iii) the effective date of a sale or other
disposition of all or substantially all of the stock or assets of the Company,
as provided in Section 10 of the Plan; (iv) the date which is the earlier of (A)
three months from the date of termination or (B) the expiration of such Stock
Option's term following the Optionee's termination of directorship or consulting
or other arrangement
3
<PAGE>
(unless extended) for any reason other than death or disability as provided
under Subsection 5(i) of the Plan; or (v) the date that is one year following
the Optionee's termination of employment, directorship or consulting or other
arrangement by reason of his/her death, or the date that is one year following
his/her termination of employment, directorship or consulting or other
arrangement by reason of disability, whichever is applicable, as provided in
Subsections 5(g) and 5(h) of the Plan.
(d) Acknowledges, understands and agrees that the existence of the Plan
and the execution of this Agreement are not sufficient by themselves to cause
any exercise of any Option(s) granted as an Incentive Stock Option to qualify
for favorable tax treatment through the application of Section 422(A) of the
Internal Revenue Code; that Optionee must, in order to so qualify, individually
meet by his own action all applicable requirements of Section 422A, including
without limitation the following holding period and employment requirements:
(1) holding period requirement: no disposition of an Optioned
--------------------------
Share may be made by Optionee within two (2) years from the date of the
granting of the Option(s) nor within one (1) year after the transfer of
such Optioned Share to him/her, and
(2) employment requirement: at all times during the period
----------------------
beginning on the date of the granting of the Option(s) and ending on the
day three (3) months before the date of exercise, the Optionee must have
been an employee of the Company, its Parent, or a Subsidiary of the
Company, or a corporation or a parent or subsidiary of such corporation
issuing or assuming the Option(s) in a transaction to which Section 425(a)
of the Internal Revenue Code applies, except where the termination of
employment is by means of the employee's disability, in which case said
three (3) month period may be extended to one (1) year, as provided under
Internal Revenue Code Section 422A.
5. Representations and Warranties. As a condition to the exercise
------------------------------
of any portion of an Option, the Company may require the person exercising such
Option to make any representation and/or warranty to the Company as may, in the
judgment of counsel to the Company, be required under any applicable law or
regulation, including but not limited to a representation and warranty that the
shares are being acquired only for investment and without any
4
<PAGE>
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required under the Securities
Act of 1933 or any other applicable law, regulation or rule of any governmental
agency. Optionee hereby represents to the Company that each of the Option
evidenced hereby and the shares purchasable upon exercise thereof is being
acquired only for investment and without any present intention to sell or
distribute such securities.
6. Options Not Transferable. No Stock Option shall be transferable
------------------------
by the optionee otherwise than by will or by the laws of descent and
distribution or, with respect to Non-Qualified Stock Options, pursuant to a
"qualified domestic relations order," as such term is defined in the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). [See Alternative
below which allows NQSOs to be transferable] Incentive Stock Options shall be
exercisable, during the optionee's lifetime, only by the optionee or, with
respect to Non-Qualified Stock Options, in accordance with the terms of a
qualified domestic relations order.
[Alternative to non-transferable NQSOs; replace first sentence of section 5 with
the following:]
Non-Qualified Stock options are transferable by optionee to (A) the
spouse, qualified domestic partner, children or grandchildren of the optionee
and any other persons related to the optionee as may be approved by the
Administrator ("Immediate Family Members"), (B) a trust or trusts for the
exclusive benefit of such Immediate Family Members, (C) a partnership or
partnerships in which such Immediate Family Members are the only partners, or
(D) any other persons or entities as may be approved by the Administrator,
provided that (x) there may be no consideration for any transfer unless approved
by the Administrator, (y) the stock option agreement pursuant to which such
options are granted must be approved by the Administrator, and must expressly
provide for transferability in a manner consistent with this paragraph , and (z)
subsequent transfers of transferred options shall be prohibited except those in
accordance with Section 5(f)(i) of the Plan or expressly approved by the
Administrator. Following transfer, any such options shall continue to be subject
to the same terms and conditions as were applicable immediately prior to
transfer, provided that, except for purposes of Sections 5(g), (h) and (i) and
11(c) of the Plan, the terms "optionee," Stock Option holder" and "Participant"
shall be deemed to refer to the transferee. The events of termination of
employment under Sections 5(g), (h) and (i) of the Plan shall continue to be
applied with respect to the
5
<PAGE>
original optionee, following which the options shall be exercisable by the
transferee only to the extent, and for the periods specified under such sections
unless the option agreement governing such options otherwise provides.
Notwithstanding the transfer, the original optionee will continue to be subject
to the provisions of Section 11(c) of the Plan regarding payment of taxes,
including the provisions entitling the Company to deduct such taxes from amounts
otherwise due to such optionee. "Qualified domestic partner" for the purpose of
this paragraph shall mean a domestic partner living in the same household as the
optionee and registered with, certified by or otherwise acknowledged by the
county or other applicable governmental body as a domestic partner or otherwise
establishing such status in any manner satisfactory to the Administrator.
7. No Enlargement of Employee Rights. Nothing in this Agreement
---------------------------------
shall be construed to confer upon the Optionee (if an employee) any right to
continued employment with the Company, any Parent or Subsidiary, or to restrict
in any way the right of the Company, a Subsidiary or Parent, to terminate
his/her employment. Optionee acknowledges that in the absence of an express
written employment agreement to the contrary, Optionee's employment with the
Company may be terminated by the Company at any time, with or without cause.
8. Withholding of Taxes. Optionee authorizes the Company to
--------------------
withhold, in accordance with any applicable law, from any compensation payable
to him any taxes required to be withheld by federal, state or local law as a
result of the grant of the Option(s) or the issuance of stock pursuant to the
exercise of such Option(s).
9. Laws Applicable to Construction. This Agreement shall be
-------------------------------
construed and enforced in accordance with the laws of the State of California.
10. Agreement Binding on Successors. The terms of this Agreement
-------------------------------
shall be binding upon the executors, administrators, heirs, successors,
transferees and assignees of the Optionee.
11. Costs of Litigation. In any action at law or in equity to
-------------------
enforce any of the provisions or rights under this Agreement or the Plan, the
unsuccessful party to such litigation, as determined by the court in a final
judgment or decree, shall pay the successful party or parties all costs,
expenses and reasonable attorneys' fees incurred by the successful party or
parties
6
<PAGE>
(including without limitation costs, expenses end fees on any appeals), and if
the successful party recovers judgment in any such action or proceeding such
costs, expenses and attorneys' fees shall be included as part of the judgment.
12. Necessary Acts. The Optionee agrees to perform all acts and
--------------
execute and deliver any documents that may be reasonably necessary to carry out
the provisions of this Agreement, including but not limited to all acts and
documents related to compliance with federal and/or state securities laws.
13. Counterparts. For convenience this Agreement may be executed in
------------
any number of identical counterparts, each of which shall be deemed a complete
original in itself and may be introduced in evidence or used for any other
purpose without the production of any other counterparts.
14. Invalid Provisions. In the event that any provision of this
------------------
Agreement is found to be invalid or otherwise unenforceable under any applicable
law, such invalidity or unenforceability shall not be construed as rendering any
other provisions contained herein invalid or unenforceable, and all such other
provisions shall be given full force and effect to the same extent as though the
invalid and unenforceable provision was not contained herein.
15. Limitation on Value of Optioned Shares. Optionee acknowledged
--------------------------------------
that the Plan provides that the aggregate fair market value (determined as of
the date hereof) of the shares of Common Stock to which Options granted as
Incentive Stock Options are exercisable for the first time by Optionee during
any calendar year under all incentive stock option plans of the Company and any
Subsidiary shall not exceed $100,000. It is understood and agreed that should
it be determined that an Option if granted as an Incentive Stock Option
hereunder would exceed such maximum, such Option shall be considered granted as
a Non-Qualified Stock Option to the extent, but only to the extent of such
excess. This limitation shall not apply to any option granted as a Non-
Qualified Stock Option.
7
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement effective as of the date first written hereinabove.
BNC MORTGAGE, INC. OPTIONEE
By:
------------------------ -----------------------------------
Name:
Title: -----------------------------------
Street Address
-----------------------------------
City and State
-----------------------------------
Social Security No.
By his or her signature below, the spouse of the Optionee, of such
Optionee be legally married as of the date of his execution of this Agreement,
acknowledges that he or she has read this Agreement and the Plan and is familiar
with the terms and provisions thereof, and agrees to be bound by all the terms
and conditions of said Agreement and said Plan document.
---------------------------------------
Spouse
Dated:
--------------------------------
By his or her signature below the Optionee represents that he or she
is not legally married as of the date of execution of this Agreement.
---------------------------------------------
Optionee
Dated:
---------------------------------------
8
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AND NON-COMPETITION AGREEMENT
----------------------------------------
THIS EMPLOYMENT AND NON-COMPETITION AGREEMENT (the "Agreement") is
made and entered into as of January 29, 1998, to be effective as of January 1,
1998, by and between BNC Mortgage, Inc., a Delaware corporation (the
"Corporation"), and Kelly W. Monahan, an individual (the "Executive").
WITNESSETH:
WHEREAS, the Corporation desires to employ the Executive as its
President and Chief Financial Officer; and
WHEREAS, the Executive has agreed not to compete with Corporation or
use any confidential and proprietary business information regarding the business
of Corporation to the detriment of Corporation during the term of this Agreement
(and thereafter as applicable) in order to induce Corporation to enter into this
Agreement and to perform its obligations hereunder; and
WHEREAS, the Executive desires to accept such employment under the
terms and conditions herein stated.
NOW, THEREFORE, the Corporation and the Executive, each intending to
be legally bound, hereby mutually covenant and agree as follows:
1. EMPLOYMENT AND TERM.
-------------------
(a) Employment - The Corporation hereby offers to employ the
Executive as the President and Chief Financial Officer of the Corporation on the
terms and conditions set forth herein, and the Executive hereby accepts such
employment, for the term set forth in Section l(b).
(b) Term - The employment hereunder shall be for a term of three
years (the "Term") commencing on January 1, 1998 and terminating on December 31,
2000 (the "Expiration Date"), provided that such term may be extended if
authorized by the Board of Directors and evidenced by a written agreement signed
by the Chairman of the Corporation and the Executive.
2. DUTIES.
------
During his Term, the Executive shall serve as the President and Chief
Financial Officer of the Corporation and shall have all powers and duties
consistent with such position subject to the direction of the Board of Directors
of the Corporation, to whom the Executive shall report. Any directions of the
Board of Directors to the Executive shall be consistent with the Executive's
position as President and Chief Financial Officer, but Executive understands
that this title and the duties attendant thereto may change (but may not be
diminished without the prior written consent of the Executive) over the term
hereof. The Executive shall devote his full time and attention and best efforts
to fulfill faithfully, responsibly and to the best of his ability his duties
hereunder.
<PAGE>
3. COMPENSATION.
------------
(a) Base Salary - For services performed by the Executive for the
Corporation pursuant to this Agreement during his Term, the Corporation shall
pay the Executive a base salary ("Base Salary") at the rate of $200,000 per
year, payable twice each month in the amount of $8,334 on the 15/th/ day and the
last day of each month, or in accordance with the Corporation's regular payroll
practices. Such Base Salary may be adjusted annually to reflect increases in
the consumer price index. Any compensation which may be paid to the Executive
under any additional compensation plan of the Corporation, or which may be
otherwise authorized from time to time by the Board, shall be in addition to the
Base Salary to which the Executive shall be entitled under this Agreement.
(b) Unconditional Semi-Annual Bonus - Executive shall be paid on
each of June 30 and December 31 of each year during the term of this Agreement
an unconditional bonus in an amount of $50,000 ("Unconditional Semi-Annual
Bonus"). The Unconditional Semi-Annual bonus payable for any calendar year shall
be paid to the Executive no later than the 15/th/ day following June 30 and
December 31. Nothing herein shall preclude the Executive from participating in
any equity or equity-based compensation program of the Corporation, and the
bonus program set forth in this subsection (b) herein may be replaced with a
different program approved by the Board's Compensation Committee and agreed with
by the Executive.
(c) Performance-Based Annual Bonus - For each full year during
his Term, commencing on January 1, 1998, the Executive shall be eligible to
receive a cash bonus based on the Corporation's achievement of certain financial
goals ("Performance-Based Annual Bonus"). For calendar year 1998, and until
changed by the Board's Compensation Committee, the annual cash bonus award shall
be determined on the basis of the Corporation's return on equity ("ROE"). The
Executive's cash bonus will range from $10,000 to $100,000 as follows:
(i) if ROE for the calendar year is less than 15.0%
and the Corporation's net income is negative, the
cash bonus shall be $10,000;
(ii) if ROE for the calendar year is less than 15.0%
and the Corporation's net income is positive, the
cash bonus shall be $25,000;
(iii) if ROE for the calendar year is between 15.1% and
19.9% and the Corporation's net income is
positive, the cash bonus shall be $50,000;
(iv) if ROE for the calendar year is between 20.0% and
24.9% and the Corporation's net income is
positive, the cash bonus shall be $75,000;
<PAGE>
(v) if ROE for the calendar year is at least 25.0% and
the Corporation's net income is positive, the cash
bonus shall be $100,000;
(vi) The Performance-Based Bonus payable for any
calendar year shall be paid to the Executive no
later than the 15/th/ day of April of the
following year. Nothing herein shall preclude the
Executive from participating in any equity or
equity-based compensation program of the
Corporation, and the bonus program set forth in
this subsection (c) herein may be replaced with a
different program approved by the Board's
Compensation Committee and agreed with by the
Executive.
(d) Tax Withholding - The Corporation shall provide for the
withholding of any taxes required to be withheld by Federal, state and local law
with respect to any payment in cash, shares of capital stock or other property
made by or on behalf of the Corporation to or for the benefit of the Executive
under this Agreement or otherwise. The Corporation may, at its option: (i)
withhold such taxes from any cash payments owing from the Corporation to the
Executive, including any payments owing under any other provision of the
Agreement, (ii) require the Executive to pay to the Corporation in cash such
amount as may be required to satisfy such withholding or (iii) make other
satisfactory arrangements with the Executive to satisfy such withholding
obligations.
4. BENEFITS.
--------
In addition to the Base Salary to be paid to the Executive pursuant to
Section 3(a) hereof and any semi-annual and annual bonuses earned by the
Executive pursuant to Sections 3(b) and 3(c), the Executive shall also be
entitled to the following:
(a) Participation in Insurance and Healthcare Benefit Plans -
Except as otherwise expressly provided herein, the Executive and his dependents
shall be enrolled in the Corporation's insurance and healthcare benefit group
plans, including disability insurance, in accordance with established
Corporation policies.
(b) Participation in the Corporation's 401(k) Plan - The
Executive shall be entitled to participate in the Corporation's 401(k) Plan in
accordance with established Corporation policies.
(c) Expense Reimbursement - The Corporation shall reimburse the
Executive, upon proper accounting, for reasonable business expenses incurred by
him in the course of the performance of his duties under this Agreement.
(d) Vacations, Holidays, Absences and Leaves - The Executive
shall be entitled to the benefit of the vacation, holiday, absence and leave
policies applicable to all employees of comparable title or status in the
Corporation .
<PAGE>
(e) Other Benefits - The Corporation shall provide Executive with
such other benefits as are generally made available from time to time to its
employees.
(f) Proration of Benefits - Any payments or benefits pursuant to
this Section 4, in any year during which the Executive is employed by the
Corporation for less than the entire year, shall, unless otherwise provided
herein or in the applicable plan or arrangement, be prorated in accordance with
the number of days in such year during which the Executive is employed by the
Corporation.
5. INDEMNIFICATION.
---------------
The Executive shall be entitled to the maximum indemnification
provided by the Bylaws and the Certificate of Incorporation of the Corporation
for officers, directors and employees of the Corporation. The Executive's
rights under this paragraph shall continue without time limit so long as he may
be subject to any such liability, whether or not the Executive's term of
employment by the Corporation may have ended.
Such indemnification provided by the Bylaws and Certificate of
Incorporation as of the date of this Agreement shall be deemed contract rights
and no amendment, repeal or modification of any of the provisions of the
Certificate of Incorporation or Bylaws relating to indemnification shall have
the effect of limiting or denying any such rights of indemnification.
6. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE.
-----------------------------------------------
The Executive hereby represents and warrants to the Corporation that
(a) the Executive's execution and delivery of this Agreement and his performance
of his duties and obligations hereunder will not conflict with, or cause a
default under, or give any party a right to damages under, or to terminate, any
other agreement to which the Executive is a party or by which he is bound, and
(b) there are no agreements or understandings that would make unlawful the
Executive's execution or delivery of this Agreement or his employment hereunder.
7. REPRESENTATIONS AND WARRANTIES OF THE CORPORATION.
-------------------------------------------------
The Corporation hereby represents and warrants to the Executive as
follows:
(a) The Corporation is duly organized and established as a
corporation under the laws of the State of Delaware and has all requisite power
and authority to enter into this Agreement and to perform its obligations
hereunder. The consummation of the transactions contemplated by this Agreement
will neither violate nor be in conflict with any agreement or instrument to
which the Corporation is a party or by which it is bound.
(b) The execution, delivery and performance of this Agreement and
the transactions contemplated hereby have been duly and validly authorized by
all requisite corporate action on the part of the Corporation and are valid,
legal and binding obligations of the Corporation, enforceable in accordance with
their terms except as may be limited by laws of general application
<PAGE>
relating to bankruptcy, insolvency, moratorium or other similar laws relating to
or affecting the enforcement of creditors' rights generally, and rules of law
governing specific performance, injunctive relief or other equitable remedies.
8. TERMINATION.
-----------
Executive's employment shall terminate prior to the Expiration Date
upon the happening of any of the following events:
A. For Cause.
---------
The Executive may be terminated for Cause immediately upon
receipt of notice pursuant to a good faith determination to terminate for Cause
made by a majority of the Board. For purposes of this Agreement, "Cause" means:
(1) the Executive engages in any act of theft, embezzlement,
falsification of records, misappropriation of funds or property, or fraud
against, or with respect to the business of, the Corporation or any affiliate;
(2) the Executive commits a breach of any material term of
this Agreement and, if such breach is capable of being cured, fails to cure such
breach within 30 days of written notice of such breach from the Corporation;
(3) the Executive is convicted of, or pleads guilty or nolo
contenders to a felony or a crime involving moral turpitude, breach of trust or
dishonesty; or
(4) the Executive commits any act that causes, or knowingly
fails to take reasonable and appropriate action to prevent, any material injury
to the financial condition or business reputation of the Corporation or any of
its affiliates; however, this shall not apply to (i) any act of the Corporation
or its affiliates by any other employee thereof except to the extent that such
act is committed at the direction, or with the knowledge, of the Executive or
(ii) any action in which the Executive acted in good faith and in a manner
reasonably to be in or not opposed to the best interests of the Corporation, as
determined by the Corporation's Board of Directors.
B. Good Reason (by the Executive).
------------------------------
The Executive's employment may be terminated by the Executive at any
time for any of the following reasons (each of which is referred to herein as
"Good Reason") by giving the Corporation notice of the effective date of such
termination (which effective date may be the date of such notice):
(1) the Corporation commits a breach of any material term of
this Agreement and, if such breach is capable of being cured, fails to cure such
breach within 30 days of receipt of written notice of such breach; or
<PAGE>
(2) the Corporation removes the Executive from the position
of President or Chief Financial Officer of the Corporation, other than for
Cause, or the Corporation effects any diminution of the powers, duties or
authority of the Executive, in each case, without the prior written consent of
the Executive.
C. Executive's Rights to Terminate.
-------------------------------
The Executive may, at his option, terminate his employment
hereunder for any reason upon 60 days' prior written notice to the Corporation.
D. Death.
-----
This Agreement shall terminate automatically upon the Executive's
death.
E. Disability.
----------
The Corporation may terminate the Executive's employment upon a
good faith determination by the Board that Executive has become so physically or
mentally disabled as to be incapable of satisfactorily performing his duties
hereunder for a period of 180 consecutive days, such determination to be based
upon a certificate as to such physical or mental disability issued by a licensed
physician or psychiatrist employed by the Corporation.
F. Without Cause.
-------------
The Corporation may, at its option, terminate the Executive's
employment without Cause at any time upon written notice to the Executive.
G. Date of Termination.
-------------------
For purposes of this Agreement, the term "Date of Termination"
shall mean the later of the date that any party gives written notice that it
intends to terminate this Agreement pursuant to the terms hereof or the date, if
any, specified by the terminating party in such notice as the effective date of
termination.
9. OBLIGATIONS OF THE CORPORATION UPON TERMINATION.
-----------------------------------------------
(a) Cause or Voluntary - If the Executive's employment shall be
terminated for Cause or if the Executive terminates his employment for other
than Good Reason (a"Voluntary Termination"), the Corporation's obligations to
the Executive shall terminate, other than the obligation (i) to pay to the
Executive his Base Salary through the Date of Termination at the rate in effect
on the day preceding the Date of Termination, (ii) to pay (A) the pro rata
portion through the Date of Termination of the Unconditional Semi-Annual Bonus
pursuant to section 3(b) at the rate in effect on the day preceding the Date of
Termination and (B) an amount which together with the pro rata portion of the
Unconditional Semi-Annual Bonus paid to the Executive by the Corporation would
equal an aggregate of $75,000, and (iii) to continue to provide the Executive
with
<PAGE>
benefits of the type described in Section 4 through the Date of Termination.
Executive acknowledges that the amount to be paid to the Executive by the
Corporation pursuant to section 9(a)(ii) above shall be deemed consideration for
the agreements of the Executive set forth in section 10 below; provided,
however, that if the Executive challenges the enforceability of Section 10 below
and it is found unenforceable by a court having jurisdiction over the matter,
then the Executive shall remit to the Corporation the $75,000.
(b) Without Cause or for Good Reason - If the Corporation shall
terminate the Executive's employment without Cause, or if the Executive shall
terminate his employment for Good Reason, the Corporation shall (i) continue, in
accordance with the Corporation's normal payroll procedures, to pay the
Executive his Base Salary through the Expiration Date of this Agreement, (ii)
continue to pay the Executive his Unconditional Semi-Annual Bonus pursuant to
section 3(b) through the Expiration Date of this Agreement at the rate in effect
on the day preceding the Date of Termination, (iii) continue to provide the
Executive with benefits of the type described in Section 4 through the
Expiration Date, and (iv) pay $70,000 annually on a pro rata basis through the
Expiration Date of this Agreement on a date that is no later than the 15th of
April of the following year, except in the case of the year of termination or
resignation in which case the pro rata portion of the $70,000 shall be paid no
later than 60 days after the Date of Termination; provided, however, that this
payment shall be suspended during any period in which the Executive is an
employee or independent contractor of a company that in the Board's opinion
competes with the Corporation.
10. NON-COMPETITION.
---------------
The Executive acknowledges and recognizes the highly competitive
nature of the business of the Corporation and its affiliates as well as his
extensive participation in the ownership of the common stock of the Corporation.
If the Executive is terminated by the Corporation for Cause or resigns based
upon a Voluntary Termination, the Executive accordingly agrees, until the first
anniversary of the Executive's termination or resignation of employment (such
date being hereafter referred to as the "Restricted Date"), as follows:
(a) The Executive will not directly or indirectly engage (as
owner, stockholder, partner or otherwise, except as a holder of fewer than 10%
of the outstanding shares or other equity interests of a company whose shares or
other equity interests are publicly traded) in any business which directly or
indirectly competes with the business of the Corporation or any of its
affiliates within the same jurisdictions in which the Corporation or any of its
affiliates engages in business at the time of the Executive's termination or
resignation, as the case may be.
(b) The Executive will not directly or indirectly induce any
employee of the Corporation or any of its affiliates to engage in any activity
in which the Executive is prohibited from engaging by paragraph (a) above or to
terminate his employment with the Corporation or any of its affiliates, and will
not directly or indirectly employ or offer employment to any person who was
employed by the Corporation or any of its affiliates unless such person shall
have been terminated without cause or ceased to be employed by any such entity
for a period of at least 12 months.
<PAGE>
(c) The Executive will not make any statement or take any action
intended to impair the goodwill or the business reputation of the Corporation or
any of its affiliates, or to be otherwise detrimental to the interests of the
Corporation or any of its affiliates, including any action or statement
intended, directly or indirectly, to benefit a competitor of the Corporation or
any of its affiliates.
(d) It is expressly understood and agreed that although the
Executive and the Corporation consider the restrictions contained in this
Section 10 to be reasonable, if a final judicial determination is made by a
court of competent jurisdiction that the time or territory or any other
restriction contained in this Agreement is an unenforceable restriction against
the Executive, the provisions of this Agreement shall not be rendered void but
shall be deemed amended to apply as to such maximum time and territory and to
such maximum extent as such court may judicially determine or indicate to be
enforceable. Alternatively, if any court of competent jurisdiction finds that
any restriction contained in this Agreement is unenforceable, and such
restriction cannot be amended so as to make it enforceable, such finding shall
not affect the enforceability of any of the other restrictions contained herein.
11. PROPRIETARY INFORMATION.
-----------------------
Through the Restricted Date, the Executive shall not use for his
personal benefit, or disclose, communicate or divulge to, or use for the direct
or indirect benefit on any person, firm, association or company other than the
Corporation, any Proprietary Information. "Proprietary Information" means
information relating to the properties, prospects, products, services or
operations of the Corporation or any direct or indirect affiliate thereof that
is not generally known, is proprietary to the Corporation or such affiliate and
is made known to the Executive or learned or acquired by the Executive while in
the employ of the Corporation, including, without limitation, information
concerning trade secrets of the Corporation, or any of the Corporation's
affiliates and any improvements relating to the products of the Corporation in
accounting, marketing, selling, leasing, financing and other business methods
and techniques. However, Proprietary Information shall not include (A) at the
time of disclosure to the Executive such information that was in the public
domain or later entered the public domain other than as a result of a breach of
an obligation herein; or (B) subsequent to disclosure to the Executive,
Executive received such information from a third party under no obligation to
maintain such information in confidence, and the third party came into
possession of such information other than as a result of a breach of an
obligation herein. All materials or articles of information of any kind
furnished to the Executive by the Corporation or developed by the Executive in
the course of his employment hereunder are and shall remain the sole property of
the Corporation; and if the Corporation requests the return of such information
at any time during, upon or after the termination of the Executive's employment
hereunder, the Executive shall immediately deliver the same to the Corporation.
12. OWNERSHIP OF PROPRIETARY INFORMATION.
------------------------------------
The Executive agrees that all Proprietary Information shall be the
sole property of the Corporation and its assigns, and the Corporation and its
assigns shall be the sole owner of all licenses and other rights in connection
with such Proprietary Information. At all times, until the Restricted
<PAGE>
Date, the Executive will keep in the strictest confidence and trust all
Proprietary Information and will not use or disclose such Proprietary
Information, or anything relating to such information, without the prior written
consent of the Corporation, except as may be necessary in the ordinary course of
performing his duties under this Agreement.
13. DOCUMENTS AND OTHER PROPERTY.
----------------------------
All materials and articles of information of any kind furnished to the
Executive in the course of his employment hereunder are and shall remain the
sole property of the Corporation; and if the Corporation requests the return of
such information at any time during, upon or after the termination of the
Executive's employment hereunder, the Executive shall immediately deliver the
same to the Corporation. The Executive will not, without the prior written
consent of the Corporation, retain any documents, data or property, or any
reproduction thereof of any description, belonging to the Corporation or
pertaining to any Proprietary Information.
14. INTELLECTUAL PROPERTY.
---------------------
Any and all products, including but not limited to marketing and
financing materials and methods made, developed or created by the Executive for
use in the Corporation's then current markets (whether at the request or
suggestion of the Corporation or otherwise, whether alone or in conjunction with
others, and whether during regular hours of work or otherwise) (i) during the
period of this Agreement, or (ii) within a period of one year after the date of
termination or resignation of employment hereunder, which may be directly or
indirectly useful in, or relate to, the business of or tests being carried out
by any member of the Corporation, shall be promptly and fully disclosed by the
Executive to the members of the Board and, if such intellectual property was
made, developed or created other than pursuant to the Executive's employment
hereunder, the Executive shall grant the Corporation a perpetual, royalty free
license to such intellectual property, and if such intellectual property was
made, developed or created pursuant to the Executive's employment hereunder,
such intellectual property shall be the Corporation's exclusive property as
against the Executive.
15. CUSTOMER LISTS.
--------------
The Executive will not during, or for a period of two years after the
termination of, his employment (i) disclose the Corporation's (including its
subsidiaries') customer lists or any part thereof to any person, firm,
corporation, association or other entity for any reason or purpose whatsoever,
(ii) assist in obtaining any of the Corporation's (including its subsidiaries')
existing customers for any competing business, or (iii) encourage any customer
to terminate its relationship with the Corporation or any of its subsidiaries.
16. EQUITABLE RELIEF.
----------------
The Executive acknowledges that, in view of the nature of the business
in which the Corporation is engaged, the restrictions contained in Sections 10
through 15 inclusive (the "Restrictions") are reasonable and necessary in order
to protect the legitimate interests of the Corporation, and that any violation
thereof would result in irreparable injuries to the Corporation,
<PAGE>
and the Executive therefore further acknowledges that, if the Executive
violates, or threatens to violate, any of the Restrictions, the Corporation
shall be entitled to obtain from any court of competent jurisdiction, without
the posting of any bond or other security, preliminary and permanent injunctive
relief as well as damages and an equitable accounting of all earnings, profits
and other benefits arising from such violation, which rights shall be cumulative
and in addition to any other rights or remedies in law or equity to which the
Corporation may be entitled.
17. BINDING EFFECT.
--------------
This Agreement shall be binding upon and inure to the benefit of the
heirs and representatives of the Executive and the successors and assigns of the
Corporation. The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, reorganization, consolidation, acquisition of
property or stock, liquidation or otherwise) to all or a significant portion of
its assets, by agreement in form and substance satisfactory to the Executive,
expressly to assume and agree to perform this Agreement in the same manner and
to the same extent that the Corporation would be required to perform this
Agreement if no such succession had taken place. Regardless of whether such
agreement is executed, this Agreement shall be binding upon any successor of the
Corporation in accordance with the operation of law and such successor shall be
deemed the "Corporation" for purposes of this Agreement.
18. NOTICES.
-------
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if delivered by
hand or sent by facsimile transmission with telephonic confirmation of receipt,
or one business day after being sent for next business day delivery by a
reputable overnight courier service providing delivery confirmation, addressed
as follows:
(a) if to the Board or the Corporation, to:
BNC Mortgage, Inc.
1063 McGaw Avenue
Irvine, CA 92614-5532
(b) if to the Executive, to:
Kelly W. Monahan
c/o BNC Mortgage, Inc.
1063 McGaw Avenue
Irvine, CA 92614-5532
Such addresses may be changed by written notice sent to the other party at the
last recorded address of that party.
<PAGE>
19. ARBITRATION OF ALL DISPUTES.
---------------------------
(a) Any controversy or claim arising out of or relating to this
Agreement or the breach thereof (including the arbitrability of any controversy
or claim), shall be settled by arbitration in Orange County in accordance with
the laws of the State of California by one arbitrator. If the parties cannot
agree on the appointment of an arbitrator, then the arbitrator shall be
appointed by the American Arbitration Association. The arbitration shall be
conducted in accordance with the rules of the American Arbitration Association,
except with respect to the selection of an arbitrator which shall be as provided
in this Section 19 . The cost of any arbitration proceeding hereunder shall be
borne equally by the Corporation and the Executive. The award of the arbitrator
shall be binding upon the parties. Judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction thereof.
(b) If it shall be necessary or desirable for the Executive to
retain legal counsel and incur other costs and expenses in connection with the
enforcement of any or all of his rights under this Agreement, and provided that
the Executive substantially prevails in the enforcement of such rights, the
Corporation shall pay (or the Executive shall be entitled to recover from the
Corporation, as the case may be) the Executive's reasonable attorneys' fees and
costs and expenses in connection with the enforcement of his rights including
the enforcement of any arbitration award and any costs of any arbitration which
the Executive would otherwise be required to pay in accordance with Section
19(a).
20. NO ASSIGNMENT.
-------------
Except as otherwise expressly provided herein, this Agreement is not
assignable by any party and no payment to be made hereunder shall be subject to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
other charge.
21. EXECUTION IN COUNTERPARTS.
-------------------------
This Agreement may be executed by the parties hereto in two
counterparts, each of which shall be deemed to be an original, but all such
counterparts shall constitute one and the same instrument, and all signatures
need not appear on any one counterpart.
22. JURISDICTION AND GOVERNING LAW.
------------------------------
This Agreement shall be construed and interpreted in accordance with
and governed by the laws of the State of Delaware, without reference to its
conflict of laws provisions.
23. SEVERABILITY.
------------
If any provision of this Agreement shall be adjudged by any court of
competent jurisdiction to be invalid or unenforceable for any reason, such
judgment shall not affect, impair or invalidate the remainder of this Agreement.
<PAGE>
24. ENTIRE AGREEMENT.
----------------
This Agreement embodies the entire agreement of the parties hereof,
and supersedes all other oral or written agreements or understandings between
them regarding the subject matter hereof. No change, alteration or modification
hereof may be made except in a writing, signed by each of the parties hereto.
25. HEADINGS DESCRIPTIVE.
--------------------
The headings of the several paragraphs of this Agreement are inserted
for convenience only and shall not in any way affect the meaning or construction
of any of this Agreement.
[Signatures begin on next page]
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this Agreement, whereupon it will become a binding
agreement between the Company and you in accordance with its terms.
Very truly yours,
BNC Mortgage, Inc.
Dated: January 29, 1998 By:/s/Evan R. Buckley
--------------------------
Name: Evan R. Buckley
Title: Chairman
The Agreement is hereby confirmed and accepted as of the date first above
written.
Kelly W. Monahan
Dated: January 29, 1998 /s/Kelly W. Monahan
-----------------------------
<PAGE>
EXHIBIT 10.6(a)
[Letterhead of Donaldson, Lufkin & Jenrette]
October 22, 1997
BNC Mortgage, Inc.
1740 East Garry Avenue, Suite 109
Santa Ana, California 92705
Attention: Evan Buckley
Dear Sirs:
This letter agreement will confirm the agreement of DLJ Mortgage Capital,
Inc. ("DLJMC") and BNC Mortgage, Inc. ("BNC") to the following modifications to
the existing agreements between the parties to be made in connection with the
anticipated sale of BNC stock through a public offering (the "IPO"). The IPO is
expected to occur in December, 1997 or January, 1998 (the "Closing Date") and is
expected to result in the sale of all or a significant portion of DLJMC's equity
in BNC. In exchange for valuable consideration, the receipt and sufficiency of
which is hereby acknowledged by the parties, DLJMC and BNC (and where
appropriate, Evan Buckley as shareholder) have agreed to make the following
changes to the existing agreements. In addition to this letter agreement, in
order to effectuate the purposes hereof, the parties hereby agree to execute, as
soon as reasonably possible but in any event prior to the Closing Date, specific
amendments to the existing agreements as described below. Capitalized terms not
otherwise defined, herein shall have the meaning specified in the related
existing agreements.
Based on the foregoing, the parties hereby agree as follows:
1. INCREASE IN THE AMOUNT OF THE CREDIT FACILITY: The parties agree to
---------------------------------------------
increase the maximum amount available under the Whole Loan Facility (as
defined below) from the current $50 million to $150 million. This letter
agreement hereby modifies the letter agreement between the parties dated
August 28, 1995 (the "Existing Agreement") and the amount of the credit
facility specified in the section entitled "Financing Facility" to provide
for a maximum available amount equal to $150 million and to delete the
second sentence of that section regarding further increases from time to
time in the amount available under the facility. In addition, BNC hereby
agrees to enter into a new promissory note (the "Promissory Note") to
replace the existing promissory note executed in connection with the whole
loan financing facility between the parties dated September 26, 1995 (the
"Whole Loan Facility"). The new Promissory Note will reflect a maximum
amount available under the Whole Loan Facility of $150 million. The
parties further agree to modify any related documents as may be reasonably
necessary to effect the foregoing.
2. TERM OF THE WHOLE LOAN FACILITY: The termination date with respect to the
-------------------------------
Whole Loan Facility shall be modified from the existing termination date of
August 31, 2000 to provide for termination on the date occurring two years
from the Closing Date (the "Facility Termination Date"), without any rights
of extension other than by mutual written agreement of the parties. This
letter agreement hereby modifies the Existing Agreement and the Section
entitled "Final Termination Date" to provide for the new termination date
to be the Facility Termination Date and to eliminate DLJMC's right to
extend the Whole Loan Facility for one, two or three years at its option.
Notwithstanding the foregoing, all existing provisions regarding earlier
termination of the Whole Loan Facility, including but not limited to
termination in connection with an event of default thereunder, shall remain
in full force and effect. In addition, the parties hereby modify section
II(A) of the commitment letter relating to the Whole Loan Facility, dated
October 31, 1995, to change the date through which advances can be provided
to the Facility Termination Date. The parties further agree to modify any
related documents as may be reasonably necessary to effect the foregoing.
<PAGE>
BNC Mortgage, Inc.
October 22, 1997
Page 2
3. SALE OF MORTGAGE LOANS: The parties agree that DLJMC shall continue to
----------------------
have the exclusive right to sell all mortgage loans as originated by BNC on
behalf of BNC in whole loan formate (or through securitization as provided
in the Existing Agreements to the extent BNC elects to securitize loans)
and to receive on all dispositions of mortgage loans originated on or
before the Closing Date a fee equal to fifty (50) basis points times the
outstanding balance of the related mortgage loans. In addition, to the
extent the IPO occurs prior to March 31, 1998, DLJMC has agreed to further
reduce its fee in connection with such dispositions to (i) zero (0) for
dispositions relating to mortgage loans originated after the Closing Date
but prior to the date occurring one year after the Closing Date of the IPO
(the "Fee Waiver Period"), and (ii) twelve and a half (12.5) basis points
times the outstanding balance of the related loans for dispositions with
respect to mortgage loans originated after the Fee Waiver Period but prior
to the Facility Termination Date. This letter agreement hereby modifies
the DLJ Spread as defined in the Existing Agreement to equal (A) fifty (50)
basis points with respect to loans originated prior to the Closing Date,
(B) zero with respect to loans originated after the Closing Date but during
the Fee Waiver Period, and (C) twelve and a half (12.5) basis points with
respect to loans originated after the Fee Waiver Period but prior to the
Facility Termination Date. In the event the IPO does not occur, the DLJ
Spread shall remain fifty (50 basis points) as further specified in section
11 hereof. The parties further agree to modify any related documents as
may be reasonably necessary to effect the foregoing.
4. INTEREST RATE WITH RESPECT TO THE WHOLE LOAN FACILITY: The parties agree
-----------------------------------------------------
that the interest rate payable by BNC with respect to amounts outstanding
under the Whole Loan Facility (absent an event of default) shall be
modified from the current rate equal to the sum of the market rate obtained
by DLJMC in connection with its obtaining financing, plus twelve and a half
(12.5) basis point (the "Original Rate"), to equal (a) the "Federal Funds"
rate plus fifty (50) basis points from the Closing Date through the Fee
Waiver Period, and (b) the "Federal Funds" rate plus one hundred (100)
basis points after the Fee Waiver Period through the Facility Termination
Date. The Original Rate shall remain in effect prior to the Closing Date.
This letter agreement hereby modifies the Existing Agreement and the
section entitled "Interest to DLJMC" to effect the foregoing change in
rate. In the event the IPO does not occur, the rate charged by DLJMC in
connection with the Whole Loan Facility shall continue to be the Original
Rate as further specified in section 11 hereof. The parties further agree
to modify any related documents as may be reasonably necessary to effect
the foregoing.
5. RESIDUAL FINANCING: DLJMC shall provide BNC with financing for
------------------
subordinated interest only securities ("Residual Securities") to the extent
retained by BNC in connection with the securitization of mortgage loans
originated by BNC. The maximum amount of such financing is $5 million and
the maximum term is one year (with such financing being subject to such
other market provisions regarding termination and default and such other
provisions as DLJMC deems reasonable). The parties will enter into
documents regarding Residual Securities financing substantially similar to
those utilized by DLJMC in connection with similar arrangements to which it
is a party, modified to reflect their terms specified herein.
Notwithstanding the foregoing, such documents will provide that advances
under the Residual Security facility shall be made to BNC only to the
extent BNC does not have sufficient cash, in excess of reasonable reserves
established by BNC in its annual business plan and reasonably acceptance to
DLJMC, available in its operating or investment accounts to fund the
retention of the Residual Securities absent such an advance.
6. EXCLUSIVITY: Notwithstanding anything contained in existing documents to
-----------
the contrary, after the Closing Date, BNC shall not be obligated to sell
whole loans using DLJMC or to securitize its mortgage loans through DLJMC.
This letter agreement hereby modifies the Existing Agreement to eliminate
as of the Closing Date the section thereof entitled "Exclusivity." In the
event the IPO does not occur by February 28, 1998 (the "Offering
Termination Date"), such section shall remain in full force and effect, as
further specified in section 11 hereof, and shall not be eliminated or
modified hereby. The parties further agree to
<PAGE>
BNC Mortgage, Inc.
October 22, 1997
Page 3
modify any related documents as may be reasonably necessary to effect the
foregoing. Nothing contained herein or in any existing document shall
prevent BNC from electing to utilize DLJMC in connection with such loan
dispositions. Nothing contained herein or in any existing document shall
prevent BNC from obtaining after the Closing Date financing facilities in
addition to or in place of the Whole Loan Facility or from terminating the
Whole Loan Facility after the Closing Date but prior to the Facility
Termination Date.
7. RELATED DOCUMENTS: The parties agree to modify the related agreements
-----------------
between the parties and to enter into such additional agreements as may be
reasonably and necessary to effect the purposes hereof.
8. SHAREHOLDER AGREEMENT; OTHER DOCUMENTATION: Other than with respect to
------------------------------------------
matters addressed herein, the parties agree that the shareholders agreement
between BNC, DLJMC and Even Buckley dated October 10, 1995 (the
"Shareholders Agreement") shall be terminated on the Closing Date of the
IPO. The parties further agree to modify or terminate the Existing
Agreement and any related agreements upon completion of the IPO to the
extent reasonably and necessary with respect to the IPO of to the effect
the purposes of this agreement.
9. RELEASE AND WAIVER: To the extent that during the term of the agreements
------------------
some or all of the parties thereto may have failed to comply with certain
provisions of the Existing Agreement or the Shareholder Agreements,
effective on the Closing Date, the parties hereby waive and release each
other from any and all claims, rights duties and liability resulting from
any such failure.
10. STANDSTILL DURING OFFERING PERIOD: The parties agree that to use their
---------------------------------
reasonable efforts to act in a manner likely to facilitate the IPO during
the period commencing with the initial filing of the Form S-1 registration
statement relating to the IPO through the Closing Date (the "Offering
Period"). In such connection the parties agree that notwithstanding to
continued existence of the Shareholders Agreement during the Offering
Period, the parties will not seek to enforce their nights thereunder except
to the extent such enforcement is necessary to continue the current
operation of BNC, preserve the assets of BNC or the value of it business or
to continue the operation of the business in accordance with the provisions
specified in section 3.01(b).
11. CURRENT AGREEMENTS TO BE REINSTATED: Notwithstanding anything contained
-----------------------------------
herein to the contrary in the event the IPO is abandoned to terminate or
does not occur by the Offering Termination Date, the Shareholders
Agreement, Existing Agreement, Whole Loan Facility and related agreements
shall remain in full force and effect absent, the modifications to specify
terms described herein.
12. MISCELLANEOUS: This agreement represents the entire agreement for the
-------------
parties. This agreement may be singed in counterparts or by different
parties on direct counterparts. This agreement may not be assigned or
modified absent the written agreement of both parties. Each party shall be
reasonably for the costs and disbursements of its counsel as well as its
own our of pocket expenses and overhead incurred in connection with this
transaction. All notices hereunder or relating hereto shall be given in
writing delivered to the address of each party appearing herein.
<PAGE>
BNC Mortgage, Inc.
October 22, 1997
Page 4
If the foregoing is consistent with your understanding of our agreement,
please acknowledge your agreement hereto by signing in the space provided below
and returning one original counterpart of this agreement to the address
specified above.
Yours truly,
DLJ MORTGAGE CAPITAL, INC.
By: /s/ N. Dante LaRocca
-------------------------------------
Name: N. Dante LaRocca
Title: S.V.P.
ACKNOWLEDGED AND AGREED:
BNC MORTGAGE, INC.
By: /s/ Kelly W. Monahan
--------------------------------
Name: Kelly W. Monahan
Title: CFO/V.P.
EVAN BUCKLEY
/s/ Evan Buckley
- -----------------------------------
<PAGE>
EXHIBIT 10.6(B)
March __, 1998
BNC Mortgage, Inc.
1063 McGaw Avenue
Irvine, California 92614
Telephone: 714-955-2985
Facsimile: 714-955-1678
Attention: Evan Buckley
This Commitment Letter confirms our agreement between BNC Mortgage Inc.
("Customer") and DLJ Mortgage Capital, Inc. ("DLJ") pursuant to which DLJ shall
provide committed financing collateralized by eligible Mortgage Loans in
accordance with the terms and conditions hereof and as set forth in the Whole
Loan Funding Facility, the Promissory Note (the "Note") and the Pledge
Agreement, each dated March __, 1998 and the Tri-Party Custody Agreement(s)
dated September 26, 1995 (collectively, the "Agreements"). The Agreements,
together with the Mortgage Loan Purchase Agreement to be entered into between
Customer and DLJ, dated as of December __, 1997 (the "Mortgage Loan Purchase
Agreement"), and this Commitment Letter constitute the entire agreement between
the parties with respect to DLJ's financing of Customer's Mortgage Loans.
Capitalized terms not defined herein shall have the meaning ascribed to them in
the Agreements.
No amounts may be borrowed from DLJ in excess of that committed herein
except in DLJ's sole discretion. Unless otherwise agreed in writing, DLJ will
not finance second-lien mortgage loans.
I. ELIGIBLE MORTGAGE LOANS: For purposes of this Commitment Letter,
-----------------------
"Eligible Mortgage Loans" shall be defined as:
A. First-lien residential Mortgage Loans originated or acquired by
Customer in its normal course of business within the preceding 30 days of the
related Advance which are intended to be sold to DLJ and have the
characteristics specified in Customer's underwriting guide, as such guide
approved by DLJ ("Program Loans"); and
B. First-lien residential Mortgage Loans originated or acquired by
Customer in its normal course of business within the preceding 30 days of the
related Advance that have been determined by DLJ in its sole discretion not to
have the characteristics specified in Customer's underwriting guide and which do
not meet the requirements of the Mortgage Loan Purchase Agreement ("Non-Program
Loans").
II. DLJ'S COMMITMENT: Subject to the terms and conditions hereof and the
----------------
Agreements, including the performance by Customer of its obligations set forth
below, DLJ hereby commits to:
A. Provide Advances under the Agreements for Eligible Mortgage Loans
until March __, 2000 unless terminated earlier pursuant to the terms of the
Mortgage Loan Purchase Agreement or this Commitment Letter.
B. Calculate the Collateral Value as follows (provided that, in all
cases, Market Value as used below shall not exceed the related unpaid principal
balance of such Loan):
<PAGE>
1. for each Eligible Mortgage Loan, 100% of the related unpaid
principal balance;
2. for each Eligible Mortgage Loan not committed to be purchased
by DLJ subject to an Advance for more than ninety (90) days, 103%
of the Market Value of such Eligible Mortgage Loan;
3. for each Eligible Mortgage Loan not committed to be purchased
by DLJ subject to an Advance for more than six (6) months, 105%
of the Market Value of such Eligible Mortgage Loan;
4. for each Eligible Mortgage Loan subject to an Advance that is
more than sixty (60) days delinquent as to principal and interest
payment, 105% of the Market Value of such Eligible Mortgage Loan;
5. for each Eligible Mortgage Loan subject to an Advance that is
more than ninety (90) days delinquent as to principal and
interest payment, 110% of the Market value of such Eligible
Mortgage Loan;
6. for each Eligible Mortgage Loan subject to an Advance that is
in foreclosure or bankruptcy, 115% of the Market Value of such
Eligible Mortgage Loan;
7. for each Real Estate Owned, 120% of the Market Value of such
Real Estate Owned, provided, however, that such Real Estate Owned
must be secured by a first-lien Mortgage Loan, which Mortgage
Loan shall then be financed by DLJ.
C. Continue to provide Advances by rolling over such Advances, until
the earliest of (1) termination of this Commitment Letter; (2) termination of
the Mortgage Loan Purchase Agreement; or (3) DLJ is entitled to exercise its
remedies in accordance with Paragraph 6 of the Note.
D. If applicable, net all Mortgage Loan sale proceeds paid by DLJ
against the related Advance;
E. Maintain a funding rate as follows:
1. for Program Loans, or for Non-Program Loans subject to an
Advance for less than 3 months (i) for the period to March __,
1999, the opening federal funds rate of comparable maturity, plus
50 basis points, (ii) for the period from March __, 1999 through
March __, 2000, the opening federal funds rate of comparable
maturity, plus 100 basis points.
2. for Non-Program Loans subject to an Advance for more than 3
months, the opening federal funds rate of comparable maturity,
plus 125 basis points, and
<PAGE>
3. for Non-Program Loans subject to an Advance for more than 6
months, the opening federal funds rate of comparable maturity,
plus 150 basis points.
III. CONDITIONS TO CONTINUED FUNDING: The foregoing commitment is subject
--------------------------------
to the conditions that:
A. The total of all Advances involving Wet Transactions may be
limited by DLJ in its reasonable discretion (but shall be no less than $5
million) in connection with any decrease in Customer's GAAP net worth.
B. DLJ shall be under no obligation to make any additional Advances
if an Event of Default has occurred.
C. DLJ generally shall underwrite loans on a post-Advance basis. To
the extent the aggregate percentage of Non-Program Loans being financed by DLJ
exceeds seven and on-half percent (7.5%) of the aggregate number of Eligible
Mortgage Loans being financed by DLJ, DLJ shall have the right, but no the
obligation, to underwrite all or a portion of the mortgage loans possessing any
of the characteristics which are common to such Non-Program Loans prior to an
Advance. To the extent that Customer is able to demonstrate its ability to sell
such Non-Program Loans above par within 90 days of an Advance, the preceding two
sentences shall not apply. DLJ agrees to work with Customer to minimize the
number of loans to be underwritten on a pre-Advance basis.
IV. CUSTOMER COMMITMENT: Customer commits to:
-------------------
A. Provide DLJ, on a dialy mark to market basis, collateral
consisting of Eligible Mortgage Loans consistent with the applicable Collateral
Values stated above;
B. Provide evidence acceptable to DLJ that it has, and will continue
to maintain, insurance coverage for itself and its subsidiaries that encompasses
employee dishonesty, forgery or alteration, theft, disappearance and
destruction, robbery and safe burglary, property (other than money and
securities), and computer fraud and shall include DLJ Mortgage Capital, Inc. as
a Loss Payee;
C. Notify DLJ of its intent to borrower under an Advance at least 1
Business Day prior to such Advance if the amount contemplated to be borrower
varies by more than $5 million from the previous day's Advances;
D. Immediately repay DLJ for each Advance related to Non-Program
Loan that is subject to an Advance for a period of such months, which period may
be extended by DLJ in its sole discretion for up to three additional months;
E. At the request of DLJ, immediately pay off any Advance related to
any Mortgage Loan that DLJ determines is not an Eligible Mortgage Loan;
F. Establish and maintain an underwriting and approval process,
which shall be supervised by an officer of the Customer reasonably acceptable to
DLJ, in conformity with the
<PAGE>
criteria and standards set forth in the Mortgage Loan Purchase Agreement;
G. Continue to maintain an acceptable status as a mortgage approved
by the Department of Housing and Urban Development.
H. To the extent it utilizes or involved DLJMC in the sale of
Eligible Mortgage Loans in whole loan format (or through securitization to the
extent Customer elects to securitize loans), to pay DLJ on all such dispositions
a fee equal to (i) zero (0) for dispositions relating to mortgage loans
originated after the date on which Customer's stock is initially issued through
a public offering (the "IPO Date") but prior to the date occurring one year
after the IPO Date of the IPO (the "Fee Waiver Period") and (ii) twelve and a
half (12.5) basis points times the outstanding balance of the related loans for
dispositions with respect to mortgage loans originated after the Fee Waiver
Period but prior to the maturity date of the facility. Notwithstanding anything
herein to the contrary, Customer may elect to sell its Eligible Mortgage Loans
to or through another entity, without utilizing DLJMC or payment of any fee to
DLJMC, upon written notice to that effect.
V. TERMINATION PROVISIONS: DLJ shall have the right to terminate this
----------------------
Commitment Letter, and DLJ shall no longer be obligated to make Advances to
Customer under this Commitment Letter and may accelerate the maturity dates of
all Advances then outstanding, upon the occurrence of a Commitment Letter
Termination Event. Upon such termination, DLJ shall have no obligation to return
any fees collected and may utilize any remedy provided in the Agreements. A
Commitment Letter Termination Event shall include any one or more of the
following.
A. An "Event of Default" shall have occurred under the Agreements
and DLJ is entitled to exercise its remedies in accordance with paragraph 6 of
the Note;
B. Customer shall have materially breached any agreement or
commitment contained in the Mortgage Loan Purchase Agreement or this Commitment
Letter, including the items set forth under "Required Financial Statement") and
such breaches have not been cured pursuant to applicable grace periods;
C. There occurs any litigation or proceeding affecting Customer and
its affiliates that is likely to be adversely determined and which, if adversely
determined, would have a material adverse effect on the Collateral or the
ability of Customer to pay and perform on the Obligations.
D. There occurs any event set forth under "Financial Requirements",
in Annex A attached hereto;
E. A "Material Adverse Change" shall have occurred in the business
or operations of Customer or an affiliate thereof which is defined as the
occurrence of any of the events or circumstances set forth under "Financial
Requirements' in Annex A.
F. There occurs a catastrophic event or events resulting in the
effective absence of a "repo market" for a period of at least 30 consecutive
days respecting mortgage loans and the same results in DLJ not being able to
finance any Advance through the repo market with DLJ's
<PAGE>
traditional repo counterparties.
Please acknowledge your agreement to the foregoing by signing and
returning the enclosed duplicate of this letter, whereby this Commitment Letter
shall become a binding agreement between DLJ and Customer.
Sincerely,
DLJ MORTGAGE CAPITAL, INC.
By:___________________________
Name:_________________________
Title:________________________
BNC MORTGAGE, INC.
By:___________________________
Name:_________________________
Title:________________________
<PAGE>
ANNEX A
-------
1. FINANCIAL REQUIREMENTS:
----------------------
A change in Customer's business, operations or financial condition that would
materially and adversely affect the ability of Customer to perform its
obligations under this Commitment Letter and the Agreements as determined in
good faith by DLJ;
Customer, directly or indirectly, engages in business other than the mortgage
banking business;
Customer uses the proceeds of the Advances for any purpose other than to fund
the related mortgage loans;
Customer guarantees the debt obligation of any other entity;
Customer sells any material asset other than in its ordinary course of its
business for less than current fair market value.
Customer fails to submit within 90 days of the date of this commitment, and
within 90 days of the beginning of each of Customer's respective fiscal years, a
business plan acceptable to DLJ (the "Business Plan"), which Business Plan shall
set out, among other things, (i) financial targets for Tangible Net Worth for
fiscal year 1998 and for each fiscal year thereafter; and (ii) a provision
whereby Customer shall establish and maintain a working capital reserve fund of
$5 million or more.
2. REQUIRED FINANCIAL STATEMENTS:
------------------------------
(a) Customer shall deliver to DLJ within 120 days after the last day of
its fiscal year, its audited consolidated statement of income and statement of
changes in cash flow for such year and balance sheet as of the end of such year
in each case presented fairly in accordance with GAAP accompanied, in all cases,
by an unqualified report of a firm of independent certified public accountants
acceptable to DLJ.
(b) Customer shall deliver to DLJ within 60 days after the last day of
each of the first three fiscal quarters in any fiscal year of Customer, its
consolidated statements of income and statement of changes in cash flow for such
quarter and balance sheet as of the end of such quarter, presented fairly in
accordance with GAAP for interim period financial statements.
(c) Customer shall cause to be delivered to DLJ within 60 days after the
last day of each of the first three fiscal quarters in any fiscal year, its
unaudited consolidated statements of income and statement of changes in cash
flow for such quarter and balance sheet as of the end of such quarter.
(d) Customer shall deliver to DLJ within 60 days after the last day of
each calendar month in any fiscal year of Customer, (i) its consolidated
statement of income for such month and balance sheet as of the end of such month
accompanied in each case by a certificate of the chief financial officer or
treasurer of Customer stating that such financial statements are presented
fairly in accordance with GAAP, and (ii) an officer's certificate from its chief
financial officer or treasurer
<PAGE>
certifying that there does not exist an event of default in the Agreements or in
this Annex.
(e) as soon as available copies of all proxy statements, financial
statements, ad reports which Customer sends to its stockholders, and copies of
all regular periodic and special reports, and all registration statements, if
any, under the Securities Act of 1933, as amended, which it files with the
Securities and Exchange Commission or any governmental authority which may be
substituted therefor, or with any national securities exchange.
(f) Customer shall deliver to DLJ as soon as the same are available copies
of all regular, periodic and special audit reports conducted by GNMA, FNMA
and/or FHLMC with respect to Customer's operations.
<PAGE>
CUSTOMER LETTERHEAD
Date
Ms. Patricia Robins
Senior Credit Analyst
Donaldson, Lufkin & Jenrette
277 Park Avenue
New York, NY 10172
Re: Commitment Letter between BNC Mortgage, Inc. ("Customer") and DLJ Mortgage
Capital, Inc. ("DLJ") dated March __ 1998 (the "Commitment Letter")
Dear Ms. Robins:
This Compliance Certificate is furnished pursuant to the Commitment Letter.
Capitalized terms to defined herein shall have the meanings ascribed to them in
the Commitment Letter. The following is true, correct and complete:
I am a member of the management of Customer holding the office indicated below;
I have reviewed the terms of the Commitment Letter and I have made, or have
caused to be made under my supervision, a detailed review of the transactions
and conditions of Customer during the period from the date of the last
Compliance Certificate to the date hereof.
The examinations did not disclose, and I have no knowledge of, the existence of
any condition or event with constitutes a Default or Event of Default during or
at the end of the referenced period or as of the date of this Compliance
Certificate; and
Schedule 1 attached hereto sets forth financial data and computations evidencing
Customer's compliance with the financial convenants set forth in the Commitment
Letter and such other information as DLJ shall have reasonably requested in
writing.
The foregoing certifications are made and delivered this ___ day of ___________,
199__.
______________________________
Office of Customer
Name:_________________________
Title:________________________
<PAGE>
COMPLIANCE CERTIFICATE
______________________ (Date)
I. GAAP NET WORTH
Actual $
============
II. OTHER INFORMATION
ORIGINATION YEAR TO DATE ____________
ADDITIONAL INFORMATION REQUESTED BY DLJ:
________________________________________
________________________________________
________________________________________
<PAGE>
Exhibit 10.6 (C)
WHOLE LOAN FINANCING FACILITY
CONFORMING AND NONCONFORMING MORTGAGE LOANS
Dated: March ___, 1998
BNC Mortgage, Inc.
1063 McGaw Avenue
Irvine, California 92614
Gentlemen:
DLJ Mortgage Capital, Inc. ("DLJ") is pleased to advise you of the availability
of a whole loan financing facility (the "Facility") secured by mortgage loans on
the terms set forth in this letter. Capitalized terms not defined herein shall
have the respective meanings given such terms in the Pledge Agreement, dated the
date hereof, between you and DLJ (the "Pledge Agreement").
1. THE ADVANCES. DLJ agrees to consider from time to time your requests that
------------
DLJ make advances (each, an "Advance", and, collectively, the "Advances") to you
in an aggregate principal amount outstanding at any one time not to exceed the
amount of the Promissory Note (the "Maximum Credit"). Unless otherwise agreed
in writing, this Facility is not a commitment to lend, but rather this Facility
sets forth the procedures to be used in connection with periodic requests for
Advances. You hereby acknowledge that DLJ is under no obligation to agree to
make or to make any Advance pursuant to this Facility. All Advances made by DLJ
hereunder shall be evidenced by the promissory note duly executed by you (the
"Promissory Note"). The Promissory Note shall be dated the date of issue, and
the stated amount shall be equal to the Maximum Credit. Interest in respect
thereof shall be payable only for the periods during which the Advances
evidenced thereby are outstanding. The Promissory Note shall be enforceable
against you only to the extent of the unpaid aggregate principal amount of the
Advances then outstanding, plus accrued and unpaid interest thereon, plus any
other amounts due thereunder.
2. MAKING THE ADVANCES. (a) On any day you desire to borrow funds from DLJ
-------------------
under this Facility, you shall notify DLJ that you wish to borrow money on a
specified date, in a specified principal amount and for a specified term.
(b) Upon receipt of your request for an Advance, DLJ may make an offer to you
specifying the terms for such Advance, including the interest rate per annum
(the "Quoted Rate") to be paid by you in respect of such Advance. You shall
immediately notify DLJ as to whether or not you elect to borrow such an Advance.
Each such election by you shall be evidenced by a notice (each, a "Notice of
Borrowing") substantially in the form attached hereto or as otherwise determined
by DLJ, with the blanks appropriately completed and duly executed. On the date
of such Advance, as so agreed by you and DLJ, DLJ will make its Advance to you
subject to and upon the satisfaction of the conditions precedent to such Advance
set forth in Section 6 hereof. Promptly thereafter, DLJ will send to you a
written confirmation of such Advance (each, a "Confirmation"), and your
acceptance of the related proceeds shall constitute your agreement to the terms
of such Confirmation. Such Confirmation may be termed a "Repo Confirmation", but
for purposes hereof the term "Repo", when used in any such Confirmation, shall
be deemed to mean "Advance."
3. PAYMENT OF PRINCIPAL AND INTEREST. Upon each disbursement of funds with
---------------------------------
respect to each Advance as set forth in Section 2 above you shall have effected
a borrowing from DLJ hereunder and shall be indebted to DLJ for the principal
amount thereof, plus interest thereon, in accordance with the terms of this
Facility, the Promissory Note and the Notice of Borrowing. You shall repay the
principal amount of each Advance made to you, and the interest thereon, on the
maturity date (the "Maturity Date") specified in the related Notice of Borrowing
in United States Dollars and in same day funds.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS. You hereby represent, warrant
-----------------------------------------
and covenant as follows:
(a) You are a corporation duly organized, validly existing and in good
standing under the laws of your jurisdiction of incorporation, your
principal place of business, and you are in compliance with applicable law.
You are duly licensed, qualified and in good standing in every other
jurisdiction in which the failure to take such action would have a material
1
<PAGE>
adverse effect on your ability to perform your obligations under the
Program Documents.
(b) You are an approved seller/servicer or issuer in good standing with
each Agency to which Agency Mortgage Loans will be submitted.
(c) Your execution, delivery and performance of the Program Documents are
within your charter and corporate powers, have been duly authorized by all
necessary corporate action, and do not contravene (i) your charter or
bylaws or (ii) any rule, regulation or other law or contractual restriction
binding on or affecting you or your property.
(d) Other than the necessary filings with the Agencies regarding the
Collateral (to the extent that the Collateral includes Agency Mortgage
Loans), no authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required
for your due execution, delivery and performance of the Program Documents.
(e) The Program Documents are your legal, valid and binding obligations,
enforceable against you in accordance with their respective terms.
(f) The available balance sheets, statements of income and changes in
financial condition of you and your subsidiaries as of your most recently
completed fiscal year and quarter, fairly present your financial condition
and results of operations for the period then ended and are in accordance
with generally accepted accounting principles consistently applied, and
copies of such statements, together with the most recent opinion with
respect to such statements of an independent public accounting firm, have
been provided to DLJ, and since such date there has been no material
adverse change in such financial condition, operations or business
prospects.
(g) There is no pending or threatened action or proceeding affecting you or
any of your subsidiaries before any court, governmental agency or
arbitrator, that may materially and adversely affect the financial
condition, operations or business prospects of you or any of your
subsidiaries.
(h) Unless otherwise agreed, at any time any Advance is made or shall be
outstanding, the Collateral Value of the items of Collateral related to
such Advance shall be at least 102% of the Advance then outstanding.
However, with respect to Nonagency Mortgage Loans (i) to the extent that a
Purchase Commitment is in effect, the Collateral Value shall be at least
105% of the principal amount of the Advance then outstanding and (ii) to
the extent that a Purchase Commitment is not in effect, the Collateral
Value shall be at least 110% of the principal amount of the Advance then
outstanding. Notwithstanding the foregoing, DLJ and you may agree upon such
other percentage for purposes of determining Collateral Value for any
particular Advance. To the extent that a deficiency in Collateral Value
exists, you shall promptly cure any such deficiency by delivering cash,
securities or other additional Collateral acceptable to DLJ.
(i) The Program Documents are not entered into in contemplation of
insolvency or with any intent to hinder, delay or defraud any of your
creditors.
(j) Unless otherwise agreed in writing by DLJ, only Mortgage Loans
constituting 1- to 4- family residential first lien Mortgage Loans shall
constitute Collateral acceptable to DLJ for purposes of obtaining an
Advance.
5. CONDITIONS PRECEDENT.
--------------------
(A) INITIAL ADVANCE. As conditions precedent to the making of the initial
---------------
Advance, DLJ shall have received on or before the day of such Advance the
following, in form and substance satisfactory to DLJ and duly executed by you:
(i) The Program Documents;
(ii) Evidence that all other actions necessary or, in the opinion of DLJ,
desirable to perfect and protect the security interests and liens created
by the Pledge Agreement have been taken, including without limitation duly
executed Uniform
2
<PAGE>
Commercial Code financing statements on Form UCC-1 with respect to the
Collateral;
(iii) A certified copy of your corporate resolution approving the Program
Documents and borrowings thereunder (either specifically or by general
resolution approving borrowings of the type described in the Program
Documents), and all documents evidencing other necessary corporate action
or governmental approvals as may be required in connection with the Program
Documents;
(iv) A certificate of your corporate secretary certifying the names, true
signatures and titles of your officers duly authorized to request Advances
and sign the Program Documents and the other documents to be delivered
thereunder; and
(v) A favorable opinion of your counsel, which may be internal counsel, as
to such matters as DLJ may reasonably request.
(B) EACH ADVANCE. As conditions precedent to making each Advance, DLJ shall
------------
have received on or before the day of such Advance the following, in form
and substance satisfactory to DLJ and duly executed:
(i) A Notice of Borrowing, the related Collateral Receipt and, if any item
of Collateral securing such Advance is a Wet Mortgage Loan, the related Wet
Closing Notice, each of which must bear the same number;
(ii) If the Collateral is subject to a security interest or lien
immediately prior to the Advance, a letter from the holder of such security
interest or lien releasing the Collateral from such security interest or
lien upon receipt of a stated sum that is less than or equal to the related
Advance;
(iii) If the Collateral consists of Agency Mortgage Loans, either (A) an
assignment by you to Donaldson, Lufkin & Jenrette Securities Corporation
("DLJSC") of the related Purchase Commitment, in form and substance
acceptable to DLJ in its sole discretion, or (B) evidence that you have
instructed the relevant Agency to pay the purchase price for such Agency
Mortgage Loans under the related Purchase Commitment directly to DLJ or its
designee, unless otherwise agreed by DLJ;
(iv) If the Collateral consists of Nonagency Mortgage Loans, evidence that
such Nonagency Mortgage Loans are covered by pool insurance and a pool
insurance certificate (not a commitment to insure) issued by a Pool
Insurer, in form and substance and for such amounts acceptable to DLJ in
its sole discretion, unless otherwise agreed by DLJ; and
(v) Such other documents as DLJ may reasonably request.
6. DLJ ENTITLED TO RELY. In making any Advance or taking any other action
--------------------
pursuant to the Program Documents, DLJ may conclusively rely upon, and shall
incur no liability to you in acting upon, any request or other communication
that DLJ believes to have been given or made by a person authorized to borrow on
your behalf, whether or not such person is listed on the certificate delivered
pursuant to Section 5(a)(iv).
7. TERMINATION. This Facility shall remain in effect until the earlier of two
-----------
years from the date hereof or such time as it is terminated by either DLJ or you
giving written notice of termination hereof to the other. However, no such
termination shall affect your obligations with respect to any Advances
outstanding at the time of such termination or shall be effective with respect
to any Advances made prior to DLJ's receipt of notice thereof. Your obligation
to indemnify DLJ pursuant to this Facility shall survive the termination hereof.
8. ASSIGNMENT; AMENDMENTS, ETC. The Program Documents are not assignable by
---------------------------
you. The Program Documents are assignable by DLJ in whole or in part. DLJ may
distribute to any prospective assignee any of the Program Documents and any
document or other information delivered to DLJ pursuant thereto. No amendment
or waiver of any provision of this Facility or the Promissory Note, nor any
consent to any failure by you to comply therewith, shall in any event be
effective unless the same shall be in writing and signed by DLJ. Any such
amendment, waiver or consent shall be effective only in
3
<PAGE>
the specific instance and for the specific purpose for which given. The Program
Documents supersede all other previous agreements between the parties concerning
the same subject matter.
10. COMPENSATION. You shall compensate and indemnify DLJ for all reasonable
------------
costs, expenses, losses and other liabilities that DLJ may sustain (i) if any
repayment of the principal amount of any Advance, together with interest
thereon, is not made on the Maturity Date thereof or (ii) in connection with the
protection of DLJ's rights under or the enforcement of the Program Documents or
any other document received by DLJ or Custodian in connection therewith.
11. NOTICES. All written communications hereunder shall be mailed, telecopied
-------
or delivered at the respective addresses as listed in the Custody Agreement or
at such other address as shall be designated by a party in a written notice to
the other party. All such notices and communications shall be effective when
delivered to the party to which such notice is to be given.
12. GOVERNING LAW; CONSENT TO JURISDICTION. This letter shall be construed in
--------------------------------------
accordance with, and governed by, the law of the State of New York, without
giving effect to the conflict of law principles thereof. You waive trial by
jury. You hereby irrevocably consent to the non-exclusive jurisdiction of any
court of the State of New York, or in the United States District Court for the
Southern District of New York, arising out of or relating to the Program
Documents in any action or proceeding. You hereby submit to, and waive any
objection you may have to, personal jurisdiction and venue in the courts of the
State of New York and the United States District Court for the Southern District
of New York, with respect to any disputes arising out of or relating to the
Program Documents.
If the terms of this letter are satisfactory to you, please indicate your
agreement and acceptance thereof by signing this letter and returning it to us,
whereupon this letter shall become an agreement between us as of the date of
this letter.
Very truly yours,
DLJ Mortgage Capital, Inc.
By:___________________________
Name:_________________________
Title:________________________
Agreed and Accepted:
_______________________________
By:____________________________
Name:__________________________
Title:_________________________
4
<PAGE>
NOTICE OF BORROWING NO.
DLJ Mortgage Capital, Inc.
277 Park Avenue
New York, NY 10172
Attention: Whole Loan Financing Program
Facsimile (212) 504-8072
RE: Agency/Nonagency ___________ Identification/Pool # __________ Security
Rate ______% Maturity: _________
-
Pursuant to the Whole Loan Financing Facility, dated March ___, 1998, between
you and the undersigned (as amended from time to time, the "Facility"), the
undersigned hereby gives notice of its election to borrow from you an Advance
and in connection therewith sets forth below the following information (each
capitalized term used herein shall have the meaning specified therefor in the
Facility):
1. The aggregate unpaid principal of the Mortgage Loans is $_____________
__.
2. The principal amount of this Advance is $_____________
__.
3. The Quoted Rate for this Advance is __________ % per annum.
4. The beginning Business Day of this Advance is ________________, 199__.
5. The Maturity Date of this Advance is ________________, 199__.
6. The Collateral Value of the items of Collateral shall be _________%.
The undersigned hereby certifies that the following statements are true and
correct on the date hereof and shall be true and correct on the date of the
Advance requested herein, before and after giving effect thereto: (a) each of
the representations and warranties contained in the Facility and the Pledge
Agreement are true and correct in all material respects, (b) no Default or Event
of Default (as such terms are defined in the Pledge Agreement) has occurred and
is continuing, (c) if applicable, the undersigned has, coincident or prior to
this Notice of Borrowing, delivered and validly assigned genuine and enforceable
Purchase Commitments to DLJSC for Agency Mortgage Loans or an Agency Security or
to DLJ for Nonagency Mortgage Loans, each in an aggregate amount equal to the
Face Value of the Pool, and (d) Customer has satisfied all of the conditions
precedent in Section 5(b) and all other requirements of the Facility.
The Advance made pursuant hereto shall be made in connection with the items of
Collateral described in the Collateral Receipt No. ______________, dated
___________________, 199___ and, if applicable, the Wet Closing Notice of even
number and date therewith.
___________________________________________, as Customer
By:_______________________________
Name:_____________________________
Title:____________________________
Date:_________________________, 199__
<PAGE>
EXHIBIT 10.6(d)
PROMISSORY NOTE
$150,000,000 Dated: March __, 1998
New York, New York
FOR VALUE RECEIVED, the undersigned, BNC Mortgage, Inc. ("Customer"), HEREBY
PROMISES TO PAY to the order of DLJ Mortgage Capital, Inc. ("DLJ"), for the
benefit of DLJ and the holders from time to time of interests herein, in lawful
money of the United States of America, the lesser of (i) one hundred fifty
million dollars ($150,000,000) and (ii) the aggregate unpaid principal amount of
all Advances made by DLJ to Customer pursuant to the Whole Loan Financing
Facility, dated the date hereof (as amended from time to time, the "Facility"),
between DLJ and Customer on the respective Maturity Date for each such Advance,
together with interest on each such Advance outstanding, from and including the
date on which such Advance is made until the principal amount of such Advance is
paid in full on such Maturity Date (and, as to any overdue principal and accrued
interest thereon, on demand), at an interest rate per annum with respect to such
Advance equal to the Quoted Rate applicable to such Advance and on such overdue
amounts as provided herein. Each Advance under this promissory note (the
"Promissory Note") shall be made pursuant to an executed Notice of Borrowing.
1. DEFINITIONS. All capitalized terms not otherwise defined herein shall have
-----------
the meanings ascribed to them in the Whole Loan Financing Facility ("Facility")
or the Pledge Agreement ("Pledge Agreement") executed by Customer and dated the
date hereof.
2. LATE PAYMENTS. Customer shall pay interest on any overdue principal of each
-------------
Advance and (to the extent permitted by applicable law) accrued interest
thereon, payable daily at a fluctuating interest rate per annum equal to 2%
above the rate of interest per annum quoted as the prime rate in The Wall Street
---------------
Journal (the "Default Rate"), each change in such Default Rate to take effect
- -------
simultaneously with any change in such prime rate.
3. WHOLE LOAN FINANCING FACILITY. This Promissory Note is the Promissory Note
-----------------------------
referred to in the Facility and is secured by, entitled to the benefit of, and
subject to the provisions of the Facility and the Pledge Agreement.
4. NO PREPAYMENT. Customer shall have no right to prepay any principal amount
-------------
of any Advance without ten (10) days prior written notice of DLJ.
5. PAYMENTS AND COMPUTATIONS. Customer shall make each payment hereunder on
-------------------------
the day when due to DLJ pursuant to DLJ's instructions in same day funds. All
computations of interest shall be made by DLJ on the basis of a year of 360 days
for the actual number of days (including the first day but excluding the last
day) occurring in the period for which such interest is payable. Any payment to
be made hereunder on a day other than a Business Day shall be made on the next
succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest.
6. EVENTS OF DEFAULT. If any of the following events (each, an "Event of
-----------------
Default") shall occur and be continuing:
(a) Customer shall fail to pay when due any principal of, interest on or
other amount due and payable under this Promissory Note attributable to any
Advance made hereunder; or
(b) Customer shall fail to perform or observe any other term, covenant or
agreement contained in the Program Documents on its part to be performed or
observed when required; or
(c) any representation or warranty made by Customer (or any of its
officers) in the Program Documents or in any document delivered in
connection therewith shall prove to have been incorrect in any material
respect when made; or
1
<PAGE>
(d) Customer or any of its subsidiaries shall fail to pay any of its
indebtedness for borrowed money or any interest or premium thereon when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to such
indebtedness; or any other default under any agreement or instrument
relating to any such indebtedness, or any other event, shall occur and shall
continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such
indebtedness; or if any such indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof; or
(e) a custodian, receiver, conservator, liquidator, trustee, sequestrator
or similar official for Customer or any of its subsidiaries, or of any of
their property, is appointed or takes possession of such property; or
Customer or any of its subsidiaries generally fails to pay its debts as they
become due; or Customer or any of its subsidiaries is adjudicated bankrupt
or insolvent; or an order for relief is entered under the Federal Bankruptcy
Code, any successor or similar applicable statute, or any administrative
insolvency scheme, against Customer or any of its subsidiaries; or any of
their property is sequestered by court or administrative order; or a
petition is filed against Customer or any of its subsidiaries under any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or
subsequently in effect; or
(f) Customer or any of its subsidiaries files a voluntary petition in
bankruptcy or seeks relief under any provision of any bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt, dissolution
or liquidation law of any jurisdiction whether now or subsequently in
effect; or consents to the filing of any petition against it under any such
law; or consents to the appointment of or taking possession by a custodian,
receiver, conservator, trustee, liquidator, sequestrator or similar official
for Customer or any of its subsidiaries, or of all or any part of their
property; or makes an assignment for the benefit of its creditors; or
(g) any judgment or order for the payment of money in excess of $1,000,000
shall be rendered against Customer or any of its subsidiaries; or
(h) any governmental authority or agency or any person, agency or entity
acting or purporting to act under governmental authority shall have taken
any action to condemn, seize or appropriate, or to assume custody or control
of, all or any substantial part of the property of Customer or of any of its
subsidiaries, or shall have taken any action to displace the management of
Customer or of any of its subsidiaries or to curtail its authority in the
conduct of the business of Customer or of any of its subsidiaries, or any
Agency takes any action to remove, limit or restrict the approval of
Customer as an issuer, lender or a seller/servicer of mortgage loans; or
(i) Customer or any of its subsidiaries shall default under, or fail to
perform as requested under, or shall otherwise breach the terms of any
instrument, agreement or contract between it and DLJ or any of DLJ's
affiliates; or
(j) any material adverse change occurs in the financial condition,
operations, business prospects or corporate structure of Customer or any of
its subsidiaries;
then, and in any such event, DLJ may (i) by notice to Customer, declare this
Promissory Note and all Advances made hereunder, the outstanding principal of
and all interest accrued thereon and all other amounts payable under the Program
Documents to be immediately due and payable, whereupon this Promissory Note and
all such Advances, interest and other amounts shall become and be immediately
due and payable, without presentment, demand, protest or further notice of any
kind, all of which are hereby expressly waived by Customer, and (ii) exercise or
cause to be exercised all rights and remedies of DLJ as secured party under the
Pledge Agreement; provided, that upon occurrence of any Event of Default
described in paragraphs (e) and (f) above, the outstanding principal of and
accrued interest on this Promissory Note and all other amounts payable under the
Program Documents shall immediately and automatically become due and payable
without presentment, demand, protest or notice of any kind.
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<PAGE>
7. AMENDMENTS, ETC. No amendment or waiver of any provision of this Promissory
---------------
Note, nor any consent to any failure by Customer to comply therewith, shall be
effective unless the same shall be in writing and signed by DLJ. Any such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which it is given.
8. NOTICES. All written communications hereunder shall be mailed, telecopied
-------
or delivered at the respective addresses as listed in the Custody Agreement or
at such other address as shall be designated by Customer or DLJ in a written
notice to the other. All such notices and communications shall be effective
when delivered to the party to which such notice is to be given.
9. NO WAIVER, REMEDIES. No failure on the part of DLJ to exercise, and no
-------------------
delay in exercising, any right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any right hereunder preclude any other
or further exercise thereof or the exercise of any other right. The remedies
herein provided are cumulative and not exclusive of any other remedies provided
in equity or at law.
10. BINDING EFFECT; GOVERNING LAW; VENUE. This Promissory Note shall be
------------------------------------
binding upon Customer and its successors and assigns, and shall inure to the
benefit of DLJ and its successors and assigns. Customer may not assign its
obligations under this Promissory Note without the prior written consent of DLJ.
DLJ may assign, by bookkeeping entry on DLJ's records or otherwise, all or any
part of, or any interest in, DLJ's rights and benefits hereunder, including,
without limitation, its right to payments of principal and interest with respect
to a particular Advance. To the extent of such assignment, such assignee shall
have the same rights and benefits against Customer as it would have had if it
were DLJ hereunder. However, nothing contained herein shall preclude DLJ from
continuing to exercise all of its rights hereunder for the benefit of any such
assignee of DLJ, and Customer shall continue to accept directions and other
notices solely from DLJ unless otherwise notified by DLJ in writing. This
Promissory Note shall be construed in accordance with, and governed by, the laws
of the State of New York, without giving effect to the conflict of law
principles thereof. Customer waives trial by jury. Customer hereby irrevocably
consents to the non-exclusive jurisdiction of any court of the State of New
York, or in the United States District Court for the Southern District of New
York, in any action or proceeding arising out of or relating to this Promissory
Note. Customer hereby submits to, and waives any objection it may have to,
personal jurisdiction and venue in the courts of the State of New York and the
United States District Court for the Southern District of New York, with respect
to any disputes arising out of or relating to this Promissory Note. Customer
consents to service of process by mail at the address specified in the Custody
Agreement or otherwise designated pursuant to Section 8 hereof and waives any
objection it may have to the sufficiency or adequacy of such method of service
of process.
IN WITNESS WHEREOF, Customer has caused this Promissory Note to be executed by
its officer thereunto duly authorized, as of the date first above written.
_____________________________________, as Customer
By: ____________________________________________
Name:________________________________
Title:_______________________________
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<PAGE>
EXHIBIT 10.6(E)
PLEDGE AGREEMENT
Dated: March ____, 1998
This PLEDGE AGREEMENT ("Pledge Agreement") is made by and between DLJ Mortgage
Capital, Inc. ("DLJ"), on behalf of itself and holders from time to time of
interests in the Promissory Note, and BNC Mortgage, Inc. ("Customer").
PRELIMINARY STATEMENT
---------------------
Customer and DLJ have entered into a Whole Loan Financing Facility, dated the
date hereof (as amended from time to time, the "Facility"), pursuant to which
DLJ may make certain Advances (as defined below) to Customer. Customer has
agreed to secure its Obligations (as defined below) by granting a security
interest in the Collateral (as defined below) pursuant to the terms hereof. The
parties hereto have agreed that certain items of Collateral are to be deposited
with and retained by Custodian (as defined below), acting as bailee of and agent
for DLJ and its affiliates, successors and assigns.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS. The following terms have the meanings indicated when used
-----------
herein:
"Advance" means an Advance as defined in the Facility.
"Agency" means any of the Government National Mortgage Association ("GNMA"), the
Federal National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC").
"Agency Mortgage Loan" means a mortgage loan described in a Collateral Receipt
and eligible and intended to secure or underlie Agency Securities or eligible
for purchase by an Agency.
"Agency Securities" means securities or certificates issued or guaranteed by
GNMA, FNMA or FHLMC.
"Business Day" means any day other than a Saturday, Sunday or a public or bank
holiday in New York City.
"Collateral" shall have the meaning assigned to it in Section 2.1 hereof.
"Collateral Receipt" means a document duly executed by Customer and Custodian
with respect to each delivery of Mortgage Loans and containing a schedule of all
Mortgage Loans submitted therewith, in the form attached to the Custody
Agreement.
"Collateral Value" means the lesser of the Market Value or the unpaid principal
amount of an item of Collateral; provided, however, that (i) if the principal of
and/or interest on any item of Collateral remains due and unpaid for more than
forty-five (45) days, such item of Collateral shall have a Collateral Value of
zero; (ii) for any item of Collateral that constitutes a Wet Mortgage Loan, if
Customer fails to deliver to Custodian the documents required to be delivered
under the related Custody Agreement within five (5) days of the date of the
related Advance, such Wet Mortgage Loan shall have a Collateral Value of zero;
and (iii) if any item of Collateral been sent to an Agency or a Nonagency
Purchaser pursuant to a Bailee Letter under a Custody Agreement and has remained
outside the possession of the Custodian for more than thirty (30) days, such
item of Collateral shall have a Collateral Value of zero, unless otherwise
agreed by DLJ in writing.
"Custodian" means each entity acting as bailee of and agent for DLJ with respect
to any item of Collateral.
"Custody Agreement" means each Tri-Party Custody Agreement, as amended from time
to time, among Customer, DLJ and a Custodian, with respect to any Collateral
delivered in conjunction with this Pledge Agreement.
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"Default" means any event that, with the giving of notice or the lapse of time
or both, would constitute an Event of Default.
"Default Rate" means the Default Rate as defined in the Promissory Note.
"DLJSC" means Donaldson, Lufkin & Jenrette Securities Corporation
"Event of Default" means an Event of Default as defined in the Promissory Note.
"FHA/VA Commitment" means a commitment issued by the Federal Housing
Administration ("FHA") or the Department of Veterans Affairs ("VA") to insure or
guarantee a Mortgage Loan.
"Good Delivery" shall have the meaning ascribed to such term in the PSA Guide in
connection with the standard requirements for the delivery and settlement of an
Agency Security.
"Market Value" means the market bid price obtainable for an item of Collateral,
as reasonably determined by DLJ.
"Mortgage Loan" means an Agency Mortgage Loan or a Nonagency Mortgage Loan.
"Nonagency Purchaser" means any bona fide purchaser acceptable to DLJ in its
sole discretion.
"Nonagency Mortgage Loan" means a mortgage loan described in a Collateral
Receipt intended to be purchased for cash by a Nonagency Purchaser.
"Notice of Borrowing" means a Notice of Borrowing as defined in the Facility.
"Obligations" means (a) all indebtedness, obligations and liabilities (including
without limitation, guarantees and other contingent liabilities) of Customer to
DLJ, its affiliates or Custodian arising under, or in connection with, the
Program Documents or any other related document, whether now existing or
hereafter arising, including without limitation each Advance made or to be made;
(b) any and all sums paid by DLJ or on behalf of DLJ in order to preserve the
Collateral or its security interest therein and lien thereon; (c) in the event
of any proceeding for the collection or enforcement of any indebtedness,
obligations or liabilities of Customer referred to in clause (a) after an Event
of Default shall have occurred and be continuing, the reasonable expenses of
retaking, holding, collecting, preparing for sale, selling or otherwise
disposing of or realizing on the Collateral, or of any exercise by DLJ of its
rights under the Program Documents, including without limitation reasonable
attorneys' fees and disbursements and court costs; and (d) all indemnity
obligations of Customer to DLJ or Custodian pursuant to the Program Documents.
"Pool Insurer" means General Electric Mortgage Insurance Corporation, PMI
Mortgage Insurance Company, United Guaranty Insurance Company or any other pool
insurer acceptable to DLJ in its sole discretion.
"Program Documents" means the Facility, this Pledge Agreement, the Promissory
Note, each Custody Agreement, each Notice of Borrowing and each Collateral
Receipt.
"Promissory Note" means the Promissory Note, dated the date hereof, executed by
Customer, as amended from time to time.
"PSA Guide" means The Uniform Practices for the Clearance and Settlement of
Mortgage-Backed Securities and Other Related Securities, published (and
periodically updated as supplemented) by the Public Securities Association
("PSA").
"Purchase Commitment" means an obligation of (i) a bona fide purchaser to
purchase an Agency Security, (ii) an Agency to purchase Agency Mortgage Loans or
(iii) a Nonagency Purchaser to purchase Nonagency Mortgage Loans, in each case
at a specific price and on or by a specific date.
"Required Documents" means Required Documents as defined in the Custody
Agreement.
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"Second Mortgage" means the mortgage that is the second lien (as customarily
referred to in the industry) on the real property securing the related mortgage
note.
"Servicing Records" means all servicing records, including but not limited to
any and all servicing agreements, subservicing agreements, custodial agreements,
files, documents, records, data bases, customer lists, computer software,
computer tapes, copies of computer tapes, proof of insurance coverage, insurance
policies, appraisals, other closing documentation, payment history records, and
any other data and records relating to or evidencing the servicing of the
Mortgage Loans described in each Collateral Receipt.
"Wet Closing Notice" shall have the meaning assigned to it in the respective
Custody Agreement or, if not defined therein, shall be inapplicable for purposes
of the related Advance under the Program Documents.
"Wet Mortgage Loan" shall have the meaning assigned to it in the respective
Custody Agreement or, if not defined therein, shall be inapplicable for purposes
of any Advance under the Program Documents.
2. SECURITY INTEREST.
-----------------
2.1 GRANT OF SECURITY INTEREST TO DLJ. In consideration for the making of each
---------------------------------
respective Advance and for other good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, Customer does hereby convey,
transfer, mortgage, hypothecate, pledge, grant and assign to DLJ and its
successors and assigns, as security for the payment of the Obligations, a first
priority perfected security interest in and lien on all of Customer's right,
title and interest in, under and to the following properties, estates, rights
and privileges, whether now existing or hereafter acquired (collectively, the
"Collateral"):
(a) All Mortgage Loans described in a Collateral Receipt or a Wet Closing
Notice, all payments of principal and interest thereon and all related items
constituting the complete file for each such Mortgage Loan (including, without
limitation, all escrow payments, mortgage notes, mortgages, title insurance
policies, primary mortgage insurance policies, guarantees, applications,
appraisals, surveys and all other documents evidencing or relating to the
Mortgage Loan), wherever located and whether now or hereafter held in whole or
in part by a Custodian, DLJ, Customer or otherwise;
(b) All FHA/VA Commitments and Purchase Commitments related to the Mortgage
Loans that are described in, and all other documents required to be submitted in
connection with, a Collateral Receipt, wherever located and whether now or
hereafter held in whole or in part by a Custodian, DLJ, Customer or otherwise;
(c) All Agency Securities related to the Mortgage Loans that are described in a
Collateral Receipt, wherever located and whether now or hereafter held in whole
or in part by a Custodian, DLJ, DLJSC, Customer or otherwise;
(d) All securities or cash on deposit with, or received by, DLJ or Custodian
for the account of Customer in connection with any transaction or in respect of
such Mortgage Loans or Agency Securities, or representing proceeds of
Collateral;
(e) All tangible and intangible personal property of whatever kind, including
all payments with respect thereto and all proceeds thereof, that relates to such
Mortgage Loans, Agency Securities, FHA/VA Commitments or Purchase Commitments,
wherever located and whether now or hereafter held in whole or in part by a
Custodian, DLJ, Customer or otherwise;
(f) All property held for the account of Customer by Custodian or any affiliate
of DLJ;
(g) All rights, powers and privileges of Customer related to the servicing of
the Mortgage Loans, including all Servicing Records;
(h) All proceeds of any of the foregoing; and
(i) Such other items as Customer and DLJ shall agree upon from time to time.
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2.2 GRANT OF SUBORDINATED SECURITY INTERESTS. To induce DLJ and its affiliate
----------------------------------------
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC") to accept
assignment of Purchase Commitments for Agency Securities related to the Mortgage
Loans, Customer does hereby convey, transfer, mortgage, hypothecate, pledge,
grant and assign to DLJ and DLJSC as security for Customer's performance under
such Purchase Commitments, a security interest in, and lien on, the Collateral
that is solely subordinate to, and junior to, the liens set forth in Section 2.1
hereof.
2.3 RELEASE OF COLLATERAL. Upon the full satisfaction of all outstanding
---------------------
principal, accrued interest on, and all other Obligations owing with respect to
any Advance, if no Default or Event of Default has occurred and is continuing,
but subject to the rights of any holder of a lien on the items of Collateral of
which DLJ has notice, DLJ shall, and shall direct Custodian to, release the
Collateral related to such Advance. Subject to the provisions of this Section
2.3, on the Maturity Date of each Advance, if requested by Customer, DLJ will
deliver against payment any related Agency Securities being held by it as
security for such Advance, and apply the net proceeds received from such sale to
the repayment of such Advance.
3. REPRESENTATIONS AND WARRANTIES.
------------------------------
Customer, as of the date hereof and as of the date of each Advance, hereby
represents and warrants to DLJ as follows:
3.1 OWNERSHIP OF COLLATERAL; NO ENCUMBRANCE. Customer is the sole legal and
---------------------------------------
equitable owner and holder of the Collateral, free and clear of all security
interests, liens, pledges, participation interests or other encumbrances
whatsoever, except (i) the security interests and liens granted hereunder, (ii)
if payment hereunder will satisfy any existing security interest, lien or other
encumbrance on the Collateral, and (iii) with respect to Mortgage Loans that are
secured by Second Mortgages, the first lien on the related mortgaged property.
All Agency Securities, FHA/VA Commitments and Purchase Commitments have been or
will be duly authorized and validly issued, and all Mortgage Loans that are part
of the Collateral are duly and validly originated by or conveyed to Customer.
All of the items of Collateral (a) comply with all of the requirements of this
Pledge Agreement and (b) have been duly and validly pledged or assigned to DLJ
in such a manner that DLJ's first priority security interest therein is fully
perfected.
3.2 AUTHORITY TO PLEDGE COLLATERAL. Customer has, and will continue to have,
------------------------------
the full right, power and authority to grant to DLJ a first priority perfected
security interest in the Collateral.
3.3 CONFORMITY; ELIGIBILITY.
-----------------------
(a) All Agency Mortgage Loans, Required Documents applicable thereto and
related Purchase Commitments conform to the requirements for submission to the
relevant Agency, and Customer has furnished to Custodian all mortgage documents
required to be submitted to the relevant Agency or Custodian in connection with
the issuance of the Agency Securities or the cash purchase of the Agency
Mortgage Loans by the relevant Agency.
(b) All Nonagency Mortgage Loans, Required Documents applicable thereto and
Purchase Commitments conform to the underwriting requirements of the relevant
Nonagency Purchaser and, unless otherwise agreed by DLJ, any relevant Pool
Insurer.
3.4 MORTGAGE LOANS. (a) Each Agency Mortgage Loan and, to the extent a
--------------
Purchase Commitment is in effect with respect thereto, each Nonagency Mortgage
Loan meets all of the following requirements as of the date delivered to
Custodian, and except for (viii) below, continuously while it is part of the
Collateral:
(i) It is eligible, and in the form required, for securitization or
purchase under the relevant Agency program or by the relevant Nonagency
Purchaser. It is a bona fide Mortgage Loan of the type that it purports to
be, made to one or more borrowers each having substantially the credit
standing he or she is represented to have;
(ii) It has been fully advanced in the face amount thereof;
(iii) It is and will be secured by a valid and enforceable "first lien" (as
customarily referred to in the industry), except
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that with respect to Mortgage Loans that are secured by Second Mortgages,
it is and will be secured by a valid and enforceable "second lien", in each
case upon an existing site-built residential real property of the type
represented to secure the loan, having substantially the value represented
in the appraisal;
(iv) The documents related thereto have been duly executed and delivered
by the parties thereto;
(v) It has been made in compliance with all applicable laws,
regulations, rules, directives and orders of all governmental authorities,
including all requirements of the Real Estate Settlement Procedures Act and
the Federal Truth-In-Lending Act;
(vi) The promissory note, mortgage or deed of trust and all other
documents related to the Mortgage Loan are and will be valid and
enforceable in accordance with their terms, without defense, offset or
right of rescission, and they have not been and will not be modified or
amended nor any requirements thereof waived;
(vii) Any private mortgage insurance with respect to such loan is by a
company of recognized standing acceptable to the relevant Agency or the
relevant Nonagency Purchaser at the time that such loan was originated and
at the time that the respective Advance is made;
(viii) No default, nor any event that, with notice or lapse of time or
both, would become a default, has occurred and is continuing under any such
Mortgage Loan. With respect to Mortgage Loans that are secured by Second
Mortgages, no default, nor any event that, with notice or lapse of time or
both, would become a default, has occurred and is continuing under the
first lien;
(ix) With respect to each Mortgage Loan that is secured by a Second
Mortgage, it was originated and has been serviced in compliance with all
applicable federal, state and local laws regarding Mortgage Loans secured
by second liens;
(x) With respect to each Mortgage Loan that is secured by a Second
Mortgage, the Customer has the right to cure any default with respect to
the mortgage loan that constitutes the first lien;
(xi) Each Wet Mortgage Loan conforms in all respects to the description
thereof set forth on the related Wet Closing Notice, and Customer will
perform, and has no reason to believe that it will be unable to perform,
its obligation to deliver to Custodian within the time period agreed to in
the Custody Agreement the documents required to be delivered with respect
thereto.
(b) Each Nonagency Mortgage Loan, to the extent no Purchase Commitment is in
effect with respect thereto, meets all of the representations set forth on
Appendix A hereto as of the date delivered to Custodian and continuously while
it is a part of the Collateral.
3.5 COMPLIANCE WITH FHA/VA REQUIREMENTS. Each Mortgage Loan that is designated
-----------------------------------
by Customer as being insured by the FHA or partially guaranteed by the VA has
complied and will comply with all laws, rules and regulations with respect to
such insurance or guaranty, and such insurance or guaranty is, or will be, in
full force and effect.
3.6 INSURANCE POLICIES IN EFFECT. Each fire and casualty insurance policy
----------------------------
covering each of the premises securing a Mortgage Loan that is a part of the
Collateral:
(a) Affords and will afford sufficient insurance against fire and such other
risks as are usually insured against in the broad form of extended coverage
insurance from time to time available, as well as insurance against flood
hazards if the same is required by (i) the FHA, the VA or the relevant Agency or
(ii) the relevant Nonagency Purchaser;
(b) Is a standard policy of insurance for the locale where the premises are
located; is in full force and effect; and the amount of the insurance is in the
amount of the full insurable value of the premises on a replacement cost basis
or the unpaid principal balance of the Mortgage Loan, whichever is less;
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<PAGE>
(c) Names and will name the present owner of the premises as the insured; and
(d) Contains a standard mortgagee loss payable clause in favor of the servicer
of the loan.
3.7 PURCHASE COMMITMENTS. All Purchase Commitments that are part of the
--------------------
Collateral are valid and enforceable obligations and have been approved by all
necessary authorities.
4. COVENANTS OF CUSTOMER.
---------------------
4.1. DEFENSE OF TITLE. Customer warrants and will defend the right, title and
----------------
interest of DLJ in and to all Collateral against all adverse claims and demands.
4.2. NO AMENDMENT OR COMPROMISE. Without DLJ's prior consent, Customer and
--------------------------
those acting on behalf of Customer shall not amend or modify, or waive any term
or condition of, or settle or compromise any claim in respect of, any item of
Collateral or any related rights.
4.3. NO ASSIGNMENT. Customer shall not sell, assign, transfer or otherwise
-------------
dispose of, or grant any option with respect to, or pledge, hypothecate or grant
a security interest in or lien on or otherwise encumber (except pursuant to this
Pledge Agreement), any of the Collateral or any interest therein, provided that
this section shall not prevent any transfer of Collateral in accordance with
this Pledge Agreement and/or the Custody Agreement.
4.4. SERVICING OF MORTGAGES.
----------------------
(a) Customer shall service, or cause to be serviced, all Mortgage Loans that
are part of the Collateral in accordance with the standard industry practices,
employing at least the same procedures and exercising the same care that it
customarily employs in servicing Mortgage Loans for its own account, and in
accordance with all applicable requirements of the relevant Agency, Nonagency
Purchaser or Pool Insurer that covers any of such Mortgage Loans. Customer shall
notify or cause to be notified all servicers of DLJ's interest hereunder.
Customer shall notify DLJ of the name and address of all servicers. DLJ shall
have the right to approve each servicer and the form of all servicing
agreements, and hereby confirms its approval of existing servicing arrangements
with Temple Inland Mortgage Corporation and (Option One Mortgage Services).
Customer shall hold or cause to be held all escrow funds collected with respect
to such Mortgage Loans in trust accounts and shall apply the same for the
purposes for which such funds were collected.
(b) Upon DLJ's request, Customer shall provide to DLJ a letter addressed to
each servicer of Mortgage Loans (the "Servicer Letters"), in form and substance
reasonably satisfactory to DLJ, advising such servicer of DLJ's security
interest in the Collateral and such other matters as DLJ may reasonably request.
(c) If Customer should discover that, for any reason whatsoever, it or any
entity responsible to it by contract for managing or servicing any such Mortgage
Loan has failed to perform fully Customer's obligations under the Program
Documents or any of the obligations of such entities with respect to the
Collateral, Customer shall promptly so notify DLJ.
4.5 PRESERVATION OF COLLATERAL. Customer shall do all things necessary to
--------------------------
preserve the Collateral so that it remains effective security hereunder.
Without limiting the foregoing, Customer will, in its dealings with the
Collateral, comply with all rules, regulations and other laws of any
governmental authority and cause the Collateral to comply with all applicable
rules, regulations and other laws. Customer will not allow any default for
which it is responsible to occur under any Collateral, and Customer shall fully
perform or cause to be performed when due all of its obligations under any
Collateral.
4.6. MAINTENANCE OF PAPERS, RECORDS AND FILES.
----------------------------------------
(a) Customer shall acquire and it or its servicer shall build, maintain and
have available a complete file in accordance with industry custom and practice
for each Mortgage Loan that is part of the Collateral. Customer or such servicer
will maintain all such papers, records and files not in the possession of
Custodian in good and complete condition in accordance with
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industry practices and preserve them against loss.
(b) Customer shall collect and maintain or cause to be collected and maintained
all papers, records and files relating to the Collateral in accordance with
industry custom and practice, including those maintained pursuant to
subparagraph (a) above, and all such materials shall be in Custodian's or
Customer's possession unless DLJ otherwise approves. Customer will not allow any
such papers, records or files that are an original or an only copy to leave its
or Custodian's possession, except for individual items removed in connection
with servicing a specific Mortgage Loan, in which event Customer will obtain or
cause to be obtained a receipt from a financially responsible person for any
such paper, record or file.
(c) For so long as DLJ has a security interest in or lien on any Collateral,
Customer will hold or cause to be held any paper, record or file related to the
Collateral in trust for DLJ. Customer shall notify every other party holding any
such paper, record or file of the security interests and liens granted hereby.
(d) Upon reasonable advance notice from Custodian or DLJ, and during regular
business hours, Customer shall make any and all such papers, records or files
available to Custodian or DLJ to examine any such papers, records and files,
either by its own officers or employees, or by agents or contractors, or both,
and make copies of all or any portion thereof.
4.7. PRESERVATION AND PERFECTION OF SECURITY INTEREST. Customer shall execute
------------------------------------------------
and deliver such further instruments and shall do and perform all matters and
things necessary or expedient to be done or observed for the purpose of
effectively treating, perfecting, maintaining and preserving the security
interests, liens and other benefits intended to be afforded by this Pledge
Agreement. This shall include, upon request of DLJ, the delivery of documents
to Custodian, or additional filings and recordations with governmental
authorities.
4.8. STAMP. Customer shall, upon request of DLJ, stamp on its records
-----
concerning the Collateral or a portion thereof a notation, in form and substance
satisfactory to DLJ, of the security interest and lien of DLJ hereunder.
4.9. ADDITIONAL RIGHTS OF DLJ. Upon the occurrence of an Event of Default,
------------------------
DLJ, at its option, shall have the right to do, or to request Custodian to do,
any or all of the following, and upon a request therefor by DLJ, Customer agrees
to cooperate with DLJ and Custodian, as the case may be, to accomplish such
request:
(a) DLJ or, at its direction, DLJ's designee may take possession of all
original papers, records and files relating to the Collateral. In Custodian's
discretion, Custodian shall move such records and files to a location acceptable
to and under the control of Custodian.
(b) Customer will instruct all persons servicing the Mortgage Loans that are
part of the Collateral to take instructions from and make all reports to
Custodian for the account of Customer. If DLJ so desires, Customer will change
the servicer for any such Mortgage Loans to a company acceptable to DLJ.
(c) Customer shall cause all sums received with respect to the Collateral to
be deposited with Custodian.
4.10. DLJ APPOINTED ATTORNEY-IN-FACT. Upon the occurrence of an Event of
------------------------------
Default, DLJ is hereby appointed the attorney-in-fact of Customer for the
purpose of carrying out the provisions hereof and taking any action and
executing any instruments that DLJ may deem necessary or advisable to accomplish
the purposes hereof, which appointment is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, DLJ shall have the
right and power to receive, endorse and collect all checks made payable to the
order of Customer representing any payment on account of the Collateral and to
give full discharge for the same.
5. DEFAULT - RIGHTS AND REMEDIES.
-----------------------------
5.1. EVENTS OF DEFAULT; REMEDIES.
---------------------------
(a) Should any Event of Default occur, DLJ, at its option, in addition to its
rights and remedies under the Promissory Note,
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shall have any or all of the following rights and remedies, which may be
exercised by DLJ or by Custodian in accordance with the instructions of DLJ:
(i) DLJ may cause the disposition of all or any portion of the Collateral
to be conducted immediately upon the occurrence of an Event of Default, or
upon the expiration of any period of delay or notice required by law.
Should DLJ decide to conduct more than one such sale or disposition, DLJ
may at its option cause the same to be conducted simultaneously or
successively on the same day or upon such different days or at such
different times and in such order as DLJ may deem to be in the best
interests of the holders of interests in the Promissory Note. Customer
waives, to the fullest extent permitted by law, any prejudice resulting to
it from any such decision.
(ii) DLJ shall have the right to sell the Collateral in one or more lots,
at one or more times, at such place or places, at public or private sales
and with or without notice of any kind, as DLJ may elect, at such prices
and on such terms, as to cash or credit, as DLJ may deem proper. However,
notwithstanding any provision of this Pledge Agreement to the contrary, two
(2) Business Days' notice of all sales of all or any portion of the
Collateral shall be given to Customer. DLJ shall have the right to become a
purchaser at any such sale that is open to the public and to apply all
unpaid Obligations toward the purchase price of all or any portion of the
Collateral sold to DLJ. If notice is given of public sale, it is agreed
that notice shall be satisfactorily given if such notice is published at
least once in The Wall Street Journal not less than two (2) Business Days
-----------------------
prior to such sale. The foregoing notice provisions shall not preclude
DLJ's rights to foreclose upon the Collateral in any other manner permitted
under the Uniform Commercial Code as in effect in the applicable
jurisdiction. However, a sale of the Collateral in accordance with such
notice requirements shall be deemed a disposal of the Collateral in a
commercially reasonable manner. DLJ shall have the right to sell the
Collateral, or to foreclose, sue upon or otherwise seek to enforce with
respect thereto in its own name or in the name of either Custodian or
Customer. Subject to the foregoing provisions of this paragraph, if an
Event of Default shall have occurred and be continuing, DLJ shall have the
right to renew, extend the time of payment of or otherwise modify, 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 choses in action of any kind, that
may be included in the Collateral. In view of the nature of the Collateral,
the parties agree that liquidation of the Collateral does not require a
public sale and that one or more good faith private sales, including such
private sales at which DLJ shall have the right to become a purchaser, is a
commercially reasonable disposition of the Collateral.
(iii) DLJ, or upon its direction Custodian, may take possession of all or
any portion of the Collateral that is not already in its or Custodian's
possession, and Customer agrees to assemble and make available the
Collateral to DLJ at a convenient location. DLJ, acting through Custodian
if it so desires, may manage and protect the Collateral, do any acts that
DLJ deems proper to protect the Collateral as security hereunder, and sue
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 in accordance with the same order of
priorities as set forth in Section 5.3 hereof. Any such actions of DLJ or
Custodian shall not, absent written ratification by DLJ, be deemed to
impose upon DLJ or Custodian any of Customer's obligations under any
contracts.
(iv) DLJ may direct the servicers to take such action with respect to the
Collateral as DLJ determines is appropriate.
(b) DLJ shall, without regard to the adequacy of the security for the
Obligations, be entitled to the appointment of a receiver by any court having
jurisdiction, 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 DLJ or Custodian are authorized hereunder to do. Customer shall
pay all costs and expenses incurred by DLJ in connection with the appointment
and activities of such receiver.
(c) DLJ may enforce its rights and remedies hereunder without prior judicial
process or hearing, and Customer hereby expressly waives, to the extent
permitted by law, any right Customer might otherwise have to require DLJ to
enforce its rights by judicial process. Customer also waives, to the extent
permitted by law, any defense Customer might otherwise have to the Obligations
arising from use of nonjudicial process, enforcement and sale of all or any
portion of the Collateral or from
8
<PAGE>
any other election of remedies. Customer recognizes that nonjudicial remedies
are consistent with the usages of the trade, are responsive to commercial
necessity and are the result of a bargain at arm's length.
(d) Notwithstanding the foregoing, upon the occurrence of any Event of Default
described in paragraphs 6(e) and 6(f) of the Promissory Note, DLJ shall have the
right to exercise any of its rights and/or remedies without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by the Customer.
5.2. DELAY NOT WAIVER; REMEDIES ARE CUMULATIVE.
-----------------------------------------
(a) No failure on the part of DLJ or Custodian to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise by DLJ or Custodian of any
right, power or remedy hereunder preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.
(b) All remedies of DLJ or Custodian provided for herein are cumulative and in
addition to any and all other rights and remedies provided by law, the Program
Documents and the other instruments and agreements contemplated hereby and
thereby. DLJ may exercise at any time after the occurrence of an Event of
Default one or more remedies, as it so desires, and may thereafter at any time
and from time to time exercise any other remedy or remedies.
5.3. APPLICATION OF PROCEEDS. The proceeds of any sale or disposition of each
-----------------------
item of the Collateral pursuant to this Article shall be applied as follows:
(a) First, to the payment of the costs and expenses of such sale or
disposition, or any other enforcement action pursuant hereto, including
reasonable attorney's fees (including the allocated expenses of internal counsel
to DLJ and Custodian), and all other expenses incurred in connection therewith,
with a reasonable reserve for any liabilities incurred in connection therewith
and full repayment with interest of all advances made or incurred in connection
therewith;
(b) Second, to the payment in full, in such order as DLJ shall determine, of
(i) the accrued interest on the Advance secured by the item of Collateral sold
or otherwise disposed of, (ii) the outstanding principal on the Advance secured
by the item of Collateral sold or otherwise disposed of and (iii) all other
Obligations due and owing to the holder of such Advance secured by the item of
Collateral sold or otherwise disposed of, whether such holder is DLJ or an
assignee of DLJ;
(c) Third, to the payment in full, in such order as DLJ shall determine, of (i)
the accrued interest on the Promissory Note, (ii) the outstanding principal on
the Promissory Note and (iii) all other Obligations; and
(d) Finally, to the payment to the person or persons entitled thereto, or as a
court of competent jurisdiction directs.
If the proceeds of any such sale are insufficient to cover the costs and
expenses of such sale, as aforesaid, and the payment in full of the Promissory
Note, including without limitation all Advances thereunder, and all other
Obligations, Customer shall remain liable for any deficiency.
5.4. REIMBURSEMENT. All sums expended by DLJ or Custodian in connection with
-------------
the exercise of any right or remedy provided for herein shall be and remain the
obligation of Customer. At the option of DLJ, all such sums may be paid from
the Collateral, or may be advanced by DLJ or Custodian, in which event they
shall be deemed to have been advanced to Customer and shall be reimbursed by
Customer to the party advancing such amount, with interest at the Default Rate
until reimbursement is made. During the continuance of an Event of Default,
Customer waives, and shall not have, any right to restrict or control the
expenditures by DLJ or Custodian from any cash which constitutes Collateral.
Customer agrees to pay, with interest at the Default Rate, the reasonable out-
of-pocket expenses (including estimated allocated costs for internal counsel)
and reasonable attorneys' fees incurred by DLJ or Custodian in connection with
the administration and enforcement of the Program Documents, the taking of any
action, including legal action, required or permitted to be taken by DLJ or
Custodian pursuant thereto, or in connection with any refinancing or
restructuring in the nature of a "workout".
9
<PAGE>
5.5. INDEMNITY.
---------
(a) The powers conferred on DLJ or Custodian hereunder are solely for their
protection and do not impose any duty on them to exercise any such powers.
Following an Event of Default, DLJ and Custodian shall have no duty of care to
Customer as to any Collateral or with respect to the taking of any necessary
steps to preserve rights against other parties, or any other obligation
pertaining to the Collateral. Customer, its successors and assigns, waive all
rights whatsoever against DLJ or Custodian for any loss, expense, liability or
damage suffered by Customer as a result of actions taken pursuant to this Pledge
Agreement, including those arising under any "mortgagee in possession" or
similar doctrine. Customer agrees to indemnify and hold harmless DLJ and
Custodian, and any contractors hired by them, and their respective officers,
agents, attorneys and employees, from each and every cost, expense, loss or
other liability resulting from, or arising out of the Program Documents and all
other documents related thereto, and all actions taken pursuant thereto
(including without limitation any action taken by DLJ or Custodian pursuant to
Section 5 hereof), other than those caused by the gross negligence or willful
misconduct of DLJ or Custodian.
(b) Without limiting the application of Section 5.5(a), Customer agrees to pay,
or reimburse DLJ and Custodian for all fees and taxes in connection with the
recording or filing of instruments and documents in public offices, payment or
discharge of any taxes or liens upon or in respect of the Collateral and all
other fees, costs and other expenses in connection with protecting, maintaining
or preserving the Collateral and DLJ's interest therein, whether through
judicial proceedings or otherwise, or in defending or prosecuting any actions,
suits or proceedings arising out of or relating to the Collateral.
(c) The indemnity obligations of Customer contained in this section shall
continue in full force and effect notwithstanding the full payment of the
Promissory Note and all of the other Obligations and notwithstanding the
discharge thereof.
5.6. WAIVER OF REDEMPTION AND DEFICIENCY RIGHTS. Customer hereby expressly
------------------------------------------
waives, to the fullest extent permitted by law, every statute of limitation, any
right of redemption, any moratorium or redemption period, any limitation on a
deficiency judgment, any reduction in the proceeds of any Collateral as a result
of restrictions upon DLJ or Custodian contained in the Program Documents or any
other instrument delivered in connection therewith, and any right that it may
have to direct the order in which any of the Collateral shall be disposed of in
the event of any disposition pursuant hereto.
6. MISCELLANEOUS.
-------------
6.1. NOTICES. All written communications hereunder shall be mailed,
-------
telecopied or delivered at the respective address set forth in the Custody
Agreement or at such other address as shall be designated by a party in a
written notice to the other parties pursuant to the Custody Agreement. All such
notices and communications shall be effective when received by the party to
which such notice is to be given.
6.2. ENTIRE AGREEMENT. This Pledge Agreement supersedes and integrates all
----------------
negotiations, contracts, agreements and understandings between the parties
relating thereto, and it, together with the other Program Documents and the
other documents delivered pursuant hereto or thereto, contains the entire final
agreement of the parties. No prior negotiation, agreement, understanding or
prior contract shall have any validity hereafter.
6.3. AMENDMENTS, ETC. No amendment or waiver of any provision of this Pledge
---------------
Agreement nor any consent to any failure to comply herewith shall in any event
be effective unless the same shall be in writing and signed by all the parties
hereto, and then such amendment, waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
6.4. SEVERABILITY. If any provision of this Pledge Agreement is declared
------------
invalid by any court of competent jurisdiction, such invalidity shall not affect
any other provision, and this Pledge Agreement shall be enforced to the fullest
extent permitted by law.
6.5. BINDING EFFECT; GOVERNING LAW. This Pledge Agreement shall be binding
-----------------------------
and inure to the benefit of the parties hereto and their respective successors
and assigns. Customer may not assign this Pledge Agreement or any of Customer's
rights or obligations hereunder. DLJ may assign, in whole or in part, its rights
hereunder, including without limitation its
10
<PAGE>
security interest in and lien on those items of Collateral securing a particular
Advance, whether in conjunction with an assignment of DLJ's interest, in whole
or in part, in the Promissory Note, a particular Advance thereunder or
otherwise. Nothing contained herein shall preclude DLJ from continuing to
exercise all of its rights hereunder for the benefit of any such assignee of
DLJ, and Customer shall continue to take directions solely from DLJ unless
otherwise notified by DLJ in writing. This Pledge Agreement shall be construed
in accordance with, and governed by, the law of the State of New York, without
giving effect to the conflict of laws principles thereof.
IN WITNESS WHEREOF, this Pledge Agreement has been executed by the parties
hereto as of the date first above written.
BNC Mortgage, Inc., as Customer
- -------------------------------
By:__________________________________
Name:________________________________
Title:_______________________________
DLJ Mortgage Capital, Inc.
By:__________________________________
Name:________________________________
Title:_______________________________
11
<PAGE>
APPENDIX A
REPRESENTATIONS AND WARRANTIES REGARDING NONAGENCY MORTGAGE LOANS WITHOUT A
PURCHASE COMMITMENT
(A) MORTGAGE LOANS AS DESCRIBED. The information set forth in the Collateral
---------------------------
Receipt, the related mortgage loan schedule (the "Mortgage Loan Schedule") and
the Wet Closing Notice, if any, is complete, true and correct.
(B) PAYMENTS CURRENT; NO DEFAULT. All payments required to be made under the
----------------------------
terms of the mortgage note have been made and credited. No payment required
under the Mortgage Loan has been delinquent at any time since the date the
Mortgage Loan was originated. There is no default, breach, violation or event of
acceleration existing under the mortgage or the mortgage note and no event that,
with the passage of time or with notice and the expiration of any grace or cure
period, would constitute a default, breach, violation or event of acceleration,
and neither Customer nor its predecessors have waived any default, breach,
violation or event of acceleration.
(C) NO OUTSTANDING CHARGES. There are no defaults in complying with the terms
----------------------
of the mortgage, and all taxes, governmental assessments, insurance premiums,
water, sewer and municipal charges, leasehold payments or ground rents that
previously became due and owing have been paid, or an escrow of funds has been
established in an amount sufficient to pay for every such item that remains
unpaid and that has been assessed but is not yet due and payable. Customer has
not advanced funds, or induced, solicited or knowingly received any advance of
funds by a party other than the mortgagor, directly or indirectly, for the
payment of any amount required under the Mortgage Loan, except for interest
accruing from the date of the mortgage note or date of disbursement of the
Mortgage Loan proceeds, whichever is greater, to the day that precedes by one
month the due date of the first installment of principal and interest.
(D) ORIGINAL TERMS UNMODIFIED. The terms of the mortgage note and mortgage
-------------------------
have not been impaired, waived, altered or modified in any respect, except by a
written instrument that has been recorded, if necessary to protect the interest
of DLJ and that has been delivered to DLJ or its designee (including the
Custodian). The substance of any such waiver, alteration or modification has
been approved by the issuer of any related PMI Policy (as defined below) and the
title insurer, to the extent required by the policy, and its terms are reflected
on the Mortgage Loan Schedule. No mortgagor has been released, in whole or in
part, except in connection with an assumption agreement approved by the issuer
of any related PMI Policy (as defined below) and the title insurer, to the
extent required by the policy, and which assumption agreement is included in the
mortgage file delivered to DLJ or its designee (including the Custodian) and the
terms of which are reflected in the Mortgage Loan Schedule.
(E) NO DEFENSES. The Mortgage Loan is not subject to any right of rescission,
-----------
set-off, counterclaim or defense, including without limitation the defense of
usury, nor will the operation of any of the terms of the mortgage note or the
mortgage, or the exercise of any right thereunder, render either the mortgage
note or the mortgage unenforceable, in whole or in part, or subject to any right
of rescission, set-off, counterclaim or defense, including without limitation
the defense of usury, and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto.
(F) INSURANCE POLICIES IN EFFECT. The fire and casualty insurance policy
----------------------------
covering the mortgaged property (1) affords and will afford sufficient insurance
against fire and such other risks as are usually insured against in the broad
form of extended coverage insurance from time to time available, as well as
insurance against flood hazards if the mortgaged property is in an area
identified by the Federal Emergency Management Agency as having special flood
hazards; (2) is a standard policy of insurance for the locale where the
mortgaged property is located, is in full force and effect, and the amount of
insurance is in the amount of the full insurable value of the mortgaged property
on a replacement cost basis or the unpaid balance of the Mortgage Loans,
whichever is less; (3) names (and will name) the present owner of the mortgaged
property as the insured; and (4) contains a standard mortgagee loss payable
clause in favor of Customer.
(G) COMPLIANCE WITH APPLICABLE LAWS. Any and all requirements of any federal,
-------------------------------
state or local law including, without limitation, usury, truth-in-lending, real
estate settlement procedure, consumer credit protection, equal credit
opportunity or disclosure laws applicable to the Mortgage Loan have been
complied with, and Customer shall maintain in its possession,
i
<PAGE>
available for DLJ's inspection, and shall deliver to DLJ upon demand, evidence
of compliance with all such requirements.
(H) NO SATISFACTION OF MORTGAGE. The mortgage has not been satisfied,
---------------------------
canceled, subordinated or rescinded, in whole or in part, and the mortgaged
property has not been released from the lien of the mortgage, in whole or in
part, nor has any instrument been executed that would effect any such release,
cancellation, subordination or rescission.
(I) USE OF MORTGAGED PROPERTY. No portion of the mortgaged property is used
-------------------------
for commercial purposes.
(J) VALID FIRST LIEN. The mortgage is a valid, existing and enforceable first
----------------
lien (except with respect to Second Mortgages) on the mortgaged property,
including all buildings on the mortgaged property and all installations and
mechanical, electrical, plumbing, heating and air conditioning systems located
in or annexed to such building, and all additions, alterations and replacements
made at any time with respect to the foregoing. The lien of the mortgage is
subject only to:
(1) the lien of the current real property taxes and assessments not yet
due and payable.
(2) covenants, conditions and restrictions, rights of way, easements and
other matters of the public record as of the date of recording acceptable
to mortgage lending institutions generally and specifically referred to in
the lender's title insurance policy delivered to the originator of the
Mortgage Loan and (A) referred to or otherwise considered in the appraisal
made for the originator of the Mortgage Loan or (B) that do not materially
adversely affect the appraised value of the mortgaged property set forth in
such appraisal; and
(3) other matters to which like properties are commonly subject that do
not materially interfere with the benefits of the security intended to be
provided by the mortgage or the use, enjoyment, value or marketability of
the related mortgaged property.
Any security agreement, chattel mortgage or equivalent document related to
and delivered in connection with the Mortgage Loan establishes and creates
a valid, subsisting and enforceable first lien and first priority security
interest on the property described therein and Customer has full right to
pledge and assign the same to DLJ or its designee (including Custodian).
(K) VALIDITY OF MORTGAGE DOCUMENTS. The mortgage note and the mortgage are
------------------------------
genuine, and each is the legal, valid and binding obligation of the maker
thereof enforceable in accordance with its terms. All parties to the mortgage
note and the mortgage had legal capacity to enter into the Mortgage Loan and to
execute and deliver the mortgage note and the mortgage, and the mortgage note
and the mortgage have been duly and properly executed by such parties.
(L) FULL DISBURSEMENT OF PROCEEDS. The proceeds of the Mortgage Loan have been
-----------------------------
fully disbursed and there is no requirement of future advances thereunder, and
any and all requirements as to completion of any on-site or off-site improvement
and as to disbursements of any escrow funds therefor have been complied with.
All costs, fees and expenses incurred in making or closing the Mortgage Loan and
the recording of the mortgage were paid, and the mortgagor is not entitled to
any refund of any amounts paid or due under the mortgage note or mortgage.
(M) DOING BUSINESS. All parties that have had any interest in the Mortgage
--------------
Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or, during the
period in which they held and disposed of such interest, were) (1) in compliance
with any and all applicable licensing requirements of the laws of the state
wherein the mortgaged property is located, and (2) organized under the laws of
such state, or (3) qualified to do business in such state, or (4) federal
savings and loan associations or national banks having principal offices in such
state, or (5) not doing business in such state.
(N) LTV; PMI POLICY. The original LTV of the Mortgage Loan either was not more
---------------
than 85% or the excess over 85% is and will be insured as to payment defaults by
a policy of primary mortgage guaranty insurance issued by a generally accepted
insurance carrier (a "PMI Policy") until the LTV of such Mortgage Loan is
reduced to 85%. All provisions of such PMI Policy have been and are being
complied with, such policy is in full force and effect, and all premiums due
thereunder have been paid. Any Mortgage Loan subject to a PMI Policy obligates
the mortgagor thereunder to maintain the PMI Policy and
ii
<PAGE>
to pay all premiums and charges in connection therewith. The mortgage interest
rate for the Mortgage Loan as set forth on the Mortgage Loan Schedule is net of
any such insurance premium.
(O) TITLE INSURANCE. The Mortgage Loan is covered by either (1) an attorney's
---------------
opinion of title and abstract of title the form and substance of which is
acceptable to mortgage lending institutions making mortgage loans in the area
where the mortgaged property is located or (2) an ALTA lender's title insurance
policy or other generally acceptable form of policy of insurance, issued by a
title insurer and qualified to do business in the jurisdiction where the
mortgaged property is located, insuring Customer, its successors and assigns, as
to the first priority lien of the mortgage in the amount of 100% of the original
principal amount of the Mortgage Loan, subject only to the exceptions contained
in clauses (1), (2) and (3) of paragraph (j) above and, with respect to
adjustable rate Mortgage Loans, against any loss by reason of the invalidity or
unenforceability of the lien resulting from the provisions of the mortgage
providing for adjustment to the mortgage interest rate and monthly payment.
Customer is the sole insured of such lender's title insurance policy, and such
lender's title insurance policy is in full force and effect and will be in force
and effect upon the consummation of the transactions contemplated by this Pledge
Agreement. No claims have been made under such lender's title insurance policy,
and no prior holder of the mortgage, including Customer, has done, by act or
omission, anything that would impair the coverage of such lender's title
insurance policy.
(P) NO MECHANICS' LIENS. There are no mechanics' or similar liens or claims
-------------------
that have been filed for work, labor or material (and no rights are outstanding
that under the law could give rise to such liens) affecting the mortgaged
property that are or may be liens prior to, or equal or coordinate with, the
lien of the Mortgage, unless title insurance coverage exists with respect to
such liens or claims in an amount at least equal to such liens or claims.
(Q) LOCATION OF IMPROVEMENTS; NO ENCROACHMENTS. All improvements that were
------------------------------------------
considered in determining the appraised value of the mortgaged property lay
wholly within the boundaries and building restriction lines of the mortgaged
property and no improvements on adjoining properties encroach upon the mortgaged
property. No improvement located on or being part of the mortgaged property is
in violation of any applicable zoning law or regulation.
(R) ORIGINATION; PAYMENT TERMS. The Mortgage Loan was originated by Customer
--------------------------
or a savings and loan association, a savings bank, a commercial bank or similar
banking institution that is supervised and examined by a Federal or State
authority. The originator of the Mortgage Loan is a HUD-approved mortgagee. The
documents, instruments and agreements submitted for loan underwriting were not
falsified by Customer or, to Customer's knowledge by any other person and
contain, to Customer's knowledge, no untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary to make the
information and statements therein not misleading. With respect to adjustable
rate Mortgage Loans, the mortgage interest rate is adjusted annually on each
interest rate adjustment date to equal the index plus the gross margin, rounded
up or down to the nearest 1/8%, subject to the mortgage interest rate cap. With
respect to fixed rate Mortgage Loans, the mortgage note is payable each month in
equal monthly installments of principal and interest. With respect to adjustable
rate Mortgage Loans, installments of interest are subject to change due to the
adjustments to the mortgage interest rate on each interest rate adjustment date,
with interest calculated and payable in arrears, sufficient to amortize the
Mortgage Loan fully by the stated maturity date, over an original term of not
more than thirty years from commencement of amortization.
(S) DEEDS OF TRUST. In the event the mortgage constitutes a deed of trust, a
--------------
trustee, duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in the mortgage, and no fees or
expenses are or will become payable by DLJ to the trustee under the deed of
trust, except in connection with a trustee's sale after default by the
mortgagor.
(T) ACCEPTABLE INVESTMENT. Except as set forth in Customer's underwriting
---------------------
criteria, which criteria has been approved by DLJ, Customer has no knowledge of
any circumstances or conditions with respect to the mortgage, the mortgaged
property, the mortgagor or the mortgagor's credit standing that can reasonably
be expected to cause private institutional investors to regard the Mortgage Loan
as an unacceptable investment, cause the Mortgage Loan to become delinquent, or
adversely affect the value or marketability of the Mortgage Loan.
(U) DUE ON SALE. The Mortgage contains an enforceable provision for the
-----------
acceleration of the payment of the unpaid principal
iii
<PAGE>
balance of the Mortgage Loan in the event that the mortgaged property is sold or
transferred without the prior written consent of the mortgagee thereunder.
(V) BUYDOWN PROVISIONS; GRADUATED PAYMENTS OR CONTINGENT INTERESTS. With
--------------------------------------------------------------
respect to mortgage loans which contain provisions pursuant to which monthly
payments are paid or partially paid with funds deposited in any separate account
established by Customer, the mortgagor or anyone on behalf of the mortgagor,
which may constitute a "buydown" provision, the amount of each assistance
payment shall be the sum necessary to make up the difference between the monthly
principal and interest payment required by the terms of the note and the reduced
monthly payment, as stated in the buydown certification. However, if for any
reason the assistance payments from the escrow funds are not made by the escrow
agent as contemplated, it shall be the obligation of the mortgagor to make the
monthly payments required by the terms of the note.
With respect to graduated payment mortgage loans, the scheduled annual payment
adjustments are sufficient to cover all interest due and to fully amortize the
loan in 15 years.
(W) CONSOLIDATION OF FUTURE ADVANCES. Any future advances made prior to the
--------------------------------
date such Mortgage Loan was delivered to Custodian have been consolidated with
the outstanding principal amount secured by the mortgage, and the secured
principal amount, as consolidated, bears a single interest rate and single
repayment term. The lien of the mortgage securing the consolidated principal
amount is expressly insured as having first lien priority by a title insurance
policy or an endorsement to the policy insuring the mortgagee's consolidated
interest or by other title evidence acceptable to DLJ. The consolidated
principal amount does not exceed the original principal amount of the Mortgage
Loan.
(X) MORTGAGED PROPERTY UNDAMAGED. There is no proceeding pending or threatened
----------------------------
for the total or partial condemnation of the mortgaged property. The mortgaged
property is undamaged by waste, fire, earthquake or earth movement, windstorm,
flood, tornado or other casualty so as to materially affect adversely the value
of the mortgaged property as security for the Mortgage Loan or the use for which
the premises were intended.
(Y) COLLECTION PRACTICES; ESCROW DEPOSITS; INTEREST RATE ADJUSTMENTS. The
----------------------------------------------------------------
origination and collection practices used with respect to the Mortgage Loan have
been in all respects in accordance with industry custom and practice, and have
been in all respects legal and proper. With respect to escrow deposits and
escrow payments, all such payments are in the possession of Customer and there
exist no deficiencies in connection therewith for which customary arrangements
for repayment thereof have not been made. All escrow payments have been
collected in full compliance with state and federal law. An escrow of funds is
not prohibited by applicable law and has been established in an amount
sufficient to pay for every item that remains unpaid and has been assessed but
is not yet due and payable. No escrow deposits or escrow payments or other
charges or payments due Customer have been capitalized under the Mortgage or the
mortgage note. All mortgage interest rate adjustments have been made in strict
compliance with state and federal law and the terms of the related mortgage
note. Any interest required to be paid pursuant to state and local law has been
properly paid and credited.
(Z) APPRAISAL. The mortgage file contains an appraisal of the related
---------
mortgaged property signed prior to the approval of the Mortgage Loan application
by a qualified appraiser, duly appointed by Customer, who had no interest,
direct or indirect in the mortgaged property or in any loan made on the security
thereof, and whose compensation is not affected by the approval or disapproval
of the Mortgage Loan, and the appraisal satisfies the requirements of Title XI
of the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 and
the regulations promulgated thereunder, all as in effect on the date the
Mortgage Loan was originated.
iv
<PAGE>
EXHIBIT 10.6(f)
WHOLE LOAN FINANCING PROGRAM
TRI-PARTY CUSTODY AGREEMENT
AMONG
BNC MORTGAGE, INC.
("Customer")
and
DLJ MORTGAGE CAPITAL, INC.
("DLJ")
and
BANKERS TRUST COMPANY
("Custodian")
DATED: SEPTEMBER 26, 1995
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This TRI-PARTY CUSTODY AGREEMENT ("Agreement") is made and entered into as of
the date written on the cover hereof, among Customer, Custodian and DLJ, for
itself and its successors and assigns.
PRELIMINARY STATEMENT
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DLJ may, from time to time, make advances or purchase assets under an agreement
to resell such purchased assets to Customer (each, an "Advance") with respect to
the mortgage loans related to this agreement, and DLJ may, from time to time,
assign all or part of its interests therein to one or more investors. Customer
has granted or shall hereafter grant to DLJ and its successors and assigns a
security interest in and lien on certain collateral (the "Collateral") as
security for the performance of the obligations of Customer in connection with
Advances. DLJ has also agreed to lend funds to Customer to allow Customer to
originate or purchase mortgage loans secured by enforceable first or second lien
mortgages on real properties, which loans made by DLJ to Customer will be
disbursed by a bank or a title company or its designated agent (collectively or
individually, a "Title Company"). Customer intends, from time to time, to
deliver certain items of Collateral to Custodian, and Custodian is willing to
hold such Collateral in custody as bailee of and as agent for DLJ and its
successors and assigns, in order to perfect the security interest in and lien on
such Collateral of DLJ, its successors and assigns. Certain items of Collateral
constitute mortgage loans intended either to secure or underlie securities or
certificates issued or guaranteed by the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") or the
Federal Home Loan Mortgage Corporation ("FHLMC"; GNMA, FNMA and FHLMC, each, an
"Agency") or to be purchased for cash by an Agency ("Agency Mortgage Loans"),
and certain items of Collateral constitute mortgage loans intended to be
purchased for cash by a purchaser listed on Schedule I hereto ("Nonagency
Purchaser") or by Customer ("Nonagency Mortgage Loans"). Agency Mortgage Loans
and Nonagency Mortgage Loans are herein referred to as "Mortgage Loans."
NOW, THEREFORE, the parties to this Agreement hereby agree as follows:
1. APPOINTMENT OF CUSTODIAN. DLJ hereby appoints Custodian, and Custodian
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hereby accepts its appointment, to act as the bailee of and agent for DLJ and
its successors and assigns for the purpose of taking custody of such Collateral
and the proceeds thereof or substitutions therefor. With respect to each Agency
Mortgage Loan, Custodian's appointment as DLJ's bailee and agent shall terminate
upon the issuance by an Agency of a security that is backed in whole or in part
by such Agency Mortgage Loan, upon settlement of purchase of such Agency
Mortgage Loan by an Agency or upon notice from DLJ. With respect to each
Nonagency Mortgage Loan, Custodian's appointment as DLJ's bailee and agent shall
terminate upon settlement of purchase of such Nonagency Mortgage Loan by a
Nonagency Purchaser, repurchase of such Nonagency Mortgage Loan by Customer or
upon notice from DLJ.
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2. DEPOSIT OF COLLATERAL. Customer shall deposit with Custodian, and Custodian
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agrees to hold in pledge, as bailee of and as agent for DLJ and its successors
and assigns, such Collateral that may be so deposited hereunder from time to
time. Custodian shall maintain such Collateral so deposited in separate records
and files.
3. GNMA REQUIRED DOCUMENTS. For each Mortgage Loan intended to be included in a
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GNMA pool, Customer shall deposit with Custodian the following required
documents (the "GNMA Required Documents") and/or all such other documents as
GNMA or DLJ may require from time to time for the issuance of related GNMA
securities, duly authorized and completed:
(a) the original note, endorsed "Pay to the order of __________, without
recourse" and signed in the name of Customer by an officer of Customer, unless
otherwise specified by GNMA;
(b) an original assignment of mortgage with assignee in blank but otherwise in
recordable form, but not recorded, and all interim assignments if any, unless
otherwise specified by GNMA;
(c) a Collateral Receipt, substantially in the form attached hereto
("Collateral Receipt");
(d) a completed Warehouse Lender's Release Letter, substantially in the form
attached hereto ("Warehouse Lender's Release Letter");
(e) a Schedule of Subscribers and GNMA Contractual Agreement on Form HUD-11705
listing Donaldson, Lufkin & Jenrette Securities Corporation, 140 Broadway, 26
Floor, New York, New York 10005, taxpayer number 13-2741729, as the only
subscriber and as the sole person who is authorized to take delivery of the
related GNMA security;
(f) a Schedule of Pooled Mortgages on Form HUD-11706;
(g) a Release of Security Interest on Form HUD-11711A, with the authorized
signature of the person signing for DLJ or Custodian on behalf of DLJ, in blank;
(h) a Certification and Agreement Regarding Security Interest on Form HUD-
11711B;
(i) a Summary of Guaranty Agreement on Form HUD-11716 (level payment), HUD-1746
(GPM or GEM) or HUD-1733 (serial notes) as appropriate; and
(j) a schedule of Mortgage Loans in a form acceptable to DLJ and Custodian, the
aggregate unpaid principal balance of which equals the aggregate unpaid
principal balance stated on the Collateral Receipt, which such schedule shall
also be delivered to Custodian in computer readable magnetic disk (a "Mortgage
Loan Schedule").
4. FNMA REQUIRED DOCUMENTS. For each Mortgage Loan intended to be included in a
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FNMA pool, Customer shall deposit with Custodian the following required
documents (the "FNMA Required Documents"), and/or all such other documents as
FNMA or DLJ may require from time
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to time for the issuance of the related FNMA securities or the purchase by FNMA
of such Mortgage Loans, duly authorized and completed:
(a) the original note endorsed "Pay to the order of ___________, without
recourse" and signed in the name of Customer by an officer of Customer, unless
otherwise specified by FNMA;
(b) an original assignment of mortgage with assignee in blank but otherwise in
recordable form, but not recorded, and all interim assignments if any, unless
otherwise specified by FNMA;
(c) a Collateral Receipt;
(d) a completed Warehouse Lender's Release Letter;
(e) a Security Release Certification on Form 2004, with the authorized
signature of the person signing for DLJ, or Custodian on behalf of DLJ, in
blank;
(f) a Schedule of Mortgages on Form 2005 (fixed rate), Form 2025 (ARMs, GEMs
and VRMs) or other appropriate form;
(g) either a Deliver Schedule on Form 2014 listing Donaldson, Lufkin & Jenrette
Securities Corporation as the only subscriber and as the sole person to which
the related FNMA securities shall be delivered or, if the Mortgage Loans are to
be purchased by FNMA, either (i) a Loan Schedule (Form 1068 or 1069) listing
DLJ's Payee Code, or (ii) a bailee letter for execution by the Custodian
substantially in the form attached hereto (the "Bailee Letter"); and
(h) a Mortgage Loan Schedule.
5. FHLMC REQUIRED DOCUMENTS. For each Mortgage Loan intended to be included in
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a FHLMC pool, Customer shall deposit with Custodian the following required
documents (the "FHLMC Required Documents"), and/or all such other documents as
FHLMC or DLJ may require from time to time for either the issuance of the
related FHLMC securities or the purchase by FHLMC of such Mortgage Loans, duly
authorized and completed:
(a) the original note endorsed "Pay to the order of __________, without
recourse" and signed in the name of Customer by an officer of Customer, unless
otherwise specified by FHLMC;
(b) an original assignment of mortgage with assignee in blank but otherwise in
recordable form but not recorded, and all interim assignments if any, unless
otherwise specified by FHLMC;
(c) a Collateral Receipt;
(d) a completed Warehouse Lender's Release Letter;
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(e) a Mortgage Loan Submission Schedule on Form 11 (fixed rate), Mortgage
Submission voucher on Form 13SF (ARM, GPM), or other appropriate form;
(f) a Contract Deliver Summary on Form 381;
(g) a Warehouse Lender Release of Security Interest on Form 996 listing either
(i) Donaldson, Lufkin & Jenrette Securities Corporation as the only subscriber
and as the sole person to which the related FHLMC securities shall be delivered,
or (ii) wire transfer instructions listing DLJ as the recipient of such funds
wired, with the authorized signature of the person signing on behalf of DLJ in
blank;
(h) either (i) a Security Settlement Information and Delivery Authorization on
Form 939 listing Donaldson, Lufkin & Jenrette Securities Corporation as the only
subscriber and as the sole person to which the related FHLMC securities shall be
delivered; (ii) a Wire Transfer Authorization for Cash Warehouse Delivery on
Form 987 listing DLJ as the recipient of such funds wired; or (iii) a Bailee
Letter for execution by Custodian; and
(i) a Mortgage Loan Schedule.
6. INTERIM REQUIRED DOCUMENTS. For each Mortgage Loan, Customer shall deposit
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with Custodian the following required documents (the "Interim Required
Documents"), and all such other documents as DLJ may require from time to time,
and to which Custodian has been notified of such required documents, duly
authorized and completed:
(a) the original mortgage note bearing all intervening endorsements, endorsed
at the direction of DLJ either (i) "Pay to the order of Bankers Trust Company"
without recourse, (ii) in blank without recourse and signed in the name of the
Customer or its correspondent by an officer of Customer or such correspondent,
or (iii) as may be directed by DLJ in writing;
(b) an original assignment of mortgage with assignee as either (i) Bankers
Trust Company, (ii) in blank but otherwise in recordable form but not recorded,
and all interim assignments, if any, or (iii) as may be directed by DLJ in
writing;
(c) a Collateral Receipt;
(d) if applicable, a completed Warehouse Lender's Release Letter; and
(e) a Mortgage Loan Schedule.
7. TABLE FUNDING REQUIRED DOCUMENTS. For each Mortgage Loan intended to be
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financed by Customer through funds provided by DLJ or Custodian on behalf of DLJ
directly to a Title Company, Customer shall deposit or cause to be deposited
with Custodian the following required documents (the "Table Funding Required
Documents"), and all such other documents as DLJ may require from time to time,
duly authorized and completed:
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(a) the original mortgage note bearing all intervening endorsements, endorsed
at the direction of DLJ either (i) "Pay to the order of Bankers Trust Company"
without recourse, (ii) in blank without recourse and signed in the name of the
Customer or its correspondent by an officer of such Customer or correspondent,
or (iii) as may be directed by DLJ in writing;
(b) an original assignment of mortgage with assignee as either (i) Bankers
Trust Company, (ii) in blank but otherwise in recordable form but not recorded,
and all interim assignments, if any, or (iii) as may be directed by DLJ in
writing;
(c) a Collateral Receipt;
(d) a Mortgage Loan Schedule; and
(e) if funds are sent by DLJ or Custodian on behalf of DLJ directly to a Title
Company, a letter executed by such Title Company which contains specific
irrevocable language that either (i) states that if for any reason the Mortgage
Loan does not close within 3 business days of its receipt of funds, the Title
Company must immediately return all funds to Bankers Trust Company LA Asset
Based/ABA 021001033, For Further Credit to DLJ Mortgage Capital, Inc.,
Reference: Account #01-419-663/Tri-Party Attn: DLJ STOL# (Customer Name), or
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(ii) is substantially in the form attached hereto ("Escrow Letter').
8. ESTABLISHMENT OF THE WIRE OUT AND SETTLEMENT ACCOUNTS. For each Mortgage
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Loan intended to be financed by Customer through funds provided by DLJ,
Customer, DLJ and Custodian agree as follows:
(a) Custodian shall establish and maintain a trust deposit account (the "Wire
Out Account") for and on behalf of DLJ entitled "DLJ Mortgage Capital, Inc.,
Account Number (Number) , For Benefit of (Customer) , Re: Bankers Trust Company
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Tri-Party Custody Agreement, dated (Date) ." All related fees and expenses for
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such Wire Out Account shall be borne by Customer. Upon request, Custodian shall
provide the Title Company, Customer or DLJ with the federal wire reference
number for a particular payment.
(b) Custodian shall establish and maintain a trust deposit account (the
"Settlement Account") for and on behalf of DLJ entitled "DLJ Mortgage Capital,
Inc., Account Number (Number) , For Benefit of (Customer) , Re: Bankers Trust
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Company Tri-Party Custody Agreement, dated (Date)." All proceeds from the sale
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of the Mortgage Loans subject to this Agreement will be sent directly to the
Settlement Account.
(c) All related fees and expenses for such Settlement Account shall be borne by
Customer. Customer shall provide Custodian and DLJ with written notice of funds
anticipated to be received by Custodian and DLJ, respectively.
(d) Unless otherwise agreed, with respect to the Wire Out Account, Customer
will enter disbursement instructions by 3:00 P.M., New York City time through
Custodian's suspended wire
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system and Custodian will release such wire instructions and immediately
disburse such funds provided (i) sufficient funds exists in the Wire Out
Account, (ii) such instructions do not include Customer as payee, (iii)
Custodian has received an executed Escrow Letter from the payee, and (iv) the
payee on the Escrow Letter agrees with the payee stated on such disbursement
instructions. If sufficient funds do not exist in the Wire Out Account,
Custodian will disburse funds only to the extent sufficient funds exists in the
account. In the event the Customer requests any funds to be disbursed through a
manual wire, i.e., other than through Custodian's suspended wire system, such
wire instructions must be received by Custodian by 2:00 PM, New York City time
and must be signed by an authorized officer of Customer. If a conflict exists
between the instructions of DLJ and the instructions of Customer, Custodian
shall follow DLJ's instructions. Pursuant to the above, Custodian may wire funds
directly to another mortgage company for the purpose of allowing Customer to
purchase mortgage loans from such other mortgage company provided that the
amount to be wired does not exceed the greater of $650,000 or the funding limit,
if any, establishment by DLJ ("Funding Limit") and communicated to Custodian and
Customer in writing, and further provided that Custodian has received from
Customer or the mortgage company a Warehouse Lender's Release Letter with
funding and wire disbursement instructions.
(e) Unless otherwise agreed, Customer will submit to Custodian and DLJ a
position and settlement report (the "P&S Report") in accordance with such
procedures as are separately agreed to by the parties hereto, but
notwithstanding, such procedures shall be incorporated herein), and Custodian
will immediately disburse such funds in the Settlement Account as directed in
the P&S Report provided (i) sufficient funds exist in the Settlement Account,
and (ii) DLJ has authorized such disbursements in writing. In addition,
Custodian shall not disburse funds to Customer in excess of 5% of the settlement
proceeds received without the approval of DLJ. Notwithstanding the foregoing, if
a conflict exists between the instructions of DLJ and the instructions of
Customer, Custodian shall follow DLJ's instructions.
9. CERTIFICATION OF DOCUMENTATION. (a) Custodian, upon receipt of all the
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GNMA, FNMA, FHLMC, Interim or Table Funding Required Documents, as the case may
be (collectively, the "Required Documents"), shall review such Required
Documents in accordance with the review and certification guidelines established
by the respective Agency or DLJ (as separately agreed to by DLJ and Custodian),
as the case may be, for their respective pool to verify whether all are
complete, whether each such document purporting to be an original appears on its
face to be so, and whether each such document purporting to be a certified
photocopy or conformed copy appears on its face to be a true copy of its
original. Subject to the provisions set forth in the third sentence of Section
9(b) with respect to Wet Mortgage Loans, Custodian shall notify Customer and DLJ
in an exception report of any documents that are missing, incomplete on their
face or patently inconsistent. Customer shall promptly deposit such missing
documents with Custodian or complete or correct the documents. When the
Required Documents have been received in full and correct form as required
herein, Custodian will: (a) promptly deliver a signed Collateral Receipt and,
if applicable, Warehouse Lender's Release Letter to DLJ; (b) upon the request of
Customer, promptly deliver the Required Documents referred to in Sections 3(e),
(f), (g), (h), and (i), 4(e), (f), and (g), 5(a), (e), (f), (g), and (h) and
6(a) and (b) to an Agency or a Nonagency Purchaser, as the case may be; and (c)
upon request of DLJ, deliver either the original Required Documents or copies
thereof to DLJ at
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Customer's expense. In making such verification, Custodian may rely conclusively
on the portion of the Collateral Receipt completed by Customer, the Required
Documents and the documents constituting Custodian's mortgage file, and
Custodian shall have no obligation to independently verify the correctness of
Customer's certificate on such Collateral Receipt or the effectiveness,
sufficiency, validity, enforceability, collectibility, genuineness, legality,
recordability or adequacy of such portion of the Collateral Receipt completed by
Customer, Required Documents and the documents constituting the Custodian's
mortgage file.
(b) Customer may pledge to DLJ, as part of the Collateral securing an Advance,
a Mortgage Loan on or prior to the date of such Advance and for which all of the
related Required Documents have not been deposited with Custodian on or prior to
the date of such Advance (a "Wet Mortgage Loan"). In connection with any such
pledge of a Wet Mortgage Loan, Customer shall deposit with Custodian, on the
business day immediately prior to the scheduled date of the related Advance, a
fully completed closing notice for such Wet Mortgage Loan in a form as
acceptable to DLJ and Custodian (a "Wet Closing Notice"). The deposit of the Wet
Closing Notice shall constitute a Required Document and shall be deemed to
satisfy the requirement for the deposit of the documents set forth in Section
7(a) and (b) solely for purposes of the execution of the Collateral Receipt as
of the date thereof. Notwithstanding the foregoing, Customer shall deposit with
Custodian the documents set forth in Section 7(a) and (b) for such Wet Mortgage
Loan within ten (10) days after the date of the related Collateral Receipt. If
Customer does not deposit such documents with Custodian within such ten (10) day
period, Custodian shall immediately notify DLJ. Upon deposit of such documents
with Custodian, Custodian shall review such documents in accordance with the
standards set forth in Section 9(a), shall promptly notify DLJ in the form of an
exception report if such documents do not comply with the requirements thereof
and shall indicate on its records that Custodian maintains possession of such
documents for DLJ hereunder. Customer hereby represents, warrants and covenants
to DLJ and Custodian that Customer and any person or entity acting on behalf of
Customer that has possession of any of the documents set forth in Sections 7(a)
and (b), as applicable, for such Wet Mortgage Loan prior to the deposit thereof
with Custodian will hold such documents in trust for DLJ.
10. FURTHER OBLIGATIONS OF CUSTODIAN. Custodian shall promptly notify DLJ if
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(i) Customer fails to pay any amount due to Custodian under this Agreement or
otherwise, and such failure results in Custodian's accelerating the payment of
any amount owed to Custodian by Customer, or (ii) a responsible officer of
Custodian has actual knowledge that any mortgage, pledge, lien, security
interest or other charge or encumbrance (other than for the benefit of DLJ, its
affiliates or its successors and assigns) has been placed on any account
maintained by Customer with Custodian or on the Required Documents or that GNMA,
FNMA or FHLMC has rejected any Required Document, except if any mortgage,
pledge, lien, security interest or other charge or encumbrance is made in favor
of Custodian as provided in Section 19 hereof.
Custodian shall use reasonable care and due diligence in the performance of its
duties hereunder, shall hold the Required Documents in its fire rated storage
vault under its exclusive custody and control in accordance with customary
standards for such custody and shall at all times during the existence of this
Agreement maintain and keep in full force and effect such insurance in amounts,
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with standard coverage and subject to deductibles, all as is customary for
insurance typically maintained by bankers which act as Custodian.
Custodian hereby represents and warrants to DLJ that Custodian is not controlled
by, under common control with or otherwise affiliated with Customer, and
covenants and agrees with DLJ that prior to any such affiliation in the future,
Custodian shall promptly notify DLJ.
Custodian hereby represents and warrants to DLJ that this Agreement has been
duly authorized, executed and delivered by Custodian and constitutes the legal,
valid and binding obligation of Custodian, enforceable in accordance with its
terms.
Custodian hereby agrees to recognize any security interest or lien granted to
Donaldson, Lufkin & Jenrette Securities Corporation.
11. RELEASE OF REQUIRED DOCUMENTS. (a) Customer may from time to time request
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DLJ and Custodian in writing to permit the temporary withdrawal of certain
Required Documents for the purpose of correction of errors therein or for
permanent withdrawal. Custodian may permit the withdrawal of up to five (5)
Mortgage Loans for the purpose of correcting such Mortgage Loans, without the
written consent of DLJ. If more than five (5) Mortgage Loans have been and
remain released for correction, any additional request for release of Mortgage
Loans will require the prior consent of DLJ. Any request for release by
Customer shall be in the form of the Request and Receipt attached hereto.
Custodian shall execute an acknowledgment of release of such Required Documents,
shall return one original to Customer, shall forward one original to DLJ and
shall retain one original. Promptly upon completion of such correction and in
any event within eighteen (18) days, Customer shall return such Required
Documents to Custodian.
(b) Upon the request of Customer and at Customer's expense, Custodian may
deliver the documents referred to in Sections 6(a), (b) and (e) above to a
Nonagency Purchaser provided that such Interim Required Documents are
accompanied by a Bailee Letter addressed to such Nonagency Purchaser. Custodian
shall make a reasonable effort to require such Nonagency Purchaser to execute
such Bailee Letter and return it to Custodian. Written instructions as to the
method of shipment and shipper(s) Custodian is directed to utilize in connection
with the transmission of Required Documents in the performance of Custodian's
duties hereunder shall be delivered by Customer to Custodian prior to any
shipment of Required Documents pursuant to the request of DLJ hereunder.
Customer will arrange for the provision of such services at its sole cost and
expense (or, at Custodian's option, reimburse Custodian for all costs and
expenses incurred by Custodian consistent with such instructions) and will
maintain such insurance against loss or damage to the required Documents as
Customer deems appropriate. In the event Custodian does not receive written
directions as to the method of shipment and shipper(s) from Customer or DLJ,
Custodian shall be hereby authorized and indemnified as provided for herein to
utilize a nationally recognized courier service. Custodian shall be entitled to
reimbursement from Customer for all costs and expenses incurred by Custodian for
utilizing such courier service. It is expressly agreed that in no event shall
the Custodian have any liability for any losses or damages to any person,
including without limitation, DLJ, arising out of actions of the Custodian
consistent with the instructions of Customer.
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(c) If Customer desires to sell Mortgage Loans directly to an Agency, Custodian
shall complete the endorsements and forward such related Required Documents as
instructed by Customer and at Customer's expense to effect such sale to the
respective Agency, together with a duly executed and completed Bailee Letter;
provided, however, that any Required Documents that are unacceptable to the
Agency shall be returned directly to Custodian and held by Custodian for DLJ in
accordance with this Agreement.
12. RIGHT TO INSPECT. Custodian shall permit with at least two (2) business
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days prior written notice (i) inspection at all reasonable times during regular
business hours by DLJ (or by its auditors when requested by DLJ) of the Required
Documents and the records of Custodian relating to this Agreement and (ii) DLJ
(or its auditors when requested by DLJ) to make copies of the Required Documents
and the records of Custodian relating to this Agreement at DLJ's expense.
13. DELIVERY OF REQUIRED DOCUMENTS TO DLJ. Custodian shall promptly deliver to
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DLJ or its designee any or all Required Documents and other items of Collateral
in Custodian's custody upon DLJ's written request. DLJ shall provide Customer
with a copy of any such notice delivered to Custodian. Written instructions as
to the method of shipment and shipper(s) Custodian is directed to utilize in
connection with the delivery of Required Documents in the performance of
Custodian's duties hereunder shall be delivered by DLJ to Custodian prior to any
shipment of Required Documents pursuant to the request of DLJ hereunder. DLJ
will arrange for the provision of such services at its sole cost and expense
(or, at Custodian's option, reimburse Custodian for all costs and expenses
incurred by Custodian consistent with such instructions) and will maintain such
insurance against loss or damage to the Required Documents as Customer deems
appropriate. In the event Custodian does not receive written directions as to
the method of shipment and shipper(s) from Customer or DLJ, Custodian shall be
hereby authorized and indemnified as provided for herein to utilize a nationally
recognized courier service. Custodian shall be entitled to reimbursement from
Customer for all costs and expenses incurred by Custodian for utilizing such
courier service. It is expressly agreed that in no event shall the Custodian
have any liability for any losses or damages to any person, including without
limitation, Customer, arising out of actions of the Custodian consistent with
the instructions of DLJ.
14. CUSTODIAN FEES. It is understood that Custodian or its successor will
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charge such fees for its services under this Agreement as are set forth in a
separate agreement between Custodian and Customer, the payment of which,
together with Custodian's expenses in connection herewith, shall be solely the
obligation of Customer.
15. TERMINATION. Custodian may terminate its obligations under this Agreement
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upon thirty (30) days prior written notice to Customer and DLJ. In the event of
such termination, Customer shall appoint a successor custodian, subject to
approval by DLJ, and Custodian shall promptly transfer to the successor
custodian, as directed by DLJ, all Required Documents and other items of
Collateral being held by Custodian under this Agreement. If, however, a
successor custodian is not appointed by Customer or DLJ within sixty (60) days,
all duties and obligations of Custodian shall cease and terminate. Custodian's
sole responsibility thereafter shall be to safely maintain all of the
Custodian's mortgage files and to deliver the same to a successor custodian.
However, if Customer and DLJ
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have not appointed a successor custodian within thirty (30) days after the
expiration of the aforementioned sixty (60) day period, Custodian shall deliver
such documents to DLJ.
16. REPRESENTATIONS BY CUSTOMER. Customer hereby represents and warrants to
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DLJ and Custodian that:
(a) Any payee from the Wire Out Account is an entity that is engaged in escrow
activities, is a Title Company or is a correspondent of Customer as a normal
course of its business;
(b) Any and all funds advanced into the Wire Out Account pursuant to Customer's
request in accordance with Section 8(a) shall be deemed to be an Advance to
Customer;
(c) The Wire Out Account shall be used only to (i) wire funds to Title
Companies, or a correspondent of Customer from which Customer is purchasing the
respective Mortgage Loans, for the sole purpose of funding the related Mortgage
Loan or (ii) return funds to DLJ;
(d) Unless otherwise agreed by DLJ, no Mortgage Loan held by Custodian pursuant
to this Agreement shall remain deposited with Custodian for more than forty-five
consecutive days; and
(e) Except for the funds advanced by DLJ as provided herein, all other
documents and requirements to create an enforceable first or second lien
mortgage, as applicable, on the related real property have been completed and
duly executed.
17. NOTICES. All written communications hereunder shall be mailed, telecopied
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or delivered to each party at its address as indicated on the signature page
hereof or at such other address as shall be designated by such party in a
written notice to the other parties. All notices and communications shall be
effective when received.
18. CONCERNING THE CUSTODIAN. Custodian its directors, officers, employees or
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agents shall not be liable for any action or omission to act hereunder, except
for their own negligence or wilful misconduct. In no event shall Custodian have
any responsibility to ascertain or take action with respect to the Required
Documents or other items of Collateral, except as expressly provided herein.
Custodian may act in reliance upon any written communication of Customer and DLJ
concerning the delivery of the Required Documents and other items of Collateral
pursuant to this Agreement. Custodian does not assume and shall have no
responsibility for, and makes no representation as to, monitoring the value of
the Required Documents and other items of Collateral.
19. REPRESENTATIONS BY CUSTODIAN. Custodian hereby represents and warrants
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that it does not have, and will not assert, any security interest, lien, claim
or other adverse interest against the Required Documents or any other item of
Collateral, except as may be otherwise provided in a separate agreement between
DLJ and Custodian. However, Custodian makes no representations as to the title
thereto, or as to the validity or adequacy of the security afforded thereby or
hereby (except as to Custodian's authority to enter into this Agreement and the
legality, validity, binding effect and
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<PAGE>
enforceability of this Agreement with respect to Custodian), and Custodian shall
incur no liability or responsibility in respect of any such matters.
20. DUTIES OF CUSTODIAN. Custodian shall have no duties or responsibilities
-------------------
except those that are specifically set forth herein, and no duties or
obligations shall be implied in this Agreement against Custodian. Custodian
shall be under no responsibility or duty with respect to the disposition of any
Required Documents while such Required Documents are not in its possession. If
Custodian shall request instructions from DLJ with respect to any act, action or
failure to act in connection with this Agreement, Custodian shall be entitled to
refrain from taking such action and continue to refrain from acting unless and
until Custodian shall have received written instructions from DLJ without
incurring any liability therefore to DLJ, Customer or any other person.
If Custodian shall at any time receive conflicting instructions from DLJ and
Customer with respect to Custodian's mortgage files and the conflict between
such instructions cannot be resolved by reference to the terms of this
Agreement, Custodian shall be entitled to rely on the instructions of DLJ. In
the absence of bad faith, negligence or willful misconduct on the part of
Custodian, Custodian may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon any request,
instruction, certificate, opinion or other document furnished to Custodian,
reasonably believed by Custodian to be genuine and to have been signed or
presented by the proper party or parties and conforming to the requirements of
this Agreement. Custodian may rely upon the validity of documents delivered to
it, without investigation as to their authenticity or legal effectiveness, and
Customer will hold Custodian harmless from any claims that may arise or be
asserted against Custodian because of the invalidity of any such documents or
their failure to fulfill their intended purpose. Custodian shall not be
responsible to DLJ or any other party for recitals, statements or warranties or
representations of Customer contained herein or in any document, or be bound to
ascertain or inquire as to the performance or observance of any of the terms of
this Agreement or any other agreement on the part of any party, except as may
otherwise be specifically set forth herein. No provision of this Agreement
shall require Custodian to expend or risk its own funds or otherwise incur
financial liability in the performance of its duties under this Agreement if it
shall have the reasonable ground for believing that repayment of such funds or
adequate indemnity is not reasonably assured to it. Custodian may consult with
counsel with regard to legal questions arising out of or in connection with this
Agreement and the advice or opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken, omitted or suffered
by Custodian in good faith in accordance therewith.
DLJ hereby authorizes and directs Custodian to sign on behalf of DLJ each of the
Required Documents referred to in Sections 3, 4 and 5 hereof. Without limiting
the generality of the foregoing, Custodian may rely upon and shall be protected
in acting in good faith upon any notice or other communication received by it
and which it reasonably believes to be genuine and duly authorized with respect
to all matters pertaining to this Agreement and its duties hereunder; provided,
however, that nothing set forth in this section shall relieve Custodian of its
obligations set forth in Section 9 of this Agreement.
11
<PAGE>
21. INDEMNIFICATION. Customer agrees to reimburse, indemnity and hold
---------------
harmless Custodian, its directors, officers, employees or agents from and
against any and all cost, expense, loss or liability, including reasonable fees
and expenses of counsel arising from or connected with Custodian's execution and
performance of this Agreement, including but not limited to the claims of any
third parties, including DLJ, except in the case of cost, expense, loss or
liability resulting from negligence or willful misconduct on the part of
Custodian. To the extent Custodian is not reimbursed, indemnified or held
harmless by Customer, DLJ will reimburse, indemnify and hold harmless Custodian,
its directors, officers, employees and agents for cost, expense, loss or
liability arising from any action or refraining from action in accordance with
instructions given to Custodian by DLJ, and Customer shall reimburse DLJ for any
sums so expended by DLJ. Custodian may enter into a settlement agreement with
respect to any matter for which indemnity is granted pursuant to this paragraph.
The foregoing indemnification shall survive any termination of this Agreement.
22. AUTHORIZATIONS. The persons whose signatures and titles appear on the
--------------
signature page hereof ("Authorized Representatives") are authorized, acting
singly, to act for Customer, DLJ or Custodian, as the case may be, under this
Agreement. From time to time, each party may supplement or amend the list of
Authorized Representatives and specimen signatures by notice to the other
parties, but each of the parties shall be entitled to rely conclusively on the
then current list until receipt of a superseding list. Custodian may rely, and
shall be protected in acting or refraining to act, upon any written instruction,
notice, order, request, direction, certificate, opinion or other instrument or
document believed by Custodian to be genuine and to have been signed or
presented by an Authorized Representative in the case of Customer and DLJ and by
the proper party or parties, in all other cases.
23. AMENDMENTS, ETC. Except as otherwise expressly provided herein, no
----------------
amendment or waiver of any provision of this Agreement nor consent to any
failure to comply herewith shall in any event be effective unless the same shall
be in writing and signed by all the parties hereto (provided that DLJ may modify
the Required Documents set forth in Sections 3, 4, 5, 6 and 7 hereof by giving
notice of such modification to Customer and Custodian, which notice is not
objected to within five (5) business days after being received), and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. This Agreement constitutes the
entire agreement and understanding of the parties with respect to those matters
and transactions contemplated by this Agreement and supersedes any prior
agreement and understandings with respect to those matters and transactions.
The provisions of this Agreement set forth the exclusive duties of Custodian,
and no implied duties shall be read into this Agreement against Custodian.
Schedule I hereto may be amended from time to time by agreement between DLJ and
Customer with notice to Custodian.
24. SEVERABILITY. If any provision of this Agreement is declared invalid by
------------
any court of competent jurisdiction, such invalidity shall not affect any other
provision, and this Agreement shall be enforced to the fullest extent permitted
by law.
25. BINDING EFFECT; GOVERNING LAW. This Agreement shall be binding and inure
-----------------------------
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that neither
12
<PAGE>
Customer or Custodian may assign this Agreement or any of its rights or
obligations hereunder, except with the prior written consent of DLJ. DLJ may
assign its security interest in or lien on certain items of Collateral held by
Custodian hereunder, whereupon DLJ will act for the benefit of such assignee
hereunder. This Agreement shall be construed in accordance with, and governed by
the law of the State of New York, without giving effect to the conflict of law
principles thereof. The parties hereto waive trial by jury. Customer, Custodian,
and DLJ each irrevocably consent to the non-exclusive jurisdiction of any court
of the State of New York, or in the United States District Court for the
Southern District of New York, in any action or proceeding arising out of or
relating to this Agreement. The parties hereby submit to, and waive any
objection they may have to personal jurisdiction and venue in, the courts of the
State of New York and the United States District Court for the Southern District
of New York, over any disputes arising out of or relating to this Agreement.
13
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the
date and year first above written.
BNC MORTGAGE, INC., as Customer
By: /s/ Evan Buckley
--------------------------------------------------
Name: Evan Buckley
------------------------------------------------
Title: President
-----------------------------------------------
Address: 1740 E. Garry, #109, Santa Ana, Ca 92705
---------------------------------------------
Attention: Kelly W. Monahan
-------------------------------------------
Telephone: (714) 955-2985 Facsimile: (714) 955-1678
-------------------------------------------
BANKERS TRUST COMPANY, as Custodian
By: /s/ Bankers Trust Company
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
Address: 3 Park Plaza, 16th Floor
Irvine, California 92714
DLJ/Tri-Party Custody
Telephone: (714) 253-7575 Facsimile: (714) 253-7577
DLJ MORTGAGE CAPITAL, INC.
By: /s/ Rod Ennico
--------------------------------------------------
Name: Rod Ennico
------------------------------------------------
Title: Senior Vice President
-----------------------------------------------
Address: 140 Broadway, 43rd Floor, New York, New York 10005-1285
Attention: Money Desk/Whole Loan Financing Program
Telephone: (212) 504-8071 (800) 437-5979 Facsimile: (212) 504-8072
14
<PAGE>
SCHEDULE I
AUTHORIZED LIST OF NONAGENCY PURCHASERS
1. BancBoston Mortgage Corporation
2. Capstead Mortgage Corporation
3. Chase Home Mortgage Corporation
4. Chemical Residential Mortgage Corporation
5. Citicorp Mortgage, Inc.
6. Countrywide Funding Corporation
7. CWM Mortgage Holdings, Inc. (nee Countrywide Mortgage Investments, Inc.)
8. DLJ Mortgage Capital, Inc.
9. DLJ Mortgage Acceptance Corporation
10. Fleet Mortgage Corporation
11. GE Capital Mortgage Services, Inc.
12. GF Mortgage Corporation
13. Imperial Credit Industries, Inc.
14. Independent National Mortgage Corporation
15. Nationsbank Mortgage Corporation
16. Norwest Mortgage, Inc.
17. PNC Mortgage Securities Corporation of America
18. PNC Mortgage Corporation of America
19. Prudential Home Mortgage Company
20. Quality Mortgage USA, Inc.
21. Residential Funding Corporation
22. Saxon Mortgage Funding Corporation
23. _________________________________________________________
24. _________________________________________________________
25. _________________________________________________________
15
<PAGE>
COLLATERAL RECEIPT NO. ________
DLJ Mortgage Capital, Inc. Bankers Trust Company
140 Broadway, 26th Floor 3 Park Plaza, 16th Floor
New York, New York 10005-1285 Irvine, California 92714
Attn: Clearance Dept/Whole Loan Financing Attn: DLJ/Tri-Party Custody
Facsimile: (212) 504-8125 Facsimile: (714) 253-7577
RE: Identification/Pool #________________________
Reference is made to the Tri-Party Custody Agreement dated _______________, 1995
(the "Custody Agreement") among _____________________ ("Customer"), Bankers
Trust Company ("Custodian") and DLJ Mortgage Capital, Inc. ("DLJ"). Capitalized
terms not defined herein have the respective meanings assigned thereto in the
Tri-Party Custody Agreement.
I. Certification of Customer. In consideration of DLJ making an Advance to
-------------------------
finance the securitization or cash purchase period for the Mortgage Loans having
an aggregate face value of $______________ and a weighted average interest rate
of _____%, as more fully described in Schedule I attached hereto, the
undersigned duly authorized officer of Customer represents and warrants that (a)
the Required Documents with respect to such Mortgage Loans have been or are
hereby submitted to Custodian pursuant to the Custody Agreement, (b) all other
documents related to such Mortgage Loans (including but not limited to
mortgages, insurance policies, loan applications and appraisals) have been or
will be created and held by Customer in trust for DLJ, and (c) all documents
related to such Mortgage Loans withdrawn from Custodian shall be held in trust
by Customer for DLJ, and Customer will not attempt to pledge, hypothecate or
otherwise transfer such Mortgage Loans to any other party until the Advance to
which the Mortgage Loans are related has been paid in full by Customer.
Customer has granted to DLJ a first priority perfected security interest in and
lien on such Mortgage Loans. At the request of DLJ, all such other related
documents will be delivered to Custodian, DLJ or its assigns and may be
inspected or verified at any time by such parties.
___ No lien exists with respect to the Mortgage Loans constituting the mortgage
pools described above.
___ A lien secured by Mortgage Loans constituting the mortgage pools described
above is still in effect with DLJ.
___ A lien secured by the Mortgage Loans constituting the mortgage pools
described above is currently in effect. A Warehouse Lender's Release Letter has
been delivered to Custodian under separate cover.
16
<PAGE>
___________________________, as Customer
By:_____________________________________ Name:______________________________
Title:__________________________________ Date:______________________________
II. Certification of Custodian. Custodian hereby (a) certifies that, as to
--------------------------
each Mortgage Loan listed on Schedule I hereto, it has reviewed the documents
delivered to it by Customer, it has received all Required Documents, the
Required Documents conform to the requirements of Section 9 of the Custody
Agreement and it will continue to hold the Required Documents as bailee of and
agent for DLJ and its successors and assigns pursuant to the Custody Agreement
until the related Agency (or Nonagency) Security has been issued by the
respective entity or the related Advance has been repaid, and (b) agrees to
comply with the guidelines of the Agency to which such Mortgage Loans will be
submitted:
BANKERS TRUST COMPANY, as Custodian
By:_____________________________________ Name:______________________________
Title:__________________________________ Date:______________________________
17
<PAGE>
WAREHOUSE LENDER'S RELEASE LETTER
Date: ________, 199__
DLJ Mortgage Capital, Inc.
140 Broadway, 26th Floor
New York, New York 10005-1285
Attn: Clearance Department/Whole Loan Financing Program
Facsimile: (212) 504-8125
RE: Customer:_______________________________________
RE: Agency/Nonagency______ Identification/Pool #_____ Security Rate ____%
Maturity:_____
The undersigned (the "Warehouse Lender") hereby releases all right, interest or
claim of any kind with respect to the mortgage loans constituting the mortgage
pool referenced above, as may be further described in the attached schedule,
such release to be effective automatically without any further action by any
party, upon payment for the account of Customer of $________ in immediately
available funds to account number #_________ at (specify Bank) for the account
of ___________.
Very truly yours,
______________________________________, as Warehouse Lender
By:____________________________________
Name:__________________________________
Title:_________________________________
Telephone:_____________________________
copy to:
______________________________________, as Customer
Address:_______________________________
Attention:_____________________________
Note: The above dollar amount should be EQUAL TO or LESS THAN the amount
- ---- -------- ---------
being funded.
If no lien exists, this form must still be sent - Customer should put a
slash through the form, indicated "NOT APPLICABLE" and sign.
--------------
18
<PAGE>
BAILEE LETTER
Date: __________, 199__
Purchaser:________________________________
Address:__________________________________
Attention:________________________________
Gentlemen:
Attached please find those mortgage loans listed separately on the attached
schedule (the "Mortgage Loans"), which Mortgage Loans are owned by
________________ ("Borrower") and are being delivered to you for purchase. The
Mortgage Loans comprise a portion of the Collateral (as such term is defined in
the hereinafter defined Custody Agreement) under the Tri-Party Custody Agreement
("Custody Agreement"), dated as of ___________, 1995, as it may hereafter be
amended, by and among Borrower, Bankers Trust Company as Custodian
("Custodian"), and DLJ Mortgage Capital, Inc., as Lender ("DLJ"). Each of the
Mortgage Loans is subject to a security interest in favor of DLJ, which security
interest shall be automatically released upon DLJ's receipt of the full amount
of the purchase price of such Mortgage Loan (as set forth on the schedule
attached hereto) by wire transfer to the following account maintained with DLJ:
Bankers Trust Company LA Asset Based/ABA 021001033, For Further Credit to
DLJ Mortgage Capital, Inc.
Reference: Account #01-419-663/Tri-Party Attn: DLJ CTOL # (Customer Name)
------------------
Pending your purchase of each Mortgage Loan and until payment therefor is
received by DLJ, the aforesaid security interest therein will remain in full
force and effect, and you shall hold possession of such Collateral and the
documentation evidencing same as custodian, agent and bailee for and on behalf
of Custodian for DLJ. In the event any Mortgage Loan is unacceptable for
purchase, return the rejected item directly to the undersigned at the address
set forth below. In no event shall any Mortgage Loan be returned or sales
proceeds remitted to the Borrower. The Mortgage Loan must be so returned or
sales proceeds remitted in full on later than thirty (30) days from the date
hereof, unless otherwise agreed by Custodian. If you are unable to comply with
the above instructions, please do advise the undersigned immediately.
NOTE: BY ACCEPTING THE MORTGAGE LOANS DELIVERED TO YOU WITH THIS LETTER, YOU
CONSENT TO BE THE CUSTODIAN, AGENT AND BAILEE FOR BANKERS TRUST COMPANY ON
BEHALF OF THE LENDER ON THE TERMS DESCRIBED IN THIS LETTER. THE UNDERSIGNED
REQUESTS THAT YOU ACKNOWLEDGE RECEIPT OF THE ENCLOSED MORTGAGE LOANS AND THIS
LETTER BY SIGNING AND RETURNING THE ENCLOSED COPY OF THIS LETTER TO THE
UNDERSIGNED AT THE FOLLOWING ADDRESS: 3 PARK PLAZA, 16TH FLOOR, IRVINE,
CALIFORNIA 92714 ATTN: DLJ/TRI-
19
<PAGE>
PARTY CUSTODY DEPARTMENT; HOWEVER, YOUR FAILURE TO DO SO DOES NOT NULLIFY SUCH
CONSENT.
Sincerely, Acknowledged and Agreed:
BANKERS TRUST COMPANY, ______________________________
as Custodian for DLJ, its successors and assigns as Purchaser
By: ____________________________________________ By: __________________________
Name: __________________________________________ Name: ________________________
Title: _________________________________________ Title: _______________________
20
<PAGE>
ESCROW LETTER
ADDENDUM TO ESCROW INSTRUCTIONS
Dated: ___________, 199__
Escrow #:__________________________________________________
Borrower:________________________________________________________________
The funds to be used for closing this transaction may be provided via wire
transfer from Bankers Trust Company.
You are to hold the closing funds in trust for Bankers Trust Company until such
time as the funds are disbursed in accordance with the escrow instructions. If
the loan is not funded within three (3) business days of receipt of the funds,
you are to return such funds via federal funds wire to Bankers Trust Company as
follows:
Bankers Trust Company LA Asset Based/ABA 021001033, For Further Credit to
DLJ Mortgage Capital, Inc.
Reference: Account #01-419-663/Tri-Party Attn: DLJ CTOL # (Customer Name)
------------------
Between the time the funds are received and the loan is funded you are to accept
instructions regarding the use of the funds that are in conflict with the escrow
instructions only in writing from Bankers Trust Company.
This Addendum to Escrow Instructions shall be irrevocable and can only be
modified with the express written approval of Bankers Trust Company.
Agreed and Acknowledged:
Title Company:________________________
By:___________________________________
Escrow Officer
21
<PAGE>
DLJ MORTGAGE CAPITAL, INC.
and
BNC MORTGAGE, INC.
MASTER MORTGAGE LOAN PURCHASE AGREEMENT
Dated as of March __, 1998
FIXED AND ADJUSTABLE RATE MORTGAGE LOANS
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
SECTION 1. Definitions................................................... 1
-----------
SECTION 2. Agreement to Purchase......................................... 6
---------------------
SECTION 3. Conveyance of Mortgage Loans.................................. 8
----------------------------
SECTION 4. Late Payment Charges and Prepayment Charges;
--------------------------------------------
Seller's Repurchase Right............................... 11
-------------------------
SECTION 5. Examination of Mortgage Files and Due Diligence Review........ 12
------------------------------------------------------
SECTION 6. Representations, Warranties and Covenants of the Seller....... 13
-------------------------------------------------------
SECTION 7. Cure, Repurchase and Indemnity Obligations of the Seller...... 15
--------------------------------------------------------
SECTION 8. Representations and Warranties of the Purchaser............... 16
-----------------------------------------------
SECTION 9. Closing....................................................... 17
-------
SECTION 10. Closing Documents............................................. 18
-----------------
SECTION 11. Information to be Provided by the Seller...................... 18
----------------------------------------
SECTION 12. Indemnification............................................... 20
---------------
SECTION 13. Costs......................................................... 22
-----
SECTION 14. Servicing..................................................... 22
---------
SECTION 15. Notices....................................................... 22
-------
SECTION 16. Severability of Provisions.................................... 23
--------------------------
SECTION 17. Survival; Third Party Beneficiary............................. 23
---------------------------------
SECTION 18. Governing Law................................................. 23
-------------
SECTION 19. Successors and Assigns........................................ 23
----------------------
SECTION 20. Waiver........................................................ 23
------
SECTION 21. Headings...................................................... 24
--------
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
SECTION 22. Intention of the Parties...................................... 24
------------------------
SECTION 23. Counterparts.................................................. 24
------------
SECTION 24. Further Assurances............................................ 24
------------------
</TABLE>
EXHIBIT 1 MORTGAGE LOAN SCHEDULE
EXHIBIT 2 OFFICERS' CERTIFICATE
EXHIBIT 3 FORM OF RESOLUTIONS
EXHIBIT 4 FORM OF OPINION LETTER OF COUNSEL TO THE SELLER
EXHIBIT 5 FORM OF CONFIRMATION LETTER
EXHIBIT 6 SELLER REPRESENTATIONS AND WARRANTIES
EXHIBIT 7 FORM OF CROSS RECEIPT
EXHIBIT 8 FORM OF ASSIGNMENT AND CONVEYANCE
-ii-
<PAGE>
MASTER MORTGAGE LOAN PURCHASE AGREEMENT
---------------------------------------
This Master Mortgage Loan Purchase Agreement ("Agreement"), dated as of
March __, 1998, is made between DLJ Mortgage Capital, Inc., a Delaware
corporation (the "Initial Purchaser" and the Initial Purchaser or any person or
entity, if any, to which the Initial Purchaser has assigned its rights and
obligations hereunder as Purchaser with respect to a Mortgage Loan, and each of
their respective successors and assigns, the "Purchaser") and BNC Mortgage,
Inc., a Delaware corporation (the "Seller").
PRELIMINARY STATEMENT
The Seller has agreed to sell, and the Purchaser has agreed to
purchase, from time to time certain fixed and adjustable rate, first lien
residential mortgage loans pursuant to this Agreement. (The fixed rate mortgage
loans and the adjustable rate mortgage loans are referred to herein as the
"Fixed Rate Mortgage Loans" and the "Adjustable Rate Mortgage Loans,"
respectively, and are collectively referred to herein as the "Mortgage Loans.")
Certain of the Adjustable Rate Mortgage Loans may be subject to negative
amortization (each, a "Negative Amortization Mortgage Loan"), and certain of the
Mortgage Loans may include a graduated payment period. The Mortgage Loans to be
purchased hereunder will be identified on one or more Mortgage Loan Schedules
(as defined herein), each such schedule to be annexed hereto as Exhibit 1 or a
supplement thereto, as such schedule may be amended to reflect the Mortgage
Loans accepted by the Purchaser pursuant to the terms of Section 5 hereof. The
Mortgage Loans will be delivered as whole mortgage loans on one or more Closing
Dates (as defined herein) and are expected to be transferred by or on behalf of
the Purchaser as part of one or more Whole Loan Transfers or Pass-Through
Transfers (each as defined herein) on or subsequent to the related Closing
Dates.
In consideration of the mutual agreements herein contained, the
Purchaser and the Seller hereby agree as follows:
SECTION 1. Definitions. Capitalized terms used herein and not otherwise
-----------
defined herein shall have the following meanings:
"Assignment and Conveyance": With respect to each Mortgage Loan, the
-------------------------
assignment and conveyance of such Mortgage Loan from the Seller to the Purchaser
or its designee, substantially in the form of Exhibit 8 annexed hereto.
"Business Day": Any day other than a Saturday or Sunday or a day on
------------
which banking institutions and savings and loan associations in the states in
which the principal places of business of the Seller, the Purchaser, the
Servicer or the Custodian (each as defined herein) are located are authorized or
obligated by law or executive order to be closed.
"Certificates": The mortgage pass-through certificates to be issued in
------------
one or more series by a trust or trusts sponsored by the Purchaser or an
affiliate of the Purchaser as part of a
<PAGE>
-2-
Pass-Through Transfer, which certificates evidence an interest in some or all of
the Mortgage Loans.
"Closing Date": With respect to each Mortgage Loan, the date specified
------------
in the related Confirmation Letter or such other date as shall be mutually
acceptable to the parties hereto on which such Mortgage Loan is sold to the
Purchaser pursuant to this Agreement.
"Collateral Value": The appraised value of a Mortgaged Property based
----------------
upon the lesser of (i) the appraisal (as reviewed and approved by the Seller)
made at the time of the origination of the related Mortgage Loan, or (ii) the
sales price of such Mortgaged Property at such time of origination. With
respect to a Mortgage Loan the proceeds of which were used to refinance an
existing mortgage loan, the appraised value of the Mortgaged Property based upon
the appraisal (as reviewed and approved by the Seller) obtained at the time of
refinancing.
"Confirmation Letter": With respect to the Mortgage Loans to be
-------------------
included in any Mortgage Loan Package, a letter agreement between the Purchaser
and the Seller, substantially in the form of Exhibit 5 annexed hereto and
specifying the terms and conditions contemplated hereby and such other terms and
conditions as the Purchaser and the Seller shall agree.
"Custodian": Bankers Trust Company of California, N.A. or any other
---------
custodian under a custody agreement among any custodian, the Seller and the
Purchaser for the custody of the Mortgage Loans and the documents related
thereto.
"Cut-off Date": With respect to each Mortgage Loan, the day specified
------------
as such in the related Assignment and Conveyance.
"Gross Margin": With respect to each Adjustable Rate Mortgage Loan,
------------
the fixed rate set forth in the related Mortgage Note to be added to the related
Index on each Interest Rate Adjustment Date in accordance with the terms of such
Mortgage Note to determine the Mortgage Rate for such Mortgage Loan.
"Index": With respect to each Adjustable Rate Mortgage Loan, the index
-----
set forth in the related Mortgage Note to which the related Gross Margin is
added on each Interest Rate Adjustment Date in accordance with the terms of such
Mortgage Note to determine the Mortgage Rate for such Mortgage Loan.
"Interest Rate Adjustment Date": With respect to each Adjustable Rate
-----------------------------
Mortgage Loan, the date set forth in the related Mortgage Note on which the
Mortgage Rate is adjusted in accordance with the terms of the Mortgage Note.
The first Interest Rate Adjustment Date as to each Adjustable Rate Mortgage Loan
is set forth in the Mortgage Loan Schedule.
"Loan-to-Value Ratio": As of any date, the fraction, expressed as a
-------------------
percentage, the numerator of which is the principal balance of the related
Mortgage Loan as of the date of
<PAGE>
-3-
determination and the denominator of which is the Collateral Value of the
related Mortgaged Property.
"Maximum Principal Amount": With respect to each Negative Amortization
------------------------
Mortgage Loan, the amount set forth in the related Mortgage Note as the maximum
principal amount thereunder.
"Maximum Rate": With respect to each Adjustable Rate Mortgage Loan,
------------
the amount set forth in the related Mortgage Note as the maximum interest rate
to which the Mortgage Rate may be increased over the life of the Mortgage Loan
as stated in the Mortgage Note.
"Minimum Rate": With respect to each Adjustable Rate Mortgage Loan,
------------
the amount set forth in the related Mortgage Note as the minimum interest rate
to which the Mortgage Rate may be decreased over the life of the Mortgage Loan
as stated in the Mortgage Note.
"Mortgage": The mortgage, deed of trust or other instrument creating a
--------
first lien or a first priority ownership interest in either an estate in fee
simple or a leasehold estate in real property securing a Mortgage Note,
including all required riders, addenda or amendments thereto.
"Mortgage Loan Package" Each pool of Mortgage Loans sold on any
---------------------
Closing Date and listed on a Mortgage Loan Schedule attached to this Agreement
on the Closing Date.
"Mortgage Loan Schedule": With respect to each Mortgage Loan Package,
----------------------
the schedule of Mortgage Loans annexed hereto as Exhibit 1 for the initial
Closing Date or a supplement thereto for subsequent Closing Dates (as revised to
reflect the Mortgage Loans accepted by the Purchaser pursuant to the terms of
Section 5 hereof), which shall set forth the following information with respect
to each Mortgage Loan in such Mortgage Loan Package:
I. the loan number and first and last name of the primary Mortgagor;
(i) the street address, city, state and zip code of the
Mortgaged Property;
(ii) (A) if such Mortgage Loan is a Fixed Rate Mortgage Loan, the
monthly payment and the Mortgage Rate set forth in the
related Mortgage Note, (B) if such Mortgage Loan is an
Adjustable Rate Mortgage Loan, the monthly payment and
Mortgage Rate at origination;
(iii) the maturity date;
(iv) the original principal balance;
(v) the first payment date;
<PAGE>
-4-
(vi) if such Mortgage Loan is an Adjustable Rate Mortgage Loan,
the Index and the Gross Margin;
(vii) if such Mortgage Loan is an Adjustable Rate Mortgage Loan,
the first Interest Rate Adjustment Date, and if such
Adjustable Rate Mortgage Loan is a Negative Amortization
Mortgage Loan, the first Payment Adjustment Date;
(viii) if such Mortgage Loan is an Adjustable Rate Mortgage Loan,
the Periodic Rate Cap and if such Adjustable Rate Mortgage
Loan is a Negative Amortization Mortgage Loan, the Payment
Adjustment Cap and the initial payment date, if any, as to
which the Payment Adjustment Cap shall no longer be
applicable;
(ix) if such Mortgage Loan is an Adjustable Rate Mortgage Loan,
the Interest Rate Adjustment Date frequency, and if such
Adjustable Rate Mortgage Loan is a Negative Amortization
Mortgage Loan, the Payment Adjustment Date frequency;
(x) if such Mortgage Loan is an Adjustable Rate Mortgage Loan,
the Minimum Rate and the Maximum Rate, and if such
Adjustable Rate Mortgage Loan is a Negative Amortization
Mortgage Loan, the Maximum Principal Amount;
(xi) the unpaid principal balance as of the Cut-off Date;
(xii) if such Mortgage Loan is an Adjustable Rate Mortgage Loan,
the Mortgage Rate as of the Cut-off Date;
(xiii) the occupancy status (primary, secondary or investor);
(xiv) the purpose of the Mortgage Loan;
(xv) the Collateral Value of the Mortgaged Property;
(xvi) the original term to maturity;
(xvii) whether or not the Mortgage Loan provides for a principal
prepayment penalty;
(xviii) the credit grade of the Mortgagor;
(xix) the related Cut-off Date and Closing Date;
<PAGE>
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(xx) a code indicating whether the Mortgaged Property is a
one-family residence, a two- to four-family residence, a
condominium unit or a unit in a planned unit development;
(xxi) the paid-through date as of the related Closing Date;
(xxii) if the Mortgaged Property is a two- to four-family
residence, the number of dwelling units in the Mortgaged
Property;
(xxiii) whether the Mortgagor has a leasehold interest or a fee
simple interest in the Mortgaged Property;
(xxiv) with respect to each Graduated Payment Mortgage Loan, the
date on which the graduated payment periods terminate;
(xxv) with respect to each Graduated Payment Mortgage Loan, the
Mortgage Rates that are applicable to the initial
payments under the Mortgage Loan;
(xxvi) (A) whether the Mortgage Loan is a Fixed Rate Mortgage
Loan or an Adjustable Rate Mortgage Loan, (B) if such
Mortgage Loan is an Adjustable Rate Mortgage Loan,
whether such Mortgage Loan is a Negative Amortization
Mortgage Loan, and (C) if such Adjustable Rate Mortgage
Loan is a Graduated Payment Mortgage Loan;
(xxvii) A code indicating whether the related Mortgaged Property
was subject at origination to financing that was
subordinate to the lien of the Mortgage Loan; and
(xxviii) A code indicating the underwriting category pursuant to
which the Mortgage Loan was originated.
Exhibit 1 shall be supplemented as of each Closing Date to reflect
the addition of the Mortgage Loan Schedule for each related Mortgage Loan
Package (as such schedule may be amended to reflect the Mortgage Loans accepted
by the Purchaser pursuant to the terms of Section 5 hereof).
"Mortgage Note": The note or other evidence of the indebtedness of
-------------
a Mortgagor under a Mortgage Loan.
"Mortgage Rate": With respect to each Mortgage Loan, the annual
-------------
rate at which interest accrues on such Mortgage Loan, as adjusted from time to
time in accordance with the provisions of the related Mortgage Note in the case
of an Adjustable Rate Mortgage Loan.
<PAGE>
-6-
"Mortgaged Property": The real property, including all buildings,
------------------
structures, improvements or fixtures thereon and all appurtenances, water
rights, privileges and benefits appertaining thereto, that is conveyed, pledged
or mortgaged, or in which a security interest is granted, pursuant to a
Mortgage, to secure the payment and performance of a Mortgage Loan.
"Mortgagor": The obligor or obligors on a Mortgage Note.
---------
"Officers' Certificate": A certificate signed by the Chairman of the
---------------------
Board or the Vice Chairman of the Board or a President or a Vice President and
by the Treasurer or the Secretary or one of the Assistant Treasurers or
Assistant Secretaries of the person on behalf of whom such certificate is being
delivered.
"Pass-Through Transfer": The sale or transfer of some or all of the
---------------------
Mortgage Loans on one or more dates by the Purchaser or an affiliate of the
Purchaser to a trust or trusts to be formed as part of a public offering or
private placement of mortgage-backed securities.
"Payment Adjustment Cap": With respect to each Negative Amortization
----------------------
Mortgage Loan and each Payment Adjustment Date occurring prior to the initial
payment date on which such cap is no longer applicable, the amount (expressed as
a percentage) by which the monthly payment on such Negative Amortization
Mortgage Loan due in the month preceding such Payment Adjustment Date is
multiplied for purposes of calculating the maximum amount to which the monthly
payment may be adjusted.
"Payment Adjustment Date": With respect to each Negative Amortization
-----------------------
Mortgage Loan, the date set forth in the related Mortgage Note on which the
amount of the monthly payment thereon is scheduled to change. The first Payment
Adjustment Date as to each Negative Amortization Mortgage Loan is set forth in
the Mortgage Loan Schedule.
"Periodic Rate Cap": With respect to each Adjustable Rate Mortgage
-----------------
Loan and each Interest Rate Adjustment Date therefor, the maximum amount by
which the related Mortgage Rate may increase (without regard to the Maximum
Rate) or decrease (without regard to the Minimum Rate) from the Mortgage Rate in
effect immediately prior to such Interest Rate Adjustment Date.
"REO Property": A Mortgaged Property acquired through foreclosure or
------------
deed-in-lieu of foreclosure in connection with a defaulted Mortgage Loan.
"Whole Loan Transfer": Any sale or assignment of legal or beneficial
-------------------
ownership interest in one or more of the Mortgage Loans by the Purchaser or an
affiliate of the Purchaser to any person other than as part of a Pass-Through
Transfer.
SECTION 2. Agreement to Purchase. The Seller agrees to sell, and the
---------------------
Purchaser agrees to purchase, Mortgage Loans from time to time. The Mortgage
Loans to be included in
<PAGE>
-7-
any Mortgage Loan Package shall be identified on the related Mortgage Loan
Schedule, as such schedule may be amended to reflect the Mortgage Loans accepted
by the Purchaser on the related Closing Date pursuant to the terms of Section 5
hereof. Each Mortgage Loan Schedule shall be delivered to the Seller by the
Purchaser not less than five (5) Business Days prior to the related Closing
Date. The Purchaser shall notify the Seller and Servicer (as defined in Section
14) as to whether the Purchaser shall purchase the balances under the Mortgage
Loans on an actual or scheduled basis. The Mortgage Loans to be included in any
Mortgage Loan Package shall have an aggregate outstanding principal balance as
of the close of business on the Cut-off Date of an amount specified in such
Confirmation Letter (plus or minus 5% of such amount), or such other amount
acceptable to the Purchaser as evidenced by the actual aggregate outstanding
principal balance of such Mortgage Loans accepted by the Purchaser on such
Closing Date. With respect to each Mortgage Loan that is purchased on a
scheduled principal balance basis, the principal balance of such Mortgage Loan
shall be determined after giving effect to any payments due on or before the
Cut-off Date, whether or not received, and all principal prepayments received on
or before the Cut-off Date (the "Scheduled Principal Balance"). With respect to
each Mortgage Loan that is purchased on an actual principal balance basis, the
principal balance of such Mortgage Loan shall be determined after giving effect
to all payments of principal actually received on or before the Cut-off Date
(the "Actual Principal Balance"). The sale of the Mortgage Loans to be included
in any Mortgage Loan Package shall take place on the Closing Date.
The purchase price for the Mortgage Loans included in any Mortgage
Loan Package shall be equal to the purchase price percentage specified in the
related Confirmation Letter multiplied by the aggregate outstanding Scheduled
Principal Balance or Actual Principal Balance, as the case may be, thereof as of
the close of business on the related Cut-off Date, together with interest
accrued on such principal balance from the related Cut-off Date (in the case of
any Mortgage Loan purchased on a scheduled basis) or the paid-through date of
the Mortgage Loan (in the case of a Mortgage Loan purchased on an actual basis)
to but not including the related Closing Date at the per annum rate specified in
such Confirmation Letter. The purchase price shall be paid to the Seller by
wire transfer in immediately available funds on the related Closing Date by or
on behalf of the Purchaser, or as otherwise agreed by the Purchaser (or an
affiliate thereof) and the Seller. In addition to the related purchase price,
as additional consideration for the sale of the Mortgage Loans in any Mortgage
Loan Package, DLJ Mortgage Capital, Inc. or an affiliated successor or assignee
thereof, (the "Initial Purchaser") shall deliver to the Seller on the closing
date of any related Pass-Through Transfer effected by the Initial Purchaser (i)
a 100% percentage interest in the most subordinate class of Certificates issued
in connection with such Pass-Through Transfer and (ii) a 99.99% percentage
interest in the residual class of such Certificates if such residual class
constitutes the most subordinate class, unless the Purchaser and the Seller
agree that such ownership interests shall not be delivered to the Seller.
With respect to each Mortgage Loan sold on a scheduled basis, the
Purchaser shall be entitled to all scheduled principal payments due after the
related Cut-off Date, all other payments of principal due and collected after
such Cut-off Date, and all payments of interest on such Mortgage Loan, minus
that portion of any such interest payment which is allocable to the
<PAGE>
-8-
period prior to such Cut-off Date. All scheduled payments of principal due on or
before such Cut-off Date and collected after such Cut-off Date shall belong to
the Purchaser (in the event actual balances are purchased) or the Seller (in the
event scheduled balances are purchased), subject to the terms of the Whole Loan
Financing Facility between the Seller and the Purchaser, dated as of March __,
1998 (the "Finance Facility"), together with the Pledge Agreement, Tri-Party
Custodial Agreement and Interim Servicing Agreement related thereto.
With respect to each Mortgage Loan sold on an actual basis, the
Purchaser shall be entitled to all principal payments received after the related
Cut-off Date and all payments of interest on such Mortgage Loan. All payments
of principal received on or before such Cut-off Date shall belong to the Seller.
The Purchaser shall have the right to transfer to any person all or a
portion of its right, title and interest in and to each Mortgage Loan on or
subsequent to the related Closing Date, and other rights and obligations under
this Agreement with respect to such Mortgage Loan (except, in the case of any
such transfer by the Initial Purchaser to an unaffiliated party, its rights
under Section 11 and its right to indemnification and notice) as part of one or
more Whole Loan Transfers or Pass-Through Transfers, as applicable, and the
transferee thereof shall succeed to such right, title and interest and rights
and obligations hereunder of the Purchaser with respect to such Mortgage Loan.
With respect to any Mortgage Loan or related interest that has been so
transferred, all references herein to the Purchaser shall be deemed to refer to
the related transferee.
SECTION 3. Conveyance of Mortgage Loans. With respect to the
----------------------------
Mortgage Loans included in any Mortgage Loan Package, the Seller hereby agrees
to transfer, assign, set over and otherwise convey to the Purchaser, without
recourse but subject to the terms of this Agreement, on the related Closing
Date, all the right, title and interest of the Seller in and to the Mortgage
Loans identified on the related Mortgage Loan Schedule as of such Closing Date.
Each Mortgage Loan Schedule shall conform to the requirements of the Purchaser
as set forth in this Agreement. Each Mortgage Loan Schedule shall be amended on
the related Closing Date, if necessary, to reflect the Mortgage Loans accepted
by the Purchaser on such Closing Date in accordance with Section 5 hereof. In
connection with any such transfer and assignment, the Seller shall execute and
deliver to the Purchaser an Assignment and Conveyance, substantially in the form
of Exhibit 8 annexed hereto, with respect to the related Mortgage Loans and
shall deliver, or cause to be delivered, to the Custodian or its designee, the
documents or instruments specified below with respect to each such Mortgage Loan
(each a "Mortgage File"). On or before the Closing Date for any such transfer
and assignment, each of the related Mortgage Files shall have been delivered by
the Seller to the Custodian and shall be held by the Custodian pursuant to the
Tri-Party Custodial Agreement dated March __, 1998 (as amended, supplemented or
otherwise modified from time to time, the "Custody Agreement"), among the
Purchaser, the Seller and the Custodian, until the Custody Agreement is
terminated as to the related Mortgage Loan.
<PAGE>
-9-
All Mortgage Files so delivered shall be held by the Custodian in
escrow at all times prior to the related Closing Dates for the benefit of the
Purchaser under the Custody Agreement. Each Mortgage File shall contain the
following documents:
(a) the original mortgage note, naming the Seller as the holder/payee
thereof (or, if the Seller is not the original holder/payee thereof,
bearing all endorsements necessary to evidence a complete and unbroken
chain of endorsements from the original holder/payee to the Seller) and
endorsed by the Seller "Pay to the order of __________, without recourse";
(b) the original mortgage, security deed, deed of trust or other
security instrument ("Mortgage"), naming the Seller as the "mortgagee" or
"beneficiary" thereof (or, if the Seller is not the original
mortgagee/beneficiary thereof, such Mortgage together with all assignments
necessary to evidence a complete and unbroken chain of intervening
assignments from the original mortgagee/beneficiary to the Seller) and
bearing evidence that such instrument has been recorded in the appropriate
jurisdiction where the Mortgaged Property is located (or, in lieu of the
original of the recorded Mortgage, a duplicate or conformed copy of the
Mortgage, together with a certificate of an officer of either (i) the
Seller or (ii) a representative of the escrow company, title insurer or
other closing agent certifying that such copy represents a true and correct
copy of the original and that such original has been submitted for
recordation in the appropriate governmental recording office of the
jurisdiction where the Mortgaged Property is located, or a certificate of
receipt from the recording office, certifying that such copy represents a
true and correct copy of the original and that such original has been
submitted for recordation in the appro priate governmental recording
office of the jurisdiction where the Mortgaged Property is located);
(c) an original assignment of the Mortgage executed at the direction
of the Purchaser by the Seller, without recourse, to either (i) "Bankers
Trust Company, as trustee," (ii) "Bankers Trust Company, as trustee for the
holders of DLJ Mortgage Acceptance Corp. Mortgage Pass-Through
Certificates," or (iii) in blank, with evidence of recording thereon
(except with respect to any assignments of Mortgage that are delivered in
blank) and the original of any intervening assignment or assignments of the
Mortgage, including any warehousing assignment, necessary to evidence a
complete and unbroken chain of assignments from the original
mortgagee/beneficiary to the Seller and bearing evidence that each such
instrument has been recorded in the appropriate jurisdiction where the
Mortgaged Property is located (or, in lieu of any such original recorded
assignment of Mortgage or any such original recorded intervening assignment
of Mortgage, a duplicate or conformed copy of such assignment of Mortgage,
together with a certificate of an officer of the Seller certifying that
such copy represents a true and correct copy of the original and that such
original has been submitted for recordation in the appropriate governmental
recording office of the jurisdiction where the Mortgaged Property is
located, or a certificate of receipt from the recording office, certifying
that such
<PAGE>
-10-
copy represents a true and correct copy of the original and that such
original has been submitted for recordation in the appropriate governmental
recording office of the juris diction where the Mortgaged Property is
located);
(d) the original lender's title insurance policy, or, if such policy
has not been issued and if the Mortgage Loan was funded through a title
insurance company or other comparable closing agent pursuant to closing
instructions precluding the title insurance company or other comparable
closing agent from funding until it is prepared to issue the required title
insurance coverage, a copy of such closing instructions;
(e) the original of any assumption, modification, extension or
guaranty agreement;
(f) the original or a copy of the preliminary title report (or
equivalent thereof) on the Mortgaged Property; and
(g) if the mortgage note, the Mortgage, any assignment of Mortgage or
any other related document has been signed by a person on behalf of the
mortgagor, the original power of attorney or other instrument that
authorized and empowered such person to sign, or a duplicate or conformed
copy of the power of attorney or other instrument, together with a
certification of an officer of the Seller or of the applicable title
insurance company, escrow company or other comparable closing agent
certifying that such copy represents a true and correct copy of the
original.
The Seller shall, promptly upon receipt thereof, deliver to the
Purchaser, or its designee, the original Mortgage or assignment, as the case may
be, with evidence of recording indicated thereon, in each instance where a copy
thereof certified by the Seller, escrow company, title insurer, other closing
agent or the appropriate governmental recording office was delivered to the
Purchaser or its designee. In the event the Seller cannot deliver any recorded
Mortgage or assignment of Mortgage to the Purchaser or its assignee for any
reason, the Seller shall deliver or cause to be delivered to the Purchaser or
its assignee a photocopy of such Mortgage or assignment, as the case may be,
certified by the appropriate county recorder's office to be a true and complete
copy of the original thereof. If a copy of the closing instructions has been
delivered by the Seller in lieu of a title insurance policy, the Seller shall
use its best reasonable efforts to deliver to the Purchaser, or its designee,
the related title insurance policy within 120 days of the Closing Date. In the
event that any document specified in paragraphs (a) through (e) and (g) above
for any Mortgage Loan is not delivered to the Purchaser within 120 days
following the related Closing Date, upon written request of the Purchaser the
Seller shall repurchase such Mortgage Loan at a price equal to the sum of (i)
100% of the outstanding principal balance thereof, (ii) unpaid accrued interest
thereon from the due date as to which interest was last paid by the Mortgagor to
the first day of the month following the month of repurchase at a rate equal to
the related Mortgage Rate, and (iii) all amounts advanced by the Servicer or any
other person on the Mortgage Loan and not reimbursed together with unpaid
Servicing Fees (as defined in the related Servicing Agreement).
<PAGE>
-11-
Notwithstanding the foregoing, (i) the obligation of the Seller to deliver any
document specified in (g) above shall be deemed to have been satisfied upon the
delivery to the Purchaser of a duplicate or conformed copy of the power of
attorney or other instrument that authorized and empowered any person to sign a
mortgage note, Mortgage, assignment of Mortgage or any other related document,
together with a certification of an officer of the Seller or of the applicable
title insurance company, escrow company or other comparable closing agent
certifying that such copy represents a true and correct copy of the original;
and (ii) in the event that any original recorded document required to be
delivered pursuant to paragraphs (b) or (c) above has not been delivered to the
Purchaser within 120 days following the Closing Date due to circumstances that
are not within the control of the Seller, the Seller shall deliver to the
Purchaser, prior to the expiration of such 120 day period, an officer's
certificate of the Seller which shall (A) identify the undelivered document, (B)
state that the recorded document has not been delivered to the Purchaser due
solely to circumstances that are not within the control of the Seller and
identify such circumstances, and (C) state the date the document was delivered
to the public recording office. In the event the Seller is unable to deliver
such recorded document or a photocopy of such document certified by the
appropriate county recorder's office to be a true and complete copy of the
original thereof within 365 days following the Closing Date, upon written
request of the Purchaser the Seller shall repurchase such Mortgage Loan at the
repurchase price specified above.
In the event that any assignment is lost or returned unrecorded
because of a defect therein, the Seller shall prepare a substitute assignment or
cure such defect and record such cured or substituted assignment, at the expense
of the Seller, in accordance with this Section 3. The Seller shall also pay the
fees of the Custodian (or its designee) incurred in connection with the removal
and replacement of any assignment of Mortgage delivered for recording, as well
as the fees of the Custodian (or its designee) incurred in connection with the
addition of any title insurance policy or recorded Mortgage to the related
Mortgage File.
With respect to any Whole Loan Transfer by the Initial Purchaser, the
Seller shall, promptly upon the request of the Initial Purchaser, deliver to the
Custodian or its designee original assignments of the Mortgages for the related
Mortgage Loans, without recourse and in blank, to be executed by either "Bankers
Trust Company, as trustee," or "Bankers Trust Company, as trustee for the
holders of DLJ Mortgage Acceptance Corp. Mortgage Pass-Through Certificates," as
applicable, in recordable form and sufficient under the laws of the
jurisdictions wherein the related Mortgaged Properties are located to reflect of
record the sale of such Mortgages upon the completion of such assignments. The
Seller shall use its best efforts to cause the Custodian or its designee to
execute such assignments as provided in the preceding sentence and to deliver
them in accordance with the Initial Purchaser's instructions. The Seller shall
not be liable for the Custodian's or its designee's failure to timely execute
and deliver any assignment as provided in this paragraph.
Subsequent to a Whole Loan Transfer or Pass-Through Transfer by the
Initial Purchaser, the Seller shall deliver to the Purchaser or its designee all
original documents relating to the Mortgage Loans that have not previously been
delivered to the Purchaser, an affiliate
<PAGE>
-12-
thereof or the Custodian in trust for the benefit of the Purchaser or any
assignee, transferee or designee of the Purchaser, other than original documents
required to be held by the Seller pursuant to applicable mortgage lending laws
and rules and regulations of the jurisdiction in which the related Mortgaged
Property is located (in lieu of which the Seller shall deliver photocopies), and
any person's possession of any such documents on behalf of the Purchaser shall
be at the will of the Purchaser and any documents held by the Servicer shall be
for the sole purpose of servicing the related Mortgage Loan and such possession
by such person shall be in a custodial capacity only. Upon sale of any Mortgage
Loan by the Seller to the Purchaser hereunder, the ownership of the related
Mortgage Note, the related Mortgage and the contents of the related Mortgage
File shall be vested in the Purchaser and the ownership of all records and
documents with respect to such Mortgage Loan prepared by or that come into the
possession of the Seller shall immediately vest in the Purchaser and shall be
retained and maintained, in trust, by the Seller at the will of the Purchaser in
such custodial capacity only. The Seller's records shall accurately reflect the
sale of each Mortgage Loan to the Purchaser. In the event that any original
document held by the Seller is required pursuant to the terms of this Section 3
to be a part of a Mortgage File, such document shall be delivered promptly to
the Purchaser or its designee.
SECTION 4. Late Payment Charges and Prepayment Charges; Seller's
-----------------------------------------------------
Repurchase Right. Any late payment charges or prepayment charges collected in
- ----------------
connection with any Mortgage Loan shall be retained by or paid to the Seller
during any period that the Initial Purchaser is the owner of such Mortgage Loan.
The Seller's right to late payment and prepayment charges on any Mortgage Loan
shall terminate in the event of a Whole Loan Transfer thereof on a servicing
released basis without payment of any additional consideration to the Seller.
The Initial Purchaser shall have the right to purchase the Seller's right to the
late payment and prepayment charges on the Mortgage Loans at a price mutually
agreed upon by the Initial Purchaser and the Seller, and the payment for such
right shall be included in the purchase price and paid on the related Closing
Date. In addition, during the period the Initial Purchaser is the owner of any
Mortgage Loan, the Seller shall have the option to purchase any related REO
Property acquired or to be acquired for an amount equal to the unpaid principal
balance of the related Mortgage Loan immediately prior to its conversion to an
REO Property together with all accrued and unpaid interest thereon through the
first day of the month following the month of repurchase and all unreimbursed
expenses or advances in connection therewith, in each case as promptly as
possible but in any event within thirty days following the later of (a) the date
on which such Mortgage Loan becomes an REO Property and (b) the date on which
the Servicer notifies the Seller that such Mortgage Loan has become an REO
Property; provided that if the Seller does not purchase any two Mortgage Loans
that become REO Properties as permitted above, the Seller shall thereafter have
no right or option to purchase any additional REO Property as provided in this
paragraph.
Except to the extent otherwise agreed upon by the Seller, the
agreement or agreements pursuant to which any Mortgage Loan is transferred as
part of a Pass-Through Transfer by the Initial Purchaser shall provide that (i)
any late payment charges or prepayment charges collected in connection with such
Mortgage Loan shall be paid to the Seller and (ii) the
<PAGE>
-13-
Seller shall have the option to purchase any related REO Property acquired or to
be acquired as provided in the preceding paragraph subject to the limitation
that if the Seller does not purchase any two Mortgage Loans which are subject to
such Pass-Through Transfer and that become REO Properties as permitted above,
the Seller shall thereafter have no right or option to purchase any additional
REO Property or Mortgage Loan that becomes an REO Property sold in connection
with such Pass-Through Transfer.
SECTION 5. Examination of Mortgage Files and Due Diligence Review.
------------------------------------------------------
On or before the Closing Date related to each Mortgage Loan Package, the Seller
shall (a) deliver or cause to be delivered to the Purchaser magnetic tapes
acceptable to the Purchaser which contain such information about the Mortgage
Loans in such Mortgage Loan Package as may be reasonably requested by the
Purchaser, and (b) as directed by the Purchaser, either, deliver to the
Purchaser or its designee, in escrow, or make available, or cause to be made
available, for examination during normal business hours, all credit files,
underwriting documentation and Mortgage Files relating to such Mortgage Loans.
The Purchaser may reject any Non-Program Loan (as that term is defined in the
Commitment Letter between the Purchaser and the Seller dated March __, 1998)
offered for sale hereunder in its sole discretion. The fact that the Purchaser
has conducted or has failed to conduct any partial or complete examination of
the credit file, underwriting documentation or Mortgage File relating to any
Mortgage Loan shall not affect the Purchaser's right to demand repurchase of
such Mortgage Loan or other relief as provided under this Agreement.
In addition to the foregoing examination of the Mortgage Files and
related documents, the Seller agrees to allow the Initial Purchaser, or its
designee, or any representative of any nationally recognized statistical rating
agency rating the Certificates issued as part of any Pass-Through Transfer by
the Initial Purchaser (a "Rating Agency"), to examine and audit all books,
records and files pertaining to the Mortgage Loans, the Seller's underwriting
procedures and the Seller's ability to perform or observe all of the terms,
covenants and conditions of this Agreement. Such examinations and audits shall
take place at one or more offices of the Seller during normal business hours and
in the course of such examinations and audits, the Seller shall make available
to the Initial Purchaser, or its designee, adequate facilities, as well as the
assistance of a sufficient number of knowledgeable and responsible individuals
who are familiar with the Mortgage Loans and the terms of this Agreement, and
the Seller shall cooperate fully with any such review in all respects. The
Seller agrees to provide the Initial Purchaser, its designee and any
representative of a Rating Agency with all material information regarding the
Seller (including its financial condition), and to provide access to
knowledgeable financial or accounting officers for the purpose of answering
questions with respect to the Seller's financial condition, financial statements
or other developments affecting the Seller. The Initial Purchaser shall, upon
reasonable prior notice, also have the right to perform such examinations and
audits or to obtain such material information regarding the Seller's financial
condition and access to the officers described above following any Closing Date.
<PAGE>
-14-
The Seller understands and agrees that any information, including but
not limited to financial information, regarding the status of the Seller with
respect to any regulatory body or entity and information as to the loss and
delinquency experience of loans originated or acquired by the Seller, obtained
in the examination and review described in the foregoing paragraph may be
disclosed in an Offering Circular (as defined herein); provided, however, that
neither the Initial Purchaser nor any affiliate thereof assumes any
responsibility with respect to such information.
SECTION 6. Representations, Warranties and Covenants of the Seller. In
-------------------------------------------------------
order to induce the Purchaser to enter into this Agreement, the Seller hereby
represents, warrants and covenants to the Purchaser that as of the date hereof
and as of each Closing Date (or such other date specifically provided herein):
(i) The Seller is a corporation, duly organized, validly existing
and in good standing under the laws of the State of California with full power
and authority to carry on its business as presently conducted by it. The Seller
had the full power and authority and legal right to originate or acquire the
Mortgage Loans sold on such Closing Date. The Seller has the full power and
authority and legal right to own the Mortgage Loans sold on such Closing Date
and to transfer and convey such Mortgage Loans to the Purchaser and has the full
power and authority and legal right to execute and deliver, engage in the
transactions contemplated by, and perform and observe the terms and conditions
of, this Agreement, each Servicing Agreement and the Custody Agreement.
(ii) This Agreement, each Servicing Agreement and the Custody
Agreement have been duly and validly authorized, executed and delivered by the
Seller, all requisite corporate action has been or will have been taken, and
(assuming the due authorization, execution and delivery hereof and thereof by
the other parties hereto and thereto) each constitutes or will constitute the
valid, legal and binding agreement of the Seller, enforceable in accordance with
its terms, except as such enforcement may be limited by (i) laws relating to
bankruptcy, insolvency, reorganization, receivership or moratorium, (ii) other
laws relating to or affecting the rights of creditors generally and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law) or (iii) public policy considerations underlying
the securities laws, to the extent that such public policy considerations limit
the enforceability of the provisions of this Agreement which purport to provide
indemnification from liabilities under applicable securities laws.
(iii) Either (a) no consent, approval, authorization or order of,
registration or filing with, or notice to, any governmental authority or court
is required, under federal or state laws, for the execution, delivery and
performance of or compliance by the Seller with this Agree ment, each Servicing
Agreement or the Custody Agreement, or the consummation by the Seller of any
other transaction contemplated hereby or (b) such consent, approval,
authorization or order has been obtained, or such registration, filing or notice
has been made.
<PAGE>
-15-
(iv) Neither the transfer of the Mortgage Loans sold on such Closing
Date to the Purchaser, nor the execution, delivery or performance of this
Agreement, each Servicing Agreement or the Custody Agreement by the Seller,
conflicts or will conflict with, or results or will result in a breach of, or
constitutes or will constitute a default under (a) any term or provision of the
documents governing the Seller's organization, or (b) any term or provision of
any material agreement, contract, instrument or indenture, to which the Seller
is a party or is bound, or (c) any law, rule, regulation, order, judgment, writ,
injunction or decree of any court or governmental authority having jurisdiction
over the Seller, or results or will result in the creation or imposition of any
lien, charge or encumbrance which, in any of the foregoing cases, would have a
material adverse effect upon such Mortgage Loans or any documents or instruments
evidencing or securing such Mortgage Loans.
(v) The Seller has delivered to the Initial Purchaser audited
consolidated financial statements as to its last complete fiscal year (if
applicable) and its unaudited financial statements as of any later quarter ended
more than ninety (90) days prior to the date hereof or such Closing Date, as
applicable. All such financial statements fairly present the pertinent results
of operations and changes in financial position for each of such periods and the
financial position at the end of each such period of the Seller, and have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as set forth in the
notes thereto.
(vi) Except as have been previously disclosed in writing by the
Seller, there are no actions or proceedings against, or investigations of, the
Seller pending or, to the Seller's knowledge, threatened against the Seller
before any court, administrative agency or other tribunal, which would
reasonably be expected to adversely affect the transfer of the Mortgage Loans,
the issuance of Certificates as part of any Pass-Through Transfer by the Initial
Purchaser, the execution, delivery or enforceability of this Agreement, the
Servicing Agreement or the Custody Agreement, or have a material adverse effect
on the financial condition of the Seller.
(vii) The information set forth on the Mortgage Loan Schedule related
to each Mortgage Loan sold on such Closing Date is true and correct in all
material respects.
(viii) The Seller represents and warrants that each of the
representations and warranties contained in Exhibit 6 annexed hereto and in the
Assignment and Conveyance related to each Mortgage Loan sold, on such Closing
Date is true and correct and the Seller shall restate such representations on
the closing date of any related Whole Loan Transfer or Pass-Through Transfer by
the Initial Purchaser in accordance with Section 11 hereof.
(ix) The Seller covenants to (a) provide in a timely manner all of
the information regarding itself and the Mortgage Loans sold on such Closing
Date as the Initial Purchaser may reasonably request in connection with the
preparation of any related Offering Circular, (b) fully cooperate with, and
supply all information requested by a Rating Agency to the
<PAGE>
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extent practicable, and (c) dedicate adequate personnel and resources as may be
required to comply with all of the terms and conditions of this Agreement.
(x) The Seller covenants with the Initial Purchaser that as of the
date of any Offering Circular and as of the closing date for the related Whole
Loan Transfer or Pass-Through Transfer, the information contained in such
Offering Circular with respect to the Seller's Information (as defined in
Section 12(a)) shall be true and accurate and shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading.
(xi) Other than in connection with solicitations or promotions
directed at the general public, the Seller agrees that it shall not solicit the
Mortgagor with respect to any Mortgage Loan for the purpose of refinancing such
Mortgage Loan after the execution of the Confirmation Letter with respect to the
Mortgage Loan.
(xii) The Seller is, and at all times during the term of this
Agreement shall remain a mortgagee approved by the Secretary of Department of
Housing and Urban Development pursuant to Sections 203 and 211 of the National
Housing Act, as amended.
SECTION 7. Cure, Repurchase and Indemnity Obligations of the Seller.
--------------------------------------------------------
Each of the representations, warranties and covenants contained in or required
to be made pursuant to Section 6 or Section 11 of this Agreement shall survive
the sale of the related Mortgage Loans and shall continue in full force and
effect, notwithstanding any restrictive or qualified endorsement on the related
Mortgage Notes and notwithstanding subsequent termination of this Agreement.
The representations, warranties and covenants contained in or required to be
made pursuant to Section 6 or Section 11 of this Agreement shall not be impaired
by any review or examination of the Mortgage Files or other documents evidencing
or relating to the related Mortgage Loans or any failure on the part of the
Purchaser to review or examine such documents and shall inure to the benefit of
any transferee of such Mortgage Loans from the Purchaser or any affiliate
thereof, including, without limitation, any transferee related to a Whole Loan
Transfer or Pass-Through Transfer.
Upon discovery of any defective document in a Mortgage File relating
to a Mortgage Loan which materially and adversely affects the interests of the
Purchaser, any affiliate thereof, any holder of the Mortgage Loan or any holders
of Certificates representing an interest in the Mortgage Loan, the Purchaser or
its assignee shall notify the Seller of such defect and request that the Seller
cure such defect within 60 days from the date the Seller was notified of such
defect. The Seller hereby covenants and agrees that if any such defect cannot
be corrected or cured within such 60-day period, the Seller shall, not later
than 90 days after its receipt of notice of such defect, repurchase the related
Mortgage Loan at a price equal to the sum of (i) 100% of the outstanding
principal balance thereof, (ii) unpaid accrued interest thereon from the due
date as to which interest was last paid by the Mortgagor to the first day of the
month following the
<PAGE>
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month of repurchase at a rate equal to the related Mortgage Rate, (iii) all
amounts advanced by the Servicer or any other person on the Mortgage Loan and
not reimbursed together with unpaid Servicing Fees (as defined in the related
Servicing Agreement) and (iv) all expenses reasonably incurred or to be incurred
by or on behalf of the Purchaser in respect of the breach or defect giving rise
to the repurchase obligation, including any expenses arising out of the
enforcement of the repurchase obligation (the sum of the amounts in clauses (i)
through (iv), the "Repurchase Price").
Within 90 days of the earlier of discovery by the Seller or receipt of
notice by the Seller of a breach of any of the representations, warranties or
covenants of the Seller set forth in or required to be made pursuant to Section
6 or Section 11 of this Agreement which materially and adversely affects the
interests of the Purchaser, any affiliate thereof, any holder of the Mortgage
Loan or the holders of the Certificates representing an interest in the Mortgage
Loan, or to the extent that the Seller cannot restate as of the closing date of
any related Whole Loan Transfer or Pass-Through Transfer by the Initial
Purchaser any of the representations or warranties for any Mortgage Loan as set
forth in Section 6 hereof or required by Section 11 hereof, the Seller shall
either (i) cure such breach in all material respects or (ii) repurchase the
related Mortgage Loan from the Purchaser at the Repurchase Price.
In addition to such cure and repurchase obligation, the Seller shall
indemnify the Purchaser and hold it harmless against any losses, damages,
penalties, fines, forfeitures, reasonable and necessary legal fees and related
costs, judgments, and other costs and expenses resulting from any claim, demand,
defense or assertion based on or grounded upon, or resulting from, a breach of
the Seller's representations and warranties contained in Section 6 or Section 11
hereof.
It is understood and agreed that solely with respect to a defective
document or a breach of the Seller's representations and warranties with respect
to a Mortgage Loan which materially and adversely affects the interests of the
Purchaser, any affiliate thereof, any holder of the Mortgage Loan or the holders
of the Certificates representing an interest in the Mortgage Loan, the
obligations of the Seller set forth in this Section 7 to cure or repurchase a
defective Mortgage Loan and to indemnify the Initial Purchaser as provided in
this Section 7 and in Section 12 hereof constitute the sole remedies of the
Purchaser or its assignee; provided that this limitation shall not in any way
limit the Purchaser's rights or remedies upon breach of any other representation
or warranty herein.
The Repurchase Price for any repurchased Mortgage Loan shall be
payable to the Purchaser or its assignee by wire transfer of immediately
available funds to the account designated by the Purchaser, and the Purchaser or
its assignee, upon receipt of such funds, shall release or cause to be released
to the Seller the related Mortgage File and shall execute and deliver such
instruments of transfer or assignment, in each case without recourse, as shall
be necessary to vest in the Seller title to any Mortgage Loan released pursuant
hereto.
<PAGE>
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SECTION 8. Representations and Warranties of the Purchaser. In order
-----------------------------------------------
to induce the Seller to enter into this Agreement, the Purchaser hereby
represents and warrants to the Seller that as of the date hereof and as of each
Closing Date:
(i) The Purchaser is a corporation, duly organized, validly existing
and in good standing under the laws of the State of Delaware with full power and
authority to carry on its business as presently conducted by it. The Purchaser
has the full power and authority and legal right to execute and deliver, engage
in the transactions contemplated by, and perform and observe the terms and
conditions of, this Agreement.
(ii) This Agreement has been duly and validly authorized, executed
and delivered by the Purchaser, all requisite corporate action has been or will
have been taken, and (assuming the due authorization, execution and delivery
hereof by the other parties hereto) consti tutes or will constitute a valid,
legal and binding agreement of the Purchaser, enforceable in accordance with its
terms, except as such enforcement may be limited by (i) laws relating to
bankruptcy, insolvency, reorganization, receivership or moratorium, (ii) other
laws relating to or affecting the rights of creditors generally and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law) or (iii) public policy consider ations
underlying the securities laws, to the extent that such public policy
considerations limit the enforceability of the provisions of this Agreement
which purport to provide indemnification from liabilities under applicable
securities laws.
(iii) Either (a) no consent, approval, authorization or order of,
registration or filing with, or notice to, any governmental authority or court
is required, under federal or state laws, for the execution, delivery and
performance of or compliance by the Purchaser with this Agreement, or the
consummation by the Purchaser of any other transaction contemplated hereby or
(b) such consent, approval, authorization or order has been obtained, or such
registration, filing or notice has been made.
(iv) The execution, delivery or performance of this Agreement by the
Purchaser does not conflict or will not conflict with, or does not result or
will not result in a breach of, or does not constitute or will not constitute a
default under (a) any term or provision of the documents governing the
Purchaser's organization, or (b) any term or provision of any material
agreement, contract, instrument or indenture, to which the Purchaser is a party
or is bound, or (c) any law, rule, regulation, order, judgment, writ, injunction
or decree of any court or governmental authority having jurisdiction over the
Purchaser.
(v) There are no actions or proceedings against, or investigations
of, the Purchaser pending or, to the Purchaser's knowledge, threatened against
the Purchaser before any court, administrative agency or other tribunal, which
would reasonably be expected to adversely affect the transfer of the Mortgage
Loans sold on such Closing Date, the execution, delivery or enforceability of
this Agreement or have a material adverse effect on the financial condition of
the Purchaser.
<PAGE>
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SECTION 9. Closing. The closing of the sale of the Mortgage Loans to
-------
be purchased on each Closing Date shall be held at the offices of Thacher
Proffitt & Wood, located at Two World Trade Center, New York, New York, at 10:00
A.M., New York time (or such other place and time as the Purchaser and the
Seller shall agree), on such Closing Date, and such closing shall be subject to
each of the following conditions:
(a) All of the representations and warranties of the Seller and the
Purchaser shall be true and correct in all material respects as of such
Closing Date;
(b) All Closing Documents specified in Section 10 of this Agreement,
in such forms as are agreed upon and acceptable to the Purchaser and the
Seller, shall be duly executed and delivered by all signatories as required
pursuant to the respective terms thereof;
(c) The Seller shall have delivered and released to the Purchaser or
its designee all documents required to be delivered pursuant to Section 3
of this Agreement;
(d) The result of the examination and audit performed by the Purchaser
pursuant to Section 5 hereof shall be satisfactory to the Purchaser in its
sole determination;
(e) All other terms and conditions of this Agreement required to be
complied with on or before such Closing Date shall have been complied with
and the Seller and the Purchaser shall have the ability to comply with all
terms and conditions and perform all duties and obligations required to be
complied with or performed after such Closing Date; and
(f) The Purchaser shall have received from the Custodian a Trust
Receipt (as defined in the Custody Agreement) for the Mortgage File related
to each Mortgage Loan to be sold on such Closing Date.
SECTION 10 Closing Documents. The "Closing Documents" for the
-----------------
Mortgage Loans to be sold on any Closing Date shall consist of the following:
(a) If such Closing Date is the initial Closing Date, this Agreement
duly executed by the Purchaser and the Seller;
(b) With respect to each Mortgage Loan Package sold on such Closing
Date, an Assignment and Conveyance from the Seller to the Purchaser or its
designee, substantially in the form of Exhibit 8 annexed hereto, dated such
Closing Date, with a copy of the related Mortgage Loan Schedule attached
thereto;
(c) An Officers' Certificate of the Seller in the form of Exhibit 2
annexed hereto, dated such Closing Date, and attached thereto resolutions
of the board of directors
<PAGE>
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of the Seller, in a form substantially similar to Exhibit 3 annexed hereto,
together with copies of the documents governing the Seller's organization
and a certificate of good standing of the Seller;
(d) On the initial Closing Date and on each subsequent Closing Date on
which the Purchaser requests such opinion due to the Purchaser's reasonable
determination that the Seller's condition may have changed prior to the
initial Closing Date, a written opinion of counsel for the Seller
reasonably satisfactory to the Purchaser, substantially in the form of
Exhibit 4 annexed hereto, dated such Closing Date;
(e) With respect to each Mortgage Loan Package sold on such Closing
Date, a cross-receipt dated such Closing Date, substantially in the form of
Exhibit 7 annexed hereto, duly executed by the Seller and the Purchaser;
and
(f) Such other documents as the Purchaser may reasonably request.
SECTION 11. Information to be Provided by the Seller. As an
----------------------------------------
inducement to the Purchaser to purchase the Mortgage Loans to be included in any
Mortgage Loan Package, the Seller agrees to cooperate and use its best efforts
to (i) take such actions as are reasonably required by the Initial Purchaser in
connection with each Whole Loan Transfer and Pass-Through Transfer by the
Initial Purchaser and (ii) assist in the preparation by the Initial Purchaser of
any related prospectus, private placement memorandum or other document
containing information with respect to the Seller or one or more of such
Mortgage Loans (each such document, an "Offering Circular"), including any
document used in connection with the sale of a Mortgage Loan as part of any
Whole Loan Transfer by the Initial Purchaser and any document pursuant to which
the Certificates that are issued as part of any Pass-Through Transfer by the
Initial Purchaser will be offered to investors.
The Seller agrees to provide the Initial Purchaser with any and all
information and appropriate verification of information, whether through letters
of its auditors and counsel or otherwise, and shall provide to the Initial
Purchaser such additional representations, warranties, covenants, opinions of
counsel, including, without limitation, true sale and perfection opinions of
counsel, letters from auditors, and certificates of public officials or officers
of the Seller as may reasonably be believed to be necessary by the Initial
Purchaser and reasonably acceptable to the Initial Purchaser in order to effect
(i) the issuance of the Certificates related to any Pass-Through Transfer by the
Initial Purchaser, the class of senior Certificates of which shall bear a rating
no lower than in the highest rating category of one or more nationally
recognized statistical rating agencies, or (ii) any Whole Loan Transfer by the
Initial Purchaser. Without limiting the generality of the Seller's agreements
in the foregoing sentence, such additional representations and warranties shall
be made as of the "cut-off date", as such term is defined in the agreement or
agreements pursuant to which the Mortgage Loans related to any Whole Loan
Transfer or Pass-Through Transfer by the Initial Purchaser are transferred,
except for those representations and warranties which shall be made as of the
closing date relating to any Whole Loan Transfer or Pass-Through
<PAGE>
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Transfer by the Initial Purchaser or as of any other date between such "cut-off
date" and such closing date, and shall include for each such Mortgage Loan a
restatement of all representations and warranties made in Section 6 of this
Agreement as of the related "cut-off date" or closing date of the Whole Loan
Transfer or Pass-Through Transfer or any date between such dates, as applicable,
and the Initial Purchaser shall have the right to direct the Seller to make
statistical pool representations and warranties with respect to the information
listed on the Mortgage Loan Schedule, except that the representations and
warranties with respect to mortgage pool statistics (including those on the
Mortgage Loan Schedule) may be modified to accurately reflect the actual
mortgage pool statistics of such Mortgage Loans as of such "cut-off date",
closing date or intervening date to the extent such mortgage pool statistics
change as a result of payments or defaults on such Mortgage Loans or a
repurchase of any such Mortgage Loan by the Seller. As to each Whole Loan
Transfer by the Initial Purchaser, the information to be supplied shall be that
which is customary for similar transactions, and as to each Pass-Through
Transfer by the Initial Purchaser, the information to be supplied shall be that
which is customary for public or private, rated transactions for the issuance of
mortgage pass-through certificates and that which is substantially similar to
information previously provided by the Seller with respect to other issuances of
mortgage pass-through certificates. The Purchaser and Seller acknowledge that
the assignment related to any Whole Loan Transfer by the Initial Purchaser may,
and the issue and sale of the Certificates related to any Pass-Through Transfer
by the Initial Purchaser will, require the disclosure of the Seller's
underwriting criteria, loss and delinquency experience and the characteristics
of the related Mortgage Loans as all or a portion of a pool of such Mortgage
Loans by the Seller as part of one or more Offering Circulars or similar
disclosure documents.
The Purchaser and the Seller each agree to execute and deliver to the
other such additional documents, instruments or agreements as may be necessary
or appropriate to effectuate the purposes of this Agreement and in connection
with any Whole Loan Transfer or Pass-Through Transfer by the Initial Purchaser.
SECTION 12. Indemnification. (a) The Seller agrees to indemnify and
---------------
hold harmless the Initial Purchaser, DLJ Mortgage Acceptance Corp. (the
"Depositor") and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJSC"),
their respective officers and directors, and each person, if any, who controls
the Initial Purchaser, the Depositor or DLJSC within the meaning of either
Section 15 of the Securities Act of 1933, as amended (the "1933 Act"), or
Section 20 of the Securities Exchange Act of 1934, as amended (the "1934 Act"),
against any and all losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the 1933 Act, the 1934 Act or
other federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based in whole or in part upon any untrue statement
or alleged untrue statement of a material fact contained in any Offering
Circular, or any omission or alleged omission to state in any Offering Circular
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made, not
misleading, or any such untrue statement or omission or alleged untrue statement
or alleged omission made in any amendment of or supplement to any Offering
Circular, or elsewhere
<PAGE>
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in reliance upon any information furnished to the Initial Purchaser by the
Seller or approved by the Seller, or upon a defective document or a breach or
alleged breach of the representations, warranties, covenants or agreements of
the Seller as set forth in this Agreement, in any exhibit hereto or in any
Assignment and Conveyance or as set forth in any documents, instruments or
agreements of the Seller required to be delivered in connection with any Whole
Loan Transfer or Pass-Through Transfer by the Initial Purchaser as described in
Section 11 of this Agreement (collectively, the "Seller's Information"), it
being acknowledged that all statements set forth in any Offering Circular under
the captions "Description of the Mortgage Pool" and "The Seller" or elsewhere in
such Offering Circular with respect to the subjects discussed under such
captions will be made in reliance upon information furnished or approved by the
Seller and it being further acknowledged that the "Seller's Information" shall
not include the information set forth in any Offering Circular under the
captions "The Seller--Loan Delinquency, Forbearance, Foreclosure, Bankruptcy and
REO Property Status" and "REO Property Liquidation Experience" (or, if any such
captions do not appear in an Offering Circular, under captions containing
information of like character to information contained under similar captions in
other offering circulars relating to mortgage loans originated or acquired by
the Seller) or elsewhere in such Offering Circular with respect to the subjects
discussed under such captions. Coincident with the printing of any Offering
Circular, the Seller shall deliver to the Initial Purchaser or an affiliate
thereof a letter signed by an authorized officer of the Seller stating that the
Seller has approved such Seller's Information. The Seller acknowledges that the
Initial Purchaser, the Depositor and DLJSC will enter into one or more mortgage
loan purchase agreements, underwriting agreements or placement agreements in
reliance upon this indemnity agreement of the Seller. This indemnity agreement
shall be in addition to any liability which the Seller may otherwise have.
(b) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to Section 12(a) above, such person (the "indemnified party")
shall promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the reasonable
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel, but the reasonable fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. The
indemnifying party may, at its option, at any time upon written notice to the
indemnified party, assume the defense of any proceeding and may designate
counsel satisfactory to the indemnified party in connection therewith provided
that the counsel so designated would have no
<PAGE>
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actual or potential conflict of interest in connection with such representation.
Unless it shall assume the defense of any proceeding, the indemnifying party
shall not be liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. If the indemnifying party assumes the defense of any
proceeding, it shall be entitled to settle such proceeding with the consent of
the indemnified party or, if such settlement provides for release of the
indemnified party in connection with all matters relating to the proceeding
which have been asserted against the indemnified party in such proceeding by the
other parties to such settlement, without the consent of the indemnified party.
(c) If the indemnification provided for in this Section 12 is
unavailable to an indemnified party under Section 12(a) hereof or insufficient
in respect of any losses, claims, damages or liabilities referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities, in such proportion as is
appropriate to reflect the relative fault of the indemnified and indemnifying
parties in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the indemnified and indemnifying parties
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by such parties.
(d) The Purchaser and the Seller agree that it would not be just and
equitable if contribution pursuant to Section 12(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the considerations referred to in Section 12(c) above. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages and
liabilities referred to in this Section 12 shall be deemed to include, subject
to the limitations set forth above, any legal or other expenses reasonably
incurred by such indemnified party in connection with investigating or defending
any such action or claim, except where the indemnified party is required to bear
such expenses pursuant to this Section 12, which expenses the indemnifying party
shall pay as and when incurred, at the request of the indemnified party, to the
extent that the indemnifying party will be ultimately obligated to pay such
expenses. In the event that any expenses so paid by the indemnifying party are
subsequently determined to not be required to be borne by the indemnifying party
hereunder, the party which received such payment shall promptly refund the
amount so paid to the party which made such payment. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation.
(e) The indemnity and contribution agreements contained in this
Section 12 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by the Initial
Purchaser, the Depositor or DLJSC or any
<PAGE>
-24-
person controlling the Initial Purchaser, the Depositor or DLJSC or by or on
behalf of the Seller and their respective directors or officers or any person
controlling the Seller, and (iii) acceptance of and payment for any of the
Mortgage Loans or the Certificates as part of or in connection with any Whole
Loan Transfer or Pass-Through Transfer by the Initial Purchaser.
SECTION 13. Costs. The Seller shall pay directly all of its own
-----
expenses, including out-of-pocket expenses, the expenses of the preparation and
recording of assignments of Mortgage pursuant to Section 3 hereof and the
delivery of documents required pursuant to Section 3 hereof to the Custodian or
its designee, fees for title policy endorsements and continuations, and its
attorney fees.
SECTION 14. Servicing. Each of the Mortgage Loans included in any
---------
Mortgage Loan Package shall be serviced by a servicer acceptable to the
Purchaser (the "Servicer") pursuant to a Servicing Agreement identified in the
related Assignment and Conveyance, the "Servicing Agreement"), among the related
Servicer, the Purchaser, the Seller and the Custodian thereunder, if applicable,
until the Servicing Agreement is terminated as to such Mortgage Loan. The
Seller hereby represents to the Purchaser as of each Closing Date that the
Mortgage Loans sold on such Closing Date are serviced by the related Servicer
pursuant to the related Servicing Agreement and are not subject to servicing
agreements with third parties, and it is understood and agreed between the
Seller and the Purchaser that such Mortgage Loans are to be delivered free and
clear of any servicing agreements with third party servicers.
SECTION 15. Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered or mailed by registered mail, postage prepaid, return
receipt requested, to the following addresses: if to the Purchaser, addressed to
the Purchaser at 277 Park Avenue, New York, New York 10172, Attention: Paul
Najarian, or to such other address as the Purchaser may designate in writing to
the Seller; or if to the Seller, addressed to the Seller at 1063 McGaw Avenue,
Irvine, California, 92614-5532, Attention: President, or to such other addresses
as the Seller may designate in writing to the Purchaser.
SECTION 16. Severability of Provisions. Any part, provision,
--------------------------
representation, warranty or covenant of this Agreement that is prohibited or
that is held to be void or unenforceable shall be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. Any part, provision, representation or warranty of this
Agreement that is prohibited or unenforceable or is held to be void or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unen forceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction as to any Mortgage Loan shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto waive any provision of law which prohibits
or renders void or unenforceable any provision hereof.
<PAGE>
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SECTION 17. Survival; Third Party Beneficiary. The Seller and the
---------------------------------
Purchaser agree that the representations, warranties and agreements made herein
and in any certificate or other instrument delivered pursuant hereto shall be
deemed to be relied upon by the other party, notwithstanding any investigation
heretofore or hereafter made by such party or on such party's behalf, and that
the representations, warranties and agreements made by the Seller and the
Purchaser herein or in any such certificate or other instrument shall survive
the delivery of and payment for the Mortgage Loans. The parties hereto agree
that the Depositor and DLJSC are intended third party beneficiaries of Section
12 hereof, and that the Depositor and DLJSC may enforce such provision to the
same extent as if the Depositor and DLJSC were parties to this Agreement.
SECTION 18. Governing Law. This Agreement is to be governed by, and
-------------
construed in accordance with, the laws of the State of California.
SECTION 19. Successors and Assigns. The rights and obligations of
----------------------
the Seller under this Agreement shall not be assigned by the Seller without the
prior written consent of the Purchaser. The Purchaser has the right to assign
its interest under this Agreement (except, in the case of any such transfer by
the Initial Purchaser to an unaffiliated party, its rights under Section 11 and
its rights to indemnification and notice) with respect to any Mortgage Loan, in
whole or in part, to any person as may be required to effect any Whole Loan
Transfer or Pass-Through Transfer, by written notice to the Seller, without the
consent of Seller, and the related assignee shall thereupon succeed to the
rights and obligations hereunder of the Purchaser. Subject to the foregoing,
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and assigns. This Agreement supersedes
all prior agreements and understandings relating to the subject matter hereof.
SECTION 20. Waivers. Neither this Agreement nor any term hereof may
-------
be changed, waived, discharged or terminated orally, but only by an instrument
in writing signed by the party against whom enforcement of the change, waiver,
discharge or termination is sought.
SECTION 21. Headings. The headings in this Agreement are for
--------
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
SECTION 22. Intention of the Parties. It is the express intent of
------------------------
the parties hereto that the conveyance of the Mortgage Loans sold by the Seller
to the Purchaser as provided in Section 3 hereof be, and be construed as, a sale
of such Mortgage Loans by the Seller to the Purchaser and not as a pledge of
such Mortgage Loans by the Seller to the Purchaser to secure a debt or other
obligation of the Seller. However, in the event that, notwithstanding the
aforementioned intent of the parties, any such Mortgage Loans are held to be
property of the Seller, then (a) it is the express intent of the parties that
such conveyance be deemed a pledge of such Mortgage Loans by the Seller to the
Purchaser to secure a debt or other obligation of the Seller and (b) (1) this
Agreement shall also be deemed to be a security agreement within the
<PAGE>
-26-
meaning of Articles 8 and 9 of the applicable Uniform Commercial Code; (2) the
conveyance provided for in Section 3 of this Agreement shall be deemed to be a
grant by the Seller to the Purchaser of a security interest in or lien on all of
the Seller's right, title and interest in and to such Mortgage Loans and all
amounts payable to the holders of such Mortgage Loans in accordance with the
terms thereof and all proceeds of the conversion, voluntary or involuntary, of
the foregoing into cash, instruments, securities or other property; (3) the
possession by the Purchaser or its agent of mortgage notes, the related
mortgages and such other items of property as constitute instruments, money,
negotiable documents or chattel paper shall be deemed to be "possession by the
secured party" for purposes of perfecting the security interest pursuant to
Section 9-305 of the applicable Uniform Commercial Code; and (4) notifications
to persons holding such property, and acknowledgments, receipts or confirmations
from persons holding such property, shall be deemed notifications to, or
acknowledgment, receipts or confirmations from, financial intermediaries,
bailees or agents (as applicable) of the Purchaser for the purpose of perfecting
such security interest or lien under applicable law. Any assignment of the
interest of the Purchaser pursuant to Section 2 hereof shall also be deemed to
be an assignment of any security interest created hereby. The Seller and the
Purchaser shall, to the extent consistent with this Agreement, take such actions
as may be necessary to ensure that, if this Agreement were deemed to create a
security interest in or lien on any of the Mortgage Loans sold to the Purchaser,
such security interest or lien would be deemed to be a perfected security
interest or lien of first priority under applicable law and will be maintained
as such throughout the term of the Agreement.
SECTION 23. Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which shall constitute an original but all of
which, when taken together, shall constitute but one legal instrument. It shall
not be necessary in making proof of this Agreement to produce or account for
more than one such counterpart.
SECTION 24. Further Assurances. The Seller and the Purchaser each
------------------
agree to execute and deliver such instruments and take such actions as the other
may, from time to time, reasonably request in order to effectuate the purpose
and to carry out the terms of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Seller and the Purchaser have caused their
names to be signed by their respective officers thereunto duly authorized as of
the date first above written.
DLJ MORTGAGE CAPITAL, INC.
By: ____________________________________
Name:
Title:
BNC MORTGAGE, INC.
By: ____________________________________
Name:
Title:
<PAGE>
EXHIBIT 1
MORTGAGE LOAN SCHEDULE
<PAGE>
EXHIBIT 2
OFFICERS' CERTIFICATE
I, __________________, hereby certify that I am a duly elected
________________ of BNC Mortgage, Inc. (the "Seller"), a corporation organized
under the laws of the State of ___________, that I have made such reasonable
investigation as I have deemed necessary to deliver this Officers' Certificate,
including discussions with responsible officers of the Seller and further
certify to the best of my knowledge as follows:
1. Attached hereto is a true and correct copy of the Articles of
Incorporation and By-laws of the Seller, all of which are in full force and
effect on the date hereof. Attached hereto is a Certificate of Good
Standing, dated _______________________, 199___. No event has occurred
since _________________, 199___ which has affected the good standing of the
Seller under the laws of the State of _________.
2. Except as have been previously discussed in writing by the Seller,
there are no actions, suits or proceedings pending or threatened against or
affecting the Seller which if adversely determined, individually or in the
aggregate, would materially adversely affect the Seller's obligations under
(a) the Master Mortgage Loan Purchase Agreement (the "Master Mortgage Loan
Purchase Agreement") dated as of March __, 1998 between the Seller and DLJ
Mortgage Capital, Inc. ("DLJMC"), (b) the Confirmation Letter[s] dated
____________, 199__ (the "Confirmation Letter[s]") between the Seller and
DLJMC, (c) the Servicing Agreement dated as of ___________
_______________________________ (as amended, the "Servicing Agreement")
among the Seller, DLJMC, _________________ and Bankers Trust Company (the
"Custodian"), (d) the Custody Agreement dated as of ________ ___, 199__ (as
amended, the "Custody Agreement") among the Seller, DLJMC and the
Custodian, and (e) the Assignment and Conveyance, dated ______________,
199_. The Master Mortgage Loan Purchase Agreement, the Confirmation
Letter[s], the Servicing Agreement, the Custody Agreement and the
Assignment and Conveyance are collectively referred to herein as the
"Agreements."
3. Each person who, as an officer or representative of the Seller,
signed any of the Agreements or any other document delivered prior hereto
or on the date hereof in connection with the transactions described in the
Agreements was, at the respective times of such signing and delivery, and
is now, duly elected or appointed, qualified and acting as such officer or
representative, and the signatures of such persons appearing on such
documents are their genuine signatures.
4. Each of the Mortgage Loans to be sold on the date hereof was
originated or acquired (1) by the Seller either directly or indirectly
through loan brokers or a correspondent lender specifically approved by the
Seller and DLJMC, such that (a) the Mortgage Loan was originated in
conformity with the Seller's underwriting guidelines, (b) DLJMC approved
the Mortgage Loan either prior to or after the funding thereof, and (c) the
Seller funded the Mortgage Loan on the date of origination thereof with its
own funds or with funds obtained by it or, in the case of a Mortgage Loan
originated by a
<PAGE>
-2-
correspondent lender approved by the Seller and DLJMC, the Mortgage Loan
was approved by the Seller prior to origination and was purchased by the
Seller from such correspondent lender within 30 days of the date of
origination pursuant to a mandatory purchase commitment in effect at
origination, (2) by a savings and loan association, savings bank,
commercial bank, credit union, insurance company or similar institution
that is supervised and examined by a federal or state authority or (3) by a
mortgagee approved by the Secretary of the Department of Housing and Urban
Development pursuant to Sections 203 and 211 of the National Housing Act,
as amended.
5. All of the Seller's representations and warranties contained in
the Agreements are true and correct in all material respects as of the
respective dates thereof and are true and correct in all material respects
as of the date hereof (except with respect to the representations and
warranties in the Master Mortgage Loan Purchase Agreement related to the
Mortgage Loans sold on any Closing Date prior to the date hereof, as to
which no representation or warranty is made as of the date hereof), and no
event of default in the performance of any of the Seller's covenants or
agreements under the Agreements has occurred and is continuing, nor has an
event occurred which with the passage of time or notice or both would
become such event of default.
6. With respect to its transfer of the Mortgage Loans to be sold on
the date hereof and the transactions contemplated by the Agreements, the
Seller has complied in all material respects with all the agreements by
which it is bound and has satisfied in all material respects all the
conditions on its part to be performed or satisfied prior to the date
hereof other than those which have been waived pursuant to the terms of the
Agreements.
7. Attached hereto is a certified true copy of the resolutions of the
Board of Directors of the Seller which authorize the sale of the Mortgage
Loans to be sold on the date hereof, and the same are in full force and
effect and have not been revoked, repealed or amended.
8. The representations and warranties contained in Exhibit 6 to the
Master Mortgage Loan Purchase Agreement and in each Assignment and
Conveyance dated the date hereof are true and correct with respect to the
Mortgage Loans to be sold on the date hereof.
9. Any necessary consents, approvals, authorizations or orders of any
court or governmental agency or body, which are required for the execution,
delivery and performance by the Seller of or compliance by the Seller with
the Agreements, the sale of the Mortgage Loans to be sold on the date
hereof as evidenced by the Agreements, or the consummation of the
transactions contemplated by the Agreements, have been obtained. The
Agreements and all related agreements have been authorized by the Board of
Directors of the Seller, such authorization being reflected in the minutes
of that Board and shall be maintained from the date of their execution as
records of the Seller. The Agreements and
<PAGE>
-3-
all related agreements are and shall be from the time of their execution
official records of the Seller.
Capitalized terms used herein and not otherwise defined herein shall have
the meanings specified in the Master Mortgage Loan Purchase Agreement.
<PAGE>
IN WITNESS WHEREOF, I have hereunto signed my name and affixed the seal of
the Seller.
Dated: ____________, 199__
BNC MORTGAGE, INC.
I, ________________________, [Assistant] Secretary of BNC Mortgage, Inc.,
hereby certify that _________________ is a duly elected, qualified and acting
____________ of the Seller and that the signature appearing above is such
person's genuine signature.
IN WITNESS WHEREOF, I have hereunto signed my name.
Dated: ____________, 199__
________________________
BNC MORTGAGE, INC.
<PAGE>
EXHIBIT 3
FORM OF RESOLUTIONS
[To be supplied by _________________________]
<PAGE>
EXHIBIT 4
FORM OF OPINION LETTER OF COUNSEL TO THE SELLER
[To be supplied by ___________]
<PAGE>
EXHIBIT 5
FORM OF CONFIRMATION LETTER
[Letterhead of the Purchaser]
____________, 199__
_________________________
_________________________
_________________________
Re: Master Mortgage Loan Purchase Agreement between
DLJ Mortgage Capital, Inc. and BNC Mortgage, Inc.
Ladies and Gentlemen:
Reference is made to the Master Mortgage Loan Purchase Agreement dated
as of March __, 1998 (the "Agreement") between DLJ Mortgage Capital, Inc. (the
"Purchaser") and BNC Mortgage, Inc. (the "Seller"). Capitalized terms used
herein and not otherwise defined herein shall have the meanings specified in the
Agreement.
The Purchaser hereby confirms its agreement to purchase, and the
Seller hereby acknowledges its agreement to sell, pursuant to the Agreement,
[Fixed Rate Mortgage Loans having an original term to maturity from the due date
of the first monthly payment of [15/30] years] [Adjustable Rate Mortgage Loans
that have __________________ as the Index, that have a fixed initial interest
rate period equal to approximately [___ year[s]/six months]] and that are [not]
subject to negative amortization. The Mortgage Loans shall be sold on an
[actual/actual][scheduled/scheduled/scheduled] basis. The [Seller][Purchaser]
shall be entitled to retain any late payment charges and prepayment charges on
the Mortgage Loans. The Cut-off Date for such Mortgage Loans shall be
____________, 199__ and the Closing Date for such Mortgage Loans shall be
____________, 199__. The aggregate outstanding principal balance of such
Mortgage Loans, as of the close of business on the related Cut-off Date, shall
be $_________. The purchase price for such Mortgage Loans shall be equal to
_____% of such principal balance, together with interest accrued on such
principal balance at a per annum rate equal to _____% from the related [Cut-off
Date] [paid through date] to but not including the related Closing Date[;
provided that, the Purchaser shall not pay more than 60 days accrued interest
with respect to any Mortgage Loan].
<PAGE>
-2-
If the foregoing accurately reflects our agreement with respect to the
matters specified above, please have a copy of this letter signed by an
authorized representative and return such copy to the Purchaser at the address
for notices provided in the Agreement.
DLJ MORTGAGE CAPITAL, INC.
By: _______________________________
Name:
Title:
Acknowledged and agreed:
BNC MORTGAGE, INC.
By: ____________________________
Name:
Title:
<PAGE>
EXHIBIT 6
SELLER REPRESENTATIONS AND WARRANTIES
Representations and Warranties. Pursuant to Section 6 and Section 11 of
------------------------------
the Master Mortgage Loan Purchase Agreement, the Seller has made or will make
certain representations and warranties to the Purchaser. The Seller shall
confirm such representations and warranties and in connection therewith shall
deliver an Officers' Certificate on each Closing Date and, pursuant to Section
11 of the Master Mortgage Loan Purchase Agreement, on the closing date of each
Whole Loan Transfer and Pass-Through Transfer by the Initial Purchaser,
reaffirming such representations and warranties as of such dates. The following
representations and the representations required pursuant to Section 11 of the
Master Mortgage Loan Purchase Agreement also may be, as part of any Whole Loan
Transfer or Pass-Through Transfer, assigned by the Purchaser, together with the
related repurchase rights specified in the Master Mortgage Loan Purchase
Agreement. All capitalized terms used herein and not otherwise defined in the
Master Mortgage Loan Purchase Agreement shall have the meanings assigned in the
Finance Facility.
The Seller hereby represents and warrants to the Purchaser, as to each
Mortgage Loan, that as of the related Closing Date or as of such other date
specifically provided herein:
(i) The information set forth on the related Mortgage Loan Schedule
with respect to each Mortgage Loan is true and correct in all material respects
as of the related Closing Date, and each of the representations and warranties
contained in the Assignment and Conveyance related to such Mortgage Loan
Schedule is true and correct in all material respects with respect to the
Mortgage Loans identified therein;
(ii) Each Mortgage is a valid and enforceable first lien on the
Mortgaged Property subject only to (1) the lien of nondelinquent current real
property taxes and assessments, (2) covenants, conditions and restrictions,
rights of way, easements and other matters of public record as of the date of
recording of such Mortgage, such exceptions appearing of record being acceptable
to mortgage lending institutions generally or specifically reflected in the
appraisal made in connection with the origination of the related Mortgage Loan,
and (3) other matters to which like properties are commonly subject that do not
materially interfere with the benefits of the security intended to be provided
by such Mortgage;
(iii) Immediately prior to the delivery of the Mortgage Loan to the
Purchaser, the Seller had good title to, and was the sole owner of, such
Mortgage Loan free and clear of any mortgage, pledge, lien, security interest,
charge or other encumbrance (other than any junior lien on the Mortgaged
Property encumbered by the related Mortgage) and has full right and authority,
subject to no interest or participation of, or agreement with, any other party,
to sell and assign the Mortgage Loan pursuant to this Agreement;
(iv) There was no delinquent tax or assessment lien against any
Mortgaged Property at the time of the origination of the related Mortgage Loan;
<PAGE>
-2-
(v) There is no valid offset, defense or counterclaim to any
Mortgage Note or Mortgage, including the obligation of the Mortgagor to pay the
unpaid principal of or interest on such Mortgage Note, and any applicable right
of rescission has expired as of the related Closing Date;
(vi) There are no mechanics' liens or claims for work, labor or
material affecting any Mortgaged Property that are or may be a lien prior to, or
equal with, the lien of such Mortgage, except those that are insured against by
the title insurance policy referred to in clause (x) below;
(vii) Each Mortgaged Property is free of material damage and is in at
least adequate repair;
(viii) Each Mortgage Loan at origination complied in all respects with
applicable state and federal laws, including, without limitation, usury, equal
credit opportunity, real estate settlement procedures, truth-in-lending and
disclosure laws, and consummation of the transactions contemplated hereby will
not involve the violation of any such laws;
(ix) At the related Closing Date, neither the Seller nor any prior
holder of any Mortgage has, except as the Mortgage File may reflect, (1)
modified the Mortgage in any material respect, (2) satisfied, canceled or
subordinated such Mortgage in whole or in part, (3) released the related
Mortgaged Property in whole or in part from the lien of such Mortgage or (4)
executed any instrument of release, cancellation, modification or satisfaction
with respect thereto;
(x) A lender's policy of title insurance or a commitment (binder)
to issue the same was effective on the date of the origination of each Mortgage
Loan, each such policy is valid and remains in full force and effect and each
such policy was issued by a title insurer acceptable to the Federal National
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC") and in a form acceptable to FNMA or FHLMC;
(xi) Each Mortgage Loan was originated or acquired (1) by the Seller
either directly or indirectly through loan brokers or a correspondent lender
specifically approved by the Seller and the Purchaser, such that (a) the
Mortgage Loan was originated in conformity with the Seller's underwriting
guidelines, (b) the Purchaser approved the Mortgage Loan either prior to or
after the funding thereof and (c) the Seller funded the Mortgage Loan on the
date of origination thereof with its own funds or with funds obtained by it or,
in the case of a Mortgage Loan originated by a correspondent lender approved by
the Seller and the Purchaser, the Mortgage Loan was approved by the Seller prior
to origination and was purchased by the Seller from such correspondent lender
within 30 days of the date of origination pursuant to a mandatory purchase
commitment in effect at origination, (2) by a savings and loan association,
savings bank, commercial bank, credit union, insurance company or similar
institution that is supervised and examined by a federal or state authority or
(3) by a mortgagee approved by the Secretary of
<PAGE>
-3-
Department of Housing and Urban Development pursuant to Sections 203 and 211 of
the National Housing Act, as amended;
(xii) All of the improvements that were included for the purpose of
determining the appraised value of the Mortgaged Property are insured to lie
wholly within the boundaries and building restriction lines of such property,
and no improvements on adjoining properties encroach upon the Mortgaged
Property, unless, in either case, an agreement permitting such encroachment is
recorded in the applicable real property records and such agreement was taken
into account in conducting the appraisal of the Mortgaged Property;
(xiii) No portion of any improvement considered in determining the
related appraised value located on or being part of the Mortgaged Property is in
violation of any applicable zoning law or regulation. All inspections, licenses
and certificates required to be made or issued with respect to the use and
occupancy of the Mortgaged Property, including but not limited to certificates
of occupancy and fire underwriting certificates, have been made or obtained from
the appropriate authorities and the Mortgaged Property is lawfully occupied
under applicable law;
(xiv) All parties that have had any interest in the Mortgage, whether
as mortgagee, assignee, pledgee or otherwise, are, or, during the period in
which they held and disposed of such interest, were (1) in compliance with any
and all applicable licensing requirements of the laws of the state wherein the
Mortgaged Property is located, and (2)(a) organized under the laws of such
state, (b) qualified to do business in such state, (c) federal savings
associations or national banks having principal offices in such state or (d) not
doing business in such state;
(xv) The Mortgage Note and the related Mortgage are genuine, and
each is the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms. All parties to the Mortgage Note and
the Mortgage had legal capacity to execute the Mortgage Note and the Mortgage
and each Mortgage Note and Mortgage has been duly and properly executed and
delivered by such parties;
(xvi) The proceeds of the Mortgage Loan have been fully disbursed by
the Seller, there is no requirement for future advances thereunder and any and
all requirements as to completion of any on-site or off-site improvements and as
to disbursements of any escrow funds therefor (including any escrow funds held
to make monthly payments pending completion of such improvements) have been
complied with. All costs, fees and expenses incurred in making, closing or
recording the Mortgage Loans were paid;
(xvii) The related Mortgage contains customary and enforceable
provisions that render the rights and remedies of the holder thereof adequate
for the realization against the Mortgaged Property of the benefits of the
security, including (1) in the case of a Mortgage designated as a deed of trust,
by trustee's sale, and (2) otherwise by judicial foreclosure. There
<PAGE>
-4-
is no homestead or other exemption available to the Mortgagor that would
interfere with the right to sell the Mortgaged Property at a trustee's sale or
the right to foreclose the Mortgage;
(xviii) With respect to each Mortgage constituting a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in such Mortgage, and no fees or
expenses are or will become payable by the holder of the Mortgage Loan to the
trustee under the deed of trust, except in connection with a trustee's sale
after default by the Mortgagor;
(xix) Each Mortgaged Property is suitable for year-round occupancy;
(xx) There exist no deficiencies with respect to escrow deposits
and payments, if such are required, for which customary arrangements for
repayment thereof have not been made, and no escrow deposits or payments of
other charges or payments due with respect to the Mortgage Loan (other than
origination points and fees) have been capitalized under the Mortgage or the
related Mortgage Note;
(xxi) The origination practices used by the Seller with respect to
each Mortgage Loan have been in all respects legal, proper, prudent and
customary in the mortgage origination business;
(xxii) There is no pledged account or other security other than real
estate securing the Mortgagor's obligations;
(xxiii) No Mortgage Loan has a shared appreciation feature or other
contingent interest feature;
(xxiv) No Mortgage Loan is subject to any temporary buydown
provisions;
(xxv) With respect to each Mortgage Loan in which the Mortgagor has
a leasehold interest in the related Mortgaged Property:
(a) The leasehold was created by direct lease of the freehold
estate, and the ground lease or memorandum thereof has been
recorded and by its terms permits the leasehold estate to be
mortgaged. The ground lease grants any leasehold mortgagee
standard protection necessary to protect the security of a
leasehold mortgagee, including the right of the leasehold
mortgagee to receive notice of the lessee's default under the
ground lease, the right of the leasehold mortgagee, with adequate
time, to cure such default, and, in the case of incurable defaults
of the lessee, the right of the leasehold mortgagee to enter into
a new ground lease with the lessor on terms financially identical
and otherwise substantially identical to the existing ground
lease;
<PAGE>
-5-
(b) The ground lease was at the origination of the Mortgage
Loan and, to the best of the Seller's knowledge is, in full force
and effect without any outstanding defaults, and was at the
origination of the Mortgage Loan and, to the best of Seller's
knowledge is, not subject to liens and encumbrances;
(c) The ground lease shall be automatically renewable for at
least thirty (30) years or at least ten (10) years beyond the
scheduled date for the final payment on the Mortgage Loan; and
(d) The fee estate of the lessor under the ground lease is
encumbered by the ground lease, and any lien of any present or
future fee mortgagee is and will be subject to and subordinate to
the ground lease. The foreclosure of the fee mortgage will not
terminate the leasehold estate or the rights of the sub-tenants,
and the fee mortgage is subject to the ground lease;
(xxvi) Pursuant to the terms of the related Mortgage, all buildings
or other improvements upon the Mortgaged Property are insured by a generally
acceptable insurer against loss by fire, hazards of extended coverage and such
other hazards as are customary in the area where the Mortgaged Property is
located pursuant to insurance policies conforming to the requirements of FNMA
and FHLMC. If the Mortgaged Property is in an area identified in the Federal
Register by the Federal Emergency Management Agency as having special flood
hazards (and such flood insurance has been made available) a flood insurance
policy is in effect which policy conforms to the requirements of FNMA and FHLMC;
(xxvii) An appraisal of each Mortgaged Property is on a form approved
by FNMA or FHLMC with such riders as have been approved by FNMA or FHLMC, as the
case may be, and each appraiser meets the minimum qualifications of FNMA or
FHLMC for appraisers;
(xxviii) The Seller has not provided financing on any Mortgaged
Property that is subordinate to the lien of the related Mortgage Loan;
(xxix) Each Mortgage Loan contains a customary "due-on-sale" clause;
(xxx) Except for the criteria for eligible Mortgagors set forth in
the Seller's underwriting guidelines, the Seller knows of nothing involving any
Mortgage File, Mortgaged Property or Mortgagor's credit standing that could
reasonably be expected (1) to cause private institutional investors to regard
the Mortgage Loan as an unacceptable investment, (2) to cause the Mortgage Loan
to become delinquent or (3) to affect adversely the value or marketability of
the Mortgage Loan;
(xxxi) There are no condemnation proceedings pending with respect to
any Mortgaged Property, and no Mortgaged Property has been condemned either in
whole or in part;
<PAGE>
-6-
(xxxii) Except as identified on the Assignment and Conveyance, none
of such Mortgage Loans will have been thirty or more days delinquent more than
once during the twelve months preceding the date hereof;
(xxxiii) All of the Mortgage Loans were originated or acquired under
the Seller's "regular lending program"; and
(xxxiv) The Mortgage Loans identified on the Mortgage Loan Schedule
attached hereto were not selected for inclusion therein from the Seller's
portfolio of mortgage loans originated under its "regular lending program" on
any basis which would have a material adverse affect on the Purchaser.
<PAGE>
EXHIBIT 7
FORM OF CROSS-RECEIPT
____________, 199__
Reference is made to the Master Mortgage Loan Purchase Agreement dated
_________, 199_ (the "Master Mortgage Loan Purchase Agreement") between DLJ
Mortgage Capital, Inc. (the "Company") and BNC Mortgage, Inc. (the "Seller") and
the Confirmation Letter dated ____________, 199__ (the "Confirmation Letter")
between the Seller and the Company, relating to the purchase and sale of the
Mortgage Loans identified on the related Mortgage Loan Schedule. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
specified in the Master Mortgage Loan Purchase Agreement.
(i) The Company hereby acknowledges receipt of the Mortgage Loans
identified on such Mortgage Loan Schedule.
DLJ MORTGAGE CAPITAL, INC.
By: _______________________________________
Name:
Title:
(ii) BNC Mortgage, Inc. hereby acknowledges receipt from the Company
of funds in the amount specified in the Confirmation Letter.
BNC MORTGAGE, INC.
By: _______________________________________
Name:
Title:
<PAGE>
EXHIBIT 8
FORM OF ASSIGNMENT AND CONVEYANCE
On this ___ day of _________, 199__, BNC Mortgage, Inc. (the "Seller"), as
the seller under that certain Master Mortgage Loan Purchase Agreement dated
___________, 199_ (the "Agreement"), between the Seller and DLJ Mortgage
Capital, Inc. (the "Purchaser"), does hereby sell, transfer, assign, set over
and convey to Purchaser, as the purchaser under the Agreement, without recourse,
but subject to the terms of the Agreement, all the right, title and interest of
the Seller in and to the Mortgage Loans identified on the Mortgage Loan Schedule
attached hereto, together with the related Mortgage Files and all rights and
obligations arising under the documents contained therein. The Seller has
delivered the documents for each such Mortgage Loan in accordance with Section 3
of the Agreement. The ownership of the Mortgage Note and Mortgage related to
each such Mortgage Loan, and the contents of the related Mortgage File, shall be
vested in the Purchaser and the ownership of all records and documents with
respect to each such Mortgage Loan prepared by or which come into the possession
of the Seller shall immediately vest in the Purchaser and, to the extent
retained by the Seller, shall be retained and maintained, in trust, by the
Seller at the will of the Purchaser in a custodial capacity only.
The Seller confirms to the Purchaser that the representations and
warranties set forth in Section 6 and Section 11 of the Agreement and in Exhibit
6 to the Agreement are true and correct in all respects as of the date hereof
with respect to the Seller and the Mortgage Loans identified on the Mortgage
Loan Schedule attached hereto, and that all statements made in the Officers'
Certificate of the Seller dated the date hereof and all attachments thereto are
true and correct in all respects as of the date hereof, and the Seller makes the
following additional representations and warranties to the Purchaser:
(a) The Mortgage Loans are serviced by _________ and __________,
pursuant to Servicing Agreement, dated as of __________ (as amended, the
"Servicing Agreement"), among the Seller, the Initial Purchaser,
______________ and ________________________.
(b) [Identify loan characteristics regarding fixed vs. adjustable
rate loans, graduated payment and negative amortization characteristics,
index and margin for adjustable rate loans, amortization schedule for
mortgage loans].
(c) The Mortgage Loans shall be sold on an [actual/actual]
[scheduled/scheduled] basis.
(d) The [Seller][Purchaser] shall be entitled to retain any late
payment charges and prepayment charges on the Mortgage Loans.
[(e) When measured by unpaid principal balance, no more than __% of
the Mortgage Loans [, which are [specify Mortgage Loan type and
underwriting program if different from balance of Mortgage Loan Package]]
have been thirty or more days delinquent more than once during the
preceding twelve months.]
<PAGE>
-2-
(f) No more than approximately ___% of the Mortgage Loans identified
on the Mortgage Loan Schedule attached hereto, by outstanding principal
balance as of the related Cut-off Date, have Mortgaged Properties that are
located in any one zip code area, and no more than approximately ___% of
such Mortgage Loans, by outstanding principal balance as of such Cut-off
Date, have Mortgaged Properties that are located in any one zip code area
in the State of California.
(g) No Mortgage Loan had a Loan-to-Value Ratio at origination in
excess of __%. No Mortgage Loan had a combined Loan-to-Value Ratio at
origination, including any second deed of trust subordinated to the lien of
the Mortgage, in excess of 90%.
The Seller shall confirm the foregoing representations and warranties,
pursuant to Section 11 of the Agreement, on the closing date of each Whole Loan
Transfer and Pass-Through Transfer of any of the related Mortgage Loans by the
Initial Purchaser and, in connection therewith, shall deliver an Officers'
Certificate on such date, reaffirming the foregoing representations and
warranties as of such date with respect to such Mortgage Loans (with such
modifications as are permitted by such section) and providing the repurchase
rights specified in the Agreement in respect of the representations and
warranties made as of such date. The foregoing representations and warranties
and the representations and warranties required pursuant to Section 11 of the
Agreement may be, as part of any Whole Loan Transfer or Pass-Through Transfer,
assigned by the Purchaser together with the related repurchase rights specified
in the Agreement and such Officers' Certificate.
Capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Agreement.
<PAGE>
IN WITNESS WHEREOF, the Seller has caused this instrument to be signed by
its officer thereunto duly authorized as of the date first above written.
BNC MORTGAGE, INC.
By: _________________________________
Name:
Title:
<PAGE>
EXHIBIT 10.6(h)
- --------------------------------------------------------------------------------
SUBORDINATE CERTIFICATE FINANCING AGREEMENT
By and Between
DLJ MORTGAGE CAPITAL, INC.,
as Lender,
and
BNC MORTGAGE, INC.,
as Borrower
Dated as of March __, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 1. Definitions.................................................. 1
Section 2. Loan......................................................... 8
Section 3. Purpose of this Agreement.................................... 12
Section 4. Pledge and Security.......................................... 13
Section 5. Representations and Warranties............................... 13
Section 6. Collateral Amount Maintenance................................ 18
Section 7. Borrower Covenants........................................... 18
Section 8. Events of Default............................................ 23
Section 9. Remedies Upon Default........................................ 25
Section 10. Indemnification.............................................. 27
Section 11. Power of Attorney............................................ 27
Section 12. Participation; Assignments................................... 27
Section 13. Notices...................................................... 28
Section 14. No Oral Modifications; Successors and Assigns................ 28
Section 15. Severability of Provisions................................... 29
Section 16. No Waiver.................................................... 29
Section 17. Governing Law; Agreement Constitutes Security Agreement...... 29
Section 18. Jurisdiction................................................. 29
Section 19. Integration.................................................. 29
Section 20. Advice from Independent Counsel.............................. 29
Section 21. Judicial Interpretation...................................... 30
</TABLE>
<PAGE>
EXHIBITS:
---------
Exhibit A Instruction Letter
Exhibit B Secured Note
Exhibit C Scheduled Cumulative Prepayments
Exhibit D Subsidiaries of Borrower
Exhibit E Subordinate Certificates
<PAGE>
SUBORDINATE CERTIFICATE FINANCING AGREEMENT
This SUBORDINATE CERTIFICATE FINANCING AGREEMENT (this "Agreement"), dated
---------
as of ______, 1998, by and among DLJ MORTGAGE CAPITAL, INC. ("Lender"), and BNC
------
MORTGAGE, INC., ("Borrower").
WHEREAS, the Lender wishes to lend, and the Borrower wishes to borrow in
one or more advances, subject to certain terms and conditions, moneys in
connection with the financing of Subordinate Certificates owned by the Borrower,
and certain other collateral described herein and pledged pursuant hereto; and
WHEREAS, the parties desire to agree upon the terms and conditions
governing such financing facility;
NOW, THEREFORE, in consideration of the covenants and agreements contained
herein and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto agree as follows:
Section 1. Definitions. Capitalized terms used in this Agreement shall
-----------
have the meanings set forth below. Capitalized terms used without definition
shall have the meanings set forth in the Pooling and Servicing Agreement, giving
no effect to future amendments and modifications, unless otherwise defined
elsewhere in this Agreement.
"Advance" means each advance of funds made hereunder to be secured by the
-------
Collateral pursuant to the terms hereof.
"Affiliate" means, when used with respect to any specified Person, any
---------
other Person directly or indirectly controlling, controlled by, or under common
control with, such Person. Control shall mean the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise and "controlling" and "controlled" shall have meanings
correlative thereto.
"Amortization Period" shall mean the period beginning on the earlier of (i)
-------------------
the Step-up Date or (ii) the first Payment Date on or after the occurrence of a
Trigger Event, and ending on the termination of this Agreement.
"Borrower Party" means the Borrower or a Holding Company thereof.
--------------
"Business Day" means any day other than (a) a Saturday or a Sunday, and (b)
------------
any day on which banking institutions in the State of New York are authorized or
required by law or regulation, executive order or governmental decree to be
closed.
"Capital Markets Transaction" has the meaning specified therefor in Section
---------------------------
2(i).
1
<PAGE>
"Cash Receipts" has the meaning specified therefor in Section 2(f).
-------------
"Change in Control" means, with respect to the Borrower, (i) except in the
-----------------
case of a merger or reorganization in which the Borrower is the surviving
entity, the sale, transfer or other disposition of more than forty-nine percent
(49%) of the shares of common stock of the Borrower or, if applicable, preferred
stock being made to a Person that, prior to such sale, transfer or other
disposition; (ii) except in the case of a merger or reorganization in which the
Borrower is the surviving entity, the sale, lease or other transfer, in one or
more series of transactions (other than transactions similar to the
Securitization Transaction), of all or substantially all of the assets of the
Borrower to any other Person or group (as such term is defined in Section
13(d)(3) of the Securities Exchange Act of 1934, as amended) (each, a "Group");
-----
(iii) the adoption of a plan relating to the liquidation or dissolution of the
Borrower; or (iv) the consummation of any transaction or series of transactions
the result of which is that any Person or Group beneficially owns, directly or
indirectly, a majority interest of the total aggregate voting power of all
classes of the Borrower's voting stock, warrants and/options to acquire such
voting stock, calculated on a fully diluted basis.
"Collateral" means any collateral pledged by the Borrower to the Lender as
----------
described in Section 4.
"Cross-Collateralized Facility" means any financing facility extended to
-----------------------------
the Borrower by DLJ Mortgage Capital, Inc. as lender, other than this Agreement.
"Cumulative Net Losses" means with respect to each Securitization
---------------------
Transaction and any mortgage loan group the sum of all Realized Losses incurred
since the Cut-off Date.
"Cut-Off Date" means the cut-off date for the Securitization Transactions.
------------
"Delinquency Amortization Amount" means, at any time, an amount equal to
-------------------------------
1/12th of the Facility Balance immediately prior to the Principal Acceleration
Date.
"Delinquency Rate" shall be, with respect to any Distribution Date in any
----------------
Securitization Transaction, a rate equal to (i) the aggregate unpaid principal
balance of the Mortgage Loans that are contractually 90 or more days delinquent
as of the close of business on the last day of the preceding Due Period
(including any Mortgage Loans in foreclosure and the unpaid principal balance of
any REO Properties) divided by (ii) the aggregate unpaid principal balance of
the Mortgage Loans as of the end of the immediately preceding Due Period.
"Delinquency Trigger" shall have occurred if on any Distribution Date in
-------------------
any Securitization Transaction the three month rolling average Delinquency Rate
(concluding as of the close of business on the last day of the preceding Due
Period) exceeds 10%.
"Determination Period" means, in connection with the calculation of the
--------------------
LIBOR Rate, one month.
2
<PAGE>
"Distribution Date" means the 25th day of each calendar month, or if such
-----------------
25th day is not a Business Day, the next succeeding Business Day, commencing on
_______, 1998.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations and rulings thereunder.
"Event of Default" has the meaning specified therefor in Section 8.
----------------
"Facility Balance" means, as of any date, the sum of (a) the Loan Balance,
----------------
and (b) any other fees or expenses owing to Lender hereunder including any
unpaid and overdue Interest Amount from prior Payment Dates.
"Funding Date" means the Initial Funding Date and each later date or dates
------------
on which an Advance is made after all conditions hereunder to the making of the
Advance have been satisfied as determined by the Lender in its sole discretion.
"GAAP" means United States generally accepted accounting principles,
----
consistently applied, as in effect from time to time.
"Hedging Contract" means any instrument or agreement acquired or entered
----------------
into by the Borrower from time to time for the purpose of hedging risks
associated with the Subordinate Certificates.
"Holding Company" means any Person formed to own all of the capital stock
---------------
of the Borrower.
"Hypothecation" has the meaning specified in Section 12(a).
-------------
"Indebtedness" has the meaning specified in Section 9(a)(i).
------------
"Indemnified Amounts" has the meaning specified in Section 10.
-------------------
"Indemnified Parties" has the meaning specified in Section 10.
-------------------
"Independent Accountants" means a "big-six" independent certified public
-----------------------
accounting firm or other accounting firm acceptable to Lender in its sole
discretion.
"Initial Funding Date" means _______, 1998.
--------------------
"Instruction Letter" has the meaning specified in Section 2(a)(vii).
------------------
"Interest Amount" means, with respect to any Payment Date, the aggregate
---------------
amount of interest on the Facility Balance computed on a daily basis for the
related Monthly Period computed as the product of (i) the Interest Rate in
effect on each day of such period, and (ii) the Facility Balance on each day of
such Monthly Period.
3
<PAGE>
"Interest Rate" means, as of any date of determination, to the extent
-------------
permitted by applicable law, the per annum percentage rate, calculated daily,
equal to the sum of the LIBOR Rate and (1) prior to the Step-up Date, [two and
one half percentage points (2.50%)] and (2) on and after the Step-up Date,
[three and one half percentage points (3.50%)], computed in each case on the
basis of the actual days elapsed and a 360 day year; provided, however, that
-------- ---------
upon the occurrence and during the continuation of an Event of Default, the
Interest Rate shall be equal to the sum of the [LIBOR Rate and four and one half
percentage points (4.50%)].
"Interest Reset Period" means the period commencing on and including a
---------------------
Distribution Date (or commencing on and including the Funding Date in the case
of the initial Interest Reset Period) to but excluding the next succeeding
Distribution Date. The final Interest Reset Period shall terminate on and shall
include the date of the final payment to the Lender of all amounts due
hereunder.
"LIBOR Rate" means, with respect to each Interest Reset Period, the London
----------
interbank offered rate for United States dollar deposits having a duration equal
to the Determination Period determined by Lender on the Rate Determination Date
immediately preceding the commencement of such Interest Reset Period as follows:
(a) On each Rate Determination Date, Lender shall determine the LIBOR
Rate as of 11:00 A.M. (London time) on such Rate Determination Date on the
basis of the quotations thereof which appears on Telerate Page 3750;
(b) If on any Rate Determination Date, the LIBOR Rate does not appear
on Telerate Page 3750, Lender shall determine the LIBOR Rate on the basis
of quotations provided by Reference Banks on such Rate Determination Date
to prime banks in the London interbank market. The LIBOR Rate as determined
by Lender is the arithmetic mean of such quotations;
(c) If on any Rate Determination Date at least two of the Reference
Banks provide quotations, the LIBOR Rate shall be determined in accordance
with clause (b) above on the basis of the offered quotations of those
Reference Banks providing such quotations; and
(d) If on the Rate Determination Date only one or none of the
Reference Banks provides such offered quotations, the LIBOR Rate shall be:
(i) the rate per annum (rounded, as aforesaid) that Lender determines
to be either (A) the arithmetic mean of the offered quotations
that leading banks in the City of New York reasonably selected by
Lender on a non-discriminatory basis are quoting at or about
11:00 A.M. New York City time on the relevant Rate Determination
Date for loans in U.S. Dollars to leading banks active in the
London interbank eurodollar market for a period equal to the
related Determination Period or those of them (being at least two
in number) to which such offered quotations are, in the opinion
of Lender, being so quoted, or (B) in the event that Lender can
determine no
4
<PAGE>
such arithmetic mean, the arithmetic mean of the offered
quotations that leading banks in the City of New York reasonably
selected by Lender on a non-discriminatory basis are quoting at
or about 11:00 A.M. (London time) on such Rate Determination Date
to leading banks active in the London interbank eurodollar market
for Dollar deposits having a duration equal to the Determination
Period; or
(ii) if the banks selected as aforesaid by Lender are not quoting as
described in clause (i) above, the LIBOR Rate for such
Distribution Date shall be the LIBOR Rate as determined on the
previous Rate Determination Date.
"Lien" means any interest in property securing an obligation owed to, or
----
claim by, any Person other than the owner of the property, whether such interest
shall be based on the common law, civil law, statute, civil code or contract,
whether or not such interest shall be recorded or perfected and whether or not
such interest shall be contingent upon the occurrence of some future event or
events or the existence of some future circumstance or circumstances, and
including the lien, privilege, security interest or other encumbrance arising
from a mortgage, deed of trust, hypothecation, cession, transfer, assignment,
pledge, adverse claim or charge, conditional sale or trust receipt, or from a
lease, consignment or bailment for security purposes.
"Loan" has the meaning specified therefor in Section 2(a).
----
"Loan Balance" means, as of any date, (a) the amount advanced on the
------------
Initial Funding Date, plus (b) the amount advanced on each subsequent Funding
----
Date, less (c) payments of principal applied hereunder with respect thereto.
----
"London Business Day" means any day on which dealings in deposits in United
-------------------
States dollars are transacted in the London interbank market.
"Loss Event" shall have occurred if on any Distribution Date, Cumulative
----------
Net Losses exceed [1.0%] of the Maximum Collateral Amount.
"Market Value" means as of any date, with respect to each Subordinate
------------
Certificate, the price at which the Subordinate Certificate could readily be
sold as reasonably determined by the Lender acting in good faith. The Market
Value of each Subordinate Certificate shall also take into account the market
value (both positive and negative) as determined by the Lender in its sole
discretion of any Hedging Contracts purchased by the Borrower and pledged to the
Lender as security for the obligations of the Borrower hereunder; provided that
any final settlement payments due under any such Hedging Contracts shall be
excluded from such calculation.
"Margin Deficit" has the meaning specified in Section 6(a).
--------------
"Material Adverse Change" means, with respect to the Borrower, a material
-----------------------
adverse change in, or effect upon, any of (i) the financial condition, business,
performance, operations, properties, or profits of the Borrower, (ii) the
legality, validity or enforceability of this Agreement, the Secured Note or any
Related Documents, or (iii) the Collateral.
5
<PAGE>
"Maturity Date" means the earlier to occur of (x) the Facility Balance
-------------
being reduced to zero, or (y) the first anniversary of the Initial Funding Date.
"Maximum Collateral Amount" means with respect to any Securitization
-------------------------
Transaction the aggregate initial principal balance of the Mortgage Loans in the
related loan group, including any Prefunding Amounts.
"Maximum Facility Balance" means $5 million.
------------------------
"Monthly Period" means, with respect to any Payment Date, the period from
--------------
and including the preceding Payment Date (or in the case of the first Payment
Date for the initial Advance, from and including the related Funding Date) to
and excluding the applicable Payment Date.
"Monthly Principal Payment" means, with respect to each Payment Date
-------------------------
commencing on the earliest of (i) the Step-up Date or (ii) the first Payment
Date on or after the occurrence of a Trigger Event, an amount equal to either
(A) the greater of (1) 1/12th of the Loan Balance on the related Step-up Date or
Trigger Event, whichever is applicable, or (2) the Cash Receipts after the
payment of interest due on the Loan on such Payment Date or (B) commencing on
the Principal Acceleration Date, the greater of (1) the amount specified in
clause (A) above or (2) the Delinquency Amortization Amount.
"Mortgage Loans" means the mortgage loans subject to the Securitization
--------------
Transaction.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" as
------------------
defined in section 4001(a)(3) of ERISA.
"Net Equity" means the shareholders' equity of the Borrower, determined in
----------
accordance with GAAP.
"Participant" has the meaning specified in Section 12(a).
-----------
"Payment Date" shall mean a Distribution Date.
------------
"Person" means any legal person, including any individual, corporation,
------
limited liability company, partnership, joint venture, estate, association,
joint stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof, or any other entity.
"Plan" means an "employee benefit plan" (as defined in Section 3(3) of
----
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Borrower or any of its Affiliates
or with respect to which the Borrower or any of its Affiliates may have any
liability.
"Pool" means the pool of Mortgage Loans subject to each Securitization
----
Transaction.
6
<PAGE>
"Pooling and Servicing Agreements" means the Pooling and Servicing
--------------------------------
Agreement, entered into among ______________as company, _____________, as master
servicer and __________ as trustee pursuant to which a Subordinate Certificate
has been issued.
"Prepayment Trigger" shall have occurred if on any Distribution Date for
------------------
any Securitization Transaction and any mortgage loan group the aggregate
cumulative Principal Prepayments in respect of the Mortgage Loans in such
mortgage loan group from the period beginning on the Cut-off Date and ending at
the end of the immediately preceding Due Period exceeds the Scheduled Cumulative
Prepayments listed on Exhibit C for such Payment Date.
"Principal Acceleration Date" means the first Payment Date on which the
---------------------------
Delinquency Trigger for any Securitization Transaction and any mortgage loan
group has occurred with respect to three (3) consecutive Distribution Dates.
"Rate Determination Date" means, with respect to any day in an Interest
-----------------------
Reset Period, the second London Business Day prior to such day.
"Reference Banks" means two major banks in the London interbank market as
---------------
selected by Lender. Each Reference Bank shall be a leading bank engaged in
transactions in Eurodollar deposits in the international Eurocurrency market
with an established place of business in London and which has been designated as
such by Lender and is able and willing to provide such quotations to Lender on
each Rate Determination Date. If any Reference Bank designated by Lender fails
to meet the qualifications of a Reference Bank, Lender will use its best effort
to designate an alternative Reference Bank.
"Related Document" means, as applicable, any document executed in
----------------
connection herewith or with a Securitization Transaction, or related hereto or
thereto.
"Restricted Payment" means, as applied to any Person,
------------------
(i) any dividend or other distribution (including any distribution of
properties, assets, cash, rights, obligations or securities),
direct or indirect, on account of any shares of capital stock of
such Person now or hereafter outstanding or any securities
convertible into or exercisable or exchangeable for such shares
of capital stock, except for a dividend payable to all of the
holders of such Person's common stock solely in shares of common
stock; and
(ii) any redemption, retirement, purchase or other acquisition, direct
or indirect, of any shares of capital stock of such Person now or
hereafter outstanding or any securities convertible into or
exercisable or exchangeable for such shares of capital stock.
"Revolving Period" shall mean the period beginning on the Initial Funding
----------------
Date and ending on the day immediately preceding the commencement of the
Amortization Period.
"Secured Note" means the promissory note in the form attached hereto as
------------
Exhibit B hereto.
7
<PAGE>
"Securitization Transaction" means each of the securitization transactions
--------------------------
pursuant to which a Subordinate Certificate was issued.
"Scheduled Cumulative Prepayments" means with respect to each
--------------------------------
Securitization Transaction and mortgage loan group the cumulative prepayments
listed on the scheduled attached hereto as Exhibit C.
"Step-up Date" means ________, _______..
------------
"Subordinate Certificate" means the subordinate regular interest only
-----------------------
certificates listed on Exhibit E hereto issued pursuant to the Securitization
Transactions and made subject to this Agreement and any and all proceeds
thereof.
"Telerate Page 3750" means the display so designated on the Dow Jones
------------------
Telerate Service (or such other page as may replace that page on that service
for the purpose of displaying comparable rates or prices).
"Trigger Event" shall mean the occurrence of (i) a Delinquency Trigger,
-------------
(ii) a Loss Event, or (iii) a Prepayment Trigger.
"Trustee" means "Trustee" as defined in the applicable Pooling and
-------
Servicing Agreement.
"Unmatured Event of Default" means any event which, with the giving of
--------------------------
notice or the lapse of time or both, would become an Event of Default.
"Withdrawal Liability" shall have the meaning given such term under Part I
--------------------
of Subtitle E of Title IV of ERISA.
Section 2. Loan. (a) Subject to the terms and conditions of this
----
Agreement, on the Initial Funding Date, and on each subsequent Funding Date, the
Borrower hereby agrees to borrow from Lender and Lender hereby agrees to lend to
the Borrower on a best reasonable efforts basis up to $5,000,000.00 in one or
more Advances, provided that the Loan Balance both prior to and following any
Advance shall not exceed the lesser of (x) 70% of the Market Value of the
Collateral and (y) the Maximum Facility Balance. The Loan shall be evidenced by
the Secured Note. The Loan shall be collateralized by, among other things the
Collateral, as set forth in Section 4. Prior to making the Advance on the
Initial Funding Date, the Borrower shall fulfill the following conditions
precedent:
(i) The representations and warranties of the Borrower in Section 5
hereof shall be true and correct:
(ii) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing;
(iii) The Borrower shall have delivered to the Lender the certificate
or certificates evidencing the Subordinate Certificates as
applicable, with all
8
<PAGE>
necessary bond powers or transfer instruments executed in blank
or in the name specified by the Lender by the appropriate
officers of the Borrower, and such other documents as may be
required to transfer the Subordinate Certificates of record
pursuant to the Pooling and Servicing Agreement and/or as the
Lender shall require to perfect its first priority security
interest in the Subordinate Certificates, including, without
limitation, signature guarantees;
(iv) The Lender shall have received a certificate of the Secretary
of the Borrower certifying as to the following: (A) its
certificate of incorporation, (B) its bylaws, (C) the
resolutions of its board of directors approving the definitive
agreements, documents, and instruments necessary to consummate
the transactions contemplated hereby, and (D) the names and
true signatures of the officers authorized on its behalf to
sign the definitive agreements, documents and instruments;
(v) The Lender shall have received a good standing certificate (or
its equivalent) for the Borrower issued by the Secretary of
State of the jurisdiction of the Borrower's incorporation;
(vi) The Lender shall have received a search report provided in
writing to the Lender by one of the national UCC search firms,
listing all effective financing statements that name the
Borrower as debtor or seller and that are filed in the
jurisdiction of the Borrower's chief executive offices and in
such other jurisdictions as the Lender shall request;
(vii) (A) The Borrower shall have (1) notified the Trustee in
connection with the related Securitization Transactions of the
pledge of the Subordinate Certificates hereunder and (2)
instructed the Trustee to pay all amounts payable to the
holders of the Subordinate Certificates to an account specified
by the Lender, and (B) the Trustee shall have acknowledged in
writing the instructions set forth in clause (A) above, and a
copy of the fully executed Instruction Letter shall be
delivered to the Lender. Such notification and instruction
shall be in the form of Exhibit A hereto (each, an "Instruction
-----------
Letter");
------
(viii) The Lender shall have received an original fully executed copy
of this Agreement and the Secured Note;
(ix) The Lender shall have received acknowledgment copies of
effective financing statements of the Borrower (Form UCC-1 or
Form UCC-3, as appropriate), filed on or prior to the date of
the Loan and naming the Borrower, as "debtor," the Lender, as
"secured party," and describing the Collateral as the
"collateral";
9
<PAGE>
(x) The Lender shall have received such other and further documents
and legal opinions as the Lender in its sole discretion shall
require; and
(xi) The Lender shall receive the following, each dated as of such
date and in form and substance satisfactory to the Lender and
its counsel:
(1) Favorable authority and enforceability opinions of counsel
to the Borrower concerning this Agreement and the Secured
Note; and
(2) Favorable security interest opinions of counsel to the
Borrower concerning the Collateral pledged hereunder.
(xii) The Borrower shall have delivered evidence sufficient to the
satisfaction of the Lender, in its sole discretion, that the
amount of such requested Advance is necessary to the extent that
the Borrower does not have sufficient cash, in excess of
reasonable reserves that are established by Borrower in its
annual business plan and that are reasonably acceptable to
Lender, available in its operation or investment accounts to
fund the retention by the Borrower of the Subordinate
Certificates absent such requested Advance.
(b) Prior to making an Advance on each subsequent Funding Date, the
Borrower shall fulfill the following conditions precedent:
(i) The representations and warranties of the Borrower in Section 5
hereof shall be true and correct:
(ii) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing;
(iii) The Borrower shall have delivered to the Lender the certificate
or certificates evidencing the Subordinate Certificates, with
all necessary bond powers or transfer instruments executed in
blank or in the name specified by the Lender by the appropriate
officers of the Borrower, and such other documents as may be
required to transfer the Subordinate Certificates of record
pursuant to the Pooling and Servicing Agreement and/or as the
Lender shall require to perfect its first priority security
interest in the Subordinate Certificates, including, without
limitation, signature guarantees;
(iv) (A) The Borrower shall have (1) notified the Trustee in
connection with the related Securitization Transactions of the
pledge of the Subordinate Certificates hereunder and (2)
instructed the Trustee to pay all amounts payable to the holders
of the Subordinate Certificates to an account specified by the
Lender, and (B) the Trustee shall have acknowledged in
10
<PAGE>
writing the instructions set forth in clause (A) above, and a
copy of the fully executed Instruction Letter shall be delivered
to the Lender;
(v) The Lender shall have received acknowledgment copies of
effective financing statements of the Borrower (Form UCC-1 or
Form UCC-3, as appropriate), filed on or prior to the date of
the Loan and naming the Borrower, as "debtor," the Lender, as
"secured party," and describing the Collateral as the
"collateral"; and
(vi) No Capital Markets Transaction shall have occurred.
(vii) The Borrower shall have delivered evidence sufficient to the
satisfaction of the Lender, in its sole discretion, that the
amount of such requested Advance is necessary to the extent that
the Borrower does not have sufficient cash, in excess of
reasonable reserves that are established by Borrower in its
annual business plan and that are reasonably acceptable to
Lender, available in its operating or investment accounts to
fund the retention by the Borrower of the Subordinate
Certificates absent such requested Advance.
(c) No Advance shall be made hereunder following the first anniversary of
the Initial Funding Date.
(d) The Loan shall mature and shall be due and payable in full, together
with accrued and unpaid interest thereon at the Interest Rate, on the Maturity
Date, unless all amounts due and payable hereunder are earlier declared due and
payable as provided herein.
(e) The Borrower shall timely make any payment of interest and principal
and any other sum which becomes due and payable, whether by acceleration or
otherwise (including any mandatory prepayment), under the terms of this
Agreement and the Secured Note and under any other document evidencing or
securing Indebtedness of the Borrower to the Lender or any of the Lender's
affiliates.
(f) If no Event of Default shall have occurred, on each Payment Date all
amounts received (i) from the Trustee with respect to the Collateral on such
Payment Date and (ii) from the Borrower in connection herewith (in either case,
the "Cash Receipts") shall be applied without duplication, as follows:
-------------
(i) first, to the Lender the amount required to pay or reimburse
-----
the Lender for any fees or expenses owing to Lender hereunder;
(ii) second, to the Lender the amount required to pay the Interest
------
Amount;
(iii) third, to the Lender the amount required to pay the Monthly
-----
Principal Payment;
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<PAGE>
(iv) fourth, if the Loan Balance is greater than zero and there exists
------
a Margin Deficit, to the Lender in reduction of the Loan Balance,
the lesser of (x) any and all remaining amounts, and (y) the
Margin Deficit; and
(v) fifth, to the Borrower (by wire transfer on such Payment Date
-----
pursuant to instructions provided to the Lender at least one (1)
Business Day prior to such Payment Date) any and all remaining
amounts, if any; provided, however, that if the Borrower do not
notify the Lender at least one (1) Business Day prior to such
Payment Date as to the amount to be remitted to the Borrower
pursuant to this clause fifth and Cash Receipts from the Trustee
-----
are not received by noon, New York City time, on such Payment
Date, the Lender shall make such remittance on the Business Day
following the date on which the Lender receives such Cash
Receipts.
(g) In the event that the Cash Receipts on any Payment Date are not
sufficient to make a full payment of the amounts set forth in clauses (i)
through (iv) of Section 2(f), the Borrower shall immediately pay to the Lender
on the applicable Payment Date the amount of such deficiency (which amount shall
be treated hereunder as a Cash Receipt).
(h) If the Borrower shall have paid or agreed to pay any interest on the
Facility Balance in excess of that permitted by law, then it is the express
intent of the parties hereto with respect thereto that (i) to the extent
possible given the term of the Facility Balance, all excess amounts previously
paid or to be paid by the Borrower be applied to reduce the Facility Balance and
the provisions thereof immediately be deemed reformed and the amounts thereafter
collectible thereunder reduced, without the necessity of the execution of any
new document, so as to comply with the then applicable law, but so as to permit
the recovery of the fullest amount otherwise called for thereunder, and (ii) to
the extent that the reduction of the Facility Balance and the reformation of the
provisions thereof described in the immediately preceding clause (i) are not
possible given the term of the Facility Balance, such excess amount shall be
deemed to have been paid with respect to the Facility Balance as a result of an
error and upon the Lender obtaining actual knowledge of an error, such amount
shall be refunded to the Borrower.
(i) At the Lender's option, all proceeds from the Borrower's material debt
market transactions other than home equity loan securitizations in the normal
course of the Borrower's business (a "Capital Markets Transaction") shall be
applied toward payment of the Secured Note.
(j) If the Facility Balance shall not have been repaid prior to the Step-up
Date, the Borrower agrees to pay to the Lender on the Step-up Date by wire
transfer of immediately available funds an additional fee in the amount of
[1.50%] times the amount of the Maximum Facility Balance.
Section 3. Purpose of this Agreement.
-------------------------
(a) The Borrower agrees that the Loan shall be used for general corporate
purposes as permitted hereunder.
12
<PAGE>
(b) The Borrower does not own, and will not, and will not permit any
subsidiary to, directly or indirectly, use any part of the proceeds of the Loan
for the purpose of purchasing or carrying any "margin stock" within the meaning
of Regulation G (12 CFR Part 207) of the Board of Governors of the Federal
Reserve System (herein called a "margin security") or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause the Loan
to be considered a "purpose credit" within the meaning of said Regulation G or
cause this Agreement or any of the other Related Documents to violate Regulation
G or any other regulation of the Board of Governors of the Federal Reserve
System, or any other applicable law, statute, regulation, rule or order.
Section 4. Pledge and Security. The Borrower hereby pledges all of its
-------------------
right, title, and interest in, to and under and grants a first lien on, and
security interest in, all of the following property, whether now owned or
hereafter acquired, now existing or hereafter created and wherever located
(collectively, the "Collateral") to the Lender to secure the repayment of
----------
principal and interest on the Loan and payment and performance of all other
amounts or obligations owing to the Lender pursuant to this Agreement, the
Secured Note and any Related Documents:
(a) Subordinate Certificates;
(b) any Hedging Contracts relating to the Subordinate Certificates;
(c) any and all collateral subject to any Cross-Collateralized
Facility, subject only to the prior interest of the Lender under
such facility; and
(d) all proceeds, payments, income and profits of, and records and
files relating to any and all of any of the foregoing.
The Subordinate Certificates, together with any applicable transfer instruments,
have been simultaneously delivered to the Lender or to a Person designated by
Lender for the purpose of perfecting the Lender's security interest therein.
The Borrower hereby authorizes the Lender to register the Subordinate
Certificates in the Lender's name or in the name of the Lender's nominee at any
time in its sole discretion and regardless of whether the Borrower has defaulted
in the performance of the Borrower's obligations hereunder.
Section 5. Representations and Warranties.
------------------------------
(a) The Borrower represents and warrants to the Lender as follows, as of
the date hereof (which representations and warranties shall be deemed repeated
on each Funding Date and at all times thereafter until the Borrower has
satisfied in full all of its obligations hereunder as though made on and as of
such date or times):
(i) it has the corporate power and authority and the legal right to
execute and deliver, to perform its obligations under, and to grant
the Lien on the Collateral pursuant to this Agreement, the Secured
Note and all Related Documents and has taken all necessary action to
authorize its execution, delivery and performance of, and grant
13
<PAGE>
of the Lien on the Collateral pursuant to, this Agreement, the
Secured Note and all Related Documents;
(ii) this Agreement, the Secured Note and all Related Documents constitute
its legal, valid and binding obligation, enforceable against it in
accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally;
(iii) the consummation of the transactions contemplated by this Agreement,
the Secured Note and all Related Documents and the fulfillment of the
terms hereof and thereof will not in a material manner (i) conflict
with, result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time or both) a
default under, its related certificate of incorporation or bylaws, or
any contract, agreement, indenture, loan agreement, mortgage, deed of
trust, or other agreement or instrument to which it is a party or by
which it or any of its assets is bound and which would result in a
Material Adverse Change, (ii) result in the creation or imposition of
any Lien, adverse claim or other encumbrance upon any of its assets
pursuant to the terms of any such contract, agreement, indenture,
loan agreement, receivables purchase agreement, mortgage, deed of
trust, or other agreement or instrument, other than as expressly
created under this Agreement, or (iii) violate any law or order, rule
or regulation applicable to it of any court or of any federal or
state regulatory body, administrative agency, or other governmental
instrumentality having jurisdiction over it or any of its assets and
which would result in a Material Adverse Change;
(iv) it is not in default with respect to any order or decree of any court
or any order, regulation or demand of any federal, state, municipal
or governmental agency which would result in a Material Adverse
Change;
(v) no litigation, proceeding or investigation is pending or, to the best
of its knowledge, threatened against it which litigation, proceeding
or investigation is likely to have consequences that could prohibit
its entering into this Agreement, the Secured Note and all Related
Documents or that which is likely to cause a Material Adverse Change;
(vi) all actions, approvals, consents, waivers, exemptions, variances,
franchises, orders, permits, authorizations, rights and licenses
required to be taken, given or obtained, as the case may be, by or
from any federal, state or other governmental authority or agency,
that are necessary in connection with its execution, delivery and
performance of this Agreement, the Secured Note and all Related
Documents, have been duly taken, given or obtained, as the case may
be, are in full force and effect on the date hereof, are not subject
to any pending proceedings or appeals (administrative, judicial or
otherwise) and either the time within which any appeal therefrom may
be taken or review thereof may be obtained has expired or no review
thereof may be obtained or appeal therefrom taken, and are adequate
to authorize the consummation of the transactions contemplated by
this Agreement,
14
<PAGE>
the Secured Note and all Related Documents and the performance of
its obligations hereunder and thereunder;
(vii) it is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the character of the assets
owned or leased or the nature of the activities conducted makes such
qualification or licensing necessary, except for those jurisdictions
in which the failure to be so qualified or licensed or to be in good
standing has not resulted in, and could not be expected to cause a
Material Adverse Change;
(viii) there has been no change in its assets, liabilities or financial
condition which have been in the aggregate, materially adverse to
it, and no condition or event has occurred which has resulted in, or
could reasonably be expected to result in, a Material Adverse
Change, and it is solvent as of the date hereof; and it will neither
be rendered insolvent by the transactions contemplated by this
Agreement, the Secured Note and all Related Documents. The Borrower
does not contemplate the commencement of insolvency, bankruptcy,
liquidation or consolidation proceedings or the appointment of a
receiver, liquidator, conservator, trustee or similar official in
respect of the Borrower or any of its assets;
(ix) its principal place of business, chief executive office and location
of books and records regarding Collateral is set forth in Section
13;
(x) it has good and valid title to all of its properties and assets. It
enjoys peaceful and undisturbed possession under all leases under
which it will operate on and all of such leases are valid,
subsisting and in full force and effect;
(xi) it has all material licenses as are adequate for the conduct of its
businesses as now conducted and now proposed to be conducted. Each
such license is in full force and effect, and it has materially
performed all obligations with respect thereto required of it. No
material default in its performance or observance of its obligations
thereunder has occurred which permits, or after notice or lapse of
time or both would permit, the revocation or termination of any such
license or which has resulted in, or could reasonably be expected to
result in, a Material Adverse Change;
(xii) none of this Agreement, the Secured Note, and all Related Documents,
or any financial statements, reports, certificates or other
information furnished by the Borrower or any of its officers to the
Lender in connection with this Agreement, the Secured Note or any
Related Documents contain any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements contained herein or therein not misleading. All such
financial statements have been prepared in accordance with GAAP.
There is no fact known to its executive officers which has resulted
in, or is likely to result in, a Material Adverse Change which has
not been set forth in this Agreement, the Secured Note and all
Related Documents or otherwise disclosed to the Lender;
15
<PAGE>
(xiii) no dispute involving its employees or any of its relationships
with its employees has resulted in, or is likely to result in, a
Material Adverse Change. Its relationships with its creditors are
satisfactory commercial working relationships and its executive
officers have not received notice or otherwise become aware during
the preceding 12-month period that any such lender has terminated
a financing relationship (other than in accordance with the
scheduled expiration thereof) with it in a manner which has
resulted in, or is likely to result in, a Material Adverse Change.
Its executive officers are not aware of any intention of any such
creditor to take any such action;
(xiv) the Subordinate Certificates have been validly issued, and is
fully paid and non-assessable and not subject to preemptive
rights, and the Subordinate Certificates have been offered, issued
and sold in compliance with all applicable laws and (A) there are
no outstanding rights, options, warrants or agreements for the
purchase from, or sale or issuance, in connection with the
Subordinate Certificates; (B) there are no agreements on the part
of the Borrower to issue, sell or distribute the Subordinate
Certificates; and (C) the Borrower has no obligation (contingent
or otherwise) to purchase, redeem or otherwise acquire any
securities or any interest therein or to pay any dividend or make
any distribution in respect of the Subordinate Certificates;
(xv) the Borrower has no subsidiaries other than those listed on
Exhibit D hereto (except for certain special purpose entities
formed for the purpose of effecting the Borrower's
securitizations);
(xvi) the Borrower is the record and beneficial owner of, and has good
and marketable title to the Collateral, free of any and all Liens
or options in favor of, or claims of, any other Person other than
the Lender, except the Lien created by this Agreement;
(xvii) on the Funding Date, the Lien granted pursuant to this Agreement
will constitute a valid, perfected first priority Lien on the
Collateral, enforceable as such against all creditors of the
Borrower and any Persons purporting to purchase any Collateral
from the Borrower;
(xviii) all of the representations and warranties of the Borrower or any
Affiliate thereof in the Pooling and Servicing Agreement are true
and correct;
(xix) The Borrower and its Affiliates has operated and administered each
Plan in compliance with all applicable laws. Neither the Borrower
nor any of its Affiliates has incurred any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of
the Code relating to employee benefit plans (as defined in section
3 of ERISA), and no event, transaction or condition has occurred
or exists that could be expected to result in the incurrence of
any such liability by the Borrower or any of its Affiliates, or in
the imposition of any Lien on any of the rights or assets of the
Borrower or any of its Affiliates, in either case pursuant to
Title I or IV of ERISA or to such penalty or excise tax provisions
or to section
16
<PAGE>
401(a)(29) or 412 of the Code. The Borrower and its Affiliates have
not incurred withdrawal liabilities (and are not subject to
contingent withdrawal liabilities) under section 4201 or 4204 of
ERISA in respect of Multiemployer Plans. The Borrower and its
Affiliates have made all required contributions to Multiemployer
Plans. Neither the Borrower nor any of its Affiliates has incurred,
nor would expect to incur, any Withdrawal Liability upon a complete
or partial withdrawal from any Multiemployer Plan. No Multiemployer
Plan is, or is expected to be, insolvent, in reorganization or
terminated within the meaning of Title IV of ERISA; and
(xx) the Borrower is not, and will not become as a result of the
transactions contemplated hereby or by the Securitization
Transaction, an "investment company" or a company "controlled" by
an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
(xxi) all federal, state, local and foreign tax returns, reports and
statements required to be filed by the Borrower have been filed
with the appropriate governmental authority and all charges and
other impositions shown thereon to be due and payable have been
paid prior to the date on which any fine, penalty, interest or late
charge may be added thereto for nonpayment thereof, or any such
fine, penalty, interest, late charge or loss has been paid. The
Borrower has paid when due and payable all charges required to be
paid by it. Proper and accurate amounts have been withheld by
Borrower from its employees for all periods in full and complete
compliance with the tax, social security and unemployment
withholding provisions of applicable federal, state, local and
foreign law and such withholdings have been timely paid to the
respective governmental agencies. The Borrower has not executed or
filed with the Internal Revenue Service or any other governmental
authority any agreement or other document extending, or having the
effect of extending, the period for assessment or collection of any
charges. The Borrower has not agreed or been requested to make any
adjustment under Section 481(a) of the Internal Revenue Code by
reason of a change in accounting method or otherwise. The Borrower
does not have any obligation under any written tax sharing
agreement.
(xxii) The Borrower is not a "foreign person" within the meaning of
Section 1445(f)(3) of the Internal Revenue Code.
(xxiii) As of the most recent Distribution Date, the Borrower has disclosed
to the Lender all liquidated loan losses which are allocable to the
transaction contemplated by the Pooling and Servicing Agreements,
which, for any reason, have yet to be reflected on the most
recently delivered servicer statement.
(xxv) All the information supplied by the Borrower to the Lender on or
prior to the Funding Date, including, but not limited to, any
delinquency, foreclosure, real estate owned and loss information,
is true and correct in all material respects.
17
<PAGE>
(xxvi) Upon receipt by the Lender or Lender's designee of the Subordinate
Certificates and for so long as the Lender maintains actual
physical possession of the Subordinate Certificates, the Lender
shall have, for the benefit of the Lender, a fully-perfected first
priority security interest in the Subordinate Certificates.
(b) Upon discovery by the Borrower of any breach of any of the
representations and warranties listed in this Section 5, the Borrower shall
promptly give notice of such discovery to the Lender.
(c) It is understood and agreed that the representations and warranties set
forth in this Section 5 or deemed to be made hereunder shall survive the
execution of this Agreement.
Section 6. Collateral Amount Maintenance.
-----------------------------
(a) The Lender shall mark to market the Subordinate Certificates from time
to time in its sole discretion, but at least monthly. If at any time 70% of the
aggregate Market Value of the Subordinate Certificates is less than the Facility
Balance (a "Margin Deficit"), then Lender may by notice to the Borrower require
--------------
the Borrower to cure such Margin Deficit by delivering cash or such other
additional collateral as is acceptable to the Lender in its sole discretion, to
Lender within two (2) Business Days of notice thereof.
(b) Notice required pursuant to subsection (a) may be given by any means
of telecopier or telegraphic transmission. A notice for the payment of a Margin
Deficit received before 9:00 a.m. on a Business Day, local time, of the party
receiving the notice, must be met not later than 5:00 p.m. on the Business Day
on which the notice was given, local time, of the party receiving the notice.
Any notice given on a Business Day after 9:00 a.m., local time, of the party
receiving the notice, shall be met not later than 2:00 p.m. (New York time) on
the second Business Day thereafter. The failure of Lender, on any one or more
occasions, to exercise its rights under subsection (a) of this Section 6 shall
not change or alter the terms and conditions to which this Agreement is subject
or limit the right of the Lender to do so at a later date. A failure or delay by
Lender to exercise its rights under subsection (a) of this Section 6 shall not
limit Lender's rights under this Agreement or otherwise existing by law or in
any way create additional rights for the Borrower.
Section 7. Borrower Covenants.
------------------
(a) The Borrower shall promptly deliver to the Lender (i) any report
received by or required to be delivered by the Borrower pursuant to the Pooling
and Servicing Agreement and any other Related Document at the same time as
required thereunder, including, without limitation, any trustee's report and any
reports delivered to related surety companies; (ii) any notice of transfer of
servicing; and (iii) any other such document or information as the Lender may
reasonably request from time to time.
(b) The Borrower shall permit the Lender to inspect its books and records
relating to the Mortgage Loans, the Securitization Transaction, the Subordinate
Certificates and other matters
18
<PAGE>
relating to the transactions contemplated hereby, upon reasonable prior notice
and during normal business hours.
(c) If the Borrower shall, as a result of its ownership of the Subordinate
Certificates, become entitled to receive or shall receive any rights, whether in
addition to, in substitution of, as a conversion of, or in exchange for the
Subordinate Certificates, or otherwise in respect thereof, the Borrower shall
accept the same as the Lender's agent, hold the same in trust for the Lender and
deliver the same forthwith to the Lender in the exact form received, duly
indorsed by the Borrower to the Lender, if required, together with an undated
bond power covering such certificate duly executed in blank and with, if the
Lender so requests, signature guaranteed, to be held by the Lender hereunder as
additional collateral security for the Indebtedness. If any sums of money or
property so paid or distributed in respect of the Subordinate Certificates shall
be received by the Borrower, the Borrower shall, until such money or property is
paid or delivered to the Lender, hold such money or property in trust for the
Lender, segregated from other funds of the Borrower, as additional collateral
security for the Indebtedness.
(d) Without the prior written consent of the Lender, the Borrower will not
(i) vote to enable, or take any other action to permit, any rights afforded it
as holder of the Subordinate Certificates under the Pooling and Servicing
Agreement, or (ii) sell, assign, transfer, exchange or otherwise dispose of, or
grant any option with respect to the Collateral, or (iii) create, incur or
permit to exist any Lien or option in favor of, or any claim of any Person other
than the Lender with respect to, any of the Collateral, or any interest therein,
except for the Lien provided for by this Agreement, the Secured Note and all
Related Documents. The Borrower will defend the right, title and interest of
the Lender in and to the Collateral against the claims and demands of all
Persons whomsoever.
(e) At any time and from time to time, upon the written request of the
Lender, and at the sole expense of the Borrower, the Borrower will promptly and
duly execute and deliver such further instruments and documents and take such
further actions as the Lender may reasonably request for the purposes of
obtaining or preserving the full benefits of this Agreement, the Secured Note
and all Related Documents and of the rights and powers herein granted. If any
amount payable under or in connection with any of the Collateral shall be or
become evidenced by any promissory note, other instrument or chattel paper, such
note, instrument or chattel paper shall be immediately delivered to the Lender,
duly endorsed in a manner satisfactory to the Lender, to be held as Collateral
pursuant to this Agreement, the Secured Note and all Related Documents.
(f) The Borrower agrees to pay, and to save the Lender harmless from, any
and all liabilities with respect to, or resulting from any delay in paying, any
and all stamp, excise, sales or other taxes which may be payable or determined
to be payable with respect to any of the Collateral or in connection with any of
the transactions contemplated by this Agreement, the Secured Note and all
Related Documents, other than income taxes of the Lender.
(g) Each Borrower Party shall deliver to the Lender:
(i) as soon as available and in any event within 60 days after the end
of each quarterly accounting period in each fiscal year (other
than the last quarterly
19
<PAGE>
accounting period of each such fiscal year), its balance sheet
as of the end of such period and the related statements of
operations, shareholders' equity, and cash flows for such period
and for the portion of such fiscal year ended on the last day of
such period, in each case setting forth in comparative form the
corresponding figures for the same period and portion of the
next preceding fiscal year, all in reasonable detail and
certified by its chief financial officer to fairly present the
financial position and the results of its operations,
shareholders' equity and cash flows as of the respective dates
and for the respective period indicated and to have been
prepared in accordance with GAAP, subject to normal year-end and
audit adjustments;
(ii) as soon as available and in any event within 120 days after the
end of each of its fiscal years, its balance sheet as of the end
of such year and the related statements of operations,
shareholders' equity, and cash flows for such year, in each case
setting forth in comparative form the corresponding figures for
the next preceding fiscal year, all in reasonable detail and
accompanied by the standard unqualified report (which shall not
contain any additional explanatory paragraph concerning
uncertainties or other matters) on such financial statements of
its Independent Accountants, together with a separate
certificate of such accountants which shall state whether or not
their examination has disclosed the existence, during or at the
end of the fiscal year covered by such financial statements
and/or the date of such certificate, of any "reportable
condition" (as defined in Statement on Auditing Standards No. 60
issued by the Auditing Standards Board of the American Institute
of Certified Public Accountants) in its internal control
structure or any of its subsidiaries;
(iii) on the last day of the first month in each quarter, or
simultaneously with each delivery of financial statements
pursuant to Sections 7(g)(i) and 7(g)(ii) in the case of the
certificate required to be delivered pursuant to clause
7(g)(iii)(B)(y) below, a certificate signed by its chief
executive officer, chief financial officer, treasurer or senior
vice president of finance which shall state that, after due
inquiry,
(A) the signers do not have knowledge of the existence, during
such period or as at the date of such certificate, of any
material default or event of default under this Agreement,
the Secured Note and all Related Documents, or, if such is
not the case, specifying in reasonable detail the nature and
period of existence thereof and what action it has taken, is
taking and proposes to take with respect thereto; and
(B) an officer's certificate demonstrating in reasonable detail
(x) whether or not any Trigger Event or Loss Event has
occurred and (y) the Borrower's compliance with the
financial covenants contained in this Agreement;
20
<PAGE>
(iv) as promptly as practicable (but in any event not later than
five (5) Business Days) after receipt thereof, copies of all
reports or written comments (including, without limitation,
audit reports, management letters and any other reports or
communications with respect to the internal control structure)
submitted by the Independent Accountants;
(v) as promptly as practicable (but in any event not later than
three (3) Business Days) after it becomes aware of the
occurrence of any condition or event which has resulted in, or
could reasonably be expected to result in, a Material Adverse
Change, a certificate of a responsible officer specifying in
reasonable detail the nature and period of existence thereof,
what action it has taken, is taking and proposes to take with
respect thereto and the date, if any, on which it is estimated
the same will be remedied;
(vi) not later than 11:00 a.m., New York City time, on the Business
Day after it becomes aware thereof, a report setting forth any
material changes or developments in its business, taken as a
whole, including, without limitation, any material changes,
developments or defaults under any uncured payment default; and
(viii) such other information as, from time to time, may reasonably
be requested by the Lender.
(h) The Borrower shall (i) at all times keep proper books of record and
account in which full, true and correct entries shall be made of its
transactions in accordance with GAAP; and (ii) set aside on its books from its
earnings for each fiscal year all such proper reserves as shall be required in
accordance with GAAP.
(i) The Borrower shall:
(i) pay and discharge promptly as they become due and payable all
taxes, assessments and other governmental charges or levies
imposed upon it or its income or upon any of its assets as well
as all claims of any kind which, if unpaid, might by law become a
Lien upon its property; provided, however, that shall it not be
-------- -------
required to pay any such tax, assessment, charge, levy or claim
if the amount, applicability or validity thereof shall currently
be contested in good faith by appropriate proceedings and if it
shall have set aside on its books such reserves, if any, with
respect thereto as are required by GAAP and deemed adequate by it
and its Independent Accountants; provided, further, that it shall
-------- -------
pay any such tax, assessment, charge, levy or claim prior to the
commencement of any proceeding to foreclose any Lien securing the
same;
(ii) do or cause to be done all things necessary to preserve and
maintain in full force and effect its corporate existence, and
all licenses material to its business;
21
<PAGE>
(iii) maintain and keep its assets in good repair, working order and
condition, ordinary wear and tear excepted, so that the
business carried on in connection therewith may be properly and
advantageously conducted at all times; and
(iv) comply with the requirements of all applicable laws, statutes,
rules, regulations and orders of, and all applicable
restrictions imposed by, all governmental authorities having
jurisdiction over its operations respect of the conduct of its
business and the ownership of its property; provided, however,
-------- -------
that it shall not be required by reason of this Section
7(i)(iv) to comply therewith at any time while it shall be
contesting its obligation to do so in good faith by appropriate
proceedings, and if it shall have set aside on its books such
reserves, if any, with respect thereto as are required by GAAP.
(j) The Borrower shall not, without the consent of the Lender, which
consent may be withheld in its sole discretion, directly or indirectly, make or
commit to make any Restricted Payment which would cause an Event of Default or
an Unmatured Event of Default.
(k) The Borrower shall not permit as of any date of determination (i) its
Net Equity to be less than [$_________], or (ii) the ratio of its aggregate
liabilities to shareholders' equity to exceed 10 to 1.
(l) The Borrower shall not engage in any transaction (including, without
limitation, the purchase, sale or exchange of any assets or the rendering of any
services), with an Affiliate or significant creditor thereof unless such
transaction is fair and reasonable to it and no less favorable to it than would
be obtained in a comparable arm's length transaction with a non-Affiliated
Person.
(m) Without the Lender's prior written consent, the Borrower shall not
consummate any merger or consolidation with any Person or sell all or
substantially all of its assets (other than in a transaction similar to the
Securitization Transaction), unless the surviving entity by law or by agreement
in favor of the Lender assumes the Borrower's obligations under this Agreement,
the Secured Note and all Related Documents and such transaction would not result
in or cause an Event of Default or an Unmatured Event of Default.
(n) The Borrower shall promptly, and in any event within five (5) days
after service of process, give to the Lender notice of all legal or arbitral
proceedings affecting or that could cause a Material Adverse Change.
(o) The Borrower shall not amend the Pooling and Servicing Agreement or
any Related Documents without first obtaining the written consent of the Lender.
(p) The Borrower shall notify the Lender as soon as possible, but in no
event later than one (1) Business Day after obtaining actual knowledge thereof,
if any event has occurred that constitutes an Event of Default or an Unmatured
Event of Default.
22
<PAGE>
(q) As soon as possible after the Funding Date, the Borrower shall instruct
all counterparties on Hedging Contracts relating to the Subordinate Certificates
to recognize the Lender as the pledgee of such Hedging Contracts for all
purposes under such Hedging Contracts, and shall execute any and all documents
necessary or desirable to effect the foregoing.
Section 8. Events of Default. Each of the following shall constitute an
-----------------
"Event of Default" hereunder:
----------------
(a) Failure of any Borrower Party to make any payment of interest or
principal or any other fee, expense, or any other amount owing to the Lender,
which has become due whether by acceleration or otherwise under the terms of the
Secured Note, this Agreement or any other document or instrument evidencing or
securing indebtedness of such Borrower Party to the Lender which failure is not
remedied within two (2) Business Days, in the case of the failure to make any
payment of principal, or three (3) Business Days, in the case of the failure to
make any other payment.
(b) Assignment or attempted assignment by the Borrower of this Agreement or
any rights hereunder, except as provided in Section 14, or the granting by any
Borrower Party of any security interest, lien or other encumbrance on any
Collateral to other than the Lender.
(c) The filing against any Borrower Party of a petition for liquidation,
reorganization, arrangement or adjudication as a bankrupt or similar relief
under the bankruptcy, insolvency or similar laws of the United States or any
state or territory thereof or of any foreign jurisdiction as to which such
Borrower Party fails to secure dismissal within 60 days of such filing, or the
appointment of a receiver, conservator, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of any Borrower Party, or of
any substantial part of its property, the ordering or the winding-up or
liquidation of its affairs, or the entry of a decree or order for relief by a
court having jurisdiction in the premises in respect of such Borrower Party, in
any involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect.
(d) Commencement by any Borrower Party of a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect, or the consent by any Borrower Party, to the entry of an order for
relief in an involuntary case under any such law or to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) of such Borrower Party or of any
substantial part of its property, or the making by such Borrower Party of any
general assignment for the benefit of creditors, or the failure of any Borrower
Party generally to pay its debts as such debts become due, or the taking of
corporate action by any Borrower Party in furtherance of any of the foregoing.
(e) Any material and adverse change in the financial condition or
operations of any Borrower Party, or the existence of any other condition which,
Lender reasonably determines constitutes an impairment of the Borrower's ability
to perform its obligations under this Agreement or under the Secured Note or any
other Borrower Party's obligations to Lender and which condition is not remedied
within ten days or, if the condition cannot be fully remedied
23
<PAGE>
within said ten days, substantial progress (which shall be in Lender's sole
determination) has not been made within said ten (10) days toward remedy of the
condition.
(f) The occurrence of an "Event of Default" (as defined in any Facility)
under any Cross-Collateralized Facility.
(g) A breach by the Borrower of any covenant set forth herein, or of the
terms and provisions of any other agreement between the Borrower and Lender, in
any case, which condition is not remedied within ten (10) days, or in the case
of a Margin Deficit, two (2) Business Day, other than breaches otherwise
referred to in this Section 8.
(h) Any change in the identity of the servicer under the Pooling and
Servicing Agreements to the extent not previously approved by the Lender.
(i) A default by any Borrower Party on any of their debt instruments,
financing facilities, or other financing agreements or agreement with any Person
other than the Lender, if the then aggregate outstanding principal amount
thereof exceeds $5,000,000.
(j) A representation or warranty of the Borrower in this Agreement, the
Secured Note or any Related Document shall prove to be incorrect in any material
respect and not cured within ten (10) Business Days.
(k) A Change in Control.
(l) Standard & Poor's Ratings Services or Fitch Investors Service, L.P.
shall have materially downgraded its initial rating, which initial rating was
not a hostile rating, issued in respect of any rated series or issue of
mortgage-backed securities made in connection with a Securitization Transaction
or any other rated series or issue of mortgage-backed securities made in
connection with a Cross-Collateralized Facility in which any Borrower Party was
either the originator, seller, and/or servicer.
(m) Any Borrower Party records one or more valuation adjustments that on a
cumulative basis results in an allowance to, decrease in, or write-down of 20%
or more of the book value of the Subordinate Certificates.
(n) The failure of the Lender to have a perfected security interest in
first-priority position in any Collateral.
(o) The Delinquency Rate on any Securitization Transaction is greater than
18% on a three-month rolling average.
(p) A Loss Event.
(q) Any provision of this Agreement or the Secured Note shall for any
reason cease to be valid or enforceable in accordance with its terms, or any
security interest created hereunder
24
<PAGE>
shall cease to be a valid and perfected first priority security interest, except
as otherwise permitted hereunder, in any of the Collateral purported to be
covered thereby.
(r) The Borrower admits its inability to perform fully when due any
obligation of the Borrower to any broker, dealer, bank or other financial
institution in respect of a transaction involving securities, commodities or
other instruments (regardless of whether the Lender has any right, title or
interest therein).
(s) If a judgment for the payment of money affecting all or a substantial
part of the Borrower's business or property shall be entered or rendered against
the Borrower and such judgment shall not have been discharged in full or
effectively stayed.
(t) If any statement of the Borrower's financial condition prepared by the
Borrower or at its request shall indicate that, or if the Borrower acknowledges
that, the Borrower has a negative net worth or is insolvent.
Section 9. Remedies Upon Default. (a) Upon the happening of one or more
---------------------
Events of Default:
(i) the Lender may immediately declare the principal of and accrued
and unpaid interest on the Secured Note, any and all amounts due by the
Borrower to the Lender under this Agreement, the Secured Note and Related
Documents to be immediately due and payable, together with all fees and
expenses due and payable to the Lender hereunder and thereunder and, to
the extent permitted by applicable law, interest on all of the foregoing
at the Interest Rate (collectively, the "Indebtedness"); provided,
------------ --------
however, that upon the occurrence of one of the Events of Default
-------
referred to in Sections 8(c) and 8(d), such amounts shall immediately and
automatically become due and payable without any further action by any
person or entity; provided, further, that upon such declaration or
-------- -------
automatic acceleration, the balance of all outstanding Indebtedness shall
become immediately due and payable without presentation, demand or further
notice of any kind and Lender may apply all Cash Receipts against all
Indebtedness until it is paid in full, in such order of priority as the
Lender in its sole discretion shall determine;
(ii) if an Event of Default shall occur and be continuing, the Lender
may exercise, in addition to all other rights and remedies granted in this
Agreement, the Secured Note and all Related Documents and in any other
instrument or agreement securing, evidencing or relating to the
Indebtedness, all rights and remedies of a secured party under the Uniform
Commercial Code as in effect in the State of New York. Without limiting
the generality of the foregoing, the Lender, without demand of performance
or other demand, presentment, protest, advertisement or notice of any kind
(except any notice required by law referred to below) to or upon the
Borrower, any Borrower Party or any other Person (all and each of which
demands, defenses, advertisements and notices are hereby waived), may in
such circumstances forthwith collect, receive, appropriate and realize
upon the Collateral, or any part thereof, and/or may forthwith sell,
assign, give an option or options to purchase or otherwise dispose of and
deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels at public or private
25
<PAGE>
sale or sales, in the over-the-counter market, at any exchange, broker's
board or office of the Lender or elsewhere upon such terms and conditions
as it may deem advisable and at such prices as it may deem best, for cash
or on credit or for future delivery without assumption of any credit risk.
The Lender shall have the right upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any
right or equity of redemption of the Borrower, which right or equity is
hereby waived or released (provided such waiver or release is permitted by
applicable law). The Lender shall apply any proceeds from time to time
held by it and the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs
and expenses of every kind incurred therein or incidental to the care or
safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of the Lender hereunder, including, without
limitation, reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Indebtedness, in such order as the Lender may
elect, and only after such application and after the payment by the Lender
of any other amount required by any provision of law, including, without
limitation, Section 9-504(1)(c) of the Uniform Commercial Code as in
effect in the State of New York, need the Lender account for the surplus,
if any, to the Borrower. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be
deemed reasonable and proper if given at least 10 days before such sale or
other disposition. Provided Lender disposes of the Collateral in the
manner proscribed by law, the Borrower shall remain liable for any
deficiency if the proceeds of any sale or other disposition of Collateral
are insufficient to pay the Indebtedness, the fees and disbursements of
any attorneys employed by the Lender in connection with the Indebtedness
and all other expenses of the Lender in connection therewith;
(iii) the Lender may terminate this Agreement, suspend its
obligations to advance funds pursuant hereto and/or pursuant to any other
lending or repurchase arrangement with any Borrower Party;
(iv) the Lender may cause any and all collections whether hereunder
or under any other lending or repurchase arrangement with any Borrower
Party on deposit in a servicing account or reserve account and all
payments required to be made on the Subordinate Certificate thereafter to
be paid to the Lender to reduce the Indebtedness until paid in full; and
(v) the Lender may dispose of or otherwise deal with the
Collateral in such manner as the Lender, in its sole and absolute
discretion, deems necessary or desirable to maximize the likelihood of
repayment in full of the Indebtedness.
(b) If the Lender becomes the beneficial owner of the Subordinate
Certificates following an Event of Default, the Lender shall add the amount of
any federal, state and local income tax liability that arises from excess
inclusions with respect to the Subordinate Certificates that may be allocated to
the Lender as the holder thereof to the Loan Balance.
26
<PAGE>
Section 10. Indemnification. (a) The Borrower hereby agrees to indemnify
---------------
the Lender, the Lender's designee and each of its officers, directors, employees
and agents ("Indemnified Parties") from and against any and all liabilities,
-------------------
obligations, losses, damages, penalties, actions, judgments, suits, taxes (other
than income taxes of the Lender), fees, costs, expenses (including reasonable
attorneys fees and disbursements) or disbursements (all of the foregoing,
collectively "Indemnified Amounts") which may at any time (including, without
-------------------
limitation, such time as this Agreement, the Secured Note or any other Related
Document shall no longer be in effect and the Indebtedness shall have been paid
in full) be imposed on or asserted against any Indemnified Party in any way
whatsoever arising out of or in connection with, or relating to, this Agreement,
the Secured Note or any other Related Document or any transactions thereunder or
any action taken or omitted to be taken by any Indemnified Party under or in
connection with any of the foregoing; provided, that Borrower shall not be
--------
liable for Indemnified Amounts resulting from the negligence or willful
misconduct of any Indemnified Party.
(b) Costs and Expenses. The Borrower and Lender each hereby agree to bear
------------------
their own costs and expenses incurred in connection with (i) negotiation,
preparation, execution and delivery of this Agreement, the Secured Note and the
other Related Documents, (ii) the negotiation, preparation, execution and
delivery of any amendments to any of them, (iii) the administration (including
periodic auditing) of this Agreement, the Secured Note and the other Related
Documents and the transactions contemplated hereby and thereby, and (iv) the
enforcement of this Agreement, the Secured Note or any other Related Documents,
or any actual or claimed breach hereunder or thereunder.
(c) The provisions of Section 10(a) shall survive the termination of this
Agreement.
Section 11. Power of Attorney. The Borrower hereby (a) authorizes the
-----------------
Lender, at the Borrower's expense, to file such financing statement or
statements relating to the Collateral without the Borrower's signature thereon
as the Lender at its option may deem appropriate, and (b) appoints the Lender as
the Borrower's attorney-in-fact to execute any such financing statement or
statements in the Borrower's name and to perform all other acts which the Lender
deems appropriate to perfect and continue the security interest granted hereby
and to protect, preserve and realize upon the Collateral, including, but not
limited to, the right to endorse notes, complete blanks in documents and sign
assignments on behalf of the Borrower as its attorney-in-fact. This Power of
Attorney is coupled with an interest and is irrevocable without the Lender's
consent.
Section 12. Participation; Assignments. (a) The Lender may sell, pledge,
--------------------------
sell subject to a repurchase arrangement, or otherwise hypothecate (any such
event, a "Hypothecation") to one or more entities (each, a "Participant")
------------- -----------
participating interests in (i) the Facility Balance owing to the Lender, (ii)
the Secured Note held by the Lender, (iii) Subordinate Certificates, and (iv)
any other interest of the Lender hereunder, without notice to, or the consent
of, any Borrower Party. In the event of any Hypothecation by the Lender of a
participating interest to a Participant, the Lender shall be obligated to act as
the sole representative of any and all Participants and shall be entitled to
unilaterally exercise all of the rights, and perform all of the obligations of,
the Lender hereunder.
27
<PAGE>
(b) The Lender may assign this Agreement or any of its rights or
obligations hereunder without notice to, or the consent of, the Borrower. The
Borrower shall not assign this Agreement or any of its rights or obligations
hereunder without the prior written consent of the Lender.
Section 13. Notices. Except as otherwise specified in this Agreement,
-------
all demands, notices and communications relating to this Agreement shall be in
writing and shall be deemed to have been duly given if mailed, by registered or
certified mail, return receipt requested, or by overnight courier, or, if by
other means, when received by the other party or parties at the address shown
below, or such other address as may hereafter be furnished to the other party or
parties by like notice. Any such demand, notice or communication hereunder shall
be deemed to have been received on the date delivered to or received at the
premises of the addressee (as evidenced, in the case of registered or certified
mail, by the date noted on the return receipt).
If to Borrower:
BNC Mortgage, Inc
1740 E. Garry Avenue, Suite 109
Santa Ana, California 92705
Attention: ______________
Telephone: ______________
If to the Lender:
DLJ Mortgage Capital, Inc.
277 Park Avenue, 9th Floor
New York, New York 10172
Attention: [John Friel]
Telephone: [(212) 892-3250]
with a copy to:
General Counsel's Office
DLJ Mortgage Capital, Inc.
277 Park Avenue, 23rd Floor
New York, New York 10172
Attention: General Counsel
Section 14. No Oral Modifications; Successors and Assigns. No provisions
---------------------------------------------
of this Agreement shall be waived or modified except by a writing duly signed by
the authorized agents of the parties hereto. This Agreement shall be binding
upon the successors and assigns of the parties hereto. This Agreement shall not
be assignable by Borrower, provided, however, that the Borrower may assign all
of its rights, duties and obligations to a wholly owned subsidiary of the
Borrower provided further that (x) the Lender consents to the assignment in
writing, and (y) the Borrower enters into an unconditional guaranty in form and
substance acceptable to the Lender in its sole capacity.
28
<PAGE>
Section 15. Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement.
Section 16. No Waiver. No delay or omission of the Lender to exercise
---------
any right or remedy accruing under this Agreement (including upon any Event of
Default) shall impair any such right or remedy or constitute a waiver of any
such right or remedy or an acquiescence therein. Every right and remedy given by
this Agreement or by law to the Lender may be exercised from time to time, and
as often as may be deemed expedient, as permitted under the terms hereof, by the
Lender.
Section 17. Governing Law; Agreement Constitutes Security Agreement.
-------------------------------------------------------
This Agreement is intended by the parties hereto to be governed by the laws
of the State of New York, without regard to principles of conflicts of law, and
to constitute a security agreement within the meaning of the New York Uniform
Commercial Code.
Section 18. Jurisdiction.
------------
The parties hereby irrevocably submit to the jurisdiction of any federal
court sitting in New York, New York in any action or proceeding arising out of
or relating to this Agreement, the Secured Note or any other Related Document,
and the parties hereby irrevocably agree that all claims in respect of such
action or proceeding may be heard and determined in such federal court. The
parties hereby irrevocably waive, to the fullest extent it may effectively do
so, the defense of an inconvenient forum to the maintenance of such action or
proceeding and irrevocably consent to the service of any summons and complaint
and any other process by the mailing of copies of such process to them at their
respective address specified in Section 13. The parties hereby agree that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Section 18 shall affect the right of the Lender
to serve legal process in any other manner permitted by law or affect the right
of the Lender to bring any action or proceeding against the Borrower or its
property in the courts of other jurisdictions.
Section 19. Integration. This Agreement, each Pooling and Servicing
-----------
Agreement, the Secured Note and the other Related Documents together contain a
final and complete integration of all prior expressions by the parties with
respect to the subject matter hereof and thereof and shall constitute the entire
agreement among the parties with respect to such subject matter, superseding all
prior oral or written understandings.
Section 20. Advice from Independent Counsel. The parties understand that
-------------------------------
this Agreement, the Secured Note and each of the other Related Documents to
which it is a party is a legally binding agreement that may affect such party's
rights. Each party represents to the other that it has received legal advice
from counsel of its choice regarding the meaning and legal
29
<PAGE>
significance of this Agreement, the Secured Note and each of the other Related
Documents to which it is a party and that it is satisfied with its legal counsel
and the advice received from it.
Section 21. Judicial Interpretation. Should any provision of this
-----------------------
Agreement, the Secured Note or any of the other Related Documents require
judicial interpretation, it is agreed that a court interpreting or construing
the same shall not apply a presumption that the terms hereof shall be more
strictly construed against any Person by reason of the rule of construction that
a document is to be construed more strictly against the Person who itself or
through its agent prepared the same, it being agreed that all parties have
participated in the preparation of this Agreement, the Secured Note and each of
the Related Documents.
[SIGNATURE PAGE FOLLOWS]
30
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
BNC MORTGAGE, INC.
By:_______________________
Name:
Title:
DLJ MORTGAGE CAPITAL, INC.
By:_______________________
Name:
Title:
31
<PAGE>
Exhibit A
FORM OF INSTRUCTION LETTER
[One per Pooling Agreement]
[Custodian]
[Custodian's Address]
Dear Ladies and Gentlemen:
Pursuant to Section 2(a)(vii) of the Subordinate Certificate Financing
Agreement dated as of ______, 1998 (the "Agreement") by and among DLJ Mortgage
---------
Capital, Inc., as Lender (the "Lender") BNC Mortgage, Inc., as Borrower (the
------
"Borrower"), the Borrower hereby notifies you under the Pooling and Servicing
- ---------
Agreement, dated as of _______________, 1998, by and among ______________ and
you (the "Pooling and Servicing Agreement") that, pursuant to the Agreement, the
-------------------------------
Borrower has pledged to the Lender all of the Borrower's right, title and
interest in and to the Class __ Certificate issued pursuant to the Pooling and
Servicing Agreement.
Pursuant to Section 2(a)(vii) of the Agreement, the Borrower hereby
instructs you to pay by wire transfer all amounts to be received by it pursuant
to the Pooling and Servicing Agreement and payable thereunder to the registered
owner of any of such Class ___ Certificates, to the Lender as specified below,
unless otherwise instructed by the Lender from time to time to you. Such
payments to the Lender shall be made by you on the same day on which such
amounts would otherwise be payable by you to such owner. The payment
instructions contained herein shall remain effective until the Lender otherwise
instructs you.
The Lender's wire instructions for purposes of all payments related to such
Class ___ Certificates are:
Bank: [Chase NYC/DLJ Mtge Cap Corp.]
ABA #: [021000021]
Account #: [066-214-351]
Attention: [Robin Beck]
Re: BNC Mortgage, Inc.
Very truly yours,
BNC MORTGAGE, INC.
By:______________________________
Name:
Title:
Acknowledged and Agreed by:
[Custodian's Name], as the Trustee
<PAGE>
By:____________________________
Name:
Title:
cc:
DLJ Mortgage Capital, Inc.
277 Park Avenue, 9th Floor
New York, New York 10172
Attention: [John Friel]
Telephone: [(212) 892-3250]
2
<PAGE>
Exhibit B
SECURED NOTE
_________________________ __, 1998
FOR VALUE RECEIVED, the undersigned, BNC MORTGAGE, INC., (the
"Borrower") a ______________ corporation, whose address is 1063 McGaw Avenue,
---------
Irvine, California 92614, promises to pay to the order of DLJ MORTGAGE
CAPITAL, INC., a Delaware corporation, whose address is 277 Park Avenue, 9th
Floor, New York, New York 10172 (the "Lender") on or before the Maturity Date,
------
in lawful money of the United States of America, the principal sum of
$5,000,000.00 plus interest, as follows:
DEFINITIONS. Unless otherwise defined, capitalized terms used herein
-----------
have the meanings assigned to them in the Subordinate Certificate Financing
Agreement dated as of March __, 1998 (the "Agreement") by and among the Lender
---------
and the Borrower named therein.
GENERAL TERMS. (i) Principal is payable in accordance with the
-------------
Agreement, provided the Facility Balance outstanding on the Maturity Date shall
be due and payable on the Maturity Date.
(ii) Interest shall accrue daily on the Facility Balance a rate per
annum equal at the Interest Rate computed in accordance with the Agreement.
MAXIMUM RATE OF INTEREST: If the Borrower shall have paid or agreed to
------------------------
pay any interest on the Facility Balance in excess of that permitted by law,
then it is intended with respect thereto that (i) to the extent possible given
the term of the Facility Balance, all excess amounts previously paid or to be
paid by the Borrower be applied to reduce the Facility Balance and the
provisions thereof immediately be deemed reformed and the amounts thereafter
collectible thereunder reduced, without the necessity of the execution of any
new document, so as to comply with the then applicable law, but so as to permit
the recovery of the fullest amount otherwise called for thereunder and (ii) to
the extent that the reduction of the Facility Balance and the reformation of the
provisions thereof described in the immediately preceding clause (i) are not
possible given the term of the Facility Balance, such excess amount shall be
deemed to have been paid with respect to the Facility Balance as a result of an
error and upon the Lender obtaining actual knowledge of such error, such amount
shall be refunded to the Borrower.
SECURITY: This Note is issued pursuant to the Agreement and is secured
--------
by a pledge of the Collateral described therein.
DEFAULTS: Upon the happening of an Event of Default, the Lender shall
--------
have all rights and remedies set forth in the Agreement.
The failure to exercise any of the rights and remedies set forth in
the Agreement shall not constitute a waiver of the right to exercise the same or
any other option at any subsequent time in respect of the same event or any
other event. The acceptance by the Lender of any payment hereunder which is less
than payment in full of all amounts due and payable at the time of such payment
shall not constitute a waiver of the right to exercise any of the foregoing
<PAGE>
rights and remedies at that time or at any subsequent time or nullify any prior
exercise of any such rights and remedies without the express consent of Lender,
except as and to the extent otherwise provided by law.
WAIVERS: The Borrower waives diligence, presentment, protest and
-------
demand and also notice of protest, demand, dishonor and nonpayment of this Note,
and expressly agrees that this Note, or any payment hereunder, may be extended
from time to time, and consents to the acceptance of further Collateral, the
release of any Collateral for this Note, the release of any party primarily or
secondarily liable hereon, and that it will not be necessary for the Lender, in
order to enforce payment of this Note, to first institute or exhaust Lender's
remedies against the Borrower or any other party liable hereon or against any
collateral for this Note. None of the foregoing shall affect the liability of
the Borrower and any indorsers or guarantors hereof. No extension of time for
the payment of this Note, or any installment hereof, made by agreement by the
Lender with any Person now or hereafter liable for the payment of this Note,
shall affect the liability under this Note of the Borrower, even if the Borrower
is not a party to such agreement; provided, however, the Lender and the
Borrower, by written agreement among them, may affect the liability of the
Borrower.
TERMINOLOGY: If more than one party joins in the execution of this
-----------
Note, the covenants and agreements herein contained shall be the joint and
several obligation of each and all of them and of their respective heirs,
executors, administrators, successors and assigns, and relative words herein
shall be read as if written in the plural when appropriate. Any reference
herein to the Lender shall be deemed to include and apply to every subsequent
holder of this Note. Words of masculine or neuter import shall be read as if
written in the neuter or masculine or feminine when appropriate.
AGREEMENT: Reference is made to the Agreement for provisions as to
---------
mandatory prepayments, collateral and acceleration.
THIS NOTE IS GOVERNED BY THE PROVISIONS OF THE AGREEMENT WHICH IS
INCORPORATED HEREIN BY REFERENCE, AND IN THE EVENT ANY TERMS OF THIS NOTE ARE
INCONSISTENT WITH THE TERMS OF THE AGREEMENT, THE TERMS OF THE AGREEMENT SHALL
GOVERN THIS NOTE. NOTWITHSTANDING THE FOREGOING SENTENCE, NO REFERENCE HEREIN
TO THE AGREEMENT AND NO PROVISION OF THIS NOTE OR OF THE AGREEMENT SHALL ALTER
OR IMPAIR THE OBLIGATION OF THE BORROWER, WHICH IS ABSOLUTE AND UNCONDITIONAL,
TO PAY THE PRINCIPAL OF AND INTEREST ON THIS NOTE AT THE RESPECTIVE TIMES AND AT
THE RATES HEREIN AND THEREIN PRESCRIBED.
2
<PAGE>
APPLICABLE LAW: This Note shall be governed by and construed under the
--------------
laws of the State of New York, without regard to principles of conflicts of law,
whose laws the Borrower expressly elects to apply to this Note.
BNC MORTGAGE, INC.
By:_____________________
Name:
Title:
3
<PAGE>
Exhibit C
---------
Scheduled Cumulative Prepayments
<PAGE>
Exhibit D
---------
Subsidiaries of Borrower
------------------------
<PAGE>
Exhibit E
---------
SUBORDINATE CERTIFICATES
------------------------
