<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 8, 1996
REGISTRATION NO. 333-14627
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
SOUTHERN PACIFIC FUNDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 6199 33-0636924
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
ONE CENTERPOINTE DRIVE, SUITE 500
LAKE OSWEGO, OREGON 97035
(503) 684-4700
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
ROBERT W. HOWARD
PRESIDENT
SOUTHERN PACIFIC FUNDING CORPORATION
ONE CENTERPOINTE DRIVE, SUITE 500
LAKE OSWEGO, OREGON 97035
(503) 684-4700
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
LAURIS G. L. RALL DAVID J. JOHNSON, JR.
PAUL D. TVETENSTRAND ANDREWS & KURTH LLP
THACHER PROFFITT & WOOD 601 S. FIGUEROA STREET, SUITE 4200
TWO WORLD TRADE CENTER LOS ANGELES, CALIFORNIA 90017
NEW YORK, NEW YORK 10048
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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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: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
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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.......... $ 26,136
NASD filing fee.............................................. 12,000
Printing expenses............................................ 150,000
Accounting fees and expenses................................. 75,000
Legal fees and expenses...................................... 300,000
Fees and expenses (including legal fees) for qualifications
under state securities laws................................. 25,000
Trustee fees and expenses.................................... 10,000
Transfer agent's fees and expenses........................... 5,000
Miscellaneous................................................ 6,864
--------
Total...................................................... $610,000
========
</TABLE>
All amounts except the Securities and Exchange Commission registration fee
and the NASD filing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 317 of the California General Corporation Law (the "CGCL"),
the Registrant is in certain circumstances permitted to indemnify its
directors and officers against certain expenses (including attorneys' fees),
judgments, fines, settlements and other amounts actually and reasonably
incurred in connection with threatened, pending or completed civil, criminal,
administrative or investigative actions, suits or proceedings (other than an
action by or in the right of the Registrant), in which such persons were or
are parties, or are threatened to be made parties, by reason of the fact that
they were or are directors or officers of the Registrant, if such persons
acted in good faith and in a manner they reasonably believed to be in the best
interests of the Registrant, and with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful. In
addition, the Registrant is in certain circumstances permitted to indemnify
its directors and officers against certain expenses incurred in connection
with the defense or settlement of a threatened, pending or completed action by
or in the right of the Registrant, and against amounts paid in settlement of
any such action, if such persons acted in good faith and in a manner they
believed to be in the best interests of the Registrant and its shareholders
provided that the specified court approval is obtained.
As permitted by Section 317 of the CGCL, the Articles of Incorporation and
By-Laws of the Registrant provide that the Registrant is authorized to provide
indemnification for its directors and officers for breach of their duty to the
Registrant and its shareholders through bylaw provisions or through agreements
with the directors and officers, or both, in excess of the indemnification
otherwise permitted by Section 317 of the CGCL. The Registrant's By-laws
provide for indemnification of its directors and officers to the maximum
extent permitted by Section 317 of the CGCL. In addition, agreements entered
into by the Registrant with its directors and its executive officers require
the Registrant to indemnify such persons against expenses, judgments, fines,
settlements and other amounts reasonably incurred in connection with any
proceeding to which any such person
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<PAGE>
may be made a party by reason of the fact that such person was an agent of the
Registrant (including judgments, fines and settlements in or of a derivative
action, unless indemnification is otherwise prohibited by law), provided such
person acted in good faith and in a manner he reasonably believed to be in the
best interests of the Registrant and, in the case of a criminal proceeding,
had no reason to believe his conduct was unlawful. The indemnification
agreements also set forth certain procedures that will apply in the event of a
claim for indemnification thereunder.
The Articles of Incorporation of the Registrant provide that the personal
liability of the directors of the Registrant for monetary damages shall be
eliminated to the fullest extent permissible under California law. Under
Section 204(a)(10) of the CGCL, the personal liability of a director for
monetary damages in an action brought by or in the right of the corporation
for breach of the director's duty to the corporation may be eliminated, except
for the liability of a director resulting from (i) acts or omissions involving
intentional misconduct or the absence of good faith, (ii) any transaction from
which a director derived an improper personal benefit, (iii) acts or omissions
showing a reckless disregard for the director's duty, (iv) acts or omissions
constituting an unexcused pattern of inattention to the director's duty or (v)
the making of an illegal distribution to shareholders or an illegal loan or
guaranty.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In December 1994 the Company issued 10,375,000 shares of Common Stock (after
giving effect to the 4,150 to 1 forward stock split effected in April 1996) to
Imperial Credit Industries, Inc. in return for a capital contribution of
$250,000.
In November 1995 the Company granted to each of Robert W. Howard and Bernard
A. Guy, the President and Executive Vice President of the Company,
respectively, options to purchase 647,400 shares of the Company's Common Stock
under the 1995 Senior Management Stock Option Plan. The options vest at a rate
of 20% per year commencing one year from the date of grant, and are
exercisable at a price of $10.50 per share.
The aforementioned transactions are exempt from registration under Section
4(2) of the Securities Act of 1933 as transactions not involving a public
offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1** Form of Articles of Incorporation of the Company, as amended
3.2** Bylaws of the Company, as amended
4.1* Form of Indenture
4.2* Form of Notes
5.1* Opinion of Baker & Hostetler
5.2* Opinion of Thacher Proffitt & Wood
10.1** 1995 Senior Management Stock Option Plan and Form of Senior Management
Stock Option Agreement
10.2** 1995 Stock Option, Deferred Stock and Restricted Stock Plan and Form of
Stock Option Agreement
10.3** Services Agreement effective June 13, 1996 by and between the
Registrant and Imperial Credit Industries, Inc.
10.4** Tax Agreement effective June 13, 1996 by and between the Registrant and
Imperial Credit Industries, Inc.
10.5** Loan Servicing Agreement dated September 14, 1995 by and between the
Registrant and Advanta Mortgage Corp. USA
</TABLE>
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<PAGE>
<TABLE>
<C> <S>
10.6** Whole Loan Financing Program dated March 21, 1995 by and among the
Registrant, DLJ Mortgage Capital, Inc. and Bankers Trust Company
10.7** Master Repurchase Agreement dated August 5, 1995 by and between the
Registrant and Oceanmark Bank
10.8** Revolving Credit and Term Loan Agreement by and between the Registrant
and Southern Pacific Thrift and Loan Association
10.9** Wet Inc., Interim and Pre-Sale Funding Facility dated November 17,
1995 by and between the Registrant and Lehman Commercial Paper, Inc.
10.10** Telemarketing Agreement dated March 25, 1995 by and among the
Registrant, Results Technologies, Inc. and Tele-Quote, Inc.
10.11** Office Lease Agreement dated September 13, 1995 by and between the
Registrant and Property Reserve, Inc.
10.12** Office Lease Agreement dated November 29, 1995 by and between the
Registrant and Property Reserve, Inc.
10.13** Sublease dated January 23, 1996 by and between the Registrant and
Property Reserve, Inc.
10.14** Office Building Lease dated January 8, 1996 by and between the
Registrant and Doug Jacobs.
10.15** Employment Agreement effective January 1, 1996 by and between the
Registrant and Robert W. Howard
10.16** Employment Agreement effective January 1, 1996 by and between the
Registrant and Bernard A. Guy
10.17** Contribution Agreement effective April 1, 1995 by and among the
Registrant, Imperial Credit Industries, Inc. and Southern Pacific
Thrift and Loan Association, Inc.
10.18*+ Consulting and Non-Competition Agreement, dated May 15, 1996, by and
between Registrant and The Dewey Consulting Group
10.19*+ Letter of Intent, dated September 5, 1996, by and between the
Registrant and BOMAC Capital Mortgage, Inc.
10.20*+ Amendment to Loan Servicing Agreement, dated August 12, 1996, by and
between the Registrant and Advanta Mortgage Corp. USA
10.21* Registration Rights Agreement, dated October 17, 1996, by and between
the Registrant and Imperial Credit Industries, Inc.
10.22*+ Master Loan and Security Agreement, dated as of October 22, 1996, by
and between the Registrant and Morgan Stanley Mortgage Capital Inc.
23.1* Consent of KPMG Peat Marwick LLP
23.2* Consent of Baker & Hostetler (contained in Exhibit 5.1)
23.3* Consent of Thacher Proffitt & Wood (contained in Exhibit 5.2)
24.1* Power of Attorney (included on signature page of Registration
Statement)
25.1* Statement of Eligibility of The Bank of New York under the Trust
Indenture Act of 1939
27.1* Financial Data Schedule
</TABLE>
- --------
* Previously filed in connection with this Registration Statement.
** Previously filed in connection with Registration Statement No. 333-3270 and
hereby incorporated by reference.
+ Portions of these exhibits have been omitted and are subject to a
confidential treatment request filed with the Securities Exchange
Commission pursuant to Rule 406.
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<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
and
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) 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.
(c) 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.
(d) 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-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS POST-EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT
NO. 333-14627 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF LAKE OSWEGO, STATE OF OREGON ON NOVEMBER 8, 1996.
Southern Pacific Funding Corporation
/s/ Robert W. Howard
By: _________________________________
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS POST-
EFFECTIVE AMENDMENT NO. 1 TO REGISTRATION STATEMENT NO. 333-14627 HAS BEEN
SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITY INDICATED ON NOVEMBER 8, 1996.
SIGNATURE TITLE
* Chairman of the Board
- -------------------------------------
H. WAYNE SNAVELY
/s/ Robert W. Howard President and Director (Principal
- ------------------------------------- Executive Officer)
ROBERT W. HOWARD
/s/ Bernard A. Guy Executive Vice President and
- ------------------------------------- Director
BERNARD A. GUY
Executive Vice President, Chief
* Financial Officer and Secretary
- ------------------------------------- (Principal Accounting Officer)
GARY A. PALMER
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<PAGE>
SIGNATURE TITLE
Director
- -------------------------------------
STEPHEN J. SHUGERMAN
* Director
- -------------------------------------
JOHN D. DEWEY
Director
- -------------------------------------
A. VAN RUITER
* Director
- -------------------------------------
FRANK P. WILLEY
*By: /s/ Bernard A. Guy
---------------------------------
Bernard A. Guy
(Attorney-in-fact)
II-6
<PAGE>
EXHIBIT 10.18
CONSULTING AND NON-COMPETITION AGREEMENT
----------------------------------------
CONSULTING AND NON-COMPETITION AGREEMENT, dated as of May 15,
1996, between Southern Pacific Funding Corporation, a California corporation
(the "Company") and The Dewey Consulting Group (the "Consultant").
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WHEREAS, the Company recognizes that the Consultant possesses an
intimate knowledge of the business conducted by the Company and considerable
expertise, knowledge and contacts in the subprime mortgage finance industry, the
Company wishes to be assured that it will have the benefit of the consulting
services of the Consultant and the Consultant's agreement to maintain the
confidentiality of certain information and not to compete with the Company as
set forth herein;
WHEREAS, the Consultant is willing to consult for the Company
and is also willing to maintain information as confidential and to agree not to
compete on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and the
agreements and provisions hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto intending to be legally bound hereby agree as follows:
1. Consulting Services to be Provided. (a) The Company has
----------------------------------
retained the Consultant to assist the Company in developing, implementing and
administering its Financing Program for its acquired subprime mortgage loan
product.
The "Financing Program" consists of the following:
(i) a warehousing and securitization program for
the acquired subprime mortgage loan product;
(ii) a financing program for residual interests
pledged to the Company which result from the
securitization program; and
(iii) the issuance of corporate (i.e., non-asset-
backed) debt and equity by participants in the
Financing Program.
(b) The services to be provided by the Consultant in
connection with the Financing Program (the "Services") consist of:
--------
(i) the solicitation of participants in the
Financing Program;
(ii) assistance in the negotiation of all
documentation with such participants in the
Financing Program;
(iii) development of software programs and systems
related to the Financing Program;
<PAGE>
(iv) assistance with the preparation of policies and
procedures manuals for origination and
financing of the subprime mortgage loan
product;
(v) participation in meetings, conference calls,
presentations, etc., with investment bankers,
attorneys, servicers, accountants, sureties,
rating agencies, and other members of the
working groups associated with the financings;
and
(vi) consulting with the Company's management team
and advisors with respect to the Financing
Program.
2. Compensation. The Consultant shall receive, as
------------
compensation for its services rendered in connection with each the Financing
Program:
(a) Closing Fees on Whole Loan Purchases. The Company shall
------------------------------------
pay Consultant a fee of [ * ] times the par amount of loans purchased
by the Company from an originator introduced to the Company by the Consultant at
the time of such purchase or otherwise as agreed by the parties. The Company
shall pay Consultant a fee of [ * ] times the par amount of any other
loans purchased by the Company in the Financing Program from originators
procured by the Company at the time of such purchase or otherwise as agreed by
the parties. A list of originators procured by the Company and of originators
procured by the Consultant as of the date hereof is set forth on Exhibit 1.
(b) Participation in Gain on Sale or Other Disposition. The
--------------------------------------------------
Company shall grant Consultant a participation in the residual certificate from
any securitization equal to [ * ] of its recognized securitization net
gain on sale in the event of securitization of loans purchased by the Company
from an originator introduced to the Company by the Consultant at the time of
such securitization or otherwise as agreed by the parties. The Company shall
grant Consultant a participation in the residual certificate from any
securitization equal to [ * ] of its recognized securitization net gain
on sale in the event of securitization of loans sold by originators procured by
the Company into the Financing Program. By way of example of this paragraph, if
(i) the Company's basis in a pool of loans from a participant procured by the
Consultant is 105% of par, (ii) such loans' securitization value (as reasonably
established by the Company) is 108% of par and (iii) such loans constitute 10%
of a securitization pool then Consultant would be entitled to receive a
participation in the Residual Certificate with respect to such pool equal to
[ * ] of the Residual Certificate for the whole securitization.
The Company shall pay Consultant a [ * ] of any release fees or
other compensation in the event of other disposition of loans purchased by the
Company from an originator introduced to the Company by the Consultant at the
time of such sale or other disposition or otherwise as agreed by the parties.
The Company shall pay Consultant a fee equal to [ * ] of any release
fees or other compensation in the event of other disposition of any other
loans sold by the Company in the Financing Program.
(c) Participation in Residual Interest, I/O Strips and Other Fees.
-------------------------------------------------------------
The Company shall grant Consultant a [ * ] interest in any Residual
Interest, I/O Strip or Other Fee charged to a
- --------
* This information has been omitted and filed separately with the Securities and
Exchange Commission and is subject to a confidential treatment request with
respect thereto.
2
<PAGE>
participant who elects to participate in the Company's securitization program on
a "piggyback" basis in the case of an originator introduced to the Company by
the Consultant at the time of such securitization or otherwise as agreed by the
parties. The Company shall grant Consultant a [ * ] interest in any
Residual Interest, I/O Strip or Other Fee charged to a participant who elects to
participate in the Company's securitization program on a "piggyback" basis in
the case of an originator procured by the Company at the time of such
securitization or otherwise as agreed by the parties, except in the case of
Oceanmark, Consultant's [ * ] fee shall be paid only and to the extent
purchases from Oceanmark exceed Ten Million Dollars ($10,000,000.00) in any
month. By way of example of this paragraph, if the total I/O charged to
a participant who has elected to participate in the Company's securitization
program on a "piggyback" basis is [ * ] of the pool balance of the
loans securitized, then Consultant would be entitled to an I/O strip equal to
[ * ] of the pool balance of the loans securitized in the case of a
Consultant generated participant and [ * ] of the pool balance of the
loans securitized in the case of a Company generated participant.
(d) Warrant Participation. The Company shall assign
---------------------
Consultant [ * ] of any warrants granted to the Company by introduced
to the Company by the Consultant at the time such warrants are granted to the
Company. The Company shall assign Consultant [ * ] of any other
warrants granted to it by a participant procured by the Company at the time such
warrants are granted to the Company. By way of example of this paragraph, if the
Company is granted warrants evidencing [ * ] ownership of a
participant, Consultant would be entitled to receive, if such participant were
introduced to the Company by the Consultant, [ * ] of the Company's
[ * ] share of the participant or a [ * ] ownership of such
participant.
(e) Acquisition. The subprime mortgage loan product of any
-----------
participant acquired by the Company shall be considered purchased by the Company
as of each date such product is included in the Company's securitizations for
purposes of paragraphs 2(a), 2(b) and 2(c) hereof, and the Company shall pay
compensation in respect of such subprime mortgage loan product in the amounts
and at such other times set forth in paragraphs 2(a), 2(b) and 2(c) hereof until
the earlier of three years following each such acquisition or the production of
$300 million in loans by the acquired unit. In the alternative, Consultant may
elect to receive a fee of [ * ] of the market value (as reasonably
determined by the Company) of the acquisition.
(f) Cumulation. Compensation payable pursuant to paragraph
----------
2(a) hereof shall be cumulative of that payable pursuant to paragraph 2(b)
hereof and the total compensation payable pursuant to such paragraphs shall be
cumulative of compensation payable pursuant to Section 2(c) and the total
compensation payable pursuant to such paragraphs shall be cumulative of
compensation payable pursuant to Section 2(d) or Section 2(e) hereof, as
appropriate.
(g) Payment Upon Termination. Upon termination of this
------------------------
agreement for any reason, including, without limitation, for cause as defined in
paragraph 5 hereof, Consultant shall be entitled to continue receiving
compensation as set forth above for the term of any participant financing
agreement then in effect even if the term of such participant financing
agreement extends beyond the term of this agreement (including any extensions
agreed to by the parties). Termination shall only prevent Consultant from
procuring additional originators for the Financing
- --------
* This information has been omitted and filed separately with the Securities and
Exchange Commission and is subject to a confidential treatment request with
respect thereto.
3
<PAGE>
Program which have not executed Financing Program documents with the Company
prior to the Termination Date.
3. Duties; Place of Performance.
----------------------------
(a) The Consultant shall furnish the Company with such
consulting services as may be reasonably requested or reasonably required from
time to time by the Company in connection with the business and affairs of the
Company.
(b) The Consultant shall perform the services so requested
or required at such time and places as may be mutually convenient to the Company
and the Consultant, but in any event shall discharge his responsibilities in a
timely, diligent, conscientious and faithful manner, consistent with sound
business practice.
(c) The Consultant shall not be required to perform any
substantial part of his services hereunder outside the County of Orange,
California, at the offices of the Company, or if the Consultant so elects, at
the Consultant's then place of domicile.
4. Other Compensation and Expenses.
-------------------------------
(a) Benefits. During the Term the Company shall provide the
--------
Consultant with access to medical, disability and death benefits that are not
less beneficial to the Consultant than such comparable benefits provided to the
executive officers of the Company at Consultant's cost.
(b) Taxes. No income, unemployment, social security or other
-----
taxes and no fees, impositions, duties or other charges of any kind shall be
deducted or withheld from amounts payable hereunder, unless otherwise required
by law. The Consultant hereby agrees to reimburse the Company for the payment of
any U.S. Federal tax of a kind referred to in the preceding sentence which the
Company was required to, but failed to, withhold from amounts payable hereunder.
5. Termination for Cause. The Company may terminate the
---------------------
Consultant's services hereunder for Cause. For the purposes of this Agreement,
the Company shall have "Cause" to terminate the Consultant's services hereunder
upon (A) the willful and continued failure by the Consultant to substantially
perform his duties to the Company (other than any such failure resulting from
his incapacity due to physical or mental illness), after a demand for such
substantial performance is delivered to the Consultant by the Board of Directors
of the Company (the "Board") which specifically identifies the manner in which
the Board believes that the Consultant has not substantially performed his
duties, and the Consultant has not commenced to perform such duties with the
Company within ten (10) business days after such written demand has been given,
or (B) the willful engaging by the Consultant in gross misconduct materially and
demonstrably injurious to the Company. For purposes of this paragraph, no act,
or failure to act, on the Consultant's part shall be considered "willful" unless
done, or omitted to be done, by the Consultant not in good faith and without
reasonable belief that his action or omission was in the best interest of the
Company. Notwithstanding the foregoing, the Consultant shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to the
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<PAGE>
Consultant a copy of a resolution duly adopted by the affirmative vote of not
less than three quarters of the entire membership of the Board at a meeting of
the Board called and held for the purpose (after reasonable notice to the
Consultant and an opportunity for the Consultant, together with his counsel, to
be heard before the Board), finding that in the good faith opinion of the Board
the Consultant was guilty of conduct set forth above in clause (A) or (B) of the
second sentence of this Section 4 and specifying the particulars thereof in
detail.
6. Termination other than for Cause.
--------------------------------
(a) Death. If the Consultant dies, the Consultant's estate
-----
shall be entitled to receive a lump-sum payment (within thirty (30) days after
his death) equal Sections 2 and 4 hereof.
(b) Termination by Either Party. This Agreement may be
---------------------------
terminated by either party at any time upon six (6) months' written notice to
the other party.
(c) Passage of Time. This agreement shall terminate on the date
---------------
that is five years from its date unless previously extended by the parties.
7. Competitive Activity. The Consultant agrees that, during
--------------------
the five-year period commencing on the date hereof, he will not, without the
prior written consent of the Company, (i) engage in any business or perform any
service in competition with the products and services of the Company and its
subsidiaries as such products and services exist at the date hereof, or (ii)
have any interest, whether as a proprietor, partner, employee, stockholder,
principal, agent, consultant, director, officer, or in any other capacity or
manner whatsoever, in any enterprise in competition with the one to four family
residential mortgage products and services of the Company and its subsidiaries
as such products and services exist at the date hereof. Notwithstanding the
foregoing, the Consultant shall not be deemed to be in competition hereunder due
to ownership by the Consultant of less than ten percent (10%) of the issued and
outstanding capital stock of a publicly-traded company.
8. Confidentiality. The Consultant agrees that he will not,
---------------
without the written consent of the Board, (A) use for his benefit or disclose to
any person at any time during his consultancy hereunder, or at any time
thereafter for a period of one year, except to an employee of the Company (or
any affiliated companies) during his consultancy hereunder to the extent
required in the performance by the Consultant of his duties hereunder, any
confidential information obtained or developed by him during his consultancy
hereunder, including, without limitation, information relating to any customers,
suppliers, employees, products, services, technology, know-how, trade secrets or
the like, financial information or plans, or (B) take with him, upon termination
of his consultancy hereunder, any document or paper relating to any of the
foregoing. The provisions of this Section 8 shall not apply to any information
that, at the time of use or disclosure, is publicly known or is recognized as
standard practice, except by fault of the Consultant.
5
<PAGE>
9. Remedies. The Consultant acknowledges that a violation
--------
on his part of any of the covenants set forth in Section 7 or 8 hereof would
cause immeasurable and irreparable damage to the Company. The Consultant
accordingly agrees that, in addition to any other remedies available to the
Company at law or in equity, the Company shall be entitled to specific
performance of the provisions thereof and to injunctive or mandatory relief.
10. Successors; Assignments. This Agreement shall be binding
-----------------------
upon and shall inure to the benefit of the Consultant's personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees and the Company's successors. This Agreement is personal in nature and
neither this Agreement nor any right hereunder shall be assignable by the
Consultant or the Company.
11. Notice. Any notice or other communication hereunder to
------
either party shall be in writing and shall be either delivered personally or
mailed by registered mail, return receipt requested, postage prepaid, addressed
as follows:
If to the Consultant:
John D. Dewey
The Dewey Consulting Group
37 Bridgeport
Newport Coast, CA 92657
Facsimile No. (714) 474-7556
If to the Company:
Attention:Robert W. Howard, President
Southern Pacific Funding Corporation
One Center Pointe Drive, Suite 500
Lake Oswego, OR 97035
Facsimile No. (503) 684-2492
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt. Any notice or other communication hereunder
shall be deemed to have been given (A) if delivered by hand as provided above,
on the day delivered, if such day is a business day, or on the first business
day following delivery if such day is not a business day, or (B) if mailed as
provided above, on the tenth (10th) business day following the date on which it
was mailed.
6
<PAGE>
12. Miscellaneous. No provisions of this Agreement may be
-------------
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing, and is signed by the Consultant and the Company. No waiver
by any party hereto at any time of any breach by the other party hereto of, or
compliance with, any condition or provision of this Agreement to be performed by
the other party hereto shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by any party hereto which
are not set forth expressly in this Agreement. This Agreement supersedes all
prior agreements of the parties hereto with respect to the subject matter
hereof. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Oregon without giving
effect to the conflicts or choice of law thereof.
13. Severability. The invalidity or unenforceability of any
------------
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement which shall remain in
full force and effect. In such event, however, the parties shall negotiate a new
provision that will, as nearly as is valid, lawful and enforceable, have the
same economic effect and accomplish the same objectives as the provisions (or
part of a provision) of this Agreement that was declared invalid, illegal or
unenforceable.
14. Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
15. Headings. The headings contained herein are for
--------
reference purposes only and shall not in any way effect the meaning or
interpretation of this Agreement.
16. Survival of Covenants. The covenants contained in
---------------------
Sections 2(g), 4(c), 5, 7 (except as provided in Section 6 hereof), 8, 17 and 18
hereof shall survive the termination of this Agreement.
17. Legal Fees. The Company shall pay all legal fees and
----------
expenses incurred by the Consultant as a result of any termination of the
Consultant's consultancy under this Agreement (including all such fees and
expenses, if any, incurred in contesting or disputing any such termination) or
as a result of seeking to obtain or enforce any right or benefit provided by, or
to enforce any provision of, this Agreement, provided that the Consultant
prevails (by judgment, settlement or otherwise) in such contest, dispute or
enforcement proceeding. In no event shall the Consultant be required to
reimburse the Company for any legal fees or expenses relating to this Agreement.
18. Arbitration. Should any dispute arise under this
-----------
Agreement, the parties shall meet and confer in an effort to resolve such
dispute.
If the parties are unable to resolve their differences as a
result of the foregoing, then with respect to any dispute between the parties,
the parties then shall in good faith mediate
7
<PAGE>
such dispute and use their best efforts to reach agreement on the matters in
dispute. Within five (5) days of the request of any party, the requesting party
shall attempt to employ the services of a third person mutually acceptable to
the parties to conduct such mediation within five (5) days of his appointment.
If they do not reach such solution within thirty (30) days of appointment of a
mediator, then upon notice by either party to the other disputes, claims,
questions or disagreements shall be finally settled by binding arbitration in
accordance with the Expedited Procedures of the Commercial Rules of the American
Arbitration Association. Any demand for arbitration and conduct thereof shall
require payment of all arbitration fees equally by Company and Consultant, which
may be reimbursed pursuant to the Award of the Arbitrators.
Within fifteen (15) days after the notice of arbitration by
either party described above, each party shall select one person to act as
arbitrator, and the two selected shall select a third arbitrator within ten (10)
days of their appointment. If the arbitrators selected by the parties are unable
or fail to agree upon the third arbitrator, the parties or their attorneys may
request the American Arbitration Association to appoint the third neutral
arbitrator. Prior to the commencement of hearings, each of the arbitrations
appointed shall take an oath of impartiality. The arbitrators must be members of
the California State Bar actively engaged in the practice of law with expertise
in the process of deciding disputes and interpreting contracts in mortgage
banking. The arbitrators shall award to the prevailing party, if any, as
determined by the arbitrators, all of its costs and fees. "Costs and Fees" means
all reasonable pre-award expenses of the arbitration, including the arbitrators'
fees, administrative fees, travel expenses, out-of-pocket expenses such as
copying and telephone, court costs and witness fees but shall exclude attorney's
fees except as allowable pursuant to paragraph 17, above. Upon the request of a
party the arbitrators award shall include findings of fact and conclusions of
law. The arbitrators shall provide copies of such award to the parties.
Any and/or all proceedings shall be conducted in Orange County,
California.
19. Mitigation and Offset. No amount received by the
---------------------
Consultant hereunder shall be subject to mitigation, due to the acceptance or
availability of other employment or otherwise. The Company shall have no right
to set-off or counterclaim in respect of any claim, debt or obligation against
any payments provided for in this Agreement.
20. Nature of Relationship. Nothing herein shall be
----------------------
construed to constitute the Company or the Consultant the agent, employee,
partner or joint venturer of the other.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date and year first above written.
SOUTHERN PACIFIC FUNDING CORPORATION
By: /s/ ROBERT W. HOWARD
--------------------
Name: Robert W. Howard
Title: President
SOUTHERN PACIFIC FUNDING CORPORATION
By: /s/ BERNARD GUY
---------------
Name: Bernard Guy
Title: Executive Vice-President
B MORTGAGE ACCEPTANCE CORP. dba THE DEWEY
CONSULTING GROUP
By:_________________
Name: John D. Dewey
Title: President
9
<PAGE>
EXHIBIT 1
---------
ORIGINATORS PRODUCED BY COMPANY
AS OF AUGUST __, 1996
[ * ]
ORIGINALS PROCURED BY CONSULTANT
AS OF AUGUST __, 1996
[ * ]
- --------
* This information has been omitted and filed separately with the Securities and
Exchange Commission and is subject to a confidential treatment request with
respect thereto.
10
<PAGE>
EXHIBIT 10.19
[LETTERHEAD FOR SOUTHERN PACIFIC FUNDING CORPORATION]
September 3, 1996
BOMAC Capital Mortgage, Inc.
8235 Douglas Avenue, Suite 550
Dallas, Texas 75225
Attention: Stan Bomar
Re: SPFC Strategic Partner Letter of Intent
---------------------------------------
Dear Sirs:
Southern Pacific Funding Corporation ("SPFC") and BOMAC Capital
Mortgage, Inc., a Texas corporation ("BOMAC"), hereby confirm their mutual
understandings with respect to the transactions described below in this letter
of intent (the "Letter of Intent").
1. Securitization
Program: SPFC or an affiliate designated by it will
purchase from BOMAC, from time to time pursuant to the
Purchase Agreement (as hereinafter defined), certain
Mortgage Loans (as hereinafter defined) offered by BOMAC
as provided herein. SPFC also expects to purchase
mortgage loans from other originators which, together
with BOMAC, are hereinafter referred to as the
"Originators".
-----------
Upon the accumulation by SPFC of a mortgage loan
pool purchased from the Originators of sufficient size
(as determined by SPFC), SPFC will sponsor, through one
or more trusts or subsidiaries (each, a "Trust" or an
-----
"Issuer"), the issuance of mortgage-backed securities,
------
currently expected to consist of Class A Certificates
(and Subordinate Certificates and/or IO Certificates,
where structured). The "Class A Certificates" together
with any "Subordinate Certificates", will be entitled to
all of the principal paid on the mortgage-backed
securities (other than nominal amounts payable on other
classes) plus interest at a fixed or variable pass-
through rate, as applicable. The Subordinate
Certificates will be subordinate in right of payment to
the Class A Certificates. The "IO Certificates", if any,
will not be entitled to receive payments of principal
but will be entitled to receive interest payable at a
fixed or weighted average variable rate on the
outstanding principal balance
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
or notional principal amount of the Mortgage Loans (or a
subgroup of the Mortgage Loans).
It is anticipated that the Class A Certificates,
the Subordinate Certificates, and IO Certificates
(collectively, the "Offered Certificates") will be (a)
--------------------
publicly offered by an Issuer and underwritten by a
qualified underwriter determined solely by SPFC (the
"Underwriter"), (b) sold by such Issuer into a
-----------
commercial paper vehicle which may or may not be
sponsored by SPFC or (c) privately placed by the
Underwriter. Any transaction relating to the issuance of
the Offered Certificates and the related Residual
Interest (as hereinafter defined) is hereinafter
referred to as a "Securitization Transaction".
--------------------------
Where the sale of certain Mortgage Loans by
whole loan sale would in light of market conditions
appear to provide a superior execution in comparison to
SPFC conducting a Securitization Transaction with such
Mortgage Loans, either SPFC or BOMAC may elect to sell
such Mortgage Loans through one or more whole loan sale
transactions (each a "Whole Loan Transaction"). Where
----------------------
Mortgage Loans are sold pursuant to a Whole Loan
Transaction at BOMAC's election, BOMAC shall pay SPFC a
Whole Loan Release Fee as set forth in Exhibit 1 at the
closing of the Whole Loan Transaction.
In the event that SPFC does not, or indicates
that it will not, sponsor a securitization in a given
calendar quarter (ending March 31, June 30, September 30
or December 31, as applicable) for reasons other than
market conditions, BOMAC may repurchase Mortgage Loans
from SPFC at par and free of any Whole Loan Release
Fees.
2. Residual
Interests. In addition to the Class A Certificates, the
Subordinate Certificates, and IO Certificates, if any,
the related Trust or SPFC may also issue one or more
residual interests which may be in the form of
partnership interests, subordinated interest-only
certificates, residual certificates or such other form
as determined by SPFC for such transaction (a "Residual
Interest"). SPFC or an affiliate thereof will be the
initial holder of all Residual Interests.
2
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
Each Residual Interest will not be initially
entitled to any principal distributions but will be
entitled to excess interest or spread on the Mortgage
Loans included in the related Securitization Transaction
which represents the portion of the interest coupon
payable on individual Mortgage Loans in excess of the
sum of (a) the interest payable on the Class A
Certificates, the Subordinate Certificates, the IO
Certificates and the IO Strip (as hereinafter defined),
and (b) the fees paid to the Servicers, the
Subservicers, the Trustees, credit-enhancers and
insurers. The Residual Interests will be subordinate in
right of payment to the Class A Certificates, the
Subordinate Certificates, the IO Certificates and the IO
Strip. Further, the entitlement to payment of the
Residual Interest may be subordinate to funding of any
reserve accounts, if any, as required for such
Securitization Transaction.
3
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
3. Mortgage Loan
Purchase: SPFC and BOMAC will enter into a Purchase
Agreement to specify the terms of the purchase of
Mortgage Loans by SPFC for sale in the related
Securitization Transaction. From time to time, SPFC will
purchase from BOMAC a pool of Qualifying Loans (as
hereinafter defined) (the "Mortgage Loans") consisting
--------------
of fixed rate first and/or second lien and/or adjustable
rate first lien Mortgage Loans, on one-to-four unit
residential properties in accordance with the terms and
provisions of a master mortgage loan purchase and
administration agreement to be entered into between
SPFC, The Chase Manhattan Bank, or another acceptable
institution to act as administrator (the
"Administrator") and BOMAC (as such agreement shall from
time to time be amended, the "Purchase Agreement"). On
------------------
each sale and transfer date (each, a "Sale Date"). SPFC
---------
will purchase the Mortgage Loans at a price equal to the
sum of the following components (a) a sale date payment
(the "Sale Date Payment") equal to 100% (or, in the case
-----------------
of a whole loan sale, such other price as is determined
by BOMAC and SPFC at the time of sale) of the principal
balance of the Mortgage Loans which are being purchased,
as of a specified date (each, the related "Cut-Off
-------
Date"), (b) an accumulation phase periodic deferred
----
payment (the "Accumulation Deferred Payment" as
-----------------------------
hereinafter more fully defined), (c) a securitization
transaction deferred payment (the "Securitization
--------------
Deferred Payment" as hereinafter more fully defined) and
----------------
(d) a post-securitization periodic deferred payment (the
"Residual Deferred Payment"). SPFC will pay the Sale
-------------------------
Date Payment to BOMAC on the related Sale Date. Amounts
payable as Accumulation Deferred Payments,
Securitization Deferred Payments and Residual Deferred
Payments will represent a general corporate obligation
of SPFC (subject to certain covenants concerning net
worth and income) to pay such amounts and will be
payable in accordance with the terms of the Purchase
Agreement.
4
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
4. Accumulation
Deferred
Payment: With respect to each Mortgage Loan sold by BOMAC
to SPFC, during the period from the related Sale Date
through the related Securitization receive from SPFC the
Accumulation Deferred Payment on a monthly basis equal
to the net interest income on the related Mortgage Loans
after deducting the sum of (a) any and all servicing
fees payable to the Servicer or any Subservicer not to
exceed .50% per annum, (b) the "Interest Remittance
Requirement" payable to SPFC, equal to the product of
(i) the aggregate outstanding principal balance of such
Mortgage Loans (the "Aggregate Principal Balance") and
---------------------------
(ii) the sum of (x) one month LIBOR and (y) the interest
spread set forth on Exhibit 1 for the corresponding
level of Aggregate Principal Balance (such sum the
related "Cost of Funds"), (c) the sum of (i) any
-------------
principal payment shortfalls and (ii) the principal
component of any realized losses suffered by such
Mortgage Loans and (d) any custodial and other
applicable expenses.
5
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
5. Securitization
Deferred
Payment: BOMAC will be entitled to receive from SPFC on
the closing date of the related Securitization
Transaction, the Securitization Deferred Payment, equal
to the excess, if any, of (a) the portion of the Net
Proceeds from the sale of the Offered Certificates
allocable to the Mortgage Loans sold by BOMAC under the
Purchase Agreement which secure such Offered
Certificates over (b) the sum of (i) the Sale Date
Payments for such Mortgage Loans and (ii) the portion of
any required initial reserve deposits, if any, allocable
to such Mortgage Loans for such Securitization
Transaction. With respect to any sale of Offered
Certificates, "Net Proceeds" shall mean the proceeds
------------
received from the sale of the Offered Certificates less
the Transaction Fees and Legal Expenses (each as
hereinafter defined). The proceeds from the sale of
Offered Certificates shall include accrued interest, if
any, on such Offered Certificates and shall be reduced
by the accrued interest on the Mortgage Loans between
the Securitization Cut-Off Date and the Securitization
Closing Date. SPFC shall determine in its reasonable
judgment the portions of Net Proceeds and initial
reserve deposits allocable to the Mortgage Loans in a
Securitization Transaction based upon the
characteristics of each Originator's Mortgage Loans and
shall allocate such reserve deposits, costs and benefits
on a proportionate basis among the participating
Originators based on such determination.
Where certain Mortgage Loans are sold pursuant
to a Whole Loan Transaction, BOMAC's Securitization
Deferred Payment related thereto shall be calculated
with Net Proceeds equal to the proceeds received from
the sale of such Mortgage Loans in the Whole Loan
Transaction less the Transaction Fees and Legal and
Other Expenses as applicable thereto.
6
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
6. Residual
Deferred
Payment: Subject to its payment obligations regarding
Residual Deferred Payments Financing and Working
Capital/Sub Debt Financing (each as hereinafter
defined), BOMAC will be entitled to receive an amount
from SPFC as Residual Deferred Payments equal to the
amount which SPFC would have received from payments made
on the Residual Interest for such Securitization
Transaction in respect of the related Mortgage Loans if
such Mortgage Loans sold by BOMAC were the only mortgage
loans included in such Securitized Transaction, within
15 days from the date payments on such Residual Interest
would have been received. In the event SPFC sells its
Residual Interest, or any portion thereof, SPFC shall
pay to BOMAC [within 15 days of its receipt of the
proceeds of such sale] the proportionate share of the
value of the Residual Interest attributable to BOMAC
originated Mortgage Loans.
Where certain Mortgage Loans are sold pursuant
to a Whole Loan Transaction, BOMAC shall be entitled to
Residual Deferred Payments with respect thereto only to
the extent that SPFC or an affiliate thereof retains an
interest in such Mortgage Loans.
7. Cooperation
Concerning
Securitization: BOMAC agrees to cooperate with SPFC to the
extent reasonably necessary to complete the
securitization of the Mortgage Loans. Such cooperation
shall include making all representations and warranties
relating to the Mortgage Loans in the Purchase Agreement
as required of SPFC by the financial guarantor selected
by SPFC (the "Surety Provider") and the rating agencies,
---------------
provision of information necessary for use in the
disclosure documents used to offer the Offered
Certificates and execution and delivery of indemnities,
relating to the accuracy of such information, and other
documents and certificates customarily required of
sellers of mortgage loans for the subsequent
securitization of such mortgage loans.
7
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
8. Servicing: The Mortgage Loans to be purchased by SPFC shall
be serviced by Advanta Mortgage USA, Inc. or such other
servicer as may be selected by SPFC (such servicer and
any successor thereto, the "Servicer") pursuant to a
--------
servicing agreement to be executed by such Servicer and
SPFC. All Mortgage Loans originated or purchased by
BOMAC subsequent to the date hereof will be serviced
directly by the Servicer as of such origination date or
within 15 days of the purchase date for funded loans
purchased by BOMAC. Except during such 15 day period in
the case of funded loans purchased by BOMAC, in no case
will the Mortgage Loans be serviced by BOMAC or an
affiliate thereof subsequent to the sale of such
Mortgage Loans to SPFC. It is not currently anticipated
that BOMAC will subservice the Mortgage Loans. Upon the
purchase of the Mortgage Loans by SPFC, a 50 bps gross
servicing fee shall be charged against the Mortgage
Loans. Any servicing advances, or advances of principal
and interest on BOMAC's delinquent loans (collectively,
the "Advances") shall be made by the Servicer and shall
--------
be limited to Advances which the Servicer reasonably
believes are recoverable from the proceeds of the
related Mortgage Loans and compensating interest will be
limited to the extent of gross servicing fees or such
other amounts acceptable to the rating agencies and the
Surety Provider. Advanta shall provide copies of
remittance and loan loss and delinquency reports
customarily prepared by servicers where reasonably
requested by BOMAC.
8
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
9. Subservicing: The servicing agreement may provide that the
Servicer and BOMAC or an affiliate thereof enter into a
subservicing agreement acceptable to the Surety
Provider, SPFC and the Servicer on or prior Closing Date
(as herein defined).
10. Custodian/
Trustee: Initially, The Chase Manhattan Bank or another
acceptable institution shall act as administrator (in
such capacity, the "Administrator") pursuant to the
-------------
Purchase Agreement and custodian (in such capacity, as
the "Custodian") of the documents relating to the
---------
Mortgage Loans pursuant to the terms of a custodial
agreement among such institution, BOMAC and SPFC. In
addition, The Chase Manhattan Bank or another acceptable
institution initially shall act as Trustee for each
Issuer pursuant to terms and conditions of the related
pooling and servicing agreement to be executed by the
parties thereto. SPFC reserves the right to replace The
Chase Manhattan Bank as Administrator, Trustee or
Custodian at a later date.
11. Surety Bond
Requirement: The Issuer is expected to issue Offered
Certificates to be rated AAA by Moody's and AAA by
Standard & Poor's pursuant to a surety bond to be
provided by the Surety Provider. The AAA rated surety
bond is anticipated to be provided based on an
overcollateralization/ subordination structure. The
terms of such overcollateralization/subordination
structure will be set forth in a commitment letter to be
provided by the Surety Provider to SPFC upon the
identification of the Mortgage Loans to be securitized.
SPFC may also proceed with a senior/subordinate
securitization, without a Surety Provider. The Surety
Provider or one or more of the Rating Agencies shall
also provide SPFC with loss reserve and/or
overcollateralization levels ("OC Levels") specific to
---------
the Mortgage Loans included in each securitization. Each
Securitization Transaction as well as each Originator's
mortgage loans within each Securitization Transaction
will likely have varying and separate OC levels. Such OC
Levels will be used by SPFC in the calculation of the
level of each Residual Deferred Payment.
9
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
12. Representations
and Warranties: In the Purchase Agreement, BOMAC shall have
primary liability for representations and warranties
relating to itself, its origination practices and its
Mortgage Loans. Such representations and warranties
shall be typical for similar publicly issued
securitizations and shall provide for repurchase by
BOMAC of Mortgage Loans which become delinquent during
the Accumulation Period as well as for those which
materially breach a representation and warranty and such
breach materially and adversely affects the value of
such Mortgage Loan and is not cured within 90 days. To
the extent that different or additional representations
and warranties regarding the Mortgage Loans or BOMAC and
its affiliates as Originators are provided by SPFC
because such representations and warranties are
reasonably required in connection with the
Securitization Transaction or the Whole Loan Transaction
then BOMAC shall (to the extent that it can make such
representations) modify the Purchase Agreement to give
SPFC identical representations and warranties thereunder
with respect to such Mortgage Loans. BOMAC shall bring
down all of its representations and warranties (to the
extent that it can so bring down such representations)
in the Purchase Agreement with respect to itself and its
affiliates and the related Mortgage Loans to the closing
date of the related Securitization Transaction or the
Whole Loan Transaction, as the case may be.
In order to enhance the likelihood of obtaining
a AAA rating on certain of the Offered Certificates,
SPFC, in its capacity as sponsor, shall, to the extent
required, assume liability for repurchase obligations in
connection with documents relating to liability will
relieve BOMAC of any liability to SPFC.
In the event that BOMAC does not make a required
Mortgage Loan repurchase due to an uncured breach of a
representation or warranty under the Purchase Agreement,
SPFC may fund such repurchase from (a) amounts otherwise
distributable to BOMAC through Residual Deferred
Payments or (b) if, for any reason, the Residual
Deferred Payments cash flow is not sufficient to fully
fund the required repurchase amount, then SPFC shall
pay the
10
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
unpaid portion of the repurchase amount as an
advance (a "SPFC Advance"). A SPFC Advance shall consist
of any amounts that SPFC advances in cash to the Trust
with respect to the Mortgage Loans. In the event that a
SPFC Advance is made, an advance fee shall be due to
SPFC in an amount equal to the product of (i) the sum of
(x) one Month LIBOR (as announced from time to time by
The Chase Manhattan Bank or another bank specified for
such purpose) and (y) [ * ], (ii) the amount of
the SPFC Advance and (iii) the ratio of (x) the number
of days such SPFC Advance is outstanding over (y) 360.
The amount of any SPFC Advance and any advance fee may
be offset from amounts otherwise distributable to BOMAC
through Residual Deferred Payments. After the date on
which BOMAC fails to make such a repurchase, SPFC shall
have the right to terminate BOMAC as Subservicer with
respect to such Trust.
13. Offered
Certificates: The Issuer(s) will issue and sell, and investors
identified by the Underwriter(s) will purchase, the
Offered Certificates in an amount to be determined on or
prior to certain dates (each such date, a
"Securitization Closing Date"). The Offered Certificates
will be purchased at a price and initial pass through
rate to be determined by the Underwriter(s). The
Underwriter(s) may, at their option, elect to purchase
the Offered Certificates.
- --------
* This information has been omitted and filed separately with the Securities and
Exchange Commission and is subject to a confidential treatment request with
respect thereto.
11
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
14. Securitization
Compensation: As consideration for the structuring, issuance
and distribution of mortgage-backed securities secured,
in whole or in part by the Mortgage Loans and the
ongoing administration of the terms of the Purchase
Agreement and other transaction documents, BOMAC shall
compensate SPFC through (a) the payment on the
Securitization Closing Date of an advisory fee equal to
the product of (i) the aggregate outstanding principal
balance of the Mortgage Loans which comprise part of
such Securitization Transaction and (ii) the advisory
fee rate set forth on Exhibit 1 hereto based upon
BOMAC's volume of Mortgage Loan sales to SPFC over the
most recent calendar quarter (the "Quarterly Purchase
------------------
Volume"); and (b) SPFC's right to retain or dispose of
------
an interest only class of certificates (the "IO Strip")
issued in such Securitization Transaction which pays
interest equal to the product of (i) the percentage set
forth on Exhibit 1 hereto based upon BOMAC's most recent
Quarterly Purchase Volume, and (ii) a notional amount
equal to the then outstanding aggregate principal
balance of the Mortgage Loans which secure the
securities issued in such Securitization Transaction.
The IO Strip will be senior in the right to payment to
any Residual Interest issued in connection with such
Securitization Transaction. SPFC may sell the IO Strip
as part of the issuance, sale and/or placement of the
other securities of the Securitization Transaction
without the need to pay for a proportionate share of the
costs and expenses of the Securitization Transaction.
12
<PAGE>
15. Residual
Deferred
Payment
Financing: SPFC will advance an amount requested by BOMAC,
from time to time, to BOMAC (each a "Residual Deferred
Payments Financing") not to exceed the percentage of
BOMAC's Residual Deferred Payments value as set forth on
Exhibit 1. The Residual Deferred Payments value will be
determined by SPFC in its reasonable judgment, the
assumptions will, however, be reflective of current
market conditions and expectations and based on loss
assumptions and the OC Levels provided by the Surety
Provider, or the Rating Agencies. SPFC will provide
lending only on Residual Deferred Payments that are
related to an SPFC sponsored Securitization Transaction
to the extent secured thereby in accordance with the
collateral ratios set forth in Exhibit 1. All Residual
Deferred Payments Financing advances will accrue
interest at a Residual Financing Rate equal to the sum
of (a) the Cost of Funds plus (b) the Spread as
specified on Exhibit 1. The Residual Financing Rate on
the Residual Deferred Payments Financing(s) shall accrue
and compound monthly and be paid out of BOMAC's Residual
Deferred Payments cash flow. Each Residual Financing
Rate on each securitizations Residual Based Financing
will be set at the closing of each Securitization
Transaction based on the most recent Quarterly Purchase
Volume.
13
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
16. Working
Capital/
Sub Debt
Facility: SPFC will provide BOMAC with working capital
subordinate debt financing ("Working Capital/Sub Debt
------------------------
Financing") based upon a percentage of BOMAC's aggregate
---------
Residual Deferred Payments value as set forth on Exhibit
1. The aggregate Residual Deferred Payments value will
be determined solely by SPFC, the assumptions will,
however, be reflective of current market conditions and
expectations and based on loss assumptions and the OC
Levels provided by the Surety Provider, or the Rating
Agencies. The valuation of the aggregate Residual
Deferred Payments will not necessarily be equal to the
sum of the original valuations on the individual
Residual Deferred Payments. The aggregate Residual
Deferred Payments valuations will most likely vary from
the sum of the individual Residual Deferred Payments due
to varying market conditions, actual defaults, losses
and prepayments from the original individual Residual
Deferred Payments valuations. SPFC will provide Working
Capital/Sub Debt Financing only on Residual Deferred
Payments that were issued through a SPFC sponsored
Securitization Transaction. In consideration for Working
Capital/Sub Debt Financing, BOMAC will pay interest to
SPFC at a Sub Debt Financing Rate equal to the sum of
(a) the Cost of Funds plus (b) the Spread as specified
on Exhibit 1. The Sub Debt Financing Rate on the Working
Capital/Sub Debt shall accrue and compound monthly and
be paid out of BOMAC's Residual Deferred Payments cash
flow. Sub Debt Financing Rates on Working Capital/Sub
Debt Financing are set at the closing of each
Securitization Transaction and are based on the most
recent Quarterly Purchase Volume.
Working Capital/Sub Debt Financing shall be
repaid out of the Residual Deferred Payments cash flow,
and shall be repaid in full by BOMAC, no later than the
first to occur of either (i) an initial public offering
of BOMAC common stock (an "IPO"); (ii) a private sale of
more than 10% of BOMAC common stock; or, (iii) the
expiration of the Exclusive Period. If BOMAC should fail
to repay all Working Capital/Sub Debt Financing when
due, then SPFC shall have an option, at its sole
discretion, to purchase some or all of the remaining
common stock of BOMAC at a price equal to the net
14
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
worth of BOMAC on the date of execution of the
agreements relating to this program plus the product of
(a) the percentage of the outstanding BOMAC common stock
being purchased through such option (assuming separately
SPFC's full exercise of the Warrants), (b) the actual
after tax net income of BOMAC for the prior calendar
year, and (c) the lesser of (i) [ * ] or (ii)
the arithmetic average to the extent still in the
business, equally weighted, of the price-earnings ratios
for such prior calendar year of Industry Mortgage,
United Companies, Cityscape Corp and Aames Financial
Corporation (or any successors thereto).
17. Value Sharing
Participation: In entering into a Strategic Relationship with
SPFC, BOMAC is entitled to participate in programs which
include, but are not limited to the following: a SPFC
sponsored warehouse facility via the Purchase Agreement,
access into SPFC's Securitization conduit, and the right
to receive Residual Deferred Payments Financing and
Working Capital/Sub Debt Financing. In consideration for
entering into a Strategic Relationship with SPFC and
having access to the aforementioned programs, BOMAC will
grant to SPFC warrants to purchase [ * ] of
BOMAC common stock with a total exercise price of
[ * ] (the "Warrants").
- --------
* This information has been omitted and filed separately with the Securities and
Exchange Commission and is subject to a confidential treatment request with
respect thereto.
15
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
18. Exclusivity: BOMAC agrees to use SPFC as its exclusive
securitization sponsor for a period ending (the
"Exclusive Period") on the earliest to occur of (a)(i)
if BOMAC does not extend as provided in (ii) below,
thirty-six months from the Closing Date of the first
Securitization that includes Mortgage Loans originated
by BOMAC and sold to SPFC or (ii) if BOMAC does extend
the strategic relationship with SPFC through written
notice given to SPFC at least ninety (90) days prior to
the expiration of the thirty-six month period beginning
on the Closing Date of the first Securitization, forty-
eight months from the Closing Date of the first
Securitization (the period after such thirty-six months
shall be referred to as the "Extension Period");
provided that during the extension period, the
calculation of advance rates and fees owed shall be only
as set forth in column "A" of Exhibit 1, (b) until
$600,000,000 of Mortgage Loans are sold by BOMAC to SPFC
other than those Mortgage Loans for which SPFC
ultimately acquires BOMAC's Deferred Payment or (c) SPFC
does not, or indicates that it will not, sponsor a
securitization in a given calendar quarter (ending March
31, June 30, September 30 or December 31, as applicable)
for reasons other than market conditions. If BOMAC
securitizes the Mortgage Loans that are otherwise
intended for this program other than with SPFC prior to
an IPO or private sale of more than 10% of BOMAC common
stock, BOMAC shall pay such Advisory Fees based on the
schedule set forth under Exhibit 1 together with the
present value of the IO Strip that would have been paid
to SPFC (based on a 12% discount rate and such deal's
pricing CPR assumption) for all subsequent
securitization transactions in the amount contemplated
above during the Exclusive Period as liquidated damages.
Notwithstanding the foregoing, BOMAC may (a)
cancel this arrangement without penalty if SPFC is in
material default under this Letter of Intent, the terms
of the Purchase Agreement or SPFC terminates the
Purchase Agreement or BOMAC terminates the Purchase
Agreement in accordance with its terms and (b) sell its
mortgage loans which do not qualify under the SPFC
Guidelines (as defined below) to others at any time
during the Exclusive Period subject to the payment of a
Warehouse Release Fee as set forth on Exhibit 1. It is
BOMAC's intent that all of its mortgage loans that
qualify for the SPFC Guidelines will be originated for
inclusion in
16
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
this program. Upon cancellation of this arrangement
pursuant hereto, the Exclusive Period shall terminate.
19. Mortgage Loan
Underwriting
Guidelines: A "Qualifying Loan" is a mortgage loan which has
been originated in accordance with the underwriting
guidelines approved by SPFC and acceptable to the Surety
Provider (the "SPFC Guidelines"). All Mortgage Loans
originated by BOMAC for sale to SPFC must be re-
underwritten and approved by SPFC or such other party
that may be selected by SPFC, such as a "Contract
Underwriter", prior to the securitization, to ensure
SPFC of BOMAC's general conformance with the SPFC
Guidelines. Fees and expenses of a Contract Underwriter,
if any, are to be paid by SPFC with respect to Mortgage
Loans underwritten with respect to SPFC Guidelines and
submitted by BOMAC, otherwise such fees shall be payable
by BOMAC. Any material deviations from or material
exceptions to the SPFC Guidelines must be expressly
approved by SPFC in writing to BOMAC. In addition, the
SPFC Guidelines shall set forth an appraisal review
policy acceptable to SPFC and the Surety Provider.
Nothing herein or in the Purchase Agreement
shall prevent BOMAC from obtaining warehouse lines to
fund loans which are not Qualifying Loans.
17
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
20. Legal and
Other
Expenses: Dewey Ballantine or another law firm acceptable
to SPFC shall act as counsel to SPFC. SPFC's counsel
will prepare and file any necessary registration
statement and related documentation including, but not
limited to, the base prospectus, prospectus supplement,
pooling and servicing agreement, underwriting agreement,
REMIC tax opinion, bankruptcy law or true sale opinion,
securities law opinions (other than a 10(b)-5 opinion
which will be prepared by BOMAC's corporate counsel),
custodial agreement, and sub-servicing agreement. Such
reasonable counsel's fees ("Legal Expenses") shall be as
determined at the completion of each Securitization
Transaction. The portion of such Legal Expenses
allocable to BOMAC will be paid by BOMAC from the
proceeds of the sale of the Offered Certificates.
BOMAC's share of such Legal Expenses shall be calculated
as determined prior to the completion of each
transaction based on BOMAC's proportionate share of
Mortgage Loan volume included in each Securitization
Transaction. Another law firm acceptable to BOMAC shall
act as counsel to BOMAC and shall be paid fees directly
by BOMAC. In addition, BOMAC will be responsible for its
calculated share of expenses relating to the following;
rating agency fees, surety bond provider's legal fees
and expenses, initial surety bond premium, review
appraisal fees, other surety provider related expenses,
trustee and custodian fees, accountant's comfort letter
fees, prospectus printing, transaction fees (as
described above), and the Underwriter's legal fees and
expenses, if any (the "Expenses"). Separately, upon the
--------
execution of the Purchase Agreement, any legal fees and
expenses of SPFC's counsel incurred in the documentation
of BOMAC's Strategic Relationship Program shall be paid
by BOMAC. SPFC and/or the Issuer will be reimbursed by
BOMAC for its proportionate share of Transaction Fees
and expenses as described herein. "Transaction Fees"
----------------
include all reasonable and necessary fees to (a) the
Underwriter, (b) SPFC or any affiliate thereof,
including the Advisory Fee and the IO Strip and (c) all
Expenses.
18
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
21. SEC Shelf
Registration
Filing Fees: Upon each securitization in which BOMAC
participates with SPFC, BOMAC will be required to pay a
shelf registration fee (the "SEC Registration Fee")
equal to SPFC's actual SEC shelf registration fees of
$344.83 or more per $1,000,000 of securities anticipated
to be sold under the SPFC shelf registration related to
the Mortgage Loans for that quarter's securitization
with SPFC (SPFC shall be liable for any registration
fees incurred in connection with other programs). SPFC
has previously paid or will pay such fee directly to the
SEC as part of the total shelf registration fee
calculated based on the total amount of securities SPFC
estimated that it will sell pursuant to the SPFC shelf
registration.
22. Accountant's
Comfort
Letter: Deloitte & Touche or such other acceptable
accounting firm selected by SPFC (the "Accountants")
-----------
shall perform (a) a sample loan file review and (b) such
statistical verifications which will be sufficient for
such firm to issue on or prior to Securitization Closing
Date, a letter addressed to SPFC and the Underwriter
stating that such firm has verified certain data in the
prospectus supplement and certain data on a computer
generated Mortgage Loan data file.
23. Cash Flows
and Analytics: SPFC's Underwriter shall perform Mortgage Loan
collateral tests and other cash flow analyses and shall
deliver such collateral stratifications, statistical
analysis, deal cash flows, prepayment and pricing yield
analysis to BOMAC, SPFC, the Accountants, the rating
agencies and the Surety Provider as required.
19
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
24. Loan Due
Diligence: SPFC shall in and by itself, engage and pay for
the costs of the Contract Underwriter, who shall prepare
(on a weekly basis or less frequently, however prior to
any sale or securitization) a due diligence report on
all Mortgage Loans to be purchased by SPFC.
25. Governing Law: This letter shall be construed in accordance
with the laws of the State of California and the
obligations, rights and remedies of the parties
hereunder shall be determined in accordance with the
laws of the State of California.
26. Validity/
Board of
Directors
Approval: Any and all of SPFC's and BOMAC's obligations
hereunder are expressly conditioned upon approval of
their respective Boards of Directors. This letter will
take effect upon your acceptance hereof as evidenced by
your execution and return of the additional signed copy
of this agreement on or before the close of business in
Oregon, September 6, 1996 and receipt of approval in
writing by SPFC's board of directors, and will terminate
upon the expiration of the Exclusive Period as described
above unless otherwise extended or terminated in writing
by SPFC.
27. Publicity: BOMAC and SPFC shall each obtain the consent of
the other prior to the submission of any press release
related to the transactions contemplated hereby, which
consent shall not be unreasonably withheld or delayed.
In addition, to the extent practicable, BOMAC and SPFC
shall each consult with the other prior to making any
public statements to the media about the transactions
contemplated hereby.
20
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
28. Termination of
SPFC's
Obligations: SPFC may terminate its obligations hereunder by
written notice to BOMAC if, at any time subsequent to
the date hereof, any of the following occurs
(a) The California Department of Corporations or
any other state licensing agency takes any action
which materially affects BOMAC's business operations;
(b) Any litigation shall be instituted or pending
against BOMAC that shall restrain or enjoin the
issuance or sale of the Offered Certificates or in any
way that contests or affects any authority or security
for, or the validity of, the Offered Certificates, or
the existence or power or authority of BOMAC;
(c) There shall have occurred any outbreak or
material escalation of hostilities or other calamity
or crisis (including, without limitation, a crisis in
the financial markets generally, or in the market for
mortgage or asset backed bonds) the effect of which on
the financial markets is such as to make it, in the
reasonable opinion of SPFC, impractical or impossible
to sell the Offered Certificates at a price equal to
the principal amount (or original discounted nominal
amount) thereof;
(d) There shall have occurred a general suspension
of trading in securities, or the declaration of a
general banking moratorium by the United States of
America, the State of California or other State
authorities, or any war involving the United States or
other national calamity, the effect of which, in
SPFC's judgment, would adversely affect the
marketability of the Offered Certificates;
(e) Any material information provided by BOMAC to
SPFC pursuant to the terms hereof or under the
Purchase Agreement shall prove to be incomplete, false
or misleading as determined by SPFC in its sole
discretion; and
21
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
(f) BOMAC shall (i) become insolvent, (ii) make a
general assignment for the benefit of its creditors,
(ii) have had a trustee or receiver appointed for
control of its management or its property, (iv) become
the subject of a voluntary bankruptcy case, or (v)
become the subject of an involuntary petition for
bankruptcy for which dismissal of such petition is not
obtained within 30 days of such filing.
29. Strategic
Relationship
Expenses: Upon the execution of the operative documents
(the "Operative Documents") which establish the
-------------------
strategic relationship between BOMAC and SPFC as
described herein (the "Strategic Relationship"), BOMAC
----------------------
shall pay to SPFC all of the reasonable and necessary
costs incurred by SPFC in connection with the
establishment of the Strategic Relationship and the
preparation of the Operative Documents, including,
without limitation, the fees and expenses of legal
counsel, management advisors and accountants. BOMAC
shall reimburse SPFC for all such fees and expenses
where the Strategic Relationship fails to close and/or
the Operative Documents fail to be completed or
executed, unless such failure arises solely due to the
fault of SPFC.
22
<PAGE>
Southern Pacific Funding Corp. August 30, 1996
BOMAC Capital Mortgage, Inc.
If the foregoing meets with your approval, please execute this letter at
the space provided below and return the letter to out attention.
Sincerely,
SOUTHERN PACIFIC FUNDING CORP.
By: /s/ ROBERT W. HOWARD
Robert W. Howard
President
By: /s/ BERNARD A. GUY
Bernard A. Guy
Executive Vice President
AGREED AND ACCEPTED
This 5th Day of September , 1996
---
BOMAC CAPITAL MORTGAGE, INC.
By: /s/ STAN BOMAR
Stan Bomar
President, CEO
By: /s/ ????
Vice President
23
<PAGE>
EXHIBIT 1
SPFC STRATEGIC PARTNER PROGRAM for
BOMAC CAPITAL MORTGAGE, INC.
Pricing Schedule of Strategic Partner Program Facilities & Pricing
30-Aug-96
<TABLE>
<CAPTION>
A B
<S> <C> <C>
Quarterly Purchase Amount
[less than/= to] [greater than]
Originator's Quarterly Volume $ 45,000,000 $ 45,000,000
Commitment Term (Months) 36+12 36+12
Commitment Amount $600,000,000 $600,000,000
Accumulation Deferred Payment
Purchase Amount at Sale Date (% of Par) 100% 100%
Quarterly Purchase Commitment $ 45,000,000 $120,000,000
Cost of Funds 1 Month LIBOR 5.438% 5.438%
+ Spread over 1 Month LIBOR 2.500% 2.000%
_____________ _____________
= Cost of Funds 7.938% 7.438%
Whole Loan Release Fee (% of Prem) 15% 10%
_____________ _____________
Securitization Fees & Expenses
IO Strip Fee 0.60% 0.50%
Advisory Fee (at each closing) 0.35% 0.25%
Share of Securitization Expenses Pro-Rata Pro-Rata
Initial Program Legal Expenses Actual Actual
Residual Financing
Advance Rate (% of Residual Value) 50% 50%
Cost of Funds 1 Month LIBOR
+ Spread over 1 Month LIBOR 4.50% 4.00%
Maximum Advance Amount $ 24,000,000 $ 24,000,000
Working Capital/Sub Debt Facility
Advance Rate (% of Residual Value) 25% 25%
Cost of Funds 1 Month LIBOR
+ Spread over 1 Month LIBOR 7.00% 6.00%
Maximum Advance Amount $ 12,000,000 $ 12,000,000
</TABLE>
<PAGE>
[LETTERHEAD FOR BOMAC CAPITAL MORTGAGE, INC.]
September 5, 1996
Mr. Bob Howard
Southern Pacific Funding Corporation
One Centerpointe Drive, Suite 500
Lake Oswego, OR 970350
Dear Bob:
Enclosed please find one fully executed copy of the Strategic Partner Letter of
Intent. We are all genuinely excited about this partnership and look forward to
meeting with both you and Mr. Guy as soon as feasible. Also, please forward
board approval when available.
Sincerely,
/s/ STAN BOMAR
Stan Bomar
President
SB/krc
<PAGE>
EXHIBIT 10.20
Amendment To
Loan Servicing Agreement
Between
Southern Pacific Funding Corporation
Owner
and
Advanta Mortgage Corp. USA
Servicer
Dated as of August 12,1996
Fixed and Adjustable Rate Non-Conforming Mortgage Loans
<PAGE>
This Amendment is dated as of August 12, 1996 and amends the Servicing Agreement
("Agreement") by and between Southern Pacific Funding Corporation ("the Owner")
and Advanta Mortgage Corp. USA ("the Servicer") dated September 14, 1995, as
follows:
Section 4.10(a) in Article IV, of the Agreement is amended effective September
- ------------------------------------------------------------------------------
1, 1996 to read as follows:
- ---------------------------
Section 4.10 Servicing Compensation
-----------------------------------
(a) As compensation for its activities hereunder, the Servicer shall be
entitled to retain as to each Mortgage Loan, a Servicing Fee in an amount
------------
equal to [ * ] ([ * ] basis points) per annum which
-----------------------
Servicing Fee shall be retained by Servicer from the interest portion of
each Mortgage Loan payment received from a borrower and from Liquidation
Proceeds, as applicable. The Servicer shall be paid the Servicing Fee on a
monthly basis by withdrawal from the Collection Account in accordance with
Section 4.5, of this Agreement.
Section 6.6 (Reserved For Future Use) in Article VI, of the Agreement is amended
- --------------------------------------------------------------------------------
effective with the execution of the Southern Pacific Secured Assets Corp.,
- --------------------------------------------------------------------------
Mortgage Pass-Through Certificates, Series 1996-3 to read as follows:
- ---------------------------------------------------------------------
Section 6.6 Master Servicing Continued Cooperation
--------------------------------------------------
(a) Servicer shall cooperate with Owner in Owner's future efforts to pool
the Mortgage Loans for securitization pursuant to which Servicer will
be engaged as a master servicer. Such cooperation shall include the
Servicer's execution and delivery of the appropriate pooling and
servicing agreement. Servicer shall furnish historical delinquency
statistics evidenced by appropriate comfort letters for Mortgage Loans
serviced and administered by Servicer, estoppel certificates and other
information reasonably requested by Owner.
(b) Owner and Servicer agree and acknowledge that the Owner will deliver
all Mortgage Loans originated or purchased by Owner to Servicer for
servicing hereunder and shall designate Servicer to act as master
servicer for Mortgage Loans sold into a securitization. Subsequent to
each securitization, all Mortgage Loans which are securitized shall be
serviced in accordance with the terms of the related pooling and
servicing agreement, including but not limited to, the Servicer's
obligation to:
(i) make delinquency advances;
(ii) make servicing advances;
- --------
* This information has been omitted and filed separately with the Securities and
Exchange Commission and is subject to a confidential treatment request with
respect thereto.
<PAGE>
(iii) dispose of REO within security provision guidelines;
(iv) provide all required trust reports to the trustee; and
(v) give representations, warranties and covenants Servicer
customarily gives in connection with a securitization
(c) As compensation for its activities pursuant to this Section 6.6, the
Servicer as Master Servicer pursuant to each related pooling and servicing
agreement shall be entitled to retain from the applicable trust collection
account as to each Mortgage Loan a servicing fee of [ * ]%
([ * ] basis points) per annum for each Mortgage Loan serviced
thereunder.
(d) The Servicer as master servicer pursuant to each related pooling and
servicing agreement shall be entitled to retain the Additional Servicing
Compensation as defined in this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to the
Agreement to be duly executed by their respective officer, all as of the day and
year first above mentioned.
Advanta Mortgage Corp. USA Southern Pacific Funding Corp.
By: /s/ William P. Sarland By: /s/ F A Frazzitta
--------------------------- ---------------------------
Name: William P. Sarland Name: Frank A. Frazzitta
Title: Senior Vice President Title: Vice President
- --------
* This information has been omitted and filed separately with the Securities and
Exchange Commission and is subject to a confidential treatment request with
respect thereto.
<PAGE>
EXHIBIT 10.21
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
BETWEEN
SOUTHERN PACIFIC FUNDING CORPORATION
AND
IMPERIAL CREDIT INDUSTRIES, INC.
DATED AS OF
OCTOBER 17, 1996
- --------------------------------------------------------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of October 17, 1996, by and between SOUTHERN PACIFIC FUNDING CORPORATION
(the "Company") and IMPERIAL CREDIT INDUSTRIES, INC. ("Imperial").
1. Consideration. Imperial and the Company have agreed to enter into this
-------------
Agreement to provide the registration rights set forth herein and to otherwise
perform their respective obligations hereunder in consideration of the mutual
covenants contained herein.
2. Definitions. The following definitions shall apply in addition to those
-----------
terms defined elsewhere herein:
a. "Common Stock" means the Company's Common Stock, no par value per
------------
share.
b. "Continuous Offering" means an Offering pursuant to Rule 415 under the
-------------------
Securities Act, 17 C.F.R. 230.415, or any successor rule of the SEC, if
applicable.
c. "Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
d. "Offering" means any public offering of the Common Stock of the
--------
Company, whether or not subject to the registration requirements of the
Securities Act, and any other method of disposition of the Common Stock of the
Company that is subject to the registration requirements of the Securities Act
or any other applicable federal or state statute or regulation.
e. "Offering Documents" means all documents relating to an Offering which
------------------
are required to be filed with any governmental agency or authority or to be
delivered to any Person to whom securities of the Company are offered for sale
or sold, including, without limitation, Registration Statements, Prospectuses,
and preliminary Prospectuses, and all material incorporated by reference
therein, and any schedule or exhibit to any of the foregoing, in each case as
such documents may be amended from time to time.
f. "Party" means Imperial or the Company and "Parties" means both Imperial
----- -------
and the Company.
g. "Person" means any individual, corporation, partnership, limited
------
liability company, association, trust or unincorporated association.
h. "Prospectus" means the prospectus included in a Registration Statement,
----------
relating to an Offering in which Common Stock is included, as amended or
supplemented by a prospectus supplement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference in such Prospectus.
-1-
<PAGE>
i. "Registration Expenses" means, with respect to an Offering, any and all
---------------------
expenses incident to the Company's performance of or compliance with the
provisions of this Agreement, including without limitation (a) fees for any
filings required to be made with the National Association of Securities Dealers,
Inc., or the SEC in connection with such Offering, and any other registration
and filing fees, (b) all fees and expenses of complying with securities or blue
sky laws (including reasonable fees and disbursements of counsel in connection
with blue sky qualifications of the Common Stock to be included in such
Offering), (c) all printing, messenger, telephone, and delivery expenses, (d)
all fees and expenses incurred in connection with the listing of the Common
Stock to be included in such Offering on any securities exchange, (e) the
reasonable fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special audits
and/or "cold comfort" letters required by or incident to such performance and
compliance, and (f) the reasonable fees and disbursements of Imperial's outside
counsel, outside accountants, investment bankers, and financial consultants, if
any, in connection with any Offering.
j. "Registration Statement" means a registration statement filed with the
----------------------
SEC pursuant to the Securities Act, relating to an Offering in which Common
Stock is included, including any pre- or post-effective amendment thereto, the
Prospectus included therein, and all material incorporated by reference therein,
and any schedule or exhibit to any of the foregoing.
k. "SEC" means the Securities and Exchange Commission.
---
l. "Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
m. "Securities Offering Regulations" means any regulations promulgated by
-------------------------------
any agency or authority of the United States government, under the Securities
Act, or any statute hereafter enacted into law, relating to or governing an
Offering of securities by the Company.
n. "Imperial Shares" means the shares of Common Stock, and any other
---------------
securities into which the Common Stock may be changed by virtue of any merger,
consolidation or recapitalization or otherwise, owned of record by Imperial as
of the date hereof.
3. a. Incidental Registration Rights. If the Company proposes to make an
------------------------------
Offering of its Common Stock and to prepare Offering Documents not required
pursuant to Paragraph 4 (other than any registration by the Company on Form S-8
or a successor or substantially similar form of (A) an employee stock option,
stock purchase or compensation plan or securities issued or to be issued
pursuant to any such plan, or (B) a dividend investment plan), the Company will
give prompt written notice to Imperial of its intention to do so and of
Imperial's rights under this Paragraph 3. Upon the written request of Imperial
made within thirty (30) days after the receipt of any such notice (which request
shall specify the number of Imperial Shares intended to be disposed of by
Imperial), the Company will include in the Offering Documents relating to such
Offering all Imperial Shares that the Company has been requested to include by
Imperial; provided, that if at any time after giving written notice under this
Paragraph 3 the Company
-2-
<PAGE>
shall determine for any reason not to proceed with the proposed Offering, the
Company may, at its election, give written notice of such determination to
Imperial and thereupon shall be relieved of its obligations to Imperial with
respect to such proposed Offering under this Paragraph 3. Imperial shall be
entitled to withdraw its request for the inclusion of Imperial Shares in an
Offering and withdraw from the Offering at any time before the time that the
Offering Documents, including any Registration Statement (if applicable), are
declared effective and the Offering has commenced.
b. Continuous Offering. If the Company intends to effect a Continuous
-------------------
Offering, the Company will give written notice thereof to Imperial and include
in such Offering all of the Imperial Shares which Imperial elects to include in
such Offering. During the period in which a Registration Statement (if
applicable) with respect to a Continuous Offering is effective, if Imperial
desires to sell Imperial Shares in a transaction covered by such Registration
Statement, it shall give notice to the Company of the proposed date of such sale
at least thirty (30) days before such proposed date of sale, and the Company
shall take all actions necessary to permit such sale. Within fifteen (15) days
of receipt of notice of a proposed sale by Imperial, the Company will advise
Imperial either that it has no objection of such sale or that such sale should
be delayed for up to four months, on the basis either that the Company is
involved in a confidential proposed transaction or negotiations therefor (which
have been previously disclosed to the Company's Board of Directors) which would
not require the Company to make or amend any public filings under the securities
laws at that time, or that such sale would have a material adverse effect upon
the Company's ability to access the capital markets. If the Company has not
objected to such proposed sale as permitted in this subparagraph (b) within such
fifteen (15) day period, the Company shall take all actions necessary to permit
such sale on the proposed date of sale pursuant to such Registration Statement.
c. Underwritten Offerings. In the case of an underwritten Offering
----------------------
initiated by the Company under this Paragraph 3, including underwritten
Offerings effected as part of a Continuous Offering, the underwriter(s) and the
managing underwriter shall be selected by the Company. If the managing
underwriter advises the Company in writing that, in its opinion, the number of
Imperial Shares and securities of the Company, if any, being sold exceeds the
number that can be sold in such Offering, so as to be likely to have an adverse
effect on the price at which the Company can sell securities for its own
account, then there shall be included in such Offering (and in the Offering
Documents relating to the Offering) first, securities of the Company being sold
for its own account, and second, the maximum number of Imperial Shares requested
to be included in such Offering which, in the opinion of such managing
underwriter, can be sold without having such adverse effect on such price. If
Imperial Shares are so excluded from registration in an Offering, the Company
shall, upon the request of Imperial, use its reasonable efforts to effect a
registration with the SEC or take such actions as shall be reasonably required
to effect an Offering (in the event the Imperial Shares are already registered
with the SEC) in respect of such excluded Imperial Shares as soon as practicable
after consummation of such Offering. Imperial may withdraw its Imperial Shares
from such subsequent Offering without cost or penalty at any time before the
effective date of the Registration Statement relating to such Offering.
-3-
<PAGE>
d. Expenses. In connection with any offering of Imperial Shares and a new
--------
issuance of Common Stock by the Company, Imperial and the Company shall each pay
their pro rata share of Registration Expenses in proportion to the number of
shares of Common Stock to be offered by each.
4. Demand Registration Rights. On or after April 1, 1997, Imperial, without
--------------------------
limitation as to any other method of disposition available to it, shall be
entitled to dispose of any or all of the Imperial Shares then held by it in
accordance with the provisions of this Paragraph 4.
a. Requests by Imperial. Upon the receipt by the Company of written notice
--------------------
from Imperial of its intent to sell all or part of its Imperial Shares in an
Offering subject to this Paragraph 4 at least 30 days before such proposed date
of sale, and specifying both the number of Imperial Shares to be sold and the
intended method of disposition, the Company will use its best efforts to
register such Imperial Shares so as to permit as soon as practicable the
requested sale of Imperial Shares. Within fifteen (15) days of receipt of
notice of a proposed sale by Imperial, the Company will advise Imperial either
that it has no objection of such sale or that such sale should be delayed for up
to four months, on the basis either that the Company is involved in a
confidential proposed transaction or negotiations therefor (which have been
previously disclosed to the Company's Board of Directors) which would not
require the Company to make or amend any public filings under the securities
laws at that time, or that such sale would have a material adverse effect upon
the Company's ability to access the capital markets. If the Company has not
objected to such proposed sale as permitted in this subparagraph (a) within such
fifteen (15) day period, the Company shall take all actions necessary to permit
such sale on the proposed date of sale pursuant to such Registration Statement.
If, at any time after giving 30 days written notice under this Paragraph 4,
Imperial shall notify the Company in writing that it has determined for any
reason not to proceed with the proposed Offering, then the Company shall
terminate such Offering.
b. Limitation on Requests and Payment of Registration Expenses. Imperial
-----------------------------------------------------------
shall be entitled to make a request to the Company to register Imperial Shares
pursuant to the provisions of Paragraph 3(b) or this Paragraph 4 two times
within each one year period commencing April 1, 1997. The Company shall not be
required to register Imperial Shares in accordance with the provisions of
Paragraph 4(a) if there is outstanding at the time of the request an effective
Registration Statement for a Continuous Offering and Imperial can dispose of
Imperial Shares in accordance with Paragraph 3(b). Imperial will pay all
Registration Expenses in connection with an Offering of Imperial Shares
requested by Imperial pursuant to the second sentence of Paragraph 3(b) or this
Paragraph 4. Any Offering abandoned or terminated by Imperial after its filing
in accordance with the provisions of Paragraph 4(a) shall be deemed to be a
request pursuant to this Paragraph 4.
c. Selection of Underwriters. If Imperial specifies in the notice
-------------------------
delivered to the Company pursuant to the second sentence of Paragraph 3(b) or
Paragraph 4 that it intends to sell Imperial Shares in an underwritten Offering
pursuant to the second sentence of Paragraph 3(b) or Paragraph 4, Imperial shall
be entitled to select the underwriter(s) and managing underwriter.
-4-
<PAGE>
If the Company issues and sells securities of the same class as the Imperial
Shares contemporaneously with any Offering pursuant to Paragraph 3(b) or this
Paragraph 4, the Company shall (i) sell such securities to the underwriter(s)
selected by Imperial pursuant to this Paragraph 4(c) on the same terms and
conditions as apply to Imperial and (ii) execute and deliver a copy of the
underwriting agreement relating to such Offering. If the managing underwriter
advises Imperial and the Company in writing that, in its opinion, the number of
securities requested to be included in such Offering exceeds the number that can
be sold in such Offering, so as to be likely to have an adverse effect on the
price at which the Imperial Shares or securities being offered by the Company
can be sold, then there shall be included in such Offering (and in the Offering
Documents relating to such Offering) first, the maximum number of Imperial
Shares requested to be included in such Offering by Imperial and second, the
maximum number of securities, if any, proposed to be sold by the Company for its
own account or for the account of any other holder of the Company's securities,
which in the opinion of the managing underwriter can be sold without having such
adverse effect.
d. Registration on Form S-3. The Company shall not be required to register
------------------------
Imperial Shares in any Continuous Offering under this Paragraph 4 until July 1,
1997. Thereafter, Imperial shall have the right to require the Company to
register any or all of its shares on Form S-3 (or on Form S-1, if Form S-3 is
not available).
5. The Company's Duties. If and whenever the Company is required to permit
--------------------
Imperial to effect any Offering as provided in Paragraphs 3 and 4, the Company
covenants and agrees that it will, as expeditiously as possible (but not later
than sixty (60) days after receipt of a request from Imperial to include
Imperial Shares in a given Offering):
a. (A) prepare all Offering Documents in accordance with all applicable
requirements of the Securities Act, and the Securities Offering Regulations,
including, if requested by Imperial and if permitted by the rules and
regulations of the SEC, a Registration Statement pursuant to Rule 415 of the
Securities Act or any successor rule of the SEC, with respect to such Offering
to permit the disposition of the Imperial Shares by Imperial in accordance with
the intended method of disposition (and, in the case of an underwritten
Offering, consistent in form, substance, and scope with customary practice for
the offering of securities of corporations by nationally recognized investment
banking firms), (B) file with the SEC such Offering Documents and all other
documents required to permit the disposition of the Imperial Shares by Imperial
in accordance with the intended method of disposition thereof; provided, that
before filing any such Offering Documents (including any documents incorporated
by reference therein), the Company will furnish to counsel(s) designated by
Imperial and to the underwriter(s), if any, copies of all such Offering
Documents, which Offering Documents shall be subject to the review of such
counsel(s) and the underwriter(s), if any, and, where feasible, the Company
shall make such changes in such Offering Documents as are reasonably requested
by such counsel(s) or underwriter(s), and (C) use its reasonable efforts to have
such Offering Documents declared effective by, and obtain all approvals from the
SEC to the extent necessary to permit the Offering; provided, however, that the
Company may discontinue any Offering that is being effected pursuant to
Paragraph 3 at any time before the effective date of the related Offering
-5-
<PAGE>
Documents; and provided, further, that the Company shall not file any Offering
Document which shall be disapproved by Imperial within a reasonable period after
the same has been provided for review;
b. thereafter, prepare and file with the SEC such amendments and post-
effective amendments to the Offering Documents as may be necessary to keep the
Offering Documents continuously effective and cause the Offering Documents to be
supplemented by any required supplement, and as so supplemented to be filed, if
required, with the SEC during the period ending on the later of (i) such time as
all of the Imperial Shares covered by such Offering Documents have been disposed
of in accordance with the intended method of disposition set forth in such
Offering Documents or, in the case of an Offering made pursuant to Rule 415
under the Securities Act or any successor rule of the SEC (if applicable), if
securities remain unsold at the expiration of the Offering, such time as the
Company shall file, with the consent of Imperial, a posteffective amendment with
the SEC deregistering the securities which remain unsold at the termination of
the Offering or (ii) so long as a dealer is required to deliver a Prospectus in
connection with the Offering; provided, that before filing any such post-
effective amendment, the Company will furnish to counsel(s) designated by
Imperial and to the underwriter(s), if any, copies of the post-effective
amendment (including any other document proposed to be filed therewith), which
Offering Documents shall be subject to the review of such counsel(s) and the
underwriter(s), if any, and, where feasible, the Company shall make such changes
in such post-effective amendment as are reasonably requested by such counsel(s)
or underwriter(s);
c. furnish to Imperial and to the underwriter(s), if any, such number of
copies of the Offering Documents (including each amendment and supplement
thereto) as they may reasonably request in order to facilitate the disposition
of the Imperial Shares included in such Offering;
d. register or qualify, or cooperate with Imperial, the underwriter(s), if
any, and their respective counsel in registering or qualifying, all Imperial
Shares covered by the Offering Documents for offer and sale under the applicable
securities or blue sky laws of such jurisdictions as Imperial and the
underwriter(s), if any, shall reasonably request in writing, and do any and all
other acts and things which may be reasonably necessary or advisable to enable
Imperial and the underwriter(s), if any, to consummate the disposition in such
jurisdictions of the Common Stock covered by the Offering Documents; provided
however that the Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or to take any
action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or subject the Company to any tax
in any such jurisdiction where it is not then so subject;
e. use its reasonable efforts to cause such Common Stock covered by the
Offering Documents to be registered with or approved by such other governmental
agencies or authorities as may be necessary to enable Imperial and the
underwriter(s), if any, to consummate the disposition of such Common Stock;
-6-
<PAGE>
f. cooperate reasonably with any managing underwriter to effect the sale
of any Imperial Shares, including but not limited to attendance of the Company's
executive officers at any planned "road show" presentations;
g. notify Imperial and the underwriter(s), if any, at any time when the
Offering Documents include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing,
and at the request of Imperial or any underwriter, prepare and furnish to such
Person(s), such reasonable number of copies of any amendment or supplement to
the Offering Documents as may be necessary so that, as thereafter delivered to
the purchasers of such Common Stock, such Offering Documents shall not include
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and to deliver to
purchasers of any other securities of the Company included in the Offering
copies of such Offering Documents as so amended or supplemented;
h. keep Imperial informed of the Company's best estimate of the earliest
date on which the Offering Documents will become effective, and promptly notify
Imperial of (A) the effectiveness of such Offering Documents, (B) a request by
the SEC for an amendment or supplement to such Offering Documents, (C) the
issuance by the SEC of an order suspending the effectiveness of the Offering
Documents, or of the threat of an proceeding for that purpose, and (D) the
suspension of the qualification of any securities included in the Offering
Documents for sale in any jurisdiction or the initiation or threat of any
proceeding for that purpose;
i. comply with the provisions of the Securities Offering Regulations and
the Securities Act with respect to the disposition of all securities covered by
the Offering Documents in accordance with the intended method of distribution of
the sellers thereof set forth in such Offering Documents;
j. use its reasonable efforts to list the securities proposed to be sold
in such Offering on the New York Stock Exchange, or on such other securities
exchange on which the Common Stock is then listed, not later than the closing of
the Offering contemplated thereby;
k. enter into such customary agreements (including but not limited to an
underwriting agreement in customary form) and take such other reasonable actions
as Imperial or the underwriter(s), if any, reasonably request in order to
expedite or facilitate the disposition of such Common Stock;
l. obtain such "cold comfort" letter(s) from the Company's independent
public accountants, in customary form and covering matters of the type
customarily covered by "cold comfort" letter(s), as Imperial or the
underwriter(s), if any, shall reasonably request; and
m. upon prior notice, make available for reasonable inspection by any
underwriter(s) participating in any disposition to be effected pursuant to the
Offering Documents and by any
-7-
<PAGE>
attorney, accountant, or other agent retained by any such Person(s), its
financial and other records, pertinent corporate documents and properties of the
Company, and such opportunities to discuss the business of the Company with its
officers, directors, and employees and the independent public accountants who
have certified its financial statements as shall be necessary, in the opinions
of such underwriters' respective counsels, to conduct a reasonable
investigation; provided, that any records, information, or documents that are
designated by the Company in writing as confidential shall be kept confidential
by each such Person, unless disclosure of such records, information, or
documents is required by law, by judicial or administrative order, or in order
to defend a claim asserted against such Person in connection with such Offering.
6. Information from Imperial.
--------------------------
a. Information. The Company may require Imperial to furnish it with such
-----------
information regarding Imperial and regarding the method of distribution as is
pertinent to the disclosure requirements relating to the Offering of such Common
Stock as the Company may from time to time reasonably request in writing.
b. Use of Offering Documents Upon Notice of Defects. Imperial agrees, and
------------------------------------------------
shall cause underwriter(s), if any, acting on its behalf to agree, that upon
receipt of any notice from the Company of the happening of any event of the kind
described in Paragraph 5(f), it will immediately discontinue the use of the
Offering Documents covering such Common Stock until the receipt by Imperial and
any such underwriter(s) of the copies of the supplemented or amended Offering
Documents contemplated by such clause and, if so directed by the Company,
Imperial will deliver and cause each underwriter, if any, to deliver to the
Company all copies, other than permanent file copies then in the possession of
Imperial or any such underwriter, of the Offering Documents covering such Common
Stock at the time of receipt of such notice. If the Company shall give any such
notice, the period mentioned in Paragraph 5(b) shall be extended by the number
of days during which offerings were suspended (i.e., the period from and
including the date of the receipt of such notice pursuant to Paragraph 5(f), to
and including the date when Imperial shall have received the copies of the
supplemented or amended Offering Documents contemplated by such clause).
7. Resales: Reports Under Exchange Act. In order to permit Imperial to sell the
-----------------------------------
Imperial Shares, if it so desires, pursuant to any applicable resale exemption
under the Securities Offering Regulations or the Securities Act, the Company
will:
a. comply with all rules and regulations of the SEC in connection with use
of any such resale exemption;
b. make and keep available adequate and current public information
regarding the Company;
c. file with the SEC in a timely manner, all reports and other documents
required to be filed under the Securities Act, the Exchange Act, or the
Securities Offering Regulations;
-8-
<PAGE>
d. furnish to Imperial copies of annual reports required to be filed under
the Exchange Act and the Securities Offering Regulations; and
e. furnish to Imperial, upon request, (A) a copy of the most recent
quarterly report of the Company and such other reports and documents filed by
the Company with the SEC and (B) such other information as may be reasonably
requested to permit Imperial pursuant to any applicable resale exemption under
the Securities Act or the Securities Offering Regulations, if any.
8. Indemnification. The obligations of indemnification of the Parties set forth
---------------
in this Paragraph 8 shall be in addition to any liability which any Party may
otherwise have to any other Party.
a. Indemnification by the Company. The Company agrees to indemnify and
------------------------------
hold harmless, to the full extent permitted by law, Imperial, its officers,
directors, employees and agents, each Person who participates as an underwriter
in an Offering, each officer, director, employee, or agent of such an
underwriter, and each Person who controls (within the meaning of the Securities
Act) Imperial and such an underwriter against any and all losses, claims,
damages, liabilities, and expenses, joint or several, including without
limitation reasonable legal or other expenses incurred in connection with
investigating or defending against any loss, claim, damage, or liability, or
action or proceeding (whether commenced or threatened) in respect thereof,
caused by any untrue statement or alleged untrue statement of a material fact
contained in any of the Offering Documents relating to such Offering or 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 in
light of the circumstances under which they were made, except insofar as the
same are (i) made in reliance on and in conformity with any information about
Imperial or any underwriter furnished in writing to the Company by Imperial or
any underwriter specifically for inclusion in the Offering Documents relating to
such Offering or (ii) the result of the fact that Imperial or any underwriter
sold Common Stock subject to an Offering to a Person to whom there was not sent
or given, at or before the written configuration of such sale, a copy of the
final Offering Documents, if the Company has previously furnished copies thereof
to Imperial or underwriter and such final Offering Documents corrected such
untrue statement or alleged untrue statement or omission or alleged omission.
b. Indemnification by Imperial. Imperial agrees to indemnify and hold
---------------------------
harmless, to the full extent permitted by law, the Company, its officers,
directors, employees, and agents, each Person who participates as an underwriter
in an Offering, each officer, director, employee or agent of such an
underwriter, and each Person who controls (within the meaning of the Securities
Act) the Company and such underwriter against any and all losses, claims,
damages, liabilities, and expenses, joint or several, including without
limitation reasonable legal or other expenses incurred in connection with
investigating or defending against any loss, claim, damage, or liability, or
action or proceeding (whether commenced or threatened) in respect thereof,
caused by any untrue statement or alleged untrue statement of a material fact
contained in any of the Offering Documents relating to such Offering or any
omission or alleged omission to state
-9-
<PAGE>
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
were made, but only to the extent that such untrue statement or omission is made
in reliance on and in conformity with any information furnished in writing by
Imperial concerning Imperial to the Company specifically for inclusion in the
Offering Documents relating to such Offering.
c. Notices of Claims; Procedures. Promptly after receipt by an indemnified
-----------------------------
party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Paragraph 8, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
indemnifying party of the commencement of such action; provided, that the
failure of the indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under this Paragraph 8, except
to the extent that the indemnifying party is actually materially prejudiced by
such failure to give notice. If any such action is brought against an
indemnified party (unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may exist
in respect of such claim) the indemnifying party will be entitled to participate
in and to assume the defense thereof, jointly with any other indemnifying party
similarly notified to the extent that it may wish, 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, the indemnifying party will not be liable to such indemnified party for
any legal or other expenses subsequently incurred by the latter in connection
with the defense thereof other than reasonable costs of investigation; provided,
however, that, any Person entitled to indemnification hereunder shall have the
right to employ separate counsel and to participate in the defense of such
claim, but the fees and expenses of such counsel shall be at the expense of such
Person unless (A) the indemnifying party has agreed to pay such fees or expenses
or (B) the indemnifying party shall have failed to assume the defense of such
claim and employ counsel reasonably satisfactory to such Person or (C) in the
reasonable judgment of any such Person based upon advice of its counsel, a
conflict of interest may exist between such Person and the indemnifying party
with respect to such claims (in which case, if the Person notifies the
indemnifying party in writing that such Person elects to employ separate counsel
at the expense of the indemnifying party, the indemnifying party shall not have
the right to assume the defense of such claim on behalf of such Person.) If such
defense is not assumed by the indemnifying party, the indemnifying party will
not be subject to any liability for any settlement made without its consent (but
such consent will not be unreasonably withheld). No indemnifying party will
consent to entry of any judgment or enter into any settlement which does not
include, as an unconditional term thereof, the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation. An indemnifying party who is not entitled to or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel in each jurisdiction for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of such additional counsel or counsels.
-10-
<PAGE>
d. Contribution. If the indemnification provided for in this Paragraph 8
------------
from the indemnifying party is unavailable to an indemnified party hereunder
(other than pursuant to the terms hereof) in respect of any losses, claims,
damages, liabilities, or expenses 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, liabilities, or expenses in such proportion as is appropriate
to reflect the relative fault of the indemnifying party and indemnified parties
in connection with the actions that resulted in such losses, claims, damages,
liabilities, or expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and indemnified
parties shall be determined by reference to, among other things, whether any
action in question, including any untrue statement or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified parties, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such action. The amount paid
or payable by a Party as a result of the losses, claims, damages, liabilities,
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in this Paragraph 8(d), any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding. The Parties agree that it would not be just and equitable if
contributions pursuant to this Paragraph 8(d) were datelined by pro rata
allocation or by any other method of allocation that does not take into account
the equitable considerations referred to above. No Person guilty of fraudulent
misrepresentation shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
e. This Paragraph 8 shall apply to each Registration Statement filed by
the Company pursuant to this Agreement that includes Imperial Shares.
9. Miscellaneous.
-------------
a. Termination. Imperial's rights to demand registration or to
-----------
participate in underwritten Offerings of the Common Stock shall expire on July
1, 2002.
b. Amendments and Waivers. This Agreement may be amended, and the Company
----------------------
may take any action herein prohibited or omit to perform any act herein required
to be performed by it, only if the Company shall have obtained the written
consent of Imperial to such amendment, action or omission to act.
c. Successors, Assigns and Transferees. This Agreement shall be binding
-----------------------------------
upon the parties hereto and their respective successors and assigns.
d. Notices. Any notice, request, demand, consent, approval or other
-------
communication permitted or required to be given to any of the parties hereunder
shall be deemed given when received, shall be in writing, and shall be delivered
in person or sent by certified mail, postage prepaid, or by private courier
service or by telecopy or telex, to such party at its address set
-11-
<PAGE>
forth below or at such other address as such party may hereunder furnish in
writing to the other parties.
(i) if to the Company, to:
Southern Pacific Funding Corporation
One Centerpoint Drive, Suite 500
Lake Oswego, Oregon 97035
Attention: Secretary and Chief Financial Officer
with a copy to:
Thacher Proffitt & Wood
40th Floor
Two World Trade Center
New York, New York 10048
Attention: Lauris G.L. Rall, Esq.
(ii) if to Imperial:
Imperial Credit Industries, Inc.
23350 Hawthorne Blvd.
Building 1, Suite 210
Torrance, California 90505
Attention: Secretary
with a copy to:
Freshman, Marantz, Orlanski, Cooper & Klein
9100 Wilshire Blvd, East Tower, 8th Floor
Beverly Hills, California 90212-3480
Attention: Thomas J. Poletti
e. Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning of the
interpretation of this Agreement or any provision hereof.
f. 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 in any respect for any reason, the validity,
legality and enforceability of such provision in every other respect and of the
remaining provisions hereof shall not be in any way impaired, it being intended
that all rights, powers and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.
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<PAGE>
g. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed shall be deemed an original, and
all such counterparts shall together constitute one and the same instrument.
h. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the United States of America and, in the absence of
controlling federal law, in accordance with the laws of the State of California.
Any legal action or proceedings with respect to this Agreement shall be brought
in the federal courts of the United States located in New York and each of the
parties hereto submits to the exclusive jurisdiction of such courts and hereby
waives any objections on the grounds of venue, forum non conveniens or any
similar grounds.
i. Entire Agreement. This Agreement embodies the entire Agreement of the
----------------
parties hereto in relation to the subject matter hereof and supersedes all prior
understandings or agreements, oral or written, with respect thereto among the
parties hereto.
j. Certain Remedies. Without in any way limiting the remedies otherwise
----------------
available under this Agreement, the parties hereto acknowledge that, in the
event of any breach or nonperformance by any party of the agreements or
covenants required by this Agreement to be performed or observed by it, the
other parties shall be entitled to such equitable remedies as may be
appropriate, including without limitation specific performance.
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<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this Agreement or
caused this Agreement to be executed on its behalf as of the date first written
above.
SOUTHERN PACIFIC FUNDING CORPORATION
By:_________________________________
Name:_______________________________
Title:______________________________
IMPERIAL CREDIT INDUSTRIES, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
<PAGE>
EXHIBIT 10.22
================================================================================
MASTER LOAN AND SECURITY AGREEMENT
-----------------------------
Dated as of October 22, 1996
------------------------------
SOUTHERN PACIFIC FUNDING CORPORATION
as Borrower
and
MORGAN STANLEY MORTGAGE CAPITAL INC.
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS
Section 1. Definitions and Accounting Matters..........................
1.01 Certain Defined Terms.....................................
1.02 Accounting Terms and Determinations.......................
Section 2. Loans, Note and Prepayments.................................
2.01 Loans.....................................................
2.02 Note......................................................
2.03 Procedure for Borrowing...................................
2.04 Limitation on Types of Loans; Illegality..................
2.05 Repayment of Loans; Interest..............................
2.06 Mandatory Prepayments or Pledge...........................
Section 3. Payments; Computations; Etc. ...............................
3.01 Payments..................................................
3.02 Computations..............................................
3.03 U.S. Taxes................................................
3.04 Certain Notices...........................................
Section 4. Collateral Security.........................................
4.01 Collateral; Security Interest.............................
4.02 Further Documentation.....................................
4.03 Changes in Locations, Name, etc. .........................
4.04 Lender's Appointment as Attorney-in-Fact..................
4.05 Performance by Lender of Borrower's Obligations...........
4.06 Proceeds..................................................
4.07 Remedies..................................................
4.08 Limitation on Duties Regarding Presentation
of Collateral...........................................
4.09 Powers Coupled with an Interest...........................
4.10 Release of Security Interest..............................
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<PAGE>
Section 5. Conditions Precedent........................................
5.01 Initial Loan..............................................
5.02 Initial and Subsequent Loans..............................
Section 6. Representations and Warranties..............................
6.01 Existence.................................................
6.02 Financial Condition.......................................
6.03 Litigation................................................
6.04 No Breach.................................................
6.05 Action....................................................
6.06 Approvals.................................................
6.07 Margin Regulations........................................
6.08 Taxes.....................................................
6.09 Investment Company Act....................................
6.10 Collateral; Collateral Security...........................
6.11 Chief Executive Office....................................
6.12 Location of Books and Records.............................
6.13 Hedging...................................................
6.14 True and Complete Disclosure..............................
6.15 Tangible Net Worth........................................
6.16 ERISA.....................................................
Section 7. Covenants of the Borrower...................................
7.01 Financial Statements......................................
7.02 Litigation................................................
7.03 Existence, Etc. ..........................................
7.04 Prohibition of Fundamental Changes........................
7.05 Borrowing Base Deficiency.................................
7.06 Notices...................................................
7.07 Hedging...................................................
7.08 Reports...................................................
7.09 Underwriting Guidelines...................................
7.10 Lines of Business.........................................
7.11 Transactions with Affiliates..............................
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7.12 Use of Proceeds...........................................
7.13 Limitation on Sale of Assets..............................
7.14 Limitation on Distributions...............................
7.15 Organizational Documents..................................
7.16 Maintenance of Tangible Net Worth.........................
7.17 Maintenance of Ratio of Total Indebtedness to
Tangible Net Worth......................................
7.18 Maintenance of Profitability..............................
7.19 Servicing Tape............................................
Section 8. Events of Default...........................................
Section 9. Remedies Upon Default.......................................
Section 10. No Duty on Lender's Part....................................
Section 11. Miscellaneous...............................................
11.01 Waiver....................................................
11.02 Notices...................................................
11.03 Indemnification and Expenses..............................
11.04 Amendments................................................
11.05 Successors and Assigns....................................
11.06 Survival..................................................
11.07 Captions..................................................
11.08 Counterparts..............................................
11.09 Loan Agreement Constitutes Security Agreement;
Governing Law...........................................
11.10 Submission To Jurisdiction; Waivers.......................
11.11 Waiver of Jury Trial......................................
11.12 Acknowledgments...........................................
11.13 Hypothecation or Pledge of Loans..........................
11.14 Servicing.................................................
11.15 Periodic Due Diligence Review.............................
11.16 Intent....................................................
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<PAGE>
SCHEDULES
SCHEDULE 1 Representations and Warranties re: Mortgage Loans
SCHEDULE 2 Filing Jurisdictions and Offices
EXHIBITS
- --------
EXHIBIT A Form of Promissory Note
EXHIBIT B Form of Custodial Agreement
EXHIBIT C Form of Opinion of Counsel to the Borrower
EXHIBIT D Underwriting Guidelines for 'A' Credit Mortgage Loans
EXHIBIT E Underwriting Guidelines for 'B' Credit Mortgage Loans
EXHIBIT F Underwriting Guidelines for 'C' Credit Mortgage Loans
EXHIBIT G Underwriting Guidelines for 'D' Credit Mortgage Loans
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<PAGE>
MASTER LOAN AND SECURITY AGREEMENT
MASTER LOAN AND SECURITY AGREEMENT, dated as of October 22, 1996, between
SOUTHERN PACIFIC FUNDING CORPORATION, a California corporation (the "Borrower"),
--------
and MORGAN STANLEY MORTGAGE CAPITAL INC., a Delaware corporation (the "Lender").
------
RECITALS
The Borrower has requested that the Lender from time to time make revolving
credit loans to it to finance certain residential mortgage loans owned by the
Borrower, and the Lender is prepared to make such loans upon the terms and
conditions hereof. Accordingly, the parties hereto agree as follows:
Section 1. Definitions and Accounting Matters.
----------------------------------
1.01. Certain Defined Terms. As used herein, the following terms shall have
---------------------
the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Loan Agreement in the singular to have the same meanings when
used in the plural and vice versa):
"'A' Credit Mortgage Loan" shall mean a Mortgage Loan made by the Borrower
------------------------
to a Mortgagor with an 'A' or 'A-' credit history which is underwritten in
accordance with the Borrower's Underwriting Guidelines for 'A' or 'A-' Credit
Mortgage Loans, a copy of which is attached as Exhibit D hereto.
"Affiliate" means, (i) with respect to Lender, Morgan Stanley Group Inc.
---------
and MS & Co., and (ii) with respect to the Borrower, any affiliate of the
Borrower as such term is defined in the United States Bankruptcy Code in effect
from time to time.
"Applicable Collateral Percentage" shall mean with respect to all Mortgage
--------------------------------
Loans, [ * ].
"Applicable Margin" shall mean with respect to all Loans, a rate per annum
-----------------
equal to [ * ] for each day that such Loans shall be so secured.
"'B' Credit Mortgage Loan" shall mean a Mortgage Loan made by the Borrower
------------------------
to a Mortgagor with an 'B' credit history which is underwritten in accordance
with the Borrower's Underwriting Guidelines for 'B' Credit Mortgage Loans, a
copy of which is attached as Exhibit E hereto.
"Bankruptcy Code" shall mean the United States Bankruptcy Code of 1978, as
---------------
amended from time to time.
"Borrower" shall have the meaning provided in the heading hereof.
--------
"Borrowing Base" shall mean the aggregate Collateral Value of all Eligible
--------------
Mortgage Loans.
- --------
* This information has been omitted and filed separately with the Securities and
Exchange Commission and is subject to a confidential treatment request with
respect thereto.
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<PAGE>
"Borrowing Base Deficiency" shall have the meaning provided in Section 2.06
-------------------------
hereof.
"Business Day" shall mean any day other than (i) a Saturday or Sunday, or
------------
(ii) a day in which the New York Stock Exchange, the Federal Reserve Bank of New
York or the Custodian is authorized or obligated by law or executive order to be
closed.
"Capital Expenditures" shall mean, as to any Person for any period, the
--------------------
aggregate amount paid or accrued by such Person and its Affiliates for the
rental, lease, purchase (including by way of the acquisition of securities of a
Person), construction or use of any Property during such period, the value or
cost of which, in accordance with GAAP, would appear on such Person's
consolidated balance sheet in the category of property, plant or equipment at
the end of such period.
"Capital Lease Obligations" shall mean, for any Person, all obligations of
-------------------------
such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) Property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP, and, for purposes of this Loan Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.
"'C' Credit Mortgage Loan" shall mean a Mortgage Loan made by the Borrower
------------------------
to a Mortgagor with an 'C' credit history which is underwritten in accordance
with the Borrower's Underwriting Guidelines for 'C' Credit Mortgage Loans, a
copy of which is attached as Exhibit F hereto.
---------
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
----
to time.
"Collateral" shall have the meaning assigned to such term in Section
----------
4.01(b) hereof.
"Collateral Value" shall mean (a) with respect to each Mortgage Loan (other
----------------
than a Wet-Ink Mortgage Loan), the lesser of (i) the Applicable Collateral
Percentage of the Market Value of such Mortgage Loan, and (ii) the outstanding
principal balance of such Mortgage Loan; and (b) with respect to each Wet-Ink
Mortgage Loan, (i) on the applicable Funding Date, the outstanding principal
balance of such Mortgage Loan, and (ii) thereafter, the lesser of (A) the
Applicable Collateral Percentage of the Market Value of such Mortgage Loan, and
(B) the outstanding principal balance of such Mortgage Loan; provided, that,
--------------
(i) the Collateral Value shall be deemed to be zero with respect to
each Eligible Mortgage Loan (1) in respect of which there is a breach of a
representation and warranty set forth on Schedule 1 (assuming each
representation and warranty is made as of the date Collateral Value is
determined), (2) in respect of which there is a delinquency in the payment of
principal and/or interest which continues for a period in excess of 45 days
(without regard to any applicable grace periods), (3) which remains pledged to
the Lender hereunder later than 180 days after the date on which it is first
included in the Collateral, (4) which has been released from the possession of
the Custodian under the Custodial Agreement to the Borrower for a period in
excess of 14 days or (5) which is a Wet-Ink Mortgage Loan and for which the
Custodian has failed to receive the related Mortgage Loan Documents on the fifth
Business Day following the applicable Funding Date; and
(ii) the aggregate Collateral Value of Mortgage Loans which are Wet-
Ink Mortgage Loans may not [ * ] of the Maximum Credit; and
- --------
* This information has been omitted and filed separately with the Securities and
Exchange Commission and is subject to a confidential treatment request with
respect thereto.
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<PAGE>
(iii) the aggregate Collateral Value of Mortgage Loans which are 'C'
Credit Mortgage Loans may not [ * ] aggregate principal amount
outstanding under the Loans; and
(iv) the aggregate Collateral Value of Mortgage Loans which are 'D'
Credit Mortgage Loans may not exceed [ * ] aggregate principal amount
outstanding under the Loans.
"Custodial Agreement" shall mean the Custodial Agreement, dated as of the
-------------------
date hereof, among the Borrower, the Custodian and the Lender, substantially in
the form of Exhibit B hereto, as the same shall be modified and supplemented and
in effect from time to time.
"Custodian" shall mean Norwest Bank Minnesota, National Association, as
---------
custodian under the Custodial Agreement, its successors and permitted assigns
thereunder.
"Daily Reset Loans" shall mean Loans that bear interest at rates based on
-----------------
the rate referred to as the rate for Daily Reset Loans in the definition of
Eurodollar Base Rate.
"'D' Credit Mortgage Loan" shall mean a Mortgage Loan made by the Borrower
------------------------
to a Mortgagor with an 'D' credit history which is underwritten in accordance
with the Borrower's Underwriting Guidelines for 'D' Credit Mortgage Loans, a
copy of which is attached as Exhibit G hereto.
"Default" shall mean an Event of Default or an event that with notice or
-------
lapse of time or both would become an Event of Default.
"Discrepancy" shall have the meaning assigned to such term in Section
-----------
2.05(c) hereof.
"Dollars" and "$" shall mean lawful money of the United States of America.
------- -
"Due Diligence Review" shall mean the performance by the Lender of any or
--------------------
all of the reviews permitted under Section 11.15 hereof with respect to any or
all of the Mortgage Loans, as desired by the Lender from time to time.
"Effective Date" shall mean the date upon which the conditions precedent
--------------
set forth in Section 5.01 shall have been satisfied.
"Eligible Mortgage Loan" shall mean a Mortgage Loan secured by a first
----------------------
mortgage lien on a one-to-four family residential property, as to which the
representations and warranties in Section 6.10 and Part I of Schedule 1 hereof
are correct and which is either an 'A' Credit Mortgage Loan, a 'B' Credit
Mortgage Loan, a 'C' Credit Mortgage Loan or a 'D' Credit Mortgage Loan.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that is a
---------------
member of any group of organizations (i) described in Section 414(b) or (c) of
the Code of which the Borrower is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11) of
the Code and the lien created under Section 302(f) of ERISA and Section 412(n)
of the Code, described in Section 414(m) or (o) of the Code of which the
Borrower is a member.
- --------
* This information has been omitted and filed separately with the Securities and
Exchange Commission and is subject to a confidential treatment request with
respect thereto.
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<PAGE>
"Eurocurrency Reserve Requirements" shall mean for any day as applied to a
---------------------------------
Daily Reset Loan, and for any Interest Period for any Loan other than a Daily
Reset Loan, the aggregate (without duplication) of the rates (expressed as a
decimal fraction) of reserve requirements in effect on such day or during such
Interest Period, as applicable (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the Board
of Governors of the Federal Reserve System or other Governmental Authority
having jurisdiction with respect thereto), dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of such Board) maintained by a member bank of such
Governmental Authority.
"Eurodollar Base Rate" shall mean:
--------------------
(a) for any Daily Reset Loan, with respect to each day such Loan is
outstanding (or if such day is not a Business Day, the next succeeding Business
Day), the rate per annum equal to the rate appearing at page 5 of the Telerate
Screen as one-month LIBOR on such date, and if such rate shall not be so quoted,
the rate per annum at which the Lender is offered Dollar deposits at or about
10:00 A.M., New York City time, on such date by prime banks in the interbank
eurodollar market where the eurodollar and foreign currency and exchange
operations in respect of its Loans are then being conducted for delivery on such
day for a period of one month and in an amount comparable to the amount of the
Loans to be outstanding on such day; and
(b) for any Loan other than a Daily Reset Loan, with respect to each day
during each Interest Period pertaining to such Loan, the rate per annum equal to
the rate appearing at page 5 of the Telerate Screen, on the first day of such
Interest Period, for the one-month, two-month or three-month term, as
applicable, corresponding to such Interest Period, and if such rate shall not be
so quoted, the rate per annum at which the Lender is offered Dollar deposits at
or about 10:00 A.M., New York City time, on the first day of such Interest
Period, by prime banks in the interbank eurodollar market where the eurodollar
and foreign currency and exchange operations in respect of its Loans are then
being conducted for delivery on the first day of such Interest Period for the
number of days comprised therein and in an amount comparable to the amount of
the Loans to be outstanding during such Interest Period.
"Eurodollar Rate" shall mean (a) with respect to each day a Daily Reset
---------------
Loan is outstanding, and (b) with respect to each day during each Interest
Period pertaining to a Loan other than a Daily Reset Loan, a rate per annum
determined by the Lender in its sole good-faith discretion in accordance with
the following formula (rounded upwards to the nearest 1/100th of one percent),
which rate as determined by the Lender shall be conclusive absent manifest error
by the Lender:
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default" shall have the meaning assigned thereto in Section 8
----------------
hereof.
"Federal Funds Rate" shall mean, for any day, the weighted average of the
------------------
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Lender from three
federal funds brokers of recognized standing selected by it.
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<PAGE>
"First Transaction Funding" shall have the meaning assigned thereto in
-------------------------
Section 2.03(a)(x) hereof.
"Funding Date" shall mean the date on which a Loan is made hereunder.
------------
"GAAP" shall mean generally accepted accounting principles as in effect
----
from time to time in the United States.
"Governmental Authority" shall mean any nation or government, any state or
----------------------
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any court or arbitrator having jurisdiction over the Borrower,
any of its Subsidiaries or any of its properties.
"Guarantee" shall mean, as to any Person, any obligation of such Person
---------
directly or indirectly guaranteeing any Indebtedness of any other Person or in
any manner providing for the payment of any Indebtedness of any other Person or
otherwise protecting the holder of such Indebtedness against loss (whether by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, or to take-or-pay or otherwise), provided
that the term "Guarantee" shall not include (i) endorsements for collection or
deposit in the ordinary course of business, or (ii) obligations to make
servicing advances for delinquent taxes and insurance, or other obligations in
respect of a Mortgaged Property, to the extent required by the Lender. The
amount of any Guarantee of a Person shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Guarantee is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith. The terms "Guarantee" and "Guaranteed" used as verbs shall have
--------- ----------
correlative meanings.
"Indebtedness" shall mean, for any Person: (a) obligations created, issued
------------
or incurred by such Person for borrowed money (whether by loan, the issuance and
sale of debt securities or the sale of Property to another Person subject to an
understanding or agreement, contingent or otherwise, to repurchase such Property
from such Person); (b) obligations of such Person to pay the deferred purchase
or acquisition price of Property or services, other than trade accounts payable
(other than for borrowed money) arising, and accrued expenses incurred, in the
ordinary course of business so long as such trade accounts payable are payable
within 90 days of the date the respective goods are delivered or the respective
services are rendered; (c) Indebtedness of others secured by a Lien on the
Property of such Person, whether or not the respective Indebtedness so secured
has been assumed by such Person; (d) obligations (contingent or otherwise) of
such Person in respect of letters of credit or similar instruments issued or
accepted by banks and other financial institutions for account of such Person;
(e) Capital Lease Obligations of such Person; (f) obligations of such Person
under repurchase agreements or like arrangements; (g) Indebtedness of others
Guaranteed by such Person; (h) all obligations of such Person incurred in
connection with the acquisition or carrying of fixed assets by such Person; and
(i) Indebtedness of general partnerships of which such Person is a general
partner.
"Interest Period" shall mean, with respect to any Loan, each period
---------------
commencing on the date such Loan is made and ending on the date one month, two
months or three months thereafter, as the Borrower may select as provided in
Section 3.04 hereof, except that, in the case of any Interest Period for any
Loan of one, two or three months, each Interest Period that commences on the
last Business Day of a calendar month (or on any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month.
Notwithstanding the foregoing: (i) no Interest Period may begin before
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<PAGE>
and end after the Termination Date; (ii) each Interest Period that would
otherwise end on a day that is not a Business Day shall end on the next
succeeding Business Day (or, if such next succeeding Business Day falls in the
next succeeding calendar month, on the next preceding Business Day); and (iii)
notwithstanding clause (i) above, no Interest Period for any Loan of one month
shall have a duration of less than one month and, if the Interest Period for any
Loan would otherwise be a shorter period, such Loan shall only be available as a
Daily Reset Loan.
"Interest Rate Protection Agreement" shall mean with respect to any or all
----------------------------------
of the Mortgage Loans any interest rate swap, cap or collar agreement or similar
arrangements providing for protection against fluctuations in interest rates or
the exchange of nominal interest obligations, either generally or under specific
contingencies, entered into by the Borrower with MS & Co. or its affiliate, and
reasonably acceptable to the Lender.
"Interest Recalculation" shall have the meaning assigned to such term in
----------------------
Section 2.05(c) hereof.
"Lender" shall have the meaning assigned thereto in the heading hereto.
------
"Lien" shall mean any mortgage, lien, pledge, charge, security interest or
----
similar encumbrance.
"Loan" shall have the meaning assigned thereto in Section 2.01(a) hereof.
----
"Loan Agreement" shall mean this Master Loan and Security Agreement, as may
--------------
be amended, supplemented or otherwise modified from time to time.
"Loan Documents" shall mean, collectively, this Loan Agreement, the Note
--------------
and the Custodial Agreement.
"Market Value" shall mean as of any date in respect of an Eligible Mortgage
------------
Loan, the price at which such Eligible Mortgage Loan could readily be sold as
determined in good faith by the Lender, which price may be determined to be
zero. The Lender's determination of Market Value shall be conclusive upon the
parties absent manifest error on the part of the Lender.
"Material Adverse Effect" shall mean a material adverse effect on (a) the
-----------------------
Property, business, operations, financial condition or prospects of the
Borrower, (b) the ability of the Borrower to perform its obligations under any
of the Loan Documents to which it is a party, (c) the validity or enforceability
of any of the Loan Documents, (d) the rights and remedies of the Lender under
any of the Loan Documents, (e) the timely payment of the principal of or
interest on the Loans or other amounts payable in connection therewith or (f)
the Collateral.
"Maximum Credit" shall mean $150,000,000.
--------------
"Misclassified Mortgage Loan" shall have the meaning assigned thereto in
---------------------------
Section 2.05(c) hereof.
"Mortgage" shall mean the mortgage, deed of trust or other instrument
--------
securing a Mortgage Note, which creates a first lien on the fee in real property
securing the Mortgage Note.
"Mortgage File" shall have the meaning assigned thereto in the Custodial
-------------
Agreement.
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<PAGE>
"Mortgage Loan" shall mean a mortgage loan which the Custodian has been
-------------
instructed to hold for the Lender pursuant to the Custodial Agreement, and which
Mortgage Loan includes, without limitation, (i) a Mortgage Note and related
Mortgage and (ii) all right, title and interest of the Borrower in and to the
Mortgaged Property covered by such Mortgage.
"Mortgage Loan Documents" shall mean, with respect to a Mortgage Loan, the
-----------------------
documents comprising the Mortgage File for such Mortgage Loan.
"Mortgage Loan Schedule" shall have the meaning assigned thereto in the
----------------------
Custodial Agreement.
"Mortgage Loan Summary" shall mean a mortgage loan summary prepared by the
---------------------
Custodian, substantially in the form of Annex 4 to the Custodial Agreement and
delivered to the Lender in accordance with Section 3(b) of the Custodial
Agreement.
"Mortgage Loan Tape" shall mean a computer-readable magnetic tape
------------------
containing the following information with respect to each Mortgage Loan, to be
delivered by the Borrower to the Lender pursuant to Section 2.03(a) hereof: (i)
a field detailing whether the Mortgage Loan is an 'A' Credit Mortgage Loan, a
'B' Credit Mortgage Loan, a 'C' Credit Mortgage Loan or a 'D' Credit Mortgage
Loan; and (ii) a field indicating whether the Mortgage Loan is a Wet-Ink
Mortgage Loan, and (iii) such other fields as shall be mutually agreed upon by
the Borrower and the Lender.
"Mortgage Note" shall mean the original executed promissory note or other
-------------
evidence of the indebtedness of a mortgagor/borrower with respect to a Mortgage
Loan.
"Mortgaged Property" means the real property (including all improvements,
------------------
buildings, fixtures, building equipment and personal property thereon and all
additions, alterations and replacements made at any time with respect to the
foregoing) and all other collateral securing repayment of the debt evidenced by
a Mortgage Note.
"Mortgagor" means the obligor on a Mortgage Note.
---------
"MS & Co." shall mean Morgan Stanley & Co. Incorporated, a registered
--------
broker-dealer.
"Multiemployer Plan" shall mean a multiemployer plan defined as such in
------------------
Section 3(37) of ERISA to which contributions have been or are required to be
made by the Borrower or any ERISA Affiliate and that is covered by Title IV of
ERISA.
"Net Income" shall mean, for any period, the net income of the Borrower for
----------
such period as determined in accordance with GAAP.
"Note" shall mean the promissory note provided for by Section 2.02(a)
----
hereof for Loans and any promissory note delivered in substitution or exchange
therefor, in each case as the same shall be modified and supplemented and in
effect from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
----
succeeding to any or all of its functions under ERISA.
-7-
<PAGE>
"Person" shall mean any individual, corporation, company, voluntary
------
association, partnership, joint venture, limited liability company, trust,
unincorporated association or government (or any agency, instrumentality or
political subdivision thereof).
"Plan" shall mean an employee benefit or other plan established or
----
maintained by the Borrower or any ERISA Affiliate and that is covered by Title
IV of ERISA, other than a Multiemployer Plan.
"Post-Default Rate" shall mean, in respect of any principal of any Loan or
-----------------
any other amount under this Loan Agreement, the Note or any other Loan Document
that is not paid when due to the Lender (whether at stated maturity, by
acceleration, by optional or mandatory prepayment or otherwise), a rate per
annum during the period from and including the due date to but excluding the
date on which such amount is paid in full equal to 2% per annum plus the Prime
Rate.
"Prime Rate" shall mean the prime rate announced to be in effect from time
----------
to time, as published as the average rate in The Wall Street Journal.
"Property" shall mean any right or interest in or to property of any kind
--------
whatsoever, whether real, personal or mixed and whether tangible or intangible.
"Regulations G, T, U and X" shall mean Regulations G, T, U and X of the
-------------------------
Board of Governors of the Federal Reserve System (or any successor), as the same
may be modified and supplemented and in effect from time to time.
"Responsible Officer" shall mean, as to any Person, the chief executive
-------------------
officer, any vice president or, with respect to financial matters, the
treasurer, the controller or the chief financial officer of such Person.
"Secured Obligations" shall have the meaning assigned thereto in Section
-------------------
4.01(c) hereof.
"Servicer" shall have the meaning assigned thereto in Section 11.14(c)
--------
hereof.
"Servicing Agreement" shall have the meaning assigned thereto in Section
-------------------
11.14(c) hereof.
"Servicing Records" shall have the meaning assigned thereto in Section
-----------------
11.14(b) hereof.
"Settlement Agent" shall mean, with respect to any Loan, the entity
----------------
approved by the Lender, in its sole good-faith discretion (which may be a title
company, escrow company or attorney in accordance with local law and practice in
the jurisdiction where the related Wet-Ink Mortgage Loan is being originated) to
which the proceeds of such Loan are to be wired pursuant to the instructions of
the Lender.
"Subsequent Transaction Funding" shall have the meaning assigned thereto in
------------------------------
Section 2.03(a)(y) hereof.
"Subsidiary" shall mean, with respect to any Person, any corporation,
----------
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the
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<PAGE>
terms thereof ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions of such corporation,
partnership or other entity (irrespective of whether or not at the time
securities or other ownership interests of any other class or classes of such
corporation, partnership or other entity shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.
"Tangible Net Worth" shall mean, as of a particular date,
------------------
(a) all amounts which would be included under capital on a balance
sheet of the Borrower at such date, determined in accordance with GAAP,
less
(b) (i) amounts owing to the Borrower from Affiliates and (ii)
intangible assets.
"Termination Date" shall mean October 22, 1997 or such earlier date on
----------------
which this Loan Agreement shall terminate in accordance with the provisions
hereof or by operation of law.
"Test Period" shall have the meaning assigned to such term in Section 7.18
-----------
hereof.
"Total Indebtedness" shall mean, for any period, the aggregate Indebtedness
------------------
of the Borrower during such period less the amount of any nonspecific balance
sheet reserves maintained in accordance with GAAP.
"Tranche A Loans" shall mean Loans so long as, and to the extent that, they
---------------
are secured by 'A' Credit Mortgage Loans, determined in accordance with Section
2.01(d) hereof.
"Tranche B Loans" shall mean Loans so long as, and to the extent that, they
---------------
are secured by 'B' Credit Mortgage Loans, determined in accordance with Section
2.01(d) hereof.
"Tranche C Loans" shall mean Loans so long as, and to the extent that, they
---------------
are secured by 'C' Credit Mortgage Loans, determined in accordance with Section
2.01(d) hereof.
"Tranche D Loans" shall mean Loans so long as, and to the extent that, they
---------------
are secured by 'D' Credit Mortgage Loans, determined in accordance with Section
2.01(d) hereof.
"Tranche Wet-Ink Loans" shall mean Loans so long as, and to the extent
---------------------
that, they are secured by Wet-Ink Mortgage Loans, determined in accordance with
Section 2.01(d) hereof.
"Underwriting Guidelines" shall mean collectively, the underwriting
-----------------------
guidelines attached as Exhibits D, E, F and G hereto.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
-----------------------
effect on the date hereof in the State of New York; provided that if by reason
of mandatory provisions of law, the perfection or the effect of perfection or
non-perfection of the security interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than New York,
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
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"Wet-Ink Mortgage Loan" shall mean a Mortgage Loan which is pledged to the
---------------------
Lender simultaneously with the origination thereof by the Borrower, which
origination is financed in part or in whole with proceeds of Loans advanced
directly to a Settlement Agent.
1.02 Accounting Terms and Determinations. Except as otherwise expressly
-----------------------------------
provided herein, all accounting terms used herein shall be interpreted, and all
financial statements and certificates and reports as to financial matters
required to be delivered to the Lender hereunder shall be prepared, in
accordance with GAAP.
Section 2. Loans, Note and Prepayments.
---------------------------
2.01 Loans.
-----
(a) Subject to fulfillment of the conditions precedent set forth in
Sections 5.01 and 5.02 hereof, and provided that no Default shall have occurred
and be continuing hereunder, the Lender agrees from time to time, on the terms
and conditions of this Loan Agreement, to make loans (individually, a "Loan";
----
collectively, the "Loans") to the Borrower in Dollars, from and including the
-----
Effective Date to and including the Termination Date in an aggregate principal
amount at any one time outstanding up to but not exceeding the Maximum Credit as
in effect from time to time.
(b) Subject to the terms and conditions of this Loan Agreement, during such
period the Borrower may borrow, repay and reborrow hereunder.
(c) In no event shall a Loan be made when any Default or Event of Default
has occurred and is continuing.
(d) In determining at any time to what extent Loans are Tranche A Loans,
Tranche B Loans, Tranche C Loans, Tranche D Loans, or Tranche Wet-Ink Loans, the
Collateral Value of each Mortgage Loan shall be taken into account in the
following order of priority: (a) first, the Collateral Value of all 'A' Credit
-----
Mortgage Loans shall be taken into account to determine the amount of Tranche A
Loans, (b) second, the Collateral Value of all 'B' Credit Mortgage Loans shall
------
be taken into account to determine the amount of Tranche B Loans, (c) third, the
-----
Collateral Value of all 'C' Credit Mortgage Loans shall be taken into account to
determine the amount of Tranche C Loans, (d) fourth, the Collateral Value of all
------
'D' Credit Mortgage Loans shall be taken into account to determine the amount of
Tranche D Loans, and (e) fifth, the Collateral Value of all Wet-Ink Mortgage
-----
Loans shall be taken into account to determine the amount of Tranche Wet-Ink
Loans. All Loans shall be either Tranche A Loans, Tranche B Loans, Tranche C
Loans, Tranche D Loans or Tranche Wet-Ink Loans.
2.02 Note.
----
(a) The Loans made by the Lender shall be evidenced by a single promissory
note of the Borrower substantially in the form of Exhibit A hereto (the "Note"),
--------- ----
dated the date hereof, payable to the Lender in a principal amount equal to the
amount of the Maximum Credit as originally in effect and otherwise duly
completed. The Lender shall have the right to have its Note subdivided, by
exchange for promissory notes of lesser denominations or otherwise.
(b) The date, amount, interest rate and duration of Interest Period (if
applicable) of each Loan made by the Lender to the Borrower, and each payment
made on account of the principal thereof, shall be recorded by the Lender on its
books and, prior to any transfer of the Note, endorsed by the Lender on the
schedule attached to the Note or any continuation thereof; provided, that the
--------
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failure of the Lender to make any such recordation or endorsement shall not
affect the obligations of the Borrower to make a payment when due of any amount
owing hereunder or under the Note in respect of the Loans.
2.03 Procedure for Borrowing.
-----------------------
(a) The Borrower may request a borrowing hereunder, on any Business Day
during the period from and including the Effective Date to and including the
Termination Date, by delivering to the Lender, with a copy to the Custodian, an
irrevocable written request for borrowing, which request must be received by the
Lender (x) prior to 8:00 p.m., New York City time, one (l) Business Day prior to
the requested Funding Date (such fundings, "First Transaction Fundings") or (y)
--------------------------
prior to 2:00 p.m., New York City time, on the requested Funding Date (such
fundings, "Subsequent Transaction Fundings"). Such request for borrowing shall
-------------------------------
(i) attach a schedule identifying the Eligible Mortgage Loans that the Borrower
proposes to pledge to the Lender and to be included in the Borrowing Base in
connection with such borrowing, (ii) specify the requested Funding Date, (iii)
include a Mortgage Loan Tape containing information with respect to the Eligible
Mortgage Loans that the Borrower proposes to pledge to the Lender and to be
included in the Borrowing Base in connection with such borrowing, and (iv)
attach an officer's certificate signed by a Responsible Officer of the Borrower
as required by Section 5.02(b) hereof.
(b) Upon the Borrower's request for a borrowing pursuant to Section
2.03(a), the Lender shall, assuming all conditions precedent set forth in
Section 5.01 and 5.02 have been met and provided no Default shall have occurred
and be continuing, make a Loan to the Borrower on the requested Funding Date, in
the amount so requested.
(c) No later than 12:00 noon, Minneapolis time, on the requested Funding
Date, the Borrower shall deliver to the Custodian the Mortgage File pertaining
to each Eligible Mortgage Loan (other than a Wet-Ink Mortgage Loan) to be
pledged to the Lender and included in the Borrowing Base on such requested
Funding Date, in accordance with the terms and conditions of the Custodial
Agreement.
(d) Pursuant to the Custodial Agreement, the Custodian shall deliver to the
Lender and the Borrower no later than 3:00 p.m., New York City time, on the
Funding Date a Trust Receipt and a Mortgage Loan Schedule and Exception Report
(each as defined in the Custodial Agreement) in respect of all Mortgage Loans
(except Wet-Ink Mortgage Loans) pledged to the Lender on such Funding Date and a
Mortgage Loan Schedule and Exception Report (as so defined) covering all Wet-Ink
Mortgage Loans so pledged. Subject to Section 5 hereof, such borrowing will then
be made available to the Borrower by the Lender transferring, via wire transfer,
to the following account of the Borrower: Norwest Bank, for the A/C of
3974027117, ABA# 091000019, Attn: Warehouse Funding, prior to the close of
business on such Funding Date, the aggregate amount of such borrowing in funds
immediately available to the Borrower.
2.04 Limitation on Types of Loans; Illegality. Anything herein to the
----------------------------------------
contrary notwithstanding, if, on or prior to the determination of any Eurodollar
Base Rate:
(a) the Lender determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in
the definition of "Eurodollar Base Rate" in Section 1.01 hereof are not
being provided in the relevant amounts or for the relevant maturities for
purposes of determining rates of interest for Loans as provided herein; or
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<PAGE>
(b) the Lender determines, which determination shall be conclusive,
that the relevant rate of interest referred to in the definition of
"Eurodollar Base Rate" in Section 1.01 hereof upon the basis of which the
rate of interest for Loans is to be determined is not likely adequately to
cover the cost to the Lender of making or maintaining Loans; or
(c) it becomes unlawful for the Lender to honor its obligation to make
or maintain Loans hereunder using a Eurodollar Rate;
then the Lender shall give the Borrower prompt notice thereof and, so long
as such condition remains in effect, the Lender shall be under no obligation to
make additional Loans, and the Borrower shall, either prepay such Loans or pay
interest on such Loans at a rate per annum equal to the Federal Funds Rate plus
1%.
2.05 Repayment of Loans; Interest.
----------------------------
(a) The Borrower hereby promises to repay in full on the Termination Date
the then aggregate outstanding principal amount of the Loans.
(b) The Borrower hereby promises to pay to the Lender interest on the
unpaid principal amount of each Loan for the period from and including the date
of such Loan to but excluding the date such Loan shall be paid in full, at a
rate per annum equal to the Eurodollar Rate plus the Applicable Margin.
Notwithstanding the foregoing, the Borrower hereby promises to pay to the Lender
interest at the applicable Post-Default Rate on any principal of any Loan and on
any other amount payable by the Borrower hereunder or under the Note, that shall
not be paid in full when due (whether at stated maturity, by acceleration or by
mandatory prepayment or otherwise), for the period from and including the due
date thereof to but excluding the date the same is paid in full. Accrued
interest on each Loan shall be payable monthly on the first Business Day of each
month and for the last month of the Loan Agreement on the first Business Day of
such last month and on the Termination Date, except that interest payable at the
Post-Default Rate shall accrue daily and shall be payable upon such accrual.
Promptly after the determination of any interest rate provided for herein or any
change therein, the Lender shall give notice thereof to the Borrower.
(c) Following each Funding Date and from time to time (as further described
in Section 11.15 hereof), the Lender shall have the right to perform a Due
Diligence Review with respect to any or all of the Mortgage Loans. In the event
that the Lender discovers any discrepancy between the information set forth on
the Mortgage Loan Tape and the information discovered as a result of the
Lender's Due Diligence Review (in each case, a "Discrepancy"), then the Lender
-----------
shall give notice thereof to the Borrower and the Borrower shall promptly
correct the information set forth on the related Mortgage Loan Tape. In the
event that any Discrepancy affects the classification of a Mortgage Loan as an
'A' Credit Mortgage Loan, a 'B' Credit Mortgage Loan, a 'C' Credit Mortgage Loan
or a 'D' Credit Mortgage Loan (in each case, a "Misclassified Mortgage Loan"),
---------------------------
then the Lender shall recalculate the accrued interest on the Loans outstanding
during the period of time during which such Misclassified Mortgage Loan was
pledged to the Lender hereunder (in each case, an "Interest Recalculation"),
using the Applicable Margin which would have been applied for the Loans then
outstanding if such Misclassified Mortgage Loan had been properly classified.
The Borrower shall promptly remit to the Lender the excess (if any) of the
Interest Recalculation over the accrued interest previously calculated and paid
by the Borrower for the affected period of time.
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<PAGE>
(d) It is understood and agreed that, unless and until a Default shall have
occurred and be continuing, the Borrower shall be entitled to the proceeds of
the Mortgage Loans pledged to the Lender hereunder.
2.06 Mandatory Prepayments or Pledge.
-------------------------------
If at any time the aggregate outstanding principal amount of Loans exceeds
the Borrowing Base (a "Borrowing Base Deficiency"), as determined by the Lender
-------------------------
and notified to the Borrower on any Business Day, the Borrower shall no later
than one Business Day after receipt of such notice, either prepay the Loans in
part or in whole or pledge additional Eligible Mortgage Loans (which Collateral
shall be in all respects acceptable to the Lender) to the Lender, such that
after giving effect to such prepayment or pledge the aggregate outstanding
principal amount of the Loans does not exceed the Borrowing Base.
Section 3. Payments; Computations; Etc.
----------------------------
3.01 Payments.
--------
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrower under this Loan
Agreement and the Note, shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at the
following account maintained by the Lender: Account No. 40615114, For the A/C of
MSMCI, Citibank, N.A., ABA# 021000089, not later than 1:00 p.m., New York City
time, on the date on which such payment shall become due (each such payment made
after such time on such due date to be deemed to have been made on the next
succeeding Business Day). The Borrower acknowledges that it has no rights of
withdrawal from the foregoing account.
(b) Except to the extent otherwise expressly provided herein (including,
without limitation, by application of the definition of "Interest Period"), if
the due date of any payment under this Loan Agreement or the Note would
otherwise fall on a day that is not a Business Day, such date shall be extended
to the next succeeding Business Day, and interest shall be payable for any
principal so extended for the period of such extension.
3.02 Computations. Interest on the Loans shall be computed on the basis of
------------
a 360-day year for the actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
3.03 U.S. Taxes.
----------
(a) The Borrower agrees to pay to the Lender such additional amounts as are
necessary in order that the net payment of any amount due to the Lender
hereunder after deduction for or withholding in respect of any U.S. Tax (as
defined below) imposed with respect to such payment (or in lieu thereof, payment
of such U.S. Tax by the Lender), will not be less than the amount stated herein
to be then due and payable; provided that the foregoing obligation to pay such
additional amounts shall not apply:
(i) to any payment to the Lender hereunder unless the Lender is
entitled to submit a Form 1001 (relating to the Lender and entitling it to
a complete exemption from withholding on all interest to be received by it
hereunder in respect of the Loans) or Form 4224 (relating to all interest
to be received by the Lender hereunder in respect of the Loans), or
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<PAGE>
(ii) to any U.S. Tax imposed solely by reason of the failure by the
Lender to comply with applicable certification, information, documentation
or other reporting requirements concerning the nationality, residence,
identity or connections with the United States of America of the Lender if
such compliance is required by statute or regulation of the United States
of America as a precondition to relief or exemption from such U.S. Tax.
For the purposes of this Section 3.03(a), (w) "Form 1001" shall mean Form 1001
---------
(Ownership, Exemption, or Reduced Rate Certificate) of the Department of the
Treasury of the United States of America, (x) "Form 4224" shall mean Form 4224
---------
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) of the Department of the
Treasury of the United States of America (or in relation to either such Form
such successor and related forms as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a claim
to which such Form relates), and (y) "U.S. Taxes" shall mean any present or
----------
future tax, assessment or other charge or levy imposed by or on behalf of the
United States of America or any taxing authority thereof or therein.
(b) Within 30 days after paying any such amount to the Lender, and within
30 days after it is required by law to remit such deduction or withholding to
any relevant taxing or other authority, the Borrower shall deliver to the Lender
evidence satisfactory to the Lender of such deduction, withholding or payment
(as the case may be).
(c) The Lender represents and warrants to the Borrower that on the date
hereof the Lender is either incorporated under the laws of the United States or
a State thereof or is entitled to submit a Form 1001 (relating to the Lender and
entitling it to a complete exemption from withholding on all interest to be
received by it hereunder in respect of the Loans) or Form 4224 (relating to all
interest to be received by the Lender hereunder in respect of the Loans).
3.04 Certain Notices. Notices by the Borrower to the Lender of the duration
of Interest Periods shall be irrevocable and shall be effective only if received
by the Lender not later than 3:00 p.m. Eastern Time, one (1) Business Day prior
to the first day of such Interest Period. Each such notice of the duration of an
Interest Period shall specify the Loans to which such Interest Period is to
relate.
Section 4. Collateral Security.
4.01 Collateral; Security Interest.
(a) Pursuant to the Custodial Agreement, the Custodian shall hold the
Mortgage Loan Documents as exclusive bailee and agent for the Lender pursuant to
terms of the Custodial Agreement and shall deliver to the Lender Trust Receipts
(as defined in the Custodial Agreement) each to the effect that it has reviewed
such Mortgage Loan Documents in the manner required by the Custodial Agreement
and identifying any deficiencies in such Mortgage Loan Documents as so reviewed.
(b) All of the Borrower's right, title and interest in, to and under each
of the following items of property, whether now owned or hereafter acquired, now
existing or hereafter created and wherever located, is hereinafter referred to
as the "Collateral":
(i) all Mortgage Loans;
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<PAGE>
(ii) all Mortgage Loan Documents, including without limitation all
promissory notes, and all Servicing Records (as defined in Section 11.14(b)
below), servicing agreements and any other collateral pledged or otherwise
relating to such Mortgage Loans, together with all files, documents,
instruments, surveys, certificates, correspondence, appraisals, computer
programs, computer storage media, accounting records and other books and
records relating thereto;
(iii) all mortgage guaranties and insurance (issued by governmental
agencies or otherwise) and any mortgage insurance certificate or other
document evidencing such mortgage guaranties or insurance relating to any
Mortgage Loan and all claims and payments thereunder;
(iv) all other insurance policies and insurance proceeds relating to
any Mortgage Loan or the related Mortgaged Property;
(v) all Interest Rate Protection Agreements;
(vi) all "general intangibles" as defined in the Uniform Commercial
Code relating to or constituting any and all of the foregoing; and
(vii) any and all replacements, substitutions, distributions on or
proceeds of any or all of the foregoing.
(c) The Borrower hereby assigns, pledges and grants a security interest in
all of its right, title and interest in, to and under the Collateral to the
Lender to secure the repayment of principal of and interest on all Loans and all
other amounts owing to the Lender hereunder, under the Note and under the other
Loan Documents (collectively, the "Secured Obligations"). The Borrower agrees to
mark its computer records and tapes to evidence the interests granted to the
Lender hereunder.
4.02 Further Documentation. 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, or will promptly cause to
be executed and delivered, such further instruments and documents and take such
further action as the Lender may reasonably request for the purpose of obtaining
or preserving the full benefits of this Loan Agreement and of the rights and
powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the Liens created hereby. The Borrower also
hereby authorizes the Lender to file any such financing or continuation
statement without the signature of the Borrower to the extent permitted by
applicable law. A carbon, photographic or other reproduction of this Loan
Agreement shall be sufficient as a financing statement for filing in any
jurisdiction.
4.03 Changes in Locations, Name, etc. The Borrower shall not (i) change the
location of its chief executive office/chief place of business from that
specified in Section 6 hereof or (ii) change its name, identity or corporate
structure (or the equivalent) or change the location where it maintains its
records with respect to the Collateral unless it shall have given the Lender at
least 30 days prior written notice thereof and shall have delivered to the
Lender all Uniform Commercial Code financing statements and amendments thereto
as Lender shall request and taken all other actions deemed necessary by Lender
to continue its perfected status in the Collateral with the same or better
priority.
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<PAGE>
4.04. Lender's Appointment as Attorney-in-Fact.
(a) The Borrower hereby irrevocably constitutes and appoints the Lender and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of the Borrower and in the name of the Borrower or in its own name,
from time to time in the Lender's discretion, for the purpose of carrying out
the terms of this Loan Agreement, to take any and all appropriate action and to
execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Loan Agreement, and, without
limiting the generality of the foregoing, the Borrower hereby gives the Lender
the power and right, on behalf of the Borrower, without assent by, but with
notice to, the Borrower, if an Event of Default shall have occurred and be
continuing, to do the following:
(i) in the name of the Borrower or its own name, or otherwise, to take
possession of and endorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
mortgage insurance or with respect to any other Collateral and to file any
claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Lender for the purpose of
collecting any and all such moneys due under any such mortgage insurance or
with respect to any other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral; and
(iii) (A) to direct any party liable for any payment under any
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Lender or as the Lender shall direct; (B) to ask
or demand for, collect, receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (C) to sign and endorse any
invoices, assignments, verifications, notices and other documents in
connection with any of the Collateral; (D) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any thereof and to enforce any
other right in respect of any Collateral; (E) to defend any suit, action or
proceeding brought against the Borrower with respect to any Collateral; (F)
to settle, compromise or adjust any suit, action or proceeding described in
clause (E) above and, in connection therewith, to give such discharges or
releases as the Lender may deem appropriate; and (G) generally, to sell,
transfer, pledge and make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though the Lender
were the absolute owner thereof for all purposes, and to do, at the
Lender's option and the Borrower's expense, at any time, or from time to
time, all acts and things which the Lender deems necessary to protect,
preserve or realize upon the Collateral and the Lender's Liens thereon and
to effect the intent of this Loan Agreement, all as fully and effectively
as the Borrower might do.
The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) The Borrower also authorizes the Lender, at any time and from time to
time, to execute, in connection with the sale provided for in Section 4.07
hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
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<PAGE>
(c) The powers conferred on the Lender are solely to protect the Lender's
interests in the Collateral and shall not impose any duty upon the Lender to
exercise any such powers. The Lender shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers, and neither the
Lender nor any of its officers, directors, or employees shall be responsible to
the Borrower for any act or failure to act hereunder, except for its own gross
negligence or willful misconduct.
4.05. Performance by Lender of Borrower's Obligations. If the Borrower
fails to perform or comply with any of its agreements contained in the Loan
Documents and the Lender may itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the expenses of the Lender
incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum equal to the Post-Default Rate, shall be
payable by the Borrower to the Lender on demand and shall constitute Secured
Obligations.
4.06. Proceeds. If an Event of Default shall occur and be continuing, (a)
all proceeds of Collateral received by the Borrower consisting of cash, checks
and other near-cash items shall be held by the Borrower in trust for the Lender,
segregated from other funds of the Borrower, and shall forthwith upon receipt by
the Borrower be turned over to the Lender in the exact form received by the
Borrower (duly endorsed by the Borrower to the Lender, if required) and (b) any
and all such proceeds received by the Lender (whether from the Borrower or
otherwise) may, in the sole good-faith discretion of the Lender, be held by the
Lender as collateral security for, and/or then or at any time thereafter may be
applied by the Lender against, the Secured Obligations (whether matured or
unmatured), such application to be in such order as the Lender shall elect. Any
balance of such proceeds remaining after the Secured Obligations shall have been
paid in full and this Loan Agreement shall have been terminated shall be paid
over to the Borrower or to whomsoever may be lawfully entitled to receive the
same. For purposes hereof, proceeds shall include, but not be limited to, all
principal and interest payments, all prepayments and payoffs, insurance claims,
condemnation awards, sale proceeds, real estate owned rents and any other income
and all other amounts received with respect to the Collateral.
4.07. Remedies. If an Event of Default shall occur and be continuing, the
Lender may exercise, in addition to all other rights and remedies granted to it
in this Loan Agreement and in any other instrument or agreement securing,
evidencing or relating to the Secured Obligations, all rights and remedies of a
secured party under the Uniform Commercial Code. 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 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,
lease, assign, give 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 or as an entirety at public or private sale
or sales, 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 in the Borrower, which right or equity is hereby waived
or released. The Borrower further agrees, at the Lender's request, to assemble
the Collateral and make it available to the Lender at places which the Lender
shall reasonably select, whether at the Borrower's premises or elsewhere. The
Lender shall apply the net proceeds of
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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 Secured Obligations, 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 or permitted by any provision of law, including,
without limitation, Section 9-504(1)(c) of the Uniform Commercial Code, need the
Lender account for the surplus, if any, to the Borrower. To the extent permitted
by applicable law, the Borrower waives all claims, damages and demands it may
acquire against the Lender arising out of the exercise by the Lender of any of
its rights hereunder, other than those claims, damages and demands arising from
the gross negligence or willful misconduct of the Lender. 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. The Borrower shall remain liable for any
deficiency (plus accrued interest thereon as contemplated pursuant to Section
2.05(b) hereof) if the proceeds of any sale or other disposition of the
Collateral are insufficient to pay the Secured Obligations and the fees and
disbursements of any attorneys employed by the Lender to collect such
deficiency.
4.08. Limitation on Duties Regarding Presentation of Collateral. The
Lender's duty with respect to the custody, safekeeping and physical preservation
of the Collateral in its possession, under Section 9-207 of the Uniform
Commercial Code or otherwise, shall be to deal with it in the same manner as the
Lender deals with similar property for its own account. Neither the Lender nor
any of its directors, officers or employees shall be liable for failure to
demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Borrower or otherwise.
4.09. Powers Coupled with an Interest. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
4.10 Release of Security Interest. Upon termination of this Loan Agreement
and repayment to the Lender of all Secured Obligations and the performance of
all obligations under the Loan Documents the Lender shall release its security
interest in any remaining Collateral.
Section 5. Conditions Precedent.
5.01 Initial Loan. The obligation of the Lender to make its initial Loan
hereunder is subject to the satisfaction, immediately prior to or concurrently
with the making of such Loan, of the following conditions precedent:
(a) Loan Documents. The Lender shall have received the following documents,
each of which shall be satisfactory to the Lender in form and substance:
(i) Note. The Note, duly completed and executed;
(ii) Custodial Agreement. The Custodial Agreement, duly executed and
delivered by the Borrower and the Custodian. In addition, the Borrower
shall have taken such other action as the Lender shall have requested in
order to perfect the security interests created pursuant to the Loan
Agreement;
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(b) Organizational Documents. A good standing certificate and
certified copies of the charter and by-laws (or equivalent documents) of
the Borrower and of all corporate or other authority for the Borrower with
respect to the execution, delivery and performance of the Loan Documents
and each other document to be delivered by the Borrower from time to time
in connection herewith (and the Lender may conclusively rely on such
certificate until it receives notice in writing from the Borrower to the
contrary);
(c) Legal Opinion. A legal opinion of counsel to the Borrower,
substantially in the form attached hereto as Exhibit C;
(d) Servicing Agreement(s). Any Servicing Agreement, certified as a
true, correct and complete copy of the original, and any letter of the
applicable Servicer consenting to termination of the related Servicing
Agreement upon the occurrence of an Event of Default; and
(e) Other Documents. Such other documents as the Lender may reasonably
request.
5.02 Initial and Subsequent Loans. The making of each Loan to the Borrower
(including the initial Loan) on any Business Day is subject to the following
further conditions precedent, both immediately prior to the making of such Loan
and also after giving effect thereto and to the intended use thereof:
(a) no Default or Event of Default shall have occurred and be
continuing;
(b) both immediately prior to the making of such Loan and also after
giving effect thereto and to the intended use thereof, the representations
and warranties made by the Borrower in Section 6 hereof, and in each of the
other Loan Documents, shall be true and complete on and as of the date of
the making of such Loan in all material respects (in the case of the
representations and warranties in Section 6.10 and Schedule 1, solely with
respect to Mortgage Loans included in the Borrowing Base) with the same
force and effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date). The Lender shall have received an
officer's certificate signed by a Responsible Officer of Borrower
certifying as to the truth and accuracy of the above, which certificate
shall specifically include a statement that the Borrower is in compliance
with all governmental licenses and authorizations and is qualified to do
business and in good standing in all required jurisdictions.
(c) the aggregate outstanding principal amount of the Loans shall not
exceed the Borrowing Base;
(d) subject to the Lender's right to perform one or more Due Diligence
Reviews pursuant to Section 11.15 hereof, the Lender shall have completed
its due diligence review of the Mortgage Loan Documents for each Loan and
such other documents, records, agreements, instruments, mortgaged
properties or information relating to such Loans as the Lender in its sole
good-faith discretion deems appropriate to review and such review shall be
satisfactory to the Lender in its sole good-faith discretion;
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(e) the Lender shall have received from the Custodian a Trust Receipt
in respect of Eligible Mortgage Loans to be pledged hereunder on such
Business Day and a Mortgage Loan Summary, in each case dated such Business
Day and duly completed;
(f) none of the following shall have occurred and/or be continuing:
(i) a catastrophic event or events shall have occurred resulting
in the effective absence of a "repo market" or comparable "lending
market" for financing debt obligations secured by mortgage loans or
securities for a period of (or reasonably expected to be) at least 30
consecutive days and the same has resulted in the Lender not being
able to finance any Loans through the "repo market" or "lending
market" with traditional counterparties at rates which would have been
reasonable prior to the occurrence of such catastrophic event or
events;
(ii) a catastrophic event or events shall have occurred resulting
in the effective absence of a "securities market" for securities
backed by mortgage loans for a period of (or reasonably expected to
be) at least 30 consecutive days and the same results in the Lender
not being able to sell securities backed by mortgage loans at prices
which would have been reasonable prior to such catastrophic event or
events; or
(iii) there shall have occurred a material adverse change in the
financial condition of the Lender which effects (or can reasonably be
expected to effect) materially and adversely the ability of the Lender
to fund its obligations under this Loan Agreement.
Each request for a borrowing by the Borrower hereunder shall constitute a
certification by the Borrower to the effect set forth in this Section (both as
of the date of such notice, request or confirmation and as of the date of such
borrowing).
Section 6. Representations and Warranties. The Borrower represents and
warrants to the Lender that throughout the term of this Loan Agreement:
6.01 Existence. The Borrower (a) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, (b) has all requisite corporate or other power, and has all
governmental licenses, authorizations, consents and approvals, necessary to own
its assets and carry on its business as now being or as proposed to be
conducted, except where the lack of such licenses, authorizations, consents and
approvals would not be reasonably likely to have a material adverse effect on
its property, business or financial condition, or prospects; and (c) is
qualified to do business and is in good standing in all other jurisdictions in
which the nature of the business conducted by it makes such qualification
necessary, except where failure so to qualify would not be reasonably likely
(either individually or in the aggregate) to have a material adverse effect on
its property, business or financial condition, or prospects.
6.02 Financial Condition. The Borrower has heretofore furnished to the
Lender a copy of its consolidated balance sheets and the consolidated balance
sheets of its consolidated Subsidiaries as at December 31, 1996 and the related
statements of earnings and cash flows for the fiscal year then ended, with the
opinion thereon of KPMG Peat Marwick. The Borrower has also heretofore furnished
to the Lender the related consolidated statements of income and retained
earnings and of cash flows for the Borrower and its consolidated Subsidiaries
for the first three quarterly fiscal periods of each fiscal year of the Borrower
and at the end of each fiscal year, setting forth in each case in comparative
form the figures for the previous year. All such financial statements are
complete and
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correct and fairly present the consolidated financial condition of the Borrower
and its Subsidiaries and the consolidated results of their operations for the
fiscal year ended on said date, all in accordance with GAAP applied on a
consistent basis.
6.03 Litigation. There are no actions, suits, arbitrations, investigations
or proceedings pending or, to its knowledge, threatened against the Borrower or
any of its Subsidiaries or affecting any of the property thereof before any
Governmental Authority, (i) as to which individually or in the aggregate there
is a reasonable likelihood of an adverse decision which would be reasonably
likely to have a material adverse effect on the property, business or financial
condition, or prospects of the Borrower or (ii) which questions the validity or
enforceability of any of the Loan Documents or any action to be taken in
connection with the transactions contemplated hereby.
6.04 No Breach. Neither (a) the execution and delivery of the Loan
Documents or (b) the consummation of the transactions therein contemplated in
compliance with the terms and provisions thereof will conflict with or result in
a breach of the charter or by-laws of the Borrower, or any applicable law, rule
or regulation, or any order, writ, injunction or decree of any Governmental
Authority, or any Servicing Agreement or other material agreement or instrument
to which the Borrower, or any of its Subsidiaries, is a party or by which any of
them or any of their property is bound or to which any of them is subject, or
constitute a default under any such material agreement or instrument, or (except
for the Liens created pursuant to this Loan Agreement) result in the creation or
imposition of any Lien upon any property of the Borrower or any of its
Subsidiaries pursuant to the terms of any such agreement or instrument.
6.05 Action. The Borrower has all necessary corporate or other power,
authority and legal right to execute, deliver and perform its obligations under
each of the Loan Documents; the execution, delivery and performance by the
Borrower of each of the Loan Documents have been duly authorized by all
necessary corporate or other action on its part; and each Loan Document has been
duly and validly executed and delivered by the Borrower and constitutes a legal,
valid and binding obligation of the Borrower, enforceable against the Borrower
in accordance with its terms.
6.06 Approvals. No authorizations, approvals or consents of, and no filings
or registrations with, any Governmental Authority, or any securities exchange,
are necessary for the execution, delivery or performance by the Borrower of the
Loan Documents or for the legality, validity or enforceability thereof, except
for filings and recordings in respect of the Liens created pursuant to this Loan
Agreement.
6.07 Margin Regulations. Neither the making of any Loan hereunder, nor the
use of the proceeds thereof, will violate or be inconsistent with the provisions
of Regulation G, T, U or X.
6.08 Taxes. The Borrower and its Subsidiaries have filed all Federal income
tax returns and all other material tax returns that are required to be filed by
them and have paid all taxes due pursuant to such returns or pursuant to any
assessment received by any of them, except for any such taxes, if any, that are
being appropriately contested in good faith by appropriate proceedings
diligently conducted and with respect to which adequate reserves have been
provided. The charges, accruals and reserves on the books of the Borrower and
its Subsidiaries in respect of taxes and other governmental charges are, in the
opinion of the Borrower, adequate.
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6.09 Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of 1940,
as amended.
6.10 Collateral; Collateral Security.
(a) The Borrower has not assigned, pledged, or otherwise conveyed or
encumbered any Mortgage Loan to any other Person, and immediately prior to the
pledge of such Mortgage Loan, the Borrower was the sole owner of such Mortgage
Loan and had good and marketable title thereto, free and clear of all Liens, in
each case except for Liens to be released simultaneously with the Liens granted
in favor of the Lender hereunder.
(b) The provisions of this Loan Agreement are effective to create in favor
of the Lender a valid security interest in all right, title and interest of the
Borrower in, to and under the Collateral.
(c) Upon receipt by the Custodian of each Mortgage Note, endorsed in blank
by a duly authorized officer of the Borrower, the Lender shall have a fully
perfected first priority security interest therein, in the Mortgage Loan
evidenced thereby and in the Borrower's interest in the related Mortgaged
Property.
(d) Upon the filing of financing statements on Form UCC-1 naming the Lender
as "Secured Party" and the Borrower as "Debtor", and describing the Collateral,
in the jurisdictions and recording offices listed on Schedule 2 attached hereto,
the security interests granted hereunder in the Collateral will constitute fully
perfected first priority security interests under the Uniform Commercial Code in
all right, title and interest of the Borrower in, to and under such Collateral,
which can be perfected by filing under the Uniform Commercial Code.
6.11 Chief Executive Office. The Borrower's chief executive office on the
Effective Date is located at One Centerpointe Drive, Suite 500, Lake Oswego,
Oregon 97035.
6.12 Location of Books and Records. The location where the Borrower keeps
its books and records, including all computer tapes and records relating to the
Collateral is its chief executive office.
6.13 Hedging. The Borrower has entered into Interest Rate Protection
Agreements, having a notional amount not less than 80% of the aggregate unpaid
principal amount of the fixed-rate Mortgage Loans, with MS & Co. or any
affiliate, or otherwise entered into hedging transactions having terms with
respect to protection against fluctuations in interest rates reasonably
acceptable to the Lender.
6.14 True and Complete Disclosure. The information, reports, financial
statements, exhibits and schedules furnished in writing by or on behalf of the
Borrower to the Lender in connection with the negotiation, preparation or
delivery of this Loan Agreement and the other Loan Documents or included herein
or therein or delivered pursuant hereto or thereto, when taken as a whole, do
not contain any untrue statement of material fact or omit to state any material
fact necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. All written
information furnished after the date hereof by or on behalf of the Borrower to
the Lender in connection with this Loan Agreement and the other Loan Documents
and the transactions contemplated
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hereby and thereby will be true, complete and accurate in every material
respect, or (in the case of projections) based on reasonable estimates, on the
date as of which such information is stated or certified. There is no fact known
to a Responsible Officer that, after due inquiry, could reasonably be expected
to have a Material Adverse Effect that has not been disclosed herein, in the
other Loan Documents or in a report, financial statement, exhibit, schedule,
disclosure letter or other writing furnished to the Lender for use in connection
with the transactions contemplated hereby or thereby.
6.15 Tangible Net Worth. On the Effective Date, the Tangible Net Worth is
not less than [ * ].
6.16 ERISA. Each Plan to which the Borrower or its Subsidiaries make direct
contributions, and, to the knowledge of the Borrower, each other Plan and each
Multiemployer Plan, is in compliance in all material respects with, and has been
administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other Federal or State law. No event or
condition has occurred and is continuing as to which the Borrower would be under
an obligation to furnish a report to the Lender under Section 7.01(d) hereof.
Section 7. Covenants of the Borrower. The Borrower covenants and agrees
with the Lender that, so long as any Loan is outstanding and until payment in
full of all Secured Obligations:
7.01 Financial Statements. The Borrower shall deliver to the Lender:
(a) as soon as available and in any event within 45 days after the end
of each of the first three quarterly fiscal periods of each fiscal year of
the Borrower, the consolidated balance sheets of the Borrower and its
consolidated Subsidiaries as at the end of such period and the related
unaudited consolidated statements of income and retained earnings and of
cash flows for the Borrower and its consolidated Subsidiaries for such
period and the portion of the fiscal year through the end of such period,
setting forth in each case in comparative form the figures for the previous
year, accompanied by a certificate of a Responsible Officer of the
Borrower, which certificate shall state that said consolidated financial
statements fairly present the consolidated financial condition and results
of operations of the Borrower and its Subsidiaries in accordance with GAAP,
consistently applied, as at the end of, and for, such period (subject to
normal year-end audit adjustments);
(b) as soon as available and in any event within 90 days after the end
of each fiscal year of the Borrower, the consolidated balance sheets of the
Borrower and its consolidated Subsidiaries as at the end of such fiscal
year and the related consolidated statements of income and retained
earnings and of cash flows for the Borrower and its consolidated
Subsidiaries for such year, setting forth in each case in comparative form
the figures for the previous year, accompanied by an opinion thereon of
independent certified public accountants of recognized national standing,
which opinion shall not be qualified as to scope of audit or going concern
and shall state that said consolidated financial statements fairly present
the consolidated financial condition and results of operations of the
Borrower and its consolidated Subsidiaries as at the end of, and for, such
fiscal year in accordance with GAAP, and a certificate of such accountants
stating that, in making the examination necessary for their opinion, they
obtained no knowledge, except as specifically stated, of any Default or
Event of Default;
(c) as soon as available and in any event within fifteen Business Days
after the end of each month, the unaudited consolidated statements of
income and retained earnings and of
- --------
* This information has been omitted and filed separately with the Securities and
Exchange Commission and is subject to a confidential treatment request with
respect thereto.
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<PAGE>
cash flows for the Borrower and its consolidated Subsidiaries for the prior
month, accompanied by a certificate of a Responsible Officer of the
Borrower, which certificate shall state that said consolidated financial
statements fairly present the consolidated financial condition and results
of operations of the Borrower and its Subsidiaries in accordance with GAAP,
consistently applied, as at the end of, and for, such period (subject to
normal year-end audit adjustments);
(d) from time to time such other information regarding the financial
condition, operations, or business of the Borrower as the Lender may
reasonably request; and
(e) as soon as reasonably possible, and in any event within thirty
(30) days after a Responsible Officer knows, or with respect to any Plan or
Multiemployer Plan to which the Borrower or any of its Subsidiaries makes
direct contributions, has reason to believe, that any of the events or
conditions specified below with respect to any Plan or Multiemployer Plan
has occurred or exists, a statement signed by a senior financial officer of
the Borrower setting forth details respecting such event or condition and
the action, if any, that the Borrower or its ERISA Affiliate proposes to
take with respect thereto (and a copy of any report or notice required to
be filed with or given to PBGC by the Borrower or an ERISA Affiliate with
respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA
and the regulations issued thereunder, with respect to a Plan, as to
which PBGC has not by regulation waived the requirement of Section
4043(a) of ERISA that it be notified within thirty (30) days of the
occurrence of such event (provided that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA,
including, without limitation, the failure to make on or before its
due date a required installment under Section 412(m) of the Code or
Section 302(e) of ERISA, shall be a reportable event regardless of the
issuance of any waivers in accordance with Section 412(d) of the
Code); and any request for a waiver under Section 412(d) of the Code
for any Plan;
(ii) the distribution under Section 4041(c) of ERISA of a notice
of intent to terminate any Plan or any action taken by the Borrower or
an ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section 4042
of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Borrower or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer Plan
by the Borrower or any ERISA Affiliate that results in liability under
Section 4201 or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default) or the receipt
by the Borrower or any ERISA Affiliate of notice from a Multiemployer
Plan that it is in reorganization or insolvency pursuant to Section
4241 or 4245 of ERISA or that it intends to terminate or has
terminated under Section 4041A of ERISA;
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<PAGE>
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Borrower or any ERISA Affiliate to
enforce Section 515 of ERISA, which proceeding is not dismissed within
30 days; and
(vi) the adoption of an amendment to any Plan that, pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA, would result
in the loss of tax-exempt status of the trust of which such Plan is a
part if the Borrower or an ERISA Affiliate fails to timely provide
security to such Plan in accordance with the provisions of said
Sections.
The Borrower will furnish to the Lender, at the time it furnishes each set of
financial statements pursuant to paragraphs (a) and (b) above, a certificate of
a Responsible Officer of the Borrower to the effect that, to the best of such
Responsible Officer's knowledge, the Borrower during such fiscal period or year
has observed or performed all of its covenants and other agreements, and
satisfied every condition, contained in this Loan Agreement and the other Loan
Documents to be observed, performed or satisfied by it, and that such
Responsible Officer has obtained no knowledge of any Default or Event of Default
except as specified in such certificate (and, if any Default or Event of Default
has occurred and is continuing, describing the same in reasonable detail and
describing the action the Borrower has taken or proposes to take with respect
thereto).
7.02 Litigation. The Borrower will promptly, and in any event within 10
days after service of process on any of the following, give to the Lender notice
of all legal or arbitrable proceedings affecting the Borrower or any of its
Subsidiaries that questions or challenges the validity or enforceability of any
of the Loan Documents or as to which there is a reasonable likelihood of adverse
determination which would result in a Material Adverse Effect.
7.03 Existence, Etc. The Borrower will:
(a) preserve and maintain its legal existence and all of its material
rights, privileges, licenses and franchises (provided, that nothing in this
Section 7.03(a) shall prohibit any transaction expressly permitted under
Section 7.04 hereof);
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of Governmental Authorities (including, without
limitation, all environmental laws) if failure to comply with such
requirements would be reasonably likely (either individually or in the
aggregate) to have a material adverse effect on its property, business or
financial condition, or prospects;
(c) keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied;
(d) not move its chief executive office from the address referred to
in Section 6.11 unless it shall have provided the Lender 30 days prior
written notice of such change;
(e) pay and discharge all taxes, assessments and governmental charges
or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for
any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained; and
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<PAGE>
(f) permit representatives of the Lender, during normal business
hours, to examine, copy and make extracts from its books and records, to
inspect any of its Properties, and to discuss its business and affairs with
its officers, all to the extent reasonably requested by the Lender.
7.04 Prohibition of Fundamental Changes. The Borrower shall not enter into
any transaction of merger or consolidation or amalgamation, or liquidate, wind
up or dissolve itself (or suffer any liquidation, winding up or dissolution) or
sell all or substantially all of its assets; provided, that the Borrower may
merge or consolidate with (a) any wholly owned subsidiary of the Borrower, or
(b) any other Person if the Borrower is the surviving corporation; and provided
further, that if after giving effect thereto, no Default would exist hereunder.
7.05 Borrowing Base Deficiency. If at any time there exists a Borrowing
Base Deficiency the Borrower shall cure same in accordance with Section 2.06
hereof.
7.06 Notices. The Borrower shall give notice to the Lender:
(a) promptly of the occurrence of any Default or Event of Default;
(b) with respect to any Mortgage Loan pledged to the Lender hereunder,
immediately (i) upon receipt of notice from the related Mortgagor of such
Mortgagor's intention to prepay, in full or partial, such pledged Mortgage
Loan, or (ii) upon receipt of any principal prepayment (in full or partial)
of such pledged Mortgage Loan;
(c) with respect to any Mortgage Loan pledged to the Lender hereunder,
immediately if the underlying Mortgaged Property has been damaged by waste,
fire, earthquake or earth movement, windstorm, flood, tornado or other
casualty, or otherwise damaged so as to affect adversely the Collateral
Value of such pledged Mortgage Loan; and
(d) promptly of any default related to any Collateral and any event or
change in circumstances which could reasonably be expected to have a
material adverse effect on the Borrower's Property, business or financial
condition, or prospects.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer of the Borrower setting forth details of the occurrence
referred to therein and stating what action the Borrower has taken or proposes
to take with respect thereto.
7.07 Hedging. The Borrower shall at all times maintain Interest Rate
Protection Agreements, having a notional amount not less than 80% of the
aggregate outstanding principal balance of all fixed-rate Mortgage Loans, with
MS & Co. or any affiliate, or otherwise maintain hedging transactions having
terms with respect to protection against fluctuations in interest rates
reasonably acceptable to the Lender. The Borrower shall deliver to the Custodian
and the Lender monthly a written summary of the notional amount of all
outstanding Interest Rate Protection Agreements and such hedging transactions.
7.08 Reports. The Borrower shall provide the Lender with a quarterly
report, which report shall include, among other items, (i) a summary of the
Borrower's delinquency and loss experience with respect to mortgage loans
serviced by the Borrower, and (ii) a summary of the number of applications for
mortgage loans which are (A) pending, subject to the Borrower's approval, and
(B)
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accepted for origination but not yet originated, plus any additional reports
as Lender may reasonably request with respect to the Borrower's servicing
portfolio or pending originations of mortgage loans.
7.09 Underwriting Guidelines. Without the prior written consent of the
Lender, the Borrower shall not materially amend or otherwise modify the
Underwriting Guidelines.
7.10 Lines of Business. The Borrower will not engage to any substantial
extent in any line or lines of business activity other than the businesses now
generally carried on by it.
7.11 Transactions with Affiliates. The Borrower will not enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Loan Agreement, (b) in
the ordinary course of the Borrower's business and (c) upon fair and reasonable
terms no less favorable to the Borrower than it would obtain in a comparable
arm's length transaction with a Person which is not an Affiliate, or make a
payment that is not otherwise permitted by this Section 7.11 to any Affiliate.
7.12 Use of Proceeds. The Borrower will use the proceeds of the Loans
solely to originate, fund, manage and service Eligible Mortgage Loans.
7.13 Limitation on Sale of Assets. The Borrower shall not convey, sell,
lease, assign, transfer or otherwise dispose of, substantially all of its
Property, business or assets (including, without limitation, receivables and
leasehold interests) whether now owned or hereafter acquired, except for (i)
sales of mortgage loans not included in the Collateral, and (ii) the sale of any
obsolete or worn-out equipment no longer used or useful, for cash, the net
proceeds of which are reinvested in replacement equipment.
7.14 Limitation on Distributions. After the occurrence and during the
continuation of any Event of Default, the Borrower shall not make any payment on
account of, or set apart assets for a sinking or other analogous fund for the
purchase, redemption, defeasance, retirement or other acquisition of, any
partnership interest of the Borrower, whether now or hereafter outstanding, or
make any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of the Borrower.
7.15 Organizational Documents. The Borrower shall not amend its
organizational documents without the prior written consent of the Lender, which
shall not be unreasonably withheld.
7.16 Maintenance of Tangible Net Worth. The Borrower shall not permit
Tangible Net Worth at any time to be less than [ * ].
7.17 Maintenance of Ratio of Total Indebtedness to Tangible Net Worth. The
Borrower shall not permit the ratio of Total Indebtedness to Tangible Net Worth
at any time to be greater than [ * ].
7.18 Maintenance of Profitability. The Borrower shall not permit, for any
period of three consecutive fiscal quarters (each such period, a "Test Period"),
Net Income for such Test Period before income taxes for such Test Period, and
distributions made during such Test Period, to be less than $1.00.
- --------
* This information has been omitted and filed separately with the Securities and
Exchange Commission and is subject to a confidential treatment request with
respect thereto.
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7.19 Servicing Tape. The Borrower shall provide to the Lender on a monthly
basis a computer readable magnetic tape containing servicing information, on a
loan-by-loan basis and in the aggregate, with respect to the Mortgage Loans
serviced hereunder by the Borrower or a third party servicer.
Section 8. Events of Default. Each of the following events shall constitute
an event of default (an "Event of Default") hereunder:
(a) the Borrower shall default in the payment of any principal of or
interest on any Loan when due (whether at stated maturity, upon
acceleration or at mandatory or optional prepayment); or
(b) the Borrower shall default in the payment of any other amount
payable by it hereunder or under any other Loan Document after notification
by the Lender of such default, and such default shall have continued
unremedied for five Business Days; or
(c) any representation, warranty or certification made or deemed made
herein or in any other Loan Document by the Borrower or any certificate
furnished to the Lender pursuant to the provisions thereof, shall prove to
have been false or misleading in any material respect as of the time made
or furnished (other than the representations and warranties set forth in
Schedule 1, which shall be considered solely for the purpose of determining
the Collateral Value of the Mortgage Loans; unless the Borrower shall have
made any such representations and warranties with knowledge that they were
materially false or misleading at the time made); or
(d) the Borrower shall fail to comply with the requirements of Section
7.03(a), Section 7.04, Section 7.06, or Sections 7.09 through 7.18 hereof;
or the Borrower shall default in the performance of its obligations under
Section 7.05 hereof and such default shall continue unremedied for a period
of one (1) Business Day; or the Borrower shall otherwise fail to comply
with the requirements of Section 7.03 hereof and such default shall
continue unremedied for a period of five Business Days; or the Borrower
shall fail to observe or perform any other agreement contained in this Loan
Agreement or any other Loan Document and such failure to observe or perform
shall continue unremedied for a period of seven Business Days; or
(e) a final judgment or judgments for the payment of money in excess
of $5,000,000 in the aggregate shall be rendered against the Borrower or
any of its Subsidiaries by one or more courts, administrative tribunals or
other bodies having jurisdiction over them and the same shall not be
discharged (or provision shall not be made for such discharge) or bonded,
or a stay of execution thereof shall not be procured, within 60 days from
the date of entry thereof and the Borrower or any such Subsidiary shall
not, within said period of 60 days, or such longer period during which
execution of the same shall have been stayed or bonded, appeal therefrom
and cause the execution thereof to be stayed during such appeal; or
(f) the Borrower shall admit in writing its inability to pay its debts
as such debts become due; or
(g) the Borrower or any of its Subsidiaries shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, trustee, examiner or
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liquidator of itself or of all or a substantial part of its property, (ii)
make a general assignment for the benefit of its creditors, (iii) commence
a voluntary case under the Bankruptcy Code, (iv) file a petition seeking to
take advantage of any other law relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or winding-up, or
composition or readjustment of debts, (v) fail to controvert in a timely
and appropriate manner, or acquiesce in writing to, any petition filed
against it in an involuntary case under the Bankruptcy Code or (vi) take
any corporate or other action for the purpose of effecting any of the
foregoing; or
(h) a proceeding or case shall be commenced, without the application
or consent of the Borrower or any of its Subsidiaries, in any court of
competent jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or readjustment
of its debts, (ii) the appointment of a receiver, custodian, trustee,
examiner, liquidator or the like of the Borrower or any such Subsidiary or
of all or any substantial part of its property, or (iii) similar relief in
respect of the Borrower or any such Subsidiary under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts, and such proceeding or case shall continue
undismissed, or an order, judgment or decree approving or ordering any of
the foregoing shall be entered and continue unstayed and in effect, for a
period of 60 or more days; or an order for relief against the Borrower or
any such Subsidiary shall be entered in an involuntary case under the
Bankruptcy Code; or
(i) any Loan Document shall for whatever reason be terminated or cease
to be in full force and effect, or the enforceability thereof shall be
contested by the Borrower; or
(j) the Borrower grants, or suffers to exist, any Lien or the Liens
contemplated hereby cease to be first priority perfected Liens on any
Collateral in favor of any Person other than the Lender; or
(k) any materially adverse change in the Properties, business or
financial condition, or prospects of the Borrower or any of its
Subsidiaries, in each case as determined by the Lender in its sole good-
faith discretion, or the existence of any other condition which, in the
Lender's sole good-faith discretion, constitutes a material impairment of
the Borrower's ability to perform its obligations under this Loan
Agreement, the Note or any other Loan Document; or
(l) the Lender determines that the number of Misclassified Mortgage
Loans equals at least 20% of the Mortgage Loans reviewed pursuant to a Due
Diligence Review during any two successive Due Diligence Reviews.
Section 9. Remedies Upon Default.
(a) Upon the occurrence of one or more Events of Default other than
those referred to in Section 8(g) or (h), the Lender may immediately
declare the principal amount of the Loans then outstanding under the Note
to be immediately due and payable, together with all interest thereon and
fees and expenses accruing under this Loan Agreement; provided that upon
the occurrence of an Event of Default referred to in Section 8(g) or (h),
such amounts shall immediately and automatically become due and payable
without any further action by any Person. Upon such declaration or such
automatic acceleration, the balance then outstanding on the Note shall
become
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immediately due and payable, without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower.
(b) Upon the occurrence of one or more Events of Default, the Lender shall
have the right to obtain physical possession of the Servicing Records and all
other files of the Borrower relating to the Collateral and all documents
relating to the Collateral which are then or may thereafter come in to the
possession of the Borrower or any third party acting for the Borrower and the
Borrower shall deliver to the Lender such assignments as the Lender shall
request. The Lender shall be entitled to specific performance of all agreements
of the Borrower contained in this Loan Agreement.
Section 10. No Duty on Lender's Part. The powers conferred on the Lender
hereunder are solely to protect the Lender's interests in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Lender shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act hereunder, except for its or their own gross negligence or willful
misconduct.
Section 11. Miscellaneous.
11.01 Waiver. No failure on the part of the Lender to exercise and no delay
in exercising, and no course of dealing with respect to, any right, power or
privilege under any Loan Document shall operate as a waiver thereof, nor shall
any single or partial exercise of any right, power or privilege under any Loan
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege. The remedies provided herein are cumulative and
not exclusive of any remedies provided by law.
11.02 Notices. Except as otherwise expressly permitted by this Loan
Agreement, all notices, requests and other communications provided for herein
and under the Custodial Agreement (including, without limitation, any
modifications of, or waivers, requests or consents under, this Loan Agreement)
shall be given or made in writing (including, without limitation, by telex or
telecopy) delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof); or, as to any party, at
such other address as shall be designated by such party in a written notice to
each other party. Except as otherwise provided in this Loan Agreement and except
for notices given under Section 2 (which shall be effective only on receipt),
all such communications shall be deemed to have been duly given when transmitted
by telex or telecopier or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as aforesaid.
11.03 Indemnification and Expenses.
(a) The Borrower agrees to hold the Lender harmless from and indemnify the
Lender against all liabilities, losses, damages, judgments, costs and expenses
of any kind which may be imposed on, incurred by, or asserted against the Lender
(collectively, "Costs"), relating to or arising out of, this Loan Agreement, the
Note, any other Loan Document or any transaction contemplated hereby or thereby,
or any amendment, supplement or modification of, or any waiver or consent under
or in respect of, this Loan Agreement, the Note, any other Loan Document or any
transaction contemplated hereby or thereby, that, in each case, results from
anything other than the Lender's gross negligence or willful misconduct. Without
limiting the generality of the foregoing, the Borrower agrees to hold the Lender
harmless from and indemnify the Lender against all Costs with respect to
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Wet-Ink Mortgage Loans relating to or arising out of any breach, violation or
alleged breach or violation of any consumer credit laws, including without
limitation the Truth in Lending Act and/or the Real Estate Settlement Procedures
Act. In any suit, proceeding or action brought by the Lender in connection with
any Mortgage Loan for any sum owing thereunder, or to enforce any provisions of
any Mortgage Loan, the Borrower will save, indemnify and hold the Lender
harmless from and against all expense, loss or damage suffered by reason of any
defense, set-off, counterclaim, recoupment or reduction or liability whatsoever
of the account debtor or obligor thereunder, arising out of a breach by the
Borrower of any obligation thereunder or arising out of any other agreement,
indebtedness or liability at any time owing to or in favor of such account
debtor or obligor or its successors from the Borrower. The Borrower also agrees
to reimburse the Lender as and when billed by the Lender for all the Lender's
costs and expenses incurred in connection with the enforcement or the
preservation of the Lender's rights under this Loan Agreement, the Note, any
other Loan Document or any transaction contemplated hereby or thereby, including
without limitation the reasonable fees and disbursements of its counsel. The
Borrower hereby acknowledges that, notwithstanding the fact that the Note is
secured by the Collateral, the obligation of the Borrower under the Note is a
recourse obligation of the Borrower.
(b) The Borrower agrees to pay as and when billed by the Lender all of the
out-of-pocket costs and expenses incurred by the Lender in connection with the
development, preparation and execution of, and any amendment, supplement or
modification to, this Loan Agreement, the Note, any other Loan Document or any
other documents prepared in connection herewith or therewith. The Borrower
agrees to pay as and when billed by the Lender all of the out-of-pocket costs
and expenses incurred in connection with the consummation and administration of
the transactions contemplated hereby and thereby including, without limitation,
(i) all the reasonable fees, disbursements and expenses of counsel to the
Lender, and (ii) all the due diligence, inspection, testing and review costs and
expenses incurred by the Lender with respect to Collateral under this Loan
Agreement, including, but not limited to, those costs and expenses incurred by
the Lender pursuant to Sections 11.03(a), 11.14 and 11.15 hereof.
11.04 Amendments. Except as otherwise expressly provided in this Loan
Agreement, any provision of this Loan Agreement may be modified or supplemented
only by an instrument in writing signed by the Borrower and the Lender and any
provision of this Loan Agreement may be waived by the Lender.
11.05 Successors and Assigns . This Loan Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
11.06 Survival. The obligations of the Borrower under Sections 3.03 and
11.03 hereof shall survive the repayment of the Loans and the termination of
this Loan Agreement. In addition, each representation and warranty made, or
deemed to be made by a request for a borrowing, herein or pursuant hereto shall
survive the making of such representation and warranty, and the Lender shall not
be deemed to have waived, by reason of making any Loan, any Default that may
arise by reason of such representation or warranty proving to have been false or
misleading, notwithstanding that the Lender may have had notice or knowledge or
reason to believe that such representation or warranty was false or misleading
at the time such Loan was made.
11.07 Captions. The table of contents and captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Loan Agreement.
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11.08 Counterparts. This Loan Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Loan Agreement by
signing any such counterpart.
11.09 Loan Agreement Constitutes Security Agreement; Governing Law. This
Loan Agreement shall be governed by New York law without reference to choice of
law doctrine, and shall constitute a security agreement within the meaning of
the Uniform Commercial Code.
11.10 SUBMISSION TO JURISDICTION; WAIVERS. THE BORROWER HEREBY IRREVOCABLY
AND UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS LOAN AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT
MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN
ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL
(OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS
ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF
WHICH THE LENDER SHALL HAVE BEEN NOTIFIED; AND
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION.
11.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
11.12 Acknowledgments. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Loan Agreement, the Note and the other Loan Documents;
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(b) the Lender has no fiduciary relationship to the Borrower, and the
relationship between the Borrower and the Lender is solely that of debtor
and creditor; and
(c) no joint venture exists between the Lender and the Borrower.
11.13 Hypothecation or Pledge of Loans. The Lender shall have free and
unrestricted use of all Collateral and nothing in this Loan Agreement shall
preclude the Lender from engaging in repurchase transactions with the Collateral
or otherwise pledging, repledging, transferring, hypothecating, or
rehypothecating the Collateral. Nothing contained in this Loan Agreement shall
obligate the Lender to segregate any Collateral delivered to the Lender by the
Borrower.
11.14 Servicing.
(a) The Borrower covenants to maintain or cause the servicing of the
Mortgage Loans to be maintained in conformity with accepted and prudent
servicing practices in the industry for the same type of mortgage loans as the
Mortgage Loans and in a manner at least equal in quality to the servicing the
Borrower provides to mortgage loans which it owns. In the event that the
preceding language is interpreted as constituting one or more servicing
contracts, each such servicing contract shall terminate automatically upon the
earliest of (i) an Event of Default, or (ii) the date on which all the Secured
Obligations have been paid in full, or (iii) the transfer of servicing approved
by the Borrower.
(b) If the Mortgage Loans are serviced by the Borrower, (i) the Borrower
agrees that Lender is the owner of all servicing records, including but not
limited to any and all servicing agreements, files, documents, records, data
bases, computer tapes, copies of computer tapes, proof of insurance coverage,
insurance policies, appraisals, other closing documentation, payment history
records, and any other records relating to or evidencing the servicing of
Mortgage Loans (the "Servicing Records"), and (ii) the Borrower grants the
Lender a security interest in all servicing fees and rights relating to the
Mortgage Loans and all Servicing Records to secure the obligation of the
Borrower or its designee to service in conformity with this Section and any
other obligation of Borrower to the Lender. The Borrower covenants to safeguard
such Servicing Records and to deliver them promptly to the Lender or its
designee (including the Custodian) at the Lender's request.
(c) If the Mortgage Loans are serviced by a third party servicer (such
third party servicer, the "Servicer"), the Borrower (i) shall provide a copy of
the servicing agreement to the Lender, which shall be in form and substance
acceptable to the Lender (the "Servicing Agreement"); and (ii) hereby
irrevocably assigns to the Lender and Lender's successors and assigns all right,
title, interest and the benefits of the Servicing Agreements with respect to the
Mortgage Loans.
(d) If the Servicer is the Borrower or an Affiliate of the Borrower, the
Borrower shall provide to the Lender a letter from the Servicer to the effect
that upon the occurrence of an Event of Default, the Lender may terminate the
Servicing Agreement and transfer such servicing to its designee, at no cost or
expense to the Lender, it being agreed that the Borrower will pay any and all
fees required to terminate the Servicing Agreement and to effectuate the
transfer of servicing to the Lender.
(e) After the Funding Date, until the pledge of such Mortgage Loan is
relinquished by the Custodian, the Borrower will have no right to modify or
alter the terms of the Mortgage Loan
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and the Borrower will have no obligation or right to repossess the Mortgage Loan
or substitute another Mortgage Loan, except as provided in the Custodial
Agreement.
(f) In the event the Borrower or its Affiliate is servicing the Mortgage
Loans, the Borrower shall permit the Lender to inspect the Borrower's or its
Affiliate's servicing facilities, as the case may be, for the purpose of
satisfying the Lender that the Borrower or its Affiliate, as the case may be,
has the ability to service the Mortgage Loans as provided in this Loan
Agreement.
11.15 Periodic Due Diligence Review. The Borrower acknowledges that the
Lender has the right to perform continuing due diligence reviews with respect to
the Mortgage Loans, for purposes of verifying compliance with the
representations, warranties and specifications made hereunder, or otherwise, and
the Borrower agrees that upon reasonable (but no less than one (1) Business
Day's) prior notice to the Borrower, the Lender or its authorized
representatives will be permitted during normal business hours to examine,
inspect, make copies of, and make extracts of, the Mortgage Files and any and
all documents, records, agreements, instruments or information relating to such
Mortgage Loans in the possession, or under the control, of the Borrower and/or
the Custodian. The Borrower also shall make available to the Lender a
knowledgeable financial or accounting officer for the purpose of answering
questions respecting the Mortgage Files and the Mortgage Loans. Without limiting
the generality of the foregoing, the Borrower acknowledges that the Lender shall
make Loans to the Borrower based solely upon the information provided by the
Borrower to the Lender in the Mortgage Loan Tape and the representations,
warranties and covenants contained herein, and that the Lender, at is option,
has the right, at any time to conduct a partial or complete due diligence review
on some or all of the Mortgage Loans securing such Loan, including, without
limitation, ordering new credit reports, new appraisals on the related Mortgaged
Properties and otherwise re-generating the information used to originate such
Mortgage Loan. The Lender may underwrite such Mortgage Loans itself or engage a
mutually agreed upon third party underwriter to perform such underwriting. The
Borrower agrees to cooperate with the Lender and any third party underwriter in
connection with such underwriting, including, but not limited to, providing the
Lender and any third party underwriter with access to any and all documents,
records, agreements, instruments or information relating to such Mortgage Loans
in the possession, or under the control, of the Borrower. The Borrower further
agrees that the Borrower shall reimburse the Lender for any and all out-of-
pocket costs and expenses incurred by the Lender in connection with the
Lender's activities pursuant to this Section 11.15.
11.16 Intent. The parties recognize that each Loan is a "securities
contract" as that term is defined in Section 741 of Title 11 of the United
States Code, as amended.
[SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement to
be duly executed and delivered as of the day and year first above written.
BORROWER
--------
SOUTHERN PACIFIC FUNDING CORPORATION
By /s/ [signature illegible]
-----------------------------------------
Title:
Address for Notices:
1 Centerpointe Drive
Suite 500
Lake Oswego, Oregon 97035
Attention: Mr. Frank A. Frazzitta
Telecopier No.: (503) 684-1495
Telephone No.: (503) 684-4714
LENDER
MORGAN STANLEY MORTGAGE CAPITAL INC.
By [signature illegible]
-----------------------------------------
Title: Vice President
Address for Notices:
1585 Broadway
New York, New York 10036
Attention: Mr. Peter Mozer
Telecopier No.: 212-761-0570
Telephone No.: 212-761-2408
<PAGE>
Schedule 1
REPRESENTATIONS AND WARRANTIES RE: MORTGAGE LOANS
Part I. Eligible Mortgage Loans
As to each Mortgage Loan included in the Borrowing Base on a Funding Date
(and the related Mortgage, Mortgage Note, Assignment of Mortgage and Mortgaged
Property), the Borrower shall be deemed to make the following representations
and warranties to the Lender as of such date and as of each date Collateral
Value is determined (certain defined terms used herein and not otherwise defined
in the Loan Agreement appearing in Part II to this Schedule 1):
(a) Mortgage Loans as Described. The information set forth in the Mortgage
Loan Schedule with respect to the Mortgage Loan is complete, true and correct in
all material respects.
(b) Payments Current. All payments required to be made up to the Funding
Date for the Mortgage Loan under the terms of the Mortgage Note have been made
and credited. No payment required under the Mortgage Loan is delinquent nor has
any payment under the Mortgage Loan been delinquent at any time since the
origination of the Mortgage Loan. The first Monthly Payment shall be made, or
shall have been made, with respect to the Mortgage Loan on its Due Date or
within the grace period, all in accordance with the terms of the related
Mortgage Note.
(c) No Outstanding Charges. There are no defaults in complying with the
terms of the Mortgage securing the Mortgage Loan, and all taxes, governmental
assessments, insurance premiums, water, sewer and municipal charges, leasehold
payments or ground rents which 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 which remains unpaid and which has been assessed but is not yet
due and payable. Neither the Borrower nor the Qualified Originator from which
the Borrower acquired the Mortgage Loan has 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 proceeds of the Mortgage Loan, whichever is
earlier, to the day which precedes by one month the Due Date of the first
installment of principal and interest thereunder.
(d) Original Terms Unmodified. The terms of the Mortgage Note and Mortgage
have not been impaired, waived, altered or modified in any respect, from the
date of origination; except by a written instrument which has been recorded, if
necessary to protect the interests of the Lender, and which has been delivered
to the Custodian and the terms of which are reflected in the Mortgage Loan
Schedule. The substance of any such waiver, alteration or modification has been
approved by the title insurer, to the extent required, and its terms are
reflected on the Mortgage Loan Schedule. No Mortgagor in respect of the Mortgage
Loan has been released, in whole or in part, except in connection with an
assumption agreement approved by the title insurer, to the extent required by
such policy, and which assumption agreement is part of the Mortgage File
delivered to the Custodian and the terms of which are reflected in the Mortgage
Loan Schedule.
<PAGE>
(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 and no such
right of rescission, set-off, counterclaim or defense has been asserted with
respect thereto, and no Mortgagor in respect of the Mortgage Loan was a debtor
in any state or Federal bankruptcy or insolvency proceeding at the time the
Mortgage Loan was originated. The Borrower has no knowledge nor has it received
any notice that any Mortgagor in respect of the Mortgage Loan is a debtor in any
state or federal bankruptcy or insolvency proceeding.
(f) Hazard Insurance. The Mortgaged Property is insured by a fire and
extended perils insurance policy, issued by a Qualified Insurer, and such other
hazards as are customary in the area where the Mortgaged Property is located,
and to the extent required by the Borrower as of the date of origination
consistent with the Underwriting Guidelines, against earthquake and other risks
insured against by Persons operating like properties in the locality of the
Mortgaged Property, in an amount not less than the greatest of (i) 100% of the
replacement cost of all improvements to the Mortgaged Property, (ii) the
outstanding principal balance of the Mortgage Loan, or (iii) the amount
necessary to avoid the operation of any co-insurance provisions with respect to
the Mortgaged Property, and consistent with the amount that would have been
required as of the date of origination in accordance with the Underwriting
Guidelines. If any portion of the Mortgaged Property is in an area identified by
any federal Governmental Authority as having special flood hazards, and flood
insurance is available, a flood insurance policy meeting the current guidelines
of the Federal Insurance Administration is in effect with a generally acceptable
insurance carrier, in an amount representing coverage not less than the least of
(1) the outstanding principal balance of the Mortgage Loan, (2) the full
insurable value of the Mortgaged Property, and (3) the maximum amount of
insurance available under the Flood Disaster Protection Act of 1973, as amended.
All such insurance policies (collectively, the "hazard insurance policy")
contain a standard mortgagee clause naming the Borrower, its successors and
assigns (including without limitation, subsequent owners of the Mortgage Loan),
as mortgagee, and may not be reduced, terminated or canceled without 30 days'
prior written notice to the mortgagee. No such notice has been received by the
Borrower. All premiums on such insurance policy have been paid. The related
Mortgage obligates the Mortgagor to maintain all such insurance and, at such
Mortgagor's failure to do so, authorizes the mortgagee to maintain such
insurance at the Mortgagor's cost and expense and to seek reimbursement therefor
from such Mortgagor. Where required by state law or regulation, the Mortgagor
has been given an opportunity to choose the carrier of the required hazard
insurance, provided the policy is not a "master" or "blanket" hazard insurance
policy covering a condominium, or any hazard insurance policy covering the
common facilities of a planned unit development. The hazard insurance policy is
the valid and binding obligation of the insurer and is in full force and effect.
The Borrower has not engaged in, and has no knowledge of the Mortgagor's having
engaged in, any act or omission which would impair the coverage of any such
policy, the benefits of the endorsement provided for herein, or the validity and
binding effect of either including, without limitation, no unlawful fee,
commission, kickback or other unlawful compensation or value of any kind has
been or will be received, retained or realized by any attorney, firm or other
Person, and no such unlawful items have been received, retained or realized by
the Borrower.
(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 procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage Loan have been
complied with, the consummation of the transactions contemplated hereby will not
involve the violation of any such laws or regulations, and the Borrower shall
maintain or shall
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cause its agent to maintain in its possession, available for the inspection of
the Lender, and shall deliver to the Lender, 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. The Borrower has not waived the
performance by the Mortgagor of any action, if the Mortgagor's failure to
perform such action would cause the Mortgage Loan to be in default, nor has the
Borrower waived any default resulting from any action or inaction by the
Mortgagor.
(i) Location and Type of Mortgaged Property. The Mortgaged Property is
located in an Acceptable State as identified in the Mortgage Loan Schedule and
consists of a single parcel of real property with a detached single family
residence erected thereon, or a two- to four-family dwelling, or an individual
condominium unit in a low-rise condominium project, or an individual unit in a
planned unit development or a de minimis planned unit development, provided,
however, that any condominium unit or planned unit development shall conform
with the applicable FNMA and FHLMC requirements regarding such dwellings and
that no residence or dwelling is a mobile home or a manufactured dwelling. No
portion of the Mortgaged Property is used for commercial purposes.
(j) Valid First Lien. The Mortgage is a valid, subsisting, enforceable and
perfected first lien on the real property included in 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 buildings, 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 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 prudent 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) which do not 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 which
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 the Borrower has full right to pledge and
assign the same to the Lender. The Mortgaged Property was not, as of the date of
origination of the Mortgage Loan, subject to a mortgage, deed of trust, deed to
secure debt or other security instrument creating a lien subordinate to the lien
of the Mortgage.
(k) Validity of Mortgage Documents. The Mortgage Note and the Mortgage and
any other agreement executed and delivered by a Mortgagor or guarantor, if
applicable, in connection
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with a Mortgage Loan 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, the Mortgage and any other such related agreement
had legal capacity to enter into the Mortgage Loan and to execute and deliver
the Mortgage Note, the Mortgage and any such agreement, and the Mortgage Note,
the Mortgage and any other such related agreement have been duly and properly
executed by such related parties. No fraud, error, omission, misrepresentation,
negligence or similar occurrence with respect to a Mortgage Loan has taken place
on the part of any Person, including, without limitation, the Mortgagor, any
appraiser, any builder or developer, or any other party involved in the
origination of the Mortgage Loan. The Borrower has reviewed all of the documents
constituting the Servicing File and has made such inquiries as it deems
necessary to make and confirm the accuracy of the representations set forth
herein.
(l) Full Disbursement of Proceeds. The Mortgage Loan has been closed and
the proceeds of the Mortgage Loan have been fully disbursed and there is no
further requirement for 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) Ownership. The Borrower is the sole owner and holder of the Mortgage
Loan. The Mortgage Loan is not assigned or pledged, and the Borrower has good,
indefeasible and marketable title thereto, and has full right to transfer,
pledge and assign the Mortgage Loan to the Lender free and clear of any
encumbrance, equity, participation interest, lien, pledge, charge, claim or
security interest, and has full right and authority subject to no interest or
participation of, or agreement with, any other party, to assign, transfer and
pledge each Mortgage Loan pursuant to this Loan Agreement and following the
pledge of each Mortgage Loan, the Lender will hold such Mortgage Loan free and
clear of any encumbrance, equity, participation interest, lien, pledge, charge,
claim or security interest except any such security interest created pursuant to
the terms of this Loan Agreement.
(n) Doing Business. All parties which 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) (i) in compliance
with any and all applicable licensing requirements of the laws of the state
wherein the Mortgaged Property is located, and (ii) either (A) organized under
the laws of such state, (B) qualified to do business in such state, (C) a
federal savings and loan association, a savings bank or a national bank having a
principal office in such state, or (D) not doing business in such state.
(o) LTV, PMI Policy. No Mortgage Loan has an LTV greater than 80%. The
original LTV of each Mortgage Loan either was not more than 80% or the excess
over 75% is and will be insured as to payment defaults by a PMI Policy until the
LTV of such Mortgage Loan is reduced to 80%. All provisions of such PMI Policy
have been and are being complied with, such policy is valid and remains in full
force and effect, and all premiums due thereunder have been paid. No action,
inaction, or event has occurred and no state of facts exists that has resulted,
or will result, in the exclusion from, denial of, or defense to coverage by the
PMI Policy. If the Mortgage Loan provides for negative amortization or for the
potential of negative amortization, the PMI Policy insures any increase in the
outstanding principal balance from the original balance of the Mortgage Note.
Any Mortgage Loan subject to a PMI Policy obligates the Mortgagor thereunder to
maintain the PMI Policy
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and to pay all premiums and charges in connection therewith. The Mortgage
Interest Rate for each Mortgage Loan as set forth on the Mortgage Loan Schedule
is net of any such insurance premium.
(p) Title Insurance. The Mortgage Loan is covered by either (i) an
attorney's opinion of title and abstract of title, the form and substance of
which is acceptable to prudent mortgage lending institutions making mortgage
loans in the area wherein the Mortgaged Property is located or (ii) an ALTA
lender's title insurance policy or other generally acceptable form of policy or
insurance acceptable to FNMA or FHLMC and each such title insurance policy is
issued by a title insurer acceptable to FNMA or FHLMC and qualified to do
business in the jurisdiction where the Mortgaged Property is located, insuring
the Borrower, its successors and assigns, as to the first priority lien of the
Mortgage in the original principal amount of the Mortgage Loan (or to the extent
a Mortgage Note provides for negative amortization, the maximum amount of
negative amortization in accordance with the Mortgage), subject only to the
exceptions contained in clauses (1), (2) and (3) of paragraph (j) of this Part I
of Schedule 1, and in the case of 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. Where required by state law or regulation, the
Mortgagor has been given the opportunity to choose the carrier of the required
mortgage title insurance. Additionally, such lender's title insurance policy
affirmatively insures ingress and egress and against encroachments by or upon
the Mortgaged Property or any interest therein. The title policy does not
contain any special exceptions (other than the standard exclusions) for zoning
and uses and has been marked to delete the standard survey exception or to
replace the standard survey exception with a specific survey reading. The
Borrower, its successors and assigns, are the sole insureds of such lender's
title insurance policy, and such lender's title insurance policy is valid and
remains in full force and effect and will be in force and effect upon the
consummation of the transactions contemplated by this Loan Agreement. No claims
have been made under such lender's title insurance policy, and no prior holder
or servicer of the related Mortgage, including the Borrower, has done, by act or
omission, anything which would impair the coverage of such lender's title
insurance policy, including, without limitation, no unlawful fee, commission,
kickback or other unlawful compensation or value of any kind has been or will be
received, retained or realized by any attorney, firm or other Person, and no
such unlawful items have been received, retained or realized by the Borrower.
(q) No Defaults. There is no default, breach, violation or event of
acceleration existing under the Mortgage or the Mortgage Note and no event has
occurred which, 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 the Borrower nor its predecessors have waived any
default, breach, violation or event of acceleration.
(r) No Mechanics' Liens. There are no mechanics' or similar liens or claims
which 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 which are or may be liens prior to, or equal or coordinate with, the
lien of the Mortgage.
(s) Location of Improvements; No Encroachments. All improvements which were
considered in determining the Appraised Value of the Mortgaged Property lie
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 and building law, ordinance or
regulation.
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(t) Origination; Payment Terms. The Mortgage Loan was originated by or in
conjunction with a mortgagee approved by the Secretary of Housing and Urban
Development pursuant to Sections 203 and 211 of the National Housing Act, a
savings and loan association, a savings bank, a commercial bank, credit union,
insurance company or similar banking institution which is supervised and
examined by a federal or state authority. Principal payments on the Mortgage
Loan commenced no more than 60 days after funds were disbursed in connection
with the Mortgage Loan. The Mortgage Interest Rate is adjusted, with respect to
adjustable rate Mortgage Loans, on each Interest Rate Adjustment Date to equal
the Index plus the Gross Margin (rounded up or down to the nearest .125%),
subject to the Mortgage Interest Rate Cap. The Mortgage Note is payable on the
first day of each month in equal monthly installments of principal and interest,
which installments of interest, with respect to adjustable rate Mortgage Loans,
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 30 years from commencement of
amortization. The due date of the first payment under the Mortgage Note is no
more than 60 days from the date of the Mortgage Note.
(u) Customary Provisions. The Mortgage Note has a stated maturity. The
Mortgage contains customary and enforceable provisions such as to render the
rights and remedies of the holder thereof adequate for the realization against
the Mortgaged Property of the benefits of the security provided thereby,
including, (i) in the case of a Mortgage designated as a deed of trust, by
trustee's sale, and (ii) otherwise by judicial foreclosure. Upon default by a
Mortgagor on a Mortgage Loan and foreclosure on, or trustee's sale of, the
Mortgaged Property pursuant to the proper procedures, the holder of the Mortgage
Loan will be able to deliver good and merchantable title to the Mortgaged
Property. There is no homestead or other exemption available to a Mortgagor
which would interfere with the right to sell the Mortgaged Property at a
trustee's sale or the right to foreclose the Mortgage.
(v) Conformance with Underwriting Guidelines and Agency Standards. The
Mortgage Loan was underwritten in accordance with the applicable Underwriting
Guidelines. The Mortgage Note and Mortgage are on forms similar to those used by
FHLMC or FNMA and the Borrower has not made any representations to a Mortgagor
that are inconsistent with the mortgage instruments used.
(w) Occupancy of the Mortgaged Property. As of the Funding Date the
Mortgaged Property is lawfully occupied under applicable law. All inspections,
licenses and certificates required to be made or issued with respect to all
occupied portions of the Mortgaged Property and, with respect to the use and
occupancy of the same, including but not limited to certificates of occupancy
and fire underwriting certificates, have been made or obtained from the
appropriate authorities. The Borrower has not received notification from any
governmental authority that the Mortgaged Property is in material non-compliance
with such laws or regulations, is being used, operated or occupied unlawfully or
has failed to have or obtain such inspection, licenses or certificates, as the
case may be. The Borrower has not received notice of any violation or failure to
conform with any such law, ordinance, regulation, standard, license or
certificate. The Mortgagor represented at the time of origination of the
Mortgage Loan that the Mortgagor would occupy the Mortgaged Property as the
Mortgagor's primary residence.
(x) No Additional Collateral. The Mortgage Note is not and has not been
secured by any collateral except the lien of the corresponding Mortgage and the
security interest of any applicable security agreement or chattel mortgage
referred to in clause (j) above.
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(y) Deeds of Trust. In the event the Mortgage constitutes a deed of trust,
a trustee, authorized and 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 the Custodian or
the Lender to the trustee under the deed of trust, except in connection with a
trustee's sale after default by the Mortgagor.
(z) Delivery of Mortgage Documents. The Mortgage Note, the Mortgage, the
Assignment of Mortgage and any other documents required to be delivered under
the Custodial Agreement for each Mortgage Loan have been delivered to the
Custodian. The Borrower or its agent is in possession of a complete, true and
accurate Mortgage File in compliance with the Custodial Agreement, except for
such documents the originals of which have been delivered to the Custodian.
(aa) Transfer of Mortgage Loans. The Assignment of Mortgage is in
recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Mortgaged Property is located.
(bb) Due-On-Sale. The Mortgage contains an enforceable provision for the
acceleration of the payment of the unpaid principal 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.
(cc) No Buydown Provisions; No Graduated Payments or Contingent Interests.
The Mortgage Loan does not contain provisions pursuant to which Monthly Payments
are paid or partially paid with funds deposited in any separate account
established by the Borrower, the Mortgagor, or anyone on behalf of the
Mortgagor, or paid by any source other than the Mortgagor nor does it contain
any other similar provisions which may constitute a "buydown" provision. The
Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan
does not have a shared appreciation or other contingent interest feature.
(dd) Consolidation of Future Advances. Any future advances made to the
Mortgagor prior to the Cut-off Date 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, an endorsement to the
policy insuring the mortgagee's consolidated interest or by other title evidence
acceptable to FNMA and FHLMC. The consolidated principal amount does not exceed
the original principal amount of the Mortgage Loan.
(ee) Mortgaged Property Undamaged. The Mortgaged Property is undamaged by
waste, fire, earthquake or earth movement, windstorm, flood, tornado or other
casualty so as to affect adversely the value of the Mortgaged Property as
security for the Mortgage Loan or the use for which the premises were intended
and each Mortgaged Property is in good repair. There have not been any
condemnation proceedings with respect to the Mortgaged Property and the Borrower
has no knowledge of any such proceedings.
(ff) Collection Practices; Escrow Deposits; Interest Rate Adjustments. The
origination and collection practices used by the originator, each servicer of
the Mortgage Loan and the Borrower with respect to the Mortgage Loan have been
in all respects in compliance with Accepted Servicing Practices, applicable laws
and regulations, and have been in all respects legal and proper.
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With respect to escrow deposits and Escrow Payments, all such payments are in
the possession of, or under the control of, the Borrower 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
the Borrower 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, federal and local law has been properly
paid and credited.
(gg) Conversion to Fixed Interest Rate. With respect to adjustable rate
Mortgage Loans, the Mortgage Loan is not convertible to a fixed interest rate
Mortgage Loan.
(hh) Other Insurance Policies. No action, inaction or event has occurred
and no state of facts exists or has existed that has resulted or will result in
the exclusion from, denial of, or defense to coverage under any applicable
special hazard insurance policy, PMI Policy or bankruptcy bond, irrespective of
the cause of such failure of coverage. In connection with the placement of any
such insurance, no commission, fee, or other compensation has been or will be
received by the Borrower or by any officer, director, or employee of the
Borrower or any designee of the Borrower or any corporation in which the
Borrower or any officer, director, or employee had a financial interest at the
time of placement of such insurance.
(ii) Soldiers' and Sailors' Civil Relief Act. The Mortgagor has not
notified the Borrower, and the Borrower has no knowledge, of any relief
requested or allowed to the Mortgagor under the Soldiers' and Sailors' Civil
Relief Act of 1940.
(jj) 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 the Borrower, 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 and appraiser both satisfy the
requirements of FNMA or FHLMC and Title XI of the Federal Institutions Reform,
Recovery, and Enforcement Act of 1989 as amended and the regulations promulgated
thereunder, all as in effect on the date the Mortgage Loan was originated.
(kk) Disclosure Materials. The Mortgagor has executed a statement to the
effect that the Mortgagor has received all disclosure materials required by
applicable law with respect to the making of adjustable rate mortgage loans, and
the Borrower maintains such statement in the Mortgage File.
(ll) Construction or Rehabilitation of Mortgaged Property. No Mortgage Loan
was made in connection with the construction or rehabilitation of a Mortgaged
Property or facilitating the trade-in or exchange of a Mortgaged Property.
(mm) No Defense to Insurance Coverage. No action has been taken or failed
to be taken, no event has occurred and no state of facts exists or has existed
on or prior to the Funding Date (whether or not known to the Borrower on or
prior to such date) which has resulted or will result in an exclusion from,
denial of, or defense to coverage under any private mortgage insurance
(including,
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without limitation, any exclusions, denials or defenses which would limit or
reduce the availability of the timely payment of the full amount of the loss
otherwise due thereunder to the insured) whether arising out of actions,
representations, errors, omissions, negligence, or fraud of the Borrower, the
related Mortgagor or any party involved in the application for such coverage,
including the appraisal, plans and specifications and other exhibits or
documents submitted therewith to the insurer under such insurance policy, or for
any other reason under such coverage, but not including the failure of such
insurer to pay by reason of such insurer's breach of such insurance policy or
such insurer's financial inability to pay.
(nn) Capitalization of Interest. The Mortgage Note does not by its terms
provide for the capitalization or forbearance of interest.
(oo) No Equity Participation. No document relating to the Mortgage Loan
provides for any contingent or additional interest in the form of participation
in the cash flow of the Mortgaged Property or a sharing in the appreciation of
the value of the Mortgaged Property. The indebtedness evidenced by the Mortgage
Note is not convertible to an ownership interest in the Mortgaged Property or
the Mortgagor and the Borrower has not financed nor does it own directly or
indirectly, any equity of any form in the Mortgaged Property or the Mortgagor.
(pp) Withdrawn Mortgage Loans. If the Mortgage Loan has been released to
the Borrower pursuant to a Request for Release as permitted under Section 5 of
the Custodial Agreement, then the promissory note relating to the Mortgage Loan
was returned to the Custodian within 10 days (or if such tenth day was not a
Business Day, the next succeeding Business Day).
(qq) Origination Date. The Origination Date is no earlier than one (1)
month prior to the date the Mortgage Loan is first included in the Borrowing
Base.
(rr) No Exception. The Custodian has not noted any material exceptions on
an Exception Report (as defined in the Custodial Agreement) with respect to the
Mortgage Loan which would materially adversely affect the Mortgage Loan or the
Lender's security interest, granted by the Borrower, in the Mortgage Loan.
(ss) Qualified Originator. The Mortgage Loan has been originated by, and,
if applicable, purchased by the Borrower from, a Qualified Originator.
(tt) Mortgage Submitted for Recordation. The Mortgage has been submitted
for recordation in the appropriate governmental recording office of the
jurisdiction where the Mortgaged Property is located.
(uu) Wet-Ink Mortgage Loans. With respect to each Mortgage Loan that is a
Wet-Ink Mortgage Loan, the Settlement Agent has been instructed in writing by
the Borrower to hold the related Mortgage Loan Documents as agent and bailee for
the Lender and to promptly forward such Mortgage Loan Documents to the Custodian
for receipt within five (5) Business Days following the applicable Funding Date.
(vv) Securitization. Each Mortgage Loan conforms to the securitization
requirements of the most recent related securitization transaction underwritten
or placed on behalf of Borrower which transaction has received an investment
grade rating by Standard & Poor's Rating Services or Moody's Investors Service,
Inc. (a "Standard Securitization Transaction") and otherwise
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conforms to the current standards of institutional securitization applicable to
loans similar in nature to the Mortgage Loans. All Mortgage Loans, individually
and in the aggregate, will substantially comply with each related representation
and warranty made in (i) the most recent related Standard Securitization
Transaction or (ii) will otherwise substantially comply with each related
representation or warranty customarily required under the current standards of
investment grade institutional securitization applicable to mortgage loans
similar in nature to the Mortgage Loans.
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Part II Defined Terms
In addition to terms defined elsewhere in the Loan Agreement, the following
terms shall have the following meanings when used in this Schedule 1:
"Acceptable State" shall mean any state notified by the Borrower to the
Lender from time to time and approved in writing by the Lender, which approval
has not been revoked by the Lender in its sole good-faith discretion, any such
notice of revocation to be given no later than 10 Business Days prior to its
intended effective date.
"Accepted Servicing Practices" shall mean, with respect to any Mortgage
Loan, those mortgage servicing practices of prudent mortgage lending
institutions which service mortgage loans of the same type as such Mortgage
Loans in the jurisdiction where the related Mortgaged Property is located.
"ALTA" means the American Land Title Association.
"Appraised Value" shall mean the value set forth in an appraisal made in
connection with the origination of the related Mortgage Loan as the value of the
Mortgaged Property.
"Assignment of Mortgage" shall mean, with respect to any Mortgage, an
assignment of the Mortgage, notice of transfer or equivalent instrument in
recordable form, sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect the assignment and pledge of
the Mortgage.
"Best's" means Best's Key Rating Guide, as the same shall be amended from
time to time.
"Cut-off Date" means the first day of the month in which the related
Funding Date occurs.
"Due Date" means the day of the month on which the Monthly Payment is due
on a Mortgage Loan, exclusive of any days of grace.
"Escrow Payments" means with respect to any Mortgage Loan, the amounts
constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, mortgage insurance premiums, fire and hazard insurance
premiums, condominium charges, and any other payments required to be escrowed by
the Mortgagor with the mortgagee pursuant to the Mortgage or any other document.
"FHLMC" means the Federal Home Loan Mortgage Corporation, or any successor
thereto.
"FNMA" means the Federal National Mortgage Association, or any successor
thereto.
"Gross Margin" means with respect to each adjustable rate Mortgage Loan,
the fixed percentage amount set forth in the related Mortgage Note.
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"Index" means with respect to each adjustable rate Mortgage Loan, the index
set forth in the related Mortgage Note for the purpose of calculating the
interest rate thereon.
"Insurance Proceeds" means with respect to each Mortgage Loan, proceeds of
insurance policies insuring the Mortgage Loan or the related Mortgaged Property.
"Interest Rate Adjustment Date" means with respect to each adjustable rate
Mortgage Loan, the date, specified in the related Mortgage Note and the Mortgage
Loan Schedule, on which the Mortgage Interest Rate is adjusted.
"Loan-to-Value Ratio" or "LTV" means with respect to any Mortgage Loan, the
ratio of the original outstanding principal amount of the Mortgage Loan to the
lesser of (a) the Appraised Value of the Mortgaged Property at origination or
(b) if the Mortgaged Property was purchased within 12 months of the origination
of the Mortgage Loan, the purchase price of the Mortgaged Property.
"Monthly Payment" means the scheduled monthly payment of principal and
interest on a Mortgage Loan as adjusted in accordance with changes in the
Mortgage Interest Rate pursuant to the provisions of the Mortgage Note for an
adjustable rate Mortgage Loan.
"Mortgage Interest Rate" means the annual rate of interest borne on a
Mortgage Note, which shall be adjusted from time to time with respect to
adjustable rate Mortgage Loans.
"Mortgage Interest Rate Cap" means with respect to an adjustable rate
Mortgage Loan, the limit on each Mortgage Interest Rate adjustment as set forth
in the related Mortgage Note.
"Mortgagee" means the Borrower or any subsequent holder of a Mortgage Loan.
"Origination Date" shall mean, with respect to each Mortgage Loan, the date
of the Mortgage Note relating to such Mortgage Loan, unless such information is
not provided by the Borrower with respect to such Mortgage Loan, in which case
the Origination Date shall be deemed to be the date that is 40 days prior to the
date of the first payment under the Mortgage Note relating to such Mortgage
Loan.
"PMI Policy" or "Primary Insurance Policy" means a policy of primary
mortgage guaranty insurance issued by a Qualified Insurer.
"Qualified Insurer" means an insurance company duly qualified as such under
the laws of the states in which the Mortgaged Property is located, duly
authorized and licensed in such states to transact the applicable insurance
business and to write the insurance provided, and approved as an insurer by FNMA
and FHLMC and whose claims paying ability is rated in the two highest rating
categories by any of the rating agencies with respect to primary mortgage
insurance and in the two highest rating categories by Best's with respect to
hazard and flood insurance.
"Qualified Originator" means an originator of Mortgage Loans reasonably
acceptable to the Lender.
"Servicing File" means with respect to each Mortgage Loan, the file
retained by the Borrower consisting of originals of all documents in the
Mortgage File which are not delivered to a Custodian and copies of the Mortgage
Loan Documents set forth in Section 2 of the Custodial Agreement.
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Schedule 2
FILING JURISDICTIONS AND OFFICES
Office of the Secretary of the State of California
Office of the Secretary of the State of Oregon
<PAGE>
EXHIBIT A
[FORM OF PROMISSORY NOTE]
$ _________________ ________ __, 1996
New York, New York
FOR VALUE RECEIVED, SOUTHERN PACIFIC FUNDING CORPORATION, a [____________]
corporation (the "Borrower"), hereby promises to pay to the order of MORGAN
STANLEY MORTGAGE CAPITAL INC. (the "Lender"), at the principal office of the
Lender at 1585 Broadway, New York, New York 10036, in lawful money of the United
States, and in immediately available funds, the principal sum of
_________________ DOLLARS ($[____________]) (or such lesser amount as shall
equal the aggregate unpaid principal amount of the Loans made by the Lender to
the Borrower under the Loan Agreement), on the dates and in the principal
amounts provided in the Loan Agreement, and to pay interest on the unpaid
principal amount of each such Loan, at such office, in like money and funds, for
the period commencing on the date of such Loan until such Loan shall be paid in
full, at the rates per annum and on the dates provided in the Loan Agreement.
The date, amount and interest rate of each Loan made by the Lender to the
Borrower, and each payment made on account of the principal thereof, shall be
recorded by the Lender on its books and, prior to any transfer of this Note,
endorsed by the Lender on the schedule attached hereto or any continuation
thereof; provided, that the failure of the Lender to make any such recordation
or endorsement shall not affect the obligations of the Borrower to make a
payment when due of any amount owing under the Loan Agreement or hereunder in
respect of the Loans made by the Lender.
This Note is the Note referred to in the Master Loan and Security Agreement
dated as of October __, 1996 (as amended, supplemented or otherwise modified and
in effect from time to time, the "Loan Agreement") between the Borrower and the
Lender, and evidences Loans made by the Lender thereunder. Terms used but not
defined in this Note have the respective meanings assigned to them in the Loan
Agreement.
The Borrower agrees to pay all the Lender's costs of collection and
enforcement (including reasonable attorneys' fees and disbursements of Lender's
counsel) in respect of this Note when incurred, including, without limitation,
reasonable attorneys' fees through appellate proceedings.
Notwithstanding the pledge of the Collateral, the Borrower hereby
acknowledges, admits and agrees that the Borrower's obligations under this Note
are recourse obligations of the Borrower to which the Borrower pledges its full
faith and credit.
The Borrower, and any indorsers or guarantors hereof, (a) severally waive
diligence, presentment, protest and demand and also notice of protest, demand,
dishonor and nonpayments of this Note, (b) expressly agree that this Note, or
any payment hereunder, may be extended from time to time, and consent 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 (c)
expressly agree that it will not be necessary for the Lender, in order to
enforce payment of this Note, to first institute or exhaust the Lender's
remedies against the Borrower or any other party liable hereon or against any
Collateral for this Note. 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
<PAGE>
affect the liability under this Note of the Borrower, even if the Borrower is
not a party to such agreement; provided, however, that the Lender and the
Borrower, by written agreement between them, may affect the liability of the
Borrower.
Any reference herein to the Lender shall be deemed to include and apply to
every subsequent holder of this Note. Reference is made to the Loan Agreement
for provisions concerning optional and mandatory prepayments, Collateral,
acceleration and other material terms affecting this Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE OF
NEW YORK (WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE) WHOSE LAWS THE BORROWER
EXPRESSLY ELECTS TO APPLY TO THIS NOTE. THE BORROWER AGREES THAT ANY ACTION OR
PROCEEDING BROUGHT TO ENFORCE OR ARISING OUT OF THIS NOTE MAY BE COMMENCED IN
THE SUPREME COURT OF THE STATE OF NEW YORK, BOROUGH OF MANHATTAN, OR IN THE
DISTRICT COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK.
SOUTHERN PACIFIC FUNDING CORPORATION
By:
----------------------------------------
Name:
Title:
A-2
<PAGE>
SCHEDULE OF LOANS
This Note evidences Loans made under the within-described Loan Agreement to
the Borrower, on the dates, in the principal amounts and bearing interest at the
rates set forth below, and subject to the payments and prepayments of principal
set forth below:
Principal Amount of Amount Paid Unpaid Principal Notation
Date Made Loan or Prepaid Amount Made by
- --------- ------------------- ----------- ---------------- --------
A-3
<PAGE>
EXHIBIT B
[FORM OF CUSTODIAL AGREEMENT]
[to be added]
<PAGE>
EXHIBIT C
[FORM OF OPINION OF COUNSEL TO THE BORROWER]
[to be added]
<PAGE>
EXHIBIT D
UNDERWRITING GUIDELINES FOR 'A' CREDIT MORTGAGE LOANS
(Incorporates all of the following guidelines and
particularly with respect to "A" Credit and
"A-" Credit Guidelines - See Chapter 3 Sections
III A and B)
<PAGE>
EXHIBIT E
UNDERWRITING GUIDELINES FOR 'B' CREDIT MORTGAGE LOANS
(Incorporates all of the following guidelines and particularly with respect
to "B" Credit Guidelines - See Chapter 3 Section III C of the
Underwriting Guidelines attached to Exhibit D)
<PAGE>
EXHIBIT F
UNDERWRITING GUIDELINES FOR 'C' CREDIT MORTGAGE LOANS
(Incorporates all of the following guidelines and particularly with respect
to "C" Credit Guidelines - See Chapter 3 Section III D of the
Underwriting Guidelines attached to Exhibit D)
<PAGE>
EXHIBIT G
UNDERWRITING GUIDELINES FOR 'D' CREDIT MORTGAGE LOANS
(Incorporates all of the following guidelines and particularly with respect
to "D" Credit Guidelines - See Chapter 3 Section III E of the
Underwriting Guidelines attached to Exhibit D)
