<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: FEBRUARY 28, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________TO _____________
COMMISSION FILE NUMBER: 0-21689
MEGO MORTGAGE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 88-0286042
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
1000 PARKWOOD CIRCLE, SUITE 500, ATLANTA, GEORGIA 30339
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(770) 952-6700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April 17, 1998, there were 12,300,000 shares of Common Stock, $.01
par value per share, of the Registrant outstanding.
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<PAGE> 2
MEGO MORTGAGE CORPORATION
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Condensed Financial Statements (unaudited)
Condensed Statements of Financial Condition at
August 31, 1997 and February 28, 1998...........................................1
Condensed Statements of Operations for the Three and Six Months Ended
February 28, 1997 and 1998 ....................................................2
Condensed Statements of Cash Flows for the Six Months Ended
February 28, 1997 and 1998 .....................................................3
Condensed Statements of Stockholders' Equity for the Six Months Ended
February 28, 1998 ..............................................................4
Notes to Condensed Financial Statements.........................................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................................12
PART II OTHER INFORMATION
Item 1. Legal Proceedings..............................................................32
Item 5. Other..........................................................................32
Item 6. Exhibits and Reports on Form 8-K...............................................32
SIGNATURE ................................................................................33
</TABLE>
i
<PAGE> 3
MEGO MORTGAGE CORPORATION
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(unaudited)
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1997 1998
-------- --------
(thousands of dollars, except
per share amounts)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 6,104 $ 3,152
Cash deposits, restricted 6,890 10,039
Loans held for sale, net of allowance for credit losses of $100 and $887 9,523 55,820
Mortgage related securities, at fair value 106,299 91,254
Mortgage servicing rights 9,507 8,714
Other receivables 7,945 4,835
Property and equipment, net of accumulated depreciation of $675 and $1,010 2,153 1,847
Organizational costs, net of amortization 289 193
Prepaid debt expenses 2,362 4,791
Prepaid commitment fee 2,333 3,869
Deferred federal income tax asset -- 12,751
Deferred state income tax asset -- 1,750
Other assets 795 439
-------- --------
TOTAL ASSETS $154,200 $199,454
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes and contracts payable $ 35,572 $ 56,821
Accounts payable and accrued liabilities 17,858 13,387
Allowance for credit losses on loans sold with recourse 7,014 8,514
State income taxes payable 649 --
-------- --------
Total liabilities 61,093 78,722
-------- --------
Subordinated debt 40,000 80,367
-------- --------
Stockholders' equity:
Preferred Stock, $.01 par value per share
(Authorized--5,000,000 shares) -- --
Common Stock, $.01 par value per share
(Authorized--50,000,000 shares;
Issued and outstanding--12,300,000 at August 31, 1997 and February 28, 1998) 123 123
Additional paid-in capital 29,185 36,633
Retained earnings 23,799 3,609
-------- --------
Total stockholders' equity 53,107 40,365
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $154,200 $199,454
======== ========
</TABLE>
See notes to condensed financial statements.
1
<PAGE> 4
MEGO MORTGAGE CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
----------------------------- ----------------------------
1997 1998 1997 1998
------------ ------------ ------------ ------------
(thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Gain (loss) on sale of loans $ 5,823 $ (1,912) $ 15,424 $ 1,809
Net unrealized gain (loss) on mortgage related securities 3,143 (3,652) 2,908 (16,760)
Loan servicing income, net 560 1,310 1,198 2,504
Interest income 2,029 4,879 3,029 9,175
Less: interest expense (1,503) (4,195) (2,148) (7,281)
------------ ------------ ------------ ------------
Net interest income 526 684 881 1,894
------------ ------------ ------------ ------------
Net revenues (losses) 10,052 (3,570) 20,411 (10,553)
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Net provision for credit losses (800) 706 911 2,296
Depreciation and amortization 156 298 296 506
Other interest 51 150 98 227
General and administrative:
Payroll and benefits 2,497 4,624 4,313 9,831
Professional services 560 1,019 991 2,536
Commissions and selling 651 642 1,234 1,332
Sub-servicing fees 372 610 657 1,271
Other services 252 694 457 1,084
Rent and lease expenses 197 365 451 658
Travel 83 276 205 536
Credit reports 380 194 533 466
FHA insurance 75 37 278 143
Other 129 506 526 1,100
------------ ------------ ------------ ------------
Total costs and expenses 4,603 10,121 10,950 21,986
------------ ------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 5,449 (13,691) 9,461 (32,539)
INCOME TAXES (BENEFIT) 2,078 (5,196) 3,611 (12,349)
------------ ------------ ------------ ------------
NET INCOME (LOSS) $ 3,371 $ (8,495) $ 5,850 $ (20,190)
============ ============ ============ ============
EARNINGS (LOSS) PER COMMON SHARE:
Basic:
Net income (loss) $ 0.27 $ (0.69) $ 0.52 $ (1.64)
============ ============ ============ ============
Weighted-average number of common shares outstanding 12,300,000 12,300,000 11,296,133 12,300,000
============ ============ ============ ============
Diluted:
Net income (loss) $ 0.27 $ (0.69) $ 0.51 $ (1.64)
============ ============ ============ ============
Weighted-average number of common shares
and common share equivalents outstanding 12,476,069 12,300,000 11,463,259 12,300,000
============ ============ ============ ============
</TABLE>
See notes to condensed financial statements.
2
<PAGE> 5
MEGO MORTGAGE CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28,
-------------------------
1997 1998
--------- ---------
(thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 5,850 $ (20,190)
--------- ---------
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Additions to mortgage servicing rights (3,086) (434)
Net unrealized loss (gain) on mortgage related securities (2,908) 16,760
Additions to mortgage related securities (26,715) (1,008)
Net provisions for estimated credit losses 911 2,296
Depreciation and amortization expense 296 506
Amortization of prepaid debt expense 177 656
Amortization of prepaid commitment fee 264 464
Amortization of mortgage servicing rights 1,108 1,227
Accretion of residual interest on mortgage related securities (1,306) (4,435)
Payments on mortgage related securities 503 632
Amortization of mortgage related securities 956 556
Additions to deferred loan fees, net (287) (8,322)
Loans originated for sale, net of loan fees (173,722) (327,188)
Payments on loans held for sale 97 1,179
Proceeds from sale of loans 167,441 286,800
Changes in operating assets and liabilities:
Increase in cash deposits, restricted (1,088) (3,149)
Decrease (increase) in other assets, net (1,011) 2,755
Decrease in state income taxes payable (672) --
Increase in deferred state income tax asset -- (1,750)
Increase in deferred federal income tax asset -- (12,751)
Increase (decrease) in other liabilities, net (6,447) 3,370
--------- ---------
Total adjustments (45,489) (41,836)
--------- ---------
Net cash used in operating activities (39,639) (62,026)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (1,119) (30)
Proceeds from sale of property and equipment 3 --
--------- ---------
Net cash used in investing activities (1,116) (30)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings on notes and contracts payable 123,067 328,802
Payments on notes and contracts payable (126,278) (310,611)
Issuance of subordinated debt 37,750 38,373
Proceeds from sale of common stock 20,658 --
--------- ---------
Net cash provided by financing activities 55,197 56,564
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 14,442 (2,952)
CASH AND CASH EQUIVALENTS--BEGINNING OF PERIOD 443 6,104
--------- ---------
CASH AND CASH EQUIVALENTS--END OF PERIOD $ 14,885 $ 3,152
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 1,041 $ 4,602
========= =========
State income taxes $ 1,241 $ 493
========= =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
Addition to prepaid commitment fee and Due to Mego Financial Corp.
in connection with loan sale commitment received $ 3,000 $ --
========= =========
Increase in deferred federal income tax asset related to Spin-off $ -- $ 2,354
========= =========
</TABLE>
See notes to condensed financial statements.
3
<PAGE> 6
MEGO MORTGAGE CORPORATION
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
<TABLE>
<CAPTION>
COMMON STOCK
$.01 PAR VALUE ADDITIONAL
-------------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ---------- ---------- ---------- ----------
(thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1997 12,300,000 $ 123 $ 29,185 $ 23,799 $ 53,107
Increase in additional paid-in capital due to
adjustment of deferred federal income tax
asset related to Spin-off -- -- 2,354 -- 2,354
Increase in additional paid-in capital due to
settlement of amount payable to
Mego Financial Corp. related to Spin-off
(see Note 5 of Notes to Condensed
Financial Statements) -- -- 5,094 -- 5,094
Net loss for the six months ended
February 28, 1998 -- -- -- (20,190) (20,190)
---------- ---------- ---------- ---------- ----------
Balance at February 28, 1998 12,300,000 $ 123 $ 36,633 $ 3,609 $ 40,365
========== ========== ========== ========== ==========
</TABLE>
See notes to condensed financial statements.
4
<PAGE> 7
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND 1998
1. CONDENSED FINANCIAL STATEMENTS
In the opinion of management, when read in conjunction with the audited
Financial Statements for the years ended August 31, 1996 and 1997, contained in
the Form 10-K of Mego Mortgage Corporation filed with the Securities and
Exchange Commission for the year ended August 31, 1997, the accompanying
unaudited Condensed Financial Statements contain all of the information
necessary to present fairly the financial position of Mego Mortgage Corporation
at February 28, 1998, the results of its operations for the three and six months
ended February 28, 1997 and 1998, the change in stockholders' equity for the six
months ended February 28, 1998 and the cash flows for the six months ended
February 28, 1997 and 1998. Certain reclassifications have been made to conform
prior periods with the current period presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. In the
opinion of management, all material adjustments necessary for the fair
presentation of these statements have been included herein which are normal and
recurring in nature. The results of operations for the three and six months
ended February 28, 1998 are not necessarily indicative of the results to be
expected for the full year.
2. NATURE OF OPERATIONS
Mego Mortgage Corporation (the "Company") was incorporated on June 12,
1992, in the state of Delaware. The Company, through its loan correspondents and
home improvement contractors, is primarily engaged in the business of
originating, selling, servicing and pooling home improvement and debt
consolidation loans, certain of which qualify under the provisions of Title I of
the National Housing Act which is administered by the U.S. Department of Housing
and Urban Development ("HUD"). Pursuant to the Title I credit insurance program,
90% of the principal balances of the loans are U.S. government insured ("Title I
Loans"), with cumulative maximum coverage equal to 10% of all Title I Loans
originated by the Company. In May 1996, the Company commenced the origination of
conventional home improvement loans, generally secured by residential real
estate, and debt consolidation loans ("Conventional Loans") through its network
of loan correspondents and dealers. In December 1997, the Company commenced the
origination of subprime conventional residential first mortgage loans ("First
Mortgage Loans") solely for sale at cash premiums in the secondary market,
without recourse for credit losses or risk of prepayment. During the six months
ended February 28, 1998, the Company's loan originations were comprised of 93.0%
Conventional Loans, 5.5% Title I Loans and 1.5% First Mortgage Loans.
The Company was formed as a wholly-owned subsidiary of Mego Financial
Corp. ("Mego Financial") and remained so until November 1996, when the Company
issued 2.3 million shares of its common stock, $.01 par value per share (the
"Common Stock"), in an underwritten public offering (the "IPO") at $10.00 per
share. As a result of this transaction, Mego Financial's ownership in the
Company was reduced from 100% at August 31, 1996 to 81.3%. Concurrently with the
Common Stock offering, the Company issued $40.0 million of 12.5% senior
subordinated notes due in 2001 in an underwritten public offering. In October
1997, the Company issued an additional $40.0 million of 12.5% senior
subordinated notes due in 2001 in a private placement (the "Private Placement").
The proceeds from the offerings received by the Company have been used to repay
borrowings and provide funds for originations and securitizations of loans. See
Note 8.
On September 2, 1997, Mego Financial distributed all of its 10 million
shares of the Company's Common Stock to Mego Financial shareholders in a
tax-free spin-off (the "Spin-off").
5
<PAGE> 8
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND 1998
3. RECENT DEVELOPMENTS
In January 1998, in order to improve its cash position, the Company
entered into the Excess Yield and Servicing Rights Purchase and Assumption
Agreement (the "Excess Yield Agreement") with a financial institution with which
the Company has a master loan purchase and servicing agreement providing for the
purchase of up to $2.0 billion in loans over a five year period (the "Master
Purchase Agreement"). Pursuant to the Excess Yield Agreement, the Company sold
the excess yield and servicing rights pertaining to approximately $175.5 million
of Conventional Loans which had previously been sold under the Master Purchase
Agreement. In the aggregate, when combined with the original sales proceeds, the
Company received a purchase price equivalent to 101% of the principal balance of
the Conventional Loans. In February 1998, the First and Second Amendments to the
Excess Yield Agreement were executed pursuant to which an additional $12.0
million of Conventional Loans were sold. These transactions resulted in a loss
of approximately $417,000 and generated approximately $4.5 million in cash
proceeds to the Company. The Company is to receive additional compensation in
the form of sales commissions upon the eventual disposition of certain of these
Conventional Loans in the secondary market. The amount of the sales commissions
will depend on the timing of those sales and the identities of the eventual
purchasers. Approximately $99.0 million of these Conventional Loans had been
resold in the secondary market by the end of March 1998. The remaining balance
of these Conventional Loans of approximately $90.0 million are expected to be
pooled with other Conventional Loans held by that financial institution with the
intention of disposing of them in an asset-backed securitization in May 1998.
The Company is to receive a two-thirds residual interest pertaining to the major
portion of Conventional Loans disposed of in that securitization. Prior to
eventual disposition of the Conventional Loans, there is limited recourse to the
Company for repurchase of those loans which become more than 60 days
contractually delinquent. The amount of this recourse is limited to 2-1/2% of
the principal balance of the loans as of the date they became subject to the
Excess Yield Agreement. The servicing rights of these loans will transferred to
a third party and a reversal of servicing rights of approximately $1.2 million
was recorded pursuant to this transaction.
In April 1998, an agreement was made to adjust by $5.3 million the
federal income tax portion of a payable that the Company owed Mego Financial as
a result of the Company filing a consolidated federal income tax return with
Mego Financial's affiliated group prior to the Spin-off. See Note 5.
4. FINANCING ARRANGEMENTS
The Company has four significant sources of financing: (i) a warehouse
line of credit for up to $55.0 million decreasing in stages to $35.0 million at
March 4, 1998 and to $20.0 million by April 17, 1998 (the "Warehouse Line");
(ii) a revolving credit facility for up to $25.0 million, less amounts
outstanding under repurchase agreements (the "First Revolving Credit Facility");
(iii) a second revolving credit facility for up to $5.0 million which may, under
certain circumstances, be increased to $8.8 million (the "Second Revolving
Credit Facility"); and (iv) $80.0 million of outstanding 12 1/2% Senior
Subordinated Notes due 2001 (the "Notes"). In addition, the Company has the
Master Purchase Agreement providing for the purchase of up to $2.0 billion in
loans over a five year period. Pursuant to a letter agreement dated December 29,
1997, the Master Purchase Agreement may be amended to provide for the purchase
of up to $3.0 billion in loans over the period ending September 2001.
In February 1998, in order to avoid non-compliance with the terms of the
Warehouse Line, the Company entered into an amended and restated credit
agreement (the "Amended Credit Agreement") modifying the existing Warehouse Line
agreement to, among other things: (i) reduce the amount of the Warehouse Line
from $65.0 million to $55.0 million and in stages to $35.0 million by March 4,
1998 (subject to increase with the approval of all of the parties to such
agreement); (ii) change the expiration date of the Warehouse Line from June 15,
1998 to May 29, 1998; (iii) add the ability to borrow against First Mortgage
Loans in an amount not to exceed 15% of the lenders' aggregate commitment; (iv)
reduce the advance rate for certain loan categories; (v) prohibit the payment of
dividends by the Company; (vi) limit the amount of "Funded Debt" (as defined
therein to mean indebtedness for money borrowed, with certain exceptions) to the
sum of (a) 100% of cash, (b) 95% of "loans held for sale, net" and (c) 80% of
"Restricted Assets" which are restricted cash, mortgage related securities,
mortgage servicing rights and excess servicing rights; and (vii) modify certain
of the financial covenants
6
<PAGE> 9
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND 1998
to, among other things, require the maintenance of (a) an adjusted leverage
ratio of total liabilities (which excludes subordinated debt up to $80.4
million) to adjusted tangible net worth not to exceed 1.75 to 1.0, (b) an
adjusted tangible net worth (which includes subordinated debt) of at least
$110.0 million plus 75% of positive net income after December 31, 1997 and 100%
of any new equity or subordinated debt offering and (c) a tangible net worth
(which excludes subordinated debt) of at least $30.0 million plus 75% of
positive net income after December 31, 1997 and 100% of any new equity or
subordinated debt offering. In addition, the Company agreed to provide
satisfactory purchase commitments by March 3, 1998 to the Warehouse Line
lenders, covering the then pledged loans in the Warehouse Line. An extension of
this compliance date to March 13, 1998 was received and the Company was in
compliance with this requirement at that date.
In April 1998, the Company entered in an amendment to the Amended Credit
Agreement modifying such agreement to, among other things: (i) reduce the amount
of the Warehouse Line to $20.0 million by April 17, 1998; and (ii) change
certain definitions relating to the eligibility of loans as collateral under the
agreement. As of the date of this report, the Company is not in compliance with
the terms of the Warehouse Line because the amount outstanding under the line
exceeds the amount permitted to be borrowed thereunder. The Company has received
commitments for the sale of loans, the proceeds of which would be applied to
reduce the amount outstanding under the line and would be sufficient to bring
the Company in compliance with the terms thereof. However, there can be no
assurance that such loan sales will be consummated.
The Company believes that, based on its current business strategy of
whole loan sales rather than securitization transactions and other funding
sources expected to be available to it, the reduced Warehouse Line would be
adequate to meet its needs.
As a result of the losses the Company recognized during the six months
ended February 28, 1998, the Company was not in compliance with certain
provisions of the pledge and security agreement, as amended, governing the First
Revolving Credit Facility and is not in compliance with certain provisions of
the indenture governing the Notes. Specifically, the pledge and security
agreement governing the First Revolving Credit Facility requires the Company to
maintain a debt-to-net worth ratio not to exceed 2.5:1 and at February 28, 1998,
the ratio was 2.95:1. The financial institution providing the First Revolving
Credit Facility has agreed to waive the non-compliance provided that the
debt-to-net worth ratio shall not exceed 6:1 prior to April 30, 1998 after which
the ratio may not exceed 2.5:1. Additionally, at February 28, 1998 the Company
is required to maintain a minimum net worth of $42.5 million and the Company's
actual net worth was $40.4 million. The Company believes it will obtain a waiver
of this requirement through May 31, 1998. The Company also expects to obtain an
extension of the waiver of the debt-to-net-worth ratio requirement through
May 29, 1998.
5. SETTLEMENT OF AMOUNT PAYABLE TO MEGO FINANCIAL CORP.
In April 1998, an agreement was made to adjust by $5.3 million the
income tax portion of a payable that the Company owed Mego Financial under a Tax
Allocation and Indemnity Agreement dated November 19, 1996. The Company filed a
consolidated federal income tax return with Mego Financial's affiliated group
prior to the Spin-off under such Tax Allocation and Indemnity Agreement dated
November 19, 1996. Following this transaction, the Company will owe Mego
Financial $869,000 of which $215,000 is to be paid by conveyance to Mego
Financial of certain loans with principal balances of approximately $404,000
with the balance payable in four annual installments. The settlement of the
amount payable is recorded as an additional capital contribution on the
Company's Statement of Financial Condition.
6. RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (the "FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
125") in June 1996. SFAS 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities.
This statement also provides consistent standards for
7
<PAGE> 10
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND 1998
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. It requires that liabilities and derivatives incurred or
obtained by transferors as part of a transfer of financial assets be initially
measured at fair value. SFAS 125 also requires that servicing assets be measured
by allocating the carrying amount between the assets sold and retained interests
based on their relative fair values at the date of transfer. Additionally, this
statement requires that the servicing assets and liabilities be subsequently
measured by (a) amortization in proportion to and over the period of estimated
net servicing income or loss and (b) assessment for asset impairment or
increased obligation based on their fair values. SFAS 125 requires the Company's
excess servicing rights be measured at fair market value and be reclassified as
interest only receivables, carried as mortgage related securities, and accounted
for in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." As required by SFAS 125, the Company adopted the new
requirements effective January 1, 1997, and applied them prospectively.
Implementation of SFAS 125 did not have any material impact on the financial
statements of the Company, as the book value of the Company's mortgage related
securities approximated fair value.
The following table reflects the components of mortgage related
securities as required by SFAS 125 at February 28, 1998 (thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
Interest only strip securities $ 4,916
Residual interest securities 78,709
Interest only receivables (formerly excess servicing rights) 7,629
-------
Total mortgage related securities $91,254
=======
</TABLE>
All mortgage related securities are classified as trading securities and
are recorded at their estimated fair values. Changes in the estimated fair
values are recorded in current operations. See Note 7.
SFAS No. 128, "Earnings per Share" ("SFAS 128") was issued by the FASB
in February 1997, effective for financial statements issued after December 15,
1997. SFAS 128 provides simplified standards for the computation and
presentation of earnings per share ("EPS"), making EPS comparable to
international standards. SFAS 128 requires dual presentation of "Basic" and
"Diluted" EPS, by entities with complex capital structures, replacing "Primary"
and "Fully-diluted" EPS under Accounting Principles Board ("APB") Opinion No.
15.
Basic EPS excludes dilution from common stock equivalents and is
computed by dividing income (loss) available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution from common stock equivalents, similar to
fully-diluted EPS, but uses only the average stock price during the period as
part of the computation.
8
<PAGE> 11
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND 1998
Data utilized in calculating pro forma earnings per share under SFAS 128
is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
----------------------------- ------------------------------
1997 1998 1997 1998
----------- ----------- ----------- ------------
(thousands of dollars)
<S> <C> <C> <C> <C>
Basic:
Net income (loss) $ 3,371 $ (8,495) $ 5,850 $ (20,190)
============ ============ ============ ============
Weighted-average number of common shares 12,300,000 12,300,000 11,296,133 12,300,000
============ ============ ============ ============
outstanding
Diluted:
Net income (loss) $ 3,371 $ (8,495) $ 5,850 $ (20,190)
============ ============ ============ ============
Weighted-average number of common
shares and common share equivalents
outstanding 12,476,069 12,300,000 11,463,259 12,300,000
============ ============ ============ ============
</TABLE>
The following tables reconcile the net income (loss) applicable to
common stockholders, basic and diluted shares, and EPS for the following
periods:
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28, 1997 THREE MONTHS ENDED FEBRUARY 28, 1998
---------------------------------------------- ------------------------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------------ ------------ ---------- ------------ ------------ ----------
(thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 3,371 $ (8,495)
BASIC EPS
Income (loss) applicable
to common stockholders 3,371 12,300,000 $ 0.27 (8,495) 12,300,000 $ (0.69)
------------ ------------ ========== ------------ ------------ ==========
Effect of dilutive
securities:
Warrants -- -- -- --
Stock options -- 176,069 -- --
------------ ------------ ------------ ------------
DILUTED EPS
Income (loss) applicable
to common stockholders
and assumed conversions $ 3,371 12,476,069 $ 0.27 $ (8,495) 12,300,000 $ (0.69)
============ ============ ========== ============ ============ ==========
</TABLE>
9
<PAGE> 12
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 1997 AND 1998
<TABLE>
<CAPTION>
SIX MONTHS ENDED FEBRUARY 28, 1997 SIX MONTHS ENDED FEBRUARY 28, 1998
--------------------------------------------- ---------------------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
------------ ------------ ======== ------------ ------------ ========
(thousands of dollars, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 5,850 $ (20,190)
BASIC EPS
Income (loss) applicable
to common stockholders 5,850 11,296,133 $ 0.52 (20,190) 12,300,000 $ (1.64)
------------ ------------ ======== ------------ ------------ ========
Effect of dilutive
securities:
Warrants -- -- -- --
Stock options -- 167,126 -- --
------------ ------------ ------------ ------------
DILUTED EPS
Income (loss) applicable
to common stockholders
and assumed conversions $ 5,850 11,463,259 $ 0.51 $ (20,190) 12,300,000 $ (1.64)
============ ============ ======== ============ ============ ========
</TABLE>
7. ADJUSTMENTS TO CARRYING VALUES OF MORTGAGE RELATED SECURITIES
During the three months ended November 30, 1997, the Company experienced
voluntary prepayment activity and delinquencies with respect to its securitized
Conventional Loans which substantially exceeded the levels which had been
assumed for this time frame. This acceleration in the speed of prepayment has
caused management, after consultation with its financial advisors, to adjust as
of November 30, 1997, the assumptions previously utilized in calculating the
carrying value of its mortgage related securities. The revised prepayment
assumptions reflect an annualized prepayment rate of 3% in the first month
following a securitization, increasing by level monthly increments up to the
15th month at which time the annualized rate is at 17%. This annualized
voluntary prepayment rate is maintained at that level through the 36th month at
which time such rate is assumed to decline by 1/2% per month until the 42nd
month, at which time the rate is presumed to be 14%. This rate is assumed to be
maintained for the remaining life of the loan portfolio.
The loss assumptions have also been modified to reflect losses
commencing in the third month following a securitization increasing in level
monthly increments until a 2% annualized loss rate is achieved in the 18th
month. The annualized loss rate is projected to remain at that level throughout
the remaining life of the portfolio. On a cumulative basis, this model assumes
aggregate losses of approximately 9% of the original portfolio balance. Despite
the moderate change in the acceleration of assumed losses, after applying the
new voluntary prepayment rates, the cumulative loss assumption of 9% results in
approximately the same level of loss as had been previously assumed.
At November 30, 1997, the application of such revised prepayment and
loss assumptions to the Company's portfolio of mortgage related securities
required the Company to adjust the carrying value of such securities by
approximately $14.1 million, of which $10.2 million related to Conventional
Loans and $3.9 million related to Title I Loans.
During the three months ended February 28, 1998, the Company experienced
increased levels of over-collateralization and higher than anticipated
prepayments on Title I Loans resulting in a downward adjustment to the portfolio
of mortgage related securities. The Company also recognized the impairment of
the carrying value of a security which had previously been recorded as a whole
loan sale, sold servicing retained, whose underlying loans are anticipated to
be repurchased and included in a future securitization. As a result of the
foregoing, the Company adjusted the carrying value of mortgage related
securities with negative adjustments of approximately $3.7 million and $17.7
million for the three and six months ended February 28, 1998, respectively. At
February 28, 1998,
10
<PAGE> 13
MEGO MORTGAGE CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued)
For the three and six months ended February 28, 1997 and 1998
mortgage related securities were $91.3 million compared to $94.3 million at
November 30, 1997 and $106.3 million at August 31, 1997.
The Company utilizes a 12% discount rate to calculate the present value
of cash flow streams. Taken in conjunction with the above prepayment and loss
assumptions, management believes these valuations reflect current market values.
8. PRIVATE PLACEMENT
In October 1997, the Company issued $40.0 million of 12.5% senior
subordinated notes ("Additional Notes") due in 2001 in the Private Placement
which increased the aggregate principal amount of outstanding 12.5% senior
subordinated notes from $40.0 million to $80.0 million. The Company used the net
proceeds of $38.4 million, after deducting expenses, of the Private Placement to
repay $3.9 million of debt due to Mego Financial, $29.0 million to reduce the
amounts outstanding under the Company's lines of credit and the balance to
provide capital to originate and securitize loans and for working capital. These
Additional Notes are subject to the indenture governing all of the Company's
senior subordinated notes. In connection with the consent solicitation, the
Company made consent payments totaling $392,000 ($10.00 cash per $1,000
principal amount of Exiting Notes) to holders thereof who properly furnished
their consents to the amendments to the original indenture.
The Company has entered into a registration rights agreement with
Friedman, Billings, Ramsey & Co., Inc. ("Registration Rights Agreement")
pursuant to which the Company agreed, for the benefit of the holders of the
Additional Notes, at the Company's cost, (i) to file a registration statement
(the "Exchange Offer Registration Statement") with respect to a registered offer
to exchange the Additional Notes ("Exchange Offer") for notes of the Company
with terms identical in all material respects to the Additional Notes ("Exchange
Notes") (except that the Exchange Notes will not contain terms with respect to
transfer restrictions or interest rate increases) with the Securities and
Exchange Commission ("SEC") by November 28, 1997 and (ii) to use its best
efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act on or before January 12, 1998. Promptly after
the Exchange Offer Registration Statement has been declared effective, the
Company will offer the Exchange Notes in exchange for surrender of the
Additional Notes. The Company will keep the Exchange Offer open for not less
than 30 days (or longer if required by applicable law) after the date notice of
the Exchange Offer is mailed to the holders of the Additional Notes. For each
Additional Note validly tendered to the Company pursuant to the Exchange Offer
and not withdrawn by the holder thereof, the holder of such Additional Note will
receive Exchange Notes having a principal amount equal to that of the tendered
Additional Note. Interest on each Exchange Note will accrue from the last
interest payment date on which interest was paid on the tendered Additional
Notes in exchange therefor or, if no interest has been paid on such Additional
Notes, from the date of its original issue. The Company filed the Exchange Offer
Registration statement with the SEC on November 28, 1997, however, such
registration statement has not been declared effective by the SEC.
11
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations section contains certain forward-looking
statements and information relating to Mego Mortgage Corporation (the "Company")
that are based on the beliefs of management as well as assumptions made by and
information currently available to management. Such forward-looking statements
include, without limitation, the Company's expectation and estimates as to the
Company's business operations, including the introduction of new loan programs
and products and future financial performance, including growth in revenues and
net income and cash flows. In addition, included herein the words "anticipates,"
"believes," "estimates," "expects," "plans," "intends" and similar expressions,
as they relate to the Company or its management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company's management with respect to future events and are subject to certain
risks, uncertainties and assumptions. Also, the Company specifically advises
readers that the factors listed under the caption "Liquidity and Capital
Resources" could cause actual results to differ materially from those expressed
in any forward-looking statement. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated or expected.
The following discussion and analysis should be read in conjunction with
the Condensed Financial Statements, including the notes thereto, contained
elsewhere herein and in the Financial Statements, including the notes thereto,
in the Company's Form 10-K for the fiscal year ended August 31, 1997.
GENERAL
The Company is a specialized consumer finance company that originates,
purchases, sells, securitizes and services consumer loans consisting primarily
of conventional uninsured home improvement and debt consolidation loans which
are generally secured by liens on residential property ("Conventional Loans").
The Company historically has originated loans through its network of independent
correspondent lenders ("Correspondents") and home improvement construction
contractors ("Dealers"). To both broaden its channels of origination and reduce
its overall cost of loan acquisition, the Company commenced direct origination
of Conventional Loans in the three months ended November 30, 1997. To facilitate
these new origination channels, the Company has entered into contractual
arrangements with third party financial institutions for the acquisition of
qualified consumer loan referrals. These referrals do not conform to that
institution's programs, but may be suitable for approval and funding under the
Company's product lines that are not available at the referring institution. By
making direct loans to consumers, the Company avoids the payment of premiums
which it incurs with the acquisition of completed loans from its Correspondent
network. It is anticipated that the origination fees charged to consumers on the
direct loans will adequately cover the cost of the referrals and thereby place
the Company on a positive cash flow basis with respect to these direct loan
originations.
Until May 1996, the Company originated only home improvement loans
insured under the Title I credit insurance program ("Title I Loans") of the
Federal Housing Administration (the "FHA"). Subject to certain limitations, the
Title I program provides for insurance of 90% of the principal balance of the
loan and certain other costs. The Company began offering Conventional Loans
through its Correspondents in May 1996 and through its Dealers in September
1996. Since May 1996, Conventional Loans have accounted for an increasing
portion of the Company's loan originations. For the three months ended February
28, 1997 and 1998, the Company originated $89.7 million and $116.5 million of
Conventional Loans, respectively, which constituted 80.6% and 91.5%,
respectively, of the Company's total loan originations during the periods. For
the six months ended February 28, 1997 and 1998, the Company originated $120.8
million and $304.3 million of Conventional Loans, respectively, which
constituted 69.6% and 93.0%, respectively, of the Company's total loan
originations during the periods.
In December 1997, the Company began originating subprime residential
first mortgage loans ("First Mortgage Loans"). The Company originates First
Mortgage Loans through the correspondent loan source network as well as through
specifically approved brokers. The Company believes that there are several
advantages to
12
<PAGE> 15
originating First Mortgage Loans including (i) the existence of a more liquid
secondary market for such loans, (ii) the average principal amount of such loans
is typically two times greater than that of a Conventional Loan and (iii) such
loans are originated by correspondents at lower premiums. For the six months
ended February 28, 1998, the Company originated $4.8 million of First Mortgage
Loans.
The Company has historically sold substantially all the loans it
originated either through securitizations at a yield below the stated interest
rate on the loans, generally retaining the right to service the loans and to
receive any amounts in excess of the yield to the purchasers, or through whole
loan sales to third party institutional purchasers. In connection with whole
loan sales, the Company either sells the loans on a servicing retained basis at
a yield below the stated interest rate on the loans or on a servicing released
basis. Currently, sales on a servicing released basis and some sales on a
servicing retained basis are at a premium. In connection with securitizations,
certain of the regular interests of the related securitizations were sold, with
the interest only and residual class securities generally retained by the
Company. The Company presently intends to dispose of a majority of its loan
originations on an ongoing basis through whole loan sales on a servicing
released basis, at a premium, as opposed to securitizations.
The Company has operated since March 1994 on a negative cash flow basis.
As a result of such negative cash flow of the Company's operations, the
provisions under the indenture governing the Company's senior subordinated notes
limiting the Company's ability to incur additional indebtedness and the
reduction of the Company's warehouse line of credit ("Warehouse Line") from
$55.0 million to $20.0 million, the Company has substantially curtailed the
origination of loans during the quarter ended February 28, 1998. Loan
originations for the three months ended February 28, 1998 totaled $127.3 million
as compared to $199.9 million for the three months ended November 30, 1997. In
conjunction with this curtailment, the Company restructured its workforce which
resulted in a 32% reduction in the number of employees from its peak in early
January 1998 through March 1998. The Company has refocused its operations on the
origination of those loan products which are either cash flow positive at the
time of their acquisition or substantially less expensive to acquire than the
historical business previously generated by the Dealer and Correspondent
divisions. In this regard, the Company is intensifying its efforts toward direct
consumer loan origination which generates fees to the Company at the time of
origination. Additional efforts are being made to expand the Company's First
Mortgage Loan originations which have a lower cost of acquisition as well as a
more liquid secondary market for loan dispositions. There can be no assurance,
however, that the Company will be successful in its efforts to achieve a cash
flow neutral or positive basis.
The Company recognizes revenue from gain on sale of loans, unrealized
gain on mortgage related securities, interest income and servicing income.
Interest income, net, represents the interest received on loans in the Company's
portfolio prior to their sale, plus accretion of interest related to mortgage
related securities, net of interest paid under its credit agreements. The
Company continues to service a substantial amount of loans sold through February
28, 1998. However, during the six months ended February 28, 1998, $113.1 million
of loans were sold with servicing released. Net loan servicing income represents
servicing fee income and other ancillary fees received for servicing loans less
the amortization of capitalized mortgage servicing rights, and through January
1, 1997, the date of adoption of Statement of Financial Accounting Standards No.
125 ("SFAS 125"), the amortization of excess servicing rights. Mortgage
servicing rights are amortized in proportion to and over the period of estimated
net servicing income. Excess servicing rights were amortized in proportion to
and over the estimated lives of the related loans.
Gain on sale of loans includes the gain on sale resulting from
securitizations and whole loan sales. The gain on sale in securitization
transactions is determined by an allocation of the cost of the securities based
on the relative fair values of the interests sold and the interests retained. In
a securitization, the Company retains a residual interest security and may
retain an interest only strip security. The fair value of the residual interest
and interest only strip security is the present value of the estimated net cash
flows to be received after considering the effects of estimated prepayments and
credit losses and, where applicable, net of estimated FHA insurance recoveries
on Title I Loans. The net unrealized gain (loss) on mortgage related securities
represents the difference between the allocated cost basis of the securities and
the estimated fair value.
13
<PAGE> 16
The Company carries interest only and residual securities at fair value.
As such, the carrying value of these securities is affected by changes in market
interest rates and prepayment and loss experiences of these and similar
securities. The Company estimates the fair value of the interest only and
residual securities utilizing prepayment and credit loss assumptions the Company
believes to be appropriate for each particular securitization. To the Company's
knowledge, there is no active market for the sale of these interest only and
residual securities.
During the three months ended November 30, 1997, the Company experienced
voluntary prepayment activity and delinquencies with respect to its securitized
Conventional Loans which substantially exceeded the levels which had been
assumed for this time frame. As a result of this increase, the Company adjusted
the assumptions previously utilized in calculating the carrying value of its
mortgage related securities. The revised prepayment assumptions presume an
annualized prepayment rate of 3% in the first month following a securitization,
increasing by level monthly increments up to the 15th month at which time the
annualized rate is at 17%. This annualized voluntary prepayment rate is
maintained at that level through the 36th month, at which time such rate is
assumed to decline by 1/2% per month until the 42nd month, at which time the
rate is presumed to be 14%. This rate is assumed to be maintained for the
remaining life of the loan portfolio.
The Company's loss assumptions have been further modified to reflect
losses commencing in the third month following a securitization increasing in
level monthly increments until a 2% annualized loss rate is achieved in the 18th
month. This annualized loss rate is projected to remain at that level throughout
the remaining life of the portfolio. On a cumulative basis, this loss model
assumes aggregate losses of approximately 9% of the original portfolio balance.
Despite the moderate change in the acceleration of assumed losses, after
applying the new voluntary prepayment rates, the cumulative loss assumption of
9% results in approximately the same level of loss as had previously been
assumed.
The Company utilizes a 12% discount rate to calculate the present value
of cash flow streams. Taken in conjunction with the above prepayment and loss
assumptions, management believes these valuations reflect current market values.
See Note 7 to Notes to Condensed Financial Statements.
The application of such revised prepayment and loss assumptions to the
Company's mostly conventional portfolio of mortgage related securities generated
from its securitizations caused the Company to adjust the carrying value of such
securities by approximately $10.2 million at November 30, 1997. Additional
negative adjustments of approximately $3.9 million to the carrying value of
mortgage related securities pertaining to Title I Loan securitizations and other
sales were also recognized during the three months ended November 30, 1997 due
to a higher level of defaults and prepayments than had been previously
anticipated. After calculating the effect of accretion of interest, amortization
of cash flow residuals and increased prepayment penalty fees, the carrying value
of the Company's mortgage related securities was reduced to $94.3 million as of
November 30, 1997 from $106.3 million as of August 31, 1997. As a result of,
among other things, the application of the revised prepayment and loss
assumptions, the Company recorded a $14.1 million charge to earnings during the
three months ended November 30, 1997.
In the three months ended February 28, 1998, negative adjustments of
approximately $3.7 million were recognized due to increased required levels of
over-collateralization and higher than anticipated prepayments on Title I Loans
and the recognition of an impairment to the carrying value of a mortgage related
security which had previously been recorded as a whole loan sale, sold servicing
retained, whose underlying loans are anticipated to be repurchased and included
in a future securitization.
Although the Company believes that it has made reasonable estimates of
the fair value of the mortgage related securities in formulating the revised
prepayment and loss assumptions, the rate of prepayments and default rates
utilized are estimates, and actual experience may vary from these estimates.
There can be no assurance that the revised prepayment and loss assumptions used
to determine the fair value of the Company's mortgage related securities and
mortgage servicing rights will remain appropriate for the life of the loans. If
actual loan prepayments or credit losses exceed the Company's estimates, the
carrying value of the Company's mortgage related securities and mortgage
servicing rights may have to be further written down through a charge against
earnings.
14
<PAGE> 17
The Company has four significant sources of financing: (i) the Warehouse
Line for up to $20.0 million; (ii) a revolving line of credit for up to $25.0
million, less amounts outstanding under repurchase agreements (the "First
Revolving Credit Facility"); (iii) a second revolving credit facility for up to
$5.0 million which, under certain circumstances, may be increased to $8.8
million (the "Second Revolving Credit Facility"); and (iv) $80.0 million of
outstanding 12 1/2% senior subordinated notes due 2001 (the "Notes"). As a
result of the losses the Company recognized during the six months ended February
28, 1998, the Company was not in compliance with certain provisions of the
pledge and security agreement, as amended, governing the First Revolving Credit
Facility and is not in compliance with certain provisions of the indenture
governing the Notes and the credit agreement governing the Warehouse Line. While
the Company is not in default under the terms of the indenture, the Company
cannot presently incur additional debt other than Permitted Warehouse
Indebtedness (as defined below) and certain other types of indebtedness. The
Company must maintain external sources of cash to fund its operations and
therefore must maintain its sources of financing or identify other external
sources of funds. See "Liquidity and Capital Resources."
The Company has operated since March 1994 on a negative cash flow basis.
As a result of such negative cash flow, since December 31, 1997, the Company has
significantly decreased the volume of its loan originations. In addition,
partially as a result of such negative cash flow, and as part of the Company's
cost saving measures, the Company completed an internal restructuring, resulting
in a reduction of approximately 32% of its workforce from its peak in early
January 1998, primarily as a result of a substantial reduction of the Dealer
Division. The Dealer Division generated approximately 4.6% and 7.6% of
Conventional and total loan originations, respectively, in the six months ended
February 28, 1998, but accounted for a disproportionately higher amount of the
Company's costs. The Company will continue to originate Title I Loans through
its Correspondent Division, intended solely for sale to the Federal Home Loan
Mortgage Association ("FNMA").
15
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth certain data regarding loans originated,
sold, securitized and serviced by the Company during the three and six months
ended February 28, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28, SIX MONTHS ENDED FEBRUARY 28,
---------------------------------------- ---------------------------------------
1997 1998 1997 1998
------------------- ------------------- ------------------ -------------------
(thousands of dollars)
PRINCIPAL BALANCE OF LOANS ORIGINATED:
Correspondents:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Title I $ 11,346 10.2% $ 2,014 1.6% $ 30,511 17.5% $ 6,916 2.1%
Conventional 87,911 79.0 107,695 84.6 118,762 68.4 286,453 87.6
-------- ------- -------- ------- -------- ------- -------- -------
Total Correspondents 99,257 89.2 109,709 86.2 149,273 85.9 293,369 89.7
-------- ------- -------- ------- -------- ------- -------- -------
Dealers:
Title I 10,186 9.2 4,014 3.2 22,425 12.9 11,214 3.4
Conventional 1,817 1.6 5,092 4.0 2,024 1.2 13,846 4.2
-------- ------- -------- ------- -------- ------- -------- -------
Total Dealers 12,003 10.8 9,106 7.2 24,449 14.1 25,060 7.6
-------- ------- -------- ------- -------- ------- -------- -------
Retail:
Conventional -- -- 3,717 2.9 -- -- 3,964 1.2
First Mortgage -- -- 243 0.2 -- -- 243 0.1
-------- ------- -------- ------- -------- ------- -------- -------
Total Retail -- -- 3,960 3.1 -- -- 4,207 1.3
-------- ------- -------- ------- -------- ------- -------- -------
First Mortgage -- -- 4,509 3.5 -- -- 4,509 1.4
-------- ------- -------- ------- -------- ------- -------- -------
Total Principal Amount
of Loans Originated $111,260 100.0% $127,284 100.0% $173,722 100.0% $327,145 100.0%
======== ======= ======== ======= ======== ======= ======== =======
NUMBER OF LOANS ORIGINATED:
Correspondents:
Title I 551 12.5% 95 2.3% 1,493 20.0% 320 2.9%
Conventional 2,884 65.7 3,320 78.9 3,960 53.2 8,760 80.0
-------- ------- -------- ------- -------- ------- -------- -------
Total Correspondents 3,435 78.2 3,415 81.2 5,453 73.2 9,080 82.9
-------- ------- -------- ------- -------- ------- -------- -------
Dealers:
Title I 873 19.9 357 8.5 1,907 25.6 944 8.6
Conventional 83 1.9 244 5.8 93 1.2 733 6.7
-------- ------- -------- ------- -------- ------- -------- -------
Total Dealers 956 21.8 601 14.3 2,000 26.8 1,677 15.3
-------- ------- -------- ------- -------- ------- -------- -------
Retail:
Conventional -- -- 111 2.7 -- -- 119 1.1
First Mortgage -- -- 5 0.1 -- -- 5 --
-------- ------- -------- ------- -------- ------- -------- -------
Total Retail -- -- 116 2.8 -- -- 124 1.1
-------- ------- -------- ------- -------- ------- -------- -------
First Mortgage -- -- 73 1.7 -- -- 73 0.7
-------- ------- -------- ------- -------- ------- -------- -------
Total Number of Loans Originated
4,391 100.0% 4,205 100.0% 7,453 100.0% 10,954 100.0%
======== ======= ======== ======= ======== ======= ======== =======
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 28,
-----------------------------------------------------------------
1997 1998
---------------------------- ----------------------------
LOANS SERVICED AT END OF PERIOD (INCLUDING LOANS
SECURITIZED, SOLD TO INVESTORS AND HELD FOR SALE):
<S> <C> <C> <C> <C>
Title I $237,633 64.5% $245,921 31.6%
Conventional 130,736 35.5 529,887 68.1
First Mortgage -- -- 2,706 0.3
-------- ------- -------- -------
Total Loans Serviced at End of Period $368,369 100.0% $778,514 100.0%
======== ======= ======== =======
</TABLE>
16
<PAGE> 19
The following table sets forth the principal balance of loans sold or
securitized and related gain on sale data for the three and six months ended
February 28, 1997 and 1998:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
------------------------- -------------------------
1997 1998 1997 1998
--------- --------- --------- ---------
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
WHOLE LOAN SALES SOLD WITH RECOURSE AND
SECURITIZATIONS:
Principal amount of loans sold:
Title I $ 22,277 $ (7,952)(1) $ 55,666 $ (8,770)(1)
Conventional 84,655 47,834 111,775 154,255
--------- --------- --------- ---------
Total principal balances $ 106,932 $ 39,882 $ 167,441 $ 145,485
========= ========= ========= =========
Gain (loss) on sale of loans $ 5,823 $ (3,519) $ 15,424 $ (730)
========= ========= ========= =========
Net unrealized gain (loss) on mortgage
related securities $ 3,143 $ (3,661) $ 2,908 $ (16,768)
========= ========= ========= =========
Gain (loss) on sale of loans as a
percentage of principal balance of loans sold 5.4% (8.8)% 9.2% (0.5)%
Gain (loss) on sale of loans plus net
unrealized gain (loss) on mortgage
related securities as a percentage of
principal balance of loans sold 8.4% (18.0)% 10.9% (12.0)%
WHOLE LOAN SALES SOLD WITH SERVICING
RELEASED AND SALES TO FNMA:
Principal amount of loans sold:
Title I $ -- $ 10,735 $ -- $ 22,627
Conventional -- 72,668 -- 111,029
First Mortgage -- 2,088 -- 2,088
--------- --------- --------- ---------
Total principal balances $ -- $ 85,491 $ -- $ 135,744
========= ========= ========= =========
Gain on sale of loans $ -- $ 1,607 $ -- $ 2,539
========= ========= ========= =========
Net unrealized gain on mortgage
related securities $ -- $ 9 $ -- $ 8
========= ========= ========= =========
Gain on sale of loans as a percentage of
principal balance of loans sold --% 1.9% --% 1.9%
Gain on sale of loans plus net unrealized
loss on mortgage related securities as a
percentage of principal balance of loans sold --% 1.9% --% 1.9%
</TABLE>
- ---------
(1) Negative Title I Loan sales resulted from the repurchase of loans sold
with recourse from a financial institution and the sale of certain of
such loans to FNMA without recourse.
The percentage of gain on sale of loans can vary for several reasons,
including the relative amounts of Conventional and Title I Loans, each of which
type of loan has different (i) estimated prepayment rates, (ii) weighted-average
interest rates, (iii) weighted-average maturities, and (iv) estimated future
default rates. Typically, the gain on sale of loans through securitizations is
higher than on whole loan sales.
As the holder of residual securities issued in securitizations, the
Company is entitled to receive certain excess cash flows. These excess cash
flows are calculated as the difference between (a) principal and interest paid
by borrowers and (b) the sum of (i) pass-through interest and principal to be
paid to the holders of the regular securities and interest only securities, (ii)
trustee fees, (iii) third-party credit enhancement fees, (iv) servicing fees and
(v) estimated loan pool losses. The Company's right to receive the excess cash
flows is subject to the satisfaction of certain reserve or
over-collateralization requirements which are specific to each securitization
and are used as a means of credit enhancement.
17
<PAGE> 20
Delinquencies--The following table sets forth the Title I Loan and
Conventional Loan delinquency and Title I insurance claims experience of loans
serviced by the Company as of the dates indicated:
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1997 1998
-------------- --------------
(thousands of dollars)
<S> <C> <C>
Delinquency period (1):
31-60 days past due 1.54% 1.53%
61-90 days past due 0.80 0.87
91 days and over past due 3.07 3.95
91 days and over past due, net of claims filed (2) 2.32 3.42
Outstanding claims filed with HUD (3) 0.75 0.53
Outstanding number of Title I insurance claims filed 269 244
Total servicing portfolio $ 628,068 $ 778,514
Title I Loans serviced 255,446 245,921
Conventional Loans serviced 372,622 529,887
First Mortgage Loans serviced -- 2,706
Amount of FHA insurance available for Title I Loans serviced 21,094 17,974(4)
Amount of FHA insurance available as a percentage of Title I
Loans serviced 8.26% 7.31%(4)
Aggregate losses on liquidated loans (5) $ 201 $ 9
</TABLE>
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(1) Represents the dollar amount of delinquent loans as a percentage of the
total dollar amount of loans serviced by the Company (including loans
owned by the Company) as of the dates indicated. Conventional Loan
delinquencies represented 10.35% and 24.37%, respectively, of the
Company's total delinquencies at August 31, 1997 and February 28, 1998.
(2) Represents the dollar amount of delinquent loans net of delinquent Title
I Loans for which claims have been filed with the U.S. Department of
Housing and Urban Development ("HUD") and payment is pending as a
percentage of the total dollar amount of total loans serviced by the
Company (including loans owned by the Company) as of the dates
indicated.
(3) Represents the dollar amount of delinquent Title I Loans for which
claims have been filed with HUD and payment is pending as a percentage
of the total dollar amount of total loans serviced by the Company
(including loans owned by the Company) as of the dates indicated.
(4) If all claims filed with HUD had been processed as of February 28, 1998,
the amount of FHA insurance available for all serviced Title I Loans
would have been reduced to $14.0 million, which as a percentage of Title
I Loans serviced would have been 5.80%.
(5) On Title I Loans, a loss is recognized upon receipt of payment of a
claim or final rejection thereof. Claims paid in a period may relate to
a claim filed in an earlier period. Since the Company commenced its
Title I lending operations in March 1994, there has been no final
rejection of a claim by the FHA. Aggregate losses on liquidated Title I
Loans related to 994 Title I insurance claims made by the Company, as
servicer, since commencing operations through February 28, 1998. Losses
on Title I Loans liquidated will increase as the balance of the claims
are processed by HUD. The Company has received an average payment from
HUD equal to 90% of the outstanding principal balance of such Title I
Loans, plus appropriate interest and costs.
The pooling and servicing agreements and sale and servicing agreements
related to the Company's securitization transactions contain provisions with
respect to the maximum permitted loan delinquency rates and loan default rates,
which, if exceeded, would allow the termination of the Company's right to
service the related loans. At February 28, 1998, the rolling three-month average
annual default rates on the pools of loans sold in the March 1996, August 1996
and December 1996 securitization transactions exceeded 6.5%, the permitted limit
set
18
<PAGE> 21
forth in the related pooling and servicing agreements. Accordingly, this
condition could result in the termination of the Company's servicing rights with
respect to those pools of loans by the trustee, the master servicer or the
insurance company providing credit enhancement for those transactions. No
assurance can be given that the insurance company, trustee or master servicer
will not exercise its right to terminate the Company's servicing rights. In the
event of such termination, there would be an adverse effect on the valuation of
the Company's mortgage servicing rights and results of operations in the amount
of such mortgage servicing rights ($3.1 million before tax at February 28, 1998)
on the date of termination. The Company has taken certain steps designed to
reduce the default rates on these pools of loans as well as its other loans.
These steps include the hiring of a new vice president in charge of collection
of delinquent loans, the hiring of additional personnel to collect delinquent
accounts, the assignment of additional personnel specifically assigned to the
collection of these pools of loans and the renegotiation of the terms of certain
delinquent accounts in these pools of loans within the guidelines promulgated by
HUD.
The pooling and servicing agreements and sale and servicing agreements
also require that certain delinquency and default rates not exceed certain
thresholds. If these thresholds are exceeded, higher levels of
over-collateralization are required which can cause a delay in cash receipts to
the Company as a holder of the residual interest, causing an adverse valuation
adjustment to the carrying value of the residual security.
Delinquencies of loans serviced by the Company have also decreased the
amount of loan servicing income recorded during the six months ended February
28, 1998 as the Company's loan servicing income has been reduced by the amount
of interest advanced to the owners of these loans, which advances the Company
expects to recover.
Delinquencies on loans serviced by the Company have increased to $49.5
million at February 28, 1998 from $34.0 million at August 31, 1997. Since the
Company began originating Title I Loans in 1994, an increasing level of
delinquencies has appeared as expected on such loans less than two years old.
Conventional Loan delinquencies represented 10.35% and 24.37%, respectively, of
the Company's total delinquencies at August 31, 1997 and February 28, 1998.
Three Months Ended February 28, 1998 compared to Three Months Ended February 28,
1997
The Company originated $127.3 million of loans during the three months
ended February 28, 1998 compared to $111.3 million of loans during the three
months ended February 28, 1997, an increase of 14.4%. The increase is a result
of the overall growth in the Company's business, including an increase in the
number of active Correspondents. At February 28, 1998, the Company had 565
active Correspondents and 249 active Dealers, compared to 484 active
Correspondents and 467 active Dealers at February 28, 1997. Of the $127.3
million of loans originated during the three months ended February 28, 1998,
$116.5 million were Conventional Loans, $6.0 million were Title I Loans and $4.8
million were First Mortgage Loans compared to $89.7 million of Conventional
Loans, $21.6 million of Title I Loans and no First Mortgage Loans during the
three months ended February 28, 1997. Pursuant to its recent restructuring, the
Company is de-emphasizing its reliance on the Dealer division, and to a lesser
extent the Correspondent division, as a source of loan originations.
Net revenues (losses) decreased to a loss of $3.6 million during the
three months ended February 28, 1998 from revenues of $10.1 million during the
three months ended February 28, 1997. The decrease was primarily the result of
the downward valuation adjustment which is reflected in the net unrealized loss
on mortgage related securities. See Note 7 of Notes to Condensed Financial
Statements.
The combined gain on sale of loans and net unrealized gain (loss) on
sale of mortgage related securities decreased to a loss of $5.6 million during
the three months ended February 28, 1998 from a gain of $9.0 million during the
three months ended February 28, 1997. The decrease was primarily due to the
change in business strategy whereby the Company is focusing on whole loan sales
for cash premiums as opposed to securitizations and the downward valuation
adjustment, causing the net unrealized loss on mortgage related securities.
Loan servicing income, net, increased $750,000 to $1.3 million during
the three months ended February 28, 1998 from $560,000 during the three months
ended February 28, 1997. The increase was primarily the result of
19
<PAGE> 22
the increase in the servicing portfolio to $778.5 million at February 28, 1998
from $368.4 million at February 28, 1997.
Interest income on loans held for sale and mortgage related securities,
net of interest expense, increased $158,000 to $684,000 during the three months
ended February 28, 1998 from $526,000 during the three months ended February 28,
1997. The increase was primarily the result of the increase in the average size
of the portfolio of loans held for sale and mortgage related securities, which
was partially offset by interest accrued on the Additional Notes (as defined
below) during the quarter ended February 28, 1998.
The net provision for credit losses increased $1.5 million to $706,000
for the three months ended February 28, 1998 from $(800,000) for the three
months ended February 28, 1997. The increase in the provision was directly
related to the increase in the volume of loans originated and the increased
ratio of Conventional Loans to Title I Loans originated during the three months
ended February 28, 1998 compared to the three months ended February 28, 1997 and
a shift away from securitizations to whole loan sales. No allowance for credit
losses on loans sold with recourse is established on loans sold through
securitizations or on whole loan sales on a servicing released basis, as the
Company has no recourse obligation under those securitization agreements for
credit losses and estimated credit losses on loans sold through securitizations
are considered in the Company's valuation of its residual interest securities.
The provision for credit losses is based upon periodic analysis of the
portfolio, economic conditions and trends, historical credit loss experience,
borrowers' ability to repay, collateral values and estimated FHA insurance
recoveries on Title I Loans originated and sold.
Total general and administrative expenses increased to $9.0 million
during the three months ended February 28, 1998 compared to $5.2 million during
the three months ended February 28, 1997. The increase was primarily a result of
increased professional services due to increased legal and audit expenses
associated with the creation of new debt, a private placement of $40.0 million
of senior subordinated notes (the "Private Placement), additional Securities and
Exchange Commission ("SEC") filings and amendments to existing debt agreements,
increased loan servicing expenses due to an increase in loans serviced and
increased payroll and benefits related to the hiring of additional underwriting,
loan processing, administrative, loan quality control and other personnel as a
result of the expansion of the Company's business.
Payroll and benefits expense increased $2.1 million to $4.6 million
during the three months ended February 28, 1998 from $2.5 million during the
three months ended February 28, 1997 primarily due to an increased number of
employees and severance expenses. The number of employees increased to 381 at
February 28, 1998 from 277 at February 28, 1997 due to increased staff necessary
to support the business expansion and maintain quality control. The Company has
recently reduced its workforce by approximately 32% since its peak in early
January 1998; however, the savings from the reduction will not be realized until
subsequent accounting periods.
Professional services increased $459,000 to $1.0 million during the
three months ended February 28, 1998 from $560,000 for the three months ended
February 28, 1997, due to increased legal and audit expenses and
reclassification of certain consulting and management services expenses that
were previously classified in different line items.
Sub-servicing fees paid to Preferred Equities Corporation ("PEC")
increased to $610,000 for the three months ended February 28, 1998 from $372,000
for the three months ended February 28, 1997 due primarily to a larger loan
servicing portfolio, notwithstanding a lower sub-servicing fee rate.
Other services increased $442,000 to $694,000 during the three months
ended February 28, 1998 from $252,000 for the three months ended February 28,
1997 due to increased loan volume and documentation expenses associated with the
sale of loans with servicing released during the current quarter.
Rent and lease expenses increased $168,000 to $365,000 during the three
months ended February 28, 1998 from $197,000 for the three months ended February
28, 1997 due to the prior year reflecting new tenant discounts for office space
at Parkwood Circle.
20
<PAGE> 23
Travel expenses increased $193,000 to $276,000 during the three months
ended February 28, 1998 from $83,000 during the three months ended February 28,
1997 due to increased travel caused by higher staff levels necessary to support
the business expansion.
Other general and administrative expenses increased $377,000 to $506,000
during the three months ended February 28, 1998 from $129,000 during the three
months ended February 28, 1997 due primarily to increased expenses related to
the ongoing expansion of facilities.
Income (loss) before income taxes decreased to a loss of $13.7 million
for the three months ended February 28, 1998 from income of $5.4 million for the
three months ended February 28, 1997, therefore, the provision for income taxes
decreased to an income tax benefit of $5.2 million for the three months ended
February 28, 1998 from an income tax expense of $2.1 million for the three
months ended February 28, 1997.
As a result of the foregoing, the Company incurred a net loss of $8.5
million for the three months ended February 28, 1998 compared to net income of
$3.4 million for the three months ended February 28, 1997.
Six Months Ended February 28, 1998 compared to Six Months Ended February 28,
1997
The Company originated $327.1 million of loans during the six months
ended February 28, 1998 compared to $173.7 million of loans during the six
months ended February 28, 1997, an increase of 88.3%. The increase is a result
of the overall growth in the Company's business primarily during the quarter
ended November 30, 1997, including an increase in the number of active
Correspondents. At February 28, 1998, the Company had 565 active Correspondents
and 249 active Dealers, compared to 484 active Correspondents and 467 active
Dealers at February 28, 1997. Of the $327.1 million of loans originated during
the six months ended February 28, 1998, $304.3 million were Conventional Loans,
$18.1 million were Title I Loans and $4.7 million were First Mortgage Loans
compared to $120.8 million of Conventional Loans, $52.9 million of Title I Loans
and no First Mortgage Loans during the six months ended February 28, 1997.
Net revenues (losses) decreased to a loss of $10.6 million during the
six months ended February 28, 1998 from revenues of $20.4 million during the six
months ended February 28, 1997. The decrease was primarily the result of the
downward valuation adjustment which is reflected in the net unrealized loss on
mortgage related securities and the change in business strategy with the focus
on whole loan sales for cash premiums. See Note 7 of Notes to Condensed
Financial Statements.
The combined gain on sale of loans and net unrealized gain (loss) on
sale of mortgage related securities decreased to a loss of $15.0 million during
the six months ended February 28, 1998 from a gain of $18.3 million during the
six months ended February 28, 1997. The decrease was primarily due to the
downward valuation adjustment, causing the net unrealized loss on mortgage
related securities. See Note 7 of Notes to Condensed Financial Statements.
Loan servicing income, net, increased $1.3 million to $2.5 million
during the six months ended February 28, 1998 from $1.2 million during the six
months ended February 28, 1997. The increase was primarily the result of the
increase in the servicing portfolio to $778.5 million at February 28, 1998 from
$368.4 million at February 28, 1997.
Interest income on loans held for sale and mortgage related securities,
net of interest expense, increased $1.0 million to $1.9 million during the six
months ended February 28, 1998 from $881,000 during the six months ended
February 28, 1997. The increase was primarily the result of the increase in the
average size of the portfolio of loans held for sale and mortgage related
securities.
The net provision for credit losses increased $1.4 million to $2.3
million for the six months ended February 28, 1998 from $911,000 for the six
months ended February 28, 1997. The increase in the provision was directly
related to the increase in the volume of loans originated and the increased
ratio of Conventional Loans to Title I Loans originated during the six months
ended February 28, 1998 compared to the six months ended
21
<PAGE> 24
February 28, 1997 and a shift away from securitizations to whole loan sales. No
allowance for credit losses on loans sold with recourse is established on loans
sold through securitizations or on whole loan sales on a servicing released
basis, as the Company has no recourse obligation under those securitization
agreements for credit losses and estimated credit losses on loans sold through
securitizations are considered in the Company's valuation of its residual
interest securities. The provision for credit losses is based upon periodic
analysis of the portfolio, economic conditions and trends, historical credit
loss experience, borrowers' ability to repay, collateral values, and estimated
FHA insurance recoveries on Title I Loans originated and sold.
Total general and administrative expenses increased to $19.0 million
during the six months ended February 28, 1998 from $9.6 million during the six
months ended February 28, 1997. The increase was primarily a result of increased
professional services due to increased legal and audit expenses associated with
the creation of new debt, additional SEC filings and amendments to existing debt
agreements, increased loan servicing expenses due to an increase in loans
serviced and increased payroll and benefits related to the hiring of additional
underwriting, loan processing, administrative, loan quality control and other
personnel as a result of the expansion of the Company's business during the
period prior to the reduction in the workforce.
Payroll and benefits expense increased $5.5 million to $9.8 million
during the six months ended February 28, 1998 from $4.3 million during the six
months ended February 28, 1997 primarily due to an increased number of employees
and severance expenses. The number of employees increased to 381 at February 28,
1998 from 277 at February 28, 1997 due to increased staff necessary to support
the business expansion and maintain quality control. From its peak in early
January 1998, the workforce has since been reduced by 32%, pursuant to the
Company's restructuring.
Professional services increased $1.5 million to $2.5 million during the
six months ended February 28, 1998 from $991,000 for the six months ended
February 28, 1997, due to increased legal and audit expenses associated with the
creation of new debt, the Private Placement, additional SEC filings and
amendments to existing debt agreements.
Sub-servicing fees increased to $1.3 million for the six months ended
February 28, 1998 from $657,000 for the six months ended February 28, 1997 due
primarily to a larger loan servicing portfolio, notwithstanding a lower
sub-servicing rate in the later part of the six months ended February 28 1998.
Other services increased $672,000 to $1.1 million during the six months
ended February 28, 1998 from $457,000 for the six months ended February 28, 1997
due to increased loan volume and documentation expenses for loans sold with
servicing released during the current quarter.
Rent and lease expenses increased $207,000 to $658,000 during the six
months ended February 28, 1998 from $451,000 for the six months ended February
28, 1997 due to the prior year reflecting new tenant discounts for office space
at Parkwood Circle.
Travel expenses increased $331,000 to $536,000 during the six months
ended February 28, 1998 from $205,000 during the six months ended February 28,
1997 due to increased travel necessary to support the business expansion.
Other general and administrative expenses increased $574,000 to $1.1
million during the six months ended February 28, 1998 from $526,000 during the
six months ended February 28, 1997 due primarily to increased expenses related
to the expansion of facilities.
Income (loss) before income taxes decreased to a loss of $32.5 million
for the six months ended February 28, 1998 from income of $9.5 million for the
six months ended February 28, 1997, therefore, the provision for income taxes
decreased to an income tax benefit of $12.3 million for the six months ended
February 28, 1998 from an income tax expense of $3.6 million for the six months
ended February 28, 1997.
As a result of the foregoing, the Company incurred a net loss of $20.2
million for the six months ended February 28, 1998 compared to net income of
$5.9 million for the six months ended February 28, 1997.
22
<PAGE> 25
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $3.2 million at February 28, 1998
compared to $6.1 million at August 31, 1997. The Company's principal cash
requirements relate to loan originations and require continued access to sources
of debt financing and sales of loans in the secondary market.
In November 1996, the Company consummated an underwritten public
offering (the "IPO") pursuant to which it issued 2.3 million shares of Common
Stock at $10.00 per share. Concurrently with the IPO, the Company issued $40.0
million of senior subordinated notes (the "Existing Notes") in an underwritten
public offering. The Company used approximately $13.9 million of the aggregate
net proceeds from these offerings to repay intercompany debt due to Mego
Financial and PEC and approximately $24.3 million to reduce the amounts
outstanding under the Company's lines of credit. The balance of the net proceeds
was used to originate loans.
In October 1997, the Company consummated the Private Placement pursuant
to which it issued $40.0 million in additional senior subordinated notes
("Additional Notes"), which increased the aggregate principal amount of the
outstanding subordinated notes from $40.0 million to $80.0 million. The Company
used approximately $3.9 million of the net proceeds from the Private Placement
to repay debt due to Mego Financial and approximately $29.0 million to reduce
the amounts outstanding under the Company's lines of credit. The balance of the
net proceeds was used to originate loans and for working capital. Prior to the
Private Placement, the Company obtained consents to certain amendments to the
original indenture (as amended, the "Indenture") governing the Notes ("Indenture
Amendments"), which among other things permitted the issuance of the Additional
Notes, modified certain covenants applicable to the Company and will permit the
issuance of an additional $70.0 million of principal amount of senior
subordinated notes. In connection with the consent solicitation, the Company
made consent payments totaling $392,000 ($10.00 cash per $1,000 principal amount
of the Existing Notes) to holders thereof who properly furnished their consents
to the amendments to the original indenture. See Note 8 of Notes to Condensed
Financial Statements.
The Company's cash requirements arise from loan originations, payments
of operating and interest expenses, over-collateralization requirements related
to securitization transactions and deposits to reserve accounts related to loan
sale transactions. Loan originations are initially funded principally through
the Company's Warehouse Line pending the sale of loans in the secondary market.
In addition, the Company has an agreement providing for the purchase of up to
$2.0 billion of loans over a five year period, of which $1.3 billion remained to
be purchased at February 28, 1998. Substantially all of the loans originated by
the Company are sold. Loans under the Warehouse Line are repaid primarily from
the proceeds from the sale of loans in the secondary market. These proceeds
totaled approximately $167.4 million and $281.2 million for the six months ended
February 28, 1997 and 1998, respectively.
The Company has operated since March 1994 on a negative cash flow basis,
although the Company is implementing measures intended to place it on at least a
cash flow neutral basis for the calendar year 1998. There can be no assurance
that the Company will be successful in implementing these measures. In
connection with securitizations and certain whole loan sales, the Company
recognizes a gain on sale of the loans upon the closing of the transaction and
the delivery of the loans, but does not receive the cash representing such gain
until it receives the excess servicing spread, which is payable over the actual
life of the loans sold. The Company is subject to over-collateralization
requirements and incurs significant expenses in connection with securitizations
and incurs tax liabilities as a result of the gain on sale. As a result of such
negative cash flow, since November 30, 1997, the Company has curtailed the
volume of its loan originations.
The Company anticipates only limited use of securitizations during
fiscal 1998 due to the negative cash flow implications of this method of loan
disposition. Alternatively, during fiscal 1998 the Company anticipates
generating an increased volume of whole loan sales on a servicing released
basis, at a cash premium, to enhance its cash flow.
23
<PAGE> 26
The pooling and servicing agreements and sale and servicing agreements
related to the Company's securitizations require the Company to build
over-collateralization levels through retention within each securitization trust
of excess servicing distributions and application thereof to reduce the
principal balances of the senior interests issued by the related trust or cover
interest shortfalls. This retention causes the aggregate unpaid principal amount
of the loans in the related pool to exceed the aggregate principal balance of
the outstanding investor securities. Such over-collateralization amounts serve
as credit enhancement for the related trust and therefore are available to
absorb losses realized on loans held by such trust.
The Company continues to be subject to the risks of default and
foreclosure following the sale of loans through securitizations to the extent
excess servicing distributions are required to be retained or applied to reduce
principal or cover interest shortfalls from time to time. Such retained amounts
are predetermined by the entity issuing any guarantee of the related interests
as a condition to obtaining insurance or by the rating agencies as a condition
to obtaining their applicable rating thereon. In addition, such retention delays
cash distributions that otherwise would flow to the Company through its retained
interest, thereby adversely affecting the flow of cash to the Company.
Certain whole loan sale transactions require the subordination of
certain cash flows payable to the Company to the payment of scheduled principal
and interest due to the loan purchasers. In connection with certain of such sale
transactions, a portion of amounts payable to the Company from the excess
interest spread is required to be maintained in an account to the extent of the
subordination requirements. The subordination requirements generally provide
that the excess interest spread is payable to the account until a specified
percentage of the principal balances of the sold loans is accumulated therein.
Excess interest spread payable to the Company is subject to being utilized first
to replenish cash paid from the account to fund shortfalls in collections of
interest from borrowers who default on the payments on the loans until the
Company's deposits into the account equal the specified percentage. The excess
interest required to be deposited and maintained in the respective accounts is
not available to support the cash flow requirements of the Company. At February
28, 1998, amounts on deposit in such accounts totaled $10.0 million.
Adequate credit facilities and other sources of funding, including the
ability of the Company to sell loans in the secondary market, are essential for
the continuation of the Company's loan origination operations. Loan originations
are initially funded principally through the Company's Warehouse Line. At
February 28, 1998, $40.0 million was outstanding under this Warehouse Line. In
excess of 95.2% of the aggregate loans originated by the Company since inception
through February 28, 1998 had been sold.
The Warehouse Line, which is secured by loans prior to sale, became
effective in June 1997 and was increased from $40.0 million to $55.0 million in
September 1997 and to $65.0 million in October 1997 and then reduced in stages
to $35.0 million in March 1998 and to $20.0 million in April 1998. Under the
original agreement, the Company had the option of borrowing funds under the
Warehouse Line, subject to certain conditions, at an annual rate equal to (i)
the higher of the corporate base rate of interest announced by The First
National Bank of Chicago from time to time or the weighted-average of rates on
overnight federal funds transactions, as published by the Federal Reserve Bank
of New York, plus 0.5%, (ii) the Federal Funds Funding Rate plus 1.75% or (iii)
the Eurodollar Base Rate. The original agreement required the Company to
maintain minimum adjusted tangible net worth (defined as net worth less
intangibles plus subordinated debt) of $65.0 million plus 50% of the Company's
cumulative net income since November 30, 1996, plus all net proceeds received by
the Company through the sale or issuance of stock or additional subordinated
notes. Additionally, the following material covenant restrictions existed: i)
the ratio of total liabilities (not including subordinated notes) divided by
tangible net worth (including subordinated notes) cannot exceed 3:1, and ii)
total liabilities must be less than the aggregate of 100% of cash plus 93% of
loans held for sale plus 55% of restricted cash and mortgage related securities.
All of the Company's funding under the Warehouse Line currently bears interest
at an annual rate equal to the Agent Bank's prime rate plus 1.00%, and expires
May 29, 1998. The Warehouse Line may be increased to $90.0 million under certain
circumstances if additional lender commitments are made.
24
<PAGE> 27
In February 1998, in order to avoid non-compliance with the terms of the
Warehouse Line, the Company entered into an amended and restated credit
agreement (the "Amended Credit Agreement") modifying the existing Warehouse Line
agreement to, among other things: (i) reduce the amount of the Warehouse Line
from $65.0 million to $55.0 million and in stages to $35.0 million by March 4,
1998 (subject to increase with the approval of all of the parties to such
agreement); (ii) change the expiration date of the Warehouse Line from June 15,
1998 to May 29, 1998; (iii) add the ability to borrow against First Mortgage
Loans in an amount not to exceed 15% of the lenders' aggregate commitment; (iv)
reduce the advance rate for certain loan categories; (v) prohibit the payment of
dividends by the Company; (vi) limit the amount of "Funded Debt" (as defined
therein to mean indebtedness for money borrowed, with certain exceptions) to the
sum of (a) 100% of cash, (b) 95% of "loans held for sale, net" and (c) 80% of
"Restricted Assets" which are restricted cash, mortgage related securities,
mortgage servicing rights and excess servicing rights; and (vii) modify certain
of the financial covenants to, among other things, require the maintenance of
(a) an adjusted leverage ratio of total liabilities (which excludes subordinated
debt up to $80.4 million) to adjusted tangible net worth not to exceed 1.75 to
1.0, (b) an adjusted tangible net worth (which includes subordinated debt) of at
least $110.0 million plus 75% of positive net income after December 31, 1997 and
100% of any new equity or debt offering and (c) a tangible net worth of at least
$30.0 million plus 75% of positive net income after December 31, 1997 and 100%
of any new equity. In addition, the Company agreed to provide satisfactory
purchase commitments by March 3, 1998 to the Warehouse Line lenders, covering
the then pledged loans in the Warehouse Line. An extension of this compliance
date to March 13, 1998 was received and the Company was in compliance with this
requirement at that date.
In April 1998, the Company entered in an amendment to the Amended Credit
Agreement modifying such agreement to, among other things: (i) reduce the amount
of the Warehouse Line to $20.0 million by April 17, 1998; and (ii) change
certain definitions relating to the eligibility of loans as collateral under the
agreement.
The staged reductions in the Warehouse Line were based on the amounts of
various scheduled whole loan sales for which the Company has existing
commitments, although there can be no assurance that such sales will be
consummated when scheduled or at all. The Company believes that, based on its
current business strategy of whole loan sales rather than securitization
transactions, and other funding sources expected to be available to it, the
reduced Warehouse Line would be adequate to meet its needs.
At February 28, 1998, the Company's actual adjusted tangible net worth
calculated pursuant to the agreement was $111.9 million, and the required
minimum adjusted tangible net worth at that date was $110.0 million.
Additionally, the following material covenant restrictions exist: i) the ratio
of total liabilities (not including subordinated notes) divided by tangible net
worth (including subordinated notes) cannot exceed 1.75:1, and ii) total
liabilities must be less than the aggregate of 100% of cash plus 95% of loans
held for sale plus 80% of restricted cash and mortgage related securities. At
February 28, 1998, the ratio of total liabilities to tangible net worth was
0.70:1 and total liabilities were $78.0 million, which was $48.4 million under
the maximum amount allowed. As of the date of this report, the Company is not in
compliance with the terms of the Warehouse Line because the amount outstanding
under the line exceeds the amount permitted to be borrowed thereunder. The
Company has received commitments for the sale of loans, the proceeds of which
would be applied to reduce the amount outstanding under the line and would be
sufficient to bring the Company in compliance with the terms thereof. However,
there can be no assurance that such loan sales will be consummated.
In September 1996, the Company entered into a repurchase agreement with
another financial institution pursuant to which the Company pledged the interest
only certificates from its two 1996 securitizations in exchange for a $3.0
million advance. In April 1997, the Company entered into the First Revolving
Credit Facility with the same financial institution providing for a revolving
credit facility of up to $11.0 million less any amounts outstanding under the
repurchase agreement. The amount available for borrowing under the facility was
increased to $15.0 million in June 1997 and to $25.0 million in July 1997, with
respect to which $10.0 million was outstanding at February 28, 1998. This
facility is secured by a pledge of certain of the Company's interest only and
25
<PAGE> 28
residual class certificates relating to securitizations carried as mortgage
related securities on the Company's Condensed Statements of Financial Condition,
payable to the Company pursuant to its securitization agreements. A portion of
the loans under the agreement bears interest at the one-month London Interbank
Offering Rate ("LIBOR") + 3.5%, is due and payable on August 31, 1998, and
requires the Company to maintain a minimum net worth of the greater of $35.0
million, or following fiscal year end 1997, 80% of net worth as of August 31,
1997. The portion of the credit line agreement applicable to a repurchase
agreement secured by insured interest only certificates bears interest at
one-month LIBOR + 2.0%. At February 28, 1998, the required minimum net worth was
$42.5 million and the Company's actual net worth was $40.4 million. Although,
the agreement requires the Company to maintain a debt-to-net-worth ratio not to
exceed 2.5:1; and at February 28, 1998, the ratio was 2.95:1. The debt-to-net
worth provision has been waived by the financial institution until April 30,
1998. The Company believes it will obtain a waiver of the required minimum net
worth and an extension of the waiver of the debt-to-net worth ratio through
May 29, 1998.
In October 1997, the Company entered into the Second Revolving Credit
Facility with a financial institution pursuant to which the Company received an
initial advance of $5.0 million which can be increased to $8.8 million with
additional lender commitments, with respect to which $5.0 million was
outstanding at February 28, 1998. The loan is secured by certain interest only
and residual interest certificates generated from the Company's March 1997
securitization. The facility has a final maturity date of October 31, 2002, and
bears interest at the higher of (i) the prime rate as established by the Chase
Manhattan Bank, N.A., plus 2.5%, or (ii) 9.0%. The Second Revolving Credit
Facility contains financial covenants similar to those contained in the
Warehouse Line.
Certain material covenant restrictions exist in the Indenture governing
the Notes. These covenants include limitations on the Company's ability to incur
indebtedness, grant liens on its assets and to enter into extraordinary
corporate transactions. The Company may not incur indebtedness if, on the date
of such incurrence and after giving thereto, the Consolidated Leverage Ratio (as
defined below) would exceed 2:1, subject to certain exceptions. At February 28,
1998, the Consolidated Leverage Ratio was 3:36:1. Accordingly, the Company
presently cannot incur additional debt other than Permitted Warehouse
Indebtedness until the 2:1 ratio has been met through additional earnings or
infusion of equity. The Consolidated Leverage Ratio (as defined below) is the
ratio of (i) total debt, including subordinated debt, but excluding the
Permitted Warehouse Indebtedness (as defined below), accounts payable
outstanding less than 60 days, and the tax sharing payable to Mego Financial by
the Company, to (ii) the consolidated net worth of the Company. The Permitted
Warehouse Indebtedness (as defined below) is the outstanding amount under the
warehouse line of credit agreement. In addition, an increasing amount of the
Company's mortgage related securities are required to remain unpledged. At
February 28, 1998, that requirement was $46.8 million, and at that date $43.7
million of mortgage related securities were pledged, and $47.6 million of
mortgage related securities were unpledged.
In addition, the Indenture Amendments provide, among other things, that
the Company may not incur Unsecured Senior Indebtedness (as defined in the
Indenture), if the Adjusted Consolidated Leverage Ratio (as defined below), on
the date of such incurrence after giving effect thereto, exceeds 1:1. The
Adjusted Consolidated Leverage Ratio is the ratio of (i) the amount of all
Unsecured Senior Indebtedness to (ii) the sum of (A) Consolidated Net Income
(net income minus gain on sale of loans and net unrealized gain on mortgage
related securities plus provision for credit losses, depreciation and
amortization and amortization of excess servicing rights) from September 1, 1997
to the end of the most recent fiscal quarter and (B) the aggregate net proceeds
received by the Company from the issuance or sale of stock or debt securities
converted to stock, after September 1, 1997. Furthermore, the Indenture
Amendments imposed a limit on the amount of mortgage related securities that
must remain unpledged and removed the limitation on the amount of Permitted
Warehouse Indebtedness.
While the Company believes that it will be able to maintain its existing
credit facilities and obtain replacement financing as its credit arrangements
mature and additional financing, if necessary, there can be no assurance that
such financing will be available on favorable terms, or at all. The lack of
adequate capital may result in the further curtailment of loan originations and
thereby impair the Company's revenue and income stream. At February 28, 1998, no
commitments existed for material capital expenditures.
26
<PAGE> 29
In furtherance of the Company's earlier strategy to sell loans primarily
through securitizations, beginning in March 1996 through August 1997, the
Company completed its first seven securitizations pursuant to which it sold
pools of loans aggregating $531.3 million. The Company previously reacquired an
aggregate of $512.3 million of such loans. Pursuant to these securitizations,
pass-through securities evidencing interests in the pools of loans were sold in
public offerings. The Company continues to service the sold loans and is
entitled to receive from payments in respect of interest on the sold loans, not
in default, a servicing fee equal to 1.25% of the balance of each loan with
respect to the March 1996 transaction and 1.0% with respect to the other
transactions. In addition, from each securitization, the Company has received
residual interest securities, contractual rights, and in certain of the
transactions, also received interest only strip securities, all of which were
recorded as mortgage related securities on the Statements of Financial
Condition. The residual interest securities and the contractual rights represent
the excess differential (after payment of any servicing, interest and other
fees, and the contractual obligations payable to the note and certificate
holders) between the interest paid by the obligors of the sold loans and the
yield on the sold notes, certificates and interest only strip securities. Also,
from the two securitizations completed during fiscal 1996 and the first two
securitizations completed in fiscal 1997, the Company has also received interest
only strip securities. These interest only securities yield annual rates between
0.45% and 1.00% calculated on the principal balance of the loans not in default.
The Company may be required to repurchase loans that do not conform to the
representations and warranties made by the Company in the securitization
agreements and, as servicer, may be required to advance interest in connection
with the securitizations.
Securitization transactions may be affected by a number of factors, some
of which are beyond the Company's control, including, among other things,
conditions in the securities markets in general, conditions in the asset-backed
securitization market, the conformity of loan pools to rating agency
requirements and, to the extent that monoline insurance is used, the
requirements of such insurers.
The Company anticipates that a majority of its loan originations in 1998
will be disposed of through whole loan sales on a servicing released basis. This
method of loan disposition is anticipated to generate cash sale premiums and
further the Company's strategy to achieve at least a cash flow neutral basis
from operations in 1998. The values of and markets for the sale of the Company's
loans are dependent upon a number of factors, including general economic
conditions, interest rates and government regulations. Adverse changes in those
factors may affect the Company's ability to originate or sell loans in the
secondary market for acceptable prices within reasonable time frames.
In April 1995, the Company entered into a continuing agreement with a
financial institution pursuant to which an aggregate of approximately $884.9
million in principal amount of loans had been sold at February 28, 1998 for an
amount approximately equal to their remaining principal balances. Pursuant to
the agreement, the purchaser is entitled to receive interest at a variable rate
equal to the sum of 200 basis points and the one-month LIBOR rate as in effect
from time to time on loans not yet sold by the institution which amounted to
$147.0 million at February 28, 1998. The Company retained the right to service
the loans and the right to receive the excess interest. The Company is required
to maintain a reserve account equal to 25% of the principal amount of Title I
Loans which are more than 60 days delinquent plus 100% of the principal amount
of Conventional Loans which are more than 60 days delinquent.
During the first fiscal quarter of 1997, the Company entered into an
agreement (the "Master Purchase Agreement") with the same financial institution,
providing for the purchase of up to $2.0 billion of loans over a five-year
period. Pursuant to the agreement, Mego Financial issued to the financial
institution four-year warrants to purchase 1.0 million shares of Mego
Financial's Common Stock at an exercise price of $7.125 per share. The agreement
also provides that so long as the aggregate principal balance of loans purchased
by the financial institution and not resold to third parties exceeds $100.0
million ($150.0 million through September 30, 1997 (the "Facility Limit") and
temporarily increased to $199.0 million in December 1997), the financial
institution shall not be obligated to purchase, and the Company shall not be
obligated to sell, loans under the agreement. The value of the warrants,
estimated at $3.0 million (0.15% of the commitment amount) as of the commitment
date, is being amortized as the commitment for the purchase of loans is
utilized. The Company has agreed to pay to Mego Financial the value of the
warrants. See Note 5 of Notes to Condensed Financial Statements for information
concerning the recent adjustment of debt to Mego Financial.
27
<PAGE> 30
In December 1997, the Company entered into an agreement (the "December
1997 Letter Agreement") with this financial institution, providing, among other
things, for certain amendments to the Master Purchase Agreement. Pursuant to the
December 1997 Letter Agreement, during the interim period, the Facility Limit
was increased to $199.0 million from $150.0 million and the purchase price for
loans was reduced. Upon expiration of the interim period, the Facility Limit
will be reduced to $100.0 million and the purchase price for loans will be
increased. In addition, upon the sale by the Company of equity securities for at
least $15.0 million, the Facility Limit will be increased to $150.0 million.
Pursuant to the December 1997 Letter Agreement, the Company paid a fee of $1.0
million to this financial institution and agreed to pay additional fees of
$250,000 on each of March 31, June 30, September 30, and December 31, 1998.
Under the most current agreement, although the financial institution has reached
the Facility Limit, the institution has agreed to purchase additional loans,
when the aggregate amount of loans now held by it has been reduced below $125.0
million by sales to third parties, in an amount which would not bring the total
loans held by it above $125.0 million through March 31, 1998 and, thereafter,
when the aggregate amount of loans held by it has been reduced below $100.0
million by sales to third parties, in an amount which would not bring the total
amount of loans held by it above $100.0 million.
In January 1998, in order to improve its cash position, the Company
entered into the Excess Yield and Servicing Rights Purchase and Assumption
Agreement (the "Excess Yield Agreement") with a financial institution with
which the Company has a master loan purchase and servicing agreement for the
purchase of up to $2.0 billion in loans over a five year period (the "Master
Purchase Agreement"). Pursuant to the Excess Yield Agreement, the Company sold
the excess yield and servicing rights pertaining to approximately $175.5
million of Conventional Loans which had previously been sold under the Master
Purchase Agreement. In the aggregate, when combined with the original sales
proceeds, the Company received a purchase price equivalent to 101% of the
principal balance of the Conventional Loans. In February 1998, the First and
Second Amendments to the Excess Yield Agreement were executed pursuant to
which an additional $12.0 million of principal balance of Conventional Loans
were sold under this agreement. These transactions resulted in a loss of
approximately $417,000 and generated approximately $4.5 million in cash
proceeds to the Company. The Company is to receive additional compensation in
the form of sales commissions upon the eventual disposition of certain of
these Conventional Loans in the secondary market. The amount of the sales
commissions will depend on the timing of those sales and the identities of the
eventual purchasers. Approximately $99.0 million of these Conventional Loans
had been resold in the secondary market by the end of March, 1998. The
remaining balance of these Conventional Loans of approximately $90.0 million
are expected to be pooled with other conventional loans held by that financial
institution with the intention of disposing of them in an asset-backed
securitization in May, 1998. The Company is to receive a two-thirds residual
interest pertaining to the major portion of the Conventional Loans disposed of
in that securitization. Prior to eventual disposition of the Conventional
Loans, there is limited recourse to the Company for repurchase of those loans
which become more than 60 days contractually delinquent. The amount of this
recourse is limited to 2-1/2% of the principal balance of the loans as of the
date they became subject to the Excess Yield Agreement. The servicing rights
of these loans will be transferred to a third party and a reversal of
servicing rights of approximately $1.2 million was recorded in the three
months ended February 28, 1998 pursuant to this transaction.
Net cash used in the Company's operating activities for the six months
ended February 28, 1997 and 1998 was $39.6 million and $62.0 million,
respectively. During the six months ended February 28, 1997 and 1998, the
Company used net cash of $1.1 million and $30,000, respectively, in investing
activities, which was substantially expended for office equipment and furnishing
and data processing equipment. During the six months ended February 28, 1997 and
1998, cash provided by financing activities amounted to $55.2 million and $56.6
million, respectively.
Prior to the consummation of the Company's IPO in November 1996, the
Company was dependent on Mego Financial to provide, among other things, (i)
funds for operations without interest and (ii) guarantees of the Company's
financing arrangements. Subsequent to the IPO, Mego Financial has advanced funds
to the Company to pay servicing fees owed to PEC and amounts due others.
Although it may do so, it is not anticipated that Mego Financial will advance
funds to the Company or guarantee the Company's financing arrangements in the
future.
28
<PAGE> 31
Management anticipates the Company will require additional funds in the near
future and the Company will seek to raise funds through additional public or
private offerings of its debt or equity securities in order to meet its cash
requirements. However, there can be no assurance that the Company will be
successful in raising the required additional funds.
FINANCIAL CONDITION
February 28, 1998 compared to August 31, 1997
Cash and cash equivalents decreased 48.4% to $3.2 million at February
28, 1998 from $6.1 million at August 31, 1997 primarily as a result of higher
levels of loans held for sale at February 28, 1998.
Restricted cash deposits increased 45.7% to $10.0 million at February
28, 1998 from $6.9 million at August 31, 1997 primarily due to the number of
loans sold and securitized in prior periods.
Loans held for sale, net, increased to $55.8 million at February 28,
1998 from $9.5 million at August 31, 1997 primarily as a result of the Company's
increased loan originations and the timing of loan sales, with no securitization
transaction during the three and six months ended February 28, 1998.
Changes in the allowance for credit losses and the allowance for credit
losses on loans sold with recourse for the three and six months ended February
28, 1998 consist of the following (thousands of dollars):
<TABLE>
<CAPTION>
<S> <C>
Balance at November 30, 1997 $ 8,699
Provision for credit losses 817
Reductions to the provision due to securitizations or loans sold without (111)
recourse
Reductions due to charges to allowance for credit losses (4)
------------
Balance at February 28, 1998 $ 9,401
============
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Balance at August 31, 1997 $ 7,114
Provision for credit losses 2,519
Reductions to the provision due to securitizations or loans sold without (223)
recourse
Reductions due to charges to allowance for credit losses (9)
-------------
Balance at February 28, 1998 $ 9,401
============
</TABLE>
The allowance for credit losses and the allowance for credit losses on
loans sold with recourse consist of the following at these dates:
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1997 1998
------------ ------------
(thousands of dollars)
<S> <C> <C>
Allowance for credit losses $ 100 $ 887
Allowance for credit losses on loans sold with recourse 7,014 8,514
------------ ------------
Total $ 7,114 $ 9,401
============ ============
</TABLE>
The increase in the allowance for credit losses and the allowance for
credit losses on loans sold with recourse is primarily due to higher anticipated
losses on Title I Loans. Although the Company believes it has made reasonable
estimates of the losses on Title I Loans, there can be no assurance that the
actual losses will not vary from these estimates.
29
<PAGE> 32
Mortgage related securities decreased $15.0 million to $91.3 million at
February 28, 1998 from $106.3 million at August 31, 1997 primarily due to the
revaluation adjustments to the carrying value. See Note 7 of Notes to Condensed
Financial Statements.
Mortgage servicing rights decreased $793,000 to $8.7 million at February
28, 1998 from $9.5 million at August 31, 1997 due to a reversal of servicing
rights of approximately $1.2 million as a result of the consummation of the
transactions under the Excess Yield Agreement. See Note 3 to Notes to Condensed
Financial Statements.
Other receivables decreased $3.1 million to $4.8 million at February 28,
1998 from $7.9 million at August 31, 1997 primarily due to a payment of deferred
charges due to the Company from whole loan sales prior to August 31, 1997.
Prepaid debt expenses increased $2.4 million to $4.8 million at February
28, 1998 from $2.4 million at August 31, 1997 primarily due to the debt expense
related to the additional $40.0 million of subordinated notes issued in October
1997.
Prepaid commitment fees increased $1.5 million to $3.9 million at
February 28, 1998 from $2.3 million at August 31, 1997 due to costs associated
with the December 1997 letter agreement, providing, among other things,, for
certain amendments to the Master Purchase Agreement.
The income tax benefit was $14.5 million at February 28, 1998 comprised
of federal and state income taxes, while no such benefit was previously
reported. Prior to the Spin-off, income taxes were included in the Due to Mego
Financial caption since Mego Financial filed a consolidated tax return. Based on
the Company's restructuring and the Company's past ability to create income,
management believes that it may be able to utilize the tax benefits over the
next several years.
Other assets decreased 44.8% to $439,000 at February 28, 1998 from
$795,000 at August 31, 1997 primarily due to a reclassification of accrued fees
on securitizations to other receivables of $541,000.
Notes and contracts payable increased $21.2 million to $56.8 million at
February 28, 1998 from $35.6 million at August 31, 1997 due to the increased
borrowings by the Company to fund loan originations as a result of the overall
growth in the Company's business.
Accounts payable and accrued liabilities decreased $4.5 million to $13.4
million at February 28, 1998 from $17.9 million at August 31, 1997 primarily due
to the adjustment of the Company's payable to Mego Financial. See Note 5 of
Notes to Condensed Financial Statements.
Allowance for credit losses on loans sold with recourse increased $1.5
million to $8.5 million at February 28, 1998 from $7.0 million at August 31,
1997 primarily due to increased loan sales. Recourse to the Company on sales of
loans is governed by the agreements between the purchasers and the Company. The
allowance for credit losses on loans sold with recourse represents the Company's
estimate of its probable future credit losses to be incurred over the lives of
the loans considering estimated future FHA insurance recoveries on Title I
Loans. No allowance for credit losses on loans sold with recourse is established
on loans sold through securitizations, as the Company has no recourse obligation
under those securitization agreements for credit losses and estimated credit
losses on loans sold through securitizations are considered in the Company's
valuation of its residual interest securities.
Stockholders' equity decreased $12.7 million to $40.4 million at
February 28, 1998 from $53.1 million at August 31, 1997 as a result of the net
loss of $20.2 million during the six months ended February 28, 1998, partially
offset by an increase in additional paid-in capital related to a federal income
tax benefit which was a result of the Spin-off and the adjustment of the
Company's payable to Mego Financial. See Note 5 of Notes to Condensed Financial
Statements.
30
<PAGE> 33
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board (the "FASB")
issued SFAS No. 125, "Accounting for Transfer and Servicing of Financial Assets
and Extinguishments of Liabilities," which provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. As required by the statement, the Company adopted the new
requirements effective January 1, 1997 and applied them prospectively. No
material impact resulted from the implementation of SFAS 125. See Note 6 of
Notes to Condensed Financial Statements.
The FASB issued SFAS No. 128, "Earnings per Share," ("SFAS 128") in
February 1997, effective for financial statements issued after December 15,
1997. The statement provides simplified standards for the computation and
presentation of earnings per share ("EPS"), making EPS comparable to
international standards. SFAS 128 requires dual presentation of "Basic" and
"Diluted" EPS, by entities with complex capital structures, replacing "Primary"
and "Fully-diluted" EPS under APB Opinion No. 15. See Note 6 of Notes to
Condensed Financial Statements for further discussion and SFAS 128 pro forma
calculations.
31
<PAGE> 34
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 23, 1998, an action was filed in the United States
District Court for the Northern District of Georgia by Robert J. Feeney, as a
purported class action against the Company and Jeffrey S. Moore, the Company's
President and Chief Executive Officer. The complaint alleges, among other
things, that the defendants violated the federal securities laws in connection
with the preparation and issuance of certain of the Company's financial
statements. The named plaintiff seeks to represent a class consisting of
purchasers of the Common Stock between April 11, 1997 and December 18, 1997, and
seeks damages in an unspecified amount, costs, attorney's fees and such other
relief as the court my deem just and proper. The Company believes it has
meritorious defenses to this lawsuit and that any resolution of this lawsuit
will not have a material adverse effect on the business or financial condition
of the Company.
In the ordinary course of its business, the Company is, from time to
time, named in lawsuits. The Company believes that it has meritorious defenses
to these lawsuits and that resolution of these matters will not have a material
adverse effect on the business or financial condition of the Company.
ITEM 5. OTHER
Jeremy Wiesen has been a Director of the Company since consummation of
the IPO in November 1996 and subsequently resigned in March 1998.
Christopher M. G. DeWinter resigned in March 1998 as Vice
President--Corporate Development of the Company.
Jack Elrod resigned in April 1998 as Vice President--Loan Administration
of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT NUMBER DESCRIPTION
10.70 Credit Agreement between the Company and Textron Financial
Corporation dated October 22, 1997.
10.71 Excess Yield and Servicing Rights and Assumption Agreement
between the Company and Greenwich Capital Markets, Inc. dated
January 22, 1998
10.72 Amended and Restated Credit Agreement dated as of February 19,
1998 among the Company, the Lenders Party Thereto and The
First National Bank of Chicago.
10.73 Amendment to Services and Consulting Agreement between the
Company and Preferred Equities Corporation dated January 20,
1998.
10.74 Amendment to Loan Program Sub-Servicing Agreement between the
Company and Preferred Equities Corporation dated January 20,
1998.
10.75 Agreement between the Company and Preferred Equities
Corporation, dated February 9, 1998, regarding assignment of
rights related to the Loan Program Sub-Servicing Agreement to
Greenwich Capital Markets, Inc.
10.76 Amendment to Excess Yield and Servicing Rights and Assumption
Agreement between the Company and Greenwich Capital Markets,
Inc. dated February 10, 1998
10.77 Second Amendment to Excess Yield and Servicing Rights and
Assumption Agreement between the Company and Greenwich Capital
Markets, Inc. dated February, 1998
27.1 Financial Data Schedule (for SEC use only).
No reports on Form 8-K were filed during the period. A report on Form
8-K dated March 30, 1998 was filed on March 31, 1998 to report that the
Company's Board of Directors revoked and rescinded its actions previously taken
changing the fiscal year end to December 31 and determined that the Company's
fiscal year end shall revert back to August 31.
32
<PAGE> 35
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MEGO MORTGAGE CORPORATION
By: /s/ James L. Belter
-------------------------------------
James L. Belter
Executive Vice President
Treasurer and Chief Financial Officer
Date: April 20, 1998
33
<PAGE> 1
EXHIBIT 10.70
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MEGO MORTGAGE CORPORATION
CREDIT AGREEMENT
Dated as of October 27, 1997
TEXTRON FINANCIAL CORPORATION, Agent
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
Page
1. Definitions; Certain Rules of Construction.................................1
2. The Credits...............................................................12
2.1. Revolving Credit...................................................12
2.1.1. Revolving Loan............................................12
2.1.2. Maximum Amount of Tranche Credit..........................12
2.1.3. Borrowing Requests........................................13
2.1.4. Approval of New Tranche...................................13
2.1.5. Notes.....................................................13
2.2. Term Credit. .....................................................14
2.3. Application of Proceeds............................................14
2.3.1. Revolving Loan............................................14
2.3.2. Specifically Prohibited Applications......................14
2.4. Nature of Obligations of Lenders to Make Extensions of Credit......14
3. Interest; Fees............................................................15
3.1. Interest...........................................................15
3.2. Prepayment Fee.....................................................15
3.3. Changes in Circumstances; Yield Protection.........................15
3.3.1. Taxes.....................................................15
3.3.2. Capital Adequacy..........................................16
3.3.3. Regulatory Changes........................................16
3.3.4. Compensation Claims.......................................16
3.3.5. Mitigation................................................16
3.4. Computations of Interest and Fees..................................17
4. Payment...................................................................17
4.1. Payment at Maturity................................................17
4.2. Required Prepayments...............................................17
4.2.1. Contingent Required Prepayments. ........................17
4.3. Voluntary Prepayments..............................................18
4.4. Reborrowing; Application of Payments, etc..........................18
4.4.1. Reborrowing...............................................18
4.4.2. Order of Application......................................18
4.4.3. Payment with Accrued Interest, etc........................18
4.4.4. Payments for Lenders......................................18
-i-
<PAGE> 3
5. Conditions to Extending Credit............................................18
5.1. Conditions on Initial Tranche Closing Dates........................18
5.1.1. Revolving Notes...........................................19
5.1.2. Payment of Fees...........................................19
5.1.3. Legal Opinions............................................19
5.1.4. Security Agreement........................................19
5.1.5. Perfection of Security....................................19
5.1.6. Proper Proceedings........................................19
5.1.7. General...................................................20
5.2. Conditions to Each Extension of Credit.............................20
5.2.1. Officer's Certificate.....................................20
5.2.2. Legality, etc.............................................20
6. General Covenants.........................................................20
6.1. Taxes and Other Charges; Accounts Payable..........................20
6.1.1. Taxes and Other Charges...................................21
6.1.2. Accounts Payable..........................................21
6.2. Conduct of Business, etc...........................................21
6.2.1. Types of Business.........................................21
6.2.2. Statutory Compliance......................................21
6.2.3. Compliance with Material Agreements.......................21
6.2.4. Transactions with Affiliates..............................22
6.3. Insurance..........................................................22
6.4. Financial Statements and Reports...................................22
6.4.1. Annual Reports............................................22
6.4.2. Quarterly Reports.........................................23
6.4.3. Monthly Borrowing Base....................................24
6.4.4. Other Reports.............................................24
6.4.5. Notice of Litigation, Defaults, etc.......................25
6.4.6. Other Information.........................................25
6.4.7. Preparation of Reports....................................26
6.5. Certain Financial Tests............................................26
6.5.1. Consolidated Adjusted Tangible Net Worth..................26
6.5.2. Consolidated Adjusted Leverage Ratio......................26
6.6. Liens..............................................................26
6.7. Asset Dispositions and Mergers.....................................27
7. Representations and Warranties............................................27
7.1. Organization and Business..........................................27
7.1.1. The Company...............................................27
7.1.2. Subsidiaries..............................................28
7.1.3. Qualification.............................................28
-ii-
<PAGE> 4
7.2. Financial Statements and Other Information; Material
Agreements; Credit References......................................28
7.2.1. Financial Statements and Other Information................28
7.2.2. Material Agreements.......................................29
7.2.3. Credit References.........................................29
7.3. Changes in Condition...............................................29
7.4. Title to Assets....................................................29
7.5. Operations in Conformity With Law, etc.............................30
7.6. Litigation.........................................................30
7.7. Authorization and Enforceability...................................30
7.8. No Legal Obstacle to Agreements....................................30
7.9. Defaults...........................................................31
7.10. Tax Returns........................................................31
7.11. Certain Business Representations...................................32
7.11.1. Antitrust.................................................32
7.11.2. Consumer Protection.......................................32
7.12. Pension Plans......................................................32
7.13. Government Regulation; Margin Stock................................32
7.13.1. Government Regulation.....................................32
7.13.2. Margin Stock..............................................32
7.14. Disclosure.........................................................32
8. Defaults..................................................................32
8.1. Events of Default..................................................33
8.1.1. Payment...................................................33
8.1.2. Specified Covenants.......................................33
8.1.3. Other Covenants...........................................33
8.1.4. Representations and Warranties............................33
8.1.5. Cross Default, etc........................................33
8.1.6. Ownership; Liquidation; etc...............................34
8.1.7. Enforceability, etc.......................................34
8.1.8. Judgments.................................................34
8.1.9. Bankruptcy, etc...........................................34
8.1.10. Material Adverse Change...................................35
8.2. Certain Actions Following an Event of Default......................35
8.2.1. Terminate Obligation to Extend Credit.....................35
8.2.2. Specific Performance; Exercise of Rights..................36
8.2.3. Acceleration..............................................36
8.2.4. Enforcement of Payment; Credit Security; Setoff...........36
8.2.5. Cumulative Remedies.......................................36
8.3. Annulment of Defaults..............................................36
8.4. Waivers............................................................37
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9. Expenses; Indemnity.......................................................37
9.1. Expenses...........................................................37
9.2. General Indemnity..................................................38
10. Operations; Agent.........................................................38
10.1. Interests in Credits...............................................38
10.2. Agent's Authority to Act, etc......................................38
10.3. Company to Pay Agent, etc..........................................38
10.4. Lender Operations for Advances, etc................................39
10.4.1. Advances..................................................39
10.4.2. Agent to Allocate Payments, etc...........................39
10.4.3. Delinquent Lenders; Nonperforming Lenders.................39
10.5. Sharing of Payments, etc...........................................40
10.6. Agent's Resignation................................................41
10.7. Concerning the Agent...............................................41
10.7.1. Action in Good Faith, etc.................................41
10.7.2. No Implied Duties, etc....................................41
10.7.3. Validity, etc.............................................42
10.7.4. Compliance................................................42
10.7.5. Employment of Agents and Counsel..........................42
10.7.6. Reliance on Documents and Counsel.........................42
10.7.7. Agent's Reimbursement.....................................42
10.8. Rights as a Lender.................................................43
10.9. Independent Credit Decision........................................43
10.10. Indemnification....................................................43
11. Successors and Assigns; Lender Assignments and Participations.............44
11.1. Assignments by Lenders.............................................44
11.1.1. Assignees and Assignment Procedures.......................44
11.1.2. Terms of Assignment and Acceptance........................45
11.1.3. Register..................................................46
11.1.4. Acceptance of Assignment and Assumption...................46
11.1.5. Federal Reserve Bank......................................46
11.1.6. Further Assurances........................................46
11.2. Credit Participants................................................47
12. Brokers Fees..............................................................47
13. Confidentiality...........................................................48
14. Notices...................................................................48
15. Course of Dealing; Amendments and Waivers.................................49
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16. No Strict Construction....................................................50
17. Defeasance................................................................50
18. Venue; Service of Process, etc............................................51
19. WAIVER OF JURY TRIAL......................................................51
20. General...................................................................52
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EXHIBITS
1 - Tranches and Securitization Agreements
2.1.5 - Note
5.1.4 - Security Agreement
5.2.1 - Officer's Certificate
7.1 - Company and its Subsidiaries
7.2.2 - Material Agreements
7.9 - Defaults under other Agreements
10.1 - Percentage Interests
11.1.1 - Assignment and Acceptance
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<PAGE> 8
MEGO MORTGAGE CORPORATION
CREDIT AGREEMENT
This Agreement, dated as of October 27, 1997, is among Mego Mortgage
Corporation, a Delaware corporation (the "Company"), the Lenders from time to
time party hereto and Textron Financial Corporation, both in its capacity as a
Lender and in its capacity as Agent for itself and the other Lenders. The
parties agree as follows:
1. Definitions; Certain Rules of Construction. Certain capitalized terms are
used in this Agreement and in the other Credit Documents with the specific
meanings defined below in this Section 1. Except as otherwise explicitly
specified to the contrary or unless the context clearly requires otherwise, (a)
the capitalized term "Section" refers to sections of this Agreement, (b) the
capitalized term "Exhibit" refers to exhibits to this Agreement, (c) references
to a particular Section include all subsections thereof, (d) the word
"including" shall be construed as "including without limitation", (e) accounting
terms not otherwise defined herein have the meaning provided under GAAP, (f)
references to a particular statute or regulation include all rules and
regulations thereunder and any successor statute, regulation or rules, in each
case as from time to time amended, modified and in effect and (g) references to
a particular Person include such Person's successors and assigns to the extent
not prohibited by this Agreement and the other Credit Documents. References to
"the date hereof" mean the date first set forth above.
1.1. "Affiliate" means, with respect to the Company (or any other
specified Person), any other Person directly or indirectly controlling,
controlled by or under direct or indirect common control with the Company (or
such specified Person), and shall include (a) any officer or director or general
partner of the Company (or such specified Person) and (b) any Person of which
the Company (or such specified Person) or any Affiliate (as defined in clause
(a) above) of the Company (or such specified Person) shall, directly or
indirectly, beneficially own either (i) at least 10% of the outstanding equity
securities having the general power to vote or (ii) at least 10% of all equity
interests.
1.2. "Agent" means TFC in its capacity as agent for the Lenders
hereunder, as well as its successors and assigns in such capacity.
1.3. "Agreement" means this Credit Agreement as from time to time
amended, modified and in effect.
1.4. "Applicable Rate" means, during any month, the greater of (a) 9% per
annum or (b) the sum of 2.5% per annum plus the Base Rate on the first day of
such month; provided, however, that the Applicable Rate shall be increased by an
additional 2% per annum effective on the day the Agent notifies the Company that
the interest rates hereunder are increasing as a result of the occurrence and
continuance of an Event of Default until the earlier
<PAGE> 9
of such time as (i) such Event of Default is no longer continuing or (ii) such
Event of Default is deemed no longer to exist, in each case pursuant to Section
8.3.
1.5. "Assignee" is defined in Section 11.1.1.
1.6. "Assignment and Acceptance" is defined in Section 11.1.1.
1.7. "Bankruptcy Code" means Title 11 of the United States Code.
1.8. "Bankruptcy Default" means an Event of Default referred to in
Section 8.1.9.
1.9. "Base Rate" means, on any date, the per annum rate of interest
announced by The Chase Manhattan Bank as its Prime Rate.
1.10. "Borrowing Base" means, on any date and for any Tranche, 50% of the
amount carried on the Consolidated statement of financial condition of the
Company and its Included Subsidiaries in accordance with GAAP as Mortgage
Related Securities properly allocable to Residual Interest Securities and to
Interest Only Securities as reflected in the most recent Borrowing Base reports
that have been (or are required to have been) furnished to the Lenders in
accordance with Section 6.4.3, in each case (a) that are included in the Pledged
Securities Series for such Tranche approved by the TFC Loan Committee in
accordance with Section 2.1.4, (b) that begin principal amortization within the
period required by the TFC Loan Committee for such Tranche, (c) that are subject
to Trustee Payment Directions and (d) that are pledged by the Company and its
Included Subsidiaries to the Agent as collateral to secure the Credit
Obligations; provided, however, that the Borrowing Base shall be reduced to
$1.00 at any time when the Company has failed to furnish the computation of the
Borrowing Base required by Section 6.4.3 within five days after such computation
was originally due. The Borrowing Base shall be segregated so that each Pledged
Securities Series relates to a particular Tranche. Present value assumptions,
including the discount rate, for each Pledged Securities Series shall be as
originally approved by the TFC Loan Committee in connection with the Tranche
relating thereto, with such subsequent changes as are recommended by the
Company's independent accountants with the consent of TFC, which consent may not
be unreasonably withheld.
1.11. "Business Day" means any day other than Saturday, Sunday or a day on
which banks in Providence, Rhode Island, East Hartford, Connecticut or Atlanta,
Georgia are authorized or required by law or other governmental action to close.
1.12. "By-laws" means all written by-laws, rules, regulations and all
other documents relating to the management, governance or internal regulation of
any Person other than an individual, or interpretive of the Charter of such
Person, all as from time to time in effect.
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1.13. "Charter" means the articles of organization, certificate of
incorporation, statute, constitution, joint venture agreement, partnership
agreement, trust indenture, limited liability company agreement or other charter
document of any Person other than an individual, each as from time to time in
effect.
1.14. "Closing Date" means the Initial Closing Date, the Conversion Date
and each other date on which any extension of credit is made pursuant to
Sections 2.1 or 2.2.
1.15. "Code" means the federal Internal Revenue Code of 1986.
1.16. "Commitment" means, with respect to any Lender, such Lender's
obligations to extend the credits contemplated by Section 2. The Commitments are
allocated to particular Tranches. The original Commitments are set forth in
Exhibit 10.1 and the current Commitments are recorded from time to time in the
Register.
1.17. "Company" means Mego Mortgage Corporation, a Delaware corporation.
1.18. "Computation Covenants" means the covenants contained in Section
6.5.
1.19. "Consolidated" and "Consolidating", when used with reference to any
term, mean that term as applied to the accounts of the Company (or other
specified Person) and all of its Subsidiaries (or other specified group of
Persons), if any, or such of its Subsidiaries as may be specified, consolidated
(or combined) or consolidating (or combining), as the case may be, in accordance
with GAAP and with appropriate deductions for minority interests in
Subsidiaries.
1.20. "Consolidated Adjusted Tangible Net Worth" means Consolidated
Tangible Net Worth plus the lesser of (a) the then-outstanding principal balance
of the Subordinated Notes and (b) $150,000,000.
1.21. "Consolidated Tangible Net Worth" means, at any date, the total of
(without duplication):
(a) the net worth of the Company and its Included Subsidiaries
determined in accordance with GAAP on a Consolidated basis;
minus (b) the amount of intangible assets carried on the statement of
financial condition of the Company and its Included Subsidiaries
determined in accordance with GAAP on a Consolidated basis, including
goodwill, research and development costs, trademarks, tradenames,
copyrights, patents and unamortized debt discount and expenses (but
without deduction from such net worth of (i) any write-up of assets made
in accordance with GAAP on a Consolidated basis or (ii) Mortgage Servicing
Rights, Mortgage Related Securities or Excess Servicing Rights);
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<PAGE> 11
minus (c) loans or other extensions of credit to officers of the Company
or any of its Subsidiaries on a Consolidated basis other than Qualifying
Loans made to such Persons in the ordinary course of business; and
minus (d) any loans or extension of credit to Excluded Subsidiaries and
Affiliates.
1.22. "Credit Documents" means:
(a) this Agreement, the Notes and the Security Agreement, each as
from time to time in effect;
(b) all financial statements, reports, notices, mortgages,
assignments, UCC financing statements or certificates delivered to the
Agent or any of the Lenders by the Company, any of its Included
Subsidiaries or any other Obligor in connection herewith; and
(c) any other present or future agreement or instrument (including
guarantees) from time to time entered into among the Company, any of its
Included Subsidiaries or any other Obligor, on one hand, and the Agent or
all the Lenders, on the other hand, relating to, amending or modifying
this Agreement or any other Credit Document referred to above or which is
stated to be a Credit Document, each as from time to time in effect.
1.23. "Credit Obligations" means all present and future liabilities,
obligations and Indebtedness of the Company, any of its Included Subsidiaries or
any other Obligor owing to the Agent or any Lender (or any Affiliate of a
Lender) under or in connection with this Agreement or any other Credit Document,
including obligations in respect of principal, interest, prepayment fees,
commitment fees, amounts provided for in Sections 3.3 and 9 and other fees,
charges, indemnities and expenses from time to time owing hereunder or under any
other Credit Document (whether accruing before or after a Bankruptcy Default).
1.24. "Credit Participant" is defined in Section 11.2.
1.25. "Credit Security" means all assets now or from time to time
hereafter subjected to a security interest, mortgage or charge (or intended or
required so to be subjected pursuant to the Security Agreement or any other
Credit Document) to secure the payment or performance of any of the Credit
Obligations, including the assets described in section 2.1 of the Security
Agreement.
1.26. "Default" means any Event of Default and any event or condition
which with the passage of time or giving of notice, or both, would become an
Event of Default and the filing against the Company, any of its Included
Subsidiaries or any other Obligor of a petition commencing an involuntary case
under the Bankruptcy Code.
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<PAGE> 12
1.27. "Delinquency Period" is defined in Section 10.4.3.
1.28. "Delinquent Lender" is defined in Section 10.4.3.
1.29. "Delinquent Payment" is defined in Section 10.4.3.
1.30. "Designated Trust Agreement" means any trust agreement or similar
instrument entered into between the Company and the Trustee from time to time,
as from time to time in effect, relating to a Pledged Securities Series included
in the Borrowing Base pursuant to Section 2.1.4.
1.31. "ERISA" means the federal Employee Retirement Income Security Act of
1974.
1.32. "ERISA Group Person" means the Company, any Subsidiary of the
Company and any Person which is a member of the controlled group or under common
control with the Company or any Subsidiary within the meaning of section 414 of
the Code or section 4001(a)(14) of ERISA.
1.33. "Event of Default" is defined in Section 8.1.
1.34. "Excess Servicing Rights" means, for periods prior to January 1,
1997, excess servicing rights of the Company and its Included Subsidiaries,
determined in accordance with GAAP on a Consolidated basis, that (a) arise from
home improvement, home equity or debt consolidation loans sold by the Company
and (b) are not subject to any Liens other than Liens securing the Credit
Obligations and Liens created under the agreements pursuant to which such Loans
were sold.
1.35. "Excluded Subsidiary" means a Subsidiary created by the Company from
time to time which will not be included in the definition of "Included
Subsidiary" and thus will not be subject to certain of the conditions and
restrictions imposed by this Agreement provided that (i) each such Excluded
Subsidiary shall not be included in the calculation of the Company's
Consolidated Adjusted Tangible Net Worth for purposes of calculating the
Company's compliance with this Agreement and shall not be included in certain
other calculations as indicated herein and (ii) the Company's aggregate
investment in Excluded Subsidiaries (including without limitation loans and
advances to Excluded Subsidiaries) shall not exceed at any time twenty-four
percent (24%) of the Company's then-current Consolidated Adjusted Tangible Net
Worth; provided, however, that no Subsidiary shall constitute an Excluded
Subsidiary until the Company has given written notice of such designation to the
Agent and certified that such Subsidiary meets the requirements of this
definition.
1.36. "Exchange Act" means the federal Securities Exchange Act of 1934.
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1.37. "Final Maturity Date" means the date five years after the end of the
month in which the Initial Closing Date occurs.
1.38. "Financial Officer" of the Company (or other specified Person) means
its chief executive officer, chief financial officer, chief operating officer,
chief accounting officer, chairman, president, treasurer or any of its vice
presidents whose primary responsibility is for its financial affairs, all of
whose incumbency and signatures have been certified to the Agent by the
secretary, assistant secretary or other appropriate attesting officer of the
Company (or such specified Person).
1.39. "GAAP" means generally accepted accounting principles as from time
to time in effect, including the statements and interpretations of the United
States Financial Accounting Standards Board. In the event of a change in GAAP
after the date hereof, the parties agree to negotiate in good faith to make
conforming changes to the covenants and related definitions.
1.40. "Included Subsidiary" means, as of any date, any Subsidiary of the
Company that is not then an Excluded Subsidiary, that has guaranteed payment of
the Credit Obligations pursuant to a guarantee in form and substance reasonably
satisfactory to the Agent and that has joined in and become party to the
Security Agreement on terms reasonably satisfactory to the Agent.
1.41. "Indebtedness" means all obligations, contingent or otherwise, which
in accordance with GAAP are required to be classified upon the statement of
financial condition of the Company (or other specified Person) as liabilities,
but in any event including (without duplication):
(a) borrowed money;
(b) indebtedness evidenced by notes, debentures or similar
instruments;
(c) capitalized lease obligations;
(d) the deferred purchase price of assets or securities, including
related noncompetition, consulting and stock repurchase obligations (other
than ordinary trade accounts payable within six months after the
incurrence thereof in the ordinary course of business);
(e) mandatory redemption or dividend rights on capital stock (or
other equity);
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<PAGE> 14
(f) reimbursement obligations, whether contingent or matured, with
respect to letters of credit, bankers acceptances, surety bonds, other
financial guarantees and interest rate protection agreements (without
duplication of other Indebtedness supported or guaranteed thereby);
(g) reimbursement obligations due and payable with respect to
payments by MBIA, Inc. or any other insurer with respect to loans sold in
a Securitization and repurchase or indemnification obligations, whether
contingent or matured, with respect to loans sold in a Securitization; and
(h) all guarantees in respect of Indebtedness of others.
1.42. "Indemnified Party" is defined in Section 9.2.
1.43. "Initial Closing Date" means October 27, 1997 or such other date
prior to January 1, 1998 agreed to by the Company and the Agent as the first
Closing Date hereunder.
1.44. "Interest Only Securities" means a security representing the
undivided interest of the Company and its Included Subsidiaries in all or a
portion of the interest payments due on certain loans Securitized by the
Company.
1.45. "Legal Requirement" means any present or future requirement imposed
upon any of the Lenders or the Company and its Subsidiaries by any law, statute,
rule, regulation, directive, order, decree, guideline (or any interpretation
thereof by courts or of administrative bodies) of the United States of America,
or by any board, governmental or administrative agency, central bank or monetary
authority of the United States of America, or any political subdivision of any
of the foregoing. Any such requirement imposed on any of the Lenders not having
the force of law shall be deemed to be a Legal Requirement for purposes of
Section 3 if such Lender reasonably believes that compliance therewith is in the
best interest of such Lender.
1.46. "Lender" means each of the Persons listed as lenders on the
signature page hereto, including TFC in its capacity as a Lender and such other
Persons who may from time to time own a Percentage Interest in the Credit
Obligations, but the term "Lender" shall not include any Credit Participant.
1.47. "Lien" means, with respect to the Company (or any other specified
Person):
(a) any lien, encumbrance, mortgage, pledge, charge or security
interest of any kind upon any property or assets of the Company (or such
specified Person), whether now owned or hereafter acquired, or upon the
income or profits therefrom;
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<PAGE> 15
(b) the acquisition of, or the agreement to acquire, any property
or asset upon conditional sale or subject to any other title retention
agreement, device or arrangement (including a capitalized lease);
(c) the sale, assignment, pledge or transfer for security of any
accounts, general intangibles or chattel paper of the Company (or such
specified Person), with or without recourse;
(d) the transfer of any tangible property or assets for the
purpose of subjecting such items to the payment of previously outstanding
Indebtedness in priority to payment of the general creditors of the
Company (or such specified Person); and
(e) the existence for a period of more than 120 consecutive days
past due of any Indebtedness against the Company (or such specified
Person) which if unpaid would by law or upon a Bankruptcy Default be given
any priority over general creditors;
provided, however, that the rights of any holder of senior securities to
be paid prior to payment of any junior securities from the revenues of a
particular Securitization or a particular Mortgage Related Securities
shall in no event constitute a "Lien".
1.48. "Loan" means, collectively, the Revolving Loan and the Term Loan.
1.49. "Margin Stock" means "margin stock" within the meaning of
Regulations G, T, U or X of the Board of Governors of the Federal Reserve
System.
1.50. "Material Adverse Change" means, since any specified date or from
the circumstances existing immediately prior to the happening of any specified
event, a material adverse change in (a) the business, assets, financial
condition, income or prospects of the Company and its Included Subsidiaries (on
a Consolidated basis), whether as a result of (i) general economic conditions
affecting the home improvement loan and debt consolidation origination industry,
(ii) fire, flood or other natural calamities, (iii) regulatory changes, judicial
decisions, war or other governmental action or (iv) any other event or
development, whether or not related to those enumerated above or (b) the ability
of the Obligors to perform their obligations under the Credit Documents or (c)
the rights and remedies of the Agent and the Lenders under the Credit Documents.
1.51. "Material Agreements" is defined in Section 7.2.2.
1.52. "Maximum Amount of Tranche Credit" is defined in Section 2.1.2.
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<PAGE> 16
1.53. "Mortgage" means a mortgage, deed of trust, security deed or similar
instrument purporting to create a Lien or similar interest in real estate and
improvements thereon.
1.54. "Mortgage Related Securities" means, for any period after December
31, 1996, mortgage related securities of the Company and its Included
Subsidiaries, determined in accordance with GAAP on a Consolidated basis, that
(a) arise from home improvement, home equity or debt consolidation loans sold by
the Company and (b) are not subject to any Liens other than Liens securing the
Credit Obligations and Liens created under the agreements pursuant to which such
Loans were sold.
1.55. "Mortgage Servicing Rights" means, at any date, the rights of the
Company and its Included Subsidiaries, determined in accordance with GAAP on a
Consolidated basis, to service mortgage loans that are not subject to any Liens
other than Liens created under the agreements pursuant to which such Loans were
sold.
1.56. "Nonperforming Lender" is defined in Section 10.4.3.
1.57. "Notes" is defined in Section 2.1.5.
1.58. "Obligor" means the Company and any other Person providing
collateral for the Credit Obligations.
1.59. "Overdue Reimbursement Rate" means, at any date, the highest
Applicable Rate then in effect.
1.60. "Payment Date" means the first Business Day on or after the 25th day
of each month occurring after the Initial Closing Date.
1.61. "Percentage Interest" means (a) at all times when no Event of
Default under Section 8.1.1 and no Bankruptcy Default exists, the ratio that the
respective Commitments of the Lenders bear to the total Commitments of all
Lenders as from time to time in effect and reflected in the Register, and (b) at
all other times, the ratio that the respective amounts of the outstanding Credit
Obligations owing to the Lenders in respect of extensions of credit under
Section 2 bear to the total outstanding Credit Obligations owing to all Lenders.
1.62. "Performing Lender" is defined in Section 10.4.3.
1.63. "Person" means any present or future natural person or any
corporation, association, partnership, joint venture, limited liability, joint
stock or other company, business trust, trust, organization, business or
government or any governmental agency or political subdivision thereof.
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<PAGE> 17
1.64. "Plan" means, at any date, any pension benefit plan subject to Title
IV of ERISA maintained, or to which contributions have been made or are required
to be made, by any ERISA Group Person within six years prior to such date.
1.65. "Pledged Securities" means, collectively, the Interest Only
Securities and the Residual Interest Securities that are pledged to the Agent
hereunder.
1.66. "Pledged Securities Series" means Pledged Securities arising under a
single Securitization.
1.67. "Preparer" is defined in Section 6.4.7.
1.68. "Providence Office" means the principal office of TFC in Providence,
Rhode Island.
1.69. "Qualifying Loans" means (i) a loan of money evidenced by a note
evidencing the indebtedness secured by a Mortgage or a note evidencing any
indebtedness which is not secured by a Mortgage or (ii) a retail installment
contract evidencing indebtedness arising from home improvements made for the
benefit of the obligor thereunder, whether or not secured by a Mortgage.
1.70. "Register" is defined in Section 11.1.3.
1.71. "Required Lenders" means, with respect to any approval, consent,
modification, waiver or other action to be taken by the Agent or the Lenders
under the Credit Documents which require action by the Required Lenders, such
Lenders as own at least a majority of the Percentage Interests.
1.72. "Residual Interest Securities" means a security representing the
undivided residual interest of the Company and its Included Subsidiaries in all
or a portion of the interest and principal payments due on certain loans
Securitized by the Company, payable on a subordinated basis.
1.73. "Revolving Loan" is defined in Section 2.1.5.
1.74. "S&P" means Standard & Poor's Ratings Group, a division of The
McGraw Hill Companies, Inc.
1.75. "Securitized" or "Securitization" means the process of pooling and
selling loans to a real estate investment conduit or other form of trust.
1.76. "Securitization Agreements" means any documents or agreements
governing loans under a particular Securitization or that facilitate a
particular Securitization; provided,
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however, that the Securitization Agreements related to each Pledged Securities
Series approved in accordance with Section 2.1.4 shall be as set forth on
Exhibit 1, as amended from time to time for each Pledged Securities Series so
approved by TFC.
1.77. "Security Agreement" is defined in Section 5.1.4.
1.78. "Submissions" is defined in Section 6.4.7.
1.79. "Subordinated Indebtedness" of a Person means (a) any Indebtedness
of the Company to Mego Financial Corp. (other than Indebtedness under the
current tax sharing agreement), the payment of which is subordinated to payment
of the Credit Obligations to the written satisfaction of the Required Lenders,
and (b) the Subordinated Notes.
1.80. "Subordinated Notes" means (a) the 12-1/2% Senior Subordinated Notes
of the Company issued and outstanding from time to time pursuant to the
Indenture dated as of November 22, 1996 between the Company and American Stock
Transfer & Trust Company, as amended from time to time hereafter, including the
initial $40 million 12-1/2% Senior Subordinated Notes, the additional $40
million 12-1/2% Senior Subordinated Notes issued pursuant to the First
Supplemental Indenture thereto dated October 20, 1997 and any new supplemental
indenture, and (b) any subordinated unsecured promissory notes of the Company
issued and outstanding from time to time pursuant to indentures executed and
delivered after the date hereof, provided that such notes and indenture have
been reviewed and approved by the Agent, such approval not to be unreasonably
withheld or delayed.
1.81. "Subsidiary" means any Person of which the Company (or other
specified Person) shall at the time, directly or indirectly through one or more
of its Subsidiaries, (a) own at least 50% of the outstanding capital stock (or
other shares of beneficial interest) entitled to vote generally, (b) hold at
least 50% of the partnership, joint venture or similar interests or (c) be a
general partner or joint venturer.
1.82. "Tax" means any present or future tax, levy, duty, impost,
deduction, withholding or other charges of whatever nature at any time required
by any Legal Requirement (a) to be paid by any Lender or (b) to be withheld or
deducted from any payment otherwise required hereby to be made to any Lender, in
each case on or with respect to its obligations hereunder, the Loan or any
payment in respect of the Credit Obligations; provided, however, that the term
"Tax" shall not include taxes imposed upon or measured by the net income of such
Lender or franchise taxes.
1.83. "Term Loan" is defined in Section 2.2.
1.84. "TFC Loan Committee" means the loan committee or similar entity of
TFC that approves the Pledged Securities Series to be included in the Borrowing
Base and pledged as collateral to secure the Credit Obligations.
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1.85. "TFC" means Textron Financial Corporation, a Delaware corporation.
1.86. "Tranche" means a portion of the Loan supported by a particular
Pledged Securities Series included in the Borrowing Base.
1.87. "Tranche Conversion Date" means, with respect to any Tranche, the
first Business Day following the revolving credit period approved by the TFC
Loan Committee and set forth on Exhibit 1; provided, however, that no Tranche
Conversation Date shall be later than April 30, 1999.
1.88. "Trustee" means the Trustee under the Designated Trust Agreement.
1.89. "Trustee Payment Directions" means irrevocable directions from the
Company to a particular Trustee to hold all amounts due to the holders of
Pledged Securities arising under a Designated Trust Agreement to be paid over to
the Agent on each Payment Date.
1.90. "Wholly Owned Subsidiary" means any Subsidiary of which all of the
outstanding capital stock (or other shares of beneficial interest) entitled to
vote generally (other than directors' qualifying shares and, in the case of
foreign subsidiaries, shares required by Legal Requirements to be held by
foreign nationals) is owned by the Company (or other specified Person) directly,
or indirectly through one or more wholly owned Subsidiaries.
2. The Credits.
2.1. Revolving Credit.
2.1.1. Revolving Loan. Subject to all the terms and conditions of
this Agreement and so long as no Default exists, from time to time on and
after the Initial Closing Date and prior to the applicable Tranche
Conversion Date, the Lenders will, severally in accordance with their
respective Commitments with respect to the particular Tranches of the
Revolving Loan, make loans to the Company in such amounts as may be
requested by the Company in accordance with Section 2.1.3. The aggregate
principal amount of loans made under this Section 2.1.1 with respect to a
particular Tranche at any one time outstanding shall in no event exceed
the lesser of (a) the Maximum Amount of Tranche Credit and (b) the
Borrowing Base allocable to such Tranche. In no event will the principal
amount of loans with respect to a particular Tranche at any one time
outstanding made by any Lender pursuant to this Section 2.1 exceed such
Lender's Commitment with respect to such Tranche.
2.1.2. Maximum Amount of Tranche Credit. The term "Maximum Amount of
Tranche Credit", with respect to any particular Tranche means the lesser
of (a) the amount set forth on Exhibit 1 with respect to such Tranche and
(b) the amount (in an
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integral multiple of $100,000) from time to time irrevocably designated by
the Company to the Agent.
2.1.3. Borrowing Requests. The Company may from time to time request
a loan under Section 2.1.1 by providing to the Agent a written notice.
Each loan must be supported by a Pledged Securities Series approved by the
TFC Loan Committee. Such notice must be not later than noon (Providence
time) on the first Business Day prior to the requested Closing Date for
such loan. The notice must specify (a) the amount of the requested loan,
(b) the requested Closing Date therefor (which shall be a Business Day)
and (c) the Pledged Securities Series and Tranche for the requested
extension of credit. Upon receipt of such notice, the Agent will promptly
inform each other Lender (by telephone or otherwise) having a Commitment
in such Tranche. Each such loan will be made at the Providence Office by
wire transfer of the amount as directed by the Company. In connection with
each such loan, the Company shall furnish to the Agent a certificate in
substantially the form of Exhibit 5.2.1.
2.1.4. Approval of New Tranche. In the event the Company wishes to
establish a new Tranche to add to the Borrowing Base a new Pledged
Securities Series, the Company must provide to the Agent a written notice
of the requested increase in the Commitments, together with copies of the
Securitization Agreements for such series, related documentation and such
other material as the Agent reasonably requests, not later than 15
Business Days prior to the establishment of such Tranche and the inclusion
of such Pledged Securities Series in the Borrowing Base. Upon receipt of
such notice, the Agent will promptly provide such information to the TFC
Loan Committee and the loan committees of the other Lenders. The Lenders
will give notice to the Company and the other Lenders within such 15
Business Day period whether such new Tranche and Pledged Securities Series
is approved; provided, however, that the Lenders shall have no obligation
to approve any new Tranche or Pledged Securities Series. The Company, with
the consent of the Agent, may add new Lenders to this Agreement to extend
credit under a new or existing Tranche. Such new Lenders shall execute
joinders to this Agreement in a form reasonably satisfactory to the Agent.
In connection with each new Tranche and Pledged Securities Series
approved, the Company shall issue a new Note for such Tranche payable to
each Lender in a principal amount equal to such Lender's Percentage
Interest in the Tranche and new Commitments, and the Agent shall revise
Exhibit 1 to reflect such new Tranche and Pledged Securities Series.
2.1.5. Notes. The aggregate principal amount of the loans
outstanding from time to time under this Section 2.1 prior to the
Conversion Date is referred to as the "Revolving Loan". The Agent shall
keep a record of the Revolving Loan and each Tranche. Each Tranche shall
be deemed owed to each Lender having a Commitment therein severally in
accordance with such Lender's Percentage Interest therein, and all
payments thereon shall be for the account of each Lender in accordance
with its
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Percentage Interest therein. The Company's obligations to pay each
Lender's Percentage Interest in each Tranche of the Revolving Loan shall
be evidenced by a separate note of the Company in substantially the form
of Exhibit 2.1.5 (the "Notes"), payable to each Lender in accordance with
such Lender's Percentage Interest in such Tranche of the Revolving Loan.
2.2. Term Credit. Subject to all the terms and conditions of this
Agreement and so long as no Default exists, on the applicable Tranche Conversion
Date, the aggregate amount equal to such Tranche outstanding on such date shall
automatically convert into a term loan. The aggregate principal amount of the
loans at any one time outstanding after the respective Tranche Conversion Dates
are referred to as the "Term Loan".
2.3. Application of Proceeds.
2.3.1. Revolving Loan. Subject to Section 2.3.3, the Company will
apply the proceeds of the Revolving Loan for working capital and for other
lawful corporate purposes of the Company and its Included Subsidiaries.
2.3.2. Specifically Prohibited Applications. The Company will not,
directly or indirectly, apply any part of the proceeds of any extension of
credit made pursuant to the Credit Documents to purchase or to carry
Margin Stock or to any transaction prohibited by Legal Requirements
applicable to the Lenders or by the Credit Documents.
2.4. Nature of Obligations of Lenders to Make Extensions of Credit. The
Lenders' obligations to extend credit under this Agreement are several and are
not joint or joint and several. The Lenders shall have no obligation to extend
additional credit under a new Tranche if the TFC Loan Committee does not approve
the new Tranche and Pledged Securities Series intended by the Company to support
such Tranche. If on any Closing Date any Lender shall fail to perform its
obligations under this Agreement, the aggregate amount of Commitments to make
the extensions of credit under this Agreement shall be reduced by the amount of
unborrowed Commitment of the Lender so failing to perform and the Percentage
Interests shall be appropriately adjusted. Lenders that have not failed to
perform their obligations to make the extensions of credit contemplated by
Section 2 may, if any such Lender so desires, assume, in such proportions as
such Lenders may agree, the obligations of any Lender who has so failed and the
Percentage Interests shall be appropriately adjusted. The provisions of this
Section 2.4 shall not affect the rights of the Company against any Lender
failing to perform its obligations hereunder.
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3. Interest; Fees.
3.1. Interest. The Loan shall accrue and bear interest at a rate per
annum which shall at all times equal the Applicable Rate. Prior to any stated or
accelerated maturity of the Loan, the Company will, on each Payment Date, pay
the accrued and unpaid interest on the Loan, which payment shall be made by the
Trustees under the Designated Trust Agreements by forwarding to the Agent
amounts due to the holders of Pledged Securities for the previous month in
accordance with the Trustee Payment Directions. On the stated or any accelerated
maturity of the Loan, the Company will pay all accrued and unpaid interest on
the Loan. Upon the occurrence and during the continuance of an Event of Default,
the Lenders may require accrued interest to be payable on demand or at regular
intervals more frequent than each Payment Date. If at any time the amount of
accrued and unpaid interest due hereunder exceeds the amount of funds received
by the Agent from the Trustees under the Designated Trust Agreements, the
Company will pay within five Business Days the amount of such excess to the
Agent. All payments of interest hereunder shall be made to the Agent for the
account of each Lender in accordance with such Lender's Percentage Interest.
3.2. Prepayment Fee. In the event the Company prepays the Term Loan with
respect to a particular Tranche after the Tranche Conversion Date directly or
indirectly from a public debt or equity offering of the Company and its
Subsidiaries (including an offering under Rule 144A of the federal Securities
Act of 1933), the Company shall, together with such prepayment, pay to the Agent
for the account of the Lenders having a Percentage Interest in such Tranche a
prepayment fee equal to 1/2% of the amount of the Term Loan so prepaid.
3.3. Changes in Circumstances; Yield Protection.
3.3.1. Taxes. All payments of the Credit Obligations shall be made
without set-off or counterclaim and free and clear of any deductions,
including deductions for Taxes, unless the Company is required by law to
make such deductions. If (a) any Lender shall be subject to any Tax with
respect to any payment of the Credit Obligations or its obligations
hereunder or (b) the Company shall be required to withhold or deduct any
Tax on any payment on the Credit Obligations, then such Lender may claim
compensation from the Company under Section 3.3.4. Whenever Taxes must be
withheld by the Company with respect to any payments of the Credit
Obligations, the Company shall promptly furnish to the Agent for the
account of the applicable Lender official receipts (to the extent that the
relevant governmental authority delivers such receipts) evidencing payment
of any such Taxes so withheld. If the Company fails to pay any such Taxes
when due or fails to remit to the Agent for the account of the applicable
Lender the required receipts evidencing payment of any such Taxes so
withheld or deducted, the Company shall indemnify the affected Lender for
any incremental Taxes and interest or penalties that may become payable by
such Lender as a result of any such failure. In the event any Lender
receives a refund of any Taxes for which it has received payment from the
Company under this Section
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3.3.1, such Lender shall promptly pay the amount of such refund to the
Company, together with any interest thereon actually earned by such
Lender.
3.3.2. Capital Adequacy. If any Lender shall determine that
compliance by such Lender with any Legal Requirement regarding capital
adequacy of banks, bank holding companies or finance companies has or
would have the effect of reducing the rate of return on the capital of
such Lender and its Affiliates as a consequence of such Lender's
commitment to make the extensions of credit contemplated hereby, or such
Lender's maintenance of the extensions of credit contemplated hereby, to a
level below that which such Lender could have achieved but for such
compliance (taking into consideration the policies of such Lender and its
Affiliates with respect to capital adequacy immediately before such
compliance and assuming that the capital of such Lender and its Affiliates
was fully utilized prior to such compliance) by an amount deemed by such
Lender to be material, then such Lender may claim compensation from the
Company under Section 3.3.4.
3.3.3. Regulatory Changes. If any Lender shall determine that (a)
any change in any Legal Requirement (including any new Legal Requirement)
after the date hereof shall directly or indirectly (i) reduce the amount
of any sum received or receivable by such Lender with respect to the Loan
or the return to be earned by such Lender on the Loan, (ii) impose a cost
on such Lender or any Affiliate of such Lender that is attributable to the
making or maintaining of, or such Lender's commitment to make, its portion
of the Loan, or (iii) require such Lender or any Affiliate of such Lender
to make any payment on, or calculated by reference to, the gross amount of
any amount received by such Lender under any Credit Document (other than
Taxes or income or franchise taxes), and (b) such reduction, increased
cost or payment shall not be fully compensated for by an adjustment in the
Applicable Rate, then such Lender may claim compensation from the Company
under Section 3.3.4.
3.3.4. Compensation Claims. Within 15 days after the receipt by the
Company of a certificate from any Lender setting forth why it is claiming
compensation under this Section 3.3 and computations (in reasonable
detail) of the amount thereof, the Company shall pay to such Lender such
additional amounts as such Lender sets forth in such certificate as
sufficient fully to compensate it on account of the foregoing provisions
of this Section 3.3, together with interest on such amount from the 15th
day after receipt of such certificate until payment in full thereof at the
Overdue Reimbursement Rate. The determination by such Lender of the amount
to be paid to it and the basis for computation thereof hereunder shall, in
the absence of manifest error, be conclusive. In determining such amount,
such Lender may use any reasonable averaging and attribution methods.
3.3.5. Mitigation. Each Lender shall take such commercially
reasonable steps as it may determine are not disadvantageous to it,
including changing lending
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offices to the extent feasible, in order to reduce amounts otherwise
payable by the Company to such Lender pursuant to Sections 3.3. In
addition, the Company shall not be responsible for costs under Section 3.3
arising more than 90 days prior to receipt by the Company of the
certificate from the affected Lender pursuant to such Section 3.3.
3.4. Computations of Interest and Fees. For purposes of this Agreement,
interest (and any other amount expressed as interest) shall be computed on the
basis of a 360-day year for actual days elapsed. If any payment required by this
Agreement becomes due on any day that is not a Business Day, such payment shall
be made on the next succeeding Business Day. If the due date for any payment of
principal is extended as a result of the immediately preceding sentence,
interest shall be payable for the time during which payment is extended at the
Applicable Rate.
3.5. Commitment Fees. The Company shall pay TFC the commitment fees
contemplated by Section 5.1.2. On the date when the aggregate Commitments
increase for any Tranche, the Company shall pay to the Agent a commitment fee
equal to the amount separately agreed by the Agent and the Company as indicated
on Exhibit 1 for such Tranche.
4. Payment.
4.1. Payment at Maturity. On the Final Maturity Date or any accelerated
maturity of the Loan, the Company will pay to the Agent for the account of the
Lenders an amount equal to the Loan then due, together with all accrued and
unpaid interest and fees with respect thereto and all other Credit Obligations
then outstanding.
4.2. Required Prepayments.
4.2.1. Contingent Required Prepayments. If a particular Tranche of
the Revolving Loan at any time exceeds the applicable Maximum Amount of
Tranche Credit, the Company shall within one Business Day repay the amount
of such excess to the Agent for the account of the Lenders having an
interest therein. If a particular Tranche of the Revolving Loan at any
time exceeds the Borrowing Base for such Tranche, the Company shall within
15 Business Days either (a) repay the amount of such excess to the Agent
for the account of the Lenders having an interest therein or (b) increase
the Borrowing Base for such Tranche to eliminate such excess.
4.2.2. Prepayment. Receipts from Pledged Securities forwarded to the
Agent by the Trustees under the Designated Trust Agreements pursuant to
Trustee Payment Directions in excess of interest required to be paid under
Section 3.1 shall be applied to the prepayment of the related Tranche of
the Loan and then to any other Credit Obligations then outstanding.
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4.3. Voluntary Prepayments. In addition to the prepayments required by
Section 4.2, the Company may from time to time prepay all or any portion of the
Loan (in a minimum amount of $500,000 and an integral multiple of $100,000, or
such lesser amount as is then outstanding), without premium or penalty of any
type except as provided in Section 3.2 with respect to any Term Loan prepayment
fee. The Company shall give the Agent at least three Business Days prior notice
of its intention to prepay, specifying the date of payment, the total amount and
Tranche of the Loan to be paid on such date and the amount of interest to be
paid with such prepayments.
4.4. Reborrowing; Application of Payments, etc.
4.4.1. Reborrowing. The amounts of each Tranche of the Revolving
Loan prepaid pursuant to Sections 4.2 and 4.3 may be reborrowed from time
to time prior to the Tranche Conversion Date in accordance with Section
2.1, subject to the limits set forth therein. No portion of the Term Loan
prepaid hereunder may be reborrowed.
4.4.2. Order of Application. Prepayments of the Term Loan made
pursuant to Section 4.3 shall be applied first to the principal amount of
the Term Note which is due on the Final Maturity Date and then to any
payments required to be made on the Term Loan pursuant to Section 4.2.2 so
that no partial prepayment of the Term Loan shall affect the obligation of
the Company to make the prepayments required by Section 4.2.2.
4.4.3. Payment with Accrued Interest, etc. Upon all prepayments of
the Term Loan, the Company shall pay to the Agent the principal amount to
be prepaid, together with unpaid interest in respect thereof accrued to
the date of prepayment and any prepayment fee under Section 3.2. Notice of
prepayment having been given in accordance with Section 4.3, and whether
or not notice is given of prepayments pursuant to Section 4.2, the amount
specified to be prepaid shall become due and payable on the date specified
for prepayment.
4.4.4. Payments for Lenders. All payments of principal hereunder
shall be made to the Agent for the account of the Lenders in accordance
with the Lenders' respective Percentage Interests in the respective
Tranches.
5. Conditions to Extending Credit.
5.1. Conditions on Initial Tranche Closing Dates. The obligations of the
Lenders to make any extension of credit pursuant to Section 2 shall be subject
to the satisfaction, on or before the Initial Closing Date and the first Closing
Date under a new Tranche, of the conditions set forth in this Section 5.1 as
well as the further conditions in Section 5.2. If the conditions set forth in
this Section 5.1 are not met on or prior to the Initial Closing Date, the
Lenders shall have no obligation to make any extensions of credit hereunder.
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5.1.1. Notes. The Company shall have duly executed and delivered to
the Agent a Note for each Lender having an interest in such Tranche.
5.1.2. Payment of Fees. The Company shall have paid to the Agent the
commitment fees separately agreed for such Tranche as set forth on Exhibit
1.
5.1.3. Legal Opinions. On such Closing Date, the Lenders shall have
received from the following counsel their respective opinions with respect
to the transactions contemplated by the Credit Documents, which opinions
shall be in customary form and in compliance with applicable law:
(a) Greenberg Traurig Hoffman Lipoff Rosen & Quentel, P.A.,
special counsel for the Company.
(b) Ropes & Gray, special counsel for the Agent.
The Company authorizes and directs its counsel to furnish the foregoing
opinion.
5.1.4. Security Agreement. On the Initial Closing Date, the Company
shall have duly authorized, executed and delivered to the Agent a Security
Agreement in substantially the form of Exhibit 5.1.4 (the "Security
Agreement"), which Security Agreement shall be modified to include the new
Pledged Securities Series for each Tranche.
5.1.5. Perfection of Security. The Company shall have duly delivered
to the Agent (or as the Agent may otherwise direct) certificates
evidencing the Pledged Securities and shall have duly authorized,
executed, acknowledged, delivered, filed, registered and recorded such
security agreements, notices, notices to, and acknowledgments from, the
Trustees, including Trustee Payment Directions, financing statements and
other instruments as the Agent may have requested in order to perfect the
Liens purported or required pursuant to the Credit Documents to be created
in the Credit Security and shall have paid all filing or recording fees or
taxes required to be paid in connection therewith, including any
recording, mortgage, documentary, transfer or intangible taxes.
5.1.6. Proper Proceedings. This Agreement, each other Credit
Document and the transactions contemplated hereby and thereby shall have
been authorized by all necessary corporate or other proceedings. All
necessary consents, approvals and authorizations of any governmental or
administrative agency or any other Person of any of the transactions
contemplated hereby or by any other Credit Document shall have been
obtained and shall be in full force and effect.
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5.1.7. General. All legal and corporate proceedings in connection
with the transactions contemplated by this Agreement shall be satisfactory
in form and substance to the Agent and the Agent shall have received, at
least 10 days prior to such Closing Date, copies of all documents,
including certified copies of the Charter and By-Laws of the Company,
records of corporate proceedings, certificates of good standing, certified
copies of the Securitization Agreements listed in Exhibit 1, Trustee
Payment Directions, certificates as to signatures and incumbency of
officers and opinions of counsel, which the Agent may have reasonably
requested in connection therewith, such documents where appropriate to be
certified by proper corporate or governmental authorities.
5.2. Conditions to Each Extension of Credit. The obligations of the
Lenders to make any extension of credit pursuant to Section 2 shall be subject
to the satisfaction, on or before the Closing Date for such extension of credit,
of the following conditions:
5.2.1. Officer's Certificate. The representations and warranties
contained in Section 7 shall be true and correct on and as of such Closing
Date with the same force and effect as though made on and as of such date
(except as to any representation or warranty which refers to a specific
earlier date or which has been waived, modified or consented to by the
Required Lenders); no Default shall exist on such Closing Date prior to or
immediately after giving effect to the requested extension of credit; no
Material Adverse Change shall have occurred since August 31, 1996; and the
Company shall have furnished to the Agent in connection with the requested
extension of credit a certificate to these effects, in substantially the
form of Exhibit 5.2.1, signed by a Financial Officer.
5.2.2. Legality, etc. The making of the requested extension of
credit shall not (a) subject the Lenders to any penalty or special tax
(other than a Tax for which the Company is required to reimburse the
Lenders under Section 3.3), (b) be prohibited by any Legal Requirement or
(c) violate any credit restraint regulation of the executive branch of the
government of the United States of America, the Board of Governors of the
Federal Reserve System or any other governmental or administrative agency
so long as any Lender reasonably believes that compliance therewith is in
the best interests of such Lender.
6. General Covenants. The Company covenants that, until all of the Credit
Obligations shall have been paid in full and until the Lenders' commitments to
extend credit under this Agreement and any other Credit Document shall have been
irrevocably terminated, the Company and its Included Subsidiaries will comply
with the following provisions:
6.1. Taxes and Other Charges; Accounts Payable.
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6.1.1. Taxes and Other Charges. Each of the Company and its Included
Subsidiaries shall duly pay and discharge, or cause to be paid and
discharged, before the same becomes in arrears, all taxes, assessments and
other governmental charges imposed upon such Person and its properties,
sales or activities, or upon the income or profits therefrom, as well as
all claims for labor, materials or supplies which if unpaid might by law
become a Lien upon any of its property; provided, however, that any such
tax, assessment, charge or claim need not be paid if the validity or
amount thereof shall at the time be contested in good faith by appropriate
proceedings and if such Person shall, in accordance with GAAP, have set
aside on its books adequate reserves with respect thereto; and provided,
further, that each of the Company and its Included Subsidiaries shall pay
or bond, or cause to be paid or bonded, all such taxes, assessments,
charges or other governmental claims immediately upon the commencement of
proceedings to foreclose any Lien which may have attached as security
therefor (except to the extent such proceedings have been dismissed or
stayed).
6.1.2. Accounts Payable. Each of the Company and its Included
Subsidiaries shall promptly pay when due, or in conformity with customary
trade terms, all accounts payable incident to the operations of such
Person not referred to in Section 6.1.1; provided, however, that any such
Indebtedness need not be paid if the validity or amount thereof shall at
the time be contested in good faith and if such Person shall, in
accordance with GAAP, have set aside on its books adequate reserves with
respect thereto.
6.2. Conduct of Business, etc.
6.2.1. Types of Business. The Company and its Included Subsidiaries
shall engage only in the business of (a) originating, servicing, pooling
and selling home improvement, home equity and debt consolidation loans and
(b) other activities related thereto.
6.2.2. Statutory Compliance. Each of the Company and its Included
Subsidiaries shall comply in all material respects with all valid and
applicable statutes, laws, ordinances, zoning and building codes and other
rules and regulations of the United States of America, of the states and
territories thereof and their counties, municipalities and other
subdivisions and of any foreign country or other jurisdictions applicable
to such Person, except where failure so to comply has not resulted, or
does not create a material risk of resulting, in the aggregate in any
Material Adverse Change.
6.2.3. Compliance with Material Agreements. Each of the Company and
its Included Subsidiaries shall comply in all material respects with their
obligations under the Material Agreements (to the extent not in violation
of the other provisions of this Agreement or any other Credit Document).
Without the prior written consent of the
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Required Lenders, no Material Agreement shall be amended, modified, waived
or terminated in any manner that would have in any material respect an
adverse effect on the interests of the Lenders.
6.2.4. Transactions with Affiliates. Any transactions between the
Company or any of its Included Subsidiaries and an Affiliate of such party
shall be conducted on an arm's-length basis or on terms at least as
favorable to the Company and its Included Subsidiaries as could be
obtained from a Person that is not an Affiliate.
6.3. Insurance. Each of the Company and its Included Subsidiaries shall
maintain with financially sound and reputable insurers insurance against
liability for hazards, risks and liability to persons and property, to the
extent, in amounts and with deductibles at least as favorable as those generally
maintained by businesses of similar size engaged in similar activities;
provided, however, that it may effect workers' compensation insurance or similar
coverage with respect to operations in any particular state or other
jurisdiction through an insurance fund operated by such state or jurisdiction or
by meeting the self-insurance requirements of such state or jurisdiction.
6.4. Financial Statements and Reports. Each of the Company and its
Included Subsidiaries shall maintain a system of accounting in which correct
entries shall be made of all transactions in relation to their business and
affairs in accordance with generally accepted accounting practice. The fiscal
year of the Company and its Included Subsidiaries shall end on August 31, 1997
and December 31 in each year ending after such date and the fiscal quarters of
the Company and its Included Subsidiaries shall end on the last day of March,
June, September and December in each year, commencing in 1998.
6.4.1. Annual Reports. The Company shall furnish to the Lenders as
soon as available, and in any event within 120 days after the end of each
fiscal year, the Consolidated statements of financial condition of the
Company and its Subsidiaries as at the end of such fiscal year, the
Consolidated statements of income, of changes in shareholders' equity and
of cash flows of the Company and its Subsidiaries for such fiscal year
(all in reasonable detail) together with comparative figures for the
immediately preceding fiscal year, all accompanied by:
(a) Reports of Deloitte & Touche LLP (or, if they cease to be
auditors of the Company and its Subsidiaries, other independent certified
public accountants of recognized national standing reasonably satisfactory
to the Agent), containing no material qualification, to the effect that
they have audited the foregoing financial statements in accordance with
generally accepted auditing standards and that such financial statements
present fairly, in all material respects, the financial position of the
Company and its Subsidiaries covered thereby at the dates thereof and the
results of their operations for the periods covered thereby in conformity
with GAAP.
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(b) The statement of such accountants that they have caused this
Agreement to be reviewed and that in the course of their audit of the
Company and its Included Subsidiaries no facts have come to their
attention that cause them to believe that any Default exists and in
particular that they have no knowledge of any Default under Sections 6.5
through 6.7 or, if such is not the case, specifying such Default and the
nature thereof. This statement is to be furnished by such accountants with
the understanding that the examination of such accountants cannot be
relied upon to give such accountants knowledge of any such Default except
as it relates to accounting or auditing matters within the scope of their
audit.
(c) The internally prepared Consolidated statements of financial
condition of the Company and its Included Subsidiaries as of the end of
such fiscal year, the Consolidated statements of income, of changes in
shareholders' equity and of cash flows of the Company and its Included
Subsidiaries for such fiscal year (all in reasonable detail) together with
comparative figures for the immediately preceding fiscal year, accompanied
by a certificate of the Company signed by a Financial Officer to the
effect that such financial statements have been prepared in accordance
with GAAP and present fairly, in all material respects, the financial
position of the Company and its Included Subsidiaries covered thereby at
the dates thereof and the results of their operations for the periods
covered thereby.
(d) A certificate of the Company signed by a Financial Officer to
the effect that such officer has caused this Agreement to be reviewed and
has no knowledge of any Default, or if such officer has such knowledge,
specifying such Default and the nature thereof, and what action the
Company has taken, is taking or proposes to take with respect thereto.
(e) Computations by the Company demonstrating, as of the end of
such fiscal year, compliance with the Computation Covenants, certified by
a Financial Officer.
(f) Supplements to Exhibit 7.1 and exhibit 2.3 to the Security
Agreement showing any changes in the information set forth in such
exhibits not previously furnished to the Lenders in writing, as well as
any changes in the Charter, Bylaws or incumbency of Financial Officers of
the Obligors from those previously certified to the Agent.
(g) In the event of a change in GAAP since the most recent audited
annual financial statements, a statement as to the effect of such changes
on the Company and its Included Subsidiaries.
6.4.2. Quarterly Reports. The Company shall furnish to the Lenders
as soon as available and, in any event, within 60 days after the end of
each of the first three fiscal quarters of the Company in each year and
for the four-month period ending
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December 31, 1997, the internally prepared Consolidated statements of
financial condition of the Company and its Subsidiaries (with appropriate
adjustments to exclude Excluded Subsidiaries) as of the end of such fiscal
quarter, the Consolidated statements of income, of changes in
shareholders' equity and of cash flows of the Company and its Subsidiaries
(with appropriate adjustments to exclude Excluded Subsidiaries) for such
fiscal quarter and for the portion of the fiscal year then ended (all in
reasonable detail) and comparative figures for the same period in the
preceding fiscal year, all accompanied by:
(a) A certificate of the Company signed by a Financial Officer to
the effect that such financial statements have been prepared in accordance
with GAAP and present fairly, in all material respects, the financial
position of the Company and its Included Subsidiaries covered thereby at
the dates thereof and the results of their operations for the periods
covered thereby, subject only to normal year-end audit adjustments and the
addition of footnotes.
(b) A certificate of the Company signed by a Financial Officer to
the effect that such officer has caused this Agreement to be reviewed and
has no knowledge of any Default, or if such officer has such knowledge,
specifying such Default and the nature thereof and what action the Company
has taken, is taking or proposes to take with respect thereto.
(c) Computations by the Company, as of the end of such quarter
demonstrating compliance with the Computation Covenants, signed by a
Financial Officer.
(d) Supplements to Exhibit 7.1 and exhibit 3.3 to the Security
Agreement showing any changes in the information set forth in such
exhibits not previously furnished to the Lenders in writing, as well as
any changes in the Charter, Bylaws or incumbency of Financial Officers of
the Obligors from those previously certified to the Agent.
6.4.3. Monthly Borrowing Base. The Company shall furnish to the
Lenders as soon as available and, in any event, within 15 days after the
end of each month, a certificate of a Financial Officer supplying
computations of the Borrowing Base at the beginning of such month and
certifying that such computations were based on the monthly reports
prepared in accordance with GAAP; provided, however, that such
computations shall be consistent with those reflected in the Borrowing
Base computations dated as of August 31, 1997 previously furnished by the
Company to the Agent.
6.4.4. Other Reports. The Company shall promptly furnish to the
Lenders:
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(a) All budgets, projections, statements of operations and other
reports furnished generally to the shareholders of the Company.
(b) Such registration statements, proxy statements and reports,
including Forms S-1, S-2, S-3, S-4, 10-K, 10-Q and 8-K, as may be filed by
the Company or any of its Included Subsidiaries with the Securities and
Exchange Commission.
(c) Any 90-day letter or 30-day letter from the federal Internal
Revenue Service (or the equivalent notice received from state or other
taxing authorities) asserting tax deficiencies against the Company or any
of its Included Subsidiaries.
(d) Copies of any notice by a Trustee that it intends to offset
shortfalls in servicing revenues or other items under the Securitization
Agreements against Pledged Securities.
6.4.5. Notice of Litigation, Defaults, etc. The Company shall
promptly furnish to the Lenders notice of any litigation or any
administrative or arbitration proceeding (a) which creates a material risk
of resulting, after giving effect to any applicable insurance, in the
payment by the Company and its Included Subsidiaries of more than $500,000
or (b) which results, or creates a material risk of resulting, in a
Material Adverse Change. Promptly upon acquiring knowledge thereof, the
Company shall notify the Lenders of the existence of any Default or
Material Adverse Change, specifying the nature thereof and what action the
Company or any Included Subsidiary has taken, is taking or proposes to
take with respect thereto.
6.4.6. Other Information. From time to time at reasonable intervals
upon request of any authorized officer of any Lender, each of the Company
and its Included Subsidiaries shall furnish to the Lenders such other
information regarding the business, assets, financial condition, income or
prospects of the Company and its Included Subsidiaries as such officer may
reasonably request, including copies of all tax returns filed by the
Company, licenses, agreements, leases and instruments to which any of the
Company or its Included Subsidiaries is party. The Lenders' authorized
officers and representatives shall have the right during normal business
hours upon reasonable notice and at reasonable intervals to examine the
books and records of the Company and its Included Subsidiaries, to make
copies and notes therefrom for the purpose of ascertaining compliance with
or obtaining enforcement of this Agreement or any other Credit Document.
The Company shall use its best efforts to, or cause the Trustee or
servicing agent to, enable the Agent's authorized officers and
representatives, during normal business hours upon reasonable notice and
at reasonable intervals, to examine documents, bank statements and other
records and to make copies and notes therefrom for the purpose of
ascertaining the financial condition of the Company and its Included
Subsidiaries and the condition of the Credit Security; provided, however,
that any such
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examination shall be at the Company's expense, including all travel
expenses, but excluding salaries for the officers and representatives
conducting such examination.
6.4.7. Preparation of Reports. All documents, agreements, reports,
insurance, references, financial information or other submissions
(collectively "Submissions") required under this Agreement and the
transactions contemplated hereby shall be in form and substance reasonably
satisfactory to the Agent and performed at the Company's expense. The
Agent shall have the prior right of approval of any person, firm or entity
responsible for preparing each Submission ("Preparer") and may reject any
Submission in its sole discretion if the Agent reasonably believes that
the experience, skill, reputation or other aspect of the Preparer is
unsatisfactory in any respect. All reports required pursuant to this
Agreement shall be addressed to the Agent and include the following
language:
"THE UNDERSIGNED ACKNOWLEDGES THAT TEXTRON FINANCIAL CORPORATION, AS AGENT
FOR A GROUP OF LENDERS, IS RELYING ON THE WITHIN INFORMATION IN CONNECTION
WITH ITS ADVANCE TO MEGO MORTGAGE CORPORATION SECURED BY CERTAIN
COLLATERAL."
6.5. Certain Financial Tests.
6.5.1. Consolidated Adjusted Tangible Net Worth. Consolidated
Tangible Net Worth shall at all times exceed $65,000,000 plus the sum of
50% of (a) the Company's Consolidated net income (if positive) for each
fiscal quarter (or similar reporting period) ending after November 30,
1996 plus (b) 100% of the net proceeds obtained by the Company or its
Included Subsidiaries through the issuance or sale of stock or additional
Subordinated Notes (after deduction of all costs of such issuance or
acquisition and any portion of such proceeds used to repay previously
issued Subordinated Notes).
6.5.2. Consolidated Adjusted Leverage Ratio. On the last day of each
fiscal quarter (or similar reporting period), the ratio of (a) total
liabilities of the Company and its Included Subsidiaries determined in
accordance with GAAP on a Consolidated basis less the Subordinated
Indebtedness to (b) Consolidated Adjusted Tangible Net Worth shall not
exceed 3.0 to 1.0.
6.6. Liens. Neither the Company nor any of its Included Subsidiaries
shall create, incur or enter into, or suffer to be created or incurred or to
exist, any Lien upon any Credit Security (or become contractually committed to
do so), except the following:
6.6.1. Liens that secure the Credit Obligations or that were created
under the agreements governing the securitization of the loans underlying
the Credit Security.
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6.6.2. Liens to secure taxes, assessments and other governmental
charges, to the extent that payment thereof shall not at the time be
required by Section 6.1.
6.6.3. Restrictions under federal and state securities laws on the
transfer of securities.
6.7. Asset Dispositions and Mergers. Neither the Company nor any of its
Included Subsidiaries shall merge or enter into a consolidation or sell, lease,
sell and lease back, sublease or otherwise dispose of any of the Credit Security
(or become contractually committed to do so), except the following:
6.7.1. Any Wholly Owned Subsidiary of the Company may merge or be
liquidated into the Company or any other Wholly Owned Subsidiary of the
Company so long as after giving effect to any such merger to which the
Company is a party the Company shall be the surviving or resulting Person.
6.7.2. The Company may sell or otherwise dispose of Pledged
Securities so long as the proceeds thereof are applied to repay in full
the related Tranche of the Loan and any accrued and unpaid interest
thereon and any other fees or Credit Obligations with respect to such
Tranche.
7. Representations and Warranties. In order to induce the Lenders to extend
credit to the Company hereunder, the Company represents and warrants as follows:
7.1. Organization and Business.
7.1.1. The Company. The Company is a duly organized and validly
existing corporation, in good standing under the laws of Delaware, with
all power and authority, corporate or otherwise, necessary to (a) enter
into and perform this Agreement and each other Credit Document to which it
is party, (b) grant the Agent for the benefit of the Lenders the security
interests in the Credit Security owned by it to secure the Credit
Obligations and (c) own its properties and carry on the business now
conducted or proposed to be conducted by it. Certified copies of the
Charter and By-laws of the Company have been previously delivered to the
Agent and are correct and complete. Exhibit 7.1, as from time to time
hereafter supplemented in accordance with Section 6.4.1(f) and Section
6.4.2(d), sets forth, as of the later of the date hereof or the end of the
most recent fiscal quarter for which financial statements are required to
be furnished in accordance with Section 6.4.1 or Section 6.4.2 (i) the
jurisdiction of incorporation of the Company, (ii) the address of the
Company's principal executive office and chief place of business, (iii)
each name, including any trade name, under which the Company conducts its
business and (iv) the jurisdictions in which the Company keeps tangible
personal property.
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7.1.2. Subsidiaries. Each Included Subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized, with all power and authority,
corporate or otherwise, necessary to (a) enter into and perform this
Agreement and each other Credit Document to which it is party, (b) grant
the Agent for the benefit of the Lenders the security interest in the
Credit Security owned by such Included Subsidiary to secure the Credit
Obligations and (c) own its properties and carry on the business now
conducted or proposed to be conducted by it. Certified copies of the
Charter and By-laws of each Included Subsidiary of the Company have been
previously delivered to the Agent and are correct and complete. Exhibit
7.1, as from time to time hereafter supplemented in accordance with
Section 6.4.1(e), sets forth, as of the later of the date hereof or the
end of the most recent fiscal quarter for which financial statements are
required to be furnished in accordance with such Sections, (i) the name
and jurisdiction of organization of each Included Subsidiary of the
Company, (ii) the address of the chief executive office and principal
place of business of each such Included Subsidiary, (iii) each name under
which each such Included Subsidiary conducts its business, (iv) each
jurisdiction in which each such Included Subsidiary keeps tangible
personal property, and (v) the number of authorized and issued shares and
ownership of each such Included Subsidiary.
7.1.3. Qualification. Each of the Company and its Included
Subsidiaries is duly and legally qualified to do business as a foreign
corporation or other entity and is in good standing in each state or
jurisdiction in which such qualification is required and is duly
authorized, qualified and licensed under all laws, regulations, ordinances
or orders of public authorities, or otherwise, to carry on its business in
the places and in the manner in which it is conducted, except for failures
to be so qualified, authorized or licensed which would not in the
aggregate result, or create a material risk of resulting, in any Material
Adverse Change.
7.2. Financial Statements and Other Information; Material Agreements;
Credit References.
7.2.1. Financial Statements and Other Information. The Company has
previously furnished to the Lenders copies of the following:
(a) The audited statements of financial condition of the Company
as at August 31 in each of 1996, 1995 and 1994 (as restated) and the
audited statements of income and the audited Consolidated statements of
changes in shareholders' equity and of cash flows of the Company for the
fiscal years of the Company then ended.
(b) The unaudited statement of financial condition of the Company
as at May 31, 1997 and the unaudited statements of income, of changes in
shareholders' equity and of cash flows of the Company for the portion of
the fiscal year then ended.
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(c) Calculations demonstrating pro forma compliance with the
Computation Covenants as of the end of the most recent quarter preceding
the date hereof.
(d) The annual statement as to compliance, annual independent
accountants report, servicer review report and any other report or
statement prepared pursuant to the Securitization Agreements listed on
Exhibit 1 as of the date hereof.
The audited financial statements (including the notes thereto)
referred to in clause (a) above were prepared in accordance with GAAP and
fairly present in all material respects the financial position of the
Company at the respective dates thereof and the results of its operations
for the periods covered thereby. The unaudited financial statements
referred to in clause (b) above were prepared in accordance with GAAP and
fairly present in all material respects the financial position of the
Company at the date thereof and the results of its operations for the
periods covered thereby, subject to normal year-end audit adjustment and
the addition of footnotes in the case of interim financial statements. The
Company does not have any known contingent liability material to the
Company which is not reflected in the statements of financial condition
referred to in clauses (a) or (b) above (or delivered pursuant to Sections
6.4.1 or 6.4.2) or in the notes thereto.
7.2.2. Material Agreements. The Company has previously furnished to
the Lenders correct and complete copies, including all exhibits, schedules
and amendments thereto, of the Securitization Agreements listed in Exhibit
1 and the other agreements, each as in effect on the date hereof, listed
in Exhibit 7.2.2 (the "Material Agreements").
7.2.3. Credit References. The Company has previously caused such
creditors as requested by the Agent to furnish the Agent with independent
credit references on the Company or principals of the Company, each in
form and substance satisfactory to the Agent.
7.3. Changes in Condition. Since August 31, 1996, no Material Adverse
Change has occurred.
7.4. Title to Assets. The Company and its Included Subsidiaries have good
and marketable title to all assets (including lessee's interests reflected as
owned assets) necessary for or used in the operations of their business as now
conducted by them and reflected in the most recent statement of financial
condition referred to in Section 7.2.1 (or the statement of financial condition
most recently furnished to the Lenders pursuant to Sections 6.4.1 or 6.4.2), and
to all assets acquired subsequent to the date of such statement of financial
condition, except for assets disposed of in the ordinary course of business.
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7.5. Operations in Conformity With Law, etc. The operations of the
Company and its Included Subsidiaries as now conducted or proposed to be
conducted are not in violation of, nor is the Company or its Included
Subsidiaries in default under, any Legal Requirement presently in effect, except
for such violations and defaults as do not and will not, in the aggregate,
result, or create a material risk of resulting, in any Material Adverse Change.
The Company has received no notice of any such violation or default and has no
knowledge of any basis on which the operations of the Company or its Included
Subsidiaries, as now conducted and as currently proposed to be conducted after
the date hereof, would be held so as to violate or to give rise to any such
violation or default.
7.6. Litigation. No bankruptcy, foreclosure action or other material
litigation, at law or in equity, is pending or, to the knowledge of the Company,
threatened against the Company, any of its Included Subsidiaries or any Trustee
under any Designated Trust Agreement. No litigation, at law or in equity, or any
proceeding before any court, board or other governmental or administrative
agency or any arbitrator is pending or, to the knowledge of the Company,
threatened which seeks to enjoin the consummation, or which questions the
validity, of any of the transactions contemplated by this Agreement or any other
Credit Document. No judgment, decree or order of any court, board or other
governmental or administrative agency or any arbitrator has been issued against
or binds the Company, or any Trustee under a Designated Trust Agreement which
has resulted, or creates a material risk of resulting, in any Material Adverse
Change. For purposes of this Section 7.6, material litigation shall not include
a matter in which (a) the Company, any of its Included Subsidiaries or any
Trustee under a Designated Trust Agreement is the plaintiff and no counterclaim
is pending or (b) the Agent determines in its sole discretion is immaterial due
to settlement, applicable insurance coverage, frivolity or the amount of the
claim.
7.7. Authorization and Enforceability. The Company has taken all
corporate action required to execute, deliver and perform this Agreement and
each other Credit Document to which it is party. No consent of stockholders of
the Company is necessary in order to authorize the execution, delivery or
performance of any Credit Document to which the Company is party. Each of this
Agreement and each other Credit Document constitutes the legal, valid and
binding obligation of the Company and is enforceable against the Company in
accordance with its terms.
7.8. No Legal Obstacle to Agreements. Neither the execution and delivery
of this Agreement or any other Credit Document, nor the making of any borrowings
hereunder by the Company, nor the guaranteeing of the Credit Obligations by any
Included Subsidiary, nor the securing of the Credit Obligations with the Credit
Security, nor the consummation of any transaction referred to in or contemplated
by this Agreement or any other Credit Document, nor the fulfillment of the terms
hereof or thereof or of any other agreement, instrument, deed or lease
contemplated by this Agreement or any other Credit Document, has constituted or
resulted in or will constitute or result in:
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(a) any breach or termination of the provisions of any agreement,
instrument, deed or lease to which the Company, any of its Included
Subsidiaries or any other Obligor is a party or by which it is bound, or
of the Charter or By-laws of the Company, any of its Included Subsidiaries
or any other Obligor;
(b) the violation of any law, statute, judgment, decree or
governmental order, rule or regulation applicable to the Company, any of
its Included Subsidiaries or any other Obligor;
(c) the creation under any agreement, instrument, deed or lease of
any Lien (other than Liens on the Credit Security which secure the Credit
Obligations) upon any of the assets of the Company, any of its Included
Subsidiaries or any other Obligor; or
(d) any redemption, retirement or other repurchase obligation of
the Company, any of its Included Subsidiaries or any other Obligor under
any Charter, Bylaw, agreement, instrument, deed or lease.
No approval, authorization or other action by, or declaration to or filing with,
any governmental or administrative authority or any other Person is required to
be obtained or made by the Company, any of its Included Subsidiaries or any
other Obligor in connection with the execution, delivery and performance of this
Agreement, the Notes or any other Credit Document, the transactions contemplated
hereby or thereby, the making of any borrowing hereunder, the guaranteeing of
the Credit Obligations or the securing of the Credit Obligations with the Credit
Security (other than filings necessary to perfect the Agent's security interest
in the Credit Security).
7.9. Defaults. Neither the Company nor any of its Included Subsidiaries
is in default under any provision of its Charter or By-laws or of this Agreement
or any other Credit Document. Except as set forth in Exhibit 7.9, neither the
Company nor any of its Included Subsidiaries is in default under any provision
of any agreement, instrument, deed or lease to which it is party or by which it
or its property is bound in each case so as to result, or create a material risk
of resulting, in any Material Adverse Change. Neither the Company nor any of its
Included Subsidiaries has violated any law, judgment, decree or governmental
order, rule or regulation, in each case so as to result, or create a material
risk of resulting, in any Material Adverse Change.
7.10. Tax Returns. Each of the Company and its Included Subsidiaries has
filed all material tax and information returns which are required to be filed by
it and has paid, or made adequate provision for the payment of, all taxes which
have or may become due pursuant to such returns or to any assessment received by
it, other than taxes and assessments being contested by the Company and its
Included Subsidiaries in good faith by appropriate proceedings and for which
adequate reserves have been taken in accordance with GAAP. Neither the Company
nor any of its Included Subsidiaries knows of any material additional
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assessments or any basis therefor. The Company reasonably believes that the
charges, accruals and reserves on the books of the Company and its Included
Subsidiaries in respect of taxes or other governmental charges are adequate.
7.11. Certain Business Representations.
7.11.1. Antitrust. Each of the Company and its Included Subsidiaries
is in compliance in all material respects with all federal and state
antitrust laws relating to its business and the geographic concentration
of its business.
7.11.2. Consumer Protection. Neither the Company nor any of its
Included Subsidiaries is in violation of any rule, regulation, order, or
interpretation of any rule, regulation or order of the Federal Trade
Commission (including truth-in-lending), with which the failure to comply,
in the aggregate, has resulted, or creates a material risk of resulting,
in a Material Adverse Change.
7.12. Pension Plans. Each Plan is in material compliance with the
applicable provisions of ERISA and the Code. No Plan constitutes a "defined
benefit plan" (as defined in ERISA).
7.13. Government Regulation; Margin Stock.
7.13.1. Government Regulation. Neither the Company nor any of its
Included Subsidiaries, nor any Person controlling the Company or any of
its Included Subsidiaries or under common control with the Company or any
of its Included Subsidiaries, is subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Investment
Company Act, the Interstate Commerce Act or any statute or regulation
which regulates the incurring by the Company or any of its Included
Subsidiaries of Indebtedness as contemplated by this Agreement and the
other Credit Documents.
7.13.2. Margin Stock. Neither the Company nor any of its Included
Subsidiaries owns any Margin Stock.
7.14. Disclosure. Neither this Agreement nor any other Credit Document to
be furnished to the Lenders by or on behalf of the Company or any of its
Included Subsidiaries in connection with the transactions contemplated hereby or
by such Credit Document contains any untrue statement of material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.
8. Defaults.
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8.1. Events of Default. The following events are referred to as "Events
of Default":
8.1.1. Payment. The Company shall fail to make any payment in
respect of: (a) interest or any fee on or in respect of any of the Credit
Obligations owed by it as the same shall become due and payable, and such
failure shall continue for a period of three Business Days, or (b)
principal of any of the Credit Obligations owed by it as the same shall
become due, whether at maturity or by acceleration or otherwise.
8.1.2. Specified Covenants. The Company or any of its Included
Subsidiaries shall fail to perform or observe any of the provisions of
Section 6.4.5 or Sections 6.5 through 6.7.
8.1.3. Other Covenants. The Company, any of its Included
Subsidiaries or any other Obligor shall fail to perform or observe any
other covenant, agreement or provision to be performed or observed by it
under this Agreement or any other Credit Document, and such failure shall
not be rectified or cured to the written satisfaction of the Required
Lenders within 30 days after the earlier of (a) notice thereof by the
Agent to the Company or (b) a Financial Officer shall have actual
knowledge thereof.
8.1.4. Representations and Warranties. Any representation or
warranty of or with respect to the Company, any of its Included
Subsidiaries or any other Obligor made to the Lenders or the Agent in,
pursuant to or in connection with this Agreement or any other Credit
Document shall be false in any material respect on the date as of which it
was made.
8.1.5. Cross Default, etc.
(a) The Company or any of its Included Subsidiaries shall fail to
make any payment when due (after giving effect to any applicable grace
periods) in respect of any Indebtedness (other than the Credit
Obligations) owing to any Lender or such Lender's Affiliates outstanding
in an aggregate amount of principal (whether or not due) and accrued
interest exceeding $500,000;
(b) the Company or any of its Included Subsidiaries shall fail to
perform or observe the terms of any agreement or instrument relating to
such Indebtedness, and such failure shall continue, without having been
duly cured, waived or consented to, beyond the period of grace, if any,
specified in such agreement or instrument, and such failure shall permit
the acceleration of such Indebtedness;
(c) all or any part of such Indebtedness of the Company or any of
its Included Subsidiaries shall be accelerated or shall become due or
payable prior to its
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stated maturity (except with respect to voluntary prepayments thereof) for
any reason whatsoever;
(d) any Lien on any property of the Company or any of its Included
Subsidiaries securing any such Indebtedness shall be enforced by the
obligee under such Indebtedness by foreclosure or similar action; or
(e) any holder of any such Indebtedness shall exercise any right
of rescission with respect to the issuance thereof or put or repurchase
rights against any Obligor with respect to such Indebtedness (other than
any such rights that may be satisfied with "payment in kind" notes or
other similar securities).
8.1.6. Ownership; Liquidation; etc.
(a) any Person, together with "affiliates" and "associates" of
such Person within the meaning of Rule 12b-2 of the Exchange Act, or any
"group" including such Person under sections 13(d) and 14(d) of the
Exchange Act, shall acquire after the date hereof beneficial ownership
within the meaning of Rule 13d-3 of the Exchange Act of 50% or more of
either the voting stock or total equity capital of the Company; or
(b) the Company shall initiate any action to dissolve, liquidate
or otherwise terminate its existence.
8.1.7. Enforceability, etc. Any Credit Document shall cease for any
reason (other than the scheduled termination thereof in accordance with
its terms) to be enforceable in accordance with its terms or in full force
and effect; or any Obligor party to any Credit Document shall so assert in
a judicial or similar proceeding; or the security interests created by
this Agreement or any other Credit Documents shall cease to be enforceable
and of the same effect and priority purported to be created hereby.
8.1.8. Judgments. A final judgment (a) which, with other outstanding
final judgments against the Company and its Included Subsidiaries, exceeds
an aggregate of $500,000 in excess of applicable insurance coverage shall
be rendered against the Company or any of its Included Subsidiaries, or
(b) which grants injunctive relief that results, or creates a material
risk of resulting, in a Material Adverse Change and in either case if, (i)
within 30 days after entry thereof, such judgment shall not have been
discharged or execution thereof stayed pending appeal or (ii) within 30
days after the expiration of any such stay, such judgment shall not have
been discharged.
8.1.9. Bankruptcy, etc. The Company, any of its Included
Subsidiaries or any other Obligor shall:
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(a) commence a voluntary case under the Bankruptcy Code or
authorize, by appropriate proceedings of its board of directors or other
governing body, the commencement of such a voluntary case;
(b) (i) have filed against it a petition commencing an involuntary
case under the Bankruptcy Code that shall not have been dismissed within
60 days after the date on which such petition is filed, or (ii) file an
answer or other pleading within such 60-day period admitting or failing to
deny the material allegations of such a petition or seeking, consenting to
or acquiescing in the relief therein provided, or (iii) have entered
against it an order for relief in any involuntary case commenced under the
Bankruptcy Code;
(c) seek relief as a debtor under any applicable law, other than
the Bankruptcy Code, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the
rights of creditors, or consent to or acquiesce in such relief;
(d) have entered against it an order by a court of competent
jurisdiction (i) finding it to be bankrupt or insolvent, (ii) ordering or
approving its liquidation or reorganization as a debtor or any
modification or alteration of the rights of its creditors or (iii)
assuming custody of, or appointing a receiver or other custodian for, all
or a substantial portion of its property; or
(e) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint, or consent to the appointment
of, or suffer to exist a receiver or other custodian for, all or a
substantial portion of its property.
8.1.10. Material Adverse Change. A Material Adverse Change shall
occur that has not been waived by the Agent within five Business Days
after the occurrence thereof.
8.1.11. Change in Management. Any three of Jerome Cohen, Herbert
Hirsch, Robert Nederlander, Don Mayerson, Jeffrey Moore and James Belter
shall fail to possess the power to direct or cause the direction of the
management and policies of the Company, through stock ownership or
otherwise.
8.2. Certain Actions Following an Event of Default. If any one or more
Events of Default shall occur, then in each and every such case:
8.2.1. Terminate Obligation to Extend Credit. The Agent on behalf of
the Lenders may (and upon written request of the Required Lenders the
Agent shall) terminate the obligations of the Lenders to make any further
extensions of credit under the Credit Documents by furnishing notice of
such termination to the Company.
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8.2.2. Specific Performance; Exercise of Rights. The Agent on behalf
of the Lenders may (and upon written request of the Required Lenders the
Agent shall) proceed to protect and enforce the Lenders' rights by suit in
equity, action at law and/or other appropriate proceeding, either for
specific performance of any covenant or condition contained in this
Agreement or any other Credit Document or in any instrument or assignment
delivered to the Lenders pursuant to this Agreement or any other Credit
Document, or in aid of the exercise of any power granted in this Agreement
or any other Credit Document or any such instrument or assignment.
8.2.3. Acceleration. The Agent on behalf of the Lenders may (and
upon written request of the Required Lenders the Agent shall) by notice in
writing to the Company declare all or any part of the unpaid balance of
the Credit Obligations then outstanding to be immediately due and payable;
provided, however, that if a Bankruptcy Default shall have occurred, the
unpaid balance of the Credit Obligations shall automatically become
immediately due and payable.
8.2.4. Enforcement of Payment; Credit Security; Setoff. The Agent on
behalf of the Lenders may (and upon written request of the Required
Lenders the Agent shall) proceed to enforce payment of the Credit
Obligations in such manner as it may elect, and to realize upon any and
all rights in the Credit Security. The Lenders may offset and apply toward
the payment of the Credit Obligations (and/or toward the curing of any
Event of Default) any Indebtedness from the Lenders to the respective
Obligors, including any Indebtedness represented by deposits in any
account maintained with the Lenders, but excluding trust accounts or other
custodial accounts, regardless of the adequacy of any security for the
Credit Obligations. The Lenders shall have no duty to determine the
adequacy of any such security in connection with any such offset.
8.2.5. Cumulative Remedies. To the extent not prohibited by
applicable law which cannot be waived, all of the Lenders' rights
hereunder and under each other Credit Document shall be cumulative.
8.3. Annulment of Defaults. Once an Event of Default has occurred, such
Event of Default shall be deemed to exist and be continuing for all purposes of
the Credit Documents until the Required Lenders or the Agent (with the consent
of the Required Lenders) shall have waived such Event of Default in writing,
stated in writing that the same has been cured to such Lenders' reasonable
satisfaction or entered into an amendment to this Agreement which by its express
terms cures such Event of Default, at which time such Event of Default shall no
longer be deemed to exist or to have continued. No such action by the Lenders or
the Agent shall extend to or affect any subsequent Event of Default or impair
any rights of the Lenders upon the occurrence thereof. The making of any
extension of credit during the existence of any Default or Event of Default
shall not constitute a waiver thereof.
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8.4. Waivers. To the extent that such waiver is not prohibited by the
provisions of applicable law that cannot be waived, each of the Company and the
other Obligors waives:
(a) all presentments, demands for performance, notices of
nonperformance (except to the extent required by this Agreement or any
other Credit Document), protests, notices of protest and notices of
dishonor;
(b) any requirement of diligence or promptness on the part of any
Lender in the enforcement of its rights under this Agreement, the Notes or
any other Credit Document;
(c) any and all notices of every kind and description (except to
the extent required by this Agreement or any other Credit Document) which
may be required to be given by any statute or rule of law; and
(d) any defense (other than indefeasible payment in full or breach
of this Agreement by the Lenders) which it may now or hereafter have with
respect to its liability under this Agreement, the Notes or any other
Credit Document or with respect to the Credit Obligations.
9. Expenses; Indemnity.
9.1. Expenses. Whether or not the transactions contemplated hereby shall
be consummated, the Company will pay:
(a) all reasonable expenses of the Agent (including the
out-of-pocket expenses related to forming the group of Lenders, travel,
the out-of-pocket expenses related to conducting audits or inspections,
and reasonable fees and disbursements of the counsel to the Agent but
excluding any salaries of employees of the Agent or any Lender) in
connection with the preparation and duplication of this Agreement and each
other Credit Document, the transactions contemplated hereby and thereby
and amendments, waivers, consents and other operations hereunder and
thereunder;
(b) all recording and filing fees, brokers fees, commissions,
underwriting fees and insurance premiums and transfer and documentary
stamp and similar taxes at any time payable in respect of this Agreement,
any other Credit Document, any Credit Security or the incurrence of the
Credit Obligations; and
(c) all other reasonable expenses incurred by the Lenders or the
holder of any Credit Obligation in connection with the enforcement of any
rights hereunder or under any other Credit Document, including costs of
collection and reasonable attorneys' fees (including a reasonable
allowance for the hourly cost of attorneys employed by the Lenders on a
salaried basis) and expenses.
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9.2. General Indemnity. The Company shall indemnify the Lenders and the
Agent and hold them harmless from any liability, loss or damage resulting from
the violation by the Company of Section 2.3.2. In addition, the Company shall
indemnify each Lender, the Agent, each of the Lenders' or the Agent's directors,
officers and employees, and each Person, if any, who controls any Lender or the
Agent (each Lender, the Agent and each of such directors, officers, employees
and control Persons is referred to as an "Indemnified Party") and hold each of
them harmless from and against any and all claims, damages, liabilities and
reasonable expenses (including reasonable fees and disbursements of counsel with
whom any Indemnified Party may consult in connection therewith and all
reasonable expenses of litigation or preparation therefor) which any Indemnified
Party may incur or which may be asserted against any Indemnified Party in
connection with (a) the Indemnified Party's compliance with or contest of any
subpoena or other process issued against it in any proceeding involving the
Company or any of its Included Subsidiaries or their Affiliates, (b) any
litigation or investigation involving the Company, any of its Included
Subsidiaries or their Affiliates, or any officer, director or employee thereof,
(c) the existence or exercise of any security rights with respect to the Credit
Security in accordance with the Credit Documents, or (d) this Agreement, any
other Credit Document or any transaction contemplated hereby or thereby;
provided, however, that the foregoing indemnity shall not apply to litigation
commenced by the Company against the Lenders or the Agent which seeks
enforcement of any of the rights of the Company hereunder or under any other
Credit Document and is determined adversely to the Lenders or the Agent in a
final nonappealable judgment or to the extent such claims, damages, liabilities
and expenses result from a Lender's or the Agent's gross negligence or willful
misconduct.
10. Operations; Agent.
10.1. Interests in Credits. The Percentage Interest of each Lender in the
respective Tranches of the Loan, and the related Commitments, shall be computed
based on the maximum principal amount for each Lender as set forth in the
Register, as from time to time in effect. The current Percentage Interests are
set forth in Exhibit 10.1, which may be updated by the Agent from time to time
to conform to the Register.
10.2. Agent's Authority to Act, etc. Each of the Lenders appoints and
authorizes TFC to act for the Lenders as the Lenders' Agent in connection with
the transactions contemplated by this Agreement and the other Credit Documents
(other than Interest Rate Protection Agreements) on the terms set forth herein.
All action in connection with the enforcement of, or the exercise of any
remedies (other than the Lenders' rights of set-off as provided in Section 8.2.4
or in any Credit Document) in respect of the Credit Obligations and Credit
Documents shall be taken by the Agent.
10.3. Company to Pay Agent, etc. The Company shall be fully protected in
making all payments in respect of the Credit Obligations to the Agent, in
relying upon consents,
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modifications and amendments executed by the Agent purportedly on the Lenders'
behalf, and in dealing with the Agent as herein provided. The Agent may charge
the accounts of the Company, on the dates when the amounts thereof become due
and payable, with the amounts of the principal of and interest on the Loan and
all other fees and amounts owing under any Credit Document.
10.4. Lender Operations for Advances, etc.
10.4.1. Advances. On each Closing Date, each Lender shall advance to
the Agent in immediately available funds such Lender's Percentage Interest
in the particular Tranche of the Loan advanced on such Closing Date prior
to 12:00 noon (Providence time). If such funds are not received at such
time, but all applicable conditions set forth in Section 5 have been
satisfied, each Lender authorizes and requests the Agent to advance for
the Lender's account, pursuant to the terms hereof, the Lender's
respective Percentage Interest in such Tranche of the Loan and agrees to
reimburse the Agent in immediately available funds for the amount thereof
prior to 2:00 p.m. (Providence time) on the day any Tranche of the Loan is
advanced hereunder; provided, however, that the Agent is not authorized to
make any such advance for the account of any Lender who has previously
notified the Agent in writing that such Lender will not be performing its
obligations to make further advances hereunder; and provided, further,
that the Agent shall be under no obligation to make any such advance.
10.4.2. Agent to Allocate Payments, etc. All payments of principal
and interest in respect of the extensions of credit made pursuant to this
Agreement and other fees under this Agreement shall, as a matter of
convenience, be made by the Company to the Agent in immediately available
funds by noon (Providence time) on any Business Day. The share of each
Lender shall be credited to such Lender by the Agent in immediately
available funds by 2:00 p.m. (Providence time) on such Business Day in
such manner that the principal amount of the Credit Obligations to be paid
shall be paid proportionately in accordance with the Lenders' respective
Percentage Interests in such Credit Obligations, except as otherwise
provided in this Agreement. Under no circumstances shall any Lender be
required to produce or present its Notes as evidence of its interests in
the Credit Obligations in any action or proceeding relating to the Credit
Obligations.
10.4.3. Delinquent Lenders; Nonperforming Lenders. In the event that
any Lender fails to reimburse the Agent pursuant to Sections 10.4.1 for
the Percentage Interest in a particular Tranche of the Loan of such lender
(a "Delinquent Lender") in any credit advanced by the Agent pursuant
hereto, overdue amounts (the "Delinquent Payment") due from the Delinquent
Lender to the Agent shall bear interest, payable by the Delinquent Lender
on demand, at a per annum rate equal to (a) the Base Rate for the first
three days overdue and (b) the sum of 2% plus the Base Rate for any longer
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period. Such interest shall be payable by the Delinquent Lender to the
Agent for its own account for the period commencing on the date of the
Delinquent Payment and ending on the date the Delinquent Lender reimburses
the Agent on account of the Delinquent Payment (to the extent not paid by
any Obligor as provided below) and the accrued interest thereon (the
"Delinquency Period"), whether pursuant to the assignments referred to
below or otherwise. During the Delinquency Period, in order to make
reimbursements for the Delinquent Payment and accrued interest thereon,
the Delinquent Lender shall be deemed to have assigned to the Agent all
interest, commitment fees and other payments made by the Company under
Section 3 that would have thereafter otherwise been payable under the
Credit Documents to the Delinquent Lender. During any other period in
which any Lender is not performing its obligations to extend credit under
Section 2 (a "Nonperforming Lender"), the Nonperforming Lender shall be
deemed to have assigned to each Lender that is not a Nonperforming Lender
(a "Performing Lender") all principal and other payments made by the
Company under Section 4 that would have thereafter otherwise been payable
under the Credit Documents to the Nonperforming Lender. The Agent shall
credit a portion of such payments to each Performing Lender in an amount
equal to the Percentage Interest in such Tranche of such Performing Lender
divided by one minus the Percentage Interest in such Tranche of the
Nonperforming Lender until the respective portions of such Tranche of the
Loan owed to all the Lenders are the same as the Percentage Interests in
such Tranche of the Lenders immediately prior to the failure of the
Nonperforming Lender to perform its obligations under Section 2. The
foregoing provisions shall be in addition to any other remedies the Agent,
the Performing Lenders or the Company may have under law or equity against
the Delinquent Lender as a result of the Delinquent Payment or against the
Nonperforming Lender as a result of its failure to perform its obligations
under Section 2.
10.5. Sharing of Payments, etc. Each Lender agrees that (a) if by
exercising any right of set-off or counterclaim or otherwise, it shall receive
payment of (i) a proportion of the aggregate amount due with respect to its
Percentage Interest in a particular Tranche of the Loan which is greater than
(ii) the proportion received by any other Lender in respect of the aggregate
amount due with respect to such other Lender's Percentage Interest in such
Tranche of the Loan and (b) if such inequality shall continue for more than 10
days, the Lender receiving such proportionately greater payment shall purchase
participations in the Percentage Interests in such Tranche of the Loan held by
the other Lenders, and such other adjustments shall be made from time to time
(including rescission of such purchases of participations in the event the
unequal payment originally received is recovered from such Lender through
bankruptcy proceedings or otherwise), as may be required so that all such
payments of principal and interest with respect to the Loan held by the Lenders
shall be shared by the Lenders pro rata in accordance with their respective
Percentage Interests in such Tranche; provided, however, that this Section 10.5
shall not impair the right of any Lender to exercise any right of set-off or
counterclaim it may have and to apply the amount subject to such exercise to the
payment of Indebtedness of any Obligor other than such Obligor's Indebtedness
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with respect to the Loan. Each Lender that grants a participation in the Credit
Obligations to a Credit Participant shall require as a condition to the granting
of such participation that such Credit Participant agree to share payments
received in respect of the Credit Obligations as provided in this Section 10.5.
The provisions of this Section 10.5 are for the sole and exclusive benefit of
the Lenders and no failure of any Lender to comply with the terms hereof shall
be available to any Obligor as a defense to the payment of the Credit
Obligations.
10.6. Agent's Resignation. The Agent may resign at any time by giving at
least 60 days' prior written notice of its intention to do so to each of the
Lenders and the Company and upon the appointment by the Required Lenders of a
successor Agent satisfactory to the Company. If no successor Agent shall have
been so appointed and shall have accepted such appointment within 45 days after
the retiring Agent's giving of such notice of resignation, then the retiring
Agent may with the consent of the Company, which shall not be unreasonably
withheld, appoint a successor Agent which shall be a bank or a trust company
organized under the laws of the United States of America or any state thereof
and having a combined capital, surplus and undivided profit of at least
$100,000,000; provided, however, that any successor Agent appointed under this
sentence may be removed upon the written request of the Required Lenders, which
request shall also appoint a successor Agent reasonably satisfactory to the
Company. Upon the appointment of a new Agent hereunder, the term "Agent" shall
for all purposes of this Agreement thereafter mean such successor. After any
retiring Agent's resignation hereunder as Agent, or the removal hereunder of any
successor Agent, the provisions of this Agreement shall continue to inure to the
benefit of such retiring or removed Agent as to any actions taken or omitted to
be taken by it while it was Agent under this Agreement.
10.7. Concerning the Agent.
10.7.1. Action in Good Faith, etc. The Agent and its officers,
directors, employees and agents shall be under no liability to any of the
Lenders or to any future holder of any interest in the Credit Obligations
for any action or failure to act taken or suffered in good faith, and any
action or failure to act in accordance with an opinion of its counsel
shall conclusively be deemed to be in good faith. The Agent shall in all
cases be entitled to rely, and shall be fully protected in relying, on
instructions given to the Agent by the Required Lenders.
10.7.2. No Implied Duties, etc. The Agent shall have and may
exercise such powers as are specifically delegated to the Agent under this
Agreement or any other Credit Document together with all other powers
incidental thereto. The Agent shall have no implied duties to any Person
or any obligation to take any action under this Agreement or any other
Credit Document except for action specifically provided for in this
Agreement or any other Credit Document to be taken by the Agent.
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10.7.3. Validity, etc. The Agent shall not be responsible to any
Lender or any future holder of any interest in the Credit Obligations (a)
for the legality, validity, enforceability or effectiveness of this
Agreement or any other Credit Document, (b) for any recitals, reports,
representations, warranties or statements contained in or made in
connection with this Agreement or any other Credit Document, (c) for the
existence or value of any assets included in any security for the Credit
Obligations, (d) for the effectiveness of any Lien purported to be
included in the Credit Security, (e) for the specification or failure to
specify any particular assets to be included in the Credit Security, or
(f) unless the Agent shall have failed to comply with Section 10.7.1, for
the perfection of the security interests in the Credit Security.
10.7.4. Compliance. The Agent shall not be obligated to ascertain or
inquire as to the performance or observance of any of the terms of this
Agreement or any other Credit Document; and in connection with any
extension of credit under this Agreement or any other Credit Document, the
Agent shall be fully protected in relying on a certificate of the Company
as to the fulfillment by the Company of any conditions to such extension
of credit.
10.7.5. Employment of Agents and Counsel. The Agent may execute any
of its duties as Agent under this Agreement or any other Credit Document
by or through employees, agents and attorneys-in-fact and shall not be
responsible to any of the Lenders, the Company or any other Obligor for
the default or misconduct of any such agents or attorneys-in-fact selected
by the Agent acting in good faith. The Agent shall be entitled to advice
of counsel concerning all matters pertaining to the agency hereby created
and its duties hereunder or under any other Credit Document.
10.7.6. Reliance on Documents and Counsel. The Agent shall be
entitled to rely, and shall be fully protected in relying, upon any
affidavit, certificate, cablegram, consent, instrument, letter, notice,
order, document, statement, telecopy, telegram, telex or teletype message
or writing reasonably believed in good faith by the Agent to be genuine
and correct and to have been signed, sent or made by the Person in
question, including any telephonic or oral statement made by such Person,
and, with respect to legal matters, upon an opinion or the advice of
counsel selected by the Agent.
10.7.7. Agent's Reimbursement. Each of the Lenders severally agrees
to reimburse the Agent, pro rata in accordance with such Lender's
Percentage Interest, for any reasonable expenses not reimbursed by the
Company (without limiting the obligation of the Company to make such
reimbursement): (a) for which the Agent is entitled to reimbursement by
the Company under this Agreement or any other Credit Document, and (b)
after the occurrence of a Default, for any other reasonable expenses
incurred by the Agent on the Lenders' behalf in connection with the
enforcement of the Lenders' rights under this Agreement or any other
Credit Document; provided,
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however, that the Agent shall not be reimbursed for any such expenses
arising as a result of its gross negligence or willful misconduct.
10.8. Rights as a Lender. With respect to any credit extended by it
hereunder, TFC shall have the same rights, obligations and powers hereunder as
any other Lender and may exercise such rights and powers as though it were not
the Agent, and unless the context otherwise specifies, TFC shall be treated in
its individual capacity as though it were not the Agent hereunder. Without
limiting the generality of the foregoing, the Percentage Interest of TFC shall
be included in any computations of Percentage Interests. TFC and its Affiliates
may lend money to, act as trustee for and generally engage in any kind of
business with the Company, any of its Subsidiaries or any Affiliate of any of
them and any Person who may do business with or own an equity interest in the
Company, any of its Subsidiaries or any Affiliate of any of them, all as if TFC
were not the Agent and without any duty to account therefor to the other
Lenders.
10.9. Independent Credit Decision. Each of the Lenders acknowledges that
it has independently and without reliance upon the Agent, based on the financial
statements and other documents referred to in Section 7.2, on the other
representations and warranties contained herein and on such other information
with respect to the Company and its Included Subsidiaries as such Lender deemed
appropriate, made such Lender's own credit analysis and decision to enter into
this Agreement and to make the extensions of credit provided for hereunder. Each
Lender represents to the Agent that such Lender will continue to make its own
independent credit and other decisions in taking or not taking action under this
Agreement or any other Credit Document. Each Lender expressly acknowledges that
neither the Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates has made any representations or warranties to
such Lender, and no act by the Agent taken under this Agreement or any other
Credit Document, including any review of the affairs of the Company and its
Included Subsidiaries, shall be deemed to constitute any representation or
warranty by the Agent. Except for notices, reports and other documents expressly
required to be furnished to each Lender by the Agent under this Agreement or any
other Credit Document, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
operations, property, condition, financial or otherwise, or creditworthiness of
the Company or any Included Subsidiary which may come into the possession of the
Agent or any of its officers, directors, employees, agents, attorneys-in-fact or
Affiliates.
10.10. Indemnification. The Lenders shall severally indemnify the Agent
and its officers, directors, employees, agents, attorneys, accountants,
consultants and controlling Persons (to the extent not reimbursed by the
Obligors and without limiting the obligation of any of the Obligors to do so),
pro rata in accordance with their respective Percentage Interests, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind
whatsoever which may at any time be imposed on, incurred by or asserted against
the Agent or such Persons relating to or
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arising out of this Agreement, any other Credit Document, the transactions
contemplated hereby or thereby, or any action taken or omitted by the Agent in
connection with any of the foregoing; provided, however, that the foregoing
shall not extend to actions or omissions which are taken by the Agent with gross
negligence or willful misconduct.
11. Successors and Assigns; Lender Assignments and Participations. Any
reference in this Agreement or any other Credit Document to any of the parties
hereto shall be deemed to include the successors and assigns of such party, and
all covenants and agreements by or on behalf of the Company, the other Obligors,
the Agent or the Lenders that are contained in this Agreement or any other
Credit Document shall bind and inure to the benefit of their respective
successors and assigns; provided, however, that (a) the Company and its Included
Subsidiaries may not assign their rights or obligations under this Agreement or
any other Credit Document except for mergers or liquidations permitted by
Section 6.7, and (b) the Lenders shall be not entitled to assign their
respective Percentage Interests in the credits extended hereunder or their
Commitments except in accordance with Section 11.1.
11.1. Assignments by Lenders.
11.1.1. Assignees and Assignment Procedures. Each Lender may (a)
without the consent of the Agent or the Company if the proposed assignee
is already a Lender hereunder, an Affiliate of a Lender or a Wholly Owned
Subsidiary of the same corporate parent of which the assigning Lender is a
Subsidiary, or (b) otherwise with the consents of the Agent and (so long
as no Event of Default exists) the Company (which consents will not be
unreasonably withheld), in compliance with applicable laws in connection
with such assignments, assign to one or more commercial banks or other
financial institutions (each, an "Assignee") all or a portion of its
interests, rights and obligations under this Agreement and the other
Credit Documents, including all or a portion of its Commitment, the
portion of the Loan at the time owing to it and the Notes held by it. The
parties to each such assignment shall execute and deliver to the Agent an
Assignment and Acceptance (the "Assignment and Acceptance") substantially
in the form of Exhibit 11.1.1, together with the Note subject to such
assignment and a processing and recordation fee of $3,000 payable to the
Agent by the assigning Lender or the Assignee.
Upon acceptance and recording pursuant to Section 11.1.4, from and after
the effective date specified in each Assignment and Acceptance (which effective
date shall be at least five Business Days after the execution thereof unless
waived by the Agent):
(A) the Assignee shall be a party hereto and, to the extent
provided in such Assignment and Acceptance, have the rights
and obligations of a Lender under this Agreement and
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(B) the assigning Lender shall, to the extent provided in such
assignment, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance
covering all or the remaining portion of an assigning Lender's
rights and obligations under this Agreement, such Lender shall
cease to be a party hereto but shall continue to be entitled
to the benefits of Sections 3.3 and 9, as well as to any fees
accrued for its account hereunder and not yet paid).
11.1.2. Terms of Assignment and Acceptance. By executing and
delivering an Assignment and Acceptance, the assigning Lender and Assignee
shall be deemed to confirm to and agree with each other and the other
parties hereto as follows:
(a) other than the representation and warranty that it is the
legal and beneficial owner of the interest being assigned thereby free and
clear of any adverse claim, such assigning Lender makes no representation
or warranty and assumes no responsibility with respect to any statements,
warranties or representations made in or in connection with this Agreement
or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, any other Credit Document or any
other instrument or document furnished pursuant hereto;
(b) such assigning Lender makes no representation or warranty and
assumes no responsibility with respect to the financial condition of the
Company and its Included Subsidiaries or the performance or observance by
the Company or any of its Included Subsidiaries of any of its obligations
under this Agreement, any other Credit Document or any other instrument or
document furnished pursuant hereto;
(c) such Assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 7.2 or Section 6.4 and such other documents
and information as it has deemed appropriate to make its own credit
analysis and decision to enter into such Assignment and Acceptance;
(d) such Assignee will independently and without reliance upon the
Agent, such assigning Lender or any other Lender, and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under this Agreement;
(e) such Assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers under this
Agreement as are delegated to the Agent by the terms hereof, together with
such powers as are reasonably incidental thereto; and
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(f) such Assignee agrees that it will perform in accordance with
the terms of this Agreement all the obligations which are required to be
performed by it as a Lender.
11.1.3. Register. The Agent shall maintain at the Providence Office
a register (the "Register") for the recordation of (a) the names and
addresses of the Lenders and the Assignees which assume rights and
obligations pursuant to an assignment under Section 11.1.1, (b) the
Percentage Interest of each such Lender as set forth in Exhibit 10.1 and
(c) the amount of the Loan owing to each Lender from time to time. The
entries in the Register shall be conclusive, in the absence of manifest
error, and the Company, the Agent and the Lenders may treat each Person
whose name is registered therein for all purposes as a party to this
Agreement. The Register shall be available for inspection by the Company
or any Lender at any reasonable time and from time to time upon reasonable
prior notice.
11.1.4. Acceptance of Assignment and Assumption. Upon its receipt of
a completed Assignment and Acceptance executed by an assigning Lender and
an Assignee together with the Note subject to such assignment, and the
processing and recordation fee referred to in Section 11.1.1, the Agent
shall (a) accept such Assignment and Acceptance, (b) record the
information contained therein in the Register and (c) give prompt notice
thereof to the Company. Within five Business Days after receipt of notice,
the Company, at its own expense, shall execute and deliver to the Agent,
in exchange for the surrendered Note, a new Note to the order of such
Assignee in a principal amount equal to the applicable Commitment and Loan
assumed by it pursuant to such Assignment and Acceptance and, if the
assigning Lender has retained a Commitment and Loan, a new Note to the
order of such assigning Lender in a principal amount equal to the
applicable Commitment and Loan retained by it. Such new Note shall be in
an aggregate principal amount equal to the aggregate principal amount of
such surrendered Note, and shall be dated the date of the surrendered Note
which it replaces.
11.1.5. Federal Reserve Bank. Notwithstanding the foregoing
provisions of this Section 11, any Lender may at any time pledge or assign
all or any portion of such Lender's rights under this Agreement and the
other Credit Documents to a Federal Reserve Bank; provided, however, that
no such pledge or assignment shall release such Lender from such Lender's
obligations hereunder or under any other Credit Document.
11.1.6. Further Assurances. The Company and its Included
Subsidiaries shall sign such documents and take such other actions from
time to time reasonably requested by an Assignee to enable it to share in
the benefits of the rights created by the Credit Documents.
-46-
<PAGE> 54
11.2. Credit Participants. Each Lender may, without the consent of the
Company or the Agent, in compliance with applicable laws in connection with such
participation, sell to one or more commercial banks or other financial
institutions (each a "Credit Participant") participations in all or a portion of
its interests, rights and obligations under this Agreement and the other Credit
Documents (including all or a portion of its Commitment, the Loan owing to it
and the Note held by it); provided, however, that:
(a) such Lender's obligations under this Agreement shall remain
unchanged;
(b) such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations;
(c) the Credit Participant shall be entitled to the benefit of the
cost protection provisions contained in Sections 3.3 and 9, but shall not
be entitled to receive any greater payment thereunder than the selling
Lender would have been entitled to receive with respect to the interest so
sold if such interest had not been sold; and
(d) the Company, the Agent and the other Lenders shall continue to
deal solely and directly with such Lender in connection with such Lender's
rights and obligations under this Agreement, and such Lender shall retain
the sole right as one of the Lenders to vote with respect to the
enforcement of the obligations of the Company relating to the Loan and the
approval of any amendment, modification or waiver of any provision of this
Agreement (other than amendments, modifications, consents or waivers that
reduce the amount of the Loan or the rate of interest thereon, extend the
stated time of payment of the Loan, increase the Commitments or release a
substantial portion of the Credit Security).
Each Obligor agrees, to the fullest extent permitted by applicable law, that any
Credit Participant and any Lender purchasing a participation from another Lender
may exercise all rights of payment (including the right of set-off), with
respect to its participation as fully as if such Credit Participant or such
Lender were the direct creditor of the Obligors and a Lender hereunder in the
amount of such participation.
12. Brokers Fees. Whether or not the transactions contemplated hereby shall be
consummated:
(a) the Agent shall not be required to pay any brokerage fee,
commission or similar compensation in connection with the transactions
contemplated by this Agreement; and
(b) the Company will indemnify and hold harmless the Agent from
and against any and all claims, liabilities or obligations with respect to
brokerage or
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<PAGE> 55
finders' fees or commissions, or consulting fees in connection with the
transactions contemplated by this Agreement.
The Agent is not aware of any brokerage fee, commission or similar compensation
required to be paid by the Agent or the Company in connection with the
transactions contemplated by this Agreement.
13. Confidentiality. Each Lender will make no disclosure of confidential
information furnished to it by the Company or any of its Subsidiaries unless
such information shall have become public, except:
(a) in connection with operations under or the enforcement of this
Agreement or any other Credit Document to Persons who have a reasonable
need to be furnished such confidential information and who agree to comply
with the restrictions contained in this Section 13 with respect to such
information;
(b) pursuant to any statutory or regulatory requirement or any
mandatory court order, subpoena or other legal process;
(c) to any parent or corporate Affiliate of such Lender or to any
Credit Participant, proposed Credit Participant or proposed Assignee;
provided, however, that any such Person shall agree to comply with the
restrictions set forth in this Section 13 with respect to such
information;
(d) to its independent counsel, auditors and other professional
advisors with an instruction to such Person to keep such information
confidential; and
(e) with the prior written consent of the Company, to any other
Person.
14. Notices. Except as otherwise specified in this Agreement or any other
Credit Document, any notice required to be given pursuant to this Agreement or
any other Credit Document shall be given in writing. Any notice, consent,
approval, demand or other communication in connection with this Agreement or any
other Credit Document shall be deemed to be given if given in writing (including
telex, telecopy or similar teletransmission) addressed as provided below (or to
the addressee at such other address as the addressee shall have specified by
notice actually received by the addressor), and if either (a) actually delivered
in fully legible form to such address (evidenced in the case of a telex by
receipt of the correct answerback) or (b) in the case of a letter, unless actual
receipt of the notice is required by any Credit Document, five days shall have
elapsed after the same shall have been deposited in the United States mails,
with first-class postage prepaid and registered or certified.
If to the Company or any of its Included Subsidiaries, to it at its
address set forth in Exhibit 7.1 (as supplemented pursuant to Section 6.4.1), to
the attention of the President, with
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<PAGE> 56
a copy to Jerome Cohen, Chairman, at 1125 North East 125th Street - Suite 206,
North Miami, Florida 33161.
If to any Lender or the Agent, to it at its address set forth on the
signature pages of this Agreement, with a copy to the Agent.
15. Course of Dealing; Amendments and Waivers.
15.1. Course of Dealing. No course of dealing between any Lender or the
Agent, on one hand, and the Company or any other Obligor, on the other hand,
shall operate as a waiver of any of the Lenders' or the Agent's rights under
this Agreement or any other Credit Document or with respect to the Credit
Obligations. Each of the Company and the Obligors acknowledges that if the
Lenders or the Agent, without being required to do so by this Agreement or any
other Credit Document, give any notice or information to, or obtain any consent
from, the Company or any other Obligor, the Lenders and the Agent shall not by
implication have amended, waived or modified any provision of this Agreement or
any other Credit Document, or created any duty to give any such notice or
information or to obtain any such consent on any future occasion. No delay or
omission on the part of any Lender or the Agent in exercising any right under
this Agreement or any other Credit Document or with respect to the Credit
Obligations shall operate as a waiver of such right or any other right hereunder
or thereunder. A waiver on any one occasion shall not be construed as a bar to
or waiver of any right or remedy on any future occasion. No waiver, consent or
amendment with respect to this Agreement or any other Credit Document shall be
binding unless it is in writing and signed by the Agent or the Required Lenders.
15.2. Lender Consents for Amendments. Except as otherwise set forth
herein, the Agent may (and upon the written request of the Required Lenders the
Agent shall) take or refrain from taking any action under this Agreement or any
other Credit Document, including giving its written consent to any modification
of or amendment to and waiving in writing compliance with any covenant or
condition in this Agreement or any other Credit Document or any Default or Event
of Default, all of which actions shall be binding upon all of the Lenders;
provided, however, that:
(a) Except as provided below, without the written consent of the
Lenders owning at least a majority of the Percentage Interests
(disregarding the Percentage Interest of any Delinquent Lender during the
existence of a Delinquency Period or of any Nonperforming Lender so long
as such Lender is treated equally with the other Lenders with respect to
any actions enumerated below), no written modification of, amendment to,
consent with respect to, waiver of compliance with or waiver of a Default
under, any of the Credit Documents shall be made.
(b) Without the written consent of such Lenders as own 100% of the
Percentage Interests in a particular Tranche (disregarding the Percentage
Interest of any
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<PAGE> 57
Delinquent Lender during the existence of a Delinquency Period or of any
Nonperforming Lender so long as such Lender is treated equally with the
other Lenders with respect to any actions enumerated below):
(i) No reduction shall be made in (A) the amount of
principal of such Tranche, (B) the interest rate on such Tranche
(other than amendments and waivers approved by the Required Lenders
that waive an increase in the Applicable Rate as a result of an
Event of Default) or (C) commitment fees with respect to such
Tranche provided herein.
(ii) No change shall be made in the stated, scheduled time of
payment of all or any portion of such Tranche or interest thereon or
fees relating to any of the foregoing payable to all of the Lenders
and no waiver shall be made of any Default under Section 8.1.1.
(iii) No increase shall be made in the amount, or extension of
the term, of the stated Commitments for such Tranche beyond that
provided for under Section 2.
(iv) No alteration shall be made of the Lenders' rights of
set-off contained in Section 8.2.4.
(v) No release of all or a material portion of the Credit
Security relating to the Pledged Securities for a particular Tranche
or release of the Company or any guarantor shall be made (in any
event, without the written consent of the Lenders, the Agent may
release all Credit Security relating to the Pledged Securities for a
particular Tranche pursuant to Section 17 upon payment in full of
the Credit Obligations with respect to such Tranche and termination
of the Commitments with respect to such Tranche).
(vi) No amendment to or modification of this Section 15.2 or
the definition of "Required Lenders" shall be made.
16. No Strict Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement and the other Credit Documents with
counsel sophisticated in financing transactions. In the event an ambiguity or
question of intent or interpretation arises, this Agreement and the other Credit
Documents shall be construed as if drafted jointly by the parties and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement and the other
Credit Documents.
17. Defeasance. When all Credit Obligations with respect to a particular
Tranche have been paid, performed and reasonably determined by the Lenders to
have been indefeasibly discharged in full, and if at the time no Event of
Default exists, at the Company's written
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<PAGE> 58
request, accompanied by such certificates and other items as the Agent shall
reasonably deem necessary, the Credit Security relating to the Pledged
Securities for such Tranche shall revert to the Obligors and the right, title
and interest of the Lenders therein shall terminate. Thereupon, on the Obligor's
demand and at their cost and expense, the Agent shall execute proper
instruments, acknowledging satisfaction of and discharging such security
interests, and shall redeliver to the Obligors all certificates evidencing any
such Credit Security then in its possession; provided, however, that Sections
3.3, 9, 13, 18 and 19 shall survive the termination of this Agreement.
18. Venue; Service of Process, etc. Each of the Company and the other
Obligors:
(a) Irrevocably submits to the nonexclusive jurisdiction of the
state courts of Rhode Island and to the nonexclusive jurisdiction of the
United States District Court for the District of Rhode Island for the
purpose of any suit, action or other proceeding arising out of or based
upon this Agreement or any other Credit Document or the subject matter
hereof or thereof.
(b) Waives to the extent not prohibited by applicable law that
cannot be waived, and agrees not to assert, by way of motion, as a defense
or otherwise, in any such proceeding brought in any of the above-named
courts, any claim that it is not subject personally to the jurisdiction of
such court, that its property is exempt or immune from attachment or
execution, that such proceeding is brought in an inconvenient forum, that
the venue of such proceeding is improper, or that this Agreement or any
other Credit Document, or the subject matter hereof or thereof, may not be
enforced in or by such court.
(c) Consents to service of process in any such proceeding in any
manner at the time permitted by the general laws of the State of Rhode
Island and agrees that service of process by registered or certified mail,
return receipt requested, at its address specified in or pursuant to
Section 14 is reasonably calculated to give actual notice.
(d) Waives to the extent not prohibited by applicable law that
cannot be waived any right it may have to claim or recover in any such
proceedings such special, exemplary or punitive damages.
19. WAIVER OF JURY TRIAL. TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW THAT
CANNOT BE WAIVED, EACH OF THE COMPANY, THE OTHER OBLIGORS, THE AGENT AND THE
LENDERS WAIVES, AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF,
DEFENDANT OR OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF
ANY ISSUE, CLAIM OR PROCEEDING ARISING OUT OF THIS AGREEMENT OR ANY OTHER CREDIT
DOCUMENT OR THE SUBJECT MATTER HEREOF OR
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<PAGE> 59
THEREOF OR ANY CREDIT OBLIGATION OR IN ANY WAY CONNECTED WITH THE DEALINGS OF
THE LENDERS, THE AGENT, THE COMPANY OR ANY OTHER OBLIGOR IN CONNECTION WITH ANY
OF THE ABOVE, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING AND WHETHER
IN CONTRACT, TORT OR OTHERWISE. Each of the Company and the other Obligors
acknowledges that it has
been informed by the Agent that the provisions of this Section 19 constitute a
material inducement upon which each of the Lenders has relied and will rely in
entering into this Agreement and any other Credit Document, and that it has
reviewed the provisions of this Section 19 with its counsel. Any Lender, the
Agent, the Company or any other Obligor may file an original counterpart or a
copy of this Section 19 with any court as written evidence of the consent of the
Company, the other Obligors, the Agent and the Lenders to the waiver of their
rights to trial by jury.
20. General. All covenants, agreements, representations and warranties made in
this Agreement or any other Credit Document or in certificates delivered
pursuant hereto or thereto shall be deemed to have been relied on by each
Lender, notwithstanding any investigation made by any Lender on its behalf, and
shall survive the execution and delivery to the Lenders hereof and thereof. The
invalidity or unenforceability of any provision hereof shall not affect the
validity or enforceability of any other provision hereof, and any invalid or
unenforceable provision shall be modified so as to be enforced to the maximum
extent of its validity or enforceability. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Agreement and the other Credit Documents (including any
related fee agreements with the Agent or the Lenders) constitute the entire
understanding of the parties with respect to the subject matter hereof and
thereof and supersede all prior and contemporaneous understandings and
agreements, whether written or oral. This Agreement may be executed in any
number of counterparts which together shall constitute one instrument. This
Agreement shall be governed by and construed in accordance with the laws (other
than the conflict of laws rules) of the State of Rhode Island.
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<PAGE> 60
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
MEGO MORTGAGE CORPORATION
By /s/ [SIG]
--------------------------------------
Title: EXECUTIVE VICE PRESIDENT
TEXTRON FINANCIAL CORPORATION
By
--------------------------------------
Title:
<PAGE> 61
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first above written.
MEGO MORTGAGE CORPORATION
By
--------------------------------------
Title:
TEXTRON FINANCIAL CORPORATION
By /s/ [SIG]
--------------------------------------
Title: VICE PRESIDENT
<PAGE> 62
MEGO MORTGAGE CORPORATION
TEXTRON FINANCIAL CORPORATION
EXHIBITS
1 - Tranches and Securitization Agreements
2.1.5 - Note
5.1.4 - Security Agreement
5.2.1 - Officer's Certificate
7.1 - Company and its Subsidiaries
7.2.2 - Material Agreements
7.9 - Defaults under other Agreements
10.1 - Percentage Interests
11.1.1 - Assignment and Acceptance
<PAGE> 63
Exhibit 1
TRANCHES AND SECURITIZATION AGREEMENTS
1. February 1997 - Financial Assets Transaction
1.1. Tranche
<TABLE>
<CAPTION>
Amortization Date and
Amount Revolving Period Commitment Fee
- ------ --------------------- --------------
<S> <C> <C>
$5,000,000 The date seven months 1% of total
after the Initial Closing Commitment
plus, up to $3,800,000 to the extent Date (estimated to be
evidenced by increased May 27, 1998).
Commitments of TFC (based on
Credit Participants) or other
Lenders other than TFC who
become party to the Credit
Agreement with an additional
Commitment in such Tranche.
</TABLE>
1.2.1. Sale and Servicing Agreement dated as of February 1, 1997
among the Company, Mego Mortgage Home Loan Owner Trust 1997-1 (the
"Trust"), Financial Asset Securities Corp. ("Financial Asset"), Norwest
Bank Minnesota, N.A. ("Norwest"), and First Trust of New York, N.A.
("First Trust").
1.2.2. Servicing Agreement dated as of February 1, 1997 among the
Company, Norwest and First Trust.
1.2.3. Indenture dated as of February 1, 1997 between First Trust
and the Company.
1.2.4. Trust Agreement dated as of February 1, 1997 among the
Company, Financial Asset, First Trust and Wilmington Trust Company.
1.2.5. Insurance Agreement dated as of February 1, 1997 among the
Company, the Trust, Financial Asset, Norwest, First Trust, MBIA Insurance
Corporation, Mego Mortgage Home Loan Acceptance Corporation, and Greenwich
Capital Financial Products, Inc.
<PAGE> 64
Exhibit 2.1.5
NOTE
N-__ ______________, 199_
FOR VALUE RECEIVED, the undersigned, Mego Mortgage Corporation, a Delaware
corporation (the "Company"), hereby promises to pay ___________________ (the
"Lender") or order, on the Final Maturity Date, the aggregate unpaid principal
amount of the revolving and term loans made by the Lender to the Company
pursuant to the Credit Agreement referred to below. The Company promises to pay
interest from the date hereof, computed as provided in such Credit Agreement, on
the aggregate principal amount of such loans from time to time unpaid at the per
annum rate applicable to such unpaid principal amount as provided in such Credit
Agreement and to pay interest on overdue principal and, to the extent not
prohibited by applicable law, on overdue installments of interest at the rate
specified in such Credit Agreement, all such interest being payable at the times
specified in such Credit Agreement, except that all accrued and unpaid interest
shall be paid at the stated or accelerated maturity hereof or upon the
prepayment in full hereof.
Payments hereunder shall be made to Textron Financial Corporation, as
agent for the Lender, at Commerce Center, 333 East River Drive, Suite #305, East
Hartford, Connecticut 05108.
All revolving and term loans made by the Lender pursuant to the Credit
Agreement referred to below and all repayments of the principal thereof shall be
recorded by the Lender and, prior to any transfer hereof, appropriate notations
to evidence the foregoing information with respect to each such loan then
outstanding shall be endorsed by the Lender on the schedule attached hereto or
on a continuation of such schedule attached to and made a part hereof; provided,
however, that the failure of the Lender to make any such recordation or
endorsement shall not affect the obligations of the Company under this Note,
such Credit Agreement or any other Credit Document.
This Note evidences borrowings under, and is entitled to the benefits of,
and is subject to the provisions of, the Credit Agreement dated as of October
27, 1997, as from time to time in effect (the "Credit Agreement"), among the
Company, the Lender and certain other parties. The principal of this Note is
prepayable in the amounts and under the circumstances set forth in the Credit
Agreement, and may be prepaid in whole or from time to time in part, all as set
forth in the Credit Agreement. Terms defined in the Credit Agreement are used
herein with the meanings so defined.
<PAGE> 65
In case an Event of Default shall occur, the entire principal of this Note
may become or be declared due and payable in the manner and with the effect
provided in the Credit Agreement.
This Note shall be governed by and construed in accordance with the laws
(other than the conflict of laws rules) of the State of Rhode Island.
The parties hereto, including the Company and all guarantors and
endorsers, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, performance and
enforcement of this Note, except as specifically otherwise provided in the
Credit Agreement, and assent to extensions of time of payment, forbearance or
other indulgence without notice.
MEGO MORTGAGE CORPORATION
By_________________________________
Title:
-2-
<PAGE> 66
LOANS AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Amount Amount of Unpaid
of Principal Principal Notation
Date Loan Repaid Balance Made By
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
-3-
<PAGE> 67
EXHIBIT 5.1.4
SECURITY AGREEMENT
See Item 1.2
<PAGE> 68
Exhibit 5.2.1
MEGO MORTGAGE CORPORATION
Officer's Certificate
Pursuant to Section 2.1.3 of the Credit Agreement dated as of October 27,
1997, as now in effect (the "Credit Agreement"), among Mego Mortgage
Corporation, a Delaware corporation (the "Company"), the Lenders party thereto
and Textron Financial Corporation, both in its capacity as a Lender and in its
capacity as Agent (the "Agent") for itself and the other Lenders, the Company
requests that an extension of credit be made on the date specified below (the
"Closing Date") in the following amount:
Closing Date: _____________
Tranche: _____________
Amount: $_____________
In connection with the foregoing request, the Company certifies that the
representations and warranties contained in Section 7 of the Credit Agreement
are true and correct on and as of the date hereof with the same force and effect
as though originally made on and as of the date hereof (except as to any
representation or warranty which refers to a specific earlier date or which has
been waived, modified or consented to by the Required Lenders); no Default
exists on the date hereof or will exist immediately after giving effect to the
extension of credit requested hereby; and since August 31, 1996, no Material
Adverse Change has occurred.
The foregoing representations and warranties shall be deemed made by the
Company on the requested Closing Date unless the Company shall have notified the
Agent in writing to the contrary prior to such Closing Date.
Terms defined in the Credit Agreement are used herein with the meanings so
defined. This certificate has been executed by a duly authorized Financial
Officer as of the___ day of October, 1997.
MEGO MORTGAGE CORPORATION
By_________________________________
Financial Officer
<PAGE> 69
Exhibit 7.1
COMPANY AND ITS SUBSIDIARIES
A. The Company
1. Name and jurisdiction of incorporation:
Mego Mortgage Corporation, a Delaware corporation, incorporated on
June 12, 1992.
2. Address of the Company's chief executive office and chief place of
business:
1000 Parkwood Circle - 5th Floor
Atlanta, GA 30339
3. Each other name under which the Company conducts its business and
the jurisdiction(s) in which each such name is used:
Name Jurisdiction
Mego Acceptance Corporation Nevada; New Jersey
4. Jurisdiction(s) in which the Company keeps tangible personal
property:
Atlanta, Georgia; Las Vegas, Nevada
B. The Subsidiaries
Included Subsidiaries:
None
Excluded Subsidiaries:
Mego Mortgage Home Loan Acceptance Corp., a Delaware corporation (special
purpose corporation that owns a 1% interest in the Mego Mortgage Home Loan Owner
Trust 1997-1 Residual Interest Securities).
<PAGE> 70
Exhibit 7.2.2
MATERIAL AGREEMENTS
1. Securitization Agreements referred to in Exhibit 1
2. Indenture dated November 19, 1996 between the Company and American Stock
Transfer & Trust Company, as trustee, with respect to the Company's
12-1/2% Senior Subordinated Notes due December 1, 2001, as amended by the
First Supplemental Indenture dated October 20, 1997.
3. Agreement dated as of August 29, 1997 between the Company and Mego
Financial Corp. with respect to the repayment of certain indebtedness from
the Company to Mego Financial Corp.
4. Credit Agreement dated as of June 20, 1997 among the Company, The First
National Bank of Chicago, as Agent, and a group of lenders, as amended
through the date hereof.
<PAGE> 71
Exhibit 7.9
DEFAULTS UNDER OTHER AGREEMENTS
Description of Trustee's Right to Terminate the Company's Rights to Service
First Securitization - Mego Mortgage FHA Title I Loan Trust 1996-1 and 1996-2.
Pooling and servicing agreements relating to the Company's securitization
transactions contain provisions with respect to the maximum permitted loan
delinquency rates and loan default rates, which, if exceeded, would allow the
termination of the Company's right to service the related loans. At present, the
delinquency rates on the pools of loans sold in the March 1996 securitization
transaction, Mego Mortgage FHA Title I Loan Trust 1996-1, and the August 1996
securitization, Mego Mortgage Title I Loan Trust 1996-2, exceed the permitted
limit set forth in the related pooling and servicing agreement. Accordingly,
this condition could result in the termination of the Company's servicing rights
with respect to those pools of loans by the trustee, the master servicer or the
insurance company providing credit enhancement for that transaction. Although
the insurance company has indicated that it, and to its knowledge, the trustee
and the master servicer, has no present intention to terminate the Company's
servicing rights related to those pools of loans, no assurance can be given that
one or more of such parties will not exercise its right to terminate. In the
event of such termination, there would be a material adverse effect on the
valuation of the Company's mortgage servicing rights and the results of
operations in the amount of mortgage servicing rights with respect to such
Securitizations on the date of termination.
<PAGE> 72
Exhibit 10.1
PERCENTAGE INTERESTS
<TABLE>
<CAPTION>
Principal Amount Approximate
Lender Tranche of Commitment Percentage Interest
- ------ ------- ---------------- -------------------
<S> <C> <C> <C>
Textron Financial Corporation 1 $5,000,000 100%
</TABLE>
<PAGE> 73
Exhibit 11.1.1
ASSIGNMENT AND ACCEPTANCE
This Agreement, dated as of _______________, 199_, is between
____________________________, a Lender under the Credit Agreement referred to
below (the "Assignor"), and ____________________________ (the "Assignee").
For valuable consideration, the receipt of which is hereby acknowledged,
the Assignor agrees with the Assignee as follows:
1. Reference to Credit Agreement; Definitions. Reference is made to the
Credit Agreement dated as of October 27, 1997, as from time to time in effect
(the "Credit Agreement"), among Mego Mortgage Corporation, a Delaware
corporation (the "Company"), the Lenders from time to time party thereto and
Textron Financial Corporation, both in its capacity as a Lender and in its
capacity as Agent (the "Agent") for itself and the other Lenders. Terms defined
in the Credit Agreement and not otherwise defined herein are used herein with
the meanings so defined.
2. Assignment and Assumption. The Assignor hereby sells and assigns to
the Assignee, and the Assignee hereby purchases and assumes from the Assignor,
the interests set forth in Exhibit A hereto (the "Assigned Interests") in and to
the Assignor's rights and obligations under the Credit Agreement and the other
Credit Documents as of the Assignment Date (as defined in Exhibit A hereto).
3. Representations, Warranties, etc.
3.1. Assignor's Representations and Warranties. The Assignor:
(a) represents that as of the date hereof, it owns the Assigned
Interests beneficially and of record, free of any Liens or adverse
claims.
(b) makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or
in connection with the Credit Agreement or any other Credit Document or
the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Credit Agreement or any other Credit
Document or any other instrument or document furnished pursuant thereto,
other than that it is the legal and beneficial owner of the interest
being assigned by it hereunder and that such interest is free and clear
of any adverse claim; and
<PAGE> 74
(c) makes no representation or warranty and assumes no responsibility
with respect to the financial condition of the Company and its Included
Subsidiaries or the performance by the Company and its Included
Subsidiaries of their obligations under the Credit Agreement, any other
Credit Document or any other instrument or document furnished pursuant
hereto or thereto.
3.2. Assignee's Representations, Warranties and Agreements. The
Assignee:
(a) represents and warrants that it is legally authorized to enter
into this Agreement;
(b) the Assignee represents and warrants that it is a "qualified
institutional buyer" for purposes of Rule 144A under the Securities Act;
(c) the Assignee represents and warrants that (i) it is incorporated
or organized under the laws of the United States of America or a state
thereof or (ii) it will perform all of the obligations relating to
United States income tax withholding under Section 13 of the Credit
Agreement;
(d) confirms that it has received a copy of the Credit Agreement and
any other Credit Document which it has requested, together with copies
of the most recent financial statements delivered pursuant to Section
6.4 of the Credit Agreement and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision
to enter into this Agreement;
(e) agrees that it will, independently and without reliance upon the
Assignor or any other Person which has become a Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under the Credit Agreement and the other Credit Documents; and
(f) agrees that it will be bound by the provisions of the Credit
Agreement and will perform in accordance with their terms all the
obligations which by the terms of the Credit Agreement and the other
Credit Documents are required to be performed by it as a Lender.
4. Assignee Party to Credit Agreement; Assignor Release of Obligations.
From and after the Assignment Date, (a) the Assignee shall be a party to the
Credit Agreement and, to the extent provided in this Agreement, have the rights
and obligations of a Lender thereunder and under the other Credit Documents and
(b) the Assignor shall, to the extent provided in this Agreement, relinquish its
rights and be released from its obligations under the Credit Agreement and the
other Credit Documents.
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<PAGE> 75
5. Notices. All notices and other communications required to be given or
made to the Assignee under this Agreement, the Credit Agreement or any other
Credit Document shall be given or made at the address of the Assignee set forth
on Exhibit A hereto or at such other address as the Assignee shall have
specified to the Assignor, the Company and the Agent in writing.
6. Further Assurances. The parties hereto agree to execute and deliver
such other instruments and documents and to take such other actions as any party
hereto may reasonably request in connection with the transactions contemplated
by this Agreement.
7. General. This Agreement, the Credit Agreement and the other Credit
Documents constitute the entire agreement of the parties hereto with respect to
the subject matter hereof and supersede all current and prior agreements and
understandings, whether written or oral, with respect to such subject matter.
The headings in this Agreement are for convenience of reference only and shall
not limit or otherwise affect the meaning hereof. The invalidity or
unenforceability of any provision hereof shall not affect the validity or
enforceability of any other provision hereof and any invalid or unenforceable
provision shall be modified so as to be enforced to the maximum extent of its
validity or enforceability. This Agreement may be executed in any number of
counterparts, which together shall constitute one instrument, and shall bind and
inure to the benefit of the parties hereto and their respective successors and
assigns, including as such successors and assigns all holders of any Credit
Obligation. This Agreement shall be governed by and construed in accordance with
the laws (other than the conflict of laws rules) of the State of Rhode Island.
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Each of the Assignor and the Assignee has caused this Agreement to be
executed and delivered by its duly authorized officer as an agreement under seal
as of the date first above written.
ASSIGNOR
-----------------------------------
By_________________________________
Title:
ASSIGNEE
-----------------------------------
By_________________________________
Title:
The foregoing is approved:
MEGO MORTGAGE CORPORATION
By_________________________________
Title:
TEXTRON FINANCIAL CORPORATION,
as Agent under the Credit Agreement
By_________________________________
Title:
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<PAGE> 77
MEGO MORTGAGE CORPORATION
Exhibit A
to
Assignment and Acceptance
1. Parties
Assignor: ________________________________________
Assignee: ________________________________________
Assignee Address: _________________________________
_________________________________
_________________________________
Assignee Telecopy: _________________________________
2. Assignment Date: _________________________________
3. Assigned Interests
Outstanding Revolving/Term Loan By Tranche: $_______________________
Revolving/Term Loan Commitment By Tranche: $_______________________
(sum of assigned unfunded commitment
plus amounts set forth above)
Unpaid interest and commitment fees with respect to the assigned credits
described above, accrued through the Assignment Date, are for the account of the
Assignor unless set forth to the contrary herein.
4. Assignor's Post Assignment Interests
After giving effect to this assignment, Assignor represents that its
interests in the following credits are summarized as follows:
Revolving/Term Loan Commitment by Tranche: $______________________
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5. Assignee's Post Assignment Interests
After giving effect to this assignment, Assignee represents that its
interests in the following credits are summarized as follows:
Revolving/Term Loan Commitment by Tranche: $______________________
A-2
<PAGE> 79
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MEGO MORTGAGE CORPORATION
SECURITY AGREEMENT
Dated as of October 27, 1997
TEXTRON FINANCIAL CORPORATION, as Agent
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 80
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Reference to Credit Agreement; Definitions; Certain Rules of Construction..............-1-
1.1. "Agreement"..................................................................-1-
1.2. "Pledged Securities".........................................................-1-
1.3. "Securities Act".............................................................-1-
1.4. "UCC"........................................................................-1-
2. Security...............................................................................-1-
2.1. Credit Security...............................................................-1-
2.1.1. Pledged Securities..................................................-2-
2.1.2. Chattel Paper, Instruments. etc.....................................-2-
2.1.3. Deposit Accounts....................................................-2-
2.1.4. Collateral..........................................................-2-
2.1.5. Books and Records...................................................-2-
2.1.6. Proceeds and Products...............................................-2-
2.2. Representations, Warranties and Covenants with Respect to Credit Security....-3-
2.2.1. Pledged Securities..................................................-3-
2.2.2. No Liens, Restrictions on Transfer..................................-3-
2.2.3. Location of Credit Security.........................................-3-
2.2.4. Trade Names.........................................................-4-
2.2.5. Insurance...........................................................-4-
2.2.6. Modifications to Credit Security....................................-4-
2.2.7. Delivery of Documents...............................................-4-
2.2.8. Performance of Agreements...........................................-4-
2.2.9. Perfection of Credit Security.......................................-4-
2.3. Administration of Credit Security............................................-5-
2.4. Right to Realize upon Credit Security........................................-5-
2.4.1. Assembly of Credit Security; Receiver; Setoff.......................-5-
2.4.2. General Authority...................................................-5-
2.4.3. Marshaling, etc.....................................................-6-
2.4.4. Sales of Credit Security............................................-7-
2.4.5. Sale without Registration...........................................-7-
2.4.6. Application of Proceeds.............................................-8-
2.5. Custody of Credit Security...................................................-8-
3. General................................................................................-9-
</TABLE>
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<PAGE> 81
EXHIBITS
2.1 - Pledged Securities
2.2 - Office and Principal Place of Business; Trade Names; Depository
Institutions
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<PAGE> 82
MEGO MORTGAGE CORPORATION
SECURITY AGREEMENT
This Agreement, dated as of October 27, 1997, is among Mego Mortgage
Corporation, a Delaware corporation (the "Company"), and Textron Financial
Corporation, a Delaware Corporation as agent (the "Agent") for itself and the
other Lenders under the Credit Agreement (as defined below). The parties agree
as follows:
1. Reference to Credit Agreement; Definitions; Certain Rules of Construction.
Reference is made to the Credit Agreement dated as of the date hereof (the
"Credit Agreement"), among the Company, the Lenders and the Agent. Capitalized
terms defined in the Credit Agreement and not otherwise defined herein are used
herein with the meanings so defined. Certain other capitalized terms are used in
this Agreement as specifically defined below in this Section 1. Except as the
context otherwise explicitly requires, (a) the capitalized term "Section" refers
to sections of this Agreement, (b) the capitalized term "Exhibit" refers to
exhibits to this Agreement, (c) references to a particular Section shall include
all subsections thereof, (d) the word "including" shall be construed as
"including without limitation", (e) terms defined in the UCC and not otherwise
defined herein have the meaning provided under the UCC, (f) references to a
particular statute or regulation include all rules and regulations thereunder
and any successor statute, regulation or rules, in each case as from time to
time amended, modified and in effect and (g) references to a particular Person
include such Person's successors and assigns to the extent not prohibited by
this Agreement and the other Credit Documents. References to "the date hereof"
mean the date first set forth above.
1.1. "Agreement" means this Security Agreement as from time to time in
effect.
1.2. "Pledged Securities" is defined in Section 2.1.1.
1.3. "Securities Act" means the federal Securities Act of 1933.
1.4. "UCC" means the Uniform Commercial Code as in effect in Rhode Island
on the date hereof; provided, however, that with respect to the perfection of
the Lender's Lien in the Credit Security and the effect of nonperfection
thereof, the term "UCC" means the Uniform Commercial Code as in effect in any
jurisdiction the laws of which are made applicable by section 9-103 of the
Uniform Commercial Code as in effect in Rhode Island.
2. Security.
2.1. Credit Security. As security for the payment and performance of the
Credit Obligations, the Company pledges and collaterally grants and assigns to
the Agent for the benefit of the Lenders and the holders from time to time of
any Credit Obligation, and creates
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<PAGE> 83
a security interest in favor of the Agent for the benefit of the Lenders and
such holders in, all of the Company's right, title and interest (as owner, but
not in its capacity as servicer) in and to (but none of its obligations or
liabilities with respect to) the items and types of present and future property
described in Sections 2.1.1 through 2.1.6, whether now owned or hereafter
acquired, all of which shall be included in the term "Credit Security":
2.1.1. Pledged Securities. All rights to receive the payment of
money in respect of the specific Residual Interest Securities and Interest
Only Securities listed in Exhibit 2.1 as from time to time in effect (the
"Pledged Securities").
2.1.2. Chattel Paper, Instruments. etc. All chattel paper,
non-negotiable instruments, negotiable instruments, investment property
and documents evidencing any of the Pledged Securities.
2.1.3. Deposit Accounts. All rights to payments due to the holders
of Pledged Securities from the accounts of the Trustee into which funds to
be payable under Pledged Securities are deposited or held under a
Securitization, and all money, cash and cash equivalents of the Company,
in each case arising from payments with respect to any of the Pledged
Securities.
2.1.4. Collateral. All collateral granted by third party obligors
to, or held by, the Company with respect to the Pledged Securities.
2.1.5. Books and Records. All books and records, including books of
account and ledgers of every kind and nature, all electronically recorded
data (including all computer programs, disks, tapes, electronic data
processing media and software used in connection with maintaining the
Company's books and records), all files and correspondence and all
receptacles and containers for the foregoing, all with respect to the
Pledged Securities.
2.1.6. Proceeds and Products. All proceeds, and products of the
items of Credit Security described or referred to in Sections 2.1.1
through 2.1.5 and, to the extent not included in the foregoing:
(a) all distributions from the Designated Trust Agreements or
Securitization Agreements with respect to the Pledged Securities,
(b) all other proceeds of insurance and guarantees, if any, with
respect to the Pledged Securities provided by MBIA Insurance Corporation,
the Federal Housing Administration or any other Person providing coverage
for loss or diminution in value of the Pledged Securities, and
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<PAGE> 84
(c) all other proceeds from the liquidation or other recovery (if
any) of loans relating to the Pledged Securities.
2.2. Representations, Warranties and Covenants with Respect to Credit
Security. The Company represents, warrants and covenants that:
2.2.1. Pledged Securities. All Pledged Securities referred to in
Section 2.1.1 shall be evidenced by certificates or instruments, which
certificates shall be delivered to the Agent with any related assignment
forms, duly completed by the Company, required by the Securitization
Agreements. The Company will, immediately upon the receipt thereof,
deliver to the Agent any certificate or similar instrument representing
any of such Pledged Securities, together with appropriate, duly executed
assignment forms. The Company will take all steps necessary to register
the pledge to the Agent on the books of the issuer, purchaser, Trustee or
custodian, as the case may be, with respect to all Pledged Securities that
are not evidenced by certificates or other instruments.
2.2.2. No Liens, Restrictions on Transfer or Dispositions. All
Credit Security shall be free and clear of any Liens and restrictions on
the transfer thereof, including contractual provisions which prohibit the
assignment of rights under contracts, other than (a) customary investor
suitability requirements contained in the Securitization Agreements, (b)
notice requirements to the Trustee in respect of a proposed transfer of
such Pledged Securities and (c) obligations to contribute proceeds of the
Pledged Securities to spread accounts, interest reserve funds and other
similar restrictions contained in the Securitization Agreements. Without
limiting the generality of the foregoing, the Company will exclude from
contracts to which it becomes a party after the date hereof provisions
that would prevent the Company from creating a security interest in the
Credit Security as pledged hereby. The Company will not sell, assign,
transfer or otherwise dispose of any of the Credit Security, except as
contemplated above in this Section 2.2.2 (other than sales for cash, the
proceeds of which are used to repay in full the related Tranche of the
Loan and any accrued and unpaid interest thereon and any other fees or
Credit Obligations with respect to such Tranche). None of the Credit
Security is subject to any option to purchase or similar rights of any
Person.
2.2.3. Location of Credit Security. The Company shall at all times
keep its records concerning the Credit Security at its chief executive
office and principal place of business, which office and place of business
shall be set forth in Exhibit 2.2 or, so long as the Company shall have
taken all steps reasonably necessary to perfect the Agent's security
interest in the Credit Security with respect to such new address, at such
other address as the Company may specify by notice actually received by
the Agent not less than 10 Business Days prior to such change of address.
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<PAGE> 85
2.2.4. Trade Names. The Company will not adopt or do business under
any name other than its name or names designated in Exhibit 2.2 or any
other name specified by notice actually received by the Agent not less
than 10 Business Days prior to the conduct of business under such
additional name. Since its incorporation, the Company has not changed its
corporate name or adopted or conducted business under any trade name other
than a name specified on Exhibit 2.2.
2.2.5. Insurance. The Company grants to the Agent full power and
authority as its attorney-in-fact, effective upon notice to the Company
after the occurrence and during the continuance of an Event of Default, to
adjust and settle any insurance policy owned by the Company insuring
against loss to the Credit Security, to endorse any drafts thereon and to
sign receipts for any payments thereunder. Any amounts that the Agent
receives under any such policy (including return of unearned premiums)
insuring against loss to the Credit Security shall be applied to payment
of the Credit Obligations.
2.2.6. Modifications to Credit Security. Except with the prior
written consent of the Agent, the Company shall not amend or modify, or
waive any of its rights under or with respect to, any Pledged Securities
if the effect of such amendment, modification or waiver would be to reduce
the amount of any such items or to extend the time of payment thereof, to
waive any default by any other party thereto with respect to the Pledged
Securities, or to waive or impair any remedies of the Company or the Agent
under or with respect to any such Pledged Securities. The Company will
promptly give the Agent written notice of any material decrease or
adjustment with respect to any Pledged Securities.
2.2.7. Delivery of Documents. Upon the Agent's request, the Company
shall deliver to the Agent, promptly upon the Company's receipt thereof,
copies of any agreements, instruments or documents comprising or relating
to the Credit Security. Pending such request, the Company shall keep such
items at its places of business specified pursuant to Section 2.2.3.
2.2.8. Performance of Agreements. The Company shall perform all
servicing and other obligations required to be performed by it under the
Securitization Agreements or any other agreement relating to the Pledged
Securities or other Credit Security.
2.2.9. Perfection of Credit Security. Upon the Agent's request from
time to time, the Company will execute and deliver, and file and record in
the proper filing and recording places, all such instruments, including
financing statements, Trustee Payment Directions and pledgor and
assignment notices, and will take all such other action, as the Agent
deems advisable for confirming to it the Credit Security or to carry out
any other purpose of this Agreement or any other Credit Document.
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<PAGE> 86
2.3. Administration of Credit Security. The Credit Security shall be
administered as follows, and if an Event of Default shall have occurred, Section
2.4 shall also apply. All payments and other receipts on account of the Pledged
Securities or any other Credit Security shall be held by the Trustee under the
applicable Securitization Agreement pursuant to a Trustee Payment Direction, and
shall be paid by the Trustee at least monthly to the Agent for application to
the Credit Obligations in accordance with the Trustee Payment Direction. Any
sums collected or received and any property recovered or possessed by the
Company in connection with any Credit Security shall be received and held by the
Company in trust for and on the Lenders' behalf, shall be segregated from the
other assets and funds of the Company, and shall be delivered to the Agent for
the benefit of the Lenders.
2.4. Right to Realize upon Credit Security. Except to the extent
prohibited by applicable law that cannot be waived, this Section 2.4 shall
govern the Lenders' and the Agent's rights to realize upon the Credit Security,
and shall be applicable only if any Event of Default shall have occurred and be
continuing. The provisions of this Section 2.4 are in addition to any rights and
remedies available at law or in equity and in addition to the provisions of any
other Credit Document. In the case of a conflict between this Section 2.4 and
any other Credit Document, this Section 2.4 shall govern.
2.4.1. Assembly of Credit Security; Receiver; Setoff. The Company
shall, upon the Agent's request, assemble the Credit Security and
otherwise make it available to the Agent. The Agent may have a receiver
appointed for all or any portion of the Company's assets or business which
constitutes the Credit Security in order to manage, protect, preserve,
sell and otherwise dispose of all or any portion of the Credit Security in
accordance with the terms of the Credit Documents, to continue the
operations of the Company and to collect all revenues and profits
therefrom to be applied to the payment of the Credit Obligations,
including the compensation and expenses of such receiver. Without
interfering with the rights of any Trustee, custodian or loan purchaser to
such deposits under the Securitization Agreements, the Agent may offset
and apply toward the payment of the Credit Obligations (and/or toward the
curing of any Event of Default) any indebtedness from any Lender to the
Company, including any indebtedness represented by deposits in any account
maintained with any Lender, regardless of the adequacy of any security for
the Credit Obligations. The Agent shall have no duty to determine the
adequacy of any such security in connection with any such offset.
2.4.2. General Authority. To the extent specified in written notice
from the Agent to the Company, the Company grants the Agent full and
exclusive power and authority, subject to the other terms hereof and
applicable law, to take any of the following actions (for the sole benefit
of the Lenders and the holders from time to time of any Credit
Obligations, but at the Company's expense):
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<PAGE> 87
(a) To ask for, demand, take, collect, sue for and receive all
payments in respect of any Pledged Securities which the Company could
otherwise ask for, demand, take, collect, sue for and receive for its own
use.
(b) To extend the time of payment of any Pledged Securities and to
make any allowance or other adjustment with respect thereto.
(c) To settle, compromise, prosecute or defend any action or
proceeding with respect to any Pledged Securities and to enforce all
rights and remedies thereunder which the Company could otherwise enforce.
(d) To enforce the payment of any Pledged Securities, either in
the name of the Company or in its own name, and to endorse the name of the
Company on all checks, drafts, money orders and other instruments tendered
to or received in payment of any Credit Security.
(e) To notify the third party payor with respect to any Pledged
Securities of the existence of the security interest created hereby and to
cause all payments in respect thereof thereafter to be made directly to
the Agent; provided, however, that whether or not the Agent shall have so
notified such payor, the Company will at its expense render all reasonable
assistance to the Agent in collecting such items and in enforcing claims
thereon.
(f) To sell, transfer, assign or otherwise deal in or with any
Credit Security or the proceeds thereof, as fully as the Company otherwise
could do.
2.4.3. Marshaling, etc. Neither the Agent nor the Lenders shall be
required to make any demand upon, or pursue or exhaust any of its rights
or remedies against, the Company or any other guarantor, pledgor or any
other Person with respect to the payment of the Credit Obligations or to
pursue or exhaust any of its rights or remedies with respect to any
collateral therefor or any direct or indirect guarantee thereof or
insurance with respect thereto. Neither the Agent nor the Lenders shall be
required to marshal the Credit Security or any guarantee of the Credit
Obligations or to resort to the Credit Security or any such guarantee in
any particular order, and all of its rights hereunder or under any other
Credit Document shall be cumulative. To the extent it may lawfully do so,
the Company absolutely and irrevocably waives and relinquishes the benefit
and advantage of, and covenants not to assert against the Agent or the
Lenders, any valuation, stay, appraisement, extension, redemption or
similar laws now or hereafter existing which, but for this provision,
might be applicable to the sale of any Credit Security made under the
judgment, order or decree of any court, or privately under the power of
sale conferred by this Agreement, or otherwise. Without limiting the
generality of the foregoing, the Company (a) agrees that it will not
invoke or utilize any law which might prevent, cause a delay in or
otherwise impede the
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<PAGE> 88
enforcement of the rights of the Agent or the Lenders in the Credit
Security, (b) waives all such laws, and (c) agrees that it will not invoke
or raise as a defense to any enforcement by the Agent or the Lenders of
any rights and remedies relating to the Credit Security or the Credit
Obligations any legal or contractual requirement with which the Agent or
the Lenders may have in good faith failed to comply. In addition, the
Company waives any right to prior notice (except to the extent expressly
required by Section 2.4.4 or the other provisions of this Agreement) or
judicial hearing in connection with foreclosure on or disposition of any
Credit Security, including any such right which the Company would
otherwise have under the Constitution of the United States of America, any
state or territory thereof or any other jurisdiction.
2.4.4. Sales of Credit Security. All or any part of the Credit
Security may be sold for cash or other value in any number of lots at
public or private sale, without demand, advertisement or notice; provided,
however, that the Agent shall give the Company 10 days' prior written
notice of the time and place of any public sale, or the time after which a
private sale may be made, which notice each of the Company and the Agent
agrees to be reasonable. At any sale or sales of Credit Security, the
Agent or the Lenders or any of their officers acting on their behalf, or
their assigns, may bid for and purchase all or any part of the property
and rights so sold, may use all or any portion of the Credit Obligations
owed to the Lenders as payment for the property or rights so purchased,
and upon compliance with the terms of such sale may hold and dispose of
such property and rights without further accountability to the Company,
except for the proceeds of such sale or sales pursuant to Section 2.4.6.
The Company acknowledges that any such sale will be made by the Agent or
the Lenders on an "as is" basis with disclaimers of all warranties,
whether express or implied. The Company will execute and deliver or cause
to be executed and delivered such instruments, documents, assignments,
waivers, certificates and affidavits, will supply or cause to be supplied
such further information and will take such further action, as the Agent
or the Lenders shall reasonably request in connection with any such sale.
2.4.5. Sale without Registration. If, at any time when the Agent
shall determine to exercise its rights hereunder to sell all or part of
the securities included in the Credit Security, the securities in question
shall not be effectively registered under the Securities Act (or other
applicable law), the Agent may, in its sole discretion, sell such
securities by private or other sale not requiring such registration in
such manner and in such circumstances as the Agent may deem necessary or
advisable in order that such sale may be effected in accordance with
applicable securities laws without such registration and the related
delays, uncertainty and expense. Without limiting the generality of the
foregoing, in any event the Agent may, in its sole discretion, (a)
approach and negotiate with a single purchaser or one or more possible
purchasers to effect such sale, (b) restrict such sale to one or more
purchasers each of whom will represent and agree that such purchaser is
purchasing for its own account, for investment and not with a view to the
distribution or sale of such securities and (c)
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<PAGE> 89
cause to be placed on certificates representing the securities in question
a legend to the effect that such securities have not been registered under
the Securities Act (or other applicable law) and may not be disposed of in
violation of the provisions thereof. The Company agrees that such manner
of disposition is commercially reasonable, that it will upon the Agent's
request give any such purchaser access to such information regarding the
issuer of the securities in question as the Agent may reasonably request
and that the Agent shall not incur any responsibility for selling all or
part of the securities included in the Credit Security at any private or
other sale not requiring such registration, notwithstanding the
possibility that a substantially higher price might be realized if the
sale were deferred until after registration under the Securities Act (or
other applicable law) or until made in compliance with certain other rules
or exemptions from the registration provisions under the Securities Act
(or other applicable law). The Company acknowledges that no adequate
remedy at law exists for breach by it of this Section 2.4.5 and that such
breach would not be adequately compensable in damages and therefore agrees
that this Section 2.4.5 may be specifically enforced.
2.4.6. Application of Proceeds. The proceeds of all sales and
collections by the Agent in respect of any Credit Security or other assets
of the Company under Section 2.4.4, all funds collected from the Company
and any cash contained in the Credit Security, the application of which is
not otherwise specifically provided for herein, shall be applied as
follows:
First, to the payment of the costs and expenses of such sales and
collections, the reasonable expenses of the Agent and the reasonable fees
and expenses of its special counsel;
Second, any surplus then remaining to the payment of the Credit
Obligations in such order and manner as the Agent may in its reasonable
discretion determine provided, however, that proceeds from such sales and
collections of Pledged Securities relating to a particular Tranche shall
be applied first to repay principal of and accrued and unpaid interest on
such Tranche before application to the principal of or interest on other
Tranches; and
Third, any surplus then remaining shall be paid to the Company,
subject, however, to the rights of the holder of any then existing Lien of
which the Agent has actual notice.
2.5. Custody of Credit Security. Except as provided by applicable law
that cannot be waived, the Agent will have no duty as to the custody and
protection of the Credit Security, the collection of any part thereof or of any
income thereon or the preservation or exercise of any rights pertaining thereto,
including rights against prior parties, except for the use of reasonable care in
the custody and physical preservation of any Credit Security in its
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<PAGE> 90
possession. The Agent will not be liable or responsible for any loss or damage
to any Credit Security, or for any diminution in the value thereof, by reason of
the act or omission of any agent selected by the Agent acting in good faith.
3. General. Addresses for notices, consent to jurisdiction, jury trial
waiver, defeasance and numerous other provisions applicable to this Agreement
are contained in the Credit Agreement. The invalidity or unenforceability of any
provision hereof shall not affect the validity or enforceability of any other
provision hereof, and any invalid or unenforceable provision shall be modified
so as to be enforced to the maximum extent of its validity or enforceability.
The headings in this Agreement are for convenience of reference only and shall
not limit, alter or otherwise affect the meaning hereof. This Agreement and the
other Credit Documents constitute the entire understanding of the parties with
respect to the subject matter hereof and thereof and supersede all prior and
current understandings and agreements, whether written or oral. This Agreement
is a Credit Document and may be executed in any number of counterparts, which
together shall constitute one instrument. This Agreement shall be governed by
and construed in accordance with the laws (other than the conflict of laws
rules) of the State of Rhode Island.
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<PAGE> 91
Each of the undersigned has caused this Agreement to be executed and
delivered by its duly authorized officer as an agreement under seal as of the
date first written above.
MEGO MORTGAGE CORPORATION
By /s/ JAMES ?????
-----------------------------------
Title: EXECUTIVE VICE PRESIDENT
TEXTRON FINANCIAL CORPORATION
as Agent under the Credit Agreement
By
-----------------------------------
Title:
<PAGE> 92
MEGO MORTGAGE CORPORATION
By
-----------------------------------
Title: EXECUTIVE VICE PRESIDENT
TEXTRON FINANCIAL CORPORATION
as Agent under the Credit Agreement
By ?????
-----------------------------------
Title: VICE PRESIDENT
<PAGE> 93
Exhibit 2.1
Pledged Securities
The Class S Certificate No. 1 dated March 10, 1997 with respect to the
Mego Mortgage Home Loan Owner Trust 1997-1 and the Residual Interest Instrument
No. 1 dated March 10, 1997 for a 99% Residual Interest in the Mego Mortgage Home
Loan Owner Trust 1997-1 (each as from time to time modified or amended, together
with any other securities issued in replacement or exchange therefor or in
refinancing thereof) issued in connection with the following agreements, as from
time to time in effect, represent Pledged Securities:
1. Sale and Servicing Agreement dated as of February 1, 1997 among the
Debtor, Mego Mortgage Home Loan Owner Trust 1997-1 (the "Trust"), Financial
Asset Securities Corp. ("Financial Asset"), Norwest Bank Minnesota, N.A.
("Norwest"), and First Trust of New York, N.A. ("First Trust").
2. Servicing Agreement dated as of February 1, 1997 among the Debtor,
Norwest and First Trust.
3. Indenture dated as of February 1, 1997 between the Debtor and First
Trust.
4. Trust Agreement dated as of February 1, 1997 among the Debtor,
Financial Asset, First Trust and Wilmington Trust Company.
5. Insurance Agreement dated as of February 1, 1997 among the Debtor,
the Trust, Financial Asset, Norwest, First Trust, MBIA Insurance Corporation,
Mego Mortgage Home Loan Acceptance Corporation, and Greenwich Capital Financial
Products, Inc.
-11-
<PAGE> 94
Exhibit 2.2
Office and Principal Place of Business; Trade Names; Depository Institutions
1. The offices where the Company maintains its records concerning the Pledged
Securities are the following:
1000 Parkwood Circle - 5th Floor
Atlanta, Georgia 30339
4310 Paradise Road
Las Vegas, Nevada 89109
2. The only trade name used by the Company, other than its corporate name, is
"Mego Acceptance Corporation"
3. Collection and depository accounts relating to the Credit Security are all
with the Trustees under the respective Securitization Agreements.
-12-
<PAGE> 95
MEGO MORTGAGE CORPORATION
Officer's Certificate
Pursuant to Section 2.1.3 of the Credit Agreement dated as of October 27,
1997, as now in effect (the "Credit Agreement"), among Mego Mortgage
Corporation, a Delaware corporation (the "Company"), the Lenders party thereto
and Textron Financial Corporation, both in its capacity as a Lender and in its
capacity as Agent (the "Agent") for itself and the other Lenders, the Company
requests that an extension of credit be made on the date specified below (the
"Closing Date") in the following amount:
Closing Date: October 27, 1997
Tranche: 1
Amount: $ 5,000,000
In connection with the foregoing request, the Company certifies that the
representations and warranties contained in Section 7 of the Credit Agreement
are true and correct on and as of the date hereof with the same force and effect
as though originally made on and as of the date hereof (except as to any
representation or warranty which refers to a specific earlier date or which has
been waived, modified or consented to by the Required Lenders); no Default
exists on the date hereof or will exist immediately after giving effect to the
extension of credit requested hereby; and since August 31, 1996, no Material
Adverse Change has occurred.
The foregoing representations and warranties shall be deemed made by the
Company on the requested Closing Date unless the Company shall have notified the
Agent in writing to the contrary prior to such Closing Date.
<PAGE> 96
Terms defined in the Credit Agreement are used herein with the so defined.
This certificate has been executed by a duly Financial Office as of the 31st day
of October, 1997.
MEGO MORTGAGE CORPORATION
By /s/ JAMES L. BELTER
-------------------------------------
Financial Officer
-2-
<PAGE> 97
NOTE
N-1 October 27, 1997
FOR VALUE RECEIVED, the undersigned, Mego Mortgage Corporation, a Delaware
corporation (the "Company,"), hereby promises to pay Textron Financial
Corporation (the "Lender") or order, on the Final Maturity Date, the aggregate
unpaid principal amount of the revolving and term loans made by the Lender to
the Company pursuant to the Credit Agreement referred to below. The Company
promises to pay interest from the date hereof, computed as provided in such
Credit Agreement, on the aggregate principal amount of such loans from time to
time unpaid at the per annum rate applicable to such unpaid principal amount as
provided in such Credit Agreement and to pay interest on overdue principal and,
to the extent not prohibited by applicable law, on overdue installments of
interest at the rate specified in such Credit Agreement, all such interest being
payable at the times specified in such Credit Agreement, except that all accrued
and unpaid interest shall be paid at the stated or accelerated maturity hereof
or upon the prepayment in full hereof.
Payments hereunder shall be made to Textron Financial Corporation, as
agent for the Lender, at Commerce Center, 333 East River Drive, Suite #305, East
Hartford, Connecticut 05108.
All revolving and term loans made by the Lender pursuant to the Credit
Agreement referred to below and all repayments of the principal thereof shall be
recorded by the Lender and, prior to any transfer hereof, appropriate notations
to evidence the foregoing information with respect to each such loan then
outstanding shall be endorsed by the Lender on the schedule attached hereto or
on a continuation of such schedule attached to and made a part hereof; provided,
however, that the failure of the Lender to make any such recordation or
endorsement shall not affect the obligations of the Company under this Note,
such Credit Agreement or any other Credit Document.
This Note evidences borrowings under, and is entitled to the benefits of,
and is subject to the provisions of, the Credit Agreement dated as of October
27, 1997, as from time to time in effect (the "Credit Agreement"), among the
Company, the Lender and certain other parties. The principal of this Note is
prepayable in the amounts and under the circumstances set forth in the Credit
Agreement, and may be prepaid in whole or from time to time in part, all as set
forth in the Credit Agreement. Terms defined in the Credit Agreement are used
herein with the meanings so defined.
In case an Event of Default shall occur, the entire principal of this Note
may become or be declared due and payable in the manner and with the effect
provided in the Credit Agreement.
<PAGE> 98
This Note shall be governed by and construed in accordance with the laws
(other than the conflict of laws rules) of the State of Rhode Island.
The parties hereto, including the Company and all guarantors and
endorsers, hereby waive presentment, demand, notice, protest and all other
demands and notices in connection with the delivery, acceptance, and enforcement
of this Note, except as specifically otherwise provided in the Credit Agreement,
and assent to extensions of time of payment, forbearance or other indulgence
without notice.
MEGO MORTGAGE CORPORATION
By /s/ JAMES L. BELTER
-------------------------------------
Title: Executive Vice President
2
<PAGE> 99
TEXTRON FINANCIAL CORPORATION
COMMERCE CENTER
333 EAST RIVER DRIVE - SUITE 305
EAST HARTFORD, CONNECTICUT 05108
October 27, 1997
Mego Mortgage Corporation
1000 Parkwood Circle, Suite 500
Atlanta, GA 30339
Re: Syndication of Credit Agreement
Ladies and Gentlemen:
In connection with the Credit Agreement dated as of the date hereof
between you and Textron Financial Corporation ("TEC") for itself and as Agent
for the other Lenders, you acknowledge that TFC may be assigning portions of its
interests in the Credit Obligations to other Lenders or Credit Participants. You
agree that it is in your best interests for TFC to syndicate its interests under
the Credit Agreement to these Lenders.
In order to facilitate this syndication, you agree that:
(a) management of the Company will make themselves available at
reasonable times and reasonable intervals for meetings with
prospective Lenders and to answer inquiries from prospective
Lenders.
(b) you agree to make available to the Agent and to the prospective
Lenders, subject to appropriate confidentiality restrictions as
provided in the Credit Agreement, such information regarding your
business as the prospective Lenders may reasonably request.
(c) in the event TFC reasonably determines that modifications to the
Credit Agreement are necessary to facilitate the anticipated
syndication, you will consider in good faith modifications proposed
by the prospective Lenders (other than any adverse change in
maturity, amortization or interest rate) and enter
<PAGE> 100
into an appropriate amendment to implement the modifications
reasonably acceptable to you.
Terms defined in the Credit Agreement are used with the meanings so
defined. This letter agreement is a Credit Document and may be signed in
counterparts, all of which shall constitute the same agreement. Please indicate
your agreement with the foregoing by signing below.
Very truly yours,
TEXTRON FINANCIAL CORPORATION
By: _____________________________________
Title:
The foregoing is agreed to:
MEGO MORTGAGE CORPORATION
By /s/ JAMES L. BELTER
-------------------------------------
Title: Executive Vice President
-2-
<PAGE> 101
into an appropriate amendment to implement the modifications
reasonably acceptable to you.
Terms defined in the Credit Agreement are used with the meanings so
defined. This letter agreement is a Credit Document and may be signed in
counterparts, all of which shall constitute the same agreement. Please indicate
your agreement with the foregoing by signing below.
Very truly yours,
TEXTRON FINANCIAL CORPORATION
By [SIG]
-------------------------------------
Title: Vice President
The foregoing is agreed to:
MEGO MORTGAGE CORPORATION
By: _____________________________________
Title:
-2-
<PAGE> 1
EXHIBIT 10.71
================================================================================
EXCESS YIELD AND SERVICING RIGHTS PURCHASE AND
ASSUMPTION AGREEMENT
between
GREENWICH CAPITAL MARKETS, INC.
as Purchaser
and
MEGO MORTGAGE CORPORATION
as Seller
Dated as of January 22, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
Section 1.01. Definitions...................................................................1
ARTICLE II
CONVEYANCE FROM SELLER TO PURCHASER AND ASSUMPTION BY PURCHASER; INTERIM SERVICING
OBLIGATIONS OF THE SELLER
Section 2.01. Existing Conventional Loans...................................................5
Section 2.02. Existing FHA Loans............................................................6
ARTICLE III
PURCHASE PRICE
ARTICLE IV
SALES COMMISSION
ARTICLE V
SELLER TO COOPERATE
ARTICLE VI
REPRESENTATIONS, WARRANTIES AND AGREEMENTS
Section 6.01. Representations, Warranties and Agreements of the Seller.....................10
Section 6.02. Representations, Warranties and Agreements with respect to the
Existing Loans............................................................12
Section 6.03. Remedies for Breach of Representations and Warranties........................13
Section 6.04. Purchaser Dispositions.......................................................13
Section 6.05. Representations and Warranties of the Purchaser..............................13
Section 6.06. Indemnification..............................................................13
ARTICLE VII
SERVICING
Section 7.01. Seller to Service Existing Loans Prior to the Servicing Termination
Date......................................................................14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Section 7.02. Seller Has No Right or Obligation to Service Existing Loans After the
Servicing Expiration Date.................................................14
Section 7.03. Purchaser May Extend Servicing Expiration Date...............................14
ARTICLE VIII
INDEMNIFICATION; THIRD-PARTY CLAIMS
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.01. Conventional Loan Closing....................................................15
Section 9.02. FHA Loan Closing.............................................................17
Section 9.03. Costs........................................................................18
Section 9.04. Merger or Consolidation of the Seller........................................18
Section 9.05. Protection of Confidential Information; No Solicitation......................18
Section 9.06. Notices......................................................................19
Section 9.07. Severability Clause..........................................................19
Section 9.08. Counterparts.................................................................19
Section 9.09. Place of Delivery and Governing Law..........................................19
Section 9.10. Waiver Of Jury Trial.........................................................19
Section 9.11. Further Agreements...........................................................20
Section 9.12. Intention of the Parties.....................................................20
Section 9.13. Successors and Assigns.......................................................20
Section 9.14. Waivers......................................................................20
Section 9.15. Exhibits.....................................................................20
Section 9.16. General Interpretive Principles..............................................21
Section 9.17. Reproduction of Documents....................................................21
Section 9.18. Survival of Agreement........................................................21
Section 9.19. Merger and Integration; Construction.........................................21
EXHIBIT A - EXISTING LOAN AND PURCHASE PRICE SCHEDULE
EXHIBIT B - SELLER'S OFFICER'S CERTIFICATE
EXHIBIT C - SELLER'S OPINION OF COUNSEL
EXHIBIT D - SCHEDULE OF LITIGATION AND PENDING INVESTIGATION
EXHIBIT E - OTHER UNDERSTANDINGS
EXHIBIT F - SERVICING ADDENDUM
</TABLE>
ii
<PAGE> 4
EXCESS YIELD AND SERVICING RIGHTS PURCHASE AND
ASSUMPTION AGREEMENT
This is an Excess Yield and Servicing Rights Purchase and
Assumption Agreement (the "Agreement"), dated as of January 22, 1998, by and
between Greenwich Capital Markets, Inc. having an office at 600 Steamboat Road,
Greenwich, Connecticut 06830 and Mego Mortgage Corporation having an office at
1000 Parkwood Circle, 5th Floor, Atlanta, Georgia 30339.
W I T N E S S E T H
WHEREAS, pursuant to the Amended and Restated Master Loan
Purchase and Servicing Agreement dated as of October 1, 1996 between the
Purchaser and the Seller (the "Original Agreement"), the Seller services certain
existing loans which are set forth on the Existing Loan Schedule;
WHEREAS, the Seller desires to sell and transfer the Excess Yield
with respect to the Existing Conventional Loans and the Servicing Rights with
respect to the Existing Conventional Loans (as all such terms are hereinafter
defined), and the Purchaser desires to purchase such Excess Yield and Servicing
Rights in connection with the Existing Conventional Loans;
WHEREAS, the Seller desires to sell and transfer the Excess Yield
with respect to the Existing FHA Loans and the Servicing Rights with respect to
the Existing FHA Loans (as all such terms are hereinafter defined), and the
Purchaser desires to purchase such Excess Yield and Servicing Rights in
connection with the Existing FHA Loans;
WHEREAS, the parties hereto have agreed to appoint the Seller as
the interim servicer with respect to the Existing Loans; and
WHEREAS, the parties have reached certain other agreements
relating to the availability of the purchase facility under the Original
Agreement;
NOW, THEREFORE, in consideration of the mutual agreements
hereinafter set forth, and for other good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the Seller and the
Purchaser hereby agree as follows:
ARTICLE I
Section 1.01. Definitions
The following terms are defined as follows:
Agreement: This Excess Yield and Servicing Rights Purchase and
Assumption Agreement and all amendments hereof and supplements hereto.
1
<PAGE> 5
Business Day: Any day other than (i) a Saturday or Sunday, or
(ii) a day on which banking and savings and loan institutions in the State of
New York are authorized or obligated by law or executive order to be closed.
Conventional Loan Closing Date: The date on which the Purchaser
shall pay the Conventional Loan Purchase Price to the Seller, which date shall
be January 22, 1998, or such other date as shall be mutually agreed upon by the
parties hereto.
Conventional Loan Purchase Price: The price paid by the Purchaser
to the Seller in exchange for the Excess Yield and the Servicing Rights with
respect to the Existing Conventional Loans as set forth in Article III.
Cut-Off Date: The close of business on December 31, 1997.
Disposition Net Proceeds: With respect to any Existing Loan, the
excess of (a) the total cash and non-cash consideration paid to the Purchaser
(net of accrued interest) by a purchaser of the Existing Loans over (b) the sum
of (i) the aggregate purchase price paid to the Seller pursuant to Article III
hereof for the Excess Yield and Servicing Rights with respect to such Existing
Loan, plus (ii) the purchase price paid by the Purchaser to the Seller for such
Existing Loan under the Original Agreement minus (iii) any payments of principal
received by the Purchaser with respect to such Existing Loan from and after the
related cut-off date under the Original Agreement.
Escrow Payments: With respect to any 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.
Excess Yield: As defined in the Original Agreement.
Existing Conventional Loan: All Existing Loans other than such
Loans that are FHA Loans.
Existing FHA Loan: Each Existing Loan that is an FHA Loan and
that remains unsold by the Purchaser to FNMA on the FHA Loan Closing Date.
Existing Loan: The Loans sold by the Seller to the Purchaser
prior to the Cut-Off Date that have not been subject to a Purchaser Disposition
or repurchase.
Existing Loan Schedule: The schedule setting forth information
with respect to each Existing Loan attached hereto as Exhibit A.
FHA Loan: As defined in the Original Agreement.
2
<PAGE> 6
FHA Loan Closing Date: The date and time on and as of which the
Purchaser shall pay the FHA Loan Purchase Price to the Seller, which date shall
be January 22, 1998 or such other date as shall be mutually agreed upon by the
parties hereto.
FHA Loan Purchase Price: The price paid by the Purchaser to the
Seller in exchange for the Excess Yield and the Servicing Rights with respect to
the Existing FHA Loans as set forth in Article III.
FNMA: The Federal National Mortgage Association, or any successor
thereto.
Interested Parties: As defined in Article V.
Loan: As defined in the Original Agreement.
Mortgage: The mortgage, deed of trust or other instrument
securing a Mortgage Note, which creates a lien on an estate in fee simple in
real property securing the Mortgage Note.
Mortgage Note: The note or other evidence of the indebtedness of
a Mortgagor secured by a Mortgage.
Mortgaged Property: The real property which is the subject of a
Mortgage securing repayment of the debt evidenced by a Mortgage Note.
Mortgagor: The obligor on a Mortgage Note.
Officer's Certificate: A certificate signed by the Chairman of
the Board or the Vice Chairman of the Board or the President or an Executive
Vice President or a Vice President or an Assistant Vice President of the Seller
in the form of Exhibit B attached hereto, and delivered to the Purchaser as
required by this Agreement.
Opinion of Counsel: A written opinion of counsel to the Seller,
in the form of Exhibit C attached hereto, and delivered to the Purchaser as
required by this Agreement.
Original Agreement: As defined in the first Recital hereto.
Other Understandings: means those letter agreements and other
written understandings identified on Exhibit E hereto.
PEC: Preferred Equities Corporation.
PEC Sub-Servicing Agreement: The Loan Program Sub-Servicing
Agreement, dated as of September 1, 1996 between PEC and the Seller, as amended,
supplemented or otherwise modified from time to time.
Person: Any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof.
3
<PAGE> 7
Purchase Price Percentage: With respect to any Existing Loan, the
percentage of par specified in the related Pricing Letter plus the percentage of
par paid in respect of such Existing Loan under the Excess Yield and Servicing
Rights Agreement.
Purchaser: Greenwich Capital Markets, Inc. or its successor in
interest or assigns or any successor to the Purchaser under this Agreement as
herein provided.
Purchaser Disposition: As defined in the Original Agreement.
Recourse Limit: As defined in Section 2.01(a).
Repurchase Price: With respect to any Existing Loan, a price
equal to (i) the Stated Principal Balance (as defined in the Original Agreement)
of such Existing Loan multiplied by the Purchase Price Percentage for such
Existing Loan, plus (ii) that portion of the applicable Purchase Price
Percentage in excess of 100%, multiplied by the aggregate principal received
with respect to such Existing Loan by the Purchaser, from and after the Cut-Off
Date to the date of repurchase, plus (iii) interest on such Stated Principal
Balance at the Loan Interest Rate (as defined in the Original Agreement) from
and including the last Due Date (as defined in the Original Agreement) through
which interest has been paid by or on behalf o the Obligor (as defined in the
Original Agreement) to the date of repurchase.
Seller: Mego Mortgage Corporation, in its capacity of the seller
of Loans and as the servicer of Loans under the Original Agreement, and its
successors in interest and assigns.
Servicing Expiration Date: January 31, 1998, as such date may be
extended from time to time pursuant to Section 7.03 hereof.
Servicing Fee: As defined in the Original Agreement, except that
as provided in Section 7.01, the percentage for purposes of the Servicing Fee
Rate (as defined in the Original Agreement) that is used to calculate such fee
shall be 1.00% instead of 1.25%.
Servicing Rights: With respect to each Loan, all of the right,
title and interest of the Seller under the Original Agreement or otherwise in,
to and under any and all of the following: (a) any and all rights to service
such Loan; (b) any payments to or monies received by the Seller for servicing
such Loan; (c) any late fees, penalties or similar payments with respect to such
Loans; (d) all agreements or documents creating, defining or evidencing any such
servicing rights to the extent they relate to such servicing rights and all
rights of the Seller or the Seller's predecessor in interest thereunder; (e)
Escrow Payments or other similar payments with respect to such Loan and any
amounts actually collected by the Seller with respect thereto; (f) all accounts
and other rights to payment related to any of the property described in this
paragraph; and (g) any and all documents, files, records, servicing files,
servicing documents, servicing records, data tapes, computer records, or other
information pertaining to such Loan or pertaining to the past, present or
prospective servicing of such Loan.
4
<PAGE> 8
Servicing Termination Date: With respect to the servicing of the
Loans by the Seller under the Original Agreement, the earliest to occur of
(i) the resignation of the Seller as servicer pursuant
to Section 13.04 of the Original Agreement;
(ii) the termination of the Seller as servicer pursuant
to Section 13.04 of the Original Agreement; and
(iii) the Servicing Expiration Date.
ARTICLE II
CONVEYANCE FROM SELLER TO PURCHASER AND ASSUMPTION BY PURCHASER; INTERIM
SERVICING OBLIGATIONS OF THE SELLER
Section 2.01. Existing Conventional Loans.
(a) On the Conventional Loan Closing Date, the Seller does hereby
sell, transfer, assign, set over and convey to the Purchaser (to the extent that
the following have not already been conveyed to the Purchaser under the Original
Agreement), without recourse, subject to the following sentence, but subject to
the terms of this Agreement, (i) all right, title and interest of the Seller in
and to the Excess Yield and the Servicing Rights with respect to the Existing
Conventional Loans as of the Cut-Off Date, and (ii) all of the Seller's rights
under the PEC Sub-Servicing Agreement with respect to Existing Conventional
Loans as of the Cut-Off Date. Notwithstanding the foregoing sentence, the Seller
shall upon demand of the Purchaser repurchase from the Purchaser, at the
Repurchase Price, any such Loan that thereafter becomes a Delinquent Loan (as
defined in the Original Agreement); provided, however, that the Seller's
liability pursuant to this sentence and the last sentence of Section 2.02(b)
shall not, in the aggregate, exceed the product of (i) 0.025 and (ii) the
aggregate "Cut-Off Date Principal Balance" as set forth on Exhibit A (such
product, the "Recourse Limit").
(b) On the Conventional Loan Closing Date, the Purchaser does
hereby (to the extent that the following have not already been conveyed to the
Purchaser under the Original Agreement), (i) accept assignment of all right,
title and interest of the Seller in and to the Excess Yield, the Servicing
Rights with respect to the Existing Conventional Loans as of the Cut-Off Date
and (ii) assume, subject to the terms of this Agreement, all obligations of the
Seller with respect to the Servicing Rights and the PEC Sub-Servicing Agreement
relating to the Existing Conventional Loans as of the Cut-Off Date; provided,
however, that the Purchaser expressly does not assume any liability relating to
or in any way arising out of the foregoing obligations prior to the Cut-Off
Date.
(c) Notwithstanding the foregoing and notwithstanding the
servicing provisions contained in the Original Agreement, for the period
beginning on the Conventional Loan Closing Date and ending on the Servicing
Termination Date, the Seller shall service the Existing Conventional Loans
pursuant to the revised Servicing Addendum, attached hereto as Exhibit F, as
described in Article VII hereof.
5
<PAGE> 9
(d) On the Conventional Loan Closing Date all funds on deposit in
the Spread Account in respect of the Existing Conventional Loans shall be
remitted to the Seller.
(e) From and after the Conventional Loan Closing Date, and
notwithstanding the fact that certain documents, files, records or other
information which comprise a portion of the Servicing Rights may remain at the
Seller's premises until the Servicing Termination Date or thereafter, (i) the
Seller's right to service the Existing Conventional Loans shall absolutely and
irrevocably terminate (subject to Article VII hereof) and (ii) the Seller shall
have no property, contract, possessory or other right, title or interest of any
nature whatsoever in or to the Servicing Rights (including any such documents,
files, records or other information at the Seller's premises, all of which shall
be the sole property of the Purchaser) or the Excess Yield with respect to the
Existing Conventional Loans. The Purchaser and Seller agree that no termination
fee, liquidated damages or any other fee or monies triggered by the termination
of the Seller's right to service the Existing Conventional Loans shall be
payable to the Servicer as a result of the termination of such servicing and the
transactions contemplated by this Agreement, it being expressly understood that
the payment of the Purchase Price by the Purchaser shall constitute, in and of
itself, the full consideration payable to the Seller for its sale of the Excess
Yield and the Servicing Rights with respect to the Existing Conventional Loans
and the other transactions contemplated hereby; provided, however, that the
Seller shall be entitled to receive the Servicing Fee as and when contemplated
by the Original Agreement, as modified by Exhibit F, with respect to its
servicing of the Existing Conventional Loans for the Purchaser for the period
from the Cut-Off Date until the Servicing Termination Date.
Section 2.02. Existing FHA Loans.
(a) For the period beginning on the Conventional Loan Closing
Date and ending on the FHA Loan Closing Date, the Seller shall continue to
service each Existing Loan that is an FHA Loan pursuant to the terms and
conditions, mutatis mutandis, of the Original Agreement.
(b) On the FHA Loan Closing Date, the Seller does hereby sell,
transfer, assign, set over and convey to the Purchaser (to the extent that the
following have not already been conveyed to the Purchaser under the Original
Agreement), without recourse, but subject to the terms of this Agreement, (i)
all right, title and interest of the Seller in and to the Excess Yield and the
Servicing Rights with respect to the Existing FHA Loans as of the Cut-Off Date
and (ii) all of the Seller's rights under the PEC Sub-Servicing Agreement with
respect to the Existing FHA Loans as of the Cut-Off Date. Notwithstanding the
foregoing sentence, the Seller shall upon demand of the Purchaser repurchase
from the Purchaser, at the Repurchase Price, any such Loan that thereafter
becomes a Delinquent Loan (as defined in the Original Agreement); provided,
however, that the Seller's liability pursuant to this sentence and the last
sentence of Section 2.01(a) shall not, in the aggregate, exceed the Recourse
Limit.
(c) On the FHA Loan Closing Date, the Purchaser does hereby (to
the extent that the following have not already been conveyed to the Purchaser
under the Original Agreement), (i) accept assignment of all right, title and
interest of the Seller in and to the Excess Yield and the Servicing Rights with
respect to the Existing FHA Loans as of the Cut-Off Date
6
<PAGE> 10
and (ii) assume, subject to the terms of this Agreement, all obligations of the
Seller with respect to the Servicing Rights and the PEC Sub-Servicing Agreement
relating to the Existing FHA Loans as of the Cut-Off Date; provided, however,
that the Purchaser expressly does not assume any liability or obligation
relating to, or in any way arising out of, the foregoing obligations prior to
the Cut-Off Date.
(d) Notwithstanding the foregoing, for the period beginning on
the FHA Loan Closing Date and ending on the Servicing Termination Date, the
Seller shall continue to service the Existing FHA Loans pursuant to the Original
Agreement as described in Section 7.01 hereof.
(e) On the FHA Loan Closing Date all funds on deposit in the
Spread Account in respect of the Existing FHA Loans shall be remitted to the
Seller.
(f) From and after the FHA Loan Closing Date, and notwithstanding
the fact that certain documents, files, records or other information which
comprise a portion of the Servicing Rights may remain at the Seller's premises
until the Servicing Termination Date or thereafter, (a) the Seller's right to
service the Existing FHA Loans shall absolutely and irrevocably terminate
(subject to Article VII hereof) and (b) the Seller shall have no property,
contract, possessory or other right, title or interest of any nature whatsoever
in or to the Servicing Rights (including any such documents, files, records or
other information at the Seller's premises, all of which shall be the sole
property of the Purchaser) or the Excess Yield with respect to the Existing FHA
Loans. The Purchaser and Seller agree that no termination fee, liquidated
damages or any other fee or monies triggered by the termination of the Seller's
right to service the Existing FHA Loans shall be payable to the Servicer as a
result of the termination of such servicing and the transactions contemplated by
this Agreement, it being expressly understood that the payment of the Purchase
Price by the Purchaser shall constitute, in and of itself, the full
consideration payable to the Seller for its sale of the Excess Yield and the
Servicing Rights with respect to the Existing FHA Loans and the other
transactions contemplated hereby; provided, however, that the Seller shall be
entitled to receive the Servicing Fee as and when contemplated by the Original
Agreement with respect to its servicing of the Existing FHA Loans for the
Purchaser for the period from the Cut-Off Date until the Servicing Termination
Date.
Section 2.03 Intention of the Parties.
It is the express intention of the parties hereto that the
transactions contemplated by this Agreement and the Original Agreement be, and
be construed as, a sale of rights and interests relating to the Existing Loans
by the Seller and not a pledge of the rights and interests relating to the
Existing Loans by the Seller to the Purchaser to secure a debt or other
obligation of the Seller. However, in the event that the Existing Loans and
other rights transferred under this Agreement are held to be property of the
Seller, or if for any reason this Agreement is held or deemed to create a
security interest in the Existing Loans and related rights then it is intended
that (a) this Agreement shall also be deemed to be a security agreement within
the meaning of the Uniform Commercial Code of any applicable jurisdiction and
the Seller hereby grants to the Purchaser a security interest in all of Seller's
right, title and interest, whether now owned or hereafter acquired, in and to
the Existing Conventional Loans; (b) to the extent allowed under FHA Title I
rules and regulations, in order to secure the obligations of the Seller to the
Purchaser
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hereunder with respect to the Existing FHA Loans, the Seller hereby shall be
deemed to have granted to the Purchaser a security interest in all of the
Seller's right (including the power to convey title thereto), title and
interest, whether now owned or hereafter acquired, in and to (A) the Existing
FHA Loans; (B) the FHA Insurance Reserves, all of the Seller's other contractual
rights against the FHA in relation to the Existing Loans, and all documents in
the possession or under the control of the Seller with respect thereto; (C) all
amounts payable pursuant to the FHA Insurance Contract in accordance with the
terms thereof; and (D) any and all general intangibles consisting of, arising
from or relating to any of the foregoing, and all proceeds of the conversion,
voluntary or involuntary, of the foregoing into cash, instruments, securities or
other property, including, without limitation, all amounts from time to time
held or invested in any REO Account or the Collection Accounts, whether in the
form of cash, instruments; securities or other property; (c) the possession by
the Purchaser of the related Notes or such other items of property as constitute
instruments, money, negotiable documents or chattel paper shall be deemed to be
"possession by the secured party", or possession by a purchaser or a person
designated by such secured party, for purposes of perfecting the security
interest pursuant to the Uniform Commercial Code of any applicable jurisdiction
(including, without limitations, Section 9-305, 8-313 or 8-321 thereof); (d)
notifications to persons holding such property, and acknowledgments, receipts or
confirmations from persons holding such property, shall be deemed notifications
to, or acknowledgments, receipts or confirmations from, financial
intermediaries, bailees or agents (as applicable) of the Purchaser for the
purpose of perfecting such security interest under applicable law; and (e) for
purposes of this Agreement and the Pricing Letter, "Loan Documents' shall
include UCC-1 financing statements in form acceptable for filing in the
applicable jurisdictions in which are located the principal place of business
and the executive offices of the Seller and executed by the Seller in favor of
the Purchaser.
ARTICLE III
PURCHASE PRICE
The Conventional Loan Purchase Price for the Seller to sell the
Servicing Rights for each Existing Conventional Loan shall be the product of (a)
the percentage set forth on Exhibit A hereto and identified as the Servicing
Rights Purchase Price Percentage for such Loan (the "Conventional Loan Servicing
Rights Purchase Price Percentage") and (b) the aggregate outstanding principal
balance of such Existing Conventional Loan as of the Cut-Off Date. The
Conventional Loan Purchase Price for the Seller to sell the Excess Yield for
each Existing Conventional Loan shall be the product of (a) the percentage set
forth on Exhibit A hereto and identified as the Excess Yield Purchase Price
Percentage for such Loan (the "Conventional Loan Excess Yield Purchase Price
Percentage") and (b) the aggregate outstanding principal balance of such
Existing Conventional Loan as of the Cut-Off Date.
The FHA Loan Purchase Price for the Seller to sell the Servicing
Rights for each Existing FHA Loan shall be the product of (a) the percentage set
forth on Exhibit A hereto and identified as the Servicing Rights Purchase Price
Percentage for such Loan (the "FHA Loan Servicing Rights Purchase Price
Percentage") and (b) the aggregate outstanding principal balance of such
Existing FHA Loan as of the Cut-Off Date. The FHA Loan Purchase Price for the
Seller to sell the Excess Yield for each Existing FHA Loan shall be the product
of (a) the percentage set
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forth on Exhibit A hereto and identified as the Excess Yield Purchase Price
Percentage for such Loan (the "FHA Loan Excess Yield Purchase Price Percentage")
and (b) the aggregate outstanding principal balance of such Existing FHA Loan as
of the Cut-Off Date.
ARTICLE IV
SALES COMMISSION
The Purchaser and the Seller understand that the Purchaser shall
have the right to sell the Existing Loans in whole or in part in its discretion
on a servicing released or servicing retained basis.
The Purchaser acknowledges that the Seller has made certain
contacts and tentative arrangements with potential purchasers of the Existing
Loans, and agrees that it shall pay to the Seller a fee (such fee, the "Sales
Commission") equal to (a) in the case of Existing Conventional Loans, (i) 85% of
the Disposition Net Proceeds with respect to a sale to First Plus Financial
Group, Inc. ("First Plus") consummated on or before March 15, 1998, (ii) 85% of
the Disposition Net Proceeds with respect to a sale to any other third party
purchaser consummated on or before February 17, 1998, (iii) 66-2/3% of the
Disposition Net Proceeds with respect to a sale of the Existing Loans to First
Plus consummated after March 15, 1998, (iv) 75% of the Disposition Net Proceeds
with respect to a sale to any other third party purchaser consummated after
February 17, 1998 and on or before March 15, 1998, and (v) 66-2/3% of the
Disposition Net Proceeds with respect to a sale to any other third party
purchaser consummated after March 15, 1998, and (b) in the case of Existing FHA
Loans, (i) 85% of the Disposition Net Proceeds with respect to a sale to FNMA
pursuant to FNMA's mortgage-backed securities program arranged by the Seller at
any time, (ii) 50% of the Disposition Net Proceeds with respect to any other
sale to FNMA, and (iii) 66-2/3% of the Disposition Net Proceeds with respect to
a sale to any third party purchaser after the FHA Loan Closing Date.
ARTICLE V
SELLER TO COOPERATE
The Seller shall promptly execute and deliver all such
instruments and take all such action as the Purchaser may reasonably request
from time to time in order to effectuate the purposes and to carry out the terms
of this Agreement, including but not limited to, (i) accommodating the
Purchaser's reasonable due diligence requests, including, but not limited to,
(A) providing an area in the Seller's premises in which the Purchaser or its
designee or any Interested Party may review all items pertaining to the
servicing or origination of the Existing Loans including, but not limited to,
computer files, data disks, books, records, data tapes, credit files, pay
histories, notes, and all additional documents generated as a result of or
utilized in servicing each Existing Loan, (B) otherwise providing reasonable
working conditions for the Purchaser or its designee's or any Interested Party's
personnel during normal business hours of the Seller, and (C) allowing
reasonable access by the Purchaser or its designee or any Interested Party, to a
knowledgeable servicing officer of the Seller for the purposes of answering
questions concerning the Existing Loans, the Excess Yield or the Servicing
Rights and (ii) cooperating with
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and assisting the Purchaser with respect to any meetings and/or other
communications with any prospective purchasers of the Existing Loans or the
Servicing Rights, and any other persons in connection with the marketing and
sale of the Existing Loans or the Servicing Rights (any such persons or
entities, "Interested Parties").
ARTICLE VI
REPRESENTATIONS, WARRANTIES
AND AGREEMENTS
Section 6.01. Representations, Warranties and Agreements of the
Seller.
The Seller, as a condition to the consummation of the
transactions contemplated hereby, hereby makes the following representations and
warranties to the Purchaser (i) as of the Conventional Loan Closing Date, with
respect to the Existing Conventional Loans, (ii) as of the FHA Loan Closing
Date, with respect to the Existing FHA Loans, and (iii) with respect to the
related Existing Loans, as of any date of a Purchaser Disposition (treating
Existing Conventional Loans and Existing FHA Loans as "Loans" under the Original
Agreement, giving effect to any changes in the performance of the underlying
loans and other changes that the Purchaser deems reasonably necessary to
consummate a Purchaser Disposition):
(a) Due Organization and Authority. The Seller is a Delaware
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation and has all licenses necessary to carry on its
business as now being conducted and is licensed, qualified and in good standing
in each state where a Mortgaged Property is located if the laws of such state
require licensing or qualification in order to conduct business of the type
conducted by the Seller, and in any event the Seller is in compliance with the
laws of any such state to the extent necessary to ensure the enforceability of
the terms of this Agreement; the Seller has the full corporate power and
authority to execute and deliver this Agreement and to perform in accordance
herewith; the execution, delivery and performance of this Agreement (including
all instruments of transfer to be delivered pursuant to this Agreement) by the
Seller and the consummation of the transactions contemplated hereby have been
duly and validly authorized; this Agreement evidences the valid, binding and
enforceable obligation of the Seller; and all requisite corporate action has
been taken by the Seller to make this Agreement valid and binding upon the
Seller in accordance with its terms;
(b) Ordinary Course of Business. The consummation of the
transactions contemplated by this Agreement are in the ordinary course of
business of the Seller;
(c) No Conflicts. Neither the execution and delivery of this
Agreement, the sale of the Excess Yield or the Servicing Rights by the Seller,
or the transactions contemplated hereby, nor the fulfillment of or compliance
with the terms and conditions of this Agreement, will conflict with or result in
a breach of any of the terms, conditions or provisions of the Seller's charter
or by-laws or any legal restriction or any material agreement or instrument to
which the Seller is now a party or by which it is bound, or constitute a default
or result in an acceleration under any of the foregoing, or result in the
violation of any law, rule, regulation, order, judgment
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or decree to which the Seller or its property is subject, or impair the value of
the Excess Yield or the Servicing Rights;
(d) Ability to Perform. The Seller does not believe, nor does it
have any reason or cause to believe, that it cannot perform each and every
covenant contained in this Agreement;
(e) No Litigation Pending. There is no action, suit, proceeding
or investigation pending or threatened against the Seller which, either in any
one instance or in the aggregate, if adversely determined, may result in any
material adverse change in the business, operations, financial condition,
properties or assets of the Seller, or in any material impairment of the right
or ability of the Seller to carry on its business substantially as now
conducted, or in any material liability on the part of the Seller, or which
would draw into question the validity of this Agreement or of any action taken
or to be taken in connection with the obligations of the Seller contemplated
herein, or which would be likely to impair materially the ability of the Seller
to perform under the terms of this Agreement;
(f) No Consent Required. No consent, approval, authorization or
order of any court or governmental agency or body is required for the execution,
delivery and performance by the Seller of or compliance by the Seller with this
Agreement, or if required, such approval has been obtained prior to the
Conventional Loan Closing Date or FHA Loan Closing Date, as applicable;
(g) No Untrue Information. Neither this Agreement nor any
statement, report or other document furnished or to be furnished pursuant to
this Agreement or in connection with the transactions contemplated hereby
contains any untrue statement of material fact or omits to state a material fact
necessary to make the statements contained therein not misleading;
(h) Commissions to Third Parties. The Seller has not dealt with
any broker or agent or anyone else who might be entitled to a fee or commission
in connection with this transaction other than the Purchaser;
(i) Servicing Practices. From and after the date of origination
of each Existing Loan, the Seller or any predecessor in interest has serviced
such Existing Loan (i) in strict accordance with the terms and conditions set
forth in the Original Agreement, and (ii) in accordance with the 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 such Existing Loan;
(j) Ownership. The Seller is the sole owner of the Excess Yield
and the Servicing Rights subject to this Agreement, as provided herein. Neither
the Excess Yield nor the Servicing Rights subject to this Agreement has been
assigned or pledged, and, the Seller has good and marketable interest therein,
and has the full right and authority to transfer and sell the Excess Yield and
the Servicing Rights to the Purchaser pursuant to this Agreement, free and clear
of any encumbrance, equity, interest, lien, pledge, charge, claim or security
interest, and has the full right and authority to sell and assign the Excess
Yield and the Servicing Rights pursuant to this
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Agreement. No other agreements except the Original Agreement and the PEC
Sub-Servicing Agreement, which were delivered to the Purchaser, affect or
concern the Excess Yield or the Servicing Rights;
(k) Applicable Agreements. Each of the Original Agreement and the
PEC Sub-Servicing Agreement is in full force and effect, and neither the Seller
nor any other party that has had an interest in such agreements has waived or
agreed to any waiver under, or agreed to any amendment or other modification of
any such agreements. The Seller has not received notices of, and has no
knowledge of, any offsets, counterclaims or other defenses available to any
party under any such agreement;
(l) 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 each Existing Loan
have been complied with, and the Seller shall make or cause to be made available
upon reasonable notice for the Purchaser's inspection, evidence of compliance
with all such requirements;
(m) Servicing Fee. The Servicing Fee with respect to each
Existing Loan is accurately set forth on the Existing Loan Schedule; and
(n) Fair Consideration. The Purchase Price received by the Seller
upon the sale under this Agreement of the Excess Yield and the Servicing Rights
with respect to the Existing Loans constitutes fair consideration and reasonably
equivalent value for the Excess Yield and the Servicing Rights.
(o) The Seller is not entering into the transactions contemplated
by this Agreement with the intent to hinder, delay or defraud any of its
creditors.
(p) The Seller, after giving effect to the transactions to occur
on the Conventional Loan Closing Date and the FHA Loan Closing Date hereunder,
shall have fully and effectively transferred to the Purchaser all of the
Seller's right, title and interest in, to and under the Excess Yield and the
Servicing Rights with respect to the Existing Conventional Loans and the
Existing FHA Loans, respectively, and shall retain no ownership or other
interest of any kind in any Existing Loan.
Section 6.02. Representations, Warranties and Agreements with
respect to the Existing Loans.
The Seller, as a condition to the consummation of the
transactions contemplated hereby, hereby makes the representations and
warranties set forth in Section 7.02 of the Original Agreement to the Purchaser
(treating Existing Conventional Loans and Existing FHA Loans as "Loans" under
the Original Agreement) (i) as of the Conventional Loan Closing Date, with
respect to the Existing Conventional Loans, (ii) as of the FHA Loan Closing
Date, with respect to the Existing FHA Loans, and (iii) with respect to the
related Existing Loans, as of any date of any Purchaser Disposition.
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Section 6.03. Remedies for Breach of Representations and
Warranties.
The Purchaser shall be entitled to the benefit of the remedies
for breach of representations and warranties set forth in Section 7.03 of the
Original Agreement (treating Existing Conventional Loans and Existing FHA Loans
as "Loans" under the Original Agreement; provided, however, that the definition
of Repurchase Price shall be as set forth in this Agreement).
Section 6.04. Purchaser Dispositions.
In connection with any Purchaser Disposition, the Purchaser shall
be entitled to the benefits of Section 12 of the Original Agreement (treating
Existing Conventional Loans and Existing FHA Loans as "Loans" under the Original
Agreement).
Section 6.05. Representations and Warranties of the Purchaser.
The Purchaser, as a condition to the consummation of the
transactions contemplated hereby, makes the following representations and
warranties to the Seller as of the Conventional Loan Closing Date and the FHA
Loan Closing Date:
(a) Purchaser has been duly organized and is validly existing as
a corporation under the laws of the State of Delaware;
(b) Purchaser has the requisite power and authority and legal
right to execute and deliver, engage in the transactions contemplated by, and
perform and observe the terms and conditions of, this Agreement to be performed
by it;
(c) This Agreement has been duly authorized and executed by
Purchaser, is valid, binding and enforceable against Purchaser in accordance
with its terms, and the execution, delivery and performance by Purchaser of this
Agreement does not conflict with any material term or provision of any other
agreement to which Purchaser is a party or any term or provision of the Charter
or By-laws of Purchaser, or any law, rule, regulation, order, judgment, writ,
injunction or decree applicable to Purchaser of any court, regulatory body,
administrative agency or governmental body having jurisdiction over Purchaser;
(d) No consent, approval, authorization or order of, registration
or filing with, or notice to any governmental authority or court is required
under applicable law in connection with the execution and delivery by Purchaser
of this Agreement; and
(e) There is no action, proceeding or investigation pending or to
the best knowledge of Purchaser, threatened against Purchaser before any court,
administrative agency or other tribunal (A) asserting the invalidity of this
Agreement, (B) seeking to prevent the consummation of any of the transactions
contemplated by this Agreement, or (C) which is likely to materially and
adversely affect the performance by Purchaser of its obligations under, or the
validity or enforceability of, this Agreement.
Section 6.06. Indemnification.
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The Purchaser shall indemnify the Seller and hold it harmless
against any losses, damages, penalties, fines, forfeitures, reasonable and
necessary legal fees and related costs, judgments, and other costs and expenses
resulting from any claim, demand, defense or assertion based on or grounded
upon, or resulting from, a breach of the Purchaser representations and
warranties contained in this Agreement. It is understood and agreed that the
obligation of the Purchaser to indemnify the Seller set forth in this
subparagraph of Section 6.06 constitutes the sole remedy of the Seller
respecting a breach of the foregoing representations and warranties, except as
otherwise provided in this Agreement or in the Original Agreement.
Any cause of action against the Purchaser relating to or arising
out of the breach of any representations and warranties made in Section 6.05
shall accrue upon (a) discovery of such breach by the Purchaser or written
notice thereof by the Seller to the Purchaser, (b) failures by the Purchaser to
cure such breach, and (c) written demand upon the Purchaser by the Seller for
compliance with this Agreement.
ARTICLE VII
SERVICING
Section 7.01 Seller to Service Existing Loans Prior to the
Servicing Termination Date.
From and after the date hereof until the Servicing Termination
Date, the Seller shall act as interim Servicer and service each Existing Loan in
compliance with all of the terms and conditions of the Servicing Addendum,
subject to the terms of this Article VII.
From the Cut-Off Date until the Servicing Termination Date, the
Seller shall be entitled to all Servicing Fees paid with respect to the Existing
Loans pursuant to the Original Agreement, less the amount of fees payable to PEC
under the PEC Sub-Servicing Agreement with respect to the Existing Loans, which
fees shall, with respect to obligations arising from and after the Cut-Off Date,
be paid by the Purchaser directly to PEC. Notwithstanding anything to the
contrary contained herein or in the Original Agreement, it is expressly
understood that for all purposes from and after the Cut-Off Date, the percentage
for purposes of the Servicing Fee Rate (as defined in the Original Agreement)
that is used to calculate the Servicing Fee shall be 1.00% instead of 1.25%.
Section 7.02. Seller Has No Right or Obligation to Service
Existing Loans After the Servicing Termination
Date.
From and after the Servicing Termination Date, the Seller shall
have neither the right nor the obligation to service any Existing Loan that has
not been subject to a Purchaser Disposition whatsoever without the express
written agreement of Purchaser. Seller shall have no right to receive any
compensation in respect of servicing of any Existing Loan for any period on or
after the Servicing Termination Date without the express written agreement of
Purchaser. No act or omission by the Seller or Purchaser shall be deemed a
waiver of, or constructive agreement under, the preceding provisions of this
Section 7.02.
Section 7.03. Purchaser May Extend Servicing Expiration Date.
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Subject to Section 13.04 of the Original Agreement, no later than
five Business Days prior to the then current Servicing Expiration Date, the
Purchaser may notify the Seller that the Purchaser has extended the Servicing
Expiration Date to the last day of the next calendar month by delivering a
notice thereof to the Seller in the form of Exhibit D hereto (an "Extension
Notice"), whereupon the Servicing Expiration Date shall be extended until such
date. The Purchaser may, at its sole option, but only until the date that is the
one-year anniversary of the Final Closing Date (as defined in the Original
Agreement), extend the Servicing Expiration Date by delivering consecutive
Extension Notices in accordance with the foregoing procedure. For the avoidance
of doubt, it is expressly agreed in the event that the Purchaser does not
deliver an Extension Notice in any particular month, the Servicing Expiration
Date shall be the last day of such month.
ARTICLE VIII
INDEMNIFICATION; THIRD-PARTY CLAIMS
The Seller shall indemnify the Purchaser and hold it harmless
against any and all claims, losses, damages, penalties, fines, forfeitures,
reasonable and necessary and reasonable legal fees and related costs, judgments,
and any other costs, fees and expenses that the Purchaser may sustain based
upon, arising out of or otherwise resulting from the failure of the Seller to
perform its duties in strict compliance with the terms of this Agreement or the
Original Agreement. The Seller immediately shall notify the Purchaser if a claim
is made by a third party with respect to this Agreement, or the Existing Loans,
and shall assume (with the prior written consent of the Purchaser) the defense
of any such claim and pay all expenses in connection therewith, including
counsel fees, and promptly pay, discharge and satisfy any judgment or decree
which may be entered against it or the Seller in respect of such claim. The
Seller shall follow any written instructions received from the Purchaser in
connection with such claim.
In the event a dispute arises between the parties with respect to
any of the rights and obligations of the parties pursuant to this Agreement, and
such dispute is adjudicated in a court of law by an arbitration panel or any
other judicial process, then the losing party shall indemnify and reimburse the
winning party for all attorneys fees and other costs and expenses related to the
adjudication of said dispute.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.01. Conventional Loan Closing.
(a) The closing for the purchase and sale of the Excess Yield and
the Servicing Rights with respect to the Existing Conventional Loans, shall take
place on the Conventional Loan Closing Date. At the Purchaser's option, the
closing shall be either: by telephone, confirmed by letter or wire as the
parties shall agree; or conducted in person, at such place as the parties shall
agree.
(b) The closing shall be subject to the following conditions:
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(i) all of the representations and warranties of the Seller
and the Purchaser under this Agreement shall be true and
correct as of the Conventional Loan Closing Date and no
event shall have occurred which, with notice or the
passage of time, would constitute a default under this
Agreement;
(ii) the Purchaser shall have received, or the Purchaser's
attorneys shall have received in escrow, all Closing
Documents as specified in Section 9.01(c) of this
Agreement, in such forms as are agreed upon and acceptable
to the Seller and the Purchaser, duly executed by all
signatories other than the Purchaser as required pursuant
to the respective terms thereof;
(iii) the Seller shall have received the amount of the
Conventional Loan Purchase Price by wire transfer of
immediately available federal funds to the account
designated by the Seller;
(iv) the Seller shall have received all funds on deposit in the
Spread Account (as established under the Original
Agreement) as of such date to the extent such funds relate
to any Existing Conventional Loans;
(v) PEC shall have consented to the assignment of the PEC
Sub-Servicing Agreement with respect to the Existing Loans
on such terms and conditions as shall be acceptable to the
Purchaser in its sole discretion, including without
limitation terms and conditions relating to the
Purchaser's ability to terminate PEC as subservicer of the
PEC Sub-Servicing Agreement with respect to the Existing
Loans as contemplated hereunder;
(vi) the Purchaser shall have received advice from counsel to
the Seller as to the qualification of the transfer of
Existing Conventional Loans and Existing FHA Loans
contemplated hereby as "true sales", which advice shall be
satisfactory to the Purchaser in its sole discretion, it
being understood that such advice must include, without
limitation, such counsel's commitment to deliver a written
legal opinion to the Purchaser addressing such issue;
(vii) the "Collection Account" and the "REO Account" referenced
in the Original Agreement shall be retitled in the name of
the Purchaser; and
(viii) all other terms and conditions of this Agreement to be
performed or satisfied on or before the Conventional Loan
Closing Date shall have been complied with.
(c) The closing documents to be delivered on the Conventional
Loan Closing Date shall consist of fully executed originals of the following
documents:
(i) this Agreement;
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(ii) an Officer's Certificate from the Seller in the form
attached hereto as Exhibit B; and
(iii) an Opinion of Counsel from the Seller in the form attached
hereto as Exhibit C.
Section 9.02 FHA Loan Closing.
The closing for the purchase and sale of the Excess Yield and the
Servicing Rights with respect to the Existing FHA Loans shall take place on the
FHA Loan Closing Date. At the Purchaser's option, such closing shall be either:
by telephone, confirmed by letter or wire as the parties shall agree; or
conducted in person, at such place as the parties shall agree.
(a) The closing shall be subject to the following conditions:
(i) all of the representations and warranties of the Seller
and the Purchaser under this Agreement shall be true and
correct as of the FHA Loan Closing Date and no event shall
have occurred which, with notice or the passage of time,
would constitute a default under this Agreement or the
Original Agreement;
(ii) the Purchaser shall have received, or the Purchaser's
attorneys shall have received in escrow, all Closing
Documents as specified in Section 9.02(b) of this
Agreement, in such forms as are agreed upon and acceptable
to the Seller and the Purchaser, duly executed by all
signatories other than the Purchaser as required pursuant
to the respective terms thereof;
(iii) the Seller shall have received the amount of the FHA Loan
Purchase Price by wire transfer of immediately available
federal funds to the account designated by the Seller;
(iv) the Seller shall have received all funds on deposit in the
Spread Account (as established under the Original
Agreement) as of such date to the extent such funds relate
to any Existing FHA Loans;
(v) all other terms and conditions of this Agreement to be
performed or satisfied on or before the Conventional Loan
Closing Date or the FHA Loan Closing Date shall have been
complied with.
(b) The closing documents shall consist of fully executed
originals of the following documents:
(i) an Officer's Certificate from the Seller in the form
attached hereto as Exhibit B; and
(ii) an Opinion of Counsel from the Seller in the form attached
hereto as Exhibit C.
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Section 9.03. Costs.
All reasonable costs and expenses incurred in connection with the
transfer and delivery of the Excess Yield and the Servicing Rights with respect
to the Existing Loans and otherwise in connection with this Agreement or the
Original Agreement shall be paid by the Seller, including without limitation the
reasonable legal fees and expenses of the Purchaser's counsel.
Section 9.04. Merger or Consolidation of the Seller.
The Seller shall keep in full effect its existence, rights and
franchises as a corporation, and shall obtain and preserve its qualification to
do business as a foreign corporation in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement or any of the Existing Loans and to perform its
duties under this Agreement.
Any Person into which the Seller may be merged or consolidated,
or any corporation resulting from any merger, conversion or consolidation to
which the Seller shall be a party, or any Person succeeding to the business of
the Seller, shall be the successor of the Seller hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding, provided,
however, that the successor or surviving Person shall (i) have a net worth of
not less than $25,000,000, and (ii) be an FNMA-approved company in good
standing.
Section 9.05. Protection of Confidential Information; No
Solicitation.
From and after the earlier to occur of the Conventional Loan
Closing Date and the FHA Loan Closing Date, the Seller hereby agrees that it
will not take any action or permit or cause any action to be taken by any of its
agents or affiliates, or by any independent contractors on the Seller's behalf,
to personally, by telephone or mail, solicit the borrower or obligor under any
Existing Loan for any purpose whatsoever, including to refinance an Existing
Loan, in whole or in part, without the prior written consent of the Purchaser.
It is understood and agreed that all rights and benefits relating to the
solicitation of any Mortgagors and the attendant rights, title and interest in
and to the list of such Mortgagors and data relating to their Mortgages
(including insurance renewal dates) shall be transferred to the Purchaser
pursuant hereto on the Conventional Loan Closing Date or the FHA Loan Closing
Date, as applicable, and the Seller shall take no action to undermine these
rights and benefits. Notwithstanding the foregoing, it is understood and agreed
that offers to refinance an Existing Loan made within 30 days following receipt
by the Seller of a pay-off request from the Mortgagor and promotions undertaken
by the Seller or any affiliate of the Seller which are directed to the general
public at large, including, without limitation, mass mailing based on
commercially acquired mailing lists, newspaper, radio and television
advertisements shall not constitute solicitation under this Section 9.05.
18
<PAGE> 22
Section 9.06. Notices.
All demands, notices and communications hereunder shall be in
writing and shall be deemed to have been duly given if mailed, by registered or
certified mail, return receipt requested, or, if by other means, when received
by the other party at the address shown on the first page hereof, or such other
address as may hereafter be furnished to the other party by like notice. Any
such demand, notice or communication hereunder shall be deemed to have been
received on the date delivered to or received at the premises of the addressee
(as evidenced, in the case of registered or certified mail, by the date noted on
the return receipt).
Section 9.07. Severability Clause.
Any part, provision, representation or warranty of this Agreement
which is prohibited or which is held to be void or unenforceable shall be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any part, provision,
representation or warranty of this Agreement which is prohibited or
unenforceable or is held to be void or unenforceable in any jurisdiction shall
be ineffective, as to such jurisdiction, to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction as to any Existing Loan
shall not invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties hereto
waive any provision of law which prohibits or renders void or unenforceable any
provision hereof. If the invalidity of any part, provision, representation or
warranty of this Agreement shall deprive any party of the economic benefit
intended to be conferred by this Agreement, the parties shall negotiate, in
good-faith, to develop a structure the economic effect of which is as close as
possible to the economic effect of this Agreement without regard to such
invalidity.
Section 9.08. Counterparts.
This Agreement may be executed simultaneously in any number of
counterparts. Each counterpart shall be deemed to be an original, and all such
counterparts shall constitute one and the same instrument.
SECTION 9.09. PLACE OF DELIVERY AND GOVERNING LAW.
THIS AGREEMENT SHALL BE DEEMED IN EFFECT WHEN A FULLY EXECUTED
COUNTERPART THEREOF IS RECEIVED BY THE PURCHASER IN THE STATE OF NEW YORK AND
SHALL BE DEEMED TO HAVE BEEN MADE IN THE STATE OF NEW YORK. THE AGREEMENT SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT
PREEMPTED BY FEDERAL LAW.
SECTION 9.10. WAIVER OF JURY TRIAL
19
<PAGE> 23
THE SELLER AND THE PURCHASER, EACH WITH RESPECT TO THE OTHER,
HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT, THE ORIGINAL
AGREEMENT, ANY DOCUMENT EXECUTED BY THE SELLER OR THE PURCHASER PURSUANT TO THIS
AGREEMENT OR THE ORIGINAL AGREEMENT OR THE RELATIONSHIP ESTABLISHED HEREUNDER OR
THEREUNDER.
Section 9.11. Further Agreements.
The Seller and the Purchaser each agree to execute and deliver to
the other such reasonable and appropriate additional documents, instruments or
agreements as may be necessary or appropriate to effectuate the purposes of this
Agreement.
Section 9.12. Intention of the Parties.
It is the intention of the parties that by virtue of the sale of
the Excess Yield and Servicing Rights being sold hereunder, the Seller is
selling, and the Purchaser is purchasing, all of the right, title and interest
of the Seller in, to and under each and every Existing Conventional Loan and
Existing FHA Loan to the extent not previously sold to the Purchaser pursuant to
the Original Agreement. The Purchaser and the Seller hereby acknowledge that the
Seller shall remain liable in respect of all obligations of the Seller with
respect to any representations, warranties or covenants of the Seller under any
agreement which relate to the Seller as "seller" of the Existing Loans or relate
to the characteristics of the Existing Loans individually or in the aggregate.
Section 9.13. Successors and Assigns.
This Agreement shall bind and inure to the benefit of and be
enforceable by the Purchaser and the Seller and their respective successors and
permitted assigns. The Seller shall not assign this Agreement without the prior
written consent of the Purchaser, which may be granted or withheld in the sole
discretion of such other party.
Section 9.14. Waivers.
No term or provision of this Agreement may be waived or modified
unless such waiver or modification is in writing and signed by the party against
whom such waiver or modification is sought to be enforced.
Section 9.15. Exhibits.
The exhibits to this Agreement are hereby incorporated and made a
part hereof and are an integral part of this Agreement.
20
<PAGE> 24
Section 9.16. General Interpretive Principles.
For purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Agreement have the meanings
assigned to them in this Agreement and include the plural as well as the
singular, and the use of any gender herein shall be deemed to include the other
gender;
(b) accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles;
(c) references herein to "Articles", "Sections", "Subsections",
"Paragraphs", and other subdivisions without reference to a document are to
designated Articles, Sections, Subsections, Paragraphs and other subdivisions of
this Agreement;
(d) a reference to a Subsection without further reference to a
Section is a reference to such Subsection as contained in the same Section in
which the reference appears, and this rule shall also apply to Paragraphs and
other subdivisions;
(e) the words "herein", "hereof", "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
provision; and
(f) the term "include" or "including" shall mean by reason of
enumeration.
Section 9.17. Reproduction of Documents.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications which may hereafter
be executed, (b) documents received by any party at the closing, and (c)
financial statements, certificates and other information previously or hereafter
furnished, may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties agree
that any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding, whether or not the original
is in existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
Section 9.18. Survival of Agreement.
It is intended that each and every representation, warranty,
indemnity and covenant shall survive the Conventional Loan Closing Date and the
FHA Loan Closing Date, and shall inure to the benefit of, and continue to bind,
the parties hereto.
Section 9.19. Merger and Integration; Construction.
This Agreement, together with the Original Agreement and the
Other Understandings, sets forth the entire understanding of the parties hereto
with respect to the
21
<PAGE> 25
subject matter hereof, and except as set forth herein and therein, all prior
understandings, written or oral, are superseded hereby and thereby.
In the case of any conflict between the terms of this Agreement
and the Original Agreement, on the one hand, and the Other Understandings, on
the other hand, the terms of this Agreement and the Original Agreement shall
govern.
In the case of any conflict between the terms of this Agreement
and the Original Agreement, the terms of this Agreement shall control.
22
<PAGE> 26
IN WITNESS WHEREOF, the Purchaser and the Seller have caused
their names to be signed hereto by their respective officers thereunto duly
authorized as of the date first above written.
MEGO MORTGAGE CORPORATION
(Seller)
By:_________________________________
Name:_______________________________
Title:______________________________
GREENWICH CAPITAL MARKETS, INC.
(Purchaser)
By:_________________________________
Name:_______________________________
Title:______________________________
23
<PAGE> 27
EXHIBIT A
EXISTING LOAN AND PURCHASE PRICE SCHEDULE
[To include fields for description, outstanding balance conventional/FHA loan
type, Conventional Loan Servicing Rights Purchase Price Percentage, Conventional
Loan Excess Yield Purchase Price Percentage, Cut-Off Date Principal Balance, FHA
Loan Servicing Rights Purchase Price Percentage, and FHA Loan Excess Yield
Purchase Price Percentage]
A-1
<PAGE> 28
EXHIBIT B
SELLER'S OFFICER'S CERTIFICATE
I, ____________________, hereby certify that I am the duly
elected [Vice] President of Mego Mortgage Corporation, a corporation organized
under the laws of the state of New York (the "Company") and further as follows:
1. Attached hereto as Exhibit 1 is a true, correct and complete
copy of the charter of the Company which is in full force and effect on
the date hereof and which has been in effect without amendment, waiver,
rescission or modification since ____________.
2. Attached hereto as Exhibit 2 is a true, correct and complete
copy of the bylaws of the Company which are in effect on the date hereof
and which have been in effect without amendment, waiver, rescission or
modification since ____________.
3. Attached hereto as Exhibit 3 is an original certificate of
good standing of the Company, issued within ten days of the date hereof,
and no event has occurred since the date thereof which would impair such
standing.
4. Attached hereto as Exhibit 4 is a true, correct and complete
copy of the corporate resolutions of the Board of Directors of the
Company authorizing the Company to execute and deliver the Excess Yield
and Servicing Rights Purchase and Assumption Agreement, dated as of
January 22, 1998 (the "Agreement"), by and between the Company and
Greenwich Capital Markets, Inc. (the " Purchaser"), and such resolutions
are in effect on the date hereof and have been in effect without
amendment, waiver rescission or modification since ____________.
5. Either (i) no consent, approval, authorization or order of any
court or governmental agency or body is required for the execution,
delivery and performance by the Company of or compliance by the Company
with the Agreement or the consummation of the transactions contemplated
by the Agreement; or (ii) any required consent, approval, authorization
or order has been obtained by the Company.
6. Neither the consummation of the transactions contemplated by,
nor the fulfillment of the terms of the Agreement, conflicts or will
conflict with or results or will result in a breach of or constitutes or
will constitute a default under the charter or by-laws of the Company,
the terms of any indenture or other agreement or instrument to which the
Company is a party or by which it is bound or to which it is subject, or
any statute or order, rule, regulations, writ, injunction or decree of
any court, governmental authority or regulatory body to which the
Company is subject or by which it is bound.
7. There is no action, suit, proceeding or investigation pending
or threatened against the Company which, in my judgment, either in any
one instance or in the aggregate, may result in any material adverse
change in the business, operations, financial
B-1
<PAGE> 29
condition, properties or assets of the Company or in any material
impairment of the right or ability of the Company to carry on its
business substantially as now conducted or in any material liability on
the part of the Company or which would draw into question the validity
of the Agreement or of any action taken or to be taken in connection
with the transactions contemplated hereby, or which would be likely to
impair materially the ability of the Company to perform under the terms
of the Agreement, except as set forth on Exhibit 6 attached hereto.
8. Each person listed on Exhibit 5 attached hereto who, as an
officer or representative of the Company, signed the Agreement and any
other document delivered prior hereto or on the date hereof in
connection with the Agreement, was, at the respective times of such
signing and delivery, and is now, a duly elected or appointed, qualified
and acting officer or representative of the Company, who holds the
office set forth opposite his or her name on Exhibit 5, and the
signatures of such persons appearing on such documents are their genuine
signatures.
9. The Company is duly authorized to engage in the transactions
described and contemplated in the Agreement.
B-2
<PAGE> 30
IN WITNESS WHEREOF, I have hereunto signed my name and affixed
the seal of the Company.
Dated: _______________________ By:_____________________________________
Name:______________________________
[Seal]. Title: [Vice] President
I, ________________________, an [Assistant] Secretary of Mego
Mortgage Corporation, hereby certify that ____________ is the duly elected,
qualified and acting [Vice] President of the Company and that the signature
appearing above is [her] [his] genuine signature.
IN WITNESS WHEREOF, I have hereunto signed my name.
Dated: _______________________ By:_____________________________________
Name:______________________________
Title: [Assistant] Secretary
B-3
<PAGE> 31
EXHIBIT 5 to
Company's Officer's Certificate
Name Title Signature
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
B-4
<PAGE> 32
EXHIBIT C
SELLER'S OPINION OF COUNSEL
(date)
Greenwich Capital Markets, Inc..
600 Steamboat Road
Greenwich, Connecticut 06830
Dear Sirs:
You have requested [our] [my] opinion, as [Assistant] General
Counsel to Mego Mortgage Corporation (the "Company"), with respect to certain
matters in connection with the sale by the Company of certain excess yield,
servicing rights and recourse obligations pursuant to that certain Excess Yield
and Servicing Rights Purchase and Assumption Agreement, by and between the
Company and Greenwich Capital Markets, Inc. (the "Purchaser"), dated as of
January 22, 1998, (the "Agreement"). Capitalized terms not otherwise defined
herein have the meanings set forth in the Agreement.
[We] [I] have examined the following documents:
1. the Agreement;
2. the Original Agreement; and
3. such other documents, records and papers as [we] [I] have
deemed necessary and relevant as a basis for this opinion.
To the extent [we] [I] have deemed necessary and proper, [we] [I]
have relied upon the representations and warranties of the Company contained in
the Agreement. [We] [I] have assumed the authenticity of all documents submitted
to me as originals, the genuineness of all signatures, the legal capacity of
natural persons and the conformity to the originals of all documents.
Based upon the foregoing, it is [our] [my] opinion that:
1. The Company is a duly organized, validly existing federal
savings bank in good standing under the laws of the United
States of America and is qualified to service and
administer the Existing Loans in the states where the
Mortgaged Properties are located.
2. The Company has the power to engage in the transactions
contemplated by the Agreement and all requisite power,
authority and legal right to execute and deliver the
Agreement, and to perform and observe the terms and
conditions of such Agreement.
C-1
<PAGE> 33
3. The Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding
agreement enforceable in accordance with its respective
terms against the Company, subject to bankruptcy laws and
other similar laws of general application affecting rights
of creditors and subject to the application of the rules
of equity, including those respecting the availability of
specific performance, none of which will materially
interfere with the realization of the benefits provided
thereunder.
4. Either (i) no consent, approval, authorization or order of
any court or governmental agency or body is required for
the execution, delivery and performance by the Company of
or compliance by the Company with the Agreement, or the
transfer of excess yield, servicing rights and recourse
obligations of the Existing Loans or the consummation of
the transactions contemplated by the Agreement; or (ii)
any required consent, approval, authorization or order has
been obtained by the Company.
5. Neither the consummation of the transactions contemplated
by, nor the fulfillment of the terms of, the Agreement
conflicts or will conflict with or results or will result
in a breach of, or constitutes or will constitute a
default under, the charter or by-laws of the Company, the
terms of any indenture or other agreement or instrument to
which the Company is a party or by which it is bound or to
which it is subject, or violates any statute or order,
rule, regulations, writ, injunction or decree of any
court, governmental authority or regulatory body to which
the Company is subject or by which it is bound.
6. There is no action, suit, proceeding or investigation
pending or, to the best of [our] [my] knowledge,
threatened against the Company which, in [our] [my]
judgment, either in any one instance or in the aggregate,
may result in any material adverse change in the business,
operations, financial condition, properties or assets of
the Company or in any material impairment of the right or
ability of the Company to carry on its business
substantially as now conducted or in any material
liability on the part of the Company or which would draw
into question the validity of the Agreement or of any
action taken or to be taken in connection with the
transactions contemplated thereby, or which would be
likely to impair materially the ability of the Company to
perform under the terms of Agreement.
This opinion is given to you for your sole benefit, and no other
person or entity is entitled to rely hereon except that the purchaser or
purchasers to which you resell the Existing Loans may rely on this opinion as if
it were addressed to them as of its date.
Very truly yours,
C-2
<PAGE> 34
____________________________________
[Name]
[Assistant] General Counsel
C-3
<PAGE> 35
EXHIBIT D
EXTENSION NOTICE
Mego Mortgage Corporation
1000 Parkwood Circle, 5th Floor
Atlanta, GA 30339 Attention:
FAX:
Please refer to the Excess Yield Servicing Rights Purchase and Assumption
Agreement, dated as of January 22, 1998, as amended, between Greenwich Capital
Markets, Inc. (together with its permitted assigns, the "Purchaser") and Mego
Mortgage Corporation (the "Seller").
The current Servicing Expiration Date is ___________ [insert date]. The
undersigned hereby extends the Servicing Expiration Date to __________ [insert
last day of the calendar month following the current Servicing Expiration Date].
GREENWICH CAPITAL MARKETS, INC.
By:_________________________________
Name:
Title:
Date:_______________________________
D-1
<PAGE> 36
EXHIBIT E
OTHER UNDERSTANDINGS
1. Tri-Party Agreement dated as of June 20, 1997 by and among Mego Mortgage
Corporation, Greenwich Capital Markets, Inc. and The First National Bank of
Chicago.
2. Letter Agreement, dated September 17, 1996 between Greenwich Capital
Markets, Inc. and Mego Mortgage Corporation.
3. Promissory Note, dated April 17, 1997, made by Mego Mortgage Corporation to
Greenwich Capital Financial Products, Inc., amended.
4. Pledge and Security Agreement, dated as of April 17, 1997, between Mego
Mortgage Corporation and Greenwich Capital Financial Products, Inc.
5. Master Repurchase Agreement, dated as of September 4, 1996, between Mego
Mortgage Corporation and Greenwich Capital Markets, Inc.
6. Letter Agreement, dated September 19, 1997, between Greenwich Capital
Markets, Inc., and Mego Mortgage Corporation.
7. Letter Agreement, dated December 29, 1997, among Greenwich Capital Markets,
Inc. and Mego Mortgage Corporation.
8. Letter Agreement, dated August 22, 1997, between Greenwich Capital Markets,
Inc. and Mego Mortgage Corporation.
9. Engagement Letter, dated October 1, 1996, between Mego Mortgage Corporation
and Greenwich Capital Markets, Inc., as amended.
E-1
<PAGE> 37
EXHIBIT F
SERVICING ADDENDUM
F-1
<PAGE> 38
EXHIBIT F
SERVICING ADDENDUM
SECTION 11. Servicing.
Subsection 11.01 Seller to Act as Servicer.
Mego Mortgage Corporation (in its capacity as servicer, the
"Servicer") shall administer and service the Existing Loans in accordance with
this Agreement and customary servicing procedures, and shall have full power and
authority to do or cause to be done any and all things in connection with such
administration which the Servicer may deem necessary or desirable and consistent
with the terms of this Agreement, including, in the case of each FHA Loan,
taking all actions that an FHA Approved Mortgagee is permitted or required to
take by the FHA.
Consistent with the terms of this Agreement, the Servicer may
waive, modify or vary any term of any Existing Loan or consent to the
postponement of strict compliance with any such term or in any manner grant
indulgence to any Obligor if in the Servicer's reasonable and prudent
determination such waiver, modification, postponement or indulgence is not
materially adverse to the Purchaser; provided, however, that the Servicer shall
not permit any modification with respect to any Existing Loan that would change
the Loan Interest Rate, defer or forgive the payment thereof or of any principal
or interest payments, reduce the outstanding principal amount (except for actual
payments of principal), make additional advances, extend the final maturity date
or adversely affect any FHA Insurance Contract with respect to such Existing
Loan. Without limiting the generality of the foregoing, the Servicer shall
continue, and is hereby authorized and empowered, to execute and deliver on
behalf of itself, and the Purchaser , all instruments of satisfaction or
cancellation, or of partial or full release, discharge and all other comparable
instruments, with respect to the Existing Loans and, in the case of a Mortgage
Loan, with respect to the Improved Property. If reasonably required by the
Servicer, the Purchaser shall furnish the Servicer with any powers of attorney
and other documents necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties under this Agreement.
In servicing and administering the Existing Loans, the Servicer
shall employ procedures including collection procedures and exercise the same
care that it customarily employs and exercises in servicing and administering
loans for its own account giving due consideration to accepted mortgage
servicing practices of prudent lending institutions and the Purchaser's reliance
on the Servicer.
It is understood and agreed that the Servicer may delegate
certain servicing duties to qualified sub-servicers with the Purchaser's prior
written approval; provided, however, that the Servicer shall remain responsible
to the Purchaser for all servicing activities notwithstanding such delegation.
The Servicer hereby acknowledges that the Purchaser has assumed
its rights and obligations under the PEC Sub-Servicing Agreement with respect to
the Existing Loans as of the
<PAGE> 39
Cut-Off Date. Pursuant to the PEC Sub-Servicing Agreement, PEC has agreed to
perform certain servicing functions with respect to the Existing Loans. The
Servicer agrees to provide information to PEC (on behalf of the Purchaser)
pursuant to Section 2 of the PEC Sub-Servicing Agreement. The Servicer hereby
agrees to take all necessary actions to enable PEC or any other appointed
servicer to fulfill such servicer's obligations under this or any other
agreement.
The Servicer shall make such inspections of an Improved Property,
if any, as are consistent with standard servicing procedures customary to the
applicable loan type and, in the case of each FHA Loan, as required by FHA
Regulations if the Servicer has actual notice of any related condition which
materially and adversely affects such Improved Property. Such inspection shall
be conducted in accordance with customary servicing procedures and, in the case
of each FHA Loan, FHA servicing requirements for delinquent mortgages.
The Servicer shall take all actions necessary to assure that a
case number is assigned to each FHA Loan by the FHA.
Subsection 11.02 Collection of Loan Payments.
Continuously from the Cut-Off Date until the earlier of (i) the
principal and interest on all Existing Loans are paid in full and (ii) the
Servicing Termination Date, the Servicer shall proceed diligently to collect all
payments due under each Existing Loan when the same shall become due and
payable; and shall, to the extent such procedures shall be consistent with this
Agreement, follow such collection procedures as it follows with respect to loans
comparable to the Existing Loans held for its own account.
Subsection 11.03 Realization Upon Defaulted Existing
Loans.
(a) The Servicer shall use all reasonable efforts, consistent
with the procedures that the Servicer would use in servicing loans for its own
account and, in the case of each FHA Loan, the requirements of FHA, with respect
to any Existing Loan as comes into and continues in default and as to which no
satisfactory arrangements can be made for collection of delinquent payments
pursuant to Subsection 11.01, either (i) in the case of an FHA Loan, to assign
the Existing Loan to the FHA and obtain FHA Insurance Proceeds with respect
thereto or (ii) in the case of a Mortgage Loan, with Purchaser's consent, which
will not be unreasonably withheld or delayed, to foreclose upon or otherwise
comparably convert the ownership of the related Improved Property, and, in the
case of an Existing Loan that is not a Mortgage Loan, to collect from the
Obligor amounts that are due and unpaid. The Servicer shall use all reasonable
efforts to realize upon defaulted Existing Loans in such a manner as will
maximize the receipt of principal and interest at the Loan Interest Rate by the
Purchaser, taking into account, among other things, the timing of foreclosure
proceedings, if applicable.
(b) Notwithstanding the foregoing provisions of this Subsection
11.03, with respect to any Mortgage Loan as to which the Servicer has received
actual notice of, or has actual knowledge of, the presence of any toxic or
hazardous substance on the related Improved Property, the Servicer shall not
either (i) obtain title to such Improved Property as a result of or in lieu of
foreclosure or otherwise, or (ii) otherwise acquire possession of, or take any
other action
-2-
<PAGE> 40
with respect to, such Improved Property if, as a result of any such action, the
Purchaser would be considered to hold title to, to be a mortgagee-in-possession
of, or to be an owner or operator of such Improved Property within the meaning
of the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended from time to time, or any comparable law, unless the Servicer
has also previously determined, based on its reasonable judgment and a prudent
report prepared by a Person who regularly conducts environmental audits using
customary industry standards, that:
(1) such Improved Property is in compliance with applicable
environmental laws or, if not, that it would be in the best economic
interest of the Purchaser to take such actions as are necessary to bring
the Improved Property into compliance therewith; and
(2) there are no circumstances present at such Improved Property
relating to the use, management or disposal of any hazardous substances,
hazardous materials, hazardous wastes, or petroleum-based materials for
which investigation, testing, monitoring, containment, clean-up or
remediation could be required under any federal, state or local law or
regulation, or that if any such materials are present for which such
action could be required, that it would be in the best economic interest
of the Purchaser to take such actions with respect to the affected
Improved Property.
The cost of the environmental audit report contemplated by this
Subsection 11.03 shall be advanced by the Servicer, subject to the Servicer's
right to be reimbursed therefor from the Collection Account as provided in
Subsection 11.05(iv).
If the Servicer determines, as described above, that it is in the
best economic interest of the Purchaser to take such actions as are necessary to
bring any such Improved Property into compliance with applicable environmental
laws, or to take such action with respect to the containment, clean-up or
remediation of hazardous substances, hazardous materials, hazardous wastes, or
petroleum-based materials affecting any such Improved Property, then the
Servicer shall take such action as it deems to be in the best economic interest
of the Purchaser. The cost of any such compliance, containment, cleanup or
remediation shall be advanced by the Servicer, subject to the Servicer's right
to be reimbursed therefor from the Collection Account as provided in Subsection
11.05(iv).
(c) Proceeds received in connection with any Final Recovery
Determination, as well as any recovery resulting from a partial collection of
Insurance Proceeds or Liquidation Proceeds in respect of any Existing Loan, will
be applied in the following order of priority: first, to accrued and unpaid
interest on the Existing Loan, pursuant to Subsection 11.09, to the date of the
Final Recovery Determination, or to the Due Date prior to the Distribution Date
on which such amounts are to be distributed if not in connection with a Final
Recovery Determination; second, to any related unreimbursed Servicing Advances
and other advances pursuant to Subsection 11.05(iv); and third, as a recovery of
principal on the Existing Loan.
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<PAGE> 41
Subsection 11.04 Establishment of Collection Accounts;
Deposits in Collection Accounts.
The Servicer shall segregate and hold all funds collected and
received pursuant to each Existing Loan separate and apart from any of its own
funds and general assets and shall establish and maintain one or more Collection
Accounts, in the form of time deposit or demand accounts. The creation of any
Collection Account shall be evidenced by a Collection Account Letter Agreement
at the request of the Purchaser.
The Servicer shall deposit in the Collection Account on a daily
basis, and retain therein the following payments and collections received by it
subsequent to the Cut-off Date, or received by it prior to the Cut-off Date but
allocable to a period subsequent thereto, on the Existing Loans received on or
before the Cut-off Date:
(i) all payments on account of principal on the Existing
Loans;
(ii) all payments on account of interest on the Existing Loans;
(iii) all Impound Payments received on the Existing Loans;
(iv) all Liquidation Proceeds;
(v) all Insurance Proceeds including amounts required to be
deposited pursuant to Subsection 11.07 other than proceeds to be applied to the
restoration or repair of the Improved Property or released to the Obligor in
accordance with the Servicer's normal servicing procedures, the Loan Documents
or applicable law;
(vi) all Condemnation Proceeds affecting any Improved Property
which are not released to the Obligor in accordance with the Servicer's normal
servicing procedures, the Loan Documents or applicable law;
(vii) the Repurchase Price of any Existing Loan repurchased in
accordance with Subsections 2.01(a) and 2.02(b), and all amounts required to be
deposited by the Seller in connection with shortfalls in principal amount of
Qualified Substitute Existing Loans pursuant to Subsection 7.03 of the Original
Agreement;
(viii) any amounts required to be deposited by the Servicer in
connection with any REO Property pursuant to Subsection 11.08;
(ix) any amounts required to be deposited in the Collection
Account pursuant to Subsection 11.14; and
(x) any late charges and assumption fees.
The foregoing requirements for deposit in the Collection Account shall be
exclusive. Such Collection Account shall be an Eligible Account. Any interest
or earnings on funds deposited in the Collection Account by the depository
institution shall accrue to the benefit of the Servicer
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and the Servicer shall be entitled to payment of such interest from the
Collection Account pursuant to Subsection 11.05(ii). The Servicer shall give
notice to the Purchaser of the location of the Collection Account when
established and prior to any change thereof.
Subsection 11.05 Requesting Withdrawals From the Collection
Account.
Subject to the order of priorities set forth in Subsection
11.03(c), the Purchaser shall and the Servicer may, from time to time, request
the Purchaser to, withdraw from the Collection Account and remit to the
Servicer, the Seller or the Purchaser, as applicable, for the following
purposes:
(i) to reimburse the Servicer for premiums paid under the FHA
Insurance Contract, to the extent that the Servicer has received Impound
Payments with respect thereto;
(ii) to pay the Servicer pursuant to Subsection 11.18 as
servicing compensation (a) any interest earned on funds in the Collection
Account (all such interest to be paid monthly not later than each Distribution
Date); (b) the Servicing Fee from that portion of any payment or recovery as to
interest on a particular Existing Loan; and (c) any payments in the nature of
late payment charges and assumption fees and other charges, to the extent
permitted by Subsection 11.18;
(iii) to pay the Servicer with respect to each Existing Loan that
has been repurchased pursuant to Subsection 2.01(a) or 2.01(b) all amounts
received thereon and not distributed as of the date on which the related
Repurchase Price is determined;
(iv) to reimburse the Servicer for unreimbursed Servicing
Advances, including Servicing Advances previously made which the Servicer has
determined to be a Nonrecoverable Advance, the Servicer's right to reimburse
itself pursuant to this subclause (iv) with respect to any Existing Loan being
limited to related Liquidation Proceeds, Condemnation Proceeds, Insurance
Proceeds and such other amounts as may be collected by the Servicer from the
Obligor or otherwise relating to the Existing Loan, it being understood that, in
the case of such reimbursement, the Servicer's right thereto shall be prior to
the rights of the Purchaser, except that, where the Seller is required to
repurchase an Existing Loan, pursuant to Subsection 2.01(a) or 2.02(b), the
Servicer's right to such reimbursement shall be subsequent to the payment to the
Purchaser of the Repurchase Price pursuant to Subsection 2.01(a) or 2.02(b), and
all other amounts required to be paid to the Purchaser with respect to such
Existing Loans;
(v) to make distributions to the Purchaser of all amounts
distributable to the Purchaser pursuant to this Agreement in the manner provided
for in Subsection 11.09, such amounts allocated first to interest and then to
principal; and
(vi) to clear and terminate the Collection Account on the
termination of this Agreement.
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Subsection 11.06 Transfer of Accounts.
The Servicer may not transfer the Collection Account and/or any
REO Account to a different depository institution from time to time without the
prior written consent of the Purchaser. In any case, the Collection Account and
any REO Account shall be an Eligible Account.
Subsection 11.07 Collection of FHA Insurance Proceeds;
Other Remedies.
In the event of a default by the Obligor with respect to any FHA
Loan, the Servicer shall, subject to the Servicer's rights under Subsection
11.03, consistent with the provisions of Subsection 11.01 and all requirements
of the FHA, and provided that adequate FHA Insurance Reserves exist, use all
reasonable efforts to assign the related FHA Loan to the FHA and to collect the
related FHA Insurance Proceeds. In the event that the FHA Insurance Reserves are
inadequate to permit the FHA to pay the FHA Insurance Proceeds with respect to
such FHA Loan, or in the event that the FHA denies the Servicer's claim for FHA
Insurance Proceeds for reasons other than reasons that would constitute a breach
of the Servicer's representations and warranties under Subsection 6.01 or
Subsection 6.02, the Servicer shall proceed to foreclose upon or otherwise
comparably convert the ownership of the related Improved Property with respect
to any Existing Loan that is an FHA Loan, and, with respect to any FHA Loan that
is not an Existing Loan, to undertake such actions as necessary and appropriate
to collect amounts due and owing under the related Note, consistent with the
related Loan Documents, FHA Regulations and all other applicable laws and
regulations. The Servicer shall deposit all FHA Insurance Proceeds into the
Collection Account within one Business Day upon receipt thereof.
Subsection 11.08 Title, Management and Disposition of REO
Property.
In the event that title to the Improved Property is acquired in
foreclosure or by deed in lieu of foreclosure, the deed or certificate of sale
shall be taken in the name of the Person designated by the Purchaser, or in the
event such Person is not authorized or permitted to hold title to real property
in the state where the REO Property is located, or would be adversely affected
under the "doing business" or tax laws of such state by so holding title, the
deed or certificate of sale shall be taken in the name of such Person or Persons
as shall be consistent with an Opinion of Counsel obtained by the Servicer from
an attorney duly licensed to practice law in the state where the REO Property is
located. Any Person or Persons holding such title other than the Purchaser shall
acknowledge in writing that such title is being held as nominee for the benefit
of the Purchaser.
The Servicer shall either itself or through an agent selected by
the Servicer, manage, conserve, protect and operate each REO Property (and may
with the prior written consent of the Purchaser temporarily rent the same) in
the same manner that it manages, conserves, protects and operates other
foreclosed property for its own account, and in the same manner that similar
property in the same locality as the REO Property is managed. The Servicer shall
use all reasonable efforts to dispose of the REO Property as soon as possible.
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With respect to each REO Property, the Servicer shall segregate
and hold all funds collected and received in connection with the operation of
the REO Property separate and apart from its own funds or general assets and
shall establish and maintain a separate REO Account for each REO Property in the
form of a non-interest bearing demand Eligible Account. The creation of any REO
Account shall be evidenced by a letter agreement in the form shown in Exhibit 8
of the Original Agreement. An original of such letter agreement shall be
furnished to the Purchaser upon request.
The Servicer shall deposit or cause to be deposited, on a daily
basis in each REO Account all revenues received with respect to the related REO
Property and shall withdraw therefrom funds necessary for the proper operation,
management and maintenance of the REO Property, including the fees of any
managing agent acting on behalf of the Servicer. The Servicer shall not be
entitled to retain interest paid or other earnings, if any, on funds deposited
in such REO Account. On or before each Determination Date, the Servicer shall
withdraw from each REO Account and deposit into the Collection Account the net
income from the REO Property on deposit in the REO Account.
The Servicer shall furnish to the Purchaser on each Distribution
Date, an operating statement for each REO Property covering the operation of
each REO Property for the previous month. Such operating statement, shall be
accompanied by such other information as the Purchaser shall reasonably request.
Each REO Disposition shall be carried out by the Servicer at such
price and upon such terms and conditions as the Servicer deems to be in the best
interest of the Purchaser. If as of the date title to any REO Property was
acquired by the Servicer there were outstanding unreimbursed Servicing Advances
with respect to the REO Property, the Servicer, upon an REO Disposition of such
REO Property, shall be entitled to reimbursement for any related unreimbursed
Servicing Advances from proceeds received in connection with such REO
Disposition. The proceeds from the REO Disposition, net of any payment to which
the Servicer is entitled as provided herein, shall be deposited in the REO
Account and shall be transferred to the Collection Account on the Determination
Date in the month following receipt thereof for distribution on the succeeding
Distribution Date in accordance with Subsection 11.09.
Subsection 11.09 Distributions.
On each Distribution Date, the Purchaser shall, pursuant to
Section 11.05(v) hereof, or the Servicer shall request the Purchaser to withdraw
funds from the Collection Account and distribute to the Purchaser all amounts
credited to the Collection Account during the related Due Period which are
attributable to principal and interest collected with respect to each Existing
Loan (including Liquidation Proceeds, Condemnation Proceeds and Insurance
Proceeds) minus all amounts that the Servicer is entitled to reimbursement from
the Collection Account pursuant to Subsection 11.05(i) through (iv).
With respect to any remittance received by the Purchaser on or
after the second Business Day following the Business Day on which such payment
was due, the Servicer shall pay to the Purchaser, as applicable, interest on any
such late payment at an annual rate equal to the
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rate of interest as is publicly announced from time to time at its principal
office by Chemical Bank, New York, New York, as its prime lending rate, adjusted
as of the date of each change, plus three percentage points, but in no event
greater than the maximum amount permitted by applicable law. Such interest shall
be paid by the Servicer to the Purchaser, as applicable, on the date such late
payment is made and shall cover the period commencing with the day following
such second Business Day and ending with the Business Day on which such payment
is made, both inclusive. Such interest shall be remitted along with such late
payment. The payment by the Servicer of any such interest shall not be deemed an
extension of time for payment or a waiver by the Purchaser of any Event of
Default by the Servicer.
Subsection 11.10 Remittance Reports.
On the Distribution Date, the Servicer shall furnish to the
Purchaser or its designees a computer tape containing, and a hard copy of, the
Remittance Report, in such form as the Purchaser may reasonably request.
Subsection 11.11 Statements to the Purchaser.
Not more than sixty days after the end of each calendar year
until the Servicing Termination Date, the Servicer shall furnish to each Person
who was the Purchaser at any time during such calendar year, (i) as to the
aggregate of remittances for the applicable portion of such year, an annual
statement in accordance with the requirements of applicable federal income tax
law, and (ii) listing of the principal balances of the Existing Loans
outstanding at the end of such calendar year.
The Servicer shall prepare and file any and all tax returns,
information statements or other filings required to be delivered to any
governmental taxing authority or to any Purchaser pursuant to any applicable law
with respect to the Existing Loans and the transactions contemplated hereby. In
addition, the Servicer shall provide the Purchaser with such information
concerning the Existing Loans as is necessary for the Purchaser to prepare its
federal income tax return as any Purchaser may reasonably request from time to
time.
Subsection 11.12 Real Estate Owned Reports.
Together with the statement furnished pursuant to Subsection
11.08, with respect to any REO Property, the Servicer shall furnish to the
Purchaser a statement covering the Servicer's efforts in connection with the
sale of such REO Property and any rental of such REO Property incidental to the
sale thereof for the previous month, together with the operating statement. Such
statement shall be accompanied by such other information as the Purchaser shall
reasonably request.
Subsection 11.13 Liquidation Reports.
Upon the foreclosure sale of any Improved Property or the
acquisition thereof by the Purchaser pursuant to a deed-in-lieu of foreclosure,
the Servicer shall submit to the Purchaser a liquidation report with respect to
such Improved Property.
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Subsection 11.14 Satisfaction of Mortgages and Release of Loan
Files.
In the event the Servicer satisfies or releases a Mortgage
without having obtained payment in full of the indebtedness secured by the
Mortgage or should it otherwise prejudice any right the Purchaser may have under
the mortgage instruments, the Servicer, upon written demand, shall remit to the
Purchaser the then outstanding principal balance of the related Existing Loan by
deposit thereof in the Collection Account.
From time to time and as appropriate in connection with the
servicing, assignment to the FHA, foreclosure or other enforcement of an
Existing Loan, the Purchaser shall, upon request of the Servicer and delivery to
the Purchaser of a servicing receipt signed by a servicing officer of the
Servicer (a "Servicing Officer"), release the requested portion of the Loan File
held by the Purchaser to the Servicer, together with any assignments necessary
to enable the Servicer to perform its obligations. Such servicing receipt shall
obligate the Servicer to return the related Loan Documents to the Purchaser when
the need therefor by the Servicer no longer exists, unless (a) the Existing Loan
has been liquidated and the Liquidation Proceeds relating to the Existing Loan
have been deposited in the Collection Account, or (b) the Loan File or such
document has been delivered to (i) the FHA in connection with an assignment of
the Existing Loan to the FHA and collection of FHA Insurance Proceeds, or (ii)
an attorney, for purposes of initiating or pursuing legal action or other
proceedings to collect amounts due under the Existing Loan (if such Existing
Loan is not a Mortgage Loan), or (iii) with respect to a Mortgage Loan, an
attorney or a public trustee or other public official as required by law for
purposes of initiating or pursuing legal action or proceedings for the
foreclosure of the Improved Property either judicially or non-judicially, and
the Servicer has delivered to the Purchaser a certificate of a Servicing Officer
certifying as to the name and address of the Person to which such Loan File or
such document was delivered and the purpose or purposes of such delivery. Upon
receipt of a certificate of a Servicing Officer stating that such Existing Loan
was liquidated, or the FHA Insurance Proceeds received, the servicing receipt
shall be returned by the Purchaser to the Servicer.
Subsection 11.15 [intentionally omitted]
Subsection 11.16 [intentionally omitted]
Subsection 11.17 [intentionally omitted]
Subsection 11.18 Servicing Compensation.
As compensation for its services hereunder the Servicer shall be
entitled to the Servicing Fee. Additional servicing compensation in the form of
any assumption fees and late payment charges or other charges shall be retained
by the Servicer to the extent not required to be deposited in the Collection
Account. The Servicer shall be required to pay all expenses incurred by it in
connection with its servicing activities hereunder and shall not be entitled to
reimbursement therefor except as specifically provided for.
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Subsection 11.19 Statement as to Compliance.
The Servicer will deliver to the Purchaser not later than 120
days following the end of each fiscal year of the Servicer, which as of the
Closing Date ends on the last day in December, in each calendar year, beginning
with the four month period beginning on September 1, 1997 and ending December
31, 1997, an Officers' Certificate stating, as to each signatory thereof, that
(i) a review of the activities of the Servicer during the preceding year and of
performance under this Agreement has been made under such officers' supervision
and (ii) to the best of such officers' knowledge, based on such review, the
Servicer has fulfilled all of its obligations under this Agreement throughout
such year, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default known to such officer and the nature
and status thereof. Copies of such statement shall be provided by the Purchaser
to any Person identified as a prospective purchaser of the Existing Loans.
Subsection 11.20 Independent Public Accountants' Servicing
Report.
Not later than 90 days following the end of each fiscal year of
the Servicer, beginning with the four month period beginning September 1, 1997
and ending December 31, 1997, the Servicer at its expense shall cause a firm of
independent public accountants (which may also render other services to the
Servicer) which is a member of the American Institute of Certified Public
Accountants to furnish a statement to the Purchaser or its designee to the
effect that such firm has examined certain documents and records relating to the
servicing of the Existing Loans under this Agreement or of Existing Loans under
servicing agreements (including the Existing Loans and this Agreement)
substantially similar one to another (such statement to have attached thereto a
schedule setting forth the, servicing agreements covered thereby) and that, on
the basis of such examination conducted substantially in compliance with the
Audit Guide for Use by Independent Public Accountants in Audits of HUD-approved
Non-Supervised Mortgagees, Loan Correspondents and Coinsuring Mortgagees (the
"Audit Guide"), such firm confirms that such servicing has been conducted in
compliance with such servicing agreements except for such significant exceptions
or errors in records that, in the opinion of such firm, the Audit Guide requires
it to report. Copies of such statement shall be provided by the Purchaser to any
Person identified as a prospective purchaser of the Existing Loans.
Subsection 11.21 Access to Certain Documentation.
The Servicer shall provide to the Office of Thrift Supervision,
the FDIC and any other federal or state banking or insurance regulatory
authority that may exercise authority over the Purchaser access to the
documentation regarding the Existing Loans serviced by the Servicer required by
applicable laws and regulations. Such access shall be afforded without charge,
but only upon reasonable request and during normal business hours at the offices
of the Servicer. In addition, access to the documentation will be provided to
the Purchaser, the Excess Yield Holder or any agent thereof identified to the
Servicer by the Purchaser without charge, upon reasonable request during normal
business hours at the offices of the Servicer.
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Subsection 11.22 Status of Completion Certificates.
Upon the request of the Purchaser from time to time, the Servicer
shall identify to the Purchaser the Existing Loans as to which the Servicer has
not received a completion certificate, in the case of any FHA Loan, in the form
required by FHA, whether or not the deadline for delivery of such certificate by
the Obligor has passed, together with the status of such deadline.
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<PAGE> 1
EXHIBIT 10.72
AMENDED AND RESTATED CREDIT AGREEMENT
by and among
MEGO MORTGAGE CORPORATION,
THE LENDERS PARTY HERETO,
and
THE FIRST NATIONAL BANK OF CHICAGO,
AS AGENT
dated as of February 19, 1998
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I DEFINITIONS.................................................... 1
ARTICLE II THE CREDITS.................................................... 24
2.1. Commitment, Sublimits and Types of Advances............ 24
2.1.1. Commitment and Lending Sublimits............... 24
2.1.2. Borrowing Base Sublimits....................... 25
2.1.3. Types of Advances.............................. 25
2.2. Primary Advances....................................... 26
2.3. [Intentionally Omitted.]............................... 26
2.4. Swingline Advances..................................... 26
2.5. Reallocation of Swingline Advances..................... 26
2.6. Fees................................................... 27
2.6.1. Facility Fees.................................. 27
2.6.2. Agent Fees..................................... 27
2.6.3. Collateral Agent Fees.......................... 27
2.6.4. Amendment and Waiver Fees...................... 27
2.7. Method of Selecting New Advances....................... 27
2.8. Conversion and Continuation of Outstanding Advances.... 27
2.9. Reductions to Aggregate Commitment..................... 27
2.10. Principal Payments..................................... 28
2.10.1. Optional Principal Payments................... 28
2.10.2. Required Payments Related to Borrowing Base... 28
2.10.3. Required Payments Related to Reductions
in the Aggregate Commitment................... 28
2.10.4. Settlement Account Payments................... 28
2.10.5. Final Payment on Termination Date............. 29
2.11. Changes in Interest Rate, Etc.......................... 29
2.12. Rates Applicable After Default......................... 29
2.13. Method of Payment...................................... 29
2.14. Notes; Telephonic Notices.............................. 29
2.15. Interest Payment Dates; Interest and Fee Basis......... 30
2.16. Notification by the Agent.............................. 30
2.17. [Intentionally Omitted.]............................... 30
2.18. Non-Receipt of Funds by the Agent...................... 30
ARTICLE III [INTENTIONALLY OMITTED]........................................ 30
ARTICLE IV CONDITIONS PRECEDENT; WITHHOLDING TAX EXEMPTION................ 31
4.1. Effectiveness.......................................... 31
4.2. Each Advance........................................... 32
4.3. Withholding Tax Exemption.............................. 33
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ARTICLE V REPRESENTATIONS AND WARRANTIES................................. 33
5.1. Corporate Existence and Standing....................... 33
5.2. Authorization and Validity............................. 33
5.3. No Conflict; Government Consent........................ 33
5.4. Financial Statements................................... 34
5.5. Material Adverse Change................................ 34
5.6. Taxes.................................................. 34
5.7. Litigation and Contingent Obligations.................. 34
5.8. Subsidiaries........................................... 34
5.9. ERISA.................................................. 34
5.10. Accuracy of Information................................ 35
5.11. Regulation U........................................... 35
5.12. Material Agreements.................................... 35
5.13. Compliance With Laws................................... 35
5.14. Ownership of Properties................................ 35
5.15. Plan Assets; Prohibited Transactions................... 35
5.16. Investment Company Act................................. 35
5.17. Public Utility Holding Company Act..................... 35
5.18. FHA and FNMA Eligibility............................... 36
5.19. Subordinated Indebtedness.............................. 36
5.20. Eligibility............................................ 36
5.21. Recourse Servicing..................................... 36
ARTICLE VI COVENANTS...................................................... 36
6.1. Financial Reporting.................................... 36
6.2. Use of Proceeds........................................ 39
6.3. Notice of Default...................................... 39
6.4. Conduct of Business.................................... 39
6.5. Taxes.................................................. 40
6.6. Insurance.............................................. 40
6.7. Compliance with Laws................................... 40
6.8. Maintenance of Properties.............................. 40
6.9. Inspection............................................. 40
6.10. Dividends.............................................. 40
6.11. Indebtedness........................................... 41
6.12. Merger................................................. 42
6.13. Sale of Assets......................................... 42
6.14. Investments and Acquisitions........................... 42
6.15. Liens.................................................. 43
6.16. Affiliates............................................. 44
6.17. Financial Covenants.................................... 44
6.17.1. Adjusted Leverage Ratio....................... 44
6.18. Tangible Net Worth..................................... 44
6.19. Compliance with Security Agreement..................... 44
6.20. Recourse Servicing..................................... 45
6.21. FHA and FNMA Approvals................................. 45
6.22. Approved Investor Commitments.......................... 45
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6.23. Settlement Account..................................... 45
6.24. Subordinated Indebtedness.............................. 45
6.25. Excluded Subsidiaries.................................. 45
ARTICLE VII DEFAULTS....................................................... 46
ARTICLE VIII COLLATERAL, ACCELERATION AND OTHER REMEDIES.................... 48
8.1. Security and Collateral Agency Agreement............... 48
8.2. AP Qualifying Loans.................................... 48
8.3. Release of Collateral.................................. 48
8.4. Settlement Account..................................... 49
8.5. Termination............................................ 49
8.6. Acceleration........................................... 49
8.7. Other Remedies......................................... 49
8.8. Application of Proceeds................................ 51
8.9. Preservation of Rights................................. 51
ARTICLE IX AMENDMENTS; WAIVERS; GENERAL PROVISIONS........................ 52
9.1. Amendments and Waivers................................. 52
9.2. Survival of Representations............................ 53
9.3. Governmental Regulation................................ 53
9.4. Taxes.................................................. 53
9.5. Entire Agreement....................................... 53
9.6. Several Obligations; Benefits of this Agreement........ 53
9.7. Expenses; Indemnification.............................. 53
9.8. Nonliability of Lenders................................ 54
9.9. Severability of Provisions............................. 54
9.10. Headings............................................... 54
9.11. Numbers of Documents................................... 54
9.12. Accounting............................................. 54
9.13. Confidentiality........................................ 54
9.14. Nonreliance............................................ 54
9.15. Disclosure............................................. 54
9.16. Maximum Interest....................................... 55
ARTICLE X THE AGENT AND THE COLLATERAL AGENT............................. 55
10.1. Appointment; Nature of Relationship.................... 55
10.2. Powers................................................. 55
10.3. General Immunity....................................... 56
10.4. No Responsibility for Loans, Recitals, Etc............. 56
10.5. Action on Instructions of Lenders...................... 56
10.6. Employment of Agents and Counsel....................... 56
10.7. Reliance on Documents; Counsel......................... 56
10.8. Agent's Reimbursement and Indemnification.............. 57
10.9. Notice of Default...................................... 57
10.10. Rights as a Lender..................................... 57
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10.11. Lender Credit Decision................................. 57
10.12. Successor Agent........................................ 57
ARTICLE XI SETOFF; RATABLE PAYMENTS....................................... 58
11.1. Setoff................................................. 58
11.2. Ratable Payments....................................... 58
11.3. Custodial Accounts..................................... 58
ARTICLE XII ASSIGNMENTS; PARTICIPATIONS; COMMITMENT INCREASES.............. 59
12.1. Successors and Assigns................................. 59
12.2. Participations......................................... 59
12.2.1. Permitted Participants; Effect................ 59
12.2.2. Voting Rights................................. 59
12.2.3. Benefit of Setoff............................. 59
12.3. Assignments............................................ 60
12.3.1. Permitted Assignments......................... 60
12.3.2. Effect; Effective Date........................ 60
12.4 [Intentionally Omitted]................................ 60
12.5. Dissemination of Information........................... 60
12.6. Tax Treatment.......................................... 61
ARTICLE XIII NOTICES........................................................ 61
13.1. Notices................................................ 61
13.2. Change of Address...................................... 61
ARTICLE XIV COUNTERPARTS................................................... 61
ARTICLE XV CHOICE OF LAW, CONSENT TO JURISDICTION, WAIVER OF
JURY TRIAL..................................................... 61
15.1. CHOICE OF LAW.......................................... 61
15.2. CONSENT TO JURISDICTION................................ 61
15.3. WAIVER OF JURY TRIAL................................... 62
SCHEDULES
SCHEDULE "1" COMMITMENTS AND COMMITMENT PERCENTAGE
SCHEDULE "2" LIST OF APPROVED INVESTORS
SCHEDULE "3" SUBSIDIARIES AND OTHER INVESTMENTS
SCHEDULE "4" INDEBTEDNESS AND LIENS
SCHEDULE "5" BORROWER'S UNDERWRITING STANDARDS
SCHEDULE "5A" BORROWER'S UNDERWRITING STANDARDS (ELIGIBLE
NON-CONFORMING MORTGAGE LOANS)
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SCHEDULE "6" BORROWER'S PROPERTY VALUATION PROCEDURES
SCHEDULE "7" DESCRIPTION OF TRUSTEE'S RIGHT TO TERMINATE THE
BORROWER'S RIGHTS TO SERVICE CERTAIN SECURITIZATIONS
SCHEDULE "8" DESCRIPTION OF EXISTING AGREEMENTS WITH AFFILIATES
SCHEDULE "9" FORM OF DELINQUENCY, DEFAULT AND LOSS REPORT
EXHIBITS
EXHIBIT "A" NOTE
EXHIBIT "B" FORM OF OPINION
EXHIBIT "C" [INTENTIONALLY OMITTED]
EXHIBIT "D" COLLATERAL TRANSMITTAL
EXHIBIT "E" AGREEMENT TO PLEDGE
EXHIBIT "F" COMPLIANCE CERTIFICATE
EXHIBIT "G" BORROWING BASE CERTIFICATE
EXHIBIT "H" FORM OF PEC TRI-PARTY AGREEMENT
EXHIBIT "I" SECOND AMENDMENT TO SECURITY AND COLLATERAL AGENCY
AGREEMENT
EXHIBIT "J" ASSIGNMENT AGREEMENT
EXHIBIT "K" [INTENTIONALLY OMITTED]
EXHIBIT "L" LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION
EXHIBIT "M" MARKET VALUATION FORMULA
EXHIBIT "N" INITIAL APPROVED MARKET VALUE REFERENCE INVESTORS
EXHIBIT "O" FORM OF FNMA EARLY FUNDING TRANSACTION LETTER
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<PAGE> 7
AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement, dated as of February 19, 1998,
is among Mego Mortgage Corporation, a Delaware corporation, the Lenders, and The
First National Bank of Chicago, as Agent.
RECITALS
The revolving credit facility made available to the Borrower pursuant to
this Agreement shall be used for the origination, acquisition and warehousing of
FHA Title I secured and unsecured loans, conventional debt consolidation and
home improvement residential secured and unsecured loans and single family
residential first and second priority mortgage loans pending their sale or
securitization. In consideration of the foregoing and for other good and
valuable consideration, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Acquisition" means any transaction, or any series of related
transactions, consummated on or after the date of this Agreement, by which the
Borrower or any of its Included Subsidiaries (i) acquires any going business or
all or substantially all of the assets of any firm, corporation or limited
liability company, or division thereof, whether through purchase of assets,
merger or otherwise or (ii) directly or indirectly acquires (in one transaction
or as the most recent transaction in a series of transactions) at least a
majority (in number of votes) of the securities of a corporation which have
ordinary voting power for the election of directors (other than securities
having such power only by reason of the happening of a contingency) or a
majority (by percentage or voting power) of the outstanding ownership interests
of a partnership or limited liability company.
"Additional Required Qualifying Loan Documents" means the instruments and
documents described in Schedule "B" to the Security Agreement.
"Adjusted Tangible Net Worth" means Tangible Net Worth, plus the lesser of
(a) the then-outstanding principal balance of the Subordinated Notes and (b)
$80,400,000.
"Advance" means a borrowing hereunder consisting of the aggregate amount
of the several Loans made on the same Borrowing Date.
"Affiliate" of any Person means any other Person directly or indirectly
controlling, controlled by or under common control with such Person. A Person
shall be deemed to control another Person if the controlling Person owns 10% or
more of any class of voting securities (or other ownership interests) of the
controlled Person or possesses, directly or indirectly, the power to direct or
cause the direction of the management or policies of the controlled Person,
whether through ownership of stock, by contract or otherwise.
<PAGE> 8
"Agent" means The First National Bank of Chicago in its capacity as agent
for the Lenders pursuant to Article X, and not in its individual capacity as a
Lender, and any successor Agent appointed pursuant to Article X.
"Aggregate Commitment" means, as of any date, the aggregate of the
Lenders' then-current Commitments under this Agreement, as reduced or increased
from time to time, but in no event shall the Aggregate Commitment be increased
without the approval of the Borrower, the Agent and all of the Lenders. The
Aggregate Commitment as of the date hereof shall be $55,000,000 provided that
the Aggregate Commitment shall decrease (i) on February 20, 1998 to $45,000,000,
(ii) on February 27, 1998 to $40,000,000, and (iii) on March 4, 1998 to
$35,000,000.
"Agreement" means this credit agreement, as it may be amended or modified
and in effect from time to time.
"Agreement Accounting Principles" means GAAP, applied in a manner
consistent with that used in preparing the financial statements referred to in
Section 5.4.
"Agreement to Pledge" means a written pledge substantially in the form of
Exhibit "E" to this Agreement executed by the Borrower and delivered by
facsimile to the Collateral Agent, specifically identifying all Qualifying Loans
with respect to which the Required Qualifying Loan Documents are not being
delivered on or before the Pledge Date of such Qualifying Loan.
"Alternate Base Rate" means, for any day, a rate of interest per annum
equal to the higher of (i) the Corporate Base Rate for such day and (ii) the sum
of the Federal Funds Effective Rate for such day plus 1/2% per annum.
"AP Qualifying Loan" means, on any date, any Qualifying Loan which has
been identified in an Agreement to Pledge and for which the Collateral Agent has
not received the Required Qualifying Loan Documents for such Qualifying Loan by
such date.
"Approved Investor" means, as of any time, any of the institutions listed
on Schedule "2" attached hereto and any other institution approved in writing by
the Agent (with prompt notice to the Lenders), such approval not to be
unreasonably withheld, which Approved Investor shall be approved for (i) the
purchase of Title I Qualifying Loans if it has a "1" following its name, (ii)
the purchase of Conventional HI/DC Qualifying Loans if it has a "2" following
its name, (iii) entering into repurchase agreements if it has a "3" following
its name and/or (iv) the purchase of Non-Conforming Mortgage Loans if it has a
"4" following its name; provided that any such institutions listed on Schedule
"2" or previously approved by the Agent may be eliminated as an Approved
Investor (or as an Approved Investor of a specific type) by written notice to
the Borrower from the Agent, which elimination notice shall be given only for
reasonable cause or at the election of the Required Lenders, and in either case
any commitments issued by any such formerly-Approved Investor after such
elimination shall not constitute Approved Investor Commitments, but commitments
of such formerly-Approved Investor existing at the time of such elimination
shall continue to be Approved Investor Commitments.
"Approved Investor Commitment" means a commitment issued by an Approved
Investor to purchase Qualifying Loans from the Borrower and, in the case of
Title I Qualifying Loans and
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Conventional HI/DC Qualifying Loans, from the Collateral Agent pursuant to the
applicable Tri-Party Agreement with such Approved Investor.
"Approved Shareholders" means any of Mr. Robert Nederlander, Mr. Jerome J.
Cohen, Mr. Don A. Mayerson, Mr. Eugene I. Schuster or Mr. Herbert B. Hirsch or
any entity in which one or more of such individuals holds a majority of the
voting stock or interests.
"Article" means an article of this Agreement unless another document is
specifically referenced.
"Assignment" means a duly executed assignment for the benefit of the
Lenders of a Mortgage, of the indebtedness secured thereby, and of all documents
and rights related to the Qualifying Loan secured by such Mortgage in accordance
with the requirements of the Security Agreement.
"Authorized Officer" means any of the Chairman, President or any Vice
President of the Borrower, acting singly.
"Basic Eligibility Requirements" for a Pledged Qualifying Loan shall mean
that each of the following statements is accurate and complete with respect to
such Pledged Qualifying Loan:
(i) The Borrower is the legal and equitable owner and holder
of such Pledged Qualifying Loan and has full power and authority to pledge
such Pledged Qualifying Loan. Such Pledged Qualifying Loan and each
commitment of a Person to purchase Qualifying Loans from the Borrower
(including Approved Investor Commitments) has been duly and validly issued
to the Borrower, and each Pledged Qualifying Loan constitutes Eligible
Collateral, has been duly and validly pledged to the Collateral Agent for
the benefit of the Secured Parties and is subject to no Lien other than
the lien of the Security Agreement in favor of the Agent for the benefit
of the Lenders.
(ii) Each requirement of any federal, state or local law
including, without limitation, the Title I Regulations (with respect to
Title I Qualifying Loans), usury, truth-in-lending, real estate settlement
procedures, consumer credit protection, equal credit opportunity or
disclosure laws applicable to such Pledged Qualifying Loan has been
complied with.
(iii) With respect to each Pledged Qualifying Loan:
(1) it has been originated either by the Borrower or
by the dealer or correspondent from whom the Borrower has acquired
such Pledged Qualifying Loan, it meets all of the Borrower's
underwriting requirements and all Required Qualifying Loan Documents
and Additional Required Qualifying Loan Documents have been duly
executed and delivered by the parties thereto,
(2) it is valid and enforceable in accordance with its
terms, without defense or offset, subject to bankruptcy and similar
laws and other general restrictions on creditors' rights and
equitable principles (whether raised in an equity proceeding or an
action at law),
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<PAGE> 10
(3) if such Pledged Qualifying Loan is secured by a
Mortgage, the property securing such Pledged Qualifying Loan is free
and clear of all Liens except in favor of the Borrower subject only
to (a) the Lien of current real property taxes and assessments not
yet due and payable; (b) covenants, conditions and restrictions,
rights of way, easements and other matters of the public record, as
of the date of recording, as are acceptable to mortgage lending
institutions generally and which do not materially adversely affect
the value of such property; (c) 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 said
Mortgage or the use, enjoyment, value or marketability of the
related property; and (d) senior mortgage Liens to the extent
permissible under the underwriting standards applicable to such
Pledged Qualifying Loan,
(4) it has been correctly described in the Collateral
Transmittal submitted to the Collateral Agent in respect of such
Pledged Qualifying Loan,
(5) it has been fully funded to the obligor or, if
such Pledged Qualifying Loan is a conventional home improvement loan
which is evidenced by a RIC or combined debt consolidation/home
improvement loan which is partially evidenced by a RIC and has been
acquired by the Borrower from a home improvement dealer, labor and
materials to be performed and installed for the benefit of the
obligor have been completed and a completion certificate executed by
obligor reflecting acceptance of such labor and materials has been
delivered to the Borrower,
(6) unless a Qualifying Loan was originated by the
Borrower, the correspondent or dealer from whom the Borrower has
acquired such Pledged Qualifying Loan has been paid the full
acquisition price therefor, in either case by wire transfer,
transmittal through the "Automated Clearing House" or any similar
private clearing house for interbank transfers of funds, cashier's
check or a cleared check or draft and, if any such item has not been
collected upon and paid to the payee thereof, such amounts have been
reflected in Uncleared Loan Funding Checks and deducted in
calculating the Borrowing Base,
(7) the Collateral Agent has in its possession (other
than with respect to Pledged Qualifying Loans which are then the
subject of an Agreement to Pledge) all Required Qualifying Loan
Documents other than those documents and instruments which are in
the possession of the Borrower pursuant to a Trust Receipt or in the
possession of a Person to whom delivery was made pursuant to an
Investor Transmittal Letter,
(8) if such Pledged Qualifying Loan is secured by a
Mortgage, such Mortgage and all assignments necessary to convey such
Mortgage to the Borrower have been or will be promptly duly recorded
where necessary and each is in a form which will comply with all
applicable state or local recording, registration and filing laws
and regulations,
(9) except to the extent permitted by clause (iv) of
the definition of "Eligible Qualifying Loan", there are no defenses,
counterclaims or offsets of any nature whatsoever with respect to
such Pledged Qualifying Loan or the indebtedness evidenced
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<PAGE> 11
and secured thereby or with respect to any Required Qualifying Loan
Document and, other than the related Required Qualifying Loan
Documents and Additional Required Qualifying Loan Documents, there
are no instruments or documents evidencing, securing or guaranteeing
payment of the indebtedness constituting such Pledged Qualifying
Loan which have not been delivered to the Collateral Agent,
(10) each Assignment (a) has been duly authorized by
all necessary corporate action by the Borrower, duly executed and
delivered by the Borrower and is the legal, valid and binding
obligation of the Borrower enforceable in accordance with its terms,
subject to bankruptcy and similar laws and other general
restrictions on creditors' rights and equitable principles, and (b)
is in a form which will comply with all applicable laws including
all applicable recording, filing and registration laws and
regulations and is adequate and legally sufficient for the purpose
intended to be accomplished thereby, including, without limitation,
the assignment of the rights, powers and benefits of the Borrower as
mortgagee,
(11) upon the recordation of each Assignment and
assuming the possession of the Required Qualifying Loan Documents by
the Collateral Agent and filing of Uniform Commercial Code financing
statements in proper form in the applicable filing offices, the
Collateral Agent, for the benefit of the Lenders, will have a valid
and perfected first priority security interest in such Pledged
Qualifying Loan and all proceeds, products and profits derived
therefrom, including, without limitation, all moneys, goods,
insurance proceeds and other tangible or intangible property
received upon liquidation thereof, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the
enforcement of creditors' rights generally and to general principles
of equity,
(12) except for those Qualifying Loans which are not
secured by a Mortgage (i) the market value of the premises securing
such Pledged Qualifying Loan has been determined, at the origination
or acquisition of the related Qualifying Loan, by the Borrower in
accordance with either (A) in the case of Qualifying Loans which are
not Non-Conforming Mortgage Loans, the valuation procedures
described on Schedule "6" attached hereto or (B) in the case of
Non-Conforming Mortgage Loans, the Borrower has received an
appraisal on the premises securing such Pledged Qualifying Loan,
which appraisal shall be in conformity with the applicable
requirements of any law or any governmental rule, regulation,
policy, guideline or directive (whether or not having the force of
law), or any interpretation thereof, including, without limitation,
the provisions of Title XI of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, as amended, reformed or
otherwise modified from time to time, and any rules promulgated to
implement such provisions and (ii) such market value or appraised
value, as the case may be, and the resulting combined loan-to-value
ratio is in compliance with the Borrower's applicable underwriting
standards set forth in Schedule "5" or Schedule "5A", as the case
may be,
(13) (a) except for any Title I Qualifying Loans, all
fire and casualty policies covering the premises encumbered by each
Pledged Qualifying Loan (i) name the Borrower as an insured (subject
to the prior rights of senior mortgage holders) under a
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<PAGE> 12
standard mortgagee clause not less favorable in coverage to the
mortgagee than is customarily used in the state where such premises
is located, (ii) are in full force and effect, and (iii) afford
insurance against fire and such other risks as are usually insured
against in the broad form of extended coverage insurance from time
to time available and (b) if such Pledged Qualifying Loan is secured
by a Mortgage on premises located in a flood plain as shown on
applicable federal flood zone maps, insurance protecting the owner
of the premises and the Borrower (subject to the prior rights of
senior mortgage holders) against flood hazards as required by FHA is
in full force and effect.
(iv) There shall be no breach of the covenants contained in
Paragraph 12 of the Security Agreement and there shall be no breach of any
of the following covenants (the sole remedy for which shall be the removal
of such Pledged Qualifying Loan as Eligible Collateral):
(1) the Borrower shall not (a) amend or modify, or
waive any of the terms and conditions of, or settle or compromise
any claim in respect of, any Pledged Qualifying Loan or any rights
related to any of the foregoing, if such amendment, modification or
waiver materially and adversely affects the Collateral Value of such
Pledged Qualifying Loan, or impairs the marketability of such
Pledged Qualifying Loan or (b) release any security or obligor, or,
through any other activity or inactivity, cause any Pledged
Qualifying Loan which shall have been eligible for purchase to
become ineligible for purchase in accordance with the Approved
Investor Commitment related to such Pledged Qualifying Loan,
(2) the Borrower shall not sell, assign, transfer or
otherwise dispose of, or grant any option with respect to, or pledge
or otherwise encumber (except pursuant to the Security Agreement),
any of the Collateral or any interest therein, other than sales
effected pursuant to an Approved Investor Commitment and related
Investor Transmittal Letters or following a release thereof as
provided in Section 8.3 with respect to releases of Pledged
Qualifying Loans,
(3) the Borrower is the servicer for and shall service
all Pledged Qualifying Loans in accordance with the requirements of
the Approved Investor Commitments through a Subservicing Agreement
with Preferred Equities Corporation, an Affiliate of Borrower, and
subject to the terms of the PEC Tri-Party Agreement,
(4) the Borrower shall hold all escrow funds, if any,
collected in respect of Pledged Qualifying Loans in trust, without
commingling the same with any other fund, and apply the same for the
purposes for which such funds were collected provided that such
obligation with respect to Pledged Qualifying Loans shall not arise
until 30 days after the origination or acquisition of the applicable
Qualifying Loan,
(5) the Borrower shall observe and perform all of its
obligations in connection with each Approved Investor Commitment
related to any Pledged Qualifying Loan. Within forty-eight (48)
hours after a request therefor by the Agent, a copy of each Approved
Investor Commitment certified by the Borrower, or if requested by
the Agent at any time after a Default has occurred, the originals of
such Approved Investor Commitments shall be delivered to the Agent,
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(6) the Borrower shall hold any prepayment (which term
excludes the principal portion of scheduled monthly payments made on
a Qualifying Loan) arising from or relating to any Pledged
Qualifying Loan in trust, as security for the Lenders, until such
Qualifying Loan is removed from the Borrowing Base or the Collateral
Value of such Qualifying Loan is appropriately reduced on account of
such prepayment, in each case in accordance with this Agreement or,
if a Default has occurred and is continuing under this Agreement,
then immediately remit to the Agent such prepayments (and all
interest and earnings thereon or with respect thereto),
(7) the Borrower shall do, execute, acknowledge and
deliver, or cause to be done, executed, acknowledged and delivered,
all such other acts, instruments and transfers (including, without
limitation, Assignments) as the Agent or the Collateral Agent may
reasonably request from time to time in order to create and maintain
a perfected first priority security interest in the Collateral in
favor of the Lenders and to create, maintain and preserve the
security and benefits intended to be afforded by this Agreement,
subject to no prior or equal security interest, lien, charge or
encumbrance, or agreement purporting to grant to any Person a
security interest in the Collateral, and
(8) the Borrower shall promptly notify the Agent and
the Collateral Agent of the occurrence of any event which would
cause any Eligible Collateral to become Ineligible Collateral,
provided that such notification arising from delinquent payments or
prepayments shall be given at the times and in the manner expressly
provided herein.
"Borrower" means Mego Mortgage Corporation, a Delaware corporation, and
its successors and assigns.
"Borrowing Base" means, as of any date, subject to the Borrowing Base
Sublimits, the sum of the amounts determined by applying the following
percentages to the Collateral Values of the following categories of Eligible
Collateral, without duplication as any asset is converted from one category to
another, as described below (and the Borrower, by including any Pledged
Qualifying Loan in any computation of the Borrowing Base, shall be deemed to
represent and warrant to the Agent, the Collateral Agent and the Lenders that
such Pledged Qualifying Loan constitutes Eligible Collateral):
(i) one hundred percent (100%) of that portion of the
balance in the Settlement Account in excess of $100,000,
(ii) ninety-five (95%) of the Collateral Value of Eligible
Non-Conforming Mortgage Loans,
(iii) ninety percent (90%) of the Collateral Value of all
Eligible Title I Qualifying Loans other than Eligible Returned Qualifying
Loans,
(iv) ninety-five percent (95%) of the Collateral Value of
Eligible Conventional HI/DC Qualifying Loans other than Eligible Returned
Qualifying Loans, and
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<PAGE> 14
(v) seventy-five percent (75%) of the unpaid principal
balance of Eligible Returned Qualifying Loans, calculated on their
respective Pledge Dates
less the aggregate amount of Uncleared Loan Funding Checks on such date and less
the amount of $500,000 (which the parties agree is a reasonable estimate of
principal payments, prepayments and delinquencies that would affect Collateral
Value which are not yet reflected in the Borrower's daily information regarding
the Pledged Qualifying Loans).
In connection with the Borrowing Base, the Agent is hereby authorized by
the Lenders to grant temporary waivers of strict compliance by the Borrower with
the eligibility requirements regarding qualification of any Collateral as
Eligible Collateral or with the Lending Sublimits or Borrowing Base Sublimits
when the Agent deems it appropriate, in its sole discretion, if the aggregate
amount of deviation from strict compliance, based on the Collateral Value so
included in the Borrowing Base and the amount of excess permitted over the
Lending Sublimits or Borrowing Base Sublimits does not exceed $500,000 at any
time or up to any amount for up to three (3) Business Days, if the satisfaction
of such eligibility requirements or sublimits cannot be independently determined
because of events beyond the reasonable control of the Borrower (i.e. natural
disasters, transmission failures, etc.), provided that, if such determination
cannot be made for more than one (1) Business Day, the Borrower certifies in
writing that all such eligibility requirements and sublimits are in fact
satisfied.
"Borrowing Base Certificate" means a certificate executed by the chief
financial officer of the Borrower (or another Authorized Officer of the
Borrower) to be delivered to the Agent substantially in the form attached hereto
as Exhibit "G".
"Borrowing Base Sublimits" is defined in Section 2.1.2.
"Borrowing Date" means a date on which an Advance is made hereunder.
"Borrowing Notice" is defined in Section 2.8.
"Business Day" means (i) with respect to any borrowing, payment or rate
selection of Eurodollar Advances, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago, Houston, Atlanta and New York for the
conduct of substantially all of their commercial lending activities and on which
dealings in United States dollars are carried on in the London interbank market
and (ii) for all other purposes, a day (other than a Saturday or Sunday) on
which banks generally are open in Chicago, Houston, Atlanta and New York for the
conduct of substantially all of their commercial lending activities.
"Capital Expenditures" means, without duplication, any expenditures for
any purchase or other acquisition of any asset which would be classified as a
fixed or capital asset on a consolidated balance sheet of the Borrower and its
Included Subsidiaries prepared in accordance with Agreement Accounting
Principles excluding (i) the cost of assets acquired with Capitalized Lease
Obligations, (ii) expenditures of insurance proceeds to rebuild or replace any
asset after a casualty loss, and (iii) leasehold improvement expenditures for
which the Borrower or an Included Subsidiary is reimbursed promptly by the
lessor.
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"Capitalized Lease" of a Person means any lease of Property by such Person
as lessee which would be capitalized on a balance sheet of such Person prepared
in accordance with Agreement Accounting Principles.
"Capitalized Lease Obligations" of a Person means the amount of the
obligations of such Person under Capitalized Leases which would be shown as a
liability on a balance sheet of such Person prepared in accordance with
Agreement Accounting Principles.
"Change in Control" means that no Person, or two or more Persons acting in
concert (other than one or more of the Approved Shareholders) shall hold
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934) of more of the
outstanding shares of voting stock of the Borrower than are held by the Approved
Shareholders in the aggregate.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time.
"Collateral" means all right, title and interest of the Borrower, of every
kind and nature, in and to all of the following property, assets and rights of
the Borrower wherever located, whether now existing or hereafter arising, and
whether now or hereafter owned, acquired by or accruing or owing to the
Borrower, and all proceeds and products thereof:
(i) all Pledged Qualifying Loans, whether Eligible
Collateral or Ineligible Collateral (unless released in accordance with
Section 8.3 hereof), including all Required Qualifying Loan Documents
related thereto;
(ii) any commitments or other agreements issued by the FHA to
insure or guarantee any Pledged Qualifying Loan;
(iii) the Settlement Account and all uncollected deposits into
the Settlement Account;
(iv) all property related to the foregoing, including without
limitation, the right to service Pledged Qualifying Loans while owned by
the Borrower, all accounts and general intangibles of whatsoever kind so
related and all documents or instruments delivered to the Collateral Agent
in respect of any Pledged Qualifying Loan, including, without limitation,
the right to receive all insurance proceeds and condemnation awards which
may be payable in respect of the premises encumbered by any Mortgage
securing a Pledged Qualifying Loan; and
(v) all proceeds and products of any of the foregoing.
"Collateral Agent" means First Chicago National Processing Corporation or
its successor, as Collateral Agent under the Security Agreement.
"Collateral Agent Review Procedure" means the required review steps set
forth in Exhibit "1" to the Security Agreement.
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"Collateral Transmittal" means a transmittal from the Borrower to the
Collateral Agent in written form of the following information for the following
submissions or special treatment of different types of Collateral: (i) the
information described on Exhibit "D" for each AP Qualifying Loan covered by any
Agreement to Pledge, and (ii) the information described on Exhibit "D" (other
than the entry thereon for "AP Status Code") for each Pledged Qualifying Loan
not covered by an Agreement to Pledge.
"Collateral Value" means, with respect to each asset included in Eligible
Collateral on any given day, a value determined as follows:
(i) Cash shall be conclusively determined between the
Collateral Agent and the Agent to avoid duplication with the Collateral
Value of other Collateral; and
(ii) Each Pledged Qualifying Loan shall be valued at the
lowest of (A) (i) for all Non-Conforming Mortgage Loans and Title I
Qualifying Loans, one hundred percent (100%) of the unpaid principal
balance of such Non-Conforming Mortgage Loan or Title I Qualifying Loan on
its Pledge Date or (ii) for all other Pledged Qualifying Loans,
ninety-three percent (93%) of the unpaid principal balance of such
Qualifying Loan on its Pledge Date, or (B) the net acquisition cost
(including any discounts and excluding any servicing released premium) of
such Qualifying Loan, if acquired by the Borrower, or (C) for all Pledged
Qualifying Loans other than Non-Conforming Mortgage Loans, either (i) the
weighted average purchase price (expressed as a percentage of par)
committed to by Greenwich Capital under its most recent "Pricing Letter"
(as defined in the Greenwich Tri-Party Agreement) delivered to the Agent
which could cover such Qualifying Loan applied to the unpaid principal
balance of such Qualifying Loan on its Pledge Date or (ii) at the
discretion of the Agent, if the Agent believes in good faith that the
commitment of Greenwich Capital may not be available, the then-current
market value of such Qualifying Loan as determined by the Agent based upon
a survey conducted by the Agent of one or more of the investors identified
on Exhibit N attached hereto and any other investor suggested by the
Borrower and approved by the Agent which is then selling or buying such
type of Qualifying Loan and taking the pricing (or, if more than one firm
responds to the survey, the average of the pricing) received from such
survey or (D) for all Pledged Qualifying Loans that are Non-Conforming
Mortgage Loans, the then-current market value of such Qualifying Loan if
sold on a "whole-loan" basis to any Approved Investor then purchasing such
Qualifying Loans as initially established by the Borrower on the related
Collateral Transmittal delivered on or before the Pledge Date thereof,
subject to valuation updates and confirmations as described below. The
value described in (B) of the preceding sentence shall be as determined by
the Borrower as of the Pledge Date of the applicable Pledged Qualifying
Loan and reported to the Collateral Agent on the Pledge Date. The values
calculated under (C) of such sentence shall be recalculated not less than
monthly upon each issuance by Greenwich Capital of a new "Pricing Letter"
(or, if such Pledged Qualifying Loan is covered only by a different
Approved Investor, by such other Approved Investor's similar pricing
report) and shall be computed by the Borrower and reported to the
Collateral Agent within two (2) Business Days after such issuance. The
values described in (D) of such sentence shall be updated by the Borrower
not less than monthly and shall be confirmed at the Agent's request, by
written evidence of the applicable Approved Investors' then-current
offered prices for whole loans.
"Commitment" means, for each Lender, the sum of such Lender's Primary
Commitment and Swingline Commitment, if any.
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"Commitment Percentage" means, for each Lender as of any date, the
percentage of the Aggregate Commitment represented by such Lender's Commitment,
as it may be amended from time to time, which initially shall be as set forth on
Schedule "1".
"Condemnation" is defined in Section 7.8.
"Contingent Obligation" of a Person means any agreement, undertaking or
arrangement by which such Person assumes, guarantees, endorses, contingently
agrees to purchase or provide funds for the payment of, or otherwise becomes or
is contingently liable upon, the obligation or liability of any other Person, or
agrees to maintain the net worth or working capital or other financial condition
of any other Person, or otherwise assures any creditor of such other Person
against loss, including, without limitation, any comfort letter, operating
agreement or take-or-pay contract excluding, however, any contingent obligations
of the Borrower to repurchase Qualifying Loans or to indemnify any party having
an interest in such Qualifying Loans against any loss arising from breaches of
any representations or warranties made by the Borrower regarding the
then-current condition of such Qualifying Loans at the time of the creation of
such party's interest therein.
"Controlled Group" means all members of a controlled group of corporations
and all trades or businesses (whether or not incorporated) under common control
which, together with the Borrower or any of its Subsidiaries, are treated as a
single employer under Section 414 of the Code.
"Conventional HI/DC Qualifying Loan" means a Qualifying Loan which is
either (i) a home improvement loan made solely for the purpose of funding
improvements to a Single Family Residence, (ii) a debt consolidation loan made
solely for the purposes of repaying other debts of the obligor thereunder, or
(iii) a combination of such a home improvement loan and a debt consolidation
loan.
"Conversion/Continuation Notice" is defined in Section 2.8.
"Corporate Base Rate" means a rate per annum equal to the corporate base
rate of interest announced by First Chicago from time to time, changing when and
as said corporate base rate changes.
"Coverage Requirement" means, as of any date, the aggregate unpaid
principal amount then outstanding under this Agreement.
"Covered Loan" means any Eligible Qualifying Loan that is subject to an
Approved Investor Commitment issued by, and meets all of the requirements for
sale to, at least one Approved Investor, and which, when aggregated with all
other Eligible Qualifying Loans then subject to such Approved Investor
Commitment, would not cause the aggregate principal balance of such Eligible
Qualifying Loans to exceed the maximum amount of Qualifying Loans that such
Approved Investor is then obliged to purchase.
"Debt Evidence" means a Mortgage Note, an Unsecured Note or a RIC.
"Default" means an event described in Article VII.
"Effective Date" is defined in Section 4.1.
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<PAGE> 18
"Eligible Collateral" means, as of any date, all Eligible Conventional
HI/DC Qualifying Loans, Eligible Title I Qualifying Loans and Eligible
Non-Conforming Mortgage Loans.
"Eligible Conventional HI/DC Qualifying Loan" means an Eligible Qualifying
Loan which: (i) is a Conventional HI/DC Qualifying Loan, (ii) is in conformance
with the Borrower's existing underwriting standards as outlined on Schedule "5"
attached, (iii) was for an original principal amount at origination of less than
$75,000, (iv) is secured by a Mortgage and had a loan-to-value ratio at
origination of not more than 125% using the Borrower's market value
determination of the premises securing such Eligible Qualifying Loan as
described in clause (iii)(12) of the definition of "Basic Eligibility
Requirements", (v) is at all times from and after March 3, 1998 a Covered Loan,
(vi) has not been included in the Borrowing Base for ninety (90) days or more
after its Pledge Date, provided that such ninety (90) day maximum shall be
reduced to forty-five (45) days as of March 4, 1998 and shall be further reduced
to thirty (30) days as of April 2, 1998, (vii) does not have a FICO score of
less than 630 if such Conventional HI/DC Qualifying Loan was first included in
the Collateral after the date hereof or if such Conventional HI/DC Qualifying
Loan is included in the Collateral after March 3, 1998 (regardless of when first
pledged), and (viii) does not have a FICO score of less than 600 if such
Conventional HI/DC Qualifying Loan was already included in the Collateral on the
date hereof (it being understood that any such currently pledged Conventional
HI/DC Qualifying Loan shall cease to constitute Eligible Collateral after March
3, 1998 if such Conventional HI/DC Qualifying Loan has a FICO score of less than
630).
"Eligible Non-Conforming Mortgage Loans" means an Eligible Qualifying Loan
which: (i) is a Non-Conforming Mortgage Loan, (ii) is in conformance with the
Borrower's existing underwriting standards as outlined on Schedule "5A"
attached, with such changes thereto as may hereafter be made with the prior
written approval of the Agent, (iii) qualifies for purchase by at least two (2)
Approved Investors under their then-current underwriting guidelines, (iv) had an
original principal amount at origination of less than $300,000, (v) is a Covered
Loan, (vi) has been included in the Borrowing Base for not more than forty-five
(45) days after its Pledge Date, provided that such forty-five (45) day maximum
shall be reduced to thirty (30) days as of April 2, 1998, and (vii) does not
have a FICO score of less than 680 if it is a Second Mortgage Loan.
"Eligible Qualifying Loan" means any Pledged Qualifying Loan:
(i) which meets the Basic Eligibility Requirements;
(ii) which has no monthly installment of principal and/or
interest which is more than 30 days past due;
(iii) which was acquired by the Borrower not more than thirty
(30) days prior to its Pledge Date, except for Reinstated Qualifying
Loans;
(iv) which is not subject to warranty claims or disputes
between the obligor thereunder and the general contractor performing the
home improvement work which (i) remain unresolved for 90 or more days
after first being asserted, or (ii) when combined with all other claims
with respect to Pledged Qualifying Loans, would cause such combined claims
to exceed $500,000 in the aggregate, or (iii) would cause such Pledged
Qualifying Loan to be ineligible for purchase by an Approved Investor
under the applicable Approved Investor Commitment,
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<PAGE> 19
including without limitation the Borrower's inability to make any
representations and warranties regarding such Pledged Qualifying Loan;
(v) for which, if it is an AP Qualifying Loan:
(1) such AP Qualifying Loan has been executed and
delivered by the obligor thereunder and, if secured by a Mortgage,
such Mortgage has become a valid lien securing actual indebtedness
and the Borrower has not learned of any information to the contrary
and has not received any returned proceeds of its acquisition of
such AP Qualifying Loan from the dealer or correspondent originating
such Pledged Qualifying Loan,
(2) the Borrower has received all of the Required
Qualifying Loan Documents and Additional Required Qualifying Loan
Documents from the obligor thereunder or from the dealer or
correspondent originating such AP Qualifying Loan on or before the
date of the related Agreement to Pledge, and, if the Borrower has
subsequently delivered possession of such Required Qualifying Loan
Documents and Additional Required Qualifying Loan Documents to a
third party, such third party has been approved by the Agent and has
executed a bailee letter satisfactory to the Agent acknowledging the
security interest therein held by the Collateral Agent for the
benefit of the Lenders,
(3) the Collateral Agent has received the Required
Qualifying Loan Documents within five (5) Business Days after the
date of the related Agreement to Pledge, and
(4) the Collateral Value of such AP Qualifying Loan,
when aggregated with the Collateral Values attributable to all AP
Qualifying Loans, does not exceed ten percent (10%) of the Aggregate
Commitment,
(vi) which, if subject to an Investor Transmittal Letter or
Trust Receipt and if said Pledged Qualifying Loan was:
(1) withdrawn by the Borrower for purposes of
correcting clerical or other non-substantive documentation problems:
(i) the promissory note and other documents relating to said Pledged
Qualifying Loan were returned to the Collateral Agent within fifteen
(15) calendar days from the date of withdrawal, (ii) said Pledged
Qualifying Loan was released to the Borrower pursuant to a Trust
Receipt and (iii) the Collateral Value of said Pledged Qualifying
Loan when added to the Collateral Value of all other Pledged
Qualifying Loans which have been similarly released to the Borrower
does not exceed two percent (2%) of the Aggregate Commitment,
(2) shipped by the Collateral Agent directly to an
Approved Investor for purchase pursuant to the applicable
transmittal letter, the full purchase price therefor has been
received by the Collateral Agent (or said Pledged Qualifying Loan
has been returned to the Collateral Agent) within twenty-five (25)
days from the date of shipment by the Collateral Agent, or
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<PAGE> 20
(3) shipped by the Collateral Agent directly to a
custodian for purposes of formation of a pool supporting a Security
pursuant to the applicable transmittal letter, the Security is
issued and sold and the purchase price therefor has been received by
the Collateral Agent (or said Pledged Qualifying Loan has been
returned to the Collateral Agent) within twenty-five (25) days from
the date of shipment by the Collateral Agent,
(vii) which, if it is a Non-Conforming Mortgage Loan shipped
directly to an Approved Investor instead of to the Collateral Agent, is
subject to a fully executed and effective Tri-Party Agreement with such
Approved Investor; and
(viii) which if it is an HLTV Loan, has a FICO score such that
the weighted average of all FICO scores for HLTV Loans is 660 or higher.
"Eligible Returned Qualifying Loan" means, as of any date, an Eligible
Conventional HI/DC Qualifying Loan or an Eligible Title I Qualifying Loan which
then meets all of the requirements for inclusion in the applicable category but
which was previously submitted for purchase to an Approved Investor by the
Collateral Agent pursuant to an Investor Transmittal Letter but which has been
refused for purchase by such Approved Investor and is being or was returned to
the Collateral Agent, provided that (i) there shall be no change in the original
Pledge Date for such a Pledged Qualifying Loan, (ii) the Borrower shall deliver
a detailed written explanation for such refusal within five (5) Business Days
thereafter and, on a case-by-case basis, if the Required Lenders are satisfied
that such refusal was not based on any defect or inadequacy in such Pledged
Qualifying Loan or its documentation, such Pledged Qualifying Loan shall be
returned to the applicable category having a higher advance rate, and (iii)
Pledged Qualifying Loans which are voluntarily withdrawn by the Borrower from
FirstPlus Financial, Inc. after they were submitted and which were not refused
for purchase by FirstPlus Financial, Inc. shall not be included in this
definition.
"Eligible Title I Qualifying Loan" means an Eligible Qualifying Loan
which: (i) is a Title I Qualifying Loan, (ii) is underwritten to the
then-current underwriting standards of FHA, (iii) at all times from and after
March 3, 1998 is a Covered Loan, (iv) does not have a FICO of less than 550, (v)
has not been included in the Borrowing Base for ninety (90) days or more after
its Pledge Date, provided that such ninety (90) day maximum shall be reduced to
forty-five (45) days as of March 4, 1998 and shall be further reduced to thirty
(30) days as of April 2, 1998, and (vi) is not subject to claims processing with
FHA.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions relating to (i) the
protection of the environment, (ii) the effect of the environment on human
health, (iii) emissions, discharges or releases of pollutants, contaminants,
hazardous substances or wastes into surface water, ground water or land, or (iv)
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, hazardous substances or
wastes or the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of l974, as
amended from time to time, and any rule or regulation issued thereunder.
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"Excluded Subsidiary" is defined in Section 6.24 hereof.
"Facility Fee Rate" means a percentage of one-quarter of one percent
(0.25%) per annum.
"Federal Agency" means FNMA or FHA.
"Federal Funds Effective Rate" means, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding 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 at approximately 10 a.m. (Chicago
time) on such day on such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by the Agent in its sole
discretion.
"Fees" is defined in Section 2.6.
"FHA" means the Federal Housing Administration or other agency,
corporation or instrumentality of the United States to which the powers and
duties of the Federal Housing Administration have been transferred.
"FHA Title I Approved Mortgagee" means an institution that is approved by
the FHA to act as a servicer and mortgagee of record with respect to a Title I
Qualifying Loan insured by the FHA.
"FICO" means the "delinquency predictor" model established by Fair Isaac
Co. and shown on a credit report prepared by Equifax, TRW or Trans Union.
"First Chicago" means The First National Bank of Chicago in its individual
capacity, and its successors.
"Floating Rate" means, for any day, a rate of interest per annum equal to
the sum of (i) the Alternate Base Rate for such day plus (ii) one percent (1.0%)
per annum.
"Floating Rate Advance" means an Advance which bears interest at the
Floating Rate.
"Floating Rate Loan" means a Loan which bears interest at the Floating
Rate.
"FNMA" means the Federal National Mortgage Association or any corporate
successor thereto.
"FNMA Early Funding Transaction Letter" means a letter agreement among the
Borrower, FNMA and the Agent on behalf of the Lenders with respect to the
delivery of, and payment for, Eligible Title I Qualifying Loans, in the form
attached hereto as Exhibit "O".
"Funded Debt" means debt for borrowed money, excluding amounts payable to
Mego Financial but including all Subordinated Indebtedness other than
Subordinated Indebtedness owed to Mego Financial.
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<PAGE> 22
"GAAP" means generally accepted accounting principles as in effect from
time to time, consistently applied.
"Greenwich Capital" means Greenwich Capital Markets, Inc.
"Greenwich Tri-Party Agreement" means an agreement among Borrower,
Greenwich Capital and the Agent on behalf of the Lenders with respect to the
Approved Investor Commitment issued by Greenwich Capital.
"HLTV Loan" means any Eligible Conventional HI/DC Qualifying Loan which
(i) is secured by a Mortgage and (ii) had a loan-to-value ratio at origination
of one hundred percent (100%) or more using the Borrower's market value
determination of the premises securing such Eligible Conventional HI/DC
Qualifying Loan as described in clause (iii)(12) of the definition of "Basic
Eligibility Requirements".
"Included Subsidiary" means, as of any date, any Subsidiary of the
Borrower which is not then an Excluded Subsidiary.
"Indebtedness" of a Person means such Person's (i) obligations for
borrowed money, (ii) obligations representing the deferred purchase price of
Property or services (other than accounts payable arising in the ordinary course
of such Person's business payable on terms customary in the trade), (iii)
obligations, whether or not assumed, secured by Liens or payable out of the
proceeds or production from property now or hereafter owned or acquired by such
Person, (iv) obligations which are evidenced by notes, acceptances, or other
instruments, (v) Capitalized Lease Obligations, (vi) Contingent Obligations,
(vii) Letters of Credit, (viii) Sale and Leaseback Transactions, (ix) Operating
Lease Obligations, and (x) Net Mark-to-Market Exposure of Rate Hedging
Agreements.
"Indenture" means a certain Indenture dated as of November 22, 1996 with
American Stock Transfer & Trust Company as indenture trustee, as amended by a
supplemental indenture thereto dated as of October 8, 1997 and as further
amended from time to time hereafter, which governs the Subordinated Notes.
"Ineligible Collateral" means any Pledged Item that does not at the time
constitute Eligible Collateral.
"Investment" of a Person means any loan, advance (other than commission,
travel and similar advances to officers and employees made in the ordinary
course of business), extension of credit (other than accounts receivable arising
in the ordinary course of business on terms customary in the trade) or
contribution of capital by such Person; stocks, bonds, mutual funds, partnership
interests, notes, debentures or other securities owned by such Person; any
deposit accounts and certificate of deposit owned by such Person; and structured
notes, derivative financial instruments and other similar instruments or
contracts owned by such Person.
"Investor Transmittal Letter" means either a "Whole Loan Sale Transmittal
Letter" or a "Warehouse-Related MBS Transmittal Letter" substantially in the
form of Exhibits "4" and "5" to the Security Agreement.
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<PAGE> 23
"IO Securities" means a security representing an undivided interest in all
or a portion of the interest payments due on a pool of Qualifying Loans.
"Lenders" means the lending institutions listed on the signature pages of
this Agreement and their respective successors and assigns.
"Lending Sublimits" is defined in Section 2.1.1.
"Letter of Credit" of a Person means a letter of credit or similar
instrument which is issued upon the application of such Person or upon which
such Person is an account party or for which such Person is in any way liable.
"Lien" means any lien (statutory or other), mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance or preference,
priority or other security agreement or preferential arrangement of any kind or
nature whatsoever (including, without limitation, the interest of a vendor or
lessor under any conditional sale, Capitalized Lease or other title retention
agreement).
"Loan" means, with respect to a Lender, such Lender's loan made pursuant
to Article II (or any conversion or continuation thereof).
"Loan Documents" means this Agreement and the Notes, the Security
Agreement, the PEC Tri-Party Agreement, the Tri-Party Agreements and the other
documents and agreements contemplated hereby and executed by the Borrower in
favor of the Agent or any Lender.
"Material Adverse Effect" means a material adverse effect on (i) the
business, Property, condition (financial or otherwise), results of operations,
or prospects of the Borrower and its Subsidiaries taken as a whole, (ii) the
ability of the Borrower to perform its obligations under the Loan Documents, or
(iii) the validity or enforceability of any of the Loan Documents or the rights
or remedies of the Agent or the Lenders thereunder.
"Mego Financial" means Mego Financial Corp., a New York corporation.
"MLPSA" means the Amended and Restated Master Loan Purchase and Servicing
Agreement dated as of October 1, 1996 by and between the Borrower, Mego
Financial and Greenwich Capital.
"Mortgage" means a mortgage, deed of trust, security deed or similar
instrument purporting to create a lien or similar interest in real estate and
improvements thereon.
"Mortgage Note" means a note evidencing the indebtedness secured by a
Mortgage.
"Multiemployer Plan" means a Plan maintained pursuant to a collective
bargaining agreement or any other arrangement to which the Borrower or any
member of the Controlled Group is a party to which more than one employer is
obligated to make contributions.
"Net Mark-to-Market Exposure" of a Person means, as of any date of
determination, the excess (if any) of all unrealized losses over all unrealized
profits of such Person arising from Rate Hedging Agreements. "Unrealized losses"
means the fair market value of the cost to such Person of replacing
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<PAGE> 24
such Rate Hedging Agreement as of the date of determination (assuming the Rate
Hedging Agreement were to be terminated as of that date), and "unrealized
profits" means the fair market value of the gain to such Person of replacing
such Rate Hedging Agreement as of the date of determination (assuming such Rate
Hedging Agreement were to be terminated as of that date).
"Net Worth" means as of any date of determination thereof, the net worth
of the Borrower and its Included Subsidiaries on a consolidated basis as
determined in accordance with Agreement Accounting Principles.
"Non-Conforming Mortgage Loan" means a Residential Mortgage Loan that is
either secured by a first priority Mortgage or is a Second Mortgage Loan.
"Notes" means promissory notes evidencing amounts that may be advanced
from time to time under this Agreement in substantially the form of Exhibit "A"
attached hereto, each duly executed by the Borrower and payable to the order of
a Lender, including any amendment, modification, renewal or replacement of such
promissory notes.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued and unpaid
interest on the Notes, all accrued and unpaid fees and all expenses,
reimbursements, indemnities and other obligations of the Borrower to the Lenders
or to any Lender, the Agent, the Collateral Agent or any indemnified party
hereunder arising under the Loan Documents.
"Operating Lease Obligations" means, as at any date of determination, the
amount obtained by aggregating the present values, determined in the case of
each particular Operating Lease by applying a discount rate (which discount rate
shall equal the discount rate which would be applied under Agreement Accounting
Principles if such Operating Lease were a Capitalized Lease) from the date on
which each fixed lease payment is due under such Operating Lease to such date of
determination, of all fixed lease payments due under all Operating Leases of the
Borrower and its Included Subsidiaries.
"Operating Lease" of a Person means any lease of Property (other than a
Capitalized Lease) by such Person as lessee which has an original term
(including any required renewals and any renewals effective at the option of the
lessor) of one year or more.
"Participants" is defined in Section 12.2.1.
"Payment Date" means the first day of each month.
"PBGC" means the Pension Benefit Guaranty Corporation, or any successor
thereto.
"PEC Tri-Party Agreement" means the agreement among the Borrower, the
Agent for the benefit of the Lenders and Preferred Equities Corporation, an
Affiliate of Borrower, with respect to the subservicing of the Pledged
Qualifying Loans, in the form attached hereto as Exhibit "H".
"Permitted Warehouse Indebtedness" means Indebtedness of the Borrower or
any Included Subsidiary which is in existence on the date hereof as listed on
Schedule "4" attached hereto so long as
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<PAGE> 25
such Indebtedness is either (i) secured by Qualifying Loans that are not of a
type that could be an Eligible Qualifying Loan under this Agreement or (ii)
secured by Qualifying Loans that could be Eligible Qualifying Loans under this
Agreement but do not then qualify for inclusion in the Borrowing Base and which
are pledged to the Collateral Agent for the benefit of the holders of such
Indebtedness (or if not pledged to the Collateral Agent, other arrangements have
been made to ensure to the Agent's satisfaction that the Lenders' collateral
pool does not overlap with the collateral pool securing such other
Indebtedness), provided in each case that the Agent has received copies of all
loan documents governing such Indebtedness confirming that, or has received
written confirmation from the holders of such Indebtedness that, such conditions
have been satisfied.
"Person" means any natural person, corporation, firm, joint venture,
partnership, association, limited liability company, enterprise, trust or other
entity or organization, or any government or political subdivision or any
agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is covered by Title IV
of ERISA or subject to the minimum funding standards under Section 412 of the
Code as to which the Borrower or any member of the Controlled Group may have any
liability.
"Pledge Date" means the date on which a Qualifying Loan is first delivered
in pledge to the Collateral Agent or is otherwise made subject to a security
interest in favor of the Agent or Collateral Agent for the benefit of the
Lenders, provided that the date of delivery of a Qualifying Loan covered by an
Agreement to Pledge shall be deemed to be the date of delivery of such Agreement
to Pledge even after subsequent delivery of the related Required Qualifying Loan
Documents.
"Pledged Qualifying Loans" means all Qualifying Loans that are from time
to time delivered (or, in the case of AP Qualifying Loans, are committed to be
delivered) to the Collateral Agent pursuant to this Agreement and the Security
Agreement.
"Primary Advance" means a Floating Rate Advance.
"Primary Commitment" means, for each Lender, the obligation of such Lender
to make Loans not exceeding the amount set forth as its "Primary Commitment"
(which equals its Commitment minus its Swingline Commitment, if any) on Schedule
"1" attached hereto or as set forth in any Notice of Assignment relating to any
assignment that has become effective pursuant to Section 12.3.2, as such amount
may be modified from time to time pursuant to the terms hereof.
"Primary Commitment Percentage" means, for each Lender as of any date, the
quotient of (a) such Lender's Primary Commitment divided by (b) the aggregate
Primary Commitments (which equals the Aggregate Commitment minus the Swingline
Commitment), which Primary Commitment Percentage shall initially be as set forth
on Schedule "1" attached hereto, as it may be amended from time to time.
"Primary Loan" means a Loan consisting of a portion of a Primary Advance.
"Prior Facility" means the $40,000,000 revolving credit facility which
preceded this Facility and was established under a Credit Agreement dated as of
June 20, 1997 among the Borrower, the Agent and the Lenders, as amended.
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<PAGE> 26
"Property" of a Person means any and all property, whether real, personal,
tangible, intangible, or mixed, of such Person, or other assets owned, leased or
operated by such Person.
"Purchasers" is defined in Section 12.3.1.
"Qualifying Loan" means (i) a loan of money evidenced by a Mortgage Note
or an Unsecured Note or (ii) a RIC, whether or not secured by a Mortgage.
"Rate Hedging Agreement" means an agreement, device or arrangement
providing for payments which are related to fluctuations of interest rates,
exchange rates or forward rates, including, but not limited to,
dollar-denominated or cross-currency interest rate exchange agreements, forward
currency exchange agreements, interest rate floor, cap or collar protection
agreements, forward rate currency or interest rate options, puts and warrants.
"Rate Hedging Obligations" of a Person means any and all obligations of
such Person, whether absolute or contingent and howsoever and whensoever
created, arising, evidenced or acquired (including all renewals, extensions and
modifications thereof and substitutions therefor), under (i) any and all Rate
Hedging Agreements, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any Rate Hedging Agreement.
"Recourse Servicing" means any servicing rights under a Servicing
Agreement which obligates the Borrower either to repurchase Qualifying Loans
upon default by the borrower thereunder or to indemnify any party having an
interest in such Qualifying Loans against any loss arising from such a default
for reasons other than a breach of any representations or warranties regarding
the condition of such Qualifying Loans at origination which were made by the
Borrower as originator of such Qualifying Loans, provided that "Recourse
Servicing" shall not be deemed to include any servicing rights which provide for
recourse against the Borrower which is contractually limited to recovery against
the value of any related IO Securities, Residual Certificates or excess
servicing rights held by the Borrower or the cash flows to be received thereon
as a result of their subordination to senior securities, certificates or rights
created and governed by the same documents that created and govern such IO
Securities, Residual Certificates and excess servicing rights.
"Regulation U" means Regulation U of the Board of Governors of the Federal
Reserve System as from time to time in effect and any successor or other
regulation or official interpretation of said Board of Governors relating to the
extension of credit by banks for the purpose of purchasing or carrying margin
stocks applicable to member banks of the Federal Reserve System.
"Reinstated Qualifying Loan" means a Title I Qualifying Loan or a
Conventional HI/DC Qualifying Loan previously sold by the Borrower which the
Borrower has repurchased as a result of a default by the obligor thereunder
which default has subsequently been cured so that such Qualifying Loan qualifies
as an Eligible Qualifying Loan, including without limitation meeting all
requirements of the applicable Approved Investor Commitment, notwithstanding
such prior default and repurchase.
"Reportable Event" means a reportable event as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified within 30 days of
the occurrence of such event, provided, however, that a failure to meet the
minimum funding
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<PAGE> 27
standard of Section 412 of the Code and of Section 302 of ERISA shall be a
Reportable Event regardless of the issuance of any such waiver of the notice
requirement in accordance with either Section 4043(a) of ERISA or Section 412(d)
of the Code.
"Required Lenders" means Lenders in the aggregate having at least 75% of
the Aggregate Commitment or, if the Aggregate Commitment has been terminated,
Lenders in the aggregate holding at least 75% of the aggregate unpaid principal
amount of the outstanding Advances.
"Required Qualifying Loan Documents" means the instruments and documents
described in Schedule "A" to the Security Agreement, as applicable to a
particular Qualifying Loan, which are required to be delivered to the Collateral
Agent.
"Residential Mortgage Loan" means a Qualifying Loan secured by a Mortgage
on a Single Family Residence.
"Residual Certificates" means a security (whether identified as a
certificate, instrument or interest) representing the residual interest in a
real estate mortgage investment conduit or other entity formed by the Borrower
and in which Borrower has retained a residual interest which residual interest
is only payable on a fully subordinated basis after all regular interests in
and/or debt issued by such entity has been fully repaid.
"Restricted Assets" means "cash deposits, restricted", "excess servicing
rights", "mortgage-related securities, at fair value", and "mortgage servicing
rights", as such categories are established and valued under Agreement
Accounting Principles and disclosed by the consolidated financial statements of
the Borrower and its Included Subsidiaries.
"RIC" means a retail installment contract evidencing indebtedness arising
from home improvements made for the benefit of the obligor thereunder.
"Risk-Based Capital Guidelines" is defined in Section 3.2.
"Sale and Leaseback Transaction" means any sale or other transfer of
Property by any Person with the intent to lease such Property as lessee.
"Second Mortgage Loan" means a Residential Mortgage Loan secured by a
Mortgage having a second priority lien on the related Single Family Residence
and having a combined loan-to-value ratio at origination (taking into account
the full outstanding principal balance secured by the first priority Mortgage)
not in excess of 100% using the appraised value of such Single Family Residence
at origination as described in clause (iii)(12) of the definition of Basic
Eligibility Requirements.
"Section" means a numbered section of this Agreement, unless another
document is specifically referenced.
"Secured Parties" is defined in Paragraph 1 of the Security Agreement.
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<PAGE> 28
"Security or Securities" means a security representing an undivided
fractional interest in a pool of Title I Qualifying Loans or Conventional HI/DC
Qualifying Loans, which security is issued or sponsored by the Borrower, or an
Affiliate of Borrower.
"Security Agreement" means that certain Security and Collateral Agency
Agreement dated as of June 20, 1997, as amended by a First Amendment dated as of
February 2, 1998 and a Second Amendment thereto dated of even date herewith,
substantially in the form of Exhibit "I" attached hereto, by and among the
Borrower, the Agent, and the Collateral Agent, pursuant to which a security
interest is created in favor of the Collateral Agent for the Lenders under this
Agreement in certain Collateral to be pledged pursuant to this Agreement, as the
same may, from time to time, be further supplemented, modified or amended.
"Servicing Agreement" means a written contract of the Borrower with
another Person to act on behalf of such other Person to, among other things,
receive payments in respect of Qualifying Loans and to service Qualifying Loans,
whether or not such Qualifying Loans are Pledged Qualifying Loans.
"Settlement Account" means the account established pursuant to Section
8.4.
"Single Employer Plan" means a Plan maintained by the Borrower or any
member of the Controlled Group for employees of the Borrower or any member of
the Controlled Group.
"Single Family Residence" means a one to four family dwelling unit, which
may be a condominium unit but which shall not be a mobile home, manufactured
housing or a dwelling unit in a cooperative apartment building.
"Subordinated Indebtedness" of a Person means (i) any Indebtedness of the
Borrower to Mego Financial (other than Tax Agreement Indebtedness), the payment
of which is subordinated to payment of the Obligations to the written
satisfaction of the Required Lenders, and (ii) the Subordinated Notes.
"Subordinated Notes" means (i) those senior subordinated unsecured
promissory notes of the Borrower issued and outstanding from time to time
pursuant to the Indenture, which notes currently bear interest at 12.5% per
annum payable semi-annually with the entire principal sum being due on December
1, 2001, as such Indenture may be amended from time to time hereafter with the
prior written approval of the Agent, such approval not to be unreasonably
withheld or delayed, and (ii) any subordinated unsecured promissory notes of the
Borrower issued and outstanding from time to time pursuant to indentures
executed and delivered after the date hereof, provided that such notes and
indenture provide for no principal payments thereunder prior to the Termination
Date and have otherwise been reviewed and approved by the Agent, such approval
not to be unreasonably withheld or delayed.
"Subservicing Agreement" means a Servicing Agreement between the Borrower
and a Person which does not own the Qualifying Loans being serviced thereunder
but only has servicing or other non-ownership rights with respect thereto.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, limited liability company, association, joint venture or
similar
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business organization more than 50% of the ownership interests having ordinary
voting power of which shall at the time be so owned or controlled. Unless
otherwise expressly provided, all references herein to a "Subsidiary" shall mean
a Subsidiary of the Borrower.
"Substantial Portion" means, with respect to the Property of the Borrower
and its Subsidiaries, Property which (i) represents more than 10% of the
consolidated assets of the Borrower and its Subsidiaries as would be shown in
the consolidated financial statements of the Borrower and its Subsidiaries as at
the beginning of the twelve-month period ending with the month in which such
determination is made, or (ii) is responsible for more than 10% of the
consolidated net sales or of the consolidated net income of the Borrower and its
Subsidiaries as reflected in the financial statements referred to in clause (i)
above.
"Swingline Advance" means an Advance made by the Swingline Lender under
the special availability provisions described in Section 2.4 bearing interest at
the Swingline Rate.
"Swingline Commitment" means the obligation of the Swingline Lender to
make Swingline Loans not exceeding in the aggregate the amount of Five Million
Dollars ($5,000,000) as shown on Schedule "1", as such amount may be modified
from time to time pursuant to the terms hereof.
"Swingline Lender" means First Chicago.
"Swingline Loan" means a Loan consisting of a portion of a Swingline
Advance.
"Swingline Rate" means, for any day, a rate of interest per annum equal to
the sum of (i) the Alternate Base Rate for such day plus (ii) two percent (2.0%)
per annum.
"Tangible Net Worth" means Net Worth less the sum of the following
(without duplication): (a) any assets of the Borrower and its consolidated
Included Subsidiaries which would be treated as intangibles under Agreement
Accounting Principles including, without limitation, good-will, research and
development costs, trade-marks, trade names, copyrights, patents and unamortized
debt discount, prepaid commitment fees and prepaid debt expenses (but without
deduction of (i) any write-ups of assets made in accordance with Agreement
Accounting Principles or (ii) any IO Securities, Residual Certificates, mortgage
servicing rights or excess servicing rights as determined in accordance with
Agreement Accounting Principles), (b) loans or other extensions of credit to
officers of the Borrower or of any of its consolidated Subsidiaries other than
Qualifying Loans made to such Persons in the ordinary course of business, and
(c) any loans or extensions of credit to Excluded Subsidiaries and Affiliates.
"Tax Agreement Indebtedness" means any and all Indebtedness of the
Borrower to Mego Financial under the tax-sharing agreement described on Schedule
6.16, as amended from time to time, on account of the Borrower's share of the
consolidated federal income tax liability of the Borrower and Mego Financial.
"Termination Date" means May 29, 1998.
"Title I Qualifying Loan" means either a Residential Mortgage Loan or an
unsecured loan which (i) is a home improvement loan made solely for the purpose
of funding improvements to a Single Family Residence owned by the obligor under
such loan and (ii) is insured by the FHA pursuant to Title I,
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Section 2 of the National Housing Act, as amended and in effect from time to
time, and the Title I Regulations.
"Title I Regulations" means 24 C.F.R. Parts 201 and 202, and other
issuances of the United States Department of Housing and Urban Development
relating to Title I Qualifying Loans, including the related handbooks,
circulars, notices and mortgage letters, each as amended and in effect from time
to time.
"Transfer of Note Report" means, with respect to each Title I Qualifying
Loan, the Title I Transfer of Note Report as contained in the United States
Department of Housing and Urban Development form number HUD-27030 (8-86) or any
update or modification thereof. To the extent permissible under applicable
H.U.D. rules and regulations, one Transfer of Note Report may be utilized for
multiple Title I Qualifying Loans.
"Transferee" is defined in Section 12.5.
"Tri-Party Agreement" means the Greenwich Tri-Party Agreement, a FNMA
Early Funding Transaction Letter or a similar agreement satisfactory to the
Required Lenders with any other Approved Investor.
"Trust Receipt" means a trust receipt substantially in the form of Exhibit
"2" to the Security Agreement.
"Type" means, with respect to any Advance, its nature as an Floating Rate
Advance or Swingline Advance.
"Uncleared Loan Funding Checks" shall mean any check or draft issued by
the Borrower or other item which represents all or any portion of the amount to
be secured by a Pledged Qualifying Loan if such check or draft or other item has
not been collected upon and paid to the named payee therein in good funds.
"Unfunded Liabilities" means the amount (if any) by which the present
value of all vested and unvested accrued benefits under all Single Employer
Plans exceeds the fair market value of all such Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plans using PBGC actuarial assumptions for single employer plan terminations.
"Unmatured Default" means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default.
"Unsecured Note" means a note evidencing any indebtedness which is not
secured by a Mortgage.
"Wholly-Owned Subsidiary" of a Person means (i) any Subsidiary all of the
outstanding voting securities of which shall at the time be owned or controlled,
directly or indirectly, by such Person or one or more Wholly-Owned Subsidiaries
of such Person, or by such Person and one or more Wholly-Owned Subsidiaries of
such Person, or (ii) any partnership, limited liability company, association,
joint venture or similar business organization 100% of the ownership interests
having ordinary voting power of which shall at the time be so owned or
controlled.
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The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.
ARTICLE II
THE CREDITS
2.1. Commitment, Sublimits and Types of Advances.
2.1.1. Commitment and Lending Sublimits. From and including the date
of this Agreement and prior to the Termination Date, each Lender severally
agrees, on the terms and conditions set forth in this Agreement (including the
lending sublimits (the "Lending Sublimits") set forth below and the Borrowing
Base Sublimits under Section 2.1.2), to make Loans to the Borrower from time to
time; provided that, on any date, after giving effect to such Loans and all
other loans that the Borrower has requested be made on such date under this
Agreement:
(1) the aggregate principal balance then outstanding under all
Loans then held by such Lender shall not exceed the amount of such
Lender's then-current Commitment;
(2) the aggregate principal balance then outstanding of all
Primary Loans then held by such Lender shall not exceed the amount of such
Lender's Primary Commitment;
(3) the aggregate principal balance of all outstanding Swingline
Loans held by the Swingline Lender on such date shall not exceed the
Swingline Lender's Swingline Commitment;
(4) the aggregate principal balance of all outstanding Advances
under this Agreement on such date shall not exceed the Aggregate
Commitment; and
(5) the Coverage Requirement on such date shall not exceed the
lowest of (i) the Aggregate Commitment or (ii) the then-current Borrowing
Base or (iii) at all times from and after March 3, 1998, the sum of (A)
with respect to the portion of the then-current Borrowing Base represented
by Eligible Title I Qualifying Loans and Eligible Conventional HI/DC
Qualifying Loans, the maximum purchase price payable by the Approved
Investors (including without limitation Greenwich Capital) after taking
into account all minimum and maximum limits established by the applicable
Approved Investor Commitments and the most recent Pricing Letters issued
thereunder for such Qualifying Loans, all as confirmed in writing to the
Agent by the Approved Investors pursuant to the applicable Tri-Party
Agreements, plus (B) with respect to the portion of the then-current
Borrowing Base represented by Eligible Non-Conforming Mortgage Loans, the
aggregate Collateral Value of such Eligible Non-Conforming Mortgage Loans.
Subject to the terms of this Agreement, the Borrower may borrow, repay and
reborrow at any time prior to the Termination Date. The Commitments to lend
hereunder shall expire on the Termination Date.
2.1.2. Borrowing Base Sublimits. The maximum amount that can be
credited toward the Borrowing Base from certain types of Collateral shall be
limited (the "Borrowing Base Sublimits") so that:
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(1) the Borrowing Base attributable to Title I Qualifying Loans
which are not secured by a Mortgage shall not exceed, in the aggregate, 5%
of the Aggregate Commitment;
(2) the Borrowing Base value attributable to Eligible
Non-Conforming Mortgage Loans which are Second Mortgage Loans shall not
exceed, in the aggregate, five percent (5%) of the Aggregate Commitment;
(3) the Borrowing Base value attributable to all Eligible
Non-Conforming Mortgage Loans shall not exceed, in the aggregate, fifteen
percent (15%) of the Aggregate Commitment; and
(4) the Borrowing Base value attributable to all Eligible Returned
Qualifying Loans shall not exceed, in the aggregate, $10,000,000.
2.1.3. Types of Advances. Each Advance hereunder shall consist of
one or more Floating Rate Advances or Swingline Advances requested by the
Borrower in accordance with Section 2.7. Primary Advances shall be generally
available as provided in Section 2.2. Swingline Advances shall only be available
as provided in Section 2.4.
2.2. Primary Advances. Subject to the terms and conditions herein the
Borrower may request any of the Primary Advances from the Lenders on a pro rata
basis in accordance with each such Lender's Primary Commitment Percentage.
Primary Advances shall accrue interest at the Floating Rate.
2.3. [INTENTIONALLY OMITTED.]
2.4. Swingline Advances. Subject to the terms and conditions herein
(including the Lending Sublimits), the Borrower may request Swingline Advances
from only the Swingline Lender on a non-pro rata basis. On any Borrowing Date
each Swingline Advance requested by the Borrower shall be funded to the Borrower
by the Swingline Lender in the amount designated in the Borrowing Notice. If any
amounts are advanced by the Swingline Lender to cover checks or wire transfers
from Borrower accounts maintained with the Swingline Lender when there are
insufficient funds in such accounts to cover the applicable check or wire
transfer and sufficient funds are not deposited in the applicable account before
the close of business on the day on which the applicable check or wire transfer
request is honored, then the Borrower shall be deemed to have requested, and the
Swingline Lender may (but shall not be obligated to) elect to make, a Swingline
Advance at the Swingline Rate to pay such overdraft amount (even if such a
Swingline Advance would cause the aggregate amount of all outstanding Swingline
Advances to exceed the Swingline Commitment); provided however, that (i) the
Swingline Lender shall not make any such Swingline Advance to the extent such
Advance would cause the Coverage Requirement to exceed the lesser of (A) the
Aggregate Commitment or (B) the then-current Borrowing Base, and (ii) the
reallocations of any such Swingline Advances among the Lenders shall be as set
forth in, but subject to the provisions of, Section 2.5. The Borrower may, from
time to time upon five (5) Business Days advance written notice to the Lenders,
elect to convert all or any portion (in multiples of $500,000) of the Swingline
Lender's Swingline Commitment into an increase in the Primary Commitment of the
Swingline Lender. Once so converted the Swingline Commitment shall not be
restored or increased without the written consent of the Swingline Lender.
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2.5. Reallocation of Swingline Advances. With respect to all Swingline
Advances, at the request of Swingline Lender given at any time, whether or not a
Default or Unmatured Default has occurred, all Swingline Advances shall be
reallocated among all Lenders, in accordance with each Lender's Commitment
Percentage, and shall thereafter be deemed Floating Rate Advances. Each Lender
holding less than its Commitment Percentage of all such Advances being allocated
shall immediately purchase for cash and at face value such participations in the
Notes held by other Lenders, and make such other adjustments, as may be needed
to cause each Lender to hold its Commitment Percentage of such Advances.
Notwithstanding the preceding provisions of this Section 2.5, (i) the obligation
of each Lender to purchase participations described in the preceding sentence
with respect to any particular Swingline Advance is subject to the condition
that the Swingline Lender believed in good faith that all conditions under
Section 4.2 were satisfied at the time the applicable Swingline Advance was
made, and (ii) no Lender shall be required to so purchase such participations to
the extent that such purchase would cause such Lender's share of the aggregate
unpaid principal amount of all Loans then outstanding under this Agreement to
exceed its Commitment hereunder. Notwithstanding anything to the contrary
contained in this Agreement, after any such reallocation has occurred: (i) the
Swingline Commitment shall be zero and (ii) all future Advances, if any, shall
be made as Floating Rate Advances.
2.6. Fees. The Borrower shall pay the following fees (the "Fees"):
2.6.1. Facility Fees. A facility fee based on the Aggregate
Commitment from time to time from and after the date hereof, calculated at the
Facility Fee Rate, expressed as a per diem rate on the actual Aggregate
Commitment for each day during the preceding full or partial calendar quarter,
payable in arrears, on the last day of each such calendar quarter and on the
Termination Date. This fee shall be paid to the Agent and allocated among the
Lenders on a pro rata basis in accordance with their respective Commitments
during such quarter.
2.6.2. Agent Fees. Any fees payable to the Agent pursuant to the
Borrower's letter agreement with the Agent of even date herewith.
2.6.3. Collateral Agent Fees. Any fees payable to Collateral Agent
for its services rendered pursuant to the Security Agreement as agreed to by the
Borrower and charged by Collateral Agent from time to time.
2.6.4. Amendment and Waiver Fees. An amendment and waiver fee
payable to the Agent for the benefit of the Lenders in an amount equal to $3,500
per Lender for this Agreement.
2.7. Method of Selecting New Advances. The Borrower shall select the Type
of Advance. The Borrower shall give the Agent irrevocable notice (a "Borrowing
Notice") not later than (i) noon (Chicago time) on the Borrowing Date of each
Floating Rate Advance, and (ii) 4:00 p.m. (Chicago time) on the proposed
Borrowing Date for each Swingline Advance, specifying:
(a) the Borrowing Date, which shall be a Business Day, of such Advance,
(b) the aggregate amount of such Advance, which shall not be less than
$1,000,000 or a multiple of $100,000 in excess thereof (other than a
Swingline Advance which shall have no minimum amount), and
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(c) the Type of Advance selected.
Not later than noon (Chicago time) on each Borrowing Date, with respect to all
Advances other than Swingline Advances, each Lender shall make available its
Loan or Loans comprising such Advance, in funds immediately available in Chicago
to the Agent at its address specified pursuant to Article XIII. Swingline
Advances may be made available at any time up to the close of business with
respect to Swingline Advances. The Agent will make the funds so received from
the Lenders available to the Borrower at the Agent's aforesaid address.
2.8. Conversion and Continuation of Outstanding Advances. A Floating
Rate Advance shall continue as a Floating Rate Advance unless and until such
Floating Rate Advance is repaid. A Swingline Advance shall continue as a
Swingline Advance unless and until the Borrower has paid any such Swingline
Advance prior to 3:00 p.m. (Chicago time) on any Business Day.
2.9. Reductions to Aggregate Commitment. The Borrower may from time to
time permanently reduce the Aggregate Commitment, in whole or in part, ratably
among the Lenders in integral multiples of $1,000,000 (but not less than
$5,000,000), upon at least two (2) Business Days' prior written notice to the
Agent, which notice shall specify the amount of any such reduction. On or before
the effective date of any such reduction, the Borrower shall, if necessary,
repay sufficient Loans to prevent the remaining outstanding Loans hereunder,
after giving effect to such permanent reduction, from exceeding the Lending
Sublimits. Upon any reduction of the Aggregate Commitment, upon the election of
the Swingline Lender, the aggregate Swingline Commitment shall be reduced by an
amount to be determined by the Swingline Lender in its sole discretion up to the
same percentage as the reduction in the Aggregate Commitment.
2.10. Principal Payments.
2.10.1. Optional Principal Payments. The Borrower may from time to
time pay, without penalty or premium, all or any portion of the outstanding
Floating Rate Advances upon two (2) Business Days' prior notice to the Agent.
Swingline Advances may be paid on any Business Day provided that the Borrower
has given the Agent written notice of such repayment on the date of such
intended payment by noon (Chicago time). All optional principal payments shall
be applied to the Type of Advance designated by the Borrower when making such
payment, provided that any payments received during the continuance of a Default
and after Section 2.5 has been invoked shall be applied on a pro rata basis to
all Advances then outstanding. Payments so allocated to an Advance shall be
distributed to the Lenders holding the Loans comprising such Advance on a pro
rata basis in accordance with the respective unpaid principal balances of such
Loans.
2.10.2. Required Payments Related to Borrowing Base. On any date
that the Coverage Requirement is in excess of the then-current Borrowing Base,
the Borrower shall, prior to the close of business on such date, either deliver
sufficient Eligible Collateral to eliminate such excess or make a mandatory
payment to the Agent for the benefit of the Lenders in the amount of such
excess. Any such payment shall be allocated as directed by the Borrower unless a
Default (other than the Borrower's obligation to so deliver Eligible Collateral
or make a mandatory payment by the close of business on such day) then exists
and Section 2.5 has been invoked in which case such payment shall be allocated
in accordance with the Lenders' respective outstanding Loans and in conjunction
with the procedures
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described in Section 2.5, with such payments applied first to accrued and unpaid
interest and thereafter to principal.
2.10.3. Settlement Account Payments. Prior to the occurrence of a
Default, to the extent the amounts in the Settlement Account are not needed to
keep the Borrowing Base at least equal to the Coverage Requirement, the Borrower
may withdraw or otherwise direct the application of such amounts. Upon the
occurrence of a Default (and during the continuance thereof), at the direction
of the Required Lenders, the Agent may declare a portion of the principal
balance of the Loans, equal to any amounts then on deposit in the Settlement
Account and any deposits made in the Settlement Account during the continuance
of such Default, to be due and payable without demand (unless previously
declared due and payable). Such amount shall be withdrawn from the Settlement
Account by the Agent and shall be applied to the Obligations in accordance with
Section 8.8.
2.10.4. Required Payments Related to Reductions in the Aggregate
Commitment. On each date on which the Aggregate Commitment is reduced as
described in the definition thereof, if the then-current Coverage Requirement is
in excess of the reduced Aggregate Commitment taking effect on such date, the
Borrower shall, prior to the close of business on such date, make a mandatory
payment to the Agent for the benefit of the Lenders in the amount of such
excess. Any such payments shall be allocated among the Lenders in accordance
with their respective Commitment Percentages and shall be applied to principal.
2.10.5. Final Payment on Termination Date. Any outstanding Advances
and all other unpaid Obligations, unless required to be paid earlier pursuant to
the terms hereof, shall be paid in full by the Borrower on the Termination Date.
2.11. Changes in Interest Rate, Etc. Each Floating Rate Advance shall
bear interest on the outstanding principal amount thereof, for each day from and
including the date such Advance is made at a rate per annum equal to the
Floating Rate for such day. Changes in the rate of interest on that portion of
any Advance maintained as a Floating Rate Advance will take effect
simultaneously with each change in the Alternate Base Rate. The interest rate on
each Swingline Advance shall be recalculated daily for each day that such
Swingline Advance is outstanding.
2.12. Rates Applicable After Default. If any Default occurs under
Section 7.6 or 7.7 or if any Advance is not paid at maturity, whether by
acceleration or otherwise, each Advance shall bear interest at a rate per annum
equal to the Floating Rate plus 2% per annum. During the continuance of any
other Default the Required Lenders may, at their option, by notice to the
Borrower (which notice may be revoked at the option of the Required Lenders
notwithstanding any provision of Section 9.1 requiring unanimous consent of the
Lenders to reductions in interest rates), declare that each Advance shall bear
interest at a rate per annum equal to the Floating Rate plus 2% per annum.
2.13. Method of Payment. All payments of the Obligations hereunder shall
be made, without setoff, deduction, or counterclaim, in immediately available
funds to the Agent at the Agent's address specified pursuant to Article XIII, or
at any other Lending Installation of the Agent specified in writing by the Agent
to the Borrower, on the date when due by (i) noon (Chicago time) with respect to
all Advances other than Swingline Advances, or (ii) 4:00 p.m. (Chicago time)
with respect to Swingline Advances and all such payments shall be applied in
accordance with Section 2.10.1. Each payment delivered to the Agent for the
account of any Lender shall be delivered promptly by the Agent to such
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Lender in the same type of funds that the Agent received at its address
specified pursuant to Article XIII. The Agent is hereby authorized to charge the
account of the Borrower maintained with First Chicago for each payment of
principal, interest and fees as it becomes due hereunder.
2.14. Notes; Telephonic Notices. Each Lender is hereby authorized to
record the principal amount of each of its Loans and each repayment on the
schedules attached to its Notes, provided, however, that neither the failure to
so record nor any error in such recordation shall affect the Borrower's
obligations under such Notes. The Borrower hereby authorizes the Lenders and the
Agent to extend, convert or continue Advances, effect selections of Types of
Advances and to transfer funds based on telephonic notices made by any person or
persons the Agent or any Lender in good faith believes to be acting on behalf of
the Borrower. The Borrower agrees to deliver promptly to the Agent a written
confirmation, if such confirmation is requested by the Agent or any Lender, of
each telephonic notice signed by an Authorized Officer. If the written
confirmation differs in any material respect from the action taken by the Agent
and the Lenders, the records of the Agent and the Lenders shall govern absent
manifest error.
2.15. Interest Payment Dates; Interest and Fee Basis. Interest accrued
on each Advance shall be payable on each Payment Date, commencing with the first
such date to occur after the date hereof and at maturity or termination of the
Aggregate Commitment. Interest and Fees shall be calculated for actual days
elapsed on the basis of a 360-day year. Interest shall be payable for the day an
Advance is made but not for the day of any payment on the amount paid if payment
is received at the place of payment prior to the time required for payment as
set forth in Section 2.13. If any payment of principal of or interest on an
Advance or of Fees shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding Business Day and, in the case of a
principal payment, such extension of time shall be included in computing
interest in connection with such payment.
2.16. Notification by the Agent. Promptly after receipt thereof, the
Agent will notify each Lender of the contents of each Aggregate Commitment
reduction notice, Borrowing Notice, and repayment notice received by it
hereunder. When any Floating Rate Advances are outstanding or have been
requested, the Agent will give each Lender making or holding any such Loans and
the Borrower prompt notice of each change in such rates.
2.17. [INTENTIONALLY OMITTED.]
2.18. Non-Receipt of Funds by the Agent. Unless the Borrower or a
Lender, as the case may be, notifies the Agent prior to the date on which it is
scheduled to make payment to the Agent of (i) in the case of a Lender, the
proceeds of a Loan or an Advance or (ii) in the case of the Borrower, a payment
of principal, interest or Fees to the Agent for the account of the Lenders, that
it does not intend to make such payment, the Agent may assume that such payment
has been made. The Agent may, but shall not be obligated to, make the amount of
such payment available to the intended recipient in reliance upon such
assumption. If such Lender or the Borrower, as the case may be, has not in fact
made such payment to the Agent, the recipient of such payment shall, on demand
by the Agent, repay to the Agent the amount so made available together with
interest thereon in respect of each day during the period commencing on the date
such amount was so made available by the Agent until the date the Agent recovers
such amount at a rate per annum equal to (i) in the case of payment due from a
Lender, the Federal Funds Effective Rate for such day or (ii) in the case of
payment due from the Borrower, the interest rate applicable to the relevant
Loan. Notwithstanding the preceding sentence, if the Agent has
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made the amount of any such payment available to the Borrower and a Lender has
not in fact paid such payment to the Agent, the amount due to the Agent from the
Borrower shall, to the extent a Swingline Advance would then be available to the
Borrower, be deemed to be a Swingline Advance made on the date the corresponding
amount was so made available to the Borrower by the Agent.
ARTICLE III
[INTENTIONALLY OMITTED]
ARTICLE IV
CONDITIONS PRECEDENT; WITHHOLDING TAX EXEMPTION
4.1. Effectiveness. This Agreement shall not be effective and no Lender
shall be required to make the initial Advance hereunder until a date (the
"Effective Date") upon which the Borrower has furnished or caused to be
furnished to the Agent (with sufficient copies for the Lenders) the following:
(i) Copies of the certificate of incorporation of the Borrower, together
with all amendments, and a certificate of good standing, both
certified by the appropriate governmental officer in its
jurisdiction of incorporation.
(ii) Copies, certified by the Secretary or Assistant Secretary of the
Borrower, of its by-laws and of its Board of Directors' resolutions
(and resolutions of other bodies, if any are deemed necessary by
counsel for any Lender) authorizing the execution of the Loan
Documents.
(iii) An incumbency certificate, executed by the Secretary or Assistant
Secretary of the Borrower, which shall identify by name and title
and bear the signature of the officers of the Borrower authorized to
sign the Loan Documents and to make borrowings hereunder, upon which
certificate the Agent and the Lenders shall be entitled to rely
until informed of any change in writing by the Borrower.
(iv) A certificate, signed by the chief financial officer of the
Borrower, stating that on the initial Borrowing Date no Default or
Unmatured Default has occurred and is continuing.
(v) A written opinion of the Borrower's counsel, addressed to the
Lenders in substantially the form of Exhibit "B" hereto.
(vi) Notes payable to the order of each of the Lenders.
(vii) A fully executed Second Amendment to Security Agreement, together
with such executed amendments to the UCC-1 financing statements
under the Prior Facility as the Agent may reasonably request.
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(viii) Written money transfer instructions, in substantially the form of
Exhibit "L" hereto, addressed to the Agent and signed by an
Authorized Officer, together with such other related money transfer
authorizations as the Agent may have reasonably requested.
(ix) Fully executed reaffirmation of the PEC Tri-Party Agreement
recognizing the changes made pursuant to this Agreement, together
with evidence satisfactory to Agent of the signatories' authority to
execute such agreement.
(x) Financial information on the Company as of November 30, 1997 as
described in Section 6.1(i) below.
(xi) Borrowing Base Certificates dated as of December 31, 1997 and as of
a date not more than 2 Business Days prior to the Effective Date
have been executed and delivered to the Agent.
(xii) Establishment and funding of the Settlement Account.
(xiii) Written confirmation from Greenwich Capital that its "Portfolio
Limit" (as defined in the MLPSA) shall be no less than (i)
$125,000,000 through March 31, 1998, and (ii) $100,000,000 from
April 1, 1998 through the Termination Date.
(xiv) Payment of all Fees and other expenses of the Agent due and payable
on or before the Effective Date.
(xv) Such other documents as any Lender or its counsel may have
reasonably requested.
To the extent any of the preceding conditions involves delivery of documents
that have not changed from those previously delivered under the Prior Facility,
Borrower may satisfy such conditions by delivery of a certificate of continued
effectiveness.
4.2. Each Advance. The Lenders shall not be required to make any Advance
(other than an Advance that, after giving effect thereto and to the application
of the proceeds thereof, does not increase the aggregate amount of outstanding
Advances), unless on the applicable Borrowing Date:
(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained in Article V are true
and correct in all material respects as of such Borrowing Date
except to the extent (A) any such representation or warranty is
stated to relate solely to an earlier date, in which case such
representation or warranty shall be true and correct on and as of
such earlier date or (B) the Borrower has advised the Agent in
writing in detail of any change in circumstances that causes a
specified modification to any such representation and warranty to be
needed to make such representation and warranty true and correct in
all material respects and the Required Lenders have, in their sole
discretion, acknowledged and accepted in writing the existence of
such change in circumstances and the nature of such modification.
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(iii) All legal matters incident to the making of such Advance shall be
satisfactory to the Lenders and their counsel.
(iv) The aggregate principal balance of all loans sold to Greenwich
Capital by the Borrower under the MLPSA (excluding all loans resold
or transferred by Greenwich Capital pursuant to a "Purchaser
Disposition" (as defined in the MLPSA) prior to the applicable
Borrowing Date) shall not be less than 2.5 times the aggregate
principal balance of the Eligible Collateral as of such date. The
Borrower shall provide to the Agent written confirmation from
Greenwich Capital of such Greenwich Capital loan balance as a
condition to each such Advance.
Each Borrowing Notice with respect to each such Advance shall constitute a
representation and warranty by the Borrower that, after giving effect to the
amount of the Advance being requested, (a) the conditions contained in Sections
4.2(i), (ii) and (iii) have been satisfied, (b) the Borrower has provided the
Collateral Agent with the true and correct information necessary to calculate
the Collateral Value for all Eligible Collateral, (c) the then current Borrowing
Base is equal to or greater than the Coverage Requirement and (d) no Lending
Sublimit has been exceeded. Any Lender may require a duly completed compliance
certificate in substantially the form of Exhibit "F" hereto as a condition to
making an Advance.
4.3. Withholding Tax Exemption. At least five Business Days prior to the
first date on which interest or fees are payable hereunder for the account of
any Lender, each Lender that is not incorporated under the laws of the United
States of America, or a state thereof, agrees that it will deliver to each of
the Borrower and the Agent two duly completed copies of United States Internal
Revenue Service Form 1001 or 4224, certifying in either case that such Lender is
entitled to receive payments under this Agreement and the Notes without
deduction or withholding of any United States federal income taxes. Each Lender
which so delivers a Form 1001 or 4224 further undertakes to deliver to each of
the Borrower and the Agent two additional copies of such form (or a successor
form) on or before the date that such form expires (currently, three successive
calendar years for Form 1001 and one calendar year for Form 4224) or becomes
obsolete or after the occurrence of any event requiring a change in the most
recent forms so delivered by it, and such amendments thereto or extensions or
renewals thereof as may be reasonably requested by the Borrower or the Agent, in
each case certifying that such Lender is entitled to receive payments under this
Agreement and the Notes without deduction or withholding of any United States
federal income taxes, unless an event (including without limitation any change
in treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender advises the Borrower and the Agent that
it is not capable of receiving payments without any deduction or withholding of
United States federal income tax.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders that:
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5.1. Corporate Existence and Standing. Each of the Borrower and its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite authority to conduct its business in each jurisdiction in which its
business is conducted, to the extent failure to maintain such authority would
have a material adverse effect on the business of the Borrower and its
Subsidiaries taken as a whole.
5.2. Authorization and Validity. The Borrower has the corporate power and
authority and legal right to execute and deliver the Loan Documents and to
perform its obligations thereunder. The execution and delivery by the Borrower
of the Loan Documents and the performance of its obligations thereunder have
been duly authorized by proper corporate proceedings, and the Loan Documents
constitute legal, valid and binding obligations of the Borrower enforceable
against the Borrower in accordance with their terms, except as enforceability
may be limited by bankruptcy, insolvency or similar laws affecting the
enforcement of creditors' rights generally.
5.3. No Conflict; Government Consent. Neither the execution and delivery
by the Borrower of the Loan Documents, nor the consummation of the transactions
therein contemplated, nor compliance with the provisions thereof will violate
any law, rule, regulation, order, writ, judgment, injunction, decree or award
binding on the Borrower or any of its Subsidiaries or the Borrower's or any
Subsidiary's articles of incorporation or by-laws or the provisions of any
indenture, instrument or agreement to which the Borrower or any of its
Subsidiaries is a party or is subject, or by which it, or its Property, is
bound, or conflict with or constitute a default thereunder, or, except as
created by the Loan Documents, result in the creation or imposition of any Lien
in, of or on the Property of the Borrower or a Subsidiary pursuant to the terms
of any such indenture, instrument or agreement. No order, consent, approval,
license, authorization, or validation of, or filing, recording or registration
with, or exemption by, or other action in respect of any governmental or public
body or authority, or any subdivision thereof, is required to authorize, or is
required in connection with the execution, delivery and performance of, or the
legality, validity, binding effect or enforceability of, any of the Loan
Documents (other than filings to perfect the Liens granted pursuant to the
Security Agreement).
5.4. Financial Statements. The November 30, 1997 financial statements of
the Borrower heretofore delivered to the Lenders were prepared in accordance
with GAAP in effect on the date such statements were prepared and fairly present
the consolidated financial condition and operations of the Borrower at such date
and the results of its operations for the period then ended (subject to normal
year-end adjustments).
5.5. Material Adverse Change. Since November 30, 1997, there has been no
change in the business, Property, prospects, condition (financial or otherwise)
or results of operations of the Borrower and its Subsidiaries which could
reasonably be expected to have a Material Adverse Effect.
5.6. Taxes. Mego Financial, on a consolidated basis with the Borrower
through August 31, 1997, filed all United States federal tax returns and all
other tax returns which are required to be filed and has paid all taxes due
pursuant to said returns or pursuant to any assessment received by the Borrower,
except such taxes, if any, as are being contested in good faith by appropriate
proceedings and as to which adequate reserves have been provided in accordance
with Agreement Accounting Principles and as to which no Lien exists. The
Borrower will file such returns and pay such taxes independently from and after
September 1, 1997. The consolidated United States income tax returns of Mego
Financial and the Borrower have not been audited by the Internal Revenue Service
for any year after the fiscal year
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ended August 31, 1988. No tax liens have been filed and no claims are being
asserted with respect to any such taxes. The charges, accruals and reserves on
the books of the Borrower in respect of any taxes or other governmental charges
are adequate.
5.7. Litigation and Contingent Obligations. There is no litigation,
arbitration, governmental investigation, proceeding or inquiry pending or, to
the knowledge of any of their officers, threatened against or affecting the
Borrower or any of its Subsidiaries which could reasonably be expected to have a
Material Adverse Effect or which seeks to prevent, enjoin or delay the making of
the Loans or Advances. Other than any liability incident to such litigation,
arbitration or proceedings, the Borrower has no material contingent obligations
not provided for or disclosed in the financial statements referred to in Section
5.4.
5.8. Subsidiaries. Schedule "3" hereto contains an accurate list of all
Subsidiaries of the Borrower as of the date of this Agreement, setting forth
their respective jurisdictions of incorporation and the percentage of their
respective capital stock owned by the Borrower or other Subsidiaries and whether
such Subsidiary is an Included Subsidiary or an Excluded Subsidiary. All of the
issued and outstanding shares of capital stock of such Subsidiaries have been
duly authorized and issued and are fully paid and non-assessable.
5.9. ERISA. The Unfunded Liabilities of all Single Employer Plans do not
in the aggregate exceed $500,000. Neither the Borrower nor any other member of
the Controlled Group has incurred, or is reasonably expected to incur, any
withdrawal liability to Multiemployer Plans in excess of $500,000 in the
aggregate. Each Plan complies in all material respects with all applicable
requirements of law and regulations, no Reportable Event has occurred with
respect to any Plan, neither the Borrower nor any other members of the
Controlled Group has withdrawn from any Plan or initiated steps to do so, and no
steps have been taken to reorganize or terminate any Plan.
5.10. Accuracy of Information. No information, exhibit or report furnished
by the Borrower or any of its Subsidiaries to the Agent or to any Lender in
connection with the negotiation of, or compliance with, the Loan Documents
contained any material misstatement of fact or omitted to state a material fact
or any fact necessary to make the statements contained therein not misleading.
5.11. Regulation U. Margin stock (as defined in Regulation U) constitutes
less than 25% of those assets of the Borrower and its Subsidiaries which are
subject to any limitation on sale, pledge, or other restriction hereunder.
5.12. Material Agreements. Neither the Borrower nor any Subsidiary is a
party to any agreement or instrument or subject to any charter or other
corporate restriction which could reasonably be expected to have a Material
Adverse Effect. Except as disclosed on Schedule "7" hereto or in the Borrower's
financial statements, neither the Borrower nor any Subsidiary is in default in
the performance, observance or fulfillment of any of the obligations, covenants
or conditions contained in (i) any agreement to which it is a party, which
default could reasonably be expected to have a Material Adverse Effect or (ii)
any agreement or instrument evidencing or governing Indebtedness.
5.13. Compliance With Laws. The Borrower and its Subsidiaries have
complied with all applicable statutes, rules, regulations, orders and
restrictions of any domestic or foreign government or any instrumentality or
agency thereof, having jurisdiction over the conduct of their respective
businesses
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or the ownership of their respective Property if failure to comply could
reasonably be expected to have a Material Adverse Effect.
5.14. Ownership of Properties. Except as set forth on Schedule "4" hereto,
on the date of this Agreement, the Borrower and its Subsidiaries will have good
title, free of all Liens other than those permitted by Section 6.15, to all of
the Property and assets reflected in the financial statements as owned by it.
5.15. Plan Assets; Prohibited Transactions. The Borrower is not an entity
deemed to hold "plan assets" within the meaning of 29 C.F.R. Section 2510.3-101
of an employee benefit plan (as defined in Section 3(3) of ERISA) which is
subject to Title I of ERISA or any plan (within the meaning of Section 4975 of
the Code); and neither the execution of this Agreement and the making of Loans
hereunder do not give rise to a prohibited transaction within the meaning of
Section 406 of ERISA or Section 4975 of the Code.
5.16. Investment Company Act. Neither the Borrower nor any Subsidiary
thereof is an "investment company" or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
5.17. Public Utility Holding Company Act. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company", or an "affiliate" of a "holding company" or of a "subsidiary company"
of a "holding company", within the meaning of the Public Utility Holding Company
Act of 1935, as amended.
5.18. FHA and FNMA Eligibility. The Borrower is (i) an FHA Title I
Approved Mortgagee in good standing, meets all eligible requirements of law and
governmental regulation so as to be eligible to originate, purchase, hold and
service Title I Qualifying Loans insured by FHA under the Title I Regulations
and is an approved seller and servicer in good standing of Title I Qualifying
Loans insured by FHA under the Title I Regulations and (ii) a FNMA
seller/servicer in good standing.
5.19. Subordinated Indebtedness. The Obligations constitute senior
indebtedness which is entitled to the benefits of the subordination provisions
of the Subordinated Notes and all other outstanding Subordinated Indebtedness.
5.20. Eligibility. Each Pledged Qualifying Loan having a Collateral Value
included in determining the Borrowing Base constitutes Eligible Collateral
hereunder and, when aggregated with other Pledged Qualifying Loans of a similar
type or status, does not cause any violation of a Borrowing Base Sublimit.
5.21. Recourse Servicing. The Borrower does not have any Recourse
Servicing.
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ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required Lenders shall
otherwise consent in writing:
6.1. Financial Reporting. The Borrower will maintain, for itself and each
Subsidiary, a system of accounting established and administered in accordance
with generally accepted accounting principles, and furnish to the Lenders:
(i) Within 120 days after the close of each of its fiscal years, an
unqualified audit report certified by independent certified public
accountants, acceptable to the Lenders, prepared in accordance with
Agreement Accounting Principles on a consolidated and consolidating
basis (consolidating statements need not be certified by such
accountants), to the extent applicable, for itself and the
Subsidiaries, including statements of financial condition as of the
end of such period, related profit and loss and changes in
shareholders' equity statements, and a statement of cash flows,
accompanied by (a) any management letter prepared by said
accountants and (b) a certificate of said accountants that, in the
course of their examination necessary for their certification of the
foregoing, they have obtained no knowledge of any Default or
Unmatured Default, or if, in the opinion of such accountants, any
Default or Unmatured Default shall exist, stating the nature and
status thereof.
(ii) Within 60 days after the close of the first three quarterly periods
of each of its fiscal years, for itself and the Subsidiaries,
consolidated and consolidating, to the extent applicable, unaudited
statements of financial condition as at the close of each such
period and consolidated and consolidating profit and loss statements
(showing a breakout of servicing sales gains attributed to servicing
originated in prior periods), a changes in shareholders' equity
statement and a statement of cash flows for the period from the
beginning of such fiscal year to the end of such quarter, all
certified (subject to normal year-end adjustments) by its chief
financial officer or chief accounting officer.
(iii) Together with the financial statements required under Sections
6.1(i) and (ii), a compliance certificate in substantially the form
of Exhibit "F" hereto signed by its chief financial officer or chief
accounting officer showing the calculations necessary to determine
compliance with this Agreement and that no Default or Unmatured
Defaults exists, or if any Default or Unmatured Default exists,
stating the nature and status thereof.
(iv) Not later than 15 days after the issuance of the Borrower's audit
report as of December 31, 1997 for January and February of 1998 and
within 30 days after the end of each month thereafter, a balance
sheet and income statement showing the results of the Company's
operations for such month, certified by the Company's chief
financial officer or chief accounting officer.
(v) As soon as available but in any event within 45 days after the end
of each calendar month an executive summary regarding the Borrower's
production and servicing. Such
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summary shall show separately information concerning any Qualifying
Loans or Securities with respect to which there is recourse to the
Borrower.
(vi) Not later than 45 days after the end of each month, a certificate
from an Authorized Officer, with respect to the last day of such
month, as to the most recent delinquency, default data and loss
statistics on each pool of Qualifying Loans serviced by the Borrower
under its Servicing Agreements or under any whole loan sale
agreements or similar agreements in which the Borrower retains an
economic interest in, or recourse with respect to, such pool of
Qualifying Loans, together with a summary of the applicable
delinquency, default and loss levels, if any, under each of such
Servicing Agreements or other agreements at which the Borrower's
right to receive servicing income thereunder can be reduced or
interrupted or at which the Borrower could be required to provide
additional security for the benefit of any senior interests in such
pool, such data and statistics to be presented in the form attached
hereto as Schedule "9".
(vii) If the Borrower has any Rate Hedging Agreements then in effect, as
soon as available but in any event within 15 days after the end of
each month, a secondary marketing report for such month reasonably
satisfactory to the Agent.
(viii) As soon as available, but in any event within 150 days after the
beginning of each fiscal year of the Borrower, a copy of the plan
and forecast (including a projected consolidated and consolidating
balance sheet, income statement and cash flow statement) of the
Borrower for such fiscal year.
(ix) As soon as available and in any event within 10 days after the end
of each calendar month (and within one Business Day after any
request therefor by the Agent, which requests shall be made only
when the Agent reasonably determine such a delivery is necessary), a
Borrowing Base Certificate which shall include the Borrower's
reconciliation of any discrepancies from the Collateral Agent's
reports on the status of Eligible Collateral at the end of such
month (or the end of the prior Business Day, if requested by the
Agent as set forth above), including a listing of those specific
Eligible Qualifying Loans which became Ineligible Collateral during
such month (or partial month, if requested by the Agent as set forth
above) due to the existence of a past due payment exceeding the time
limit set forth in clause (ii) of the definition of Eligible
Qualifying Loan. As soon as available and in any event within 10
days after the end of each calendar month, for all calendar months
through December 1998, revised cash flow projections.
(x) Within 10 days after the issuance of Borrower's response thereto
(but in no event later than 20 days after the Borrower's receipt of
such reports) copies of all compliance and audit reports received
from FHA (including each statement of the Borrower's insurance
coverage reserve account with the FHA and all notices regarding loan
transfer or other adjustments thereto), Greenwich Capital or any
other Approved Investor and the Borrower's response thereto; and
promptly upon receipt, a copy of any notice from (i) FHA to the
effect that it is or is contemplating withdrawing its approval of
the Borrower as a FHA Title I Approved Mortgagee, or as an approved
seller and servicer for Title I Qualifying Loans or (ii) Greenwich
Capital or any other Approved Investor
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to the effect that it is contemplating terminating any existing
Approved Investor Commitment or ceasing to issue any further such
Approved Investor Commitments to the Borrower.
(xi) Within 270 days after the close of each fiscal year, a statement of
the Unfunded Liabilities of each Single Employer Plan, certified as
correct by an actuary enrolled under ERISA.
(xii) As soon as possible and in any event within 10 days after the
Borrower knows that any Reportable Event has occurred with respect
to any Plan, a statement, signed by the chief financial officer of
the Borrower, describing said Reportable Event and the action which
the Borrower proposes to take with respect thereto.
(xiii) As soon as possible and in any event within 10 days after receipt
by the Borrower, a copy of (a) any notice or claim to the effect
that the Borrower or any of its Subsidiaries is or may be liable to
any Person as a result of the release by the Borrower, any of its
Subsidiaries, or any other Person of any toxic or hazardous waste or
substance into the environment, and (b) any notice alleging any
violation of any federal, state or local environmental, health or
safety law or regulation by the Borrower or any of its Subsidiaries,
which, in either case, could reasonably be expected to have a
Material Adverse Effect.
(xiv) Promptly upon the furnishing thereof to the shareholders of the
Borrower, copies of all financial statements, reports and proxy
statements so furnished.
(xv) Promptly upon the filing thereof, copies of all registration
statements and annual, quarterly, monthly or other regular reports
which the Borrower or any of its Subsidiaries files with the
Securities and Exchange Commission.
(xvi) Within 10 days after the Borrower's receipt thereof, copies of all
reports, analysis and comments received by the Borrower from the
rating agencies or any investment banks or other analysts with
respect to the Borrower's prior, existing or proposed debt or equity
offerings and placements and securitizations of Qualifying Loans.
(xvii) Within 10 days after the Borrower's delivery thereof to any
prospective investors, copies of any offering memorandum, prospectus
or private placement memorandum regarding the securitization of the
Borrower's Qualifying Loans and promptly after execution thereof,
any and all engagement letters or modifications or supplements
thereto between the Company and Friedman, Billings, Ramsey & Co.
(xviii) Within 10 days after the close of each quarter of its fiscal year,
a certificate of an Authorized Officer setting forth all
calculations necessary to ascertain compliance by the Company with
the terms of the Indenture governing the Subordinated Notes.
(xix) Within 10 days after the Borrower's receipt thereof, copies of any
servicing certificates, reports or other material regarding the
status of Qualifying Loans or the Borrower's
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servicing thereof issued by any trustee under the Borrower's
securitizations of Qualifying Loans.
(xx) On the first Business Day of each week a cash position report and a
one page portfolio average summary of warehouse collateral certified
by an Authorized Officer.
(xxi) Such other information (including non-financial information) as the
Agent or any Lender may from time to time reasonably request.
6.2. Use of Proceeds. The Borrower will, and will cause each Subsidiary
to, only use the proceeds of the Advances for the financing purposes described
in the recitals hereto or to reimburse the Borrower for its funds previously
advanced for such financing purposes. The Borrower will not, nor will it permit
any Subsidiary to, use any of the proceeds of the Advances to purchase or carry
any "margin stock" (as defined in Regulation U) or to make any Acquisition for
which the board of directors of the Person being acquired has not consented to
such Acquisition.
6.3. Notice of Default. The Borrower will, and will cause each Subsidiary
to, give prompt notice in writing to the Lenders of the occurrence of any
Default or Unmatured Default and of any other development, financial or
otherwise, which could reasonably be expected to have a Material Adverse Effect.
6.4. Conduct of Business. The Borrower will, and will cause each
Subsidiary to, carry on and conduct its business in substantially the same
manner and in substantially the same fields of enterprise as is conducted
generally from time to time by companies in the consumer finance business in the
United States and to do all things necessary to remain duly incorporated,
validly existing and in good standing as a domestic corporation in its
jurisdiction of incorporation and maintain all requisite authority to conduct
its business in each jurisdiction in which its business is conducted to the
extent failure to maintain such authority would have a material adverse effect
on the business of the Borrower and its Subsidiaries taken as a whole. The
Borrower will use its best efforts to adhere in all material respects to
customary practices and standards in the industry insofar as adherence to such
practices and standards would require the Borrower to cause obligors to comply
with their obligations under such Pledged Qualifying Loans with respect to any
real estate securing such indebtedness.
6.5. Taxes. Borrower will timely file or cause to be filed, complete and
correct United States federal (on a consolidated basis with Mego Financial's
filing) and applicable foreign, state and local tax returns required by law and
pay when due all taxes, assessments and governmental charges and levies upon it
or its income, profits or Property, except those which are being contested in
good faith by appropriate proceedings and with respect to which adequate
reserves have been set aside in accordance with Agreement Accounting Principles.
6.6. Insurance. The Borrower will, and will cause each Subsidiary to,
maintain with financially sound and reputable insurance companies insurance on
all their Property in such amounts and covering such risks as is consistent with
sound business practice, and the Borrower will furnish to any Lender upon
request full information as to the insurance carried. The Borrower will at all
times, upon request of the Agent, furnish to the Agent copies of its, and each
of its Subsidiaries', current fidelity bond and of its, and each of its
Subsidiaries', insurance policy containing mortgage bankers errors and
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omissions coverage, and such bonds and policies, to the extent possible, shall
each provide that it is not cancelable without thirty (30) days prior written
notice to the Agent.
6.7. Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all laws, rules, regulations, orders, writs,
judgments, injunctions, decrees or awards to which it may be subject to the
extent failure to so comply would have a material adverse effect on the business
of the Borrower and its Subsidiaries taken as a whole.
6.8. Maintenance of Properties. The Borrower will, and will cause each
Subsidiary to, do all things necessary to maintain, preserve, protect and keep
its Property in good repair, working order and condition, and make all necessary
and proper repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times.
6.9. Inspection. The Borrower will, and will cause each Subsidiary to,
permit the Agent, the Collateral Agent and the Lenders, by their respective
representatives and agents, to inspect any of the Property, corporate books and
financial records of the Borrower and each Subsidiary, to examine and make
copies of the books of accounts and other financial records of the Borrower and
each Subsidiary, and to discuss the affairs, finances and accounts of the
Borrower and each Subsidiary with, and to be advised as to the same by, their
respective officers at such reasonable times and intervals as the Agent, the
Collateral Agent or any Lender may designate. Without limiting the generality of
the foregoing, a third party auditor approved by the Required Lenders shall have
the right to audit the internal controls of Borrower and Preferred Equities
Corporation or any successor subservicer, review the method of calculating the
Borrowing Base, and perform such other reviews as may be required to insure that
the Borrower maintains books and records in accordance with the requirements of
this Agreement and sound business practices. Such audits may be done twice per
year at the Borrower's cost, with Lenders to pay for any additional audits done
during the calendar year.
6.10. Dividends. The Borrower will not, nor will it permit any Included
Subsidiary to, declare or pay any dividends or make any distributions on its
capital stock (other than dividends payable in its own capital stock) or redeem,
repurchase or otherwise acquire or retire any of its capital stock at any time
outstanding, except that, provided no Default then exists hereunder, any
Included Subsidiary may declare and pay dividends or make distributions to the
Borrower or to a Wholly-Owned Subsidiary which is also an Included Subsidiary,
or (so long as such dividends or distributions are paid or made on a pro-rata
basis to Borrower, directly or indirectly, as well) to others holding an
interest in any such Subsidiary which is not a Wholly-Owned Subsidiary which is
also an Included Subsidiary.
6.11. Indebtedness. The Borrower will not, nor will it permit any Included
Subsidiary to, create, incur or suffer to exist any Indebtedness which would (a)
constitute Indebtedness of any type (including Contingent Obligations) other
than:
(i) the Subordinated Notes (not to exceed $80,400,000 in the aggregate);
(ii) Tax Agreement Indebtedness or Subordinated Indebtedness due and
owing from time to time to Mego Financial;
(iii) Indebtedness secured solely by "excess servicing rights" or
"mortgage-related securities" (as such categories of assets are
established and valued under Agreement Accounting
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Principles and disclosed on the Borrower's consolidated financial
statements) or by the stock of any Included Subsidiary holding such
"excess servicing rights" or "mortgage-related securities" or
proceeds thereof as its sole assets;
(iv) the Obligations under this Agreement;
(v) Indebtedness created by the Borrower's obligation to repurchase
Qualifying Loans or IO Securities sold to Greenwich Capital or other
third parties subject to repurchase agreements, but only to the
extent the Agent has given prior written approval to the identity of
such other third parties and the terms of such repurchase
agreements;
(vi) Rate Hedging Agreements, to the extent the counter-parties to any
such Agreements involving projected annual payments by the Borrower
in excess of $1,000,000, before netting, have been approved by the
Agent;
(vii) Capitalized Lease Obligations and Indebtedness created solely for
the purpose of financing all or a portion of the purchase price for
Borrower's operating assets, provided the total Indebtedness
permitted under this Section 6.11(a)(vii) outstanding at any time
shall not exceed $5,000,000;
(viii) Operating Lease Obligations related to the Borrower's existing and
former principal office and the Borrower's existing and future
branch offices up to an aggregate annual rental obligation of
$3,000,000; and
(ix) Permitted Warehouse Indebtedness; or
(b) cause total Funded Debt of the Borrower and its Included Subsidiaries on a
consolidated basis, as determined in accordance with Agreement Accounting
Principles to exceed the sum of the following percentages of the values of the
following categories of assets of the Borrower and its Included Subsidiaries, as
such categories and values are established by Agreement Accounting Principles
and disclosed on the Borrower's financial statements:
(i) 100% of "cash";
(ii) 95% of (A) "loans held for sale, net" (provided that any Qualifying
Loan owned by the Borrower for more than 180 days after the date of
its origination, if originated by the Borrower, or after the date of
its acquisition, if acquired by the Borrower, shall be excluded from
such category) less (B) "allowance for loss -- loans sold"; and
(iii) 80% of Restricted Assets.
6.12. Merger. The Borrower will not, nor will it permit any Included
Subsidiary to, merge or consolidate with or into any other Person, except that
an Included Subsidiary may merge into the Borrower or a Wholly-Owned Subsidiary
which is also an Included Subsidiary.
6.13. Sale of Assets. The Borrower will not, nor will it permit any
Included Subsidiary to, lease, sell or otherwise dispose of its Property, to any
other Person, except:
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(i) Sales of Qualifying Loans in the ordinary course of business.
(ii) Sales of Securities.
(iii) Leases, sales or other dispositions of its Property that, together
with all other Property of the Borrower and its Included
Subsidiaries previously leased, sold or disposed of (other than
Qualifying Loans in the ordinary course of business and Securities)
as permitted by this Section during the twelve-month period ending
with the month in which any such lease, sale or other disposition
occurs, do not constitute a Substantial Portion of the Property of
the Borrower and its Included Subsidiaries.
6.14. Investments and Acquisitions. The Borrower will not, nor will it
permit any Included Subsidiary to, make or suffer to exist any Investments
(including without limitation, loans and advances to, and other Investments in,
Subsidiaries), or commitments therefor, or to create any Subsidiary or to become
or remain a partner in any partnership or joint venture, or to make any
Acquisition of any Person, except:
(i) Short-term obligations of, or fully guaranteed by, the United States
of America.
(ii) Commercial paper rated A-l or better by Standard and Poor's Ratings
Group, a division of McGraw Hill, or P-l or better by Moody's
Investors Service, Inc.
(iii) Demand deposit accounts maintained in the ordinary course of
business.
(iv) Certificates of deposit issued by and time deposits with commercial
banks (whether domestic or foreign) having capital and surplus in
excess of $100,000,000.
(v) Investments in existence on the date hereof and described in
Schedule "3" hereto.
(vi) Investments in the ordinary course of the Borrower's mortgage
banking business to purchase: (a) Qualifying Loans (and in
connection with commitments to purchase the same); and (b) real
estate acquired by foreclosure.
(vii) Investments in the ordinary course of the Borrower's mortgage
banking business to enter into Rate Hedging Agreements to the extent
permitted pursuant to Section 6.11.
(viii) Investments in Subsidiaries, whether created or acquired, which (i)
have executed and delivered either a joinder in this Agreement and
thereby assumed joint and several liability for the Borrower's
obligations hereunder or a guaranty of the Borrower's obligations
hereunder in each case in form and substance satisfactory to the
Agent and provided that the Obligations as so undertaken by such
Subsidiary constitute "Senior Indebtedness" under the Indenture or
any other indenture governing any Subordinated Notes issued
hereafter or (ii) are Excluded Subsidiaries.
(ix) Investments in Subsidiaries which are single purpose, bankruptcy
remote entities created to facilitate securitization of the
Borrower's Qualifying Loans and are wholly owned by the Borrower,
directly or indirectly, and do not have any Indebtedness.
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6.15. Liens. The Borrower will not, nor will it permit any Included
Subsidiary to, create, incur, or suffer to exist any Lien in, of or on the
Property of the Borrower or any of its Included Subsidiaries, except:
(i) Liens for taxes, assessments or governmental charges or levies on
its Property if the same shall not at the time be delinquent or
thereafter can be paid without penalty, or are being contested in
good faith and by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on its
books.
(ii) Liens imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary
course of business which secure payment of obligations not more than
60 days past due.
(iii) Liens arising out of pledges or deposits under worker's compensation
laws, unemployment insurance, old age pensions, or other social
security or retirement benefits, or similar legislation.
(iv) Utility easements, building restrictions and such other encumbrances
or charges against real property as are of a nature generally
existing with respect to properties of a similar character and which
do not in any material way affect the marketability of the same or
interfere with the use thereof in the business of the Borrower or
the Subsidiaries.
(v) Liens existing on the date hereof and described in Schedule "4"
hereto.
(vi) Liens in favor of the Agent and the Collateral Agent, for the
benefit of the Lenders, granted pursuant to this Agreement or the
Security Agreement.
(vii) Liens with respect to IO Securities, Residual Certificates or excess
servicing rights arising from the documents creating and governing
such securities, certificates and rights as a result of the
subordinate nature of such assets to other senior interests created
and governed by such documents.
(viii) Liens securing Indebtedness permitted under Section 6.11(a)(iii),
(vii) or (ix).
(ix) Liens on (i) Property of Subsidiaries acquired by the Company in
existence at the time of such acquisition or (ii) Property of
Excluded Subsidiaries.
6.16. Affiliates. The Borrower will not, and will not permit any Included
Subsidiary to, enter into any transaction (including, without limitation, the
purchase or sale of any Property or service) with, or make any payment or
transfer to, any Affiliate (other than the Borrower) except pursuant to the
existing agreements listed on Schedule "8" attached hereto and as may be entered
into hereafter in the ordinary course of business and pursuant to the reasonable
requirements of the Borrower's or such Included Subsidiary's business and upon
fair and reasonable terms no less favorable to the Borrower or such Included
Subsidiary than the Borrower or such Included Subsidiary would obtain in a
comparable arms-length transaction.
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6.17. Financial Covenants.
6.17.1. Adjusted Leverage Ratio. The Borrower will not permit, at
any time, the ratio of (A) total liabilities of the Borrower and its Included
Subsidiaries on a consolidated basis, as determined in accordance with Agreement
Accounting Principles, less Subordinated Indebtedness (such deduction from total
liabilities not to exceed $80,400,000) to (B) Adjusted Tangible Net Worth to
exceed 1.75 to 1.0.
6.17.2. Adjusted Tangible Net Worth. The Borrower will not at any
time permit its Adjusted Tangible Net Worth to be less than the sum of (A)
$110,000,000 plus (B) seventy-five percent (75%) of the sum of (i) the sum of
the Borrower's positive net income (excluding losses and determined in
accordance with Agreement Accounting Principles) for each fiscal quarter ending
after December 31, 1997 plus (C) 100% of the net proceeds obtained by the
Borrower or its Included Subsidiaries through the issuance or sale of stock or
additional Subordinated Notes (after deduction of all costs of such issuance or
acquisition and any portion of such proceeds used to repay previously issued
Subordinated Notes).
6.17.3. Tangible Net Worth. The Borrower will not at any time
permit its Tangible Net Worth to be less than the sum of (A) $30,000,000 plus
(B) seventy-five percent (75%) of the sum of the Borrower's positive net income
(excluding losses and determined in accordance with Agreement Accounting
Principles) for each fiscal quarter ending after December 31, 1997 plus (C) 100%
of the net proceeds obtained by the Borrower or its Included Subsidiaries
through the issuance or sale of stock or additional Subordinated Notes (after
deduction of all costs of such issuance or acquisition and any portion of such
proceeds used to repay previously issued Subordinated Notes).
6.18. Compliance with Security Agreement. The Borrower will not fail to
perform in any material respect any of its obligations under the Security
Agreement or enter into similar security agreements for Qualifying Loans not
included in Collateral with any Person other than the Collateral Agent.
6.19. Recourse Servicing. The Borrower will not at any time acquire or
create any Recourse Servicing beyond the Recourse Servicing held by the Company
on the Effective Date.
6.20. FHA and FNMA Approvals. The Borrower (i) will maintain its status as
a FHA Title I Approved Mortgagee and remain approved by FHA as a seller/servicer
of Title I Qualifying Loans, (ii) will maintain its status as an approved
seller/servicer for FNMA for Title I Qualifying Loans unless terminated solely
as a result of the Borrower's failure to sell the required number of loans to
maintain such status, and (iii) will not permit the FHA or FNMA to withdraw such
approval of the Borrower.
6.21. Approved Investor Commitments. The Borrower will, at all times
through the Termination Date, keep the Approved Investor Commitment with
Greenwich Capital and the Greenwich Tri-Party Agreement in full force and effect
without any reduction, modification or amendment unless (1) written notice of
any proposed reduction, modification or amendment is given to the Agent prior to
the effective date thereof and (2) if such reduction, modification or amendment
is adverse to the Lenders except for limitations expressly provided therein,
unless specifically approved in writing in advance by the Required Lenders. The
Borrower shall maintain all other Approved Investor Commitments to the extent
needed to cover the Pledged Qualifying Loans and perform all of its obligations
in connection with
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such Approved Investor Commitments. The Borrower will not execute any Pricing
Letter (as defined in the Greenwich Tri-Party Agreement) which would result in
the sale price of any Conventional HI/DC Qualifying Loan or any Title I
Qualifying Loan being less than the Borrowing Base value attributable to such
loan hereunder.
6.20. Settlement Account. The Borrower agrees to maintain the Settlement
Account with the Agent with a minimum balance of $100,000 at all times prior to
the Termination Date. The Borrower hereby grants to the Agent for the benefit of
the Lenders a security interest in such Settlement Account and all deposits
therein and interest earned thereon. The Agent shall, in addition to any other
rights available to it, have the right, without notice to the Borrower, to set
off all or any portion of the Settlement Account against the Obligations at any
time after a Default has occurred and is continuing.
6.21. Subordinated Indebtedness. The Borrower will not, and will not
permit any Subsidiary to, make any amendment or modification to any indenture,
note or other agreement evidencing or governing any Subordinated Indebtedness,
or directly or indirectly voluntarily prepay, defease or in substance defease,
purchase, redeem, retire or otherwise acquire, any Subordinated Indebtedness,
other than with proceeds of other Subordinated Indebtedness or proceeds of any
issuance of stock in the Borrower or its Included Subsidiaries.
6.22. Excluded Subsidiaries. The Borrower has, as of the date hereof,
created certain Subsidiaries listed on Schedule "3" and each labeled as an
"Excluded Subsidiary" which will not be included in the definition of "Included
Subsidiary" and thus will not be subject to certain of the conditions and
restrictions imposed by this Agreement provided that (i) each such Excluded
Subsidiary shall not be included in the calculation of the Borrower's Adjusted
Tangible Net Worth for purposes of calculating the Borrower's compliance with
this Agreement and shall not be included in certain other calculations as
indicated herein, (ii) the Borrower's aggregate Investment in Excluded
Subsidiaries (including without limitation loans and advances to Excluded
Subsidiaries) shall not exceed at any time twenty-four percent (24%) of the
Borrower's then-current Adjusted Tangible Net Worth and (iii) no further
"Excluded Subsidiaries" may be created after the date hereof. No Subsidiary
shall constitute an Excluded Subsidiary until the Borrower has given written
notice of such designation to the Agent and certified that such Subsidiary meets
the requirements of this Section 6.22.
ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following events shall constitute
a Default:
7.1. Any representation or warranty made or deemed made by or on behalf
of the Borrower or any of its Subsidiaries to the Lenders or the Agent under or
in connection with this Agreement, any Loan, or any certificate or information
delivered in connection with this Agreement or any other Loan Document shall be
materially false on the date as of which made (it being understood that if any
of the representations and warranties made in connection with the definition of
"Borrowing Base" are not true and correct as of any date with respect to any
Pledged Item, such Pledged Item shall be removed from Eligible Collateral as the
sole remedy for such failure).
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7.2. Nonpayment of principal of any Note when due (including but not
limited to payments required pursuant to Section 2.10.2, or nonpayment of
interest upon any Note or of any Fee or other obligations under any of the Loan
Documents within five days after the same becomes due.
7.3. The breach by the Borrower of any of the terms or provisions of
Sections 6.2, 6.10, 6.11, 6.12, 6.13, 6.14, 6.15, 6.17, 6.19, 6.20, 6.21 or
6.22.
7.4. The breach by the Borrower (other than a breach which constitutes a
Default under any other Section of this Article VII) of any of the terms or
provisions of this Agreement which is not remedied within 30 days after the
earlier to occur of (i) receipt of written notice from the Agent or any Lender
of such breach or (ii) the date that the Borrower obtains knowledge of such
breach.
7.5. Failure of the Borrower or any of its Subsidiaries to pay when due
either (i) the Capitalized Leases with NBD Bank, Agent's Affiliate, or (ii) any
other Indebtedness aggregating in excess of $5,000,000 (collectively, items (i)
and (ii) being referred to as "Material Indebtedness"); or the default by the
Borrower or any of its Subsidiaries in the performance of any term, provision or
condition contained in any agreement under which any such Material Indebtedness
was created or is governed, or any other event shall occur or condition exist,
the effect of which is to cause, or to permit the holder or holders of such
Material Indebtedness to cause, such Material Indebtedness to become due prior
to its stated maturity, provided that any such default or other event or
condition occurring prior to the date hereof which has been waived by the holder
or holders of such Material Indebtedness shall not be deemed a Default
hereunder; or any Material Indebtedness of the Borrower or any of its
Subsidiaries shall be declared to be due and payable or required to be prepaid
or repurchased (other than by a regularly scheduled payment) prior to the stated
maturity thereof; or the Borrower or any of its Subsidiaries shall not pay, or
admit in writing its inability to pay, its debts generally as they become due.
7.6. The Borrower or any of its Subsidiaries shall (i) have an order for
relief entered with respect to it under the Federal bankruptcy laws as now or
hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii)
apply for, seek, consent to, or acquiesce in, the appointment of a receiver,
custodian, trustee, examiner, liquidator or similar official for it or any
Substantial Portion of its Property, (iv) institute any proceeding seeking an
order for relief under the Federal bankruptcy laws as now or hereafter in effect
or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution,
winding up, liquidation, reorganization, arrangement, adjustment or composition
of it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or fail to file an answer or other pleading
denying the material allegations of any such proceeding filed against it, (v)
take any corporate action to authorize or effect any of the foregoing actions
set forth in this Section 7.6 or (vi) fail to contest in good faith any
appointment or proceeding described in Section 7.7.
7.7. Without the application, approval or consent of the Borrower or any
of its Subsidiaries, a receiver, trustee, examiner, liquidator or similar
official shall be appointed for the Borrower or any of its Subsidiaries or any
Substantial Portion of its Property, or a proceeding described in Section
7.6(iv) shall be instituted against the Borrower or any of its Subsidiaries and
such appointment continues undischarged or such proceeding continues undismissed
or unstayed for a period of 60 consecutive days.
7.8. Any court, government or governmental agency shall condemn, seize or
otherwise appropriate, or take custody or control of (each a "Condemnation"),
all or any portion of the Property of the Borrower and its Subsidiaries which,
when taken together with all other Property of the Borrower
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and its Subsidiaries so condemned, seized, appropriated, or taken custody or
control of, during the twelve-month period ending with the month in which any
such Condemnation occurs, constitutes a Substantial Portion.
7.9. The Borrower or any of its Subsidiaries shall fail within 30 days to
pay, bond or otherwise discharge any judgment or order for the payment of money
in excess of $500,000, which is not stayed on appeal or otherwise being
appropriately contested in good faith.
7.10. Any Change in Control shall occur.
7.11. The occurrence of any "default", as defined in any Loan Document
(other than this Agreement or the Notes) or the breach of any of the terms or
provisions of any Loan Document (other than this Agreement or the Notes), which
default or breach continues beyond any period of grace therein provided.
7.12. The Security Agreement shall for any reason fail to create a valid
and perfected first priority security interest in any collateral purported to be
covered thereby, except as permitted by the terms of the Security Agreement, or
the Security Agreement shall fail to remain in full force or effect or any
action shall be taken to discontinue or to assert the invalidity or
unenforceability of the Security Agreement, or the Borrower shall fail to comply
with any of the terms or provisions of the Security Agreement.
7.13. The Unfunded Liabilities of all Single Employer Plans shall exceed
in the aggregate $500,000 or any Reportable Event shall occur in connection with
any Plan.
7.14. The Borrower or any other member of the Controlled Group shall have
been notified by the sponsor of a Multiemployer Plan that it has incurred
withdrawal liability to such Multiemployer Plan in an amount which, when
aggregated with all other amounts required to be paid to Multiemployer Plans by
the Borrower or any other member of the Controlled Group as withdrawal liability
(determined as of the date of such notification), exceeds $500,000 or requires
payments exceeding $100,000 per annum.
7.15. The representations and warranties set forth in "Section 5.15 Plan
Assets; Prohibited Transactions" shall at any time not be true and correct.
7.16. PEC shall breach or default in the performance of its obligations
under the PEC Tri-Party Agreement or the subservicing agreement described
therein, which breach or default continues beyond any period of grace therein
provided, provided that such breach or default by PEC shall not constitute a
Default if the Borrower has not later than 7 days after the occurrence of such
breach or default (or the expiration of any grace period, if applicable)
replaced PEC with a replacement subservicer satisfactory to the Agent.
7.17. Greenwich Capital shall breach or default in the performance of its
obligations under the Greenwich Tri-Party Agreement or the Approved Investor
Commitment described therein, which breach or default continues beyond any
period of grace therein provided unless the Borrower has, prior to the
expiration of any such grace period available to Greenwich Capital with respect
to such breach or default, obtained Approved Investor Commitments, and related
Tri-Party Agreements, from other Approved
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Investors covering Eligible Collateral having an aggregate Borrowing Base value
at least equal to the then existing Coverage Requirement.
7.18. The Borrower shall fail to cause Approved Investors to purchase, and
remit to the Settlement Account payment in full for, Pledged Qualifying Loans
held by the Collateral Agent under either the Prior Facility or this Agreement
having an aggregate unpaid principal balance of at least $35,000,000 during the
period from February 5, 1998 through and including March 3, 1998.
7.19. The Borrower shall breach or default in the performance of the
Borrower's obligations under any Approved Investor Commitment issued to the
Borrower, which breach or default, if subject to cure under the terms thereof,
continues without cure or waiver beyond a date that is two (2) Business Days
prior to the expiration of the cure period available to the Borrower thereunder.
ARTICLE VIII
COLLATERAL, ACCELERATION AND OTHER REMEDIES
8.1. Security and Collateral Agency Agreement. Pursuant to the Security
Agreement, a security interest in and a continuing lien upon the Collateral has
been created in favor of the Collateral Agent for the benefit of the Lenders.
8.2. AP Qualifying Loans. The Borrower agrees that while it is in
possession of any Required Qualifying Loan Documents for an AP Qualifying Loan,
it will hold same in trust and as agent and bailee for the Collateral Agent,
without authority to make any other disposition thereof, or of the proceeds
thereof, except as may be otherwise permitted in writing by the Collateral
Agent. The Borrower assumes the responsibility for loss or destruction of any
such Required Qualifying Loan Documents until the same are delivered to the
Collateral Agent.
8.3. Release of Collateral. Upon the request of the Borrower delivered
from time to time to the Agent and the Collateral Agent but subject to Section
6.20, the Agent shall authorize the Collateral Agent to release Collateral
(including Ineligible Collateral) specified in such notice from the lien of this
Agreement, if, but only if, (i) at the time of such release no Default or
Unmatured Default shall have occurred and then be continuing, (ii) the Borrowing
Base, after giving effect to such release, is at least equal to the Coverage
Requirement or any payment under Section 2.10 which may be required as a result
of such release has been made, (iii) the release of such Collateral will not
create a violation of any Lending Sublimit or Borrowing Base Sublimit and (iv)
such release is either (A) pursuant to a successful sale of Collateral to an
Approved Investor pursuant to an Investor Transmittal Letter or (B) with respect
to delinquent Title I Qualifying Loans that are Ineligible Collateral and that
the Borrower needs to present to the FHA to pursue its insurance claims thereon.
8.4. Settlement Account. There is hereby established with the Agent, for
the benefit of the Lenders, a "cash collateral" account of the Borrower, Account
#19-29623 ("Settlement Account") into which shall be deposited all cash proceeds
from the sale of any Pledged Qualifying Loan. Only the Agent shall have access
to the Settlement Account. All amounts in the Settlement Account shall be
applied as described in Section 2.10.3.
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8.5. Termination. If all Commitments under this Agreement shall have
expired or been terminated pursuant to the express terms hereof and no
Obligations shall be outstanding, the Agent shall promptly deliver or cause to
be delivered all cash standing to the credit of the Settlement Account and shall
cause the Collateral Agent to return to the Borrower all Required Qualifying
Loan Documents and any other items relating to the Pledged Qualifying Loans
delivered to the Collateral Agent and not previously returned to the Borrower or
delivered at the Borrower's direction hereunder. The receipt by the Borrower of
any cash in the Settlement Account and of all such items related to the Pledged
Qualifying Loans returned or delivered to the Borrower pursuant to any provision
of this Agreement, together with UCC-3 termination statements executed by the
Agent, shall be a complete and full acquittance for all items related to the
Pledged Qualifying Loans so delivered.
8.6. Acceleration. If any Default described in Section 7.6 or 7.7 occurs
with respect to the Borrower, the obligations of the Lenders to make Loans
hereunder shall automatically terminate and the Obligations shall immediately
become due and payable without any election or action on the part of the Agent
or any Lender. If any other Default occurs, the Required Lenders (or the Agent
with the consent of the Required Lenders) may (i) terminate the obligations of
the Lenders to make Loans hereunder and they shall, upon notice to the Borrower,
terminate and/or (ii) declare the Obligations to be due and payable, whereupon
the Obligations shall become immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which the Borrower hereby
expressly waives.
If, within 30 days after acceleration of the maturity of the Obligations
or termination of the obligations of the Lenders to make Loans hereunder as a
result of any Default (other than any Default as described in Section 7.6 or 7.7
with respect to the Borrower) and before any judgment or decree for the payment
of the Obligations due shall have been obtained or entered, the Required Lenders
(in their sole discretion) shall so direct, the Agent shall, by notice to the
Borrower, rescind and annul such acceleration and/or termination.
8.7. Other Remedies.
(i) Unless a Default shall have occurred and then be continuing,
the Borrower shall be entitled to receive and collect directly all sums
payable to the Borrower in respect of the Collateral except proceeds from
the sale thereof which shall be deposited into the Settlement Account for
application pursuant to Section 2.10.3.
(ii) Upon the occurrence of a Default and during the continuance
thereof, the Agent and the Collateral Agent, on behalf of the Lenders,
shall be entitled to all the rights and remedies hereunder and in the
Security Agreement, subject to the limitations and requirements of
Paragraph 16 thereof, and all other rights or remedies at law or in equity
existing or conferred upon the Lenders by other jurisdictions or other
applicable law.
(iii) Following the occurrence and during the continuance of a
Default or an Unmatured Default, no Lender shall be obligated to fund any
Loan hereunder.
(iv) The Borrower agrees that the Borrower and the Agent shall, if
the Agent in its sole discretion so requires, implement certain procedures
with respect to the Borrower's funding of AP Qualifying Loans, all at the
Borrower's sole expense. Such procedures may include, but are not limited
to: (i) reducing the advance rate against Eligible Collateral which are AP
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Qualifying Loans for purposes of determining the Collateral Value
component of the Borrowing Base, (ii) requiring that if (A) AP Qualifying
Loans are acquired with wire transfers, such wire transfers originate from
accounts located at a lending office of a Lender, (B) AP Qualifying Loans
are acquired with funds from accounts which are not located at a lending
office of a Lender, the financial institution which holds such account
enter into an agreement with the Borrower and the Agent which shall
provide that the Agent shall have exclusive dominion and control over the
funds in such account, (iii) requiring the Borrower to provide the Agent
and the Lenders with such information regarding the acquisition of such AP
Qualifying Loans as the Agent may reasonably request. The Borrower, at its
expense, shall from time to time execute and deliver to the Agent or the
Collateral Agent all such assignments, certificates, supplemental
documents, and financing statements, and shall do all other acts or
things, as the Agent may reasonably request in order to more fully
implement such procedures.
(v) The Borrower waives, to the extent permitted by law, any right
to require the Agent or any Lender to (i) proceed against any Person, (ii)
proceed against or exhaust any of the Collateral or pursue its rights and
remedies as against the Collateral in any particular order or (iii) pursue
any other remedy in its power.
(vi) The Agent on behalf of the Lenders may, but shall not be
obligated to, advance any sums or do any act or thing necessary to uphold
and enforce the lien and priority of, or the security intended to be
afforded by, any Pledged Qualifying Loans, including, without limitation,
payment of delinquent taxes or assessments and insurance premiums. The
Borrower shall provide any and all information required by the Agent to
administer this Agreement or collect on the Collateral. All advances,
charges, costs and expenses, including reasonable attorneys fees, incurred
or paid by the Agent in exercising any right, power or remedy conferred by
this Agreement, or in the enforcement hereof (or by any Lender acting on
instruction of the Required Lenders in the enforcement hereof), together
with interest thereon at the rate per annum of 2% plus the Floating Rate
from the time of payment until repaid, shall become a part of the
Obligations.
(vii) Following the occurrence of a Default and the acceleration of
the Obligations the Agent shall be entitled to receive and collect all
sums payable to the Borrower in respect of the Collateral and (a) the
Agent, at the request of the Required Lenders, may in its own name or in
the name of the Borrower or otherwise, demand, sue for, collect or receive
any money or property at any time payable or receivable on account of or
in exchange for any of the Collateral, (b) the Borrower shall receive and
hold in trust for the Lenders any amounts thereafter received by the
Borrower upon or in respect of any of the Collateral, advising the Agent
as to the source of such funds and, if the Agent so requests at the
direction of the Required Lenders, forthwith paying such amounts to the
Agent, and (c) any and all amounts so received and collected by the Agent
either directly or from the Borrower shall be deposited in the Settlement
Account.
8.8. Application of Proceeds. After a Default and acceleration of the
Obligations, the proceeds of any sale or enforcement of all or any part of the
Collateral pursuant to the Security Agreement and the balance of any moneys in
the Settlement Account shall be applied by the Agent:
FIRST, to the payment of all costs and expenses of such sale or
enforcement, including reasonable compensation to the Agent's agents and
counsel, and all expenses, liabilities and
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advances made or incurred by the Agent or any Lender acting on
instructions of the Required Lenders in connection therewith;
SECOND, to the payment of all costs and expenses incurred by the
Collateral Agent under the Security Agreement;
THIRD, to the payment of the outstanding principal balance of, and
all accrued and unpaid interest on and Fees attributable to, all Loans
under this Agreement, ratably according to the amount so due to each
Lender, until such amounts are paid in full;
FOURTH, to the extent proceeds remain after application under the
preceding subparagraphs, to the payment of all remaining Obligations,
until such amounts are paid in full; and
FIFTH, to the payment to the Borrower, or to its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
The Agent shall have absolute discretion as to the time of application of
any such proceeds, moneys or balances in accordance with this Agreement. If the
proceeds of any such sale are insufficient to cover the costs and expenses of
such sale, as aforesaid, and the payment in full of the Obligations, the
Borrower shall remain liable for any deficiency.
8.9. Preservation of Rights. No delay or omission of the Lenders or the
Agent to exercise any right under the Loan Documents shall impair such right or
be construed to be a waiver of any Default or an acquiescence therein, and the
making of a Loan notwithstanding the existence of a Default or the inability of
the Borrower to satisfy the conditions precedent to such Loan shall not
constitute any waiver or acquiescence. Any single or partial exercise of any
such right shall not preclude other or further exercise thereof or the exercise
of any other right, and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever shall be valid unless
in writing signed by the Lenders required pursuant to Section 9.1, and then only
to the extent in such writing specifically set forth. All remedies contained in
the Loan Documents or by law afforded shall be cumulative and all shall be
available to the Agent and the Lenders until the Obligations have been paid in
full.
ARTICLE IX
AMENDMENTS; WAIVERS; GENERAL PROVISIONS
9.1. Amendments and Waivers. Other than temporary waivers of Collateral
eligibility permitted pursuant to the definition of "Borrowing Base" (which may
be accomplished solely by the Agent), the Required Lenders (or the Agent with
the consent in writing of the Required Lenders) and the Borrower may enter into
agreements supplemental hereto for the purpose of adding or modifying any
provisions to the Loan Documents or changing in any manner the rights of the
Lenders or the Borrower hereunder or waiving any Default hereunder; provided,
however, that no such supplemental agreement shall, without the consent of each
Lender directly or indirectly affected thereby:
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(i) Extend the final maturity of any Loan or Note or forgive all or any
portion of the principal amount thereof, or reduce the rate or
extend the time of payment of interest or fees thereon.
(ii) Reduce the percentage specified in the definition of Required
Lenders.
(iii) Extend the Termination Date, or reduce the amount of or extend the
payment date for the mandatory payments required under Section 2.10,
or increase the amount of the Commitment of any Lender hereunder.
(iv) Amend this Section 9.1.
(v) Except as provided herein or in the Security Agreement, release any
Collateral.
(vi) Amend the definitions of "Eligible Title I Qualifying Loan",
"Eligible Conventional HI/DC Qualifying Loan", "Eligible
Non-Conforming Qualifying Mortgage Loan", "Borrowing Base" or
"Collateral Value", unless such amendment would, in the Agent's
determination, be favorable to the Lenders.
(vii) Permit the Borrower to assign its rights under this Agreement or
amend or waive any restriction on the Borrower's ability to assign
its rights or obligations under any of the Loan Documents.
(viii) Amend or waive any Lending Sublimits or Borrowing Base Sublimits.
(ix) Amend or waive any provision herein regarding the indemnification of
the Agent, the Collateral Agent or any Lender.
(x) Amend or waive any provision herein regarding the allocation among
the Lenders of any payments or proceeds received by the Agent
hereunder.
No amendment of any provision of this Agreement relating to the Agent or the
Collateral Agent shall be effective without the written consent of the Agent or
the Collateral Agent, as the case may be. In addition, the consent of the
Collateral Agent shall be required for the effectiveness of any amendment
referred to in Section 9.1(iv), (v), (vi), (viii) and/or (ix) above. The Agent
may waive payment of the fee required under Section 12.3.2 without obtaining the
consent of any other party to this Agreement.
9.2. Survival of Representations. All representations and warranties of
the Borrower contained in this Agreement shall survive delivery of the Notes and
the making of the Loans herein contemplated.
9.3. Governmental Regulation. Anything contained in this Agreement to the
contrary notwithstanding, no Lender shall be obligated to extend credit to the
Borrower in violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.4. Taxes. Any taxes (excluding federal or state income taxes on the
overall net income of any Lender) or other similar assessments or charges made
by any governmental or revenue authority in respect of the Loan Documents shall
be paid by the Borrower, together with interest and penalties, if any.
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9.5. Entire Agreement. The Loan Documents embody the entire agreement and
understanding among the Borrower, the Agent, the Collateral Agent and the
Lenders and supersede all prior agreements and understandings among the
Borrower, the Agent and the Lenders relating to the subject matter thereof,
other than the fee letter described in Section 2.7.3 and any other agreements
entered into in connection with the fees described in Sections 2.7.4 and 2.7.5.
9.6. Several Obligations; Benefits of this Agreement. The respective
obligations of the Lenders hereunder are several and not joint and no Lender
shall be the partner or agent of any other (except to the extent to which the
Agent is authorized to act as such). The failure of any Lender to perform any of
its obligations hereunder shall not relieve any other Lender from any of its
obligations hereunder. This Agreement shall not be construed so as to confer any
right or benefit upon any Person other than the parties to this Agreement and
their respective successors and assigns.
9.7. Expenses; Indemnification. The Borrower shall reimburse the Agent
and the Collateral Agent for any costs, internal charges (other than any charges
or allocations based on the salaries of or time spent by any non-attorney
employees of the Agent or Collateral Agent) and out-of-pocket expenses
(including attorneys' fees and time charges of attorneys for the Agent and the
Collateral Agent, which attorneys may be employees of the Agent or the
Collateral Agent) paid or incurred by the Agent or the Collateral Agent in
connection with the preparation, negotiation, execution, delivery, review,
amendment, modification, and administration of the Loan Documents. The Borrower
also agrees to reimburse the Agent, the Collateral Agent and the Lenders for any
costs, internal charges and out-of-pocket expenses (including attorneys' fees
and time charges of attorneys for the Agent, the Collateral Agent and the
Lenders, which attorneys may be employees of the Agent, the Collateral Agent or
the Lenders) paid or incurred by the Agent, the Collateral Agent or any Lender
in connection with the collection and enforcement of the Loan Documents. The
Borrower further agrees to indemnify the Agent, the Collateral Agent and each
Lender, its directors, officers and employees against all losses, claims,
damages, penalties, judgments, liabilities and expenses (including, without
limitation, all expenses of litigation or preparation therefor whether or not
the Agent, the Collateral Agent or any Lender is a party thereto) which any of
them may pay or incur arising out of or relating to this Agreement, the other
Loan Documents, the transactions contemplated hereby or the direct or indirect
application or proposed application of the proceeds of any Loan hereunder except
to the extent that they are determined by a court of competent jurisdiction in a
final and non-appealable order to have resulted from the gross negligence or
willful misconduct of the party seeking indemnification. The obligations of the
Borrower under this Section shall survive the termination of this Agreement.
9.8. Nonliability of Lenders. The relationship between the Borrower and
the Lenders, the Agent and the Collateral Agent shall be solely that of borrower
and lender. Neither the Agent nor any Lender shall have any fiduciary
responsibilities to the Borrower. Neither the Agent, the Collateral Agent nor
any Lender undertakes any responsibility to the Borrower to review or inform the
Borrower of any matter in connection with any phase of the Borrower's business
or operations. The Borrower agrees that neither the Agent, the Collateral Agent
nor any Lender shall have liability to the Borrower (whether sounding in tort,
contract or otherwise) for losses suffered by the Borrower in connection with,
arising out of, or in any way related to, the transactions contemplated and the
relationship established by the Loan Documents, or any act, omission or event
occurring in connection therewith, unless it is determined by a court of
competent jurisdiction in a final and non-appealable order that such losses
resulted from the gross negligence or willful misconduct of the party from which
recovery is sought, or with respect to the liability of any Lender, from the
failure of such Lender to fund a Loan when required under the terms
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of this Agreement. Neither the Agent, the Collateral Agent nor any Lender shall
have any liability with respect to, and the Borrower hereby waives, releases and
agrees not to sue for, any special, indirect or consequential damages suffered
by the Borrower in connection with, arising out of, or in any way related to the
Loan Documents or the transactions contemplated thereby.
9.9. Severability of Provisions. Any provision in any Loan Document that
is held to be inoperative, unenforceable, or invalid in any jurisdiction shall,
as to that jurisdiction, be inoperative, unenforceable, or invalid without
affecting the remaining provisions in that jurisdiction or the operation,
enforceability, or validity of that provision in any other jurisdiction, and to
this end the provisions of all Loan Documents are declared to be severable.
9.10. Headings. Section headings in the Loan Documents are for convenience
of reference only, and shall not govern the interpretation of any of the
provisions of the Loan Documents.
9.11. Numbers of Documents. All statements, notices, closing documents,
and requests hereunder shall be furnished to the Agent with sufficient
counterparts so that the Agent may furnish one to each of the Lenders.
9.12. Accounting. Except as provided to the contrary herein, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with Agreement Accounting
Principles.
9.13. Confidentiality. Each Lender agrees to hold any confidential
information which it may receive from the Borrower pursuant to this Agreement in
confidence, except for disclosure (i) to its Affiliates and to other Lenders and
their respective Affiliates, (ii) to legal counsel, accountants, and other
professional advisors to that Lender or to a Transferee, (iii) to regulatory
officials, (iv) to any Person as requested pursuant to or as required by law,
regulation, or legal process, (v) to any Person in connection with any legal
proceeding to which that Lender is a party, and (vi) permitted by Section 12.5.
9.14. Nonreliance. Each Lender hereby represents that it is not relying on
or looking to any margin stock (as defined in Regulation U of the Board of
Governors of the Federal Reserve System) for the repayment of the Loans provided
for herein.
9.15. Disclosure. The Borrower and each Lender hereby (i) acknowledge and
agree that NBD Bank, an Affiliate of First Chicago, holds certain Capitalized
Leases with the Borrower and First Chicago and/or its Affiliates from time to
time may hold other investments in, make other loans to or have other
relationships with the Borrower, and (ii) waive any liability of First Chicago
or such Affiliate to the Borrower or any Lender, respectively, arising out of or
resulting from the existence of such investments, loans or relationships or
conflicts of interest related thereto other than liabilities arising out of the
gross negligence or willful misconduct of First Chicago or its Affiliates.
9.16. Maximum Interest. Notwithstanding the foregoing paragraphs and all
other provisions of this Agreement and the Notes, none of the terms and
provisions of this Agreement or the Notes shall ever be construed to create a
contract to pay to the Lenders for the use, forbearance or detention of money,
interest in excess of the maximum amount of interest permitted to be charged by
the Lenders to the Borrower under applicable state or federal law from time to
time in effect, and the Borrower shall never be required to pay interest in
excess of such maximum amount. If, for any reason interest is paid
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hereon in excess of such maximum amount, then promptly upon any determination
that such excess has been paid the Lenders will, at their option, either refund
such excess to the Borrower or apply such excess to the principal owing under
the Notes.
ARTICLE X
THE AGENT AND THE COLLATERAL AGENT
10.1. Appointment; Nature of Relationship. The First National Bank of
Chicago is hereby appointed by the Lenders as the Agent hereunder and under each
other Loan Document, and each of the Lenders irrevocably authorizes the Agent to
act as the contractual representative of such Lender with the rights and duties
expressly set forth herein and in the other Loan Documents. First Chicago
National Processing Corporation is hereby appointed by the Lenders as the
Collateral Agent hereunder and under the Security Agreement, and each of the
Lenders irrevocably authorizes the Collateral Agent to act as the contractual
representative of such Lender with the rights and duties expressly set forth
herein and in the Security Agreement. The Agent and the Collateral Agent are
hereby authorized to enter into the Security Agreement on behalf of the Lenders
and all obligations of the Lenders thereunder shall be binding upon each Lender
as if such Lender had executed the Security Agreement. For purposes of this
Article X (other than Section 10.12), each reference to the term "Agent" shall
be deemed to be a collective reference to the Agent and the Collateral Agent.
The Agent agrees to act as such contractual representative upon the express
conditions contained in this Article X. Notwithstanding the use of the defined
term "Agent," it is expressly understood and agreed that the Agent shall have
not have any fiduciary responsibilities to any Lender by reason of this
Agreement or any other Loan Document and that the Agent is merely acting as the
representative of the Lenders with only those duties as are expressly set forth
in this Agreement and the other Loan Documents. In its capacity as the Lenders'
contractual representative, the Agent (i) does not hereby assume any fiduciary
duties to any of the Lenders, (ii) is a "representative" of the Lenders within
the meaning of Section 9-105 of the Uniform Commercial Code and (iii) is acting
as an independent contractor, the rights and duties of which are limited to
those expressly set forth in this Agreement and the other Loan Documents.
Without limiting Section 10.3 below, each of the Lenders hereby agrees to assert
no claim against the Agent on any agency theory or any other theory of liability
for breach of fiduciary duty, all of which claims each Lender hereby waives.
10.2. Powers. The Agent shall have and may exercise such powers under the
Loan Documents as are specifically delegated to the Agent by the terms of each
thereof, together with such powers as are reasonably incidental thereto. The
Agent shall have no implied duties to the Lenders, or any obligation to the
Lenders to take any action thereunder except any action specifically provided by
the Loan Documents to be taken by the Agent.
10.3. General Immunity. Neither the Agent nor any of its directors,
officers, agents or employees shall be liable to the Borrower, the Lenders or
any Lender for any action taken or omitted to be taken by it or them hereunder
or under any other Loan Document or in connection herewith or therewith except
for its or their own gross negligence or willful misconduct, or with respect to
the liability of any Lender, for the failure of such Lender to fund a Loan when
required under the terms of this Agreement.
10.4. No Responsibility for Loans, Recitals, Etc. Neither the Agent nor
any of its directors, officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify
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(i) any statement, warranty or representation made in connection with any Loan
Document or any borrowing hereunder; (ii) the performance or observance of any
of the covenants or agreements of any obligor under any Loan Document,
including, without limitation, any agreement by an obligor to furnish
information directly to each Lender; (iii) the satisfaction of any condition
specified in Article IV, except receipt of items required to be delivered to the
Agent; (iv) the validity, enforceability, effectiveness, sufficiency or
genuineness of any Loan Document or any other instrument or writing furnished in
connection therewith; or (v) the value, sufficiency, creation, perfection or
priority of any interest in any collateral security. The Agent shall have no
duty to disclose to the Lenders information that is not required to be furnished
by the Borrower to the Agent at such time, but is voluntarily furnished by the
Borrower to the Agent (either in its capacity as Agent or in its individual
capacity).
10.5. Action on Instructions of Lenders. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions signed by the
Required Lenders, and such instructions and any action taken or failure to act
pursuant thereto shall be binding on all of the Lenders and on all holders of
Notes. The Lenders hereby acknowledge that the Agent shall be under no duty to
take any discretionary action permitted to be taken by it pursuant to the
provisions of this Agreement or any other Loan Document unless it shall be
requested in writing to do so by the Required Lenders. The Agent shall be fully
justified in failing or refusing to take any action hereunder and under any
other Loan Document unless it shall first be indemnified to its satisfaction by
the Lenders pro rata against any and all liability, cost and expense that it may
incur by reason of taking or continuing to take any such action.
10.6. Employment of Agents and Counsel. The Agent may execute any of its
duties as Agent hereunder and under any other Loan Document by or through
employees, agents, and attorneys-in-fact and shall not be answerable to the
Lenders, except as to money or securities received by it or its authorized
agents, for the default or misconduct of any such agents or attorneys-in-fact
selected by it with reasonable care. The Agent shall be entitled to advice of
counsel concerning all matters pertaining to the agency hereby created and its
duties hereunder and under any other Loan Document.
10.7. Reliance on Documents; Counsel. The Agent shall be entitled to rely
upon any Note, notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and correct and to
have been signed or sent by the proper person or persons, and, in respect to
legal matters, upon the opinion of counsel selected by the Agent, which counsel
may be employees of the Agent.
10.8. Agent's Reimbursement and Indemnification. The Lenders agree to
reimburse and indemnify the Agent ratably in proportion to their respective
Commitments (or, if the Commitments have been terminated, in proportion to their
Commitments immediately prior to such termination) (i) for any amounts not
reimbursed by the Borrower for which the Agent is entitled to reimbursement by
the Borrower under the Loan Documents, (ii) for any other expenses incurred by
the Agent on behalf of the Lenders, in connection with the preparation,
execution, delivery, administration and enforcement of the Loan Documents and
(iii) for any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind and nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of the Loan Documents or any other document
delivered in connection therewith or the transactions contemplated thereby, or
the enforcement of any of the terms thereof or of any such other documents,
provided that no Lender shall be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct
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of the Agent. The obligations of the Lenders under this Section 10.8 shall
survive payment of the Obligations and termination of this Agreement.
10.9. Notice of Default. The Agent shall not be deemed to have knowledge
or notice of the occurrence of any Default or Unmatured Default hereunder unless
the Agent has received written notice from a Lender or the Borrower referring to
this Agreement describing such Default or Unmatured Default and stating that
such notice is a "notice of default". In the event that the Agent receives such
a notice, the Agent shall give prompt notice thereof to the Lenders.
10.10. Rights as a Lender. In the event the Agent is a Lender, the Agent
shall have the same rights and powers hereunder and under any other Loan
Document as any Lender and may exercise the same as though it were not the
Agent, and the term "Lender" or "Lenders" shall, at any time when the Agent is a
Lender, unless the context otherwise indicates, include the Agent in its
individual capacity. The Agent may accept deposits from, lend money to, and
generally engage in any kind of trust, debt, equity or other transaction, in
addition to those contemplated by this Agreement or any other Loan Document,
with the Borrower or any of its Subsidiaries in which the Borrower or such
Subsidiary is not restricted hereby from engaging with any other Person. The
Agent, in its individual capacity, is not obligated to remain a Lender.
10.11. Lender Credit Decision. Each Lender acknowledges that it has,
independently and without reliance upon the Agent or any other Lender and based
on the financial statements prepared by the Borrower and such other documents
and information as it has deemed appropriate, made its own credit analysis and
decision to enter into this Agreement and the other Loan Documents. Each Lender
also acknowledges that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under this Agreement and the other Loan Documents.
10.12. Successor Agent. The Agent may resign at any time by giving written
notice thereof to the Lenders and the Borrower, such resignation to be effective
upon the appointment of a successor Agent or, if no successor Agent has been
appointed, forty-five days after the retiring Agent gives notice of its
intention to resign. Upon any such resignation, the Required Lenders shall have
the right to appoint, on behalf of the Borrower and the Lenders, a successor
Agent. If no successor Agent shall have been so appointed by the Required
Lenders within thirty days after the resigning Agent's giving notice of its
intention to resign, then the resigning Agent may appoint, on behalf of the
Borrower and the Lenders, a successor Agent. If the Agent has resigned and no
successor Agent has been appointed, the Lenders may perform all the duties of
the Agent hereunder and the Borrower shall make all payments in respect of the
Obligations to the applicable Lender and for all other purposes shall deal
directly with the Lenders. No successor Agent shall be deemed to be appointed
hereunder until such successor Agent has accepted the appointment. Any such
successor Agent shall be a commercial bank having capital and retained earnings
of at least $250,000,000. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
resigning Agent. Upon the effectiveness of the resignation of the Agent, the
resigning Agent shall be discharged from its duties and obligations hereunder
and under the Loan Documents. After the effectiveness of the resignation of an
Agent, the provisions of this Article X shall continue in effect for the benefit
of such Agent in respect of any actions taken or omitted to be taken by it while
it was acting as the Agent hereunder and under the other Loan Documents.
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ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.1. Setoff. In addition to, and without limitation of, any rights of the
Lenders under applicable law, if the Borrower becomes insolvent, however
evidenced, or any Default occurs, any and all deposits (including all account
balances, whether provisional or final and whether or not collected or
available) and any other Indebtedness at any time held or owing by any Lender to
or for the credit or account of the Borrower may be offset and applied toward
the payment of the Obligations owing to such Lender, whether or not the
Obligations, or any part hereof, shall then be due.
11.2. Ratable Payments. If any Lender, whether by setoff or otherwise, has
payment made to it upon its Loans (other than payments received pursuant to
Section 3.1, 3.2 or 3.4) in a greater proportion than that received by any other
Lender, such Lender agrees, promptly upon demand, to purchase a portion of the
Loans held by the other Lenders so that after such purchase each Lender will
hold its ratable proportion of Loans. If any Lender, whether in connection with
setoff or amounts which might be subject to setoff or otherwise, receives
collateral or other protection for its Obligations or such amounts which may be
subject to setoff, such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such collateral ratably
in proportion to their Loans. In case any such payment is disturbed by legal
process, or otherwise, appropriate further adjustments shall be made.
11.3. Custodial Accounts. The Borrower agrees that funds received and held
by the Borrower as custodian for any mortgage pools or Security which are
deposited into accounts with any Lender shall be clearly identified as custodial
accounts, and each Lender agrees that each provision of the foregoing
subsections of this Article XI shall not apply to such custodial accounts. The
Borrower shall not deposit any of its general funds in any custodial accounts or
otherwise commingle funds in any custodial accounts.
ARTICLE XII
ASSIGNMENTS; PARTICIPATIONS; COMMITMENT INCREASES
12.1. Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lenders and their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or obligations under the
Loan Documents and (ii) any assignment by any Lender must be made in compliance
with Section 12.3. Notwithstanding clause (ii) of this Section, any Lender may
at any time, without the consent of the Borrower or the Agent, assign all or any
portion of its rights under this Agreement and its Notes to a Federal Reserve
Bank; provided, however, that no such assignment to a Federal Reserve Bank shall
release the transferor Lender from its obligations hereunder. The Agent may
treat the payee of any Note as the owner thereof for all purposes hereof unless
and until such payee complies with Section 12.3 in the case of an assignment
thereof or, in the case of any other transfer, a written notice of the transfer
is filed with the Agent. Any assignee or transferee of a Note agrees by
acceptance thereof to be bound by all the terms and provisions of the Loan
Documents. Any request, authority or consent of any Person, who at the time of
making such request or giving such authority or consent is the holder
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of any Note, shall be conclusive and binding on any subsequent holder,
transferee or assignee of such Note or of any Note or Notes issued in exchange
therefor.
12.2. Participations.
12.2.1. Permitted Participants; Effect. Any Lender may, in the
ordinary course of its business and in accordance with applicable law, at any
time sell to one or more banks or other entities ("Participants") participating
interests in any Loan owing to such Lender, any Note held by such Lender, any
Commitment of such Lender or any other interest of such Lender under the Loan
Documents. In the event of any such sale by a Lender of participating interests
to a Participant, such Lender's obligations under the Loan Documents shall
remain unchanged, such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, such Lender shall remain
the holder of any such Note for all purposes under the Loan Documents, all
amounts payable by the Borrower under this Agreement shall be determined as if
such Lender had not sold such participating interests, and the Borrower and the
Agent shall continue to deal solely and directly with such Lender in connection
with such Lender's rights and obligations under the Loan Documents.
12.2.2. Voting Rights. Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment, modification or
waiver of any provision of the Loan Documents other than any amendment,
modification or waiver with respect to any Loan or Commitment in which such
Participant has an interest which forgives principal, interest or fees or
reduces the interest rate or fees payable with respect to any such Loan or
Commitment, postpones any date fixed for any payment of principal of, or
interest or fees on, any such Loan or Commitment or releases any portion of
Collateral (other than as expressly permitted pursuant to the Loan Documents).
12.2.3. Benefit of Setoff. The Borrower agrees that each Participant
shall be deemed to have the right of setoff provided in Section 11.1 in respect
of its participating interest in amounts owing under the Loan Documents to the
same extent as if the amount of its participating interest were owing directly
to it as a Lender under the Loan Documents, provided that each Lender shall
retain the right of setoff provided in Section 11.1 with respect to the amount
of participating interests sold to each Participant. The Lenders agree to share
with each Participant, and each Participant, by exercising the right of setoff
provided in Section 11.1, agrees to share with each Lender, any amount received
pursuant to the exercise of its right of setoff, such amounts to be shared in
accordance with Section 11.2 as if each Participant were a Lender.
12.3. Assignments.
12.3.1. Permitted Assignments. Any Lender may, in the ordinary
course of its business and in accordance with applicable law, at any time assign
to one or more banks or other entities ("Purchasers") all or any part of its
rights and obligations under the Loan Documents. Such assignment shall be
substantially in the form of Exhibit "J" hereto or in such other form as may be
agreed to by the parties thereto. The consent of the Borrower and the Agent
shall be required prior to an assignment becoming effective with respect to a
Purchaser which is not a Lender or an Affiliate thereof; provided, however, that
if a Default has occurred and is continuing, the consent of the Borrower shall
not be required. Such consent shall not be unreasonably withheld or delayed.
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12.3.2. Effect; Effective Date. Upon (i) delivery to the Agent of a
notice of assignment, substantially in the form attached as Annex "I" to Exhibit
"J" hereto (a "Notice of Assignment"), together with any consents required by
Section 12.3.1, and (ii) payment of a $3,500 fee to the Agent for processing
such assignment, such assignment shall become effective on the effective date
specified in such Notice of Assignment. The Notice of Assignment shall contain a
representation by the Purchaser to the effect that none of the consideration
used to make the purchase of the Commitment and Loans under the applicable
assignment agreement are "plan assets" as defined under ERISA and that the
rights and interests of the Purchaser in and under the Loan Documents will not
be "plan assets" under ERISA. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a Lender party to this
Agreement and any other Loan Document executed by the Lenders and shall have all
the rights and obligations of a Lender under the Loan Documents, to the same
extent as if it were an original party hereto, and no further consent or action
by the Borrower, the Lenders or the Agent shall be required to release the
transferor Lender with respect to the percentage of the Aggregate Commitment and
Loans assigned to such Purchaser. Upon the consummation of any assignment to a
Purchaser pursuant to this Section 12.3.2, the transferor Lender, the Agent and
the Borrower shall make appropriate arrangements so that replacement Notes are
issued to such transferor Lender and new Notes or, as appropriate, replacement
Notes, are issued to such Purchaser, in each case in principal amounts
reflecting their Commitment, as adjusted pursuant to such assignment. In
addition, within a reasonable time after the effective date of any assignment,
the Agent shall, and is hereby authorized and directed to, revise Schedule "1"
reflecting the revised commitments and percentages of each of the Lenders and
shall distribute such revised Schedule "1" to each of the Lenders and the
Borrower, whereupon such revised Schedule shall replace the old Schedule and
become part of this Agreement.
12.4 [Intentionally Omitted]
12.5. Dissemination of Information. The Borrower authorizes each Lender to
disclose to any Participant or Purchaser or any other Person acquiring an
interest in the Loan Documents by operation of law (each a "Transferee") and any
prospective Transferee any and all information in such Lender's possession
concerning the creditworthiness of the Borrower and its Subsidiaries; provided
that each Transferee and prospective Transferee agrees to be bound by Section
9.13 of this Agreement.
12.6. Tax Treatment. If any interest in any Loan Document is transferred
to any Transferee which is organized under the laws of any jurisdiction other
than the United States or any State thereof, the transferor Lender shall cause
such Transferee, concurrently with the effectiveness of such transfer, to comply
with the provisions of Section 4.3.
ARTICLE XIII
NOTICES
13.1. Notices. Except as otherwise permitted by Section 2.14 with respect
to borrowing notices, all notices, requests and other communications to any
party hereunder shall be in writing (including bank wire, facsimile transmission
or similar writing) and shall be given to such party: (x) in the case of the
Borrower, the Agent or any Lender, at its address or facsimile number set forth
on the signature pages hereof, (y) in the case of the Collateral Agent, at its
address or facsimile number set forth on the signature pages of the Security
Agreement or (z) in the case of any party, such other address or facsimile
number as such party may hereafter specify for the purpose by notice to the
Agent and the
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Borrower. Each such notice, request or other communication shall be effective
(i) if given by facsimile transmission, when transmitted to the facsimile number
specified in this Section and confirmation of receipt is received, (ii) if given
by mail, 72 hours after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid or (iii) if given by any other
means, when delivered at the address specified in this Section; provided that
notices to the Agent under Article II shall not be effective until received.
13.2. Change of Address. The Borrower, the Agent and any Lender may each
change the address for service of notice upon it by a notice in writing to the
other parties hereto.
ARTICLE XIV
COUNTERPARTS
This Agreement may be executed in any number of counterparts, all of which
taken together shall constitute one agreement, and any of the parties hereto may
execute this Agreement by signing any such counterpart. This Agreement shall be
effective when it has been executed by the Borrower, the Agent and the Lenders
and each party has notified the Agent by telex or telephone that it has taken
such action.
ARTICLE XV
CHOICE OF LAW, CONSENT TO JURISDICTION, WAIVER OF JURY TRIAL
15.1. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN THOSE CONTAINING A
CONTRARY EXPRESS CHOICE OF LAW PROVISION) SHALL BE CONSTRUED IN ACCORDANCE WITH
THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
15.2. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ANY UNITED STATES FEDERAL OR ILLINOIS STATE
COURT SITTING IN CHICAGO IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH
COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO
THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT
SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF
ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE
AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO,
ILLINOIS.
15.3. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT AND EACH LENDER HEREBY
WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN DOCUMENT OR THE
RELATIONSHIP ESTABLISHED THEREUNDER.
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<PAGE> 69
IN WITNESS WHEREOF, the Borrower, the Lenders and the Agent have executed
this Agreement as of the date first above written.
MEGO MORTGAGE CORPORATION, a Delaware
corporation
By:_______________________________________
Print Name:_______________________________
Title:____________________________________
1000 Parkwood Circle, Fifth Floor
Atlanta, Georgia 30339
Phone: (800) 550-6346
Fax: (800) 694-6346
Attention: Jeff S. Moore,
President
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By:_______________________________________
Print Name:_______________________________
Title:____________________________________
One First National Plaza
Chicago, Illinois 60670
Phone: (312) 732-1100
Fax: (312) 732-6222
Attention: Ann H. Chudacoff,
Vice President
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<PAGE> 70
BANK UNITED
By:_______________________________________
Print Name:_______________________________
Title:____________________________________
400 Colony Square, Suite 200
Atlanta, Georgia 30361
Phone: (404) 877-9192
Fax: (404) 877-9195
Attention: John D. West
Regional Director
GUARANTY FEDERAL BANK, F.S.B.
By:_______________________________________
Print Name:_______________________________
Title:____________________________________
8333 Douglas Avenue, 11th Floor
Dallas, Texas 75225
Phone: (214) 360-2845
Fax: (214) 360-1660
Attention: James Meintjes,
Vice President
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<PAGE> 71
HARRIS TRUST AND SAVINGS BANK
By:_______________________________________
Print Name:_______________________________
Title:____________________________________
111 West Monroe Street
P. O. Box 755
Chicago, Illinois 60690
Phone: (312) 461-4514
Fax: (312) 765-8382
Attention: Michael Houlihan
Vice President
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<PAGE> 72
SCHEDULE "1"
COMMITMENTS AND COMMITMENT PERCENTAGES
<TABLE>
<CAPTION>
======================================================================================================================
INITIAL PRIMARY
INITIAL COMMITMENT PRIMARY COMMITMENT SWINGLINE
LENDER COMMITMENT PERCENTAGE COMMITMENT PERCENTAGE COMMITMENT
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
The First National $16,923,076.93 30.769230781% $11,923,076.93 23.8461539% $5,000,000
Bank of Chicago
- ----------------------------------------------------------------------------------------------------------------------
Bank United $16,923,076.91 30.769230750% $16,923,076.91 33.8461538% -0-
- ----------------------------------------------------------------------------------------------------------------------
Guaranty Federal $12,692,307.70 23.076923085% $12,692,307.70 25.3846154% -0-
- ----------------------------------------------------------------------------------------------------------------------
Harris Bank $8,461,538.46 15.384615384% $8,461,538.46 16.9230769% -0-
======================================================================================================================
</TABLE>
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<PAGE> 73
SCHEDULE "2"
LIST OF APPROVED INVESTORS
Greenwich Capital Markets, Inc.(1), (2), (3)
Greenwich Capital Financial Products, Inc.(1), (2), (3)
BankBoston, N.A.(1)
Atlantic Bank(1)
Federal National Mortgage Association(1)
TMS Mortgage, Inc.(2)
Republic Bank(2)
Associates Financial Services, Inc.(2)
FirstPlus Financial(2)
PSB Lending Corp.(2)
Master Financial, Inc.(2)
Empire Funding Corp.(2),(4)
Residential Funding Corp.(2),(4)
Delta Funding Corp.(4)
Household Financial(4)
Amresco(4)
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<PAGE> 74
SCHEDULE "3"
SUBSIDIARIES AND OTHER INVESTMENTS
(See Sections 5.8 and 6.14)
<TABLE>
<CAPTION>
============================================================================================================
Investment Owned Amount of Percent Jurisdiction of Excluded
In By Investment Ownership Organization or Included
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Mego Mortgage Borrower $3,000.00 100% Delaware Excluded
Home Loan
Acceptance
Corporation
============================================================================================================
</TABLE>
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<PAGE> 75
SCHEDULE "4"
INDEBTEDNESS AND LIENS
(See Sections 5.14, 6.11 and 6.15)
<TABLE>
<CAPTION>
Maturity, Maximum
Indebtedness Indebtedness Property Commitment and Current
Incurred By Owed To Encumbered (If Any) Outstanding Indebtedness
- ------------ ------------ ------------------- ------------------------
<S> <C> <C> <C>
Mego Greenwich Specific Mortgage Commitment of up to
Mortgage Capital Related Securities $10,000,000 ($10,000,000
Corporation Markets, Inc. outstanding) Matures in
December, 1998
Mego Textron Specific Mortgage Commitment of up to
Mortgage Financial Related Securities $8,800,000 ($5,000,000
Corporation outstanding) Matures in
October, 2002
</TABLE>
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<PAGE> 76
SCHEDULE "5"
BORROWER'S UNDERWRITING STANDARDS
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<PAGE> 77
SCHEDULE "5A"
BORROWER'S UNDERWRITING STANDARDS
(ELIGIBLE NON-CONFORMING MORTGAGE LOANS)
-71-
<PAGE> 78
SCHEDULE "6"
BORROWER'S PROPERTY VALUATION PROCEDURES
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<PAGE> 79
SCHEDULE "7"
DESCRIPTION OF TRUSTEE'S RIGHT TO TERMINATE
THE BORROWER'S RIGHTS TO SERVICE CERTAIN SECURITIZATIONS
(See Section 5.12)
Description of Trustee's Right to Terminate the Borrower's Rights to Service
First Securitization - Mego Mortgage FHA Title I Loan Trust 1996-1.
Pooling and servicing agreements relating to the Borrower's securitization
transactions contain provisions with respect to the maximum permitted loan
delinquency rates and loan default rates, which, if exceeded, would allow the
termination of the Borrower's right to service the related loans. At present,
the delinquency rates on the pools of loans sold in the March 1996
securitization transaction, Mego Mortgage FHA Title I Loan Trust 1996-1, and the
August 1996 securitization, Mego Mortgage Title I Loan Trust 1996-2, exceeds the
permitted limit set forth in the related pooling and servicing agreement.
Accordingly, this condition could result in the termination of the Borrower's
servicing rights with respect to those pools of loans by the trustee, the master
servicer or the insurance company providing credit enhancement for that
transaction. Although the insurance company has indicated that it, and to its
knowledge, the trustee and the master servicer have no present intention to
terminate the Borrower's servicing rights related to those pools of loans, no
assurance can be given that one or more of such parties will not exercise its
right to terminate. In the event of such termination, there would be a material
adverse effect on the valuation of the Borrower's mortgage servicing rights and
the results of operations in the amount of mortgage servicing rights on the date
of termination.
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<PAGE> 80
SCHEDULE "8"
DESCRIPTION OF EXISTING AGREEMENTS WITH AFFILIATES
(See Section 6.16)
1) Services and Consulting Agreement dated as of September 1, 1996 between
Borrower and Preferred Equities Corporation.
2) Loan Program Sub-Servicing Agreement entered into as of September 1, 1996
between Borrower and Preferred Equities Corporation, as amended by letter
agreement dated December 1, 1996.
3) Tax Allocation and Indemnity Agreement between Borrower and Mego Financial
Corp. dated as of Nov. 1996.
4) Agreement between Borrower and Mego Financial Corp. dated Nov. 1996 in
which Borrower agrees to take no action which could reduce Mego Financial
Corp.'s ownership of Borrower below 80% without the consent of Mego
Financial Corp.
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<PAGE> 81
SCHEDULE "9"
FORM OF DELINQUENCY, DEFAULT AND LOSS REPORT
-75-
<PAGE> 82
EXHIBIT "A"
AMENDED AND RESTATED NOTE
February 19, 1998
MEGO MORTGAGE CORPORATION, a Delaware corporation (the "Borrower"),
promises to pay to the order of ________________________ (the "Lender") the
lesser of the Lender's Commitment under the Agreement (as hereinafter defined)
or the aggregate unpaid principal amount of all Loans made by the Lender to the
Borrower pursuant to Article II of the Agreement, in immediately available funds
at the main office of The First National Bank of Chicago in Chicago, Illinois,
as Agent, together with interest on the unpaid principal amount hereof at the
rates and on the dates set forth in the Agreement. The Borrower shall pay the
principal of and any accrued and unpaid interest on the Loans in full on the
Termination Date, unless payment is required or permitted earlier pursuant to
the terms of the Agreement.
This Note amends and restates in its entirety that certain [Amended and
Restated] Note dated as of ____________, 1997 made by the Borrower payable to
the Lender.
The Lender shall, and is hereby authorized to, record on the schedule
attached hereto, or to otherwise record in accordance with its usual practice,
the date and amount of each Loan and the date and amount of each principal
payment hereunder.
This Note is one of the Notes issued pursuant to, and is entitled to the
benefits of, the Amended and Restated Credit Agreement dated as of February 19,
1998 (which, as it may be amended or modified and in effect from time to time,
is herein called the "Agreement"), among the Borrower, the lenders party
thereto, including the Lender, and The First National Bank of Chicago, as Agent,
to which Agreement reference is hereby made for a statement of the terms and
conditions governing this Note, including the terms and conditions under which
this Note may be prepaid or its maturity date accelerated. This Note is secured
pursuant to the Security Agreement, all as more specifically described in the
Agreement, and reference is made thereto for a statement of the terms and
provisions thereof. Capitalized terms used herein and not otherwise defined
herein are used with the meanings attributed to them in the Agreement.
This Note is to be governed by and construed and enforced in accordance
with the laws of the State of Illinois.
MEGO MORTGAGE CORPORATION, a Delaware
corporation
By:_______________________________________
Print Name:_______________________________
Title:____________________________________
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<PAGE> 83
SCHEDULE OF LOANS AND PAYMENTS OF PRINCIPAL
TO
NOTE OF MEGO MORTGAGE CORPORATION,
DATED FEBRUARY 19, 1998
<TABLE>
<CAPTION>
Principal Maturity Principal
Amount of of Interest Amount Unpaid
Date Loan Period Paid Balance
- ---- ---------- ----------- --------- -------
<S> <C> <C> <C> <C>
</TABLE>
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<PAGE> 84
EXHIBIT "B"
FORM OF OPINION
February 19, 1998
The Agent and the Lenders who are parties to the
Credit Agreement described below.
Gentlemen/Ladies:
We are counsel for Mego Mortgage Corporation (the "Borrower"), and have
represented the Borrower in connection with its execution and delivery of an
Amended and Restated Credit Agreement dated as of February 19, 1998 (the
"Agreement") among the Borrower, the Lenders named therein, and The First
National Bank of Chicago, as Agent, and providing for Advances in an aggregate
principal amount not exceeding $55,000,000 at any one time outstanding. All
capitalized terms used in this opinion and not otherwise defined herein shall
have the meanings attributed to them in the Agreement.
We have examined the Borrower's certificate of incorporation, by-laws,
resolutions, the Loan Documents, the Uniform Commercial Code financing
statements (the "Financing Statements") relating to the Loan Documents and such
other matters of fact and law which we deem necessary in order to render this
opinion. Based upon the foregoing, it is our opinion that:
l. The Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of its state of incorporation and has all
requisite corporate authority to conduct its business in each jurisdiction in
which its business is conducted, to the extent failure to maintain such
authority would have a material adverse effect on the business of the Borrower.
2. The execution and delivery of the Loan Documents by the Borrower and
the performance by the Borrower of the Obligations have been duly authorized by
all necessary corporate action and proceedings on the part of the Borrower and
will not:
(a) require any consent of the Borrower's shareholders;
(b) violate any law, rule or regulation, binding on the Borrower
or the Borrower's certificate of incorporation or by-laws or any order,
writ, judgment, injunction, decree, award, indenture, instrument or
agreement binding upon the Borrower of which we are aware (except that we
express no opinion as to any law, rule, regulation, order, writ, judgment,
injunction, decree, award, indenture or agreement the violation of which
would not have a material adverse effect on the Borrower); or
(c) except as created by the Loan Documents, result in, or
require, the creation or imposition of any Lien pursuant to the provisions
of any indenture, instrument or agreement binding upon the Borrower of
which we are aware.
3. Upon the execution of the Loan Documents by [Authorized Officers],
the Loan Documents shall be duly executed and delivered by the Borrower and
constitute legal, valid and binding obligations of the Borrower enforceable in
accordance with their terms except to the extent the
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<PAGE> 85
enforcement thereof may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditors' rights generally and subject also to the
availability of equitable remedies if equitable remedies are sought.
4. To the best of our knowledge, there is no litigation or proceeding
against the Borrower which, if adversely determined, could reasonably be
expected to have a Material Adverse Effect.
5. No approval, authorization, consent, adjudication or order of any
federal or Delaware governmental authority, which has not been obtained by the
Borrower, is required to be obtained by the Borrower in connection with the
execution and delivery of the Loan Documents, the borrowings under the Agreement
or in connection with the payment by the Borrower of the Obligations.
6. The Obligations constitute senior indebtedness which is entitled to
the benefits of the subordination provisions of all outstanding Subordinated
Notes.
7. The provisions of the Collateral Documents are sufficient to create
in favor of the Lenders a security interest in all right, title and interest of
the Borrower in those items and types of collateral described in the Collateral
Documents in which a security interest may be created under Article 9 of the
Uniform Commercial Code as in effect in Illinois. Upon the execution of the
Financing Statements by [Authorized Officers], the Financing Statements shall be
duly executed by the Borrower. The description of the collateral set forth in
said financing statements is sufficient to perfect a security interest in the
items and types of collateral described therein in which a security interest may
be perfected by the filing of a financing statement under the Uniform Commercial
Code as in effect in each state indicated in Exhibit A hereto. Such filings,
together with the payment of any required filing fees, are sufficient to perfect
the security interest created by the Collateral Documents in all right, title
and interest of the Borrower in those items and types of collateral described in
the Collateral Documents in which a security interest may be perfected by the
filing of a financing statement under the Uniform Commercial Code in such
states, except that we express no opinion as to personal property affixed to
real property in such manner as to become a fixture under the laws of any state
in which the collateral may be located and we call your attention to the fact
that the Lenders' security interest in certain of such collateral may not be
perfected by filing financing statements under the Uniform Commercial Code.
This opinion may be relied upon by the Agent, the Lenders and their
participants, assignees and other transferees.
Very truly yours,
------------------------------------------
NOTE: Counsel's opinion will be limited to Federal law the General Corporation
Law of Delaware and Florida law except counsel will opine as to UCC in
Illinois and for purposes of the opinion in paragraph 3 counsel will
assume substantive law or Illinois is substantially similar to Florida
law. In addition, as to factual matters counsel will rely on
representations of the Borrower. Also, counsel's opinion will contain
its standard qualifications and assumptions. For purposes of the opinion
in paragraph 2(b) counsel will assume Bank of Boston has been paid and
has released existing liens.
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<PAGE> 86
EXHIBIT "C"
[INTENTIONALLY OMITTED]
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<PAGE> 87
EXHIBIT "D"
COLLATERAL TRANSMITTAL
1. CUSTOMER NAME______________________________________
2. LOAN NUMBER________________________________________
3. MORTGAGOR SURNAME ONLY_____________________________
4. AP STATUS CODE_____________________________________
5. DEPOSIT DATE_______________________________________
6. ORIGINAL NOTE AMOUNT $_____________________________
7. OUTSTANDING PRINCIPAL BALANCE $____________________
8. ACQUISITION COST $_________________________________
9. TAKE-OUT VALUE $___________________________________
10. NOTE DATE__________________________________________
11. NOTE RATE__________________________________________
12. LOAN TYPE__________________________________________
13. LOAN LTV___________________________________________
(FOR SECURED CONVENTIONAL ONLY)
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<PAGE> 88
EXHIBIT "E"
AGREEMENT TO PLEDGE
SECURITY AGREEMENT AS PROVIDED FOR BY
THE UNIFORM COMMERCIAL CODE OF ILLINOIS
Mego Mortgage Corporation (the "Borrower") pursuant to that certain
Amended and Restated Credit Agreement dated as of February 19, 1998 (as amended,
extended and replaced from time to time, the "Credit Agreement") among the
Borrower, The First National Bank of Chicago, as agent, and certain other
Lenders, and pursuant to that certain Security and Collateral Agency Agreement
among the Borrower, the Agent, the Lenders and First Chicago National Processing
Corporation (the "Collateral Agent") for new value this day received, and as
security for the payment of any and all indebtedness and obligations of the
Borrower under the Credit Agreement, hereby creates and grants to the Collateral
Agent for the benefit of the lenders under the Credit Agreement a security
interest in and to the mortgage loans identified as AP Qualifying Loans by the
inclusion of an "AP Status Code" on the Borrower's Collateral Transmittals on
the date indicated below which provide the information concerning the AP
Qualifying Loans required by the Credit Agreement. All capitalized terms used
herein shall have the meanings given to them in the Credit Agreement.
MEGO MORTGAGE CORPORATION, a Delaware
corporation
By:___________________________
Its:__________________________
Dated:_______________, 199_.
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<PAGE> 89
EXHIBIT "F"
COMPLIANCE CERTIFICATE
To: The Lenders parties to the
Credit Agreement Described Below
This Compliance Certificate is furnished pursuant to that certain Amended
and Restated Credit Agreement dated as of February 19, 1998 (as amended,
modified, renewed or extended from time to time, the "Agreement") among the Mego
Mortgage Corporation (the "Borrower"), the lenders party thereto and The First
National Bank of Chicago, as Agent for the Lenders. Unless otherwise defined
herein, capitalized terms used in this Compliance Certificate have the meanings
ascribed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected__________________ of the Borrower;
2. I have reviewed the terms of the Agreement and I have made, or have
caused to be made under my supervision, a detailed review of the transactions
and conditions of the Borrower and its Subsidiaries during the accounting period
covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I
have no knowledge of, the existence of any condition or event which constitutes
a Default or Unmatured Default during or at the end of the accounting period
covered by the attached financial statements or as of the date of this
Certificate, except as set forth below; and
4. Schedule I attached hereto sets forth financial data and
computations evidencing the Borrower's compliance with certain covenants of the
Agreement, all of which data and computations are true, complete and correct.
5. Schedule II attached hereto sets forth the various reports and
deliveries which are required under the Credit Agreement, the Security Agreement
and the other Loan Documents and the status of compliance.
Described below are the exceptions, if any, to paragraph 3 by listing, in
detail, the nature of the condition or event, the period during which it has
existed and the action which the Borrower has taken, is taking, or proposes to
take with respect to each such condition or event:
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<PAGE> 90
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
--------------------------------------------------------------------------
The foregoing certifications, together with the computations set forth in
Schedule I hereto and the financial statements delivered with this Certificate
in support hereof, are made and delivered this _____ day of __________, 19___.
----------------------------
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<PAGE> 91
SCHEDULE I TO COMPLIANCE CERTIFICATE
Compliance as of _________, 199_ with
Provisions of and of
the Agreement
-85-
<PAGE> 92
SCHEDULE II TO COMPLIANCE CERTIFICATE
Reports and Deliveries
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<PAGE> 93
EXHIBIT "G"
BORROWING BASE CERTIFICATE
Reference is made to that certain Amended and Restated Credit Agreement
(the "Credit Agreement"), among MEGO MORTGAGE CORPORATION (the "Borrower"), the
lenders named therein (the "Lenders") and The First National Bank of Chicago, as
agent for the Lenders, dated as of February 19, 1998. Capitalized terms not
otherwise defined herein are used with the same meanings as in the Credit
Agreement.
Borrowing Base: (1)
Collateral Value of the following Eligible Collateral:
1. Eligible Title I Qualifying Loans $______________
(other than Eligible Returned Qualifying Loans)
(a) Total times .90 $
(b) Excess of Unsecured Title I Qualifying Loans
over 5% of Aggregate Commitment times .90 $______________
(c) subtract (b) from (a) $______________
2. Eligible Conventional HI/DC Qualifying Loans $______________
(other than Eligible Returned Qualifying
Loans) times .952 $______________
3. Eligible Non-Conforming Mortgage Loans $______________
(a) Eligible Non-Conforming Mortgage Loans
which are Second Mortgage Loans times .95(2) $______________
(b) 5% of Aggregate Commitment $
(c) Total of all Eligible Non-Conforming
Mortgage Loans which are not Second
Mortgage Loans times .95 $______________
(d) 15% of Aggregate Commitment $______________
(e) Lesser of (a) and (b) plus (c), but not more
than (d) $______________
4. Eligible Returned Qualifying Loans $______________
(a) Total Times .75 $______________
- --------
(1) Each category excludes any Collateral which is Ineligible Collateral as of
the date hereof.
(2) Until 3/4/98, Non-HLTV Loans must have FICO scores of over 630, but will
also include Non- HLTV pledged before February 19, 1998 with FICO scores
over 600. HLTV Loans must have an average FICO score of 660 or higher.
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<PAGE> 94
(b) $10,000,000
(c) Lesser of (a) or (b) $______________
Borrowing Base from Eligible Collateral $______________
(sum of Items 1(c), 2(c), 3(e) and 4(c))
Add: Unrestricted Balance in Settlement Account $______________
in excess of $100,000*
Less: Uncleared Loan Funding Checks $______________
Less: $500,000 $500,000
Reconciling Items: Timing Difference
Loan Detail Difference _______________
BORROWING BASE ===============
COVERAGE REQUIREMENT:
Advances $______________
EXCESS OF BORROWING BASE OVER
COVERAGE REQUIREMENT $______________
* After deduction of proceeds from disposition of Eligible Collateral
included in Borrowing Base calculation for the Business Day such proceeds
are received, to avoid duplication.
Certification: To the best of the knowledge and belief (after reasonable
investigation) of the officer of the Borrower executing this Certificate, the
Borrower hereby certifies to The First National Bank of Chicago for the benefit
of lenders under the Credit Agreement that: (a) the above information is, and
the computations are accurate and complete and in accordance with the
requirements of the Credit Agreement, and (b) as of the date hereof, (1) all
representations and warranties of the Borrower set forth in the Credit Agreement
are accurate and complete, (2) there does not exist a Default or an Unmatured
Default under the Credit Agreement, and (3) the Borrower has given written
notice to The First National Bank of Chicago of any Default or Unmatured Default
if such now exists under the Credit Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Borrowing Base
Certificate to be executed and delivered by its duly authorized officer this ___
day of __________, 199_.
MEGO MORTGAGE CORPORATION
By:_______________________________________
Name:
Title:
-88-
<PAGE> 95
EXHIBIT "H"
PEC TRI-PARTY AGREEMENT
-89-
<PAGE> 96
EXHIBIT "I"
SECOND AMENDMENT TO
SECURITY AND COLLATERAL AGENCY AGREEMENT
THIS SECOND AMENDMENT TO SECURITY AND COLLATERAL AGENCY AGREEMENT is made
as of February 19, 1998 by and among MEGO MORTGAGE CORPORATION (the "Borrower"),
THE FIRST NATIONAL BANK OF CHICAGO, as administrative agent for the lenders
under the Restated Credit Agreement (as defined below) (the "Agent") and FIRST
CHICAGO NATIONAL PROCESSING CORPORATION (the "Collateral Agent").
The parties have entered into a Security and Collateral Agency Agreement
dated as of June 20, 1997, as amended by a First Amendment to Security and
Collateral Agency Agreement dated as of February 2, 1998 (as so amended, the
"Security Agreement") which relates to an Amended and Restated Credit Agreement
of even date herewith among the Borrower, the Agent and certain lenders named
therein (the "Restated Credit Agreement"). All capitalized terms used herein and
not otherwise defined shall have the meanings given to them in the Security
Agreement.
The Restated Credit Agreement amends and restates in its entirety a Credit
Agreement dated June 20, 1997 (as amended from time to time), and the parties
desire to amend the Security Agreement as required under such Restated Credit
Agreement.
NOW, THEREFORE, in consideration of the foregoing, the parties agree as
follows:
1. Credit Agreement. All references to the Credit Agreement in the
Security Agreement shall be deemed to refer to the Restated Credit Agreement, as
amended from time to time. All Trust Receipts, Shipping Requests and Transmittal
Letters hereafter sent pursuant to the terms of the Security Agreement shall
refer to the Restated Credit Agreement (rather than the Credit Agreement dated
June 20, 1997), as amended from time to time.
2. AP Qualifying Loans. The phrase "seventh (7th) Business Day" in the
second sentence of Paragraph 2(b) of the Security Agreement is hereby changed to
"fifth (5th) Business Day".
3. Collateral Report. The form of Collateral Report attached as Exhibit
6 to the Security Agreement is replaced with the form attached hereto.
4. Continued Effect. As expressly modified as provided herein, the
Security Agreement shall continue in full force and effect.
5. Miscellaneous. This Amendment may be executed in counterparts and
shall constitute a single binding document when a counterpart has been executed
by each party and delivered to the Agent.
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<PAGE> 97
IN WITNESS WHEREOF, the Borrower, the Collateral Agent and the Agent
have executed this Amendment as of the date first above written.
MEGO MORTGAGE CORPORATION
By:_______________________________________
Print Name:_______________________________
Title:____________________________________
THE FIRST NATIONAL BANK OF CHICAGO, not
individually but as Agent for the Lenders
By:_______________________________________
Print Name:_______________________________
Title:____________________________________
FIRST CHICAGO NATIONAL PROCESSING
CORPORATION
By:_______________________________________
Print Name:_______________________________
Title:____________________________________
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<PAGE> 98
EXHIBIT 6
TO SECURITY AGREEMENT
FORM OF COLLATERAL REPORT
<TABLE>
<CAPTION>
BORROWING BASE $ AMOUNT LIMIT OVER LIMIT
-------------- ---------------------------------------
<S> <C> <C> <C>
Eligible Title I Qualifying Loans (90%) ________ _____ __________
plus Eligible Conventional HI/DC Qualifying Loans ________ _____ __________
(a) Non-HLTV Loans (95% of 93%) ________ _____ __________
(b) HLTV Loans (95% of 93%) ________ _____ __________
plus Eligible Non-Conforming Mortgage Loans ________ _____ __________
(a) First Mortgages (95%) ________ _____ __________
(b) Second Mortgages (95%) ________ _____ __________
equals Borrowing Base before status limits ________ _____ __________
Status Limits ________ _____ __________
(a) Agreements to Pledge ________ _____ __________
(10% of Aggregate Commitment)
(b) Trust Receipts (2% of Aggregate Commitment) ________ _____ __________
(c) Unsecured Title I Qualifying Loans ________ _____ __________
(5% of Aggregate Commitment)
(d) Eligible Non-Conforming Mortgage Loans -- ________ _____ __________
Second Mortgages (5% of Aggregate Commitment)
(e) Eligible Non-Conforming Mortgage Loans -- ________ _____ __________
All (15% of Aggregate Commitment)
(f) Eligible Returned Qualifying Loans ________ _____ __________
($10,000,000)
Borrowing Base after status limits ________
plus Unrestricted Balance in Settlement Account
in excess of $100,000*
less Uncleared Loan Funding Checks ________
less $500,000 ________
equals Adjusted Borrowing Base ________
less Coverage Requirement (Facility Outstandings) ________
equals Borrowing Base excess/(shortfall) ________
</TABLE>
* After deduction of proceeds from disposition of Eligible Collateral
included in Borrowing Base calculation for the Business Day such
proceeds are received, to avoid duplication.
-92-
<PAGE> 99
EXHIBIT "J"
ASSIGNMENT AGREEMENT
This Assignment Agreement (this "Assignment Agreement") between (the
"Assignor") and (the "Assignee") is dated as of , 19 . The parties hereto agree
as follows:
1. PRELIMINARY STATEMENT. The Assignor is a party to a Credit Agreement
(which, as it may be amended, modified, renewed or extended from time to time is
herein called the "Credit Agreement") described in Item 1 of Schedule 1 attached
hereto ("Schedule 1"). Capitalized terms used herein and not otherwise defined
herein shall have the meanings attributed to them in the Credit Agreement.
2. ASSIGNMENT AND ASSUMPTION. The Assignor hereby sells and assigns to
the Assignee, and the Assignee hereby purchases and assumes from the Assignor,
an interest in and to the Assignor's rights and obligations under the Credit
Agreement such that after giving effect to such assignment the Assignee shall
have purchased pursuant to this Assignment Agreement the percentage interest
specified in Item 3 of Schedule 1 of all outstanding rights and obligations
under the Credit Agreement relating to the facilities listed in Item 3 of
Schedule 1 and the other Loan Documents. The aggregate Commitment (or Loans, if
the applicable Commitment has been terminated) purchased by the Assignee
hereunder is set forth in Item 4 of Schedule 1.
3. EFFECTIVE DATE. The effective date of this Assignment Agreement (the
"Effective Date") shall be the later of the date specified in Item 5 of Schedule
1 or two Business Days (or such shorter period agreed to by the Agent) after a
Notice of Assignment substantially in the form of Annex "I" attached hereto has
been delivered to the Agent. Such Notice of Assignment must include any consents
required to be delivered to the Agent by Section 12.3.1 of the Credit Agreement.
In no event will the Effective Date occur if the payments required to be made by
the Assignee to the Assignor on the Effective Date under Sections 4 and 5 hereof
are not made on the proposed Effective Date. The Assignor will notify the
Assignee of the proposed Effective Date no later than the Business Day prior to
the proposed Effective Date. As of the Effective Date, (i) the Assignee shall
have the rights and obligations of a Lender under the Loan Documents with
respect to the rights and obligations assigned to the Assignee hereunder and
(ii) the Assignor shall relinquish its rights and be released from its
corresponding obligations under the Loan Documents with respect to the rights
and obligations assigned to the Assignee hereunder.
4. PAYMENTS OBLIGATIONS. On and after the Effective Date, the Assignee
shall be entitled to receive from the Agent all payments of principal, interest
and fees with respect to the interest assigned hereby. The Assignee shall
advance funds directly to the Agent with respect to all Loans and reimbursement
payments made on or after the Effective Date with respect to the interest
assigned hereby. [In consideration for the sale and assignment of Loans
hereunder, (i) the Assignee shall pay the Assignor, on the Effective Date, an
amount equal to the principal amount of the portion of all Floating Rate Loans
assigned to the Assignee hereunder and (ii) with respect to each Fixed Rate Loan
made by the Assignor and assigned to the Assignee hereunder which is outstanding
on the Effective Date, (a) on the last day of the Interest Period therefor or
(b) on such earlier date agreed to by the Assignor and the Assignee or (c) on
the date on which any such Fixed Rate Loan either becomes due (by acceleration
or otherwise) or is prepaid (the date as described in the foregoing clauses (a),
(b) or (c) being hereinafter referred to as the "Payment Date"), the Assignee
shall pay the Assignor an amount equal to the principal amount of the portion of
such Fixed Rate Loan assigned to the Assignee which is outstanding on the
Payment Date. If the Assignor and the Assignee agree that the Payment Date for
such Fixed Rate Loan shall be the Effective Date, they shall agree to the
interest rate applicable to the portion of such Loan assigned hereunder for the
period from the Effective Date to the end of the existing Interest Period
applicable to such Fixed Rate Loan (the "Agreed Interest Rate") and any interest
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<PAGE> 100
received by the Assignee in excess of the Agreed Interest Rate shall be remitted
to the Assignor. In the event interest for the period from the Effective Date to
but not including the Payment Date is not paid by the Borrower with respect to
any Fixed Rate Loan sold by the Assignor to the Assignee hereunder, the Assignee
shall pay to the Assignor interest for such period on the portion of such Fixed
Rate Loan sold by the Assignor to the Assignee hereunder at the applicable rate
provided by the Credit Agreement. In the event a prepayment of any Fixed Rate
Loan which is existing on the Payment Date and assigned by the Assignor to the
Assignee hereunder occurs after the Payment Date but before the end of the
Interest Period applicable to such Fixed Rate Loan, the Assignee shall remit to
the Assignor the excess of the prepayment penalty paid with respect to the
portion of such Fixed Rate Loan assigned to the Assignee hereunder over the
amount which would have been paid if such prepayment penalty was calculated
based on the Agreed Interest Rate. The Assignee will also promptly remit to the
Assignor (i) any principal payments received from the Agent with respect to
Fixed Rate Loans prior to the Payment Date and (ii) any amounts of interest on
Loans and fees received from the Agent which relate to the portion of the Loans
assigned to the Assignee hereunder for periods prior to the Effective Date, in
the case of Floating Rate Loans or fees, or the Payment Date, in the case of
Fixed Rate Loans, and not previously paid by the Assignee to the Assignor.]* In
the event that either party hereto receives any payment to which the other party
hereto is entitled under this Assignment Agreement, then the party receiving
such amount shall promptly remit it to the other party hereto.
*Each Assignor may insert its standard payment provisions in lieu of the payment
terms included in this Exhibit.
5. FEES PAYABLE BY THE ASSIGNEE. The Assignee shall pay to the Assignor
a fee on each day on which a payment of interest or facility fees is made under
the Credit Agreement with respect to the amounts assigned to the Assignee
hereunder (other than a payment of interest or facility fees for the period
prior to the Effective Date or, in the case of Fixed Rate Loans, the Payment
Date, which the Assignee is obligated to deliver to the Assignor pursuant to
Section 4 hereof). The amount of such fee shall be the difference between (i)
the interest or fee, as applicable, paid with respect to the amounts assigned to
the Assignee hereunder and (ii) the interest or fee, as applicable, which would
have been paid with respect to the amounts assigned to the Assignee hereunder if
each interest rate was of 1% less than the interest rate paid by the Borrower or
if the facility fee was of 1% less than the facility fee paid by the Borrower,
as applicable. In addition, the Assignee agrees to pay % of the recordation fee
required to be paid to the Agent in connection with this Assignment Agreement.
6. REPRESENTATIONS OF THE ASSIGNOR; LIMITATIONS ON THE ASSIGNOR'S
LIABILITY. The Assignor represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that such
interest is free and clear of any adverse claim created by the Assignor. It is
understood and agreed that the assignment and assumption hereunder are made
without recourse to the Assignor and that the Assignor makes no other
representation or warranty of any kind to the Assignee. Neither the Assignor nor
any of its officers, directors, employees, agents or attorneys shall be
responsible for (i) the due execution, legality, validity, enforceability,
genuineness, sufficiency or collectability of any Loan Document, including
without limitation, documents granting the Assignor and the other Lenders a
security interest in assets of the Borrower or any guarantor, (ii) any
representation, warranty or statement made in or in connection with any of the
Loan Documents, (iii) the financial condition or creditworthiness of the
Borrower or any guarantor, (iv) the performance of or compliance with any of the
terms or provisions of any of the Loan Documents, (v) inspecting any of the
Property, books or records of the Borrower, (vi) the validity, enforceability,
perfection, priority, condition, value or sufficiency of any collateral securing
or purporting to secure the Loans or (vii) any mistake, error of judgment, or
action taken or omitted to be taken in connection with the Loans or the Loan
Documents.
7. REPRESENTATIONS OF THE ASSIGNEE. The Assignee (i) confirms that it
has received a copy of the Credit Agreement, together with copies of the
financial statements requested by the Assignee and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into
-94-
<PAGE> 101
this Assignment Agreement, (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor or any other Lender and based on such
documents and information at it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Loan
Documents, (iii) appoints and authorizes the Agent to take such action as agent
on its behalf and to exercise such powers under the Loan Documents as are
delegated to the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto, (iv) agrees that it will perform in accordance
with their terms all of the obligations which by the terms of the Loan Documents
are required to be performed by it as a Lender, (v) agrees that its payment
instructions and notice instructions are as set forth in the attachment to
Schedule 1, (vi) confirms that none of the funds, monies, assets or other
consideration being used to make the purchase and assumption hereunder are "plan
assets" as defined under ERISA and that its rights, benefits and interests in
and under the Loan Documents will not be "plan assets" under ERISA, [and (viii)
attaches the forms prescribed by the Internal Revenue Service of the United
States certifying that the Assignee is entitled to receive payments under the
Loan Documents without deduction or withholding of any United States federal
income taxes].*
*to be inserted if required by the Credit Agreement.
8. INDEMNITY. The Assignee agrees to indemnify and hold the Assignor
harmless against any and all losses, costs and expenses (including, without
limitation, reasonable attorneys' fees) and liabilities incurred by the Assignor
in connection with or arising in any manner from the Assignee's non-performance
of the obligations assumed under this Assignment Agreement.
9. SUBSEQUENT ASSIGNMENTS. After the Effective Date, the Assignee shall
have the right pursuant to Section 12.3.1 of the Credit Agreement to assign the
rights which are assigned to the Assignee hereunder to any entity or person,
provided that (i) any such subsequent assignment does not violate any of the
terms and conditions of the Loan Documents or any law, rule, regulation, order,
writ, judgment, injunction or decree and that any consent required under the
terms of the Loan Documents has been obtained and (ii) unless the prior written
consent of the Assignor is obtained, the Assignee is not thereby released from
its obligations to the Assignor hereunder, if any remain unsatisfied, including,
without limitation, its obligations under [Sections 4, 5 and 8] hereof.
10. REDUCTIONS OF AGGREGATE COMMITMENT. If any reduction in the
Aggregate Commitment occurs between the date of this Assignment Agreement and
the Effective Date, the percentage interest specified in Item 3 of Schedule 1
shall remain the same, but the dollar amount purchased shall be recalculated
based on the reduced Aggregate Commitment.
11. ENTIRE AGREEMENT. This Assignment Agreement and the attached Notice
of Assignment embody the entire agreement and understanding between the parties
hereto and supersede all prior agreements and understandings between the parties
hereto relating to the subject matter hereof.
12. GOVERNING LAW. This Assignment Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Illinois.
13. NOTICES. Notices shall be given under this Assignment Agreement in
the manner set forth in the Credit Agreement. For the purpose hereof, the
addresses of the parties hereto (until notice of a change is delivered) shall be
the address set forth in the attachment to Schedule 1.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above written.
-95-
<PAGE> 102
[NAME OF ASSIGNOR]
By: ___________________________________
Title: ___________________________________
___________________________________
___________________________________
[NAME OF ASSIGNEE]
By: ___________________________________
Title: ___________________________________
___________________________________
___________________________________
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<PAGE> 103
SCHEDULE 1
to Assignment Agreement
1. Description and Date of Credit Agreement:
2. Date of Assignment Agreement: ______________, 19___
3. Amounts (As of Date of Item 2 above):
<TABLE>
<CAPTION>
Facility Facility Facility Facility
1* 2* *3 *4
<S> <C> <C> <C> <C>
a. Total of Commitments
(Loans)** under
Credit Agreement $ $ $ $
------ ------ ------ ------
b. Assignee's Percentage
of each Facility purchased
under the Assignment
Agreement*** % % % %
------ ------ ------ ------
c. Amount of Assigned Share in
each Facility purchased under
the Assignment
Agreement $ $ $ $
------ ------ ------ ------
</TABLE>
4. Assignee's Aggregate (Loan
Amount)** Commitment Amount
Purchased Hereunder: $
------
5. Proposed Effective Date: ------
Accepted and Agreed:
[NAME OF ASSIGNOR] [NAME OF ASSIGNEE]
By:_______________________ By:__________________________
Title:____________________ Title:_______________________
* Insert specific facility names per Credit Agreement
** If a Commitment has been terminated, insert outstanding Loans in
place of Commitment
*** Percentage taken to 10 decimal places
-97-
<PAGE> 104
Attachment to SCHEDULE 1 to ASSIGNMENT AGREEMENT
Attach Assignor's Administrative Information Sheet, which
must include notice address for the Assignor and the Assignee
-98-
<PAGE> 105
ANNEX "I"
to Assignment Agreement
NOTICE
OF ASSIGNMENT
_____________, 19___
To: [NAME OF BORROWER]*
___________________
___________________
[NAME OF AGENT]
___________________
___________________
From: [NAME OF ASSIGNOR] (the "Assignor")
[NAME OF ASSIGNEE] (the "Assignee")
1. We refer to that Credit Agreement (the "Credit Agreement")
described in Item 1 of Schedule 1 attached hereto ("Schedule 1"). Capitalized
terms used herein and not otherwise defined herein shall have the meanings
attributed to them in the Credit Agreement.
2. This Notice of Assignment (this "Notice") is given and
delivered to the Borrower and the Agent pursuant to Section 12.3.2 of the Credit
Agreement.
3. The Assignor and the Assignee have entered into an Assignment
Agreement, dated as of , 19 (the "Assignment"), pursuant to which, among other
things, the Assignor has sold, assigned, delegated and transferred to the
Assignee, and the Assignee has purchased, accepted and assumed from the Assignor
the percentage interest specified in Item 3 of Schedule 1 of all outstandings,
rights and obligations under the Credit Agreement relating to the facilities
listed in Item 3 of Schedule 1. The Effective Date of the Assignment shall be
the later of the date specified in Item 5 of Schedule 1 or two Business Days (or
such shorter period as agreed to by the Agent) after this Notice of Assignment
and any consents and fees required by Sections 12.3.1 and 12.3.2 of the Credit
Agreement have been delivered to the Agent, provided that the Effective Date
shall not occur if any condition precedent agreed to by the Assignor and the
Assignee has not been satisfied.
*To be included only if consent must be obtained from the Borrower pursuant to
Section 12.3.1 of the Credit Agreement.
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<PAGE> 106
4. The Assignor and the Assignee hereby give to the Borrower and
the Agent notice of the assignment and delegation referred to herein. The
Assignor will confer with the Agent before the date specified in Item 5 of
Schedule 1 to determine if the Assignment Agreement will become effective on
such date pursuant to Section 3 hereof, and will confer with the Agent to
determine the Effective Date pursuant to Section 3 hereof if it occurs
thereafter. The Assignor shall notify the Agent if the Assignment Agreement does
not become effective on any proposed Effective Date as a result of the failure
to satisfy the conditions precedent agreed to by the Assignor and the Assignee.
At the request of the Agent, the Assignor will give the Agent written
confirmation of the satisfaction of the conditions precedent.
5. The Assignor or the Assignee shall pay to the Agent on or
before the Effective Date the processing fee of $3,500 required by Section
12.3.2 of the Credit Agreement.
6. If Notes are outstanding on the Effective Date, the Assignor
and the Assignee request and direct that the Agent prepare and cause the
Borrower to execute and deliver new Notes or, as appropriate, replacements
notes, to the Assignor and the Assignee. The Assignor and, if applicable, the
Assignee each agree to deliver to the Agent the original Note received by it
from the Borrower upon its receipt of a new Note in the appropriate amount.
7. The Assignee advises the Agent that notice and payment
instructions are set forth in the attachment to Schedule 1.
8. The Assignee hereby represents and warrants that none of the
funds, monies, assets or other consideration being used to make the purchase
pursuant to the Assignment are "plan assets" as defined under ERISA and that its
rights, benefits, and interests in and under the Loan Documents will not be
"plan assets" under ERISA.
9. The Assignee authorizes the Agent to act as its agent under
the Loan Documents in accordance with the terms thereof. The Assignee
acknowledges that the Agent has no duty to supply information with respect to
the Borrower or the Loan Documents to the Assignee until the Assignee becomes a
party to the Credit Agreement.*
*May be eliminated if Assignee is a party to the Credit Agreement prior to the
Effective Date.
NAME OF ASSIGNOR NAME OF ASSIGNEE
By:_______________________ By:________________________________
Title:____________________ Title:_____________________________
ACKNOWLEDGED [AND CONSENTED TO] ACKNOWLEDGED [AND CONSENTED TO]
BY [NAME OF AGENT] BY [NAME OF BORROWER]
By:_______________________ By:________________________________
Title:____________________ Title:_____________________________
[Attach photocopy of Schedule 1 to Assignment]
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<PAGE> 107
EXHIBIT "L"
LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION
To The First National Bank of Chicago,
as Agent (the "Agent") under the Credit Agreement
Described Below.
Re: Amended and Restated Credit Agreement, dated February 19, 1998 (as the
same may be amended or modified, the "Credit Agreement"), among Mego
Mortgage Corporation (the "Borrower"), the Lenders named therein and the
Agent. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned thereto in the Credit Agreement.
The Agent is specifically authorized and directed to act upon the
following standing money transfer instructions with respect to the proceeds of
Advances or other extensions of credit from time to time until receipt by the
Agent of a specific written revocation of such instructions by the Borrower,
provided, however, that the Agent may otherwise transfer funds as hereafter
directed in writing by the Borrower in accordance with Section 13.1 of the
Credit Agreement or based on any telephonic notice made in accordance with
Section 2.14 of the Credit Agreement.
Facility Identification Number(s)_______________________________________________
Customer/Account Name___________________________________________________________
Transfer Funds To_______________________________________________________________
___________________________________________________________
___________________________________________________________
For Account No._________________________________________________________________
Reference/Attention To__________________________________________________________
Authorized Officer (Customer Representative) Date_____________________________
_______________________________________ _________________________________
(Please Print) Signature
Bank Officer Name Date_____________________________
_______________________________________ _________________________________
(Please Print) Signature
(Deliver Completed Form to Credit Support Staff For Immediate Processing)
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<PAGE> 108
EXHIBIT "M"
MARKET VALUATION FORMULA
See most recent pricing letter from Greenwich Capital Markets, Inc. or other
Approved Investors.
-102-
<PAGE> 109
EXHIBIT "N"
CURRENT APPROVED MARKET VALUE REFERENCE INVESTORS
1. Empire Funding
2. FirstPlus Financial, Inc.
3. The Money Store
4. Master Financial
5. Residential Funding Corp.
-103-
<PAGE> 110
EXHIBIT "O"
FORM OF FNMA EARLY FUNDING TRANSACTION LETTER
-104-
<PAGE> 111
EXHIBIT "L"
LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION
To The First National Bank of Chicago,
as Agent (the "Agent") under the Credit Agreement
Described Below.
Re: Amended and Restated Credit Agreement, dated February 19, 1998 (as the
same may be amended or modified, the "Credit Agreement"), among Mego
Mortgage Corporation (the "Borrower"), the Lenders named therein and the
Agent. Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned thereto in the Credit Agreement.
The Agent is specifically authorized and directed to act upon the
following standing money transfer instructions with respect to the proceeds of
Advances or other extensions of credit from time to time until receipt by the
Agent of a specific written revocation of such instructions by the Borrower,
provided, however, that the Agent may otherwise transfer funds as hereafter
directed in writing by the Borrower in accordance with Section 13.1 of the
Credit Agreement or based on any telephonic notice made in accordance with
Section 2.14 of the Credit Agreement.
Facility Identification Number(s)_______________________________________________
Customer/Account Name___________________________________________________________
Transfer Funds To_______________________________________________________________
___________________________________________________________
___________________________________________________________
For Account No._________________________________________________________________
Reference/Attention To__________________________________________________________
Authorized Officer (Customer Representative) Date_____________________________
_______________________________________ _________________________________
(Please Print) Signature
Bank Officer Name Date_____________________________
_______________________________________ _________________________________
(Please Print) Signature
(Deliver Completed Form to Credit Support Staff For Immediate Processing)
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<PAGE> 1
EXHIBIT 10.73
[PREFERRED EQUITIES CORPORATION LETTERHEAD]
January 20, 1998
Mego Mortgage Corporation
1000 Parkwood Circle, 5th Floor
Atlanta, GA 30339
Attention: James L. Belter, Executive Vice President
Re: Services and Consulting Agreement (the "Agreement") dated as of September
1, 1996 between Mego Mortgage Corporation ("MMC") and Preferred Equities
Corporation ("PEC")
Gentlemen:
This letter serves to confirm our agreement that commencing January 1, 1998 the
remuneration to be paid by MMC to PEC under the Agreement shall be at the annual
rate of $528,000.00 as more particularly itemized on Exhibit A attached hereto
and made a part hereof. Such sum will be payable at the rate of $44,000.00 per
month due and payable on the first business day of each month. Except as
modified hereby, all other terms and conditions of the Agreement shall remain in
full force and effect.
Please sign a copy of this letter in the space indicated below to indicate your
acceptance and approval of the foregoing
Very truly yours,
PREFERRED EQUITIES CORPORATION
By: /s/ FREDERICK H. CONTE
----------------------------------------------
Frederick H. Conte, Executive Vice President
Accepted and approved as of this 20th day of January, 1998.
MEGO MORTGAGE CORPORATION
By: /s/ JAMES L. BELTER
-------------------------------------------
Jame L. Belter, Executive Vice President
<PAGE> 2
EXHIBIT A
MMC MANAGEMENT SERVICES' AGREEMENT
<TABLE>
<CAPTION>
------------------------------
(Est.) (Rounded)
FY 1997 FY 1998 FY 1998
------------------------------
STRATEGIC PLANNING, MANAGEMENT AND TAX
<S> <C> <C> <C>
J. Cohen 163,800 --
Executive Office 155,400 4,314
SVP, Finance 100,800 81,589
------------------------------
420,000 85,903 86,000
------------------------------
ACCOUNTING AND FINANCE
Treasurer 4,175 4,584
Payroll 32,675 --
Accounting/Reporting 185,150 135,066
------------------------------
222,000 139,650 140,000
------------------------------
LEGAL 163,000 206,909 207,000
------------------------------
INFORMATION SYSTEMS 123,000 80,495 80,000
------------------------------
INSURANCE MANAGEMENT 16,000 12,830 13,000
------------------------------
HUMAN RESOURCES 19,000 -- --
------------------------------
OTHER
Purchasing 1,000 --
Advertising 3,000 --
------------------------------
4,000 -- --
------------------------------
------------------------------
TOTAL 967,000 525,787 528,000
------------------------------
</TABLE>
<PAGE> 3
MMC Allocation %'s
------------------
FY 97 % FY 98 %
------------------
(as of 1/1/98)
STRATEGIC PLANNING, ETC.
- ------------------------
Executive Office
D. Bottwin 20 10
SVP, Finance
H. Hirsch 30 25
ACCOUNTING AND FINANCE
- ----------------------
Treasurer
R. Rodriguez 2 2
CAO -- Accounting / Reporting
C. Baltuskonis 5 10
B. Coughlin 0 5
M. Sullivan 40 50
P. Bruhns 0 50
K. Morishige 20 50
D. Harrison 20 50
LEGAL
- -----
D. Mayerson 50 75
L. Morganroth 25 50
INFORMATION SYSTEMS
M. O'Brien 40 10
K. O'Brien 0 15
M. Kendall 0 100
INSURANCE MANAGEMENT
- --------------------
J. Goldstein 7.5 7.5
<PAGE> 1
EXHIBIT 10.74
[PREFERRED EQUITIES CORPORATION LETTERHEAD]
January 20, 1998
Mego Mortgage Corporation
1000 Parkwood Circle, 5th Floor
Atlanta, GA 30339
Attention: James L. Belter, Executive Vice President
Re: Loan Program Sub-Servicing Agreement dated as of September 1, 1996 between
Preferred Equities Corporation ("PEC") and Mego Mortgage Corporation
("MMC") as amended by Letter Agreement dated September 2, 1997 (and as
amended, the "Agreement")
Gentlemen:
This letter serves to confirm our agreement that the monthly servicing fee of
one-twelfth (1/12) of four tenths (4/10) of one percent (0.40%) of the
outstanding principal balance of all loans being serviced on the first day of
the prior month as set forth in Article 4 of the Agreement is hereby modified
and amended to be one-twelfth (1/1 2) of thirty-five one hundredths (35/100) of
one percent (0.35%) commencing for the month of January 1998. Except as modified
hereby, all other terms and conditions of the Agreement shall remain in full
force and effect.
Please sign a copy of this letter in the space indicated below to indicate your
acceptance and approval of the foregoing.
Very truly yours,
PREFERRED EQUITIES CORPORATION
By: /s/ FREDERICK H. CONTE
----------------------------------------------
Frederick H. Conte, Executive Vice President
Accepted and approved as of this 20th day of January, 1998.
MEGO MORTGAGE CORPORATION
By: /s/ JAMES L. BELTER
-------------------------------------------
Jame L. Belter, Executive Vice President
<PAGE> 1
EXHIBIT 10.75
[MEGO MORTGAGE LETTERHEAD]
February 9, 1998
Mr. Frederick H. Conte
Executive Vice President
Preferred Equities Corporation
4310 Paradise Road
Las Vegas, NV 89109
Re: Assignment by Mego Mortgage Corporation ("MMC") of its rights under the
Loan Program Sub Servicing Agreement dated as of September 1, 1996 as
amended between MMC and Preferred Equities Corporation ("PEC") (the
"Agreement")
Dear Mr. Conte:
As of February 10, 1998, MMC has entered into an Amendment of the Excess Yield
and Servicing Rights Purchase and Assumption Agreement dated January 22, 1998
(the "Amendment") (the "Purchase Agreement") with Greenwich Capital Markets,
Inc. (the "Purchaser"). Pursuant to Section 2(f) of the Amendment, MMC has
assigned, to the Purchaser, all of its rights and obligations under the
Agreement arising from and after February 3, 1998 with respect to the Additional
Conventional Loans, as defined in the Amendment: provided, however, each of MMC
and PEC hereby expressly acknowledge and agree that any fees and expenses owed
to PEC for services rendered (other than with respect to the Existing
Conventional Loans) prior to February 3, 1998 shall remain the sole obligation
of MMC.
As required by Section 2(h)(iv) of the Amendment, PEC hereby consents to such
assignment by MMC of MMC's rights under the Agreement solely with respect to the
Additional Conventional Loans, including without limitation terms and conditions
relating to MMC's ability to terminate PEC as subservicer in the Agreement with
respect to the Additional Conventional Loans. Each of the parties hereto agree
that upon such assignment, PEC shall service the Additional Conventional Loans
for the sole and exclusive benefit of the Purchaser.
Purchaser will have the option of removing any or all of the Additional
Conventional Loans from the serviced portfolio with 48 hours prior written
notice to PEC. The servicing fee for the deleted loans for any calendar month
will be pro-rated in accordance with the actual number of days the deleted loans
were serviced in a calendar month. For purposes of this computation, a calendar
month will consist of 30 days. With 48 hours prior written notice, PEC also
agrees to transfer to such entity designated by Purchaser any and all files,
documents, instruments and information in its possession with respect to such
Additional Conventional Loans upon Purchaser's removal of the relevant loans
from the Agreement.
<PAGE> 2
Please execute the attached copy of this letter thereby acknowledging the
consent by PEC to the assignment by MMC of MMC's rights under the Agreement with
respect to the Additional Conventional Loans on the terms outlined above.
Very truly yours,
/s/ JAMES L. BELTER
James L. Belter
Agreed and Accepted
Preferred Equities Corporation
By : /s/ Jerome J. Cohen
--------------------------------
Title: President
----------------------------
Date: 2/10/98
----------------------------
<PAGE> 1
EXHIBIT 10.76
AMENDMENT
AMENDMENT, dated as of February 10, 1998 (this "Amendment"), to the
Excess Yield and Servicing Rights Purchase and Assumption Agreement, dated as of
January 22, 1998 (as amended, supplemented or otherwise modified from time to
time, the "Excess Yield Agreement"), among GREENWICH CAPITAL MARKETS, INC., as
purchaser (the "Purchaser"), and MEGO MORTGAGE CORPORATION, as seller (the
"Seller")
RECITALS
WHEREAS, pursuant to the Excess Yield Agreement, the Seller has sold and
transferred and the Purchaser has purchased the Excess Yield and Servicing
Rights with respect to Existing Conventional Loans (as defined in the Excess
Yield Agreement),
WHEREAS, pursuant to the Excess Yield Agreement, the Seller contemplated
selling to the Purchaser the Existing FHA Loans on the FHA Loan Closing Date,
but the FHA Loan Closing Date has never taken place and such sale has never been
consummated;
WHEREAS, the Seller desires to sell and transfer and the Purchaser
desires to purchase certain Additional Conventional Loans (as defined herein)
pursuant to the Amended and Restated Master Loan Purchase and Servicing
Agreement, dated as of October 1, 1996 (the "Original Agreement");
WHEREAS, the Seller desires to sell and transfer and the Purchaser
desires to purchase the Excess Yield and Servicing Rights with respect to the
Additional Conventional Loans pursuant to the Excess Yield Agreement, as
modified by this Amendment; and
WHEREAS, the Seller and the Purchaser desire to amend the Excess Yield
Agreement solely with respect to the Additional Conventional Loans, and that
with respect to Existing Loans (as defined in the Excess Yield Agreement), the
original Excess Yield Agreement terms shall continue to govern.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Seller and the Purchaser hereby
agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
Excess Yield Agreement are used herein as therein defined.
2. Amendments. Except as expressly amended hereby, the Excess Yield
Agreement shall remain in full force and effect in accordance with its terms,
without any waiver, amendment or modification of any provision thereof. All
provisions contained in this
<PAGE> 2
Amendment shall only apply to Additional Conventional Loans and shall in no way
modify the terms relating to Existing Loans (as defined in the Excess Yield
Agreement). Additionally, sections of the Excess Yield Agreement not modified by
this Amendment shall, as of the Additional Conventional Loan Closing Date, apply
to the Additional Conventional Loans to the same extent as they applied to the
Existing Conventional Loans. Sections or definitions of the Excess Yield
Agreement corresponding to the section or definition below are hereby amended by
deleting such section or definition and substituting in lieu thereof the
following:
a) Additional Conventional Loans. All Additional Conventional
Loans, as further described on the Additional Conventional
Loan Schedule attached hereto as Exhibit I.
b) Additional Conventional Loan Closing Date. The date on which
the Purchaser shall pay the Additional Conventional Loan
Purchase Price to the Seller, which date shall be February 10,
1998, or such other date or dates as shall be mutually agreed
upon by the parties hereto.
c) Additional Conventional Loan Purchase Price. The price to be
paid by the Purchaser to the Seller in exchange for the Excess
Yield and the Servicing Rights with respect to the Additional
Conventional Loans as set forth in Article III of the Excess
Yield Agreement.
d) Additional Conventional Loan Cut-Off Date. The close of
business on February 3, 1998.
e) Existing Conventional Loans. As defined in the Excess Yield
Agreement, and hereafter including all Additional Conventional
Loans.
f) Existing Loans: As defined in the Excess Yield Agreement, and
hereafter including all Additional Conventional Loans.
g) Servicing Expiration Date. The Servicing Expiration Date shall
mean February 28, 1998, as such date may be extended from time
to time pursuant to Section 7.03 of the Excess Yield
Agreement.
h) Section 2.01. Additional Conventional Loans.
(a) On the Additional Conventional Loan Closing Date, the
Seller does hereby sell, transfer, assign, set over and convey
to the Purchaser (to the extent that the following have not
already been conveyed to the Purchaser under the Original
Agreement), without recourse, subject to the following
sentence, but subject to the terms of this Agreement, (i) all
right, title and interest of the Seller in and to the Excess
Yield and the Servicing Rights with respect to the Additional
Conventional Loans as of the Additional Conventional Loan
Cut-Off Date, and (ii) all of the Seller's rights under the
PEC Sub-Servicing Agreement with respect to Additional
Conventional
-2-
<PAGE> 3
Loans as of the Additional Conventional Loan Cut-Off Date.
Notwithstanding the foregoing sentence, the Seller shall upon
demand of the Purchaser repurchase from the Purchaser, at the
Repurchase Price, any such Additional Conventional Loan that
thereafter becomes a Delinquent Loan (as defined in the
Original Agreement); provided, however, that the Seller's
liability pursuant to this sentence shall not, in the
aggregate, exceed the product of (i) 0.025 and (ii) the
aggregate "Cut-Off Date Principal Balance" of the Additional
Conventional Loans as set forth on Exhibit A (such product,
the "Recourse Limit").
(b) On the Additional Conventional Loan Closing Date, the
Purchaser does hereby (to the extent that the following have
not already been conveyed to the Purchaser under the Original
Agreement), (i) accept assignment of all right, title and
interest of the Seller in and to the Excess Yield and the
Servicing Rights with respect to the Additional Conventional
Loans as of the Additional Conventional Loan Cut-Off Date and
(ii) assume, subject to the terms of this Agreement, all
obligations of the Seller with respect to the Servicing Rights
and the PEC Sub-Servicing Agreement relating to the Additional
Conventional Loans as of the Additional Conventional Loan
Cut-Off Date; provided, however, that the Purchaser expressly
does not assume any liability relating to or in any way
arising out of the foregoing obligations prior to the
Additional Conventional Loan Cut-Off Date.
(c) Notwithstanding the foregoing and notwithstanding the
servicing provisions contained in the Original Agreement, for
the period beginning on the Additional Conventional Loan
Closing Date and ending on the Servicing Termination Date, the
Seller shall service the Additional Conventional Loans
pursuant to the revised Servicing Addendum, attached hereto as
Exhibit F, as described in Article VII hereof.
(d) From and after the Additional Conventional Loan Closing
Date, and notwithstanding the fact that certain documents,
files, records or other information which comprise a portion
of the Servicing Rights may remain at the Seller's premises
until the Servicing Termination Date or thereafter, (i) the
Seller's right to service the Additional Conventional Loans
shall absolutely and irrevocably terminate (subject to Article
VII hereof) and (ii) the Seller shall have no property,
contract, possessory or other right, title or interest of any
nature whatsoever in or to the Servicing Rights (including any
such documents, files, records or other information at the
Seller's premises, all of which shall be the sole property of
the Purchaser) or the Excess Yield with respect to the
Additional Conventional Loans. The Purchaser and Seller agree
that no termination fee, liquidated damages or any other fee
or monies triggered by the termination of the Seller's right
to service the Additional Conventional Loans shall be payable
to the Servicer as a result of the termination of such
servicing and the transactions
-3-
<PAGE> 4
contemplated by this Agreement, it being expressly understood
that the payment of the Additional Conventional Loan Purchase
Price by the Purchaser shall constitute, in and of itself, the
full consideration payable to the Seller for its sale of the
Excess Yield and the Servicing Rights with respect to the
Additional Conventional Loans and the other transactions
contemplated hereby; provided, however, that the Seller shall
be entitled to receive the Servicing Fee as and when
contemplated by the Original Agreement, as modified by Exhibit
F, with respect to its servicing of the Additional
Conventional Loans for the Purchaser for the period from the
Additional Conventional Loan Cut-Off Date until the Servicing
Termination Date.
i) Section 2.03 Intention of the Parties.
It is the express intention of the parties hereto that
the transactions contemplated by this Agreement and the
Original Agreement be, and be construed as, a sale of rights
and interests relating to the Additional Conventional Loans by
the Seller and not a pledge of the rights and interests
relating to the Additional Conventional Loans by the Seller to
the Purchaser to secure a debt or other obligation of the
Seller. However, in the event that the Additional Conventional
Loans and other rights transferred under this Agreement are
held to be property of the Seller, or if for any reason this
Agreement is held or deemed to create a security interest in
the Additional Conventional Loans and related rights then it
is intended that (a) this Agreement shall also be deemed to be
a security agreement within the meaning of the Uniform
Commercial Code of any applicable jurisdiction and the Seller
hereby grants to the Purchaser a security interest in all of
Seller's right, title and interest, whether now owned or
hereafter acquired, in and to the Additional Conventional
Loans; (b) the possession by the Purchaser of the related
Notes or such other items of property as constitute
instruments, money, negotiable documents or chattel paper
shall be deemed to be "possession by the secured party", or
possession by a purchaser or a person designated by such
secured party, for purposes of perfecting the security
interest pursuant to the Uniform Commercial Code of any
applicable jurisdiction (including, without limitations,
Section 9-305, 8-313 or 8-321 thereof); (c) notifications to
persons holding such property, and acknowledgments, receipts
or confirmations from persons holding such property, shall be
deemed notifications to, or acknowledgments, receipts or
confirmations from, financial intermediaries, bailees or
agents (as applicable) of the Purchaser for the purpose of
perfecting such security interest under applicable law; and
(d) for purposes of this Agreement and the Pricing Letter,
"Loan Documents' shall include UCC-1 financing statements in
form acceptable for filing in the applicable jurisdictions in
which are located the principal place of business and the
executive offices of the Seller and executed by the Seller in
favor of the Purchaser.
-4-
<PAGE> 5
j) ARTICLE IV ADDITIONAL PAYMENTS:
The Purchaser and the Seller understand that the
Purchaser shall have the right to sell the Additional
Conventional Loans in whole or in part in its discretion on a
servicing released or servicing retained basis.
The Purchaser acknowledges that the Seller has made
certain contacts and tentative arrangements with potential
purchasers of the Additional Conventional Loans, and agrees
that it shall pay to the Seller a fee (such fee, the
"Additional Payments") equal to:
(a) With respect to any Purchaser Disposition of an
Additional Conventional Loan, except as provided in
paragraph (b) below, an amount equal to the product of the
Disposition Net Proceeds and (i) 87.5%, in the case of a
sale consummated within 30 days following the Additional
Conventional Loan Closing Date for such Loan, (ii) 80%, in
the case of a sale consummated between 31 and 60 days
following the Additional Conventional Loan Closing Date
for such Loan, (iii) 66 2/3%, in the case of a sale
consummated between 61 and 90 days following the
Additional Conventional Loan Closing Date for such Loan
and (iv) 33 1/3%, in the case of a sale consummated 91 or
more days following the Additional Conventional Loan
Closing Date for such Additional Conventional Loan, or
such other amounts agreed upon by the parties from time to
time.
(b) With respect to a Purchaser Disposition of an
Additional Conventional Loan which is arranged solely by
the Purchaser, an amount equal to the product of (i) 66
2/3% and (ii) the amount otherwise applicable pursuant to
paragraph (a) above.
k) Section 9.01. Additional Conventional Loan Closing.
(a) The closing for the purchase and sale of the Excess Yield
and the Servicing Rights with respect to the Additional
Conventional Loans, shall take place on the Additional
Conventional Loan Closing Date. At the Purchaser's option,
the closing shall be either: by telephone, confirmed by
letter or wire as the parties shall agree; or conducted in
person, at such place as the parties shall agree.
(b) The closing shall be subject to the following conditions:
(i) all of the representations and warranties of the
Seller and the Purchaser under this Agreement shall be
true and correct as of the Additional Conventional
Loan Closing Date and no event shall have occurred
which, with notice or the passage of time, would
constitute a default under this Agreement;
-5-
<PAGE> 6
(ii) the Purchaser shall have received, or the Purchaser's
attorneys shall have received in escrow, all Closing
Documents as specified in Section 9.01(c) of this
Agreement, in such forms as are agreed upon and
acceptable to the Seller and the Purchaser, duly
executed by all signatories other than the Purchaser
as required pursuant to the respective terms thereof;
(iii) the Seller shall have received the amount of the
Additional Conventional Loan Purchase Price by wire
transfer of immediately available federal funds to the
account designated by the Seller;
(iv) PEC shall have consented to the assignment of the PEC
Sub-Servicing Agreement with respect to the Additional
Conventional Loans on such terms and conditions as
shall be acceptable to the Purchaser in its sole
discretion, including without limitation terms and
conditions relating to the Purchaser's ability to
terminate PEC as subservicer of the PEC Sub-Servicing
Agreement with respect to the Additional Conventional
Loans as contemplated hereunder;
(v) the "Collection Account" and the "REO Account"
referenced in the Original Agreement shall be in the
name of the Purchaser within three (3) Business Days
following the Additional Conventional Loan Closing
Date; and
(vi) all other terms and conditions of this Agreement to
be performed or satisfied on or before the Additional
Conventional Loan Closing Date shall have been
complied with.
(c) The closing documents to be delivered on the Additional
Conventional Loan Closing Date shall consist of fully
executed originals of the following documents:
(i) this Agreement;
(ii) an Officer's Certificate from the Seller in the form
attached hereto as Exhibit B;
(iii) an Opinion of Counsel from the Seller in the form
attached hereto as Exhibit C;
(iv) a "true sale" Opinion of Counsel from the Seller, in
form and substance satisfactory to the Purchaser;
3. Effectiveness. This Amendment shall become effective upon receipt by
the Purchaser of evidence satisfactory to the Purchaser that this Amendment has
been executed and delivered by the Seller.
-6-
<PAGE> 7
4. Counterparts. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
5. Expenses. The Seller agrees to pay and reimburse the Purchaser for
all of the out-of-pocket costs and expenses incurred by the Purchaser in
connection with the preparation, execution and delivery of this Amendment,
including, without limitation, the fees and disbursements of counsel to the
Purchaser.
6. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
[SIGNATURE PAGES FOLLOW]
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
MEGO MORTGAGE CORPORATION
as Seller
By:
---------------------------------
Name:
Title:
GREENWICH CAPITAL MARKETS, INC.,
as Purchaser
By:
---------------------------------
Name:
Title:
-8-
<PAGE> 9
EXHIBIT I
ADDITIONAL CONVENTIONAL LOAN SCHEDULE
<PAGE> 1
EXHIBIT 10.77
SECOND AMENDMENT
AMENDMENT, dated as of March 6, 1998 (this "Amendment"), to the Excess
Yield and Servicing Rights Purchase and Assumption Agreement, dated as of
January 22, 1998 (as amended, supplemented or otherwise modified from time to
time, the "Excess Yield Agreement"), among GREENWICH CAPITAL MARKETS, INC., as
purchaser (the "Purchaser"), and MEGO MORTGAGE CORPORATION, as seller (the
"Seller")
RECITALS
WHEREAS, pursuant to the Excess Yield Agreement, the Seller has sold and
transferred and the Purchaser has purchased the Excess Yield and Servicing
Rights with respect to Existing Conventional Loans (as defined in the Excess
Yield Agreement),
WHEREAS, pursuant to the Excess Yield Agreement, the Seller contemplated
selling to the Purchaser the Existing FHA Loans on the FHA Loan Closing Date,
but the FHA Loan Closing Date has never taken place and such sale has never been
consummated;
WHEREAS, the Seller desires to sell and transfer and the Purchaser
desires to purchase certain Second Pool Additional Conventional Loans (as
defined herein) pursuant to the Amended and Restated Master Loan Purchase and
Servicing Agreement, dated as of October 1, 1996 (the "Original Agreement");
WHEREAS, the Seller desires to sell and transfer and the Purchaser
desires to purchase the Excess Yield and Servicing Rights with respect to the
Second Pool Additional Conventional Loans pursuant to the Excess Yield
Agreement, as modified by this Amendment; and
WHEREAS, the Seller and the Purchaser desire to amend the Excess Yield
Agreement solely with respect to the Second Pool Additional Conventional Loans
referenced herein, and that with respect to Existing Loans (as defined in the
Excess Yield Agreement), the original Excess Yield Agreement terms shall
continue to govern, and with respect to the Additional Conventional Loans (as
defined in the Amendment, dated as of February 10, 1998, between Purchaser and
Seller (the "First Amendment")) the First Amendment shall continue to govern.
NOW, THEREFORE, in consideration of the mutual agreements hereinafter
set forth and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Seller and the Purchaser hereby
agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms defined in the
Excess Yield Agreement are used herein as therein defined.
<PAGE> 2
2. Amendments. Except as expressly amended hereby, the Excess Yield
Agreement shall remain in full force and effect in accordance with its terms,
without any waiver, amendment or modification of any provision thereof. All
provisions contained in this Amendment shall only apply to Second Pool
Additional Conventional Loans referenced herein and shall in no way modify the
terms relating to Existing Loans (as defined in the Excess Yield Agreement) or
the Additional Conventional Loans (as defined in the First Amendment) or
relating to. Additionally, sections of the Excess Yield Agreement not modified
by this Amendment shall, as of the Second Pool Additional Conventional Loan
Closing Date, apply to the Second Pool Additional Conventional Loans to the same
extent as they applied to the Existing Conventional Loans. Sections or
definitions of the Excess Yield Agreement corresponding to the section or
definition below are hereby amended by deleting such section or definition and
substituting in lieu thereof the following:
a) Existing Conventional Loans. As defined in the Excess Yield
Agreement, and hereafter including all Second Pool Additional
Conventional Loans.
b) Existing Loans: As defined in the Excess Yield Agreement, and
hereafter including all Second Pool Additional Conventional
Loans.
c) Second Pool Additional Conventional Loans. All Second Pool
Additional Conventional Loans, as further described on the
Second Pool Additional Conventional Loan Schedule attached
hereto as Exhibit I.
d) Second Pool Additional Conventional Loan Closing Date. The
date on which the Purchaser shall pay the Second Pool
Additional Conventional Loan Purchase Price to the Seller,
which date shall be March 6, 1998, or such other date or dates
as shall be mutually agreed upon by the parties hereto.
e) Second Pool Additional Conventional Loan Purchase Price. The
price to be paid by the Purchaser to the Seller in exchange
for the Excess Yield and the Servicing Rights with respect to
the Second Pool Additional Conventional Loans as set forth in
Article III of the Excess Yield Agreement.
f) Second Pool Additional Conventional Loan Cut-Off Date. The
close of business on March __, 1998.
g) Servicing Expiration Date. The Servicing Expiration Date shall
mean March __, 1998, as such date may be extended from time to
time pursuant to Section 7.03 of the Excess Yield Agreement.
h) Section 2.01. Second Pool Additional Conventional Loans.
(a) On the Second Pool Additional Conventional Loan Closing
Date, the Seller does hereby sell, transfer, assign, set over
and convey to the Purchaser (to the extent that the following
have not already been conveyed to the Purchaser under the
Original Agreement), without recourse, subject to
-2-
<PAGE> 3
the following sentence, but subject to the terms of this
Agreement, (i) all right, title and interest of the Seller in
and to the Excess Yield and the Servicing Rights with respect
to the Second Pool Additional Conventional Loans as of the
Second Pool Additional Conventional Loan Cut-Off Date, and
(ii) all of the Seller's rights under the PEC Sub-Servicing
Agreement with respect to Second Pool Additional Conventional
Loans as of the Second Pool Additional Conventional Loan
Cut-Off Date. Notwithstanding the foregoing sentence, the
Seller shall upon demand of the Purchaser repurchase from the
Purchaser, at the Repurchase Price, any such Second Pool
Additional Conventional Loan that thereafter becomes a
Delinquent Loan (as defined in the Original Agreement);
provided, however, that the Seller's liability pursuant to
this sentence shall not, in the aggregate, exceed the product
of (i) 0.025 and (ii) the aggregate "Cut-Off Date Principal
Balance" of the Second Pool Additional Conventional Loans as
set forth on Exhibit A (such product, the "Recourse Limit").
(b) On the Second Pool Additional Conventional Loan Closing
Date, the Purchaser does hereby (to the extent that the
following have not already been conveyed to the Purchaser
under the Original Agreement), (i) accept assignment of all
right, title and interest of the Seller in and to the Excess
Yield and the Servicing Rights with respect to the Second Pool
Additional Conventional Loans as of the Second Pool Additional
Conventional Loan Cut-Off Date and (ii) assume, subject to the
terms of this Agreement, all obligations of the Seller with
respect to the Servicing Rights and the PEC Sub-Servicing
Agreement relating to the Second Pool Additional Conventional
Loans as of the Second Pool Additional Conventional Loan
Cut-Off Date; provided, however, that the Purchaser expressly
does not assume any liability relating to or in any way
arising out of the foregoing obligations prior to the Second
Pool Additional Conventional Loan Cut-Off Date.
(c) Notwithstanding the foregoing and notwithstanding the
servicing provisions contained in the Original Agreement, for
the period beginning on the Second Pool Additional
Conventional Loan Closing Date and ending on the Servicing
Termination Date, the Seller shall service the Second Pool
Additional Conventional Loans pursuant to the revised
Servicing Addendum, attached hereto as Exhibit F, as described
in Article VII hereof.
(d) From and after the Second Pool Additional Conventional
Loan Closing Date, and notwithstanding the fact that certain
documents, files, records or other information which comprise
a portion of the Servicing Rights may remain at the Seller's
premises until the Servicing Termination Date or thereafter,
(i) the Seller's right to service the Second Pool Additional
Conventional Loans shall absolutely and irrevocably terminate
(subject to Article VII hereof) and (ii) the Seller shall have
no property, contract,
-3-
<PAGE> 4
possessory or other right, title or interest of any nature
whatsoever in or to the Servicing Rights (including any such
documents, files, records or other information at the Seller's
premises, all of which shall be the sole property of the
Purchaser) or the Excess Yield with respect to the Second Pool
Additional Conventional Loans. The Purchaser and Seller agree
that no termination fee, liquidated damages or any other fee
or monies triggered by the termination of the Seller's right
to service the Second Pool Additional Conventional Loans shall
be payable to the Servicer as a result of the termination of
such servicing and the transactions contemplated by this
Agreement, it being expressly understood that the payment of
the Second Pool Additional Conventional Loan Purchase Price by
the Purchaser shall constitute, in and of itself, the full
consideration payable to the Seller for its sale of the Excess
Yield and the Servicing Rights with respect to the Second Pool
Additional Conventional Loans and the other transactions
contemplated hereby; provided, however, that the Seller shall
be entitled to receive the Servicing Fee as and when
contemplated by the Original Agreement, as modified by Exhibit
F, with respect to its servicing of the Second Pool Additional
Conventional Loans for the Purchaser for the period from the
Second Pool Additional Conventional Loan Cut-Off Date until
the Servicing Termination Date.
i) Section 2.03 Intention of the Parties.
It is the express intention of the parties hereto that
the transactions contemplated by this Agreement and the
Original Agreement be, and be construed as, a sale of rights
and interests relating to the Second Pool Additional
Conventional Loans by the Seller and not a pledge of the
rights and interests relating to the Second Pool Additional
Conventional Loans by the Seller to the Purchaser to secure a
debt or other obligation of the Seller. However, in the event
that the Second Pool Additional Conventional Loans and other
rights transferred under this Agreement are held to be
property of the Seller, or if for any reason this Agreement is
held or deemed to create a security interest in the Second
Pool Additional Conventional Loans and related rights then it
is intended that (a) this Agreement shall also be deemed to be
a security agreement within the meaning of the Uniform
Commercial Code of any applicable jurisdiction and the Seller
hereby grants to the Purchaser a security interest in all of
Seller's right, title and interest, whether now owned or
hereafter acquired, in and to the Second Pool Additional
Conventional Loans; (b) the possession by the Purchaser of the
related Notes or such other items of property as constitute
instruments, money, negotiable documents or chattel paper
shall be deemed to be "possession by the secured party", or
possession by a purchaser or a person designated by such
secured party, for purposes of perfecting the security
interest pursuant to the Uniform Commercial Code of any
applicable jurisdiction (including, without limitations,
Section 9-305, 8-313 or 8-321
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<PAGE> 5
thereof); (c) notifications to persons holding such property,
and acknowledgments, receipts or confirmations from persons
holding such property, shall be deemed notifications to, or
acknowledgments, receipts or confirmations from, financial
intermediaries, bailees or agents (as applicable) of the
Purchaser for the purpose of perfecting such security interest
under applicable law; and (d) for purposes of this Agreement
and the Pricing Letter, "Loan Documents' shall include UCC-1
financing statements in form acceptable for filing in the
applicable jurisdictions in which are located the principal
place of business and the executive offices of the Seller and
executed by the Seller in favor of the Purchaser.
j) ARTICLE IV PURCHASER DISPOSITION
The Purchaser and the Seller understand that the
Purchaser shall have the right to sell the Second Pool
Additional Conventional Loans in whole or in part in its
discretion on a servicing released or servicing retained
basis. The Seller shall not be entitled to receive any
additional payments in connection with such a disposition.
k) Section 9.01. Second Pool Additional Conventional Loan
Closing.
(a) The closing for the purchase and sale of the Excess Yield
and the Servicing Rights with respect to the Second Pool
Additional Conventional Loans, shall take place on the
Second Pool Additional Conventional Loan Closing Date. At
the Purchaser's option, the closing shall be either: by
telephone, confirmed by letter or wire as the parties
shall agree; or conducted in person, at such place as the
parties shall agree.
(b) The closing shall be subject to the following conditions:
(i) all of the representations and warranties of the
Seller and the Purchaser under this Agreement shall be
true and correct as of the Second Pool Additional
Conventional Loan Closing Date and no event shall have
occurred which, with notice or the passage of time,
would constitute a default under this Agreement;
(ii) the Purchaser shall have received, or the
Purchaser's attorneys shall have received in escrow,
all Closing Documents as specified in Section 9.01(c)
of this Agreement, in such forms as are agreed upon
and acceptable to the Seller and the Purchaser, duly
executed by all signatories other than the Purchaser
as required pursuant to the respective terms thereof;
(iii) the Seller shall have received the amount of the
Second Pool Additional Conventional Loan Purchase
Price by wire transfer of
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<PAGE> 6
immediately available federal funds to the account
designated by the Seller;
(iv) PEC shall have consented to the assignment of the
PEC Sub-Servicing Agreement with respect to the Second
Pool Additional Conventional Loans on such terms and
conditions as shall be acceptable to the Purchaser in
its sole discretion, including without limitation
terms and conditions relating to the Purchaser's
ability to terminate PEC as subservicer of the PEC
Sub-Servicing Agreement with respect to the Second
Pool Additional Conventional Loans as contemplated
hereunder;
(v) the "Collection Account" and the "REO Account"
referenced in the Original Agreement shall be in the
name of the Purchaser within three (3) Business Days
following the Second Pool Additional Conventional Loan
Closing Date; and
(vi) all other terms and conditions of this Agreement to
be performed or satisfied on or before the Second Pool
Additional Conventional Loan Closing Date shall have
been complied with.
(c) The closing documents to be delivered on the Second Pool
Additional Conventional Loan Closing Date shall consist of
fully executed originals of the following documents:
(i) this Agreement;
(ii) an Officer's Certificate from the Seller in the form
attached hereto as Exhibit B;
(iii) an Opinion of Counsel from the Seller in the form
attached hereto as Exhibit C;
(iv) a "true sale" Opinion of Counsel from the Seller, in
form and substance satisfactory to the Purchaser;
3. Effectiveness. This Amendment shall become effective upon receipt by
the Purchaser of evidence satisfactory to the Purchaser that this Amendment has
been executed and delivered by the Seller.
4. Counterparts. This Amendment may be executed by one or more of the
parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
5. Expenses. The Seller agrees to pay and reimburse the Purchaser for
all of the out-of-pocket costs and expenses incurred by the Purchaser in
connection with the preparation,
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<PAGE> 7
execution and delivery of this Amendment, including, without limitation, the
fees and disbursements of counsel to the Purchaser.
6. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
[SIGNATURE PAGES FOLLOW]
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
MEGO MORTGAGE CORPORATION
as Seller
By:
---------------------------------
Name:
Title:
GREENWICH CAPITAL MARKETS, INC.,
as Purchaser
By:
---------------------------------
Name:
Title:
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<PAGE> 9
EXHIBIT I
SECOND POOL ADDITIONAL CONVENTIONAL LOAN SCHEDULE
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1998
<PERIOD-START> SEP-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 13,191
<SECURITIES> 0
<RECEIVABLES> 56,707
<ALLOWANCES> 887
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 2,857
<DEPRECIATION> 1,010
<TOTAL-ASSETS> 199,454
<CURRENT-LIABILITIES> 0
<BONDS> 56,821
0
0
<COMMON> 123
<OTHER-SE> 40,242
<TOTAL-LIABILITY-AND-EQUITY> 199,454
<SALES> 0
<TOTAL-REVENUES> (10,553)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 21,986
<LOSS-PROVISION> 2,296
<INTEREST-EXPENSE> 227
<INCOME-PRETAX> (32,539)
<INCOME-TAX> (12,349)
<INCOME-CONTINUING> (20,190)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,190)
<EPS-PRIMARY> (1.64)
<EPS-DILUTED> (1.64)
</TABLE>
