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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 8-K
Current Report
Pursuant To Section 13 Or 15(d) Of The
Securities Exchange Act Of 1934
December 22, 1998
Date of Report (Date of earliest event reported)
NOVASTAR FINANCIAL, INC.
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(Exact Name of Registrant as Specified in Charter)
Maryland 001-135333 74-2830661
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(State or Other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
1901 West 47th Place
Suite 105
Westwood, Kansas 66205
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(Address of Principal Executive Offices)
(913) 362-1090
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(Registrant's Telephone Number,
Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. OTHER EVENTS
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NovaStar Financial, Inc. (the "Company") previously announced that the
Company has entered into a $15 million 90-day committed secured
financing agreement to address its immediate liquidity needs. In
connection with that agreement, the Company will issue warrants for
the purchase of approximately 800,000 shares of common stock at an
exercise price of $4.5625 per share, the closing price on October 12,
1998. A copy of the final term Loan and Security Agreement dated as
of October 13, 1998, between NovaStar Certificates Financing
Corporation and Residential Funding Corporation (and related
agreements including Guaranty of even date by the Company) is included
herewith as Exhibit 10.20.
Item 7(c). Exhibit
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10.20 Term Loan and Security Agreement dated as of October 13,
1998, between NovaStar Certificates Financing Corporation and
Residential Funding Corporation and related agreements
including Guaranty of even date by the Company.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
Date: December 22, 1998
NOVASTAR FINANCIAL, INC.
By: /s/ Mark J. Kohlrus
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Mark J. Kohlrus
Senior Vice President, Treasurer
and Chief Financial Officer
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EXHIBIT INDEX
Exhibit Number Page No.
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10.20 Term Loan and Security Agreement dated as of October 13, 5
1998, between NovaStar Certificates Financing Corporation
and Residential Funding Corporation and related agreements
including Guaranty of even date by the Company.
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Exhibit 10.20
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TERM LOAN AND SECURITY AGREEMENT
BETWEEN
NOVASTAR CERTIFICATES FINANCING CORPORATION,
a Delaware corporation
AND
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
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Dated as of October 13, 1998
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TABLE OF CONTENTS
PAGE
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1. DEFINITIONS.......................................................... 1
1.1 Defined Terms................................................... 1
1.2 Other Definitional Provisions................................... 7
2. THE CREDIT........................................................... 7
2.1 The Commitment.................................................. 7
2.2 Procedures for Obtaining Advances............................... 8
2.3 Note............................................................ 8
2.4 Interest........................................................ 8
2.5 Principal Payments.............................................. 9
2.6 Expiration of Commitment........................................ 9
2.7 Method of Making Payments....................................... 9
2.8 Commitment Fee.................................................. 10
2.9 Miscellaneous Charges........................................... 10
2.10 Interest Limitation............................................. 10
2.11 Increased Costs; Capital Requirements........................... 11
3. COLLATERAL........................................................... 12
3.1 Grant of Security Interest...................................... 12
3.2 Registration of Collateral...................................... 13
3.3 Return of Collateral at End of Commitment....................... 13
4. CONDITIONS PRECEDENT................................................. 13
4.1 Initial Advance................................................. 13
4.2 Each Advance.................................................... 15
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5. REPRESENTATIONS AND WARRANTIES....................................... 16
5.1 Organization; Good Standing; Subsidiaries....................... 16
5.2 Authorization and Enforceability................................ 17
5.3 Approvals....................................................... 17
5.4 Financial Condition............................................. 17
5.5 Litigation...................................................... 18
5.6 Compliance with Laws............................................ 18
5.7 Regulations U................................................... 18
5.8 Investment Company Act.......................................... 19
5.9 Payment of Taxes................................................ 19
5.10 Agreements...................................................... 19
5.11 Title to Properties............................................. 20
5.12 ERISA........................................................... 20
5.13 Place of Business............................................... 20
5.14 Special Representations Concerning Collateral................... 20
5.15 Year 2000 Compliance............................................ 21
6. AFFIRMATIVE COVENANTS................................................ 21
6.1 Payment of Note................................................. 21
6.2 Financial Statements and Other Reports.......................... 21
6.3 Maintenance of Existence; Conduct of Business................... 23
6.4 Compliance with Applicable Laws................................. 23
6.5 Inspection of Properties and Books.............................. 23
6.6 Notice.......................................................... 23
6.7 Payment of Debt, Taxes, etc..................................... 24
6.8 Insurance....................................................... 24
6.9 Subordination of Certain Indebtedness........................... 24
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6.10 Use of Proceeds of Advances...................................... 25
6.11 Special Affirmative Covenants Concerning Collateral.............. 25
6.12 Legal Opinion.................................................... 25
7. NEGATIVE COVENANTS..................................................... 26
7.1 Contingent Liabilities........................................... 26
7.2 Sale or Pledge of Collateral..................................... 26
7.3 Merger; Sale of Assets; Acquisitions............................. 26
7.4 Deferral of Subordinated Debt.................................... 26
7.5 Transactions with Affiliates..................................... 26
7.6 Special Negative Covenants Concerning Collateral................. 26
8. DEFAULTS; REMEDIES.................................................... 26
8.1 Events of Default................................................ 27
8.2 Remedies......................................................... 31
8.3 Application of Proceeds.......................................... 34
8.4 Lender Appointed Attorney-in-Fact................................ 35
8.5 Right of Set-Off................................................. 35
9. NOTICES............................................................... 35
10. REIMBURSEMENT OF EXPENSES; INDEMNITY.................................. 36
12. MISCELLANEOUS......................................................... 37
12.1 Terms Binding Upon Successors; Survival of Representations....... 37
12.2 Assignment....................................................... 37
12.3 Amendments....................................................... 37
12.4 Governing Law.................................................... 38
12.5 Participations................................................... 38
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12.6 Relationship of the Parties..................................... 38
12.7 Severability.................................................... 39
12.8 Operational Reviews............................................. 39
12.9 Consent to Credit References.................................... 39
12.10 Consent to Jurisdiction.................................... 39
12.11 Counterparts............................................... 39
12.12 Entire Agreement........................................... 39
12.13 WAIVER OF JURY TRIAL....................................... 40
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THIS TERM LOAN AND SECURITY AGREEMENT, dated as of October 13, 1998 between
NOVASTAR CERTIFICATES FINANCING CORPORATION, a Delaware corporation (the
"Borrower"), having its principal office at 1901 West 47th Place, Suite 105,
Westwood, Kansas 66205 and RESIDENTIAL FUNDING CORPORATION, a Delaware
corporation (the "Lender"), having its principal office at 8400 Normandale Lake
Blvd., Suite 600, Minneapolis, Minnesota 55437.
WHEREAS, the Borrower and the Lender desire to set forth herein the terms
and conditions upon which the Lender shall provide term financing to the
Borrower;
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. DEFINITIONS
1.1 Defined Terms. Capitalized terms defined below or elsewhere in
this Agreement (including the Exhibits hereto) shall have the following
meanings:
"Advance" means a disbursement by the Lender under the Commitment
pursuant to Article 2 of this Agreement.
"Advance Request" has the meaning set forth in Section 2.2 hereof.
"Affiliate" has the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act.
"Agreement" means this Term Loan and Security Agreement, either as
originally executed or as it may from time to time be supplemented,
modified or amended.
"Business Day" means any day excluding Saturday or Sunday and
excluding any day on which national banking associations are closed for
business.
"Cash Collateral Account" means a demand deposit account maintained at
the Funding Bank in the name of the Lender and designated for receipt of
the proceeds of the sale or other disposition of the Collateral.
"Closing Date" means October 13, 1998.
"Collateral" has the meaning set forth in Section 0 hereof.
"Commitment" has the meaning set forth in Section 2.1 hereof.
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"Commitment Amount" means $18,000,000.
"Commitment Fee" means a fee payable by the Borrower on the Closing
Date in consideration of the Lender's issuance of the Commitment in the
amount of $3,000,000.
"Borrower" has the meaning set forth in the first paragraph of this
Agreement.
"Debt" means, with respect to any Person, at any date (a) all
indebtedness or other obligations of such Person which, in accordance with
GAAP, would be included in determining total liabilities as shown on the
liabilities side of a balance sheet of such Person at such date; and (b)
all indebtedness or other obligations of such Person for borrowed money or
for the deferred purchase price of property or services; provided that for
purposes of this Agreement, there shall be excluded from Debt at any date
Fannie Mae Loan Loss Reserves, Subordinated Debt not due within one year of
such date, and deferred taxes arising from capitalized excess servicing
fees and capitalized servicing rights.
"Default" means the occurrence of any event or existence of any
condition which, but for the giving of Notice, the lapse of time, or both,
would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 2.4(c) hereof.
"ERISA" means the Employee Retirement Income Security Act of 1974 and
all rules and regulations promulgated thereunder, as amended from time to
time and any successor statute.
"Event of Default" means any of the conditions or events set forth in
Section 0 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"FICA" means the Federal Insurance Contributions Act.
"Floating Rate" means a floating rate of interest which is equal to 5%
per annum over LIBOR. The Floating Rate will be adjusted as of the
effective date of each weekly change in LIBOR. The Lender's determination
of the Floating Rate as of any date of determination shall be conclusive
and binding, absent manifest error.
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"Funding Bank" means The First National Bank of Chicago or any other
bank designated from time to time by the Lender.
"Funding Bank Agreement" means the letter agreement substantially in
the form of Exhibit K hereto.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment
of the accounting profession, which are applicable to the circumstances as
of the date of determination.
"Guarantor" means NOVASTAR FINANCIAL, INC., a Maryland corporation.
"Guaranty" means a Guaranty substantially in the form of Exhibit "B"
hereto.
"Hedging Arrangement" means with respect to any Person, any agreements
or other arrangement (including, without limitation, interest rate swap
agreements, interest rate cap agreements and forward sale agreements)
entered into by such Person to protect itself against changes in interest
rates or the market value of assets.
"Indemnified Liabilities" has the meaning set forth in Article 10
hereof.
"Internal Revenue Code" means the Internal Revenue Code of 1986, or
any subsequent federal income tax law or laws, as any of the foregoing have
been or may from time to time be amended.
"Investment" means any direct or indirect purchase or other
acquisition by any Person of, or of a beneficial interest in, any stock or
other securities of any other Person, or any direct or indirect loan,
advance (other than advances to employees for moving and travel expenses,
drawing accounts and similar expenditures in the ordinary course of
business) or capital contribution by that Person to any other Person,
including all Debt and accounts receivable from that Person which are not
current assets or did not arise from sales to that other Person in the
ordinary course of business.
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"Lender" has the meaning set forth in the first paragraph of this
Agreement.
"LIBOR" means, for each calendar week, the rate of interest per annum
which is equal to the arithmetic mean of the U.S. Dollar London Interbank
Offered Rates for 1 month periods of certain U.S. banks as of 11:00 a.m.
London time on the first Business Day of each week on which the London
Interbank market is open, as published by Bridge Information Services on
its MoneyCenter system. LIBOR shall be rounded, if necessary, to the next
higher 1/16%. If such U.S. dollar LIBOR rates are not so offered or
published for any period, then during such period LIBOR shall mean the
London Interbank Offered Rate for 1 month periods published on the first
Business Day of each week on which the London Interbank market is open, in
the Wall Street Journal in its regular column entitled "Money Rates."
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale
or other title retention agreement, any lease in the nature thereof, and
any agreement to give any security interest).
"Loan Documents" means this Agreement, the Note, the Guaranty, the
Servicing Security Agreement, any agreement of the Borrower relating to
Subordinated Debt, and each other document, instrument or agreement
executed by the Borrower in connection herewith or therewith, as any of the
same may be amended, restated, renewed or replaced from time to time.
"Margin Stock" has the meaning assigned to that term in Regulations U
of the Board of Governors of the Federal Reserve System as in effect from
time to time.
"Maturity Date" shall mean the earlier of: (a) the close of business
on January 13, 1999, on which date the Commitment shall expire of its own
term, and without the necessity of action by the Lender, and (b) the date
the Advances become due and payable pursuant to Section 0 below.
"Miscellaneous Charges" has the meaning set forth in Section 0 hereof.
"Mortgage-backed Securities" means securities that are secured or
otherwise backed by Mortgage Loans.
"Mortgage Loan" means any loan evidenced by a Mortgage Note.
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"Mortgage Note" means a promissory note secured by a Mortgage.
"Mortgage Pool" means a pool of one or more Mortgage Loans on the
basis of which a Mortgage-backed Security has been or will be issued.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA which is maintained for employees of the
Borrower or a Subsidiary of the Borrower.
"Note" has the meaning set forth in Section 0 hereof.
"Notices" has the meaning set forth in Article 9 hereof.
"NovaStar Mortgage" means NovaStar Mortgage, Inc., a Virginia
corporation.
"Obligations" means any and all indebtedness, obligations and
liabilities of the Borrower to the Lender (whether now existing or
hereafter arising, voluntary or involuntary, whether or not jointly owed
with others, direct or indirect, absolute or contingent, liquidated or
unliquidated, and whether or not from time to time decreased or
extinguished and later increased, created or incurred), whether or not
arising out of or related to the Loan Documents.
"Officer's Certificate" means a certificate executed on behalf of the
Borrower by its chief financial officer or its treasurer or by such other
officer as may be designated herein and substantially in the form of
Exhibit I-SF attached hereto.
"Operating Account" means a demand deposit account maintained at the
Funding Bank in the name of the Borrower and designated for funding that
portion of each Mortgage Loan not funded by an Advance made against such
Mortgage Loan and for returning any excess payment from an Investor for a
Pledged Mortgage or Pledged Security.
"Participant" has the meaning set forth in Section 0 hereof.
"Person" means and includes natural persons, corporations, limited
liability companies, limited partnerships, general partnerships, joint
stock companies, joint ventures, associations, companies, trusts, banks,
trust
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companies, land trusts, business trusts or other organizations, whether or
not legal entities, and governments and agencies and political subdivisions
thereof.
"Plans" has the meaning set forth in Section 0 hereof.
"Pledged Certificates" means the Mortgage-backed Securities described
on Exhibit "E" hereto.
"Repurchase Agreements" means the agreements described on Exhibit H
hereto.
"Residual Interest Collateral Value" means, with respect to any
Pledged Certificate, the present value of the expected payments under such
Pledged Certificate, based on assumptions concerning discount rates,
default frequency, severity of loss, prepayment speeds and other relevant
factors determined by the Lender in its sole discretion in a manner
consistent with the Lender's then current procedures for valuing similar
interests in similar lending arrangements and the historical performance of
the Mortgage Pool underlying such Pledged Certificate.
"Servicing Collateral" has the meaning given to it in the Servicing
Security Agreement.
"Servicing Contract" means, with respect to any Person, the
arrangement, whether or not in writing, pursuant to which such Person has
the right to service Mortgage Loans.
"Servicing Security Agreement" means a Security Agreement
substantially in the form of Exhibit "D" hereto.
"Statement Date" means the date of the most recent financial
statements of the Borrower (and, if applicable, its Subsidiaries, on a
consolidated basis) delivered to the Lender under the terms of this
Agreement.
"Subordinated Debt" means all indebtedness of the Borrower for
borrowed money, which is, by its terms (which terms shall have been
approved by the Lender), effectively subordinated in right of payment to
all other present and future Obligations and, solely for purposes of
Section 0 hereof, all indebtedness of the Borrower which is required to be
subordinated by Section 0 hereof.
"Subsidiary" means any corporation, association or other business
entity in which more than fifty percent (50%) of the total voting power or
shares of stock entitled to vote in the election of directors, managers or
trustees thereof is
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at the time owned or controlled, directly or indirectly, by any Person or
one or more of the other Subsidiaries of that Person or a combination
thereof.
"Tangible Net Worth" means with respect to any Person at any date, the
excess of the total consolidated assets over total consolidated liabilities
of such Person on such date, each to be determined in accordance with GAAP
consistent with those applied in the preparation of the financial
statements referred to in Section 0 hereof, plus that portion of
Subordinated Debt not due within one year of such date, provided that, for
purposes of this Agreement, there shall be excluded from total assets
advances or loans to shareholders, officers, employees or Affiliates,
investments in Affiliates, assets pledged to secure any liabilities not
included in the Debt of such Person, intangible assets, those other assets
which would be deemed by HUD to be non-acceptable in calculating adjusted
net worth in accordance with its requirements in effect as of such date, as
such requirements appear in the "Audit Guide for Audit of Approved Non-
Supervised Mortgagees", and other assets deemed unacceptable by the Lender
in its sole discretion. Notwithstanding the foregoing, advances and
investments of the Guarantor to and in NovaStar Mortgage in the ordinary
course of their business of originating and securitizing Mortgage Loans
shall be exempt from the exclusion.
"Valuation Date" means the 20th day of each month, beginning on
October 20, 1998, and, at the election of the Lender, such additional dates
on which the Lender desires to determine the Residual Interest Collateral
Value.
"Wire Disbursement Account" means a demand deposit account maintained
at the Funding Bank in the name of the Lender for the clearing of wire
transfers requested by the Borrower to fund the closing of Pledged
Mortgages.
"Year 2000 Problem" means the risk that computer applications may not
be able to properly perform date-sensitive functions after December 31,
1999.
1.2 Other Definitional Provisions.
1.2(a) Accounting terms not otherwise defined herein shall have
the meanings given the terms under GAAP.
1.2(b) Defined terms may be used in the singular or the plural,
as the context requires.
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1.2(c) All references to time of day shall mean the then
applicable time in Chicago, Illinois, unless expressly provided to the
contrary.
2. THE CREDIT.
2.1 The Commitment.
2.1(a) Subject to the terms and conditions of this Agreement and
provided no Default or Event of Default has occurred and is
continuing, the Lender agrees from time to time during the period from
the Closing Date to, but not including, the Maturity Date to make Term
Loan Advances to the Borrower, provided the total aggregate principal
amount outstanding at any one time of all such Advances shall not
exceed the Commitment Amount. The obligation of the Lender to make
Advances hereunder up to the Commitment Amount is hereinafter referred
to as the "Commitment." Amounts repaid on the Advances may not be re-
borrowed. All Advances under this Agreement shall constitute a single
indebtedness, and all of the Collateral shall be security for the
Promissory Note and for the performance of all the Obligations.
2.1(b) Advances shall be used by the Borrower solely for the
purpose of (i) refinancing Debt outstanding against the Pledged
Certificates, (ii) paying liabilities of the Guarantor in connection
with the financing of certain assets of the Guarantor that are being
liquidated, (iii) general corporate purposes, and (iv) paying the
Commitment Fee, and shall be made at the request of the Borrower, in
the manner hereinafter provided in Section 2.4 hereof. The following
limitations on the Advances shall be applicable:
(1) No Advance shall be made if, after giving effect
thereto, the aggregate outstanding principal balance of the
Advances would exceed the Residual Interest Collateral Value as
of the date of such Advance.
2.2 Procedures for Obtaining Advances.
2.2(a) On the Closing Date, without any further action from the
Borrower, the Lender shall make an Advance in the amount of
$18,000,000.
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2.2(b) To make an Advance, the Lender shall cause the Funding
Bank to credit the amount thereof to the Cash Collateral Account, and
shall disburse such amount in accordance with the Advance Request
(subject to the limitations set forth in this Agreement).
2.3 Note. The Borrower's Obligations shall be evidenced by the
promissory note (the "Note") of the Borrower dated as of the date hereof
substantially in the form of Exhibit A attached hereto. The term "Note"
shall include all extensions, renewals and modifications of the Note and
all substitutions therefor. All terms and provisions of the Note are hereby
incorporated herein.
2.4 Interest.
2.4(a) Except as otherwise provided pursuant to Section 2.4(d),
the unpaid amount of each Advance shall bear interest, from the date
of such Advance until paid in full, at the Floating Rate.
2.4(b) Interest shall be computed on the basis of a 360-day year
and applied to the actual number of days elapsed in each interest
calculation period and shall be payable monthly in arrears, on the
twenty-fifth day of each month or the next succeeding Business Day,
commencing on October 26, 1998, and on the Maturity Date.
2.4(c) Upon Notice to the Borrower, any Obligations outstanding
after the occurrence and during the continuation of an Event of
Default shall bear interest, from the date due until paid in full, at
a per annum rate of interest equal to the Floating Rate plus four
percent (4%) (the "Default Rate"), said interest to be payable on
demand of the Lender.
2.5 Principal Payments.
2.5(a) The outstanding principal amount of all Advances shall be
payable in full on the Maturity Date.
2.5(b) The Borrower shall have the right to prepay the
outstanding Term Loan Advance in whole or in part, from time to time,
without premium or penalty.
2.5(c) On each Valuation Date during the term hereof or, if the
Lender has not notified the Borrower of the Residual Interest
Collateral Value on any
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Valuation Date, the subsequent date on which the Lender so notifies
the Borrower, the Borrower shall be obligated to pay to the Lender,
without the necessity of prior demand or notice from the Lender, and
the Borrower authorizes the Lender to cause the Funding Bank to charge
the Borrower's Operating Account for, any amount by which the
outstanding principal balance of the Promissory Note exceeds the
Residual Interest Collateral Value, calculated by the Lender as of
such date. The Lender shall promptly notify the Borrower of any charge
made to the Borrower's account under this Section 2.5(c).
2.6 Expiration of Commitment. The Commitment shall expire on the
Maturity Date.
2.7 Method of Making Payments.
2.7(a) Except as otherwise specifically provided herein, all
payments hereunder shall be made to the Lender not later than the
close of business on the date when due unless such date is a non-
Business Day, in which case, such payment shall be due on the first
Business Day thereafter, and shall be made in lawful money of the
United States of America in immediately available funds transferred
via wire to accounts designated by the Lender from time to time.
2.7(b) All payments made in respect of the Pledged Certificates
shall be deposited directly into the Cash Collateral Account. On each
Valuation Date, any amount on deposit in the Cash Collateral Account
may be applied by the Lender to any prepayment required pursuant to
Section 2.5(c) hereof. On the first Business Day of each month, any
amount on deposit in the Cash Collateral Account shall (i) be applied
first to pay interest accrued on the Note during the preceding month
and any other Obligations then due and payable, and (ii) thereafter,
provided no Default or Event of Default has occurred and is
continuing, be released to the Borrower.
2.7(c) After the occurrence and during the continuance of an
Event of Default, and without the necessity of prior demand or notice
from the Lender, the Borrower authorizes the Lender to cause the
Funding Bank to charge the Borrower's Operating Account for any
Obligations due and owing the Lender.
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2.8 Commitment Fee. The Borrower agrees to pay to the Lender a
Commitment Fee in the amount of $3,000,000, which Commitment Fee shall be
paid on the Closing Date. The Lender shall repay to the Borrower a portion
of such fee, in the amount of $2,000,000, if the Lender and the Guarantor
and/or its Affiliates hereafter enter into one or more agreements pursuant
to which the Lender makes loans to, purchases Mortgage Loans from, or
provides other services to the Guarantor and/or its Affiliates on terms
mutually acceptable to the Lender and the Borrower.
2.9 Miscellaneous Charges. The Borrower agrees to reimburse the
Lender for miscellaneous charges and expenses (collectively, "Miscellaneous
Charges") incurred by or on behalf of the Lender in connection with the
handling and administration of Advances, and to reimburse the Lender for
Miscellaneous Charges incurred by or on behalf of the Lender in connection
with the handling and administration of the Collateral. For the purposes
hereof, Miscellaneous Charges shall include, but not be limited to, costs
for UCC, tax lien and judgment searches conducted by the Lender, filing
fees, charges for wire transfers, check processing charges, charges for
security delivery fees, and the Funding Bank's service charges.
Miscellaneous Charges are due when incurred, but shall not be delinquent if
paid within fifteen (15) days after receipt of an invoice or an account
analysis statement from the Lender.
2.10 Interest Limitation. All agreements between the Borrower
and the Lender are hereby expressly limited so that in no contingency or
event whatsoever, whether by reason of acceleration of maturity of this
Agreement or the Note or otherwise, shall the amount paid or agreed to be
paid to the Lender for the use, forbearance, loaning or retention of the
Advances secured by this Agreement exceed the maximum permissible under
applicable law. If from any circumstances whatsoever, fulfillment of any
provisions hereof or of the Note, or any other document securing this
Agreement at any time given shall involve transcending the limit of
validity prescribed by law, then, the obligation to be fulfilled shall
automatically be reduced to the limit of such validity, and if from any
circumstances the Lender should ever receive as interest an amount which
would exceed the highest lawful rate of interest, such amount which would
be in excess of interest shall be applied to the reduction of the principal
balance secured by the Note and not to the payment of interest
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thereunder. This provision shall control every other provision of all
agreements between the Borrower and Lender and shall also be binding
upon and available to any subsequent holder of the Note.
2.11 Increased Costs; Capital Requirements. In the event any
applicable law, order, regulation or directive issued by any
governmental or monetary authority, or any change therein or in the
governmental or judicial interpretation or application thereof, or
compliance by the Lender with any request or directive (whether or not
having the force of law) by any governmental or monetary authority:
2.11(a) Does or shall subject the Lender to any tax of any
kind whatsoever with respect to this Agreement or any Advances
made hereunder, or change the basis of taxation on payments to
the Lender of principal, fees, interest or any other amount
payable hereunder (except for change in the rate of tax on the
overall gross or net income of the Lender by the jurisdiction in
which the Lender's principal office is located);
2.11(b) Does or shall impose, modify or hold applicable any
reserve, capital requirement, special deposit, compulsory loan or
similar requirement against assets held by, or deposits or other
liabilities in or for the account of, advances or loans by, or
other credit extended by, or any other acquisition of funds by,
any office of the Lender which are not otherwise included in the
determination of the interest rate as calculated hereunder;
and the result of any of the foregoing is to increase the cost to the
Lender of making, renewing or maintaining any Advance or to reduce any
amount receivable in respect thereof or to reduce the rate of return
on the capital of the Lender or any Person controlling the Lender as
it relates to credit facilities in the nature of that evidenced by
this Agreement, then, in any such case, the Borrower shall promptly
pay any additional amounts necessary to compensate the Lender for such
additional cost or reduced amounts receivable or reduced rate of
return as determined by the Lender with respect to this Agreement or
Advances made hereunder. If the Lender becomes entitled to claim any
additional amounts pursuant to this Section, it shall notify the
Borrower of the event by reason of which it has become so entitled and
the Borrower shall pay such amount within fifteen (15) days
thereafter. A certificate as to any
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additional amount payable pursuant to the foregoing sentence containing the
calculation thereof in reasonable detail submitted by the Lender, to the
Borrower shall be conclusive in the absence of manifest error. The
obligations of the Borrower under this Section shall survive the payment of
all other Obligations and the termination of this Agreement.
3. COLLATERAL.
3.1 Grant of Security Interest. As security for the payment of the
Note and for the performance of all of the Borrower's Obligations, the
Borrower hereby assigns and transfers to the Lender all right, title and
interest in and to and grants a security interest to the Lender in the
following described property (the "Collateral"):
3.1(a) The Pledged Certificates, and all rights of the Borrower
in connection with the Mortgage Pools underlying the same.
3.1(b) All right, title and interest of the Borrower in and to
any Hedging Arrangements entered into to protect the Borrower against
changes in the value of the Pledged Certificates, including, without
limitation, all rights to payment arising under such Hedging
Arrangements.
3.1(c) All now existing or hereafter acquired cash delivered to
or otherwise in the possession of the Lender or its agent, bailee or
custodian.
3.1(d) All right, title and interest of the Borrower in and to
all escrow accounts, documents, instruments, files, surveys,
certificates, correspondence, appraisals, computer programs, tapes,
discs, cards, accounting records (including all information, records,
tapes, data, programs, discs and cards necessary or helpful in the
administration or servicing of the Collateral) and other information
and data of the Borrower relating to the Collateral.
3.1(e) All cash and non-cash proceeds of the Collateral,
including all dividends, distributions and other rights in connection
with, and all additions to, modifications of and replacements for, the
Collateral, and all products and proceeds of the Collateral, together
with whatever is receivable or received when the Collateral or
proceeds thereof are sold, collected, exchanged or otherwise disposed
of, whether such
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disposition is voluntary or involuntary, including, without
limitation, all rights to payment with respect to any cause of action
affecting or relating to the Collateral or proceeds thereof.
3.2 Registration of Collateral. The parties hereto acknowledge and
agree that (i) registration of the Pledged Certificates in the name of the
Lender or its nominee is solely to more fully secure the pledge of such
Pledged Certificates to the Lender and perfect the security interest of the
Lender in such Pledged Certificates and to insure that such Pledged
Certificates cannot be redeemed until the Lender's security interest is
released, and (ii) while the Lender may hold legal title to the Pledged
Certificates, equitable title to and beneficial ownership of the Pledged
Certificates shall remain in the Borrower, subject to the rights of the
Lender under this Agreement.
3.3 Return of Collateral at End of Commitment. If (a) the Commitment
shall have expired or been terminated, and (b) no Advances, interest, or
other Obligations shall be outstanding and unpaid, the Lender shall release
its security interest in the Collateral granted pursuant hereto. The
receipt of the Borrower for any Collateral released or delivered to the
Borrower pursuant to any provision of this Agreement shall be a complete
and full acquittance for the Collateral so returned, and the Lender shall
thereafter be discharged from any liability or responsibility therefor.
4. CONDITIONS PRECEDENT.
4.1 Initial Advance. The obligation of the Lender to make the
initial Advance under this Agreement is subject to the satisfaction, in the
sole discretion of the Lender, on or before the date thereof of the
following conditions precedent:
4.1(a) The Lender shall have received the following, all of
which must be satisfactory in form and content to the Lender, in its
sole discretion:
(1) The Note and this Agreement duly executed by the
Borrower.
(2) The Guaranty duly executed by the Guarantor.
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(3) The Servicing Security Agreement duly executed by
NovaStar Mortgage, pursuant to which NovaStar Mortgage grants to
the Lender a security interest in the Servicing Contracts
described on Exhibit G hereto to secure the Obligations.
(4) The certificate or articles of incorporation of the
Borrower, the Guarantor and Novastar Mortgage, as certified by
the Secretary of State of the state of its incorporation, and a
copy of the bylaws certified by its corporate secretary, and
certificates of good standing dated no less recently than ten
(10) days prior to the date of this Agreement.
(5) A resolution of the board of directors of each of the
Borrower, the Guarantor and NovaStar Mortgage certified as of the
date of this Agreement by each of its respective corporate
secretary, authorizing the execution, delivery and performance of
the Loan Documents to which it is a party, and all other
instruments or documents to be delivered by each of them pursuant
to this Agreement.
(6) A certificate of the corporate secretary of each of the
Borrower, the Guarantor and NovaStar Mortgage, as to the
incumbency and authenticity of the signatures of the officers
executing the Loan Documents and all other instruments or
documents to be delivered pursuant hereto (the Lender being
entitled to rely thereon until a new such certificate has been
furnished to the Lender).
(7) Financial statements of each of the Guarantor and
NovaStar Mortgage (and, if applicable, its Subsidiaries, on a
consolidated basis) containing a balance sheet as of December 31,
1997, and related statements of income, changes in stockholders'
equity and cash flows for the period ended on such date, all
prepared in accordance with GAAP applied on a basis consistent
with prior periods and audited by independent certified public
accountants of recognized standing acceptable to the Lender.
(8) Financial statements of each of the Guarantor and
NovaStar Financial (and, if applicable, its Subsidiaries, on a
consolidated
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basis) containing a balance sheet as of June 30, 1998, related
statements of income and changes in stockholders' equity for the
period ended on such date prepared in accordance with GAAP
applied on a basis consistent with the Borrower's most recent
audited financial statements.
(9) A Uniform Commercial Code, tax lien and judgment search
of the appropriate public records for each of the Borrower, the
Guarantor and NovaStar Mortgage, which searches shall not have
disclosed the existence of any prior Lien on the Collateral other
than in favor of the Lender or as permitted hereunder.
(10) Executed financing statements in recordable form
covering the Collateral and the Servicing Collateral and ready
for filing in all jurisdictions required by the Lender.
(11) Receipt by the Lender of any fees due on the date
hereof, including, but not limited to, Commitment Fees and
document production fees.
(12) Evidence that all accounts necessary into which
Advances will be funded have been established at the Funding Bank
and receipt of a fully executed Funding Bank Agreement.
4.1(b) The Pledged Certificates, together with such agreements
and instruments as may be required to transfer ownership thereof of
record to the Lender and release any Liens thereon, shall have been
delivered to the Lender.
4.2 Each Advance. The obligation of the Lender to make the initial
and each subsequent Advance under this Agreement is subject to the
satisfaction, in the sole discretion of the Lender, as of the date of each
such Advance, of the following additional conditions precedent:
4.2(a) The Borrower shall have delivered to the Lender the
Advance Request and other documents called for under, and shall have
satisfied the requirements set forth in, Section 2.2 hereof. All items
delivered to the Lender shall be reasonably satisfactory to the Lender
in form and content, and the Lender may reject such of them as do not
meet the requirements of this Agreement.
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4.2(b) The Lender shall have received evidence satisfactory to
it as to the due filing and recording in all appropriate offices of
all financing statements and other instruments as may be necessary to
release any existing Lien on any of the Collateral and to perfect the
security interest of the Lender in the Collateral under the Uniform
Commercial Code of Minnesota or other applicable law.
4.2(c) The representations and warranties of the Borrower
contained in Article 5 hereof shall be accurate and complete in all
material respects as if made on and as of the date of each Term Loan
Advance.
4.2(d) The Borrower shall have performed all agreements to be
performed by it hereunder, and after giving effect to the requested
Advance, there shall exist no Default or Event of Default hereunder.
4.2(e) The Borrower shall not have incurred any material
liabilities, direct or contingent, other than in the ordinary course
of its business, since the Statement Date.
4.2(f) The Lender shall have received from counsel for the
Borrower, if requested by the Lender in its sole discretion, an
updated opinion, in form and substance reasonably satisfactory to the
Lender, addressed to the Lender and dated as of the date of such
Advance, covering such of the matters as the Lender may reasonably
request.
Delivery of a Advance Request by the Borrower shall be deemed a
representation by the Borrower that all conditions set forth in this
Section 0 shall have been satisfied as of the date of such Term Loan
Advance.
5. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Lender, as of the
date of this Agreement and as of the date of each Advance Request and the
making of each Advance, that:
5.1 Organization; Good Standing; Subsidiaries. The Borrower, the
Guarantor, NovaStar Mortgage, and each of their Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the full legal power and
authority to own its property and to carry on its
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business as currently conducted and is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction in
which the transaction of its business makes such qualification necessary,
except in jurisdictions, if any, where a failure to be in good standing has
no material adverse effect on the business, operations, assets or financial
condition of the Borrower, the Guarantor, NovaStar Mortgage or any such
Subsidiary. For the purposes hereof, good standing shall include
qualification for any and all licenses and payment of any and all taxes
required in the jurisdiction of its incorporation and in each jurisdiction
in which the Borrower transacts business.
5.2 Authorization and Enforceability. Each of the Borrower, the
Guarantor and NovaStar Mortgage has the power and authority to execute,
deliver and perform the Loan Documents to which it is party and to make the
borrowings and pledge the security hereunder and thereunder. The execution,
delivery and performance by the Borrower, the Guarantor and NovaStar
Mortgage of the Loan Documents to which it is party and the making of the
borrowings and pledge of security hereunder and thereunder have been duly
and validly authorized by all necessary corporate action (none of which
actions has been modified or rescinded, and all of which actions are in
full force and effect) and do not and will not conflict with or violate any
provision of law, of any judgments binding upon, or of the articles of
incorporation or by-laws of, the Borrower, the Guarantor, or NovaStar
Mortgage, conflict with or result in a breach of or constitute a default or
require any consent under, or result in the creation of any Lien upon any
property or assets of the Borrower, the Guarantor or NovaStar Mortgage,
other than the Lien on the Collateral granted hereunder and on the
Servicing Collateral granted under the Servicing Security Agreement, or
result in or require the acceleration of any indebtedness of the Borrower,
the Guarantor or NovaStar Mortgage pursuant to any agreement, instrument or
indenture to which the Borrower, the Guarantor or NovaStar Mortgage is a
party or by which the Borrower, the Guarantor or NovaStar Mortgage or their
property may be bound or affected. This Agreement, the Note and all other
Loan Documents contemplated hereby or thereby constitute legal, valid, and
binding obligations of the Borrower, the Guarantor and NovaStar Mortgage,
as applicable, enforceable in accordance with their respective terms,
except as limited by bankruptcy, insolvency or other such laws affecting
the enforcement of creditors' rights.
5.3 Approvals. The execution and
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delivery of the Loan Documents and the performance of the obligations of
the Borrower, the Guarantor and NovaStar Mortgage hereunder and thereunder
and the validity and enforceability hereof and thereof do not require any
license, consent, approval or other action of any state or federal agency
or governmental or regulatory authority other than those which have been
obtained and remain in full force and effect.
5.4 Financial Condition. The balance sheet of the Guarantor (and, if
applicable, its Subsidiaries, on a consolidated basis) as at the Statement
Date, and the related statements of income and changes in stockholders'
equity for the fiscal period ended on the Statement Date, heretofore
furnished to the Lender, fairly present the financial condition of the
Guarantor (and its Subsidiaries) as at the Statement Date and the results
of its operations for the fiscal period ended on the Statement Date. The
Guarantor had, on the Statement Date, no known material liabilities, direct
or indirect, fixed or contingent, matured or unmatured, or liabilities for
taxes, long-term leases or unusual forward or long-term commitments not
disclosed by, or reserved against in, said balance sheet and related
statements, and at the present time there are no material unrealized or
anticipated losses from any loans, advances or other commitments of the
Guarantor except as heretofore disclosed to the Lender in writing. Said
financial statements were prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved. Since the Statement Date,
there has been no material adverse change in the business, operations,
assets or financial condition of the Guarantor (and its Subsidiaries), nor,
except as previously disclosed to the Lender, is the Guarantor aware of any
state of facts which (with or without notice or lapse of time or both)
would or could result in any such material adverse change.
5.5 Litigation. There are no actions, claims, suits or proceedings
pending or, except as previously disclosed to the Lender, to the knowledge
of the Borrower, the Guarantor or NovaStar Mortgage, threatened or
reasonably anticipated against or affecting the Borrower, the Guarantor,
NovaStar Mortgage, or any of their Subsidiaries in any court or before any
arbitrator or before any government commission, board, bureau or other
administrative agency which, if adversely determined, may reasonably be
expected to result in any material and adverse change in the business,
operations, assets or financial condition of the Borrower, the Guarantor or
NovaStar Mortgage, as a whole, or which would affect the validity or
enforceability of this Agreement, the Note or any
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other Loan Document.
5.6 Compliance with Laws. None of the Borrower, the Guarantor,
NovaStar Mortgage nor any of their Subsidiaries is in violation of any
provision of any law, or of any judgment, award, rule, regulation, order,
decree, writ or injunction of any court or public regulatory body or
authority which might have a material adverse effect on the business,
operations, assets or financial condition of the Borrower, the Guarantor or
NovaStar Mortgage as a whole or which would affect the validity or
enforceability of this Agreement, the Note or any other Loan Document.
5.7 Regulations U. The Borrower is not engaged principally, or as
one of its important activities, in the business of extending credit for
the purpose of purchasing or carrying Margin Stock, and no part of the
proceeds of any Advances made hereunder will be used to purchase or carry
any Margin Stock or to extend credit to others for the purpose of
purchasing or carrying any Margin Stock.
5.8 Investment Company Act. The Borrower is not an "investment
company" or controlled by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
5.9 Payment of Taxes. The Borrower, the Guarantor, NovaStar
Mortgage, and each of their Subsidiaries has filed or caused to be filed
all federal, state and local income, excise, property and other tax returns
with respect to the operations of the Borrower, the Guarantor, NovaStar
Mortgage, and each of their Subsidiaries which are required to be filed,
all such returns are true and correct, and the Borrower, the Guarantor,
NovaStar Mortgage, and each of their Subsidiaries has paid or caused to be
paid all taxes as shown on such returns or on any assessment, to the extent
that such taxes have become due, including, but not limited to, all FICA
payments and withholding taxes, if appropriate. The amounts reserved, as a
liability for income and other taxes payable, in the financial statements
described in Section 0 hereof are sufficient for payment of all unpaid
federal, state and local income, excise, property and other taxes, whether
or not disputed, of the Borrower, the Guarantor, NovaStar Mortgage, and
each of their Subsidiaries accrued for or applicable to the period and on
the dates of such financial statements and all years and periods prior
thereto and for which the Borrower, the Guarantor, NovaStar Mortgage, and
each of their Subsidiaries may be liable in its own right or as transferee
of the assets
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of, or as successor to, any other Person. No tax Liens have been filed and
no material claims are being asserted with respect to any such taxes, fees
or charges.
5.10 Agreements. None of the Borrower, the Guarantor, NovaStar
Mortgage, nor any of their Subsidiaries is a party to any agreement,
instrument or indenture or subject to any restriction materially and
adversely affecting its business, operations, assets or financial
condition, except as disclosed in the financial statements described in
Section 0 hereof. Except as previously disclosed to the Lender, none of the
Borrower, the Guarantor, NovaStar Mortgage, nor any of their Subsidiaries
is in default in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any agreement,
instrument, or indenture which default could have a material adverse effect
on the business, operations, properties or financial condition of the
Borrower, the Guarantor or NovaStar Mortgage as a whole. Except as
previously disclosed to the Lender, no holder of any indebtedness of the
Borrower, the Guarantor, NovaStar Mortgage, or of any of their Subsidiaries
has given notice of any asserted default thereunder, and no liquidation or
dissolution of the Borrower, the Guarantor, NovaStar Mortgage, or of any of
their Subsidiaries and no receivership, insolvency, bankruptcy,
reorganization or other similar proceedings relative to the Borrower, the
Guarantor, NovaStar Mortgage, or of any of their Subsidiaries or any of
their properties is pending, or to the knowledge of the Borrower,
threatened.
5.11 Title to Properties. The Borrower, the Guarantor, NovaStar
Mortgage and each of their Subsidiaries has good, valid, insurable (in the
case of real property) and marketable title to all of its properties and
assets (whether real or personal, tangible or intangible) reflected on the
financial statements described in Section 0 hereof, except for such
properties and assets as have been disposed of since the date of such
financial statements as no longer used or useful in the conduct of its
business or as have been disposed of in the ordinary course of business,
and all such properties and assets are free and clear of all Liens except
as disclosed in such financial statements.
5.12 ERISA. All plans ("Plans") of a type described in Section
3(3) of ERISA in respect of which the Borrower, the Guarantor, NovaStar
Mortgage or any of their Subsidiaries is an "Employer," as defined in
Section 3(5) of ERISA, are in substantial compliance with ERISA, and none
of such Plans is insolvent or in reorganization, has an
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accumulated or waived funding deficiency within the meaning of Section 412
of the Internal Revenue Code, and neither the Borrower, the Guarantor,
NovaStar Mortgage, nor any of their Subsidiaries has incurred any material
liability (including any material contingent liability) to or on account of
any such Plan pursuant to Sections 4062, 4063, 4064, 4201 or 4204 of ERISA;
and no proceedings have been instituted to terminate any such Plan, and no
condition exists which presents a material risk to the Borrower, the
Guarantor, NovaStar Mortgage, or any of their Subsidiaries of incurring a
liability to or on account of any such Plan pursuant to any of the
foregoing Sections of ERISA. No Plan or trust forming a part thereof has
been terminated since September 1, 1974.
5.13 Place of Business. The principal place of business of the
Borrower is 1901 West 47th Place, Suite 105, Westwood, Kansas 66205.
5.14 Special Representations Concerning Collateral. The Borrower
hereby represents and warrants to the Lender, as of the date of this
Agreement and as of the date of each Advance Request and the making of each
Advance, that:
5.14(a) The Borrower is the legal and equitable owner and
holder, free and clear of all Liens (other than Liens granted
hereunder), of the Collateral pledged hereunder, and the Collateral
has been and will continue to be validly pledged or assigned to the
Lender, subject to no other Liens.
5.14(b) The Borrower has, and will continue to have, the full
right, power and authority to pledge the Collateral pledged and to be
pledged by it hereunder.
5.14(c) Each Pledged Certificate is in full force and effect and
is legal, valid and enforceable in accordance with its terms and no
default or event which, with notice or lapse of time or both, would
become a default, exists under any such Pledged Certificate.
5.14(d) The amount represented by the Borrower to the Lender as
owing by an obligor under each Mortgage Loan included in a Mortgage
Pool underlying a Pledged Certificate is the correct amount actually
owing by such obligor.
5.15 Year 2000 Compliance. The Borrower, the Guarantor and NovaStar
Mortgage have
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conducted a comprehensive review and assessment of their computer
applications and made inquiry of their key suppliers, vendors and customers
with respect to the Year 2000 Problem and, based on that review and
inquiry, the Borrower, the Guarantor and NovaStar Mortgage do not believe
the Year 2000 Problem will result in a material adverse change in their
business condition (financial or otherwise), operations, properties or
prospects, or the Borrower's ability to pay the Obligations.
6. AFFIRMATIVE COVENANTS.
The Borrower hereby covenants and agrees that, so long as the
Commitment is outstanding or there remain any Obligations to be paid or
performed under this Agreement or under any other Loan Document, the
Borrower shall:
6.1 Payment of Note. Punctually pay or cause to be paid all
Obligations payable hereunder and under the Note in accordance with the
terms hereof and thereof.
6.2 Financial Statements and Other Reports. Deliver to the Lender:
6.2(a) As soon as available and in any event within thirty (30)
days after the close of each calendar month, statements of income and
changes in stockholders' equity of the Guarantor and NovaStar Mortgage
(and any Subsidiaries, on a consolidated basis) for the period from
the beginning of such calendar month to the end of such calendar
month, and the related balance sheet as at the end of such calendar
month, all in reasonable detail and certified as to the fairness of
presentation by the chief financial officer or chief accounting
officer of each of the Guarantor and NovaStar Mortgage; subject,
however, to year-end audit adjustments.
6.2(b) Together with each delivery of financial statements
required in this Section 0, an Officer's Certificate substantially in
the form of Exhibit I-SF hereto: (1) setting forth in reasonable
detail all calculations necessary to show that the Borrower is in
compliance with the requirements of Sections 8.1(s) and 7.7 hereof as
of the end of such month or year (or, if the Borrower is not in
compliance, showing the extent of non-compliance and specifying the
period of non-compliance and what actions the Borrower has taken, is
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taking or proposes to take with respect thereto); (2) certifying that
the representation set forth in Section 5.15 hereof is true and
correct as of the date of such certificate or, if such representation
is not true and correct as of such date, specifying the nature of the
problem and what action the Borrower has taken, is taking and proposes
to take with request thereto, and (3) stating that the signers have
reviewed the terms of this Agreement and have made, or caused to be
made under their supervision, a review in reasonable detail of the
transactions and conditions of the Borrower (and, if applicable, its
Subsidiaries) during the accounting period covered by such financial
statements and that such review has not disclosed the existence during
or at the end of such accounting period, and that the signers do not
have knowledge of the existence as of the date of the Officer's
Certificate, of any Default or Event of Default, or if any Default or
Event of Default existed or exists, specifying the nature and period
of the existence thereof and what action the Borrower has taken, is
taking and proposes to take with respect thereto.
6.2(c) As soon as available and in any event within thirty (30)
days after the end of each calendar month, a consolidated report (the
"Servicing Portfolio Report") as of the end of the calendar month
detailing, as to all Mortgage Loans the servicing rights to which are
owned by NovaStar Mortgage (specified by investor type, recourse and
non-recourse), which report shall indicate Mortgage Loans which (A)
are current and in good standing, (B) are more than 30, 60 or 90 days
past due, respectively, (C) are, for Mortgage Loans serviced with
recourse, more than three hundred sixty (360) days past due, (D) are
the subject of pending bankruptcy or foreclosure proceedings, or (E)
have been converted (through foreclosure or other proceedings in lieu
thereof) by NovaStar Mortgage into real estate owned by NovaStar
Mortgage.
6.2(d) From time to time, with reasonable promptness, such
further information regarding the business, operations, properties or
financial condition of the Borrower as the Lender may reasonably
request.
6.3 Maintenance of Existence; Conduct of Business. Preserve and
maintain its corporate existence in good standing and all of its rights,
privileges, licenses and
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franchises necessary or desirable in the normal conduct of its business,
conduct its business in an orderly and efficient manner; and make no change
in the nature or character of its business or engage in any business in
which it was not engaged on the date of this Agreement.
6.4 Compliance with Applicable Laws. Comply with the requirements of
all applicable laws, rules, regulations and orders of any governmental
authority, a breach of which could materially adversely affect its
business, operations, assets, or financial condition, except where
contested in good faith and by appropriate proceedings.
6.5 Inspection of Properties and Books. Permit authorized
representatives of the Lender or any Participant to discuss the business,
operations, assets and financial condition of the Borrower and its
Subsidiaries with its officers and employees and to examine its books of
account and make copies or extracts thereof, all at such reasonable times
as the Lender or any Participant may request. The Borrower will provide its
accountants with a copy of this Agreement promptly after the execution
hereof and will instruct its accountants to answer candidly any and all
questions that the officers of the Lender or any Participant or any
authorized representatives of the Lender or any Participant may address to
them in reference to the financial condition or affairs of the Borrower and
its Subsidiaries. The Borrower may have its representatives in attendance
at any meetings between the officers or other representatives of the Lender
or any Participant and the Borrower accountants held in accordance with
this authorization.
6.6 Notice. Give prompt Notice to the Lender of (a) any action, suit
or proceeding instituted by or against the Borrower or any of its
Subsidiaries in any federal or state court or before any commission or
other regulatory body (federal, state or local, domestic or foreign), or
any such proceedings threatened against the Borrower or any of its
Subsidiaries in a writing containing the details thereof, (b) the filing,
recording or assessment of any federal, state or local tax Lien against the
Borrower, or any of its assets or any of its Subsidiaries, (c) the
occurrence of any Event of Default hereunder or the occurrence of any
Default and continuation thereof for five (5) days, and (d) any other
action, event or condition of any nature, in each case which may lead to or
result in a material adverse effect upon the business, operations, assets,
or financial condition of the Borrower, the
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Guarantor, NovaStar Mortgage, and their Subsidiaries or which, with or
without notice or lapse of time or both, would constitute a default under
any other agreement, instrument or indenture to which the Borrower, the
Guarantor, NovaStar Mortgage or any of their Subsidiaries is a party or to
which the Borrower, the Guarantor, NovaStar Mortgage or any of their
Subsidiaries, their properties or assets, may be subject.
6.7 Payment of Debt, Taxes, etc. Pay and perform all obligations and
indebtedness of the Borrower, and cause to be paid and performed all
obligations and indebtedness of its Subsidiaries, promptly and in
accordance with the terms thereof and pay and discharge or cause to be paid
and discharged promptly all taxes, assessments and governmental charges or
levies imposed upon the Borrower or its Subsidiaries or upon their
respective income, receipts or properties before the same shall become past
due, as well as all lawful claims for labor, materials and supplies or
otherwise which, if unpaid, might become a Lien or charge upon such
properties or any part thereof; provided, however, that the Borrower and
its Subsidiaries shall not be required to pay taxes, assessments or
governmental charges or levies or claims for labor, materials or supplies
for which the Borrower or its Subsidiaries shall have obtained an adequate
bond or adequate insurance or which are being contested in good faith and
by proper proceedings which are being reasonably and diligently pursued and
for which proper reserves have been created.
6.8 Insurance. Maintain (a) errors and omissions insurance or
mortgage impairment insurance, and blanket bond coverage, with such
companies and in such amounts as satisfy prevailing indemnity requirements,
and (b) liability insurance and fire and other hazard insurance on its
properties, with responsible insurance companies approved by the Lender, in
such amounts and against such risks as is customarily carried by similar
businesses operating in the same vicinity; and (c) within thirty (30) days
after Notice from the Lender, obtain such additional insurance as the
Lender shall reasonably require, all at the sole expense of the Borrower.
Copies of such policies shall be furnished to the Lender without charge
upon request of the Lender.
6.9 Subordination of Certain Indebtedness. Cause any indebtedness of
the Borrower, incurred after the date of this Agreement, to any
shareholder, director or officer of the Borrower, or to any Affiliate of
the Borrower or of any
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Subsidiary of the Borrower, to be subordinated to all Obligations, by the
execution of a Subordination of Debt Agreement in the form of Exhibit F
hereto and deliver to the Lender an executed copy of said Agreement,
certified by the corporate secretary of the Borrower to be true and
complete and in full force and effect.
6.10 Use of Proceeds of Advances. Use the proceeds of each Advance
solely for the purpose set forth in Section 2.1(b) for Advances of that
type.
6.11 Special Affirmative Covenants Concerning Collateral.
6.11(a) Warrant and defend the right, title and interest of the
Lender in and to the Collateral against the claims and demands of all
Persons whomsoever.
6.11(b) Execute and deliver to the Lender such Uniform
Commercial Code financing statements with respect to the Collateral as
the Lender may request. The Borrower shall also execute and deliver to
the Lender such further instruments of sale, pledge or assignment or
transfer, and such powers of attorney, as required by the Lender, and
shall do and perform all matters and things necessary or desirable to
be done or observed, for the purpose of effectively creating,
maintaining and preserving the security and benefits intended to be
afforded the Lender under this Agreement. The Lender shall have all
the rights and remedies of a secured party under the Uniform
Commercial Code of Minnesota, or any other applicable law, in addition
to all rights provided for herein.
6.11(c) Maintain, at its principal office or in a regional
office approved by the Lender, or in the office of a computer service
bureau engaged by the Borrower and approved by the Lender and, upon
request, make available to the Lender, the originals, or copies in any
case where the originals have been delivered to the Lender, the
Collateral, and all files, surveys, certificates, correspondence,
appraisals, computer programs, tapes, discs, cards, accounting records
and other information and data relating to the Collateral.
6.12 Legal Opinion. Within 3 Business Days after the Closing Date,
the Borrower shall cause its counsel, Stinson, May & Fizzell, to deliver to
the
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Lender an opinion concerning such matters as the Lender may request, in
form and substance satisfactory to the Lender.
7. NEGATIVE COVENANTS.
The Borrower hereby covenants and agrees that, so long as the
Commitment is outstanding or there remain any Obligations to be paid or
performed, the Borrower shall not, either directly or indirectly, without
the prior written consent of the Lender:
7.1 Contingent Liabilities. Assume, guarantee, endorse, or otherwise
become contingently liable for the obligation of any Person except by
endorsement of negotiable instruments for deposit or collection in the
ordinary course of business and excluding the sale of Mortgage Loans with
recourse in the ordinary course of the Borrower's business.
7.2 Sale or Pledge of Collateral. Sell, pledge or grant a security
interest in any of the Collateral.
7.3 Merger; Sale of Assets; Acquisitions. Liquidate, dissolve,
consolidate or merge or sell any substantial part of its assets, or acquire
any substantial part of the assets of another.
7.4 Deferral of Subordinated Debt. Pay in advance of the stated
maturity thereof any Subordinated Debt of the Borrower or, if a Default or
Event of Default hereunder shall have occurred, make any payment of any
kind thereafter on such Subordinated Debt until all Obligations have been
paid and performed in full and any applicable preference period has
expired.
7.5 Transactions with Affiliates. Other than in the ordinary course
of business, directly or indirectly (a) make any loan, advance, extension
of credit or capital contribution to any of its Affiliates, (b) transfer,
sell, pledge, assign or otherwise dispose of any of its assets to or on
behalf of such Affiliates, (c) merge or consolidate with or purchase or
acquire assets from such Affiliates, or (d) pay management fees not related
to services rendered to or on behalf of such Affiliates.
7.6 Special Negative Covenants Concerning Collateral.
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7.6(a) The Borrower shall not amend or modify, or waive any of
the terms and conditions of, or settle or compromise any claim in
respect of, any of the Pledged Certificates.
8. DEFAULTS; REMEDIES.
8.1 Events of Default. The occurrence of any of the following
conditions or events shall be an event of default ("Event of Default"):
8.1(a) Failure to pay the principal of any Advance when due,
whether at stated maturity, by acceleration, or otherwise; or failure
to pay any installment of interest on any Advance or any other amount
due under this Agreement within ten (10) days after the due date; or
failure to pay, within any applicable grace period, the principal or
interest on any other indebtedness of the Borrower due the Lender; or
8.1(b) Failure of the Borrower, the Guarantor, NovaStar
Mortgage, or any of their Subsidiaries to pay, or any default in the
payment of any principal or interest on, any other indebtedness or in
the payment of any contingent obligation within any period of grace
provided; breach or default with respect to any other material term of
any other indebtedness or of any loan agreement, mortgage, indenture
or other agreement relating thereto, if the effect of such breach or
default is to cause, or to permit the holder or holders thereof (or a
trustee on behalf of such holder or holders) to cause, indebtedness of
the Borrower, the Guarantor, NovaStar Mortgage, or their Subsidiaries
in the aggregate amount of Fifty Thousand Dollars ($50,000) or more to
become or be declared due prior to its stated maturity (upon the
giving or receiving of notice, lapse of time, both, or otherwise);
provided, however, that the Lender hereby agrees to forbear from
declaring an Event of Default for defaults declared with respect to
the Repurchase Agreements or any cross-default resulting therefrom
until October 26, 1998, at which time all such defaults must be cured;
or
8.1(c) Failure of the Borrower to perform or comply with any
term or condition applicable to it contained in Sections 0, 6.11 and
6.12 or in any Section of Article 7 of this Agreement; or
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8.1(d) Any of the representations or warranties made or deemed
made by the Borrower, the Guarantor or NovaStar Mortgage herein or in
any other Loan Document or in any statement or certificate at any time
given by the Borrower, the Guarantor or NovaStar Mortgage in writing
pursuant hereto or thereto shall be inaccurate or incomplete in any
material respect on the date as of which made or deemed made; or
8.1(e) The Borrower, the Guarantor or NovaStar Mortgage shall
default in the performance of or compliance with any term contained in
this Agreement or any other Loan Document other than those referred to
above in Subsections 8.1(a), 8.1(c) or 8.1(d) and such default shall
not have been remedied or waived within ten (10) days after the
earliest of (i) receipt by the Borrower of Notice from the Lender of
such default, (ii) receipt by the Lender of Notice from the Borrower
of such default, or (iii) the date the Borrower should have notified
the Lender of such default pursuant to Section 0(c); or
8.1(f) (1) A court having jurisdiction shall enter a decree or
order for relief in respect of the Borrower, the Guarantor, NovaStar
Mortgage or any of their Subsidiaries in an involuntary case under any
applicable bankruptcy, insolvency or other similar law in respect of
the Borrower, the Guarantor, NovaStar Mortgage or any of their
Subsidiaries now or hereafter in effect, which decree or order is not
stayed; the Borrower, the Guarantor, NovaStar Mortgage or any of their
Subsidiaries shall consent to the entry of any such decree or order;
or a filing of a voluntary case under any applicable bankruptcy,
insolvency or other similar law in respect of the Borrower, the
Guarantor, NovaStar Mortgage or any of their Subsidiaries has
occurred; or any other similar relief shall be granted under any
applicable federal or state law; or (2) the filing of an involuntary
case in respect of the Borrower, the Guarantor, NovaStar Mortgage or
any of their Subsidiaries under any applicable bankruptcy, insolvency
or other similar law; or a decree or order of a court having
jurisdiction for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar
powers over the Borrower, the Guarantor, NovaStar Mortgage or any of
their Subsidiaries, or over all or a substantial part of their
respective property, shall have been entered; or the involuntary
appointment of an interim or permanent receiver, trustee or other
custodian of the
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Borrower, the Guarantor, NovaStar Mortgage or any of their
Subsidiaries for all or a substantial part of their respective
property; or the issuance of a warrant of attachment, execution or
similar process against any substantial part of the property of the
Borrower, the Guarantor, NovaStar Mortgage or any of their
Subsidiaries, and the continuance of any such events in Subsection (2)
above for sixty (60) days unless dismissed, bonded off or discharged;
or
8.1(g) The Borrower, the Guarantor, NovaStar Mortgage or any of
their Subsidiaries shall consent to the appointment of or taking
possession by a receiver, trustee or other custodian for all or a
substantial part of its property; the making by the Borrower, the
Guarantor, NovaStar Mortgage or any of their Subsidiaries of any
assignment for the benefit of creditors; or the inability or failure
of the Borrower, the Guarantor, NovaStar Mortgage or any of their
Subsidiaries, or the admission by the Borrower, the Guarantor,
NovaStar Mortgage or any of their Subsidiaries in writing of its
inability, to pay its debts as such debts become due; or
8.1(h) Any money judgment, writ or warrant of attachment, or
similar process involving in any case an amount in excess of $250,000
shall be entered or filed against the Borrower, the Guarantor,
NovaStar Mortgage or any of their Subsidiaries or any of their
respective assets and shall remain undischarged, unvacated, unbonded
or unstayed for a period of thirty (30) days or in any event later
than five (5) days prior to the date of any proposed sale thereunder;
or
8.1(i) Any order, judgment or decree shall be entered against
the Borrower, the Guarantor, NovaStar Mortgage, or any of their
Subsidiaries decreeing the dissolution or split up of the Borrower,
the Guarantor, NovaStar Mortgage, or any of their Subsidiaries and
such order shall remain undischarged or unstayed for a period in
excess of twenty (20) days; or
8.1(j) Any Plan maintained by the Borrower, the Guarantor,
NovaStar Mortgage, or any of their Subsidiaries shall be terminated
within the meaning of Title IV of ERISA or a trustee shall be
appointed by an appropriate United States district court to administer
any Plan, or the Pension Benefit Guaranty Corporation (or any
successor thereto) shall institute proceedings to terminate any Plan
or to appoint a trustee to
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administer any Plan if as of the date thereof the liability of the
Borrower, the Guarantor, NovaStar Mortgage or any such Subsidiary
(after giving effect to the tax consequences thereof) to the Pension
Benefit Guaranty Corporation (or any successor thereto) for unfunded
guaranteed vested benefits under the Plan exceeds the then current
value of assets accumulated in such Plan by more than Twenty-Five
Thousand Dollars ($25,000) (or in the case of a termination involving
the Borrower or any of its Subsidiaries as a "substantial employer"
(as defined in Section 4001(a)(2) of ERISA) the withdrawing employer's
proportionate share of such excess shall exceed such amount); or
8.1(k) The Borrower, the Guarantor, NovaStar Mortgage or any of
their Subsidiaries as employer under a Multiemployer Plan shall have
made a complete or partial withdrawal from such Multiemployer Plan and
the plan sponsor of such Multiemployer Plan shall have notified such
withdrawing employer that such employer has incurred a withdrawal
liability in an annual amount exceeding Twenty-Five Thousand Dollars
($25,000); or
8.1(l) The Borrower, the Guarantor or NovaStar Mortgage shall
purport to disavow its obligations hereunder or under any other Loan
Document, or shall contest the validity or enforceability hereof or
thereof, or the Lender's security interest on any portion of the
Collateral or the Servicing Collateral shall become unenforceable or
otherwise impaired; or
8.1(m) W. Lance Anderson or Scott F. Hartman shall cease to be
in the management positions they hold in the Borrower, the Guarantor
and NovaStar Mortgage as of the Closing Date, or there shall be any
material change in either of their duties; or
8.1(n) A material adverse change occurs, or is reasonably likely
to occur, in the business condition (financial or otherwise),
operations, properties or prospects of the Borrower, or in the ability
of the Borrower to repay the Obligations; or
8.1(o) Any Lien for any taxes, assessments or other governmental
charges (i) is filed against the Borrower or any of its property, or
is otherwise enforced against the Borrower or any portion of the
Collateral, or (ii) obtains priority that is equal or greater than the
priority of the Lender's security
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interest in any of the Collateral.
8.1(p) The Borrower, the Guarantor or NovaStar Mortgage shall
cease to operate as a going concern or take any corporate action to
authorize any action described in Section 8.1(f), Section 8.1(g),
Section 8.1(l) or this Section 8.1(p); or
8.1(q) Any Debt of W. Lance Anderson or Scott F. Hartman to the
Guarantor outstanding as of the date hereof shall be reduced in any
amount except by repayment; provided, however, that the Lender hereby
consents to a one-time waiver of interest due on such Debt; or
8.1(r) The Guarantor shall at any time own less than 100% of the
issued and outstanding capital stock of the Borrower, or shall at any
time own indirectly less than 99% of the issued and outstanding
capital stock of NovaStar Mortgage; or
8.1(s) The Tangible Net Worth of the Guarantor (and its
Subsidiaries, on a consolidated basis) at any time shall be less than
$80,000,000.
8.1(t) The Guarantor shall make any Investments other than
purchasing Mortgage Loans originated by NovaStar Mortgage in the
ordinary course of its business.
8.2 Remedies.
8.2(a) Upon the occurrence of any Event of Default described in
Sections 0 or 0, the Commitment shall be terminated and the unpaid
principal amount of and accrued interest on the Note and all other
Obligations shall automatically become due and payable, without
presentment, demand or other requirements of any kind, all of which
are hereby expressly waived by the Borrower.
8.2(b) Upon the occurrence of any Event of Default, other than
those described in Sections 0 and 0, the Lender may, by Notice to the
Borrower, terminate the Commitment and/or declare all Obligations to
be immediately due and payable, whereupon the same shall forthwith
become due and payable, together with all accrued interest thereon,
and the obligation of the Lender to make any Advances shall thereupon
terminate.
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8.2(c) Upon the occurrence of any Event of Default, the Lender
may also do any of the following:
(1) Foreclose upon or otherwise enforce its security
interest in and Lien on the Collateral to secure all payments and
performance of the Obligations in any manner permitted by law or
provided for hereunder.
(2) Settle, compromise, or release, in whole or in part, any
amounts owing on the Collateral, any such obligor or any portion
of the Collateral, on terms acceptable to the Lender; enforce
payment and prosecute any action or proceeding with respect to
any and all Collateral; and where any such Collateral is in
default, foreclose on and enforce security interests in, such
Collateral by any available judicial procedure or without
judicial process and sell property acquired as a result of any
such foreclosure.
(3) Require the Borrower to assemble the Collateral and/or
books and records relating thereto and make such available to the
Lender at a place to be designated by the Lender.
(4) Enter onto property where any Collateral or books and
records relating thereto are located and take possession thereof
with or without judicial process; and obtain access to the
Borrower's data processing equipment, computer hardware and
software relating to the Collateral and to use all of the
foregoing and the information contained therein in any manner the
Lender deems necessary for the purpose of effectuating its rights
under this Agreement and any other Loan Document.
(5) Prior to the disposition of the Collateral, prepare it
for disposition in any manner and to the extent the Lender deems
appropriate.
(6) Exercise all rights and remedies of a secured creditor
under the Uniform Commercial Code of Minnesota or other
applicable law, including, but not limited to, selling or
otherwise disposing of the Collateral, or any part thereof, at
one or more public or private sales, whether or not such
Collateral is present at the place of sale, for
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cash or credit or future delivery, on such terms and in such
manner as the Lender may determine, including, without
limitation, sale pursuant to any applicable Purchase Commitment.
If notice is required under such applicable law, the Lender will
give the Borrower not less than ten (10) days' notice of any such
public sale or of the date after which any private sale may be
held. The Borrower agrees that ten (10) days' notice shall be
reasonable notice. The Lender may, without notice or publication,
adjourn any public or private sale or cause the same to be
adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or
place to which the same may be so adjourned. In case of any sale
of all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by the Lender
until the selling price is paid by the purchaser thereof, but the
Lender shall not incur any liability in case of the failure of
such purchaser to take up and pay for the Collateral so sold and,
in case of any such failure, such Collateral may again be sold
upon like notice. The Lender may, however, instead of exercising
the power of sale herein conferred upon it, proceed by a suit or
suits at law or in equity to collect all amounts due upon the
Collateral or to foreclose the pledge of and sell the Collateral
or any portion thereof under a judgment or decree of a court or
courts of competent jurisdiction, or both.
(7) Proceed against the Borrower on the Note, the Guarantor
on the Guaranty or the Servicing Collateral under the Servicing
Security Agreement.
8.2(d) The Lender shall incur no liability as a result of the
sale or other disposition of the Collateral, or any part thereof, at
any public or private sale or disposition. The Borrower hereby waives
(to the extent permitted by law) any claims it may have against the
Lender arising by reason of the fact that the price at which the
Collateral may have been sold at such private sale was less than the
price which might have been obtained at a public sale or was less than
the aggregate amount of the outstanding Advances and the unpaid
interest accrued thereon, even if the Lender accepts the first offer
received and does
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not offer the Collateral to more than one offeree.
8.2(e) The Borrower specifically waives and releases (to the
extent permitted by law) any equity or right of redemption, all rights
of redemption, stay or appraisal which the Borrower has or may have
under any rule of law or statute now existing or hereafter adopted,
and any right to require the Lender to (1) proceed against any Person,
(2) proceed against or exhaust any of the Collateral or pursue its
rights and remedies as against the Collateral in any particular order,
or (3) pursue any other remedy in its power. The Lender shall not be
required to take any steps necessary to preserve any rights of the
Borrower against holders of mortgages prior in lien to the Lien of any
Mortgage included in the Collateral or to preserve rights against
prior parties.
8.2(f) The Lender 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
Mortgage included in the Collateral, including, without limitation,
payment of delinquent taxes or assessments and insurance premiums. All
advances, charges, costs and expenses, including reasonable attorneys'
fees and disbursements, incurred or paid by the Lender in exercising
any right, power or remedy conferred by this Agreement, or in the
enforcement hereof, together with interest thereon, at the Default
Rate, from the time of payment until repaid, shall become a part of
the principal balance outstanding hereunder and under the Note.
8.2(g) No failure on the part of the Lender to exercise, and no
delay in exercising, any right, power or remedy provided hereunder, at
law or in equity shall operate as a waiver thereof; nor shall any
single or partial exercise by the Lender of any right, power or remedy
provided hereunder, at law or in equity preclude any other or further
exercise thereof or the exercise of any other right, power or remedy.
Without intending to limit the foregoing, all defenses based on the
statute of limitations are hereby waived by the Borrower to the extent
permitted by law. The remedies herein provided are cumulative and are
not exclusive of any remedies provided at law or in equity.
8.2(h) The Lender is hereby granted a license or other right to
use, without charge, the Borrower's
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computer programs, other programs, labels, patents, copyrights, rights
of use of any name, trade secrets, trade names, trademarks, service
marks and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in advertising for sale and selling any
Collateral and the Borrower's rights under all licenses and all other
agreements related to the foregoing shall inure to the Lender's
benefit until the Obligations are paid in full.
8.3 Application of Proceeds. The proceeds of any sale, disposition
or other enforcement of the Lender's security interest in all or any part
of the Collateral shall be applied by the Lender:
First, to the payment of the costs and expenses of such sale or
enforcement, including reasonable compensation to the Lender's agents and
counsel, and all expenses, liabilities and advances made or incurred by or
on behalf of the Lender in connection therewith;
Second, to the payment of interest accrued and unpaid on the Note;
Third, to the payment of any other Obligations due (other than
principal and interest) under this Agreement and the Loan Documents;
Fourth, to the payment of the outstanding principal balance of the
Note; and
Fifth, to any remaining Obligations; and
Finally, 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.
If the proceeds of any such sale, disposition or other enforcement are
insufficient to cover the costs and expenses of such sale, as aforesaid,
and the payment in full of all Obligations, the Borrower shall remain
liable for any deficiency.
8.4 Lender Appointed Attorney-in-Fact. The Lender is hereby
appointed the attorney-in-fact of the Borrower, with full power of
substitution, for the purpose of carrying out the provisions hereof and
taking any action and executing any instruments which the Lender may deem
necessary or advisable to
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accomplish the purposes hereof, which appointment as attorney-in-fact is
irrevocable and coupled with an interest. Without limiting the generality
of the foregoing, the Lender shall have the right and power to give notices
of its security interest in the Collateral to any Person, either in the
name of the Borrower or in its own name, or to receive, endorse and collect
all checks made payable to the order of the Borrower representing any
payment on account of the principal of or interest on, or the proceeds of
sale of, any of the Collateral and to give full discharge for the same.
8.5 Right of Set-Off. If the Borrower shall default in the payment
of the Note, any interest accrued thereon, or any other sums which may
become payable hereunder when due, or in the performance of any of its
other obligations or liabilities under this Agreement, the Lender, shall
have the right, at any time and from time to time, without notice, to set-
off and to appropriate or apply any and all property or indebtedness of any
kind at any time held or owing by the Lender to or for the credit or the
account of the Borrower against and on account of the Obligations of the
Borrower under the Note and this Agreement, irrespective of whether or not
the Lender shall have made any demand hereunder and whether or not said
Obligations shall have matured.
9. NOTICES.
All notices, demands, consents, requests and other communications
required or permitted to be given or made hereunder (collectively,
"Notices") shall, except as otherwise expressly provided hereunder, be in
writing and shall be delivered in person or telecopied or mailed, first
class or delivered by overnight courier, return receipt requested, postage
prepaid, addressed to the respective parties hereto at their respective
addresses hereinafter set forth or, as to any such party, at such other
address as may be designated by it in a Notice to the other. All Notices
shall be conclusively deemed to have been properly given or made when duly
delivered, in person, by telecopy or by overnight courier, or if mailed, on
the date of receipt as noted on the return receipt, addressed as follows:
if to the Borrower: NovaStar Certificates Financing
Corporation
1901 West 47th Place
Suite 105
Westwood, Kansas 66205
Attention: Lance Anderson
Telecopier No. (913) 514-3515
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if to the Lender: Residential Funding Corporation
12713 Woodgreen Street
Los Angeles, California 90066
Attention: Gary Shev, Director
Telecopier No.: (310) 390-6919
10. REIMBURSEMENT OF EXPENSES; INDEMNITY.
The Borrower shall: (a) pay such documentation production fees as the
Lender may require and all out-of-pocket costs and expenses of the Lender,
including, without limitation, reasonable fees and disbursements of counsel
(including allocated costs of internal counsel), in connection with the
amendment, enforcement and administration of this Agreement, the Note, and
other Loan Documents and the making and repayment of the Advances and the
payment of interest thereon; (b) indemnify, pay, and hold harmless the
Lender and any holder of the Note from and against, any and all present and
future stamp, documentary and other similar taxes with respect to the
foregoing matters and save the Lender and the holder or holders of the Note
harmless from and against any and all liabilities with respect to or
resulting from any delay or omission to pay such taxes; and (c) indemnify,
pay and hold harmless the Lender and any of its officers, directors,
employees or agents and any subsequent holder of the Note (collectively
called the "Indemnitees") from and against any and all liabilities,
obligations, losses, damages, penalties, judgments, suits, costs, expenses
and disbursements of any kind or nature whatsoever (including without
limitation, the reasonable fees and disbursements of counsel of the
Indemnitees (including allocated costs of internal counsel) in connection
with any investigative, administrative or judicial proceeding, whether or
not such Indemnitees shall be designated a party thereto) which may be
imposed upon, incurred by or asserted against such Indemnitees in any
manner relating to or arising out of this Agreement, the Note, or any other
Loan Document or any of the transactions contemplated hereby or thereby
(the "Indemnified Liabilities"); provided, however, that the Borrower shall
have no obligation hereunder with respect to Indemnified Liabilities
arising from the gross negligence or willful misconduct of any such
Indemnitees. To the extent that the undertaking to indemnify, pay and hold
harmless as set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, the Borrower shall
contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified
Liabilities
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incurred by the Indemnitees or any of them. The agreement of the Borrower
contained in this Subsection (c) shall survive the expiration or
termination of this Agreement and the payment in full of the Note.
Attorneys' fees and disbursements incurred in enforcing, or on appeal from,
a judgment pursuant hereto shall be recoverable separately from and in
addition to any other amount included in such judgment, and this clause is
intended to be severable from the other provisions of this Agreement and to
survive and not be merged into such judgment.
11. FINANCIAL INFORMATION.
All financial statements and reports furnished to the Lender hereunder
shall be prepared in accordance with GAAP, applied on a basis consistent
with that applied in preparing the financial statements as at the end of
and for the last fiscal year ended (except to the extent otherwise required
to conform to good accounting practice).
12. MISCELLANEOUS.
12.1 Terms Binding Upon Successors; Survival of Representations. The
terms and provisions of this Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and
assigns. All representations, warranties, covenants and agreements herein
contained on the part of the Borrower shall survive the making of any
Advance and the execution of the Note, and shall be effective so long as
the Commitment is outstanding hereunder or there remain any Obligations to
be paid or performed.
12.2 Assignment. This Agreement may not be assigned by the Borrower.
This Agreement and the Note along with the Lender's security interest in
any or all of the Collateral, may, at any time, be transferred or assigned,
in whole or in part, by the Lender, and any assignee thereof may enforce
this Agreement, the Note and such security interest.
12.3 Amendments. Except as otherwise provided in this Agreement,
this Agreement may not be amended, modified or supplemented unless such
amendment, modification or supplement is set forth in a writing signed by
the parties hereto.
12.4 Governing Law. This Agreement and the other Loan Documents
shall be governed by the laws of
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the State of Minnesota, without reference to its principles of conflicts of
laws.
12.5 Participations. The Lender may at any time sell, assign or
grant participations in, or otherwise transfer to any other Person (a
"Participant"), all or part of the Obligations. Without limitation of the
exclusive right of the Lender to collect and enforce such Obligations, the
Borrower agrees that each disposition will give rise to a debtor-creditor
relationship of the Borrower to the Participant, and the Borrower
authorizes each Participant, upon the occurrence of an Event of Default, to
proceed directly by right of setoff, banker's lien, or otherwise, against
any assets of the Borrower which may be in the hands of such Participant.
The Borrower authorizes the Lender to disclose to any prospective
Participant and any Participant any and all information in the Lender's
possession concerning the Borrower, this Agreement and the Collateral.
12.6 Relationship of the Parties. This Agreement provides for the
making of Advances by the Lender, in its capacity as a lender, to the
Borrower, in its capacity as a borrower, and for the payment of interest,
repayment of principal by the Borrower to the Lender, and for the payment
of certain fees by the Borrower to the Lender. The relationship between the
Lender and the Borrower is limited to that of creditor/secured party, on
the one hand, and debtor, on the other hand. The provisions herein for
compliance with financial covenants and delivery of financial statements
are intended solely for the benefit of the Lender to protect its interests
as lender in assuring payments of interest and repayment of principal and
payment of certain fees, and nothing contained in this Agreement shall be
construed as permitting or obligating the Lender to act as a financial or
business advisor or consultant to the Borrower, as permitting or obligating
the Lender to control the Borrower or to conduct the Borrower's operations,
as creating any fiduciary obligation on the part of the Lender to the
Borrower, or as creating any joint venture, agency, or other relationship
between the parties hereto other than as explicitly and specifically stated
in this Agreement. The Borrower acknowledges that it has had the
opportunity to obtain the advice of experienced counsel of its own choosing
in connection with the negotiation and execution of this Agreement and to
obtain the advice of such counsel with respect to all matters contained
herein. The Borrower further acknowledges that it is experienced with
respect to financial and credit matters and has made its own independent
decisions to apply to the Lender for credit and to execute
41
<PAGE>
and deliver this Agreement.
12.7 Severability. If any provision of this Agreement shall be
declared to be illegal or unenforceable in any respect, such illegal or
unenforceable provision shall be and become absolutely null and void and of
no force and effect as though such provision were not in fact set forth
herein, but all other covenants, terms, conditions and provisions hereof
shall nevertheless continue to be valid and enforceable.
12.8 Operational Reviews. From time to time upon 24 hours notice to
the Borrower, the Borrower shall permit the Lender or its representative
access to its premises and records for the purpose of conducting a review
of the Borrower's general mortgage business methods, policies, and
procedures, auditing loan files and reviewing financial and operational
aspects of the Borrower's business.
12.9 Consent to Credit References. The Borrower hereby consents to
the disclosure of information regarding the Borrower and its relationships
with the Lender to Persons making credit inquiries to the Lender. This
consent is revocable by the Borrower at any time upon Notice to the Lender
as provided in Section 0 hereof.
12.10 Consent to Jurisdiction. The Borrower hereby agrees that any
action or proceeding under the Loan Documents, the Note or any document
delivered pursuant hereto may be commenced against it in any court of
competent jurisdiction within the State of Minnesota, by service of process
upon the Borrower by first class registered or certified mail, return
receipt requested, addressed to the Borrower at its address last known to
the Lender. The Borrower agrees that any such suit, action or proceeding
arising out of or relating to this Agreement or any other such document may
be instituted in the Hennepin County, State District Court or in the United
States District Court for the District of Minnesota at the option of the
Lender; and the Borrower hereby waives any objection to the jurisdiction or
venue of any such court with respect to, or the convenience of any court as
a forum for, any such suit, action or proceeding. Nothing herein shall
affect the right of the Lender to accomplish service of process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against the Borrower in any other jurisdiction or court.
12.11 Counterparts. This Agreement
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<PAGE>
may be executed in any number of counterparts, each of which shall be
deemed an original, but all such counterparts shall together constitute but
one and the same instrument.
12.12 Entire Agreement. This Agreement, the Note and the other Loan
Documents represent the final agreement among the parties hereto and
thereto with respect to the subject matter hereof and thereof, and may not
be contradicted by evidence of prior or contemporaneous oral agreements
among such parties. There are no oral agreements among the parties with
respect to the subject matter hereof and thereof.
12.13 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER EACH HEREBY
(A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE
OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE
EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY
THE BORROWER AND THE LENDER, AND THIS WAIVER IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT OF A JURY
TRIAL WOULD OTHERWISE ACCRUE. THE LENDER AND THE BORROWER IS EACH HEREBY
AUTHORIZED AND REQUESTED TO SUBMIT THIS AGREEMENT TO ANY COURT HAVING
JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS TO SERVE
AS CONCLUSIVE EVIDENCE OF THE FOREGOING WAIVER OF THE RIGHT TO JURY TRIAL.
FURTHER, THE BORROWER AND THE LENDER EACH HEREBY CERTIFIES THAT NO
REPRESENTATIVE OR AGENT OF THE OTHER PARTY, INCLUDING THE OTHER PARTY'S
COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY OF ITS
REPRESENTATIVES OR AGENTS THAT THE OTHER PARTY WILL NOT SEEK TO ENFORCE
THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION.
43
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
NOVASTAR CERTIFICATES FINANCING
CORPORATION, a Delaware corporation
By:
-----------------------------------
Its:
----------------------------------
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation
By:
-----------------------------------
Its: Director
STATE OF )
------------------
) ss
COUNTY OF )
-----------------
On _________________, _____ before me, a Notary Public, personally appeared
________________________________, the ______________________ of NOVASTAR
CERTIFICATES FINANCING CORPORATION, a Delaware corporation, personally known to
me (or proved to me on the basis of satisfactory evidence) to be the person
whose name is subscribed to the within instrument and acknowledged to me that
he/she executed the same in his/her authorized capacity, and that by his/her
signature on the instrument the person, or the entity upon behalf of which the
person acted, executed the instrument.
WITNESS my hand and official seal.
--------------------------------------
Notary Public
(SEAL) My Commission Expires:
----------------
<PAGE>
STATE OF )
------------------
) ss
COUNTY OF )
-----------------
On _________________, 1996 before me, a Notary Public, personally appeared
________________________________, the Director of RESIDENTIAL FUNDING
CORPORATION, a Delaware corporation, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person whose name is subscribed to
the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
--------------------------------------
Notary Public
(SEAL) My Commission Expires:
----------------
<PAGE>
EXHIBIT I-MF
OFFICER'S CERTIFICATE
---------------------
Reference is made to that certain Warehousing Credit and Security Agreement
between NOVASTAR FINANCIAL, INC., a Maryland corporation, NOVASTAR MORTGAGE,
INC., a Delaware corporation, and NOVASTAR CERTIFICATES FINANCING CORPORATION, a
Delaware corporation (the "Borrower"), and RESIDENTIAL FUNDING CORPORATION, a
Delaware corporation (the "Lender"), dated as of October 13, 1998 (as the same
may be amended, modified, supplemented, renewed or restated from time to time,
the "Agreement"). All capitalized terms used herein and all Section numbers
given herein refer to those terms and Sections set forth in the Agreement. This
Officer's Certificate is submitted to the Lender pursuant to Section 0 of the
Agreement.
The undersigned hereby certifies to the Lender that as of the close of
business on ______________________, 19_____ ("Statement Date",) and with respect
to the Borrower and its Subsidiaries on a consolidated basis:
1. As illustrated in the attached calculations supporting this Officer's
Certificate, the Borrower met the covenants set forth in Sections 8.1(s)
and 7.7, or if the Borrower did not meet any of such covenants, a detailed
explanation is attached setting forth the nature and period of the
existence of the Default and the action the Borrower has taken, is taking,
and proposes to take with respect thereto.
2. No payments in advance of the scheduled maturity date have been made with
respect to any Subordinated Debt. The Borrower has incurred no Debt
required to be subordinated pursuant to Section 0.
3. The representation set forth in Section 5.15 of the Agreement is true and
correct as of the date of this Officer's Certificate or, if such
representation is not true and correct as of such date, the nature of the
problem and the action the Borrower has taken, is taking and proposes to
take with respect thereto are described in the statement attached hereto.
4. I have reviewed the terms of the Agreement and have made, or caused to be
made under my supervision, a review in reasonable detail of the
transactions and conditions of the Borrower (and, if applicable, its
Subsidiaries) and such review has not disclosed the existence, and I have
no knowledge of the existence, of any Default or Event of
1
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Default, or if any Default or Event of Default existed or exists, a
detailed explanation is attached specifying the nature and period of the
existence of the Default and the action the Borrower has taken, is taking
and proposes to take with respect thereto.
Pursuant to Section 6.2 of the Agreement, enclosed are the financial
statements of the Borrower as of the Statement Date. The financial
statements for the period ending on the Statement Date fairly present the
financial condition and results of operations of the Borrower (and, if
applicable, its Subsidiaries) as at the Statement Date.
Dated:_____________________________
NOVASTAR FINANCIAL, INC.,
a Maryland corporation
By:
-------------------------------------
Its:
------------------------------------
2
<PAGE>
CALCULATIONS SUPPORTING OFFICER'S CERTIFICATE
Borrower Name: NOVASTAR FINANCIAL, INC., NOVASTAR MORTGAGE, INC. and NOVASTAR
CERTIFICATES FINANCING CORPORATION and its Subsidiaries
Statement Date:
----------------------------------------
All financial calculations set forth herein are as of the Statement Date.
I. TANGIBLE NET WORTH
A. Tangible Net Worth of the Guarantor is:
Excess of total assets over total liabilities: $
---------
Plus: Subordinated Debt not due within one year
of the Statement Date (or any portion
thereof): $
---------
Minus: Advances to owners, officers,
employees or Affiliates: $
---------
Minus: Investments in Affiliates: $
---------
Minus: Assets pledged to secure liabilities
not included in Debt: $
---------
Minus: Intangible assets: $
---------
Minus: Any other HUD nonacceptable assets: $
---------
Minus: Other assets unacceptable to the
Lender: $
---------
TANGIBLE NET WORTH $
------------------------
B. Requirements of Section 8.1(s) of the Agreement:
MINIMUM TANGIBLE NET WORTH OF $80,000,000.
C. Covenant Satisfied: Covenant Not Satisfied:
---------- ---------
II. TRANSACTIONS WITH AFFILIATES
A. Loans, advances, and extensions of credit made by the Borrower to its
Affiliates total: $
---------
B. Capital contributions made by the Borrower to its Affiliates total:
$
---------
C. Management fees paid to Affiliates during the current fiscal year
total: $
---------
D. Transfers, sales, pledges, assignments or other dispositions of assets
made by the Borrower to its
3
<PAGE>
Affiliates total: $
--------
E. Requirements of Section 0 of the Agreement:
1. NO LOANS, ADVANCES, EXTENSIONS OF CREDIT OR CAPITAL CONTRIBUTIONS
SHALL BE MADE BY THE BORROWER TO AFFILIATES OTHER THAN IN THE ORDINARY
COURSE OF BUSINESS.
Covenant Satisfied: Covenant Not Satisfied:
------- -------
2. NO TRANSFERS, SALES, PLEDGES ASSIGNMENTS OR OTHER DISPOSITIONS OF
ASSETS BY THE BORROWER TO AFFILIATES OTHER THAN IN THE ORDINARY COURSE
OF BUSINESS.
Covenant Satisfied: Covenant Not Satisfied:
------- -------
3. NO MERGER, CONSOLIDATION, PURCHASE OR ACQUISITION OF ASSETS BY THE
BORROWER TO AFFILIATES OTHER THAN IN THE ORDINARY COURSE OF BUSINESS.
Covenant Satisfied: Covenant Not Satisfied:
------- -------
4. MANAGEMENT FEES PAID BY THE BORROWER TO AFFILIATES NOT RELATED TO
SERVICES RENDERED TO OR ON BEHALF OF SUCH AFFILIATES.
Covenant Satisfied: Covenant Not Satisfied:
------- -------
4
<PAGE>
EXHIBIT A
PROMISSORY NOTE
---------------
$18,000,000 Date: October 13, 1998
FOR VALUE RECEIVED, the undersigned, NOVASTAR CERTIFICATES FINANCING
CORPORATION, a Delaware corporation (herein called the "Company"), hereby
promises to pay to the order of RESIDENTIAL FUNDING CORPORATION, a Delaware
corporation (the "Lender" or, together with its successors and assigns, the
"Holder") whose principal place of business is 8400 Normandale Lake Blvd., Suite
600, Minneapolis, Minnesota 55437, or at such other place as the Holder may
designate from time to time, the principal sum of $18,000,000 or so much thereof
as may be outstanding from time to time pursuant to the Term Loan and Security
Agreement described below, and to pay interest on said principal sum or such
part thereof as shall remain unpaid from time to time, from the date of each
Advance until repaid in full, and all other fees and charges due under the
Agreement, at the rates and at the times set forth in the Agreement. All
payments hereunder shall be made in lawful money of the United States and in
immediately available funds.
This Note is given to evidence an actual line of credit in the above amount
and is the Note referred to in that certain Term Loan and Security Agreement
(the "Agreement") dated the date hereof between the Company and the Lender, as
the same may be amended or supplemented from time to time, and is entitled to
the benefits thereof. Reference is hereby made to the Agreement (which is
incorporated herein by reference as fully and with the same effect as if set
forth herein at length) for a description of the Collateral, a statement of the
covenants and agreements, a statement of the rights and remedies and securities
afforded thereby and other matters contained therein. Capitalized terms used
herein, unless otherwise defined herein, shall have the meanings given them in
the Agreement.
This Note may be prepaid in whole or in part at any time without premium or
penalty.
Should this Note be placed in the hands of attorneys for collection, the
Company agrees to pay, in addition to principal and interest, fees and charges
due under the Agreement, any and all costs of collecting this Note, including
reasonable attorneys' fees and expenses.
The Company hereby waives demand, notice, protest and
1
<PAGE>
presentment.
This Note shall be construed and enforced in accordance with the laws of
the State of Minnesota, without reference to its principles of conflicts of law.
IN WITNESS WHEREOF, the Company has executed this Note as of the day and
year first above written.
NOVASTAR CERTIFICATES FINANCING
CORPORATION, a Delaware corporation
By:
-------------------------------------
Its:
-------------------------------------
STATE OF )
----------------
) ss
COUNTY OF )
---------------
On _________________, ___________, before me, a Notary Public, personally
appeared ________________________________, the ______________________ of
NOVASTAR CERTIFICATES FINANCING CORPORATION, a Delaware corporation, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument and acknowledged to me
that he/she executed the same in his/her authorized capacity, and that by
his/her signature on the instrument the person, or the entity upon behalf of
which the person acted, executed the instrument.
WITNESS my hand and official seal.
----------------------------------------
Notary Public
(SEAL) My Commission Expires:
------------------
2
<PAGE>
EXHIBIT B
GUARANTY
--------
THIS GUARANTY, made and entered into as of this 13th day of October, 1998,
by NOVASTAR FINANCIAL, INC., a Maryland corporation (the "Guarantor"), to
RESIDENTIAL FUNDING CORPORATION, a Delaware corporation (the "Lender"), having
its principal office at 8400 Normandale Lake Blvd., Suite 600, Minneapolis,
Minnesota 55437.
RECITALS
--------
A. NOVASTAR CERTIFICATES FINANCING CORPORATION, a Delaware corporation
(the "Borrower") and the Lender have agreed that the Lender will
extend term financing to the Borrower in the principal amount of
$18,000,000 (the "Loan").
B. The Loan is evidenced by a Promissory Note dated of even date herewith
from the Borrower to the Lender, as the same may be amended,
supplemented or otherwise modified from time to time, including any
other instruments executed and delivered in renewal, extension,
rearrangement or otherwise in replacement of such Promissory Note (the
"Note") and by a Term Loan and Security Agreement of even date
herewith, as the same may be amended, supplemented or otherwise
modified from time to time, including any other instruments executed
and delivered in renewal, extension, rearrangement or otherwise in
replacement of such agreement (the "Agreement").
C. The Guarantor is the owner of all of the issued and outstanding
capital stock of the Borrower and will derive benefit from the Loan.
D. As a condition to making the Loan, the Lender has required that the
Guarantor execute and deliver this Guaranty. In order to induce the
Lender to make Advances under the Agreement, to accept the Note and
the Agreement, the Guarantor has agreed to give this Guaranty.
E. The Lender has refused to make Advances under the Agreement unless
this Guaranty is executed by the Guarantor and delivered to Lender.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the recitals and other
1
<PAGE>
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Guarantor hereby covenants and agrees with the
Lender as follows:
1. Unless otherwise defined herein, all capitalized terms used herein
shall have the meanings ascribed to such terms in the Agreement.
2. The Guarantor hereby irrevocably, unconditionally and absolutely
guarantees to the Lender the due and prompt payment, and not just the
collectibility, of the principal of, and interest, fees and late charges
and all other indebtedness, if any, on the Note when due, whether at
maturity, by acceleration or otherwise all at the times and places and at
the rates described in, and otherwise according to the terms of the Note
and the Agreement, whether now existing or hereafter created or arising.
3. The Guarantor further hereby irrevocably, unconditionally and
absolutely guarantees to the Lender the due and prompt performance by the
Borrower of all duties, agreements and obligations of the Borrower
contained in the Note and the Agreement, and the due and prompt payment of
all costs and expenses incurred, including, without limitation, attorneys'
fees, court costs and all other litigation expenses (including but not
limited to expert witness fees, exhibit preparation, and courier, postage,
communication and document copying expenses), in enforcing the payment and
performance of the Note and the Agreement and this Guaranty (the payment
and performance of the items set forth in Paragraphs 2 and 3 of this
Guaranty are collectively referred to as the "Guaranteed Debt").
4. In the event the Borrower shall at any time fail to pay the Lender
any principal of or interest on or other sums constituting any Guaranteed
Debt when due, whether by acceleration or otherwise, the Guarantor promises
to pay such amount to the Lender forthwith, together with all collection
costs and expenses, including, without limitation, attorneys' fees, court
costs and all other litigation expenses (including but not limited to
expert witness fees, exhibit preparation, and courier, postage,
communication and document copying expenses). Any sum required to be paid
by the Guarantor to the Lender pursuant to this Guaranty shall bear
interest from the date such sum becomes due until paid at a per annum rate
equal to the Default Rate.
5. The Guarantor hereby authorizes the Lender, following the
occurrence of an Event of Default, without notice or demand, to apply any
property, balances, credits, accounts or moneys of the Guarantor then in
the possession of Lender, or standing to the credit of the Guarantor, to
the payment of such Guaranteed Debt.
6. The Guarantor does hereby (a) agree to any
2
<PAGE>
modifications of any terms or conditions of any Guaranteed Debt and/or to
any extensions or renewals of time of payment or performance by the
Borrower; (b) that it shall not be necessary for the Lender to resort to
legal remedies against the Borrower before proceeding hereunder, nor to
take any action against any other Person obligated (an "Obligor") for
payment or performance of the Guaranteed Debt or against any collateral for
the Guaranteed Debt before proceeding against the Guarantor; (c) agree that
no release of the Borrower or any other guarantor or Obligor, and no
release, exchange or nonperfection of any collateral for the Guaranteed
Debt, whether by operation of law or by any act or failure to act by the
Lender, with or without notice to the Guarantor, shall release the
Guarantor; (d) waive presentment, demand, notice of demand, dishonor,
notice of dishonor, protest, and notice of protest and any other notice
with respect to any Guaranteed Debt and this Guaranty, and promptness in
commencing suit against any party thereto or liable thereon and/or in
giving any notice to or making any claim or demand hereunder upon the
Guarantor; (e) waive any defense arising by reason of any disability or
other defense of the Borrower for payment of the Guaranteed Debt or any
part thereof or by reason of the cessation from any cause whatsoever of the
liability of the Borrower therefor other than full payment of the
Guaranteed Debt; or (f) waive, to the extent permitted by law, all benefit
of valuation, appraisement, and exemptions under the laws of the State of
Minnesota or any other state or territory of the United States.
7. The obligations of the Guarantor hereunder shall be primary,
absolute and unconditional, and shall remain in full force and effect
without regard to, and shall not be impaired or affected by: (a) the
genuineness, validity, regularity or enforceability of, or any amendment or
change in the Agreement or the Note, or any change in or extension of the
manner, place or terms of payment of, all or any portion of the Guaranteed
Debt; (b) the taking or failure to take any action to enforce the Agreement
or the Note, or the exercise or failure to exercise any remedy, power or
privilege contained therein or available at law or otherwise, or the waiver
by the Lender of any provisions of the Agreement or the Note; (c) any
impairment, modification, change, release or limitation in any manner of
the liability of the Borrower or its estate in bankruptcy, or of any remedy
for the enforcement of the Borrower's liability, resulting from the
operation of any present or future provision of the bankruptcy laws or any
other statute or regulation, or the dissolution, bankruptcy, insolvency, or
reorganization of the Borrower; (d) the merger or consolidation of the
Borrower, or any sale or transfer by the Borrower of all or part of its
assets or property; (e) any claim the Guarantor may have against any other
Obligor, including any claim of contribution; (f) the release, in whole or
in part, of any other guarantor (if more than one), the Borrower or any
other Obligor; (g) any settlement or compromise with any Obligor
3
<PAGE>
with respect to any Guaranteed Debt and/or the subordination of the payment
of the Guaranteed Debt or any part thereof to the payment of any other
debts or claims which may at any time be due and owing to the Lender and/or
any other Person; or (h) any other action or circumstance which (with or
without notice to or knowledge of the Guarantor) may or might in any manner
or to any extent vary the risks of the Guarantor hereunder or otherwise
constitute a legal or equitable discharge or defense, it being understood
and agreed by the Guarantor that the obligations under this Guaranty shall
not be discharged except by the full payment and performance of the
Guaranteed Debt.
8. The Lender shall have the right to determine how, when and what
application of payments and credits, if any, whether derived from the
Borrower or from any other source, shall be made on the Guaranteed Debt and
any other indebtedness owed by the Borrower and/or any other Obligor to the
Lender. The Lender shall be under no obligation to marshal any assets in
favor of the Guarantor or in payment of all or any part of the Guaranteed
Debt.
9. The obligations of the Guarantor hereunder shall continue to be
effective, or be automatically reinstated, as the case may be, if at any
time the performance or the payment, as the case may be, in whole or in
part, of any of the Guaranteed Debt is rescinded or must otherwise be
restored or returned by the Lender (as a preference, fraudulent conveyance
or otherwise) upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower, the Guarantor or any other person or upon
or as a result of the appointment of a custodian, receiver, trustee or
other officer with similar powers with respect to the Borrower, the
Guarantor or any other person, or any substantial part of its property, or
otherwise, all as though such payments had not been made. If an Event of
Default shall at any time have occurred and be continuing or shall exist
and declaration of default or acceleration under or with respect to this
Guaranty or any Guaranteed Debt shall at such time be prevented by reason
of the pendency against the Guarantor or the Borrower or any other Person
of a case or proceeding under a bankruptcy or insolvency law, the Guarantor
agrees that, for purposes of this Guaranty and its obligations hereunder,
this Guaranty and such obligations shall be deemed to have been declared in
default or accelerated with the same effect as if this Guaranty and such
obligations had been declared in default and accelerated in accordance with
their respective terms and the Guarantor shall forthwith perform or pay, as
the case may be, as required hereunder in accordance with the terms
hereunder without further notice or demand.
10. The Guarantor hereby irrevocably waives any claim or other rights
that the Guarantor may now or hereafter acquire against the Borrower that
arises from the existence, payment, performance or enforcement of the
Guarantor's obligations
4
<PAGE>
hereunder, including any right of subrogation, reimbursement, exoneration,
contribution or indemnification, any right to participate in any claim or
remedy of the Lender against the Borrower or any collateral that the Lender
now has or hereafter acquires, whether or not such claim, remedy or right
arises in equity or under contract, statute or common law, including the
right to take or receive from the Borrower directly or indirectly, in cash
or other property or by set-off or in any manner, payment or security on
account of such claim or other rights, until the Guaranteed Debt has been
repaid in full. If any amount shall be paid to the Guarantor in violation
of the preceding sentence and the Guaranteed Debt shall not have been paid
and performed in full, such amount shall be deemed to have been paid to the
Guarantor for the benefit of, and held in trust for, the Lender and shall
forthwith be paid to the Lender to be credited and applied to the
Guaranteed Debt, whether matured or unmatured. The Guarantor hereby
specifically acknowledges that any subrogation rights which the Guarantor
may have against the Borrower or any collateral that the Lender now has or
hereafter acquires may be destroyed by a nonjudicial foreclosure of the
collateral. Without limiting the foregoing, the Guarantor waives all rights
and defenses arising out of an election of remedies by the Lender, even
though that election of remedies, such as a nonjudicial foreclosure with
respect to security for any Guaranteed Debt, has destroyed the Guarantor's
rights of subrogation and reimbursement against the Borrower. The Guarantor
acknowledges that the Guarantor will receive direct and indirect benefits
from the arrangements contemplated by the Agreement and the Note and that
the waivers set forth in this Section are knowingly made in contemplation
of such benefits.
11. No postponement or delay on the part of the Lender in the
enforcement of any right hereunder shall constitute a waiver of such right
and all rights of the Lender hereunder shall be cumulative and not
alternative and shall be in addition to any other rights granted to the
Lender in any other agreement or by law.
12. If any provision hereof shall be or shall be declared to be
illegal or unenforceable in any respect, such illegal or unenforceable
provision shall be and become absolutely null and void and of no force and
effect as though such provision were not in fact set forth herein, but all
other covenants, terms, conditions and provisions hereof shall nevertheless
continue to be valid and enforceable and this Guaranty shall be so
construed.
13. This Guaranty shall be governed in all respects by the laws of
the State of Minnesota, other than its principles of conflicts of law, and
shall be binding upon and shall inure to the benefit of the parties hereto
and their respective heirs, executors, administrators, personal
representatives, successors
5
<PAGE>
and assigns.
14. The Guarantor hereby agrees that any action or proceeding under
this Guaranty may be commenced against the Guarantor in any court of
competent jurisdiction within the State of Minnesota, by service of process
upon the Guarantor by first class registered or certified mail, return
receipt requested, addressed to the Guarantor at the Guarantor's address
last known to the Lender. The Guarantor agrees that any such suit, action
or proceeding arising out of or relating to this Guaranty may be instituted
in the District Court of Hennepin County, Minnesota or in the United States
District Court for the District of Minnesota, at the option of the Lender;
and the Guarantor hereby waives any objection to the jurisdiction or venue
of any such court with respect to, or the convenience of any such court as
a forum for, any such suit, action or proceeding. Nothing herein shall
affect the right of the Lender to accomplish service of process in any
other manner permitted by law or to commence legal proceedings or otherwise
proceed against the Guarantor in any other jurisdiction or court.
15. The Guarantor hereby represents and warrants to the Lender as
follows:
(a) Organization and Qualification. The Guarantor is a corporation
duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation. The Guarantor is duly
qualified to do business as a foreign corporation and in good
standing in all jurisdictions in which the ownership of its
properties or the nature of its activities, or both, makes such
qualification necessary.
(b) Authority and Authorization. The Guarantor has full corporate
power and authority to execute, deliver and carry out the
provisions of this Guaranty and to perform its obligations
hereunder, and all such action has been duly and validly
authorized by all necessary corporate proceedings on its part.
(c) Financial Statements. All financial statements and data which
have heretofore been given to the Lender with respect to the
Guarantor fairly and accurately represent the financial condition
of the Guarantor as of the date hereof, and, since the date
thereof, there has been no material adverse change in the
financial condition of the Guarantor. The Guarantor shall
promptly deliver to the Lender, or to the Borrower in time for
the Borrower to deliver the same to the Lender, all financial
statements of the Guarantor required by the Agreement.
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(d) Address. The address of the Guarantor as specified below is true
and correct and until the Lender shall have actually received a
written notice specifying a change of address and specifically
requesting that notices be issued to such changed address, the
Lender may rely on the address stated as being accurate.
(e) No Default. The Guarantor is not in default with respect to any
order, writ, injunction, decree or demand of any court or other
governmental authority and, except as previously disclosed to the
Lender, the Guarantor is not in default in the payment of any
material debt for borrowed money or under any material agreement
evidencing or securing any such debt.
(f) Solvent. The Guarantor is now solvent, and no bankruptcy or
insolvency proceedings are pending or to the best of the
Guarantor's knowledge contemplated by or against the Guarantor.
(g) Relationship to the Borrower. The value of the consideration
received and to be received by the Guarantor is reasonably worth
at least as much as the liability and obligation of the Guarantor
incurred or arising under this Guaranty. The Guarantor has had
full and complete access to the Agreement and the Note and all
other loan documents relating to the Obligations and the
Guaranteed Debt, has reviewed them and is fully aware of the
meaning and effect of their contents. The Guarantor is fully
informed of all circumstances which bear upon the risks of
executing this Guaranty and which a diligent inquiry would
reveal. The Guarantor has adequate means to obtain from the
Borrower on a continuing basis information concerning the
Borrower's financial condition, and is not depending on the
Lender to provide such information, now or in the future. The
Guarantor agrees that the Lender shall not have any obligation to
advise or notify the Guarantor or to provide the Guarantor with
any data or information. The execution and delivery of this
Guaranty is not given in consideration of (and the Lender has not
in any way implied that the execution of this Guaranty is given
in consideration of) the Lender's making, extending or modifying
any loan to the Guarantor or to any other financial accommodation
to or for the Guarantor.
(h) Litigation. There is not now pending against or affecting the
Guarantor, nor to the knowledge of the Guarantor is there
threatened, any action, suit or
7
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proceeding at law or in equity or by or before any administrative
agency that, if adversely determined, would materially impair or
affect the financial condition of the Guarantor.
(i) Taxes. The Guarantor has filed all federal, state, provincial,
county, municipal and other income tax returns required to have
been filed by the Guarantor and has paid all taxes that have
become due pursuant to such returns or pursuant to any
assessments received by the Guarantor, and the Guarantor does not
know of any basis for any material additional assessment against
it in respect of such taxes.
16. Neither the death nor the release of any person or party to this
Guaranty or any other guaranties of the Agreement and the Note shall affect
or release the liability of the Guarantor. The obligations of the Guarantor
hereunder shall be in addition to any obligations of the Guarantor under
any other guaranties of the Guaranteed Debt and/or any obligations of the
Borrower or any other Persons heretofore given or hereafter to be given to
the Lender, and this Guaranty shall not affect or invalidate any such other
guaranties. The liability of the Guarantor to the Lender shall at all times
be deemed to be the aggregate liability of the Guarantor under the terms of
this Guaranty and of any other guaranties heretofore or hereafter given by
the Guarantor to the Lender.
17. No amendment or waiver of any provision of this Guaranty nor
consent to any departure by the Guarantor therefrom shall in any event be
effective unless the same shall be in writing and signed by the Lender, and
then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. Nor notice to or
demand on the Guarantor shall in any case entitle it to any other or
further notice or demand in similar or other circumstances.
18. All notices that may be required or otherwise provided for or
contemplated under the terms of this Guaranty for any party to serve upon
or give to any other shall, whether or not so state, be in writing, and if
not so in writing shall not be deemed to have been given, and be either
personally served, sent by reputable overnight courier service, or sent
with return receipt requested by registered or certified mail with postage
(including registration or certification charges) prepaid, sent to the
following address:
(a) If to the Guarantor, addressed to the address indicated
immediately following the Guarantor's signature;
(b) If to the Lender, addressed to the Lender at its
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address at 12713 Woodgreen Street, Los Angeles, California 90066,
Attention: Gary Shev, Director.
Such addresses may be changed from time to time by written notice to the
other parties given in the same manner. Any matter so served upon or sent
to the Guarantor or the Lender in the manner aforesaid shall be deemed
sufficiently given for all purposes hereunder (i) upon personal delivery,
if personally delivered, (ii) on the date following delivery to the courier
service, if sent by courier service, (iii) upon electronic confirmation of
receipt, if sent by telecopier, and (iv) on the date of receipt as noted on
the return receipt, if sent by registered or certified mail, except that
notices of changes of address shall not be effective until actual receipt.
19. Any indebtedness of the Borrower now or hereafter held by the
Guarantor is hereby subordinated to the indebtedness of the Borrower to the
Lender, and such indebtedness of the Borrower to the Guarantor shall, if
the Lender so requests, be collected, enforced and received by the
Guarantor as trustee for the Lender and be paid over to the Lender on
account of the indebtedness of the Borrower to the Lender, but without
reducing or limiting in any manner the liability of the Guarantor under the
other provisions of the Guaranty. The Guarantor acknowledges that, with
respect to the indebtedness guaranteed hereunder, the Guarantor has
irrevocably waived all rights to subrogation, reimbursement, and/or
indemnification against the Borrower.
20. This Guaranty is intended as a final expression of this agreement
of guaranty and is intended also as a complete and exclusive statement of
the terms of this agreement. No agreement or understanding entered into
prior to the date hereof with respect to the subject matter hereof shall be
binding upon the Guarantor unless expressed herein. No course of prior
dealings between the Guarantor and the Lender, no usage of the trade, and
no parole or extrinsic evidence of any nature, shall be used or be relevant
to supplement, explain, contradict or modify the terms and/or provisions of
this Guaranty.
21. Time is of the essence hereof.
22. THE GUARANTOR, BY ITS EXECUTION AND DELIVERY HEREOF, AND THE
LENDER, BY ITS ACCEPTANCE HEREOF, HEREBY (i) COVENANTS AND AGREES NOT TO
ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY A JURY, AND (ii)
WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT
SHALL NOW OR HEREAFTER EXIST. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS
SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY, BY THE GUARANTOR AND BY THE
LENDER, AND THIS WAIVER IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE
AND EACH ISSUE AS TO WHICH THE RIGHT OF A JURY TRIAL WOULD OTHERWISE
ACCRUE. THE LENDER IS HEREBY AUTHORIZED AND REQUESTED TO SUBMIT
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THIS WAIVER TO ANY COURT HAVING JURISDICTION OVER THE SUBJECT MATTER AND
THE PARTIES HERETO, SO AS TO SERVE AS CONCLUSIVE EVIDENCE OF THE FOREGOING
WAIVER OF THE RIGHT TO JURY TRIAL. FURTHER, THE GUARANTOR HEREBY CERTIFIES
THAT NO REPRESENTATIVE OR AGENT OF THE LENDER, INCLUDING THE LENDER'S
COUNSEL, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO THE GUARANTOR OR ITS
REPRESENTATIVES OR AGENTS THAT THE LENDER WILL NOT SEEK TO ENFORCE THIS
WAIVER OF RIGHT TO JURY TRIAL PROVISION.
23. As additional consideration for the making of the Loan, the
Guarantor hereby agrees to issue to the Lender, on or before October 23,
1998, a warrant to purchase shares of the common stock of the Guarantor
equal to 19.99% of the issued and outstanding common stock of the Guarantor
as of the date hereof. Such warrant shall contain the following terms and
conditions:
a. Five Year Exercise Period;
b. Exercise price of $4.5625 per share;
c. Full anti-dilution protection;
d. Exercisable in increments.
The warrant shall be in form and substance satisfactory to the Lender, in
its sole discretion. In the event the Guarantor and/or its Affiliates, on
the one hand, and the Lender, on the other hand, do not enter into the
agreements referred to in the second sentence of Section 2.8 of the Credit
Agreement on or before the Maturity Date, the Guarantor shall have the
right to repurchase the warrant to the extent of 9.99% of the issued and
outstanding common stock of the Guarantor for $1. The provisions of this
Paragraph 23 constitute an obligation of the Guarantor separate from the
Loan and the guarantee thereof pursuant to this Guaranty. The Guarantor
shall be liable to the Lender for any breach of this Paragraph 23 in
addition to its liability for the Guaranteed Debt. The Guarantor
acknowledges that money damages may be inadequate to compensate the Lender
for any breach of this Paragraph 23, and therefor consents to the remedy of
specific performance for any such breach.
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IN WITNESS WHEREOF, the Guarantor has executed this Guaranty with the
intent to be legally bound as of the date first above written.
NOVASTAR FINANCIAL, INC.,
a Maryland corporation
By:
-------------------------------------
Its:
------------------------------------
Address:
--------------------------------
----------------------------------------
Telephone No.:
--------------------------
Telecopier No.:
-------------------------
STATE OF )
------------------
) ss
COUNTY OF )
-----------------
On _________________, 19___ before me, a Notary Public, personally appeared
________________________________, the ______________________ of NOVASTAR
FINANCIAL, INC., a Maryland corporation, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person whose name is subscribed
to the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
----------------------------------------
Notary Public
(SEAL) My Commission Expires:
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<PAGE>
EXHIBIT D
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT (as may be amended, supplemented or otherwise
modified from time to time, this "Security Agreement") dated October 13, 1998,
by and between NOVASTAR MORTGAGE, INC., a Virginia corporation ("Pledgor") and
RESIDENTIAL FUNDING CORPORATION, a Delaware corporation, ("Lender"):
WITNESSETH:
WHEREAS, pursuant to a Term Loan and Security Agreement dated October 13,
1998, as the same has been and may hereafter be amended, supplemented or
otherwise modified from time to time, together with other agreements and
instruments executed and delivered in connection therewith or in renewal,
extension, rearrangement or otherwise in replacement of such agreement ("Credit
Agreement"), the Lender will extend credit to NOVASTAR CERTIFICATES FINANCING
CORPORATION, a Delaware corporation (the "Borrower") in the principal amount of
$18,000,000 ("Loan"); and
WHEREAS, NOVASTAR FINANCIAL, INC., a Maryland corporation ("NFI"), is the
owner of all of the issued and outstanding capital stock of the Borrower, and
has guaranteed the Loan; and
WHEREAS, a portion of the proceeds of the Loan will be paid as a dividend
to NFI to pay certain liabilities of NFI; and
WHEREAS, NFI is the indirect owner of 99% of the issued and outstanding
capital stock of the Pledgor, purchases residential mortgage loans from the
Pledgor; and
WHEREAS, the Pledgor and the issuers of the "Pledged Certificates" (as
defined in the Credit Agreement) have entered into the Servicing Contracts
described below, pursuant to which the Pledgor has the right to service Mortgage
Loans; and
WHEREAS, in order to induce the Lender to make Advances under the Credit
Agreement and to accept the Note and the Credit Agreement, and as additional
security for Advances under the Credit Agreement, the Pledgor has agreed to give
this Security Agreement; and
<PAGE>
WHEREAS, the Lender has refused to make Advances under the Credit Agreement
unless this Security Agreement is executed by the Pledgor and delivered to the
Lender; and
WHEREAS, the Pledgor has determined that, as a result of its business
relationships with NFI, it is in the Pledgor's best interest to execute and
deliver this Security Agreement to the Lender;
NOW, THEREFORE, in consideration of the foregoing, and intending to be
legally bound hereby, the parties agree as follows:
1. Defined Terms. Capitalized terms used, but not defined, herein shall
have the meanings given them in the Credit Agreement.
2. Collateral. As security for the payment of the Notes and for the
performance of all of the Borrower's Obligations, the Pledgor hereby assigns and
transfers to the Lender all right, title and interest in and to, and grants a
security interest to the Lender in the following described property ("Servicing
Collateral"):
(a) The Servicing Contracts described on Exhibit A attached hereto and
made a part hereof; provided, however, that such assignment and security
interest with respect to any Servicing Contract shall not take effect until
the date on which all consents to such assignment and security interest
required under such Servicing Contract have been obtained.
(b) All Hedging Arrangements now existing or hereafter acquired
relating to the Servicing Contracts described in clause (a) above (without
giving effect to the proviso at the end thereof), and all rights of the
Pledgor to receive payments under or by virtue of the Servicing Contracts
described in clause (a) above (without giving effect to the proviso at the
end thereof), whether as servicing fees, servicing income, damages, amounts
payable upon the cancellation or termination of any such Servicing
Contract, interests on the foregoing, or otherwise.
(c) Any agreement pursuant to which any Servicing Contract described
in clause (a) above (without giving effect to the proviso at the end
thereof) was acquired or is sold by the Pledgor, and all documents and
instruments executed or delivered in connection with any such acquisition
or sale.
(d) All right, title and interest of the Pledgor in and to all escrow
accounts, documents, instruments, files, surveys, certificates,
correspondence, appraisals, computer programs, tapes, discs, cards,
accounting records (including all information, records, tapes, data,
programs, discs and
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<PAGE>
cards necessary or helpful in the administration or servicing of the
Servicing Collateral) and other information and data of the Pledgor
relating to the Servicing Collateral.
(e) All now existing or hereafter acquired cash delivered to or
otherwise in the possession of the Lender or its agent, bailee or custodian
or designated on the books and records of the Pledgor as assigned and
pledged to the Lender.
(f) All cash and non-cash proceeds of the Servicing Collateral,
including all dividends, distributions and other rights in connection with,
and all additions to, modifications of and replacements for, the Servicing
Collateral, and all products and proceeds of the Servicing Collateral,
together with whatever is receivable or received when the Servicing
Collateral or proceeds thereof are sold, collected, exchanged or otherwise
disposed of, whether such disposition is voluntary or involuntary,
including, without limitation, all rights to payment with respect to any
cause of action affecting or relating to the Servicing Collateral or
proceeds thereof.
3. Representations and Warranties. The Pledgor represents and warrants to
the Lender that:
(a) It is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, has the
full legal power and authority to own its property and carry on its
business as currently conducted and is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction in
which the transaction of its business makes such qualification necessary,
except in jurisdictions, if any, whether a failure to be in good standing
has no material adverse effect on the business, operations, assets or
financial condition of the Pledgor;
(b) It has, and has fully exercised, all requisite power and authority
to enter into this Security Agreement, to pledge the Collateral for the
purposes described herein, and to carry out the transactions contemplated
by this Security Agreement;
(c) It is the legal and beneficial owner of the Servicing Collateral
free and clear of any pledge, mortgage, hypothecation, lien, charge,
encumbrance, or security interest except such as are granted hereunder;
(d) The execution and delivery of this Security Agreement and the
performance of its terms have been duly authorized by all necessary
corporate action on the part of the Pledgor and do not and will not result
in any violation of any provision of the Pledgor's articles of
incorporation
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<PAGE>
or bylaws or violate or constitute a default under the terms of any
agreement, indenture or other instrument, license, judgment, decree, order,
law, statute, ordinance, or other governmental rule or regulation
applicable to the Pledgor or any of its property;
(e) Subject to the proviso at the end of Section 2(a), this Security
Agreement shall create a valid first lien upon the perfected security
interest in the Servicing Collateral and the proceeds thereof, subject to
no prior security interest, lien charge or encumbrance, or agreement
purporting to grant to any third party a security interest in the property
or assets of the Pledgor which would include the Servicing Collateral;
(f) The execution and delivery of this Security Agreement, the
performance of the Pledgor's obligations hereunder and the validity and
enforceability hereof do not require any license, consent, approval or
other action of any state or federal agency or governmental or regulatory
authority other than those which have been obtained and remain in full
force and effect;
(g) There are no actions, claims, suits or proceedings pending or, to
the knowledge of the Pledgor, threatened or reasonably anticipated against
or affecting the Pledgor or any Subsidiary of the Pledgor in any court or
before any arbitrator or before any government commission, board, bureau or
other administrative agency which, if adversely determined, may reasonably
be expected to result in any material and adverse change in the business,
operations, assets or financial condition of the Pledgor as a whole, or
would affect the validity or enforceability of this Security Agreement;
(h) Neither the Pledgor nor any Subsidiary of the Pledgor is in
violation of any provision of any law, or of any judgment, award, rule,
regulation, order, decree, writ or injunction of any court or public
regulatory body or authority which might have a material adverse effect on
the business, operations, assets or financial condition of the Pledgor as a
whole or would affect the validity or enforceability of this Security
Agreement;
(i) The Pledgor is not an "investment company" or controlled by an
"investment company" within the meaning of the Investment Company Act of
1940, as amended;
(j) The Pledgor and each of its Subsidiaries has filed or caused to be
filed all federal, state and local income, excise, property and other tax
returns with respect to the operations of the Pledgor and its Subsidiaries
which are required to be filed, all not returns are true and correct,
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<PAGE>
and the Pledgor and each of its Subsidiaries has paid or caused to be paid
all taxes as shown on such returns or on any assessment, to the extent such
taxes have become due, including, but not limited to, all FICA payments and
withholding taxes, if appropriate;
(k) All plans ("Plans") of a type described in Section 3(3) of ERISA
in respect of which the Pledgor or any Subsidiary of the Pledgor is an
"Employer," as defined in Section 3(5) of ERISA, are in substantial
compliance with ERISA, and none of such Plans is insolvent or in
reorganization, has an accumulated or waived funding deficiency within the
meaning of Section 412 of the Internal Revenue Code, and neither the
Pledgor nor any Subsidiary of the Pledgor has incurred any material
liability (including any material contingent liability) to or on account of
any such Plan pursuant to Sections 4062, 4063, 4064, 4201 or 4204 of ERISA;
and no proceedings have been instituted to terminate any such Plan, and no
condition exists which presents a material risk to the Pledgor or a
Subsidiary of the Pledgor of incurring a liability to or on account of any
such Plan pursuant to any of the foregoing Sections of ERISA; no Plan or
trust forming a part thereof has been terminated since September 1, 1974;
(l) The principal place of business of the Pledgor is 1901 West 47th
Place, Suite 105, Westwood, Kansas 66205;
(m) As of the date of this Security Agreement and the making of each
Advance:
(i) The Pledgor is the legal and equitable owner and holder, free
and clear of all Liens (other than Liens granted hereunder), of the
Servicing Contracts pledged hereunder and such Servicing Contracts
have been and will continue to be validly pledged or assigned to the
Lender, subject to no other Liens.
(ii) Subject to the proviso to Section 2(a) hereof, the Pledgor
has, and will continue to have, the full right, power and authority to
pledge the Servicing Contracts pledged and to be pledged by it
hereunder.
(iii) All of the servicing rights under the Servicing Contracts
pledged hereunder in which a security interest is granted hereby
constitute direct servicing rights.
(iv) Each Servicing Contract pledged hereunder is in full force
and effect, each Servicing Contract pledged hereunder is legal, valid
and enforceable in accordance with its terms, except as limited by
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<PAGE>
bankruptcy, insolvency and other similar laws of general application
affecting the rights of creditors and general principles of equity,
and no default or event which, with notice or lapse of time or both,
would become a default, exists under any such Servicing Contract.
(v) Each right to the payment of money under the Servicing
Contracts pledged hereunder is genuine and enforceable in accordance
with its terms against the parties obligated to pay the same
("Obligor"), except as limited by bankruptcy, insolvency, moratorium
or other similar laws affecting the enforcement of creditors' rights
generally, which terms have not been modified or waived in any
material respect or to any material extent.
(vi) To the best of the Pledgor's knowledge, the amount
represented by the Pledgor to the Lender as owing by an Obligor under
each Mortgage Loan being serviced under a Servicing Contract pledged
hereunder is the correct amount actually and unconditionally owing by
such Obligor.
(vii) To the best of the Pledgor's knowledge, no Obligor has any
defense, set off, claim or counterclaim against the Pledgor which can
be asserted against the Lender, whether in any proceeding to enforce
the Lender's rights in the related Mortgage Loan or otherwise.
(viii) The Pledgor has not sold, assigned or otherwise
transferred any rights associated with the Mortgage Loans being
serviced under a Servicing Contract pledged hereunder, including,
without limitation, any rights to place escrow deposits with respect
thereto.
(ix) Except for the consents described in the proviso to Section
2(a), no consent of any Obligor or any other Person is required for
the grant of the security interest provided herein by the Pledgor in
any of the Servicing Collateral including, without limitation, the
Servicing Contracts pledged hereunder, or any computer software being
utilized by the Pledgor pursuant to license, lease or otherwise, other
than consents which have been obtained, nor will any consent need to
be obtained upon the occurrence of an Event of Default for the Lender
to exercise its rights with respect to any of the Servicing
Collateral.
4. Covenants. The Pledgor covenants and agrees that, so long as the
Commitment is outstanding or there remains any
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<PAGE>
Obligations to be paid or performed under the Credit Agreement or any other Loan
Document, the Pledgor:
(a) Will not sell, convey, or otherwise dispose of the Servicing
Collateral or any interest therein, except the sale of Servicing Contracts
permitted pursuant to Section 7.2 of the Credit Agreement, or create,
incur, or permit to exist any pledge, mortgage, lien, charge, encumbrance,
or any security interest whatsoever in or with respect to the Servicing
Collateral or the proceeds thereof, other than that created hereby.
(b) At its own expense, will defend the Lender's right, title and
security interest in and to the Servicing Collateral against the claims of
any person, firm, corporation, or other entity;
(c) Will preserve and maintain its corporate existence in good
standing and all of its rights, privileges, licenses and franchises
necessary or desirable in the normal conduct of its business; conduct its
business in an orderly and efficient manner; and make no change in the
nature or character of its business or engage in any business in which it
was not engaged on the date of this Security Agreement;
(d) Will comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority, a breach of which
could materially adversely affect its business, operations, assets, or
financial condition, except where contested in good faith and by
appropriate proceedings;
(e) Will permit authorized representatives of the Lender or any
Participant to discuss the business, operations, assets and financial
condition of the Pledgor and its Subsidiaries with their officers and
employees and to examine their books of account and make copies or extracts
thereof, all at such reasonable times as the Lender or any Participant may
request;
(f) Will pay and perform all obligations and indebtedness of the
Pledgor, and cause to be paid and performed all obligations and
indebtedness of its Subsidiaries, promptly and in accordance with the terms
thereof and pay and discharge or cause to be paid and discharged promptly
all taxes, assessments and governmental charges or levies imposed upon the
Pledgor or its Subsidiaries or upon their respective income, receipts or
properties before the same shall become past due, as well as
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<PAGE>
all lawful claims for labor, materials and supplies or otherwise which, if
unpaid, might become a Lien or charge upon such properties or any part
thereof; provided, however, that the Pledgor and its Subsidiaries shall not
be required to pay taxes, assessments or governmental charges or levies or
claims for labor, materials or supplies for which the Pledgor or its
Subsidiaries shall have obtained an adequate bond or adequate insurance or
which are being contested in good faith and by proper proceedings which are
being reasonably and diligently pursued and for which proper reserves have
been created;
(g) Will maintain (i) errors and omissions insurance or mortgage
impairment insurance and blanket bond coverage, (ii) liability insurance
and fire and other hazard insurance on its properties, with responsible
insurance companies approved by the Lender, in such amounts and against
such risks as is customarily carried by similar businesses operating in the
same vicinity, and (iii) within thirty (30) days after notice from the
Lender, obtain such additional insurance as the Lender shall reasonably
require, all at the sole expense of the Pledgor; copies of such policies
shall be furnished to the Lender without charge upon request of the Lender;
(h) Will warrant and defend the right, title and interest of the
Lender in and to the Servicing Collateral against the claims and demands of
all Persons whomsoever;
(i) Will service or cause to be serviced all Mortgage Loans in
accordance with all applicable requirements, including without limitation
taking all actions necessary to enforce the obligations of the obligors
under such Mortgage Loans; hold all escrow funds collected in trust,
without commingling the same with non-custodial funds, and apply the same
for the purposes for which such funds were collected;
(j) Will execute and deliver to the Lender such Uniform Commercial
Code financing statements with respect to the Pledged Collateral as the
Lender may request; execute and deliver to the Lender such further
instruments of sale, pledge or assignment or transfer, and such powers of
attorney, as required by the Lender, and shall do and perform all matters
and things necessary or desirable to be done or observed, for the purpose
of effectively creating, maintaining and preserving the security and
benefits intended to be afforded the Secured Party under this Security
Agreement; the Lender shall have all the rights and remedies of a secured
party under the Uniform Commercial Code of Minnesota, or any other
applicable law, in addition to all rights provided for herein;
(k) Will obtain all consents required to satisfy the
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proviso of Section 2(a) on or before October 31, 1998;
(l) Will not liquidate, dissolve, consolidate or merge;
(m) Will not amend or modify, or waive any of the terms and
conditions of, or settle or compromise any claim in respect of, any
Servicing Collateral;
(n) Will not sell, assign, transfer or otherwise dispose of, or grant
any option with respect to, or pledge or otherwise encumber (except
pursuant to this Security Agreement or as permitted herein) any of the
Servicing Collateral or any interest therein; and
(o) Will not make any compromise, adjustment or settlement in respect
of any of the Servicing Collateral or accept other than cash in payment or
liquidation of the Servicing Collateral.
5. Events of Default. An Event of Default shall exist under this Security
Agreement upon the occurrence and during the continuation of an Event of Default
under the Credit Agreement.
6. Remedies.
(a) Upon the occurrence of any Event of Default, the Lender may do any
of the following:
(i) Foreclose upon or otherwise enforce its security interest in
and Lien on the Servicing Collateral to secure all payments and
performance of the Obligations in any manner permitted by law or
provided for hereunder.
(ii) Act, or contract with a third party to act, as servicer or
subservicer of each item of Servicing Collateral requiring servicing
and perform all obligations required in connection with Servicing
Contracts, such third party's fees to be paid by the Pledgor.
(iii) Require the Pledgor to assemble the Servicing Collateral
and/or books and records relating thereto and make such available to
the Lender at a place to be designated by the Lender.
(iv) Enter onto property where any Servicing Collateral or books
and records relating thereto are located and take possession thereof
with or without judicial process.
(v) Prior to the disposition of the Servicing
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Collateral, prepare it for disposition in any manner and to the extent
the Lender deems appropriate.
(vi) Exercise all rights and remedies of a secured creditor under
the Uniform Commercial Code of Minnesota or other applicable law,
including, but not limited to, selling or otherwise disposing of the
Servicing Collateral, or any part thereof, at one or more public or
private sales, for cash or credit or future delivery, on such terms
and in such manner as the Lender may determine. If notice is required
under such applicable law, the Lender will give the Pledgor not less
than ten (10) days' notice of any such public sale or of the date
after which any private sale may be held. The Pledgor agrees that ten
(10) days' notice shall be reasonable notice. The Lender may, without
notice or publication, adjourn any public or private sale or cause the
same to be adjourned from time to time by announcement at the time and
place fixed for the sale, and such sale may be made at any time or
place to which the same may be so adjourned. In case of any sale of
all or any part of the Servicing Collateral on credit or for future
delivery, the Servicing Collateral so sold may be retained by the
Lender until the selling price is paid by the purchaser thereof, but
the Lender shall not incur any liability in case of the failure of
such purchaser to take up and pay for the Servicing Collateral so sold
and, in case of any such failure, such Servicing Collateral may again
be sold upon like notice. The Lender may, however, instead of
exercising the power of sale herein conferred upon it, proceed by a
suit or suits at law or in equity to collect all amounts due upon the
Servicing Collateral or to foreclose the pledge of and sell the
Servicing Collateral or any portion thereof under a judgment or decree
of a court or courts of competent jurisdiction, or both.
(b) The Lender shall not incur any liability as a result of the sale
or other disposition of the Servicing Collateral, or any part thereof, at
any public or private sale or disposition. The Pledgor hereby waives (to
the extent permitted by law) any claims it may have against the Lender
arising by reason of the fact that the price at which the Servicing
Collateral may have been sold at such private sale was less than the price
which might have been obtained at a public sale or was less than the
aggregate amount of the outstanding Advances and the unpaid interest
accrued thereon, even if the Lender accepts the first offer received and
does not offer the Servicing Collateral to more than one offeree.
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(c) The Pledgor specifically waives and releases (to the extent
permitted by law) any equity or right of redemption, all rights of
redemption, stay or appraisal which the Pledgor has or may have under any
rule of law or statute now existing or hereafter adopted, and any right to
require the Lender to (1) proceed against any Person, (2) proceed against
or exhaust any of the Servicing Collateral or pursue its rights and
remedies as against the Servicing Collateral in any particular order, or
(3) pursue any other remedy in its power. The Lender shall not be required
to take any steps necessary to preserve any rights of the Pledgor against
prior parties.
(d) The Lender 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 Servicing Collateral,
including, without limitation, payment of delinquent taxes or assessments
and insurance premiums. All advances, charges, costs and expenses,
including reasonable attorneys' fees and disbursements, incurred or paid by
the Lender or any Lender in exercising any right, power or remedy conferred
by this Security Agreement, or in the enforcement hereof, together with
interest thereon, at the Default Rate, from the time of payment until
repaid, shall become a part of the principal balance outstanding under the
Credit Agreement and the Note.
(e) No failure on the part of the Lender to exercise, and no delay in
exercising, any right, power or remedy provided hereunder, at law or in
equity shall operate as a waiver thereof; nor shall any single or partial
exercise by the Lender of any right, power or remedy provided hereunder, at
law or in equity preclude any other or further exercise thereof or the
exercise of any other right, power or remedy. Without intending to limit
the foregoing, all defenses based on the statute of limitations are hereby
waived by the Pledgor to the extent permitted by law. The remedies herein
provided are cumulative and are not exclusive of any remedies provided at
law or in equity.
(f) The Pledgor acknowledges that the Pledgor and the Lender may enter
into, agreements in order to obtain the consent of trustees, bond insurers
and other third parties to the assignment of and security interest granted
in the Servicing Contracts pursuant to Section 2 hereof to the Lender. The
Pledgor further acknowledges that such agreements may contain certain
provisions concerning the enforcement by the Lender of its security
interest in the Servicing Contracts subject thereto. The Pledgor agrees
that the disposition of its rights in any Servicing Contract pursuant to
the terms of any applicable agreement described above shall be deemed
commercially reasonable within the meaning of Section 9-504(3) of the
Uniform Commercial Code of
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Minnesota. The Pledgor hereby waives any claims it might otherwise have
against the Lender as a result of the Lender's compliance with the terms of
any such agreement.
7. Pledgor's Waivers.
(a) The Pledgor does hereby (i) agree to any modifications of any
terms or conditions of any of the Obligations and/or to any extensions or
renewals of time of payment or performance by the Borrower; that it shall
not be necessary for the Lender to resort to legal remedies against the
Borrower before proceeding hereunder, nor to take any action against any
other person obligated (an "Obligor") for payment or performance of the
Obligations or against any Collateral before proceeding against the
Servicing Collateral; and that no release of any guarantor, whether by
operation of law or by any act of the Lender, with or without notice to the
Pledgor, shall release the Servicing Collateral; (ii) waive notice of
demand, dishonor, notice of dishonor, protest, and notice of protest and
waive to the extent permitted by law, all benefit of valuation,
appraisement, and exemptions under the laws of the State of Minnesota or
any other state or territory of the United States; and (iii) agree, if the
Obligations are not paid in accordance with the terms thereof, that in
addition to all principal and interest due, all costs of collection
including reasonable attorneys' fees shall be secured by the Collateral.
(b) The obligations of the Pledgor hereunder shall be primary,
absolute and unconditional, and shall remain in full force and effect
without regard to, and shall not be impaired or affected by: (i) the
genuineness, validity, regularity, enforceability, amendment or change in
the Credit Agreement or the Notes, or any change in or extension of the
manner, place or terms of payment of, all or any portion of the
Obligations; (ii) the taking or failure to take any action to enforce the
Credit Agreement or the Notes, or the exercise or failure to exercise any
remedy, power or privilege contained therein or available at law or
otherwise, or the waiver by the Lender of any provisions of the Credit
Agreement or the Notes; (iii) any impairment, modification, change, release
or limitation in any manner of the liability of the Borrower or its estate
in bankruptcy, or of any remedy for the enforcement of the Borrower's
liability, resulting from the operation of any present or future provision
of the bankruptcy laws or any other statute or regulation, or the
dissolution, bankruptcy, insolvency, or reorganization of the Borrower;
(iv) the merger or consolidation of the Borrower, or any sale or transfer
by the Borrower of all or part of its assets or property; (v) any claim the
Pledgor may have against any other obligor, including any claim of
contribution; (vi) the release, in whole or in part, of the
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<PAGE>
Borrower or any other obligor; (vii) any other action or circumstance which
(with or without notice to or knowledge of the Pledgor) may or might in any
manner or to any extent vary the risks of the Pledgor hereunder or
otherwise constitute a legal or equitable discharge or defense, it being
understood and agreed by the Pledgor that the security interests granted
under this Security Agreement shall not be discharged except by the full
payment and performance of the Obligations.
(c) The Lender shall, subject to the terms of the Credit Agreement,
have the right to determine how, when and what application of payments and
credits, if any, whether derived from the Servicing Collateral or from any
other source, shall be made on the Obligations and any other indebtedness
owed by the Borrower and/or any other Obligor to the Lender.
(d) The obligations of the Pledgor hereunder shall continue to be
effective, or be automatically reinstated, as the case may be, if at any
time the performance or the payment, as the case may be, in whole or in
part, of any of the Obligations are rescinded or must otherwise be restored
or returned by the Lender (as a preference, fraudulent conveyance or
otherwise) upon the insolvency, bankruptcy, dissolution, liquidation or
reorganization of the Borrower, the Guarantor or any other person or upon
or as a result of the appointment of a custodian, receiver, trustee or
other officer with similar powers with respect to the Borrower, the
Guarantor or any other person, or any substantial part of its property, or
otherwise, all as though such payments had not been made. If an Event of
Default shall at any time have occurred and be continuing or shall exist
and declaration of default or acceleration under or with respect to the
Credit Agreement or any Obligations shall at such time be prevented by
reason of the pendency against the Borrower or any other person of a case
or proceeding under a bankruptcy or insolvency law, the Pledgor agrees
that, for purposes of this Security Agreement and its obligations
hereunder, the Obligations shall be deemed to have been declared in default
or accelerated with the same effect as if such Obligations had been
declared in default and accelerated in accordance with their respective
terms and the Lender may exercise its rights (including, without
limitation, rights with respect to the Collateral) hereunder in accordance
with the terms hereof without further notice or demand.
(e) The Pledgor hereby irrevocably waives any claim or other rights
that it may now or hereafter acquire against the Borrower that arises from
the enforcement of the Pledgor's obligations hereunder, including any right
of subrogation, reimbursement, exoneration or indemnification, any right to
participate in any claim or remedy of the Lender against the Borrower or
any collateral that the Lender now has or
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<PAGE>
hereafter acquires, whether or not such claim, remedy or right arises in
equity or under contract, statute or common law, including the right to
take or receive from the Borrower directly or indirectly, in cash or other
property or by set-off or in any manner, payment or security on account of
such claim or other rights, until the Obligations shall have been paid and
performed in full. If any amount shall be paid to the Pledgor in violation
of the preceding sentence, such amount shall be deemed to have been paid to
the Pledgor for the benefit of, and held in trust for, the Lender and shall
forthwith be paid to the Lender to be credited and applied to the
Obligations, whether matured or unmatured. The Pledgor hereby specifically
acknowledges that any subrogation rights which it may have against the
Borrower or any collateral that the Lender now has or may hereafter acquire
may be destroyed by a nonjudicial foreclosure of the collateral. This may
give the Borrower a defense to a deficiency judgment against the Borrower.
The Pledgor hereby irrevocably waives such defense. The Pledgor
acknowledges that it will receive direct and indirect benefits from the
arrangements contemplated by the Credit Agreement and the Notes and that
the waivers set forth in this Section are knowingly made in contemplation
of such benefits.
(f) No postponement or delay on the part of the Lender in the
enforcement of any right hereunder shall constitute a waiver of such right
and all rights of the Lender hereunder shall be cumulative and not
alternative and shall be in addition to any other rights granted to the
Lender in any other agreement or by law.
8. Notices. All notices, demands, consents, requests and other
communications required or permitted to be given or made hereunder
(collectively, "Notices") shall, except as otherwise expressly provided
hereunder, be in writing and shall be delivered in person or telecopied or
mailed, first class or delivered by overnight courier, return receipt requested,
postage prepaid, addressed to the respective parties hereto at their respective
addresses hereinafter set forth or, as to any such party, at such other address
as may be designated by it in a Notice to the other. All Notices shall be
conclusively deemed to have been properly given or made when duly delivered, in
person, by telecopy or by overnight courier, or if mailed on the third Business
Day after being deposited in the mails, addressed as follows:
if to the Pledgor: NovaStar Mortgage, Inc.
1901 West 47th Place
Suite 105
Westwood, Kansas 66205
Attention: W. Lance Anderson
Telecopier No.: (913) 514-3515
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<PAGE>
if to the Lender: Residential Funding Corporation
12713 Woodgreen Street
Los Angeles, California 90066
Attention: Gary Shev, Director
Telecopier No.: (310) 390-6919
9. Miscellaneous.
(a) The Pledgor shall at any time, and from time to time, upon the
written request of the Lender, execute and deliver such further documents
and do such further acts and things as the Lender may reasonably request to
effect the purpose of this Security Agreement.
(b) Upon the termination of the Commitments and the satisfaction in
full of the Obligations, this Security Agreement shall terminate and the
Lender shall deliver to the Pledgor such of the Collateral or interests
therein as shall not have been sold, realized upon, or otherwise disposed
of pursuant to this Security Agreement.
(c) No course of dealing between the Pledgor and the Lender, nor any
failure to exercise, nor any delay in exercising, any right, power, or
privilege of the Lender hereunder or under the Credit Agreement shall
operate as a waiver thereof; nor shall any single or partial exercise of
any right, power, or privilege hereunder or thereunder preclude any other
or further exercise thereof or the exercise of any other right, power, or
privilege.
(d) The rights and remedies provided herein and in the Credit
Agreement and in all other agreements, instruments, and documents delivered
pursuant to or in connection with the Loan are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided by law,
including, but without limitation, the rights and remedies of a secured
party under the Uniform Commercial Code, as adopted and in effect in the
State of Minnesota.
(e) The provisions of this Security Agreement are severable, and if
any clause or provision shall be held invalid or unenforceable in whole or
in part in any jurisdiction, then such invalidity or unenforceability shall
affect only such clause or provision or part thereof in such jurisdiction
and shall not in any manner affect such clause or provision in any other
jurisdiction or any other clause or provision in this Security Agreement in
any jurisdiction.
(f) This Security Agreement may not be assigned by the Pledgor. This
Security Agreement shall inure to the benefit of, and shall be binding
upon, the successors and assigns of the Lender. Without limiting the
generality of the foregoing, the successors and assigns of the Lender shall
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<PAGE>
include all Participants in the Obligations.
(g) This Security Agreement shall be construed in accordance with the
substantive law of the State of Minnesota, without regard to principles of
conflicts of law.
(h) The Pledgor hereby agrees that any action or proceeding under this
Security Agreement or any document delivered pursuant hereto may be
commenced against it in any court of competent jurisdiction within the
State of Minnesota, by service of process upon the Pledgor by first class
registered or certified mail, return receipt requested, addressed to the
Pledgor at its address last known to the Lender. The Pledgor agrees that
any such suit, action or proceeding arising out of or relating to this
Security Agreement or any other such document may be instituted in the
Hennepin County, State District Court or in the United States District
Court for the District of Minnesota at the option of the Lender; and the
Pledgor hereby waives any objection to the venue, or any claim as to
inconvenient forum, of any such suit, action or proceeding. Nothing herein
shall affect the right of the Lender to accomplish service of process in
any other manner permitted by law or to commence legal proceedings or
otherwise proceed against the Pledgor in any other jurisdiction or court.
(i) AS TO THIS SECURITY AGREEMENT THE PLEDGOR AND THE LENDER EACH
HEREBY (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE
TRIABLE OF RIGHT BY A JURY, AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY FULLY
TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST. THIS WAIVER
OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN, KNOWINGLY AND VOLUNTARILY,
BY THE PLEDGOR AND THE LENDER, AND THIS WAIVER IS INTENDED TO ENCOMPASS
INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT OF A JURY
TRIAL WOULD OTHERWISE ACCRUE. THE LENDER AND THE PLEDGOR IS EACH HEREBY
AUTHORIZED AND REQUESTED TO SUBMIT THIS SECURITY AGREEMENT TO ANY COURT
HAVING JURISDICTION OVER THE SUBJECT MATTER AND THE PARTIES HERETO, SO AS
TO SERVE AS CONCLUSIVE EVIDENCE OF THE FOREGOING WAIVER OF THE RIGHT TO
JURY TRIAL. FURTHER, THE PLEDGOR AND THE LENDER EACH HEREBY CERTIFIES THAT
NO REPRESENTATIVE OR AGENT OF EITHER THE PLEDGOR, THE LENDER OR ANY LENDER
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, TO ANY OF THE UNDERSIGNED THAT
EITHER THE PLEDGOR OR THE LENDER WILL NOT SEEK TO ENFORCE THIS WAIVER OF
RIGHT TO JURY TRIAL PROVISION.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Security
Agreement as of the date and year first above written.
NOVASTAR MORTGAGE, INC.,
a Virginia corporation
By:
-----------------------------------------
Its:
----------------------------------------
RESIDENTIAL FUNDING CORPORATION,
a Delaware corporation,
By:
-----------------------------------------
Its:
----------------------------------------
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, 1998, before me, a Notary Public, personally appeared
________________________________, the ______________________ of NOVASTAR
MORTGAGE, INC., a Virginia corporation, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person whose name is subscribed
to the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
-----------------------------------
Notary Public
(SEAL) My Commission Expires:_____________
<PAGE>
STATE OF _______________ )
) ss
COUNTY OF ______________ )
On _________________, 1998, before me, a Notary Public, personally appeared
________________________________, the Vice President of RESIDENTIAL FUNDING
CORPORATION, a Delaware corporation, personally known to me (or proved to me on
the basis of satisfactory evidence) to be the person whose name is subscribed to
the within instrument and acknowledged to me that he/she executed the same in
his/her authorized capacity, and that by his/her signature on the instrument the
person, or the entity upon behalf of which the person acted, executed the
instrument.
WITNESS my hand and official seal.
-----------------------------------
Notary Public
(SEAL) My Commission Expires:_____________
