<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from_________ to _________
Commission file number 0-28706
-------
FIRST ALLIANCE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 33-0721183
---------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
17305 Von Karman Avenue, Irvine, California 92614
-------------------------------------------------
(Address of principal executive offices including ZIP Code)
(714)224-8500
----------------------
(Registrant's telephone number
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
As of October 31, 1997 registrant had outstanding 10,763,118 shares of
Class A Common Stock and 10,968,288 shares of Class B Common Stock,
respectively.
<PAGE>
FIRST ALLIANCE CORPORATION
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition (Unaudited)
as of September 30, 1997 and December 31, 1996 .............. 1
Consolidated Statements of Income (Unaudited) for the
quarter and the nine months ended September 30, 1997
and 1996 .................................................... 2
Consolidated Statements of Cash Flows (Unaudited) for the
quarter and the nine months ended September 30, 1997 and
1996 ........................................................ 3
Notes to Consolidated Financial Statements .................. 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") ................ 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 15
Item 2. Changes in Securities ....................................... 15
Item 3. Defaults Upon Senior Securities ............................. 15
Item 4. Submission of Matters to a Vote of Security Holders ......... 15
Item 5. Other Information ........................................... 15
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits ......................................... 16
b. Reports on Form 8-K .............................. 16
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
September 30, December 31,
1997 1996
------------ ------------
(Unaudited)
ASSETS
Cash and cash equivalents........................$ 4,964 $ 27,414
Receivable from trusts........................... 3,051 2,671
Loans held for sale.............................. 42,643 11,023
Receivable from loan sales....................... 15,388
Warehouse financing receivable................... 13,430
Loans receivable held for investment............. 2,034 2,432
Residual interests in securities-at fair value... 42,566 29,253
Mortgage servicing rights........................ 8,017 6,025
Real estate owned, net........................... 242 312
Property, net.................................... 8,291 3,098
Deferred taxes................................... 739 3,101
Prepaid expenses and other assets................ 3,517 2,128
------------ ------------
Total assets.....................................$ 144,882 $ 87,457
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Warehouse financing facilities...................$ 41,825 $
Accounts payable and accrued liabilities......... 4,734 3,952
Income taxes payable............................. 3,264 5,396
Notes payable.................................... 106 131
------------ ------------
Total liabilities................................ 49,929 9,479
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred Stock, $.01 par value per share;
1,000,000 shares authorized; no shares
outstanding...................................
Class A Common Stock, $.01 par value per share;
25,000,000 shares authorized; shares issued
and outstanding: 11,225,474 at September 30,
1997; 6,037,500 at December 31, 1996.......... 112 60
Class B Common Stock, $.01 par value per share;
15,000,000 shares authorized; shares issued
and outstanding: 10,992,323 at September 30,
1997; 16,125,000 at December 31, 1996......... 110 161
Additional paid in capital....................... 65,270 64,570
Retained earnings................................ 38,076 14,338
Treasury stock-at cost: 499,500 shares at
September 30, 1997............................ (7,710)
Deferred stock compensation...................... (806) (1,113)
Foreign currency translation..................... (99) (38)
------------ ------------
Total stockholders' equity.................... 94,953 77,978
------------ ------------
Total liabilities and stockholders' equity.$ 144,882 $ 87,457
============ ============
See notes to consolidated financial statements.
1
<PAGE>
<TABLE>
FIRST ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share amounts)
<CAPTION>
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUE:
Loan origination and sale.....................$ 15,758 $ 13,008 $ 47,544 $ 34,259
Loan servicing and other fees................. 1,756 2,236 5,611 6,723
Interest and other............................ 5,881 3,678 14,921 9,774
----------- ----------- ----------- -----------
Total revenue.............................. 23,395 18,922 68,076 50,756
----------- ----------- ----------- -----------
EXPENSE:
Compensation and benefits..................... 5,052 4,421 13,958 11,148
Advertising................................... 1,699 1,060 4,356 2,818
Professional services and other fees.......... 881 411 2,329 1,338
Facilities and insurance...................... 926 656 2,348 1,807
Supplies...................................... 590 457 1,685 1,098
Depreciation and amortization................. 275 238 651 555
Interest...................................... 789 592 1,501 2,379
Legal......................................... 374 319 1,153 771
Travel and training........................... 501 387 1,300 804
Other......................................... 202 490 661 981
----------- ----------- ----------- -----------
Total expense.............................. 11,289 9,031 29,942 23,699
----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAX PROVISION............... 12,106 9,891 38,134 27,057
INCOME TAX PROVISION............................. 3,918 1,258 14,396 1,515
----------- ----------- ----------- -----------
NET INCOME.......................................$ 8,188 $ 8,633 $ 23,738 $ 25,542
=========== =========== =========== ===========
NET INCOME PER SHARE.............................$ 0.37 $ 0.42 $ 1.08 $ 1.47
=========== =========== =========== ===========
Weighted average number of common shares
outstanding...................................21,866,874 20,344,339 22,044,716 17,430,626
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
FIRST ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<CAPTION>
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.......................................$ 8,188 $ 8,633 $ 23,738 $ 25,542
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Capitalized residual interests and
mortgage servicing rights................ (6,084) (3,708) (16,472) (8,238)
Loan origination and sale revenue - other.. (9,723) (9,297) (31,772) (25,719)
Deferred income taxes...................... 172 (3,187) 2,362 (3,187)
Net accretion of residual interests in
securities............................... (660) (537) (876) (354)
Deferred stock compensation................ 205 436 307 436
Accretion of discounts on loans receivable. (24) (29) (122) (165)
Amortization of mortgage servicing rights.. 747 427 2,045 1,216
Depreciation and amortization.............. 275 238 651 555
Foreign currency transaction loss.......... 191 272
(Gain) loss on sales of real estate owned
and property............................. (3) 266 36 402
Loans originated or purchased for sale,
net of loan fees......................... (138,889) (70,672) (340,386) (211,310)
Sale of regular interests in securities....... 85,000 69,979 233,000 197,370
Proceeds from sale of loans................... 38,121 14,290 106,040 55,700
Changes in:
Receivable from trusts..................... 542 (379) (380) (2,698)
Receivable from loan sales................. (15,388) (15,388)
Prepaid expenses and other assets.......... (2,257) 1,297 (1,392) 2,202
Accounts payable and accrued liabilities... (585) (299) 779 (416)
Income taxes payable....................... (2,830) 4,314 (2,058) 4,314
----------- ----------- ----------- -----------
Net cash (used in) provided by
operating activities.................. (43,002) 11,772 (39,616) 35,650
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................. (3,859) (993) (5,911) (1,889)
Collections on loans receivable.................. 895 397 1,676 1,154
Additions to real estate owned................... (166)
Net advances on warehouse financing receivable... (6,197) (13,430)
Proceeds from sales of real estate owned and
property...................................... 62 493 423 1,287
----------- ----------- ----------- -----------
Net cash (used in) provided by
investing activities.................. (9,099) (103) (17,408) 552
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on warehouse
financing facilities.......................... 41,825 (10,493) 41,825 (18,233)
Payments on notes payable........................ (3) (301) (107) (823)
Purchase of treasury stock....................... (2,098) (7,710)
Proceeds from exercise of stock options.......... 304 628
Proceeds from issuance of stock.................. 63,149 63,149
Payments on S distribution notes................. (42,520) (42,520)
Cash dividends................................... (3,653) (15,085)
----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities.................. 40,028 6,182 34,636 (13,512)
----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.......... (56) (62)
----------- ----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS.............................. (12,129) 17,851 (22,450) 22,690
CASH AND CASH EQUIVALENTS, beginning of period... 17,093 8,858 27,414 4,019
----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of period.........$ 4,964 $ 26,709 $ 4,964 $ 26,709
=========== =========== =========== ===========
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
<TABLE>
FIRST ALLIANCE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS-(Continued)
(Dollars in thousands)
<CAPTION>
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
SUPPLEMENTAL INFORMATION:
Interest paid.................................$ 575 $ 603 $ 1,292 $ 2,445
=========== =========== =========== ===========
Income taxes paid.............................$ 6,576 $ 14,110 $ 341
=========== =========== ===========
SUPPLEMENTAL INFORMATION ON NONCASH INVESTING
AND FINANCING ACTIVITIES:
Exchange of loans for regular and residual
interests in securities...................$ 85,002 $ 69,985 $ 233,005 $ 197,660
=========== =========== =========== ===========
Distribution of S Distribution Notes.......... $ 975 $ 2,475
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
FIRST ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NOTE 1. GENERAL
The accompanying unaudited consolidated financial statements, which
include the accounts of First Alliance Corporation ("FACO") and its
subsidiaries (collectively the "Company"), have been prepared in accordance
with the instructions to Form 10-Q and include all information and footnotes
required for interim financial statement presentation. All adjustments
(consisting only of various normal accruals) necessary to present fairly the
Company's consolidated financial position, results of operations and cash
flows have been made. All significant intercompany transactions and
balances have been eliminated and certain reclassifications have been made
to prior periods' consolidated financial statements to conform to the
current period presentation. The results of operations for the nine months
ended September 30, 1997 are not necessarily indicative of the results of
operations to be expected for the year ending December 31, 1997.
The financial information provided herein, including the information
under the heading Item 2 "Management's Discussion and Analysis of Financial
Condition and Results of Operations" ("MD&A"), is written with the
presumption that the users of these interim consolidated financial
statements have read, or have access to, the Company's most recent filing on
Form 10-K which contains the latest available audited consolidated financial
statements and notes thereto, as of and for the period ended December 31,
1996, together with the MD&A for such period.
HEDGING ACTIVITIES
The Company regularly securitizes and sells fixed and variable rate
mortgage loans. As part of its interest rate risk management strategy, the
Company hedges its interest rate risk related to its loans held for sale and
origination commitments by selling short or selling forward United States
Treasury Securities. For accounting purposes, short sales of United States
Treasury Securities are not considered to be a hedge. Therefore, when
selling short United States Treasury Securities, the Company has recognized
realized and unrealized gains and losses on hedging activities in the period
in which they occur. The Company classifies forward sales of United States
Treasury Securities as hedges of specific loans held for sale and
commitments to fund loans to be held for sale. The gains and losses derived
from these transactions are deferred and included in the carrying amounts of
loans held for sale and are recognized in earnings upon sale of loans
hedged. Gains (losses) recognized on hedging activities were $31,000 and
($60,000) for the quarter and nine months ended September 30, 1997,
respectively, and $70,000 and $583,000 for the corresponding periods in
1996. The notional amount of forward sales of United States Treasury
Securities at September 30, 1997 was $17.5 million with deferred gains of
$4,000. There were no deferred gains or losses on hedging activities at
December 31, 1996.
STOCK REPURCHASE PROGRAM
In April 1997, the Board of Directors approved a share repurchase program
under which the Company is authorized to purchase up to 1,500,000 shares of
its Class A Common Stock. During the quarter and nine months ended
September 30, 1997, the Company repurchased 110,250 shares at a cost of $2.1
million and 499,500 shares at a cost of $7.7 million, respectively.
STOCK SPLIT
In October 1997 the Board of Directors authorized a three-for-two split
of its common stock to be effected in the form of a stock dividend. The
stock dividend was distributed on October 31, 1997 to shareholders of record
on October 15, 1997. All share and per share data, including shares issued
and outstanding and share repurchase program information is stated to
reflect the stock dividend. All outstanding options under the Company's
stock incentive plan have been adjusted to reflect the stock dividend.
Common stock and additional paid in capital as of September 30, 1997 and
December 31, 1996 have been restated to reflect the stock dividend. Prior
to giving effect for the stock dividend, 7,483,649 shares of Class A common
stock and 7,328,215 shares of Class B common stock were issued and
outstanding at September 30, 1997. Earnings per share prior to giving
effect to the stock dividend were $0.56 and $1.62 for the quarter and nine
months ended September 30, 1997.
5
<PAGE>
FIRST ALLIANCE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Accounting Standards ("SFAS") No. 128 "Earnings Per
Share" which is effective for annual and interim periods ending after
December 15, 1997. It supersedes the presentation of primary earnings per
share with a presentation of basic earnings per share, which does not
consider the effect of common stock equivalents. The computation of diluted
earnings per share, which gives effect to all dilutive potential common
shares that were outstanding during the period, is consistent with the
computation of fully diluted earnings per share per Accounting Principles
Board Opinion No. 15. The adoption of this standard is not expected to have
a material effect on the Company's consolidated financial position or
results of operations.
In June of 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income" which is effective for annual and interim periods beginning after
December 15, 1997. This statement requires that all items that are required
to be recognized under accounting standards as comprehensive income be
reported in a financial statement that is displayed with the same prominence
as others financial statements.
In June of 1997, the FASB issued SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information" which is effective for annual and
interim periods beginning after December 15, 1997. This statement
established standards for the method that public entities use to report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographical areas, and major customers.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
OVERVIEW
The Company is a financial services organization principally engaged in
mortgage loan origination, purchases, sales and servicing. Loans originated
by the Company primarily consist of fixed and adjustable rate loans secured
by first mortgages on single family residences. The Company originates
loans through its retail branch network which is currently comprised of four
offices in the United Kingdom and 28 offices in the United States, seven of
which are located in California, two of which are located in each of
Florida, Illinois, Maryland, New Jersey and New York, and one of which is
located in each of Arizona, Colorado, Georgia, Massachusetts, Minnesota,
Ohio, Oregon, Pennsylvania, Utah, Virginia and Washington. In addition,
the Company purchases loans from qualified mortgage originators. The
Company sells loans to wholesale purchasers or securitizes them in the form
of Real Estate Mortgage Investment Conduit ("REMIC") trusts. A significant
portion of the Company's loan production is securitized with the Company
retaining the right to service the loans.
The Company's strategy of originating, as compared to purchasing, the
majority of its loan volume results in the generation of a significant
amount of loan origination fees. This income has historically allowed the
Company to generate positive cash flow. There can be no assurance, however,
that the Company's cash flow will continue to be positive in the future.
Gains on servicing retained sales of loans through securitization
represent the difference between the net proceeds to the Company in the
securitization and the allocated cost of loans securitized. In accordance
with SFAS 125, the allocated cost of the loans securitized is determined by
allocating their acquisition cost (for purchased loans) or net carrying
value (for originated loans) between the loans securitized and the residual
interests and the mortgage servicing rights retained by the Company based
upon their relative fair values. At origination, the Company classifies the
residual interests as trading securities and, as such, records the residual
interests at fair value. The difference between the fair value and the
allocated cost is recorded as a gain on sale of loans and is included in
loan origination and sale revenue.
The proceeds of a securitization consist of the regular and residual
interests in the REMIC trust received by the Company. The regular interests
are immediately sold for cash by the Company. As the holder of the residual
interests, the Company is entitled to receive certain excess cash flows.
These excess cash flows are the difference between (a) principal and
interest paid by borrowers and (b) the sum of (i) pass-through principal and
interest paid to holders of the regular interests, (ii) trustee fees, (iii)
third-party credit enhancement fees, (iv) servicing fees and (v) loan
losses. The Company's right to receive these excess cash flows begins after
certain overcollateralization requirements, which are specific to each
securitization and are used as a means of credit enhancement, have been met.
The Company's retained right to service loans entitles the Company to
receive servicing fees, prepayment penalties and other miscellaneous fees
associated with the collection of such loans.
RECENT DEVELOPMENTS
In October 1997 the Board of Directors authorized a three-for-two split
of its common stock to be effected in the form of a stock dividend. The
stock dividend was distributed on October 31, 1997 to shareholders of record
on October 15, 1997.
In October 1997 the Company entered into a repurchase facility agreement
which provides for borrowings of up to $100 million, is secured by loans
originated or purchased by the Company, currently bears interest at rates of
0.25% or 0.50% over 30 day LIBOR and expires on October 30, 1998.
In August 1997 the Company entered into a warehouse financing facility
agreement which provides for borrowings of up to 25 million UKP, is secured by
loans originated or purchased by the Company in the United Kingdom,
currently bears interest at a rate 0.925% over 30 day sterling denominated
LIBOR and expires on August 31, 1998.
7
<PAGE>
In August 1997, after the Company entered into an agreement with Mego
Mortgage Corporation ("Mego"), the Company began originating loans for
purposes of debt consolidation and or home improvement at up to 125% loan-
to-value ("High LTV Loans") according to Mego's underwriting guidelines.
The Company will sell such High LTV Loans on a servicing-released basis to
Mego.
In July 1997 the Company purchased a 40,000 square foot office building
in Irvine, California for $3.4 million. This facility will be used by the
Company's telemarketing operations which are currently located in two leased
facilities.
In June 1997 the Company entered into an agreement to acquire Standard
Pacific Savings, F.A. ("Savings"), a federally chartered thrift based in
Newport Beach, California. The estimated value of the transaction is
expected to be $9.0 million, with the final value to be $0.6 million in
excess of the stockholder's equity at the date of acquisition. Savings will
provide the Company with a platform for issuing credit card and other
financial services products. The acquisition is subject to the approval of
the Office of Thrift Supervision.
Loan Originations and Purchases
<TABLE>
<CAPTION>
At or for the Quarter At or for the Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Loan originations and purchases:
Retail originations...........................$ 101,467 $ 74,052 $ 283,148 $ 209,199
Wholesale purchases........................... 45,711 5,089 84,152 25,880
---------- ---------- ---------- ----------
Total..............................................$ 147,178 $ 79,141 $ 367,300 $ 235,079
========== ========== ========== ==========
Number of retail branches as of the end of the
period:
United States:
California................................... 7 6
Other states................................. 20 15
United Kingdom................................ 4 1
---------- ----------
Total........................................ 31 22
========== ==========
Weighted average initial interest rate............. 9.4% 9.7% 9.4% 9.6%
Weighted average initial combined loan-to-value
ratio:
Retail originations........................... 65.2% 61.0% 63.7% 61.4%
Wholesale purchases........................... 51.4% 67.0% 58.5% 67.3%
Average retail origination loan size...............$ 90 $ 81 $ 88 $ 82
</TABLE>
For the quarter and nine months ended September 30, 1997, originations
and purchases increased 86% and 56%, respectively, as compared to the
corresponding periods in 1996. Retail originations increased 37% and 35%
for the quarter and nine months ended September 30, 1997, respectively, as
compared the corresponding periods in 1996 primarily as a result of
origination volume from new retail branch offices opened in 1997 and 1996.
Wholesale purchases increased 798% and 225% for the quarter and nine months
ended September 30, 1997, respectively, as compared to the corresponding
periods in 1996, as increased premiums available in the secondary market
allowed the Company to increase its purchases and sales of wholesale loans.
Additionally, the Company initiated a strategy in June 1997 to purchase low
loan-to-value loans secured by property located near the Company's retail
offices for the purpose of marketing to these homeowners for additional
borrowing needs. Purchases of low loan-to-value loans totaled $28.4 million
for the quarter ended September 30, 1997.
8
<PAGE>
LOAN SALES
<TABLE>
<CAPTION>
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
----------------------- ----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Securitizations....................................$ 85,002 $ 69,985 $ 233,005 $ 197,660
Whole loan sales................................... 37,280 14,487 103,799 56,887
---------- ---------- ---------- ----------
Total...........................................$ 122,282 $ 84,472 $ 336,804 $ 254,547
========== ========== ========== ==========
</TABLE>
Loan sales, including securitizations of loans, for the quarter and nine
months ended September 30, 1997 increased 45% and 32% over the corresponding
periods in 1996. The increases in loan sales were the result of the sale of
the increased volume of originations and purchases.
COMPOSITION OF REVENUE AND EXPENSE
The following table summarizes certain components of the Company's
consolidated statements of income set forth as a percentage of total revenue
for the periods indicated:
<TABLE>
<CAPTION>
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Loan origination and sale:
Gain on sale of loans........................... 21.5% 18.5% 22.7% 13.3%
Net loan origination and other fees............. 45.8 50.2 47.1 54.2
Loan servicing and other fees................... 7.5 11.8 8.2 13.2
Interest and other.............................. 25.2 19.5 22.0 19.3
---------- ---------- ---------- ----------
Total revenue................................ 100.0 100.0 100.0 100.0
---------- ---------- ---------- ----------
EXPENSE:
Compensation and benefits...................... 21.6 23.4 20.5 22.0
Advertising.................................... 7.3 5.6 6.4 5.6
Professional services and other fees........... 3.8 2.2 3.4 2.6
Facilities and insurance....................... 3.9 3.5 3.4 3.6
Supplies....................................... 2.5 2.4 2.5 2.2
Depreciation and amortization.................. 1.2 1.3 1.0 1.1
Interest....................................... 3.4 3.1 2.2 4.7
Legal.......................................... 1.6 1.7 1.7 1.5
Travel and training............................ 2.1 2.0 1.9 1.6
Other.......................................... .9 2.5 1.0 1.8
---------- ---------- ---------- ----------
Total expense............................... 48.3 47.7 44.0 46.7
---------- ---------- ---------- ----------
Income before income tax provision................ 51.7 52.3 56.0 53.3
Income tax provision (1).......................... 16.7 6.7 21.1 3.0
---------- ---------- ---------- ----------
Net income........................................ 35.0% 45.6% 34.9% 50.3%
========== ========== ========== ==========
</TABLE>
(1) As a result of the Company's initial public offering, completed in
July 1996, the Company's tax status changed from that of an S corporation
to that of a C corporation. As a C corporation, the Company is subject
to Federal and state income taxes. As an S corporation, the Company's
taxable income was included in the individual returns of the
stockholders, and the Company was subject to certain state taxes,
primarily in California.
9
<PAGE>
RESULTS OF OPERATIONS
REVENUE
The following table sets forth the components of the Company's revenue
for the periods indicated:
<TABLE>
<CAPTION>
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Loan origination and sale:
Gain on sale of loans (1).....................$ 5,035 $ 3,505 $ 15,471 $ 6,761
Net loan origination and other fees........... 10,723 9,503 32,073 27,498
Loan servicing and other fees................... 1,756 2,236 5,611 6,723
Interest and other.............................. 5,881 3,678 14,921 9,774
---------- ---------- ---------- ----------
Total revenue.................................$ 23,395 $ 18,922 $ 68,076 $ 50,756
========== ========== ========== ==========
</TABLE>
(1) Excluding net loan origination and other fees.
Total revenue increased 24% or $4.5 million and 34% or $17.3 million for
the quarter and nine months ended September 30, 1997, respectively, as
compared to the corresponding periods in 1996 primarily due to higher loan
origination and sale revenue and higher interest income from residual
interests and loans held for sale.
Loan origination and sale revenue increased to $15.8 million and $47.5
million for the quarter and nine months ended September 30, 1997,
respectively, from $13.0 million and $34.3 million for the corresponding
periods in 1996 primarily due to an increase in loan sales and, for the nine
month period, an increase in premiums received on loan sales.
Gain on sale of loans increased 44% to $5.0 million and 129% to $15.5
million for the quarter and nine months ended September 30, 1997,
respectively, from the corresponding periods in 1996. The increase for the
quarter is due to a 45% increase in the balance of loans sold. For the nine
months ended September 30, 1997, the increase is due to a 32% increase in
the balance of loans sold and an increase in the weighted average gain on
sale of loans as a percentage of loan principal balances sold. The weighted
average gain on sale of loans increased to 4.6% of loans sold for the nine
months ended September 30, 1997 as compared to 2.7% for the corresponding
period in 1996. The weighted average gain on sale of loans securitized
increased to 4.9% of loans securitized for the nine months ended September
30, 1997 as compared to 3.1% for the corresponding period in 1996. This
increase is primarily due to an increase in the weighted average initial
interest rate spreads (the difference between the initial weighted average
interest rates for the loans included in the securitization and the initial
weighted average pass-through rates paid to holders of the regular interests
in the securitization) in residual interests originated to 3.2% for the nine
months ended September 30, 1997 from 2.7% for the corresponding period in
1996. In addition, the weighted average gain on whole loan sales increased
to 4.0% of loans sold for the nine months ended September 30, 1997 as
compared to 1.2% for the corresponding period in 1996. The Company's whole
loan sales consist of bulk sales, for which the Company receives a premium
over the principal balance of the loan, and flow sales, which represent
sales of smaller groups of loans, on which the Company generally recognizes
no gain or loss. The increase in the weighted average gain on whole loan
sales is primarily a result of increases in the premiums available in the
secondary market and increases in the percentage of whole loans sold through
bulk sales.
Net loan origination and other fees increased 13% and 17% during the
quarter and nine months ended September 30, 1997, respectively, due
primarily to increases in the sale of retail loans of 12% and 18%,
respectively.
10
<PAGE>
Loan servicing and other fees as an annualized percentage of the average
servicing portfolio decreased to 1.0% and 1.1% for the quarter and nine
months ended September 30, 1997, respectively, as compared to 1.5% for the
corresponding periods in 1996. As an annualized percentage of the average
servicing portfolio, management fees decreased 0.1% for the quarter and nine
months ended September 30, 1997, prepayment penalties decreased 0.2% and
0.1% for the quarter and nine months ended September 30, 1997, respectively,
and the amortization of mortgage servicing rights increased 0.1% for the
quarter and nine months ended September 30, 1997, as compared to the
corresponding periods in 1996. The Company earns higher management fees on
loans serviced for private investors and for certain securitizations
originated prior to 1996. As the proportion of loans serviced for private
investors and securitizations originated prior to 1996 have decreased as a
percentage of the total servicing portfolio, the Company's weighted average
management fees have decreased. The decrease in prepayment penalties is
primarily the result of decreases in the level of prepayments received
during the quarter and nine months ended September 30, 1997 as compared to
the corresponding periods in 1996 and a decrease, due to certain state
restrictions, in the percentage of loans on which the Company collects
prepayment penalties. The increase in the amortization of mortgage
servicing rights is primarily due to the adoption in January of 1995 of SFAS
No. 122 "Accounting for Mortgage Servicing Rights", which requires the
Company to capitalize the fair value of originated mortgage servicing rights
and amortize the capitalized amount over the life of such assets.
Interest income increased 60% to $5.9 million and 54% to $14.9 million
for the quarter and nine months ended September 30, 1997, respectively, from
$3.7 million and $9.7 million for the corresponding periods in 1996. The
increase for the quarter was due to a $0.7 million increase in interest
income from loans held for sale, a $0.9 million increase in interest income
from residual interests and a $0.6 million increase in interest income from
short-term investments. For the nine months ended September 30, 1997, the
increase was due to a $1.9 million increase in interest income from loans
held for sale, a $1.8 million increase in interest income from residual
interests and a $1.5 million increase in interest income from short-term
investments. The increases in interest from loans held for sale and from
residual interests were primarily due to increases in the average balances
of loans held for sale and residual interests for the quarter and nine
months ended September 30, 1997 as compared to the corresponding periods in
1996. The increases in interest income from short-term investments were
primarily attributable to increases in the balance of available cash as a
result of the Company's July 1996 initial public offering and cash generated
from operations and an increase in cash held for the Company's REMIC trusts.
EXPENSE
The following table sets forth the components of the Company's expense
for the periods indicated:
<TABLE>
<CAPTION>
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Compensation and benefits.......................$ 5,052 $ 4,421 $ 13,958 $ 11,148
Advertising..................................... 1,699 1,060 4,356 2,818
Professional services and other fees............ 881 411 2,329 1,338
Facilities and insurance........................ 926 656 2,348 1,807
Supplies........................................ 590 457 1,685 1,098
Depreciation and amortization................... 275 238 651 555
Interest........................................ 789 592 1,501 2,379
Legal........................................... 374 319 1,153 771
Travel and training............................. 501 387 1,300 804
Other........................................... 202 490 661 981
---------- ---------- ---------- ----------
Total expense................................$ 11,289 $ 9,031 $ 29,942 $ 23,699
========== ========== ========== ==========
</TABLE>
Total expense increased 25% to $11.3 million and 26% to $29.9 million for
the quarter and nine months ended September 30, 1997, respectively, from
$9.0 million and $23.7 million for the corresponding periods in 1996. These
increases are primarily due to increases in expenses related to the
Company's increased retail loan origination operations.
11
<PAGE>
Compensation and benefits increased $0.6 million and $2.8 million for the
quarter and nine months ended September 30, 1997, respectively, as compared
to the corresponding periods in 1996 as a result of an increase in personnel
to support the Company's retail branch office expansion.
Advertising expense increased 60% to $1.7 million and 55% to $4.4 million
for the quarter and nine months ended September 30, 1997, respectively, as
compared to $1.1 million and $2.8 million for the corresponding periods in
1996. This increase relates to an increase in marketing activities resulting
from the Company's retail branch office expansion.
Professional services and other fees increased $0.5 million and $1.0
million for the quarter and nine months ended September 30, 1997 as compared
to the corresponding periods in 1996 primarily due to increases in
recruiting costs associated with the Company's ongoing retail branch
expansion and increases in costs associated with management of properties in
foreclosure.
Facilities and insurance increased $0.3 million and $0.5 million for the
quarter and nine months ended September 30, 1997 as compared to the
corresponding periods in 1996 due to the increase in the number of retail
branch offices and increases in corporate insurance.
For the quarter ended September 30, 1997, interest expense increased 33%
as compared to the corresponding period in 1996. For the nine months ended
September 30, 1997, interest expense decreased 37% as compared to the
corresponding period in 1996. The increase in interest expense in the
quarter was primarily due to a 113% increase in the average balance
outstanding on the warehouse financing facility offset by $0.2 million of
interest expense on notes payable to stockholders which was paid in the
third quarter of 1996. The decrease in interest expense for the nine months
ended September 30, 1997, was primarily due to the availability of
additional cash and cash equivalents during the first two quarters of 1997
which was used to fund loan origination and purchases resulting in a
decrease in the average balance outstanding on the warehouse financing
facility in the first nine months of 1997 as compared to the corresponding
period in 1996.
Combined, supplies and travel and training increased $0.2 million and
$1.1 million for the quarter and nine months ended September 30, 1997, as
compared to the corresponding periods in 1996, primarily due to the increase
in the number of retail branch offices.
INCOME TAXES
As a result of decreases in California state tax rates and decreases in
the amount of income apportioned to the state of California, the Company's
estimated effective tax rate for 1997 decreased to 37.75% from the 40.25%
rate used for the first six months of 1997. The Company's 1997 third
quarter income tax provision includes the adjustment required to reduce the
tax rate for the first six months of 1997 to 37.75%.
12
<PAGE>
SERVICING
The following tables provide data on loan delinquency, real estate owned
(REO) and net losses for the Company's servicing portfolio:
<TABLE>
<CAPTION>
As of
----------------------------------------------------------------------
September 30, 1997 December 31, 1996 September 30, 1996
--------------------- ----------------------- ----------------------
% of % of % of
(Dollars in Servicing (Dollars in Servicing (Dollars in Servicing
thousands) Portfolio thousands) Portfolio thousands) Portfolio
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Servicing Portfolio.......... $ 745,173 $ 641,191 $ 618,511
========== ========== ==========
30-59 days delinquent........ $ 8,429 1.1% $ 9,359 1.5% $ 7,371 1.2%
60-89 days delinquent........ 5,644 0.8 6,704 1.0 6,402 1.0
90 days or more delinquent... 17,625 2.4 19,081 3.0 19,148 3.1
---------- ---------- ---------- ---------- ---------- ----------
Total delinquencies....... $ 31,698 4.3% $ 35,144 5.5% $ 32,921 5.3%
========== ========== ========== ========== ========== ==========
REO (1)................... $ 2,652 0.4% $ 3,951 0.6% $ 5,091 0.8%
========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Average servicing portfolio balance
outstanding (2)................................. $ 718,708 $ 611,181 $ 683,861 $ 610,574
Net losses (3).................................... 531 779 1,531 1,565
Percentage of average servicing portfolio
- annualized.................................... 0.30% 0.51% 0.30% 0.34%
______________
</TABLE>
(1) Includes REO of the Company as well as REO of the REMIC Trusts
serviced by the Company; however, excludes private investor REO not
serviced by the Company.
(2) Average servicing portfolio balance equals the quarterly average of
the servicing portfolio computed as the average of the balances at the
beginning and end of each quarter.
(3) Net losses means actual net losses realized with respect to the
disposition of REO.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has generated positive cash flow. The
Company's sources of cash include loan sales, sales of regular interests,
borrowings under its warehouse financing facilities, distributions received
from residual interests, interest income and loan servicing income. The
Company's uses of cash include the funding of loan originations and
purchases, payments of interest, repayment of its warehouse financing
facilities, capital expenditures, operating and administrative expenses and
payment of income taxes. Loan origination and processing fees charged to the
borrower are included in the principal balance of the loan originated. When
the Company funds a loan for its approximate principal balance on its
warehouse financing facilities, cash approximating the loan origination and
processing fees is generated. As part of its cash management strategies,
the Company may utilize available cash to fund its loans held for sale.
This creates an inventory of loans on which the Company can immediately
borrow funds from its warehouse financing facilities. For loans financed
through available cash, the Company receives its loan origination and
processing fees in cash upon the sale of the loan. Cash generated from the
sale of loans and regular interests in securitizations is used to pay down
the warehouse financing facilities.
Cash (used in) provided by operating activities was ($43.0) million and
($39.6) million for the quarter and nine months ended September 30, 1997,
respectively, and $11.8 million and $35.7 million for the corresponding
periods in 1996. The decreases in cash provided by operating activities for
the quarter and nine months ended September 30, 1997 as compared to the
corresponding periods in 1996 were primarily due to cash used in the funding
of loans held for sale, an increase in receivables from loan sales and the
payment of income taxes in excess of the income tax provision.
Additionally, the Company's effective tax rate in 1997 was significantly
higher than in 1996 due to the Company's change in status from an S
corporation to a C corporation in conjunction with its July 1996 initial
public offering. As an S corporation, the Company's taxable income was
included in the individual returns of the stockholder, and the Company was
only subject to certain state taxes, primarily California.
13
<PAGE>
The Company's ability to continue to originate and purchase loans is
dependent upon adequate credit facilities and upon its ability to sell the
loans in the secondary market in order to generate cash proceeds for new
originations and purchases. The value of and market for the Company's loans
are dependent upon a number of factors, including general economic
conditions, interest rates and governmental regulations. Adverse changes in
such factors may affect the Company's ability to sell loans for acceptable
prices within a reasonable period of time. A prolonged, substantial
reduction in the size of the secondary market for loans of the type
originated or purchased by the Company may adversely affect the Company's
ability to sell loans in the secondary market with a consequent adverse
impact on the Company's results of operations, financial condition and
ability to fund future originations and purchases.
The Company's $125 million warehouse financing facility, which is secured
by loans originated or purchased by the Company and currently bears interest
at a rate of 0.80% over 30 day London Interbank Offered Rate ("LIBOR"),
expires on June 30, 1998. The Company's $25 million repurchase agreement,
which is secured by loans originated or purchased by the Company and
currently bears interest at a rate of 0.80% over 30 or 90 day LIBOR, expires
on March 5, 1998. In August 1997, the Company entered into a warehouse
financing facility agreement which provides for borrowings of up to 25
million UKP, is secured by loans originated or purchased by the Company in the
United Kingdom, currently bears interest at a rate 0.925% over 30 day
sterling denominated LIBOR and expires on August 31, 1998. In October 1997
the Company entered into a repurchase facility agreement which provides for
borrowings of up to $100 million, is secured by loans originated or
purchased by the Company, currently bears interest at rates of 0.25% or
0.50% over 30 day LIBOR and expires on October 30, 1998. Management
expects, although there can be no assurance, that the Company will be able
to maintain these warehouse financing facilities (including the repurchase
facilities) or obtain replacement or additional financing in the future.
In February 1997 the Company entered into agreements to provide warehouse
financing facilities to two mortgage banking companies ("Borrowers") that
are controlled by related parties. These lines of credit are secured by
loans originated by the Borrowers and by personal guarantees provided by
stockholders of the Borrowers, bear interest at 10% and have a combined
borrowing limit of $17 million. As of September 30, 1997 $13.4 million was
outstanding on these lines. In October 1997 the Company entered into new
agreements with the Borrowers replacing the warehouse financing facilities
with repurchase facilities which expire on October 31, 1998. These revised
agreements allow the Company to fund advances made to the Borrowers on its
$100 million repurchase agreement.
In April 1997, the Board of Directors approved a share repurchase program
under which the Company is authorized to purchase up to 1,500,000 shares of
its Class A Common Stock. During the quarter and nine months ended
September 30, 1997, the Company repurchased 110,250 shares at a cost of $
2.1 million and 499,500 shares at a cost of $7.7 million, respectively.
As of September 30, 1997 the Company had commitments to fund loans of
$11.5 million. Historically, approximately 55% of such commitments have
ultimately been funded. Capital expenditures totaled $3.9 million and $5.9
million for the quarter and nine months ended September 30, 1997,
respectively, and $1.0 million and $1.9 million for the corresponding period
in 1996. In July 1997 the Company purchased a 40,000 square foot office
building in Irvine, California for $3.4 million. This facility will be used
by the Company's telemarketing operations which are currently located in two
leased facilities.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable.
ITEM 2. CHANGES IN SECURITIES
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
No. Description of Exhibit
--- ----------------------
3.1 Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 3.1 to the Company's Registration Statement
on Form S-1, Commission File No. 333-3633)
3.2 Bylaws of the Company (Incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-1, Commission
File No. 333-3633)
4.1 1996 Stock Incentive Plan (Incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-1,
Commission File No. 333-3633)
4.1.1 Form of Incentive Stock Option Agreement for use with 1996 Stock
Incentive Plan (Incorporated by reference to Exhibit 4.1.1 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, Commission File No. 0-28706)
4.1.2 Form of Non-qualified Stock Option Agreement for use with 1996
Stock Incentive Plan (Incorporated by reference to Exhibit 4.1.2
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, Commission File No. 0-28706)
10.1 Warehouse Financing Facility dated October 29, 1993
(Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Commission File No. 333-
3633)
10.2 Form of Pooling and Servicing Agreement (Incorporated by
reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1, Commission File No. 333-3633)
10.3 Corporate Headquarters Lease (Incorporated by reference to
Exhibit 10.3 to the Company's Registration Statement on Form
S-1, Commission File No. 333-3633)
10.4 S Distribution Notes (Incorporated by reference to Exhibit 10.4
to the Company's Registration Statement on Form S-1, Commission
File No. 333-3633)
10.5 Mason Employment Agreement (Incorporated by reference to
Exhibit 10.5 to the Company's Registration Statement on Form
S-1, Commission File No. 333-3633)
10.5.1 Mason Loan (Incorporated by reference to Exhibit 10.5.1 of the
Company's Annual Report on Form 10-K for the year ended December
31, 1996, Commission File No. 0-28706)
10.6 Form of Directors' and Officers' Indemnity Agreement
(Incorporated by reference to Exhibit 10.7 to the Company's
Registration Statement on Form S-1, Commission File No. 333-
3633)
10.7 Mortgage Loan Purchase and Sale Agreement dated as of July 1,
1996 between Nationscapital Mortgage Corporation and the Company
(Incorporated by reference to Exhibit 10.7 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31,
1997, Commission File No. 0-28706)
10.8 Mortgage Loan Purchase and Sale Agreement dated as of July 1,
1996 between Coast Security Mortgage Inc. and the Company
(Incorporated by reference to Exhibit 10.8 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31,
1997, Commission File No. 0-28706)
10.9 Chisick Employment Agreement (Incorporated by reference to
Exhibit 10.10 to the Company's Registration Statement on Form
S-1, Commission File No. 333-3633)
10.10 Reimbursement Agreement (Incorporated by reference to Exhibit
10.11 to the Company's Registration Statement on Form S-1,
Commission File No. 333-3633)
10.11 Warehouse Financing Facility dated September 5, 1996
(Incorporated by reference to Exhibit 10.12 to the Company's
Quarterly Report on Form 10-Q for the period ended September 30,
1996, Commission File No. 0-28706)
10.12 Interim Warehouse and Security Agreement dated as of February
15, 1997 between Nationscapital Mortgage Corporation and the
Company (Incorporated by reference to Exhibit 10.12 to the
Company's Quarterly report on Form 10-Q for the period ended
March 31, 1997, Commission File No. 0-28706)
10.13 Interim Warehouse and Security Agreement dated as of February
15, 1997 between Coast Security Mortgage Inc. and the Company
(Incorporated by reference to Exhibit 10.13 to the Company's
Quarterly Report on Form 10-Q for the period ended March 31,
1997, Commission File No. 0-28706)
10.14 Smith Loan (Incorporated by reference to Exhibit 10.14 to the
Company's Quarterly Report on form 10-Q for the period ended
March 31, 1997, Commission File No. 0-28706)
10.15 Building Purchase and Sale Agreement between Amresco Residential
Mortgage Corporation and the Company*
16
<PAGE>
10.16 25,000,000 UKP Warehouse Credit Facility Agreement dated August
18, 1997 between Prudential Securities Credit Corporation and
the Company*
11.1 Statement re: computation of net income per share for the
quarter and nine months ended September 30, 1997 and 1996.*
27 Financial Data Schedule*
__________________
* Filed herewith.
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
FIRST ALLIANCE CORPORATION
Registrant
Date: November 12, 1997 /s/ BRIAN CHISICK
----------------- --------------------------
Brian Chisick
President and Chief Executive Officer
Date: November 12, 1997 /s/ MARK MASON
----------------- --------------------------
Mark K. Mason
Executive Vice President
Principal Financial Officer
18
<PAGE>
AMRESCO RESIDENTIAL MORTGAGE CORPORATION,
SELLER
FIRST ALLIANCE MORTGAGE COMPANY
BUYER
PURCHASE AND SALE AGREEMENT
17200 JAMBOREE, IRVINE, CALIFORNIA
MAY ______, 1997
<PAGE>
PURCHASE AND SALE AGREEMENT AND
-------------------------------
JOINT ESCROW INSTRUCTIONS
-------------------------
THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS
("Agreement") is made and entered into as of May __, 1997 ("Contract Date"),
by and between AMRESCO RESIDENTIAL MORTGAGE CORPORATION, a Delaware
corporation ("Seller"), and FIRST ALLIANCE MORTGAGE COMPANY, a California
corporation ("Buyer"), upon the following terms and conditions:
1. PURCHASE AND SALE. Seller agrees to sell to Buyer, and Buyer agrees
to purchase from Seller, the Property (as defined below) upon the terms and
conditions set forth herein. The property being sold pursuant to this
Agreement (collectively, the "PROPERTY") consists of (a) that certain land
located at 17200 Jamboree, Irvine, California, and more particularly
described on Exhibit A attached hereto and by this reference made a part
hereof, together with all rights of way, privileges and appurtenances
pertaining thereto, including any right, title and interest of Seller in and
to any street adjoining any portion thereof (collectively, the "LAND"); (b)
all structures, buildings, compressors, appliances, engines, electrical,
plumbing, heating, ventilating, and air conditioning machinery and property
of every kind, character and description appurtenant thereto (the
"IMPROVEMENTS"); (c) all furniture or equipment owned by Seller, and any
replacements to any of the same, located on any portion of the Land
(including that used in any rental or management office located on the Land)
and used in connection with the ownership, maintenance or operation of the
Land and the Improvements (including, without limitation, those items set
forth on Exhibit B which is or shall be attached hereto and made a part
hereof) (collectively, the "TANGIBLE PERSONAL PROPERTY"); (d) all intangible
personal property owned by Seller and used exclusively in the management,
operation or marketing or the service provided thereon, including, but not
limited to, any assignable operating permits, governmental permits,
governmental entitlements, utility agreements, use permits and traffic
allowances, and any service marks or tradenames, if any (collectively, the
"INTANGIBLE PERSONAL PROPERTY"); and (e) all written agreements granting any
person or entity the right to use or occupy any portion of the Property (the
"LEASES") and security deposits and other deposits held in connection with
the Leases.
2. [INTENTIONALLY OMITTED.]
3. PURCHASE PRICE
3.1 AMOUNT. The purchase price for the Property is Three Million Four
Hundred Fifteen Thousand and No/1OO Dollars ($3,415,000.00)(the "PURCHASE
PRICE"). The purchase and sale of the Property is intended by the parties
to be a sale of all elements of the Property and is not severable or
divisible. The Purchase Price shall be paid as provided in this Section 3
-1-
<PAGE>
3.2 DEPOSIT.
3.2.1 Buyer shall deposit the sum of Fifty Thousand and No/100
Dollars ($50,000.00) as an earnest money deposit (together with any interest
earned thereon as set forth in Section 3.2.3, the "DEPOSIT") with First
American Title Guaranty Company ("TITLE COMPANY"), located at 1850 Mt.
Diablo Blvd., Suite 300, Walnut Creek, California 94596, Attention: Ms.
Kitty Schlesinger, in immediately available funds to the Title Company no
later than three (3) days after the Contract Date. Title Company shall
deliver to Seller and Buyer a receipt for the Deposit. Unless this
Agreement is sooner terminated by Buyer, the Deposit shall become non-
refundable upon the expiration of the Due Diligence Date and subject to the
liquidated damages provisions set forth in Section 7.
3.2.2 The Deposit shall be released to Seller without liability on
the part of Title Company and without further instruction by Buyer or Seller
on the first business day following the Due Diligence Date (as defined in
Section 6.2.1). Buyer and Seller shall, concurrently with the execution and
delivery of this Agreement, execute and deliver to Title Company confirming
instructions regarding the Deposit in the form set forth in EXHIBIT C,
attached hereto and by this reference made a part hereof.
3.2.3 Title Company shall place the Deposit in an interest-bearing
account controlled by Title Company with a major independent financial
institution and drawing interest at a commercially available rate for
immediately-withdrawable funds as Buyer shall reasonably approve. All such
accrued interest shall be credited toward the Purchase Price at Closing and,
in the event the Deposit is retained by Seller as liquidated damages
pursuant to Section 7, such liquidated damages shall include any and all
accrued interest. Under any circumstance where the Deposit is returned to
Buyer, Buyer shall likewise receive all accrued interest.
3.3 CASH PAYMENT ON CLOSING. One business day prior to the Closing
Date (as defined in Section 4.1), Buyer shall deposit with Title Company (a)
the cash amount of the full Purchase Price (less the amount of the Option
Consideration and the Deposit), as adjusted by the estimated prorations and
adjustments called for by Section 4.3, and (b) Buyer's share of closing
costs, fees and expenses.
3.4 FUNDS. All payments made by any party hereto shall be in legal
tender of the United States of America, paid in cash, by wire transfer
through the Federal Reserve System.
4 CLOSING MATTERS.
4.1 CLOSING. The transactions contemplated by this Agreement shall
close not later than June 3O, 1997 (i.e., forty-five (45) days after the
Contract Date) or the next business day if such date falls on a Saturday,
Sunday or holiday. The date upon which the Closing occurs shall be referred
to herein as the "CLOSING DATE".
-2-
<PAGE>
4.2 FEES AND COSTS. Any escrow fee charged by Title Company shall be
paid equally by Seller and Buyer. Seller shall pay all transfer taxes
required in order to record the Deed. All title premiums and other closing
costs not specifically allocated herein shall be paid by the parties as is
customary in the county where the Property is located. Except as set forth
in Section 18, the parties shall bear their own legal costs in connection
with the transactions contemplated by this Agreement.
4.3 PRORATIONS AT CLOSING. At the Closing, the following items of
revenue and expense shall be adjusted and apportioned in cash as of 12:01
A.M. on the Closing Date. At or prior to the Closing, Title Company shall
obtain the written approval of Buyer and Seller to a proration and
adjustment statement in connection with consummation of the transaction
contemplated in this Agreement, which approvals shall be a condition
precedent to the parties' obligations to close, and which approvals shall
not unreasonably be withheld or delayed.
4.3.1 Real property taxes, personal property or use taxes, and any
current installment of a special assessment shall be prorated based upon the
fiscal year for which assessed, except that if the Closing Date shall occur
before the assessed value or the tax rate, or both, for the current fiscal
year has been fixed, then the proration of such taxes shall be based upon
the most recently available assessed value and tax rate. If, however,
subsequent to the Closing, by reason of any change in assessment or change
in rate or any other change, the real estate taxes for the current fiscal
year shall be determined to vary from those upon which proration was made as
provided in this Section 4.3, the amount of any refund received or
additional payment due shall be prorated between Seller and Buyer as of the
Closing Date, such proration to be net, after the payment of all costs, if
any, including attorneys' fees, incurred in connection with obtaining any
reduction in assessment. Any refunds of real property taxes or assessments
attributable to prior fiscal years shall be paid to Seller upon receipt,
whether such receipt occurs before or after Close of Escrow.
4.3.2 All rentals and other revenues generated by the Property
shall be prorated as of the Closing Date except as otherwise set forth in
this paragraph. Delinquent rentals shall be prorated between Buyer and
Seller as of the Closing Date but not until they are actually collected by
Buyer. Rentals are delinquent when payment thereof is more than thirty (30)
days past due as of the Closing Date. Buyer shall have the sole right to
collect any delinquent rentals, but shall not have the obligation to do so.
Delinquent rentals collected by Buyer, net of the costs of collection
(including, attorneys' fees), shall be applied first against amounts most
overdue. Buyer agrees that any payments due to Seller as a result of
collected delinquent rentals shall be payable by Buyer to Seller promptly
upon receipt thereof. Operating Cost pass-throughs, percentage rentals and
other retroactive rental escalations or charges payable by tenants, which
accrue as of the Closing Date but are not then due and payable, shall be
prorated as of the Closing Date; provided, however, no payment thereof shall
be made to Seller unless and until Buyer collects same from the tenant.
Upon such collection, Seller shall be due an amount equal to all such sums
accruing prior to the Closing, Date, computing same on a per diem basis
after amortizing them over the respective periods for which such items are
payable. Payments of such prorated amounts collected by Buyer shall be made
to Seller promptly following receipt and shall be accompanied by a report
showing how same was calculated and such supporting documentation as Seller
reasonably requests.
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4.3.3 All utility service charges for electricity, heat and air
conditioning service, elevator maintenance, common area maintenance, and
other expenses affecting the Property which are payable by Seller and any
other costs incurred in the ordinary course of business or the management
and operation of the Property shall be prorated on an accrual basis. Seller
shall pay all such expenses that accrue prior to the Closing Date and Buyer
shall pay all such expenses accruing on the Closing Date and thereafter. To
the extent possible, Seller and Buyer shall obtain billings and meter
readings as of the Closing Date to aid in such prorations.
4.3.4 All capital expenditures payable by Seller and not
reimbursable by other third parties with respect to capital work relating to
the Property conducted by or on behalf of Seller shall be paid in full by
Buyer (or reimbursed by Buyer to Seller, if applicable) with respect to all
such capital work which has not been substantially completed as of the
Contract Date.
4.3.5 Seller shall pay in full all leasing commissions and
documented tenant improvement costs, if any, payable prior to the Closing
Date with respect to Leases which were executed prior to the Contract Date,
as shown on the proration schedule to be prepared pursuant to Section 4.3,
and otherwise Buyer shall pay in full when due all other leasing commissions
and tenant improvement costs payable by the lessor with respect to Leases.
4.4 SECURITY DEPOSITS. At the Closing, all security deposits,
cleaning fees and similar deposits and fees held by, or paid to, Seller
under the Leases (and any interest thereon which is payable to tenants
pursuant to local law or the terms of the Leases) shall be delivered to
Buyer or credited against the Purchase Price.
4.5 SURVIVAL AFTER CLOSING. The provisions of Sections 4.3 and 4.4
shall survive the Closing.
4.6 ITEMS TO BE DELIVERED AT CLOSING. Seller shall deliver the
following documents to Title Company on or before the Closing Date:
4.6.1 A grant deed (the "DEED") in the form attached as EXHIBIT D
hereto, conveying to Buyer title to the Land and the Improvements subject
only to the Permitted Exceptions (as defined below).
4.6.2 A Bill of Sale from Seller in the form attached hereto as
EXHIBIT E conveying and assigning to Buyer the Tangible Personal Property.
4.6.3 An Assignment and Assumption of Leases ("ASSIGNMENT OF
LEASES") in the form attached hereto as EXHIBIT F assigning the Leases to
Buyer.
4.6.4 A General Assignment ("GENERAL ASSIGNMENT") in the form
attached hereto as EXHIBIT G assigning to Buyer all of Seller's right, title
and interest in the Intangible Personal Property.
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4.6.5 A non-foreign affidavit ("FIRPTA Certificate"), properly
executed containing such information as shall be required by Internal
Revenue Code Section 1445(b)(2) and the regulations issued thereunder and
Sections 18861, 18662 and 18668 of the California Revenue and Taxation Code
in the form attached hereto as EXHIBIT H.
4.6.6 All executed original Leases to the extent such Leases are
in Seller's possession or control.
4.6.7 All originals of reports, documents and other materials,
including "as built" plans relating to ownership of Property to the extent
such materials are in Seller's possession or control.
4.7 BUYER'S CONDITIONS TO CLOSING. Buyer's obligation to close the
transactions contemplated by this Agreement is subject to and contingent on
the satisfaction of the following conditions or the waiver of the same by
Buyer in writing:
4.7.1 All representations and warranties of Seller contained in
this Agreement shall be true and correct as of the Closing.
4.7.2 Seller having performed and satisfied all material
agreements and covenants required hereby to be performed by Seller prior to
or at the Closing.
4.7.3 Buyer's approval or deemed approval of its due diligence
investigation of the Property pursuant to Section 6.2 below prior to 5:00
p.m. Pacific time on the Due Diligence Date.
4.7.4 The Title Company's issuance of the Owner's Policy complying
with the requirements of Section 5 below.
4.8 SELLER'S CONDITIONS TO CLOSING. Seller's obligation to close the
transactions contemplated by this Agreement is subject to and contingent on
the satisfaction of the following conditions or the waiver of the same by
Seller in writing:
4.8.1 All representations and warranties of Buyer contained in
this Agreement shall be true and correct as of the Closing.
4.8.2 Buyer having performed and satisfied all agreements and
covenants required hereby to be performed by Buyer prior to or at the
Closing.
4.8.3 Buyer's delivery to Title Company on or before the Closing
Date of executed counterpart originals of the Assignment of Leases and the
General Assignment.
4.9 CLOSING. Provided that Title Company holds for delivery to
Seller all cash required to complete the closing of the transaction
contemplated by this Agreement ("CLOSING") as provided herein and all other
conditions to closing set forth in this Agreement have been satisfied or, as
to any condition not satisfied, waived in writing by the party intended to
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be benefited thereby, on the Closing Date Title Company shall conduct the
Closing by recording or distributing the following documents and funds in
the following manner:
4.9.1 Record the Deed in the Official Records of the county in
which the Property is located;
4.9.2 Deliver to Buyer: (a) a conformed copy of the Deed; (b) the
original Owner's Policy; (c) the original Bill of Sale; (d) the original
Assignment of Leases; (e) the original General Assignment; and (f) the
original FIRPTA Certificate.
4.9.3 Deliver to Seller a copy of every document delivered to
Buyer and an original Assignment of Leases and an original General
Assignment.
4.9.4 Deliver to Seller the Purchase Price (less the Option
Consideration and the Deposit) and such other funds, if any, as may be due
to Seller by reason of credits under this Agreement, less all items
chargeable to Seller under this Agreement.
5. TITLE. Seller shall equally pay the premium cost for a standard
coverage Owner's Title Insurance Policy (the "OWNER'S POLICY") in Buyer's
favor in the amount of the Purchase Price, and Buyer shall pay (a) the cost
of any customary and commercially available supplemental endorsements as
Buyer may reasonably require, and (b) the additional costs of procuring an
extended coverage Owner's Policy in the event Buyer desires such coverage,
as well as the cost of obtaining any ALTA Survey the Title Company may
require to issue such extended coverage title policy. Attached as EXHIBIT J
hereto is a preliminary title report covering the Property (the "TITLE
COMMITMENT"). The Owner's Policy when issued at Closing shall be in the
amount of the Purchase Price and shall insure fee title to the Property as
vested in Buyer subject to (a) the standard printed exceptions set forth in
the printed jacket to the Owner's Policy, (b) the exceptions contained in
the Title Commitment and approved in accordance with Section 6.2.10, (c) the
liens of current property taxes and assessments which are not delinquent,
and (d) matters created or suffered by Buyer (collectively, the "PERMITTED
EXCEPTIONS").
6. PROPERTY EXAMINATION.
6.1 "AS-IS" PURCHASE.
6.1.1 Buyer shall have the right to thoroughly and diligently
inspect the Property as provided in Section 6.2
6.1.2 Except as expressly set forth in Section 10 2, Seller makes
no representations or warranties with respect to the physical condition or
any other aspect of the Property, including, without limitation, (1) the
structural integrity of any improvements on the Property, (2) the conformity
of the improvements to any plans or specifications for the Property
including, but not limited to, any plans and specifications that may have
been or which may be provided to Buyer), (3) the conformity of the Property
to past, current or future applicable zoning or building code requirements,
(4) the existence of soil instability, past soil repairs, soil additions or
conditions of soil fill, or susceptibility to landslides, (5) the
sufficiency of any undershoring,
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(6) the sufficiency of any drainage, (7) whether the Property is located
wholly or partially in a flood plain or a flood hazard boundary or similar
area, (8) the existence or non-existence of underground storage tanks, (9)
any other matter affecting the stability or integrity of the land, or any
buildings or improvements situated on or as part of the Property, (10) the
availability of public utilities and services for the Property, (11) the
fitness or suitability of the Property for any intended use, (12) the
potential for further development of the Property, (13) the existence of
vested land use, zoning or building entitlements affecting the Property, or
(14) the presence of toxic wastes, hazardous materials or friable asbestos
in, on or about the Property (collectively, the "PROPERTY CONDITIONS").
6.1.3 Seller shall make available to Buyer, or cause to be made
available to Buyer, on or promptly following the Contract Date and
continuing through the Closing Date any and all material records, reports,
studies, plans, drawings, maps, surveys, plats, title reports, soil reports,
engineering studies, environmental studies, inspection reports, maintenance
records, Leases and other documents pertaining to the use and occupancy of
the Property, the income thereof, the cost and expenses of maintenance
thereof, and any and all other matters concerning the Property Conditions,
or other attributes or aspects of the Property, to the extent same are
within the possession or control of Seller (collectively, the "PROPERTY
INFORMATION"), other than the Excluded Items, without any representation or
warranty (other than as set forth in Section 10.2) as to the completeness or
accuracy of the data or information contained in the Property Information.
Buyer acknowledges that any Property Information is furnished to Buyer
solely as a courtesy, and Seller has neither verified the accuracy of any
statements or other information therein contained nor the qualifications of
the persons preparing such Property Information. Seller does not warrant
the accuracy of any Property Information. Anything contained in this
Section to the contrary notwithstanding, Seller shall not be obligated to
disclose to Buyer any Excluded Items. "EXCLUDED ITEMS" means any appraisal
of the Property or broker's opinions of value with respect to the Property
and any other proprietary, privileged or confidential information of Seller
relating to the Property, including but not limited to, Seller's internal
financial analyses, Seller's credit analyses and business and collection
plans, materials relating to Seller's cost to acquire the Property and any
documents or communications subject to the attorney/client privilege.
6.1.4 The Property Information, other than maps, surveys, plats,
title reports and other documents and instruments which are a matter of
public record is sometimes referred to herein as the "CONFIDENTIAL
INFORMATION" irrespective of whether such items and their contents are so
specifically identified by Seller. Without Seller' s prior written consent,
Buyer: (a) shall not divulge to any third party any of the Confidential
Information and shall not use the Confidential Information in Buyer's
business prior to the Closing, except in connection with the evaluation of
the acquisition of the Property; (b) shall ensure that the Confidential
Information is disclosed only to such of Buyer's officers, directors,
employees. consultants, attorneys, investors and lenders, as have actual
need for the Confidential Information; (c) shall act diligently to prevent
any further disclosure of the Confidential Information; and (d) shall, if
the Closing does not occur, promptly return to Seller (without keeping
copies) all Confidential Information.
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6.1.5 Seller shall not be responsible for any failure to
investigate the Property on the part of Seller, or for any statements or
activities of any real estate broker or sales agent, or any other purported
or acknowledged agent, representative, contractor, consultant or employee of
Seller, or any third party.
6.1.6 Buyer expressly acknowledges that the Property is being sold
and accepted "AS-IS, WHERE-IS," and is being accepted without any
representation or warranty. Buyer agrees to make such investigation of the
condition of the Property as Buyer deems adequate during the period
specified in Section 6.2, and shall rely solely upon its own investigation
of such condition and not upon any statement or opinion by Seller or any
agent of Seller (except as expressly set forth in this Agreement),
including, without limitation, Seller's broker as described in Section 14.
6.1.7 As part of Buyer's agreement to purchase and accept the
Property " AS-IS, WHERE-IS," and not as a limitation on such agreement,
Buyer hereby unconditionally and irrevocably waives any and all actual or
potential rights Buyer might have against Seller regarding any form of
warranty, express or implied, of any kind or type, relating to the Property,
its improvements or the Property Conditions. Such waiver is absolute,
complete, total and unlimited in every way. Such waiver includes, but is
not limited to, a waiver of express warranties, implied warranties,
warranties of fitness for a particular use, warranties of merchantability,
warranties of habitability, strict liability rights, and claims of every
kind and type, including, but not limited to, claims regarding defects which
might have been discoverable, claims regarding defects which were not or are
not discoverable, product liability claims, product liability type claims,
and all other extant or later created or conceived of strict liability or
strict liability type claims and rights.
6.1.8 Effective upon Closing, and to the fullest extent permitted
by law, Buyer hereby (a) releases, discharges and forever acquits Seller and
every entity affiliated with Seller and all of their members and partners
and AMRESCO Management Inc. and their respective officers, directors,
shareholders, employees, agents and independent contractors (collectively
the "INDEMNITEES") from all demands, claims, liabilities, obligations, costs
and expenses which Buyer may suffer or incur relating to the Property
Conditions or any other aspect (as delineated in Section 6.1.2) of the
Property, or its improvements or any defect related thereto, and (b) agrees
to indemnify, defend, protect and hold harmless the Indemnitees against all
demands, claims, liabilities, obligations, costs and expenses, including
reasonable attorneys' fees and costs incurred by any of them, which may be
asserted by a third party at any time relating to the Property Conditions or
any other aspect (as delineated in Section 6 1.2) the Property, or its
improvements or any defect related thereto, no matter whether earlier
discoverable or not, except that Buyer's obligation of indemnification with
respect to claims for injury or damage by third parties shall be limited to
Claims asserted with respect to occurrences subsequent to the Closing Date.
The obligation of indemnification contained in this Section shall not be
deemed to limit or diminish the scope of the indemnification set forth in
Section 6.2.7.
6.1.9 As part of the provisions of this Section 6.1, but not as a
limitation thereon, Buyer hereby agrees, represents and warrants that the
matters released herein are not limited to matters which are known or
disclosed. In this connection and to the extent
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permitted by law, Buyer hereby agrees, represents and warrants that Buyer
realizes and acknowledges that factual matters now unknown to it may have
given or may hereafter give rise to causes of action, claims, demands,
debts, controversies, damages, costs, losses and expenses which are
presently unknown, unanticipated and unsuspected, and Buyer further agrees,
represents and warrants that the waivers and releases herein have been
negotiated and agreed upon in light of that realization and that Buyer
nevertheless hereby intends to release, discharge and acquit Seller from any
such unknown causes of action, claims, demands, debts, controversies,
damages, costs, losses and expenses which might in any way be included in
the waivers and matters released as set forth in this Section 6.1. Buyer
expressly waives any and all rights conferred upon it by the provisions of
California Civil Code Section 1542, which provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE
CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT
THE TIME OF EXECUTING THE RELEASE WHICH IF KNOWN BY HIM MUST
HAVE MATERIALLY AFFECTED THE SETTLEMENT WITH THE DEBTOR.
The provisions of this Section 6.1 are material and included as a material
portion of the consideration given to Seller by Buyer in exchange for
Seller's performance hereunder.
Seller has given Buyer material concessions regarding this transaction in
exchange for Buyer agreeing to the provisions of this Section 6.1 of the
Agreement. Seller and Buyer have each initialed this Section 6.1 to further
indicate their awareness and acceptance of each and every provision hereof.
BUYER'S INITIALS: /s/ J.W.S.
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SELLER'S INITIALS: /s/ M.E.T.
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6.2 BUYER'S DUE DILIGENCE INVESTIGATION AND DUTIES.
6.2.1 Buyer shall have until 5:00 p.m. Pacific time on June 16,
1997 (i.e., thirty (30) days after the Contract Date) (the "DUE DILIGENCE
DATE") within which to complete its due diligence inspection of the Property
and the Property Information and to determine in Buyer's sole discretion
whether Buyer desires to proceed with the transaction contemplated by this
Agreement.
6.2.2 Buyer agrees to diligently and thoroughly inspect the
Property, and to hire such experts as may be required to thoroughly evaluate
and analyze the Property Conditions, including contractors, engineers, soils
analysts, pest control specialists and the like, all at Buyer's expense.
6.2.3 If Buyer notifies Seller and Title Company in writing on or
before the Due Diligence Date that Buyer is unwilling to proceed with the
transaction, then Buyer shall terminate this Agreement and Buyer's Deposit,
including accrued interest, if any, less any Title Company cancellation fees
and costs shall be returned to Buyer. Buyer's failure to notify
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Seller and Title Company of Buyer's election to terminate this Agreement on
or before the Due Diligence Date shall constitute Buyer's election to waive
its right to terminate this Agreement pursuant to this Section 6.2.
6.2.4 On and after the Contract Date until Closing or sooner
termination of this Agreement, Buyer and its agents and employees shall have
the right to thoroughly inspect the Property, and to hire such experts as
may be required to thoroughly evaluate and analyze the Property Information
and the Property Conditions, including contractors, engineers, soils
analysts, pest control specialists and the like, all at Buyer's expense.
Buyer and its experts shall have access to the Property for such purposes
during normal business hours from the Contract Date through the Closing
subject to Section 6.2.6.
6.2.5 Subject to Section 6.2.6, on and after the Contract Date
until Closing or sooner termination of this Agreement Buyer's environmental
consultant ("BUYER'S ENVIRONMENTAL CONSULTANT") shall have the right to
enter upon the Property during normal business hours for purposes of
conducting a Phase I Environmental Site Assessment. Buyer shall have no
right to conduct any Phase II environmental assessment work or any invasive
environmental testing at the Property without Seller's prior written
consent, which consent may be withheld in Seller's sole discretion. The
following conditions must be satisfied prior to the entry onto the Property
by Buyer's Environmental Consultant for purposes of conducting or performing
any environmental assessment of the Property:
(a) Buyer's Environmental Consultant shall have the appropriate
level of expertise and experience necessary to perform the Tests and shall
be approved in writing by Seller;
(b) Buyer and Buyer's Environmental Consultant shall execute an
Insurance, Indemnification, and Confidentiality Agreement, in the form
attached hereto as EXHIBIT "I", protecting the Indemnitees from all
activities performed by Buyer's Environmental Consultant at the Property,
and
(c) Buyer's Environmental Consultant shall enter onto the
Property within one (1) business day following Buyer's delivery to Seller of
written notice specifying the date and time thereof and, if required by
Seller, in the presence of Seller's personnel, Seller's environmental
consultant or Seller's property manager.
6.2.6 If requested by Seller, Buyer and its consultants shall be
accompanied by a representative of Seller or Seller's property manager, as
applicable, when conducting any inspection of the Property.
6.2.7 Buyer hereby agrees to and shall defend, protect, indemnify
and hold the Indemnitees harmless of, from and against any and all claims,
suits, losses, demands, liabilities, damages, costs and expenses. including,
without limitation, reasonable attorneys' fees, court and other costs,
resulting from personal injury (including, but not limited to, physical
damage or injury to Buyer's employees, agents or contractors) or property
damage (including, but
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not limited to, any mechanics' and materialmen's liens) incurred by reason
of, or arising out of, the entry, examinations or activities of Buyer,
Buyer's Environmental Consultant or any other consultant, employee,
contractor or agent of Buyer on the Property. All such activities shall be
conducted in such a fashion so as not to interfere with the rights or
property of any persons with any possessory interest in any part of any
portion of the Property.
6.2.8 If for any reason the purchase and sale contemplated under
this Agreement is not consummated, Buyer agrees to deliver promptly to
Seller any and all reports, schedules, spreadsheets and other data,
including, without limitations hard copy reports and information that may
have been stored in computerized records pertaining to the Property and any
and all inspections or examinations conducted hereunder.
6.2.9 Except for the specific warranties and representations given
by Seller elsewhere in this Agreement and without limiting the foregoing in
any manner, Buyer acknowledges that Seller has made no representations or
warranties of any kind or nature whatsoever concerning the Property
Conditions, and Buyer acknowledges further that Buyer is relying solely upon
Buyer's own investigation under this Section 6.2 in regard to each and all
such matters, and undertakes the risk that the Property may or may not be
suitable or feasible for any intended use by Buyer including,
notwithstanding the delivery by Seller to Buyer of a copy of a Phase I
environmental investigation of the Property prepared by an independent
consultant, the presence of toxic wastes, hazardous material, underground
tanks or friable asbestos in, on or about the Property.
6.2.10 Notwithstanding anything to the contrary contained herein,
Buyer shall have until ten (10) days prior to the Due Diligence Date to
deliver to Seller written notice of Buyer's disapproval or conditional
approval of any exceptions set forth in the Title Commitment (the
"DISAPPROVED EXCEPTIONS"). Buyer's failure to timely deliver such written
notice to Seller shall be deemed to constitute Buyer's approval of all
matters of title. Within five (5) business days after receipt by Seller of
Buyer's written notice, Seller shall notify Buyer that either (a) the
Disapproved Exceptions will be removed at Closing or (b) which Disapproved
Exceptions will not be removed as of Closing. If Buyer does not terminate
this Agreement as of the Due Diligence Date, whether by reason of Seller's
failure to agree to have all Disapproved Exceptions removed as of Closing or
for any other reason, Buyer shall be conclusively deemed to have waived its
objections to the Disapproved Exceptions which Seller has not affirmatively
agreed to remove as of the Closing. Seller's failure to provide timely
notice to Buyer with respect to the Disapproved Exceptions shall be deemed
to constitute Seller's notice to Buyer that Seller will not have any of the
Disapproved Exceptions removed as of the Closing.
6.3 UTILITY DEPOSITS AND LEASES. Buyer agrees to assume the benefit
and burden of all Leases, and to indemnify and hold Seller harmless from any
claim for prepaid rent, security or cleaning deposits. All utility
deposits, if any, paid by Seller (power, water, telephone. sewer, etc.)
shall at all times remain the property of Seller, and Buyer shall cooperate
reasonably to ensure the prompt release of all such utility deposits to
Seller or, at the election of Seller, all such utility deposits shall be
assigned to Buyer and Seller shall be credited with the amount of all such
deposits at Closing.
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6.4 OWNERS' ASSOCIATION LIABILITIES. Seller makes no representations
or warranties as to the status, standing, existence or non-existence of any
owners' association or owners' association liabilities or duties which
Seller may owe to any such association relative to the Property. Buyer
agrees to release Seller and hold Seller harmless from any damages or
claimed deficiencies arising out of the formation, operation, status,
standing and/or funding of said owners association, including, without
limitation, any deficiency in reserves for maintenance and repair,
mismanagement, negligence, misrepresentation, unpaid dues or assessments by
third parties, payment of taxes or franchise fees or standing with the
California Secretary of State Current dues and/or assessments for the
Property, if any, shall be prorated as of Closing.
6.5 ADMINISTRATIVE COMPLIANCE. Buyer agrees to defend and indemnify
Seller and hold Seller harmless from any claim, loss, penalty or damages
arising out of Buyer's failure to observe all rules, regulations, regulatory
schemes, law and ordinances that may apply to (a) the further development,
subdivision, or re-subdivision of the Property or any part thereof, (b) the
sale or transfer of any divided or common-interest units or any interest
therein, and (c) the ownership, maintenance, management and repair of the
Property, including, without limitation, the creation, organization and
funding of a governing association, the completion of all master management
documents required by state, local or federal law (including covenants,
conditions and restrictions, by-laws, project rules and the like), and the
formulation and enforcement of an adequate budget which provides for current
maintenance and reserves for future maintenance and repairs.
7. DEFAULT LIQUIDATED DAMAGES. NOT WITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS AGREEMENT, IF BUYER HAS NOT TERMINATED THIS
AGREEMENT ON OR BEFORE THE DUE DILIGENCE DATE AND IF THE SALE OF THE
PROPERTY TO BUYER IS NOT CONSUMMATED ON THE CLOSING DATE FOR ANY REASON
OTHER THAN SELLER'S DEFAULT UNDER THIS AGREEMENT, SELLER SHALL BE ENTITLED
TO RETAIN THE DEPOSIT, TOGETHER WITH ALL INTEREST ACCRUED THEREON, AS
SELLER'S SOLE REMEDY AND LIQUIDATED DAMAGES. THE PARTIES AGREE THAT IT
WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO ASCERTAIN THE ACTUAL DAMAGES
SUFFERED BY SELLER AS A RESULT OF BUYER'S FAILURE TO COMPLETE THE PURCHASE
OF THE PROPERTY PURSUANT TO THIS AGREEMENT, AND THAT UNDER THE CIRCUMSTANCES
EXISTING AS OF THE DATE OF THIS AGREEMENT, THE LIQUIDATED DAMAGES PROVIDED
FOR IN THIS SECTION REPRESENTS A REASONABLE ESTIMATE OF THE DAMAGES WHICH
SELLER WILL INCUR AS A RESULT OF SUCH FAILURE, PROVIDED, HOWEVER, THAT THIS
PROVISION SHALL NOT LIMIT SELLER'S RIGHT TO RECEIVE REIMBURSEMENT FOR THE
SUMS DESCRIBED IN SECTION 18, NOR WAIVE OR AFFECT SELLER'S RIGHTS AND BUYERS
INDEMNITY OBLIGATIONS WITH RESPECT TO THE CONFIDENTIAL INFORMATION, BUYER'S
ENTRY UPON THE PROPERTY, OR OTHER PRE-CLOSING COVENANTS SPECIFIED IN THIS
AGREEMENT. THE PARTIES ACKNOWLEDGE THAT THE PAYMENT OF SUCH LIQUIDATED
DAMAGES IS NOT INTENDED AS A FORFEITURE OR PENALTY WITHIN THE MEANING OF
CALIFORNIA CIVIL CODE SECTIONS 3275 OR 3369, BUT IS INTENDED TO CONSTITUTE
LIQUIDATED DAMAGES TO SELLER PURSUANT TO CALIFORNIA
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CIVIL CODE SECTIONS 1671, 1676 AND 1677. THE PARTIES HAVE SET FORTH THEIR
INITIALS BELOW TO INDICATE THAT EACH PARTY FULLY UNDERSTANDS THE
CONSEQUENCES OF THIS PROVISION AND THEIR AGREEMENT WITH THE TERMS HEREOF.
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SELLER'S INITIALS BUYER'S INITIALS
8. SELLER'S DEFAULT. If Seller defaults in the performance of any of
its obligations pursuant to this Agreement and Closing fails to occur by
reason thereof, Buyer's sole remedy shall be either to terminate this
Agreement and receive the Option Consideration, and the Deposit, together
with all interest accrued thereon, if any, plus its documented out-of-pocket
due diligence expenses, not to exceed Ten Thousand Dollars (S10,000) or, in
the alternative, pursue specific performance.
9. ADDITIONAL COVENANTS.
9.1 TERMINATION OF MANAGEMENT AGREEMENT. Seller covenants and agrees
that it will cause any management agreement for the Property to be
terminated as of the Closing Date, along with any other agreements with
respect to the Property as may be requested by Buyer.
9.2 NOTICES TO TENANTS. Promptly after Closing, Buyer shall mail, by
first class mail, a notice complying with any requirements of the laws of
the State of California, as appropriate, to each tenant occupying any
portion of the Property and for whom or which any prepaid rent, security or
cleaning deposit has been transferred to Buyer by Seller, whether through
actual cash transfer or through any credit allowed through escrow. Buyer
shall provide Seller with copies of all such notices and a certificate of
mailing within ten (10) calendar days following Closing.
9.3 OPERATION OF PROPERTY. Seller hereby covenants and agrees that
until Closing it shall continue to operate, manage and maintain the Property
in the same manner that it is operating, managing and maintaining the
Property on the Contract Date, subject to Section 12 below.
10. REPRESENTATIONS AND WARRANTIES.
10.1 BUYER'S REPRESENTATIONS AND WARRANTIES. In consideration of
Seller entering into this Agreement and as an inducement to Seller to sell
the Property, Buyer hereby makes the following representations and
warranties to Seller as of the date of this Agreement. Such representations
and warranties shall also be true and correct as of the Closing Date. It is
expressly understood and agreed that (a) the following representations and
warranties shall survive the Closing but all liability of Buyer for breach
of any of such representations and warranties shall terminate as to such
representation and warranty if no written claim of breach,
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<PAGE>
specifying such representation or warranty allegedly breached and the
supporting evidence for the alleged breach, shall be delivered to Buyer on
or prior to the date which is six (6) months following the Closing Date, and
(b) notwithstanding the existence of a claim of breach with respect to any
one or more representations or warranties within such six (6) month period,
the remaining representations and warranties for which no such claim of
breach has been delivered within such six (6) month period shall expire as
provided above:
10.1.1 Buyer is and as of the Closing will be a corporation duly
organized, validly existing, and in good standing under the laws of the
state of its formation;
10.1.2 Buyer has and as of the Closing will have the requisite
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby, and
10.1.3 This Agreement and all agreements, instruments and
documents herein provided to be executed by Buyer are and as of the Closing
will be duly authorized, executed and delivered by and are and will be
binding upon Buyer.
10.2 SELLER'S REPRESENTATIONS AND WARRANTIES. In consideration of
Buyer entering into this Agreement and as an inducement to Buyer to purchase
the Property, Seller hereby makes the following representations and
warranties to Buyer as of the date of this Agreement. Such representations
and warranties shall also be true and correct as of the Closing Date. It is
expressly understood and agreed that (a) the following representations and
warranties shall survive the Closing but all liability of Seller for breach
of any of the following representations and warranties shall terminate as to
such representation and warranty if no written claim of breach specifying
such representation or warranty allegedly breached and the supporting
evidence for the alleged breach, shall be delivered to Seller on or prior to
the date which is six (6) months following the Closing Date, and (b)
notwithstanding the existence of a claim of breach with respect to any one
or more representations or warranties within such six (6) month period, the
remaining representations and warranties for which no such claim of breach
has been delivered within such six (6) month period shall expire as provided
above:
10.2.1 Seller is and as of the Closing will be a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware.
10.2.2 Seller has and as of the Closing will have the requisite
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby.
10.2.3 This Agreement and all agreements, instruments and
documents herein provided to be executed by Seller are and as of the Closing
will be duly authorized, executed and delivered by and are and will be
binding upon Seller.
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<PAGE>
10.2.4 To Seller's actual knowledge, the Property Information
includes all documents (other than the Excluded Items) relating to the
Property that are in Seller's possession or control.
10.3 SELLER'S KNOWLEDGE STANDARD. The phrase "to Seller's actual
knowledge," as used in this Agreement means the actual, present knowledge of
Scott Amling, without any duty to investigate or to make inquiry. Seller
represents and warrants that Scott Amling is the Senior Asset Manager for
the Property and in such position is the person with the responsibility for
managing the Property and the person within Seller most likely to possess
the relevant knowledge upon which Seller's representations and warranties
concerning the Property are based.
11. DELIVERY OF POSSESSION. Possession of the Property shall be
delivered to Buyer at the time of Closing, subject to the rights of tenants
in possession under the Leases and the Permitted Exceptions.
12. RISK OF LOSS. If the Property or any portion thereof is damaged or
destroyed by fire or other casualty or by a partial taking under the
provisions of eminent domain after the Contract Date and prior to the
Closing and the Property is not substantially restored by the Closing Date:
12.1 MINOR LOSS. If the cost of repair or the value of the Property
taken or claimed under the provisions of eminent domain does not exceed
$250,000.00, Buyer shall close this transaction without adjustment to the
Purchase Price but Seller shall assign to Buyer at Closing all insurance or
condemnation proceeds available for such repair or taking and shall
reimburse Buyer by credit to the Purchase Price to the extent of any
deductible or self-insured retention amount applicable thereto.
12.2 MAJOR LOSS. If the cost of repair or the value of the Property
taken or claimed under eminent domain exceeds $250,000.00, Buyer shall have
the option of (i) closing this transaction as provided under Section 12.1,
or (ii) rescinding this Agreement by giving Seller written notice thereof
within ten (10) days from the date Buyer receives notice of such damage, in
which event this Agreement shall be deemed null and void and the parties
hereto shall have no further obligations to or recourse against each other
either under this Agreement or otherwise and except that the Deposit shall
be returned to Buyer.
13. NOTICES. Any notices required or permitted to be given by this
Agreement shall be personally delivered, shipped via Federal Express or
other "next day" courier delivery or sent by facsimile transmission, as
follows:
BUYER: First Alliance Mortgage Company
17305 Von Karman Avenue
Irvine, CA 92614
Attention: Mr. Jeffrey W. Smith
Facsimile No. (714) 224-8474
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with a copy to:
Edwin C Summers
17305 Von Karman Avenue
Irvine, CA 92614
Facsimile No. (714) 224-8474
and a copy by fax to:
Travers Realty
4675 MacArthur Court, Suite 1210
Newport Beach, CA 92660
Attention: Mr. Randall S. Parker
Facsimile No. (714) 756-2020
SELLER: AMRESCO Residential Mortgage Corporation
c/o AMRESCO Management, Inc.
2 Corporate Park, Suite 100
Irvine, California 92714
Attention: Mr. Scott Amling
Facsimile No. (714) 752-4086
Notice duly delivered in the manner described above shall be deemed received
(a) one (1) business day after timely deposit with a generally recognized
overnight courier service for next business day delivery, or (b) upon actual
receipt of notice, whichever is earliest. The parties shall promptly give
written notice to each other as provided in this Section 13 of any change of
address or facsimile number, and personal delivery, mailing, shipment to the
addresses or facsimile transmission to the numbers set forth above shall be
deemed sufficient unless written notification of a change of address or
facsimile number has been received.
14. NO COMMISSIONS, FINDER'S FEES OR BROKERAGE FEES. Buyer and Seller
each represent and warrant to the other that there are no commissions,
finder's fees or brokerage fees arising out of the transactions contemplated
by this Agreement, except for the commission in the amount of two percent
(2%) of the Purchase Price which Seller has committed to pay separately and
directly out of escrow proceeds to each of Travers Realty Corporation and
The Seeley Company ("COMMISSION") and which Seller shall pay on or prior to
the Closing Date. Buyer agrees that if any claims should be made for
commissions allegedly arising from the execution of this Agreement,
including, without limitation, the Commission, or any sale of the Property
to Buyer by any broker by reason of any acts of Buyer, Buyer will protect,
defend, indemnify and hold Seller harmless from and against any and all
losses, liabilities and expenses in connection therewith. Seller agrees
that if any claims should be made for commissions allegedly arising from the
execution of this Agreement or any sale of the Property to Buyer by any
broker by reason of any acts of Seller, Seller will protect, defend,
indemnify and hold Buyer harmless from and against
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<PAGE>
any and all losses, liabilities and expenses in connection therewith.
Seller shall only be liable for the Commission in the event the transaction
is completed as provided herein.
15. SURVIVAL OF OBLIGATIONS. All covenants, representations,
warranties, agreements and indemnities contained in this Agreement shall be
made as of the Contract Date. Such covenants, representations, warranties,
agreements and indemnities are made as of a date certain, and any cause of
action resulting from the breach of same, whether at law or in equity, shall
survive Closing (subject to the limitations set forth in Sections 10.1 and
10.2). All covenants and other obligations which, by their nature, are to
be performed by Buyer following Closing, shall survive Closing and the
transfer of title to the Property to Buyer. Except as specifically set
forth herein, Closing hereunder shall automatically constitute a merger of,
and shall irrefutably evidence full satisfaction of, all of Seller's
obligations under this Agreement.
16. HEADINGS AND SECTIONS. The use of headings in this Agreement is for
convenience and reference purposes only, and is not intended to limit,
expand or otherwise define the parties' respective obligations. The use of
sections is for convenience and organizational purposes only and is not
intended to create a severable contract.
17. TIME IS OF THE ESSENCE. Time is of the essence in the performance
of all terms and conditions and other obligations, including the giving of
required or permitted notices, under this Agreement.
18. ATTORNEYS' FEES. In the event of any dispute arising hereunder, the
prevailing party in litigation or arbitration, inclusive of any appeals,
shall be entitled to recover attorneys' fees and costs, court costs,
arbitration costs and costs of discovery incurred in connection therewith.
19. GOVERNING LAW. The performance and interpretation of this Agreement
shall be governed by the laws of the State of California.
20. ILLEGALITY/SEVERABILITY. In the event any provision of this
Agreement shall be deemed illegal or unenforceable, the remaining provisions
shall nevertheless be carried into effect and the defective provision shall
be deemed amended to comply with such rule, law or statute rendering same
illegal or unenforceable.
21. NO JOINT VENTURE. The relationship of Seller and Buyer hereunder is
and will be that of seller and buyer, and none of the provisions of this
Agreement are intended to create any relationship other than seller and
buyer. No agency, partnership, joint venture or other relationship is
intended hereby, and neither party shall be deemed the agent, servant,
employee, partner or joint venturer of the other party.
22. SALES, USE, PRIVILEGE TAXES. Notwithstanding any other provisions
of this Agreement, Buyer shall be liable for and shall pay all taxes or
assessments, including, but not limited to, sales, use, intangibles,
privilege, personal property, real property (subject to prorationing as
provided in Section 4.3), or other taxes or assessments resulting from or
assessed with respect to the Property or any of the transactions
contemplated by this Agreement. Buyer
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<PAGE>
hereby agrees to hold Seller harmless from, and agrees to indemnify, protect
and defend Seller against, any and all claims by anyone at any time
regarding any such taxes or assessments.
23. FURTHER ASSURANCES. Each party shall execute such further
documents, papers and instruments and take such further action as is
necessary, appropriate or helpful as the other party or Title Company may
reasonably request in order to carry out the purposes and intent of this
Agreement.
24. WAIVER. The waiver by any party of a breach of any provision of
this Agreement shall not be deemed a continuing waiver or a waiver of any
subsequent breach. whether of the same or another provision of this
Agreement.
25. ACTIONS THROUGH SELLER'S AGENTS. Any action or exercise of rights
or duties required or permitted to be taken or done by Seller hereunder
relative to the transactions contemplated by this Agreement may be taken by
any agent, officer, attorney, employee or other person duly designated and
authorized by Seller in writing or otherwise under Seller's customary
policies and procedures to take such action in its behalf. This Section
shall not be construed to delegate authority to any such person or to
entitle Buyer or any other person to rely upon any purported authority
exercised by any person purporting to represent Seller, but shall solely be
interpreted as permitting Seller to so delegate authority for its actions,
exercise of rights, and exercise of duties as above provided.
26. ASSIGNMENT. Buyer may not assign any of its rights under this
Agreement without the prior written consent of Seller, which consent shall
not be unreasonably withheld, and any purported assignment without such
consent shall be null, void and of no force or effect other than to a
nominee or entity of which Buyer is the owner of the majority of the
ownership interests and management rights. Any permitted assignment shall
not relieve Buyer of its obligations hereunder.
27. FINAL AGREEMENT. This Agreement states the entire agreement between
Buyer and Seller, and there are no promises, representations or agreements,
other than those herein contained, either oral or written, which have been
made or relied upon.
28. AMENDMENTS. Any changes or amendments hereto must be made in
writing and signed by both parties.
29. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
30. NO THIRD-PARTY BENEFICIARY. Buyer and Seller do not intend to
confer any benefit hereunder on any person or party other than the parties
hereto.
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<PAGE>
31. EXHIBITS. Attached hereto and incorporated herein by this reference
are the following Exhibits:
EXHIBIT A LEGAL DESCRIPTION OF THE REAL PROPERTY
EXHIBIT B SCHEDULE OF FIXTURES, EQUIPMENT, AND PERSONAL PROPERTY,
IF ANY
EXHIBIT C IRREVOCABLE INSTRUCTIONS TO TITLE COMPANY
EXHIBIT D DEED
EXHIBIT E BILL OF SALE
EXHIBIT F ASSIGNMENT OF LEASES
EXHIBIT G GENERAL ASSIGNMENT
EXHIBIT H FIRPTA CERTIFICATE
EXHIBIT I INSURANCE, INDEMNIFICATION AND CONFIDENTIALITY
AGREEMENT
EXHIBIT J TITLE COMMITMENT
IN WITNESS WHEREOF, Buyer and Seller have executed this
Agreement.
BUYER:
FIRST ALLIANCE MORTGAGE
California corporation
By: /s/ Jeffrey W. Smith
------------------------------
Name: JEFFREY W. SMITH
Title: Executive Vice President,
SELLER:
AMRESCO RESIDENTIAL MORTGAGE
CORPORATION, a Delaware corporation
By: /s/ Mark E. Trentmann
-------------------------------
Name: MARK E. TRENTMANN SR.
Title: Vice President
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<PAGE>
THIS AGREEMENT is dated August, 1997 between:
(1) FIRST ALLIANCE MORTGAGE COMPANY LIMITED (the "Borrower"); and
(2) PRUDENTIAL SECURITIES CREDIT CORPORATION (the "Lender").
IT IS HEREBY AGREED as follows:
1. INTERPRETATION
1.1 In this Agreement:
"ACCOUNT BANK" means Barclays Bank plc;
"ACKNOWLEDGEMENT" means the Acknowledgement concerning Loan Servicing
Agreement to be entered into between the Manager, the Borrower and the
Lender.
"ADVANCE" means, save as otherwise provided herein, an advance made or to be
made by the Lender to the Borrower hereunder;
"BUSINESS DAY" means a day in which banks are generally open for business in
London and New York;
"COLLATERAL DEFICIENCY" means the amount by which the Loan exceeds the
Collateral Threshold;
"COLLATERAL DEFICIENCY EVENT" means any event which causes the Loan to
exceed the Collateral Threshold (including, without limitation, a Portfolio
Sale or a Securitisation);
"COLLATERAL REMOVAL FEE" means the fee payable by the Borrower pursuant to
Clause 18.1;
"COLLATERAL SECURITY" means in relation to the Mortgage Loans the mortgages
or standard securities (as appropriate) executed by the Mortgagor together
with any associated security including, without limitation any policies in
respect of which the interest of the Borrower may be given effect by way of
co-insurance or the notifying of the Borrower's interest and any other
assignment, notification or deposit which may be effected in connection with
the securing of the relevant Mortgage Loans;
"COLLATERAL THRESHOLD" means in relation to the Mortgage Loans the lower of:
(i) 92.5 per cent. of the Mortgage Loan Market Value; and
(ii) 100.0 per cent. of the aggregate outstanding unpaid principal
balance of the Mortgage Loans;
For the avoidance of doubt there shall be excluded from "Mortgage Loans" for
the purposes of calculating Collateral Threshold any Non-Qualifying Loan or
any Mortgage Loan in respect of which there is a breach of any
representation or warranty contained in Clause 15.14.
<PAGE> 2
"COLLECTION ACCOUNT" means the account numbered 40576220 maintained by the
Borrower with Barclays Bank plc or such other account as the Borrower may
designate as the collection account with the prior written consent of the
Lender;
"COMMITMENT" means 25,000,000 UKP to the extent not cancelled or reduced
under this Agreement;
"COMMITMENT PERIOD" means the period commencing on the date hereof and
expiring on the Term Date;
"CUSTODIAL AGREEMENT" means the Custodial Agreement to be entered into
between the Custodian, the Lender and the Manager;
"CUSTODIAN" means The Chase Manhattan Bank;
"DEED OF CHARGE" means the Deed of Charge of even date herewith between the
Borrower and the Lender;
"DEFAULT" means an Event of Default or an event which, with the giving of
notice, lapse of time, determination of materiality or fulfilment of any
other applicable condition (or any combination of the foregoing), would
constitute an Event of Default;
"DELINQUENT LOAN LENDINGS" means all principal amounts of Delinquent
Mortgage Loans made by the Borrower to the Mortgagors which remain
outstanding;
"DELINQUENT LOAN PERCENTAGE" means the percentage of Mortgage Loan Lendings
which are Delinquent Loan Lendings;
"DELINQUENT MORTGAGE LOAN" means a Mortgage Loan in respect of which any
payment due from the relevant Mortgagor is outstanding by more than 30 but
less than 60 days;
"DRAWDOWN DATE" means the date of the making of an Advance;
"ELECTRONIC COLLATERAL INFORMATION" means such information in electronic
format as is specified in Schedule 4;
"EVENT OF DEFAULT" means any of those events specified in Clause 17.1;
"EXCEPTION" has the meaning given to it in the Custodial Agreement
"FACILITY" means the credit facility made available to the Borrower under
this Agreement;
"FINAL REPAYMENT DATE" means 31st August, 1998.
"FINANCE DOCUMENTS" means this Agreement, the Guarantee, the Deed of
Charge, the Management Agreement, the Custodial Agreement and the
Acknowledgement;
<PAGE> 3
"FINANCIAL INDEBTEDNESS" means any indebtedness in respect of:
(a) moneys borrowed and debit balances at banks;
(b) any debenture, bond, note, loan stock or other security;
(c) any acceptance credit;
(d) receivables sold or discounted (otherwise than on a non-recourse
basis);
(e) the acquisition cost of any asset to the extent payable before or
after the time of acquisition or possession by the party liable where the
advance or deferred payment is for a period of more than 180 days and is
arranged primarily as a method of raising finance or financing the
acquisition of that asset;
(f) leases entered into primarily as a method of raising finance or
financing the acquisition of the asset leased;
(g) currency swap or interest swap, cap or collar arrangements (after
deducting from the expressed liability of the first party an amount equal to
the indebtedness of the counterparty to the relevant swap, cap or collar
arrangements, as the case may be);
(h) amounts raised under any other transaction having the commercial
effect of a borrowing or raising of money; or
(i) any guarantee, indemnity or similar assurance against financial
loss of any person,
but so that no amount shall be taken into account more than once in the
calculation of the financial indebtedness of any person;
"GUARANTEE" means the Guarantee of even date herewith by the Guarantor in
favour of the Lender guaranteeing the obligations of the Borrower under the
Finance Documents;
"GUARANTOR" means First Alliance Mortgage Company, a US corporation;
"INTEREST PAYMENT DATE" means the last day of each Interest Period;
"INTEREST PERIOD" means, subject to clause 8(b), each period commencing on
the tenth day of each month and ending on the ninth day of the next month
provided that:
(i) in respect of any Advance not drawdown on the tenth day of any
month "Interest Period" means the period commencing on its Drawdown Date and
ending on the next ninth day of a month; and
(ii) the last Interest Period shall end on the Final Repayment Date.
<PAGE> 4
"LIBOR" means, (and subject to Clause 8(c) in respect of the first Interest
Period) the rate per annum appearing on page 3750 on the Telerate Screen
information display (or any equivalent successor to that page as determined
by the Lender) (the "TELERATE SCREEN") at or about 11.00 am (London time) on
each Drawdown Date and the first day of each Interest Period hereunder for
the offering of one month deposits in sterling. For the purposes of this
definition "TELERATE PAGE 3750" means the display designated as "Page 3750",
on the Telerate Service (or such other page as may replace Page 3750 on that
service) or such other service as may be nominated by the British Bankers'
Association as the information vendor for the purpose of displaying British
Bankers' Association Interest Settlement Rates for deposits in sterling,
Provided that with respect to any such day which is not a Business Day the
rate to be used shall be the rate per annum so appearing on the Telerate
Screen on the preceding Business Day;
"LOAN" means the aggregate principal amount of the Advances made under the
Facility for the time being outstanding hereunder;
"MANAGEMENT AGREEMENT" means the loan servicing agreement to be entered into
between the Manager and the Borrower relating to the servicing of the
Mortgage Loans;
"MANAGER" means First Alliance Mortgage Company;
"MARGIN" means 0.925 per cent;
"MORTGAGE DOCUMENTATION" means the Borrower's standard mortgage
documentation (including without limitation the Origination Criteria) from
time to time, the current form of which has been initialled by the parties
hereto on the date hereof for the purposes of identification;
"MORTGAGE LOAN LENDINGS" means the aggregate of all principal amounts lent
by the Borrower and which remain outstanding to the Mortgagors in respect of
the Mortgage Loans;
"MORTGAGE LOAN MARKET VALUE" means the value of all Mortgage Loans at any
one time as ascertained by the Valuer pursuant to a Valuation;
"MORTGAGE LOANS" means (i) mortgage loans (including all further advances)
made by the Borrower to the Mortgagors substantially in accordance with the
Origination Criteria and/or (ii) mortgage loans purchased by the Borrower
from a third party which the Lender has previously agreed in writing at
least meet criteria equivalent to the Origination Criteria in form
satisfactory to the Lender (as previously notified in writing by the Lender
to the Borrower) and which, in each case, are or are to be financed by this
Facility;
"MORTGAGE POOL" means, at any time, all Mortgage Loans and Collateral
Security and all other rights, title, benefit and interest of the Borrower
in relation thereto but excluding any of the same which may have been
redeemed at such time;
"MORTGAGOR" means the relevant mortgagor in respect of a Mortgage Loan;
"NON-QUALIFYING LOAN" means, at any time, a Mortgage Loan in respect of
which any payment due from the relevant Mortgagor or any other party is
outstanding by more than 59 days;
"OBLIGORS" means the Borrower and the Guarantor and "OBLIGOR" shall mean
either one of the Borrower and the Guarantor;
"ORIGINATION CRITERIA" means the criteria for the origination of Mortgage
Loans set out in Schedule 3, incorporating any relevant underwriting
guidelines and any terms or conditions to be included in the Mortgage Loans,
as varied or amended in accordance with the provisions hereof;
"POLICIES" means all endowment, life, mortgage protection, buildings or
other insurance policies maintained by Mortgagors in connection with the
Mortgage Loans;
"PORTFOLIO SALE" means a Partial Portfolio Sale or a Whole Portfolio Sale;
"PARTIAL PORTFOLIO SALE" means a sale by the Borrower of part of the
Mortgage Loans (other than in connection with a Securitisation);
"PROPERTY" means, in relation to each Mortgage Loan, the freehold or
leasehold residential property in England and Wales, in respect of which
such Mortgage Loan was made;
"REPAYMENT DATE" means (i) the Final Repayment Date or (ii) a Securitisation
Settlement Date or the date of a Partial Portfolio Sale or a Whole Portfolio
Sale;
"REQUEST" means a request by the Borrower for an Advance in the form set out
in Schedule 2;
"SECURITISATION" means a securitisation relating to some or all the Mortgage
Loans financed by Advances whereby those Mortgage Loans are sold by the
Borrower to a special purpose vehicle;
"SECURITISATION SETTLEMENT DATE" means the date of closing of any
Securitisation;
"SECURITY INTEREST" means any mortgage, standard security, pledge, lien,
charge, assignment, assignation, hypothecation, debenture or security
interest or any other agreement or arrangement having the effect of
conferring security;
"SUBSIDIARY" means:
(a) a subsidiary within the meaning of Section 736 of the Companies Act
1985 as amended by Section 144 of the Companies Act 1989; and
(b) unless the context requires, a subsidiary undertaking within the
meaning of Section 21 of the Companies Act 1989;
"TERM DATE" means 31st August, 1998;
"TITLE DEEDS" means, in relation to each Mortgage Loan and the relevant
Collateral Security and Property all deeds and documents constituting title
to such Property and Collateral Security, including, without limitation:
(a) in the case of leasehold property, the relevant lease or sub-lease;
(b) in the case of registered land, the charge certificate for the
registered title; and
(c) in the case of unregistered land, the mortgage deed and either the
conveyance or, in the case of leasehold property, the deed of assignment (if
any) to the relevant mortgagor;
<PAGE> 6
"TRUST RECEIPT" means a receipt issued by the Custodian under the Custodial
Agreement confirming that it has received a Mortgage File (as defined in the
Custodial Agreement) in respect of all Mortgage Loans which are to
constitute security for the relevant Advance;
"VALUATION" means a valuation of any part of the Mortgage Pool by the Valuer
on a mark to market basis, at the sole discretion of the Lender;
"VALUER" means the Lender or such other party as the Lender may designate
from time to time; and
"WHOLE PORTFOLIO SALE" means the sale by the Borrower of all of the Mortgage
Loans financed by the Advances hereunder (other than in connection with a
Securitisation).
1.2 Construction
(a) In this Agreement, unless the contrary intention appears, a reference
to:-
(i) a "regulation" includes any regulation, rule, official directive,
request or guideline (whether or not having the force of law) of any
governmental body, agency, department or regulatory, self-regulatory or
other authority or organisation;
(ii) a provision of law is a reference to that provision as amended or
re-enacted;
(iii) a Clause or a Schedule is a reference to a clause of or a schedule
to this Agreement;
(iv) a person includes its successors and assigns;
(v) a Finance Document or another document is a reference to that
Finance Document or other document as amended, novated or supplemented; and
(vi) a time of day is a reference to London time.
(b) Unless the contrary intention appears, a term used in any other
Finance Document or in any notice given under or in connection with any
Finance Document has the same meaning in that Finance Document or notice as
in this Agreement.
(c) The index to and the headings in this Agreement are for convenience
only and are to be ignored in construing this Agreement.
2. THE FACILITY
2.1 Subject to the terms of this Agreement the Lender grants to the
Borrower a sterling credit facility in an aggregate principal amount of
25,000,000 UKP.
2.2 The Lender is to have the benefit of the security created pursuant to
the Deed of Charge and the benefit of the Guarantee.
2.3 The Lender is not obliged at any time to lend more than its
Commitment.
<PAGE> 6
3. PURPOSE
3.1 The Facility is to be used to fund:
(a) the origination by the Borrower of Mortgage Loans; and/or
(b) the purchase by the Borrower of existing Mortgage Loans.
3.2 Without prejudice to the obligations of the Borrower under Clause 3.1,
the Lender shall not be obliged to monitor or verify the application of the
Loan.
4. CONDITIONS PRECEDENT
4.1 Documentary conditions precedent
The obligations of the Lender to the Borrower under this Agreement are
subject to the condition precedent that it has received all of the documents
set out in Schedule 1 (Conditions Precedent Documents) in form and substance
satisfactory to the Lender.
4.2 Further conditions precedent
The obligation of the Lender to make an Advance is subject to the further
conditions precedent that on both the date of the Request and the Drawdown
Date:
(i) the representations and warranties in Clause 15 (Representations
and warranties) to be repeated on those dates are correct and will be
correct immediately after the Advance is made;
(ii) no Default is outstanding or will result from the making of the
Advance;
(iii) the Lender has received a Request in form satisfactory to it;
(iv) the Lender has received a Trust Receipt with respect to the
Mortgage Loans to be financed by such Advance in form satisfactory to it;
(v) the Lender has received at least 2 Business Days prior to the
relevant Drawdown Date the Electronic Collateral Information with respect to
the Mortgage Loans to be financed by such Advance in form satisfactory to
it;
(vi) the Collateral Threshold would not be breached immediately after
the making of the requested Advance;
(vii) the Delinquent Loan Percentage would not exceed 1.0 per cent. after
the making of such Advance;
(viii) in the case where any Mortgage Loans to be financed by any Advance
are second mortgages, the Lender has previously consented in writing to the
inclusion of second mortgages in the Mortgage Pool and approved all changes
in documentation relating to such inclusion; and
<PAGE> 8
(ix) in the case of any Exceptions identified by the Custodian, the
Lender has consented in writing to the inclusion of such Exceptions as
Mortgage Loans to be financed by the Advance.
5. DRAWDOWN
5.1 Drawdown
The Borrower may borrow an Advance during the Commitment Period if the
Lender receives a duly completed Request (which shall be irrevocable) by not
later than noon. New York time on the second Business Day before the
proposed Drawdown Date. The undrawn amount (if any) of the Commitment shall
automatically be cancelled at close of business on the Term Date.
5.2 Completion of Requests
For the purposes of Clause 4.2(iii) (Further Conditions Precedent) and
Clause 5.1 (Drawdown) a Request will not be regarded as having been duly
completed unless:
(a) the Drawdown Date is a Business Day falling on or before the Term
Date;
(b) the principal amount of the Advance requested is at least 100,000
UKP;
(c) the Commitment shall not be exceeded by reason of such Advance; and
(d) the payment instructions comply with Clause 11 (Payments).
5.3 All Advances shall be disbursed by the Lender to the Borrower to a
bank account in London designated by the Borrower in the Request for each
Advance.
6. REPAYMENT
6.1 The Borrower shall repay the Loan in full on the Final Repayment Date.
6.2 The Borrower shall not repay all or any part of the Loan except at the
times and in the manner expressly provided herein.
7. PREPAYMENT
7.1 Voluntary Prepayment
Subject to payment by the Borrower of the Collateral Removal Fee, the
Borrower may, by giving not less than 2 Business Days' prior notice to the
Lender, prepay all or part of the Loan (and if in part in a minimum amount
of 100,000 UKP) on any Business Day.
7.2 Portfolio Sale
The Borrower shall prepay all or that part of the Loan which is equal to the
principal amount of any Mortgage Loans which are the subject of a Portfolio
Sale by the Borrower on the date of completion of such sale together with
the Collateral Removal Fee in respect of such Mortgage Loans.
<PAGE> 9
7.3 Securitisation
The Borrower shall prepay all or that part of the Loan which is equal to
the principal amount of any Mortgage Loans which are the subject of a
Securitisation on each Securitisation Settlement Date.
7.4 Prepayment to cure Breach of Undertaking
If the Loan at any time exceeds the Collateral Threshold or if the
Delinquent Loan Percentage exceeds 1.0 per cent. or any Mortgage Loan
becomes a Non-Qualifying Loan or there is a breach of representation or
warranty under Clause 15.14 relating to a Mortgage Loan, the Borrower shall,
make such prepayments (without premium or penalty) of Advances as are
necessary to ensure compliance with Clause 16.11, 16.12 or 15.16 (as the
case may be).
7.5 Prepayment pursuant to redemption
In the event that any Mortgage Loan is redeemed by a Mortgagor the Borrower
shall prepay (without premium or penalty) the amount redeemed to the Lender.
7.6 Additional right of prepayment
If:
(a) the Borrower is required to pay to the Lender any additional amount
under Clause 12 (Taxes); or
(b) the Borrower is required to pay to the Lender any amount under
Clause 13 (Increased costs),
then, without prejudice to the obligations of the Borrower under those
Clauses, so long as the circumstances giving rise to the obligation to make
a payment continue, the Borrower may, by giving at least five Business Days'
prior written notice to the Lender (which notice shall be irrevocable),
prepay the Loan in whole or in part without premium or penalty.
7.7 Miscellaneous provisions
(a) Any notice of prepayment and/or cancellation or Request under this
Agreement is irrevocable.
(b) All prepayments under this Agreement shall be made together with
accrued interest on the amount prepaid.
(c) No prepayment or cancellation is permitted except in accordance with
the express terms of this Agreement.
(d) All amounts prepaid may be reborrowed subject to and in accordance
with the terms of this Agreement.
<PAGE> 10
7.8 Voluntary cancellation
On giving not less than 30 days' prior written notice to the Lender the
Borrower may cancel the undrawn Commitment in whole or in part without
premium or penalty.
8. INTEREST PAYMENT
(a) Except as otherwise provided in this Agreement, accrued interest shall
be payable by the Borrower on the Loan on each Interest Payment Date.
(b) Interest Periods commencing before the earlier of:
(i) confirmation from the Lender that approval has been obtained from
the relevant tax authorities for payments of interest under this Agreement
to be made gross; and
(ii) expiry of three months from the date of the making of the first
Advance,
shall commence on the Drawdown Date for such Advance and end on the date
being the ninth day of the month which follows the earlier of the events
specified in paragraphs (i) and (ii) above.
(c) In respect of each of the Interest Period specified in 8(b) above,
LIBOR shall be calculated on the first day of each such Interest Period and
such LIBOR shall apply for the period commencing on the Drawdown Date of the
relevant Advance and ending on the next ninth day of the month. Thereafter
LIBOR shall be reset on the tenth day of each month falling within such
Interest Period and such LIBOR shall apply until the next ninth day of a
month.
9. INTEREST RATE
9.1 Interest Rate
The rate of interest on the Loan will be the rate per annum determined by
the Lender for each Interest Period to be the aggregate of the:
(a) Margin; and
(b) LIBOR (being in the case of case of each Interest Period referred
to in Clause 8(c), the applicable LIBOR for each relevant part of that
Interest Period).
9.2 Default interest
(a) If the Borrower fails to pay any amount payable by it under this
Agreement, it shall forthwith on demand by the Lender pay interest on the
overdue amount from the due date up to the date of actual payment, as well
after as before judgment, at a rate (the "DEFAULT RATE") determined by the
Lender to be LIBOR plus 3.5 per cent. per annum.
(b) The applicable default rate will be determined by the Lender for each
monthly period and calculated and compounded monthly from the date of the
default until the date when the overdue amount is paid in full.
<PAGE> 11
(c) If the Lender determines that sterling deposits are not at the
relevant time being made available by leading banks in the London interbank
market, the default rate will be determined by reference to the cost of
funds to the Lender from whatever sources it may select.
9.3 Notification
The Lender shall promptly notify the Borrower of the determination of a rate
of interest under this Agreement.
10. MARKET DISRUPTION
10.1 If the Lender, acting reasonably, determines that adequate and fair
means do not exist for ascertaining LIBOR the Lender shall promptly notify
the Borrower of the fact and that this Clause 10.1 is in operation.
10.2 If a notification under Clause 10.1 (Market disruption) applies when
the Loan has not been made, then the Loan shall not be made. However,
within 5 Business Days of receipt of the notification, the Lender shall
promptly enter into negotiations in good faith with the Borrower with a view
to agreeing an alternative basis for the borrowing of the Loan.
10.3 If a notification under Clause 10.1 (Market disruption) is given when
the Loan is outstanding, then, notwithstanding any other provision of this
Agreement:
(a) within 5 Business Days of receipt of the notification, the Lender
shall specify to the Borrower an alternative basis (the "ALTERNATIVE BASIS")
for determining the rate of interest and/or funding applicable to the Loan.
The alternative basis may include an alternative method of fixing the
interest rate, alternative Interest Periods or alternative currencies;
(b) if the Borrower disagrees with the alternative basis the Borrower
shall be entitled to propose a further alternative basis to the Lender and
the lender shall consider in good faith whether to adopt the Borrower's
proposal as the alternative basis Provided that in the meantime, and subject
to Clause 10.4 below, the alternative basis specified by the Lender under
Clause 10.3(a) shall apply, shall be binding on the Borrower and the Lender
and treated as part of this Agreement.
10.4 If at any time the Borrower specifies by notice in writing to the
Lender that the alternative basis is unacceptable to the Borrower, the
Borrower shall be entitled by giving the Lender not less than two Business
Days' prior notice to prepay the Loan together with accrued interest
calculated in accordance with the alternative basis up to and including the
date of actual payment by the Borrower, together with any other amounts due
under the terms of this Agreement but without premium or penalty.
11. PAYMENTS
11.1 Place
All payments by the Borrower under this Agreement shall be made to the
Lender by payment to or to such other account at such office or bank in
London as it may from time to time notify to the Borrower for this purpose.
<PAGE> 12
11.2 Funds
Payments under this Agreement to the Lender shall be made for value on the
due date by which transfer to such account of the Lender in London as the
Lender may have previously specified to the Borrower.
11.3 Currency
(a) Amounts payable in respect of costs, expenses and taxes and the like
are payable in the currency in which they are incurred.
(b) Any other amount payable under this Agreement is, except as otherwise
provided in this Agreement, payable in sterling.
11.4 Set-off and counterclaim
All payments made by the Borrower under this Agreement shall be made without
set-off or counterclaim.
11.5 Non-Business Days
(a) If a payment under this Agreement is due on a day which is not a
Business Day, the due date for that payment shall instead be the next
Business Day in the same calendar month (if there is one) or the preceding
Business Day (if there is not).
(b) During any extension of the due date for payment of any principal
under this Agreement, interest is payable on that principal at the rate
payable on the original due date.
11.6 Partial payments
(a) If the Lender receives a payment insufficient to discharge all the
amounts then due and payable by the Borrower under this Agreement, the
Lender shall apply that payment towards the obligations of the Borrower
under this Agreement in the following order:
(i) FIRST, in or towards payment of any unpaid costs and expenses of
the Lender under the Finance Documents;
(ii) SECONDLY, in or towards payment pro rata of any accrued interest
and fees due but unpaid under this Agreement;
(iii) THIRDLY, in or towards payment pro rata of any principal due but
unpaid under this Agreement; and
(iv) FOURTHLY, in or towards payment pro rata of any other sum due but
unpaid under this Agreement.
(b) Paragraph (a) above shall override any appropriation made by the
Borrower.
<PAGE> 13
12. TAXES
12.1 Gross-up
All payments by the Borrower under the Finance Documents shall be made
without any deduction and free and clear of and without deduction for or on
account of any taxes, except to the extent that the Borrower is required by
law to make payment subject to any taxes. If any tax or amounts in respect
of tax must be deducted, or any other deductions must be made, from any
amounts payable or paid by the Borrower under the Finance Documents, subject
to Clause 12.3 (Tax Treaties) the Borrower shall pay such additional amounts
as may be necessary to ensure that the Lender receives a net amount equal to
the full amount which it would have received had payment not been made
subject to tax.
12.2 Tax Indemnity
Without prejudice to the provisions of Clause 12.1, if the Lender is
required to make any payment on account of tax (not being a tax imposed on
the net income of the Lender) on or in relation to any sum received or
receivable by it hereunder (including, without limitation, any sum received
or receivable under this Clause 12) or any liability in respect of any such
payment on account of tax is asserted, imposed, levied or assessed against
the Lender, the Borrower shall, upon demand of the Lender, promptly
indemnify the Lender against such payment or liability, together with any
interest, penalties and expenses payable or incurred in connection
therewith. The Lender shall make any demand under this Clause as soon as
reasonably practicable upon becoming aware of such payment or liability and
shall support such demand with a certificate detailing the amount and nature
of such payment or liability.
12.3 Tax treaties
(a) The Borrower shall not be required to make any additional payments
under Clauses 12.1 or 12.2 if and to the extent that:
(i) the Lender is not eligible by virtue of any applicable law or
double tax treaty (ignoring, for the purpose of this sub-paragraph (i) only,
any requirement to complete requisite documents or comply with any
administrative procedures) to receive payments from the Borrower without
deduction or withholding in respect of tax unless such non-eligibility
results from a change in law, treaty or regulation occurring after the date
of this Agreement or other circumstances beyond the reasonable control of
the Lender in which case the Borrower shall be obliged to make additional
payments under Clauses 12.1 or 12.2;
(ii) the Lender is permitted by virtue of any applicable law or double
tax treaty to receive payments from the Borrower without deduction or
withholding in respect of tax but such deduction or withholding is required
due to the Lender's failure to complete the requisite documents or
administrative procedures to make a claim for relief or exemption under the
applicable law or double tax treaty; or
(iii) the Lender has not used its reasonable endeavours to maintain in
force and effect any such relief or exemption under the applicable law or
double tax treaty provided however that this Clause 12.3(a) shall not apply
if the Borrower has not complied with its obligations pursuant to Clause
12.3(b);
<PAGE> 14
(b) The Borrower agrees that it will co-operate with the Lender and
provide such information as may be necessary to enable the Lender to
complete any requisite documents and administrative procedures together with
all necessary certifications required to claim exemption from withholding
and deduction of taxes under any applicable law or double tax treaty for
payments made hereunder and agrees to co-operate and provide all such
information as may be necessary from time to time to ensure that such
exemption is maintained in full force and effect.
12.4 Tax receipts
All taxes required by law to be deducted or withheld by the Borrower from
any amounts paid or payable under the Finance Documents shall be paid by the
Borrower when due and the Borrower shall within 15 days of receipt of
evidence that payment has been made, deliver to the Lender a tax receipt or
other appropriate evidence satisfactory to the Lender evidencing the payment
to have been duly remitted to the appropriate authority.
12.5 Tax Credits
If the Borrower pays an additional amount under Clause 12.1 ("Tax
Payment") and the Lender obtains a refund of tax or credit against tax by
reason of that Tax Payment (a "Tax Credit") and is able to identify the Tax
Credit as being attributable to the Tax Payment, then the Lender shall
reimburse promptly to the Borrower the amount which the Lender determines
(in good faith) to be the proportion of the Tax Credit which will leave it
(after that reimbursement) in no better or worse position than it would have
been in if the Tax Payment had not been required. The Lender shall have a
discretion (exercised in good faith) as to whether to claim any Tax Credit
and, if it does claim, the extent, order and manner in which it does so.
12.6 Mitigation
If circumstances arise which would or would upon the giving of notice
result in the Borrower being obliged to make any additional payment under
Clause 12.1 (Gross-up) or being obliged to indemnify the Lender under Clause
12.2 (Tax indemnity) then, without in any other way limiting, reducing or
otherwise qualifying the rights of the Lender or the obligations of the
Borrower under Clause 12.1 (Gross-up) or Clause 12.2 (tax indemnity), the
Lender shall as soon as reasonably practicable notify the Borrower and shall
in consultation with the Borrower and to the extent that the Lender
considers that it can do so without material prejudice to itself take
reasonable steps to mitigate the effects of such circumstances (including
the transfer of the Lender's rights and obligations to any affiliate of the
Lender or to a financial institution in the United Kingdom acceptable to the
Borrower and willing to participate in the Facility).
13. INCREASED COSTS
13.1 Increased costs
(a) Subject to Clause 13.2, the Borrower shall within 5 Business Days of
receipt of notice from the Lender of any event entitling it to claim an
increased cost pursuant to this Clause 13 pay to the Lender the amount of
any increased cost incurred by it as a result of the introduction of or any
change in, or any change in the interpretation or application of, any law or
regulation or directive (including any law or regulation or directive
relating to taxation, or reserve asset, special deposit, cash ratio,
liquidity or capital adequacy requirements or any other form of banking or
monetary control).
<PAGE> 15
(b) In this Agreement "increased cost" means:
(i) an additional cost incurred by the Lender as a result of it having
entered into, or performing, maintaining or funding its obligations under,
this Agreement; or
(ii) that portion of any additional cost incurred by the Lender in
making, funding or maintaining any Advance made or to be made under this
Agreement as is attributable to it making, funding or maintaining those
participations; or
(iii) a reduction in any amount payable to the Lender or the effective
return to the Lender under this Agreement or on its capital; or
(iv) the amount of any payment made by the Lender, or the amount of any
interest or other return foregone by the Lender, calculated by reference to
any amount received or receivable by the Lender under this Agreement.
(c) Notwithstanding Clause 13.1(a) above, if any increased cost relates to
periodic payments made by the Borrower hereunder, then any such amount or
amounts to be paid by the Borrower shall be payable when such periodic
payments are due and shall be based on the number of days during the
interest period to which such additional costs or reduction relate or on
such other methods as may be applicable.
(d) All notices of increased cost or reduction given to the Borrower by
the Lender pursuant to this Clause 13.1 shall be accompanied by a
certificate, signed by a duly authorised officer of the Lender, describing
in reasonable detail such additional costs or reduction and the basis used
by the Lender to determine the amount or amounts necessary to compensate the
Lender for such additional costs or reduction. In determining such
additional costs or reduction, the Lender may use reasonable averaging and
attribution methods. The Lender will promptly notify the Borrower of the
occurrence of any event which entitles or will entitle the Lender to
additional costs or reduction pursuant to this Clause 13.1 and will take
reasonable steps to avoid the need for, or reduce, the amount of such costs
or reduction provided that nothing shall oblige the Lender to take any step
which, in the sole judgment of the Lender, may be otherwise disadvantageous
to the Lender.
13.2 Exceptions
Clause 13.1 does not apply to any increased cost:
(a) compensated for by the operation of Clause 12 (Taxes); or
(b) attributable to any change in the rate of tax on the overall net
income of the Lender (or the overall net income of a division or branch of
the Lender) imposed in the jurisdiction in which its principal office for
the time being is situate; or
(c) which would be payable if the Borrower were a California
corporation borrowing through an office in the United States of America and
the Lender were lending through its head office in the United States of
America.
<PAGE> 16
13.3 Alternate Borrower
If an increased cost becomes payable by the Borrower in circumstances
where such increased cost would not be payable were the borrower under this
Agreement an affiliate of the Borrower incorporated in the United States the
parties covenant that they shall enter into a facility on substantially
similar terms as in the Finance Documents (to be finally negotiated at the
relevant time of documentation) to be made available in loans denominated in
U.S. Dollars to the Guarantor.
14. UNLAWFULNESS
If it becomes unlawful in any jurisdiction for the Lender to give effect to
any of its obligations as contemplated by this Agreement or to fund the
Loan, then:
(a) the Lender may notify the Borrower accordingly; and
(b) (i) the Borrower shall forthwith prepay the Loan together with
all interest accrued to the date of prepayment and all other amounts payable
by it to the Lender under this Agreement but without premium or penalty; and
(ii) the Commitment shall forthwith be cancelled.
15. REPRESENTATIONS AND WARRANTIES
15.1 Representations and warranties
The Borrower makes the representations and warranties set out in this Clause
15 to the Lender.
15.2 Status
(a) The Borrower is a limited liability company duly incorporated and
validly existing under the laws of England; and
(b) it has the power to own its assets and carry on its business as it is
being conducted.
15.3 Powers and authority
It has the power to enter into and perform, and has taken all necessary
action to authorise the entry into, performance and delivery of, the Finance
Documents to which it is or will be a party and the transactions
contemplated by those Finance Documents.
15.4 Legal validity
Each Finance Document to which it is or will be a party constitutes, or when
executed in accordance with its terms will constitute, its legal, valid and
binding obligation enforceable in accordance with its terms subject to any
qualifications in the legal opinion obtained by the Borrower pursuant to
paragraph 11 of Schedule 1.
<PAGE> 17
15.5 Non-conflict
The entry into and performance by it of, and the transactions contemplated
by, the Finance Documents do not and will not:
(a) contravene any law or regulation or judicial or official order to
which it is subject; or
(b) contravene its constitutional documents; or
(c) contravene any document which is binding upon it or any of its
assets.
15.6 No default
(a) No Default is outstanding or is likely to result from the making of
the Loan or any Advance thereunder; and
(b) no other event is outstanding which constitutes a default under any
document which is binding on it or any of its assets to an extent or in a
manner which is likely to have a material adverse effect on its business or
financial condition or on its ability to perform its obligations under this
Agreement.
15.7 Authorisations
All authorisations required in connection with the entry into, performance,
validity and enforceability of, and the transactions contemplated by, the
Finance Documents have been obtained or effected (as appropriate) and are in
full force and effect.
15.8 Litigation
No litigation, arbitration or administrative proceedings are current or, to
its knowledge, pending or threatened, which is reasonably likely to be
adversely determined and, if adversely determined, to have a material
adverse effect on its business or financial condition or its ability to
perform its obligations under the Finance Documents.
15.9 Information
(a) All Electronic Collateral Information and all written information
compiled and supplied by it to the Lender in connection with the Finance
Documents is true, complete and accurate in all material respects as at its
date and all written information compiled by a third party and supplied by
the Borrower to the Lender is, to the best of the knowledge, information and
belief of the directors of the Borrower after due enquiry, true, complete
and accurate in all material respects as at its date;
(b) the accounts supplied to the Lender present a true and fair view of
the financial position of the Borrower as at the date to which they were
drawn up;
(c) all written information provided to the Lender by the Borrower or the
Guarantor prior to the date hereof did not omit as at its date any material
information which, if disclosed, could reasonably be expected to materially
and adversely affect the decision of a person considering whether to enter
into this Agreement;
<PAGE> 18
(d) as at the date hereof nothing has occurred since the date the
information referred to in paragraph (c) above was provided which renders
the information contained in it untrue or misleading in any material respect
and which, if disclosed, could reasonably be expected to materially and
adversely affect the decision of a person considering whether to enter into
this Agreement;
15.10 Qualification
The Borrower, to the extent that its operations require, is registered
under the Data Protection Act 1984 and Consumer Credit Act 1974 and has
obtained all authorisations required thereunder in respect of and to the
extent required by its residential mortgage origination business and the
transactions contemplated by the Finance Documents;
15.11 Security
(a) As at the date hereof, no Security Interest exists over all or any of
Security Assets (as defined in the Deed of Charge) other than created under
the Deed of Charge; and
(b) The security conferred by the Deed of Charge constitutes a first
priority security interest of the type therein described over the security
assets therein referred to which are not subject to any prior or pari passu
Security Interests (other than those whose claims are preferred solely by
any bankruptcy, insolvency or other similar laws of general application to
preferential creditors) and which are not liable to avoidance on liquidation
or administration.
15.12 Ownership of the Borrower
The whole of the Borrower's issued share capital is legally and beneficially
owned by the Guarantor.
15.13 Registration requirements
Except for due registration of the Deed of Charge under Section 395 of the
Companies Act 1985 it is not necessary that any of the Finance Documents be
filed, recorded or enrolled with any authority or that any stamp,
registration or similar tax be paid on or in respect thereof.
15.14 Mortgage Loans and Collateral Security
(a) Each Mortgage Loan and any related Collateral Security within the
Mortgage Pool is legally and beneficially owned by the Borrower.
(b) Each Mortgage Loan and any Collateral Security constitute a valid and
binding obligation of the relevant Mortgagor.
(c) Each Mortgage Loan is secured by a valid and subsisting first or (with
the prior written consent of the Lender) second legal mortgage (subject to
completion of any registration requirements) and (in these cases) there is
nothing to prevent that registration being effected).
<PAGE> 19
(d) In relation to each Mortgage Loan, the related Collateral Security
secures all principal, interest, costs, liability and expenses from time to
time due to the Borrower under the relevant Mortgage Documentation.
(e) Each Property is residential property in England or Wales.
(f) All things necessary to perfect the vesting of full title to each
Mortgage Loan and its Collateral Security in the Borrower have been duly
done or the relevant solicitors have been so instructed.
(g) Each Mortgage Loan was made in accordance with the Origination
Criteria at the time of its origination.
(h) Each advance (including each further advance) comprised in a Mortgage
Loan was made in accordance with the Origination Criteria.
(i) Each Property is insured either with the Borrower as a co-insured
party or with the interest of Borrower (as mortgagee) noted thereon or, in
the case of leasehold property, is covered by the landlord's policy, with
the interests of the Borrower and the relevant Mortgagor noted thereon, in
each case with a reputable insurance company approved by the Borrower,
against all risks usually covered by a prudent mortgagee of property when
advancing money on the security of property to an amount not less than the
full reinstatement value (including all costs and expenses) thereof.
(j) No Mortgage Loan is, in whole or in part, a regulated agreement or a
consumer credit agreement (as defined in Section 8 of the Consumer Credit
Act 1974) or constitutes any other agreement regulated or partly regulated
by the Consumer Credit Act 1974 (other than Sections 137 to 140 of such
Act). Each Mortgage Loan complies with the Unfair Terms in Consumer
Contracts Regulations 1994.
(k) All Mortgage Loans in respect of Properties located in England and
Wales are governed by English law.
(l) No Mortgagors or guarantors (if any) in relation to any Mortgage Loan
is an employee of the Borrower.
(m) In relation to each Mortgage Loan the relevant Mortgagor had good and
marketable title to the property forming the security for it together with
all necessary ancillary rights and free from any encumbrance which would
adversely affect the title or the value of the Property and:
(i) (in the case of unregistered land):
(A) it is either a fee simple absolute in possession (if
freehold) or (if leasehold) a term of years absolute; and
(B) the Mortgagor's title commences with a good root of title
which was at least 15 years old at the date of completion of the Mortgage
Loan; and
(C) the Mortgage Loan was completed within the priority period
conferred by an official search at the Land Charges Department;
<PAGE> 20
(ii) in the case of registered land:
(A) the Property is registered with title absolute; or
(B) is in the course of registration with title absolute; and
(C) an application for registration of the relevant mortgage has
been delivered to HM Land Registry within the priority period confered by an
official search against the relevant title at HM Land Registry and, if the
Property is subject to first registration, within two months from the date
of the dealing giving rise to first registration, in accordance with s.123
of the Land Registration Act 1925; and
(D) there is no caution, notice or other entry which would
prevent the registration of the relevant mortgage as a first or (with the
prior written consent of the Lender) second legal charge;
(iii) in the case of a leasehold property:
(A) the lease does not contain any option for early termination;
(B) the lease cannot be forfeited on the bankruptcy of the
tenant;
(C) the lease reserves no more than a nominal or ground rent;
(D) the lease has at least 40 years remaining unexpired
calculated from the date of completion of the relevant Mortgage Loan;
(E) any requisite consent of the landlord to or notice to the
landlord of the creation of a Mortgage Loan and any Collateral Security has
been obtained or given; and
(F) a copy of the consent or notice has been or will be placed
with the title deeds.
(n) The Borrower has not given consent to the grant of a tenancy by a
Mortgagor in circumstances where no prudent lender at the time such consent
was given would give such consent.
(o) Within a period of time prior to making the initial advance under each
Mortgage Loan which would in each case be a period acceptable to a prudent
mortgagee the Borrower has received from solicitors or licensed conveyancers
a report or certificate on title to the Property and such investigations,
report or certificate disclosed nothing which would cause a prudent
mortgagee to decline to proceed with the initial advance on the proposed
terms.
(p) Prior to making any advance under each Mortgage Loan, a valuation of
the relevant Property was undertaken on the Borrower's behalf by an
independent qualified valuer approved by the Borrower.
(q) Since the creation of each Mortgage Loan accounts, books and records
showing all transactions, payments, receipts, proceedings and notices
relating to arrears or arrangements relating to that Mortgage Loan have been
kept and all such accounts, books and records are up to date and in the
possession of the Borrower or held to its order.
<PAGE> 21
(r) In relation to any leasehold property, in any case where the Borrower
has received written notice from the relevant landlord that is it taking
steps to forfeit the relevant lease, the Borrower has taken such action as
would be taken by a reasonably prudent lender to protect the relevant
Collateral Security and Mortgage Loan.
(s) All the deeds and documents relating to the Properties, Mortgage Loans
and Collateral Security (including all correspondence files and microfiches)
are held by or to the order of the Lender and all such deeds or documents
which ought to be lodged by a prudent mortgagee have been so lodged by, or
on behalf of, the Borrower at the appropriate registry.
(t) The Borrower has not excluded, restricted or waived or agreed to waive
any of its rights against any valuer, solicitor, licensed conveyancer or
other professional who has provided information, carried out work or given
advice in connection with any Mortgage Loan or Collateral Security.
(u) No Mortgagor has made any claim against the Borrower in respect of a
Mortgage Loan or by way of set off against any liabilities in respect of a
Mortgage Loan and no Mortgagor is entitled to set off such claim against any
loan or other sums due from the Mortgagor to the Borrower.
(v) The Borrower has not waived any breach of any of its rights in
relation to a Mortgage Loan which would decrease the value of the Mortgage
Loan and there are no outstanding claims by the Borrower in respect of any
material breaches of any Mortgage Loan.
(w) The Borrower has not received written notice of any material
litigation or claim in relation to any Mortgage Loan or Collateral Security
or its ability to enforce the same.
(x) No fraud or misrepresentation has been perpetrated by any person who
acted for the Borrower in relation to a Mortgage Loan or any Policy which
would or could result in any monies owed by any Mortgagor not being repaid
under the terms of the relevant Mortgage Loan.
(y) Where a Mortgage Loan is (with the prior written consent of the
Lender) not secured by a first legal mortgage, the Borrower has the benefit
of a binding deed of priority in a form previously approved by the Lender.
<PAGE> 22
15.15 Times for making representations and warranties
The representations and warranties set out in this Clause 15:
(a) are made on the date of this Agreement; and
(b) in respect of those set out in Clause 15.1-15.13, are deemed to be
repeated by the Borrower on the date of:
(i) each Request;
(ii) each Interest Payment Date;
(iii) each Drawdown Date of any Advance,
with reference to the facts and circumstances then existing.
(c) in respect of those set out in Clause 15.14 are deemed to be
repeated on each day on which any amount is outstanding hereunder.
15.16 Breach of Representations relating to Mortgage Loans
Upon the Borrower becoming aware that any of the representations and
warranties contained in Clause 15.14 are incorrect or misleading when made
or deemed to be repeated it shall notify the Lender and the Borrower shall
at its discretion either:
(i) substitute the affected Mortgage Loan with a new Mortgage Loan in
the Mortgage Pool and charge such new Mortgage Loan in favour of the Lender
pursuant to Clause 4 of the Deed of Charge as security for the Secured
Obligations) (as defined therein); or
(ii) prepay in accordance with Clause 7.4 (Prepayment to cure Breach of
Undertaking) such part of the Loan as is necessary to ensure that the Loan
falls below the Collateral Threshold.
16. UNDERTAKINGS
16.1 Duration
The undertakings in this Clause 16 remain in force from the date of this
Agreement for so long as any amount is or may be outstanding under this
Agreement or the Commitment is in force.
16.2 Financial Information
The Borrower shall supply to the Lender its audited accounts for that
financial year as soon as the same are available (and in any event within
100 days of the end of each of its financial years).
16.3 Information - Miscellaneous
(a) The Borrower shall supply to the Lender all documents despatched by it
to:
(i) its shareholders generally (or any class of them) (other than
internal subsidiary/parent communications); or
(ii) its creditors generally (or any class of them),
in each case, at the same time as they are despatched;
<PAGE> 23
(b) The Borrower shall supply to the Lender promptly upon becoming aware
of them, details of any litigation, arbitration or administrative
proceedings which are current, threatened or pending, and which if adversely
determined, would be reasonably likely to have a material adverse effect on
the financial condition of the Borrower or on the ability of the Borrower to
perform its obligations under the Finance Documents;
(c) The Borrower shall supply to the Lender the up-to-date Electronic
Collateral Information every month after the date hereof;
(d) The Borrower shall supply to the Lender promptly, such further
information in its possession or control regarding its financial condition
and operations as the Lender may reasonably request.
16.4 Notification of Default
The Borrower shall notify the Lender of any Default of which it is aware
(and the steps, if any, being taken to remedy it) promptly upon its
occurrence.
16.5 Compliance certificates
The Borrower shall supply to the Lender:
(i) at the same time as each set of accounts specified in Clause 16.2
(Financial Information) is delivered to the Lender; and
(ii) promptly at any other time (but not more often than quarterly), if
the Lender so requests,
a certificate signed (without personal liability) by two authorised officers
on its behalf certifying that no Default is outstanding or, if a Default is
outstanding, specifying the Default and the steps, if any, being taken to
remedy it.
16.6 Authorisations
The Borrower shall promptly:
(a) obtain, maintain and comply with the terms of; and
(b) supply certified copies to the Lender of,
any authorisation required under any law or regulation to enable it to
perform its obligations under, or for the validity or enforceability of, any
Finance Document.
16.7 Negative pledge
(a) The Borrower shall not create or permit to subsist any Security
Interest on any of Security Assets (as defined in the Deed of Charge) other
than such as may be effected by the Deed of Charge.
(b) If the Borrower creates or permits to subsist any Security Interest on
any Security Assets (as defined in the Deed of Charge) contrary to paragraph
(a) above, all the obligations of the Borrower under this Agreement shall
automatically and immediately be secured upon the same assets, ranking at
least pari passu with the other obligations secured on those assets.
<PAGE> 24
16.8 Borrower's Business
The Borrower shall not carry on any business other than the origination,
funding, management, brokerage, purchase, sale, servicing, realisation and
securitisation of mortgage loans and all activities incidental thereto and
required to perform its obligations, or as otherwise permitted, under the
Finance Documents.
16.9 Mergers and acquisitions
The Borrower shall not enter into any amalgamation, demerger, merger or
reconstruction unless the same is entered into with another subsidiary or
affiliate of the Guarantor and the Borrower remains the surviving entity or
otherwise without the prior written consent of the Lender (not to be
unreasonably withheld).
16.10 Shares and Dividends
The Borrower shall not, following any Default, declare or pay any
dividend or make any other distribution in respect of any of its shares.
16.11 Delinquent and Non-Qualifying Mortgage Loans
(a) The Borrower shall ensure that at any one time the Delinquent Loan
Percentage does not exceed 1.0 per cent.
(b) If the Lender ascertains that at any time the Delinquent Loan
Percentage exceeds 1.0 per cent. then the Borrower shall within 2 Business
Days and to the Lender's satisfaction either:
(i) substitute the relevant Delinquent Loans with new Mortgage Loans in
the Mortgage Pool so as to ensure that the Delinquent Loan Percentage is
reduced to a percentage figure which is below 1.0 per cent. (and charge such
new or additional Mortgage Loans in favour of the Lender pursuant to Clause
4 of the Deed of Charge as security for the Secured Obligations (as defined
therein)); or
(ii) prepay, in accordance with Clause 7.4 (Prepayment to cure Breach
of Undertaking) such part of the Loan as is necessary to ensure that the
Delinquent Loan Percentage reduces to a percentage figure which is below 1.0
per cent.,
Provided that if the Borrower chooses to substitute new Mortgage Loans under
paragraph (i) above, the Borrower shall procure that, the Electronic
Collateral Information and a Trust Receipt (including with respect to
Exceptions) in form satisfactory to the Lender relating to the new Mortgage
Loans are provided to the Lender at least one Business Day prior to such
Mortgage Loans becoming part of the Mortgage Pool.
(c) If any Mortgage Loan becomes a Non-Qualifying Loan then the Borrower
shall within 2 Business Days and to the Lender's satisfaction either:
(i) substitute such Non-Qualifying Loan with a new Mortgage Loan or
Mortgage Loans in the Mortgage Pool (and charge such new Mortgage Loan(s) in
favour of the Lender pursuant to Clause 4 of the Deed of Charge as security
for the Secured Obligations (as defined therein); or
<PAGE> 25
(ii) prepay the whole or part of the Loan such that the Loan falls
below the Collateral Threshold in accordance with Clause 7.4 (Prepayment to
cure Breach of Undertaking),
Provided that if the Borrower chooses to substitute a new Mortgage Loan or
Mortgage Loans under paragraph (i) above, the Borrower shall procure that
the Electronic Collateral Information and a Trust Receipt (including with
respect to Exceptions) in form satisfactory to the Lender relating to any
new Mortgage Loan are provided to the Lender at least one Business Day prior
to such Mortgage Loan becoming part of the Mortgage Pool.
(d) The Borrower shall within 1 Business Day notify the Lender if:
(i) any Mortgage Loan becomes a Non-Qualifying Loan; or
(ii) the Delinquent Loan Percentage exceeds 1.0 per cent.
16.12 Collateral Deficiency
(a) The Lender shall notify the Borrower of any Collateral Deficiency
Event.
(b) If a Collateral Deficiency Event occurs the Borrower shall within
2 Business Days of such notification:
(i) specify additional Mortgage Loans to be added to the Mortgage Pool
so as to ensure that the Loan falls below the Collateral Threshold (and
charge such additional Mortgage Loans in favour of the Lender pursuant to
Clause 4 of the Deed of Charge as security for the Secured Obligations (as
defined therein)); or
(ii) prepay the whole or part of the Loan such that the Loan falls
below the Collateral Threshold,
provided that if the Borrower chooses to add additional Mortgage Loans to
the Mortgage Pool under paragraph (i) above, the Borrower shall procure that
the Electronic Collateral Information and a Trust Receipt (including with
respect to Exceptions) in form satisfactory to the Lender relating to the
additional Mortgage Loans are provided to the Lender at least one Business
Day prior to such Mortgage Loan becoming part of the Mortgage Pool.
16.13 Substitute/Additional Mortgage Loans
The Borrower shall ensure that any Mortgage Loan(s) which is/are substituted
or added into the Mortgage Pool pursuant to any clause of this Agreement
shall, as applicable, be either solely or in aggregate in an outstanding
principal amount at least equal to that of the affected Mortgage Loan for
which it is being substituted or if less at least equal to the amount
required to ensure that a Collateral Deficiency Event does not occur, shall
comply with the Origination Criteria and all representations and warranties
made in relation thereto in Clause 15.14 shall be correct as at the date of
substitution or addition, and shall bear interest at a rate not less than
the interest rate applicable to the Mortgage Loan for which it is being
substituted.
<PAGE> 26
16.14 Covenants in relation to the Mortgage Loans
The Borrower shall:
(a) maintain its registration under the Data Protection Act 1984;
(b) ensure that the Borrower is stated to be acting as principal and
not agent, and as mortgagee, in respect of each Mortgage Loan on all
documentation relating thereto, and shall ensure that no reference to the
Lender or any subsidiary or holding company of the Lender is made in such
documentation and correspondence;
(c) permit the Lender and its representatives upon prior reasonable
notice, during normal business hours, full access to all records, accounts
and other information relating to the Borrower and its business;
(d) (i) comply with its obligations under the Custodial Agreement and
the Management Agreement; and
(ii) use its best endeavours to ensure that the Manager complies
with its obligations under the Management Agreement (provided that if the
Manager is not the Guarantor or an affiliate or subsidiary thereof this
obligation shall be an obligation to use reasonable endeavours to ensure
compliance) and in particular that the Borrower shall exercise all of its
discretion thereunder in a manner that is not prejudicial to the Lender and
shall not act, or omit to act, in any way that might give to any person
appointed pursuant to the Management Agreement valid grounds to terminate
such agreement and shall notify the Lender of any breach of or default under
such document;
(e) report to the Lender at the Lender's request promptly regarding the
performance of the Manager under the Management Agreement;
(f) keep, or cause to be kept, up-to-date, full and proper accounts,
books and records showing clearly all transactions, payments, receipts and
proceedings relating to the Mortgage Loans and the Collateral Security which
are in the possession of or held to the order of the Borrower;
(g) not sell, transfer or otherwise dispose of any Mortgage Loan or
Collateral Security therefor except as a Portfolio Sale or as part of a
Securitisation and then, in either case, ensure that:
(i) the sale is conducted on arm's length terms;
(ii) the proceeds of such Portfolio Sale or Securitisation are
applied in prepayment of that part of the Loan attributable to the amount of
Mortgage Loans the subject of such Portfolio Sale or Securitisation in
accordance with Clause 7.2 and/or 7.3 hereof together with all interest
accrued and all other amounts owing hereunder;
<PAGE> 27
(h) (i) not agree to any amendment to or variation in the terms of,
or the extent or nature of the Finance Documents, or the Origination
Criteria, which is reasonably likely to be materially prejudicial to the
interests of Lender and provide the Lender with copies of any material
change to the Origination Criteria within 7 Business Days of such change
being made; or
(ii) not terminate nor agree to the termination of the Management
Agreement unless a successor or replacement approved in writing in advance
by the Lender has been appointed (such approval not to be unreasonably
withheld or delayed);
(i) shall ensure that all payments made by each Mortgagor with respect
to any Mortgage Loan are directed to be made to the Collection Account.
17. DEFAULT
17.1 Events of Default
Each of the events set out in Clauses 17.2 (Non-payment) to 17.18 (Failure
by Manager) inclusive is an Event of Default (whether or not caused by any
reason whatsoever outside the control of any Obligor or any other person).
17.2 Non-payment
The Borrower does not pay within 1 Business Day of the due date any amount
payable by it under the Finance Documents at the place at and in the
currency in which it is expressed to be payable.
17.3 Serious breach
Any Obligor does not comply with:
(a) Any of the provisions of Clauses 16.7 to 16.13, 16.14(a),
16.14(d)(ii) or 16.14(g)(i); or
(b) Any of the provisions of Clauses 16.14(c), (e) or (f) within ten
Business Days of notice from the Lender requiring the same to be complied
with; or
(c) Clause 16.14(g)(ii) within two Business Days of notice from the
Lender requiring the same to be complied with.
17.4 Breach of other obligations
Any Obligor does not comply with any provision of the Finance Documents
(other than those referred to in Clause 17.2 (Non-payment) and 17.3 (Serious
breach) and the other provisions of this Clause 17) within 30 days of notice
from the Lender requiring the same to be complied with.
<PAGE> 28
17.5 Misrepresentation
Any representation or warranty contained in this Agreement (other than under
Clause 15.14) made or repeated in or in connection with any Finance Document
or in any document delivered by or on behalf of an Obligor under or in
connection with any Finance Document is incorrect in any material respect
when made or deemed to be made or repeated.
17.6 Cross-default
(a) (i) Any Financial Indebtedness of the Borrower is not paid when due;
or
(ii) any Financial Indebtedness of the Guarantor of an amount or
amounts (or its equivalent in any other currency) in aggregate is not paid
when due; or
(iii) any event of default howsoever described occurs under any
document relating to Financial Indebtedness of the Borrower; or
(iv) any event of default howsoever described occurs under any
document relating to Financial Indebtedness of the Guarantor; or
(v) any Financial Indebtedness of the Guarantor becomes prematurely
due and payable or is placed on demand as a result of an event of default
(however described) under the document relating to that Financial
Indebtedness and
(b) the aggregate amount of Financial Indebtedness the subject of any of
paragraphs (i)-(v) above is in excess of 250,000 UKP (or its equivalent in
any other currency) in the case of the Borrower or $750,000 (or its
equivalent in any other currency) in the case of the Guarantor; and
(c) the Borrower or the Guarantor, as the case may be, fails to remedy or
cure such non payment or default within any applicable grace period.
17.7 Insolvency of the Borrower
(a) The Borrower is, or is deemed for the purposes of any law to be unable
to pay its debts as they fall due or to be insolvent, or admits inability to
pay its debts as they fall due; or
(b) The Borrower suspends making payments on all or any class of its debts
or announces an intention to do so, or a moratorium is declared in respect
of any of its indebtedness; or
(c) The Borrower, by reason of its likely inability to meet existing debt
obligations, begins negotiations with one or more of its creditors with a
view to the readjustment or rescheduling of any of its indebtedness.
17.8 Insolvency proceedings of the Borrower
(a) Any step (including petition, proposal or convening a meeting) is
taken by the Borrower with a view to a composition, assignment or
arrangement with its creditors; or
(b) a meeting of the board of directors or shareholders of the Borrower is
convened for the purpose of considering any resolution for (or to petition
for) its winding-up or for its administration or any such resolution is
passed; or
(c) any person presents a petition for the administration of the Borrower;
or
<PAGE> 29
(d) any person presents a petition for the winding-up of the Borrower,
other than a petition which the Lender (acting reasonably) considers to be
frivolous or vexatious and such petition is not discharged or set aside
within 14 days; or
(e) an order for the winding-up or administration of the Borrower is made.
17.9 Appointment of receivers and managers
(a) Any liquidator, trustee in bankruptcy, judicial custodian, compulsory
manager, receiver, administrative receiver, administrator or the like is
appointed in respect of the Borrower or any part of its assets; or
(b) the directors of the Borrower request the appointment of a liquidator,
trustee in bankruptcy, judicial custodian, compulsory manager, receiver,
administrative receiver, administrator or the like; or
(c) any other steps are taken to enforce any Security Interest over any
part of the assets of the Borrower or a significant part (in the context of
the Guarantor and its Subsidiaries) of the Guarantor's assets.
17.10 Creditors' process
Any attachment, sequestration, distress, diligence, inhibition,
adjudication, arrestment or execution affects any asset of an Obligor and is
not discharged within 14 days.
17.11 Insolvency of Guarantor
The filing by or against the Guarantor or any US subsidiary of the Guarantor
of a petition for liquidation, reorganisation, arrangement or adjudication
as a bankrupt or similar relief under the bankruptcy, insolvency, or similar
laws of the United States or any state or territory thereof or of any
foreign jurisdiction; the failure of the Guarantor or such subsidiary to
secure dismissal of any such petition filed against it within forty-five
(45) days of such filing; the making of any general assignment by the
Guarantor or any US subsidiary for the benefit of creditors; the appointment
of a receiver or trustee for the Guarantor or any US subsidiary, or for any
part of the Guarantor, or such subsidiary's assets; the institution by the
Guarantor or any such subsidiary of any other type of insolvency proceeding
(under the U.S. Bankruptcy Code or otherwise) or of any formal or informal
proceeding, for the dissolution or liquidation of, settlement of claims
against, or winding up of the affairs of, the Guarantor or any US
subsidiary; the institution of any such proceeding against the Guarantor or
any US subsidiary if the Guarantor or such subsidiary shall fail to secure
dismissal thereof within forty-five (45) days thereafter; the consent by the
Guarantor or any such subsidiary to any type of insolvency proceeding
against the Guarantor or such subsidiary (under the U.S. Bankruptcy Code or
otherwise); the occurrence of any event or existence of any condition which
could be the ground, basis or cause for any proceeding or petition described
in this Clause 17.11 (Insolvency of Guarantor);
17.12 Cessation of business
An Obligor ceases to carry on all or a substantial part of its business.
<PAGE> 30
17.13 Unlawfulness
It is or becomes unlawful for an Obligor to perform any of its obligations
under the Finance Documents.
17.14 The Security
The Deed of Charge is not, or is alleged by the Borrower in the course of
litigation or legal correspondence, not to be binding on or enforceable
against the Borrower or effective to create the security intended to be
created by it.
17.15 Guarantee
The Guarantee is not or is alleged by the Guarantor in the course of
litigation or legal correspondence not to be binding on or enforceable
against the Guarantor or in full force and effect.
17.16 Ownership of the Borrower
The entire issued share capital of the Borrower ceases to be directly or
indirectly wholly-owned by the Guarantor.
17.17 Material adverse change
Any materially adverse change occurs in the business, operations, financial
condition or properties of the Guarantor or of the Borrower as reasonably
determined by the Lender in its discretion but acting in good faith or the
existence of any other condition which, in the Lender's determination,
constitutes an impairment of the Guarantor's or the Borrower's ability to
perform their obligations under the Finance Documents.
17.18 Failure by Manager
The Manager fails to service the Mortgage Loans in substantial compliance
with the servicing requirements set forth in the Management Agreement,
subject to the applicable grace periods contained therein, or breaches any
term of the Acknowledgement and fails to remedy the same within 15 days of
the giving of notice by the Lender of such breach.
17.19 Acceleration
On and at any time after the occurrence of an Event of Default the Lender
may by notice to the Borrower:
(a) cancel the Commitment; and/or
(b) demand that all or part of the Loan, together with accrued interest
and all other amounts accrued under this Agreement be immediately due and
payable, whereupon they shall become immediately due and payable.
<PAGE> 31
18. FEES
18.1 Collateral Removal Fee
The Borrower shall pay the Lender a fee of 0.25% of the principal amount of
any Mortgage Loans removed from the Mortgage Pool for any reason except:.
(a) by reason of a Securitisation if it is lead managed by the Lender
or any of its affiliates;
(b) by reason of the Mortgage Loan becoming a Delinquent Mortgage Loan
or a Non-Qualifying Mortgage Loan;
(c) by reason of a breach of representation occurring with respect to
such Mortgage Loan; or
(d) by reason of the redemption of such Mortgage Loan.
18.2 Securitisation fee
The Borrower shall pay or procure the payment on demand to the Lender upon
the closing of each Securitisation which is lead managed by the Lender or
any of its affiliates a securitisation fee in an amount, in the case of the
first securitisation, equal to the greater of one per cent. (1%) of the
principal amount of the securities issued by the securitisation vehicle in
the Securitisation and US$250,000 and in case of subsequent Securitisations
in an amount to be agreed between the Borrower and the Lender.
18.3 VAT
Any fee or other payment due under this Agreement is exclusive of any value
added tax or any other tax which might be chargeable in connection with it.
If any value added tax or other tax is so chargeable, it shall be paid by
the Borrower at the same time as it makes the relevant payment.
19. EXPENSES
19.1 Initial and special costs
The Borrower shall forthwith on demand pay the Lender the amount of all out
of pocket costs and expenses (including legal fees) reasonably incurred by
it in connection with:
(a) the negotiation, preparation and execution of:
(i) this Agreement and any other initial Finance Documents Provided
that the Borrower shall be responsible only for one half of the legal fees
of Allen & Overy, English counsel to the Lender and Cadwalader Wickersham &
Taft, US counsel to the Lender in connection with such documents up to
signing and closing thereof; and
(ii) any other Finance Document (other than this Agreement and the
other initial Finance Documents) executed after the date of this Agreement;
<PAGE> 32
(b) any amendment, waiver, consent or suspension of rights (or any
proposal for any of the foregoing) requested by or on behalf of an Obligor
and relating to a Finance Document or a document referred to in any Finance
Document;
(c) any other matter, not of an ordinary administrative nature, arising
out of or in connection with a Finance Document; and
(d) investigating any possible Default.
19.2 Enforcement costs
The Borrower shall forthwith on demand pay to the Lender the amount of all
costs and expenses (including legal fees) reasonably incurred by it in
connection with the enforcement of, or the preservation of any rights under,
any Finance Document.
20. STAMP DUTIES
The Borrower shall pay and forthwith on demand indemnify the Lender against
any liability it incurs in respect of, any stamp, registration and similar
tax which is or becomes payable in connection with the entry into,
performance or enforcement of any Finance Document.
21. INDEMNITIES
21.1 The Borrower shall forthwith on demand indemnify the Lender against
any loss, liability claim, damages, costs and expenses (including legal
fees) not recovered by the Lender under Clause 19 (Expenses) which the
Lender incurs as a consequence of:
(a) the occurrence of any Event of Default;
(b) the operation of Clause 17.19 (Acceleration);
(c) any amount repaid or prepaid under Clause 7 (Prepayment) Provided
that such costs and expenses are reasonable;
(d) an Advance not being made after the Borrower has delivered the
relevant Request or the Loan or part thereof not being prepaid in accordance
with a notice of prepayment.
The Borrower's liability in each case includes any loss or expense on
account of funds borrowed, contracted for or utilised to fund any amount
payable under any Finance Document, any amount repaid, prepaid or cancelled
for whatever reason.
21.2 The Lender shall on request by the Borrower provide the Borrower with
reasonable details of the calculation of any claim for indemnity made
pursuant to Clause 21.1 together, where available, with supporting invoices.
<PAGE> 33
21.3 Currency Indemnity
If any sum due from the Borrower hereunder or under any order or judgment
given or made in relation hereto has to be converted from the currency (the
"FIRST CURRENCY") in which the same is payable hereunder or under such order
or judgment into another currency (the "SECOND CURRENCY") for the purpose of
(a) making or filing a claim or proof against the Borrower, (b) obtaining an
order or judgment in any court or other tribunal or (c) enforcing any order
or judgment given or made in relation hereto, the Borrower shall indemnify
and hold harmless the Lender from and against any loss suffered as a result
of any difference between (x) the rate of exchange used for such purpose to
convert the sum in question from the first currency into the second currency
and (y) the rate of exchange at which the Lender may in the ordinary course
of business purchase the first currency with the second currency upon
receipt of a sum paid to it in satisfaction in whole or in part, of any such
order, judgment, claim or proof. Any amount due from the Borrower under
this Clause shall be due as a separate debt and shall not be affected by
judgment being obtained for any other sums due hereunder but the Lender
shall have all rights in relation to it, as if it formed part of the Loan.
The term "RATE OF EXCHANGE" includes any premium or costs of exchange in
connection with the purchase of the first currency with the second currency.
22. EVIDENCE AND CALCULATIONS
22.1 Accounts
Accounts maintained by the Lender in connection with this Agreement are
prima facie evidence of the matters to which they relate.
22.2 Certificates and determinations
Any certification or determination by the Lender of a rate or amount under
this Agreement is, in the absence of manifest error, conclusive evidence of
the matters to which it relates.
22.3 Calculations
Interest accrue from day to day and are calculated on the basis of the
actual number of days elapsed and a year of 365 days.
23. AMENDMENTS AND WAIVERS
23.1 Procedure
Any term of the Finance Documents may be amended or waived with the
agreement of the Borrower and the Lender.
23.2 Waivers and Remedies Cumulative
The rights of the Lender under the Finance Documents:
(a) may be exercised as often as necessary;
(b) are cumulative and not exclusive of its rights under the general
law; and
(c) may be waived only in writing and specifically.
Delay in exercising or non-exercise of any such right is not a waiver of
that right.
<PAGE> 34
24. CHANGES TO THE PARTIES
24.1 Transfers by the Borrower
The Borrower may not assign, transfer, novate or dispose of any of, or any
interest in, its rights and/or obligations under the Finance Documents to
which it is a party.
24.2 Transfers by the Lender
The Lender may only assign, transfer or novate any of, or any interest in,
its rights and/or obligations under the Finance Documents to another
financial institution if (i) the prior written consent of the Borrower
shall have been previously obtained and (ii) no such assignment, transfer or
novation shall be made the direct effect of which is to increase the
Borrower's liability beyond the level to which it would have been subject
had such assignment, transfer or novation not occurred Provided that nothing
shall prevent the Lender from sub-participating its rights under the Finance
Documents to a third party at any time.
25. DISCLOSURE OF INFORMATION
The Lender may disclose to any person with whom it is proposing to enter, or
has entered into, any kind of transfer, participation or other agreement in
relation to the Finance Documents:
(a) a copy of any Finance Document; and
(b) any information supplied by an Obligor which the Lender has
acquired under or in connection with any Finance Document.
26. SET-OFF
The Lender may set off any matured obligation owed by the Borrower under any
Finance Document against any obligation (whether or not matured) owed by the
Lender to the Borrower, regardless of the place of payment, booking branch
or currency of either obligation. If the obligations are in different
currencies, the Lender may convert either obligation at a market rate of
exchange in its usual course of business for the purpose of the set-off. If
either obligation is unliquidated or unascertained, the Lender may set off
in an amount estimated by it in good faith to be the amount of that
obligation.
27. SEVERABILITY
If a provision of any Finance Document is or becomes illegal, invalid or
unenforceable in any jurisdiction, that shall not affect:-
(a) the validity or enforceability in that jurisdiction of any other
provision of the Finance Documents; or
(b) the validity or enforceability in other jurisdictions of that or
any other provision of the Finance Documents.
<PAGE> 35
28. COUNTERPARTS
Each Finance Document may be executed in any number of counterparts, and
this has the same effect as if the signatures or other form of execution on
the counterparts were on a single copy of that Finance Document.
29. NOTICES
29.1 Giving of notices
All notices or other communications under or in connection with the Finance
Documents shall be given in writing or by facsimile. Any such notice will
be deemed to be given as follows:
(a) if in writing and sent by hand, when delivered;
(b) if in writing and sent by post, 48 hours after posting; and
(c) if by facsimile, when received.
However, a notice given in accordance with the above but received on a non-
working day or after business hours in the place of receipt will only be
deemed to be given on the next Business Day in that place.
29.2 Addresses for notices
(a) The address and facsimile number of the Lender are:
If to the Lender:
Prudential Securities Credit Corporation
One New York Plaza, 12th Floor
ABS Subsidiary Operations
New York, New York 10292-2012
Attention: Dan Lynch
Telecopy: (212) 778 7533
With copies to:
Prudential Securities Credit Corporation
One New York Plaza, 17th Floor
New York, New York 10292-2015
Attention: Paul Richardson
Telecopy: (212) 778 7401
<PAGE> 36
and
Prudential Securities Credit Corporation
Treasury
One Seaport Plaza, 27th Floor
New York, New York 10292-1027
Attention: Robert Troiano
Telecopy: (212) 214 7535
or such other as the Lender may notify to the Borrower by not less than 5
Business Days' notice.
(b) The address and facsimile number of the Borrower are:
First Alliance Mortgage Company Limited
c/o Mark Mason
First Alliance Mortgage Corporation
17305 Von Karman Avenue
Irvine
California 92714-6203
USA
Fax No: (714) 224 8366
or such other as the Borrower may notify to the Lender by not less than 5
Business Days' notice.
30. LANGUAGE
(a) Any notice given under or in connection with any Finance Document
shall be in English.
(b) All other documents provided under or in connection with any Finance
Document shall be:
(i) in English; or
(ii) if not in English, accompanied by a certified English translation
and, in this case, the English translation shall prevail unless the document
is a statutory or other official document.
31. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with English
law.
32. SUBSTITUTE MANAGER
The Borrower agrees that, in the event that the Lender has made a
declaration under Clause 17.19 (Acceleration), the Lender shall be entitled
to terminate the appointment of the Manager under the Management Agreement
and the Borrower shall procure that the Lender has the benefit of direct
rights against the Manager to effect such termination.
This Agreement has been entered into on the date stated at the beginning of
this Agreement.
<PAGE> 37
SCHEDULE 1
CONDITIONS PRECEDENT DOCUMENTS
All copies which are expressed to be certified copies shall be certified to
be true copies by a duly authorised officer of the company to which that
document relates or by S.J. Berwin & Co.
Authorisations
1. A certified copy of the memorandum and articles of association or by-
laws and certificate of incorporation (or equivalent) of each Obligor.
2. A certified copy of a resolution of the board of directors of each
Obligor:
(i) approving the terms of and the transactions contemplated by the
Finance Documents and resolving that it executes the Finance Documents to be
executed by it; and
(ii) authorising a specified person or persons to execute the Finance
Documents to be executed by it on its behalf (where necessary, by execution
as a deed); and
(iii) authorising a specified person or persons, on its behalf, to sign
and/or dispatch all documents and notices to be signed and/or dispatched by
it under or in connection with the Finance Documents.
3. A certificate showing a specimen of the signatures of each person
authorised by the resolutions referred to in (2) above.
4. A certified copy on behalf of each Obligor, of each such law, decree,
consent, licence approval, registration or declaration as is, in the opinion
of counsel to the Lender, necessary to render any Finance Document legal,
valid, binding and enforceable, to make any Finance Document admissible in
evidence and to enable each Obligor to perform their obligations thereunder.
Financial Information
5. The latest audited consolidated accounts of the Guarantor and its
Subsidiaries.
Miscellaneous
6. The executed Guarantee.
7. A certified copy of all bank mandates relating to the Collection
Account each in a form agreed between the Borrower and the Lender.
8. The executed Deed of Charge.
9. A copy of the Borrower's registrations under the Data Protection Act
1984 and the Consumer Credit Act 1974.
10. A legal opinion from the Borrower's English legal counsel.
<PAGE> 38
11. A legal opinion from the Guarantor's US legal counsel.
12. Certified copies of the Mortgage Documentation.
13. A form 395 in respect of the Deed of Charge.
14. The form of Origination Criteria in form and substance to be agreed by
the Lender and the Borrower.
15. Copy of the signed Management Agreement and Acknowledgement in form
previously approved by the Lender.
16. Copy of the signed Custodial Agreement.
<PAGE> 39
SCHEDULE 2
FORM OF REQUEST
To: PRUDENTIAL SECURITIES CREDIT CORPORATION
From: FIRST ALLIANCE MORTGAGE COMPANY LIMITED
Date: [ ], 1997
FIRST ALLIANCE MORTGAGE COMPANY LIMITED 25,000,000 UKP
Facility Agreement dated [ ], 1997
1. We wish to borrow an Advance in a total amount of [ ]UKB
as follows:-
(a) Drawdown Date: [ ], 1997; and
(b) Payment Instructions:
2. We confirm that each condition specified in Clause 4.2 (Further
conditions precedent) is satisfied on the date of this Request.
3. Please wire the proceeds of such Advance to [details of account etc.]
By:
FIRST ALLIANCE MORTGAGE COMPANY LIMITED
Authorised Signatory
<PAGE> 40
SCHEDULE 3
ORIGINATION CRITERIA
<PAGE> 41
SCHEDULE 4
ELECTRONIC COLLATERAL INFORMATION
<PAGE> 42
SIGNATORIES
The Borrower
FIRST ALLIANCE MORTGAGE COMPANY LIMITED
BY:
The Lender
PRUDENTIAL SECURITIES CREDIT CORPORATION
By:
<PAGE> 43
DATED August, 1997
FIRST ALLIANCE MORTGAGE COMPANY LIMITED
(as borrower)
- and -
PRUDENTIAL SECURITIES CREDIT CORPORATION
(as lender)
guaranteed by
FIRST ALLIANCE MORTGAGE COMPANY
__________________________________________
25,000,000 UKP CREDIT FACILITY AGREEMENT
__________________________________________
ALLEN & OVERY
London
<PAGE>
CONTENTS
Clause Page No.
1. Interpretation..................................................1
2. The Facility....................................................6
3. Purpose.........................................................7
4. Conditions Precedent............................................7
5. Drawdown........................................................8
6. Repayment.......................................................8
7. Prepayment......................................................8
8. Interest Payment................................................10
9. Interest Rate...................................................10
10. Market Disruption...............................................11
11. Payments........................................................11
12. Taxes...........................................................13
13. Increased Costs.................................................14
14. Unlawfulness....................................................16
15. Representations And Warranties..................................16
16. Undertakings....................................................22
17. Default.........................................................27
18. Fees............................................................31
19. Expenses........................................................31
20. Stamp Duties....................................................32
21. Indemnities.....................................................32
22. Evidence And Calculations.......................................33
23. Amendments And Waivers..........................................33
24. Changes To The Parties..........................................34
25. Disclosure Of Information.......................................34
26. Set-Off.........................................................34
27. Severability....................................................34
28. Counterparts....................................................35
29. Notices.........................................................35
30. Language........................................................36
31. Governing Law...................................................36
32. Substitute Manager..............................................36
Schedules
1. Conditions Precedent Documents..................................37
2. Form of Request.................................................39
3. Mortgage Conditions.............................................40
4. Electronic Collateral Information...............................51
Signatories..........................................................55
<PAGE>
DO NOT TOUCH AS SOLICITOR STILL NEEDS
--------------------------------------
15. DETERMINATIONS; APPLICATION OF PAYMENTS; LEDGERS
15.1 On each Determination Date, the Case Administrator shall make the
following determinations in relation on the Collection Period then ending
and shall notify each of the other parties to this Agreement thereof on the
next following Interest Payment Date:
(i) the amount of Revenue Receipts;
(ii) the amount of Principal Receipts;
(iii) the aggregate amount of Prior Ranking Expenses falling due for
payment on the next following Interest Payment Date or for which provision
has been made by the Borrower;
(iv) the amount of Insurance Commissions and Completion Fees;
(v) the amount of the fees of the Manager falling due on the next
following Interest Payment Date;
(vi) the amounts standing to the credit or debit of each of the Fees
Ledger, the Principal Deficiency Ledger, the Principal Ledger, the Insurance
Premium Ledger, and the Cheque Provisioning Ledger; and
(vii) amounts to be applied in repayment of the Loan as contemplated in
Clause 12.3.
15.2 Subject to the provisions of the Deed of Charge, on each Interest
Payment Date, the Cash Administrator shall apply Revenue Receipts (as
determined on the Determination Date) in respect of the immediately
preceding Collection Period in the following order or priority (making
payments in respect of items with a lower priority only to the extent items
with a higher priority have been satisfied in full) by payment from the
Collection Account to the relevant recipient and making corresponding debit
entries on the Revenue Ledger (provided that such payments shall be made
only to the extent that the Collection Account does not become overdrawn and
the Revenue Ledger does not fall below zero);
(i) FIRST, to pay to the relevant party entitled thereto (or make
provision for) on a pro rata basis, the Prior Ranking Expenses (whether paid
by the Borrower or by the Corporate Services Provider or the Lender on
behalf of the Borrower) falling due on such Interest Payment Date or prior
to the next Interest Payment Date or which have been paid by the Borrower or
the Corporate Services Provider or the Lender during the period since the
immediately preceding Interest Payment Date;
(ii) SECONDLY, to pay to the persons entitled thereto, an amount equal
to the credit balance on the Insurance Premium Ledger (and upon such
application, the balance of such ledger shall be reduced to zero);
<PAGE>
(iii) THIRDLY, to pay interest on Loans in accordance with Clause 6 and
default or other interest under Clause 19 (such payment to reduce the
Borrower's obligation under each such Clause pro tanto);
(iv) FOURTHLY, to pay to the Lender by way of repayment of the Loan
such amounts as are required to reduce the balance on the Principal
Deficiency Ledger to zero (a corresponding credit entry shall be made to the
Principal Deficiency Ledger);
(v) FIFTHLY, to the Corporate Services Provider in and towards
satisfaction of the servicing fee payable to the Corporate Services Provider
pursuant to the Corporate Services Agreement;
(vi) SIXTHLY, to pay to the Lender all amounts then due and payable
pursuant to Clauses 10.1, 10.2, 19.5, 20.2 or 23 of this Agreement;
(vii) SEVENTHLY, to the Lender to repay the Loan in an amount equal to
the debit balance on the Fees Ledger (a corresponding credit entry shall be
made to the Fees Ledger);
(viii) EIGHTHLY, the balance (if any) of such Revenue Receipts shall be
applied as Principal Receipts on the next following Repayment Date and
pending such payment such amounts shall be credited to the Investment
Account.
15.3 Subject to the provisions of the Deed of Charge, on each Repayment
Date the Cash Administrator shall apply Principal Receipts determined on the
immediately preceding Determination Date to repay the Loan (as actually
reduced by application of Revenue Receipts as contemplated in Clause
12.2(iv) and Clause 12.2 (vi)) by payment from the Collection Account and
making corresponding debit entries on the Principal Ledger (provided that
such payments shall be made only to the extent that the Collection Account
does not become overdrawn and the Principal Ledger does not fall below zero)
and provided further that any repayment of the Loan is in a minimum amount
of o30,000;
<PAGE>
15.4 The Cash Administrator shall open and maintain in its books four
ledgers in respect of the Collection Account, to be known as the Revenue
Ledger, the Principal Ledger, the Cheque Provisioning Ledger and the
Insurance Premium Ledger which shall at any time reflect (i) (in the case of
the Revenue Ledger) the amount of Revenue Receipts, (ii) (in the case of the
Principal Ledger) the amount of Principal Receipts received by the Borrower
in respect of the Mortgage Loans and which have not been applied as provided
for in Clauses 2.2 an/or 12.3, (iii) (in the case of the Cheque Provisioning
Ledger) any amounts paid by way of cheques received by the Borrower from
mortgagors (each a "PROVISIONED AMOUNT") during the last five days of any
Collection Period and (iv) (in the case of the Insurance Premium Ledger) the
amount of Revenue Receipts which are payment by borrowers in respect of
these insurance policies (including, without limitation, the Buildings
Policy) relating to their respective Properties (the "INSURANCE REVENUES").
The Cash Administrator undertakes to credit to the Revenue Ledger all
Revenue Receipts and to debit to the Revenue Ledger all amounts applied in
accordance with Clause 12.2. The Cash Administrator undertakes to credit to
the Principal Ledger all Principal Receipts and to debit to the Principal
Ledger all amounts applied in accordance with Clause 12.3. The Cash
Administrator undertakes to credit to the Cheque Provisioning Ledger each
Provisioned Amount on the date received and once satisfied that it is in
receipt of cleared funds in respect of such Provisioned Amount shall credit
the same to the Revenue Ledger (with a corresponding debit entry to the
Cheque Provisioning Account) and to the extent the same represent Insurance
Revenues, shall also credit the Insurance Premium Ledger but in any event
any such crediting shall take place no earlier than the Interest Payment
Date next following the date on which such Provisioned Amount is credited to
the Cheque Provisioning Ledger For the avoidance of doubt, all amounts
received by the Borrower during any Collection Period by way of Insurance
Commissions or Completion Fees shall be retained by the Borrower for its own
use and not credited to any of the ledgers referred to in this Clause.
15.5 The Cash Administrator shall open and maintain a ledger in the books
of the Borrower to be known as the Principal Deficiency Ledger. Where, in
the case of any Mortgage Loan, after completion of the arrears and
enforcement procedures set out in the Credit and Collection Policy Manual
(to the satisfaction of the Lender) and after all amounts have been received
under the relevant Mortgage Loan and related Collateral Security, an amount
of principal of the relevant Mortgage Loan remains outstanding, the Cash
Administrator shall debit such amount of principal to the Principal
Deficiency Ledger and if any amount is subsequently recovered in respect of
that principal it shall, upon recovery, be credited to the Principal Ledger
(and, if at such time there is a debit balance on the Principal Deficiency
Ledger, such debit balance shall be reduced by an amount equal to the amount
so credited to the Principal Ledger; provided that to the extent that this
would result in there being a credit balance on the Principal Deficiency
Ledger, an amount equal to such credit balance shall be deemed a Revenue
Receipt and credited to Revenue Ledger).
15.6 The Cash Administrator shall open and maintain a ledger in its books
to be known as the Fees Ledger. Upon the making of each Withdrawal, the
Cash Administrator shall cause the amount of [the] any applicable Relevant
Fee to be debited to the Fees Ledger. Upon repayment by the Borrower of any
other Relevant Fee in accordance with the provisions hereof, the Cash
Administrator shall cause the amount of such Relevant Fee to be debited to
the Fees Ledger. The Cash Administrator shall credit such ledger in
accordance with Clause 12.2(vii).
16. REPRESENTATIONS
16.1 [bits added from CC document]
The Borrower represents and warrants that:
(i) without prejudice to paragraph (v), it is registered under the Data
Protection Act 1984 and has obtained all authorisations required thereunder
in respect of its residential mortgage origination business and the
transactions contemplated by the Facility Documents;
(ii) as at the date hereof, it has not engaged in any activities since
its incorporation other than the execution of the Facility Documents, its
prescription, or application for prescription, as a qualifying lender for
the purpose of Part IX of the Income and Corporation Taxes Act 1988 and its
registration under the Data Protection Act 1984 and the Consumer Credit Act
1974;
(iii) (save for submission of the Deed of Charge for registration to
the Registrar of Companies within the 21 day time period specified in
Chapter V of Part XI of the Companies Act 1985) under the laws of England in
force at the date hereof, it is not necessary that any Facility Document be
filed, recorded or enrolled with any court or other authority in England or
that any stamp, registration or similar tax be paid on or in relation to any
Facility Document (it being understood that the Borrower makes such
representation and warranty on the basis that the Lender will not require
registration of the security interest created by the Deed of Charge over the
Mortgage Loans at HM Land Registry);
<PAGE>
(iv) the obligations expressed to be assumed by it in the Facility
Documents are legal and valid obligations binding on it in accordance with
the terms thereof;
(v) the Security Document creates a first fixed charge and first
floating charge over the property stated therein to subject to the fixed and
floating charge created thereby; and
(vi) the Borrower has no employees and no subsidiaries other than any
subsidiary created exclusively for the purpose of a Relevant Securitisation.
(vii) (a) each Monthly Report is true, complete and accurate in all
material respects, (b) all of the written information supplied by it to the
Lender in connection with the Facility documents during the term of the
Facility is true and accurate in all material respects and (c) all factual
information provided to the Lender by the Borrower or any Related Person
prior to the date of this Agreement which is referred to in the Agreed
Information Package is (on the basis of the assumptions, forecasts and
opinions stated therein) true and accurate and no new information has been
obtained by the Borrower which renders any such factual information
incorrect or inaccurate (based on such assumptions, forecasts and opinions);
(viii) as at the date hereof, no encumbrance exists over all or any of
its present or future revenues or assets other than as contemplated by, or
created under or by, the Facility Documents;
(ix) the execution of the Facility Documents and its exercise of its
rights and performance of its obligations thereunder do not and will not:
(a) conflict with any agreement, mortgage, bond or other instrument
or treaty to which it is a party or which is binding upon it or any of its
assets;
(b) conflict with its Memorandum and Articles of Association; or
(c) conflict with any applicable law, regulation or official or
judicial order or authorisation to which the Borrower is subject (including,
without limitation, the MIRAS Scheme); and
(x) each Mortgage Loan and the related Collateral Security within the
Mortgage Pool is legally and beneficially owned by the Borrower;
(xi) each Mortgage Loan is secured by a valid and subsisting first
legal mortgage or, in Scotland, standard security over the Property to which
it relates (subject to completion of any registration requirements at the HM
Land Registry or the Land Registry of Scotland or General Register of
Sasines and (in those cases) there is nothing to prevent that registration
being effected);
<PAGE>
(xii) each Mortgage Loan and its Collateral Security constitutes a
valid and binding obligation of the relevant mortgagor;
(xiii) in relation to each Mortgage Loan, the related Collateral
Security secures all principal, interest, costs, liability and expenses from
time to time due to the Borrower under the relevant Origination Criteria;
(xiv) all things necessary to perfect the vesting of the full title to
each Mortgage Loan and its Collateral Security in the Borrower have been
duly done or relevant solicitors have been instructed to do all such things
in accordance with the Instructions to Solicitors;
(xv) each Mortgage Loan was made, in all material respects, in
accordance with the Origination Criteria at the time of origination and the
procedures set out in Corporate Services Agreement;
(xvi) each Property is a residential property in England, Wales or
Scotland;
(xvii) each advance (including each further advance) comprised in a
Mortgage Loan was made on the terms of the Mortgage Documentation;
(xviii) no Mortgage Loan is, in whole or in part, a regulated agreement
or a consumer credit agreement (as defined in Section 8 of the Consumer
Credit Act 1974) or constitutes any other agreement regulated or partly
regulated by the Consumer Credit Act 1974 (other than Sections 137 to 140 of
such Act);
(xix) each Property is insured under a Buildings Policy either in the
joint names of the mortgagor and the Borrower or with the interest of
Borrower (as mortgagee) endorsed or deemed noted thereon or, in the case of
leasehold property, is covered by a landlord's buildings insurance policy,
with, where possible, the interests of Borrower and the mortgagor endorsed
or deemed noted thereon, in each case with a reputable insurance company
agreed to by the Borrower, against all risks usually covered by a prudent
mortgagee of property when advancing money on the security of property of
the same nature to an amount not less than the full reinstatement value
determined by an Approved Valuer at or around at the time the related
Mortgage Loan was made;
(xx) none of the mortgagors or guarantors (if any) in relation to any
Mortgage Loan is an employee of the Borrower;
(xxi) all the Mortgage Loans in respect of Properties located in
England and Wales are governed by English law and all the Mortgage Loans in
respect of Properties located in Scotland are governed by Scottish law;
<PAGE>
(xxii) in relation to each Mortgage Loan, the relevant Mortgagor had
good and marketable title (or, in the case of Property in Scotland, valid
and marketable title) to the Property forming the security for it together
with all necessary ancillary rights and free from any encumbrance which
would materially adversely affect either the title or the value of the
Property and:
(a) (in the case of Unregistered Land in England and Wales):
(i) it is either a fee simple absolute in possession (if
freehold) or (if leasehold) a term of years absolute; and
(ii) the Mortgagor's title commences with a good root of title
which was more than 15 years old at the date of the Mortgage Loan; and
(iii) the Mortgage Loan was completed within the priority period
conferred by an official search at the Land Charges Department;
(b) in the case of Registered Land:
(i) the Property is registered with title absolute; or
(ii) is in the course of registration with title absolute; and
(iii) an application for registration of the Mortgage has been
delivered to HM Land Registry within the priority period conferred by an
official search against the relevant title at HM Land Registry and, if the
Property is subject to first registration, within two months from the date
of the dealing giving rise to first registration, in accordance with s.123
of the Land Registration Act 1925; and
(iv) HM Land Registry has acknowledged receipt of the
application; and
(v) there is no caution, notice or other entry which would
prevent the registration of the Mortgage Loan as a first legal charge;
(c) in the case of any Property situate in Scotland:
(i) if the Mortgagor's title to the Property and the relevant
Mortgage Loan are registered in the Land Register of Scotland Land and
Charge Certificates in respect of the Mortgagor's title and the Mortgage
Loan respectively and containing no exclusion of indemnity in terms of
Section 12(2) of the Land and Registration (Scotland) Act 1979 are available
and held by the Borrower; and
(ii) the Mortgagor's title is feudal;
<PAGE>
(d) in the case of a leasehold Property (not situated in Scotland):
(i) the lease does not contain any option for early termination;
(ii) the lease cannot be forfeited on the bankruptcy of the
tenant;
(iii) the lease reserves no more than a nominal or ground rent;
(iv) any requisite consent of the landlord to or notice to the
landlord of, the creation of the Collateral Security has been obtained or
given; and
(v) a copy of the consent or notice has been or will be placed with the
title deeds;
(xxiii) the Borrower has not given express written consent to the grant
of a tenancy by a Mortgagor in circumstances where no reasonably prudent
lender at the time such consent was given would give such consent;
(xxiv) since the creation of each Mortgage accounts, books and records
showing all transactions, payments, receipts, proceedings and notices
relating to arrears or arrangements relating to that Mortgage have been kept
and all such accounts, books and records are up to date and in the
possession of the Borrower or held to its order;
(xxv) within a period of time prior to making the initial advance under
each Mortgage Loan which would in each case be a period acceptable to a
reasonable and prudent mortgage lender, the Borrower received from
solicitors or licensed conveyancers a report on title to the relevant
Property and such investigation or report as the case may be, either
initially, or after further investigation, disclosed nothing which would
cause a prudent mortgage lender to decline to proceed with the initial
advance on the proposed terms;
(xvi) prior to making the initial advance (or, where required by the
Origination Criteria, further advance) under each Mortgage Loan, a valuation
of the relevant Property was undertaken on the Borrower's behalf by an
independent qualified valuer approved by the Borrower;
(xxvii) the Borrower has not excluded, restricted or waived or agreed
to waive any of its rights against any valuer, solicitor, licensed
conveyancer or other professional who has provided information, carried out
work or given advice in connection with any Mortgage Loan or Collateral
Security;
(xxviii) in relation to any leasehold Property, in any case where the
Borrower has received written notice from the relevant landlord that it is
or may be taking steps to forfeit the lease of that Property, the Borrower
has taken such steps (if any) and in such time as would be taken by a
reasonably prudent lender to protect its security and Mortgage Loan;
<PAGE>
(xxix) all the title deeds to the Properties, the deeds constituting
the Mortgages, Collateral Security and the correspondence file (such as its
exists) and microfiche relating to each of the Mortgages are held by or to
the order of the Lender or have been lodged by, or on behalf of, the
Borrower at MM Land Registry, Land Register of Scotland or General Register
of Sasines as appropriate;
(xxx) the Borrower has not received written notice of any litigation or
claim calling into question in any material way its title to any Mortgage
Loan or Collateral Security or its ability to fully, effectively and
promptly enforce the same;
(xxxi) the Borrower has not waived or acquiesced in any breach of any
of its rights under or in relation to a Mortgage Loan which would reduce the
value of the Mortgage Loan and there are no outstanding claims by the
Borrower in respect of any material breaches of the terms of any Mortgage
Loan;
(xxxii) no Mortgagor has made any claim against the Borrower in respect
of a Mortgage Loan or by way of set off against any liabilities in respect
of a Mortgage Loan and no Mortgagor is entitled to set off such claim
against any loan or other sums due from the Mortgagor to the Borrower;
(xxxiii) to the best of the Borrower's knowledge information and belief
no fraud misrepresentation or concealment has been perpetrated by:
(a) any person who prepared a valuation of a Property; or
(b) any solicitors or licensed conveyancer who acted for the Borrower
in relation to any Mortgage; or
(c) any insurance broker or Lender in relation to any Insurance
Policy; or
(d) any Mortgagor; or
(e) any other party within the knowledge of the Borrower,
which would result in any monies owed by any of the Mortgagors not being or
being unlikely to be repaid under the terms of any of the Mortgage Loans.
(xxxiv) the Borrower has not adopted the Department of Environment and
HM Treasury Statement of Practice dated November 1989 on the transfer of
mortgages; and
(xxxv) no Mortgage Loan is currently repayable in a currency other than
sterling.
<PAGE>
16.4 Upon the Borrower becoming aware that any of the representations and
warranties contained in Clause 14.3 is incorrect or misleading when made or
deemed to be repeated, it shall disclose the same to the Lender (or upon the
Lender otherwise becoming aware of any such incorrect or misleading
representation or warranty) and, where such defect has a material adverse
effect on the value of the relevant Mortgage Loan, the Borrower shall upon
receipt of a written notice from the Lender requiring it to do so, during
the next succeeding 60 days (the "CURE PERIOD"), use its reasonable
endeavours to remedy (where capable of remedy) the relevant defect such that
the relevant representation and warranty is thereafter correct and not
misleading. If such defect is incapable of remedy (as agreed between the
Lender and the Borrower but in the event of disagreement, as determined by
the Lender) or if, following the expiry of the Cure Period, such defect has
not been remedied to the reasonable satisfaction of the Lender, then the
Parent shall procure that a Related Person (such Related Person being
referred to as the "RELEVANT PURCHASER") shall on the next following
Repayment Date, purchase the relevant Mortgage Loan from the Borrower at an
amount (the "PURCHASE PRICE") equal to the sum of (i) the outstanding
principal balance of such Mortgage Loan (less the amount of any partial
prepayment received but which has not then been credited to reduce the
outstanding principal balance thereof) together with all interest accrued
and accruing thereon and all other amounts outstanding thereunder up to the
date of such purchase, and (ii) an amount equal to the Relevant Fees which
were applicable to such Mortgage Loan when it was originally made and (iii)
the amount of the Origination Fee Reimbursement applicable to such Mortgage
Loan.
16.5 Upon receipt of the Purchase Price, the Borrower and the Lender
shall, to the extent that each has good title, execute and deliver a deed of
assignment and release in favour of the Relevant Purchaser and shall
authorise the release to the Relevant Purchaser of the relevant Title Deeds
and related Collateral Security. If the Lender so agrees, the Relevant
Purchaser may, instead of paying cash to the Borrower, request the Borrower
to accept in consideration of the purchase of the relevant Mortgage Loan the
transfer or assignment of substitute mortgage loans (complying with the
Origination Criteria and the representations and warranties made in Clause
14.3) with an aggregate principal amount at least equal to the consideration
in cash that would have been payable by the Relevant Purchaser to the
Borrower in accordance with Clause 14.4 and with interest rate(s) which are
not less than the interest rate(s) applicable to the Mortgage Loans for
which they are being substituted. Any such substitute mortgage loan, if
accepted and transferred to the Borrower, shall thereafter be treated as a
Mortgage Loan for the purposes of this Agreement and the other Facility
Documents.
17. FINANCIAL INFORMATION
The Borrower and (with respect to (i), (ii) and (iii) below only) the Parent
shall, as soon as the same becomes available but in any event within 10 days
of the end of each Collection Period, deliver to the Lender the Monthly
Report relating to that Collection Period.
18. COVENANTS
18.1 The Borrower shall, and, in respect of paragraph (i), the Borrower,
the Parent and the Cash Administrator shall:
(i) without prejudice to paragraph (i), maintain its prescription as a
qualifying lender for the purposes of Part IX of the Income and Corporation
Taxes Act 1988, and its registration under the Data Protection Act 1984;
<PAGE>
(ii) restrict its activities to (a) its entry into the Facility
Documents, performance of its obligations thereunder and the origination,
from time to time, and ownership of Mortgage Loans (b) the funding and
management of such Mortgage Loans (including, without limitation, making
further advances in respect of Mortgage Loans within the Mortgage Pool in
accordance with this Agreement), (c) the transfer, sale, realisation or
other disposal of Mortgage Loans and their related Collateral Security
within the Mortgage Pool for cash in accordance with the Facility Documents,
(d) the enforcement or realisation of such Mortgage Loans, (e) the
securitising of Mortgage Loans from time to time and (f) subject to the
other terms of the Facility Documents, any matters incidental or conducive
to the matters mentioned in (a) to (e) above and/or contemplated by any of
the Facility Documents;
(iii) ensure that no payments are made out of the Deposit Account, the
Collection Account or the Origination Fee Account other than as permitted or
contemplated by the Facility Documents;
(iv) ensure that, in respect of any Interest Period, (a) the aggregate
amount of all interest payments received by the Borrower during such period
in respect of Mortgage Loans less the amount produced by applying to the
aggregate principal amount of such Mortgage Loans the annual rate of
interest represented by LIBOR for such period is equal to or greater than
(b) two times the amount produced by subtracting (A) from (B) where "(A)"
means the amount of interest due from the Borrower in respect of the
Adjusted Loan for such period, and "(B)" means the amount produced by
applying to the Adjusted Loan for such period (calculated on a daily basis)
the annual rate of interest represented by LIBOR for such period;
(v) ensure that at all times the claims of the Lender against it under
this Agreement rank at least part passu with the claims of all its other
creditors save those whose claims are preferred by any bankruptcy,
insolvency, liquidation or other similar laws of general application;
(vi) at all times satisfy all material Inland Revenue reimbursement and
audit requirements in relation to each of the Mortgage Loans which is a
qualifying loan for the purposes of Section 369 to 379 of the Income and
Corporation Taxes Act 1988;
(vii) ensure that the Borrower is clearly stated to be acting as
principal and not Lender, and as the mortgagee, in respect of each Mortgage
Loan on all documentation and correspondence relating thereto, and shall
ensure that no reference to the Lender or any subsidiary or holding company
of the Lender is made in such documentation and correspondence;
<PAGE>
(viii) upon prior reasonable notice during normal business hours permit
the Lender and its representatives, upon the Lender's request, full access
to all records, accounts and other information, relating to the Borrower's
business;
(ix) use its best endeavours to ensure that each person appointed
pursuant to the Corporate Services Provider and each Manager complies with
all of its obligations under the Corporate Services Agreement and the
relevant Management Agreement, respectively, and discharges all of its
duties thereunder in a full and timely manner; comply with its own
obligations thereunder in a full and timely manner, and in particular,
exercise all of its discretion thereunder in a manner that is not
prejudicial to the Lender, not act, or omit to act, in any way that might
cause or permit any person appointed pursuant to the Corporate Services
Provider or any Manager to terminate the Corporate Services Agreement or the
relevant Management Agreement respectively, and notify the Lender of any
breach or default under either such document which may be material in the
context of this Agreement and which is not remedied within 3 business days;
(x) report to the Lender at the Lender's request promptly regarding the
performance of the Corporate Services Provider and each Manager under the
Corporate Services Agreement and the relevant Management Agreement,
respectively;
(xi) ensure that, with respect to any Mortgage Loan, the maximum amount
of Relevant Fees payable by the Borrower and financed by the Lender through
an Loan or Withdrawal, does not exceed 1.5 per cent. of the principal amount
of that Mortgage Loan on the date on which it is advanced by the Borrower to
the relevant mortgagor; or
(xii) ensure that all payments made by mortgagors or any other party
(including, without limitation, insurers) in respect of Mortgage Loans shall
be paid immediately into the Collection Account;
(xiii) keep full and proper accounts, books and records showing clearly
all transactions, payments, receipts and proceedings relating to each
Mortgage Loan and its related Collateral Security and all such accounts,
books and records will be up to date and in the possession of or held to the
order of the Borrower;
(xiv) ensure that each Withdrawal is used exclusively to fund Mortgage
Loans and Relevant Fees in accordance with the provisions of this Agreement
or otherwise as permitted by Clause 5.3; and
(xv) ensure that the proceeds of each Origination Fee Loan are applied
in payment of the Origination Fees in respect of which such Origination Fee
Loan was made.
18.2 The Borrower shall not without the prior written consent of the
Lender:
<PAGE>
(i) save as otherwise provided herein, make any loans (other than the
Mortgage Loans or Permitted Loans), grant any credit or give any guarantee
or indemnity (except as required hereby) to or for the benefit of any person
or otherwise voluntarily assume any liability, whether actual or contingent,
in respect of any obligation of any other person; or
(ii) issue any further shares or alter any rights attaching to its
issued shares in existence at the date hereof or consolidate or merge with
any other person or have any subsidiaries; or
(iii) engage in any activities other than those contemplated by
Clause 17.1(v); or
(iv) sell, transfer or otherwise dispose of any Mortgage Loan within
the Mortgage Pool except:
(a) pursuant to Clause 14.4 and/or Clause 14.5; or
(b) as a Whole Portfolio Sale or as a sale of part of its portfolio
of Mortgage Loans where (in either case):
(A) the sale is conducted on arms length terms;
(B) the consideration for such sale paid to the Borrower is more
than 105 per cent. of the aggregate outstanding principal amount thereof and
the Lender has confirmed its approval of the sale;
(C) on the Repayment Date next following the closing of such
Whole Portfolio Sale (or at such earlier time as the Lender may agree
without the Borrower incurring Breakage Costs or other amounts pursuant to
Clause 19.4) the proceeds of such Whole Portfolio Sale or other sale of
Mortgage Loans are applied in accordance with provisions hereof in repayment
of the Loan together with all interest accrued to the date of repayment and
all other amounts then due and payable by the Borrower to the Lender
hereunder (other than the Origination Fee Loans); and
(D) (i) 20 per cent. of the Profit Element derived by the
Borrower from such Whole Portfolio Sale or other sale of Mortgage Loans is
paid by the Borrower to the Lender (in consideration of the Lender approving
the sale pursuant to paragraph (B) above); and
(ii) 80 per cent. of such Profit Element is paid to the
Parent or as the Parent may direct; or
(v) create or permit to subsist any encumbrance over all or any of its
present or future revenues or assets (including, without limitation, the
Borrower's right, title, interest and benefit in or to any of the Mortgage
Loans and their Collateral Security and any of the other rights relating
thereto) other than as contemplated by or created under or by the Facility
Documents; or
(vi) incur any indebtedness for borrowed money other than indebtedness
incurred pursuant to or as contemplated in the Facility Documents; or
(vii) agree to any amendment to or variation in the terms of, or the
extent or nature of the (aa) Facility Documents, the Credit and Collection
Policy Manual or the Origination Criteria (save as specifically provided
therein) or (bb) its Memorandum and Articles of Association, which (in any
such case) may be materially prejudicial to the interests of Lender; or
(viii) terminate or agree with the termination of a Manager's
appointment under any Management Agreement, the Corporate Services
Provider's appointment under the Corporate Services Agreement, unless a
successor or replacement approved in writing in advance by the Lender has
been appointed nor take any steps which could lead to any such termination;
or
(ix) have any employees or own, rent, lease or be in possession of any
buildings or equipment; or
(x) have an interest in any bank account other than the Collection
Account, the Deposit Account, the Investment Account and the Origination Fee
Account.
18.3 The Borrower shall cause its portfolio of Mortgage Loans to be valued
on a mark to market basis to establish the fair market value thereof on an
arms length basis and on the basis of a willing seller/willing buyer, such
valuation to be conducted by two valuers (the "VALUERS"), one of whom shall
be selected by the Lender from the Approved Valuers and (once the Lender has
made its selection) the other of whom shall be selected by the Borrower
(both selections to be permanent for the purposes hereof unless both parties
agree otherwise), the valuation amount to be the average of the values
determined by the two Valuers and to be conclusive (in the absence of
manifest error) for the purposes hereof. The Borrower and the Lender shall
agree a set of instructions to the Valuers relating to the making of the
valuations referred to herein, such instructions to include the requirement
that each valuation be sent to both the Borrower and the Lender. Such
valuations shall occur on a monthly basis with the first such valuation
occurring on the third Interest Payment Date after the Commencement Date.
<PAGE>
18.4 If the overall credit characteristics of the pool of Mortgage Loans
are not at any time equivalent to the overall credit characteristics of
mortgage loans being originated by Hyde Park Mortgage Funding Limited, such
overall credit characteristics measured according to the required level of
credit enhancement on the basis of the Duff & Phelps Ratings Service credit
enhancement requirement model and being reported on a monthly basis to the
Lender in the Monthly Report, the Borrower shall use its best endeavours to
remedy such defect as soon as is reasonably practicable having regard to the
overall level of mortgage originations by the Borrower and Hyde Park
Mortgage Funding Limited but in any event by the date falling 3 months after
such event occurring.
19. EVENTS OF DEFAULT AND FURTHER WHOLE PORTFOLIO SALE EVENTS
(i) any Manager fails duly to perform or comply with any other obligation
expressed to be assumed by it in any of the Facility Documents to which it
is expressed to be a party which would have a material adverse effect on the
Borrower's ability to perform its obligations hereunder unless any such
failure is capable of remedy and is remedied within 30 days (or, where a
period of grace is specified in relation to the relevant covenant, within
such period of grace) or is in the process of being remedied and such 30 day
or other grace period has not expired; or
(ii) as at the date on which a Relevant Securitisation takes place, the
amount of the purchase price received by the Borrower for the Mortgage Loans
which are the subject of such Relevant Securitisation (the "SECURITISED
MORTGAGE LOANS") plus the aggregate Value (calculated as the average of the
values thereof determined by each of the Valuers, such valuations to be in
writing after the Valuers have been provided with all information reasonably
necessary for the making of such valuations) of the Residuals issued from
such Relevant Securitisation is less than 103.75 per cent. of the unpaid
principal balance of the Securitised Mortgaged Loans, where "VALUE" means,
as of the date of determination, the present value of the expected cash flow
to be paid to the holders of such Residuals determined by using a discount
rate of 16 per cent. per annum and a constant prepayment rate assumption of
15 per cent. per annum;
"RESIDUALS" means the right to receive all amounts of Excess Spread
generated within such Relevant Securitisation and "EXCESS SPREAD" means,
with respect to a Relevant Securitisation and any date on which revenue
receipts (including interest received on the Securitised Mortgage Loans in
that Relevant Securitisation) are applied in accordance with a priority of
payments in order to pay amounts such as (but not limited to) expenses and
administration and trustee fees of the SPV, interest on debt of the SPV, to
build up or maintain any reserves or other spread accounts within the
Relevant Securitisation, to compensate for previous principal deficiencies
within the Relevant Securitisation, or otherwise, the amount of such revenue
receipts as remains after payment on the relevant date of all such items as
aforesaid;
(iii) the Borrower ceases to be a wholly owned subsidiary of the Parent;
(iv) the existing majority shareholder in the Parent as at the date of
this Agreement ceases to directly or indirectly control at least 51 per
cent. of the issued share capital of the Parent;
(v) the appointment of the Manager or the Cash Administrator or the
Corporate Services Provider is terminated for any reason and a substitute or
replacement thereof previously approved by the Lender has not been made on
terms satisfactory to the Lender;
<PAGE>
10. PAYMENTS
10.1 Place
All payments by an Obligor or a Bank under the Finance Documents shall be
made to the Lender at 29 Gresham Street, London EC2V 7HN, Sort Code 40-51-
65, Re: Helical Properties Investment Limited, Attention: Property Finance
Department or to its account at such other office or bank within the United
Kingdom as it may notify to that Obligor or Bank for this purpose.
10.2 Funds
Payments under the Finance Documents to the Lender shall be made in Sterling
for value on the due date.
10.3 Distribution
(a) Each payment received by the Lender under the Finance Documents for
another Party shall, subject to paragraphs (b) and (c) below, be made
available by the Lender to that Party by payment (on the date and in the
currency and funds of receipt) to its account with such office or bank in
the principal financial centre of the country of the relevant currency as it
may notify to the Lender for this purpose by not less than 5 Business Days'
prior notice.
(b) The Lender may apply any amount received by it for an Obligor in or
towards payment (on the date and in the currency and funds of receipt) of
any amount due from an Obligor under the Finance Documents or in or towards
the purchase of any amount of any currency to be so applied.
(c) Where a sum is to be paid to the Lender under the Finance Documents
for another Party, the Lender is not obliged to pay that sum to that Party
until it has established that it has actually received that sum. The Lender
may, however, assume that the sum has been paid to it in accordance with the
Finance Documents, and, in reliance on that assumption, make available to
that Party a corresponding amount. If the sum has not been made available
but the Lender has paid a corresponding amount to another Party, that Party
shall forthwith on demand by the Lender refund the corresponding amount
together with interest on that amount from the date of payment to the date
of receipt, calculated at a rate determined by the Lender to reflect its
cost of funds.
10.4 Currency
Any amount payable under the Finance Documents is payable in Sterling.
10.5 Set-off and counterclaim
All payments made by an Obligor under the Finance Documents shall be made
without set-off or counterclaim.
<PAGE>
10.6 Non-Business Days
(a) If a payment under the Finance Documents is due on a day which is not
a Business Day, the due date for that payment shall instead be the next
Business Day in the same calendar month (if there is one) or the preceding
Business Day (if there is not).
(b) During any extension of the due date for payment of any principal
under this Agreement interest is payable on that principal at the rate
payable on the original due date.
10.7 Partial payments
(a) If the Lender receives a payment insufficient to discharge all the
amounts then due and payable by the Obligors under the Finance Documents,
the Lender shall apply that payment towards the obligations of the Obligors
under the Finance Documents in the following order:-
(i) FIRST, in or towards payment of any unpaid costs and expenses of
the Lender under the Finance Documents;
(ii) SECONDLY, in or towards payment pro rata of any accrued interest
and fees due but unpaid under this Agreement;
(iii) THIRDLY, in or towards payment pro rata of any principal of the
B Loan due but unpaid under this Agreement;
(iv) FOURTHLY, in or towards payment pro rata of any principal of the
A Loan due but unpaid under this Agreement; and
(v) FIFTHLY, in or towards payment pro rata of any other sum due but
unpaid under this Agreement.
(b) The Lender shall, if so directed by all the Banks, vary the order set
out in sub-paragraphs (a)(ii) to (v) above.
(c) Paragraphs (a) and (b) above shall override any appropriation made by
an Obligor.
<PAGE>
EXHIBIT 11.1 COMPUTATION OF NET INCOME PER SHARE
<TABLE>
FIRST ALLIANCE CORPORATION
COMPUTATION OF NET INCOME PER SHARE
FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Dollars in thousands except per share amounts)
<CAPTION>
For the Quarter Ended For the Nine Months Ended
September 30, September 30,
------------------------ ------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
DATA AS TO EARNINGS - Net Income.................$ 8,188 $ 8,633 $ 23,738 $ 25,542
=========== =========== =========== ===========
DATA AS TO NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES - PRIMARY NET INCOME PER SHARE
Weighted average number of shares outstanding
Class A and Class B Common Stock............21,749,564 20,402,039 21,957,707 17,561,087
Reduction of outstanding shares assuming
average balance of deferred stock
compensation plus tax benefits credited to
capital on assumed exercise used as proceeds
invested in treasury stock (at average
market prices during each period)............ (66,179) (119,883) (75,160) (138,438)
Common equivalent shares assuming issuance
of shares represented by outstanding stock
options:
Additional shares assumed to be issued....... 762,107 577,947 771,398 194,056
Reduction of such additional shares assuming
proceeds plus tax benefits credited to capital
on assumed exercise invested in treasury
stock (at average market prices during each
period).................................... (578,618) (515,764) (609,229) (186,079)
----------- ----------- ----------- -----------
Weighted average number of common and common
equivalent shares outstanding................21,866,874 20,344,339 22,044,716 17,430,626
=========== =========== =========== ===========
PRIMARY NET INCOME PER SHARE.....................$ 0.37 $ 0.42 $ 1.08 $ 1.47
=========== =========== =========== ===========
DATA AS TO NUMBER OF COMMON AND COMMON EQUIVALENT
SHARES - FULLY DILUTED NET INCOME PER SHARE:
Weighted average number of shares outstanding
Class A and Class B Common Stock.............21,749,564 20,402,039 21,957,707 17,561,087
Reduction of outstanding shares assuming
ending balance of deferred stock
compensation plus tax benefits credited to
capital on assumed exercise used as proceeds
invested in treasury stock (at market
prices at the end of each period)............ (55,648) (93,877) (55,648) (93,877)
Common equivalent shares assuming issuance
of shares represented by outstanding stock
options:
Additional shares be issued.................. 762,107 577,947 771,398 194,056
Reduction of such additional shares assuming
proceeds plus tax benefits credited to
capital on assumed exercise invested in
treasury stock (at market prices at the end
of each period).............................. (556,859) (494,594) (561,725) (166,068)
----------- ----------- ----------- -----------
Weighted average number of common and common
equivalent shares outstanding................21,899,164 20,391,515 22,111,732 17,495,198
=========== =========== =========== ===========
FULLY DILUTED NET INCOME PER SHARE...............$ 0.37 $ 0.42 $ 1.07 $ 1.46
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,964
<SECURITIES> 0
<RECEIVABLES> 31,869
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 82,993
<PP&E> 8,291
<DEPRECIATION> 0
<TOTAL-ASSETS> 144,882
<CURRENT-LIABILITIES> 49,823
<BONDS> 0
0
0
<COMMON> 222
<OTHER-SE> 94,731
<TOTAL-LIABILITY-AND-EQUITY> 144,882
<SALES> 47,544
<TOTAL-REVENUES> 68,076
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 29,942
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,501
<INCOME-PRETAX> 38,134
<INCOME-TAX> 14,396
<INCOME-CONTINUING> 23,738
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,738
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.07
</TABLE>
