<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 15, 1997
REGISTRATION NO. 333-22013
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 4
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
LONG BEACH FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
6162
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
33-0739843
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
------------------
1100 TOWN & COUNTRY ROAD, SUITE 900
ORANGE, CALIFORNIA 92868
(714) 541-5378
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
M. JACK MAYESH
CHIEF EXECUTIVE OFFICER
LONG BEACH FINANCIAL CORPORATION
1100 TOWN & COUNTRY ROAD, SUITE 900
ORANGE, CALIFORNIA 92868
(714) 541-5378
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------
WITH COPIES TO:
ROBERT E. DEAN, ESQ.
GIBSON, DUNN & CRUTCHER LLP
4 PARK PLAZA
IRVINE, CALIFORNIA 92614-8557
(714) 451-3800
BRUCE R. HALLETT, ESQ.
BROBECK, PHLEGER & HARRISON LLP
4675 MACARTHUR COURT, SUITE 1000
NEWPORT BEACH, CALIFORNIA 92660
(714) 752-7535
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
================================================================================================================
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------
Common Stock, par value $.001 per
share................................... 25,000,000 $12.00 $300,000,000 $90,910
================================================================================================================
</TABLE>
(1) Includes shares subject to the Underwriters' over-allotment option.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 based on an estimate of the maximum offering price.
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the offering (all of which will
be borne by Long Beach Mortgage Company ("Old Long Beach")) are as follows:
<TABLE>
<CAPTION>
EXPENSES AMOUNT
------------------------------------------------------------------ --------
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 90,910
National Association of Securities Dealers, Inc. Filing Fee....... 30,500
Nasdaq Listing Fee................................................ 50,000
Printing Expenses................................................. 150,000
Legal Fees and Expenses........................................... 300,000
Transfer Agent and Registrar Fees................................. 2,000
Accounting Fees and Expenses...................................... 200,000
Blue Sky Fees and Expenses........................................ 10,000
Miscellaneous Expenses............................................ 16,590
--------
Total................................................... $850,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145(a) of the Delaware General Corporation Law (the "GCL") provides
that a Delaware corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation or enterprise,
against expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, had no cause to believe his
or her conduct was unlawful.
Section 145(b) of the GCL provides that a Delaware corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if he or she acted under similar standards,
except that no indemnification may be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of his or her duty to the
corporation unless and only to the extent that the court in which such action or
suit was brought shall determine that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to be indemnified for such expenses which the court shall
deem proper.
Section 145 of the GCL further provides that to the extent a director or
officer of a corporation has been successful in the defense of any action, suit
or proceeding referred to in subsections (a) and (b) or in the defense of any
claim, issue or matter therein, such officer or director shall be indemnified
against expenses actually and reasonably incurred by him or her in connection
therewith; that indemnification provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation may purchase and maintain insurance on behalf of a
director or officer of the corporation against any liability asserted against
such officer or director and incurred by him or her in any such capacity or
arising out of his or her status as such, whether or not the corporation would
have the power to indemnify him or her against such liabilities under Section
145.
II-1
<PAGE> 3
As permitted by Section 102(b)(7) of the GCL, the Company's Certificate of
Incorporation and Bylaws each provide that a director shall not be liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director. However, such provision does not eliminate or limit the liability of
a director for acts or omissions not in good faith or for breaching his or her
duty of loyalty, engaging in intentional misconduct or knowingly violating a
law, paying a dividend or approving a stock repurchase which was illegal, or
obtaining an improper personal benefit. A provision of this type has no effect
on the availability of equitable remedies, such as injunction or rescission, for
breach of fiduciary duty.
The Company's Certificate of Incorporation requires the Company to
indemnify any person (or the estate of any person) who was or is a party to or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether or not by or in the right of the Company and whether
civil, criminal, administrative or investigative or otherwise by reason of the
fact that such person is or was a director or officer of the Company, or is or
was serving at the request of the Company as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses incurred (including attorneys' fees), judgments, fines and amounts paid
in settlement. Any such expenses shall be paid by the Company in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the person seeking indemnification to repay such
amounts if it is ultimately determined that he or she is not entitled to be
indemnified.
Notwithstanding the foregoing, the Company will not make such an advance if
a determination is reasonably and promptly made by the Board of Directors by a
majority vote of a quorum of disinterested Directors, or (if such a quorum is
not obtainable or, even if obtainable, a quorum of disinterested Directors so
directs) by independent legal counsel to the Company, that, based upon the facts
known to the Board of Directors or such counsel at the time such determination
is made, (a) the party seeking an advance acted in bad faith or deliberately
breached his or her duty to the Company or its stockholders, and (b) as a result
of such actions by the party seeking an advance, it is more likely than not that
it will ultimately be determined that such party is not entitled to
indemnification pursuant to the provisions of the Certificate of Incorporation
or Bylaws, as applicable.
The Company may, to the fullest extent permitted by the GCL, purchase and
maintain insurance on behalf of any such person against any liability which may
be asserted against such person. The Company may create a trust fund, grant a
security interest or use other means (including without limitation a letter of
credit) to ensure the payment of such sums as may become necessary or desirable
to effect the indemnification as provided in the Certificate of Incorporation.
The Company may, but only to the extent that the Board of Directors may
authorize from time to time, grant rights to indemnification and to the
advancement of expenses to any employee or agent of the Company to the fullest
extent of the provisions described above as it applies to the indemnification
and advancement of expenses of directors and officers of the Company.
The Company anticipates obtaining a policy of directors' and officers'
liability insurance prior to the completion of the Offering.
The form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification by the Underwriters of the
Company, its directors, officers and controlling persons against certain
liabilities.
The Company will enter into indemnification agreements (the
"Indemnification Agreements") with its executive officers and directors. These
Indemnification Agreements require the Company to indemnify, in the manner and
to the fullest extent permitted by the GCL, each executive officer and director
if he or she is or was a party to, or is threatened to be made a party to, any
action, suit or proceeding individually or in the right of the Company or any
subsidiary of the Company, by reason of (a) the fact that such executive officer
or director is or was an executive officer or director of the Company or any
subsidiary and/or (b) the fact that such executive officer or director is or was
serving at the request of the Company as a director or officer of another
corporation or other enterprise. The indemnification extends to all expenses as
incurred (including attorneys' fees), judgments, fines and amounts paid in
settlement of such action, suit or proceeding. The
II-2
<PAGE> 4
Company must further advance, within 20 days of a written request, all expenses
incurred by the executive officer or director in connection with the
investigation, defense, settlement or appeal of any such action or proceeding;
provided, however, that the executive officer or director must repay such
amounts advanced if it is ultimately determined that he or she is not entitled
to be indemnified by the Company. Notwithstanding the foregoing, the Company
will not make such an advance if a determination is reasonably and promptly made
by the Board of Directors by a majority vote of a quorum of disinterested
Directors, or (if such a quorum is not obtainable or, even if obtainable, a
quorum of disinterested Directors so directs) by independent legal counsel to
the Company, that, based upon the facts known to the Board of Directors or such
counsel at the time such determination is made, (a) the party seeking an advance
acted in bad faith or deliberately breached his or her duty to the Company or
its stockholders, and (b) as a result of such actions by the party seeking an
advance, it is more likely than not that it will ultimately be determined that
such party is not entitled to indemnification pursuant to the provisions of the
Indemnification Agreement. Under the Indemnification Agreements, the executive
officers and directors are permitted to petition the court to seek recovery of
amounts due under the Indemnification Agreements and to recover the expenses of
seeking such recovery if he or she is successful. Absent the Indemnification
Agreements, indemnification that might be made available to executive officers
and directors could be changed by amendments to the Company's Certificate of
Incorporation or Bylaws. Benefits under the Indemnification Agreements are not
available, however, to indemnify an executive officer or director (a) with
respect to proceedings or claims initiated by the executive officer or director
that are not by way of defense (unless authorized by the Board of Directors);
(b) with respect to liability for transactions from which the executive officer
or director derived an improper personal benefit; (c) if the executive officer
or director is determined to have committed acts of active and deliberate
dishonesty; (d) for expenses or liabilities that have been paid to the executive
officer or director under an insurance policy maintained by the Company or
otherwise by any other means; or (e) for an accounting of profits realized from
the purchase and sale of securities within the meaning of Section 16(b) of the
Securities Exchange Act of 1934.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company issued one share of its common stock to Old Long Beach on
January 31, 1997, in consideration of $1,000 in cash. The Company is issuing an
additional 24,999,999 shares of its common stock to Old Long Beach in
consideration of the contribution to the Company by Old Long Beach of the assets
and personnel related to Old Long Beach's broker-sourced mortgage lending and
loan sales operations and approximately $40 million in cash. These issuances to
Old Long Beach constitute private placement exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to the
exemption provided by Section 4(2) thereof.
II-3
<PAGE> 5
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement
*3.1 Amended and Restated Certificate of Incorporation of Long Beach Financial
Corporation
*3.2 Bylaws of Long Beach Financial Corporation
*4.1 Specimen of the Common Stock of Long Beach Financial Corporation
5.1 Opinion of Gibson, Dunn & Crutcher LLP
*8.1 Opinion of Gibson, Dunn & Crutcher LLP
10.1 Form of Administrative Services Agreement, among Long Beach Mortgage Company, Long
Beach Financial Corporation and Ameriquest Mortgage Corporation
10.2 Form of Master Sub-Servicing Agreement, between Long Beach Mortgage Company and Long
Beach Financial Corporation
10.3 4/97 Senior Secured Credit Agreement, among Ameriquest Mortgage Corporation and
Texas Commerce Bank National Association, as Lender and Agent
*10.4 Form of Director/Officer Indemnification Agreement
10.5 Form of Contribution Agreement, between Ameriquest Capital Corporation, Long Beach
Mortgage Company, Long Beach Financial Corporation and Ameriquest Mortgage
Corporation
*10.6 1997 Stock Incentive Plan
*10.7 Employment Agreement, between Long Beach Financial Corporation, Ameriquest Mortgage
Corporation and M. Jack Mayesh
*10.8 Employment Agreement, between Long Beach Financial Corporation, Ameriquest Mortgage
Corporation and Edward Resendez
*10.9 Employment Agreement, between Long Beach Financial Corporation, Ameriquest Mortgage
Corporation and Frank J. Curry
*10.10 Employment Agreement, between Long Beach Financial Corporation, Ameriquest Mortgage
Corporation and James H. Leonetti
*10.11 Employment Agreement, between Long Beach Financial Corporation, Ameriquest Mortgage
Corporation and James J. Sullivan
*10.12 Department of Justice Settlement Agreement
*21.1 List of Subsidiaries
*23.1 Consent of Deloitte & Touche LLP
*23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1)
*23.4 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 8.1)
*24.1 Power of Attorney (included on signature page)
*27 Financial Data Schedule
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedules.
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the applicable instructions or are inapplicable and therefore
have been omitted.
II-4
<PAGE> 6
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising out of the Securities
Act of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-5
<PAGE> 7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Orange, State of California, on April 15, 1997.
LONG BEACH FINANCIAL CORPORATION
By: *
------------------------------------
M. Jack Mayesh
Chairman of the Board of Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 4 to the Registration Statement has been signed by the following persons in
the capacities indicated on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ --------------------------------- ---------------
<S> <C> <C>
* Chairman of the Board of April 15, 1997
- ------------------------------------------ Directors and Chief Executive
M. Jack Mayesh Officer (Principal Executive
Officer)
* Chief Financial Officer, April 15, 1997
- ------------------------------------------ Senior Vice President
James H. Leonetti (Principal Financial Officer)
* Controller April 15, 1997
- ------------------------------------------ (Principal Accounting Officer)
Brett Atkinson
* President, Director April 15, 1997
- ------------------------------------------
Edward Resendez
* Director April 15, 1997
- ------------------------------------------
David S. Engelman
* Director April 15, 1997
- ------------------------------------------
C. Stephen Mansfield
*By: /s/ JAMES J. SULLIVAN April 15, 1997
-------------------------------------
James J. Sullivan
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 8
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------ ------------------------------------------------------------------------- ------------
<C> <S> <C>
*1.1 Form of Underwriting Agreement...........................................
*3.1 Amended and Restated Certificate of Incorporation of Long Beach Financial
Corporation..............................................................
*3.2 Bylaws of Long Beach Financial Corporation...............................
*4.1 Specimen of the Common Stock of Long Beach Financial Corporation.........
5.1 Opinion of Gibson, Dunn & Crutcher LLP...................................
*8.1 Opinion of Gibson, Dunn & Crutcher LLP...................................
10.1 Form of Administrative Services Agreement, among Long Beach Mortgage
Company, Long Beach Financial Corporation and Ameriquest Mortgage
Corporation..............................................................
10.2 Form of Master Sub-Servicing Agreement, between Long Beach Mortgage
Company and Long Beach Financial Corporation.............................
10.3 4/97 Senior Secured Credit Agreement among Ameriquest Mortgage
Corporation and Texas Commerce Bank National Association, as Lender and
Agent....................................................................
*10.4 Form of Director/Officer Indemnification Agreement.......................
10.5 Form of Contribution Agreement, between Ameriquest Capital Corporation,
Long Beach Mortgage Company, Long Beach Financial Corporation and
Ameriquest Mortgage Corporation..........................................
*10.6 1997 Stock Incentive Plan................................................
*10.7 Employment Agreement, between Long Beach Financial Corporation,
Ameriquest Mortgage Corporation and M. Jack Mayesh.......................
*10.8 Employment Agreement, between Long Beach Financial Corporation,
Ameriquest Mortgage Corporation and Edward Resendez......................
*10.9 Employment Agreement, between Long Beach Financial Corporation,
Ameriquest Mortgage Corporation and Frank J. Curry.......................
*10.10 Employment Agreement, between Long Beach Financial Corporation,
Ameriquest Mortgage Corporation and James H. Leonetti....................
*10.11 Employment Agreement, between Long Beach Financial Corporation,
Ameriquest Mortgage Corporation and James J. Sullivan....................
*10.12 Department of Justice Settlement Agreement...............................
*21.1 List of Subsidiaries.....................................................
*23.1 Consent of Deloitte & Touche LLP.........................................
*23.2 Consent of Deloitte & Touche LLP.........................................
23.3 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 5.1).........
*23.4 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit 8.1)
*24.1 Power of Attorney (included on signature page)...........................
*27 Financial Data Schedule..................................................
</TABLE>
- ---------------
* Previously filed.
<PAGE> 1
EXHIBIT 5.1
GIBSON, DUNN & CRUTCHER LLP
LAWYERS
Jamboree Center
4 Park Plaza
Irvine, California 92614
April 15, 1997
C 54247-00043
Long Beach Financial Corporation
1100 Town & Country Road, Suite 900
Orange, California 92868
Re: Registration Statement on Form S-1
(Registration No. 333-22013)
Ladies and Gentlemen:
We are acting as counsel for Long Beach Financial Corporation, a
Delaware corporation (the "Company"), in connection with the registration and
issuance of up to an aggregate of 25,000,000 shares of the Company's common
stock, par value $.001 per share (the "Securities"), of which 21,750,000 shares
of such Securities are intended to be sold in a proposed public offering
(25,000,000 if the Underwriters' over-allotment option is exercised in full) as
set forth in the Registration on Form S-1 (the "Registration Statement") filed
by the Company with the Securities and Exchange Commission on February 19, 1997
(Registration No. 333-22013), as amended to the date hereof, in connection with
the registration of the Securities under the Securities Act of 1933, as amended
(the "Securities Act").
As your counsel, we have examined the Registration Statement, the
Company's Certificate of Incorporation and Bylaws, each as amended to the date
hereof, and the records of corporate proceedings and other actions taken by the
Company in connection with the authorization and issuance of the Securities. In
connection with our examination of such documents, we have assumed the
genuineness of all signatures on, and the authenticity of, all documents
submitted to us as originals and the conformity to the original documents of all
documents submitted to us as copies. With respect to agreements and instruments
executed by natural persons, we have assumed the legal competency and authority
of such persons. As to facts material to the opinions expressed herein which
were not independently established or verified, we have relied upon oral or
written statements and representations of the Company.
Based upon the foregoing, in reliance thereon and subject to (i)
compliance with applicable state securities laws, (ii) receipt from the
Securities and Exchange Commission of an
<PAGE> 2
April 15, 1997
Page 2
order declaring the Registration Statement effective and (iii) the assumptions
and qualifications set forth herein, it is our opinion that the Securities
will, when issued, delivered and paid for pursuant to and in accordance with
the Registration Statement and pertinent exhibits thereto, be legally issued,
fully paid and non-assessable.
Our opinions do not address or include the accuracy, completeness,
fairness or adequacy of the disclosures contained in the Registration Statement
under the securities or other laws and regulations of the United States or any
state or other jurisdiction. In addition, we express no opinion as to matters
involving the laws of any jurisdiction other than the States of California and
Delaware and the United States of America. We are not admitted to practice law
in the State of Delaware, but we are generally familiar with the Delaware
General Corporation Law as presently in effect and have made such inquiries as
we considered necessary to render our opinion. The opinion set forth in this
letter is limited to the present laws of the State of California, the present
federal laws of the United States, and, to the limited extent set forth above,
the present laws of the State of Delaware. No opinion is expressed by us as to
matters of conflict or choice of law. We undertake no obligation to advise you
as a result of developments occurring after the date hereof or as a result of
facts or circumstances brought to our attention after the date hereof.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and we further consent to the use of our name under the
caption "Legal Matters" in the Registration Statement and in the Prospectuses
which form a part thereof. In giving this consent, we do not thereby admit
that we are within the category of persons whose consent is required under
Section 7 of the Securities Act or the Rules and Regulations of the Commission.
Very truly yours,
/s/ GIBSON, DUNN & CRUTCHER LLP
-------------------------------
GIBSON, DUNN & CRUTCHER LLP
RED/JES/GCT
<PAGE> 1
Exhibit 10.1
FORM OF ADMINISTRATIVE SERVICES AGREEMENT
THIS ADMINISTRATIVE SERVICES AGREEMENT, dated as of April ___, 1997,
(this "Agreement") is made and entered into by and between Long Beach Mortgage
Company, a Delaware corporation to be renamed Ameriquest Mortgage Corporation
("Old Long Beach"), Long Beach Financial Corporation, a Delaware corporation
("LBFC") and Ameriquest Mortgage Company, a Delaware corporation to be renamed
Long Beach Mortgage Company ("New Long Beach"). LBFC and New Long Beach are
sometimes hereinafter referred to collectively as the "Company".
A. The Company desires to obtain from Old Long Beach certain
administrative services; and
B. Old Long Beach is willing to provide such management and
administrative services on the terms and conditions described below.
NOW, THEREFORE, Old Long Beach, LBFC and New Long Beach agree
as follows:
1. TERM. This Agreement shall commence as of April ___, 1997 and
continue for one year or such other term as may be expressly provided herein
with respect to any category of services, unless terminated by LBFC as provided
herein. This Agreement may be terminated by LBFC in whole, or with respect to
any one or more of the services described in Paragraph 2 below, at any time in
its sole discretion upon giving written notice to Old Long Beach at least
thirty (30) days prior to the date on which such termination is proposed to
become effective; provided, however, that the Company shall be bound by and
responsible for any transaction or expense properly agreed to or incurred by
Old Long Beach in connection with services performed hereunder but not settled,
paid or reimbursed prior to the date of any such termination. Upon termination
of this Agreement in whole or part, the fee referred to in Paragraph 3 below
will be prorated for the relevant period, but the due date thereof as described
in Paragraph 4 below shall not be changed. This Agreement shall continue in
full force and effect until terminated upon thirty days' written notice as
provided herein.
2. SERVICES PROVIDED. LBFC hereby engages Old Long Beach to
provide, and Old Long Beach agrees to provide, the following management and
administrative services (the "Services") to the Company as LBFC or New Long
Beach may request from time to time:
a. The human resources and employee benefits
administration services described in Schedule 2(a) to this Agreement; which is
incorporated herein by this reference.
b. The information services and data processing
functions described in Schedule 2(b); which is incorporated herein by this
reference.
c. The facilities support services described in Schedule
2(c).
<PAGE> 2
d. The Mailroom services described in Schedule 2(d).
e. Such additional services as Old Long Beach and the
Company may agree from time to time. Unless otherwise expressly agreed by Old
Long Beach and the Company, such additional services shall be governed by the
terms and conditions of this Agreement and the additional services, and the
fees therefor, shall be added hereto by a written addendum executed by both
parties.
3. CONSIDERATION. As consideration for the services to be
performed by Old Long Beach for the Company pursuant to this Agreement, the
Company hereby agrees to pay Old Long Beach a fee for each Service as set forth
in Schedules 2(a) through 2(d). Services identified to a specified fee may not
be terminated unless all Services identified to that fee are terminated. The
prices set forth on Schedules 2(a) through 2(d) contemplate that the only LBFC
subsidiary that will obtain Services hereunder is New Long Beach. In the event
other LBFC subsidiaries require Services, the prices set forth in Schedules 2(a)
through 2(d) will be adjusted appropriately to reflect the increase in demand
for Services from Old Long Beach. In the event the parties are unable to agree
on an appropriate adjustment, Old Long Beach shall have no obligation to perform
Services for the additional subsidiary.
4. PAYMENT. Payment for Services rendered hereunder shall be due
and payable in advance on the first business day of the month in which the
Services are to be rendered. With respect to any costs or expenses incurred by
Old Long Beach that are reimbursable by the Company hereunder, the Company
shall reimburse all such costs and expenses on demand.
5. OWNERSHIP OF SYSTEMS AND SOFTWARE.
a. Except as otherwise set forth in the Contribution
Agreement dated as of the date hereof by and among Old Long Beach, LBFC, New
Long Beach and Ameriquest Capital Corporation (the "Contribution Agreement"),
the Company agrees that Old Long Beach's current and future corporate systems
and the programs, operating instructions and software therefor that Old Long
Beach utilizes to perform the services specified by this Agreement are and will
remain Old Long Beach's property. Any additions, changes, modifications,
upgrades or enhancements to such systems, programs, operating instructions or
software, even if made at the Company's suggestion, shall be and remain Old Long
Beach's property and proprietary information and title to the same shall remain
vested in Old Long Beach.
b. Except as otherwise set forth in the Contribution
Agreement, Old Long Beach agrees that all data and data source documents, books,
records, reports, files, forms, invoices and documentation, whether stored in
hard copy or electronic medium of the Company (collectively, the "Company
Records"), whether provided by the Company or generated in the course of Old
Long Beach providing its services hereunder, are and shall remain the sole and
exclusive property of the Company. The Company shall be responsible for the
Company Records while the same are in transit to or from Old Long Beach. the
Company shall have free and unrestricted access to the Company Records at all
times.
2
<PAGE> 3
6. LIABILITY AND INDEMNITY. This Agreement shall create no right,
benefit or privilege in favor of any person other than Old Long Beach and the
Company. LBFC and New Long Beach shall indemnify, defend and hold harmless Old
Long Beach and its subsidiaries and affiliates and their respective officers,
directors, employees, representatives, agents, successors and assigns from and
against any and all damages, losses, expenses and liabilities, including
reasonable attorneys' fees and costs (collectively, "Losses"), incurred by Old
Long Beach arising or resulting from or related to Old Long Beach's performance
of (or omission to perform) its obligations under this Agreement, including
without limitation Old Long Beach's own negligence (but excluding willful
misconduct or intentional tort). Old Long Beach shall indemnify, defend and hold
harmless LBFC and New Long Beach and their respective subsidiaries, affiliates,
officers, directors, employees, representatives, agents, successors and assigns
from and against any and all losses incurred by LBFC and/or New Long Beach
arising or resulting from or related to Old Long Beach's willful misconduct or
intentional tort.
7. TERMINATION.
a. Upon any termination of this Agreement, Old Long Beach
shall take all such actions as are reasonably requested by the Company to
transition the services provided hereunder to a third party or to the Company,
including without limitation (i) transferring the Company Records to the Company
in one or more installments as appropriate and necessary to timely transfer all
of such records, (ii) transferring the Company Records to a third party
designated by the Company in writing, and (iii) providing the Company with the
names of all computer software vendors and programs used by the Company to
provide its services hereunder. Old Long Beach shall be entitled to retain a
copy of the Company Records for its files to the extent reasonably necessary to
protect its interests.
b. The termination services described above shall be
performed by Old Long Beach at commercially reasonable hourly rates plus
reimbursement of actual expenses.
c. The provision of Sections 5, 6, 11 and 13 hereof
shall survive any termination of this Agreement, regardless of the reason for
the termination.
8. ASSIGNMENT. No party shall assign this Agreement without the
prior written consent of the other parties, which consent shall not
unreasonably be withheld.
9. APPLICABLE LAW. This Agreement shall be construed and
enforced, and all provisions hereof shall be administered, in accordance with
the internal laws of the State of California.
10. NOTICES. All notices and payments under this Agreement shall
be personally delivered or sent by first-class mail, postage prepaid, addressed
to the other party at the address set forth below or as otherwise designated in
writing to the other party. All notices shall be in writing. Notices shall be
deemed given when received and shall be deemed received when personally
delivered or 48 hours after they are postmarked, if sent by mail.
<PAGE> 4
If to Old Long Beach, to:
Ameriquest Mortgage Company
1100 Town & Country Road
Suite 1100
Orange, CA 92868
If to the Company, to:
Long Beach Financial Corporation
1100 Town & Country Road
Suite 900
Orange, CA 92868
11. ATTORNEYS' FEES. In the event of an action by either party to
enforce the terms hereof, the prevailing Party shall be entitled to recover its
expenses, including reasonable attorney's fees.
12. SEVERABILITY. If in any judicial proceeding a court shall
refuse to enforce all the provisions of this Agreement, the scope of any
unenforceable provision shall be deemed modified and diminished to the extent
necessary to render such provision valid and enforceable. In any event, the
validity or enforceability of any such provision shall not affect any other
provisions of this Agreement, and this Agreement shall be construed and
enforced as if such provision had not been included.
13. CONFIDENTIAL INFORMATION. Old Long Beach and the Company
acknowledge and agree that all tangible and intangible information of the other
party revealed, obtained, or developed in the course of or in connection with
the performance of this Agreement or otherwise shall be considered as
confidential and proprietary information of such other party. Such information
shall not be disclosed to (i) any Old Long Beach or the Company employee except
as strictly necessary on a need-to-know basis and furtherance of the party's
obligations hereunder, or (ii) any third party except as required by law and
only to the extent so required. Upon being so required, the party required to
disclose confidential information of the other party shall immediately advise
the other party so as to give such other party the opportunity to prevent such
disclosure or take such other measures as are appropriate to maintain the
strict confidentiality. All of such confidential information shall be used
strictly for the purpose of this Agreement and for no other purpose, and shall
not be commingled or otherwise integrated with data from any other source or
entity.
14. COUNTERPARTS. The parties may execute this Agreement by
signing one or more counterparts, each of which shall be deemed an original,
and all of which together shall be deemed to be one and the same instruments.
<PAGE> 5
15. ENTIRE AGREEMENT; AMENDMENTS; HEADINGS. The parties expressly
understand and agree that this Agreement sets forth all promises, agreements,
conditions and understandings between Old Long Beach and the Company with
respect to the subject matter hereof. This Agreement shall not be modified or
amended in any manner, except by an instrument in writing executed by Old Long
Beach and the Company. The headings are for information only, are not part of
this Agreement, and are not to be considered in the construction thereof.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute this Agreement as of the date first above written.
LONG BEACH FINANCIAL CORPORATION, a
Delaware corporation,
By:
------------------------------
Title:
------------------------------
AMERIQUEST MORTGAGE CORPORATION, a
Delaware corporation,
By:
------------------------------
Title:
------------------------------
LONG BEACH MORTGAGE COMPANY, a
Delaware corporation
By:
------------------------------
Title:
------------------------------
<PAGE> 1
EXHIBIT 10.2
FORM OF MASTER
SUB-SERVICING AGREEMENT
LONG BEACH MORTGAGE COMPANY
Master Servicer
and
AMERIQUEST MORTGAGE COMPANY
Sub-Servicer
-----------------------------------------
MASTER SUB-SERVICING AGREEMENT
Dated as of April 18, 1997
-----------------------------------------
<PAGE> 2
LONG BEACH MORTGAGE COMPANY
Master Servicer
and
AMERIQUEST MORTGAGE COMPANY
Sub-Servicer
-----------------------------------------
MASTER SUB-SERVICING AGREEMENT
Dated as of April 18, 1997
-----------------------------------------
<PAGE> 3
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I
DEFINITIONS
1.01. Defined Terms .......................................................... 2
Accepted Servicing Practices ........................................... 2
Adjustable Rate Mortgage Loan .......................................... 2
Adjustment Date ........................................................ 2
Advance Account ........................................................ 2
Affiliate .............................................................. 2
Agreement .............................................................. 2
Assignment ............................................................. 2
Available Distribution Amount .......................................... 3
Balloon Loan ........................................................... 3
Bankruptcy Code ........................................................ 3
Bankruptcy Loss ........................................................ 3
Business Day ........................................................... 3
Certificate Insurer .................................................... 3
Code ................................................................... 3
Collection Account ..................................................... 3
Cut-off Date ........................................................... 4
DCR .................................................................... 4
Debt Service Reduction ................................................. 4
Deficient Valuation .................................................... 4
Deleted Mortgage Loan .................................................. 4
Delinquent ............................................................. 4
Depository Institution ................................................. 4
Determination Date ..................................................... 4
Directly Operate ....................................................... 4
Due Date ............................................................... 5
Due Period ............................................................. 5
Eligible Account ....................................................... 5
FDIC ................................................................... 5
Fitch .................................................................. 5
FHLMC .................................................................. 5
Final Recovery Determination ........................................... 5
FNMA ................................................................... 5
Gross Margin ........................................................... 5
Independent ............................................................ 6
Independent Contractor ................................................. 6
Index .................................................................. 6
i
<PAGE> 4
SECTION PAGE
Insurance Proceeds .......................................................... 6
Late Collections ............................................................ 6
Liquidation Event ........................................................... 7
Liquidation Proceeds ........................................................ 7
Loan-to-Value Ratio ......................................................... 7
Master Servicer ............................................................. 7
Master Servicing Fee ........................................................ 7
Master Servicing Agreement .................................................. 7
Maximum Mortgage Rate ....................................................... 7
Minimum Mortgage Rate ....................................................... 7
Modification Schedule ....................................................... 7
Monthly Payment ............................................................. 8
Moody's ..................................................................... 8
Mortgage .................................................................... 8
Mortgage File ............................................................... 8
Mortgage Loan ............................................................... 8
Mortgage Loan Schedule ...................................................... 8
Mortgage Note ............................................................... 10
Mortgage Rate ............................................................... 10
Mortgaged Property .......................................................... 10
Mortgagor ................................................................... 10
Net Mortgage Rate ........................................................... 10
New Lease ................................................................... 10
Nonrecoverable P&I Advance .................................................. 10
Nonrecoverable Servicing Advance ............................................ 10
Officers' Certificate ....................................................... 11
Opinion of Counsel .......................................................... 11
Origination Closing Date .................................................... 11
Origination Closing Notice .................................................. 11
Originator .................................................................. 11
Owner ....................................................................... 11
Periodic Rate Cap ........................................................... 11
Permitted Investments ....................................................... 11
Person ...................................................................... 12
P&I Advance ................................................................. 12
Policy ...................................................................... 13
Prepayment Interest Shortfall ............................................... 13
Prepayment Period ........................................................... 13
Prepayment Premium .......................................................... 13
Principal Prepayment ........................................................ 13
Purchase Price .............................................................. 13
Qualified Substitute Mortgage Loan .......................................... 13
Rating Agencies ............................................................. 13
ii
<PAGE> 5
SECTION PAGE
Realized Loss ............................................................... 13
Refinanced Mortgage Loan .................................................... 15
Relief Act .................................................................. 15
REMIC ....................................................................... 15
REMIC Provisions ............................................................ 15
Remittance Report ........................................................... 15
Rents from Real Property .................................................... 15
REO Account ................................................................. 15
REO Disposition ............................................................. 15
REO Imputed Interest ........................................................ 15
REO Principal Amortization .................................................. 15
REO Property ................................................................ 16
Request for Release ......................................................... 16
Residential Dwelling ........................................................ 16
Sale Closing Date ........................................................... 16
Sale Closing Notice ......................................................... 16
Scheduled Principal Balance ................................................. 16
Servicing Account ........................................................... 17
Servicing Advances .......................................................... 17
Servicing Fee ............................................................... 17
Servicing Fee Rate .......................................................... 17
Servicing File .............................................................. 17
Servicing Officer ........................................................... 17
S&P ......................................................................... 18
Stated Principal Balance .................................................... 18
Sub-Servicer ................................................................ 18
Sub-Servicer Event of Default ............................................... 18
Sub-Servicer Remittance Date ................................................ 19
Sub-Servicing Fee ........................................................... 19
Sub-Servicing Fee Rate ...................................................... 19
Uninsured Cause ............................................................. 19
Value ....................................................................... 19
ARTICLE II
DELIVERY OF ORIGINATION CLOSING
NOTICES AND SALE CLOSING NOTICES;
DELIVERY OF SERVICING FILES; SET-UP AND RELEASE FEES;
REPRESENTATIONS OF SUB-SERVICER
2.01 Closing Notices ........................................................ 20
2.02 Delivery of Servicing Files ............................................ 20
2.03 Possession of Servicing Files .......................................... 20
iii
<PAGE> 6
SECTION PAGE
2.04 Set-Up Fee: Serving Release Fee......................................... 21
2.04 Representations and Warranties of Sub-Servicer ......................... 21
2.05 Representations and Warranties of the Master Servicer .................. 23
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
3.01. Sub-Servicer to Act as Sub-Servicer ................................... 26
3.02. Collection of Certain Mortgage Loan Payments .......................... 28
3.03. Collection of Taxes, Assessments and Similar Items; Servicing Accounts 28
3.04. Collection Account .................................................... 29
3.05. Withdrawals from the Collection Account ............................... 30
3.06. Investment of Funds in the Collection Account ......................... 32
3.07. Maintenance of Hazard Insurance and Errors and Omissions
and Fidelity Coverage ................................................. 33
3.08. Enforcement of Due-On-Sale Clauses; Assumption Agreements ............. 34
3.09. Realization Upon Defaulted Mortgage Loans ............................. 35
3.10. Cooperation; Release of Mortgage Files ................................ 37
3.11. Sub-Servicing Compensation ............................................ 38
3.12. Reports; Collection Account Statements ................................ 38
3.13. Statement as to Compliance ............................................ 39
3.14. Independent Public Accountants' Servicing Report ...................... 39
3.15. Access to Certain Documentation ....................................... 39
3.16. Title, Management and Disposition of REO Property ..................... 40
3.17. Obligations of the Sub-Servicer and the Master Servicer in Respect of
Prepayment Interest Shortfalls ........................................ 43
3.18. Obligations of the Sub-Servicer in Respect of Mortgage Rates and Monthly
Payments .............................................................. 43
3.19. Obligations of the Sub-Servicer and the Master Servicer in Respect of
Servicing Advances .................................................... 44
3.20. Notice of Withdrawals ................................................. 44
ARTICLE IV
REPORTS
4.01. Remittance Reports; P&I Advances; Reimbursement of P&I Advances........ 45
4.04. Allocation of Realized Losses.......................................... 46
ARTICLE V
iv
<PAGE> 7
SECTION PAGE
THE MASTER SERVICER AND THE SUB-SERVICER
5.02. Merger or Consolidation of Parties..................................... 47
5.04. Term................................................................... 48
5.05. Rights of the Master Servicer in Respect of the Sub-Servicer........... 49
5.06. Further Assurances..................................................... 49
5.07. Sales of Mortgage Loans................................................ 49
ARTICLE VI
DEFAULT
6.01. Sub-Servicer Events of Default......................................... 51
ARTICLE VII
MISCELLANEOUS PROVISIONS
7.01. Amendment.............................................................. 53
7.02. Confidentiality........................................................ 53
7.03. Recordation of Agreement; Counterparts................................. 53
7.04. Governing Law.......................................................... 53
7.05. Notices................................................................ 53
7.06. Severability of Provisions............................................. 54
7.08. Article and Section References......................................... 54
Exhibits
Exhibit A Mortgage Loan File
Exhibit B-1 Request for Release
Exhibit B-2 Request for Release Mortgage Loans paid in full
Exhibit C Form of Origination Closing Notice
Exhibit D Form of Sale Closing Notice
Exhibit E Form of Modification Schedule
Exhibit F Employees of Sub-Servicer's Servicing Division (Section 7.02)
Exhibit G Reports
Schedule 1 Mortgage Loan Schedule
v
<PAGE> 8
This Master Sub-Servicing Agreement, is dated and effective as
of April 18, 1997, between LONG BEACH MORTGAGE COMPANY, a Delaware corporation,
as Master Servicer, and AMERIQUEST MORTGAGE COMPANY, a Delaware corporation, as
Sub-Servicer.
PRELIMINARY STATEMENT:
The Sub-Servicer has agreed to service for the Master Servicer
Mortgage Loans owned by the Master Servicer and Mortgage Loans sold by the
Master Servicer on a servicing retained basis.
The Sub-Servicer and the Master Servicer wish to prescribe the
management, servicing and control of the Mortgage Loans by the Sub-Servicer.
In consideration of the mutual agreements herein contained,
the Master Servicer and the Sub-Servicer agree as follows:
<PAGE> 9
-2-
ARTICLE I
DEFINITIONS
SECTION 1.01. Defined Terms.
Whenever used in this Agreement, including, without
limitation, in the Preliminary Statement hereto, the following words and
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article. Unless otherwise specified, all calculations
described herein shall be made on the basis of a 360-day year consisting of
twelve 30-day months.
"Accepted Servicing Practices": The servicing standards set
forth in Section 3.01.
"Adjustable Rate Mortgage Loan": A Mortgage Loan that bears
interest at a rate which adjusts from time to time in accordance with the terms
of the Mortgage Note.
"Adjustment Date": With respect to each Adjustable Rate
Mortgage Loan, the first day of the month in which the Mortgage Rate of a
Mortgage Loan changes pursuant to the related Mortgage Note. The first
Adjustment Date following the Cut-off Date as to each Adjustable Rate Mortgage
Loan is set forth in the Mortgage Loan Schedule.
"Advance Account": The account or accounts of the Master
Servicer designated by the Master Servicer to the SubServicer from which the
Sub-Servicer shall withdraw funds to make payments on behalf of the Master
Servicer in respect of Prepayment Interest Shortfalls, Servicing Advances and
P&I Advances required to be made by the Master Servicer pursuant to the terms of
this Agreement. The Master Servicer shall designate the Sub-Servicer as an
authorized signatory in respect of withdrawals from each such Advance Account.
"Affiliate": With respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement": This Agreement and all amendments hereof and
supplements hereto.
"Assignment": An assignment of Mortgage, notice of transfer or
equivalent instrument, in recordable form, which is sufficient under the laws of
the jurisdiction wherein the related Mortgaged Property is located to reflect of
record the sale of the Mortgage, which assignment, notice of transfer or
equivalent instrument may be in the form of one or more blanket assignments
covering Mortgages secured by Mortgaged Properties located in the same county,
if permitted by law.
<PAGE> 10
-3-
"Available Distribution Amount": With respect to any
Sub-Servicer Remittance Date, an amount equal to (1) the sum of (a) the
aggregate of the amounts on deposit in the Collection Account as of the close of
business on the related Determination Date, (b) the aggregate of any amounts
received in respect of an REO Property withdrawn from any REO Account and
deposited in the Collection Account for such Sub-Servicer Remittance Date
pursuant to Section 3.16, (c) the aggregate of any amounts deposited in the
Collection Account by or on behalf of the Master Servicer in respect of
Prepayment Interest Shortfalls for such Sub-Servicer Remittance Date pursuant to
Section 3.17 and (d) the aggregate of any P&I Advances made by or on behalf of
the Master Servicer for such Sub-Servicer Remittance Date pursuant to Section
4.01, reduced by (2) (i) Monthly Payments on the Mortgage Loans received from a
Mortgagor on or prior to the Determination Date but due during any Due Period
subsequent to the related Due Period, (ii) Principal Prepayments on the Mortgage
Loans received after the related Prepayment Period (together with any interest
payments received with such Principal Prepayments to the extent they represent
the payment of interest accrued on the Mortgage Loans during a period subsequent
to the related Prepayment Period), (iii) Liquidation Proceeds and Insurance
Proceeds received in respect of the Mortgage Loans after the related Prepayment
Period, and (iv) amounts reimbursable or payable to the Master Servicer pursuant
to Section 3.05 or Section 3.06.
"Balloon Loan": Any Mortgage Loan that by its terms provides
for an amortization schedule extending beyond its stated maturity.
"Bankruptcy Code": The Bankruptcy Reform Act of 1978 (Title 11
of the United States Code), as amended.
"Bankruptcy Loss": With respect to any Mortgage Loan, a
Realized Loss resulting from a Deficient Valuation or Debt Service Reduction.
"Business Day": Any day other than a Saturday, a Sunday or a
day on which banking or savings and loan institutions in the State of California
or the State of New York or in the city in which the Owner is located are
authorized or obligated by law or executive order to be closed.
"Certificate Insurer": The issuer of any Policy.
"Code": The Internal Revenue Code of 1986.
"Collection Account": The account or accounts created and
maintained, or caused to be created and maintained, by the Sub-Servicer pursuant
to Section 3.04, which shall be entitled (a) prior to the Sale Closing Date for
any Mortgage Loan, "Ameriquest Mortgage Company, as Sub-Servicer for Long Beach
Mortgage Company" and (b) on and after the Sale Closing Date for any Mortgage
Loan, "Ameriquest Mortgage Company, as Sub-Servicer for Long Beach Mortgage
Company, as Master Servicer, for the benefit of [Owner] and [Certificate
Insurer]". The Collection Account must be an Eligible Account.
<PAGE> 11
-4-
"Cut-off Date": With respect to each Mortgage Loan, the first
day of the month in which the Origination Closing Date or the Sale Closing Date,
as the case may be, occurs.
"DCR": Duff & Phelps Credit Rating Co. or its successor in
interest.
"Debt Service Reduction": With respect to any Mortgage Loan, a
reduction in the scheduled Monthly Payment for such Mortgage Loan by a court of
competent jurisdiction in a proceeding under the Bankruptcy Code, except such a
reduction resulting from a Deficient Valuation.
"Deficient Valuation": With respect to any Mortgage Loan, a
valuation of the related Mortgaged Property by a court of competent jurisdiction
in an amount less than the then outstanding principal balance of the Mortgage
Loan, which valuation results from a proceeding initiated under the Bankruptcy
Code.
"Deleted Mortgage Loan": A Mortgage Loan replaced or to be
replaced by a Qualified Substitute Mortgage Loan.
"Delinquent": A Mortgage Loan is Delinquent if any Monthly
Payment due thereon is not made by the close of business on the Determination
Date of the month succeeding the month in which such Monthly Payment was due. A
Mortgage Loan is 60 days Delinquent if such Monthly Payment has not been
received by the close of business on the Determination Date of the second month
succeeding the month in which such Monthly Payment was due. A Mortgage Loan is
90 days Delinquent if such Monthly Payment has not been received by the close of
business on the Determination Date of the third month succeeding the month in
which such Monthly Payment was due.
"Depository Institution": Any depository institution or trust
company that (a) is incorporated under the laws of the United States of America
or any State thereof, (b) is subject to supervision and examination by federal
or state banking authorities and (c) has outstanding unsecured commercial paper
or other short-term unsecured debt obligations (or, in the case of a depository
institution that is the principal subsidiary of a holding company, such holding
company has unsecured commercial paper or other short-term unsecured debt
obligations) that are rated P-1 by Moody's and A-1 by S&P (or comparable ratings
if Moody's and S&P are not the Rating Agencies).
"Determination Date": With respect to each Sub-Servicer
Remittance Date, the 15th day of the calendar month in which such Sub-Servicer
Remittance Date occurs or, if such 15th day is not a Business Day, the Business
Day immediately preceding such 15th day.
"Directly Operate": With respect to any REO Property, the
furnishing or rendering of services to the tenants thereof, the management or
operation of such REO Property, the holding of such REO Property primarily for
sale to customers, the performance of any
<PAGE> 12
-5-
construction work thereon or any use of such REO Property in a trade or business
conducted by a REMIC holding an REO Property other than through an Independent
Contractor; provided, however, that the Owner (or the Sub-Servicer, or the
Master Servicer, on behalf of the Owner) shall not be considered to Directly
Operate an REO Property solely because the Owner (or the SubServicer, or the
Master Servicer, on behalf of the Owner) establishes rental terms, chooses
tenants, enters into or renews leases, deals with taxes and insurance, or makes
decisions as to repairs or capital expenditures with respect to such REO
Property.
"Due Date": With respect to each Sub-Servicer Remittance Date,
the first day of the calendar month in which such Sub-Servicer Remittance Date
occurs, which is the day of the month on which the Monthly Payment is due on a
Mortgage Loan, exclusive of any days of grace.
"Due Period": With respect to any Sub-Servicer Remittance
Date, the period commencing on the second day of the month immediately preceding
the month in which such Sub-Servicer Remittance Date occurs and ending on the
related Due Date.
"Eligible Account": Any of (i) an account or accounts
maintained with a Depository Institution, (ii) an account or accounts the
deposits in which are fully insured by the FDIC or (iii) a trust account or
accounts maintained with the trust department of a federal or state chartered
depository institution or trust company acting in its fiduciary capacity.
Eligible Accounts may bear interest.
"FDIC": Federal Deposit Insurance Corporation or any successor
thereto.
"Fitch": Fitch Investors Services, L.P. or its successor in
interest.
"FHLMC": Federal Home Loan Mortgage Corporation or any
successor thereto.
"Final Recovery Determination": With respect to any defaulted
Mortgage Loan or any REO Property, a determination made by the Sub-Servicer that
all Insurance Proceeds, Liquidation Proceeds and other payments or recoveries
which the Sub-Servicer, in its reasonable good faith judgment, expects to be
finally recoverable in respect thereof have been so recovered. The SubServicer
shall maintain records, prepared by a Servicing Officer, of each Final Recovery
Determination made thereby.
"FNMA": Federal National Mortgage Association or any successor
thereto.
"Gross Margin": With respect to each Adjustable Rate Mortgage
Loan, the fixed percentage set forth in the related Mortgage Note that is added
to the Index on each Adjustment Date in accordance with the terms of the related
Mortgage Note used to determine the Mortgage Rate for such Mortgage Loan.
"Independent": When used with respect to any specified Person,
any such Person who (a) is in fact independent of the Sub-Servicer or the Master
Servicer and their respective
<PAGE> 13
-6-
Affiliates, (b) does not have any direct financial interest in or any material
indirect financial interest in the Sub-Servicer or the Master Servicer or any
Affiliate thereof, and (c) is not connected with the Sub-Servicer or the Master
Servicer or any Affiliate thereof as an officer, employee, promoter,
underwriter, trustee, partner, director or Person performing similar functions;
provided, however, that a Person shall not fail to be Independent of the
Sub-Servicer or the Master Servicer or any Affiliate thereof merely because such
Person is the beneficial owner of 1% or less of any class of securities issued
by the Sub-Servicer or the Master Servicer or any Affiliate thereof, as the case
may be.
"Independent Contractor": Either (i) any Person (other than
the Sub-Servicer or the Master Servicer) that would be an "independent
contractor" with respect to any REMIC within the meaning of Section 856(d)(3) of
the Code if such REMIC were a real estate investment trust (except that the
ownership tests set forth in that section shall be considered to be met by any
Person that owns, directly or indirectly, 35 percent or more of any class of
pass-through certificates in connection with such REMIC), so long as such REMIC
does not receive or derive any income from such Person and provided that the
relationship between such Person and such REMIC is at arm's length, all within
the meaning of Treasury Regulation Section 1.856-4(b)(5), or (ii) any other
Person (including the Sub-Servicer and the Master Servicer) if an Opinion of
Counsel has been obtained to the effect that the taking of any action in respect
of any REO Property by such Person, subject to any conditions therein specified,
that is otherwise herein contemplated to be taken by an Independent Contractor
will not cause such REO Property to cease to qualify as "foreclosure property"
within the meaning of Section 860G(a)(8) of the Code (determined without regard
to the exception applicable for purposes of Section 860D(a) of the Code), or
cause any income realized in respect of such REO Property to fail to qualify as
Rents from Real Property.
"Index": As to each Adjustable Rate Mortgage Loan, the index
for the adjustment of the Mortgage Rate set forth in the related Mortgage Note.
"Insurance Proceeds": Proceeds of any title policy, hazard
policy or other insurance policy covering a Mortgage Loan, to the extent such
proceeds are not to be applied to the restoration of the related Mortgaged
Property or released to the Mortgagor in accordance with the procedures that the
Sub-Servicer would follow in servicing mortgage loans held for its own account,
subject to the terms and conditions of the related Mortgage Note and Mortgage.
"Late Collections": With respect to any Mortgage Loan and any
Due Period, all amounts received subsequent to the Determination Date
immediately following such Due Period, whether as late payments of Monthly
Payments or as Insurance Proceeds, Liquidation Proceeds or otherwise, which
represent late payments or collections of principal and/or interest due (without
regard to any acceleration of payments under the related Mortgage and Mortgage
Note) but delinquent for such Due Period and not previously recovered.
"Liquidation Event": With respect to any Mortgage Loan, any of
the following events: (i) such Mortgage Loan is paid in full; (ii) a Final
Recovery Determination is made as to such Mortgage Loan; or (iii) such Mortgage
Loan is removed from the terms of this Agreement by
<PAGE> 14
-7-
reason of its being purchased, sold or replaced. With respect to any REO
Property, either of the following events: (i) a Final Recovery Determination is
made as to such REO Property; or (ii) such REO Property is removed from the
terms of this Agreement.
"Liquidation Proceeds": The amount (other than Insurance
Proceeds or amounts received in respect of the rental of any REO Property prior
to REO Disposition) received by the Sub-Servicer in connection with (i) the
taking of all or a part of a Mortgaged Property by exercise of the power of
eminent domain or condemnation, (ii) the liquidation of a defaulted Mortgage
Loan through a trustee's sale, foreclosure sale or otherwise, or (iii) the
repurchase, substitution or sale of a Mortgage Loan or an REO Property pursuant
to or as contemplated by this Agreement or a Master Servicing Agreement.
"Loan-to-Value Ratio": As of any date of determination, the
fraction, expressed as a percentage, the numerator of which is the principal
balance of the related Mortgage Loan at such date and the denominator of which
is the Value of the related Mortgaged Property.
"Master Servicer": Long Beach Mortgage Company or any
successor thereto, in its capacity as Master Servicer hereunder.
"Master Servicing Fee": With respect to each Mortgage Loan
that has been included in a Sale Closing Notice and for any calendar month, an
amount equal to one month's interest (or in the event of any payment of interest
which accompanies a Principal Prepayment in full or in part made by the
Mortgagor during such calendar month, interest for the number of days covered by
such payment of interest) at the rate equal to the related Servicing Fee Rate
minus the related Sub-Servicing Fee Rate on the same principal amount on which
interest on such Mortgage Loan accrues for such calendar month.
"Master Servicing Agreement": With respect to any Mortgage
Loan, an agreement pursuant to which the Master Servicer is the master servicer
and the Sub-Servicer is the sub-servicer of such Mortgage Loan.
"Maximum Mortgage Rate": With respect to each Mortgage Loan,
the percentage set forth in the related Mortgage Note as the maximum Mortgage
Rate thereunder.
"Minimum Mortgage Rate": With respect to each Mortgage Loan,
the percentage set forth in the related Mortgage Note as the minimum Mortgage
Rate thereunder.
"Modification Schedule": A schedule setting forth certain
terms in connection with the servicing of any Mortgage Loans sold by the
Originator (other than such loans sold servicing released) including any
modifications to the obligations of the Sub-Servicer hereunder with respect to
such Mortgage Loans, which shall include, but not be limited to, the information
set forth on Exhibit E hereto and which shall be attached to the related Sale
Closing Notice delivered on the related Sale Closing Date.
<PAGE> 15
-8-
"Monthly Payment": With respect to any Mortgage Loan, the
scheduled monthly payment of principal and interest on such Mortgage Loan which
is payable by the related Mortgagor from time to time under the related Mortgage
Note, determined: (a) after giving effect to (i) any Deficient Valuation and/or
Debt Service Reduction with respect to such Mortgage Loan and (ii) any reduction
in the amount of interest collectible from the related Mortgagor pursuant to the
Relief Act; (b) without giving effect to any extension granted or agreed to by
the Sub-Servicer pursuant to Section 3.02; and (c) on the assumption that all
other amounts, if any, due under such Mortgage Loan are paid when due.
"Moody's": Moody's Investors Service, Inc. or its successor in
interest.
"Mortgage": The mortgage, deed of trust or other instrument
creating a first lien on, or first priority security interest in, a Mortgaged
Property securing a Mortgage Note.
"Mortgage File": The mortgage documents listed on Exhibit A
pertaining to a particular Mortgage Loan and any additional documents required
to be added to the Mortgage File pursuant to this Agreement.
"Mortgage Loan": Each mortgage loan the servicing of which
becomes subject to this Agreement upon delivery by the Master Servicer to the
Sub-Servicer of an Origination Closing Notice, as provided in Section 2.01.
"Mortgage Loan Schedule": With respect to each Origination
Closing Notice and Sale Closing Notice, the schedule of Mortgage Loans to be
prepared by the Originator and attached thereto on the Origination Closing Date
or Sale Closing Date, as the case may be (and attached to this Agreement as
Schedule 1) which schedule (as amended from time to time to reflect the addition
of any Qualified Substitute Mortgage Loans, the deletion of any Deleted Loan and
the sale of any Mortgage Loan servicing released) shall set forth the following
information with respect to each Mortgage Loan covered by such Origination
Closing Notice or Sale Closing Notice:
(i) the Originator's Mortgage Loan identifying number;
(ii) the Mortgagor's name;
(iii) the street address of the Mortgaged Property including the
state and zip code;
(iv) a code indicating whether the Mortgaged Property is
owner-occupied;
(v) the type of Residential Dwelling constituting the Mortgaged
Property;
(vi) the original months to maturity;
(vii) the Loan-to-Value Ratio at origination;
<PAGE> 16
-9-
(viii) the Mortgage Rate in effect immediately following the Cut-off
Date;
(ix) the date on which the first Monthly Payment was due on the
Mortgage Loan;
(x) the stated maturity date;
(xi) the amount of the Monthly Payment due on the first Due Date
after the Cut-off Date;
(xii) the last Due Date on which a Monthly Payment was actually
applied to the unpaid Stated Principal Balance;
(xiii) the original principal amount of the Mortgage Loan;
(xiv) the Scheduled Principal Balance of the Mortgage Loan as of the
close of business on the Cut-off Date;
(xv) the Gross Margin;
(xvi) a code indicating the purpose of the Mortgage Loan (i.e.,
purchase financing, rate/term refinancing, cash-out
refinancing);
(xvii) the Maximum Mortgage Rate;
(xviii) the Minimum Mortgage Rate;
(xix) the Mortgage Rate at origination;
(xx) the Periodic Rate Cap and the maximum first Adjustment Date
Mortgage Rate adjustment;
(xxi) a code indicating the documentation program (i.e., Full
Documentation, Fast Trac, QuickCredit, QuickCredit Fast Trac,
Stated Income, INSTA Credit, INSTA Credit Fast Trac);
(xxii) the first Adjustment Date immediately following the Cut-off
Date;
(xxiii) the risk grade;
(xxiv) the Value of the Mortgaged Property; and
(xxv) the sale price of the Mortgaged Property, if applicable.
The Mortgage Loan Schedule shall set forth the following
information, as of the
<PAGE> 17
-10-
Cut-off Date with respect to the related Mortgage Loans in the aggregate: (1)
the number of Mortgage Loans; (2) the current principal balance of the Mortgage
Loans; (3) the weighted average Mortgage Rate of the Mortgage Loans; and (4) the
weighted average maturity of the Mortgage Loans. The Mortgage Loan Schedule
shall be amended from time to time by the Master Servicer in accordance with the
provisions of this Agreement. With respect to any Qualified Substitute Mortgage
Loan, Cut-off Date shall refer to the related Cut-off Date for such Mortgage
Loan, determined in accordance with the definition of Cut-off Date herein.
"Mortgage Note": The original executed note or other evidence
of the indebtedness of a Mortgagor under a Mortgage Loan.
"Mortgage Rate": With respect to each Mortgage Loan, the
annual rate at which interest accrues on such Mortgage Loan from time to time in
accordance with the provisions of the related Mortgage Note. With respect to
each Mortgage Loan that becomes an REO Property, as of any date of
determination, the annual rate determined in accordance with the immediately
preceding sentence as of the date such Mortgage Loan became an REO Property.
"Mortgaged Property": The underlying property securing a
Mortgage Loan, including any REO Property.
"Mortgagor": The obligor on a Mortgage Note.
"Net Mortgage Rate": With respect to any Mortgage Loan (or the
related REO Property) as of any date of determination, a per annum rate of
interest equal to the then applicable Mortgage Rate for such Mortgage Loan minus
the Servicing Fee Rate.
"New Lease": Any lease of REO Property entered into on behalf
of a REMIC, including any lease renewed or extended on behalf of a REMIC, if the
REMIC has the right to renegotiate the terms of such lease.
"Nonrecoverable P&I Advance": Any P&I Advance previously made
or proposed to be made in respect of a Mortgage Loan or REO Property that, in
the good faith business judgment of the Sub-Servicer or the Master Servicer,
will not or, in the case of a proposed P&I Advance, would not be ultimately
recoverable from related Late Collections, Insurance Proceeds or Liquidation
Proceeds on such Mortgage Loan or REO Property as provided herein.
"Nonrecoverable Servicing Advance": Any Servicing Advance
previously made or proposed to be made in respect of a Mortgage Loan or REO
Property that, in the good faith business judgment of the Sub-Servicer or the
Master Servicer, will not or, in the case of a proposed Servicing Advance, would
not be ultimately recoverable from related Late Collections, Insurance Proceeds
or Liquidation Proceeds on such Mortgage Loan or REO Property as provided
herein.
"Officers' Certificate": A certificate signed by the Chairman
of the Board, the Vice Chairman of the Board, the President or a vice president
(however denominated), and by the
<PAGE> 18
-11-
Treasurer, the Secretary, or one of the assistant treasurers or assistant
secretaries of the Sub-Servicer or the Master Servicer, as applicable.
"Opinion of Counsel": A written opinion of counsel, who may,
without limitation, be salaried counsel for the SubServicer or the Master
Servicer acceptable to the Owner and the Certificate Insurer, if any, except
that any opinion of counsel relating to (a) the qualification of a REMIC as a
REMIC or (b) compliance with the REMIC Provisions must be an opinion of
Independent counsel.
"Origination Closing Date": The date of origination or
purchase by the Originator of any Mortgage Loan.
"Origination Closing Notice": A notification, in the form
attached as Exhibit C, from the Master Servicer to the Sub-Servicer of the
Origination Closing Date for certain Mortgage Loans.
"Originator": Long Beach Mortgage Company, or any successor
thereto, in its capacity as originator or purchaser of residential mortgage
loans.
"Owner": As of any date of determination and any Mortgage
Loan, the owner thereof, which, in the case of a Mortgage Loan deposited into a
trust, shall be the trustee for the benefit of the holders of interests in the
trust.
"Periodic Rate Cap": With respect to each Adjustable Rate
Mortgage Loan and any Adjustment Date therefor, the fixed percentage set forth
in the related Mortgage Note, which is the maximum amount by which the Mortgage
Rate for such Mortgage Loan may increase or decrease (without regard to the
Maximum Mortgage Rate or the Minimum Mortgage Rate) on such Adjustment Date from
the Mortgage Rate in effect immediately prior to such Adjustment Date.
"Permitted Investments": Any one or more of the following
obligations or securities acquired at a purchase price of not greater than par,
regardless of whether issued by the Sub-Servicer, the Master Servicer, the Owner
or any of their respective Affiliates:
(i) direct obligations of, or obligations fully
guaranteed as to timely payment of principal and interest by, the
United States or any agency or instrumentality thereof, provided such
obligations are backed by the full faith and credit of the United
States, provided, however, that any obligation of, or guaranteed by,
FHLMC or FNMA, other than a senior debt or a mortgage participation or
pass-through certificate guaranteed by FHLMC or FNMA shall be a
Permitted Investment only if, at the time of investment, such
investment is acceptable to the Certificate Insurer, if any.
(ii) demand and time deposits in, certificates of
deposit of, or bankers' acceptances (which shall each have an original
maturity of not more than 90 days and, in the case of bankers'
acceptances, shall in no event have an original maturity of more than
<PAGE> 19
-12-
365 days or a remaining maturity of more than 30 days) denominated in
United States dollars and issued by, any Depository Institution;
(iii) demand and time deposits in, certificates of
deposit of, or bankers' acceptances issued by, any Depository
Institution;
(iv) repurchase obligations with respect to any
security described in clause (i) above entered into with a Depository
Institution (acting as principal);
(v) securities bearing interest or sold at a discount
that are issued by any corporation incorporated under the laws of the
United States of America or any state thereof and that are rated by
each Rating Agency in its highest long-term unsecured rating categories
at the time of such investment or contractual commitment providing for
such investment;
(vi) commercial paper (including both
non-interest-bearing discount obligations and interest-bearing
obligations payable on demand or on a specified date not more than 30
days after the date of acquisition thereof) that is rated by each
Rating Agency in its highest short-term unsecured debt rating available
at the time of such investment;
(vii) units of money market funds that have been
rated "P-1" by Moody's and "AAAm" by S&P; and
(viii) if previously confirmed in writing to the
Owner, any other demand, money market or time deposit, or any other
obligation, security or investment, as may be acceptable to the Rating
Agencies and the Certificate Insurer, if any, under a related Master
Servicing Agreement;
provided that no instrument described hereunder shall evidence either the right
to receive (a) only interest with respect to the obligations underlying such
instrument or (b) both principal and interest payments derived from obligations
underlying such instrument and the interest and principal payments with respect
to such instrument provide a yield to maturity at par greater than 120% of the
yield to maturity at par of the underlying obligations.
"Person": Any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"P&I Advance": As to any Mortgage Loan or REO Property, any
advance made by or on behalf of the Master Servicer in respect of any
Sub-Servicer Remittance Date pursuant to Section 4.01.
"Policy": Any certificate guaranty insurance policy insuring
certain payments on obligations backed by any Mortgage Loans.
<PAGE> 20
-13-
"Prepayment Interest Shortfall": With respect to any
Sub-Servicer Remittance Date, for each Mortgage Loan that was during the related
Prepayment Period the subject of a Principal Prepayment in full or in part that
was applied by the Sub-Servicer to reduce the outstanding principal balance of
such loan on a date preceding the Due Date in the succeeding Prepayment Period,
an amount equal to interest at the applicable Net Mortgage Rate on the amount of
such Principal Prepayment for the number of days commencing on the date on which
the prepayment is applied and ending on the last day of the related Prepayment
Period. The obligations of the Sub-Servicer and the Master Servicer in respect
of any Prepayment Interest Shortfall are set forth in Section 3.17.
"Prepayment Period": With respect to any Sub-Servicer
Remittance Date, the calendar month preceding the calendar month in which such
Sub-Servicer Remittance Date occurs.
"Prepayment Premium": With respect to any Prepayment Period,
any prepayment premium, penalty or charge collected by the Sub-Servicer from a
Mortgagor in connection with any Principal Prepayment pursuant to the terms of
the related Mortgage Note.
"Principal Prepayment": Any payment of principal made by the
Mortgagor on a Mortgage Loan which is received in advance of its scheduled Due
Date and which is not accompanied by an amount of interest representing the full
amount of scheduled interest due on any Due Date in any month or months
subsequent to the month of prepayment.
"Purchase Price": With respect to any Mortgage Loan or REO
Property to be repurchased or purchased by the Originator or the Master Servicer
in connection with a breach of representations and warranties or a clean-up call
pursuant to the terms of a Master Servicing Agreement, the purchase price
required to be paid by the Originator or Master Servicer.
"Qualified Substitute Mortgage Loan": A mortgage loan
substituted by the Originator for a Mortgage Loan deleted pursuant to the terms
of a Master Servicing Agreement.
"Rating Agencies": With respect to a Master Servicing
Agreement, DCR, Fitch, Moody's and S&P or their successors. If such agencies or
their successors are no longer in existence, "Rating Agencies" shall be such
nationally recognized statistical rating agencies, or other comparable Persons,
designated in such Master Servicing Agreement, notice of which designation shall
be given to the Sub-Servicer by the Master Servicer pursuant to the related
Modification Schedule.
"Realized Loss": With respect to each Mortgage Loan as to
which a Final Recovery Determination has been made an amount (not less than
zero) equal to (i) the unpaid principal balance of such Mortgage Loan as of the
commencement of the calendar month in which the Final Recovery Determination was
made, plus (ii) accrued interest from the Due Date as to which interest was last
paid by the Mortgagor through the end of the calendar month in which such Final
Recovery Determination was made, calculated in the case of each calendar month
during such
<PAGE> 21
-14-
period (A) at an annual rate equal to the annual rate at which interest was then
accruing on such Mortgage Loan and (B) on a principal amount equal to the Stated
Principal Balance of such Mortgage Loan as of the close of business on the
Sub-Servicer Remittance Date during such calendar month, plus (iii) any amounts
previously withdrawn from the Collection Account in respect of such Mortgage
Loan pursuant to Sections 3.05(viii) and 3.09(b), minus (iv) the proceeds, if
any, received in respect of such Mortgage Loan during the calendar month in
which such Final Recovery Determination was made, net of amounts that are
payable therefrom to the Master Servicer with respect to such Mortgage Loan
pursuant Section 3.05(iii).
With respect to any REO Property as to which a Final Recovery
Determination has been made an amount (not less than zero) equal to (i) the
unpaid principal balance of the related Mortgage Loan as of the date of
acquisition of such REO Property, plus (ii) accrued interest from the Due Date
as to which interest was last paid by the Mortgagor in respect of the related
Mortgage Loan through the end of the calendar month immediately preceding the
calendar month in which such REO Property was acquired, calculated in the case
of each calendar month during such period (A) at an annual rate equal to the
annual rate at which interest was then accruing on the related Mortgage Loan and
(B) on a principal amount equal to the Stated Principal Balance of the related
Mortgage Loan as of the close of business on the Sub-Servicer Remittance Date
during such calendar month, plus (iii) REO Imputed Interest for such REO
Property for each calendar month commencing with the calendar month in which
such REO Property was acquired and ending with the calendar month in which such
Final Recovery Determination was made, plus (iv) any amounts previously
withdrawn from the Collection Account in respect of the related Mortgage Loan
pursuant to Sections 3.05(viii) and 3.09(b), minus (v) the aggregate of all P&I
Advances and Servicing Advances (in the case of Servicing Advances, without
duplication of amounts netted out of the rental income, Insurance Proceeds and
Liquidation Proceeds described in clause (vi) below) made by or on behalf of the
Master Servicer in respect of such REO Property or the related Mortgage Loan for
which the Master Servicer has been or, in connection with such Final Recovery
Determination, will be reimbursed pursuant to Section 3.16 out of rental income,
Insurance Proceeds and Liquidation Proceeds received in respect of such REO
Property, minus (vi) the total of all net rental income, Insurance Proceeds and
Liquidation Proceeds received in respect of such REO Property that has been, or
in connection with such Final Recovery Determination, will be transferred to the
Collection Account pursuant to Section 3.16.
With respect to each Mortgage Loan which has become the
subject of a Deficient Valuation, the difference between the principal balance
of the Mortgage Loan outstanding immediately prior to such Deficient Valuation
and the principal balance of the Mortgage Loan as reduced by the Deficient
Valuation.
With respect to each Mortgage Loan which has become the
subject of a Debt Service Reduction, the portion, if any, of the reduction in
each affected Monthly Payment attributable to a reduction in the Mortgage Rate
imposed by a court of competent jurisdiction. Each such Realized Loss shall be
deemed to have been incurred on the Due Date for each affected Monthly Payment.
<PAGE> 22
-15-
"Refinanced Mortgage Loan": A Mortgage Loan the proceeds of
which were not used to purchase the related Mortgaged Property.
"Relief Act": The Soldiers' and Sailors' Civil Relief Act of
1940, as amended.
"REMIC": A "real estate mortgage investment conduit" within
the meaning of Section 860D of the Code.
"REMIC Provisions": Provisions of the federal income tax law
relating to real estate mortgage investment conduits, which appear at Section
860A through 860G of the Code, and related provisions, and proposed, temporary
and final regulations and published rulings, notices and announcements
promulgated thereunder, as the foregoing may be in effect from time to time.
"Remittance Report": A report in form and substance acceptable
to the Owner on a magnetic disk or tape prepared by the Sub-Servicer pursuant to
Section 4.01 with such additions, deletions and modifications as agreed to by
the Owner and the SubServicer, which report may be in the form of ALLTEL-CPI
S-50Y.
"Rents from Real Property": With respect to any REO Property,
gross income of the character described in Section 856(d) of the Code as being
included in the term "rents from real property."
"REO Account": The account or accounts maintained, or caused
to be maintained, by the Sub-Servicer in respect of an REO Property pursuant to
Section 3.16.
"REO Disposition": The sale or other disposition of an REO
Property on behalf of the Owner.
"REO Imputed Interest": As to any REO Property, for any
calendar month during which such REO Property was at any time part of a REMIC,
one month's interest at the applicable Net Mortgage Rate on the Stated Principal
Balance of such REO Property (or, in the case of the first such calendar month,
of the related Mortgage Loan if appropriate) as of the close of business on the
Sub-Servicer Remittance Date in such calendar month.
"REO Principal Amortization": With respect to any REO
Property, for any calendar month, the excess, if any, of (a) the aggregate of
all amounts received in respect of such REO Property during such calendar month,
whether in the form of rental income, sale proceeds (including, without
limitation, that portion of the termination price paid in connection with a
purchase of all of the Mortgage Loans and REO Properties pursuant to a Master
Servicing Agreement that is allocable to such REO Property) or otherwise, net of
any portion of such amounts (i) payable pursuant to Section 3.16(c) in respect
of the proper operation, management and maintenance of such REO Property or (ii)
payable or reimbursable to the Master Servicer or the Sub-Servicer pursuant to
Section 3.16(d) for unpaid Master Servicing Fees or Sub-Servicing Fees in
respect of the related Mortgage Loan and unreimbursed Servicing Advances and P&I
Advances
<PAGE> 23
-16-
in respect of such REO Property or the related Mortgage Loan, over (b) the REO
Imputed Interest in respect of such REO Property for such calendar month.
"REO Property": A Mortgaged Property acquired by the
Sub-Servicer or the Master Servicer on behalf of the Owner through foreclosure
or deed-in-lieu of foreclosure, as described in Section 3.16.
"Request for Release": A release signed by a Servicing
Officer, in the form of Exhibit B-1 or Exhibit B-2 attached hereto.
"Residential Dwelling": Any one of the following: (i) a
detached one-family dwelling, (ii) a detached two- to four-family dwelling,
(iii) a one-family dwelling unit in a FNMA eligible condominium project, or (iv)
a detached one-family dwelling in a planned unit development, none of which is a
co-operative, mobile or manufactured home (as defined in 42 United States Code,
Section 5402(6)).
"Sale Closing Date": The date of the closing of the sale of a
Mortgage Loan by the Originator servicing retained.
"Sale Closing Notice": A notification, in the form attached as
Exhibit D, from the Master Servicer to the Sub- Servicer of the Sale Closing
Date for certain Mortgage Loans.
"Scheduled Principal Balance": With respect to any Mortgage
Loan: (a) as of the Cut-off Date, the outstanding principal balance of such
Mortgage Loan as of such date, net of the principal portion of all unpaid
Monthly Payments, if any, due on or before such date; (b) as of any Due Date
subsequent to the Cut-off Date up to and including the Due Date in the calendar
month in which a Liquidation Event occurs with respect to such Mortgage Loan,
the Scheduled Principal Balance of such Mortgage Loan as of the Cut-off Date,
minus the sum of (i) the principal portion of each Monthly Payment due on or
before such Due Date but subsequent to the Cut-off Date, whether or not
received, (ii) all Principal Prepayments received before such Due Date but after
the Cut-off Date, (iii) the principal portion of all Liquidation Proceeds and
Insurance Proceeds received before such Due Date but after the Cut-off Date, net
of any portion thereof that represents principal due (without regard to any
acceleration of payments under the related Mortgage and Mortgage Note) on a Due
Date occurring on or before the date on which such proceeds were received and
(iv) any Realized Loss incurred with respect thereto as a result of a Deficient
Valuation occurring before such Due Date, but only to the extent such Realized
Loss represents a reduction in the portion of principal of such Mortgage Loan
not yet due (without regard to any acceleration of payments under the related
Mortgage and Mortgage Note) as of the date of such Deficient Valuation; and (c)
as of any Due Date subsequent to the occurrence of a Liquidation Event with
respect to such Mortgage Loan, zero. With respect to any REO Property: (a) as of
any Due Date subsequent to the date of its acquisition on behalf of the Owner up
to and including the Due Date in the calendar month in which a Liquidation Event
occurs with respect to such REO Property, an amount (not less than zero) equal
to the Scheduled Principal Balance of the related Mortgage Loan as of the Due
Date in the calendar month in which such REO Property was acquired, minus the
<PAGE> 24
-17-
aggregate amount of REO Principal Amortization, if any, in respect of such REO
Property for all previously ended calendar months; and (b) as of any Due Date
subsequent to the occurrence of a Liquidation Event with respect to such REO
Property, zero.
"Servicing Account": The account or accounts created and
maintained pursuant to Section 3.03.
"Servicing Advances": The reasonable "out-of-pocket" costs and
expenses incurred by the Sub-Servicer in connection with a default, delinquency
or other unanticipated event in the performance of its servicing obligations,
including, but not limited to, the cost of (i) the preservation, restoration and
protection of a Mortgaged Property, (ii) any enforcement or judicial
proceedings, including foreclosures, in respect of a particular Mortgage Loan,
(iii) the management (including reasonable fees in connection therewith) and
liquidation of any REO Property, and (iv) the performance of its obligations
under Sections 3.01, 3.02, 3.07, 3.09 and 3.16. The Master Servicer shall not be
required to make any Servicing Advance in respect of a Mortgage Loan or REO
Property that, in the good faith business judgment of the Sub-Servicer or the
Master Servicer would be a Nonrecoverable Servicing Advance.
"Servicing Fee": With respect to each Mortgage Loan and for
any calendar month, an amount equal to the servicing fee payable to the Master
Servicer pursuant to the terms of any related Master Servicing Agreement.
"Servicing Fee Rate": With respect to each Mortgage Loan, the
rate per annum at which the Servicing Fee is calculated pursuant to the terms of
any related Master Servicing Agreement, as set forth on the related Modification
Schedule.
"Servicing File": With respect to each Mortgage Loan, the
items pertaining to a particular Mortgage Loan which the Owner shall deliver to
the Sub-Servicer, which shall include (i) a hard copy of the Mortgage Note, the
Mortgage (including the legal description of the Mortgaged Property), the hazard
insurance policy, the flood insurance policy (if any), information relating to
any holdback and a letter to the escrow agent assigning any holdback to the
Sub-Servicer, together with any riders or endorsements for any of the foregoing;
and (ii) a copy of each other document, in microfilm medium, in the Mortgage
File for such Mortgage Loan that is necessary for the servicing or enforcement
of the Mortgage Loan. The Servicing File shall also include any additional
documents related to the Mortgage Loan as the Sub-Servicer obtains or as may
come into the Sub-Servicer's possession from time to time which are necessary to
properly service the Mortgage Loan.
"Servicing Officer": Any officer of the Sub-Servicer involved
in, or responsible for, the administration and servicing of Mortgage Loans,
whose name and specimen signature appear on a list of servicing officers
furnished by the Sub-Servicer to the Owner (and the Master Servicer, if not the
Owner) on the first Origination Closing Date and each Sale Closing Date, as such
lists may from time to time be amended.
<PAGE> 25
-18-
"S&P": Standard & Poor's Ratings Services, a division of the
McGraw-Hill Companies, Inc., or its successor in interest.
"Stated Principal Balance": With respect to any Mortgage Loan:
(a) as of any date of determination up to but not including the Sub-Servicer
Remittance Date on which the proceeds, if any, of a Liquidation Event with
respect to such Mortgage Loan would be distributed, the Scheduled Principal
Balance of such Mortgage Loan as of the Cut-off Date, as shown in the Mortgage
Loan Schedule, minus the sum of (i) the principal portion of each Monthly
Payment due on a Due Date subsequent to the Cut-off Date, to the extent received
from the Mortgagor or advanced by or on behalf of the Master Servicer and
distributed pursuant to Section 3.04(b) on or before such date of determination,
(ii) all Principal Prepayments received after the Cut-off Date, to the extent
distributed pursuant to Section 3.04(b) on or before such date of determination,
(iii) all Liquidation Proceeds and Insurance Proceeds applied by the
Sub-Servicer as recoveries of principal in accordance with the provisions of
Section 3.09, to the extent distributed pursuant to Section 3.04(b) on or before
such date of determination, and (iv) any Realized Loss incurred with respect
thereto as a result of a Deficient Valuation made during or prior to the
Prepayment Period for the most recent Sub-Servicer Remittance Date coinciding
with or preceding such date of determination; and (b) as of any date of
determination coinciding with or subsequent to the Sub-Servicer Remittance Date
on which the proceeds, if any, of a Liquidation Event with respect to such
Mortgage Loan would be distributed, zero. With respect to any REO Property: (a)
as of any date of determination up to but not including the Sub-Servicer
Remittance Date on which the proceeds, if any, of a Liquidation Event with
respect to such REO Property would be distributed, an amount (not less than
zero) equal to the Stated Principal Balance of the related Mortgage Loan as of
the date on which such REO Property was acquired on behalf of the Owner, minus
the sum of (i) if such REO Property was acquired before the SubServicer
Remittance Date in any calendar month, the principal portion of the Monthly
Payment due on the Due Date in the calendar month of acquisition, to the extent
advanced by or on behalf of the Master Servicer and distributed pursuant to
Section 3.04(b) on or before such date of determination, and (ii) the aggregate
amount of REO Principal Amortization in respect of such REO Property for all
previously ended calendar months, to the extent distributed pursuant to Section
3.04(b) on or before such date of determination; and (b) as of any date of
determination coinciding with or subsequent to the Sub-Servicer Remittance Date
on which the proceeds, if any, of a Liquidation Event with respect to such REO
Property would be distributed, zero.
"Sub-Servicer": Ameriquest Mortgage Company or it successor in
interest hereunder, in its capacity as Sub- Servicer.
"Sub-Servicer Event of Default": One or more of the events
described in Section 6.01.
"Sub-Servicer Remittance Date": 3:00 p.m. New York time on the
later to occur of (i) the 18th day of each calendar month or, if such 18th day
is not a Business Day, the Business Day immediately succeeding such 18th day and
(ii) the third Business Day following each Determination Date.
<PAGE> 26
-19-
"Sub-Servicing Fee": With respect to each Mortgage Loan and
for any calendar month, an amount equal to one month's interest (or in the event
of any payment of interest which accompanies a Principal Prepayment in full or
in part made by the Mortgagor during such calendar month, interest for the
number of days covered by such payment of interest) at the applicable
Sub-Servicing Fee Rate on the same principal amount on which interest on such
Mortgage Loan accrues for such calendar month.
"Sub-Servicing Fee Rate": 0.45% per annum.
"Uninsured Cause": Any cause of damage to a Mortgaged Property
such that the complete restoration of such property is not fully reimbursable by
the hazard insurance policies required to be maintained pursuant to Section
3.07.
"Value": With respect to any Mortgaged Property, the lesser of
(i) the value thereof as determined by an appraisal made for the originator of
the Mortgage Loan at the time of origination of the Mortgage Loan by an
appraiser who met the minimum requirements of FNMA and FHLMC, and (ii) the
purchase price paid for the related Mortgaged Property by the Mortgagor with the
proceeds of the Mortgage Loan, provided, however, in the case of a Refinanced
Mortgage Loan, such value of the Mortgaged Property is based solely upon the
value determined by an appraisal made for the originator of such Refinanced
Mortgage Loan at the time of origination of such Refinanced Mortgage Loan by an
appraiser who met the minimum requirements of FNMA and FHLMC.
<PAGE> 27
-20-
ARTICLE II
DELIVERY OF ORIGINATION CLOSING
NOTICES AND SALE CLOSING NOTICES;
DELIVERY OF SERVICING FILES; SET-UP AND RELEASE FEES;
REPRESENTATIONS OF SUB-SERVICER
SECTION 2.01. Closing Notices.
Upon the delivery by the Master Servicer to the Sub-Servicer
of an Origination Closing Notice, together with a Mortgage Loan Schedule and a
copy of the Mortgage and Mortgage Note (any or all of which may be by facsimile
transmission), each related Mortgage Loan shall become subject to the terms of
this Agreement.
The Master Servicer shall provide the Sub-Servicer reasonable
prior notice of each Sale Closing Date, together with a preliminary Mortgage
Loan Schedule of the Mortgage Loans to be sold on such date. The Master Servicer
shall deliver to the SubServicer on each Sale Closing Date a Sale Closing
Notice, together with a final Mortgage Loan Schedule and a Modification
Schedule. Upon receipt of such Sale Closing Notice, the Sub-Servicer shall mark
its books and records to reflect the sale of such Mortgage Loans to the Owner
and establish a Collection Account and a Servicing Account (if applicable) as
designated in such Modification Schedule.
All original documents relating to the Mortgage Loans that are
not delivered to the Owner are and shall be held by the Sub-Servicer on behalf
of the Master Servicer in trust for the benefit of the Owner.
<PAGE> 28
-21-
SECTION 2.02. Delivery of Servicing Files.
The Master Servicer shall cause to be delivered to the
Sub-Servicer, within 10 days after each Origination Closing Date, the Servicing
File with respect to each Mortgage Loan, together with a list of the documents
included therein, and the SubServicer, within 15 Business Days of the date of
such delivery (or as soon thereafter as is reasonably practicable), will (a)
acknowledge its receipt of each such Servicing File and provide the Master
Servicer with an itemization of any exceptions to such list of documents or
records included in such Servicing File and (b) provide the Master Servicer with
an itemization of any other documents or records not included in such Servicing
File that are reasonably necessary to carry out its servicing obligations
hereunder. The Master Servicer shall make a good faith effort to assist the
Sub-Servicer in obtaining each such missing document or record.
SECTION 2.03. Possession of Servicing Files.
The contents of each Servicing File delivered to the
Sub-Servicer shall be held in trust by the Sub-Servicer on behalf of the Master
Servicer for the benefit of the Owner as the owner thereof, and the
Sub-Servicer's possession of the contents of each Servicing File so delivered is
for the sole purpose of servicing the related Mortgage Loan. The Sub-Servicer
may, in accordance with Accepted Servicing Practices, maintain the Servicing
Files at one or more locations other than its principal place of business, and
shall inform the Master Servicer and the Owner of each such location. The
Sub-Servicer shall release its custody of the contents of any Servicing File
only in accordance with written instructions from the Master Servicer or the
Owner. Upon request of the Master Servicer, the Sub-Servicer shall, at the
Master Servicer's expense, deliver to the Master Servicer a copy of any document
contained in any Servicing File.
SECTION 2.04. Set-Up Fee; Servicing Release Fee.
The Originator shall pay the Sub-Servicer a set-up fee of
$10.00 for each Mortgage Loan listed on an Origination Closing Notice, upon
delivery of each such Origination Closing Notice, and a servicing release fee of
$25.00 for each Mortgage Loan sold by the Originator servicing released, on the
related Sale Closing Date for each such Mortgage Loan. The Originator shall also
pay the Sub-Servicer the servicing release fee upon termination of the
Sub-Servicer as sub-servicer for any Mortgage Loans pursuant to Section 3.01(c)
hereof. Such fees shall be payable from the Originator's own funds.
SECTION 2.04. Representations and Warranties of Sub-Servicer.
(a) The Sub-Servicer hereby represents and warrants to the
Master Servicer that as of the date this Agreement and as of each Origination
Closing Date and Sale Closing Date:
(i) The Sub-Servicer is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and is duly authorized and
<PAGE> 29
-22-
qualified to transact any and all business contemplated by this
Agreement to be conducted by the Sub-Servicer in any state in which a
Mortgaged Property is located or is otherwise not required under
applicable law to effect such qualification and, in any event, is in
compliance with the doing business laws of any such State, to the
extent necessary to ensure its ability to enforce each Mortgage Loan
and to service the Mortgage Loans in accordance with the terms of this
Agreement;
(ii) The Sub-Servicer has the full power and
authority to conduct its business as presently conducted by it and to
execute, deliver and perform, and to enter into and consummate, all
transactions contemplated by this Agreement. The Sub-Servicer has duly
authorized the execution, delivery and performance of this Agreement,
has duly executed and delivered this Agreement, and this Agreement,
assuming due authorization, execution and delivery by the Master
Servicer, constitutes a legal, valid and binding obligation of the
Sub-Servicer enforceable against it in accordance with its terms except
as the enforceability thereof may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting the enforcement of creditor's
rights generally and by general principles of equity;
(iii) The execution and delivery of this Agreement by
the Sub-Servicer, the servicing of the Mortgage Loans by the
Sub-Servicer hereunder, the consummation by the Sub-Servicer of any
other of the transactions herein contemplated, and the fulfillment of
or compliance with the terms hereof are in the ordinary course of
business of the SubServicer and will not (A) result in a breach of any
term or provision of the charter or by-laws of the Sub-Servicer or (B)
conflict with, result in a breach, violation or acceleration of, or
result in a default under, the terms of any other material agreement or
instrument to which the Sub-Servicer is a party or by which it may be
bound, or any statute, order or regulation applicable to the
Sub-Servicer of any court, regulatory body, administrative agency or
governmental body having jurisdiction over the Sub-Servicer; and the
Sub-Servicer is not a party to, bound by, or in breach or violation of
any indenture or other agreement or instrument, or subject to or in
violation of any statute, order or regulation of any court, regulatory
body, administrative agency or governmental body having jurisdiction
over it, which materially and adversely affects or, to the
Sub-Servicer's knowledge, would in the future materially and adversely
affect, (x) the ability of the Sub-Servicer to perform its obligations
under this Agreement or (y) the business, operations, financial
condition, properties or assets of the Sub-Servicer taken as a whole;
(iv) The Sub-Servicer is an approved seller/servicer
for FNMA or FHLMC in good standing and is a HUD approved mortgagee
pursuant to Section 203 of the National Housing Act. No event has
occurred, including but not limited to a change in insurance coverage,
that would make the Sub-Servicer unable to comply with HUD eligibility
requirements or that would require notification to HUD;
(v) The Sub-Servicer does not believe, nor does it
have any reason or cause to believe, that it cannot perform each and
every covenant made by it and contained
<PAGE> 30
-23-
in this Agreement;
(vi) There are no actions or proceedings against, or
investigations known to it of, the Sub-Servicer before any court,
administrative or other tribunal (A) that might prohibit its entering
into this Agreement, (B) seeking to prevent the consummation of the
transactions contemplated by this Agreement or (C) that might prohibit
or materially and adversely affect the performance by the Sub-Servicer
of its obligations under, or validity or enforceability of, this
Agreement; and
(vii) No consent, approval, authorization or order of
any court or governmental agency or body is required for the execution,
delivery and performance by the Sub-Servicer of, or compliance by the
Sub-Servicer with, this Agreement or the consummation by it of the
transactions contemplated by this Agreement, except for such consents,
approvals, authorizations or orders, if any, that have been obtained
prior to the date of this Agreement.
(b) The representations and warranties set forth in Section
2.04(a) shall survive the execution and delivery of the Agreement and any
Origination Closing Date. The Sub-Servicer shall indemnify the Master Servicer
and hold it harmless against any losses, damages, penalties, fines, forfeitures,
legal fees and related costs, judgments, and other costs and expenses resulting
from any claim, demand, defense or assertion arising from, or resulting from a
breach of the Servicer's representations and warranties contained in Section
2.04(a). Such indemnification shall survive any termination or resignation of
the Sub-Servicer and any termination of this Agreement.
Upon discovery by the Sub-Servicer or the Master Servicer of a
breach of any of the representations and warranties of the Sub-Servicer set
forth in Section 2.04(a) which could materially and adversely affect the
interests of the Master Servicer, the party discovering such breach shall give
prompt written notice to the other party. Within 30 days of the earlier of the
SubServicer's discovery or the Sub-Servicer's receipt of written notice of such
a breach of the representations and warranties contained in Section 2.04(a), the
Sub-Servicer shall cure such breach in all material respects; provided that if
(i) the SubServicer is in good faith attempting to remedy such breach, (ii) the
Master Servicer will not be materially and adversely affected thereby and (iii)
the Sub-Servicer delivers an Officer's Certificate to the Master Servicer prior
to the expiration of the aforesaid 30-day period outlining the actions to be
taken by the Sub-Servicer to remedy such breach and setting forth an anticipated
date by which such remedy shall be completed, then such cure period may be
extended by the Master Servicer, in its sole discretion, for an additional
period. Any failure by the Sub-Servicer to cure a breach as provided in this
Section 2.04(b) shall constitute an Event of Default under Section 6.01.
SECTION 2.05. Representations and Warranties of the Master
Servicer.
(a) The Master Servicer hereby represents and warrants to the
Sub-Servicer that as of the date this Agreement and as of each Origination
Closing Date and Sale Closing Date:
<PAGE> 31
-24-
(i) The Master Servicer is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Delaware;
(ii) The Master Servicer has the full power and
authority to conduct its business as presently conducted by it and to
execute, deliver and perform, and to enter into and consummate, all
transactions contemplated by this Agreement. The Master Servicer has
duly authorized the execution, delivery and performance of this
Agreement, has duly executed and delivered this Agreement, and this
Agreement, assuming due authorization, execution and delivery by the
Sub-Servicer, constitutes a legal, valid and binding obligation of the
Master Servicer enforceable against it in accordance with its terms
except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization or similar laws affecting the enforcement of
creditor's rights generally and by general principles of equity;
(iii) The execution and delivery of this Agreement by
the Master Servicer, the consummation by the Master Servicer of any
other of the transactions herein contemplated, and the fulfillment of
or compliance with the terms hereof are in the ordinary course of
business of the Master Servicer and will not (A) result in a breach of
any term or provision of the charter or by-laws of the Master Servicer
or (B) conflict with, result in a breach, violation or acceleration of,
or result in a default under, the terms of any other material agreement
or instrument to which the Master Servicer is a party or by which it
may be bound, or any statute, order or regulation applicable to the
Master Servicer of any court, regulatory body, administrative agency or
governmental body having jurisdiction over the Master Servicer; and the
Master Servicer is not a party to, bound by, or in breach or violation
of any indenture or other agreement or instrument, or subject to or in
violation of any statute, order or regulation of any court, regulatory
body, administrative agency or governmental body having jurisdiction
over it, which materially and adversely affects or, to the Master
Servicer's knowledge, would in the future materially and adversely
affect, (x) the ability of the Master Servicer to perform its
obligations under this Agreement or (y) the business, operations,
financial condition, properties or assets of the Master Servicer taken
as a whole;
(iv) The Master Servicer does not believe, nor does
it have any reason or cause to believe, that it cannot perform each and
every covenant made by it and contained in this Agreement;
(v) There are no actions or proceedings against, or
investigations known to it of, the Master Servicer before any court,
administrative or other tribunal (A) that might prohibit its entering
into this Agreement, (B) seeking to prevent the consummation of the
transactions contemplated by this Agreement or (C) that might prohibit
or materially and adversely affect the performance by the Master
Servicer of its obligations under, or validity or enforceability of,
this Agreement; and
(vi) No consent, approval, authorization or order of
any court or
<PAGE> 32
-25-
governmental agency or body is required for the execution, delivery and
performance by the Master Servicer of, or compliance by the Master
Servicer with, this Agreement or the consummation by it of the
transactions contemplated by this Agreement, except for such consents,
approvals, authorizations or orders, if any, that have been obtained
prior to the date of this Agreement.
(b) The representations and warranties set forth in Section
2.05(a) shall survive the execution and delivery of the Agreement and any
Origination Closing Date. The Master Servicer shall indemnify the Sub-Servicer
and hold it harmless against any losses, damages, penalties, fines, forfeitures,
legal fees and related costs, judgments, and other costs and expenses resulting
from any claim, demand, defense or assertion arising from, or resulting from a
breach of the Master Servicer's representations and warranties contained in
Section 2.05(a). Such indemnification shall survive any termination or
resignation of the Sub-Servicer and any termination of this Agreement.
Upon discovery by the Sub-Servicer or the Master Servicer of a
breach of any of the representations and warranties of the Master Servicer set
forth in Section 2.05(a) which could materially and adversely affect the
interests of the Sub-Servicer, the party discovering such breach shall give
prompt written notice to the other party. Within 30 days of the earlier of the
Master Servicer's discovery or the Master Servicer's receipt of written notice
of such a breach of the representations and warranties contained in Section
2.05(a), the Master Servicer shall cure such breach in all material respects;
provided that if (i) the Master Servicer is in good faith attempting to remedy
such breach, (ii) the Sub-Servicer will not be materially and adversely affected
thereby and (iii) the Master Servicer delivers an officer's certificate to the
Sub-Servicer prior to the expiration of the aforesaid 30-day period outlining
the actions to be taken by the Master Servicer to remedy such breach and setting
forth an anticipated date by which such remedy shall be completed, then such
cure period may be extended by the Sub-Servicer, in its sole discretion, for an
additional period.
<PAGE> 33
-26-
ARTICLE III
ADMINISTRATION AND SERVICING
OF THE MORTGAGE LOANS
SECTION 3.01. Sub-Servicer to Act as Sub-Servicer.
(a) The Sub-Servicer shall service and administer the Mortgage
Loans on behalf of the Master Servicer and in the best interests of and for the
benefit (as determined by the Sub-Servicer in its reasonable judgment) of the
Owner and the Certificate Insurer, if any, in accordance with the terms of this
Agreement and the respective Mortgage Loans and, to the extent consistent with
such terms, in the same manner in which it services and administers similar
mortgage loans for its own portfolio, giving due consideration to customary and
usual standards of practice of mortgage lenders and loan servicers administering
similar mortgage loans but without regard to:
(i) any relationship that the Sub-Servicer, the
Master Servicer or any Affiliate of the Sub-Servicer or the Master
Servicer may have with the related Mortgagor;
(ii) the ownership of any interest in any Mortgage
Loan by the Sub-Servicer or any Affiliate of the Sub-Servicer; or
(iv) the Sub-Servicer's right to receive compensation
for its services hereunder or with respect to any particular
transaction.
To the extent consistent with the foregoing, the Sub-Servicer shall also seek to
maximize the timely and complete recovery of principal and interest on the
Mortgage Notes. Subject only to the above-described servicing standards and the
terms of this Agreement and of the respective Mortgage Loans, the Sub-Servicer
shall have full power and authority to do or cause to be done any and all things
in connection with such servicing and administration which it may deem necessary
or desirable. Without limiting the generality of the foregoing, the Sub-Servicer
in its own name may, when it believes it appropriate in its best judgment in
accordance with the servicing standards set forth above, to execute and deliver,
on behalf of the Owner, and upon notice to the Owner, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge, and
all other comparable instruments, with respect to the Mortgage Loans and the
Mortgaged Properties and to institute foreclosure proceedings or obtain a
deed-in-lieu of foreclosure so as to convert the ownership of such properties,
and to hold or cause to be held title to such properties, on behalf of the
Owner. The Sub-Servicer shall service and administer the Mortgage Loans in
accordance with applicable state and federal law and shall provide to the
Mortgagors any reports required to be provided to them thereby. The Sub-Servicer
shall also comply in the performance of this Agreement with all reasonable rules
and requirements of each insurer under any standard hazard insurance policy.
Subject to Section 3.10, the Sub-Servicer may request, and the Master Servicer
shall use reasonable efforts to furnish or cause to be furnished, any special or
limited powers of attorney and other documents necessary or appropriate to
enable the Sub-Servicer to carry out its
<PAGE> 34
-27-
servicing and administrative duties hereunder and the Master Servicer hereby
grants to the Sub-Servicer a power of attorney to carry out such duties. Neither
the Master Servicer nor the Owner shall be liable for the actions of the
Sub-Servicer under such powers of attorney.
In accordance with the servicing standards set forth above,
the Sub-Servicer shall withdraw from the Advance Account and advance funds as
necessary for the purpose of effecting the timely payment of taxes and
assessments on the Mortgaged Properties, which advances shall be Servicing
Advances reimbursable in the first instance from related collections from the
Mortgagors pursuant to Section 3.03, and further as provided in Section 3.05.
Notwithstanding anything to the contrary herein, the Sub-Servicer shall only be
entitled to withdraw amounts from the Advance Account for any such Servicing
Advance if it has given the Master Servicer one Business Days prior written
notice by facsimile transmission specifying the amount and timing of such
Advance. Any cost incurred by the Sub-Servicer or the Master Servicer in
effecting the timely payment of taxes and assessments on a Mortgaged Property
shall not, for the purpose of calculating distributions to the Owner, be added
to the unpaid principal balance of the related Mortgage Loan, notwithstanding
that the terms of such Mortgage Loan so permit.
Notwithstanding anything in this Agreement to the contrary,
the Sub-Servicer may not make any future advances with respect to a Mortgage
Loan (except as provided in Section 4.01) and the Sub-Servicer shall not (unless
the Mortgagor is in default with respect to the Mortgage Loan or such default
is, in the judgment of the Sub-Servicer, reasonably foreseeable) (i) permit any
modification with respect to any Mortgage Loan that would change the Mortgage
Rate, reduce or increase the principal balance (except for reductions resulting
from actual payments of principal) or change the final maturity date on such
Mortgage Loan or (ii) permit any modification, waiver or amendment of any term
of any Mortgage Loan that would, if such Mortgage Loan were an asset of a trust
fund with respect to which a REMIC election has been made, both (A) effect an
exchange or reissuance of such Mortgage Loan under Section 1001 of the Code (or
final, temporary or proposed Treasury regulations promulgated thereunder) and
(B) cause such REMIC to fail to qualify as a REMIC under the Code or the
imposition of any tax on "prohibited transactions" or "contributions after the
startup date" under the REMIC Provisions. Notwithstanding the foregoing, prior
to the Sale Closing Date for any Mortgage Loan, the Sub-Servicer shall not
permit any modification with respect to any such Mortgage Loan that is subject
to a security interest granted by the Originator, without the consent of the
Originator.
(b) The Sub-Servicer may not delegate its responsibilities
under this Agreement. This Agreement is between the Sub-Servicer and the Master
Servicer alone, and any Owner (other than the Originator) and any Certificate
Insurer shall not be deemed parties hereto and shall have no claims, rights,
obligations, duties or liabilities with respect to the Sub-Servicer except as
set forth in Section 3.01(c). The Master Servicer shall be solely liable for all
fees owed by it to the Sub-Servicer, irrespective of whether the Master
Servicer's compensation is sufficient to pay such fees.
(c) In the event the Master Servicer shall for any reason no
longer be the master servicer with respect to any Mortgage Loans (including by
reason of the occurrence of a Master Servicer event of default under a Master
Servicing Agreement), the Owner of such Mortgage Loans or its designee may
thereupon assume all of the rights and obligations of the Master Servicer with
respect to such Mortgage Loans under this Agreement, unless the Owner elects to
terminate this Agreement with respect to such Mortgage Loans. Any such
termination by the Owner shall be
<PAGE> 35
-28-
without fee payable by the Owner to the Sub-Servicer. Upon any such assumption,
the Owner, its designee or the successor servicer for the Owner shall be deemed
to have assumed all of the Master Servicer's interest herein with respect to
such Mortgage Loans and to have replaced the Master Servicer as a party to this
Agreement with respect to such Mortgage Loans to the same extent as if this
Agreement had been assigned to the assuming party, except that (i) the Master
Servicer shall not thereby be relieved of any liability or obligations under
this Agreement and (ii) none of the Owner, its designee or any successor Master
Servicer shall be deemed to have assumed any liability or obligation of the
Master Servicer that arose before it ceased to be the Master Servicer.
SECTION 3.02. Collection of Certain Mortgage Loan Payments.
The Sub-Servicer shall make reasonable efforts to collect all
payments called for under the terms and provisions of the Mortgage Loans, and
shall, to the extent such procedures shall be consistent with this Agreement,
follow such collection procedures as it would follow with respect to mortgage
loans comparable to the Mortgage Loans and held for its own account. Consistent
with the foregoing, the Sub-Servicer may in its discretion (i) waive any late
payment charge or, if applicable, penalty interest, and (ii) extend the due
dates for the Monthly Payments due on a Mortgage Note for a period of not
greater than 180 days; provided that any extension pursuant to clause (ii) above
shall not affect the amortization schedule of any Mortgage Loan for purposes of
any computation hereunder.
<PAGE> 36
-29-
SECTION 3.03. Collection of Taxes, Assessments and Similar
Items; Servicing Accounts.
The Sub-Servicer shall establish and maintain, or cause to be
established and maintained, one or more accounts (the "Servicing Accounts"),
into which all collections from the Mortgagors for the payment of taxes,
assessments, hazard insurance premiums and comparable items for the account of
the Mortgagors ("Escrow Payments") shall be deposited and retained. Servicing
Accounts shall be Eligible Accounts. The Sub-Servicer shall deposit in the
Servicing Account on a daily basis all Escrow Payments collected on account of
the Mortgage Loans for the purpose of effecting the timely payment of any such
items as required under the terms of this Agreement. Withdrawals of amounts from
a Servicing Account may be made only to (i) effect timely payment of taxes,
assessments, hazard insurance premiums, and comparable items; (ii) reimburse the
Master Servicer out of related collections for any advances made pursuant to
Section 3.01 (with respect to taxes and assessments) and Section 3.07 (with
respect to hazard insurance); (iii) refund to Mortgagors any sums as may be
determined to be overages; (iv) pay interest, if required and as described
below, to Mortgagors on balances in the Servicing Account; or (v) clear and
terminate the Servicing Account at the termination of the SubServicer's
obligations and responsibilities in respect of the Mortgage Loans under this
Agreement. As part of its servicing duties, the Sub-Servicer shall pay to the
Mortgagors interest on funds in Servicing Accounts, to the extent required by
law and, to the extent that interest earned on funds in the Servicing Accounts
is insufficient, to pay such interest from its or their own funds, which amount
shall be reimbursed by the Master Servicer to the Sub-Servicer promptly after
demand therefor. To the extent that a Mortgage does not provide for Escrow
Payments, the Sub-Servicer shall determine that any such payments are made by
the Mortgagor at the time they first become due. The Sub-Servicer assumes full
responsibility for the timely payment of all such bills and shall effect timely
payments of all such bills irrespective of the Mortgagor's faithful performance
in the payment of same or the making of the Escrow Payments and shall withdraw
from the Advance Account and make advances to effect such payments.
SECTION 3.04. Collection Account.
(a) The Sub-Servicer shall establish and maintain, or cause to
be established and maintained, one or more accounts (such account or accounts,
the "Collection Account"), held in trust for the benefit of the Owner. On behalf
of the Owner, the Sub-Servicer shall deposit or cause to be deposited on a daily
basis, as and when received or as otherwise required hereunder, the following
payments and collections received or made by it subsequent to the related
Origination Closing Date:
(i) all payments on account of principal, including
Principal Prepayments, on the Mortgage Loans;
(ii) all payments on account of interest (net of the
related Sub-Servicing Fee and, if the Originator is not the Owner, net
of the Master Servicing Fee) on
<PAGE> 37
-30-
each Mortgage Loan;
(iii) all Insurance Proceeds and Liquidation
Proceeds;
(iv) any amounts received from the Master Servicer
pursuant to Section 3.06 in connection with any losses realized on
Permitted Investments with respect to funds held in the Collection
Account;
(v) any P&I Advances, as required pursuant to Section
4.01;
(vi) any amounts required to be deposited pursuant to
Section 3.16(d) or (f) in connection with any REO Property;
(vii) any amounts required to be deposited pursuant
to Section 3.17 in connection with any Prepayment Interest Shortfalls;
(viii) any amounts required to be deposited by the
Sub-Servicer pursuant to the second paragraph of Section 3.07(a) in
respect of any blanket policy deductibles; and
(ix) if the Originator is the Owner, payments in the
nature of late payment charges, demand fees, modification or assumption
fees and Prepayment Premiums.
The foregoing requirements for deposit in the Collection
Accounts shall be exclusive, it being understood and agreed that, without
limiting the generality of the foregoing, if the Originator is not the Owner,
payments in the nature of late payment charges, demand fees, modification or
assumption fees and Prepayment Premiums shall not be deposited by the
Sub-Servicer in the Collection Account and shall be paid by the Sub-Servicer,
together with the Master Servicing Fee, as additional compensation to the Master
Servicer. Insufficient funds charges need not be deposited in the Collection
Account and shall be retained by the SubServicer. In the event the Sub-Servicer
shall deposit in the Collection Account any amount not required to be deposited
therein, it may at any time withdraw such amount from the Collection Account,
any provision herein to the contrary notwithstanding.
(b) The Sub-Servicer shall deliver to the Owner as directed by
the Master Servicer in immediately available funds on or before 3:00 p.m. New
York time (i) on the Sub-Servicer Remittance Date, that portion of the Available
Distribution Amount for the related Sub-Servicer Remittance Date then on deposit
in the Collection Account, and (ii) on each Business Day as of the commencement
of which the balance on deposit in the Collection Account exceeds $75,000
following any withdrawals pursuant to the next succeeding sentence, the amount
of such excess, but only if the Collection Account constitutes an Eligible
Account solely pursuant to clause (ii) of the definition of "Eligible Account."
If the balance on deposit in the Collection Account exceeds $75,000 as of the
commencement of business on any Business Day and the Collection
<PAGE> 38
-31-
Account constitutes an Eligible Account solely pursuant to clause (ii) of the
definition of "Eligible Account," the Sub-Servicer shall, on or before 3:00 p.m.
New York time on such Business Day, withdraw from the Collection Account any and
all amounts payable or reimbursable to itself or the Master Servicer pursuant to
Section 3.05 and shall pay such amounts to the Persons entitled thereto.
(c) Funds in the Collection Account may be invested in
Permitted Investments in accordance with the provisions set forth in Section
3.06. The Sub-Servicer shall give notice to the Master Servicer of the location
of the Collection Account maintained by it when established and prior to any
change thereof.
SECTION 3.05. Withdrawals from the Collection Account.
The Sub-Servicer shall, from time to time, make withdrawals
from the Collection Account for any of the following purposes or as described in
Section 4.01:
(i) to remit funds required to be so remitted
pursuant to Section 3.04(b);
(ii) subject to Section 3.16(d) and Section 4.01, to
reimburse the Master Servicer for P&I Advances, but only to the extent
of amounts received which represent Late Collections (net of the
related Servicing Fees) of Monthly Payments on Mortgage Loans with
respect to which such P&I Advances were made in accordance with the
provisions of Section 4.01;
(iii) subject to Sections 3.09(d) and 4.01, (a) to
pay the Master Servicer and the Sub-Servicer any unpaid Master
Servicing Fees and Sub-Servicing Fees, (b) to pay to the Master
Servicer any unreimbursed Servicing Advances with respect to each
Mortgage Loan, but only to the extent of any Late Collections,
Liquidation Proceeds and Insurance Proceeds received with respect to
such Mortgage Loan, and (c) to pay to the Master Servicer any
Nonrecoverable Servicing Advances with respect to the final liquidation
of a Mortgage Loan, but only to the extent that Late Collections,
Liquidation Proceeds and Insurance Proceeds received with respect to
such Mortgage Loan are insufficient to reimburse the Master Servicer
for Servicing Advances;
(iv) to pay to the Master Servicer as servicing
compensation (in addition to the Master Servicing Fee), within 45 days
after receipt by the Sub-Servicer of each monthly bank statement in
respect of the Collection Account, any interest or investment income
earned on funds deposited in the Collection Account;
(v) to pay to any Person who has purchased a Mortgage
Loan servicing released, repurchased a Mortgage Loan or substituted a
Qualified Substitute Mortgage Loan in exchange for a Deleted Mortgage
Loan, all amounts received thereon subsequent to the date of purchase
or substitution, as the case may be;
<PAGE> 39
-32-
(vi) subject to Section 4.01, to reimburse the Master
Servicer for any P&I Advance previously made which the Sub-Servicer or
the Master Servicer has determined to be a Nonrecoverable P&I Advance;
(vii) to reimburse the Master Servicer or any other
Person entitled to reimbursement for expenses incurred in connection
with the Mortgage Loans to the extent provided in any related Master
Servicing Agreement;
(viii) to pay, or to reimburse the Master Servicer
for advances in respect of, expenses incurred in connection with any
Mortgage Loan pursuant to Section 3.09(b); and
(ix) to clear and terminate the Collection Account
upon termination of this Agreement.
The Sub-Servicer shall keep and maintain separate accounting,
on a Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawal from the Collection Account pursuant to subclauses (ii), (iii), (iv),
(v), (vii) and (viii) above.
SECTION 3.06. Investment of Funds in the Collection Account.
(a) The Master Servicer may instruct any depository
institution maintaining the Collection Account to invest the funds in such
Collection Account in one or more Permitted Investments bearing interest or sold
at a discount, and maturing, unless payable on demand, no later than the
Business Day immediately preceding the date on which such funds are required to
be withdrawn from such account pursuant to this Agreement. All such Permitted
Investments shall be held to maturity, unless payable on demand. Any investment
of funds in the Collection Account shall be made in the name of the Owner (in
its capacity as such) or in the name of a nominee of the Owner. The Owner shall
be entitled to sole possession over each such investment, and any certificate or
other instrument evidencing any such investment shall be delivered directly to
the Owner or its agent, together with any document of transfer necessary to
transfer title to such investment to the Owner or its nominee. In the event
amounts on deposit in the Collection Account are at any time invested in a
Permitted Investment payable on demand, the Owner shall be obligated (hereunder
and under the Master Servicing Agreement) to:
(x) consistent with any notice required to be given
thereunder, demand that payment thereon be made on the last day such
Permitted Investment may otherwise mature hereunder in an amount equal
to the lesser of (1) all amounts then payable thereunder and (2) the
amount required to be withdrawn on such date; and
(y) demand payment of all amounts due thereunder
promptly upon determination by the Owner that such Permitted Investment
would not constitute a Permitted Investment in respect of funds
thereafter on deposit in
<PAGE> 40
-33-
the Collection Account.
(b) All income and gain realized from the investment of funds
deposited in the Collection Account and the REO Account held by the Sub-Servicer
shall be for the benefit of the Master Servicer and shall be subject to its
withdrawal in accordance with Section 3.05. The Master Servicer shall deposit in
the Collection Account the amount of any loss of principal incurred in respect
of any such Permitted Investment made with funds in such accounts immediately
upon realization of such loss.
(c) Except as otherwise expressly provided in this Agreement,
if any default occurs in the making of a payment due under any Permitted
Investment, or if a default occurs in any other performance required under any
Permitted Investment, the Owner may take such action as may be appropriate to
enforce such payment or performance, including the institution and prosecution
of appropriate proceedings.
<PAGE> 41
-34-
SECTION 3.07. Maintenance of Hazard Insurance and Errors and
Omissions and Fidelity Coverage.
(a) The Sub-Servicer shall cause to be maintained for each
Mortgage Loan fire insurance with extended coverage on the related Mortgaged
Property in an amount which is at least equal to the least of (i) the current
principal balance of such Mortgage Loan, (ii) the amount necessary to fully
compensate for any damage or loss to the improvements that are a part of such
property on a replacement cost basis and (iii) the maximum insurable value of
the improvements which are part of such Mortgaged Property, in each case in an
amount not less than such amount as is necessary to avoid the application of any
coinsurance clause contained in the related hazard insurance policy. The
Sub-Servicer shall also cause to be maintained fire insurance with extended
coverage on each REO Property in an amount which is at least equal to the lesser
of (i) the maximum insurable value of the improvements which are a part of such
property and (ii) the outstanding principal balance of the related Mortgage Loan
at the time it became an REO Property, plus accrued interest at the Mortgage
Rate, and related Servicing Advances. The Sub-Servicer will comply in the
performance of this Agreement with all reasonable rules and requirements of each
insurer under any such hazard policies. Any amounts to be collected by the
Sub-Servicer under any such policies (other than amounts to be applied to the
restoration or repair of the property subject to the related Mortgage or amounts
to be released to the Mortgagor in accordance with the procedures that the
Sub-Servicer would follow in servicing loans held for its own account, subject
to the terms and conditions of the related Mortgage and Mortgage Note) shall be
deposited in the Collection Account, subject to withdrawal pursuant to Section
3.05, if received in respect of a Mortgage Loan, or in the REO Account, subject
to withdrawal pursuant to Section 3.16, if received in respect of an REO
Property. Any cost incurred by the Sub-Servicer in maintaining any such
insurance shall be paid by a Servicing Advance from the Advance Account. It is
understood and agreed that no earthquake or other additional insurance is to be
required of any Mortgagor other than pursuant to such applicable laws and
regulations as shall at any time be in force and as shall require such
additional insurance. If the Mortgaged Property or REO Property is at any time
in an area identified in the Federal Register by the Federal Emergency
Management Agency as having special flood hazards and flood insurance has been
made available, the Sub-Servicer will cause to be maintained a flood insurance
policy in respect thereof. Such flood insurance shall be in an amount equal to
the lesser of (i) the unpaid principal balance of the related Mortgage Loan and
(ii) the maximum amount of such insurance available for the related Mortgaged
Property under the national flood insurance program (assuming that the area in
which such Mortgaged Property is located is participating in such program).
In the event that the Sub-Servicer shall obtain and maintain a
blanket policy with an insurer having a General Policy Rating of A:X or better
in Best's Key Rating Guide (or such other rating that is comparable to such
rating) insuring against hazard losses on all of the Mortgage Loans, it shall
conclusively be deemed to have satisfied its obligations as set forth in the
first two sentences of this Section 3.07, it being understood and agreed that
such policy may contain a deductible clause, in which case the Sub-Servicer
shall, in the event that there shall not have been maintained on the related
Mortgaged Property or REO Property a policy complying with the first
<PAGE> 42
-35-
two sentences of this Section 3.07, and there shall have been one or more losses
which would have been covered by such policy, deposit to the Collection Account
from its own funds the amount not otherwise payable under the blanket policy
because of such deductible clause. In connection with its activities as
administrator and servicer of the Mortgage Loans, the Sub-Servicer agrees to
prepare and present, on behalf of itself, the Master Servicer, the Owner and any
Certificate Insurer, claims under any such blanket policy in a timely fashion in
accordance with the terms of such policy.
(b) The Sub-Servicer shall keep in force during the term of
this Agreement a policy or policies of insurance covering errors and omissions
for failure in the performance of the Sub-Servicer's obligations under this
Agreement, which policy or policies shall be in such form and amount that would
meet the requirements of FNMA or FHLMC if it were the purchaser of the Mortgage
Loans, unless the Sub-Servicer has obtained a waiver of such requirements from
FNMA or FHLMC. The Sub-Servicer shall also maintain a fidelity bond in the form
and amount that would meet the requirements of FNMA or FHLMC, unless the
Sub-Servicer has obtained a waiver of such requirements from FNMA or FHLMC. The
Sub-Servicer shall be deemed to have complied with this provision if an
Affiliate of the Sub-Servicer has such errors and omissions and fidelity bond
coverage and, by the terms of such insurance policy or fidelity bond, the
coverage afforded thereunder extends to the Sub-Servicer. Any such errors and
omissions policy and fidelity bond shall by its terms not be cancelable without
thirty days' prior written notice to the Master Servicer and the Owner.
<PAGE> 43
-36-
SECTION 3.08. Enforcement of Due-On-Sale Clauses; Assumption
Agreements.
The Sub-Servicer will, to the extent it has actual knowledge
of any conveyance or prospective conveyance of any Mortgaged Property by any
Mortgagor (whether by absolute conveyance or by contract of sale, and whether or
not the Mortgagor remains or is to remain liable under the Mortgage Note and/or
the Mortgage), exercise its rights to accelerate the maturity of such Mortgage
Loan under the "due-on-sale" clause, if any, applicable thereto; provided,
however, that the Sub-Servicer shall not exercise any such rights if prohibited
by law from doing so. If the Sub-Servicer reasonably believes it is unable under
applicable law to enforce such "due-on-sale" clause, or if any of the other
conditions set forth in the proviso to the preceding sentence apply, the
Sub-Servicer will enter into an assumption and modification agreement from or
with the person to whom such property has been conveyed or is proposed to be
conveyed, pursuant to which such person becomes liable under the Mortgage Note
and, to the extent permitted by applicable state law, the Mortgagor remains
liable thereon. The Sub-Servicer is also authorized to enter into a substitution
of liability agreement with such person, pursuant to which the original
Mortgagor is released from liability and such person is substituted as the
Mortgagor and becomes liable under the Mortgage Note, provided that no such
substitution shall be effective unless such person satisfies the underwriting
criteria of the Sub-Servicer and has a credit risk rating at least equal to that
of the original Mortgagor. In connection with any assumption or substitution,
the Sub-Servicer shall apply such underwriting standards and follow such
practices and procedures as shall be normal and usual in its general mortgage
servicing activities and as it applies to other mortgage loans owned solely by
it. The Sub-Servicer shall not take or enter into any assumption and
modification agreement, however, unless (to the extent practicable in the
circumstances) it shall have received confirmation, in writing, of the continued
effectiveness of any applicable hazard insurance policy. Any fee collected by
the Sub-Servicer in respect of an assumption, modification or substitution of
liability agreement shall be paid to the Master Servicer. In connection with any
such assumption, no material term of the Mortgage Note (including but not
limited to the related Mortgage Rate and the amount of the Monthly Payment) may
be amended or modified, except as otherwise required pursuant to the terms
thereof. The Sub-Servicer shall notify the Master Servicer and the Owner that
any such substitution, modification or assumption agreement has been completed
by forwarding to the Owner the executed original of such substitution,
modification or assumption agreement, which document shall be added to the
related Mortgage File and shall, for all purposes, be considered a part of such
Mortgage File to the same extent as all other documents and instruments
constituting a part thereof.
Notwithstanding the foregoing paragraph or any other provision
of this Agreement, the Sub-Servicer shall not be deemed to be in default, breach
or any other violation of its obligations hereunder by reason of any assumption
of a Mortgage Loan by operation of law or by the terms of the Mortgage Note or
any assumption which the Sub-Servicer may be restricted by law from preventing,
for any reason whatever. For purposes of this Section 3.08, the term
"assumption" is deemed to also include a sale of the Mortgaged Property subject
to the Mortgage that is not accompanied by an assumption or substitution of
liability agreement.
<PAGE> 44
-37-
SECTION 3.09. Realization Upon Defaulted Mortgage Loans.
(a) The Sub-Servicer shall use its best efforts, consistent
with Accepted Servicing Practices, to foreclose upon or otherwise comparably
convert the ownership of properties securing such of the Mortgage Loans as come
into and continue in default and as to which no satisfactory arrangements can be
made for collection of delinquent payments pursuant to Section 3.02. The Master
Servicer shall be responsible for all costs and expenses incurred by the
Sub-Servicer in any such proceedings as provided in Section 3.19; provided,
however, that such costs and expenses will be recoverable as Servicing Advances
by the Master Servicer as contemplated by Sections 3.05 and 3.16. The foregoing
is subject to the provision that, in any case in which Mortgaged Property shall
have suffered damage from an Uninsured Cause, the Master Servicer shall not be
required to expend its own funds toward the restoration of such property unless
it shall determine in its discretion that such restoration will increase the
proceeds of liquidation of the related Mortgage Loan after reimbursement of the
Master Servicer for such expenses.
(b) Notwithstanding the foregoing provisions of this Section
3.09 or any other provision of this Agreement, with respect to any Mortgage Loan
as to which the Sub-Servicer has received actual notice of, or has actual
knowledge of, the presence of any toxic or hazardous substance on the related
Mortgaged Property, the Sub-Servicer shall not, on behalf of the Owner, either
(i) obtain title to such Mortgaged Property as a result of or in lieu of
foreclosure or otherwise, or (ii) otherwise acquire possession of, or take any
other action with respect to, such Mortgaged Property, if, as a result of any
such action, the Master Servicer, the Owner or the Certificate Insurer would be
considered to hold title to, to be a "mortgagee-in-possession" of, or to be an
"owner" or "operator" of such Mortgaged Property within the meaning of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended from time to time, or any comparable law, unless the Sub-Servicer has
also previously determined, based on its reasonable judgment and a report
prepared by a Person who regularly conducts environmental audits using customary
industry standards, that:
(1) such Mortgaged Property is in compliance with
applicable environmental laws or, if not, that it would be in the best
economic interest of the Owner to take such actions as are necessary to
bring the Mortgaged Property into compliance therewith; and
(2) there are no circumstances present at such
Mortgaged Property relating to the use, management or disposal of any
hazardous substances, hazardous materials, hazardous wastes, or
petroleum-based materials for which investigation, testing, monitoring,
containment, clean-up or remediation could be required under any
federal, state or local law or regulation, or that if any such
materials are present for which such action could be required, that it
would be in the best economic interest of the Owner to take such
actions with respect to the affected Mortgaged Property.
<PAGE> 45
-38-
The cost of the environmental audit report contemplated by
this Section 3.09 shall be withdrawn by the Sub-Servicer from the Advance
Account and advanced by the Sub- Servicer, subject to the Master Servicer's
right to be reimbursed therefor from the Collection Account as provided in
Section 3.05(viii), such right being prior to the rights of the Owner to receive
any amount in the Collection Account received in respect of the affected
Mortgage Loan or other Mortgage Loans.
If the Sub-Servicer determines, as described above, that it is
in the best economic interests of the Owner to take such actions as are
necessary to bring any such Mortgaged Property into compliance with applicable
environmental laws, or to take such action with respect to the containment,
clean-up or remediation of hazardous substances, hazardous materials, hazardous
wastes or petroleum-based materials affecting any such Mortgaged Property, then
the Sub-Servicer shall take such action as it deems to be in the best economic
interests of the Owner. The cost of any such compliance, containment, cleanup or
remediation shall be withdrawn by the Sub-Servicer from the Advance Account and
advanced by the Sub-Servicer, subject to the Master Servicer's right to be
reimbursed therefor in accordance with the preceding paragraph.
(c) Intentionally deleted.
(d) Proceeds received in connection with any Final Recovery
Determination, as well as any recovery resulting from a partial collection of
Insurance Proceeds or Liquidation Proceeds, in respect of any Mortgage Loan,
will be applied in the following order of priority: first, to reimburse the
Master Servicer for any related unreimbursed Servicing Advances and P&I
Advances, pursuant to Section 3.05(ii) or (iii); second, to accrued and unpaid
interest on the Mortgage Loan, to the date of the Final Recovery Determination,
or to the Due Date prior to the Sub-Servicer Remittance Date on which such
amounts are to be distributed if not in connection with a Final Recovery
Determination; and third, as a recovery of principal of the Mortgage Loan. If
the amount of the recovery so allocated to interest is less than the full amount
of accrued and unpaid interest due on such Mortgage Loan, the amount of such
recovery will be allocated by the Sub-Servicer as follows: first, to unpaid
Master Servicing Fees and Sub-Servicing Fees; and second, to the balance of the
interest then due and owing. The portion of the recovery so allocated to unpaid
Master Servicing Fees and Sub-Servicing Fees shall be reimbursed to the Master
Servicer and the Sub-Servicer pursuant to Section 3.05(iii). The portion of the
recovery allocated to interest (net of unpaid Master Servicing Fees and
Sub-Servicing Fees) and the portion of the recovery allocated to principal of
the Mortgage Loan shall be applied as follows: first, to reimburse the Master
Servicer for any related unreimbursed P&I Advances and Servicing Advances in
accordance with Section 3.05, and second, as part of the amounts to be
transferred as part of the Available Distribution Amount in accordance with
Section 3.04(b).
SECTION 3.10. Cooperation; Release of Mortgage Files.
(a) Upon the payment in full of any Mortgage Loan, or the
receipt by the Sub-Servicer of a notification that payment in full shall be
escrowed in a manner customary for such purposes, the Sub-Servicer will
immediately notify the Master Servicer, the Owner and any
<PAGE> 46
-39-
Certificate Insurer by a certification in the form of Exhibit B-2 (which
certification shall include a statement to the effect that all amounts received
or to be received in connection with such payment which are required to be
deposited in the Collection Account pursuant to Section 3.04 have been or will
be so deposited) of a Servicing Officer and shall request delivery to it of the
Mortgage File. The Master Servicer shall use its reasonable efforts to obtain
prompt release of the related Mortgage File to the Sub-Servicer. No expenses
incurred by the Sub-Servicer in connection with any instrument of satisfaction
or deed of reconveyance shall be chargeable to the Collection Account or to the
Master Servicer.
(b) From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, including, for this purpose, collection under
any insurance policy relating to the Mortgage Loans, the Master Servicer shall,
upon request of the Sub-Servicer and its delivery to the Master Servicer and the
Owner of a Request for Release in the form of Exhibit B-l, use it reasonable
efforts to obtain a release of the related Mortgage File to the Sub-Servicer,
and to obtain from the Owner, at the direction of the Sub-Servicer, execution of
such documents as shall be necessary to the prosecution of any such proceedings.
Such Request for Release shall obligate the Sub-Servicer to return each and
every document previously requested from the Mortgage File to the Owner when the
need therefor by the Sub-Servicer no longer exists, unless the Mortgage Loan has
been liquidated and the Liquidation Proceeds relating to the Mortgage Loan have
been deposited in the Collection Account or the Mortgage File or such document
has been delivered to an attorney, or to a public trustee or other public
official as required by law, for purposes of initiating or pursuing legal action
or other proceedings for the foreclosure of the Mortgaged Property either
judicially or nonjudicially, and the Sub-Servicer has delivered, or caused to be
delivered, to the Master Servicer and the Owner an additional Request for
Release certifying as to such liquidation or action or proceedings. Upon the
request of the Owner or the Certificate Insurer, the Sub-Servicer shall provide
notice to the Owner and the Certificate Insurer of the name and address of the
Person to which such Mortgage File or such document was delivered and the
purpose or purposes of such delivery. The Master Servicer shall use its
reasonable efforts to obtain from the Owner release of any outstanding Requests
for Release with respect to such Mortgage Loan upon its receipt of a certificate
of a Servicing Officer stating that such Mortgage Loan was liquidated and that
all amounts received or to be received in connection with such liquidation that
are required to be deposited into the Collection Account have been so deposited,
or that such Mortgage Loan has become an REO Property.
(c) The Master Servicer shall use its reasonable efforts, upon
delivery to the Master Servicer and the Owner of written certification of a
Servicing Officer, to cause the Owner to execute and deliver to the Sub-Servicer
any court pleadings, requests for trustee's sale or other documents necessary to
the foreclosure or trustee's sale in respect of a Mortgaged Property or to any
legal action brought to obtain judgment against any Mortgagor on the Mortgage
Note or Mortgage or to obtain a deficiency judgment, or to enforce any other
remedies or rights provided by the Mortgage Note or Mortgage or otherwise
available at law or in equity. Each such certification shall include a request
that such pleadings or documents be executed by the Owner and a statement as to
the reason such documents or pleadings are required and that the execution and
delivery thereof by the Owner will not invalidate or otherwise affect the lien
of the Mortgage,
<PAGE> 47
-40-
except for the termination of such a lien upon completion of the foreclosure or
trustee's sale.
SECTION 3.11. Sub-Servicing Compensation.
As compensation for the activities of the Sub-Servicer
hereunder, the Sub-Servicer shall be entitled to the SubServicing Fee with
respect to each Mortgage Loan payable solely from payments of interest in
respect of such Mortgage Loan. In addition, the Sub-Servicer shall be entitled
to recover unpaid Sub-Servicing Fees out of Insurance Proceeds or Liquidation
Proceeds to the extent permitted by Section 3.05(iii) and out of amounts derived
from the operation and sale of an REO Property to the extent permitted by
Section 3.16. The right to receive the Sub-Servicing Fee may not be transferred
in whole or in part except in connection with the transfer of all of the
Sub-Servicer's responsibilities and obligations under this Agreement.
The Sub-Servicer shall be required to pay, without
reimbursement, all expenses incurred by it in connection with its servicing
activities hereunder to the extent this Agreement does not specifically provide
for the payment of such expense by means of reimbursement by the Master Servicer
from its own funds.
SECTION 3.12. Reports; Collection Account Statements.
Not later than fifteen days after each Sub-Servicer Remittance
Date, the Sub-Servicer shall forward to the Master Servicer, the Owner and any
Certificate Insurer a statement prepared by the Sub-Servicer setting forth the
status of the Collection Account as of the close of business on such
Sub-Servicer Remittance Date and showing, for the period covered by such
statement, the aggregate amount of deposits into and withdrawals from the
Collection Account of each category of deposit specified in Section 3.04(a) and
each category of withdrawal specified in Section 3.05. Such statement may be in
the form of the then current FNMA Monthly Accounting Report for its Guaranteed
Mortgage Pass-Through Program with appropriate additions and changes, and shall
also include information as to the aggregate of the outstanding principal
balances of all of the Mortgage Loans as of the last day of the calendar month
immediately preceding such Sub-Servicer Remittance Date.
SECTION 3.13. Statement as to Compliance.
The Sub-Servicer will deliver to the Owner, the Master
Servicer and any Certificate Insurer on or before April 1 of each calendar year
commencing in 1998, an Officers' Certificate stating, as to each signatory
thereof, that (i) a review of the activities of the Sub-Servicer during the
preceding year and of performance under this Agreement has been made under such
officers' supervision and (ii) to the best of such officers' knowledge, based on
such review, the Sub-Servicer has fulfilled all of its obligations under this
Agreement throughout such year, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof.
SECTION 3.14. Independent Public Accountants' Servicing
Report.
<PAGE> 48
-41-
Not later than April 1 of each calendar year commencing in
1998, the Sub-Servicer, at its expense, shall cause a nationally recognized firm
of independent certified public accountants to furnish to the Sub-Servicer a
report stating that (i) it has obtained a letter of representation regarding
certain matters from the management of the Sub-Servicer which includes an
assertion that the Sub-Servicer has complied with certain minimum residential
mortgage loan servicing standards, identified in the Uniform Single Attestation
Program for Mortgage Bankers established by the Mortgage Bankers Association of
America, with respect to the servicing of residential mortgage loans during the
most recently completed fiscal year and (ii) on the basis of an examination
conducted by such firm in accordance with standards established by the American
Institute of Certified Public Accountants, such representation is fairly stated
in all material respects, subject to such exceptions and other qualifications
that may be appropriate. Immediately upon receipt of such report, the
Sub-Servicer shall furnish a copy of such report to the Owner, the Master
Servicer, any Certificate Insurer and each Rating Agency.
<PAGE> 49
-42-
SECTION 3.15. Access to Certain Documentation.
The Sub-Servicer shall provide to the Office of Thrift
Supervision, the FDIC, and any other federal or state banking or insurance
regulatory authority that may exercise authority over any holder of any
ownership interest in a Mortgage Loan, access to the documentation regarding the
Mortgage Loans required by applicable laws and regulations. Such access shall be
afforded without charge, but only upon reasonable request and during normal
business hours at the offices of the Sub-Servicer designated by it. In addition,
access to the documentation regarding the Mortgage Loans will be provided to any
Owner, the Certificate Insurer, the Master Servicer and to any Person identified
to the Sub-Servicer as a prospective owner of an interest in a Mortgage Loan,
upon reasonable request during normal business hours at the offices of the
Sub-Servicer designated by it at the expense of the Person requesting such
access.
SECTION 3.16. Title, Management and Disposition of REO
Property.
(a) The deed or certificate of sale of any REO Property shall
be taken in the name of the Owner, or its nominee. In the case of any Mortgage
Loan that is an asset of a trust fund with respect to which a REMIC election has
been made, the Sub-Servicer, on behalf of such REMIC, shall either sell any REO
Property within two years after such REMIC acquires ownership of such REO
Property for purposes of Section 860G(a)(8) of the Code or request from the
Internal Revenue Service, not later than 60 days before the day on which the
two-year grace period would otherwise expire, an extension of the two-year grace
period, unless the Sub-Servicer had delivered to the Owner and any other Person
specified by the Owner an Opinion of Counsel, addressed to the Owner, any such
other Person and the Certificate Insurer, if any, to the effect that the holding
by such REMIC of such REO Property subsequent to two years after its acquisition
will not result in the imposition on such REMIC of taxes on "prohibited
transactions" thereof, as defined in Section 860F of the Code, or cause such
REMIC to fail to qualify as a REMIC under Federal law at any time that any
pass-through certificates relating thereto are outstanding. The Sub-Servicer
shall manage, conserve, protect and operate each REO Property for the Owner
solely for the purpose of its prompt disposition and sale in a manner which does
not cause such REO Property to fail to qualify as "foreclosure property" within
the meaning of Section 860G(a)(8) of the Code or result in the receipt by such
REMIC or of any "income from non-permitted assets" within the meaning of Section
860F(a)(2)(B) of the Code, or any "net income from foreclosure property" which
is subject to taxation under the REMIC Provisions.
(b) The Sub-Servicer shall segregate and hold all funds
collected and received in connection with the operation of any REO Property
separate and apart from its own funds and general assets and shall establish and
maintain, or cause to be established and maintained, with respect to REO
Properties an account held in trust for the Master Servicer for the benefit of
the Owner and the Certificate Insurer, if any (the "REO Account"), which shall
be an Eligible Account. The Sub-Servicer shall be permitted to allow the
Collection Account to serve as the REO Account, subject to separate ledgers for
each REO Property. The Sub-Servicer shall pay to the Master Servicer any
interest income paid on funds deposited in the REO Account.
<PAGE> 50
-43-
(c) The Sub-Servicer shall have full power and authority,
subject only to the specific requirements and prohibitions of this Agreement, to
do any and all things in connection with any REO Property as are consistent with
the manner in which the Sub-Servicer manages and operates similar property owned
by the Sub-Servicer or any of its Affiliates, all on such terms and for such
period as the Sub-Servicer deems to be in the best interests of Owner. In
connection therewith, the Sub-Servicer shall deposit, or cause to be deposited
on a daily basis, all revenues received by it with respect to an REO Property
and shall withdraw therefrom funds necessary for the proper operation,
management and maintenance of such REO Property including, without limitation:
(i) all insurance premiums due and payable in respect
of such REO Property;
(ii) all real estate taxes and assessments in respect
of such REO Property that may result in the imposition of a lien
thereon; and
(iii) all costs and expenses necessary to maintain
such REO Property.
To the extent that amounts on deposit in the REO Account with respect to an REO
Property are insufficient for the purposes set forth in clauses (i) through
(iii) above with respect to such REO Property, the Sub-Servicer shall withdraw
from the Advance Account and advance such amount as is necessary for such
purposes if, but only if, the Sub-Servicer would make such advances if the
Sub-Servicer owned the REO Property and in the Sub-Servicer's judgment, the
payment of such amounts will be recoverable from the rental or sale of the REO
Property.
Notwithstanding the foregoing, if the REO Property is held by
a REMIC, the Sub-Servicer shall not:
(i) authorize the Owner to enter into, renew or
extend any New Lease with respect to any REO Property, if the New Lease
by its terms will give rise to any income that does not constitute
Rents from Real Property;
(ii) authorize any amount to be received or accrued
under any New Lease other than amounts that will constitute Rents from
Real Property;
(iii) authorize any construction on any REO Property,
other than the completion of a building or other improvement thereon,
and then only if more than ten percent of the construction of such
building or other improvement was completed before default on the
related Mortgage Loan became imminent, all within the meaning of
Section 856(e)(4)(B) of the Code; or
(iv) authorize any Person to Directly Operate any REO
Property on any date more than 90 days after its date of acquisition by
the Owner;
<PAGE> 51
-44-
unless, in any such case, the Sub-Servicer has obtained an Opinion of Counsel,
provided to the Owner and the Certificate Insurer, if any, to the effect that
such action will not cause such REO Property to fail to qualify as "foreclosure
property" within the meaning of Section 860G(a)(8) of the Code at any time that
it is held by a REMIC, in which case the Sub-Servicer may take such actions as
are specified in such Opinion of Counsel.
The Sub-Servicer may contract with any Independent Contractor
for the operation and management of any REO Property, provided that:
(i) the terms and conditions of any such contract
shall not be inconsistent herewith;
(ii) any such contract shall require, or shall be
administered to require, that the Independent Contractor pay all costs
and expenses incurred in connection with the operation and management
of such REO Property, including those listed above and remit all
related revenues (net of such costs and expenses) to the Sub-Servicer
as soon as practicable, but in no event later than thirty days
following the receipt thereof by such Independent Contractor;
(iii) none of the provisions of this Section 3.16(c)
relating to any such contract or to actions taken through any such
Independent Contractor shall be deemed to relieve the Sub-Servicer of
any of its duties and obligations to the Master Servicer for the
benefit of the Owner and the Certificate Insurer, if any, with respect
to the operation and management of any such REO Property; and
(iv) the Sub-Servicer shall be obligated with respect
thereto to the same extent as if it alone were performing all duties
and obligations in connection with the operation and management of such
REO Property.
The Sub-Servicer shall be entitled to enter into any agreement with any
Independent Contractor performing services for it related to its duties and
obligations hereunder for indemnification of the Sub-Servicer by such
Independent Contractor, and nothing in this Agreement shall be deemed to limit
or modify such indemnification. The Sub-Servicer shall be solely liable for all
fees owed by it to any such Independent Contractor, irrespective of whether the
Sub-Servicer's compensation pursuant to Section 3.16 is sufficient to pay such
fees.
(d) In addition to the withdrawals permitted under Section
3.05, the Sub-Servicer may from time to time make withdrawals from the REO
Account for any REO Property: (i) to pay itself and the Master Servicer any
Sub-Servicing Fees and Master Servicing Fees in respect of the related Mortgage
Loan; and (ii) to reimburse the Master Servicer for unreimbursed Servicing
Advances and P&I Advances made in respect of such REO Property or the related
Mortgage Loan. On the Business Day prior to each SubServicer Remittance Date,
the Sub-Servicer shall withdraw from each REO Account maintained by it and
deposit in the Collection
<PAGE> 52
-45-
Account, the income from the related REO Property received during the prior
calendar month, net of any withdrawals made pursuant to Section 3.16(c) or this
Section 3.16(d).
(e) Subject to the time constraints set forth in Section
3.16(a), each REO Disposition shall be carried out by the Sub-Servicer at such
price and upon such terms and conditions as the Sub-Servicer shall deem
necessary or advisable, as shall be normal and usual in its Accepted Servicing
Practices.
(f) The proceeds from the REO Disposition, net of any amount
required by law to be remitted to the Mortgagor under the related Mortgage Loan
and net of any payment or reimbursement to the Master Servicer or the
Sub-Servicer as provided above, shall be deposited in the Collection Account in
accordance with Section 3.04(a) one Business Day before the Sub-Servicer
Remittance Date in the month following the receipt thereof for remittance on the
related Sub-Servicer Remittance Date in accordance with Section 3.04. Any REO
Disposition of a property held by a REMIC shall be for cash only (unless changes
in the REMIC Provisions made subsequent to the Startup Day allow a sale for
other consideration).
(g) The Sub-Servicer shall file information returns with
respect to the receipt of mortgage interest received in a trade or business,
reports of foreclosures and abandonments of any Mortgaged Property and
cancellation of indebtedness income with respect to any Mortgaged Property as
required by Sections 6050H, 6050J and 6050P of the Code, respectively. Such
reports shall be in form and substance sufficient to meet the reporting
requirements imposed by such Sections 6050H, 6050J and 6050P of the Code.
SECTION 3.17. Obligations of the Sub-Servicer and the Master
Servicer in Respect of Prepayment Interest
Shortfalls.
With respect to each Mortgage Loan that has been the subject
of a Sale Closing Notice, the Sub-Servicer shall, on the Business Day prior to
each Sub-Servicer Remittance Date, withdraw from the Advance Account and deposit
in the Collection Account an amount equal to the excess of (a) the lesser of (i)
the aggregate of the Prepayment Interest Shortfalls for the related SubServicer
Remittance Date resulting solely from Principal Prepayments in full during the
related Prepayment Period and (ii) the amount of the Servicing Fee for the
related Prepayment Period over (b) the amount of the Master Servicing Fee
remaining in the Collection Account on such date, if any. The amount so
withdrawn from the Advance Account, together with the amount set forth in (b)
above, if any, shall be paid to the Owner pursuant to Section 3.04(b) in respect
of Prepayment Interest Shortfalls without any right of reimbursement therefor to
the Master Servicer from any source.
<PAGE> 53
-46-
SECTION 3.18. Obligations of the Sub-Servicer in Respect of
Mortgage Rates and Monthly Payments.
In the event that a shortfall in any collection on or
liability with respect to any Mortgage Loan results from or is attributable to
adjustments to Mortgage Rates of Adjustable Rate Mortgage Loans, Monthly
Payments or Stated Principal Balances that were made by the Sub-Servicer in a
manner not consistent with the terms of the related Mortgage Note and this
Agreement, the Sub-Servicer, upon discovery or receipt of notice thereof,
immediately shall deliver to the Owner from its own funds the amount of any such
shortfall and shall indemnify and hold harmless the Owner, the Master Servicer,
the Certificate Insurer, if any, and any successor sub-servicer in respect of
any such liability. Such indemnities shall survive the termination or discharge
of this Agreement. Notwithstanding the foregoing, this Section 3.18 shall not
limit the ability of the Sub-Servicer to seek recovery of any such amounts from
the related Mortgagor under the terms of the related Mortgage Note, as permitted
by law.
SECTION 3.19. Obligations of the Sub-Servicer and the Master
Servicer in Respect of Servicing Advances.
With respect to each Servicing Advance that the Sub-Servicer
has determined, in accordance with Accepted Servicing Practices, is required to
be made pursuant to the terms of this Agreement, the Sub-Servicer shall withdraw
such amount from the Advance Fund and pay such amount to the appropriate Person.
Notwithstanding anything to the contrary herein, the Sub-Servicer shall only be
entitled to withdraw amounts from the Advance Account for any such Servicing
Advance if it has given the Master Servicer one Business Days prior written
notice by facsimile transmission specifying the amount and timing of such
advance. The Master Servicer shall be entitled to reimbursement for any such
amounts withdrawn and paid in respect of Servicing Advances in accordance with
Section 3.05 and 3.16
Notwithstanding anything herein to the contrary, no Servicing
Advance shall be required to be made hereunder by the Master Servicer, and the
Sub-Servicer shall not make withdrawals from the Advance Account in respect
thereof, if such Servicing Advance would, if made, constitute a Nonrecoverable
Servicing Advance. The determination by the Sub-Servicer or the Master Servicer
that the Sub-Servicer has made a Nonrecoverable Servicing Advance or that any
proposed Servicing Advance, if made, would constitute a Nonrecoverable Servicing
Advance shall be evidenced by an Officers' Certificate of the Sub-Servicer or
the Master Servicer, as the case may be, delivered to the other and to the Owner
and the Certificate Insurer, if any.
SECTION 3.20. Notice of Withdrawals.
Not less than one Business Day prior to any withdrawal from
the Advance Account permitted by this Agreement, the Sub-Servicer shall notify
the Master Servicer, by confirmed facsimile, of the amount of the withdrawal to
be made.
<PAGE> 54
-47-
ARTICLE IV
REPORTS
SECTION 4.01. Remittance Reports; P&I Advances; Reimbursement
of P&I Advances.
(a) On the Business Day following each Determination Date, the
Sub-Servicer shall deliver to the Master Servicer, the Owner and the Certificate
Insurer, if any, by facsimile transmission (or by such other means as the Master
Servicer shall direct from time to time) a Remittance Report with respect to the
related Sub-Servicer Remittance Date. On the same date, the Sub-Servicer shall
forward to the Owner by overnight mail a computer readable magnetic tape
containing the information set forth in such Remittance Report with respect to
the related Sub-Servicer Remittance Date. Such Remittance Report will include
(i) the amount of P&I Advances to be made by the Master Servicer in respect of
the related Sub-Servicer Remittance Date, the aggregate amount of P&I Advances
outstanding after giving effect to such P&I Advances, the aggregate amount
of Nonrecoverable P&I Advances in respect of such Sub-Servicer Remittance Date
the aggregate amount to be withdrawn from the Advance Account for such
Remittance Date pursuant to Section 3.17 in respect of Prepayment Interest
Shortfalls and (ii) such other information with respect to the Mortgage Loans
as the Master Servicer and the Owner may reasonably request. In addition to the
Remittance Report, the Sub-Servicer also shall deliver to the Master Servicer
for no additional charge the reports described in Exhibit G at such times set
forth herein.
(b) P&I Advances will only be required to be made in respect
of Mortgage Loans that have been subject to a Sale Closing Notice. The amount of
P&I Advances to be made by the Master Servicer for any Sub-Servicer Remittance
Date shall equal, subject to Section 4.01(d), the sum of (i) the aggregate
amount of Monthly Payments other than Balloon Payments (with each interest
portion thereof net of the related Servicing Fee), due on the related Due Date
in respect of the Mortgage Loans, which Monthly Payments were delinquent as of
the close of business on the related Determination Date and (ii) with respect to
each REO Property, which REO Property was acquired during or prior to the
related Prepayment Period and as to which REO Property an REO Disposition did
not occur during the related Prepayment Period, an amount equal to the excess,
if any, of the REO Imputed Interest on such REO Property for the most recently
ended calendar month, over the net income from such REO Property transferred to
the Collection Account pursuant to Section 3.16 for distribution on such
Sub-Servicer Remittance Date.
On the Business Day prior to the Sub-Servicer Remittance Date,
the Sub-Servicer shall withdraw from the Advance Account and deposit in the
Collection Account an amount equal to the excess of (i) the aggregate amount of
P&I Advances, if any, to be made in respect of the Mortgage Loans and REO
Properties for the related Sub-Servicer Remittance Date over (ii) funds held in
the Collection Account for future distribution. The amount so withdrawn from the
Advance Account, together with the amount set forth in (ii) above, shall be paid
to the Owner pursuant to Section 3.04(b) in respect of P&I Advances. The
Sub-Servicer will cause to be made an appropriate entry in the records of
Collection Account that amounts held for future distribution have been, as
permitted by this Section 4.01, used by the Sub-Servicer in discharge of any
such P&I Advance. Any amounts held for future distribution and so used shall be
appropriately reflected in the Sub-Servicer's records and may, at the discretion
of the Master Servicer, be replaced at any
<PAGE> 55
-48-
time by the Master Servicer by deposit in the Collection Account.
(c) The obligation of the Master Servicer to make such P&I
Advances is mandatory, notwithstanding any other provision of this Agreement but
subject to (d) below, and, with respect to any Mortgage Loan or REO Property,
shall continue until a Final Recovery Determination in connection therewith or,
in the case of any Mortgage Loan or REO Property held by the REMIC, the removal
thereof from the related trust fund, except as otherwise provided in this
Section.
(d) Notwithstanding anything herein to the contrary, no P&I
Advance shall be required to be made hereunder by the Master Servicer, and the
Sub-Servicer shall not make withdrawals from the Advance Account in respect
thereof, if such P&I Advance would, if made, constitute a Nonrecoverable P&I
Advance. The determination by the Sub-Servicer or the Master Servicer that the
Sub-Servicer has made a Nonrecoverable P&I Advance or that any proposed P&I
Advance, if made, would constitute a Nonrecoverable P&I Advance, shall be
evidenced by an Officers' Certificate of the Sub-Servicer or the Master
Servicer, as the case may be, delivered to the other and to the Owner and the
Certificate Insurer, if any.
SECTION 4.04. Allocation of Realized Losses.
(a) Prior to each Determination Date, the Sub-Servicer shall
determine as to each Mortgage Loan and REO Property: (i) the total amount of
Realized Losses, if any, incurred in connection with any Final Recovery
Determinations made during the related Prepayment Period and (ii) the respective
portions of such Realized Losses allocable to interest and allocable to
principal. Prior to each Determination Date, the Sub-Servicer shall also
determine as to each Mortgage Loan: (i) the total amount of Realized Losses, if
any, incurred in connection with any Deficient Valuations made during the
related Prepayment Period; and (ii) the total amount of Realized Losses, if any,
incurred in connection with Debt Service Reductions in respect of Monthly
Payments due during the related Due Period. The information described in the two
preceding sentences that is to be supplied by the Sub-Servicer shall be
evidenced by an Officers' Certificate delivered to the Owner, the Master
Servicer and the Certificate Insurer, if any, by the Sub-Servicer prior to the
Determination Date immediately following the end of (i) in the case of
Bankruptcy Losses allocable to interest, the Due Period during which any such
Realized Loss was incurred, and (ii) in the case of all other Realized Losses,
the Prepayment Period during which any such Realized Loss was incurred.
<PAGE> 56
-49-
ARTICLE V
THE MASTER SERVICER AND THE SUB-SERVICER
SECTION 5.01. Certain Liability.
The Master Servicer and the Sub-Servicer each shall be liable
to the other in accordance herewith only to the extent of the obligations
specifically imposed by this Agreement upon them in their respective capacities
hereunder and undertaken hereunder by the each herein.
SECTION 5.02. Merger or Consolidation of Parties.
Subject to the following paragraph, each of the Master
Servicer and the Sub-Servicer will keep in full effect its existence, rights and
franchises as a corporation under the laws of the jurisdiction of its
incorporation. Each will obtain and preserve its qualification to do business as
a foreign corporation in each jurisdiction in which such qualification is or
shall be necessary to protect the validity and enforceability of this Agreement
or any of the Mortgage Loans and to perform its respective duties under this
Agreement.
Either of the Master Servicer and the Sub-Servicer may be
merged or consolidated with or into any Person, or transfer all or substantially
all of its assets to any Person, in which case any Person resulting from any
merger or consolidation to which the Master Servicer or the Sub-Servicer shall
be a party, or any Person succeeding to the business of the Master Servicer or
the Sub-Servicer, shall be the successor of the Master Servicer or the
Sub-Servicer, as the case may be, hereunder, without the execution or filing of
any paper or any further act on the part of any of the parties hereto, anything
herein to the contrary notwithstanding; provided, however, that the successor or
surviving Person to the Sub-Servicer shall be qualified to service mortgage
loans on behalf of FNMA or FHLMC; and provided further that, if any Mortgage
Loans or REO Property is an asset of a trust fund with respect to which a REMIC
election has been made, the Rating Agencies' ratings and shadow ratings of the
debt instruments issued by the REMIC in effect immediately prior to such merger
or consolidation will not be qualified, reduced or withdrawn as a result thereof
(as evidenced by a letter to such effect from the Rating Agencies) and the
Certificate Insurer, if any, shall have given its prior written consent, which
consent shall not be unreasonably withheld or delayed.
<PAGE> 57
-50-
SECTION 5.03. Limitation on Liability; Indemnification.
Neither the Master Servicer (including, without limitation,
its directors, officers, employees and agents) nor the Sub-Servicer (including,
without limitation, its directors, officers, employees and agents) shall be
under any liability to the other any action taken or for refraining from the
taking of any action in good faith pursuant to this Agreement, or for errors in
judgment; provided, however, that this provision shall not protect the Master
Servicer or any such person or the Sub-Servicer or any such person against any
breach of warranties, representations or covenants made herein, or against any
specific liability imposed on the Master Servicer or the Sub-Servicer pursuant
hereto, or against any liability which would otherwise be imposed by reason of
willful misfeasance, bad faith or gross negligence in the performance of duties
or by reason of reckless disregard of obligations and duties hereunder. The
Sub-Servicer (and its directors, officers, employees and agents) shall be
indemnified and held harmless by the Master Servicer against any loss, liability
or expense incurred in connection with any legal action relating to this
Agreement or the Mortgage Loans other than any loss, liability or expense
incurred by reason of the willful misfeasance, bad faith or gross negligence of
the Sub-Servicer in the performance of its duties hereunder or by reason of its
reckless disregard of its obligations and duties hereunder. The Master Servicer
(and its directors, officers, employees and agents) shall be indemnified and
held harmless by the Sub-Servicer against any loss, liability or expense
incurred by reason of the willful misfeasance, bad faith or gross negligence of
the Sub-Servicer in the performance of its duties hereunder or by reason of its
reckless disregard of its obligations and duties hereunder.
SECTION 5.04. Term.
The term of this Agreement shall commence on the date hereof
and shall expire on the third anniversary of the date hereof; provided, however,
that either party hereto may earlier terminate this Agreement at any time after
the date that is the first anniversary of the date hereof upon six months notice
given to the other no earlier than such first anniversary. During the term of
this Agreement, the Originator shall be obligated to deliver to the Sub-Servicer
for servicing pursuant to this Agreement all mortgage loans originated by the
Originator on or after April 1, 1997. The Sub-Servicer shall be obligated to
accept all such mortgage loans unless (a) the servicing of any such mortgage
loans would not be permissible under applicable law or (b) the characteristics
of the related loan programs are incompatible with the Sub-Servicer's then
existing data processing systems. Upon the expiration or earlier termination of
this Agreement and the request of either party, the sub-servicing of the
Mortgage Loans shall be transferred to the Master Servicer or to a successor
sub-servicer designated by the Master Servicer, subject to the consent of the
owner (other than the Originator). The Sub-Servicer shall cooperate with the
Master Servicer in making any such transfer of sub-servicing hereunder. If the
consent of any Owner or other Person is required in connection with any early
termination by the Sub-Servicer, the Master Servicer shall use its best efforts
to obtain such consent of the Owner or such Person.
The Sub-Servicer shall not assign or transfer any of its
rights, benefits or privileges hereunder to any other Person, or delegate to or
subcontract with, or authorize or appoint any other Person to perform any of the
duties, covenants or obligations to be performed by the Sub-Servicer
<PAGE> 58
-51-
hereunder. If, pursuant to any provision hereof, the duties of the Sub-Servicer
are transferred to a successor master servicer, the entire amount of the
Sub-Servicing Fee and other compensation payable to the SubServicer pursuant
hereto shall thereafter be payable to such successor master servicer.
Notwithstanding the foregoing, the Sub-Servicer may be
terminated without cause or the payment of any fee if the Master Servicer is no
longer the Master Servicer with respect to any or all of the Mortgage Loans. In
addition, the Sub-Servicer may be terminated without cause or the payment of any
fee if any Certificate Insurer or Rating Agency under any Master Servicing
Agreement requires such termination.
SECTION 5.05. Rights of the Master Servicer in Respect of the
Sub-Servicer.
The Sub-Servicer shall afford the Master Servicer, the Owner
(and any other Persons designated by the Owner) and the Certificate Insurer,
upon reasonable notice, during normal business hours, access to all records
maintained by the Sub-Servicer in respect of the Sub-Servicer's rights and
obligations hereunder and access to officers of the Sub-Servicer responsible for
such obligations. Upon request, the Sub-Servicer shall furnish to each such
Person its most recent financial statements and such other information relating
to the Sub-Servicer's capacity to perform its obligations under this Agreement
as it possesses. The delivery of such information may be conditioned upon the
agreement of each such Person that, to the extent such information is not
otherwise available to the public, such Person shall not disseminate any
information obtained pursuant to the preceding two sentences without the
Sub-Servicer's written consent, except as required pursuant to this Agreement or
to the extent that it is appropriate to do so (i) in working with legal counsel,
auditors, taxing authorities or other governmental agencies or (ii) pursuant to
any law, rule, regulation, order, judgment, writ, injunction or decree of any
court or governmental authority having jurisdiction over any such Person and
such Person's agreement to use its best efforts to assure the confidentiality of
any such disseminated non-public information.
SECTION 5.06. Further Assurances.
(a) The Sub-Servicer agrees to deliver such additional reports
or information and take such further actions as the Owner, the Master Servicer
or the Certificate Insurer, if any, may, from time to time, reasonably request
in order to effectuate the purposes and to carry out the terms of this
Agreement. If the Sub-Servicer is so requested to deliver such additional
reports or information or take such further actions and such items are not
generally produced or such action are not generally taken by the Sub-Servicer in
the normal course of its business, the Sub-Servicer and the Master Servicer
shall negotiate in good faith to reimburse the Sub-Servicer for its additional
related costs.
(b) The parties hereto agree that to the extent changes in the
Sub-Servicer's servicing practices required by third party Owners or the Master
Servicer's loan programs result in significant additional costs to the
Sub-Servicer, the parties shall negotiate in good faith to compensate the
Sub-Servicer for the Master Servicer's allocable share of such costs.
<PAGE> 59
-52-
SECTION 5.07. Sales of Mortgage Loans.
The Sub-Servicer and the Originator agree that with respect to
some or all of the Mortgage Loans, the Originator intends to effect whole loan
sales and/or securitizations on a servicing retained basis.
With respect to each such sale, the Sub-Servicer agrees:
(1) to cooperate fully with the Originator and any
prospective purchaser with respect to all reasonable
requests and due diligence procedures;
(2) if required by the purchaser, to execute agreements
modifying or replacing this Agreement, provided that
the Sub-Servicer is given an opportunity to review
and reasonably negotiate in good faith and within the
time constraints of the whole loan sale and/or
securitization closing, the content of such documents
not specifically referenced or provided for herein;
(3) to deliver to the Originator for inclusion in any
prospectus or other offering material such publicly
available information regarding the Sub-Servicer, its
financial condition and its mortgage loan
delinquency, foreclosure and loss experience
substantially in the form and scope set forth in the
Prospectus Supplement dated January 22, 1997 to
Prospectus dated October 18, 1996 relating to Asset
Backed Floating Rate Certificates, Series 1997-LB1,
and to deliver to the Originator any similar
nonpublic, unaudited financial information, in which
case the Originator shall bear the cost of having
such information audited by certified public
accountants if the Originator desires such an audit,
or as is otherwise reasonably requested by the
Originator and which the Sub-Servicer is capable of
providing without unreasonable effort or expense, and
to indemnify the Originator for material
misstatements contained in such information;
(4) to deliver to the Originator and to any Person
designated by the Originator, at the Originator's
expense, such statements and audit letters of
reputable, certified public accounts pertaining to
information provided by the SubServicer pursuant to
clause 3 above as shall be reasonably requested by
the Originator;
(5) to deliver to the Originator, and to any Person
designated by the Originator, such in-house opinions
of counsel as are customarily delivered by
originators or servicers, as the case may be, in
connection with whole loan sales or securitizations,
as the case may be, it being understood that the cost
of any opinions of outside special counsel that may
be required for such whole loan sales or
securitizations, as the case may be, shall be the
responsibility of the
<PAGE> 60
-53-
Originator;
(6) to cooperate fully with the Originator and any
prospective purchaser with respect to the preparation
of Mortgage Loan documents and other documents with
respect to servicing requirements reasonably
requested by the Rating Agencies and credit
enhancers; and
(7) in the event that the Master Servicer has agreed in
connection with a whole loan sale or securitization
of any Mortgage Loan to indemnify or otherwise be
responsible to a purchaser for losses and expenses
arising from the simple negligence of the servicer of
such loan, the Sub-Servicer similarly shall indemnify
and hold the Master Servicer harmless from any
losses and expenses incurred by the Sub-Servicer's
simple, negligence in servicing such loan; provided,
however, that the Master Servicer will use its best
efforts to negotiate a gross, rather than a simple,
negligence services standard in documents evidencing
all whole loan sales and securitizations.
<PAGE> 61
-54-
ARTICLE VI
DEFAULT
SECTION 6.01. Sub-Servicer Events of Default.
(a) "Sub-Servicer Event of Default," wherever used herein,
means any one of the following events:
(i) any failure by the Sub-Servicer to remit to the
Owner any payment required to be made under the terms of this
Agreement which continues unremedied for a period of one
Business Day after the date upon which written notice of such
failure (which may be by facsimile), requiring the same to be
remedied, shall have been given to the SubServicer by the
Master Servicer, the Owner, the Certificate Insurer, if any,
or any other Person; or
(ii) any failure on the part of the Sub-Servicer duly
to observe or perform in any material respect any other of the
covenants or agreements on the part of the Sub-Servicer
contained in this Agreement, or the breach by the SubServicer
of any representation and warranty contained in Section 2.04,
which continues unremedied for a period of 30 days after the
earlier of (i) the date on which written notice of such
failure, requiring the same to be remedied, shall have been
given to the Sub-Servicer by the Master Servicer, the Owner,
the Certificate Insurer, if any, or any other Person and (ii)
actual knowledge of such failure by a Servicing Officer of the
Sub-Servicer; or
(iii) a decree or order of a court or agency or
supervisory authority having jurisdiction in the premises in
an involuntary case under any present or future federal or
state bankruptcy, insolvency or similar law or the appointment
of a conservator or receiver or liquidator in any insolvency,
readjustment of debt, marshalling of assets and liabilities or
similar proceeding, or for the winding-up or liquidation of
its affairs, shall have been entered against the Sub-Servicer
and such decree or order shall have remained in force
undischarged or unstayed for a period of 90 days; or
(iv) the Sub-Servicer shall consent to the
appointment of a conservator or receiver or liquidator in any
insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings of or relating to it or of
or relating to all or substantially all of its property; or
(v) the Sub-Servicer shall admit in writing its
inability to pay its debts generally as they become due, file
a petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of
its creditors, or voluntarily suspend payment of its
obligations; or
<PAGE> 62
-55-
If a Sub-Servicer Event of Default described in clauses (i) through (v) of this
Section shall occur, then, and in each and every such case, so long as such
Sub-Servicer Event of Default shall not have been remedied, the Master Service
may by notice in writing to the Sub-Servicer terminate all of the rights and
obligations of the Sub-Servicer in its capacity as Sub-Servicer under this
Agreement, to the extent permitted by law, and in and to the Mortgage Loans and
the proceeds thereof. The Sub-Servicer agrees promptly (and in any event no
later than ten Business Days subsequent to such notice) to provide the Master
Servicer or other successor sub-servicer with all documents and records
requested by it to enable it to assume the Sub-Servicer's functions under this
Agreement, and to transfer within one Business Day to the Master Servicer or
other successor sub-servicer for administration by it of all cash amounts which
at the time shall be or should have been credited by the Sub-Servicer to the
Collection Account held by or on behalf of the Sub-Servicer, any REO Account or
Servicing Account held by or on behalf of the Sub-Servicer or thereafter be
received with respect to the Mortgage Loans or any REO Property serviced by the
Sub-Servicer (provided, however, that the SubServicer shall continue to be
entitled to receive all amounts accrued or owing to it under this Agreement on
or prior to the date of such termination, whether in respect of Sub-Servicing
Fees or otherwise).
<PAGE> 63
-56-
ARTICLE VII
MISCELLANEOUS PROVISIONS
SECTION 7.01. Amendment.
This Agreement may be amended from time to time upon the
written consent of both parties hereto.
SECTION 7.02. Confidentiality.
The Sub-Servicer agrees that no employee in its servicing
division listed on Exhibit F attached hereto shall, directly or indirectly,
disclose to any employee of the Sub-Servicer outside such division any
information regarding the Mortgage Loans being serviced hereunder or the
activities of such division, the Originator, the Master Servicer or any Owner in
connection with origination, servicing or sale of such loans, except as required
by law or pursuant to legal process.
SECTION 7.03. Recordation of Agreement; Counterparts.
To the extent permitted by applicable law, this Agreement is
subject to recordation in all appropriate public offices for real property
records in all the counties or other comparable jurisdictions in which any or
all of the properties subject to the Mortgages are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Sub-Servicer at its expense, but only with the consent of the
Master Servicer.
For the purpose of facilitating the recordation of this
Agreement as herein provided and for other purposes, this Agreement may be
executed simultaneously in any number of counterparts, each of which
counterparts shall be deemed to be an original, and such counterparts shall
constitute but one and the same instrument.
SECTION 7.04. Governing Law.
This Agreement shall be construed in accordance with the laws
of the State of New York and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with such laws.
<PAGE> 64
-57-
SECTION 7.05. Notices.
All directions, demands and notices hereunder shall be in
writing and shall be deemed to have been duly given when received if personally
delivered at or mailed by first class mail, postage prepaid, or by express
delivery service or delivered in any other manner specified herein, to (a) in
the case of the Master Servicer, ______________________________ ______________
(fax number: (___) ___-____), or such other address or fax number as may
hereafter be furnished to the Sub-Servicer in writing by the Master Servicer,
(b) in the case of the Sub-Servicer,
____________________________________________ (fax number (___) ___-____), or
such other address or fax number as may hereafter be furnished to the Master
Servicer in writing by the Sub-Servicer, (c) in the case of the Owner, the
address and/or fax number of the Owner maintained in the records of the
Sub-Servicer or such other address or fax number as may hereafter be furnished
to the Sub-Servicer by the Owner and (d) in the case of the Certificate Insurer,
the address and/or fax number of the Certificate Insurer maintained in the
records of the Sub-Servicer or such other address or fax number as may hereafter
be furnished to the Sub-Servicer by the Certificate Insurer. A copy of any
notice required to be transmitted by facsimile hereunder also shall be mailed to
the appropriate party in the manner set forth above.
SECTION 7.06. Severability of Provisions.
If any one or more of the covenants, agreements, provisions or
terms of this Agreement shall be for any reason whatsoever held invalid, then
such covenants, agreements, provisions or terms shall be deemed severable from
the remaining covenants, agreements, provisions or terms of this Agreement and
shall in no way affect the validity or enforceability of the other provisions of
this Agreement or of the Certificates or the rights of the Holders thereof.
SECTION 7.08. Article and Section References.
All article and section references used in this Agreement,
unless otherwise provided, are to articles and sections in this Agreement.
<PAGE> 65
-58-
IN WITNESS WHEREOF, the Master Servicer and the Sub-Servicer
have caused their names to be signed hereto by their respective officers
thereunto duly authorized, in each case as of the day and year first above
written.
LONG BEACH MORTGAGE
COMPANY,
as Master Servicer
By:________________________________
Name:
Title:
AMERIQUEST MORTGAGE
COMPANY
as Sub-Servicer
By:_______________________________
Name:
Title:
<PAGE> 66
EXHIBIT B-1
REQUEST FOR RELEASE
(for Trustee/Custodian)
Loan Information
Name of Mortgagor: _________________________________
Master Servicer
Loan No.: _________________________________
Trustee/Custodian
Name: _________________________________
Address: _________________________________
Trustee/Custodian
Mortgage File No.: _________________________________
Depositor
Name: _________________________________
Address: _________________________________
Certificates: _________________________________
Certificates, Series 1997-___.
<PAGE> 67
-2-
The undersigned Sub-Servicer hereby acknowledges that it has
received from _______________________, [as Master Servicer on behalf of
______________] as Trustee for the Holders of ________________________
Certificates, Series 1997-___, the documents referred to below (the
"Documents"). All capitalized terms not otherwise defined in this Request for
Release shall have the meanings given them in the Master Sub-Servicing
Agreement, dated as of ________ 1, 1997, between the Sub-Servicer and the Master
Servicer (the "Master Sub-Servicing Agreement").
( ) Mortgage Note dated _______________, 19__, in the original principal
sum of $__________, made by _____________________, payable to, or
endorsed to the order of, the Trustee.
( ) Mortgage recorded on _________________________ as instrument no.
____________________ in the County Recorder's Office of the County of
_________________, State of __________________ in book/reel/docket
_________________ of official records at page/image _____________.
( ) Deed of Trust recorded on ___________________ as instrument no.
________________ in the County Recorder's Office of the County of
_________________, State of ____________________ in book/reel/docket
_________________ of official records at page/image ______________.
( ) Assignment of Mortgage or Deed of Trust to the Trustee, recorded on
___________________ as instrument no. _________ in the County
Recorder's Office of the County of _______________, State of
_______________________ in book/reel/docket ____________ of official
records at page/image ____________.
( ) Other documents, including any amendments, assignments or other
assumptions of the Mortgage Note or Mortgage.
( ) ______________________________________________
( ) ______________________________________________
( ) ______________________________________________
( ) ______________________________________________
The undersigned Sub-Servicer hereby acknowledges and agrees as
follows:
(1) The Sub-Servicer shall hold and retain possession of the
Documents in trust for the benefit of the Trustee, solely for the
purposes provided in the Agreement.
(2) The Sub-Servicer shall not cause or permit the Documents
to become subject
<PAGE> 68
-3-
to, or encumbered by, any claim, liens, security interest, charges,
writs of attachment or other impositions nor shall the Sub-Servicer
assert or seek to assert any claims or rights of setoff to or against
the Documents or any proceeds thereof.
(3) The Sub-Servicer shall return each and every Document
previously requested from the Mortgage File to the Trustee when the
need therefor no longer exists, unless the Mortgage Loan relating to
the Documents has been liquidated and the proceeds thereof have been
remitted to the Collection Account and except as expressly provided in
the Agreement.
(4) The Documents and any proceeds thereof, including any
proceeds of proceeds, coming into the possession or control of the
Sub-Servicer shall at all times be earmarked for the account of the
Trustee, and the Sub-Servicer shall keep the Documents and any proceeds
separate and distinct from all other property in the Sub-Servicer's
possession, custody or control.
Dated:
AMERIQUEST MORTGAGE COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
<PAGE> 69
EXHIBIT B-2
REQUEST FOR RELEASE
[Mortgage Loans Paid in Full]
OFFICERS' CERTIFICATE AND TRUST RECEIPT
________________________ CERTIFICATES
SERIES 1997-___
____________________________________________________ HEREBY CERTIFIES THAT
HE/SHE IS AN OFFICER OF THE SUB-SERVICER, HOLDING THE OFFICE SET FORTH BENEATH
HIS/HER SIGNATURE, AND HEREBY FURTHER CERTIFIES AS FOLLOWS:
WITH RESPECT TO THE MORTGAGE LOANS DESCRIBED IN THE ATTACHED SCHEDULE:
ALL PAYMENTS OF PRINCIPAL, PREMIUM (IF ANY), AND INTEREST HAVE BEEN MADE.
LOAN NUMBER:_______________________ BORROWER'S NAME:__________
COUNTY:____________________________
WE HEREBY CERTIFY THAT ALL AMOUNTS RECEIVED IN CONNECTION WITH SUCH PAYMENTS,
WHICH ARE REQUIRED TO BE DEPOSITED IN THE COLLECTION ACCOUNT PURSUANT TO SECTION
3.04 OF THE MASTER SUB-SERVICING AGREEMENT, HAVE BEEN OR WILL BE CREDITED.
____________________________________ DATED:_____________________
/ / VICE PRESIDENT
/ / ASSISTANT VICE PRESIDENT
<PAGE> 70
EXHIBIT E
FORM OF MODIFICATION SCHEDULE
1. Parties to and Date of Master Servicing Agreement
2. Title of Collection Account
3. Title of Servicing Account
4. Name and Notice Address of Owner (Trustee)
5. Name and Notice Address of Certificate Insurer
6. Name and Notice Address of Rating Agencies
7. Cut-off Date
8. Sale Closing Date
9. Sub-Servicer Remittance Date
10. Wiring/Account Instructions for Owner
11. Servicing Fee Rate
12. Master Servicing Fee Rate
13. Other
<PAGE> 71
STATE OF ________ )
) ss.:
COUNTY OF ________ )
On the ____ day of April 1997, before me, a notary public in
and for said State, personally appeared ________________, known to me to be
[the] [a] [an] _________________________ of LONG BEACH MORTGAGE COMPANY, one of
the corporations that executed the within instrument, and also known to me to be
the person who executed it on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
______________________________
Notary Public
[Notarial Seal]
<PAGE> 72
STATE OF ________ )
) ss.:
COUNTY OF _________ )
On the ____ day of April 1997, before me, a notary public in
and for said State, personally appeared _____________, known to me to be [the]
[a] [an] ______________________________, of AMERIQUEST MORTGAGE COMPANY, one of
the corporations that executed the within instrument, and also known to me to be
the person who executed it on behalf of said corporation, and acknowledged to me
that such corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year in this certificate first above written.
______________________________
Notary Public
[Notarial Seal]
<PAGE> 1
EXHIBIT 10.3
4/97 SENIOR SECURED
CREDIT AGREEMENT
dated as of April 14, 1997
by and among
AMERIQUEST MORTGAGE CORPORATION
(to be renamed
LONG BEACH MORTGAGE COMPANY)
and
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Agent and as a Lender,
and
the other Lender(s) parties hereto
<PAGE> 2
LIST OF DOCUMENTS
for
AMERIQUEST MORTGAGE CORPORATION
(TO BE RENAMED
LONG BEACH MORTGAGE COMPANY)
(THE "COMPANY")
4/97 $200 MILLION SENIOR SECURED CREDIT FACILITY
TEXAS COMMERCE BANK NATIONAL ASSOCIATION, AS A LENDER
AND AS THE AGENT, AND THE OTHER LENDER(S) PARTY THERETO
APRIL 14, 1997
<TABLE>
<S> <C>
1. 4/97 Senior Secured Credit Agreement with
EXHIBITS:
Exhibit A-1 - Senior Credit Notes form
Exhibit A-2 - Swing Line Note form
Exhibit B - Requests for Borrowing forms with Submission List forms
Exhibit C - Form of Subordination Agreement
Exhibit D - List of the Company's Subsidiaries
Exhibit E - Form of Officer's Certificate as to compliance or noncompliance
with certain financial covenants
Exhibit F - Form of Assignment and Assumption Agreement
Exhibit G - Form of Interest Rate Selection Confirmation
Exhibit H - Opinions to be included in required opinion of the Company's legal
counsel
and SCHEDULES:
Schedule LC - the Lenders' Committed Sums and Subline Funding Limits
Schedule UG-SSF - Company Underwriting Guidelines for Subprime Single-
family Mortgage Loans
Schedule QI - List of Qualified Investors
Schedule FS - the Lenders' Funding Share fractions
Schedule 7.1(b) - List of debts to be excluded from the subordination required
by SECTION 7.1(B)
Schedule 8.4 - Summary of material adverse changes and material
unrealized losses since the Statement Date
Schedule 8.15 - the Company's Plans
Schedule 10.1 - List of Contingent Liabilities
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Schedule 10.4(g)(6) - List of permitted existing unsecured Debt
2. 4/97 Senior Credit Notes to:
(a) Texas Commerce ($45 million)
(b) Guaranty Federal Bank, F.S.B. ($40 million)
(c) Bank United ($35 million)
(d) The First National Bank of Boston ($30 million)
(e) Comerica Bank - California ($25 million)
(f) The Bank of New York ($25 million)
3. Swing Line Note to TCB ($45,000,000)
4. Guaranty of Long Beach Financial Corporation
5. 4/97 Custody Agreement between the Company and Texas Commerce
6. Financing Statements filed in California
7. Credit Agreement Section 4.1(a)(xv) Officer's Certificate
8. Company's initial Compliance Certificate
9. Company's Secretary's Certificate with authorizing resolutions, incumbency
certificate, and by-laws
10. Long Beach Financial's (Guarantor's) Secretary's Certificate with authorizing
resolutions, incumbency certificate and by-laws.
11. Delaware Certificate of Existence and Good Standing with Certificate of
Incorporation -- Company
12. Delaware Certificate of Existence and Good Standing with Certificate of
Incorporation -- Long Beach Financial (Guarantor)
13. Certificates of Good Standing
(a) Company
(i) California
(ii) Other states in which Company does business
(b) Guarantor
(i) California
(ii) Other states in which Guarantor does business
</TABLE>
2
<PAGE> 4
14. UCC search report, Long Beach Mortgage Company, debtor,
filings in the California Secretary of State's office
15. UCC search report, Long Beach Mortgage Financial, debtor,
filings in the California Secretary of State's office
16. Errors and Omissions Insurance Policy
3
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<S> <C>
Preamble ................................................................................................. 1
Recitals ................................................................................................. 1
Agreements................................................................................................ 2
1. DEFINITIONS........................................................................................... 2
1.1 Defined Terms......................................................................... 2
1.2 Definitions of General Application.................................................... 2
1.3 Definitions for Interest Calculations................................................. 33
1.4 Other Definitional Provisions......................................................... 39
2. THE LENDERS' COMMITMENTS.............................................................................. 40
2.1 The Lenders' Commitments to Lend...................................................... 40
2.2 Expiration or Termination of the Commitments.......................................... 40
2.3 Advances Outstanding May Not Exceed Limits............................................ 40
2.4 Advances May Be Used Only for Specific Purposes....................................... 41
2.5 Swing Line Commitment................................................................. 41
2.6 Swing Line Borrowings................................................................. 41
3. GENERAL BORROWING PROCEDURES.......................................................................... 42
3.1 Requests for Borrowings............................................................... 42
3.2 Initial Funding of Advances under the Swing Line; Refinancing of Swing
Line Advances.................................................................................. 42
3.3 Requests for Borrowing Due by 4 PM.................................................... 43
3.4 Submission List(s) and New Collateral Papers (If Any) Due by 12:30 PM
or 4 PM on the Day of a Requested Borrowing.................................................... 44
3.5 If a Request for Borrowing or New Collateral Papers are Received Late;
Waiver of Claim for Any Late Funding........................................................... 45
4. THE SENIOR CREDIT LINE NOTES.......................................................................... 45
5. INTEREST, PRINCIPAL AND FEES PAYMENTS................................................................. 45
5.1 Interest.............................................................................. 45
5.2 Interest Rates........................................................................ 46
5.3 Rate of Return Maintenance Covenant................................................... 49
5.4 Chief Credit Officer's Certificate Conclusive......................................... 50
5.5 Principal............................................................................. 50
5.6 Commitment Fee........................................................................ 52
</TABLE>
i
<PAGE> 6
<TABLE>
<S> <C>
5.7 Agent's Fee........................................................................... 52
5.8 Prepayments........................................................................... 52
5.9 Payments.............................................................................. 52
5.10 Pro Rata Distribution of Payments..................................................... 53
5.11 Chapter 15 Inapplicable............................................................... 54
6. COLLATERAL............................................................................................ 54
6.1 Grant of Security Interest............................................................ 54
6.2 Further Assurances Concerning Collateral.............................................. 58
6.3 Delivery of Additional Collateral or Mandatory Prepayment............................. 58
6.4 Mortgaging of Real Property Collateral................................................ 59
6.5 Collection and Servicing Rights....................................................... 60
6.7 Right of Redemption From Pledge....................................................... 62
6.8 Return of Collateral at End of Commitment............................................. 63
7. CONDITIONS PRECEDENT.................................................................................. 63
7.1 Initial Advance....................................................................... 63
7.2 Each Advance.......................................................................... 65
8. REPRESENTATIONS....................................................................................... 66
8.1 Organization; Good Standing; Subsidiaries............................................. 66
8.2 Authorization and Enforceability...................................................... 67
8.3 Approvals............................................................................. 67
8.4 Financial Condition................................................................... 67
8.5 Litigation............................................................................ 68
8.6 Licensing............................................................................. 68
8.7 Compliance with Laws.................................................................. 68
8.8 Regulation U.......................................................................... 68
8.9 Investment Company Act................................................................ 68
8.10 Public Utility Holding Company Act.................................................... 68
8.11 Payment of Taxes...................................................................... 69
8.12 Agreements............................................................................ 69
8.13 Title to Properties................................................................... 69
8.14 The Company's Address................................................................. 70
8.15 ERISA................................................................................. 70
8.16 Special Representations Concerning Collateral......................................... 70
8.17 Survival.............................................................................. 74
9. AFFIRMATIVE COVENANTS................................................................................. 74
9.1 Pay Senior Credit Notes............................................................... 74
9.2 Financial Statements.................................................................. 74
9.3 Financial Statements Will be Accurate................................................. 76
</TABLE>
ii
<PAGE> 7
<TABLE>
<S> <C>
9.4 Other Reports......................................................................... 76
9.5 Maintain Existence and Statuses; Conduct of Business.................................. 77
9.6 Hedge Investments in Mortgage Loans................................................... 78
9.7 Compliance with Applicable Laws....................................................... 78
9.8 Inspection of Properties and Books; Protection of Proprietary Information............. 78
9.9 Notice of Suits, Etc. and Notice and Approval of Proposed Servicing Transfers......... 78
9.10 Payment of Taxes, etc................................................................. 79
9.11 Insurance............................................................................. 79
9.12 Subordination of Certain Indebtedness................................................. 80
9.13 Payment and Performance of Other Loan Obligations..................................... 80
9.14 Maintain Priority and Perfection of Lender's Lien..................................... 80
9.15 Use of Proceeds of Advances........................................................... 80
9.16 Promptly Correct Escrow Imbalances.................................................... 80
9.17 Special Affirmative Covenants Concerning Collateral................................... 80
10. NEGATIVE COVENANTS................................................................................... 83
10.1 Contingent Liabilities................................................................ 83
10.2 Merger; Sale of Assets; Acquisitions.................................................. 83
10.3 Deferral of Subordinated Debt......................................................... 83
10.4 Limitations on Debt................................................................... 83
10.5 The Company's Debt to Tangible Net Worth Ratio........................................ 85
10.6 The Company's Minimum Tangible Net Worth.............................................. 85
10.7 Advances to Affiliates................................................................ 85
10.8 Serviced Loans Portfolio Delinquencies Level.......................................... 85
10.9 Special Negative Covenants Concerning Collateral and Underwriting Guidelines.......... 85
11. DEFAULTS AND REMEDIES................................................................................ 86
11.1 Events of Default..................................................................... 86
11.2 Release of Guaranty................................................................... 90
11.3 Cure or Waiver........................................................................ 90
11.4 Remedies.............................................................................. 90
11.5 Application of Proceeds............................................................... 93
11.6 Agent Appointed Attorney-in-Fact...................................................... 94
11.7 Right of Setoff....................................................................... 94
12. REIMBURSEMENT OF EXPENSES; INDEMNITY................................................................. 94
13. RELATIONSHIPS AMONG THE AGENT AND THE LENDERS........................................................ 96
13.1 Agent's Duties........................................................................ 96
</TABLE>
iii
<PAGE> 8
<TABLE>
<S> <C>
13.2 Actions Requiring All Lenders' Consent............................................... 96
13.3 Actions Requiring Majority Lenders' Consent.......................................... 97
13.4 Agent's Discretionary Actions........................................................ 98
13.5 Lenders' Cooperation................................................................. 99
13.6 Lenders' Sharing Arrangement......................................................... 99
13.7 Lenders' Acknowledgment.............................................................. 99
13.8 Agent's Representations to Lenders................................................... 100
13.9 Agent's Duty of Care, Express Negligence Waiver and Release.......................... 100
13.10 Calculations of Shares of Principal and Other Sums................................... 101
13.11 Qualifications of the Agent.......................................................... 101
13.12 Resignation of the Agent............................................................. 101
13.13 Removal of the Agent................................................................. 101
13.14 Effective Date of Resignation or Removal............................................. 102
13.15 Successor Agent...................................................................... 102
13.16 Merger of the Agent.................................................................. 102
13.17 Participation; Assignment............................................................ 102
13.18 The Agent and the Lenders are the only Beneficiaries of this Section................. 104
14. NOTICES............................................................................................ 104
15. MISCELLANEOUS...................................................................................... 107
15.1 Terms Binding Upon Successors; Survival of Representations........................... 107
15.2 Items to Be Satisfactory to the Agent or the Custodian............................... 107
15.3 Usury Not Intended; Credit or Refund of Any Excess Payments.......................... 107
15.4 No Waiver............................................................................ 108
15.5 Counterpart Execution; Amendments.................................................... 109
15.6 Governing Law, Jurisdiction and Venue................................................ 109
15.7 General Purpose of Loan.............................................................. 109
15.8 Waiver of Jury Trial................................................................. 109
15.9 Relationship of the Parties.......................................................... 110
15.10 Notice Pursuant to Tex. Bus. & Comm. Code Section 26.02.............................. 110
</TABLE>
iv
<PAGE> 9
INDEX OF DEFINED TERMS
"4/97 Credit Agreement" ................................................. 1
"ABR Floating Rate" ...................................................... 33
"Acceleration Date" ...................................................... 21
"Adjusted LIBOR Fixed Rate" .............................................. 33
"Adjusted LIBOR Floating Rate" ........................................... 33
"Advance" ................................................................ 2
"Affiliate" .............................................................. 2
"Agent's Fee" ............................................................ 3, 52
"Agent" .................................................................. 3
"Aggregate Committed Sum" ................................................ 3
"Agreement" .............................................................. 3
"Alternate Base Rate" .................................................... 34
"Applicable ABR Margin" .................................................. 34
"Applicable LIBOR/BAR Margin" ............................................ 35
"Balance Adjusted Rate" .................................................. 35
"BAR Floating Rate Tranche" .............................................. 36
"Basic Papers" ........................................................... 3
"Book Collateral Value" .................................................. 6
"Borrowing Base" ......................................................... 3
"Borrowing" .............................................................. 3
"Bridged Loan" ........................................................... 3
"Business Day" ........................................................... 5
"Ceiling Rate" ........................................................... 36
"Central Elements" ....................................................... 5
"Change of Control" ...................................................... 5
"Chapter One" ............................................................ 36
"Collateral Value" ....................................................... 6
"Collateral" ............................................................. 5
"Commitment Fee" ......................................................... 8, 52
"Commitments Cancellation Date" .......................................... 31
"Commitment" ............................................................. 8
"Committed Sum" .......................................................... 8
"Company Underwriting Guidelines" ........................................ 8
"Company" ................................................................ 8
"Credit Line" ............................................................ 8
"Custodian's Fees" ....................................................... 9
"Custodian" .............................................................. 9
"Custodian's Certification" .............................................. 5
"Custody Agreement" ...................................................... 9
"Customer" ............................................................... 9
i
<PAGE> 10
"Debt Collateral" ....................................................... 10
"Debtor Laws" ........................................................... 10
"Debt" .................................................................. 9
"Default" ............................................................... 10
"Disqualifying Event" ................................................... 10
"Effective Date" ........................................................ 13
"Eligible Assignee" ..................................................... 103
"Eligible Collateral" ................................................... 13
"Eligible P&I Advances Collateral" ...................................... 14
"Eligible Receivables Collateral" ....................................... 16
"Eligible Servicing Advances Collateral" ................................ 15
"Eligible Subprime Single-family Collateral" ............................ 13
"Enforcement Advance" ................................................... 16
"Enforcement Receivable" ................................................ 16
"ERISA" ................................................................. 17
"Eurodollar Reserve Requirements" ....................................... 36
"Event of Default" ...................................................... 17
"Facilities Papers" ..................................................... 17
"Facilities" ............................................................ 17
"Facility" .............................................................. 17
"Federal Funds Effective Rate" .......................................... 36
"FHA" ................................................................... 17
"FHLMC" ................................................................. 17
"FICA" .................................................................. 17
"File" .................................................................. 17
"Financial Statements" .................................................. 68
"Fixed Rate Interest Period" ............................................ 37
"Fixed Rate Tranche" .................................................... 37
"Fixed Rate" ............................................................ 36
"Floating Rate Tranche" ................................................. 37
"Floating Rate" ......................................................... 37
"FNMA" .................................................................. 17
"Follow-Up Notice of Custodian's Receipt" ............................... 17
"Free Adjusted Balances" ................................................ 37
"Funding Share .......................................................... 17
"GAAP Net Worth" ........................................................ 30
"GAAP Net Worth" ........................................................ 18
"GAAP" .................................................................. 18
"GNMA" .................................................................. 18
"Governmental Authority" ................................................ 18
"Guarantor" ............................................................. 18
"Guaranty" .............................................................. 18
ii
<PAGE> 11
"Hazard Insurance Policy" ............................................... 19
"Holdback Mortgage Loan" ................................................ 18
"HUD" ................................................................... 19
"In Default" ............................................................ 19
"Indemnified Liabilities" ............................................... 95
"Indemnified Parties" ................................................... 95
"Insurance Proceeds ..................................................... 19
"Interest Rate Option" .................................................. 38
"Interest Rate Selection Confirmation" .................................. 46
"Internal Revenue Code" ................................................. 19
"Law" ................................................................... 19
"Legal Requirement" ..................................................... 19
"Lender" ................................................................ 19
"LIBOR Business Day" .................................................... 38
"LIBOR" ................................................................. 38
"Lien" .................................................................. 20
"Line Limit" ............................................................ 20
"Line" .................................................................. 20
"Loan Modification" ..................................................... 20
"Loan Papers" ........................................................... 20
"Loan" .................................................................. 20
"Long Beach Financial" .................................................. 20
"Majority Lenders" ...................................................... 20
"Margin Stock" .......................................................... 20
"Market Value" .......................................................... 21
"Maturity Date .......................................................... 21
"MBS" ................................................................... 21
"Mortgage Assignment" ................................................... 21
"Mortgage Loan" ......................................................... 21
"Mortgage Note" ......................................................... 21
"Mortgage" .............................................................. 21
"Mortgagor Bankruptcy Loss" ............................................. 21
"Multiemployer Plan" .................................................... 21
"Note Payment Account" .................................................. 21
"Notice of Custodian's Receipt" ......................................... 22
"Notices" ............................................................... 104
"Notice" ................................................................ 22
"Obligations" ........................................................... 22
"Officer's Certificate" ................................................. 22
"Operating Subsidiaries" ................................................ 22
"P&I Advances Borrowing Base" ........................................... 3
"P&I Advances Collateral Value" ......................................... 7
iii
<PAGE> 12
"P&I Advances Sublimit" .................................................. 28
"P&I Advances Subline" ................................................... 28
"P&I Advance" ............................................................ 23
"P&I Receivable" ......................................................... 14
"P&ISubline Advances" .................................................... 28
"Past Due Rate" .......................................................... 38
"Person" ................................................................. 23
"Plan" ................................................................... 23
"Pledged Loans Curtailment Report" ....................................... 24
"Pledged Loan" ........................................................... 23
"Pledged to the Agent" ................................................... 24
"Prime Rate" ............................................................. 38
"Principal Balance" ...................................................... 24
"Pro Rata" ............................................................... 24
"Property" ............................................................... 25
"PUHC Act" ............................................................... 25
"Purchase Commitment" .................................................... 25
"Qualified Investor" ..................................................... 25
"Receivables Collateral Value" ........................................... 7
"Receivables Collateral" ................................................. 6
"Receivables Sublimit" ................................................... 28
"Receivables Subline" .................................................... 28
"Recoveries Advances" .................................................... 28
"Recoveries Borrowing Base" .............................................. 3
"Redemption Amount" ...................................................... 25
"Regulation Q" ........................................................... 25
"Regulation U" ........................................................... 25
"Regulation X" ........................................................... 25
"Reimbursement Rights" ................................................... 56
"Relevant 1994 UCC Amendments" ........................................... 62
"Repurchased Defaulted Mortgage" ......................................... 26
"Request for Borrowing" .................................................. 26
"Reuters Screen LIBO Page" ............................................... 38
"Security Instruments" ................................................... 26
"SEC" .................................................................... 26
"Senior Credit Notes" .................................................... 26
"Serviced Loans" ......................................................... 26
"Servicer" ............................................................... 26
"Servicing Advances Borrowing Base" ...................................... 3
"Servicing Advances Collateral Value" .................................... 7
"Servicing Advances Sublimit" ............................................ 28
"Servicing Advances Subline" ............................................. 28
iv
<PAGE> 13
"Servicing Advance" ...................................................... 26
"Servicing Agreement" .................................................... 26
"Servicing Claim" ........................................................ 27
"Servicing Subline Advances" ............................................. 28
"Single-family" .......................................................... 27
"Stated Rate" ............................................................ 39
"Statement Date" ......................................................... 27
"Structured Securities" .................................................. 27
"Sublimit" ............................................................... 27
"Subline Funding Limit" .................................................. 27
"Sublines" ............................................................... 27
"Submission List" ........................................................ 28
"Subordinated Debt" ...................................................... 28
"Subordination Agreement" ................................................ 29
"Subprime Single-family Collateral Value" ................................ 6
"Subprime Single-family Collateral" ...................................... 6
"Subprime Single-family Sublimit" ........................................ 27
"Subprime Single-family Warehouse Advances" .............................. 27
"Subprime Single-family Warehouse Borrowing Base" ........................ 3
"Subprime Single-family Warehouse Subline" ............................... 27
"Subprime" ............................................................... 29
"Subsidiary" ............................................................. 29
"Supplemental Papers" .................................................... 29
"Swing Line Advances" .................................................... 29
"Swing Line Borrowing Due Date" .......................................... 30
"Swing Line Limit" ....................................................... 30
"Swing Line Note" ........................................................ 42
"Swing Line" ............................................................. 29
"T&I Advance" ............................................................ 30
"T&I Receivable" ......................................................... 15
"Tangible Net Worth" ..................................................... 30
"Taxes" .................................................................. 31
"Termination Date" ....................................................... 31
"Texas Commerce Balances" ................................................ 39
"Texas Commerce" ......................................................... 1
"Texas Credit Code" ...................................................... 36
"Townhouse or Condo Mortgage Loan" ....................................... 31
"UCC" .................................................................... 31
"Uncovered Loan" ......................................................... 31
"Uncovered Mortgage Loans Sublimit" ...................................... 32
"Uncovered Warehousing Subline" .......................................... 27
"Uncovered Warehousing" .................................................. 32
v
<PAGE> 14
"Underwriter's Excuse Proviso" ........................................... 88
"VA" ..................................................................... 32
"Wet Warehousing Sublimit" ............................................... 32
"Wet Warehousing" ........................................................ 32
"Whole Loans" ............................................................ 32
vi
<PAGE> 15
4/97 SENIOR SECURED CREDIT AGREEMENT
PREAMBLE
This 4/97 Senior Secured Credit Agreement (the "4/97 CREDIT AGREEMENT"
and as it may be supplemented, amended or restated, the "CURRENT CREDIT
AGREEMENT" or, within itself, this "AGREEMENT"), whose effective date (the
"EFFECTIVE DATE") is April 14, 1997, among AMERIQUEST MORTGAGE CORPORATION (the
"COMPANY"), a Delaware corporation that will be renamed "Long Beach Mortgage
Company" with its principal office at 1100 Town & Country Road, Suite 900,
Orange, California 92668, TEXAS COMMERCE BANK NATIONAL ASSOCIATION ("TEXAS
COMMERCE"), a national banking association acting herein as a Lender and agent
for the Lenders and Eligible Assignees (in that capacity, Texas Commerce is
called the "AGENT"), and such other Lenders as may from time to time be party to
this Agreement;
W I T N E S S E T H :
Recitals
The Company has asked the Lenders and the Agent to establish a $200
million senior, secured, revolving line of credit with revolving sublines for
(i) warehousing the Company's subprime, 1- to 4-family residential, first
mortgage loans, (ii) financing principal and interest advances receivables made
in respect of the Company's servicing portfolio, (iii) financing the Company's
fundings of recoverable advances made to preserve, restore and protect property
securing Company-serviced first and junior mortgage loans that are in default,
in foreclosure or have been foreclosed by the Company, enforce remedies in
respect of them, manage and liquidate property acquired through their
foreclosure or similar proceedings and maintain property insurance and keep
taxes current on such property and (iv) financing the Company's acquisition and
collection of, or other realizations on, defaulted serviced mortgage loans, and
the Lenders and the Agent have agreed to do so on the terms and subject to the
conditions of this Agreement.
In addition, Texas Commerce has agreed to provide a separate revolving
swing line of credit to initially and temporarily finance the Company's
borrowings pending their funding by all of the Lenders pursuant to this
Agreement.
The Lenders' and Agent's agreement to establish and continue the credit
line and its sublines, and Texas Commerce's agreement to establish and continue
the swing line, are each made upon and subject to the terms and conditions of
this Agreement. If there is any conflict or inconsistency between any of the
terms or provisions of this Agreement and any of the other Facilities Papers,
this Agreement shall govern and control. If there is any conflict between any
provision of this Agreement and any later supplement, amendment, restatement or
replacement of it, then the latter shall govern and control.
<PAGE> 16
AGREEMENTS
In consideration of the premises, the mutual agreements stated below
and other good and valuable consideration paid by each party to each other party
to this Agreement, the receipt and sufficiency of which each hereby
acknowledges, the parties hereby agree as follows.
1. DEFINITIONS
1.1 Defined Terms. Except where otherwise specifically stated,
capitalized terms used in this Agreement and the other Facilities Papers have
the meanings assigned to them below or elsewhere in this Agreement.
1.2 Definitions of General Application. The terms defined in this
Section are generally applicable. For convenience of reference, defined terms
relating only to the calculation and payment of interest are defined in SECTION
1.3.
"4/97 CREDIT AGREEMENT" is defined in this Agreement's preamble.
"ACCELERATION DATE" is defined in the definition of "MATURITY DATE".
"ADVANCE" means a disbursement by the Lenders under the Loan --
including initial disbursements, readvances of funds previously advanced to the
Company and repaid to the Lenders and protective advances made without any
requirement for any Request for Borrowing -- and is a correlative of
"BORROWING": a Borrowing from the Lenders' and the Agent's point of view. Where
the name of a Subline prefaces "ADVANCE", then it means an Advance under that
Subline. Where the term "Swing Line" prefaces "ADVANCE", then it means an
Advance by Texas Commerce under the Swing Line.
"AFFILIATE" means and includes, with respect to a specified Person, any
other Person:
(a) that directly or indirectly through one or more intermediaries
Controls, is Controlled by or is under common Control with the specified Person
(in this definition only, the term "CONTROL" means having the power to set or
direct management policies, directly or indirectly);
(b) that is a director, trustee, partner, member or officer of the
specified Person or serves in a similar capacity in respect of the specified
Person;
(c) of which the specified Person is a director, trustee, partner,
member or officer or with respect to which the specified Person serves in a
similar capacity and over whom the specified Person, either alone or together
with one or more other Persons similarly situated, has
<PAGE> 17
Control;
(d) that, directly or indirectly through one or more intermediaries, is
the beneficial owner of ten percent (10%) or more of any class of equity
securities -- which does not include any Structured Securities -- of the
specified Person; or
(e) of which the specified Person is directly or indirectly the owner
of ten percent (10%) or more of any class of equity securities of the specified
Person.
"AGENT" is defined in this Agreement's preamble.
"AGENT'S FEE" is defined in SECTION 5.7.
"AGGREGATE COMMITTED SUM" means, on any day, the lesser of (a) Two
Hundred Million Dollars ($200,000,000) and (b) the aggregate of the Lenders'
individual Committed Sums for that day as stated in the definition of "Committed
Sum" below.
"AGREEMENT" is defined in this Agreement's preamble.
"BASIC PAPERS" means all of the Loan Papers that must be delivered to
the Custodian -- in the case of Bridged Loans, on or before the fifth (5th)
Business Day after the related Advance -- in order for any particular item of
Debt Collateral to be Eligible Collateral and have Collateral Value. The Custody
Agreement lists the Basic Papers for each such category of Collateral, and
reference is here made to the Custody Agreement for those listings.
"BOOK COLLATERAL VALUE" is defined in the definition of "Collateral
Value", under its bulleted subhead "Subprime Single-family Collateral Value".
"BORROWING" is a correlative of "Advance": an Advance from the
Company's point of view. Where the name of a Subline prefaces "Borrowing", then
it means a Borrowing under that Subline. Where the term "Swing Line" prefaces
Borrowing, then it means a Borrowing from Texas Commerce under the Swing Line.
"BORROWING BASE" means, the "SUBPRIME SINGLE-FAMILY WAREHOUSE BORROWING
BASE" for the Subprime Single-family Warehouse Subline, the "P&I ADVANCES
BORROWING BASE" for the P&I Advances Subline, the "SERVICING ADVANCES BORROWING
BASE" for the Servicing Advances Subline and the "RECOVERIES BORROWING BASE" for
the Recoveries Subline and those terms mean, respectively and on any day, the
respective sums of the Collateral Values of all Eligible Subprime Single-family
Collateral, Eligible P&I Advances Collateral, Eligible Servicing Advances
Collateral and Eligible Recoveries Collateral then Pledged to the Agent.
"BRIDGED LOAN" means a Pledged Loan acquired and owned by the Company:
3
<PAGE> 18
(a) that would qualify without exception as Eligible Subprime
Single-family Collateral except that some or all of its Basic Papers have not
been fully executed, organized or delivered to the Custodian so as to satisfy
all requirements to permit the Company to borrow against it pursuant to this
Agreement without restriction;
(b) that the Company reasonably expects to fully qualify as Eligible
Collateral when the original Basic Papers have been executed and delivered;
(c) as to which the Company actually and reasonably expects that such
full qualification can and will be achieved on or before five (5) Business Days
after an Advance against such item of Collateral is requested and made under
this Agreement (and the Company hereby agrees to take such steps as are
reasonably necessary to ensure it achieves full qualification as Eligible
Collateral); and
(d) for which the Company has delivered to the Agent a copy of a dated
summary schedule (by telecopy on or before the date of the related Advance) duly
executed by an authorized Company officer and in form acceptable to the Agent,
(1) listing the Bridged Loans being Pledged to the Agent (i) by Company loan
number and showing for each (ii) the Customer name, (iii) the loan date (or, if
it has not yet closed, its scheduled closing date), (iv) the loan amount, (v)
the loan interest rate and (vi)whether or not it has been closed, (2) certifying
that, for each such Bridged Loan, the Basic Papers have been executed and
delivered by all appropriate Persons and such Bridged Loan has been originated,
closed, funded and (if applicable) sold and assigned to the Company -- or, in
the case of each Bridged Loan listed as not yet having been closed, that it will
have been originated, closed, funded and (if applicable) acquired by the Company
before or when the proceeds of the Wet Warehousing Advance requested to fund
such Bridged Loan are disbursed from the closing escrow -- and (3) certifying
that the complete file as to such item of Collateral, including the Basic
Papers, is in the possession of its closer, the Company or the Company's
Servicer for such Pledged Loan, or that such file has been shipped to the
Custodian (submission to the Agent of each summary schedule shall be deemed to
constitute a certification by the officer executing it as stated in CLAUSES (2)
and (3) above, whether or not such certifications are actually recited in such
summary schedule).
Each Bridged Loan that satisfies the foregoing requirements shall be an Eligible
Mortgage Loan subject to the condition subsequent of physical delivery of its
Mortgage Note, Mortgage and all other Mortgage Loan Documents to the Custodian
within five (5) Business Days after funding of the related Borrowing. Each
Bridged Loan against which the Company requests an Advance shall be irrevocably
deemed Pledged to the Agent and shall automatically become pledged Collateral
effective on the date of the related Request for Borrowing, and the Company
shall take all steps necessary or appropriate to cause the pledge to the Agent
and the delivery of such Bridged Loan and its Basic Papers to the Custodian to
be completed, perfected and continued in all respects, including causing the
original promissory note evidencing such pledged Collateral to be physically
delivered to the Agent or to its designated bailee (usually, the Custodian)
within five (5) Business
4
<PAGE> 19
Days after the funding of the Advance and, if requested by the Agent, to give
written notice to any Person in possession of the Basic Papers for such
Collateral of the Agent's security interest in it and its security. Upon
delivery to the Custodian of the original Basic Papers relative to a Bridged
Loan and the Custodian's issuance of its Custodian's Certification as to such
Bridged Loan in accordance with SECTION 7.2(B), such Collateral shall no longer
be subject to this Agreement's limitations applicable to Bridged Loans.
"BUSINESS DAY" means any day excluding Saturday, Sunday, any day on
which any Lender is required or permitted to be closed and any day that is a
legal holiday under the laws of the State of Texas or the State of California
and, with regard to Fixed Rate Borrowings, a day when there is interbank trading
of U.S. dollar deposits in London between banks.
"CENTRAL ELEMENTS" means and includes the value of any Collateral; the
prospects for repayment of each portion of the Loan, both principal and
interest, when due; the validity or enforceability of this Agreement, any Senior
Credit Note or other Facilities Papers and, as to any Person referred to in any
reference to the Central Elements, such Person's property, business operations,
financial condition and ability to fulfill its obligations under this Agreement
or any other Facilities Papers, each taken as a whole, and such Person's
prospects of continuing in business as a going concern.
"CUSTODIAN'S CERTIFICATION" means a certification by the Custodian in
the form of the relevant exhibit to the Custody Agreement that the Custodian has
received and holds all of the Basic Papers for a particular item or items of
Collateral identified in the certification.
"CHANGE OF CONTROL" in respect of the Company means and includes:
- a sale of substantially all of the Company's assets to any Person or
related group of Persons.
- without the Agent's prior written consent, any merger or
consolidation of the Company with or into another Person with the effect that
Long Beach Financial holds less than one hundred percent (100%) of the total
voting power entitled to vote in the election of directors, managers or trustees
of the survivor of such merger or consolidation.
- the occurrence of any other event after which Long Beach Financial no
longer owns one hundred percent (100%) of the total voting power entitled to
vote in the election of the Company's directors.
- the Company's own liquidation or dissolution.
"COLLATERAL" is any or all collateral (as the context requires) for the
Obligations, consisting of:
5
<PAGE> 20
- the "SUBPRIME SINGLE-FAMILY COLLATERAL", which means pledged Subprime
Single-family Mortgage Loans, their security, their related Loan Papers and the
right to recover under the related Hazard Insurance Policies.
- the "P&I ADVANCES COLLATERAL", which means pledged claims and
receivables arising out of or produced by the Company's P&I Advances made
pursuant to a right or obligation as Servicer of the related Mortgage Loans to
make such P&I Advances, all related insurance or guaranties and their related
papers.
- the "SERVICING ADVANCES COLLATERAL", which means pledged claims and
receivables arising out of or produced by the Company's Servicing Advances made
pursuant to a right or obligation as Servicer of the related Mortgage Loans to
make such Servicing Advances, all related insurance or guaranties and their
related papers.
- the "RECOVERIES COLLATERAL", which means Mortgage Loans other than
Eligible Subprime Single-family Mortgage Loans and claims and receivables in
respect of delinquent or foreclosed Mortgage Loans, that are owned by the
Company and Pledged to the Agent.
"COLLATERAL VALUE" means the value of Eligible Collateral for purposes
of this Agreement. Collateral (i) that is not duly Pledged to the Agent, (ii) in
which the Agent does not have a first and prior perfected Lien (except that in
the case of Bridged Loans Pledged to the Agent for five (5) or less Business
Days, the fact that the Agent does not have possession, directly or through the
Custodian, of the Basic Papers therefor shall not affect such Bridged Loans'
Collateral Value) or (iii) that is not Eligible Collateral because it does not
satisfy in all material respects one or more of the conditions to eligibility
stated for it in this Agreement, shall have zero Collateral Value, and
Collateral that at one time satisfied all conditions for eligibility but for
which a Disqualifying Event has occurred shall have zero Collateral Value from
the date of that Disqualifying Event unless and until the Company has cured all
applicable Disqualifying Events or the Agent has waived them in writing;
provided that the reduction for any reason of the Collateral Value of any
Collateral that is Pledged to the Agent shall not itself affect or impair the
Agent's security interest in that Collateral. Collateral Values of the various
types of eligible Collateral, duly Pledged to the Agent with the Agent having
Lien priority and perfection as aforesaid and as to which no such uncured or
unwaived Disqualifying Event has occurred shall be determined as follows:
- The "SUBPRIME SINGLE-FAMILY COLLATERAL VALUE" on any day of any
pledged Subprime Single-family Mortgage Loan (whether or not a Bridged Loan or
an Uncovered Loan) shall be its "BOOK COLLATERAL VALUE", which is ninety-eight
percent (98%) of the least of:
(i) such Pledged Loan's Principal Balance on that day;
(ii) for a Company-originated Pledged Loan, the loan amount at
origination less
6
<PAGE> 21
discount points received by the Company, as stated on the Pledged Loan's HUD-1
Settlement Statement, or for a Company-purchased Pledged Loan, the net cash
amount the Company paid for it (without regard, however, to any servicing
release premium paid by the Company); or
(iii) the purchase price that the investor will pay for such Pledged
Loan as provided for in the Purchase Commitment covering it;
provided that if the Agent shall elect to mark it to market, such Pledged Loan's
Subprime Single-family Collateral Value for that day shall be the lesser of (i)
its Book Collateral Value or (ii) ninety-five percent (95%) of its Market Value
on that day.
- The "P&I ADVANCES COLLATERAL VALUE" on any day for any pledged
Eligible P&I Advances Collateral shall be ninety-five percent (95%) of the
amount of the Company's Servicing Claim for P&I Advances.
- The "SERVICING ADVANCES COLLATERAL VALUE" on any day for any
pledged Eligible Servicing Advances Collateral shall be the percentage stated
below for the following categories of Eligible Servicing Advances Collateral:
- eighty-five percent (85%) of the amount of the Company's Servicing
Claim for T&I Advances.
- eighty-five percent (85%) of the amount of the Company's Servicing
Claim for P&I Advances that have not been (or that the Company believes will not
be) collected on or before thirty-three (33) days after their respective funding
dates.
- the lesser of (i) eighty-five percent (85%) of the amount of the
Company's Servicing Claim for Enforcement Advances or (ii) twenty percent (20%)
of the current appraised value -- or written price opinion of value issued by a
local real estate broker selected reasonably and in good faith by the Company --
of the real estate securing the Single-family Residential Mortgage Loans in
respect of which such Enforcement Advances were made, except that the applicable
limit under this CLAUSE (II) shall be sixty-five percent (65%) of such appraised
value or broker's price opinion of value for Enforcement Advances made to buy
out a senior Lien on Property covered by a Serviced Loan to protect that
Serviced Loan from being potentially cut off and extinguished by foreclosure of
the senior Lien purchased.
- The "RECOVERIES COLLATERAL VALUE" on any day for a Single-family
Residential Mortgage Loan owned by the Company and Pledged to the Agent that was
either (1) originated or purchased by the Company but either (i) was not
subsequently sold to an investor, or (ii) was sold to an investor but was
subsequently repurchased by the Company due to underwriting errors,
delinquencies or breach of representations or warranties made in connection with
such sale or (2) purchased by the Company out of a pool of Serviced Loans, or
from a Whole Loan investor for
7
<PAGE> 22
whose Mortgage Loans the Company is a Servicer, pursuant to the Company's (or an
Affiliate's) obligation or election as Servicer to do so, shall be seventy-five
percent (75%) of the lesser of:
(i) such Pledged Loan's Principal Balance; or
(ii) the net cash amount paid for such Pledged Loan by the Company
(without regard, however, to any servicing release premium paid by the Company);
provided, that if the Agent shall elect to mark such Pledged Loan to market,
whichever of the Market Value of the Pledged Loan itself or of the real estate
securing it the Agent shall determine is the better measure of its Market Value.
Each determination by the Agent of Collateral Value (and of each element of each
such determination, including Market Value) may be computed using any reasonable
averaging, interpolation and attribution method and, absent manifest error,
shall be conclusive and binding. The Recoveries Collateral Value of any other
Recoveries Collateral shall be seventy-five percent (75%) of its Market Value as
determined by the Agent.
"COMMITTED SUM" means, for any day, the maximum amount a Lender is
committed on that day to lend to the Company (or for its account) on a revolving
credit basis pursuant to this Agreement, on its terms and subject to its
conditions. From the Effective Date of this Agreement until the Termination Date
or such other date (if any) when all or any of them is changed by operation of
the provisions of any agreement or Legal Requirement, the Committed Sums for the
Lenders are as set forth on SCHEDULE LC, as it may be amended and restated from
time to time.
"COMMITMENT" means, for each Lender, its commitment under SECTION 2.1
to fund its Funding Share of Advances under the Credit Line and its Sublines,
limited (i) in the aggregate, to such Lender's Committed Sum and (ii) for each
Subline, to such Lender's Subline Funding Limit. Such term also includes Texas
Commerce's Commitment under SECTION 2.5 to fund the Swing Line, limited to the
Swing Line Limit, upon and subject to the terms of this Agreement.
"COMMITMENT FEE" is defined in SECTION 5.6.
"COMMITMENTS CANCELLATION DATE" is defined in the definition of
"Termination Date".
"COMPANY" is defined in this Agreement's preamble.
"COMPANY UNDERWRITING GUIDELINES" means the Company's Loan underwriting
guidelines for Subprime Single-family Mortgage Loans from time to time in effect
as summarily described in the Company's "Non-Conforming Ratesheets", current
examples of which are reproduced as SCHEDULE UG-SSF.
"CREDIT LINE" means the revolving line of credit established by this
Agreement and governed by it and the other Facilities Papers, and its Sublines.
Borrowings under the Credit Line
8
<PAGE> 23
are available only as Borrowings under its Sublines.
"CUSTODIAN" means Texas Commerce, as Custodian under the Custody
Agreement, or any successor custodian under the Custody Agreement.
"CUSTODIAN'S FEES" is defined in the Custody Agreement.
"CUSTODY AGREEMENT" means the Custody Agreement dated as of April 14,
1997 between the Company and Texas Commerce, as Custodian, as it may hereafter
be supplemented, amended or restated from time to time.
"CUSTOMER" means and includes each maker of a Mortgage Note and each
cosigner, guarantor, endorser, surety and assumptor thereof, whether or not such
Person has personal liability for its payment in whole or in part.
"DEBT" means, with respect to any Person, on any day, the sum of the
following (without duplication):
(a) all of that Person's debt or other obligations which, in accordance
with GAAP, should be included in determining total liabilities as shown on the
liabilities side of that Person's balance sheet for that day;
(b) all of that Person's debt or other obligations for borrowed money
or for the deferred purchase price of property or services, except that
non-recourse Structured Securities Debt shall be excluded;
(c) all of any other Person's debt or other obligations for borrowed
money or for the deferred purchase price of property or services in respect of
which such Person is liable -- contingently or otherwise -- to pay or advance
money or property as guarantor, surety, endorser or otherwise (excluding the
subject Person's contingent liability as endorser of negotiable instruments for
collection in the ordinary course of business), or which such Person has agreed
to purchase or otherwise acquire; and
(d) all debt for borrowed money or for the deferred purchase price of
property or services secured by a Lien on any property owned or being purchased
by that Person (even though that Person has not assumed or otherwise become
liable for the payment of such debt) to the extent that such debt would not be
otherwise counted as a liability for purposes of determining that Person's net
worth and to the extent that such debt is less than or equal to the net book
value of such property;
provided that, for purposes of this Agreement, there shall be excluded from the
calculation of Debt for that day, such Person's obligations to pay to another
Person any sums collected and held
9
<PAGE> 24
by the subject Person (as loan servicer, escrow agent or collection agent or in
a similar capacity) for the account of such other Person.
"DEBT COLLATERAL" means Subprime Single-family Collateral.
"DEBTOR LAWS" means all applicable liquidation, conservatorship,
bankruptcy, moratorium, arrangement, receivership, insolvency, reorganization
and similar laws from time to time in effect that affect the rights of creditors
generally.
"DEFAULT" means the occurrence of any event or existence of any
condition that, but for the giving of notice, the lapse of time or both, would
constitute an Event of Default.
"DISQUALIFYING EVENT" means any of the following events, after the
occurrence of which (i) for so long as the material effects of such event shall
continue and shall not have been waived or declared cured in writing by the
Agent and (ii) except to the extent otherwise specified in this definition, the
Collateral Value of the affected Collateral shall be zero for Borrowing Base
purposes:
(any Collateral)
- any event occurs, or is discovered to have occurred, after which the
affected Collateral fails to satisfy every element of whichever of the following
definitions is most applicable to such Collateral: Eligible Subprime
Single-family Collateral, Eligible P&I Advances Collateral, Eligible Servicing
Advances Collateral or Eligible Recoveries Collateral.
- in respect of any item of Collateral, for any reason whatsoever any
of the Company's special representations concerning Collateral set forth in
SECTION 8.16 applicable to that type of Collateral shall become untrue, or shall
be discovered to be untrue, in any respect that is material to the value or
collectibility of that item of Collateral, considered either by itself or
together with other items of Collateral.
(Pledged Subprime Single-family Mortgage Loans)
- Any Pledged Loan shipped to an investor shall not be paid for or
returned to the Custodian or the Agent (whichever shipped it) on or before
forty-five (45) days after it is shipped.
- five (5) Business Days shall have elapsed after an Advance shall have
been funded against the Collateral Value of a Bridged Loan without all of the
Bridged Loan's Basic Papers having been received by the Custodian.
- The Company shall have failed to both (i) obtain and (ii) confirm in
writing to the Agent that it has obtained, replacement Purchase Commitment
coverage for any Uncovered Loan
10
<PAGE> 25
on or before thirty (30) days after the later of the day it was first Pledged to
the Agent or the day its original Purchase Commitment coverage terminated.
- any Basic Paper for any Pledged Loan returned to the Company or its
designee for correction, collection or other action shall not be returned to the
Agent or the Custodian (whichever shipped it) on or before ten (10) days after
it is so returned.
- on any day that is not one of the first or last five (5) Business
Days of a calendar month, the sum of the Collateral Values of all pledged
Subprime Single-family Loans that are Bridged Loans shall exceed an amount equal
to twenty percent (20%) of the Subprime Single-family Sublimit on that day -- in
which event the aggregate Collateral Value for that day of all Subprime
Single-family Mortgage Loans that are Bridged Loans shall be the amount that is
equal to twenty percent (20%) of such Sublimit.
- on any day that is one of the first or last five (5) Business Days of
a calendar month, the sum of the Collateral Values of all pledged Subprime
Single-family Loans that are Bridged Loans shall exceed an amount equal to
thirty-five percent (35%) of the Subprime Single-family Sublimit on that day --
in which event the aggregate Collateral Value for that day of all Subprime
Single-family Mortgage Loans that are Bridged Loans shall be the amount that is
equal to thirty-five percent (35%) of such Sublimit.
- on any day, the sum of the Collateral Values of all pledged Subprime
Single-family Loans that are Uncovered Loans shall exceed an amount equal to
thirty percent (30%) of the Subprime Single-family Sublimit on that day -- in
which event the aggregate Collateral Value for that day of all Subprime
Single-family Mortgage Loans that are Uncovered Loans shall be the amount that
is equal to thirty percent (30%) of such Sublimit.
- any Subprime Single-family Mortgage Loan shall be In Default.
- on any day, the sum of the Collateral Values of all Subprime
Single-family Loans that have been Pledged to the Agent for more than one
hundred twenty (120) days but less than one hundred eighty-one (181) days shall
exceed an amount equal to five percent (5%) of the Subprime Single-family
Sublimit on that day -- in which event the aggregate Collateral Value for that
day of all Subprime Single-family Mortgage Loans Pledged to the Agent between
120 and 181 days shall be the amount that is equal to five percent (5%) of such
Sublimit.
- any Subprime Single-family Mortgage Loan shall have been Pledged to
the Agent for more than one hundred eighty (180) days.
(P&I Advances Collateral)
- the Company's claim under any P&I Receivable is rejected, repudiated,
stayed,
11
<PAGE> 26
held back or disputed by the trustee or holder of a related Structured Security
or serviced Whole Loan (or anyone claiming by, through or under any of them) or
attached, garnisheed or sequestered by any court of competent jurisdiction, or
the Company learns of any grounds for any such rejection, repudiation, stay,
holdback, dispute, attachment, garnishment or sequestration; provided, that if
such a claim is actually so rejected in part but is also confirmed in part, then
the P&I Advances Collateral Value of that P&I Receivable shall thenceforth be
ninety-five percent (95%) of the portion of the claim so confirmed (instead of
zero).
- the Company shall default in the performance of any of its
obligations under the Servicing Agreement related to any P&I Advances Collateral
if such default continues beyond any period of grace provided under the
Servicing Agreement, if the effect of such default is to cause -- or to permit
the Person for whom the Company performs servicing under such Servicing
Agreement (or a trustee or custodian on behalf of such Person) to cause -- the
Company's right to collect all or any material part of its P&I Advances
Collateral under such Servicing Agreement to be materially diminished, delayed
or impaired;
(Servicing Advances Collateral)
- the Company's claim under any T&I Receivable, any P&I Receivable that
is Servicing Advances Collateral or any Enforcement Receivable is rejected,
repudiated, stayed, held back or disputed by the trustee or holder of a related
Structured Security or serviced Whole Loan (or anyone claiming by, through or
under any of them) or attached, garnisheed or sequestered by any court of
competent jurisdiction, or the Company learns of any grounds for any such
rejection, repudiation, stay, holdback, dispute, attachment, garnishment or
sequestration; provided that if such a claim is actually so rejected in part but
is also confirmed in part, then the Servicing Advances Collateral Value of that
T&I Receivable, P&I Receivable or Enforcement Receivable shall thenceforth be
eighty-five percent (85%) of the portion of the claim so confirmed (instead of
zero).
- the Company shall default in the performance of any of its
obligations under the Servicing Agreement related to any T&I Receivable, P&I
Receivable that is Servicing Advances Collateral or Enforcement Receivable if
such default continues beyond any period of grace provided under the Servicing
Agreement, if the effect of such default is to cause -- or to permit the Person
for whom the Company performs servicing under such Servicing Agreement (or a
trustee or custodian on behalf of such Person) to cause -- the Company's right
to collect all or any material part of its Enforcement Receivables, P&I
Receivables or T&I Receivables under such Servicing Agreement to be materially
diminished, delayed or impaired;
- on any day, the sum of the Collateral Values of all pledged T&I
Receivables that have been Pledged to the Agent for more than one hundred eighty
(180) days shall exceed an amount equal to fifty percent (50%) of the Servicing
Advances Sublimit on that day -- in which event the aggregate Collateral Value
for that day of all pledged T&I Receivables that have been
12
<PAGE> 27
Pledged to the Agent for more than one hundred eighty (180) days shall be the
amount that is equal to fifty percent (50%) of such Sublimit.
- it shall become reasonably apparent to the Company that the prospects
for collection of any T&I Receivable, any P&I Receivable that is Servicing
Advances Collateral or any Enforcement Receivable are materially impaired;
- the Agent reasonably determines that the prospects for payment of any
T&I Receivable, any P&I Receivable that is Servicing Advances Collateral or any
Enforcement Receivable are materially impaired, gives the Company written notice
of that determination and the bases for it and the Company is unable to furnish
the Agent, on or before fifteen (15) days after such notice, evidence reasonably
sufficient to convince the Agent that such prospects are not materially
impaired.
- any T&I Receivable shall have been Pledged to the Agent for more than
three hundred sixty (360) days plus such extension(s), if any, as the Agent may
approve on a case-by-case basis.
(Recoveries Collateral)
- it shall become reasonably apparent to the Company that the prospects
for collection of any Recoveries Collateral are materially impaired.
- the Agent reasonably determines that the prospects for payment of any
Recoveries Collateral are materially impaired, gives the Company written notice
of that determination and the bases for it and the Company is unable to furnish
the Agent, on or before fifteen (15) days after such notice, evidence reasonably
sufficient to convince the Agent that such prospects are not materially
impaired.
"EFFECTIVE DATE" is defined in this Agreement's preamble.
"ELIGIBLE ASSIGNEE" is defined in SECTION 13.17(b).
"ELIGIBLE COLLATERAL" means Collateral that is Pledged to the Agent,
eligible to be borrowed against under this Agreement and has Collateral Value,
as determined pursuant to this definition. Each item of Collateral that fails or
ceases to qualify as Eligible Collateral for any reason shall automatically have
zero Collateral Value from and after the date when the first Disqualifying Event
occurs and for so long as it remains disqualified pursuant to the above
definition of "Disqualifying Event". The several categories of Eligible
Collateral are as follows:
"ELIGIBLE SUBPRIME SINGLE-FAMILY COLLATERAL" means an amortizing
Single-family Mortgage Loan (whether or not its payment schedule includes any
balloon payment) with an
13
<PAGE> 28
original term to its stated maturity of thirty (30) years or less and that
satisfies all applicable requirements of this Agreement for a Subprime
Single-family Mortgage Loan. It must be secured by a first priority Lien on its
related real estate. It may bear interest at a fixed interest rate, at a
fluctuating interest rate or at a fixed or fluctuating interest rate for part of
its term followed, respectively, by a fluctuating or fixed interest rate for the
remainder of its term. Even though it has been Pledged to the Agent and is
therefore Collateral, no Single-family Mortgage Loan shall be an Eligible
Subprime Single-family Mortgage Loan:
- - unless and until the Custodian has issued its Custodian's Certification
concerning it;
- - that does not satisfy the Company Underwriting Guidelines for a Subprime
Single-family Mortgage Loan in all material respects;
- - whose security is a mobile home or a cooperative apartment, or that would not
qualify for purchase by FNMA even if (or despite the fact that) such Mortgage
Loan's credit quality is "A" because its security is a manufactured home that
does not satisfy FNMA's acceptable collateral standards;
- - that contains or is otherwise subject to any contractual restriction or
prohibition on the free transferability of such Mortgage Loan, all Liens
securing it and all related rights (other than Legal Requirements requiring
notification to is obligor(s) of any transfer of it or of its servicing or
administration), either absolutely or as security;
- - whose Mortgage Note date is earlier than one hundred twenty (120) days before
such Mortgage Loan is first Pledged to the Agent (whether or not it is
subsequently released and thereafter repledged);
- - whose related real estate is not covered by a Hazard Insurance Policy; or
- - that is a Holdback Mortgage Loan for which the amount of the loan proceeds
held back exceeds Ten Thousand Dollars ($10,000) unless the Agent has
specifically determined, on a case-by-case basis, to permit a higher holdback
amount for that Holdback Mortgage Loan.
"ELIGIBLE P&I ADVANCES COLLATERAL" means an account or general
intangible (a "P&I RECEIVABLE") owned by the Company whose holder has a
Servicing Claim produced by the Company's making a P&I Advance:
- - that, at inception, the Company has no actual knowledge will not be collected
on or before thirty-three (33) days after the day that the Company makes the
related (producing) P&I Advance;
- - that the debtor(s) under the related Mortgage(s) are already obligated to pay
to (or to the order of) the holder of that Mortgage Loan (or its servicer) when
the related (producing) P&I
14
<PAGE> 29
Advance is made;
- - for which the Company has the indefeasible right under the applicable
Servicing Agreement to reimburse itself as provided in the definition of "P&I
Advance" out of sums thereafter collected from such debtor(s) or realized from
the security for the related Mortgage Loan;
- - with respect to which there is no bona fide pending claim against the Company
for any credit, allowance or adjustment;
- - that the Company believes is enforceable without offset, bona fide
counterclaim or bona fide defense;
- - for the full recoverability of which the Company has no reasonable basis for
doubt; and
- - in which the Agent (as a Lender and as agent for the other Lenders) has been
granted (pursuant to SECTION 6.1 or otherwise) and continues to hold a readily
enforceable, first priority perfected Lien.
"ELIGIBLE SERVICING ADVANCES COLLATERAL" means an account or general
intangible owned by the Company whose holder has a Servicing Claim:
- - produced by the Company's making a T&I Advance (an account or general
intangible so produced being herein called a "T&I RECEIVABLE"):
- - for which the Company has the indefeasible right under the applicable
Servicing Agreement to reimburse itself as provided in the definition of "T&I
Advance" out of sums thereafter collected from such debtor(s) or realized from
the security for the related Serviced Loan;
- - with respect to which there is no bona fide pending claim against the Company
for any credit, allowance or adjustment;
- - that is enforceable without offset, bona fide counterclaim or bona fide
defense;
- - for the full recoverability of which there is no reasonable basis for doubt;
and
- - in which the Agent has been granted (pursuant to SECTION 3.1 or otherwise) and
continues to hold a readily enforceable, first priority perfected Lien;
- - produced by the Company's making a P&I Advance and that would qualify as
Eligible P&I Advance Collateral except that the Company believes that such P&I
Receivable will not
15
<PAGE> 30
be collected on or before thirty-three (33) days after the funding date of the
related (producing) P&I Advance; or
- - produced by the Company's funding an Enforcement Advance (such an account or
general intangible being herein call an "ENFORCEMENT RECEIVABLE"):
- - for which the Company has the indefeasible right under the applicable
Servicing Agreement to reimburse itself as provided in the definition of
"Enforcement Advance" out of sums thereafter collected from such debtor(s) or
realized from the security for the related Serviced Loan;
- - with respect to which there is no bona fide pending claim against the Company
for any credit, allowance or adjustment;
- - that is enforceable without offset, bona fide counterclaim or bona fide
defense;
- - for the full recoverability of which there is no reasonable basis for doubt;
and
- - in which the Agent has been granted (pursuant to SECTION 3.1 or otherwise) and
continues to hold a readily enforceable, first priority perfected Lien.
"ELIGIBLE RECOVERIES COLLATERAL" means and includes (i) Single-family
Mortgage Loans and recovery rights (including rights to proceeds of disposition
of the Mortgage Loans themselves or property realized through foreclosure or
conveyances in lieu of foreclosure of Mortgage Loans) and reimbursement claim
receivables for delinquent or foreclosed Single-family Mortgage Loans that were
either (1) originated or purchased by the Company but either (i) was not
subsequently sold to an investor, or (ii) was sold to an investor but was
subsequently repurchased by the Company due to underwriting errors,
delinquencies or breach of representations or warranties made in connection with
such sale or (2) purchased by the Company out of a pool of Serviced Loans, or
from a Whole Loan investor for whose Mortgage Loans the Company is a Servicer,
pursuant to the Company's (or an Affiliate's) obligation or election as Servicer
to do so, and which Mortgage Loans the Company is actively engaged in
liquidating through foreclosure and sale of foreclosure realizations or sale or
other disposition of such Mortgage Loans themselves, and (ii) such unmarketable
Single-family Mortgage Loans and other mortgage banking-related Collateral, if
any, as the Agent shall from time to time approve to be Eligible Recoveries
Collateral.
"ENFORCEMENT ADVANCE" means a cash advance that is both (1) made by the
Company pursuant to the Company's contractual obligation or right under the
relevant Servicing Agreement to make such advance to pay customary, reasonable
and necessary out-of-pocket costs and expenses incurred to (i) preserve, restore
and protect the real estate securing a Serviced Loan, (ii) enforce liens, rights
and remedies, including judicial or nonjudicial note and mortgage
16
<PAGE> 31
enforcement proceedings and foreclosures, in respect of a Serviced Loan or (iii)
manage and liquidate properties acquired through a Serviced Loan's foreclosure
or similar proceedings and (2) fully recoverable by the Company out of sums that
are both required and expected to be paid to the Company in the ordinary course
of its servicing of the Serviced Loans under such Servicing Agreement, on a
first priority of (reimbursement) payment basis (i.e., before any payment from
or on account of those sums to or for the account of the holder(s) of the
relevant Structured Securities or whole Serviced Loans or to any other Person).
"ERISA" means the Employee Retirement Income Security Act of 1974 and
any successor statute, as amended from time to time, and all rules and
regulations promulgated under it.
"EVENT OF DEFAULT" means the occurrence of any of the conditions or
events described or referred to in SECTION 11.
"FACILITIES" means the credit facilities provided for in this
Agreement, and in its singular form, "FACILITY", means either (i) the Two
Hundred Million Dollars ($200,000,000) senior secured revolving line of credit
provided for herein, including its Subprime Single-family Warehouse Subline, its
P&I Advances Subline, its Servicing Advances Subline, its Recoveries Subline and
the Swing Line or (ii) such line of credit, one of such sublines or the Swing
Line, whichever the context requires.
"FACILITIES PAPERS" means and includes this Agreement, the Senior
Credit Line Notes (including the Swing Line Note), the Guaranty, the Custody
Agreement and all security agreements, financing statements and other papers now
or hereafter executed evidencing, securing or otherwise relating to the
Facilities, and any renewal, extension, rearrangement, increase, supplement,
modification or restatement of any of them.
"FHA" means the Federal Housing Administration and any successor.
"FHLMC" means the Federal Home Loan Mortgage Corporation and any
successor.
"FICA" means the Federal Insurance Contributions Act.
"FILE" means a file in the possession of the Custodian or its designee
(other than the Company or a Company Affiliate) containing all of the Basic
Papers for the relevant type of Collateral.
"FINANCIAL STATEMENTS" is defined in SECTION 8.4.
"FNMA" means the Federal National Mortgage Association and any
successor.
"FOLLOW-UP NOTICE OF CUSTODIAN'S RECEIPT" means an instrument
substantially in the form
17
<PAGE> 32
of the relevant exhibit (named that) to the Custody Agreement.
"FUNDING SHARE" means, for each Lender, that proportion of each Advance
under a particular Facility that bears the same ratio to the total amount of the
Advances under that Facility as the portion of that Lender's Committed Sum
applicable to that Facility bears to the aggregate Committed Sums of all Lenders
for that Facility.
"GAAP" means, for any day, generally accepted accounting principles,
applied on a consistent basis, stated in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified Public
Accountants, or in statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by another entity or entities as may
be approved by a significant segment of the accounting profession, that are
applicable to the circumstances for that day. The requirement that such
principles be applied on a consistent basis means that the accounting principles
observed in a current period shall be comparable in all material respects to
those applied in an earlier period, with the exception of changes in application
to which the Company's independent certified public accountants have agreed and
which changes and their effects are summarized in the subject company's
financial statements following such changes. If (a) during the term of this
Agreement any change(s) in such principles occur(s) which materially changes the
meaning or effect of any provision of this Agreement and (b) the Company or the
Majority Lenders regard such change(s) as adverse to their respective interests,
then upon written notice by the Company to the Agent, the parties to this
Agreement shall negotiate promptly and in good faith a supplement or amendment
to this Agreement to achieve as nearly as possible preservation and continuity
of the business substance of this Agreement in light of such change; provided
that neither the Agent nor any of the Lenders shall be obligated to commence,
continue or conclude any such negotiation or to execute any such supplement or
amendment after any Default has occurred (other than a Default caused by such
change) and before it has been cured or after any Event of Default has occurred
(other than an Event of Default caused by such change) which the Agent has not
declared in writing to have been cured or waived.
"GAAP NET WORTH" has the meaning set forth in the definition of
"TANGIBLE NET WORTH".
"GNMA" means the Government National Mortgage Association and any
successor.
"GOVERNMENTAL AUTHORITY" means any foreign governmental authority, the
United States of America, any state of the United States and any political
subdivision of any of the foregoing, and any agency, department, commission,
board, bureau, court or other tribunal.
"GUARANTOR" means Long Beach Financial.
"GUARANTY" means the Guarantor's written, absolute and irrevocable
guaranty to the Lenders and the Agent of payment of the Obligations, in form and
substance satisfactory to the
18
<PAGE> 33
Guarantor and the Agent, duly executed and delivered by the Guarantor to the
Agent.
"HOLDBACK MORTGAGE LOAN" means a Mortgage Loan that is Eligible
Subprime Single-family Collateral but as to which the Company (or its
originator, if it was not originated by the Company) has either not funded a
portion of its proceeds or has funded such a portion in escrow, with the
disbursement of such portion conditioned upon the satisfaction of the
requirements of a written agreement specifying one or more conditions relating
to the completion, repair or refurbishment of property covered by the Mortgage.
"HUD" mean the U.S. Department of Housing and Urban Development or any
successor.
"HAZARD INSURANCE POLICY" means, with respect to each Pledged Loan, the
policy of fire and extended coverage insurance (and federal flood insurance, if
the related real estate is located in a federally-designated special flood area)
required by SECTION 9.17(b) of this Agreement to be maintained for the related
real estate's improvements and which may be a blanket mortgage impairment policy
maintained by such Pledged Loan's Servicer in accordance with the terms and
conditions of said SECTION 9.17(b).
"IN DEFAULT" means, on any day, more than one Mortgage Note payment or
escrow payment default has occurred on a Mortgage Loan, or another material
default has occurred, including the pendency of foreclosure proceedings or the
pendency of a case in bankruptcy for any Customer under such Mortgage Loan.
"INDEMNIFIED LIABILITIES" is defined in SECTION 12.5.
"INDEMNIFIED PARTIES" is defined in SECTION 12.5.
"INSURANCE PROCEEDS" means proceeds paid by any insurer pursuant to any
insurance policy or contract.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986 or any
subsequent federal income tax law or laws, as amended from time to time.
"LAW" means any law, statute, code, ordinance, order, rule, regulation,
judgment, decree, injunction, franchise, permit, certificate, license,
authorization or other determination, direction or requirement (including any of
the foregoing which relate to environmental standards or controls, energy
regulations and occupational safety and health standards or controls) of any
(domestic or foreign) arbitrator, court or other Governmental Authority.
"LEGAL REQUIREMENT" means any law, statute, ordinance, decree, ruling,
requirement, order, judgment, rule or regulation (or interpretation of any of
them) of any Governmental Authority, and the terms of any license, permit,
consent or approval issued by any Governmental
19
<PAGE> 34
Authority.
"LENDER" means Texas Commerce, Guaranty Federal Bank, F.S.B., Bank
United, The First National Bank of Boston, Comerica Bank-California, The Bank of
New York, and such other Persons, if any, as from time to time with the consent
of the other parties to this Agreement shall be a party to this Agreement as a
lender.
"LIEN" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"LINE" means a line of credit under this Agreement: the Credit Line or
the Swing Line.
"LINE LIMIT" means the maximum principal amount that the Company may
borrow and have outstanding under the relevant Line.
"LOAN" means the loan under this Agreement -- the sum of all Advances
under every Subline of the Warehouse Line and under the Swing Line outstanding
from time to time -- all of which shall be treated and considered as one loan.
"LOAN MODIFICATION" means, with respect to a Mortgage Loan, a change in
the terms of such Mortgage Loan or the valuation of the property covered by the
relevant Mortgage ordered by a bankruptcy court in a case filed under Chapter 7,
11 or 13 of the federal Bankruptcy Code.
"LOAN PAPERS" means the Mortgage Note and all of the other papers
related to the establishment of a Pledged Loan and the creation, perfection and
maintenance of its lien and lien priority for a particular item of Debt
Collateral, including its Basic Papers and its Supplemental Papers and including
any papers securing, guaranteeing or otherwise related to or delivered in
connection with any Pledged Loan, in a form acceptable to the Agent (including
any guaranties, lien priority agreements, security agreements, mortgages, deeds
of trust, collateral assignments of the Company's interest in underlying
obligations or security, subordination agreements, negative pledge agreements,
loan agreements and title, mortgage, pool and casualty insurance policies), as
any such Loan Paper may be supplemented, amended, restated or replaced from time
to time.
"LONG BEACH FINANCIAL" means Long Beach Financial Corporation, a
Delaware corporation.
"MAJORITY LENDERS" means, for any day, the holders of Senior Credit
Line Notes evidencing sixty-six and two-thirds percent (66-2/3%) or more of (a)
the Aggregate Committed Sum if on that day the Lenders are committed to lend
under this Agreement or (b) the aggregate principal amount of the Loan
outstanding if on or before that day the Lenders' Commitments have
20
<PAGE> 35
expired or have been terminated and have not been reinstated.
"MARGIN STOCK" has the meaning assigned to that term in Regulation U of
the Board of Governors of the Federal Reserve System as in effect from time to
time.
"MARKET VALUE" of (i) any Mortgage Loan means, on any day, the average
of the prices obtained from three (3) brokerage firms reasonably selected by the
Agent as the bid price offered for its mandatory delivery within thirty (30)
days, or if the Agent, using its customary methods, systems and procedures, is
unable to obtain such bid prices, then its Market Value shall be what the Agent
reasonably determines its market value to be or (ii) any other property means,
on any day, what the Agent reasonably determines its market value to be (or to
have been) on that day.
"MATURITY DATE" means March 31, 1999, or the earlier date (the
"ACCELERATION DATE"), if any, to which maturity of the Senior Credit Line Notes
is accelerated pursuant to this Agreement, by order of any Governmental
Authority or by operation of law.
"MBS" means a mortgage-backed security based on and backed by, or
represented by, a pool that includes Serviced Loans, and includes a mortgage
pass-through certificate.
"MORTGAGE" means a mortgage, deed of trust, deed to secure debt,
security deed or other mortgage instrument or similar evidence of lien legally
effective in the U.S. jurisdiction where the real property is located to create
and constitute a valid and enforceable Lien, subject only to Permitted
Encumbrances, on the fee simple or long term ground leasehold estate in improved
real property.
"MORTGAGE ASSIGNMENT" means an assignment of a Mortgage, in form
sufficient under the laws of the U.S. jurisdiction where the real property
covered by the Mortgage is located to give notice to the world of the assignment
of the Mortgage, perfect the assignment and establish its priority relative to
other transactions in respect of the Mortgage assigned.
"MORTGAGE LOAN" means any loan evidenced by a Mortgage Note.
"MORTGAGE NOTE" means a promissory note secured by a Mortgage.
"MORTGAGOR BANKRUPTCY LOSS" means, with respect to a Mortgage Loan, the
present value (as determined in accordance with industry standards) of the
amount by which a Loan Modification has reduced the remaining scheduled monthly
payments of such Mortgage Loan.
"MULTIEMPLOYER PLAN" means any "multiemployer plan", as defined in
Section 4001(a)(3) of ERISA, which is maintained for employees of the Company or
any Subsidiary of either.
"NOTE PAYMENT ACCOUNT" means the Company's non-interest bearing demand
checking
21
<PAGE> 36
account no. 0010-2672087 to be maintained with Texas Commerce and to be used for
(a) the Agent's deposits of proceeds of Advances made by the Lenders to the
Company, including any Swing Line Advances funded by Texas Commerce, and
payments constituting the proceeds of principal from any Collateral (other than
regular principal and interest payments on the Debt Collateral); (b) the Agent's
deposits of principal and interest payments for the repayment of Advances
received from the Company or for the Company's account and (c) only if and when
(i) no Default has occurred unless it has been either cured by the Company or
waived in writing by the Agent and (ii) no Event of Default has occurred unless
the Agent has declared in writing that it has been cured or waived, the
Company's withdrawal of proceeds of Advances for the purposes permitted under
this Agreement and the Agent's transfer from the Note Payment Account to the
Company's own account (or to a controlled disbursement account maintained by the
Company with the Agent) of proceeds of sales or other dispositions of released
Collateral in excess of the Advance(s) borrowed and then outstanding against
such released Collateral. The Note Payment Account is (and shall continuously
be) part of the Collateral for the Obligations. The Note Payment Account shall
be subject to setoff by the Agent for Pro Rata distribution to the Lenders. The
Company shall not have any right to directly withdraw funds from the Note
Payment Account, but instead such funds may be withdrawn or paid out only
against the order of an authorized officer of the Agent, although under the
circumstances described in CLAUSE (c) of the first sentence of this definition
and subject to the conditions specified in that clause, the Agent shall use
diligent and reasonable efforts to cause Advances and excess Collateral proceeds
that are received as therein described and that are deposited to the Note
Payment Account before 3:00 PM on a Business Day to be transferred to an account
on which the Company does have withdrawal order authority on that same Business
Day.
"NOTICE OF CUSTODIAN'S RECEIPT" means a certification by the Custodian
in the relevant form of the "Notice of Custodian's Receipt" exhibit to the
current Custody Agreement that the Custodian has received from (or on behalf of)
the Company and holds, as custodian, Files for all of the Collateral described
in the Submission List(s) attached to the Notice of Custodian's Receipt. The
Custodian will not issue a Notice of Custodian's Receipt for any Bridged Loan
until the Custodian receives the Basic Papers for it (and it has therefore
ceased to be a Bridged Loan).
"NOTICE" means a written notice given in accordance with SECTION 14.
"OBLIGATIONS" means all of the Company's present and future debt,
obligations and liabilities under or related to this Agreement, any Senior
Credit Note or any of the other Facilities Papers, whether for principal,
interest, premium, fees, costs, attorneys' fees or other obligation or
liability, and whether absolute or contingent, and all renewals, extensions,
modifications and increases of any of them.
"OFFICER'S CERTIFICATE" means a certificate executed on behalf of the
Company or another relevant Person by its (or if it is a partnership, its
general partner's) Board of Director's Chairman, President, Chief Financial
Officer, Treasurer, any of its Senior Vice Presidents, its
22
<PAGE> 37
Controller or such other officer as shall be acceptable to the Agent.
"OPERATING SUBSIDIARIES" means all Subsidiaries of the Company other
than single-purpose Subsidiaries whose only business is to issue Structured
Securities or hold passive investments.
"PERMITTED ENCUMBRANCES" means in respect of the real property securing
a Pledged Loan or any real estate that is direct Collateral under this Agreement
(i) the lien of current but nondelinquent real property taxes and assessments
and (ii) covenants, conditions and restrictions, rights of way, easements and
other matters to which like properties are commonly subject that do not prohibit
or materially interfere with the use of the property as it is currently being
used; provided that any encumbrance not permitted pursuant to the standards of
any relevant Purchase Commitment to which the subject Pledged Loan is dedicated
(or which the Company has directly or indirectly represented to the Agent covers
the Pledged Loan) shall not be a Permitted Encumbrance.
"PERSON" means and includes natural persons, corporations, limited
liability companies, limited partnerships, registered limited liability
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations -- whether or not legal entities -- and
governments and agencies and political subdivisions of them.
"P&I ADVANCE" means a cash monthly payment that is both (1) made by the
Company as Servicer to (or to a trustee for the account of) the holders of MBSs
or whole Serviced Loans in an amount equal to the sum of the monthly payments
(excluding any principal prepayments) due on the Serviced Loans in the preceding
month but not received by the close of business on its last day -- or, where so
provided under the applicable Servicing Agreement, due on or before the first
day of the current month but not received by the date that the monthly payment,
if received, is required to be remitted to (or to a trustee for the account of)
such MBS's or whole Serviced Loan's holder -- with the interest portion of the
payment adjusted to the mortgage loan rate less the relevant servicing fee rate
and trustee fee rate (if applicable) for that same pool -- and (2) fully
recoverable by the Company from Serviced Loan recoveries paid to the Company on
either a first priority of (reimbursement) payment basis (or second in right of
payment only to the right of full repayment to the Company of any outstanding
T&I Advances and Enforcement Advances in respect of that pool but in all events
before any payment from or on account of those Serviced Loan recoveries to or
for the account of the holder(s) of the relevant MBSs or whole Serviced Loans or
to or for the account of any other Person).
"P&I ADVANCES SUBLIMIT" is defined in the definition of "Sublines",
under its subhead "P&I Advances Subline".
"P&I RECEIVABLE" is defined in the definition of "ELIGIBLE COLLATERAL".
23
<PAGE> 38
"PLAN" means an employee pension benefit plan of a type described in
Section 3(2) of ERISA and which is subject to Title IV of ERISA in respect of
which the Company is an "employer" as defined in Section 3(5) of ERISA.
"PLEDGED LOAN" means a pledged Mortgage Loan.
"PLEDGED LOANS CURTAILMENT REPORT" means a written report from the
Company to the Agent reflecting principal payments and prepayments made on
Pledged Loans (separately categorized by either Warehouse Subline or Recoveries
Subline) in the preceding month and their resulting new Principal Balances.
"PLEDGED TO THE AGENT" means mortgaged or pledged to the Agent, as (i)
mortgagee and secured party for itself as a Lender and (ii) agent, bailee,
mortgagee and secured party for the other Lenders (whichever of such terms are
applicable to the relevant type or types of Collateral referred to).
"PRINCIPAL BALANCE" means, for any day, the advanced and unpaid
principal balance of a Pledged Loan on that day. If a Pledged Loan is listed in
the most current Pledged Loans Curtailment Report, then for purposes of this
Agreement, the Principal Balance for that Pledged Loan (absent manifest error)
shall be its principal balance as shown in that Pledged Loans Curtailment
Report.
"PRO RATA" means in accordance with the Lenders' respective ownership
interests in the Loan. On any day, the Lenders will each own that portion of the
Loan, both principal and accrued interest, and a corresponding undivided
interest in all Collateral and all rights to Collateral proceeds equal to that
Lender's ownership interest in the Loan, that bears the same ratio to the entire
advanced and unpaid principal of the Loan then outstanding as that Lender's
Committed Sum bears to the Aggregate Committed Sum, subject to this adjustment:
if at any time or times, any Lender fails to fund any of its Funding Share(s) of
any Advance and one or more of the other Lenders funds it (electively in
accordance with the provisions of SECTION 2.1), then:
(a) the respective ownership interests of both (i) the Lender that
failed or refused to fund its Funding Share(s) and (ii) the Lender (or Lenders)
that funded such Funding Share(s), shall be proportionately decreased and
increased, respectively, to the same extent as if their respective Committed
Sums were changed in direct proportion to the unreimbursed balance outstanding
from time to time thereafter of the amount so funded;
(b) the non-funding Lender's share of all future distributions of any
payments and prepayments on the Senior Credit Line Notes shall be paid -- pro
rata among them in accordance with their respective unrecovered balances of such
non-funding Lender's Funding Share(s) -- to the Lender(s) that so funded such
non-funding Lender's Funding Share(s) until all such funding Lender(s) have been
fully repaid the amount so funded; and
24
<PAGE> 39
(c) such adjustment shall remain in effect until such time as the
Lender(s) that funded such Funding Share(s) have been so fully repaid.
If no other Lender funds the share of the Lender who fails to fund its Funding
Share(s) of any Advance, then the Pro Rata ownership interest in the Loan of the
Lenders shall be changed, in that case so that each Lender's Pro Rata ownership
interest in the Loan is equal to the ratio of that Lender's aggregate
outstanding Advances to the aggregate outstanding Advances for all Lenders.
Notwithstanding the change in the Lenders' Pro Rata ownership interests in the
Loan due to any Lender's failure to fund its Funding Share(s) of any Advance(s),
such failure to fund shall not diminish any Lender's Funding Share(s) of
subsequent Advances.
"PROPERTY" means any interest of a Person in any kind of property,
whether real, personal or mixed, tangible or intangible, including the
Collateral.
"PUHC ACT" means the Public Utility Holding Company Act of 1935, as
amended.
"PURCHASE COMMITMENT" means a written commitment held by the Company
from a Qualified Investor to buy Collateral and that specifies the type or
item(s) of Collateral, a purchase date or purchase deadline date and a purchase
price (or a formula from which the purchase price can be determined).
"QUALIFIED INVESTOR" means GNMA, FNMA, FHLMC and any of the Persons
listed on SCHEDULE QI, as it may be supplemented or amended from time to time by
agreement of the Company and the Agent; provided that if the Agent shall give
written notice to the Company of the Agent's (or the Majority Lenders')
reasonable disapproval of any Qualified Investor(s) named in the notice, the
investor(s) named shall no longer be Qualified Investor(s) from and after the
time when the Agent sends that notice to the Company.
"RECOVERIES ADVANCES" is defined in the definition of "Sublines", under
its bulleted subhead "Recoveries Subline".
"RECOVERIES SUBLIMIT" is defined in the definition of "Sublines", under
its bulleted subhead "Recoveries Subline".
"REDEMPTION AMOUNT" means an amount equal to the then-current
Collateral Value of any item of Collateral to be redeemed, but not less than the
amount of the outstanding Advance made with respect to the Collateral being
redeemed, as determined by the Agent.
"REGULATION Q" means Part 217 of Title 12 of the Code of Federal
Regulations, or any other regulation when promulgated to replace the prior
Regulation Q and having substantially the same function.
25
<PAGE> 40
"REGULATION U" means Regulation U promulgated by the Board of Governors
of the Federal Reserve System, 12 C.F.R. Part 221, or any other regulation when
promulgated to replace the prior Regulation U and having substantially the same
function.
"REGULATION X" means Regulation X promulgated by the Board of Governors
of the Federal Reserve System, 12 C.F.R. Part 224, or any other regulation when
promulgated to replace the prior Regulation X and having substantially the same
function.
"REIMBURSEMENT RIGHTS" is defined in SECTION 6.1(d).
"REPURCHASED DEFAULTED MORTGAGE" means a defaulted Single-family
Mortgage repurchased by the Company from an investor or out of a pool of
Mortgage Loans pursuant to the Company's contractual obligation or election as
seller or Servicer to do so.
"REQUEST FOR BORROWING" means a request for a Borrowing in the form of
EXHIBIT B (or in another form approved by the Agent) appropriate to the type of
Borrowing being requested, duly completed, with all required attachments and
signed by the Company.
"SEC" means the U.S. Securities and Exchange Commission.
"SECURITY INSTRUMENTS" means any and all papers now or hereafter
executed and delivered by the Company or any other Person as security for the
Obligations, or otherwise in connection with them, as those papers may be
supplemented, amended, restated or replaced from time to time.
"SENIOR CREDIT NOTES" means (a) promissory notes dated the date of this
Agreement, each to be in substantially the form attached as EXHIBIT A-1,
executed and delivered by the Company, payable to the order of a Lender and in a
face principal amount equal to that Lender's Committed Sum, and that shall
evidence the Company's obligation to repay to the order of that note's
Lender-payee all Advances funded by that Lender and outstanding from time to
time, plus accrued interest on that principal, and (b) all renewals,
modifications, extensions, increases and rearrangements of such promissory notes
and all substitutions or replacements for them or any of them. The Swing Line
Note is a Senior Credit Note.
"SERVICED LOANS" means all Mortgage Loans serviced or required to be
serviced by the Company under any Servicing Agreement, irrespective of whether
the actual servicing is done by another Person (a subservicer) retained by the
Company for that purpose.
"SERVICER" means either (i) a Person (a subservicer) retained by the
Company to service the relevant Mortgage Loans under a Servicing Agreement or
(ii) the Company if the Company itself services the relevant Mortgage Loans.
26
<PAGE> 41
"SERVICING AGREEMENT" means, with respect to any Person, the
arrangement -- whether or not in writing -- pursuant to which that Person acts
as servicer of Mortgage Loans, whether owned by that Person or by others.
"SERVICING ADVANCE" means a P&I Advance, a T&I Advance, an Enforcement
Advance or whatever combination of them the context requires.
"SERVICING ADVANCES SUBLIMIT" is defined in the definition of
"Sublines", under its bulleted subhead "Servicing Advances Subline".
"SERVICING CLAIM" means an enforceable and liquidated money claim of
the Company against (i) the trustee of MBSs backed by Serviced Loans, or the
holder of serviced Whole Loans, in respect of which the Company made the related
Servicing Advance(s), (ii) such Serviced Loans' Customers and their accounts,
(iii) an insurer of such Serviced Loans or (iv) another identified Person, for
reimbursement of the relevant type(s) of Servicing Advance(s) made by the
Company pursuant to its obligation or right as Servicer to do so under a
Servicing Agreement.
"SINGLE-FAMILY" is a preface that means that a Mortgage Loan is secured
by a Mortgage covering real property improved by a one-, two-, three- or
four-family residence.
"STATEMENT DATE" means February 14, 1997, the date of the Company's pro
forma financial statements upon which the Agent and the Lenders are relying in
entering into this Agreement.
"STATEMENT DATE FINANCIAL STATEMENTS" is defined in SECTION 8.4.
"STRUCTURED SECURITIES" means collateralized mortgage obligations and
other MBSs.
"SUBLIMIT" means the Subprime Single-family Sublimit, the P&I Advances
Sublimit, the Servicing Advances Sublimit, the Recoveries Sublimit, or whatever
combination of them the context requires.
"SUBLINE FUNDING LIMIT" means the maximum amount that a Lender is
committed to lend under a Subline.
"SUBLINES" means the four (4) subdivisions of the Credit Line,
consisting of:
- the "SUBPRIME SINGLE-FAMILY WAREHOUSE SUBLINE" of up to one hundred
percent (100%) of the Aggregate Committed Sum (the "SUBPRIME SINGLE-FAMILY
SUBLIMIT") of principal that may borrowed (as "SUBPRIME SINGLE-FAMILY WAREHOUSE
ADVANCES") by the Company and outstanding from time to time -- with a Wet
Warehousing Sublimit to finance Subprime Single-family Mortgage Loans that are
Bridged Loans and an Uncovered Warehousing Sublimit (the
27
<PAGE> 42
"UNCOVERED WAREHOUSING SUBLINE") to finance Subprime Single-family Mortgage
Loans that have become Uncovered Loans -- to acquire and accumulate Eligible
Subprime Single-family Mortgage Loans to hold pending their transfers and
assignments from time to time either (i) as Whole Loans sold for cash to
investors or (ii) as pools of Mortgage Loans sold to issuers of Structured
Securities to be based on and backed by those Mortgage Loans in exchange for
proceeds of the sale of those Structured Securities to investors, with the sale
proceeds in each case to be paid to the Agent for concurrent deposit in the Note
Payment Account and to be applied toward repayment to the Lenders of such
Advances, with any remaining balance (in the absence of a Default or Event of
Default) to be transferred by the Agent to the Company's own account with the
Agent.
- the "P&I ADVANCES SUBLINE" of up to seven and one-half percent (7
1/2%) of the Aggregate Committed Sum (the "P&I ADVANCES SUBLIMIT") of principal
that may be borrowed by the Company (as "P&I SUBLINE ADVANCES") and outstanding
from time to time to finance P&I Receivables produced by the Company's P&I
Advances.
- the "SERVICING ADVANCES SUBLINE" of up to five percent (5%) of the
Aggregate Committed Sum (the "SERVICING ADVANCES SUBLIMIT") of principal that
may be borrowed by the Company (as "SERVICING SUBLINE ADVANCES") and outstanding
from time to time to finance receivables produced by the Company's cash advances
made from time to time pursuant to its obligation to do so as Servicer of first
and junior lien Single-family Mortgage Loans to pay:
- T&I Advances;
- P&I Advances that the Company believes will not be collected
on or before thirty-three (33) days after their respective funding dates; and
- Enforcement Advances.
- the "RECOVERIES SUBLINE" of up to two and one-half percent (2 1/2%)
- -- provided, that from and after the last day of the Company's fiscal quarter as
of which date the Company's Tangible Net Worth first exceeds Fifty Million
Dollars ($50,000,000), the applicable percentage factor shall be five percent
(5%) -- of the Aggregate Committed Sum (the "RECOVERIES SUBLIMIT") of principal
that may be borrowed (as "RECOVERIES ADVANCES") by the Company and outstanding
from time to time to finance (a) Single-family Mortgage Loans (1) originated or
purchased by the Company but either (i) were not subsequently sold to an
investor, or (ii) were sold to an investor but was subsequently repurchased by
the Company due to underwriting errors, delinquencies or breach of
representations or warranties made in connection with such sale or (2) purchased
by the Company out of a pool of Serviced Loans, or from a Whole Loan investor
for whose Mortgage Loans the Company is a Servicer, pursuant to the Company's
(or an Affiliate's) obligation or election as Servicer to do so, and (b) such
unmarketable Single-family Mortgage Loans and other mortgage banking-related
Collateral owned by the Company as shall be approved by the Agent
28
<PAGE> 43
on a case-by-case basis.
"SUBMISSION LIST" means a listing and description in the form of the
appropriate attachment to EXHIBIT B of Collateral Pledged to the Agent -- and,
for Debt Collateral, whose Basic Papers are being sent to the Custodian -- by or
on behalf of the Company pursuant to this Agreement.
"SUBORDINATED DEBT" means Debt of the Company to any Person (i) the
papers evidencing, securing, governing or otherwise related to which Debt impose
covenants and conditions on the debtor under them that are no more restrictive
or onerous than the covenants and conditions imposed on the Company by this
Agreement and (ii) that is subordinated to the Obligations pursuant to a
currently effective and irrevocable Subordination Agreement, including
standstill and blockage provisions, approved by the Agent.
"SUBORDINATION AGREEMENT" means a written subordination agreement in
the form of EXHIBIT C or in other form and substance satisfactory to and
approved by the Agent that subordinates (x) all present and future debts and
obligations owing by the Company to the Person signing the Subordination
Agreement to (y) the Obligations under this Agreement and the other Facilities
Papers, in both right of payment and lien priority.
"SUBPRIME" is a preface that means a Single-family Mortgage Loan is not
eligible for purchase by GNMA, FNMA or FHLMC or for inclusion in a pool of
Mortgage Loans that form the base or backing for MBS(s) eligible for issuance or
guarantee by GNMA, FNMA or FHLMC; provided that nothing in this Agreement shall
be construed as prohibiting the Company from pledging and borrowing hereunder
against any Single-family Mortgage Loans that is eligible for GNMA, FNMA or
FHLMC purchase or for inclusion in a GNMA, FNMA or FHLMC pool.
"SUBPRIME SINGLE-FAMILY WAREHOUSE ADVANCES" is defined in the
definition of "Sublines", under its bulleted subhead "Subprime Single-family
Subline".
"SUBPRIME SINGLE-FAMILY SUBLIMIT" is defined in the definition of
"Sublines", under its bulleted subhead "Subprime Single-family Subline".
"SUBSIDIARY" means any corporation, association or other business
entity (including a trust) in which any Person (directly or through one or more
other Subsidiaries or other types of intermediaries), owns or controls:
(a) more than fifty percent (50%) of the total voting power or shares
of stock entitled to vote in the election of its directors, managers or
trustees; or
(b) more than ninety percent (90%) of the total assets and more than
ninety percent (90%) of the total equity through the ownership of capital stock
(which may be non-voting) or a
29
<PAGE> 44
similar device or indicia of equity ownership.
"SUPPLEMENTAL PAPERS" means the Loan Papers for a particular item of
Debt Collateral other than its Basic Papers.
"SWING LINE" means the short term revolving credit facility provided
for in SECTION 2.6 under which the Company may borrow (as "SWING LINE ADVANCES")
from Texas Commerce to bridge the Company's daily borrowing requirements under
the Credit Line.
"SWING LINE BORROWING DUE DATE" for each Swing Line Borrowing means the
fifth (5th) Business Day, or such other Business Day, whether before or after
such fifth (5th) Business Day, as Texas Commerce in its sole discretion shall
elect, following the Business Day when Texas Commerce funds such Borrowing under
the Swing Line; provided that Texas Commerce agrees not to exercise such
discretion to choose a due date in a manner that would materially affect the
Company's ability to borrow under this Agreement unless a Default has occurred
that has not been cured by the Company or declared in writing by the Agent to
have been waived or any Event of Default has occurred that the Agent has not
declared in writing to have been cured or waived.
"SWING LINE LIMIT" means Forty-five Million Dollars ($45,000,000), the
maximum principal that may be borrowed and outstanding from time to time under
the Swing Line.
"SWING LINE NOTE" is defined in SECTION 2.6(e). The Swing Line Note
evidences and shall evidence the Company's obligation to repay to the order of
Texas Commerce the principal of all Borrowings funded under the Swing Line and
outstanding from time to time, plus accrued interest on that principal.
"T&I ADVANCE" means a cash advance that is both (1) made by the Company
pursuant to the Company's contractual obligation or right under the relevant
Servicing Agreement to make such advance to pay taxes, assessment or maintenance
fees or maintain hazard and flood insurance on the real estate securing Serviced
Loans and (2) fully recoverable by the Company out of sums that are both
required and expected to be paid to the Company in the ordinary course of its
servicing of the Serviced Loans under such Servicing Agreement, on a first
priority of (reimbursement) payment basis (i.e., before any payment from or on
account of those sums to or for the account of the holder(s) of the relevant
Structured Securities or whole Serviced Loans or to any other Person).
"T&I RECEIVABLE" is defined in the definition of "ELIGIBLE COLLATERAL".
"TANGIBLE NET WORTH" means with respect to any Person on any day:
(a) the excess of that Person's total assets over total liabilities on
that day, each being determined in accordance with GAAP consistent with the
accounting principles applied in the
30
<PAGE> 45
preparation of the Financial Statements referred to in SECTION 8.4 (herein
called "GAAP NET WORTH");
minus (b) loans or advances to Affiliates made in compliance with
SECTION 10.7 to the extent that the same exceed One Million Dollars
($1,000,000), other than loans and advances to the Guarantor made pursuant to
(and subject to the limit specified in) SECTION 10.7(b);
minus (c) net deferred tax assets (i.e., the excess, if any, of deferred
tax assets over deferred tax liabilities and valuation allowances);
minus (d) advances to shareholders or officers, investments in
Affiliates (exclusive of investments in Subsidiaries), capitalized excess
service fees, all other intangible assets and all other assets that would be
deemed by HUD to be unacceptable for the purpose of calculating adjusted net
worth in accordance with its requirements in effect as of such day, as such
requirements appear in the "Audit Guide for Audit of Approved Non-supervised
Mortgagees";
plus (e) (i) loan loss reserves, (ii) reserves to hedge against the
effect on that Person's earnings caused by periodic caps on that Person's
investments in ARM Securities and (iii) that portion of Subordinated Debt that
is not due within one (1) year of that day;
plus (f) net unrealized holding losses, if any, (and minus net
unrealized holding gains, if any) for available-for-sale debt securities and
equity securities owned (including those classified as current assets) that are
required by FASB 115 to be reported as a net amount in a separate component of
shareholders' equity until realized.
"TAXES" means taxes, levies, deductions, imposts, charges or
withholdings, excluding, in the case of each Lender, taxes imposed on its net
income, and franchise taxes imposed on it, under the laws of any applicable
Governmental Authority.
"TEXAS COMMERCE" is defined in this Agreement's preamble.
"TERMINATION DATE" means the earlier of (i) March 31, 1999, or (ii) the
date (if any) when the Lenders' Commitment to fund Advances under this Agreement
is terminated pursuant to this Agreement or by operation of law (the
"COMMITMENTS CANCELLATION DATE").
"TOWNHOUSE OR CONDO MORTGAGE LOAN" means a Mortgage Loan secured by
real property improved with a single townhouse or secured by a single
condominium unit and its related undivided interest in common elements of the
condominium regime.
"UCC" means the Uniform Commercial Code or similar laws of the
applicable jurisdiction, as amended from time to time.
31
<PAGE> 46
"UNCOVERED LOAN" means a Pledged Loan acquired and owned by the
Company:
(a) that would qualify without exception as Eligible Subprime
Single-family Collateral except that, for any reason, it is not covered by a
Purchase Commitment;
(b) which the Company actually and reasonably expects will be covered
by a Purchase Commitment on or before thirty (30) days after the day when such
Mortgage Loan is Pledged to the Agent (and the Company hereby agrees to take
such steps as are reasonably necessary to ensure that such Pledged Loan becomes
so covered within such time period); and
Each Uncovered Loan that satisfies the foregoing requirements shall be an
Eligible Mortgage Loan subject to the condition subsequent of the Company's
obtaining Purchase Commitment coverage of it on or before thirty (30) day after
the day when it was Pledged to the Agent. Each Pledged Loan that for any reason
is not at any time covered by a Purchase Commitment shall continue to be Pledged
to the Agent notwithstanding such lack of coverage, and the Company shall take
all steps necessary or appropriate to either (i) obtain Purchase Commitment
coverage for it and furnish proof thereof to the Agent or (ii) redeem it
pursuant to the provisions of SECTION 6.7, on or before thirty (30) days after
the day such Mortgage Loan is Pledged to the Agent (or, if such a Pledged Loan
loses its Purchase Commitment coverage after it is Pledged to the Agent, on or
before thirty (30) days after the day when it so loses its Purchase Commitment
Coverage.) Upon delivery to the Agent of proof of Purchase Commitment coverage
for any Uncovered Loan, such Pledged Loan shall no longer be subject to this
Agreement's limitations applicable to Uncovered Loans.
"UNCOVERED MORTGAGE LOANS SUBLIMIT" means the maximum amount of
principal that may be borrowed and outstanding on any day before the Termination
Date to finance Eligible Uncovered Subprime Single-family Collateral, being
thirty percent (30%) of the Subprime Single-family Sublimit.
"UNCOVERED WAREHOUSING" means lending to finance Uncovered Loans.
"UNCOVERED WAREHOUSING SUBLINE" is defined in the definition of
"Sublines" under its bulleted subhead "Subprime Single-family Warehouse
Subline".
"UNDERWRITER'S EXCUSE PROVISO" is defined in SECTION 11.1(f)(4).
"VA" means the Department of Veterans Affairs and any successor.
"WET WAREHOUSING" means lending to finance Bridged Loans.
"WET WAREHOUSING SUBLIMIT" means the maximum amount of principal that
may be borrowed and outstanding on any day before the Termination Date to
finance Bridged Loans,
32
<PAGE> 47
being:
- thirty-five percent (35%) of the Subprime Single-family Sublimit
during either (i) the last five (5) Business Days or (ii) the first five (5)
Business Days of such calendar month.
- twenty percent (20%) of the Subprime Single-family Sublimit on every
other day.
"WHOLE LOANS" means Mortgage Loans that are sold or intended to be sold
to investors as whole loans, instead of being part of a pool from which
Structured Securities are to be created and sold.
1.3 Definitions for Interest Calculations. For convenience of
reference, definitions used in provisions relating to calculation and payment of
interest are grouped together in this Section.
"ABR FLOATING RATE" means, with respect to each ABR Floating Rate
Tranche, a rate per annum that on any day is equal to the lesser of:
(a) the sum of (i) the Alternate Base Rate for that day plus (ii) the
Applicable ABR Margin for each class of Borrowing within that tranche; and
(b) the Ceiling Rate for that day.
The ABR Floating Rate shall be computed on the basis of a calendar year applied
for the actual number of days that the relevant Borrowing is outstanding and
bears interest at the ABR Floating Rate (i.e., on the 365/365 -- 366/366 in a
leap year -- day basis). Each determination by the Agent of the ABR Floating
Rate may be computed using any reasonable method and, absent manifest error,
shall be conclusive and binding.
"ADJUSTED LIBOR FIXED RATE" means, with respect to each Fixed Rate
Interest Period, a rate per annum equal to the lesser of:
(a) the sum of (i) the quotient of (x) LIBOR for the LIBOR Business Day
that is two (2) LIBOR Business Days before the first day of that Fixed Rate
Interest Period divided by (y) 1.00 minus the Eurodollar Reserve Requirement for
such Fixed Rate Interest Period, plus (ii) the Applicable LIBOR/BAR Margin for
each class of Borrowing within the relevant tranche, rounded upwards, if
necessary, to the nearest one-eighth percent (1/8%); and
(b) the Ceiling Rate for that day.
Each Adjusted LIBOR Fixed Rate shall be computed on the basis of a year of three
hundred sixty (360) days applied for the actual number of days in the relevant
Fixed Rate Interest Period (i.e.,
33
<PAGE> 48
on the 365/360 -- 366/360 in a leap year -- day basis). Each determination by
the Agent of an Adjusted LIBOR Fixed Rate may be computed using any reasonable
method and, absent manifest error, shall be conclusive and binding.
"ADJUSTED LIBOR FLOATING RATE" means, with respect to each LIBOR
Floating Rate Tranche, a rate per annum that on any day is equal to the lesser
of:
(a) the sum of (i) the quotient of (x) LIBOR for that day divided by
(y) 1.00 minus the Eurodollar Reserve Requirement for one (1) day loans, plus
(ii) the Applicable LIBOR/BAR Margin for each class of Borrowing within the
relevant tranche, rounded upwards, if necessary, to the nearest one-eight
percent (1/8%); and
(b) the Ceiling Rate for that day.
Each Adjusted LIBOR Floating Rate shall be computed on the basis of a year of
three hundred sixty (360) days applied for the actual number of days that the
relevant Borrowing is outstanding and bears interest at an Adjusted LIBOR
Floating Rate (i.e., on the 365/360 -- 366/360 in a leap year -- day basis).
Each determination by the Agent of an Adjusted LIBOR Floating Rate may be
computed using any reasonable method and, absent manifest error, shall be
conclusive and binding.
"ALTERNATE BASE RATE" means a rate per annum that on any day is equal
to the lesser of:
(a) the sum of (i) the greater of (x) the Prime Rate in effect on such
day and (y) the Federal Funds Effective Rate in effect for such day plus
one-half percent (1/2%), plus (ii) the Applicable ABR Margin for the relevant
class of Borrowing, rounded upwards, if necessary, to the nearest one-eighth
percent (1/8%); and
(b) the Ceiling Rate for that day.
Any change in the Alternate Base Rate due to (a) a change in the Prime Rate
shall be effective on the effective date of such change in the Prime Rate or (b)
a change in the Federal Funds Effective Rate shall be effective on the effective
date of such change in the Federal Funds Effective Rate. Each determination by
the Agent of the Alternate Base Rate may be computed using any reasonable method
and, absent manifest error, shall be conclusive and binding. If for any reason
the Agent shall have reasonably determined that it is unable to ascertain the
Federal Funds Effective Rate for any day, including the Agent's inability or
failure to obtain sufficient bids or publications in accordance with these
terms, the Alternate Base Rate shall be the lesser of (x) the Prime Rate plus
the applicable ABR Margin and (y) the Ceiling Rate, until the circumstances
giving rise to that inability no longer exist.
"APPLICABLE ABR MARGIN" (for Swing Line Borrowings as well as for
Borrowings funded
34
<PAGE> 49
by the Lenders in accordance with their Funding Shares) means:
- for outstanding Subprime Single-family Warehouse Advances that are
not also Wet Warehousing Advances, plus three-eighths percent (+3/8%).
- for outstanding Subprime Single-family Warehouse Advances that are
also Wet Warehousing Advances, plus five-eighths percent (+5/8%).
- for outstanding Uncovered Warehousing Advances that are not also Wet
Warehousing Advances, plus one-half percent (+1/2%).
- for outstanding Uncovered Warehousing Advances that are also Wet
Warehousing Advances, plus three-fourths percent (+3/4%).
- for outstanding P&I Advances Subline Advances, plus seven-eighths
percent (+7/8%).
- for outstanding Servicing Advances, plus seven-eighths percent
(+7/8%).
- for outstanding Recoveries Subline Advances, plus one percent (+1%).
"APPLICABLE LIBOR/BAR MARGIN" (for Swing Line Borrowings as well as for
Borrowings funded by the Lenders in accordance with their Funding Shares) means:
- for outstanding Subprime Single-family Warehouse Advances that are
not also Wet Warehousing Advances, plus one and three-eighths percent (+13/8%).
- for outstanding Subprime Single-family Warehouse Advances that are
also Wet Warehousing Advances, plus one and five-eighths percent (+15/8%).
- for outstanding Uncovered Warehousing Advances that are not also Wet
Warehousing Advances, plus one and one-half percent (+1 1/2%).
- for outstanding Uncovered Warehousing Advances that are also Wet
Warehousing Advances, plus one and three-fourths percent (+1 3/4%).
- for outstanding P&I Advances Subline Advances, plus one and
seven-eighths percent (+17/8%).
- for outstanding Servicing Advances, plus one and seven-eighths
percent (+17/8%).
- for outstanding Recoveries Subline Advances, plus two percent (+2%).
35
<PAGE> 50
"BALANCE ADJUSTED RATE" means, with respect to each BAR Floating Rate
Tranche, a rate per annum that on any day is equal to the lesser of:
- the Applicable LIBOR/BAR Margin for each class of Borrowing within
that tranche; and
- the Ceiling Rate for that day.
Each Balance Adjusted Rate shall be computed on the basis of a year of three
hundred sixty (360) days applied for the actual number of days that the relevant
Borrowing is outstanding and bears interest at the Balance Adjusted Rate (i.e.,
on the 365/360 -- 366/360 in a leap year -- day basis). Each determination by
the Agent of a Balance Adjusted Rate may be computed using any reasonable method
and, absent manifest error, shall be conclusive and binding.
"BAR FLOATING RATE TRANCHE" means each portion of the principal balance
of the Loan bearing interest at any time at the Balance Adjusted Rate.
"CEILING RATE" means, on any day, the maximum nonusurious rate of
interest permitted for that day by whichever of applicable federal or Texas law
permits the higher interest rate, stated as a rate per annum. On each day, if
any, that Chapter One ("CHAPTER ONE") of Title 79, Texas Revised Civil Statutes,
1925, as amended (the "TEXAS CREDIT CODE") establishes the Ceiling Rate, the
Ceiling Rate shall be the "indicated rate ceiling" (as defined in Chapter One)
for that day. Any Lender may from time to time, as to current and future
balances, implement any other ceiling under Chapter One by notice to the
Company, if and to the extent permitted by, Chapter One.
"EURODOLLAR RESERVE REQUIREMENTS" means for the time that each LIBOR
Floating Rate Tranche is outstanding and for the Fixed Rate Interest Period for
each Fixed Rate Tranche, respectively, the stated maximum rate (expressed as a
decimal fraction) for all reserves required to be maintained during that time or
period (including basic, supplemental, marginal and emergency reserves) against
"eurocurrency liabilities", as defined in Regulation D, all as specified by any
Governmental Authority, including those imposed under Regulation D. Each
determination of Eurodollar Reserve Requirements by the Agent may be computed
using any reasonable method and, absent manifest error, shall be conclusive and
binding.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any day, the weighted average
of the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for that day by
the Federal Reserve Bank of New York, or, if such rate is not so published for
any day that is a Business Day, the average of the quotations for the day of
such transactions received by the Agent from three (3) federal funds brokers of
recognized standing selected by the Agent. If for any reason the Agent shall
determine (and its
36
<PAGE> 51
determination shall be conclusive absent manifest error) that it is unable to
ascertain for any reason -- including the Agent's inability or failure to obtain
sufficient quotations in accordance with the immediately preceding sentence --
the Federal Funds Effective Rate for any day, then for each such day that such
circumstances exist, the Federal Funds Effective Rate shall be deemed to be
equal to the Prime Rate for that day minus one percent (-1%). Any rate of
interest based on the Federal Funds Effective Rate shall be (a) computed on the
basis of a 360-day year applied for the actual number of days for which the
principal amount to which it applies is outstanding and bears interest in
accordance with this Agreement at such rate of interest based on the Federal
Funds Effective Rate (i.e., on the 365/360 -- 366/360 in a leap year -- day
basis) and (b) adjusted as of the effective date of each change in the Federal
Funds Effective Rate.
"FIXED RATE" means an Adjusted LIBOR Fixed Rate duly elected by the
Company to apply to any portion of the principal balance of the Loan for a
specified Fixed Rate Interest Period in accordance with SECTION 5.2.
"FIXED RATE INTEREST PERIOD" means, with respect to a Fixed Rate
Tranche, a period of from two (2) days to sixty (60) days commencing:
- on the date of such Fixed Rate Tranche's initial establishment by the
Company's election made in accordance with SECTION 5.2, or
- on the last day of the immediately preceding Fixed Rate Interest
Period in the case of a rollover to a successive Fixed Rate Interest Period,
and ending from two (2) days to sixty (60) days thereafter, as validly elected
by the Company in accordance with SECTION 5.2; provided that (i) any Fixed Rate
Interest Period that would otherwise end on a day that is not a Business Day
shall be extended to the next succeeding Business Day unless that day is in a
different calendar month, in which case the Fixed Rate Interest Period shall
instead end on the last Business Day before the non-Business Day when it would
otherwise end and (ii) no Fixed Rate Interest Period shall ever extend beyond
the Maturity Date.
"FIXED RATE TRANCHE" means each portion of the principal balance of the
Loan bearing interest at any time at a Fixed Rate.
"FLOATING RATE" means either the ABR Floating Rate that applies, or any
Adjusted LIBOR Floating Rate or the Balance Adjusted Rate duly elected by the
Company to apply, to any portion of the principal balance of the Loan in
accordance with SECTION 5.2, as the context requires.
"FLOATING RATE TRANCHE" means each portion of the Loan bearing interest
at any time at a Floating Rate.
"FREE ADJUSTED BALANCES" means, for any calendar month, that month's
daily average of
37
<PAGE> 52
all collected balances in all demand deposit accounts maintained by the Company
(or maintained by the Company's Affiliates at the Company's request) with Texas
Commerce during that month (although neither the Company nor any of its
Affiliates shall have any obligation whatsoever to maintain any deposits with
Texas Commerce) less amounts required and applied (or to be applied) (a) to
satisfy reserve and deposit insurance requirements allocable to that month and
(b) to compensate Texas Commerce for (i) services rendered to the Company or any
of its Affiliates for that month if and to the extent, if any, that such
services are not separately billed and paid for, or (ii) any agreed reductions
in interest, fees and/or other normal banking charges other than interest and
fees that are part of the Obligations to Texas Commerce, with each element
calculated in accordance with Texas Commerce's system of allocating reserve and
deposit insurance requirements, charges for services and reductions in other
normal banking charges, and as that system may be changed from time to time
without notice.
"INTEREST RATE OPTION" means whichever of the ABR Floating Rate, an
Adjusted LIBOR Fixed Rate or the Balance Adjusted Rate the Company has validly
selected to apply to a portion of the outstanding principal of the Loan, or for
Loan principal for which the Company has not validly made any other interest
rate selection, the Adjusted LIBOR Floating Rate.
"INTEREST RATE SELECTION CONFIRMATION" is defined in SECTION 5.2.
"LIBOR" means, for each day, the rate of interest per annum which is
equal to the arithmetic mean of the rates appearing on the Reuters Screen LIBO
Page as of 11:00 AM London time for that day for the offering by such
institutions as are named therein to prime banks in the interbank dollar market
in London, England of:
- where the term is used in respect of a LIBOR Floating Rate, one (1)
month United States dollar deposits of One Million Dollar ($1,000,000); or
- where the term is used in respect of a Fixed Rate, deposits each for
a term and in an amount that are fairly comparable, respectively, to the term of
the relevant Fixed Rate Period and the amount of the relevant Fixed Rate
Tranche.
The Agent's determination of LIBOR for each day shall be conclusive and binding,
absent manifest error. For purposes of this Agreement and all Senior Credit Line
Notes and other Facilities Papers, LIBOR shall fluctuate upward and downward
automatically and concurrently with day-to-day changes in such arithmetic mean,
and in the amount of the change.
"LIBOR BUSINESS DAY" means any Business Day when there is interbank
trading of U.S. dollar deposits in London between banks.
"PAST DUE RATE" means, on any day, a rate per annum equal to the lesser
of (i) the Prime Rate for that day plus two percent (+2%) per annum or (ii) the
Ceiling Rate for that day.
38
<PAGE> 53
"PRIME RATE" means, on any day, the prime rate for that day as
announced by Texas Commerce. The Prime Rate is a reference rate and does not
necessarily represent Texas Commerce's best or lowest rate or a favored rate,
and Texas Commerce disclaims any statement, representation or warranty to the
contrary. Any rate of interest based on the Prime Rate shall be adjusted as of
the effective date of each change in the Prime Rate. Should any issue ever arise
in any forum or under any circumstances as to the amount of the Prime Rate for
any then-current or past day, a certificate of Texas Commerce's chief credit
officer stating the Prime Rate for that day shall conclusively establish what
the Prime Rate was for that day, absent manifest error.
"REUTERS SCREEN LIBO PAGE" means the display designated as page "LIBO"
on the Reuters Monitor Money Rates Service or such other internationally
recognized service as the Agent shall select from time to time, or such other
page, if any, as shall replace the LIBO page on any such selected service for
the purpose of displaying London interbank offered rates of major banks.
"STATED RATE" means:
- for each tranche of each Borrowing outstanding on any day, the
Interest Rate Option selected (or deemed selected pursuant to SECTION 5.2(A))
for (i) that tranche, (ii) that day and (iii) Advances of that type (Subprime
Single-family Warehouse Advances, P&I Subline Advances, Servicing Subline
Advances or Recoveries Advances), computed in accordance with the provisions of
this Agreement;
- for each such Borrowing as a whole, the weighted average of the
Interest Rate Options applicable to each of its constituent tranches; and
- for the Loan as a whole, the weighted average of the Stated Rates
applicable to each outstanding Borrowing;
provided that if on any day the applicable rate for any such tranche, any such
Borrowing as a whole or the Loan as a whole shall exceed the relevant Ceiling
Rate for that day, then the Stated Rate therefor shall be reset to equal the
Ceiling Rate on that day and shall be set to equal the Ceiling Rate for each day
thereafter until the total amount of interest accrued at the Stated Rate on the
unpaid balance of that tranche, that Borrowing or the Loan (as applicable)
equals the total amount of interest that would have accrued on it if there were
no Ceiling Rate.
"TEXAS COMMERCE BALANCES" means, for any calendar month, the average
aggregate outstanding principal balances of the Senior Credit Notes (including
the Swing Line Note) held by Texas Commerce.
1.4 Other Definitional Provisions.
39
<PAGE> 54
(a) Accounting terms not otherwise defined shall have the
meanings given them under GAAP.
(b) Defined terms may be used in the singular or the plural,
as the context requires.
(c) Except where otherwise specified, all times of day used in
the Facilities Papers are local times in Houston, Texas.
(d) Wherever the word "including" or a similar word is used in
the Facilities Papers, it shall be read as if it were written, "including by way
of example but without in any way limiting the generality of the foregoing
concept or description".
2. THE LENDERS' COMMITMENTS
2.1 The Lenders' Commitments to Lend. Subject to the terms and
conditions of this Agreement and provided no Default or Event of Default has
occurred that the Agent has not declared in writing to have been cured or waived
(or, if one has occurred and not been so declared cured or waived, if all of the
Lenders, in their sole discretion and with or without waiving the Default or
Event of Default, have elected in writing that lending under this Agreement
shall continue nonetheless) the Lenders agree to make revolving credit Advances
to the Company under the Sublines before the Termination Date, which the Company
may borrow, repay and (having repaid) reborrow in aggregate principal amounts
outstanding on any day of up to the respective Sublimits and, in the aggregate,
up to the Aggregate Committed Sum, for that day. The Lenders' respective
Commitments and their respective Subline Funding Limits for each Subline are set
forth on SCHEDULE LC in effect for that day, as it may have been amended or
restated pursuant to this Agreement. The fractions to be applied to determine
the respective Funding Shares of the Lenders that are parties to this Agreement
on the Effective Date are the fractions of each Advance set forth opposite the
Lenders' respective names on SCHEDULE FS in effect for that day, as it may have
been amended or restated pursuant to this Agreement. Upon the joinder of
additional Lender(s), if any, the parties agree to approve in writing revised
and updated versions of SCHEDULES LC and FS. Each Lender shall be obligated to
fund only that Lender's own Funding Share(s) of any Advance requested, and no
Lender shall be obligated to the Company or any other Lender to fund a greater
share of any Advance. No Lender shall be excused from funding its applicable
Funding Share(s) of any Advance merely because any other Lender has failed or
refused to fund its relevant Funding Share(s) of that or any other Advance. If
any Lender fails to fund its Funding Share(s) of any Advance under any Facility,
the other Lenders who are willing to do so shall have the right (but no
obligation) to do so in the proportion that the Commitment of each bears to the
sum of the Commitments of all Lenders that have funded (or are funding) their
own Funding Shares of that Advance and that are willing to fund part of the
Funding Share(s) of such Lender that so failed to fund, and regardless of
whether the other Lenders fund the Funding Share(s) of the Lender who has failed
to fund, the respective ownership interests of the Lenders in the Loan shall be
adjusted
40
<PAGE> 55
as provided in the definition of "PRO RATA". All Advances under this
Agreement shall constitute a single debt and all of the Collateral shall be
security for all of the Senior Credit Line Notes and the Obligations.
2.2 Expiration or Termination of the Commitments. Unless extended in
writing or terminated earlier in accordance with this Agreement, the Lenders'
Commitments to lend under this Agreement and the other Facilities Papers
(including Texas Commerce's Swing Line Commitment) shall automatically expire at
the close of business on the Termination Date, without any requirement for
notice or any other action by the Agent, any of the Lenders or any other Person.
2.3 Advances Outstanding May Not Exceed Limits. On any day, the
aggregate amount of Advances outstanding under (i) the Loan shall in no event
exceed the Aggregate Committed Sum for that day or (ii) any Subline shall in no
event exceed either (x) the Subline Limit for that Subline or (y) that Subline's
Borrowing Base for that day. If any such excess shall exist on any day and for
any reason, the Company shall immediately repay it.
2.4 Advances May Be Used Only for Specific Purposes. The Company may
use Advances proceeds (including Swing Line Advances proceeds) only for the
stated purpose(s) for which they were requested and may request Advances only
for the following purposes:
- Subprime Single-family Warehouse Advances shall be used solely to
fund or acquire Eligible Subprime Single-family Collateral concurrently Pledged
to the Agent.
- P&I Advances Subline Advances shall be used solely to finance the
Company's cash advances that produce Eligible P&I Advances Collateral
concurrently Pledged to the Agent. The Company shall request P&I Advances
Subline Advances fundings to be made -- and shall accept fundings of Advances to
produce P&I Advance Receivables -- only on or after the Business Day that the
related P&I Advance is made by the Company, and in any event not before the
twelfth (12th) day of any calendar month (except that the Company may request
and accept the initial P&I Advances Subline Advances funding to finance its P&I
Advances that are outstanding on the date of that initial funding).
- Servicing Advances Subline Advances shall be used solely to finance
the Company's cash advances made on or before the date of the requested
Borrowing and that produce Eligible T&I Advances Collateral or Eligible
Enforcement Advances Collateral Pledged to the Agent by the Company on or before
the date of the Borrowing.
- Recoveries Subline Advances shall be used solely to finance (a)
Single-family Mortgage Loans (1) originated or purchased by the Company but
either (i) was not subsequently sold to an investor, or (ii) was sold to an
investor but was subsequently repurchased by the Company due to underwriting
errors, delinquencies or breach of representations or warranties
41
<PAGE> 56
made in connection with such sale or (2) purchased by the Company out of a pool
of Serviced Loans, or from a Whole Loan investor for whose Mortgage Loans the
Company is a Servicer, pursuant to the Company's (or an Affiliate's) obligation
or election as Servicer to do so, each of which Mortgage Loans is Pledged to the
Agent, or to finance such unmarketable Single-family Mortgage Loans and other
mortgage banking-related Collateral as shall be approved by the Agent on a
case-by-case basis and as shall be Pledged to the Agent.
2.5 Swing Line Commitment. In addition to its Commitment under SECTION
2.1, Texas Commerce agrees to fund revolving credit Swing Line Advances to the
Company in principal amounts which do not on any day exceed the Swing Line Limit
for the purpose of initially funding requested Borrowings under the Sublines.
2.6 Swing Line Borrowings. The Company shall have the right to borrow
and reborrow under the Swing Line:
(a) only if the Swing Line Borrowing fully qualifies in all
respects for funding as an ordinary Borrowing under this Agreement;
(b) provided that no Default has occurred that has not been
cured before it has become an Event of Default, and no Event of Default has
occurred that the Agent has not declared in writing to have been waived or
cured;
(c) so long as the Swing Line Limit is not exceeded;
(d) provided that the Request for Borrowing against which the
Swing Line Borrowing is to be funded is received by Texas Commerce by no later
than 4:00 PM on the Business Day such Borrowing is to be funded; and
(e) provided that neither the Company nor Texas Commerce is
aware of any reason why the Borrowing requested by the Request for Borrowing
against which the Swing Line Borrowing is to be funded cannot or will not be
fully funded by the Lenders on the fifth (5th) Business Day (or such other
Business Day as shall be designated by Texas Commerce) following the Business
Day on which the Request for Borrowing is received by Texas Commerce.
All Swing Line Borrowings shall be evidenced by the "SWING LINE NOTE" of the
Company dated the date of this Agreement, payable to the order of Texas Commerce
and in the form attached as EXHIBIT A-2 and shall bear interest from the date
funded until the date repaid (and accrued interest on them shall be due and
payable) at the same rate(s) and on the same days as would be applicable if such
Swing Line Borrowings had been funded by the Lenders, instead of having been
funded by Texas Commerce alone as Swing Line Borrowings.
42
<PAGE> 57
3. GENERAL BORROWING PROCEDURES
3.1 Requests for Borrowings. Each Request for Borrowing shall
constitute a request for both (1) a Swing Line Borrowing to be funded by Texas
Commerce on the Business Day on which the Agent receives the Request for
Borrowing before 4:00 PM (Requests for Advance received by the Agent after 4:00
PM shall be deemed received when Texas Commerce opens for commercial banking
business on the next succeeding Business Day) and (2) the Borrowing actually
requested by the text of the Request for Borrowing to be funded by the Lenders
on the Swing Line Borrowing Due Date for that Swing Line Borrowing and to
refinance that Swing Line Borrowing.
3.2 Initial Funding of Advances under the Swing Line; Refinancing of
Swing Line Advances. Texas Commerce shall fund each Borrowing requested by a
Request for Borrowing by making a Swing Line Advance on the same Business Day
the Borrowing is requested if the requirements of SECTION 2.6 are satisfied
(Texas Commerce shall have no obligation to fund that Borrowing as a Swing Line
Advance if and to the extent that such requirements are not satisfied, although
it shall be funded on the next succeeding Business Day either (if Texas Commerce
so elects) as a Swing Line Advance or (otherwise) as a regular Advance by the
Lenders, if and to the extent that all conditions to its funding are then
satisfied -- to the extent that satisfaction of any of the conditions to funding
a requested Borrowing as a Swing Line Advance is within the Agent's control, the
Agent agrees to use reasonable efforts to cause them to be satisfied). Each
Swing Line Borrowing shall be repaid on its Swing Line Borrowing Due Date by the
Agent's paying over to Texas Commerce out of the Note Payment Account, and Texas
Commerce's applying against such Swing Line Borrowing, an amount equal to the
proceeds of the Borrowings funded by all of the Lenders on that day against the
same Request for Borrowing that was initially funded by such Swing Line Advance.
If at the time such Swing Line Advance was funded, Texas Commerce reasonably
believed that no Default or Event of Default had occurred and was then
continuing and that all of the other conditions set forth in SECTION 2.6 for
such Swing Line Advance were satisfied in all material respects, the other
Lenders shall be unconditionally and irrevocably obligated to timely fund their
respective Funding Shares of the Advance that was so initially funded as a Swing
Line Advance, to repay to Texas Commerce (and thereby refinance) on the relevant
Swing Line Borrowing Due Date all of that Swing Line Advance except only Texas
Commerce's Funding Share of it, irrespective of whether in the meantime any
Default or Event of Default has occurred or been discovered, and irrespective of
whether in the meantime some or all of the Lenders' Commitments have lapsed,
expired or been canceled, rescinded, terminated with or without cause, waived,
released or excused for any reason whatsoever, so that (i) the principal of the
Swing Line is paid down by the required amount on each Swing Line Borrowing Due
Date -- all accrued interest on Swing Line Borrowings shall be due and payable
by the Company to the Agent (for distribution from the Note Payment Account to
Texas Commerce) on the later of (x) the fifteenth (15th) day of the next month
(with the first interest payment due May 15, 1997) or (y) two (2) Business Days
after the Agent bills the Company for such accrued interest, (ii) all Swing Line
Borrowings are converted to Borrowings from the Lenders under the applicable
Subline(s) and (iii) those Borrowings are evidenced by the Senior
43
<PAGE> 58
Credit Notes other than the Swing Line Note.
3.3 Requests for Borrowing Due by 4 PM. A separate Request for
Borrowing shall be made for each Borrowing, which, when appropriately completed
and with appropriate schedules attached, may include requests for Advances under
one or more Sublines and/or Wet Warehousing Advances. On each Business Day that
(i) the Agent shall have received a Request for Borrowing before 4:00 PM and
(ii) if additional Collateral is required to support the Borrowing as discussed
in SECTION 3.4, the Agent shall have received the Submission List(s), and the
Custodian shall have received the Basic Papers for any items of new Debt
Collateral, required by the terms of SECTION 3.4 -- the Agent shall fund the
requested Borrowing as a Swing Line Advance, and shall thereafter give notice to
each Lender of that requested Borrowing and that Lender's Funding Share(s) of
the requested Advance before 2:00 PM on the Swing Line Borrowing Due Date for
that Swing Line Advance, and each Lender shall cause its Funding Share(s)
thereof to be transferred to the Agent within two (2) hours after receiving such
notice from the Agent or by 4:00 PM, whichever is later, so that the Agent
receives it in good collected Houston funds on that same Business Day, and the
Agent shall deposit those shares of the Advance into the Note Payment Account
when received and shall repay the related Swing Line Advance from the Note
Payment Account (or, if a Lender other than Texas Commerce advises the Agent by
telephone and confirms the advice by telecopy that the Lender has placed all of
its Funding Share(s) on the federal funds wire to the Agent, the Agent shall
continue to keep the Swing Line Advance outstanding to the extent of that
Lender's Funding Share(s) so wired until the Agent has actually received such
share -- whereupon the Agent shall deposit such share when received into the
Note Payment Account and repay that still-outstanding portion of the Swing Line
Advance from the Note Payment Account -- except that the Agent shall have no
obligation to continue such portion of any Swing Line Advance outstanding if and
to the extent, if any, that doing so would cause the amount funded by the Agent
and outstanding under any one or more Sublines to exceed either the Swing Line
Limit or the Agent's Subline Funding Limit for any Subline.)
3.4 Submission List(s) and New Collateral Papers (If Any) Due by 12:30
PM or 4 PM on the Day of a Requested Borrowing. Unless the relevant Borrowing
Base(s) (each) already has sufficient Collateral Value to support both (i) the
requested Borrowing and (ii) all other outstanding Borrowings under the relevant
Subline(s), by 12:30 PM (in order for the requested Borrowing to qualify for
funding on that same day by all of the Lenders, whether or not it is actually
funded as a Swing Line Advance) or by 4:00 PM (to qualify only for Swing Line
funding, if and to the extent that Swing Line funding is available therefor) on
the Business Day on which the Company requests that an Advance be funded, the
Company shall (1) deliver to the Agent one or more signed Submission Lists
describing the additional Collateral then being pledged to the Agent and (2)
except for Wet Warehousing Advances, cause to be delivered to the Custodian all
of the Basic Papers relating to the items of new Debt Collateral listed in those
Submission List(s). If, after giving effect to a requested Advance, the
outstanding Advances under any Subline would exceed its Borrowing Base, or if
the Agent or the Custodian determines that any such Submission List or Basic
Papers submitted to it are incomplete or incorrect in any material respect,
then:
44
<PAGE> 59
(a) the Agent may withhold the entire Advance until the
Company shall have demonstrated to the Agent's reasonable satisfaction that the
Submission Lists submitted -- and, for Debt Collateral, the Company shall have
demonstrated to the Custodian's reasonable satisfaction that all required Basic
Papers submitted -- are in fact not (or are no longer) incomplete or incorrect
in any material respect; or
(b) in the case of any Borrowing Base insufficiency, unless
the Company instructs the Agent in writing not to fund any of the requested
Borrowing, and subject to the provisions and limitations of SECTIONS 2.1 and
2.5, the Agent will fund such lesser amount(s) as the Agent shall determine is
(are) supported by the relevant Borrowing Base(s) and will notify the Company of
such insufficiency, including the Agent's calculation of such insufficiency set
forth in reasonable detail.
3.5 If a Request for Borrowing or New Collateral Papers are Received
Late; Waiver of Claim for Any Late Funding. If either a Request for Borrowing or
the Basic Papers for the new Collateral (other than Bridged Loans) and its
related Submission List(s) are submitted late, the Agent will use reasonable
efforts to make the requested Advance as a Swing Line Advance on the same day it
is requested, although neither the Company nor any other Person shall have any
claim or cause of action against the Agent or any of the Lenders if that funding
(or any other funding) does not occur on the same day it is requested.
4. THE SENIOR CREDIT LINE NOTES
To evidence the Advances to be made by the Lenders pursuant to this
Agreement, the Company agrees to execute and deliver to each Lender a Senior
Credit Note in a face principal amount equal to that Lender's Committed Sum and
dated the same date as this Agreement (or dated with such other appropriate date
as shall be agreed upon by the Company, that Lender and the Agent if the
effective date of that Lender's joinder in this Agreement is after its Effective
Date), and to evidence the Swing Line Advances to be made by Texas Commerce, the
Company agrees to execute and deliver to Texas Commerce the Swing Line Note in
face principal amount equal to the Swing Line Limit. If any Lender's Committed
Sum shall be increased for any reason after the Company shall have issued that
Lender its Senior Credit Note, then the Company agrees to execute and deliver to
that Lender upon its request a renewal Senior Credit Note in a face principal
amount equal to the portion of that Lender's new Committed Sum and dated the
same date that such applicable Committed Sum change becomes (or became)
effective.
5. INTEREST, PRINCIPAL AND FEES PAYMENTS
5.1 Interest. Each Borrowing shall bear interest on its advanced and
unpaid principal balance at the interest rate determined in accordance with
SECTION 5.2 from the date of the Borrowing until due or repaid (whichever occurs
first), and such interest shall be calculated
45
<PAGE> 60
through the last day of each month and shall be due and payable monthly in
arrears on the later of (i) the fifteenth (15th) day of the next month (with the
first interest payment due May 15, 1997) or (ii) two (2) Business Days after the
Agent bills the Company for such accrued interest, and all accrued interest then
unpaid shall be fully, finally and absolutely due and payable on the Maturity
Date. All past due principal, interest, fees or other sums shall bear interest
at the Past Due Rate from their respective due dates until paid, or at such
lesser rate (if any) -- although not less than the Stated Rate -- as the Agent
shall elect to be applicable for any one or more days of such period. Without
duplication, from the earlier of the Maturity Date or the date of the occurrence
(if any) of an Event of Default described in SECTION 11.1(f), 11.1(g), 11.1(k)
or 11.1(o), all advanced and unpaid Loan principal shall bear interest at the
Past Due Rate, or at such lesser rate (if any) -- although not less than the
Stated Rate -- as the Agent shall elect to be applicable for any one or more
days of such period. Except as otherwise specified in this Agreement or any
relevant Facilities Papers, interest on any Borrowing is to be calculated on the
basis of the actual number of days elapsed on the basis of a year of 360 days
(i.e., on the 365/360 -- or 366/360 in a leap year -- day basis), unless that
would cause the Ceiling Rate for any day to be exceeded, in which event and to
the extent necessary to eliminate or minimize that result, interest shall be
calculated on the 365/365 -- or 366/366 in a leap year -- day basis. All
interest rate determinations and calculations by the Agent, absent manifest
error, shall be conclusive.
5.2 Interest Rates. The unpaid amount of each Borrowing shall bear
interest from the date such Advance is funded until repaid in full at the simple
interest rate (compounded annually) specified by this Section for the Interest
Rate Option selected (or deemed to have been selected) by the Company pursuant
to this Section to apply to such Borrowing. The Company may select a single
Interest Rate Option for a Borrowing or different Interest Rate Options for the
constituent portions (tranches) of the Borrowing, either at the time the
Borrowing is requested or from time to time thereafter, although on any
particular day, no portion of the Loan principal shall be included in more than
one tranche and only one Interest Rate Option shall be applicable for that day
to any particular tranche. In order to select an Interest Rate Option, the
Company shall give the Agent telephonic notice not later than 10:00 AM on -- or
for a Fixed Rate Option selection, not later than 10:00 AM two (2) LIBOR
Business Days before -- the effective date for which an Interest Rate Option is
being selected, specifying:
(1) the Business Day (which must be a LIBOR Business
Day for Fixed Rate Borrowings) when the selection is to become effective;
(2) the principal amount of the Borrowing for which
the selection is being made (provided that the Company may select the Balance
Adjusted Rate Option without specifying a principal amount, after which the
Agent shall apply it to Loan principal equal to the Free Adjusted Balances from
time to time outstanding); and
(3) the Interest Rate Option selected and, if a Fixed
Rate is being selected, its Fixed Rate Interest Period;
46
<PAGE> 61
The Company shall confirm the telephonic notice in writing by not later than the
close of business on the same day, by forwarding to the Agent a completed and
signed confirmation (the "INTEREST RATE SELECTION CONFIRMATION") in the form of
EXHIBIT G. Confirmation shall be made by telecopy and a signed original shall be
mailed the same day.
(a) If as to any portion of any Borrowing (whether to be made
or outstanding) no other Interest Rate Option is selected by the Company in
accordance with SECTION 5.2, or if after an Interest Rate Option is selected by
telephonic notice, an Interest Rate Selection Confirmation for it is not sent by
the Company to the Agent on the same day, then the Company shall be conclusively
deemed to have selected the Adjusted LIBOR Floating Rate for that portion, and
thereafter (until a different Interest Rate Option is duly selected and
confirmed in accordance with this SECTION 5.2), the outstanding principal
balance of that portion that is not past due shall bear interest at the Adjusted
LIBOR Floating Rate.
(b) All past due amounts shall bear interest as provided in
SECTION 5.2(D)(1).
(c) The Company's right to select the Balance Adjusted Rate is
subject to the following conditions, terms and limitations:
(1) the Balance Adjusted Rate shall not be applicable
to (i) any Loan principal outstanding on any day in excess of the Free Adjusted
Balances for that day, (ii) any past due Loan principal or (iii) after the
occurrence of an Event of Default (unless and until the Event of Default has
been declared in writing by the Agent to have been cured or waived), any Loan
principal;
(2) to the extent that the portion of Loan principal
designated to bear interest at the Balance Adjusted Rate exceeds the Texas
Commerce Balances, the Agent will pay to the Lenders other than Texas Commerce,
ratably, interest on such excess at a rate per annum equal to the Applicable
LIBOR/BAR Margin plus the Federal Funds Effective Rate (and the Lenders hereby
agree that payment of such interest at that rate is satisfactory); provided that
if doing so would violate Regulation Q, on demand made by the Agent -- which
demand the Agent may make on its own initiative and will make upon the request
of any Lender -- the Company shall gross-up and pay to the Agent the interest on
that designated portion so that the Agent will have the funds to pay the
interest due to the other Lender(s) without violating Regulation Q. In no event
will the Agent ever be obligated to make any payment that would violate
Regulation Q;
(3) without the express consent of Texas Commerce,
the Company may not select the Balance Adjusted Rate if a Default has occurred
that has not been cured or if an Event of Default has occurred that has not been
declared in writing by the Agent to have been cured or waived; and
47
<PAGE> 62
(4) if the Agent, acting in its sole discretion,
determines that application or use of the Balance Adjusted Rate does or would
violate any Legal Requirement or any rule, regulation, guideline or directive of
any Governmental Authority applicable to any Lender or the Agent, whether or not
having the force of law, then the Agent shall suspend the availability of the
Balance Adjusted Rate Option, and the portion of Loan principal that would
otherwise bear interest at the Balance Adjusted Rate shall instead bear interest
from the effective date of such suspension at the Adjusted LIBOR Floating Rate,
unless and until the Lender shall thereafter declare in writing that it has made
a contrary determination.
(d) From the date of occurrence of any Event of Default and
until it and its material consequences (if any) have been wholly cured:
(1) each Floating Rate Tranche shall bear interest
until paid in full at the Past Due Rate; and
(2) each Fixed Rate Tranche shall bear interest
through the last day of the applicable Fixed Rate Interest Period at the lesser
of (x) the rate otherwise applicable to such Fixed Rate Tranche plus three
percent (+3%) per annum or (y) the Ceiling Rate, and thereafter at the Past Due
Rate.
(e) All Fixed Rate Tranche elections are subject to the
following limitations:
(1) each Fixed Rate Tranche shall have a Fixed Rate
Interest Period of from two (2) days to sixty (60) days, as elected by the
Company and specified in its telephonic notice of such Interest Rate Option
selection and its Interest Rate Selection Confirmation;
(2) if a Fixed Rate Interest Period would end on a
day that is not a Business Day, such Fixed Rate Interest Period shall instead
end on the next succeeding Business Day, unless such next succeeding Business
Day is in a different calendar month, in which event the Fixed Rate Interest
Period shall instead end on the immediately preceding Business Day;
(3) each Fixed Rate Tranche shall bear interest from
and including the first day of its Fixed Rate Interest Period to but excluding
the last day of such Fixed Rate Interest Period at the interest rate determined
by the Agent pursuant to this Agreement to be applicable to such Fixed Rate
Tranche;
(4) no Fixed Rate Interest Period may be elected that
would end after the Maturity Date;
(5) the Company may have no more than three (3) Fixed
Rate Tranches outstanding at any one time;
48
<PAGE> 63
(6) each Fixed Rate Tranche shall be in the minimum
amount of Ten Million Dollars ($10,000,000);
(7) the Company may not select a Fixed Rate Tranche
if a Default has occurred that has not been cured or if an Event of Default has
occurred that has not been declared in writing by the Agent to have been cured
or waived;
(8) if the Company selects a Fixed Rate Tranche for
any portion of a Borrowing that is funded as a Swing Line Loan, then the Company
shall be deemed to have selected a LIBOR Floating Rate Tranche for that portion
of such Borrowing for the time that the Borrowing is outstanding as a Swing Line
Loan, and to have selected a Fixed Rate Tranche for the Fixed Rate Interest
Period designated by the Company, with that Fixed Rate Interest Period
commencing, however, on the first day that it is funded as an Advance by all
Lenders;
(9) if any payment of all or any part of a Fixed Rate
Tranche occurs on a day that is not the last day of the applicable Fixed Rate
Interest Period, whether because of acceleration, prepayment or another cause,
the Company will indemnify the Lenders and the Agent for any reasonable loss or
cost they incur resulting from such prepayment, including any loss or cost in
liquidating or employing deposits acquired to fund or maintain the Fixed Rate
Tranche (such loss or cost to be calculated by each Lender so affected and its
calculation to be conclusive and binding, absent manifest error); and
(10) if the Agent, acting in its sole discretion,
determines:
(i) that maintenance of any Fixed Rate
Tranche would violate any Legal Requirement or any rule, regulation, guideline
or directive of any Governmental Authority applicable to any Lender or the
Agent, whether or not having the force of law; or
(ii) prior to the commencement of a Fixed
Rate Interest Period after exerting reasonable efforts to obtain them, that
deposits of a type and maturity appropriate to match fund a Fixed Rate Tranche
are not available to any one or more of the Lenders;
then the Agent shall suspend the availability of the Interest Rate Option for
any Fixed Rate Tranche affected by such determination and any Fixed Rate Tranche
outstanding under every affected Interest Rate Option shall automatically
convert to the Adjusted LIBOR Floating Rate.
(f) From the date of occurrence of any Event of Default and
until it and its material consequences (if any) have been wholly cured:
(1) each Floating Rate Tranche shall bear interest
until paid in full at the Past Due Rate; and
49
<PAGE> 64
(2) each Fixed Rate Tranche shall bear interest through the
last day of the applicable Fixed Rate Interest Period at the lesser of (x) the
rate otherwise applicable to such Fixed Rate Tranche plus three percent (+3%)
per annum or (y) the Ceiling Rate, and thereafter at the Past Due Rate.
(g) Interest shall be calculated through the last day of each month
and shall be due and payable monthly in arrears on the later of (x) the
fifteenth (15th) day of the next month (with the first interest payment due May
15, 1997) or (y) two (2) Business Days after the Agent bills the Company for
such accrued interest. On the Maturity Date all principal and accrued interest
then unpaid shall be finally due and payable without notice or demand.
5.3 Rate of Return Maintenance Covenant. If at any time after the date of
this Agreement, any Lender that is a bank determines that (a) any applicable
law, rule or regulation regarding capital adequacy has been adopted or changed
since February 15, 1997 or (b) its interpretation or administration by any
Governmental Authority, central bank or comparable agency has changed since
February 15, 1997 and determines that such change or such Lender's compliance
with any request or directive regarding capital adequacy (whether or not having
the force of law) of any such Governmental Authority, central bank or comparable
agency, has or would have the effect of reducing the rate of return on that
Lender's capital as a consequence of its obligations under this Agreement or any
of the other Facilities Papers to a level below that which that Lender would
have achieved but for such adoption, change or compliance (taking into
consideration the Lender's own capital adequacy policies) by an amount the
Lender deems to be material, then upon notice to the Company by that Lender or
the Agent summarizing the facts triggering the increase and calculations of the
increase, the interest rate on the principal of that Lender's portion of the
Loan funded and outstanding from time to time shall be increased to a rate
sufficient to provide that Lender with a rate of return on its capital equal to
that which would have been achieved but for such adoption, change or compliance
(taking into consideration that Lender's own capital adequacy policies), but in
no event to exceed the Ceiling Rate. In determining the increase in interest
rate required to achieve that result, each affected Lender may employ such
assumptions and make such allocations of costs and expenses fairly applicable to
the Loan as that Lender reasonably elects and may use any reasonable averaging
and attribution method. Any Lender claiming compensation under this Section
shall furnish the Company its certificate setting forth the amount or amounts
(calculated pursuant to the above-described methods) necessary to compensate the
Lender as specified in this Section.
5.4 Chief Credit Officer's Certificate Conclusive. The certificate of
Texas Commerce's chief credit officer stating the Prime Rate, the Federal Funds
Effective Rate, the Floating Rate or the Fixed Rate applicable to one or more
Advances, the Past Due Rate and/or the Free Adjusted Balances in effect from
time to time, absent manifest error, shall be conclusive.
5.5 Principal. The Advances' outstanding principal amount shall be due and
payable in full without notice or demand on the Maturity Date. Before then, the
Company agrees to pay
50
<PAGE> 65
the following principal payments to the Agent immediately upon the occurrence of
the following events, in each case without notice or demand but without
duplication of payment:
(a) Promptly upon the Company's becoming entitled and able to
collect the proceeds of any sale or other disposition of Debt Collateral
(including proceeds of sales of Structured Securities created from Debt
Collateral), a principal amount equal to the amount so collectable shall be due
and payable by the Company to the Agent -- although, pursuant to the provisions
of SECTION 6.6, the Agent's security interest in such Debt Collateral or its
proceeds shall not be released unless and until the Agent has received for
deposit into the Note Payment Account the Redemption Amount for such Debt
Collateral -- and the Company shall cause the entirety of all available Debt
Collateral disposition proceeds to be paid to the Agent (or if the Company
receives them, the Company shall pay them over to the Agent), with each such
payment to be applied first against the principal of Borrowings outstanding
under the relevant Subline(s) -- the Subprime Single-family Warehouse Subline
and, if applicable, the Wet Warehousing Subline and with the remaining balance
(if any) to be transferred from the Note Payment account into the Company's own
account with Texas Commerce (unless either (i) any payment of principal or
interest on the Obligations shall then be past due, in which event the Agent may
first apply such excess to pay such past due amount and transfer only the
balance, if any, remaining after such application to the Company's own account,
or (ii) an Event of Default has occurred that the Agent has not declared in
writing to have been either waived or cured, in which event the Agent shall hold
such excess as Collateral and apply it in accordance with the provisions of
SECTION 11.5.
(b) Promptly after the Company collects any sum on or in respect of
any P&I Advances Collateral, the Company shall repay principal of P&I Advances
Subline Advances to the Agent in an amount equal to the lesser of (x) the amount
collected or (y) the balance of all P&I Subline Advances then outstanding.
(c) Each P&I Advances Subline Advance not sooner due pursuant to
SECTION 5.5(b) shall be due and payable on the second (2nd) Business Day of the
calendar month following the month in which the Advance was funded.
(d) As and when the Company collects any sums on or in respect of
any Servicing Advances Collateral, and no less often than weekly before the
Maturity Date nor later than six (6) days after their collection, the Company
shall pay to the Agent as a mandatory principal prepayment for Pro Rata
distribution to the Lenders and application to the Obligations in accordance
with the other provisions of this Agreement, an amount equal to the lesser of
(i) the aggregate amounts collected by the Company in respect of its Servicing
Advances Collateral less the sum of such collections previously remitted to the
Agent or (ii) the then-outstanding principal balance of all Servicing Subline
Advances.
(e) As and when the Company collects any sums on or in respect of
any Recoveries Collateral, and no less often than weekly before the Maturity
Date nor later than six
51
<PAGE> 66
(6) days after their collection, the Company shall pay to the Agent as a
mandatory principal prepayment for Pro Rata distribution to the Lenders and
application to the Obligations in accordance with the other provisions of this
Agreement, an amount equal to the lesser of (i) the aggregate amounts collected
by the Company in respect of its Recoveries Collateral less the sum of such
collections previously remitted to the Agent or (ii) the then-outstanding
principal balance of the Recoveries Subline Advances.
(f) If any Disqualifying Event occurs in respect of any item of
Collateral, unless the Borrowing Base in which such item of Collateral was
included still equals or exceeds the sum of all Borrowings outstanding under
that Borrowing Base's related Subline, the Company shall repay Loan principal to
the Agent in an amount -- or, unless an Event of Default has occurred that the
Agent has not declared in writing to have been cured or waived, furnish
substitute Collateral of the same type and having Collateral Value at least --
equal to that item's Collateral Value on the day when the first Advance under
that Subline was made after that item of Collateral was most recently Pledged to
the Agent.
(g) If for any reason on any day, the Borrowings outstanding under
any Subline exceed that Subline's Borrowing Base, then the Company shall repay
Loan principal to the Agent in an amount equal to such excess, unless both (i)
no Event of Default has occurred which the Agent has not declared in writing to
have been cured or waived and (ii) the Company shall have pledged substitute
Collateral of the same type and having Collateral Value at least equal to such
excess on or before three (3) Business Days after the Company first learned of
the existence of such excess.
5.6 Commitment Fee. The Company agrees to pay to the Agent, for the
account of the Lenders (and for the Agent to distribute to them), ratably
according to their respective Committed Sums, a cash commitment fee (the
"COMMITMENT FEE") in an amount equal to one-fourth percent (1/4%) per annum of
the Aggregate Committed Sum for the period from the Effective Date to the
Termination Date. The Commitment fee shall be due and payable annually in
advance on the Effective Date and on each anniversary (if any) of the Effective
Date before the Termination Date. The Commitment Fee is compensation to each
Lender for committing to make funds available for revolving credit Advances on
the terms and subject to the conditions of this Agreement, and is not
compensation for the use or forbearance or detention of money, although this
Section (as well as every other Section of this Agreement) is subject to the
provisions of SECTION 15.3. Each calculation by the Agent of the amount of the
Commitment Fee shall be conclusive, absent manifest error. The Company shall pay
to the Agent on demand any deficiency in payment by the Company of the
Commitment Fee.
5.7 Agent's Fee. The Company agrees to pay to the Agent an agent's fee
(the "AGENT'S FEE") as provided for in the letter agreement between the Company
and the Agent executed substantially concurrently with this Agreement, as such
letter agreement may be supplemented or amended from time to time.
52
<PAGE> 67
5.8 Prepayments. The Company shall have the right to prepay the
outstanding Borrowings in whole or in part, from time to time and without
premium or penalty; provided that prepayment (whether optional or mandatory) of
Fixed Rate Borrowings shall be subject to the provisions of SECTION 5.2(e)(9).
5.9 Payments.
(a) Except as otherwise specifically provided in this Agreement, all
payments under this Agreement, on the Senior Credit Notes (including the Swing
Line Note) and under the other Facilities Papers shall be paid (i) to the Agent
for deposit in the Note Payment Account, (ii) by not later than 2:00 PM on the
day when due (unless the Agent shall agree to a payment's being made before a
specific later deadline) and (iii) without set-off, counterclaim or deduction,
in lawful money of the United States of America in immediately available funds
at the office of the Agent, at 712 Main Street, Houston, Texas 77002, or by fed
funds wire transfer to:
Texas Commerce Bank Account number 0010-2672087
National Association Attention: William J. Clark or Audrey B. Mather
ABA number 1130-0060-9 Phone: (713) 216-7702 or 216-4476
Further Credit -- Long Beach Mortgage Company
or at such other place as the Agent shall designate from time to time. Whenever
any payment to be made under this Agreement, any Senior Credit Note or any of
the other Facilities Papers shall be stated to be due on a day that is not a
Business Day, the due date for that payment shall be automatically extended to
the next day that is a Business Day, and with respect to principal, interest at
the applicable rate (determined in accordance with this Agreement) shall
continue to accrue during the period of such extension. Unless the Agent, acting
in its sole discretion, shall agree otherwise, funds received by the Agent after
2:00 PM on a Business Day shall be deemed for all purposes to have been paid by
the Company on the next succeeding Business Day, except that if, after so
deeming, any applicable Ceiling Rate would be exceeded, then solely for the
purpose of calculating interest accrued, such funds shall be deemed paid on the
date received.
(b) If and to the extent any payment is not made when due under this
Agreement, any Senior Credit Note (including the Swing Line Note) or any of the
other Facilities Papers, the Company authorizes the Agent and each Lender (for
the Pro Rata account and benefit of all of the Lenders) then or at any time
thereafter to charge any amounts so due and unpaid against any or all of the
Company's accounts with the Agent or any of the Lenders; provided that such
right to charge the Company's accounts shall not apply to any escrow, trust or
other deposit accounts designated as being held by the Company on behalf of
third party owners of the escrowed funds other than Affiliates of the Company.
(c) Any and all payments by the Company made pursuant to this
Agreement
53
<PAGE> 68
or under any Senior Credit Note or other Facilities Papers shall be made free
and clear of and without deduction for any and all present or future Taxes. If
the Company shall be required by law to deduct any Taxes from or in respect of
any sum payable pursuant to this Agreement or under any Senior Credit Note or
other Facilities Paper, (i) the sum payable shall be increased as may be
necessary so that after making all required deductions, such Lender receives an
amount equal to the sum it would have received had no such deductions been made,
and (ii) the Company agrees to pay the Taxes to the relevant Governmental
Authority.
(d) Each payment received by the Agent in accordance with this
Agreement is valid and effective to satisfy and discharge the Company's
liability under the Facilities Papers to the extent of the payment.
5.10 Pro Rata Distribution of Payments. All payments and prepayments of
the Senior Credit Notes, including the Swing Line Note, (whether voluntary or
involuntary and from whatever source) received by the Agent shall be distributed
by the Agent to the Lenders Pro Rata with their respective ownership interests
in the Loan as of the date the payment is credited against the Senior Credit
Notes in accordance with this Agreement. The distribution from the Agent to each
Lender shall be made by wire transfer in immediately available funds directly to
the Lender or to such account at another financial institution as is designated
from time to time by the Lender in writing, and shall be made on the same
Business Day received (or deemed received) by the Agent. If the Agent shall fail
or refuse to make the distribution on the same Business Day as the payment was
received, then the Agent shall pay the affected Lender(s) interest on the
undistributed funds at the Federal Funds Effective Rate.
5.11 Chapter 15 Inapplicable. The Company agrees that Chapter 15, Subtitle
79, Revised Civil Statutes of Texas, 1925, as amended (which regulates certain
revolving credit loan accounts and revolving triparty accounts), does not apply
to the Obligations.
6. COLLATERAL
6.1 Grant of Security Interest. As security for the payment of the Loan
and for the payment and performance of all of the Obligations, the Company
hereby GRANTS to the Agent, as agent, bailee and secured party for the Lenders,
a first priority security interest in all of the Company's present and future
estate, right, title and interest in and to the following described Collateral
(although neither the Lenders nor the Agent assumes any of the Company's or any
other liability or obligation under or in respect of any Collateral):
(a) all Pledged Loans including all principal thereof and interest
thereon from time to time outstanding or paid and Loan Papers evidencing,
securing or otherwise relating to such Pledged Loans, whether or not they
initially qualify or continue to qualify as Eligible Collateral, (i) that from
time to time are Pledged to the Agent or repledged to, deposited with, delivered
to, caused to be delivered (or sent) by the Company to, or held by or for, the
Agent or
54
<PAGE> 69
the Custodian pursuant to this Agreement or the Custody Agreement (including all
Pledged Loans held for the Agent by any financial intermediaries, securities
intermediaries or bailees and also including all Bridged Loans against which any
part of any Advance is funded, both before and after the Basic Papers evidencing
such Bridged Loan come into possession of the Custodian or any other financial
intermediary, securities intermediary or bailee for the Agent), (ii) in respect
of which an Advance has been made either (1) at the Company's request (whether
written or oral) or (2) to preserve Collateral or the priority of the Agent's
Lien against Collateral or to otherwise protect the interests of the Lenders in
accordance with this Agreement or the other Facilities Papers and (iii) that
have not been specifically redeemed by the Company (or its designee) in
accordance with SECTION 6.7 or sold to and fully paid for by an investor in
accordance with SECTION 6.7 (although it is not the exclusive method or basis
for determining that an Advance has been made against a Pledged Loan, the
Agent's inclusion of the Collateral Value of any Pledged Loan in any Borrowing
Base at any time when any Advance is outstanding under the related Subline shall
be conclusive evidence (absent manifest error) that an Advance has been funded
against that Pledged Loan);
(b) all Loan Papers related to, and all private mortgage insurance
on, any Pledged Loans, and all renewals, extensions, modifications and
replacements of any of them; all rights, liens, security interests, guaranties,
insurance agreements and assignments accruing or to accrue to the benefit of the
Company in respect of any of the Pledged Loans; all of the Company's rights,
powers, privileges, benefits and remedies under each and every paper now or
hereafter securing, insuring, guaranteeing or otherwise relating to or delivered
in connection with any of the Pledged Loans, including all guaranties, lien
priority agreements, security agreements, deeds of trust, collateral
assignments, subordination agreements, negative pledge agreements, loan
agreements, management agreements, development agreements, design professional
agreements, payment, performance or completion bonds, title and casualty
insurance policies and mortgage guaranty or insurance contracts; all of the
Company's rights, to the extent assignable, in, to and under any and all
commitments (including all Purchase Commitments) issued by (i) GNMA, FNMA,
FHLMC, another mortgage company or any other investor or any lender or
securities issuer to guarantee, purchase or invest in any of the Pledged Loans
or any Structured Security based on or backed by any of them or (ii) any broker
or investor to purchase any Structured Security, whether evidenced by book entry
or certificate, representing or secured by any interest in any of the Pledged
Loans, together with the proceeds arising from or pursuant to any and all such
commitments; all rights under every Hazard Insurance Policy relating to real
estate securing a Pledged Loan for the benefit of the creditor of such Pledged
Loan , the proceeds of all errors and omissions insurance policies and all
rights under any blanket hazard insurance policies to the extent they relate to
any Pledged Loan or its security; all hazard insurance or condemnation proceeds
paid or payable with respect to any of the Pledged Loans and/or any of the
property securing payment of any of the Pledged Loans or covered by any related
instrument; all of the Company's rights now or hereafter existing in, to or
under any Structured Securities secured by or representing any interest in any
of the Pledged Loans, whether evidenced by book entry or certificate (the
Agent's Lien against each Structured Security created from, based on or backed
55
<PAGE> 70
by Pledged Loans shall automatically attach to, cover and affect all of the
Company's right, title and interest in that Structured Security when issued and
its proceeds and the Agent's Lien against the Pledged Loans from which such
Structured Security was so created shall automatically be released when the
Structured Security is issued, subject to automatic reinstatement if such
issuance is voided or set aside by any court of competent jurisdiction); all
proceeds of any nature paid or payable by any governmental, quasi-governmental
or private mortgage guarantor or insurer (including VA, FHA or any other Person)
with respect to any of the Pledged Loans; all tax, insurance, maintenance fee
and other escrow deposits or payments made by the Customers under such Pledged
Loans (the Agent and the Lenders acknowledge that the Company's rights in such
deposits are limited to the rights of an escrow agent and such other rights, if
any, in and to such deposits as are accorded by the Pledged Loans and related
papers); any and all personal property, contract rights, accounts, general
intangibles, instruments and proceeds of whatever kind relating to the Pledged
Loans and all other papers delivered to the Agent or the Custodian and all other
rights transferred to the Agent in respect of any of the Pledged Loans,
including the right to receive all insurance proceeds (including casualty
insurance, pool insurance and title insurance proceeds) and condemnation awards
or payments in lieu of condemnation which may be or become payable in respect of
the premises encumbered or intended to be encumbered by any Pledged Loan;
(c) all files, papers, documents, instruments, surveys,
certificates, correspondence, appraisal reports, computer programs, tapes,
disks, cards, accounting records and other records, information and data
relating to any of the Pledged Loans or any of their Loan Papers, including any
of the foregoing necessary or useful for the Company or any other Servicer to
service or administer any of the Pledged Loans or their Loan Papers;
(d) all present and future rights ("REIMBURSEMENT RIGHTS") of the
Company to have, demand, receive, recover, obtain and retain payments and
prepayments of principal, interest or both, prepayment penalties and tax,
assessment, maintenance fee and insurance escrow payments, owing, paid or due to
be paid to the Company by or for the account of any makers, endorsers, sureties,
assumptors or other Persons obligated, with or without personal liability, on,
under or in respect of any Serviced Loans, including all accounts and general
intangibles from time to time owned by the Company under which its holder has an
enforceable and liquidated claim against a Mortgagor and his accounts, an
insurer or another identified Person under any Mortgage Loan serviced by the
Company for reimbursement of advances made by the Company pursuant to its
obligation to do so as servicer of that Mortgage Loan to fund any P&I Advance
(i.e., a P&I Receivable) or to fund any T&I Advance (i.e., a T&I Receivable) or
Enforcement Advance (i.e., an Enforcement Receivable). Collateral also includes
all of the Company's present and future rights to have, demand, receive,
recover, obtain and retain payment, reimbursement or indemnity for (or for
making) P&I Advances, T&I Advances or Enforcement Advances, from any other
source or sources, including (1) any other Servicer, whether or not affiliated
or bound by any contract with the Company, (2) any owner or holder of any
Serviced Loan which was the subject of any such unrepaid advances, (3) any
investor (whether pursuant to an express or
56
<PAGE> 71
implied advances reimbursement covenant under a contract between such investor
and the Company -- or any predecessor -- contained in or executed pursuant to
any mortgage or mortgage-backed securities selling or servicing guide, pursuant
to any other agreement between the Company -- or any predecessor -- and such
investor or by operation of any legal or equitable rule or principle, including
subrogation), (4) any governmental or private mortgage insurer or guarantor, (5)
any proceeds of realization on any security for or guaranties or insurance of
Serviced Loans which are the subject of any unrecovered Advance, (6) any title
insurance, (7) any insurance on property or property rights covered by any
Serviced Loan which is the subject of any such unrecovered Advance and (8) any
other source whatsoever;
(e) all present and future Company claims and rights of the Company
to have, demand, receive, recover, obtain and retain payments from VA, FHA, any
other governmental or private insurer or guarantor or any other Person, for or
in respect of any sum paid or other consideration given by or on behalf of the
Company (i) to pay costs associated with the servicing, collection, enforcement,
foreclosure or realization on any security for -- or any insurance, bond,
endorsement or guarantee of, for or in respect of -- any Mortgage Loan (or its
proceeds) at any time serviced by the Company or any of its Affiliates or (ii)
to fund the purchase or other acquisition by or on behalf of the Company
pursuant to any right, option or obligation of the Company or any of its
Affiliates as Servicer, to purchase or otherwise directly or indirectly acquire
any Mortgage Loan from its owner or out of a pool of Mortgage Loans serviced by
the Company or any of its Affiliates, including all accounts and general
intangibles from time to time owned by the Company under which the Company has
such a claim, together with all of the Company's present and future rights to
have, demand, receive, recover, obtain and retain payment, reimbursement or
indemnity for (or for making) such costs payments or purchase fundings from any
other source or sources, including (1) any other Servicer, whether or not
affiliated, or bound by any contract, with the Company, (2) any owner or holder
of any Serviced Loan which was the subject of any such costs payment or
purchase, (3) any investor (whether pursuant to an express or implied advances
reimbursement covenant under a contract between such investor and the Company --
or any predecessor -- contained in or executed pursuant to any mortgage or
Structured Securities selling or servicing guide, pursuant to any other
agreement between the Company -- or any predecessor -- and such investor or by
operation of any legal or equitable rule or principle, including subrogation or
assignment) or (4) any proceeds or realization on any security for or guaranties
or insurance or any purchased or acquired Mortgage Loan or its proceeds;
(f) any other Property acceptable to the Agent and Pledged to the
Agent;
(g) the Note Payment Account and all sums from time to time on
deposit on it;
(h) all of the Company's files, surveys, certificates,
correspondence, appraisals, computer programs, tapes, discs, cards, accounting
records and other information and data directly relating to any of the
Collateral described or referred to above;
57
<PAGE> 72
(i) all rights to have and receive any of the foregoing and all
proceeds of any of the foregoing, including all present and future accounts,
general intangibles, instruments, real or personal property, books records,
contract rights, documents (including all documents of title), chattel paper and
proceeds relating to, arising from or by virtue of or collections with respect
to, or comprising part of, any of the foregoing, including all insurance and
claims for insurance affected or held for the benefit of the Company, the
Lenders, the Agent or the Custodian in respect of any of the foregoing;
(j) all other rights and interests now owned or hereafter acquired
by the Company in, under or relating to any of the Collateral described or
referred to above and all proceeds of sale or other disposition of, such
Collateral and all contracts and agreements, whether oral or written, relating
thereto, and any instruments, documents or writings evidencing any monetary
obligation, contract right, general intangible, account or security interest in
any of such Collateral, or its proceeds, whether now existing or hereafter
arising, accruing or accrued. Collateral also includes all other rights and
interests in and to any and all security for or claims against others in respect
of any of the Collateral described or referred to above, or proceeds of sale or
other disposition of, any of such Collateral; and
(k) all accessions or additions to, substitutions for and proceeds
of any and all of the foregoing, together with all renewals and replacements of
any of the foregoing.
Provided, that the Agent's security interest in the Pledged Loans does not
extend to, cover or affect any of the mortgage loan Servicer's right, title or
interest in, to or under (a) any Servicing Agreement that the Company, as owner
or investor, has entered into, or may hereafter enter into, in good faith with
any Person that is not an Affiliate of the Company, as mortgage loan Servicer,
to service Mortgage Loans now or hereafter owned or held by the Company, whether
or not such Mortgage Loans were heretofore, or are now or hereafter, Pledged to
the Agent or (b) the mortgage loan servicing rights under any such mortgage loan
servicing agreement between the Company and a contractual mortgage loan Servicer
that is not an Affiliate of the Company; provided further, that nothing in this
sentence shall be construed to waive, disclaim, impair or otherwise affect the
Agent's security interest (as agent, bailee and secured party for the Lenders)
in any of such Mortgage Loans themselves, including the Agent's security
interest in and to all of the Company's right, title and interest under each
such Mortgage Loan Servicing Agreement to the extent (if any) that it covers,
affects or relates to Pledged Loans.
6.2 Further Assurances Concerning Collateral. In furtherance of the
foregoing, the Company (i) hereby agrees to perform, or cause to be performed,
such acts and duly to authorize, execute, acknowledge, deliver, file and record
(or cause such actions to be taken with respect to) such financing statements,
assignments, security agreements, deeds of trust, mortgages, bond powers and
supplements, modifications or amendments to any of them, and such other papers
as the Agent may reasonably request in order to establish and preserve the
priority of, perfect and
58
<PAGE> 73
protect the Liens granted or intended to be granted to the Agent in and to any
and all such Collateral and to preserve and protect the Agent's rights in
respect of all present and future Collateral for the Obligations.
6.3 Delivery of Additional Collateral or Mandatory Prepayment. At least
once a week during the term of this Agreement (or more often in the discretion
of the Agent if it reasonably determines that market conditions warrant) and
whenever a Request for Borrowing is made by the Company (except that the Agent
shall have no obligation to make such determination more frequently than once
per day), the Agent shall (i) determine pursuant to SECTION 1.2 the aggregate
Collateral Values for the Borrowing Base for each type of Collateral (including
any Collateral pledged on that day) Pledged to the Agent under this Agreement,
(ii) issue to the Lenders a current certificate stating separately the Agent's
determination of the Borrowing Base for each type of Collateral for which the
Agent has made such determination (the Agent shall be required to make such
determination when a Request for Borrowing is made only as to the Borrowing
Base(s) relevant to that Request for Borrowing) and (iii) provide a copy of that
certificate to the Company. If the Agent shall determine on any day that any
Borrowing Base is less than the outstanding Advances under the related Subline,
then the Company shall immediately (by no later than the next Business Day after
the Agent's request) either:
(a) Pledge to the Agent additional Collateral of the relevant type
and deliver to the Custodian all Basic Papers for such Collateral (such delivery
to the Custodian may be deferred for up to five (5) Business Days for any
Bridged Loans Pledged to the Agent as additional Collateral) and/or;
(b) after giving effect to the Collateral Value of any additional
Collateral Pledged to the Agent and delivered to the Agent pursuant to SECTION
6.3(a), pay to the Agent cash for Pro Rata distribution to the Lenders, in
aggregate amounts sufficient to cover the sum of the excess of each of (i) the
sum of all Advances outstanding under each Subline over (ii) the Collateral
Value of all Eligible Collateral Pledged to the Agent for borrowing against
under that same Subline.
provided, that the Company may not elect under the provisions of SECTION 6.3(a)
(and instead must make a cash paydown pursuant to SECTION 6.3(b)) if any Default
or Event of Default has occurred that the Agent has not declared in writing to
have been cured or waived.
6.4 Mortgaging of Real Property Collater The Company hereby GRANTS to the
Agent a Lien against, and hereby agrees to duly Pledge to the Agent by
executing, acknowledging sufficiently for recording and delivering to the Agent
or (where appropriate) to a trustee designated by the Agent, a recordable
mortgage, deed of trust or security deed (whichever form of real property
mortgage instrument is appropriate to the jurisdiction in which the real
property is located) -- on the standard FNMA/FHLMC form, modified appropriately
for the purpose, or in another form approved by the Agent -- and in substance
approved by the Agent, to cover each
59
<PAGE> 74
lot, parcel, tract or leasehold estate (as the case may be) of present or future
Collateral that constitutes real property under the law of the U.S. jurisdiction
where it is located, each of which shall describe the mortgagee or grantee as
"Texas Commerce Bank National Association, as a Lender and as Agent for certain
other Lenders" and shall describe the Debt it secures substantially as follows:
All present and future debts and obligations of Long Beach Mortgage
Company to Texas Commerce Bank National Association, as a Lender and as
Agent for the other Lenders named therein, and to such other Lenders,
under or pursuant to the 4/97 Senior Secured Credit Agreement dated as of
April 14, 1997, the principal debt under which credit agreement has a
final stated maturity of March 31, 1999, as such credit agreement may have
been or may from time to time be supplemented, amended or restated;
provided that the principal debt hereby secured shall in no event exceed
[state here the amount that is equal to 120% of the current appraised
value or broker's opinion of value of the mortgaged real estate].
While the Agent does not initially intend to record any of such mortgages, deeds
of trust or security deeds, the Agent may elect to record any or all of them at
any time or times, and all costs of filing and recordation shall be paid for by
the Company, either directly or as reimbursement to the Agent, whichever the
Agent shall elect.
6.5 Collection and Servicing Rights. So long as no Event of Default shall
have occurred that the Agent has not declared in writing to have been cured or
waived, the Company shall be entitled to service, receive and collect directly
- -- or cause to be serviced, received and collected through a Servicer or
Servicers under one or more Servicing Agreements -- all sums payable to the
Company in respect of the Collateral (excluding, however sums arising from sales
or other dispositions of Collateral, which SECTION 6.6 requires to be paid to
the Agent for application as therein stated). After the occurrence of any Event
of Default that the Agent has not declared in writing to have been cured or
waived, the Agent shall have the following rights (but no obligations):
(a) in its discretion, to demand, sue for, collect or receive and
receipt for (in its own name, in the name of the Company or otherwise) any money
or property at any time payable or receivable on account of any of the
Collateral, in consideration of its transfer or in exchange for it;
(b) to direct -- and to take any and all other steps necessary to
cause -- any Servicer of any of the Collateral to pay over directly to the Agent
for the account of the Company (instead of to the Company or any other Person)
all sums from time to time due to the Company and to take any and all other
actions that the Company or the Agent has the right to take under the Company's
contract with such Servicer; and
60
<PAGE> 75
(c) to request that the Company forthwith pay to the Agent at its
principal office all amounts thereafter received by the Company upon or in
respect of any of the Collateral, advising the Agent as to the sources of such
funds, and if the Agent does so request, then the Company shall diligently and
continuously thereafter comply with such request.
All amounts so received and collected by the Agent shall be paid over to the
Lenders for application to pay (i) fees owing under the Facilities Papers (pro
rata in the ratio that the fees then owed to each Lender bear to the fees then
owed to all Lenders), (ii) the reasonable costs and expenses incurred by the
Agent or the Lenders (pro rata in the ratio that the unreimbursed costs and
expenses incurred by each of them and then outstanding bears to the unreimbursed
costs and expenses incurred by all of them and then outstanding) in collecting
or enforcing the Senior Credit Notes and the other Facilities Papers, defending
against any claims made in respect of the Facilities Papers or any related
transactions, protecting or realizing on Collateral and (iii) accrued and unpaid
interest on and principal of the Senior Credit Notes (for interest, pro rata in
the ratio that the then-accrued and unpaid interest due on each Senior Credit
Note bears to the then-accrued and unpaid interest due on all Senior Credit
Notes, and for principal, pro rata in the ratio that the outstanding balance of
each Senior Credit Note bears to the outstanding balances of all Senior Credit
Notes).
6.6 Sale and Agent's Delivery of Debt Collateral to Investor. The Company
may direct the Custodian to ship or deliver to any Qualified Investor, under
cover of a bailee letter substantially in the form therefor prescribed by the
Custodial Agreement, any Pledged Loan for which that investor has issued a Whole
Loans Purchase Commitment, and the Agent's security interest in such Pledged
Loan shall automatically terminate upon payment to the Agent of the greater of
(i) the purchase price for that Pledged Loan determined in accordance with the
terms of the relevant Purchase Commitment or (ii) the Redemption Amount of that
Pledged Loan, and at the Company's request and expense, the Agent will execute
such UCC-3 (or UCC-2, as applicable) Partial Release and such other confirmation
of such release as the Qualified Investor shall require. The Company may direct
the Custodian to ship or deliver to any issuer of Structured Securities, under
cover of a bailee letter substantially in the form therefor prescribed by the
Custodial Agreement, any Pledged Loan(s) as all or part of a pool from which
Structured Securities will be created that are covered by a Structured
Securities Purchase Commitment issued by a Qualified Investor, and the Agent's
security interest in those Pledged Loans shall automatically terminate when the
Structured Securities are created from such pool, although the Agent's security
interest granted by this Agreement in and to -- and the Company hereby
specifically declares its intent that Collateral covered by this Agreement
includes -- all of the Company's present and future (i) right, title and
interest in and to the Structured Securities so created and (ii) rights to
demand, have, receive and receipt for such Structured Securities and their
proceeds shall automatically attach when such Pledged Loans are so securitized
and the Agent's security interest in them is thereby automatically terminated,
as aforesaid. When the sale is settled of any Whole Loan or of any Structured
Securities created from a pool that includes any Pledged Loan, the Company shall
cause the investor purchasing such Whole Loan or Structured Securities
61
<PAGE> 76
to pay the purchase price therefor directly to the Agent, for application as a
mandatory prepayment on the Senior Credit Notes and as a repayment of
outstanding Advances under the relevant Subline, and the Agent's security
interest in such Whole Loan or such proceeds of the Pledged Mortgages in such
securitized pool (whichever the case may be) shall terminate and be released
upon the Agent's receipt (for deposit in the Note Payment Account) of an amount
equal to the greater of (x) the contractual purchase price to be paid by the
investor for that Pledged Whole Loan or the Company's share of the proceeds of
the sale of such Structured Securities (whichever the case may be), as
determined in accordance with the terms of the relevant Purchase Commitment or
(y) the Redemption Amount for that Pledged Loan or the sum of the Redemption
Amounts for such Pledged Loans in such securitized pool of Mortgage Loans. Upon
shipment or delivery of Pledged Loans to be securitized and pending such payment
to the Agent on the sale of the resulting Structured Securities, the Company
agrees to take all steps necessary to:
(a) cause all such Structured Securities, if and when they are
issued before payment of their sale proceeds is made to the Agent, to be duly
registered in the Agent's name and delivered to the Agent; or
(b) in the case of uncertificated or book-entry securities held by a
financial intermediary in a state that has not adopted the National Conference
of Commissioners on Uniform State Laws-approved 1994 amendments to Article 8 and
1994 conforming amendments to Articles 1, 4, 5, 9 and 10 of the UCC (the
"RELEVANT 1994 UCC AMENDMENTS"), cause those Structured Securities, if issued
before payment of their sale proceeds is made to the Agent, to be duly
registered as owned by the Agent, as agent, bailee and secured party for the
Lenders, on the books of the financial intermediary that is shown as their
record owner on the books of the fiscal agent for the issuer of such securities;
or
(c) in the case of securities held by a financial intermediary in
Texas or in another state that has also adopted, without relevant substantial
variations, the Relevant 1994 UCC Amendments, if such securities are issued
before payment of their sale proceeds is made to the Agent, to cause the Agent,
as agent, bailee and secured party for the Lenders, to be identified in the
records of the relevant securities intermediary as the only holder of securities
entitlements in respect of such securities or (at the Agent's written election)
to cause such securities intermediary to agree that it will act on entitlement
orders to dispose of such securities and/or to pay the proceeds to a designated
Person or apply them as directed in the entitlement order only if such
entitlement order is issued by the Agent;
and to cause such arrangements to remain in effect until such payment of the
sales proceeds of such Structured Securities has been made to the Agent. The
Company hereby APPOINTS the Agent as its attorney-in-fact to take all such steps
in its name and behalf as are necessary or appropriate to (i) obtain and
maintain control of such Structured Securities, (ii) establish, maintain or
continue perfection of its security interests in such Structure Securities
and/or (as the context requires) (iii) enforce, collect or otherwise realize
upon such interests, and such appointment shall
62
<PAGE> 77
be deemed a power coupled with an interest and shall be irrevocable for so long
as any of the Obligations shall be unpaid or any of the Lenders shall have any
outstanding commitment to lend or to extend any other financial accommodations
to or for the account of the Company.
6.7 Right of Redemption From Pledge. Provided no Event of Default has
occurred that the Agent has not declared in writing to have been cured or waived
(provided that the Agent may elect to allow redemption even if an uncured and
unwaived Event of Default has occurred if the Agent reasonably believes at that
time that doing so would be in the Lenders' interest), the Company may from time
to time redeem one or more items of Collateral from pledge by either:
(a) paying, or causing to be paid, to the Agent for deposit in Note
Payment Account, for application to the outstanding balance of Advances under
the relevant Subline(s) and Pro Rata distribution to the Lenders for their
application to prepayment of the principal balances of the Senior Credit Notes,
including the Swing Line Note, the Redemption Amount for the item(s) of
Collateral to be released; or
(b) delivering substitute Collateral that both (a) is Eligible
Collateral of the same type(s) as the Collateral being redeemed and (b) will,
when included with the existing Collateral of the same type(s), increase the
relevant Borrowing Base(s) for the relevant Subline(s) to a value at least equal
to the aggregate outstanding Advances under such Subline(s).
The Agent's Lien against the items of Collateral redeemed shall automatically be
terminated upon the Agent's receipt of the redeeming payment or redeeming
substitute Collateral, and the Agent will direct the Custodian to release the
Basic Papers and other items evidencing or comprising (or otherwise relating to)
the redeemed Collateral to the Company against the Company's written request and
will execute UCC partial release(s) -- or otherwise appropriately confirm such
release in writing -- prepared at the Company's expense if, when and in such
form as the Company may reasonably request.
6.8 Return of Collateral at End of Commitment. If (i) the Lenders'
Commitments to lend shall have expired or been terminated, and (ii) all
Advances, interest or other amounts evidenced by the Senior Credit Notes or
owing to any of the Lenders or the Agent under this Agreement, the Senior Credit
Notes and the other Facilities Papers shall be fully paid and satisfied, then
the Agent shall release the Collateral to the Company or its designee promptly
upon written request made by the Company and at its cost, and the Company shall
promptly receipt -- or shall cause its designee to promptly receipt -- for such
released Collateral in writing to the Agent. Acceptance by the Company of any
Collateral delivered to it pursuant to any provision of this Agreement (whether
or not the recipient issues a receipt for it) or shipping by the Agent of
Collateral in substantial compliance with shipping instructions given by the
Company or its designee shall be a complete and full acquittance for the
Collateral so delivered or shipped, and the Agent shall thereby be released and
discharged from any and all liability or responsibility for it arising then or
thereafter.
63
<PAGE> 78
7. CONDITIONS PRECEDENT.
7.1 Initial Advance. The obligations of the Lenders to fund their
respective Funding Shares of the initial Advance under this Agreement are
subject to the Company's fulfillment of the following conditions precedent:
(a) The Agent shall have received the following, all of which must
be satisfactory in form and content to the Agent in its sole discretion:
(1) This Agreement duly executed by all parties;
(2) The Senior Credit Notes, each duly executed by the
Company;
(3) The Guaranty, duly executed by the Guarantor;
(4) UCC financing statements for the Collateral covered by
this Agreement, each duly executed by the Company;
(5) a UCC search report for the Company;
(6) The Custody Agreement duly executed by the Company and
Texas Commerce as Custodian;
(7) Certified copies of the Company's articles of
incorporation and bylaws;
(8) Proof satisfactory to the Agent that (i) all regulatory
and auditors' requirements in respect of the initial public offering of Long
Beach Financial's common stock have been obtained, (ii) such offering has been
successfully completed, (iii) the stock offered has been issued and paid for and
(iv) the Company's initial paid-in equity capital and Tangible Net Worth are
each at least Twenty-five Million Dollars ($25,000,000).
(9) A favorable written opinion of counsel to the Company
dated on or before the date of the initial Advance, addressed to the Lenders and
the Agent and in form and substance reasonable satisfactory to the Agent and its
legal counsel (opinions required to be included therein are set forth in EXHIBIT
H);
(10) Original resolutions of the Company's board of directors,
certified as of the date of the initial Advance by the Company's corporate
secretary, authorizing the execution, delivery and performance by the Company of
this Agreement, the Senior Credit Notes, the Custody Agreement and all other
Facilities Papers to be delivered by the Company pursuant
64
<PAGE> 79
to this Agreement;
(11) A certificate of the Company's corporate secretary as to
(i) the incumbency of the officers of the Company executing this Agreement, the
Senior Credit Notes, the Custody Agreement, each applicable Request for
Borrowing and all other Facilities Papers executed or to be executed by or on
behalf of the Company and (ii) the authenticity of their signatures -- and
specimens of their signatures shall be included in such certificate or set forth
on an exhibit attached to it -- (the Agent and the Lenders shall be entitled to
rely on that certificate until the Company has furnished a new certificate to
the Agent);
(12) An Officer's Certificate for the Company dated the date
of the initial Advance and certifying truthfully that, after giving effect to
that Advance, no Default or Event of Default will exist under this Agreement and
that there has been no material adverse change since the Statement Date in any
of the Central Elements relative to the Company; and
(13) Copies of an errors and omissions insurance policy or
mortgage impairment insurance policy and blanket bond coverage policy, or
certificates in lieu of policies, providing such insurance coverage as is
customary for members of the Company's industry, all in form and content
reasonably satisfactory to the Agent.
(14) Payment to the Agent of the Facility Fee (for deposit in
the Note Payment Account and Pro Rata distribution to the Lenders, the Agent's
Fee, the Custodian's Fee and all other fees and expenses (including the
disbursements and reasonable fees of the Agent's and the Lenders' attorneys,
subject to the limitation specified in SECTION 12.1) of the Agent and the
Lenders accrued and billed for to the date of the Company's execution and
delivery of this Agreement.
(b) All directors and officers of the Company, all shareholders of
the Company and all Affiliates of the Company or any parent or Subsidiary of the
Company, to whom or which the Company shall be obligated (excluding obligations
for officer or employee salary, bonuses or other compensation) either for
borrowed money or for any other obligation of Fifty Thousand Dollars ($50,000)
or more as of the date of this Agreement, shall have caused such Debt --
excluding only the debts and obligations described on SCHEDULE 7.1(B) to this
Agreement -- to be Subordinated Debt, as defined in this Agreement, by executing
and causing to be delivered to the Agent a Subordination Agreement substantially
in the form of EXHIBIT C and taking all other steps, if any, required to cause
such Debt to be Subordinated Debt, as so defined, and the corporate secretary of
the Company shall have certified each such Subordination Agreement executed to
satisfy the requirements of this Subsection to be true, complete and in full
force and effect as of the date of the Advance.
7.2 Each Advance. The obligations of the Lenders to fund their respective
Funding
65
<PAGE> 80
Shares of the initial Advance and each subsequent Advance under this Agreement
are also subject to the satisfaction, in the sole discretion of the Agent, as of
the date of each such Advance, of the following additional conditions precedent:
(a) The Company shall have delivered to the Agent a Request for
Borrowing and (if any relevant Borrowing Base is insufficient to support all or
part of the Advance) shall have delivered to the Agent one or more Submission
List(s) and to the Custodian (except for Wet Warehouse Advances) a copy of the
relevant Submission List(s) together with the Basic Papers for any Debt
Collateral required to cause any relevant Borrowing Base to at least equal its
related Subline's outstanding Advances after giving effect to the requested
Advance.
(b) Unless the requested Advance is comprised only of a Wet
Warehousing Advance, the Custodian shall have issued its Custodian's
Certification relating to the Collateral comprising the Borrowing Base(s) for
the Advance (and the Agent agrees not to unreasonably withhold or delay issuing
any such Custodian's Certification).
(c) The Agent shall have received evidence reasonably satisfactory
to it as to the making and/or continuation of any book entry or the due filing
and recording in all appropriate offices of all financing statements and other
instruments as may be necessary to perfect the Agent's security interest in the
Collateral and give the Agent "control" of such of the Collateral as shall be
"investment property" under the UCC of the State of Texas or other applicable
law.
(d) The representations and warranties of the Company contained in
SECTION 8 shall be true and correct in all material respects as if made on and
as of the date of each Advance unless specifically stated to relate to an
earlier date.
(e) The Company shall have performed all agreements to be performed
by it under this Agreement, the Custody Agreement and all other Facilities
Papers, as well as under all Purchase Commitments, and after giving effect to
the requested Advance, no Default or Event of Default will exist under this
Agreement or any of the other Facilities Papers.
(f) The Agent shall have received from counsel for the Company, if
reasonably requested by all of the Lenders, an updated favorable opinion or
opinions, in form and substance satisfactory to the Agent addressed to the
Lenders and/or the Agent (whichever the Agent shall specify) and dated as of the
date of such Advance, covering and updating such matters that were originally
addressed in the opinion issued pursuant to SECTION 7.1(a)(9) as the Agent may
request.
(g) The Company shall have paid the Commitment Fee and Agent's Fee
then due and payable in accordance with SECTIONS 5.6 and 5.7 and the Custodian's
fee pursuant to the Custody Agreement.
8. REPRESENTATIONS.
66
<PAGE> 81
The Company hereby represents and warrants to the Agent and the Lenders
both (a) as of the date of this Agreement and (b) except as to those specified
to relate only to a specific date, again as of the date of each Request for
Borrowing, that:
8.1 Organization; Good Standing; Subsidiaries. The Company is a
corporation duly formed, validly existing and in good standing under the laws of
the State of Delaware. The Company has furnished to the Agent a true and
complete copy of the Company's charter or articles of incorporation and its
bylaws or corporate regulations, and all amendments to each made on or before
the date of this Agreement, and agrees to furnish to the Agent a true and
complete copy of any amendment adopted after the effective date of this
Agreement. The Company warrants and represents that the Company and its
Subsidiaries each has the full legal power and authority to own its properties
and to carry on its business as currently conducted and each is duly qualified
to do business as a foreign corporation and in good standing in each
jurisdiction in which the ownership of its property or the transaction of its
business makes such qualification necessary, except in jurisdictions, if any,
where a failure to be in good standing has no material adverse effect on any of
the Central Elements. The Company does not have any Subsidiaries (other than
single-purpose finance Subsidiaries all of whose indebtedness for borrowed money
or other material indebtedness is nonrecourse Structured Securities Debt) except
as set forth on EXHIBIT D or as have been subsequently disclosed by the Company
to the Agent in writing. EXHIBIT D states the name of each such Subsidiary as of
the Effective Date (other than such single-purpose finance Subsidiaries), place
of incorporation, each state in which it is qualified as a foreign corporation
and the percentage ownership of the capital stock of each such Subsidiary by the
Company.
8.2 Authorization and Enforceability. The Company has the power and
authority to execute, deliver and perform this Agreement, the Senior Credit
Notes, the Custody Agreement and all other Facilities Papers to which it is a
party or in which it joins or has joined. The execution, delivery and
performance by the Company of this Agreement, the Senior Credit Notes, the
Custody Agreement and all other Facilities Papers to which it is a party and the
borrowing of the Loan have been duly and validly authorized by all necessary
corporate action on the part of the Company (none of which has been modified or
rescinded, and all of which are in full force and effect) and do not and will
not conflict with or violate any Legal Requirement or the articles of
incorporation or bylaws of the Company, conflict with or result in a breach of
or constitute a default under any agreement, instrument or indenture binding on
the Company or require any consent under any such agreement, instrument or
indenture where the conflict, breach, default or nonconsent could reasonably be
expected to have a material adverse effect on any of the Central Elements, or
result in the creation of any Lien upon any property or assets of the Company
except the Lien securing the Obligations, or result in or permit the
acceleration of any debt of the Company pursuant to any agreement, instrument or
indenture to which the Company is a party or by which the Company or its
property may be bound or affected. This Agreement, the Senior Credit Notes, the
Custody Agreement and all other Facilities Papers constitute the legal, valid,
and binding obligations of the Company, enforceable in accordance with their
respective terms,
67
<PAGE> 82
except as limited by bankruptcy, insolvency or other such laws affecting the
enforcement of creditors' rights generally.
8.3 Approvals. Neither the execution and delivery of this Agreement, the
Senior Credit Notes, the Custody Agreement and all other Facilities Papers nor
the performance of the Company's obligations under such Facilities Papers
requires any license, consent, approval or other action of any state or federal
agency or governmental or regulatory authority other than (i) those that have
been obtained or will be obtained by the time required and which remain in full
force and effect, (ii) those for which the Company's failure to obtain them will
not have a material adverse effect on any of the Central Elements in respect of
the Company and (iii) the filing of the Security Instruments.
8.4 Financial Condition. Since the Statement Date, (i) there has been no
material adverse change in any of the Central Elements related to the Company
(and its Subsidiaries), nor is the Company aware of any state of facts which
(with or without notice, the lapse of time or both) would or could result in any
such material adverse change, and (ii) there have been no material unrealized or
anticipated losses from any loans, advances or other commitments of the Company,
except for the material adverse changes and losses (if any) that are summarized
on SCHEDULE 8.4. The following representations shall be deemed made for the
first time when the Company first furnishes a first balance sheet to the Agent
pursuant to SECTION 9.2(a): the balance sheet of the Company (and, to the extent
applicable, its Subsidiaries, on a consolidated basis) and the related
statements of income, changes in stockholders' equity and cash flows ("FINANCIAL
STATEMENTS") for the fiscal period just ended fairly present the financial
condition of the Company (and its Subsidiaries) as at their date and the results
of their operations for the fiscal period ended on that date, and such Financial
Statements were prepared in accordance with GAAP. On their date, the Company did
not have any known material liabilities -- direct or indirect, fixed or
contingent, matured or unmatured -- or liabilities for sales, long-term leases
or unusual forward or long-term commitments not disclosed by such Financial
Statements or reserved against in them.
8.5 Litigation. Except as disclosed in the most recent Financial
Statements furnished to the Agent, there are no actions, claims, suits or
proceedings pending, or to the knowledge of the Company, threatened or
reasonably anticipated against or affecting the Company or any of its
Subsidiaries in any court, before any other Governmental Authority or before any
arbitrator or in any other dispute resolution forum which, if adversely
determined, could reasonably be expected to result in a material and adverse
effect on any of the Central Elements relative to the Company.
8.6 Licensing. The Company and the Servicers (if any) of its Mortgage
Loans are duly registered as mortgage lenders and servicers in each state in
which Mortgage Loans have been or are from time to time originated, to the
extent such registration is required by any applicable Legal Requirement, except
where the failure to register could not reasonably be expected to result in an
material and adverse effect on any of the Central Elements in respect of the
Company..
68
<PAGE> 83
8.7 Compliance with Laws. Neither the Company nor any of its Subsidiaries
is in violation of any provision of any law, or any judgment, award, rule,
regulation, order, decree, writ or injunction of any court, other Governmental
Authority or public regulatory body that could reasonably be expected to have a
material adverse effect on any of the Central Elements relative to the Company.
8.8 Regulation U. The Company is not engaged principally, or as one of its
important activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock, and no part of the proceeds of any Advances
will be used to purchase or carry any Margin Stock or to extend credit to others
for the purpose of purchasing or carrying any Margin Stock.
8.9 Investment Company Act. The Company is not subject to the rules
governing an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
8.10 Public Utility Holding Company Act. Neither the Company nor any of
its Subsidiaries is an "affiliate" or a "subsidiary company" of a "public
utility company", or a "holding company", or an "affiliate" or a "subsidiary
company" of a "holding company", as such terms are defined in the PUHC Act.
Further, none of the transactions contemplated under this Agreement shall cause
or constitute a violation of any of the provisions, rules, regulations or
orders, of or under the PUHC Act and the PUHC Act does not in any manner impair
the legality, validity or enforceability of the Senior Credit Notes, the Loan,
any of the Facilities Papers or any of the Agent's Liens.
8.11 Payment of Taxes. (The Company is newly formed, and therefore, as of
the Effective Date, no returns or taxes of the following descriptions have yet
become due or reserves of the type mentioned in this Section have yet been
established.) The Company has filed (or caused to be filed) all required
federal, state and local income, excise, property and other tax returns with
respect to its and its Subsidiaries' operations, all of such returns are true
and correct and the Company has paid or caused to be paid -- or is protesting by
appropriate proceedings diligently pursued and has established adequate reserves
therefor -- all taxes which are due and owing under applicable law or as shown
on any assessment to the extent such taxes have become due, including all
applicable FICA payments and withholding taxes. The amounts reserved as a
liability for income taxes and other taxes payable in the financial statements
heretofore furnished to the Agent and the Lenders are sufficient for payment of
all unpaid federal, state and local income, excise, property and other taxes --
whether or not disputed -- of the Company and its Subsidiaries accrued for or
applicable to the period and on the dates of such financial statements and all
prior years and periods, and for which the Company and its Subsidiaries may be
liable in their own right or as transferee of the assets of other Person or as
successor to any other Person.
8.12 Agreements. Neither the Company nor any of its Subsidiaries is a
party to any agreement, instrument or indenture or subject to any restriction
materially and adversely affecting
69
<PAGE> 84
any of the Central Elements except as disclosed in SCHEDULE 8.4 or in the
Company's Financial Statements most recently furnished to the Agent. Neither the
Company nor any such Subsidiary is in default in the performance, observance or
fulfillment of any of its obligations, covenants or conditions contained in any
agreement, instrument or indenture that could reasonably be expected to have a
material adverse effect on any of the Central Elements in respect of the Company
or any such Subsidiary. No holder of the Company's or any such Subsidiary's debt
or other obligations has given notice of any asserted default. No liquidation or
dissolution of the Company or any such Subsidiary is pending or, to the
Company's knowledge, threatened. No receivership, insolvency, bankruptcy,
reorganization or other similar proceedings relative to the Company or any such
Subsidiary or any of their properties is pending, or to the Company's knowledge,
threatened.
8.13 Title to Properties. The Company and each of its Subsidiaries has
good, valid, insurable (in the case of real property) and marketable title to
(i) all of its material assets that are included in "premises and equipment" or
"prepaid expenses and other assets" on its balance sheet and (ii) (for fiscal
periods commencing on or after the first day of the month next following the
month in which the ninetieth (90th) day after the Effective Date falls) all of
its properties and assets (whether real or personal, tangible or intangible)
reflected or referred to in the Financial Statements most recently furnished to
the Agent, except for such properties and assets as have been disposed of since
the date of such current Financial Statements either in the ordinary course of
business or because they were no longer used or useful in the conduct of its
business, and all such properties and assets are free and clear of all Liens
except for (i) the lien of current real property taxes and assessments, (ii)
covenants, conditions and restrictions, rights of way, easements and other
matters to which like properties are commonly subject that do not materially
interfere with the use of the property as it is currently being used and (iii)
such other Liens, if any, as are disclosed in such Financial Statements and
Permitted Encumbrances.
8.14 The Company's Address. The Company represents that its chief
executive office and principal place of business are at 1100 Town & Country
Road, Suite 900, Orange, California 92668 or at such other address as shall have
been set forth in a written notice to the Agent given subsequent to the
Effective Date and at least thirty (30) days before such notice's effective date
accompanied (if the Company's new address is in a different state) by a UCC-3
Financing Statement signed by the Company to amend each Financing Statement
required by this Agreement to reflect the Company's change of address.
8.15 ERISA. The Company does not maintain any Plans except the Plans
listed on SCHEDULE 8.15 and agrees to notify the Agent in advance of forming any
Plans. The Plans listed on SCHEDULE 8.15 and all other Company employee welfare
benefits plans (as defined under Section 3(1) of ERISA) are in material
compliance with all applicable laws (including ERISA). The Company is not an
employer under any Multiemployer Plan or any other Plan subject to Title IV of
ERISA. For the purposes of this SECTION ?, "in material compliance" means that
the Company is not liable for any relevant liability in excess of Twenty-five
Thousand Dollars
70
<PAGE> 85
($25,000).
8.16 Special Representations Concerning Collateral. The Company hereby
represents and warrants to the Lenders and the Agent, as of the date of this
Agreement and as of the date of each Request for Borrowing, that (except as
otherwise disclosed by the Company to the Agent in respect of particular items
of Recoveries Collateral when they are Pledged to the Agent):
(a) The Company is the legal and equitable owner, free and clear of
all Liens other than Permitted Encumbrances, of the Collateral. All Debt
Collateral, including all pledged Bridged Loans, has been duly (i) authorized
and validly issued, (ii) endorsed or assigned to the Company and (iii) endorsed
or assigned by the Company in blank and delivered (or in the case of Bridged
Loans, are in the process of being delivered) to the Custodian or endorsed in a
manner acceptable to the Agent. The Company represents that all of the
Collateral, individually and collectively, complies with all of the requirements
of this Agreement and the Custody Agreement. All information concerning each
grouping of Debt Collateral set forth on the Submission List furnished to the
Agent/Custodian pursuant to which such Debt Collateral was, is or will be (as
applicable) transmitted to the Custodian was, is and/or shall be (as applicable)
true and complete in all material respects as of the date of such Submission
List. All Basic Papers for each such item of Debt Collateral (except for Bridged
Loans) will be transmitted to the Custodian with the Submission List with which
it is submitted. Each assignment to the Agent of the Lien securing any Debt
Collateral will be in proper and sufficient form for recording in the
appropriate government office in the U.S. jurisdiction where the underlying
property (land and improvements) covered by such Lien is located. Upon and after
delivery to the Agent of the Mortgage Note evidencing the particular item of
Debt Collateral, the Agent on behalf of the Lenders will have a duly perfected
first priority security interest in such Debt Collateral and for so long as the
Agent, the Custodian or another bailee for the Agent retains possession of such
note, or takes such other action as is necessary for it to have and maintain a
perfected security interest in such note under the UCC, the Agent will have a
duly perfected first priority security interest in such Debt Collateral.
(b) The Company has and will continue to have the full right, power
and authority to pledge the Collateral Pledged to the Agent and to be Pledged to
the Agent by the Company under this Agreement or pursuant to it, and such
Collateral may be further assigned without any requirement for the consent of
any other party to the Collateral.
(c) The Company will maintain the Lien on the real estate described
in, or referred to as covered by, each Pledged Loan as a first Lien until all of
the Obligations have been fully paid and satisfied and the Lenders have no
further Commitments outstanding.
(d) All pledged Mortgage Loans and all related papers included in
the Collateral (including all pledged Bridged Loans):
71
<PAGE> 86
(1) were originated by the Company, a duly licensed mortgage
lender in the ordinary course of its business and, if not originated by the
Company, were sold by their respective originators and purchased by the Company,
acting in the ordinary course of their respective businesses;
(2) have been made in compliance with all applicable
requirements of the Real Estate Settlement Procedures Act, the Equal Credit
Opportunity Act, the federal Truth-In-Lending Act, the Fair Credit Billing Act,
the Fair Credit Reporting Act, related statutes and regulations and all
applicable Legal Requirements under usury, truth-in-lending, equal credit
opportunity and all other Laws, and the continued compliance of the Pledged
Loans is not affected by their pledge to the Agent, as agent, bailee and secured
party for the Lenders;
(3) are the legal, valid and binding obligations of the
respective Customers who made them and are and will continue to be valid and
enforceable in accordance with their terms, without any claim, right of
rescission, counterclaim, defense or offset, including any claim or defense of
usury, except as such enforceability may be limited by bankruptcy and other laws
affecting the rights of creditors generally and by principles of equity, and
neither the operation of any of their respective contract terms nor the exercise
of any right thereunder will render any of them partly or wholly unenforceable
or subject to any such claim, right of rescission, counterclaim, defense or
offset, and no such claim, right of rescission, counterclaim, defense or setoff
has been asserted;
(4) have not been modified or amended and none of their
requirements has been waived, except as expressly and completely reflected in
the applicable Loan Papers furnished to the Agent or the Custodian;
(5) comply and will continue to comply with the terms of this
Agreement and the Custody Agreement;
(6) were not originated in, and are not subject to the laws of
, any jurisdiction whose laws (i) make unlawful their pledge to the Agent
pursuant to this Agreement, or their ownership by the Agent or the Lenders
following foreclosure of the Agent's Lien, or conveyance in lieu of foreclosure
after any Event of Default or (ii) render the Pledged Loans unenforceable;
(7) are in full force and effect and have not been satisfied
or subordinated in whole or in part or rescinded, and the residential real
property securing the pledged Mortgage Loan has not been partially or completely
released from the Lien of the Pledged Loan;
(8) evidence and are each secured by a valid first Lien in
favor of the Company on real property securing the amount owed by the
Customer(s) under the related
72
<PAGE> 87
Mortgage, subject only to Permitted Encumbrances; the Company has pledged and
collaterally assigned all of the Company's right, title and interest in such
Pledged Loan and related Mortgage, and the Agent has and will have a valid and
perfected and enforceable first priority security interest in such Pledged Loan;
(9) are executed with the genuine original signature of the
Customer(s) obligated on such Pledged Loan, and all parties to it had full legal
capacity to execute it; and
(10) (for Pledged Loans purchased by the Company) were
purchased for fair value and the Company took possession of them in the ordinary
course of its business, without knowledge that the Pledged Loan was subject to
any security interest other than the Lien of the Agent, as agent, bailee and
secured party for the Lenders; the Company has not sold, assigned or pledged any
of such Pledged Loans to any person and the Company has good and marketable
title to them free and clear of any encumbrance, equity, loan, pledge, charge,
claim or security interest other than the Agent's Lien, and is the sole owner
thereof with full right to pledge them to the Agent.
(e) As to each Pledged Loan and its Loan Papers:
(1) the Company has not waived any default, breach, violation
or event permitting acceleration except payment delinquencies that have not been
outstanding long enough to cause the Pledged Loan to be In Default; as of the
Effective Date, the related residential real property is, to the best of the
Company's knowledge, free of damage and in good repair and no such residential
real estate has suffered hurricane or earthquake damage that is not covered by a
Hazard Insurance Policy;
(2) as of the Effective Date, to the best of the Company's
knowledge, no liens or claims which have been filed for work, labor or materials
affecting the related real property which are or may be prior or equal in
priority to the Lien of the Pledged Loan;
(3) the Loan Papers contain customary and enforceable
provisions so as to render the rights and remedies of their holder adequate for
the realization against the collateral for the Pledged Loan of the benefits of
the security intended to be provided by it;
(4) there is only one original executed Mortgage Note, and
(except in the case of Bridged Loans) that original has been delivered to the
Custodian;
(f) Each Mortgage is a first Lien on the premises and property
described in it and the description in each Mortgage is legally adequate, and,
except as to Holdback Loans, each item of Debt Collateral has been fully
advanced in its face amount.
(g) No default, and no event that with notice or lapse of time or
both would
73
<PAGE> 88
become a default, has occurred and is continuing under any item of Collateral
other than pledged Subprime Single-family Mortgage Loans, and as to each pledged
Subprime Single-family Mortgage Loan, it is not In Default, and the Company will
promptly notify the Agent of any such pledged Subprime Single-family Mortgage
Loan that is In Default.
(h) The Company has complied and will continue to comply with all
Legal Requirements relating to each item of Collateral.
(i) All Hazard Insurance Policies covering the premises encumbered
by each item of Debt Collateral:
(1) name and will continue to name the Company or its Servicer
as the insured under a standard mortgagee clause;
(2) are and will continue to be in full force and effect; and
(3) afford and will continue to afford insurance against fire
and such other risks as are usually insured against in the broad form of
extended coverage insurance from time to time available, as well as insurance
against flood hazards if required by the terms of any applicable private
mortgage insurance or by any applicable Legal Requirement.
(j) Premises securing Debt Collateral and located in a special flood
hazard area designated as such by the Secretary of HUD are and shall continue to
be covered by special flood insurance as required by the National Flood
Insurance Program.
8.17 Survival. All representations and warranties by the Company shall
survive delivery of the Facilities Papers and the making of Advances, and any
investigation at any time made by or on behalf of the Agent or any Lender shall
not diminish the Agent's or such Lender's right to rely on them.
9. AFFIRMATIVE COVENANTS.
The Company agrees that, for so long as the Commitments are outstanding or
any of the Company's obligations remain to be paid or performed under this
Agreement, the Senior Credit Notes or any of the other Facilities Papers, the
Company shall, to the extent applicable:
9.1 Pay Senior Credit Notes. Punctually pay or cause to be paid when due
the principal of, interest on and all other amounts now or hereafter owing under
this Agreement, the Senior Credit Notes and the other Facilities Papers in
accordance with their respective terms.
74
<PAGE> 89
9.2 Financial Statements. Deliver to the Agent and to each of the Lenders:
(a) As soon as available and in any event within forty-five (45)
days after the end of each month, statements of income and changes in its
stockholders' equity and cash flows (and, if applicable, those of its
Subsidiaries, on a consolidated basis) for the month just ended, and the related
balance sheet as at the end of such month, all in reasonable detail, and
certified by its chief financial officer that, to the best of his or her
knowledge, such financial statements were prepared in accordance with GAAP and
present fairly the financial condition and the results of operations and cash
flows for the period covered, subject, however, to year-end audit adjustments
and the omission of notes to the Financial Statements.
(b) As soon as available and in any event within forty-five (45)
days after the close of each of the first three (3) fiscal quarters in each of
its fiscal years, statements of income and changes in its stockholders' equity
and cash flows (and, if applicable, those of its Subsidiaries, on a consolidated
basis) for the period from the beginning of such fiscal year to the end of such
fiscal quarter, and the related balance sheet as at the end of such fiscal
quarter, all in reasonable detail, with all notes and certified by its chief
financial officer that, to the best of his or her knowledge, such financial
statements were prepared in accordance with GAAP and present fairly the
financial condition and the results of operations and cash flows for the period
covered, subject, however, to year-end audit adjustments and the omission of
notes to the Financial Statements.
(c) As soon as available and in any event within ninety (90) days
after the close of each of its fiscal years, statements of income, changes in
its stockholder's equity and cash flows (and, if applicable, those of its
Subsidiaries, on a consolidated basis) for such year, and the related balance
sheet as at the end of such year (setting forth in comparative form the
corresponding figures for the preceding fiscal year), all in reasonable detail,
prepared in accordance with GAAP and with all notes, and accompanied by:
(1) a report and opinion of an accounting firm reasonably
satisfactory to the Agent, or other independent certified public accountants of
recognized standing selected by it and acceptable to the Agent, stating that
such accountants have conducted audits of such financial statements in
accordance with generally accepted auditing standards and that, in their
opinion, such financial statements present fairly, in all material respects, the
financial position of the Company (as applicable) as of the date thereof and the
results of its operations and cash flows for the periods covered thereby in
conformity with GAAP;
(2) if applicable, a report and opinion of a firm of
independent public accountants that is a member of the American Institute of
Certified Public Accountants, stating that such firm has examined selected
documents and records relating to the servicing of Mortgage Loans, including the
Pledged Loans covered by this Agreement, in accordance with the Mortgage Bankers
Association of America's Uniform Single Audit Program for Mortgage Bankers, or
any successor uniform program, and that, on the basis of such examination, such
servicing has been
75
<PAGE> 90
conducted in compliance with the minimum servicing standards identified therein,
except for such significant exceptions or errors in records that, in the opinion
of such firm, generally accepted auditing standards requires it to report (the
Company will use reasonable efforts to obtain such a report and opinion in
respect of each subservicer for the Company and will furnish those obtained to
the Agent); and
(3) a certificate signed by the chief financial officer of the
Company, as applicable, stating that said financial statements fairly present
its financial condition and results of operations (and, if applicable, those of
its Subsidiaries) as at the end of, and for, such year.
The Company also agrees to provide to the Agent such other information related
to such annual reports as the Agent may from time to time reasonably request.
(d) Together with each of the monthly, quarterly and annual
financial statements required by SECTIONS 9.2(a), 9.2(b), 9.3 and 9.2(c) above,
a certificate of the Company's chief financial officer (i) setting forth in
reasonable detail all calculations necessary to show that the Company is in
compliance with the requirements of SECTIONS 10.5 and 10.6 of this Agreement or,
if the Company is not in compliance, showing the extent of noncompliance and
specifying the period of noncompliance and what actions the Company proposes to
take with respect thereto and (ii) stating that the terms of this Agreement have
been reviewed by such officer or under his or her supervision, and that he or
she has made or caused to be made under his or her supervision, a review in
reasonable detail of the transactions and the condition of the Company during
the accounting period covered by such financial statements and that such review
does not disclose the existence during or at the end of such accounting period
- -- and that such chief financial officer does not have knowledge of the
existence as of the date of the Officer's Certificate -- of any Event of Default
or Default or, if any Event of Default or Default existed or exists, specifying
the nature and period of its existence and what action the Company has taken, is
taking and proposes to take with respect to it. Each such Officer's Certificate
shall show, in reasonable detail, the computations supporting compliance (or
showing noncompliance) with the provisions of SECTIONS 10.5 and 10.6. EXHIBIT E
is a sample form for showing such computations.
9.3 Financial Statements Will be Accurate. All financial statements and
reports of auditors furnished to the Lenders and the Agent hereunder shall be
prepared in accordance with GAAP, applied on a basis consistent with that
applied in preparing the financial statements as at, and for the period then
ended (except to the extent otherwise required to conform to good accounting
practice), subject, however -- for financial statements other than year-end
statements -- to year-end audit adjustments and the omission of notes to the
Financial Statements.
9.4 Other Reports. The Company will promptly furnish to the Agent (for
distribution to the Lenders) from time to time information regarding the
business and affairs of the Company, including the following and such other
information as the Agent may from time to time reasonably request:
76
<PAGE> 91
(a) A copy of each new Purchase Commitment promptly after its
receipt by the Company (the details of which the Agent will maintain in a
confidential file to which the other Lenders shall not have access unless an
Event of Default occurs that the Agent has not declared in writing to have been
cured or waived).
(b) A report of Debt Collateral prepaid in full, on or before two
(2) Business Days after prepayment of any one or more items of Debt Collateral
is reported to the Company internally or by any Servicer (and the Company, as
applicable, will require each such Servicer to promptly make such reports to the
Company, as applicable).
(c) Weekly, a hedging coverage report showing, in reasonable detail
and in form and substance acceptable to and approved by the Company and the
Agent, the Company's hedging coverage of (i) all Pledged Loans and (ii) all
Mortgage Loans then committed to be funded or purchased by the Company.
(d) Monthly, a report summarizing notices received by the Company
requesting or demanding that the Company repurchase (or pay indemnity or other
compensation in respect of) Mortgage Loans previously sold or otherwise disposed
of by the Company to any investor or other Person pursuant to any express or
implied repurchase or indemnity obligation (whether absolute or contingent and
whether or not the Company is contesting or intends to contest the request or
demand).
(e) Monthly, a delinquent mortgage loan report listing Debt
Collateral (categorized as being in either the Warehouse Subline or the
Recoveries Subline, as the case may be) that is (i) In Default and categorized
by age of delinquency for 30, 60, 90 and 120 or more days, (ii) in foreclosure
or (iii) in bankruptcy.
(f) Monthly, a delinquent mortgage loan report listing Serviced
Loans (i) in default for thirty (30) days or more and categorized by age of
delinquency for 30, 60, 90 and 120 or more days, (ii) in foreclosure or (iii) in
bankruptcy.
(g) Monthly, mortgage loan production reports reflecting the
Company's monthly mortgage loan production and acquisition volumes, as well as
its mortgage loan pipeline.
(h) Monthly, a Pledged Loans Curtailment Report for each type of
Debt Collateral (categorized by its related Subline).
(i) Quarterly, copies of any changed pages to the Company
Underwriting Guidelines to update the copies of the Company Underwriting
Guidelines furnished to the Agent before, on or about the Effective Date (and
which are described in Schedule UG-SSF.)
77
<PAGE> 92
(j) Such other reports by the Company in respect of the Collateral,
in such detail and at such times as the Agent in its reasonable discretion or at
the reasonable direction of a Lender may request at any time or from time to
time.
(k) As soon as available and in any event within ten (10) days of
the date distributed, copies of all definitive prospectuses relating to (i) any
security offerings by the Company or any of its Subsidiaries (including
single-purpose finance Subsidiaries) or (ii) any securities to be based on,
backed by or created from any Collateral and to be offered by the Company or any
of its Subsidiaries.
(l) As soon as available and in any event within ten (10) days after
filing, copies of (ii) all press releases issued by the Guarantor, the Company
or any of its Subsidiaries, (ii) all regular or periodic financial reports, and
copies of all extraordinary or non-routine filings, if any, that shall be filed
with the U.S. Securities and Exchange Commission or any successor agency by or
on behalf of the Guarantor, the Company or any of its Subsidiaries (including
single-purpose finance Subsidiaries) and (iii) all such filings relating to any
securities that are or are to be based on, backed by or created from any
Collateral and which filings are made by or in respect of the Company or any of
its Subsidiaries.
9.5 Maintain Existence and Statuses; Conduct of Business. Preserve and
maintain its corporate existence in good standing and all of its rights,
privileges, licenses and franchises necessary or desirable in the normal conduct
of its business except where the failure to maintain such rights, privileges,
licenses or franchises would not have a material adverse effect on any of the
Central Elements in respect of the Company, and conduct the business of the
Company in an orderly and efficient manner and remain in the residential
mortgage business as its principal and core business.
9.6 Hedge Investments in Mortgage Loans. Maintain a prudent hedge position
in respect of Pledged Loans and Mortgage Loans that the Company is committed to
purchase as reflected on the Company's most current hedge position reports,
which the Company agrees to provide to the Agent, in form, substance and detail
reasonably satisfactory to the Agent.
9.7 Compliance with Applicable Laws. Comply with all applicable Legal
Requirements, the breach of which could materially adversely affect any of the
Central Elements, except where contested in good faith and by appropriate
proceedings and where reserves adequate (in accordance with GAAP) in the
judgment of its board of directors have been set aside on its books.
9.8 Inspection of Properties and Books; Protection of Proprietary
Information. Permit authorized representatives of the Agent to discuss its
business, operations, assets and financial condition and its Subsidiaries with
their officers, employees and independent accountants and to examine their books
of account and make copies or extracts of them, all at such reasonable times
78
<PAGE> 93
as the Agent may request. The Agent will notify the Company before the Agent
contacts its accountants and the Company may have a representative in attendance
at any meetings between the officers or other representatives of the Agent and
such accountants held in accordance with this authorization. The Agent and the
Lenders agree that, until the occurrence of a Default, they will take reasonable
steps to prevent disclosure to third parties of any proprietary information
obtained from any such inspections and discussions or from any financial
statements or reports furnished by the Company to the Agent or the Lenders
pursuant to this Agreement; provided that this restriction shall not apply to
information that (i) at the time in question has already entered the public
domain, (ii) is required to be disclosed by any Legal Requirement (including
pursuant to any examination, inspection or investigation by any Governmental
Authority having regulatory jurisdiction over the Agent or a Lender) or (iii) is
furnished by the Agent or any Lender to purchasers or prospective purchasers of
participations or interests in the Obligations or any Senior Credit Note so long
as such purchasers and prospective purchasers have agreed to be subject to
restrictions substantially identical to those contained in this sentence.
9.9 Notice of Suits, Etc. and Notice and Approval of Proposed Servicing
Transfers. Give prompt written notice to the Agent of:
(a) any material action, suit or proceeding instituted by or against
the Company or any of its Subsidiaries or the Guarantor in any federal or state
court or before any commission, regulatory body or Governmental Authority or if
any such proceedings are threatened against the Company or any of its
Subsidiaries or the Guarantor, in a writing containing the applicable details;
(b) the filing, recording or assessment of any material federal,
state or local tax lien against the Company, any of its Subsidiaries or the
Guarantor or any assets of any of them;
(c) the occurrence of any Event of Default hereunder;
(d) the occurrence of any Default which continues for five (5) days;
(e) the transfer or loss of any Servicing Agreement that relates to
any Pledged Loans and to which the Company is a party, or which is for the
Company's benefit, and the reason for such transfer or loss, if known to the
Company; provided that no such notice to the Agent shall be required in respect
of transfer of any Servicing Agreement resulting from the Company's sale of
Mortgage Loans on a servicing-released basis and in the ordinary course of its
business; and
(f) the occurrence of (i) any event which, with or without notice or
lapse of time or both, would constitute a default under any other agreement,
instrument or indenture to which the Company or any or its Subsidiaries or the
Guarantor is a party or to which any of them or any of their properties or
assets may be subject which may lead to or result in a material
79
<PAGE> 94
adverse effect on any of the Central Elements in respect of the Company or the
Guarantor, or (ii) any other action, event or condition of any nature which may
lead to or result in such an effect.
To the extent the Company has approval rights concerning transfers of any
Servicing Agreement relating to any Pledged Loans, it agrees not to approve or
acquiesce in any transfer of such servicing to a Servicer that has not been
approved by the Agent.
9.10 Payment of Taxes, etc. Pay and discharge or cause to be paid and
discharged promptly all taxes, assessments and governmental charges or levies
imposed upon it or its Subsidiaries or upon their respective income, receipts or
properties before they become past due, as well as all lawful claims for labor,
materials and supplies or other things which, if unpaid, could reasonably be
expected to become (or result in the placement of) a Lien or charge upon any
part of such properties; provided that it and its affected Subsidiaries shall
not be required to pay taxes, assessments or governmental charges or levies or
claims for labor, materials or supplies that are being contested in good faith
and by proper proceedings being reasonably and diligently pursued, execution or
enforcement of which has been effectively stayed (by the posting of a bond or
other security sufficient to achieve that result, or by any other fully
effective means), and for which reserves determined to be adequate (in
accordance with GAAP in all material respects) by its -- or its affected
Subsidiary's -- board of directors have been set aside on its books.
9.11 Insurance. Maintain liability insurance protecting the Company and
fire and other hazard insurance on its respective properties from which it
conducts its business, with responsible insurance companies, in such amounts and
against such risks as is customarily carried by similar businesses operating in
the same vicinity. Cause the Servicers of its Mortgage Loans to maintain -- and
if and after the Company itself first begins servicing Mortgage Loans for
others, maintain for itself -- errors and omissions insurance and blanket bond
coverage, with such companies and in such amounts as satisfy prevailing
requirements applicable to a qualified mortgage originating institution. Copies
of such policies shall be furnished to the Agent without charge upon the Agent's
request made from time to time and without cost to the Agent.
9.12 Subordination of Certain Indebtedness. Cause any and all debt and
obligations of the Company to any Affiliate of the Company, any Subsidiary of
the Company or any shareholder, director or officer of the Company or any other
Affiliate of the Company or any Subsidiary of the Company -- excluding
obligations for officer or employee salary, bonuses or other compensation and
also excluding those items of Debt (if any) listed in SCHEDULE 7.1(b) -- to be
Subordinated Debt, as defined in this Agreement, by the execution and delivery
by such Affiliate to the Agent of a Subordination Agreement in the form of
EXHIBIT C and the taking of all other steps (if any) required to cause such Debt
to be Subordinated Debt, as defined in this Agreement, and deliver to the Agent
an executed copy of that Subordination Agreement, certified by the corporate
secretary of the Company, as applicable, to be true and complete and in full
force and effect, as to all such present and future debts and obligations of the
Company except only those specifically excluded in SCHEDULE 7.1(b).
80
<PAGE> 95
9.13 Payment and Performance of Other Loan Obligations. Pay and perform in
all material respects all of its obligations which alone or in the aggregate
exceed One Million Dollars ($1,000,000), and cause all of its Subsidiaries'
material obligations to be paid and performed, promptly and in accordance in all
material respects with their terms, under the terms of each loan agreement,
bill, note, bond, mortgage, security agreement, indenture or debt instrument by
which it is bound or to which any of its property is subject, and promptly
notify the Agent in writing of the cancellation or reduction of any of its lines
of credit or agreements with any other lender or financial institution, or with
any Affiliate.
9.14 Maintain Priority and Perfection of Lender's Lien. Do such things as
applicable law requires to maintain the Lender's Lien on the Collateral as a
perfected first priority Lien at all times.
9.15 Use of Proceeds of Advances. Use the proceeds of each Advance solely
for the applicable purpose stated in SECTION 2.4 and for no other purpose.
9.16 Promptly Correct Escrow Imbalances. By no later than seven (7)
Business Days after learning (from any source) of any material imbalance in any
escrow account(s) maintained by the Company (or any subservicer for it), the
Company will fully and completely correct and eliminate such imbalance.
9.17 Special Affirmative Covenants Concerning Collateral.
(a) Until all of the Obligations shall have been fully paid and
satisfied and the Lenders have no obligation to lend or provide any other
financial accommodations to the Company under or in anywise in respect of this
Agreement, the Company warrants and will defend the right, title and interest of
the Agent in and to the Collateral against the claims and demands of all persons
whomsoever.
(b) The Company will ensure that the residential real estate
securing each Pledged Loan is continuously insured against casualty loss as
follows:
(1) the Company shall cause to be maintained with respect to
each Pledged Mortgage, one or more Hazard Insurance Policies which provide, at a
minimum, the same coverage as a standard form fire and extended coverage
insurance policy that is customarily required by other creditors for residential
real estate located in the same general geographic area and State that secures
that Pledged Mortgage, issued by a company authorized to issue such policies in
the state in which the related residential real estate is located and in an
amount not less than (x) the maximum insurable value of the improvements to such
residential real estate or (y) the principal balance due from the Customer(s)
under the related Pledged Loan, whichever is less; provided that the amount of
coverage provided by each Hazard Insurance Policy shall be sufficient
81
<PAGE> 96
to avoid the application of any coinsurance clause for partial losses, although
such Hazard Insurance Policies may provide for customary deductible amounts.
Each Hazard Insurance Policy shall contain a standard loss payee clause in favor
of the Company and its successors and assigns. If any Customer obligated on any
Pledged Loan fails to pay any premiums on the Hazard Insurance Policy for the
related property, the Company shall pay such premiums out of its own funds and
may separately add the amount so paid to the relevant Customer's obligation as
provided by the Mortgage Loan papers, but shall not add that amount to the
remaining principal balance of the Pledged Loan ; and
(2) the Company may, in lieu of causing individual Hazard
Insurance Policies to be maintained with respect to each residential property
pursuant to SECTION 9.17(B)(1), and shall, to the extent that the related Loan
Papers do not require the Customer(s) obligated on them to maintain a Hazard
Insurance Policy with respect to the related real property , maintain one or
more blanket insurance policies covering losses on the Company's interest in the
Pledged Loans resulting from the absence or insufficiency of individual Hazard
Insurance Policies. Any such blanket policy shall be in the form and the amount
as shall be satisfactory to the Agent. The Company shall pay the premium for
such policy on the basis described therein and shall pay from its own funds any
deductible amount with respect to claims under such blanket insurance policy
relating to the Pledged Loans. However, the Company shall not be required to
deposit any deductible amount with respect to claims under individual Hazard
Insurance Policies maintained pursuant to SECTION 9.17(b)(1). If the insurer
under such blanket insurance policy shall cease to be acceptable to the Company,
the Company shall exercise its best reasonable efforts to obtain from another
insurer a replacement policy comparable to such policy.
(c) The Company agrees to use its best efforts to cause each of its
Servicers to -- and from and after the time when the Company begins actually
servicing Mortgage Loans for others, the Company itself shall -- keep in force
throughout the term of this Agreement (i) a policy or policies of insurance
covering errors and omissions for failure to maintain insurance as required by
this Agreement and (ii) a fidelity bond. Each such policy and fidelity bond
shall be in such form and amount as is generally customary among Persons who
service a portfolio of Mortgage Loans having an aggregate principal amount
comparable to that of the servicing portfolio of such Servicer or the Company,
respectively, and which are generally regarded as servicers acceptable to
institutional investors.
(d) The Company shall execute and deliver to the Agent such UCC
financing statements and continuation statements and shall make or cause to be
made by any Person such book entries and control agreements with respect to the
Collateral as the Agent may reasonably request from time to time to perfect or
continue perfection of the security interests granted or required to be granted
to the Agent (for itself as a Lender and as agent for the other Lenders)
pursuant to this Agreement. The Company shall also execute and deliver to the
Agent such further instruments of sale, pledge or assignment or transfer, and
such powers of attorney, as shall be reasonably required by the Agent from time
to time, and shall do and perform all matters and
82
<PAGE> 97
things necessary or desirable to be done or observed, for the purpose of
effectively creating, maintaining and preserving the security and benefits
intended to be afforded the Lenders and the Agent under this Agreement, the
Senior Credit Notes, the Custody Agreement and the other Facilities Papers. The
Agent shall have all the rights and remedies of a secured party (for itself as a
Lender and as agent for the other Lenders) under the UCC of the State of Texas
and any other applicable law, in addition to all rights provided for in this
Agreement or the Custody Agreement.
(e) As soon as they become available, the Company will assemble and
deliver to the Custodian all Basic Loan Papers relating to Bridged Loans.
Without limitation of the foregoing, if original recordation receipts evidencing
the recordation of the Mortgage and Mortgage Assignment included in the Pledged
Loans have not previously been delivered to the Custodian, the Company will
promptly deliver (or cause to be delivered) to the Custodian, either the
original recordation receipts or the original recorded Mortgage or Mortgage
Assignment showing the recordation data thereon.
(f) The Company shall maintain, at its principal office or in a
regional office not disapproved by the Agent, or in the office of a computer
service bureau engaged by the Company and not disapproved by the Agent, and upon
request shall make available to the Agent (or the Custodian, if the Agent ever
ceases to be Custodian) the originals of all Mortgage Loan Documents and related
instruments, and all files, surveys, certificate, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting records and other information
and data relating to the Collateral that are held by or under the direction or
control of the Company or any of its Affiliates and that have not already been
provided to the Agent or the Custodian.
10. NEGATIVE COVENANTS.
The Company agrees that, for so long as the Commitments are outstanding or
any of the Company's obligations remain to be paid or performed under this
Agreement, the Senior Credit Notes (including the Swing Line Note) or any of the
other Facilities Papers, the Company shall not, either directly or indirectly,
without the prior written consent of the Agent:
10.1 Contingent Liabilities. Assume, guarantee, endorse, or otherwise
become liable for the Debt or other obligation of any Person or entity except
(a) by endorsement of negotiable instruments for deposit or collection in the
ordinary course of business and (b) under the Company's existing contingent
liabilities described on SCHEDULE 10.1.
10.2 Merger; Sale of Assets; Acquisitions. Liquidate, dissolve, sell
assets, consolidate or merge, nor acquire substantially all of the assets of any
other Person, unless:
(a) (i) in the case of a consolidation or merger, it is with a
mortgage company and the Company is the survivor or (ii) in the case of an
acquisition, it is of assets or securities
83
<PAGE> 98
to be used by the Company in the direct prosecution of its core mortgage company
business, or, if it is not, such acquisition will not cost the Company more than
twenty-five percent (25%) of the Company's Tangible Net Worth; and
(b) after giving effect to such a sale, consolidation, merger or
acquisition, no Default or Event of Default would exist under this Agreement or
any of the other Facilities Papers.
10.3 Deferral of Subordinated Debt. Pay in advance of its stated maturity
any Subordinated Debt of the Company, prepay any scheduled installment thereon
(for any term loans) or, if a Default or an Event of Default under this
Agreement shall have occurred, thereafter make any payment of any kind or
through any direct or indirect means or method on such Subordinated Debt unless
and until either (a) every Default (if any) which has occurred has been cured by
the Company or waived in writing by the Agent before becoming an Event of
Default and the Agent shall have declared in a writing signed by a Senior Vice
President or more senior officer of the Agent that all Events of Default (if
any) which have occurred have been duly cured or waived or (b) all of the
Obligations have been paid and performed in full.
10.4 Limitations on Debt. Create, incur, suffer or permit to exist, or
assume or guarantee, either directly or indirectly, or otherwise become or
remain liable with respect to, any Debt (whether under repurchase agreements or
otherwise), whether direct, indirect, absolute, contingent or otherwise, except
the following (without duplication):
(a) Debt to the Lenders and the Agent pursuant to this Agreement
(including Swing Line Debt to Texas Commerce);
(b) Other warehouse financing Debt to Texas Commerce of up to Fifty
Million Dollars ($50,000,000) to the extent (if any) that Texas Commerce may
from time to time elect to make other warehouse financing facilities available
to the Company;
(c) Debt for taxes (including payroll taxes), assessments,
governmental charges and levies to the extent that payment is not due at the
time, including Debt for deferred taxes arising from capitalized excess service
fees;
(d) unsecured accounts payable, not the result of borrowing of
money, to vendors, suppliers and persons providing services, for expenditures
for goods and services normally required by it in the ordinary course of
business and on ordinary trade terms;
(e) Debt of up to Ten Million Dollars ($10,000,000) secured by the
Company's real estate, furniture, fixtures or equipment whose current fair
market value exceeds the amount of the Debt it secures;
84
<PAGE> 99
(f) Debt secured by the Company's investment grade marketable
securities the whose current fair market value exceeds the amount of the Debt
they secure;
(g) unsecured Debt that is:
(1) to the Company's officers and employees for salary,
bonuses or other compensation;
(2) to the Company's Affiliates, Subsidiaries or any of their
respective directors or officers and that is subordinated pursuant to SECTION
9.12;
(3) incurred in the ordinary course of business pursuant to
Servicing Agreements, information service contracts or other contractual
agreements between the Company and any subservicer, information services
provider or other vendor or provider of goods or services, under any agreement
that has been approved by the Agent on or before the Company's execution and
delivery of this Agreement.
(4) to third parties, incurred in the ordinary course of
business and less than Two Million Dollars ($2,000,000) in the aggregate;
(5) Subordinated Debt with a final maturity date later than
the Maturity Date;
(6) described in the attached SCHEDULE 10.4(g)(6); or
(7) incurred after the Effective Date to one or more third
parties and for which details concerning the identity of such Debt's holder, its
amount, interest rate, payment schedule and any other relevant information
requested by the Agent (which, if requested, shall include copies of all its
loan papers) shall have been furnished to the Agent and which shall have been
specifically approved in writing by the Agent; or
(8) wholly nonrecourse to the Company or any of its
Subsidiaries (whether under repurchase agreements or otherwise).
10.5 The Company's Debt to Tangible Net Worth Ratio. Permit the ratio of
Debt (excluding nonrecourse Debt whether under repurchase agreements or
otherwise) to Tangible Net Worth of the Company and its Subsidiaries, on a
consolidated basis, to exceed 9:1 as at the end of any calendar month or any of
the Company's fiscal quarters or fiscal years.
10.6 The Company's Minimum Tangible Net Worth. On any day, permit the
Tangible Net Worth of the Company (on a consolidated basis with its
Subsidiaries) to be less than the greater of (x) Twenty-five Million Dollars
($25,000,000) or (y) the sum of Twenty-five Million
85
<PAGE> 100
Dollars ($25,000,000) plus twenty-five percent (25%) of the Company's cumulative
positive net income (i.e., specifically excluding any intervening net losses)
from the Effective Date to the date of determination of Tangible Net Worth for
purposes of this covenant.
10.7 Advances to Affiliates. Make loans or advances to an Affiliate or
Subsidiary except:
(a) loans or advances up to an aggregate principal amount of Five
Million Dollars ($5,000,000) -- or such greater amount, if any, as shall from
time to time be approved by the Majority Banks -- for any purpose; and
(b) loans or advances to the Guarantor to fund executive or employee
compensation.
10.8 Serviced Loans Portfolio Delinquencies Level. Suffer or permit
Serviced Loans having aggregate principal balances of more than twelve percent
(12%) of the sum of the principal balances of the Company's Serviced Loans
portfolio to be In Default for more than thirty-one (31) consecutive days.
10.9 Special Negative Covenants Concerning Collateral and Underwriting
Guidelines.
(a) Except to correct errors or omissions in Loan Papers, without
the written consent of the Agent given on a case-by-case basis, the Company
shall not amend or modify, or waive any of the terms and conditions of any
Pledged Loans, or settle or compromise any claim in respect of them, or accept
other than cash or the exchange of comparable Debt Collateral (which are
concurrently Pledged to the Agent by the Company) in liquidation of any Pledged
Loans; provided that this covenant shall not apply to Recoveries Collateral;.
(b) The Company will not create, incur, grant, assume or suffer to
exist any Lien on any of the Collateral, other than in favor of the Agent
pursuant to this Agreement.
(c) The Company will not make any material change in the Company
Underwriting Guidelines without first providing a copy of the proposed change to
the Agent, or if the Agent shall give the Company a written notice objecting to
such proposed change and summarizing the reason or reasons for the Agent's
objection on or before ten (10) days after receiving a copy of the proposed
change.
11. DEFAULTS AND REMEDIES.
11.1 Events of Default. The occurrence of any of the following conditions
or events shall be an Event of Default.
86
<PAGE> 101
(a) Failure by the Company to pay the principal of any Advance when
due pursuant to this Agreement or any Senior Credit Note, whether such Advance
has become due because the Maturity Date has occurred through lapse of time or
acceleration or by operation of another provision of this Agreement or the
Senior Credit Notes; or failure by the Company to pay any installment of
interest on any Advance or any other amount owing under this Agreement on or
before five (5) days after the due date of such interest.
(b) Failure of the Company or any of its Subsidiaries to pay any
other Debt when due, or any default in the payment when due of any principal or
interest on any other Debt or in the payment when due of any contingent
obligation (other than nonrecourse Structured Securities Debt of any Subsidiary
formed for the purpose of issuing such Debt) if such default continues beyond
any period of grace provided under the papers evidencing such obligation; or
breach or default with respect to any other material term of any other debt or
of any promissory note, bond, loan agreement, reimbursement agreement, mortgage,
indenture or other agreement relating thereto, if the effect of any such
failure, default or breach referred to in this SECTION 11.1(B) is to cause, or
to permit the holder or holders of such obligation (or a trustee on behalf of
such holder or holders) to cause, debt of the Company or any of its Subsidiaries
in the aggregate amount of One Million Dollars ($1,000,000) or more to become or
be declared due before its stated maturity.
(c) Failure of the Company to perform or comply with any term or
condition applicable to it contained in any of SECTIONS 9.5, 9.15, 9.16, 9.17(a)
or 10 of this Agreement or to pay timely the Commitment Fee pursuant to SECTION
5.6, the Agent's Fees pursuant to SECTION 5.7, the Custodian's Fee under the
Custody Agreement or any other fees under this Agreement or any other Facilities
Papers.
(d) Any of the Company's representations or warranties made in any
of the Facilities Papers or in any statement or certificate at any time given by
the Company in writing pursuant to this Agreement, the Custody Agreement or any
of the other Facilities Papers or in connection with any of the Facilities
Papers shall be false or misleading in any material respect on the date as of
which made or shall omit to state any information necessary to make the
representations and warranties not materially misleading; provided that if any
of the Company's representations in SECTION 8.16 (titled "Special
Representations Concerning Collateral") for any reason shall be (or shall prove
to have been) untrue or incorrect, then such untruth or incorrectness shall not
constitute a Default or an Event of Default -- although, as provided in the
definition thereof, such untruth or incorrectness will be a Disqualifying Event
for all affected items of Collateral, which will each thereupon have zero
Collateral Value -- unless such untrue or incorrect representation relates to
ten (10) or more Pledged Mortgages, receivables or other items of Collateral and
was made knowingly and willfully by (or at the direction of) a Vice President or
more senior officer of the Company with the intent or for the purpose of
misleading or deceiving the Agent, the Lenders or all of them, in which event
the making of such false representation will constitute an Event of Default.
87
<PAGE> 102
(e) The Company shall default in the performance of or compliance
with any term contained in this Agreement or any of the Facilities Papers other
than those referred to above in SECTIONS 11.1(a), 11.1(c) or 11.1(d) or shall
default in the performance of or compliance with any term applicable to it
contained in the Custody Agreement and such default shall not have been remedied
or waived on or before thirty (30) days after receipt of notice from the Agent
of such default.
(f) Any of the following occurs:
(1) a court having jurisdiction shall enter a decree or order
of relief in respect of the Company or any of its Subsidiaries, or the
Guarantor, in an involuntary case under any applicable bankruptcy, insolvency or
other similar federal or state law now or hereafter in effect, which decree or
order is not stayed;
(2) a decree or order of a court having jurisdiction for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over the Company or any of its Subsidiaries, or
the Guarantor, or over all or a substantial part of their respective property,
shall have been entered;
(3) an involuntary appointment shall be made by a court of
competent jurisdiction of an interim receiver, trustee or other custodian of the
Company or any of its Subsidiaries, or the Guarantor, for all or a substantial
part of their respective property; or
(4) a warrant of attachment, execution or similar process
against any substantial part of the property of the Company or any of its
Subsidiaries , or the Guarantor, shall have been issued;
if any such decree, order, appointment or warrant shall not be dismissed, bonded
off or discharged on or before sixty (60) days after it first takes effect;
provided that this Section shall not be applicable in the case of a Subsidiary
formed for the limited purpose of issuing Structured Securities that becomes the
subject of any such decree, order of relief, case, appointment or warrant if on
or before thirty (30) days after such a decree, order, appointment or warrant is
entered or such a case is commenced, the Company delivers to the Agent a current
letter addressed to the Agent and the Lenders from a reputable broker-dealer
acceptable to and approved by all of the Lenders that such broker-dealer will
continue to underwrite mortgage-backed securities based on and backed by Pledged
Loans notwithstanding such decree, order, case, appointment or warrant or the
pendency of the related proceedings -- this proviso is called the "UNDERWRITER'S
EXCUSE PROVISO".
(g) The Company or -- also subject to the Underwriter's Excuse
Proviso, applicable to single-purpose finance Subsidiaries only -- any of its
Subsidiaries, or the Guarantor,
88
<PAGE> 103
shall have an order for relief entered with respect to it or commence a
voluntary case under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or shall consent to the entry of an order for relief
in an involuntary case, or to the conversion to an involuntary case, under any
such law, or shall consent to the appointment of or taking possession by a
receiver, trustee or other custodian for all or a substantial part of its
property; the making by the Company or any of its Subsidiaries or the Guarantor
of any assignment for the benefit of creditors; or the inability or failure of
the Company or any of its Subsidiaries or the Guarantor, or the admission by the
Company or any of its Subsidiaries or the Guarantor in writing of its inability,
to pay its debts as such debts become due.
(h) The Company shall take or omit to take any act (i) that would
result in the suspension or loss of any of its statuses, once achieved -- or any
of such statuses of its subservicer, in any, of any GNMA, FNMA or FHLMC Mortgage
Loans pools for which the Company is Servicer -- as an FHA- and VA-approved
lender and mortgagee and a GNMA-, FNMA- and FHLMC-approved issuer and servicer,
or (ii) after which the Company or any such relevant subservicer would no longer
be in good standing as such, or (iii) after which the Company or any such
relevant subservicer would no longer currently satisfy all applicable GNMA, FNMA
and FHLMC net worth requirements, if both (x) all of the material effects of
such act or omission shall have not been cured by the Company or waived by the
relevant Person (GNMA, FNMA or FHLMC) before termination of such status and (y)
it could reasonably be expected to have a material adverse effect on any of the
Central Elements relative to the Company.
(i) The Company's rights to service Mortgage Loans for any investor
under a Servicing Agreement the value of which rights to the Company (as
reasonably estimated by the Agent) equals or exceeds Twenty-five Million Dollars
($25,000,000) shall be terminated for cause (i.e., on account of act(s) or
omission(s) by the Company for which the holder (or a trustee for the holder) of
the relevant Serviced Loans has the right under such Servicing Agreement to
terminate such Servicing Rights.
(j) Any money judgment, writ or warrant of attachment, or similar
process involving in any case an amount in excess of Two Hundred Fifty Thousand
Dollars ($250,000) shall be entered or filed against the Company or any of its
Subsidiaries, or the Guarantor, or any of their respective assets and shall
remain undischarged, unvacated, unbonded or unstayed for a period of thirty (30)
days or in any event later than five (5) days before the date of any proposed
sale thereunder.
(k) Any order, judgment or decree shall be entered against the
Company or the Guarantor decreeing the dissolution or split up of the Company or
the Guarantor, and such order shall remain undischarged or unstayed for a period
in excess of sixty (60) days or in any event later than five (5) days before the
date when such order, judgment or decree shall become final and nonapplicable,
or if the Company or the Guarantor, as applicable, shall not be diligently
89
<PAGE> 104
pursuing efforts to have such order discharged, vacated, bonded around or stayed
during that time.
(l) Any Plan maintained by the Company or any of its Subsidiaries or
the Guarantor shall be terminated within the meaning of Title IV of ERISA or a
trustee shall be appointed by an appropriate United States district court to
administer any such Plan, or the Pension Benefit Guaranty Corporation (or any
successor to it) shall institute proceedings to terminate any such Plan or to
appoint a trustee to administer any such Plan if as of the date thereof the
liability of the Company or any of its Subsidiaries or the Guarantor (after
giving effect to the tax consequences thereof) to the Pension Benefit Guaranty
Corporation (or any successor to it) for unfunded guaranteed vested benefits
under such Plan exceeds the then-current value of assets accumulated in such
Plan by more than Two Hundred Fifty Thousand Dollars ($250,000) (or in the case
of a termination involving the Company or any of its Subsidiaries or the
Guarantor as a "substantial employer", as defined in Section 4001(a)(2) of
ERISA, the withdrawing employer's proportionate share of such excess shall
exceed such amount), unless any such termination, trustee appointment or
proceedings is in respect of any Subsidiary's Plan and has no material adverse
effect on any of the Central Elements in respect of the Company, any of its
Subsidiaries or the Guarantor.
(m) The Company or any of its Subsidiaries or the Guarantor as
employer under a Multiemployer Plan shall have made a complete or partial
withdrawal from such Multiemployer Plan and the plan sponsor of such
Multiemployer Plan shall have notified such withdrawing employer that such
employer has incurred a withdrawal liability in an annual amount exceeding Two
Hundred Fifty Thousand Dollars ($250,000), unless any such termination, trustee
appointment or proceedings is in respect of any Subsidiary's Plan and has no
material adverse effect on any of the Central Elements.
(n) A Change of Control shall occur.
(o) The Company shall repudiate or purport to disavow its
obligations under any of the Facilities Papers or shall contest their validity
or enforceability.
(p) The Agent's security interest in any material portion of the
Collateral shall become unperfected, of less than a first priority,
unenforceable or otherwise impaired.
11.2 Release of Guaranty. From and after the time (if ever) that the Agent
shall have declared in writing that the Guaranty has been terminated pursuant to
its provision for termination if the Company's Tangible Net Worth at the end of
any fiscal quarter is at least Fifty Million Dollars ($50,000,000) and if no
Default or Event of Default shall have occurred that has not been declared in
writing by the Agent to have been cured or waived, all references to the
Guarantor in SECTION 11.1 shall be deemed deleted.
90
<PAGE> 105
11.3 Cure or Waiver. If:
(a) an Event of Default shall occur but subsequently the required
number of Lenders shall waive the rights of the Lenders and the Agent to
exercise remedies on account of such Event of Default (whether temporarily or
permanently and whether conditionally or absolutely); provided that neither the
Lenders nor the Agent shall have any obligation to do so; and
(b) The Company shall request in writing that the Agent declare to
have been cured or waived whichever of those events has occurred;
then the Agent shall make such declaration in writing and shall deliver a copy
of the declaration to each of the Company and each Lender.
11.4 Remedies.
(a) If any of the Events of Default described in SECTIONS 11.1(f),
11.1(g), 11.1(k) or 11.1(o) shall occur, then the Commitments shall
automatically terminate and the unpaid principal amount of and accrued interest
on the Senior Credit Notes shall automatically become due and payable, without
presentment, demand or other requirements of any kind, all of which are hereby
expressly waived by the Company, unless all of the Lenders, each acting in its
sole discretion, shall otherwise agree in writing either before or after such
automatic event.
(b) At any time after any Event of Default (other than one of those
described in SECTIONS 11.1(f), 11.1(g), 11.1(k) or 11.1(o), each of which has
the automatic effects described in SECTION 11.4(a)) has occurred that has not
been declared in writing by the Agent to have been cured or waived, the Majority
Lenders, by written notice to the Company (which may be given by the Agent), may
electively (1) terminate the Commitments -- in which event the obligation of the
Lenders to make Advances shall immediately terminate -- and/or (2) declare all
or any portion of the Loan to be due and payable -- in which event that portion
of the Loan, both advanced and unpaid principal and accrued and unpaid interest
on it and all other outstanding amounts, shall immediately be and become due and
payable.
(c) At any time after any Event of Default has occurred which has
not been declared in writing by the Agent to have been cured or waived, the
Agent, with the approval or at the direction of the required number of Lenders,
may also do any of the following:
(1) Foreclose upon or otherwise enforce its security interest
in and Lien on the Collateral, or on such portions or elements of it as the
Agent shall elect to proceed against from time to time.
(2) Notify any or all Servicers (if any) of the Company's
Pledged Loans
91
<PAGE> 106
and, at the Agent's option and in its sole discretion, any or all Customers
obligated under any or all items of Collateral, that the Collateral has been
assigned to the Agent and that all payments thereon are to be made directly to
the Agent or such other Person as may be designated by the Agent; settle,
compromise, or release, in whole or in part, any amounts owing on the Collateral
or any portion of the Collateral, on terms acceptable to the Agent; enforce
payment and performance and prosecute any action or proceeding with respect to
any and all Collateral; and where any such Collateral is in default, foreclose
on and enforce Liens or security interests in, such Collateral by any available
judicial procedure or without judicial process and sell property acquired as a
result of any such foreclosure.
(3) Act, or contract with one or more third Persons to act, as
Servicer of each item of Collateral requiring servicing and perform all
obligations required in connection with any Servicing Agreements to which the
Company is a party, and the Company hereby agrees to pay such third Persons'
fees to the extent (if any) that the Agent is unable, despite reasonable efforts
made by the Agent in light of the necessity that there be no material break in
the continuity of servicing, to contract for such servicing and performance of
such obligations for fees equal to or less than the fees under such Servicing
Agreements.
(4) Exercise all rights and remedies of a secured creditor
under the UCC of the State of Texas and any other relevant State, including
selling the interests of the Company in the Collateral at public or private
sale. The Agent shall give the Company not less than ten (10) days' notice of
any such public sale or of the date after which private sale may be held. The
Company agrees that ten (10) days' notice shall be reasonable notice. At any
such sale any or all of the Collateral may be sold as an entirety or in separate
parts, as the Agent may determine. The Agent may, without notice or publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and such sale
may be made at any time or place to which the same may be so adjourned. The
Agent is authorized at any such sale, if the Agent deems it advisable so to do,
to restrict the prospective bidders or purchasers to Persons who will represent
and agree that they are purchasing the Collateral for their own account for
investment and not with a view to the distribution or resale of any of the
Collateral. The Company specifically agrees that any such sale, whether public
or private, of any Collateral pursuant to the commitment of any investor to
purchase such Collateral that was obtained by (or with the approval of) the
Company will be commercially reasonable, and if such sale is for the price
provided for in such commitment, then such sale shall be held to be for value
reasonably equivalent to the value of the Collateral so sold. Upon any such
sale, the Agent shall have the right to deliver, assign and transfer to the
purchaser thereof the Collateral so sold. Each purchaser at any such sale shall
hold the property sold absolutely free from any claim or right of whatsoever
kind, including any equity or right of redemption, stay or appraisal which the
Company has or may have under any rule of law or statute now existing or
hereafter adopted. In case of any sale of all or any part of the Collateral on
credit or for future delivery, the Collateral so sold may be retained by the
Agent until the selling price is paid by the purchaser, but the Agent shall not
incur any liability in case of such purchaser's failure to take up and pay
92
<PAGE> 107
for the Collateral so sold and, in case of any such failure, such Collateral may
again be sold upon like notice. The Agent may, however, instead of exercising
the power of sale herein conferred upon it, proceed by a suit or suits at law or
in equity to collect all amounts due upon the Collateral or to foreclose the
pledge and sell the Collateral or any portion of it under a judgment or decree
of a court or courts of competent jurisdiction, or both. Nothing in this
Agreement shall be construed as the Company's waiver of -- or agreement to waive
- -- any requirement imposed by applicable law that any sale of the Collateral be
commercially reasonable.
(5) Proceed against the Company on the Senior Credit Notes or
any of them with or without, at the Agent's election, first proceeding against
the Collateral.
(d) Neither the Agent nor any of the Lenders shall incur any
liability as a result of the sale of the Collateral, or any part of it, at any
private sale. The Company hereby waives any claims it may have against the Agent
or the Lenders arising by reason of the fact that the price at which the
Collateral may have been sold at such private sale was less than the price that
might have been obtained at a public sale, less than the price that might have
been obtained had the Collateral been sold pursuant to a purchase commitment for
it obtained by the Company, or less than the aggregate amount of the outstanding
Advances and the unpaid interest accrued on them, even if the Agent accepts the
first offer received and does not offer the Collateral to more than one offeree.
(e) The Company waives any right to require the Agent or any Lender
to (1) proceed against any Person, (2) proceed against or exhaust any of the
Collateral or pursue its rights and remedies as against the Collateral in any
particular order, or (3) pursue any other remedy in its power. Except to the
extent, if any, required by applicable Law, the Agent shall not be required to
take any steps necessary to preserve any rights of the Company against holders
of Mortgages or security interests prior in lien to the Lien of any Mortgage
included in the Collateral, to preserve rights against prior parties or to
preserve rights against other parties to Purchase Commitments or Servicing
Agreements.
(f) The Agent and the Lenders may, but shall not be obligated to,
advance any sums or do any act or thing necessary to uphold and enforce the Lien
and priority of any Mortgage or other Lien instrument included in the Collateral
or the security intended to be afforded by it, including payment of delinquent
taxes or assessments and insurance premiums, or to preserve or reinstate any
hedging arrangements or mechanisms. All advances, charges, costs and expenses,
including reasonable attorneys' fees and disbursements, incurred or paid by the
Agent in exercising any right, power or remedy conferred by this Agreement or
any of the other Facilities Papers, or in its enforcement, together with
interest thereon, at the Stated Rate from the time of demand for its payment
until ten (10) days thereafter, and at the Past Due Rate from ten (10) days
after demand until repaid, shall become a part of principal balance outstanding
under the Senior Credit Notes (Pro Rata with the respective principal balances
of the Senior Credit Notes at the time of expenditure) and shall be secured by
all security for the Senior Credit Notes.
93
<PAGE> 108
(g) No failure on the part of the Agent or any Lender to exercise,
and no delay in exercising, any right, power or remedy provided under any of the
Facilities Papers, at law or in equity shall operate as a waiver of it, nor
shall any single or partial exercise by the Agent or any Lender of any right,
power or remedy provided under any of the Facilities Papers, at law or in equity
preclude any other or further exercise of it or the exercise of any other right,
power or remedy. The remedies herein provided are cumulative and are not
exclusive of any remedies provided at law or in equity.
11.5 Application of Proceeds. The proceeds of any sale or other
enforcement of the Agent's security interest in all or any part of the
Collateral shall be applied by the Agent:
First, to the payment of the costs and expenses of such sale or
enforcement, including reasonable compensation to the Agent's counsel and
agents, and all expenses, liabilities and advances made or incurred by or on
behalf of the Agent in connection therewith;
Second, to the payment of any accrued and unpaid fees and other amounts
due (other than principal and interest) under the Senior Credit Notes, this
Agreement, the Custody Agreement or the other Facilities Papers;
Third, to the payment of interest accrued and unpaid on the Senior Credit
Notes, Pro Rata;
Fourth, to the payment of the outstanding principal balances of the Senior
Credit Notes, Pro Rata; and
Finally, to the payment to the Company, or to its successors or assigns,
or as a court of competent jurisdiction may direct, of the surplus, if any, then
remaining from such proceeds.
If the proceeds of any such sale are insufficient to cover the costs and
expenses of such sale, as aforesaid, and the payment in full of the Senior
Credit Notes and all other amounts due under the Facilities Papers, then the
Company shall remain liable for any deficiency, and shall be obligated to pay it
without notice or demand.
11.6 Agent Appointed Attorney-in-Fact. The Agent is hereby APPOINTED the
attorney-in-fact of the Company, with full power of substitution, for the
purpose of carrying out the provisions of this Agreement and taking any action
and executing any instruments that the Agent may deem necessary or advisable to
accomplish this Agreement's purposes, which appointment as attorney-in-fact is
coupled with an interest and irrevocable for so long as any of the Obligations
or the Commitments are outstanding, although the Agent agrees not to exercise
its rights under this power of attorney unless, in its opinion or the opinion of
its legal counsel, an Event of Default has occurred that has not been declared
in writing by the Agent to have been cured or waived. Without limiting the
generality of the foregoing, the Agent shall have the right
94
<PAGE> 109
and power, either in the name of the Company or both, or in its own name, to (a)
give notices of its security interest as agent, bailee and secured party for the
Lenders in the Collateral to any Person, (b) endorse in blank, to itself or to a
nominee all items of Collateral that are transferable by endorsement and are
payable to the order of the Company and (c) receive, endorse, collect and
receipt for all checks and other orders made payable to the order of the Company
representing any payment of account of the principal of or interest on any
Collateral or their proceeds (including any securities), or the proceeds of sale
of any of the Collateral, or any payment in respect of any hedging arrangement
or device, and to give full discharge for them.
11.7 Right of Setoff. If the Company shall default in the payment when due
and beyond the applicable grace period, if any, of any Senior Credit Note, any
interest accrued thereon, or any other fees or other sums which may become
payable under any of the Facilities Papers, or in the performance of any of its
other obligations or liabilities under this Agreement or the other Facilities
Papers, the Agent and the Lenders shall each have the right, at any time and
from time to time, without notice, to setoff and to appropriate or apply any and
all deposits of money or property or any other indebtedness at any time held or
owing by the Agent or any of the Lenders to or for the credit of the account of
the Company against and on account of the obligations and liabilities of the
Company under the Senior Credit Notes and this Agreement for the ratable benefit
of all Lenders in the proportion that the advanced and unpaid principal balance
at the time of the Senior Credit Note held by each bears to the sum of the
outstanding principal balances of all of the Senior Credit Notes at the time of
the setoff, appropriation or application, irrespective of whether or not the
Agent or any Lender shall have made any demand hereunder and whether or not said
obligations and liabilities shall have matured, provided that such right of
setoff shall not apply to any deposit of escrow monies being held on behalf of
the Customers under Pledged Loans or on behalf of other third Persons that are
not Affiliates of the Company.
12. REIMBURSEMENT OF EXPENSES; INDEMNITY.
The Company agrees to:
12.1 pay all of the Agent's, and up to One Thousand Dollars ($1,000) of
each Lender's, out-of-pocket costs and expenses, including reasonable attorneys'
fees, in connection with the negotiation, documentation, amendment, waiver and
administration of this Agreement, the Senior Credit Notes, the Custody Agreement
and other Facilities Papers;
12.2 pay all of the Agent's and each Lender's, out-of-pocket costs and
expenses, including reasonable attorneys' fees, in connection with the
enforcement of this Agreement, the Senior Credit Notes, the Custody Agreement
and other Facilities Papers and the making and repayment of the Advances and the
payment of interest thereon;
12.3 pay, and hold the Agent, the Lenders and any other owners or holders
of any of the Senior Credit Notes harmless from and against, any and all present
and future stamp,
95
<PAGE> 110
documentary and other similar taxes with respect to the foregoing matters and
save them each harmless from and against any and all liabilities with respect to
or resulting from any delay or omission to pay such taxes;
12.4 pay all of the Agent's Fees and Custodian's Fees under this
Agreement, the Custody Agreement and the other Facilities Papers; and
12.5 indemnify, pay, defend and hold harmless the Agent, each Lender, each
subsequent owner or holder of any of the Senior Credit Notes and any of their
respective officers, directors, employees or agents (the "INDEMNIFIED PARTIES")
from and against the "INDEMNIFIED LIABILITIES", which means any and all claims,
liabilities, obligations, losses, damages, penalties, judgments, suits, costs,
expenses and disbursements (including reasonable attorneys' fees and
disbursements) of any kind whatsoever which may be imposed upon, incurred by or
asserted against any of the Indemnified Parties in any way relating to or
arising out of any of the Facilities Papers or any of the transactions
contemplated thereby to the extent that any such Indemnified Liabilities result
(directly or indirectly) from any claims made, or any actions, suits or
proceedings commenced or threatened, by or on behalf of any creditor (excluding
any of the Indemnified Parties), security holder, shareholder, customer
(including any Person having any dealings of any kind with the Company),
trustee, conservator, receiver, director, officer, employee and/or agent of the
Company acting in such capacity, the Company or any Governmental Authority
(excluding the Federal Reserve Board, the Federal Deposit Insurance Corporation,
the Comptroller of the Currency and any other banking regulatory body or
authority having jurisdiction over the Agent or any Lender that is a bank) or
any other Person; provided that to the extent, if any, that any of such claims,
liabilities, etc. is caused by any Indemnified Party's gross negligence or
willful misconduct, the indemnity payable to that Indemnified Party shall be
equitably and proportionately reduced, ALTHOUGH TO THE FULL EXTENT PERMITTED
UNDER APPLICABLE LAW, SUCH INDEMNITY SHALL NOT BE REDUCED ON ACCOUNT OF SUCH
CLAIMS, LIABILITIES, ETC. TO ANY EXTENT (i) OWED, IN WHOLE OR IN PART, UNDER ANY
CLAIM OR THEORY OF STRICT LIABILITY, OR (ii) CAUSED OR CONTRIBUTED TO BY ANY
INDEMNIFIED PARTY'S SOLE OR CONCURRENT SIMPLE NEGLIGENCE THAT DOES NOT AMOUNT TO
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, IT BEING THE COMPANY'S INTENTION TO
HEREBY INDEMNIFY THE INDEMNIFIED PARTIES AGAINST THEIR OWN SOLE OR CONCURRENT
SIMPLE NEGLIGENCE.
13. RELATIONSHIPS AMONG THE AGENT AND THE LENDERS.
13.1 Agent's Duties. In its capacity as lead lender and servicer of the
Loan and until the Loan is fully paid and satisfied, the Agent shall:
(a) hold the Facilities Papers (other than the Senior Credit Notes,
each of which shall be held by and belong solely to its payee) and (by the
Custodian's holding the Collateral as bailee for the Agent, as agent, bailee and
secured party for the Lenders) the Collateral for the benefit of itself and each
other Lender, and each Lender (including Texas Commerce) shall be deemed to have
an interest in the Facilities Papers (other than the Senior Credit Notes, as
stated
96
<PAGE> 111
above) and the Collateral on any day in proportion to its Pro Rata interest in
the Loan on that day;
(b) send timely bills to the Company for accrued interest, the
Commitment Fee and other sums due and receive all payments of principal,
interest and other sums on account of the Loan or with respect to it;
(c) use reasonable diligence to obtain from the Company and promptly
remit to each Lender such Lender's Pro Rata share of interest, principal and
other sums received by the Agent on account of the Loan or with respect to it,
in accordance with this Agreement;
(d) use reasonable diligence to recover from the Company all
expenses incurred that are reimbursable by the Company, and promptly remit to
each Lender its Pro Rata share (if any) thereof;
(e) enforce the terms of this Agreement, including, with the
approval or at the direction of all of the Lenders, the remedies afforded the
Lenders pursuant to SECTION 11.4(C); and
(f) hold all security interests ratably for itself as a Lender and
as agent and bailee for and on behalf of the other Lender(s).
13.2 Actions Requiring All Lenders' Consent. Without the written consent
or ratification of all Lenders, the Agent shall not:
(a) waive, compromise or settle any material claim against the
Company or release either of them from any material obligation or liability
under the Facilities Papers.
(b) agree to any change in the interest rate or fee provisions --
excluding [the Agent's Fee or] the Custodian's Fees -- of this Agreement.
(c) increase the Aggregate Committed Sum or increase the maximum
principal amount of the Loan above the Aggregate Committed Sum.
(d) increase any Sublimit.
(e) change any Lender's Pro Rata share of the Loan other than in
accordance with the express provisions of the Facilities Papers.
(f) agree to any change in the nature of the Lenders' respective
Commitments from several to joint, in whole or in part.
(g) agree to any material change to any of the conditions precedent
to Advances specified in SECTIONS 7.1 and 7.2.
97
<PAGE> 112
(h) agree to any change to the definition of "Majority Lenders".
(i) extend the Maturity Date of the Loan or the due date of any
required payment other than in accordance with the express provisions of the
Facilities Papers.
(j) agree to any change in this Section or in SECTION 13.3.
13.3 Actions Requiring Majority Lenders' Consent. Without the written
consent or ratification of the Majority Lenders, the Agent shall not:
(a) notify the Company that the Commitments are terminated or that
the maturity of all or any part of the Loan has been accelerated unless an Event
of Default described in any of SECTIONS 11.1(f), 11.1(g), 11.1(k) or 11.1(o) has
occurred.
(b) exercise any of the remedies for default described in SECTION
11.4(c).
(c) release any material Lien held under the Facilities Papers other
than in accordance with the Facilities Papers.
(d) except as otherwise expressly provided for in this Section ,
cause or permit any material change in the terms of any affirmative or negative
covenants in this Agreement.
(e) consent to either the Company's or the Guarantor's incurring
contingent liabilities (other than by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business) for more than an
aggregate Five Million Dollars ($5,000,000); provided that from and after the
date (if ever) when Agent shall have declared in writing that the Guaranty has
been terminated as -- and under the circumstances -- described in SECTION 11.2,
the phrase "or the Guarantor's" shall be deemed deleted from this SECTION
13.3(e).
(f) consent, as contemplated in SECTION 10.4(G)(7), to the Company's
incurring material Debt in addition to Debt permitted by the other provisions of
SECTION 10.4 (titled "Limitations on Debt"), or to the Guarantor's incurring
material debt in addition to Debt permitted under the parallel provision (also
titled "Limitations on Debt") of the Guaranty; provided that from and after the
date (if ever) when Agent shall have declared in writing that the Guaranty has
been terminated as -- and under the circumstances -- described in SECTION 11.2,
the immediately preceding disjunctive clause shall be deemed deleted from this
SECTION 13.3(f).
(g) cause or permit any material change in the eligibility standards
for Collateral hereunder or materially change the definition of any type of
Eligible Collateral, provided that the Agent may in its discretion approve as
eligible Collateral that does not satisfy such eligibility standards that has
aggregate Collateral Value of up to ten percent (10%) of the Aggregate
98
<PAGE> 113
Committed Sum at the time of approval.
(h) make or consent to any materially adverse amendment,
modification or waiver of any of the terms, covenants, provisions or conditions
of the Facilities Papers.
(i) waive any material Event of Default under the Facilities Papers.
(j) approve any material changes in the Company Underwriting
Guidelines.
(k) approve any Change of Control.
(l) approve any new Qualified Investor proposed by the Company (i)
without first giving written notice to the Lenders of the Company's request for
approval of such new Qualified Investor or (ii) if the Majority Lenders have
given the Agent notice of their disapproval of such proposed new Qualified
Investor on or before three (3) Business Days after such Agent's notice of the
Company's approval request.
13.4 Agent's Discretionary Actions. Except as provided in SECTIONS 13.2
and 13.3, in its capacity as lead lender and servicer and without seeking or
obtaining the consent of any of the other Lenders (although it may elect to
obtain such consent before acting it if deems that desirable), the Agent may:
(a) agree or consent to any change in the handling of the Collateral
which in the Agent's reasonable judgment is unlikely to have a material adverse
effect on any of the Central Elements;
(b) release, reconvey or change, in whole or in part, any Collateral
or Lien which is required to be released or reconveyed in accordance with the
Facilities Paper; and
(c) do or perform any act or thing which, in the Agent's reasonable
judgment, is necessary or appropriate to enable the Agent to properly discharge
and perform its duties under this Agreement or the Custody Agreement, or which
in its reasonable judgment is necessary or appropriate to preserve or protect
the validity, integrity or enforceability of the Facilities Papers, the Liens
created by the Loan Papers, their priority, the Collateral, any of the Central
Elements in respect of the Company or the Guarantor or to preserve and protect
the interest of the Lenders in any of the foregoing.
13.5 Lenders' Cooperation. The Lenders agree to cooperate among themselves
and with the Agent and from time to time upon the Agent's request, to execute
and deliver such papers as may be reasonably necessary to enable the Agent, in
its capacity as lead lender and servicer, to effectively administer and service
the Loan and each Lender's Senior Credit Note in the manner contemplated by this
Agreement.
99
<PAGE> 114
13.6 Lenders' Sharing Arrangement. Each of the Lenders agrees that if it
should receive any amount (whether by voluntary payment, realization upon
security, the exercise of the right of set-off, or otherwise) which is
applicable to the payment of the principal of, or interest or fees on, the
Advances, of an amount that with respect to the related sum or sums received (or
receivable) by the other Lenders is in greater proportion than that Lender's Pro
Rata ownership of the Loan, then such Lender receiving such excess amount shall
purchase from the other Lenders an interest in the obligations of the Company
under this Agreement or any of the Facilities Papers in such amount as shall
result in a proportional participation by all of the Lenders in such excess
amount; provided that if all or any portion of such excess amount is thereafter
recovered from such Lender, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery; and further provided that the
provisions of this SECTION 13.6 shall not apply to the Agent's Fees under this
Agreement or to any fees which the Agent or successor custodian might be paid
pursuant to the Custody Agreement.
13.7 Lenders' Acknowledgment. Each Lender other than Texas Commerce hereby
acknowledges that Texas Commerce has made no representations or warranties with
respect to the Loan other than as expressly set forth in this Agreement and that
Texas Commerce shall have no responsibility (in its capacity as a Lender, the
Agent, the Custodian or in any other capacity or role) for:
(a) the collectability of the Loan;
(b) the validity, enforceability or any legal effect of any of the
Facilities Papers, any Collateral papers or any insurance, bond or similar
device purportedly protecting any obligation to the Lenders or any Collateral;
or
(c) the financial condition of the Company or any of its
Subsidiaries or Affiliates, the status, health or viability of any industry in
which any of them is involved, the prospects for repayment of the Loan, the
value of any Collateral, the effectiveness of any of the provisions of the
Facilities Papers (including the financial covenants, tests and hedging
requirements) or any aspect of their implementation or administration at any
time to reduce or control risks of any type, to produce returns, profits, yields
or spreads or to reduce or control losses or the accuracy of any information
supplied by or to be supplied in connection with any of the Company or any of
its Subsidiaries or Affiliates, or otherwise with respect to the Loan, any
Collateral or any source of equity or other financing for any of such companies.
13.8 Agent's Representations to Lenders. The Agent hereby represents and
warrants to the Lenders (other than itself) that:
(a) the Agent has delivered to each Lender true copies of the
originals of those Facilities Papers which have been specifically requested by
that Lender; and
100
<PAGE> 115
(b) the Agent has no current actual knowledge that any Event of
Default has occurred and is continuing on the Effective Date of this Agreement.
13.9 Agent's Duty of Care, Express Negligence Waiver and Release. At all
times until the Loan has been paid in full, the Agent shall exercise the same
degree of care in handling the Loan and its Collateral as Texas Commerce
exercises with respect to loans that are held solely by Texas Commerce for its
own account, and the Agent, in its capacity as lead lender and servicer shall
have no responsibility to the Lenders other than to exercise such standard of
care and, in any event, Texas Commerce shall have no liability with respect to
any other Lender's Pro Rata interest in the Loan except for Texas Commerce's own
gross negligence or willful misconduct. Except in the case of its own fraud,
gross negligence or willful misconduct, neither the Agent, any Lender, nor any
of their officers, directors, employees, attorneys or agents shall be liable for
any action taken or omitted to be taken by it or them under this Agreement, the
Custody Agreement or any of the other Facilities Papers reasonably believed by
it or them to be within the discretion or power conferred upon it or them by the
Facilities Papers or be responsible for consequences of any error of judgment,
THE LENDERS EXPRESSLY INTENDING TO HEREBY WAIVE AND RELEASE ALL PRESENT AND
FUTURE CLAIMS AND RIGHTS AGAINST THE AGENT FOR DAMAGES OR INJURIES CAUSED BY THE
AGENT'S OWN SOLE OR CONCURRENT SIMPLE NEGLIGENCE. Except as otherwise
specifically and expressly set forth in this Agreement, the Agent shall not be
responsible in any manner to anyone for the effectiveness, enforceability,
genuineness, validity or the due execution of this Agreement, any supplement,
amendment or restatement of it or of any other Facilities Papers or for any
representation, warranty, document, certificate, report or statement made or
furnished in, under or in connection with this Agreement or any of the other
Facilities Papers or be under any obligation to anyone to ascertain or to
inquire as to the performance or observation of any of the terms, covenants or
conditions of this Facilities Agreement or of the other Facilities Papers on the
part of the Company or anyone else. Without limiting the generality of the
foregoing provisions of this Section , the Agent, in its capacities as lead
lender, servicer and Custodian, may seek and rely upon the advice of legal
counsel in taking or refraining to take any action under any of the Facilities
Papers or otherwise in respect of the Loan, its Collateral and its parties, and
shall be fully protected in relying upon such advice.
13.10 Calculations of Shares of Principal and Other Sums. Except as
provided to the contrary in SECTION 5.3 ("Rate of Return Maintenance Covenant"),
SECTION 5.7 ("Agent's Fee"), SECTION 11.5 ("Application of Proceeds"), SECTION
12 ("Reimbursement of Expenses; Indemnity") and Section 6 of the Custody
Agreement ("Custodian's Fees"), Texas Commerce's and each other Lender's
respective shares of principal, interest and other sums received by the Agent on
account of the Loan or with respect to it shall be calculated on the basis of
each Lender's (including Texas Commerce's) respective Pro Rata ownership
interests in the Loan from time to time.
13.11 Qualifications of the Agent. The Agent shall at all times be a
commercial bank or trust company organized and doing business under the laws of
the United States of America or
101
<PAGE> 116
any state, district or territory of it authorized under such laws to exercise
corporate trust powers, having a combined capital and unimpaired surplus of at
least One Hundred Million Dollars ($100,000,000), having -- or if owned by a
bank holding company, such bank holding company having -- either (i) a rating of
C or better by Thomson Bank Watch, Inc. or (ii) a rating of either "A" or better
by Standard & Poor's Ratings Group or "A" or better by Moody's Investors
Service, Inc. for its most senior class of unsecured debt and subject to
supervision or examination by federal, state, district or territorial
Governmental Authority. If such commercial bank or trust company publishes
reports of conditions at least annually, pursuant to law or to the requirements
of its supervising or examination Governmental Authority, then for the purposes
of this Section , the combined capital and unimpaired surplus of such commercial
bank or trust company shall be deemed to be its combined capital and unimpaired
surplus as set forth in its most recent report of condition so published. In
case the Agent shall cease at any time to be eligible in accordance with the
provisions of this Section, the Agent shall resign immediately in the manner and
with the effect hereinafter specified in this SECTION 13.
13.12 Resignation of the Agent. The Agent, or any agent or agents
hereafter appointed, at any time may resign by giving written notice of
resignation to the Company and the Lenders and complying with the applicable
provisions of this SECTION 13. Upon receiving such notice of resignation or
removal, with the Company's consent, which consent shall not unreasonably be
delayed or withheld, a successor Agent shall be promptly appointed by all of the
Lenders by written instrument, in duplicate, one copy of which instrument shall
be delivered to the resigning Agent and one copy to the successor Agent.
13.13 Removal of the Agent. If (a) the Agent shall cease to be eligible in
accordance with the provisions of SECTION 13.11 and shall fail to resign after
written request by all of the Lenders; (b) a receiver of the Agent or of its
property shall be appointed or any Governmental Authority shall take charge or
control of the Agent or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation; or (c) the Agent shall be grossly
negligent in the performance of its material duties and obligations under this
Agreement or the Custody Agreement or engage in willful misconduct concerning
any such material duties and obligations, then, in any such case, upon the
unanimous consent of all the Lenders -- excluding for purposes of this Section
the Agent -- the Agent may be removed and a successor Agent appointed by written
instrument, in duplicate, one copy of which shall be delivered to the Agent so
removed and one copy to the successor Agent.
13.14 Effective Date of Resignation or Removal. No resignation or removal
of the Agent shall be effective until a successor agent is appointed pursuant to
the provisions of this SECTION 13 and has accepted the appointment as provided
in this SECTION 13.
13.15 Successor Agent. Any successor Agent appointed as provided in this
Section shall execute and deliver to the Company, the Lenders and to its
predecessor Agent an instrument accepting such appointment, and thereupon the
resignation or removal of the predecessor Agent
102
<PAGE> 117
shall become effective and such successor Agent, without any further act, deed
or conveyance, shall become vested with all the rights and obligations of its
predecessor, with like effect as if originally named as the Agent; provided that
upon the written request of the Company, all of the Lenders or the successor
Agent, the Agent ceasing to act shall execute and deliver (a) an instrument
transferring to such successor Agent all of the rights of the Agent so ceasing
to act and (b) to such successor Agent such instruments as are necessary to
transfer the Collateral to such successor Agent (including assignments of all
Collateral or Facilities Papers). Upon the request of any such successor Agent
made from time to time, the Company shall execute any and all papers which the
successor Agent shall request or require to more fully and certainly vest in and
confirm to such successor Agent all such rights. No successor Agent shall accept
appointment as provided in this Section unless at the time of such acceptance
such successor Agent shall be eligible under the provisions of SECTION 13.11.
13.16 Merger of the Agent. Any Person into which the Agent may be merged
or converted or with which it may be consolidated, or any Person surviving or
resulting from any merger, conversion or consolidation to which the Agent shall
be a party or any Person succeeding to the commercial banking business of the
Agent, shall be the successor Agent without the execution or filing of any paper
or any further act on the part of any of the parties.
13.17 Participation; Assignment.
(a) Participations. Each Lender reserves the rights (i) with prior
notice to and consent of the Company and the Agent, to sell to any bank, savings
and loan, savings bank, credit union, other deposit-taking financial institution
or commercial lending institution, participations in all or any part of such
Lender's Advances, Senior Credit Note or Commitment and (ii) with or without
notice to the Company or the Agent, and without any requirement for consent from
either the Company or the Agent, to pledge any or all of its interests under
this Agreement to the Federal Reserve Bank. Participants shall have no rights
under the Facilities Papers other than certain voting rights as provided below.
Each Lender shall be entitled to obtain (on behalf of its participants) the
benefits of this Agreement with respect to all participants in its Advances
outstanding from time to time; provided that the Company shall not be obligated
to pay any amount in excess of the amount that would be due to such Lender
calculated as though no participation had been made. No Lender shall sell any
participating interest of less than Five Million Dollars ($5,000,000) or under
which the participant shall have any rights to approve any amendment,
modification or waiver of any Facilities Papers, except to the extent such
amendment, modification or waiver (i) extends the due date for payment of any
amount in respect of principal, interest or fees -- other than the Agent's fees
or Custodian's fees -- under the Facilities Papers or (ii) reduces the interest
rate or the amount of principal or fees applicable to the Loan (except such
reductions as are contemplated by this Agreement). In those cases (if any) where
a Lender grants rights to any of its participants to approve amendments,
modifications or waivers of any Facilities Papers pursuant to the immediately
preceding sentence, such Lender must include a voting mechanism as to all such
approval rights in the relevant participation agreement(s) whereby
103
<PAGE> 118
a readily-determinable fraction of such Lender's portion of the Loan (whether
held by such Lender or participated) shall control the vote for all of such
Lender's portion of the Loan; provided, that if no such voting mechanism is
provided for or is fully and immediately effective, then the vote of such Lender
itself shall be the vote for all of such Lender's portion of the Loan. Except in
the case of the sale of a participating interest to a Lender, the relevant
participation agreement shall not permit the participant to transfer, pledge,
assign, sell any subparticipation in or otherwise alienate or encumber its
participation interest in the Loan.
(b) Assignments.Each Lender may assign any or all of its rights and
obligations under the Facilities Papers to any "ELIGIBLE ASSIGNEE" -- which
means (a) a commercial bank having total assets in excess of One Billion Dollars
($1,000,000,000) or (b) a finance company, insurance company or other financial
institution or fund, acceptable to the Agent, that is regularly engaged in
making, purchasing or investing in loans and has total assets in excess of One
Billion Dollars ($1,000,000,000), in each case with the consent of the Agent and
the Company (which consent shall not be unreasonably withheld or delayed);
provided that (1) no such assignment shall result in a Lender's having an
aggregate Committed Sum of less than Five Million Dollars ($5,000,000), (2)
neither the Company nor the Agent shall have any obligation to consent to there
being more than a total of ten (10) Lenders (a participant is not a Lender), and
(3) each such assignment shall be substantially in the form of EXHIBIT F, with
the assignor to exchange its Senior Credit Note(s) for new Senior Credit Note(s)
and the Eligible Assignee to receive new Senior Credit Note(s) and with the
assignor to have no further right or obligation with respect to the rights and
obligations assigned to and assumed by the Eligible Assignee. The Company agrees
to cooperate with the prompt execution and delivery of documents reasonably
necessary to such assignment process, including the issuance of new Senior
Credit Note(s) to the assignor (if retaining an interest hereunder) and the
Eligible Assignee immediately upon delivery to the Company of the assignor's
Senior Credit Note(s). Upon such assignment, the assignee shall be a Lender for
all purposes under this Agreement and the other Facilities Papers, if the
assignment is an assignment of all of the assignor's interest in the Loan and
its security, the assignor shall be automatically released from all of its
obligations and liabilities hereunder, and, whether it is such a complete
assignment or only a partial assignment, the Committed Sums shall be adjusted
appropriately, and the parties agree to approve in writing revised and updated
versions of SCHEDULES LC and FS.
(c) If any interest in this Agreement is so transferred to any
Person that is organized under the Legal Requirements of any jurisdiction other
than the United States of America or any State thereof, the transferor Lender
shall cause such Person, concurrently with the effectiveness of such transfer,
(i) to represent to the transferor Lender (for the benefit of the transferor
Lender, the Agent and the Company) that under applicable laws no taxes will be
required to be withheld by the Agent, the Company or the transferor Lender with
respect to any payments to be made to such Person under this Agreement, (ii) to
furnish to each of the transferor Lender, the Agent and the Company two duly
completed copies of either U.S. Internal Revenue Service Form 4224 or U.S.
Internal Revenue Service Form 1001 (wherein such Person claims
104
<PAGE> 119
entitlement to complete exemption from U. S. federal withholding tax on all
interest payments hereunder) and (iii) to agree (for the benefit of the
transferor Lender, the Agent, the Company) to provide the transferor Lender, the
Agent, the Company a new Form 4224 or Form 1001 upon the obsolescence of any
previously delivered form and comparable statements in accordance with
applicable United States laws and regulations and amendments duly executed and
completed by such Person and to comply from time to time with all applicable
Legal Requirements with regard to such withholding tax exemption.
(d) The Company shall not be required to incur any cost or expense
incident to any sale to a Person of any interest in the Facilities pursuant to
this Section and all such costs and expenses shall be for the account of the
Lender selling its rights in the Loan to such Person.
13.18 The Agent and the Lenders are the only Beneficiaries of this
Section. Other than the provisions of SECTION 13.17, this SECTION 13 is intended
to bind and benefit only Texas Commerce and the other Lenders, and does not
benefit and shall not be enforceable by the Company or any other Person
whatsoever.
14. NOTICES.
All notices, demands, consents, requests and other communications required
or permitted to be given or made hereunder (collectively, "NOTICES"), except as
otherwise specifically provided in this Agreement, shall be in writing and shall
be either (a) delivered in person, or (b) mailed, by certified, registered or
express mail, postage prepaid, addressed to the respective parties hereto at
their respective addresses specified below, or (c) sent in a prepaid overnight
delivery envelope via a nationally-recognized courier service (such as Federal
Express, Airborne Express, United Parcel Service, Purolator, DHL Worldwide
Express or Network Courier Service) that provides weekday next-day delivery
service to the addressee's location, or (d) telecopied to their respective
telecopy numbers (with a paper copy mailed the same day as aforesaid) as
hereinafter set forth, provided that any party may change its address for notice
by designating such party's new address in a Notice to the sending party given
at least five (5) Business Days before it shall become effective. All Notices
shall be conclusively deemed to have been properly given or served when received
in person, regardless of how sent. Regardless of when received, all Notices
shall be conclusively deemed to have been properly given or served if addressed
in accordance with this Section and (1) if mailed, on the second (2nd) Business
Day after being deposited in the mails, or (2) if sent by nationally-recognized
courier service, on the next Business Day or (3) if telecopied, when telecopied
to the telecopy number set forth below (provided that a paper copy is mailed on
the same day as aforesaid):
If to the Company:
105
<PAGE> 120
Long Beach Mortgage Company
1100 Town & County Road, Suite 900
Orange, CA 92668
Attention: Jack Mayesh
Phone: (714) 564-0600
Fax: (714) ________
If to the Agent:
Texas Commerce Bank National Association
ABA No. 113000609
712 Main Street
Houston, Texas 77002 (for messenger deliveries)
P. O. Box 2558
Houston, Texas 77252 (for mail deliveries)
Attention: Managing Director, Corporate Mortgage
Finance Group
Telephone: (713) 216-7702
Fax: (713) 216-2082, with fax copy to (713) 216-2082 attn: Sue Needham or
Audrey Mather
If to the Lenders:
Texas Commerce Bank National Association
ABA No. 113000609
712 Main Street
Houston, Texas 77002 (for messenger deliveries)
P. O. Box 2558
Houston, Texas 77252 (for mail deliveries)
Attention: Managing Director, Corporate Mortgage
Finance Group
Telephone: (713) 216-7702
Fax: (713) 216-2082, with fax copy to (713) 216-2082 attn: Sue Needham or
Audrey Mather
106
<PAGE> 121
Guaranty Federal Bank, F.S.B.
ABA No. 314970664
8333 Douglas Avenue, Suite 1000
Dallas, Texas 75225
Attention: W. James Meintjes
Phone: (214) 360-2845
Fax: (214) 360-1660, with fax copy to (214) 360-1660 attn: Gregory W.
Jackson
Bank United
ABA No. 313071904
101 Ygnacio Valley Road, Suite 200
Walnut Creek, CA 94596
Attention: Michael D. McAuley
Phone: (510) 210-8060
Fax: (510) 210-8065, with fax copy to (713) 543-6022 attn: Teresa Early
or Sue Hagan with another copy to:
Bank United
3200 Southwest Freeway, Suite 600
Houston, Texas 77027
Attention: Cheryl Tangen
Phone: (713) 543-6881
Fax: (713) 543-6469
The First National Bank of Boston
ABA No. 011000390
100 Federal Street Mail Stop 01-10-08
Boston, MA 02110
Attention: Paul Chmielinski
Financial Institutions
Phone: (617) 434-3727
Fax: (617) 434-1096, with fax copy to (617) 467-2167 attn: Mary Kucharski
or Shohak Dekemenjian
Comerica Bank-California
ABA No. 121137522
55 Almaden Boulevard
San Jose, CA 95113
Attention: Beverly Shelton
Phone: (408) 278-8280
Fax: (408) 278-8289, with fax copy to (408) 278-8284 attn: Janet Williams
or Elaine Richards
107
<PAGE> 122
The Bank of New York
ABA No. 021000018
17th Floor, One Wall Street
New York, NY 10286
Attention: Cynthia E. Crites
Phone: (212) 635-6034
Fax: (212) 634-6468, with fax copy to (212) 635-6468 attn: Pilar Kinzie
or Lucine Hahn
15. MISCELLANEOUS.
15.1 Terms Binding Upon Successors; Survival of Representations. The terms
and provisions of this Agreement shall bind and benefit the parties hereto and
their respective successors and assigns; provided that the Company may not
assign or delegate any of their rights, benefits or duties under any of this
Agreement, and any attempted assignment made without the written consent or
written confirmation of all the Lenders shall be void. All representations,
warranties, covenants and agreements herein contained on the part of the Company
shall survive the making of any Advance and the execution of the Senior Credit
Notes and shall be effective so long as the Commitments are outstanding or any
obligation of the Company hereunder or under the Senior Credit Notes or any of
the other Facilities Papers remains to be paid or performed.
15.2 Items to Be Satisfactory to the Agent or the Custodian. All items
required by this Agreement or the Custody Agreement to be delivered to the Agent
or to the Custodian shall be in form and content satisfactory to the Agent or
the Custodian (as the case may be) and the Agent or the Custodian may reject any
of them that do not meet the requirements of this Agreement or the Custody
Agreement.
15.3 Usury Not Intended; Credit or Refund of Any Excess Payments. It is
the intent of the Company, the Agent and the Lenders in the execution and
performance of this Agreement and the other Facilities Papers to contract in
strict compliance with the usury laws of the State of Texas and the United
States of America from time to time in effect. In furtherance of that purpose,
all of the parties to this Agreement stipulate and agree that none of the terms
and provisions contained in this Agreement or the other Facilities Papers shall
ever be construed to create a contract to pay for the use, forbearance or
detention of money with interest at a rate in excess of the Ceiling Rate and
that for purposes hereof "interest" shall include the aggregate of all charges
which constitute interest under such laws that are contracted for, charged,
taken, reserved or received under this Agreement or any of the other Facilities
Papers. In the event that the maturity of any of the Senior Credit Notes is
accelerated by reason of any election of all of the Lenders resulting from any
Event of Default under this Agreement or otherwise, or in the event of any
required or permitted prepayment, then such consideration that constitutes
interest may never include more than the maximum nonusurious amount permitted by
applicable law, and excess interest, if any, provided for in this Agreement or
otherwise shall be canceled automatically
108
<PAGE> 123
as of the date of such acceleration or prepayment and, if theretofore paid,
shall be credited on such note (or, if such note shall have been paid in full,
refunded to the payor of such interest). THE PROVISIONS OF THIS SECTION SHALL
PREVAIL AND CONTROL OVER ALL OTHER PROVISIONS OF THIS AGREEMENT, THE SENIOR
CREDIT NOTES AND THE OTHER FACILITIES PAPERS THAT MAY BE IN APPARENT CONFLICT
HEREWITH. In the event the Agent or any of the Lenders shall ever collect monies
which are deemed to constitute interest at a rate in excess of the Ceiling Rate
then in effect, all such sums deemed to constitute interest in excess of the
Ceiling Rate shall be immediately returned to their payor (or, at the option of
the holders of the Senior Credit Notes, credited against the unpaid principal of
the Senior Credit Notes) upon such determination, and, to the extent permitted
by applicable law, the Agent and the Lenders shall not be subject to any
penalties provided by any Legal Requirement for contracting for, charging,
taking, reserving or receiving interest at a rate in excess of the Ceiling Rate.
In determining whether or not the interest paid or payable under any specific
contingency exceeds the Ceiling Rate, to the maximum extent permitted under
applicable Legal Requirements, the Company and the Agent and the Lenders shall
(a) characterize any non-principal payment as an expense, fee or premium rather
than as interest, (b) exclude voluntary prepayments and their effects and (c)
"spread" the total amount of interest throughout the entire contemplated term of
the Senior Credit Notes, and interest owing on such Senior Credit Notes so that
the interest rate is uniform throughout their entire term.
15.4 No Waiver. No waiver of any Default or Event of Default shall be
deemed to be a waiver of any other Default or Event of Default. No failure to
exercise or delay in exercising any power or right under any Facilities Papers
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right or power, or any abandonment or discontinuance of steps to
enforce such a right or power, preclude any other or further exercise thereof or
the exercise of any other right or power. No course of dealing between the
Company and the Agent or any of the Lenders shall operate as a waiver of any
rights of the Agent or any of the Lenders. No amendment, modification or waiver
of any provision of any Facilities Papers nor consent to any departure therefrom
shall be effective unless it is in writing and signed by the Agent, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. Except as otherwise specifically provided
in this Agreement, no notice to or demand on the Company or any other Person
shall entitle the Company or any other Person to any other or further notice or
demand in similar or other circumstances.
15.5 Counterpart Execution; Amendments. This Agreement may be executed in
one or more counterparts, each of which when so executed shall be deemed to be
an original, but all of which when taken together shall constitute one and the
same instrument. This Agreement may not be amended, modified or supplemented
unless such amendment, modification or supplement is set forth in a writing
signed by the parties hereto.
15.6 Governing Law, Jurisdiction and Venue. THIS AGREEMENT, THE SENIOR
CREDIT NOTES AND THE OTHER FACILITIES PAPERS SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS (WITHOUT REFERENCE TO ITS
CONFLICTS OF LAWS PRINCIPLES)
109
<PAGE> 124
AND THE UNITED STATES OF AMERICA FROM TIME TO TIME IN EFFECT. The Company, the
Agent and the Lenders each hereby irrevocably submits to the nonexclusive
jurisdiction of the United States District Court for the Southern District of
Texas, Houston Division, and the state district courts of Texas, for purposes of
all legal proceedings arising out of or relating to the Facilities Papers and
all related transactions; except that the Lenders do not submit themselves to
Texas jurisdiction in any suit first filed by the Company. To the fullest extent
permitted by applicable law, the Company, the Agent and the Lenders each
irrevocably waives any objection that he, she or it may now or hereafter have to
the laying of venue for any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been brought in an
inconvenient forum and agrees that service of process may be made upon him, her
or it in any such proceeding by registered or certified mail; except that the
Lenders do not waive such objections with regard to any suit first filed by the
Company. Harris County, Texas shall be a proper place of venue for suit hereon.
Nothing herein shall affect any applicable right of any party at any time to
initiate any suit in the United States District Court for the Southern District
of Texas, Houston Division, or to remove any pending suit to that Court. Nothing
herein shall affect the right of the Agent to accomplish service of process in
any manner permitted by applicable law or to commence legal proceedings or
otherwise proceed against the Company in any other jurisdiction or court.
15.7 General Purpose of Loan. The Company warrants and represents to the
Agent, Lenders and all other future owners and holders of the Senior Credit
Notes that the Loan and all Advances under it are and will be for business,
commercial, investment or other similar purpose and not primarily for personal,
family, household or agricultural use, as such terms are used in Chapter One of
the Texas Credit Code.
15.8 Waiver of Jury Trial. Each of the Company, the Agent and the Lenders
hereby (i) covenants and agrees not to elect a trial by jury of any issue
triable of right by a jury, and (ii) waives any right to trial by jury fully to
the extent that any such right shall now or hereafter exist. This waiver of
right to trial by jury is separately given, knowingly and voluntarily, by the
Company, the Agent and each Lender, and this waiver is intended to encompass
individually each instance and each issue as to which the right of a jury trial
would otherwise accrue. The Agent is hereby authorized and requested to submit
this Agreement to any court having jurisdiction over the subject matter and the
parties hereto, so as to serve as conclusive evidence of the foregoing waiver of
the right to jury trial. Further, the Company hereby certifies that no
representative or agent of any of the Lenders or the Agent has represented,
expressly or otherwise, to any shareholder, director, officer, agent or
representative of either of them that the Agent or the Lenders will not seek to
enforce this waiver of right to jury trial provision.
15.9 Relationship of the Parties. This Agreement provides for the making
of Advances by the Lenders (through the Agent) in their capacities as lenders,
to the Company, as a borrower, and for the payment of interest and repayment of
principal by the Company to the Lenders (through the Agent). The relationship
between (a) the Lenders and the Agent and (b) the Company is limited to that of
creditor and secured party, on the one hand, and debtor, on the
110
<PAGE> 125
other hand. The provisions in this Agreement and the other Facilities Papers for
compliance with financial covenants and delivery of financial statements are
intended solely for the benefit of the Lenders and the Agent to protect their
interests as lenders and lenders' agent, respectively, in assuring payment of
interest and repayment of principal, and nothing contained in this Agreement or
any of the other Facilities Papers shall be construed as permitting or
obligating any Lender or the Agent to act as a financial or business advisor or
consultant to the Company, as permitting or obligating any Lender or the Agent
to control the Company or to conduct the Company's operations, as creating any
fiduciary obligation on the part of any Lender or the Agent to the Company, or
as creating any joint venture, agency, or other relationship between or among
any of the parties other than as explicitly and specifically stated in this
Agreement. The Company acknowledges that it has had the opportunity to obtain
the advice of experienced counsel of its own choosing in connection with the
negotiation and execution of this Agreement and the other Facilities Papers and
to obtain the advice of such counsel with respect to all matters contained in
the Facilities Papers including the provision for waiver of trial by jury. The
Company further acknowledges that it is experienced with respect to financial
and credit matters and has made its own independent decisions to apply to the
Lenders for credit and to execute and deliver this Agreement and the other
Facilities Papers.
15.10 Notice Pursuant to Tex. Bus. & Comm. Code Section 26.02. THIS
AGREEMENT AND THE OTHER FACILITIES PAPERS TOGETHER CONSTITUTE A WRITTEN LOAN
AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT
BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
111
<PAGE> 126
EXECUTED as of the Effective Date.
AMERIQUEST MORTGAGE CORPORATION
(to be renamed Long Beach Mortgage Company)
By: /s/
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 127
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as the Agent and as a Lender
By: /s/
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 128
GUARANTY FEDERAL BANK, F.S.B.,
as a Lender
By: /s/
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 129
BANK UNITED, as a Lender
By: /s/
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 130
THE FIRST NATIONAL BANK OF BOSTON, as
a Lender
By: /s/
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 131
COMERICA BANK-CALIFORNIA, as a Lender
By: /s/
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 132
THE BANK OF NEW YORK, as a Lender
By: /s/
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 133
Exhibits:
Exhibit A-1 - Senior Credit Notes form
Exhibit A-2 - Swing Line Note form
Exhibit B - Requests for Borrowing forms with Submission List forms
Exhibit C - Form of Subordination Agreement
Exhibit D - List of the Company's Subsidiaries
Exhibit E - Form of Officer's Certificate as to compliance or noncompliance
with certain financial covenants
Exhibit F - Form of Assignment and Assumption Agreement
Exhibit G - Form of Interest Rate Selection Confirmation
Exhibit H - Opinions to be included in required opinion of the Company's
legal counsel
Schedules:
Schedule LC - the Lenders' Committed Sums and Subline Funding Limits
Schedule UG-SSF - Company Underwriting Guidelines for Subprime
Single-family Mortgage Loans
Schedule QI - List of Qualified Investors
Schedule FS - the Lenders' Funding Share fractions
Schedule 7.1(b) - List of debts to be excluded from the subordination
required by SECTION 7.1(b)
Schedule 8.4 - Summary of material adverse changes and material
unrealized losses since the Statement Date
Schedule 8.15 - the Company's Plans
Schedule 10.1 - List of Contingent Liabilities
Schedule 10.4(g)(6) - List of permitted existing unsecured Debt
<PAGE> 134
EXHIBIT A-1
TO 4/97 CREDIT AGREEMENT
(THE "4/97 [LENDER NAME] SENIOR CREDIT NOTE")
$________________ Houston, Texas April 14, 1997
FOR VALUE RECEIVED, AMERIQUEST MORTGAGE CORPORATION, a Delaware
corporation to be renamed "Long Beach Mortgage Company" ("MAKER" or the
"COMPANY"), promises to pay to the order of [LENDER NAME] ("PAYEE"), a [LENDER
ENTITY FORM], at the main branch of Texas Commerce Bank National Association,
712 Main Street, Houston, Harris County, Texas 77002, or at such other place as
the Agent may hereafter designate in writing, in immediately available funds and
in lawful money of the United States of America, the principal sum of [LENDER'S
COMMITTED SUM] (or the unpaid balance of all principal advanced against this
note, if that amount is less), together with interest on the unpaid principal
balance of this note from time to time outstanding until maturity at the
applicable rate(s) provided for in the Credit Agreement (or at such lesser rate,
if any, as the holder of this note -- the "HOLDER", whether or not Payee is such
holder -- may in its sole discretion from time to time elect to be applicable
for any day or days), and interest on all past due amounts, both principal and
accrued interest, at the Past Due Rate; provided that for the full term of this
note the interest rate produced by the aggregate of all sums paid or agreed to
be paid to Holder for the use, forbearance or detention of the debt evidenced
hereby shall not exceed the Ceiling Rate.
1. Definitions. In addition to the definitions given above, the
definitions given in the 4/97 Senior Secured Credit Agreement dated April 14,
1997, as it may be supplemented, amended or restated from time to time (the
"CREDIT AGREEMENT") among (a) Maker, (b) Texas Commerce Bank National
Association (for itself as a Lender and as Agent for the other Lenders) and (c)
the other Lender(s) party thereto, for capitalized terms that are used in this
note shall apply here as well as there.
2. Rates Change Automatically and Without Notice. Without notice to
Maker or any other Person and to the full extent allowed by applicable law from
time to time in effect, the Stated Rate, the Past Due Rate and the Ceiling Rate
shall each automatically fluctuate upward and downward as and in the amount by
which the interest rate applicable to this note as provided for in the Credit
Agreement, the Past Due Rate as defined in the Credit Agreement and such maximum
nonusurious rate of interest permitted by applicable law, respectively,
fluctuate.
3. Calculation of Interest. Interest on the amount of each advance
against this note shall be computed on the amount of that advance and from the
date it is made. All interest rate determinations and calculations by the
Holder, absent manifest error, shall be conclusive.
Page 1 of 6 Pages
<PAGE> 135
4. Excess Interest Will be Refunded or Credited. If, for any reason
whatever, the interest paid or received on this note during its full term
produces a rate which exceeds the Ceiling Rate, Holder shall refund to the payor
or, at Holder's option, credit against the principal of Senior Credit Note such
portion of said interest as shall be necessary to cause the interest paid on
this note to produce a rate equal to the Ceiling Rate.
5. Interest Will be Spread. To the extent (if any) necessary to avoid
violation of applicable usury laws (or to minimize the extent of the violation
if complete avoidance is impossible for any reason, it being the intent and
purpose of Maker and all Holders to comply strictly with all applicable usury
and other laws), all sums paid or agreed to be paid to Holder for the use,
forbearance or detention of the indebtedness evidenced hereby shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
in equal parts throughout the full term of this note, so that the interest rate
is uniform throughout the full term of this note.
6. Payment Schedule. Interest on and principal of this note shall be
due and payable as provided in SECTIONS 5.1, 5.5 and 5.9 of the 4/97 Credit
Agreement (as they may have been modified and/or renumbered under the Credit
Agreement).
7. Prepayment. Maker may prepay this note in accordance with and
subject to the provisions of SECTION 5.8 of the 4/97 Credit Agreement (as it may
have been modified and/or renumbered under the Credit Agreement.) All
prepayments shall be applied first to accrued interest, the balance to
principal.
8. The 4/97 Credit Agreement, this Note and its Security. This note is
one of the Senior Credit Notes, as such term is defined in the Credit Agreement,
is issued pursuant to the Credit Agreement (to which reference is made for all
purposes) and may be referred to as the "4/97 [LENDER NAME] SENIOR CREDIT NOTE",
and as it may hereafter be renewed, extended, rearranged, increased, decreased,
modified or replaced in accordance with the Credit Agreement may be referred to
as the "CURRENT [LENDER NAME] SENIOR CREDIT NOTE". Holder is entitled to the
benefits of and security provided for in the Credit Agreement. Such security
includes, among other security, the security interests granted by SECTION 6.1 of
the 4/97 Credit Agreement (as such Section may have been modified and/or
renumbered under the Credit Agreement.)
9. Revolving Credit. Upon and subject to the terms and conditions of
the Credit Agreement, Maker may borrow, repay and reborrow against this note
under the circumstances, in the manner and for the purposes specified in the
Credit Agreement, but for no other purposes. Advances against this note by Payee
or other Holder shall be governed by the terms of the Credit Agreement. The
unpaid principal balance of this note at any time shall be the total of all
principal lent or advanced against this note less the sum of all principal
payments and permitted prepayments made on this note by or for the account of
Maker. Absent manifest error, Holder's
Page 2 of 6 Pages
<PAGE> 136
computer records shall on any day conclusively evidence the unpaid balance of
this note and its advances and payments history posted up to that day. All loans
and advances and all payments and permitted prepayments made hereon may be (but
are not required to be) endorsed by or on behalf of Holder on the schedule which
is attached as Annex I hereto (which is hereby made a part hereof for all
purposes) or otherwise recorded in Holder's computer or manual records;
provided, that any failure to make notation of (a) any principal advance or
accrual of interest shall not cancel, limit or otherwise affect Maker's
obligations or any Holder's rights with respect to that advance or accrual, or
(b) any payment or permitted prepayment of principal or interest shall not
cancel, limit or otherwise affect Maker's entitlement to credit for that payment
as of the date of its receipt by Holder. Maker and Payee expressly agree,
pursuant to Article 15.10(b) of Chapter 15 ("CHAPTER 15") of the Texas Credit
Code, that Chapter 15 (which relates to open-end line of credit revolving loan
accounts) shall not apply to this note or to any loan evidenced by this note and
that neither this note nor any such loan shall be governed by Chapter 15 or
subject to its provisions in any manner whatsoever.
10. Defaults and Remedies. Any Event of Default under the Credit
Agreement or any other Facilities Papers shall constitute an Event of Default
under this note and all other Facilities Papers and shall have the consequences
provided for in the Credit Agreement which may include acceleration of the
indebtedness evidenced hereby. Subject to the terms of the Credit Agreement,
Holder or the Agent may waive any default without waiving any other prior or
subsequent default. Holder or the Agent may remedy any default without waiving
the default remedied. Holder's or the Agent's failure to exercise any right,
power or remedy upon any default shall not be construed as a waiver of such
default or as a waiver of the right to exercise any such right, power or remedy
at a later date. No single or partial exercise by Holder or the Agent of any
right, power or remedy hereunder shall exhaust it or shall preclude any other or
future exercise of it, and every such right, power or remedy under this note may
be exercised at any time and from time to time. No modification or waiver of any
provision of this note nor consent to any departure by Maker from its terms
shall be effective unless it is in writing and signed by Holder (or, if
authorized for that purpose by the Credit Agreement, the Agent), and then such
waiver or consent shall be effective only in the specific instance given, for
the purposes for which given and to the extent therein specified.
11. Legal Costs. If any Holder or the Agent retains an attorney in
connection with any such default or to collect, enforce or defend this note or
any papers intended to secure or guarantee it in any lawsuit or in any probate,
reorganization, bankruptcy or other proceeding, or if Maker or anyone claiming
by, through or under Maker sues any Holder in connection with this note or any
such papers and does not prevail, then Maker agrees to pay to each such Holder
and the Agent, respectively, in addition to principal and interest, all
reasonable costs and expenses incurred by such Holder or the Agent in trying to
collect this note or in any such suit or proceeding, including reasonable
attorneys' fees. An amount equal to ten percent (10%) of the unpaid principal
and accrued interest owing on this note when and if this note is placed in the
hands of an attorney for collection after default is stipulated to be reasonable
attorneys' fees unless
Page 3 of 6 Pages
<PAGE> 137
a Holder, the Agent or Maker timely pleads otherwise to a court of competent
jurisdiction.
12. Waivers. Maker and any and all co-makers, endorsers (other than the
Holder or the Payee), guarantors and sureties severally waive notice (including,
but not limited to, notice of intent to accelerate and notice of acceleration,
notice of protest and notice of dishonor), demand, presentment for payment,
protest, diligence in collecting and the filing of suit for the purpose of
fixing liability and consent that the time of payment hereof may be extended and
re-extended from time to time without notice to any of them. Each such Person
agrees that his, her or its liability on or with respect to this note shall not
be affected by any release of or change in any guaranty or security at any time
existing or by any failure to perfect or maintain perfection of any lien against
or security interest in any such security or the partial or complete
unenforceability of any guaranty or other surety obligation, in each case in
whole or in part, with or without notice and before or after maturity.
13. Not Purpose Credit. None of the proceeds of this note shall ever be
used, directly or indirectly, for the purpose of purchasing or carrying any
Margin Stock or for the purpose of reducing or retiring any debt which was
originally incurred to purchase or carry any Margin Stock or to extend credit to
others for the purpose of purchasing or carrying any Margin Stock or which would
constitute this transaction a "purpose credit" within the meaning of Regulation
U, as now or hereafter in effect.
14. Governing Law, Jurisdiction and Venue. This note shall be governed
by and construed in accordance with the laws of the State of Texas and the
United States of America from time to time in effect. Maker and all endorsers
(other than the Holder or the Payee), guarantors and sureties each hereby
irrevocably submits to the nonexclusive jurisdiction of the United States
District Court for the Southern District of Texas and the state district courts
of Harris County, Texas, for purposes of all legal proceedings arising out of or
relating to this note, the debt evidenced hereby or any loan agreement, security
agreement, guaranty or other papers or agreements relating to this note. To the
fullest extent permitted by law, Maker and all endorsers (other than the Holder
or the Payee), guarantors and sureties each irrevocably waives any objection
which he, she or it may now or hereafter have to the laying of venue for any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. Harris
County, Texas shall be a proper place of venue for suit on or in respect of this
note. Nothing herein shall affect the right of Maker, the Payee or any Holder at
any time to initiate any suit in the United States District Court for the
Southern District of Texas, Houston Division, or to remove any pending suit to
that Court.
15. General Purpose of Loan. Maker warrants and represents to Payee,
all other
Page 4 of 6 Pages
<PAGE> 138
Holders and the Agent that all loans evidenced by this note are and will be for
business, commercial, investment or other similar purpose and not primarily for
personal, family, household or agricultural use, as such terms are used in
Chapter One of the Texas Credit Code.
AMERIQUEST MORTGAGE
CORPORATION, as maker (to be renamed
Long Beach Mortgage Company)
By:____________________________________
Name:__________________________________
Title:_________________________________
Page 5 of 6 Pages
<PAGE> 139
ANNEX 1
to $__________
Ameriquest Mortgage Corporation
(to be renamed
Long Beach Mortgage Company)
4/97 [LENDER'S NAME] Senior Credit Note
LOANS AND PAYMENTS OF PRINCIPAL AND INTEREST
<TABLE>
<CAPTION>
Payment Applied
Date of Payment on (or advance Payment Applied Name of Person
or Advance vs.) Principal on Interest Principal Balance Interest Paid to Making Notation
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 140
EXHIBIT A-2
TO 4/97 CREDIT AGREEMENT
(THE "4/97 SWING LINE NOTE")
$45,000,000 Houston, Texas April 14, 1997
FOR VALUE RECEIVED, AMERIQUEST MORTGAGE CORPORATION, a Delaware
corporation to be renamed "Long Beach Mortgage Company" ("MAKER" or the
"COMPANY"), promises to pay to the order of TEXAS COMMERCE BANK NATIONAL
ASSOCIATION ("PAYEE"), a national banking association, at its main branch, 712
Main Street, Houston, Harris County, Texas 77002, or at such other place as the
holder (the "HOLDER", whether or not Payee is such holder) of this note may
hereafter designate in writing, in immediately available funds and in lawful
money of the United States of America, the principal sum of Forty-five Million
Dollars ($45,000,000) (or the unpaid balance of all principal advanced against
this note, if that amount is less), together with interest on the unpaid
principal balance of this note from time to time outstanding until maturity at
the applicable rate(s) provided for in the Credit Agreement (or at such lesser
rate, if any, as Holder may in its sole discretion from time to time elect to be
applicable for any day or days), and interest on all past due amounts, both
principal and accrued interest, at the Past Due Rate; provided that for the full
term of this note the interest rate produced by the aggregate of all sums paid
or agreed to be paid to Holder for the use, forbearance or detention of the debt
evidenced hereby shall not exceed the Ceiling Rate.
1. Definitions. In addition to the definitions given above, the
definitions given in the 4/97 Senior Secured Credit Agreement dated April 14,
1997, as it may be supplemented, amended or restated from time to time (the
"CREDIT AGREEMENT") among (a) Maker, (b) Texas Commerce Bank National
Association (for itself as a Lender and as Agent for the other Lenders) and (c)
the other Lender(s) party thereto, for capitalized terms that are used in this
note shall apply here as well as there.
2. Rates Change Automatically and Without Notice. Without notice to
Maker or any other Person and to the full extent allowed by applicable law from
time to time in effect, the Stated Rate, the Past Due Rate and the Ceiling Rate
shall each automatically fluctuate upward and downward as and in the amount by
which the interest rate applicable to this note as provided for in the Credit
Agreement, the Past Due Rate as defined in the Credit Agreement and such maximum
nonusurious rate of interest permitted by applicable law, respectively,
fluctuate.
3. Calculation of Interest. Interest on the amount of each advance
against this note shall be computed on the amount of that advance and from the
date it is made. All interest rate determinations and calculations by the
Holder, absent manifest error, shall be conclusive.
Page 1 of 6 Pages
<PAGE> 141
4. Excess Interest Will be Refunded or Credited. If, for any reason
whatever, the interest paid or received on this note during its full term
produces a rate which exceeds the Ceiling Rate, Holder shall refund to the payor
or, at Holder's option, credit against the principal of Senior Credit Note such
portion of said interest as shall be necessary to cause the interest paid on
this note to produce a rate equal to the Ceiling Rate.
5. Interest Will be Spread. To the extent (if any) necessary to avoid
violation of applicable usury laws (or to minimize the extent of the violation
if complete avoidance is impossible for any reason, it being the intent and
purpose of Maker and all Holders to comply strictly with all applicable usury
and other laws), all sums paid or agreed to be paid to Holder for the use,
forbearance or detention of the indebtedness evidenced hereby shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
in equal parts throughout the full term of this note, so that the interest rate
is uniform throughout the full term of this note.
6. Payment Schedule. Interest on and principal of this note shall be
due and payable as provided in SECTIONS 2.6 and 3.2 of the 4/97 Credit Agreement
(as they may have been modified and/or renumbered under the Credit Agreement.)
7. Prepayment. Maker may prepay this note in accordance with and
subject to the provisions of SECTION 2.5 of the 4/97 Credit Agreement (as it may
have been modified and/or renumbered under the Credit Agreement.) All
prepayments shall be applied first to accrued interest, the balance to
principal.
8. The 4/97 Credit Agreement, this Note and its Security. This note is
the Swing Line Note and one of the Senior Credit Notes, as such terms are
defined in the Credit Agreement, is issued pursuant to the Credit Agreement (to
which reference is made for all purposes) and may be referred to as the "4/97
SWING LINE NOTE", and as it may hereafter be renewed, extended, rearranged,
increased, decreased, modified or replaced in accordance with the Credit
Agreement may be referred to as the "CURRENT SWING LINE NOTE". Holder is
entitled to the benefits of and security provided for in the Credit Agreement.
Such security includes, among other security, the security interests granted by
SECTION 6.1 of the 4/97 Credit Agreement (as such Section may have been modified
and/or renumbered under the Credit Agreement.)
9. Revolving Credit. Upon and subject to the terms and conditions of
the Credit Agreement, Maker may borrow, repay and reborrow against this Swing
Line Note under the circumstances, in the manner and for the purposes specified
in the Credit Agreement, but for no other purposes. Advances against this note
by Payee or other Holder shall be governed by the terms of the Credit Agreement.
The unpaid principal balance of this note at any time shall be the total of all
principal lent or advanced against this note less the sum of all principal
payments and permitted prepayments made on this note by or for the account of
Maker. Absent manifest error,
Page 2 of 6 Pages
<PAGE> 142
Holder's computer records shall on any day conclusively evidence the unpaid
balance of this note and its advances and payments history posted up to that
day. All loans and advances and all payments and permitted prepayments made
hereon may be (but are not required to be) endorsed by or on behalf of Holder on
the schedule which is attached as Annex I hereto (which is hereby made a part
hereof for all purposes) or otherwise recorded in Holder's computer or manual
records; provided, that any failure to make notation of (a) any principal
advance or accrual of interest shall not cancel, limit or otherwise affect
Maker's obligations or any Holder's rights with respect to that advance or
accrual, or (b) any payment or permitted prepayment of principal or interest
shall not cancel, limit or otherwise affect Maker's entitlement to credit for
that payment as of the date of its receipt by Holder. Maker and Payee expressly
agree, pursuant to Article 15.10(b) of Chapter 15 ("CHAPTER 15") of the Texas
Credit Code, that Chapter 15 (which relates to open-end line of credit revolving
loan accounts) shall not apply to this note or to any loan evidenced by this
note and that neither this note nor any such loan shall be governed by Chapter
15 or subject to its provisions in any manner whatsoever.
10. Defaults and Remedies. Any Event of Default under the Credit
Agreement or any other Facilities Papers shall constitute an Event of Default
under this note and all other Facilities Papers and shall have the consequences
provided for in the Credit Agreement which may include acceleration of the
indebtedness evidenced hereby. Subject to the terms of the Credit Agreement,
Holder or the Agent may waive any default without waiving any other prior or
subsequent default. Holder or the Agent may remedy any default without waiving
the default remedied. Holder's or the Agent's failure to exercise any right,
power or remedy upon any default shall not be construed as a waiver of such
default or as a waiver of the right to exercise any such right, power or remedy
at a later date. No single or partial exercise by Holder or the Agent of any
right, power or remedy hereunder shall exhaust it or shall preclude any other or
future exercise of it, and every such right, power or remedy under this note may
be exercised at any time and from time to time. No modification or waiver of any
provision of this note nor consent to any departure by Maker from its terms
shall be effective unless it is in writing and signed by Holder (or, if
authorized for that purpose by the Credit Agreement, the Agent), and then such
waiver or consent shall be effective only in the specific instance given, for
the purposes for which given and to the extent therein specified.
11. Legal Costs. If any Holder or the Agent retains an attorney in
connection with any such default or to collect, enforce or defend this note or
any papers intended to secure or guarantee it in any lawsuit or in any probate,
reorganization, bankruptcy or other proceeding, or if Maker or anyone claiming
by, through or under Maker sues any Holder in connection with this note or any
such papers and does not prevail, then Maker agrees to pay to each such Holder
and the Agent, respectively, in addition to principal and interest, all
reasonable costs and expenses incurred by such Holder or the Agent in trying to
collect this note or in any such suit or proceeding, including reasonable
attorneys' fees. An amount equal to ten percent (10%) of the unpaid principal
and accrued interest owing on this note when and if this note is placed in the
hands of an attorney for collection after default is stipulated to be reasonable
attorneys' fees unless
Page 3 of 6 Pages
<PAGE> 143
a Holder, the Agent or Maker timely pleads otherwise to a court of competent
jurisdiction.
12. Waivers. Maker and any and all co-makers, endorsers (other than the
Holder or the Payee), guarantors and sureties severally waive notice (including,
but not limited to, notice of intent to accelerate and notice of acceleration,
notice of protest and notice of dishonor), demand, presentment for payment,
protest, diligence in collecting and the filing of suit for the purpose of
fixing liability and consent that the time of payment hereof may be extended and
re-extended from time to time without notice to any of them. Each such Person
agrees that his, her or its liability on or with respect to this note shall not
be affected by any release of or change in any guaranty or security at any time
existing or by any failure to perfect or maintain perfection of any lien against
or security interest in any such security or the partial or complete
unenforceability of any guaranty or other surety obligation, in each case in
whole or in part, with or without notice and before or after maturity.
13. Not Purpose Credit. None of the proceeds of this note shall ever be
used, directly or indirectly, for the purpose of purchasing or carrying any
Margin Stock or for the purpose of reducing or retiring any debt which was
originally incurred to purchase or carry any Margin Stock or to extend credit to
others for the purpose of purchasing or carrying any Margin Stock or which would
constitute this transaction a "purpose credit" within the meaning of Regulation
U, as now or hereafter in effect.
14. Governing Law, Jurisdiction and Venue. This note shall be governed
by and construed in accordance with the laws of the State of Texas and the
United States of America from time to time in effect. Maker and all endorsers
(other than the Holder or the Payee), guarantors and sureties each hereby
irrevocably submits to the nonexclusive jurisdiction of the United States
District Court for the Southern District of Texas and the state district courts
of Harris County, Texas, for purposes of all legal proceedings arising out of or
relating to this note, the debt evidenced hereby or any loan agreement, security
agreement, guaranty or other papers or agreements relating to this note. To the
fullest extent permitted by law, Maker and all endorsers (other than the Holder
or the Payee), guarantors and sureties each irrevocably waives any objection
which he, she or it may now or hereafter have to the laying of venue for any
such proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. Harris
County, Texas shall be a proper place of venue for suit on or in respect of this
note. Nothing herein shall affect the right of Maker, the Payee or any Holder at
any time to initiate any suit in the United States District Court for the
Southern District of Texas, Houston Division, or to remove any pending suit to
that Court.
15. General Purpose of Loan. Maker warrants and represents to Payee,
all other
Page 4 of 6 Pages
<PAGE> 144
Holders and the Agent that all loans evidenced by this note are and will be for
business, commercial, investment or other similar purpose and not primarily for
personal, family, household or agricultural use, as such terms are used in
Chapter One of the Texas Credit Code.
AMERIQUEST MORTGAGE
CORPORATION, as maker
By:____________________________________
Name:__________________________________
Title:_________________________________
Page 5 of 6 Pages
<PAGE> 145
ANNEX 1
to $45,000,000
Ameriquest Mortgage Corporation
(to be renamed
Long Beach Mortgage Company)
4/97 Swing Line Note
LOANS AND PAYMENTS OF PRINCIPAL AND INTEREST
<TABLE>
<CAPTION>
Payment Applied
Date of Payment on (or advance Payment Applied Name of Person
or Advance vs.) Principal on Interest Principal Balance Interest Paid to Making Notation
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 146
EXHIBIT B
TO 4/97 CREDIT AGREEMENT
Request for Borrowing
[Letterhead of the Company]
[date]
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: Managing Director, Corporate Mortgage Finance Group
Ladies and Gentlemen:
AMERIQUEST MORTGAGE CORPORATION (the "COMPANY") and TEXAS COMMERCE BANK
NATIONAL ASSOCIATION as a Lender and as agent (the "AGENT") for the other
Lender(s) who are parties to it as Lenders, and such other Lenders together
executed a 4/97 Senior Secured Credit Agreement dated April 14, 1997 (which, as
it may have been or may hereafter be supplemented, amended or restated from time
to time, is called the "CREDIT AGREEMENT"). Any term defined in the Credit
Agreement and used in this Request for Borrowing shall have the meaning given to
it in the Credit Agreement.
The Company currently qualifies under the Credit Agreement for, and
hereby requests, an Advance in the amount of $___________ to be made on
__________, 19__ (or, if the Agent is closed that day, on the next day when it
is not).
After giving effect as required by the Credit Agreement to the
requested Advance, (i) the outstanding principal balance of the Loan will not
exceed the Aggregate Committed Sum, (ii) the sum of outstanding Advances under
each Subline will not exceed that Subline's Borrowing Base and (iii) no Sublimit
will be exceeded.
If the Credit Agreement requires new Collateral to support the
requested Advance, (i) the Company has attached and submits herewith the
relevant Submission List(s), (ii) the Basic Papers for all items of Collateral
described or referred to therein have been submitted -- or are being submitted
concurrently herewith -- to the Custodian (except that in respect of any Wet
Warehousing Advance hereby requested, the Basic Papers for the relevant items of
Collateral will be delivered to the Custodian on or before five (5) Business
Days after funding of the requested Advance), and (iii) the Company hereby
GRANTS to the Agent a security interest in all such new
<PAGE> 147
Collateral and (as to Debt Collateral) all related Loan Papers, and they are
hereby made subject to the security interest to the Agent created by the Credit
Agreement, for the Pro Rata benefit of the Lenders, effective immediately.
The proceeds of the Advance should be deposited in the Company's Note
Payment Account number 0010-2672087 with Texas Commerce Bank National
Association.
The Company acknowledges that the Agent and the Lenders will rely on
the truth of each statement in this request and its attachments in funding the
requested Advance.
No Default has occurred under the Facilities Papers that has not been
cured by the Company or declared in writing by the Agent to have been waived,
and no Event of Default has occurred under the Facilities Papers that the Agent
has not declared in writing to have been cured or waived.
All items that the Company is required to furnish to the Agent, its
designated custodian or the Lenders for this requested Advance and otherwise
have been delivered, or will be delivered before this requested Advance is
funded, in all respects as required by the Credit Agreement and the other
Facilities Papers. All Collateral papers described or referred to in the
Submission List(s) (if any) submitted to the Agent with this Request for
Borrowing conform in all respects with all applicable requirements of the Credit
Agreement and the other Facilities Papers.
The undersigned officer hereby certifies that all of the Company's
representations and warranties (a) in the Credit Agreement and all of the other
Facilities Papers (except only to the extent that (i) such a representation or
warranty speaks to a specific date or (ii) the facts on which a representation
or warranty is based have been changed by transactions or conditions
contemplated or expressly permitted by the Facilities Papers), (b) in this
Request for Borrowing, are true and correct on the date of this Request for
Borrowing and (c) that the Company qualifies for funding of the requested
Advance.
AMERIQUEST MORTGAGE CORPORATION
By:_________________________________
Name________________________________
1Title:_____________________________
Attached (check relevant items):
Submission List(s) for:
- --------
Must be the President, Treasurer or Assistant Treasurer, a Vice
President or the Controller of the Company.
<PAGE> 148
/ / Subprime Single-family Collateral
/ / P&I Advances Collateral
/ / T&I Advances Collateral
/ / Enforcement Advances Collateral
/ / Recoveries Collateral
<PAGE> 149
SUBMISSION LIST FOR SUBPRIME SINGLE FAMILY COLLATERAL
Date:__________
TO:
Texas Commerce Bank National Association
801 West Greens Road, Suite 200
Houston, Texas 77067
Attention: Mortgage Warehouse
Phone: (713) 775-5400
Fax: (713) 775-5420
FROM:
Long Beach Mortgage Company
1100 Town & County Road, Suite 900
Orange, CA 92668
Attention: Jack Mayesh
Phone: (714) _______
Fax: (714) _______
Long Beach Mortgage Company submits the following list of Subprime
Single-family Mortgage Loans in support of the Request for Borrowing dated
______________ to which this Submission List is attached and hereby pledges them
to the Agent (for itself and as agent for the other Lenders):
<TABLE>
<CAPTION>
===============================================================================================
BRANCH LOAN BORROWER OR NOTE NOTE LOAN
NUMBER NUMBER CUSTOMER NAME DATE LOAN TYPE
AMOUNT
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
===============================================================================================
</TABLE>
<PAGE> 150
SUBMISSION LIST FOR P&I ADVANCES COLLATERAL
Date:_____________
TO:
Texas Commerce Bank National Association
801 West Greens Road, Suite 200
Houston, Texas 77067
Attention: Mortgage Warehouse
Phone: (713) 775-5400
Fax: (713) 775-5420
FROM:
Long Beach Mortgage Company
1100 Town & County Road, Suite 900
Orange, CA 92668
Attention: Jack Mayesh
Phone: (714) _______
Fax: (714) _______
Long Beach Mortgage Company submits the following list of P&I Advances
to be funded with the P&I Advances Line Advance requested by the Request for
Borrowing dated ________________, to which this Submission List is attached, and
hereby Pledged to the Agent are all of the Company's claims, accounts and
general intangibles that funding of such P&I Advances will produce:
P&I ADVANCES
<TABLE>
<CAPTION>
================================================================================
Date Investor Pool or P&I Advance
Whole Amount
Loan
Number
================================================================================
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
<PAGE> 151
SUBMISSION LIST FOR T&I ADVANCES COLLATERAL
Date:_________
TO:
Texas Commerce Bank National Association
801 West Greens Road, Suite 200
Houston, Texas 77067
Attention: Mortgage Warehouse
Phone: (713) 775-5400
Fax: (713) 775-5420
FROM:
Long Beach Mortgage Company
1100 Town & County Road, Suite 900
Orange, CA 92668
Attention: Jack Mayesh
Phone: (714) _______
Fax: (714) _______
Long Beach Mortgage Company submits the following list of T&I Advances
to be funded with the Servicing Advances Line Advance requested by the Request
for Borrowing dated _____________ to which this Submission List is attached, and
hereby Pledged to the Agent are all of the Company's claims, accounts and
general intangibles that funding of such T&I Advances will produce:
T&I ADVANCES
<TABLE>
<CAPTION>
================================================================================
Date Investor Pool or T&I Advance
Whole Amount
Loan
Number
================================================================================
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
<PAGE> 152
SUBMISSION LIST FOR ENFORCEMENT ADVANCES COLLATERAL
Date:____________
TO:
Texas Commerce Bank National Association
801 West Greens Road, Suite 200
Houston, Texas 77067
Attention: Mortgage Warehouse
Phone: (713) 775-5400
Fax: (713) 775-5420
FROM:
Long Beach Mortgage Company
1100 Town & County Road, Suite 900
Orange, CA 92668
Attention: Jack Mayesh
Phone: (714) _______
Fax: (714) _______
Long Beach Mortgage Company submits the following list of Enforcement
Advances to be funded with the Servicing Advances Line Advance requested by the
Request for Borrowing dated _____________ to which this Submission List is
attached, and hereby Pledged to the Agent are all of the Company's claims,
accounts and general intangibles that funding of such Enforcement Advances will
produce:
ENFORCEMENT ADVANCES
<TABLE>
<CAPTION>
================================================================================
Date Investor Pool or Enforcement
Whole Advance Amount
Loan
Number
================================================================================
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
<PAGE> 153
SUBMISSION LIST FOR RECOVERIES COLLATERAL
Date:___________
TO:
Texas Commerce Bank National Association
801 West Greens Road, Suite 200
Houston, Texas 77067
Attention: Mortgage Warehouse
Phone: (713) 775-5400
Fax: (713) 775-5420
FROM:
Long Beach Mortgage Company
1100 Town & County Road, Suite 900
Orange, CA 92668
Attention: Jack Mayesh
Phone: (714) _______
Fax: (714) _______
Long Beach Mortgage Company submits the following list of Recoveries
Advances to be funded with the Advance requested by the Request for Borrowing
dated to which this Submission List is attached, and represents that:
/ / (check if the requested Advance will be used to fund the purchase
of Mortgage Loan(s) serviced by the Company) The Company will use proceeds of
the requested Recoveries Advance to purchase the Mortgage Loans listed below
pursuant to its obligation or election as Servicer thereof to do so, and they
are hereby Pledged to the Agent:
<TABLE>
<CAPTION>
===================================================================================================================
Loan Customer name Original Principal Claim vs Claim Broker's
date Loan balance (VA/FHA/ amount opinion
amount PMI) of real
estate's
value
===================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
===================================================================================================================
</TABLE>
<PAGE> 154
/ / (check if requested Advance will be used to finance or refinance an
unmarketable Single-family Mortgage Loan) The Company will use proceeds of the
requested Recoveries Advance to finance the following unmarketable Single-family
Mortgage Loans owned by the Company, and they are hereby Pledged to the Agent:
<TABLE>
<CAPTION>
==============================================================================================================
Loan Customer Name Original Note Principal balance Broker's price opinion
No. amount of real estate's value
==============================================================================================================
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
==============================================================================================================
</TABLE>
/ / (check if requested Advance will be used to finance or refinance
other Collateral approved by the Agent) The other Collateral submitted herewith
is described as follows, and it is hereby Pledged to the Agent:
================================================================================
Description
================================================================================
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
<PAGE> 155
EXHIBIT C
TO 4/97 CREDIT AGREEMENT
SUBORDINATION OF DEBT AGREEMENT IN
FAVOR OF THE AGENT AND LENDERS
UNDER 4/97 SENIOR SECURED CREDIT AGREEMENT
_____________ , 199__
TO: Texas Commerce Bank National Association ("TEXAS COMMERCE"), as a
Lender and as Agent for other Lenders
712 Main Street
Houston, Texas 77002
The undersigned (each of whom is hereinafter referred to as a
"CREDITOR"), creditors of Long Beach Mortgage Company (originally named
Ameriquest Mortgage Corporation and hereinafter referred to as the "COMPANY"), a
Delaware corporation, desire that Texas Commerce Bank National Association and
the other Lenders named in the 4/97 Senior Secured Credit Agreement dated April
14, 1997 among the Company, Texas Commerce Bank National Association as a Lender
and as Agent for the other Lenders, and the other Lender(s) named therein --
Texas Commerce Bank National Association in its capacity as a Lender and the
other Lender(s) under such Credit Agreement being hereinafter referred to as the
"LENDERS", Texas Commerce Bank National Association in its capacity as Agent
under such Credit Agreement being hereafter referred to as "AGENT" and such
Credit Agreement, as it may have been or may hereafter be supplemented, amended
and/or restated being hereinafter called the "CREDIT AGREEMENT" -- extend or
continue to extend such financial accommodations to the Company as the Company
may request and as the Lenders and the Agent may deem proper. For the purpose of
inducing the Lenders to grant, continue or renew such financial accommodations,
and in consideration thereof, the undersigned Creditors irrevocably,
unconditionally and presently agree as follows:
1. Amount of the Debt Subordinated Herein. The Company is presently
indebted to the Creditors in the principal amounts set forth below:
<TABLE>
<CAPTION>
================================================================================
Creditor Principal Amount
of Company Debt
================================================================================
<S> <C>
$
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 156
<TABLE>
<CAPTION>
================================================================================
Creditor Principal Amount
of Company Debt
================================================================================
<S> <C>
TOTAL $
================================================================================
</TABLE>
2. Subordination. All claims of each Creditor against the Company now
or hereafter existing are and shall be at all times SUBJECT, SUBORDINATE AND
INFERIOR, both in right of payment and lien priority, to any and all claims,
whether now or hereafter existing and however created or evidenced, which the
Agent or the Lenders has or may have against the Company (and all extensions,
renewals, increases, decreases, modifications, replacements and substitutions of
or for any such claims, such claims and all such extensions, etc. being herein
called the "SENIOR OBLIGATIONS"), for so long as any Senior Obligations shall
exist. So long as no Default or Event of Default shall have occurred under the
Credit Agreement and so long as no other default shall have occurred in payment
or performance of any of the Senior Obligations, payments of interest and
principal on the claims of Creditors may be made at their respective scheduled
maturity dates (it being understood that no prepayment shall be made of such
claims and no modification or acceleration, for default or otherwise, of such
maturity dates shall be permitted). If a Default or an Event of Default shall
occur under the Credit Agreement or if any other default shall occur in payment
or performance of any of the Senior Obligations, then and for so long as (a)
such Default shall not have been cured or waived before it has become an Event
of Default or (b) the Agent shall not have declared in writing that such Event
of Default or other default (if any) has been cured or waived, no payment of
interest or premium on any of the claims of Creditors and no payment of
principal of any of the claims of creditors, whether or not then due, shall be
made without the prior written consent of the Agent, and any payment made during
such time shall (i) be held in trust for the benefit of the Lenders, and (ii)
immediately be paid over by its recipient to the Agent for application on the
obligations of the Company to the Lenders and the Agent in accordance with the
provisions of the Credit Agreement, without notice or demand. The subordination
of claims of Creditors made hereby shall remain in effect so long as there shall
be outstanding any Senior Obligation of the Company to any of the Lenders or the
Agent (for this purpose, the Company shall be deemed obligated to the Lenders
and the Agent so long as any of the Lenders shall have outstanding any
commitment under the Credit Agreement or any other Facilities Papers to make any
loan or extend any other financial accommodations to the Company or any of its
successors, whether or not any such loan or financial accommodation shall have
been made, advanced or extended).
3. Enforcement or Assignment of Subordinated Debt or Liens. For so long
as any claim of the Agent or any Lender against the Company or any commitment of
any of the Lenders to extend credit or other financial accommodations to the
Company is in existence, the Creditors and each of them will not (i) sue upon,
any claim or claims now or hereafter existing which they or any of them may hold
against the Company or any other party to the Credit Agreement; (ii) sell,
assign, transfer, pledge, hypothecate or encumber such claim or claims except
expressly subject to this Agreement; (iii) enforce any lien they or any of them
may now or in the future have
<PAGE> 157
on any property, real or personal, of the Company or any other party to the
Credit Agreement, as security for the payment of any debt owing by the Company
or such party to them or any one or more of them until the Senior Obligations
shall have been fully paid and satisfied and/or (iv) join in or in any way
directly or indirectly induce any petition in bankruptcy, assignment for the
benefit of creditors or creditors' agreement, except as directed by the Agent or
the Lenders.
4. Direction to Pay Over Claims and Assignment. In case of any
assignment by the Company for the benefit of creditors, or in the case of any
bankruptcy proceedings instituted by or against the Company, or in case of the
appointment of any receiver for the Company's business or assets, or in case of
any dissolution or winding up of the affairs of the Company, the Company and any
assignee, trustee in bankruptcy, receiver or other person or persons in charge,
are hereby directed to pay to the Agent the full amount of all of the Agent's
and the Lenders' claims against the Company before making any payment of
principal or interest to the undersigned Creditors, or any of them, and insofar
as it may be necessary to accomplish that purpose, the undersigned Creditors,
and each of them, hereby sell, transfer, set over and assign to the Agent and
the Lenders all claims they may now or hereafter have against the Company and in
any security therefor, and the proceeds thereof, and all rights to any payments,
dividends or other distributions arising therefrom. If any of the undersigned
Creditors does not file a proper claim or proof of debt in the form required in
such proceeding prior to thirty (30) days before the expiration of the time to
file such claim in such proceeding, then the Agent has the right (but no
obligation) to do so and is hereby authorized to file an appropriate claim or
claims for and on behalf of such person.
5. Subrogation. Upon the payment by them in full of all Senior
Obligations, the Creditors shall be subrogated to the rights of the Lenders to
receive payments or distributions of cash, property or securities of the Company
applicable to Senior Obligations until the Creditors' claims shall have been
paid in full, and, for the purposes of such subrogation, no payments or
distributions to the holder or holders of the Senior Obligations of any cash,
property or securities that any Creditor would be entitled to receive but for
the provisions of this Agreement and no payment pursuant to the provisions of
this Agreement to the Lenders by any Creditor shall, as between the Company and
its creditors (other than the holder or holders of the Senior Obligations and
Creditors), be deemed to be a payment by the Company on account of the Senior
Obligations, and no payment or distributions of cash, property or securities to
or for the benefit of the Creditors pursuant to this Agreement which would
otherwise have been paid to the Lenders shall be deemed to be a payment by the
Company to or for the account of the Creditors, it being understood that the
provisions of this Subordination Agreement are solely for the purpose of
defining the relative rights of the Lenders and the Creditors.
If any payment or distribution to which the Creditors would otherwise
have been entitled but for the provisions of this Agreement shall have been
applied, pursuant to the provisions of these terms of subordination, to the
payment of all amounts payable under the Senior Obligations, then and in such
case, the Creditors shall be entitled to receive from the Lenders at the time
<PAGE> 158
outstanding any payments or distributions received by the Lenders in excess of
the amount sufficient to pay all amounts under or in respect of the Senior
Obligations in full.
6. Obligations to Creditors not Impaired; Provisions Define Relative
Rights. The provisions of this Agreement are and are intended solely for the
purpose of defining the relative rights of the Creditors on the one hand and the
Lenders on the other hand. Nothing contained in this Agreement shall (i) impair
or affect, as among the Company and its creditors (other than the Lenders and
the Creditors), the obligation of the Company, which is absolute and
unconditional, to pay the Creditors the principal of and interest on the claims
of the Creditors as of when the same shall become due and payable in accordance
with their terms, or (ii) affect the relative rights against the Company of the
Creditors and the other creditors of the Company (other than the Lenders) or
(iii) prevent any Creditor from exercising all remedies otherwise permitted by
applicable law upon default under the instrument or instruments governing the
Creditors' claims, pursuant to the rights, if any, under this Agreement of the
Lenders to receive cash, property and securities otherwise payable or
deliverable to the Lenders or the Agent.
7. Proofs of Claim. The Creditors may file such proofs of claim and
other papers or documents or may be necessary or advisable in order to have
their claims allowed in any judicial proceedings relative to the Company (or any
other obligor on the Creditors' claims, including any guarantor), its creditors
or its property. If any Creditor has not been paid in full, such Creditor shall
(i) file such claim, proof of claim or similar instrument on behalf of the
Lenders as the Lenders' interests may appear and (ii) take all such other
actions as may be appropriate to insure that all payments and distributions made
in respect of any such proceedings are made to the Lenders as their interests
may appear.
8. Agreement Unaffected by Changes, Etc. Without consent of, notice to
or incurring responsibility to any Creditor and without impairing or releasing
any Creditor's covenants and obligations hereunder, upon or without any terms or
conditions and in whole or in part, the Lenders may (i) change any payment due
date or amount, (ii) renew, change or increase any Senior Obligations or any
aspect of the security therefor, (iii) sell, exchange, release, surrender,
realize upon or otherwise deal in any manner or order any present or future
security for any Senior Obligations, (iv) release anyone in any manner or
capacity liable on or for any Senior Obligations, (v) exercise or not exercise
any rights against the Company, any Creditor or anyone else, (vi) settle or
compromise any of the Senior Obligations or subordinate any part of them to any
other part and/or (vii) apply any sums received from anyone to any part of the
Senior Obligations, and the provisions of this Agreement shall apply to the
Senior Obligations as changed, extended, renewed, altered or increased in any
respect and in any manner.
9. Liability. For violation of this Agreement, the undersigned
Creditors shall be jointly and severally liable to the Agent and the Lenders for
all loss and damage sustained by reason of such breach, and upon any such
violation, the Agent and the Lenders may accelerate the maturity of its claims
against the Company, at their option.
<PAGE> 159
10. Automatic Reinstatement. If at any time any payment made on the
Senior Obligations must be returned for any reason (including the order of any
bankruptcy court), this Agreement shall be automatically reinstated to the same
effect as if the affected payment(s) had not been made.
11. Governing Law, Binding Effect and Assignments. This Agreement shall
be governed in all respects by the laws of the State of Texas and shall bind and
benefit the undersigned, the Agent, the Lenders and the Company, their
respective heirs, executors, administrators, personal representatives, trustees,
receivers, conservators, successors and assigns and anyone claiming by, through
or under any of them. This Agreement and any claim or claims of the Agent or any
of the Lenders pursuant hereto may be assigned by the Agent or such Lender (as
the case may be), in whole or in part, at any time, without notice to any of the
undersigned Creditors or the Company.
<PAGE> 160
_________________________________
By:______________________________
Name:____________________________
Date:____________ Title:___________________________
Unnumbered signature page to Subordination
of Debt Agreement in favor of Texas Commerce
Bank National Association, as a Lender and
as Agent for other Lenders
<PAGE> 161
_________________________________
By:______________________________
Name:____________________________
Date:____________ Title:___________________________
Unnumbered signature page to Subordination
of Debt Agreement in favor of Texas Commerce
Bank National Association, as a Lender and
as Agent for other Lenders
<PAGE> 162
_________________________________
By:______________________________
Name:____________________________
Date:____________ Title:___________________________
Unnumbered signature page to Subordination
of Debt Agreement in favor of Texas Commerce
Bank National Association, as a Lender and
as Agent for other Lenders
<PAGE> 163
ACCEPTANCE OF SUBORDINATION OF
DEBT AGREEMENT BY THE COMPANY
AMERIQUEST MORTGAGE CORPORATION (the "Company" in the Subordination of
Debt Agreement set forth on the face hereof), hereby (i) represents and warrants
to the Agent and the Lenders that it is presently indebted to the persons
executing said Subordination of Debt Agreement in the aggregate principal amount
of $_____, (ii) accepts and consents to such Subordination of Debt Agreement,
(iii) agrees to be bound by all of the provisions thereof and (iv) agrees to
recognize all priorities and other rights granted thereby to Texas Commerce Bank
National Association (in its capacities as a Lender and as the Agent) and the
other Lenders, and their respective successors and assigns, and to perform in
accordance therewith.
AMERIQUEST MORTGAGE CORPORATION
By:______________________________
Name:____________________________
Title:___________________________
Dated:__________________, 19__
<PAGE> 164
EXHIBIT D
TO 4/97 CREDIT AGREEMENT
List of Subsidiaries of the Company as of the Effective Date
[to be completed by the Company and attached to the 4/97 Senior
Secured Credit Agreement]
<PAGE> 165
EXHIBIT E
TO 4/97 CREDIT AGREEMENT
FORM OF OFFICER'S CERTIFICATE WITH COMPUTATIONS
TO SHOW COMPLIANCE OR NON-COMPLIANCE WITH
CERTAIN FINANCIAL COVENANTS
OFFICER'S CERTIFICATE
AGENT: TEXAS COMMERCE BANK NATIONAL ASSOCIATION
COMPANY: Long Beach Mortgage Company
SUBJECT PERIOD: ________________ ended ________________, 199__
DATE: _______________________, 199__
This certificate is delivered to the Agent under the 4/97 Senior
Secured Credit Agreement dated as of April 14, 1997 (as supplemented, amended or
restated from time to time, the "CURRENT CREDIT AGREEMENT"), among the Company,
the Agent and the financial institutions now or hereafter parties thereto (the
"LENDERS"). Unless they are otherwise defined in this request, terms defined in
the Current Credit Agreement have the same meanings here as there.
The undersigned officer of the Company certifies to the Agent and the
Lenders that on the date of this certificate that:
1. The undersigned is an incumbent officer of the Company, holding the
title stated below the undersigned's signature below.
2. The Company's consolidated financial statements that are attached to
this certificate were prepared in accordance with GAAP (except that interim --
i.e., other than annual -- financial statements exclude notes to financial
statements and statements of changes to stockholders' equity and are subject to
year-end adjustments) and (subject to the aforesaid proviso as to interim
financial statements) present fairly the Company's consolidated financial
position and results of operations as of ______________ and for the (check, as
applicable) / / month / / one, / / two or / / three quarter(s) of the Company's
fiscal year, as the case may be, ending on the last day of that period (the
"SUBJECT PERIOD").
3. The undersigned officer of the Company supervised a review of the
Company's
<PAGE> 166
activities during the Subject Period in respect of the following matters and has
determined the following: (a) to undersigned officer's best knowledge, except to
the extent that (i) a representation or warranty speaks to a specific date or
(ii) the facts on which a representation or warranty is based have changed by
transactions or conditions contemplated or expressly permitted by the Facilities
Papers, the representations and warranties of the Company in SECTION 8 of the
Current Credit Agreement are true and correct in all material respects, other
than for the changes, if any, described on the attached Annex A; (b) the Company
has complied with all of its obligations under the Facilities Papers, other than
for the deviations, if any, described on the attached ANNEX A; (c) no Event of
Default has occurred that has not been declared by the Agent in writing to have
been cured or waived, and no Default has occurred that has not been cured before
it became an Event of Default, other than those Events of Default and/or
Defaults, if any, described on the attached ANNEX A (d) compliance by the
Company with certain financial covenants in SECTION 10 of the Current Credit
Agreement is accurately calculated on the attached ANNEX A.
[AMERIQUEST MORTGAGE CORPORATION]
[LONG BEACH MORTGAGE COMPANY]
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE> 167
ANNEX A TO OFFICER'S CERTIFICATE
(a) Describe deviations from compliance with obligations, if any --
CLAUSE 3(b) of attached Officer's Certificate -- if none, so state:
(b) Describe Defaults or Events of Default, if any -- CLAUSE 3(c) of
attached Officer's Certificate -- if none, so state:
(c) Calculate compliance with covenants in SECTION 7 (on a consolidated
basis) -- CLAUSE 3(d) of attached Officer's Certificate.
<PAGE> 168
EXHIBIT F
TO 4/97 CREDIT AGREEMENT
ASSIGNMENT AND ASSUMPTION AGREEMENT
This Assignment and Assumption Agreement (this "A&A AGREEMENT") dated
as of ________ ___, 199__ among ___________________ (the "ASSIGNOR");
________________ (the "ASSIGNEE"); Long Beach Mortgage Company (the "COMPANY")
and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as Agent (the "AGENT");
W I T N E S S E T H:
Recitals:
The Agent, as agent for the lenders then or thereafter party to it
(collectively, the "LENDERS"); the Assignor, as a Lender, and the Company (which
was then named Ameriquest Mortgage Corporation) executed and delivered the 4/97
Senior Secured Credit Agreement (as amended, supplemented and restated, the
"CREDIT AGREEMENT") dated as of April 14, 1997. The Credit Agreement provides
for the Lenders to lend to the Company pursuant to the terms of the Credit
Agreement under a revolving line of credit and its subline(s) for the purposes
set forth therein (collectively, the line of credit and the subline(s) are
referred to as "FACILITIES"). The Assignor has agreed to make Advances to the
Company under one or more of the Facilities in accordance with the terms of the
Credit Agreement, with the maximum aggregate amount of the Assignor's Advances
under any Facility outstanding not to exceed the Funding Share, as applicable
for each Facility. The Assignor proposes to sell and assign to the Assignee, and
the Assignee proposes to buy and accept from the Assignor, an interest (the
"ASSIGNED INTEREST") in the rights and obligations of the Assignor under the
Facilities Papers, with the effect that the Assignee will have a funding share
for each Facility in the amount indicated next to the Assignee's signature block
below.
Agreements, Assignment and Assumption:
In consideration of the foregoing and the mutual agreements contained
herein, the parties hereto agree as follows:
1. Definitions. Any term defined in the Credit Agreement and used in
this A&A Agreement shall have the same meaning here as there.
2. Assignments. The Assignor hereby assigns and sells, without recourse
or warranty except as specifically set forth herein, to the Assignee the
Assigned Interest in the rights and obligations of the Assignor under the
Facilities Papers. The Assignee hereby purchases and
<PAGE> 169
accepts, without recourse or warranty except as specifically set forth herein,
from the Assignor all of such rights and obligations of the Assignor, including
the corresponding portion of the principal amount of the Advances made by the
Assignor outstanding on the date of this A&A Agreement. The total so lent by
Assignor and outstanding immediately before this A&A Agreement becomes effective
is:
<TABLE>
<CAPTION>
Assignor's principal advances
Facility now outstanding
<S> <C>
Subprime Single-family Warehouse Subline $_________________
P&I Advances Subline $_________________
Servicing Advances Subline $_________________
Recoveries Subline $_________________
</TABLE>
Subject to the execution and delivery of this A&A Agreement by the Assignor, the
Assignee, the Company and the Agent, effective as of its date, (a) the Assignee
shall succeed to the rights and be obligated to perform the obligations of a
Lender under the Facilities Papers with a funding share for each Facility in the
amount shown for it by the Assignee's signature block below and shall be
considered a Lender for all purposes under the Facilities Papers; (b) the
Assignee shall deliver to the Assignor, in immediately available funds, an
amount equal to the sum of the portions of the Assignor's principal Advances
outstanding under each Facility proportionate to the interest in that Facility
hereby assigned and (c) the Assignor's funding share for each Facility and its
share of outstanding Advances under each Facility shall each be reduced by the
funding share and share of outstanding Advances, respectively, acquired by the
Assignee and the Assignor shall be released from its obligations under the
Facilities Papers to the extent that they have been so assigned to and accepted
by the Assignor.
3. Payments. Commitment Fees accrued to the date of this A&A Agreement
with respect to the Assignor's funding share for each Facility affected by this
A&A Agreement are for the account of the Assignor and such fees accruing from
and including the date hereof with respect to the Assigned Interest are for the
account of the Assignee. All payments of principal of and accrued interest on
the Advances allocable to the Assigned Interest shall be divided between the
Assignor and the Assignee as their interests may appear, with all interest
accruing on the Advances of the Assignor before the date of this A&A Agreement
to belong to the Assignor. Each of the Assignor and the Assignee hereby agrees
that if it receives any amount from the Company or the Agent under the
Facilities Papers which is for the account of the other of them, it shall
receive such sum for the account of such other party to the extent of such other
party's interest therein and shall promptly pay such sum to such other party.
The rights of the Assignor and the Assignee under this Section are in addition
to other rights and remedies which the Assignor, the Assignee or any other
Lender may have.
4. Consent of the Company and the Agent. This A&A Agreement is
conditioned upon
<PAGE> 170
the consent of the Company and the Agent pursuant to SECTION 13.17 of the Credit
Agreement. The execution of this A&A Agreement by the Company and the Agent
evidences such consent. Pursuant to the cited Section of the Credit Agreement,
(a) the Assignor agrees to deliver its current Senior Credit Note(s) to the
Company, marked "Renewed" or its equivalent, and (b) the Company agrees to
execute and deliver new Senior Credit Notes payable to the order of the Assignee
and to the Assignor to evidence the assignment and acceptance provided for
herein.
5. The Assignor. The Assignor (a) represents and warrants to the
Assignee that it is the legal and beneficial owner of the interest being
assigned by the Assignor to the Assignee hereunder and that such interest is
free and clear of any Lien and (b) makes no representation or warranty and
assumes no responsibility with respect to (1) any statements, warranties or
representations made in or in connection with the Facilities Papers or the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Facilities Papers or any document furnished pursuant to them and (2) the
financial condition of the Company or the performance or observance by the
Company of any of its obligations under the Facilities Papers.
6. The Assignee. The Assignee (a) confirms that it has received a copy
of the Facilities Papers, together with such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this A&A Agreement; (b) agrees that it will, independently and without
reliance upon the Agent, the Assignor or any other Lender and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the
Facilities Papers; (c) appoints and authorizes the Agent to take such action as
Agent on behalf of the Assignee and to exercise such powers under the Facilities
Papers as are delegated to the Agent by its terms, together with such powers as
are reasonably incidental thereto; (d) represents and warrants that it is an
Eligible Assignee and (e) agrees that it will perform in accordance with their
terms all of the obligations which by the terms of the Facilities Papers are
required to be performed by it as a Lender.
7. Notices and Payment Instructions. All notices in connection herewith
shall be given in accordance with SECTION 13.17 of the Credit Agreement. The
address of the Assignee for notices hereunder and thereunder, together with
payment instructions for amounts to be paid to the Assignee under the Credit
Agreement, shall be initially as set forth on the signature pages hereof.
8. Miscellaneous. This A&A Agreement, when executed by the Assignor,
the Assignee, the Agent and the Company, (a) shall bind and benefit the
Assignor, the Assignee, all of the Lenders (whether now or hereafter party to
the Credit Agreement), the Company, the Agent and their respective successors,
assigns, receivers and trustees; (b) may be modified or amended only by a
writing signed by each of the parties hereto; (c) shall be governed by and
construed in accordance with the laws of the State of Texas and the United
States of America; (d) may be executed in several counterparts, and by the
parties hereto on separate counterparts, and each
<PAGE> 171
counterpart, when so executed and delivered, shall constitute an original
agreement, and all such separate counterparts shall constitute but one and the
same agreement; (e) embodies the entire agreement and understanding between the
parties with respect to the subject matter hereof and supersedes all prior
agreements, consents and understandings relating to such subject matter and (f)
is one of the Facilities Papers. The headings herein shall be accorded no
significance in interpreting this A&A Agreement.
IN WITNESS WHEREOF, the parties have caused this A&A Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
_________________________________
("Assignor")
By:______________________________
Name:____________________________
Title:___________________________
Funding Shares Assumed:
<TABLE>
<CAPTION>
<S> <C>
Subprime Single-family Warehouse Subline $_________________
P&I Advances Subline $_________________
P&I Advances Subline $_________________
Recoveries Subline $_________________
</TABLE>
<PAGE> 172
__________________________________
("Assignee")
By:_______________________________
Name:_____________________________
Title:____________________________
__________________________________
__________________________________
Attention:________________________
Telecopy No.: (___)_______________
Send payments to:
__________________________________
__________________________________
Reference: Long Beach Mortgage Company
LONG BEACH MORTGAGE COMPANY
By:_______________________________
Name:_____________________________
Title:____________________________
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, as the Agent
By:_______________________________
Name:_____________________________
Title:____________________________
<PAGE> 173
EXHIBIT G
TO 4/97 CREDIT AGREEMENT
(Form of Interest Rate Selection Confirmation)
[Letterhead of Long Beach Mortgage Company]
[date]
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: Manager, Corporate Mortgage Finance Group
Ladies and Gentlemen:
Long Beach Mortgage Company (the "COMPANY", which was then named Ameriquest
Mortgage Corporation) and Texas Commerce Bank National Association, as Agent
(the "AGENT") for itself as a Lender and for the other Lenders named or referred
to therein, and such other Lenders together executed a 4/97 Senior Secured
Credit Agreement dated April 14, 1997 (which, as it may have been or may
hereafter be amended, supplemented and restated, is called the "CREDIT
AGREEMENT"). Any term defined in the Credit Agreement and used in this Interest
Rate Selection Confirmation shall have the meaning given to it in the Credit
Agreement.
This is an Interest Rate Selection Confirmation, and confirms the
Company's telephonic notice of Interest Rate Option(s) selected on
___________________________, 19___ by ______________________________ of the
Company to ________________________________ of the Agent at approximately ______
__.m., Houston (i.e., Central) time.
In that telephonic notice, the Company selected the following Interest
Rate Option(s):
<PAGE> 174
Texas Commerce Bank National Association
__________, 199__
Page 2
<TABLE>
<CAPTION>
==================================================================================================
PRINCIPAL AMOUNT
AFFECTED (NOT REQUIRED FIXED RATE INTEREST
EFFECTIVE DATE FOR BALANCE ADJUSTED RATE OPTION SELECTED PERIOD SELECTED
OF SELECTION RATE OPTION; MINIMUM (REQUIRED ONLY FOR
$10 MILLION FOR FIXED ADJUSTED LIBOR
RATE TRANCHES) FIXED RATE OPTIONS
==================================================================================================
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
==================================================================================================
</TABLE>
The Company hereby warrants and represents to the Agent and the Lenders
that:
(a) no Fixed Rate Option elected (if any) will result in a Fixed Rate
Borrowing with a maturity (i) longer than 60 days or (ii) later than the
Maturity Date;
(b) no Default has occurred that has not been cured;
(c) no Event of Default has occurred that has not been declared in
writing by the Agent to have been cured or waived; and
(d) the Company is currently allowed to make the selection(s) described
above under the terms of the Credit Agreement.
[AMERIQUEST MORTGAGE CORPORATION]
[LONG BEACH MORTGAGE COMPANY]
By:____________________________
Name:__________________________
Title:_________________________
<PAGE> 175
EXHIBIT H
TO 4/97 CREDIT AGREEMENT
(Basic Form of Opinion of Counsel)
[Date]
Texas Commerce Bank
National Association,
As Agent for the Lenders
712 Main Street
Houston, Texas 77002
Re: 4/97 Senior Secured Credit Agreement dated as of April 14, 1997
among Ameriquest Mortgage Corporation (the "COMPANY", to be renamed
Long Beach Mortgage Company) and Texas Commerce Bank National
Association, as agent (the "AGENT") and a Lender, and the other
Lenders party thereto (collectively, the "LENDERS")
Gentlemen:
We have acted as special counsel for the Company and Long Beach Financial
Corporation (the "GUARANTOR") in connection with the 4/97 Senior Secured Credit
Agreement dated as of (the "CREDIT AGREEMENT") among the Company, the Agent and
the Lenders and the Guarantor's Continuing Guaranty of the Company's Obligations
(the "GUARANTY"). This opinion is rendered to you in compliance with SECTION
7.1(a)(9) of the Credit Agreement.
Unless otherwise defined herein or the context otherwise requires, each
capitalized term used herein shall have the meaning ascribed to it in the Credit
Agreement.
In our capacity as such counsel, we have examined the Credit Agreement,
the Custody Agreement and the Senior Credit Notes (collectively, the "PRINCIPAL
FACILITIES PAPERS"), the Guaranty and such other documents and matters as we
have deemed necessary in rendering the opinions hereinafter set forth. We have
been furnished with, and with the Agent's and the Lenders' consent have relied
upon, certificates of and other information supplied by officers of the Company
and the Guarantor with respect to certain factual matters and we have assumed
the accuracy of all representations of fact set forth in the Principal
Facilities Papers and the Guaranty. In addition, we have obtained and relied
upon such certificates and assurances from public officials as we have deemed
necessary. We have also assumed the genuineness of signatures on (other than
those of the Company's representatives on the Facilities Papers and the
Guarantor's representative on the Guaranty), and the authenticity of, all
materials so examined; and we have
<PAGE> 176
Texas Commerce Bank
National Association
[Date]
Page 2
assumed the conformity with originals of all documents submitted to us as
copies. For purposes of our opinions we have assumed the due authorization,
execution, delivery, and performance of the Credit Agreement and the Custody
Agreement by the Agent and the Lenders.
Based upon the foregoing, and subject to the qualifications herein set
forth, it is our opinion that:
1. The Company (a) is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware, (b) has the full legal
power and authority to own its property and carry on its business as currently
conducted, and (c) is, to the best of our knowledge, duly qualified to transact
business as a foreign corporation in each jurisdiction where the nature of the
business transacted or property owned by the Company requires such
qualification, except in such jurisdictions where the failure to be in good
standing has no material adverse effect on the Central Elements relating to the
Company.
2. The Company has the requisite corporate power and authority to execute,
deliver and comply with the terms of the Facilities Papers.
3. The execution, delivery and performance by the Company of the
Facilities Papers (a) have been duly authorized by all necessary corporate
action on the part of the Company, (b) do not conflict with the articles of
incorporation or bylaws of the Company and (c) do not (i) conflict with any
laws, ordinances, regulations or orders of competent governmental authority or
(ii) to the best of our knowledge, conflict with or result in a breach of or
constitute a default or require any consent under, or result in the creation of
any lien upon any property or assets of the Company (except for the liens and
security interests created by the Facilities Papers), or result in or require
the acceleration of any debt of the Company, pursuant to any agreement or
instrument to which the Company is a party or by which the Company or its
property may be bound or affected.
4. The Facilities Papers constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms, except as limited by bankruptcy, insolvency or other such laws affecting
the enforcement of creditors' rights generally and by general equitable
principles.
5. The Guarantor (a) is a corporation duly organized, validly existing,
and in good
<PAGE> 177
Texas Commerce Bank
National Association
[Date]
Page 3
standing under the laws of the State of Delaware, (b) has the full legal power
and authority to own its property and carry on its business as currently
conducted, and (c) is, to the best of our knowledge, duly qualified to transact
business as a foreign corporation in each jurisdiction where the nature of the
business transacted or property owned by the Guarantor requires such
qualification, except in such jurisdictions where the failure to be in good
standing has no material adverse effect on the Central Elements relating to the
Guarantor.
6. The Guarantor has the requisite corporate power and authority to
execute, deliver and comply with the terms of the Guaranty.
7. The execution, delivery and performance by the Guarantor of the
Guaranty (a) have been duly authorized by all necessary corporate action on the
part of the Guarantor, (b) do not conflict with the articles of incorporation or
bylaws of the Guarantor and (c) do not (i) conflict with any laws, ordinances,
regulations or orders of competent governmental authority or (ii) to the best of
our knowledge, conflict with or result in a breach of or constitute a default or
require any consent under, or result in the creation of any lien upon any
property or assets of any of the Companies (except for the liens and security
interests created by the Facilities Papers), or result in or require the
acceleration of any debt of the Guarantor, pursuant to any agreement or
instrument to which the Guarantor is a party or by which the Guarantor or its
property may be bound or affected.
8. The Guaranty constitutes the legal, valid and binding obligations of
the Guarantor, enforceable in accordance with its terms, except as limited by
bankruptcy, insolvency or other such laws affecting the enforcement of
creditors' rights generally and by general equitable principles.
9. To the best of our knowledge and except as disclosed in the most
recent Financial Statements furnished to the Agent, there is no action, claim,
suit or proceeding pending or threatened or reasonably anticipated against or
affecting the Company, any of its Subsidiaries or the Guarantor in any court,
before any other Governmental Authority or before any arbitrator or in any other
dispute resolution forum which, if adversely determined, could reasonably be
expected to result in a material and adverse effect on any of the Central
Elements relative to the Company or the Guarantor (as the case may be).
10. The Company and the Servicers of its Mortgage Loans or the Mortgage
Loans
<PAGE> 178
Texas Commerce Bank
National Association
[Date]
Page 4
owned by others for which the Company serves as Servicer are duly registered as
mortgage lenders and servicers in each state in which such Mortgage Loans have
been or are from time to time originated, to the extent such registration is
required by any applicable Legal Requirement, except where the failure to
register could not reasonably be expected to result in any material and adverse
effect on any of the Central Elements in respect of the Company.
11. Neither the Company nor the Guarantor is subject to the rules
governing an "investment company" within the meaning of the Investment Company
Act of 1940, as amended.
12. Neither the Company, any of its Subsidiaries nor the Guarantor is an
"affiliate" or a "subsidiary company" of a "public utility company," or a
"holding company," an "affiliate" or a "subsidiary company" of a "holding
company," as such terms are defined in the PUHC Act.
13. None of the transactions contemplated under the Facilities Papers
shall cause or constitute a violation by the Company or the Guarantor of any of
the provisions, rules, regulations or order of or under the PUHC Act, and the
PUHC Act does not in any manner impair the legality, validity or enforceability
of the Facilities Papers or any of the Agent's Liens.
14. The Credit Agreement creates a security interest in the Collateral
described therein.
15. The form of the Financing Statement and the description of the
Collateral contained therein comply with all applicable Legal Requirements,
including, without limitation, all applicable filing laws and regulations, and
are adequate and legally sufficient for the purpose of perfecting and
maintaining a Lien on the Collateral.
16. A fully executed counterpart of the Financing Statement should be
filed under the Uniform Commercial Code and all applicable fees paid in
California. Possession by the Agent or its duly designated bailee (other than
the Company) of the Mortgage Notes evidencing the Pledged Loans and such filing
of the Financing Statement will result in a legally valid perfected Lien in the
Collateral (other than any Collateral consisting of real estate) as security of
the Obligations. Except as set forth in the immediately following paragraph, no
other or further action or filing is necessary or appropriate for the purposes
intended to be accomplished by the Financing Statement.
17. After the actions described in the immediately preceding paragraph
have been
<PAGE> 179
Texas Commerce Bank
National Association
[Date]
Page 5
accomplished, no further or subsequent filing, refiling, recording,
re-recording, registration or registration of the Financing Statement or any
other instrument will be necessary in order to perfect and continue the Liens
created by the Credit Agreement in the Collateral, except that a continuation
statement signed by the secured party of record, identifying the original
Financing Statement by file number and date of filing, and stating that the
original Financing Statement remains effective, must be filed under the Uniform
Commercial Code in each office where such Financing Statement was filed before
the expiration of five (5) years from the date of such filing and subsequent
such continuation statements must be filed within six (6) months before the end
of each subsequent five-year period, and amendments or supplements to the
Financing Statement and/or additional financing statements may be required to be
filed in the event of a change in the name, identity or structure of the debtor
described therein within four (4) months after each such change or in the event
the Financing Statement otherwise becomes inaccurate or incomplete.
18. No state or local registration tax, transfer tax, stamp tax or other
fee, tax or governmental charge is required to be paid in connection with the
execution and delivery of the Facilities Papers or the filing of the Financing
Statement, or any of the transactions contemplated thereby, other than nominal
statutory filing fees which are to be paid upon the filing of the Financing
Statement.
19. The proper foreclosure of part of the Collateral in and of itself will
not restrict, affect or impair the liabilities of the Company and the Guarantor
with respect to the Obligations or the Agent's rights or remedies with respect
to the foreclosure or enforcement of any other Liens securing the Obligations,
to the extent any deficiency remains unpaid after application of the proceeds of
the foreclosure.
20. No franchise, income, sales, gross receipts, profits or other like
taxes are payable in the State of California by the Agent or any Lender solely
by reason of the transactions described in the Facilities Papers or the interest
conveyed or assigned by the Facilities Papers.
21. Neither the Agent or any Lender is required to qualify as a foreign
entity in the State of California or to register or make any filing with or to
obtain the consent of any federal or California Governmental Authority in order
to make the Loan or to exercise its rights under the Facilities Papers.
22. The execution and delivery of the Facility Papers, and the performance
of the
<PAGE> 180
Company's obligations thereunder, do not require any license, consent, approval,
or other action of any court or other governmental authority other than those
which have been obtained and remain in full force and effect.
Please also be advised that the foregoing opinions relate only to the laws
of the States of Texas, California and Delaware and applicable federal law and
no opinion is to be inferred beyond that stated herein.
This opinion is rendered to you for your benefit in your capacity as Agent
and Custodian, the benefit of you and the other Lenders, participants and
Eligible Assignees of any of the Senior Credit Notes and your and their legal
counsel in connection with the above transaction and may not be relied upon by
any other Person or for any other purpose without our prior written consent.
This opinion is rendered as of the date hereof and we hereby disclaim any
obligation to advise you or any other party entitled to rely hereon of any
change in any matter set forth herein.
Very truly yours,
<PAGE> 181
SCHEDULE LC
TO 4/97 CREDIT AGREEMENT
The Lenders' Committed Sums and
Subline Funding Limits,
(in millions of dollars)
<TABLE>
<CAPTION>
====================================================================================================
Subprime
Lender Committed Sum Single-family Servicing Recoveries
Warehouse P&I Advances Advances Advances
Subline Subline Funding Subline Subline Funding
Funding Limit Limit Funding Limit Limit
====================================================================================================
<S> <C> <C> <C> <C> <C>
Texas 45 45 3.375 2.250 1.125
Commerce
- ----------------------------------------------------------------------------------------------------
Guaranty 40 40 3.000 2.000 1.000
Federal Bank,
F.S.B,
- ----------------------------------------------------------------------------------------------------
Bank United 35 35 2.625 1.750 0.875
- ----------------------------------------------------------------------------------------------------
The First 30 30 2.250 1.500 0.750
National Bank of
Boston
- ----------------------------------------------------------------------------------------------------
Comerica Bank- 25 25 1.875 1.250 0.625
California
- ----------------------------------------------------------------------------------------------------
The Bank of 25 25 1.875 1.250 0.625
New York
- ----------------------------------------------------------------------------------------------------
Aggregate
Committed Sum 200
- ----------------------------------------------------------------------------------------------------
Sublimit 200 15.000 10.000 5.000
====================================================================================================
</TABLE>
<PAGE> 182
SCHEDULE UG-SSF
TO 4/97 CREDIT AGREEMENT
(Summary description of Company Underwriting Guidelines
for Subprime Single-family Mortgage Loans)
<PAGE> 183
SCHEDULE QI
TO 4/97 CREDIT AGREEMENT
APPROVED INVESTORS
Salomon Brothers, Inc.
First Boston
Greenwich Capital Acceptance, Inc.
Greenwich Capital Markets
Prudential
Donaldson Lufkin & Jenrette
Merrill Lynch
Lehman Brothers
AMRESCO Residential Credit Corporation
Fremont Investment & Loan
Household Financial Services, Inc.
ICI Funding Corporation
The CIT Group/Consumer Finance, Inc.
Saxon Mortgage Funding Corp.
Southern Pacific Thrift & Loan Association
<PAGE> 184
SCHEDULE FS
TO 4/97 CREDIT AGREEMENT
<TABLE>
<CAPTION>
==========================================================================================
Subprime
Single-family P&I Advances Servicing Recoveries
Warehouse Subline Advances Advances Subline
Subline Funding Share Subline Funding Share
Lender Funding fraction Funding fraction
Share Share
fraction fraction
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas Commerce 45/200 3.375/15 2.25/10 1.125/5
- ------------------------------------------------------------------------------------------
Guaranty Federal Bank, 40/200 3/15 2/10 1.000/5
F.S.B.
- ------------------------------------------------------------------------------------------
Bank United 35/200 2.625/15 1.75/10 0.875/5
- ------------------------------------------------------------------------------------------
The First National 30/200 2.25/15 1.5/10 0.750/5
Bank of Boston
- ------------------------------------------------------------------------------------------
Comerica Bank- 25/200 1.875/15 1.25/10 0.625/5
California
- ------------------------------------------------------------------------------------------
The Bank of New York 25/200 1.875/15 1.25/10 0.625/5
- ------------------------------------------------------------------------------------------
Totals 200/200 15/15 10/10 5/5
==========================================================================================
</TABLE>
<PAGE> 185
SCHEDULE 7.1(b)
TO 4/97 CREDIT AGREEMENT
List of debts to be excluded from the
subordination required by SECTION 7.1(b)
[to be completed by the Company - blank attached to 4/97 Senior Secured Credit
Agreement]
<PAGE> 186
SCHEDULE 8.4
TO 4/97 CREDIT AGREEMENT
Summary of material adverse changes and material unrealized losses since
the Statement Date, as referred to in SECTION 8.4
[to be completed by the Company - blank attached to 4/97 Senior Secured Credit
Agreement]
<PAGE> 187
SCHEDULE 10.1
TO 4/97 CREDIT AGREEMENT
Contingent Liabilities
as of ___________ ___ , 199__
Ameriquest Financial Corporation's (to be renamed Long Beach Mortgage Company)
contingent liabilities:
<PAGE> 188
SCHEDULE 10.10(c)(3)
TO 4/97CREDIT AGREEMENT
Unsecured Debt referred to in SECTION 10.10(c)(3):
<PAGE> 1
EXHIBIT 10.5
FORM OF CONTRIBUTION AGREEMENT
This Contribution Agreement (this "Agreement") is entered into on April
___, 1997 by and among Ameriquest Capital Corporation, a Delaware corporation
("Old Long Beach Holdings"), Long Beach Mortgage Company, a Delaware corporation
and a wholly-owned subsidiary of Old Long Beach Holdings to be renamed
Ameriquest Mortgage Company as contemplated herein ("Old Long Beach"), Long
Beach Financial Corporation, a Delaware corporation ("LBFC"), and Ameriquest
Mortgage Corporation, a Delaware corporation and a wholly-owned subsidiary of
LBFC to be renamed Long Beach Mortgage Company as contemplated herein ("New Long
Beach"). LBFC and New Long Beach are sometimes hereinafter referred to
collectively as the "Company."
RECITALS
A. Old Long Beach's business operations currently include wholesale and
retail mortgage lending and loan servicing activities and other business
activities. LBFC, which is a wholly-owned subsidiary of Old Long Beach,
currently does not conduct, and in the past has not conducted, any business
operations.
B. Old Long Beach is reorganizing its business operations (the
"Reorganization") by transferring to LBFC assets and personnel related to Old
Long Beach's broker-sourced mortgage lending and loan sales operations (the
"Wholesale Lending Business") in exchange for shares of the common stock of
LBFC. Immediately following such transfer, LBFC will transfer substantially all
of the assets and personnel received from Old Long Beach to New Long Beach.
C. LBFC has filed a registration statement on Form S-1 (the
"Registration Statement") with the Securities and Exchange Commission (the
"SEC") under the Securities Act of 1933, as amended, pursuant to which Old Long
Beach intends to sell to the public the common stock of LBFC that it will
receive in the Reorganization.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the mutual
covenants and conditions contained herein, the parties agree as follows:
<PAGE> 2
ARTICLE I
CONTRIBUTION OF ASSETS
1.1 TRANSFER OF ASSETS. Effective as of the Effective Time (as defined
in Section 1.7 below):
(a) Transfer of Tangible Assets. Old Long Beach hereby sells,
conveys, transfers, assigns and grants to LBFC all of Old Long Beach's legal,
beneficial and other right, title and interest in and to the furniture, fixtures
and equipment, computer equipment, office supplies, maintenance supplies and
other fixed assets and similar items and the books, records, materials and other
assets described on Schedule 1.1(a)(i) (collectively, the "Transferred Tangible
Assets"). The books, records and other materials and information not used
exclusively by the Wholesale Lending Business as described on Schedule
1.1(a)(ii) (the "Shared Information") shall be provided to LBFC in the form of
copies thereof and LBFC shall have the perpetual, royalty-free and non-exclusive
right to use all such information in any form or medium. LBFC hereby assumes and
agrees to perform and pay when due all liabilities and obligations of Old Long
Beach that relate to the Transferred Tangible Assets to the extent such
obligations or duties are applicable to and accrue with respect to, or are to be
performed in, periods after the Effective Time. Except as set forth in Section
3.2, the Transferred Tangible Assets are hereby transferred to LBFC as is, where
is, without any representation or warranty by Old Long Beach and Old Long Beach
specifically disclaims any and all express and implied warranties with respect
to the Transferred Tangible Assets, including without limitation the implied
warranties of merchantability and fitness for a particular purpose;
(b) Transfer of Real Property Leases. Old Long Beach hereby
sells, conveys, transfers, assigns and grants to LBFC all of Old Long Beach's
legal, beneficial and other right, title and interest in and to those certain
real property leases listed on Schedule 1.1(b) (the "Transferred Real Property
Leases"), and LBFC hereby assumes and agrees to observe, perform, discharge and
be bound by the terms and conditions thereof to the extent such obligations or
duties are applicable to and accrue with respect to, or are to be performed in,
periods after the Effective Time. Except as set forth in Section 3.2, the
Transferred Real Property Leases are hereby transferred to LBFC without any
representation or warranty by Old Long Beach and Old Long Beach specifically
disclaims any and all express and implied warranties with respect to the
Transferred Real Property Leases, including without limitation the implied
warranties of merchantability and fitness for a particular purpose. On or prior
to the Effective Time, Old Long Beach shall arrange for, and the Company shall
execute, a new lease for the 9th Floor of 1100 Town & Country Road, Orange,
California on substantially similar economic terms as the lease for such space
by Old Long Beach. Any expansion/future space lease rights included in any Old
Long Beach lease at 1100 Town & Country Road, Orange, California, are expressly
retained by Old Long Beach. Any expansion/future space lease rights included in
any lease of the Company at 1100 Town & Country Road, Orange, California, are
expressly retained by the Company;
<PAGE> 3
(c) Transfer of Certain Contracts. Old Long Beach hereby
sells, conveys, transfers, assigns and grants to LBFC all of Old Long Beach's
legal, beneficial and other right, title and interest in and to those certain
contracts, leases and agreements listed on Schedule 1.1(c) (the "Transferred
Contracts"), and LBFC hereby assumes and agrees to observe, perform, discharge
and be bound by the terms and conditions thereof to the extent such obligations
or duties are applicable to and accrue with respect to, or are to be performed
in, periods after the Effective Time. Except as set forth in Section 3.2, the
Transferred Contracts (and any related assets) are hereby transferred to LBFC
without any representation or warranty by Old Long Beach and Old Long Beach
specifically disclaims any and all express and implied warranties with respect
to the Transferred Contracts, including without limitation the implied
warranties of merchantability and fitness for a particular purpose.;
(d) Transfer of Pipeline Loans. Old Long Beach hereby sells,
conveys, transfers, assigns and grants to LBFC all of Old Long Beach's legal,
beneficial and other right, title and interest in the unfunded loans and loans
in process at the Wholesale Lending Business at the Effective Time (the
"Pipeline Loans"). The Company agrees to process the Pipeline Loans in
compliance with the policies and procedures of the Wholesale Lending Business
and further agrees to fund all such loans in accordance with its current
practices and as required by applicable law. [Loans which were funded by the
Wholesale Lending Business prior to the Effective Time, but which are unfunded
after the Effective Time, shall be included within the definition of Pipeline
Loans and Old Long Beach shall receive the proceeds of such unfunding]; and
(e) Transfer of Intangible Assets. Old Long Beach hereby
sells, conveys, transfers, assigns and grants to LBFC all of Old Long Beach's
legal, beneficial and other right, title and interest in and to the following
assets:
(i) All information regarding the approved
independent mortgage brokers with whom the Wholesale Lending Business does
business;
(ii) All trade names, trademarks and service marks
(in any such case, whether registered or to be registered in the United States
of America or elsewhere and including any derivations thereof) applied for,
issued to or owned by Old Long Beach for the name "Long Beach Mortgage Company,"
including without limitation the stylized "seagull" logo and all related
goodwill;
(iii) All goodwill and going concern value
attributable to the Wholesale Lending Business; and
(iv) All prepaid charges and expenses relating to the
Wholesale Lending Business as described on Schedule 1.1(e)(iv);
(collectively, the "Transferred Intangible Assets"). The Transferred Intangible
Assets are hereby transferred to LBFC without any express or implied
representation or warranty of any kind by Old Long Beach.
<PAGE> 4
The Transferred Tangible Assets, the Transferred Real Property
Leases, the Transferred Contracts, the Pipeline Loans and the Transferred
Intangible Assets are hereinafter referred to as the "Wholesale Lending Assets".
1.2 CASH CONTRIBUTION. At the Effective Time, Old Long Beach shall
contribute to LBFC the sum of Forty Million Dollars ($40,000,000) less (i) the
amount of cash previously contributed to and retained by LBFC or New Long Beach
and (ii) $1,500,000 for the costs, fees and expenses incurred by Old Long Beach
in connection with the Reorganization, which fees and expenses Old Long Beach
agrees to pay. All costs of the Reorganization and the public offering of the
Shares shall be paid by Old Long Beach.
1.3 ISSUANCE OF SHARES. At the Effective Time, as consideration for the
transfers and cash contribution described above, LBFC shall issue to Old Long
Beach Twenty Four Million Nine Hundred Ninety Nine Thousand Nine Hundred Ninety
Nine (24,999,999) newly issued shares of LBFC's common stock (the "Shares").
1.4 EXCLUDED ASSETS. Any and all businesses, properties, assets and
other rights and liabilities of Old Long Beach of whatever kind and nature, real
or personal, tangible or intangible, existing or contingent, liquidated or
unliquidated, that are not specifically transferred pursuant to the terms of
this Agreement shall be retained by Old Long Beach.
1.5 EMPLOYEES.
(a) Employment of Employees by the Company. As of the
Effective Time, each of the employees identified on Schedule 1.5(a) who are
employed by Old Long Beach at the Effective Time shall become employees of the
Company (the "Subject Employees"), and Old Long Beach and the Company shall take
all steps necessary or appropriate to accomplish the transfer of such employees
from Old Long Beach to the Company. The Company hereby agrees to employ the
Subject Employees for not less than sixty (60) days following the Effective Time
on terms and conditions no less favorable to each Subject Employee than those
provided by Old Long Beach immediately prior to the Effective Time.
As of the Effective Time, Old Long Beach agrees to transfer to
the Company and the Company agrees to assume each Subject Employee's respective
benefits, seniority, vacation, sick or other leave, holidays, and floating
personal days accrued by such Subject Employees under Old Long Beach policies,
practices and programs as of the Effective Time, and from and after the
Effective Time neither Old Long Beach nor any employee benefit plan of Old Long
Beach shall have any further liability or responsibility in respect of such
items with respect to the Subject Employees, except as may otherwise be provided
herein. All payroll withholding and tax reporting by Old Long Beach with respect
to Subject
<PAGE> 5
Employees are hereby terminated as of the Effective Time and Old Long
Beach agrees to pay over to federal, state and local governments, in accordance
with and at the times required by applicable law, all amounts withheld prior to
the Effective Time. Old Long Beach also will issue, at Old Long Beach's expense,
by the date prescribed under applicable law, Forms W-2 for wages paid through
the Effective Time. Old Long Beach shall be responsible for all benefit,
payroll, tax-related and other responsibilities and liabilities with respect to
Subject Employees resulting from operations prior to the Effective Time and the
Company shall be responsible for all benefit, payroll, tax-related and other
responsibilities and liabilities with respect to Subject Employees resulting
from operations after the Effective Time.
(b) Retirement Benefits. As of the Effective Time, all Subject
Employees shall cease actively to accrue further benefits under the Old Long
Beach 401(k) Plan. As soon as practicable following the Effective Time, the
Company shall establish or designate an individual account plan for the benefit
of Subject Employees (the "Successor Individual Account Plan"), shall take all
necessary action, if any, to qualify such plan under the applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code") and shall make any
and all filings and submissions to the appropriate governmental agencies
required to be made by it in connection with the transfer of assets described
below. As soon as practicable following the earlier of the delivery to Old Long
Beach of a favorable determination letter from the Internal Revenue Service
regarding the qualified status of the Successor Individual Account Plan as
amended to the date of transfer, or the issuance of assurances satisfactory to
Old Long Beach, Old Long Beach shall cause the trustee of the Old Long Beach
401(k) Plan to transfer in the form of cash (or such other form as may be agreed
by Old Long Beach and the Company) the full account balances of the Subject
Employees under the Old Long Beach 401(k) Plan (which account balances shall be
valued for purposes of such transfer in a manner consistent with the approach to
valuation generally applicable at the time of such transfer to distributions
under the Old Long Beach 401(k) Plan or in such other manner as Old Long Beach
and the Company may agree in writing), reduced to the extent necessary to
reflect any necessary benefit or withdrawal payments to or in respect of Subject
Employees, to the appropriate trustee as designated by the Company under the
trust agreement forming a part of the Successor Individual Account Plan.
Notwithstanding the preceding sentence, no transfer shall be made of any
insurance or similar investment contract which is not divisible between the Old
Long Beach 401(k) Plan and the Successor Individual Account Plan.
(c) Other Benefits. The Subject Employees are, as of the
Effective Time, immediately eligible for all such benefits provided by the
Company on the same basis as if service for Old Long Beach were recognized as
service for the Company, and without application of any waiting period or any
limitation with respect to preexisting conditions that would not have been
applicable under Old Long Beach policies, practices or plans (subject to the
terms and conditions of each policy). Old Long Beach shall remain responsible
for COBRA coverage for "qualifying events" (as defined in COBRA) occurring prior
to the Effective Time. With respect to the Flexible Spending Account Plan of Old
Long Beach, there shall be transferred to the Company as of or immediately
following the Effective Time the current unused balances in Flexible Spending
Accounts and an accounting of contributions to the Effective Time made by
Subject Employees. To the extent that any account of a Subject Employee under
the health care portion of the Flexible Spending Account shows disbursements in
excess of receipts as of the Effective Time, New Long Beach shall reimburse Old
Long Beach to the extent of future contributions during the remainder of the
plan year by such Subject Employee.
<PAGE> 6
(d) Accrued Incentive Compensation. Notwithstanding anything
herein to the contrary, all incentive compensation amounts due to Subject
Employees pursuant to existing Old Long Beach policy on loans closed and funded
(including closed and funded loans transferred to the Company pursuant to
Section 2.8 below but excluding unfundings in accordance with Old Long Beach's
existing policy for such unfundings) will be paid to such employees by Old Long
Beach in accordance with Old Long Beach's normal payment schedule for such
compensation. The Company will be responsible for all incentive compensation on
transferred Pipeline Loans.
(e) Deferred Transfer Employees. Old Long Beach and the
Company acknowledge and agree that the employees of Old Long Beach set forth on
Schedule 1.5(e) (the "Deferred Transfer Employees") shall become employees of
the Company, and Old Long Beach and the Company shall take all steps necessary
or appropriate to accomplish the transfer of such employees from Old Long Beach
to the Company effective on or before the dates set forth in Schedule 1.5(e),
subject to the condition that such employee is employed by Old Long Beach at the
scheduled time of transfer. The Company hereby agrees to employ the Deferred
Transfer Employees for not less than sixty (60) days following their date of
transfer on terms and conditions no less favorable to each Deferred Transfer
Employee than those provided by Old Long Beach immediately prior to the
Effective Time. Old Long Beach and the Company agree that the other provisions
of this Section 1.5 shall apply to each such Deferred Transfer Employee and such
employees shall be treated as "Subject Employees" at and as of the date on which
such Employee is actually transferred to the Company.
1.6 ASSUMPTION OF LIABILITIES AND OBLIGATIONS. The liabilities and
obligations expressly assumed by the Company pursuant to this Agreement are
hereinafter referred to as the "Assumed Liabilities". The Company is not
assuming and shall not be liable for any liabilities, indebtedness or
obligations of Old Long Beach other than the Assumed Liabilities.
1.7 EFFECTIVE TIME. The "Effective Time" shall mean the time that is
immediately prior to the consummation of the sale of the Shares by Old Long
Beach pursuant to that certain Underwriting Agreement, dated as of April __,
1997, by and among LBFC, Old Long Beach and Friedman, Billings, Ramsey & Co.,
Inc. (the "Underwriting Agreement"). In the event the Effective Time has not
occurred on or prior to June 30, 1997, this Agreement shall terminate and become
null and void.
1.8 DELAYED TRANSFERS. To the extent that any required consent with
respect to the assignment, transfer or bifurcation of a contract, agreement,
lease or other instrument included in the Wholesale Lending Assets has not been
obtained on or prior to the Effective Time and Old Long Beach is unable (by
sublease or otherwise) to transfer the legal benefit thereof to LBFC, such
contract, assignment, lease or instrument (a "Delayed Asset") shall not be
transferred as a Wholesale Lending Asset hereunder and any related liability (a
"Delayed Liability") shall not be assumed by LBFC as an Assumed Liability
hereunder, unless and until such required consent has been obtained or Old Long
Beach is otherwise able to transfer the legal benefit thereof to LBFC.
Notwithstanding the foregoing, if such a required consent to transfer is not
obtained, Old Long Beach will use its best efforts to attempt to provide to the
<PAGE> 7
Company the benefits of any such Delayed Assets. At such time and on each
occasion after the Effective Time that a required consent shall be obtained with
respect to a Delayed Asset, such Delayed Asset shall forthwith be deemed
transferred and assigned to LBFC hereunder, and all related Delayed Liabilities
shall be simultaneously assumed by LBFC hereunder, whereupon (i) such delayed
asset shall constitute a Wholesale Lending Asset for all purposes hereunder, and
(ii) such delayed liability shall constitute an Assumed Liability for all
purposes hereunder.
1.9 FURTHER TRANSFERS. Old Long Beach acknowledges that certain of the
Wholesale Lending Assets and certain of LBFC's obligations hereunder are
concurrently herewith being transferred and assigned to New Long Beach. Old Long
Beach hereby consents to such transfer; provided, however, that:
(i) such transfer and Old Long Beach's consent
thereto shall not constitute in any manner a release of LBFC from its
obligations hereunder; and
(ii) New Long Beach hereby acknowledges and agrees to
be bound by all of the provisions of this Agreement to the extent such
provisions relate or are applicable to the Wholesale Lending Assets or LBFC
obligations transferred to New Long Beach.
Such further transfers shall be made pursuant to an Assignment and Assumption
Agreement reasonably acceptable to the parties to this Agreement.
ARTICLE II
OTHER AGREEMENTS
2.1 EXECUTION AND DELIVERY OF OTHER AGREEMENTS. At the Effective Time,
the parties shall execute and deliver the following documents:
(a) Administrative Services Agreement among Old Long Beach,
New Long Beach and LBFC pursuant to which Old Long Beach will provide certain
services to the Company for a period of time after the Effective Time;
(b) Administrative Services Agreement between New Long Beach
and Old Long Beach pursuant to which New Long Beach will provide secondary
marketing services to Old Long Beach for a period of time after the Effective
Time;
(c) Loan Sub-Servicing Agreement between Old Long Beach and
New Long Beach; and
(d) Such other documents as may be necessary for Old Long
Beach to convey the assets in accordance with this Agreement.
2.2 DOJ SETTLEMENT.
(a) Each of LBFC and New Long Beach agrees that it shall, and
it shall cause its subsidiaries and affiliates to, comply in all respects with
the terms and conditions set
<PAGE> 8
forth in Old Long Beach's settlement agreement with the United States Department
of Justice, dated September 6, 1996 (the "DOJ Settlement") (excluding Sections
12 and 17 through 23 of the DOJ Settlement). The parties agree to cooperate with
each other in good faith with respect to any issues related to the DOJ
Settlement; provided, however, that the parties will not make, and each will
cause its employees, officers, directors and agents not to make, any public
statement regarding the DOJ Settlement other than to describe and discuss how
the DOJ Settlement specifically applies to and affects such party.
(b) To the extent of its rights therein, effective as of the
Effective Time, Old Long Beach hereby grants to LBFC, New Long Beach and their
respective subsidiaries a non-transferable (other than by operation of law),
perpetual, royalty-free and nonexclusive license to use the statistical model
(the "DOJ Model") that Old Long Beach has developed to monitor direct-sourced
mortgage loan prices as part of the DOJ Settlement. Old Long Beach will provide
LBFC with a copy of the DOJ Model as it exists at the Effective Time. Old Long
Beach shall have no obligation (a) to provide LBFC with updates of the DOJ
Model, (b) to make modifications to the DOJ Model or (c) to otherwise correct
any deficiencies in the DOJ Model that may exist or that Old Long Beach may
later discover. Old Long Beach specifically disclaims any and all express and
implied warranties with respect to the DOJ Model, including without limitation
the implied warranties of merchantability and fitness for a particular purpose.
Each of LBFC and New Long Beach acknowledges and agrees that Old Long Beach has
not made any representation or warranty or provided any other assurance that the
DOJ Model complies with the terms of the DOJ Settlement. The Company shall not
be required to use the DOJ Model, but may instead develop its own statistical
functions for the purpose of complying with the DOJ Settlement. The Company
shall not be required to provide to Old Long Beach copies of or a license to use
any such statistical function that is independently developed by the Company.
2.3 NAME CHANGE.
(a) At or prior to the Effective Time, Old Long Beach shall
file with the Secretary of State of the State of Delaware a certificate of
amendment to its certificate of incorporation to change Old Long Beach's name to
"Ameriquest Mortgage Company" or any other name that it chooses that does not
include the words "Long Beach." As soon as practicable after the Effective Time,
Old Long Beach shall take all action necessary to change its name in each state
in which it is qualified to conduct business.
(b) At or prior to the Effective Time, New Long Beach shall
file with the Secretary of State of the State of Delaware a certificate of
amendment to its certificate of incorporation to change New Long Beach's name to
"Long Beach Mortgage Company." As soon as practicable after the Effective Time,
New Long Beach shall take all action necessary to change its name in each state
in which it is qualified to conduct business.
(c) After the Effective Time, (i) Old Long Beach Holdings and
Old Long Beach shall not, and shall cause their respective subsidiaries and
affiliates (such affiliates determined as of the Effective Time) not to, conduct
business under a name including the words "Long Beach" in connection with
originating, purchasing, servicing or selling residential mortgage loans and
(ii) LBFC and New Long Beach shall not, and shall cause their respective
subsidiaries not to, conduct business under a name including the
<PAGE> 9
words "Long Beach" in connection with the automobile loan business. Other than
as set forth above, the parties shall each be free to utilize the name "Long
Beach" in connection with any business activities. Each party agrees to
cooperate with the other with respect to the use of the name "Long Beach" as set
forth above, including providing any and all necessary consents, without cost.
2.4 NO SOLICITATION OR HIRING OF EMPLOYEES. For a period of sixty (60)
months after the Effective Time:
(a) Old Long Beach Holdings and Old Long Beach shall not, and
shall cause their respective subsidiaries not to, hire, or solicit to hire, any
employee of LBFC or New Long Beach or their respective subsidiaries without the
written consent of LBFC or New Long Beach; and
(b) LBFC and New Long Beach shall not, and shall cause their
respective subsidiaries not to, hire, or solicit to hire, any employee of Old
Long Beach Holdings or Old Long Beach or their respective subsidiaries without
the written consent of Old Long Beach Holdings or Old Long Beach, other than the
Subject Employees or Deferred Transfer Employees.
2.5 FURTHER ASSURANCES. Each party shall execute and deliver such
further instruments and take such further actions as the other party may
reasonably request in order to carry out the intent of this Agreement and to
consummate the transactions contemplated hereby.
2.6 PROPRIETARY INFORMATION. Old Long Beach Holdings and Old Long Beach
acknowledge and agree that all documents listed or described in Schedule
1.1(a)(i) as proprietary documents, information or data is the sole property of
the Company, and Old Long Beach Holdings and Old Long Beach may not make use of
such proprietary information at any time or in any way without the express
written consent of LBFC or New Long Beach. The Company acknowledges and agrees
that, other than information identified on Schedules 1.1(a)(i) or 1.1(a)(ii),
all other documents, information or data of Old Long Beach or its affiliates
(including, without limitation, retail mortgage source lists and other
written/data information relating to retail mortgage lending and mortgage
servicing, automobile lending and Old Long Beach's other businesses or
affiliated businesses; but excluding therefrom publicly available information)
is proprietary information that is the sole property of Old Long Beach and/or
its affiliates, and the Company may not make use of such proprietary information
at any time or in any way without the express written consent of Old Long Beach
or as otherwise specifically permitted by the terms of this Agreement. Each
party agrees to make its employees, officers and agents aware of this
restriction and to cause such employees, officers and agents to comply with the
terms hereof. If any party discovers that an employee, officer or agent of such
party is in possession of any such proprietary information
<PAGE> 10
of the other party, such information shall immediately be returned to such other
party. The parties hereto acknowledge that the personal knowledge of any person
with respect to general know-how or processes of conducting a broker-sourced or
direct-sourced mortgage lending business shall not be construed as proprietary
information of any party and the use of such knowledge by such person for the
benefit of a party to this Agreement shall not constitute an unfair trade
practice, a breach of this or any other agreement among the parties.
2.7 COOPERATION. Each of Old Long Beach, Old Long Beach Holdings, LBFC
and New Long Beach acknowledge and agree that because of the relationship
between the parties prior to the Effective Time, a very high degree of
cooperation between the parties will be necessary subsequent to the Effective
Time in order to ensure a smooth and efficient transition. Each party therefore
agrees to cooperate in good faith with the other party for the purpose of
ensuring a smooth transition and to ensure that neither party is unfairly
disadvantaged by virtue of the Reorganization. Such cooperation shall be without
charge (other than reimbursement of expenses) and shall include, but shall not
be limited to, cooperation by each party in preparing, reviewing, analyzing and
responding to inquiries, claims, requests, threats of litigation or actual
litigation involving the business or the assets of the other party (such
cooperation to be not less than the level of cooperation that either party would
have provided to the other prior to the Reorganization). Old Long Beach, Old
Long Beach Holdings, LBFC and New Long Beach further agree that because of their
knowledge of each other's respective businesses, any disparaging comments by one
party against the other would place the party making the disparaging remarks at
an unfair competitive advantage. Each party therefore agrees to avoid making any
disparaging remarks about the other party. Old Long Beach, Old Long Beach
Holdings, LBFC and New Long Beach agree that given the nature of their
respective businesses, this Agreement to cooperate shall continue for a period
of five (5) years.
2.8 TRANSFER OF LOANS.
(a) Effective as of the Effective Time, Old Long Beach hereby
transfers and assigns to the Company (i) all mortgage loans funded by the
broker-sourced mortgage lending division of Old Long Beach on or after April 1,
1997 and prior to the Effective Time (the "April Window Loans") and (ii) all
rights and obligations under commitments of Old Long Beach to sell the April
Window Loans to third parties (the "Sale Commitments"). The Company hereby
agrees to purchase from Old Long Beach all April Window Loans that comply with
the representations and warranties described in Section 2.8(c) below and further
agrees to assume the obligations set forth in the Sale Commitments.
(b) The purchase price the Company shall pay for each April
Window Loan shall be equal to the purchase price to be paid by the purchaser for
such loan under the related Sale Commitment. Such purchase price will be payable
to Old Long Beach upon the closing of the purchase and sale of such April Window
Loan under the respective Sale Commitment.
<PAGE> 11
(c) Old Long Beach agrees to make representations, warranties
and indemnities in respect of each April Window Loan as of the sale date thereof
pursuant to a Sale Commitment, which representations, warranties and indemnities
shall be the same as those the Company is required to make to the purchaser
under the sale commitment.
(d) Old Long Beach agrees that from time to time on and after
the Effective Time, it shall provide to the Company historical loan data with
respect to mortgage loans originated or purchased by the broker-sourced lending
division of Old Long Beach prior to April 1, 1997 as (i) reasonably requested by
the Company in connection with the Company's ongoing secondary marketing
activities, including any securitizations and (ii) in such form and scope as is
necessary for inclusion in disclosure documents to be provided to investors in
the secondary mortgage market; provided that such information is used solely in
connection with the sale or securitization of loans originated or purchased by
the Company or its investor relations. Such information will not include
borrower name, property address or other borrower or property level data (other
than zip code and state of location) that could facilitate the solicitation of
such borrowers by the Company or other recipients of such information. Fees for
the provision of such information shall be as reasonably agreed between the
parties from time to time.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 BY LBFC. LBFC hereby represents and warrants to Old Long Beach as
of the Effective Time that the Shares have been duly and validly authorized and,
when issued in accordance with the terms hereof, will be (a) duly and validly
issued, fully paid and nonassessable, and (b) free and clear of all liens,
encumbrances, mortgages, pledges, security interests, restrictions, prior
assignments and claims of any kind or nature whatsoever, except as otherwise
provided in the Underwriting Agreement.
3.2 BY OLD LONG BEACH. Old Long Beach hereby represents and warrants to
LBFC as of the Effective Time as follows:
(a) the Transferred Tangible Assets transferred hereunder are
transferred free and clear of all liens, encumbrances, mortgages, pledges,
security interests and prior assignments and claims of any kind or nature
whatsoever;
(b) all consents to assignment or transfer of Wholesale
Lending Assets as set forth on Schedules 1.1(b) and 1.1(c) have been validly
obtained; and
(c) all employee benefit plans covering Subject Employees are
set forth on Schedule 3.2(c).
<PAGE> 12
ARTICLE IV
CONDITIONS PRECEDENT
4.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES. The
obligations of each of the parties to effect the transactions contemplated
hereby are subject to the satisfaction, at or prior to the Effective Time, of
each of the following conditions:
(a) There being, at the Effective Time, no (i) threatened,
instituted or pending action, proceeding, application, claim or counterclaim by
or before any court or governmental authority or agency seeking to restrain or
prohibit the consummation of the transactions contemplated hereby or by the
Underwriting Agreement or (ii) statute, rule, regulation, decree, order or
injunction promulgated, enacted, entered or enforced by any court or
governmental agency or authority restraining or prohibiting the consummation of
such transactions;
(b) The Registration Statement shall have been declared
effective by the SEC and, at the Effective Time, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall be pending before the SEC or any state
securities or "blue sky" commissioner or authority; and
(c) All conditions precedent to the obligations of the
Underwriters to consummate the purchase of the Shares from Old Long Beach
pursuant to the Underwriting Agreement (except the consummation of the
Reorganization) shall have been satisfied or waived and each of the parties to
Underwriting Agreement shall be prepared to consummate the transactions
contemplated thereby.
4.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF LBFC. The obligations of
LBFC to effect the transactions contemplated hereby are subject to the
satisfaction, at or prior to the Effective Time, of the following conditions:
(a) The representations and warranties of Old Long Beach
contained in this Agreement shall be true, correct and complete in all material
respects as of the Effective Time; and
(b) Old Long Beach shall have performed all obligations and
agreements and complied with all covenants contained in this Agreement or in any
document delivered in connection herewith required to be performed or complied
with at or prior to the Effective Time.
4.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF OLD LONG BEACH. The
obligations of Old Long Beach to effect the transactions contemplated hereby are
subject to the satisfaction, at or prior to the Effective Time, of each of the
following conditions:
(a) The representations and warranties of LBFC contained in
this Agreement shall be true, correct and complete in all material respects as
of the Effective Time; and
<PAGE> 13
(b) LBFC shall have performed all obligations and agreements
and complied with all covenants contained in this Agreement or in any document
delivered in connection herewith required to be performed or complied with at or
prior to the Effective Time.
ARTICLE V
INDEMNIFICATION
5.1 INDEMNIFICATION.
(a) Old Long Beach shall indemnify and hold harmless LBFC and
New Long Beach, each of their subsidiaries and their respective officers,
directors, employees, representatives, agents, successors and assigns
(collectively, the "New Long Beach Indemnitees") against and in respect of any
and all damages, claims, liabilities, expenses as incurred (including reasonable
attorneys' fees) and losses (collectively "Damages") incurred by the New Long
Beach Indemnitees that arise out of or relate to (i) any breach or violation of
this Agreement by Old Long Beach, (ii) any breach of any of the representations
or warranties made in this Agreement by Old Long Beach, (iii) the conduct of Old
Long Beach's business (including the Wholesale Lending Business) or corporate
transactions occurring prior to the Effective Time, or (iv) the conduct of Old
Long Beach's business after the Effective Time; excluding therefrom any Damages
relating to (x) the DOJ Settlement or (y) any Assumed Liabilities.
(b) LBFC and New Long Beach shall indemnify and hold harmless
Old Long Beach and its subsidiaries and affiliates and their respective
officers, directors, employees, representatives, agents, successors and assigns
(collectively, the "Old Long Beach Indemnitees") against and in respect of any
and all Damages incurred by the Old Long Beach Indemnitees that arise out of or
relate to (i) any breach or violation of this Agreement by LBFC, New Long Beach
or their respective subsidiaries, (ii) any breach of any of the representations
or warranties made in this Agreement by LBFC, (iii) the conduct of the Company's
business (including the Wholesale Lending Business) after the Effective Time or
(iv) the Pipeline Loans, (v) the Sale Commitments or (vi) the Assumed
Liabilities.
(c) In the event of a claim by a Subject Employee relating to
periods including such Subject Employee's employment with both Old Long Beach
and the Company, Old Long Beach and the Company shall cooperate in good faith
with respect to defending any such claim and shall, to the extent possible,
apportion responsibility with respect to such claim based upon a comparison of
the relative fault of each party using objective factors, such as length of time
the complained-of acts occurred while the Subject Employee was the employee of
each party and the events precipitating the claim. In the event that the claim
cannot be apportioned on the basis of objective factors, the parties shall meet
and shall attempt in good faith to determine reasonably an appropriate
apportionment. In the event Old Long Beach and the Company are unable to make
such determination, the matter of apportionment shall be referred to
arbitration. Such arbitration shall determine the relative
<PAGE> 14
fault of the parties and such determination shall be binding on the parties,
notwithstanding a different result regarding relative fault in the underlying
action.
5.2 TAX INDEMNIFICATION.
(a) Old Long Beach and Old Long Beach Holdings jointly and
severally shall indemnify the Company and each of its respective officers,
directors, employees and agents and hold them harmless from (i) all liability
for Taxes (as defined in Section 5.2(g)) of the Old Long Beach Group (as defined
in Section 5.2(h)) incurred during the Pre-Closing Tax Period (as defined in
Section 5.2(b)) and (ii) all liability for reasonable legal fees and expenses
incurred with respect to any item indemnified pursuant to clause (i).
(b) For purposes of this Agreement, "Pre-Closing Tax Period"
shall mean (i) any Tax period ending prior to or on the Effective Time,
including, as defined below, any Short Period, and (ii) any Apportioned Short
Period, as defined below, that is deemed to end on the Effective Time. In order
to appropriately apportion any Taxes relating to a period that includes (but
that would not, but for this Section , close on) the Effective Time, the Old
Long Beach Group and the Company will, to the extent permitted by applicable
law, elect with the relevant governmental authority to treat for all purposes
the Effective Time as the last day of a Tax period in which the business
operations of the Wholesale Lending Business are reflected on the Tax returns of
Old Long Beach or the Old Long Beach Group, and such period shall be treated as
a "Short Period." In any case where applicable law does not permit Old Long
Beach or the Old Long Beach Group to treat the Effective Time as the last day of
a Short Period, then for purposes of this Agreement, the portion of Taxes
attributable to the business operations of the Wholesale Lending Business for an
Apportioned Short Period (as defined below) shall be (i) in the case of Taxes
that are not based on income or gross receipts, the total amount of such Taxes
for the period in question multiplied by a fraction, the numerator of which is
the number of days in the Apportioned Short Period, and the denominator of which
is the total number of days in the entire period in question, and (ii) in the
case of Taxes that are based on income or gross receipts, the Taxes that would
be due with respect to the Apportioned Short Period, if such Period were a Short
Period. "Apportioned Short Period" means with respect to any Taxes imposed on
the Wholesale Lending Business on a periodic basis for which the Effective Time
is not the last day of a Short Period, the period of time beginning on the first
day of the actual Tax period in question that includes (but does not end on) the
Effective Time and ending on and including the Effective Time. All
determinations necessary to give effect to the foregoing allocations shall be
made in a manner consistent with the prior practice of Old Long Beach and its
operation of the Wholesale Lending Business.
(c) Except as provided in Section 5.2(d), the Company shall be
solely responsible for the payment of Taxes imposed upon the Company
attributable to Tax periods of the Company beginning (or deemed to begin under
Section 5.2(b)) after the Effective Time, and the Company shall indemnify and
hold harmless the Old Long Beach Group for or against any and all liability for
such Taxes.
<PAGE> 15
(d) Notwithstanding anything herein to the contrary, Old Long
Beach and Old Long Beach Holdings jointly and severally shall indemnify and hold
the Company harmless from any and all liability for Taxes imposed by any taxing
authority with respect to any period up to and including the Effective Time (i)
in connection with the transfer by Old Long Beach of the Wholesale Lending
Business to LBFC, or (ii) by reason of the Company being severally liable for
the entire tax of the Old Long Beach Group pursuant to Treasury Regulations
Section 1.1502-6(a) or any analogous state or local provision.
(e) Old Long Beach or the Old Long Beach Group shall cause to
be prepared and filed all required Tax returns of the Company that reflect the
business operations of the Wholesale Lending Business for the Pre-Closing Tax
Periods that end (but that are not deemed to end under Section 5.2(b)) prior to
or on the Effective Time and shall be responsible for including on the
consolidated or combined returns of the Old Long Beach Group members any taxable
items for pre-closing periods of Apportioned Short Periods. The Company shall
cooperate with Old Long Beach or the Old Long Beach Group in preparing such Tax
returns, and shall take no position on any tax return filed by the Company that
would be inconsistent with any position taken by Old Long Beach or the Old Long
Beach Group with respect to such Tax returns. Old Long Beach and the Old Long
Beach Group shall submit copies of any Tax returns in which the business
operations of the Wholesale Lending Business are included to the Company for the
Company's approval prior to the filing of such Tax returns, which approval shall
not be unreasonably withheld. The Company shall be solely responsible for
preparation and filing of all returns of the Company for Tax periods of the
Company ending (including Tax returns for Tax periods deemed to end on the
Effective Time under Section 5.2(b)) after the Effective Time.
(f) Old Long Beach or the Old Long Beach Group shall promptly
notify the Company in writing upon receipt by them of any notice of (i) any
pending or threatened federal, state or local income or franchise tax audits or
assessments of the Company, and (ii) any pending or threatened federal, state or
local income or franchise tax audits or assessments of Old Long Beach or the Old
Long Beach Group which may affect the liabilities of the Company for Taxes. The
Old Long Beach Group (or any successor group) shall have the right to represent
the Company's interests in any tax audit or administrative or judicial
proceeding relating to any Pre-Closing Tax Period return ending (but that are
not deemed to end under Section 5.2(b)) prior to or on the Effective Time, and
to employ counsel of its choice at its expense. The Old Long Beach Group agrees
to consult with the Company and to keep the Company informed on a regular basis
regarding the status of any such audit or proceeding that may affect the
liabilities of the Company for Taxes. The Company shall have the right to
represent the Company's interest in any tax audit or administrative or judicial
proceeding relating to any Tax return for Tax periods ending after the Effective
Time (including Tax returns for Tax periods deemed to end on the Effective Time
under Section 5.2(b)), and to employ counsel of its choice at its expense. The
Company agrees to keep the Old Long Beach Group (or any successor group)
informed on a regular basis regarding any such audit or proceeding that may
affect the liabilities of the Old Long Beach Group for Taxes and to consult with
the Old Long Beach Group (or any successor group) on such matters with a view to
maintaining positions reasonably consistent with those that may be urged by the
Old
<PAGE> 16
Long Beach Group; provided, however, that the Company shall have ultimate
control of any such audit or proceeding.
(g) For purposes of this Section 5.2, "Taxes" means any and
all taxes (including, without limitation, gross receipts, sales, use, property,
income, franchise, capital, occupational, license, value added, excise and stamp
taxes and customs duties), assessments, fees (including, without limitation,
documentation, license, filing and registration fees) and charges, of any nature
or kind whatsoever, together with any penalties, fines, additions to tax or
interest thereon, however imposed, withheld, levied, or assessed by any taxing
authority.
(h) For purposes of this Section 5.2, "Old Long Beach Group"
means (i) Old Long Beach Holdings, (ii) Old Long Beach, and (iii) any other
entity as to which the Company is liable for Taxes incurred pursuant to Treasury
Regulations Section 1.1502-6 or pursuant to any other provision of federal,
state, local or foreign law or regulation.
5.3 INDEMNIFICATION PROCEDURE.
(a) Claims for Indemnification. Whenever any claim shall arise
for indemnification hereunder, the party entitled to indemnification (the
"indemnified party") shall promptly notify the other party or parties (the
"indemnifying party") of the claim and, when known, the facts constituting the
basis for such claim; provided that the indemnified party's failure to give such
notice shall not affect any rights or remedies of an indemnified party hereunder
with respect to indemnification for damages except to the extent that the
indemnifying party is materially prejudiced thereby. In the event of any claim
for indemnification hereunder resulting from or in connection with any claim or
legal proceedings by a third party, the notice to the indemnifying party shall
specify, if known, the amount or an estimate of the amount of the liability
arising therefrom. The indemnified party shall not settle or compromise any
claim by a third party for which it is entitled to indemnification hereunder
without the prior written consent of the indemnifying party (which shall not be
unreasonably withheld) unless suit shall have been instituted against it and the
indemnifying party shall not have taken control of such suit after notification
thereof as provided in Section 5.3(b) of this Agreement.
(b) Defense by Indemnifying Party. In connection with any
claim giving rise to indemnity hereunder or resulting from or arising out of any
claim or legal proceeding by a person who is not a party to this Agreement, the
indemnifying party at its sole cost and expense may, upon written notice to the
indemnified party, assume the defense of any such claim or legal proceeding if
it acknowledges to the indemnified party in writing its obligations to indemnify
the indemnified party with respect to such claim, and thereafter diligently
conducts the defense thereof with counsel reasonably acceptable to the
indemnified party. The indemnified party shall be entitled to participate in
(but not control) the defense of any such action, with its counsel and at its
own expense. If the indemnifying party does not assume or fails to conduct in a
diligent manner the defense of any such claim or litigation resulting therefrom,
(a) the indemnified party may defend against such claim or litigation, in such
manner as it may deem appropriate, including, but not limited to, settling such
claim or
<PAGE> 17
litigation, after giving notice of the same to the indemnifying party,
on such terms as the indemnified party may deem appropriate, and (b) the
indemnifying party shall be entitled to participate in (but not control) the
defense of such action, with its counsel and at its own expense. If the
indemnifying party thereafter seeks to question the manner in which the
indemnified party defended such third party claim or the amount or nature of any
such settlement, the indemnifying party shall have the burden to prove by a
preponderance of the evidence that the indemnified party did not defend or
settle such third party claim in a reasonably prudent manner. Each party agrees
to cooperate fully with the other, such cooperation to include, without
limitation, attendance at depositions and the provision of relevant documents as
may be reasonably requested by the indemnifying party, provided that the
indemnifying party will hold the indemnified party harmless from all of its
expenses, including reasonable attorney's fees, incurred in connection with such
cooperation by the indemnified party.
ARTICLE VI
MISCELLANEOUS
6.1 NOTICES. All notices, requests, demands and other communications
provided for hereunder shall be in writing (including telegraphic or facsimile
communications) and shall be mailed (return receipt requested), telegraphed,
sent by facsimile or hand delivered to each party at the address set forth as
follows, or at such other address as either party may designate by notice to the
others, and any such notice, request, demand or other communication shall be
effective upon receipt:
If to Old Long Beach Holdings or Old Long Beach:
AMERIQUEST CAPITAL CORPORATION
AMERIQUEST MORTGAGE COMPANY
1100 Town & Country Road
Suite 1100
Orange, California 92868
Telephone: (714) 564-0600
Attention: General Counsel
If to the Company:
LONG BEACH FINANCIAL CORPORATION
1100 Town & Country Road
Suite 900
Orange, California 92868
Telephone: (714) 541-5378
Attention: General Counsel
<PAGE> 18
6.2 AMENDMENTS. This Agreement shall not be amended, changed, modified,
terminated or discharged in whole or in part except by an instrument in writing
signed by all parties, or their respective successors or assigns, or otherwise
as provided herein.
6.3 ATTORNEYS' FEES. In the event of any dispute arising out of or in
connection with this Agreement, and any documents executed pursuant, the
prevailing party, in addition to any other amounts which it may be entitled to,
shall be entitled to recover from the other party reasonable attorneys' fees and
court costs as shall be awarded in the resolution of such dispute.
6.4 SUCCESSORS AND ASSIGNS. Except as otherwise set forth in Section
1.9 hereof, this Agreement shall not be assignable by any party without the
express written consent of all other parties.
6.5 ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties pertaining to the subject matter hereof. This Agreement
supersedes all prior written agreements and all prior or contemporaneous verbal
agreements with respect to the subject matter hereof.
6.6 WAIVER. Any forbearance by a party to this Agreement in exercising
any right or remedy under this Agreement or otherwise afforded by applicable law
shall not be a waiver of or preclude the exercise of that or any other right or
remedy.
6.7 HEADINGS. The section headings hereof have been inserted for
convenience of reference only and shall not be construed to affect the meaning,
construction or effect of this Agreement.
6.8 SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity of any other provision, and all
other provisions shall remain in full force and effect.
6.9 CHOICE OF LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to contracts made
and performed in such State, without regard to conflicts of laws principles.
6.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed an original, and
all of which taken together shall constitute one and the same instrument.
<PAGE> 19
IN WITNESS WHEREOF, this Agreement is executed on behalf of the parties
by duly authorized representatives as of the date first above written.
AMERIQUEST CAPITAL CORPORATION,
a Delaware corporation
By:_______________________________
Name: Norman R. Gritsch
Title: Senior Vice President
LONG BEACH MORTGAGE COMPANY, a
Delaware corporation
By:_______________________________
Name: Norman R. Gritsch
Title: Senior Vice President
LONG BEACH FINANCIAL
CORPORATION, a Delaware corporation
By:_______________________________
Name: James J. Sullivan
Title: Senior Vice President
AMERIQUEST MORTGAGE
CORPORATION, a Delaware corporation
By:_______________________________
Name: James J. Sullivan
Title: Senior Vice President
