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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission file number 000-22633
---------
NEW CENTURY FINANCIAL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0683629
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18400 VON KARMAN, SUITE 1000, IRVINE, CALIFORNIA 92612
-----------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (714) 440-7030
---------------
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
___ ___
As of October 24, 1997, 14,155,124 shares of common stock of New Century
Financial Corporation were outstanding.
1
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NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARY
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<C> <S> <C>
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of
Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBIT INDEX 22
Exhibit 10.1 Second Amended and Restated Credit Agreement between
the Company and First Bank National Association, dated
July 31, 1997 23
Exhibit 10.2 Agreement to Add Lender between the Company, First
Bank National Association and First Union National
Bank, dated August 27, 1997
Exhibit 10.3 Agreement to Add Lender between the Company, First
Bank National Association and Residential Funding
Corporation, dated September 18, 1997
Exhibit 10.4 Agreement to Add Lender between the Company, First
Bank National Association and Bank One, Texas, N.A.,
dated September 25, 1997
</TABLE>
2
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<TABLE>
<C> <S> <C>
Exhibit 11.1 Statement re Computation of Per Share Amounts
Exhibit 27.1 Financial Data Schedule
</TABLE>
Certain information included in this Form 10-Q may include "forward-looking"
statements under federal securities laws, and the Company intends that such
forward-looking statements be subject to the safe-harbor created thereby. There
are many important factors that could cause the Company's actual results to
differ materially from expected results in the forward-looking statements. Such
factors include, but are not limited to, the Company's limited operating
history, the Company's ability to sustain and manage its rate of growth, the
impact of increasing competition in the subprime mortgage banking industry, the
Company's ability to access funding sources, and other risks identified in the
Company's Registration Statement on Form S-1 filed with the Securities and
Exchange Commission.
3
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Item 1. Financial Statements
New Century Financial Corporation and Subsidiary
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents......................................... $ 2,602,000 $ 3,041,000
Securities available for sale, at market.......................... 5,014,000 --
Loans receivable held for sale, net (notes 2 and 4)............... 314,223,000 57,990,000
Residual interests in securitizations (note 3).................... 79,776,000 --
Accrued interest receivable....................................... 2,016,000 786,000
Office property and equipment..................................... 3,444,000 1,620,000
Prepaid expenses and other assets................................. 2,405,000 1,201,000
------------ -----------
TOTAL ASSETS...................................................... $409,480,000 $64,638,000
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Warehouse and aggregation lines of credit (note 4)................ $290,398,000 $55,659,000
Residual financing................................................ 43,413,000 --
Notes payable..................................................... 2,000,000 1,326,000
Income taxes payable.............................................. -- 839,000
Accounts payable and accrued liabilities.......................... 6,324,000 2,283,000
Deferred income taxes............................................. 10,245,000 128,000
------------ -----------
Total liabilities............................................ 352,380,000 60,235,000
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 7,500,000 shares:
Series A Convertible Preferred Stock - issued and outstanding
0 and 5,500,000 shares at September 30, 1997 and December
31, 1996, respectively............................................ -- 54,000
Series B Convertible Preferred Stock - issued and outstanding
0 and 320,000 shares at September 30, 1997 and December
31, 1996, respectively............................................ -- 4,000
Common stock, $.01 par value. Authorized 45,000,000
shares; issued and outstanding 14,147,474 and 528,618 shares
at September 30, 1997 and December 31, 1996,
respectively...................................................... 141,000 6,000
Additional paid-in capital........................................ 43,457,000 3,086,000
Retained earnings, restricted..................................... 15,713,000 1,253,000
------------ -----------
59,311,000 4,403,000
Deferred compensation costs....................................... (2,211,000) --
------------ -----------
Total stockholders' equity................................... 57,100,000 4,403,000
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY.............................................. $409,480,000 $64,638,000
============ ===========
See notes to unaudited consolidated financial statements.
</TABLE>
4
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New Century Financial Corporation and Subsidiary
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------------------- --------------------------
1997 1996 1997 1996
-------------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of loans........................... $51,504,000 $3,488,000 $24,394,000 $2,658,000
Interest income................................. 13,657,000 847,000 6,313,000 560,000
Servicing income................................ 2,957,000 10,000 1,793,000 10,000
----------- ---------- ----------- ----------
Total revenues................................ 68,118,000 4,345,000 32,500,000 3,228,000
Expenses:
Personnel....................................... 17,904,000 2,779,000 8,207,000 1,350,000
Interest........................................ 11,207,000 529,000 5,492,000 346,000
General and administrative...................... 9,202,000 1,058,000 4,708,000 592,000
Advertising and promotion....................... 3,459,000 602,000 1,427,000 297,000
Servicing....................................... 988,000 81,000 365,000 57,000
Professional services........................... 427,000 191,000 163,000 79,000
----------- ---------- ----------- ----------
Total expenses................................ 43,187,000 5,240,000 20,362,000 2,721,000
Earnings (loss) before income
taxes (benefit)................................. 24,931,000 (895,000) 12,138,000 507,000
Income taxes (benefit).......................... 10,471,000 (374,000) 5,098,000 213,000
----------- ---------- ----------- ----------
Net earnings (loss)............................. $14,460,000 $ (521,000) $ 7,040,000 $ 294,000
=========== ========== =========== ==========
Primary earnings (loss) per share............... $ 1.16 $ (0.08) $ 0.46 $ 0.05
=========== ========== =========== ==========
Fully-diluted earnings (loss) per share......... $ 1.13 $ (0.08) $ 0.46 $ 0.04
=========== ========== =========== ==========
</TABLE>
See notes to unaudited consolidated financial statements.
5
<PAGE>
New Century Financial Corporation and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
----------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings (loss)......................................... $ 14,460,000 $ (521,000)
Adjustments to reconcile net earnings (loss)
to net cash used in operating activities:
Deprecation and amortization.............................. 3,663,000 145,000
Deferred income taxes..................................... 10,117,000 --
Gain on sale of loans..................................... (64,899,000) --
Initial over-collateralization amount..................... (16,859,000) --
Net interest receivables collected........................ (4,437,000) --
Over-collateralization amount released.................... 4,437,000 --
Provision for losses...................................... 2,130,000 100,000
Loans originated or acquired for sale..................... (1,263,848,000) (180,672,000)
Loan sales, net........................................... 1,000,269,000 108,241,000
Principal repayments in loans receivable held for sale.... 5,818,000 91,000
Increase in accrued interest receivable................... (1,230,000) (231,000)
Increase in prepaid expenses and other assets............. (169,000) (1,466,000)
Increase in warehouse and aggregation lines of credit..... 234,739,000 71,188,000
Decrease in income taxes payable.......................... (839,000) --
Increase in accounts payable and other liabilities........ 3,439,000 698,000
--------------- -------------
Net cash used in operating activities....................... (73,209,000) (2,427,000)
--------------- -------------
Cash flows from investing activities:
Purchase of office property and equipment................. (2,476,000) (1,245,000)
Purchase of securities available for sale................. (5,014,000) --
--------------- -------------
Net cash used in investing activities....................... (7,490,000) (1,245,000)
Cash flows from financing activities:
Net proceeds from notes payable........................... 674,000 713,000
Net proceeds from residual financing...................... 43,413,000 --
Proceeds from issuance of stock........................... 36,173,000 --
--------------- -------------
Net cash provided by financing activities................... 80,260,000 713,000
--------------- -------------
Net decrease in cash and cash equivalents................... (439,000) (2,959,000)
Cash and cash equivalents, beginning of period.............. 3,041,000 3,029,000
--------------- -------------
Cash and cash equivalents, end of period.................... $ 2,602,000 $ 70,000
=============== =============
Supplemental cash flow disclosure:
Interest paid............................................. $ 10,593,000 $ 387,000
Income taxes paid......................................... $ 1,193,000 $ 3,000
</TABLE>
See notes to unaudited consolidated financial statements.
6
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1997 and 1996
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 30, 1997
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1997.
Recent Accounting Developments - In June 1996, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
125 (FASB No. 125), "Accounting for Transfer and Servicing of Financial Assets
and Extinguishment of Liabilities." FASB No. 125 addresses the accounting for
all types of securitization transactions, securities lending and repurchase
agreements, collateralized borrowing arrangements and other transactions
involving the transfer of financial assets. FASB No. 125 distinguishes
transfers of financial assets that are sales from transfers that are secured
borrowings. FASB No. 125 requires the Company to allocate its basis in the
mortgage loans between the portion of the mortgage loans sold through mortgage
backed securities and the portion retained (the residual interests) based on the
relative fair values of those portions on the date of sale. The pronouncement
requires the Company to account for the residual interests as "held-for-trading"
securities which are to be recorded at fair value in accordance with SFAS No.
115. The Company adopted FASB No. 125 on January 1, 1997.
In February 1997, FASB issued Statement of Financial Accounting Standards No.
128, (FASB No. 128), "Earnings Per Share." FASB No. 128 supersedes APB Opinion
No. 15, (APB 15), "Earnings Per Share" and specifies the computation,
presentation, and disclosure requirements for earnings per share (EPS) for
entities with publicly held common stock or potential common stock. FASB No.
128 was issued to simplify the computation of EPS and to make the U.S. standard
more compatible with the EPS standards of other countries and that of the
International Accounting Standards Committee (IASC). It replaces the
presentation of primary earnings per share with a presentation of basic EPS and
fully diluted EPS with diluted EPS.
Basic EPS, unlike primary EPS, excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the
7
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earnings of the entity. Diluted EPS is computed similarly to fully diluted EPS
under APB No. 15.
FASB No. 128 is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Earlier application is not permitted.
After adoption, all prior-period EPS data presented shall be restated to conform
with FASB No. 128.
FASB No. 129, Disclosure of Information about Capital Structure, is effective
for financial statements for periods ending after December 15, 1997. It is not
expected that the issuance of FASB No. 129 will require significant revision of
prior disclosures since the Statement lists required disclosures that had been
included in a number of previously existing separate statements and opinions.
FASB No. 130, Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income and its components ( revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. FASB No. 130 requires that all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same prominence as
other financial statements. FASB No. 130 does not require a specific format for
that financial statement but requires that an enterprise display an amount
representing total comprehensive income for the period in that financial
statement.
FASB No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position.
FASB N0. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
FASB No. 131, Disclosures About Segments of an Enterprise and Related
Information, establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to stockholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. FASB No. 131 supersedes FASB Statement
No. 14, "Financial Reporting for Segments of a Business Enterprise," but retains
the requirement to report information about major customers. It amends FASB
Statement No. 94, "Consolidation of All Majority-Owned Subsidiaries," to remove
the special disclosure requirements for previously unconsolidated subsidiaries.
FASB No. 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. Generally, financial information is required to be reported on
8
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the basis that it is used internally for evaluating segment performance and
deciding how to allocate resources to segments.
FASB No. 131 requires that a public business enterprise report a measure of
segment profit or loss, certain specific revenue and expense items, and segment
assets. It requires reconciliations of total segment revenues, total segment
profit or loss, total segment assets, and other amounts disclosed for segments
to corresponding amounts in the enterprise's general-purpose financial
statements. It requires that all public business enterprises report information
about the revenues derived from the enterprise's products or services (or groups
of similar products and services), about the countries in which the enterprise
earns revenues and holds assets, and about major customers regardless of
whether that information is used in making operating decisions. However, FASB
No. 131 does not require an enterprise to report information that is not
prepared for internal use if reporting it would be impracticable.
FASB No. 131 also requires that a public business enterprise report descriptive
information about the way that the operating segments were determined, the
products and services provided by the operating segments, differences between
the measurements used in reporting segment information and those used in the
enterprise's general-purpose financial statements, and changes in the
measurement of segment amounts from period to period.
FASB No. 131 is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years is to be restated. This Statement need not be applied to
interim financial statements in the initial year of its application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second
year of application.
Residual interests in securitizations - Residual interests in securitizations
are recorded as a result of the sale of loans through securitization. At the
closing of each securitization, the Company removes from its balance sheet the
mortgage loans held for sale and adds to its balance sheet (i) the cash
received; and (ii) the estimated fair value of the residual interests from the
securitization, which consists of (a) an overcollateralization amount (OC) and
(b) a net interest receivable (NIR). The excess of the cash received and assets
retained by the Company over the carrying value of the loans sold, less
transaction costs, equals the gain on sale of loans recorded by the Company.
The Company allocates its basis in the mortgage loans between the portion of the
mortgage loans sold through mortgage-backed securities (the senior and junior
certificates) and the portion retained (the residual interests) based on the
relative fair values of those portions on the date of sale.
The Company may recognize gains or losses attributable to the change in the fair
value of the residual interests, which are recorded at estimated fair value and
accounted for as "held-for-trading" securities. The Company is not aware of an
active market for the purchase or sale of residual interests; accordingly, the
Company estimates the fair value of the residual interests by calculating the
present value of the estimated expected future cash flows using a discount rate
commensurate with the risks involved.
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NIRs are determined by using the amount of the excess of the weighted-average
coupon on the loans sold over the sum of : (1) the coupon on the senior and
junior certificates; (2) a base servicing fee paid to the servicer of the loans;
(3) estimated losses to be incurred on the portfolio of loans sold over the
estimated lives of the loans; and (4) other expenses and revenues, which include
anticipated prepayment penalties. The significant assumptions used by the
Company to estimate NIR cash flows are anticipated prepayments and estimated
credit losses. The Company estimates prepayments by evaluating historical
prepayment performance of comparable loans and the impact of trends in the
industry. The Company estimates credit losses using available historical loss
data for comparable loans and the specific characteristics of the loans included
in the Company's securitizations.
The OC primarily represents the portion of the loans which are held by the trust
as overcollateralization for the senior and junior certificates sold and, along
with a certificate guarantor insurance policy, if any, serves as credit
enhancement to the senior and junior certificate holders. Generally, the OC
initially consists of the excess of the principal balance of the mortgage loans
sold to the trust, less the principal balance of the certificates sold to
investors. The OC is required to be maintained at a specified target level of
the principal balance of the certificates, which can be increased significantly
in the event delinquencies and/or losses exceed certain specified levels. Cash
flows received by the trust in excess of the obligations of the trust are
deposited into the overcollateralization account until the target OC is reached.
Once the target OC is reached, distributions of excess cash are remitted to the
Company.
2. Loans Receivable Held for Sale
A summary of loans receivable held for sale, at the lower of cost or market at
September 30, 1997 and December 31, 1996 follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Mortgage loans receivable.............. $313,559 $57,701
Net deferred origination costs......... 664 289
-------- -------
$314,223 $57,990
======== =======
</TABLE>
3. Residual Interests in Securitizations
Residual interests in securitizations consist of the following components at
September 30, 1997 (dollars in thousands):
<TABLE>
<S> <C>
Over-collateralization amount............................. $16,859
Net interest receivable (NIR)............................. 62,917
-------
$79,776
=======
</TABLE>
10
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The following table summarizes activity in the NIR interests at September 30,
1997 (dollars in thousands):
<TABLE>
<S> <C>
Balance, beginning of period.............................. $ ---
NIR recognized............................................ 64,899
Amortization.............................................. (1,982)
-------
Balance, end of period.................................... $62,917
=======
</TABLE>
4. Warehouse and Aggregation Lines of Credit
Warehouse and aggregation lines of credit consist of the following at September
30, 1997 and December 31, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
A $245 million line of credit expiring in May 1998
secured by loans receivable held for sale, bearing
interest based on one month LIBOR (5.66% at
September 30, 1997)....................................... $191,138 $41,702
A $335 million master repurchase agreement bearing
interest based on one month LIBOR (5.66% at
September 30, 1997). The agreement may be terminated
by the lender giving 28 days written notice............... 99,260 13,957
-------- -------
$290,398 $55,659
======== =======
</TABLE>
The warehouse and aggregation line of credit agreements contain certain
restrictive financial and other covenants which require the Company to, among
other requirements, restrict dividends and maintain certain levels of net worth,
specific liquidity requirements, debt-to-net-worth ratios and compliance with
regulatory and investor requirements. At September 30, 1997, the Company was in
compliance with these financial and other covenants.
11
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
New Century Financial Corporation (the "Company") is a specialty finance company
engaged in the business of originating, purchasing, selling and servicing
subprime mortgage loans secured primarily by first mortgages on single family
residences. The Company originates and purchases loans through its Wholesale and
Retail Divisions, and acquires loans individually and through bulk acquisitions.
The Company's borrowers generally have substantial equity in the property
securing the loan, but have impaired or limited credit profiles or higher debt-
to-income ratios than traditional mortgage lenders allow. The Company's
borrowers also include individuals who, due to self-employment or other
circumstances, have difficulty verifying their income, as well as individuals
who prefer the prompt and personalized service provided by the Company. These
borrowers typically use the proceeds of the Company's loans to consolidate and
refinance debt, and to finance home improvements, education and other consumer
needs.
Loan Sales and Securitizations
The Company's loan sale strategy includes both securitizations and whole loan
sales in order to advance the Company's goal of enhancing profits while managing
cash flows. Loan sales through securitizations permit the Company to enhance
operating profits and to benefit from future cash flows generated by the
residual interests retained by the Company. Whole loan sale transactions enable
the Company to generate current cash flow, protect against the potential
volatility of the securitization market and reduce the risks inherent in
retaining residual interests in securitizations.
The Company's primary source of revenue is the recognition of gains from the
sale of its loans through whole loan sales and securitizations. In a whole loan
sale, the Company recognizes and receives a cash gain upon sale. In a
securitization, the Company recognizes a gain on sale at the time the loans are
sold, but receives corresponding cash flows, represented by the
overcollateralization amount ("OC") and the Net Interest Receivable ("NIR"),
over the actual life of the loans. The OC represents the portion of the loans
which are held by the trust as overcollateralization for the senior and junior
certificate holders, and generally consists of the excess of the principal
balance of the mortgage loans sold to the trust, less the principal balance of
the certificates sold to investors. The NIR represents the difference between
the interest received from the loans sold and (i) interest required to be passed
through to the senior and junior certificate holders, (ii) all servicing fees;
(iii) estimated losses to be incurred on the portfolio of loans; and (iv) other
expenses and revenues, including anticipated prepayment penalties. At the time
of securitization, the Company capitalizes the OC and the NIR, based upon
certain prepayment and loan loss assumptions and a discount rate that the
Company believes is consistent with what market participants would use for
similar financial instruments. The capitalized assets are recorded on the
Company's balance sheet as interest-only and residual certificates. A gain or
loss is recorded on the income statement for the value of the residual
certificates created by the securitization in excess of the cost basis of the
loans and transaction expenses. As a result of timing differences in receiving
cash from whole loan sales versus securitizations,
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the relative percentage of whole loan sales to securitizations will impact the
Company's operating cash flow. For the nine months ended September 30, 1997,
73.5% of the Company's total loan sales were in the form of securitizations.
The Company has, to date, elected to fund the required OC at the closing of each
securitization for all but one securitization. An OC is created within each
securitization trust, as required by the rating agencies or the bond insurance
companies. The overcollateralization requirement ranges from two to four percent
of the initial securitization bond debt principal balance or four to six percent
of the remaining principal balance after thirty to thirty-six months of
principal amortization. When funding all of the OC up front, the Company begins
to receive cash flow from the NIR immediately, and in those cases where a
portion of the OC is funded up front, the Company will begin to receive cash
flow from the NIR more quickly than in cases where no initial funding is
undertaken, in both cases subject to certain delinquency or credit loss tests,
as defined by the rating agencies or the bond insurance companies. Over time,
the Company will also receive the OC, subject to the performance of the mortgage
loans in each securitization.
In connection with the origination and purchase of loans, the Company may either
receive or pay origination fees. These fees, referred to as "points" or
"premiums" in the mortgage industry, are dependent on the source of loan
production and typically correspond to the amount of further processing required
for a loan to be funded and are determined as a percentage of the loan amount.
The points received from the origination of loans and the premiums paid to
originate and acquire loans are included in the gain recognized from the sale of
loans in the income statement.
The following table sets forth loan sales for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
For the Quarter For the Nine Months
Ended September 30, Ended September 30,
------------------- -----------------------
1997 1996 1997 1996
-------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Securitizations............ $404,242 $ -- $ 735,585 $ --
Whole loan sales........... 104,715 79,419 264,684 108,241
-------- ------- ---------- --------
Total $508,957 $79,419 $1,000,269 $108,241
======== ======= ========== ========
</TABLE>
In the nine months ended September 30, 1997, the Company securitized $735.6
million, or 73.5% of total loan sales, excluding approximately $40.0 million in
loans that were securitized through a pre-funding arrangement which settled in
October 1997. In the three months ended September 30, 1997, securitizations
represented 79.4% of total loan sales. During the quarter ended September 30,
1997, the Company repurchased through arms-length negotiations $63.8 million in
loans which it had previously sold on a whole loan basis, which were immediately
securitized. This repurchase is not included in loan originations and
purchases.
Results of Operations
The Company began lending operations in February 1996. Accordingly, the nine
month period ended September 30, 1996 includes a period of time during which the
Company incurred costs to begin operations, as well as a period of time during
which operations
13
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were expanding and maturing. Therefore, results of operations for the nine month
period ended September 30, 1996 include substantial startup costs incurred.
As of September 30, 1997, the Company's Wholesale Division operated through 32
sales offices and 4 regional operating centers located in 22 states. The number
of account executives in the Wholesale Division grew to 90 at September 30,
1997, from 25 at September 30, 1996. The Company's Retail Division operated
through 62 sales offices located in 23 states and the number of loan officers
grew to 243 at September 30, 1997, from 24 at September 30, 1996.
Nine Months Ended September 30, 1997 Compared to Nine Months Ended September 30,
1996
The Company originated and purchased $1.3 billion in loans for the nine months
ended September 30, 1997, compared to $180.2 million for the nine months ended
September 30, 1996. Loans originated and purchased through the Company's
Wholesale Division were $821.0 million, or 65.3%, of total originations and
purchases for the nine months ended September 30, 1997. Loans originated
through the Company's Retail Division were $376.7 million, or 29.9%, of total
originations and purchases for the nine month period. Loans purchased through
bulk acquisition were $59.9 million, or 4.8%, of total originations and
purchases for the nine months ended September 30, 1997. For the same period in
1996, Wholesale and Retail originations and purchases totaled $152.1 million, or
84.4%, and $28.1 million, or 15.6%, respectively, of total originations and
purchases for such period. There were no bulk acquisitions in the nine months
ended September 30, 1996.
Total revenues for the nine months ended September 30, 1997 increased to $68.1
million, from $4.3 million for the nine months ended September 30, 1996, due
primarily to the increase in loan originations and purchases and sales in 1997.
Gain on sale of loans increased to $51.5 million for the nine months ended
September 30, 1997, from $3.5 million for the nine months ended September 30,
1996, due to the increase in loan sales in 1997.
The Company sold $1.0 billion in loans for the nine month period ended September
30, 1997, of which $735.6 million, or 73.5%, were sold through loan
securitizations and the remainder represented whole loan sales.
14
<PAGE>
The components of the gain on sale of loans are illustrated in the following
table (dollars in thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1997 1996
---------------- --------------
<S> <C> <C>
Gain from whole loan sale transactions and
securitizations, net $ 62,167 $ 4,783
Unrealized gain on held-for-trading securities 5,535 --
Provision for losses (2,130) (100)
Non-refundable loan fees 15,266 1,665
Premiums paid (12,368) (815)
Origination costs (16,966) (2,045)
-------- -------
Gain on sale of loans $ 51,504 $ 3,488
======== =======
</TABLE>
Whole loan sales increased to $264.7 million for the nine months ended September
30, 1997, from $108.2 million for the corresponding period in 1996. This
increase is the result of the increase in loan originations and purchases.
Interest income increased to $13.7 million for the nine months ended September
30, 1997, from $847,000 for the same period in 1996, primarily due to increased
interest income from loans held for sale. Interest income is earned on loans
held in inventory for sale. Such interest income accrues during periods when
loans are accumulated for future sales, and increases as loan originations and
purchases increase. The increase in interest income for the nine months ended
September 30, 1997 is the result of a higher average inventory of loans held for
sale compared to the corresponding period in 1996. The average inventory of
loans held for sale for the nine months ended September 30, 1997, based on
quarter-end balances, was $167.9 million, compared to $26.1 million for the
corresponding period in 1996.
Servicing income increased to $3.0 million for the nine months ended September
30, 1997, from $10,000 for the nine months ended September 30,1996, as a result
of the increase in securitizations, pursuant to which the Company retains
ownership of the servicing rights. Servicing income reflects servicing fees
received on loans sold or securitized by the Company, as well as income
recognized on residual cash flows from securitizations. The increase in
servicing income for the nine months ended September 30, 1997 is due to the fact
that the Company securitized $735.6 million in loans and retained the servicing
rights, while the Company sold substantially all of its loans through whole loan
sale transactions on a servicing-released basis in 1996.
Total expenses increased to $43.2 million for the nine months ended September
30, 1997, from $5.2 million for the nine months ended September 30, 1996.
Interest expense increased due to the higher level of loan inventory and
corresponding warehouse borrowing. All other expense components increased from
1996 to 1997 due primarily to (1) primarily due to higher loan origination
volume in the nine months ended September 30, 1997 compared to the same period
in 1996; (2) an increase in staffing from 178 employees at September 30, 1996 to
885 employees at September 30, 1997; and (3) the addition of 27
15
<PAGE>
wholesale sales offices and 54 retail sales offices from September 30,
1996 to September 30, 1997.
Three Months Ended September 30, 1997 Compared to Three Months Ended September
30, 1996
The Company originated and purchased $574.0 million in loans in the three months
ended September 30, 1997, compared to $123.4 million for the three months ended
September 30, 1996. Loans originated and purchased through the Company's
Wholesale Division were $358.6 million, or 62.5%, of total originations and
purchases for the three months ended September 30, 1997. Loans originated
through the Company's Retail Division were $179.5 million, or 31.3%, of total
originations and purchases for the three month period. Loans acquired through
bulk purchases were $35.9 million, or 6.2%, of total originations and purchases
for the three months ended September 30, 1997. Loans originated and purchased
through the Wholesale and Retail Divisions for the three months ended September
30, 1996 totaled $104.4 million, or 84.6%, and $19.0 million, or 15.4%,
respectively, of total originations and purchases for such period. There were no
bulk purchases of loans in the quarter ended September 30, 1996.
Total revenues for the three months ended September 30, 1997 increased to $32.5
million, from $3.2 million for the three months ended September 30, 1996, due
primarily to the increase in loan originations and purchases and sales in 1997.
Gain on sale of loans increased to $24.4 million for the three months ended
September 30, 1997, from $2.7 million for the three months ended September 30,
1996, due to the increase in loan sales in 1997.
The Company sold $509.0 million in loans during the three month period ended
September 30, 1997, of which $404.3 million, or 79.4%, were sold through loan
securizations and the remainder represented whole loan sales. Loans sold
through securitization for the three months ended September 30, 1997 include
$63.8 million in loans that were repurchased on an arms-length basis from a
whole loan sale investor and immediately securitized. These repurchased loans
are not included in loan originations and purchases for the third quarter. The
components of the gain on sale of loans are illustrated in the following table
(dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30,
1997 1996
---------------- ---------------
<S> <C> <C>
Gain from whole loan sale transactions and
securitizations, net $29,556 $ 3,749
Unrealized gain on held-for-trading securities 1,687 --
Provision for losses (745) (80)
Non-refundable loan fees 6,907 1,106
Premiums paid (6,311) (739)
Origination costs (6,700) (1,378)
------- -------
Gain on sale of loans $24,394 $ 2,658
======= =======
</TABLE>
16
<PAGE>
Whole loan sales increased to $104.7 million for the three months ended
September 30, 1997, from $79.4 million for the corresponding period in 1996.
This increase is the result of an increase in loan originations and purchases
for the same period.
Interest income increased to $6.3 million for the three months ended September
30, 1997, from $560,000 for the same period in 1996, primarily due to increased
interest income from loans held for sale. Interest income is earned on loans
held in inventory for sale. Such interest income accrues during periods when
loans are accumulated for future sales, and increases as loan originations and
purchases increase. The increase in interest income for the three months ended
September 30, 1997 is the result of a higher average inventory of loans held for
sale compared to the corresponding period in 1996.
Servicing income increased to $1.8 million for the three months ended September
30, 1997, from $10,000 for the three months ended September 30, 1996. Servicing
income reflects servicing fees received on loans sold or securitized by the
Company on which the Company has retained ownership of the servicing rights, as
well as income recognized on residual cash flows from securitizations. The
increase in servicing income for the three months ended September 30, 1997 is
due to the fact that, as of September 30, 1997, the Company had securitized
$735.6 million in loans and retained the servicing rights, while the Company
sold substantially all of its loans through whole loan sale transactions on a
servicing-released basis in 1996.
Total expenses increased to $20.4 million for the three months ended September
30, 1997, from $2.7 million for the three months ended September 30, 1996.
Interest expense increased due to the higher level of loan inventory and
corresponding warehouse borrowing, while all other expense components increased
primarily due to the increase in sales offices and staffing to support the
increased loan originations and purchases in the three months ended September
30, 1997, compared to the same period in 1996.
Liquidity and Capital Resources
The Company requires access to short-term warehouse and aggregation credit
facilities in order to fund loan originations and purchases pending the pooling
and sale of such loans. As of September 30, 1997, the Company had a $245.0
million warehouse line of credit led by First Bank National Association which
expires in May 1998 and bears interest at a rate equal to the one month LIBOR
plus 1.25%. At September 30, 1997, the balance outstanding under the warehouse
line of credit was $191.1 million. As of September 30, 1997, the Company also
had a $335.0 million aggregation facility with Salomon Brothers, which is
subject to renewal by Salomon on a monthly basis and bears interest at a rate
generally equal to the one month LIBOR plus 1.25%. At September 30, 1997, the
balance outstanding under the aggregation facility was $99.3 million. The
Company utilizes the First Bank warehouse line to finance the actual funding of
its loan originations and purchases. After loans are funded by the Company
utilizing the First Bank warehouse line and all loan documentation is complete,
the loans are generally transferred to the Salomon aggregation facility. The
aggregation facility is paid down with the proceeds of loan sales and
securitizations. The Company expects to continue to expand its credit
facilities to finance its increasing levels of loan production.
17
<PAGE>
The Company has residual financing arrangements with the lead underwriters of
its securitizations, pursuant to which such lead underwriters provide financing
of the Company's residual interests in securitizations. The amount of residual
financing provided upon each securitization is determined pursuant to formulas
set forth in the respective agreements and is generally subject to repayment as
a result of changes in the formula used by the lead underwriter to determine the
market value of the residual interest. The facilities bear interest at a rate
based on the one month LIBOR. The Company intends to add new credit facilities,
as well as expand these credit facilities, in order to finance future
securitization transactions. At September 30, 1997, the balance outstanding
under these facilities was $43.4 million.
The Company's business requires substantial cash to support its operating
activities and growth plans. The Company's growing negative cash flow position
is primarily a function of its securitization strategy and rapid growth. The
Company records a residual interest in securitization and recognizes a gain on
sale when it effects a securitization, but only receives the cash representing
such gain over the life of the loans securitized. In order to support its loan
origination, purchase and securitization programs, the Company is required to
make significant cash investments that include the funding of: (1) fees paid to
brokers and correspondents in connecting with generating loans through wholesale
and correspondent lending activities; (2) fees and expenses incurred in
connection with the securitization and sale of loans including over-
collateralization requirements for securitization; (3) commissions paid to sales
employees to originate loans; (4) the difference between the amount funded per
loan and the amount advanced under the current warehouse facility; and (5)
income tax payments arising from the recognition of gain on sale of loans. The
Company also requires cash to fund ongoing operating and administrative
expenses, including sub-servicing expenses incurred in the servicing of the
Company's loans, capital expenditures and debt service. The Company's sources
of operating cash flow include (1) the premium advance component of the Salomon
aggregation facility; (2) premiums obtained in whole loan sales; (3) mortgage
origination income and fees; (4) interest income on loans held for sale; (5)
excess cash flow from securitization trusts; and (6) cash servicing income. As
a result of its strategy to significantly grow its loan origination, purchase
and securitization programs, the Company expects that its operating uses of cash
will substantially exceed its operating sources of cash. This gap will continue
to increase to the extent that the Company's securitization volumes increase,
whether due to increased volumes of loan production or as a result of a
continued shift towards securitization in its loan sales mix. However, the
Company believes that its cash flow profile will improve over time as its rate
of loan production growth moderates and the balance of its residual interests
and the size of its servicing portfolio increases.
The Company has a discretionary, non-revolving line of credit of $2.5 million
with an affiliate of First Bank secured by the Company's furniture and
equipment. Advances under this facility are made periodically at the discretion
of the lender, and bear interest at a fixed rate established at the time of each
advance. As of September 30, 1997, the balance outstanding under this facility
was $2.0 million, and the weighted-average interest rate was 9.0%.
18
<PAGE>
In March 1997, the Company established a $2.5 million unsecured line of credit
with First Bank for working capital purposes. In June 1997, the line was
increased to $4.0 million. As of September 30, 1997, the balance outstanding was
zero.
In October 1997, the Company established at $2.2 million line of credit with GE
Capital to finance furniture and equipment. As of September 30, 1997, there
were no advances under this facility.
The Company's business requires substantial cash to support its operating
activities and growth plans. Securitizations of the Company's loans, as well as
continued growth in loan production volume, create negative operating cash flow
primarily as a result of (1) the difference between the cash required to fund
loans and the financing received under the warehouse line of credit;; and (2)
the Company's securitization strategy, pursuant to which cash flows are received
over the life of the loans securitized.
In July 1997, the Company completed its initial public offering, raising an
aggregate of $31.0 million, net of offering expenses. The Company believes that
its current liquidity, credit facilities and capital resources are adequate to
support its anticipated operations for the foreseeable future.
19
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company occasionally becomes involved in litigation arising in
the normal course of business. Management believes that any
liability with respect to such legal actions, individually or in
the aggregate, will not have a material adverse effect on the
Company's financial position or results of operations.
Item 2. Change in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. (a) Exhibits required by Item 601 of Regulation S-K
See "Exhibit Index."
(b) Reports on Form 8-K
None.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NEW CENTURY FINANCIAL CORPORATION
DATE: November 13, 1997 By: /s/ Brad A. Morrice
-------------------
Brad A. Morrice
President
DATE: November 13, 1997 By: /s/ Edward F. Gotschall
-----------------------
Edward F. Gotschall
C.O.O. - Finance
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description of Sequentially
Number Exhibit Numbered Page
- ------ -------------- -------------
<C> <S> <C>
* 3.1 First Amended and Restated Certificate of
Incorporation of the Company
* 3.2 First Amended and Restated Bylaws of the Company
** 4.1 Specimen Stock Certificate
10.1 Second Amended and Restated Credit Agreement
between the Company and First Bank National
Association, dated July 31, 1997
10.2 Agreement to Add Lender between the Company,
First Bank National Association and First Union
National Bank, dated August 27, 1997
10.3 Agreement to Add Lender between the Company,
First Bank National Association and Residential
Funding Corporation, dated September 18, 1997
10.4 Agreement to Add Lender between the Company,
First Bank National Association and Bank One,
Texas, N.A., dated September 25, 1997
11.1 Statement re Computation of Per Share Earnings
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference from Amendment No. 1 to the Registration
Statement on Form S-1 of the Company as filed with the SEC on June 2, 1997.
** Incorporated by reference from Amendment No. 2 to the Registration Statement
on Form S-1 of the Company as filed with the SEC on June 18, 1997.
22
<PAGE>
EXHIBIT 10.1
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
By and Between
NEW CENTURY MORTGAGE CORPORATION,
FIRST BANK NATIONAL ASSOCIATION,
as Agent
and
THE BANKS PARTY HERETO
July 31, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<C> <S> <C>
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS.......................... 1
1.01 Certain Defined Terms..................................... 1
1.02 Accounting Terms.......................................... 16
1.03 Computation of Time Periods............................... 16
1.04 Other Definitional Terms.................................. 16
SECTION 2. THE CREDIT FACILITIES..................................... 17
2.01 The Warehousing Facility and the Swingline Facility....... 17
2.02 The Working Capital Facility.............................. 23
2.03 Interest on the Warehousing Note; Balances Deficiency
Fees; Usage Fees; Continuations and Conversions........... 27
2.04 Interest on the Working Capital Note...................... 29
2.05 Payments and Computations................................. 31
2.06 Setoff.................................................... 32
2.07 Increased Capital Requirements............................ 32
2.08 Provisions Relating to Eurodollar Advances and Fixed Rate
Advances.................................................. 33
2.09 Letters of Credit......................................... 35
SECTION 3. REPRESENTATIONS AND WARRANTIES............................ 39
3.01 Formation; Powers; Good Standing; Subsidiaries; Agency
Status.................................................... 39
3.02 Authorization; No Conflict; Governmental Consents;
Binding Effect............................................ 40
3.03 Financial Condition....................................... 41
3.04 Title to Property; Liens.................................. 41
3.05 Litigation; Adverse Facts................................. 41
3.06 Other Agreements; Performance............................. 42
3.07 Use of Proceeds........................................... 42
3.08 Taxes..................................................... 42
3.09 ERISA..................................................... 43
3.10 Governmental Regulation................................... 43
3.11 Indebtedness.............................................. 43
3.12 No Material Adverse Event................................. 43
3.13 Licenses and Permits...................................... 43
3.14 Guarantees................................................ 44
3.15 Accuracy and Completeness of Information.................. 44
SECTION 4. COVENANTS OF THE COMPANY.................................. 44
4.01 Financial Statements and Other Reports.................... 44
4.02 Corporate Existence; Agency Status........................ 47
4.03 Compliance with Laws, Taxes, etc.......................... 48
4.04 ERISA..................................................... 48
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
4.05 Assets and Insurance...................................... 48
4.06 Inspection, Visitation, etc............................... 49
4.07 Further Assurances........................................ 49
4.08 Indebtedness.............................................. 49
4.09 Liens..................................................... 50
4.10 Investments............................................... 51
4.11 Guarantees................................................ 51
4.12 Net Worth................................................. 51
4.13 Restriction on Fundamental Changes........................ 52
4.14 Restricted Payments....................................... 52
4.15 Minimum Liquidity......................................... 52
4.16 Subsidiaries.............................................. 52
4.17 Affiliate Transactions.................................... 52
4.18 Escrow Imbalances......................................... 52
4.19 Inconsistent Agreements................................... 52
4.20 Closing Procedures........................................ 53
4.21 Underwriting.............................................. 53
4.22 Independence of Covenants................................. 53
SECTION 5. CONDITIONS PRECEDENT...................................... 53
5.01 Conditions Precedent to Effectiveness..................... 53
5.02 Conditions Precedent to all Loans......................... 55
SECTION 6. EVENTS OF DEFAULT; REMEDIES............................... 56
6.01 Events of Default......................................... 56
6.02 Remedies.................................................. 58
SECTION 7. THE AGENT................................................. 59
7.01 Appointment and Authorization............................. 59
7.02 Note Holders.............................................. 59
7.03 Consultation With Counsel................................. 59
7.04 Documents................................................. 59
7.05 Agent and Affiliates...................................... 60
7.06 Action by Agent........................................... 60
7.07 Credit Analysis........................................... 60
7.08 Notices of Event of Default, etc.......................... 60
7.09 Indemnification........................................... 61
7.10 Payments.................................................. 61
7.11 Sharing of Payments....................................... 62
7.12 Successor Agent........................................... 62
7.13 Inspection................................................ 63
</TABLE>
ii
<PAGE>
<TABLE>
<C> <S> <C>
SECTION 8. MISCELLANEOUS............................................. 63
8.01 Waiver.................................................... 63
8.02 Notices................................................... 63
8.03 Expenses; Indemnification................................. 64
8.04 Confidentiality........................................... 64
8.05 Releases, Amendments, Waivers, Consents and Exercise of
Remedies.................................................. 65
8.06 Binding Effect; Assignments and Participations;
Transferees; New Lenders; Commitment Increases............ 65
8.07 Governing Law and Construction............................ 67
8.08 Consent to Jurisdiction................................... 67
8.09 Waiver of Jury Trial...................................... 68
8.10 Survival of Agreement..................................... 68
8.11 Captions 68
8.12 Entire Agreement.......................................... 68
8.13 Counterparts.............................................. 68
8.14 Company Acknowledgements.................................. 68
iii
</TABLE>
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------
SECOND AMENDED and RESTATED CREDIT AGREEMENT dated as of July 31, 1997
by and between NEW CENTURY MORTGAGE CORPORATION, a California corporation (the
"Company"), the lenders from time to time party hereto (each a "Lender" and
collectively, the "Lenders"), and FIRST BANK NATIONAL ASSOCIATION, as agent for
the Lenders (in such capacity, together with any successor agents appointed
hereunder, the "Agent").
WHEREAS, the Company and First Bank are parties to that certain
Amended and Restated Credit Agreement dated October25, 1996 (as amended, the
"Existing Credit Agreement") pursuant to which First Bank and GFB provided the
Company with a revolving mortgage warehousing credit facility and a working
capital facility;
WHEREAS, the Company has requested that First Bank add a swingline
under such facility, increase the amount of such facility, and amend certain
other provisions of the Existing Credit Agreement.
Accordingly, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS.
--------------------------------
1.01 Certain Defined Terms. As used herein, the terms defined in the
---------------------
introductory paragraphs hereof shall have the meanings given them therein and
the following terms shall have the following respective meanings (such terms to
be equally applicable to both the singular and plural forms of the terms
defined):
"Adjusted Eurodollar Rate": on any date of determination, the rate
------------------------
(rounded upward, if necessary, to the next higher one hundredth of one
percent) determined by dividing the Eurodollar Rate for such date by 1.00
minus the Eurodollar Reserve Percentage.
"Advance": (a) a Reference Rate Advance, (b)a Fixed Rate Advance, or
-------
(c) a Eurodollar Advance.
"Affiliate": with respect to any Person, any other Person directly or
---------
indirectly controlling, controlled by, or under common control with, such
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement": this Credit Agreement, as amended, supplemented,
---------
restated or otherwise modified and in effect from time to time.
<PAGE>
"Applicable Margin": with respect to:
-----------------
(a) Reference Rate Advances consisting of Warehousing Loans, 0%;
(b) Reference Rate Advances consisting of Working Capital Loans,
0.5%; and
(c) Eurodollar Advances, 1.25%.
"Balance Calculation Period": each calendar quarter after the
--------------------------
Effective Date to and including the later of the date on which the
Warehousing Notes shall be paid in full or the Warehousing Termination
Date, except that the first Balance Calculation Period shall commence on
the Effective Date and the last Balance Calculation Period shall end on the
later of the date on which the Warehousing Notes shall have been paid in
full or the Warehousing Termination Date.
"Balances Deficiency": as such term is defined in Section 2.03(a)(i).
-------------------
"Balances Deficiency Fee": as such term is defined in Section
-----------------------
2.03(a)(i).
"Balances Surplus": as such term is defined in Section 2.03(a)(i).
----------------
"Borrowing Date": the Business Day specified by the Company in a
--------------
Confirmation of Borrowing/Paydown/Conversion as the date on which it
requests the Lenders to make Warehousing Loans or Working Capital Loans or
First Bank to make a Swingline Loan.
"Business Day": any day of the year other than a Saturday, Sunday or
------------
other day on which commercial banks in Minneapolis, Minnesota are required
or authorized to close.
"Cash": all cash and cash equivalents, as shown on the consolidated
----
balance sheet of the Company prepared in accordance with GAAP, including,
without limitation, all deposit accounts of the Company with any Lender or
any other financial institution.
"Change of Control": the occurrence, after the Signing Date, of any
-----------------
of the following circumstances: (a) NCFC not owning, directly or
indirectly, all of the issued and outstanding capital stock of the Company;
or (b) any Person, or two or more Persons acting in concert, other than the
Management Shareholders, acquiring beneficial ownership (within the meaning
of Rule 13d-3 of the Securities and Exchange Commission under the
Securities
-2-
<PAGE>
Exchange Act of 1934, as amended), directly or indirectly, of securities of
NCFC (or other securities convertible into such securities) representing
35% or more of the combined voting power of all securities of NCFC entitled
to vote in the election of directors; (c) any Person, or two or more
Persons acting in concert, other than the Management Shareholders,
acquiring by contract or otherwise, or entering into a contract or
arrangement which upon consummation will result in its or their acquisition
of, control over securities of NCFC (or other securities convertible into
such securities) representing 35% or more of the combined voting power of
all securities of NCFC entitled to vote in the election of directors; or
(d) Robert Cole ceasing to be Chairman and CEO of NCFC.
"Code": the Internal Revenue Code of 1986, together with all
----
amendments from time to time thereto.
"Collateral Account": account number 1731-0097-1378 of the Company
------------------
with Agent.
"Commitments": the Warehousing Commitments and the Working Capital
-----------
Commitments.
"Compliance/Borrowing Base Certificate": a certificate in the form of
-------------------------------------
Exhibit A.
"Confirmation of Borrowing/Paydown/Conversion": a confirmation in the
--------------------------------------------
form of Exhibit B.
"Delivered Mortgage Loans": Mortgage Loans pledged to the Agent
------------------------
pursuant to the Pledge and Security Agreement with respect to which all of
the documents required to be delivered to the Agent pursuant to Section
4.02 of the Pledge and Security Agreement have been delivered.
"Effective Date": the date on or after the Signing Date on which all
--------------
of the conditions precedent set forth in Section 5.01 shall have been
satisfied or waived in writing by the Agent.
"Eligible Servicing Portfolio": on any date of determination, the
----------------------------
aggregate unpaid principal balance of all Mortgage Loans owned by Persons
other than the Company that are serviced by the Company pursuant to
Eligible Servicing Rights, excluding Servicing Rights that are subject to
an executed and delivered agreement to sell the same.
"Eligible Servicing Rights": all rights of the Company held for its
-------------------------
own account (and not as nominee or subservicer), whether pursuant to a
Servicing
-3-
<PAGE>
Contract or otherwise, to service Mortgage Loans or Mortgage Loan pools
for, or to service Mortgage Loans or Mortgage Loan pools that back
Mortgage-backed Securities issued or guaranteed by, FNMA, FHLMC, GNMA or
another Investor, other than rights to service Mortgage Loans:
(a) pursuant to Recourse Servicing Contracts;
(b) with respect to which any payment is more than 59 days past
due; or
(c) with respect to which any obligor is the subject of a
bankruptcy, debt arrangement or other proceeding under any insolvency
law.
"ERISA": the Employee Retirement Income Security Act of 1974,
-----
together with all amendments from time to time thereto.
"ERISA Affiliate": any trade or business (whether or not
---------------
incorporated) that is a member of a group that is treated as a single
employer under Section414 of the Code of which the Company is a member.
"Eurodollar Advance": an outstanding Warehousing Loan that bears
------------------
interest as provided in Section 2.03(a)(iii).
"Eurodollar Rate": on any date of determination, the average offered
---------------
rate for deposits in United States dollars having a maturity of thirty days
(rounded upward, if necessary, to the nearest 1/16 of 1%) for delivery of
such deposits on such date of determination which appears on the Reuters
Screen LIBO page as of 11:00 a.m., London time (or such other time as of
which such rate appears) on such date of determination, or the rate for
such deposits determined by the Agent at such time based on such other
published service of general application as shall be selected by the Agent
for such purpose; provided, that in lieu of determining the rate in the
foregoing manner, the Agent may determine the rate based on rates at which
United States dollar deposits having a maturity of thirty days are offered
to the Agent in the interbank Eurodollar market at such time for delivery
in Immediately Available Funds on such date of determination in an amount
equal to $1,000,000 (round upward, if necessary, to the nearest 1/16 of
1%). "Reuters Screen LIBO page" means the display designated as page
"LIBO" on the Reuters Monitor Money Rate Screen (or such other page as may
replace the LIBO page on such service for the purpose of displaying London
interbank rates of major banks for United States dollar deposits).
-4-
<PAGE>
"Eurodollar Reserve Percentage": on any date of determination, that
-----------------------------
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the maximum reserve requirement for a member
bank of the Federal Reserve System, with deposits comparable in amount to
those held by First Bank, in respect of "Eurocurrency Liabilities" (or in
respect of any other category of liabilities which includes deposits by
reference to which the interest rate on Eurodollar Rate Advances is
determined or any category of extensions of credit or other assets which
includes loans by a non-United States office of a Bank to United States
residents).
"Event of Default": as such term is defined in Section 6.01.
----------------
"Existing Warehouse Advances": as of the Effective Date, the
---------------------------
outstanding "Warehousing Loans" (as such term is defined in the Existing
Credit Agreement) made by First Bank and GFB under the Existing Credit
Agreement.
"Existing Working Capital Advances": as of the Effective Date, the
---------------------------------
outstanding "Working Capital Loans" (as such term is defined in the
Existing Credit Agreement) made by First Bank under the Existing Credit
Agreement.
"Federal Funds Effective Rate": for any date of determination, the
----------------------------
weighted average of the quotations for such date for overnight federal
funds transactions received by First Bank from three (3) federal funds
brokers of recognized standing selected by First Bank; provided, that in
lieu of determining the rate in the foregoing manner, the Agent may
substitute the per annum rate for such transactions displayed on the
Telerate screen, page 120, at 10:00 A.M. (Minneapolis time) on such date
or, if such date is not a Business Day, the most recent Business Day, or
the equivalent rate determined by the Agent at such time based on such
other published service of general application as shall be selected by the
Agent for such purpose.
"FHLMC": the Federal Home Loan Mortgage Corporation and any successor
-----
thereto.
"First Bank": First Bank National Association, in its capacity as a
----------
Lender hereunder.
"Fixed Rate": as defined in Section 2.03(a)(i).
----------
"Fixed Rate Advance": an outstanding Warehousing Loan that bears
------------------
interest as provided in Section 2.03(a)(i) or a Working Capital Loan that
bears interest as provided in Section 2.04(a)(i).
-5-
<PAGE>
"Floating Rate Advance": an outstanding Loan maintained as a
---------------------
Reference Rate Advance or a Eurodollar Advance.
"FNMA": the Federal National Mortgage Association and any successor
----
thereto.
"GAAP": generally accepted accounting principles in the United States
----
set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board
or in such other statements by such other entity as may be approved by a
significant segment of the accounting profession, which are applicable to
the circumstances as of the date of determination.
"GFB": Guaranty Federal Bank, F.S.B., a federal savings bank.
---
"GNMA": the Government National Mortgage Association and any
----
successor thereto.
"Guarantee": any obligation, contingent or otherwise, of any Person
---------
guaranteeing or having the economic effect of guaranteeing any Indebtedness
of any other Person (the "primary obligor") in any manner, whether directly
or otherwise, (a)to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any direct or indirect security therefor,
(b)to purchase property, securities, or services for the purpose of
assuring the owner of such Indebtedness of the payment of such
Indebtedness, (c)to maintain working capital, equity capital, or other
financial statement condition of the primary obligor so as to enable the
primary obligor to pay such Indebtedness or otherwise to protect the owner
thereof against loss in respect thereof, or (d)entered into for the purpose
of assuring in any manner the owner of such Indebtedness of the payment of
such Indebtedness or to protect such owner against loss in respect thereof;
provided, that the term "Guarantee" shall not include endorsements for
--------
collection or deposit, in each case in the ordinary course of business.
"Guaranty": the guaranty in the form of Exhibit C, or the same may be
--------
amended, supplemented or restated from time to time.
"Holding Account": a deposit account belonging to First Bank into
---------------
which the Company may be required to make deposits pursuant to the
provisions of this Agreement, such account to be under the sole dominion and
control of First Bank and not subject to withdrawal by the Company, with
-6-
<PAGE>
any amounts therein to be held for application toward payment of (i) any
outstanding Letter of Credit Obligations or (ii) other obligations of the
Company to First Bank.
"Immediately Available Funds": funds with good value on the day and
---------------------------
in the city in which payment is received.
"Indebtedness": with respect to any Person at any time, without
------------
duplication, all obligations of such Person which, in accordance with GAAP,
consistently applied, should be classified as liabilities on an
unconsolidated balance sheet of such Person, but in any event shall
include: (a)all obligations of such Person for borrowed money, (b)all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments, (c)all obligations of such Person upon which interest
charges are customarily paid or accrued, (d)all obligations of such Person
under conditional sale or other title retention agreements relating to
property purchased by such Person, (e)all obligations of such Person issued
or assumed as the deferred purchase price of property or services, but
excluding accrued expenses and trade payables incurred and paid in the
ordinary course of business, (f)all obligations of others secured by any
Lien on property owned or acquired by such Person, whether or not the
obligations secured thereby have been assumed, (g)all capitalized lease
obligations of such Person, (h)all obligations of such Person in respect of
interest rate protection agreements, (i)all obligations of such Person,
actual or contingent, in respect of letters of credit or banker's
acceptances, (j)all obligations of any partnership or joint venture as to
which such Person is or may become personally liable, and (k)all Guarantees
by such Person of Indebtedness of others.
"Investment": as applied to any Person, any direct or indirect
----------
purchase or other acquisition by that Person of, or a beneficial interest
in, stock or other securities of any other Person, or any direct or
indirect loan, advance (other than advances to employees for moving and
travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or capital contribution by that Person to any other
Person, including all Indebtedness and accounts receivable from that other
Person which are not current assets or did not arise from sales to that
other Person in the ordinary course of business.
"Investor": any bank, trust company, savings and loan association,
--------
pension fund, governmental authority, insurance company or other
responsible and substantial institutional investor, dealer or securities
broker designated by the Company and approved by the Agent (which approval
shall not be unreasonably withheld) with respect to Mortgage Loans of a
particular type; provided, that the Agent or the Required Lenders may at
any time, by
-7-
<PAGE>
written notice to the Company, reject any Investor designated by the
Company or designate any Investor as no longer acceptable. Upon receipt of
such written notice, the Person(s) named in such notice to the Company
shall no longer be considered Investors hereunder.
"IPO Date": the Business Day on which NCFC shall have received and
--------
contributed to the Company proceeds of the initial public offering of
NCFC's stock in an amount sufficient to increase the Company's Tangible Net
Worth to not less than $35,000,000.
"Letter of Credit": an irrevocable letter of credit, in form and
----------------
substance satisfactory to First Bank, issued by First Bank pursuant to this
Agreement for the account of the Company.
"Letter of Credit Fee": as defined in Section 2.09(g).
--------------------
"Letter of Credit Obligations": as of any date of determination, the
----------------------------
sum of (a) the aggregate amount available to be drawn under Letters of
Credit outstanding on such date and (b) the aggregate amount of Unpaid
Drawings on such date.
"Leverage Ratio": on any date of determination, the ratio of (a)Total
--------------
Indebtedness to (b) Tangible Net Worth.
"Lien": any security interest, mortgage, pledge, lien, charge,
----
encumbrance, title retention agreement or analogous instrument, in, of, or on
any of the assets or properties, now owned or hereafter acquired, of any
Person, whether arising by agreement or operation of law.
"Loan Documents": this Agreement, the Notes, the Pledge and Security
--------------
Agreement, the Guaranty, and all other agreements, instruments,
certificates and other documents executed and delivered pursuant thereto or
in connection therewith, as the same may be supplemented, amended or
otherwise modified from time to time after the Signing Date.
"Loans": Warehousing Loans, Swingline Loans and Working Capital
-----
Loans.
"Management Shareholders": Robert K. Cole, Brad A. Morrice,
-----------------------
EdwardF. Gotschall and Steven Holder.
-8-
<PAGE>
"Material Adverse Event": any occurrence of whatsoever nature
----------------------
(including, without limitation, any adverse determination in any
litigation, arbitration or governmental investigation or proceeding) which
materially adversely affects the present or reasonably foreseeable
prospective financial condition or operations of NCFC or the Company or
materially impairs the ability of NCFC or the Company to perform its
respective obligations under the Loan Documents.
"Mortgage": a mortgage or deed of trust on real property which has
--------
been improved by a completed single family (i.e., one to four family units)
----
dwelling unit (i.e., a detached house, townhouse or condominium).
----
"Mortgage-backed Security": a security (including, without
------------------------
limitation, a participation certificate) that is an interest in a pool of
Mortgage Loans or is secured by such an interest.
"Mortgage Banker's Financial Reporting Form": Form Number 10021055 of
------------------------------------------
the FNMA Seller's Guide.
"Mortgage Loan": a Mortgage Note and the related Mortgage.
-------------
"Mortgage Note": a promissory note which has a term not exceeding 30
-------------
years evidencing a loan or advance which is secured by a Mortgage.
"Multiemployer Plan": a multiemployer plan, as such term is defined
------------------
in Section 4001 (a) (3) of ERISA, which is maintained (on the Closing Date,
within the five years preceding the Closing Date, or at any time after the
Closing Date) for employees of the Company or any ERISA Affiliate.
"NCFC": New Century Financial Corporation, a Delaware corporation.
----
"Net Worth": as to any Person, as of any date of determination, the
---------
net worth of such Person as of such date, determined in accordance with
GAAP.
"Notes": the Warehousing Notes and the Working Capital Notes.
-----
"Obligations": all obligations of each of the Company and NCFC to the
-----------
Agent or any Lender now or hereafter existing under any Loan Document,
whether for principal, interest, fees, expenses, indemnification or
otherwise.
"PBGC": the Pension Benefit Guaranty Corporation created by Section
----
4002(a) of ERISA or any governmental body succeeding to the functions
thereof.
-9-
<PAGE>
"Person": any natural person, corporation, partnership, joint
------
venture, firm, association, trust, unincorporated organization, government
or governmental agency or political subdivision or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Plan": each employee benefit plan (whether in existence on the
----
Closing Date or thereafter instituted), as such term is defined in Section
3 of ERISA, maintained for the benefit of employees, officers or directors
of the Company or of any ERISA Affiliate, other than a Multiemployer Plan.
"Pledge and Security Agreement": the pledge and security agreement in
-----------------------------
the form of ExhibitD, as the same may be amended, supplemented or restated
from time to time.
"Prohibited Transaction": the respective meanings assigned to such
----------------------
term in Section 4975 of the Code and Section 406 of ERISA.
"Pro Rata Share": with respect to each Lender, in each case expressed
--------------
as a percentage:
(a) as such term pertains to such Lender's obligation to make
Warehousing Loans, including its obligation to refinance any
outstanding Swingline Loans, the fraction which the amount of its
Warehousing Commitment is to the aggregate amount of all the
Warehousing Commitments,
(b) as such term pertains to such Lender's right to receive
payment of interest on and Usage Fees and Balances Deficiency Fees
with respect to its outstanding Warehousing Loans, the fraction which
the outstanding amount of interest, Usage Fees and Balances Deficiency
Fees payable to it on or with respect to the outstanding principal
balance of such Lender's Warehousing Loans is to the aggregate
outstanding amount of interest, Usage Fees and Balances Deficiency
Fees payable on or with respect to the aggregate unpaid principal
balance of all Warehousing Loans,
(c) as such term pertains to such Lender's right to receive
payment of principal of its outstanding Warehousing Loans, the
fraction which the amount of the unpaid principal balance of its
Warehousing Loans is to the aggregate unpaid principal balance of all
outstanding Warehousing Loans,
(d) as such term pertains to such Lender's right to receive
facility fees under Section 2.01(h), the fraction which such Lender's
-10-
<PAGE>
Warehousing Commitment Amount is to the sum of all Warehousing
Commitment Amounts,
(e) as such term pertains to such Lender's obligation to make
Working Capital Loans, including its obligations to make Working
Capital Loans to repay Unpaid Drawings or to purchase participation in
Unpaid Drawings, the fraction which the amount of its Working Capital
Commitment is to the aggregate amount of all the Working Capital
Commitments,
(f) as such term pertains to such Lender's right to receive
payment of interest on and Balances Deficiency Fees with respect to
its outstanding Working Capital Loans, the fraction which the
outstanding amount of interest and Balances Deficiency Fees payable to
it on or with respect to the outstanding principal balance of such
Lender's Working Capital Loans is to the aggregate outstanding amount
of interest and Balances Deficiency Fees payable on or with respect to
the aggregate unpaid principal balance of all Working Capital Loans,
(g) as such term pertains to such Lender's right to receive
payment of principal of its outstanding Working Capital Loans, the
fraction which the amount of the unpaid principal balance of its
Working Capital Loans is to the aggregate unpaid principal balance of
all outstanding Working Capital Loans,
(h) as such term pertains to such Bank's right to receive
facility fees under Section 2.02(f), the fraction which such Bank's
Working Capital Commitment Amount is to the sum of all Working Capital
Commitment Amounts,
(i) as such term pertains to such Lender's obligations under
Section7.09, and for all other purposes, the fraction which the sum of
such Lender's Warehousing Commitment Amount and Working Capital
Commitment Amount, or, if its Commitments have terminated, the unpaid
principal balance of its Loans, is to the sum of the Warehousing
Commitment Amounts and Working Capital Commitment Amounts of all of
the Lenders or, if the Commitments have terminated, the unpaid
principal balance of all of the Loans.
"Recourse Servicing Contract": a Servicing Contract under which the
---------------------------
Company is obligated to repurchase or indemnify the holder of the Mortgage
Loans as a result of defaults on the Mortgage Loans at any time during the
term of such Mortgage Loans (other than those Servicing Contracts that are
-11-
<PAGE>
customarily recognized in the trade as non-recourse but that may contain
repurchase or indemnification obligations related to breaches of usual and
customary representations and warranties made by the Company in connection
with the sale and servicing of the Mortgage Loans serviced thereunder and
usual and customary provisions for the advance of principal and interest on
Mortgage-backed Securities by the Company).
"Reference Rate": at the time of any determination thereof, the rate
--------------
per annum which is most recently publicly announced by First Bank as its
"reference rate", which may be a rate at, above or below which First Bank
lends to other Persons.
"Reference Rate Advance": an outstanding Warehousing Loan or a
----------------------
Swingline Loan that bears interest as provided in Section 2.03(a)(ii) or a
Working Capital Loan that bears interest as provided in Section
2.04(a)(ii).
"Regulation D": Regulation D (or any substitute regulations) of the
------------
Board of Governors of the Federal Reserve System (or any successor
thereto), together with all amendments from time to time thereto.
"Regulatory Change": any change after the Signing Date in United
-----------------
States federal, state or foreign laws or regulations or the adoption or
making after such date of any interpretations, directives or requests
applying to a class of banks including any Lender under any United States
federal, state or foreign laws or regulations (whether or not having the
force of law) by any court or governmental or monetary authority charged
with the interpretation or administration thereof.
"Reportable Event": a reportable event as defined in Section 4043 of
----------------
ERISA and the regulations issued under such Section, with respect to a
Plan, excluding, however, such events as to which the PBGC by regulation
has waived the requirement of Section 4043(a) of ERISA that it be notified
within 30 days of the occurrence of such event, provided, that a failure to
meet the minimum funding standard of Section 412 of the Code and of Section
302 of ERISA shall be a Reportable Event regardless of the issuance of any
waiver in accordance with Section 412(d) of the Code.
"Required Lenders": at any time of determination, Lenders whose Pro
----------------
Rata Shares (as defined under clause(i) of the definition of such term)
aggregate at least 66.67%; provided, that if there is more than one Lender,
the "Required Lenders" shall not consist of fewer than two Lenders.
"Reserve-Adjusted Balances": for any Balance Calculation Period, an
-------------------------
amount obtained by multiplying (a)the average net daily collected non-
-12-
<PAGE>
interest-bearing balances of the Company on deposit with any Lender
during such Balance Calculation Period over and above the balances required
to compensate such Lender for services provided by such Lender for said
Balance Calculation Period, reductions in the interest payable on
Indebtedness (other than the Loans) outstanding to such Lender and
assessments payable with respect to such balances by such Lender to the
Federal Deposit Insurance Corporation (or any successor thereto) for such
Corporation's insuring of time deposits in dollars made at such Lender for
such Balance Calculation Period by (b) a percentage equal to 100%, minus
the average daily Reserve Percentage in effect for said Balance Calculation
Period. For purposes of the foregoing, "Reserve Percentage" shall mean, on
------------------
any date of determination, the percentage as prescribed by Regulation D for
determining the highest maximum reserve requirement (including, without
limitation, any marginal, emergency, supplemental, special or other
reserve) that the applicable Lender determines it is required to maintain
on such date in respect of deposits of the type maintained with such Lender
in the applicable Balance Calculation Period.
"Restricted Payments": with respect to any Person, collectively, all
-------------------
dividends or other distributions of any nature (cash, securities, assets or
otherwise), and all payments, by virtue of redemption or otherwise, on any
class of equity securities (including, without limitation, warrants,
options or rights therefor) issued by such Person, whether such securities
are now or may hereafter be authorized or outstanding and any distribution
in respect of any of the foregoing, whether directly or indirectly.
"Risk Rating": as defined in Exhibit E.
-----------
"Servicing Contract": a contract or agreement purchased by the
------------------
Company or entered into by the Company for its own account (and not as
nominee or subservicer), whether now existing or hereafter purchased or
entered into, pursuant to which the Company services Mortgage Loans or
Mortgage Loan pools for others.
"Servicing Rights": any and all rights of the Company held for its
----------------
own account (and not as nominee or subservicer), whether pursuant to a
Servicing Contract or otherwise, to service Mortgage Loans or Mortgage Loan
pools, including, without limitation, (i) all rights to collect payments
due and enforce the rights of the mortgagee under any Mortgage Loans, (ii)
all rights to receive compensation and termination fees under any Servicing
Contract and (iii) all rights to receive the proceeds from any sale or
other transfer of the Company's interest in any Servicing Contract.
-13-
<PAGE>
"Signing Date": the Business Day on which counterparts of this
------------
Agreement, duly executed by the Company and the Lenders, have been
delivered to the Agent.
"Subsidiary": as to any Person, any corporation or other entity of
----------
which securities or other ownership interests having ordinary voting power
to elect a majority of the board of directors or other Persons performing
similar functions are at the time owned directly or indirectly by such
Person.
"Swingline Commitment": the discretionary revolving credit facility
--------------------
provided by First Bank to the Borrower described in Section 2.01(b).
"Swingline Loan": a loan made by First Bank to the Borrower pursuant
--------------
to Section 2.01(b).
"Take-Out Commitment": as defined in Exhibit E.
-------------------
"Tangible Net Worth": as of any date of determination, the
------------------
consolidated Net Worth of the Company and its subsidiaries, less the
consolidated net book value of all assets of the Company and its
subsidiaries (to the extent reflected as an asset in the balance sheet of
the Company or any subsidiary at such date) which will be treated as
intangibles under GAAP, including, without limitation, such items as
deferred financing expenses, net leasehold improvements, good will,
trademarks, trade names, service marks, copyrights, patents, licenses and
unamortized debt discount and expense; provided, that interest-only or
--------
residual interests in Mortgage-backed Securities issued by the Company
shall not be treated as intangibles for purposes of this definition.
"Total Indebtedness": at any time of determination, the amount, on a
------------------
consolidated basis, of the liabilities of the Company and its subsidiaries,
determined in accordance with GAAP, minus obligations under gestation
repurchase agreements or similar arrangements under which the Company or
its subsidiaries are required to repurchase Mortgage-backed Securities or
Mortgage Loans from any Lender or other counterparty reasonably
satisfactory to the Agent, whether or not such obligations are reflected on
the Company's balance sheet; provided, that such gestation repurchase
agreements are entered into in the ordinary course of business in
contemplation of the subsequent non-recourse sale of such Mortgage-backed
Securities or Mortgage Loans.
"Transferees": as such term is defined in Section 7.06.
-----------
"Transferred Interest": as such term is defined in Section 7.06.
--------------------
-14-
<PAGE>
"Underwriting Guidelines": the Company's underwriting guidelines as
-----------------------
in effect on the Signing Date, a copy of which is attached hereto as
Schedule 1.01 (a), as the same may be modified from time to time in
accordance with this Agreement.
"Unmatured Event of Default": any event which with the lapse of time,
--------------------------
with notice to the Company or with both would constitute an Event of
Default.
"Unpaid Drawing": as defined in Section 2.09(d).
--------------
"Usage Fees": as defined in Section 2.02(b).
----------
"Warehousing Borrowing Base": as of a date of determination, an
--------------------------
amount equal to 100% of the Warehousing Collateral Value of the Warehousing
Collateral, as determined by the Agent from its records.
"Warehousing Collateral": the "Collateral" as defined in the Pledge
----------------------
and Security Agreement.
"Warehousing Collateral Value": on the date of any determination,
----------------------------
with respect to the Warehousing Collateral or any portion thereof, as
determined by the Agent in accordance with the provisions of Exhibit E.
"Warehousing Commitment": as to any Lender, the obligation of such
----------------------
Lender to make Warehousing Loans pursuant to Section 2.01(a).
"Warehousing Commitment Amount": as to any Lender, the amount set
-----------------------------
opposite such Lender's name as its "Warehousing Commitment" in Schedule
1.01(b), as the same may be (i)reduced pursuant to Section 2.01(g), (ii)
changed as the result of an assignment pursuant to Section 8.06(a) or (iii)
increased pursuant to Section 8.06(b).
"Warehousing Loan": a loan made by the Lender to the Company pursuant
----------------
to Section 2.01(a).
"Warehousing Note": as such term is defined in Section 2.01(e).
----------------
"Warehousing Termination Date": the earliest of (a) May 31, 1998, (b)
----------------------------
the date on which the Warehousing Commitments are terminated or reduced to
zero pursuant to Section 2.01(g), or (c) the date on which the Warehousing
Commitments are terminated pursuant to Section 6.02.
-15-
<PAGE>
"Working Capital Commitment": as to any Lender, its obligations (a)
--------------------------
to make Working Capital Loans pursuant to Section2.02(a), and (b) in the
case of First Bank, to issue Letters of Credit upon the request of the
Company in an aggregate principal amount outstanding not to exceed
$1,250,000, and in the case of all of the Lenders, to make Working Capital
Loans to repay and/or purchase participation interests in Unpaid Drawings,
pursuant to Section 2.09, all upon the terms and subject to the conditions
and limitations of this Agreement.
"Working Capital Commitment Amount": as to any Lender, the amount
---------------------------------
set opposite such Lender's name as its "Working Capital Commitment" in
Schedule 1.01(b), as the same may be (i)reduced pursuant to Section 2.02(e),
(ii) changed as the result of an assignment pursuant to Section 8.06(a) or
(iii) increased pursuant to Section 8.06(b).
"Working Capital Loan": a loan made by First Bank to the Company
--------------------
pursuant to Section 2.02(a).
"Working Capital Note": as such term is defined in Section 2.02(c).
--------------------
"Working Capital Termination Date": the earliest of (a) May 31, 1998,
--------------------------------
(b) the date on which the Working Capital Commitments are terminated or
reduced to zero pursuant to Section 2.02(e) or (c) the date on which the
Working Capital Commitments are terminated pursuant to Section 6.02.
1.02 Accounting Terms. Except as provided to the contrary herein, all
----------------
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP. To the extent
any change in GAAP affects any computation or determination required to be made
pursuant to this Agreement, such computation or determination shall be made as
if such change in GAAP had not occurred unless the Company and the Lenders agree
in writing on an adjustment to such computation or determination to account for
such change in GAAP.
1.03 Computation of Time Periods. In this Agreement, in the
---------------------------
computation of a period of time from a specified date to a later specified date,
unless otherwise stated the word "from" means "from and including" and the word
"to" or "until" each means "to but excluding".
1.04 Other Definitional Terms. The words "hereof", "herein" and
------------------------
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and section, schedule, exhibit and like references are to this
Agreement unless
-16-
<PAGE>
otherwise specified. Unless the context in which used herein
otherwise clearly requires, "or" has the inclusive meaning represented by the
phrase "and/or".
SECTION 2. THE CREDIT FACILITIES.
---------------------
2.01 The Warehousing Facility and the Swingline Facility.
---------------------------------------------------
(a) Warehousing Credit Commitment. Upon the terms and subject
-----------------------------
to the conditions of this Agreement, during the period beginning on the
Effective Date and ending on the Warehousing Termination Date, each Lender
agrees, severally but not jointly, to lend (and after repayment, to relend)
to the Company, at such times and in such amounts as the Company shall
request, up to an aggregate principal amount at any time outstanding equal
to such Lender's Warehousing Commitment Amount, subject to the following
limitations:
(i) the aggregate principal amount of Warehousing Loans and
Swingline Loans at any time outstanding shall not exceed the sum of
the Warehousing Commitment Amounts of all the Lenders; and
(ii) the aggregate principal amount of Warehousing Loans and
Swingline Loans at any time outstanding shall not exceed the
Warehousing Borrowing Base, as determined by the Agent from its
records.
No Lender shall be obligated to make Warehousing Loans if, after giving
effect thereto, either of the foregoing limitations would be exceeded. The
failure of any one or more of the Lenders to make a Warehousing Loan in
accordance with its Warehousing Commitment shall not relieve the other
Lenders of their several obligations hereunder, but no Lender shall be
liable with respect to the obligation of any other Lender hereunder or be
obligated in any event to make Warehousing Loans which, together with its
Pro Rata Share of outstanding Swingline Loans, would exceed its Warehousing
Commitment Amount.
(b) Discretionary Swingline Commitment. Upon the terms and
----------------------------------
subject to the conditions of this Agreement, until the Warehousing
Termination Date, First Bank, in its sole discretion, may lend to the
Company loans (each such loan, a "Swingline Loan") at such times and in
such amounts as the Company shall request, up to an aggregate principal
amount at any time outstanding equal to the amount by which First Bank's
Warehousing Commitment Amount exceeds the principal amount outstanding
under First Bank's Warehousing Note; provided, that First Bank will not
make a Swingline Loan if (i) after giving effect thereto, either of the
-17-
<PAGE>
limitations set forth in Section 2.01(a) would be exceeded or (ii) First
Bank has received written notice from the Company or any Lender that one or
more of the conditions precedent set forth in Section 5 hereof for the
making of a Warehousing Advance have not been satisfied.
(c) Manner of Borrowing. The Company shall give the Agent
-------------------
telephonic notice of each request for Warehousing Loans not later than 1:00
P.M. (Minneapolis time) on the requested Borrowing Date, and each request
for Swingline Loans not later than 3:30 p.m. (Minneapolis time) on the
requested Borrowing Date. On the Effective Date, the Company shall be
deemed to have requested Warehousing Loans in an amount equal to the
outstanding principal balance of all Existing Warehousing Advances, and
such Warehousing Loans shall be used to refund such Existing Warehousing
Advances. Each request for Warehousing Loans or Swingline Loans shall
specify the aggregate amount of Warehousing Loans or Swingline Loans, as
the case may be, requested and whether such Loans to be made by each
Lender are to be funded as Eurodollar Advances, Fixed Rate Advances or
Reference Rate Advances; provided, that any portion of a Loan not so
designated shall be funded as a Eurodollar Advance. The Company shall, not
later than the following Business Day, confirm any such request by
delivering to the Agent a duly completed and executed Confirmation of
Borrowing/Paydown/Conversion. The Agent shall notify each Lender by not
later than 2:30 P.M. (Minneapolis time) on the date it receives such
request of each request for Warehousing Loans received from the Company, of
such Lender's Pro Rata Share of the Warehousing Loans requested and whether
such Lender's Warehousing Loans are to be funded as Reference Rate
Advances, Eurodollar Advances or Fixed Rate Advances. Each Lender shall
deposit into the Collateral Account in Immediately Available Funds by not
later than 2:30 P.M. (Minneapolis time) on the Borrowing Date the total
amount of the Warehousing Loans to be made by such Lender. On the
Borrowing Date of requested Swingline Loans, First Bank may deposit into
the Collateral Account in Immediately Available Funds by not later than
4:00 p.m. (Minneapolis time) on the requested Borrowing Date the amount of
the requested Swingline Loans. Unless the Agent shall have received notice
from a Lender prior to 3:00 P.M. (Minneapolis time) on any Borrowing Date
that such Lender will not make available to the Agent the Warehousing Loans
to be made by such Lender on such date, the Agent may assume that such
Lender has made such Warehousing Loan available to the Agent on such date
and the Agent in its sole discretion may, in reliance upon such assumption,
make available to the Company on such date a corresponding amount on behalf
of such Lender. If a Lender shall not have timely given such a notice, and
to the extent such Lender shall not have so made available to the Agent the
Warehousing Loans to be made by such Lender on such date and the Agent
shall have so made available to the Company a corresponding
-18-
<PAGE>
amount on behalf of such Lender, such Lender shall, on demand, pay to the
Agent such corresponding amount together with interest thereon, at the
Federal Funds Effective Rate, for each day from the date such amount shall
have been so made available by the Agent to the Company until the date such
amount shall have been repaid to the Agent. If such Lender does not pay
such corresponding amount promptly upon the Agent's demand therefor, the
Agent shall promptly notify the Company and the Company shall immediately
repay such corresponding amount to the Agent together with accrued interest
thereon at the applicable rate or rates provided in Section 2.04. Each
request for Warehousing Loans or Swingline Loans shall be deemed to be a
representation by the Company that (i) no Event of Default or Unmatured
Event of Default has occurred or will exist upon the making of the
requested Warehousing Loans and (ii) the representations and warranties
contained in Section 3 hereof, in Section 5 of the Pledge and Security
Agreement, and in Section 15 of the Guaranty are true and correct with the
same force and effect as if made on and as of the date of such request.
(d) Refinancing of Swingline Loans.
------------------------------
(i) Permitted Refinancings of Swingline Loans. First Bank,
-----------------------------------------
at any time in its sole and absolute discretion, may, upon notice
given to each other Lender by not later than 2:30 P.M. (Minneapolis
time) on any Business Day, request that each Lender (including First
Bank) make a Warehousing Loan in an amount equal to its Pro Rata Share
of the portion of the aggregate unpaid principal amount of any
outstanding Swingline Loans for the purpose of refinancing such
Swingline Loans. Such Revolving Loans shall be made as Eurodollar
Advances, unless the Company specifies otherwise.
(ii) Mandatory Refinancings of Swingline Loans. Not later
-----------------------------------------
than 2:30 P.M. (Minneapolis time) on Thursday of each week, First Bank
will notify each other Lender of the aggregate amount of Swingline
Loans which are then outstanding and the amount of Warehousing Loans
required to be made by each Lender (including First Bank) to refinance
such outstanding Swingline Loans (which shall be in the amount of each
Lender's Pro Rata Share of such outstanding Swingline Loans). Such
Revolving Loans shall be made as Eurodollar Advances, unless the
Company specifies otherwise.
(iii) Lenders' Obligation to Fund Refinancings of Swingline
-----------------------------------------------------
Loans. Upon the giving of notice by First Bank under Section
-----
2.01(d)(i) or 2.01(d)(ii), each Lender (including First Bank) shall
make a Warehousing Loan in an amount equal to its Pro Rata Share of
the aggregate principal amount of Swingline Loans to be refinanced,
-19-
<PAGE>
and provide proceeds of such Warehousing Loans, in Immediately
Available Funds, by not later than 4:00 P.M. (Minneapolis time) on the
date such notice was received; provided, however, that a Lender shall
not be obligated to make any such Warehousing Loan unless (A) First
Bank believed in good faith that all conditions to making the subject
Swingline Loan were satisfied at the time such Swingline Loan was
made, or (B) if the conditions to such Swingline Loan were not
satisfied, such Lender had actual knowledge, by receipt of the
statements furnished to it pursuant to Section 4.01 or otherwise, that
any such condition had not been satisfied and failed to notify
FirstBank in a writing received by First Bank prior to the time it
made such Swingline Loan that First Bank was not authorized to make a
Swingline Loan until such condition had been satisfied, or First Bank
was obligated to give notice of the occurrence of an Event of Default
or an Unmatured Event of Default to the Lenders pursuant to Section
7.08 and failed to do so, or (C) any conditions to the making of such
Swingline Loan that were not satisfied had been waived in writing by
the Majority Lenders prior to or at the time such Swingline Loan was
made. The proceeds of Warehousing Loans made pursuant to the
preceding sentence shall be paid to First Bank (and not to the
Company) and applied to the payment of principal of the outstanding
Swingline Loans, and the Company authorizes the Agent to charge the
Company's operating account or any other account (other than escrow or
custodial accounts) maintained by it with the Agent (up to the amount
available therein) in order to immediately pay First Bank the
principal amount of such Swingline Loans to the extent amounts
received from the other Lenders are not sufficient to repay in full
the principal of the outstanding Swingline Loans requested or required
to be refinanced. Upon the making of a Warehousing Loan by a Lender
pursuant to this Section 2.01(d)(iii), the amount so funded shall
become due under such Lender's Warehousing Note and the outstanding
principal amount of the Swingline Loans shall be correspondingly
reduced. If any portion of any such amount paid to First Bank should
be recovered by or on behalf of the Company from First Bank in
bankruptcy or otherwise, the loss of the amount so recovered shall be
ratably shared among all the Lenders in the manner contemplated by
Section 7.11. Each Lender's obligation to make Warehousing Loans
referred to in this Section 2.01(d) shall, subject to the proviso to
the first sentence of this Section 2.01(d)(iii), be absolute and
unconditional and shall not be affected by any circumstance,
including, without limitation, (1) any setoff, counterclaim,
recoupment, defense or other right which such Lender may have against
First Bank, the Company or anyone else for any reason whatsoever; (2)
the occurrence or continuance of a Default or an Event
-20-
<PAGE>
of Default; (3) any adverse change in the condition (financial or
otherwise) of the Company or the Guarantor; (4) any breach of this
Agreement by the Company, the Agent or any Lender; or (5) any other
circumstance, happening or event whatsoever, whether or not similar to
any of the foregoing; provided, that in no event shall a Lender be
obligated to make a Revolving Loan if, after giving effect thereto,
the outstanding principal balance of such Lender's Warehousing Note
would exceed its Warehousing Commitment Amount.
(e) Warehousing Notes. Warehousing Loans made by each Lender
-----------------
shall be evidenced by the Company's promissory note in the form of Exhibit
F (each, together with any promissory note subsequently executed and
delivered by the Company to evidence any Lender's Warehousing Loans, a
"Warehousing Note"), which shall be made payable to the order of such
Lender in an amount equal to such Lender's Warehousing Commitment Amount,
shall be dated the Effective Date and shall mature on the Warehousing
Termination Date. First Bank's Warehousing Note shall also evidence the
Swingline Loans made by it hereunder. The aggregate amount of the
Warehousing Loans made by a Lender and, in the case of First Bank,
Swingline Loans made by a Lender, less all repayments of principal thereof
shall be the principal amount owing and unpaid on such Lender's Warehousing
Note. The principal amount of each Warehousing Loan made by a Lender and
all principal payments and prepayments thereof may be noted by such Lender
on a schedule attached to its Warehousing Note and shall be entered by such
Bank on its ledgers and computer records. First Bank shall enter in its
ledgers and records the amount of each Swingline Loan, and the payments
made thereon, and First Bank is authorized by the Company to enter on a
schedule attached to its Warehousing Note a record of such Swingline Loans
and payments. The failure of any Lender to make such notations or entries
shall not affect the principal amount owing and unpaid on its Warehousing
Note. The entries made by a Lender on its ledgers and computer records and
any notations made by a Lender on any such schedule annexed to its
Warehousing Note shall be presumed to be accurate until the contrary is
established.
(f) Payment and Prepayment of Warehousing Loans and Swingline
---------------------------------------------------------
Loans. The Company shall pay the principal of the Warehousing Loans and
-----
Swingline Loans as follows:
(i) Mandatory Payments. The entire unpaid principal balance
------------------
of each Lender's Warehousing Note shall be due and payable on the
Warehousing Termination Date.
-21-
<PAGE>
(ii) Mandatory Prepayments. If, at any time, the aggregate
---------------------
principal amount of all Warehousing Loans and Swingline Loans
outstanding exceeds the Warehousing Borrowing Base, the Company shall
immediately make principal prepayments of the Warehousing Notes in an
aggregate amount equal to the amount of such excess, which amount
shall be paid to the Agent and distributed (A) first, to First Bank as
a prepayment on the outstanding principal balance of any Swingline
Loans and (B) after repayment in full of any Swingline Loans, to the
Lenders ratably on the basis of each Lender's Pro Rata Share of
outstanding principal balances of the Warehousing Notes. In addition,
all Swingline Loans shall also be prepayable on demand therefor by
First Bank.
(iii) Optional Prepayments. The Company shall have the
--------------------
right to prepay, without penalty, the outstanding principal balances
of the Warehousing Notes in whole or in part at any time and from time
to time, each such principal prepayment to be paid to the Agent and
distributed (A) first, to First Bank as a prepayment on the
outstanding principal balance of any Swingline Loans and (B) after
repayment in full of any Swingline Loans, to the Lenders ratably on
the basis of each Lender's Pro Rata Share of outstanding principal
balances of the Warehousing Notes.
(iv) Confirmation. The Company shall promptly send the
------------
Agent a Confirmation of Borrowing/Paydown/Conversion confirming any
payment or prepayment of principal made on the Warehousing Notes.
(g) Termination and Reduction of the Warehousing Commitments.
--------------------------------------------------------
(i) The Company may, at any time, upon not less than thirty
days' prior written notice to the Agent, a copy of which shall be
promptly provided by the Agent to each Lender, reduce the aggregate
Warehousing Commitment Amount, with any such reduction in a minimum
amount of $10,000,000, or, if more, in an integral multiple of
$5,000,000 in excess thereof; provided, that the Company may not
reduce the aggregate Warehousing Commitment Amount below the aggregate
principal amount of outstanding Warehousing Loans and Swingline Loans.
The Company may, upon not less than thirty days' prior written notice
to the Agent, a copy of which shall be promptly provided by the Agent
to each Lender, terminate the Warehousing Commitments in their
entirety. Upon termination of the Warehousing Commitments pursuant to
this Section, the Company
-22-
<PAGE>
shall pay to the Lender the aggregate amount of all outstanding
Warehousing Loans, all accrued and unpaid interest thereon, any unpaid
fees accrued to the date of such termination and all other unpaid
obligations of the Company to the Lenders in respect of their
Warehousing Commitments hereunder.
(ii) Notwithstanding the foregoing, any termination of the
Warehousing Commitments pursuant to Section 6.02 shall supersede any
notice of termination or reduction under this Section 2.02(h). Once
the Warehousing Commitments have been terminated or reduced, they may
not be reinstated.
(h) Facility Fees. The Company shall pay each Lender a facility
-------------
fee on the average daily amount of such Lender's Warehousing Commitment
Amount, whether used or unused, payable monthly in arrears on the third
Business Day of each month in an amount equal to one-quarter of one percent
(0.25%) per annum.
(i) Use of Proceeds. Except as otherwise provided in Section
---------------
2.01(d) with respect to refinancing Swingline Loans, the proceeds of the
Swingline Loans and the Warehousing Loans shall be used to make, originate
or acquire Mortgage Loans, to finance Mortgage Loans previously made,
originated or acquired or, in the case of Warehousing Loans made on the
Effective Date, to repay in full the Existing Warehousing Advances.
2.02 The Working Capital Facility.
----------------------------
(a) Working Capital Credit Commitment. Upon the terms and
---------------------------------
subject to the conditions of this Agreement, during the period beginning on
the Effective Date and ending on the Working Capital Termination Date, such
Lender agrees to lend (and after repayment, to relend) to the Company, at
such times and in such amounts as the Company shall request, up to an
aggregate principal amount at any time outstanding equal to such Lender's
Working Capital Commitment Amount; provided, that no Lender shall be
--------
obligated to make any Working Capital Loan under the Working Capital
Commitment if the sum of the aggregate principal amount of Working Capital
Loans which would be outstanding as a result of making such Working Capital
Loan plus Letter of Credit Obligations would exceed the Working Capital
----
Commitment Amount. The failure of any one or more of the Lenders to make a
Working Capital Loan in accordance with its Working Capital Commitment
shall not relieve the other Lenders of their several obligations hereunder,
but no Lender shall be liable with respect to the obligation of any other
Lender hereunder or be obligated in any event to
-23-
<PAGE>
make Working Capital Loans in excess of its Working Capital Commitment
Amount.
(b) Manner of Borrowing. The Company shall give the Agent
-------------------
telephonic notice of each request for Working Capital Loans not later than
12:00 noon (Minneapolis time) on the applicable Borrowing Date, specifying
the aggregate amount of Working Capital Loans requested, and whether the
Working Capital Loans to be made by each Lender are to be funded as Fixed
Rate Advances or Reference Rate Advances; provided, that any portion of a
--------
Working Capital Loan not so designated shall be made as a Reference Rate
Advance. The Company shall promptly confirm any such request by delivering
to the Agent a duly completed and executed Confirmation of
Borrowing/Paydown/Conversion. On the Effective Date, the Company shall be
deemed to have requested Working Capital Loans in an amount equal to the
outstanding principal balance of all Existing Working Capital Advances.
The Agent shall notify each Lender of such Lender's Pro Rata Share of the
Working Capital Loans requested, and whether such Lender's Working Capital
Loans are to be funded as Fixed Rate Advances or Reference Rate Advances,
by not later than 1:00 P.M. (Minneapolis time) on the date on which the
Agent receives such request from the Company. Each Lender shall deposit
into the Collateral Account in Immediately Available Funds by not later
than 2:30 P.M. (Minneapolis time) on the applicable Borrowing Date the
total amount of the Working Capital Loans to be made by such Lender;
provided, however, that with respect to the Working Capital Loans to be
-------- -------
made by it on the Effective Date, each Lender may offset against such
Working Capital Loans all or a portion of its outstanding Existing Working
Capital Advances, if any. Unless the Agent shall have received notice from
a Lender prior to 2:30 P.M. (Minneapolis time) on the date any Working
Capital Loans are to be made that such Lender will not make available to
the Agent the Working Capital Loans to be made by such Lender on such date,
the Agent may assume that such Lender has made such Working Capital Loans
available to the Agent on such date and the Agent in its sole discretion
may, in reliance upon such assumption, make available to the Company on
such date a corresponding amount on behalf of such Lender. If a Lender
shall not have timely given such a notice, and to the extent such Lender
shall not have so made available to the Agent the Working Capital Loans to
be made by such Lender on such date and the Agent shall have so made
available to the Company a corresponding amount on behalf of such Lender,
such Lender shall, on demand, pay to the Agent such corresponding amount
together with interest thereon, at the Federal Funds Effective Rate, for
each day from the date such amount shall have been so made available by the
Agent to the Company until the date such amount shall have been repaid to
the Agent. If such Lender does not pay such corresponding amount promptly
upon the Agent's demand therefor, the Agent shall promptly notify
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<PAGE>
the Company and the Company shall immediately repay such corresponding
amount to the Agent together with accrued interest thereon at the
applicable rate or rates provided in Section 2.04. Each request for a
Working Capital Loan shall be deemed to be a representation by the Company
that (i) no Event of Default or Unmatured Event of Default has occurred or
will exist upon the making of the requested Working Capital Loan and
(ii) the representations and warranties contained in Section 3 hereof, in
Section 5 of the Pledge and Security Agreement, and in Section 15 of the
Guaranty are true and correct with the same force and effect as if made on
and as of the date of such request.
(c) Working Capital Note. Working Capital Loans made by each
--------------------
Lender shall be evidenced by the Company's promissory note in the form of
Exhibit H (together with any promissory note subsequently executed and
delivered by the Company to evidence such Lender's Working Capital Loans,
the "Working Capital Note"), which shall be made payable to the order of
such Lender in an amount equal to such Lender's Working Capital Commitment
Amount and shall mature on the Working Capital Termination Date. The sum of
the aggregate amount of all Working Capital Loans made and all
participations in Unpaid Drawings purchased by any Lender minus all
-----
repayments of principal thereof shall be the principal amount owing and
unpaid on such Lender's Working Capital Note. The principal amount of each
Working Capital Loan made by any Lender and each participation in an Unpaid
Drawing purchased by such Lender, and all principal payments and
prepayments thereof, may be noted by such Lender on a schedule attached to
its Working Capital Note and shall be entered by such Lender on its ledgers
and computer records. The failure of any Lender to make such notations or
entries shall not affect the obligations of the Company under such Lender's
Working Capital Note in respect of such Working Capital Loans and
participations in Unpaid Drawings. The entries made by any Lender on its
ledgers and computer records and any notations made by First Bank on any
such schedule annexed to its Working Capital Note shall be presumed to be
accurate until the contrary is established.
(d) Payment and Prepayment of Working Capital Loans. The Company
-----------------------------------------------
shall pay the principal of the Working Capital Loans as follows:
(i) Mandatory Payments. The entire unpaid principal balance
------------------
of each Lender's Working Capital Note shall be due and payable on the
Working Capital Termination Date.
(ii) Optional Prepayments. The Company shall have the right
--------------------
to prepay, without penalty, the outstanding principal balances of the
Working Capital Notes in whole or in part at any time and from time to
time, each such principal prepayment to be paid to the Agent
-25-
<PAGE>
and distributed to the Lenders ratably on the basis of each Lender's
Pro Rata Share of the outstanding Working Capital Notes.
(iii) Confirmation. The Company shall promptly send the
------------
Agent a Confirmation of Borrowing/Paydown/Conversion confirming any
payment or prepayment of principal made on the Working Capital Notes.
(e) Termination and Reduction of the Working Capital
------------------------------------------------
Commitments.
-----------
(i) The Company may, at any time, upon not less than thirty
days' prior written notice to the Agent, a copy of which shall
promptly be provided by the Agent to each Lender, reduce the aggregate
Working Capital Commitment Amount, with any such reduction in a
minimum amount of $1,000,000, or, if more, in an integral multiple of
$500,000 in excess thereof; provided, that the Company may not reduce
the aggregate Working Capital Commitment Amount below the aggregate
principal amount of outstanding Working Capital Loans plus any Letter
----
of Credit Obligations. The Company may, upon not less than thirty
days' prior written notice to the Agent, a copy of which shall
promptly be provided by the Agent to each Lender, terminate the
Working Capital Commitments in their entirety. Upon termination of
the Working Capital Commitments pursuant to this Section, the Company
shall pay to First Bank the aggregate amount of all outstanding
Working Capital Loans and Unpaid Drawings, all accrued and unpaid
interest thereon, any unpaid fees accrued to the date of such
termination and all other unpaid obligations of the Company to the
Lender in respect of its Working Capital Commitments and Letters of
Credit hereunder, and shall deposit into the Holding Account an amount
equal to the aggregate amount available to be drawn under Letters of
Credit outstanding on such date.
(ii) Notwithstanding the foregoing, any termination of the
Working Capital Commitment pursuant to Section 6.02 shall supersede
any notice of termination or reduction under this Section 2.02(e).
Once the Working Capital Commitments have been terminated or reduced,
they may not be reinstated.
(f) Facility Fees. The Company shall pay each Lender a
-------------
facility fee on the average daily amount of such Lender's Working Capital
Commitment Amount, whether used or unused, payable monthly in arrears on
the third Business Day of each month in an amount equal to one-quarter of
one percent (0.25%) per annum.
-26-
<PAGE>
(g) Use of Proceeds. The proceeds of the Working Capital Loans
---------------
shall be used for working capital and other business purposes of the
Company or, in the case of Working Capital Loans made on the Effective
Date, to repay in full the Existing Working Capital Advances.
2.03 Interest on the Warehousing Note; Balances Deficiency Fees; Usage
-----------------------------------------------------------------
Fees; Continuations and Conversions.
- -----------------------------------
(a) Interest Rates; Balances Deficiency Fees. The Company will
----------------------------------------
pay each Lender monthly in arrears on the third Business Day of each month
interest on the unpaid principal balance of each Advance of such Lender
consisting of Warehousing Loans or Swingline Loans from time to time
outstanding as follows:
(i) with respect to Fixed Rate Advances, at the per annum rate
of 1.25% (the "Fixed Rate"); provided, that if for any Balance
Calculation Period the average daily Reserve-Adjusted Balances
maintained by the Company with any Lender are less than an amount
equal to the average daily aggregate unpaid principal balance of the
Fixed Rate Advances owed to such Lender during such Balance
Calculation Period (such deficiency being herein referred to as the
"Balances Deficiency"), the Company will pay such Lender a fee (the
"Balances Deficiency Fee") for said Balance Calculation Period on the
Balances Deficiency at a per annum rate equal to 1.25% below the
average daily Reference Rate in effect during said Balance Calculation
Period; and provided further, that if the weighted average Reserve-
Adjusted Balances maintained by the Company with any Lender for any
Balance Calculation Period exceeds the weighted average daily
aggregate unpaid principal balance of the Fixed Rate Advances owed to
such Lender during such Balance Calculation Period (such excess being
defined herein as the "Balances Surplus"), then such Balances Surplus,
or, if the Company and such Lender shall so agree, the charges
reduction benefit for such Balances Surplus (as determined by such
Lender), may be carried forward and applied to succeeding Balance
Calculation Periods (but not to any Balance Calculation Period
occurring in any subsequent calendar year);
(ii) with respect to Reference Rate Advances, the Reference Rate
plus the Applicable Margin, as adjusted automatically on and as of
the effective date of any change in the Reference Rate;
(iii) with respect to Eurodollar Advances, the Adjusted
Eurodollar Rate plus the Applicable Margin, as adjusted automatically
-27-
<PAGE>
on and as of the effective date of any change in the Adjusted
Eurodollar Rate; and
(iv) with respect to any Obligations not paid when due (i)
consisting of Fixed Rate Advances, a rate per annum equal to the Fixed
Rate plus 2.0%, and (ii) consisting of other Obligations, a rate per
annum equal to the Reference Rate plus the Applicable Margin plus 2.0%
for the period from the date such Obligations were due until the same
are paid.
(b) Usage Fees. The Company will pay the Lenders fees ("Usage
----------
Fees") in an amount equal to one-quarter of one percent (0.25%) per annum
of the average daily amount by which the aggregate principal amount of
Warehousing Loans and Swingline Loans outstanding exceeds the Warehousing
Collateral Value of Delivered Mortgage Loans.
(c) Payment of Interest, Usage Fees, Facility Fees and Balances
-----------------------------------------------------------
Deficiency Fees. The Agent shall use its best efforts to provide the
---------------
Company with a statement for interest on the Warehousing Notes, the Usage
Fees, the facility fees with respect to the Warehousing Commitments and the
warehousing fees with respect to Mortgage Loans pledged under the Pledge
and Security Agreement, in each case accrued through the last day of each
calendar month, on or before the third Business Day of the next succeeding
calendar month, but shall have no liability to the Company for its failure
to do so. Interest on the Warehousing Notes, Usage Fees, facility fees and
warehousing fees accrued through the last day of each calendar month shall
be due and payable on the second Business Day after the date the Company
receives such statement from the Agent; provided, that interest payable at
the rates provided for in Section 2.03 (a)(iv) shall be payable on demand.
Any Balances Deficiency Fee payable hereunder shall be due and payable
quarterly after each Balance Calculation Period within two Business Days
after receipt by the Company from any Lender of a statement therefor (a
copy of which shall be provided to the Agent) containing the calculations
made to determine such Balances Deficiency Fee, which statement shall be
conclusive absent manifest error.
(d) Designation and Conversions of Outstanding Advances. Subject
---------------------------------------------------
to the terms and conditions of this Agreement, the Company shall designate,
on any Borrowing Date, all or portions of the Warehousing Loans or
Swingline Loans to be made on such Borrowing Date as one or more Eurodollar
Advances, Fixed Rate Advances or Reference Rate Advances. Any portion of
an outstanding Loan not designated as a Reference Rate Advance or a Fixed
Rate Advance shall be funded as an Eurodollar Advance. Thereafter, subject
to the terms and conditions of this Agreement, the
-28-
<PAGE>
Company shall have the option to convert all or any portion of any
outstanding Advance consisting of Warehousing Loans or Swingline Loans into
Advances of another type (i.e., Eurodollar Advances, Fixed Rate Advances or
Reference Rate Advances); provided, however, that (i) no Advance may be
converted into a Eurodollar Advance or, without the written consent of the
Lender to which it is owed (a copy of which shall be provided to the
Agent), a Fixed Rate Advance if an Event of Default or Unmatured Event of
Default has occurred and is continuing on the proposed date of conversion,
and (ii) no Advance owed to any Lender may be converted into a Fixed Rate
Advance without the prior consent of such Lender, which shall be confirmed
to the Agent in writing by such Lender, if the Reserve-Adjusted Balances
maintained by the Company at such Lender are less than the aggregate amount
of Fixed Rate Advances owed to such Lender, after giving effect to such
conversion. The Company shall provide the Agent with telephonic notice of
each proposed conversion or continuation not later than 1:00 P.M.
(Minneapolis time) on the date of any conversion, which notice shall set
forth the proposed date therefor. Each such notice shall specify (A) the
amount to be continued or converted, and (B) the date for the continuation
or conversion. Any notice given by the Company under this Section 2.03(d)
shall be irrevocable. The Company shall promptly confirm any such proposed
conversion by delivering to the Agent a duly completed and executed
Confirmation of Borrowing/Paydown/ Conversion. The Agent shall notify each
Lender affected by such proposed conversion by not later than 2:30 P.M.
(Minneapolis time) on the date it receives such notice of the Advances of
such Lender being converted and the types of Advances into which such
Advances are being converted.
(e) Agent's Fees. The Company shall pay to the Agent collateral
------------
handling fees in accordance with the terms of a letter dated July 31, 1997,
as the same may be amended, supplemented, restated or replaced from time to
time.
2.04 Interest on the Working Capital Note.
------------------------------------
(a) Interest Rates; Balances, Deficiency Fees. The Company will
-----------------------------------------
pay each Lender monthly in arrears on the third Business Day of each month
interest on the unpaid principal balance of each Advance of such Lender
consisting of Working Capital Loans from time to time outstanding as
follows:
(i) with respect to Fixed Rate Advances, at the per annum rate of
2.0% (the "Fixed Rate"); provided, if for any Balance Calculation
Period the average daily Reserve-Adjusted Balances maintained by the
Company with any Lender (less the portion thereof applied pursuant to
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Section 2.03(a)(i)) are less than an amount equal to the average daily
aggregate unpaid principal balance of the Fixed Rate Advances owed to
such Lender during such Balance Calculation Period (such deficiency
being herein referred to as the "Balances Deficiency"), the Company
will pay such Lender a fee (the "Balances Deficiency Fee") for said
Balance Calculation Period on the Balances Deficiency at a per annum
rate equal to 1.50% below the average daily Reference Rate in effect
during said Balance Calculation Period; and provided further, that if
the weighted average Reserve-Adjusted Balances maintained by the
Company with any Lender for any Balance Calculation Period exceeds
(less the portion thereof applied pursuant to Section 2.03(a)(i)) the
weighted average daily aggregate unpaid principal balance of the Fixed
Rate Advances owed to such Lender during such Balance Calculation
Period (such excess being defined herein as the "Balances Surplus"),
then such Balances Surplus, or, if the Company and such Lender shall
so agree, the charges reduction benefit for such Balances Surplus (as
determined by such Lender), may be carried forward and applied to
succeeding Balance Calculation Periods (but not to any Balance
Calculation Period occurring in any subsequent calendar year);
(ii) with respect to Reference Rate Advances, the Reference Rate
plus the Applicable Margin, as adjusted automatically on and as of the
effective date of any change in the Reference Rate;
(iii) with respect to any Obligations not paid when due (i)
consisting of Fixed Rate Advances, a rate per annum equal to the Fixed
Rate plus 2.0%, and (ii) consisting of other Obligations, a rate per
annum equal to the Reference Rate plus the Applicable Margin plus 2.0%
for the period from the date such Obligations were due until the same
are paid.
(b) Payment of Interest, Facility Fees and Balances Deficiency
----------------------------------------------------------
Fees. The Agent shall use its best efforts to provide the Company with a
----
statement for interest on the Working Capital Notes and the facility fees
with respect to the Working Capital Commitments accrued through the last
day of each calendar month, on or before the third Business Day of the next
succeeding calendar month, but shall have no liability to the Company for
its failure to do so. Interest on the Notes and facility fees accrued
through the last day of each calendar month shall be due and payable on the
second Business Day after the date the Company receives such statement from
the Agent; provided, that interest payable at the rates provided for in
Section 2.04(a)(iii) shall be payable on demand. Any Balances Deficiency
Fee payable hereunder shall be due and payable quarterly after each Balance
Calculation Period within two Business Days after receipt by the Company
from any
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Lender of a statement therefor (a copy of which shall be provided to the
Agent) containing the calculations made to determine such Balances
Deficiency Fee, which statement shall be conclusive absent manifest error.
(c) Designation and Conversions of Outstanding Advances. Subject
---------------------------------------------------
to the terms and conditions of this Agreement, the Company shall designate,
on any Borrowing Date, all or portions of the Working Capital Loans to be
made on such Borrowing Date as one or more Fixed Rate Advances or Reference
Rate Advances. Any portion of an outstanding Working Capital Loan not
designated as a Fixed Rate Advance shall be funded as a Reference Rate
Advance. Thereafter, subject to the term and conditions of this Agreement,
the Company shall have the option to convert all or any portion of any
outstanding Advance consisting of Working Capital Loans into Advances of
the other type (i.e., Fixed Rate Advances or Reference Rate Advances);
provided, however, that (i) no Advance may be converted without the written
consent of the Lender to which it is owed (a copy of which shall be
provided to the Agent) into a Fixed Rate Advance if an Event of Default or
Unmatured Event of Default has occurred and is continuing on the proposed
date of conversion, and (ii) no Advance owed to any Lender may be converted
into a Fixed Rate Advance without the prior consent of such Lender, which
shall be confirmed to the Agent in writing by such Lender, if the Reserve-
Adjusted Balances maintained by the Company at such Lender are less than
the aggregate amount of Fixed Rate Advances owned to such Lender, after
giving effect to such conversion. The Company shall provide the Agent with
telephonic notice of each proposed conversion or continuation not later
than 1:00 P.M. (Minneapolis time) on the date of any conversion, which
notice shall set forth the proposed date therefor. Each such notice shall
specify (A) the amount to be continued or converted, and (B) the date for
the continuation or conversion. Any notice given by the Company under this
Section 2.04(c) shall be irrevocable. The Company shall promptly confirm
any such proposed conversion by delivering to the Agent a duly completed
and executed Confirmation of Borrowing/Paydown/ Conversion. The Agent shall
notify each Lender affected by such proposed conversion by not later than
2:30 P.M. (Minneapolis time) on the date it receives such notice of the
Advances of such Lender being converted and the types of Advances into
which such Advances are being converted.
2.05 Payments and Computations.
-------------------------
(a) Payments. All payments and prepayments by the Company of
--------
principal of and interest on each Note and all fees, expenses and other
obligations under this Agreement shall be made in Immediately Available
Funds to the Agent not later than 2:00 p.m. (Minneapolis time) on the dates
called for under this Agreement, at the main office of the Agent in
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<PAGE>
Minneapolis. Funds received after such hour shall be deemed to have been
received by the Agent on the next Business Day. The Company irrevocably
authorizes the Agent to charge the Collateral Account or any other account
of the Company (other than escrow or custodial accounts) maintained with
the Agent in an amount equal to any such payment or permitted prepayment of
principal, interest, fees, expenses and other Obligations then due and
payable by the Company to the Lenders or the Agent under this Agreement and
the other Loan Documents, as the case may be.
(b) Computations. Balances Deficiency Fees, Usage Fees,
------------
facility fees and interest on each Note shall be computed on the basis of
actual days elapsed and a year of 360 days.
2.06 Setoff. Whenever an Event of Default shall have occurred and be
------
continuing, the Company hereby irrevocably authorizes each Lender to set off the
Obligations owed to such Lender against all deposits and credits of the Company
with, and any and all claims of the Company against, such Lender, excluding
deposits of the Company with such Lender which the Company holds in escrow or in
trust for the benefit of third parties, whether or not the Obligations owed to
such Lender, or any part thereof, shall be then due. No Lender shall, except as
otherwise set forth in the Loan Documents, have any right to set off the
Obligations owed to such Lender against any such deposits or credits except
during the continuance of an Event of Default. Each Lender agrees to exercise
any and all rights of setoff, counterclaim or bankers' lien first fully against
the Obligations and participations therein held by such Lender, and only then to
any other indebtedness of the Company to such Lender.
2.07 Increased Capital Requirements. In the event that, as a result
------------------------------
of any Regulatory Change, compliance by any Lender with any applicable law or
governmental rule, requirement, regulation, guideline or order (whether or not
having the force of law) regarding capital adequacy has the effect of reducing
the rate of return on such Lender's capital as a consequence of such Lender's
Commitment or Commitments or amounts outstanding under such Lender's Note or
Notes to a level below that which such Lender would have achieved but for such
compliance (taking into consideration such Lender's policies with respect to
capital adequacy), then from time to time the Company shall pay to such Lender,
within thirty days after written demand by such Lender, such additional amount
or amounts as will compensate such Lender for such reduction; provided, that the
Company shall not be obligated to pay any such additional amount (i) unless such
Lender shall first have notified the Company in writing that it intends to seek
such compensation pursuant to this Section, or (ii) to the extent such
additional amount is attributable to the period ending 91 days prior to the date
of the first such notice with respect to such Regulatory Change (the "Excluded
Period"), except to the extent any amount is attributable to the Excluded Period
as a result of the retroactive application of the
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<PAGE>
applicable Regulatory Change. A certificate, which shall be conclusive except
for manifest error, as to the amount of any such reduction (including
calculations in reasonable detail showing how such Lender computed such
reduction and a statement that such Lender has not allocated to its Commitment
or Commitments or amounts outstanding under its Note or Notes a proportionately
greater amount of such reduction than is attributable to each of its other
commitments to lend or to each of its other outstanding credit extensions that
are affected similarly by such compliance by such Lender, whether or not such
Lender allocates any portion of such reduction to such other commitments or
credit extensions) shall be furnished promptly by such Lender to the Company.
2.08 Provisions Relating to Eurodollar Advances and Fixed Rate
---------------------------------------------------------
Advances.
- --------
(a) Interest Rate Not Ascertainable, Etc. If, on the date for
------------------------------------
determining the Adjusted Eurodollar Rate in respect of any Eurodollar
Advance, any Lender determines (which determination shall be conclusive and
binding, absent error) that the Adjusted Eurodollar Rate will not
adequately and fairly reflect the cost to such Lender of funding such
Eurodollar Advance, then such Lender shall notify the Agent, and the Agent
shall notify the Company, of such determination, whereupon the obligation
of such Lender to make, or to convert any Advances to, Eurodollar Advances
shall be suspended until such Lender notifies the Agent, and the Agent
notifies the Company, that the circumstances giving rise to such suspension
no longer exist. Outstanding Eurodollar Advances owed to such Lender shall
thereupon automatically be converted to Reference Rate Advances.
(b) Increased Cost. If, after the date hereof, any Regulatory
--------------
Change or compliance with any request or directive (whether or not having
the force of law) of any governmental authority, central Lender or
comparable agency:
(i) shall subject any Lender to any tax, duty or other
charge with respect to Eurodollar Advances, its Warehousing Note or
its obligation to make Eurodollar Advances, or shall change the basis
of taxation of payment to such Lender of the principal of or interest
on Eurodollar Advances or any other amounts due under this Agreement
in respect of Eurodollar Advances or its obligation to make Eurodollar
Advances (except for changes in the rate of tax on the overall net
income of such Lender imposed by the laws of the United States or any
jurisdiction in which such Lender's principal office is located); or
(ii) shall impose, modify or deem applicable any reserve,
special deposit, capital requirement or similar requirement
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<PAGE>
(including, without limitation, any such requirement imposed by the
Board of Governors of the Federal Reserve System, but excluding any
such requirement to the extent included in calculating the applicable
Adjusted Eurodollar Rate) against assets of, deposits with or for the
account of, or credit extended by, any Lender or shall impose on any
Lender or on the interbank Eurodollar market any other condition
affecting Eurodollar Advances, such Lender's Warehousing Note or its
obligation to make Eurodollar Advances;
and the result of any of the foregoing is to increase the cost to such
Lender of making or maintaining any Eurodollar Advance, or to reduce the
amount of any sum received or receivable by such Lender under this
Agreement or under its Warehousing Note, then, within 30 days after written
demand by such Lender, the Company shall pay to such Lender such additional
amount or amounts as will compensate such Lender for such increased cost or
reduction; provided, that the Company shall not be obligated to pay any
such additional amount (i) unless such Lender shall first have notified the
Company in writing that it intends to seek such compensation pursuant to
this Section, or (ii) to the extent such additional amount is attributable
to the period ending 91 days prior to the date of the first such notice
with respect to such Regulatory Change (the "Excluded Period"), except to
the extent any amount is attributable to the Excluded Period as a result of
the retroactive application of the applicable Regulatory Change. A
certificate of any Lender claiming compensation under this Section 2.08,
setting forth the additional amount or amounts to be paid to it hereunder
and stating in reasonable detail the basis for the charge and the method of
computation, shall be conclusive in the absence of manifest error. In
determining such amount, such Lender may use any reasonable averaging and
attribution methods. Failure on the part of any Lender to demand
compensation for any increased costs or reduction in amounts received or
receivable with respect to any period shall not constitute a waiver of such
Lender's rights to demand compensation for any increased costs or reduction
in amounts received or receivable in any subsequent period.
(c) Illegality. If, after the date of this Agreement, the
----------
adoption of, or any change in, any applicable law, rule or regulation, or
any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Lender with
any request or directive (whether or not having the force of law) of any
such authority, central bank or comparable agency shall make it unlawful or
impossible for such Lender to make, maintain or fund Eurodollar Advances or
Fixed Rate Advances, such Lender shall notify the Company and the Agent,
whereupon the obligation of such Lender to make Eurodollar Advances or
Fixed Rate
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<PAGE>
Advances, shall be suspended until such Lender notifies the Company and the
Agent that the circumstances giving rise to such suspension no longer
exist. If any Lender determines that it may not lawfully continue to
maintain any Eurodollar Advances or Fixed Rate Advances, all of the
affected Advances shall be automatically converted to Reference Rate
Advances as of the date of such Lender's notice.
(d) Discretion of Lenders as to Manner of Funding. Each Lender
---------------------------------------------
shall be entitled to fund and maintain its funding of Eurodollar Advances
in any manner it may elect, it being understood, however, that for the
purposes of this Agreement all determinations hereunder (including, but not
limited to, determinations under Section 2.08(d), but excluding
determinations of the Eurodollar Rate that the Agent may elect to make from
the Reuters screen) shall be made as if such Lender had actually funded and
maintained each Eurodollar Advance during the Interest Period for such
Advance through the purchase of deposits having a maturity corresponding to
the last day of the applicable Interest Period and an interest rate equal
to the Eurodollar Rate.
2.09 Letters of Credit.
-----------------
(a) Letters of Credit. Upon the terms and subject to the
-----------------
conditions of this Agreement, First Bank agrees to issue Letters of Credit
for the account of the Company; provided that First Bank shall be under no
--------
obligation to issue any Letter of Credit if, after giving effect to such
issuance, the Company's Letter of Credit Obligations would exceed
$1,250,000 or if the sum of the aggregate principal amount of Working
Capital Loans outstanding plus the Company's Letter of Credit Obligations
would exceed the aggregate Working Capital Commitment Amount.
(b) Procedures for Letter of Credit. The request for a Letter
-------------------------------
of Credit shall be made by the Company in writing, by facsimile
transmission or electronic conveyance received by First Bank by 2:00 p.m.,
Minneapolis time, on a Business Day which is not less than one Business Day
preceding the requested date of issuance (which shall also be a Business
Day). Each request for a Letter of Credit shall be deemed a representation
by the Company that on the date of issuance of such Letter of Credit, after
giving effect to the issuance of such Letter of Credit, that (i) no Event
of Default or Unmatured Event of Default has occurred or will exist and
(ii) the representations and warranties contained in Section 3 hereof, in
Section 5 of the Pledge and Security Agreement, and in Section 15 of the
Guaranty are true and correct with the same force and effect as if made on
and as of the date of such request. Such requests shall be made in the
form then specified by First Bank for letter of credit applications.
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<PAGE>
(c) Terms of Letter of Credit. Letters of Credit issued
-------------------------
hereunder shall expire no later than the Working Capital Commitment
Termination Date. Letters of Credit shall be issued in support of
obligations of the Borrower, other than obligations relating to the
borrowing of money or obtaining other financing, incurred in the ordinary
course of business. No Letter of Credit may have a term longer than 12
months.
(d) Agreement to Repay Letter of Credit Drawings. If First Bank
--------------------------------------------
has decided that it will pay a drawing on the Letter of Credit, it will
notify the Company of that fact; provided, that the failure of First Bank
--------
to provide such notice prior to the payment of such drawing, shall in no
way limit or reduce the obligations of the Company hereunder. The Company
shall reimburse First Bank by 9:30 a.m. (Minneapolis time) on the day on
which such drawing is to be paid in Immediately Available Funds in an
amount equal to the amount of such drawing. To the extent funds are
available in the Holding Account, First Bank may, in its discretion,
withdraw the amount of such drawing from the Holding Account and apply such
amount to the Company's reimbursement obligations in respect of such
drawing. To the extent the amount of funds available in the Holding
Account equals or exceeds the Letter of Credit Obligations as of the date
of such drawing, First Bank shall withdraw the amount of such drawing from
the Holding Account and apply such amount to the Company's reimbursement
obligations in respect of such drawing. If First Bank is not reimbursed
for the amount of such drawing as provided in the three preceding
sentences, First Bank shall notify the Agent thereof by 11:00 A.M.
(Minneapolis time) on the date such draw is to be paid. Any amount by
which the Company has failed to reimburse First Bank for the full amount of
such drawing by 10:00 a.m. on the date on which First Bank in its notice
indicated that it would pay such drawing, until reimbursed from the
proceeds of Working Capital Loans pursuant to Section 2.09(f) or out of
funds available in the Holding Account, is an "Unpaid Drawing."
(e) Obligation Absolute. The obligation of the Company under
-------------------
Section 2.09(d) to repay First Bank for any amount drawn on the Letter of
Credit and to repay the Lenders for any Working Capital Loans made under
Section 2.09(f) to cover Unpaid Drawings shall be absolute, unconditional
and irrevocable, shall continue for so long as the Letter of Credit is
outstanding notwithstanding any termination of this Agreement, and shall be
paid strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including without limitation the following
circumstances:
(i) Any lack of validity or enforceability of the Letter of
Credit;
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<PAGE>
(ii) The existence of any claim, setoff, defense or other right
which the Company may have or claim at any time against any
beneficiary, transferee or holder of the Letter of Credit (or any
Person for whom any such beneficiary, transferee or holder may be
acting), First Bank, any Lender or any other Person, whether in
connection with the Letter of Credit, this Agreement, the transactions
contemplated hereby, or any unrelated transaction; or
(iii) Any statement or any other document presented under the
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever.
Neither First Bank, any other Lender nor their respective officers,
directors or employees shall be liable or responsible for, and the obligations
of the Company to First Bank and the other Lender shall not be impaired by:
(A) The use which may be made of the Letter of Credit or for
any acts or omissions of any beneficiary, transferee or holder
thereof in connection therewith;
(B) The validity, sufficiency or genuineness of documents,
or of any endorsements thereon, even if such documents or
endorsements should, in fact, prove to be in any or all respects
invalid, insufficient, fraudulent or forged;
(C) The acceptance by First Bank of documents that appear
on their face to be in order, without responsibility for further
investigation, regardless of any notice or information to the
contrary; or
(D) Any other circumstances whatsoever in making or failing
to make payment under the Letter of Credit if in good faith and
in conformity with U.S. or foreign laws applicable thereto.
Notwithstanding the foregoing, the Company shall have a claim against First
Bank, and First Bank shall be liable to the Company, to the extent, but only to
the extent, of any direct, as opposed to consequential, damages suffered by the
Company which the Company proves were caused by First Bank's willful misconduct
or gross negligence in determining whether documents presented under the Letter
of Credit comply with the terms thereof.
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<PAGE>
(f) Working Capital Loans to Cover Unpaid Drawings. Whenever the
----------------------------------------------
Agent receives notice from First Bank of an Unpaid Drawing pursuant to Section
2.09 (d), the Agent shall give the other Lenders notice to that effect, by 2:30
P.M. (Minneapolis time) on the date it receives notice of such Unpaid Drawing
from First Bank, specifying the amount thereof, in which event each Lender is
authorized (and the Company does here so authorize each Lender) to, and shall,
make a Working Capital Loan (as a Reference Rate Advance) to the Company in an
amount equal to such Lender's Pro Rata Share of the amount of the Unpaid
Drawing. Each Lender shall make such Working Capital Loan, regardless of
noncompliance with the applicable conditions precedent specified in Section 5
hereof and regardless of whether an Event of Default or Unmatured Event of
Default then exists or the Working Capital Commitments have been terminated, and
provide First Bank with the proceeds of such Working Capital Loan in Immediately
Available Funds, at the office of First Bank, not later than 3:30 P.M.
(Minneapolis time) on the day on which such Lender received such notice. First
Bank shall apply the proceeds of such Working Capital Loans directly to
reimburse itself for such Unpaid Drawing. If any portion of any such amount paid
to First Bank should be recovered by or on behalf of the Company from First Bank
in bankruptcy, by assignment for the benefit of creditors or otherwise, the loss
of the amount so recovered shall be ratably shared between and among the Lenders
in the manner contemplated by Section 7.11. If at the time the Lenders make
funds available to First Bank pursuant to the provisions of this Section 2.09(f)
the applicable conditions precedent specified in Section 5 shall not have been
satisfied, the Company shall pay to the Agent for the account of the Lenders
interest on the funds so advanced at a floating rate per annum equal to the
Reference Rate plus the Applicable Margin for Reference Rate Advances consisting
of Working Capital Loans plus two percent (2.00%). If for any reason any Lender
is unable to make a Working Capital Loan to the Company to reimburse First Bank
for an Unpaid Drawing, then such Lender shall immediately purchase from First
Bank a risk participation in such Unpaid Drawing, at par, in an amount equal to
such Lender's Pro Rata Share of the Unpaid Drawing, which risk participation
shall, for all purposes hereunder except Sections 2.02(a), be deemed a Working
Capital Loan made by such Lender hereunder.
(g) Letter of Credit Fees. For each Letter of Credit issued,
---------------------
the Company shall pay to the Agent, for the account of the Lenders, in
advance on the date of issuance, a fee (a "Letter of Credit Fee") in an
amount determined by applying a per annum rate of two percent (2%) to the
original face amount of the Letter of Credit for the period from the date
of issuance to the scheduled expiration date of such Letter of Credit. In
addition to the Letter of Credit Fee, the Company shall pay to First Bank,
on demand, all issuance, amendment, drawing and other fees regularly
charged by First Bank to its letter of credit customers and all out-of-
pocket expenses incurred by First Bank in connection with the issuance,
amendment, administration or payment of any Letter of Credit.
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<PAGE>
(h) Increased Cost for Letters of Credit. If any Regulatory
------------------------------------
Change shall either (a) impose, modify or make applicable any reserve,
deposit, capital adequacy or similar requirement against Letters of Credit
issued by First Bank, or (b) shall impose on First Bank or any other Lender
any other conditions affecting this Agreement or any Letter of Credit; and
the result of any of the foregoing is to increase the cost to First Bank of
issuing or maintaining any Letter of Credit or to any Lender of its
obligations under Section 2.09(f), or reduce the amount of any sum received
or receivable by First Bank or any other Lender hereunder, then, upon
demand (which demand shall be given by First Bank promptly after it
determines such increased cost or reduction), the Company shall pay to
First Bank or such other Lender the additional amount or amounts as will
compensate First Bank or such other Lender for such increased cost or
reduction. A certificate submitted to the Company by First Bank or such
other Lender setting forth the basis for the determination of such
additional amount or amounts necessary to compensate First Bank or such
other Lender as aforesaid shall be conclusive and binding on the Company
absent error.
SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce the
------------------------------
Lenders to enter into this Agreement and to make and maintain the Loans, the
Company makes the following representations and warranties to the Lenders
effective on and as of the Signing Date, the Effective Date and each Borrowing
Date:
3.01 Formation; Powers; Good Standing; Subsidiaries; Agency Status.
-------------------------------------------------------------
(a) Formation and Powers. NCFC is a corporation duly organized,
--------------------
validly existing and in good standing under the laws of the State of
Delaware, the Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, and each of
NCFC and the Company has all requisite corporate power and authority to own
and operate its properties, to carry on its business as now conducted and
proposed to be conducted, to enter into each Loan Document to which it is
or will be a party and to carry out the transactions contemplated hereby
and thereby.
(b) Good Standing. Each of NCFC and the Company is in good
-------------
standing wherever necessary to carry on its business and operations, except
in jurisdictions in which the failure to be in good standing would not
preclude it from enforcing its rights with respect to any material asset or
expose it to any material liability.
(c) Subsidiaries, Joint Ventures and Partnerships. NCFC has no
---------------------------------------------
Subsidiaries other than the Company and the Company has no
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<PAGE>
Subsidiaries. Neither NCFC nor the Company is a member of any joint venture
or partnership.
3.02 Authorization; No Conflict; Governmental Consents; Binding
----------------------------------------------------------
Effect.
(a) Authorization of Borrowing. The execution, delivery and
--------------------------
performance by each of NCFC and the Company of each Loan Document to which
it is or will become a party, the carrying out of the transactions
contemplated hereby and thereby, and the issuance, delivery and payment of
the Notes have been duly authorized by all necessary corporate action by
each of them.
(b) No Conflict. The execution, delivery and performance by each
-----------
of NCFC and the Company of each Loan Document to which it is or will be a
party, the carrying out of the transactions contemplated hereby and
thereby, and the issuance, delivery and payment of the Notes does not and
will not (i) violate any provision of law applicable to it, its articles or
certificate of incorporation or bylaws or any order, judgment or decree of
any court or other agency of government binding on it, (ii) conflict with,
result in a breach of or constitute (with due notice or lapse of time or
both) a default under any of its contractual obligations, (iii) result in
or require the creation or imposition of any Lien, charge or encumbrance of
any nature whatsoever upon any of its properties or assets except the Liens
granted to the Agent for the benefit of the Lenders under the Pledge and
Security Agreement or (iv) require any approval of shareholders or any
approval or consent of any Person under any of its contractual obligations
other than approvals or consents which have been obtained.
(c) Governmental Consents. The execution, delivery and
---------------------
performance by each of NCFC and the Company of, and the validity and
enforceability of, each Loan Document to which it is or will be a party,
the carrying out of the transactions contemplated hereby and thereby, and
the issuance, delivery and payment of the Notes by the Company do not and
will not require any registration with, consent or approval of, or notice
to, or other action of, with or by, any Federal, state or other
governmental authority or regulatory body or other Person except those that
have been obtained. Any registration with, consent or approval of or other
action by any federal, state or other governmental authority or regulatory
body or other Person which has been obtained and has been disclosed in
writing to the Lenders shall remain in effect and shall not be modified
except as may be approved in writing by the Agent, which approval shall not
be unreasonably withheld.
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<PAGE>
(d) Binding Obligations. Each of the Loan Documents to which it
-------------------
is a party is, and each of the Loan Documents to which it will be a party
will be, the legally valid and binding obligations of each of NCFC and the
Company, and each of the Loan Documents has been or will be duly executed,
and is or will be enforceable against it in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating
to or limiting creditors' rights generally.
3.03 Financial Condition. NCFC has heretofore delivered to the
-------------------
Lenders its audited consolidated balance sheet as at December 31, 1996, its
unaudited consolidated balance sheet as at May 31, 1997 and the related
statements of income, shareholders' equity and cash flow for the periods then
ended. The Company has heretofore delivered to the Lenders its audited
consolidated balance sheet as at December 31, 1996, its unaudited consolidated
balance sheet as at May 31, 1997, and the related statements of income,
shareholder's equity and cash flow for the periods then ended. Such financial
statements have been prepared in accordance with GAAP and fairly present the
consolidated financial condition of NCFC and the Company as of the dates
indicated and the results of their operations and cash flow for the periods
indicated. As of the Signing Date, neither NCFC nor the Company has any
material contingent obligation, contingent liability or liability for taxes,
long-term lease or unusual forward or long-term commitment, which is not
reflected in the foregoing financial statements or in the notes thereto.
3.04 Title to Property; Liens. NCFC and the Company each has good,
------------------------
sufficient and legal title to all the properties and assets reflected in the
balance sheets dated as at May 31, 1997 referred to in Section 3.03 and all
assets held by NCFC and the Company on the Signing Date but acquired subsequent
to the date of such balance sheet, except for assets disposed of in the ordinary
course of business. All such properties and assets are free and clear of Liens,
except as permitted hereunder. The grant of a security interest pursuant to the
Pledge and Security Agreement creates a valid security interest in the property
subject thereto and the Lien on the Collateral created by the Pledge and
Security Agreement will be a first priority Lien thereon, free and clear of any
other Liens except as permitted hereunder.
3.05 Litigation; Adverse Facts. There is no action, suit, proceeding
-------------------------
or arbitration at law or in equity or before or by any federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, pending or, to the knowledge of NCFC or
the Company, threatened against or affecting NCFC or the Company or any of their
respective properties that would, if decided in a manner adverse to it, result
in any material adverse change in its business, operations, properties, assets
or condition (financial or otherwise) or would materially adversely affect its
ability to perform its obligations under each Loan Document to which it is or
will be a party, and there is
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no basis known to it for any action, suit or proceeding which would have such an
effect. Neither NCFC nor the Company is (i) in violation of any applicable law
if such violation materially adversely affects or may materially adversely
affect its business, operations, properties, assets or condition (financial or
otherwise) or (ii) subject to any final judgment, writ, injunction, decree, rule
or regulation of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which could have a material adverse effect on its business, operations,
properties, assets or condition (financial or otherwise). There is no action,
suit, proceeding or investigation pending or, to the knowledge of NCFC or the
Company, threatened against or affecting NCFC or the Company, which questions
the validity or the enforceability of any Loan Document.
3.06 Other Agreements; Performance.
-----------------------------
(a) Agreements. Neither NCFC nor the Company is a party to or
----------
subject to any contractual obligation or charter or other internal
restriction materially adversely affecting its business, properties,
assets, operations or condition (financial or otherwise).
(b) Performance. Neither NCFC nor the Company is in default in
-----------
the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any of its material contractual
obligations, and no condition exists which, with the giving of notice or
the lapse of time or both, would constitute such a default, except where
the consequences, direct or indirect, of such default or defaults, if any,
would not have a material adverse effect on its business, properties,
assets, operations or condition (financial or otherwise). To the best
knowledge of NCFC and the Company, the other parties to any of the
contractual obligations of NCFC or the Company are not in default
thereunder, except where the consequences, direct or indirect, of such
default or defaults, if any, would not have a material adverse effect on
its business, properties, assets, operations or condition (financial or
otherwise).
3.07 Use of Proceeds. All proceeds of the Warehousing Loans and
---------------
Swingline Loans will be used only in accordance with Section 2.01(i), all
proceeds of Working Capital Loans will be used only in accordance with Section
2.02(g) and all proceeds of Letters of Credit will only be used in accordance
with Section 2.09(c). No part of the proceeds of the Warehousing Loans, the
Swingline Loans, the Working Capital Loans or the Letters of Credit will be used
by the Company to purchase or carry any margin stock (as such term is defined in
Regulation U of the Board of Governors of the Federal Reserve System (or any
successor thereto)) or to extend credit to any other Person for the purpose of
purchasing or carrying any margin stock.
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3.08 Taxes. Each of NCFC and the Company has filed all tax returns
-----
required to be filed by it, and has paid all taxes and assessments payable by it
which have become due, other than those not yet delinquent and except for those
contested in good faith by appropriate proceedings for which adequate reserves
in conformity with GAAP have been provided. No material tax Liens have been
filed and, to their knowledge, no material claims or assessments are being
asserted or will be asserted with respect to any such taxes or other charges.
3.09 ERISA. Each Plan is in substantial compliance with all
-----
applicable requirements of ERISA and the Code and with all material applicable
rulings and regulations issued under the provisions of ERISA and the Code
setting forth those requirements. No Reportable Event has occurred and is
continuing with respect to any Plan. All of the minimum funding standards
applicable to such Plans have been satisfied and there exists no event or
condition which would reasonably be expected to result in the institution of
proceedings to terminate any Plan under Section 4042 of ERISA. With respect to
each Plan subject to Title IV of ERISA, as of the most recent valuation date for
such Plan, the present value (determined on the basis of reasonable assumptions
employed by the independent actuary for such Plan and previously furnished in
writing to the Lenders) of such Plan's projected benefit obligations did not
exceed the fair market value of such Plan's assets. Neither the Company nor any
ERISA Affiliate is required to make contributions to any Multiemployer Plan.
3.10 Governmental Regulation. Neither NCFC nor the Company is subject
-----------------------
to regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, the Investment Company Act of 1940 or
any federal or state statute or regulation limiting its ability to incur
Indebtedness for money borrowed.
3.11 Indebtedness. As of the Signing Date, neither NCFC nor the
------------
Company has any Indebtedness outstanding except the Indebtedness permitted
pursuant to Section 4.08.
3.12 No Material Adverse Event. Since December 31, 1996, neither the
-------------------------
business, operations, properties nor assets of NCFC or the Company have been
affected in any material adverse way as the result of any Material Adverse
Event, including, without limitation, fire, explosion, accident, act of God,
strike, lockout, flood, drought, storm, earthquake, or combination of workmen or
other labor disturbance, riot, activity of armed forces or of the public enemy,
embargo or nationalization, condemnation, requisition or taking of property, or
cancellation or modification of contracts, by any domestic or foreign government
or any instrumentality or agency thereof.
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3.13 Licenses and Permits. Each of NCFC and the Company has all
--------------------
federal, state and local licenses and permits required to be maintained in
connection with and material to the current operation of its businesses, and all
such licenses and permits are valid and fully effective.
3.14 Guarantees. Neither NCFC nor the Company has made, or is liable
----------
in respect of, any Guarantee, other than the Guaranty.
3.15 Accuracy and Completeness of Information. No representation or
----------------------------------------
warranty of NCFC or the Company contained in this Agreement or the other Loan
Documents, no representation or warranty contained in any other document,
certificate or written statement furnished to the Agent or any Lender by NCFC or
the Company for use in connection with the transactions contemplated by the Loan
Documents and no representation or warranty contained in any other document,
certificate or written statement furnished to the Agent or any Lender by or on
behalf of any other Person for use in connection with the transactions
contemplated by the Loan Documents, contains any untrue statement of a material
fact or omits to state a material fact (known to it in the case of any document
not furnished by it) necessary in order to make the statements contained herein
or therein not materially misleading. There is no fact known to NCFC or the
Company (other than matters of a general economic nature) which materially
adversely affects the business, operations, property, assets or condition
(financial or otherwise) of NCFC or the Company which has not been disclosed
herein or in such other documents, certificates and statements furnished to the
Agent or any Lender for use in connection with the transactions contemplated
hereby.
SECTION 4. COVENANTS OF THE COMPANY. So long as the Commitments are
------------------------
in effect and thereafter so long as any Obligation or any Letter of Credit
Obligation shall remain unpaid, or any Letter of Credit shall remain
outstanding, the Company covenants that, unless the Lender shall otherwise
consent in writing, it will perform all the covenants set forth in this Section
4.
4.01 Financial Statements and Other Reports. NCFC and the Company
--------------------------------------
will each maintain a system of accounting established and administered in
accordance with sound business practices such as to permit the preparation of
financial statements in accordance with GAAP and furnish or cause to be
furnished to each Lender:
(a) as soon as available and in any event within 30 days after
the end of each calendar month, a copy of the unaudited financial
statements of NCFC (on a consolidated and a consolidating basis) and the
Company as at the end of such month, consisting of at least a balance sheet
and the related statements of income, shareholders' equity and cash flow of
NCFC and the Company for such month and from the beginning of the then
current fiscal
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<PAGE>
year of NCFC and the Company to the end of such month, setting forth in
each case in comparative form the figures for the corresponding date or
period of the previous fiscal year, all in reasonable detail, and certified
by the chief financial officer of NCFC as being complete and correct in all
material respects and fairly presenting NCFC's and the Company's financial
condition and results of operations, subject to changes resulting from
normal year-end adjustments;
(b) as soon as available and in any event within 90 days after
the end of each fiscal year, financial statements of NCFC (on a
consolidated and a consolidating basis) and the Company, consisting of at
least a balance sheet as at the end of such fiscal year and the related
statement of income, shareholders' equity and cash flow for such fiscal
year of NCFC and the Company, setting forth in each case in comparative
form the corresponding figures as of the end of and for the previous fiscal
year, all in reasonable detail, accompanied by a report thereon of the
accounting firm of KPMG Peat Marwick or other independent certified public
accountants selected by NCFC and reasonably satisfactory to the Agent,
which report shall be unqualified and shall state that such financial
statements present fairly the financial condition of NCFC and the Company
as at the date indicated and the results of their operations for the
periods indicated in conformity with GAAP applied on a basis consistent
with prior fiscal years (except as otherwise required by GAAP and stated
therein) and that the examination of such accountants in connection with
such consolidated financial statements has been made in accordance with
generally accepted auditing standards, accompanied by a letter from such
accounting firm addressed to the Lenders acknowledging that the Lenders are
extending credit in reliance on such statements and authorizing such
reliance, and also by any management letters to the Company or its board of
directors furnished by such accounting firm in connection with its audit of
the Company's consolidated financial statements;
(c) with the financial statements furnished pursuant to Section
4.01(a) for each calendar month:
(i) a certificate signed by the chief financial officer of
the Company stating that to the best of his knowledge, after due
inquiry, there exists no Event of Default or Unmatured Event of
Default, or, if such Event of Default or Unmatured Event of Default
exists, stating the nature thereof, the period of existence thereof,
and what action the Company proposes to take with respect thereto;
(ii) a properly completed Compliance/Borrowing Base
Certificate as of the end of such month;
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<PAGE>
(iii) a servicing/delinquency report showing with respect
to the Eligible Servicing Portfolio: the number of Mortgage Notes
(including Mortgage Notes backing Mortgage-backed Securities) included
therein, the total outstanding principal amount thereof, Investor
type, weighted average coupon, delinquency status and foreclosure
experience; and
(iv) such additional information concerning the Eligible
Servicing Portfolio and such selective detail by segments and
categories thereof as may from time to time be reasonably requested by
any Lender.
(d) within five days after the end of each (i) semi-monthly
period (for the purposes of this paragraph (d)), with respect to the Agent,
and (ii) month, with respect to all the Lenders, an inventory/pipeline
position report showing with respect to each Take-Out Commitment: the
type, Investor type, expiration date, price, interest rate and/or required
yield, the original amount or aggregate amount thereof and the portions
thereof that have been utilized and the portions thereof that remain
available, future contracts, hedged positions, repurchase agreements and
profit and loss, indicating the number of Mortgage Notes owned by the
Company, the aggregate principal balance thereof and the warehouse and
pipeline balances (for purposes of this clause (d), "inventory" means
Mortgage Notes owned by the Company which have been fully funded or with
respect to which the Company has paid the full purchase price and
"pipeline" means the Mortgage Notes (or applications for Mortgages) as to
which the Company has made either firm or floating price quotes to purchase
or fund but which have not been purchased or funded by the Company),
together with copies of any new Take-Out Commitments issued to or entered
into by the Company during such week or month, as the case may be;
(e) within five Business Days after any officer of the Company
has knowledge of their occurrence, notice of each of the following events:
(i) the commencement of any action, suit, proceeding or
arbitration against NCFC or any Subsidiary of NCFC, or any material
development in any action, suit, proceeding or arbitration pending or
threatened against NCFC or any such Subsidiary, (A) in which the
aggregate uninsured amount claimed is more than $250,000, (B) which
would, if decided in a manner adverse to NCFC or such Subsidiary,
constitute a Material Adverse Event or (C) which relates to this
Agreement or any document executed pursuant hereto or any
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<PAGE>
transaction financed or to be financed in whole or in part directly or
indirectly with the proceeds of the loans made pursuant hereto;
(ii) any Event of Default or Unmatured Event of Default and
what actions, if any, the Company is taking or contemplates taking in
regard thereto;
(iii) any notice from any Investor that it intends to put
the Company on probation or that it will cease purchasing Mortgage
Loans from the Company or that it will cease permitting the Company to
service Mortgage Notes owned, sold or guaranteed by it; and
(iv) notice of any other Material Adverse Event, including
any material adverse development which occurs in any litigation,
arbitration or governmental investigation or proceeding previously
disclosed by the Company to the Lenders;
(f) within ten Business Days following each issuance of Mortgage-
backed Securities by the Company, a copy of the due diligence report
prepared in connection with such issuance by KPMG Peat Marwick or other
independent certified public accountants selected by the Company and
reasonably satisfactory to the Agent;
(g) prior to the end of each fiscal year, final annual budgets,
forecasts and pro-forma cash flow projections developed by NCFC and the
Company for its next succeeding fiscal year;
(h) as soon as available, copies of all financial statements,
reports and returns sent to NCFC's stockholders and copies of all regular,
periodic, or special reports which the Company or NCFC is or may be
required to file with any governmental department, bureau, commission or
agency; and
(i) from time to time, such other information regarding the
business, operations, affairs and financial condition of NCFC and the
Company as the Lender may reasonably request.
4.02 Corporate Existence; Agency Status. The Company and NCFC will
----------------------------------
each (a) maintainits corporate existence in good standing under the laws of the
jurisdiction of its incorporation and (b)its right to carry on its business and
operations in each jurisdiction in which the character of the properties owned
or leased by it or the business conducted by it makes such qualification
necessary and the failure to be in good standing would preclude NCFC or the
Company from
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<PAGE>
enforcing its rights with respect to any material assets or expose the Company
to any material liability.
4.03 Compliance with Laws, Taxes, etc. The Company and NCFC will each
--------------------------------
comply in all material respects with all applicable laws, rules, regulations and
orders (including without limitation Regulations G, T, U and X of the Board of
Governors of the Federal Reserve System), the failure to be in compliance with
which would have a materially adverse effect on the financial condition of NCFC
or the Company, such compliance to include, without limitation, paying before
the same become delinquent all taxes, assessments and governmental charges
imposed upon it or upon its property except to the extent contested in good
faith by appropriate proceedings and for which any reserves required by GAAP
have been established. In the event the Company or NCFC fails to satisfy its
obligations under this Section 4.03 as to taxes, assessments and governmental
charges, the Lenders may but are not obligated to satisfy such obligations in
whole or in part and any payments made and expenses incurred in doing so shall
constitute Obligations, shall bear interest at the rate set forth in Section
2.02(a)(iv) from the date incurred and shall be paid or reimbursed by the
Company on demand.
4.04 ERISA. The Company and NCFC will each maintain, and cause each
-----
ERISA Affiliate to maintain, each Plan in compliance with all material
applicable requirements of ERISA and of the Code and with all applicable rulings
and regulations issued under the provisions of ERISA and of the Code and will
not and not permit any of the ERISA Affiliates to (a) engage in any transaction
in connection with which the Company or any of the ERISA Affiliates would be
subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the Code, in each case in an amount
exceeding $10,000, or (b) fail to make full payment when due of all amounts
which, under the provisions of any Plan, the Company, NCFC or any ERISA
Affiliate is required to pay as contributions thereto, or permit to exist any
accumulated funding deficiency (as such term is defined in Section 302 of ERISA
and Section 412 of the Code), whether or not waived with respect to any Plan in
an aggregate amount exceeding $10,000. The Company and NCFC will not permit, and
will not allow any ERISA Affiliate to permit, any event to occur or condition to
exist which would permit any Plan to terminate under any circumstances which
would cause the Lien provided for in Section 4068 of ERISA to attach to any
assets of the Company, NCFC or any Subsidiary of the Company; and the Company
and NCFC will not permit, as of the most recent valuation date for any Plan
subject to Title IV of ERISA, the present value (determined on the basis of
reasonable assumptions employed by the independent actuary for such Plan and
previously furnished in writing to the Lenders) of such Plan's projected benefit
obligations to exceed the fair market value of such Plan's assets. The Company
and NCFC will not, and will not permit any ERISA Affiliate to, become a party to
any Multiemployer Plan.
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4.05 Assets and Insurance. The Company and NCFC will each maintain or
--------------------
require to maintain in full force and effect (a) an adequate errors and
omissions insurance policy, (b) such other insurance coverage by financially
sound and respectable insurers, on all properties of a character usually insured
by organizations engaged in the same or similar business (including, without
limitation, all real property covered by Mortgages to the extent normally
required by prudent mortgagees) against loss or damage of a kind customarily
insured against by such organizations, (c) adequate public liability insurance
against tort claims which may be asserted against NCFC or the Company, and (d) a
mortgage bankers blanket bond insurance policy in at least the amount
customarily maintained by organizations engaged in the same or similar business
and under similar circumstances as NCFC and the Company.
4.06 Inspection, Visitation, etc. The Company and NCFC will each
---------------------------
permit any Person designated by any Lender in writing, at such Lender's expense,
to visit and inspect any of the properties, corporate books and financial
records of NCFC or the Company and discuss its affairs and finances with the
principal officers of NCFC or the Company and their independent public
accountants, all at such times as any such Lender shall reasonably request.
4.07 Further Assurances. The Company and NCFC will each take all such
------------------
further actions and execute all such further documents and instruments as the
Agent may at any time reasonably determine in its sole discretion to be
necessary or advisable to further carry out and consummate the transactions
contemplated by the Loan Documents and to perfect or protect the Liens granted
to the Agent for the benefit of the Lenders under any Loan Document.
4.08 Indebtedness. The Company and NCFC will not, directly or
------------
indirectly, create, incur, assume, guarantee, or otherwise become or remain
directly or indirectly liable with respect to, any Indebtedness, except:
(a) the Obligations and the Letter of Credit Obligations;
(b) current liabilities not more than 90 days overdue, unless
contested in good faith by appropriate proceedings and any reserves
required by GAAP have been established, incurred by NCFC or the
Company in the ordinary course of business otherwise than for money
borrowed; and
(c) Indebtedness incurred to finance the purchase of equipment
and secured solely by Liens on such equipment, in an aggregate amount
not to exceed $1,000,000;
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(d) Indebtedness incurred to finance interest-only or residual
interests in Mortgage-backed Securities issued by the Company and
which Indebtedness is secured only by such residual interests,
provided, such Indebtedness shall not exceed 75% of the value of such
--------
interest-only or residual interests determined in accordance with
GAAP;
(e) intercompany Indebtedness of NCFC to the Company in an
aggregate amount not to exceed $1,000,000; and
provided, that in no event shall the Leverage Ratio be greater than 8 to 1 as of
the last day of each fiscal quarter of the Company.
4.09 Liens. The Company and NCFC will not, directly or indirectly,
-----
create, incur, assume or permit to exist, any Lien with respect to any property
now owned or hereafter acquired by NCFC or the Company, or any income or profits
therefrom, except:
(a) the security interests granted to the Agent for the benefit
of the Lenders under the Loan Documents;
(b) Liens in connection with deposits or pledges to secure
payment of workers' compensation, unemployment insurance, old age pensions
or other social security obligations, in the ordinary course of business of
NCFC or the Company;
(c) Liens for taxes, fees, assessments and governmental charges
not delinquent or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established in
accordance with GAAP;
(d) encumbrances consisting of zoning regulations, easements,
rights of way, survey exceptions and other similar restrictions on the use
of real property and minor irregularities in title thereto which do not
materially impair their use in the operation of its business; and
(e) Liens on equipment arising under any capitalized lease
obligation or other purchase money Liens on equipment acquired after the
Signing Date to secure Indebtedness permitted pursuant to Section 4.08(c).
(f) Liens incurred in connection with gestation repurchase
agreements or similar arrangements under which NCFC or its subsidiaries are
required to repurchase Mortgage-backed Securities or Mortgage Loans from
any Lender or other counterparty reasonably satisfactory to the Agent;
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<PAGE>
provided, that such gestation repurchase agreements are entered into in the
ordinary course of business in contemplation of the subsequent non-recourse
sale of such Mortgage-backed Securities or Mortgage Loans.
(g) Liens on interest-only or residual interests in Mortgage-
backed Securities issued by the Company and which Liens secure
Indebtedness permitted by Section 4.08(d).
4.10 Investments. The Company and NCFC will not, directly or
-----------
indirectly, make or own any Investment, except Investments in (a) marketable
direct obligations issued or unconditionally guaranteed by the United States
Government or issued by any agency thereof and backed by the full faith and
credit of the United States, in each case maturing within one year from the date
of acquisition thereof, (b) marketable direct obligations issued by any state of
the United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (c) commercial paper maturing no more than one year from the date
of creation thereof and, at the time of acquisition, having the highest rating
obtainable from either Standard & Poor's Corporation or Moody's Investors
Service, Inc., (d) in the case of the Company, Mortgage Loans originated or
acquired by the Company in the ordinary course of the Company's business, and in
the case of NCFC, other consumer debt obligations originated or acquired by NCFC
in the ordinary course of NCFC's business, (e) certificates of deposits or
bankers acceptances issued by any of the Lenders or any other commercial bank
organized under the laws of the United States or any State thereof and having a
combined capital and surplus of at least $500,000,000, or by United States
offices of foreign banks having the highest rating obtainable from a nationally
recognized rating agency, in each case maturing within one year from the date of
acquisition thereof, (f) investments in mutual funds that invest substantially
all of their assets in Investments of the types described in subsections (a),
(b), (c) and (e) of this Section 4.10, (g) in the case of NCFC, the capital
stock of the Company or any other Subsidiary (subject to the limitations set
forth in Sections 4.13 and 4.16), and (h) in the case of the Company, loans to
NCFC in an aggregate amount not to exceed $1,000,000.
4.11 Guarantees. The Company and NCFC will not, directly or
----------
indirectly, create or become or be liable with respect to any Guarantee, other
than the Guaranty and Guarantees by NCFC of Indebtedness of the Company secured
by liens described in Section 4.09(e), in an amount not to exceed $500,000.
4.12 Net Worth. The Company will at all times maintain Tangible Net
---------
Worth of not less than the greater of (i) $35,000,000 or (ii) eighty-five
percent (85%) of the Tangible Net Worth at the end of its most recently
completed fiscal year (or,
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in the case of the Tangible Net Worth at the end of any fiscal year, its prior
fiscal year) plus ninety percent (90%) of capital contributions made during
----
such fiscal year plus fifty percent (50%) of year-to-date net income.
----
4.13 Restriction on Fundamental Changes. The Company and NCFC will not
----------------------------------
engage in any business activities or operations substantially different from or
unrelated to those in which the Company and NCFC were engaged on the Signing
Date, enter into any transaction of merger or consolidation, or liquidate, wind
up or dissolve itself (or suffer any liquidation or dissolution), or convey,
sell, lease, transfer or otherwise dispose of, in one transaction or a series of
transactions, any of its assets, whether now owned or hereafter acquired, or
acquire by purchase or otherwise all or substantially all the business or
property of, or stock or other evidence of beneficial ownership of, any Person,
except:
(a) the Company or NCFC may sell or otherwise dispose of property
in the ordinary course of business, provided such sales do not include all
or substantially all of the assets of NCFC or the Company; and
(b) NCFC and its Subsidiaries other than the Company may engage
in any business involving the origination, acquisition, servicing or sale
of consumer Indebtedness other than Mortgage Loans.
4.14 Restricted Payments. The Company and NCFC will not make any
-------------------
Restricted Payments.
4.15 Minimum Liquidity. The Company will ensure that, as of the end
-----------------
of each calendar month, it will have Cash in an amount of not less than
$1,500,000.
4.16 Subsidiaries. The Company will not create or acquire any
------------
Subsidiaries, and NCFC will not create or acquire any Subsidiaries other than
the Company and Subsidiaries engaged solely in any business involving the
origination, acquisition, servicing and sale of consumer obligations other than
Mortgage Loans.
4.17 Affiliate Transactions. The Company and NCFC will not enter into
----------------------
any transaction with an Affiliate of the Company or NCFC, other than
transactions in the ordinary course of business on terms no less favorable to
the Company than those that would be obtained in an arm's-length transaction and
the loans described in Section 4.08(e).
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4.18 Escrow Imbalances. The Company will, no later than five (5)
-----------------
Business Days after learning (from any source) of any material imbalance in any
escrow account, fully and completely correct and eliminate such imbalance.
4.19 Inconsistent Agreements. The Company and NCFC will not, directly
-----------------------
or indirectly, enter into any agreement containing any provision which would be
violated or breached by any borrowing by the Company hereunder or by the
performance by the Company or NCFC of their respective obligations hereunder or
under any other Loan Document.
4.20 Closing Procedures. The Company will provide closing
------------------
instructions to each Closing Agent (as defined in the Pledge and Security
Agreement) which (a) require, in connection with Mortgage Loans tablefunded by
the Company, that (i) the Mortgage Note evidencing each such Mortgage Loan shall
be endorsed to the Company, (ii) the assignment of the applicable Mortgage to
the Company shall be recorded simultaneously with but separate from the related
Mortgage and (iii) the Mortgage Note evidencing each such Mortgage Loan and
other related loan documents shall be delivered to the Company promptly upon the
closing of such Mortgage Loan, and (b) in the case of Mortgage Loans funded by a
wire transfer of funds from the Wet Funding Wire Clearing Account (as defined in
the Pledge and Security Agreement) in accordance with Section 4.01(b)(ii) of the
Pledge and Security Agreement, contain a statement substantially in the form set
forth in Exhibit I. The Company shall review for accuracy and completeness each
Mortgage Note, Mortgage, assignment and other document evidencing or securing
each Mortgage Loan originated or purchased by the Company.
4.21 Underwriting. All Mortgage Loans pledged to the Agent, for the
------------
benefit of Lenders, pursuant to the Pledge and Security Agreement will conform
with, and will be assigned a Risk Rating in accordance with, the Underwriting
Guidelines. The Company shall not make any material change in the Underwriting
Guidelines and shall review the Underwriting Guidelines periodically to confirm
that they are being complied with in all material respects and are adequate to
meet the Company's business objectives.
4.22 Independence of Covenants. All covenants hereunder shall be
-------------------------
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or be otherwise within the limitations of, another covenant shall
not avoid the occurrence of an Event of Default or Unmatured Event of Default if
such action is taken or condition exists.
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SECTION 5. CONDITIONS PRECEDENT.
--------------------
5.01 Conditions Precedent to Effectiveness. The several obligations
-------------------------------------
of the Lenders to make the initial Warehousing Loans and the effectiveness of
this Agreement are subject to the satisfaction on or before the Effective Date
of each and every of the following conditions:
(a) The following documents, certificates and opinion, each in
form and substance satisfactory to the Lenders and their counsel, shall
have been delivered to the Agent:
(i) the Notes, duly executed by the Company;
(ii) the Pledge and Security Agreement, duly executed by the
Company, together with such financing statements and other instruments
required by the Agent to create and perfect the security interests
granted under the Pledge and Security Agreement;
(iii) the Guaranty, duly executed by NCFC;
(iv) completed responses to requests for information or
other evidence satisfactory to the Agent that the financing statements
and other instruments delivered to the Agent pursuant to Section
5.01(a)(ii) have been filed in all appropriate filing offices and that
such filed financing statements perfect a first priority security
interest in favor of the Agent for the benefit of the Lenders in the
property described therein;
(v) copies of the resolutions of the Boards of Directors of
the Company and NCFC, certified by the respective Secretary or
Assistant Secretary of each of them, authorizing the execution,
delivery and performance of each Loan Document to which it is or will
be a party and the other matters contemplated hereby;
(vi) a certificate signed by the Secretary or an Assistant
Secretary of each of the Company and NCFC certifying (A) as to the
names, incumbency and true signatures of the respective persons
authorized to execute and deliver each Loan Document to which it is or
will be a party and any other instrument or agreement hereunder and
under any other Loan Documents and (B) that the Agent and the Lenders
may conclusively rely on such certificate until the Agent shall have
received a further certification of its Secretary or an Assistant
Secretary canceling or amending such certificate and submitting the
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names, incumbency and signatures of the officers named in such further
certificate;
(vii) copies of the Articles or Certificate of
Incorporation of each of the Company and NCFC with all amendments
thereto, certified by the appropriate governmental official of the
jurisdiction of their respective incorporation;
(viii) certificates of good standing for each of the
Company and NCFC in the jurisdiction of its incorporation and
certificates of good standing for the Company in each of the
jurisdictions in which the Company is required to be qualified to do
business, certified by the appropriate governmental officials as of a
date not more than forty-five days prior to the Closing Date;
(ix) a certificate of the Secretary or an Assistant
Secretary of each of the Company and NCFC certifying to true and
correct copies of its respective bylaws, as amended to the Effective
Date;
(x) the favorable written opinions of Brad A. Morrice,
counsel to the Company and NCFC, addressed to the Lenders, as to the
matters and effect set forth in Exhibit J; and
(xi) a certificate of the Secretary or Assistant Secretary
of the Company in the form set forth as ExhibitK.
(b) The IPO Date shall have occurred.
(c) The requirements of Sections 5.02 shall have been satisfied.
5.02 Conditions Precedent to all Loans. The obligation of each Lender
---------------------------------
to make each Loan (including the initial Loan), or, as to First Bank, to issue
Letters of Credit, is subject to the satisfaction of each and every of the
following additional conditions:
(a) the Agent shall have received a timely and properly completed
notice under Section 2.01(c) or Section 2.02(b) or a request for a Letter
of Credit under Section 2.09(b), as the case may be;
(b) there shall not have been any Regulatory Change after the
Signing Date which would render the transactions contemplated hereby
unlawful or which would impose a cost on or increase the cost to such
Lender for making or maintaining its Loans or issuing the requested Letter
of Credit
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or which would reduce any amount payable to such Lender under this
Agreement or its Note or Notes;
(c) no Event of Default or Unmatured Event of Default shall
have occurred and be continuing or will exist upon making the requested
Loan or issuing the requested Letter of Credit;
(d) all the representations and warranties set forth in Section
3 of this Agreement, in Section 5 of the Pledge and Security Agreement and
in Section 15 of the Guaranty shall be true and correct in all material
respects as though made on and as of the applicable Borrowing Date or the
date of the issuance of the requested Letter of Credit, as the case may be;
(e) no material adverse change in, or development likely to have
a material adverse effect on, the business, operations, prospects, assets
or condition (financial or otherwise) of NCFC or the Company shall have
occurred and no occurrence or event which is likely to have a material
adverse effect on the rights and remedies of the Lenders or the ability of
NCFC or the Company to perform their respective obligations to the Lenders
shall have occurred; and
(f) the requested Loan is permitted under Section 2.01 or Section
2.02 or the requested Letter of Credit is permitted under Section 2.09, as
the case may be.
SECTION 6. EVENTS OF DEFAULT; REMEDIES.
---------------------------
6.01 Events of Default. The occurrence of any one or more of the
-----------------
following events shall constitute an Event of Default:
(a) The Company shall fail to make when due, whether by
acceleration of maturity or otherwise, any payment of principal of any
Note, or shall fail to pay within five days after the same becomes due,
whether by acceleration of maturity or otherwise, any payment of interest
on any Note or any fee or other amount required to be paid to the Agent or
any Lender pursuant to this Agreement or any other Loan Document; or
(b) Any representation or warranty made by the Company in this
Agreement or by the Company or NCFC in any other Loan Documents or in any
certificate, statement, report or document furnished to the Agent or the
Lenders pursuant to or in connection with any Loan Document shall be untrue
or misleading in any material respect on the date as of which the facts set
forth are stated or certified; or
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(c) The Company shall fail to comply with any agreement,
covenant, condition, provision or term contained in the Pledge and Security
Agreement or in Section 4.02(a), 4.08, 4.09, 4.11, 4.12, 4.13, 4.14, 4.15,
4.16 or 4.21, or shall fail to comply with any agreement, covenant,
condition, provision or term contained in Sections 4.02(b), 4.04 or 4.10
and such failure shall not be remedied within 10 calendar days after an
executive officer of the Company shall have become aware of such failure to
comply; or
(d) The Company or NCFC shall fail to comply with any other
agreement, covenant, condition, provision or term contained in this
Agreement or any other Loan Document then in effect (other than those
hereinabove set forth in this Section 6.01) and such failure to comply is
not remedied within 30 calendar days after the earliest of (i) the date the
Agent has given the Company written notice of the occurrence thereof, (ii)
the date the Company gives notice of such failure to the Agent or (iii) the
date the Company should have given such notice of such failure to the Agent
pursuant to Section 4.01(f)(ii); or
(e) Any creditor or representative of any creditor of the Company
or NCFC shall become entitled to declare any Indebtedness in the amount of
$100,000 or more owing on any bond, debenture, note or other evidence of
Indebtedness for borrowed money to be due and payable prior to its
expressed maturity, whether or not such Indebtedness is actually declared
to be immediately due and payable, or any such Indebtedness becomes due and
payable prior to its expressed maturity by reason of any default by the
Company or NCFC in the performance or observance of any obligation or
condition and such default shall not have been effectively waived or shall
not have been cured within any grace period allowed therefor or any such
Indebtedness shall have become due by its terms and shall not have been
promptly paid or extended; or
(f) The Company or NCFC shall become insolvent or shall generally
not pay its debts as they mature or shall apply for, shall consent to, or
shall acquiesce in the appointment of a custodian, trustee or receiver of
the Company or NCFC or for a substantial part of the property thereof or,
in the absence of such application, consent or acquiescence, a custodian,
trustee or receiver shall be appointed for the Company or NCFC or for a
substantial part of the property thereof and shall not be discharged within
60 days, or the Company or NCFC shall make an assignment for the benefit of
creditors; or
(g) Any bankruptcy, reorganization, debt arrangement or other
proceeding under any bankruptcy or insolvency law shall be instituted by or
against the Company or NCFC, and, if instituted against the Company or
NCFC, shall have been consented to or acquiesced in by the Company or
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NCFC, or shall remain undismissed for 60 days, or an order for relief shall
have been entered against the Company or NCFC; or
(h) Any dissolution or liquidation proceeding shall be instituted
or against the Company or NCFC and, if instituted against the Company or
NCFC, shall be consented to or acquiesced in by the Company or NCFC or such
Subsidiary or shall remain for 60 days undismissed; or
(i) A judgment or judgments for the payment of money in excess of
the sum of $100,000 in the aggregate shall be rendered against the Company
or NCFC and either (i) the judgment creditor executes on such judgment or
(ii) such judgment remains unpaid or undischarged for more than 60 days
from the date of entry thereof or such longer period during which execution
of such judgment shall be stayed during an appeal from such judgment.
(j) Any execution or attachment shall be issued whereby any
substantial part of the property of the Company or NCFC shall be taken or
attempted to be taken and the same shall not have been vacated or stayed
within 30 days after the issuance thereof; or
(k) The Pledge and Security Agreement or the Guaranty shall, at
any time, cease to be in full force and effect or shall be judicially
declared null and void, or the validity or enforceability thereof shall be
contested by the Company or NCFC, or the Agent shall cease to have a valid
and perfected security interest having the priority contemplated under the
Pledge and Security Agreement in any part of the collateral described
therein, other than by action or inaction of the Agent, unless the Company
shall, within two Business Days after the earlier of the date it receives
notice thereof from the Agent or the date an officer of the Company has
knowledge thereof, repay the outstanding Swingline Loans and Warehousing
Loans in an amount sufficient to reduce the aggregate outstanding principal
balance of the Swingline Loans and Warehousing Loans to the aggregate
Warehousing Collateral Value of the Warehousing Collateral; or
(l) A Change of Control shall occur.
6.02 Remedies. If (a) any Event of Default described in Section
--------
6.01(f), (g) or (h) shall occur, the Commitments shall automatically terminate
and the Obligations and Unpaid Drawings shall automatically become immediately
due and payable, and the Borrower shall without demand pay into the Holding
Account an amount equal to the aggregate face amount of all outstanding Letters
of Credit, in each case without presentment, demand, protest or other notice of
any kind, all of which are hereby waived, anything in this Agreement or any
other Loan Document
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to the contrary notwithstanding, and thereafter the Required Lenders may direct
the Agent to attempt to enforce its rights under any one or more of the Loan
Documents; or (b) any other Event of Default shall occur and be continuing,
then, the Required Lenders may do any or all of the following: (i) declare the
Commitments terminated, whereupon the Commitments shall be terminated, (ii)
declare the Obligations and Unpaid Drawings to be forthwith due and payable,
whereupon the Obligations and Unpaid Drawings shall immediately become due and
payable, in each case without presentment, demand, protest or other notice of
any kind, all of which are hereby expressly waived, anything in this Agreement
or in any other Loan Document to the contrary notwithstanding, (iii) demand that
the Borrower pay into the Holding Account an amount equal to the aggregate face
amount of all outstanding Letters of Credit, and (iv) direct the Agent to
attempt to enforce its rights under any one or more of the Loan Documents.
SECTION 7. THE AGENT
---------
7.01 Appointment and Authorization. Each Lender appoints and
-----------------------------
authorizes the Agent to take such actions as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to the Agent by the terms hereof and thereof, together with such powers as are
reasonably incidental thereto. Neither the Agent nor any of its directors,
officers or employees shall be liable for any action taken or omitted to be
taken by it or them under or in connection with this Agreement or the other Loan
Documents, WHETHER OR NOT AMOUNTING TO SIMPLE NEGLIGENCE, except for its or
their own gross negligence or willful misconduct; provided, however, that the
Agent shall be protected in acting or refraining from acting upon the
instruction of the requisite Lenders under Section 8.05; and provided, further,
that the Agent shall not be required to take any action that exposes it to
personal liability or is contrary to any Loan Document, other agreement or
applicable law. The Agent shall act as an independent contractor in performing
its obligations as the Agent hereunder and under the other Loan Documents and
nothing herein contained shall be deemed to create a fiduciary relationship
among or between the Agent, the Company or the Lenders.
7.02 Note Holders. The Agent may treat the payee of any Note as the
------------
holder thereof until written notice of transfer shall have been filed with it
signed by such payee.
7.03 Consultation With Counsel. The Agent may consult with legal
-------------------------
counsel selected by it and shall not be liable for any action taken or suffered
in good faith by it in accordance with the advice of such counsel.
7.04 Documents. The Agent shall not be under a duty to examine into
----------
or pass upon the validity, effectiveness, genuineness or value of the Notes, the
other
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Loan Documents or any other instrument or document furnished pursuant thereto or
thereunder. The Agent makes no representation or warranty to any Lender, nor
shall the Agent be responsible for any representations, warranties or statements
made in connection with this Agreement or any other Loan Document. The Agent
shall be entitled to assume that this Agreement and the other Loan Documents are
valid, effective and genuine and what they purport to be. The Agent (i) shall
execute and deliver the Pledge and Security Agreement in the form of Exhibit D
hereto, whereupon each provision thereof which is contemplated to be binding
upon the Lenders shall be binding upon the Lenders and each of them; and (ii)
shall not waive, amend or otherwise modify any provision of the Pledge and
Security Agreement without the written consent of the Lenders required pursuant
to Section 8.05.
7.05 Agent and Affiliates. With respect to its Commitments and the
--------------------
Loans made by it in its capacity as a Lender, the Agent shall have the same
rights and powers under this Agreement and the other Loan Documents as any other
Lender and may exercise the same as though it were not the Agent, and the Agent
and its Affiliates may accept deposits from, lend money to and generally engage
in any kind of business with the Company or any Subsidiary as if it were not the
Agent.
7.06 Action by Agent. The Agent shall be entitled to use its
---------------
discretion with respect to exercising or refraining from exercising any rights
which may be vested in it by, or with respect to taking or refraining from
taking any action or actions which it may be able to take under or in respect
of, this Agreement and the other Loan Documents. The Agent shall incur no
liability under or in respect of this Agreement or any of the other Loan
Documents by acting upon any notice, consent, certificate, warranty or other
paper or instrument believed by it to be genuine or authentic or to be signed by
the proper party or parties, or with respect to anything which it may do or
refrain from doing in the reasonable exercise of its judgment, or which may seem
to it to be necessary or desirable in the premises. The Agent may employ agents
and attorneys-in-fact in carrying out its responsibilities under the Loan
Documents, and shall not be responsible for the negligence or misconduct of any
such agents or attorneys-in-fact as long as the Agent was not grossly negligent
in selecting or directing such agents or attorneys-in-fact, EVEN IF SUCH
SELECTION AMOUNTED TO SIMPLE NEGLIGENCE.
7.07 Credit Analysis. Each Lender has made, and shall continue to
---------------
make, its own independent investigation or evaluation of the operations,
business, property and condition, financial and otherwise, of the Company in
connection with its Commitments and Loans and has made its own appraisal of the
creditworthiness of the Company. Except as explicitly provided herein, the
Agent has no duty or responsibility, either initially or on a continuing basis,
to provide any Lender with any credit or other information with respect to such
operations, business, property, condition or creditworthiness, whether such
information comes into its possession on or before the first Event of Default or
at any time thereafter.
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7.08 Notices of Event of Default, etc. In the event that any Lender
---------------------------------
shall have acquired actual knowledge of any Event of Default or Unmatured Event
of Default, other than as a result of its receipt of financial statements
delivered to it pursuant to Section 4.01, such Lender shall promptly give notice
thereof to the Agent. The Agent shall, promptly upon receipt of any such notice
provide a copy thereof to the other Lenders. Upon receipt from any Lender of a
request that the Agent give notice to the Company of the occurrence of an Event
of Default or Unmatured Event of Default under Section 6, the Agent shall
promptly forward such request to the other Lenders and will take such action and
assert such rights under this Agreement and the other Loan Documents as the
requisite Lenders under Section 8.05 shall direct in writing.
7.09 Indemnification. Each Lender agrees to indemnify the Agent (to
----------------
the extent not reimbursed by the Company), ratably according to its Pro Rata
Share (determined under clause (e) of the definition thereof), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of this Agreement or the other Loan Documents
or any action taken or omitted by the Agent under this Agreement or the other
Loan Documents, WHETHER OR NOT THE AGENT'S SIMPLE NEGLIGENCE CAUSES THE SAME IN
WHOLE OR IN PART; provided that no Lender shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Lender agrees to reimburse the Agent promptly upon demand for its Pro Rata Share
(determined under clause (l) of the definition thereof) of any out-of-pocket
expenses (including counsel fees) incurred by the Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement
and the other Loan Documents, to the extent that the Agent is not reimbursed for
such expenses by the Company, WHETHER OR NOT SUCH OUT-OF-POCKET EXPENSES
RESULTED, IN WHOLE OR IN PART, FROM THE AGENT'S SIMPLE NEGLIGENCE; provided,
that no Lender shall be liable for any portion of any such expenses resulting
from the Agent's gross negligence or willful misconduct.
7.10 Payments. All payments of principal of the Warehousing Notes and
---------
all other funds received by the Agent in respect of any payments made by the
Company pursuant to this Agreement, the Notes or the other Loan Documents, other
than payments under Sections 2.07, 2.08 and 2.09 (which payments under Section
2.09 shall be retained by First Bank for its own account) and subject to the
effect of Section 7.11, shall be distributed forthwith by the Agent (in like
currency and funds) to the Lenders on the date received or deemed received
pursuant to Section 2.05(a), in
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accordance with Sections 2.03(c) and 2.04(b) in the case of payments of
interest, Usage Fees and Balances Deficiency Fees, and ratably according to each
Lender's Pro Rata Share in the case of any other payment received by the Agent.
If the Agent does not make any such distribution (or provide Federal Reserve
Bank reference numbers for the wire transfer of the amount thereof) on the date
any such payment is received or deemed received pursuant to Section 2.05(a), the
Agent will pay interest to each Lender entitled to receive a portion of such
distribution on the amount distributable to it at the Federal Funds Effective
Rate from such date until the date such distribution is made, such interest to
be payable with such distribution. Notwithstanding any of the foregoing or any
other provision of this Agreement, upon and after the occurrence of an Event of
Default or Unmatured Event of Default, (a) all proceeds received by the Agent
from the sale or other disposition of the Warehousing Collateral shall be
applied in accordance with Section 17 of the Pledge and Security Agreement, and
(b) all payments made by the Guarantor to the Agent under the Guaranty shall be
applied in the same order of priority as is set forth in Section 17 of the
Pledge and Security Agreement with respect to application of the proceeds of
Warehousing Collateral.
7.11 Sharing of Payments. Other than as provided in Section 7.10
-------------------
hereto, if any Lender shall receive and retain any payment during the
continuance of an Event of Default or Unmatured Event of Default, whether by
setoff, application of deposit balance or security, or otherwise, in respect of
the Obligations or Letter of Credit Obligations in excess of such Lender's Pro
Rata Share of all payments of the Obligations (other than payments under Section
2.09, which shall be retained by First Bank for its own account), then such
Lender shall purchase from the other Lenders for cash and at face value and
without recourse, such participation in the Obligations held by them as shall be
necessary to cause such excess payment to be shared ratably as aforesaid with
each of them; provided, that if such excess payment or part thereof is
thereafter recovered from such purchasing Lender, the related purchases from the
other Lenders shall be rescinded ratably and the purchase price restored as to
the portion of such excess payment so recovered, but without interest. Each
Lender agrees to exercise any and all rights of setoff, counterclaim or bankers'
lien first fully against the Obligations and Letter of Credit Obligations and
participations therein held by such Lender, and only then to any other
indebtedness of the Company to such Lender.
7.12 Successor Agent. The Agent may resign at any time by giving ten
---------------
days written notice thereof to the Lenders and the Company. The Required
Lenders may remove the Agent at any time with or without cause by notifying the
Agent and the Company in writing. In addition, the Lenders with an aggregate
Pro Rata Share (determined under clause (a) of the definition thereof) of 66
2/3% may at any time, if such Lenders determine, in the reasonable exercise of
their judgment, that the Agent is not handling the Warehousing Collateral in
accordance with accepted industry practices, appoint a custodian reasonably
acceptable to the Company to perform the
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Agent's responsibilities under the Pledge and Security Agreement and, with
respect to the Warehousing Collateral and the determination of the Warehousing
Borrowing Base, hereunder. Upon any such resignation or removal, the Required
Lenders or, in the case of a removal pursuant to the preceding sentence, the
removing Lenders shall have the right to appoint a successor Agent, which
successor Agent shall (unless an Event of Default has then occurred and is
continuing) be reasonably acceptable to the Company. If no successor Agent shall
have been so appointed and shall have accepted such appointment within 30 days
after the retiring Agent's giving of notice of its resignation or the removal of
the Agent, then the retiring Agent may, on behalf of the Lenders, appoint an
Agent or custodian which shall be a Lender or a commercial bank organized under
the laws of the United States of America or of any State thereof and having a
combined capital and surplus of at least $100,000,000 and which shall be
reasonably acceptable to the Company. Any such resignation or removal shall be
effective upon the appointment of a successor Agent. Upon the acceptance of any
appointment as the Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations, under this Agreement and the other
Loan Documents. After any retiring Agent's resignation or removal hereunder as
the Agent, the provisions of this Section 7 shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was acting as the Agent
under this Agreement and any other Loan Document.
7.13 Inspection. The Lenders and their agents, accountants, attorneys
----------
and auditors will be permitted during normal business hours at any time and from
time to time upon reasonable notice to examine (to the extent permitted by
applicable law) the files, documents, records and other papers in the possession
or under the control of the Agent relating to any or all Warehousing Collateral
and to make copies thereof. Any such examination will be at the cost and
expense of the Lender conducting such examination.
SECTION 8. MISCELLANEOUS.
-------------
8.01 Waiver. No failure on the part of the Agent or the Lenders to
------
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement or any other Loan Document
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege under this Agreement or any other Loan Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The remedies provided herein and in the other Loan
Documents are cumulative and not exclusive of any remedies provided by law.
8.02 Notices. Except as otherwise specifically provided for herein,
-------
all notices and other communications provided for herein shall be in writing
(including
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teletransmission communication) and, unless otherwise required herein
or by law, shall be teletransmitted, mailed or delivered to the intended
recipient at the "Address for Notices" specified below its name on the signature
pages hereof; or, as to any party, at such other address as shall be designated
by such party in a notice to the other parties in accordance with this Section
8.02. All notices and other communications hereunder shall be effective when
transmitted by telex or telecopier, delivered or, in the case of a mailed notice
or notice sent by overnight courier, upon receipt thereof as conclusively
evidenced by the signed receipt therefor, in each case given or addressed as
aforesaid except that notices to the Agent under the provisions of Section 2
shall not be effective until received by the Agent.
8.03 Expenses; Indemnification. The Company agrees to pay on demand:
-------------------------
(a) the reasonable fees and expenses of Dorsey & Whitney LLP, special counsel to
the Agent in connection with the negotiation, preparation, approval, execution
and delivery of the Loan Documents, (b) the reasonable fees and expenses of
counsel for the Agent in connection with any amendment, modification or waiver
of any of the terms of any Loan Document and (c) all reasonable costs and
expenses of the Agent and each Lender (including reasonable counsel's fees) in
connection with the enforcement (whether through negotiations, legal proceedings
or otherwise) of this Agreement, the Notes and the other Loan Documents. The
Company hereby agrees to indemnify the Lenders and their directors, officers,
agents and employees from and hold each of them harmless against any and all
losses, liabilities, claims, damages or expenses incurred by any of them arising
out of or by reason of any investigation, litigation or other proceedings
related to any use made or proposed to be made by the Company of the proceeds of
the Loans or the operation of the Company's business, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceedings, WHETHER
OR NOT SUCH OUT-OF-POCKET EXPENSES RESULTED, IN WHOLE OR IN PART, FROM THE
AGENT'S OR ANY LENDER'S SIMPLE NEGLIGENCE (but excluding, for all purposes under
this Section 8.03, any such losses, liabilities, claims, damages or expenses
incurred by reason of the gross negligence or willful misconduct of the Person
to be indemnified).
8.04 Confidentiality. The Agent and each Lender shall use reasonable
---------------
efforts to assure that information about the Company, NCFC and their respective
operations, affairs and financial condition, not generally disclosed to the
public or to trade and other creditors, which is furnished to the Agent or such
Lender, as the case may be, pursuant to the provisions hereof is used only for
the purposes of this Agreement and any other relationship between the Lenders
and the Company and NCFC and shall not be divulged to any Person other than the
Agent, the Lenders, their respective Affiliates and their respective officers,
directors, employees and agents, except: (a) to their attorneys and accountants,
(b) in connection with the enforcement of the rights of the Agent and the
Lenders hereunder and under the other Loan Documents or otherwise in connection
with applicable litigation, (c) in
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connection with assignments and participations and the solicitation of
prospective assignees and participants referred to in the immediately preceding
Section, and (d) as may otherwise be required or requested by any regulatory
authority having jurisdiction over the Agent or any Lender or by any applicable
law, rule, regulation or judicial process, the opinion of the Agent's counsel
concerning the making of such disclosure to be binding on the parties hereto.
Neither the Agent nor any Lender shall incur any liability to the Company or
NCFC by reason of any disclosure permitted by this Section 8.04.
8.05 Releases, Amendments, Waivers, Consents and Exercise of Remedies.
----------------------------------------------------------------
Except as otherwise provided in this Section 8.05, any provision of this
Agreement or any other Loan Document may be amended or modified only by an
instrument or instruments in writing signed by the Required Lenders and the
Company. Any amendment, waiver or consent reducing any principal of, or the
amount of or rate of interest on or fees with respect to the Loans or the
Commitments, postponing any date fixed for the payment of any principal of,
interest on or fees with respect to the Loans or Commitments, releasing or
subordinating any of the Warehousing Collateral (except as provided in the
Pledge and Security Agreement), amending the definition of "Delivered Mortgage
Loans," "Pro Rata Share," "Required Lenders," "Warehousing Borrowing Base" or
"Warehousing Collateral Value," or amending Section 2.01 or this Section 8.05
may only be made by an instrument or instruments in writing signed by all of the
Lenders and the Company. In addition to the foregoing requirements, (A) no
amendment, waiver or consent shall, unless in writing and signed by the Agent in
addition to the requisite Lenders indicated above to take such action, affect
the rights or duties of the Agent under this Agreement or any Loan Document, and
(B) no amendment may increase any Lender's Commitment or Commitments unless it
is in writing and signed by such Lender. No waiver of any provision of this
Agreement or any other Loan Document or consent to any departure by the Company
therefrom shall in any event be effective unless the same shall be in writing
and signed or consented to in writing by the requisite Lenders indicated above
and then such waiver or consent shall be effective only in the specific instance
and for the purpose for which given.
8.06 Binding Effect; Assignments and Participations; Transferees; New
----------------------------------------------------------------
Lenders; Commitment Increases. (a) This Agreement shall be binding upon and
- -----------------------------
inure to the benefit of the parties hereto and their respective successors and
assigns, except that the Company may not assign its rights or obligations
hereunder, under the Notes or under any other Loan Document without the prior
written consent of the Required Lenders. Each Lender may (i) grant
participations in any portion of its Note or Notes and its Commitment or
Commitments; and (ii) with the prior written consent of the Agent (except in the
case of an assignment by any Lender to an Affiliate of such Lender or to another
Lender), which consent shall not, from and after September 30, 1997, be
unreasonably withheld, sell, assign, transfer or otherwise dispose of any
portion of its Commitment or Commitments (with a proportionate
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share of its outstanding Loans) or, if its Commitment or Commitments have
terminated, its outstanding Loans (each such grant of a participation or
interest so sold, assigned, transferred or disposed of being herein called a
"Transferred Interest") to (y) banks chartered under the laws of the United
States or any State thereof or (z) insurance companies, other lenders or mutual
funds ("Transferees"). Upon any assignment and delegation as contemplated in
clause (ii) of the preceding sentence, (A) the Agent shall revise Schedule
1.01(b) to reflect such assignment and delegation and distribute such revised
Schedule 1.01(b) to the Company and the Lenders, (B) the Company shall, at the
request of either the assignor or assignee Lenders, execute and deliver new
Notes to the assignor Lender (if it retains a Warehousing Commitment or Working
Capital Commitment, as applicable, following such assignment) and the assignee
Lender, in the principal amount of their respective Warehousing Commitment or
Working Capital Commitments, as applicable, and (C) the assignor Lender shall
pay to the Agent an assignment fee in the amount of $3,000. In addition, the
Lender may pledge any portion of its Note or Notes for security purposes to any
Federal Reserve Bank. If a Lender makes any assignment to a Transferee, then
such Transferee, to the extent of such assignment (unless otherwise provided
therein), shall become a "Lender" hereunder and shall have all the rights and
obligations of the Lenders hereunder, and the transferring Lender shall be
released from its duties and obligations under this Agreement to the extent of
such assignment. Without in any way limiting the rights of Transferees
hereunder, the Company agrees that each Transferee shall be entitled to the
benefits of Sections 2.07 and 2.08 to the extent of its Transferred Interest as
if it were a "Lender" holding a Commitment or Commitments, as the case may be,
in an aggregate amount equal to such Transferred Interest, and that each
Transferee may exercise any and all rights of banker's lien, setoff and
counterclaim available pursuant to law with respect to its Transferred Interest
as fully as if such Transferee were a direct lender to the Company.
Notwithstanding the sale by a Lender of any participation hereunder, (i) no
participant shall be deemed to be or have the rights and obligations of a Lender
hereunder except as provided in the preceding sentence and (ii) no Lender shall,
in connection with selling any such participation, condition such Lender's
rights in connection with consenting to amendments or granting waivers
concerning any matter under any Loan Document upon obtaining the consent of such
participant other than on matters relating to (A) any reduction in the amount of
any principal of, or the amount of or rate of interest on, any Note or Loan in
which such participation is sold, (B) any postponement of the date fixed for any
payment of principal of or interest on any Note or Loan, or the termination of
any Commitment, in which such participation is sold, or (C) the release or
subordination of any material portion of any collateral other than pursuant to
the terms of any Loan Document.
(b) From time to time, the Company may agree, with the prior written
consent of the Agent, to (i) permit a Lender to increase its Warehousing
Commitment Amount, (ii) permit a Lender to increase its Working Capital
Commitment Amount, and (iii) add a bank chartered under the laws of the United
-66-
<PAGE>
States or any State thereof, an insurance company, another lender or a mutual
fund (a "New Bank") as a "Lender" under this Agreement with a Warehousing
Commitment, for the purpose of increasing the aggregate amount of the
Warehousing Commitments; provided that upon giving effect to any such new
--------
Warehousing Commitment, the Warehousing Commitment Amount of the New Bank shall
not be less than $10,000,000; provided, further, that the aggregate Warehousing
-------- -------
Commitment Amounts, after giving effect to any such increase, shall not exceed
$250,000,000; and provided, further, that the aggregate Working Capital
-------- -------
Commitment Amounts, after giving effect to any such new Working Capital
Commitment, shall not exceed $10,000,000. The Company and each Lender
increasing its Warehousing Commitment Amount or New Bank shall agree on the date
as of which the increased Warehousing Commitment Amount or the New Bank's
Warehousing Commitment Amount shall become effective, and each New Bank shall
execute and deliver an instrument in the form prescribed by the Agent to
evidence its agreement to be bound by this Agreement and the other Loan
Documents. Upon the effective date of an increase in any Lender's Warehousing
Commitment Amount or inclusion of a New Bank as a lender under this Agreement,
the Agent shall deliver to the Company and each of the Lenders a revised
Schedule 1.01(b) reflecting the revised aggregate Warehousing Commitment Amounts
and the Company shall execute and deliver to the Lender increasing its
Warehousing Commitment Amount or the New Bank a Warehousing Note.
8.07 Governing Law and Construction. THE VALIDITY, CONSTRUCTION AND
------------------------------
ENFORCEABILITY OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED
BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO
CONFLICT OF LAWS PRINCIPLES THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS OF THE
UNITED STATES APPLICABLE TO NATIONAL BANKS. Whenever possible, each provision
of this Agreement and the other Loan Documents and any other statement,
instrument or transaction contemplated hereby or thereby or relating hereto or
thereto shall be interpreted in such manner as to be effective and valid under
such applicable law, but, if any provision of this Agreement, the other Loan
Documents or any other statement, instrument or transaction contemplated hereby
or thereby or relating hereto or thereto shall be held to be prohibited or
invalid under such applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Agreement, the other Loan
Documents or any other statement, instrument or transaction contemplated hereby
or thereby or relating hereto or thereto.
8.08 Consent to Jurisdiction. AT THE OPTION OF THE AGENT, THIS
-----------------------
AGREEMENT AND THE OTHER LOAN DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL COURT OR
MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY, MINNESOTA; AND THE COMPANY
CONSENTS TO THE
-67-
<PAGE>
JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE COMPANY COMMENCES ANY ACTION IN
ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY
OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT, THE AGENT AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
8.09 Waiver of Jury Trial. THE COMPANY, THE AGENT AND EACH LENDER
--------------------
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
8.10 Survival of Agreement. All representations, warranties,
---------------------
covenants and agreement made by the Company or NCFC herein or in the other Loan
Documents and in the certificates or other instruments prepared or delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be deemed to have been relied upon by the Lenders and shall survive the making
of the Loans, by the Lenders and the execution and delivery to the Agent by the
Company and NCFC of the Loan Documents, regardless of any investigation made by
or on behalf of the Lenders, and shall continue in full force and effect as long
as any Obligation is outstanding and unpaid and so long as the Commitments have
not been terminated; provided, however, that the obligations of the Company
under Sections 2.07, 2.08 and 8.03 shall survive payment in full of the
Obligations and the termination of the Commitments.
8.11 Captions. The captions or headings herein and any table of
--------
contents hereto are for convenience only and in no way define, limit or describe
the scope or intent of any provision of this Agreement.
8.12 Entire Agreement. This Agreement and the other Loan Documents
----------------
embody the entire agreement and understanding between the Company, the Agent and
the Lenders with respect to the subject matter hereof and thereof. This
Agreement supersedes all prior agreements and understandings relating to the
subject matter hereof. Nothing contained in this Agreement or in any other Loan
Document, expressed or implied, is intended to confer upon any Persons other
than the parties hereto any rights, remedies, obligations or liabilities
hereunder or thereunder.
-68-
<PAGE>
8.13 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
8.14 Company Acknowledgements. The Company hereby acknowledges that
------------------------
(a) it has been advised by counsel in the negotiation, execution and delivery of
this Agreement and the other Loan Documents, (b) neither the Agent nor any
Lender has any fiduciary relationship to the Company, the relationship being
solely that of debtor and creditor, (c) no joint venture exists between the
Company, the Agent or any Lender, and (d) neither the Agent nor any Lender
undertakes any responsibility to the Company to review or inform the Company of
any matter in connection with any phase of the business or operations of the
Company and the Company shall rely entirely upon its own judgment with respect
to its business, and any review, inspection or supervision of, or information
supplied to, the Company by the Lenders is for the protection of the Lenders and
neither the Company nor any third party is entitled to rely thereon.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
-69-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
NEW CENTURY MORTGAGE CORPORATION
By /s/ Brad A. Morrice
-------------------------------------
Its CEO
----------------------------------
Address for Notices:
-------------------
18400 Von Karman
Suite 1000
Irvine, CA 92612
Attention: Brad A. Morrice
Telephone Number: (714) 440-7030
Telecopier Number: (714) 440-7033
FIRST BANK NATIONAL ASSOCIATION
By
---------------------------------------------
Its
------------------------------------------
Address for Notices:
-------------------
Mortgage Banking Services Division
First Bank Place MPFP 0801
601 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Edwin D. Jenkins
Telephone Number: (612) 973-0588
Telecopier Number: (612) 973-0826
S-1
-70-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
NEW CENTURY MORTGAGE CORPORATION
By
--------------------------------------------
Its
-----------------------------------------
Address for Notices:
-------------------
18400 Von Karman
Suite 1000
Irvine, CA 92612
Attention: Brad A. Morrice
Telephone Number: (714) 440-7030
Telecopier Number: (714) 440-7033
By /s/ Edwin D. Jenkins
---------------------------------------------
Its Vice President
------------------------------------------
Address for Notices:
-------------------
Mortgage Banking Services Division
First Bank Place MPFP 0801
601 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Edwin D. Jenkins
Telephone Number: (612) 973-0588
Telecopier Number: (612) 973-0826
S-1
-71-
<PAGE>
GUARANTY FEDERAL BANK, F.S.B.
By /s/ W. James Meintjes
-----------------------------------
Its Vice President
--------------------------------
Address for Notices:
-------------------
8333 Douglas Ave.
Dallas, Texas 75225
Attention: W. James Meintjes
Telephone Number: (214) 360-2845
Telecopier Number: (214) 360-1660
COMERICA BANK CALIFORNIA, INC.
By
-----------------------------------------
Its
--------------------------------------
Address for Notices:
-------------------
55 Almaden Blvd.
San Jose, California 95113
Attention: David Chirchill
Telephone Number: (408) 278-8288
Telecopier Number: (408) 278-8289
S-2
-72-
<PAGE>
GUARANTY FEDERAL BANK, F.S.B.
By
-------------------------------------------
Its
----------------------------------------
Address for Notices:
8333 Douglas Ave.
Dallas, Texas 75225
Attention: W. James Meintjes
Telephone Number: (214) 360-2845
Telecopier Number: (214) 360-1660
COMERICA BANK CALIFORNIA, INC.
By /s/ DAVID CHIRCHILL
--------------------------------------------
Its CORPORATE BANKING OFFICER
-----------------------------------------
Address for Notices:
-------------------
55 Alamaden Blvd.
San Jose, California 95113
Attention: David Chirchill
Telephone Number: (408) 278-8288
Telecopier Number: (408) 278-8289
S-2
-73-
<PAGE>
<TABLE>
EXHIBITS
<S> <C>
A Form of Compliance/Borrowing Base Certificate
B Form of Confirmation of Borrowing/Paydown/Conversion
C Guaranty
D Pledge And Security Agreement
E Formula for Determining Warehousing Collateral Value
F Form of Warehousing Note
G Form of Working Capital Note
H Closing Agent Instructions
I Matters to be Covered by Opinion of Counsel to the Company and NCFC
at closing
J Operational Certificate
</TABLE>
-74-
<PAGE>
EXHIBIT A TO
SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
FORM OF
COMPLIANCE/BORROWING BASE CERTIFICATE
First Bank National Association,
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Mortgage Banking Services Division
Guaranty Federal Bank, F.S.B.
8333 Douglas Avenue
Dallas, Texas 75225
Attention: ______________________________________
Ladies and Gentlemen:
We submit this certificate to you in accordance with the terms of
Section 4.01(c)(ii) of the Second Amended and Restated Credit Agreement dated as
of July 31, 1997 (as the same may be amended, supplemented or restated from time
to time, the "Credit Agreement") between New Century Mortgage Corporation, the
banks party thereto (the "Banks") and First Bank National Association, as Agent
for the Banks (in such capacity, the "Agent"). Each capitalized term used
herein has the same meaning ascribed to such term in the Credit Agreement or in
Exhibit E thereto.
The undersigned hereby certifies the following as of the close of
business on _________________, 199_:
1. The Warehousing Borrowing Base was calculated as follows:
--------------------------------------------------------
<TABLE>
<CAPTION>
Warehousing Collateral Value
----------------------------
<S> <C> <C>
(a) Eligible Mortgage Loans $_________
"C" Mortgages $_________
"C-" Mortgages $_________
Mortgages with an Original Principal
Balance in Excess of $207,000
("Jumbo Mortgages") $_________
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
Less:
----
<S> <C> <C>
(b) Pledged Mortgage Loans with No Collateral Value $_________
180 days or more since origination or
acquisition $_________
90 days or more in warehouse $_________
Promissory Note and/or Collateral Documents
not returned or purchased by an Investor
(45 days) $_________
Collateral Document not returned (21 days) $_________
In default (one full reporting period) $_________
Requested documents not delivered
(5 Business Days) $_________
Promissory Note and/or Collateral Documents
not delivered (wet funding loans;
7 Business Days) $_________
Wet funding loans in excess of sublimit $_________
Wet funding loans not closed $_________
Jumbo Mortgages in excess
of applicable sublimit $_________
Second Mortgages in excess
of applicable sublimit $_________
High LTV (100%+) Second Mortgages
in excess of applicable sublimit $_________
Not marketable $_________
Agent does not have perfected, first priority
security interest $_________
Plus:
----
(c) Other Assets $_________
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
TOTAL WAREHOUSING BORROWING BASE $________
2. Leverage Ratio Requirements of Section 4.08:
-------------------------------------------
Leverage Ratio
(i) Maximum ratio permitted by Section 4.08 as
of the end of the period covered hereby: 8 to 1
(ii) The ratio of Total Indebtedness to Tangible
Net Worth at such date:
Total Indebtedness at such date: $________
to
--
Tangible Net Worth at such date $________ =___ to 1
3. Net Worth Requirements of Section 4.12:
---------------------------------------
(a) Minimum Tangible Net Worth
required by Section 4.12
(i) Greater of $35,000,000; or
(ii) 85% of Tangible Net Worth
at Prior Fiscal Year End $________
plus
----
90% of capital contributions made
during such Fiscal Year $________
plus
----
50% of year-to-date net income $________
Total $________
(b) Tangible Net Worth at the end of the most
recently concluded fiscal month:
(i) Net Worth of the Company at
such date: $________
less
----
</TABLE>
A-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(ii) Intangible assets at such date
consisting of:
Goodwill: $________
Other Intangibles: $________
Total $________
4. Minimum Liquidity under Section 4.15:
------------------------------------
(a) Minimum cash on hand as of the most
recently concluded fiscal month: $1,500,000
(b) Cash on hand as of such date: $________
</TABLE>
5. (a) The undersigned is the duly elected chief financial officer of the
Company;
(b) The undersigned has reviewed the terms of the Credit Agreement and has
made, or has caused to be made under the supervision of the undersigned,
a detailed review of the transactions and conditions of the Company
during the accounting period covered by this Certificate; and
(c) These examinations did not disclose, and the undersigned has no
knowledge, whether arising out of such examinations or otherwise, of the
existence of any condition or event that constitutes an Event of Default
or an Unmatured Event of Default during or at the end of the accounting
period covered by this Certificate, except as described in a separate
attachment to this Certificate, the exceptions listing, in detail, the
nature of the condition or event, the period during which it has existed
and the action that the Company has taken, is taking, or proposes to take
with respect to each such condition or event.
6. Attached hereto is a schedule of the "Pledged Mortgage Loans" (as defined in
the Pledge and Security Agreement) that have no Warehousing Collateral Value
at the date hereof.
Dated: _______, 199_ NEW CENTURY MORTGAGE CORPORATION
By _________________________________
Its ____________________________
A-4
<PAGE>
EXHIBIT B TO
SECOND AMENDED AND
RESTATED CREDIT AGREEMENT
FORM OF
CONFIRMATION OF BORROWING/PAYDOWN/CONVERSION
--------------------------------------------
[On Company Letterhead]
[Date]
First Bank National Association,
as Agent
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Mortgage Banking Services Division
Re: Confirmation of Borrowing/Paydown/Conversion
Ladies and Gentlemen:
Reference is made to the Second Amended and Restated Credit Agreement
dated as of July 31, 1997 (as said Agreement may be amended, supplemented or
restated from time to time, the "Credit Agreement"), between New Century
Mortgage Corporation (the "Company"), the Banks party thereto and First Bank
National Association ("First Bank") as Agent for the Banks (in such capacity,
the "Agent"). Each capitalized term used herein shall have the meaning
ascribed to such term in the Credit Agreement.
The Company and the undersigned hereby confirm and certify to the
Agent as follows:
1. The undersigned is authorized to submit this Confirmation of
Borrowing/Paydown/Conversion on behalf of the Company.
2. On ______________________________, 19__, the Company (a)
requested the Banks to make Warehousing Loans in the aggregate principal amount
of $, (b) requested First Bank to make a Swingline Loan in the aggregate
principal amount of $__________________, (c) requested the Banks to make Working
Capital Loans in the aggregate principal amount of $, (d) made principal
payments on outstanding
B-1
<PAGE>
Warehousing Loans in the aggregate amount of $, (e) made principal payments on
outstanding Working Capital Loans in the aggregate amount of $, or (d) converted
outstanding Advances to outstanding Advances of another type,*/ as follows:
Warehousing Credit
------------------
Reference Rate Eurodollar Rate Fixed Rate
-------------- --------------- ----------
Advance ________ ________ ________
Payment ________ ________ ________
Net Amount Outstanding
======== ======== ========
Interest Rate _______% _______% ________%
Working Capital Credit
----------------------
Reference Rate Fixed Rate
-------------- ----------
Advance _________ ________
Payment _________ ________
Net Amount Outstanding
========= ========
Interest Rate ________% _______%
3. In connection with any requested Warehousing Loans, Swingline
Loans or Working Capital Loans, please disburse $ as follows [include wire
instructions]:
4. In connection with any requested Warehousing Loans, Swingline
Loans or Working Capital Loans: (a) no Event of Default or Unmatured Event of
Default has occurred or will exist upon the making of any such Warehousing
Loans, Swingline Loans or Working Capital Loans; (b) the representations and
warranties contained in Section 3 of the Credit Agreement, in Section 5 of the
Pledge and Security Agreement and in Section 15 of the Guaranty
________________________________
*/ For purposes of this Certificate, Advances being converted shall be described
as principal payments, and the new Advances into which such Advances are being
converted shall be described as new Advances.
B-2
<PAGE>
are true and correct in all material respects with the same force and effect as
if made on and as of the date hereof; (c) after giving effect to the Warehousing
Loans or Swingline Loans requested herein, the sum of the outstanding principal
balance under the Warehousing Notes shall not exceed the Warehousing Borrowing
Base; and (d) after giving effect to the Working Capital Loans requested herein,
the sum of the outstanding principal balances of the Working Capital Notes will
not exceed any of the limitations set forth in Section 2.02(a) of the Credit
Agreement.
Very truly yours,
NEW CENTURY MORTGAGE CORPORATION
By _____________________________________
Its _________________________________
B-3
<PAGE>
EXHIBIT C TO
SECOND AMENDED AND
RESTATED CREDIT AGREEMENT
SECOND AMENDED AND RESTATED GUARANTY
THIS SECOND AMENDED AND RESTATED GUARANTY dated as of July 31, 1997
(this "Guaranty"), by the undersigned, NEW CENTURY FINANCIAL CORPORATION (the
"Guarantor"), a Delaware corporation, is for the benefit of the Banks (as
defined below) and FIRST BANK NATIONAL ASSOCIATION ("First Bank") as Agent for
the Banks (in such capacity, the "Agent") (the "Bank").
WITNESSETH, THAT:
A. The Guarantor owns all of the outstanding capital stock of New
Century Mortgage Corporation (the "Company"), a California corporation.
B. First Bank agreed to make certain loans to the Company pursuant
to that certain Amended and Restated Credit Agreement dated October 25, 1996 (as
the same has been and may hereafter be amended, restated, or otherwise modified,
the "Existing Credit Agreement") by and among the Company and the Bank.
C. The Guarantor guaranteed the obligations of the Company to First
Bank under the Existing Credit Agreement pursuant to that certain Amended and
Restated Guaranty dated as of October 25, 1996 (the "Existing Guaranty").
D. The Company and First Bank have agreed to amend and restate the
Existing Credit Agreement pursuant to that certain Second Amended and Restated
Credit Agreement dated as of July 31, 1997 (the "Credit Agreement") by and
between the Company, the Banks from time to time party thereto (the "Banks") and
the Agent.
E. It is a condition precedent to the Banks' obligation to make
loans to the Company pursuant to the terms of the Credit Agreement that this
Guaranty be executed and delivered by the Guarantor, which condition precedent
the Banks have not waived and will not waive.
F. The Guarantor finds it advantageous, desirable, and in its best
interest to comply with this requirement.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the Guarantor hereby covenants and agrees with the
Banks and the Agent as follows:
<PAGE>
1. Certain Defined Terms. All terms not otherwise defined herein
---------------------
that are capitalized and used herein shall have the meanings assigned to such
terms in the Credit Agreement.
2. The Guaranty. The Guarantor hereby absolutely, irrevocably, and
------------
unconditionally guarantees to the Banks and the Agent the payment when due
(whether at a stated maturity or earlier by reason of acceleration or otherwise)
and performance of (a) all of the obligations of the Company to the Banks and
the Agent due or to become due, direct or indirect, absolute or contingent,
joint or several, now existing or hereafter at any time created, arising or
incurred under or in connection with the Credit Agreement, the Warehousing Notes
and any reissuance, renewal, or extensions thereof, the Pledge and Security
Agreement, the other Loan Documents, and any other sums now or hereafter owing
by the Company to the Banks or the Agent (including but not limited to
principal, interest, reasonable attorneys' fees, filing, and recording costs,
out-of-pocket expenses, collection costs, and all other liabilities and
obligations of the Company to the Banks and the Agent) thereunder, all of the
foregoing being hereinafter referred to as the "Guarantied Obligations." The
Guarantor hereby agrees that its liabilities under this Guaranty shall be
primary and direct, and that neither the Banks nor the Agent shall be required
to pursue any right or remedy it may have (a) against the Company under the
Credit Agreement, the Warehousing Notes, the Pledge and Security Agreement, the
other Loan Documents, or otherwise or (b) against any other guarantor, and that
neither the Banks nor the Agent shall be required to first commence any action
or obtain any judgment against the Company, or any other guarantor, or against
property in which the Agent holds a security interest for the benefit of the
Banks or otherwise realize upon its security interest in such property, before
enforcing this Guaranty against the Guarantor.
3. Continuing Guaranty. This Guaranty is an absolute, unconditional,
-------------------
complete, and continuing guaranty of payment and performance of the Guarantied
Obligations by the Guarantor, and shall continue to be in force and be binding
upon the Guarantor until the Guarantied Obligations have been paid and performed
in full. No notice of the Guarantied Obligations to which this Guaranty may
apply or of any renewal or extension thereof need be given to the Guarantor and
none of the foregoing acts shall release the Guarantor from liability hereunder.
The Guarantor hereby expressly waives (a) demand of payment, presentment,
protest, notice of dishonor, nonpayment, or nonperformance on any and all forms
of the Guarantied Obligations; (b) notice of acceptance of this Guaranty and
notice of any liability to which it may apply; (c) all other notices and demands
of any kind and description relating to the Guarantied Obligations now or
hereafter provided for by any statute, law, rule, or regulation; and (d) any and
all defenses of the Company pertaining to the Guarantied Obligations except for
the defense of discharge by payment. The Guarantor shall not be exonerated with
respect to its liabilities under this Guaranty
2
<PAGE>
by any act or thing except payment and performance in full of the Guarantied
Obligations.
4. Other Transactions. The Banks and the Agent are expressly
------------------
authorized (a) to exchange, surrender, or release with or without consideration
any or all collateral and security that may at any time be placed with it by the
Company or by any other person, or to forward or deliver any or all such
collateral and security directly to the Company for collection and remittance or
for credit, or to collect the same in any other manner without notice to the
Guarantor; and (b) to amend, modify, extend, or supplement the Credit Agreement,
the Warehousing Notes, the Pledge and Security Agreement, the other Loan
Documents or other agreement with respect to the Guarantied Obligations, waive
compliance by the Company with the respective terms thereof, and settle or
compromise any of the Guarantied Obligations without notice to the Guarantor and
without in any manner affecting the absolute liabilities of the Guarantor
hereunder. The liabilities of the Guarantor hereunder shall not be affected or
impaired by any failure, neglect, or omission on the part of the Banks or the
Agent to realize upon any of the Guarantied Obligations or upon any collateral
or security for any or all of the Guarantied Obligations, nor by the taking by
the Banks or the Agent of (or the failure to take) any other guaranty or
guaranties to secure the Guarantied Obligations, nor by the taking by the Banks
or the Agent of (or the failure to take or the failure to perfect its security
interest in) collateral or security of any kind. The Guarantor acknowledges
that this Guaranty is in effect and that possession of this Guaranty by any Bank
or the Agent shall be conclusive evidence of due delivery hereof by the
Guarantor, and further agrees that this Guaranty shall continue in full force
and effect, both as to the Guarantied Obligations then existing and/or
thereafter created, notwithstanding the release of or extension of time to any
other guarantor of the Guarantied Obligations or any part thereof.
5. Waiver of Subrogation. The Guarantor hereby waives all rights of
---------------------
subrogation that may arise in connection with this Guaranty (whether
contractual, under Section 509 of the Bankruptcy Code, under common law, or
otherwise) and all contractual, statutory, or common law rights of
reimbursement, contribution, or indemnity or any similar such right from the
Company that may otherwise have arisen in connection with this Guaranty until
the Guarantied Obligations are fully paid and discharged.
6. Application of Payments. Any and all payments upon the Guarantied
-----------------------
Obligations made by the Guarantor or by any other person, and/or the proceeds of
any or all collateral or security for any of the Guarantied Obligations, may be
applied by the Agent on such items of the Guarantied Obligations as the Agent
may elect.
3
<PAGE>
7. Recovery of Payment. If any payment received by the Banks or the
-------------------
Agent and applied to the Guarantied Obligations is subsequently set aside,
recovered, rescinded, or required to be returned for any reason (including but
not limited to the bankruptcy, insolvency, or reorganization of the Company or
any other obligor), the Guarantied Obligations to which such payment was applied
shall for the purposes of this Guaranty be deemed to have continued in
existence, notwithstanding such application, and this Guaranty shall be
enforceable as to such Guarantied Obligations as fully as if such application
had never been made.
8. New Promise. Any acknowledgment or new promise, whether supported
-----------
by payment of principal or interest or otherwise and whether made by the Company
or others, with respect to any of the Guarantied Obligations shall, if the
statute of limitations in favor of the Guarantor against the Banks and the Agent
shall have commenced to run, toll the running of such statute of limitations
and, if the period of such statute of limitations shall have expired, prevent
the operation of such statute of limitations with respect to such promise.
9. Discharge. Until each and every one of the Guarantied Obligations
---------
are paid and performed in full, the obligations of the Guarantor hereunder shall
not be released, in whole or in part, by any action or thing that might, but for
this provision of this Guaranty, be deemed a legal or equitable discharge of a
surety or guarantor, other than payment and performance in full of the
Guarantied Obligations, or by reason of any waiver, extension, modification,
forbearance, or delay or other act or omission of the Banks or the Agent or its
failure to proceed promptly or otherwise, or by reason of any action taken or
omitted by the Banks or the Agent whether or not such action or failure to act
varies or increases the risk of, or affects the rights or remedies of the
Guarantor, nor shall any modification of any of the obligations of the Company
or the release of any security therefor by operation of law or by the action of
any third party affect in any way the obligations of the Guarantor hereunder,
and the Guarantor hereby expressly waives and surrenders any defense to its
liabilities hereunder based upon any of the foregoing acts, omissions, things,
agreements, or waivers of any of them, it being the purpose and intent of the
parties hereto that the Guarantied Obligations constitute the direct and primary
and joint and several obligations of the Guarantor and that the covenants,
agreements, and obligations of the Guarantor hereunder be absolute,
unconditional, and irrevocable.
10. Termination. Subject to Paragraphs 7 and 14 hereof, this
-----------
Guaranty shall terminate upon, and only upon, the expiration of the Commitments
and the payment and performance in full of all of the Guarantied Obligations and
the Guarantor's other obligations hereunder (including, without limitation, its
obligations under Paragraph 16(a) hereof), all in accordance with the provisions
of the Credit Agreement, the Warehousing Notes, the Pledge and Security
Agreement and the other Loan Documents, as the same may be amended, renewed, or
replaced
4
<PAGE>
from time to time. When this condition has been met, the Agent will furnish the
Guarantor written cancellation of this Guaranty; provided, however, that the
Guarantor acknowledges and agrees (i) that its contingent liability under this
Guaranty shall continue for a period of 395 days after the last day on which the
Agent or any Bank received a payment under the Credit Agreement, the Warehousing
Notes, the Pledge and Security Agreement or the other Loan Documents in respect
of antecedent debt; and (ii) that if any case in respect of the Company under
the United States Bankruptcy Code (or any successor statute) is commenced prior
to the end of such 395-day period, then the termination of such Guarantor's
contingent liability hereunder shall be automatically extended until the earlier
of (A) the date on which an order determining that the Banks and the Agent have
no liability under 11 U.S.C. (S) 550 becomes final and nonappealable or (B) the
date on which such case is closed or dismissed and either all appeals of any
order affecting the same have been exhausted or the time in which to perfect
such an appeal has expired with no appeal having been perfected. The Banks and
the Agent shall be entitled to retain an original counterpart or counterparts of
this Guaranty manually signed by the Guarantor.
11. Acceleration. In the event of (a) any default by the Company or
------------
the Guarantor in the payment of any principal of or interest on the Warehousing
Notes for which notice thereof is given by the Banks or the Agent to the
Guarantor and which default shall not have been cured within 5 days after
delivery of such notice to the Guarantor, or (b) any other default by the
Guarantor under this Guaranty, the Guarantor shall be obligated hereunder
without further act and without further notice or demand or any other action by
the Banks or the Agent, to pay and perform the Guarantied Obligations, as the
same may be accelerated by the Agent. Nothing in this Paragraph 11 shall affect
the liability of the Company under the Warehousing Notes or the other Loan
Documents, as the same be amended, restated, renewed, or replaced or the Banks'
or the Agent's rights and remedies thereunder.
12. Remedies. All remedies afforded to the Banks and the Agent by
--------
reason of this Guaranty are separate and cumulative remedies and it is agreed
that no one of such remedies, whether or not exercised by the Banks or the
Agent, shall be deemed to be in exclusion of any of the other remedies available
to the Banks and the Agent and shall in no way limit or prejudice any other
legal or equitable remedy that the Banks and the Agent may have hereunder and
with respect to the Guarantied Obligations. The Guarantor agrees that included
within the equitable remedies available to the Banks and the Agent hereunder is
the right of the Banks and the Agent to elect to have any and all of the
obligations and agreements of the Guarantor hereunder specifically performed.
13. Judicial Actions. The Guarantor hereby waives any and all right
----------------
to cause a marshalling of the assets of the Company or any other action by any
court or other governmental body with respect thereto or to cause the Banks or
the Agent to
5
<PAGE>
proceed against any security for the Guarantied Obligations or any other
recourse that the Banks or the Agent may have with respect thereto, and the
Guarantor further waives any and all requirements that the Banks or the Agent
institute any action or proceeding at law or in equity against the Company or
anyone else, or with respect to the Warehousing Notes, or any collateral
security therefor, as a condition precedent to making demand on or bringing an
action or obtaining and/or enforcing a judgment against, the Guarantor upon this
Guaranty. The Guarantor further waives any requirement that the Banks and the
Agent seek performance by the Company or any other person of any obligation
under the Warehousing Notes or any collateral security therefor as a condition
precedent to making a demand on, or bringing any action or obtaining and/or
enforcing a judgment against, the Guarantor upon this Guaranty. The Guarantor
further acknowledges that time is of the essence with respect to his obligations
under this Guaranty. Any remedy or right hereby granted that shall be found to
be unenforceable as to any person or under any circumstance, for any reason,
shall in no way limit or prevent the enforcement of such remedy or right as to
any other person or circumstance, nor shall such unenforceability limit or
prevent enforcement of any other remedy or right hereby granted.
14. Bankruptcy of the Company. The Guarantor expressly agrees that
-------------------------
its liabilities and obligations under this Guaranty shall not in any way be
affected by the institution by or against the Company or any other person or
entity of any bankruptcy, reorganization, arrangement, insolvency, or
liquidation proceedings, or any other similar proceedings for relief under any
bankruptcy law or similar law for the relief of debtors and that any discharge
of any of the Guarantied Obligations pursuant to any such bankruptcy or similar
law or other law shall not discharge or otherwise affect in any way the
obligations of the Guarantor under this Guaranty, and that upon the institution
of any of the above actions, such obligations shall be enforceable against the
Guarantor.
15. Representations, Warranties and Covenants.
-----------------------------------------
(a) Any representations and warranties made by the Company in Section
3 of the Credit Agreement with respect to the Guarantor, its Subsidiaries or its
property are incorporated herein in their entirety and the Guarantor makes each
such representation as though set forth herein in its entirety. The Guarantor
hereby agrees that, without any further act on its part, each time the Company
makes or is deemed to make the representations in Section 3 of the Credit
Agreement and incorporated herein by reference, the Guarantor shall be deemed
also to make such representations.
(b) Without limiting the generality of the performance guaranties of
this Guaranty, the Guarantor covenants that it will cause the Company to comply
with each covenant set forth in Section 4 of the Credit Agreement with respect
to
6
<PAGE>
the Guarantor, its Subsidiaries or its property. With respect to each such
covenant requiring the Guarantor to act or refrain from acting, or to cause its
Subsidiaries to act or refrain from acting, the Guarantor hereby covenants that
it will so act, refrain from acting or cause its Subsidiaries to act or refrain
from acting.
16. General.
-------
(a) The Guarantor agrees to reimburse the Banks and the Agent, upon
demand for all reasonable out-of-pocket expenses (including reasonable
attorneys' fees and legal expenses) incurred by any Bank or the Agent
arising out of or in connection with the enforcement against the Guarantor
of the Guarantied Obligations or arising out of or in connection with any
failure of the Guarantor to fully and timely perform its obligations
hereunder.
(b) No delay on the part of the Banks or the Agent in the exercise of
any power or right shall operate as a waiver thereof, nor shall any single
or partial exercise of any power or right preclude other or further
exercise thereof or the exercise of any other power or right.
(c) No invalidity, irregularity, or unenforceability of all or any
part of the Guarantied Obligations or of any security therefor or other
recourse with respect thereto shall affect, impair, or be a defense to this
Guaranty, and this Guaranty is a primary obligation of the Guarantor.
(d) Any notice, demand, or consent authorized by this Guaranty to be
given to the Guarantor shall be deemed to be given four days after being
deposited in the U.S. mail, postage prepaid to the Guarantor, addressed to
the Guarantor at the address shown under its signature on the signature
page hereof, or at such other address as the Guarantor may, by written
notice received by the Banks and the Agent, designate as its address for
purposes of notice hereunder, or upon actual delivery to the Guarantor at
such address. Any notice or request authorized by this Guaranty to be given
to the Banks and the Agent by the Guarantor hereunder shall be deemed to be
given four days after being deposited in the U.S. mail, postage prepaid, or
upon delivery to, the Banks and the Agent, at their respective addresses
set forth in the Credit Agreement or at such other address as any Bank or
the Agent may, by written notice received by the Guarantor, designate as
its address for purposes of notice hereunder.
(e) This Guaranty is made under and shall be governed by the law of
the State of Minnesota, without giving effect to conflict of laws
principles thereof.
7
<PAGE>
(f) Paragraph headings herein are for convenience only and shall not
be deemed part of this Guaranty. This Guaranty may be executed in any
number of counterparts, all of which taken together shall constitute one
and the same instrument.
(g) This Guaranty shall be binding upon the Guarantor, its successors
and assigns and shall inure to the benefit of the Bank and its successors
and assigns.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
8
<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this Guaranty as of the date
first above written.
NEW CENTURY FINANCIAL CORPORATION
By _____________________________________
Its _________________________________
Address for Notices:
-------------------
18400 Von Karman
Suite 1000
Irvine, CA 92612
Attention: Brad A. Morrice
Telephone Number: (714) 440-7030
Telecopier Number: (714) 440-7033
[Signature Page to Second Amended and Restated Guaranty]
<PAGE>
EXHIBIT D TO
SECOND AMENDED AND
RESTATED CREDIT AGREEMENT
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT ("Agreement"), dated as of July 31,
1997, is by and between NEW CENTURY MORTGAGE CORPORATION, a California
corporation (the "Company"), and FIRST BANK NATIONAL ASSOCIATION, a national
banking association ("First Bank"), as collateral agent (in such capacity,
together with any successor agent under the Credit Agreement referred to below,
which shall also be a successor collateral agent hereunder, the "Agent") for the
Lenders (as defined below) and FBS Business Finance Corporation (the "Lessor")
as lessor under any present or future leases of equipment by the Lessor, as
lessor, to the Company or New Century Financial Corporation ("NCFC"), as lessee,
or as lender under any present or future loan by the Lessor, as lender, to the
Company or NCFC, as borrower, secured by equipment.
RECITALS:
A. The Company, the banks party thereto (the "Lenders") and the Agent
have entered into a Second Amended and Restated Credit Agreement dated as of
July 31, 1997 (as the same may be amended or modified from time to time, the
"Credit Agreement").
B. The Company and First Bank are parties to a Pledge and Security
Agreement dated as of October 25, 1996 (the "Existing Pledge Agreement"), which
secures the obligations of the Company to First Bank under the Existing Credit
Agreement (as defined in the Credit Agreement).
C. The Lessor has, and may from time to time hereafter, lease equipment
to the Company or NCFC, or make loans to the Company or NCFC secured by
equipment.
D. It is a condition precedent to the effectiveness of the Credit
Agreement and the Lenders' obligations to extend credit accommodations
thereunder, and to the willingness of the Lessor to enter into equipment leases
with the Company or NCFC, that the Existing Pledge Agreement be amended and
restated pursuant to this Agreement, which condition precedent the Lenders have
not waived and will not waive.
E. The Company finds it advantageous, desirable and in the Company's best
interest to comply with the requirement that the Existing Pledge Agreement be
amended and restated pursuant to this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and in order to induce the Agent and the Lenders to
become parties to, and to extend credit under, the Credit Agreement, the parties
hereto agree as follows:
Section 1. DEFINITIONS
-----------
Each capitalized term used herein which is not otherwise defined
herein shall have the meaning ascribed to such term in the Credit Agreement,
including ExhibitE thereto. In addition, the following terms shall have the
following respective meanings:
"Agreement to Pledge": an agreement to pledge substantially in the
-------------------
form of Attachment 1 hereto.
"Bailee Letter": a letter substantially in the form of Attachment 2
-------------
hereto.
"Closing Agent": with respect to any Mortgage Loan, the title company
-------------
or other Person performing the functions of a title company in connection
with the closing of such Mortgage Loan.
"Collateral": as defined in Section 2 hereof.
----------
"Collateral Identification Letter": a letter substantially in the
--------------------------------
form of Attachment 3 hereto.
"Collections": as defined in Section 2(h) hereof.
-----------
"FIRREA Qualifying Appraisal": with respect to any Pledged Mortgage
---------------------------
Loan, an appraisal of the real estate securing such Pledged Mortgage Loan
which meets the requirements of the applicable appraisal regulations under
Title XI of the Financial Institutions Reform, Recovery and Enforcement Act
of 1989, including, without limitation, the appraisal regulations
applicable to mortgage warehousing loans (but if said regulations do not
require an appraisal with respect to a Pledged Mortgage Loan, then no
appraisal shall be required with respect thereto hereunder).
"Lease Agreement": each and any agreement for the lease of equipment
---------------
or for the making of a loan secured by equipment now existing or at anytime
entered into between the Lessor, as lessor or lender, and the Company or
NCFC, as lessee or borrower.
2
<PAGE>
"Lease Obligations": all of the obligations now or hereafter arising
-----------------
owed by the Company or NCFC to Lessor in connection with any lease of
equipment or loan secured by equipment.
"Loan Detail Listing": a loan detail listing substantially in the
-------------------
form of Attachment 4 hereto, which data may be electronically transmitted.
"Obligor": a person or other entity who now or hereafter is or
-------
becomes liable to the Company with respect to any of the Collateral.
"Pledged Mortgage Loans": Mortgage Loans deemed to have been
----------------------
delivered to the Agent as provided in Section 4.01 hereof and Mortgage
Loans delivered to the Agent as provided in Section 4.02 hereof.
"Related Mortgage-backed Security": a Mortgage-backed Security,
--------------------------------
whether certificated or uncertificated, that represents an interest in, or
is secured by, any Mortgage Loans that were Pledged Mortgage Loans at the
time of formation of the related pool, unless the Lender's security
interest in such Pledged Mortgage Loan is released as provided herein prior
to or simultaneously with the issuance of such Mortgage-backed Security.
"Transmittal Letter": a transmittal letter substantially in the form
------------------
of Attachment 5 hereto.
"Trust Receipt": a trust receipt substantially in the form of
-------------
Attachment 6 hereto.
"Wet Funding Clearing Account": such accounts of the Company with the
----------------------------
Agent as may be designated from time to time by the Agent, which shall be
under the sole dominion and control of the Agent.
Section 2. PLEDGE
------
As collateral security for the due and punctual payment and
performance of all of the Obligations and Lease Obligations, the Company does
hereby pledge, hypothecate, assign, transfer and convey to the Agent, for the
benefit of the Lenders and the Lessor, and grants to the Agent, for the benefit
of the Lenders and the Lessor, a security interest in and to, the following
described property (the "Collateral"):
(a) all right, title and interest of the Company in and to the
Pledged Mortgage Loans and Related Mortgage-backed Securities and all
promissory notes, participation agreements, participation certificates, or
other
3
<PAGE>
instruments or agreements which evidence the Pledged Mortgage Loans and
Related Mortgage-backed Securities;
(b) all right, title and interest of the Company in and to all
Mortgage Notes, Mortgages and other notes, real estate mortgages, deeds of
trust, security agreements, chattel mortgages, assignments of rent and
other security instruments whether now or hereafter owned, acquired or held
by the Company which evidence or secure (or constitute collateral for any
note, instrument or agreement evidencing or securing) any of the Pledged
Mortgage Loans;
(c) all right, title and interest of the Company in and to all
financing statements perfecting any security interest securing any Pledged
Mortgage Loan or property securing any Pledged Mortgage Loan;
(d) all right, title and interest of the Company in and to all
guaranties, mortgage insurance policies and other instruments by which the
persons or entities executing the same guarantee or insure, among other
things, the payment or performance of the Pledged Mortgage Loans;
(e) all right, title and interest of the Company in and to all title
insurance policies, title insurance binders, commitments or reports
insuring or relating to any Pledged Mortgage Loan or property securing any
Pledged Mortgage Loan;
(f) all right, title and interest of the Company in and to all
surveys, bonds, hazard and liability insurance policies, participation
agreements and any other agreement, instrument or document pertaining to,
affecting, obtained by the Company in connection with, or arising out of,
the Pledged Mortgage Loans;
(g) all right, title and interest of the Company in and to all Take-
Out Commitments and other agreements to purchase any Pledged Mortgage Loans
or Related Mortgage-backed Securities;
(h) all right, title and interest of the Company in and to all
collections on, and proceeds of or from, any and all of the foregoing
(hereinafter collectively called "Collections");
(i) all right, title and interest of the Company in and to any other
asset of the Company which has been or hereafter at any time is delivered
to the Agent or any Lender for the purpose of being pledged hereunder;
4
<PAGE>
(j) all files, surveys, certificates, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting records, and other
records, information, and data of the Company relating to the Pledged
Mortgage Loans and Related Mortgage-backed Securities (including all
information, data, programs, tapes, discs and cards necessary to administer
and service the Pledged Mortgage Loans and Related Mortgage-backed
Securities);
(k) all balances, credits and deposits of the Company contained in
the Collateral Account and in the Wet Funding Clearing Account; and
(l) any and all balances, credits, deposits, accounts or moneys of,
or in the name of, the Company representing or evidencing the foregoing or
any proceeds thereof, and any and all proceeds of any of the foregoing.
Section 3. REPORTS CONCERNING EXISTING COLLATERAL AND HEREAFTER ACQUIRED
-------------------------------------------------------------
COLLATERAL
- ----------
From time to time hereafter as reasonably requested by the Agent, the
Company will promptly give a written report to the Agent describing and listing
each document, instrument or other paper which evidences, secures, guarantees,
insures or pertains to any item of the Collateral whether now or hereafter
owned, acquired or held by the Company. Such written report shall contain
sufficient information to enable the Agent to identify each such document,
instrument or other paper. The Company (a) upon the request of the Agent, shall
promptly provide additional information concerning, or a more complete
description of, each such document, instrument or other paper and (b) at the
request of the Agent, shall promptly deliver the same to the Agent.
Section 4. DELIVERY OF COLLATERAL DOCUMENTS
--------------------------------
4.01 Delivery of Mortgage Loans. A Mortgage Loan shall be deemed to
--------------------------
have been delivered and pledged to the Agent under this Pledge and Security
Agreement when:
(a) the Agent has received, with respect to such Mortgage Loan, (i)
an Agreement to Pledge, duly completed and executed by the Company, (ii) a
Collateral Identification Letter duly completed and executed by the Company
and (iii) a Loan Detail Listing, duly completed; and
(b) either
(i) a wire transfer of funds from the Wet Funding Clearing
Account has been initiated for the purpose of
5
<PAGE>
funding the origination or purchase of such Mortgage Loan;
(ii) a draft drawn upon the Agent for the purpose of
funding the origination or purchase of such Mortgage Loan has been
received by the Agent and has cleared the Agent's payment process; or
(iii) a draft drawn upon the Agent for the purpose of
funding the origination or purchase of such Mortgage Loan has been
accepted by the Agent, or the Agent has otherwise assured payment
thereof.
The documents referred to in clause (a) of the preceding sentence shall be
transmitted to the Agent by telecopier or electronic data transmission not later
than (i) 12:30 P.M. (Minneapolis time) in the case of documents delivered
pursuant to clauses (b)(ii) and (b)(iii) herein and (ii) 3:30 P.M. (Minneapolis
time) in the case of documents delievered pursuant to clause (b)(i) herein on
the applicable Warehousing Borrowing Date selected for funding such Mortgage
Loan, and the originally executed copies of such documents shall be delivered to
the Agent by courier on the following Business Day.
4.02 Delivery of Pledged Mortgage Loan Documentation. The Company
-----------------------------------------------
shall deliver to the Agent, with respect to each Pledged Mortgage Loan, the
following described instruments and documents within seven Business Days after
the Warehousing Borrowing Date on which the applicable Warehousing Loan was made
for the purpose of funding such Mortgage Loan:
(a) the original Mortgage Note evidencing such Pledged Mortgage
Loan, duly endorsed in blank as follows:
"Pay to the order of,
__________________________________,
without recourse
NEW CENTURY MORTGAGE CORPORATION
By __________________________________
Title _______________________________"
(b) a copy of the Mortgage securing such Pledged Mortgage Loan,
certified by the Closing Agent to be a true and exact copy of the original
Mortgage as submitted for recording;
6
<PAGE>
(c) a duly executed appropriate assignment of said Mortgage in blank
and in recordable form;
(d) if there are any intermediate assignments of said Mortgage, two
copies of each such assignment, certified by the Closing Agent or the
Company to be a true and exact copy of the original thereof as submitted
for recording;
(e) if any of the foregoing documents was executed on behalf of a
party thereto by another Person under a power of attorney, a copy of the
original executed copy of such power of attorney, certified by the Closing
Agent to be a true and exact copy of the original thereof;
(f) if requested by the Agent, a copy of the Company's closing
instructions to the Closing Agent for such Pledged Mortgage Loan,
containing the language set forth on Exhibit G to the Credit Agreement, and
a Transmittal Letter listing all documents being delivered to the Agent;
(g) if requested by the Agent, a copy of the Closing Agent's
Settlement Statement for such Mortgage Loan; and
(h) if requested by the Agent, a completed Company Worksheet
Concerning Applicability of Section 32 of Regulation Z (12 CFR Section
226.32) and, if Section 32 applies, copies of the disclosure and other
related documentation delivered to the mortgagor, or executed by the
mortgagor, evidencing compliance with Section 32.
4.03 Delivery of Additional Mortgage Loan Documents Upon Request.
-----------------------------------------------------------
Within five Business Days after receiving a written request from the Agent to
deliver the same with respect to any Pledged Mortgage Loan, the Company shall
deliver to the Agent the following:
(a) All original guaranties, assignments of rents and other
instruments and documents relating to security for and payment of such
Pledged Mortgage Loan, together with duly executed assignments thereof;
(b) A mortgagee's title insurance policy (or commitment therefor) in
the form of an American Land Title Association standard policy (revised
coverage, most recent form) from a substantial and reputable title
insurance company acceptable to the Agent in favor of the Company insuring
the lien of the Mortgage securing such Pledged Mortgage Loan (subject only
to such liens and encumbrances as are generally acceptable to reputable
lending institutions, mortgage investors and securities dealers) or, if
such a mortgagee's title policy (or commitment therefor) is generally not
available in
7
<PAGE>
the state in which the real property subject to such Mortgage is located,
an opinion of an attorney reasonably acceptable to the Agent to the effect
that the Mortgage securing such Pledged Mortgage Loan is a valid first lien
free and clear of all other liens, encumbrances and restrictions except
such as are generally acceptable to reputable lending institutions,
mortgage investors and securities dealers;
(c) Evidence satisfactory to the Agent that the premises covered by
the Mortgage securing such Pledged Mortgage Loan is insured against fire
and perils of extended coverage for an amount at least equal to the lesser
of (i) 80% of the outstanding principal balance of such Pledged Mortgage
Loan or (ii) the full replacement cost of such premises;
(d) With respect to each Pledged Mortgage Loan and each Related
Mortgage-backed Security, copies of the applicable Take-Out Commitment and
all documents and instruments called for thereunder, together with a
certificate signed by an officer of the Company that, as of the date of
delivery thereof, such Pledged Mortgage Loan and all documentation therefor
satisfies all requirements and conditions of the applicable Take-Out
Commitment;
(e) Originals, or photocopies, as the Agent may request, of surveys
(or plat maps, if surveys are not available) and all other instruments,
documents and other papers pertaining to each such Pledged Mortgage Loan
which are in the possession or control of the Company or which the Company
has the right to possess or control;
(f) The original of each Mortgage referred to Section 4.02(b) hereof,
together with satisfactory evidence of its recordation, or, if the original
recorded Mortgage has not been returned to the Company by the applicable
recording officer, a copy of the original recorded Mortgage certified as a
true and exact copy thereof by the applicable recording officer;
(g) Evidence satisfactory to the Agent that the Company has obtained
and maintains in its files, as agent for the Agent, a FIRREA Qualifying
Appraisal with respect to such Pledged Mortgage Loan, which evidence may
include, but is not limited to, a copy of such FIRREA Qualifying Appraisal
certified by the Company to be a true and exact copy of the original
thereof as maintained in the Company's files; and
(h) copies of all truth-in-lending disclosures showing compliance
with Regulation Z of the Board of Governors of the Federal Reserve System
and copies of all disclosures under the Real Estate Settlement Procedures
Act of 1974, as amended.
8
<PAGE>
4.04 Form of Assignments. All assignments executed and delivered by
-------------------
the Company pursuant to this Section 4 shall be in form satisfactory for
recording in the real estate records of the applicable jurisdiction and in form
and substance acceptable to and approved by the Agent.
4.05 Effect of Transmittal Letters. Any Transmittal Letter delivered
-----------------------------
to the Agent hereunder, together with the documents accompanying such
Transmittal Letter, shall conclusively be presumed to have been delivered to the
Agent on behalf of the Company notwithstanding that such Transmittal Letter
shall not have been signed or submitted by a person who has been authorized in
writing to do so by the Company through its Board of Directors or otherwise.
4.06 Endorsement and Delivery of Checks, Etc. The Company will from
---------------------------------------
time to time whenever an Event of Default exists, upon the request of the Agent,
endorse and deliver to the Agent any draft, check, note or other writing which
evidences a right to the payment of money which constitutes Collateral.
4.07 Defects in Collateral Documentation; Loss of Collateral Value.
-------------------------------------------------------------
A Pledged Mortgage Loan which has been delivered to the Agent under this Pledge
and Security Agreement in accordance with Section 4.01 hereof shall be and
remain Collateral which is subject to the lien and security interest granted to
the Agent under Section 2 hereof until such Pledged Mortgage Loan is sold to an
Investor in accordance with Sections 10.02 and 10.03 hereof (in which case the
proceeds thereof, including, without limitation, any Related Mortgage-backed
Security, shall constitute Collateral) or released pursuant to Section 10.04
hereof or until this Pledge and Security Agreement terminates in accordance with
Section 19 hereof, notwithstanding (a) any defect in any document delivered to
the Agent pursuant to Section 4.01, 4.02, or 4.03 hereof, (b) the failure of
such Pledged Mortgage Loan to have or continue to have Warehousing Collateral
Value, (c) the failure of the Company to make timely delivery of any document
required to be delivered to the Agent under Section 4.02 hereof, (d) the failure
of the Company to make timely delivery of any document required to be delivered
to the Agent under Section 4.03 hereof, or (e) any other fact, circumstance,
condition or event whatsoever. For purposes of the preceding sentence, the
funding of the origination or purchase of a Pledged Mortgage Loan from the
proceeds of a Warehousing Loan and/or the assignment of Warehousing Collateral
Value to such Pledged Mortgage Loan by the Agent shall be deemed to be
conclusive evidence of the delivery of such Pledged Mortgage Loan under Section
4.01 hereof, notwithstanding any subsequent determination by the Agent that the
documentation delivered for such Pledged Mortgage Loan was incomplete or
defective in any respect or that such Pledged Mortgage Loan should not have been
assigned Warehousing Collateral Value.
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Section 5. REPRESENTATIONS AND WARRANTIES
------------------------------
The Company hereby represents and warrants that: (a) all of the
representations and warranties set forth in the Credit Agreement are true and
correct; (b) the Company is or will be the legal and equitable owner of the
Collateral and its interests therein are or will be free and clear of all liens,
security interests, charges and encumbrances of every kind and nature (other
than as created hereunder or under Take-Out Commitments or under assignments to
purchasers under such Take-Out Commitments); (c) no financing statement or other
evidence of lien covering any of the Collateral is or will be on file in any
public office other than financing statements filed with respect to the Company
as debtor and the Agent as secured party; (d) the Company has good right, power
and lawful authority to pledge, assign and deliver the Collateral in the manner
hereby done or contemplated; (e) no consent or approval of any governmental
body, regulatory authority, person, trust, or entity is or will be (i) necessary
to the validity or enforceability of the rights created hereunder or (ii)
required prior to the assignment, transfer and delivery of any of the Collateral
to the Agent; (f) to the Company's knowledge, no material dispute, right of
setoff, counterclaim or defense exists with respect to all or any part of the
Collateral; (g) this Pledge and Security Agreement constitutes the legal, valid
and binding obligation of the Company enforceable against the Company and the
Collateral in accordance with its terms (subject to limitations as to
enforceability which might result from bankruptcy, reorganization, arrangement,
insolvency or other similar laws affecting creditors' rights generally); (h) in
making and closing each Pledged Mortgage Loan, the Company has or will have
fully complied in all material respects with, and all collateral documents
delivered with respect to such Pledged Mortgage Loan comply or will comply in
all material respects with, all applicable federal, state and local laws,
regulations and rules, including, but not limited to, (i) usury laws, (ii) the
Real Estate Settlement Procedures Act of 1974, (iii) the Equal Credit
Opportunity Act, (iv) the Federal Truth in Lending Act, (v) Regulation Z of the
Board of Governors of the Federal Reserve System (including, without limitation,
Section 32 thereof, to the extent applicable) and (vi) all other consumer
protection and truth-in-lending laws which may apply, and in each case with the
regulations promulgated in connection therewith, as the same may be amended from
time to time; and the Company shall maintain sufficient documentary evidence in
its files with respect to such Pledged Mortgage Loans to substantiate such
compliance; (i) the Company has obtained or will obtain prior to the delivery of
any Mortgage Loan to the Agent in accordance with Section 4.01 hereof, and will
maintain in its files as agent for the Agent, a FIRREA Qualifying Appraisal with
respect to such Mortgage Loan; (j) immediately upon (i) the execution and
delivery of the Credit Agreement, the Warehousing Note and the other Loan
Documents, (ii)the acquisition by the Company of rights in a Mortgage Loan
funded by a Warehousing Loan, and (iii) the execution and delivery to the Agent
of an Agreement to Pledge and related Collateral Identification Letter and Loan
Detail Listing in connection with such Mortgage Loan, the Agent,
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for the benefit of the Lenders and the Lessor, will have a valid and perfected
first priority security interest in such Mortgage Loan and in the related
Mortgage Note and Mortgage evidencing and securing such Mortgage Loan (without
the Agent taking possession of said Mortgage Note) for a period of 21 days from
the date such Warehousing Loan is made for the purpose of funding such Mortgage
Loan; (k) upon the delivery of the Mortgage Note evidencing a Pledged Mortgage
Loan to the Agent as contemplated by Section 4.02 hereof, the Agent, for the
benefit of the Lenders and the Lessor, shall have a valid and perfected first
priority security interest in such Pledged Mortgage Loan, without regard to the
21-day temporary perfection period referred to in clause (j) of this sentence;
(l) immediately upon (i) the execution and delivery of the Credit Agreement, the
Warehousing Note and the other Loan Documents, (ii) the acquisition by the
Company of rights in such Collateral and (iii) the filing with the Secretary of
State of California of a financing statement showing the Company as debtor and
the Agent as secured party and describing the Collateral, the Agent, for the
benefit of the Lenders and the Lessor, shall have a valid and perfected first
priority security interest in the Collateral which is other than as described in
clauses (j) and (k) of this Section 5, to the extent that a security interest in
such other Collateral can be perfected by filing a financing statement; (m) each
Pledged Mortgage Loan has been fully advanced and is a first lien on the
premises described therein; (n) each Pledged Mortgage Loan complies with all
requirements of this Agreement and the Credit Agreement applicable thereto; (o)
except as described in the reports provided by the Company to the Agent and the
Lenders pursuant to Section 4.01 of the Credit Agreement, or as otherwise
disclosed to the Agent, there is no monetary default existing under any Pledged
Mortgage Loan that remains in effect on the date the Compliance/Borrowing Base
Certificate for the month in which such default occurred is required to be
delivered to the Agent and the Lenders pursuant to Section 4.01(c)(ii) of the
Credit Agreement and, to the knowledge of the Company, there is no other default
existing under any Pledged Mortgage Loan; and (p) all Pledged Mortgage Loans
secured by properties located in special flood hazard areas designated by the
Secretary of Housing and Urban Development are and shall continue to be covered
by flood insurance under the National Flood Insurance Program.
Section 6. POSSESSION OF COLLATERAL; STANDARD OF CARE
------------------------------------------
The Agent shall exercise reasonable care in the custody and
preservation of the Collateral, shall keep the documents delivered to it in
connection with Pledged Mortgage Loans at a facility protected against fire and
shall keep the Collateral separate from similar collateral furnished by third
parties. The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of any of the Collateral in its possession if it takes
such action for that purpose as the Company requests in writing, but failure of
the Agent to comply with any such request shall not itself be deemed a failure
to exercise reasonable care, and no failure of the Agent to preserve or protect
any rights with respect to such
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Collateral not so requested by the Company shall be deemed a failure to exercise
reasonable care in the custody or preservation of such Collateral. The Agent
shall also be deemed to have exercised reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which the Agent accords its own property
of like kind.
Section 6A. AGENT'S DUTIES
--------------
The powers conferred on the Agent hereunder are solely to protect its
interest in the Collateral, for the benefit of the Lenders and the Lessor, and
shall not impose any duty upon it to exercise any such powers. The Agent shall
be deemed to have exercised reasonable care in the safekeeping of any Collateral
in its possession if such Collateral is accorded treatment substantially equal
to the safekeeping which the Agent accords its own property of like kind. Except
for the safekeeping of any Collateral in its possession and the accounting for
monies and for other properties actually received by it hereunder, the Agent
shall have no duty, as to any Collateral, as to ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, tenders or other
matters relative to any Collateral, whether or not the Agent has or is deemed to
have knowledge of such matters, or as to the taking of any necessary steps to
preserve rights against any Persons or any other rights pertaining to any
Collateral.
Section 7. COLLECTIONS ON COLLATERAL BY THE COMPANY; ACCOUNTING
----------------------------------------------------
Until the Agent gives notice to the Company pursuant to the
penultimate sentence of this Section 7 or exercises its rights under Sections 8
or 13, the Company shall be entitled to receive all Collections and use the same
in the normal course of business. Upon notice from the Agent to the Company
given after the occurrence and during the continuation of an Event of Default or
an Unmatured Event of Default, the Company shall furnish to the Agent not later
than the tenth Business Day after the end of each month a report on all
Collections received during the preceding month and provide the same accounting
therefor as the Company customarily furnishes the permanent investors therein,
including with respect to Collections on each Pledged Mortgage Loan: (a) the
name of the Obligor(s), (b) the Company's loan number for such Pledged Mortgage
Loan, (c) the current principal balance of such Pledged Mortgage Loan, (d) the
current escrow balance with respect to such Pledged Mortgage Loan, (e) the
number and amount of past due payments on such Pledged Mortgage Loan and (f) the
amount of the collections received during such month with respect to such
Pledged Mortgage Loan, itemized to show (i) principal portion, (ii) interest
portion and (iii) portion thereof representing amounts paid in escrow for real
estate taxes and insurance.
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Upon notice from the Agent to the Company given after the occurrence
and during the continuation of an Event of Default or of an Unmatured Event of
Default, the Company shall hold all collections representing principal payments
and prepayments and escrows for real estate taxes and insurance in trust for the
Lenders and the Lessor and shall promptly remit the same to the Agent. All
amounts representing the principal payments and prepayments delivered to the
Agent pursuant to the preceding sentence shall be deposited in the Collateral
Account and all amounts representing real estate taxes and insurance escrows
delivered to the Agent pursuant to the preceding sentence shall be deposited in
an escrow account with any bank satisfactory to the Company and the Agent, to be
held as Collateral for, or applied to, the Obligations and the Lease
Obligations.
Section 8. COLLECTIONS ON COLLATERAL BY THE AGENT
--------------------------------------
Upon the occurrence and during the continuation of an Event of Default
or an Unmatured Event of Default, the Agent may at any time and from time to
time, notify and direct any or all Obligors with respect to any of the
Collateral thereafter to make all payments on such Collateral directly to the
Agent, regardless of whether the Company was previously making collections
thereon. The Agent shall promptly account to the Company for all such payments
received by the Agent. Each Obligor making such payment to the Agent shall be
fully protected in relying on the written statement of the Agent that the Agent
then holds the security interests herein granted and assigned, which entitle the
Agent to receive such payment, and the receipt of the Agent for such payment
shall be full acquittance therefor to the Obligor making such payment.
Section 9. DEFAULTED LOANS; COLLECTION AND FORECLOSURE PROCEEDINGS
-------------------------------------------------------
If the Company wishes to institute collection or foreclosure
proceedings with respect to a Pledged Mortgage Loan, it shall substitute other
Collateral so that it is entitled pursuant to the terms of the Credit Agreement
to a release of such Pledged Mortgage Loan. If the Company does not own
sufficient other Collateral to obtain a release of such Pledged Mortgage Loan,
then so long as an Event of Default or an Unmatured Event of Default has not
occurred and is continuing, the Agent, upon written request of the Company, will
deliver, upon such terms and conditions as the Agent in its sole discretion may
establish, to an attorney at law, as the agent of the Agent, to the extent
necessary for the purpose of enabling said attorney to institute, in the name of
the Company or the Agent, or in their names or in the names of their nominees,
as the Agent may determine, collection and/or foreclosure proceedings on any
Pledged Mortgage Loan in default the following: (a) the promissory note or other
instrument evidencing such Pledged Mortgage Loan in default and (b) the mortgage
or deed of trust, if any, that secures such promissory note, or other Collateral
needed by said attorney in connection
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with such collection and/or foreclosure proceedings in such manner and in such
form as the Agent deems necessary or desirable to preserve its security
interests in such Collateral, provided such Collateral and all proceeds of any
such collection and/or foreclosure efforts shall remain subject to this
Agreement and the security interests granted herein and all such proceeds shall
be delivered to the Agent as and when and in the form received to the extent
required by the terms of the Credit Agreement. The Company hereby covenants and
agrees that, without first obtaining the prior written consent of the Agent, it
will not request or accept any discount on, or any conveyance, endorsement,
transfer or assignment of any right, title or interest in and to any of the
real, personal or mixed properties sold, pledged, mortgaged, hypothecated,
assigned, transferred, set over or conveyed to the Agent as security for, any of
the promissory notes or other instruments or agreements which evidence Pledged
Mortgage Loans in lieu of foreclosure proceedings if, after giving effect to any
such proposed transaction, the Warehousing Borrowing Base would be less than the
aggregate unpaid principal amount of the outstanding Warehousing Loans. At such
time as such delivery of the Collateral is no longer required in connection with
said collection and/or foreclosure efforts, to the extent such Collateral has
not been released pursuant to this Agreement, the same shall be reassigned and
redelivered to the Agent.
Section 10. SALES AND RELEASES OF COLLATERAL
--------------------------------
10.01 Redelivery of Collateral for Correction. If no Event of
---------------------------------------
Default or Unmatured Event of Default exists, the Agent may redeliver to the
Company, for correction, any instrument or document which constitutes or relates
to any of the Collateral; provided, that any such redelivery shall be made
against a Trust Receipt duly completed and executed by the Company requiring,
within 21 days after the redelivery thereof to the Company, the return to the
Agent of each such instrument and document. The Company shall deliver to the
Agent each such instrument and document as soon as it has completed the
correction thereof and, in any event, within 21 days after its receipt thereof.
10.02 Delivery for Sale of Pledged Mortgage Loans. If no Event
-------------------------------------------
of Default or Unmatured Event of Default exists, the Company may direct the
Agent to, and the Agent will, transmit on behalf of the Company Pledged Mortgage
Loans, accompanied by a duly completed and executed Bailee Letter, to an
Investor who has issued a Take-Out Commitment or a custodian for such Investor
that is acceptable to the Agent. All sale proceeds transferred to the Agent
pursuant to such Bailee Letter and all Mortgage Notes and other documents
returned to the Agent pursuant such Bailee Letter shall remain a part of the
Collateral unless and until released pursuant to Section 10.04 of this Pledge
and Security Agreement. If required by the applicable Take-Out Commitment,
Pledged Mortgage Loans may be duly assigned of record to the issuer of such
Take-Out Commitment subject to reassignment if not purchased and with beneficial
title to any such assigned Pledged Mortgage Loans being subject
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to the above-stated escrow condition. All Pledged Mortgage Loans which are so
transmitted or otherwise delivered but not paid for shall constitute Collateral
and shall, subject to the limits contained herein, be included in determining
the Warehousing Borrowing Base. The proceeds received by the Agent from the sale
of any Pledged Mortgage Loans pursuant to this Section 10.02 shall be deposited
by the Agent in the Collateral Account and shall be promptly applied to the
payment of principal of the Warehousing Note; provided, however, that if an
Event of Default has occurred and is continuing, such proceeds shall be applied
in accordance with Section 17 hereof.
10.03 Formation of Pools. The Agent may, from time to time in its
------------------
sole discretion, at the request of the Company, transmit Pledged Mortgage Loans
to a custodian that is acceptable to the Agent in connection with the issuance
of Mortgage-backed Securities and the formation of pools of Mortgage Loans,
subject, however, to the provisions of Sections 6 and 20 hereof. The Agent and
its designated agent shall be entitled to rely on the written instructions of
the Company in this regard and shall have no obligation to act in the absence of
such written instructions.
10.04 Release of Particular Collateral.
--------------------------------
(a) If no Event of Default or Unmatured Event of Default has occurred
which is continuing, the Agent shall, at the written request of the
Company, release its security interest in any item of Collateral specified
by the Company in such written request, provided that, after giving effect
to such requested release, the Warehousing Borrowing Base (including
therein the Warehousing Collateral Value of any Collateral given in
substitution for the Collateral to be released) shall not be less than the
aggregate principal amount outstanding under the Warehousing Note. If the
Company requests and is entitled to a release of a Pledged Mortgage Loan
pursuant to the preceding sentence, the Agent shall promptly redeliver to
the Company or its designee (i) the Mortgage Note evidencing such Pledged
Mortgage Loan endorsed without recourse upon, or representation or warranty
by, the Agent and (ii) a reassignment, without recourse upon, or
representation or warranty by, the Agent, of any part of the Collateral
that secures such Mortgage Note.
(b) Whether or not the Company, by terms of this Section 10.04, is
entitled to a release of the Agent's security interest in the Collateral,
the Agent shall release such security interest in any Pledged Mortgage Loan
to the extent necessary to permit the Company to execute any full or
partial release of any mortgage, deed of trust, security agreement,
financing statement or other security instrument or deed which the Company
is contractually obligated to release upon payment thereof or of a minimum
release price, provided the Company arranges to have such payment remitted
directly by the Obligor or
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closing agent to the Agent for application upon the unpaid principal amount
outstanding under the Warehousing Note, unless an Event of Default has
occurred which is continuing, in which case such payment shall be applied
as provided in Section 17 hereof.
(c) Upon the Agent's receipt of the proceeds from the sale of a
Pledged Mortgage Loan delivered to an Investor pursuant to Section 10.02
hereof or to a pool custodian pursuant to Section 10.03 hereof, the
security interest of the Agent in such Pledged Mortgage Loan and in the
Mortgage Note and other documents related thereto shall terminate without
further action by the Agent.
(d) Upon the Agent's receipt of the proceeds from the sale of a
Related Mortgage-backed Security representing an interest in, or which is
secured by, Pledged Mortgage Loans delivered pursuant to Section 10.03
hereof, the security interest of the Agent in such Related Mortgage-backed
Security and in such Pledged Mortgage Loans shall terminate without further
action by the Agent.
Section 11. FURTHER ASSURANCES
------------------
The Company, upon the request of the Agent, will promptly correct any
patent defect, error or omission which may be discovered in the contents of this
Agreement or in the execution hereof and will do such further acts and things,
and execute, acknowledge, endorse and deliver such further instruments,
agreements, schedules and certificates, including, but not limited to, notes,
mortgages, deeds of trust, assignments, chattel mortgages, security agreements
and financing statements covering the title to any real, personal or mixed
property now owned or hereafter acquired by the Company and now or hereafter
constituting Collateral, schedules and certificates respecting all or any of the
Collateral at the time subject to the security interest hereunder, the items or
amounts received by the Company in full or partial payment, or otherwise as
proceeds of any of the Collateral and supplements to and amendments of this
Agreement, that the Agent may at any time and from time to time reasonably
request in connection with the administration or enforcement of this Agreement
or related to the Collateral or any part thereof or in order to assure and
confirm unto the Agent the rights, powers and remedies hereunder or to subject
all of the real, personal or mixed properties now owned or hereafter acquired by
the Company and now or hereafter constituting Collateral to, or to confirm or
clearly establish that all of said properties are subject to and encumbered by,
a lien to secure the due and punctual payment of the Obligations and any Lease
Obligations. Any such instrument, agreement, schedule or certificate shall be
executed by a duly authorized officer of the Company and shall be in such form
and detail as the Agent may reasonably specify. Promptly upon the request of
the Agent, the Company will mark, or permit the Agent to mark in a
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reasonable manner, the Company's books, records and accounts showing or dealing
with the Collateral with a notation clearly setting forth that the Collateral
has been assigned to the Agent, for the benefit of the Lenders and the Lessor,
which notation shall be in form and substance satisfactory to the Agent.
The Company will do all acts and things, and will execute and file or
record all instruments (including mortgages, pledges, assignments, security
agreements, financing statements, amendments to financing statements,
continuation statements, etc.) required or reasonably requested by the Agent to
establish, perfect, maintain and continue the perfection and priority of the
security interest of the Agent, for the benefit of the Lenders and the Lessor,
in the Collateral and will pay the costs and expenses of: all filings and
recordings, including taxes thereon; all searches necessary or reasonably deemed
necessary by the Agent to establish and determine the validity and the priority
of such security interest of the Agent; and also to satisfy all other liens
which in the reasonable opinion of the Agent prejudice, imperil or otherwise
affect the Collateral or the existence or priority of such security interest.
Acarbon, photographic or other reproduction of this Agreement or of a financing
statement shall be sufficient as a financing statement and may be filed in lieu
of the original in any or all jurisdictions which accept such reproductions.
Section 12. COVENANTS OF THE COMPANY
------------------------
So long as this Agreement shall remain in effect, the Company will
(a) defend the right, title and interest of the Agent, for the benefit of the
Lenders and the Lessor, in the Collateral against the claims and demands of all
Persons; (b) not amend, modify, or waive any of the terms and conditions of, or
settle or compromise any claim in respect of, any Collateral in a manner which
would materially adversely affect the interests of the Agent, for the benefit of
the Lenders and the Lessor; (c) not sell, assign, transfer, or otherwise dispose
of, or grant any option with respect to, or pledge or otherwise encumber, or
release, any of the Collateral or any interest therein except in a manner
whereby the Agent alone would be entitled to receive the proceeds therefrom; (d)
notify the Agent monthly of any default that continues beyond any applicable
notice or grace period under any Pledged Mortgage Loan which has Warehousing
Collateral Value; (e) maintain, or cause to be maintained, in its chief
executive office or in the offices of a computer service bureau approved by the
Agent, for the processing of Mortgage Notes and Mortgage-backed Securities,
originals, or copies if the original has been delivered to the Agent, of its
Mortgage Notes and all files, surveys, certificates, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting records and other records,
information and data, relating to the Collateral, and give the Agent written
notice of the place where such records, information and data will be maintained;
and (f) maintain sufficient documentary evidence in its files with respect to
each Pledged Mortgage Loan to substantiate compliance with all applicable
federal, state
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and local laws, regulations and rules, including but not limited to those
specified in Section 5(h) hereof.
Section 13. AGENT APPOINTED ATTORNEY-IN-FACT
--------------------------------
The Company hereby appoints the Agent the Company's attorney-in-fact,
with full power of substitution, to submit any Pledged Mortgage Loan or
Mortgage-backed Security which constitutes Collateral and related documents to a
purchaser under a Take-Out Commitment and for the purpose of carrying out the
provisions of this Agreement and taking any action and executing in the name of
the Company without recourse to the Agent any instrument, including, but not
limited to, the instruments described in Section 2 hereof, which the Agent may
deem necessary or advisable to accomplish the purpose hereof, which appointment
is irrevocable and coupled with an interest. Without limiting the generality of
the foregoing, the Agent shall have the right and power to receive, endorse and
collect checks and other orders for the payment of money made payable to the
Company representing any payment or reimbursement made under, or pursuant or
with respect to, the Collateral or any part thereof and to give full discharge
for the same. The Agent agrees that it shall not, without further instructions
of the Company, exercise the foregoing power of attorney unless an Event of
Default or Unmatured Event of Default has occurred and is continuing. Whether
or not an Event of Default or an Unmatured Event of Default shall have occurred
or be continuing, the Company hereby authorizes the Agent in its discretion at
any time and from time to time to (i) complete or cause to be completed any
assignment of real estate mortgage or deed of trust which heretofore was, or
hereafter at any time may be, executed and delivered by the Company to the Agent
so that such assignment describes a real estate mortgage or deed of trust which
is security for any Pledged Mortgage Loan now or hereafter at any time
constituting Collateral and (ii) complete or cause to be completed any other
assignment or endorsement that was delivered in blank hereunder.
Section 14. EVENTS OF DEFAULT; REMEDIES
---------------------------
If one or more Events of Default shall occur and be continuing, then
the Agent, in addition to any and all other rights and remedies which it may
then have hereunder, under the Credit Agreement or any other Loan Document, or
under any other instrument, or which the Agent or the Lenders or the Lessor may
have at law, in equity or otherwise, may, at its option, (a) in the name of the
Company, or otherwise, demand, collect, receive and receipt for, compound,
compromise, settle and give acquittance for, and prosecute and discontinue any
suits or proceedings in respect of any or all of the Collateral; (b) take any
action which the Agent may deem necessary or desirable in order to realize on
the Collateral, including, without limitation, the power to perform any
contract, endorse in the name of the Company without recourse to the Company any
checks, drafts, notes or
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<PAGE>
other instruments or documents received in payment of or on account of the
Collateral; (c) enter upon the premises where any of the Collateral not in the
possession of the Agent is located and take possession thereof and remove the
same, with or without judicial process; (d) reduce the claim of the Agent and
the Lenders and the Lessor to judgment or foreclosure or otherwise enforce the
security interests herein granted and assigned, in whole or in part, by any
available judicial procedure; (e) after notification, if any, provided for
herein (the Company agrees that, to the extent notice of sale shall be required
at law, at least ten days' prior notice to the Company of the time and place of
any public sale or the time after which any private sale is to be made shall
constitute reasonable notification), sell, lease, or otherwise dispose of, at
the office of the Agent, on the premises of the Company, or elsewhere, all or
any part of the Collateral, in its then condition or following any commercially
reasonable preparation or processing, and any such sale or other disposition may
be as a unit or in parcels, by public or private proceedings, and by way of one
or more contracts at any exchange, broker's board, or at any of the Agent's
offices or elsewhere, for cash, or credit, or for future delivery, without
assumption of any credit risk, and upon such other terms as the Agent may deem
commercially reasonable (it being agreed that the sale of any part of Collateral
shall not exhaust the power of sale granted hereby, but sales may be made from
time to time, and at any time, until all the Collateral has been sold or until
all Obligations and Lease Obligations have been fully paid and performed, and it
being further agreed that the Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given, and that the Agent
may adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was adjourned), and at any such sale it
shall not be necessary to exhibit any of the Collateral; (f) at its discretion,
surrender any policies of insurance on the Collateral consisting of real or
personal property owned by the Company and receive the unearned premiums, and in
connection therewith the Company hereby appoints the Agent as the agent and
attorney-in-fact for the Company to collect such premiums; (g) at its
discretion, retain the Collateral in satisfaction of the Obligations and Lease
Obligations whenever the circumstances are such that the Agent and the Lenders
and the Lessor is entitled to do so under the Code or otherwise; (h) exercise
any and all other rights, remedies and privileges which the Agent may have under
this Agreement, or any of the other promissory notes, assignments, mortgages,
deeds of trust, chattel mortgages, security agreements, transfers of lien, and
any other instruments, documents, and agreements executed and delivered pursuant
to the terms hereof or pursuant to the terms of the Credit Agreement; and (i)
exercise any other remedy available to it as a secured party under the Uniform
Commercial Code of the State of Minnesota or of any other pertinent jurisdiction
(the "Code"). The Company acknowledges and agrees that (x) a private sale of the
Collateral pursuant to any Take-Out Commitment or other arrangement entered into
by the Company shall be deemed to be a sale of the Collateral in a commercially
reasonable manner and (y) the Collateral is intended to be sold and that none of
the Collateral
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is a type or kind intended by the Company to be held for investment or any
purpose other than for sale.
Section 15. WAIVERS
-------
The Company, for itself and all who may claim under the Company, as
far as the Company now or hereafter lawfully may, also waives all right to have
all or any portion of the Collateral marshalled upon any foreclosure hereof and
agrees that any court having jurisdiction over this Agreement may order the sale
of all or any portion of the Collateral as an entirety. Any sale of, or the
grant of options to purchase (for the option period thereof or after exercise
thereof), or any other realization upon, all or any portion of the Collateral
under clause (e) of Section 14 hereof shall operate to divest all right, title,
interest, claim and demand, either at law or in equity, of the Company in and to
the Collateral so sold, optioned or realized upon, and shall be a perpetual bar
both at law and in equity against the Company and against any and all persons
claiming or attempting to claim the Collateral so sold, optioned or realized
upon or any part thereof, from, through and under the Company. No delay on the
part of the Agent in exercising any power of sale, lien, option or other right
hereunder and no notice or demand which may be given to or made upon the Company
with respect to any power of sale, lien, option or right hereunder shall
constitute a waiver thereof, or limit or impair the right of the Agent, any
Lender or the Lessor to take any action or to exercise any power of sale, lien,
option or any other right under this Agreement or the Credit Agreement, or any
lease agreement, or otherwise, nor shall any single or partial exercise thereof,
or the exercise of any power, lien, option or other right under this Agreement
or otherwise, all without notice or demand (except as otherwise provided by the
terms of this Agreement), prejudice their rights against the Company in any
respect. Each and every remedy given the Agent, the Lenders or the Lessor
shall, to the extent permitted by law, be cumulative and shall be in addition to
any other remedy given hereunder or now or hereafter existing at law or in
equity or by statute.
Section 16. NOTICES
-------
The Company acknowledges and agrees that Mortgage Loans and Mortgage-
backed Securities are property of a type customarily sold on a recognized
market, and that accordingly the Agent may (a) sell or otherwise dispose of the
Collateral without notification, advertisement, or other notice of any kind, and
(b) purchase the Collateral at a private sale thereof. To the extent notice of
sale or other disposition of any of the Collateral is required by law, it is
agreed that notice sent or given not less than ten (10) calendar days prior to
the taking of the action to which the notice relates is reasonable notification
and notice of the purposes of this Section 16. All notices and other
communications provided for in this Agreement shall be given to the parties at
their respective addresses set forth in the Credit Agreement or, as to each such
party, at such other address as shall be designated by such party in
20
<PAGE>
a written notice to the other parties in accordance with the Credit Agreement.
All such notices and other communications shall be given by one or more of the
means specified in Section 8.02 of the Credit Agreement and, upon being so
given, shall be deemed to have been given as of the earliest time specified in
said Section 8.02 for the means so used.
Section 17. APPLICATION OF PROCEEDS
-----------------------
Until Company has paid all Obligations and Lease Obligations in full,
any and all proceeds ever received by the Agent from any sale or other
disposition of the Collateral, or any part thereof, or the exercise of any other
remedy pursuant to Section 8 hereof or by virtue of Section 14 hereof, shall be
applied by the Agent as follows:
First: ratably to the payment of the costs and expenses of the Agent
and the Lenders in connection with the enforcement of this Agreement (including,
without limitation, the sale or other disposition of the Collateral) and the
reasonable fees and out of pocket expenses of counsel employed in connection
therewith, to the payment of all costs and expenses incurred by the Agent in
connection with the administration of this Agreement and to the payment of all
advances made by the Agent and the Lenders for the account of the Company
hereunder, to the extent that such costs, expenses and advances have not been
reimbursed to the Agent and the Lenders, as the case may be;
Second: to the payment in full of the principal of and any Balances
Deficiency Fees, Usage Fees, facility fees and interest on the Swingline Note
and the Warehousing Notes; and
Third: to the payment in full of the principal of and any Balances
Deficiency Fees, facility fees and interest on the Working Capital Notes; and
Fourth: to the payment of all other Obligations, as provided in the
Credit Agreement or, otherwise, as the Agent or the Banks may determine; and
Fifth: to the payment in full of the Lease Obligations, as provided
in the Leases or, otherwise, as the Lessor may determine; and
Sixth: the balance (if any) of such proceeds shall be paid to the
Company, its successors or assigns, or as a court of competent jurisdiction may
direct; provided, that if such proceeds are not sufficient to satisfy the
Obligations and the Lease Obligations in full, the Company shall remain liable
to the Agent, the Banks and the Lessor, as applicable, for any deficiency.
21
<PAGE>
Section 18. INDEMNIFICATION AND COSTS AND EXPENSES
--------------------------------------
The Company will (a) pay all reasonable out-of-pocket expenses,
including, without limitation, any recording or filing fees, fees of title
insurance companies in connection with records or filings, costs of mortgage
insurance policies and endorsements thereof and mortgage registration taxes (or
any similar fees or taxes), incurred by the Agent, the Lenders or the Lessor in
connection with (i) the enforcement and administration of this Agreement
(whether or not the transactions hereby contemplated shall be consummated), the
Credit Agreement, the Lease Agreement and the other Loan Documents, (ii) the
enforcement of the rights of the Agent, the Lenders and the Lessor in connection
with this Agreement, the Credit Agreement, the other Loan Documents, all the
Lease Agreements, and including, without limitation, the reasonable fees and
disbursements of counsel for the Agent, the Lenders and the Lessor; (b) pay, and
hold the Agent, the Lenders and the Lessor harmless from and against, any and
all present and future stamp and other similar taxes with respect to the
foregoing matters and save the Agent, the Lenders and the Lessor harmless from
and against any and all liabilities with respect to or resulting from any delay
in paying or omission to pay such taxes; and (c) pay, and indemnify and hold
harmless the Agent, the Lenders and the Lessor from and against, any and all
liabilities, obligations, losses, damages, penalties, judgments, suits, costs,
expenses and disbursements of any kind whatsoever (the "Indemnified
Liabilities") which may be imposed on, incurred by or asserted against it in any
way relating to or arising out of this Agreement, the Credit Agreement, the
other Loan Documents, all Lease Agreements, or any of the transactions
contemplated hereby or thereby, WHETHER OR NOT THE SAME ARE CAUSED BY THE SIMPLE
NEGLIGENCE OF THE AGENT, unless the same are caused by the gross negligence or
willful misconduct of the Agent, any Lender or the Lessor as the case may be.
The undertakings of the Company set forth in this Section 18 shall survive the
payment in full of the Obligations and the Lease Obligations and the termination
of this Agreement, the Credit Agreement, the other Loan Documents, and all Lease
Agreements.
Section 19. TERMINATION
-----------
This Agreement shall terminate when all the Obligations and Lease
Obligations have been fully paid and performed and the Commitment and all Lease
Agreements have expired, at which time the Agent shall reassign and redeliver,
without recourse upon, or representation or warranty by, the Agent, the Lenders
or the Lessor and at the expense of the Company, to the Company, or to such
other person or persons as the Company shall designate, against receipt, such of
the Collateral (if any) as shall not have been sold or otherwise disposed of by
the Agent pursuant to the terms hereof, of the Credit Agreement, the other Loan
Documents, or any Lease Agreement, and shall still be held by the Agent,
together with appropriate instruments of reassignment and release; provided,
however, that this
22
<PAGE>
Agreement shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of any of the Obligations or the Lease Obligations is
rescinded or must otherwise be returned by the Agent, the Lenders, the Lessor or
any other Person upon the insolvency, bankruptcy or reorganization of the
Company or otherwise, all as though such payment had not been made.
Section 20. NON-ASSUMPTION OF LIABILITY; NO FIDUCIARY RESPONSIBILITY
--------------------------------------------------------
Nothing herein contained shall relieve the Company from performing any
covenant, agreement or obligation on the part of the Company to be performed
under or in respect of any of the Collateral or from any liability to any party
or parties having an interest therein or impose any liability on the Agent, the
Lenders and the Lessor for the acts or omissions of the Company in connection
with any of the Collateral. The Agent, the Lenders and the Lessor shall not
assume or become liable for, nor shall any of them be deemed or construed to
have assumed or become liable for, any obligation of the Company with respect to
any of the Collateral, or otherwise, by reason of the grant to the Agent, for
the benefit of the Lenders and the Lessor, of security interests in the
Collateral. While the Agent shall use reasonable care in the custody and
preservation of the Collateral as provided in Section 6 hereof, the Agent shall
not have any fiduciary responsibility to the Company with respect to the
holding, maintenance or transmittal of the Collateral delivered hereunder.
Section 21. WAIVERS, ETC.
-------------
No failure on the part of the Agent to exercise and no delay in
exercising, any power or right hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any power or right preclude any other or
further exercise thereof or the exercise of any other power or right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law. This Agreement may not be amended or waived except in
accordance with Section 8.05(a) of the Credit Agreement.
Section 22. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
------------------------------------------------------
TRIAL
- -----
THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW, BUT NOT THE LAW OF CONFLICTS, OF
THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. THE
COMPANY HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION AND VENUE
OF ANY MINNESOTA STATE OR FEDERAL
23
<PAGE>
COURT SITTING IN HENNEPIN OR RAMSEY COUNTIES, STATE OF MINNESOTA, FOR ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTES AND THE
OTHER LOAN DOCUMENTS, AND THE COMPANY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS
IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH
MINNESOTA STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT.
THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY
DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF ANY SUCH
ACTION OR PROCEEDING. THE COMPANY HEREBY WAIVES PERSONAL SERVICE OF PROCESS AND
CONSENTS THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED
MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED OR DETERMINED IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 8.02 OF THE CREDIT AGREEMENT, AND
SERVICE SO MADE SHALL BE DEEMED COMPLETED ON THE THIRD BUSINESS DAY AFTER SUCH
SERVICE IS DEPOSITED IN THE MAIL. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
AGENT, ANY LENDER, THE LESSOR OR ANY OTHER INDEMNIFIED PERSON TO SERVE PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW. THE COMPANY AND THE AGENT HEREBY
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 23. MISCELLANEOUS
-------------
(a) Benefit of Agreement. This Agreement shall be binding upon and
--------------------
inure to the benefit of the Company and the Agent and their respective
successors and assigns, and shall inure to the benefit of the Lenders and
the Lessor and their respective successors and assigns, except that the
Company may not assign or transfer any of its rights or obligations under
this Agreement without the prior written consent of the Agent.
(b) No Commitment by Lessor. Nothing in this agreement shall be
-----------------------
construed as a commitment on the part of the Lessor to lease any equipment
or make any loan, under any existing agreement or otherwise, to the Company
or NCFC.
(c) Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations, warranties and covenants made by the Company to the Agent,
the Lenders or the Lessor in connection with this Agreement shall survive
the execution and delivery of this Agreement. All statements contained in
any certificate or other instrument delivered to the Agent, the
24
<PAGE>
Lenders or the Lessor pursuant to this Agreement shall be deemed
representations, warranties and covenants hereunder of the Company.
(d) Headings. Section headings in this Agreement are for convenience
--------
of reference only, and shall not govern the interpretation of any of the
provisions of this Agreement.
(e) Execution in Counterparts. This Agreement may be executed in any
-------------------------
number of counterparts, all of which taken together shall constitute one
and the same instrument and either of the parties hereto may execute this
Agreement by signing any such counterpart.
25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
NEW CENTURY MORTGAGE CORPORATION
By _______________________________________
Its ___________________________________
FIRST BANK NATIONAL ASSOCIATION,
as Agent
By _______________________________________
Its ___________________________________
[Signature Page to Pledge and Security Agreement]
<PAGE>
ATTACHMENTS
-----------
Attachment 1 Form of Agreement to Pledge
Attachment 2 Form of Bailee Letter
Attachment 3 Form of Collateral Identification Letter
Attachment 4 Form of Loan Detail Listing
Attachment 5 Form of Transmittal Letter
Attachment 6 Form of Trust Receipt
<PAGE>
Attachment 1 to
Pledge and Security Agreement
AGREEMENT TO PLEDGE
(Security Agreement as provided for
by the Uniform Commercial Code of Minnesota)
For new value this day received, and as collateral security for the
payment of any and all indebtedness and liability of the undersigned under that
certain Second Amended and Restated Credit Agreement dated as of July 31, 1997
(as the same may be amended, restated, modified or supplemented and in effect
from time to time, the "Credit Agreement") between New Century Mortgage
Corporation, a California corporation (the "Company"), and First Bank National
Association, a national banking association ("First Bank"), as collateral agent
for the Banks (as defined in the Credit Agreement) and FBS Business Finance
Corporation (the "Lessor") (together with any successor collateral agent under
the Pledge and Security Agreement referred to below, the "Agent"), and
consistent with the terms of that certain Pledge and Security Agreement dated as
of July 31, 1997 (as the same may be amended, restated, modified or supplemented
and in effect from time to time, the "Pledge and Security Agreement") between
the Company and the Agent, the Company hereby creates and grants in favor of the
Agent, for the benefit of the Banks and the Lessor, a security interest in and
to the documents described in each Collateral Identification Letter and Loan
Detail Listing attached to this Agreement to Pledge and all proceeds thereof.
Capitalized terms used herein which are defined in the Credit
Agreement or the Pledge and Security Agreement and not otherwise defined herein
shall have the meanings ascribed to such terms in the Credit Agreement or the
Pledge and Security Agreement.
The Company agrees to deliver the instruments and documents described
in Section 4.02 of the Pledge and Security Agreement to the Agent within seven
Business Days following the date hereof, as provided in said Section 4.02. The
Company further agrees to deliver the instruments and documents described in
Section 4.03 of the Pledge and Security Agreement to the Agent within five
Business Days after the Company's receipt of the Agent's written request
therefor.
The Company further agrees that the Agent does not assume any duty or
responsibility in respect of any of the documents described in each attached
Collateral Identification Letter, and that the Agent does not waive any right of
possession to any of such documents for the failure to demand or receive such
possession.
<PAGE>
The Company further agrees that this Agreement to Pledge shall be
binding upon and inure to the benefit of the legal representatives, successors
or assigns of the Company.
The Company further agrees that all rights, interests, duties and
liabilities arising hereunder shall be determined according to the laws of the
State of Minnesota, without giving effect to conflict of laws principles
thereof.
Dated as of ___________________________, 199_.
NEW CENTURY MORTGAGE CORPORATION
By ____________________________________
Its ________________________________
-2-
<PAGE>
Attachment 2
to Pledge and Security Agreement
FORM OF BAILEE LETTER
[Letterhead of First Bank National Association]
[Date]
[NAME OF CUSTODIAN], as Custodian {include if applicable}
---------------------
for [NAME OF INVESTOR]
[ADDRESS OF CUSTODIAN]
[NAME AND ADDRESS OF INVESTOR] {include if no Custodian}
-----------------------
Re: Mortgage Loan No(s).________
Seller: New Century Mortgage Corporation
Ladies/Gentlemen:
Pursuant to the terms and conditions set forth below, we hereby deliver to
[____________________, as Custodian (in such capacity, the "Custodian") for]
_____________________ (the "Investor"), with this letter, the original executed
promissory note(s) (the "Note(s)") evidencing the mortgage loan(s) described on
the schedule attached hereto (the "Loan(s)"). First Bank National Association,
as collateral agent for certain lenders and a certain lessor (in such capacity,
the "Agent") has a perfected first lien security interest in the Loan(s) for the
benefit of such lenders and such lessor pursuant to a Pledge and Security
Agreement between the Agent and the Seller. The Agent expressly retains and
reserves all of its rights in the Loan(s), the Note(s) and all related security
instruments, files, and documents (the "Loan Documents") until the Investor has
paid the Agent the Warehouse Purchase Amount (as hereinafter defined) for the
Loan(s) in accordance with this letter ("this Bailee Letter").
By taking physical possession of this Bailee Letter, the Note(s) and the
other Loan Documents, [the Investor] [the Custodian] hereby agrees:
(i) to hold in trust, as bailee for the Agent, the Note(s) and all other
Loan Documents which it receives related to the Loan(s), until its status as
bailee is terminated as set forth herein;
(ii) not to release or deliver, or authorize the release or delivery of,
the Note(s) or any other Loan Document to the Seller or any other entity or
person or take any other action with respect to the Note(s) or any other Loan
Document which
<PAGE>
release, delivery or other action could cause the security interest of the Agent
to become unperfected or which could otherwise jeopardize the perfected security
interest of the Agent in the Loan(s);
(iii) in the case of any Note(s) that are endorsed in blank, not to
complete such blank endorsements unless and until (A) the Loan(s) evidenced by
such Note(s) have been accepted for purchase by the Investor and (B) the
Warehouse Purchase Amount has been irrevocably paid to the Agent in accordance
with the terms hereof;
(iv) to return the Note(s) and any related Loan Documents immediately to
the Agent (A) upon receipt of a written request by the Agent or (B) in the event
that the Note(s) require completion and/or correction;
(v) not to honor any requests or instructions from the Seller relating to
any Note (other than for correction), or any other documents relating thereto
(other than for correction or replacement thereof or to supplement such
documents);
(vi) promptly upon the Investor's acceptance or rejection of the Loan(s)
for purchase, and in any event within forty-five (45) days after the date of
delivery of this Bailee Letter, to either (A) remit the Warehouse Purchase
Amount to the Agent or (b) return the Notes and any related Loan Documents to
the Agent;
(vii) to deliver, or to cause to be delivered, the Warehouse Purchase
Amount or the Notes and related Loan Documents, as the case may be, only to the
Agent pursuant to the terms set forth below and to honor a change in such terms
only upon receipt of written instructions from the Agent; and
(viii) that any interest it may have in the Loan(s), the Note(s) and/or
the Loan Documents, including without limitation any claim of setoff it may at
any time have, is subject to and subordinate to the security interest of the
Agent in the Loan(s), the Note(s) and the other Loan Document(s) and that it
will not exercise any right with respect to the Loan(s), the Note(s) or the
other Loan Documents without the prior written consent of the Agent.
Please note that should the Investor remit the Warehouse Purchase Amount to
any other entity or person, the Agent will not consider the Warehouse Purchase
Amount to have been paid and will not release its security interest or terminate
the responsibilities of the [Investor] [Custodian] as bailee for the Agent until
the Warehouse Purchase Amount has been properly remitted to the Agent as set
forth herein.
The Agent agrees that its security interest in the Loan(s) shall be fully
released and the responsibilities of the [Investor] [Custodian] as bailee shall
terminate upon the Investor's irrevocable payment to the Agent of an amount (the
"Warehouse Purchase Amount") equal to the greater of (1) the purchase price for
-------
the Loan(s)
<PAGE>
agreed to by the Investor and the Seller and (2) $_________, which is the
aggregate collateral value assigned by the Agent to the Loan(s). All payments by
the Investor shall be remitted via federal funds pursuant to the following wire
transfer instructions:
Receiving Bank: First Bank National Association
Address: Minneapolis, Minnesota
ABA Number: 0910-0002-2
Account Name: New Century Mortgage Corporation Collateral Account
Account Number: 1731-0097-1378
Note(s) and other Loan Documents which are to be returned to the Agent
should be delivered, by overnight air courier, to:
First Bank National Association
Mortgage Banking Services Division
First Bank Place -MPFP0801
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
If you have any questions, please address your inquiries to Jeannine L.
Coyne, Mortgage Banking Officer of the Agent, whose phone number is (612) 973-
0571 or Edwin D. Jenkins, Vice President, whose phone number is (612) 973-0588.
We request that you acknowledge receipt of this Bailee Letter by signing in
the space provided at the foot of the enclosed counterpart hereof and returning
it to the Agent at the address set forth above (but your failure to do so in no
way nullifies your agreements resulting from your acceptance of the enclosed
Note(s), as set forth in this Bailee Letter).
In the event of any inconsistency between the provisions of this Bailee
Letter and the provisions of any other instrument or document delivered by the
Agent to the Investor [or the Custodian] with this letter or in connection with
the Loan(s), including, without limitation, any "release" or similar document,
the provisions of this Bailee Letter shall control.
FIRST BANK NATIONAL ASSOCIATION,
as Agent
By ____________________________________
Its _______________________________
<PAGE>
Receipt acknowledged:
[ , {include if no Custodian}
- -------------------------------------------------- -----------------------
as Investor
By _______________________________________________
Title ____________________________________________
Date _____________________________________________]
[ , {include if applicable}
- -------------------------------------------------- ---------------------
as Custodian
By _______________________________________________
Title ____________________________________________
Date _____________________________________________]
Enclosures
cc: [NAME AND ADDRESS OF {include if letter is addressed to Custodian}
INVESTOR] -------------------------------------------
<PAGE>
Attachment 3 to
Pledge and Security Agreement
COLLATERAL IDENTIFICATION LETTER
Date: _____________________
First Bank National Association
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Mortgage Banking Services Division
MPFP0801
Ladies and Gentlemen:
1. This Collateral Identification Letter is delivered in connection with the
Pledge and Security Agreement dated as of July 31, 1997 between New Century
Mortgage Corporation (the "Pledgor"), and First Bank National Association,
as collateral agent for the Banks (as defined in the Credit Agreement) and
FBS Business Finance Corporation (the "Lessor") (together with any
successor collateral agent under the Pledge and Security Agreement, the
"Agent") (as the said Agreement may be amended, restated, modified or
supplemented and in effect from time to time, the "Pledge and Security
Agreement"). Unless otherwise defined herein, capitalized terms used
herein are as defined in the Second Amended and Restated Credit Agreement
dated as of July 31, 1997 among the Pledgor, the Banks and the Agent.
2. By this letter the Pledgor hereby (x) pledges to the Agent, for the benefit
of the Banks and the Lessor, and grants to the Agent, for the benefit of
the Banks and the Lessor, a security interest in the Mortgage Loan(s)
described in the Loan Detail Listing attached hereto, (y) delivers to the
Agent an Agreement to Pledge such Mortgage Loan(s), and (z) agrees to
deliver to the Agent, within five Business Days following the date hereof,
the instruments and documents described in Section 4.02 of the Pledge and
Security Agreement.
3. In connection with each such Mortgage Loan, the Pledgor hereby certifies
that the Pledgor has not pledged or delivered, and will not, pledge or
deliver, such Mortgage Loan, any assignment thereof, or other instrument,
document or paper related thereto to any party other than the Agent, unless
released to the Pledgor and then only pursuant to the terms of such
release.
NEW CENTURY MORTGAGE CORPORATION
By
---------------------------------
Authorized Signature
<PAGE>
Attachment 4 to
Pledge and Security Agreement
MORTGAGE LOAN DETAIL LISTING
DATE: __________________
<TABLE>
<CAPTION>
Mortgagor Principal Origination Collateral Draft # or Draft or Wire
Loan Type Sub-Type/Term Interest Rate Loan # Name Note Date Amount Price Value Wire Transfer Dollar Amount
- --------- ------------- ------------- ------ --------- --------- --------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-Agency Quality
"A-" Paper Fixed Rate/15 yr.
"B" Paper Fixed Rate/30 yr.
"C" Paper ARM/1 yr.
"C-" Paper Balloon/5 yr
2nd Mtg./10 yr.
Sort Orders: Primary sort by Wire or Draft
Within Wire or Draft sort by Loan Type
Within each like Loan Type sort by Sub-Type/Term of Loan
(i.e. Fixed Rate 15 yr., Fixed Rate 25 yr., Fixed Rate 30 yr.)
Within each like Sub-Type/Term of Loan sort by interest rate
(i.e. 8.0%, 8.75%, 9.25%, 10.0%)
--------- --------- --------- ----------
TOTALS $ $ $ $
========= ========= ========= ==========
DELETIONS
Previously Pledged Mortgage Loans That Have Not Closed
- ------------------------------------------------------
(List Loans as Stated Above)
--------- --------- --------- ----------
TOTALS $ $ $ $
========= ========= ========= ==========
</TABLE>
<PAGE>
To: First Bank National Association Attachment 5 to
Mortgage Banking Services Pledge and Security Agreement
601 Second Avenue South
First Bank Place East - MPFP0801
Minneapolis, Minnesota 55402-4302
From: New Century Mortgage Corporation
A Paper Second Six Months
- -------- -------- ---------
A- Paper High LTV 1 year
- -------- -------- ---------
B Paper Fixed Rate 3 years
- -------- -------- ---------
C Paper ARM's 5 years
- -------- -------- ---------
C- Paper Other Other
- -------- -------- ---------
Jumbo
- --------
The present status of this mortgage is certified to be:
LOAN NUMBER: Closed With: (Draft # or Wire)
--------------------
MORTGAGOR NAME: Draft or Wife Amount: ____________
--------------------
(Last Name, first)
PROPERTY
ADDRESS:
--------------------
--------------------
Note Principal Acquisition Collateral
Date Amount Cost % Value %
---- -------- ----------- ----- ----------- -----
- -------- -------- ----------- ----- ----------- -----
- ------------------------------------------------------------------------------
In connection with the pledging of the above mortgage which is to be held by you
as collateral, we submit the following instruments and facts:
_______ 1. Original Mortgage Note Endorsed in Blank
_______ 2. Certified Copy of Mortgage Deed or Deed or Trust
_______ 3. Assignment of Mortgage
_______ 4. Two Certified Copies of each Intervening Assignment
_______ 5. Certified Copy of the Power of Attorney (if applicable)
_______ 6. Takeout Commitment Information
Specific $__________ from ___________
Dated ___________ which is priced at ___________ %
Blanket: Loan conforms to ______________
Which has a weighted average price of _________ %
We hereby certify that this loan is pledged to First Bank National Association,
as collateral agent for the Banks (as defined in the Credit Agreement) and FBS
Business Finance Corporation (the "Lessor") (together with any successor
collateral agent under the Pledge and Security Agreement referenced to below,
the "Agent"), in accordance with the Pledge and Security Agreement between us
and First Bank National Association, as Agent. Capitalized terms used herein
have the meanings ascribed thereto in said Credit Agreement.
<PAGE>
We also certify that this loan is subject to a Take-Out Commitment, and that
sufficient fire and extended insurance coverage is in effect and will be
maintained on the property. All other documents pertaining to this loan will be
held and maintained by us for the Agent.
All items delivered to a permanent investor will be delivered with a Bailee
Letter to the permanent investor which requires remittance of payment to the
Agent or return of the collateral to the Agent.
Date: NEW CENTURY MORTGAGE CORPORATION
---------------------
By
--------------------------------------
Title
-----------------------------------
<PAGE>
Attachment 6 to
Pledge and Security Agreement
TRUST RECEIPT
-------------
Temporary Release of Collateral
The undersigned hereby acknowledges receipt this _____ day of ___________,
199_, from First Bank National Association (the "Bank") of the following
described property (hereinafter called "Collateral"):
Loan # _________ Mortgagor Name: _____________________
The undersigned represents, warrants and agrees that:
1. The undersigned has requested and obtained possession of the
Collateral from the Bank for one of the purposes set forth below and for no
other purpose:
Correction of: __________________________________
2. The Collateral and the proceeds thereof are and will remain subject
to the security interest held by the Bank and the undersigned will keep the
Collateral and any such proceeds segregated and identifiable and free and clear
of all liens, charges and encumbrances.
3. The Collateral will be redelivered to the Bank or its designee as soon
as the purpose for which possession was taken has been accomplished, and in any
event within twenty-one (21) days from the date of taking possession.
4. In the event of any default in the performance of any term or
condition of this Trust Receipt, all or any part of the indebtedness secured by
the Collateral may be declared immediately due and payable without notice or
demand.
5. Additional limitations, if any:
The undersigned will transmit a Bailee Letter (as such term is defined in
the Pledge and Security Agreement dated as of July 31, 1997, between the
undersigned and the Bank) to the appropriate persons as required under said
Pledge and Security Agreement.
NEW CENTURY MORTGAGE
CORPORATION
By_______________________________
Its____________________________
<PAGE>
EXHIBIT E TO
SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
FORMULA FOR DETERMINING
WAREHOUSING COLLATERAL VALUE
----------------------------
"Warehousing Collateral Value": at the time of any determination as it
----------------------------
pertains to the following described types or kinds of assets which constitute
Warehousing Collateral:
(1) A Mortgage Loan the entire interest in which is owned by the
Company and which is an Eligible Mortgage Loan covering a completed residential
property, provided that such Mortgage Loan has been pre-approved for purchase
--------
under a Take-Out Commitment and the aggregate available amount of such TakeOut
Commitment is not less than the aggregate outstanding principal amount of
Mortgage Loans pre-approved for delivery thereunder, and provided that at the
time such Mortgage Loan was pledged under the Pledge and Security Agreement not
more than 180 days had elapsed from the date such Mortgage Loan was closed: the
lesser of: (i) ninety-seven percent (97%) of the purchase price under the Take-
Out Commitment to which such Mortgage Loan has been assigned or, if such
Mortgage Loan has not been so assigned, the weighted average purchase price for
Mortgage Loans under Take-Out Commitments under which such Mortgage Loan has
been pre-approved for delivery, (ii) ninety-seven percent (97%) of the unpaid
principal amount of such Mortgage Loan, (iii) ninety-seven percent (97%) of the
Acquisition Cost of such Mortgage Loan, or (iv) at the election of the Agent,
ninety-seven percent (97%) of the Fair Market Value of such Mortgage Loan.
(2) Such other assets of the Company as the Company shall offer to
the Required Banks and as the Required Banks shall accept in their sole
discretion as Warehousing Collateral: the amount of Warehousing Collateral Value
which the Required Banks in their sole discretion assign thereto.
Notwithstanding the foregoing:
(i) the maximum aggregate Warehousing Collateral Value of all
Mortgage Loans which have been closed and funded under Agreements to Pledge, and
with respect to which the Agent has not received the instruments and documents
described in paragraph 2 of the related Collateral Identification Letters, shall
be not more than (a) during each Month-End Period, forty percent (40%) of the
Warehousing Commitment Amount and (b) at all other times, twenty-five percent
(25%) of the Warehousing Commitment Amount;
(ii) the maximum aggregate Warehousing Collateral Value of Mortgage
Loans with original principal balances in excess of $207,000 but less than
<PAGE>
$1,000,000 shall not exceed thirty-five percent (35%) of the Warehousing
Commitment Amount;
(iii) the maximum aggregate Warehousing Collateral Value of Mortgage
Loans with original principal balances of $500,000 or greater but less than
$750,000 shall not exceed twenty percent (20%) of the Warehousing Commitment
Amount;
(iv) the maximum aggregate Warehousing Collateral Value of Mortgage
Loans with original principal balances of $750,000 or greater but not in excess
of $1,000,000 shall not exceed ten percent (10%) of the Warehousing Commitment
Amount;
(v) the maximum aggregate Warehousing Collateral Value of all
Mortgage Loans with a Risk Rating of C- or C shall not exceed thirty-five
percent (35%) of the Warehousing Commitment Amount;
(vi) the maximum aggregate Warehousing Collateral Value of all
Mortgage Loans with a Risk Rating of C- shall not exceed fifteen percent (15%)
of the Warehousing Commitment Amount;
(vii) the maximum aggregate Warehousing Collateral Value of all
Mortgage Loans secured by Second Mortgages shall not exceed ten percent (10%) of
the Warehousing Commitment Amount; and
(viii) the maximum aggregate Warehousing Collateral Value of all
Mortgage Loans secured by Second Mortgages which have a Loan-to-Value Ratio of
greater than 100% shall not exceed five percent (5%) of the Warehousing
Commitment Amount.
A Mortgage Loan, or Mortgage-backed Security issued in consideration
of a Mortgage Loan, will be considered as having no Warehousing Collateral Value
if, as to any such Mortgage Loan, any of the following events occur:
(a) more than 90 days elapse from the date on which the Mortgage Note
and other documents relating to such Mortgage Loan were delivered to the Bank in
accordance with Sections 4.01 and 4.02 of the Pledge and Security Agreement;
(b) 21 or more days elapse from the date a document relating to such
Mortgage Loan was delivered to the Company for correction in accordance with
Section 10.01 of the Pledge and Security Agreement and such document has not
been returned to the Agent;
(c) 45 or more days elapse from the date such Mortgage Loan was
delivered to an Investor pursuant to Section 10.02 of the Pledge and Security
<PAGE>
Agreement for examination and purchase under a Take-Out Commitment and such
Mortgage Loan has not been returned to the Agent;
(d) more than one payment on such Mortgage Loan is delinquent, as
reported on any Compliance/Borrowing Base Certificate delivered to each Bank
pursuant to Section 4.01(c)(ii) of the Credit Agreement, such Mortgage Loan has
been rescinded, canceled or avoided, or such Mortgage Loan is subject to any
rights of rescission, cancellation or avoidance or to any counterclaims, offsets
or defenses, whether by operation of law or otherwise;
(e) the Company fails to deliver any document relating to such
Mortgage Loan within five Business Days after being requested to do so by the
Agent pursuant to Section 4.03 of the Pledge and Security Agreement;
(f) such Mortgage Loan was listed on a Loan Detail Listing delivered
to the Agent with an Agreement to Pledge and a Collateral Identification Letter,
and such Mortgage Loan shall not have closed on or before the close of business
on the Business Day on which such Loan Detail Listing was delivered;
(g) such Mortgage Loan was closed and funded with the proceeds of a
Warehousing Loan under an Agreement to Pledge and the Company fails to deliver
to the Agent, with respect to such Mortgage Loan, within seven Business Days
after the date of such Agreement to Pledge, the documents referred to in Section
4.02 of the Pledge and Security Agreement;
(h) the Agent, for the benefit of the Banks, does not have a
perfected, first priority security interest in such Mortgage Loan;
(i) the Agent notifies the Company that in its reasonable opinion
such Mortgage Loan is not marketable and will not be given Warehousing
Collateral Value;
(j) such Mortgage Loan has a Risk Rating lower than C-; or
(k) such Mortgage Loan has an original principal balance in excess of
$1,000,000.
As used in the foregoing definition of Warehousing Collateral Value
and all defined terms used therein and in the following defined terms, all terms
defined in the Credit Agreement are used as therein defined and, in addition,
the following terms shall have the following respective meanings:
"Acquisition Cost": means, with respect to any Mortgage Loan, the cash
----------------
purchase price paid by the Company to any unaffiliated Person to acquire such
Mortgage Loan.
<PAGE>
"Agreement to Pledge": as such term is defined in the Pledge and
-------------------
Security Agreement.
"Appraised Value": with respect to an interest in real estate, the
---------------
then current fair market value thereof as of a recent date, as determined in
accordance with accepted methods of appraising by a qualified appraiser who is a
member of the American Institute of Real Estate Appraisers or other group of
professional appraisers.
"Approved Second Mortgage Investor": an Investor that has been
---------------------------------
approved in writing by Agent for the purchase of Mortgage Loans secured by
Second Mortgages.
"Collateral Identification Letter": as such term is defined in the
--------------------------------
Pledge and Security Agreement.
"Eligible Mortgage Loan": a closed-end Mortgage Loan secured by a
----------------------
First Mortgage or a Second Mortgage on improved real estate in an original
principal amount not in excess of (a) in the case of Mortgage Loans secured by
First Mortgages, 80% of the Appraised Value of such real estate, and (b) in the
case of Mortgage Loans secured by Second Mortgages, 80% of the Appraised Value
of such real estate minus the amount of the Mortgage Loan secured by the First
Mortgage thereon, unless either (i) the amount of such Mortgage Loan in excess
of the maximum set forth above is insured, or is subject to a commitment to be
insured, by an insurer approved by the Agent, or (ii) such Mortgage Loan (A)
satisfies the underwriting guidelines or other applicable standards of the
Investor referenced in clause (C) below for a Risk Rating of at least "C-", (B)
has a Loan-to-Value Ratio of not more than 125%, (C) has been pre-approved by an
Approved Second Mortgage Investor for purchase under a Take-Out Commitment, (D)
is originated or acquired pursuant to a program offered by such Approved Second
Mortgage Investor and (E) has an original principal amount of not more than
$1,000,000.
"Fair Market Value": at any date with respect to any Mortgage Loan,
-----------------
the bid price quoted in writing to the Agent as of the computation date by two
nationally recognized dealers selected by the Agent who at the time are making a
market in similar Mortgage Loans, multiplied, in any case, by the outstanding
principal amount thereof.
"First Mortgage": a Mortgage which is subject to no prior or superior
--------------
mortgage.
"Loan-to-Value Ratio": with respect to a Mortgage Loan secured by a
-------------------
Second Mortgage on improved real estate, the ratio (expressed as a percentage)
which (a) the sum of the original principal amount of such Mortgage Loan plus
the original principal amount of the Mortgage Loan that is secured by the First
Mortgage on such real estate bears to (b) the Appraised Value of such real
estate.
<PAGE>
"Month-End Period": the period beginning on the third to the last
----------------
Business Day of each month and ending on the fifth Business Day of the following
month.
"Risk Rating": the risk rating of a Mortgage Loan, determined using
-----------
the Underwriting Guidelines or other applicable standards of the Investor to
which such Mortgage Loan is to be sold by the Company under a Take-Out
Commitment previously issued to the Company by such Investor, provided such
underwriting guidelines or other applicable standards comply with industry
standards in the sole judgment of the Agent.
"Second Mortgage": a Mortgage which is subject to one prior or
---------------
superior Mortgage.
"Take-Out Commitment": a current, written commitment issued to the
-------------------
Company by an Investor to purchase Mortgage Loans, at a definite price or yield,
within a specified time period.
<PAGE>
EXHIBIT F TO
SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
FORM OF PROMISSORY NOTE
-----------------------
(Warehousing Note)
July 31, 1997
Minneapolis, Minnesota
$_____________________
FOR VALUE RECEIVED, NEW CENTURY MORTGAGE CORPORATION, a California
corporation, hereby promises to pay to the order of ___________________ (the
"Bank") at the main office of the Agent in Minneapolis, Minnesota, in lawful
money of the United States of America in Immediately Available Funds (as such
term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to), the principal sum of ___ MILLION AND NO/100
DOLLARS ($_______) or the aggregate unpaid principal amount of all Warehousing
Loans made by the Bank pursuant to the Credit Agreement described below,
whichever is less, and to pay interest in like funds from the date hereof on the
unpaid balance thereof at the rates per annum and at such times as are specified
in the Credit Agreement. Interest (computed on the basis of actual days elapsed
and a year of 360 days) shall be payable at said office at the times specified
in the Credit Agreement.
Principal hereof shall be payable in the amounts and at the times set
forth in the Credit Agreement.
This note is one of the Warehousing Notes referred to in the Second
Amended and Restated Credit Agreement dated as of July 31, 1997, between the
undersigned the Bank, the other banks party thereto and First Bank National
Association, as Agent (as the same may be amended, modified or restated from
time to time, the "Credit Agreement"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings given to such terms in the
Credit Agreement. This note is subject to certain mandatory and voluntary
prepayments and its maturity is subject to acceleration, in each case upon the
terms provided in the Credit Agreement.
The undersigned hereby waives diligence, presentment, demand, protest,
and notice (except such notice as is required under the Loan Documents) of any
kind whatsoever. The nonexercise by the Bank of any of its rights hereunder or
under the other Loan Documents in any particular instance shall not constitute a
waiver thereof in any subsequent instance.
<PAGE>
This note is entitled to the benefit of the Guaranty, the Pledge and
Security Agreement and the other Loan Documents.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE
OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. In the event of
default hereunder, the undersigned agrees to pay all costs and expenses of
collection, including but not limited to reasonable attorneys' fees.
Notwithstanding the foregoing paragraphs and all other provisions of
this note and the Credit Agreement, none of the terms and provisions of this
note or the Credit Agreement shall ever be construed to create a contract to pay
to the Bank, for the use, forbearance or detention of money, interest in excess
of the maximum amount of interest permitted to be charged by the Bank to the
undersigned under applicable state or federal law from time to time in effect,
and the undersigned shall never be required to pay interest in excess of such
maximum amount. If, for any reason, interest is paid hereon in excess of such
maximum amount (whether as a result of the payment of this note prior to its
maturity or otherwise), then promptly upon any determination that such excess
has been paid the Bank will, at its option, either refund such excess to the
undersigned or apply such excess to the principal owing hereunder. All interest
paid shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period of the Company's credit
relationship with the Bank until payment in full of the principal (including the
period of any renewal or extension) so that the interest for such full period
shall not exceed the maximum rate of interest permitted by applicable law.
[This note amends and restates in its entirety an existing promissory
note dated _______________________, 199__, in the original principal amount of
$______ issued by New Century Mortgage Corporation to the order of the Bank (the
"Prior Note"). It is expressly intended, understood and agreed that all amounts
outstanding under said Prior Note as of the date hereof shall be considered
outstanding hereunder from and after the date hereof and shall not be considered
paid (nor shall the undersigned's obligation to pay the same be considered
discharged or satisfied) as a result of the issuance of this note.]
NEW CENTURY MORTGAGE CORPORATION
By___________________________________
Its_______________________________
2
<PAGE>
EXHIBIT G TO
SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
FORM OF PROMISSORY NOTE
-----------------------
(Working Capital Note)
July 31, 1997
$4,000,000 Minneapolis, Minnesota
FOR VALUE RECEIVED, NEW CENTURY MORTGAGE CORPORATION, a California
corporation, hereby promises to pay to the order of FIRST BANK NATIONAL
ASSOCIATION (the "Bank") at the main office of the Agent in Minneapolis,
Minnesota, in lawful money of the United States of America in Immediately
Available Funds (as such term and each other capitalized term used herein are
defined in the Credit Agreement hereinafter referred to), the principal sum of
FOUR MILLION AND NO/100 DOLLARS ($4,000,000.00) or the aggregate unpaid
principal amount of all Working Capital Loans made by the Bank pursuant to the
Credit Agreement described below, whichever is less, and to pay interest in like
funds from the date hereof on the unpaid balance thereof at the rates per annum
and at such times as are specified in the Credit Agreement. Interest (computed
on the basis of actual days elapsed and a year of 360 days) shall be payable at
said office at the times specified in the Credit Agreement.
Principal hereof shall be payable in the amounts and at the times set
forth in the Credit Agreement.
This note is the Working Capital Note referred to in the Second
Amended and Restated Credit Agreement dated as of July 31, 1997, between the
undersigned the Bank, the other banks party thereto and First Bank National
Association, as Agent (as the same may be amended, modified or restated from
time to time, the "Credit Agreement"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings given to such terms in the
Credit Agreement. This note is subject to certain mandatory and voluntary
prepayments and its maturity is subject to acceleration, in each case upon the
terms provided in the Credit Agreement.
The undersigned hereby waives diligence, presentment, demand, protest,
and notice (except such notice as is required under the Loan Documents) of any
kind whatsoever. The nonexercise by the Bank of any of its rights hereunder or
under the other Loan Documents in any particular instance shall not constitute a
waiver thereof in any subsequent instance.
<PAGE>
This note is entitled to the benefit of the Guaranty, the Pledge and
Security Agreement and the other Loan Documents.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE
OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. In the event of
default hereunder, the undersigned agrees to pay all costs and expenses of
collection, including but not limited to reasonable attorneys' fees.
Notwithstanding the foregoing paragraphs and all other provisions of
this note and the Credit Agreement, none of the terms and provisions of this
note or the Credit Agreement shall ever be construed to create a contract to pay
to the Bank, for the use, forbearance or detention of money, interest in excess
of the maximum amount of interest permitted to be charged by the Bank to the
undersigned under applicable state or federal law from time to time in effect,
and the undersigned shall never be required to pay interest in excess of such
maximum amount. If, for any reason, interest is paid hereon in excess of such
maximum amount (whether as a result of the payment of this note prior to its
maturity or otherwise), then promptly upon any determination that such excess
has been paid the Bank will, at its option, either refund such excess to the
undersigned or apply such excess to the principal owing hereunder. All interest
paid shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period of the Company's credit
relationship with the Bank until payment in full of the principal (including the
period of any renewal or extension) so that the interest for such full period
shall not exceed the maximum rate of interest permitted by applicable law.
NEW CENTURY MORTGAGE CORPORATION
By______________________________________
Its__________________________________
2
<PAGE>
EXHIBIT H TO
SECOND AMENDED AND
RESTATED CREDIT AGREEMENT
Statement to be Included in Closing Instructions
------------------------------------------------
to Closing Agents for Wet Funded Loans
--------------------------------------
"You are hereby notified that First Bank National Association, as
agent for certain lenders and a certain lessor (in such capacity, the "Agent")
has a security interest in the deed of trust or mortgage note, the deed of trust
or mortgage and all other supporting documents for the above-referenced loan.
Unless the Agent otherwise instructs you, (i) if the mortgage loan is not funded
within one (1) business day after your receipt of funds from the Agent, said
funds are to be returned by you to: First Bank National Association,
Minneapolis, Minnesota, ABA No. 0910-0002-2 for credit to our Collateral Account
No. 1731-0097-1378, and (ii) all loan documents are to be returned to us by the
second business day after settlement."
H-1
<PAGE>
EXHIBIT I TO
SECOND AMENDED
AND RESTATED CREDIT AGREEMENT
MATTERS TO BE
COVERED BY THE OPINION OF COUNSEL
TO THE COMPANY AND NCFC
The opinions of Brad A. Morrice, counsel to NCFC and the Company, which are
called for by Section 5.01(a)(x) of the Credit Agreement, shall be satisfactory
in form and substance to the Agent and shall cover the matters set forth below,
subject to such assumptions, exceptions and qualifications as may be acceptable
to the Agent and counsel to the Agent:
1. Each of NCFC and the Company (collectively, the "Transaction Parties"
and each, individually, a "Transaction Party") has been duly incorporated, is a
validly existing corporation and in good standing under the laws of its
respective jurisdiction of incorporation, and has the requisite corporate power
to own its respective properties and to conduct its respective businesses as
currently conducted by it. The Company is duly qualified to do business and is
in good standing as a foreign corporation in each jurisdiction in which the
character of the business conducted by it or the location of the properties
owned or leased by it make such qualification necessary, except in jurisdictions
in which failure to be in good standing will not preclude it from enforcing its
rights with respect to any material asset or expose it to any material
liability.
2. The execution, delivery and performance by each Transaction Party of
each Loan Document to which it is a party and the consummation of the
transactions contemplated thereby are within the corporate powers of such
Transaction Party, have been duly authorized by all necessary corporate action
and do not, and the consummation of the transactions contemplated thereby and
compliance by each Transaction Party with the applicable provisions thereof will
not, conflict with, constitute a default under or violate (a) any of the terms,
conditions or provisions of its Articles or Certificate of Incorporation or
bylaws, (b)any of the terms, conditions or provisions of any document, agreement
or other instrument which is known to me to which it is a party or by which it
is bound, (c)any judgment, writ, injunction, decree, order or ruling of any
court or governmental authority binding on it and known to me, or (d) any
statute, rule or regulation of any governmental authority binding on it.
3. Each Loan Document to which either Transaction Party is a party has
been duly executed and delivered by such Transaction Party and is the legal,
valid and binding obligation of such Transaction Party enforceable against such
I-1
<PAGE>
Transaction Party in accordance with its terms, subject to limitations as to
enforceability which might result from general equitable principles or
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or other
similar laws affecting creditors' rights generally.
4. No consent, approval, waiver, license or authorization or other action
by or filing with any governmental authority is required in connection with the
execution, delivery and performance by either Transaction Party of any Loan
Document to which it is a party, the validity or enforceability of any Loan
Document or the consummation of the transactions contemplated thereby except for
those which have already been obtained and are in full force and effect.
5. The Pledge and Security Agreement creates a valid security interest in
the Collateral described in Section 2 thereof, which security interest will
secure the Obligations and the Lease Obligation. The financing statements to be
filed under the Pledge and Security Agreement are in appropriate form for filing
with the offices identified thereon. Assuming that such financing statements
have been duly filed with said offices and that each Transaction Party which has
executed and delivered said financing statements has rights in the collateral
described therein, such financing statements shall perfect the security
interests granted to the Agent, for the benefit of the Banks and FBS Business
Finance Corporation, pursuant to the Pledge and Security Agreement to the extent
such security interests may be perfected by filing financing statements under
the Uniform Commercial Code.
6. There has been created under the Pledge and Security Agreement a valid
security interest in the Pledged Mortgage Loans (as defined therein). Assuming
delivery to, and the continued possession by, the Agent of the Mortgage Notes
relating to the Pledged Mortgage Loans, said security interests shall be
perfected. The laws of certain jurisdictions may require the recordation of an
assignment of each Mortgage in order to perfect a security interest in the
Mortgage (as opposed to the Mortgage Note secured thereby). If the Agent does
not record its assignment of the Mortgages in such jurisdictions, I express no
opinion as to the Agent's perfected security interest in such Mortgages (as
opposed to the Mortgage Notes secured thereby).
7. To the best knowledge of such counsel, there are no actions, suits or
proceedings pending or threatened against or affecting either Transaction Party
or any of its properties before any court or arbitrator, or any governmental
department, board, agency or other instrumentality which (i) challenge the
legality, validity or enforceability of any Loan Document, or (ii) if determined
adversely to such Transaction Party, would have a material adverse effect on the
business, operations, property or condition (financial or otherwise) of either
Transaction Party or on the ability of either Transaction Party to perform its
obligations under the Loan Documents.
I-2
<PAGE>
EXHIBIT J TO
SECOND AMENDED AND
RESTATED CREDIT AGREEMENT
FORM OF CERTIFICATE CONCERNING
BORROWER'S AUTHORIZED EMPLOYEES
I,_____________________ , am the duly elected Secretary of New Century
Mortgage Corporation, a California corporation, and do hereby certify that the
following officers and employees of said corporation are authorized to take the
following action on behalf of said corporation:
PERSONNEL AUTHORIZED TO SIGN (a) INSTRUMENTS OR
(b) COLLATERAL CERTIFICATES, REPORTS AND DIRECTIONS AS TO
SHIPMENT OF COLLATERAL TO INVESTORS UNDER
CREDIT AGREEMENT AND PLEDGE AND SECURITY AGREEMENT
Telephone
Number
(Area Code
Name Title Signature and Number)
- ---- ----- --------- -----------
- ---------------- ---------------- ----------------------- ------------------
- ---------------- ---------------- ----------------------- ------------------
- ---------------- ---------------- ----------------------- ------------------
- ---------------- ---------------- ----------------------- ------------------
- ---------------- ---------------- ----------------------- ------------------
<PAGE>
PERSONNEL AUTHORIZED TO TELEPHONE INSTRUCTIONS
TO AGENT UNDER CREDIT AGREEMENT AND
PLEDGE AND SECURITY AGREEMENT
Telephone
Number
(Area Code
Name Title Signature and Number)
- ---- ----- --------- -----------
- ---------------- ---------------- ----------------------- ------------------
- ---------------- ---------------- ----------------------- ------------------
- ---------------- ---------------- ----------------------- ------------------
- ---------------- ---------------- ----------------------- ------------------
- ---------------- ---------------- ----------------------- ------------------
PERSONNEL AUTHORIZED TO AMEND SCHEDULES ANNEXED
TO ANY OF THE ITEMS SET FORTH IN (b) ABOVE
Telephone
Number
(Area Code
Name Title Signature and Number)
- ---- ----- --------- -----------
- ---------------- ---------------- ----------------------- ------------------
- ---------------- ---------------- ----------------------- ------------------
- ---------------- ---------------- ----------------------- ------------------
- ---------------- ---------------- ----------------------- ------------------
- ---------------- ---------------- ----------------------- ------------------
J-2
<PAGE>
SEND ADVICES AND MAIL TO:
ATTN:
IN WITNESS WHEREOF I have hereunder set my hand and the seal of the
Corporation this ________ day of __________________________, 199_.
------------------------------------------------
Title:
J-3
<PAGE>
SCHEDULES
1.01(a) Underwriting Guidelines
1.01(b) Commitment Amounts
3.05 Litigation
4.09 Existing Liens
<PAGE>
SCHEDULE 1.01(a)
UNDERWRITING GUIDELINES
-----------------------
See Attached
<PAGE>
[LOGO OF NEW CENTURY MORTGAGE CORPORATION]
OPERATIONS MANUAL
===============================================================
UNDERWRITING TERMS
AND
ISSUES
i
<PAGE>
[LOGO OF NEW CENTURY MORTGAGE CORPORATION]
OPERATIONS MANUAL
===============================================================
UNDERWRITING GUIDELINES
1. ADJUSTMENTS TO INCOME
It is acceptable in determining an individuals qualifying income to add
back to adjusted gross income non-cash items such as depreciation,
depletion, or amortization. Generally, such adjustments are not applicable
in the analysis of corporate and partnership returns.
Documented loss carry forward from previous tax years, and non-recurring
losses such as casualty losses can also be added back to adjusted gross
income. Non-recurring gains must be subtracted from gross income. Where it
has been established by documentation that the hourly wage earner has a
pattern of overtime that will continue in the future, the applicants stable
monthly income may include the overtime earnings. Appropriate ways of
verifying are VOE and check-stubs.
2. APPRAISAL
The fair market value of the security property and likelihood that it will
retain adequate value are important considerations in evaluating an
application for a home loan. New Century's appraisal policies and
procedures are set forth in a separate section of this manual.
3. BANKRUPTCY ISSUES
For the purpose of determining the period of time since a bankruptcy:
a) Use date of discharge for Chapter 7.
b) Use date of filing for Chapter 11 and 13, provided that the borrowers
have been paying the court as agreed for a minimum of 12 months or the
term of the bankruptcy, whichever is greater.
4. BANK STATEMENTS
In the event signed federal income tax returns or other required evidence
of income is unavailable, New Century will accept 10 - 12 consecutive
months of bank statements showing receipt of income on a periodic basis.
5. COLLECTION ACCOUNTS
Includes collections, charge-offs and judgments that are not perfected
liens against the subject property. Depending on the risk grade and loan
program it may be necessary to
1
<PAGE>
[LOGO OF NEW CENTURY MORTGAGE CORPORATION]
OPERATIONS MANUAL
==============================================================
pay open collection accounts from the loan proceeds. Amounts allowed as
outlined on the underwriting matrix are a total of all unpaid accounts. All
accounts discharged in a bankruptcy should be treated as paid accounts.
6. COMBINED LTV (CLTV)
The combined value of all senior and subordinate recorded liens stated as a
percentage of the value of the subject property (i.e. $50,000 1st Trust
Deed, + 20,000 2nd Trust Deed = 70% CLTV on a $100,000 property).
7. CONDITIONAL LOAN APPROVAL
New Century's written approval notifying a borrower or broker of acceptable
loan amount and terms. The conditional approval includes all required
conditions to be satisfied prior to loan funding.
8. CONDOMINIUM
One unit in a multi-unit project with common walls. Individual units in a
project should be primarily owner-occupied (exceptions are considered at
reduced LTV basis). To be eligible as security property, each condominium
must be owned in an individual fee estate, possess a separate tax parcel
number, appropriate exclusive and non-exclusive easements and membership in
a Homeowners Association.
All condominium loans require a Homeowners Association Certification
showing no pending litigation, reasonable delinquency on association dues,
and verification of the percentage of units which are owner occupied.
9. CREDIT APPROVAL
New Century's written approval notifying the branch or broker of acceptable
loan amount, terms and conditions required for funding, subject to receipt
of the appraisal review.
10. CREDIT HISTORY
Creditworthiness is a component of a borrower's credit history. When you
develop information about a borrower's credit history, you need to
determine both the borrower's general credit history and his or her
specific credit history regarding payment of credit and voluntary financial
obligations. (see program parameters for specific requirements)
2
<PAGE>
[LOGO OF NEW CENTURY MORTGAGE CORPORATION]
OPERATIONS MANUAL
===============================================================
11. CREDIT REPORT
New Century obtains an original, complete credit report from a credit
reporting agency on each applicant applying for a loan prior to
underwriting the file. At funding, the credit report in the file must be no
more than 60 days old.
When analyzing the applicant's credit history, special attention should be
given to the following derogatory factors:
. Previous extensions of credit written off as bad debts (charge off)
. Late charges assessed on real estate secured loans
. Previous mortgage loan defaults or foreclosures
. Slow payment records
. Liens & Judgments
. Bankruptcy
. Repossessions
. Garnishments
. Attachments
. Tax Liens
12. CREDIT WORTHINESS
New Century evaluates each applicant's credit worthiness on an individual
basis. In determining the credit worthiness of an applicant, New Century
will consider, factors such as the applicants income, the applicant's
anticipated monthly expenses, the applicants credit history, debt-to income
ratio, likelihood of foreclosure, desirability of the subject property,
prevailing market rates, pricing, and loan to value.
If in the review of credit history it appears the applicant has little or
no evidence of borrowing, it is the policy of New Century to rely on other
criteria in evaluating qualification. Loan approval is not restricted by
limited credit history.
13. DEBT RATIO (DR)
An applicant's debt ratio can be determined by dividing their total monthly
debts by their total monthly income.
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Front End
---------
. Principal and interest payments for the borrower's principal residence,
calculated as follows:
Six Month Adjustable - Calculations are based on either 1% over the
start rate or fully indexed rate, whichever is less but never
lower than the start rate
Fixed - Calculations are based on the note rate.
. Hazard insurance. Use $3.00 per $1000.00 in principle amount of the
loan amount to estimate the annual premium.
. Real estate taxes and/or assessments. On purchase money loans, estimate
annual taxes at 1.25% of purchase price.
. Payments on subordinate financing on the borrowers principal residence
(if applicable).
. Homeowners association fees on the borrowers principal residence (if
applicable).
. Leasehold payments on the borrowers principal residence (if
applicable).
Back End
--------
. Revolving debts with a balance greater than $100 In the absence of a
stated payment, 3% of the outstanding balance is considered to be the
required monthly payment for bank cards, and 5% for department store
cards.
. Alimony, child support or separate maintenance payments (if
applicable).
. Payments on all installment debts which have maturity dates in excess
of 10 months.
. Aggregate negative net rental income from all investment properties
owned.
. Monthly mortgage payments for second homes.
14. DEROGATORY CREDIT LETTER
Applicants are encouraged to bring any special circumstances to New
Century's attention at application. All such circumstances will be taken
into consideration when evaluating the credit worthiness of the applicant.
A previous history of slow or non-payment of obligations. Explanation
should include reference to mortgage rates, bankruptcies, judgments,
collection accounts, charge offs and/or late payments.
If the applicants credit history reflects late payments of significant
dollar amounts or more than one debt is involved, New Century will question
whether the late payments were due to the applicants disregard for or
mismanagement of their financial obligations
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or to outside factors beyond the control of the applicant. Whether to
request an explanation letter or not will be based on the following:
. The age of the account.
. The frequency and severity of the late payments.
. The size of the account balance.
. How long ago the late payments occurred.
. The status of the applicants other credit accounts.
15. EMPLOYMENT HISTORY
A reasonable period for employment to be verified is two full years. In
cases where a borrower has an employment history of less than two years and
was previously in school or in the military, you may obtain a copy of his
or her diploma, transcript, or discharge papers. When you evaluate
stability in his or her employment consider the following: check for
employment gaps, review the reason, length of the gap and current market
trends. You can give favorable consideration to borrowers who successfully
change jobs frequently to advance within the same line of work and maintain
or improve their income.
16. FULL DOC
Two verified items showing monthly income for a 12 month period meet the
requirement for full doc. See the underwriting matrix guidelines for
specific requirements. If the applicant supplies two years of complete tax
returns, this will generally satisfy Full Doc requirements. If a file
contains sufficient income documentation for a full doc loan , but is
missing the verification of funds to close, then the loan will be placed in
a limited doc program. If the file has full income documentation, the
requirement for 10-12 months worth of bank statements is not required.
17. FULLY INDEXED
The interest rate on an adjustable rate loan which is equal to the index
plus the margin. Loans may have start rates that are not fully indexed at
the point of loan funding.
18. FUNDING CONDITIONS
Outstanding documentation required of the borrower(s) prior to the funding
of the loan.
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19. INCOME VERIFICATION
New Century requires that a loan applicant exhibit stable monthly income
sufficient to make monthly mortgage payments on time, and meet basic living
expenses and other financial obligations.
Original documentation, or legible copies with signatures provided by the
applicant(s) and/or broker intended to verify income available for the
repayment of the loan. Commonly acceptable items include:
. Verification of Employment Form (VOE) - original, less than 90 days
old at the time of submission.
. Paycheck Stubs covering a full month period (year-to-date figure is
satisfactory), must be less than 90 days old at the time of
submission.
. W-2 Forms.
. 1099's.
. Federal Tax returns (1040's) - signed with live signatures. (Form 4506
required at closing.)
. Corporate Tax Returns (1120) - signed with live signatures.
. Interest/Dividend income - statements.
. Partnership Tax Returns - signed with live signatures. K-1 may be
accepted.
. Profit and Loss statements for the applicable entity, should be year
to date through the most recent quarter (less than 90 days old.)
. Bank Statements - Consecutive months on one personal account. Business
statements are generally not sufficient as sole-source of income
documentation but may validate business existence and may be used if
other factors support.
. Social Security - award statements, check copies, automatic bank
deposits.
. Child Support and/or Alimony - copy of filed divorce decree to support
amount and duration. Canceled checks or deposit verification may be
necessary.
. Rental Income - for the first 4 properties owned, 90% of rental income
will be used. For over 4 properties, use 75%.
. Public Assistance - award notices, check copies.
. Pension/Retirement - award notices, check copies, automatic bank
deposits.
. Where it is indicated that the applicant receives public assistance
(i.e. welfare), documentation provided as evidence must indicate the
assistance is continuous and no special circumstances are required for
its continuation (i.e. residency). A copy of a recent check, in most
cases, will suffice as documentation.
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20. INDEX
The basic interest rate to which the margin is added to compute the fully
indexed interest rate. New Century uses the 6 months "LIBOR"(London Inter
Bank Offered Rate) as published daily in The Wall Street Journal.
21. LEASEHOLD ESTATES
May be acceptable security for a loan if an attorneys letter is received
verifying that:
. Lease term does not expire until after 5 years beyond the term of
the loan.
. Sub-lease payments at least equal to lease payments.
. Lease and sub-lease do not permit increases in the lease payments
that are not specified.
. Lease must provide for written notice for lessee to cure default.
. Lease must permit mortgage encumbrance.
. Lease must permit assignment of leasehold estate.
. Lease must grant leasehold mortgagee (lender) the right to acquire
the property in its own name.
22. LIENS AND JUDGMENTS
Must be paid at funding if they constitute a lien against the subject
property. Liens (mechanics liens, tax liens, etc.) are non-credit related
items which are reflected on credit reports and/or preliminary title
reports. Since the liens do not necessarily reflect a borrower's inability
and/or unwillingness to repay a debt, it is the policy of New Century to
rely on other criteria in evaluating qualification. Loan approval is not
restricted by the existence of liens.
23. LOAN APPROVAL AUTHORITIES
It is the policy of New Century to establish loan approval authority
commensurate with the knowledge and technical abilities of the individual
underwriters. Such authority levels are set forth in a separate section of
this manual.
24. LOAN PACKAGE - COMPLETE
A complete loan package refers to all required documentation and conditions
necessary to satisfy New Century's loan policies and procedures, and the
title insurer. All fundings, will require a complete loan package.
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25. LOAN PACKAGE - MINIMUM
New Century has established minimum requirements for all loan files
submitted to underwriting. The following is a list of those requirements,
. A 1003 loan application
. Credit report less than 90 days old at submission
. A preliminary title report
. An appraisal
. Some form of income documentation (see underwriting matrix for
program requirements)
. A written loan request
26. LOAN SIZE AND TERM
The minimum loan amount for all New Century loan programs is $10,000. The
maximum loan amount is $500,000 depending on the loan program and other
factors. (see underwriting matrix).
All loan programs offer the option of either (15) fifteen or (30) thirty
year fully amortized terms.
27. LOAN TERMS
The terms of a loan refer to the start margin, APR, prepayment penalty,
index and the number of months scheduled for repayment. Stated in all loan
disclosures, the Note and the Itemization of the amount financed.
28. LOANS TO BROKERS/BROKERS EMPLOYEES
It is the policy of New Century to deny loans to any broker, or employee of
a broker, or borrower who has an existing relationship with New Century.
Any exception to this policy requires senior management and legal approval.
29. LOAN-TO-VALUE RATIOS (LTV)
The ratio of the amount of the loan request to the cost or value of the
subject property. For calculation purposes, value is defined as the lesser
of the sales price or appraised value of the subject property. New
Century's underwriting matrix specifies LTV restrictions.
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30. MARGIN
The amount expressed in basis points added to the index to compute the
fully indexed interest rate.
31. MARKETABILITY
One of the major factors in the loan decision is the marketability of the
subject property. The appraisal will state the approximate time it would
normally take for the subject to sell, based on trends, zoning, and the
condition of the property. New Century will require that the value be
based on twelve months or less marketing time. (The number of months an
appraiser and New Century's appraisal reviewer forecast it would take the
subject property to sell.)
32. MAXIMUM ACREAGE
Generally, 5 acres is the maximum, but New Century will consider up to 10
acre properties on a case-by-case basis.
33. MAXIMUM LOANS TO ONE BORROWER
It is the policy of New Century that due to the risk and exposure
associated with lending to one individual, the maximum total loan amounts
to one borrower is $500,000, within any specific pool of loans. If the
concentration of loans in a specific area is an issue, decision to be made
on a case by case basis.
34. NON-CONFORMING ZONING
Zoning refers to what type of improvement the city or local ordinance
allows on the subject property stated in the appraisal is the specific
zoning classification of the property and whether or not the improvements
are legal, legal non-conforming, or illegal use of the property. It is a
requirement of New Century, that when properties are zoned legal non-
conforming, a "rebuild letter" from the city stating that it can be rebuilt
to its current use be obtained.
35. NON-TAXABLE INCOME
Verified nontaxable income must be given special consideration when it is
determined that such income will continue and remain untaxed for the
foreseeable future. Examples of nontaxable income include, but are not
limited to:
. Certain military allowances
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. Certain retirement income
. Disability payments
. Workers compensation benefits
. Child support payments
. Certain types of public assistance payments.
It is New Century's policy that an applicant with non-taxable income can be
evaluated in the same manner as a borrower who has taxable gross income.
The Underwriter may adjust or "gross up" the applicant(s) actual income by
using current income tax tables,
36. OWNER-OCCUPIED
The subject property or at least one unit of a 2-4 unit property is
occupied by the applicant/owner as their permanent residence. In the event
the borrower resides in the subject property, the debt ratio will be
calculated by subtracting 90% of the gross rents from the property loan
payment.
37. PLANNED UNIT DEVELOPMENT
A PUD can be attached or detached planned unit development housing. A
detached PUD may be considered an SFR for risk classification. An attached
PUD will be considered the same as condominiums (See Condominiums).
38. POWER OF ATTORNEY
Acceptable only if specific, if closed by title company and approved by the
New Century general counsel.
39. PRIVATE, GRAVEL OR DIRT ROADS
Private, gravel, or dirt roads are allowed if common to the area and road
is in good condition. If not serviced by city or county New Century will
generally not require a road maintenance agreement.
40. PROFIT AND LOSS STATEMENT
A written itemized summary of business profit and loss for a specific
period.
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41. PROPERTY TYPE
New Century will consider loans on the following property types:
. Single Family Residences
. Condominiums
. Planned Unit Developments (PUD)
. 2 To 4 Family Units
42. RISK CLASSIFICATION
The evaluation of the applicants credit history, (debt ratio), and other
factors. Based on the underwriting analysis and factors outlined in the
underwriting matrix, a risk classification is assigned.
43. RISK UPGRADE
If underwriting cannot approve the loan as submitted, the underwriter will
review the file for a possible risk classification up-grade - see
procedures
44. RURAL PROPERTIES
Properties located in remote or isolated areas generally are difficult to
value or market. Therefore, rural properties may necessitate a reduced LTV
to compensate for the increased valuation or marketability risk.
Properties located in the following areas will be considered rural
properties:
. Mountain Resort Areas
. Desert Resort Areas
. Properties over 25 miles from a metropolitan area with a population
greater than 75,000.
. Properties identified on the appraisal as being rural or an area of
poor marketability.
45. SEASONING
If the purchase date of the subject property is less than or equal to 6
months, use the purchase price or the appraised value, whichever is lower.
If the purchase date is greater than 6 months, use the appraised value.
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46. SELF-EMPLOYMENT
An applicant whose primary source of income is derived from a business or
activity in which the borrower owns either all or a partial interest. Is
considered self-employed. Self-Employment represents a broad range of
income situations and therefore each loan submitted for a self-employed
borrower must be dealt with on a case by case basis. Generally, for higher
LTV's it is prudent to require verification that is generated by an
independent source (i.e., business license, bank statements, business phone
listing etc.). For lower LTV's a business card or copies of marketing
material may be satisfactory.
47. SPECIAL FLOOD HAZARD AREA (SFHA)
All appraisals must indicate whether or not the property is located in a
special flood hazard area identified by the Federal Emergency Management
Agency (FEMA). If the property is located in a Special Flood Hazard Area,
then flood insurance is required. The SFHA determination will generally be
confirmed by New Century through an independent party.
48. STABLE MONTHLY INCOME
Income stability is based on the probability that the income will continue
into the foreseeable future.
If sources are verified, the following may be considered in determining
stable monthly income:
. Gross monthly income from primary employment base earnings.
. Gross monthly income as a self employed business person.
. Rental income from other real estate after deducting any loan
payments, real estate taxes and/or assessments, hazard insurance,
and maintenance.
. Interest income from savings accounts and listed stocks and bonds;
the balances of which are not to be used for the down payment.
. Income from part-time employment if it is of a continuing nature.
. Overtime pay if it is characteristic of the industry, has been paid
in the past and it is reasonably likely to be paid in the future.
. Bonuses if there is a reasonable probability that they will continue
to be received in the future.
. If the applicant chooses to disclose, income from alimony, child
support, separate maintenance, public assistance, or retirement
benefits.
. Pension plan payments, social security payments, or disability
income.
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49. START RATE
The start rate is the initial and usually the minimum interest rate on a
loan. It can be more or less than the fully indexed interest rate.
50. SUBJECT PROPERTY
The property used as the security for the loan.
51. SUBORDINATED SECONDS
If fully amortized, there is no limit on term of subordinated seconds. On
balloon seconds, the minimum term is 5 years.
52. TELEPHONE VERIFICATION OF EMPLOYMENT
It is the policy of New Century that, prior to disbursement of loan
proceeds, a phone verification of the applicants employment be documented.
The documentation will include, the name of employee conducting the
verification, date of the contact, the name and title of the person
contacted and whether employment was confirmed, denied or verification was
refused.
53. UNDERWRITING EXCEPTIONS
Special situation or unusual circumstances may warrant exceptions to the
underwriting policies. All exceptions must be approved and explanation
must be documented. See the underwriting approval matrix for signatures
required.
54. VERIFICATION OF FUNDS TO CLOSE
It may be necessary to obtain verification of the funds that the applicant
intends to contribute to the loan transaction. The following documentation
is acceptable:
a) deposit accounts
b) stock/or securities account
c) sale of previous home(HUD 1 statement)
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d) gift
Before using funds from gifts, a borrower needs to use his or her
own funds to make a down payment equal to at least 5 percent of the
sales price of the property. If a gift is to be used, a statement
from the donor saying that no repayment is expected will be
required. Verification of funds will be required for the amount of
the gift. (We have a gift letter form).
e) certified escrow receipt
f) 401K accounts
55. VERIFICATION OF MORTGAGE PAYMENT HISTORY
It is the policy of New Century that the mortgage payment history on the
applicants primary residence and the subject property must be verified and
documented for the twelve month period prior to the mortgage application.
The following are acceptable forms of mortgage payment verification:
. Direct written reference from the mortgagee.
. Reference contained in a credit report.
. Canceled checks to cover the most recent 12-month period.
. Telephone verification by a New Century Associate. This must include
documenting the following information:
. Name of the lender.
. Name of the lender's employee providing the verification.
. Telephone number of the lender.
. Account number on the mortgage being verified.
. Date the verbal verification was given.
. Name of the New Century Associate obtaining the verification.
. In states where actions taken against real estate are not recorded
with the county recorder, the lien holders must be contacted to
verify that no actions are being taken against the subject property.
56. WAGE EARNER
An applicant whose income (wages or salary) are derived through employment
by a business in which the applicant has little or no ownership interest.
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EVALUATING
CREDIT
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NEW CENTURY'S UNDERWRITING GUIDELINES
New Century's chief objectives in underwriting mortgage loans are:
. Determining the borrower's ability and willingness to repay a loan according
to its terms.
. Determining that the property securing the loan provides sufficient value to
recover the lender's investment in the event of loan default.
New Century's lending philosophy precludes making automatic judgments based on
the face value of a loan. The overall situation of each individual borrower
must be analyzed in order to account for compensating factors which may be used
to offset specific areas of weakness.
An applicant's willingness to repay his loan, though a subjective determination,
can be judged by evaluating the applicant's past use of credit. Caution is used
in reviewing any applicant whose credit history is characterized by Notices of
Default, foreclosures, bankruptcy, judgments, tax liens, charge offs, or
collection accounts. In evaluating an applicant's credit problems, the key is
to determine whether any derogatory information is the result of an isolated
problem, poor financial planning, or a general lack of regard for credit
obligations.
When evaluating a borrower's credit history, New Century evaluates the last 12
months before grading the customer. Borrowers with questionable credit
histories must be given an opportunity to explain their derogatory credit.
New Century offers five credit risk programs: A+,A-,B,C,C-.
Following are the underwriting matrixes for each individual program
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MISCELLANEOUS
APPRAISAL
. New Century will consider loans on the following property types:
a. Single Family Residence
b. Town Home
c. Condominium
d. Planned Unit Development (PUD)
e. Up to 4 Family Units.
. The maximum acceptable property size is 5 acres, however, up to 10 acres
may be approved on a case by case basis.
. Condo requirements - Fee ownership of one unit in a multi-unit condominium
project or complex, generally with common wall. The condominium project
must be 50% owner-occupied. Each unit must possess:
1. An individual fee interest
2. Separate tax parcel number
3. Appropriate exclusive and non-exclusive easements
4. Membership in a Homeowners Association
5. Homeowners Association Certificate showing no pending litigation,
reasonable delinquency on association dues and verification of
percentage of units owner-occupied.
6. In the case of a condominium regime with separate parcel numbers,
no association dues are required.
. Equity exchange properties will be allowed, provided that both properties
are evaluated and appraised.
. No cross collateralized loans. (may be approved on an exception basis with
signature from the Chief Credit Officer).
. No loans on homes with construction in progress, unless it will be
completed before loan is closed.
. No vacant land loans.
. No vacant properties, with the exception of purchases and second homes.
. Leasehold land subject to the Legal Department's approval.
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Properties located in remote or isolated areas generally are difficult to value
or market. Therefore, rural properties may necessitate a reduced LTV to
compensate for the increased valuation or marketability risk. The following
will be considered rural properties:
1. Mountain resort areas
2. Desert resort areas
3. Properties over 25 miles from a metropolitan area with a population
greater than 75,000
4. Properties identified on the appraisal as being rural or in an area of
poor marketability.
CREDIT
. All derogatory credit will require a letter of explanation for all past due
credit.
. If in the review of the credit history it appears that the applicant has
little or no evidence of borrowing, it is the policy of New Century to rely
on other criteria in evaluating qualification. Loan approval is not
restricted by limited credit history. Where special circumstances may
adversely affect the credit decision, applicants should submit an
explanation to assist in the decision process.
. Rolling 30's will be counted as one late until the 7th consecutive late
(for example CCC111111CCC, counts as one late), beginning with the 7th it
will be cumulative (for example CC111111111C, counts as four lates).
. Notices of Default (NOD) count from the date of reinstatement.
. Loans secured by timeshares will be considered as installment debts.
. Loan approvals are active for 45 days.
INCOME
. Room rents will be allowed. However, the tenant may not be a family member.
6 months canceled checks or tax returns will be required (rental income
rule applies).
. Child Support income may be used with a remaining term of 2 years minimum,
a Divorce Decree and 6 months canceled checks, or any other reasonable
documentation must be provided.
. Alimony income may be used with a remaining term of 2 years minimum. 6
months bank statements and/or canceled checks or any other reasonable
documentation must be provided.
. Where using income received on the behalf of a child to qualify, the
child's maximum acceptable age is 16 years old.
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UNDERWRITING
. The age of documentation should be 90 days or less.
. All loans will require a Flood Certificate.
. Homeowners Association (H.O.A.) will require certification.
. The lesser of the Appraised Value or the Purchase Amount will be used.
. Adding someone to Title strictly for qualification purposes will not be
allowed.
. Loans behind a Line of Credit will require an estoppel agreement.
. All loan files will require a Full ALTA preliminary with address addendum.
. All purchase money loan files which exceed 75% LTV will require a Termite
Report. (may be waived on a case by case basis)
. Gifts must be from a relative and donor must provide for no repayment. 5%
must be from borrowers own funds.
. Qualifying rate will be the fully indexed rate (index + margin) or start
rate plus 1, whichever is less.
. It is the policy of New Century that due to the risk and exposure
associated in lending to one individual, the maximum total loan amount to
one borrower is $500,000 with a maximum number of loans of five. Any
exception to this rule must be approved on a case by case basis by the
Chief Credit Officer. Non-owner loans where the concentration of loans in a
specific area is an issue, decision must also be made on a case by case
basis.
. The following encumbrance rule applies on CLTV's from 75% - 80%: 25%
encumbrance minimum.
. Subordinate liens must be approved prior to final approval.
-----
. No loans behind a negative amortization first mortgage.
. On VA or Cal Vet first mortgages, an approval to encumber letter must be in
file.
. Private party first mortgages must provide copy of note, and the term of
the first must not exceed the term of New Century's loan.
. The following will apply to lease options. LTV will be based on the Review
Appraisal Final Value if the Lease Option Purchase Price established 12
months or more prior to funding. The LTV will be based on lower of Review
Appraisal Final Amount or Lease Option Purchase Price if the Lease Option
Purchase established less than 12 months prior to funding.
. No escrow holdbacks.
. No mixed use properties.
. No loans to corporations, partnerships, businesses or trusts.
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. On purchase money loans with LTV's greater than 70%, a Verification of
Deposit (VOD) with 3 months history will be required.
Acceptable types of mortgage verification are as follows;
1. 10-12 months consecutive bank statements
2. Verification of mortgage (VOM)
3. 12 months canceled checks
4. Credit bureau
. All wholesale loans must have escrow instructions. Retail loans only
require escrow on purchase money transactions.
. Terms on subordinate seconds-Fully amortized no limit on terms, on balloon
term 5 years.
. Power of Attorneys will be allowed on a case by case basis. It must be
specific to the transaction and there must be a reasonable explanation on
why the borrower cannot sign.
. No loans to developers on property located in their own development. (may
be approved on an exception basis with signature from Chief Credit
Officer).
. Retail branch personnel are permitted to notarize only New Century Deeds of
Trust. Any other documents require prior approval from appropriate
department managers or a corporate officer of the company. (Witness jurats
are to be used only when an individual is waiting to become a notary)
. New Century Mortgage does not offer Section 32 loans. A section 32
worksheet must be completed on every loan submitted to New Century Mortgage
in order to determine if the loan falls in this category.
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RISK UPGRADE FORMULA
In cases in which a loan cannot be approved as submitted, even though
compensating factors support the approval, the loan can be upgraded to qualify
for the risk classification that it was submitted under.
New Century will allow its underwriters to apply the risk upgrade formula
specified below. Qualifying upgrades granted through the use of New Century's
Risk Upgrade Formula will not be counted as an underwriting exception. However,
documentation via a completed Upgraded Approval Form must be in the file. Any
upgrade or exception to guidelines not supported by an Upgrade Approval Form
will be considered an underwriting exception.
UPGRADE FACTORS
<TABLE>
<CAPTION>
POINTS
<S> <C> <C>
LTV Under 5% 1
Program 10% 2
15% 3
Mortgage Credit 1 x 30 Last 12 mos. 2
0 x 30 Last 12 mos. 3
Job Stability greater than or equal to 5 yrs 1
greater than or equal to 10 yrs 2
Time in Residence for greater than or equal to 5 yrs 1
Primary Borrower greater than or equal to 10 yrs
Debt Ratio Under Program 5% 1
Max 10% 2
</TABLE>
4 POINTS = UPGRADE
No Upgrades to A+ are allowed
Maximum upgrade is one risk classification
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<TABLE>
<CAPTION>
Parameters A+ A- B
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Maximum Full Doc Owner Occ SFR 90% Full Doc Owner Occ SFR 85% Full Doc Owner Occ SFR 80%
& Limited Owner Occ SFR 80% Limited Owner Occ SFR 75% Limited Owner Occ SFR 75%
Adjustments Stated Owner Occ SFR 75% Stated Owner Occ SFR 75% Stated Owner Occ SFR 70%
-10% for Non-owner -10% for Non-owner -5% for Non-owner
-10% for Condo/PUD -5% for Condo/PUD -5% for Condo/PUD
-10% 2-4 units -5% 2-4 units -5% 2-4 units
Less than or equal to Less than or equal to Less than or equal to
70% LTV = No Adjustments 70% LTV = No Adjustments 65% LTV = No Adjustments
- ---------------------------------------------------------------------------------------------------------------------
Maximum 500 less than 80% 500 less than 80% 500 less than 80%
Loan 400 greater than 80% 400 greater than 80% 400 greater than 80%
Amounts
- ---------------------------------------------------------------------------------------------------------------------
Debt to 45% 55% 60%
Income
Ratio
- ---------------------------------------------------------------------------------------------------------------------
Mortgage Credit Greater than or equal to 85% Greater than 75% LTV = Greater than 75% LTV = 4 x 30
12 Mos History LTV = 0 x 30 2 x 30
Less than 85% LTV = 1 x 30 Less than or equal to 75% Less than or equal to 75% LTV =
LTV = 3 x 30 4 x 30, 1 x 60
- ---------------------------------------------------------------------------------------------------------------------
Consumer Overall execellent credit Overall Good Credit Past/Present 30's
Credit Medical Derogs not 2 x 60 & 2 x 90
***Footnote considered Medical Derogs not considered
below Additional Isolated Derogs Allowed
On A Case By Case Basis
- ---------------------------------------------------------------------------------------------------------------------
Bankruptcy Chapter 7 greater than or Chapter 7 greater than Chapter 7 greater than or equal to
equal to 3 years or equal to 2 years 2 years
From discharge date From discharge date From discharge date
Chapter 13 greater than or Chapter 13 greater than or Chapter 13 greater than or equal to
equal to 3 years from equal to 2 years from 2 years from filing date with
filing date with rating filing date with rating rating from bankruptcy trustee
from bankruptcy trustee from bankruptcy trustee
- ----------------------------------------------------------------------------------------------------------------------
Notice of 3 years 3 years 2 years
Default
- ----------------------------------------------------------------------------------------------------------------------
Collections & None Less than $500 Coll & Major Less than $1,000 Coll & Major Derog
Major Derog Derog Allowed Allowed
Liens & Judgments P/O required on case by case P/O required on case by case
Charge-off Satisfied Liens/Judgments Satisfied Liens/Judgments Allowed
Allowed Chg. Off's case by case
- ----------------------------------------------------------------------------------------------------------------------
Second Mortgage -5% L.T.V. -5% L.T.V. -5% L.T.V.
Max CLTV & Max
Combined Ln Amt.
- ---------------------------------------------------------------------------------------------------------------------
Cash Out LTV's greater than or equal Not Applicable Not Applicable
to 85%, max cash out 1%
including consumer debt
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Parameters C C-
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Maximum Full Doc Owner Occ SFR 75% Full Doc Owner Occ SFR 70%
& Limited Owner Occ SFR 70% Limited Owner Occ SFR 65%
Adjustments Stated Owner Occ SFR 70% Stated Owner Occ SFR 60%
-5% for Non-owner (full doc only) -5% for Non-owner (full doc only)
-5% for Condo/PUD -5% for Condo/PUD
-5% 2-4 units -5% 2-4 units
Less than or equal to 65% LTV = No Adjustments Less than or equal to 60% LTV = No Adjustments
- -----------------------------------------------------------------------------------------------------------------------------
Maximum Full Doc $350,000 Full Doc $250,000
Loan Limited Doc $250,000 Limited Doc $250,000
Amounts Stated Income $200,000 Stated Income $200,000
- -----------------------------------------------------------------------------------------------------------------------------
Debt to 60% Greater than or equal to 65% LTV = 60% D.R.
Income Less than 65% LTV = 65% D.R.
Ratio
- -----------------------------------------------------------------------------------------------------------------------------
Mortgage Credit Greater than 70% LTV = 30's O.K., 2 x 60 or Greater than 65% LTV = 30's, 60's O.K., 2 x 90, 1 x 12
12 Mos History 1 x 90
Less than or equal to 70% LTV = 30's, 60's Less than or equal to 65% LTV = Curr NOD (case by case)
O.K., 2 x 90
- ------------------------------------------------------------------------------------------------------------------------------
Consumer Past/Present 30's & 60's Derog Credit Allowed
Credit 3 x 90 & 1 x 120
***Footnote Medical Derogs not considered
Below Additional Isolated Derogs Allowed
On A Case By Case Basis
- ------------------------------------------------------------------------------------------------------------------------------
Bankruptcy Chapter 7 greater than or equal to 18 months Chapter 7 less than 12 months allowed
From discharge date From discharge date
Chapter 13 greater than or equal to 18 months Chapter 13 less than 12 months allowed
- ------------------------------------------------------------------------------------------------------------------------------
Notice of 18 Months Under 18 months allowed
Default
- ------------------------------------------------------------------------------------------------------------------------------
Collections & Less than $2,500 Coll. & Chg.-Off, Allowed Less than $5,000 Coll. & Chg.-Off, Allowed
Major Derog P/O required on case by case P/O required on case by case
Leins & Judgments Satisfied Liens/Judgments Allowed Satisfied Liens/Judgments Allowed
Charge-off
- ------------------------------------------------------------------------------------------------------------------------------
Second Mortgage -5% L.T.V. -5% L.T.V.
Max CLTV & Max
Combined Ln Amt.
- ------------------------------------------------------------------------------------------------------------------------------
Cash Out Not Applicable Not Applicable
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
***24 months review for A+ and A- 12 months reviewed on B, C and C-
<PAGE>
[LOGO OF NEW CENTURY JUMBO PROGRAM DRAFT
MORTGAGE CORPORATION] NEW CENTURY 7-23-97
FULL DOC OWNER OCCUPIED SFR PROGRAM
<TABLE>
<CAPTION>
COLLECTIONS
RISK GRADE LOAN TO LOAN SIZE CONSUMER CREDIT MORTGAGE BK NOD CASH -----------
VALUE % $MM HISTORY OUT CHARGE OFFS
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A+ 65 1 mil+ Overall Excellent 0 X 30 3 YR 5 YR OK Less than 500 OK
70 750-1 mil Isolated minor 1 X 30
75 500-750 items; Case by Case
- -----------------------------------------------------------------------------------------------------------------------------
A- 65 750-1 mil 30s OK 2 X 30 2 YR 3 YR OK Less than 500 OK
70 500-750 2 X 60, Overall Good
- -----------------------------------------------------------------------------------------------------------------------------
B 60 800-1 mil 30s OK 3 X 30 2 YR 2 YR OK Less than 1,000 OK
65 700-800 2 X 60, 2 X 90
70 500-700 Overall Good Credit
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
. Debt Ratio is LTV Driven . For B, A- and A+, the following applies: Non-owner . Limited or Stated on a B, A- and A+;
75%/45% 70%/50% 65%/55% greater than 750 reduce LTV by 10% and less than 750 reduce LTV by 5% (CLTV reduction may
reduce LTV by 5% be waived with compensating cash
reserves)
. 24 Months Consumer and . Loans over 500K require two Appraisals. 1 must be . Stated must provide 3 months bank
Mortgage Credit for over reviewed. statements Personal and Business to
750K. 12 Months on all others show cash flow or V.O.D.s
. 24 Mos Bank Statements for . Loans over 1 mil on a case by case basis . Medical and Non-Credit Delinquency
FULL DOC allowed
. C, C- on case by case basis . Exception requires 2 of 3 signatures COO, CCO, CEO
</TABLE>
<PAGE>
[LOGO OF NEW CENTURY MORTGAGE CORPORATION]
MORTGAGE ONLY PROGRAM
FULL DOC . SFR
<TABLE>
<CAPTION>
RISK LTV LOAN MORTGAGE DEBT
GRADE AMOUNT HISTORY RATIO
---------------------------------------------------------------
<S> <C> <C> <C> <C>
A+ 80 400 0 X 30 50
A- 75 300 3 X 30 55
---------------------------------------------------------------
</TABLE>
PROGRAM ADJUSTMENT
. Reduce LTV by 5% for Non-owner or 2nd Home
. Reduce LTV by 5% for Condo/PUD
. Reduce LTV by 5% for 2-4 Units
. Reduce LTV by 5% for Limited Doc
HIGHLIGHTS
. Consumer Credit Disregarded
. 12 Months Mortgage History
. Rolling 30s OK
. No Adjustments for under 65%
No Stated Income
No B, C Or C- on This Program
No Upgrades
A+ No Bankruptcy or N.O.D. in 3 years
A- No Bankruptcy or N.O.D. in 2 years
Revision Date 3/18/97
<PAGE>
SCHEDULE 1.01(b) TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
BANK COMMITMENTS
----------------
<TABLE>
<CAPTION>
Working
Warehousing Capital
Bank Commitment Commitment
- ---- ------------- ----------
<S> <C> <C>
First Bank National Association $100,000,000 $4,000,000
Guaranty Federal Bank, F.S.B. $ 50,000,000 0
Comerica Bank California, Inc. $ 15,000,000 0
First Union National Bank $ 25,000,000 0
Residential Funding Corporation $ 25,000,000 0
</TABLE>
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
SCHEDULE 3.05
LITIGATION
----------
None.
<PAGE>
SCHEDULE 4.09
EXISTING LIENS
--------------
See attached.
<PAGE>
[SEAL OF THE STATE OF CALIFORNIA]
CERTIFICATE REQUESTED ON: JULY 28, 1997
NEW CENTURY MORTGAGE CORPORATION
@ANY ADDRESS
FINANCING STATEMENT FILED ON FEB 22, 1996 AT 1125 FILE NO. 9605460183
DEBTOR: NEW CENTURY MORTGAGE CORPORATION
4910 BIRCH ST, STE 100
NEWPORT BEACH, CA 92660
SECURED PARTY: FIRST BANK NATIONAL ASSOCIATION, AS COLLATERAL AGENT
601 SECOND AVE S
MINNEAPOLIS, MN 55402
AMENDMENT: NOV 07, 1996 AT 1542
FINANCING STATEMENT FILED ON APR 08, 1997 AT 1548 FILE NO. 9710060986
DEBTOR: NEW CENTURY MORTGAGE CORPORATION
###-##-####
4910 BIRCH ST, STE 100
NEWPORT BEACH, CA 92660
SECURED PARTY: FBS BUSINESS FINANCE CORPORATION
POB 1540
MINNEAPOLIS, MN 55480
FINANCING STATEMENT FILED ON APR 10, 1997 AT 1537 FILE NO. 9710260869
DEBTOR: NEW CENTURY MORTGAGE CORPORATION
###-##-####
4910 BIRCH ST, STE 100
NEWPORT BEACH, CA 92660
CERTIFICATE: 97210-R-0532 PAGE 1
<PAGE>
[SEAL OF THE STATE OF CALIFORNIA]
(CONTINUED) APR 10, 1997 AT 1537 FILE NO. 9710260869
SECURED PARTY: FBS BUSINESS FINANCE CORPORATION
POB 1540
MINNEAPOLIS, MN 55480-1540
FINANCING STATEMENT FILED ON MAY 12, 1997 AT 1535 FILE NO. 9713360692
DEBTOR: NEW CENTURY MORTGAGE CORPORATION
###-##-####
4910 BIRCH ST, STE 100
NEWPORT BEACH, CA 92660
SECURED PARTY: FBS BUSINESS FINANCE CORPORATION
POB 1540
MINNEAPOLIS, MN 55480-1540
THE UNDERSIGNED FILING OFFICER HEREBY CERTIFIES THAT THE ABOVE LISTING IS A
RECORD OF ALL PRESENTLY EFFECTIVE FINANCING STATEMENTS, TAX LIENS, ATTACHMENT
LIENS AND JUDGMENT LIENS, INCLUDING ANY CHANGE DOCUMENTS RELATING TO THEM, WHICH
NAME THE ABOVE DEBTOR AND ARE ON FILE IN MY OFFICE AS OF JULY 23, 1997 AT 1700
HOURS.
/s/ BILL JONES
BILL JONES
SECRETARY OF STATE
CERTIFICATE: 97210-R-0532 PAGE:2
<PAGE>
EXHIBIT 10.2
AGREEMENT TO ADD LENDER
-----------------------
THIS AGREEMENT TO ADD LENDER (the "Agreement"), dated as of August 27,
1997, is by and among NEW CENTURY MORTGAGE CORPORATION, a California corporation
(the "Company"), FIRST BANK NATIONAL ASSOCIATION, as agent (the "Agent") for the
Lenders party to the Second Amended and Restated Credit Agreement described
below, and FIRST UNION NATIONAL BANK (the "Additional Lender").
Recitals
--------
A. The Company, the Agent and the Lenders are parties to that certain
Second Amended and Restated Credit Agreement dated as of July 31, 1997 (the
"Credit Agreement").
B. The Company and the Agent desire to add the Additional Lender as a
party thereto with a Warehousing Commitment as herein set forth.
C. This Agreement is delivered to the Agent by the Company and the
Additional Lender pursuant to Section 8.06(b) of the Credit Agreement.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Article I
---------
Definitions
-----------
Section 1.01. Incorporated Definitions. Capitalized terms used in this
------------------------
Agreement, to the extent not otherwise defined herein, shall have the same
meanings as in the Credit Agreement.
Article II
----------
Concerning the Additional Lender
--------------------------------
Section 2.01. Status as a Lender. Effective as of August 27, 1997, the
------------------
Additional Lender shall be and is a Lender under the Credit Agreement and shall
and does have all of the rights, privileges and benefits of a Lender under the
Credit Agreement and the Loan Documents, and all of the duties of a Lender
thereunder, in each case as if the Additional Lender had been a Lender initially
a party to the Credit Agreement.
<PAGE>
Section 2.02. Commitment. The Warehousing Commitment of the Additional
----------
Lender shall be TWENTY-FIVE MILLION DOLLARS ($25,000,000.00). Schedule 1.01(b)
of the Credit Agreement is hereby amended and restated in its entirety to read
as set forth in Schedule 1.01(b) hereto.
Article III
-----------
Conditions Precedent
--------------------
Section 3.01. Delivery of Documents. The obligation of the Additional
---------------------
Lender to make its initial Advance shall be subject to the delivery to the Agent
by the Company of the following documents:
(a) a promissory note in the form of Exhibit F to the Credit Agreement,
payable to the Additional Lender, in the principal amount of the Additional
Lender's Warehousing Commitment;
(b) a certificate of the Secretary or Assistant Secretary of the Company
certifying (i) resolutions of the Company's Board of Directors authorizing
the execution, delivery and performance of this Agreement and the
Additional Lender's Warehousing Note and identifying the officers of the
Borrower authorized to sign such instruments, and (ii) specimen signatures
of the officers so authorized; and
(c) such other documents as the Agent or the Additional Lender may
reasonably request.
Article IV
----------
Miscellaneous
-------------
Section 4.01. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal law, and not the law of conflicts, of
the State of Minnesota, but giving effect to federal laws applicable to national
banks.
Section 4.02. Counterparts. 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.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
executed as of the date first above written.
NEW CENTURY MORTGAGE CORPORATION
By /s/ BRAD A. MORRICE
---------------------------------
Its Chief Executive Officer
-----------------------------
FIRST UNION NATIONAL BANK
By _________________________________
Its _____________________________
Address for Notices:
-------------------
985 East California Blvd.
Suite 306
Pasadena, CA 91106
Attention: Catherine L. Simms
Telephone: (626) 844-9117
Telefacsimile: (626) 844-9085
FIRST BANK NATIONAL
ASSOCIATION, as Agent
By _________________________________
Its _____________________________
S-1
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
executed as of the date first above written.
NEW CENTURY MORTGAGE CORPORATION
By _________________________________
Its _____________________________
FIRST UNION NATIONAL BANK
By /s/ CATHERINE L. SIMMS
---------------------------------
Its Vice President
-----------------------------
Address for Notices:
-------------------
985 East California Blvd.
Suite 306
Pasadena, CA 91106
Attention: Catherine L. Simms
Telephone: (626) 844-9117
Telefacsimile: (626) 844-9085
FIRST BANK NATIONAL
ASSOCIATION, as Agent
By _________________________________
Its _____________________________
S-1
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
executed as of the date first above written.
NEW CENTURY MORTGAGE CORPORATION
By _________________________________
Its _____________________________
FIRST UNION NATIONAL BANK
By _________________________________
Its _____________________________
Address for Notices:
-------------------
985 East California Blvd.
Suite 306
Pasadena, CA 91106
Attention: Catherine L. Simms
Telephone: (626) 844-9117
Telefacsimile: (626) 844-9085
FIRST BANK NATIONAL
ASSOCIATION, as Agent
By /s/ EDWIN D. JENKINS
---------------------------------
Its Vice President
-----------------------------
S-1
<PAGE>
SCHEDULE 1.01(b) TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
BANK COMMITMENTS
----------------
<TABLE>
<CAPTION>
Working
Warehousing Capital
Bank Commitment Commitment
- --------------------------------- ------------- ----------
<S> <C> <C>
First Bank
National Association $100,000,000 $4,000,000
Guaranty Federal Bank, $ 50,000,000 0
F.S.B.
Comerica Bank California, Inc. $ 15,000,000 0
First Union National Bank $ 25,000,000 0
</TABLE>
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
Exhibit F
PROMISSORY NOTE
---------------
(Warehousing Note)
August ___________, 1997
$25,000,000 Minneapolis, Minnesota
FOR VALUE RECEIVED, NEW CENTURY MORTGAGE CORPORATION, a California
corporation, hereby promises to pay to the order of FIRST UNION NATIONAL BANK
(the "Bank") at the main office of the Agent in Minneapolis, Minnesota, in
lawful money of the United States of America in Immediately Available Funds (as
such term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to), the principal sum of TWENTY-FIVE MILLION AND
NO/100 DOLLARS ($25,000,000) or the aggregate unpaid principal amount of all
Warehousing Loans made by the Bank pursuant to the Credit Agreement described
below, whichever is less, and to pay interest in like funds from the date hereof
on the unpaid balance thereof at the rates per annum and at such times as are
specified in the Credit Agreement. Interest (computed on the basis of actual
days elapsed and a year of 360 days) shall be payable at said office at the
times specified in the Credit Agreement.
Principal hereof shall be payable in the amounts and at the times set
forth in the Credit Agreement.
This note is one of the Warehousing Notes referred to in the Second
Amended and Restated Credit Agreement dated as of July 31, 1997, between the
undersigned, the Bank, the other banks party thereto and First Bank National
Association, as Agent (as the same may be amended, modified or restated from
time to time, the "Credit Agreement"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings given to such terms in the
Credit Agreement. This note is subject to certain mandatory and voluntary
prepayments and its maturity is subject to acceleration, in each case upon the
terms provided in the Credit Agreement.
The undersigned hereby waives diligence, presentment, demand, protest,
and notice (except such notice as is required under the Loan Documents) of any
kind whatsoever. The nonexercise by the Bank of any of its rights hereunder or
under the other Loan Documents in any particular instance shall not constitute a
waiver thereof in any subsequent instance.
This note is entitled to the benefit of the Guaranty, the Pledge and
Security Agreement and the other Loan Documents.
<PAGE>
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE
OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. In the event of
default hereunder, the undersigned agrees to pay all costs and expenses of
collection, including but not limited to reasonable attorneys' fees.
Notwithstanding the foregoing paragraphs and all other provisions of
this note and the Credit Agreement, none of the terms and provisions of this
note or the Credit Agreement shall ever be construed to create a contract to pay
to the Bank, for the use, forbearance or detention of money, interest in excess
of the maximum amount of interest permitted to be charged by the Bank to the
undersigned under applicable state or federal law from time to time in effect,
and the undersigned shall never be required to pay interest in excess of such
maximum amount. If, for any reason, interest is paid hereon in excess of such
maximum amount (whether as a result of the payment of this note prior to its
maturity or otherwise), then promptly upon any determination that such excess
has been paid the Bank will, at its option, either refund such excess to the
undersigned or apply such excess to the principal owing hereunder. All interest
paid shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period of the Company's credit
relationship with the Bank until payment in full of the principal (including the
period of any renewal or extension) so that the interest for such full period
shall not exceed the maximum rate of interest permitted by applicable law.
NEW CENTURY MORTGAGE CORPORATION
By _______________________________________
Its ___________________________________
<PAGE>
EXHIBIT 10.3
AGREEMENT TO ADD LENDER
-----------------------
THIS AGREEMENT TO ADD LENDER (the "Agreement"), dated as of September
18, 1997, is by and among NEW CENTURY MORTGAGE CORPORATION, a California
corporation (the "Company"), FIRST BANK NATIONAL ASSOCIATION, as agent (the
"Agent") for the Lenders party to the Second Amended and Restated Credit
Agreement described below, and RESIDENTIAL FUNDING CORPORATION, a Delaware
Corporation (the "Additional Lender").
Recitals
--------
A. The Company, the Agent and the Lenders are parties to that certain
Second Amended and Restated Credit Agreement dated as of July 31, 1997 (the
"Credit Agreement").
B. The Company and the Agent desire to add the Additional Lender as a
party thereto with a Warehousing Commitment as herein set forth.
C. This Agreement is delivered to the Agent by the Company and the
Additional Lender pursuant to Section 8.06(b) of the Credit Agreement.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Article I
---------
Definitions
-----------
Section 1.01. Incorporated Definitions. Capitalized terms used in this
------------------------
Agreement, to the extent not otherwise defined herein, shall have the same
meanings as in the Credit Agreement.
Article II
----------
Concerning the Additional Lender
--------------------------------
Section 2.01. Status as a Lender. Effective as of September 18, 1997, the
------------------
Additional Lender shall be and is a Lender under the Credit Agreement and shall
and does have all of the rights, privileges and benefits of a Lender under the
Credit Agreement and the Loan Documents, and all of the duties of a Lender
thereunder, in each case as if the Additional Lender had been a Lender initially
a party to the Credit Agreement.
<PAGE>
Section 2.02. Commitment. The Warehousing Commitment of the Additional
----------
Lender shall be THIRTY MILLION DOLLARS ($30,000,000.00). Schedule 1.01(b) of
the Credit Agreement is hereby amended and restated in its entirety to read as
set forth in Schedule 1.01(b) hereto.
Article III
-----------
Conditions Precedent
--------------------
Section 3.01. Delivery of Documents. The obligation of the Additional
---------------------
Lender to make its initial Advance shall be subject to the delivery to the Agent
by the Company of the following documents:
(a) a promissory note in the form of Exhibit F to the Credit Agreement,
payable to the Additional Lender, in the principal amount of the Additional
Lender's Warehousing Commitment;
(b) a certificate of the Secretary or Assistant Secretary of the Company
certifying (i) resolutions of the Company's Board of Directors authorizing
the execution, delivery and performance of this Agreement and the
Additional Lender's Warehousing Note and identifying the officers of the
Borrower authorized to sign such instruments, and (ii) specimen signatures
of the officers so authorized; and
(c) such other documents as the Agent or the Additional Lender may
reasonably request.
Article IV
----------
Miscellaneous
-------------
Section 4.01. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal law, and not the law of conflicts, of
the State of Minnesota, but giving effect to federal laws applicable to national
banks.
Section 4.02. Counterparts. 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.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
executed as of the date first above written.
NEW CENTURY MORTGAGE CORPORATION
By /s/ BRAD A. MORRICE
---------------------------------
Its Chief Executive Officer
-----------------------------
BANK ONE, TEXAS, N.A.
By _________________________________
Its _____________________________
Address for Notices:
-------------------
1717 Main Street
Dallas, Texas 75201
Attention: Mark Freeman
Telephone: (214) 290-2780
Telefacsimile: (214) 290-2054
FIRST BANK NATIONAL
ASSOCIATION, as Agent
By _________________________________
Its _____________________________
S-1
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
executed as of the date first above written.
NEW CENTURY MORTGAGE CORPORATION
By _________________________________
Its _____________________________
BANK ONE, TEXAS, N.A.
By /s/ MARK FREEMAN
---------------------------------
Its Vice President
-----------------------------
Address for Notices:
-------------------
1717 Main Street
Dallas, Texas 75201
Attention: Mark Freeman
Telephone: (214) 290-2780
Telefacsimile: (214) 290-2054
FIRST BANK NATIONAL
ASSOCIATION, as Agent
By _________________________________
Its _____________________________
S-1
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
executed as of the date first above written.
NEW CENTURY MORTGAGE CORPORATION
By _________________________________
Its _____________________________
BANK ONE, TEXAS, N.A.
By _________________________________
Its _____________________________
Address for Notices:
-------------------
1717 Main Street
Dallas, Texas 75201
Attention: Mark Freeman
Telephone: (214) 290-2780
Telefacsimile: (214) 290-2054
FIRST BANK NATIONAL
ASSOCIATION, as Agent
By /s/ EDWIN D. JENKINS
---------------------------------
Its Vice President
-----------------------------
S-1
<PAGE>
SCHEDULE 1.01(b) TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
BANK COMMITMENTS
----------------
<TABLE>
<CAPTION>
Working
Warehousing Capital
Bank Commitment Commitment
- ---------------------------------------- ------------- ----------
<S> <C> <C>
First Bank National Association $100,000,000 $4,000,000
Guaranty Federal Bank, F.S.B. $ 50,000,000 0
Comerica Bank California, Inc. $ 15,000,000 0
First Union National Bank $ 25,000,000 0
Residential Funding Corporation $ 25,000,000 0
Bank One, Texas, National Association $ 30,000,000 0
</TABLE>
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
Exhibit F
PROMISSORY NOTE
---------------
(Warehousing Note)
September ___________, 1997
$30,000,000 Minneapolis, Minnesota
FOR VALUE RECEIVED, NEW CENTURY MORTGAGE CORPORATION, a California
corporation, hereby promises to pay to the order of BANK ONE, TEXAS, N.A. (the
"Bank") at the main office of the Agent in Minneapolis, Minnesota, in lawful
money of the United States of America in Immediately Available Funds (as such
term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to), the principal sum of THIRTY MILLION AND
NO/100 DOLLARS ($30,000,000) or the aggregate unpaid principal amount of all
Warehousing Loans made by the Bank pursuant to the Credit Agreement described
below, whichever is less, and to pay interest in like funds from the date hereof
on the unpaid balance thereof at the rates per annum and at such times as are
specified in the Credit Agreement. Interest (computed on the basis of actual
days elapsed and a year of 360 days) shall be payable at said office at the
times specified in the Credit Agreement.
Principal hereof shall be payable in the amounts and at the times set
forth in the Credit Agreement.
This note is one of the Warehousing Notes referred to in the Second
Amended and Restated Credit Agreement dated as of July 31, 1997, between the
undersigned the Bank, the other banks party thereto and First Bank National
Association, as Agent (as the same may be amended, modified or restated from
time to time, the "Credit Agreement"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings given to such terms in the
Credit Agreement. This note is subject to certain mandatory and voluntary
prepayments and its maturity is subject to acceleration, in each case upon the
terms provided in the Credit Agreement.
The undersigned hereby waives diligence, presentment, demand, protest,
and notice (except such notice as is required under the Loan Documents) of any
kind whatsoever. The nonexercise by the Bank of any of its rights hereunder or
under the other Loan Documents in any particular instance shall not constitute a
waiver thereof in any subsequent instance.
This note is entitled to the benefit of the Guaranty, the Pledge and
Security Agreement and the other Loan Documents.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE
OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF
<PAGE>
LAWS PRINCIPLES THEREOF BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKS. In the event of default hereunder, the undersigned agrees to pay all
costs and expenses of collection, including but not limited to reasonable
attorneys' fees.
Notwithstanding the foregoing paragraphs and all other provisions of
this note and the Credit Agreement, none of the terms and provisions of this
note or the Credit Agreement shall ever be construed to create a contract to pay
to the Bank, for the use, forbearance or detention of money, interest in excess
of the maximum amount of interest permitted to be charged by the Bank to the
undersigned under applicable state or federal law from time to time in effect,
and the undersigned shall never be required to pay interest in excess of such
maximum amount. If, for any reason, interest is paid hereon in excess of such
maximum amount (whether as a result of the payment of this note prior to its
maturity or otherwise), then promptly upon any determination that such excess
has been paid the Bank will, at its option, either refund such excess to the
undersigned or apply such excess to the principal owing hereunder. All interest
paid shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period of the Company's credit
relationship with the Bank until payment in full of the principal (including the
period of any renewal or extension) so that the interest for such full period
shall not exceed the maximum rate of interest permitted by applicable law.
NEW CENTURY MORTGAGE CORPORATION
By _______________________________________
Its ___________________________________
<PAGE>
EXHIBIT 10.4
AGREEMENT TO ADD LENDER
-----------------------
THIS AGREEMENT TO ADD LENDER (the "Agreement"), dated as of September
25, 1997, is by and among NEW CENTURY MORTGAGE CORPORATION, a California
corporation (the "Company"), FIRST BANK NATIONAL ASSOCIATION, as agent (the
"Agent") for the Lenders party to the Second Amended and Restated Credit
Agreement described below, and BANK ONE, TEXAS, N.A. (the "Additional Lender").
Recitals
--------
A. The Company, the Agent and the Lenders are parties to that certain
Second Amended and Restated Credit Agreement dated as of July 31, 1997 (the
"Credit Agreement").
B. The Company and the Agent desire to add the Additional Lender as a
party thereto with a Warehousing Commitment as herein set forth.
C. This Agreement is delivered to the Agent by the Company and the
Additional Lender pursuant to Section 8.06(b) of the Credit Agreement.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Article I
---------
Definitions
-----------
Section 1.01. Incorporated Definitions. Capitalized terms used in this
------------------------
Agreement, to the extent not otherwise defined herein, shall have the same
meanings as in the Credit Agreement.
Article II
----------
Concerning the Additional Lender
--------------------------------
Section 2.01. Status as a Lender. Effective as of September 25, 1997, the
------------------
Additional Lender shall be and is a Lender under the Credit Agreement and shall
and does have all of the rights, privileges and benefits of a Lender under the
Credit Agreement and the Loan Documents, and all of the duties of a Lender
thereunder, in each case as if the Additional Lender had been a Lender initially
a party to the Credit Agreement.
<PAGE>
Section 2.02. Commitment. The Warehousing Commitment of the Additional
----------
Lender shall be TWENTY-FIVE MILLION DOLLARS ($25,000,000.00). Schedule 1.01(b)
of the Credit Agreement is hereby amended and restated in its entirety to read
as set forth in Schedule 1.01(b) hereto.
Article III
-----------
Conditions Precedent
--------------------
Section 3.01. Delivery of Documents. The obligation of the Additional
---------------------
Lender to make its initial Advance shall be subject to the delivery to the Agent
by the Company of the following documents:
(a) a promissory note in the form of Exhibit F to the Credit Agreement,
payable to the Additional Lender, in the principal amount of the Additional
Lender's Warehousing Commitment;
(b) a certificate of the Secretary or Assistant Secretary of the Company
certifying (i) resolutions of the Company's Board of Directors authorizing
the execution, delivery and performance of this Agreement and the
Additional Lender's Warehousing Note and identifying the officers of the
Borrower authorized to sign such instruments, and (ii) specimen signatures
of the officers so authorized; and
(c) such other documents as the Agent or the Additional Lender may
reasonably request.
Article IV
----------
Miscellaneous
-------------
Section 4.01. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal law, and not the law of conflicts, of
the State of Minnesota, but giving effect to federal laws applicable to national
banks.
Section 4.02. Counterparts. 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.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
executed as of the date first above written.
NEW CENTURY MORTGAGE CORPORATION
By /s/ BRAD A. MORRICE
---------------------------------
Its Chief Executive Officer
-----------------------------
RESIDENTIAL FUNDING CORPORATION
By _________________________________
Its _____________________________
Address for Notices:
-------------------
10 Universal City Plaza
Suite 2100
Universal City, CA 91608
Attention: Wendy Joseph
Telephone: (818) 753-4430
Telefacsimile: (818) 985-7344
FIRST BANK NATIONAL
ASSOCIATION, as Agent
By _________________________________
Its _____________________________
S-1
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
executed as of the date first above written.
NEW CENTURY MORTGAGE CORPORATION
By _________________________________
Its _____________________________
RESIDENTIAL FUNDING CORPORATION
By /s/ WENDY JOSEPH
---------------------------------
Its Director
-----------------------------
Address for Notices:
-------------------
10 Universal City Plaza
Suite 2100
Universal City, CA 91608
Attention: Wendy Joseph
Telephone: (818) 753-4430
Telefacsimile: (818) 985-7344
FIRST BANK NATIONAL
ASSOCIATION, as Agent
By _________________________________
Its _____________________________
S-1
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this instrument to be
executed as of the date first above written.
NEW CENTURY MORTGAGE CORPORATION
By _________________________________
Its _____________________________
RESIDENTIAL FUNDING CORPORATION
By _________________________________
Its _____________________________
Address for Notices:
-------------------
10 Universal City Plaza
Suite 2100
Universal City, CA 91608
Attention: Wendy Joseph
Telephone: (818) 753-4430
Telefacsimile: (818) 985-7344
FIRST BANK NATIONAL
ASSOCIATION, as Agent
By /s/ EDWIN D. JENKINS
---------------------------------
Its Vice President
-----------------------------
S-1
<PAGE>
SCHEDULE 1.01(b) TO
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
BANK COMMITMENTS
----------------
<TABLE>
<CAPTION>
Working
Warehousing Capital
Bank Commitment Commitment
- ---- ------------- ----------
<S> <C> <C>
First Bank National Association $100,000,000 $4,000,000
Guaranty Federal Bank, F.S.B. $ 50,000,000 0
Comerica Bank California, Inc. $ 15,000,000 0
First Union National Bank $ 25,000,000 0
Residential Funding Corporation $ 25,000,000 0
</TABLE>
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
Exhibit F
PROMISSORY NOTE
---------------
(Warehousing Note)
September 18, 1997
$25,000,000 Minneapolis, Minnesota
FOR VALUE RECEIVED, NEW CENTURY MORTGAGE CORPORATION, a California
corporation, hereby promises to pay to the order of RESIDENTIAL FUNDING
CORPORATION ("RFC") at the main office of the Agent in Minneapolis, Minnesota,
in lawful money of the United States of America in Immediately Available Funds
(as such term and each other capitalized term used herein are defined in the
Credit Agreement hereinafter referred to), the principal sum of TWENTY-FIVE
MILLION AND NO/100 DOLLARS ($25,000,000) or the aggregate unpaid principal
amount of all Warehousing Loans made by RFC pursuant to the Credit Agreement
described below, whichever is less, and to pay interest in like funds from the
date hereof on the unpaid balance thereof at the rates per annum and at such
times as are specified in the Credit Agreement. Interest (computed on the basis
of actual days elapsed and a year of 360 days) shall be payable at said office
at the times specified in the Credit Agreement.
Principal hereof shall be payable in the amounts and at the times set
forth in the Credit Agreement.
This note is one of the Warehousing Notes referred to in the Second
Amended and Restated Credit Agreement dated as of July 31, 1997, between the
undersigned, RFC, the other banks party thereto and First Bank National
Association, as Agent (as the same may be amended, modified or restated from
time to time, the "Credit Agreement"). Unless otherwise defined herein,
capitalized terms used herein shall have the meanings given to such terms in the
Credit Agreement. This note is subject to certain mandatory and voluntary
prepayments and its maturity is subject to acceleration, in each case upon the
terms provided in the Credit Agreement.
The undersigned hereby waives diligence, presentment, demand, protest,
and notice (except such notice as is required under the Loan Documents) of any
kind whatsoever. The nonexercise by RFC of any of its rights hereunder or under
the other Loan Documents in any particular instance shall not constitute a
waiver thereof in any subsequent instance.
This note is entitled to the benefit of the Guaranty, the Pledge and
Security Agreement and the other Loan Documents.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE
OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF BUT
GIVING EFFECT TO FEDERAL LAWS
<PAGE>
APPLICABLE TO NATIONAL BANKS. In the event of default hereunder, the undersigned
agrees to pay all costs and expenses of collection, including but not limited to
reasonable attorneys' fees.
Notwithstanding the foregoing paragraphs and all other provisions of
this note and the Credit Agreement, none of the terms and provisions of this
note or the Credit Agreement shall ever be construed to create a contract to pay
to RFC, for the use, forbearance or detention of money, interest in excess of
the maximum amount of interest permitted to be charged by RFC to the undersigned
under applicable state or federal law from time to time in effect, and the
undersigned shall never be required to pay interest in excess of such maximum
amount. If, for any reason, interest is paid hereon in excess of such maximum
amount (whether as a result of the payment of this note prior to its maturity or
otherwise), then promptly upon any determination that such excess has been paid
RFC will, at its option, either refund such excess to the undersigned or apply
such excess to the principal owing hereunder. All interest paid shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full period of the Company's credit relationship with RFC until
payment in full of the principal (including the period of any renewal or
extension) so that the interest for such full period shall not exceed the
maximum rate of interest permitted by applicable law.
NEW CENTURY MORTGAGE CORPORATION
By _______________________________________
Its ___________________________________
<PAGE>
New Century Financial Corporation EXHIBIT 11.1
Statement Re Computation of Per Share Earnings ------------
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended September 30 Ended September 30
-----------------------------------------------------------
1997 1996 1997 1996
-----------------------------------------------------------
<S> <C> <C> <C> <C>
Primary:
Net earnings (loss) $14,460,000 $ (521,000) $ 7,040,000 $ 294,000
===========================================================
Weighted average number of common and
equivalent shares outstanding:
Weighted average common shares outstanding 9,544,079 6,348,618 14,121,610 6,348,618
Dilutive effect of stock options and
warrants after application 2,927,648 - 1,258,463 115,610
-----------------------------------------------------------
12,471,727 6,348,618 15,380,073 6,464,228
Earnings (loss) per share $ 1.16 $ (0.08) $ 0.46 $ 0.05
===========================================================
Fully Diluted:
Net earnings (loss) $14,460,000 $ (521,000) $ 7,040,000 $ 294,000
===========================================================
Weighted average number of common and
equivalent shares outstanding:
Weighted average common shares outstanding 9,544,079 6,348,618 14,121,610 6,348,618
Dilutive effect of stock options and
warrants after application 3,232,450 - 1,267,640 835,696
-----------------------------------------------------------
12,776,529 6,348,618 15,389,250 7,184,314
Earnings (loss) per share $ 1.13 $ (0.08) $ 0.46 $ 0.04
===========================================================
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARY FOR THE
THREE-MONTH PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,602,000
<SECURITIES> 84,790,000
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 314,223,000
<CURRENT-ASSETS> 0
<PP&E> 4,344,000
<DEPRECIATION> 900,000
<TOTAL-ASSETS> 409,480,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 141,000
<OTHER-SE> 56,959,000
<TOTAL-LIABILITY-AND-EQUITY> 408,480,000
<SALES> 24,394,000
<TOTAL-REVENUES> 32,500,000
<CGS> 0
<TOTAL-COSTS> 14,870,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,492,000
<INCOME-PRETAX> 12,138,000
<INCOME-TAX> 5,098,000
<INCOME-CONTINUING> 7,040,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,040,000
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
