<PAGE>
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 June 30, 1998
-------------
OR
{_} TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission file number 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: (949) 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 July 31, 1998, 14,424,166 shares of common stock of New Century Financial
Corporation were outstanding.
1
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1998
INDEX
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 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
EXHIBIT INDEX 23
2
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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. Such
statements include the expectation that assumption of servicing responsibilities
from Comerica will have a positive impact on servicing income, the expectation
that the Company's current liquidity, credit facilities and capital resources
will be sufficient to fund its operations for the foreseeable future, the
expectation that the Company will continue to expand its credit facilities to
finance its increasing levels of loan production, the intent to add new credit
facilities, as well as expand these credit facilities, in order to finance
future securitization transactions, and the belief that any liability with
respect to its legal actions, individually or in the aggregate, will not have a
material adverse effect on the Company's financial position or results of
operations. 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 ability
to access funding sources, 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 handle efficiently its expanded servicing responsibilities, and other
risks identified in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997 and its other filings with the Securities and Exchange
Commission.
3
<PAGE>
Item 1. Financial Statements
New Century Financial Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
June 30, 1998 December 31, 1997
-----------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents..................................... $ 8,422 $ 12,701
Loans receivable held for sale, net (notes 2 and 4)........... 281,053 276,506
Residual interests in securitizations (note 3)................ 107,158 97,260
Accrued interest receivable................................... 3,344 3,974
Office property and equipment................................. 4,812 4,289
Prepaid expenses and other assets............................. 16,099 3,398
-------- --------
TOTAL ASSETS $420,888 $398,128
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Warehouse and aggregation lines of credit (note 4)............ $255,284 $255,363
Residual financing............................................ 54,604 53,427
Notes payable................................................. 2,957 3,222
Income taxes payable.......................................... 1,182 1,789
Accounts payable and accrued liabilities...................... 17,247 15,454
Deferred income taxes......................................... 13,037 8,037
-------- --------
Total liabilities........................................... 344,311 337,292
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 7,500,000 shares:
0 shares issued and outstanding............................. - -
Common stock, $.01 par value. Authorized 45,000,000 shares;
issued and outstanding 14,398,186 shares at June 30, 1998
and 14,165,974 shares at December 31, 1997................... 144 142
Additional paid-in capital.................................... 44,874 43,486
Retained earnings, restricted................................. 32,721 18,996
-------- --------
77,739 62,624
Deferred compensation costs................................... (1,162 (1,788)
-------- --------
Total stockholders' equity.................................... 76,577 60,836
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $420,888 $398,128
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
New Century Financial Corporation and Subsidiaries
Consolidated Statements of Earnings
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
------------------------------------------
1998 1997 1998 1997
------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of loans........... $52,100 $27,110 $27,781 $17,098
Interest income................. 23,379 7,344 13,186 5,073
Servicing income................ 8,475 1,164 4,539 862
------------------------------------------
Total revenues................. 83,954 35,618 45,506 23,033
------------------------------------------
Expenses:
Personnel....................... 21,072 9,697 11,173 6,152
Interest........................ 19,590 5,715 10,881 3,907
General and administrative...... 13,159 4,494 7,175 2,540
Advertising and promotion....... 4,294 2,032 2,099 1,190
Servicing....................... 1,311 623 740 389
Professional services........... 688 264 427 108
------------------------------------------
Total expenses................. 60,114 22,825 32,495 14,286
Earnings before income taxes..... 23,840 12,793 13,011 8,747
Income taxes..................... 10,115 5,373 5,519 3,674
------------------------------------------
Net earnings .................... $13,725 $ 7,420 $ 7,492 $ 5,073
==========================================
Basic earnings per share......... $ 0.98 $ 3.07 $ 0.53 $ 1.15
==========================================
Diluted earnings per share....... $ 0.92 $ 0.71 $ 0.50 $ 0.46
==========================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
New Century Financial Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Six Months Ended June 30,
1998 1997
-------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings.......................................................... $ 13,725 $ 7,420
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization......................................... 1,908 562
Deferred income taxes................................................. 5,000 5,190
NIR gains............................................................. (51,767) (32,169)
Initial deposits to over-collateralization accounts................... (11,834) (10,559)
Deposits to over-collateralization accounts........................... (11,844) (1,313)
Release of cash from over-collateralization accounts.................. 10,406 1,313
Net proceeds from NIMS transaction.................................... 53,819 -
Amortization of NIRs.................................................. 6,078 455
General valuation allowances for NIRs................................. 1,000 -
Provision for losses.................................................. 5,446 1,385
Loans originated or acquired for sale................................. (1,474,059) (686,786)
Loan sales, net....................................................... 1,442,846 555,129
Principal payments on loans receivable held for sale.................. 20,728 2,894
(Increase) decrease in accrued interest receivable.................... 630 (114)
Increase in prepaid expenses and other assets......................... (8,646) (2,442)
Increase (decrease) in warehouse and aggregation lines of credit...... (79) 123,027
Decrease in income taxes payable...................................... (607) (795)
Increase in accounts payable and other liabilities.................... 1,194 8,888
-------------------------
Net cash provided by (used in) operating activities..................... 3,944 (27,915)
-------------------------
Cash flows from investing activities:
Purchase of office property and equipment............................. (1,557) (1,341)
Purchase of interest-only (I/O) certificates.......................... (5,756) -
Acquisition of Primewest.............................................. (1,642) -
-------------------------
Net cash used in investing activities.................................. (8,955) (1,341)
Cash flows from financing activities:
Net proceeds from notes payable....................................... (265) 871
Net proceeds from residual financing.................................. 1,177 23,392
Net proceeds from issuance of stock/acquisition of treasury stock..... (180) 5,095
-------------------------
Net cash provided by financing activities............................. 732 29,358
-------------------------
Net increase (decrease) in cash and cash equivalents.................. (4,279) 102
Cash and cash equivalents, beginning of period........................ 12,701 3,041
-------------------------
Cash and cash equivalents, end of period.............................. $ 8,422 $ 3,143
=========================
Supplemental cash flow disclosure:
Interest paid......................................................... $ 19,885 $ 5,264
Income taxes paid..................................................... $ 5,724 $ 978
Stock subscription receivable......................................... $ - $ 32,045
Supplemental non-cash financing activity:
Stock issued in connection with acquisition of Primewest.............. $ 2,000 $ -
Restricted stock issued............................................... $ 173 $ 2,775
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1998 and 1997
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 six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998.
Recent Accounting Developments - In June 1998, the FASB issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Securities and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (i) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (ii) a hedge of the exposure to variable cash
flows of a forecasted transaction, or (iii) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available for sale security, or a foreign currency-denominated
forecasted transaction.
Under SFAS No. 133, an entity that elects to apply hedge accounting is required
to establish at the inception of the hedge the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach for
determining
7
<PAGE>
the ineffective aspect of the hedge. Those methods must be consistent with the
entity's approach to managing risk. Management is in the process of assessing
the impact of implementing SFAS No. 133.
Residual interests in securitizations - Residual interests in securitizations
(Residuals) are recorded as a result of the sale of loans through
securitizations and the sale of residual interests in securitizations through
Net Interest Margin Securities (NIMS). The securitizations are generally
structured as follows: First, the Company sells a portfolio of mortgage loans
to a special purpose entity (SPS) which has been established for the limited
purpose of buying and reselling the Company's mortgage loans. The SPS then
transfers the same mortgage loans to a Real Estate Mortgage Investment Conduit
or Owners Trust (the REMIC or Trust), and the Trust in turn issues interest-
bearing asset-backed securities (the Certificates) generally in an amount equal
to the aggregate principal balance of the mortgage loans. The Company typically
sells these certificates at face value and without recourse except that
representations and warranties customary to the mortgage banking industry are
provided by the Company to the Trust. One or more investors purchase these
Certificates and the proceeds from the sale of the Certificates are used as
consideration to purchase the mortgage loans from the Company. In addition, the
Company may provide a credit enhancement for the benefit of the investors in the
form of additional collateral (over-collateralization account or OC Account)
held by the Trust. The OC Account is required by the servicing agreement to be
maintained at certain levels.
At the closing of each securitization, the Company removes from its consolidated
balance sheet the mortgage loans held for sale and adds to its consolidated
balance sheet (i) the cash received, and (ii) the estimated fair value of the
portion of the mortgage loans retained from the securitizations (Residuals),
which consist of (a) the OC Account and (b) the net interest receivable (NIR).
The NIR represents the discounted estimated cash flows to be received by the
Company in the future. The excess of the cash received and the assets retained
by the Company over the carrying value of the loans sold, less transaction
costs, equals the net gain on sale of mortgage loans recorded by the Company.
The NIMS are generally structured as follows. First, the Company contributes the
Residuals to a special purpose entity (SPS) which has been established for the
limited purpose of receiving and selling asset-backed residual interests in
securitization certificates. Next, the SPS transfers the Residuals
8
<PAGE>
to an owner trust (the Trust) and the Trust in turn issues interest-bearing
asset-backed securities (the bonds and certificates). The Company sells these
Residuals without recourse except that normal representations and warranties are
provided by the Company to the Trust. One or more investors purchase the bonds
and certificates and the proceeds from the sale of the bonds and certificates,
along with a residual interest certificate that is subordinate to the bonds and
certificates, represent the consideration to the Company for the sale of the
Residuals.
At the closing of each NIMS, the Company removes from its consolidated balance
sheet the carrying value of the Residuals sold and adds to its consolidated
balance sheet (i) the cash received, and (ii) the estimated fair value of the
portion of the Residuals retained, which consists of the net interest receivable
(NIR). The excess of the cash received and assets retained over the carrying
value of the Residuals sold, less transaction costs, equals the net gain on the
sale of Residuals recorded by the Company.
The Company allocates its basis in the mortgage loans and residual interests
between the portion of the mortgage loans and residual interests sold through
the Certificates and the Residuals based on the relative fair values of those
portions on the date of sale. The Company may recognize gains or losses
attributable to the changes in the fair value of the Residuals, 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 Residuals and, accordingly, the Company determines the estimated fair
value of the Residuals by discounting the expected cash flows released from the
OC Account (the cash out method) using a discount rate commensurate with the
risks involved. The Company has utilized an effective discount rate of
approximately 12% on the estimated cash flows released from the OC Account to
value the Residuals through securitization and approximately 15% on the
estimated cash flows released from the Trust to value Residuals through NIMS.
The Company receives periodic servicing fees for the servicing and collection of
the mortgage loans as master servicer of the securitized loans. In addition,
the Company is entitled to the cash flows from the Residuals that represent
collections on the mortgage loans in excess of the amounts required to pay the
Certificate principal and interest, the servicing fees and certain other fees
such as trustee and custodial fees. At the end of each collection period, the
aggregate cash collections from the mortgage loans are allocated first to the
base servicing fees and certain other fees such as trustee and custodial fees
for the period, then to the Certificateholders for interest at the pass-through
rate on the Certificates plus principal as defined in the servicing agreements.
If the amount of cash required for the above allocations exceeds the amount
collected during the collection period, the shortfall is drawn from the OC
Account. If the cash collected during the period exceeds the amount necessary
for the above allocations, and there is no shortfall in the related OC Account,
the excess is released to the Company. If the OC Account balance is not at the
required credit enhancement level, the excess cash collected is retained in the
OC Account until the specified level is achieved. The cash and collateral in
the OC Account is restricted from use by the Company. Pursuant to certain
servicing agreements, cash held in the OC Accounts may be used to make
accelerated principal paydowns on the Certificates to create additional excess
collateral in the OC Account
9
<PAGE>
which is held by the Trusts on behalf of the Company as the Residual holder. The
specified credit enhancement levels are defined in the servicing agreements as
the OC Account balance expressed generally as a percentage of the current
collateral principal balance.
The Annual Percentage Rate (APR) on the mortgage loans is relatively high in
comparison to the pass-through rate on the Certificates. Accordingly, the
Residuals described above are a significant asset of the Company. In determining
the value of the Residuals, the Company must estimate the future rates of
prepayments, prepayment penalties to be received by the Company, delinquencies,
defaults and default loss severity as they affect the amount and timing of the
estimated cash flows. The Company uses a 0.45% to 0.73% annual default rate
estimate. The Company's default rate estimates result in cumulative loss
estimates as a percentage of the original principal balance of the mortgage
loans of 1.91% to 2.08%. These estimates are based on historical loss data for
comparable loans and the specific characteristics of the loans originated by the
Company. The Company estimates prepayments by evaluating historical prepayment
performance of comparable mortgage loans and the impact of trends in the
industry. The Company has used a prepayment curve to estimate the prepayment
characteristics of the mortgage loans. The rate of increase, duration, severity
and decrease of the curve depends on the age and nature of the mortgage loans,
primarily whether the mortgage loans are fixed or adjustable and the interest
rate adjustment characteristics of the mortgage loans (6 month, 1 year, 2 year,
3 year or 5 year adjustment periods). The Company's prepayment curve and default
estimates have resulted in weighted average lives of between 3.15 and 4.49 years
for its mortgage loans.
Due to the uncertainty associated with estimating future cash flows caused by
the lack of historical performance data on the mortgage loans and the absence of
an active market for the purchase and sale of Residuals, the Company established
a general valuation allowance of $3.0 million for the Residuals during the year
ended December 31, 1997. The general valuation allowance is based on the
Company's periodic evaluation of the Residuals, which takes into consideration
trends in actual cash flow performance, industry and economic developments, as
well as other relevant factors. As a result of its evaluation of the Residuals
during the second quarter of 1998, particularly prepayment trends in the 6 month
LIBOR product, the Company added $1.0 million to this allowance, despite the
fact that actual cash flows exceeded modeled cash flows during the six months
ended June 30, 1998.
2. Loans Receivable Held for Sale
A summary of loans receivable held for sale, at the lower of cost or market at
June 30, 1998 and December 31, 1997 follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- -----------
<S> <C> <C>
Mortgage loans receivable.................... $280,461 $275,814
Net deferred origination costs............... 592 692
-------- --------
$281,053 $276,506
======== ========
</TABLE>
10
<PAGE>
3. Residual Interests in Securitizations
Residual interests in securitizations consist of the following components at
June 30, 1998 and December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- -----------
<S> <C> <C>
Overcollateralization amount......................... $ 17,517 $ 21,224
Interest-only certificates........................... 5,756 ---
Net interest receivable (NIR)........................ 87,885 79,036
-------- --------
111,158 100,260
General valuation allowance.......................... (4,000) (3,000)
------- --------
$107,158 $ 97,260
======== ========
</TABLE>
The following table summarizes activity in the NIR amounts for the six month
period ended June 30, 1998 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- --------
<S> <C> <C>
Balance, beginning of period.................................. $ 79,036 $ ---
Sale of NIR through NIMS...................................... (36,840) ---
NIR gains..................................................... 51,767 32,169
NIR amortization.............................................. (6,078) (455)
-------- -------
Balance, end of period........................................ $ 87,885 $31,714
======== =======
</TABLE>
11
<PAGE>
4. Warehouse and Aggregation Lines of Credit
Warehouse and aggregation lines of credit consist of the following at June 30,
1998 and December 31, 1997 (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
A $310 million line of credit expiring in May 1999
secured by loans receivable held for sale, bearing
interest based on one month LIBOR (5.66% at
June 30, 1998)..................................... $166,915 $182,280
A $4 million unsecured working capital line
of credit which expired in May 1998, bearing
interest based on the bank's prime rate............ --- 2,146
A $600 million master repurchase agreement bearing
interest based on one month LIBOR (5.66% at
June 30, 1998). The agreement may be terminated
by the lender giving 28 days written notice........ 86,988 55,064
A $100 million master repurchase agreement bearing
interest based on one month LIBOR (5.66% at
June 30, 1998). The agreement may be terminated
by the lender giving 28 days written notice........ 1,381 ---
A $250 million master repurchase agreement which
expired in March 1998, bearing interest based on
one month LIBOR ................................... --- 15,873
-------- --------
$255,284 $255,363
======== ========
</TABLE>
The warehouse and aggregation line of credit agreements contain certain
restrictive financial and other covenants which require the Company to, among
other things, restrict dividends, maintain certain net worth and liquidity
levels, remain below specified debt-to-net-worth ratios and comply with
regulatory and investor requirements. At June 30, 1998, the Company was in
compliance with these financial and other covenants.
12
<PAGE>
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
that originates, purchases, sells and services 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
has in the past acquired loans 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.
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. 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 over-
collateralization amount (OC) and the Net Interest Receivable (NIR) (combined,
the Residuals), over the actual life of the loans.
The Company has, to date, elected to fund the required OC at the closing of each
securitization for all but two securitizations. The over-collateralization
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 Account up front, the Company begins to receive cash flow from the
Residual immediately. In those cases where only a portion of the OC Account is
funded up front, the Company will begin to receive cash flow from the Residual
more quickly than in cases where no initial funding is undertaken. Cash flows
from the Residuals are subject to certain delinquency or credit loss tests, as
defined by the rating agencies or the bond insurance companies.
The Company also completed its first NIMS transaction in the second quarter of
1998. The Company sold residual interests in securitizations and retained a
residual interest in the NIMS. The transaction resulted in net cash proceeds of
$5.0 million, as well as the paydown of approximately $49 million in residual
financing.
13
<PAGE>
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. Typically, they 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 Six Months
Ended June 30, Ended June 30,
-------------------- ---------------------
1998 1997 1998 1997
-------- --------- ---------- --------
<S> <C> <C> <C> <C>
Securitizations................. $370,371 $232,211 $ 680,030 331,343
Whole loan sales................ 410,732 128,070 762,816 223,786
-------- -------- ---------- --------
Total $781,103 $360,281 $1,442,846 $555,129
======== ======== ========== ========
</TABLE>
As a result of timing differences in receiving cash from whole loan sales versus
securitizations, the relative percentage of whole loan sales to securitizations
will affect the Company's operating cash flow. For the quarter ended June 30,
1998, $370.4 million, or 47.4%, of the Company's loan sales were in the form of
securitizations. In the six months ended June 30, 1998, the Company securitized
$680.0 million, or 47.1% of total loan sales, excluding approximately $118.0
million in loans that were securitized through a pre-funding arrangement which
settled in July 1998.
Results of Operations
The Company began lending operations in February 1996. Since inception, the
Company has been expanding the number of sales offices and markets it serves.
The Company's considerable growth during 1997 has a significant effect on the
comparison of results for the three and six months ended June 30, 1998 to the
three and six months ended June 30, 1997.
As of June 30, 1998, the Company's Wholesale Division operated through 45 sales
offices and four regional operating centers located in 27 states. The number of
account executives in the Wholesale Division grew to 132 at June 30, 1998, from
58 at June 30, 1997. The Company's Retail Division operated through 91 sales
offices located in 27 states. The number of loan officers grew to 355 at June
30, 1998, from 149 at June 30, 1997. In January 1998, the Company completed
the acquisition of Primewest Funding (Primewest), a correspondent lender of the
Company. Retail loan originations and purchases reported for the quarter ended
June 30, 1998 include loans originated through Primewest subsequent to the
acquisition.
14
<PAGE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
The Company originated and purchased $1.5 billion in loans for the six months
ended June 30, 1998, compared to $683.6 million for the six months ended June
30, 1997. Loans originated and purchased through the Company's Wholesale
Division were $1.0 billion, or 69.2%, of total originations and purchases for
the six months ended June 30, 1998. Loans originated through the Company's
Retail Division (including Primewest) were $453.6 million, or 30.8%, of total
originations and purchases for the six month period. Primewest accounted for
$33.8 million of this total. For the same period in 1997, Wholesale and Retail
originations and purchases totaled $486.4 million, or 71.2%, and $197.2 million,
or 28.8%, respectively, of total originations and purchases.
Total revenues for the six months ended June 30, 1998 increased to $84.0
million, from $35.6 million for the six months ended June 30, 1997. This
increase was due primarily to the increase in loan originations and purchases
and sales in 1998. Gain on sale of loans increased to $52.1 million for the six
months ended June 30, 1998, from $27.1 million for the six months ended June 30,
1997, due to the increase in loan sales in 1998.
The components of the gain on sale of loans are illustrated in the following
table (dollars in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
--------------------------
<S> <C> <C>
Gain from whole loan sale transactions $ 36,271 $ 8,862
Non-cash gain from securitizations 51,767 32,169
Securitization expenses (4,568) (1,973)
Accrued interest (2,893) (2,465)
Provision for losses (5,446) (1,385)
General valuation allowance for NIRs (1,000) --
Non-refundable loan fees 23,195 8,359
Premiums paid (15,828) (6,057)
Origination costs (27,750) (10,266)
Hedging losses (1,648) (134)
-------- --------
Gain on sale of loans $ 52,100 $ 27,110
======== ========
</TABLE>
Whole loan sales increased to $762.8 million for the six months ended June 30,
1998, from $223.8 million for the corresponding period in 1997. This increase
is the result of the increase in loan originations and purchases. The Company
incurred hedging losses in the six months ended June 30, 1998 as a result of
transactions relating to hedging the fixed rate portion of the Company's
pipeline and inventory of loans receivable held for sale.
Interest income increased to $23.4 million for the six months ended June 30,
1998, from $7.3 million for the same period in 1997, 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 six months ended
June 30, 1998 is the result of a higher average inventory of loans
15
<PAGE>
held for sale compared to the corresponding period in 1997, primarily as a
result of (i) increased loan originations and purchases and (ii) the closing of
the majority of the second quarter loan sales in the third month of the second
quarter in 1998.
Servicing income increased to $8.5 million for the six months ended June 30,
1998, from $1.2 million for the six months ended June 30, 1997. This increase
resulted primarily from the increase in the servicing portfolio of loans
securitized, from $306.0 million at June 30, 1997 to $1.8 billion at June 30,
1998. The increase was also due partly to whole loan sales made on a servicing
retained basis, which represented another $276.4 million in loans serviced as of
June 30, 1998. In July 1998, the Company assumed all of the sub-servicing
responsibilities previously performed by Comerica. The Company expects the
assumption of these duties to have a positive impact on servicing income in
future periods.
Total expenses increased to $60.1 million for the six months ended June 30,
1998, from $22.8 million for the six months ended June 30, 1997. Interest
expense increased due to the higher level of loan inventory and corresponding
warehouse and aggregation borrowings. All other expense components increased
from 1997 to 1998 due primarily to (1) higher loan origination volume in the six
months ended June 30, 1998 compared to the same period in 1997; (2) an increase
in staffing from 623 employees at June 30, 1997 to 1,423 employees at June 30,
1998; and (3) the addition of 24 wholesale sales offices and 47 retail sales
offices from June 30, 1997 to June 30, 1998.
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
The Company originated and purchased $818.9 million in loans for the three
months ended June 30, 1998, compared to $433.0 million for the three months
ended June 30, 1997. Loans originated and purchased through the Company's
Wholesale Division were $587.4 million, or 71.7%, of total originations and
purchases for the three months ended June 30, 1998. Loans originated through
the Company's Retail Division were $231.5 million, or 28.3%, of total
originations and purchases for the three month period. For the same period in
1997, Wholesale and Retail originations and purchases totaled $310.2 million, or
71.6% and $122.8 million, or 28.4%, respectively, of total originations and
purchases.
Total revenues for the three months ended June 30, 1998 increased to $45.5
million, from $23.0 million for the three months ended June 30, 1997. This
increase was due primarily to the increase in loan originations and purchases
and sales in 1998. Gain on sale of loans increased to $27.8 million for the
three months ended June 30, 1998, from $17.1 million for the three months ended
June 30, 1997, due to the increase in loan sales in 1998.
16
<PAGE>
The components of the gain on sale of loans are illustrated in the following
table (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended June 30,
1998 1997
------------- -------------
<S> <C> <C>
Gain from whole loan sale transactions $ 20,089 $ 4,611
Non-cash gain from securitizations 28,004 21,772
Securitization expenses (3,047) (1,290)
Accrued interest (452) (1,804)
Provision for losses (3,738) (890)
General valuation allowance for NIRs (1,000) --
Non-refundable loan fees 12,669 5,048
Premiums paid (8,346) (4,254)
Origination costs (14,750) (6,095)
Hedging losses (1,648) ---
-------- -------
Gain on sale of loans $ 27,781 $17,098
======== =======
</TABLE>
The assumptions used to record the gain on loans securitized in the quarter
ended June 30, 1998 resulted in a weighted average life of 4.49 years and a
cumulative loss estimate of 1.99% of the original principal balance. An
effective discount rate of approximately 12.0% was used to estimate the present
value of the estimated cash flows to be released from the OC Account.
During the quarter ended June 30, 1998, the cash flows from the Company's
residual interests in securitizations were $6.9 million, which is $209,000, or
approximately 3.1%, in excess of the cash flows estimated to be received in this
period. For the quarter ended June 30, 1997, cash flows from residual interests
in securitizations were $1.3 million, which was approximately equal to estimated
cash flows.
Whole loan sales increased to $410.7 million for the three months ended June 30,
1998, from $128.1 million for the corresponding period in 1997. This increase
is the result of the increase in loan originations and purchases.
Interest income increased to $13.2 million for the three months ended June 30,
1998, from $5.1 million for the same period in 1997, 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
June 30, 1998 is the result of a higher average inventory of loans held for sale
compared to the corresponding period in 1997, primarily as a result of (i)
increased loan originations and purchases and (ii) the closing of the majority
of the second quarter loan sales in the third month of the quarter in 1998.
Servicing income increased to $4.5 million for the three months ended June 30,
1998, from $862,000 for the three months ended June 30, 1997. This increase
resulted from 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. As of June 30, 1998,
the Company had securitized over $1.8 billion in
17
<PAGE>
loans and retained the servicing rights. As of June 30, 1997, the Company had
securitized only $331.3 million in loans. In addition, the Company has increased
the volume of servicing-retained whole loan sales, the portfolio of which
totaled $276.4 million at June 30, 1998. There were no loans serviced under
servicing retained loan sales at June 30, 1997.
Total expenses increased to $32.5 million for the three months ended June 30,
1998, from $14.3 million for the three months ended June 30, 1997. Interest
expense increased due to the higher level of loan inventory and corresponding
warehouse and aggregation borrowings. All other expense components increased
from 1997 to 1998 due primarily to (1) higher loan origination volume in the
quarter ended June 30, 1998 compared to the same period in 1997; (2) an increase
in staffing from 623 employees at June 30, 1997 to 1,423 employees at June 30,
1998; and (3) the addition of 24 wholesale sales offices and 47 retail sales
offices from June 30, 1997 to June 30, 1998.
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
securitization and sale of such loans. As of June 30, 1998, the Company had a
$310.0 million warehouse line of credit led by U.S. Bank National Association
(formerly First Bank National Association) which expires in May 1999 and bears
interest at a rate equal to the one month LIBOR plus 1.25%. At June 30, 1998,
the balance outstanding under the warehouse line of credit was $166.9 million.
As of June 30, 1998, the Company also had a $600.0 million aggregation facility
with Salomon Smith Barney (Salomon), 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 June 30, 1998, the balance outstanding under the
aggregation facility was $87.0 million. The Company's $250.0 million aggregation
facility with Greenwich Capital matured on March 31, 1998 and the Company opted
not to renew the facility. As of June 30, 1998, the Company also had a $100.0
million refinance aggregation facility with Salomon, 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 June 30, 1998, the balance outstanding under
the refinance aggregation facility was $1.4 million.
The Company utilizes the U.S. Bank warehouse line to finance the actual funding
of its loan originations and purchases. After loans are funded by the Company
using the warehouse line and all loan documentation is complete, the loans are
generally transferred to one of the aggregation facilities. The aggregation
facilities are 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.
The Company has residual financing arrangements with the lead underwriters of
its securitizations, whereby the 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. At June 30, 1998, the balance
18
<PAGE>
outstanding under these facilities was $54.6 million. The Company intends to add
new credit facilities, as well as expand these credit facilities, in order to
finance future securitization transactions.
The Company's business requires substantial cash to support its operating
activities and growth plans. The Company's 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 connection with generating loans through wholesale
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) any 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 aggregation facilities; (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)
servicing income. As a result of its strategy to grow its loan origination,
purchase and securitization programs, the Company expects that its operating
uses of cash may continue to exceed its operating sources of cash. For the
six months ended June 30, 1998, the Company's operations provided approximately
$3.9 million in cash, which is primarily attributable to the NIMS transaction,
partially offset by the cash investments discussed above, and the cash invested
in the OC Accounts.
The Company has a discretionary, non-revolving $5.0 million line of credit
with an affiliate of U.S. 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 for a term of three years. As of June 30, 1998, the balance
outstanding under this facility was $3.0 million, and the weighted-average
interest rate was 9.0%.
The Company had a $4.0 million unsecured line of credit with U.S. Bank for
working capital purposes, which was terminated in June 1998. The new terms of
the U.S. Bank warehouse line allow borrowings secured by the Company's
servicing-related advances, as well as additional borrowing capacity on the
Company's inventory of loans receivable held for sale. These new terms
effectively replaced the working capital line of credit.
The Company has a $5.25 million, non-revolving operating lease with GE Capital
for purposes of financing office property and equipment. Advances under the
lease are made periodically and a financing rate is established at the time of
each advance. As of June 30, 1998, the Company had been advanced $4.9 million
under this facility.
19
<PAGE>
In June 1998, the Company established a $5.0 million, non-revolving operating
lease with AT&T for purposes of financing office property and equipment.
Advances under the lease are made periodically and a financing rate is
established at the time of each advance. As of June 30, 1998, the Company had
not yet utilized this facility.
The Company anticipates that its current liquidity, credit facilities and
capital resources will be sufficient to fund its operations for the foreseeable
future.
20
<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
The Company held its Annual Meeting of Stockholders on May 18, 1998. At
the meeting, the stockholders approved the following matters:
1. The election of three directors for three-year terms ending in 2001;
2. The approval of an amendment to the Company's 1995 Stock Option Plan
to increase the number of shares authorized to be issued under the
Plan from 2,000,000 shares to 2,500,000 shares;
3. The approval of the Company's Employee Stock Purchase Plan; and
4. The approval of KPMG Peat Marwick LLP as independent auditors of the
Company for the fiscal year ending December 31, 1998.
The number of votes cast for or withheld and the number of abstentions and
broker non-votes as to each matter voted upon at the meeting are as
follows:
<TABLE>
<CAPTION>
ITEM FOR WITHHELD
---- --- --------
1. Election of Directors:
----------------------
<S> <C> <C>
Fredric J. Forster 14,212,853 7,900
Edward F. Gotschall 14,212,853 7,900
Martin F. Ryan 14,212,853 7,900
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN BROKER
--- ------- ------- ---------
NON-VOTES
---------
<S> <C> <C> <C> <C>
2. Approval of Stock Option
Plan Amendment 11,439,193 1,264,267 94,148 1,423,145
3. Approval of Employee
Stock Purchase Plan 12,228,789 452,466 92,045 1,447,453
4. Approval of Independent
Auditors 14,208,820 1,912 10,021 ---
</TABLE>
Item 5. Other Information
The Company hereby advises stockholders that a stockholder
proposal submitted pursuant to Rule 14a-8 under the Securities
Exchange Act of 1934 for inclusion in the Company's proxy
statement and form of proxy for the 1999 Annual Meeting of
Stockholders must be received by the Company by December 8, 1998.
Such a proposal must also comply with the requirements as to form
and substance established by the Securities and Exchange
Commission for such proposals. A stockholder otherwise desiring
to bring discussion before an annual meeting of stockholders
(including any proposal relating to the nomination of a director
to be elected to the Board of Directors) must submit a proposal
that is received at the principal executive offices of the
Company not less than 60 nor more than ninety days prior to such
annual meeting. For example, if the Company's 1999 Annual Meeting
of Stockholders is held on May 17, 1999, then notice of a
proposal submitted other than pursuant to Rule 14a-8 must be
received by the Company after February 16, 1999 but on or before
March 18, 1999.
Item 6. (a) Exhibits required by Item 601 of Regulation S-K
See "Exhibit Index."
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the
second quarter.
22
<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: August 13, 1998 By: /s/ BRAD A. MORRICE
------------------------------------
Brad A. Morrice
President
DATE: August 13, 1998 By: /s/ EDWARD F. GOTSCHALL
------------------------------------
Edward F. Gotschall
C.O.O. - Finance
(Principal Financial and Accounting
Officer)
23
<PAGE>
EXHIBIT INDEX
Exhibit Description of Sequentially
Number Exhibit Numbered Page
- ------ -------------- -------------
*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 Agreement to Add Lender between the Company, U.S.
Bank National Association and NationsBank of Texas,
N.A., dated as of April 29, 1998
10.2 Fourth Amendment to Second Amended and Restated
Credit Agreement by and between the Company and
U.S. Bank National Association, dated as of
May 1, 1998
**10.3 Amended and Restated 1995 Stock Option Plan
reflecting First Amendment to Plan adopted
March 19, 1998 and approved by stockholders
May 18, 1998
10.4 Third Amended and Restated Credit Agreement by and
between the Company and U.S. Bank National
Association, dated as of May 29, 1998
10.5 Termination Agreement by and among the Company,
Comerica Mortgage Corporation and Comerica
Incorporated, dated as of June 26, 1998
11.1 Statement re Computation of Per Share Earnings
27.1 Financial Data Schedule
* Incorporated by reference from the Company's Amendment No. 1 to Form S-1
Registration Statement (No. 333-25483) filed with the SEC on June 2, 1997.
** Incorporated by reference from the Company's Form S-8 Registration
Statement (No. 333-53665) filed with the SEC on May 27, 1998.
<PAGE>
EXHIBIT 10.1
AGREEMENT TO ADD LENDER
-----------------------
THIS AGREEMENT TO ADD LENDER (the "Agreement"), dated as of April 29,
1998, is by and among NEW CENTURY MORTGAGE CORPORATION, a California corporation
(the "Company"), U.S. BANK BANK NATIONAL ASSOCIATION, formerly known as First
Bank National Association, as agent (the "Agent") for the Lenders party to the
Second Amended and Restated Credit Agreement described below, and NATIONSBANK OF
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 April 29, 1998, 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/ [SIGNATURE ILLEGIBLE]^^
-----------------------------
Its CEO
--------------------------
NATIONSBANK OF TEXAS, N.A.
By /s/ Bob L. Caston
-----------------------------
Its NationsBank of Texas, N.A.
-------------------------
Senior Vice President
Address for Notices:
-------------------
901 Main Street, Suite 6600
Dallas, Texas 75283-1000
Attention: Garrett Dolt
Telephone: (214) 508-2664
Telefacsimile: (214) 508-0338
U.S. BANK NATIONAL
ASSOCIATION, formerly known as
First Bank National Association,
as Agent
By /s/ [SIGNATURE ILLEGIBLE]^^
-----------------------------
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>
U.S. Bank National Association $60,000,000 $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
The Bank of New York $25,000,000 0
The First National Bank of Chicago $30,000,000 0
NationsBank of Texas, N.A. $30,000,000 0
</TABLE>
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE>
Exhibit F
PROMISSORY NOTE
---------------
(Warehousing Note)
April 29, 1998
$30,000,000 Minneapolis, Minnesota
FOR VALUE RECEIVED, NEW CENTURY MORTGAGE CORPORATION, a California
corporation, hereby promises to pay to the order of NATIONSBANK OF 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.
<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 Compnay'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 10.2
FOURTH AMENDMENT TO
--------------------
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------
THIS FOURTH AMENDMENT TO SECOND AMENDED AND RESTATED CREDIT AGREEMENT (the
"Amendment") dated as of May 1, 1998 by and among NEW CENTURY MORTGAGE
CORPORATION, a California corporation (the "Company"), U.S. BANK NATIONAL
ASSOCIATION, a national banking association, formerly known as FIRST BANK
NATIONAL ASSOCIATION ("U.S. Bank"), GUARANTY FEDERAL BANK, FSB, a federal
savings bank ("GFB"), FIRST UNION NATIONAL BANK, formerly known as FIRST UNION
NATIONAL BANK OF NORTH CAROLINA, a national banking association ("First Union"),
RESIDENTIAL FUNDING CORPORATION, a Delaware corporation ("RFC"), BANK ONE,
TEXAS, N.A., a national banking association ("Bank One"), THE BANK OF NEW YORK,
a New York banking corporation ("BNY"), THE FIRST NATIONAL BANK OF CHICAGO, a
national banking association ("First Chicago") (U.S. Bank, GFB, First Union,
RFC, Bank One, BNY, and First Chicago being hereinafter referred to collectively
as the "Lenders" and individually as a "Lender"), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association, in its capacity as agent for the
Lenders (in such capacity, together with any successor agents appointed
hereunder, the "Agent").
WITNESSETH THAT:
WHEREAS, the Company, the Lenders and the Agent are parties to a Second
Amended and Restated Credit Agreement dated as of July 31, 1997, as amended by a
First Amendment dated as of November 26, 1997, a Second Amendment dated as of
December 22, 1997, and a Third Amendment dated as of December 31, 1997 (as so
amended, the "Credit Agreement"), pursuant to which the Lenders provide the
Company with revolving mortgage warehousing and working capital credit
facilities; and
WHEREAS, the Company and the Lenders have agreed to amend the Credit
Agreement upon the terms and conditions herein set forth;
NOW, THEREFORE, for value received, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Lenders agree as follows:
1. Certain Defined Terms. Each capitalized term used herein without
---------------------
being defined herein that is defined in the Credit Agreement shall have the
meaning given to it therein.
2. Consent. On the date this Amendment becomes effective, the Lenders
-------
hereby consent to the Investments to be made by the Company, provided that the
amount of such Investments does not exceed $1,250,000 in the aggregate, and the
guaranty to be made by NCFC, pursuant to a Strategic Alliance Agreement by and
<PAGE>
among the Company, Qualified Financial Services, Inc., a Colorado corporation,
Qualified Financial Services, Inc., a California corporation, Simon Mundy, an
individual, and David V.V. Thais, an individual. The consent set forth herein
is limited to the express terms thereof, and nothing herein shall be deemed a
waiver by the Lenders for any other purpose of any term, condition,
representation or covenant applicable to the Company under the Credit Agreement
or any of the other Loan Documents.
3. Amendments to Credit Agreement. The Credit Agreement is hereby amended
------------------------------
as follows:
(a) Section 1.01 is hereby amended by adding the following new
definitions in correct alphabetical order:
"Fair Market Value": as defined in Exhibit E.
-----------------
"Working Capital Borrowing Base": on the date of determination,
------------------------------
an amount equal to Four Million Dollars ($4,000,000) plus for each
----
Mortgage Loan included in the calculation of the Warehousing Borrowing
Base, the lesser of: (i) three percent (3%) 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, and (ii) three percent (3%) of the unpaid principal amount
of such Mortgage Loan.
(b) The definition of "Working Capital Increase Date" in Section 1.01
is hereby amended in its entirety to read as follows:
"Working Capital Increase Date": May 1, 1998.
-----------------------------
(c) The definitions of "GEFP," "Junior Securitization Interest,"
"Junior Securitization Interest Income Value," "SBRC," "Working Capital
Collateral," "Working Capital Collateral Value," and "Working Capital
Security Agreement" are hereby deleted from Section 1.01.
(d) The Agreement is hereby amended by deleting all references
therein to "Working Capital Collateral" and "Working Capital Security
Agreement."
(e) Section 2.02(a) is hereby amended in its entirety to read as
follows:
-2-
<PAGE>
(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, each Lender agrees to lend (and after repayment, to
refund) 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,
subject to the following limitations:
(i) the aggregate principal amount of Working Capital
Loans at any time outstanding plus the Letter of Credit
----
Obligations shall not exceed the sum of the Working Capital
Commitment Amounts of all the Lenders;
(ii) the aggregate principal amount of Working Capital
Loans at any time outstanding plus the Letter of Credit
----
Obligations shall not exceed the Working Capital Borrowing Base,
as determined by the Agent from its records; and
(iii) the aggregate amount of all Loans at any time
outstanding plus the Letter of Credit Obligations shall not
----
exceed ninety-seven percent (97%) of the Fair Market Value of all
of the Mortgage Loans included in the calculation of the
Warehousing Borrowing Base.
No Lender shall be obligated to make Working Capital Loans if, after
giving effect thereto, any of the foregoing limitations would be
exceeded. 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 make Working Capital Loans in excess of its Working Capital
Commitment Amount.
(f) Section 2.02(d)(ii) is hereby amended in its entirety to read as
follows:
(ii) Mandatory Prepayments. If, at any time from and after the
---------------------
Working Capital Increase Date, the aggregate principal amount of all
Working Capital Loans outstanding plus the Letter of Credit
----
Obligations exceeds the Working Capital Borrowing Base, or the
aggregate amount of all Loans outstanding plus the Letter of Credit
----
Obligations exceeds ninety-seven percent (97%) of the Fair Market
-3-
<PAGE>
Value of all of the Mortgage Loans included in the calculation of the
Warehousing Borrowing Base, the Company shall immediately make
principal prepayments on the Working Capital Notes (and, after the
same have been repaid in full, the Warehousing Notes) in an aggregate
amount equal to the amount of such excess, which aggregate amount
shall be paid to the Agent and distributed to each Lender ratably on
the basis of its Pro Rata Share thereof.
(g) Section 2.09(a) is hereby amended in its entirety to read as
follows:
(a) Letters of Credit. Upon the terms and subject to the
-----------------
conditions of this Agreement, U.S. Bank agrees to issue Letters of
Credit for the account of the Company; provided that U.S. Bank shall
--------
be under no obligation to issue any Letter of Credit if, after giving
effect to such issuance, (i) the Company's Letter of Credit
Obligations would exceed $1,250,000, (ii) the sum of the aggregate
principal amount of Working Capital Loans outstanding plus the Letter
----
of Credit Obligations would exceed the lesser of (A) the sum of the
Working Capital Commitment Amounts or (B) the Working Capital
Borrowing Base, or (iii) the sum of the aggregate principal amount of
all Loans plus the Letter of Credit Obligations would exceed ninety-
----
seven percent (97%) of the Fair Market Value of all of the Mortgage
Loans included in the calculation of the Warehousing Borrowing Base.
(h) Section 3.04 is hereby amended by deleting the last sentence
thereof.
(i) Section 4.01(e) is hereby amended by deleting clause (v) thereof,
adding the word "and" at the end of such clause (iii) thereof, and deleting
the word "and" at the end of clause (iv) thereof.
(j) Section 4.08(d) is hereby amended in its entirety to read as
follows:
(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 does not exceed 75% of the
--------
value of such interest-only or residual interests determined in
accordance with GAAP;
(k) Section 7.10 is hereby amended by deleting the last sentence
thereof and inserting the following therefor:
-4-
<PAGE>
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.
(l) Section 5.03 is deleted in its entirety.
(m) Schedule 1.01(b) is hereby amended in its entirety to read as set
forth on Schedule 1.01(b) hereto.
4. Conditions to Effectiveness of this Amendment. This Amendment shall
---------------------------------------------
become effective when the Agent shall have received at least eight (8)
counterparts of this Amendment, duly executed by the Company and each Lender and
acknowledged by NCFC, provided the following conditions are satisfied:
(a) Before and after giving effect to this Amendment, the
representations and warranties of the Company in Section 3 of the Credit
Agreement and Section 5 of the Pledge and Security Agreement, and of NCFC
in Section 15 of the Guaranty, shall be true and correct as though made on
the date hereof, except for changes that are permitted by the terms of the
Credit Agreement.
(b) Before and after giving effect to this Amendment, no Event of
Default and no Unmatured Event of Default shall have occurred and be
continuing under the Credit Agreement.
(c) No material adverse change in the business, assets, financial
condition or prospects of the Company or NCFC shall have occurred since the
Effective Date.
(d) The following shall have been delivered to the Agent, each duly
executed or certified, as the case may be, and dated as of the date of
delivery thereof:
(i) a new Working Capital Note payable to each Lender holding a
Working Capital Commitment, in the amount of such Lender's respective
Working Capital Commitment Amount after giving effect
-5-
<PAGE>
to any increase thereof (the "New Note"), duly executed by the
Company;
(ii) certified copies of resolutions of the Board of Directors
of the Company authorizing or ratifying the execution, delivery and
performance of this Amendment and the New Note;
(iii) a certified copy of any amendment or restatement of the
Articles of Incorporation or the By-laws of the Company made or
entered following the date of the most recent certified copies thereof
furnished to the Lenders;
(iv) certified copies of all documents evidencing any necessary
corporate action, consent or governmental or regulatory approval (if
any) with respect to this Amendment and the New Note;
(v) a favorable opinion of Stergios Theologides, General Counsel
to NCFC and senior legal counsel to the Company, addressed to the
Banks, as to the matters and to the effect set forth on Exhibit B
hereto; and
(vi) such other documents, instruments, opinions and approvals
as the Agent may reasonably request.
5. Acknowledgments. The Company and each Lender acknowledge that, as
---------------
amended hereby, the Credit Agreement remains in full force and effect with
respect to the Company and the Lenders, that each reference to the Credit
Agreement in the Loan Documents shall refer to the Credit Agreement as amended
hereby. The Company confirms and acknowledges that it will continue to comply
with the covenants set out in the Credit Agreement and the other Loan Documents,
as amended hereby, and that its representations and warranties set out in the
Credit Agreement and the other Loan Documents, as amended hereby, are true and
correct as of the date of this Amendment. The Company further represents and
warrants that (i) the execution, delivery and performance of this Amendment is
within its corporate powers and has been duly authorized by all necessary
corporate action; (ii) this Amendment has been duly executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its respective terms
(subject to limitations as to enforceability which might result from bankruptcy,
insolvency, or other similar laws affecting creditors' rights generally and
general principles of equity) and (iii) no Events of Default or Unmatured Events
of Default exist.
6. General.
-------
-6-
<PAGE>
(a) The Company agrees to reimburse the Agent upon demand for all
reasonable expenses (including reasonable attorneys fees and legal
expenses) incurred by the Agent in the preparation, negotiation and
execution of this Amendment and any other document required to be furnished
herewith, and to pay and save the Lenders harmless from all liability for
any stamp or other taxes which may be payable with respect to the execution
or delivery of this Amendment, which obligations of the Company shall
survive any termination of the Credit Agreement.
(b) This Amendment may be executed in as many counterparts as may be
deemed necessary or convenient, and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
(c) Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
(d) This Amendment 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.
(e) This Amendment shall be binding upon the Company, the Lenders,
the Agent and their respective successors and assigns, and shall inure to
the benefit of the Company, the Lenders, the Agent and the successors and
assigns of the Lenders and the Agent.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first above written.
NEW CENTURY MORTGAGE
CORPORATION
By/s/ [SIGNATURE ILLEGIBLE]^^
-----------------------------
Its Chief Executive Officer
------------------------
U.S. BANK NATIONAL ASSOCIATION,
formerly known as
FIRST BANK NATIONAL ASSOCIATION
By/s/ [SIGNATURE ILLEGIBLE]^^
-----------------------------
Its Vice President
------------------------
GUARANTY FEDERAL BANK, FSB
By/s/ [SIGNATURE ILLEGIBLE]^^
-----------------------------
Its Senior Vice President
------------------------
FIRST UNION NATIONAL BANK,
formerly known as
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By/s/ [SIGNATURE ILLEGIBLE]^^
-----------------------------
Its VP
------------------------
[Signature Page for Fourth Amendment to
Second Amended and Restated Credit Agreement]
<PAGE>
RESIDENTIAL FUNDING CORPORATION
By/s/ [SIGNATURE ILLEGIBLE]^^
------------------------------
Its Director
-------------------------
BANK ONE, TEXAS, N.A.
By/s/ Mark L. Freeman
------------------------------
Its Vice President
-------------------------
COMERICA BANK CALIFORNIA, INC.
By/s/ David R Chirchill
------------------------------
Its Corporate Banking Officer
-------------------------
THE BANK OF NEW YORK
By/s/ Robert W. Pierson
------------------------------
Its Vice President
-------------------------
THE FIRST NATIONAL BANK
OF CHICAGO
By/s/ [SIGNATURE ILLEGIBLE]^^
-----------------------------
Its Vice President
------------------------
-9-
<PAGE>
NATIONSBANK OF TEXAS, N.A.
By /s/ Bob L. Caston
-----------------------------
Its Senior Vice President
------------------------
[Signature Page for Fourth Amendment to
Second Amended and Restated Credit Agreement]
<PAGE>
THE UNDERSIGNED, NEW CENTURY FINANCIAL CORPORATION, HEREBY (1) AGREES
THAT EACH REFERENCE TO THE CREDIT AGREEMENT, OR WORDS OF SIMILAR IMPORT,
CONTAINED IN THE SECOND AMENDED AND RESTATED GUARANTY DATED AS OF JULY31, 1997
(THE "GUARANTY") BY THE UNDERSIGNED TO THE LENDERS AND THE AGENT, SHALL BE A
REFERENCE TO THE CREDIT AGREEMENT AS AMENDED BY THE FOREGOING AMENDMENT, (2)
CONFIRMS THAT THE GUARANTY SHALL REMAIN IN FULL FORCE AND EFFECT AFTER GIVING
EFFECT TO THE FOREGOING AMENDMENT, AND (3) CONFIRMS AND ACKNOWLEDGES THAT ITS
REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 15 OF THE GUARANTY ARE TRUE
AND CORRECT AS OF THE DATE OF THE FOREGOING AMENDMENT.
NEW CENTURY FINANCIAL CORPORATION
By/s/ [SIGNATURE ILLEGIBLE]^^
-----------------------------
Its President
----------------------------
<PAGE>
SCHEDULE 1.01(b)
BANK COMMITMENTS
----------------
<TABLE>
<CAPTION>
Working
Warehousing Capital
Banks Commitment Commitment
- ----- ----------- -----------
<S> <C> <C>
U.S. Bank National Association $60,000,000 $11,500,000
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, N.A. $30,000,000 0
The Bank of New York $25,000,000 0
The First National Bank of Chicago $30,000,000 0
NationsBank of Texas, N.A. $30,000,000 0
</TABLE>
<PAGE>
THIRD AMENDED AND RESTATED
CREDIT AGREEMENT
BY AND BETWEEN
NEW CENTURY MORTGAGE CORPORATION,
U.S. BANK NATIONAL ASSOCIATION,
as Agent
and
THE LENDERS PARTY HERETO
MAY 29, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS............................................................... 1
1.01 Certain Defined Terms.......................................................................... 1
1.02 Accounting Terms............................................................................... 14
1.03 Computation of Time Periods.................................................................... 15
1.04 Other Definitional Terms....................................................................... 15
SECTION 2. THE CREDIT FACILITIES.......................................................................... 15
2.01 The Warehousing Facility and the Swingline Facility............................................ 15
2.02 Interest on the Note; Balances Deficiency Fees; Continuations and Conversions.................. 21
2.03 Payments and Computations...................................................................... 23
2.04 Setoff......................................................................................... 24
2.05 Increased Capital Requirements................................................................. 24
2.06 Provisions Relating to Eurodollar Advances and Fixed Rate Advances............................. 25
SECTION 3. REPRESENTATIONS AND WARRANTIES................................................................. 27
3.01 Formation; Powers; Good Standing; Subsidiaries; Agency Status.................................. 27
3.02 Authorization; No Conflict; Governmental Consents; Binding Effect.............................. 28
3.03 Financial Condition............................................................................ 29
3.04 Title to Property; Liens....................................................................... 29
3.05 Litigation; Adverse Facts...................................................................... 29
3.06 Other Agreements; Performance.................................................................. 30
3.07 Use of Proceeds................................................................................ 30
3.08 Taxes.......................................................................................... 30
3.09 ERISA.......................................................................................... 31
3.10 Governmental Regulation........................................................................ 31
3.11 Indebtedness................................................................................... 31
3.12 No Material Adverse Event...................................................................... 31
3.13 Licenses and Permits........................................................................... 31
3.14 Guarantees..................................................................................... 31
3.15 Accuracy and Completeness of Information....................................................... 32
SECTION 4. COVENANTS OF THE COMPANY....................................................................... 32
4.01 Financial Statements and Other Reports......................................................... 32
4.02 Corporate Existence............................................................................ 36
4.03 Compliance with Laws, Taxes, etc............................................................... 36
4.04 ERISA.......................................................................................... 36
4.05 Assets and Insurance........................................................................... 37
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
4.06 Inspection, Visitation, etc.................................................................... 37
4.07 Further Assurances............................................................................. 37
4.08 Indebtedness................................................................................... 38
4.09 Liens.......................................................................................... 38
4.10 Investments.................................................................................... 39
4.11 Guarantees..................................................................................... 41
4.13 Restricted Payments............................................................................ 41
4.14 Net Worth...................................................................................... 41
4.15 Minimum Liquidity.............................................................................. 42
4.16 Leverage Ratio................................................................................. 42
4.17 Subsidiaries................................................................................... 42
4.18 Affiliate Transactions......................................................................... 42
4.19 Escrow Imbalances.............................................................................. 42
4.20 Inconsistent Agreements........................................................................ 42
4.21 Closing Procedures............................................................................. 42
4.22 Underwriting................................................................................... 43
4.23 Independence of Covenants...................................................................... 43
SECTION 5. CONDITIONS PRECEDENT........................................................................... 43
5.01 Conditions Precedent to Effectiveness.......................................................... 43
5.02 Conditions Precedent to all Loans.............................................................. 45
SECTION 6. EVENTS OF DEFAULT; REMEDIES.................................................................... 46
6.01 Events of Default.............................................................................. 46
6.02 Remedies....................................................................................... 48
SECTION 7. THE AGENT...................................................................................... 48
7.01 Appointment and Authorization.................................................................. 48
7.02 Note Holders................................................................................... 49
7.03 Consultation With Counsel...................................................................... 49
7.04 Documents...................................................................................... 49
7.05 Agent and Affiliates........................................................................... 49
7.06 Action by Agent................................................................................ 49
7.07 Credit Analysis................................................................................ 50
7.08 Notices of Event of Default, etc............................................................... 50
7.09 Indemnification................................................................................ 50
7.10 Payments....................................................................................... 51
7.11 Sharing of Payments............................................................................ 51
7.12 Successor Agent................................................................................ 52
7.13 Inspection..................................................................................... 52
SECTION 8. MISCELLANEOUS.................................................................................. 53
8.01 Waiver......................................................................................... 53
8.02 Notices........................................................................................ 53
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
8.03 Expenses; Indemnification...................................................................... 53
8.04 Confidentiality................................................................................ 54
8.05 Releases, Amendments, Waivers, Consents and Exercise of Remedies............................... 54
8.06 Binding Effect; Assignments and Participations; Transferees; New Lenders; Commitment Increases. 55
8.07 Governing Law and Construction................................................................. 56
8.08 Consent to Jurisdiction........................................................................ 57
8.09 Waiver of Jury Trial........................................................................... 57
8.10 Survival of Agreement.......................................................................... 57
8.11 Captions....................................................................................... 58
8.12 Entire Agreement............................................................................... 58
8.13 Counterparts................................................................................... 58
8.14 Company Acknowledgements....................................................................... 58
8.15 Letter of Credi................................................................................ 58
</TABLE>
iii
<PAGE>
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
-------------------------------------------
THIRD AMENDED and RESTATED CREDIT AGREEMENT dated as of May 29, 1998
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 U.S. BANK NATIONAL ASSOCIATION, as agent for
the Lenders (in such capacity, together with any successor agents appointed
hereunder, the "Agent").
WHEREAS, the Company, the Lenders and the Agent are parties to that
certain Second Amended and Restated Credit Agreement dated as of July 31, 1997
(as amended, the "Existing Credit Agreement") pursuant to which the Lenders
provided the Company with a revolving mortgage warehousing credit facility and
USBNA provided the Company with a swingline facility and working capital credit
facility; and
WHEREAS, the Company has requested that the Lenders and the Agent
amend certain provisions of and restate 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.
<PAGE>
"Agreement": this Third Amended and Restated Credit Agreement, as
---------
amended, supplemented, restated or otherwise modified and in effect from
time to time.
"Applicable Margin": with respect to:
-----------------
(a) Reference Rate Advances, 0%; and
(b) 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 Notes
shall be paid in full or the 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 Notes shall have been paid in full or the Termination Date.
"Balances Deficiency": as defined in Section 2.02(a)(i).
-------------------
"Balances Deficiency Fee": as defined in Section 2.02(a)(i).
-----------------------
"Balances Surplus": as defined in Section 2.02(a)(i).
----------------
"Borrowing Base": as of a date of determination, an amount equal to
--------------
100% of the Warehousing Collateral Value of the Collateral, as determined
by the Agent from its records.
"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 USBNA 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 a 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,
-2-
<PAGE>
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
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 Chief Executive Officer of NCFC.
"Code": the Internal Revenue Code of 1986, together with all
----
amendments from time to time thereto.
"Collateral": the "Collateral" as defined in the Pledge and Security
----------
Agreement, and the "Collateral" as defined in the Servicing Security
Agreement.
"Collateral Account": account number 1731-0097-1378 of the Company
------------------
with Agent.
"Commitment": as to any Lender, the obligation of such Lender to make
----------
Loans pursuant to Section 2.01(a).
"Commitment Amount": as to any Lender, the amount set opposite such
-----------------
Lender's name as its "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).
"Company Securitization Transaction": an issuance of Mortgage-backed
----------------------------------
Securities by the Company or an Affiliate of SBRC on behalf of the Company,
through a trust or other entity created by the Company, SBRC or such
Affiliate, which Mortgage-backed Securities are either secured (in whole or
in part) by Mortgage Loans originated or acquired by the Company or
evidence the entire beneficial ownership interest therein, and in
connection with which one or more Junior Securitization Interests are
issued to the Company or an Affiliate of the Company.
-3-
<PAGE>
"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.
"Daily Leverage Ratio": as of any date of determination, the ratio of
--------------------
(a) Total Liabilities of NCFC and its Subsidiaries on such date to (b)
Tangible Net Worth of NCFC and its Subsidiaries as of the last day of the
most recently completed month.
"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 Lenders.
"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 Contract or otherwise, to service Mortgage Loans or Mortgage Loan
pools, 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 Section 414 of the Code of which the Company is a member.
"Eurodollar Advance": an outstanding Warehousing Loan that bears
------------------
interest as provided in Section 2.02(a)(iii).
-4-
<PAGE>
"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 the second Eurodollar Business Day after such date of
determination, which appears on the Telerate page 3750 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 (including
without limitation the Reuters Screen LIBO page); provided, that in lieu of
determining the rate in the foregoing manner, the Agent may determine the
rate based on rates at which thirty day United States dollar deposits are
offered to the entity which is the Agent in the interbank Eurodollar market
at such time for delivery in Immediately Available Funds on the second
Eurodollar Business Day after such date of determination in an amount
approximately equal to the Advance as made by the entity which is the Agent
to which such rate is to apply (rounded 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 offered rates of major banks for United States
dollar deposits), and "Telerate page 3750" means the display designated as
such on Telerate System Incorporated (or such other page as may replace
page 3750 or that service for the purpose of displaying London interbank
offered rates of major banks for United States dollar deposits).
"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 USBNA, 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 defined in Section 6.01.
----------------
"Existing Warehousing Loans": as of the Effective Date, the
--------------------------
outstanding "Warehousing Loans" (as such term is defined in the Existing
Credit Agreement) made by the Lenders under the Existing Credit Agreement.
-5-
<PAGE>
"Existing Working Capital Loans": as of the Effective Date, the
------------------------------
outstanding "Working Capital Loans" (as such term is defined in the
Existing Credit Agreement) made by USBNA under the Existing Credit
Agreement.
"Fair Market Value": as defined in Exhibit E.
-----------------
"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 the Agent from three (3) federal funds
brokers of recognized standing selected by the Agent; 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.
"Fixed Rate": as defined in Section 2.02(a)(i).
----------
"Fixed Rate Advance": an outstanding Loan that bears interest as
------------------
provided in Section2.02(a)(i).
"Floating Rate Advance": 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.
"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
-6-
<PAGE>
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, as the same may be
--------
amended, supplemented or restated from time to time.
"Hedging Arrangements": any agreements or other arrangements
--------------------
(including, without limitation, interest rate swap agreements, interest
rate cap agreements and forward sale agreements) entered into to protect
the Company against changes in interest rates or in the value of any assets
of the Company.
"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 any
partnership or joint venture as to which such Person is or
-7-
<PAGE>
may become personally liable, and (j) all Guarantees by such Person of
Indebtedness 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 financially responsible Person in the business of
--------
purchasing Mortgage Loans 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 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.
"Junior Securitization Interests": a Mortgage-backed Security created
-------------------------------
in a Company Securitization Transaction that represents a subordinated
right to receive principal or interest payments on the underlying Mortgage
Loans (whether or not such subordination arises only under particular
circumstances).
"Leverage Ratio": on any date of determination, the ratio of (a)Total
--------------
Liabilities 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 Servicing Security Agreement, the Guaranty, and all other
agreements, instruments, certificates and other documents executed and
delivered pursuant hereto or thereto or in connection herewith or
therewith, as the same may be supplemented, amended or otherwise modified
from time to time after the Signing Date.
"Loans": Warehousing Loans and Swingline Loans.
-----
-8-
<PAGE>
"Management Shareholders": Robert K. Cole, Brad A. Morrice,
-----------------------
EdwardF. Gotschall and Steven Holder.
"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.
"Note": as defined in Section 2.01(e).
----
"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.
-9-
<PAGE>
"PBGC": the Pension Benefit Guaranty Corporation created by Section
----
4002(a) of ERISA or any governmental body succeeding to the functions
thereof.
"Person": any natural person, corporation, partnership, joint
------
venture, firm, association, limited liability company, 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": as defined 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
Commitment Amount is to the aggregate amount of all the Commitment
Amounts,
(b) as such term pertains to such Lender's right to receive
payment of interest on and Balances Deficiency Fees with respect to
its outstanding Warehousing 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
Warehousing 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 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,
-10-
<PAGE>
(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
Commitment Amount is to the sum of all Commitment Amounts, and
(e) as such term pertains to such Lender's obligations under
Section 7.09, and for all other purposes, the fraction which the sum
of such Lender's Commitment Amount, or, if its Commitment has
terminated, the unpaid principal balance of its Warehousing Loans, is
to the sum of the Commitment Amounts of all of the Lenders or, if the
Commitments have terminated, the unpaid principal balance of all of
the Warehousing Loans.
"Recourse Servicing Contract": a Servicing Contract under which the
---------------------------
Company is obligated to repurchase or indemnify the holder of any Mortgage
Loans as a result of defaults on such Mortgage Loans at any time during the
term of such Mortgage Loans (other than those Servicing Contracts that are
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 USBNA as its
"reference rate", which may be a rate at, above or below which USBNA lends
to other Persons.
"Reference Rate Advance": an outstanding Loan that bears interest as
----------------------
provided in Section 2.02(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.
-11-
<PAGE>
"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 (e) 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-
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 United States dollars maintained
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.
-----------
-12-
<PAGE>
"SBRC": Salomon Brothers Realty Corp., a Delaware corporation.
----
"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.
"Servicing Security Agreement": the servicing security agreement in
----------------------------
the form of Exhibit G, as the same may be amended, supplemented or restated
from time to time.
"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 USBNA to the Borrower described in Section 2.01(b).
"Swingline Loan": a loan made by USBNA 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 or NCFC, as applicable, and its
respective Subsidiaries, less the consolidated book value of all assets of
----
the Company or NCFC, as applicable, and its respective Subsidiaries (to the
extent reflected as an asset in the balance sheet of the Company or NCFC,
as applicable, or any such Subsidiary at such date) which are treated as
-13-
<PAGE>
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 Junior Securitization
--------
Interests shall not be treated as intangibles for purposes of this
definition.
"Termination Date": the earliest of (a) May 28, 1999, (b) the date on
----------------
which the Commitments are terminated or reduced to zero pursuant to Section
2.01(g), or (c) the date on which the Commitments are terminated pursuant
to Section 6.02.
"Total Liabilities": at any time of determination, the amount, on a
-----------------
consolidated basis, of the liabilities of the Company or NCFC, as
applicable, and its respective Subsidiaries, determined in accordance with
GAAP.
"Transferees": as defined in Section 8.06.
-----------
"Transferred Interest": as defined in Section 8.06.
--------------------
"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.
"USBNA": U.S. Bank National Association, in its individual capacity.
-----
"Warehousing Collateral Value": on the date of any determination,
----------------------------
with respect to the Collateral or any portion thereof, as determined by the
Agent in accordance with the provisions of Exhibit E.
"Warehousing Loan": a loan made by the Lenders to the Company
----------------
pursuant to Section 2.01(a).
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
-14-
<PAGE>
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 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 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 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 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 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 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 Commitment Amount.
-15-
<PAGE>
(b) Discretionary Swingline Commitment. Upon the terms and
----------------------------------
subject to the conditions of this Agreement, until the Termination Date,
USBNA, 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 USBNA's Commitment Amount exceeds the
principal amount outstanding under USBNA's Note; provided, that USBNA will
not make a Swingline Loan if (i) after giving effect thereto, either of the
limitations set forth in Section 2.01(a) would be exceeded or (ii)USBNA has
received written notice from the Company or any Lender that one or more of
the conditions precedent set forth in Section5 for the making of a
Warehousing Loan have not been satisfied.
(c) Manner of Borrowing. The Company shall give the Agent
-------------------
telephonic notice of each request for Warehousing Loans not later than1:00
P.M. (Minneapolis time) on the requested Borrowing Date, and each request
for Swingline Loans not later than 3:30p.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 Loans and
Existing Working Capital Loans, and such Warehousing Loans shall be used to
refund such Existing Warehousing Loans and Existing Working Capital Loans.
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 2:00 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 3:00 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, USBNA
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
-16-
<PAGE>
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 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 Section5
of the Pledge and Security Agreement, in Section ___ of the Servicing
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. USBNA, at
-----------------------------------------
any time in its sole and absolute discretion, may, upon notice given
to each other Lender by not later than 2:00 P.M. (Minneapolis time) on
any Business Day, request that each Lender (including USBNA) make a
Warehousing Loan in an amount equal to its Pro Rata Share of a portion
of the aggregate unpaid principal amount of any outstanding Swingline
Loans for the purpose of refinancing such Swingline Loans. Such
Warehousing Loans shall be made as Eurodollar Advances, unless the
Company specifies otherwise.
(ii) Mandatory Refinancings of Swingline Loans. Not later
-----------------------------------------
than 2:00 P.M. (Minneapolis time) on Thursday of each week, USBNA 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 USBNA) to refinance such
outstanding Swingline Loans (which shall
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<PAGE>
be in the amount of each Lender's Pro Rata Share of such outstanding
Swingline Loans). Such Warehousing 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 USBNA under Section 2.01(d)(i) or
-----
2.01(d)(ii), each Lender (including USBNA) 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, and provide
proceeds of such Warehousing Loans, in Immediately Available Funds, by
not later than 3:00 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)USBNA 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 USBNA in a writing received by
USBNA prior to the time it made such Swingline Loan that USBNA was not
authorized to make a Swingline Loan until such condition had been
satisfied, or USBNA 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 USBNA (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 Collateral Account or any other account (other than escrow
or custodial accounts) maintained by the Company with the Agent (up to
the amount available therein) in order to immediately pay USBNA the
principal amount of such Swingline Loans to the extent Warehousing
Loans made by the 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 Note and the outstanding principal
amount of the Swingline Loans shall be correspondingly reduced. If any
portion of any Warehousing Loan made by the Lenders pursuant to this
Section 2.01(d)(iii) should be recovered by or on behalf of the
Company from USBNA in bankruptcy or otherwise, the loss of the
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<PAGE>
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 USBNA, the Company or anyone else for any reason
whatsoever; (2) the occurrence or continuance of a Default or an Event
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 Warehousing Loan if, after giving effect thereto,
the outstanding principal balance of such Lender's Note would exceed
its Commitment Amount.
(e) Notes. Warehousing Loans made by each Lender shall be
-----
evidenced by the Company's promissory note in the form of ExhibitF (each,
together with any promissory note subsequently executed and delivered by
the Company to evidence any Lender's Loans, a "Note"), which shall be made
payable to the order of such Lender in an amount equal to such Lender's
Commitment Amount, shall be dated the Effective Date and shall mature on
the Termination Date. USBNA's 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 USBNA, Swingline Loans, less all
repayments of principal thereof shall be the principal amount owing and
unpaid on such Lender's Note. The principal amount of each Loan made by a
Lender and all principal payments and prepayments thereof may be noted by
such Lender on a schedule attached to its 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 principal amount owing
and unpaid on its 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 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:
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<PAGE>
(i) Mandatory Payments. The entire unpaid principal
------------------
balance of each Lender's Note shall be due and payable on the
Termination Date.
(ii) Mandatory Prepayments. If, at any time, the
---------------------
aggregate principal amount of all Loans outstanding exceeds the
Borrowing Base, the Company shall immediately either (A) pledge
additional Mortgage Loans with a Warehousing Collateral Value not less
than the amount of such excess to the Agent for the benefit of the
Lenders pursuant to the Pledge and Security Agreement, or (B) make
principal prepayments of the Notes in an aggregate amount equal to the
amount of such excess, which amount shall be paid to the Agent and
distributed (y)first, to USBNA as a prepayment on the outstanding
principal balance of any Swingline Loans and (z)after repayment in
full of any Swingline Loans, to the Lenders ratably on the basis of
each Lender's Pro Rata Share. In addition, all Swingline Loans shall
also be prepayable on demand therefor by USBNA.
(iii) Optional Prepayments. The Company shall have the
--------------------
right to prepay, without penalty, the outstanding principal balance of
the 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 USBNA 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.
(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 Notes.
(g) Termination and Reduction of the 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
Commitment Amounts, 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 Commitment Amounts below the aggregate principal amount of
outstanding 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
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<PAGE>
Commitments in their entirety. Upon termination of the Commitments
pursuant to this Section, the Company shall pay to the Agent the
aggregate amount of all outstanding 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 Commitments hereunder.
(ii) Notwithstanding the foregoing, any termination of the
Commitments pursuant to Section6.02 shall supersede any notice of
termination or reduction under this Section 2.01(g). Once the
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 Commitment Amount, whether
used or unused, payable monthly in arrears on the fifth 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 Loans and the
Existing Working Capital Loans.
2.02 Interest on the Note; Balances Deficiency 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
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
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<PAGE>
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
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) Payment of Interest and Fees. The Agent shall use its best
----------------------------
efforts to provide the Company with a statement for interest on the Notes,
the facility fees with respect to the Commitments and the collateral
handling 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 fifth 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, facility fees and collateral handling 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 2.02 (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)
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<PAGE>
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 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 a Eurodollar Advance.
Thereafter, subject to the terms and conditions of this Agreement, the
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
requested as or 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 requested
as or 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 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 converted, and (B)the date for the conversion. Any notice
given by the Company under this Section 2.02(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 1:30 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.
(d) Agent's Fees. The Company shall pay to the Agent collateral
------------
handling fees in accordance with the terms of a letter dated May 29, 1998,
as the same may be amended, supplemented, restated or replaced from time to
time.
2.03 Payments and Computations.
-------------------------
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<PAGE>
(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
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, facility fees and
------------
interest on each Note shall be computed on the basis of actual days elapsed
and a year of 360 days.
2.04 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.
2.05 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 amounts outstanding under such Lender's Note 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
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<PAGE>
"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, 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 amounts
outstanding under its Note 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.
2.06 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 bank or comparable
agency:
(i) shall subject any Lender to any tax, duty or other charge
with respect to Eurodollar Advances or Fixed Rate Advances, its Note,
or its obligation to make Eurodollar Advances or Fixed Rate Advances,
or shall change the basis of taxation of payment to such Lender of the
principal of or interest on Eurodollar Advances or Fixed Rate Advances
or any other amounts due under this Agreement in respect of Eurodollar
Advances or Fixed Rate Advances or its obligation to make Eurodollar
Advances or Fixed Rate 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
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<PAGE>
(ii) shall impose, modify or deem applicable any reserve, special
deposit, capital requirement or similar requirement (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 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 or Fixed Rate Advances, such Lender's Note, or its
obligation to make Eurodollar Advances or Fixed Rate 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 Fixed Rate
Advance, or to reduce the amount of any sum received or receivable by such
Lender under this Agreement or under its 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 2.06(b), 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
-26-
<PAGE>
Advances, such Lender shall notify the Company and the Agent, whereupon the
obligation of such Lender to make or convert Advances into Eurodollar
Advances or Fixed Rate 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.
SECTION 3. REPRESENTATIONS AND WARRANTIES. In order to induce the
------------------------------
Lenders to enter into this Agreement and to make and maintain the Loans
hereunder, 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 and perform each Loan Document to
which it is or will be a party and to carry out the transactions
contemplated 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. As of the
---------------------------------------------
Signing Date, neither NCFC nor the Company has any Subsidiaries other than
those listed on Schedule 3.01. Neither NCFC nor the Company is a member of
any joint venture or partnership other than a strategic alliance with
Persons in which the Company has made Investments of the types permitted
pursuant to Sections 4.10(i) and 4.10(j).
-27-
<PAGE>
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 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 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 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.
(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,
-28-
<PAGE>
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, 1997, its
unaudited consolidated balance sheet as at March 31, 1998 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, 1997, its unaudited consolidated
balance sheet as at March 31, 1998, 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 March 31, 1998 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 grants of security interests pursuant to the
Pledge and Security Agreement and the Servicing Security Agreement create valid
security interests in the property subject thereto and the Liens on the
Collateral created by the Pledge and Security Agreement and the Servicing
Security Agreement will be first priority Liens thereon, free and clear of any
other Liens except as permitted hereunder.
3.05 Litigation; Adverse Facts. Except as set forth in Schedule 3.05,
-------------------------
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
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<PAGE>
(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 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 or in violation of 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 Loans will be used only in
---------------
accordance with Section 2.01(i). No part of the proceeds of the Loans 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.
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.
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<PAGE>
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, 1997, neither the
-------------------------
business, operations, condition (financial or otherwise), properties nor assets
of NCFC or the Company or their Subsidiaries 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.
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. As of the Signing Date, neither NCFC nor the Company
----------
has made, or is liable in respect of, any Guarantee, other than the Guaranty and
Guarantees permitted pursuant to Section 4.11.
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<PAGE>
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 shall remain unpaid, the
Company covenants that, unless the Lenders 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 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;
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<PAGE>
(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 and a certificate signed by the chief financial officer of
NCFC, each stating that to the best of the respective chief financial
officer's 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 or NCFC
proposes to take with respect thereto;
(ii) a properly completed Compliance/Borrowing Base
Certificate as of the end of such month;
(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,
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<PAGE>
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 transaction
financed or to be financed in whole or in part directly or indirectly
with the proceeds of the Loans made pursuant hereto;
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<PAGE>
(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;
(iv) the occurrence of any default (however denominated)
under, the termination of, or the receipt by the Company of a notice
of non-renewal of, any credit, gestation repurchase or other financing
facility of the Company or NCFC (A) with SBRC or any similar
counterparty reasonably satisfactory to the Agent or (B) under which
there is Indebtedness or other obligations in an amount in excess of
$100,000 outstanding; and
(v) 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 and in any event within 30 days after
the end of each fiscal quarter of the Company, management reports
containing such information with respect to each Junior Securitization
Interest owned by the Company or an Affiliate of the Company, and the
related Company Securitization Transaction, as the Agent may request,
including, without limitation, information concerning reserve account
balances, cash receipts, prepayment and credit loss experience, REO
inventory status and loss projections, and relevant gain on sale
assumptions;
(i) as soon as available, copies of all financial statements,
reports and returns sent to NCFC's stockholders and copies of all regular,
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<PAGE>
periodic, or special reports which the Company or NCFC is or may be
required to file with any governmental department, bureau, commission or
agency;
(j) simultaneously with any request to the Agent to approve a new
Investor, notice of the identity of such Investor, and promptly upon the
request of any Lender, additional information concerning any such proposed
Investor; and
(k) from time to time, such other information regarding the
business, operations, affairs and financial condition of NCFC or the
Company as any Lender may reasonably request.
4.02 Corporate Existence. The Company and NCFC will each (a)
-------------------
maintain its 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 enforcing its rights with respect to any material assets or expose
the Company or NCFC 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
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<PAGE>
imposed by Section4975 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.
4.05 Assets and Insurance. The Company and NCFC will each 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.
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<PAGE>
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;
(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;
(c) Indebtedness incurred to finance the purchase of equipment
and secured solely by Liens on such equipment, in an aggregate amount
not to exceed $7,500,000;
(d) Indebtedness incurred to finance Junior Securitization
Interests issued by the Company and which Indebtedness is secured only
by such Junior Securitization Interests, provided, such Indebtedness
--------
does not exceed 75% of the value of such Junior Securitization
Interests determined in accordance with GAAP;
(e) intercompany Indebtedness of NCFC to the Company in an
aggregate amount not to exceed $1,000,000;
(f) obligations under gestation repurchase agreements or similar
arrangements of the type described in Section 4.09(f); and
(g) obligations in respect of letters of credit issued by USBNA
for the account of the Company or NCFC with an aggregate face amount
not to exceed $1,250,000.
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, FBS Business Finance Corp. (with respect to obligations
described in Section 4.08(c)) and USBNA (with respect to obligations
described in Section 4.08(g)) under the Loan Documents;
(b) Liens in connection with deposits or pledges to secure
payment of workers' compensation, unemployment insurance, old age
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<PAGE>
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;
(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;
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 Junior Securitization Interests issued by the
Company and which Liens secure Indebtedness permitted by Section 4.08(d);
and
(h) Liens arising under Hedging Arrangements.
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
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<PAGE>
obtainable from either Standard & Poor's Ratings Group, a division of
McGraw Hill, Inc., 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 Ratings Group, a division
of McGraw Hill, Inc., 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) The capital stock of any Subsidiary (subject to the
limitations set forth in Sections 4.12 and 4.17).
(h) In the case of the Company, loans to NCFC in an aggregate
amount not to exceed $1,000,000.
(i) In the case of the Company, to the extent no Event of Default
or Unmatured Event of Default has occurred and is continuing, or would
occur as a result thereof, the Company may make direct equity investments
in or loans to Persons in the mortgage origination business, in an
aggregate amount not to exceed $2,500,000.
(j) Investments made or to be made by the Company, in an amount
not to exceed $1,250,000 in the aggregate, and a guaranty made by NCFC,
pursuant to a Strategic Alliance Agreement by and among the Company,
Qualified Financial Services, Inc., a Colorado corporation, Qualified
Financial Services, Inc., a California corporation, Simon Mundy, an
individual, and David V.V. Thais, an individual.
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<PAGE>
(k) Investments arising under Hedging Arrangements.
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, Guarantees by NCFC of Indebtedness of the Company secured by
liens described in Section 4.09(e), in an amount not to exceed $7,500,000, and
Guarantees by NCFC of the Company's obligations under (a) gestation repurchase
agreements or similar arrangements of the type described in Section 4.09(f), or
(b) the Strategic Alliance Agreement described in Section 4.10(i).
4.12 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.
4.13 Restricted Payments. The Company and NCFC will not make any
-------------------
Restricted Payments.
4.14 Net Worth. The Company will at all times maintain Tangible Net
---------
Worth of not less than (a) the greater of (i) $40,000,000 or (ii)eighty-five
percent (85%) of the Tangible Net Worth at the end of its most recently
completed fiscal year (or, in the case of the Tangible Net Worth at the end of
any fiscal year, its prior fiscal year) plus (b) ninety percent (90%) of capital
----
contributions made during such fiscal year plus (c) fifty percent (50%) of
----
positive year-to-date net income. NCFC will at all times maintain Tangible Net
Worth of not less than (a) the greater of (i)$55,000,000 or (ii)eighty-five
percent (85%) of the Tangible Net Worth at the end of its most recently
completed fiscal year (or, in the case of the Tangible Net Worth at the end of
any fiscal year, its prior fiscal year) plus (b) ninety percent (90%) of capital
----
contributions made during such fiscal year plus (c) fifty percent (50%) of
----
positive year-to-date net income.
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4.15 Minimum Liquidity. The Company will not permit the sum of (a)
-----------------
Cash plus (b) the lesser of the Borrowing Base and the sum of the Commitment
----
Amounts minus, in either case, the outstanding principal balance of all Loans,
-----
as of the end of each month, to be less than $10,000,000.
4.16 Leverage Ratio. The Company will not permit the Leverage Ratio
--------------
to be greater than 8.0 to 1.0 as of the last day of each fiscal quarter of the
Company. NCFC will not permit the Daily Leverage Ratio to be greater than 10.0
to 1.0.
4.17 Subsidiaries. (a) The Company will not create or acquire any
------------
Subsidiaries, and (b) NCFC will not create or acquire any Subsidiaries other
than (i) the Company and (ii) Subsidiaries engaged solely in any business
involving the origination, acquisition, servicing and sale of consumer
obligations.
4.18 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 or NCFC than those that would be obtained in an arm's-length
transaction and the loans described in Section 4.08(e).
4.19 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.
4.20 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 extension of credit to the Company hereunder or by
the performance by the Company or NCFC of their respective obligations hereunder
or under any other Loan Document.
4.21 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 H. The Company shall review for accuracy and completeness each
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Mortgage Note, Mortgage, assignment and other document evidencing or securing
each Mortgage Loan originated or purchased by the Company.
4.22 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.
4.23 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.
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 Servicing 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 Servicing Security Agreement;
(iv) the Guaranty, duly executed by NCFC;
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(v) 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 Sections
5.01(a)(ii) and (iii) 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;
(vi) 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;
(vii) 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
names, incumbency and signatures of the officers named in such further
certificate;
(viii) 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;
(ix) 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;
(x) 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;
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(xi) the favorable written opinions of Stergios Theologides,
counsel to the Company and NCFC, addressed to the Lenders, as to the
matters and effect set forth in Exhibit I; and
(xii) a certificate of the Secretary or Assistant Secretary
of the Company in the form set forth as Exhibit J.
(b) The requirements of Section 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) 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);
(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 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;
(d) all the representations and warranties set forth in Section 3
of this Agreement, in Section 5 of the Pledge and Security Agreement, in
Section ___ of the Servicing 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;
(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.
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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 or deemed 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 deemed stated or
certified; or
(c) The Company shall fail to comply with any agreement,
covenant, condition, provision or term contained in the Pledge and Security
Agreement, the Servicing Security Agreement or in Section 4.02(a), 4.08,
4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.20, 4.21 or 4.22,
or shall fail to comply with any agreement, covenant, condition, provision
or term contained in Sections 4.02(b) or 4.04 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(e)(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 $250,000 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
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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 or admit in writing its inability to 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 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 by 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 $250,000 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
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(k) The Pledge and Security Agreement, the Servicing 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 for the benefit of the Lenders shall cease to have a valid and
perfected security interest having the priority contemplated under the
Pledge and Security Agreement or the Servicing 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
Loans in an amount sufficient to reduce the aggregate outstanding principal
balance of the Loans to the aggregate Warehousing Collateral Value of the
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 shall automatically become immediately due and payable, 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 to be forthwith due
and payable, whereupon the Obligations 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, and (iii)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
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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 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 entity that is 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 entity that is 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
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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.
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 Section6, 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
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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 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 2.05 and 2.06, 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
2.03(a), in accordance with Sections2.02(b) in the case of payments of interest
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 2.03(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 Collateral shall be applied in
accordance with Section 17 of the Pledge and Security Agreement or Section ___
of the Servicing Security Agreement, as applicable, 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.
7.11 Sharing of Payments. Other than as provided in Section 7.10, 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 in
excess of such Lender's Pro Rata Share of all payments of the Obligations, 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
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without interest. Each Lender agrees to exercise any and all rights of setoff,
counterclaim or bankers' lien first fully against the Obligations, 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 Collateral in accordance with
accepted industry practices, appoint a custodian to perform the Agent's
responsibilities under the Pledge and Security Agreement and, with respect to
the Collateral and the determination of the 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. Upon any determination by the Lenders under the second preceding
sentence to appoint a custodian, the Lenders making such determination shall
have the right to appoint a custodian, which custodian 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
(unless an Event of Default has occurred and is continuing). 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 Section7
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 Collateral and to make
copies thereof. Any
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such examination will be at the cost and expense of the Lender conducting such
examination.
7.14 Notice of New Investors. The Agent shall use reasonable efforts
-----------------------
to provide prompt notice to each Lender (which notice may be telephonic) of its
approval of any new Investor after May 29, 1998; provided, however, that the
-------- -------
Agent shall have no liability to any Lender or other Person for its failure to
provide the notice described in this Section 7.14.
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 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,
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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 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 applicable Lender'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, extending the
Termination Date, releasing or subordinating any of the Collateral (except as
provided in the Pledge and Security Agreement or the Servicing Security
Agreement, as applicable), releasing the Guaranty, amending the definition of
"Pro Rata Share," "Required Lenders," "Borrowing Base" or "Warehousing
Collateral Value," or amending Section 2.01, this Section 8.05 or any other
provision hereof specifically requiring the consent or
-54-
<PAGE>
approval or satisfaction of all of the Lenders, 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 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 all of the Lenders. Each Lender may (i) grant participations
in any portion of its Note and its Commitment; 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 be
unreasonably withheld, sell, assign, transfer or otherwise dispose of any
portion of its Commitment (with a proportionate share of its outstanding Loans)
or, if its Commitment has 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 Commitment following
such assignment) and the assignee Lender, in the principal amount of their
respective Commitments, and (C) the assignor Lender shall pay to the Agent an
assignment fee in the amount of $2,500. In addition, each Lender may pledge any
portion of its Note 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 2.05 and 2.06 to
the extent of its Transferred Interest as if it were a "Lender" holding a
Commitment in an amount equal to such Transferred
-55-
<PAGE>
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 Commitment Amount,
or (ii) add a bank chartered under the laws of the United 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 Commitment, for the purpose of increasing
the aggregate amount of the Commitments; provided that upon giving effect to any
--------
such new Commitment, the Commitment Amount of the New Bank shall not be less
than $10,000,000; and provided, further, that the aggregate Commitment Amounts,
-------- -------
after giving effect to any such increase, shall not exceed $400,000,000. The
Company and each Lender increasing its Commitment Amount or New Bank shall agree
on the date as of which the increased Commitment Amount or the New Bank's
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 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 Commitment Amounts and the Company shall execute and deliver
to the Lender increasing its Commitment Amount or the New Bank a 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
-56-
<PAGE>
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 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 2.05, 2.06 and 8.03 shall survive payment in full of the
Obligations and the termination of the Commitments.
-57-
<PAGE>
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.
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.
8.15 Letter of Credit. On the Effective Date, the "Letter of Credit"
----------------
outstanding under the Existing Credit Agreement shall remain outstanding, but
shall no longer be governed by the terms of the Existing Credit Agreement and
shall not be governed by the terms of this Agreement. All of the obligations of
the Lenders (other than USBNA) with respect to such Letter of Credit under the
Existing Credit Agreement shall terminate on the Effective Date. The Company
shall remain obligated to reimburse USBNA for any amount drawn under such Letter
of Credit in accordance with the terms of the Application for Letter of Credit
and Reimbursement Agreement executed by the Company prior to the issuance of
such Letter of Credit, as the same may have been or may hereafter be amended,
supplemented or otherwise modified in connection with any extension or other
amendment to such Letter of Credit.
-58-
<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/ SIGNATURE ILLEGIBLE ^^
-----------------------------
Its CFO
-------------------------
Address for Notices:
-------------------
18400 Von Karman
Suite 1000
Irvine, California 92612
Attention: Brad A. Morrice
Telephone Number: (714) 440-7030
Telecopier Number: (714) 440-7033
U.S. BANK NATIONAL ASSOCIATION
By /S/ SIGNATURE ILLEGIBLE ^^
-----------------------------
Its Vice President
-------------------------
Address for Notices:
-------------------
Mortgage Banking Services Division
Mail Station MPFP 0508
601 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Edwin D. Jenkins
Telephone Number: (612) 973-0588
Telecopier Number: (612) 973-0826S-66
S-1
<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: James A. Meintjes
Telephone Number: (214) 360-2845
Telecopier Number: (214) 360-1660
COMERICA BANK
By /s/ David R. Chirchill
-----------------------------
Its Assistance Vice President
-------------------------
Address for Notices:
-------------------
55 Almaden Blvd.
San Jose, California 95113
Attention: David Chirchill
Telephone Number: (408) 278-8288
Telecopier Number: (408) 278-8289
FIRST UNION NATIONAL BANK
By /s/ SIGNATURE ILLEGIBLE ^^
-----------------------------
Its SVP
-------------------------
Address for Notices:
-------------------
985 East California Blvd.
Suite 306
Pasadena, CA 91106
Attention: Catherine L. Simms
Telephone Number: (626) 844-9117
Telecopier Number: (626) 844-9085
S-2
<PAGE>
RESIDENTIAL FUNDING CORPORATION
By /s/ SIGNATURE ILLEGIBLE ^^
-----------------------------
Its Director
-------------------------
Address for Notices:
-------------------
10 Universal City Plaza
Suite 2100
Universal City, CA 91608
Attention: Wendy Joseph
Telephone Number: (818) 753-4430
Telecopier Number: (818) 985-7344
BANK ONE, TEXAS, N.A.
By /s/ Mark L. Freeman
-----------------------------
Its Vice President
-------------------------
Address for Notices:
-------------------
1717 Main Street, 4th Floor
Dallas, TX 75201
Attention: Mark Freeman
Telephone Number: (214) 290-2780
Telecopier Number: (214) 290-2054
THE BANK OF NEW YORK
By /s/ Robert W. Pierson
-----------------------------
Its Vice President
-------------------------
Address for Notices:
-------------------
One Wall Street, 17th Floor
New York, NY 10286
Attention: Robert W. Pierson
Telephone Number: (212) 635-6034
Telecopier Number: (212) 635-6468
<PAGE>
THE FIRST NATIONAL BANK
OF CHICAGO
By /s/ Andrew H. Heinecke
----------------------------------
Its First Vice President
------------------------------
Address for Notices:
-------------------
One First National Plaza
16th Floor, Suite 0098
Chicago, IL 60670
Attention: William A. Lindquist
Telephone Number: (312) 732-6123
Telecopier Number: (312) 732-6222
NATIONSBANK OF TEXAS, N.A.
By /s/ Bob L. Caston
----------------------------------
Its Senior Vice President
------------------------------
Address for Notices:
-------------------
NationsBank Plaza
901 Main Street, 66th Floor
Dallas, TX 75283-3748
Attention: Garrett Dolt
Telephone Number: (214) 508-2664
Telecopier Number: (214) 508-0338
FLEET BANK, NATIONAL ASSOCIATION
By /s/ Kevin J. Batterton
----------------------------------
Its Senior Vice President
------------------------------
Address for Notices:
-------------------
1185 Avenue of the Americas, 16th Floor
New York, NW 10036
Attention: Robert L. Klein
Telephone Number: (212) 819-6079
Telecopier Number: (212) 819-6207
S-4
<PAGE>
EXHIBITS
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 Note
G Servicing Security Agreement
H Closing Agent Instructions
I Matters to be Covered by Opinion of Counsel to the Company and NCFC
at closing
J Operational Certificate
<PAGE>
EXHIBIT E TO
THIRD 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 Take-Out
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
least 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) the unpaid principal amount of such
Mortgage Loan, (iii) 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) All Eligible Servicing Receivables owned by the Company: eighty
percent (80%) of the sum of the amount of all Eligible Servicing Receivables.
(3) Such other assets of the Company as the Company shall offer to
the Required Lenders and as the Required Lenders shall accept in their sole
discretion as Warehousing Collateral: the amount of Warehousing Collateral Value
which the Required Lenders 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
aggregate Commitment Amounts and (b) at all other times, twenty-five percent
(25%) of the aggregate Commitment Amounts;
<PAGE>
(ii) the maximum aggregate Warehousing Collateral Value of Mortgage
Loans with original principal balances in excess of $227,150 shall not exceed
thirty-five percent (35%) of the aggregate Commitment Amounts;
(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 aggregate Commitment
Amounts;
(iv) the maximum aggregate Warehousing Collateral Value of Mortgage
Loans with original principal balances of $750,000 or greater shall not exceed
ten percent (10%) of the aggregate Commitment Amounts;
(v) the maximum aggregate Warehousing Collateral Value of a single
Mortgage Loan shall not exceed $1,000,000;
(vi) 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 aggregate Commitment Amounts;
(vii) the maximum aggregate Warehousing Collateral Value of all
Mortgage Loans with a Risk Rating of C- shall not exceed fifteen percent (15%)
of the aggregate Commitment Amounts;
(viii) the maximum aggregate Warehousing Collateral Value of all
Mortgage Loans secured by Second Mortgages shall not exceed ten percent (10%) of
the aggregate Commitment Amounts;
(ix) 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 aggregate Commitment
Amounts;
(x) the maximum aggregate Warehousing Collateral Value of all
Eligible Servicing Receivables shall not exceed five percent (5%) of the
aggregate Commitment Amounts; and
(xi) the portion of the Warehousing Collateral Value of all Eligible
Servicing Receivables consisting of Foreclosure Advance Receivables shall not
exceed two and one-half percent (2 1/2%) of the aggregate Commitment Amounts.
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:
E-2
<PAGE>
(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 Agent
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
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 Lender
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 Lenders, 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;
E-3
<PAGE>
(j) such Mortgage Loan has a Risk Rating lower than C-; or
(k) such Mortgage Loan was closed and funded more than ninety (90)
days prior to the date the Mortgage Note and other documents relating to such
Mortgage Loan were delivered to the Agent in accordance with Section 4.02 of the
Pledge and Security Agreement.
An Eligible Servicing Receivable shall cease to have Warehousing
Collateral Value if:
(i) such receivable is not paid (A) in the case of a Pool P&I
Payment Receivable, on or before the first Business Day of the first P&I Cleanup
Period beginning after the date the related Pool P&I Payment was made, (B) in
the case of a T&I Receivable, one hundred eighty (180) days after the date of
the related T&I Payment, and (C) in the case of a Foreclosure Advance
Receivable, two hundred seventy (270) days after the date foreclosure or
bankruptcy proceedings with respect to the related Mortgage Loan commenced;
(ii) such receivable is disputed by any Person, or the Company
obtains knowledge of any grounds for any such dispute;
(iii) the Servicing Contract under which such receivable arose
terminates, or any party under such Servicing Contract asserts a right to
terminate such Servicing Contract, for any reason;
(iv) the Company fails to comply with any of the requirements of the
Credit Agreement or the Servicing Security Agreement with respect thereto; or
(v) the Agent, for the benefit of the Lenders, does not have a
perfected, first priority security interest in such receivable or the related
Servicing Contract.
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.
"Agreement to Pledge": as defined in the Pledge and Security
-------------------
Agreement.
E-4
<PAGE>
"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 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 100%, in the case of a Mortgage Loan
secured by a First Mortgage, or 125% in the case of a Mortgage Loan secured by a
Second Mortgage, (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.
"Eligible Servicing Receivable": a Pool P&I Payment Receivable, T&I
-----------------------------
Receivable or Foreclosure Advance Receivable with respect to which each of the
following statements shall be accurate and complete (and the Company, by
including any such receivable in any computation of the Borrowing Base, shall be
deemed to so represent and warrant to the Agent and the Lenders):
(a) The Servicing Contract under which such receivable arose is
in full force and effect and is free of any default of the Company and there
does not exist any fact or circumstance that would entitle the investor
thereunder to terminate said Servicing Contract;
E-5
<PAGE>
(b) No Person has a Lien or other interest or claim on any right,
title or interest of the Company under the Servicing Contract under which such
receivable arose or on any right of the Company to payment thereunder;
(c) Such receivable arose in connection with a servicing advance made
by or a servicing fee owed to the Company, whether on account of principal or
interest, property taxes or property insurance or otherwise, consistent with all
terms and conditions of the related Servicing Contract and is free of any
counterclaim, right of appeal or defense to payment; and
(d) The pledge by the Company of its right to payment of such
receivable does not violate any requirement of law or contractual obligation, or
require the giving of notice to or obtaining the consent of any Person,
including, without limitation, the investor party to the related Servicing
Contract.
"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 liens.
"Foreclosure Advance": a recoverable advance made by the Company for
-------------------
T&I Payments or the costs of repair or enforcement in connection with the
foreclosure or other enforcement of a Mortgage Loan which is part of a pool of
Mortgage Loans backing a Mortgage-backed Security being serviced by the Company
under a Servicing Contract.
"Foreclosure Advance Receivable": on a date of determination, a
------------------------------
valid, readily enforceable claim of the Company to retain amounts received or to
be received from an obligor, or out of the foreclosure proceeds, under a
Mortgage Loan serviced by the Company to reimburse the Company for a Foreclosure
Advance.
"Loan-to-Value Ratio": with respect to a Mortgage Loan secured by a
-------------------
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 prior
Mortgages on such real estate, if any, bears to (b) the Appraised Value of such
real estate.
"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.
E-6
<PAGE>
"P&I Cleanup Period": a period beginning on or after the 15th day of
------------------
one month and ending on or before the 14th day of the following month during
which no Pool P&I Payment Receivables shall be included in the calculation of
Eligible Servicing Receivables.
"Pool P&I Payment": a recoverable payment of delinquent principal or
----------------
interest on a Mortgage Loan (other than a Mortgage Loan which is in bankruptcy
or in the process of foreclosure) which is part of a pool of Mortgage Loans
backing a Mortgage-backed Security and which payment the Company is obligated to
fund under a Servicing Contract.
"Pool P&I Payment Receivable": on a date of determination, a valid,
---------------------------
readily enforceable claim of the Company to retain amounts received or to be
received from an obligor under a Mortgage Loan serviced by the Company that is
currently due from such obligor to reimburse the Company for a Pool P&I Payment.
"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.
"T&I Payment": a recoverable payment of real estate taxes or
-----------
insurance premiums in respect of a Mortgage Loan (other than a Mortgage Loan
that is in bankruptcy or in the process of foreclosure) which is serviced by the
Company and which the Company is obligated to fund under a Servicing Contract.
"T&I Receivable": on any date of determination, a valid, readily
--------------
enforceable claim against any obligor on any Mortgage Loan and the accounts of
such obligor for repayment of any T&I Payment made by the Company that is
currently due from such obligor to reimburse the Company for a T&I Payment.
"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 10.5
TERMINATION AGREEMENT
THIS TERMINATION AGREEMENT (the "Agreement") is made as of the 26th day of
June, 1998, by and among New Century Mortgage Corporation, a California
corporation ("New Century"), Comerica Bank, a Michigan banking corporation,
successor to Comerica Mortgage Corporation, ("Comerica") and Comerica
Incorporated, a Delaware Corporation ("CI").
BACKGROUND
A. New Century and Comerica are parties to that certain Servicing Agreement
dated as of September 15, 1997 whereby New Century appointed Comerica to perform
certain servicing obligations for New Century's Mortgage Loans (capitalized
terms not defined herein shall have the meaning assigned to them in the
Servicing Agreement).
B. Comerica has indicated that it is no longer servicing residential
mortgage loans and desires to terminate the Servicing Agreement with New Century
prior to the end of the contract term.
C. New Century is establishing additional servicing operations to take over
the Servicing Duties being performed by Comerica.
D. CI has rights pursuant to that certain Stock Purchase Agreement dated
as of May 30, 1997 between CI and New Century Financial Corporation, a Delaware
corporation, ("NCFC") to receive warrants (the "Warrants") to purchase 50,000
shares of NCFC upon completion of one year of operations under the Servicing
Agreement, provided that at the end of such year Comerica is not in material
default under or in material breach of the terms of the Servicing Agreement
after having had an opportunity to cure.
E. As part of their efforts to effect an orderly transition of the
Servicing Duties from Comerica to New Century, the parties desire formally to
document the termination of Servicing Agreement and the forfeiture of the rights
to receive the Warrants.
<PAGE>
AGREEMENT
NOW THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Termination of Servicing Agreement
----------------------------------
1.1. The Effective Date. The parties hereby agree to terminate the
------------------
Servicing Agreement effective as the date on which the parties have
completed the transfer of the servicing portfolio and all Servicing
Duties under the Servicing Agreement to New Century (the "Effective
Date"). The parties currently contemplate a July 1, 1998 Effective
Date, but in no event will the Effective Date be later than August 1,
1998. On the Effective Date, the parties will sign and deliver to each
other a Termination Certificate in the form of Exhibit A hereto to
effect the termination.
1.2. Termination of Rights and Obligations. On the Effective Date, all
-------------------------------------
rights and obligations of the parties under the Servicing Agreement
shall cease, except for those rights and obligations which expressly
survive termination of the Servicing Agreement, including, without
limitation, the following:
(a) Comerica's obligation under Section 4(d) of the Servicing Agreement
to endorse and remit directly and promptly to New Century any
collections received by Comerica after the Effective Date;
(b) Comerica's entitlement to the benefits of Section 6 of the
Servicing Agreement (Limitation on Liability of Comerica and
Others);
(c) Comerica's obligation pursuant to Section 8 of the Servicing
Agreement (to the extent required by New Century) to provide an
Annual Statement as to Compliance for the portion of the current
fiscal year for which Comerica performed Servicing Duties;
(d) Comerica's obligation pursuant to Section 9 of the Servicing
Agreement to provide an Annual Independent Certified Public
Accountant's Report with respect to the current fiscal year (the
Mortgage Bankers Uniform Single Attestation Program (USAP) letter);
an d
(e) Comerica's non-competition obligations pursuant to Section 11 (l)
of the Servicing Agreement.
2
<PAGE>
2. The Transition Period.
---------------------
In order to effect a smooth transition, the parties agree that during the
period from the date hereof to the Effective Date (the "Transition Period"),
each will cooperate with the other in good faith for the purpose of
transferring the Servicing Duties to New Century with a minimum of
disruption, cost and inconvenience. Each party covenants to sign such
documents, provide such information and do such other things as the parties
deem reasonably necessary to accomplish this purpose.
Without limiting the generality of the foregoing, the parties specifically
undertake to perform the transition tasks listed in Exhibit B hereto (the
"Transition Tasks").
3. Payment of Alltel Pass-through and Related Comerica Expenses
------------------------------------------------------------
In accordance with a verbal agreement reached by the parties on March 23,
1998, New Century hereby agrees to reimburse Comerica for the following (the
"Alltel Expenses"): (i) all expenses incurred by Comerica from Alltel in
connection with goods and services provided by Alltel for the purpose of
enabling Comerica to perform its Servicing Duties, and (ii) 50% of the
Comerica information systems expenses incurred in implementing the Alltel
system, (iii) 50% of the Comerica default management consulting fees.
Comerica has provided New Century detailed invoices in Exhibit D reflecting
the Alltel expenses that Comerica has been billed for to date. Comerica
will allow New Century a reasonable period of time to review the invoices
and confirm that they reflect legitimate Alltel Expenses.
Further, Comerica and New Century acknowledge that invoices will be prepared
by Comerica in the form of Exhibit D and sent to New Century reflecting
amounts that are currently accruing but for which Comerica has not yet been
billed by Alltel. New Century will, after a reasonable time to review but
no later than 10 business days after receipt of such invoices, reimburse
Comerica for any and all pass-through expenses that are attributable to New
Century's servicing activities.
4. Waiver of Termination-Related Costs
-----------------------------------
The parties recognize that each will incur costs and suffer inconveniences
relating to the transfer of the Servicing Duties and the Mortgage Loans to
New Century. To this end, the parties hereby acknowledge that New Century'
payment of the Alltel Expenses will constitute full and final compensation
for any and all costs and expenses incurred by Comerica as a result of or in
connection with the termination.
3
<PAGE>
The parties hereby agree to waive any such other transition costs as
follows:
a. Comerica Waiver. Except for the Alltel Expenses, Comerica hereby
releases New Century from, and waives any and all rights to pursue New
Century for, the termination fees set forth in Exhibit A to the Servicing
Agreement, (ii) any other deboarding or similar fees and any other costs
Comerica incurred or will incur related to the transfer of the portfolio
and the Servicing Duties to New Century, and (iii) except as provided for
in section 3 above, information systems and other costs Comerica incurred
in support of New Century's servicing needs.
b. New Century Waiver. New Century hereby releases Comerica from, and
waives any and all rights to pursue Comerica for, (i) costs related to
the transfer of the Servicing Duties and reboarding of the servicing
portfolio, and (ii) any other costs New Century incurred as a result of
Comerica's decision to resign from its obligations and duties under the
Servicing Agreement.
5. Forfeiture of Warrants
----------------------
Within 5 days after the Effective Date, CI agrees that it will deliver to
NCFC a letter in the form of Exhibit C hereto acknowledging that it has
forfeited its rights to receive the Warrants.
6. Miscellaneous
-------------
The provisions of Section 11(a) through 11(k) of the Servicing Agreement
are hereby incorporated by reference to apply to this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Termination Agreement to be
executed and delivered by their properly authorized officers as of the date
first above written.
NEW CENTURY MORTGAGE CORPORATION
/s/ Brad A. Morrice
-----------------------------
By: Brad A. Morrice
Its: Chief Executive Officer
COMERICA BANK
/s/ John R. Haggerty
-----------------------------
By: John Haggerty
Its: Executive Vice President
COMERICA INCORPORATED
/s/ John R. Haggerty
-----------------------------
By: John Haggerty
Its: Executive Vice President
5
<PAGE>
EXHIBIT A
TERMINATION CERTIFICATE
New Century Mortgage Corporation and Comerica Bank are parties to that certain
Termination Agreement, dated June , 1998 (the "Termination Agreement")
-------
terminating that certain Servicing Agreement, dated as of September 15, 1997,
between them (the "Servicing Agreement").
The parties hereby acknowledge and agree that today, , 1998 is the
----------
Effective Date under the Termination Agreement for termination of the Servicing
Agreement.
This Termination Certificate may be executed simultaneously in two counterparts,
each of which shall be deemed to be an original, and together will constitute
one and the same instrument.
In Witness Whereof, the parties have caused this Termination Certificate to be
executed and delivered by their proper and duly authorized officers as of
,1998.
- -----------------
NEW CENTURY COMERICA BANK
MORTGAGE CORPORATION
- ------------------------ -------------------------
By: By:
--------------------- ----------------------
Its: Its:
-------------------- ---------------------
6
<PAGE>
EXHIBIT B
TRANSITION TASKS
COMERICA
1. During the Transition Period, Comerica will continue to perform its
required Servicing Duties with the same care and according to the same
standards Comerica uses in servicing its own mortgage loans.
2. Comerica will board loans received from New Century on or before June 12,
1998.
3. As soon as practicable, but no later than June 19, 1998, Comerica will
process loan transfers for all loans sold by New Century in June 1998.
4. On or before the 15th day before the Effective Date, Comerica must send to
all Mortgage Loan customers a "goodbye" letter in form satisfactory to New
Century.
5. Upon receipt of payment in full of all amounts due and billed for to date
under this termination agreement, Comerica will transfer and assign to New
Century its rights to the Electronic Loan Interface (ELI) software
developed by Alltel which Comerica has purchased to be used to service
mortgage loans for New Century. Such transfer and assignment will be
effected through the execution of the Transfer & Assignment Agreement in
the form of Exhibit E.
6. The night of the Effective Date, Comerica will place stops on all Mortgage
Loans.
7. On the Effective Date, Comerica will service-release New Century's Mortgage
Loans.
8. Three days after the Effective Date, Comerica will cease initiating debits
or credits to New Century's bank account (# 1850519149).
9. Comerica will wire to New Century's designated account within 5 days after
the Effective Date all escrowed Tax and Insurance funds, and will remit all
escrowed Principal and Interest funds to the trustee on July 18, 1998.
10. New Century will allow Comerica to retain its files relating to the
Mortgage Loans it had been servicing under the Servicing Agreement.
Comerica agrees not to use these files for the purposes of soliciting
mortgage loans or to disclose or sell any information contained therein to
third parties.
7
<PAGE>
11. New Century will pay Comerica for transitional use of and sufficient access
for New Century's transitional needs to the MSP System and/or the Passport
Computer System for a period not to exceed 20 days after the Effective
Date. Such access will be limited to the same security levels established
for users on record as of June 23, 1998. The number of transitional users
will established on a list provided by New Century to Comerica on or before
the Effective Date but will not exceed 10 users. The amount of payment for
this access will be determined in the same manner all other pass-through
expenses have been to date in the form of Exhibit D.
NEW CENTURY
1. New Century will pay Comerica the Alltel and Related Expenses billed to
date reasonably promptly after receipt from Comerica of the invoices in
Exhibit D, but no later than June 26, 1998. Further, New Century releases
Comerica from any liability relative to Alltel's ability to install the ELI
software on New Century's system in a timely manner.
2. New Century will board with Comerica any remaining unboarded loans from New
Century's March 1998 securitization no later than June 25, 1998.
3. New Century will provide to Comerica by the Effective Date escrow account
wire instructions so that Comerica may wire escrow funds to New Century's
new custodial accounts.
8
<PAGE>
EXHIBIT C
FORM OF LETTER REGARDING WARRANTS
[COMERICA INCORPORATED LETTERHEAD]
[date]
New Century Financial Corporation
18400 Von Karman, Suite 1000
Irvine, California 92612
Attn: Robert K. Cole
Chairman and Chief Executive Officer
Re: Warrants
Dear Mr. Cole:
On ______, 1998 Comerica Mortgage Corporation ceased performing the Servicing
Duties under the Servicing Agreement dated as of September 15, 1997 between
Comerica Mortgage Corporation and New Century Mortgage Corporation.
In light of this fact, Comerica Incorporated ("CI") hereby acknowledges that
certain rights of CI pursuant to Article VI(ii) of the May 30, 1997 Stock
Purchase Agreement between CI and New Century Financial Corporation ("NCFC") to
receive warrants to purchase 50,000 shares of NCFC have been terminated and are
of no further force or effect.
Very truly yours,
COMERICA INCORPORATED
----------------------
By:
Its:
9
<PAGE>
EXHIBIT D
COMERICA INVOICES
Following are the invoices Comerica has created and sent to New Century for
Alltel and Related Expenses incurred to date. Invoices for amounts accruing but
not yet billed for will be in the same format.
[Intentionally Omitted]
10
<PAGE>
EXHIBIT E
ELI TRANSFER & ASSIGNMENT AGREEMENT
Following is the Transfer and Assignment Agreement created to cover the legal
transfer of the Electronic Loan Interface (ELI) software from Comerica to New
Century. The document also includes an acknowledgment from Alltel.
11
<PAGE>
ASSIGNMENT and TRANSFER AGREEMENT
THIS AGREEMENT is made as of June 26, 1998 by and between Comerica,
Incorporated ("Comerica"), a Delaware bank holding company of Detroit,
Michigan, and New Century Mortgage Corporation ("New Century"), a California
corporation of Newport Beach, California.
WHEREAS, Alltel Information Services, Inc. ("Alltel") has developed and sold to
Comerica certain software referred to as the Electronic Loan Interface system
(the "Software"), which Software is used in connection with Comerica's
processing of residential mortgage and home equity loans (the "Loans") it
services and sub-services for New Century;
WHEREAS, Comerica and New Century have mutually agreed to terminate the
servicing and sub-servicing arrangements between the parties;
WHEREAS, New Century desires to obtain rights in the Software to facilitate
their servicing of the Loans.
NOW, THEREFORE, For a valuable consideration, receipt of which is hereby
acknowledged, Comerica and New Century agree as follows:
1. Comerica agrees to assign and transfer to New Century all of its right,
title and interest in the Software and New Century accepts such assignment and
transfer. This assignment and transfer shall include, without limitation, any
and all rights to modify the Software.
2. This assignment and transfer is made 'as is', without representation,
warranty and recourse of any kind whatsoever. This disclaimer of warranty shall
include, without limitation, any warranty of title and any warranty of fitness
for a particular purpose.
3. New Century agrees to hold Comerica harmless for any and all losses it may
suffer as a result of use of the System, unless such loss is due to the gross
negligence or willful misconduct of Comerica.
The parties hereto execute this Agreement as of the date specified above.
COMERICA, INCORPORATED NEW CENTURY
MORTGAGE CORPORATION
By: /s/ John R. Haggerty By: /s/ Brad A. Morrice
---------------------- ---------------------
Its: CEO Its: CEO
--------------------- -------------------
<PAGE>
ACKNOWLEDGMENT
This Acknowledgment is attached to and a part of that certain Assignment and
Transfer Agreement dated as of ________________, 1998, by and between Comerica,
Incorporated and New Century Mortgage Corporation. Capitalized terms used in
this Acknowledgment shall have the meaning ascribed to them in the Agreement.
The undersigned, Alltel Information Services, Inc., has developed and sold the
Software for use by Comerica. The undersigned acknowledges the transfer of the
Software by Comerica to New Century. The undersigned agrees that such transfer
does not violate the terms of any agreement between the undersigned and Comerica
regarding the development, sale or maintenance of the Software.
ALLTEL INFORMATION SERVICES, INC.
By:
----------------------
Its:
------------------
<PAGE>
ASSIGNMENT and TRANSFER AGREEMENT
THIS AGREEMENT is made as of _________, 1998 by and between Comerica,
Incorporated ("Comerica"), a Delaware bank holding company of Detroit,
Michigan, and New Century Mortgage Corporation ("New Century"), a California
corporation of Newport Beach, California.
WHEREAS, Alltel Information Services, Inc. ("Alltel") has developed and sold to
Comerica certain software referred to as the Electronic Loan Interface system
(the 'Software"), which Software is used in connection with Comerica's
processing of residential mortgage and home equity loans (the "Loans") it
services and sub-services for New Century;
WHEREAS, Comerica and New Century have mutually agreed to terminate the
servicing and sub-servicing arrangements between the parties;
WHEREAS, New Century desires to obtain rights in the Software to facilitate
their servicing of the Loans.
NOW, THEREFORE, For a valuable consideration, receipt of which is hereby
acknowledged, Comerica and New Century agree as follows:
1. Comerica agrees to assign and transfer to New Century all of its right,
title and interest in the Software and New Century accepts such assignment and
transfer. This assignment and transfer shall include, without limitation, any
and all rights to modify the Software.
2. This assignment and transfer is made 'as is', without representation,
warranty and recourse of any kind whatsoever. This disclaimer of warranty shall
include, without limitation, any warranty of title and any warranty of fitness
for a particular purpose.
3. New Century agrees to hold Comerica harmless for any and all losses it may
suffer as a result of use of the System, unless such loss is due to the gross
negligence or willful misconduct of Comerica.
The parties hereto execute this Agreement as of the date specified above.
COMERICA, INCORPORATED NEW CENTURY
MORTGAGE CORPORATION
By: By: /s/ Brad A. Morrice
------------------- ---------------------
Its: Its: CEO
------------------ -------------------
<PAGE>
ACKNOWLEDGMENT
This Acknowledgment is attached to and a part of that certain Assignment and
Transfer Agreement dated as of __________, 1998, by and between Comerica,
Incorporated and New Century Mortgage Corporation. Capitalized terms used in
this Acknowledgment shall have the meaning ascribed to them in the Agreement.
The undersigned, Alltel Information Services, Inc., has developed and sold the
Software for use by Comerica. The undersigned acknowledges the transfer of the
Software by Comerica to New Century. The undersigned agrees that such transfer
does not violate the terms of any agreement between the undersigned and Comerica
regarding the development, sale or maintenance of the Software.
ALLTEL INFORMATION SERVICES, INC.
By:
----------------------
Its:
-----------------
<PAGE>
New Century Financial Corporation
Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
-----------------------------------------------------
1998 1997 1998 1997
-----------------------------------------------------
<S> <C> <C> <C> <C>
Basic:
Net earnings $ 13,725 $ 7,420 $ 7,492 $ 5,073
=====================================================
Weighted average common shares
outstanding 14,037,678 2,414,063 14,070,835 4,408,899
-----------------------------------------------------
Earnings per share $ 0.98 $ 3.07 $ 0.53 $ 1.15
=====================================================
Diluted:
Net earnings $ 13,725 $ 7,420 $ 7,492 $ 5,073
=====================================================
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares
outstanding 14,037,678 2,414,063 14,070,835 4,408,899
Dilutive effect of convertible preferred stock,
stock options and warrants, after application 869,200 7,998,307 947,744 6,591,036
-----------------------------------------------------
14,906,879 10,412,371 15,018,580 10,999,935
Earnings per share $ 0.92 $ 0.71 $ 0.50 $ 0.46
=====================================================
</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 SUBSIDIARIES FOR
THE THREE-MONTH PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 8,422
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 281,053
<CURRENT-ASSETS> 0
<PP&E> 7,130
<DEPRECIATION> 2,318
<TOTAL-ASSETS> 420,888
<CURRENT-LIABILITIES> 0
<BONDS> 330,092
0
0
<COMMON> 144
<OTHER-SE> 76,433
<TOTAL-LIABILITY-AND-EQUITY> 420,888
<SALES> 27,781
<TOTAL-REVENUES> 45,506
<CGS> 0
<TOTAL-COSTS> 21,614
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,881
<INCOME-PRETAX> 13,011
<INCOME-TAX> 5,519
<INCOME-CONTINUING> 7,492
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,492
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.50
</TABLE>
