<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, 1999
-------------
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, 1999, 14,701,049 shares of common stock of New Century Financial
Corporation were outstanding.
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
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 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 2. Changes in Securities and Use of Proceeds 28
Item 3. Defaults Upon Senior Securities 28
Item 4. Submission of Matters to a Vote of
Security Holders 28
Item 5. Other Information 29
Item 6. Exhibits and Reports on Form 8-K 29
SIGNATURES 30
EXHIBIT INDEX 31
2
<PAGE>
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 anticipated mix of whole loan sales and securitizations
for the remainder of 1999, the expectations regarding the condition of the whole
loan and securitization markets in the third and fourth quarters, the
assumptions used by the Company to value its residual interests from
securitizations and excess cash flow private placements, the expectation that
the Company may begin using its Paine Webber credit facility for some of the
Company's "wet" fundings, the belief 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 proceeds from
the U.S. Bancorp investment will give the Company greater flexibility to pursue
a more economically advantageous secondary marketing strategy, the expectation
that the Company will devote significant financial and human resources to expand
its Internet business, the expectations regarding the timing and extent of the
Company's Year 2000-readiness and the costs of implementing its Y2K Plan 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. 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 and
capital sources during a period of tight liquidity in the Company's industry,
the Company's limited operating history, the Company's ability to sustain and
manage its rate of growth, the impact of competition in the subprime mortgage
banking industry, the potential for legislative or regulatory changes affecting
the Company's business, and other risks identified in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 and its other filings
with the Securities and Exchange Commission.
3
<PAGE>
Item 1. Financial Statements
New Century Financial Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, December 31,
1999 1998
-------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents.............................................. $ 12,365 $ 30,875
Loans receivable held for sale, net (notes 2 and 5).................... 392,263 356,975
Residual interests in securitizations (note 3)......................... 235,045 205,395
Mortgage servicing assets (note 4)..................................... 15,135 8,665
Accrued interest receivable............................................ 893 1,536
Office property and equipment.......................................... 2,746 3,644
Prepaid expenses and other assets...................................... 17,772 17,637
-------------------------------------
TOTAL ASSETS $676,219 $624,727
=====================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Warehouse and aggregation lines of credit (note 5)..................... $373,741 $345,843
Residual financing..................................................... 113,052 122,298
Notes payable.......................................................... 3,165 3,985
Income taxes payable................................................... 6,615 1,690
Accounts payable and accrued liabilities............................... 24,859 16,056
Deferred income taxes.................................................. 20,242 20,242
-------------------------------------
Total liabilities.............................................. 541,674 510,114
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 7,500,000 shares;
20,000 shares issued and outstanding............................... - -
Common stock, $.01 par value. Authorized 45,000,000 shares;
issued and outstanding 14,552,021 shares at June 30, 1999
and 14,473,566 shares at December 31, 1998......................... 146 145
Additional paid-in capital............................................. 64,842 65,241
Retained earnings, restricted.......................................... 69,898 49,953
-------------------------------------
134,886 115,339
Deferred compensation costs............................................ (341) (726)
-------------------------------------
Total stockholders' equity..................................... 134,545 114,613
-------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $676,219 $624,727
=====================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
New Century Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
--------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of loans................. $ 59,615 $ 52,100 $ 30,187 $ 27,781
Interest income....................... 28,974 23,379 13,656 13,186
Servicing income...................... 21,580 8,475 12,115 4,539
--------------------------------------------------------
Total revenues...................... 110,169 83,954 55,958 45,506
--------------------------------------------------------
Expenses:
Personnel............................. 24,793 21,072 12,602 11,173
Interest.............................. 23,352 19,590 10,936 10,881
General and administrative............ 17,931 13,159 9,096 7,175
Advertising and promotion............. 5,127 4,294 2,742 2,099
Servicing............................. 1,304 1,311 665 740
Professional services................. 2,436 688 1,316 427
--------------------------------------------------------
Total expenses...................... 74,943 60,114 37,357 32,495
--------------------------------------------------------
Earnings before income taxes............ 35,226 23,840 18,601 13,011
Income taxes............................ 14,535 10,115 7,722 5,519
--------------------------------------------------------
Net earnings............................ $ 20,691 $ 13,725 $ 10,879 $ 7,492
=======================================================
Basic earnings per share................ $ 1.45 $ 0.98 $ 0.76 $ 0.53
=======================================================
Diluted earnings per share.............. $ 1.15 $ 0.92 $ 0.60 $ 0.50
=======================================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
New Century Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Six Months Ended June 30,
1999 1998
--------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings........................................................ $ 20,691 $ 13,725
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization..................................... 2,805 1,908
Deferred income taxes............................................. - 5,000
NIR gains......................................................... (75,134) (51,767)
Servicing gains................................................... (7,462) -
Initial deposits to over-collateralization accounts............... (36,026) (11,834)
Deposits to over-collateralization accounts....................... (9,510) (11,844)
Release of cash from over-collateralization accounts.............. 8,475 10,406
Net proceeds from NIMS transaction................................ 76,098 53,819
Amortization (accretion) of NIRs/I/O's............................ (1,526) 6,078
General valuation provision for NIRs.............................. 13,000 1,000
Provision for losses.............................................. 3,589 5,446
Loans originated or acquired for sale............................. (1,850,653) (1,474,059)
Loan sales, net................................................... 1,813,263 1,442,846
Principal payments on loans receivable held for sale.............. 4,170 20,728
Net change in other assets and liabilities........................ 3,315 (7,429)
Increase (decrease) in warehouse and aggregation lines of credit.. 27,898 (79)
--------------------------
Net cash provided by (used in) operating activities................. (7,007) 3,944
--------------------------
Cash flows from investing activities:
Purchase of office property and equipment......................... (185) (1,557)
Purchase of interest-only (I/O) certificates...................... - (5,756)
Acquisition of Primewest.......................................... - (1,642)
--------------------------
Net cash used in investing activities............................... (185) (8,955)
Cash flows from financing activities:
Net repayments of notes payable................................... (820) (265)
Net proceeds from (repayments of) residual financing.............. (9,246) 1,177
Payment of dividends on convertible preferred stock............... (746) -
Net proceeds from issuance of stock/purchase of treasury stock.... (506) (180)
--------------------------
Net cash provided by (used in) financing activities................. (11,318) 732
--------------------------
Net decrease in cash and cash equivalents........................... (18,510) (4,279)
Cash and cash equivalents, beginning of period...................... 30,875 12,701
--------------------------
Cash and cash equivalents, end of period............................ $ 12,365 $ 8,422
==========================
Supplemental cash flow disclosure:
Interest paid..................................................... $ 23,525 $ 19,885
Income taxes paid................................................. $ 9,610 $ 5,724
Supplemental non-cash financing activity:
Stock issued in connection with acquisition of Primewest.......... $ 108 $ 2,000
Restricted stock issued........................................... $ - $ 173
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1999 and 1998
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, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999.
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 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, which was to be
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The FASB subsequently issued SFAS No. 137, delaying implementation of SFAS No.
133 for one year.
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
what are sometimes referred to as net interest margin securities (NIMS).
The loan securitizations are generally structured as follows: First, the Company
sells a portfolio of mortgage loans to a special purpose entity (SPE) which has
been established
7
<PAGE>
for the limited purpose of buying and reselling mortgage loans. The SPE 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 Certificates are
typically sold 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 for
cash. The Trust uses the cash proceeds to pay the Company the cash portion of
the purchase price for the mortgage loans. The Trust also issues a certificate
representing a residual interest in the payments on the securitized loans. 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, (ii) the estimated fair value of the
interest in the mortgage loans retained from the securitizations (Residuals),
which consist of (a) the OC Account and (b) the net interest receivable (NIR)
and (iii) the estimated fair value of the servicing asset. 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 sells or
contributes the Residuals to an SPE which has been established for the limited
purpose of receiving and selling asset-backed residual interests in
securitization certificates. Next, the SPE transfers the Residuals 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) and the OC account. The excess of the cash received and assets retained
over the carrying value of the Residuals sold, less transaction costs, equals
the net gain or loss 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 portion retained (the Residuals and servicing assets)
based on the relative fair values of those portions on the date of sale. The
Company may recognize gains or losses
8
<PAGE>
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 14% on the
estimated cash flows released from the Trust to value Residuals through NIMS
transactions.
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 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 an annual default rate estimate of 0.60%
to 1.50% for adjustable rate first trust deeds, 0.38% to 0.75% for fixed rate
first trust deeds and 0.75% to 1.25% for second trust deeds. The Company's
default rate estimates result in cumulative loss estimates as a percentage of
the original principal balance of the mortgage loans of 2.17% to 2.79% for
adjustable rate first trust deeds, 1.56% to 2.83% for fixed rate first trust
deeds and 3.66% for second trust deeds.. 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
9
<PAGE>
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 2.21 to 3.00 years for its
adjustable mortgage loans and 3.74 and 3.94 years for its fixed rate 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, added $7.5 million to the allowance during 1998, and
added $13.0 million to the allowance in the first half of 1999. 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. During the six months ended June 30, 1999, the Company allocated $13.0
million of its allowance to write down the carrying value of its May 1998 Net
Interest Margin Security.
2. Loans Receivable Held for Sale
A summary of loans receivable held for sale, at the lower of cost or market at
June 30, 1999 and December 31, 1998 follows (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Mortgage loans receivable............... $391,413 $355,875
Net deferred origination costs.......... 850 1,100
-------- --------
$392,263 $356,975
======== ========
</TABLE>
3. Residual Interests in Securitizations
Residual interests in securitizations consist of the following components at
June 30, 1999 and December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---------- ------------
<S> <C> <C>
Over-collateralization amount.................. $126,852 $ 89,792
Net interest receivable (NIR).................. 118,693 126,103
-------- --------
245,545 215,895
-------- --------
General valuation allowance.................... (10,500) (10,500)
-------- --------
$235,045 $205,395
======== ========
</TABLE>
10
<PAGE>
The following table summarizes activity in the NIR amounts for the six months
ended June 30, 1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Balance, beginning of period................... $126,103 $ 79,036
Sale of NIR through NIMS....................... (71,156) (36,840)
NIR gains...................................... 75,135 51,767
Write-down of NIR.............................. (13,000) --
NIR accretion (amortization)................... 1,611 (6,078)
-------- --------
Balance, end of period......................... $118,693 $ 87,885
======== ========
</TABLE>
The following table summarizes activity in the OC accounts for the six months
ended June 30, 1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Balance, beginning of period.................. $ 89,792 $ 21,224
Initial deposits to OC accounts............... 36,025 11,834
Additional deposits to OC accounts............ 9,510 11,844
Release of cash from OC accounts.............. (8,475) (10,406)
-------- --------
Balance, end of period........................ $126,852 $ 34,496
======== ========
</TABLE>
The following table summarizes activity in the allowance for NIR losses for the
six months ended June 30, 1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Balance, beginning of period.................. $ 10,500 $ 3,000
Provision for NIR losses...................... 13,000 1,000
Charge-offs of NIR............................ (13,000) --
-------- -------
Balance, end of period........................ $ 10,500 $ 4,000
======== =======
</TABLE>
4. Mortgage Servicing Assets
Mortgage servicing assets represent the carrying value of the Company's
servicing portfolio. The following table summarizes activity in mortgage
servicing assets for the six months ended June 30, 1999 (dollars in thousands):
<TABLE>
<CAPTION>
1999
---------
<S> <C>
Balance, beginning of period.................. $ 8,665
Additions..................................... 7,462
Amortization.................................. (992)
-------
Balance, end of period........................ $15,135
=======
</TABLE>
11
<PAGE>
5. Warehouse and Aggregation Lines of Credit
Warehouse and aggregation lines of credit consist of the following at June 30,
1999 and December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
A $300 million line of credit expiring in May 2000
secured by loans receivable held for sale, bearing
interest based on one month LIBOR (5.24% at
June 30, 1999)...................................... $231,871 $191,931
A $603 million master repurchase agreement bearing
interest based on one month LIBOR (5.24% at
June 30, 1999), secured by loans receivable held
for sale. The agreement may be terminated
by the lender giving 28 days written notice......... 141,870 153,912
A $300 million loan and security agreement bearing
interest based on one month LIBOR (5.24% at
June 30, 1999), secured by loans receivable held
for sale, expiring in June 2000..................... -- --
-------- --------
$373,741 $345,843
======== ========
</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, 1999, 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
engaged in the business of originating, purchasing, selling and servicing sub-
prime mortgage loans secured primarily by first mortgages on single family
residences. The Company originates and purchases loans through its Wholesale
and Retail Divisions and through its Primewest subsidiary. 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 Originations and Purchases
As of June 30, 1999, the Company's Wholesale Division was operating through
five regional operating centers and 65 additional sales offices. The Wholesale
Division funded $1.3 billion in loans during the six months ended June 30, 1999.
As of June 30, 1999, the Company's Retail Division was operating through 81
sales offices. The Retail Division funded $464.9 million in loans during the
six months ended June 30, 1999. The Company's Primewest subsidiary closed $71.3
million in loans during the six months ended June 30, 1999.
Loan Sales and Securitizations
Loan Sale Strategy. The Company's loan sale strategy includes both
securitizations and whole loan sales in order to advance the Company's goal of
enhancing profits while managing cash flows. Loan sales through securitizations
permit the Company to enhance operating profits and to benefit from future cash
flows generated by the residual interests retained by the Company. Whole loan
sale transactions enable the Company to generate current cash flow, protect
against the potential volatility of the securitization market and reduce the
risks inherent in retaining residual interests in securitizations.
The Company's primary source of revenue is the recognition of gains from the
sale of its loans through whole loan sales and securitizations. In a whole loan
sale, the Company recognizes and receives a cash gain upon sale. In a
securitization, the Company recognizes a gain on sale at the time the loans are
sold, but receives corresponding cash flows, represented by the over-
collateralization amount (OC) and the Net Interest Receivable (NIR) (combined,
the Residuals), over the actual life of the loans. 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, 1999, $563.8
million, or 60.0%, of the Company's loan sales were in the form of
securitizations. Based on current liquidity and profit projections and current
market conditions, the Company anticipates the
13
<PAGE>
percentage of securitizations versus whole loan sales will be higher for the
remainder of 1999.
The Company has, to date, elected to fund the required OC at the closing of all
but three of its securitizations. The over-collateralization requirement ranges
from two to five percent of the initial securitization bond debt principal
balance or four to nine 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. Over time, the
Company will also receive the OC, subject to the performance of the mortgage
loans in each securitization.
In connection with the origination and purchase of loans, the Company may either
receive or pay origination fees. These fees, referred to as "points" or
"premiums" in the mortgage industry, are dependent on the source of loan
production. 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 Six Months For the Three Months
Ended June 30, Ended June 30,
---------------------------------------------------
1999 1998 1999 1998
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Securitizations........................... $1,140,633 $ 680,030 $563,764 $370,371
Whole loan sales.......................... 672,630 762,816 376,619 410,732
---------- ---------- -------- --------
Total $1,813,263 $1,442,846 $940,383 $781,103
========== ========== ======== ========
</TABLE>
Condition of Secondary Market. For the past year, whole loan prices have
remained at levels significantly lower than the prices received by the Company
in earlier periods. There are indications that these lower prices will persist
into the third and fourth quarters. In addition, more buyers in the whole loan
market are confining their purchases to loans having very specific attributes.
Unlike 1997 and early 1998, the Company has found it to be more difficult to
identify buyers willing to purchase a pool of loans representing a cross section
of the Company's entire loan production. Consequently, in the second quarter,
the Company's whole loan sales were characterized by smaller pools of more
narrow characteristics sold to a larger number of buyers.
The continuing lower whole loan prices and the shift of the whole loan market to
narrower pool criteria will affect the Company's secondary marketing strategy,
cash flow and profitability. Based on current liquidity and profit projections
and current market conditions, the Company expects that in the remainder of
1999, less than 40% of its loan sales will be in the form of whole loan sales.
14
<PAGE>
The securitization market was relatively healthy in the second quarter, and the
Company was able to recognize gains on the securitized loans at levels
comparable to those recognized in prior quarters. There are indications,
however, that the securitization market may weaken in the third and fourth
quarters, partly due to general uncertainty in the financial markets relating to
the Year 2000.
Results of Operations
As of June 30, 1999, the Company's Wholesale Division operated through 65 sales
offices and five regional operating centers located in 35 states. The number of
account executives in the Wholesale Division remained relatively stable at 134
at June 30, 1999, compared to 132 at June 30, 1998. The Company's Retail
Division operates through 81 sales offices located in 30 states. The number of
loan officers decreased to 290 at June 30, 1999, from 355 at June 30, 1998. In
January 1998, the Company completed its acquisition of PWF Corporation
(Primewest), a correspondent lender of the Company. Primewest is a retail
originator based in California.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
The Company originated and purchased $1.9 billion in loans for the six months
ended June 30, 1999, compared to $1.5 billion for the six months ended June 30,
1998. Loans originated and purchased through the Company's Wholesale Division
were $1.3 billion, or 71.0%, of total originations and purchases for the six
months ended June 30, 1999. Loans originated through the Company's Retail
Division were $464.9 million, or 25.1%, of total originations and purchases for
the six month period. Loans originated through the Company's Primewest
subsidiary were $71.3 million, or 3.9%, of total originations and purchases for
the six months ended June 30, 1999. For the same period in 1998, Wholesale,
Retail and Primewest originations and purchases totaled $1.0 billion, or 69.2%,
$419.8 million, or 28.5% and $33.8 million, or 2.3%, respectively, of total
originations and purchases.
Total revenues for the six months ended June 30, 1999 increased to $110.2
million, from $84.0 million for the six months ended June 30, 1998. This
increase was due primarily to the increase in loan originations and purchases
and sales in 1999, as well as the increase in servicing revenues due to the
increase in the mortgage loan servicing portfolio. Gain on sale of loans
increased to $59.6 million for the six months ended June 30, 1999, from $52.1
million for the six months ended June 30, 1998, due to the increase in loan
sales in 1999, partially offset by the decrease in whole loan prices and
securitization gains recorded in 1999.
15
<PAGE>
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,
1999 1998
-------- --------
<S> <C> <C>
Gain from whole loan sale transactions $ 23,261 $ 36,271
Non-cash gain from securitizations 75,134 51,767
Non-cash gain from servicing asset 7,462 ---
Cash loss from securitizations/NIMS (3,702) ---
Securitization expenses (6,430) (4,568)
Accrued interest (6,853) (2,893)
Provision for losses (3,589) (5,446)
General valuation provision for NIR (13,000) (1,000)
Non-refundable loan fees 25,267 23,195
Premiums paid (8,987) (15,828)
Origination costs (28,700) (27,750)
Hedging losses (248) (1,648)
-------- --------
Gain on sale of loans $ 59,615 $ 52,100
======== ========
</TABLE>
Whole loan sales decreased to $672.6 million for the six months ended June 30,
1999, from $762.8 million for the corresponding period in 1998. This decrease
is the result of a change in the mix of whole loan sales versus securitizations.
Loans sold through whole loan sales decreased to 37.1% of total loan sales in
the six months ended June 30, 1999, compared to 52.9% for the corresponding
period in 1998.
Interest income increased to $29.0 million for the six months ended June 30,
1999, from $23.4 million for the same period in 1998, 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, 1999 is the result of a higher average inventory of loans held for sale
compared to the corresponding period in 1998, primarily as a result of increased
loan originations and purchases.
Servicing income increased to $21.6 million for the six months ended June 30,
1999, from $8.5 million for the six months ended June 30, 1998. 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, net of amortization
of mortgage servicing assets, as well as income recognized on residual cash
flows from securitizations. As of June 30, 1999, the Company had securitized
over $4.5 billion in loans and retained the servicing rights. As of June 30,
1998, the Company had securitized $1.8 billion in loans.
Total expenses increased to $74.9 million for the six months ended June 30,
1999, from $60.1 million for the six months ended June 30, 1998. Interest
expense increased due to the higher level of loan inventory and corresponding
warehouse and aggregation borrowings. All other expense components increased
from 1998 to 1999 due primarily to
16
<PAGE>
(1) higher loan origination volume in the six months ended June 30, 1999
compared to the same period in 1998; and (2) the addition of 11 sales offices
from June 30, 1998 to June 30, 1999.
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
The Company originated and purchased $959.0 million in loans for the three
months ended June 30, 1999, compared to $818.9 million for the three months
ended June 30, 1998. Loans originated and purchased through the Company's
Wholesale Division were $668.6 million, or 69.7%, of total originations and
purchases for the three months ended June 30, 1999. Loans originated through
the Company's Retail Division were $251.3 million, or 26.2%, of total
originations and purchases for the three month period. Loans originated through
the Company's Primewest subsidiary were $39.1 million, or 4.1%, of total
originations and purchases for the three months ended June 30, 1999. For the
same period in 1998, Wholesale, Retail and Primewest originations and purchases
totaled $587.4 million, or 71.7%, $209.7 million, or 25.6% and $21.8 million, or
2.7%, respectively, of total originations and purchases.
Total revenues for the three months ended June 30, 1999 increased to $56.0
million, from $45.5 million for the three months ended June 30, 1998. This
increase was due primarily to the increase in loan originations and purchases
and sales in 1999, as well as the increase in servicing revenues due to the
increase in the mortgage loan servicing portfolio. Gain on sale of loans
increased to $30.2 million for the three months ended June 30, 1999, from $27.8
million for the three months ended June 30, 1998, due to the increase in loan
sales in 1999.
17
<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,
1999 1998
-------- --------
<S> <C> <C>
Gain from whole loan sale transactions $ 12,863 $ 20,089
Non-cash gain from securitizations 34,198 28,004
Non-cash gain from servicing asset 2,943 ---
Cash gain from securitizations 957 ---
Securitization expenses (3,004) (3,047)
Accrued interest (2,979) (452)
Provision for losses (120) (3,738)
General valuation provision for NIR (9,000) (1,000)
Non-refundable loan fees 13,816 12,669
Premiums paid (4,787) (8,346)
Origination costs (14,700) (14,750)
Hedging losses --- (1,648)
-------- --------
Gain on sale of loans $ 30,187 $ 27,781
======== ========
</TABLE>
Whole loan sales decreased to $376.6 million for the three months ended June 30,
1999, from $410.7 million for the corresponding period in 1998. This decrease
is the result of a change in the mix of whole loan sales versus securitizations.
Loans sold through whole loan sales decreased to 40.0% of total loan sales in
the three months ended June 30, 1999, compared to 52.6% for the corresponding
period in 1998.
Interest income increased slightly to $13.7 million for the three months ended
June 30, 1999, from $13.2 million for the same period in 1998, 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.
Servicing income increased to $12.1 million for the three months ended June 30,
1999, from $4.5 million for the three months ended June 30, 1998. 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, 1999,
the Company had securitized over $4.5 billion in loans and retained the
servicing rights. As of June 30, 1998, the Company had securitized $1.8 billion
in loans.
Total expenses increased to $37.4 million for the three months ended June 30,
1999, from $32.5 million for the three months ended June 30, 1998. Interest
expense increased due to the higher level of loan inventory and corresponding
warehouse and aggregation borrowings. All other expense components increased
from 1998 to 1999 due primarily to (1) higher loan origination volume in the
quarter ended June 30, 1999 compared to the same period in 1998; and (2) the
addition of 11 sales offices from June 30, 1998 to June 30, 1999.
One tool that management uses to measure the Company's cost-effectiveness in
originating loans is the "all-in acquisition cost" per loan. The Company
calculates this figure as the sum of fees paid to wholesale brokers and
correspondents, direct loan origination costs and corporate overhead costs, net
of points and fees received from borrowers, all divided by total production
volume. The all-in acquisition cost for the three months ended June 30, 1999 was
2.83%, down from 3.59% for the same period in 1998. The decrease was due to
decreases in operating expenses as a percent of production volume, as economies
of scale were realized and new branch offices matured.
18
<PAGE>
Residual Securities
The carrying value of the Company's residual securities at June 30, 1999 and
December 31, 1998 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- ------------
<S> <C> <C>
Carrying value of securities $245,545 $215,895
Less: general valuation allowance for NIR (10,500) (10,500)
-------- --------
Net book value $235,045 $205,395
======== ========
</TABLE>
In establishing the net book value of the residual securities, management
reviews on a quarterly basis the underlying assumptions used to value each
residual security. The specific values set forth above were established and
tested by (i) changing prepayment speed assumptions and loss assumptions for
each security to reflect actual experience and future expectations, and (ii)
performing sensitivity analyses on the assumptions to assess the potential
impact of a higher prepayment and lower loss scenario, and the potential impact
of a lower prepayment and higher loss scenario.
To date, the Company's overall cash flows on its residual interests are higher
than the Company projected. However, based on historic prepayment activity,
particularly in the 6-month and 2/28 ARM products, the Company believes that
future cash flows may fall short of original projections. Based on the
quarterly evaluation of residual interests, the Company recorded a $4.0 million
write-down in the first quarter of 1999 and an additional $9.0 million in the
second quarter of 1999.
Liquidity and Capital Resources
Financing Sources. 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, 1999, the
Company had recently renewed its $300.0 million warehouse line of credit led by
U.S. Bank National Association, with an expiration date in May 2000 and an
interest rate equal to the one month LIBOR plus 1.25%. At June 30, 1999, the
balance outstanding under the warehouse line of credit was $231.9 million.
Borrowings under the warehouse line are secured by first and second mortgages
funded through the facility. Within seven days of funding, the Company is
required to deposit the mortgage note and file with U.S. Bank to be held as
collateral. If the file is incomplete, U.S. Bank ceases to count the loan as
valid collateral in calculating the Company's available borrowing capacity. As
a consequence, the Company is essentially forced to use its own cash to carry
the loan until the file defect can be cured and the loan can be resubmitted
under the warehouse line. As of June 30, 1999, the Company's "zero-collateral"
balance was not material, and did not affect the Company's liquidity.
As of June 30, 1999, 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
19
<PAGE>
basis and bears interest at a rate generally equal to the one month LIBOR plus
1.25%. At June 30, 1999, the balance outstanding under the aggregation facility
was $141.9 million. In November 1998, the Company established a $3.0 million
line of credit with Salomon secured by a newly-formed special purpose subsidiary
of the Company that will hold residential properties owned by the Company from
time to time. This facility bears interest at a rate equal to the one month
LIBOR plus 2.50%. The balance outstanding at June 30, 1999 was $964,000.
During the second quarter of 1999, the Company negotiated a second aggregation
and residual financing facility with Greenwich Capital Markets (Greenwich). The
aggregation facility totals $300.0 million, and bears interest at a rate equal
to the one-month LIBOR plus 1.25%. This facility is structured as a loan and
security agreement and consists of a $200 million committed portion and a $100
million uncommitted portion. It expires in June 2000. As of June 30, 1999, the
balance outstanding under the aggregation facility was zero.
In July 1999, the Company negotiated a third aggregation and residual financing
facility with Paine Webber Real Estate Securities, Inc. (Paine Webber). The
$300 million facility is structured as a loan and security agreement and bears
interest at a rate based on the one month LIBOR. The entire amount is
uncommitted. The Paine Webber facility also includes a "wet funding" feature
that will permit the Company to use the facility to fund its loan originations
and purchases. The facility renews after one year, unless terminated by the
Company.
At present, the Company utilizes the U.S. Bank warehouse line to finance the
actual funding of its loan originations and purchases. In the third quarter, the
Company may also begin using the Paine Webber facility for this purpose. After
loans are funded by the Company using the warehouse line and when all loan
documentation is complete, the loans are generally transferred to the Salomon,
Greenwich or Paine Webber aggregation facilities. The aggregation facilities are
paid down with the proceeds of loan sales and securitizations.
The Company has residual financing arrangements with Salomon, Greenwich and
Paine Webber, whereby the respective lender provides financing of the Company's
residual interests in securitizations as well as its residual interest from NIM
transactions. 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
market value of the residual interests or the formula used by the lead
underwriter to determine the market value of the residual interest (which the
lead underwriter may adjust in its discretion). The Greenwich residual
financing facility has an aggregate limit of $30 million. The Paine Webber
facility is uncommitted, and is built into the overall $300 million limit for
that facility. The Salomon facility is structured as a repurchase arrangement,
and does not have a specified limit. The facilities bear interest at a rate
based on the one month LIBOR. At June 30, 1999, the balance outstanding under
these facilities was $113.1 million.
The Company's business requires substantial cash to support its operating
activities and growth plans. As a result, the Company is dependent on the U.S.
Bank warehouse facility, the aggregation lines and the residual financing
facilities in order to finance its continued operations. If Salomon, U.S. Bank,
Greenwich or Paine Webber decided not to renew its credit facility with the
Company, the loss of borrowing capacity could have a
20
<PAGE>
material adverse impact on the Company's results of operations, business and
financial condition unless the Company found a suitable alternative source.
Industry Liquidity Environment. Although the Company was able to renew its
warehouse credit agreement and establish new aggregation credit facilities in
the second quarter, the financing environment for sub-prime mortgage lenders in
general remains unfavorable by historical standards. In recent quarters,
several of the Company's competitors have had warehouse or aggregation
facilities withdrawn or substantially curtailed. In addition, as whole loan
prices have fallen, lenders have gradually reduced the levels at which they will
lend against mortgage loans and residual interests. This reduction in advance
rates has had a negative effect on the Company's cash flow. If the lower
advance rates persist, it may affect the Company's secondary marketing strategy,
and may have a material adverse effect on the Company's results of operations,
business and financial condition.
Strategy. The Company has employed a variety of strategies to deal with the
more difficult financing environment and to permit the Company to pursue its
desired secondary marketing strategy. In order to reduce its reliance on single
sources of aggregation, warehouse and residual financing, in the second quarter
the Company established the Greenwich and Paine Webber facilities. In addition,
the Company has devoted significant efforts to reducing its origination costs.
The "all-in acquisition cost" per loan - defined as the sum of fees paid to
wholesale brokers and correspondents, direct loan origination costs, including
commissions and corporate overhead costs, net of points and fees received from
borrowers, all divided by total production volume - declined by 76 basis points
from the second quarter of 1998 to the second quarter of 1999. Finally, on July
26, 1999, the Company raised an additional $20 million of cash through the sale
of shares of preferred stock to U.S. Bancorp. There can be no assurance that the
Company's lenders will not further reduce their advance rates to the Company
under the warehouse, aggregation and residual financing facilities, or that the
Company will be able to raise additional cash from investors in future quarters.
The cash impact of advance rate reductions or the inability to raise additional
capital could have a material adverse effect on the Company's results of
operations, business and financial condition.
Cash Flow. For the three months ended June 30, 1999, the Company's operations
used approximately $7.0 million in cash, which is primarily attributable its
securitization strategy. 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: (i) fees paid to brokers and
correspondents in connection with generating loans through wholesale lending
activities; (ii) fees and expenses incurred in connection with the
securitization and sale of loans including over-collateralization requirements
for securitization; (iii) commissions paid to sales employees to originate
loans; (iv) any difference between the amount funded per loan and the amount
advanced under the current warehouse facility; (v) principal and interest
payments on residual financing secured by the NIM residual bonds, for which the
Company does not expect to receive cash flows during 1999; and (vi) 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 capital expenditures and debt service. The Company's sources of
operating cash flow include: (i) the premium advance component of the
aggregation facilities; (ii) premiums obtained in
21
<PAGE>
whole loan sales; (iii) mortgage origination income and fees; (iv) interest
income on loans held for sale; (v) excess cash flow from securitization trusts;
and (vi) servicing income.
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, 1999, the balance outstanding
under this facility was $3.2 million, and the weighted-average interest rate was
8.8%.
The Company has various non-revolving operating lease agreements totaling $19.1
million at June 30, 1999, for purposes of financing office property and
equipment. Advances under these facilities are made periodically and a
financing rate is established at the time of each advance. As of June 30, 1999,
the Company had $3.0 million available under these facilities.
Subject to the various uncertainties described above, the Company anticipates
that its current liquidity, credit facilities and capital resources will be
sufficient to fund its operations for the foreseeable future.
U.S. Bancorp Investment and Strategic Alliance
On July 26, 1999, U.S. Bancorp purchased 20,000 shares of the Company's Series
1999A Convertible Preferred Stock for an aggregate purchase price of $20
million. Each share of the Preferred Stock is convertible into 46.80 shares of
the Company's Common Stock that, upon conversion, will represent approximately
5.1% of the Company's total outstanding Common Stock. The Preferred Stock is
also entitled to a liquidation preference as well as a dividend payable
quarterly at a rate of 7.0% per year.
With the completion of this investment, U.S. Bancorp has increased its equity
position in the Company to approximately 23.2%, assuming conversion of both the
Series 1999A and 1998A Convertible Preferred Stock.
The proceeds from the U.S. Bancorp investment will give the Company greater
flexibility to pursue a more economically advantageous secondary marketing
strategy of securitizing a greater portion of its loan production in the third
and fourth quarters. There can be no assurance that U.S. Bancorp or any other
investor will make subsequent cash investments to allow the Company to continue
to pursue its optimal growth strategy. The Company's inability to raise
additional cash in subsequent quarters could have a material adverse impact on
the Company's results of operations, financial condition and business prospects.
Internet and Technology Initiatives
During the second quarter, the Company purchased the assets of 1800Anyloan,
which consisted primarily of the Internet domain name 1800Anyloan.com and the
toll free number 800Anyloan. Additionally, the Company purchased a 10% equity
interest in DeNovoNet, Inc., a highly specialized technology company that
develops and manages
22
<PAGE>
Internet solutions with the objective to become the premier Internet
business-to-business financial service technology application provider.
Both transactions were part of the Company's ongoing expansion of its Internet
origination capabilities. In early August 1999, the Company commenced operation
of its 1800Anyloan.com web site. The Company expects to devote significant
financial and human resources in coming quarters to expand its Internet
business. There can be no assurance that the Company's Internet business will
contribute significantly to revenues or that it will be profitable.
Year 2000
The Year 2000 Issue
The Year 2000 issue is the result of computer hardware and software being
designed with the year field being set for two digits instead of four digits.
Computer programs and systems with this problem will be unable to properly
distinguish between the year 2000 and the year 1900. As a result the programs
could fail or yield incorrect results.
The Company's business, as well of those of its principal vendors, is dependent
on the ability of a variety of software and hardware systems to function. Less
visible, but also important, are the many non-information technology (Non-IT)
systems which have computer chips embedded in them. Failure of one or more of
these IT and Non-IT systems of the Company or an important vendor could disrupt
the Company's operations and cause a material adverse impact on the Company's
business, results of operations and financial condition.
The Company's Year 2000 Strategy
The Company is in the midst of implementing its plan (the "Y2K Plan" or the
"Plan") to prepare for the Year 2000 issue. The Plan consists of (i) evaluating
the Company's exposure to Year 2000 problems, (ii) having its major systems
certified and tested as Year 2000 ready, (iii) obtaining certifications and/or
responses to detailed questionnaires from its major vendors regarding their Year
2000 readiness, and (iv) establishing contingency plans. The Company believes
it will complete implementation of the Plan by September 30, 1999.
Progress Report
In order to spearhead implementation of the Year 2000 effort, in 1998 the
Company established a Year 2000 Task Group (the "Group"). The Group divided the
Plan implementation process into four categories: 1) Hardware, 2) Non-
Information Technology (e.g., telephone systems, pagers, etc.), 3) Software, and
4) Outside Vendors.
Hardware - The Company's most important hardware systems are its several dozen
- --------
servers located at the Company's headquarters and regional operating centers.
The Group has contacted the manufacturers of those systems, and has obtained
certification of Year 2000 readiness. Because the Company was not formed until
late 1995 and did not commence lending operations until February 1996, most of
these systems are relatively new and were manufactured to be Year 2000 ready.
23
<PAGE>
In addition, in March 1999, the Group commenced testing of each of the hardware
systems to confirm that they are able to function properly in a Year 2000
simulation. The Group completed testing in the second quarter, and concluded
that the systems were Year 2000 ready.
Non-Information Technology - The Group is also in the process of contacting the
- --------------------------
vendors of its principal Non-IT systems in order to obtain certificates of
Year 2000 readiness. The Company's material Non-IT systems include its
telephone, paging, voicemail and telemarketing systems. Because most of these
systems were purchased after 1995, the majority of these systems were designed
and manufactured to be Year 2000 ready. To date, the Company has received
certifications of Year 2000 readiness with respect to its telephone, voicemail
and telemarketing systems, and is awaiting similar certification for its paging
systems. The Group currently expects to receive Year 2000 readiness
certification with respect to its remaining material Non-IT systems by August
31, 1999. Based on the responses received to date, the Group has found it
necessary to replace three minor voicemail systems. The Group expects to
complete the replacement by August 31, 1999.
Software - The Group is in the process of evaluating all material software
- --------
applications for Year 2000 readiness. The Company's material software
applications include its loan origination, accounting and servicing software,
as well as the general word processing and spreadsheet programs used by the
majority of the Company's employees. Because most of the Company's material
software applications were purchased in the last three years, most of this
software was designed to be Year 2000 ready.
The Company has completed testing its material software systems for their
performance with respect to critical Year 2000 dates. Based on this testing,
the Company made some minor programming changes to a small number of programs in
order to bring them into Year 2000-readiness. The Group concluded that the
Company did not need to replace or materially upgrade any of the software
tested.
The Group is planning to complete additional testing of the software for
readiness with respect to a number of dates that fall after the Year 2001.
This second phase of testing is scheduled to be completed by end of the second
quarter in 2000.
Outside Vendors - The Group has identified its outside vendor relationships as a
- ---------------
significant area of uncertainty with respect to Year 2000 readiness. The
Company is dependent on many vendors, both for the origination of loans and for
their subsequent sale or securitization. If one or more of the Company's
principal vendors experiences significant business disruption as a result of the
Year 2000 issue, it could have a material adverse effect on the Company's
business, results of operations and financial condition.
For example, if the Company's warehouse line of credit is not functioning
properly, the Company may be unable to fund loans. Similarly, if other major
origination-related vendors such as credit reporting agencies, title companies,
appraisers and county recorders are not operating, the Company's ability to
originate loans could be significantly impaired.
In order to mitigate the risks related to outside vendors, the Group has
developed a detailed questionnaire to be distributed in the third quarter of
1999 to the Company's principal vendors. In addition, the Group has received
from some vendors, or retrieved from their web sites, information regarding
their Year 2000 testing and readiness. To date, no major vendor issues have
been identified. Based on the responses to the questionnaire and continuing
review of other Year 2000 readiness information, the Group may need to
develop contingency plans to replace
24
<PAGE>
those vendors whose ability to certify Year 2000 readiness is in doubt. The
Group expects that the process of evaluating and working with outside vendors
will continue into the third quarter of 1999.
Contingency Planning
The Group is in the process of formulating a contingency plan in the event that
any material system or vendor will not be Year 2000 ready in a timely manner.
This contingency plan is scheduled to be substantially complete by August 31,
1999, although it will be reviewed and refined thereafter as the Group
continues to evaluate the Company's systems and vendors.
Outside Consultant Review
In order to obtain feedback on the status of Year 2000 efforts to date, the
Group retained an outside consulting firm to perform a Year 2000 risk analysis
in July 1999. The outside consulting firm reviewed the Company's Y2K Plan and
risk management approach, and has provided a confidential report to management.
This report includes recommendations and suggestions to enhance the Company's
readiness, effort, and management is responding to these items.
Costs
The Company has budgeted up to $1,000,000 for implementation of the Plan to
cover the costs of evaluating systems, upgrading or replacing non-compliant
systems and hiring an outside Year 2000 consultant. Although the Group believes
this amount will be sufficient to meet the costs of the Company's Year 2000
readiness efforts, there can be no assurance that the costs to implement the
Plan will not significantly exceed the Company's current estimates. To date,
expenditures for Year 2000 readiness have been approximately $250,000.
Risks
Outside Vendors. At present, the Company perceives that one of its most
significant Year 2000 risks relates to its dependence on outside vendors. Even
if the Company can satisfy itself that the principal IT and Non-IT systems of
its main vendors are Year 2000 ready, those vendors in turn rely on a myriad of
suppliers to operate their businesses. It is conceivable that Year 2000-related
failures far removed from the Company could trigger a chain event that could
materially harm the Company's business.
Financial Market Effects. Another significant risk posed by the Year 2000 issue
is its potential disruption of financial markets. If Year 2000 disrupts
financial markets and financial institutions, it could have a material adverse
effect on the Company's operations and financial condition. For example, the
financial institutions that purchase whole loans or mortgage-backed securities
may curtail their purchases or insist on higher returns. Similarly, the
Company's lenders may seek to reduce their financing commitments to the Company.
Finally, if consumer confidence is impaired, the Company's loan originations
might decline.
The Company is already seeing Year 2000 affect the timing and terms of possible
fourth quarter secondary marketing transactions. Whole loan sales and
securitizations may need to be completed earlier in the fourth quarter as a
result of market uncertainty regarding Year 2000. There are also initial
indications that fourth quarter secondary marketing pricing terms might be worse
for the Company and its competitors than in prior quarters as a result of Year
2000 uncertainty. The Company is evaluating a variety of measures, including
forward commitments, hedging and similar strategies, in order to mitigate some
of the uncertainty and disruption posed by Year 2000 concerns in the financial
markets.
25
<PAGE>
In short, while the Company is committed to attempt to prevent Year 2000-related
harms, there can be no assurance that Year 2000 problems will not have a
material adverse effect on the Company's business, results of operations or
financial condition.
26
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of June 30, 1999, the Company had $235.0 million in residual interests in
securitizations and $15.1 million in mortgage servicing assets which subject the
Company to market risk. These assets are carried at fair value on the Company's
balance sheet. The Company determines the fair value of these assets using
significant assumptions (See "Notes to Consolidated Financial Statements - Basis
of Presentation"). In future periods, if cash flows are greater than projected,
the value of the assets will increase. Alternatively, if cash flows are less
than projected, the value of the assets will decrease. The Company also has
loans receivable held for sale and outstanding borrowings which subject the
Company to market risk. Loans receivable held for sale are generally sold, and
the related borrowings repaid, within three months.
27
<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.
Item 2. Change in Securities and Use of Proceeds
On May 17, 1999, the Company issued to each of Francis J. Partel, Jr.
and Terrence P. Sandvik a non-qualified option to purchase 15,000
shares of the Company's Common Stock at an exercise price of $12.00
per share, subject to vesting in equal installments over three years
from the date of grant. Mr. Partel and Mr. Sandvik are non-employee
directors of the Company. The options terminate 10 years from the
date of grant. The sale and issuance of the non-qualified stock
options was exempt from registration by virtue of Section 4(2) of the
Securities Act and Regulation D thereunder.
On July 26, 1999, the Company issued 20,000 shares of Series 1999A
Convertible Preferred Stock to U.S. Bancorp for an aggregate cash
consideration of $20,000,000. The sale and issuance of the shares
were exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) of the Securities Act and Regulation D
thereunder. Each share of Preferred Stock is convertible at any time
at the election of U.S. Bancorp into 46.80 shares of the Company's
Common Stock.
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 17, 1999.
At the meeting, the stockholders approved the following matters:
1. Re-election of three directors for three-year terms ending in 2002;
2. Approval of KPMG LLP as the Company's independent auditors for 1999;
3. 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
by 500,000 shares, from 2,500,000 shares to 3,000,000 shares;
4. Approval of the Company's 1999 Incentive Compensation Plan.
28
<PAGE>
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
----------------------------------------------------------------
<S> <C> <C>
Election of Directors:
Brad A. Morrice 14,906,579 54,721
Michael M. Sachs 14,907,075 54,225
Terence P. Sandvik 14,906,075 55,225
</TABLE>
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------------------------------------
-------------------------------------------------------
<S> <C> <C> <C>
Approval of 14,955,450 3,550 2,300
Independent
Auditors
-------------------------------------------------------
Approval of 14,036,377 887,485 37,438
Stock Option
Plan
Amendment
-------------------------------------------------------
Approval of 14,961,907 62,220 37,173
1999 Incentive
Compensation
Plan
-------------------------------------------------------
</TABLE>
Item 5. Other Information
None.
Item 6. (a) Exhibits required by Item 601 of Regulation S-K
See "Exhibit Index."
(b) Reports on Form 8-K
None.
29
<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, 1999 By: /s/ BRAD A. MORRICE
----------------------------------
Brad A. Morrice
President
DATE: August 13, 1999 By: /s/ EDWARD F. GOTSCHALL
----------------------------------
Edward F. Gotschall
Chief Financial Officer
(Principal Financial and Accounting Officer)
30
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Description of
Number Exhibit
- ------- --------------
<C> <S>
*3.1 First Amended and Restated Certificate of Incorporation of the Company
**3.2 Certificate of Designation for Series 1998A Convertible Preferred Stock
3.3 Certificate of Designation for Series 1999A Convertible Preferred Stock
*3.4 First Amended and Restated Bylaws of the Company
*4.1 Specimen Stock Certificate
***4.2 Specimen Series 1998A Convertible Preferred Stock Certificate
4.3 Specimen Series 1999A Convertible Preferred Stock Certificate
10.1 1995 Stock Option Plan, as amended (incorporated by reference from the
Company's Form S-8 Registration Statement (No. 333-84049) as filed
with the Securities and Exchange Commission on July 29, 1999)
10.2 Non-qualified Stock Option Agreement dated May 17, 1999 between the
Company and Francis J. Partel, Jr.
10.3 Non-qualified Stock Option Agreement dated May 17, 1999 between the
Company and Terrence P. Sandvik
10.4 Fourth Amended and Restated Credit Agreement between the Company and
U.S. Bank National Association dated May 26, 1999
10.5 Master Loan and Security Agreement by and between NC Capital Corporation
and Greenwich Capital Financial Products, Inc., dated June 23, 1999
10.6 Residual Financial Facility Agreement by and between NC Capital
Corporation and Greenwich Capital Financial Products, Inc., dated
June 23, 1999
10.7 Master Loan and Security Agreement by and among New Century Mortgage
Corporation, NC Capital Corporation and Paine Webber Real Estate
Securities, Inc., dated as of July 20, 1999
10.8 Preferred Stock Purchase Agreement, dated as of July 26, 1999, between
the Company and U.S. Bancorp
10.9 Amended and Restated Registration Rights Agreement, dated as of July 26,
1999, between the Company and U.S. Bancorp
</TABLE>
31
<PAGE>
<TABLE>
<C> <S>
10.10 Employee Stock Purchase Plan, as amended
11.1 Statement re Computation of Per Share Earnings
27.1 Financial Data Schedule
</TABLE>
* Incorporated by reference from the Company's Form S-1 Registration
Statement (No. 333-25483) as filed with the SEC on June 23, 1997.
** Incorporated by reference from the Company's Form 8-K as filed with the
SEC on December 8, 1998.
*** Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1997.
32
<PAGE>
EXHIBIT 3.3
NEW CENTURY FINANCIAL CORPORATION
CERTIFICATE OF DESIGNATIONS
FOR
SERIES 1999A CONVERTIBLE PREFERRED STOCK
(Pursuant To Delaware General Corporation Law, Section 151(g))
The undersigned, being respectively the Chairman and Chief Executive
Officer and the Secretary of New Century Financial Corporation (the
"Corporation"), a corporation organized and existing under the Delaware General
-----------
Corporation Law, in accordance with the provisions of the Delaware General
Corporation Law, Section 151(g), do hereby certify that:
Pursuant to the authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation, the Board of
Directors on July 23, 1999, in accordance with the Delaware General Corporation
Law, Section 151, duly adopted the following resolution establishing a series of
20,000 shares of the Corporation's Preferred Stock, to be designated as its
Series 1999A Convertible Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation (the "Board of Directors") by the Certificate of
------------------
Incorporation of the Corporation, the Board of Directors hereby establishes a
series of Series 1999A Convertible Preferred Stock, of the Corporation and
hereby states the number of shares, and fixes the powers, designations,
preferences and relative, participating, optional and other rights, and the
qualifications, limitations and restrictions thereof, of such series of shares
as follows:
SERIES 1999A CONVERTIBLE PREFERRED STOCK
Section 1. Designation; Number of Shares. The shares of such series
-----------------------------
shall be designated as "Series 1999A Convertible Preferred Stock" (the
"Convertible Preferred Stock"), and the number of shares constituting the
---------------------------
Convertible Preferred Stock shall be 20,000. Such number of shares may be
decreased by resolution of the Board of Directors adopted and filed pursuant to
the Delaware General Corporation Law, Section 151(g), or any successor
provision; provided, that no such decrease shall reduce the number of authorized
shares of Convertible Preferred Stock to a number less than the number of shares
then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, warrants, convertible or exchangeable
securities or other rights to acquire shares of Convertible Preferred Stock.
Section 2. Stated Capital. The amount to be represented in the stated
--------------
capital of the Corporation for each share of Convertible Preferred Stock shall
be $0.01.
<PAGE>
Section 3. Rank. The Convertible Preferred Stock (i) shall rank prior to
----
all of the Corporation's Common Stock, par value $.01 per share (the "Common
------
Stock"), now outstanding or hereafter issued, both as to payment of dividends
- -----
and as to distributions of assets upon the liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary and (ii) shall rank on
parity with all of the Corporation's Series 1998A Convertible Preferred Stock,
par value $.01 per share (the "1998A Convertible Preferred Stock"), now
---------------------------------
outstanding or hereafter issued, both as to payment of dividends and as to
distributions of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
Section 4. Dividends and Distributions.
---------------------------
(a) The holders of shares of Convertible Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors out of funds
legally available for such purpose, dividends at the rate of $70.00 per annum
per share. Such dividends shall be fully cumulative, shall accumulate without
interest from the date of original issuance of the Convertible Preferred Stock
and shall be payable quarterly in arrears in cash on each January 31, April 30,
July 31 and October 31, commencing October 31, 1999 (provided, that if any such
date is a Saturday, Sunday or legal holiday in the place where such dividend is
to be paid, then such dividend shall be payable without interest on the next day
that is not a Saturday, Sunday or legal holiday) to holders of record as they
appear on the stock books of the Corporation on such record dates as shall be
fixed by the Board of Directors. Such record dates shall be not more than 60
nor less than 10 days preceding the respective dividend payment dates. The
amount of dividends payable per share of Convertible Preferred Stock for each
full quarterly dividend period shall be computed by dividing the annual dividend
amount by four. The amount of dividends payable for the initial dividend period
and for any other period shorter than a full quarterly dividend period shall be
computed on the basis of a 360-day year of twelve 30-day months. No dividends
or other distributions, other than dividends payable solely in shares of Common
Stock or other capital stock of the Corporation ranking junior as to payment of
dividends to the Convertible Preferred Stock (such Common Stock and other
capital stock being referred to herein collectively as "Junior Dividend Stock"),
---------------------
shall be paid or set apart for payment on, and no purchase, redemption or other
acquisition shall be made by the Corporation of, any shares of Junior Dividend
Stock unless and until all accumulated and unpaid dividends on the Convertible
Preferred Stock, including the full dividend for the then-current quarterly
dividend period, shall have been paid or declared and set apart for payment.
(b) Notwithstanding the provisions of Section 4(a), dividends shall not be
declared or paid, but shall accumulate, on the Convertible Preferred Stock until
such time as the execution and delivery of the Amendment (as defined in the
Preferred Stock Purchase Agreement dated as of July 26, 1999 between the
Corporation and U.S. Bancorp (the "1999 Preferred Stock Purchase Agreement")) to
----------------------------------------
the Fourth Amended and Restated Credit Agreement dated as of May 26, 1999 by and
among New Century Mortgage Corporation, the lenders party thereto and U.S. Bank
-2-
<PAGE>
National Association, as Agent (the "Credit Agreement"), by the Required Lenders
----------------
(as defined in the Credit Agreement).
(c) If at any time any dividend on any capital stock of the Corporation
ranking senior as to payment of dividends to the Convertible Preferred Stock
(such capital stock being referred to herein as "Senior Dividend Stock") shall
---------------------
be in default, in whole or in part, no dividend shall be paid or declared and
set apart for payment on the Convertible Preferred Stock unless and until all
accumulated and unpaid dividends with respect to the Senior Dividend Stock,
including the full dividend for the then-current dividend period, shall have
been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any capital
stock of the Corporation ranking, as to payment of dividends, on a parity with
the Convertible Preferred Stock (such capital stock being referred to herein as
"Parity Dividend Stock") for any period unless full cumulative dividends have
---------------------
been, or contemporaneously are, paid or declared and set apart for payment on
the Convertible Preferred Stock for all dividend periods terminating on or prior
to the date of payment of such full cumulative dividends. No full dividends
shall be paid or declared and set apart for payment on the Convertible Preferred
Stock for any period unless full cumulative dividends have been, or
contemporaneously are, paid or declared and set apart for payment on any Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full cumulative dividends. When dividends are not paid in full
upon the Convertible Preferred Stock and any Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Convertible
Preferred Stock and Parity Dividend Stock shall be paid or declared and set
apart for payment pro rata, so that the amount of dividends paid or declared and
set apart for payment per share on the Convertible Preferred Stock and the
Parity Dividend Stock shall in all cases bear to each other the same ratio that
accumulated and unpaid dividends per share on the shares of Convertible
Preferred Stock and Parity Preferred Stock bear to each other.
(d) Any reference to "distribution" contained in this Section 4 shall not
be deemed to include any distribution made in connection with a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Section 5. Liquidation Preference. In the event of a liquidation,
----------------------
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Convertible Preferred Stock shall be entitled to receive out of
the assets of the Corporation, whether such assets constitute stated capital or
surplus of any nature, an amount equal to the dividends accumulated and unpaid
thereon to the date of final distribution to such holders, whether or not
declared, without interest, plus a sum equal to $1,000 per share, and no more,
before any payment shall be made or any assets distributed to the holders of
Common Stock or any other capital stock of the Corporation ranking junior as to
liquidation rights to the Convertible Preferred Stock (such Common Stock and
other capital stock being referred to herein collectively as "Junior Liquidation
-------------------
Stock"); provided, that such rights shall accrue to the holders of Convertible
- -----
Preferred Stock only in the event that the Corporation's payments with respect
to the liquidation preferences of the holders of capital stock of the
Corporation ranking senior as to
-3-
<PAGE>
liquidation rights to the Convertible Preferred Stock (such capital stock being
referred to herein as "Senior Liquidation Stock") are fully met. If upon
------------------------
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation available for distribution after the liquidation preferences of any
Senior Liquidation Stock are insufficient to pay the holders of the Convertible
Preferred Stock and any other capital stock of the Corporation which ranks on a
parity as to liquidation rights with the Convertible Preferred Stock, the entire
assets of the Corporation then available for distribution shall be distributed
ratably among the holders of the Convertible Preferred Stock and any other
capital stock of the Corporation which ranks on a parity as to liquidation
rights with the Convertible Preferred Stock in proportion to the respective
preferential amounts to which each is entitled (but only to the extent of such
preferential amounts). After payment in full of the liquidation preference of
the shares of the Convertible Preferred Stock, the holders of such shares shall
not be entitled to any further participation in any distribution of assets by
the Corporation. Neither a consolidation or merger of the Corporation with
another corporation nor a sale or transfer of all or part of the Corporation's
assets for cash, securities or other property will be deemed a liquidation,
dissolution or winding up of the Corporation for purposes of this Section 5.
Section 6. Redemption at Option of the Corporation.
---------------------------------------
(a) Subject to Section 6(b), the Corporation may not redeem the
Convertible Preferred Stock prior to July 26, 2003. The Corporation, at its
option, may, on or after July 26, 2003, redeem at any time all, or from time to
time any portion, of the Convertible Preferred Stock on any date set by the
Board of Directors, at $1,000 per share, plus an amount per share in cash equal
to all dividends on the Convertible Preferred Stock accumulated and unpaid on
such share, whether or not declared, to the date fixed for redemption (such sum
being hereinafter referred to as the "Redemption Price").
----------------
(b) The Corporation may, at its option, redeem the Convertible Preferred
Stock concurrently with an Acquisition Event (as defined herein) if each of the
following conditions are met: (i) the Corporation has complied with the
covenants contained in Sections 8.4 and 8.5 of the Preferred Stock Purchase
Agreement dated October 18, 1998 between the Corporation and U.S. Bancorp (the
"1998 Preferred Stock Purchase Agreement") in all material respects; (ii) the
---------------------------------------
Purchaser (as defined in the 1998 Preferred Stock Purchase Agreement) has been
notified in writing of all material terms of the Acquisition Proposal (as
defined herein) that relates to such Acquisition Event; and (iii) either (A)
such Purchaser, within 15 days of the first date on which it had been so
notified of such Acquisition Proposal, failed to make an offer that is similar
to, and on terms no less favorable to the Company and its shareholders than, the
Acquisition Proposal; or (B) prior to the date of a definitive agreement with
respect to an Acquisition Transaction with Purchaser or an affiliate of
Purchaser, (x) the terms of the Acquisition Proposal are improved or a new
proposal regarding an Acquisition Transaction that is financially superior to
such original proposal (a "Superior Proposal") is received by the Company and
-----------------
the Purchaser fails to match such improved terms or such Superior Proposal
within five business days of Purchaser's receipt
-4-
<PAGE>
of written notice of all material terms thereof or (y) the Purchaser withdraws
its offer. Any redemption pursuant to this Section 6(b) shall be at the
Redemption Price, and the redemption date for any such redemption shall not be
earlier than, but may be concurrent with, the effective time of the Acquisition
Event. For purposes of this Section 6(b), the following terms shall have the
following meanings: "Acquisition Proposal" shall mean a proposal relating to any
--------------------
of the following actions: (A) any extraordinary corporate transaction, such as a
merger, consolidation or other business combination involving the Company; or
(B) a sale, lease or transfer of a material amount of assets of the Company, or
a reorganization, recapitalization, dissolution or liquidation of the Company;
"Acquisition Transaction" shall mean any of the actions described in (A) or (B)
-----------------------
of the definition of "Acquisition Proposal"; and "Acquisition Event" shall mean
-------------------- -----------------
the consummation of an Acquisition Transaction.
(c) The following provisions will apply to any redemption pursuant to
Section 6(a) or 6(b):
(i) In case of the redemption of less than all of the then outstanding
Convertible Preferred Stock, the Corporation shall designate by lot, or in such
other manner as the Board of Directors may determine, the shares to be redeemed,
or shall effect such redemption pro rata. Notwithstanding the foregoing, the
Corporation shall not redeem less than all of the Convertible Preferred Stock at
any time outstanding until all dividends accumulated and in arrears upon all
Convertible Preferred Stock then outstanding shall have been paid for all past
dividend periods.
(ii) Not more than 60 nor less than 30 days prior to the redemption date,
notice by first class mail, postage prepaid, shall be given to the holders of
record of the Convertible Preferred Stock to be redeemed, addressed to such
shareholders at their last addresses as shown on the stock books of the
Corporation. Each such notice of redemption shall specify the date fixed for
redemption; the redemption price; the place or places of payment; the then-
effective Conversion Rate and Conversion Price (as defined in Section 7); that
the right of holders of Convertible Preferred Stock called for redemption to
exercise their conversion right pursuant to Section 7 shall expire as to such
shares at the close of business on the date fixed for redemption (provided that
there is no default in payment of the Redemption Price); that payment of the
Redemption Price will be made upon presentation and surrender of certificates
representing the shares of Convertible Preferred Stock; that accumulated but
unpaid dividends to the date fixed for redemption will be paid on the date fixed
for redemption; that accumulated but unpaid dividends will not be paid in the
case of a conversion of Convertible Preferred Stock; and that on and after the
redemption date, dividends will cease to accumulate on such shares.
(iii) On or after the date fixed for redemption as stated in such notice,
each holder of the shares called for redemption (other than shares which have
been duly surrendered for conversion at or before the close of business on the
date fixed for redemption) shall surrender the certificate or certificates
evidencing such shares to the Corporation at the place designated in such notice
and shall thereupon be entitled to receive payment of the Redemption Price. If
fewer
-5-
<PAGE>
than all the shares represented by any such surrendered certificate or
certificates are redeemed, a new certificate shall be issued representing the
unredeemed shares. If, on the date fixed for redemption, funds necessary for the
redemption shall be available therefor and shall have been irrevocably deposited
or set aside, then, notwithstanding that the certificates evidencing any shares
so called for redemption shall not have been surrendered, the dividends with
respect to the shares so called shall cease to accumulate on and after the date
fixed for redemption, such shares shall no longer be deemed outstanding, the
holders thereof shall cease to be shareholders, and all rights whatsoever with
respect to such shares (except the right of the holders thereof to receive the
Redemption Price without interest upon surrender of their certificates) shall
terminate.
Section 7. Conversion at Option of Holders. Holders of Convertible
-------------------------------
Preferred Stock may, at their option upon surrender of the certificates
therefor, convert any or all of their shares of Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock (and such other securities
and property as they may be entitled to, as hereinafter provided) at any time
after issuance thereof; provided, that such conversion right shall expire at the
close of business on the date, if any, fixed for the redemption of Convertible
Preferred Stock in any notice of redemption given pursuant to Section 6 hereof
if there is no default in payment of the Redemption Price. Each share of
Convertible Preferred Stock shall be convertible at the office of any transfer
agent for the Convertible Preferred Stock, and at such other office or offices,
if any, as the Board of Directors may designate, into that number of fully paid
and nonassessable shares of Common Stock (calculated as to each conversion to
the nearest 1/100th of a share) as shall be equal to the Conversion Rate,
determined as hereinafter provided, in effect at the time of conversion. Shares
of Convertible Preferred Stock may initially be converted into full shares of
Common Stock at the rate of 46.80 shares of Common Stock for each share of
Convertible Preferred Stock, subject to adjustment from time to time as provided
in Section 8 (such conversion rate, as so adjusted from time to time, being
referred to herein as the "Conversion Rate"). The "Conversion Price" shall be
--------------- -----------------
equal to $1,000 divided by the Conversion Rate. Upon conversion, no adjustment
or payment shall be made in respect of accumulated and unpaid dividends on the
Convertible Preferred Stock surrendered for conversion.
The right of holders of Convertible Preferred Stock to convert their shares
shall be exercised by surrendering for such purpose to the Corporation or its
agent, as provided above, certificates representing shares to be converted, duly
endorsed in blank or accompanied by proper instruments of transfer. The
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of Common Stock or other
securities or property upon conversion of Convertible Preferred Stock in a name
other than that of the holder of the shares of Convertible Preferred Stock being
converted, nor shall the Corporation be required to issue or deliver any such
shares or other securities or property unless and until the person or persons
requesting the issuance thereof shall have paid to the Corporation the amount of
any such tax or shall have established to the satisfaction of the Corporation
that such tax has been paid.
-6-
<PAGE>
A number of shares of the authorized but unissued Common Stock sufficient
to provide for the conversion of the Convertible Preferred Stock outstanding
upon the basis hereinbefore provided shall at all times be reserved by the
Corporation, free from preemptive rights, for such conversion, subject to the
provisions of the next paragraph. If the Corporation shall issue any securities
or make any change in its capital structure which would change the number of
shares of Common Stock into which each share of the Convertible Preferred Stock
shall be convertible as herein provided, the Corporation shall at the same time
also make proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved, free from preemptive rights,
for conversion of the outstanding Convertible Preferred Stock on the new basis.
The Corporation shall comply with all securities laws regulating the offer and
delivery of shares of Common Stock upon conversion of the Convertible Preferred
Stock and shall use its best efforts to list such shares on each national
securities exchange on which the Common Stock is listed or to have such shares
admitted for quotation on the Nasdaq National Market if the Common Stock is
admitted for quotation thereon.
Upon the surrender of certificates representing shares of Convertible
Preferred Stock to be converted, duly endorsed or accompanied by proper
instruments of transfer as provided above, the person converting such shares
shall be deemed to be the holder of record of the Common Stock issuable upon
such conversion, and all rights with respect to the shares surrendered shall
forthwith terminate except the right to receive the Common Stock or other
securities, cash or other assets as herein provided.
No fractional shares of Common Stock shall be issued upon conversion of
Convertible Preferred Stock but, in lieu of any fraction of a share of Common
Stock which would otherwise be issuable in respect of the aggregate number of
such shares surrendered for conversion at one time by the same holder, the
Corporation shall pay in cash an amount equal to the product of (a) the Closing
Price of a share of Common Stock (as defined in the next sentence) on the last
trading day before the conversion date and (b) such fraction of a share. The
"Closing Price" for such day shall be the last reported sale price regular way
-------------
or, in case no sale takes place on such day, the average of the closing bid and
asked prices regular way on such day, in either case as reported on the New York
Stock Exchange Composite Tape, or, if the Common Stock is not listed or admitted
to trading on such Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or, if the Common Stock
is not listed or admitted to trading on any national securities exchange, on the
Nasdaq National Market System, or, if the Common Stock is not admitted for
quotation on the Nasdaq National Market System, the average of the high bid and
low asked prices on such day as recorded by the National Association of
Securities Dealers, Inc. through Nasdaq, or, if the National Association of
Securities Dealers, Inc. through Nasdaq shall not have reported any bid and
asked prices for the Common Stock on such day, the average of the bid and asked
prices for such day as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation for such purpose, or, if no such
bid and asked prices can be obtained from any such firm, the fair
-7-
<PAGE>
market value of one share of the Common Stock on such day as determined in good
faith by the Board of Directors of the Corporation.
Section 8. Adjustments to Conversion Rate. Notwithstanding anything in
------------------------------
this Section 8 to the contrary, no change in the Conversion Rate shall be made
until the cumulative effect of the adjustments called for by this Section 8
since the date of the last change in the Conversion Rate would change the
Conversion Rate by more than 1%. However, once the cumulative effect would
result in such a change, then the Conversion Rate shall be changed to reflect
all adjustments called for by this Section 8 and not previously made. Subject
to the foregoing, the Conversion Rate shall be adjusted from time to time as
follows:
(a) In case of any consolidation or merger of the Corporation with
any other corporation (other than a wholly owned subsidiary of the
Corporation), or in case of any sale or transfer of all or substantially
all of the assets of the Corporation, or in case of any share exchange
pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property, the Corporation shall, prior
to or at the time of such transaction, make appropriate provision or cause
appropriate provision to be made so that holders of each share of
Convertible Preferred Stock then outstanding shall have the right
thereafter to convert such share of Convertible Preferred Stock into the
kind and amount of shares of stock and other securities and property
receivable upon such consolidation, merger, sale, transfer or share
exchange by a holder of the number of shares of Common Stock into which
such share of Convertible Preferred Stock could have been converted
immediately prior to the effective date of such consolidation, merger,
sale, transfer or share exchange. If in connection with any such
consolidation, merger, sale, transfer or share exchange, each holder of
shares of Common Stock is entitled to elect to receive either securities,
cash or other assets upon completion of such transaction, the Corporation
shall provide or cause to be provided to each holder of Convertible
Preferred Stock the right to elect the securities, cash or other assets
into which the Convertible Preferred Stock held by such holder shall be
convertible after completion of any such transaction on the same terms and
subject to the same conditions applicable to holders of the Common Stock
(including, without limitation, notice of the right to elect, limitations
on the period in which such election shall be made and the effect of
failing to exercise the election).
(b) In case the Corporation shall (i) pay a dividend or make a
distribution on its Common Stock in shares of its capital stock, (ii)
subdivide its outstanding Common Stock into a greater number of shares,
(iii) combine the shares of its outstanding Common Stock into a smaller
number of shares, or (iv) issue by reclassification of its Common Stock any
shares of its capital stock, then in each such case the Conversion Rate in
effect immediately prior thereto shall be proportionately adjusted so that
the holder of any Convertible Preferred Stock thereafter surrendered for
conversion shall be entitled to receive, to the extent permitted by
applicable law, the number and kind of shares of
-8-
<PAGE>
capital stock of the Corporation which such holder would have owned or have
been entitled to receive after the happening of such event had such
Convertible Preferred Stock been converted immediately prior to the record
date for such event (or if no record date is established in connection with
such event, the effective date for such action). An adjustment pursuant to
this subparagraph (b) shall become effective immediately after the record
date in the case of a stock dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(c)(i) In case the Corporation shall issue Additional Shares of Common
Stock (as defined herein) (including, without limitation, Additional Shares
of Common Stock deemed to be issued pursuant to Section 8(c)(iii)) without
consideration or for a consideration per share less than the Current Market
Price (as defined herein) calculated as provided herein as of the date of
and immediately prior to such issue, then in each such case the Conversion
Rate in effect on such issue date shall be adjusted in accordance with the
formula:
O + N
-----
C\\1\\ = C x
O + N x P
-----
M
where
C\\1\\ = the adjusted Conversion Rate.
C = the current Conversion Rate.
O = the number of shares of Common Stock outstanding immediately
prior to such issue.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the Current Market Price per share of Common Stock immediately
prior to such issue.
For the purpose of such calculation, the number of shares of Common Stock
outstanding immediately prior to such issue shall be calculated on a fully
diluted basis, as if all shares of Convertible Preferred Stock and all
Convertible Securities had been fully converted into shares of Common Stock
immediately prior to such issuance and any outstanding warrants, options or
other rights for the purchase of shares of stock or convertible securities
had been fully exercised immediately prior to such issuance (and the
resulting securities fully converted into shares of Common Stock, if so
convertible) as of such date.
(ii) For purposes of this Section 8(c), the following definitions
shall apply: (A) "Options" shall mean rights, options or warrants to
-------
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities; (B) "Convertible Securities"
----------------------
-9-
<PAGE>
shall mean any evidences of indebtedness, shares or other securities
convertible into or exchangeable for Common Stock; (C) "Additional Shares
-----------------
of Common Stock" shall mean all shares of Common Stock issued (or, pursuant
---------------
to Section 8(c)(iii), deemed to be issued) by the Corporation after July
26, 1999, other than shares of Common Stock issued or issuable: (1) upon
conversion of shares of the Convertible Preferred Stock or upon conversion
of shares of 1998A Convertible Preferred Stock; (2) pursuant to a stock
grant, option plan or purchase plan, other employee stock incentive program
or agreement approved by the Board of Directors which was disclosed in
Schedule 5.3 of the 1999 Preferred Stock Purchase Agreement (the "Option
------
Pool"); or (3) pursuant to the terms of any stock grant, option, warrant,
----
employment agreement or other written obligation, agreement or commitment
to which the Corporation was a party as of July 26, 1999 and which was
disclosed in Schedule 5.3 of the 1999 Preferred Stock Purchase Agreement;
and (D) "Current Market Price" shall mean the average of the daily Closing
-------------------
Prices of the Common Stock (as defined in Section 7) on the 30 consecutive
business days commencing 45 business days before such issue date, as
applicable.
(iii) In the event the Corporation at any time or from time to time
after July 26, 1999 shall issue any Options (other than the issuance of
Options pursuant to the Option Pool) or Convertible Securities or shall fix
a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent
adjustment of such number) of Common Stock issuable upon the exercise of
such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall
be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the
close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the
consideration per share of such Additional Shares of Common Stock would be
less than the Current Market Price calculated as provided herein as of the
date of and immediately prior to such issue, or such record date, as the
case may be, and provided further that in any such case in which Additional
Shares of Common Stock are deemed to be issued no further adjustment in the
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities.
(iv) Upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not
have been exercised, the Conversion Price and Conversion Rate computed upon
the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration, be recomputed as if:
-10-
<PAGE>
(A) in the case of Convertible Securities or Options for Common
Stock the only Additional Shares of Common Stock issued were the shares of
Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by
the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration actually received by the corporation upon
such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or exchange;
and
(B) in the case of Options for Convertible Securities only the
Convertible Securities, if any, actually issued upon the exercise thereof
were issued at the time of issue of such Options, and the consideration
received by the Corporation for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
Corporation upon the issue of the Convertible Securities or Convertible
Preferred Stock with respect to which such Options were actually exercised.
(e) All calculations hereunder shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(f) In the event that at any time, as a result of an adjustment made
pursuant to subparagraph (a) or (b) above, the holder of any Convertible
Preferred Stock thereafter surrendered for conversion shall become entitled
to receive securities, cash or assets other than Common Stock, the number
or amount of such securities or property so receivable upon conversion
shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in subparagraphs (a) through (e) above.
Except as otherwise provided above in this Section 8, no adjustment in the
Conversion Rate shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Conversion Rate is adjusted as herein provided, the
Corporation shall send to each transfer agent for the Convertible Preferred
Stock and the Common Stock, and to the principal securities exchange, if any, on
which the Convertible Preferred Stock and the Common Stock is traded, or the
Nasdaq National Market if the Convertible Preferred Stock or Common Stock is
admitted for quotation thereon, a statement signed by the Chairman of the Board,
the President or any Vice President of the Corporation and by its Treasurer or
its Secretary stating the adjusted Conversion Rate determined as provided in
this Section 8; and any adjustment so evidenced, given in good faith, shall be
binding upon all shareholders and upon the Corporation.
-11-
<PAGE>
Whenever the Conversion Rate is adjusted, the Corporation shall give notice by
mail at the time of, and together with, the next dividend payment to the holders
of record of Convertible Preferred Stock, setting forth the adjustment and the
new Conversion Rate and Conversion Price. Notwithstanding the foregoing notice
provisions, failure by the Corporation to give such notice or a defect in such
notice shall not affect the binding nature of such corporate action of the
Corporation.
Whenever the Corporation shall propose to take any of the actions specified
in subparagraphs (a), (b) or (c) of the first paragraph of this Section 8 which
would result in any adjustment in the Conversion Rate, the Corporation shall
cause a notice to be mailed at least 20 days prior to the date on which the
books of the Corporation will close or on which a record will be taken for such
action to the holders of record of the outstanding Convertible Preferred Stock
on the date of such notice. Such notice shall specify the action proposed to be
taken by the Corporation and the date as of which holders of record of the
Common Stock shall participate in any such actions or be entitled to exchange
their Common Stock for securities or other property, as the case may be.
Failure by the Corporation to give such notice or any defect in such notice
shall not affect the validity of the transaction.
Anything herein to the contrary notwithstanding, no adjustment will be made
to the Conversion Price or Conversion Rate by reason of (i) the issuance of
Common Stock, Options or Convertible Securities to employees, directors,
officers or consultants of the Corporation or any subsidiary of the Corporation
pursuant to the Option Pool or the issuance of Common Stock upon the conversion,
exercise or exchange thereof, (ii) the issuance of Common Stock upon the
conversion, exercise or exchange of Options or Convertible Securities issued and
outstanding on July 26, 1999, including, without limitation, the issuance of
Common Stock upon the conversion of any shares of 1998A Convertible Preferred
Stock, (iii) the issuance of Common Stock upon the conversion of the Convertible
Preferred Stock, (iv) rights to purchase Common Stock pursuant to a Corporation
plan for reinvestment of dividends or interest, (v) the issuance of Common Stock
upon the exercise, conversion or exchange of Options or Convertible Securities
of the Corporation where the Conversion Price had previously been adjusted
pursuant to this Section 8 upon the initial issuance of such Options or
Convertible Securities. In addition, no adjustment in the Conversion Price need
be made for a change in the par value of the Common Stock.
Section 9. Convertible Preferred Stock Not Redeemable at Option of Holders
---------------------------------------------------------------
or Exchangeable; No Sinking Fund. The Convertible Preferred Stock shall not be
- --------------------------------
redeemable upon the request of holders thereof or exchangeable for other capital
stock or indebtedness of the Corporation or other property. The shares of
Convertible Preferred Stock shall not be subject to the operation of a purchase,
retirement or sinking fund.
Section 10. Voting Rights. Except as herein provided or as otherwise
-------------
required by law, holders of Convertible Preferred Stock shall be entitled to the
same voting rights as, and shall
-12-
<PAGE>
vote together as one class with, holders of Common Stock, with each holder of
shares of Convertible Preferred Stock having such voting rights as are
attributable to the number of whole shares of Common Stock into which such
shares of Convertible Preferred Stock are convertible in accordance with
Sections 7 and 8 hereof as of the date of such vote.
In addition to any matters requiring a separate vote of the Convertible
Preferred Stock as a single class under applicable law, the approval of the
holders of a majority of the issued and outstanding shares of Convertible
Preferred Stock, voting as a class, shall be required as set forth in Section 11
hereof with respect to the priority and rights of the Convertible Preferred
Stock hereunder and under the Corporation's Certificate of Incorporation, as
amended.
At each meeting of shareholders at which the holders of shares of
Convertible Preferred Stock shall have the right, voting separately as a single
class, to take any action, the presence in person or by proxy of the holders of
record of at least 50% of the shares of Convertible Preferred Stock outstanding
and entitled to vote on the matter shall be necessary and sufficient to
constitute a quorum. At each such meeting, each holder of shares of Convertible
Preferred Stock shall be entitled to vote for each share of Convertible
Preferred Stock then held. In the absence of a quorum of the holders of shares
of Convertible Preferred Stock, a majority of the holders of such shares present
in person or by proxy shall have the power to adjourn the meeting as to the
actions to be taken by the holders of shares of Convertible Preferred Stock from
time to time and place to place without notice other than announcement at the
meeting until a quorum shall be present.
Section 11. Certain Actions Not to be Taken Without Vote of Holders of
----------------------------------------------------------
Convertible Preferred Stock. Without the consent or affirmative vote of the
- ---------------------------
holders of at least a majority of the outstanding shares of Convertible
Preferred Stock, voting separately as a class, the Corporation shall not
authorize, create or issue any shares of any other class or series of capital
stock ranking senior to the Convertible Preferred Stock as to dividends or upon
liquidation. The affirmative vote or consent of the holders of at least a
majority of the outstanding shares of the Convertible Preferred Stock, voting
separately as a class, shall be required for any amendment, alteration or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation (including any certificate of designations
establishing any class or series of Preferred Stock of the Corporation) if the
amendment, alteration or repeal adversely affects the rights or preferences of
the Convertible Preferred Stock; provided, however, that any increase in the
authorized Preferred Stock of the Corporation or the creation and issuance of
any other capital stock of the Corporation ranking on a parity with or junior to
the Convertible Preferred Stock shall not be deemed to materially affect such
powers, preferences or special rights.
Section 12. Outstanding Shares. For purposes of this Certificate of
-------------------
Designations, all shares of Convertible Preferred Stock shall be deemed
outstanding except for (a) shares of Convertible Preferred Stock held of record
or beneficially by the Corporation or any subsidiary of the Corporation; (b)
from the date of surrender of certificates representing Convertible
-13-
<PAGE>
Preferred Stock for conversion pursuant to Section 7, all shares of Convertible
Preferred Stock which have been converted into Common Stock or other securities
or property pursuant to Section 7; and (c) from the date fixed for redemption
pursuant to Section 6, all shares of Convertible Preferred Stock which have been
called for redemption, provided that funds necessary for such redemption are
available therefor and have been irrevocably deposited or set aside for such
purpose.
Section 13. Status of Convertible Preferred Stock Upon Retirement. Shares
-----------------------------------------------------
of Convertible Preferred Stock which are acquired or redeemed by the Corporation
or converted pursuant to Section 7 shall be retired pursuant to the Delaware
General Corporation Law, Section 243, or any successor provision, and thereupon
shall return to the status of authorized and unissued shares of Preferred Stock
of the Corporation without designation as to series. Upon the acquisition or
redemption by the Corporation or conversion pursuant to Section 7 of all
outstanding shares of Convertible Preferred Stock, all provisions of this
Certificate of Designations shall cease to be of further effect. Upon the
occurrence of such event, the Board of Directors of the Corporation shall have
the power, pursuant to the Delaware General Corporation Law, Section 151(g), or
any successor provision and without shareholder action, to cause this
Certificate of Designations to be eliminated from the Corporation's Certificate
of Incorporation.
-14-
<PAGE>
IN WITNESS WHEREOF, New Century Financial Corporation has caused this
certificate to be signed by Robert K. Cole, its Chairman and Chief Executive
Officer, and attested by Brad A. Morrice, its Secretary, this 26th day of July,
1999.
NEW CENTURY FINANCIAL
CORPORATION
By /s/ Robert K. Cole
----------------------------------
Robert K. Cole
Chairman and Chief Executive Officer
Attest:
By /s/ Brad A. Morrice
-------------------
Brad A. Morrice
Secretary
-15-
<PAGE>
Exhibit 4.3
Incorporated under the laws of
Delaware on November 17, 1995
NUMBER SHARES
1 **20,000**
NEW CENTURY FINANCIAL CORPORATION
Authorized Shares: 20,000 Series 1999A Convertible Preferred Stock
This Certifies that U.S. Bancorp, a Delaware corporation is the
--------------------------------------------------
registered holder of **Twenty Thousand (20,000)** Shares
------------------------------------------------
of Series 1999A Convertible Preferred Stock of the above named Corporation.
HEREINAFTER DESIGNATED "THE CORPORATION", TRANSFERABLE ON THE SHARE REGISTER OF
THE CORPORATION UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED OR
ASSIGNED.
This certificate and the shares represented thereby shall be held subject
to all of the provisions of the Certificate of Incorporation and the By-laws of
said Corporation a copy of each of which is on file at the office of the
Corporation, and made a part hereof as fully as though the provisions of said
Certificate of Incorporation and By-laws were imprinted in full on this
certificate, to all of which the holder of this certificate, by acceptance
hereof, assents and agrees to be bound.
Any stockholder may obtain from the principal office of the Corporation,
upon request and without charge, a statement of the number of shares
constituting each class or series of stock and the designation thereof; and a
copy of the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights and the By-laws.
WITNESS THE SEAL OF THE CORPORATION AND THE SIGNATURES OF ITS DULY
AUTHORIZED OFFICERS.
DATED: July 26, 1999
/s/ Greta L. Aronow [SEAL] /s/ Brad A. Morrice
- ------------------------------------ --------------------------
Greta L. Aronow; Assistant Secretary Brad A. Morrice; President
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED WITHOUT (I) AN
OPINION OF COUNSEL SATISFACTORY TO THIS CORPORATION THAT SUCH TRANSFER MAY
LAWFULLY BE MADE WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS OR (II) SUCH REGISTRATION.
No. 1
CERTIFICATE
FOR
**20,000**
SHARES
OF
Preferred Stock
ISSUED TO
U.S. Bancorp
------------------
DATED
July 26, 1999
------------------
For Value Received, _____ hereby sell, assign and transfer unto
________________________________ Shares of the Preferred Stock represented by
the within Certificate and do hereby irrevocably constitute and appoint
___________________ Attorney to transfer the said Stock on the books of the
within named Corporation with full power of substitution in the premises.
Dated _________________ 19__
In presence of ___________________________________________
______________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 10.2
NEW CENTURY FINANCIAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (this "AGREEMENT") dated as of the
17th day of May, 1999, by and between NEW CENTURY FINANCIAL CORPORATION, a
Delaware corporation (the "COMPANY"), and Francis J. Partel (the "OPTIONEE").
W I T N E S S E T H
WHEREAS, the Optionee is a member of the Board of Directors of the Company
(the "BOARD"); and
WHEREAS, the Company has granted to the Optionee effective as of the 17th
day of May, 1999 (the "Grant Date") a nonqualified stock option to purchase all
or any part of 15,000 shares of the Company's Common Stock, par value $0.01 per
share (the "Common Stock"), subject to and upon the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants made
herein and the mutual benefits to be derived herefrom and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
1. Grant of Option. This Agreement evidences the Company's grant to the
---------------
Optionee of the right and option to purchase, subject to and on the terms
and conditions set forth herein, all or any part of 15,000 shares of the
Company's Common Stock (the "Shares") at the price of $12.00 per Share (the
"Option"), exercisable from time to time, subject to the provisions of this
Agreement, prior to the close of business on the day before the tenth
anniversary of the Grant Date (the "Expiration Date"), unless earlier
terminated pursuant to Section 4 or 6. Such price equals not less than the
fair market value of the Common Stock as of the Grant Date.
2. Exercisability of Option. The Option shall vest and become exercisable in
------------------------
installments in accordance with the following schedule: (i) 5,000 of the
total number of Shares subject to the Option shall vest and become
exercisable on the first anniversary of the Grant Date, (ii) an additional
5,000 of the total number of Shares subject to the Option shall vest and
become exercisable on the second anniversary of the Grant Date, and (iii)
the remaining 5,000 Shares subject to the Option shall vest and become
exercisable on the third anniversary of the Grant Date.
If the Optionee does not in any year purchase all or any part of the Shares
to which the Optionee is entitled, the Optionee has the right cumulatively
thereafter to purchase any Shares not so purchased and such right shall
continue until the Option terminates or
1
<PAGE>
expires. The Option shall only be exercisable in respect of whole Shares,
and fractional Share interests shall be disregarded. The Option may only be
exercised as to at least 100 Shares unless the number purchased is the
total number at the time available for purchase under the Option.
3. Method of Exercise of Option. The Option shall be exercisable by the
----------------------------
delivery to the Secretary of the Company of a written notice stating the
number of Shares to be purchased pursuant to the Option and accompanied by
(i) delivery of an executed Exercise Agreement in the form attached hereto
as Exhibit A, (ii) payment of the full purchase price of the Shares to be
purchased, and (iii) payment in full of any tax withholding obligation
under federal, state or local law. Payment shall be made in the form of
cash, by check payable to the order of the Company, in shares of Common
Stock valued at their fair market value at the close of trading on the
trading date next preceding the date of exercise of the Option, or partly
in such shares and partly in cash. Any shares of Common Stock used by the
Optionee to exercise the Option must have been owned by the Optionee for at
least six months prior to such use. In addition, the Optionee (or the
Optionee's beneficiary or personal representative) must furnish any written
statements required pursuant to Section 9 of this Option Agreement.
4. Termination of Directorship. If the Optionee's services as a member of the
---------------------------
Board terminate: (i) any portion of the Option which is not vested and
exercisable as of the date of such termination shall terminate; (ii) if
such termination is due to the Optionee's death or Total Disability, the
Optionee (or his successor in the event of his death, or personal
representative in the event of his incapacity) shall have until the date
that is one year after the date of such termination (subject to the term of
the Option set forth in Section 1) to exercise the Option to the extent
that it was vested and exercisable on the date of his termination (the
vested portion of the Option, to the extent not exercised at the end of
such one-year period, shall terminate); and (iii) if such termination is
due to any reason other than the Optionee's death or Total Disability, the
Optionee shall have until the date that is six months after the date of
such termination (subject to the term of the Option set forth in Section 1)
to exercise the Option to the extent that it was vested and exercisable on
the date of his termination (the vested portion of the Option, to the
extent not exercisable at the end of such six-month period, shall
terminate).
For purposes of the foregoing, "Total Disability" means a "permanent and
total disability" within the meaning of Section 22(c)(3) of the Internal
Revenue Code of 1986, as amended.
5. Option Not Transferable. The Option may be exercised only by, and shares
-----------------------
issuable pursuant to the Option shall be issued only to the Optionee or, if
the Optionee has died, his beneficiary or, if the Optionee has suffered a
permanent and total disability, his personal representative, if any, or if
there is none, the Optionee or a third party pursuant to such conditions
and procedures as the Board may establish. Other than by will or the laws
of descent and distribution, no right or benefit under the Option shall be
transferrable by the Optionee or shall be subject in any manner to
anticipation, alienation,
2
<PAGE>
sale, transfer, assignment, pledge, encumbrance or charge and any such
attempted action shall be void.
6. Adjustments Upon Changes in Capitalization.
------------------------------------------
If the outstanding shares of Common Stock are changed into or exchanged for
cash or a different number or kind of shares or securities of the Company
or of another issuer, or if additional shares or new or different
securities are distributed with respect to the outstanding shares of the
Common Stock, through a reorganization or merger to which the Company is a
party, or through a combination, consolidation, recapitalization,
reclassification, stock split, stock dividend, reverse stock split, stock
consolidation or other capital change or adjustment, an appropriate
adjustment shall be made in the number and kind of shares or other
consideration that is subject to or may be delivered under the Option.
Upon the occurrence of an Event, the Option shall become immediately
exercisable to the full extent theretofore not exercisable.
If the Option has been fully accelerated as described in the foregoing
paragraph but is not exercised prior to (i) a dissolution of the Company,
or (ii) an event described above that the Company does not survive, the
Option shall thereupon terminate.
For purposes of this Section 6, "Event" means any of the following: (i)
approval by the shareholders of the Company of the dissolution or
liquidation of the Company; (ii) approval by the shareholders of the
Company of an agreement to merge or consolidate, or otherwise reorganize,
with or into one or more entities other than subsidiaries, as a result of
which less than 50% of the outstanding voting securities of the surviving
or resulting entity are, or are to be, owned by former shareholders of the
Company; or (iii) approval by the shareholders of the Company of the sale
of substantially all of the Company's business assets to a person or entity
which is not a subsidiary of the Company.
7. Securities Law Compliance.
-------------------------
7.1. Investment Representations. The Optionee acknowledges that the
--------------------------
Option and Shares are not being registered under the Securities Act of
1933, as amended (the "Securities Act"), based, in part, on reliance that
the issuance of the Shares is exempt from registration under Regulation D
of the Securities Act and exempt from qualification under California
Corporate Securities Law (S) 25102(f) or other applicable exemption. The
Optionee acknowledges that by executing this Agreement he or she makes the
representations below:
No Intent to Sell. The Optionee represents that he/she is acquiring
the Option and if and when he/she exercises the Option will acquire
any Shares solely for his/her own account, for investment purposes
only, and not with a view to or an intent to sell, or to offer for
resale in connection with any unregistered distribution
3
<PAGE>
of all or any portion of the Shares within the meaning of the
Securities Act or applicable state securities laws.
No Reliance on Company. In evaluating the merits and risks of an
investment in the Shares, the Optionee represents that he/she has and
will rely upon the advice of his/her own legal counsel, tax advisors,
and/or investment advisors.
Relationship to and Knowledge About Company. The Optionee represents
that he/she is knowledgeable about the Company and has a preexisting
personal or business relationship with the Company. As a result of
such relationship, he/she is familiar with, among other
characteristics, its business and financial circumstances and has
access on a regular basis to or may request the Company's condensed
consolidated balance sheet and condensed consolidated income statement
setting forth information material to the Company's financial
condition, operations and prospects.
Risk of Loss. The Optionee represents that he/she is aware that the
Option may be of no practical value, that any value it may have
depends on its vesting and exercisability as well as an increase in
the fair market value of the underlying Shares from the date of grant
to the date of exercise.
Restrictions on Shares. The Optionee represents that he/she
understands that any Shares acquired on exercise of the Option will be
characterized as "restricted securities" under the federal securities
laws since the Shares are being acquired from the Company in a
transaction not involving a public offering and that under such laws
and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited
circumstances. The Optionee acknowledges receiving a copy of Rule 144
promulgated under the Securities Act, as presently in effect, and
represents that he/she is familiar with such rule, and understands the
resale limitations imposed thereby and by the Securities Act and
applicable state securities laws.
Additional Restrictions. The Optionee represents that he/she has read
and understands the restrictions and limitations imposed on the Option
and any Shares which may be acquired thereunder, including, but not
limited to, the non-transferability provisions of Section 5.
No Company Representations. The Optionee represents that at no time
was an oral representation made to him/her relating to the Option or
the purchase of Shares and that he/she was not presented with or
solicited by any promotional meeting or material relating to the
Option or the Shares.
Share Certificate Legend. The Optionee represents that he/she
understands and acknowledges that any certificate evidencing the
Shares (or evidencing any other securities issued with respect thereto
pursuant to any stock split, stock dividend,
4
<PAGE>
merger or other form of reorganization or recapitalization) if and
when issued shall bear, in addition to any other legends which may be
required by applicable state securities laws, the legend set forth in
Section 8.2.
7.2. Stock Certificate Legend. The Optionee understands and acknowledges
------------------------
that the certificate evidencing the shares (or evidencing any other
securities issued with respect thereto pursuant to any stock split, stock
dividend, merger or other form of reorganization or recapitalization) if
and when issued shall bear, in addition to any other legends which may be
required by the Exercise Agreement or applicable state securities laws, the
following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, BUT ARE ISSUED IN RELIANCE ON
THE REPRESENTATION THAT THEY ARE TAKEN FOR INVESTMENT AND NOT FOR
REDISTRIBUTION. AS A CONDITION OF ANY TRANSFER HEREOF, THE COMPANY MAY
REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO IT THAT ALL STATUTORY
REGISTRATION PROVISIONS HAVE BEEN MET OR DO NOT APPLY."
8. Assignment. This Agreement and all of the provisions hereof shall be
----------
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assignees. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned
(except as otherwise expressly provided herein) by either party without the
prior written consent of the other.
9. Privileges of Stock Ownership. Except as otherwise expressly authorized by
-----------------------------
the Board, the Optionee shall not be entitled to any privilege of stock
ownership as to any Shares not actually delivered to and held of record by
him. No adjustment will be made for dividends or other rights as a
shareholder for which a record date is prior to such date of delivery.
10. Notices. Any notice to be given under the terms of this Agreement shall be
-------
in writing and addressed to the Company at its principal office to the
attention of the Secretary, and to the Employee at the address given
beneath the Employee's signature hereto, or at such other address as either
party may hereafter designate in writing to the other. Any such notice
shall be deemed to have been duly given when enclosed in a properly sealed
envelope addressed as aforesaid, registered or certified, and deposited
(postage and registry or certification fee prepaid) in a post office or
branch post office regularly maintained by the United States Government.
11. Entire Agreement. This Agreement and the Exercise Agreement, together,
----------------
constitute the entire agreement and supersede all prior understandings and
agreements, written or oral, of the parties hereto with respect to the
subject matter hereof. This Agreement and the Exercise Agreement may be
amended only by mutual agreement of the parties. Such amendment must be in
writing and signed by both parties. The Company may, however,
5
<PAGE>
unilaterally waive any provision hereof in writing to the extent such
waiver does not adversely affect the interests of the Optionee hereunder,
but no such waiver shall operate as or be construed to be a subsequent
waiver of the same provision or a waiver of any other provision hereof.
12. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Delaware without
regard to conflict of law principles thereunder.
13. Rights of Optionee.
------------------
Nothing contained in this Agreement or in any other documents related to
this Agreement shall confer upon the Optionee any right to continue in the
service or employ of the Company or constitute any contract or agreement of
service or employment, or interfere in any way with the right of the
Company to reduce the Optionee's compensation or other benefits or to
terminate the services or employment of the Optionee, with or without
cause, but nothing contained in this Agreement or any document related
thereto shall affect any independent contractual right of the Optionee.
Nothing contained in this Agreement or any document related hereto shall
influence the construction or interpretation of the Company's Certificate
of Incorporation or Bylaws regarding service on the Board.
The Option shall be payable in shares of Common Stock (subject to
adjustment as described above) and no special or separate reserve, fund or
deposit shall be made to assure payment of the Option. Neither the
Optionee nor any other person shall have any right, title or interest in
any fund or in any specific asset (including shares of Common Stock) of the
Company by reason of the Option. Neither the provisions of this Agreement
(or of any documents related hereto), nor the grant of the Option shall
create, or be construed to create, a trust of any kind or a fiduciary
relationship between the Company and the Optionee or other person.
14. Compliance With Laws. Notwithstanding anything else contained herein to
--------------------
the contrary, this Agreement, the granting and vesting of the Option and
the offer, issuance and delivery of Shares under this Agreement are subject
to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities laws
and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for
the Company, be necessary or advisable in connection therewith. Any
securities delivered in respect of this Agreement will be subject to such
restrictions, and to any restrictions the Company may require to preserve a
pooling of interests under generally accepted accounting principles, and
the person acquiring such securities will, if requested by the Company,
provide such assurances and representations to the Company as the Company
may deem necessary or desirable to assure compliance with all applicable
legal requirements.
6
<PAGE>
No holder of any Shares shall sell, pledge or otherwise transfer Shares
acquired pursuant to the Option or any interest in such Shares except in
accordance with the express terms of this Agreement. Any attempted
transfer in violation of this Agreement shall be void and of no effect.
Without in any way limiting the provisions set forth above and subject to
further limitations set forth herein, no holder of Shares shall make any
disposition of all or any portion of Shares acquired pursuant to an Option,
except in compliance with all applicable federal and state securities laws
and unless and until:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(b) such disposition is made in accordance with Rule 144 under the
Securities Act; or
(c) such holder notifies the Company of the proposed disposition and
furnishes the Company with a statement of the circumstances
surrounding the proposed disposition, and, if requested by the
Company, such holder furnishes the Company with an opinion of counsel
acceptable to the Company's counsel, that such disposition will not
require registration under the Securities Act and will be in
compliance with all applicable state securities laws.
(Remainder of Page Intentionally Left Blank)
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by a duly authorized officer and the Optionee has hereunto set his or
her hand as of the date first written above.
NEW CENTURY FINANCIAL CORPORATION
a Delaware corporation
By: /s/ Robert K. Cole
-----------------------------
Its: CEO
----------------------------
OPTIONEE
/s/ Francis J. Partel, Jr.
---------------------------------
Signature
Francis J. Partel, Jr.
---------------------------------
Print Name
1235 Yale Place, Unit 1003
---------------------------------
Address
Minneapolis MN 55403
---------------------------------
City, State, Zip Code
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Nonqualified Stock
Option Agreement by New Century Financial Corporation, I,
___________________________, the spouse of the Optionee herein named, do hereby
agree to be bound by all of the terms and provisions thereof.
DATED: ___________, 1999 not applicable
-----------------------------
Signature of Spouse
8
<PAGE>
EXHIBIT A
NEW CENTURY FINANCIAL CORPORATION
EXERCISE AGREEMENT
THIS EXERCISE AGREEMENT (this "Agreement") dated as of the ____ day of
______________, _____, by and between NEW CENTURY FINANCIAL CORPORATION, a
Delaware corporation (the "Company"), and Francis J. Partel (the "Purchaser").
R E C I T A L S
WHEREAS, the Company has granted to the Purchaser a nonqualified stock
option (the "OPTION") to purchase all or any part of a designated amount of
authorized but unissued shares of common stock of the Company and in connection
therewith, the Company and the Purchaser entered into that certain Nonqualified
Stock Option Agreement dated as of May 17, 1999 (the "Option Agreement") Of
which this Agreement is a part and incorporated therein;
WHEREAS, the Purchaser desires to exercise the Option and purchase
from the Company and the Company wishes to issue and sell to the Purchaser
_______ shares of its common stock, par value $0.01 per share (the "Common
Stock"), to be sold at a price of $12.00 per share, in accordance with and
subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the above premises and the
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Purchase and Sale of Common Stock. The Company shall deliver to the
---------------------------------
Purchaser a stock certificate representing the shares of Common Stock
against delivery to the Company by the Purchaser of the purchase price in
the sum of $____________ (which represents the product of the $12.00 price
per share and the number of shares, the "Purchase Price").
2. Investment Representations. The Purchaser acknowledges that the shares of
--------------------------
Common Stock are not being registered under the Securities Act of 1933, as
amended (the "Securities Act"). The Purchaser hereby affirms as made as of
the date hereof the representations made in Section 8.1 of the Option
Agreement and such representations are incorporated herein by this
reference. The Purchaser has no need for liquidity in this investment, has
the ability to bear the economic risk of this investment, and can afford a
complete loss of the Purchase Price. The Purchaser has received the
Company's consolidated financial information which includes information
material to the Company's financial condition, operations and prospects.
The Purchaser also understands and
9
<PAGE>
acknowledges the restrictive legend provision contained in Section 8.2 of
the Option Agreement.
3. Restrictions on Shares. The shares of Common Stock acquired pursuant to
----------------------
Section 1 hereof are subject to and the Purchaser agrees to be bound by the
provisions of Section 15 of the Option Agreement, incorporated herein by
this reference.
4. Miscellaneous. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the state of Delaware. This
Agreement and the Option Agreement, together constitute the entire
agreement and supersede all prior understandings and agreements, written or
oral, of the parties hereto with respect to the subject matter hereof.
This Agreement may be amended by mutual agreement of the parties. Such
amendment must be in writing and signed by the Company. The Company may,
however, unilaterally waive any provision hereof in writing to the extent
such waiver does not adversely affect the interests of the Purchaser
hereunder, but no such waiver shall operate as or be construed to be a
subsequent waiver of the same provision or a waiver of any other provision
hereof.
(Remainder of Page Intentionally Left Blank)
10
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
NEW CENTURY FINANCIAL CORPORATION
a Delaware corporation
By:
Its:
OPTIONEE
/s/ Francis J. Partel, Jr.
---------------------------------
Signature
Francis J. Partel, Jr.
---------------------------------
Print Name
1235 Yale Place, Unit 1003
---------------------------------
Address
Minneapolis MN 55403
---------------------------------
City, State, Zip Code
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Exercise Agreement
by New Century Financial Corporation, I, ___________________________, the spouse
of the Optionee herein named, do hereby agree to be bound by all of the terms
and provisions thereof.
DATED:______________, 1999 not applicable
------------------------------
Signature of Spouse
11
<PAGE>
EXHIBIT 10.3
NEW CENTURY FINANCIAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
THIS NONQUALIFIED STOCK OPTION AGREEMENT (this "Agreement") dated as of the
17th day of May, 1999, by and between NEW CENTURY FINANCIAL CORPORATION, a
Delaware corporation (the "Company"), and Terrence P. Sandvik (the "Optionee").
W I T N E S S E T H
WHEREAS, the Optionee is a member of the Board of Directors of the Company
(the "BOARD"); and
WHEREAS, the Company has granted to the Optionee effective as of the 17th
day of May, 1999 (the "GRANT DATE") a nonqualified stock option to purchase all
or any part of 15,000 shares of the Company's Common Stock, par value $0.01 per
share (the "Common Stock"), subject to and upon the terms and conditions set
forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants made
herein and the mutual benefits to be derived herefrom and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
agree as follows:
1. Grant of Option. This Agreement evidences the Company's grant to the
---------------
Optionee of the right and option to purchase, subject to and on the terms
and conditions set forth herein, all or any part of 15,000 shares of the
Company's Common Stock (the "Shares") at the price of $12.00 per Share (the
"Option"), exercisable from time to time, subject to the provisions of this
Agreement, prior to the close of business on the day before the tenth
anniversary of the Grant Date (the "Expiration Date"), Unless Earlier
terminated pursuant to Section 4 or 6. Such price equals not less than the
fair market value of the Common Stock as of the Grant Date.
2. Exercisability of Option. The Option shall vest and become exercisable in
------------------------
installments in accordance with the following schedule: (i) 5,000 of the
total number of Shares subject to the Option shall vest and become
exercisable on the first anniversary of the Grant Date, (ii) an additional
5,000 of the total number of Shares subject to the Option shall vest and
become exercisable on the second anniversary of the Grant Date, and (iii)
the remaining 5,000 Shares subject to the Option shall vest and become
exercisable on the third anniversary of the Grant Date.
If the Optionee does not in any year purchase all or any part of the Shares
to which the Optionee is entitled, the Optionee has the right cumulatively
thereafter to purchase any Shares not so purchased and such right shall
continue until the Option terminates or
1
<PAGE>
expires. The Option shall only be exercisable in respect of whole Shares,
and fractional Share interests shall be disregarded. The Option may only be
exercised as to at least 100 Shares unless the number purchased is the
total number at the time available for purchase under the Option.
3. Method of Exercise of Option. The Option shall be exercisable by the
----------------------------
delivery to the Secretary of the Company of a written notice stating the
number of Shares to be purchased pursuant to the Option and accompanied by
(i) delivery of an executed Exercise Agreement in the form attached hereto
as Exhibit A, (ii) payment of the full purchase price of the Shares to be
purchased, and (iii) payment in full of any tax withholding obligation
under federal, state or local law. Payment shall be made in the form of
cash, by check payable to the order of the Company, in shares of Common
Stock valued at their fair market value at the close of trading on the
trading date next preceding the date of exercise of the Option, or partly
in such shares and partly in cash. Any shares of Common Stock used by the
Optionee to exercise the Option must have been owned by the Optionee for at
least six months prior to such use. In addition, the Optionee (or the
Optionee's beneficiary or personal representative) must furnish any written
statements required pursuant to Section 9 of this Option Agreement.
4. Termination of Directorship. If the Optionee's services as a member of the
---------------------------
Board terminate: (i) any portion of the Option which is not vested and
exercisable as of the date of such termination shall terminate; (ii) if
such termination is due to the Optionee's death or Total Disability, the
Optionee (or his successor in the event of his death, or personal
representative in the event of his incapacity) shall have until the date
that is one year after the date of such termination (subject to the term of
the Option set forth in Section 1) to exercise the Option to the extent
that it was vested and exercisable on the date of his termination (the
vested portion of the Option, to the extent not exercised at the end of
such one-year period, shall terminate); and (iii) if such termination is
due to any reason other than the Optionee's death or Total Disability, the
Optionee shall have until the date that is six months after the date of
such termination (subject to the term of the Option set forth in Section 1)
to exercise the Option to the extent that it was vested and exercisable on
the date of his termination (the vested portion of the Option, to the
extent not exercisable at the end of such six-month period, shall
terminate).
For purposes of the foregoing, "Total Disability" means a "permanent and
total disability" within the meaning of Section 22(c)(3) of the Internal
Revenue Code of 1986, as amended.
5. Option Not Transferable. The Option May Be Exercised Only By, And Shares
-----------------------
issuable pursuant to the Option shall be issued only to the Optionee or, if
the Optionee has died, his beneficiary or, if the Optionee has suffered a
permanent and total disability, his personal representative, if any, or if
there is none, the Optionee or a third party pursuant to such conditions
and procedures as the Board may establish. Other than by will or the laws
of descent and distribution, no right or benefit under the Option shall be
transferrable by the Optionee or shall be subject in any manner to
anticipation, alienation,
2
<PAGE>
sale, transfer, assignment, pledge, encumbrance or charge and any such
attempted action shall be void.
6. Adjustments Upon Changes in Capitalization.
------------------------------------------
If the outstanding shares of Common Stock are changed into or exchanged for
cash or a different number or kind of shares or securities of the Company
or of another issuer, or if additional shares or new or different
securities are distributed with respect to the outstanding shares of the
Common Stock, through a reorganization or merger to which the Company is a
party, or through a combination, consolidation, recapitalization,
reclassification, stock split, stock dividend, reverse stock split, stock
consolidation or other capital change or adjustment, an appropriate
adjustment shall be made in the number and kind of shares or other
consideration that is subject to or may be delivered under the Option.
Upon the occurrence of an Event, the Option shall become immediately
exercisable to the full extent theretofore not exercisable.
If the Option has been fully accelerated as described in the foregoing
paragraph but is not exercised prior to (i) a dissolution of the Company,
or (ii) an event described above that the Company does not survive, the
Option shall thereupon terminate.
For purposes of this Section 6, "Event" means any of the following: (i)
approval by the shareholders of the Company of the dissolution or
liquidation of the Company; (ii) approval by the shareholders of the
Company of an agreement to merge or consolidate, or otherwise reorganize,
with or into one or more entities other than subsidiaries, as a result of
which less than 50% of the outstanding voting securities of the surviving
or resulting entity are, or are to be, owned by former shareholders of the
Company; or (iii) approval by the shareholders of the Company of the sale
of substantially all of the Company's business assets to a person or entity
which is not a subsidiary of the Company.
7. Securities Law Compliance.
-------------------------
7.1. Investment Representations. The Optionee acknowledges that the
--------------------------
Option and Shares are not being registered under the Securities Act of
1933, as amended (the "Securities Act"), based, in part, on reliance that
the issuance of the Shares is exempt from registration under Regulation D
of the Securities Act and exempt from qualification under California
Corporate Securities Law (S) 25102(f) or other applicable exemption. The
Optionee acknowledges that by executing this Agreement he or she makes the
representations below:
No Intent to Sell. The Optionee represents that he/she is acquiring
the Option and if and when he/she exercises the Option will acquire
any Shares solely for his/her own account, for investment purposes
only, and not with a view to or an intent to sell, or to offer for
resale in connection with any unregistered distribution
3
<PAGE>
of all or any portion of the Shares within the meaning of the
Securities Act or applicable state securities laws.
No Reliance on Company. In evaluating the merits and risks of an
investment in the Shares, the Optionee represents that he/she has and
will rely upon the advice of his/her own legal counsel, tax advisors,
and/or investment advisors.
Relationship to and Knowledge About Company. The Optionee represents
that he/she is knowledgeable about the Company and has a preexisting
personal or business relationship with the Company. As a result of
such relationship, he/she is familiar with, among other
characteristics, its business and financial circumstances and has
access on a regular basis to or may request the Company's condensed
consolidated balance sheet and condensed consolidated income statement
setting forth information material to the Company's financial
condition, operations and prospects.
Risk of Loss. The Optionee represents that he/she is aware that the
Option may be of no practical value, that any value it may have
depends on its vesting and exercisability as well as an increase in
the fair market value of the underlying Shares from the date of grant
to the date of exercise.
Restrictions on Shares. The Optionee represents that he/she
understands that any Shares acquired on exercise of the Option will be
characterized as "restricted securities" under the federal securities
laws since the Shares are being acquired from the Company in a
transaction not involving a public offering and that under such laws
and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited
circumstances. The Optionee acknowledges receiving a copy of Rule 144
promulgated under the Securities Act, as presently in effect, and
represents that he/she is familiar with such rule, and understands the
resale limitations imposed thereby and by the Securities Act and
applicable state securities laws.
Additional Restrictions. The Optionee represents that he/she has read
and understands the restrictions and limitations imposed on the Option
and any Shares which may be acquired thereunder, including, but not
limited to, the non-transferability provisions of Section 5.
No Company Representations. The Optionee represents that at no time
was an oral representation made to him/her relating to the Option or
the purchase of Shares and that he/she was not presented with or
solicited by any promotional meeting or material relating to the
Option or the Shares.
Share Certificate Legend. The Optionee represents that he/she
understands and acknowledges that any certificate evidencing the
Shares (or evidencing any other securities issued with respect thereto
pursuant to any stock split, stock dividend,
4
<PAGE>
merger or other form of reorganization or recapitalization) if and
when issued shall bear, in addition to any other legends which may be
required by applicable state securities laws, the legend set forth in
Section 8.2.
7.2. Stock Certificate Legend. The Optionee understands and acknowledges
------------------------
that the certificate evidencing the shares (or evidencing any other
securities issued with respect thereto pursuant to any stock split, stock
dividend, merger or other form of reorganization or recapitalization) if
and when issued shall bear, in addition to any other legends which may be
required by the Exercise Agreement or applicable state securities laws, the
following legends:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, BUT ARE ISSUED IN RELIANCE ON
THE REPRESENTATION THAT THEY ARE TAKEN FOR INVESTMENT AND NOT FOR
REDISTRIBUTION. AS A CONDITION OF ANY TRANSFER HEREOF, THE COMPANY MAY
REQUIRE AN OPINION OF COUNSEL SATISFACTORY TO IT THAT ALL STATUTORY
REGISTRATION PROVISIONS HAVE BEEN MET OR DO NOT APPLY."
8. Assignment. This Agreement and all of the provisions hereof shall be
----------
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assignees. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned
(except as otherwise expressly provided herein) by either party without the
prior written consent of the other.
9. Privileges of Stock Ownership. Except as otherwise expressly authorized by
-----------------------------
the Board, the Optionee shall not be entitled to any privilege of stock
ownership as to any Shares not actually delivered to and held of record by
him. No adjustment will be made for dividends or other rights as a
shareholder for which a record date is prior to such date of delivery.
10. Notices. Any notice to be given under the terms of this Agreement shall be
-------
in writing and addressed to the Company at its principal office to the
attention of the Secretary, and to the Employee at the address given
beneath the Employee's signature hereto, or at such other address as either
party may hereafter designate in writing to the other. Any such notice
shall be deemed to have been duly given when enclosed in a properly sealed
envelope addressed as aforesaid, registered or certified, and deposited
(postage and registry or certification fee prepaid) in a post office or
branch post office regularly maintained by the United States Government.
11. Entire Agreement. This Agreement and the Exercise Agreement, together,
----------------
constitute the entire agreement and supersede all prior understandings and
agreements, written or oral, of the parties hereto with respect to the
subject matter hereof. This Agreement and the Exercise Agreement may be
amended only by mutual agreement of the parties. Such amendment must be in
writing and signed by both parties. The Company may, however,
5
<PAGE>
unilaterally waive any provision hereof in writing to the extent such
waiver does not adversely affect the interests of the Optionee hereunder,
but no such waiver shall operate as or be construed to be a subsequent
waiver of the same provision or a waiver of any other provision hereof.
12. Governing Law. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the State of Delaware without
regard to conflict of law principles thereunder.
13. Rights of Optionee.
------------------
Nothing contained in this Agreement or in any other documents related to
this Agreement shall confer upon the Optionee any right to continue in the
service or employ of the Company or constitute any contract or agreement of
service or employment, or interfere in any way with the right of the
Company to reduce the Optionee's compensation or other benefits or to
terminate the services or employment of the Optionee, with or without
cause, but nothing contained in this Agreement or any document related
thereto shall affect any independent contractual right of the Optionee.
Nothing contained in this Agreement or any document related hereto shall
influence the construction or interpretation of the Company's Certificate
of Incorporation or Bylaws regarding service on the Board.
The Option shall be payable in shares of Common Stock (subject to
adjustment as described above) and no special or separate reserve, fund or
deposit shall be made to assure payment of the Option. Neither the
Optionee nor any other person shall have any right, title or interest in
any fund or in any specific asset (including shares of Common Stock) of the
Company by reason of the Option. Neither the provisions of this Agreement
(or of any documents related hereto), nor the grant of the Option shall
create, or be construed to create, a trust of any kind or a fiduciary
relationship between the Company and the Optionee or other person.
14. Compliance With Laws. Notwithstanding anything else contained herein to
--------------------
the contrary, this Agreement, the granting and vesting of the Option and
the offer, issuance and delivery of Shares under this Agreement are subject
to compliance with all applicable federal and state laws, rules and
regulations (including but not limited to state and federal securities laws
and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for
the Company, be necessary or advisable in connection therewith. Any
securities delivered in respect of this Agreement will be subject to such
restrictions, and to any restrictions the Company may require to preserve a
pooling of interests under generally accepted accounting principles, and
the person acquiring such securities will, if requested by the Company,
provide such assurances and representations to the Company as the Company
may deem necessary or desirable to assure compliance with all applicable
legal requirements.
6
<PAGE>
No holder of any Shares shall sell, pledge or otherwise transfer Shares
acquired pursuant to the Option or any interest in such Shares except in
accordance with the express terms of this Agreement. Any attempted
transfer in violation of this Agreement shall be void and of no effect.
Without in any way limiting the provisions set forth above and subject to
further limitations set forth herein, no holder of Shares shall make any
disposition of all or any portion of Shares acquired pursuant to an Option,
except in compliance with all applicable federal and state securities laws
and unless and until:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(b) such disposition is made in accordance with Rule 144 under the
Securities Act; or
(c) such holder notifies the Company of the proposed disposition and
furnishes the Company with a statement of the circumstances
surrounding the proposed disposition, and, if requested by the
Company, such holder furnishes the Company with an opinion of counsel
acceptable to the Company's counsel, that such disposition will not
require registration under the Securities Act and will be in
compliance with all applicable state securities laws.
(Remainder of Page Intentionally Left Blank)
7
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by a duly authorized officer and the Optionee has hereunto set his or
her hand as of the date first written above.
NEW CENTURY FINANCIAL CORPORATION
a Delaware corporation
By: /s/ Brad A. Morrice
------------------------------
Its: President
-----------------------------
OPTIONEE
/s/ Terreence P. Sandvik
----------------------------------
Signature
Terreence P. Sandvik
----------------------------------
Print Name
2751 Shepard Road- MNRB0164
----------------------------------
Address
Saint Paul, MN 55116
----------------------------------
City, State, Zip Code
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Nonqualified Stock
Option Agreement by New Century Financial Corporation, I, Ann M Sandvik, the
-------------
spouse of the Optionee herein named, do hereby agree to be bound by all of the
terms and provisions thereof.
DATED: ___________, 1999 /s/ Ann M. Sandvik
-------------------
Signature of Spouse
8
<PAGE>
EXHIBIT A
NEW CENTURY FINANCIAL CORPORATION
EXERCISE AGREEMENT
THIS EXERCISE AGREEMENT (this "Agreement") dated as of the ____ day of
______________, _____, by and between NEW CENTURY FINANCIAL CORPORATION, a
Delaware corporation (the "Company"), and Terrence P. Sandvik (the "Purchaser").
R E C I T A L S
WHEREAS, the Company has granted to the Purchaser a nonqualified stock
option (the "Option") to purchase all or any part of a designated amount of
authorized but unissued shares of common stock of the Company and in connection
therewith, the Company and the Purchaser entered into that certain Nonqualified
Stock Option Agreement dated as of May 17, 1999 (the "Option Agreement") of
which this Agreement is a part and incorporated therein;
WHEREAS, the Purchaser desires to exercise the Option and purchase
from the Company and the Company wishes to issue and sell to the Purchaser
_______ shares of its common stock, par value $0.01 per share (the "Common
Stock"), to be sold at a price of $12.00 per share, in accordance with and
subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the above premises and the
representations, warranties, covenants and agreements contained in this
Agreement, and for other good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. Purchase and Sale of Common Stock. The Company shall deliver to the
---------------------------------
Purchaser a stock certificate representing the shares of Common Stock
against delivery to the Company by the Purchaser of the purchase price in
the sum of $____________ (which represents the product of the $12.00 price
per share and the number of shares, the "Purchase Price").
2. Investment Representations. The Purchaser acknowledges that the shares of
--------------------------
Common Stock are not being registered under the Securities Act of 1933, as
amended (the "Securities Act"). The Purchaser hereby affirms as made as of
the date hereof the representations made in Section 8.1 of the Option
Agreement and such representations are incorporated herein by this
reference. The Purchaser has no need for liquidity in this investment, has
the ability to bear the economic risk of this investment, and can afford a
complete loss of the Purchase Price. The Purchaser has received the
Company's consolidated financial information which includes information
material to the Company's financial condition, operations and prospects.
The Purchaser also understands and
9
<PAGE>
acknowledges the restrictive legend provision contained in Section 8.2 of
the Option Agreement.
3. Restrictions on Shares. The shares of Common Stock acquired pursuant to
----------------------
Section 1 hereof are subject to and the Purchaser agrees to be bound by the
provisions of Section 15 of the Option Agreement, incorporated herein by
this reference.
4. Miscellaneous. This Agreement shall be governed by and construed and
-------------
enforced in accordance with the laws of the state of Delaware. This
Agreement and the Option Agreement, together constitute the entire
agreement and supersede all prior understandings and agreements, written or
oral, of the parties hereto with respect to the subject matter hereof.
This Agreement may be amended by mutual agreement of the parties. Such
amendment must be in writing and signed by the Company. The Company may,
however, unilaterally waive any provision hereof in writing to the extent
such waiver does not adversely affect the interests of the Purchaser
hereunder, but no such waiver shall operate as or be construed to be a
subsequent waiver of the same provision or a waiver of any other provision
hereof.
(Remainder of Page Intentionally Left Blank)
10
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first written above.
NEW CENTURY FINANCIAL CORPORATION
a Delaware corporation
By:_____________________________________
Its:____________________________________
OPTIONEE
________________________________________
Signature
________________________________________
Print Name
________________________________________
Address
________________________________________
City, State, Zip Code
CONSENT OF SPOUSE
In consideration of the execution of the foregoing Exercise Agreement
by New Century Financial Corporation, I, ___________________________, the spouse
of the Optionee herein named, do hereby agree to be bound by all of the terms
and provisions thereof.
DATED:______________, ______ _________________________________
Signature of Spouse
11
<PAGE>
EXHIBIT 10.4
FOURTH 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 26, 1999
<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 16
1.03 Computation of Time Periods 17
1.04 Other Definitional Terms 17
SECTION 2. THE CREDIT FACILITIES 17
2.01 The Warehousing Facility and the Swingline Facility 17
2.02 Interest on the Note; Balances Deficiency Fees;
Continuations and Conversions 23
2.03 Payments and Computations 26
2.04 Setoff 26
2.05 Increased Capital Requirements 27
2.06 Provisions Relating to Eurodollar Advances and Balance
Funded Rate Advances 27
SECTION 3. REPRESENTATIONS AND WARRANTIES 29
3.01 Formation; Powers; Good Standing; Subsidiaries; Agency Status 30
3.02 Authorization; No Conflict; Governmental Consents; Binding Effect 30
3.03 Financial Condition 31
3.04 Title to Property; Liens 32
3.05 Litigation; Adverse Facts 32
3.06 Other Agreements; Performance 33
3.07 Use of Proceeds 33
3.08 Taxes 33
3.09 ERISA 33
3.10 Governmental Regulation 34
3.11 Indebtedness 34
3.12 No Material Adverse Event 34
3.13 Licenses and Permits 34
3.14 Guarantees 34
3.15 Accuracy and Completeness of Information 34
3.16 Year 2000. 35
SECTION 4. COVENANTS OF THE COMPANY 35
4.01 Financial Statements and Other Reports 35
4.02 Corporate Existence 39
4.03 Compliance with Laws, Taxes, etc 39
4.04 ERISA 40
4.05 Assets and Insurance 40
4.06 Inspection, Visitation, etc 41
</TABLE>
68
<PAGE>
<TABLE>
<S> <C>
4.07 Further Assurances 41
4.08 Indebtedness 41
4.13 Restricted Payments 46
4.14 Net Worth 46
4.15 Minimum Liquidity 46
4.16 Leverage Ratio. 47
4.17 Subsidiaries 47
4.18 Affiliate Transactions 47
4.19 Escrow Imbalances 47
4.20 Inconsistent Agreements 47
4.21 Closing Procedures 48
4.22 Underwriting 48
4.23 Independence of Covenants 48
4.24 Year 2000 Remediation 48
SECTION 5. CONDITIONS PRECEDENT 49
5.01 Conditions Precedent to Effectiveness 49
5.02 Conditions Precedent to all Loans 51
SECTION 6. EVENTS OF DEFAULT; REMEDIES 52
6.01 Events of Default 52
6.02 Remedies 54
SECTION 7. THE AGENT 54
7.01 Appointment and Authorization 55
7.02 Note Holders 55
7.03 Consultation With Counsel 55
7.04 Documents 55
7.05 Agent and Affiliates 55
7.06 Action by Agent 56
7.07 Credit Analysis 56
7.08 Notices of Event of Default, etc. 56
7.09 Indemnification 57
7.10 Payments 57
7.11 Sharing of Payments 58
7.12 Successor Agent 58
7.13 Inspection 59
SECTION 8. MISCELLANEOUS 59
8.01 Waiver 59
8.02 Notices 59
8.03 Expenses; Indemnification 60
</TABLE>
69
<PAGE>
<TABLE>
<S> <C>
8.04 Confidentiality 60
8.05 Releases, Amendments, Waivers, Consents and Exercise of Remedies 61
8.06 Binding Effect; Assignments and Participations; Transferees;
New Lenders; Commitment Increases 61
8.07 Governing Law and Construction 63
8.08 Consent to Jurisdiction 63
8.09 Waiver of Jury Trial 64
8.10 Survival of Agreement 64
8.11 Captions 64
8.12 Entire Agreement 64
8.13 Counterparts 64
8.14 Company Acknowledgments 65
8.15 Exiting Lenders 65
8.16 Amendments, Waivers and Modification Fees 65
</TABLE>
70
<PAGE>
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------
FOURTH AMENDED and RESTATED CREDIT AGREEMENT dated as of May 26, 1999
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 party thereto, including certain of
the Lenders, and the Agent are parties to that certain Third Amended and
Restated Credit Agreement dated as of May 29, 1998 (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, and that
certain of the Lenders party to the Existing Credit Agreement cease to be
parties to the 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.
"Adjusted Leverage Ratio": on any date of determination, the ratio of
-----------------------
(a) Total Liabilities to (b) Adjusted Tangible Net Worth.
"Adjusted Tangible Net Worth": on any date of determination, the
---------------------------
Tangible Net Worth of NCFC minus 25% of the amount by which the book value
-----
of Junior Securitization Interests included in calculating Tangible Net
Worth exceeds Indebtedness of the type described in Section 4.08(d).
"Advance": (a) a Reference Rate Advance, (b) a Balance Funded Rate
-------
Advance, or (c) a Eurodollar Advance.
-1-
<PAGE>
"Affiliate": with respect to any Person, any other Person directly or
---------
indirectly controlling, controlled by, or under common control with, such
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Agreement": this Fourth 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.
"Balance Funded Rate Advance": an outstanding Loan that bears
---------------------------
interest as provided in Section 2.02(a)(i).
"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.
-2-
<PAGE>
"Change of Control": the occurrence, after the Signing Date, of any
-----------------
of the following circumstances: (a) NCFC not owning, directly or
indirectly, all of the issued and outstanding capital stock of the Company;
or (b) any Person, or two or more Persons acting in concert, other than the
Management Shareholders, acquiring beneficial ownership (within the meaning
of Rule 13d-3 of the Securities and Exchange Commission under the
Securities 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.
"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.
-3-
<PAGE>
"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).
"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 Reuters Screen LIBO page as of 11:00
a.m., London time (or such other time as of which such rate appears), on
such date of determination, or the rate for such deposits determined by the
Agent at such time based on such other published service of general
application as shall be selected by the Agent for such purpose; provided,
that in lieu of determining the rate in the foregoing manner, the Agent may
determine the rate based on rates at which
-4-
<PAGE>
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).
"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 Lenders": means USBNA, Guaranty Federal Bank, F.S.B.,
----------------
Residential Funding Corporation, Bank One, Texas, N.A. and Comerica Bank.
"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.
"Exiting Lenders": Fleet Bank, National Association, NationsBank of
---------------
Texas, N.A., The First National Bank of Chicago, First Union National Bank
and the Bank of New York.
"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.
-5-
<PAGE>
"Fixed Rate": as defined in Section 2.02(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
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 dated as of May 29, 1998 executed and
--------
delivered in connection with the Existing Credit Agreement, as the same may
have been and may hereafter be amended, supplemented, reaffirmed 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
-6-
<PAGE>
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 may become personally liable, and (j) all Guarantees by such Person of
Indebtedness of others.
"Investment": as applied to any Person, any direct or indirect
----------
purchase or other acquisition by that Person of, or a beneficial interest
in, stock or other securities of any other Person, or any direct or
indirect loan, advance (other than advances to employees for moving and
travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or capital contribution by that Person to any other
Person, including all Indebtedness and accounts receivable from that other
Person which are not current assets or did not arise from sales to that
other Person in the ordinary course of business.
"Investor": any 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.
-7-
<PAGE>
"Loan Documents": this Agreement, the Notes, the Pledge and Security
--------------
Agreement, the Servicing Security Agreement, the Guaranty, the NCCC
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.
-----
"Management Shareholders": Robert K. Cole, Brad A. Morrice, Edward
-----------------------
F. 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 1002-1055 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.
"NCCC": means NC Capital Corporation, a California corporation.
----
"NCCC Guaranty": means the guaranty dated as of December 11, 1998
-------------
executed and delivered in connection with the Fourth Amendment to the
Existing Credit Agreement, as the same may have been and may hereafter
be amended, supplemented, reaffirmed or restated from time to time.
-8-
<PAGE>
"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.
"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
-----------------------------
dated as of May 29, 1998 executed and delivered in connection with the
Existing Credit Agreement, as the same may have been and may hereafter be
amended, supplemented, reaffirmed 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
-9-
<PAGE>
on or with respect to the aggregate unpaid principal balance of all
Warehousing Loans,
(c) as such term pertains to such Lender's right to receive
payment of principal of its outstanding Warehousing Loans, the
fraction which the amount of the unpaid principal balance of its
Warehousing Loans is to the aggregate unpaid principal balance of all
outstanding Warehousing Loans,
(d) as such term pertains to such Lender's right to receive
facility fees under Section 2.01(h), the fraction which such Lender's
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.
"Quarterly Average Leverage Ratio": for each three-month period
--------------------------------
ending on March 31, June 30, September 30 or December 31 of any year during
the term of this Agreement, the ratio of (a) the average daily amount of
Total Liabilities of NCFC and it Subsidiaries outstanding during such
three-month period to (b) the average of the Tangible Net Worth of NCFC and
its Subsidiaries at the end of each month during such three-month period.
"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.
-10-
<PAGE>
"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.
"REO": real property acquired by the Company as a result of the
---
foreclosure of a Mortgage Loan.
"REO Sub": New Century REO Corp., a California corporation.
-------
"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.
"Residual Finance Subsidiaries": means (a) NC Residual Corporation, a
-----------------------------
Delaware corporation, as long as it is a wholly-owned Subsidiary of the
Company and does not amend its Certificate of Incorporation as in effect on
March 20, 1998, and (b)
-11-
<PAGE>
any other wholly-owned Subsidiary of the Company or NCCC that, pursuant to
its Articles or Certificate of Incorporation, has a purpose limited to the
ownership of Junior Securitization Interests, the establishment of one or
more securitization trusts, issuing securities backed by such Junior
Securitization Interests, otherwise financing such Junior Securitization
Interests, and lawful activities incidental to and necessary and convenient
to the foregoing.
"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.
-----------
"Salomon REO Agreement": a Loan and Security Agreement dated as of
---------------------
November 18, 1998 by and between the Company and Liquidation Properties,
Inc., a Secured Promissory Note dated as of November 18, 1998 payable to
Liquidation Properties, Inc. (the "Secured Promissory Note") and a letter
agreement dated as of November 18, 1998 by and between the Company and
Liquidation Properties, Inc., as the same may be amended, supplemented,
restated or otherwise modified in accordance with this Agreement and in
effect from time to time.
"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
----------------------------
dated as of May 28, 1998 executed and delivered in connection with the
Existing Credit Agreement, as the same may have been and may hereafter be
amended, supplemented, reaffirmed 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.
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<PAGE>
"Stock Repurchase Program": the stock repurchase program approved by
------------------------
NCFC's Board of Directors on February 18, 1999 pursuant to which NCFC may
spend up to $10,000,000 to repurchase shares of NCFC common stock on the
open market or in negotiated transactions.
"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
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 24, 2000, (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.
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<PAGE>
"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
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
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<PAGE>
(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.
(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 Section 5 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 than 1:00
P.M. (Minneapolis time) on the requested Borrowing Date, and each request
for Swingline Loans not later than 3:30 p.m. (Minneapolis time) on the
requested Borrowing Date. On the Effective Date, the Company shall be
deemed to have requested Warehousing Loans in an amount equal to the
outstanding principal balance of all Existing Warehousing Loans, and such
Warehousing Loans shall be used to refund such Existing Warehousing 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, Balance Funded 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 Balance
Funded 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
-15-
<PAGE>
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 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 Section 5 of the Pledge and Security
Agreement, in Section 4 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) at least on a weekly basis, 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 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.
-16-
<PAGE>
(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 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
-17-
<PAGE>
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 Exhibit F (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:
(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
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<PAGE>
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 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 Section 6.02 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.
(j) Commitment Fees. The Company shall pay to each Bank on the
---------------
Effective Date in consideration of its Commitment a commitment fee in an
amount equal to the amount set forth on Schedule 2.01(j) as such Bank's
"Effective Date Fee."
-19-
<PAGE>
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 Balance Funded 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
Balance Funded Rate Advances owed to such Lender during such Balance
Calculation Period (such deficiency being herein referred to as the
"Balances Deficiency"), the Company will pay such Lender a fee (the
"Balances Deficiency Fee") for said Balance Calculation Period on the
Balances Deficiency at a per annum rate equal to 1.25% below the
average daily Reference Rate in effect during said Balance Calculation
Period; and provided further, that if the weighted average Reserve-
Adjusted Balances maintained by the Company with any Lender for any
Balance Calculation Period exceeds the weighted average daily
aggregate unpaid principal balance of the Balance Funded 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 Balance Funded 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 pai d.
(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
-20-
<PAGE>
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) 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, Balance Funded Rate Advances or Reference Rate Advances. Any
portion of an outstanding Loan not designated as a Reference Rate Advance
or a Balance Funded 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, Balance Funded 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 Balance Funded 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 Balance Funded 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 Balance Funded 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 2:00 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.
-21-
<PAGE>
(d) Agent's Fees. The Company shall pay to the Agent collateral
------------
handling fees in accordance with the terms of a letter dated May 26, 1999
as the same may be amended, supplemented, restated or replaced from time to
time.
2.03 Payments and Computations.
-------------------------
(a) Payments. All payments and prepayments by the Company of
--------
principal of and interest on each Note and all fees, expenses and other
obligations under this Agreement shall be made in Immediately Available
Funds to the Agent not later than 2:00 p.m. (Minneapolis time) on the dates
called for under this Agreement, at the main office of the Agent in
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 "Excluded
Period"), except to the extent any amount is attributable to the Excluded Period
-22-
<PAGE>
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 Balance Funded
-------------------------------------------------------------
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 Balance Funded Rate
Advances, its Note, or its obligation to make Eurodollar Advances or
Balance Funded Rate Advances, or shall change the basis of taxation of
payment to such Lender of the principal of or interest on Eurodollar
Advances or Balance Funded Rate Advances or any other amounts due
under this Agreement in respect of Eurodollar Advances or Balance
Funded Rate Advances or its obligation to make Eurodollar Advances or
Balance Funded 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
(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
-23-
<PAGE>
any Lender or on the interbank Eurodollar market any other condition
affecting Eurodollar Advances or Balance Funded Rate Advances, such
Lender's Note, or its obligation to make Eurodollar Advances or
Balance Funded 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 Balance Funded
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
Balance Funded Rate 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 Balance Funded 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 Balance Funded 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:
-24-
<PAGE>
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,
NCCC is a corporation duly organized, validly existing and in good standing
under the laws of the State of California, and each of NCFC, the Company
and NCCC 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, the Company and NCCC 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, the Company nor any of their
Subsidiaries 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).
3.02 Authorization; No Conflict; Governmental Consents; Binding
----------------------------------------------------------
Effect.
(a) Authorization of Borrowing. The execution, delivery and
--------------------------
performance by each of NCFC, the Company and NCCC 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, the Company and NCCC 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.
-25-
<PAGE>
(c) Governmental Consents. The execution, delivery and
---------------------
performance by each of NCFC, the Company and NCCC 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 , the
Company and NCCC, and each of the Loan Documents has been or will be duly
executed, and is or will be enforceable against it in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws or equitable principles relating
to or limiting creditors' rights generally.
3.03 Financial Condition. NCFC has heretofore delivered to the
-------------------
Lenders its audited consolidated balance sheet as at December 31, 1998, its
unaudited consolidated balance sheet as at March 31, 1999 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, 1998, its unaudited consolidated
balance sheet as at March 31, 1999, 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, 1999 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.
-26-
<PAGE>
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, the Company or any of their Subsidiaries,
threatened against or affecting NCFC, the Company or NCCC or any of their
respective properties that would, if decided in a manner adverse to it, result
in any material adverse change in its business, operations, properties, assets
or condition (financial or otherwise) or would materially adversely affect its
ability to perform its obligations under each Loan Document to which it is or
will be a party, and there is no basis known to it for any action, suit or
proceeding which would have such an effect. None of NCFC, the Company or NCCC
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, the Company or NCCC,
threatened against or affecting NCFC, the Company or NCCC, which questions the
validity or the enforceability of any Loan Document.
3.06 Other Agreements; Performance.
-----------------------------
(a) Agreements. None of NCFC, the Company or NCCC 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. None of NCFC, the Company or NCCC 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, the Company and NCCC, the other parties to any
of the contractual obligations of NCFC, the Company or NCCC 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.
-27-
<PAGE>
3.08 Taxes. Each of NCFC and the Company has filed all tax returns
-----
required to be filed by it, and has paid all taxes and assessments payable by it
which have become due, other than those not yet delinquent and except for those
contested in good faith by appropriate proceedings for which adequate reserves
in conformity with GAAP have been provided. No material tax Liens have been
filed and, to their knowledge, no material claims or assessments are being
asserted or will be asserted with respect to any such taxes or other charges.
3.09 ERISA. Each Plan is in substantial compliance with all
-----
applicable requirements of ERISA and the Code and with all material applicable
rulings and regulations issued under the provisions of ERISA and the Code
setting forth those requirements. No Reportable Event has occurred and is
continuing with respect to any Plan. All of the minimum funding standards
applicable to such Plans have been satisfied and there exists no event or
condition which would reasonably be expected to result in the institution of
proceedings to terminate any Plan under Section 4042 of ERISA. With respect to
each Plan subject to Title IV of ERISA, as of the most recent valuation date for
such Plan, the present value (determined on the basis of reasonable assumptions
employed by the independent actuary for such Plan and previously furnished in
writing to the Lenders) of such Plan's projected benefit obligations did not
exceed the fair market value of such Plan's assets. Neither the Company nor any
ERISA Affiliate is required to make contributions to any Multiemployer Plan.
3.10 Governmental Regulation. None of NCFC, the Company nor any of
-----------------------
their Subsidiaries 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, none of NCFC, the Company
------------
nor any of their Subsidiaries has any Indebtedness outstanding except the
Indebtedness permitted pursuant to Section 4.08.
3.12 No Material Adverse Event. Since December 31, 1998, 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, the Company and their
--------------------
Subsidiaries 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.
-28-
<PAGE>
3.14 Guarantees. As of the Signing Date, none of NCFC, the Company
----------
nor any of their Subsidiaries has made, or is liable in respect of, any
Guarantee, other than the Guaranty and Guarantees permitted pursuant to Section
4.11.
3.15 Accuracy and Completeness of Information. No representation or
----------------------------------------
warranty of NCFC, the Company or any of their Subsidiaries 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, the Company or any of their Subsidiaries 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, the Company or their Subsidiaries 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.
3.16 Year 2000. NCFC and the Company have, and have caused their
---------
Subsidiaries to, review and assess its business operations and computer systems
with respect to the "year 2000 problem" (that is, that computer applications and
equipment may not be able properly to perform date-sensitive functions before,
during and after January 1, 2000) and, based on those reviews and inquiries, the
Company has no reason to believe that the year 2000 problem will result in a
material adverse change in the business, condition (financial or otherwise),
operations or prospects of NCFC, the Company and their Subsidiaries, or the
Company's ability to repay the Lenders.
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, and cause its Subsidiaries to 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
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<PAGE>
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;
(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
<PAGE>
therein, the total outstanding principal amount thereof, Investor
type, weighted average coupon, delinquency status and foreclosure
experience; and Financial Printing GroupFinancial Printing
Grouptherein, the total outstanding principal amount thereof, Investor
type, weighted average coupon, delinquency status and foreclosure
experience; and
(iv) such additional information concerning the
Eligible Servicing Portfolio and such selective detail by segments and
categories thereof as may from time to time be reasonably requested by
any Lender.
(d) within five days after the end of each (i) semi-monthly
period (for the purposes of this paragraph (d)), with respect to the Agent,
and (ii) month, with respect to all the Lenders, an inventory/pipeline
position report showing with respect to each Take-Out Commitment: the
type, Investor type, expiration date, price, interest rate and/or required
yield, the original amount or aggregate amount thereof and the portions
thereof that have been utilized and the portions thereof that remain
available, future contracts, hedged positions, repurchase agreements and
profit and loss, indicating the number of Mortgage Notes owned by the
Company, the aggregate principal balance thereof and the warehouse and
pipeline balances (for purposes of this clause (d), "inventory" means
Mortgage Notes owned by the Company which have been fully funded or with
respect to which the Company has paid the full purchase price and
"pipeline" means the Mortgage Notes (or applications for Mortgages) as to
which the Company has made either firm or floating price quotes to purchase
or fund but which have not been purchased or funded by the Company),
together with copies of any new Take-Out Commitments issued to or entered
into by the Company during such week or month, as the case may be;
(e) within five Business Days after any officer of the Company
has knowledge of their occurrence, notice of each of the following events:
(i) the commencement of any action, suit, proceeding or
arbitration against NCFC or any Subsidiary of NCFC, or any material
development in any action, suit, proceeding or arbitration pending or
threatened against NCFC or any such Subsidiary, (A) in which the
aggregate uninsured amount claimed is more than $250,000, (B) which
would, if decided in a manner adverse to NCFC or such Subsidiary,
constitute a Material Adverse Event or (C) which relates to this
Agreement or any document executed pursuant hereto or any transaction
financed or to be financed in whole or in part directly or indirectly
with the proceeds of the Loans made pursuant hereto;
(ii) any Event of Default or Unmatured Event of Default
and what actions, if any, the Company is taking or contemplates taking
in regard thereto;
(iii) any notice from any Investor that it intends to put
the Company on probation or that it will cease purchasing Mortgage
Loans from the Company or that it will cease permitting the Company to
service Mortgage Notes owned, sold or guaranteed by it;
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<PAGE>
(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, (i) 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, and (ii) a review report on the quarterly financial statements
of NCFC from KPMG LLP or other independent certified public accountants
selected by NCFC and reasonably satisfactory to the Agent, in accordance
with Statement of Auditing Standards No. 71;
(i) as soon as available, copies of all financial statements,
reports and returns sent to NCFC's stockholders and copies of all regular,
periodic, or special reports which the Company or NCFC is or may be
required to file with any governmental department, bureau, commission or
agency;
(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.
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<PAGE>
4.02 Corporate Existence. The Company, NCFC and NCCC 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 the Company,
NCFC or NCCC from enforcing its rights with respect to any material assets or
expose the Company, NCFC or NCCC to any material liability.
4.03 Compliance with Laws, Taxes, etc. The Company, NCFC and NCCC
--------------------------------
will each comply in all material respects with all applicable laws, rules,
regulations and orders (including without limitation Regulations 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 the Company, NCFC or NCCC 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, NCFC or NCCC
fails to satisfy its obligations under this Section 4.03 as to taxes,
assessments and governmental charges, the Lenders may but are not obligated to
satisfy such obligations in whole or in part and any payments made and expenses
incurred in doing so shall constitute Obligations, shall bear interest at the
rate set forth in Section 2.02(a)(iv) from the date incurred and shall be paid
or reimbursed by the Company on demand.
4.04 ERISA. The Company and NCFC will each maintain, and cause each
-----
ERISA Affiliate to maintain, each Plan in compliance with all material
applicable requirements of ERISA and of the Code and with all applicable rulings
and regulations issued under the provisions of ERISA and of the Code and will
not and not permit any of the ERISA Affiliates to (a) engage in any transaction
in connection with which the Company or any of the ERISA Affiliates would be
subject to either a civil penalty assessed pursuant to Section 502(i) of ERISA
or a tax imposed by Section 4975 of the Code, in each case in an amount
exceeding $10,000, or (b) fail to make full payment when due of all amounts
which, under the provisions of any Plan, the Company, NCFC or any ERISA
Affiliate is required to pay as contributions thereto, or permit to exist any
accumulated funding deficiency (as such term is defined in Section 302 of ERISA
and Section 412 of the Code), whether or not waived with respect to any Plan in
an aggregate amount exceeding $10,000. The Company and NCFC will not permit,
and will not allow any ERISA Affiliate to permit, any event to occur or
condition to exist which would permit any Plan to terminate under any
circumstances which would cause the Lien provided for in Section 4068 of ERISA
to attach to any assets of the Company, NCFC or any Subsidiary of the Company;
and the Company and NCFC will not permit, as of the most recent valuation date
for any Plan subject to Title IV of ERISA, the present value (determined on the
basis of reasonable assumptions employed by the independent actuary for such
Plan and previously furnished in writing to the Lenders) of such Plan's
projected benefit obligations to exceed the fair market value of such Plan's
assets. The Company and NCFC will not, and will not permit any ERISA Affiliate
to, become a party to any Multiemployer Plan.
4.05 Assets and Insurance. The Company, NCFC and NCCC will each
--------------------
maintain in full force and effect (a) an adequate errors and omissions insurance
policy, (b) such
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<PAGE>
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 the
Company, NCFC or NCCC 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 the Company, NCFC or
NCCC.
4.06 Inspection, Visitation, etc. The Company and NCFC will each
---------------------------
permit, and will cause its Subsidiaries to 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, the Company or such
Subsidiaries and discuss its affairs and finances with the principal officers of
NCFC, the Company or such Subsidiaries and their independent public accountants,
all at such times as any such Lender shall reasonably request.
4.07 Further Assurances. The Company, NCFC and NCCC will each take all
------------------
such further actions and execute all such further documents and instruments as
the Agent may at any time reasonably determine in its sole discretion to be
necessary or advisable to further carry out and consummate the transactions
contemplated by the Loan Documents and to perfect or protect the Liens granted
to the Agent for the benefit of the Lenders under any Loan Document.
4.08 Indebtedness. The Company and NCFC will not, and will not
------------
permit any of their Subsidiaries to, 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, the Company or
NCCC 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 $10,000,000;
(d) Indebtedness incurred to finance Junior Securitization
Interests which Indebtedness is secured only by such Junior Securitization
Interests, provided, such Indebtedness does not exceed 65% of the value of
--------
such Junior Securitization Interests determined in accordance with GAAP;
(e) intercompany Indebtedness of NCFC to the Company or NCCC in
an aggregate amount not to exceed $1,000,000;
(f) intercompany Indebtedness of the Company or NCCC to NCFC
incurred in the ordinary course of business;
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<PAGE>
(g) obligations under gestation repurchase agreements or similar
arrangements of the type described in Section 4.09(f);
(h) 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;
(i) Indebtedness incurred by the Company in connection with the
Salomon REO Agreement in an aggregate amount not to exceed $3,000,000; and
(j) intercompany Indebtedness between the Company and NCCC
incurred in the ordinary course of business.
4.09 Liens. The Company and NCFC will not, and will not permit any of
-----
their Subsidiaries to, directly or indirectly, create, incur, assume or permit
to exist any Lien with respect to any property now owned or hereafter acquired
by NCFC, the Company or NCCC, 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 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
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<PAGE>
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 which secure
Indebtedness permitted by Section 4.08(d);
(h) Liens arising under Hedging Arrangements; and
(i) a pledge of the stock of REO Sub to SBRC pursuant to the
Salomon REO Agreement.
4.10 Investments. The Company and NCFC will not, and will not permit
-----------
any of their Subsidiaries to, directly or indirectly, make or own any
Investment, except Investments in:
(a) Marketable direct obligations issued or unconditionally
guaranteed by the United States Government or issued by any agency thereof
and backed by the full faith and credit of the United States, in each case
maturing within one year from the date of acquisition thereof.
(b) Marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or
any public instrumentality thereof maturing within one year from the date
of acquisition thereof and, at the time of acquisition, having the highest
rating obtainable from either Standard & Poor's 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,
in the case of NCCC, Mortgage Loans acquired from the Company in the
ordinary course of 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.
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<PAGE>
(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 and NCCC, loans to NCFC in an
aggregate amount not to exceed $1,000,000.
(i) Direct equity investments made by 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, 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.
(k) Investments arising under Hedging Arrangements.
(l) In the case of NCFC, loans to the Company and NCCC.
(m) Intercompany Indebtedness between the Company and NCCC
incurred in the ordinary course of business.
4.11 Guarantees. The Company and NCFC will not, and will not permit
----------
any of their Subsidiaries to, directly or indirectly, create or become or be
liable with respect to any Guarantee, other than:
(a) the Guaranty and the NCCC Guaranty;
(b) 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;
(c) Guarantees by NCFC of the Company's obligations under (i)
gestation repurchase agreements or similar arrangements of the type
described in Section 4.09(f), or (ii) the Strategic Alliance Agreement
described in Section 4.10(j); and
(d) Guarantees by the Company of the obligations of NCCC or
Residual Finance Subsidiaries in respect of Indebtedness permitted by
Sections 4.08 (d) and (g).
4.12 Restriction on Fundamental Changes. The Company and NCFC will
----------------------------------
not, and will not permit any of their Subsidiaries to, 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
-37-
<PAGE>
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;
(b) NCFC and its Subsidiaries other than the Company may engage
in any business involving the origination, acquisition, servicing or sale
of consumer Indebtedness;
(c) The Company may transfer REO with a book value not to exceed
$6,000,000 at any time to REO Sub, provided that the Agent's security
interest, if any, for the benefit of the Lenders in the related Mortgage
Loan has been released in accordance with the Pledge and Security Agreement
and no Eligible Servicing Receivables (as defined in Exhibit E) relating
thereto are included in the Borrowing Base; and
(d) The Company may transfer to NCCC (i) Mortgage Loans,
provided that such Mortgage Loans are subject to the security interest
created under the Pledge and Security Agreement prior to such transfer, but
will be released from such security interest, and the Warehousing Loans
will be repaid with the proceeds of Indebtedness incurred by NCCC of the
type described in Section 4.08(g), simultaneously with such transfer, (ii)
Junior Securitization Interests, and (iii) fixed assets used in the
operation of NCCC.
4.13 Restricted Payments. The Company and NCFC will not make any
-------------------
Restricted Payments, other than (a) dividends paid by NCFC on its Series 1998A
Convertible Preferred Stock in an amount not to exceed $1,500,000 per annum, (b)
dividends paid by the Company to NCFC to enable NCFC to pay such dividends in an
amount not to exceed $1,500,000 per annum, and (c) repurchases by NCFC of shares
of its common stock pursuant to the Stock Repurchase Program, in each case
provided that, both before and after giving effect to such dividend payments or
repurchases, the Borrower and NCFC are in compliance with the covenants set
forth in Section 4 of this Agreement and no Event of Default or Unmatured Event
of Default has occurred and is continuing.
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
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<PAGE>
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.
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 (i) the end of each month and (ii) the date of any payment made under
the Stock Repurchase Program (after giving effect to such payment), to be less
than $10,000,000.
4.16 Leverage Ratio. The Company will not permit the Leverage Ratio
--------------
of the Company 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 (i) the Quarterly Average Leverage
Ratio for any period of measurement to be greater than 10.0 to 1.0, (ii) the
Daily Leverage Ratio on any date to be greater than 15.0 to 1.0, or (iii) the
Adjusted Leverage Ratio as of the last day of each fiscal quarter to be greater
than 12.0 to 1.0.
4.17 Subsidiaries. (a) The Company will not create or acquire any
------------
Subsidiaries other than (i) the Subsidiaries listed on Schedule 3.01 hereto, and
(ii) Residual Finance Subsidiaries , and (b) NCFC will not create or acquire any
Subsidiaries other than (i) the Company, (ii) the Subsidiaries listed on
Schedule 3.01 hereto, (iii) Residual Finance Subsidiaries, and (iv) 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, and will
----------------------
not permit any of their Subsidiaries to, enter into any transaction with an
Affiliate of the Company or NCFC, except:
(a) 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;
(b) Indebtedness described in Sections 4.08(e) and 4.08(j);
(c) guaranties of Indebtedness described in Section 4.11;
(d) transfers of assets by the Company to NCCC and REO Sub as
described in Sections 4.12(c) and 4.12(d); and
(e) transfers by the Company and NCCC of Junior Securitization
Interests to Residual Finance Subsidiaries.
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.
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<PAGE>
4.20 Inconsistent Agreements. The Company and NCFC will not, and will
-----------------------
not permit any of their Subsidiaries to, 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
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.
4.24 Year 2000 Remediation. The Company and NCFC agree to take, and
---------------------
to cause each of their Subsidiaries to take, all actions reasonably necessary to
ensure that the representation set forth in Section 3.16 remains true, and the
Company and NCFC agree to notify the Agent promptly if, at any time during the
term of this Agreement, the Company or NCFC becomes aware of facts or
circumstances such that the representation set forth in Section 3.16 has become
or may become untrue or this Section has been or may be breached. The Company
and NCFC will promptly deliver to the Agent such information relating to the
representation in Section 3.16 and the agreement set forth in this Section as
the Agent requests from time to time, including, without limitation, any
information pertaining to the review and assessment set forth in Section 3.16.
SECTION 5. CONDITIONS PRECEDENT.
--------------------
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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) a reaffirmation of the Pledge and Security Agreement,
substantially in the form of Exhibit C hereto, duly executed by the
Company;
(iii) a reaffirmation of the Servicing Security Agreement,
substantially in the form of Exhibit D hereto, duly executed by the
Company;
(iv) a reaffirmation of the Guaranty, substantially in the
form of Exhibit G hereto, duly executed by NCFC;
(v) a reaffirmation of the NCCC Guaranty, substantially
in the form of Exhibit G-1 hereto, duly executed by NCCC;
(vi) 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 the Existing
Credit Agreement 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;
(vii) 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;
(viii) a certificate signed by the Secretary or an Assistant
Secretary of each of the Company and NCFC certifying (A) as to the
names, incumbency and true signatures of the respective persons
authorized to execute and deliver each Loan Document to which it is or
will be a party and any other instrument or agreement hereunder and
under any other Loan Documents and (B) that the Agent and the Lenders
may conclusively rely on such certificate until the Agent shall have
received a further certification of its Secretary or an Assistant
Secretary canceling or amending such certificate and submitting the
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names, incumbency and signatures of the officers named in such further
certificate;
(ix) 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;
(x) 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;
(xi) 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;
(xii) 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;
(xiii) a certificate of the Secretary or Assistant
Secretary of the Company in the form set forth as Exhibit J;
(xiv) financing statements and other instruments required
by the Agent to create and perfect the security interests granted
under the Pledge and Security Agreement and Servicing Security
Agreement; and
(xv) an Acknowledgment of Exiting Lender, substantially
in the form of Exhibit K hereto, duly executed by each Exiting Lender.
(b) The fees required to be paid pursuant to Section 2.01(j)
shall have been paid.
(c) 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
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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 4 of the Servicing Security Agreement, in Section 15 of the
Guaranty and in Section 15 of the NCCC 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.
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, NCFC or NCCC 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, in 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 Section 4.02(b) or 4.04 and such
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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, NCFC or NCCC 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, NCFC or NCCC 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 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, NCFC or NCCC 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, NCFC or NCCC 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, NCFC or
NCCC 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, NCFC or NCCC or for a
substantial part of the property thereof and shall not be discharged within
60 days, or the Company, NCFC or NCCC 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, NCFC or NCCC, and, if instituted against the Company,
NCFC or NCCC, shall have been consented to or acquiesced in by the Company,
NCFC or NCCC, or shall remain undismissed for 60 days, or an order for
relief shall have been entered against the Company, NCFC or NCCC; or
(h) Any dissolution or liquidation proceeding shall be
instituted by or against the Company, NCFC or NCCC and, if instituted
against the Company, NCFC or NCCC, shall be consented to or acquiesced in
by the Company, NCFC or NCCC 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, NCFC or
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NCCC 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, NCFC or NCCC shall be
taken or attempted to be taken and the same shall not have been vacated or
stayed within 30 days after the issuance thereof; or
(k) The Pledge and Security Agreement, the Servicing Security
Agreement, the Guaranty or the NCCC 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, NCFC or NCCC, 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,
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<PAGE>
WHETHER OR NOT AMOUNTING TO SIMPLE NEGLIGENCE, except for its or their own gross
negligence or willful misconduct; provided, however, that the Agent shall be
protected in acting or refraining from acting upon the instruction of the
requisite Lenders under Section 8.05; and provided, further, that the Agent
shall not be required to take any action that exposes it to personal liability
or is contrary to any Loan Document, other agreement or applicable law. The
Agent shall act as an independent contractor in performing its obligations as
the Agent hereunder and under the other Loan Documents and nothing herein
contained shall be deemed to create a fiduciary relationship among or between
the Agent, the Company or the Lenders.
7.02 Note Holders. The Agent may treat the payee of any Note as the
------------
holder thereof until written notice of transfer shall have been filed with it
signed by such payee.
7.03 Consultation With Counsel. The Agent may consult with legal
-------------------------
counsel selected by it and shall not be liable for any action taken or suffered
in good faith by it in accordance with the advice of such counsel.
7.04 Documents. The Agent shall not be under a duty to examine into
----------
or pass upon the validity, effectiveness, genuineness or value of the Notes, the
other 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, 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 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
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<PAGE>
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 Section 6, the Agent shall
promptly forward such request to the other Lenders and will take such action and
assert such rights under this Agreement and the other Loan Documents as the
requisite Lenders under Section 8.05 shall direct in writing.
7.09 Indemnification. Each Lender agrees to indemnify the Agent (to
----------------
the extent not reimbursed by the Company), ratably according to its Pro Rata
Share (determined under clause (e) of the definition thereof), from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the Agent in
any way relating to or arising out of this Agreement or the other Loan Documents
or any action taken or omitted by the Agent under this Agreement or the other
Loan Documents, WHETHER OR NOT THE AGENT'S SIMPLE NEGLIGENCE CAUSES THE SAME IN
WHOLE OR IN PART; provided that no Lender shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Agent's gross
negligence or willful misconduct. Without limitation of the foregoing, each
Lender agrees to reimburse the Agent promptly upon demand for its Pro Rata Share
(determined under clause (l) of the definition thereof) of any out-of-pocket
expenses (including counsel fees) incurred by the Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this Agreement
and the other Loan Documents, to the extent that the Agent is not reimbursed for
such expenses by the Company, WHETHER OR NOT SUCH OUT-OF-POCKET EXPENSES
RESULTED, IN WHOLE OR IN PART, FROM THE AGENT'S SIMPLE NEGLIGENCE; provided,
that no Lender shall be liable for any portion of any such expenses resulting
from the Agent's gross negligence or willful misconduct.
7.10 Payments. All payments of principal of the Notes and all other
---------
funds received by the Agent in respect of any payments made by the Company
pursuant to this
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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 Sections 2.02(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 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
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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 Section 7 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was acting
as the Agent under this Agreement and any other Loan Document.
7.13 Inspection. The Lenders and their agents, accountants, attorneys
----------
and auditors will be permitted during normal business hours at any time and from
time to time upon reasonable notice to examine (to the extent permitted by
applicable law) the files, documents, records and other papers in the possession
or under the control of the Agent relating to any or all Collateral and to make
copies thereof. Any 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 26, 1999; 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
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except that notices to the Agent under the provisions of Section 2 shall not be
effective until received by the Agent.
8.03 Expenses; Indemnification. The Company agrees to pay on demand:
-------------------------
(a) the reasonable fees and expenses of Dorsey & Whitney LLP, special counsel to
the Agent in connection with the negotiation, preparation, approval, execution
and delivery of the Loan Documents, (b) the reasonable fees and expenses of
counsel for the Agent in connection with any amendment, modification or waiver
of any of the terms of any Loan Document and (c) all reasonable costs and
expenses of the Agent and each Lender (including reasonable counsel's fees) in
connection with the enforcement (whether through negotiations, legal proceedings
or otherwise) of this Agreement, the Notes and the other Loan Documents. The
Company hereby agrees to indemnify the Lenders and their directors, officers,
agents and employees from and hold each of them harmless against any and all
losses, liabilities, claims, damages or expenses incurred by any of them arising
out of or by reason of any investigation, litigation or other proceedings
related to any use made or proposed to be made by the Company of the proceeds of
the Loans or the operation of the Company's business, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceedings, WHETHER
OR NOT SUCH OUT-OF-POCKET EXPENSES RESULTED, IN WHOLE OR IN PART, FROM THE
AGENT'S OR ANY LENDER'S SIMPLE NEGLIGENCE (but excluding, for all purposes under
this Section 8.03, any such losses, liabilities, claims, damages or expenses
incurred by reason of the gross negligence or willful misconduct of the Person
to be indemnified).
8.04 Confidentiality. The Agent and each Lender shall use reasonable
---------------
efforts to assure that information about the Company, NCFC and their respective
operations, affairs and financial condition, not generally disclosed to the
public or to trade and other creditors, which is furnished to the Agent or such
Lender, as the case may be, pursuant to the provisions hereof is used only for
the purposes of this Agreement and any other relationship between the Lenders
and the Company and NCFC and shall not be divulged to any Person other than the
Agent, the Lenders, their respective Affiliates and their respective officers,
directors, employees and agents, except: (a) to their attorneys and accountants,
(b) in connection with the enforcement of the rights of the Agent and the
Lenders hereunder and under the other Loan Documents or otherwise in connection
with applicable litigation, (c) in 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
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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 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 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
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<PAGE>
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 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
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<PAGE>
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.
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 Acknowledgments. The Company hereby acknowledges that
-----------------------
(a) it has been advised by counsel in the negotiation, execution and delivery of
this Agreement and the
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<PAGE>
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 Exiting Lenders. On the Effective Date, the aggregate unpaid
---------------
principal amount of the Existing Warehousing Loans were made by each Exiting
Lender under the Existing Credit Agreement and related Note issued to such
Exiting Lender thereunder together with all interest, facility fees provided for
by Section 2.01(h) hereto and other amounts, if any, payable to such Exiting
Lender thereunder as of the Effective Date (as to any Exiting Lender, its
"Payoff Amount"), shall be repaid in full from the proceeds of Warehousing Loans
made by the Lenders, and the commitments of the Exiting Lenders under the
Existing Credit Agreement shall terminate. The Company shall give the Agent
notice pursuant to Section 2.01(b) with respect to such Existing Warehousing
Loans. The Agent shall distribute to each Exiting Lender by not later than 3:00
P.M. (Minneapolis time) on the Effective Date out of the proceeds of the
Warehousing Loans made for such purpose, the amount required to pay such Exiting
Lender's Payoff Amount in full, whereupon: (a) such Exiting Lender shall no
longer be a party to the Existing Credit Agreement (except to the extent
provided in Section 8.10 thereof with respect to the survival of certain
provisions, which shall remain in effect as to the Exiting Lenders); and (b)
such Exiting Lenders shall not be deemed to be a "Lender" for any purpose
hereunder.
8.16 Amendments, Waivers and Modification Fees. The Company agrees to
-----------------------------------------
pay to the Agent for the account of each Lender which provides its written
consent to an amendment, waiver or other modification of the Loan Documents on
or before the date such amendment, waiver or other modification becomes
effective as a result of the written approval thereof by the requisite number of
Lenders required by the Loan Documents, a processing fee of $1,500, said fee to
be payable promptly following such effective date; provided, however, that such
fee shall not apply to the first two such amendments, waivers or other
modifications hereunder during any continuous one year period (calculated from
the date of this Agreement).
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<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/ Edward F. Gotschall
--------------------------------
Its: CFO
-------------------------------
Address for Notices:
-------------------
18400 Von Karman
Suite 1000
Irvine, California 92612
Attention: Brad A. Morrice
Telephone Number: (949) 224-5757
Telecopier Number: (949) 440-7033
U.S. BANK NATIONAL ASSOCIATION
By: /s/ David Peterson
--------------------------------
Its: Senior 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) 973-0826
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<PAGE>
GUARANTY FEDERAL BANK, F.S.B.
By: /s/ W. James Meintjes
------------------------------
Its: Vice President
-----------------------------
Address for Notices:
-------------------
8333 Douglas Ave.
Dallas, Texas 75225
Attention: W. James Meintjes
Telephone Number: (214) 360-2845
Telecopier Number: (214) 360-1660
COMERICA BANK
By: /s/ David R. Chirchill
-----------------------------------
Its: Assistant 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
RESIDENTIAL FUNDING CORPORATION
By: /s/ 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
S-1
<PAGE>
BANK ONE, TEXAS, N.A.
By: /s/ Gregory illegible
---------------------------------------
Its: Assistant 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
BANK UNITED
By: /s/ Michelle Perrin
---------------------------------------
Its: VP - MBF
--------------------------------------
Address for Notices:
-------------------
10352 Cowan Heights Drive
Santa Ana, CA 92705
Attention: Michelle Perrin
Telephone Number: (714) 544-5118
Telecopier Number: (714) 544-5695
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Robin Courtney
-------------------------------------
Its: Senior Vice President
------------------------------------
Address for Notices:
-------------------
350 California Street, 6th Floor
San Francisco, CA 94104
Attention: Robin Courtney
Telephone Number: (415) 705-7565
Telecopier Number: (415) 705-5093
<PAGE>
EXHIBITS
A Form of Compliance/Borrowing Base Certificate
B Form of Confirmation of Borrowing/Paydown/Conversion
C Reaffirmation of Pledge and Security Agreement
D Reaffirmation of Servicing Security Agreement
E Formula for Determining Warehousing Collateral Value
F Form of Note
G Reaffirmation of Guaranty
G-1 Reaffirmation of NCC Guaranty
H Closing Agent Instructions
I Matters to be Covered by Opinion of Counsel to the Company and NCFC at
closing
J Operational Certificate
K Acknowledgment of Exiting Lender
<PAGE>
SCHEDULES
1.01(a) Underwriting Guidelines
1.01(b) Commitment Amounts
2.01(j) Effective Date Fees
3.01 Subsidiaries
3.05 Litigation
4.09 Existing Liens
<PAGE>
EXHIBIT A TO
FOURTH AMENDED AND
RESTATED CREDIT AGREEMENT
FORM OF
COMPLIANCE/BORROWING BASE CERTIFICATE
U.S. Bank National Association Bank One, Texas, N.A.
601 Second Avenue South 1717 Main Street, 4th Floor
Minneapolis, Minnesota 55402 Dallas, Texas 75214
Attention: Mortgage Banking Services Attention:
Division
Guaranty Federal Bank, F.S.B. Residential Funding Corporation
8333 Douglas Avenue 10 Universal City Plaza, Suite 2100
Dallas, Texas 75225 Universal City,
CA 91608
Attention:________________________ Attention:________________________
Comerica Bank Bank United
55 Almaden Blvd. 10352 Cowan Heights Drive
San Jose, California 95113 Santa Ana, CA 92705
Attention:________________________ Attention:
Union Bank of California, N.A.
350 California Street, 11th Floor
San Francisco, CA 94104
Attention:________________________
Ladies and Gentlemen:
We submit this certificate to you in accordance with the terms of
Section 4.01(c)(ii) of the Fourth Amended and Restated Credit Agreement dated as
of May 26, 1999 (as the same may be amended, supplemented or restated from time
to time, the "Credit Agreement") between New Century Mortgage Corporation, the
lenders party thereto (the "Lenders") and U.S. Bank National Association, as
Agent for the Lenders (in such capacity, the "Agent"). Each capitalized term
used herein and not defined herein has the same meaning ascribed to such term in
the Credit Agreement or in Exhibit E thereto.
The undersigned hereby certifies the following as of the close of
business on __________________, 199_:
1. The Borrowing Base was calculated as follows:
--------------------------------------------
Warehousing Collateral Value
----------------------------
A-1
<PAGE>
(a) Eligible Mortgage Loans $______________
"C" Mortgages $______________
"C-" Mortgages $______________
Mortgages with an Original Principal
Balance in Excess of $207,000
("Jumbo Mortgages") $______________
A-2
<PAGE>
Less:
- ----
(b) Pledged Mortgage Loans with No Collateral Value $______________
180 days or more since origination or
acquisition $______________
90 days or more in warehouse $______________
Promissory Note and/or Collateral Documents
not returned or purchased by an Investor
(45 days) $______________
Collateral Document not returned (21 days) $______________
In default (one full reporting period) $______________
Requested documents not delivered
(5 Business Days) $______________
Promissory Note and/or Collateral Documents
not delivered (wet funding loans;
7 Business Days) $______________
Wet funding loans in excess of sublimit $______________
Wet funding loans not closed $______________
A-3
<PAGE>
Jumbo Mortgages in excess
of applicable sublimit $_____________
Second Mortgages in excess
of applicable sublimit $_____________
High LTV (100%+) Second Mortgages
in excess of applicable sublimit $_____________
Not marketable $_____________
Agent does not have perfected, first priority $_____________
security interest
Other ineligible $_____________
(c) Total ((a) - (b)) $_____________
Less 2.5% $_____________$
Plus:
----
(d) Eligible Servicing Receivables: $
Pool P&I Payment Receivables $
T&I Receivables $
Foreclosure Advance Receivables $
Less:
----
(e) Eligible Servicing Receivables with No
Collateral Value: $
Unpaid beyond permitted period $
Disputed $
Servicing Agreement Default/Termination $
Agent does not have perfected, first
priority security interest $
(f) Total ((d) - (e)) $
A-4
<PAGE>
80% of Total $____________$
(g) Other Assets $
TOTAL WAREHOUSING BORROWING BASE $
2. Leverage Ratio Requirements of Section 4.16:
--------------------------------------------
Company Leverage Ratio
(i) Maximum ratio permitted by Section 4.16 as 8 to 1
of the last day of any fiscal quarter:
(ii) The ratio of Total Liabilities to Tangible Net
Worth at such date:
Total Liabilities at such date: $
to
--
Tangible Net Worth at such date $______ = ___ to 1
NCFC Quarterly Average Leverage Ratio
(i) Maximum ratio permitted by Section 4.16 on
last day of each fiscal quarter: 10.0 to 1.0
(ii) The ratio of Total Liabilities (average daily
amount outstanding during the fiscal
quarter) to Tangible Net Worth (average
Tangible Net Worth at end of each month
during the quarter)
Tangible Net Worth at the end of each
month during the quarter)
Total Liabilities (average daily amount
outstanding during the quarter) $
Tangible Net Worth (average of
Tangible Net Worth at the end of each
month during the quarter $______ = ___ to 1
NCFC Daily Leverage Ratio
(i) Maximum ratio permitted by Section 4.16
on any day: 15 to 1
A-5
<PAGE>
(ii) The ratio of Total Liabilities (highest
day during month) to Tangible
Net Worth:
Total Liabilities (highest day during month) $
Tangible Net Worth at the end of
preceding month $______ = ___ to 1
NCFC Adjusted Leverage Ratio
(i) Maximum ratio permitted by Section 4.16
on the last day of each fiscal quarter 8 to 1
(ii) The ratio of Total Liabilities to Adjusted
Tangible Net Worth:
Total Liabilities at such date $
Adjusted Tangible Net Worth
at such date $______ = ___ to 1
3. Net Worth Requirements of Section 4.14:
---------------------------------------
(a) Minimum Tangible Net Worth of the Company
required by Section 4.14
(i) Greater of $40,000,000; or
(ii) 85 % of Tangible Net Worth
Worth at Prior Fiscal Year End $
plus
----
90% of capital contributions made
during such Fiscal Year $
plus
----
A-6
<PAGE>
50% of year-to-date net income $_________
Total $
(b) Tangible Net Worth at the end of the most
recently concluded fiscal month:
(i) Net Worth of the Company at
such date: $_________
less
----
(ii) Intangible assets at such date
consisting of:
Goodwill: $_________
Other Intangibles: $_________
Total $
(c) Minimum Tangible Net Worth of NCFC
required by Section 4.14
(i) Greater of $55,000,000; or
(ii) 85 % of Tangible Net Worth
Worth at Prior Fiscal Year End $_________
plus
----
90% of capital contributions made
during such Fiscal Year $_________
plus
----
50% of year-to-date net income $_________
Total $
(d) Tangible Net Worth at the end of the most
recently concluded fiscal month:
(i) Net Worth of NCFC at
such date: $_________
less
----
(ii) Intangible assets at such date
A-7
<PAGE>
consisting of:
Goodwill: $_________
Other Intangibles: $_________
Total $
4. Minimum Liquidity under Section 4.15:
------------------------------------
(a) Minimum Cash plus Available
Borrowings as of the most
recently concluded fiscal month: $10,000,000
(b) Cash on hand as of such date: $_________
Available Borrowings as of such date: $_________
Total $
5. (a) The undersigned is the duly elected chief financial officer of the
Company;
(b) The undersigned has reviewed the terms of the Credit Agreement and has
made, or has caused to be made under the supervision of the
undersigned, a detailed review of the transactions and conditions of
the Company during the accounting period covered by this Certificate;
and
(c) These examinations did not disclose, and the undersigned has no
knowledge, whether arising out of such examinations or otherwise, of
the existence of any condition or event that constitutes an Event of
Default or an Unmatured Event of Default during or at the end of the
accounting period covered by this Certificate, except as described in
a separate attachment to this Certificate, the exceptions listing, in
detail, the nature of the condition or event, the period during which
it has existed and the action that the Company has taken, is taking,
or proposes to take with respect to each such condition or event.
6. Attached hereto is a schedule of the "Pledged Mortgage Loans" (as defined
in the Pledge and Security Agreement) that have no Warehousing Collateral
Value at the date hereof.
Dated: _______, 199___ NEW CENTURY MORTGAGE CORPORATION
By
Its
A-8
<PAGE>
EXHIBIT B TO
FOURTH AMENDED AND
RESTATED CREDIT AGREEMENT
FORM OF CONFIRMATION OF
BORROWING/PAYDOWN/CONVERSION
----------------------------
[On Company Letterhead]
[Date]
U.S. Bank National Association,
as Agent
601 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Mortgage Banking Services Division
Re: Confirmation of Borrowing/Paydown/Conversion
Ladies and Gentlemen:
Reference is made to the Fourth Amended and Restated Credit Agreement
dated as of May 26, 1999 (as said Agreement may be amended, supplemented or
restated from time to time, the "Credit Agreement"), between New Century
Mortgage Corporation (the "Company"), the Lenders party thereto and U.S. Bank
National Association ("USBNA") as Agent for the Lenders (in such capacity, the
"Agent"). Each capitalized term used herein shall have the meaning ascribed to
such term in the Credit Agreement.
The Company and the undersigned hereby confirm and certify to the
Agent as follows:
1. The undersigned is authorized to submit this Confirmation of
Borrowing/Paydown/Conversion on behalf of the Company.
2. On ______________________________ , 19__, the Company (a)
requested the Lenders to make Warehousing Loans in the aggregate principal
amount of $_______________________, (b) requested USBNA to make a Swingline Loan
in the aggregate principal amount of $_______________________, (c) made
principal payments on outstanding Warehousing Loans in the aggregate
B-1
<PAGE>
amount of $______________________, or (d) converted outstanding Advances to
outstanding Advances of another type,/1// as follows:
Warehousing Credit
------------------
Reference Rate Eurodollar Rate Fixed Rate
-------------------------------------------
Advance _____________ ____________ ___________
Payment _____________ ____________ ___________
Net Amount Outstanding
============= ============ ===========
Interest Rate _____________% ____________% ___________%
3. In connection with any requested Warehousing Loans or Swingline
Loans, please disburse $_____________________ as follows [include wire
instructions]:
4. In connection with any requested Warehousing Loans or Swingline
Loans: (a) no Event of Default or Unmatured Event of Default has occurred or
will exist upon the making of any such Warehousing Loans or Swingline Loans; (b)
the representations and warranties contained in Section 3 of the Credit
Agreement, in Section 5 of the Pledge and Security Agreement, in Section 4 of
the Servicing Security Agreement, in Section 15 of the Guaranty and in Section
15 of the NCCC Guaranty are true and correct in all material respects with the
same force and effect as if made on and as of the date hereof; and (c) after
giving effect to the Warehousing Loans or Swingline Loans requested herein, the
sum of the outstanding principal balance under the Notes shall not exceed the
Borrowing Base.
Very truly yours,
NEW CENTURY MORTGAGE CORPORATION
By
Its
____________________
/1// For purposes of this Certificate, Advances being converted shall be
described as principal payments, and the new Advances into which such
Advances are being converted shall be described as new Advances.
B-2
<PAGE>
EXHIBIT C TO
FOURTH AMENDED AND
RESTATED CREDIT AGREEMENT
NEW CENTURY MORTGAGE CORPORATION
REAFFIRMATION OF PLEDGE AND SECURITY AGREEMENT
Reference is made to that certain Pledge and Security Agreement (the
"Pledge and Security Agreement") dated as of May 29, 1998, made and given by the
undersigned to secure the Obligations, Lease Obligations and Letter of Credit
Obligations (as defined in the Prior Credit Agreement and Pledge and Security
Agreement) of New Century Mortgage Corporation (the "Company") or New Century
Financial Corporation ("NCFC") in connection with that certain Third Amended and
Restated Credit Agreement dated as of May 29, 1998 by and among the Company, the
lenders which are parties thereto (the "Lenders") and U.S. Bank National
Association, a national banking association, as agent for the Lenders (in such
capacity, the "Agent") (the "Prior Credit Agreement").
The undersigned hereby (a) agrees that the obligations of the undersigned
under the Fourth Amended and Restated Credit Agreement dated as of May 26, 1999
(the "New Credit Agreement") constitute "Obligations" within the meaning of the
Pledge and Security Agreement and (b) agrees and reaffirms that the collateral
pledged pursuant to the Pledge and Security Agreement ("Pledged Collateral")
secures, among other things, the undersigned's obligations and duties under the
New Credit Agreement, as the same may be amended from time to time, and the
obligations of the undersigned under the Pledge and Security Agreement. The
undersigned further reaffirms that all of the terms, covenants and conditions of
the Pledge and Security Agreement remain in full force and effect.
Dated: May 26, 1999 NEW CENTURY MORTGAGE CORPORATION
By:_________________________
Its:________________________
<PAGE>
EXHIBIT D TO
CREDIT AGREEMENT
NEW CENTURY MORTGAGE CORPORATION
REAFFIRMATION OF SERVICING SECURITY AGREEMENT
Reference is made to that certain Servicing Security Agreement (the
"Servicing Security Agreement") dated as of May 29, 1998, made and given by the
undersigned to secure the Obligations, Lease Obligations and Letter of Credit
Obligations (as defined in the Prior Credit Agreement and Servicing Security
Agreement) of New Century Mortgage Corporation (the "Company") or New Century
Financial Corporation ("NCFC") in connection with that certain Third Amended and
Restated Credit Agreement dated as of May 29, 1998 by and among the Company, the
lenders which are parties thereto (the "Lenders") and U.S. Bank National
Association, a national banking association, as agent for the Lenders (in such
capacity, the "Agent") (the "Prior Credit Agreement").
The undersigned hereby (a) agrees that the obligations of the undersigned
under the Fourth Amended and Restated Credit Agreement dated as of May 26, 1999
(the "New Credit Agreement") constitute "Obligations" within the meaning of the
Servicing Security Agreement and (b) agrees and reaffirms that the collateral
pledged pursuant to the Servicing Security Agreement ("Pledged Collateral")
secures, among other things, the undersigned's obligations and duties under the
New Credit Agreement, as the same may be amended from time to time, and the
obligations of the undersigned under the Servicing Security Agreement. The
undersigned further reaffirms that all of the terms, covenants and conditions of
the Servicing Security Agreement remain in full force and effect.
Dated: May 26, 1999 NEW CENTURY MORTGAGE CORPORATION
By:_________________________
Its:________________________
<PAGE>
EXHIBIT E TO
FOURTH 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) 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,
less three percent (3%) of the original principal balance, (ii) the unpaid
- ----
principal amount of such Mortgage Loan, or (iii) at the election of the Agent,
the Fair Market Value of such Mortgage Loan, less three percent (3%) of the
----
original principal balance.
(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;
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<PAGE>
(ii) the maximum aggregate Warehousing Collateral Value of
Mortgage Loans with original principal balances in excess of $240,000 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 (2.5%) 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:
(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;
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<PAGE>
(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;
(j) such Mortgage Loan has a Risk Rating lower than C-; or
(k) such Mortgage Loan was closed and funded more than one
hundred eighty (180) 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:
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<PAGE>
(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:
"Agreement to Pledge": as defined in the Pledge and Security
-------------------
Agreement.
"Appraised Value": with respect to an interest in real estate,
---------------
the then current fair market value thereof as of a recent date, as determined in
accordance with accepted methods of appraising by a qualified appraiser who is a
member of the American Institute of Real Estate Appraisers or other group of
professional appraisers.
"Approved Second Mortgage Investor": an Investor that has been
---------------------------------
approved in writing by Agent for the purchase of Mortgage Loans secured by
Second Mortgages.
"Collateral Identification Letter": as 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) has
a Loan-to-Value Ratio of not
E-4
<PAGE>
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, (B) in the
case of Mortgage Loans secured by a First Mortgage, satisfies the underwriting
guidelines or other applicable standards of the Investor referenced in clause
(C) below for a Risk Rating of at least "C-", or in the case of Mortgage Loans
secured by a Second Mortgage, is underwritten in accordance with the applicable
Underwriting Guidelines, (C) in the case of a Mortgage Loan secured by a Second
Mortgage, has been pre-approved by an Approved Second Mortgage Investor for
purchase under a Take-Out Commitment, (D) in the case of a Mortgage Loan secured
by a Second Mortgage, 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;
(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
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<PAGE>
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 Detail Listing": as defined in the Pledge and Security
-------------------
Agreement.
"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.
"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.
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<PAGE>
"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.
E-7
<PAGE>
EXHIBIT F TO
FOURTH AMENDED AND
RESTATED CREDIT AGREEMENT
FORM OF PROMISSORY NOTE
-----------------------
(Warehousing Note)
May 26, 1999
$___________ Minneapolis, Minnesota
FOR VALUE RECEIVED, NEW CENTURY MORTGAGE CORPORATION, a California
corporation, hereby promises to pay to the order of ___________________ (the
"Lender") at the main office of the Agent in Minneapolis, Minnesota, in lawful
money of the United States of America in Immediately Available Funds (as such
term and each other capitalized term used herein are defined in the Credit
Agreement hereinafter referred to), the principal sum of ___ MILLION AND NO/100
DOLLARS ($_______) or the aggregate unpaid principal amount of all Warehousing
Loans made by the Lender 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 Fourth
Amended and Restated Credit Agreement dated as of May 26, 1999, between the
undersigned, the Lender, the other lenders party thereto and U.S. 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 Lender 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.
1
<PAGE>
This note is entitled to the benefit of the Guaranty, the NCCC
Guaranty, the Pledge and Security Agreement, the Servicing Security Agreement
and the other Loan Documents.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE
OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. In the event of
default hereunder, the undersigned agrees to pay all costs and expenses of
collection, including but not limited to reasonable attorneys' fees.
[Notwithstanding the foregoing paragraphs and all other provisions of
this note and the Credit Agreement, none of the terms and provisions of this
note or the Credit Agreement shall ever be construed to create a contract to pay
to the Lender, for the use, forbearance or detention of money, interest in
excess of the maximum amount of interest permitted to be charged by the Lender
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 Lender will, at its option, either refund such excess
to the undersigned or apply such excess to the principal owing hereunder. All
interest paid shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full period of the Company's
credit relationship with the Lender until payment in full of the principal
(including the period of any renewal or extension) so that the interest for such
full period shall not exceed the maximum rate of interest permitted by
applicable law.]
NEW CENTURY MORTGAGE CORPORATION
By:___________________________________
Its:__________________________________
2
<PAGE>
EXHIBIT G TO
FOURTH AMENDED AND
RESTATED CREDIT AGREEMENT
NEW CENTURY FINANCIAL CORPORATION
REAFFIRMATION OF GUARANTY
Reference is made to that certain Guaranty (the "Guaranty") dated as of May
29, 1998, made and given by the undersigned to secure the Guarantied Obligations
(as defined in the Guaranty) of New Century Mortgage Corporation (the "Company")
to the Lenders in connection with that certain Third Amended and Restated Credit
Agreement dated as of May 29, 1998 by and among the Company, the lenders which
are parties thereto (the "Lenders") and U.S. Bank National Association, a
national banking association, as agent for the Lenders ( in such capacity, the
"Agent") (the "Prior Credit Agreement").
The undersigned hereby (a) consents to the terms of that certain Fourth
Amended and Restated Credit Agreement dated as of May 26, 1999 (the "New Credit
Agreement") and to the execution and delivery of the New Credit Agreement by the
Company; and (b) agrees that the obligations of the Company under the New Credit
Agreement, as the same may be amended from time to time, constitute "Guarantied
Obligations" within the meaning of the Guaranty. The undersigned further agrees
and reaffirms that such Guarantied Obligations are guaranteed by the undersigned
in accordance with the terms and conditions of the Guaranty, and that all of the
terms, covenants and conditions of the Guaranty remain in full force and effect.
Dated: May 26, 1999 NEW CENTURY FINANCIAL
CORPORATION
By:___________________________
Its:__________________________
<PAGE>
EXHIBIT G-1 TO
FOURTH AMENDED AND
RESTATED CREDIT AGREEMENT
NC CAPITAL CORPORATION
REAFFIRMATION OF GUARANTY
Reference is made to that certain Guaranty (the "Guaranty") dated as of
December 11, 1998, made and given by the undersigned to secure the Guarantied
Obligations (as defined in the Guaranty) of New Century Mortgage Corporation
(the "Company") to the Lenders in connection with that certain Third Amended and
Restated Credit Agreement dated as of May 29, 1998 by and among the Company, the
lenders which are parties thereto (the "Lenders") and U.S. Bank National
Association, a national banking association, as agent for the Lenders ( in such
capacity, the "Agent") (the "Prior Credit Agreement").
The undersigned hereby (a) consents to the terms of that certain Fourth
Amended and Restated Credit Agreement dated as of May 26, 1999 (the "New Credit
Agreement") and to the execution and delivery of the New Credit Agreement by the
Company; and (b) agrees that the obligations of the Company under the New Credit
Agreement, as the same may be amended from time to time, constitute "Guarantied
Obligations" within the meaning of the Guaranty. The undersigned further agrees
and reaffirms that such Guarantied Obligations are guaranteed by the undersigned
in accordance with the terms and conditions of the Guaranty, and that all of the
terms, covenants and conditions of the Guaranty remain in full force and effect.
Dated: May 26, 1999 NC CAPITAL CORPORATION
By:____________________________
Its:___________________________
<PAGE>
EXHIBIT H TO
FOURTH AMENDED AND
RESTATED CREDIT AGREEMENT
Statement to be Included in Closing Instructions
------------------------------------------------
to Closing Agents for Wet Funded Loans
--------------------------------------
"You are hereby notified that U.S. Bank National Association, as agent
for certain lenders and a certain lessor (in such capacity, the "Agent"), has a
security interest in the deed of trust or mortgage note, the deed of trust or
mortgage and all other supporting documents for the above-referenced loan.
Unless the Agent otherwise instructs you, (i) if the mortgage loan is not funded
within one (1) business day after your receipt of funds from the Agent, said
funds are to be returned by you to: U.S. Bank National Association, Minneapolis,
Minnesota, ABA No. 0910-0002-2 for credit to our Collateral Account No. 1731-
0097-1378, and (ii) all loan documents are to be returned to us by the second
business day after settlement."
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<PAGE>
EXHIBIT I TO
FOURTH AMENDED AND
RESTATED CREDIT AGREEMENT
MATTERS TO BE
COVERED BY THE OPINION OF COUNSEL
TO THE COMPANY AND NCFC
The opinions of Stergios Theologides, counsel to NCFC, the Company and
NCCC, which are called for by Section 5.01(a)(xi) of the Credit Agreement, shall
be satisfactory in form and substance to the Agent and shall cover the matters
set forth below, subject to such assumptions, exceptions and qualifications as
may be acceptable to the Agent and counsel to the Agent:
1. Each of NCFC, the Company and NCCC (collectively, the "Transaction
Parties" and each, individually, a "Transaction Party") has been duly
incorporated, is a validly existing corporation and is in good standing under
the laws of its respective jurisdiction of incorporation, and has the requisite
corporate power to own its respective properties and to conduct its respective
businesses as currently conducted by it. The Company is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the character of the business conducted by it or the location of the
properties owned or leased by it make such qualification necessary, except in
jurisdictions in which failure to be in good standing will not preclude it from
enforcing its rights with respect to any material asset or expose it to any
material liability.
2. The execution, delivery and performance by each Transaction Party of
each Loan Document to which it is a party and the consummation of the
transactions contemplated thereby are within the corporate powers of such
Transaction Party, have been duly authorized by all necessary corporate action
and do not, and the consummation of the transactions contemplated thereby and
compliance by each Transaction Party with the applicable provisions thereof will
not, conflict with, constitute a default under or violate (a) any of the terms,
conditions or provisions of its Articles or Certificate of Incorporation or
bylaws, (b) any of the terms, conditions or provisions of any document,
agreement or other instrument which is known to me to which it is a party or by
which it is bound, (c) any judgment, writ, injunction, decree, order or ruling
of any court or governmental authority binding on it and known to me, or (d) any
statute, rule or regulation of any governmental authority binding on it.
3. Each Loan Document to which any Transaction Party is a party has been
duly executed and delivered by such Transaction Party and is the legal, valid
and binding obligation of such Transaction Party enforceable against such
Transaction Party
I-1
<PAGE>
in accordance with its terms, subject to limitations as to enforceability which
might result from general equitable principles or bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws affecting
creditors' rights generally.
4. No consent, approval, waiver, license or authorization or other action
by or filing with any governmental authority is required in connection with the
execution, delivery and performance by any Transaction Party of any Loan
Document to which it is a party, the validity or enforceability of any Loan
Document or the consummation of the transactions contemplated thereby except for
those which have already been obtained and are in full force and effect.
5. The Pledge and Security Agreement creates a valid security interest in
the Collateral described in Section 2 thereof, which security interest will,
after giving effect to the reaffirmation thereof executed and delivered in
connection with the Credit Agreement, secure the Obligations. The financing
statements filed under the Pledge and Security Agreement are in appropriate form
for filing with the offices identified thereon. Such financing statements
perfect the security interest granted to the Agent, for the benefit of the
Lenders, pursuant to the Pledge and Security Agreement to the extent such
security interest may be perfected by filing financing statements under the
Uniform Commercial Code.
6. There has been created under the Pledge and Security Agreement a valid
security interest in the Pledged Mortgage Loans (as defined therein). Assuming
delivery to, and the continued possession by, the Agent of the Mortgage Notes
relating to the Pledged Mortgage Loans, said security interests shall be
perfected. The laws of certain jurisdictions may require the recordation of an
assignment of each Mortgage in order to perfect a security interest in the
Mortgage (as opposed to the Mortgage Note secured thereby). If the Agent does
not record its assignment of the Mortgages in such jurisdictions, I express no
opinion as to the Agent's perfected security interest in such Mortgages (as
opposed to the Mortgage Notes secured thereby).
7. The Servicing Security Agreement creates a valid security interest in
the Collateral described in Section 2 thereof, which security interest will,
after giving effect to the reaffirmation thereof executed and delivered in
connection with the Credit Agreement, secure the Obligations. The financing
statements filed under the Servicing Security Agreement are in appropriate form
for filing with the offices identified thereon. Such financing statements
perfect the security interest granted to the Agent, for the benefit of the
Lenders, pursuant to the Servicing Security Agreement to the extent such
security interest may be perfected by filing financing statements under the
Uniform Commercial Code.
8. To the best knowledge of such counsel, there are no actions, suits or
proceedings pending or threatened against or affecting any Transaction Party or
any of
I-2
<PAGE>
its properties before any court or arbitrator, or any governmental department,
board, agency or other instrumentality which (i) challenge the legality,
validity or enforceability of any Loan Document, or (ii) if determined adversely
to such Transaction Party, would have a material adverse effect on the business,
operations, property or condition (financial or otherwise) of any Transaction
Party or on the ability of any Transaction Party to perform its obligations
under the Loan Documents.
I-3
<PAGE>
EXHIBIT J TO
FOURTH AMENDED AND
RESTATED CREDIT AGREEMENT
FORM OF CERTIFICATE CONCERNING
BORROWER'S AUTHORIZED EMPLOYEES
I, _______________________, am the duly elected Secretary of New Century
Mortgage Corporation (the "Corporation"), a California corporation, and do
hereby certify that the following officers and employees of said corporation are
authorized to take the following action on behalf of said corporation:
PERSONNEL AUTHORIZED TO SIGN (a) INSTRUMENTS OR
(b) COLLATERAL CERTIFICATES, REPORTS AND DIRECTIONS AS TO
SHIPMENT OF COLLATERAL TO INVESTORS UNDER
CREDIT AGREEMENT AND PLEDGE AND SECURITY AGREEMENT
Telephone
Number
(Area Code
Name Title Signature and Number)
- ----------------------------------------------------------------------------
J-1
<PAGE>
PERSONNEL AUTHORIZED TO TELEPHONE INSTRUCTIONS
TO AGENT UNDER CREDIT AGREEMENT AND
PLEDGE AND SECURITY AGREEMENT
Telephone
Number
(Area Code
Name Title Signature and Number)
- ----------------------------------------------------------------------------
PERSONNEL AUTHORIZED TO AMEND SCHEDULES ANNEXED
TO ANY OF THE ITEMS SET FORTH IN (b) ABOVE
Telephone
Number
(Area Code
Name Title Signature and Number)
- ----------------------------------------------------------------------------
J-2
<PAGE>
SEND ADVICES AND MAIL TO:
ATTN:
IN WITNESS WHEREOF I have hereunder set my hand and the seal of the
Corporation this ________ day of __________________________, 199_.
Title:
J-3
<PAGE>
ACKNOWLEDGMENT BY EXITING LENDER
Subject to its receipt of payment in full in cash of its Payoff Amount on
the Effective Date, the undersigned (the "Exiting Lender"), hereby acknowledges
and consents to the Fourth Amended and Restated Credit Agreement dated as of May
26, 1999, by and between New Century Mortgage Corporation, a California
corporation (the "Company"), the lenders from time to time a party thereto (the
"Lenders"), and U.S. Bank National Association, as agent for the Lenders (in
such capacity, the "Agent") and agrees that upon the Exiting Lender's receipt of
payment in full of its Payoff Amount in accordance with Section 8.15 of said
Fourth Amended and Restated Credit Agreement, it will, as soon thereafter is
administratively feasible (not to exceed 30 days), return to the Company the
Note issued by the Company to the Exiting Lender pursuant to the Existing
Credit Agreement marked "paid" or language to similar effect. Capitalized terms
used and not otherwise defined herein shall have the meanings ascribed thereto
in said Fourth Amended and Restated Credit Agreement.
EXITING LENDER
Fleet Bank N.A.
By:_____________________________
Its:____________________________
<PAGE>
SCHEDULE 1.01(a)
UNDERWRITING GUIDELINES
-----------------------
See Attached
<PAGE>
UNDERWRITING/ 1st LIENS
Policies - Underwriting Philosophy
Page 1 of 4 (03/03/99) Latest Revised Items in Bold Blue
Overview Sound Practices/ Individual Review
New Century Mortgage Corporation provides loans to finance the purchase or
refinance of real property secured by one to four family dwelling units. The
company's lending philosophy is to originate loans based on sound underwriting
practices, risk classifications practices and adherence to underwriting
guidelines. Each loan will be reviewed on an individual basis, taking into
consideration the applicant's credit history and ability to repay, the loan
amount and the loan to value ratio. Because New Century lends to applicants with
limited credit histories and impaired credit records, the ability to evaluate
the overall qualifications and background of each borrower to determine if there
are compensating factors which may offset specific areas of weakness is
required.
Compliance
New Century Mortgage Corporation complies fully with all Federal. and State
regulations that apply to mortgage lending. New Century encourages all potential
loan applicants to apply for a loan and no member of its organization
discourages any applicant from applying. New Century does not discriminate in
its lending practices and offers loans to all qualified applicants, regardless
of their race, color, national origin, religion, age, sex, marital status,
familial status, sexual orientation, handicap status, receipt of public
assistance or good faith exercising of rights under the Consumer Credit
Protection Act. Service New Century has pledged to provide loan originators and
borrowers with competitive prices, a variety of loan programs and service which
is prompt, courteous and responsive to the unique characteristics of every loan.
New Century strives to emphasize service, treating people with respect and
acting with integrity and common sense in all of our lending and other business
activities.
5 Major Guideline Areas
New Century's underwriting guidelines provide a framework for the evaluation of
loans being considered for approval. Guidelines are provided in the following 5
major areas, which are discussed in more detail in the following pages:
. General Product Descriptions
. Capacity (Employment/Income Requirements)
. Credit Requirements
. Collateral Requirements
. Purchase Money Transactions
Page 1 of 3
<PAGE>
General Product Descriptions
Basic First Lien Guidelines and Exceptions
The "General Product Descriptions" section covers the product guidelines for
first mortgage loans offered by New Century Mortgage, and includes topics such
as:
. Acceptable applicants
. Maximum loans to one borrower
. Loan To Value ratios
. Debt to Income ratios
. Loan programs
. Underwriting exceptions
Capacity (Employment/Income Requirements)
Definition
The Borrower's ability to repay his/her loan. The customers past, present and
expected stable future income combined with his repayment experience and his
debt to income ratio are all considered when evaluating the borrowers
"capacity".
Stability of Income
The "Employment/Income Requirements" section takes into consideration both the
borrowers current income as well as the stability of that income over the past
24 months.
Special Considerations
New Century will give consideration to those cases when due to special
circumstances there have been temporary breaks, or sharp increases in the
borrowers income. When these can be documented to be caused by reasonable or
positive factors they can be considered on a case by case basis.
Credit
Definition The Borrower's willingness to repay his/her loan. The Borrower's
willingness to repay, though a subjective determination, can be judged by
evaluating his/her past use and repayment of credit obligations.
Evaluating Past Use and Repayment
A majority of New Century's determination is based on the customer's payment
record over the 12-month period prior to the application date. However, caution
is used in reviewing any applicant whose credit history is characterized by
notices of default, forecloses, bankruptcy, judgments, liens, charge-off's or
other types of serious derogatory items. In evaluating the applicant's credit
problems, a key factor is whether the credit problems are a result of an
isolated problem, poor financial planning, or a
Page 2 of 3
<PAGE>
general lack of regard for credit obligations. See "Credit Requirements" section
for details.
Collateral
Definition
The property used to secure the transaction. Collateral is a major factor in
determining whether a loan will be approved, as outlined in the "Collateral
Requirements" section. New Century uses the appraisal as the major determiner of
the value and acceptability of the collateral.
Underwriting Evaluation
It is also the responsibility of underwriters and management to evaluate whether
the property:
. Conforms to the area
. Shows pride of ownership
. Has comparable design and appeal to a majority of the properties in the
subject area
. Is located in an area with sufficient sale activity to establish an accurate
fair market value.
When any of these factors are in question, New Century may:
. Consider an independent appraisal review
. Require an additional appraisal
. Consider a reduction in the Loan To Value Ratio
. Consider the property unacceptable to New Century as collateral
Purchase Money Transactions
Definition Loans where proceeds are used to purchase property.
The "Purchase Money Transactions" section gives general requirements for this
type of loan, covers special agreements, verifications required, and gives
guidelines for sales concessions.
Page 3 of 3
<PAGE>
UNDERWRITING / 1/st/ LIENS
Policies-General Product Descriptions
Page 1 of 10 (03/03/99) Latest Revised Items in Bold Blue
Introduction To General Product Descriptions First Liens Guidelines
The following section covers the basic product guidelines for the loans made by
New Century Mortgage Corporation. These descriptions are for first lien position
loans only. The debt-to-income ratios, loan amounts, loan-to-value ratios and
combined loan-to-value ratios are reviewed as well as information on currently
available loan programs and exceptions to New Century's guidelines.
Application Requirements
NCMC requires that a Uniform Residential Loan Application (Fannie Mae 1003) be
completed on all loans submitted. Any alterations to the 1003 must be initialed
by the borrowers and at no time will white out be permitted. The borrower or
interviewer must provide New Century with all of the borrowers financial data,
including but not limited to all outstanding obligations and real estate owned
by the borrower.
The name of the interviewers employer must be NCMC, the originating Broker, or
the Correspondent. If the name identified as the interviewers employer is not a
party to the transaction, NCMC requires a corrected 1003 to be obtained. At
submission all applications must be signed and dated by the interviewer, and
prior to funding all applications must be signed and dated by both the
interviewer and the borrower(s).
Acceptable Applicants
New Century will approve loans for individuals only. Corporations, partnerships,
trusts, DBA's etc. are not eligible. New Century will accept applications for
either individual or joint credit. All individuals whose income is to be used to
qualify for the loan must be on title and have a financial interest in the
property being used for collateral. If the property is owner-occupied only the
income of those borrowers residing in the property will be used to qualify for
the loans. (CN)
All borrowers who are used to qualify for a loan should have a vested interest
in the property. Any borrower who has been added to title within 6 months of the
application may be required to prove their interest. Other than a spouse, no
borrower should be added to title at the time of loan closing to qualify for the
transaction.
Page 1 of 6
<PAGE>
Borrower Identification
All applicants must provide proper identification when signing any loan
documents. A current U.S. driver's license or current U.S. passport with picture
is acceptable. If a driver's license or passport is not available, any two of
the following items are acceptable:
. Birth Certificate
. Voter's registration card
. Social Security card
. Military Identification card
If an applicant is not a United States citizen he/she should possess a green
card verifying permanent residency. If the borrower does not posses a green
card, the loan will require a level 1 approval and the LTV should be limited to
60%.
Resident Aliens
NCMC will extend credit to resident aliens, who have lawfully established
permanent residence in the United States, under the same terms that are extended
to U.S. citizens. If a borrower is a permanent resident alien, NCM requires a
copy (front and back) of the borrower(s) Alien Registration Card (green card).
If the borrower does not posses a green card, the loan will require a level 1
approval and the LTV should be limited to 60%. New Century will not extend
credit to non-resident aliens and applicants without a social security number.
Minimum/Maximum Loan Amounts
Maximum Loans to One Borrower
New Century will consider more than one loan to a borrower. Individuals who
obtain several loans within a 12-month period should show a history and/or
ability to manage multiple properties. The determination to make these loans
will be made as a subjective judgment by New Century's under-writers and/or
management. New Century normally limits the loans it makes to one borrower to
either 3 loans or $500,000 in combined loan amounts whichever occurs first. On a
case-by- case basis with Level 1 approval exceptions may be made to these limits
with compensating factors. (CN)
Minimum Loan Amount
The minimum loan amount allowed by New Century Wholesale for its first mortgage
program is $25,000. The minimum loan amount allowed by New Century Retail is
$10,000 except in those states that have legislated a higher minimum.
Maximum Loan Amounts
New Century Identifies its maximum Loan Amounts based on the borrowers credit
grade and the LTV as described below.
Page 2 of 6
<PAGE>
Cash Out
Requirements
New Century considers any transaction with cash out exceeding 3% a Cash Out
transaction. For C and C-borrowers a satisfactory letter of explanation will be
required on cash out transactions in excess of $10,000. Cash out on Home Savers
will not exceed 3%, excluding consolidation of any debt.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Full Documenation
- ------------------------------------------------------------------------------------------------------------------------
Credit LTV
-------------------------------------------------------------------------------------------------
Grade 90% 80% 75% 70%
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
A+ $350K $400K $500K $600K
- ------------------------------------------------------------------------------------------------------------------------
A- $300K $400K $500K $600K
- ------------------------------------------------------------------------------------------------------------------------
B N/A $350K $400K $500K
- ------------------------------------------------------------------------------------------------------------------------
C N/A N/A $350K $400K
- ------------------------------------------------------------------------------------------------------------------------
C- N/A N/A $250K $300K
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Stated Income
- ------------------------------------------------------------------------------------------------------------------------
Credit LTV
------------------------------------------------------------------------------------------------------
Grade 85% 80% 75% 70% 65%
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
A+ $300K $350K $400K $450K $500K
- ---------------------------------------------------------------------------------------------------------------------------
A- N/A $300K $350K $400K $450K
- ---------------------------------------------------------------------------------------------------------------------------
B N/A N/A $300K $350K $400K
- ---------------------------------------------------------------------------------------------------------------------------
C N/A N/A N/A $250K $300K
- ---------------------------------------------------------------------------------------------------------------------------
C- N/A N/A N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Loan To Value (LTV) Ratios
Maximum LTV Ratio's
New Century Identifies its maximum LTV ratios based on the income documentation
type, the borrower's credit grade and deductions for certain property types as
described below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Documentation/ A+ A- B C C- MOP HOME SAVER
Property Type
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Full Doc 90% 90% 80% 75% 70% 75% 65%
- --------------------------------------------------------------------------------------------------------------------
Stated Income 85% 80% 75% 70% 55% N/A N/A
- --------------------------------------------------------------------------------------------------------------------
Rural Properties 75% 75% 70% 65% 60% N/A N/A
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
New Century will consider subordinate loans which exceed 100% CLTV when the
2/nd/ /Subordinate loan is to a city, municipality, SBA, and IRS or state tax
liens with an
Page 3 of 6
<PAGE>
approved payment plan. In these cases the loan must have an AA rating.
These loans will be considered only on a case by case basis and require a Level
1 signature.
(CN) * 24 Months Bank Statements cannot be used as full documentation on
Manufacture/Mobile Homes, 90% LTV loans, Mortgage Only, Home Saver or C-
Programs.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Combined LTV
- -----------------------------------------------------------------------------------------------------------
Loan Type A A- B C C- MOP Home Saver
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Purchase 100% 95% 95% 90% 80% N/A N/A
- -----------------------------------------------------------------------------------------------------------
Refinance 100% 100% 95% 90% 85% 90% 80%
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Deductions to LTV and CLTV
- -----------------------------------------------------------------------------------------------------------
Property Type A A- B C C- MOP Home Saver
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Non Owner-Occupied -5% -10% -5% -5% -5% -5% -5%
- -----------------------------------------------------------------------------------------------------------
Condo/Attached PUD -5% -5% -5% -5% -5% -5% -5%
- -----------------------------------------------------------------------------------------------------------
2-4 Units -5% -5% -5% -5% -5% -5% -5%
- -----------------------------------------------------------------------------------------------------------
Manufactured/Mobile -10% -10% -10% -10% N/A N/A N/A
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Deductions to LTV and CLTV
- ------------------------------------------------------------------------------------------------------------
Property Type A A- B C C- MOP Home Saver
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Non Owner-Occupied -5% -10% -5% -5% -5% -5% -5%
- ------------------------------------------------------------------------------------------------------------
Condo/Attached PUD -5% -5% -5% -5% -5% -5% -5%
- ------------------------------------------------------------------------------------------------------------
2-4 Units -5% -5% -5% -5% -5% -5% -5%
- ------------------------------------------------------------------------------------------------------------
Manufactured/Mobile -10% -10% -10% -10% N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Debt to Income (DTI) Ratio
- -------------------------------------------------------------------------------------------------------------
Allowable DTI A+ a- B C C- MOP Home Saver
Ratio
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
45% 50% 555 59% 59% 55% 59%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Available Terms
. Fully Amortized Fixed (10, 15, 20, 25, 30 year terms)
. 5 Year Fixed / 25 Year Variable
Page 4 of 6
<PAGE>
. 3 Year Fixed / 27 Year Variable
. 2 Year Fixed / 28 Year Variable
. 6 Month Variable
(CN) All 2, 3 and 5 Year fixed revert to a 6 month variable
after the fixed period.
Variable Rate Product Parameters:
Index-All Variable rate loans are tied to the LIBOR Index
Change Period-The Rate and Payments will be subject to change every 6 months
from origination or after the fixed rate period ends.
Maximum Rate-Maximum rate is based on our current rate sheet and changes will
be based on 1.5% Per Change and 7% Lifetime.
Minimum Rate-Start Rate
Loan terms-10, 15, 20, 25, 30 years
Underwriting Exceptions
Primary Factors
New Century has anticipated that managers and second signers, from time to time,
will make exceptions to our Underwriting Guidelines based on their experience
and compensating factors that are documented in the file. These exceptions will
include but not necessarily be limited to LTV, Loan Amount and Debt Ratio. When
considering an exception, the grantor will place primary emphasis on the
following factors:
. Stability in the subject property
. Stability in this employment or field
. Stability of income
. Debt to income ratios 5% or more below limits
. Loan amounts below program limits
. Historical good or excellent credit history
. Significant reductions in the borrower's outgo
These exceptions will be documented on the appropriate form, describing the
exception and compensating factors, and be signed by an authorized approval
level based on the following table:
Page 5 of 6
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Level LTV Debt Ratio Loan Amount Product Guidelines
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
2 5%* 5% Program + 10%** Limited
- -----------------------------------------------------------------------------------------------------------
1 10%* 10% Program + 20%** General
- -----------------------------------------------------------------------------------------------------------
Corporate Credit Any Any Any All
Committee
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Maximum 90% LTV
** Maximum $500,000 Loan Amount
Underwriting Exceptions (continued)
Authorizing Exceptions
Exceptions to policy will be limited to Level 2, Level 1 and Corporate Credit
Committee members. Level 2 signers will be authorized to make such limited
exceptions to the Product Guidelines as they deem appropriate.
Level 1 signers may make exceptions to most Product Guidelines subject to the
following limitations:
. No exceptions stated Home Savers
. No exceptions to 95% Program
. No exceptions to maximum number of loans to one borrower
Corporate Credit Committee members may make changes to product guidelines which
are consistent with New Century Underwriting Philosophy.
Page 6 of 6
<PAGE>
UNDERWRITING/ 1 /st/LIENS
Policies - Capacity (Employment/Income Requirements)
Page 1 of 17 (01/29/99) Latest Revised Items in Bold Blue
Overview Capacity of Applicant
NCMC requires that, as a condition of granting a loan, applicants exhibit:
1. Stability in Employment and in the income used to qualify for the loan.
2. Sufficient monthly income to make their monthly financial obligations and
meet their basic living expenses
3. A Debt to Income Ratio that conforms with New Century's guidelines.
4. All sources of Income used to qualify are expected to continue for a minimum
of 3 years.
Income Documentation Programs
NCMC offers two types of income documentation programs:
1 - Full Documentation (Full Doc)
. all Salaried Applicants
. Calculating Salaried Income
. Self Employed Applicants
. Calculating Self-Employed Income
. Allowable Other Income
. Calculating Allowable Other Income
2 - Stated Income
Full Documentation-Salaried Applicants Definition of Salaried Applicants
Salaried applicants are defined as those applicants for whom a majority of
income is derived from a consistent hourly, weekly or monthly wage that is
consistently received over a 12 month period.
Establishing Stability
New Century will obtain a minimum of two years of employment history for each
borrower. To evaluate stability of the borrower's employment and income, New
Century
will:
. Identify any employment gaps, review the reason for and lengths of any gaps in
employment.
. Look favorably on stability in an applicant's current job or stability in the
same line of work.
. Give favorable consideration to borrowers who change jobs for advancement
within the same line of work and maintain or improve their income
Page 1 of 11
<PAGE>
. Ensure overtime, commission and bonus income is consistent, does not
constitute more than 40% of the applicants income and is considered based on the
calculation methods described later in this document
. In cases where a borrower has an employment history of less than two years and
was previously in school or in the military, obtain a copy of his or her
diploma, transcript, or discharge papers as a compensating factor.
Full Documentation-Salaried Applicants (continued)
Verification of Employment
The underwriter or Account Manager/Retail Coordinator will perform a "verbal
audit" and maintain written evidence of telephone contact with the employer by
completing the following steps:
. Identify the name of the employer
. Identify the name and title of the individual contacted at the employer's
office
. Confirm that our borrower is currently employed
. Confirm the borrowers position
. Confirm the borrowers salary
. Indicate the date of the contact
. Identify the name of the associate who made the contact
When Income or Employment is in Question
In cases where the borrower's income or employment history is in question, New
Century will require whatever documentation necessary to verify consistency or
lack of such. This may be done by obtaining:
. Written verifications of employment
. Past years tax returns
. Additional employment background
Full Documentation-Salaried Applicants (continued)
Salary The Borrower must provide a recent paycheck stub (within 30 days of
closing) with YTD earnings and
. Most recent year W-2 or
. Most recent year 1040 complete with all schedules or
. Written Verification of Employment from employer (CN)
(CN)Unacceptable Pay Stubs: Pay stubs are not acceptable documentation of salary
if they are missing:
. YTD earnings
. Borrower name
Page 2 of 11
<PAGE>
. Borrower's social security number
. Employer's name
If any of the above are missing or they are handwritten, the following
additional documents will be required:
Missing Additional Doc Required
YTD earnings 4 consecutive paystubs showing 2-week, bi-monthly or
monthly income
Name, SSN, VOE from employee showing Employer Name all
required information
or hand-written
paystub
Overtime Overtime can be considered if it is consistent over a minimum 6-month
period. This can be established from:
. Recent pay stub with YTD overtime earning broken out,
. Verification of employment or
. Prior year W-2 combined with YTD pay stub
Commissions Commissions can be considered if they are consistent over a 12-month
period. This can be established from:
. Recent pay stub with YTD commission earnings broken out and
. Verification of employment or
. Prior year W-2 combined with YTD pay stub
Bonuses Bonuses can be considered if they are consistent over a 24 month period.
This can be established from:
. Recent pay stub with YTD overtime earning broken out and
. Verification of employment or
. Prior 2 years' W-2's combined with YTD pay stub
Calculating Salaried Income Standard Conversion Formula
1. Determine the base salary.
2. Multiply the salary period by appropriate Salary Multiplier* to convert to
monthly income.
(CN) *Salary Multipliers- To convert:
. Hourly Wage,
Step 1: Multiply by 40 or consistent weekly hours.
Step 2: Multiply by 4.3
Page 3 of 11
<PAGE>
. Weekly Wage, multiply by 4.3
. Bi-Weekly Wage,
Step 1: Multiply by 26
Step 2: Divide by 12
. Annual Salary, divide by 12
Calculating Salaried Income
Conversion For Inconsistent Wage Periods
In cases where the applicant's hours worked or work periods are not consistent,
average their income over a minimum 12-month period.
(C/N) If the applicant is a teacher you will need to determine if the individual
is paid for ten months or twelve months each year.
To convert income figures to a monthly average, use the following methods based
on how the applicant is paid:
. Paid for 12 months per year - Divide the annual salary by 12 to arrive at
their monthly gross income
. Paid for 10 months per year, take the monthly base pay, multiply by 10, and
then divide by 12. This will result in the monthly salary
. Seasonal, Contract, or Temporary income can be
accepted subject to the following:
. The average of 2 years income per W-2's or
. The average of 2 years tax returns
. Both seasonal/contract/temporary income and unemployment compensation can be
used if consistent from year to year
. Overtime, Commissions and Bonuses must have a history of at least 24 months
. If using 1040's to qualify the borrowers you must deduct the 2106 expenses on
schedule A from their income
In calculating seasonal, contract or temporary employment, underwriters should
evaluate any signs of poor credit due to interruptions in income and/or lack of
reserves.
Calculating Salaried Income (continued)
Overtime If the current year to date Pay stub covers a period greater than 6
months, simply calculate the total salary and overtime income by dividing the
YTD Figure by the
appropriate number of months. No further calculations are required. If the Pay
Stub covers a period of less than 6 months:
. A Verification of employment verifying actual overtime must be obtained for a
period greater than 6 months or
Page 4 of 11
<PAGE>
. The applicant's current YTD income may be averaged with his prior year W-2 to
establish his salary and overtime income.
Commissions To calculate Commission, divide the total commission income for the
current year and the past year and divide by the appropriate # of months.
Example:
Total Income for period: Year to Date Pay stub: $36,125 + 1997 W-2 of $48,123 =
$84,248
Number of Months in Period: Pay stubs as of 10/9 and
prior year W-2 would equal 21.29 months. $84,248 / 21.29 month = $3,957.16
Monthly Income
Bonus Income Bonus Income must be calculated over a minimum of two years. To
calculate, divide the total income for the period of 24 months and the current
year to date.
Example:
Total Income for period: Year to Date Pay stub: $36,125 + 1997 W-2 of $48,123 +
1996 W2 of $44,125 =$128,373
Number of Months in Period: Pay stubs as of 10/9 and prior year W-2 would equal
33.29 months.
$128,373 / 33.29 month = $3,856.20 Monthly Income
(CN) If either Bonus, Commission, or Overtime income
represent more than 40% of the borrower's total income,
they will be considered similar to Self-Employed borrowers
and tax returns will be required.
Ownership of Corporation
There are cases when a salaried employee owns a large or majority interest in
the company that issues his pay stubs and W-2's.
(CN) If you determine the borrower's ownership of the company is 50% or greater,
you must obtain the documentation described in the "Full Documentation - Self -
Employed"
section below, which will include:
. 2 Years of the following, with all schedules:
. 1040's
. 1065's
. 1120's
. K-1's
or
. 24 months Personal Bank Statements (see 24 Months Bank Statements )
Definition of Self-Employed Applicant
Page 5 of 11
<PAGE>
These borrowers receive all or a portion of their income from Self Employment.
These businesses are normally a sole proprietorship where all or a majority of
the profits made by the business are reported on schedule C of the 1040's and
are taxed at the same rate as personal income. Self Employed individuals are
those who:
. Own 50% or more of the stock in the corporation for which they work
. Own 50% or more interest in a Sub-Chapter S Corporation for which they work
. Receive 40% or more of their income from commissions or bonus
. Work as an independent contractor and receive their income from a 1099
. Receive their income from Partnerships which they own 50% or more
Establishing Stability
The borrower must be self-employed (or-commissioned or an independent
contractor) and in the same business for at least the last 2 years.
Verification of Employment and Income
Verification of employment and income are made through a review of the
borrower's past two years' tax returns and applicable schedules. In addition,
the underwriter may check for 411 listings for the employment, request a
business license or other applicable certification.
24 Months' Bank Statements
In the event signed federal income tax returns or other required evidence of
income is unavailable, New Century will accept 24 consecutive months of personal
Bank Statements in lieu of the borrower's prior 2 years' 1040's. If 24 months of
consecutive Bank Statements are not available, NCMC will accept a minimum of 18
months. The statements will be considered to cover a 24 month period and the
calculations will also be based on 24 months. Large and unusual deposits need to
be excluded from totals unless a reasonable explanation is provided. Consecutive
months Bank Statements on one personal account are required. Business statements
are generally not sufficient as sole-source of income documentation but may
validate business existence. In evaluating the use of Bank Statements, it should
be determined that the borrower is the only individual on the account and that
deposits are not transferred from another account. In addition, negative factors
such as NSF fees should be reviewed. On a case by case basis, Business Bank
Statements may be considered if approved by a Level 1 signer or Corporate Credit
Committee.
Calculating Self-Employed Income
Sole Proprietor The following formula is used to calculate income:
2 years net profit from schedule C's + allowable adjustments (see Adjustments To
Income in this section)
divide by 24 months
=average monthly income
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Partnerships Both general and limited partnerships use the IRS form 1065 and
schedule K- 1 for filing federal income tax returns. The partnership return
income is carried over to the individual tax return, the "partner's share of
income, credits, deductions, etc."
Use the following formula to determine income:
2 years income/loss (reference schedule K-1) from 1040's + partners share of
approved add backs (see partnership returns)
divide by 24 months
= average monthly income
S Corporations "S" corporations are generally small corporations that are taxed
in the same manner as partnerships. They pass gains and losses through to their
shareholders, who are then taxed at the tax rates for individuals. Depreciation,
depletion and ordinary income or loss can be proportionately added back to the
applicant's income. Monthly income can be derived from the past two years'
1040's and the past 2 years' corporate returns. Consider whether income is
transferred by W-S's or 1099 income. Consider corporate income and/or loss.
Adjustments to Income
(CN)
It is acceptable in determining an individuals qualifying income to add back to
adjusted gross income non-cash items such as depreciation, depletion, or
amortization. Documented loss carry over from previous tax years, and non-
recurring losses such as casualty losses may be added back to adjusted gross
income. Non-recurring gains must be subtracted from gross income. Following are
adjustments that can be added back to the adjusted gross income:
. Depreciation & Amortization on property (only amounts allowed or deducted)
. IRA/Keogh contributions
. Non taxable pension income
. Tax-exempt interest income
. Self-employed health insurance deductions
. 1/2 of self-employed tax
. Early withdrawal penalty
. Non-cash losses
.. Alimony (only if shown as a debt)
Rental Consistent Rental Income from other properties that the borrower owns is
allowed subject to the following:
.Use 90% of rents up to 4 properties and 75% of rents if borrower owns more
than 4 properties. Deduct PITI.
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. Room rents will be allowed. However, the income must be reported on the prior
two years' tax returns.
Alimony Alimony will be allowed if:
. Copy of complete divorce decree is supplied
. Payments have three years or more remaining
. Copy of the prior year's 1040 is supplied to verify receipt
Child Support .Must be in effect with minimum of 3 years remaining
. Copy of complete divorce decree is required
. Underwriter may require proof of receipt at their discretion
Social Security Benefits/Retirement Benefits
Any one of the following:
. Award Statements
. Check Copies
. Bank Statements specifying source
Foster Care Foster care payments can be allowed if we obtain
. Letter from granting agency
. 12 months' Check Copies or
. 12 months' Bank Statements with specific deposits
Calculating Allowable Other Income Schedule B-Interest and Dividend
Income
Average the most recent two years and year-to-date interest and dividend income
statements (where available). Verify that dividend and interest income is
ongoing. If any investment will be liquidated in order to complete the current
transaction, the income from that investment should not be used.
Schedule D-Capital Gains and Losses
. Combine the most recent two years income from capital gains or losses.
. Divide this amount by 24 months, and the result is additional monthly income.
. Make certain that assets will continue to provide the same type of income in
future years.
. Do not average capital gains if income is from a different source each year or
cannot be determined to be consistent.
Schedule E -Rental Income
Average the most recent two years income from schedule E, by subtracting the
expenses from the gross income (this method will not require you to add back
depreciation). Determine if all rental properties appear on the tax return. If
the net figure is a positive number, it will be shown as monthly income. If the
figure is a negative number, it will be deducted from income. In the event that
an applicant has owned a
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rental property for a short period of time and thus has not yet filed a schedule
E, rental income may be established by multiplying the actual rents form the
rental agreement by 90% if less than 4 units are owned and 75% if 4 or more
units are owned, then subtracting PITI. If the net figure is a positive number,
it will be shown as monthly income, if the figure is a negative, it will be
shown as a deduction to income. If the borrower owns 3 or less rental units,
rental agreements may be used in lieu of tax returns using the 90% rule if
rental income appears normal and stable.
Calculating Allowable Other Income (continued)
1099 -Miscellaneous Income
. 1099 forms are used to report payments of other income such as dividends,
interest, and retirement distributions.
. Most payments to sole proprietors or individuals made in the course of a trade
or business will be reported on a 1099 form.
. If a borrower receives 1099 income you must obtain the prior two years' 1040's
and verify the amount based on how the income is filed.
Non-Taxable Income
Verified nontaxable income will be allowed when it is determined that such
income will continue and remain untaxed for the foreseeable future. Examples of
nontaxable income include, but are not limited to:
. Certain military allowances
. Certain retirement income
. Disability payments
. Workers compensation benefits
. Child support payments
. Certain types of public assistance payments.
It is New Century's policy that an applicant with non-taxable income can be
evaluated in the same manner as a borrower who has taxable gross income. The
Underwriter may adjust or "gross up" the applicant(s) actual income by
multiplying the "non-taxable" income by 125% and idientifying this on an
exception form.
Stated Income Documentation
Overview In certain circumstances, borrowers who would otherwise qualify for a
loan are unable to fully document their income. Subject to certain conditions,
New Century will accept the borrower's occupation and income as "stated" on
their application. New Century will compare the borrower's occupation and income
as stated on the 1003, to similar applicants in their area. They will also
consider the borrower's repayment habits and assets to evaluate the
reasonableness of the income stated. If they appear to be reasonable, the income
will be accepted.
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New Century does not allow stated documentation on Section 32 loans or on any
loan for the purpose of purchasing a non-owner occupied property. This applies
to both the Wholesale and Retail divisions.
Documentation Requirements
Subject to the underwriter's discretion, the borrower may be allowed to "state"
his/her self-employment or salaried income. Stated income is not allowed on the
following income sources:
. Retirement Income/Social Security/Pension/Disability
. Room rents
. Annuity
. Note Income
The borrower must provide verification if these sources of income are used to
qualify for the loan. The Underwriter or Account Manager/Retail Coordinator is
to make an appropriate verification to establish the existence of the borrower's
business or employment. For the self employed borrower this may include one or
more of the following:
. Determining if the business is listed in the phone directory
. Verifying the existence of a business license
. Verifying trade associations
.Obtaining business promotional material
Stated Income Documentation (continued)
Documentation Requirements
(continued)
If it is not possible to complete verbal verification due to the borrower
working out of his or her residence, and the lack of a business license, a
written Letter Of Explanation (LOE) is required. For the salaried borrower the
underwriter or Account Manager/Retail Coordinator will perform a "verbal audit"
and maintain written evidence of telephone contact with the employer by
completing the following steps:
. Identify the name of the employer
. Identify the name and title of the individual contacted at the employer's
office
. Confirm that our borrower is currently employed
. Confirm the borrowers position
. Indicate the date of the contact
. Identify the name of the associate who made the contact.
If it is not possible to complete a verbal verification, then the borrower must
qualify under the full documentation program or a level 1 approval must be
obtained.
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Overview
Determining The borrower's willingness to repay is judged by evaluating
Willingness his/her past use and repayment of credit obligations. New Century
to Repay will establish a "Credit Grade" by comparing the customer's prior
credit or lack of credit to the established guidelines on our
"Underwriting Matrix". In addition to the matrix and these
-------------------
guidelines the underwriter will use their common sense in
evaluating the borrower's credit background and weigh that
against any explanations that are available and compensating
factors. New Century's lending philosophy calls for our
underwriters and management to avoid making automatic judgments
and to evaluate the overall qualifications and background of each
borrower.
Credit New Century has established 3 general credit categories
Categories described as:
1. Established Credit - A borrower whose credit history includes
5 or more pieces of credit which have been open or paid over a
period of at least 2 years will be considered to have
established credit. A minimum of 1 of the credit accounts
should be a mortgage or large installment account.
2. Minimal Credit - This borrower's credit history is either
limited by the length of their established credit, the number
of accounts with a 2 year seasoning (less than 5) or limited
to smaller accounts. This borrower could be considered a "B"
credit grade.
3. No Credit - a borrower who has not established any repayment
record on a credit type account for 6 months or more will
considered a C credit grade.
In all of these cases the underwriter will consider the
borrower's background and compare the credit background with the
loans being applied for.
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Overview (continued)
Importance of The borrower's history of repayment on their mortgage obligations
Mortgage will be a primary consideration in evaluating their acceptable
Credit History credit background. A history of paying mortgage loans with no
delinquencies is a compensating factor that can be used to offset
other weaknesses. A borrower who has consistently exhibited a
record of delinquency and problems on their mortgage obligations
should be reviewed closely for other indications of weakness and
lack of ability.
Mortgage Credit
Mortgage A minimum of 12 months payment history, except as noted below,
Verification must be obtained on all mortgages. Current balance, current
status and payment amount must also be verified. Changes,
whiteouts, and strikeouts on the original documentation are not
acceptable. Any altered verification requires new documentation.
The following are acceptable methods of verifying payment
history:
. A credit report dated within 30 days of funding will be
the primary source of verifying repayment of mortgages.
The credit report should include the status by month for a
minimum of 12 months.
. Written verification of mortgage, including rating, from
an institutional lender.
. A letter from the institutional mortgage holder stating
the current balance and the last 12 month payment history.
. VOMs and correspondence from private, individual lenders,
as is the case for seller carried paper, must be verified
with canceled checks.
Continued . . .
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Mortgage Credit (continued)
Mortgage In cases where mortgage delinquency has occurred, the underwriter
Verification will compare the delinquency to the "Underwriting Matrix" to
(continued) ---------------------
determine the appropriate "Credit Grade".
New Century requires written verification for mortgage history up
to the prior month's payment. Additionally, verbal or written
verification of the current month's payment is required if the
loan is funded after the 15th of the month. The verification
must be well documented in the form of a certification to the
file including the following information:
. Date verified
. Updated information as verified
. Name, title and telephone number of the contact at the
mortgage company
. Name of person verifying the information
If the borrower has been in the property less than 12 months, New
Century Mortgage may consult prior mortgages or rent payment
history.
Rolling Late's A consecutive 30-day late on a mortgage payment is considered
1x30 if:
. The mortgage is no more than 30 days late as of the
underwriting date
. The credit report, mortgage verification or canceled
checks reflect one missed payment and the remaining
consecutive payments have been paid as agreed. (CN)
Continued . . .
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Mortgage Credit (continued)
Subordinated New Century will allow subordinate liens provided they meet the
Liens conditions indicated below. In all instances, the combined loan-
to-value and debt-to-income ratios cannot exceed the maximums
indicated in the General Product Description section and/or the
---------------------------
Underwriting Matrix.
-------------------
New Century Mortgage will consider all liens
when determining the debt-to-income ratio. All liens should be
reviewed to determine any terms or conditions which may adversely
affect the borrowers' ability to pay their obligations. In
addition, all loans should have regular monthly payments. If the
repayment schedule is not monthly, it must be converted to a
monthly payment for budgeting purposes.
The subordinate lien must be:
. Clearly in subordinate position behind the subject loan
. Fully documented including repayment terms.
. Recorded concurrently or after the subject loan.
. Due no sooner than 3 years from closing unless fully
amortized.
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Consumer Credit
Overview A majority of New Century's determination in evaluating consumer
credit is based on the customer's payment record over the 12-
month period prior to the application date. However, caution is
used in reviewing any applicant whose credit history is
characterized by notices of default, forecloses, bankruptcy,
judgments, liens, charge-off's or other types of serious
derogatory items. In evaluating the applicant's credit problems,
a key factor is whether the credit problems are a result of an
isolated problem, poor financial planning, or a general lack of
regard for credit obligations. For certain credit grades, NCMC
will accept a "Credit Score" in lieu of an individual evaluation
of Revolving and Installment Debt.
These are:
. A+ 640 or greater
. A- 620 or greater
. B 600 or greater
The underwriter must still review mortgage credit, defaults,
bankruptcies and foreclosures to determine final credit grade.
Installment The repayment of larger installment accounts in an "as agreed"
Debt manner is a positive factor when evaluating a borrower's credit
background. The presence of severe delinquency in the repayment
of major installment accounts or the lack of any history of such
should be considered weaknesses in assessing the borrower's
credit background.
Continued . . .
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Consumer Credit (continued)
Installment The monthly payment for installment debt used in calculating the
Debt debt-to-income ratio should be:
(continued)
. The monthly payment amount indicated on the credit report
or
. The high credit divided by the loan term, if the monthly
payment is not included on the credit report:
. Debts listed on the application, but not appearing
on the credit report, must be included, unless proof
of payment is shown.
. Debts with 10 or less monthly payments remaining do
not need to be included.
Revolving Revolving credit and other obligations, especially when less that
Credit/Other $1,000, although considered are not given the same weight as the
Reported borrower mortgage and/or other major installment accounts. In
Obligations addition, the presence of only small revolving and/or installment
debt as the borrower's only credit background may not be
sufficient to establish their ability to repay a larger mortgage
account.
Three percent of the outstanding balance should be used as the
payment amount when calculating the debt ratio, when the payment
amount is not available from a current statement or the credit
report.
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Other Types Of Obligations
Co-Signed New Century will not include payments on co-signed loans if
Obligations verification can be obtained to show that payments are and have
been made by a responsible third party. A primary method of
establishing the co-borrower relationship is by acquiring a copy
of the Note, Installment Agreement or a copy of the payment
coupon, which must establish that the payor is someone other than
our borrower.
In addition, proof that the primary borrower (on the Co-Signed
account) is making the payments is also required to be in the
loan file. This can be documented with a copy of 3 months
canceled checks (front and back) or 3 months bank statements.
The primary borrower may not be 2 X 30 days late in the last 12
months, or the monthly payment amount and balance of the debt
will be included in the Debt To Income Ratio calculations for New
Century's borrower.
If the obligation reports a delinquent history, New Century
reviews this as a delinquency of the borrower and the monthly
debt payment is included in the Debt To Income Ratio
calculations. The payment amount of the obligation is not held
against the borrower on the New Century Mortgage loan as long as
the above required documentation has been provided.
If the obligation does not interfere with the borrower's ability
to qualify for New Century Mortgage guidelines, then there is no
need to provide the above documentation. The debt will be
included in the DTI Ratio with other obligations.
Continued . . .
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Other Types Of Obligations (continued)
Deferred If a borrower has obligations that are deferred, such as a
Obligations student loan, the obligation may not need to be included in the
DTI Ratio. Proof that the borrower is enrolled in school and/or
evidence from the finance office to verify that the loan is
deferred until a certain date (date must be specified), may be
----------------------
all that is required. Many student loans report to the credit
bureau stating the date to which the obligation is deferred.
If the debt is not to be included in the DTI Ratio, there must be
a write-up in the loan file that the 1 st payment will not be due
for at least 12 months from the closing date of the loan. This
information can be obtained from the lending institution, the
credit report, or from the finance office at the school where the
borrower is enrolled, or based on verification of enrollment and
on an underwriter's write-up.
Child New Century Mortgage Corporation considers child support/alimony
Support/ payments as an installment debt. If the debt is due to continue
Alimony for more than 6 months, it will be included in the DTI Ratio. Any
Obligations past due child support/alimony must be paid current, or in full
if required by the administering agency, by the closing date of
the loan. Any deviation from policy requires prior Level 1
approval.
Continued . . .
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Other Types Of Obligations (continued)
Delinquent Current delinquencies and recent and prior charge off's,
and Charged- judgments and collection accounts from credit obligations should
Off Accounts be reviewed closely by the underwriter. New Century requires that
its underwriters and management use common sense in determining
whether accounts should:
. Be brought current at or prior to funding
. Be paid off through loan proceeds
. Effect the borrower credit grade
New Century, at its discretion, may not consider an individual
account, even if it is within the past 12 months, to effect the
borrower's credit grade if it is not representative of the
borrower's overall credit background.
Charged off accounts (less than one year old) or exceeding $5,000
cumulative within the past 24 months, should be:
. Verified as paid or
. Paid off from loan proceeds.
Collections and charge offs less than $500 and medical
collections may not be considered if the underwriter considers
them as not representative of the borrower's overall credit
and/or caused by a dispute. The original date of occurrence is
used in the credit decision.
Any time large amounts are to be disbursed in cash to the
borrower, prior obligations should be paid if they were reported
within the past 36 months.
Homeowners Association (HOA) dues more than 90 days past due are
counted as a major derogatory item.
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Other Types Of Obligations (continued)
Bankruptcy Century Mortgage generally requires that a Bankruptcy be
discharged or dismissed before a mortgage loan can be made, as
described below. (Dismissal willl be treated as discharge.)
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Credit Chapter 7 Chapter 13
Grade
- --------------------------------------------------------------------------------
A+ greater than or equal to greater than or equal to
3 years from discharge date 2 years from discharge date
with "as agreed" rating from
trustee
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A- greater than or equal to greater than or equal to
2 years from discharge date 2 years from filing date
with rating from trustee, must
be discharged
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B greater than or equal to greater than or equal to
2 years from discharge date 2 years from filing date
with rating from trustee, may
be discharged at funding*
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MOP greater than or equal to greater than or equal to
2 years from discharge date 2 years from filing date
with rating trustee, may be
discharged at funding
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C greater than or equal to greater than or equal to
12 months from discharge date 12 months from filing date,
may be discharged at funding
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C- less than 12 months allowed less than 12 months allowed from
from discharge date filing date, may be discharged
at funding*
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HS less than 12 months allowed less than 12 months allowed from
from discharge date discharge date
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*New Century will only consider loans with an open Chapter 13 on a case by
case basis, and will require a level 1 or level 2 approval.
NCMC also requires that under an open Chapter 13 Bankruptcy, a written demand
from the Chapter 13 Trustee and the written approval from the Bankruptcy court
be obtained before a mortgage loan can be made.
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Debt to Income (DTI) Ratios
Definition New Century considers the borrower's "total monthly payments"
divided by their "gross monthly income" to establish the "Debt to
Income" Ratio (DTI) as a means of determining the borrower's
credit grade and to evaluate their ability to repay.
Disposable New Century will also evaluate the borrower's "Disposable
Income Income". This is determined by subtracting the borrower's "Total
Monthly Payments" from their "Gross Income". The following guide
is to be used as a tool for underwriters to consider whether a
borrower has sufficient disposable income to cover their other
living expenses and to provide minimal reserves.
Family Size Disposable Income
-----------------------------------------------------------------
1 400
2 600
3 800
4 1,000
5 1,200
6 1,400
7 1,600
Although this table is used as a guide, New Century may use
discretion when reviewing borrowers with disposable income below
these levels.
Continued . . .
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Debt to Income (DTI) Ratios (continued)
Maximum DTI Grade Maximum DTI
By Grade -----------------------------------------------------------------
A+ 45%
A- (45% for LTV's greater than 85%) 50%
Mortgage Only Program (M.O.P.) 55%
B 55%
C 59%
C- 59%
HomeSaver 59%
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Overview
Importance of Due to the nature of Sub Prime lending, the condition and
Collateral accurate value of our collateral is an essential part of making
Condition the proper credit judgment. The following guidelines are provided
and Valuation to assist all NCMC associates in determining the acceptability
and the value of the collateral:
. Acceptable Property Types
-------------------------
. Mobile Manufactured Homes
-------------------------
. Property/Collateral Requirements
--------------------------------
. Appraisal/Collateral Valuation
------------------------------
. Insurance Requirements
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Acceptable Property Types
Single Family A majority of New Century's business is to provide loans for the
Residence purchase or refinance of Single Family Residences. A primary
(SFR) determining factor in evaluating the acceptability of the
property is its conformity to the area and the ability to
establish an accurate "Market Value".
New Century will lend on properties with up to 10 acres. In cases
with over 5 acres the appraiser must give value to all acres,
however New Century will deduct a pro-rata value for the average
over 5 and base the LTV on this lower value. Properties with
acreage must be considered residential, have no business or
farming use and be conforming to the residential properties in
the immediate area.
New NCMC lends on both new Tract construction and Custom Homes.
Construction
Both new tract construction and custom homes must have a
certificate of occupancy. Also, if the appraisal was made
"subject to", it must have a 442 with photos showing the property
is complete and "as is".
Detached NCMC treats these property types as SFR's. No LTV deductions
PUD's and required.
Row Houses
Multiple NCMC lends on a maximum of four units. Units require a minimum 5%
Units (2-4) LTV reduction on all programs for all credit grades (see
"Underwriting Matrix"). The maximum LTV available for owner-
-------------------
occupied units is 85%.
Continued . . .
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Acceptable Property Types (continued)
Condominium/ NCMC lends on condominiums/townhomes with the following
Townhomes restrictions:
. The condo project must have at least four units.
. No mixed use condo's that have retail \ commercial on the
bottom floor.
. No Condo Hotels (Condotels), timeshares or co-ops.
. No studio condos
. No Apartment Conversions if the conversion has occurred within
the last three years, and\or if subject has less than 500
square feet.
. Resort area Condominium projects are considered on a case by
case basis only. The owner occupancy requirement of 50% still
needs to be met.
. High Rise Condo's are allowed if common for the area and all
comparables are similar. (Example: same number of floors; if
subject is a lower floor unit, the comps are not superior for
higher floor units.)
All condominiums require a Home Owners Association (HOA) letter
completed by the Property Management company or the Association
President. The completed certificate must verify that:
. The project is NOT involved in any type of litigation.
. The project is 50% owner occupied. Second Homes are counted in
the owner occupancy total.
. No more than 50% of the association homeowners are delinquent
in their monthly HOA dues.
(Exception: New construction Condo projects. The HOA letter must
verify all of the above information and also verify that 50% of
the units in the Project are sold.)
Condo's and Attached PUD's require a 5% LTV reduction on all
programs for all credit grades. The maximum LTV available for
Condo's / Townhomes is 85%.
Continued . . .
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Acceptable Property Types (continued)
Attached NCMC lends on Attached PUD's following the same guidelines as
Planned Unit Condominiums. An HOA letter is still required and LTV reductions
Development are the same.
Log NCMC lends on log homes on a case by case. Log homes must have
Homes the same amenities as a Single Family Residence: smooth plaster
type interior walls, separate bedrooms, separate baths, kitchens,
etc. Log Homes must be common for the area, and similar Log Homes
must be used as comparables. The maximum LTV available in
program / credit grade, must be reduced by 5%.
Unique NCMC recognizes that there are properties that may not have a
Properties broad appeal and/or market. These properties will be considered
on a case by case basis as long as they are not properties that
are listed in this section under "Unacceptable Properties". In
-----------------------
addition to design and appeal considerations, all properties
where comparable sales are available within 10 miles are to be
considered unique.
Rural NCMC may lend on Rural properties. Rural properties follow the
Properties same LTV restrictions as UNIQUE PROPERTIES listed above. They
must show good pride of ownership, conform to their area and
their value must be established to the acceptance of NCMC.
Inherited NCMC may lend to borrowers who have inherited property. If the
Properties borrower has been on title over six months the transaction will
be treated as a refinance transaction with no restrictions.
However, if the borrower has not been on title for at least six
months, the transaction must follow the same LTV restrictions as
do Unique and Rural properties.
Continued . . .
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Page 5 of 11 (03/03/99) Latest Revised Items in Bold Blue
Acceptable Property Types (continued)
Maximum LTV Maximum LTV's for unique and rural properties are:
for Unique and
Rural . A+ to A- = 75%
. B = 70%
. C = 65%
. C- = 60%
NO MOP OR HOME SAVER PROGRAMS ALLOWED
Mobile/Manufactured Homes
Overview Mobile, manufactured homes are those homes that were
substantially completed offsite and delivered to the site as one
unit or in sections. The offsite work would in most cases include
framing and insulation, drywall or wall covering, appliances and
flooring. In most cases these properties would be identified as
such by the appraiser, however, New Century may require
additional clarification based on the property photos or if the
borrower states that the home does not meet this definition.
New Century limits the Loan To Value ratios and terms on mobile
homes based on the information in this section and provided on
the "Mobile/Manufactured Home Guidelines Checklist".
---------------------------------------------
Mobile Home New Century requires that a Mobile/Manufactured Home Guidelines
Checklist -----------------------------------
Checklist be completed on each loan where a mobile/manufactured
---------
home is to be used as collateral. This form will assist the
underwriter in establishing the acceptable terms and Loan To
Value ratio.
Continued . . .
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UNDERWRITING / 1st LIENS
Policies - Collateral Requirements
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Page 6 of 11 (03/03/99) Latest Revised Items in Bold Blue
Mobile/Manufactured Homes (continued)
Mobile Home . The mobile home and property must be legally classified and
Requirements taxed as real property.
. All foundations must have footings that are anchored to a
permanent foundation.
. Home must have been built after June 15, 1976.
. Maximum site value is 10 acres with reviewed value on 5 acres
value only.
. 10% LTV reduction from program guidelines is required (all
exceptions require Level 1 approval.
. 5% additional reduction for rural properties is required.
. Loans on homes built prior to 15 years ago should have a
maximum term of 15 years.
. All title policies must include an "ALTA Form 7" endorsement,
(insures improvements as "real property").
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UNDERWRITING / 1st LIENS
Policies - Collateral Requirements
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Page 7 of 11 (03/03/99) Latest Revised Items in Bold Blue
Property/Collateral Requirements
Minimum . Minimum Collateral Value is $30,000.00.
Collateral . Minimum Square Footage is 800. All comps should be similar in
Requirements size, bedroom and bath count. (Exception: Less than 800 square
feet if common for area with Level 1 or 2 approval).
. Property condition must be rated as Average or better.
. NCMC requires that the property is serviced with public
electricity.
. NCMC requires that the property has a water source. If the
water source is not a public water company, it must be verified
that the source used is common for the area.
. NCMC does not require a well or a septic certification unless
the appraisal or purchase contract indicates a problem.
Continued . . .
Copy of termite report and clearance (if applicable) will only be
required if it is asked for in either the Purchase Contract,
Escrow Instructions, or if the Appraiser or Appraisal Reviewer
mentions any issues that raise concern.
Continued . . .
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UNDERWRITING / 1st LIENS
Policies - Collateral Requirements
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Page 8 of 11 (03/03/99) Latest Revised Items in Bold Blue
Property/Collateral Requirements (continued)
Unacceptable . Vacant Properties. Vacant properties are only acceptable if our
Collateral/ transaction is a purchase, Construction to Perm, or a current
Property remodel with verification in file.
. Properties that are rated in FAIR or AVERAGE - (Minus)
condition on the appraisal.
. Properties that appear to be in FAIR or AVERAGE -(Minus)
condition upon review of appraisal photos.
. Adult care facilities, Elderly Care Homes, Group Homes.
. Studio Condo's . A condo must have a separate bedroom with four
permanent walls.
. Geometric Domes.
. Properties that do not conform to the area / market.
. Commercial and commercial store front properties.
. Properties near a hazardous waste site.
. Any properties used as a "working farm".
*****ANY EXCEPTIONS MADE TO PROPERTIES LISTED IN
THIS SECTION REQUIRE A LEVEL ONE APPROVAL *****
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Policy & Training Development
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UNDERWRITING / 1st LIENS
Policies - Collateral Requirements
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Page 9 of 11 (03/03/99) Latest Revised Items in Bold Blue
Appraisal/Collateral Valuation
Determining Determining an accurate "Market Value" for properties used as
Market Value collateral for NCMC loans is a critical factor. To ensure NCMC
obtains the most accurate estimated value for the collateral, the
following guidelines have been implemented.
. NCMC will base the LTV on the estimated market value provided
by a licensed appraisal on an acceptable appraisal for each
property type.
. The current appraised value will be used to determine the LTV
when a borrower has owned the property for six months or more.
. If borrowers purchased/acquired the property within the past 6
months, the original purchase/acquisition price must be used as
the basis of the LTV. A copy of the final HUD-1 should be
obtained to verify the original purchase price.
(Exception: If the borrower can provide a list of upgrades made
to the property, along with receipts and/or canceled checks to
verify the dollar amount of these improvements, then the LTV
can be based on the original purchase price plus the cost of
improvements or the appraised value.)
Properties The value of properties that have been purchased or acquired
Owned Less within the previous 6 months will be limited to the original
Than 6 Months purchase price. In addition, NCMC will review properties where
the Appraisal Value has increased over 25% in the past 24
months.
Acceptable . Form 1004 - Used for a Single Family Residence, Attached and
Appraisal Detached PUD's. Last revision date of 6/93.
Forms . Form 1073 - Used for a Condominium. Last revision date of
10/94.
. Form 1025 - Used for Small Income Property (2-4 Units). Last
revision date of 10/94.
Appraisals received for lending purposes at New Century must be
on one of the above 3 forms. No other format (Drive by's, FHA
appraisals) are acceptable at this time.
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UNDERWRITING / 1st LIENS
Policies - Collateral Requirements
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Page 10 of 11 (03/03/99) Latest Revised Items in Bold Blue
Appraisal/Collateral Valuation (continued)
Expiration Appraisals are good for 90 days from the appraisal date. After 90
Dates On days NCMC requires a Recert of Value. NCMC does not require new
Appraisals comps, nor a grid with the Recert. After six months, a complete
new appraisal is required.
Appraisal See the Retail Appraisal Policy or Wholesale Appraisal Policy for
Review ----------------------- --------------------------
Requirements details.
Loan Amounts NCMC requires that two appraisals, from two independent
of $500,000 appraisers, be included in each loan file with a loan amount of
$500,000 or greater. If the values differ, NCMC will base the LTV
on the lower of the two values. One field review should be
ordered and should confirm at minimum the lower value.
Key Factors The property address should be compared to the 1003's, and Prelim
In Reviewing to validate appraisal is on NCMC subject property.
An Appraisal
Verify if Owner Occupied, Tenant, or Vacant. Underwriter needs to
question if applicant indicates Owner Occupied and Appraiser
indicates Tenant on the appraisal. Vacant properties are only
acceptable if our transaction is a purchase, construction to
Perm, or a current remodel with verification in file.
Verify if property is Fee Simple, or Leasehold. If Leasehold,
NCMC requires a copy of the original lease to be obtained and
approved by NCMC legal department prior to docs. NCMC will also
require the original Lessor to sign a NCMC Leasehold agreement.
The appraisal report submitted for a loan must be ordered by a
New Century employee, Broker, or Correspondent. Verify the name
identified as the client as NCMC, the Broker, or the
Correspondent Broker. If the name identified is not one of the
foregoing, then NCMC requires a new appraisal.
The appraisal cannot be typed in our borrowers name.
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UNDERWRITING / 1st LIENS
Policies - Collateral Requirements
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Insurance Requirements
SFR's, Coverage must be in an amount at least equal to the replacement
Detached PUD's value of improvements on the property or the loan amount,
and Units whichever is less.
If your loan program is a second/junior lien, coverage must be in
an amount at least equal to the new loan amount plus the amount
of all senior liens against the subject property.
Policies must contain deductibles on any peril of NOT MORE THAN:
. $100.00 for a loan of $50,000.00 or less
. $250.00 for loans between $50,001.00 and $100,000.00
. $500.00 for loans in excess of $100,000.00 and
. $1,000.00 for loans of $1,000,000.00 or more.
Policy shall provide at least "Broad Form" coverage on properties
of one to four units.
Condos and The Master Policy must contain a minimum of $1,000,000 coverage
Attached PUD's for "Directors & Officers" liability. A copy of the Master
Policy, or a certificate showing proof of coverage for both the
Homeowners Association and the Condominium unit owner, must be
provided prior to funding. A $1000.00 deductible is acceptable
for condominiums and attached PUD's. Homeowners policies must
provide coverage equal to "H02" form.
Flood NCMC requires flood insurance if the collateral is determined to
Insurance be in a FEMA special flood hazard area. If the property is in
excess of $250,000, NCMC requires Excess Flood Coverage. A
borrower's obligation to purchase flood insurance may not be
waived.
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Policy & Training Development
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UNDERWRITING /1/st/ LIENS
Policies - Purchase Money Transactions
Page 1 of 7 (5/19/99) Latest Revised Items in Bold Blue
Overview
General New Century Mortgage Corporation provides loans to finance the purchase
of real property secured by one to four family dwelling units. Loans will be
granted to individuals only, for owner occupied and non-owner occupied
properties. Each loan will be reviewed on an individual basis, while taking into
consideration the applicant's credit history and ability to repay, the loan
amount and the loan to value ratio.
Purchase Money Checklist
New Century requires that a "Purchase Money Checklist" be completed for each
purchase money transaction prior to loan documents being drawn. The Checklist
assists the underwriter in evaluating the purchase transactions and obtaining
the required documentation and the correct type of appraisal review. The
checklist must be signed or counter signed by an approved individual.
Recent Sales of Subject Property
Because of New Century's need to determine a fair market value for the
properties used as collateral, the appraisal must include, in the appropriate
areas, information on any sale of the subject property within the last 12
months, whether it is "of record" or not. In addition, we may require
information to determine if any previous sellers and/or borrowers transferred
property below or above a fair market value.
Condition of Property
Properties must be in average or better condition. Any repairs must be minor and
should be completed prior to closing. At the underwriter's discretion repairs
may be waived when the amount is less than $1000 and the LTV is 5% below the
maximum allowed for the risk grade.
General Requirements
.Seller must be the vested owner.
.Equity exchange properties will be allowed, provided that both properties are
evaluated and appraised.
.New developments with "subject to plans and specs" require an "as is " value
of 442 before funding.
.Vacant properties are allowed, provided the borrower/tenant intends to
occupy.
.Subordinating 2nd mortgages must have a minimum term of 3 years with a minimum
of interest only payments with executed document.
. All purchase money loans will require a termite report and clearance if asked
for in either the Purchase Contract, Escrow Instructions, or if the Appraiser
or Appraisal Reviewer mention issues that raise concern.
Page 1 of 7
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. Non-occupant co-signer income is not to be considered
.All transactions must be deemed to be "Arms Length" and the buyer and seller
may not be the same or have similar financial interests.
Title Requirements
New Century requires that all purchase money transactions include a verification
of the date the seller acquired the property. If that date is within the past 12
months, a complete 12 month chain of title is required.
This condition:
..Must be reviewed and signed off by an Underwriter or Manager, and
..May not be waived by any individual.
It is the responsibility of the person reviewing the chain of title or other
documentation to ensure that the seller has been on title for at least 12
months.
New Century also requires a statement on all title documents indicating any
other pending sales or agreements other than those between the vested owner and
our borrower. In any case where there has been a transfer within the past 12
months, New Century requires the following:
A. Non-Owner Occupied - Investment/2/nd/ Home -Corporate Credit Officer
signature must be obtained prior to documents or final approval. B. Owner
Occupied - Level One or Risk Manager Signature required prior to documents or
final approval.
Agreements Agreement of Sale/Contract of Sale/ Purchase Agreements
New Century requires an Agreement of Sale which includes the sales price, amount
of down payment, commitment and closing dates, sales concessions seller
contributions, mortgage contingency, signatures of buyer, parties to the sale
transaction, i.e. .Corporation, partnership or Private individuals, plus any
additional addenda.
This is required on all purchase money transactions, including land contracts
and lease with option to purchase.
Land Contracts
These agreements between an owner and our borrower for the sale of a property at
a specific price and with specific repayment terms will be accepted as a bona
fide purchase based on the following conditions:
.The Land Contract has been recorded
.Canceled checks to verify the original deposit or down payment if any (if less
than 12 months ago)
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.Canceled checks to verify payments according to the terms of the agreement for
the past 12 months
.No indication that the agreement is a "Non-Arm's Length" transaction
If the contract has not been recorded, New Century will require 12 months
seasoning and the items listed above to consider the loan as a refinance
transaction.
Lease Option
This agreement between an Owner and a prospective Buyer allows the prospective
Buyer to lease a property for a specific term with an option to purchase at a
specific price. In most cases, New Century will consider this to be a "Purchase
Money Loan" at the time of submission and will limit the appraisal value to the
purchase price.
In some cases when the "prospective Buyer" has developed enough equity in the
property, New Century may consider it a refinance. This will be allowed in the
following cases:
.When the lease option has been in place for over 12 months and a down payment
can be verified of at least 2.5% of the purchase price
.When the lease option has been in place for over 24 months
In both of these cases the original down payment, if any, and all monthly
payments must be verified by canceled checks. If these are not available, the
transaction will be considered a "Purchase" at the time of submission to New
Century.
Funds To Close/Cash Reserves
Calculating Funds To Close
The formula below is used to calculate the funds required to close:
Sale price
+ Prepaid charges
+ Closing costs
- - Loan Amount
= Seller contribution
- ---------------------
Funds needed for closing
Verification of Funds
New Century does not require seasoning for the down payment on owner occupied
A+, A- and B grades (however, the source of all of the down payment must be
verified). Owner Occupied C and C- grade and all Non-Owner Occupied/Investment
transactions require proof of and 60 days seasoning of the down payment.
Funds should be verified through a Verification of Deposit or the most recent
two month's bank statement, or as described below.
Page 3 of 7
<PAGE>
In any case where the down payment source is not identified, New Century
requires the following:
A. Non-Owner Occupied - Investment/2/nd/ Home - Corporate Credit Officer
signature must be obtained prior to documents or final approval.
B. Owner Occupied - Level One or Risk Manager Signature required prior to
documents or final approval.
For Owner Occupied A+. A- and B grades, if LTV is 70% or less and the amount
needed to close is disclosed on the 1003, no additional verification is
required.
New Century requires the source of the down payment to be shown on the 1003
(application) prior to documents being drawn.
This condition:
..Must be signed off by an Underwriter or a Manager.
.Sixty-days seasoning of these funds may be requested, unless otherwise
required, at the discretion of the Underwriter or Manager.
- -------------------------------------------------------------------------------
Source Method of Verification
- -------------------------------------------------------------------------------
Bridge Loans The borrower must have the ability to carry the
payment on the new home, that payment (s) on the
current home up for sale, and the payment on the
bridge loan. If the bridge loan repayment schedule is
not monthly, it must be converted to a monthly
interest-only payment at the contractual interest
rate. If a contractual interest rate is not
available, use current market rates for qualification
purposes. Verification documentation includes:
. Copy of the loan commitment including all terms.
. Copy of the listing agreement.
- -------------------------------------------------------------------------------
Funds Borrowed This includes funds borrowed against certificates of
Against Assets deposit, marketable securities, insurance policies,
401K plans, etc. The terms of the loan must be
verified in writing and the debt for repayment of the
loan must be included in the debt-to-income ratio.
- -------------------------------------------------------------------------------
Gift Funds Gift funds are acceptable as long as the relationship
of the donor to our borrower is a direct relative. No
repayment is required. Documentation required
includes:
.A gift letter from the donor plus
.A bank statement from the donor showing the gift
funds on deposit prior to their presentation to the
borrower(s)
.A deposit receipt showing the funds on deposit.
.Amount of gift
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Source Method of Verification
- ------------------------------------------------------------------------------
IRA/Keogh/401k Because funds from these sources are subject to
withdrawal penalties and income tax, only the "net"
withdrawal may be counted. Verification documentation
includes:
.Most recent statement
.Copy of the disbursement check
.Deposit receipt showing deposit of funds into the
borrower's account
- ------------------------------------------------------------------------------
Liquid Assets Liquid assets include, but are not limited to:
.Bank Deposits - FNMA Verification of Deposit (Form
#1006) or two most current bank statement. Any recent
large deposits should be satisfactorily explained.
.Marketable Securities - Broker statement showing the
availability or sale of the securities.
.Cash Value of Life Insurance - The cash value must
be verified by a statement or letter from the
insurance company.
- ------------------------------------------------------------------------------
Relocation Package Copy of commitment letter describing the details of
the relocation package.
.Deposit receipt showing deposit of funds into the
borrower's account, if not funding directly.
- ------------------------------------------------------------------------------
Source Method of Verification
- ------------------------------------------------------------------------------
Sale of Real Estate .HUD-I form.
.If a sale is pending, a copy of the Purchase/ Sales
Contract is required.
- ------------------------------------------------------------------------------
Sale of Personal .Contract of Sale with a deposit receipt or statement
Property showing the funds on deposit in the borrower's
account. Bill of Sale, or other legally binding
agreement, to include date, amount and buyer's and
seller's signatures. In addition, a deposit receipt
or statement showing deposit of funds to the
borrower's account.
- ------------------------------------------------------------------------------
Trust Funds .If remitted by the trust, trust documents.
.If trust documents are not available, a letter from
an attorney will suffice.
- ------------------------------------------------------------------------------
Miscellaneous Requirements
Rental of Existing Home
Page 5 of 7
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In cases where the existing home will be retained and rented, either a rental
agreement must be provided.
Owner Occupancy
A signed Owner Occupancy Agreement form or statement confirming the borrower
will occupy the property should be in the loan file if the property will be
owner occupied.
Rent Back Rent back to previous owners is acceptable for a maximum of 90 days
from date of closing.
Reserves Not required.
Earnest Money and Deposits on Sales Contracts
Earnest money and deposits on sales contracts are considered part of the down
payment and should be verified by one of the following:
.Canceled check
.Escrow instructions or Escrow Receipt
Sales Concessions
General Sales concessions from a seller are allowable up to 90% LTV, and
cannot exceed six percent (6%) of the purchase price and can only be used to
pay for non-recurring closing costs.(e.g. Loan fees, escrow fees, etc.). All
sale concessions must be clearly documented in the loan file.
The seller may never supply the buyer with any portion of the down payment.
However, if the buyer is a licensed real estate agent/broker, he can act as
his own agent. The buyer acting as his own agent would be entitled to 3% of
the 6% commission and can be allowed to have the commission earned credited
toward the down payment. Under no other circumstances may a seller supply a
buyer with any portion of the down payment.
The example below demonstrates how to calculate the maximum loan amount when
the sales concession exceeds the 6% allowable. This example assumes an
adjustable rate mortgage with an 80% CLTV.
Example
STEP 1 - Determine any excess sales concession. Itemize all of the borrower's
closing costs paid by seller:
Sales Price: $100,000
Appraised Value: $101,000
Loan Amount: $ 80,000
3 points paid by seller: $ 2,400
Page 6 of 7
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Costs paid by seller: $ 4,700
Total contributions: $ 7,100
Allowable contributions: - $ 6,000
- ------------------------------------------------
Excess sales concessions: $ 1,100
STEP 2 - Subtract the total excess sales concessions from the lesser of the
sales price or appraised value to determine the maximum allowable property
value:
Lesser of sales price or appraised value: $100,000
Excess sales concession: - $ 1,100
- -----------------------------------------------------
Maximum allowable property value: $ 98,900
STEP 3 - Multiply the maximum property value by the LTV (%) for the program to
arrive at the maximum acceptable loan amount:
Maximum Property Value: $ 98,900
Program LTV: X .80
Maximum Loan Amount $ 79, 120
The borrower would have to come up with an additional down payment of $880:
Original loan amount requested: $ 80,000
New reduced loan amount: -$79,120
---------
Additional down payment: $ 880
Crib Note: Any sales concessions that are a credit to the borrower for items
other than non-recurring closing cost must be deducted from the property
value/Purchase Price.
Subordinate Financing
See CLTV Maximums in the "Underwriting Matrix".
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EXHIBIT 10.5
================================================================================
MASTER LOAN AND SECURITY AGREEMENT
_____________________________
Dated as of June 23, 1999
______________________________
NC CAPITAL CORPORATION
as Borrower
and
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
as Lender
================================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
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<S> <C>
SECTION 1 Definitions and Accounting Matters 1
1.01 Certain Defined Terms 1
1.02 Accounting Terms and Determinations 14
SECTION 2 Advances, Note and Prepayments 14
2.01 Advances 14
2.02 Notes 14
2.03 Procedure for Borrowing 15
2.04 Repayment of Advances; Interest 15
2.05 Limitation on Types of Advances; Illegality 16
2.06 Determination of Borrowing Base; Mandatory Prepayments or Pledge 16
2.07 Optional Prepayments 17
2.08 Requirements of Law 17
2.09 Purpose of Advances 18
2.10 Taxes 18
2.11 Extension of Termination Date 20
SECTION 3 Payments; Computations; Etc 20
3.01 Payments 20
3.02 Computations 20
3.03 Non-Utilization Fee 20
SECTION 4 Collateral Security 21
4.01 Collateral; Security Interest 21
4.02 Further Documentation 22
4.03 Changes in Locations, Name, etc 22
4.04 Lender's Appointment as Attorney-in-Fact 22
4.05 Performance by Lender of Borrower's Obligations 23
4.06 Proceeds 23
4.07 Remedies 24
4.08 Limitation on Duties Regarding Presentation of Collateral 24
4.09 Powers Coupled with an Interest 24
4.10 Release of Security Interest 25
SECTION 5 Conditions Precedent 25
5.01 Initial Advance 25
5.02 Initial and Subsequent Advances 27
SECTION 6 Representations and Warranties 29
6.01 Financial Condition 29
6.02 No Change 29
6.03 Corporate Existence; Compliance with Law 29
6.04 Corporate Power; Authorization; Enforceable Obligations 29
6.05 No Legal Bar 30
6.06 No Material Litigation 30
6.07 No Default 30
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6.08 Collateral; Collateral Security 30
6.09 Chief Executive Office 31
6.10 Location of Books and Records 31
6.11 No Burdensome Restrictions 31
6.12 Taxes 31
6.13 Margin Regulations 31
6.14 Investment Company Act; Other Regulations 31
6.15 Subsidiaries 31
6.16 Origination and Acquisition of Mortgage Loans 31
6.17 No Adverse Selection 32
6.18 Loan Party Solvent; Fraudulent Conveyance 32
6.19 ERISA 32
6.20 True and Complete Disclosure 32
6.21 Relevant States 32
6.22 True Sales 32
6.23 No Breach 33
6.24 Tangible Net Worth; Liquidity 33
6.25 Reserved 33
6.26 Year 2000 Compliance 33
SECTION 7 Covenants of the Borrower 33
7.01 Financial Statements 33
7.02 Existence, Etc 34
7.03 Maintenance of Property; Insurance 35
7.04 Notices 35
7.05 Other Information 35
7.06 Further Identification of Collateral 35
7.07 Mortgage Loan Determined to be Defective 36
7.08 Monthly Reporting 36
7.09 Financial Condition Covenants 36
7.10 Borrowing Base Deficiency 36
7.11 Prohibition on Fundamental Changes 36
7.12 Limitation on Liens on Collateral 37
7.13 Limitation on Sale or Other Disposition of Collateral 37
7.14 Limitation on Transactions with Affiliates 37
7.15 Underwriting Guidelines 38
7.16 Limitations on Modifications, Waivers and Extensions of Mortgage Loans 38
7.17 Servicing 38
7.18 Limitation on Distributions 38
7.19 Use of Proceeds 38
7.20 Restricted Payments 38
7.21 Year 2000 Compliance 38
7.22 Certificate of a Responsible Officer 38
SECTION 8 Events of Default 39
SECTION 9 Remedies Upon Default 41
SECTION 10 No Duty of Lender 42
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION 11 Miscellaneous 42
11.01 Waiver 42
11.02 Notices 42
11.03 Indemnification and Expenses 42
11.04 Amendments 43
11.05 Successors and Assigns 43
11.06 Survival 43
11.07 Captions 44
11.08 Counterparts 44
11.09 GOVERNING LAW; ETC 44
11.10 SUBMISSION TO JURISDICTION; WAIVERS 44
11.11 WAIVER OF JURY TRIAL 44
11.12 Acknowledgments 45
11.13 Hypothecation and Pledge of Collateral 45
11.14 Assignments; Participations 45
11.15 Servicing 46
11.16 Periodic Due Diligence Review 47
11.17 Set-Off 47
11.18 Intent 48
11.19 Confidential Information 48
</TABLE>
SCHEDULES
- ---------
SCHEDULE 1 Representations and Warranties re: Mortgage Loans
SCHEDULE 2 Filing Jurisdictions and Offices
SCHEDULE 3 Subsidiaries
SCHEDULE 4 Litigation
SCHEDULE 5 Relevant States
EXHIBITS
- --------
EXHIBIT A Form of Promissory Note
EXHIBIT B Form of Custodial Agreement
EXHIBIT C Form of Opinion of Counsel to Borrower
EXHIBIT D Form of Notice of Borrowing and Pledge
EXHIBIT E Underwriting Guidelines
EXHIBIT F Reserved
EXHIBIT G Form of Data Edit Sheet (Funding Date)
EXHIBIT H Form of Borrowing Base Certificate
EXHIBIT I Form of Remittance Report
<PAGE>
MASTER LOAN AND SECURITY AGREEMENT
MASTER LOAN AND SECURITY AGREEMENT, dated as of June 23, 1999, between NC
CAPITAL CORPORATION, a California corporation (the "Borrower"), and GREENWICH
--------
CAPITAL FINANCIAL PRODUCTS, INC., a Delaware corporation (the "Lender").
------
RECITALS
The Borrower wishes to obtain financing from time to time to provide
interim funding for the origination and acquisition of certain Mortgage Loans
(as defined herein), which Mortgage Loans are to be sold or contributed by the
Borrower to one or more trusts or other entities to be sponsored by the Borrower
or an Affiliate (as defined herein) thereof, or to third-parties with the
consent of the Lender, and which Mortgage Loans shall secure Advances (as
defined herein) to be made by the Lender hereunder.
The Lender has agreed, subject to the terms and conditions of this Loan
Agreement (as defined herein), to provide such financing to the Borrower, with a
portion of the proceeds of the sale of all mortgage-backed securities issued by
any such trust or other entity, together with a portion of the proceeds of any
permitted whole loan sales, together with other funds of the Borrower, if
necessary, being used to repay any Advances made hereunder as more particularly
described herein.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1 Definitions and Accounting Matters.
----------------------------------
1.01 Certain Defined Terms. As used herein, the following terms shall have
---------------------
the following meanings (all terms defined in this Section 1.01 or in other
provisions of this Loan Agreement in the singular to have the same meanings when
used in the plural and vice versa):
---- -----
"Accepted Servicing Practices" shall have the meaning assigned thereto in
----------------------------
Section 11.15(a) hereof.
"Advance" shall mean any Committed Advance or Uncommitted Advance, as
-------
applicable, and collectively, "Advance" shall mean the sum of all Committed
-------
Advances and Uncommitted Advances.
"Affiliate" means, with respect to any Person, any other Person which,
---------
directly or indirectly, controls, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" (together with
the correlative meanings of "controlled by" and "under common control with")
means possession, directly or indirectly, of the power (a) to vote 10% or more
of the securities (on a fully diluted basis) having ordinary voting power for
the directors or managing general partners (or their equivalent) of such Person,
or (b) to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by contract, or
otherwise.
"Affiliate Guaranty" shall mean that certain Affiliate Guaranty dated as of
------------------
the date hereof, made by the Guarantors in favor of the Lender, as amended from
time to time.
"Applicable Margin" shall mean 1.25% per annum.
-----------------
<PAGE>
"Appraised Value" shall mean the value set forth in an appraisal made in
---------------
connection with the origination of the related Mortgage Loan as the value of the
Mortgaged Property.
"Assignment of Mortgage" shall mean, with respect to any Mortgage, an
----------------------
assignment of the Mortgage, notice of transfer or equivalent instrument in
recordable form, sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect the assignment and pledge of
the Mortgage.
"Attorney Bailee Letter" shall have the meaning assigned to such term in
----------------------
the Custodial Agreement.
"Bankruptcy Code" shall mean the United States Bankruptcy Code of 1978, as
---------------
amended from time to time.
"Borrower" shall have the meaning provided in the heading hereof.
--------
"Borrowing Base" shall mean the aggregate Collateral Value of all Eligible
--------------
Mortgage Loans that have been, and remain, pledged to the Lender hereunder.
"Borrowing Base Deficiency" shall have the meaning provided in Section 2.06
-------------------------
hereof.
"Business Day" shall mean any day other than (i) a Saturday or Sunday or
------------
(ii) a day on which the New York Stock Exchange, the Federal Reserve Bank of New
York, the Lender or the Custodian is authorized or obligated by law or executive
order to be closed.
"Cash Equivalents" shall mean (a) securities with maturities of 90 days or
----------------
less from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit and
eurodollar time deposits with maturities of 90 days or less from the date of
acquisition and overnight bank deposits of any commercial bank having capital
and surplus in excess of $500,000,000, (c) repurchase obligations of any
commercial bank satisfying the requirements of clause (b) of this definition,
having a term of not more than seven days with respect to securities issued or
fully guaranteed or insured by the United States Government, (d) commercial
paper of a domestic issuer rated at least A-1 or the equivalent thereof by
Standard and Poor's Ratings Group ("S&P") or P-1 or the equivalent thereof by
---
Moody's Investors Service, Inc. ("Moody's") and in either case maturing within
-------
90 days after the day of acquisition, (e) securities with maturities of 90 days
or less from the date of acquisition issued or fully guaranteed by any state,
commonwealth or territory of the United States, by any political subdivision or
taxing authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by S&P or A by Moody's, (f) securities with maturities of 90
days or less from the date of acquisition backed by standby letters of credit
issued by any commercial bank satisfying the requirements of clause (b) of this
definition or (g) shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (a) through (f) of
this definition.
"Change of Control" shall mean the acquisition by any Person, or two or
-----------------
more Persons acting in concert, of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities Exchange Act of 1934) of outstanding shares of
voting stock of the Borrower at any time if after giving effect to such
acquisition (i) such Person or Persons owns twenty percent (20%) or more of such
outstanding voting
<PAGE>
stock or (ii) the Guarantors do not own more than fifty percent (50%) of such
outstanding shares of voting stock.
"Code" shall mean the Internal Revenue Code of 1986, as amended from time
----
to time.
"Collateral" shall have the meaning provided in Section 4.01(b) hereof.
----------
"Collateral Value" shall mean with respect to each Eligible Mortgage Loan
----------------
that is:
(a) 0 to 59 days delinquent with respect to scheduled payments of
principal and interest, the lesser of (i) 97% of the Market Value of such
Mortgage Loan and (ii) 100% of the Stated Principal Balance of such
Mortgage Loan;
(b) 60 to 89 days delinquent with respect to scheduled payments of
principal and interest, the lesser of (i) 97% of the Market Value of such
Mortgage Loan and (ii) 85% of the Stated Principal Balance of such Mortgage
Loan;
(c) 90 to 119 days delinquent with respect to scheduled payments of
principal and interest, the lesser of (i) 97% of the Market Value of such
Mortgage Loan and (ii) 65% of the Stated Principal Balance of such Mortgage
Loan; and
(d) 120 to 180 days delinquent with respect to scheduled payments of
principal and interest, the lesser of (i) 97% of the Market Value of such
Mortgage Loan and (ii) 45% of the Stated Principal Balance of such Mortgage
Loan.
Provided that, in all events the following additional limitations on Collateral
Value set forth below shall apply:
(i) the aggregate Collateral Value of Mortgage Loans which are 60 to
180 days delinquent with respect to scheduled payments of principal and
interest may not at any one time exceed the lesser of (a) $14,000,000 and
(b) 7% of the aggregate amount of outstanding Advances made to the Borrower
hereunder;
(ii) the aggregate Collateral Value of Mortgage Loans for which the
Borrower has provided the Lender with a Lost Note Affidavit may not at any
one time exceed the lesser of (a) $1,000,000 and (b) 1% of the aggregate
amount of outstanding Advances made to the Borrower hereunder;
(iii) the aggregate Collateral Value of Mortgage Loans that are
Second Lien Mortgage Loans may not at any one time exceed the lesser of (a)
$2,500,000 and (b) 2.5% of the aggregate amount of Advances made to the
Borrower hereunder;
(iv) the Collateral Value shall be zero for each Eligible Mortgage
----
Loan:
(A) which is more than seventy-five (75) days delinquent in
respect of the first Monthly Payment;
(B) which was originated or purchased by the Borrower pursuant
to the Underwriting Guidelines more than 60 days prior to the initial
Funding Date;
<PAGE>
(C) in respect of which 180 days or more have passed since such
Eligible Mortgage Loan was first pledged to the Lender hereunder;
(D) which has been released from the possession of the Custodian
under Section 5(a) of the Custodial Agreement to any Person other than
the Lender or its bailee for a period in excess of fifteen (15)
calendar days;
(E) which has been released from the possession of the Custodian
(i) under Section 5(b) of the Custodial Agreement under any
Transmittal Letter in excess of the time period stated in such
Transmittal Letter for release, or (ii) under Section 5(c) of the
Custodial Agreement under an Attorney Bailee Letter, from and after
the date such Attorney's Bailee Letter is terminated or ceases to be
in full force and effect;
(F) in respect of which the related Mortgage Note has been
extinguished under relevant state law in connection with a judgment of
foreclosure or foreclosure sale or otherwise;
(G) as to which (i) the related Mortgage Note or the related
Mortgage is not genuine or is not the legal, valid, binding and
enforceable obligation of the maker thereof, subject to no right of
rescission, set-off, counterclaim or defense, or (ii) such Mortgage,
is not a valid, subsisting, enforceable and perfected first or second
lien on the Mortgaged Property;
(H) which the Lender determines, in its reasonable discretion,
that such Eligible Mortgage Loan is not eligible for sale in the
secondary market or for securitization without unreasonable credit
enhancement;
(I) which is more than 180 days delinquent with respect to
scheduled payments of principal and interest;
(J) which has a Material Exception with respect thereto which
has not been expressly waived by Lender;
(K) in respect of which the related Mortgagor is the subject of
a bankruptcy proceeding;
(L) if the inclusion of such Mortgage Loan hereunder would
result in the limitations in subparagraphs (i), (ii) or (iii), above,
being violated; or
(M) which is in excess of 60 days delinquent with respect to
scheduled payments of principal and interest during the period in
which the Borrower has not satisfied the obligations of the Borrower
set forth in Section 11.15(b)(ii).
"CLTV" means with respect to any Mortgage Loan, the ratio of (i) the
----
original outstanding principal amount of the Mortgage Loan and any other
mortgage loan which is secured by a lien on the related Mortgaged Property to
(ii) the lesser of (a) the Appraised Value of the Mortgaged Property at
origination or (b) if the Mortgaged Property was purchased within 6 months of
the origination of the Mortgage Loan, the purchase price of the Mortgaged
Property.
<PAGE>
"Committed Advance" shall have the meaning provided in Section 2.01(a)
-----------------
hereof.
"Commonly Controlled Entity" shall mean an entity, whether or not
--------------------------
incorporated, which is under common control with the Borrower within the meaning
of Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414 of the Code.
"Contractual Obligation" shall mean as to any Person, any provision of
----------------------
any agreement, instrument or other undertaking to which such Person is a party
or by which it or any of its property is bound or any provision of any security
issued by such Person.
"Custodial Agreement" shall mean the Custodial Agreement, dated as of
-------------------
the date hereof, among the Borrower, the Custodian and the Lender, substantially
in the form of Exhibit B hereto, as the same shall be modified and supplemented
---------
and in effect from time to time.
"Custodian" shall mean U.S. Bank National Association, as custodian
---------
under the Custodial Agreement, and its successors and permitted assigns
thereunder.
"Data Edit Sheet" shall mean a Data Edit Sheet in the form attached as
---------------
Exhibit G.
- ---------
"Default" shall mean an Event of Default or an event that with notice
-------
or lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States of
------- -
America.
"Due Date" shall mean the day of the month on which the Monthly
--------
Payment is due on a Mortgage Loan, exclusive of any days of grace.
"Due Diligence Review" shall mean the performance by the Lender of any
--------------------
or all of the reviews permitted under Section 11.16 hereof with respect to any
or all of the Mortgage Loans or the Borrower or related parties, as desired by
the Lender from time to time.
"Effective Date" shall mean the date upon which the conditions
--------------
precedent set forth in Section 5.01 shall have been satisfied.
"Eligible Mortgage Loan" shall mean a First Lien Mortgage Loan or a
----------------------
Second Lien Mortgage Loan (as reflected on the Mortgage Loan Schedule) of not
less than"sub-prime credit quality" on a one- to four-family residential
property and as to which (i) the representations and warranties set forth on
Schedule 1 hereof are correct, (ii) was originated or acquired by the Borrower
in accordance with the Borrower's Underwriting Guidelines, (iii) contains all
required Mortgage Loan Documents without Material Exceptions unless otherwise
waived by Lender and (iv) such other customary criteria for eligibility
determined by the Lender shall have been satisfied.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that
---------------
is a member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which either Loan Party
<PAGE>
is a member and (ii) solely for purposes of potential liability under Section
302(c)(11) of ERISA and Section 412(c)(11) of the Code and the lien created
under Section 302(f) of ERISA and Section 412(n) of the Code, described in
Section 414(m) or (o) of the Code of which either Loan Party is a member.
"Escrow Payments" shall mean with respect to any Mortgage Loan, the
---------------
amounts constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, fire and hazard insurance premiums, condominium charges, and
any other payments required to be escrowed by the Mortgagor with the mortgagee
pursuant to the Mortgage or any other related document.
"Event of Default" shall have the meaning provided in Section 8
----------------
hereof.
"Exception" shall have the meaning assigned thereto in the Custodial
---------
Agreement.
"Exception Report" shall mean the exception report prepared by the
----------------
Custodian pursuant to the Custodial Agreement.
"Federal Funds Rate" shall mean, for any day, the weighted average of
------------------
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Lender from three
federal funds brokers of recognized standing selected by it.
"First Lien" shall mean with respect to each Mortgaged Property, the
----------
lien of the mortgage, deed of trust or other instrument securing a Mortgage Note
which creates a first lien on the Mortgaged Property.
"First Lien Mortgage Loan" shall mean an Eligible Mortgage Loan
------------------------
secured by the lien on the Mortgaged Property, subject to no prior liens on such
Mortgaged Property other than Permitted Exceptions.
"Funding Date" shall mean the date on which an Advance is made
------------
hereunder.
"GAAP" shall mean generally accepted accounting principles as in
----
effect from time to time in the United States of America.
"Governmental Authority" shall mean any nation or government, any
----------------------
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any court or arbitrator having jurisdiction over any Loan
Party, any of its Subsidiaries or any of its properties.
"Guarantee Obligation" as to any Person (the "guaranteeing person"),
-------------------- -------------------
shall mean any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) with
respect to which the guaranteeing person has issued a reimbursement,
counterindemnity or similar obligation, in either case guaranteeing or in effect
guaranteeing any Indebtedness, leases, dividends or other obligations (the
"primary obligations") of any other third Person (the "primary obligor") in any
- -------------------- ---------------
manner, whether directly or indirectly, including, without limitation, any
obligation of such guaranteeing person, whether or not contingent, (i) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (ii) to advance
<PAGE>
or supply funds (1) for the purchase or payment of any such primary obligation
or (2) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof; provided, however, that the term Guarantee Obligation shall not include
-------- -------
endorsements of instruments for deposit or collection in the ordinary course of
business. The terms "Guarantee" and "Guaranteed" used as a verb shall have a
--------- ----------
correlative meaning. The amount of any Guarantee Obligation of any guaranteeing
person shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by the
Loan Party in good faith.
"Guarantor" shall mean, collectively, New Century Mortgage Corporation
---------
and New Century Financial Corporation.
"HUD" shall mean the Department of Housing and Urban Development, or
---
any federal agency or official thereof which may from time to time succeed to
the functions thereof.
"Indebtedness" shall mean, of any Person at any date, without
------------
duplication, (a) all indebtedness of such Person for borrowed money (whether by
loan or the issuance and sale of debt securities) or for the deferred purchase
price of property or services (other than current trade liabilities incurred in
the ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced by a
note, bond, debenture or similar instrument, (c) all obligations of such Person
under financing leases, (d) all obligations of such Person in respect of letters
of credit, acceptances or similar instruments issued or created for the account
of such Person and (e) all liabilities secured by any Lien on any property owned
by such Person even though such Person has not assumed or otherwise become
liable for the payment thereof.
"Indemnified Party" shall have the meaning provided in Section 11.03
-----------------
hereof.
"Interest Period" shall mean, with respect to any Advance, (i)
---------------
initially, the period commencing on the Funding Date with respect to such
Advance and ending on the calendar day prior to the Payment Date of the next
succeeding month, and (ii) thereafter, each period commencing on the Payment
Date of a month and ending on the calendar day prior to the Payment Date of the
next succeeding month. Notwithstanding the foregoing, no Interest Period may
end after the Termination Date.
"Investment Company Act" shall mean the Investment Company Act of
----------------------
1940, as amended.
"Lender" shall have the meaning provided in the heading hereof.
------
"LIBO Base Rate" shall mean for any Advance, with respect to each day
--------------
during each Interest Period pertaining to such Advance, the rate per annum
equal to the rate appearing at
<PAGE>
page 3750 of the Telerate Screen as one-month LIBOR on the first day of
such Interest Period, and if such rate shall not be so quoted, the rate per
annum at which the Lender is offered Dollar deposits at or about 11:00
a.m., New York City time, on such date by prime banks in the interbank
eurodollar market where the eurodollar and foreign currency exchange
operations in respect of its Advances are then being conducted for delivery
on such day for a period of one month, and in an amount comparable to the
amount of the Advances to be outstanding on such day.
"LIBO Rate" shall mean with respect to each day during each Interest
---------
Period pertaining to an Advance, a rate per annum determined by the Lender in
accordance with the following formula (rounded upwards to the nearest 1/100th of
one percent), which rate as determined by the Lender shall be conclusive absent
manifest error by the Lender:
LIBO Base Rate
------------------------------------
1.00 - LIBO Reserve Requirements
"LIBO Reserve Requirements" shall mean for any Interest Period for any
-------------------------
Advance, the aggregate (without duplication) of the rates (expressed as a
decimal fraction) of reserve requirements in effect on such day or during such
Interest Period, as applicable (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the Board
of Governors of the Federal Reserve System or other Governmental Authority
having jurisdiction with respect thereto), dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of such Board) maintained by a member bank of such
Governmental Authority. As of the Effective Date, the LIBO Reserve Requirements
shall be deemed to be zero.
"Lien" shall mean any mortgage, lien, pledge, charge, security
----
interest or similar encumbrance.
"Loan Agreement" shall mean this Master Loan and Security Agreement,
--------------
as the same may be amended, supplemented or otherwise modified from time to
time.
"Loan Documents" shall mean, collectively, this Loan Agreement, the
--------------
Note, the Custodial Agreement, and the Affiliate Guaranty.
"Loan Party" shall mean the collective reference to the Borrower and
----------
the Guarantors.
"Loan-to-Value Ratio" or "LTV" shall mean with respect to any Mortgage
----------------------------
Loan, the ratio of (a) the Stated Principal Balance of the Mortgage Loan as of
the date of origination (unless otherwise indicated) to (b) the Appraised Value
of the Mortgaged Property or if the Mortgage Loan was made in connection with
the purchase of the related Mortgaged Property, the lesser of the Appraised
Value and the sales price of such property.
"Lost Note Affidavit" shall mean with respect to each Mortgage Loan
-------------------
for which the original Mortgage Note has not been delivered to the Lender or the
Custodian, a lost note affidavit in a form acceptable to the Lender certified by
a Responsible Officer of the Borrower stating that the related Mortgage Note, a
copy of which shall be attached to such lost note affidavit, has been lost,
misplaced or destroyed.
<PAGE>
"Market Value" shall mean the value, determined by the Lender in its
------------
sole reasonable discretion, of the Mortgage Loans if sold in their entirety to a
single third-party purchaser. In determining Market Value, the Lender may take
into account (a) customary factors, including, but not limited to current market
conditions and the fact that the Mortgage Loans may be sold under circumstances
in which the Borrower, as originator of the Mortgage Loans, is in default under
the Loan Agreement, and (b) firm take-out commitments from investment grade
purchasers in favor of the Borrower covering the Mortgage Loans or mortgage
loans substantially similar to the Mortgage Loans to the extent recently
obtained and during similar market conditions. The Lender's determination of
Market Value shall be conclusive upon the parties, absent manifest error on the
part of the Lender. The Lender shall have the right to mark to market the
Mortgage Loans on a daily basis which Market Value may be determined to be zero.
The Borrower acknowledges that the Lender's determination of Market Value is for
the limited purpose of determining Collateral Value for lending purposes
hereunder without the ability to perform customary purchaser's due diligence and
is not necessarily equivalent to a determination of the fair market value of the
Mortgage Loans achieved by obtaining competing bids in an orderly market in
which the Borrower is not in default and the bidders have adequate opportunity
to perform customary loan and servicing due diligence.
"Material Adverse Effect" shall mean a material adverse effect on (a)
-----------------------
the business, assets, property, business, condition (financial or otherwise) or
prospects of either Loan Party, (b) the ability of either Loan Party to perform
its obligations under any of the Loan Documents to which it is a party, (c) the
validity or enforceability of any of the Loan Documents, (d) the rights and
remedies of the Lender under any of the Loan Documents, (e) the timely payment
of the principal of or interest on the Advances or other amounts payable in
connection therewith or (f) the Collateral taken as a whole.
"Material Exception" shall mean, with respect to any Mortgage Loan,
------------------
any Exception listed on the Exception Report consisting of the absence from the
Mortgage File, or deficiency in respect of, any of the Mortgage Loan Documents
set forth in Section [2(I)(a), 2(I)(c), 2(I)(d), 2(I)(e), 2(I)(f), or 2(I)(g) of
the Custodial Agreement].
"Maximum Committed Amount" shall mean $200,000,000; provided, however
------------------------
that for the period commencing December 1, 1999 through January 10, 2000, the
Maximum Committed Amount shall be reduced to $50,000,000; provided, further that
the Maximum Committed Amount shall return to $200,000,000 for the period
commencing January 11, 2000 through the Termination Date.
"Maximum Credit: shall mean the sum of the Maximum Committed Amount
--------------
and the Maximum Uncommitted Amount.
"Maximum Uncommitted Amount" shall mean $100,000,000; provided,
--------------------------
however that for the period commencing December 1, 1999 through January 10,
2000, the Maximum Uncommitted Amount shall be increased to $250,000,000;
provided, further that the Maximum Uncommitted Amount shall return to
$100,000,000 for the period commencing January 11, 2000 through the Termination
Date.
"Monthly Payment" means the scheduled monthly payment of principal and
---------------
interest on a Mortgage Loan as adjusted in accordance with changes in the
Mortgage Interest Rate pursuant to the provisions of the Mortgage Note for an
adjustable rate Mortgage Loan.
<PAGE>
"Mortgage" shall mean the mortgage, deed of trust or other instrument
--------
securing a Mortgage Note, which creates a first or second lien on the fee simple
in real property securing the Mortgage Note.
"Mortgage File" shall have the meaning assigned thereto in the
-------------
Custodial Agreement.
"Mortgage Interest Rate" means the annual rate of interest borne on a
----------------------
Mortgage Note, which shall be adjusted from time to time with respect to
adjustable rate Mortgage Loans.
"Mortgage Loan" shall mean a mortgage loan which the Custodian has
-------------
been instructed to hold for the Lender pursuant to the Custodial Agreement, and
which mortgage loan includes, without limitation (i) a Mortgage Note and related
Mortgage and (ii) all right, title and interest of the Borrower in and to the
Mortgaged Property covered by such Mortgage.
"Mortgage Loan Documents" shall mean, with respect to a Mortgage Loan,
-----------------------
the documents comprising the Mortgage File for such Mortgage Loan.
"Mortgage Loan Schedule" shall mean a schedule of Mortgage Loans
----------------------
containing the following information with respect to each Mortgage Loan, to be
delivered by the Borrower to the Lender pursuant to Section 2.03(a) hereof: (i)
the Borrower's Mortgage Loan number; (ii) the Mortgagor's name and the street
address; (iii) the current principal balance; (iv) the original principal amount
with respect to any Mortgage Loan originated by the Borrower and the principal
amount purchased by the Borrower with respect to a Mortgage Loan acquired by the
Borrower subsequent to its origination; (v) the CLTV as of the date of the
origination of the related Mortgage Loan; (vi) the paid through date; (vii) the
mortgage interest rate; (viii) the final maturity date under the Mortgage Note;
(ix) the Monthly Payment; (x) whether such Mortgage Loan is a First Lien
Mortgage Loan or a Second Lien Mortgage Loan; (xi) such other information as
shall be mutually agreed upon by Borrower and Lender; and (xii) the Qualified
Originator that originated the Mortgage Loan.
"Mortgage Loan Tape" shall mean a computer-readable magnetic tape
------------------
containing the information with respect to each Mortgage Loan, to be delivered
by the Borrower to the Lender pursuant to Section 2.03(a) hereof.
"Mortgage Note" shall mean the original executed promissory note or
-------------
other evidence of the indebtedness of a mortgagor/borrower with respect to a
Mortgage Loan.
"Mortgaged Property" shall mean the real property (including all
------------------
improvements, buildings, fixtures, building equipment and personal property
thereon and all additions, alterations and replacements made at any time with
respect to the foregoing) and all other collateral securing repayment of the
debt evidenced by a Mortgage Note.
"Mortgagor" shall mean the obligor on a Mortgage Note.
---------
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan
------------------
as defined in Section 4001(a)(3) of ERISA.
"Net Worth" shall mean, with respect to any Person, the excess of
---------
total assets of such Person, over total liabilities of such Person, determined
in accordance with GAAP.
<PAGE>
"New Century" shall mean New Century Mortgage Corporation, a
-----------
California corporation.
"Non-Excluded Taxes" shall have the meaning provided in Section 2.09
------------------
hereof.
"Note" shall mean the promissory note provided for by Section 2.02(a)
----
hereof for Advances and any promissory note delivered in substitution or
exchange therefor, in each case as the same shall be modified and supplemented
and in effect from time to time.
"Notice of Borrowing and Pledge" shall have the meaning provided in
------------------------------
Section 2.03(a) hereof.
"PaineWebber Financing Documents: shall mean the Master Loan and
-------------------------------
Security Agreement by and between the Loan Parties and PaineWebber Real Estate
Securities, Inc. substantially in the form provided to the Lender prior to the
date of this Loan Agreement.
"Participants" shall have the meaning set forth in Section 11.14(b)
------------
hereof.
"Payment Date" shall mean the tenth day of each calendar month, or if
------------
such day is not a Business Day, the next succeeding Business Day.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
----
entity succeeding to any or all of its functions under ERISA.
"Permitted Exceptions" shall mean the exceptions to lien priority
--------------------
including but not limited to: (i) the lien of current real property taxes and
assessments not yet due and payable; (ii) covenants, conditions and
restrictions, rights of way, easements and other matters of the public record as
of the date of recording acceptable to mortgage lending institutions generally
and specifically referred to in the lender's title insurance policy delivered to
the originator of the Mortgage Loan and (A) referred to or to otherwise
considered in the appraisal (if any) made for the originator of the Mortgage
Loan or (B) which do not adversely affect the appraised value of the Mortgaged
Property set forth in such appraisal; (iii) other matters to which like
properties are commonly subject which do not materially interfere with the
benefits of the security intended to be provided by the Mortgage or the use,
enjoyment, value or marketability of the related Mortgaged Property; and (iv) in
the case of a Second Lien Mortgage Loan, a First Lien on the Mortgaged Property.
"Person" shall mean any individual, corporation, company, voluntary
------
association, partnership, joint venture, limited liability company, trust,
unincorporated association, government (or any agency, instrumentality or
political subdivision thereof) or any other entity of whatever nature.
"Plan" shall mean at a particular time, any employee benefit plan
----
which is covered by ERISA and in respect of which either Loan Party or a
Commonly Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Post-Default Rate" shall mean, in respect of any principal of any
-----------------
Advance or any other amount under this Loan Agreement, the Note or any other
Loan Document that is not paid when due to the Lender (whether at stated
maturity, by acceleration, by optional or mandatory prepayment or
<PAGE>
otherwise), a rate per annum during the period from and including the due date
to but excluding the date on which such amount is paid in full equal to 2% per
annum plus (a) the interest rate otherwise applicable to such Advance or other
----
amount, or (b) if no interest rate is otherwise applicable, the LIBO Rate plus
the Applicable Margin.
"Property" shall mean any right or interest in or to property of any
--------
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Qualified Originator" shall mean (a) the Borrower and (b) any other
--------------------
originator of Mortgage Loans acceptable to the Lender.
"Regulations G, T, U and X" shall mean Regulations G, T, U and X of
-------------------------
the Board of Governors of the Federal Reserve System (or any successor), as the
same may be modified and supplemented and in effect from time to time.
"Relevant States" shall have the meaning provided in Section 6.21
---------------
hereof.
"Reportable Event" shall mean any of the events set forth in Section
----------------
4043(b) of ERISA, other than those events as to which the thirty day notice
period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
(S) 2615.
"Responsible Officer" shall mean, as to any Person, the chief
-------------------
executive officer or, with respect to financial matters, the chief financial
officer of such Person; provided, that in the event any such officer is
--------
unavailable at any time he or she is required to take any action hereunder,
Responsible Officer shall mean any officer authorized to act on such officer's
behalf as demonstrated to the Lender to its reasonable satisfaction.
"Restricted Payments" shall mean 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.
"Requirement of Law" shall mean as to any Person, the certificate of
------------------
incorporation and by-laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Second Lien Mortgage Loan" shall mean an Eligible Mortgage Loan
-------------------------
secured by the lien on the Mortgaged Property, subject to one prior lien on such
Mortgaged Property securing financing obtained by the related Mortgagor and to
Permitted Exceptions.
"Secured Obligations" shall mean the unpaid principal amount of, and
-------------------
interest on the Advances, and all other obligations and liabilities of the
Borrower to the Lender, whether direct or indirect, absolute or contingent, due
or to become due, or now existing or hereafter incurred, which may arise under,
out of or in connection with this Loan Agreement, the Note, any other Loan
Document and any other document made, delivered or given in connection herewith
or therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without
<PAGE>
limitation, all reasonable fees and disbursements of counsel to the Lender that
are required to be paid by the Borrower pursuant to the terms hereof or thereof)
or otherwise. For purposes hereof, "interest" shall include, without limitation,
interest accruing after the maturity of the Advances and interest accruing after
the filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding.
"Securitization Letter" shall mean that certain letter agreement by
---------------------
and among Borrower, Lender, and Greenwich Capital Markets, Inc., dated the date
hereof, outlining rights and obligations with respect to subsequent
securitizations of Mortgage Loans subject to this Loan Agreement from time to
time.
"Servicer" shall mean New Century Mortgage Corporation.
--------
"Servicing Agreement" shall mean any servicing agreement governing the
-------------------
servicing and administration of the Mortgage Loans.
"Servicing Records" shall have the meaning provided in Section
-----------------
11.15(b) hereof.
"Single Employer Plan" shall mean any Plan which is covered by Title
--------------------
IV of ERISA, but which is not a Multiemployer Plan.
"Stated Principal Balance" shall mean as to each Mortgage Loan, the
------------------------
principal balance of the Mortgage Loan at the date of determination.
"Subsidiary" shall mean, with respect to any Person, any other Person
----------
of which at least a majority of the securities or other ownership interests
having by the terms thereof ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.
"Tangible Net Worth" shall mean, with respect to any Person, as of any
------------------
date of determination, the consolidated Net Worth of such Person and its
Subsidiaries, less the consolidated net book value of all assets of such Person
and its Subsidiaries (to the extent reflected as an asset in the balance sheet
of such Person or any Subsidiary at such date) which will be treated as
intangibles under GAAP, including, without limitation, such items as deferred
financing expenses, net leasehold improvements, good will, trademarks, trade
names, service marks, copyrights, patents, licenses and unamortized debt
discount and expense; provided, that residual securities held by such Person or
its Subsidiaries shall not be treated as intangibles for purposes of this
definition.
"Termination Date" shall mean 364 days following the Effective Date of
----------------
this Loan Agreement, or such earlier date on which this Loan Agreement shall
terminate in accordance with the provisions hereof or by operation of law, as
same may be extended in accordance with Section 2.11 hereof.
<PAGE>
"Transmittal Letter" shall have the meaning assigned to such term in
------------------
the Custodial Agreement.
"Trust Receipt" shall have the meaning assigned to such term in the
-------------
Custodial Agreement.
"Underwriting Guidelines" shall mean the underwriting guidelines
-----------------------
attached as Exhibit E hereto, as amended from time to time in accordance with
---------
Section 7.15.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
-----------------------
effect on the date hereof in the State of New York; provided that if by reason
of mandatory provisions of law, the perfection or the effect of perfection or
non-perfection of the security interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than New York,
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
"U.S. Bank Financing Documents" shall mean the Fourth Amended and
-----------------------------
Restated Credit Agreement, dated as of May 26, 1999, by and between New Century
and U.S. Bank National Association and all other documents or agreements
executed in connection therewith.
1.02 Accounting Terms and Determinations. Except as otherwise
-----------------------------------
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Lender hereunder shall be
prepared, in accordance with GAAP.
SECTION 2 Advances, Note and Prepayments.
------------------------------
2.01 Advances. (a) Subject to the fulfillment of the conditions
--------
precedent set forth in Sections 5.01 and 5.02 hereof, and provided no Default
shall have occurred and be continuing hereunder, the Lender agrees to make loans
(individually, a "Committed Advance"; collectively, the "Committed Advances") to
----------------- ------------------
the Borrower in Dollars, from time to time, on the terms and conditions of this
Loan Agreement, on any Business Day from and including the Effective Date to but
excluding the Termination Date, in an aggregate principal amount at any one time
outstanding up to but not exceeding the lesser of (i) the Maximum Committed
Amount (which shall be further subject to the limitations in the definition of
Collateral Value), and (ii) the Borrowing Base at such time.
(b) In addition to the foregoing, subject to fulfillment of the
conditions precedent set forth in Sections 5.01 and 5.02 hereof, and provided
that no Default shall have occurred and be continuing hereunder, the Lender may
from time to time in its sole discretion, on the terms and conditions of this
Loan Agreement, make loans (individually, an "Uncommitted Advance";
-------------------
collectively, the "Uncommitted Advances") to the Borrower in Dollars, on any
--------------------
Business Day from and including the Effective Date to but excluding the
Termination Date in an aggregate principal amount at any one time outstanding up
to but not exceeding the lesser of (i) the Maximum Uncommitted Amount (which
shall be further subject to the limitations in the definition of Collateral
Value) and (ii) the Borrowing Base at such time. Unless otherwise agreed by the
parties, in determining whether Advances secured by Eligible Mortgage Loans are
Committed Advances or Uncommitted Advances, such Advances shall first be deemed
Committed Advances up to the Maximum Committed Amount, and then the remainder
shall be deemed Uncommitted Advances.
<PAGE>
(c) Subject to the terms and conditions of this Loan Agreement,
during such period the Borrower may borrow, repay and reborrow hereunder.
(d) In no event shall an Advance be made when any Default or
Event of Default has occurred and is continuing.
2.02 Notes.
-----
(a) The Advances made by the Lender shall be evidenced by a single
promissory note of the Borrower substantially in the form of Exhibit A hereto
---------
(the "Note"), dated the date hereof, payable to the Lender in a principal amount
----
equal to the amount of the Maximum Credit and otherwise duly completed. The
Lender shall have the right to have its Note subdivided, by exchange for
promissory notes of lesser denominations or otherwise.
(b) The date, amount and interest rate of each Advance made by the
Lender to the Borrower, and each payment made on account of the principal
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of the Note, endorsed by the Lender on the schedule attached to the Note or any
continuation thereof; provided that the failure of the Lender to make any such
--------
recordation or endorsement shall not affect the obligations of the Borrower to
make a payment when due of any amount owing hereunder or under the Note in
respect of the Advances.
2.03 Procedure for Borrowing.
-----------------------
(a) The Borrower may request a borrowing hereunder, on any Business
Day during the period from and including the Effective Date to the Termination
Date, by delivering to the Lender, with a copy to the Custodian, a Mortgage Loan
Tape, and an irrevocable written Notice of Borrowing and Pledge substantially in
the form of Exhibit D hereto (a "Notice of Borrowing and Pledge"), appropriately
--------- ------------------------------
completed, which Notice of Borrowing and Pledge must be received by the Lender,
with a copy to the Custodian, no later than 5:00 p.m., New York City time, at
least two (2) Business Days prior to the requested Funding Date; provided that
the Lender shall be under no obligation to make an Advance more than once in any
given week. Such Notice of Borrowing and Pledge shall (i) contain the amount of
the requested Advance, which shall in all events be at least equal to
$1,000,000, to be made on such Funding Date (setting forth the amount of the
Advance allocable to each Mortgage Loan set forth on the attached Mortgage Loan
Schedule), (ii) specify the requested Funding Date, which shall be not earlier
than the second Business Day following the date of such Notice of Borrowing and
Pledge, and (iii) contain (by attachment) such other information reasonably
requested by the Lender from time to time.
(b) The Borrower shall deliver (or cause to be delivered) and
release to the Custodian no later than 5:00 p.m., New York City time, two (2)
Business Days prior to the requested Funding Date, a complete Mortgage File
pertaining to each Eligible Mortgage Loan to be pledged to the Lender and
included in the Borrowing Base on such requested Funding Date, in accordance
with the terms and conditions of the Custodial Agreement.
(c) Pursuant to the Custodial Agreement, the Custodian shall deliver
to the Lender and the Borrower, no later than 3:00 p.m., New York City time, on
a Funding Date, a Trust Receipt in respect of all Mortgage Loans pledged to the
Lender on such Funding Date and an Exception Report in respect of all Mortgage
Loans so pledged to the Lender. Subject to Section 5 hereof, such Advance will
then be made available to the Borrower by the Lender transferring, via wire
transfer (pursuant to wire
<PAGE>
transfer instructions provided by the Borrower on or prior to such Funding Date)
the aggregate amount of such Advance in immediately available funds.
2.04 Repayment of Advances; Interest.
-------------------------------
(a) The Borrower hereby promises to repay in full on the Termination
Date the then aggregate outstanding principal amount of the Advances.
(b) The Borrower hereby promises to pay to the Lender interest on
the unpaid principal amount of each Advance for the period from and including
the Funding Date of such Advance to but excluding the date such Advance shall be
paid in full, at a rate per annum equal to the LIBO Rate plus the Applicable
----
Margin. Notwithstanding the foregoing, the Borrower hereby promises to pay to
the Lender interest at the applicable Post-Default Rate on any principal of any
Advance and on any other amount payable by the Borrower hereunder or under the
Note that shall not be paid in full when due (whether at stated maturity, by
acceleration or by mandatory prepayment or otherwise) for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Accrued interest on each Advance shall be payable monthly on each Payment
Date and on the Termination Date. Notwithstanding the foregoing, interest
accruing at the Post-Default Rate shall be payable to the Lender on demand.
Promptly after the determination of any interest rate provided for herein or any
change therein, the Lender shall give notice thereof to the Borrower.
2.05 Limitation on Types of Advances; Illegality. Anything herein to
-------------------------------------------
the contrary notwithstanding, if, on or prior to the determination of any LIBO
Base Rate:
(a) the Lender reasonably determines, which determination shall be
conclusive, that quotations of interest rates for the relevant deposits
referred to in the definition of "LIBO Base Rate" in Section 1.01 hereof
are not being provided in the relevant amounts or for the relevant
maturities for purposes of determining rates of interest for Advances as
provided herein; or
(b) the Lender reasonably determines, which determination shall be
conclusive, that the Applicable Margin plus the relevant rate of interest
referred to in the definition of "LIBO Base Rate" in Section 1.01 hereof
upon the basis of which the rate of interest for Advances is to be
determined is not likely adequately to cover the cost to the Lender of
making or maintaining Advances; or
(c) it becomes unlawful for the Lender to honor its obligation to
make or maintain Advances hereunder using a LIBO Rate;
then the Lender shall give the Borrower prompt notice thereof and, so long as
such condition remains in effect, the Lender shall be under no obligation to
make additional Advances, and the Borrower shall, at its option, either prepay
all such Advances as may be outstanding or pay interest on such Advances at a
rate per annum as determined by the Lender by the Lender taking into account the
increased cost to the Lender of making the Advances; provided, however that in
the case of clause (b) above, if the Borrower decides to pay interest on such
Advances at the new rate, the Advances shall accrue interest at the prior rate
until five (5) days after the Borrower receives notice from the Lender of such
new interest rate.
2.06 Determination of Borrowing Base; Mandatory Prepayments or
---------------------------------------------------------
Pledge.
- ------
(a) If at any time the aggregate outstanding principal amount of
Advances exceeds the Borrowing Base (a "Borrowing Base Deficiency"), as
-------------------------
determined by the Lender and notified to the
<PAGE>
Borrower on any Business Day, the Borrower shall no later than one (1) Business
Day after receipt of such notice, at the option of the Borrower, either prepay
the Advances in part or in whole or pledge additional Eligible Mortgage Loans to
the Lender (which shall be in all respects acceptable to the Lender), such that
after giving effect to such prepayment or pledge the aggregate outstanding
principal amount of the Advances does not exceed the Borrowing Base.
(b) On the ninth day of each month (or if such day is not a Business
Day, the next succeeding Business Day), the Lender (or the Borrower if the
Borrower and the Lender shall mutually agree) shall calculate and deliver a
Borrowing Base Certificate in the form attached hereto as Exhibit H, such
---------
certificate to be based on the principal balance of the Mortgage Loans as of the
later of the Funding Date and the last calendar day of the prior month. In the
event that such Borrowing Base Certificate indicates that a Borrowing Base
Deficiency exists, the Borrower shall on the Payment Date either prepay the
Advances in part or in whole or pledge additional Eligible Mortgage Loans to the
Lender (which shall be in all respects acceptable to the Lender), such that
after giving effect to such prepayment or pledge the aggregate outstanding
principal amount of the Advances does not exceed the Borrowing Base.
2.07 Optional Prepayments.
--------------------
(a) The Advances are prepayable without premium or penalty, in whole
or in part on each Payment Date. The Advances are prepayable at any other time,
in whole or in part, in accordance herewith and subject to clause (b) below.
Any amounts prepaid shall be applied to repay the outstanding principal amount
of any Advances (together with interest thereon) until paid in full. Amounts
repaid may be reborrowed in accordance with the terms of this Loan Agreement.
If the Borrower intends to prepay a Advance in whole or in part from any source,
the Borrower shall give five (5) Business Days' prior written notice thereof to
the Lender. If such notice is given, the amount specified in such notice shall
be due and payable on the date specified therein, together with accrued interest
to such date on the amount prepaid. Partial prepayments shall be in an
aggregate principal amount of at least $100,000.
(b) If the Borrower makes a prepayment of the Advances on any day
which is not a Payment Date, the Borrower shall indemnify the Lender and hold
the Lender harmless from any actual loss or expense which the Lender may sustain
or incur arising from (a) the deployment of funds obtained by the Lender to
maintain the Advances hereunder or from (b) fees payable to terminate the
deposits from which such funds were obtained, in either case, which actual loss
or expense shall be equal to an amount equal to the excess, as reasonably
determined by the Lender, of (i) its cost of obtaining funds for such Advances
for the period from the date of such payment to the last day of the Interest
Period(s) then in effect for such Advances over (ii) the amount of interest
likely to be realized by such Lender in redeploying the funds not utilized by
reason of such payment for such period. This Section 2.07 shall survive
termination of this Loan Agreement and payment of the Note.
2.08 Requirements of Law.
-------------------
(a) If any Requirement of Law (other than with respect to any
amendment made to the Lender's certificate of incorporation and by-laws or other
organizational or governing documents) or any change in the interpretation or
application thereof or compliance by the Lender with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority made subsequent to the date hereof:
<PAGE>
(i) shall subject the Lender to any tax of any kind whatsoever with
respect to this Loan Agreement, the Note or any Advance made by it
(excluding net income taxes) or change the basis of taxation of payments to
the Lender in respect thereof;
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory Advance or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, Advances
or other extensions of credit by, or any other acquisition of funds by, any
office of the Lender which is not otherwise included in the determination
of the LIBO Base Rate hereunder;
(iii) shall impose on the Lender any other condition;
and the result of any of the foregoing is to increase the cost to the Lender, by
an amount which the Lender deems to be material, of making, continuing or
maintaining any Advance or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Borrower shall promptly pay the Lender such
additional amount or amounts as will compensate the Lender for such increased
cost or reduced amount receivable, commencing five (5) days following receipt of
notice thereof from the Lender.
(b) If the Lender shall have determined that the adoption of or any
change in any Requirement of Law (other than with respect to any amendment made
to the Lender's certificate of incorporation and by-laws or other organizational
or governing documents) regarding capital adequacy or in the interpretation or
application thereof or compliance by the Lender or any corporation controlling
the Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any Governmental Authority made subsequent to
the date hereof shall have the effect of reducing the rate of return on the
Lender's or such corporation's capital as a consequence of its obligations
hereunder to a level below that which the Lender or such corporation (taking
into consideration the Lender's or such corporation's policies with respect to
capital adequacy) by an amount deemed by the Lender to be material, then from
time to time, the Borrower shall promptly pay to the Lender such additional
amount or amounts as will compensate the Lender for such reduction.
(c) If the Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify the Borrower of the event
by reason of which it has become so entitled. A certificate as to any
additional amounts payable pursuant to this subsection submitted by the Lender
to the Borrower shall be conclusive in the absence of manifest error.
2.09 Purpose of Advances. Each Advance shall be used by the Borrower
-------------------
to originate, acquire, fund, manage and service Mortgage Loans or otherwise in
connection with the conduct of its business as currently conducted.
2.10 Taxes.
-----
(a) All payments made by the Borrower under this Loan Agreement and
the Note shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Lender as a result of a present or former
connection between the Lender and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or taxing authority thereof or
<PAGE>
therein (other than any such connection arising solely from the Lender having
executed, delivered or performed its obligations or received a payment under, or
enforced, this Loan Agreement or any Note). If any such non-excluded taxes,
levies, imposts, duties, charges, fees deductions or withholdings ("Non-Excluded
------------
Taxes") are required to be withheld from any amounts payable to the Lender
- -----
hereunder or under the Note, the amounts so payable to the Lender shall be
increased to the extent necessary to yield to the Lender (after payment of all
Non-Excluded Taxes) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in this Loan Agreement; provided, however,
-------- -------
that the Borrower shall not be required to increase any such amounts payable to
the Lender that is not organized under the laws of the United States of America
or a state thereof if the Lender fails to comply with the requirements of clause
(b) of this Section. Whenever any Non-Excluded Taxes are payable by the
Borrower, as promptly as possible thereafter the Borrower shall send to the
Lender, as the case may be, a certified copy of an original official receipt
received by the Borrower showing payment thereof. If the Borrower fails to pay
any Non-Excluded Taxes when due to the appropriate taxing authority or fails to
remit to the Lender the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lender for any incremental taxes,
interest or penalties that may become payable by the Lender as a result of any
such failure. The agreements in this Section shall survive the termination of
this Loan Agreement and the payment of the Advances and all other amounts
payable hereunder.
(b) If the Lender hereunder (or an assignee or participant that
acquires an interest hereunder in accordance with Section 11.14 hereof) that is
not incorporated under the laws of the United States of America or a state
thereof shall:
(i) deliver to the Borrower (A) two duly completed copies of United
States Internal Revenue Service Form 1001 or 4224, or successor applicable
form, as the case may be, and (B) an Internal Revenue Service Form W-8 or
W-9, or successor applicable form, as the case may be;
(ii) deliver to the Borrower two further copies of any such form or
certification on or before the date that any such form or certification
expires or becomes obsolete and after the occurrence of any event requiring
a change in the most recent form previously delivered by it to the
Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower. Such Lender
shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to
receive payments under this Loan Agreement without deduction or withholding of
any United States federal income taxes and (ii) in the case of a Form W-8 or W-
9, that it is entitled to an exemption from United States backup withholding
tax. Each Person that shall become a Lender or a participant pursuant to
Section 11.14 hereof shall, upon the effectiveness of the related transfer, be
required to provide all of the forms and statements required pursuant to this
Section, provided that in the case of a participant, such participant shall
--------
furnish all such required forms and statements to the Lender from which the
related participation shall have been purchased.
2.11 Extension of Termination Date. At the request of the Borrower,
-----------------------------
at least thirty (30) days prior to the then current Termination Date, the Lender
may in its sole discretion extend the
<PAGE>
Termination Date for a period of 364 days by giving written notice of such
extension to the Borrower no later than twenty (20) days, but in no event
earlier than thirty (30) days, prior to the then current Termination Date.
SECTION 3 Payments; Computations; Etc.
---------------------------
3.01 Payments.
--------
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrower under this Loan
Agreement and the Note, shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at The Chase
Manhattan Bank: Account Number 140095961, For the A/C of Greenwich Capital
Financial Products, Inc., Attn: Brett Kibbe, not later than 1:00 p.m., New York
City time, on the date on which such payment shall become due (each such payment
made after such time on such due date shall be deemed to have been made on the
next succeeding Business Day). The Borrower acknowledges that it has no rights
of withdrawal from the foregoing account.
(b) Except to the extent otherwise expressly provided herein, if the
due date of any payment under this Loan Agreement or the Note would otherwise
fall on a day that is not a Business Day, such date shall be extended to the
next succeeding Business Day, and interest shall be payable for any principal so
extended for the period of such extension.
3.02 Computations. Interest on the Advances shall be computed on the
------------
basis of a 360-day year for the actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
3.03 Non-Utilization Fee. On a monthly basis, the Lender shall
-------------------
determine the average daily utilization during such month by the Borrower of the
Maximum Committed Amount made available hereunder by dividing (a) the sum of the
Committed Advances outstanding on each day during such month by (b) the number
days in such calendar month. If such average amount determined for any month as
a percentage of the then applicable Maximum Committed Amount (the "Utilization
Percentage") is less than 50% of the Maximum Committed Amount in effect for such
month, the Borrower shall pay to the Lender, on each Payment Date and on the
Termination Date, a non-utilization fee equal to the product of (i) .00125,
times (ii) the Maximum Committed Amount, times (iii) 1 minus the Utilization
Percentage. If the Utilization Percentage in any month is greater than or equal
to 50% the Lender shall not be entitled to a non-utilization fee for that month.
The Lender may, in its sole discretion, net such non-utilization fee from the
proceeds of any Advance made to the Borrower hereunder. The Borrower shall not
be required to pay a non-utilization fee pursuant to this Section 3.03 for the
first two months following the Effective Date hereof unless the Utilization
Percentage for the third month following the Effective Date is less than 50%, in
which case the amount of the non-utilization fee for such two month period shall
be payable at the time of payment of the non-utilization fee for such third
month.
<PAGE>
SECTION 4 Collateral Security.
-------------------
4.01 Collateral; Security Interest.
-----------------------------
(a) Pursuant to the Custodial Agreement, the Custodian shall hold
the Mortgage Loan Documents as exclusive bailee and agent for the Lender
pursuant to terms of the Custodial Agreement and shall deliver Trust Receipts to
the Lender each to the effect that it has reviewed such Mortgage Loan Documents
in the manner and to the extent required by the Custodial Agreement and
identifying any Exceptions in such Mortgage Loan Documents as so reviewed in the
Exception Reports.
(b) Each of the following items of property is hereinafter referred
to as the "Collateral":
----------
(i) all Mortgage Loans identified on a Notice of Borrowing and Pledge
delivered by the Borrower to the Lender and the Custodian from time to time;
(ii) all Mortgage Loan Documents, including without limitation all
promissory notes, and all Servicing Records, Servicing Agreements, servicing
rights, and any other collateral pledged or otherwise relating to such Mortgage
Loans, together with all files, documents, instruments, surveys, certificates,
correspondence, appraisals, computer programs, computer storage media,
accounting records and other books and records relating thereto;
(iii) all mortgage guaranties and insurance relating to such Mortgage Loans
(issued by governmental agencies or otherwise) and any mortgage insurance
certificate or other document evidencing such mortgage guaranties or insurance
relating to such Mortgage Loans and all claims and payments thereunder;
(iv) all other insurance policies and insurance proceeds relating to any
Mortgage Loan or the related Mortgaged Property;
(v) all purchase or take-out commitments relating to or constituting any
or all of the foregoing;
(vi) all collateral, however defined, under any other agreement between the
Borrower or any of its Affiliates on the one hand and the Lender or any of its
Affiliates on the other hand;
(vii) all "accounts", "chattel paper" and "general intangibles" as defined
in the Uniform Commercial Code relating to or constituting any and all of the
foregoing; and
(viii) any and all replacements, substitutions, distributions on or proceeds
of any and all of the foregoing.
(c) The Borrower hereby pledges to the Lender, and grants a security
interest in favor of the Lender in, all of the Borrower's right, title and
interest in, to and under the Collateral, whether now owned or hereafter
acquired, now existing or hereafter created and wherever located, to secure the
Secured Obligations. The Borrower agrees to mark its computer records and tapes
to evidence the interests granted to the Lender hereunder.
<PAGE>
4.02 Further Documentation. At any time and from time to time, upon the
---------------------
written request of the Lender, and at the sole expense of the Borrower, the
Borrower will promptly and duly execute and deliver, or will promptly cause to
be executed and delivered, such further instruments and documents and take such
further action as the Lender may reasonably request for the purpose of obtaining
or preserving the full benefits of this Loan Agreement and of the rights and
powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the Liens created hereby. The Borrower also
hereby authorizes the Lender to file any such financing or continuation
statement without the signature of the Borrower to the extent permitted by
applicable law. A carbon, photographic or other reproduction of this Loan
Agreement shall be sufficient as a financing statement for filing in any
jurisdiction.
4.03 Changes in Locations, Name, etc. The Borrower shall not (i) change
-------------------------------
the location of its chief executive office/chief place of business from that
specified in Section 6 hereof or (ii) change its name, identity or corporate
structure (or the equivalent) or change the location where it maintains its
records with respect to the Collateral unless it shall have given the Lender at
least 30 days prior written notice thereof and shall have delivered to the
Lender all Uniform Commercial Code financing statements and amendments thereto
as the Lender shall request and taken all other actions deemed necessary by the
Lender to continue its perfected status in the Collateral with the same or
better priority.
4.04 Lender's Appointment as Attorney-in-Fact.
----------------------------------------
(a) The Borrower hereby irrevocably constitutes and appoints the Lender
and any officer or agent thereof, with full power of substitution, as its true
and lawful attorney-in-fact with full irrevocable power and authority in the
place and stead of the Borrower and in the name of the Borrower or in its own
name, from time to time in the Lender's discretion, for the purpose of carrying
out the terms of this Loan Agreement, to take any and all appropriate action and
to execute any and all documents and instruments which may be necessary or
desirable to accomplish the purposes of this Loan Agreement, and, without
limiting the generality of the foregoing, the Borrower hereby gives the Lender
the power and right, on behalf of the Borrower, without assent by, but with
notice to, the Borrower, if an Event of Default shall have occurred and be
continuing, to do the following:
(i) in the name of the Borrower or its own name, or otherwise, to
take possession of and endorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
mortgage insurance or with respect to any other Collateral and to file any
claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Lender for the purpose of
collecting any and all such moneys due under any such mortgage insurance or
with respect to any other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral; and
(iii) (A) to direct any party liable for any payment under any
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Lender or as the Lender shall direct; (B) to ask
or demand for, collect, receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (C) to sign and endorse any
invoices, assignments, verifications, notices
<PAGE>
and other documents in connection with any of the Collateral; (D) to
commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the Collateral or
any thereof and to enforce any other right in respect of any Collateral;
(E) to defend any suit, action or proceeding brought against the Borrower
with respect to any Collateral; (F) to settle, compromise or adjust any
suit, action or proceeding described in clause (E) above and, in connection
therewith, to give such discharges or releases as the Lender may deem
appropriate; and (G) generally, to sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral as
fully and completely as though the Lender were the absolute owner thereof
for all purposes, and to do, at the Lender's option and the Borrower's
expense, at any time, and from time to time, all acts and things which the
Lender reasonably deems necessary to protect, preserve or realize upon the
Collateral and the Lender's Liens thereon and to effect the intent of this
Loan Agreement, all as fully and effectively as the Borrower might do.
The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) The Borrower also authorizes the Lender, at any time and from
time to time, to execute, in connection with any sale provided for in Section
4.07 hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
(c) The powers conferred on the Lender are solely to protect the
Lender's interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither the Lender nor any of its officers, directors, or employees shall be
responsible to the Borrower for any act or failure to act hereunder, except for
its own gross negligence or willful misconduct.
4.05 Performance by Lender of Borrower's Obligations. If the Borrower
-----------------------------------------------
fails to perform or comply with any of its agreements contained in the Loan
Documents and the Lender may itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the expenses of the Lender
incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum equal to the Post-Default Rate, shall be
payable by the Borrower to the Lender on demand and shall constitute Secured
Obligations.
4.06 Proceeds. If an Event of Default shall occur and be continuing,
--------
(a) all proceeds of Collateral received by the Borrower consisting of cash,
checks and other near-cash items shall be held by the Borrower in trust for the
Lender, segregated from other funds of the Borrower, and shall forthwith upon
receipt by the Borrower be turned over to the Lender in the exact form received
by the Borrower (duly endorsed by the Borrower to the Lender, if required) and
(b) any and all such proceeds received by the Lender (whether from the Borrower
or otherwise) may, in the sole discretion of the Lender, be held by the Lender
as collateral security for, and/or then or at any time thereafter may be applied
by the Lender against, the Secured Obligations (whether matured or unmatured),
such application to be in such order as the Lender shall elect. Any balance of
such proceeds remaining after the Secured Obligations shall have been paid in
full and this Loan Agreement shall have been terminated shall be paid over to
the Borrower or to whomsoever may be lawfully entitled to receive the same. For
purposes hereof, proceeds shall include, but not be limited to, all principal
and interest payments, all prepayments and payoffs, insurance claims,
condemnation awards, sale proceeds, real estate owned rents and any other income
and all other amounts received with respect to the Collateral.
<PAGE>
4.07 Remedies. If an Event of Default shall occur and be continuing,
--------
the Lender may exercise, in addition to all other rights and remedies granted to
it in this Loan Agreement and in any other instrument or agreement securing,
evidencing or relating to the Secured Obligations, all rights and remedies of a
secured party under the Uniform Commercial Code. Without limiting the generality
of the foregoing, the Lender without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Borrower or any other Person
(each and all of which demands, presentments, protests, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell (on a servicing released basis, at the Lender's
option), lease, assign, give option or options to purchase, or otherwise dispose
of and deliver the Collateral or any part thereof (or contract to do any of the
foregoing), in one or more parcels or as an entirety at public or private sale
or sales, at any exchange, broker's board or office of the Lender or elsewhere
upon such terms and conditions as it may deem advisable and at such prices as it
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk. The Lender shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption in the Borrower, which right or equity is hereby waived
or released. The Borrower further agrees, at the Lender's request, to assemble
the Collateral and make it available to the Lender at places which the Lender
shall reasonably select, whether at the Borrower's premises or elsewhere. The
Lender shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral or the rights
of the Lender hereunder, including without limitation reasonable attorneys' fees
and disbursements, to the payment in whole or in part of the Secured
Obligations, in such order as the Lender may elect, and only after such
application and after the payment by the Lender of any other amount required or
permitted by any provision of law, including without limitation Section 9-
504(1)(c) of the Uniform Commercial Code, need the Lender account for the
surplus, if any, to the Borrower. To the extent permitted by applicable law, the
Borrower waives all claims, damages and demands it may acquire against the
Lender arising out of the exercise by the Lender of any of its rights hereunder,
other than those claims, damages and demands arising from the gross negligence
or willful misconduct of the Lender. If any notice of a proposed sale or other
disposition of Collateral shall be required by law, such notice shall be deemed
reasonable and proper if given at least 10 days before such sale or other
disposition. The Borrower shall remain liable for any deficiency (plus accrued
interest thereon as contemplated pursuant to Section 2.04(b) hereof) if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Secured Obligations and the fees and disbursements of any attorneys
employed by the Lender to collect such deficiency.
4.08 Limitation on Duties Regarding Presentation of Collateral. The
---------------------------------------------------------
Lender's duty with respect to the custody, safekeeping and physical preservation
of the Collateral in its possession, under Section 9-207 of the Uniform
Commercial Code or otherwise, shall be to deal with it in the same manner as the
Lender deals with similar property for its own account. Neither the Lender nor
any of its directors, officers or employees shall be liable for failure to
demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Borrower or otherwise.
4.09 Powers Coupled with an Interest. All authorizations and agencies
-------------------------------
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
<PAGE>
4.10 Release of Security Interest. Upon termination of this Loan
----------------------------
Agreement and repayment to the Lender of all Secured Obligations and the
performance of all obligations under the Loan Documents the Lender shall release
its security interest in any remaining Collateral; provided that if any payment,
--------
or any part thereof, of any of the Secured Obligations is rescinded or must
otherwise be restored or returned by the Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower, or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or a
trustee or similar officer for, the Borrower or any substantial part of its
Property, or otherwise, this Loan Agreement, all rights hereunder and the Liens
created hereby shall continue to be effective, or be reinstated, as though such
payments had not been made.
SECTION 5 Conditions Precedent.
--------------------
5.01 Initial Advance. The agreement of the Lender to make the initial
---------------
Advance requested to be made by it hereunder is subject to the satisfaction,
immediately prior to or concurrently with the making of such Advance, of the
following conditions precedent:
a.
Loan Agreement. The Lender shall have received this Loan Agreement,
--------------
executed and delivered by a duly authorized officer of the Borrower.
(b) Note. The Lender shall have received the Note, conforming to the
----
requirements hereof and executed by a duly authorized officer of the Borrower.
(c) Custodial Agreement. The Lender shall have received the Custodial
-------------------
Agreement, conforming to the requirements hereof and executed by a duly
authorized officer of the Borrower and the Custodian.
(d) Securitization Letter. The Lender shall have received the
---------------------
Securitization Letter, in form and substance satisfactory to the Lender and
executed by a duly authorized officer of the Borrower.
(e) Reserved.
--------
(f) Filings, Registrations, Recordings. Any documents (including, without
----------------------------------
limitation, financing statements) required to be filed, registered or recorded
in order to create, in favor of the Lender, a perfected, first-priority security
interest in the Collateral, subject to no Liens other than those created
hereunder, shall have been properly prepared and executed for filing (including
the applicable county(ies) if the Lender determines such filings are necessary
in its sole discretion), registration or recording in each office in each
jurisdiction in which such filings, registrations and recordations are required
to perfect such first-priority security interest.
(g) Corporate Proceedings. The Lender shall have received a certificate of
---------------------
the Secretary or Assistant Secretary of each Loan Party, dated as of the date
hereof, and certifying (A) that attached thereto is a true, complete and correct
copy of (i) the articles of incorporation of each Loan Party, (ii) the by-laws
of each Loan Party, and (iii) resolutions duly adopted by the Board of Directors
of each Loan Party authorizing the execution, delivery and performance of this
Loan Agreement, the Notes and the other Loan Documents to which it is a party,
and the borrowings contemplated hereunder, and that such resolutions have not
been amended, modified, revoked or rescinded, and (B) as to the incumbency and
specimen signature of each officer executing any Loan Documents on behalf of
each
<PAGE>
Loan Party and authorized to execute any Notice of Borrowing, and such
certificate and the resolutions attached thereto shall be in form and substance
satisfactory to the Lender.
(h) Good Standing Certificates. The Lender shall have received copies of
--------------------------
certificates evidencing the good standing of the Borrower and the Guarantors
respectively, dated as of a recent date, from the Secretary of State (or other
appropriate authority) of the State of California, and of each other
jurisdiction where the ownership, lease or operation of property, or the conduct
of business, requires the Borrower or the Guarantors to qualify as a foreign
corporation, except where the failure to qualify would not have a Material
Adverse Effect.
(i) Legal Opinions. The Lender shall have received the executed legal
--------------
opinion of Stergios Theologides, Esq., Senior Legal Counsel of the Guarantors
and General Counsel of the Borrower, addressing the matters set forth in the
form attached hereto as Exhibit C, dated the initial Funding Date and otherwise
---------
in form and substance acceptable to the Lender and covering such other matters
incident to the transactions contemplated by this Loan Agreement as the Lender
shall reasonably request.
(j) Fees and Expenses. The Lender shall have received all fees and
-----------------
expenses required to be paid by the Borrower on or prior to the initial Funding
Date pursuant to Section 11.03(b) and such fees and expenses may be netted out
of any Advance made by the Lender hereunder.
(k) Financial Statements. The Lender shall have received the financial
--------------------
statements referenced in Section 6.01(a).
(l) Underwriting Guidelines. The Lender and the Borrower shall have agreed
-----------------------
upon the Borrower's current Underwriting Guidelines for Mortgage Loans and the
Lender shall have received a certified copy thereof.
(m) Consents, Licenses, Approvals, etc. The Lender shall have received
-----------------------------------
copies certified by the Borrower of all consents, licenses and approvals, if
any, required in connection with the execution, delivery and performance by the
Borrower of, and the validity and enforceability of, the Loan Documents, which
consents, licenses and approvals shall be in full force and effect.
(n) Insurance. The Lender shall have received evidence in form and
---------
substance satisfactory to the Lender showing compliance by the Borrower as of
such initial Funding Date with Section 7.03 hereof.
(o) Affiliate Guaranty. The Lender shall have received the Affiliate
------------------
Guaranty, duly executed by the Guarantors; and
(p) Other Documents. The Lender shall have received such other documents
---------------
as the Lender or its counsel may reasonably request.
5.02 Initial and Subsequent Advances. The making of each Advance to
-------------------------------
the Borrower (including the initial Advance) on any Business Day is subject to
the satisfaction of the following further conditions precedent, both immediately
prior to the making of such Advance and also after giving effect thereto and to
the intended use thereof:
<PAGE>
(a) No Default. No Default or Event of Default shall have occurred and be
----------
continuing.
(b) Representations and Warranties. Each representation and warranty made
------------------------------
by the Borrower in Section 6 hereof and elsewhere in each of the Loan Documents,
shall be true and correct on and as of the date of the making of such Advance
(in the case of the representations and warranties in Schedule 1, solely with
respect to Mortgage Loans included in the Borrowing Base on such date) with the
same force and effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of a
specific date, as of such specific date). At the request of the Lender, the
Lender shall have received an officer's certificate signed by a duly authorized
officer of the Borrower certifying as to the truth and accuracy of the above,
which certificate shall specifically include a statement that the Borrower is in
compliance with all governmental licenses and authorizations and qualified to do
business and in good standing in all required jurisdictions where the failure to
be so qualified should reasonably be expected to have a Material Adverse Effect.
(c) Borrowing Base. The aggregate outstanding principal amount of the
--------------
Advances shall not exceed the lesser of the Borrowing Base and the Maximum
Credit.
(d) Notice of Borrowing and Pledge. The Lender shall have received a
------------------------------
Notice of Borrowing and Pledge and Mortgage Loan Schedule in accordance with
Section 2.03(a) hereof, appropriately completed.
(e) Trust Receipt; Exception Report. The Lender shall have received from
-------------------------------
the Custodian a Trust Receipt in respect of all Mortgage Loans to be pledged
hereunder on such Business Day and a corresponding Exception Report, with
Exceptions (as defined in the Custodial Agreement) in respect of such Mortgage
Loans acceptable to the Lender in its sole discretion, in each case dated such
Business Day and duly completed.
(f) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by this Loan Agreement and the other Loan Documents
shall be reasonably satisfactory in form and substance to the Lender, and the
Lender shall have received such other documents and legal opinions in respect of
any aspect or consequence of the transactions contemplated hereby or thereby as
it shall reasonably request.
(g) No Material Adverse Effect. There shall not have occurred one or more
--------------------------
events that, in the reasonable judgment of the Lender, constitutes or should
reasonably be expected to constitute a Material Adverse Effect.
(h) Additional Opinion. In the event that the Mortgage Loans to be pledged
------------------
would cause the aggregate outstanding principal balance of Mortgage Loans
pledged secured by Mortgaged Property from any state to exceed 10% of the
aggregate outstanding principal balance of Mortgage Loans pledged hereunder,
then the Borrower shall, upon request by the Lender, deliver an opinion
acceptable to the Lender from outside counsel in such state, substantially in
the form of items #13 and 14 of Exhibit C.
(i) Due Diligence Review. Subject to the Lender's right to perform one or
--------------------
more Due Diligence Reviews pursuant to Section 11.16 hereof, the Lender shall
have completed its due diligence review of the Mortgage Loan Documents for each
Advance and such other documents, records, agreements, instruments, mortgaged
properties or information relating to such Advances as the Lender in
<PAGE>
its sole discretion deems appropriate to review and such review shall be
satisfactory to the Lender in its sole discretion.
(j) True Sale Opinion. With respect to any Mortgage Loan that was funded
-----------------
in the name of or acquired by a Qualified Originator which is an Affiliate of
the Borrower, the Lender may, in its sole discretion, require the Borrower to
provide evidence sufficient to satisfy the Lender that such Mortgage Loan was
acquired in a legal sale, including without limitation, an opinion, in form and
substance and from an attorney, in both cases, acceptable to the Lender in its
sole discretion, that such Mortgage Loan was acquired in a legal sale.
(k) none of the following shall have occurred and/or be continuing:
(i) a catastrophic event or events shall have occurred resulting in
the effective absence of a "repo market" or comparable "lending
market" for financing debt obligations secured by mortgage loans or
securities for a period of (or reasonably expected to be) at least 30
consecutive days and the same has resulted in the Lender not being
able to finance any Advances through the "repo market" or "lending
market" with traditional counterparties at rates which would have been
reasonable prior to the occurrence of such catastrophic event or
events;
(ii) a catastrophic event or events shall have occurred resulting in
the effective absence of a "securities market" for securities backed
by mortgage loans for a period of (or reasonably expected to be) at
least 30 consecutive days and the same results in the Lender not being
able to sell securities backed by mortgage loans at prices which would
have been reasonable prior to such catastrophic event or events; or
(iii) there shall have occurred a material adverse change in the
financial condition of the Lender which affects (or can reasonably be
expected to affect) materially and adversely the ability of the Lender
to fund its obligations under this Loan Agreement and the Lender shall
have given notice thereof pursuant to Section 11.02 hereof to the
Borrower at least 30 days prior to the requested Funding Date;
(l) if any Mortgage Loans to be pledged hereunder were acquired by the
Borrower, such Mortgage Loans shall conform to the Borrower's Underwriting
Guidelines or the Lender shall have received Underwriting Guidelines for
such Mortgage Loans acceptable to the Lender in its reasonable discretion;
Each request for a borrowing by the Borrower hereunder shall constitute a
certification by the Borrower to the effect set forth in this Section (both as
of the date of such notice, request or confirmation and as of the date of such
borrowing).
SECTION 6 Representations and Warranties. As of the Effective Date
------------------------------
and each Funding Date, Borrower represents and warrants to the Lender that:
6.01 Financial Condition.
-------------------
(a) The unaudited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at December 31, 1998 and the audited consolidated
balance sheet of the Guarantors and their consolidated Subsidiaries as at
December 31, 1998, reported thereon by KPMG LLP, a copy of which has heretofore
been furnished to the Lender, is complete and materially correct and presents
fairly
<PAGE>
the consolidated financial condition of each Loan Party and its respective
consolidated Subsidiaries as at such dates and the consolidated results of their
operations and their consolidated cash flows for the fiscal year then ended.
(b) Such financial statement, including the related schedules and
notes thereto, has been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such accountants or
Responsible Officer, as the case may be, and as disclosed therein).
(c) Neither Loan Party, nor any of its respective consolidated
Subsidiaries had, at the date of the financial statement referred to above, any
material Guarantee Obligation (other than as described in the U.S. Bank
Financing Documents), contingent liability or liability for taxes, or any long-
term lease or unusual forward or long-term commitment, including, without
limitation, any interest rate or foreign currency swap or exchange transaction,
or other financial derivative, which is not reflected in the foregoing
statements or in the notes thereto.
6.02 No Change. Since December 31, 1998, there has been no
---------
development or event nor any prospective development or event which has had or
should reasonably be expected to have a Material Adverse Effect.
6.03 Corporate Existence; Compliance with Law. (a) The Borrower is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California, (b) New Century is a corporation duly organized,
validly existing and in good standing under the laws of the State of California,
(c) New Century Financial Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, (d) Each
Loan Party has the corporate power and authority, and has all governmental
licenses, authorizations, consents and approvals necessary, to own and operate
its property, to lease the property it operates as lessee and to carry on its
business as now being or as proposed to be conducted, (e) Each Loan Party is
duly qualified to do business and is in good standing under the laws of each
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify should be reasonably
expected (either individually or in the aggregate) to have a Material Adverse
Effect, and (f) Each Loan Party is in compliance in all material respects with
all Requirements of Law.
6.04 Corporate Power; Authorization; Enforceable Obligations.
-------------------------------------------------------
(a) Each Loan Party has the corporate power and authority, and the
legal right, to make, deliver and perform its obligations under each Loan
Document to which it is a party, and to perform thereunder, and has taken all
necessary corporate action to authorize the terms and conditions of each Loan
Document to which it is a party, and the execution, delivery and performance
thereof.
(b) No consent or authorization of, approval by, notice to, filing
with or other act by or in respect of, any Governmental Authority or any other
Person is required or necessary in connection with the execution, delivery,
performance, validity or enforceability of each Loan Document, except (i) for
filings and recordings in respect of the Liens created pursuant to this Loan
Agreement, and (ii) as previously obtained and currently in full force and
effect.
(c) Each Loan Document has been duly and validly executed and
delivered by each Loan Party which is a party thereto, and constitutes, a legal,
valid and binding obligation of each Loan Party which is a party thereto,
enforceable against such Loan Party in accordance with their terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or
<PAGE>
similar laws affecting the enforcement of creditors' rights generally and by
general equitable principles (whether enforcement is sought by proceedings in
equity or at law).
6.05 No Legal Bar. The execution, delivery and performance of each
------------
Loan Document which each Loan Party is a party thereto will not violate any
Requirement of Law or Contractual Obligation of such Loan Party or of any of its
Subsidiaries and will not result in, or require, the creation or imposition of
any Lien (other than the Liens created hereunder) on any of their respective
properties or revenues pursuant to any such Requirement of Law or Contractual
Obligation.
6.06 No Material Litigation. There are no actions, suits,
----------------------
arbitrations, investigations or proceedings of or before any arbitrator or
Governmental Authority pending or, to the knowledge of either Loan Party,
threatened against either Loan Party or any of its respective Subsidiaries or
against any of its or their respective properties or revenues, other than those
actions, suits, arbitrations, investigations or proceedings described on
Schedule 4 hereto, none of which should reasonably be expected to have a
Material Adverse Effect.
6.07 No Default. Neither Loan Party nor any of their respective
----------
Subsidiaries is in default under or with respect to any of their Contractual
Obligations in any respect which should reasonably be expected to have a
Material Adverse Effect. No Default or Event of Default has occurred and is
continuing.
6.08 Collateral; Collateral Security.
-------------------------------
(a) Except for Liens on the Collateral created pursuant to the U.S.
Bank Financing Documents that have been released or are to be released
simultaneously with the Liens granted in favor of the Lender hereunder, the
Borrower has not assigned, pledged, or otherwise conveyed or encumbered any of
the Collateral to any Person other than the Lender, and immediately prior to the
pledge of such Collateral, the Borrower was the sole owner of the Collateral and
had good and marketable title thereto, free and clear of all Liens, in each case
except for Liens that have been released or are to be released simultaneously
with the Liens granted in favor of the Lender hereunder.
(b) The provisions of this Loan Agreement are effective to create in
favor of the Lender a valid security interest in all right, title and interest
of the Borrower in, to and under the Collateral.
(c) Upon (i) receipt by the Custodian of each Mortgage Note endorsed
in blank by a duly authorized officer of the Borrower, and (ii) the filing (to
the extent such interest can be perfected by filing under the Uniform Commercial
Code) of financing statements on Form UCC-1 naming the Lender as "Secured Party"
and the Borrower as "Debtor", and describing the Collateral, in the
jurisdictions and recording offices listed on Schedule 2 attached hereto, in
both instances, the security interests granted hereunder in the Collateral will
constitute fully perfected first-priority security interests under the Uniform
Commercial Code in all right, title and interest of the Borrower in, to and
under such Collateral.
6.09 Chief Executive Office. The Borrower's chief executive office on
----------------------
the Effective Date is located at 18400 Von Karman, Suite 1000, Irvine,
California 92612. The chief executive office of the Guarantors on the Effective
Date is located at 18400 Von Karman, Suite 1000, Irvine, California 92612.
<PAGE>
6.10 Location of Books and Records. The location where the Borrower
-----------------------------
keeps its books and records, including all computer tapes and records relating
to the Collateral is its chief executive office or at 17701 Cowan Street,
Irvine, California 92614.
6.11 No Burdensome Restrictions. No Requirement of Law or Contractual
--------------------------
Obligation of the Borrower or any of its Subsidiaries has a Material Adverse
Effect.
6.12 Taxes. Each of the Loan Parties and its respective Subsidiaries
-----
has filed all Federal and state income tax returns and all other material tax
returns that are required to be filed by them and has paid all taxes due
pursuant to such returns or pursuant to any assessment received by any of them,
except for any such taxes or assessments, if any, that are being appropriately
contested in good faith by appropriate proceedings diligently conducted and with
respect to which adequate reserves in conformity with GAAP have been provided.
No tax Lien has been filed, and, to the knowledge of the Borrower, no claim is
being asserted, with respect to any such tax or assessment.
6.13 Margin Regulations. No part of the proceeds of any Advances will
------------------
be used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under, or for any other purpose which
violates or would be inconsistent with the provisions of, Regulation G, T, U or
X.
6.14 Investment Company Act; Other Regulations. The Borrower is not
-----------------------------------------
an "investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. The
Borrower is not subject to regulation under any Federal or state statute or
regulation which limits its ability to incur Indebtedness.
6.15 Subsidiaries. All of the Subsidiaries of each Loan Party at the
------------
date hereof are listed on Schedule 3 to this Loan Agreement.
6.16 Origination and Acquisition of Mortgage Loans. The Mortgage
---------------------------------------------
Loans were originated or acquired by the Borrower, and the origination and
collection practices used by the Borrower or Qualified Originator, if
applicable, with respect to the Mortgage Loans have been, in all material
respects legal, proper, prudent and customary in the residential mortgage loan
servicing business, and in accordance with the Underwriting Guidelines. With
respect to Mortgage Loans acquired by the Borrower all such Mortgage Loans are
in material conformity with the Underwriting Guidelines. Each of the Mortgage
Loans complies in all material respects with the representations and warranties
listed in Schedule 1 hereto.
6.17 No Adverse Selection. The Borrower used no selection procedures
--------------------
that identified the Mortgage Loans as being less desirable or valuable than
other comparable Mortgage Loans owned by the Borrower.
6.18 Loan Party Solvent; Fraudulent Conveyance. As of the date hereof
-----------------------------------------
and immediately after giving effect to each Advance, the fair value of the
assets of each Loan Party is greater than the fair value of the liabilities
(including, without limitation, contingent liabilities if and to the extent
required to be recorded as a liability on the financial statements of such Loan
Party in accordance with GAAP) of such Loan Party and such Loan Party is and
will be solvent, is and will be able to pay its debts as they mature and does
not and will not have an unreasonably small capital to engage in the business in
which it is engaged and proposes to engage. Neither Loan Party intends to incur,
or believes that it has incurred, debts beyond its ability to pay such debts as
they mature.
<PAGE>
Neither Loan Party is contemplating the commencement of insolvency, bankruptcy,
liquidation or consolidation proceedings or the appointment of a receiver,
liquidator, conservator, trustee or similar official in respect of such Loan
Party or any of its assets. Neither Loan Party is transferring any Mortgage
Loans with any intent to hinder, delay or defraud any of its creditors.
6.19 ERISA. Each Plan to which either Loan Party or its Subsidiaries
-----
make direct contributions, and, to the knowledge of the Borrower, each other
Plan and each Multiemployer Plan, is in compliance in all material respects
with, and has been administered in all material respects in compliance with, the
applicable provisions of ERISA, the Code and any other Federal or state law.
6.20 True and Complete Disclosure. The information, reports,
----------------------------
financial statements, exhibits and schedules furnished in writing by or on
behalf each Loan Party to the Lender in connection with the negotiation,
preparation or delivery of this Loan Agreement and the other Loan Documents or
included herein or therein or delivered pursuant hereto or thereto, do not
contain any untrue statement of material fact or omit to state any material fact
necessary to make the statements herein or therein not misleading. All written
information furnished after the date hereof by or on behalf of any Loan Party to
the Lender in connection with this Loan Agreement and the other Loan Documents
and the transactions contemplated hereby and thereby will be true, correct and
accurate in every material respect, or (in the case of projections) based on
reasonable estimates, on the date as of which such information is stated or
certified. There is no fact known to a Responsible Officer of any Loan Party
that, after due inquiry, should reasonably be expected to have a Material
Adverse Effect that has not been disclosed herein, in the other Loan Documents
or in a report, financial statement, exhibit, schedule, disclosure letter or
other writing furnished to the Lender for use in connection with the
transactions contemplated hereby or thereby.
6.21 Relevant States. Schedule 5 sets forth all of the states or
---------------
other jurisdictions (the "Relevant States") in which the Borrower or New Century
---------------
does not originate Mortgage Loans in its own name or through brokers on the date
of this Loan Agreement.
6.22 True Sales. Any Mortgage Loan funded in the name of or acquired
----------
by a Qualified Originator which is an Affiliate of the Borrower has been sold,
transferred, conveyed and assigned to the Borrower pursuant to a legal sale and
such Qualified Originator retains no interest in such Mortgage Loan, and if so
requested by the Lender, is covered by an opinion of counsel to that effect in
form and substance acceptable to the Lender.
6.23 No Breach. Neither (a) the execution and delivery of the Loan
---------
Documents or (b) the consummation of the transactions therein contemplated in
compliance with the terms and provisions thereof will conflict with or result in
a breach of the charter or by-laws of the Borrower or the Guarantors, or any
applicable law, rule or regulation, or any order, writ, injunction or decree of
any Governmental Authority, or other material agreement or instrument to which
the Borrower or the Guarantors, or any of their Subsidiaries, is a party or by
which any of them or any of their property is bound or to which any of them is
subject, or constitute a default under any such material agreement or
instrument, or (except for the Liens created pursuant to this Loan Agreement)
result in the creation or imposition of any Lien upon any property of the
Borrower or the Guarantors or any of their Subsidiaries, pursuant to the terms
of any such agreement or instrument.
6.24 Tangible Net Worth. The aggregate Tangible Net Worth of the
------------------
Borrower on the Effective Date is not less than $40,000,000.
6.25 Reserved.
--------
<PAGE>
6.26 Year 2000 Compliance. The Borrower has made a full and complete
--------------------
assessment of all material issues which may be related to the occurrence of the
year 2000, including all material issues related to its computer program and
software and the computer program and software of the Servicer (the "Year 2000
Issues"), and both the Borrower and the Servicer have realistic and achievable
programs for remediating the Year 2000 Issues on a timely basis (the "Year 2000
Program"). Based on such assessment and on the Year 2000 Program, the Borrower
does not reasonably anticipate that Year 2000 Issues will have a material
adverse effect on the Borrower's or the Servicer's operations or financial
condition.
SECTION 7 Covenants of the Borrower. The Borrower covenants and
-------------------------
agrees with the Lender that, so long as any Advance is outstanding and until the
later to occur of the payment in full of all Secured Obligations and the
termination of this Loan Agreement:
7.01 Financial Statements. Each Loan Party shall deliver to the
--------------------
Lender:
(a) as soon as available, but in any event not later than thirty
(30) days after the end of each calendar month (except those calendar months
which are quarter-end months), unaudited consolidated balance sheets of each
Loan Party and its respective consolidated Subsidiaries as at the end of each
such month and the related unaudited consolidated statements of income and cash
flows of each Loan Party and its respective consolidated Subsidiaries for such
month and the portion of the fiscal year through such date, setting forth in
each case in comparative form the figures for the previous year, accompanied by
a Certificate of a Responsible Officer which certificate shall state that said
consolidated financial statements fairly present the consolidated financial
condition and results of operations of each Loan Party and its respective
Consolidated Subsidiaries as at the end of, and for, such month (subject to
normal year-end audit adjustments);
(b) if available, as soon as available and in any event within
forty-five (45) days after the end of each of the first three quarterly fiscal
periods of each fiscal year of the Borrower, the consolidated and consolidating
balance sheets of each Loan Party and its respective consolidated Subsidiaries
as at the end of such period and the related unaudited consolidated and
consolidating statements of income and of cash flows for each Loan Party and its
respective consolidated Subsidiaries for such period and the portion of the
fiscal year through the end of such period, setting forth in each case in
comparative form the figures for the previous year, accompanied by a certificate
of a Responsible Officer of each Loan Party, which certificate shall state that
said consolidated financial statements fairly present the consolidated and
consolidating financial condition and results of operations of each Loan Party
and its respective Subsidiaries in accordance with GAAP, consistently applied,
as at the end of, and for, such period (subject to normal year-end audit
adjustments);
(c) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of each Guarantor, the consolidated and
consolidating balance sheets of each Guarantor and its respective consolidated
Subsidiaries as at the end of such fiscal year and the related consolidated and
consolidating statements of income and retained earnings and of cash flows for
each Guarantor and its respective consolidated Subsidiaries for such year,
setting forth in each case in comparative form the figures for the previous
year, accompanied by a report thereon of independent certified public
accountants of recognized national standing, which report shall not be qualified
as to scope of audit or going concern and shall state that said consolidated
financial statements fairly present the consolidated financial condition and
results of operations of each Guarantor and its respective consolidated
Subsidiaries as at the end of, and for, such fiscal year in accordance with
GAAP; and
<PAGE>
(d) from time to time such other information regarding the financial
condition, operations, or business of each Loan Party and its respective
Subsidiaries as the Lender may reasonably request.
The parties hereto acknowledge that the financial statements of the
Borrower described in Section 7.01(a) above shall not be required to be prepared
in accordance with GAAP. Notwithstanding the preceding sentence, the Borrower
hereby represents to the Lender that such financial statements will accurately
reflect the Borrower's financial condition and any deviation from GAAP standards
will not have the effect of increasing the Borrower's Tangible Net Worth above
the amount that would have been determined using GAAP standards.
Each Loan Party will furnish to the Lender, at the time it furnishes
each set of financial statements pursuant to paragraphs (a), (b) and (c) above,
a certificate of a Responsible Officer of such Loan Party to the effect that, to
the best of such Responsible Officer's knowledge, such Loan Party during such
fiscal period or year has observed or performed all of its covenants and other
agreements, and satisfied every material condition, contained in this Loan
Agreement and the other Loan Documents to be observed, performed or satisfied by
it, and that such Responsible Officer has obtained no knowledge of any Default
or Event of Default except as specified in such certificate (and, if any Default
or Event of Default has occurred and is continuing, describing the same in
reasonable detail and describing the action the Borrower has taken or proposes
to take with respect thereto).
7.02 Existence, Etc. Each Loan Party and its respective Subsidiaries
---------------
will:
(a) preserve and maintain its legal existence;
(b) preserve and maintain all of its material rights, privileges,
licenses and franchises;
(c) comply with the requirements of all applicable Requirements of
Law (including, without limitation, the Truth in Lending Act, the Real
Estate Settlement Procedures Act and all environmental laws) if failure to
comply with such requirements should reasonably be expected (either
individually or in the aggregate) to have a Material Adverse Effect; and
(d) keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied.
7.03 Maintenance of Property; Insurance. The Borrower shall keep all
----------------------------------
property useful and necessary in its business in good working order and
condition. Each Loan Party shall maintain errors and omissions insurance and/or
mortgage impairment insurance and blanket bond coverage in such amounts as are
in effect on the Effective Date (as disclosed to Lender in writing) and shall
not reduce such coverage without the written consent of the Lender, and shall
also maintain such other insurance with financially sound and reputable
insurance companies, and with respect to property and risks of a character
usually maintained by entities engaged in the same or similar business similarly
situated, against loss, damage and liability of the kinds and in the amounts
customarily maintained by such entities.
7.04 Notices.
-------
(a) The Borrower shall give notice to the Lender promptly:
<PAGE>
(i) upon the Borrower becoming aware of, and in any event within one (1)
Business Day after, the occurrence of any Default or Event of Default or any
Event of Default or Default under any other material agreement of the Borrower;
(ii) upon, and in any event within three (3) Business Days after, service
of process on any Loan Party or its respective Subsidiaries, or any agent
thereof for service of process, in respect of any legal or arbitrable
proceedings affecting any Loan Party or its respective Subsidiaries (a) that
questions or challenges the validity or enforceability of any of the Loan
Documents or (b) in which the amount in controversy exceeds $1,000,000;
(iii) upon the Borrower becoming aware of any Material Adverse Effect or any
event or change in circumstances which could reasonably be expected to have a
Material Adverse Effect;
(iv) upon the Borrower becoming aware that the Mortgaged Property in
respect of any Mortgage Loan has been damaged by waste, fire, earthquake or
earth movement, windstorm, flood, tornado or other casualty, or otherwise
damaged so as to materially and adversely affect the Collateral Value of such
Mortgage Loan;
(v) of entry of a judgment or decree against any Loan Party or its
respective Subsidiaries in an amount in excess of $2,500,000.
Each notice pursuant to this Section 7.04(a) (other than 7.04(a)(v))
shall be accompanied by a statement of a Responsible Officer of the Borrower
setting forth details of the occurrence referred to therein and stating what
action the Borrower has taken or proposes to take with respect thereto.
7.05 Other Information. The Borrower shall furnish to the Lender, as
-----------------
soon as available, copies of any and all proxy statements, financial statements
and reports which any Loan Party sends to its stockholders, and copies of all
regular, periodic and special reports, and all registration statements filed
with the Securities and Exchange Commission, any Governmental Authority which
supervises the issuance of securities by the Borrower.
7.06 Further Identification of Collateral. The Borrower will furnish
------------------------------------
to the Lender from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Lender or any Lender may reasonably request, all in reasonable
detail.
7.07 Mortgage Loan Determined to be Defective. Upon discovery by the
----------------------------------------
Borrower or the Lender of any breach of any representation or warranty listed on
Schedule 1 hereto applicable to any Mortgage Loan, the party discovering such
breach shall promptly give notice of such discovery to the other.
7.08 Monthly Reporting.
-----------------
(a) The Borrower shall deliver or cause to be delivered to the
Lender, no later than 11:00 a.m. eastern time two (2) Business Days prior to
each Payment Date (or such other day requested by Lender), a monthly servicing
report and Mortgage Loan Tape in a computer-readable format reasonably
acceptable to the Lender, listing and setting forth such information in respect
of, all Mortgage Loans as the Lender may reasonably request, including, without
limitation, the outstanding principal
<PAGE>
balance and delinquency status of each such Mortgage Loan as at the last day of
the prior calendar month, and shall provide to the Lender no later than seven
(7) days after the last day of each calendar month, (i) all information
delivered by the Servicer to the Borrower under the Servicing Agreement, (ii) a
Remittance Report in the form attached hereto as Exhibit I, (iii) if the
---------
Borrower and the Lender shall mutually agree (in accordance with Section 2.06
(b) hereof), a Borrowing Base Certificate in the form attached hereto as Exhibit
-------
H, and (v) any other information as the Lender shall reasonably request.
- -
(b) The Borrower shall deliver to the Lender, no later than seven
(7) days after the last day of any calendar month in which the list of Relevant
States listed on Schedule 5 is not complete, an updated complete copy of
Schedule 5.
(c) The Borrower shall cause the Servicer to provide to the Lender
on a monthly basis(i) an electronic transmission, on a loan-by-loan basis and in
the aggregate, with respect to the Mortgage Loans serviced hereunder by the
Servicer which were funded prior to the first day of the current month,
summarizing the Borrower's delinquency and loss experience with respect to
Mortgage Loans serviced by the Servicer (including, in the case of the Mortgage
Loans, the following categories: current, 30-59, 60-89, 90-119, 120-149 and
150+) and (ii) any other information reasonably requested by the Lender with
respect to the Mortgage Loans.
7.09 Financial Condition Covenants.
-----------------------------
(a) Maintenance of Tangible Net Worth. The Borrower will maintain
---------------------------------
Tangible Net Worth of not less than the greater of (i) $40,000,000 measured on a
monthly basis (as at the end of each month) or (ii) 85% of Tangible Net Worth at
the end of the most recently completed fiscal year plus 90% of capital
contributions made during such fiscal year plus 50% of positive year to date net
income.
7.10 Borrowing Base Deficiency. If at any time there exists a
--------------------------
Borrowing Base Deficiency the Borrower shall cure same in accordance with
Section 2.06 hereof.
7.11 Prohibition on Fundamental Changes. Neither Loan Party shall
----------------------------------
engage in any material business activities or operations unrelated to mortgage
banking or consumer finance, enter into any transaction of merger or
consolidation in which it is not the surviving entity, 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, except
that either Loan Party 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 such Loan Party.
7.12 Limitation on Liens on Collateral. The Borrower will not, nor
---------------------------------
will it permit or allow others to, create, incur or permit to exist any Lien,
security interest or claim on or to any of its Property, except for (i) Liens
(not otherwise permitted hereunder) which are created in connection with the
purchase of fixed assets and equipment necessary in the ordinary course of the
Borrower's business or to finance residual certificates issued in connection
with securitizations of mortgage loans completed by the Borrower which are
financed solely based on a pledge of such residual certificates; (ii) Liens in
connection with deposits or pledges to secure payment of workers' compensation,
unemployment insurance, old age pensions or other social security obligations,
in the ordinary course of business of the Borrower; (iii) 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; (iv) encumbrances consisting of zoning
regulations, easements,
<PAGE>
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; (v) Liens incurred in
connection with gestation repurchase agreements or similar arrangements under
which Borrower is required to repurchase mortgage-backed securities or mortgage
loans from the Lender; 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; (vi) Liens arising under hedging arrangements; (vii) Liens on Property of
the Borrower, which Property shall not include any of the Collateral hereunder,
created pursuant to the U.S. Bank Financing Documents or the PaineWebber
Financing Documents, and (viii) Liens on the Collateral created pursuant to this
Loan Agreement. The Borrower will defend the Collateral against, and will take
such other action as is necessary to remove, any Lien, security interest or
claim on or to the Collateral, other than the security interests created under
this Loan Agreement, and the Borrower will defend the right, title and interest
of the Lender in and to any of the Collateral against the claims and demands of
all persons whomsoever.
7.13 Limitation on Sale or Other Disposition of Collateral. The
-----------------------------------------------------
Borrower shall not convey, sell, lease, assign, transfer or otherwise dispose of
(collectively, "Transfer"), all or substantially all of its Property, business
or assets (including, without limitation, receivables and leasehold interests)
whether now owned or hereafter acquired or allow any Subsidiary to Transfer
substantially all of its assets to any Person; provided, that the Borrower may
after prior written notice to the Lender allow such action with respect to any
Subsidiary which is not a material part of the Borrower's overall business
operations.
7.14 Limitation on Transactions with Affiliates. Except for (i) the
------------------------------------------
guaranties of Indebtedness created under this Loan Agreement and under the U.S.
Bank Financing Documents, (ii) transfers by New Century of mortgage loans to
Borrower, and (iii) any transfers of mortgage loans permitted under the U.S.
Bank Financing Documents or the PaineWebber Financing Documents, neither Loan
Party nor their respective Subsidiaries shall enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate unless such transaction is
(a) not otherwise prohibited under this Loan Agreement, (b) in the ordinary
course of such Loan Party's business and (c) upon fair and reasonable terms no
less favorable to such Loan Party, as the case may be, than it would obtain in a
comparable arm's length transaction with a Person which is not an Affiliate.
7.15 Underwriting Guidelines. Without prior consent of the Lender,
-----------------------
which consent shall not be unreasonably withheld, the Borrower shall not amend
or otherwise modify the Underwriting Guidelines.
7.16 Limitations on Modifications, Waivers and Extensions of Mortgage
----------------------------------------------------------------
Loans. The Borrower will not, nor will it permit or allow others to, amend,
- -----
modify, terminate or waive any provision of any Mortgage Loan to which the
Borrower is a party in any manner which should reasonably be expected to
materially and adversely affect the value of such Mortgage Loan as Collateral.
7.17 Servicing. The Borrower shall not permit any Person other than
---------
the Servicer to service Mortgage Loans without the prior written consent of the
Lender.
7.18 Limitation on Distributions. After the occurrence and during the
---------------------------
continuation of any Event of Default, neither Loan Party shall make any payment
on account of, or set apart assets for, a sinking or other analogous fund for
the purchase, redemption, defeasance, retirement or other
<PAGE>
acquisition of any equity or partnership interest of such Loan Party, whether
now or hereafter outstanding, or make any other distribution in respect thereof,
either directly or indirectly, whether in cash or property or in obligations of
such Loan Party.
7.19 Use of Proceeds. Each Advance shall be used by the Borrower to
---------------
originate, acquire, fund, manage and service Mortgage Loans or otherwise in
connection with the conduct of its business as currently conducted.
7.20 Restricted Payments. After the occurrence of an Event of
--------------------
Default, neither Loan Party shall make any Restricted Payments.
7.21 Year 2000 Compliance. (a) The Borrower shall take and shall
--------------------
cause each of its Affiliates and the Servicer to take all such actions as are
reasonably necessary to successfully implement the Year 2000 Program and to
assure that the Year 2000 Issues will not have a material adverse effect on the
Borrower's operations or financial condition. At the request of the Lender, the
Borrower will provide a description of the Year 2000 Program, together with any
updates or progress reports with respect thereto. The Borrower shall provide
the Lender with immediate notice in writing in the event that the Lender has
reason to believe that the occurrence of the year 2000 will adversely affect the
Borrower's business or any Advances executed in connection herewith.
(b) By September 30, 1999, the Borrower shall be required to provide
written assurance to the Lender that it is year 2000 compliant. If satisfactory
assurance can not be made on such date, the Lender shall have no obligation to
make any additional Advances under this Agreement. In addition, the failure of
the Borrower to provide satisfactory assurance of year 2000 compliance within
thirty days thereafter shall constitute an Event of Default under this
Agreement.
7.22 Certificate of a Responsible Officer. At the time that each Loan
------------------------------------
Party delivers financial statements to the Lender in accordance with Section
7.01 hereof, such Loan Party shall forward to the Lender a certificate of a
Responsible Officer which demonstrates that the Loan Party is in compliance with
the covenants set forth in Section 7.09 above.
SECTION 8 Events of Default. Each of the following events shall
-----------------
constitute an event of default (an "Event of Default") hereunder:
----------------
a. Borrower Default in the Payment of any Advance or Guarantor Default in
----------------------------------------------------------------------
the Payment of Amounts Required Under Guaranty. The Borrower shall default in
- ----------------------------------------------
payment of any principal of or interest on any Advance when due (whether at
stated maturity, upon acceleration or at mandatory or optional prepayment) or
the Guarantors shall default in the payment of any amount required to be paid to
the Lender under the Guaranty; or
(b) Default in the Payment of Other Amount. Any Loan Party shall default
--------------------------------------
in the payment of any other amount payable by it hereunder or under any other
Loan Document, and such default shall have continued unremedied for five (5)
Business Days; or
(c) Failure of Representation or Warranty. Any representation, warranty or
-------------------------------------
certification made or deemed made by the Borrower herein (other than those in
Schedule 1 hereto unless Borrower shall have made any such representations or
warranties with knowledge that they were materially false or misleading at the
time made) or by any Loan Party in any other Loan Document or any certificate
furnished to the Lender pursuant to the provisions thereof, shall prove to have
been false or misleading in any material respect as of the time made or
furnished; or
<PAGE>
(d) Default of Covenant.
-------------------
(i) The Borrower shall fail to comply with the requirements of
Section 7.02(a) or (b), Section 7.03, Section 7.04(a)(i) or (iii), Section
7.09 through Section 7.13, and Section 7.18 through Section 7.21 or Section
11.15(b)(ii) hereof or the Guarantors shall fail to comply with the
requirements of Section 3(b) of the Guaranty and any such default shall
continue unremedied for a period of one (1) Business Day,
(ii) Any Loan Party shall fail to observe or perform any other
covenant, condition or agreement contained in this Loan Agreement or any
other Loan Document and such failure to observe or perform shall continue
unremedied for a period of seven (7) Business Days; or
(a) Cross Default. Any Loan Party or its respective Subsidiaries shall:
-------------
(i) default in any payment of principal of or interest on any
Indebtedness (other than the Advances) or in the payment of any Guarantee
Obligation, beyond the period of grace (not to exceed 30 days), if any,
provided in the instrument or agreement under which such Indebtedness or
Guarantee Obligation was created, if the aggregate amount of the
Indebtedness and/or Guarantee Obligations in respect of which such default
or defaults shall have occurred is $5,000,000 or more; or
(ii) default in the observance or performance of any other agreement
or condition relating to any Indebtedness (other than the Advances) or
Guarantee Obligation or contained in any instrument or agreement
evidencing, securing or relating thereto, in each case beyond the period of
grace (not to exceed 30 days), if any, provided in the instrument or
agreement under which such Indebtedness or Guarantee Obligation was
created; or
(iii) permit any other event to occur or condition exist that results
in a default on any Indebtedness; or
(iv) default in any other agreement between either Loan Party or any
of its respective Affiliates, on the one hand, and the Lender or any of its
Affiliates on the other hand, which has not been waived by the Lender, the
effect of which default or other event or condition is to cause, or give
the holder or holders of such Indebtedness or the beneficiary or
beneficiaries of such Guarantee Obligation (or a trustee or agent on behalf
of such holder or holders or beneficiary or beneficiaries) the immediate
right to cause, with the giving of notice if required, such Indebtedness to
become due prior to its stated maturity or such Guarantee Obligation to
become payable; or
(a) Unsatisfied Judgment. One or more judgments or decrees shall be
--------------------
entered against either Loan Party or any of its respective Subsidiaries
involving in the aggregate a liability (not paid or fully covered by insurance)
of $5,000,000 or more, and all such judgments or decrees shall not have been
vacated, discharged, stayed or bonded pending appeal within 90 days from the
entry thereof; or
(b) Inability to Pay Debts. Either Loan Party shall admit in writing its
----------------------
inability to pay its debts as such debts become due; or
(c) Voluntary Bankruptcy Event. Either Loan Party or any of its respective
--------------------------
Subsidiaries shall (i) apply for or consent to the appointment of, or the taking
of possession by, a receiver, custodian,
<PAGE>
trustee, examiner or liquidator of itself or of all or a substantial part of its
property, (ii) make a general assignment for the benefit of its creditors, (iii)
commence a voluntary case under the Bankruptcy Code, (iv) file a petition
seeking to take advantage of any other law relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or winding-up, or
composition or readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed against it in
an involuntary case under the Bankruptcy Code or (vi) take any corporate or
other action for the purpose of effecting any of the foregoing; or
(d) Involuntary Bankruptcy Event. A proceeding or case shall be commenced,
----------------------------
without the application or consent of either Loan Party or any of its respective
Subsidiaries, in any court of competent jurisdiction, seeking (i) its
reorganization, liquidation, dissolution, arrangement or winding-up, or the
composition or readjustment of its debts, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of the Loan Party or any
such Subsidiary or of all or any substantial part of its property, or (iii)
similar relief in respect of the Loan Party or any such Subsidiary under any law
relating to bankruptcy, insolvency, reorganization, winding-up, or composition
or adjustment of debts, and such proceeding or case shall continue undismissed,
or an order, judgment or decree approving or ordering any of the foregoing shall
be entered and continue unstayed and in effect, for a period of 60 or more days;
or an order for relief against the Loan Party or the Subsidiary shall be entered
in an involuntary case under the Bankruptcy Code; or
(e) Termination of Loan Documents. The Custodial Agreement, or any other
-----------------------------
Loan Document, shall for whatever reason be terminated or cease to be in full
force and effect, or the enforceability thereof shall be contested by any party
thereto; or
(f) ERISA Default. (i) any Person shall engage in any "prohibited
-------------
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to any
Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of
either Loan Party or any Commonly Controlled Entity, (iii) a Reportable Event
shall occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate, any
Single Employer Plan, which Reportable Event or commencement of proceedings or
appointment of a trustee is, in the reasonable opinion of the Lenders, likely to
result in the termination of such Plan for purposes of Title IV of ERISA, (iv)
any Single Employer Plan shall terminate for purposes of Title IV of ERISA, (v)
either Loan Party or any Commonly Controlled Entity shall, or in the reasonable
opinion of the Lenders is likely to, incur any liability in connection with a
withdrawal from, or the insolvency or reorganization of, a Multiemployer Plan or
(vi) any other event or condition shall occur or exist with respect to a Plan;
and in each case in clauses (i) through (vi) above, such event or condition,
together with all other such events or conditions, if any, could reasonably be
expected to have a Material Adverse Effect; or
(g) Material Adverse Effect. Any other event shall occur which, in the
-----------------------
sole good faith discretion of the Lender, may have a Material Adverse Effect; or
(h) Change of Control. Any Change of Control shall have occurred; or
-----------------
(i) Pre-Existing Condition. The discovery by the Lender during its
----------------------
continuing due diligence of the Borrower of a condition or event which existed
at or prior to the execution hereof and which the Lender, in its sole reasonable
discretion, determines materially and adversely affects: (i) the condition
<PAGE>
(financial or otherwise) of the Borrower, its Subsidiaries or Affiliates; or
(ii) the ability of either the Borrower or the Lender to fulfill its respective
obligations under this Agreement; or
(j) Other Liens. The Borrower shall grant, or suffer to exist, any Lien on
-----------
any Collateral except the Liens contemplated hereby; or the Liens contemplated
hereby shall cease to be first priority perfected Liens on the Collateral in
favor of the Lender or shall be Liens in favor of any Person other than the
Lender; or
(a) Failure to Answer. The Lender shall reasonably request, specifying the
-----------------
reasons for such request, information, and/or written responses to such
requests, regarding the financial well-being of the Borrower and such
information and/or responses shall not have been provided within three Business
Days of such request.
SECTION 9 Remedies Upon Default.
---------------------
(a) Upon the occurrence of one or more Events of Default other than
those referred to in Sections 8(h) or (i), and in addition to the remedies
provided in Section 4.07 hereof and otherwise provided in this Loan Agreement,
the Lender may immediately declare the principal amount of the Advances then
outstanding under the Note to be immediately due and payable, together with all
interest thereon and fees and expenses accruing under this Loan Agreement. Upon
the occurrence of an Event of Default referred to in Sections 8(h) or (i), and
in addition to the remedies provided in Section 4.07 hereof and otherwise
provided in this Loan Agreement, such amounts shall immediately and
automatically become due and payable without any further action by any Person.
Upon such declaration or such automatic acceleration, the balance then
outstanding on the Note shall become immediately due and payable, without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower.
(b) Upon the occurrence of one or more Events of Default, and in
addition to the remedies provided in Section 4.07 hereof and otherwise provided
in this Loan Agreement, the Lender shall have the right to obtain physical
possession of the Servicing Records and all other files of the Borrower relating
to the Collateral and all documents relating to the Collateral which are then or
may thereafter come in to the possession of the Borrower or any third party
acting for the Borrower and the Borrower shall deliver to the Lender such
assignments as the Lender shall request. The Borrower shall be responsible for
paying any fees of any Servicer resulting from the termination of a Servicer due
to an Event of Default. The Lender shall be entitled to specific performance of
all agreements of the Borrower contained in this Loan Agreement.
SECTION 10 No Duty of Lender. The powers conferred on the Lender
-----------------
hereunder are solely to protect the Lender's interests in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Lender shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act hereunder, except for its or their own gross negligence or willful
misconduct.
SECTION 11 Miscellaneous.
-------------
11.01 Waiver. No failure on the part of the Lender to exercise and
------
no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under any Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or
<PAGE>
privilege under any Loan Document preclude any other or further exercise thereof
or the exercise of any other right, power or privilege. The remedies provided
herein are cumulative and not exclusive of any remedies provided by law.
11.02 Notices. Except as otherwise expressly permitted by this Loan
-------
Agreement, all notices, requests and other communications provided for herein
and under the Custodial Agreement (including without limitation any
modifications of, or waivers, requests or consents under, this Loan Agreement)
shall be given or made in writing (including without limitation by telex or
telecopy) 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 written notice to
each other party. Except as otherwise provided in this Loan Agreement and except
for notices given under Section 2 (which shall be effective only on receipt),
all such communications shall be deemed to have been duly given when transmitted
by telex or telecopy or personally delivered or, in the case of a mailed notice,
upon receipt, in each case given or addressed as aforesaid.
11.03 Indemnification and Expenses.
----------------------------
(a) The Borrower agrees to hold the Lender and each of its
officers, directors, agents and employees (each, an "Indemnified Party")
-----------------
harmless from and indemnify each Indemnified Party against all liabilities,
losses, damages, judgments, costs and expenses of any kind which may be imposed
on, incurred by or asserted against such Indemnified Party in any suit, action,
claim or proceeding relating to or arising out of this Loan Agreement, the Note,
any other Loan Document or any transaction contemplated hereby or thereby, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Loan Agreement, the Note, any other Loan Document or any
transaction contemplated hereby or thereby, except, in each case, to the extent
arising from such Indemnified Party's gross negligence or willful misconduct. In
any suit, proceeding or action brought by the Lender in connection with any
Mortgage Loan for any sum owing thereunder, or to enforce any provisions of any
such Mortgage Loan, the Borrower will save, indemnify and hold the Lender
harmless from and against all expense, loss or damage suffered by reason of any
defense, set-off, counterclaim, recoupment or reduction or liability whatsoever
of the account debtor or obligor thereunder, arising out of a breach by the
Borrower of any obligation thereunder or arising out of any other agreement,
indebtedness or liability at any time owing to or in favor of such account
debtor or obligor or its successors from the Borrower. The Borrower also agrees
to reimburse the Lender as and when billed by the Lender for all the Lender's
costs and expenses incurred in connection with the enforcement or the
preservation of the Lender's rights under this Loan Agreement, the Note, any
other Loan Document or any transaction contemplated hereby or thereby, including
without limitation the fees and disbursements of its counsel (including all
reasonable fees and disbursements incurred in any action or proceeding between
the Borrower and an Indemnified Party or between an Indemnified Party and any
third party relating hereto). The Borrower hereby acknowledges that,
notwithstanding the fact that the Note is secured by the Collateral, the
obligation of the Borrower under the Note is a recourse obligation of the
Borrower.
(b) The Borrower agrees to pay as and when billed by the Lender all
of the out-of-pocket costs and expenses incurred by the Lender in connection
with the development, preparation and execution of, and any amendment,
supplement or modification to, this Loan Agreement, the Note, any other Loan
Document or any other documents prepared in connection herewith or therewith.
The Borrower agrees to pay as and when billed by the Lender all of the out-of-
pocket costs and expenses incurred in connection with the consummation and
administration of the transactions contemplated hereby and thereby, including
without limitation (i) all the reasonable fees, disbursements and expenses
<PAGE>
of counsel to the Lender in connection with the execution of this Loan Agreement
(which are not expected to exceed $50,000), (ii) all the due diligence,
inspection, testing and review costs and expenses incurred by the Lender with
respect to Collateral under this Loan Agreement including, but not limited to
those costs and expenses incurred by the Lender pursuant to Sections 11.03(a),
11.14 and 11.16 hereof and (iii) initial and ongoing fees and expenses incurred
by the Custodian in connection with the performance of its duties under the
Custodial Agreement.
11.04 Amendments. Except as otherwise expressly provided in this
----------
Loan Agreement, any provision of this Loan Agreement may be modified or
supplemented only by an instrument in writing signed by the Borrower and the
Lender and any provision of this Loan Agreement may be waived by the Lender.
11.05 Successors and Assigns. This Loan Agreement shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 Survival. The obligations of the Borrower under Sections 2.10
--------
and 11.03 hereof shall survive the repayment of the Advances and the termination
of this Loan Agreement. In addition, each representation and warranty made or
deemed to be made by a request for a borrowing herein or pursuant hereto shall
survive the making of such representation and warranty, and the Lender shall not
be deemed to have waived, by reason of making any Advance, any Default that may
arise by reason of such representation or warranty proving to have been false or
misleading, notwithstanding that the Lender may have had notice or knowledge or
reason to believe that such representation or warranty was false or misleading
at the time such Advance was made.
11.07 Captions. The table of contents and captions and section
--------
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this Loan
Agreement.
11.08 Counterparts. This Loan 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 Loan Agreement
by signing any such counterpart.
11.09 GOVERNING LAW; ETC. THIS LOAN AGREEMENT SHALL BE GOVERNED BY
------------------
THE LAW OF THE STATE OF NEW YORK WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE
(BUT WITH REFERENCE TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW,
WHICH BY ITS TERMS APPLIES TO THIS LOAN AGREEMENT), AND SHALL CONSTITUTE A
SECURITY AGREEMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE.
11.10 SUBMISSION TO JURISDICTION; WAIVER. EACH LOAN PARTY HEREBY
-----------------------------------
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS LOAN AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT
THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
<PAGE>
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN
SUCH COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT
IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING
IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL
(OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS
ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF
WHICH THE LENDER SHALL HAVE BEEN NOTIFIED; AND
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION.
11.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER
--------------------
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
11.12 Acknowledgments. The Borrower hereby acknowledges that:
---------------
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Loan Agreement, the Note and the other Loan Documents;
(b) the Lender has no fiduciary relationship to the Borrower, and
the relationship between the Borrower and the Lender is solely that of
debtor and creditor; and
(c) no joint venture exists between the Lender and the Borrower.
11.13 Hypothecation and Pledge of Collateral. The Lender shall have
--------------------------------------
free and unrestricted use of all Collateral and nothing in this Loan Agreement
shall preclude the Lender from engaging in repurchase transactions with the
Collateral or otherwise pledging, repledging, transferring, hypothecating, or
rehypothecating the Collateral. Nothing contained in this Loan Agreement shall
obligate the Lender to segregate any Collateral delivered to the Lender by the
Borrower.
11.14 Assignments; Participations.
---------------------------
(a) The Borrower may assign any of its rights or obligations
hereunder or under the Note with the prior written consent of the Lender. The
Lender may assign or transfer to any bank or other financial institution that
makes or invests in loans or any Affiliate of the Lender all or any of its
rights or obligations under this Loan Agreement and the other Loan Documents.
<PAGE>
(b) The Lender may, in accordance with applicable law, at any time
sell to one or more lenders or other entities ("Participants") participating
------------
interests in any Advance, the Note, its commitment to make Advances, or any
other interest of the Lender hereunder and under the other Loan Documents. In
the event of any such sale by the Lender of participating interests to a
Participant, the Lender's obligations under this Loan Agreement to the Borrower
shall remain unchanged, the Lender shall remain solely responsible for the
performance thereof, the Lender shall remain the holder of the Note for all
purposes under this Loan Agreement and the other Loan Documents, and the
Borrower and the Lender shall continue to deal solely and directly with the
Lender in connection with the Lender's rights and obligations under this Loan
Agreement and the other Loan Documents. The Borrower agrees that if amounts
outstanding under this Loan Agreement and the Note are due or unpaid, or shall
have been declared or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall be deemed to have the right of set-
off in respect of its participating interest in amounts owing under this Loan
Agreement and the Note to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under this Loan Agreement or the
Note; provided, that such Participant shall only be entitled to such right of
--------
set-off if it shall have agreed in the agreement pursuant to which it shall have
acquired its participating interest to share with the Lender the proceeds
thereof. The Lender also agrees that each Participant shall be entitled to the
benefits of Sections 2.08 and 11.03 with respect to its participation in the
Advances outstanding from time to time; provided, that the Lender and all
--------
Participants shall be entitled to receive no greater amount in the aggregate
pursuant to such Sections than the Lender would have been entitled to receive
had no such transfer occurred.
(c) The Lender may furnish any information concerning the Borrower
or any of its Subsidiaries in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants).
(d) The Borrower agrees to cooperate with the Lender in connection
with any such assignment and/or participation, to execute and deliver such
replacement notes, and to enter into such restatements of, and amendments,
supplements and other modifications to, this Loan Agreement and the other Loan
Documents in order to give effect to such assignment and/or participation. The
Borrower further agrees to furnish to any Participant identified by the Lender
to the Borrower copies of all reports and certificates to be delivered by the
Borrower to the Lender hereunder, as and when delivered to the Lender.
11.15 Servicing.
---------
(a) The Borrower covenants to maintain or cause the servicing of
the Mortgage Loans to be maintained in conformity with accepted customary and
prudent servicing practices in the industry for the same type of mortgage loans
as the Mortgage Loans and in a manner at least equal in quality to the servicing
the Borrower provides for Mortgage Loans which it owns ("Accepted Servicing
------------------
Practices"). In the event that the preceding language is interpreted as
- ---------
constituting one or more servicing contracts, each such servicing contract shall
terminate automatically upon the earlier of (i) an Event of Default, or (ii) the
Termination Date.
(b)(i)(A) The Borrower agrees that the Lender has a first priority,
perfected security interest in all servicing records, including but not limited
to any and all servicing agreements, files, documents, records, data bases,
computer tapes, copies of computer tapes, proof of insurance coverage, insurance
policies, appraisals, other closing documentation, payment history records, and
any other records relating to or evidencing the servicing of such Mortgage Loans
(the "Servicing Records"), and (B) the Borrower grants the Lender a security
-----------------
interest in all of the Borrower's rights relating to the
<PAGE>
Mortgage Loans (including the servicing rights related thereto) and all
Servicing Records to secure the obligation of the Borrower or its designee to
service in conformity with this Section and any other obligation of the Borrower
to the Lender. The Borrower covenants to safeguard such Servicing Records and
deliver them promptly to the Lender or its designee (including the Custodian) at
the Lender's request.
(ii) The Borrower and the Lender hereby agree that
notwithstanding the provisions of Subsection 11.15(b)(i) above, on the date of
this Loan Agreement, the Lender does not have a lien on the Servicing Records
attributable to the Mortgage Loans and that such Servicing Records may be
subject to a lien under the U.S. Bank Financing Facility Documents. The Borrower
shall, not later than 90 days following the date of this Loan Agreement, take
all necessary action to ensure that the Lender has a first priority, perfected
security interest in all such Servicing Records relating to the Mortgage Loans
not subject to any other lien, either created under the U.S. Bank Financing
Facility Documents or otherwise. The failure of the Borrower to grant the Lender
a first priority, perfected security interest in such Servicing Records within
such 90-day period shall constitute an Event of Default under this Loan
Agreement.
(c) After the Funding Date, until the pledge of any Mortgage Loan
is relinquished by the Custodian, the Borrower will have no right to modify or
alter the terms of such Mortgage Loan or consent to the alteration or
modification of the terms of such Mortgage Loan except with the prior written
consent of the Lender, and the Borrower will have no obligation or right to
repossess such Mortgage Loan or substitute another Mortgage Loan, except as
provided in the Custodial Agreement; provided, that the Borrower may enter into
forbearance agreements or plans with Mortgagors consistent with its collection
activities as servicer of the Mortgage Loans and in conformity with Accepted
Servicing Practices.
(d) The Borrower shall permit the Lender to inspect the Borrower's
or its Affiliate's servicing facilities, as the case may be, for the purpose of
satisfying the Lender that the Borrower or its Affiliate, as the case may be,
has the ability to service the Mortgage Loans as provided in this Loan
Agreement.
(e) The Borrower agrees that upon the occurrence of an Event of
Default, the Lender may terminate the Servicer in its capacity as servicer and
terminate any Servicing Agreement and transfer such servicing to the Lender or
its designee. The costs or expenses incurred in the transfer of servicing shall
be borne by the Borrower. The Lender shall be responsible for the execution of a
Servicing Agreement with such successor servicer. In addition, the Borrower
shall provide to the Lender an Instruction Letter from the Borrower to the
effect that upon the occurrence of an Event of Default, the Lender may terminate
any subservicer or Servicing Agreement and direct that collections with respect
to the Mortgage Loans be remitted in accordance with the Lender's instructions.
The Borrower and the Servicer agree to cooperate with the Lender in connection
with the transfer of servicing.
11.16 Periodic Due Diligence Review. The Borrower acknowledges that
-----------------------------
the Lender has the right to perform continuing due diligence reviews with
respect to the Mortgage Loans, for purposes of verifying compliance with the
representations, warranties and specifications made hereunder, or otherwise, and
the Borrower agrees that upon reasonable (but no less than one (1) Business
Day's) prior notice to the Borrower (which prior notice shall not be required
after the occurrence and during the continuation of a Default), the Lender or
its authorized representatives will be permitted during normal business hours to
examine, inspect, and make copies and extracts of, the Mortgage Files and any
and all documents, records, agreements, instruments or information relating to
such Mortgage Loans in the possession or under the control of the Borrower
and/or the Custodian. The Borrower also
<PAGE>
shall make available to the Lender a knowledgeable financial or accounting
officer for the purpose of answering questions respecting the Mortgage Files and
the Mortgage Loans. Without limiting the generality of the foregoing, the
Borrower acknowledges that the Lender shall make Advances to the Borrower based
solely upon the information provided in the monthly reports by the Borrower to
the Lender and the representations, warranties and covenants contained herein,
and that the Lender, at its option, has the right at any time to conduct a
partial or complete due diligence review on some or all of the Mortgage Loans
securing such Advance, including without limitation ordering new credit reports
and new appraisals on the related Mortgaged Properties and otherwise re-
generating the information used to originate such Mortgage Loan. The Lender may
underwrite such Mortgage Loans itself or engage a mutually agreed upon third
party underwriter to perform such underwriting. The Borrower agrees to cooperate
with the Lender and any third party underwriter in connection with such
underwriting, including, but not limited to, providing the Lender and any third
party underwriter with access to any and all documents, records, agreements,
instruments or information relating to such Mortgage Loans in the possession, or
under the control, of the Borrower. In addition, the Lender has the right to
perform continuing Due Diligence Reviews of the Borrower, the Guarantors, and
their respective Affiliates, directors, officers, employees and significant
shareholders. The Borrower and Lender further agree that all out-of-pocket costs
and expenses incurred by the Lender in connection with the Lender's activities
pursuant to this Section 11.16, shall be paid for as agreed by such parties.
11.17 Set-Off. In addition to any rights and remedies of the Lender
-------
provided by this Loan Agreement and by law, the Lender shall have the right,
without prior notice to the Borrower, any such notice being expressly waived by
the Borrower to the extent permitted by applicable law, upon any amount becoming
due and payable by the Borrower hereunder (whether at the stated maturity, by
acceleration or otherwise) to set-off and appropriate and apply against such
amount any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by the Lender or any Affiliate
thereof to or for the credit or the account of the Borrower. The Lender agrees
promptly to notify the Borrower after any such set-off and application made by
the Lender; provided that the failure to give such notice shall not affect the
--------
validity of such set-off and application.
11.18 Intent. The parties recognize that each Advance is a
------
"securities contract" as that term is defined in Section 741 of Title 11 of the
United States Code, as amended.
11.19 Confidential Information.
------------------------
(a) The Lender hereby acknowledges and agrees that all written or
computer readable information provided by any Loan Party to the Lender regarding
any Loan Party or the Collateral (the "Loan Party's Confidential Information"),
-------------------------------------
shall be kept confidential and each of their respective contents will not be
divulged to any party without each Loan Party's consent except to the extent
that (i) the Lender deems appropriate to do so in working with legal counsel,
auditors, taxing authorities or other governmental agencies or regulatory bodies
or in order to comply with any applicable federal or state laws, (ii) any
portion of the Loan Party's Confidential Information is in the public domain
other than due to a breach of this covenant, (iii) the Lender deems appropriate
in connection with exercising any or all of the Lender's rights or remedies or
complying with any obligations under any of the Loan Documents.
(b) Each Loan Party hereby acknowledges and agrees that all written
or computer readable information provided by the Lender to any Loan Party
regarding the Lender (the "Lender's Confidential Information"), shall be kept
---------------------------------
confidential and each of their respective contents will not be
<PAGE>
divulged to any party without the Lender's consent except to the extent that (i)
such Loan Party deems appropriate to do so in working with legal counsel,
auditors, taxing authorities or other governmental agencies or regulatory bodies
or in order to comply with any applicable federal or state laws, (ii) any
portion of the Lender's Confidential Information is in the public domain other
than due to a breach of this covenant, (iii) such Loan Party deems appropriate
in connection with exercising any or all of such Loan Party's rights or remedies
or complying with any obligations under any of the Loan Documents.
(c) The provisions set forth in this Section 11.19 shall survive the
termination of this Loan Agreement for a period of two years following such
termination.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be duly executed and delivered as of the day and year first above written.
BORROWER
--------
NC CAPITAL CORPORATION
By /s/ John Kontoulis
--------------------------------
Name: ___________________________
Title: Senior Vice President
--------------------------
Address for Notices:
-------------------
NC Capital Corporation
18400 Von Karman
Suite 1000
Irvine, California 92612
Attention:______
Telecopier No.: (949) 440-7033
Telephone No.: (949) 440-7030
LENDER
------
GREENWICH CAPITAL FINANCIAL
PRODUCTS, INC.
By /s/ Dawn Palaccio
--------------------------------
Name: __________________________
Title: Vice President
----------------------------
Address for Notices:
--------------------
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Anthony Palmisano
Telecopier No.: (203) 618-2135
Telephone No.: (203) 625-2341
<PAGE>
Schedule 1
REPRESENTATIONS AND WARRANTIES RE: MORTGAGE LOANS
Eligible Mortgage Loans
-----------------------
As to each Mortgage Loan included in the Borrowing Base on a Funding
Date (and the related Mortgaged Property), the Borrower shall be deemed to make
the following representations and warranties to the Lender on and as of such
Funding Date and at all times thereafter while such Mortgage Loan is included in
the Borrowing Base (with respect to any representations and warranties made to
the best of the Borrower's knowledge, in the event that it is discovered that
the circumstances with respect to the related Mortgage Loan are not accurately
reflected in such representation and warranty notwithstanding the knowledge or
lack of knowledge of the Borrower, then, notwithstanding that such
representation and warranty is made to the best of the Borrower's knowledge,
such Mortgage Loan shall be assigned a Collateral Value in accordance with the
definition thereof in the Loan Agreement):
(a) Mortgage Loans as Described. The information set forth in the
---------------------------
Mortgage Loan Schedule accompanying the related Notice of Borrowing and Pledge
is true and correct;
(b) Reserved.
--------
(c) No Outstanding Charges. There are no defaults in complying with
----------------------
the terms of the Mortgage securing the Mortgage Loan, and all taxes,
governmental assessments, insurance premiums, water, sewer and municipal
charges, leasehold payments or ground rents which previously became due and
owing have been paid, or an escrow of funds has been established in an amount
sufficient to pay for every such item which remains unpaid and which has been
assessed but is not yet due and payable. Neither the Borrower nor the Qualified
Originator from which the Borrower acquired the Mortgage Loan has advanced
funds, or induced, solicited or knowingly received any advance of funds by a
party other than the Mortgagor, directly or indirectly, for the payment of any
amount required under the Mortgage Loan, except for interest accruing from the
date of the Mortgage Note or date of disbursement of the proceeds of the
Mortgage Loan, whichever is more recent, to the day which precedes by one month
the Due Date of the first installment of principal and interest;
(d) Original Terms Unmodified. The terms of the Mortgage Note and
-------------------------
Mortgage have not been impaired, waived, altered or modified in any respect,
except by a written instrument which has been recorded, if necessary to protect
the interests of the Lender and which has been delivered to the Custodian and
the terms of which are reflected in the Mortgage Loan Schedule. The substance of
any such waiver, alteration or modification has been approved by the title
insurer, to the extent required by the policy, and its terms are reflected on
the Mortgage Loan Schedule. No Mortgagor has been released, in whole or in part,
except in connection with an assumption agreement approved by the title insurer,
to the extent required by the policy, and which assumption agreement is part of
the Mortgage File delivered to the Custodian and the terms of which are
reflected in the Mortgage Loan Schedule;
(e) No Defenses. The Mortgage Loan is not subject to any right of
-----------
rescission, set-off, counterclaim or defense, including without limitation the
defense of usury, nor will the operation of
<PAGE>
any of the terms of the Mortgage Note or the Mortgage, or the exercise of any
right thereunder, render either the Mortgage Note or the Mortgage unenforceable,
in whole or in part, and no such right of rescission, set-off, counterclaim or
defense has been asserted with respect thereto; and no Mortgagor was a debtor in
any state or federal bankruptcy or insolvency proceeding at the time the
Mortgage Loan was originated;
(f) Hazard Insurance. Pursuant to the terms of the Mortgage, all
----------------
buildings or other improvements upon the Mortgaged Property are insured by an
insurer who meets Fannie Mae and/or Freddie Mac guidelines against loss by fire,
hazards of extended coverage and such other hazards as are customary in the area
where the Mortgaged Property is located pursuant to insurance policies
conforming to the requirements of the Underwriting Guidelines. If upon
origination of the Mortgage Loan, the Mortgaged Property was in an area
identified in the Federal Register by the Federal Emergency Management Agency as
having special flood hazards (and such flood insurance was required by federal
regulation and such flood insurance has been made available) a flood insurance
policy meeting the requirements of the current guidelines of the Federal
Insurance Administration is in effect. All individual insurance policies contain
a standard mortgagee clause naming the loan originator or the Borrower and its
respective successors and assigns as mortgagee, and all premiums thereon have
been paid. The Mortgage obligates the Mortgagor thereunder to maintain the
hazard insurance policy at the Mortgagor's cost and expense, and on the
Mortgagor's failure to do so, authorizes the holder of the Mortgage to obtain
and maintain such insurance at such Mortgagor's cost and expense, and to seek
reimbursement therefor from the Mortgagor. Where required by state law or
regulation, the Mortgagor has been given an opportunity to choose the carrier of
the required hazard insurance, provided the policy is not a "master" or
"blanket" hazard insurance policy covering a condominium, or any hazard
insurance policy covering the common facilities of a planned unit development.
The hazard insurance policy is the valid and binding obligation of the insurer,
is in full force and effect, and will be in full force and effect and inure to
the benefit of the Lender upon the consummation of the transactions contemplated
by this Loan Agreement. The Borrower has not engaged in, and has no knowledge of
the Mortgagor's having engaged in, any act or omission which would impair the
coverage of any such policy, the benefits of the endorsement provided for
herein, or the validity and binding effect of either including, without
limitation, no unlawful fee, commission, kickback or other unlawful compensation
or value of any kind has been or will be received, retained or realized by an
attorney, firm or other person or entity and no such unlawful items have been
received, retained or realized by the Borrower;
(g) Compliance with Applicable Laws. Any and all requirements of any
-------------------------------
federal, state or local law including, without limitation, usury, truth-in-
lending, real estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage Loan have been
complied with in all material respects, the consummation by Borrower of the
transactions contemplated hereby will not involve the violation of any such laws
or regulations, and the Borrower shall maintain in its possession, available for
the Lender's inspection, to the extent required by law, and shall deliver to the
Lender upon demand, evidence of compliance with all such requirements;
(h) No Satisfaction of Mortgage. The Mortgage has not been
---------------------------
satisfied, canceled, subordinated (other than, if a Second Lien Mortgage Loan,
as expressly set forth in paragraph (j) of this Schedule 1) or rescinded, in
whole or in part, and the Mortgaged Property has not been released from the lien
of the Mortgage, in whole or in part, nor has any instrument been executed that
would effect any such release, cancellation, subordination (other than, if a
Second Lien Mortgage Loan, in connection with the first lien referenced in
paragraph (j) of this Schedule 1) or rescission. The Borrower has not waived the
performance by the Mortgagor of any action, if the Mortgagor's failure to
perform such
<PAGE>
action would cause the Mortgage Loan to be in default, nor has the Borrower
waived any default resulting from any acting or inaction by the Mortgagor;
(i) Location and Type of Mortgaged Property. The Mortgaged Property
---------------------------------------
is located in the state identified in the Mortgage Loan Schedule and consists of
a parcel or parcels of real property with a detached single family residence
erected thereon, or a two- to four-family dwelling, or an individual condominium
unit in a low-rise or high-rise condominium project, or an individual unit in a
planned unit development or a de minimis planned unit development, provided,
however, that any condominium unit or planned unit development shall conform
with the applicable Fannie Mae and Freddie Mac requirements regarding such
dwellings and that no residence or dwelling is a mobile home or a manufactured
dwelling which is not real estate under applicable state law. No portion of the
Mortgaged Property is used for commercial purposes;
(j) Valid First or Second Lien. The Mortgage is a valid, subsisting,
--------------------------
enforceable, and perfected first or second lien on the Mortgaged Property,
including all buildings on the Mortgaged Property and all installations and
mechanical, electrical, plumbing, heating and air conditioning systems located
in or annexed to such buildings, and all additions, alterations and replacements
made at any time with respect to the foregoing. The lien of the Mortgage is
subject only to: (i) the lien of current real property taxes and assessments not
yet due and payable; (ii) covenants, conditions and restrictions, rights of way,
easements and other matters of the public record as of the date of recording
acceptable to mortgage lending institutions generally and specifically referred
to in the lender's title insurance policy delivered to the originator of the
Mortgage Loan and (A) referred to or to otherwise considered in the appraisal
(if any) made for the originator of the Mortgage Loan or (B) which do not
adversely affect the appraised value of the Mortgaged Property set forth in such
appraisal; (iii) other matters to which like properties are commonly subject
which do not materially interfere with the benefits of the security intended to
be provided by the Mortgage or the use, enjoyment, value or marketability of the
related Mortgaged Property; and (iv) in the case of a Second Lien Mortgage Loan,
a First Lien on the Mortgaged Property. Any security agreement, chattel mortgage
or equivalent document related to and delivered in connection with the Mortgage
Loan establishes and creates a valid, subsisting and enforceable first or second
lien and first or second priority security interest on the property described
therein and the Borrower has full right to sell and assign the same to the
Lender. The Mortgaged Property was not, as of the date of origination of the
Mortgage Loan, subject to a mortgage, deed of trust, deed to secure debt or
other security instrument made by the Borrower creating a lien subordinate to
the lien of the Mortgage;
(k) Validity of Mortgage Documents. The Mortgage Note, the Mortgage
------------------------------
and any other agreement executed and delivered by a Mortgagor in connection with
a Mortgage Loan are genuine, and each is the legal, valid and binding obligation
of the maker thereof enforceable in accordance with its terms. All parties to
the Mortgage Note, the Mortgage and any other related agreement had legal
capacity to enter into the Mortgage Loan and to execute and deliver the Mortgage
Note, the Mortgage and any such agreement, and the Mortgage Note, the Mortgage,
and any other such related agreement have been duly and properly executed by
such parties. To the best of Borrower's knowledge, no fraud, error, omission,
misrepresentation, negligence, or similar occurrence with respect to a Mortgage
Loan has taken place on the part of any Person, including, without limitation,
the Mortgagor, any appraiser, any builder or developer, or any other party
involved in the origination of the Mortgage Loan. The Borrower has reviewed all
of the documents constituting the Mortgage File and has made such inquiries as
it deems necessary to make and confirm the accuracy of the representations set
forth herein;
<PAGE>
(l) Full Disbursement of Proceeds. The proceeds of the Mortgage
-----------------------------
Loan have been fully disbursed and there is no requirement for future advances
and any and all requirements as to completion of any on-site or off-site
improvement and as to disbursements of any escrow funds therefor have been
complied with. All costs, fees and expenses incurred in making or closing the
Mortgage Loan and the recording of the Mortgage were paid, and the Mortgagor is
not entitled to any refund of any amounts paid or due under the Mortgage Note or
Mortgage;
(m) Ownership. The Borrower is the sole owner of record and holder of
---------
the Mortgage Loan. All Mortgage Loans acquired by the Borrower from third
parties (including affiliates) were acquired in a true and legal sale pursuant
to which such third party sold, transferred, conveyed and assigned to the
Borrower all of its right, title and interest in, to and under such Mortgage
Loan and retained no interest in such Mortgage Loan. In connection with such
sale, such third party received reasonably equivalent value and fair
consideration and, in accordance with GAAP and for federal income tax purposes,
reported the sale of such Mortgage Loan to the Borrower as a sale of its
interests in such Mortgage Loan. The Mortgage Loan is not assigned or pledged
(other than as contemplated under the Loan Agreement), and the Borrower has good
indefeasible and marketable title thereto, and has full right to transfer and
pledge the Mortgage Loan therein to the Lender free and clear of any
encumbrance, equity, participation interest, lien, pledge, charge, claim or
security interest, and has full right and authority subject to no interest or
participation of, or agreement with, any other party, to pledge and assign each
Mortgage Loan pursuant to this Loan Agreement and following the pledge of each
Mortgage Loan, the Lender will hold such Mortgage Loan free and clear of any
encumbrance, equity, participation interest, lien, pledge, charge, claim or
security interest except any such security interest created pursuant to the
terms of this Loan Agreement;
(n) Doing Business. All parties which have had any interest in the
--------------
Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such interest, were) (i) in
compliance with any and all applicable licensing requirements of the laws of the
state wherein the Mortgaged Property is located, and (ii) (A) organized under
the laws of such state, or (B) qualified to do business in such state, or (C) a
federal savings and loan association, savings bank or a national bank having its
principal office in such state, or (D) not doing business in such state;
(o) LTV. As of the date of origination of the Mortgage Loan, the LTV
---
and CLTV are as identified in the applicable Mortgage Loan Schedule;
(p) Title Insurance. The Mortgage Loan is covered by a limited
---------------
liability lender's title insurance policy or such other form of policy of
insurance acceptable to Fannie Mae or Freddie Mac for loans similar to the
Mortgage Loans issued by a title insurer qualified to do business in the
jurisdiction where the Mortgaged Property is located, insuring the Borrower, its
successors and assigns, as to the priority of its lien of the Mortgage in the
original principal amount of the Mortgage Loan, and subject only to the
exceptions contained in clauses (1), (2), (3) and (4) of paragraph (j) above.
Where required by state law or regulation, the Mortgagor has been given the
opportunity to choose the carrier of the required mortgage title insurance.
Immediately prior to the sale of the Mortgage Loan to the Lender under the terms
of this Loan Agreement, the Borrower, its successors and assigns were the sole
insureds of such lender's title insurance policy. Such lender's title insurance
policy is in full force and effect and will be in force and effect upon the
consummation of the transactions contemplated by this Loan Agreement. No claims
have been made under such lender's title insurance policy, and no prior holder
of the Mortgage, including the Borrower, has done, by act or omission, anything
which should reasonably
<PAGE>
be expected to impair the coverage of such lender's title insurance policy. In
connection with the issuance of such lender's title insurance policy, no
unlawful fee, commission, kickback or other unlawful compensation or value of
any kind has been or will be received, retained or realized by any attorney,
firm or other persons or entity, and no such unlawful items have been received,
retained or realized by the Company;
(q) First Lien Consent. With respect to each Mortgage Loan which is
------------------
a Second Lien Mortgage Loan (i) if the related First Lien provides for negative
amortization, the LTV was calculated at the maximum principal balance of such
First Lien that could result upon application of such negative amortization
feature, and (ii) either no consent for the Mortgage Loan is required by the
holder of the First Lien or such consent has been obtained as in contained in
the Mortgage File;
(r) No Defaults; Right to Cure; No Failure to Cure. If a First Lien
----------------------------------------------
Mortgage Loan, there is no default, breach, violation or event of acceleration
existing under the Mortgage or the Mortgage Note and no event has occurred
which, with the passage of time or with notice and the expiration of any grace
or cure period, would constitute a default, breach, violation or event of
acceleration (other than those payment delinquencies permitted by paragraph (a)
of this Schedule 1), and neither the Borrower nor its predecessors have waived
any default, breach, violation or event of acceleration. If a Second Lien
Mortgage Loan, (a) to the best of the Borrower's knowledge the First Lien is in
full force and effect, (b) there is no default, breach, violation or event of
acceleration existing under such First Lien mortgage or the related-mortgage
note, and (c) there has occurred no event which, with the passage of time or
with notice and the expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration thereunder acceleration
(other than those payment delinquencies permitted by paragraph (a) of this
Schedule 1). If a Second Lien Mortgage Loan, either (i) the First Lien mortgage
contains a provision which allows or (ii) applicable law requires, the mortgagee
under the second lien Mortgage Loan to receive notice of, and affords such
mortgagee an opportunity to cure any default under the First Lien mortgage, and
the Borrower has not received notice of any such default which has not been
cured. For purposes of the foregoing, a delinquent payment of less than 30 days
on a Mortgage Loan or Mortgage Note in and of itself does not constitute a
default, breach, violation or event of acceleration with respect to such
Mortgage Loan or Mortgage Note;
(s) No Mechanics' Liens There are no mechanics' or similar liens or
-------------------
claims which have been filed for work, labor or material (and no rights are
outstanding that under the law could give rise to such liens) affecting the
related Mortgaged Property which are or may be liens prior to, or equal or
coordinate with, the lien of the related Mortgage;
(t) Location of Improvements; No Encroachments. All improvements
------------------------------------------
which were considered in determining the Appraised Value of the Mortgaged
Property lay wholly within the boundaries and building restriction lines of the
Mortgaged Property and no improvements on adjoining properties encroach upon the
Mortgaged Property. No improvement located on or being part of the Mortgaged
Property is in violation of any applicable zoning and building law, ordinance or
regulation;
(u) Origination: Payment Terms. The Mortgage Loan was originated
--------------------------
(for purposes of the Seconary Mortgage Market Enhancement Act of 1984) by or in
conjunction with a mortgagee approved by the Secretary of Housing and Urban
Development pursuant to Sections 203 and 211 of the National Housing Act, a
savings and loan association, a savings bank, a commercial bank, credit union,
insurance company or similar banking institution which is supervised and
examined by a federal or state authority. Principal payments on the Mortgage
Loan commenced no more than sixty (60) days after funds were disbursed in
connection with the Mortgage Loan. To the best of the Borrower's knowledge,
<PAGE>
the documents, instruments and agreements submitted for loan underwriting were
not falsified and contain no untrue statement of material fact or omit to state
a material fact required to be stated therein. The Mortgage Note has the terms
identified in the applicable Mortgage Loan Schedule;
(v) Customary Provisions. The Mortgage Note has a stated maturity.
--------------------
The Mortgage contains customary and enforceable provisions such as to render the
rights and remedies of the holder thereof adequate for the realization against
the Mortgaged Property of the benefits of the security provided thereby,
including, (i) in the case of a Mortgage designated as a deed of trust, by
trustee's sale, and (ii) otherwise by judicial foreclosure. Upon default by a
Mortgagor on a Mortgage Loan and foreclosure on, or trustee's sale of, the
Mortgaged Property pursuant to the proper procedures, the holder of the Mortgage
Loan will be able to deliver good and marketable title to the Mortgaged
Property. There is no homestead or other exemption available to a Mortgagor
which would interfere with the right to sell the Mortgaged Property at a
trustee's sale or the right to foreclose the Mortgage;
(w) Conformance with Underwriting Guidelines and Agency Standards.
-------------------------------------------------------------
The Mortgage Loan was underwritten in accordance with, and the Mortgage Loan and
Mortgaged Property conform to, the Borrower's applicable Underwriting
Guidelines. The Mortgage Note and Mortgage are on forms similar to those used by
Freddie Mac or Fannie Mae and the Borrower has not made any representations to a
Mortgagor that are inconsistent with the mortgage instruments used;
(x) Occupancy of the Mortgaged Property. The Mortgaged Property is
-----------------------------------
lawfully occupied under applicable law. All inspections, licenses and
certificates required to be made or issued with respect to all occupied portions
of the Mortgaged Property and, with respect to the use and occupancy of the
same, including but not limited to certificates of occupancy and fire
underwriting certificates, have been made or obtained from the appropriate
authorities. The Borrower has not received written notification from any
governmental authority that the Mortgaged Property is in material non-compliance
with such laws or regulations, is being used, operated or occupied unlawfully or
has failed to have or obtain such inspection, licenses or certificates, as the
case may be. The Borrower has not received notice of any violation or failure to
conform with any such law, ordinance, regulation, standard, license or
certificate. Except to the extent the Mortgaged Property is non-owner occupied
as permitted by the Underwriting Guidelines, the Mortgagor represented at the
time of origination of the Mortgage Loan that the Mortgagor would occupy the
Mortgaged Property as the Mortgagor's primary residence;
(y) No Additional Collateral. The Mortgage Note is not and has not
------------------------
been secured by any collateral except the lien of the corresponding Mortgage and
the security interest of any applicable security agreement or chattel mortgage
referred to in (j) above;
(z) Deeds of Trust. In the event the Mortgage constitutes a deed of
--------------
trust, a trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in the Mortgage, and no
fees or expenses are or will become payable by the Lender to the trustee under
the deed of trust, except in connection with a trustee's sale after default by
the Mortgagor;
(aa) Acceptable Investment. No specific circumstances or conditions
---------------------
exist with respect to the Mortgage, the Mortgaged Property, the Mortgagor or the
Mortgagor's credit standing that should reasonably be expected to (i) cause
private institutional investors which invest in Mortgage Loans similar to the
Mortgage Loan to regard the Mortgage Loan as an unacceptable investment, (ii)
cause the Mortgage Loan to be more likely to become past due in comparison to
similar Mortgage Loans, or (iii)
<PAGE>
adversely affect the value or marketability of the Mortgage Loan in comparison
to similar Mortgage Loans;
(bb) Delivery of Mortgage Documents. The Mortgage Note, the Mortgage,
------------------------------
the Assignment of Mortgage and any other documents required to be delivered for
the Mortgage Loan by the Borrower under the Custodial Agreement have been
delivered to the Custodian at or prior to the time specified for delivery in the
Custodial Agreement.
(cc) Assignment of Mortgage. The Assignment of Mortgage is in
----------------------
form and is acceptable for recording under the laws of the jurisdiction in which
the Mortgaged Property is located;
(dd) Due on Sale. The Mortgage contains an enforceable provision for
-----------
the acceleration of the payment of the unpaid principal balance of the Mortgage
Loan in the event that the Mortgaged Property is sold or transferred without the
prior written consent of the mortgagee thereunder;
(ee) No Buydown Provisions: No Graduated Payments or Contingent
----------------------------------------------------------
Interests. The Mortgage Loan does not contain provisions pursuant to which
- ---------
Monthly Payments are paid or partially paid with funds deposited in any separate
account established by the Borrower, the Mortgagor or anyone on behalf of the
Mortgagor, or paid by any source other than the Mortgagor nor does it contain
any other similar provisions currently in effect which may constitute a
"buydown" provision. The Mortgage Loan is not a graduated payment Mortgage Loan
and the Mortgage Loan does not have a shared appreciation or other contingent
interest feature;
(ff) Consolidation of Future Advances. Any future advances made after
--------------------------------
origination of the Mortgage Loan have been consolidated with the outstanding
principal amount secured by the Mortgage, and the secured principal amount, as
consolidated, bears a single interest rate and single repayment term. The lien
of the Mortgage securing the consolidated principal amount is expressly insured
as having second lien priority by a title insurance policy, an endorsement to
the policy insuring the mortgagee's consolidated interest or by other title
evidence satisfying paragraph (p) above. The consolidated principal amount does
not exceed the original principal amount of the Mortgage Loan;
(gg) Mortgaged Property Undamaged: Condemnation. The Mortgaged
------------------------------------------
Property is undamaged by waste, fire, earthquake or earth movement, windstorm,
flood, tornado or other casualty so as to adversely affect the value of the
Mortgaged Property as security for the Mortgage Loan or the use for which the
premises were intended and each Mortgaged Property is in good repair. There have
not been any condemnation proceedings with respect to the Mortgaged Property and
the Borrower has no knowledge of any such proceedings in the future;
(hh) Collection Practices; Escrow Deposits. The origination and
-------------------------------------
collection practices used by the originator, each servicer of the Mortgage Loan
and the Borrower with respect to the Mortgage Loan have been in all respects in
compliance with Accepted Servicing Practices, applicable laws and regulations,
and have been in all respects legal and proper and consistent with industry
standards for mortgage loans of the same type as the Mortgage Loan. With respect
to escrow deposits and Escrow Payments, if any, in the case of Second Lien
Mortgage Loans to the extent such Escrow Payments are not collected by the
mortgagee or its designee under the First Lien, all such payments are in the
possession of, or under control of, the Borrower and there exist no deficiencies
in connection therewith for which customary arrangements for repayment thereof
have not been made. All Escrow Payments, if any, have been collected in full
compliance with state and federal law. An escrow of funds
<PAGE>
is not prohibited by applicable law and, to the extent such Escrow Payments are
not collected by the mortgagee or its designee under the First Lien, any escrow
that has been established is in an amount sufficient to pay for every item that
remains unpaid and has been assessed but is not yet due and payable. No escrow
deposits or Escrow Payments or other charges or payments due the Borrower have
been capitalized under the Mortgage or the Mortgage Note. Any interest required
to be paid pursuant to state and local law has been properly paid and credited;
(ii) Appraisal. The Mortgage File contains an appraisal of the
---------
related Mortgaged Property signed prior to the approval of the Mortgage Loan
application by a qualified appraiser, duly appointed by the Borrower or the
Qualified Originator, who had no interest, direct or indirect in the Mortgaged
Property or in any loan made on the security thereof, and whose compensation is
not affected by the approval or disapproval of the Mortgage Loan, and the
appraisal and appraiser both satisfy the requirements of Title XI of the Federal
Institutions Reform, Recovery and Enforcement Act of 1989, as amended, and the
regulations promulgated thereunder, as in effect on the date the Mortgage Loan
was originated;
(jj) Soldiers' and Sailors' Relief Act. The Mortgagor has not
---------------------------------
notified the Borrower, and the Borrower has no knowledge of any relief requested
or allowed to the Mortgagor under the Soldiers' and Sailors' Civil Relief Act of
1940;
(kk) Environmental Matters. To the Borrower's actual knowledge, the
---------------------
Mortgaged Property is free from any and all toxic or hazardous substances and
there exists no violation of any local, state or federal environmental law, rule
or regulation;
(ll) Construction or Rehabilitation of Mortgaged Property. No
----------------------------------------------------
Mortgage Loan was made in connection with the construction or rehabilitation of
a Mortgaged Property or facilitating the trade-in or exchange of a Mortgaged
Property;
(mm) Ground Leases. With respect to each ground lease to which the
-------------
Mortgaged Property is subject (a "Ground Lease"): (i) the Mortgagor is the owner
------------
of a valid and subsisting interest as tenant under the Ground Lease; (ii) the
Ground Lease is in full force and effect, unmodified and not supplemented by any
writing or otherwise; (iii) all rent, additional rent and other charges reserved
therein have been paid to the extent they are payable to the date hereof; (iv)
the Mortgagor enjoys the quiet and peaceful possession of the estate demised
thereby, subject to any sublease; (v) the Mortgagor is not in default under any
of the terms thereof and there are no circumstances which, with the passage of
time or the giving of notice or both, would constitute an event of default
thereunder; (vii) the lessor under the Ground Lease is not in default under any
of the terms or provisions thereof on the part of the lessor to be observed or
performed; (vii) the lessor under the Ground Lease has satisfied all of its
repair or construction obligations, if any, to date pursuant to the terms of the
Ground Lease; and (ix) the execution, delivery and performance of the Mortgage
do not require the consent (other than those consents which have been obtained
and are in full force and effect) under, and will not contravene any provision
of or cause a default under, the Ground Lease.
(nn) No Defense to Insurance Coverage. No action has been taken or
--------------------------------
failed to be taken, no event has occurred and no state of facts exists or has
existed (whether or not known to the Borrower on or prior to such date) which
has resulted or will result in an exclusion from, denial of, or defense to
coverage under any applicable pool policy, special hazard insurance policy, or
bankruptcy bond (including, without limitation, any exclusions, denials or
defenses which would limit or reduce the availability of the timely payment of
the full amount of the loss otherwise due thereunder to the insured),
<PAGE>
whether arising out of actions, representations, errors, omissions, negligence,
or fraud of the Borrower, the related Mortgagor or any party involved in the
application for such insurance or coverage, including the appraisal, plans and
specifications and other exhibits or documents submitted therewith to the
insurer or under any such insurance policy, or for any other mason under such
coverage, but not including the failure of the insurer to pay by reason of the
insurer's breach of the insurance policy or the insurer's financial inability to
pay. In connection with the placement of any insurance or coverage, no
commission, fee or other compensation has been or will be received by the
Borrower or by any officer, director, or employee of the Borrower or any
designee of the Borrower or any corporation in which the Borrower or any
officer, director or employee had a financial interest at the time of placement
of such insurance;
(oo) Value of Mortgage Property. The Borrower has no knowledge of any
--------------------------
circumstances existing that should reasonably be expected to adversely affect
the value or the marketability of the Mortgaged Property or the Mortgage Loan or
to cause the Mortgage Loan to prepay during any period materially faster or
slower than the Mortgage Loans originated by the Borrower generally;
(pp) Section 32 Mortgages; Overages. The Borrower has provided the
------------------------------
related Mortgagor with all disclosure materials required by Section 226.32 of
the Federal Reserve Board Regulation Z with respect to any Mortgage Loans
subject to such Section of the Federal Reserve Board Regulation Z. The Borrower
has not made or caused to be made any payment in the nature of an "overage" or
"yield spread premium" to a mortgage broker or like Person which has not been
fully disclosed to the Mortgagor;
(a) Capitalization of Interest. The Mortgage Note does not by its
--------------------------
terms provide for the capitalization or forbearance of interest.
(a) No Equity Participation. No document relating to the Mortgage
-----------------------
Loan provides for any contingent or additional interest in the form of
participation in the cash flow of the Mortgaged Property or a sharing in the
appreciation of the value of the Mortgaged Property. The indebtedness evidenced
by the Mortgage Note is not convertible to an ownership interest in the
Mortgaged Property or the Mortgagor and the Borrower has not financed nor does
it own directly or indirectly, any equity of any form in the Mortgaged Property
or the Mortgagor.
(a) Withdrawn Mortgage Loans. If the Mortgage Loan has been
------------------------
released to the Borrower pursuant to a Request for Release as permitted under
Section 5 of the Custodial Agreement, then the promissory note relating to the
Mortgage Loan was returned to the Custodian within 10 days (or if such tenth day
was not a Business Day, the next succeeding Business Day).
(b) No Exception. Other than as noted by the Custodian on the
------------
Exception Report; no Material Exception exists (as defined in the Custodial
Agreement) with respect to the Mortgage Loan which would materially adversely
affect the Mortgage Loan or the Lender's security interest, granted by the
Borrower, in the Mortgage Loan as determined by the Lender in its sole
discretion.
(c) Qualified Originator. The Mortgage Loan has been originated by,
--------------------
and, if applicable, purchased by the Borrower from, a Qualified Originator.
<PAGE>
(d) Mortgage Submitted for Recordation. The Mortgage has been
----------------------------------
submitted for recordation in the appropriate governmental recording office of
the jurisdiction where the Mortgaged Property is located.
<PAGE>
Schedule 2
FILING JURISDICTIONS AND OFFICES
State of California
<PAGE>
Schedule 3
SUBSIDIARIES
[TO BE PROVIDED BY COUNSEL TO BORROWER]
<PAGE>
Schedule 4
LITIGATION
[TO BE PROVIDED BY COUNSEL TO BORROWER]
<PAGE>
Schedule 5
RELEVANT STATES
Alabama, Alaska and New York
<PAGE>
EXHIBIT A Form of Promissory Note
---------------------------------
[FORM OF PROMISSORY NOTE]
$300,000,000 June 23, 1999
New York, New York
FOR VALUE RECEIVED, NC CAPITAL CORPORATION, a California corporation
(the "Borrower"), hereby promises to pay to the order of GREENWICH CAPITAL
--------
FINANCIAL PRODUCTS, INC. a Delaware corporation (the "Lender"), at the principal
------
office of the Lender at 600 Steamboat Road, Greenwich, Connecticut 06830, in
lawful money of the United States, and in immediately available funds, the
principal sum of THREE HUNDRED MILLION DOLLARS ($300,000,000) (or such lesser
amount as shall equal the aggregate unpaid principal amount of the Advances made
by the Lender to the Borrower under the Loan Agreement as defined below), on the
dates and in the principal amounts provided in the Loan Agreement, and to pay
interest on the unpaid principal amount of each such Advance, at such office, in
like money and funds, for the period commencing on the date of such Advance
until such Advance shall be paid in full, at the rates per annum and on the
dates provided in the Loan Agreement.
The date, amount and interest rate of each Advance made by the Lender
to the Borrower, and each payment made on account of the principal thereof,
shall be recorded by the Lender on its books and, prior to any transfer of this
Note, endorsed by the Lender on the schedule attached hereto or any continuation
thereof; provided, that the failure of the Lender to make any such recordation
--------
or endorsement shall not affect the obligations of the Borrower to make a
payment when due of any amount owing under the Loan Agreement or hereunder in
respect of the Advances made by the Lender.
This Note is the Note referred to in the Master Loan and Security
Agreement dated as of June 23, 1999 (as amended, supplemented or otherwise
modified and in effect from time to time, the "Loan Agreement") between the
--------------
Borrower and the Lender, and evidences Advances made by the Lender thereunder.
Terms used but not defined in this Note have the respective meanings assigned to
them in the Loan Agreement.
The Borrower agrees to pay all the Lender's costs of collection and
enforcement (including reasonable attorneys' fees and disbursements of Lender's
counsel) in respect of this Note when incurred, including, without limitation,
reasonable attorneys' fees through appellate proceedings.
Notwithstanding the pledge of the Collateral, the Borrower hereby
acknowledges, admits and agrees that the Borrower's obligations under this Note
are recourse obligations of the Borrower to which the Borrower pledges its full
faith and credit.
The Borrower, and any indorsers or guarantors hereof, (a) severally
waive diligence, presentment, protest and demand and also notice of protest,
demand, dishonor and nonpayments of this Note, (b) expressly agree that this
Note, or any payment hereunder, may be extended from time to time, and consent
to the acceptance of further Collateral, the release of any Collateral for this
Note, the release of any party primarily or secondarily liable hereon, and (c)
expressly agree that it will not be necessary for the Lender, in order to
enforce payment of this Note, to first institute or exhaust the Lender's
remedies against the Borrower or any other party liable hereon or against any
Collateral for this Note. No extension of time for the payment of this Note, or
any installment hereof, made by agreement by the Lender with any person now or
hereafter liable for the payment of this Note, shall affect the liability under
this Note of the Borrower, even if the Borrower is not a party to such
agreement; provided, however, that the Lender and the Borrower, by written
-------- -------
agreement between them, may affect the liability of the Borrower.
Any reference herein to the Lender shall be deemed to include and
apply to every subsequent holder of this Note. Reference is made to the Loan
Agreement for provisions concerning optional and mandatory prepayments,
Collateral, acceleration and other material terms affecting this Note.
<PAGE>
Any enforcement action relating to this Note may be brought by motion
for summary judgment in lieu of a complaint pursuant to Section 3213 of the New
York Civil Practice Law and Rules. The Borrower hereby submits to New York
jurisdiction with respect to any action brought with respect to this Note and
waives any right with respect to the doctrine of forum non conveniens with
respect to such transactions.
This Note shall be governed by and construed under the laws of the
State of New York (without reference to choice of law doctrine but with
reference to Section 5-1401 of the New York General Obligations Law, which by
its terms applies to this Note) whose laws the Borrower expressly elects to
apply to this Note. The Borrower agrees that any action or proceeding brought
to enforce or arising out of this Note may be commenced in the Supreme Court of
the State of New York, Borough of Manhattan, or in the District Court of the
United States for the Southern District of New York.
NC CAPITAL CORPORATION
By: _______________________________
Name:
Title:
A-3
<PAGE>
SCHEDULE OF ADVANCES
This Note evidences Advances made under the within-described Loan
Agreement to the Borrower, on the dates, in the principal amounts and bearing
interest at the rates set forth below, and subject to the payments and
prepayments of principal set forth below:
<TABLE>
<CAPTION>
Principal Amount Interest Amount Paid Unpaid Principal Notation
Date Made of Advance Rate or Prepaid Amount Made by
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
---------
[FORM OF CUSTODIAL AGREEMENT]
[distributed separately]
<PAGE>
EXHIBIT C
----------
[FORM OF OPINION OF COUNSEL TO BORROWER]
(date)
Greenwich Capital Financial Products, Inc.
600 Steamboat Road Greenwich,
Connecticut 06830
Dear Sirs and Mesdames:
You have requested [our] [my] opinion, as counsel to NC Capital
Corporation, a California corporation (the "Borrower"), New Century Mortgage
--------
Corporation, a California corporation and to New Century Financial Corporation,
a California corporation (collectively, the "Guarantors"), with respect to
----------
certain matters in connection with that certain Master Loan and Security
Agreement, dated as of June 23, 1999 (the "Loan and Security Agreement"), by and
---------------------------
between the Borrower and Greenwich Capital Financial Products, Inc. (the
"Lender"), being executed contemporaneously with a Promissory Note dated June
------
23, 1999 from the Borrower to the Lender (the "Note"), a Custodial Agreement,
----
dated as of June 23, 1999 (the "Custodial Agreement"), by and among the
-------------------
Borrower, [Custodian] (the "Custodian"), and the Lender, and an Affiliate
---------
Guaranty (the "Guaranty"), made in favor of the Lender by the Guarantors.
--------
Capitalized terms not otherwise defined herein have the meanings set forth in
the Loan and Security Agreement.
[We] [I] have examined the following documents:
1. the Loan and Security Agreement;
2. the Note;
3. the Custodial Agreement;
4. the Affiliate Guaranty;
5. unfiled copies of the financing statements listed on Schedule 1
----------
(collectively, the "Financing Statements") naming the Borrower as
--------------------
Debtor and the Lender as Secured Party and describing the
Collateral (as defined in the Loan and Security Agreement) as to
which security interests may be perfected by filing under the
Uniform Commercial Code of the States listed on Schedule 1 (the
----------
"Filing Collateral"), which I understand will be filed in the
-----------------
filing offices listed on Schedule 1 (the "Filing Offices");
---------- --------------
6. the reports listed on Schedule 2 as to UCC financing statements
----------
(collectively, the "UCC Search Report"); and
-----------------
7. such other documents, records and papers as we have deemed
necessary and relevant as a basis for this opinion.
To the extent [we] [I] have deemed necessary and proper, [we] [I] have
relied upon the representations and warranties of the Borrower contained in the
Loan and Security Agreement. [We] [I] have assumed the authenticity of all
documents submitted to me as originals, the genuineness of all signatures, the
legal capacity of natural persons and the conformity to the originals of all
documents.
<PAGE>
Based upon the foregoing, it is [our] [my] opinion that:
1. The Borrower is a California corporation duly organized, validly
existing and in good standing under the laws of California and is qualified to
transact business in, and is in good standing under, the laws of the state of
California and each state in which any Mortgaged Property is located to the
extent necessary to ensure the enforceability of each Mortgage Loan and the
servicing of each Mortgage Loan pursuant to the Loan and Security Agreement.
2. The New Century Mortgage Corporation is a corporation duly
organized, validly existing and in good standing under the laws of California
and are qualified to transact business in, and are in good standing under, the
laws of the state of California.
3. New Century Financial Corporation is a corporation duly organized,
validly existing and in good standing under the laws of Delaware and are
qualified to transact business in, and are in good standing under, the laws of
the state of Delaware.
4. Each of the Borrower and the Guarantors has the corporate power to
engage in the transactions contemplated by the Loan Documents to which it is a
party and all requisite corporate power, authority and legal right to execute
and deliver the Loan Documents to which it is a party and observe the terms and
conditions of such instruments. Each of the Borrower and the Guarantors has all
requisite corporate power to borrow under the Loan and Security Agreement and to
grant a security interest in the Collateral pursuant to the Loan and Security
Agreement.
5. The execution, delivery and performance by each of the Borrower
and the Guarantor of the Loan Documents to which it is a party have been duly
authorized by all necessary corporate action on the part of each of the Borrower
and the Guarantors. Each of the Loan Documents to which each of the Borrower
and the Guarantors is a party has been executed and delivered by each of the
Borrower and Guarantor, and are legal, valid and binding agreements enforceable
in accordance with their terms against each of the Borrower and Guarantor,
subject to bankruptcy laws and other similar laws of general application
affecting rights of creditors and subject to the application of the rules of
equity, including those respecting the availability of specific performance,
none of which will materially interfere with the realization of the benefits
provided thereunder or with the Lender's security interest in the Mortgage
Loans.
6. No consent, approval, authorization or order of, and no filing or
registration with, any court or governmental agency or regulatory body is
required on the part of the Borrower or the Guarantors for the execution,
delivery or performance by each of the Borrower and the Guarantors of the Loan
Documents to which it is a party.
7. The execution, delivery and performance by each of the Borrower
and the Guarantors of, and the consummation of the transactions contemplated by,
the Loan Documents to which it is a party do not and will not (a) violate any
provision of the Borrower's or the Guarantors' charter or by-laws, (b) violate
any applicable law, rule or regulation, (c) violate any order, writ, injunction
or decree of any court or governmental authority or agency or any arbitral award
applicable to the Borrower or the Guarantors of which I have knowledge (after
due inquiry) or (d) result in a breach of, constitute a default under, require
any consent under, or result in the acceleration or required prepayment of any
indebtedness pursuant to the terms of, any agreement or instrument of which I
have knowledge (after due inquiry) to which the Borrower or the Guarantors is a
party or by which it is bound or to which it is subject, or (except for the
Liens created pursuant to the Loan and Security Agreement) result in the
creation or imposition of any Lien upon any Property of the Borrower or the
Guarantors pursuant to the terms of any such agreement or instrument.
C-3
<PAGE>
8. There is no action, suit, proceeding or investigation pending or,
to the best of [our] [my] knowledge, threatened against the Borrower or the
Guarantors which, in [our] [my] judgment, either in any one instance or in the
aggregate, would be reasonably likely to result in any material adverse change
in the properties, business or financial condition, or prospects of the Borrower
or in any material impairment of the right or ability of the Borrower or the
Guarantors to carry on its business substantially as now conducted or in any
material liability on the part of the Borrower or the Guarantors or which would
draw into question the validity of the Loan Documents to which it is a party or
of any action taken or to be taken in connection with the transactions
contemplated thereby, or which would be reasonably likely to impair materially
the ability of the Borrower or the Guarantors to perform under the terms of the
Loan Documents to which it is a party.
9. The Loan and Security Agreement is effective to create, in favor
of the Lender, a valid security interest under the Uniform Commercial Code in
all of the right, title and interest of the Borrower in, to and under the
Collateral as collateral security for the payment of the Secured Obligations (as
defined in the Loan and Security Agreement), except that (a) such security
interests will continue in Collateral after its sale, exchange or other
disposition only to the extent provided in Section 9-306 of the Uniform
Commercial Code, (b) the security interests in Collateral in which the Borrower
acquires rights after the commencement of a case under the Bankruptcy Code in
respect of the Borrower may be limited by Section 552 of the Bankruptcy Code.
10. When the Mortgage Notes are delivered to the Custodian, endorsed
in blank by a duly authorized officer of the Borrower, the security interest
referred to in paragraph 7 above in the Mortgage Notes will constitute a fully
perfected first priority security interest in all right, title and interest of
the Borrower therein, in the Mortgage Loan evidenced thereby and in the
Borrower's interest in the related Mortgaged Property.
11. (a) Upon the filing of financing statements on Form UCC-1 naming
the Lender as "Secured Party" and the Borrower as "Debtor", and describing the
Collateral, in the jurisdictions and recording offices listed on Schedule 1
----------
attached hereto, the security interests referred to in paragraph 8 above will
constitute fully perfected security interests under the Uniform Commercial Code
in all right, title and interest of the Borrower in, to and under such
Collateral, which can be perfected by filing under the Uniform Commercial Code.
(b) The UCC Search Report sets forth the proper filing offices
and the proper debtors necessary to identify those Persons who have on file in
the jurisdictions listed on Schedule 1 financing statements covering the Filing
----------
Collateral as of the dates and times specified on Schedule 2. Except for the
----------
matters listed on Schedule 2, the UCC Search Report identifies no Person who has
----------
filed in any Filing Office a financing statement describing the Filing
Collateral prior to the effective dates of the UCC Search Report.
12. The Assignments of Mortgage are in recordable form, except for
the insertion of the name of the assignee, and upon the name of the assignee
being inserted, are acceptable for recording under the laws of the state where
each related Mortgaged Property is located.
13. The Borrower is duly registered as a [____________] in each state
in which Mortgage Loans were originated to the extent such registration is
required by applicable law, and has obtained all other licenses and governmental
approvals in each jurisdiction to the extent that the failure to obtain such
licenses and approvals would render any Mortgage Loan unenforceable or would
materially and adversely affect the ability of the Borrower to perform any of
its obligations under, or the enforceability of, the Loan Documents.
<PAGE>
14. Assuming that all other elements necessary to render a Mortgage
Loan legal, valid, binding and enforceable were present in connection with the
execution, delivery and performance of each Mortgage Loan (including completion
of the entire Mortgage Loan fully, accurately and in compliance with all
applicable laws, rules and regulations) and assuming further that no action was
taken in connection with the execution, delivery and performance of each
Mortgage Loan (including in connection with the sale of the related Mortgaged
Property) that would give rise to a defense to the legality, validity, binding
effect and enforceability of such Mortgage Loan, nothing in the forms of such
Mortgage Loans, as attached hereto as Exhibit A, would render such Mortgage
Loans other than legal, valid, binding and enforceable.
15. Assuming their validity, binding effect and enforceability in all
other respects (including completion of the entire Mortgage Loan fully,
accurately and in compliance with all applicable laws, rules and regulations),
the forms of Mortgage Loans attached hereto as Exhibit A are in sufficient
compliance with ________ law and Federal consumer protection laws so as not to
be rendered void or voidable at the election of the Mortgagor thereunder.
Very truly yours,
C-5
<PAGE>
EXHIBIT D
---------
FORM OF NOTICE OF BORROWING AND PLEDGE
--------------------------------------
[insert date]
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: _______________________
Notice of Borrowing and Pledge No.: _____________________
Ladies/Gentlemen:
Reference is made to the Master Loan and Security Agreement, dated as
of June 23, 1999 (the "Loan Agreement"; capitalized terms used but not otherwise
--------------
defined herein shall have the meaning given them in the Loan Agreement), between
NC Capital Mortgage Corporation (the "Borrower") and Greenwich Capital Financial
--------
Products, Inc. (the "Lender").
------
In accordance with Section 2.03(a) of the Loan Agreement, the
undersigned Borrower hereby requests that you, the Lender, make Advances to us
in an aggregate principal amount of $_________________ [insert requested Advance
amount] (such amount representing [insert number of Mortgage Loans] loans on
____________________ [insert requested Funding Date, which must be at least two
(2) Business Days following the date of the request], in connection with which
we shall pledge to you as Collateral the Mortgage Loans set forth on the
Mortgage Loan Schedule attached hereto.
The Borrower hereby certifies, as of such Funding Date, that:
(a) no Default or Event of Default has occurred and is continuing on
the date hereof nor will occur after giving effect to such Advance as a
result of such Advance;
(b) each of the representations and warranties made by the Borrower
in or pursuant to the Loan Documents is true and correct in all material
respects on and as of such date (in the case of the representations and
warranties in respect of Mortgage Loans, solely with respect to Mortgage
Loans being included the Borrowing Base on the Funding Date) as if made on
and as of the date hereof (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such
specific date); and
(c) the Borrower is in compliance with all governmental licenses and
authorizations and is qualified to do business and is in good standing in
all required jurisdictions.
(d) the Borrower has satisfied all conditions precedent in Section
5.02 of the Loan Agreement and all other requirements of the Loan
Agreement.
The undersigned duly authorized officer of Borrower further represents
and warrants that (1) the documents constituting the Custodial File (as
defined in the Custodial Agreement) with respect to the Mortgage Loans that
are the subject of the Advance requested herein and more specifically
identified on the mortgage loan schedule or computer readable magnetic
transmission delivered to both the Lender and the Custodian in connection
herewith (the "Receipted Mortgage Loans") have been or are hereby submitted
to Custodian and such Required Documents are to be held by the Custodian
subject to Lender's first priority security interest thereon, (2) all other
documents related to such Receipted Mortgage Loans (including, but not
limited to, mortgages, insurance policies, loan applications and
appraisals) have been or will be
<PAGE>
created and held by Borrower in trust for Lender, (3) all documents related
to such Receipted Mortgage Loans withdrawn from Custodian shall be held in
trust by Borrower for Lender, and Borrower will not attempt to pledge,
hypothecate or otherwise transfer such Receipted Mortgage Loans to any
other party until the Advance to which such Receipted Mortgage Loans are
related has been paid in full by Borrower and (4) Borrower has granted a
first priority perfected security interest in and lien on the Receipted
Mortgage Loans.
Borrower hereby represents and warrants that (x) the Receipted
Mortgage Loans have an unpaid principal balance as of the date hereof of
$__________ and (y) the number of Receipted Mortgage Loans is ______.
Very truly yours,
NC Capital Corporation
By:______________________________
Name:
Title:
D-3
<PAGE>
Schedule I
to Notice of Borrowing and Pledge
---------------------------------
[MORTGAGE LOANS PROPOSED TO BE PLEDGED
--------------------------------------
TO LENDER ON FUNDING DATE]
--------------------------
[attach Mortgage Loan Schedule]
D-1
<PAGE>
EXHIBIT E
UNDERWRITING GUIDELINES
<PAGE>
EXHIBIT F
---------
RESERVED
F-1
<PAGE>
EXHIBIT G
---------
FORM OF DATA EDIT SHEET (Funding Date)
[TO BE PROVIDED BY]
F-1
<PAGE>
EXHIBIT H
---------
FORM OF BORROWING BASE CERTIFICATE
<PAGE>
EXHIBIT I
FORM OF REMITTANCE CERTIFICATE
______, 19__
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: _________
Ladies and Gentlemen:
The undersigned, NC Capital Corporation, refers to the Master Loan and
Security Agreement, dated as of June 23, 1999 (as amended, supplemented or
otherwise modified from time to time, the "Loan Agreement,") between NC Capital
--------------
Corporation and Greenwich Capital Financial Products, Inc. Capitalized terms
used herein but not defined herein shall have the meaning assigned to such terms
in the Loan Agreement.
The undersigned hereby delivers this Remittance Certificate to you pursuant
to Section 7.08 of the Loan Agreement and hereby certifies to you as follows as
of _______, 1999./1/
I. Summary of Collection Account Cash Flow
(a) Total Collections remitted for the calendar month: $_______.
(b) Borrowing Base Deficiency due to you on Remittance Date:
$_______.
(c) Interest due to you on the Remittance Date (for the period from
and including the previous Remittance Date to and including the
day preceding the current Remittance Date): $_______.
(d) Total cash due to you on the Remittance Date: $_______.
(e) Cash flow in connection with any other act which during the
month:
(i) Principal received: $_______.
(ii) Accrued interest received: $________.
(iii) Amounts swept from the Lender's Collection Account to the
securitization or whole loan buyer: $________.
(g) Balance to the undersigned $________.
LIBOR reset for the following month as of ________, 1997 ______%.
II. Breakout of Daily Remittances to the Collection Account
Collection Dates Wire Date Cash Amount Total Amount
_________________
/1/ Date should be the last day of the immediately preceding calendar month.
<PAGE>
Totals [attach Bank Statement]
III. Portfolio Principal Paydown by Contract
Beginning Ending
Loan Principal Principal Principal Interest
Number Balance Balance Paydown Applied
Totals [refer to tape]
NC CAPITAL CORPORATION
By:____________________________________
Title:
F-3
<PAGE>
EXHIBIT 10.6
RESIDUAL FINANCING FACILITY AGREEMENT
RESIDUAL FINANCING FACILITY AGREEMENT, dated as of the 23rd day of June
1999, by and between (i) GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., a Delaware
corporation, as Lender and Pledgee ("Greenwich"), and (ii) NC CAPITAL
---------
CORPORATION, a California corporation, as Borrower and Pledgor (the "Borrower").
--------
R E C I T A L S
---------------
WHEREAS, the Borrower desires to enter into this Agreement (as defined
herein) and the Note (as defined herein); and
WHEREAS, the Borrower will incur monetary and other obligations to the
Lender pursuant to this Agreement and the Note; and
WHEREAS, Greenwich and/or certain of its Affiliates (as defined herein) and
the Borrower, contemplate entering into certain securitization transactions from
time to time (the "Securitization Transactions") providing for, among other
---------------------------
things, the transfer to the Borrower of certain Residual Securities (as defined
herein) issued thereunder and certain other collateral as shall be determined by
the Lender in its sole discretion; and
WHEREAS, all of the right, title and interest in the Residual Securities
are intended to be and shall be the assets of the Borrower; and
WHEREAS, Greenwich is willing to provide the Borrower with a secured credit
facility in consideration of the pledge of the Collateral (as defined herein)
and on the terms and conditions set forth herein; and
WHEREAS, it is a condition precedent to the obligation of Greenwich to
enter into this Agreement and to make any Loan hereunder to the Borrower, that
the Borrower shall have executed and delivered the Pledged Securities to
Greenwich;
NOW THEREFORE in consideration of the premises and mutual agreements
contained herein, the adequacy and sufficiency of which are hereby acknowledged,
the parties hereby agree as follows:
1. Section Definitions. When used herein, the following terms shall have the
meanings set forth below:
"Affiliate" shall mean, with respect to any Person, any other Person which,
---------
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person.
<PAGE>
For purposes of this definition, control of a Person shall mean the power,
direct or indirect, (i) to vote 25% or more of the securities having ordinary
voting power for the election of directors of such Person or (ii) to direct or
cause the direction of the management and policies of such Person, whether by
contract or otherwise.
"Agreement" shall mean this Residual Financing Facility Agreement, as the
---------
same may be amended, supplemented or otherwise modified from time to time.
"Bailee" shall mean Chase Manhattan Bank, N.A., in its capacity as bailee
------
for the Pledgee.
"Borrower" shall mean NC Capital Corporation, a California corporation, and
--------
any successor thereto.
"Business Day" shall mean any day other than a Saturday, Sunday or any day
------------
on which federal reserve banks or the Lender are not authorized or required to
close.
"Capital Stock" shall mean any and all shares, interests, participations or
-------------
other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants or options to purchase any of the foregoing.
"Cash" shall mean all cash and cash equivalents, as shown on the
----
consolidated balance sheet of the Borrower prepared in accordance with GAAP,
including, without limitation, all deposit accounts of the Borrower with the
Lender or any other financial institution.
"Code" shall mean the Internal Revenue Code of 1986, together with all
----
amendments from time to time thereto.
"Collateral" shall have the meaning set forth in Section 3.1 hereof.
----------
"Collateral Deficiency" shall have the meaning set forth in Section 3.5(a)
---------------------
hereof.
"Collateral Value" shall mean with respect to any Loan and any of the
----------------
Collateral securing such Loan, (a) for Eligible Residual Securities, 50% of the
Market Value of such Collateral and (b) for Collateral other than Eligible
Residual Securities, the value determined by the Lender in its sole discretion.
"Compliance/Borrowing Base Certificate" shall mean a certificate in a form
-------------------------------------
mutually acceptable to the Lender and the Borrower.
"Default" shall mean an Event of Default or an event that with notice or
-------
lapse of time or both would become an Event of Default.
<PAGE>
"Eligible Residual Securities" shall mean Residual Securities acceptable
----------------------------
to the Lender in its sole discretion, which securities have been issued pursuant
to a Pooling and Servicing Agreement evidencing beneficial interests in one or
more pools of residential Mortgage Loans originated or purchased by New Century
in accordance with New Century's Underwriting Guidelines and serviced by a
servicer acceptable to the Lender in its sole discretion, and which securities
were underwritten by the Lender as sole or lead underwriter.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time.
"ERISA Affiliate" shall mean 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 any Loan Party is a member.
"Event of Default" shall have the meaning set forth in Section 9 hereof.
----------------
"Facility" shall mean the secured residual financing facility described in
--------
this Agreement.
"Facility Amount" shall have the meaning set forth in Section 2.1 hereof.
---------------
"GAAP" shall mean generally accepted accounting principles as in effect in
----
the United States, as may be in place from time to time, on a consistent basis.
"Governmental Authority" shall mean any nation, government, or State, or
----------------------
any political subdivision thereof, or any court, stock exchange, entity or
agency exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Greenwich" shall mean Greenwich Capital Financial Products, Inc., a
---------
Delaware corporation, and any successor thereto.
"Guarantee" shall mean any obligation, contingent or otherwise, of any
---------
Person guaranteeing or having the economic effect of guaranteeing any
Indebtedness of any other Person (the "primary obligor") in any manner, whether
directly or otherwise, (a) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or to purchase (or to advance or
supply funds for the purchase of) any direct or indirect security therefor, (b)
to purchase property, securities, or services for the purpose of assuring the
owner of such Indebtedness of the payment of such Indebtedness, (c) to maintain
working capital, equity capital, or other financial statement condition of the
primary obligor so as to enable the primary obligor to pay such Indebtedness or
otherwise to protect the owner thereof against loss in respect thereof, or (d)
entered into for the purpose of assuring in any manner the owner of such
Indebtedness of the payment of such Indebtedness or to protect such owner
against loss in respect thereof; provided, that the term "Guarantee" shall not
include endorsements for collection or deposit, in each case in the ordinary
course of business.
<PAGE>
"Guarantors" shall mean New Century Mortgage Corporation and New Century
----------
Financial Corporation.
"Guaranty" shall mean that certain Affiliate Guaranty dated as of the date
--------
hereof made by New Century Mortgage Corporation and New Century Financial
Corporation in favor of the Lender, as amended from time to time.
"Indebtedness" shall mean with respect to any Person at any time, without
------------
duplication, all obligations of such Person which, in accordance with GAAP,
consistently applied, should be classified as liabilities on an unconsolidated
balance sheet of such Person, but in any event shall include: (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all obligations of such Person upon which interest charges are customarily paid
or accrued, (d) all obligations of such Person under conditional sale or other
title retention agreements relating to property purchased by such Person, (e)
all obligations of such Person issued or assumed as the deferred purchase price
of property or services, but excluding accrued expenses and trade payables
incurred and paid in the ordinary course of business, (f) all obligations of
others secured by any Lien on property owned or acquired by such Person, whether
or not the obligations secured thereby have been assumed, (g) all capitalized
lease obligations of such Person, (h) all obligations of such Person in respect
of interest rate protection agreements, (i) all obligations of such Person,
actual or contingent, in respect of letters of credit or banker's acceptances,
(j) all obligations of any partnership or joint venture as to which such Person
is or may become personally liable, and (k) all Guarantees by such Person of
Indebtedness of others.
"Investment" as applied to any Person, shall mean, 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.
"Interest Rate" shall have the meaning set forth in Section 2.4(a) hereof.
-------------
"Lender" shall mean Greenwich.
------
"Leverage Ratio" shall mean, on any date of determination, the ratio of (a)
--------------
Total Indebtedness to (b) Tangible Net Worth.
"Lien" shall mean any interest in property securing an obligation owed to,
----
or a claim by, a Person other than the owner of such property, whether such
interest is based on the common law, statute or contract, and including, but not
limited to, the security interest,
<PAGE>
security title or lien arising from a security agreement, mortgage, deed of
trust, deed to secure debt, encumbrance or pledge for security purposes.
"Loan" shall mean each extension of funds to the Borrower by Greenwich
----
pursuant to Section 2 of this Agreement.
"Loan Documents" shall mean and include this Agreement, the Note, the
--------------
Guaranty and all other documents and instruments executed and delivered in
connection herewith or therewith.
"Loan Party" shall mean collectively, the Borrower and the Guarantors.
----------
"Mandatory Prepayment Amount" shall mean for each Loan, all of the monthly
---------------------------
cash flow attributable to the related Pledged Securities after payment of
interest on the Loans pursuant to Section 2.4(a) hereof, which are pledged as
Collateral for such Loan.
"Market Value" shall mean the value, determined by Greenwich in its sole
------------
reasonable discretion, of the Pledged Securities if sold in their entirety to a
single third-party purchaser. In determining Market Value, the Lender may take
into account customary factors, including, but not limited to current market
conditions and the fact that the Pledged Securities may be sold under
circumstances in which the Borrower is in default under this Agreement.
Greenwich's determination of Market Value shall be conclusive upon the parties,
absent manifest error on the part of Greenwich. The Borrower acknowledges that
Greenwich's determination of Market Value is for the limited purpose of
determining Collateral Value for lending purposes hereunder without the ability
to perform customary purchaser's due diligence and is not necessarily equivalent
to a determination of the fair market value of the Pledged Securities achieved
by obtaining competing bids in an orderly market in which the Borrower is not in
default and the bidders have adequate opportunity to perform customary loan and
servicing due diligence.
"Material Adverse Effect" shall mean a material adverse effect on (a) the
-----------------------
business, operations, properties or condition (financial or otherwise) of (i)
any Loan Party individually or (ii) the such Loan Party and its Subsidiaries
taken as a whole or (b) the validity or enforceability of this or any of the
other Loan Documents or the rights or remedies of the Lender hereunder or
thereunder or (c) the ability of any Loan Party to perform its obligations under
any Loan Document or any Other Agreement.
"Mortgage" shall mean 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" shall mean 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.
<PAGE>
"Mortgage Loan" shall mean a Mortgage Note and the related Mortgage.
-------------
"Mortgage Note" shall mean a promissory note which has a term not exceeding
-------------
30 years evidencing a loan or advance which is secured by a Mortgage.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan as
------------------
defined in Section 4001(a)(3) of ERISA.
"Net Worth" shall mean the excess of total assets of the Borrower over
---------
total liabilities of the Borrower, determined in accordance with GAAP.
"New Century" shall mean New Century Mortgage Corporation, a California
-----------
corporation.
"Note" shall have the meaning set forth in Section 2.3(a) hereof.
----
"Notice of Borrowing" shall have the meaning set forth in Section 2.2(a)
-------------------
hereof.
"Obligations" shall mean (i) the unpaid principal of and premiums, if any,
-----------
and interest (including interest accruing at the then applicable rate provided
in this Agreement after the maturity of the Loans and interest accruing at the
then applicable rate provided in this Agreement after the filing of any petition
in bankruptcy, or the commencement of any insolvency, reorganization or like
proceedings, relating to the Borrower whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding) on the Loans, when and as
due, whether at maturity, by acceleration, upon one or more dates set for
prepayment or otherwise and (ii) all other obligations and liabilities of every
nature of the Borrower from time to time owing to Greenwich, in each case
whether direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred (including monetary obligations incurred during
the pendency of any bankruptcy, insolvency, receivership or other similar
proceeding, regardless of whether allowed or allowable in such proceeding),
which may arise under, out of, or in connection with, this Agreement or any
other Loan Document or under any other document made, delivered or given in
connection with any of the foregoing, in each case whether on account of
principal, premium, if any, interest, fees, indemnities, costs, expenses or
otherwise (including all reasonable fees and disbursements of counsel to the
Lender) that are required to be paid by the Borrower pursuant to the terms of
this Agreement or any other Loan Document.
"One-Month LIBOR" shall mean as of any date of determination, the rate per
---------------
annum equal to the rate appearing at page 3750 of the Telerate Screen as one-
month LIBOR on such day, and if such rate shall not be so quoted, the rate per
annum at which the Lender is offered Dollar deposits at or about 11:00 a.m., New
York City time, on such date by prime banks in the interbank eurodollar market
where the eurodollar and foreign currency exchange operations in respect of its
Loans are then being conducted for delivery on such day for a period of one
month, and in an amount comparable to the amount of the Loans to be outstanding
on such day.
<PAGE>
"Other Agreements" shall mean any agreement, other than this Agreement,
----------------
between the Borrower and Greenwich or any of its Affiliates or agents, whether
now existing or hereafter entered into, as any such agreement may be amended,
supplemented or otherwise modified from time to time.
"Paine Webber Financing Documents" shall mean the Master Loan and Security
--------------------------------
Agreement, by and between the Loan Parties and Paine Webber Real Estate
Securities, Inc. substantially in the form provided to the Lender prior to the
date of this Agreement.
"Payment Date" shall mean the twenty-seventh of each month, day of each
------------
month, or if such day is not a Business Day, the immediately succeeding Business
Day.
"Person" shall mean an individual, partnership, limited liability company,
------
corporation, business trust, joint venture or other entity of whatever nature.
"Plan" shall mean, at a particular time, any employee benefit plan which is
----
covered by ERISA and in respect of which any Loan Party or an Affiliate is (or,
if such plan were terminated at such time, would under Section 4069 of ERISA be
deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Pledged Securities" shall mean the Residual Securities pledged to the
------------------
Lender hereunder from time to time and held by the Lender or its designee as
Collateral hereunder pursuant to Section 3.1.
"Pledgee" shall mean Greenwich.
-------
"Pledgor" shall mean the Borrower.
-------
"Pooling and Servicing Agreement" shall mean any pooling and servicing
-------------------------------
agreement, trust agreement or other agreement pursuant to which the Mortgage
Loans underlying any of the Pledged Securities are serviced or administered or
the Pledged Securities are issued or exchanged.
"Proceeds" shall mean all "proceeds" as defined in Section 9-306(1) of the
--------
UCC and, in any event, shall include without limitation, all collections,
distributions or other income or receipts from or in respect of the Pledged
Securities.
"Residual Securities" shall mean interest-only strips, residual interests
-------------------
or reserve certificates issued and transferred to the Borrower in connection
with the Securitization Transactions.
"Responsible Officer" shall mean the president or any vice president of the
-------------------
Borrower.
"Restricted Payments" shall mean with respect to any Person, collectively,
-------------------
all dividends or other distributions of any nature (cash, securities, assets or
otherwise), and all
<PAGE>
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.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Securitization Transaction" shall have the meaning set forth in the
--------------------------
recitals hereto.
"Servicing Contract" shall mean a contract or agreement purchased by New
------------------
Century or entered into by New Century for its own account (and not as nominee
or subservicer), whether now existing or hereafter purchased or entered into,
pursuant to which New Century services Mortgage Loans or Mortgage Loan pools for
others.
"Servicing Rights" shall mean any and all rights of New Century 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 New
Century's interest in any Servicing Contract.
"Subsidiary" shall mean, as to any Person, a corporation, partnership or
----------
other entity of which shares of stock or other ownership interests having
ordinary voting power (other than stock or such other ownership interests having
such power only by reason of the happening of a contingency) to elect a majority
of the board of directors or other managers of such corporation, partnership or
other entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person.
"Tangible Net Worth" shall mean, as of any date of determination, the
------------------
consolidated Net Worth of the Borrower and its subsidiaries, less the
consolidated net book value of all assets of the Borrower and its subsidiaries
(to the extent reflected as an asset in the balance sheet of the Borrower or any
subsidiary at such date) which will be treated as intangibles under GAAP,
including, without limitation, such items as deferred financing expenses, net
leasehold improvements, good will, trademarks, trade names, service marks,
copyrights, patents, licenses and unamortized debt discount and expense;
provided, that Residual Securities issued by the Borrower shall not be treated
as intangibles for purposes of this definition.
"Termination Date" shall mean 364 days following the date of this Agreement
----------------
or such earlier date on which this Agreement shall terminate in accordance with
the provisions hereof or by operation of law, as same may be extended by Lender
in its sole discretion.
<PAGE>
"Total Indebtedness" shall mean at any time of determination, the
------------------
Indebtedness of the Borrower and its Subsidiaries, minus obligations under
gestation repurchase agreements or similar arrangements under which the Borrower
or its subsidiaries are required to repurchase Mortgage-backed Securities or
Mortgage Loans from the Lender or other counterparty reasonably satisfactory to
the Lender, whether or not such obligations are reflected on the Borrower's
balance sheet; provided, that such gestation repurchase agreements are entered
into in the ordinary course of business in contemplation of the subsequent non-
recourse sale of such Mortgage-backed Securities or Mortgage Loans.
"Trustee" shall mean any trustee under a Pooling and Servicing Agreement.
-------
"UCC" shall mean the Uniform Commercial Code from time to time in effect in
---
the State of New York.
"Underwriting Guidelines" shall be the Borrower's underwriting guidelines
-----------------------
in effect as of the date hereof, a copy of which is attached hereto as Exhibit
-------
F.
- -
"U.S. Bank Financing Facility Documents" shall mean the Fourth Amended and
--------------------------------------
Restated Credit Agreement, dated as of May 26, 1999, by and between New Century
and U.S. Bank National Association and all other documents or agreements
executed in connection therewith.
1. Section The Loans.
---------
1.1 Agreement to Lend. Subject to the terms and conditions of this
-----------------
Agreement, and provided that no Default or Event of Default shall have occurred
and be continuing hereunder, Greenwich shall make available to the Borrower a
secured credit facility in an aggregate principal amount not to exceed
$30,000,000 at any one time outstanding (the "Facility Amount"), against which
---------------
the Borrower may borrow, prepay, in whole or in part, and reborrow at any time
(and without limit on the number of times) before the Termination Date. The
amount of each Loan drawn down by the Borrower shall be at least $100,000.
1.1 Manner of Borrowing.
-------------------
(a) The Borrower shall notify Greenwich of its intention to
borrow hereunder by delivering a Notice of Borrowing substantially in the form
of Exhibit B hereto (a "Notice of Borrowing") not later than 12:00 Noon New York
--------- -------------------
City time on a Business Day, no more than once per week. Each Notice of
Borrowing shall specify (i) the amount of the Loan requested and (ii) a summary
of the Pledged Securities and any Collateral securing such Loan.
(a) In connection with each Notice of Borrowing, if, as of the
date of the requested Loan, all of the conditions to the making of a Loan set
forth in Section 8 have been met, Greenwich shall, within three (3) Business
Days of receipt of such Notice of Borrowing and via wire transfer in immediately
available funds, extend the requested Loan to the Borrower; provided that the
--------
aggregate outstanding principal amount of all of the Loans
<PAGE>
(taking into account the Loan to be made on such date) shall not exceed the
lesser of (i) the Collateral Value of the Collateral securing such Loans and
(ii) the Facility Amount.
(a) Greenwich shall determine the Market Value of the Collateral at
the time of each such Notice of Borrowing and upon the request of the Borrower,
which request may be made no more frequently than monthly. Greenwich may at any
time in its discretion determine the Market Value of the Collateral. Greenwich's
determination of Market Value shall be made in good faith and in its sole
discretion after consultation with the Borrower.
1.1 Note.
----
(a) The Borrower's obligation to repay any and all Loans extended and
interest thereon shall be evidenced by a single promissory note of the Borrower
payable to the order of Greenwich, substantially in the form of Exhibit A hereto
---------
(as amended, supplemented or otherwise modified from time to time, the "Note").
----
(a) The date and amount of each Loan made by Greenwich and the date
and amount of each payment of principal made by the Borrower shall be evidenced
by entries made by Greenwich in its books and records kept by it in the normal
course of its business. The Borrower agrees and acknowledges that such books and
records of Greenwich documenting actual disbursements paid to and received from
the Borrower shall constitute prima facie evidence of the Borrower's
Indebtedness outstanding hereunder.
1.1 Interest.
--------
(a) The Borrower agrees to pay Greenwich interest on the unpaid
principal amount of each Loan from and including the date the Loan is extended
to but not including the date of which the Loan is paid in full. Interest shall
accrue on an adjustable monthly basis at a rate per annum equal to One-month
LIBOR plus 2.5% (two hundred and fifty basis points) (the "Interest Rate"). The
Interest Rate shall be determined on each Payment Date. Accrued interest shall
be payable in arrears on each Payment Date and on the date of repayment in full
of the applicable Loan.
(a) If the Borrower shall fail to pay when due (whether at stated
maturity, by acceleration or otherwise) any principal, interest or other amount
owing to Greenwich under this Agreement or the Note and such failure to pay
shall constitute an Event of Default, the Borrower shall pay to Greenwich on
demand such principal, interest or other amount together with interest on such
principal, interest or other amount in default from and including the date such
payment became due until payment thereof in full at a rate per annum equal to
the Interest Rate plus two percent (2%) per annum.
(a) All interest payable hereunder shall be computed on the basis of
a 360-day year for the actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
<PAGE>
1.1 Repayment of the Loans. Each Loan outstanding shall be repaid in full
----------------------
on the Termination Date, together with accrued but unpaid interest thereon.
1.1 Optional Prepayments. The Borrower may at any time upon one (1)
--------------------
Business Day's prior written notice to Greenwich prepay any Loan in whole or in
part, without premium, together with accrued interest to the date of such
prepayment on the amount prepaid.
1.1 Payment Procedures.
------------------
(a) All payments to Greenwich hereunder or under the Note shall
be made in immediately available funds, and free and clear of and without
deduction for any taxes, levies, duties, charges, counterclaims, set-offs, fees
or withholdings of any nature hereafter imposed, assessed or collected, not
later than the due date for such payment through the Federal Reserve Fedwire
System for credit to the account of the Lender (Account No. 140095961 at the
Chase Manhattan Bank, N.A., New York, ABA No. 021000021, Attention: Brett
Kibbe).
(a) Any payments made hereunder shall be applied first against
costs and expenses due hereunder pursuant to Section 9.3; then against default
interest, if any; then against interest due on the Loans; and thereafter against
the unpaid principal of the Loans.
(a) Any payments made on account of principal hereunder may not
be reborrowed, it being the express intent of the parties that this Agreement
cover a one-time term Loan notwithstanding any provision to the contrary set
forth herein.
1. Section Pledge; Grant of Security Interest.
----------------------------------
1.1 Pledge. The Borrower hereby pledges and grants to Greenwich and
------
its successors, endorsees, transferees and assigns, as collateral security for
the prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations, a security interest
in and assignment of all of the Borrower's rights, title and interest in and to
the following property and interests in property, whether now owned or existing
or hereafter arising or acquired and wheresoever located and whether the same
comprise accounts, instruments, securities, chattel paper or general intangibles
(as each such term is defined in the UCC) (the "Collateral"):
----------
(a) all of the Borrower's rights in the Pledged Securities and
any additional property acceptable to the Lender in its sole discretion and
delivered or otherwise perfected as required by the Lender;
(a) all rights, privileges, authority and powers of the Borrower
as owner or holder of the foregoing, including, but not limited to, all general
intangibles and contract rights related thereto;
<PAGE>
(a) all securities, moneys or property representing dividends or interest
on any of the foregoing, or representing a distribution in respect of the
foregoing, or resulting from a split-up, revision, reclassification or other
like change of the foregoing or otherwise received in exchange therefor, and any
subscription warrants, rights or options issued to the holders of, or otherwise
in respect of, the foregoing;
(a) all documents and certificates representing or evidencing the
Borrower's interest in the foregoing;
(a) all distributions, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of, or in exchange
for, the Borrower's interest in the foregoing;
(a) all "collateral", however defined, under any Other Agreements and all
other property securing indebtedness of the Borrower to Greenwich or any of its
Affiliates or Subsidiaries to the extent not applied to the satisfaction of such
indebtedness; and
(a) any other right, title, interest, privilege, authority and power of
the Borrower, as a holder of the foregoing, all whether now existing or
hereafter arising, and whether arising at law or in equity and any and all
Proceeds of any of the foregoing and all books and records of the Borrower
pertaining to any of the foregoing.
1.1 Stock Powers; Re-registration.
-----------------------------
(a) Concurrently with the delivery to the Bailee, on behalf of Greenwich,
of each certificate representing one or more shares of Pledged Securities
pursuant to Section 2 above, the Borrower shall deliver an undated stock power
covering such certificate, duly executed in blank by the Borrower with, if
Greenwich so requests, signature guaranteed, along with any other documents
necessary to re-register the Pledged Securities.
(a) The Borrower agrees and acknowledges that Greenwich may at its sole
discretion re-register any Pledged Securities delivered as Collateral hereunder
into Greenwich's name.
1.1 Notification to Trustee. Concurrently with the delivery to the Bailee, on
-----------------------
behalf of Greenwich, of each certificate representing one or more shares of
Pledged Securities pursuant to Section 2 above, (A) the Borrower shall have (1)
notified the Trustee in connection with the related Securitization Transaction
of the pledge of the related Pledged Securities hereunder, and (2) instructed
the Trustee to pay all amounts payable to the holders of the Pledged Securities
to an account specified by the Lender, in the form of the instruction letter
attached hereto as Exhibit G (the "Instruction Letter") and (B) the Trustee
shall have acknowledged in writing the instructions set forth in clause (A)
above, and a copy of the fully executed Instruction Letter shall be delivered to
the Lender.
<PAGE>
1.1 Further Assurances. The Borrower shall take any and all action required by
------------------
Greenwich in order that Greenwich has a valid, first priority, perfected
security interest in the Collateral, including executing financing statements,
assigning or endorsing Collateral to Greenwich and delivering Collateral to
Greenwich or the Bailee.
1.1 Collateral Maintenance; Release of Collateral.
---------------------------------------------
(a) In the event that at the determination of the Collateral Value of
Collateral, the Collateral Value of Collateral is less than the aggregate
principal balance of the Loans outstanding plus accrued interest thereon (a
"Collateral Deficiency"), the Borrower shall upon written request of Greenwich
---------------------
deliver to the Bailee or the Lender (as instructed by the Lender) additional
cash or Collateral in an amount at least equal to such Collateral Deficiency or
repay Loans in the amount of such Collateral Deficiency, in each case within one
Business Day of receipt of such request. Until such time as the Collateral Value
of Collateral equals or exceeds the aggregate principal balance of the Loans
outstanding plus accrued interest thereon, Greenwich shall not be obligated to
extend further Loans hereunder and all funds received by the Borrower in respect
of, and Proceeds of, such Collateral shall be remitted to Greenwich and applied
in the manner set forth in Section 2.7(b).
(a) The Borrower may request from time to time, and the Lender shall agree
to release the Lien of the Lender on certain Pledged Securities for which the
outstanding principal balance plus accrued interest for the Loan secured by such
Pledged Securities has been paid in full; provided that (i) no Default shall
have occurred and be continuing, and (ii) after giving effect to such release,
no Collateral Deficiency shall exist.
1.1 Data Reporting. The Borrower will report or cause an Affiliate to report
--------------
the following information with respect to the Residual Securities:
(a) On a monthly basis, (x) a remittance statement setting forth the
following, in accordance with Section 2.2: (i) the aggregate losses allocated to
the Pledged Securities for the preceding collection period; (ii) the aggregate
of payments received on the Pledged Securities; (iii) the aggregate principal
balance or notional principal balance, if applicable, of the Pledged Securities
as of the close of business on the last day of the preceding collection period,
after giving effect to payments allocated to principal on such day; and (iv)
such other information as Greenwich shall reasonably request and (y) a copy of
any remittance statement received from the Trustee relating to the underlying
Securitization Transaction.
(a) Promptly: (i) any material adverse developments with respect to any
pending or future litigation involving the Borrower in which the amount in
controversy exceeds $1,000,000; (ii) any other Material Adverse Effect; (iii)
the acceleration of any debt obligation or the termination of any credit
facility of the Borrower (in each case, representing obligations or facilities
in excess of $1,000,000); (iv) the amount and maturity of any debt assumed after
the date hereof by the Borrower; and (iv) the breach of any covenant in Section
4 or 5 hereof.
<PAGE>
1. Section Representations and Warranties of the Borrower.
----------------------------------------------
The Borrower hereby represents and warrants to Greenwich as of the date of
this Agreement and on each date that a Loan is made hereunder as follows:
1.1 Organization. It is a corporation duly incorporated and validly
------------
existing in good standing under the laws of the State of its incorporation and
is duly qualified to do business and is in good standing in each jurisdiction in
which such qualification is necessary, except where the failure to be so
qualified or in good standing could not have a Material Adverse Effect.
1.1 Power and Authority. It has all requisite corporate power and
-------------------
authority and has all material governmental licenses, authorizations, consents
and approvals necessary to own its assets and carry on its business as now being
conducted and to execute and deliver and perform its obligations under the Loan
Documents, including, to pledge and deliver the Pledged Securities as Collateral
under this Agreement and to execute the Note.
1.1 Authorization of Borrowing. All appropriate and necessary action
--------------------------
has been taken by it to authorize the execution and delivery of this Agreement
and, in the case of the Borrower, the Note, and to authorize the performance and
observance of the terms hereof and thereof.
1.1 Agreement Binding. This Agreement and the Note each constitutes
-----------------
the legal, valid and binding obligation of the Borrower enforceable in
accordance with their terms except as may be limited by laws governing
insolvency or creditors' rights or by rules of equity. The execution, delivery
and performance of this Agreement, the Note and any other Loan Document will not
violate any provision of law, regulation, order or other governmental directive,
or conflict with, constitute a default under, or result in the breach of any
provision of any material agreement, ordinance, decree, bond, indenture, order
or judgment to which the Borrower is a party or by which it or its properties is
or are bound.
1.1 Compliance with Law. It is conducting its business and operations
-------------------
in material compliance with all applicable material laws, regulations,
ordinances and directives of governmental authorities. It has filed all tax
returns required to be filed and has paid all taxes in respect of the ownership
of its assets or the conduct of its operations prior to the date after which
penalties attach for failure to pay except (a) to the extent that the payment of
such taxes is being contested in good faith by it in appropriate proceedings and
adequate reserves have been provided for the payment thereof, or (b) with
respect to such returns and/or taxes which are not material in either nature or
amount such that any failure to file such returns or pay such taxes would not
materially and adversely affect its financial condition, operations, business or
prospects.
1.1 Consents. All licenses, consents and approvals required from and
--------
all registrations and filings required to be made with any governmental or other
public body or
<PAGE>
authority for the making and performance by the Borrower of this Agreement and
the Note have been obtained and are in effect.
1.1 Litigation. There is no action, suit or proceeding at law or in equity
----------
by or before any court, governmental agency or authority or arbitral tribunal
now pending or, to the knowledge of the Borrower, threatened against or
affecting it which, if determined adversely, may have a Material Adverse Effect.
1.1 Financial Statements. The unaudited balance sheet of the Borrower (on
--------------------
a consolidated basis) as at December 31, 1998, and the related statement of
income for the fiscal period ended on such date, in each case heretofore
furnished to the Lender, are complete and correct in all material respects and
fairly present the financial condition of the Borrower as at said date (subject
to normal year-end audit adjustments), all in accordance with GAAP applied on a
consistent basis. On said date, the Borrower had no material contingent
liabilities, liabilities for taxes, unusual or anticipated losses from any
unfavorable commitments, except as referred to or reflected in said balance
sheet as at said date. Since December 31, 1998, there has been no material
adverse change in the operations, condition (financial or otherwise) or business
of the Borrower from that set forth in said financial statements as at said
date.
1.1 Other Obligations. It is not in default in the performance, observance
-----------------
or fulfillment of any obligation, covenant or condition in any agreement or
instrument to which it is a party or by which it is bound the result of which
could have a Material Adverse Effect.
1.1 Margin Regulations. It is not engaged principally, or as one of its
------------------
important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation G of the
Board of Governors of the Federal Reserve System). No part of the proceeds of
any Loan will be used to (a) purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin stock or
(b) pay the principal or interest of any securities issued by the Borrower in
connection with a Securitization Transaction.
1.1 Investment Company Act. It is not an "investment company" or a company
----------------------
"controlled" by an investment company within the meaning of the Investment
Company Act of 1940, as amended.
1.1 Chief Executive Office. The chief executive office of the Borrower is
----------------------
located in 18400 Von Karman, Suite 1000, Irvine, California 92612 or such other
location in the United States as has been notified to Greenwich from time to
time pursuant to Section 5.21.
1.1 Ownership of the Borrower of the Pledged Securities. The Borrower owns
---------------------------------------------------
beneficially and of record all of the Pledged Securities, free and clear of all
Liens.
<PAGE>
1.1 Full Disclosure. No representation or warranty made by or on behalf of
---------------
the Borrower contained herein and no information (written or oral), certificate,
financial statement or report furnished by or on behalf of the Borrower
hereunder, contains an untrue statement of a material fact or omits to state any
material fact necessary to make the statements herein or therein contained, in
light of the circumstances in which made, not misleading.
1.1 ERISA. Except as disclosed to the Lender, neither it nor any of its
-----
respective Subsidiaries maintains any Plans, and it agrees to notify the Lender
in advance of forming any Plans. Neither it nor any of its Affiliates has any
obligations or liabilities with respect to any employee pension benefit plans or
Multiemployer Plans, nor have any such Persons had any obligations or
liabilities with respect to any such Plans during the five-year period prior to
the date this representation is made or deemed made. It and any of its
Affiliates will give notice if at any time it or any of its Affiliates has any
obligations or liabilities with respect to any employee pension benefit plan or
Multiemployer Plan. All Plans maintained by it or any of its Affiliates are in
substantial compliance with all applicable laws (including ERISA).
1.1 Representations of the Borrower with respect to the Pledged
-----------------------------------------------------------
Securities.
- ----------
(a) All of the Pledged Securities have been validly issued, and are
fully paid and non-assessable, and the Pledged Securities have been offered,
issued and sold in compliance with all applicable laws and (A) there are no
outstanding rights, options, warrants or agreements for the purchase from, or
sale or issuance, in connection with the Pledged Securities; (B) there are no
agreements on the part of the Borrower to issue, sell or distribute the Pledged
Securities; and (C) the Borrower has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any securities or any interest therein or
to pay any dividend or make any distribution in respect of the Pledged
Securities.
(a) Borrower is, or will be upon issuance of the Pledged Securities,
the record and beneficial owner of, and has, or will have upon issuance, good
title to, the Pledged Securities, free of any and all Liens or options in favor
of, or claims of, any other Person, except the security interest created by this
Agreement.
(a) The Pledged Securities, when pledged as Collateral hereunder,
shall be unencumbered, and this Agreement, together with delivery to the Lender
or the Bailee of the Pledged Securities and the filing of a financing statement
on Form UCC-1 with the Secretary of State of the State of California naming the
Borrower as "debtor" and the Lender as "secured party" and describing such
Collateral as the "collateral", will create a valid first priority perfected
security interest in such Collateral in favor of Greenwich in accordance with
its terms against all creditors of the Borrower and any Persons purporting to
purchase such Collateral from the Borrower.
(a) Borrower has obtained from any and all concerned creditors, any
waivers, amendments, releases or acknowledgments necessary to create and perfect
in favor of the Lender the first priority security interests provided herein.
<PAGE>
1.1 Representations as to each Pooling and Servicing Agreement. All
----------------------------------------------------------
of the representations and warranties in any applicable Pooling and Servicing
Agreement are true and correct in all material respects as of the date hereof as
if made on such date and are incorporated herein by reference mutatis mutandis;
------- --------
or any such breach thereof does not have a Material Adverse Effect. No Event of
Default has occurred and is continuing under any Pooling and Servicing
Agreement.
1.1 Year 2000 Compliance. The Borrower has made a full and complete
--------------------
assessment of all material issues which may be related to the occurrence of the
year 2000, including all material issues related to its computer program and
software (the "Year 2000 Issues"), and the Borrower has a realistic and
achievable program for remediating the Year 2000 Issues on a timely basis (the
"Year 2000 Program"). Based on such assessment and on the Year 2000 Program,
the Borrower does not reasonably anticipate that Year 2000 Issues will have a
material adverse effect on the Borrower's operations, servicing or financial
condition.
1.1 Survival. All representations and warranties made by the Borrower
--------
herein, whether express or implied, shall survive until all Obligations have
been fully satisfied and discharged.
1. Section Affirmative Covenants of the Borrower.
-------------------------------------
The Borrower hereby covenants to Greenwich that, until the payment in full
and final performance of all of its respective Obligations to Greenwich under
the Loan Documents, it shall perform the following obligations:
1.1 Financial Statements and Other Reports. Each Loan Party will
--------------------------------------
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 the
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
each Loan Party (on a consolidated and a consolidating basis) 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 the Borrower for such month and
from the beginning of the then current fiscal year of each Loan Party 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 each Loan Party as being
complete and correct in all material respects and fairly presenting each Loan
Party's financial condition and results of operations, subject to changes
resulting from normal year-end adjustments;
(a) as soon as available and in any event within 90 days after
the end of each fiscal year, unaudited financial statements of the Borrower and
audited financial
<PAGE>
statements of the Guarantors (on a consolidated and a consolidating basis),
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 each Guarantor, 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 LLP or other independent certified public accountants selected by the
Borrower and reasonably satisfactory to the Lender, which report shall be
unqualified and shall state that such financial statements present fairly the
financial condition of each Guarantor 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 Lender acknowledging that the Lender is
extending credit in reliance on such statements and authorizing such reliance,
and also by any management letters to any Guarantor or its board of directors
furnished by such accounting firm in connection with its audit of such
Guarantor's consolidated financial statements;
(a) with the financial statements furnished pursuant to Section 5.1(a) for
each calendar month: (i) a certificate signed by the chief financial officer of
each Loan Party stating that to the best of such officer's knowledge, after due
inquiry, there exists no Default, or, if such Default exists, stating the nature
thereof, the period of existence thereof, and what action such Loan Party
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 Residual
Securities: the number of Mortgage Notes included therein, the total outstanding
principal amount thereof, Investor type, weighted average coupon, delinquency
status and foreclosure experience; and (iv) such additional information
concerning the Eligible Residual Securities and such selective detail by
segments and categories thereof as may from time to time be reasonably requested
by the Lender;
(a) within five Business Days after any officer of the Borrower has
knowledge of their occurrence, notice of each of the following events: (i) the
commencement of any action, suit, proceeding or arbitration against the Borrower
or any Subsidiary of the Borrower, or any material development in any action,
suit, proceeding or arbitration pending or threatened against the Borrower or
any such Subsidiary, (A) in which the aggregate uninsured amount claimed is more
than $1,000,000, (B) which would, if decided in a manner adverse to the Borrower
or such Subsidiary, result in a Material Adverse Effect 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; (ii) any Default and what actions,
if any, the Borrower is taking or contemplates taking in regard thereto; (iii)
any notice under any Pooling and Servicing Agreement from any party thereunder
that it intends to put the Borrower on probation, declare an event of default
thereunder, or that it intends to terminate the servicer thereunder; (iv) notice
of any other Material Adverse Effect, including any material adverse development
<PAGE>
which occurs in any litigation, arbitration or governmental investigation or
proceeding previously disclosed by the Borrower to the Lender;
(a) within ten Business Days following each Securitization
Transaction by the Borrower, a copy of the due diligence report prepared in
connection with such Securitization Transaction by KPMG LLP or other independent
certified public accountants selected by the Borrower and reasonably
satisfactory to the Lender;
(a) prior to the end of each fiscal year, final annual budgets,
forecasts and pro-forma cash flow projections developed by the Borrower for its
next succeeding fiscal year;
(a) as soon as available, copies of all financial statements, reports
and returns sent to the Borrower's stockholders and copies of all regular,
periodic, or special reports which the Borrower is or may be required to file
with any governmental department, bureau, commission or agency; and
(a) from time to time, such other information regarding the business,
operations, affairs and financial condition of the Borrower as the Lender may
reasonably request.
The parties hereto acknowledge that the financial statements of the Borrower
described in Section 5.1(a) above shall not be required to be prepared in
accordance with GAAP. Notwithstanding the preceding sentence, the Borrower
hereby represents to the Lender that such financial statements will accurately
reflect the Borrower's financial condition and any deviation from GAAP standards
will not have the effect of increasing the Borrower's Tangible Net Worth above
the amount that would have been determined using GAAP standards.
1.1 Corporate Existence; Agency Status. Each Loan Party will (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 such Loan Party from enforcing its
rights with respect to any material assets or expose such Loan Party to any
material liability.
1.1 Compliance with Laws, Taxes, etc. Each Loan Party will 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 Material Adverse Effect on the financial condition of such
Loan Party, 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 Borrower fails to satisfy its obligations under
this Section 5.3 as to taxes,
<PAGE>
assessments and governmental charges, the Lender may but is 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 2.4 from the date incurred and shall be paid or
reimbursed by the Borrower on demand.
1.1 ERISA. Each Loan Party will 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
any Loan Party or any of the ERISA Affiliates would be subject to either a civil
penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section
4975 of the Code, in each case in an amount exceeding $10,000, or (b) fail to
make full payment when due of all amounts which, under the provisions of any
Plan, any Loan Party 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. No
Loan Party will permit, or 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 any Loan Party or any Subsidiary of any Loan Party;
and no Loan Party will 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 Lender) of such Plan's projected benefit
obligations to exceed the fair market value of such Plan's assets. No Loan
Party will become, or permit any ERISA Affiliate to become, a party to any
Multiemployer Plan.
1.1 Assets and Insurance. The Borrower will maintain or require to
--------------------
maintain in full force and effect (a) an adequate errors and omissions insurance
policy, (b) such other insurance coverage by financially sound and respectable
insurers, on all properties of a character usually insured by organizations
engaged in the same or similar business (including, without limitation, all real
property covered by Mortgages to the extent normally required by prudent
mortgagees) against loss or damage of a kind customarily insured against by such
organizations, (c) adequate public liability insurance against tort claims which
may be asserted against the Borrower, 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 the
Borrower.
1.1 Inspection, Visitation, etc. The Borrower will permit any Person
---------------------------
designated by the Lender in writing, at the Lender's expense, to visit and
inspect any of the properties, corporate books and financial records of the
Borrower and discuss its affairs and finances with the principal officers of the
Borrower and its independent public accountants, all at such times as the Lender
shall reasonably request.
<PAGE>
1.1 Further Assurances. The Borrower will take all such further actions and
------------------
execute all such further documents and instruments as the Lender 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 Lender under any
Loan Document.
1.1 Indebtedness. The Borrower 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;
(a) 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 the Borrower in the ordinary course of
business otherwise than for money borrowed; and
(a) Indebtedness incurred to finance the purchase of equipment and
secured solely by Liens on such equipment, in an aggregate amount not to exceed
$1,000,000;
(a) Indebtedness incurred to finance Residual Securities issued by
the Borrower and which Indebtedness is secured only by such Residual Securities,
provided, such Indebtedness shall not exceed 75% of the value of such Residual
Securities determined in accordance with GAAP;
(a) intercompany Indebtedness of the Borrower to any Affiliate of the
Borrower in an aggregate amount not to exceed $1,000,000; and
(a) Indebtedness incurred under the U.S. Bank Financing Documents or
the Paine Webber Financing Documents.
1.1 Liens. The Borrower 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 the Borrower, or any income or profits therefrom, except:
(a) the security interests granted to the Lender under the Loan
Documents;
(a) Liens in connection with deposits or pledges to secure payment of
workers' compensation, unemployment insurance, old age pensions or other social
security obligations, in the ordinary course of business of the Borrower;
(a) 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;
<PAGE>
(a) 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;
(a) 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 5.8(c);
(a) Liens incurred in connection with gestation repurchase agreements
or similar arrangements under which the Borrower or its subsidiaries are
required to repurchase Mortgage-backed Securities or Mortgage Loans from the
Lender or other counterparty reasonably satisfactory to the Lender; 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;
(a) Liens on Residual Securities issued by the Borrower and which
Liens secure Indebtedness permitted by Section 5.8(d);
(a) Liens on Servicing Rights and which Liens secure Indebtedness
permitted by Section 5.8(f).
1.1 Investments. The Borrower will not, directly or indirectly, make or
-----------
own any Investment, except Investments in (a) marketable direct obligations
issued or unconditionally guaranteed by the United States Government or issued
by any agency thereof and backed by the full faith and credit of the United
States, in each case maturing within one year from the date of acquisition
thereof, (b) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having the highest rating obtainable
from either Standard & Poor's Corporation or Moody's Investors Service, Inc.,
(c) commercial paper maturing no more than one year from the date of creation
thereof and, at the time of acquisition, having the highest rating obtainable
from either Standard & Poor's Corporation or Moody's Investors Service, Inc.,
(d) Mortgage Loans originated or acquired by the Borrower in the ordinary course
of the Borrower's business, (e) certificates of deposits or bankers acceptances
issued by any 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 5.10,
(g) the Capital Stock of any Subsidiary of the Borrower (subject to the
limitations set forth in Sections 5.13 and 5.16).
<PAGE>
1.1 Guarantees. The Borrower will not, directly or indirectly, create or
----------
become or be liable with respect to any Guarantee, other than any Guarantee
under the U.S. Bank Financing Facility Documents.
1.1 Net Worth. The Borrower will at all times maintain Tangible Net Worth
---------
of not less than the greater of (i) $40,000,000 measured on a monthly basis (as
at the end of each month) and (ii) 85% of Tangible Net Worth at the end of the
most recently completed fiscal year plus (a) 90% of capital contributions made
during such fiscal year plus (b) 50% of positive year to date net income.
1.1 Restriction on Fundamental Changes. The Borrower will not engage in
----------------------------------
any business activities or operations substantially different from or unrelated
to those in which the Borrower were engaged on the date of this Agreement, 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 Borrower 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 the Borrower; and
(a) the Borrower and its Subsidiaries may engage in any business
involving the origination, acquisition, service, sale or securitization of
Mortgage Loans or other consumer obligations.
1.1 Restricted Payments. The Borrower will not make any Restricted
-------------------
Payments.
1.1 Reserved.
--------
1.1 Subsidiaries. The Borrower will not create or acquire any
------------
Subsidiaries, other than Subsidiaries engaged solely in any business involving
the origination, acquisition, service, sale or securitization of Mortgage Loans
or other consumer obligations.
1.1 Affiliate Transactions. The Borrower will not enter into any
----------------------
transaction with an Affiliate of the Borrower, other than transactions in the
ordinary course of business on terms no less favorable to the Borrower than
those that would be obtained in an arm's-length transaction and the loans
described in Section 5.8(e).
1.1 Escrow Imbalances. The Borrower 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.
<PAGE>
1.1 Inconsistent Agreements. The Borrower will not, directly or
-----------------------
indirectly, enter into any agreement containing any provision which would be
violated or breached by any borrowing by the Borrower hereunder or by the
performance by the Borrower of its obligations hereunder or under any other Loan
Document.
1.1 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 a Default if such action is taken or condition exists.
1.1 Notice of Change of Chief Executive Office. It will provide Greenwich
------------------------------------------
with not less than 30 days prior written notice of any change in its chief
executive office to permit Greenwich to make any additional filings necessary to
continue Greenwich's perfected security interest in the Collateral.
1.1 Covenants of the Borrower with respect to the Pledged Securities.
----------------------------------------------------------------
(a) The Borrower shall promptly deliver to the Lender (i) any report
received by or required to be delivered by any Person pursuant to the Pooling
and Servicing Agreement at the same time as required thereunder, including,
without limitation, any trustee's report and any reports delivered to related
surety companies; (ii) any notice of transfer of servicing; and (iii) any other
such document or information as the Lender may reasonably request from time to
time with respect to the Pledged Securities.
(a) The Borrower shall permit the Lender to inspect its books and
records relating to the Mortgage Loans, any Securitization Transaction, the
Pledged Securities and other matters relating to the transactions contemplated
hereby, upon reasonable prior notice and during normal business hours.
(a) If the Borrower shall, as a result of its ownership of the
Pledged Securities, become entitled to receive or shall receive any rights,
whether in addition to, in substitution of, as a conversion of, or in exchange
for the Pledged Securities, or otherwise in respect thereof, the Borrower shall
accept the same as the Lender's agent, hold the same in trust for the Lender and
deliver the same forthwith to the Lender in the exact form received, duly
indorsed by the Borrower to the Lender, if required, together with an undated
bond power covering such certificate duly executed in blank and with, if the
Lender so requests, signature guaranteed, to be held by the Lender hereunder as
additional collateral security for the Obligations. If any sums of money or
property so paid or distributed in respect of the Pledged Securities shall be
received by the Borrower, the Borrower shall, until such money or property is
paid or delivered to the Lender as required hereunder, hold such money or
property in trust for the Lender, segregated from other funds of the Borrower,
as additional collateral security for the Obligations.
<PAGE>
(a) At any time and from time to time, upon the written request
of Greenwich, and at the sole expense of the Borrower, the Borrower will
promptly and duly execute and deliver such further instruments and documents and
take such further actions as Greenwich may reasonably request for the purposes
of obtaining or preserving the full benefits of this Agreement and of the rights
and powers herein granted. If any amount payable under or in connection with any
of the Collateral shall be or become evidenced by any instrument (including any
certificated security or promissory note) or chattel paper (in each case as
defined in the UCC), such instrument or chattel paper shall be immediately
delivered to the Bailee, on behalf of Greenwich, duly endorsed in a manner
satisfactory to Greenwich, to be held as Collateral pursuant to this Agreement.
Prior to such delivery, the Borrower shall hold all such instruments or chattel
paper in trust for Greenwich, and shall not commingle any of the foregoing with
any assets of the Borrower.
(a) The Borrower shall pay, and save Greenwich harmless from,
any and all liabilities with respect to, or resulting from any delay in paying,
any and all stamp, excise, sales or other similar taxes which may be payable or
determined to be payable with respect to any of the Collateral or in connection
with any of the transactions contemplated by this Agreement.
1.1 Year 2000 Compliance. (a) The Borrower shall take and shall cause
--------------------
each of its Affiliates to take all such actions as are reasonably necessary to
successfully implement the Year 2000 Program and to assure that the Year 2000
Issues will not have a material adverse effect on the Borrower's operations,
servicing or financial condition. At the request of Greenwich, the Borrower will
provide a description of the Year 2000 Program, together with any updates or
progress reports with respect thereto. The Borrower shall provide Greenwich with
immediate notice in writing in the event that Greenwich has reason to believe
that the occurrence of the year 2000 will adversely affect the Borrower's
business or any Loans executed in connection herewith.
(b) By September 1, 1999, the Borrower shall be required to provide
written assurance to Greenwich that it is year 2000 compliant. If satisfactory
assurance can not be made on such date, Greenwich shall have no obligation to
make any additional Loans under this Agreement. In addition, the failure of the
Borrower to provide satisfactory assurance of year 2000 compliance within thirty
days thereafter shall constitute an Event of Default under this Agreement.
1. Section Cash Dividends; Voting Rights.
-----------------------------
The Lender shall be permitted to receive all cash dividends and
distributions paid in respect of the Pledged Securities and shall apply same in
accordance with Section 3 hereof. Without the prior written consent of
Greenwich, the Borrower will not (i) vote to enable, or take any other action to
permit, any rights afforded it as holder of the Pledged Securities under any
Pooling and Servicing Agreement, or (ii) sell, assign, transfer, exchange or
otherwise dispose of, or grant any option with respect to, the Collateral, or
(iii) create, incur or permit to exist any Lien or option in favor of, or any
adverse claim of any Person with respect to, any
<PAGE>
of the Collateral, or any interest therein, except for the security interests
created by this Agreement.
1. Section Rights of Greenwich as Pledgee.
------------------------------
1.1 Greenwich shall receive any and all cash dividends or
distributions paid in respect of the Pledged Securities and shall apply such
amounts in accordance with Section 2 hereof. All Proceeds while held by
Greenwich, the Bailee (or by the Borrower in trust for Greenwich) shall continue
to be held as collateral security for all the Obligations and shall not
constitute payment thereof until applied as provided in Section 9.3 hereof.
1.1 If an Event of Default shall occur and be continuing,
(a) Greenwich shall have the right to make application of any
cash dividends or distributions paid in respect of the Pledged Securities to the
Obligations in such order as is provided in Section 9.3 hereof, and
(a) all shares of the Pledged Securities shall, at the election
of Greenwich, be registered in the name of Greenwich or its nominee and the
Instruction Letters shall be delivered to each Trustee, and Greenwich or its
nominee may thereafter exercise (A) all voting, corporate and other rights
pertaining to such shares of the Pledged Securities and (B) any and all rights
of conversion, exchange, subscription and any other rights, privileges or
options pertaining to such shares of the Pledged Securities as if it were the
absolute owner thereof (including, without limitation, upon the exercise by
Greenwich of any right, privilege or option pertaining to such shares of the
Pledged Securities, and in connection therewith, the right to deposit and
deliver any and all of the Pledged Securities with any committee, depository,
transfer agent, registrar or other designated agency upon such terms and
conditions as Greenwich may determine), and
(a) notify any Person obligated on any Collateral of the rights
of Greenwich hereunder, enter into any extension, settlement or compromise
agreement relating to or affecting the Collateral, receive payment or
performance of any insurance claims, claims for breach of warranty or any other
claims concerning the Collateral, all without liability (other than for its
gross negligence or willful misconduct) except to account for property actually
received by it, but Greenwich shall have no duty to the Borrower to exercise any
such right, privilege or option and shall not be responsible for any failure to
do so or delay in so doing.
1. Section Conditions Precedent.
--------------------
1.1 Conditions Precedent to this Agreement. The obligations of
--------------------------------------
Greenwich to extend any Loan hereunder are subject to the receipt by Greenwich,
concurrently with the signing of this Agreement and, together with the monthly
financial statements to be delivered pursuant to this Agreement, in form and
substance satisfactory to Greenwich, of the following:
<PAGE>
(a) Evidence of the authority of the persons executing this
Agreement, the Note and any other documents contemplated herein and therein,
together with specimen signatures of such persons;
(a) A certified copy of the Borrower's Articles of Incorporation
and By-Laws and a good standing certificate from its State of incorporation;
(a) Certified copies of all necessary resolutions of the Board
of Directors of the Borrower authorizing the execution and delivery and
performance under this Agreement and the Note;
(a) The duly executed, original Note;
(a) A certificate, as of the date of signing of the Agreement,
by the President, a Vice President or the Treasurer of the Borrower certifying
that the representations and warranties contained in Section 4 hereof are true
and correct, that the Borrower is in compliance with the covenants set forth in
Section 5 and that no Default or Event of Default has occurred and is
continuing;
(a) The duly executed, original Guaranty executed by the
Guarantors.
(a) With respect to each Guarantor, a certified copy of the
Certificate or Articles of Incorporation and By-Laws and a good standing
certificate from its State of incorporation.
(a) The following opinions of counsel in form and substance
reasonably satisfactory to Greenwich's counsel:
(i) Standard corporate opinions of the Borrower regarding
due authorization, execution, consents, material litigation and
noncontravention, which opinions may be rendered by in-house counsel;
(i) Enforceability of the Agreement and the Note;
(i) Lien, priority and perfection opinions relating to the
pledge of Collateral from the Borrower to Greenwich; and
(i) Such other opinions as Greenwich's counsel shall
reasonably request; and
(a) Such other documents, certificates or financial or other
information as Greenwich may reasonably request.
<PAGE>
1.1 Conditions Precedent to Each Loan. In addition to each of the
---------------------------------
conditions precedent set forth in Section 8.1 being met, the obligations of
Greenwich to extend each Loan hereunder shall be subject to the following
conditions:
(a) There shall not have occurred and be continuing any Event of
Default and the Borrower shall be in compliance in all material respects with
all of its respective covenants and obligations under this Agreement, and the
Borrower shall be in compliance in all material respects with all of its
covenants and obligations under the Note;
(a) Greenwich shall have received the Notice of Borrowing
described in Section 2.2(a);
(a) Taking into account the amount of the requested Loan, the
Collateral Value of the Collateral shall be equal to or in excess of the
aggregate principal balance of the Loans outstanding plus accrued interest
thereon;
(a) Pledged Securities with Collateral Value equal to or greater
than the sum of (i) the principal balance of the Loan requested plus (ii) any
outstanding Loans shall have been delivered to Greenwich, the Bailee or its
agent with necessary assignments or bond powers;
(a) The following documents shall have been delivered to the
Lender or Bailee with respect to the Pledged Securities: (i) the original
documents described in Sections 3.2 and 3.3 hereof, (ii) a copy of the executed
Pooling and Servicing Agreement governing the Pledged Securities and/or any
supplements thereto, and the offering documents related to the Pledged
Securities, each certified by the Borrower or the Trustee or master servicer
under such Pooling and Servicing Agreement as a true, correct and complete copy
of the original, and all ancillary documents required to be delivered to the
certificateholders under such Pooling and Servicing Agreement, and (iii) copies
of distribution statements delivered to the Trustee for two months prior to the
month in which the related Request for Borrowing is made, if any, certified by
the applicable servicer or master servicer as true and correct; and
(a) Financing statements on Form UCC-1 naming the Borrower as
"debtor" and Greenwich as "secured party" and describing the Collateral as
"collateral" thereunder, to be filed in each jurisdiction in which it is
necessary to file to perfect a security interest in Collateral.
1. Section Default.
-------
1.1 Events of Default. Each of the following events and occurrences
-----------------
shall constitute an Event of Default under this Agreement if not cured within 3
Business Days of their occurrence unless the context of the provision indicates
otherwise (provided that the events described in paragraphs (a)(i), (e), (f),
(g), (h) and (i) shall have no cure period):
<PAGE>
(a) The Borrower shall fail to make payment to Greenwich of (i)
principal or interest when due of any amount that the Borrower is obligated to
pay under this Agreement or the Note or (ii) any other amount payable by it
hereunder or under any other Loan Document and such default shall have continued
unremedied for three (3) Business Days.
(a) The earlier to occur of (i) a Responsible Officer having
knowledge of such failure to perform or observe or (ii) written notice thereof
from Greenwich of the Borrower failing to perform or observe any material
provision of this Agreement (such materiality, as reasonably determined by
Greenwich).
(a) The Borrower shall fail to perform or observe any other
provision of this Agreement or the Note, within 30 days following the earlier of
(i) a Responsible Officer having knowledge of such failure to perform or observe
or (ii) written notice thereof from Greenwich.
(a) The Guarantors shall (i) fail to make any payment required
to be made to Greenwich under the Guaranty or (ii) fail to comply with the
requirements of Section 3(b) of the Guaranty.
(a) The Borrower shall fail to pay any money due under any other
agreement, note, indenture or instrument evidencing, securing, guaranteeing or
otherwise relating to indebtedness of the Borrower for borrowed money, which
failure to pay constitutes a default or event of default under any such
agreement or indebtedness, or the Borrower receives notice, or a Responsible
Officer has knowledge, of any other default or event of default or other event
which with the giving of notice or the passing of time or both would constitute
a default or event of default under any such agreement or instrument, with
respect to amounts due under such agreement or instrument, whether by
acceleration or otherwise, in an aggregate amount of $5,000,000 or such lesser
amount as shall be included in a cross-acceleration provision of any such
agreement or instrument.
(a) Any representation, warranty or certification made or deemed
made by the Borrower herein or by the Borrower in any other Loan Document or any
certificate furnished to the Lender pursuant to the provisions thereof or in
connection with a Securitization Transaction, shall prove to have been false or
misleading in any material respect as of the time made or furnished.
(a) The Collateral or any other assets of the Borrower or any
Affiliate thereof are attached, seized, levied upon or subjected to a writ or
distress warrant, or come within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors and the same is not dissolved
or dismissed within sixty (60) days thereafter; an application is made by any
Person for the appointment of a receiver, trustee, or custodian for the
Collateral or any assets of a member of the Borrower or any Affiliate thereof
and the same is not dismissed within sixty (60) days after the application
thereof, or the Borrower or any Affiliate thereof shall have concealed, removed
or permitted to be concealed or removed, any part of its property, with intent
to hinder, delay or defraud its creditors or made or suffered a
<PAGE>
transfer of any of its property which may be fraudulent under any bankruptcy,
fraudulent conveyance or other similar law.
(a) An application is made by the Borrower or any Affiliate
thereof or for the appointment of a receiver, trustee or custodian for the
Collateral or any other assets of the Borrower or any Affiliate thereof; a
petition under any section or chapter of the Bankruptcy UCC or any similar
federal or state law or regulation shall be filed by the Borrower or any
Affiliate thereof or the Borrower or any Affiliate thereof shall make an
assignment for the benefit of its creditors, or any case or proceeding shall be
filed by the Borrower or any Affiliate thereof for its dissolution, liquidation,
or termination, by the Borrower or any Affiliate thereof, or the Borrower or any
Affiliate thereof ceases to conduct a material part of its current business.
(a) The Borrower or any Affiliate thereof is enjoined,
restrained or in any way prevented by court order from conducting all or any
material part of its business affairs, or a petition under any section or
chapter of the Bankruptcy Code or any similar federal or state law or regulation
is filed against the Borrower or any Affiliate thereof, or any case or
proceeding is filed against the Borrower or any Affiliate thereof, for its
dissolution or liquidation, and such injunction, restraint, petition, case or
proceeding is not dismissed within sixty (60) days after the entry of filing
thereof.
(a) The Borrower or any Affiliate thereof becomes insolvent or
admits in writing to its inability to pay its debts as they mature.
(a) An unaudited financial statement of the Borrower in
Greenwich's reasonable opinion, contains a material, adverse qualification with
respect to the Borrower, the Residual Securities or the Collateral.
(a) A "default," "event of default" or "event of termination,"
however defined, shall occur under any Other Agreement, which has not been
waived by Greenwich or its Affiliate, as applicable.
(a) The Borrower shall grant, or suffer to exist, any Lien on
any Collateral except the Liens contemplated hereby; or the Liens contemplated
hereby shall cease to be first priority perfected Liens on the Collateral in
favor of the Lender or shall be Liens in favor of any Person other than the
Lender.
(a) Any other event shall occur which, in the sole good faith
discretion of the Lender, has had a Material Adverse Effect.
1.1 Acceleration. If not cured within the cure period provided within the
------------
relevant provision, then upon the continuance of such Event of Default,
Greenwich may, by notice to the Borrower (which notice shall be deemed given
automatically upon the occurrence of an Event of Default referred to in
paragraph (a)(i), (e), (f), (g), (h) or (i), (A) declare the obligations of
Greenwich hereunder to be terminated, whereupon those obligations shall
<PAGE>
terminate, and (B) declare immediately due and payable all amounts payable
hereunder and under the Note by the Borrower that would otherwise be due after
the date specified in the notice (or the date such notice is deemed given),
whereupon all those amounts shall become immediately due and payable, all
without further diligence, presentment, demand of payment, protest or notice of
any kind, all of which are expressly waived by the Borrower. If any Event of
Default shall occur and be continuing, Greenwich may take any lawful action to
protect and enforce its rights by an action at law, including selling the
Collateral, suit in equity or other appropriate proceedings, whether for the
specific performance of any agreement contained herein, or for an injunction
against a violation of any of the terms hereof, or in aid of the exercise of any
power granted hereby or by law. If Greenwich opts to sell the Collateral as one
of its remedies upon an Event of Default, the Borrower shall remain liable for
any remaining deficiency upon applying the proceeds of such sale against any and
all amounts owed by the Borrower to Greenwich hereunder.
1.1 Remedies on Default.
-------------------
(a) If an Event of Default shall have occurred and be continuing, at
any time at Greenwich's election, Greenwich may apply all or any part of
Proceeds of the Collateral in payment of the Obligations in the following order
of priority:
FIRST, to the payment of all reasonable costs and expenses incurred by
Greenwich in connection with this Agreement, the Note or, any other Loan
Document or any of the Obligations, including, without limitation, all court
costs and the reasonable costs or expenses incurred in connection with the
exercise by Greenwich of any right or remedy under this Agreement, the Note or
any other Loan Document;
SECOND, to the satisfaction of all other Obligations; and
THIRD, any excess to the Borrower or to whomsoever may be lawfully
entitled to receive the same.
(a) If an Event of Default shall occur and be continuing, Greenwich
may exercise, in addition to all other rights and remedies granted in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to the Obligations, all rights and remedies of a secured party under
the UCC. Without limiting the generality of the foregoing, to the extent
permitted by law, Greenwich, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Borrower or any other Person
(all and each of which demands, defenses, advertisements and notices are hereby
waived to the extent permitted by law), may in such circumstances forthwith
collect, receive, appropriate and realize upon the Collateral, or any part
thereof, and/or may forthwith sell, assign, give option or options to purchase
or otherwise dispose of and deliver the Collateral or any part thereof (or
contract to do any of the foregoing), in one or more parcels at public or
private sale or sales, in the over-the-counter market, at any exchange, broker's
board or office of Greenwich or elsewhere upon such terms and conditions as it
may deem advisable and at such prices as it
<PAGE>
may deem best, for cash or on credit or for future delivery without assumption
of any credit risk. Greenwich shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption in the Borrower, which right or equity is hereby waived
and released. Greenwich shall apply any Proceeds from time to time held by it
and the proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred in respect thereof or incidental to the care or safekeeping of any
of the Collateral or in any way relating to the Collateral or the rights of
Greenwich hereunder, including, without limitation, reasonable attorneys' fees
and expenses of counsel to Greenwich, to the payment in whole or in part of the
Obligations, in the order of priority specified in Section 9.3(a) hereof, and
only after such application and after the payment by Greenwich of any other
amount required by any provision of law, including, without limitation, Section
9-504(1)(c) of the UCC, need Greenwich account for the surplus, if any, to the
Borrower. To the extent permitted by applicable law, the Borrower waives all
claims, damages and demands it may acquire against Greenwich arising out of the
exercise by them of any rights hereunder, other than any such claims, damages
and demands that may arise from its gross negligence or willful misconduct. If
any notice of a proposed sale or other disposition of Collateral shall be
required by law, to the extent permitted by law such notice shall be deemed
reasonable and proper if given at least 10 days before such sale or other
disposition. The Borrower shall remain liable for any deficiency if the proceeds
of any sale or other disposition of Collateral are insufficient to pay the
Obligations and the fees and expenses of any attorneys employed by Greenwich to
collect such deficiency.
1. Section Private Sales, Etc.
------------------
The Borrower recognizes that Greenwich may be unable to effect a public
sale of any or all of the Pledged Securities, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws or
otherwise, and may be compelled to resort to one or more private sales thereof
to a restricted group of purchasers which will be obliged to agree, among other
things, to acquire such securities for their own account for investment and not
with a view to the distribution or resale thereof. The Borrower acknowledges and
agrees that any such private sale may result in prices and other terms less
favorable than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall be deemed to have been
made in a commercially reasonable manner. Greenwich shall be under no obligation
to delay a sale of any of the Pledged Securities for the period of time
necessary to permit any issuer of such Pledged Securities to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if any such issuer would agree to do so.
1. Section Irrevocable Authorization and Instruction to the Trustees.
---------------------------------------------------------
The Borrower hereby authorizes and instructs each Trustee to comply with
any instruction received by it from the Pledgee in writing that (a) states that
an Event of Default has occurred and is continuing and (b) is otherwise in
accordance with the terms of this Agreement and any other Loan Document to which
it is a party, without any other or further instructions
<PAGE>
from the Borrower, and the Borrower agrees that each Trustee shall be fully
protected in so complying.
1. Section Greenwich's Appointment as Attorney-in-Fact.
-------------------------------------------
(a) The Borrower hereby irrevocably constitutes and appoints
Greenwich and any officer or agent of Greenwich, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Borrower and in the name of
the Borrower or in Greenwich's own name, from time to time in Greenwich's
discretion, for the purpose of carrying out the terms of this Agreement or any
other Loan Document, to take any and all appropriate action and to execute any
and all documents and instruments which may be necessary or desirable to
accomplish the purposes of this Agreement, to the extent permitted by law,
including, without limitation, any financing statements, endorsements,
assignments or other instruments of transfer.
(a) The Borrower hereby ratifies all that said attorneys shall
lawfully do or cause to be done pursuant to the power of attorney granted
hereunder. All powers, authorizations and agencies contained in this Agreement
are coupled with an interest and are irrevocable until this Agreement is
terminated and the security interests created hereby are released.
1. Section Duty of Greenwich as Pledgee.
----------------------------
Greenwich's sole duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession, under Section 9-207 of the UCC
or otherwise, shall be to deal with it in the same manner as Greenwich deals
with similar securities and property for its own account. Neither Greenwich nor
any of its respective directors, officers, employees or agents shall be liable
for failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Borrower or any other Person or to
take any other action whatsoever with regard to the Collateral or any part
thereof.
1. Section Execution of Financing Statements.
---------------------------------
Pursuant to Section 9-402 of the UCC, the Borrower authorizes Greenwich to
file financing statements with respect to the Collateral without the signature
of the Borrower in such form and in such filing offices as Greenwich reasonably
determines appropriate to perfect the security interests of Greenwich under this
Agreement. A carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement for filing in any jurisdiction.
1. Section Miscellaneous.
-------------
1.1 Expenses.
--------
<PAGE>
(a) The Borrower agrees to hold the Lender and each of its officers,
directors, agents and employees (each, an "Indemnified Party") harmless from and
-----------------
indemnify each Indemnified Party against all liabilities, losses, damages,
judgments, costs and expenses of any kind which may be imposed on, incurred by
or asserted against such Indemnified Party in any suit, action, claim or
proceeding relating to or arising out of this Loan Agreement, the Note, any
other Loan Document or any transaction contemplated hereby or thereby, or any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, this Loan Agreement, the Note, any other Loan Document or any
transaction contemplated hereby or thereby, that, in each case, results from
anything other than the Lender's gross negligence or willful misconduct. In any
suit, proceeding or action brought by the Lender for any sum owing under any
Pledged Securities, or to enforce any provisions thereof, the Borrower will
save, indemnify and hold the Lender harmless from and against all expense, loss
or damage suffered by reason of any defense, set-off, counterclaim, recoupment
or reduction or liability whatsoever of the account debtor or obligor
thereunder, arising out of a breach by the Borrower of any obligation thereunder
or arising out of any other agreement, indebtedness or liability at any time
owing to or in favor of such account debtor or obligor or its successors from
the Borrower. The Borrower also agrees to reimburse the Lender as and when
billed by the Lender for all the Lender's costs and expenses incurred in
connection with the enforcement or the preservation of the Lender's rights under
this Loan Agreement, the Note, any other Loan Document or any transaction
contemplated hereby or thereby, including without limitation the fees and
disbursements of its counsel (including all reasonable fees and disbursements
incurred in any action or proceeding between the Borrower and the Lender or
between the Lender and any third party relating hereto). The Borrower hereby
acknowledges that, notwithstanding the fact that the Note is secured by the
Collateral, the obligation of the Borrower under the Note is a recourse
obligation of the Borrower.
(a) The Borrower agrees to pay as and when billed by the Lender all
of the out-of-pocket costs and expenses incurred by the Lender in connection
with the development, preparation and execution of, and any amendment,
supplement or modification to, this Loan Agreement, the Note, any other Loan
Document or any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including without limitation (i) all the reasonable fees,
disbursements and expenses of counsel to the Lender in connection with the
execution of the Loan Documents (not in excess of $25,000) and (ii) all the due
diligence, inspection, testing and review costs and expenses incurred by the
Lender with respect to Collateral under this Loan Agreement.
1.1 Set-off. In addition to any rights now or hereafter granted under
-------
applicable law and not by way of limitation of any such rights, during the
continuance of any Event of Default hereunder, Greenwich is hereby authorized at
any time and from time to time, without notice to the Borrower, or to any other
person or entity, any such notice being hereby expressly waived, to set-off
against any obligation owing by Greenwich or any Affiliate of Greenwich to the
Borrower or any Affiliate thereof, or against any funds or other property of the
Borrower or any Affiliate thereof held by or otherwise in the possession of
Greenwich or any Affiliate of Greenwich, the obligations and liabilities of the
Borrower to Greenwich under this
<PAGE>
Agreement or the Note, irrespective of whether or not Greenwich shall have made
any demand hereunder or under the Note.
1.1 Amendments. No provision of this Agreement may be amended,
----------
supplemented, modified or waived unless the same shall be in writing signed by
Greenwich and the Borrower.
1.1 Waiver of Notices, etc. The Borrower hereby expressly waives
----------------------
promptness, diligence, notice of acceptance and any other notice with respect to
any of its Obligations hereunder or under the Note, and any requirement that
Greenwich protect, secure, perfect or insure any security interest or lien or
any property subject thereto or exhaust any right or take any action against the
Borrower or any other person or entity or any collateral, and all other notices,
demands and protests, and all other formalities of every kind in connection with
the enforcement of the Obligations hereunder or under the Note.
1.1 Waiver; Cumulative Rights. No failure on the part of Greenwich to
-------------------------
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege under this Agreement or the Note shall operate as
a waiver thereof, nor shall any single or partial exercise of any right, power
or privilege under this Agreement or the Note preclude any other or further
exercise thereof or the exercise of any other right, power, or privilege. The
remedies provided herein are cumulative and not exclusive of any remedies
provided by law.
1.1 Binding Effect. This Agreement shall be binding upon and shall be
--------------
enforceable by the Borrower and Greenwich and their respective successors and
permitted assigns.
1.1 Survival. The provisions of Section 15.1 shall survive the payment in
--------
full of the Loans and all other amounts payable under this Agreement and the
Note.
1.1 GOVERNING LAW, ETC.; WAIVER OF TRIAL BY JURY.
--------------------------------------------
(A) THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. THE BORROWER HEREBY SUBMITS TO
THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE BORROWER
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(B) EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY
<PAGE>
JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO ALSO WAIVES THE
RIGHT IN ANY SUCH LITIGATION TO IMPOSE COUNTERCLAIMS OR SET-OFFS OF ANY KIND OR
DESCRIPTION UNLESS SUCH COUNTERCLAIM OR SET-OFF IS COMPULSORY OR MANDATORY IN
NATURE UNDER THE NEW YORK CIVIL PRACTICE LAW AND RULES.
1.1 Notice. Any notice hereunder shall be in writing and shall be
------
personally delivered, transmitted by postage prepaid registered or certified
mail, by facsimile, telegram or cable to the parties as follows:
To Greenwich: Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Attention: Anthony Palmisano
Telephone: (203) 618-2341
Facsimile: (203) 618-2135
with a copy to:
Attention: General Counsel
Telephone: (203) 625-2700
Facsimile: (203) 618-2132
To the Borrower: NC Capital Corporation
18400 Von Karman
Suite 1000
Irvine, California 92612
Attention: Stergios Theologides, Esq.
General Counsel
Telephone: (949) 863-7243
Facsimile: (949) 440-7033
All notices and other communications shall be deemed to have been duly
given on the date of receipt if delivered personally; the date five (5) calendar
days after posting if transmitted by mail; or in the case of a facsimile,
telegram or cable, at the time sent. Any party hereto may change its address
for purposes hereof by written notice to the other.
1.1 Severability. If any one or more of the provisions contained
------------
in this Agreement or any document executed in connection herewith shall be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired.
1.1 Counterparts. This Agreement may be signed in any number of
------------
counterparts which, taken together, shall constitute a full and original
agreement for all purposes.
<PAGE>
1.1 Assignability.
-------------
(a) The Borrower may not assign any of its rights or obligations
hereunder or under the Note without the prior written consent of the Lender. The
Lender may assign or transfer to any bank or other financial institution that
makes or invests in loans all or any of its rights or obligations under this
Loan Agreement and the other Loan Documents.
(a) The Lender may, in accordance with applicable law, at any time
sell to one or more lenders or other entities ("Participants") participating
------------
interests in any Advance, the Note, its commitment to make Advances, or any
other interest of the Lender hereunder and under the other Loan Documents. In
the event of any such sale by the Lender of participating interests to a
Participant, the Lender's obligations under this Loan Agreement to the Borrower
shall remain unchanged, the Lender shall remain solely responsible for the
performance thereof, the Lender shall remain the holder of the Note for all
purposes under this Loan Agreement and the other Loan Documents, and the
Borrower and the Lender shall continue to deal solely and directly with the
Lender in connection with the Lender's rights and obligations under this Loan
Agreement and the other Loan Documents. The Borrower agrees that if amounts
outstanding under this Loan Agreement and the Note are due or unpaid, or shall
have been declared or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall be deemed to have the right of set-
off in respect of its participating interest in amounts owing under this Loan
Agreement and the Note to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under this Loan Agreement or the
Note; provided, that such Participant shall only be entitled to such right of
--------
set-off if it shall have agreed in the agreement pursuant to which it shall have
acquired its participating interest to share with the Lender the proceeds
thereof. The Lender also agrees that each Participant shall be entitled to the
benefits of Section 15.1 with respect to its participation in the Loans
outstanding from time to time; provided, that the Lender and all Participants
--------
shall be entitled to receive no greater amount in the aggregate pursuant to such
Sections than the Lender would have been entitled to receive had no such
transfer occurred.
(a) The Lender may furnish any information concerning the Borrower or
any of its Subsidiaries in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants).
(a) The Borrower agrees to cooperate with the Lender in connection
with any such assignment and/or participation, to execute and deliver such
replacement notes, and to enter into such restatements of, and amendments,
supplements and other modifications to, this Loan Agreement and the other Loan
Documents in order to give effect to such assignment and/or participation. The
Borrower further agrees to furnish to any Participant identified by the Lender
to the Borrower copies of all reports and certificates to be delivered by the
Borrower to the Lender hereunder, as and when delivered to the Lender.
1.1 Hypothecation or Pledge of Collateral. The Lender shall have free and
-------------------------------------
unrestricted use of all Collateral and nothing in this Agreement shall preclude
the Lender from
<PAGE>
engaging in repurchase transactions with the Collateral or otherwise pledging,
repledging, transferring, hypothecating, or rehypothecating the Collateral.
[Signature Page Follows]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives on the date first written
above.
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC., as Lender
and Pledgee
By: /s/ illegible
------------------------------------------
Name:
Title:
NC CAPITAL CORPORATION
as Borrower and Pledgor
By: /s/ Brad A. Morrice
------------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF PROMISSORY NOTE]
$[__________] June __, 1999
New York, New York
FOR VALUE RECEIVED, NC CAPITAL CORPORATION, a California corporation (the
"Borrower"), hereby promises to pay to the order of GREENWICH CAPITAL FINANCIAL
--------
PRODUCTS, INC. a Delaware corporation (the "Lender"), at the principal office of
------
the Lender at 600 Steamboat Road, Greenwich, Connecticut 06830, in lawful money
of the United States, and in immediately available funds, the principal sum of
[__________________] DOLLARS ($[__________]) (or such lesser amount as shall
equal the aggregate unpaid principal amount of the Loans made by the Lender to
the Borrower under the Facility Agreement as defined below), on the dates and in
the principal amounts provided in the Facility Agreement, and to pay interest on
the unpaid principal amount of each such Loan, at such office, in like money and
funds, for the period commencing on the date of such Loan until such Loan shall
be paid in full, at the rates per annum and on the dates provided in the
Facility Agreement.
The date, amount and interest rate of each Loan made by the Lender to the
Borrower, and each payment made on account of the principal and interest
thereof, shall be recorded by the Lender on its books and, prior to any transfer
of this Note, endorsed by the Lender on the schedule attached hereto or any
continuation thereof; provided, that the failure of the Lender to make any such
--------
recordation or endorsement shall not affect the obligations of the Borrower to
make a payment when due of any amount owing under the Facility Agreement or
hereunder in respect of the Loans made by the Lender.
This Note is the Note referred to in Residual Financing Facility Agreement
dated as of June 23, 1999 (as amended, supplemented or otherwise modified and in
effect from time to time, the "Facility Agreement") between the Borrower and the
------------------
Lender, and evidences Loans made by the Lender thereunder. Terms used but not
defined in this Note have the respective meanings assigned to them in the
Facility Agreement.
The Borrower agrees to pay all the Lender's costs of collection and
enforcement (including reasonable attorneys' fees and disbursements of Lender's
counsel) in respect of this Note when incurred, including, without limitation,
reasonable attorneys' fees through appellate proceedings.
Notwithstanding the pledge of the Collateral, the Borrower hereby
acknowledges, admits and agrees that the Borrower's obligations under this Note
are recourse obligations of the Borrower to which the Borrower pledges its full
faith and credit.
The Borrower, and any indorsers or guarantors hereof, (a) severally waive
diligence, presentment, protest and demand and also notice of protest, demand,
dishonor and nonpayments of this Note, (b) expressly agree that this Note, or
any payment hereunder, may be
<PAGE>
extended from time to time, and consent to the acceptance of further Collateral,
the release of any Collateral for this Note, the release of any party primarily
or secondarily liable hereon, and (c) expressly agree that it will not be
necessary for the Lender, in order to enforce payment of this Note, to first
institute or exhaust the Lender's remedies against the Borrower or any other
party liable hereon or against any Collateral for this Note. No extension of
time for the payment of this Note, or any installment hereof, made by agreement
by the Lender with any person now or hereafter liable for the payment of this
Note, shall affect the liability under this Note of the Borrower, even if the
Borrower is not a party to such agreement; provided, however, that the Lender
-------- -------
and the Borrower, by written agreement between them, may affect the liability of
the Borrower.
Any reference herein to the Lender shall be deemed to include and apply to
every subsequent holder of this Note. Reference is made to the Facility
Agreement for provisions concerning optional and mandatory prepayments,
Collateral, acceleration and other material terms affecting this Note.
Any enforcement action relating to this Note may be brought by motion for
summary judgment in lieu of a complaint pursuant to Section 3213 of the New York
Civil Practice Law and Rules. The Borrower hereby submits to New York
jurisdiction with respect to any action brought with respect to this Note and
waives any right with respect to the doctrine of forum non conveniens with
respect to such transactions.
This Note shall be governed by and construed under the laws of the State of
New York (without reference to choice of law doctrine but with reference to
Section 5-1401 of the New York General Obligations Law, which by its terms
applies to this Note) whose laws the Borrower expressly elects to apply to this
note. The Borrower agrees that any action or proceeding brought to enforce or
arising out of this Note may be commenced in the Supreme Court of the State of
New York, Borough of Manhattan, or in the District Court of the United States
for the Southern District of New York.
NC CAPITAL CORPORATION
By:
Name:
<PAGE>
Title:
<PAGE>
SCHEDULE OF LOANS
This Note evidences Loans made under the within-described Facility
Agreement to the Borrower, on the dates, in the principal amounts and bearing
interest at the rates set forth below, and subject to the payments and
prepayments of principal set forth below:
Principal Interest Amount Paid Unpaid Notation
Date Made Amount Of Loan Rate Or Prepaid Principal Made By
Amount
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
EXHIBIT B
Notice of Borrowing
-------------------
(date)
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Ladies and Gentlemen:
In accordance with Section 2.2(a) of that certain Residual Financing
Facility Agreement, dated as of June 23, 1999 (the "Agreement"), by and among
---------
Greenwich Capital Financial Products, Inc., as Lender and Pledgee and the
undersigned, as Borrower and Pledgor, the undersigned hereby requests a Loan on
the date hereof in an amount equal to $________.
In connection with such Loan, we are pledging the Pledged Securities
listed on Annex I hereto as collateral security therefor.
Very truly yours,
NC CAPITAL CORPORATION, Borrower
By: _________________________
Name:
Title:
<PAGE>
Annex I to
Exhibit B
---------
PLEDGED SECURITIES
[to be added]
<PAGE>
EXHIBIT C
INTENTIONALLY DELETED
<PAGE>
EXHIBIT D
[FORM OF OPINION OF COUNSEL TO THE BORROWER AND THE GUARANTORS]
________ __, 1999
Greenwich Capital Financial Products, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Re: Residual Financing Facility Agreement, dated as of June 23, 1999, by
and between Greenwich Capital Financial Products, Inc., as Lender and
Pledgee, and NC Capital Corporation, as Borrower and Pledgor
Ladies and Gentlemen:
We have acted as special counsel to NC Capital Corporation, a California
corporation (the "Borrower"), New Century Mortgage Corporation, a California
--------
corporation and New Century Financial Corporation, a Delaware corporation
(collectively, the "Guarantors") in connection with the preparation, execution
----------
and delivery of:
(a) the Residual Financing Facility Agreement, dated as of June 23_, 1999
(the "Residual Financing Agreement"), by and between Greenwich Capital Financial
----------------------------
Products, Inc. (the "Lender") and the Borrower;
------
(b) the Note (as defined in the Residual Financing Facility Agreement);
and
(c) the Guaranty (as defined in the Residual Financing Facility
Agreement).
(the documents referred to in clauses (a), (b) and (c), collectively, the
"Delivered Documents").
-------------------
This opinion is being furnished to the Lender at the request of the
Borrower.
In rendering the opinions set forth herein, we have examined and are
familiar with originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Delivered Documents, (ii) the articles of incorporation
and by-laws of each of the Borrower and the Guarantors, as in effect on the date
hereof, (iii) resolutions of the boards of directors of the Borrower relating to
each of the Delivered Documents adopted on or prior to the date hereof, and (iv)
such certificates of public officials and such other certificates, documents,
records, and statements of officers and other representatives of the Borrower
and the Guarantors, and public officials as we have deemed appropriate or
necessary as the basis for the opinions set forth below. As to certain facts
material to the opinions expressed herein, we have relied upon, and assumed the
accuracy of, (v) the representations and warranties contained in the Delivered
Documents, and (vi) the certificates and other documents, records and statements
referred to in the immediately preceding sentence. We have assumed the
genuineness of all signatures (other
<PAGE>
than those of the Borrower and the Guarantors), the legal capacity of all
natural persons, the authenticity of all documents submitted to us as originals,
the conformity to original documents of all documents submitted to us as
certified or photostatic copies of the authenticity of the originals of such
copies. We have also assumed the due execution and delivery, pursuant to due
authorization, by the Lender of the Residual Financing Facility Agreement.
We are admitted to the bar in the State of [_______] and we express no
opinion as to the laws of any jurisdiction other than the laws of the State of
[______], the General Corporation Law of the State of [_______], the Uniform
Commercial Code as in effect in the state of New York and the Federal securities
laws of the United States.
Based upon the foregoing, and subject to the qualifications and exceptions
stated herein, we are of the opinion that:
1. Each of the Borrower and the Guarantors (a) is duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (b) has the corporate power and authority to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification, except, with respect to the preceding clause (c),
to the extent that the failure to be so qualified and in good standing would
not, in the aggregate, reasonably be expected or have a material adverse effect
on the business, operations, property or condition (financial or otherwise) or
prospects of the Borrower or the Guarantors (a "Material Adverse Effect").
-----------------------
2. Each of the Borrower and the Guarantors has the corporate power and
authority to execute, deliver and perform each of the Delivered Documents to
which it is a party. The Borrower has the corporate power and authority to
borrow under the Residual Financing Agreement and the Note, and each of the
Borrower and the Guarantors has taken all necessary corporate action to
authorize such borrowings on the terms and subject to the conditions of the
Delivered Documents, and the execution, delivery and performance of each of the
Delivered Documents.
3. No consent or authorization of, filing with or other act by or in
respect of any governmental authority of or within the State of [________], or
with respect to the General Corporation Law of the State of [________] is
required in connection with the borrowings under the Residual Financing Facility
Agreement and the Note or with the execution, delivery, performance, validity or
enforceability of the Delivered Documents, except for consents, authorizations
and filings which have been obtained or made, as the case may be, and are in
full force and effect.
4. Each of the Delivered Documents has been duly executed and delivered
on behalf of the Borrower or the Guarantors, as applicable, and constitutes a
legal, valid and binding obligation of such party, enforceable against such
party in accordance with its terms, subject to the effect of (i) bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or
<PAGE>
transfer of other similar laws relating to or affecting the rights of creditors
and (ii) the application of general principles of equity (regardless of whether
endorsement is considered in proceedings at law or in equity).
5. The execution, delivery and performance by each of the Borrower and
the Guarantors of the Delivered Documents to which it is a party, the borrowings
by the Borrower under the Residual Financing Facility Agreement and the use of
the proceeds thereof, and the granting of liens by the Borrower pursuant to the
Residual Financing Facility Agreement, will not violate any Requirement of Law
of the State of [______] or in respect of the General Corporation Law of the
State of [_______], or, to the best of our knowledge, any of the material terms
or provisions of, or constitute a default under, any indenture, mortgage, loan
agreement, deed of trust or any other material agreement or instrument to which
the Borrower or either of the Guarantors is a party or by which the Borrower or
either of the Guarantors is bound (collectively, the "Specified Agreements"),
--------------------
and will not result in, or require, the creation or imposition of any lien on
any of either of their respective properties or revenues pursuant to any such
Requirement of Law or Specified Agreement (other than the liens created by the
Residual Financing Facility Agreement in favor of the Lender). As used herein
"Requirement of Law" means the governing documents of the Borrower or the
------------------
Guarantor, or any law, treaty, rule or regulation or determination of an
arbitrator or a court or other governmental authority, in each case applicable
to or binding upon, the Borrower or any of its property or to which the Borrower
or any of its property is subject.
6. No litigation or proceeding of or before any arbitrator or
governmental authority is pending or, to the best of our knowledge, threatened
by or against the Borrower or the Guarantors, or any of their respective
subsidiaries or against any of its or their respective properties or revenues
(a) with respect to any of the Delivered Documents or any of the transactions
contemplated thereby, or (b) which would reasonably be expected to have a
Material Adverse Effect.
7. Neither the Borrower nor the Guarantors is (a) an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended or (b) a "holding
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
8. The provisions of the Residual Financing Facility Agreement are
effective to create, in favor of the Lender, a legal, valid and enforceable
security interest in all right, title and interest of the Borrower in the
"Collateral" described therein.
9. Upon (i) delivery to the Lender of the Pledged Securities, together
with a stock power for each Pledged Securities endorsed in blank by a duly
authorized officer of the Borrower, and (ii) the filing of financing statements
in the form of Annex A in the offices in the jurisdictions as listed on Schedule
1 hereto, the security interests created under the Residual Financing Facility
Agreement will constitute fully perfected first priority security interests in
all right, title and interest of the Borrower in the "Collateral" described
therein which can be
<PAGE>
perfected by filing a financing statement under Article 9 of the Uniform
Commercial Code as in effect in the State of [________].
10. Other than nominal recording fees, no fees, taxes or other charges are
due in connection with the financing statements referred to in paragraph 9.
* * *
This opinion is rendered only to the Lender, is solely for its benefit in
connection with the above transactions and may not be relied upon by the Lender
for any other purpose, relied upon by any other person, firm or corporation for
any purpose without our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT E
INTENTIONALLY DELETED
<PAGE>
EXHIBIT F
UNDERWRITING GUIDELINES
-----------------------
<PAGE>
EXHIBIT G
FORM OF TRUSTEE INSTRUCTION LETTER
----------------------------------
__________ __, 1999
[_______________], as Trustee
__________________________
__________________________
Attention: _______________
Re: Residual Financing Facility Agreement, dated as of June 23_,
1999, by and between Greenwich Capital Financial Products, Inc.,
as Lender and Pledgee, and NC Capital Corporation, as Borrower
and Pledgor
Ladies and Gentlemen:
Pursuant to Section 3.3 of the Residual Financing Facility Agreement,
dated as of June 23, 1999 (the "Facility Agreement"), between Greenwich Capital
Financial Products, Inc. (the "Lender") and NC Capital Corporation (the
"Borrower"), you are hereby notified that: (i) the Borrower has pledged to the
Lender the residual securities described on Schedule 1 hereto (the "Residual
Securities"), (ii) each of the Residual Securities is subject to a security
interest in favor of the Lender and (iii) unless otherwise notified by the
Lender in writing, any payments or distributions made with respect to such
Residual Securities should be remitted immediately by the Trustee directly to
the Lender, in accordance with the following wire instructions:
____________________
Please acknowledge receipt of this instruction letter by signing in
the signature block below and forwarding an executed copy to the Lender promptly
upon receipt.
Very truly yours,
NC CAPITAL CORPORATION
By:________________________
ACKNOWLEDGED:
_____________________________, as Trustee
By:
Name:
<PAGE>
Title:
<PAGE>
EXHIBIT H
CERTIFICATES OF THE BORROWER
----------------------------
<PAGE>
CERTIFICATE OF INCUMBENCY
I, , being Secretary of NC Capital Corporation, a corporation
incorporated under the laws of the State of [__________] (the "Corporation")
-----------
hereby certify that the following individual currently holds the title in the
Corporation as set forth opposite his name and that the signature also set forth
opposite his name is true and correct. Furthermore, the below named individual,
or his legal designees, has been authorized to enter into the Residual Financing
Facility Agreement dated as of June 23, 1999, between NC Capital Corporation and
Greenwich Capital Financial Products, Inc. on behalf of the Corporation and is
authorized to take any action necessary to effectuate said agreements.
Date: ________ __, 1999
, Secretary
<PAGE>
SECRETARY'S CERTIFICATE
I, , Secretary of NC Capital Corporation, a [_______]
corporation, hereby certify that the Articles of Incorporation and the By-laws
attached hereto are true and correct copies of the original documents in my
possession and that no action has been taken to rescind or amend said documents.
Date: ________ __, 1999
, Secretary
<PAGE>
SECRETARY'S CERTIFICATE
I, , being the Secretary of NC Capital Corporation, a
[________] corporation, hereby certify that the following is a full, true and
correct copy of resolutions duly and regularly adopted by unanimous consent of
the Board of Directors of said Corporation as of _________, 1999, and that no
action has been taken to rescind or amend said resolutions and the same are in
full force and effect.
BE IT RESOLVED, that NC Capital Corporation is hereby authorized and empowered
to enter into the Residual Financing Facility Agreement (the "Agreement"), dated
---------
as of June 23, 1999, for the principal amount of up to Thirty Million Dollars
($30,000,000), with Greenwich Capital Financial Products, Inc., and any other
documents necessary to effect the same and to carry out any and all transactions
contemplated thereby, including but not limited to the Note.
RESOLVED, that the following individuals are authorized and empowered to act on
behalf of the Corporation to take such actions, including the execution and
delivery of the Agreement and documents, and the signature of any one of the
individuals listed below shall be adequate to bind the
Corporation:____________________.
Date: ________ __, 1999
, Secretary
<PAGE>
QUARTERLY COMPLIANCE CERTIFICATE
I, , Treasurer of NC Capital Corporation, hereby certify that
the representations and warranties contained in Section 4 of the Residual
Financing Facility Agreement (the "Agreement") dated as of June 23, 1999 between
---------
NC Capital Corporation (the "Corporation") and Greenwich Capital Financial
-----------
Products, Inc. are true and correct, that the Corporation is in compliance with
the covenants set forth in Section 5 of the Agreement and that no Event of
Default (as defined in the Agreement), and no event which with notice or lapse
of time or both would become an Event of Default, has occurred and is
continuing.
Date: ________ __, 1999
, Treasurer
<PAGE>
EXHIBIT 10.7
================================================================================
MASTER LOAN AND SECURITY AGREEMENT
_____________________________
Dated as of July 20, 1999
______________________________
NEW CENTURY MORTGAGE CORPORATION
and
NC CAPITAL CORPORATION
as Borrowers
and
PAINE WEBBER REAL ESTATE SECURITIES INC.
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. Definitions and Accounting Matters...................................... 1
1.01 Certain Defined Terms............................................. 1
1.02 Accounting Terms and Determinations............................... 13
Section 2. Loans, Note and Prepayments............................................. 13
2.01 Loans............................................................. 13
2.02 Notes............................................................. 13
2.03 Procedure for Borrowing........................................... 14
2.04 Limitation on Types of Loans; Illegality.......................... 15
2.05 Repayment of Loans; Interest...................................... 16
2.06 Mandatory Prepayments or Pledge................................... 16
Section 3. Payments; Computations; Etc............................................. 17
3.01 Payments.......................................................... 17
3.02 Computations...................................................... 17
3.03 Requirements of Law............................................... 17
Section 4. Collateral Security..................................................... 18
4.01 Collateral; Security Interest..................................... 18
4.02 Re-registration................................................... 20
4.03 Further Documentation............................................. 20
4.04 Changes in Locations, Name, etc................................... 21
4.05 Lender's Appointment as Attorney-in-Fact.......................... 21
4.06 Performance by Lender of Borrowers' Obligations................... 22
4.07 Proceeds.......................................................... 22
4.08 Remedies.......................................................... 23
4.09 Registration Rights; Private Sales................................ 24
4.10 Limitation on Duties Regarding Preservation of Collateral......... 24
4.11 Powers Coupled with an Interest................................... 25
4.12 Release of Security Interest...................................... 25
Section 5. Conditions Precedent.................................................... 25
5.01 Initial Loan...................................................... 25
5.02 Initial and Subsequent Loans...................................... 26
Section 6. Representations and Warranties.......................................... 29
6.01 Existence......................................................... 29
6.02 Financial Condition............................................... 30
6.03 Litigation........................................................ 30
6.04 No Breach......................................................... 30
6.05 Action............................................................ 31
6.06 Approvals......................................................... 31
6.07 Margin Regulations................................................ 31
6.08 Taxes............................................................. 31
6.09 Investment Company Act............................................ 31
6.10 Collateral; Collateral Security................................... 31
6.11 Chief Executive Office............................................ 32
6.12 Location of Books and Records..................................... 32
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
6.13 [Reserved]........................................................ 32
6.14 True and Complete Disclosure...................................... 33
6.15 Tangible Net Worth................................................ 33
6.16 ERISA............................................................. 33
6.17 Governing Agreements.............................................. 33
6.18 Securities Information............................................ 33
Section 7. Covenants of the Borrowers.............................................. 34
7.01 Financial Statements.............................................. 34
7.02 Litigation........................................................ 35
7.03 Existence, etc.................................................... 36
7.04 Prohibition of Fundamental Changes................................ 36
7.05 Borrowing Base Deficiency......................................... 36
7.06 Notices........................................................... 36
7.07 Underwriting Guidelines........................................... 37
7.08 Transactions with Affiliates...................................... 37
7.09 Limitation on Liens............................................... 37
7.10 Limitation on Guarantees.......................................... 38
7.11 Limitation on Distributions....................................... 38
7.12 Maintenance of Tangible Net Worth................................. 38
7.13 Maintenance of Ratio of Total Indebtedness to Tangible Net Worth.. 38
7.14 Maintenance of Profitability...................................... 38
7.15 Servicer; Servicing Tape.......................................... 38
7.16 Required Filings.................................................. 38
7.17 No Adverse Selection.............................................. 39
7.18 Remittance of Prepayments......................................... 39
7.19 Governing Agreements.............................................. 39
7.20 Rights and Payments under Pledged Securities...................... 39
7.21 Voting Rights..................................................... 39
7.22 Other Information................................................. 39
7.23 Provision of Escrow Instruction Letter............................ 39
7.24 U.S. Bank Compliance Certificates................................. 39
7.25 Collection Account................................................ 40
Section 8. Events of Default....................................................... 40
Section 9. Remedies Upon Default................................................... 42
Section 10. No Duty of Lender....................................................... 42
Section 11. Securitization Transactions............................................. 43
11.01 Exclusive Option.................................................. 43
11.02 Fees.............................................................. 44
11.03 Information....................................................... 44
11.04 Option Breakage Fee............................................... 45
Section 12. Miscellaneous........................................................... 45
12.01 Waiver............................................................ 45
12.02 Notices........................................................... 45
12.03 Indemnification and Expenses...................................... 46
12.04 Amendments........................................................ 47
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
12.05 Successors and Assigns............................................ 47
12.06 Survival.......................................................... 47
12.07 Captions.......................................................... 47
12.08 Counterparts...................................................... 47
12.09 Loan Agreement Constitutes Security Agreement; Governing Law...... 47
12.10 SUBMISSION TO JURISDICTION; WAIVERS............................... 47
12.11 Waiver of Jury Trial.............................................. 48
12.12 Acknowledgments................................................... 48
12.13 Hypothecation or Pledge of Collateral............................. 48
12.14 Servicing......................................................... 49
12.15 Periodic Due Diligence Review..................................... 50
12.16 Set-Off........................................................... 51
12.17 Intent............................................................ 51
12.18 Confidential Information.......................................... 51
</TABLE>
SCHEDULES
SCHEDULE 1 Representations and Warranties for Eligible Mortgage Loans
SCHEDULE 2 Representations and Warranties for Eligible Securities
SCHEDULE 3 Filing Jurisdictions and Offices
SCHEDULE 4 Option Breakage Fee Collateral Value and Applicable Margin
EXHIBITS
EXHIBIT A Form of Promissory Note
EXHIBIT B Form of Custodial Agreement
EXHIBIT C Form of Opinion of Counsel to Borrowers
EXHIBIT D Form of Notice of Request for Borrowing and Pledge
EXHIBIT E-1 Form of Borrowers' Release Letter
EXHIBIT E-2 Form of Warehouse Lender's Release Letter
EXHIBIT F Form of Blocked Account Agreement
EXHIBIT G Form of Servicer Notice
EXHIBIT H Form of Instruction Letter
EXHIBIT I Form of Mortgage Note
EXHIBIT J Underwriting Guidelines
EXHIBIT K Form of Contribution Agreement
-iii-
<PAGE>
MASTER LOAN AND SECURITY AGREEMENT
MASTER LOAN AND SECURITY AGREEMENT, dated as of July 20, 1999 (the
"Loan Agreement"), between NEW CENTURY MORTGAGE CORPORATION, a California
- ---------------
corporation ("New Century"), NC CAPITAL CORPORATION, a California corporation
-----------
("NCCC" and, together with New Century, the "Borrowers"), and PAINE WEBBER REAL
- ------ ---------
ESTATE SECURITIES INC., a Delaware corporation (the "Lender").
------
RECITALS
The Borrowers have requested that the Lender from time to time make,
at the Lender's sole discretion, revolving credit loans to them to finance the
Eligible Securities and certain residential mortgage loans owned by any
Borrower. The Lender is prepared to consider making such loans upon the terms
and conditions hereof. Accordingly, the parties hereto agree as follows.
Section 1. Definitions and Accounting Matters.
----------------------------------
1.01 Certain Defined Terms. As used herein, the following terms
---------------------
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Loan Agreement in the singular to have the same
meanings when used in the plural and vice versa):
"Adjusted Net Worth" shall mean, with respect to the Borrowers at a
------------------
particular date, the Consolidated Net Worth of the Borrowers, minus no more than
100% of the following amounts: (a) advances or loans to shareholders, officers
or Affiliates of the Borrowers; (b) investments in Affiliates of the Borrowers
which are not consolidated with the Borrowers; (c) without duplication, assets
pledged to secure any liabilities not included in the Indebtedness of the
Borrowers; (d) goodwill, including any amounts (however designated on the
balance sheet) representing the cost of acquisitions of Subsidiaries in excess
of underlying tangible assets; (e) patents, trademarks, copyrights; (f)
leasehold improvements not recoverable at the expiration of a lease; (g)
deferred charges (including, but not limited to, unamortized debt discount and
expense, organization expenses and experimental and development expenses, but
excluding prepaid expenses); (h) other investments which do not have a readily
available market value; (i) real estate owned (REO) or loans repurchased by the
Borrowers due to breaches of representations or warranties under other lending
or purchase agreements; (j) capitalized mortgage servicing rights; (k) such
other assets which would be deemed by HUD not to be acceptable in calculating
adjusted net worth in accordance with its requirements in effect as of such
date, as such requirements appear in the "Audit Guide for Audit of Approved Non-
Supervised Mortgagees"; and (l) other assets deemed unacceptable by the Lender
in its sole reasonable discretion; plus value given for the Borrowers' servicing
portfolios at a market multiple deemed reasonable by the Lender.
"Affiliate" shall mean with respect to any Person, any "affiliate" of
---------
such Person as such term is defined in the Bankruptcy Code in effect from time
to time.
"Applicable Collateral Percentage" shall mean, with respect to any
--------------------------------
Eligible Mortgage Loan or Eligible Security, a percentage to be determined by
the Lender in its sole discretion; provided that (i) the Applicable Collateral
Percentage of any Eligible Securities
<PAGE>
pledged hereunder shall be (a) reduced to not more than 40% for any Eligible
Security pledged for more than 6 months and (b) reduced at least a further 1.5%
each month thereafter that such Eligible Security continues to be pledged
hereunder (ii) the Applicable Collateral Percentage shall be 85% with respect to
each eligible Mortgage Loan in respect of which there is a delinquency in the
payment of principal and/or interest which continues for a period in excess of
59 days (without regard to any applicable grace periods), to each and (iii) the
Applicable Collateral Percentage shall be deemed to be zero with respect to (1)
each Eligible Mortgage Loan which is a Wet-Ink Mortgage Loan for which the
Custodian has failed to receive the related Mortgage Loan Documents by the
seventh (7/th/) Business Day following the applicable Funding Date, (2) each
Eligible Mortgage Loan which is both a Wet-Ink Mortgage Loan and a Borrower
Refinanced Loan, for which the Custodian has failed to receive facsimile copies
of the related Mortgage, Mortgage Note, and Assignment of Mortgage by the first
(1/st/) Business Day following the applicable Funding Date or (3) which is an
Eligible Mortgage Loan which remains pledged to the Lender hereunder for more
than 180 days after the first Funding Date therefor; provided further, that
notwithstanding anything herein to the contrary, such amounts shall be
determined in the Lender's sole discretion and shall not be binding on the
Lender in determining the Applicable Collateral Percentage.
"Applicable Margin" shall mean with respect to any Eligible Mortgage
-----------------
Loans and Eligible Securities, a percentage to be determined by the Lender in
its sole discretion.
"Assignment of Mortgage" shall mean, with respect to any Mortgage, an
----------------------
assignment of the Mortgage, notice of transfer or equivalent instrument in
recordable form, sufficient under the laws of the jurisdiction wherein the
related Mortgaged Property is located to reflect the assignment and pledge of
the Mortgage.
"Bankruptcy Code" shall mean the United States Bankruptcy Code of
---------------
1978, as amended from time to time.
"Blocked Account Agreement" shall mean an agreement between the
-------------------------
Servicer, the Borrowers and the Lender substantially in the form of Exhibit F
hereto, as the same may be amended, supplemented or otherwise modified from time
to time, in which the Servicer acknowledges the Lender's lien on the Collection
Account, and agrees that, in the event that it receives notice that an Event of
Default hereunder has occurred and until such notice is rescinded by the Lender,
the Servicer shall only withdraw funds from the Collection Account on
instruction from the Lender, and which constitutes notice pursuant to Section
9302 of the California Commercial Code of the Lender's security interest in the
Collection Account, which notice is intended to satisfy the requirements of such
section.
"Borrower Refinanced Loan" shall mean an Eligible Mortgage Loan made
------------------------
by a Borrower to a Mortgagor, the proceeds of which are used to pay indebtedness
owed by such Mortgagor to, and release the lien of an existing Mortgage in favor
of, a Borrower.
"Borrowers" shall have the meaning provided in the heading hereof.
---------
"Borrowing Base" shall mean the aggregate Collateral Value of all
--------------
Eligible Mortgage Loans and any Eligible Securities.
-2-
<PAGE>
"Borrowing Base Deficiency" shall have the meaning provided in Section
-------------------------
2.06 hereof.
"Breakage Fee" shall mean an amount equal to the sum of (a) the
------------
interest accrued on an "actual/360" basis, on the principal balance of any Loan
(or portion thereof) prepaid, for the period commencing on the date such Loan is
prepaid through the earlier to occur of the next Monthly Payment Date or the
related Maturity Date immediately following the date of such prepayment, at a
rate equal to the Eurodollar Rate plus the Applicable Margin, plus (b) with
respect to any voluntary prepayment, interest accrued on an "actual/360" basis,
on the principal balance of any Loan (or portion thereof) prepaid, for the
period commencing on the date such Loan is prepaid through the earlier to occur
of the next Monthly Payment Date or the related Maturity Date immediately
following the date of such prepayment, at a rate equal to the excess, if any of:
(1) the rate of the Eurodollar Rate plus the Applicable Margin , determined as
of the first day of the Interest Period during which such prepayment occurred
and (2) the rate of the Eurodollar Rate plus the Applicable Margin as of the
date such Loan is prepaid, and (c) in any case, all reasonable losses, expenses
and liabilities that arise from prepayment of such Loan, including without
limitation, any loss and expense on liabilities incurred by reason of
liquidating or reemployment of deposits or other funds required by us to fund
your Loan.
"Business Day" shall mean any day other than (i) a Saturday or Sunday
------------
or (ii) a day on which the New York Stock Exchange, the Federal Reserve Bank of
New York or the Custodian is authorized or obligated by law or executive order
to be closed.
"Capital Lease Obligations" shall mean, for any Person, all
-------------------------
obligations of such Person to pay rent or other amounts under a lease of (or
other agreement conveying the right to use) Property to the extent such
obligations are required to be classified and accounted for as a capital lease
on a balance sheet of such Person under GAAP, and, for purposes of this Loan
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
----
time to time.
"Collateral" shall have the meaning provided in Section 4.01(b)
----------
hereof.
"Collateral Value" shall mean, (1) with respect to each Eligible
----------------
Security, the Applicable Collateral Percentage multiplied by the Market Value of
the Eligible Security, and (2) with respect to each Eligible Mortgage Loan, the
lesser of (a) the Applicable Collateral Percentage of the Market Value of such
Eligible Mortgage Loan, and (b) a percentage (to be determined by the Lender in
its sole discretion) of the principal balance of such Eligible Mortgage Loan,
provided, that, the following additional limitations on Collateral Value apply:
(i) the aggregate Collateral Value of Eligible Mortgage Loans
that are Delinquent Mortgage Loans may not exceed $15,000,000;
(ii) the aggregate Collateral Value of Eligible Securities may
not exceed $30,000,000;
-3-
<PAGE>
(iii) the aggregate Collateral Value of Eligible Mortgage Loans
that are Wet-Ink Mortgage Loans may not exceed $30,000,000 ;
(iv) the Collateral Value shall be deemed to be zero with
respect to each Eligible Mortgage Loan or with respect to each Eligible
Security, as applicable (1) in respect of which there is a breach of a
representation and warranty set forth on Schedule 1 or Schedule 2 (assuming
each representation and warranty is made as of the date Collateral Value is
determined), as applicable, (2) in respect of which there is a delinquency
in the payment of principal and/or interest which continues for a period in
excess of 89 days (without regard to any applicable grace periods), (3)
which has been released from the possession of the Custodian under the
Custodial Agreement to the Borrower for a period in excess of 14 days, or
(4) which exceed the limitations on Collateral Value set forth in (i)
through (iii) above; and
(v) notwithstanding the limitations set forth in (i), (ii),
(iii) and (iv) above, the Lender and Borrowers may by mutual agreement
exceed the limitations set forth in (i), (ii) and (iii).
"Collection Account" shall mean one or more accounts established by
------------------
the Servicer subject to a security interest in favor of the Lender and to the
Blocked Account Agreement, into which (i) all Collections shall be deposited by
the Servicer and (ii) the applicable trustee shall be instructed to remit all
Collections with respect to the Eligible Securities.
"Collections" shall mean, collectively, (i) all collections and
-----------
proceeds on or in respect of the Eligible Mortgage Loans pledged to the Lender
hereunder, excluding collections required to be paid to the Servicer or a
mortgagor on the Eligible Mortgage Loans and (ii) cash dividends or
distributions or any monies distributed on account of any Eligible Securities
pledged to the Lender hereunder.
"Consolidated Net Worth" shall mean all amounts which would be
----------------------
included under shareholders' equity on a consolidated balance sheet of the
Borrowers in accordance with GAAP as at such date.
"Contribution Agreement" shall mean an agreement between the Borrowers
----------------------
and the Lender substantially in the form of Exhibit K hereto, as the same may be
amended, supplemented or otherwise modified from time to time.
"Custodial Agreement" shall mean the Custodial Agreement, dated as of
-------------------
the date hereof, among the Borrowers, the Custodian and the Lender,
substantially in the form of Exhibit B hereto, as the same shall be modified and
supplemented and in effect from time to time.
"Custodian" shall mean U.S. Bank National Association, as custodian
---------
under the Custodial Agreement, and its successors and permitted assigns
thereunder.
"Default" shall mean an Event of Default or an event that with notice
-------
or lapse of time or both would become an Event of Default.
-4-
<PAGE>
"Delinquent Mortgage Loan" shall mean a Mortgage Loan which is more
------------------------
than 29 days, but less than or equal to 89 days delinquent (without regard to
any applicable grace period).
"Dollars" and "$" shall mean lawful money of the United States of
-------
America.
"Due Diligence Review" shall mean the performance by the Lender of any
--------------------
or all of the reviews permitted under Section 12.15 hereof with respect to any
or all of the Eligible Mortgage Loans or Eligible Securities, as desired by the
Lender from time to time.
"Effective Date" shall mean the date upon which the conditions
--------------
precedent set forth in Section 5.01 shall have been satisfied.
"Eligible Mortgage Loan" shall mean a Mortgage Loan, including a Wet-
----------------------
Ink Mortgage Loan, which is secured by a first or a second mortgage lien on a
one-to-four family residential property, an individual condominium unit in a
low-rise or high-rise condominium project, or an individual unit in a planned
unit development or a de minimis planned unit development which has been
originated and serviced in accordance with the Underwriting Guidelines as to
which the representations and warranties in Section 6.10 and Schedule 1 hereof
are correct.
"Eligible Security" shall mean any residual mortgage backed
-----------------
certificates delivered by the Borrowers to the Lender in form acceptable to the
Lender, issued in connection with a Securitization Transaction for which the
Lender or its Affiliate acted as lead or managing underwriter or placement agent
with respect to the issuance thereof, in an amount not to exceed the aggregate
amount of bonds allocated to the Lender or its Affiliate with respect to such
Securitization Transaction.
"Eligible Security File" shall mean, with respect to any Eligible
----------------------
Security pledged to the Lender hereunder: (i) the original Eligible Security,
(ii) the related Governing Agreements, (iii) an Instruction Letter in connection
with the Eligible Security and (iv) any other documents which the Lender may in
good faith request.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that
---------------
is a member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which any of the Borrowers is a member and (ii) solely for
purposes of potential liability under Section 302(c)(11) of ERISA and Section
412(c)(11) of the Code and the lien created under Section 302(f) of ERISA and
Section 412(n) of the Code, described in Section 414(m) or (o) of the Code of
which any of the Borrowers is a member.
"Escrow Instruction Letter" shall mean the Escrow Instruction Letter
-------------------------
from any Borrower to the Settlement Agent, in the form of Annex 16 to the
Custodial Agreement as the same may be modified, supplemented and in effect from
to time.
"Eurodollar Rate" shall mean, with respect to each Interest Period a
---------------
Loan is outstanding, the rate per annum equal to the rate appearing at page 5 of
the Telerate Screen as
-5-
<PAGE>
one-month LIBOR on the first day of such Interest Period, and if such rate shall
not be so quoted, the rate per annum at which the Lender is offered Dollar
deposits at or about 9:00 A.M., New York City time, on such date by prime banks
in the interbank eurodollar market where the eurodollar and foreign currency
exchange operations in respect of its Loans are then being conducted for
delivery on such day for a period of 30 days and in an amount comparable to the
amount of the Loans to be outstanding on such day. The Eurodollar Rate shall be
reset by the Lender as described above and the Lender's determination of
Eurodollar Rate shall be conclusive upon the parties absent manifest error on
the part of the Lender.
"Event of Default" shall have the meaning provided in Section 8
----------------
hereof.
"Existing Financing Documents" shall mean the U.S. Bank Financing
----------------------------
Documents, the Greenwich Capital Financing Documents and the Salomon Financing
Documents.
"Federal Funds Rate" shall mean, for any day, the weighted average of
------------------
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Lender from three
federal funds brokers of recognized standing selected by it.
"Funding Date" shall mean the date on which a Loan is made hereunder.
------------
"GAAP" shall mean generally accepted accounting principles as in
----
effect from time to time in the United States.
"Governing Agreements" shall mean with respect to each Eligible
--------------------
Security, any agreements which govern the issuance and the payment of such
Eligible Security, including, without limitation, any pooling and servicing
agreement, indenture or servicing agreement.
"Governmental Authority" shall mean any nation or government, any
----------------------
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government and any court or arbitrator having jurisdiction over the
respective Borrower, any of its Subsidiaries or any of its properties.
"Greenwich Capital Financing Documents" shall mean (i) Master Loan and
-------------------------------------
Security Agreement, dated as of June 23, 1999, by and between NCCC and Greenwich
Capital Financial Products, Inc., (ii) Residual Financing Facility Agreement,
dated as of June 23, 1999, by and between NCCC and Greenwich Capital Financial
Products, Inc., (iii) the Custodial Agreement, dated as of June 23, 1999 by and
among NCCC, U.S. Bank National Association and Greenwich Capital Financial
Products, Inc., (iv) the Affiliate Guaranty, dated as of June 23, 1999, made by
New Century and New Century Financial Corporation in favor of Greenwich Capital
Financial Products, Inc. and (v) all other documents or agreements executed in
connection therewith, or replacement facilities with substantially similar terms
(including, but not limited to, amounts and rates) with financial institutions
approved by the Lender, provided, that in no event shall broker-dealers or their
Affiliates be acceptable financial institutions.
-6-
<PAGE>
"Guarantee" shall mean, as to any Person, any obligation of such
---------
Person directly or indirectly guaranteeing any Indebtedness of any other Person
or in any manner providing for the payment of any Indebtedness of any other
Person or otherwise protecting the holder of such Indebtedness against loss
(whether by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, or to take-or-pay or otherwise);
provided that the term "Guarantee" shall not include (i) endorsements for
collection or deposit in the ordinary course of business, or (ii) obligations to
make servicing advances for delinquent taxes and insurance or other obligations
in respect of a Mortgaged Property, to the extent required by the Lender. The
amount of any Guarantee of a Person shall be deemed to be an amount equal to the
stated or determinable amount of the primary obligation in respect of which such
Guarantee is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith. The terms "Guarantee" and "Guaranteed" used as verbs shall have
correlative meanings.
"HUD" shall mean the Department of Housing and Urban Development, or
---
any successor thereto.
"Indebtedness" shall mean, for any Person: (a) obligations created,
------------
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business so long as such trade accounts
payable are payable within 90 days of the date the respective goods are
delivered or the respective services are rendered; (c) Indebtedness of others
secured by a Lien on the Property of such Person, whether or not the respective
Indebtedness so secured has been assumed by such Person; (d) obligations
(contingent or otherwise) of such Person in respect of letters of credit or
similar instruments issued or accepted by banks and other financial institutions
for account of such Person; (e) Capital Lease Obligations of such Person; (f)
obligations of such Person under repurchase agreements, sale/buy back agreements
or like arrangements; (g) Indebtedness of others Guaranteed by such Person; (h)
all obligations of such Person incurred in connection with the acquisition or
carrying of fixed assets by such Person; and (i) Indebtedness of general
partnerships of which such Person is a general partner.
"Instruction Letter" shall mean an instruction letter in the form of
------------------
Exhibit H hereto.
"Interest Period" shall mean, with respect to any Loan, (i) initially,
---------------
the period commencing on the Funding Date with respect to such Loan and ending
on the earlier of the related Maturity Date or the second Business Day of the
next succeeding month, and (ii) thereafter, each period commencing on the second
Business Day of a month and ending on the earlier of the related Maturity Date
or the second Business Day of the next succeeding month.
"Interest Rate Protection Agreement" shall mean, with respect to any
----------------------------------
or all of the Eligible Mortgage Loans, any short sale of US Treasury Security,
or futures contract, or
-7-
<PAGE>
mortgage related security, or Eurodollar futures contract, or options related
contract, or interest rate swap, cap or collar agreement or similar arrangements
providing for protection against fluctuations in interest rates or the exchange
of nominal interest obligations, either generally or under specific
contingencies, entered into by the respective Borrower, and acceptable to the
Lender.
"Lender" shall have the meaning provided in the heading hereto.
------
"Lien" shall mean any mortgage, lien, pledge, charge, security
----
interest or similar encumbrance.
"Loan" shall have the meaning provided in Section 2.01(a) hereof.
----
"Loan Agreement" shall mean this Master Loan and Security Agreement,
--------------
as the same may be amended, supplemented or otherwise modified from time to
time.
"Loan Documents" shall mean, collectively, this Loan Agreement, the
--------------
Note, the Custodial Agreement, and the Blocked Account Agreement.
"Market Value" shall mean, as of any date in respect of an Eligible
------------
Mortgage Loan and any Eligible Security, the price at which such Eligible
Mortgage Loan or Eligible Security could readily be sold as determined in the
Lender's sole discretion using its reasonable business judgment, taking into
account the level of interest rates, the financial condition of the Borrowers,
the characteristics of such Eligible Mortgage Loan or such Eligible Security, as
applicable, and general market conditions, which price may be determined to be
zero. The Lender's determination of Market Value shall be conclusive upon the
parties absent manifest error on the part of the Lender.
"Material Adverse Effect" shall mean a material adverse effect on (a)
-----------------------
the Property, business, operations, financial condition or prospects of either
of the Borrowers, (b) the ability of either of the Borrowers to perform its
obligations under any of the Loan Documents to which it is a party, (c) the
validity or enforceability of any of the Loan Documents, (d) the rights and
remedies of the Lender under any of the Loan Documents, (e) the timely payment
of the principal of or interest on the Loans or other amounts payable in
connection therewith or (f) the Collateral.
"Maturity Date" shall mean such date as is determined by the Lender
-------------
in its sole discretion, or such earlier date on which this Loan Agreement shall
terminate in accordance with the provisions hereof or by operation of law.
"Maximum Credit" shall mean initially $300 million and thereafter an
--------------
amount notified by the Lender to the Borrowers from time to time (and reflected
in an endorsement to the Note) as the Maximum Credit, taking into account the
Adjusted Net Worth of the Borrowers but determined by the Lender in its sole
discretion.
"Monthly Payment Date" shall mean the second (2nd) Business Day.
--------------------
-8-
<PAGE>
"Mortgage" shall mean the mortgage, deed of trust or other instrument
--------
securing a Mortgage Note, which creates a first or second lien on the fee in
real property securing the Mortgage Note.
"Mortgage File" shall have the meaning assigned thereto in the
-------------
Custodial Agreement.
"Mortgage Loan" shall mean a mortgage loan acquired from a Qualified
-------------
Originator with either an "A", "A-" or "B/C" credit history which is
underwritten in accordance with the Underwriting Guidelines, which the Custodian
has been instructed to hold for the Lender pursuant to the Custodial Agreement,
and which Mortgage Loan includes, without limitation, (i) a Mortgage Note and
related Mortgage and (ii) all right, title and interest of each of the Borrowers
in and to the Mortgaged Property covered by such Mortgage.
"Mortgage Loan Documents" shall mean, with respect to an Eligible
-----------------------
Mortgage Loan, the documents comprising the Mortgage File for such Eligible
Mortgage Loan.
"Mortgage Loan Schedule" shall have the meaning assigned thereto in
----------------------
the Custodial Agreement.
"Mortgage Loan Schedule and Exception Report" shall have the meaning
-------------------------------------------
assigned thereto in the Custodial Agreement.
"Mortgage Loan Tape" shall mean a computer-readable file containing
------------------
information with respect to each Eligible Mortgage Loan, to be delivered by the
Borrowers to the Lender pursuant to Section 2.03(a) hereof which tape fields are
identified on Annex I to the Custodial Agreement.
"Mortgage Note" shall mean the original executed promissory note or
-------------
other evidence of the indebtedness of a mortgagor/borrower with respect to an
Eligible Mortgage Loan.
"Mortgaged Property" shall mean the real property (including all
------------------
improvements, buildings, fixtures, building equipment and personal property
thereon and all additions, alterations and replacements made at any time with
respect to the foregoing) and all other collateral securing repayment of the
debt evidenced by a Mortgage Note.
"Mortgagor" shall mean the obligor on a Mortgage Note.
---------
"Multiemployer Plan" shall mean a multiemployer plan defined as such
------------------
in Section 3(37) of ERISA to which contributions have been or are required to be
made by any of the Borrowers or any ERISA Affiliate and that is covered by Title
IV of ERISA.
"Net Income" shall mean, for any period, the aggregate net income of
----------
the Borrowers for such period as determined in accordance with GAAP.
"1934 Act" shall mean the Securities and Exchange Act of 1934, as
--------
amended.
-9-
<PAGE>
"Note" shall have the meaning provided for by Section 2.02(a) hereof.
----
"Option" shall have the meaning provided for by Section 11.01(a)
------
hereof.
"Option Breakage Fee" shall mean an amount equal to (i) 0.1875%
-------------------
multiplied by (ii) the difference between (a) the aggregate principal balance of
all securities issued in a Securitization Transaction for which the Lender or an
Affiliate of the Lender is the lead managing underwriter or placement agent
during the 12 month period specified in Section 11.04 hereof and (b) $500
million.
"Optional Market Value Event" shall have the meaning provided for by
---------------------------
Section 11.04(b) hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
----
entity succeeding to any or all of its functions under ERISA.
"Person" shall mean any individual, corporation, company, voluntary
------
association, partnership, joint venture, limited liability company, trust,
unincorporated association or government (or any agency, instrumentality or
political subdivision thereof).
"Plan" shall mean an employee benefit or other plan established or
----
maintained by any of the Borrowers or any ERISA Affiliate and covered by Title
IV of ERISA, other than a Multiemployer Plan.
"Pledged Mortgage Loans" shall have the meaning provided in Section
----------------------
4.01(b) hereof.
"Pledged Securities" shall have the meaning provided in Section 4.01
------------------
(b) hereof.
"Post-Default Rate" shall mean, in respect of any principal of any
-----------------
Loan or any other amount under this Loan Agreement, the Note or any other Loan
Document that is not paid when due to the Lender (whether at stated maturity, by
acceleration, by optional or mandatory prepayment or otherwise), a rate per
annum during the period from and including the due date to but excluding the
date on which such amount is paid in full equal to 2.00% per annum plus the
Prime Rate.
"Prime Rate" shall mean the prime rate announced to be in effect from
----------
time to time, as published as the average rate in The Wall Street Journal.
-----------------------
"Property" shall mean any right or interest in or to property of any
--------
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Qualified Originator" shall mean an originator of Eligible Mortgage
--------------------
Loans reasonably acceptable to the Lender; provided, however, in no event shall
PWF Corporation be deemed to be a Qualified Originator unless and until the
provisions of Section 5.03 hereof have been satisfied.
"Release Collateral" shall have the meaning provided in Section
------------------
2.03(c) hereof.
-10-
<PAGE>
"Regulations T, U and X" shall mean Regulations T, U and X of the
----------------------
Board of Governors of the Federal Reserve System (or any successor), as the same
may be modified and supplemented and in effect from time to time.
"Relevant System" shall mean (a) The Depository Trust Company in New
---------------
York, New York, or (b) such other clearing organization or book-entry system as
is designated in writing by the Lender.
"Requirement of Law" shall mean as to any Person, the certificate of
------------------
incorporation and by laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer" shall mean, as to any Person, the president, the
-------------------
vice president, the controller, the chief executive officer or, with respect to
financial matters, the chief financial officer of such Person.
"Salomon Financing Documents" shall mean (i) the Letter Agreement
---------------------------
dated as of December 11, 1998, between NCCC, New Century, Salomon Brothers
Realty Corp. and Salomon Smith Barney Inc., (ii) the Purchase and Sale Agreement
dated as of December 11, 1998, between NCCC, New Century, and Salomon Brothers
Realty Corp., and (iii) all other documents or agreements executed in connection
therewith, or replacement facilities with substantially similar terms
(including, but not limited to, amounts and rates) with financial institutions
approved by the Lender, provided, that in no event shall broker-dealers or their
Affiliates be acceptable financial institutions.
"Secured Obligations" shall have the meaning provided in Section
-------------------
4.01(c) hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended.
--------------
"Securitization Transaction" shall mean the creation and issuance of
--------------------------
mortgage backed securities.
"Servicer" shall have the meaning provided in Section 12.14(c) hereof.
--------
"Servicing Agreement" shall have the meaning provided in Section
-------------------
12.14(c) hereof.
"Servicing Records" shall have the meaning provided in Section
-----------------
12.14(b) hereof.
"Servicing Rights" shall mean any and all of the following: (a) any
----------------
and all rights to service the Eligible Mortgage Loans; (b) any payments to or
monies received by any Borrower for servicing the Eligible Mortgage Loans; (c)
any late fees, penalties or similar payments with respect to the Eligible
Mortgage Loans; (d) all agreements or documents creating, defining or evidencing
any such servicing rights to the extent they relate to such servicing rights and
all rights of any Borrower thereunder; (e) escrow payments or other similar
payments with respect to the Eligible Mortgage Loans and any amounts actually
collected by any Borrower with respect
-11-
<PAGE>
thereto; and (f) all accounts and other rights to payment related to any of the
property described herein.
"Settlement Agent" shall mean, with respect to any Loan, the Custodian
----------------
under the Custodial Agreement or any other entity approved by the Lender in its
sole discretion.
"Subsidiary" shall mean, with respect to any Person, any corporation,
----------
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other
class or classes of such corporation, partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person.
"Tangible Net Worth" shall mean with respect to any Person, as of any
------------------
date of determination, the Adjusted Net Worth of such Person, less the adjusted
net book value of all assets of such Person (to the extent reflected as an asset
in the balance sheet of such Person at such date) which will be treated as
intangibles under GAAP, including without limitation, such items as deferred
financing expenses, net leasehold improvements, good will, trademarks, trade
names, service marks, copyrights, patents, licenses and unamortized debt
discount and expense; provided, that residual securities shall not be treated as
intangibles for purposes of this definition.
"Test Period" shall have the meaning provided in Section 7.14 hereof.
-----------
"Total Indebtedness" shall mean, for any period, the aggregate
------------------
Indebtedness of such Borrower during such period less the amount of any
nonspecific balance sheet reserves maintained in accordance with GAAP.
"Trustee" shall mean the Person under the applicable Governing
-------
Agreement responsible for administering the related Eligible Security.
"Underwriting Guidelines" shall mean underwriting guidelines of the
-----------------------
Borrowers attached hereto as Exhibit J, as may be amended from time to time only
with the consent of the Lender, at the Lender's sole discretion.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
-----------------------
effect on the date hereof in the State of New York; provided that if by reason
of mandatory provisions of law, the perfection or the effect of perfection or
non-perfection of the security interest in any Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than New York,
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in
such other jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
"U.S. Bank Financing Documents" shall mean (i) the Fourth Amended and
-----------------------------
Restated Credit Agreement, dated as of May 26, 1999, by and between New Century
and U.S. Bank National Association, (ii) the Pledge and Security Agreement,
dated as of May 29, 1998,
-12-
<PAGE>
by and between New Century and U.S. Bank National Association, (iii) the
Servicing Security Agreement, dated as of May 29, 1998, between New Century and
U.S. Bank National Association and (iv) all other documents or agreements
executed in connection therewith, or replacement facilities with substantially
similar terms (including, but not limited to, amounts and rates) with financial
institutions approved by the Lender, provided, that in no event shall broker-
dealers or their Affiliates be acceptable financial institutions.
"Wet-Ink Mortgage Loan" shall mean an Eligible Mortgage Loan which is
---------------------
pledged to the Lender simultaneously with the origination thereof by the
Qualified Originator, which origination is in accordance with the Underwriting
Guidelines and is funded in part or in whole with proceeds of a Loan advanced
directly to a Settlement Agent and held in escrow pursuant to the Custodial
Agreement.
"Whole Loan Sale" shall mean a sale of Mortgage Loans not involving a
---------------
Securitization Transaction.
1.02 Accounting Terms and Determinations. Except as otherwise
-----------------------------------
expressly provided herein, all accounting terms used herein shall be
interpreted, and all financial statements and certificates and reports as to
financial matters required to be delivered to the Lender hereunder shall be
prepared, in accordance with GAAP.
Section 2. Loans, Note and Prepayments.
---------------------------
2.01 Loans.
-----
(a) Subject to fulfillment of the conditions precedent set forth in
Sections 5.01 and 5.02 hereof, and provided that no Default shall have occurred
and be continuing hereunder, the Lender agrees to consider from time to time the
Borrowers' requests that the Lender make, on the terms and conditions of this
Loan Agreement, loans to the Borrowers in Dollars secured by Eligible Mortgage
Loans and/or Eligible Securities, from and including the Effective Date to and
including the termination of this Loan Agreement in an aggregate principal
amount at any one time outstanding not exceeding the lesser of (i) the Maximum
Credit at such time, and (ii) the Borrowing Base at such time. This Loan
Agreement is not a commitment to lend but rather sets forth the procedures to be
used in connection with periodic requests for Loans. Each of the Borrowers
hereby acknowledges that the Lender is under no obligation to agree to make, or
to make, any Loan pursuant to this Loan Agreement.
(b) Subject to the terms and conditions of this Loan Agreement, during
such period the Borrowers may borrow, repay and reborrow hereunder.
(c) In no event shall a Loan be made when any Default or Event of
Default has occurred and is continuing.
2.02 Notes.
-----
(a) The Loans made by the Lender shall be evidenced by a single
promissory note executed by each of the Borrowers substantially in the form of
Exhibit A hereto (the "Note"), dated the date hereof, payable to the Lender in a
- --------- ----
principal amount equal to the aggregate amount
-13-
<PAGE>
of the Loans made pursuant to this Loan Agreement as originally in effect and
otherwise duly completed. The Lender shall have the right to have its Note
subdivided, by exchange for promissory notes of lesser denominations or
otherwise.
(b) The date, amount and interest rate of each Loan made by the Lender
to the Borrowers, and each payment made on account of the principal thereof,
shall be recorded by the Lender on its books and, prior to any transfer of the
Note, endorsed by the Lender on the schedule attached to the Note or any
continuation thereof; provided that the failure of the Lender to make any such
--------
recordation or endorsement shall not affect the obligations of the Borrowers to
make a payment when due of any amount owing hereunder or under the Note in
respect of the Loans.
2.03 Procedure for Borrowing.
-----------------------
(a) The Borrowers may request a borrowing hereunder, on any Business
Day during the period from and including the Effective Date to and including the
termination of this Loan Agreement, by delivering to the Lender, with a copy to
the Custodian, a written request for borrowing, substantially in the form of
Exhibit D attached hereto, which request must be received by the Lender prior to
- ---------
2:00 p.m., New York City time, two (2) Business Days prior to the requested
Funding Date for any Mortgage Loans which are not Wet-Ink Mortgage Loans, (ii)
6:00 p.m., New York City time, one (1) Business Day prior to the Funding Date
for any Eligible Mortgage Loans which are Wet-Ink Mortgage Loans and (iii) 10:00
a.m. New York City time, three (3) Business Days prior to the Funding Date for
any Eligible Security. Such request for borrowing shall (i) attach a schedule
identifying the Eligible Mortgage Loans which are not Wet-Ink Mortgage Loans or
Eligible Securities that the Borrowers propose to pledge to the Lender and to be
included in the Borrowing Base in connection with such borrowing, (ii) specify
the requested Funding Date, (iii) include a Mortgage Loan Tape containing
information with respect to the Eligible Mortgage Loans and Eligible Securities
that the Borrowers propose to pledge to the Lender and to be included in the
Borrowing Base in connection with such borrowing, and (iv) certify as to the
truth and accuracy of the representations and warranties made hereunder as
required by Section 5.02(b) hereof .
Upon the Borrowers' request for a borrowing pursuant to Section 2.03(a), the
Lender may at its sole option, assuming all conditions precedent set forth in
Section 5.01 and 5.02 have been met and provided no Default shall have occurred
and be continuing, make a Loan to the Borrowers on the requested Funding Date in
the amount so requested.
(b) Each of the Borrowers shall release to the Custodian, in the case
of any Eligible Mortgage Loan which is not a Wet-Ink Mortgage Loan, and to the
Lender, in the case of any Eligible Security, no later than 12:00 p.m., New York
City time, two (2) Business Days prior to any Funding Date, the Mortgage Files
and the Eligible Security Files, as applicable, pertaining to each such Eligible
Mortgage Loan or Eligible Security to be pledged to the Lender and included in
the Borrowing Base on such requested Funding Date, in accordance with the terms
and conditions hereof and of the Custodial Agreement. With respect to each Wet-
Ink Mortgage Loan pledged to the Lender and included in the Borrowing Base on a
requested Funding Date:
-14-
<PAGE>
(i) By no later than 12.00 p.m., New York City time, the Borrowers
shall deliver all Mortgage Loan Documents related to all Wet-Ink Mortgage
Loans included in the Borrowing Base on such Funding Date and the original
Escrow Instruction Letter to the Custodian, for receipt by the Custodian no
later than seven (7) Business Days following the Funding Date, and, in the
case of any Borrower Refinanced Loan, the Borrower shall deliver facsimile
copies of the related Mortgage, Mortgage Note and Assignment of Mortgage by
12.00 p.m., New York City time no later than one (1) Business Day following
the Funding Date); and
(ii) the Borrowers shall cause the Settlement Agent to send the
Custodian a facsimile of the associated Escrow Instruction Letter on each
Funding Date.
(c) Pursuant to the Custodial Agreement, the Custodian shall deliver
to the Lender and the Borrowers, no later than 1:30 p.m., New York City time, on
a Funding Date (and with respect to each Wet-Ink Mortgage Loan, on the date of
receipt and on the Business Day of receipt of the related original Mortgage Loan
Documents), a Trust Receipt (as defined in the Custodial Agreement) in respect
of all Eligible Mortgage Loans pledged to the Lender on such Funding Date, and a
Mortgage Loan Schedule and Exception Report. With respect to an Eligible
Security, the Borrowers shall deliver to the Lender no later than 1:30 p.m., New
York City time, on the requested Funding Date each Eligible Security, registered
in the name of the Lender, to be pledged to the Lender and included in the
Borrowing Base on such requested Funding Date. Subject to Sections 2.01 and 5
hereof, such borrowing will then be made available to the Borrowers by the
Lender transferring, via wire transfer, to the following account of the
Borrowers at U.S. Bank National Association: "New Century Mortgage Collateral
Account", ABA 091000022, Account # 173100971378, not later than 5:00 p.m. New
York City time on such Funding Date, in the aggregate amount of such borrowing
in funds immediately available to the Borrowers with respect to each Pledged
Mortgage Loan which is not a Wet-Ink Loan and each Pledged Security; provided
--------
that if such Pledged Mortgage Loan or Eligible Security is subject to any prior
interest, encumbrance, equity, participation interest, lien, pledge, charge,
claim or security interest (any such Eligible Mortgage Loan or Eligible Security
"Release Collateral"), the Lender shall make available the portion of such
------------------
borrowing relating to such Release Collateral in accordance with the written
instructions of the holder of such interest, encumbrance, equity, participation
interest, lien, pledge, charge, claim or security interest. With respect to each
Pledged Mortgage Loan which is a Wet-Ink Mortgage Loan, subject to Sections 2.01
and 5 hereof, such borrowing will then be made available to the Borrowers by the
Lender transferring, via wire transfer, to the account of the applicable
Settlement Agent in accordance with the instructions set forth in the Escrow
Instruction Letter, not later than 5:00 p.m. New York City time on such Funding
Date, in the aggregate amount of such borrowing in funds immediately available
to the Settlement Agent.
2.04 Limitation on Types of Loans; Illegality. Anything herein to the
----------------------------------------
contrary notwithstanding, if, on or prior to the determination of any Eurodollar
Rate and the Applicable Margin:
(a) the Lender determines, which determination shall be conclusive,
that quotations of interest rates for the relevant deposits referred to in the
definition of "Eurodollar
-15-
<PAGE>
Rate" in Section 1.01 hereof are not being provided in the relevant amounts or
for the relevant maturities for purposes of determining rates of interest for
Loans as provided herein; or
(b) the Lender determines, which determination shall be conclusive,
that the relevant rate of interest referred to in the definition of "Eurodollar
Rate" in Section 1.01 hereof upon the basis of which the rate of interest for
Loans is to be determined is not likely to cover the cost to the Lender of
making or maintaining Loans; or
(c) it becomes unlawful for the Lender to honor its obligation to make
or maintain Loans hereunder using a Eurodollar Rate;
then the Lender shall give the Borrowers prompt notice thereof and, so long as
such condition remains in effect, the Lender shall be under no obligation to
consider making additional Loans, and the Borrowers shall, either prepay all
such Loans as may be outstanding or pay interest on such Loans at a rate per
annum equal to the Federal Funds Rate plus 4.00%; provided, however, that such
prepayment or payment of increased interest rate shall take effect with respect
to clause (b) above two Business Days following such notice.
2.05 Repayment of Loans; Interest.
----------------------------
(a) Each Borrower hereby promises to repay in full on the applicable
Maturity Date the then aggregate outstanding principal amount of the Loans.
(b) Each Borrower hereby promises to pay to the Lender interest on the
unpaid principal amount of each Loan for the period from and including the date
of such Loan to but excluding the date such Loan shall be paid in full, at a
rate per annum equal to the Eurodollar Rate plus the Applicable Margin.
Notwithstanding the foregoing, each Borrower hereby promises to pay to the
Lender interest at the applicable Post-Default Rate on any principal of any Loan
and on any other amount payable by any of the Borrowers hereunder or under the
Note that shall not be paid in full when due (whether at stated maturity, by
acceleration or by mandatory prepayment or otherwise) for the period from and
including the due date thereof to but excluding the date the same is paid in
full. Accrued interest on each Loan shall be payable monthly in arrears, if
applicable, on the second Business Day of each month and for the last month of
the Loan Agreement on the second Business Day of such last month and on the
related Maturity Date, except that interest payable at the Post-Default Rate
shall accrue daily and shall be payable upon such accrual. Upon reasonable
request by the Borrowers, the Lender shall give the Borrowers notice of the
determination of the interest rate provided herein or any change therein .
(c) It is understood and agreed that, unless and until a Default shall
have occurred and be continuing, the Borrowers shall be entitled to the proceeds
of the Eligible Mortgage Loans pledged to the Lender hereunder.
2.06 Mandatory Prepayments or Pledge.
-------------------------------
If at any time the aggregate outstanding principal amount of Loans
exceeds the Borrowing Base (a "Borrowing Base Deficiency"), as determined by the
-------------------------
Lender and notified to either of the Borrowers on any Business Day, the
Borrowers shall no later than one Business Day after receipt of such notice,
either prepay the Loans in part or in whole or pledge additional
-16-
<PAGE>
Eligible Mortgage Loans (which Collateral shall be in all respects acceptable to
the Lender) to the Lender, such that after giving effect to such prepayment or
pledge the aggregate outstanding principal amount of the Loans does not exceed
the Borrowing Base.
The Borrowers may not prepay Loans hereunder other than as
specifically provided herein. In connection with any prepayment of a Loan, the
Borrowers shall be required to pay a Breakage Fee to the Lender in addition to
any other amounts due hereunder.
Section 3. Payments; Computations; Etc.
---------------------------
3.01 Payments.
--------
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrowers under this
Loan Agreement and the Note, shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at the
following account maintained by the Lender: Account No. 930-1-035581, for the
account of PaineWebber Conduit Funding, The Chase Manhattan Bank, ABA No.
021000021) not later than 1:00 p.m., New York City time, on the date on which
such payment shall become due (and each such payment made after such time on
such due date shall be deemed to have been made on the next succeeding Business
Day). Each of the Borrowers hereby acknowledges that it has no rights of
withdrawal from the foregoing account.
(b) Except to the extent otherwise expressly provided herein, if the
due date of any payment under this Loan Agreement or the Note would otherwise
fall on a day that is not a Business Day, such date shall be extended to the
next succeeding Business Day, and interest shall be payable for any principal so
extended for the period of such extension.
3.02 Computations. Interest on the Loans shall be computed on the
------------
basis of a 360-day year for the actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
3.03 Requirements of Law.
-------------------
(a) If any Requirement of Law (other than with respect to any
amendment made to the Lender's certificate of incorporation and by-laws or other
organizational or governing documents) or any change in the interpretation or
application thereof or compliance by the Lender with any request or directive
(whether or not having the force of law) from any central bank or other
Governmental Authority made subsequent to the date hereof:
(i) shall subject the Lender to any tax of any kind whatsoever with
respect to this Loan Agreement, the Note or any Loan made by it (excluding net
income taxes) or change the basis of taxation of payments to the Lender in
respect thereof;
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory Loan or similar requirement against assets held by, deposits
or other liabilities in or for the account of, advances, Loans or other
extensions of credit by, or any other acquisition of funds by, any office of the
Lender which is not otherwise included in the determination of the Eurodollar
Rate hereunder;
-17-
<PAGE>
(iii) shall impose on the Lender any other condition;
and the result of any of the foregoing is to increase the cost to the Lender, by
an amount which the Lender deems to be material, of making, continuing or
maintaining any Loan or to reduce any amount due or owing hereunder in respect
thereof, then, in any such case, the Borrowers shall promptly pay the Lender
such additional amount or amounts as will compensate the Lender for such
increased cost or reduced amount receivable.
(b) If the Lender shall have determined that the adoption of or any
change in any Requirement of Law (other than with respect to any amendment made
to the Lender's certificate of incorporation and by-laws or other organizational
or governing documents) regarding capital adequacy or in the interpretation or
application thereof or compliance by the Lender or any corporation controlling
the Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any Governmental Authority made subsequent to
the date hereof shall have the effect of reducing the rate of return on the
Lender's or such corporation's capital as a consequence of its obligations
hereunder to a level below that which the Lender or such corporation (taking
into consideration the Lender's or such corporation's policies with respect to
capital adequacy) by an amount deemed by the Lender to be material, then from
time to time, the Borrowers shall promptly pay to the Lender such additional
amount or amounts as will compensate the Lender for such reduction.
(c) If the Lender becomes entitled to claim any additional amounts
pursuant to this Section, it shall promptly notify the Borrowers of the event by
reason of which it has become so entitled. A certificate as to any additional
amounts payable pursuant to this Section submitted by the Lender to the
Borrowers shall be conclusive in the absence of manifest error.
Section 4. Collateral Security.
-------------------
4.01 Collateral; Security Interest.
-----------------------------
(a) Pursuant to the Custodial Agreement, the Custodian shall hold the
Mortgage Loan Documents as exclusive bailee and agent for the Lender pursuant to
terms of the Custodial Agreement and shall deliver to the Lender Trust Receipts
(as defined in the Custodial Agreement) each to the effect that it has reviewed
such Mortgage Loan Documents in the manner and to the extent required by the
Custodial Agreement and identifying any deficiencies in such Mortgage Loan
Documents as so reviewed.
(b) All of each of the Borrowers' right, title and interest in, to
and under each of the following items of property, whether now owned or
hereafter acquired, now existing or hereafter created and wherever located, is
hereinafter referred to as the "Collateral":
----------
(i) all Eligible Mortgage Loans identified on a Notice of
Request for Borrowing and Pledge delivered by the Borrowers to the Lender
("Pledged Mortgage Loans") and all Servicing Rights thereto;
----------------------
(ii) all Mortgage Loan Documents, including without limitation
all promissory notes, and all Servicing Records (as defined in , and
subject to the provisions of, Section 12.14(b) below), servicing agreements
and any other collateral pledged or
-18-
<PAGE>
otherwise relating to such Pledged Mortgage Loans, together with all files,
documents, instruments, surveys, certificates, correspondence, appraisals,
computer programs, computer storage media, accounting records and other
books and records relating thereto;
(iii) the Eligible Securities identified on a Notice of Request
for Borrowing and Pledge delivered by the Borrowers to the Lender ("Pledged
-------
Securities").
----------
(iv) all securities, moneys, or property representing interest
or dividends on any of such Pledged Securities, or representing a
distribution in respect of such Pledged Securities or resulting form a
split-up, revision, reclassification or like change of such Pledged
Securities or otherwise received in exchange therefore, and any
subscriptions, warrants, rights or options issued to the holders of, or
otherwise in respect of, such Pledged Securities.
(v) all Governing Agreements;
(vi) the documents and certificates comprising the Eligible
Security Files including without limitation the original Eligible
Securities and any other collateral pledged or otherwise relating to such
Eligible Securities, together with all files, documents, instruments,
surveys, certificates, correspondence, appraisals, computer storage media,
accounting records and other books and records relating thereto;
(vii) all mortgage guaranties and insurance (issued by
governmental agencies or otherwise) and any mortgage insurance certificate or
other document evidencing such mortgage guaranties or insurance relating to any
Pledged Mortgage Loan and all claims and payments thereunder;
(viii) all other insurance policies and insurance proceeds
relating to all of the foregoing or any related Mortgaged Property;
(ix) all Interest Rate Protection Agreements;
(x) the Collection Account and all monies from time to time on
deposit in the Collection Account;
(xi) any purchase agreements covering or relating to any or all
of the foregoing;
(xii) all collateral, however defined, under any other agreement
between any of the Borrowers or any of its Affiliates on the one hand and the
Lender or any of its Affiliates on the other hand;
(xiii) all "general intangibles", "accounts" and "chattel paper"
as defined in the Uniform Commercial Code relating to or constituting any and
all of the foregoing; and
(xiv) any and all replacements, substitutions, distributions on
or proceeds of any and all of the foregoing.
-19-
<PAGE>
(c) Each of the Borrowers hereby assigns, pledges and grants a
security interest in all of its right, title and interest in, to and under the
Collateral to the Lender to secure the repayment of principal of and interest on
all Loans and all other amounts owing to the Lender hereunder, under the Note
and under the other Loan Documents (collectively, the "Secured Obligations").
-------------------
Each of the Borrowers agree to mark its respective computer records and tapes to
evidence the interests granted to the Lender hereunder.
(d) On or prior to the applicable Funding Date, the Borrowers shall
deliver the related Eligible Securities re-registered in the name of the Lender
or other designee of the Lender and the Lender or its other designee shall have
all rights of conversions, exchange, subscription and any other rights,
privileges and options pertaining to such Pledged Securities as the owner
thereof, and in connection therewith, the right to deposit and deliver any and
all of the Pledged Securities with any committee, depositary transfer, agent,
register or other designated agency upon such terms and conditions as the Lender
may determine.
(e) The Lender, as "entitlement holder" (as defined in Section 8-
102(a)(7) of the UCC) with respect to the Pledged Securities, shall be entitled
to receive all cash dividends and distributions paid in resect thereof. Any such
dividends or distributions received by the Borrowers shall be promptly remitted
to the Collection Account.
4.02 Re-registration.
---------------
(a) In connection with the delivery to the Lender, of each
certificate representing one or more shares of Pledged Securities pursuant to
Section 4.01 above, the Borrowers shall deliver such Pledged Securities re-
registered in the Lender's name (or in such name as the Lender may designate).
(b) The Borrowers shall cause any amounts paid under any Pledged
Security to be remitted to the Lender in accordance with the instructions set
forth on Exhibit H hereto.
---------
(c) Concurrently with the delivery to the Lender of each certificate
representing one or more shares of Pledged Securities pursuant to Section 4.01
above, (A) the Borrowers shall have (1) notified the applicable Trustee, in the
form of the Instruction Letter attached hereto as Exhibit H, in connection with
---------
the related transaction pursuant to which such Pledged Securities were issued,
of the pledge of the related Pledged Securities hereunder, and (2) instructed
the Trustee to pay all amounts payable to the holders of the Pledged Securities
to an account specified by the Lender, and (B) the Trustee shall have
acknowledged in writing the instructions set forth in clause (A) above, and a
copy of the fully executed Instruction Letter shall be delivered to the Lender.
4.03 Further Documentation. At any time and from time to time, upon
---------------------
the written request of the Lender, and at the sole expense of the Borrowers, the
Borrowers will promptly and duly execute and deliver, or will promptly cause to
be executed and delivered, such further instruments and documents and take such
further action as the Lender may reasonably request for the purpose of obtaining
or preserving the full benefits of this Loan Agreement and of the rights and
powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with
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<PAGE>
respect to the Liens created hereby. Each of the Borrowers also hereby
authorizes the Lender to file any such financing or continuation statement
without the signature of such Borrower to the extent permitted by applicable
law. A carbon, photographic or other reproduction of this Loan Agreement shall
be sufficient as a financing statement for filing in any jurisdiction.
4.04 Changes in Locations, Name, etc. Each of the Borrowers shall not
--------------------------------
(i) change the location of its respective chief executive office/chief place of
business from that specified in Section 6 hereof or (ii) change its respective
name, identity or corporate structure (or the equivalent) or change the location
where it maintains its records with respect to the Collateral unless it shall
have given the Lender at least 15 days prior written notice thereof and shall
have delivered to the Lender all Uniform Commercial Code financing statements
and amendments thereto as the Lender shall request and taken all other actions
deemed necessary by the Lender to continue its perfected status in the
Collateral with the same or better priority.
4.05 Lender's Appointment as Attorney-in-Fact.
----------------------------------------
(a) Each of the Borrowers hereby irrevocably constitutes and appoints
the Lender and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and authority
in the place and stead of such Borrower and in the name of such Borrower or in
its own name, from time to time in the Lender's discretion, for the purpose of
carrying out the terms of this Loan Agreement, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Loan Agreement, and,
without limiting the generality of the foregoing, each of the Borrowers hereby
gives the Lender the power and right, on behalf of such Borrower, without assent
by, but with notice to, such Borrower, if an Event of Default shall have
occurred and be continuing, to do the following:
(i) in the name of such Borrower or its own name, or
otherwise, to take possession of and endorse and collect any checks,
drafts, notes, acceptances or other instruments for the payment of moneys
due under any mortgage insurance or with respect to any other Collateral
and to file any claim or to take any other action or proceeding in any
court of law or equity or otherwise deemed appropriate by the Lender for
the purpose of collecting any and all such moneys due under any such
mortgage insurance or with respect to any other Collateral whenever
payable;
(ii) to pay or discharge taxes and Liens levied or placed
on or threatened against the Collateral; and
(iii) (A) to direct any party liable for any payment under
any Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Lender or as the Lender shall direct; (B) to ask
or demand for, collect, receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (C) to sign and endorse any
invoices, assignments, verifications, notices and other documents in
connection with any of the Collateral; (D) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any thereof and to enforce any
other right in respect of any Collateral; (E) to defend any suit, action
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<PAGE>
or proceeding brought against such Borrower with respect to any Collateral;
(F) to settle, compromise or adjust any suit, action or proceeding
described in clause (E) above and, in connection therewith, to give such
discharges or releases as the Lender may deem appropriate; and (G)
generally, to sell, transfer, pledge and make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as
though the Lender were the absolute owner thereof for all purposes, and to
do, at the Lender's option and such Borrower's expense, at any time, and
from time to time, all acts and things which the Lender deems necessary to
protect, preserve or realize upon the Collateral and the Lender's Liens
thereon and to effect the intent of this Loan Agreement, all as fully and
effectively as such Borrower might do.
Each of the Borrowers hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. This power of attorney is a
power coupled with an interest and shall be irrevocable.
(b) Each of the Borrowers also authorizes the Lender, at any time and
from time to time, to execute, in connection with any sale provided for in
Section 4.08 or Section 4.09 hereof, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral.
(c) The powers conferred on the Lender are solely to protect the
Lender's interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither the Lender nor any of its officers, directors, or employees shall be
responsible to the Borrowers for any act or failure to act hereunder, except for
its own gross negligence or willful misconduct.
4.06 Performance by Lender of Borrowers' Obligations. If any of the
-----------------------------------------------
Borrowers fails to perform or comply with any of its agreements contained in the
Loan Documents and the Lender may itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the expenses of the Lender
incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum equal to the Post-Default Rate, shall be
payable by the Borrowers to the Lender on demand and shall constitute Secured
Obligations.
4.07 Proceeds. If an Event of Default shall occur and be continuing,
--------
(a) all proceeds of Collateral received by any of the Borrowers consisting of
cash, checks and other near-cash items shall be held by such Borrower in trust
for the Lender, segregated from other funds of such Borrower, and shall
forthwith upon receipt by such Borrower be turned over to the Lender in the
exact form received by such Borrower (duly endorsed by such Borrower to the
Lender, if required) and (b) any and all such proceeds received by the Lender
(whether from such Borrower or otherwise) may, in the sole discretion of the
Lender, be held by the Lender as collateral security for, and/or then or at any
time thereafter may be applied by the Lender against, the Secured Obligations
(whether matured or unmatured), such application to be in such order as the
Lender shall elect. Any balance of such proceeds remaining after the Secured
Obligations shall have been paid in full and this Loan Agreement shall have been
terminated shall be paid over to the Borrowers or to whomsoever may be lawfully
entitled to receive the same. For
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<PAGE>
purposes hereof, proceeds shall include, but not be limited to, all principal
and interest payments, all prepayments and payoffs, insurance claims,
condemnation awards, sale proceeds, real estate owned rents and any other income
and all other amounts received with respect to the Collateral.
4.08 Remedies. If an Event of Default shall occur and be continuing,
--------
the Lender may, at its option, enter into one or more Interest Rate Protection
Agreements covering all or a portion of the Eligible Mortgage Loans pledged to
the Lender hereunder, and the Borrowers shall be responsible for all damages,
judgments, costs and expenses of any kind which may be imposed on, incurred by
or asserted against the Lender relating to or arising out of such Interest Rate
Protection Agreements; including without limitation any losses resulting from
such Interest Rate Protection Agreements. If an Event of Default shall occur and
be continuing, the Lender may exercise, in addition to all other rights and
remedies granted to it in this Loan Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the Uniform Commercial Code.
Without limiting the generality of the foregoing, the Lender without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon any of
the Borrowers or any other Person (each and all of which demands, presentments,
protests, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels or as an entirety at public or private sale or sales, at any
exchange, broker's board or office of the Lender or elsewhere upon such terms
and conditions as it may deem advisable and at such prices as the Lender deems
appropriate, for cash or on credit or for future delivery without assumption of
any credit risk. The Lender shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or sales,
to purchase the whole or any part of the Collateral so sold, free of any right
or equity of redemption in any of the Borrowers, which right or equity is hereby
waived or released. Each of the Borrowers hereby further agrees, at the Lender's
request, to assemble the Collateral and make it available to the Lender at
places which the Lender shall reasonably select, whether at such Borrower's
premises or elsewhere. The Lender shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral or the rights of the Lender hereunder, including
without limitation reasonable attorneys' fees and disbursements, to the payment
in whole or in part of the Secured Obligations, in such order as the Lender may
elect, and only after such application and after the payment by the Lender of
any other amount required or permitted by any provision of law, including
without limitation Section 9-504(1)(c) of the Uniform Commercial Code, need the
Lender account for the surplus, if any, to the Borrowers. To the extent
permitted by applicable law, each of the Borrowers hereby waives all claims,
damages and demands it may acquire against the Lender arising out of the
exercise by the Lender of any of its rights hereunder, other than those claims,
damages and demands arising from the gross negligence or willful misconduct of
the Lender. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition. Each of the
Borrowers shall remain liable for any deficiency (plus accrued interest thereon
as contemplated pursuant to Section 2.05(b) hereof) if the proceeds of any sale
or other disposition of the
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<PAGE>
Collateral are insufficient to pay the Secured Obligations and the fees and
disbursements of any attorneys employed by the Lender to collect such
deficiency.
4.09 Registration Rights; Private Sales.
-----------------------------------
(a) If the Lender shall determine to exercise its right to sell any
or all of the Pledged Securities pursuant to Section 4.08 or Section 4.09
hereof, and if in the opinion of the Lender it is necessary or advisable to have
the Pledged Securities, or a portion thereof to be sold, registered under the
provisions of the Securities Act, the Borrowers will (i) cause to be executed
and delivered all such instruments and documents, and do or cause to be done all
such other acts as may be in the opinion of the Lender, necessary or advisable
to register the Pledged Securities, or that portion of it to be sold, under the
provisions of the Securities Act, and (ii) use its bests efforts to cause the
registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
the Pledged Securities, or that portion thereof to be sold, and (iii) make all
amendments thereto and/or to the to the related prospectus which, in the opinion
of the Lender, are necessary or advisable, all in conformity with the
requirements of the Securities Act and the rules and regulations of the
Securities and Exchange Commission applicable thereto. The Borrowers agrees to
comply with the provisions of the securities or "Blue Sky" laws of any and all
jurisdictions which the Lender shall designate and to make available to its
security holders, as soon as practicable, an earnings statement (which need not
be audited) which will satisfy the provisions of Section 11(a) of the Securities
Act.
(b) The Borrowers recognize that the Lender may be unable to effect a
public sale of any or all of the Pledged Securities, by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise, and may be compelled to resort to one or more private sales
thereof to a restricted group of purchasers which will be obliged to agree,
among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. The
Borrowers acknowledge and agree that any such private sale may result in prices
and other terms less favorable to the Lender than if such sale were a public
sale and, notwithstanding such circumstances, agrees that any such private sale
shall be deemed to have been made in a commercially reasonable manner. The
Lender shall be under no obligation to delay a sale of any of the Pledged
Securities for the period of time necessary to permit the Borrowers or any
issuer of such Pledged Securities to register such securities for public sale
under the Securities Act, or under applicable state securities laws, even if the
Borrowers or such issuer, as the case may be, would agree to do so.
4.10 Limitation on Duties Regarding Preservation of Collateral. The
---------------------------------------------------------
Lender's duty with respect to the custody, safekeeping and physical preservation
of the Collateral in its possession, under Section 9-207 of the Uniform
Commercial Code or otherwise, shall be to deal with it in the same manner as the
Lender deals with similar property for its own account. Neither the Lender nor
any of its directors, officers or employees shall be liable for failure to
demand, collect or realize upon all or any part of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of the Borrowers or otherwise.
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<PAGE>
4.11 Powers Coupled with an Interest. All authorizations and agencies
-------------------------------
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
4.12 Release of Security Interest. Upon termination of this Loan
----------------------------
Agreement and repayment to the Lender of all Secured Obligations and the
performance of all obligations under the Loan Documents the Lender shall release
its security interest in any remaining Collateral including the filing of any
UCC statements reasonably required to release such interest; provided that if
any payment, or any part thereof, of any of the Secured Obligations is rescinded
or must otherwise be restored or returned by the Lender upon the insolvency,
bankruptcy, dissolution, liquidation or similar reorganization of any of the
Borrowers, or upon or as a result of the appointment of a receiver, intervenor
or conservator of, or a trustee or similar officer for, any of the Borrowers or
any substantial part of its respective Property, or otherwise, this Loan
Agreement, all rights hereunder and the Liens created hereby shall continue to
be effective, or be reinstated, as though such payments had not been made.
Section 5. Conditions Precedent.
--------------------
5.01 Initial Loan. If the Lender agrees to make a Loan to the
------------
Borrowers pursuant to the terms of this Loan Agreement, the obligation of the
Lender to make its initial Loan hereunder is additionally subject to the
satisfaction, immediately prior to or concurrently with the making of such Loan,
of the condition precedent that the Lender shall have received all of the
following documents, each of which shall be satisfactory to the Lender and its
counsel in form and substance:
(a) Loan Documents. The Loan Documents, duly completed and executed.
--------------
(i) Note. The Note, duly completed and executed;
----
(ii) Custodial Agreement. The Custodial Agreement, duly
-------------------
executed and delivered by the Borrowers and the Custodian. In addition,
each of the Borrowers shall have taken such other action as the Lender
shall have requested in order to perfect the security interests created
pursuant to the Loan Agreement;
(iii) Blocked Account Agreement. A Blocked Account
-------------------------
Agreement, duly executed by the parties thereto;
(iv) Contribution Agreement. A Contribution Agreement, duly
----------------------
executed by the parties thereto;
(b) Organizational Documents. A good standing certificate and
------------------------
certified copies of the charter and by-laws (or equivalent documents) of each of
the Borrowers and of all corporate or other authority for each of the Borrowers
with respect to the execution, delivery and performance of the Loan Documents
and each other document to be delivered by each of the Borrowers from time to
time in connection herewith (and the Lender may conclusively rely on such
certificate until it receives notice in writing from such Borrower to the
contrary);
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<PAGE>
(c) Legal Opinion. A legal opinion of outside counsel to the
-------------
Borrowers, which, together with a legal opinion of Stergios Theologides, counsel
to the Borrowers, is substantially in the form attached hereto as Exhibit C;
(d) Mortgage Loan Schedule and Exception Report. A Mortgage Loan
-------------------------------------------
Schedule and Exception Report, dated the Effective Date, from the Custodian,
duly completed;
(e) Servicing Agreement(s). Any Servicing Agreement, certified as a
----------------------
true, correct and complete copy of the original, with a letter attached thereto
acknowledged by the applicable Servicer directing the Servicer to remit all
payments on account of the Eligible Mortgage Loans directly to the Lender upon
receipt of notice from the Lender of the occurrence of an Event of Default;
(f) U.S. Bank Financing Documents. Copies of the U.S. Bank Financing
-----------------------------
Documents, certified to be true and complete copies thereof by a Responsible
Officer of New Century Mortgage Corporation;
(g) Salomon Financing Documents. Copies of the Salomon Financing
---------------------------
Documents, certified to be true and complete copies thereof by a Responsible
Officer of New Century Mortgage Corporation;
(h) Greenwich Capital Financing Documents. Copies of the Greenwich
-------------------------------------
Capital Financing Documents, certified to be true and complete copies thereof by
a Responsible Officer of NCCC;
(i) Consents and Waivers. Any and all irrevocable consents and
--------------------
waivers required under the Existing Financing Documents.
(j) Other Documents. Such other documents as the Lender may
---------------
reasonably request.
5.02 Initial and Subsequent Loans. If the Lender agrees to make a
----------------------------
Loan to the Borrowers, the making of each Loan to the Borrowers (including the
initial Loan) on any Business Day is subject to the satisfaction of the
following further conditions precedent, both immediately prior to the making of
such Loan and also after giving effect thereto and to the intended use thereof:
(a) no Default or Event of Default shall have occurred and be
continuing;
(b) both immediately prior to the making of such Loan and also after
giving effect thereto and to the intended use thereof, the representations and
warranties made by each of the Borrowers in Section 6 hereof, and elsewhere in
each of the Loan Documents, shall be true, correct and complete on and as of the
date of the making of such Loan in all material respects (in the case of the
representations and warranties in Section 6.10 and Schedule 1 or Schedule 2, as
applicable, solely with respect to Eligible Mortgage Loans or Eligible
Securities included in the Borrowing Base) with the same force and effect as if
made on and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such specific
date). The Lender shall have received a Notice of Request for Borrowing and
Pledge
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<PAGE>
signed by a Responsible Officer of each of the Borrowers, substantially in the
form of Exhibit D attached hereto, which shall certify as to the truth, accuracy
and completeness of the above, which Notice of Request for Borrowing and Pledge
shall specifically include a statement that each of the Borrowers is in
compliance with all governmental licenses and authorizations and is qualified to
do business and in good standing in all required jurisdictions Loan, and the
parties hereto shall complied with Section 2.03 hereof with respect to such
Loan.
(c) the aggregate outstanding principal amount of the Loans shall not
exceed the Borrowing Base;
(d) subject to the Lender's right to perform one or more Due
Diligence Reviews pursuant to Section 12.15 hereof, the Lender shall have
completed its due diligence review of the Mortgage Loan Documents for each Loan
and such other documents, records, agreements, instruments, mortgaged properties
or information relating to such Loans as the Lender in its sole discretion deems
appropriate to review and such review shall be satisfactory to the Lender in its
sole discretion;
(e) the Lender shall have received from the Custodian a Mortgage Loan
Schedule and Exception Report with Exceptions as are acceptable to the Lender in
its sole discretion in respect of Eligible Mortgage Loans to be pledged
hereunder on such Business Day;
(f) (i) With respect to Eligible Securities that shall be delivered
or held in definitive, certificated form, the Borrowers shall deliver to
the Lender or its designee the original of the relevant certificate
registered in the name of the Lender or its designee, transfer tax stamps,
and any other documents or instruments necessary in the opinion of the
Lender to create in favor of the Lender a valid, perfected, first priority
security interest in such security or other item of investment property to
the Lender. Unless otherwise instructed by Lender, any delivery of a
security or other item of investment property in definitive, certificated
form shall be made to the Lender's designee at the "Address for Notices"
specified below its name on the signature pages hereof or thereof.
(ii) With respect to Eligible Securities that shall be delivered
or held in uncertificated form and the ownership of which is registered on
books maintained by the issuer thereof or its transfer agent, the Borrowers
shall cause the registration of such security or other item of investment
property in the name of Lender or its designee and at the request of the
Lender, shall take such other and further steps, and shall execute and
deliver such documents or instruments necessary in the opinion of the
Lender, to create in favor of the Lender a valid, perfected, first priority
security interest in the relevant interest granted therein to Lender
hereunder.
(iii) With respect to Eligible Securities that shall be delivered
through a Relevant System in book-entry form and credited to or otherwise
credited to or held in an Eligible Securities account, the Borrowers shall
take such actions necessary to provide instruction to the relevant
financial institution or other entity, which instruction shall be
sufficient if complied with to create in favor of the Lender a valid,
perfected, first priority security interest in the relevant interest
granted therein to Lender hereunder. In connection with any account to
which the Eligible Securities are credited or otherwise
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<PAGE>
held, each of the Borrowers shall execute and deliver such other and
further documents or instruments necessary, in the reasonable opinion of
the Lender, to create in favor of the Lender a valid, perfected, first
priority security interest in the relevant interest granted therein to
Lender hereunder. Any account to which the Eligible Securities are credited
or otherwise shall be designated "Paine Webber Real Estate Securities Inc."
or such variation thereon as the Lender may direct.
(iv) Any delivery of an Eligible Security in accordance with
clauses (i) through (iii) above, or any other method acceptable to the
Lender, shall be sufficient to cause the Lender to have a perfected, first
priority security interest in, and to be the "entitlement holder" (as
defined in Section 8-102(a)(7) of the Uniform Commercial Code of the State
of the New York (the "UCC")) with respect to the Eligible Securities.
---
(g) the Lender shall have received from the Borrowers a Warehouse
Lender's Release Letter substantially in the form of Exhibit E-2 hereto (or such
-----------
other form acceptable to the Lender) or a Borrowers Release Letter substantially
in the form of Exhibit E-1 hereto (or such other form acceptable to the Lender)
-----------
covering each Eligible Mortgage Loan to be pledged to the Lender;
(h) the Lender shall have received from the Borrowers copies of each
Servicing Agreement relating to the Eligible Mortgage Loans and the Lender shall
have reviewed and approved each such Servicing Agreement in its sole discretion;
(i) for each Wet-Ink Mortgage Loan which is not a Borrower Refinanced
Loan, the Lender shall have received an insured closing letter from all
Settlement Agents that are not title insurance companies;
(j) none of the following shall have occurred and/or be continuing:
(i) an event or events shall have occurred resulting in the
effective absence of a "repo market" or comparable "lending market" for
financing debt obligations secured by mortgage loans or securities or an
event or events shall have occurred resulting in the Lender not being able
to finance any Eligible Mortgage Loans and/or Eligible Securities through
the "repo market" or "lending market" with traditional counterparties at
rates which would have been reasonable prior to the occurrence of such
event or events;
(ii) an event or events shall have occurred resulting in the
effective absence of a "securities market" for securities backed by
mortgage loans or an event or events shall have occurred resulting in the
Lender not being able to sell securities backed by mortgage loans at prices
which would have been reasonable prior to such event or events; or
(iii) there shall have occurred a material adverse change in
the "repo market" or comparable "lending market" or in the financial
----------- --------------
condition of the Lender which effects (or can reasonably be expected to
effect) materially and adversely the ability of the Lender to fund its
obligations under this Loan Agreement.
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<PAGE>
(k) with respect to each Pledged Security:
(i) the Lender shall have received each Security to be pledged
hereunder on such Business Day registered in the name of the Lender;
(ii) the Lender shall have received a copy of the executed
Governing Agreements governing the Pledged Securities and/or any
supplements thereto, and the offering documents related to the Pledged
Securities; and
(iii) Without limitation on the foregoing, no Pledged
Securities, whether certificated or uncertificated, shall remain in the name, or
possession, of the Borrower or any of its agents or shall be credited to or held
in any securities account in the name of the Borrower or any of its agents.
Each request for a borrowing by the Borrowers hereunder shall
constitute a certification by each of the Borrowers that all the conditions set
forth in this Section 5 have been satisfied (both as of the date of such request
and as of the date of such borrowing).
5.03 Additional Conditions Regarding PWF Corporation. Within thirty
-----------------------------------------------
(30) days of the date hereof, the Borrowers shall provide the Lender with each
of the following:
(i) a copy of an executed flow mortgage loan purchase and sale
agreement, dated as of the date hereof (the "PWF Agreement"), between PWF
-------------
Corporation and New Century Mortgage Corporation, in form and substance
reasonably acceptable to the Lender and containing customary representations and
warranties and related provisions regarding the sale of such Mortgage Loans;
(ii) an opinion of counsel in form and substance and from an
attorney, in both cases, acceptable to the Lender in its sole discretion, that
any Mortgage Loans which were originated by PWF Corporation and acquired by a
Borrower pursuant to the PWF Agreement would be acquired by the related Borrower
in a true and legal sale; and
(iii) an originally executed pledge agreement by PWF Corporation in
favor of the Lender, in form and substance acceptable to the Lender in its sole
discretion, relating to any Mortgage Loans originated by PWF Corporation which
the Borrowers would seek to pledge in accordance with the terms hereof.
Section 6. Representations and Warranties. Each of the Borrowers
------------------------------
represents and warrants to the Lender that throughout the term of this Loan
Agreement:
6.01 Existence. Each of the Borrowers (a) is a corporation duly
---------
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has all requisite corporate or other
power, and has all governmental licenses, authorizations, consents and approvals
necessary to own its assets and carry on its business as now being or as
proposed to be conducted, except where the lack of such licenses,
authorizations, consents and approvals would not be reasonably likely to have a
Material Adverse Effect; and (c) is qualified to do business and is in good
standing in all other jurisdictions in which the nature of the business
conducted by it makes such qualification necessary, except where failure so to
qualify
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<PAGE>
would not be reasonably likely (either individually or in the aggregate) to have
a Material Adverse Effect.
6.02 Financial Condition. Each of the Borrowers has heretofore
-------------------
furnished to the Lender a copy of (a) its consolidated balance sheet and the
consolidated balance sheets of its consolidated Subsidiaries for the fiscal year
of such Borrower ended December 31, 1998 and the related consolidated statements
of income and retained earnings and of cash flows for such Borrower and its
consolidated Subsidiaries for such fiscal period, setting forth in comparative
form the figures for the previous year, and with respect to New Century, with
the opinion thereon of KPMG Peat Marwick LLP or another nationally recognized
accounting firm, and, (b) its consolidated balance sheet and the consolidated
balance sheets of its consolidated Subsidiaries for the quarterly fiscal period
of such Borrower ended March 31, 1999 and the related consolidated statements of
income and retained earnings and of cash flows for such Borrower and its
consolidated Subsidiaries for such quarterly fiscal period, setting forth in
each case in comparative form the figures for the previous quarter. All such
financial statements are complete and correct and fairly present, in all
material respects, the consolidated financial condition of such Borrower and its
Subsidiaries and the consolidated results of their operations as at such dates
and for such fiscal periods, all in accordance with GAAP applied on a consistent
basis. Since March 31, 1999 there has been no material adverse change in the
consolidated business, operations or financial condition of such Borrower and
its consolidated Subsidiaries taken as a whole from that set forth in said
financial statements.
6.03 Litigation. There are no actions, suits, arbitrations,
----------
investigations (including, without limitation, any of the foregoing which are
pending or to the Borrowers' knowledge, threatened) or other legal or arbitrable
proceedings affecting any of the Borrowers or any of their respective
Subsidiaries or affecting any of the Property of any of them before any
Governmental Authority that (i) questions or challenges the validity or
enforceability of any of the Loan Documents or any action to be taken in
connection with the transactions contemplated hereby, (ii) makes a claim or
claims in an aggregate amount greater than $4,000,000.00, (iii) which,
individually or in the aggregate, if adversely determined, could reasonably be
likely to have a Material Adverse Effect, or (iv) requires filing with the
Securities and Exchange Commission in accordance with the 1934 Act or any rules
thereunder. Each of the Borrowers is not (i) in violation of any applicable law
which violation materially adversely affects or may reasonably be expected to
materially adversely affect the business, operations, properties, assets or
condition (financial or otherwise) of such Borrower, or (ii) subject to or in
default with respect to any final judgment, writ, injunction, decree, rule or
regulation of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which would have a material adverse effect on the business, operations,
properties, assets or condition (financial or otherwise) of such Borrower.
6.04 No Breach. Neither (a) the execution and delivery of the Loan
---------
Documents nor (b) the consummation of the transactions therein contemplated in
compliance with the terms and provisions thereof will (i) conflict with or
result in a breach of the charter or by-laws of any of the Borrowers, or any
applicable law, rule or regulation, or any order, writ, injunction or decree of
any Governmental Authority against or binding on the Borrowers, or any Servicing
Agreement, or any Governing Agreement or other material agreement or instrument
to which any of the Borrowers or any of their respective Subsidiaries is a party
or by which any of them or
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<PAGE>
any of their Property is bound or to which any of them is subject, (ii)
constitute a default under any such material agreement or instrument or result
in the creation or imposition of any Lien (except for the Liens created pursuant
to this Loan Agreement) upon any Property of any of the Borrowers or any of
their respective Subsidiaries pursuant to the terms of any such agreement or
instrument or (iii) constitute an event of default or an event which, with the
passage of time or expiration of any grace period, would constitute an event of
default under the Existing Financing Documents.
6.05 Action. Each of the Borrowers has all necessary corporate or
------
other power, authority and legal right to execute, deliver and perform its
obligations under each of the Loan Documents; the execution, delivery and
performance by such Borrower of each of the Loan Documents have been duly
authorized by all necessary corporate or other action on its part; and each Loan
Document has been duly and validly executed and delivered by such Borrower and
constitutes a legal, valid and binding obligation of such Borrower, enforceable
against such Borrower in accordance with its terms; except as enforceability may
be limited by (A) bankruptcy, insolvency, reorganization, receivership,
moratorium or other similar laws affecting the enforcement of the rights of
creditors generally, and (B) general principles of equity, whether enforcement
is sought in a proceeding in equity or at law.
6.06 Approvals. No authorizations, approvals or consents of, and no
---------
filings or registrations with, any Governmental Authority or any securities
exchange are necessary for the execution, delivery or performance by each of the
Borrowers of the Loan Documents or for the legality, validity or enforceability
thereof, except for filings and recordings in respect of the Liens created
pursuant to this Loan Agreement.
6.07 Margin Regulations. Neither the making of any Loan hereunder,
------------------
nor the use of the proceeds thereof, will violate or be inconsistent with the
provisions of Regulations T, U or X.
6.08 Taxes. Each of the Borrowers and their respective Subsidiaries
-----
have filed all Federal income tax returns and all other material tax returns
that are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by any of them, except for
any such taxes as are being appropriately contested in good faith by appropriate
proceedings diligently conducted and with respect to which adequate reserves
have been provided. The charges, accruals and reserves on the books of each of
the Borrowers and their respective Subsidiaries in respect of taxes and other
governmental charges are, in the opinion of such Borrower, adequate.
6.09 Investment Company Act. None of the Borrowers nor any of their
----------------------
respective Subsidiaries are an "investment company", or a company "controlled"
by an "investment company," within the meaning of the Investment Company Act of
1940, as amended.
6.10 Collateral; Collateral Security.
-------------------------------
(a) None of the Borrowers has assigned, pledged, or otherwise
conveyed or encumbered any of the Collateral to any other Person, and
immediately prior to the pledge of
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such Collateral to the Lender, such Borrower was the sole owner of such
Collateral and had good and marketable title thereto, and has full right and
authority to pledge or assign such Collateral free and clear of all Liens, in
each case except for Liens to be released simultaneously with the Liens granted
in favor of the Lender hereunder. No Mortgage Loan or Eligible Security pledged
to the Lender hereunder was acquired (by purchase or otherwise) by any of the
Borrowers from an Affiliate of such Borrower, except for Eligible Mortgage Loans
or Eligible Securities purchased from another Borrower. All Mortgage Notes
evidencing each Mortgage Loan are substantially in the form of Exhibit I hereto.
(b) The provisions of this Loan Agreement are effective to create in
favor of the Lender a valid security interest in all right, title and interest
of each of the Borrowers in, to and under the Collateral.
(c) Upon receipt by the Custodian of each Mortgage Note endorsed in
blank by a duly authorized officer of such Borrower and receipt by the Lender of
each Eligible Security assigned by such Borrower to the Lender, the Lender shall
have a fully perfected first priority security interest therein, in the Mortgage
Loan or Eligible Security and in the case of a Mortgage Loan, in each of the
Borrowers' interests, if any, in the related Mortgaged Property.
(d) Upon the filing of financing statements on Form UCC-1 naming the
Lender as "Secured Party" and the Borrowers as "Debtors", and describing the
Collateral, in the jurisdictions and recording offices listed on Schedule 2
attached hereto, the security interests granted hereunder in the Collateral will
constitute fully perfected first priority security interests under the Uniform
Commercial Code in all right, title and interest of each of the Borrowers in, to
and under such Collateral which can be perfected by filing under the Uniform
Commercial Code.
(e) All of the Pledged Securities have been validly issued, and are
fully paid and non-assessable and not subject to preemptive rights, and the
Pledged Securities have been offered, issued and sold in compliance with all
applicable laws and (A) there are no outstanding rights, options, warrants or
agreements for the purchase from, or sale or issuance, in connection with the
Pledged Securities; (B) there are no agreements on the part of any of the
Borrowers to issue, sell or distribute the Pledged Securities; and (C) none of
the Borrowers has any obligation (contingent or otherwise) to purchase, redeem
or otherwise acquire any securities or any interest therein or to pay any
dividend or make any distribution in respect of the Pledged Securities.
6.11 Chief Executive Office. On the Effective Date, and during the
----------------------
four months immediately preceding the Effective Date, each of the Borrowers'
chief executive office and principal place of business is located at 18400 Von
Karman, Suite 1000, Irvine, California 92612.
6.12 Location of Books and Records. The location where each of the
-----------------------------
Borrowers keeps its respective books and records, including all computer tapes
and records relating to the Collateral is (i) its respective chief executive
office and (ii) 17701 Cowan Street, Irvine, California 92614.
6.13 [Reserved].
----------
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<PAGE>
6.14 True and Complete Disclosure. The information, reports,
----------------------------
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Borrowers to the Lender in connection with the negotiation,
preparation or delivery of this Loan Agreement and the other Loan Documents or
included herein or therein or delivered pursuant hereto or thereto, when taken
as a whole, do not contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading. All
written information furnished after the date hereof by or on behalf of the
Borrowers to the Lender in connection with this Loan Agreement and the other
Loan Documents and the transactions contemplated hereby and thereby will be
true, complete and accurate in every material respect, or (in the case of
projections) based on reasonable estimates, on the date as of which such
information is stated or certified. There is no fact known to a Responsible
Officer of any of the Borrowers, after due inquiry, that could reasonably be
expected to have a Material Adverse Effect that has not been disclosed herein,
in the other Loan Documents or in a report, financial statement, exhibit,
schedule, disclosure letter or other writing furnished to the Lender for use in
connection with the transactions contemplated hereby or thereby.
6.15 Tangible Net Worth. On the Effective Date, the aggregate
------------------
Tangible Net Worth of the Borrowers is not less than $40,000,000.
6.16 ERISA. Each Plan to which any of the Borrowers or its respective
-----
Subsidiaries make direct contributions, and, to the knowledge of each of the
Borrowers, each other Plan and each Multiemployer Plan, is in compliance in all
material respects with, and has been administered in all material respects in
compliance with, the applicable provisions of ERISA, the Code and any other
Federal or State law. No event or condition has occurred and is continuing as to
which any of the Borrowers would be under an obligation to furnish a report to
the Lender under Section 7.01(d) hereof.
6.17 Governing Agreements. All representations and warranties in any
--------------------
applicable Governing Agreement are true and correct in all material respects as
of the date hereof as if made on such date and are incorporated herein by
references mutatis mutandis; or any such breach thereof does not have a Material
Adverse Effect. No event of default has occurred and is continuing under any
Governing Agreement.
6.18 Securities Information. The information set forth relating to
----------------------
the Pledged Securities in the related Notice of Request for Borrowing and Pledge
and all other information or data furnished by, or on behalf of, the Borrowers
to the Lender with respect to the Pledged Securities is complete, true and
correct in all material respects, and the Borrowers hereby acknowledge that
Lender has not verified the accuracy of such information or data.
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<PAGE>
Section 7. Covenants of the Borrowers. Each of the Borrowers hereby
--------------------------
covenants and agrees with the Lender that, so long as any Loan is outstanding
and until payment in full of all Secured Obligations:
7.01 Financial Statements. Each of the Borrowers shall deliver to the
--------------------
Lender:
(a) as soon as available and in any event within 45 days after the
end of each of the first three quarterly fiscal periods of each fiscal year of
such Borrower, the unaudited consolidated balance sheets of such Borrower and
its consolidated Subsidiaries as at the end of such period and the related
unaudited consolidated statements of income and retained earnings and of cash
flows for such Borrower and its consolidated Subsidiaries for such period and
the portion of the fiscal year through the end of such period, setting forth in
each case in comparative form the figures for the previous year or quarter,
accompanied by a certificate of a Responsible Officer of such Borrower, which
certificate shall state that said consolidated financial statements fairly
present the consolidated financial condition and results of operations of such
Borrower and its consolidated Subsidiaries in accordance with GAAP, consistently
applied, as at the end of, and for, such period (subject to normal year-end
audit adjustments);
(b) as soon as available and in any event within 90 days after the
end of each fiscal year of such Borrower, the consolidated balance sheets of
such Borrower and its consolidated Subsidiaries as at the end of such fiscal
year and the related consolidated statements of income and retained earnings and
of cash flows for such Borrower and its consolidated Subsidiaries for such year,
setting forth in each case in comparative form the figures for the previous
year, and, with respect to New Century, accompanied by an opinion thereon of
independent certified public accountants of recognized national standing, which
opinion shall not be qualified as to scope of audit or going concern and shall
state that said consolidated financial statements fairly present the
consolidated financial condition and results of operations of such Borrower and
its consolidated Subsidiaries as at the end of, and for, such fiscal year in
accordance with GAAP;
(c) from time to time such other information regarding the financial
condition, operations, or business of such Borrower as the Lender may reasonably
request;
(d) as soon as reasonably possible, and in any event within thirty
(30) days after a Responsible Officer of such Borrower knows, or with respect to
any Plan or Multiemployer Plan to which such Borrower or any of its Subsidiaries
makes direct contributions, has reason to believe, that any of the events or
conditions specified below with respect to any Plan or Multiemployer Plan has
occurred or exists, a statement signed by a senior financial officer of such
Borrower setting forth details respecting such event or condition and the
action, if any, that such Borrower or its ERISA Affiliate proposes to take with
respect thereto (and a copy of any report or notice required to be filed with or
given to PBGC by such Borrower or an ERISA Affiliate with respect to such event
or condition):
(i) any reportable event, as defined in Section 4043(c) of
ERISA and the regulations issued thereunder, with respect to a Plan, as to
which PBGC has not by regulation waived the requirement of Section 4043(a)
of ERISA that it be notified within thirty (30) days of the occurrence of
such event (provided that a failure to meet the
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<PAGE>
minimum funding standard of Section 412 of the Code or Section 302 of
ERISA, including without limitation the failure to make on or before its
due date a required installment under Section 412(m) of the Code or Section
302(e) of ERISA, shall be a reportable event regardless of the issuance of
any waivers in accordance with Section 412(d) of the Code); and any request
for a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041(c) of ERISA of a notice
of intent to terminate any Plan or any action taken by such Borrower or an
ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section 4042
of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by such Borrower or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has been
taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer
Plan by such Borrower or any ERISA Affiliate that results in liability
under Section 4201 or 4204 of ERISA (including the obligation to satisfy
secondary liability as a result of a purchaser default) or the receipt by
such Borrower or any ERISA Affiliate of notice from a Multiemployer Plan
that it is in reorganization or insolvency pursuant to Section 4241 or 4245
of ERISA or that it intends to terminate or has terminated under Section
4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against such Borrower or any ERISA Affiliate to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30 days; and
(vi) the adoption of an amendment to any Plan that, pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA, would result in the
loss of tax-exempt status of the trust of which such Plan is a part if such
Borrower or an ERISA Affiliate fails to provide timely security to such
Plan in accordance with the provisions of said Sections.
7.02 Litigation. Each of the Borrowers will promptly, and in any event
----------
within 10 days after service of process on any of the following, give to the
Lender notice of all litigation, actions, suits, arbitrations, investigations
(including, without limitation, any of the foregoing which are pending or
threatened) or other legal or arbitrable proceedings affecting such Borrower or
any of its Subsidiaries or affecting any of the Property of any of them before
any Governmental Authority that (i) questions or challenges the validity or
enforceability of any of the Loan Documents or any action to be taken in
connection with the transactions contemplated hereby, (ii) makes a claim or
claims in an aggregate amount greater than $4,000,000.00, (iii) which,
individually or in the aggregate, if adversely determined, could be reasonably
likely to have a Material Adverse Effect, or (iv) requires filing with the
Securities and Exchange Commission in accordance with the 1934 Act and any rules
thereunder.
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<PAGE>
7.03 Existence, etc. Each of the Borrowers will:
---------------
(a) preserve and maintain its legal existence and all of its material
rights, privileges, licenses and franchises (provided that nothing in this
Section 7.03(a) shall prohibit any transaction expressly permitted under Section
7.04 hereof);
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of Governmental Authorities (including, without
limitation, all environmental laws) if failure to comply with such requirements
would be reasonably likely (either individually or in the aggregate) to have a
Material Adverse Effect;
(c) keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied;
(d) not move its chief executive office from the address referred to
in Section 6.11 unless it shall have fulfilled each of the conditions specified
in Section 4.04;
(e) pay and discharge all taxes, assessments and governmental charges
or levies imposed on it or on its income or profits or on any of its Property
prior to the date on which penalties attach thereto, except for any such tax,
assessment, charge or levy the payment of which is being contested in good faith
and by proper proceedings and against which adequate reserves are being
maintained; and
(f) permit representatives of the Lender, during normal business
hours, to examine, copy and make extracts from its books and records, to inspect
any of its Properties, and to discuss its business and affairs with its
officers, all to the extent reasonably requested by the Lender.
7.04 Prohibition of Fundamental Changes. Neither of the Borrowers
----------------------------------
shall enter into any transaction of merger or consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation, winding up or
dissolution) or sell all or substantially all of its assets; provided, that such
Borrower may merge or consolidate with (a) any wholly owned subsidiary of such
Borrower, or (b) any other Person if such Borrower is the surviving corporation;
and provided further, that if after giving effect thereto, no Default would
exist hereunder.
7.05 Borrowing Base Deficiency. If at any time there exists a
-------------------------
Borrowing Base Deficiency the Borrowers shall cure same in accordance with
Section 2.06 hereof.
7.06 Notices. Each of the Borrowers shall give notice to the Lender:
-------
(a) promptly upon receipt of notice or knowledge of the occurrence of
any Default or Event of Default;
(b) with respect to any Eligible Mortgage Loan pledged to the Lender
hereunder, immediately upon receipt by such Borrower of any principal prepayment
(in full or partial) of such pledged Eligible Mortgage Loan;
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<PAGE>
(c) with respect to any Eligible Mortgage Loan pledged to the Lender
hereunder, immediately upon receipt of notice or knowledge that the underlying
Mortgaged Property has been damaged by waste, fire, earthquake or earth
movement, windstorm, flood, tornado or other casualty, or otherwise damaged so
as to affect adversely the Collateral Value of such pledged Eligible Mortgage
Loan;
(d) promptly upon receipt of notice or knowledge of (i) any default
related to any Collateral, (ii) any Lien or security interest (other than
security interests created hereby or by the other Loan Documents) on, or claim
asserted against, any of the Collateral or (iii) any event or change in
circumstances which could reasonably be expected to have a Material Adverse
Effect;
(e) with respect to any Pledged Security, promptly upon receipt of
notice or knowledge the occurrence of event of default under any Governing
Agreement;
(f) upon the Borrower borrowing under the U.S. Bank Financing
Documents, and, for each month during which any such amounts shall have been
borrowed, no later than five Business Days after the end of each such month, a
daily tabulation of the amounts so borrowed during such month;
(g) upon any material amendment to the Existing Financing Documents,
any decrease in the gross amount available to be borrowed thereunder, or any
change in custodian or custodial arrangements relating thereto; and
(h) upon any event of default or event which, with the passage of
time or expiration of any grace periods, would constitute an event of default
under the Existing Financing Documents.
Each notice pursuant to this Section shall be accompanied by a
statement of a Responsible Officer of such Borrower setting forth details of the
occurrence referred to therein and stating what action such Borrower has taken
or proposes to take with respect thereto.
7.07 Underwriting Guidelines. None of the Borrowers shall make any
-----------------------
material amendment or modification to the Underwriting Guidelines without the
prior written consent of the Lender, which shall not be unreasonably withheld,
and, such Borrower shall promptly deliver to the Lender a complete copy of such
amended or modified Underwriting Guidelines.
7.08 Transactions with Affiliates. None of the Borrowers will enter
----------------------------
into any transaction, including without limitation any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Loan Agreement, (b) in
the ordinary course of such Borrower's business and (c) upon fair and reasonable
terms no less favorable to such Borrower than it would obtain in a comparable
arm's length transaction with a Person which is not an Affiliate, or make a
payment that is not otherwise permitted by this Section 7.08 to any Affiliate.
In no event shall any of the Borrowers pledge to the Lender hereunder any
Eligible Mortgage Loan acquired by such Borrower from an Affiliate of such
Borrower unless such Affiliate is also a Borrower.
7.09 Limitation on Liens. Each of the Borrowers will defend the
-------------------
Collateral against, and will take such other action as is necessary to remove,
any Lien, security interest or
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<PAGE>
claim on or to the Collateral, other than the security interests created under
this Loan Agreement, and each of the Borrowers will defend the right, title and
interest of the Lenders in and to any of the Collateral against the claims and
demands of all persons whomsoever.
7.10 Limitation on Guarantees. The Borrowers in the aggregate shall
------------------------
not create, incur, assume or suffer to exist any Guarantees in excess of
$300,000,000, other than guarantees pursuant to the Existing Financing Documents
and under this Agreement which in the aggregate shall not exceed $1,600,000,000.
7.11 Limitation on Distributions. Upon the occurrence and during the
---------------------------
continuation of any Event of Default under Section 8(a), (b), (f), (g), (h), (k)
and (l) hereof, none of the Borrowers shall make any payment on account of, or
set apart assets for a sinking or other analogous fund for the purchase,
redemption, defeasance, retirement or other acquisition of, any equity or
partnership interest of such Borrower, whether now or hereafter outstanding, or
make any other distribution in respect of the foregoing or to any shareholder or
equity owner of such Borrower, either directly or indirectly, whether in cash or
property or in obligations of such Borrower or any of such Borrower's
consolidated Subsidiaries.
7.12 Maintenance of Tangible Net Worth. The Borrowers shall not
---------------------------------
permit their aggregate Tangible Net Worth to be less than the sum of (i)
$40,000,000 plus (ii) an amount equal to 75% of the aggregate or positive Net
Income (without deduction for quarterly losses) as measured on a monthly basis
(as at the end of each month).
7.13 Maintenance of Ratio of Total Indebtedness to Tangible Net
----------------------------------------------------------
Worth. New Century shall not permit the ratio of aggregate Total Indebtedness to
- -----
aggregate Tangible Net Worth of New Century to be greater than (i) 15:1 on an
average daily basis as measured as of the last day of each month and (ii) 8:1 as
measured as of the last day of each fiscal quarter of New Century.
7.14 Maintenance of Profitability. The Borrowers shall not permit,
----------------------------
for any period of three consecutive fiscal quarters (each such period, a "Test
----
Period"), Net Income for such Test Period, before income taxes for such Test
- ------
Period and distributions made during such Test Period, to be less than $1.00.
7.15 Servicer; Servicing Tape. The Borrowers shall provide or cause
------------------------
to be provided to the Lender on the twentieth Business Day of each month a
computer readable magnetic tape containing servicing information, including
without limitation those fields specified by the Lender from time to time, on a
loan-by-loan basis and in the aggregate, with respect to the Eligible Mortgage
Loans serviced under the Servicing Agreement by any of the Borrowers or any
Servicer. None of the Borrowers shall cause the Eligible Mortgage Loans to be
serviced by any servicer other than a servicer expressly approved in writing by
the Lender. In addition, each of the Borrowers shall promptly, but in no event
later than two (2) Business Days after receipt, forward a copy of any
information or reports received by such Borrower as the holder or owner of a
Pledged Security.
7.16 Required Filings. Each of the Borrowers shall, promptly provide
----------------
the Lender with copies of all documents which such Borrower or any Affiliate of
such Borrower is
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<PAGE>
required to file with the Securities and Exchange Commission in accordance with
the 1934 Act or any rules thereunder.
7.17 No Adverse Selection. None of the Borrowers has selected the
--------------------
Collateral in a manner so as to adversely affect the Lender's interests.
7.18 Remittance of Prepayments. Each of the Borrowers shall remit,
-------------------------
with sufficient detail to enable the Lender to appropriately identify the
Eligible Mortgage Loan to which any amount remitted applies, to the Lender on
each Thursday (or the next Business Day if such Thursday is not a Business Day)
all principal prepayments that such Borrower has received during the previous
week.
7.19 Governing Agreements. None of the Borrowers shall amend any
--------------------
Governing Agreement without first obtaining the written consent of the Lender.
7.20 Rights and Payments under Pledged Securities. If any of the
--------------------------------------------
Borrowers shall, as a result of its ownership of Pledged Securities, become
entitled to receive or shall receive any rights, whether in addition to, in
substitution of, as a conversion of, or in exchange for the Pledged Securities,
or otherwise in respect thereof, such Borrower shall accept the same as the
Lender's agent, hold the same in trust for the lender and deliver the same
forthwith to the Lender in the exact form received, duly indorsed by such
Borrower to the Lender, if required, together with an undated bond power
covering such certificate duly executed in blank and with, if the Lender so
requests, signature guaranteed, to be held by the Lender hereunder as additional
collateral security for the Secured Obligations. If any sums of money or
property so paid or distributed in respect of the Pledged Securities shall be
received by any of the Borrowers, such Borrower shall, until such money or
property is paid or delivered to the Lender as required hereunder, hold such
money or property in trust for the Lender, segregated from other funds of such
Borrower, as additional collateral security for the Secured Obligations.
7.21 Voting Rights. Without the prior written consent of the Lender,
-------------
none of the Borrowers will vote to enable, or take any other action to permit,
any rights afforded it as a holder of the Pledged Securities under any Governing
Agreement.
7.22 Other Information. Each of the Borrowers shall furnish to the
-----------------
Lender, promptly, as soon as available, copies of any and all financial
statements and all registration statements filed with the Securities and
Exchange Commission, or any Governmental Authority which supervises the issuance
of securities by such Borrower.
7.23 Provision of Escrow Instruction Letter. Each of the Borrowers
--------------------------------------
shall provide the Lender with a form of Escrow Instruction Letter as set forth
in Section 6(b) of the Custodial Agreement, which it shall use for Wet-Ink
Mortgage Loan fundings, which instructions shall be in form and substance
acceptable to the Lender.
7.24 U.S. Bank Compliance Certificates. The Borrowers shall deliver
---------------------------------
to the Lender copies of each Compliance/Borrowing Base Certificate (as defined
in the U.S. Bank Financing Documents) promptly, and in no event later than one
(1) Business Day after delivery of such Compliance/Borrowing Base Certificate to
U.S. Bank National Association pursuant to the U.S. Bank Financing Documents.
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<PAGE>
7.25 Collection Account. The Borrower shall deposit, or shall cause
------------------
to be deposited, each Monthly Payment into the Collection Account within one
Business Day of receipt thereof.
Section 8. Events of Default. Each of the following events shall
----------------
constitute an event of default (an "Event of Default") hereunder:
----------------
(a) any of the Borrowers shall default in the payment of any
principal of or interest on any Loan when due (whether at stated maturity, upon
acceleration or at mandatory or optional prepayment); or
(b) any of the Borrowers shall default in the payment of any other
amount payable by it hereunder or under any other Loan Document after
notification by the Lender of such default, and such default shall have
continued unremedied for five Business Days; or
(c) any representation, warranty or certification made or deemed made
herein or in any other Loan Document by any of the Borrowers or any certificate
furnished to the Lender pursuant to the provisions hereof or thereof shall prove
to have been false or misleading in any material respect as of the time made or
furnished (other than the representations and warranties set forth in Schedule 1
or Schedule 2, which shall be considered solely for the purpose of determining
the Collateral Value of the Eligible Mortgage Loans; unless such Borrower shall
have made any such representations and warranties with knowledge that they were
materially false or misleading at the time made); or (ii) any such
representations and warranties have been determined by the Lender in its sole
discretion and in good faith to be materially false or misleading on a regular
basis); or
(d) any of the Borrowers shall fail to comply with the requirements
of Section 7.03(a), Section 7.04, Section 7.05, Section 7.06, or Sections 7.07
through 7.22 hereof (to the extent such Borrower is subject to any such Sections
7.07 through 7.22); or any of the Borrowers shall otherwise fail to comply with
the requirements of Section 7.03 hereof and such default shall continue
unremedied for a period of five Business Days; or any of the Borrowers shall
fail to observe or perform any other covenant or agreement contained in this
Loan Agreement or any other Loan Document and such failure to observe or perform
shall continue unremedied for a period of seven Business Days; or
(e) a final judgment or judgments for the payment of money in excess
of $4,000,000 in the aggregate shall be rendered against any of the Borrowers or
any of its respective Affiliates by one or more courts, administrative tribunals
or other bodies having jurisdiction and the same shall not be satisfied,
discharged (or provision shall not be made for such discharge) or bonded, or a
stay of execution thereof shall not be procured, within 60 days from the date of
entry thereof, and such Borrower or any such Affiliate shall not, within said
period of 60 days, or such longer period during which execution of the same
shall have been stayed or bonded, appeal therefrom and cause the execution
thereof to be stayed during such appeal; or
(f) any of the Borrowers shall admit in writing its inability to pay
its debts as such debts become due; or
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(g) any of the Borrowers or any of its respective Affiliates shall (i)
apply for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner or liquidator or the like of itself or of
all or a substantial part of its property, (ii) make a general assignment for
the benefit of its creditors, (iii) commence a voluntary case under the
Bankruptcy Code, (iv) file a petition seeking to take advantage of any other law
relating to bankruptcy, insolvency, reorganization, liquidation, dissolution,
arrangement or winding-up, or composition or readjustment of debts, (v) fail to
controvert in a timely and appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under the Bankruptcy Code or
(vi) take any corporate or other action for the purpose of effecting any of the
foregoing; or
(h) a proceeding or case shall be commenced, without the application or
consent of any of the Borrowers or any of their respective Affiliates, in any
court of competent jurisdiction, seeking (i) its reorganization, liquidation,
dissolution, arrangement or winding-up, or the composition or readjustment of
its debts, (ii) the appointment of, or the taking of possession by, a receiver,
custodian, trustee, examiner, liquidator or the like of such Borrower or any
Affiliate of such Borrower or of all or any substantial part of its property and
such receiver, custodian, trustee, examiner, liquidator or the like is not
discharged for a period of 60 or more days, or (iii) similar relief in respect
of such Borrower or any Affiliate of such Borrower under any law relating to
bankruptcy, insolvency, reorganization, liquidation, dissolution, arrangement or
winding-up, or composition or adjustment of debts, and such proceeding or case
shall continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed and in
effect, for a period of 60 or more days; or an order for relief against any of
the Borrowers or any Affiliate of such Borrower shall be entered in an
involuntary case under the Bankruptcy Code; or
(i) the Custodial Agreement or any Loan Document shall for whatever reason
be terminated or cease to be in full force and effect, or the enforceability
thereof shall be contested by any of the Borrowers; or
(j) any of the Borrowers shall grant, or suffer to exist, any Lien on any
Collateral except the Liens contemplated hereby; or the Liens contemplated
hereby shall cease to be first priority perfected Liens on the Collateral in
favor of the Lender or shall be Liens in favor of any Person other than the
Lender; or
(k) any materially adverse change in the Property, business, financial
condition or prospects of any of the Borrowers or any of their Affiliates shall
occur, in each case as determined by the Lender in its sole discretion, or any
other condition shall exist which, in the Lender's sole discretion, constitutes
a material impairment of such Borrower's ability to perform its obligations
under this Loan Agreement, the Note or any other Loan Document; or
(l) any of the Borrowers or any of such Borrower's Affiliates shall be in
default beyond any applicable grace period under any note, indenture, loan
agreement, guaranty, swap agreement or any other contract to which it is a
party, which default constitutes an amount equal to or in excess of $4,000,000
and (i) involves the failure to pay a matured obligation, or (ii) permits the
acceleration of the maturity of obligations by any other party to or beneficiary
of such note, indenture, loan agreement, guaranty, swap agreement or other
contract; or
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(m) the discovery by the Lender of a condition or event which existed at
or prior to the execution hereof and which the Lender, in its sole discretion,
determines materially and adversely affects: (i) the condition (financial or
otherwise) of any of the Borrowers, its respective Subsidiaries or Affiliates;
or (ii) the ability of any of the Borrowers or the Lender to fulfill its
respective obligations under this Loan Agreement; or
(n) as of any date of determination, (i) the rate of delinquency of the
mortgage loans underlying the Pledged Securities shall equal or exceed the rates
of delinquency of such mortgage loans required for the applicable trustee to
replace the servicer under the related Governing Agreement, or (ii) if no such
requirement exists in the applicable Governing Agreement, 25% or more of the
mortgage loans underlying the Pledged Securities are contractually more than 89
days delinquent as of such date of determination; or
(o) upon any event of default or event which, with the passage of time or
expiration of any grace periods, would constitute an event of default under
the Existing Financing Documents; or
(p) any of the events specified in Section 5.02(j) hereof have occurred.
Section 9. Remedies Upon Default.
---------------------
(a) An Event of Default shall be deemed to be continuing unless expressly
waived by the Lender in writing. Upon the occurrence of one or more Events of
Default hereunder, the Lender's obligation to consider making additional Loans
to the Borrowers shall automatically terminate without further action by any
Person. Upon the occurrence of one or more Events of Default other than those
referred to in Section 8(g) or (h), the Lender may immediately declare the
principal amount of the Loans then outstanding under the Note to be immediately
due and payable, together with all interest thereon and fees and expenses
accruing under this Loan Agreement. Upon the occurrence of an Event of Default
referred to in Sections 8(g) or (h), such amounts shall immediately and
automatically become due and payable without any further action by any Person.
Upon such declaration or such automatic acceleration, the balance then
outstanding on the Note shall become immediately due and payable, without
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by each of the Borrowers.
(b) Upon the occurrence of one or more Events of Default, and if any of
the Borrowers or any Affiliate of any of the Borrowers is the Servicer, and
subject to the provisions of Section 12.14(b)(ii), the Lender shall have the
right to obtain physical possession of the Servicing Records and all other files
of such Borrower relating to the Collateral and all documents relating to the
Collateral which are then or may thereafter come in to the possession of any of
the Borrowers or any third party acting for such Borrower and the Borrowers
shall deliver to the Lender such assignments as the Lender shall request. The
Lender shall be entitled to specific performance of all agreements of each of
the Borrowers contained in this Loan Agreement.
Section 10. No Duty of Lender. The powers conferred on the Lender
-----------------
hereunder are solely to protect the Lender's interests in the Collateral and
shall not impose any duty upon it
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to exercise any such powers. The Lender shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers, and
neither it nor any of its officers, directors, employees or agents shall be
responsible to the Borrowers for any act or failure to act hereunder, except for
its or their own gross negligence or willful misconduct.
Section 11. Securitization Transactions.
---------------------------
11.01 Exclusive Option.
----------------
(a) In connection with any Securitization Transaction involving Mortgage
Loans that are Eligible Mortgage Loans, at any time commencing after NCCC's
1999-2 securitization, NCCC hereby grants to Lender the exclusive option and the
exclusive right (the "Option"), but not the obligation, pursuant to underwriting
------
agreements and/or placement agency agreements in form and substance reasonably
satisfactory to NCCC and the Lender or its designee, for the Lender or its
designee to act as lead or co-lead underwriter and/or placement agent with
respect to each such Securitization Transaction as follows:
(b) Within the first 12 month period commencing on the Effective Date
hereof, the Lender will have the exclusive option to act (i) as lead managing
underwriter on NCCC's fourth or fifth Securitization Transaction of 1999 for
which NCCC will use its best efforts to cause the principal balance of the
securities offered pursuant to each such Securitization Transaction to be no
less than $250,000,000 and (ii) as lead managing underwriter on one (1)
additional NCCC Securitization Transaction for which NCCC will use its best
efforts to cause the principal balance of the securities offered pursuant to
such Securitization Transaction to be no less than $250,000,000.
(c) During each subsequent 12 month period, the Lender will have the
exclusive option to act (i) as lead managing underwriter on at least two (2)
NCCC Securitization Transactions for which NCCC shall use its best efforts to
cause the principal balance of the securities offered pursuant to such
Securitization Transaction to be no less than $500,000,000 and (ii) as co-lead
managing underwriter on at least two (2) additional Securitization Transactions.
The Option shall be deemed to have expired if (i) the Lender refuses to
make a Loan against eligible Collateral which otherwise would be permitted under
the terms of this Agreement (including, without limitation, the Maximum Credit
specified herein) and (ii) the Borrowers repay all amounts outstanding under the
Promissory Note within 30 calendar days of Lender's Loan refusal.
In addition, the Option shall be deemed to terminate (A) on the first
anniversary of the initial Funding Date (such date, the "First Borrower Option
---------------------
Termination Date") if (i) no Default or Event of Default has occurred and is
- ----------------
continuing under any Loan Document, (ii) no Loan remains outstanding as of such
date, the Borrowers have paid any amounts due under the terms hereof or any
other Loan Document, and no new Request for Borrowing has been submitted to the
Lender, and (iii) the Borrowers provide the Lender with written notice of their
intention to terminate the Option on such First Borrower Option Termination Date
or (B) on any date after the First Borrower Option Termination Date (any such
date, a "Subsequent Borrower
-------------------
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Option Termination Date") if (i) no Default or Event of Default has occurred and
- -----------------------
is continuing under any Loan Document, (ii) no Loan remains outstanding as of
such date, the Borrowers have paid any amounts due under the terms hereof or any
other Loan Document, and no new Request for Borrowing has been submitted to the
Lender, (iii) no Loan has been made to any Borrower during the twelve month
period immediately preceding such Borrower Option Termination Date, and (iv) the
Borrowers provide the Lender with written notice of their intention to terminate
the Option on such Borrower Option Termination Date; provided, however, that in
the event the Borrower submits any Request for Borrowing or a Loan is otherwise
made to any Borrower pursuant to the terms hereof after the First Borrower
Option Termination Date or a Subsequent Borrower Option Termination Date, any
such Option termination shall be null and void, and the Borrower shall be
obligated in accordance with the terms of this Section 11 as if no termination
had occurred (including, without limitations, making any payments which would
have been required pursuant to Section 11.04 if no termination had occurred).
11.02 Fees.
----
(a) As compensation for its placement and underwriting services as
provided in Section 11.01 hereof, NCCC shall pay, or cause to be paid to the
Lender, a fee of 0.25% of the principal balance of each Security underwritten or
placed by the Lender or its designee pursuant to the related Securitization
Transaction.
(b) In addition to the foregoing fees, NCCC shall, upon demand, pay to the
Lender or its designee or reimburse the Lender or its designee for all out-of
pocket costs and expenses of the Lender and any such designee, and their
Affiliates, in connection with each Securitization Transaction (whether or not
such Securitization Transaction is completed, except if such Securitization
Transaction is not completed as a result of the sole fault of the Lender or its
Affiliates) in which the Lender or its designee acts as underwriter and/or
placement agent, including without limitation, the fees and disbursements of
counsel for the Lender, such designee and their Affiliates. NCCC shall bear its
own costs and expenses in connection with any such Securitization Transaction.
In connection with any Securitization Transaction using Lender's shelf
registration statement (whether or not such Securitization Transaction is
completed, except if such Securitization Transaction is not completed as a
result of the sole fault of the Lender or its Affiliates), NCCC shall pay all
out-of-pocket costs and expenses arising from such Securitization Transaction,
including, but not limited to, the fees and disbursements of legal counsel
(including counsel for the Lender, and its designee (if any) and their
Affiliates and investor's counsel in any private placement, if retained), rating
agency fees, credit enhancement fees, SEC registration fees, auditor's fees, due
diligence fees and expenses, servicer fees and expenses and trustee fees and
expenses.
11.03 Information. NCCC hereby represents, warrants and agrees that all
-----------
information to be provided by it or any of its Affiliates in connection with any
Securitization Transaction shall be true, correct and complete. NCCC shall enter
into such agreements and provide such certificates, opinions and other documents
as the Lender or its designee may deem necessary or appropriate in connection
with any such Securitization Transaction, including without limitation, an
indemnification agreement satisfactory to the Lender and its designee pursuant
to which the Lender, such designee, Lender's Affiliates, and their respective
officers, directors, agents and employees shall be indemnified for all
liabilities, losses, damages,
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judgments, costs and expenses resulting from a breach of the representation,
warranty and agreement set forth in the immediately preceding sentence and other
liabilities incurred by the Lender or such other parties as a result of such
Securitization Transaction.
11.04 Option Breakage Fee.
-------------------
(a) On each annual anniversary of the Effective Date hereunder, the
Borrowers shall pay to the Lender the Option Breakage Fee, if any, with respect
to the prior 12-month period, provided however that the Option Breakage Fee
shall not be payable if (A) (i) the Lender has refused to make a Loan against
the Collateral pledged by the Borrowers which would otherwise be eligible for
such a Loan pursuant to the terms of this Agreement (including, without
limitation, compliance with the Maximum Credit specified herein) with the
respective Collateral Value and the Applicable Margin set forth on Schedule 4
hereto or (ii) there occurs an Optional Market Value Event and (B) the Borrowers
have repaid all Loans outstanding hereunder within 30 calendar days of the
Lender's refusal to make such Loan.
(b) Solely for purposes of this Section 11.04, in the event the Borrowers
object to the Lender's determination of Market Value for Eligible Market Loans
in connection with the Borrowers' delivery of a Notice of Request for Borrowing
and Pledge, the Borrowers shall deliver to the Lender, no later than 2 Business
Days prior to the related Funding Date, 3 written committed bids (each a "Bid
---
Price") for the purchase of such Eligible Mortgage Loans each from a major
- -----
financial institution or an Affiliate thereof (other than Borrowers or their
Affiliates) who regularly engage in purchases and sales of pools of mortgage
loans similar to the related Eligible Mortgage Loans in principal amounts
substantially similar to the aggregate principal balance of such Eligible
Mortgage Loans. Each Bid Price shall be expressed as a percentage of the
aggregate principal balance of the related Eligible Mortgage Loans. In the event
the Market Value determined by the Lender (expressed as a percentage of the
aggregate principal balance of such Eligible Mortgage Loans) is more than 50
basis points (0.50%) lower than the lowest of such Bid Prices (such lowest Bid
Price, the "Qualified Bid Price"), the Lender shall, at its sole and absolute
-------------------
discretion, have the option to (i) make a Loan to the Borrowers utilizing the
Qualified Bid Price to determine Market Value or (ii) decline to make a Loan on
the terms described in clause (i) hereof (such event described in this clause
(ii), an "Optional Market Value Event").
---------------------------
Section 12. Miscellaneous.
-------------
12.01 Waiver. No failure on the part of the Lender to exercise and no
------
delay in exercising, and no course of dealing with respect to, any right, power
or privilege under any Loan Document shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or privilege under any
Loan Document preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
12.02 Notices. Except as otherwise expressly permitted by this Loan
-------
Agreement, all notices, requests and other communications provided for herein
and under the Custodial Agreement (including without limitation any
modifications of, or waivers, requests or consents under, this Loan Agreement)
shall be given or made in writing (including without
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limitation by telex or telecopy) delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof or
thereof); or, as to any party, at such other address as shall be designated by
such party in a written notice to each other party. Except as otherwise provided
in this Loan Agreement and except for notices given under Section 2 (which shall
be effective only on receipt), all such communications shall be deemed to have
been duly given when transmitted by telex or telecopy or personally delivered
or, in the case of a mailed notice, upon receipt, in each case given or
addressed as aforesaid.
12.03 Indemnification and Expenses.
----------------------------
(a) The Borrowers, jointly and severally, agree to hold the Lender, and
its Affiliates and their officers, directors, employees, agents and advisors
(each, an "Indemnified Party") harmless from and indemnify any Indemnified Party
against all liabilities, losses, damages, judgments, costs and expenses of any
kind which may be imposed on, incurred by or asserted against such Indemnified
Party (collectively, the "Costs") relating to or arising out of this Loan
Agreement, the Note, any other Loan Document or any transaction contemplated
hereby or thereby, or any amendment, supplement or modification of, or any
waiver or consent under or in respect of, this Loan Agreement, the Note, any
other Loan Document or any transaction contemplated hereby or thereby, that, in
each case, results from anything other than any Indemnified Party's gross
negligence or willful misconduct. Without limiting the generality of the
foregoing, the Borrowers agree to hold any Indemnified Party harmless from and
indemnify such Indemnified Party against all Costs with respect to all Eligible
Mortgage Loans and Eligible Securities relating to or arising out of any
violation or alleged violation of any securities law, environmental law, rule or
regulation or any consumer credit laws, including without limitation the Truth
in Lending Act and/or the Real Estate Settlement Procedures Act, that, in each
case, results from anything other than such Indemnified Party's gross negligence
or willful misconduct. In any suit, proceeding or action brought by an
Indemnified Party in connection with any Eligible Mortgage Loan or Eligible
Security for any sum owing thereunder, or to enforce any provisions of any
Eligible Mortgage Loan, the Borrowers will save, indemnify and hold such
Indemnified Party harmless from and against all expense, loss or damage suffered
by reason of any defense, set-off, counterclaim, recoupment or reduction or
liability whatsoever of the account debtor or obligor thereunder, arising out of
a breach by any of the Borrowers of any obligation thereunder or arising out of
any other agreement, indebtedness or liability at any time owing to or in favor
of such account debtor or obligor or its successors from such Borrower. The
Borrowers also agree to reimburse an Indemnified Party as and when billed by
such Indemnified Party for all such Indemnified Party's costs and expenses
incurred in connection with the enforcement or the preservation of such
Indemnified Party's rights under this Loan Agreement, the Note, any other Loan
Document or any transaction contemplated hereby or thereby, including without
limitation the reasonable fees and disbursements of its counsel. Each of the
Borrowers hereby acknowledges that, notwithstanding the fact that the Note is
secured by the Collateral, the obligations of the Borrowers under the Note is a
recourse obligation of each of the Borrowers.
(b) The Borrowers agree to (i) pay as and when billed by the Lender all of
the out-of-pocket costs and expenses (including the reasonable fees and expenses
of counsel) incurred by the Lender in connection with the drafting, development,
preparation, negotiation and execution of, this Loan Agreement, the Note, any
other Loan Document or any other
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documents prepared in connection with the initial execution herewith in an
aggregate amount not to exceed $50,000 and (ii) pay as and when billed by the
Lender all of the out-of-pocket costs and expenses (including the reasonable
fees and expenses of counsel) incurred by the Lender in connection with the
drafting, development, preparation, negotiation and execution of any amendment,
supplement or modification thereto. The Borrowers agree to pay as and when
billed by the Lender all of the out-of-pocket costs and expenses incurred in
connection with the consummation and administration of the transactions
contemplated hereby and thereby including without limitation (i) all the
reasonable fees, disbursements and expenses of counsel to the Lender, and (ii)
all the inspection, testing and review costs and expenses incurred by the Lender
with respect to Collateral under this Loan Agreement, including, but not limited
to, those costs and expenses incurred by the Lender pursuant to Sections
12.03(a), 12.14 and 12.15 hereof.
12.04 Amendments. Except as otherwise expressly provided in this Loan
----------
Agreement, any provision of this Loan Agreement may be modified or supplemented
only by an instrument in writing signed by each of the Borrowers and the Lender
and any provision of this Loan Agreement may be waived by the Lender.
12.05 Successors and Assigns. This Loan Agreement shall be binding upon
----------------------
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
12.06 Survival. The obligations of each of the Borrowers under Section
--------
3.03, Section 11.01, Section 11.02, Section 11.03, Section 11.04 and Section
12.03 hereof shall survive the repayment of the Loans and the termination of
this Loan Agreement. In addition, each representation and warranty made or
deemed to be made by a request for a borrowing, herein or pursuant hereto shall
survive the making of such representation and warranty, and the Lender shall not
be deemed to have waived, by reason of making any Loan, any Default that may
arise because any such representation or warranty shall have proved to be false
or misleading, notwithstanding that the Lender may have had notice or knowledge
or reason to believe that such representation or warranty was false or
misleading at the time such Loan was made.
12.07 Captions. The table of contents and captions and section headings
--------
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Loan Agreement.
12.08 Counterparts. This Loan 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 Loan Agreement by
signing any such counterpart.
12.09 Loan Agreement Constitutes Security Agreement; Governing Law. This
------------------------------------------------------------
Loan Agreement shall be governed by New York law without reference to choice of
law doctrine, and shall constitute a security agreement within the meaning of
the Uniform Commercial Code.
12.10 Submission to Jurisdiction; Waivers. Each of the Borrowers hereby
------------------------------------
irrevocably and unconditionally:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS LOAN AGREEMENT, THE NOTE
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AND THE OTHER LOAN DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT
IN RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF
THE STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT IT MAY NOW
OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH
COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND
AGREES NOT TO PLEAD OR CLAIM THE SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING MAY BE
EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED MAIL (OR ANY
SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH
UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER ADDRESS OF WHICH THE LENDER SHALL
HAVE BEEN NOTIFIED; AND
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT SERVICE OF
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN
ANY OTHER JURISDICTION.
12.11 Waiver of Jury Trial. EACH OF THE BORROWERS AND THE LENDER HEREBY
--------------------
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY.
12.12 Acknowledgments. Each of the Borrowers hereby acknowledges that:
---------------
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Loan Agreement, the Note and the other Loan Documents;
(b) the Lender has no fiduciary relationship to the Borrowers, and the
relationship between the Borrowers and the Lender is solely that of debtor and
creditor; and
(c) no joint venture exists between the Lender and the Borrowers.
12.13 Hypothecation or Pledge of Collateral. The Lender shall have free
-------------------------------------
and unrestricted use of all Collateral and nothing in this Loan Agreement shall
preclude the Lender from engaging in repurchase transactions with the Collateral
or otherwise pledging, repledging, transferring, hypothecating, or
rehypothecating the Collateral. Nothing contained in this Loan
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Agreement shall obligate the Lender to segregate any Collateral delivered to the
Lender by the Borrowers.
12.14 Servicing.
---------
(a) Each of the Borrowers covenants to maintain or cause the servicing of
the Eligible Mortgage Loans to be maintained in conformity with accepted and
prudent servicing practices in the industry for the same type of mortgage loans
as the Eligible Mortgage Loans and in a manner at least equal in quality to the
servicing such Borrower provides for mortgage loans which it owns. In the event
that the preceding language is interpreted as constituting one or more servicing
contracts, each such servicing contract shall terminate automatically upon the
earliest of (i) an Event of Default, (ii) the date on which all the Secured
Obligations have been paid in full or (iii) the transfer of servicing approved
by the Borrowers.
(b) If the Eligible Mortgage Loans are serviced by any of the Borrowers,
(i) the Borrowers agree that the Lender is the collateral assignee of all
servicing records, including but not limited to any and all servicing
agreements, files, documents, records, data bases, computer tapes, copies of
computer tapes, proof of insurance coverage, insurance policies, appraisals,
other closing documentation, payment history records, and any other records
relating to or evidencing the servicing of Eligible Mortgage Loans (the
"Servicing Records"), and (ii) the Borrowers hereby grant the Lender a security
-----------------
interest in all servicing fees and Servicing Rights relating to the Eligible
Mortgage Loans and, except as provided below in this Section 12.14(b) all
Servicing Records, to secure the obligation of such Borrower or its designee to
service in conformity with this Section and any other obligation of such
Borrower to the Lender. Each of the Borrowers covenants to safeguard such
Servicing Records and to deliver them promptly to the Lender or its designee
(including the Custodian) at the Lender's request. The Borrowers and the Lender
hereby agree that, on the date of this Loan Agreement, the Lender does not have
a 1st lien or a lien on the Servicing Records attributable to the Eligible
Mortgage Loans and that such Servicing Records may be subject to a lien under
the U.S. Bank Financing Documents. The Borrowers shall, not later than 90 days
following the date of this Loan Agreement, take all necessary action to ensure
that the Lender has a first perfected security interest in the Servicing Records
relating to the Eligible Mortgage Loans and the Servicing Records will not be
subject to any other lien, either created under the U.S. Bank Financing
Documents or otherwise. At the time such lien is created, the second preceding
sentence shall be of no effect. The failure of the Borrowers to grant a first
perfected security interest in such Servicing Records and provide evidence
thereof to the Lender within such 90-day period shall constitute an Event of
Default under this Loan Agreement. Notwithstanding the foregoing, each Borrower
agrees and acknowledges that the three preceding sentences do not in any way
apply to the Borrower's pledge of any Servicing Rights hereunder or the lien
granted and created hereunder with respect to such Servicing Rights.
(c) If the Eligible Mortgage Loans are serviced by a third party servicer
(such third party servicer, the "Servicer"), the Borrowers (i) shall provide a
--------
copy of the servicing agreement to the Lender, which shall be in form and
substance acceptable to the Lender (the "Servicing Agreement"); (ii) shall
-------------------
provide a Servicer Notice to the Servicer substantially in the form of Exhibit G
hereto; and (iii) hereby irrevocably assigns to the Lender and the Lender's
successors and assigns all right, title, interest of such Borrower in, to and
under, and the benefits of, any Servicing Agreement with respect to the Eligible
Mortgage Loans. Any successor to the
-49-
<PAGE>
Servicer shall be approved in writing by the Lender prior to such successor's
assumption of servicing obligations with respect to the Eligible Mortgage Loans.
(d) If the servicer of the Eligible Mortgage Loans is any of the Borrowers
or the Servicer is an Affiliate of any of the Borrowers, such Borrower shall
provide to the Lender a letter from such Borrower or the Servicer, as the case
may be, to the effect that upon the occurrence of an Event of Default, the
Lender may terminate any Servicing Agreement and transfer servicing to its
designee, at no cost or expense to the Lender, it being agreed that such
Borrower will pay any and all fees required to terminate the Servicing Agreement
and to effectuate the transfer of servicing to the designee of the Lender.
(e) After the Funding Date, until the pledge of any Eligible Mortgage Loan
is relinquished by the Custodian, none of the Borrowers will have any right to
modify or alter the terms of such Eligible Mortgage Loan and none of the
Borrowers will have any obligation or right to repossess such Eligible Mortgage
Loan, except as provided in the Custodial Agreement.
(f) In the event any of the Borrowers or its respective Affiliate is
servicing the Eligible Mortgage Loans, such Borrower shall permit the Lender to
inspect such Borrower's or its Affiliate's servicing facilities, as the case may
be, for the purpose of satisfying the Lender that such Borrower or its
Affiliate, as the case may be, has the ability to service the Eligible Mortgage
Loans as provided in this Loan Agreement.
12.15 Periodic Due Diligence Review. Each of the Borrowers acknowledge
-----------------------------
that the Lender has the right to perform continuing due diligence reviews with
respect to the Eligible Mortgage Loans and any Eligible Securities, for purposes
of verifying compliance with the representations, warranties and specifications
made hereunder, or otherwise, and each of the Borrowers agrees that upon
reasonable (but no less than one (1) Business Day's) prior notice to such
Borrower, the Lender or its authorized representatives will be permitted during
normal business hours to examine, inspect, and make, at the Lender's expense,
copies and extracts of, the Mortgage Files and any and all documents, records,
agreements, instruments or information relating to any Eligible Mortgage Loans
and any Eligible Securities in the possession or under the control of such
Borrower and/or the Custodian. Each of the Borrowers shall also make available
to the Lender a knowledgeable financial or accounting officer for the purpose of
answering questions respecting the Mortgage Files, the Eligible Security Files,
the Eligible Securities and the Eligible Mortgage Loans. Without limiting the
generality of the foregoing, the Borrowers hereby acknowledges that the Lender
may make Loans to the Borrowers based solely upon the information provided by
the Borrowers to the Lender in the Eligible Mortgage Loan Tape and the
representations, warranties and covenants contained herein, and that the Lender,
at its option, has the right at any time to conduct a partial or complete due
diligence review on some or all of the Eligible Mortgage Loans and any Eligible
Securities securing such Loan, including without limitation ordering new credit
reports and new appraisals on the related Mortgaged Properties and otherwise re-
generating the information used to originate such Eligible Mortgage Loan or
underwrite such Eligible Security. The Lender may underwrite such Eligible
Mortgage Loans or Eligible Securities itself or engage a mutually agreed upon
third party underwriter to perform such underwriting. Each of the Borrowers
agrees to cooperate with the Lender and any third party underwriter in
connection with such underwriting, including, but not limited to, providing the
Lender and any third party underwriter with access to any and all
-50-
<PAGE>
documents, records, agreements, underwriting reports, instruments or information
relating to such Eligible Mortgage Loans or Eligible Securities in the
possession, or under the control, of such Borrower.
12.16 Set-Off. In addition to any rights and remedies of the Lender
-------
provided by this Loan Agreement and by law, the Lender shall have the right,
without prior notice to the Borrowers, any such notice being expressly waived by
the Borrowers to the extent permitted by applicable law, upon any amount
becoming due and payable by the Borrowers hereunder (whether at the stated
maturity, by acceleration or otherwise) to set-off and appropriate and apply
against such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by the Lender or any
Affiliate thereof to or for the credit or the account of the Borrowers. The
Lender agrees promptly to notify the Borrowers after any such set-off and
application made by the Lender; provided that the failure to give such notice
shall not affect the validity of such set-off and application.
12.17 Intent. The parties recognize that each Loan is a "securities
------
contract" as that term is defined in Section 741 of Title 11 of the United
States Code, as amended.
12.18 Confidential Information.
------------------------
(a) Lender hereby acknowledges and agrees that all written or computer-
readable information provided by the Borrowers to the Lender regarding the
Borrowers or the Collateral (the "Borrowers Confidential Information"), shall be
----------------------------------
kept confidential and each of their respective contents will not be divulged to
any party without the Borrower's consent except to the extent that (i) the
Lender deems appropriate to do so in working with legal counsel, auditors,
taxing authorities or other governmental agencies or regulatory bodies or in
order to comply with any applicable federal or state laws, (ii) any portion of
the Borrowers Confidential Information is in the public domain other than due to
a breach of this covenant, (iii) the Lender deems appropriate in connection with
exercising any or all of the Lender's rights or remedies or complying with any
obligations under any of the Loan Documents.
(b) Each of the Borrowers hereby acknowledges and agrees that all written
or computer-readable information provided by the Lender to the Borrowers
regarding the Lender (the "Lender Confidential Information"), shall be kept
-------------------------------
confidential and each of their respective contents will not be divulged to any
party without Lender's consent except to the extent that (i) such Borrower deems
appropriate to do so in working with legal counsel, auditors, taxing authorities
or other governmental agencies or regulatory bodies or in order to comply with
any applicable federal or state laws, (ii) any portion of the Lender
Confidential Information is in the public domain other than due to a breach of
this covenant, (iii) such Borrower deems appropriate in connection with
exercising any or all of such Borrower's rights or remedies or complying with
any obligations under any of the Loan Documents.
(c) The provisions set forth in this Section 12.18 shall survive the
termination of this Loan Agreement for a period of two years following such
termination.
-51-
<PAGE>
[SIGNATURE PAGE FOLLOWS]
-52-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be duly executed and delivered as of the day and year first above written.
BORROWERS
NEW CENTURY MORTGAGE CORPORATION
By: /s/ Patrick J. Flanagan
-------------------------------------
Name:
Title: Executive Vice President
Address for Notices:
18400 VON KARMAN,
SUITE 1000
IRVINE, CALIFORNIA 92612
Attn: Stergios Theologides, Esq.
NC CAPITAL CORPORATION
By: /s/ John Kontoulis
-------------------------------------
Name:
Title: Senior Vice President
Address for Notices:
18400 VON KARMAN,
SUITE 1000
IRVINE, CALIFORNIA 92612
Attn: Stergios Theologides, Esq.
LENDER
PAINE WEBBER REAL ESTATE SECURITIES INC.
By: _____________________________________
Name:
Title:
<PAGE>
Address For Notices:
PAINE WEBBER REAL ESTATE SECURITIES INC.
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
<PAGE>
STATE OF _______________)
) ss.:
COUNTY OF ______________)
On the _____ day of ____________, 199_ before me, a Notary Public in
and for said State, personally appeared ____________, known to me to be
______________ of New Century Mortgage Corporation, the corporation that
executed the within instrument and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand affixed my office seal
the day and year in this certificate first above written.
____________________________________
Notary Public
My Commission expires ______________
<PAGE>
STATE OF ____________)
) ss.:
COUNTY OF ___________)
On the _____ day of ____________, 199_ before me, a Notary Public in
and for said State, personally appeared ____________, known to me to be
______________ of NC Capital Corporation, the corporation that executed the
within instrument and also known to me to be the person who executed it on
behalf of said corporation, and acknowledged to me that such corporation
executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand affixed my office seal
the day and year in this certificate first above written.
____________________________________
Notary Public
My Commission expires ______________
<PAGE>
STATE OF NEW YORK ______________)
) ss.:
COUNTY OF NEW YORK _____________)
On the _____ day of _______________, 199_ before me, a Notary Public
in and for said State, personally appeared ____________, known to me to be
_____________ of Paine Webber Real Estate Securities Inc. the corporation that
executed the within instrument and also known to me to be the person who
executed it on behalf of said corporation, and acknowledged to me that such
corporation executed the within instrument.
IN WITNESS WHEREOF, I have hereunto set my hand affixed my office seal
the day and year in this certificate first above written.
__________________________________
Notary Public
My Commission expires ____________
<PAGE>
SCHEDULE 1
----------
REPRESENTATIONS AND WARRANTIES FOR MORTGAGE LOANS
As to each Mortgage Loan included in the Borrowing Base on a Funding
Date (and the related Mortgage, Mortgage Note, Assignment of Mortgage and
Mortgaged Property), each Borrower shall be deemed to make the following
representations and warranties to the Lender with respect to each Eligible
Mortgage Loan such Borrower intends to pledge to the Lender pursuant to the Loan
Agreement as of such date and as of each date Collateral Value is determined
(certain defined terms used herein and not otherwise defined in the Loan
Agreement appearing in Part II to Schedule 2):
(a) Mortgage Loans as Described. The information set forth in the
---------------------------
Mortgage Loan Schedule with respect to the Mortgage Loan is complete, true and
correct in all material respects.
(b) Payments Current. All payments required to be made up to the
----------------
Funding Date for the Mortgage Loan under the terms of the Mortgage Note have
been made and credited. No payment required under the Mortgage Loan is
delinquent nor has more than any one payment under the Mortgage Loan been
delinquent thirty days or more in the twelve months preceding the date of
determination. In no event has a payment been more than 89 days delinquent for
such Mortgage Loan. The first Monthly Payment shall be made, or shall have been
made, with respect to the Mortgage Loan on its Due Date or within the grace
period, all in accordance with the terms of the related Mortgage Note.
(c) No Outstanding Charges. There are no defaults in complying with
----------------------
the terms of the Mortgage securing the Mortgage Loan, and all taxes,
governmental assessments, insurance premiums, water, sewer and municipal
charges, leasehold payments or ground rents which previously became due and
owing have been paid, or an escrow of funds has been established in an amount
sufficient to pay for every such item which remains unpaid and which has been
assessed but is not yet due and payable. Neither the Borrower nor the Qualified
Originator from which such Borrower acquired the Mortgage Loan has advanced
funds, or induced, solicited or knowingly received any advance of funds by a
party other than the Mortgagor, directly or indirectly, for the payment of any
amount required under the Mortgage Loan, except for interest accruing from the
date of the Mortgage Note or date of disbursement of the proceeds of the
Mortgage Loan, whichever is earlier, to the day which precedes by one month the
Due Date of the first installment of principal and interest thereunder.
(d) Original Terms Unmodified. The terms of the Mortgage Note and
-------------------------
Mortgage have not been impaired, waived, altered or modified in any respect,
from the date of origination; except by a written instrument which has been
recorded, if necessary to protect the interests of the Lender, and which has
been delivered to the Custodian and the terms of which are reflected in the
Mortgage Loan Schedule. The substance of any such waiver, alteration or
modification has been approved by the title insurer, to the extent required, and
its terms are reflected on the Mortgage Loan Schedule. No Mortgagor in respect
of the Mortgage Loan has been released, in whole or in part, except in
connection with an assumption agreement approved by the title insurer, to the
extent required by such policy, and which assumption agreement is part
Schedule 1-1
<PAGE>
of the Mortgage File delivered to the Custodian and the terms of which are
reflected in the Mortgage Loan Schedule.
(e) No Defenses. The Mortgage Loan is not subject to any right of
-----------
rescission, set-off, counterclaim or defense, including without limitation the
defense of usury, nor will the operation of any of the terms of the Mortgage
Note or the Mortgage, or the exercise of any right thereunder, render either the
Mortgage Note or the Mortgage unenforceable, in whole or in part and no such
right of rescission, set-off, counterclaim or defense has been asserted with
respect thereto, and no Mortgagor in respect of the Mortgage Loan was a debtor
in any state or Federal bankruptcy or insolvency proceeding at the time the
Mortgage Loan was originated. The Borrowers has no knowledge of, nor has it
received any notice that, any Mortgagor in respect of the Mortgage Loan is a
debtor in any state or federal bankruptcy or insolvency proceeding.
(f) Hazard Insurance. The Mortgaged Property is insured by a fire
----------------
and extended perils insurance policy, issued by a Qualified Insurer, and such
other hazards as are customary in the area where the Mortgaged Property is
located, and to the extent required by the Borrower as of the date of
origination consistent with the Underwriting Guidelines, against earthquake and
other risks insured against by Persons operating like properties in the locality
of the Mortgaged Property, in an amount not less than the greatest of (i) 100%
of the replacement cost of all improvements to the Mortgaged Property, or (ii)
either (A) the outstanding principal balance of the Mortgage Loan with respect
to each First Lien Mortgage Loan, or (B) with respect to each Second Lien
Mortgage Loan, the sum of the outstanding principal balance of the First Lien
Mortgage Loan and the balance of the Second Lien Mortgage Loan, or (iii) the
amount necessary to avoid the operation of any co-insurance provisions with
respect to the Mortgaged Property, and consistent with the amount that would
have been required as of the date of origination in accordance with the
Underwriting Guidelines. If any portion of the Mortgaged Property is in an area
identified by any federal Governmental Authority as having special flood
hazards, and flood insurance is available, a flood insurance policy meeting the
current guidelines of the Federal Insurance Administration is in effect with a
generally acceptable insurance carrier, in an amount representing coverage not
less than the least of (1) the outstanding principal balance of the Mortgage
Loan, (2) the full insurable value of the Mortgaged Property, and (3) the
maximum amount of insurance available under the Flood Disaster Protection Act of
1973, as amended. All such insurance policies (collectively, the "hazard
------
insurance policy") contain a standard mortgagee clause naming the Borrower, its
- ----------------
successors and assigns (including without limitation, subsequent owners of the
Mortgage Loan), as mortgagee, and may not be reduced, terminated or canceled
without 30 days' prior written notice to the mortgagee. No such notice has been
received by the Borrower. All premiums on such insurance policy have been paid.
The related Mortgage obligates the Mortgagor to maintain all such insurance and,
at such Mortgagor's failure to do so, authorizes the mortgagee to maintain such
insurance at the Mortgagor's cost and expense and to seek reimbursement therefor
from such Mortgagor. Where required by state law or regulation, the Mortgagor
has been given an opportunity to choose the carrier of the required hazard
insurance, provided the policy is not a "master" or "blanket" hazard insurance
policy covering a condominium, or any hazard insurance policy covering the
common facilities of a planned unit development. The hazard insurance policy is
the valid and binding obligation of the insurer and is in full force and effect.
The Borrower has not engaged in, and has no knowledge of the Mortgagor's having
engaged in, any act or omission which would impair the coverage of any such
policy, the benefits of the endorsement provided for herein, or
Schedule 1-2
<PAGE>
the validity and binding effect of either including, without limitation, no
unlawful fee, commission, kickback or other unlawful compensation or value of
any kind has been or will be received, retained or realized by any attorney,
firm or other Person, and no such unlawful items have been received, retained or
realized by the Borrower.
(g) Compliance with Applicable Laws. Any and all requirements of any
-------------------------------
federal, state or local law including, without limitation, usury, truth-in-
lending, real estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage Loan have been
complied with, the consummation of the transactions contemplated hereby will not
involve the violation of any such laws or regulations, and the Borrower shall
maintain or shall cause its agent to maintain in its possession, available for
the inspection of the Lender, and shall deliver to the Lender, upon demand,
evidence of compliance with all such requirements.
(h) No Satisfaction of Mortgage. The Mortgage has not been
---------------------------
satisfied, canceled, subordinated or rescinded, in whole or in part, and the
Mortgaged Property has not been released from the lien of the Mortgage, in whole
or in part, nor has any instrument been executed that would effect any such
release, cancellation, subordination or rescission. The Borrower has not waived
the performance by the Mortgagor of any action, if the Mortgagor's failure to
perform such action would cause the Mortgage Loan to be in default, nor has the
Borrower waived any default resulting from any action or inaction by the
Mortgagor.
(i) Location and Type of Mortgaged Property. The Mortgaged Property
---------------------------------------
is located in an Acceptable State as identified in the Mortgage Loan Schedule
and consists of real property with a detached single family residence erected
thereon, or a two- to four-family dwelling, or an individual condominium unit in
a low-rise or high-rise condominium project, or an individual unit in a planned
unit development or a de minimis planned unit development, provided, however,
that any condominium unit or planned unit development shall conform with the
applicable FNMA and FHLMC requirements regarding such dwellings and that no
residence or dwelling is a mobile home. No portion of the Mortgaged Property is
used for commercial purposes.
(j) Valid Lien. The Mortgage is a valid, subsisting, enforceable and
----------
perfected (A) first lien and first priority interest with respect to each
Mortgage Loan which is indicated by the Borrower to be a First Lien Mortgage
Loan (as reflected on the Mortgage Loan Tape), or (B) second lien and second
priority security interest with respect to each Mortgage Loan which is indicated
by the Borrower to be a Second Lien Mortgage Loan (as reflected on the Mortgage
Loan Tape), in either case, on the property included in the Mortgaged Property,
including all buildings on the Mortgaged Property and all installations and
mechanical, electrical, plumbing, heating and air conditioning systems located
in or annexed to such buildings, and all additions, alterations and replacements
made at any time with respect to the foregoing. The lien of the Mortgage is
subject only to:
(1) the lien of current real property taxes and assessments not yet
due and payable;
Schedule 1-3
<PAGE>
(2) covenants, conditions and restrictions, rights of way, easements
and other matters of the public record as of the date of recording acceptable to
prudent mortgage lending institutions generally and specifically referred to in
the lender's title insurance policy delivered to the originator of the Mortgage
Loan and (a) referred to or otherwise considered in the appraisal made for the
originator of the Mortgage Loan or (b) which do not adversely affect the
Appraised Value of the Mortgaged Property set forth in such appraisal;
(3) other matters to which like properties are commonly subject which
do not materially interfere with the benefits of the security intended to be
provided by the Mortgage or the use, enjoyment, value or marketability of the
related Mortgaged Property;
(4) with respect to each Mortgage Loan which is indicated by the
Borrower to be a Second Lien Mortgage Loan (as reflected on the Mortgage Loan
Tape) a prior mortgage lien on the Mortgaged Property.
Any security agreement, chattel mortgage or equivalent document related to and
delivered in connection with the Mortgage Loan establishes and creates a valid,
subsisting and enforceable (A) first lien and first priority security interest
with respect to each Mortgage Loan which is indicated by the Borrower to be a
First Lien Mortgage Loan (as reflected on the Mortgage Loan Tape), or (B) second
lien and second priority security interest with respect to each Mortgage Loan
which is indicated by the Borrower to be a Second Lien Mortgage Loan (as
reflected on the Mortgage Loan Tape), in either case, on the property described
therein and the Borrower has full right to pledge and assign the same to the
Lender.
(k) Validity of Mortgage Documents. The Mortgage Note and the
------------------------------
Mortgage and any other agreement executed and delivered by a Mortgagor or
guarantor, if applicable, in connection with a Mortgage Loan are genuine, and
each is the legal, valid and binding obligation of the maker thereof enforceable
in accordance with its terms. All parties to the Mortgage Note, the Mortgage and
any other such related agreement had legal capacity to enter into the Mortgage
Loan and to execute and deliver the Mortgage Note, the Mortgage and any such
agreement, and the Mortgage Note, the Mortgage and any other such related
agreement have been duly and properly executed by such related parties. No
fraud, error, omission, misrepresentation, negligence or similar occurrence with
respect to a Mortgage Loan has taken placed on the part of any Person,
including, without limitation, the Mortgagor, any appraiser, any builder or
developer, or any other party involved in the origination of the Mortgage Loan.
The Borrower has reviewed all of the documents constituting the Servicing File
and has made such inquiries as it deems necessary to make and confirm the
accuracy of the representations set forth herein
(l) Full Disbursement of Proceeds. The Mortgage Loan has been closed
-----------------------------
and the proceeds of the Mortgage Loan have been fully disbursed and there is no
further requirement for future advances thereunder, and any and all requirements
as to completion of any on-site or off-site improvement and as to disbursements
of any escrow funds therefor have been complied with. All costs, fees and
expenses incurred in making or closing the Mortgage Loan and the recording of
the Mortgage were paid, and the Mortgagor is not entitled to any refund of any
amounts paid or due under the Mortgage Note or Mortgage.
Schedule 1-4
<PAGE>
(m) Ownership. The Borrower is the sole owner and holder of the
---------
Mortgage Loan to be pledged hereunder. The Mortgage Loan is not assigned or
pledged, and the Borrower has good, indefeasible and marketable title thereto,
and has full right to transfer, pledge and assign the Mortgage Loan to the
Lender free and clear of any encumbrance, equity, participation interest, lien,
pledge, charge, claim or security interest, and has full right and authority
subject to no interest or participation of, or agreement with, any other party,
to assign, transfer and pledge each Mortgage Loan pursuant to this Loan
Agreement and following the pledge of each Mortgage Loan, the Lender will hold
such Mortgage Loan free and clear of any encumbrance, equity, participation
interest, lien, pledge, charge, claim or security interest except any such
security interest created pursuant to the terms of this Loan Agreement.
(n) Doing Business. All parties which have had any interest in the
--------------
Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such interest, were) (i) in
compliance with any and all applicable licensing requirements of the laws of the
state wherein the Mortgaged Property is located, and (ii) either (A) organized
under the laws of such state, (B) qualified to do business in such state, (C) a
federal savings and loan association, a savings bank or a national bank having a
principal office in such state, or (D) not doing business in such state.
(o) LTV. No Mortgage Loan has an LTV greater than 95%. No Second
---
Lien Mortgage Loan has a CLTV greater than 100%.
(p) Title Insurance. The Mortgage Loan is covered by either (i) an
---------------
attorney's opinion of title and abstract of title, the form and substance of
which is acceptable to prudent mortgage lending institutions making mortgage
loans in the area wherein the Mortgaged Property is located or (ii) an ALTA
lender's title insurance policy or other generally acceptable form of policy or
insurance acceptable to FNMA or FHLMC and each such title insurance policy is
issued by a title insurer acceptable to FNMA or FHLMC and qualified to do
business in the jurisdiction where the Mortgaged Property is located, insuring
the Borrower, its successors and assigns, as to the first (or second, if the
Mortgage Loan is a Second Lien Mortgage Loan) priority lien of the Mortgage in
the original principal amount of the Mortgage Loan (or to the extent a Mortgage
Note provides for negative amortization, the maximum amount of negative
amortization in accordance with the Mortgage), subject only to the exceptions
contained in clauses (1), (2) and (3) and, with respect to each Mortgage Loan
which is indicated by the Borrower to be a Second Lien Mortgage Loan (as
reflected on the Mortgage Loan Tape) clause (4) of paragraph (j) of this Part I
of Schedule 1, and in the case of adjustable rate Mortgage Loans, against any
loss by reason of the invalidity or unenforceability of the lien resulting from
the provisions of the Mortgage providing for adjustment to the Mortgage Interest
Rate and Monthly Payment. Where required by state law or regulation, the
Mortgagor has been given the opportunity to choose the carrier of the required
mortgage title insurance. Additionally, such lender's title insurance policy
affirmatively insures ingress and egress and against encroachments by or upon
the Mortgaged Property or any interest therein. The title policy does not
contain any special exceptions (other than the standard exclusions) for zoning
and uses and has been marked to delete the standard survey exception or to
replace the standard survey exception with a specific survey reading. The
Borrower, its successors and assigns, are the sole insureds of such lender's
title insurance policy, and such lender's title insurance policy is valid and
remains in full force and effect and will be in force and effect upon the
consummation of the transactions
Schedule 1-5
<PAGE>
contemplated by this Loan Agreement. No claims have been made under such
lender's title insurance policy, and no prior holder or servicer of the related
Mortgage, including the Borrower has done, by act or omission, anything which
would impair the coverage of such lender's title insurance policy, including,
without limitation, no unlawful fee, commission, kickback or other unlawful
compensation or value of any kind has been or will be received, retained or
realized by any attorney, firm or other Person, and no such unlawful items have
been received, retained or realized by the Borrower.
(q) No Defaults. There is no default, breach, violation or event of
-----------
acceleration existing under the Mortgage or the Mortgage Note and no event has
occurred which, with the passage of time or with notice and the expiration of
any grace or cure period, would constitute a default, breach, violation or event
of acceleration, and neither the Borrower nor its predecessors have waived any
default, breach, violation or event of acceleration. With respect to each
Mortgage Loan which is indicated by the Borrower to be a Second Lien Mortgage
Loan (as reflected on the Mortgage Loan Tape) (i) the first lien is in full
force and effect, (ii) there is no default, breach, violation or event of
acceleration existing under such first lien or the related mortgage note, (iii)
no event which, with the passage of time or with notice and the expiration of
any grace or cure period, would constitute a default, breach, violation or event
of acceleration thereunder, and either (A) the first lien contains a provision
which allows or (B) applicable law requires, the mortgagee under the Second Lien
Mortgage Loan to receive notice of, and affords such mortgagee an opportunity to
cure any default by payment in full or otherwise under the first lien. For
purposes of this clause (q), a delinquent payment of less than 30 days pursuant
to a Mortgage Note or a Mortgage Loan in and of itself shall not be considered a
default, breach, violation or event of acceleration.
(r) No Mechanics' Liens. There are no mechanics' or similar liens or
-------------------
claims which have been filed for work, labor or material (and no rights are
outstanding that under the law could give rise to such liens) affecting the
Mortgaged Property which are or may be liens prior to, or equal or coordinate
with, the lien of the Mortgage.
(s) Location of Improvements; No Encroachments. All improvements
------------------------------------------
which were considered in determining the Appraised Value of the Mortgaged
Property lie wholly within the boundaries and building restriction lines of the
Mortgaged Property, and no improvements on adjoining properties encroach upon
the Mortgaged Property. No improvement located on or being part of the Mortgaged
Property is in violation of any applicable zoning and building law, ordinance or
regulation.
(t) Origination; Payment Terms. The Mortgage Loan was originated by
--------------------------
or in conjunction with a mortgagee approved by the Secretary of Housing and
Urban Development pursuant to Sections 203 and 211 of the National Housing Act,
a savings and loan association, a savings bank, a commercial bank, credit union,
insurance company or similar banking institution which is supervised and
examined by a federal or state authority. Principal payments on the Mortgage
Loan commenced no more than 60 days after funds were disbursed in connection
with the Mortgage Loan. The Mortgage Interest Rate is adjusted, with respect to
adjustable rate Mortgage Loans, on each Interest Rate Adjustment Date to equal
the Index plus the Gross Margin, subject to the Mortgage Interest Rate Cap. The
Mortgage Note is payable on the first day of each month in equal monthly
installments of principal and interest, which installments of
Schedule 1-6
<PAGE>
interest, with respect to adjustable rate Mortgage Loans, are subject to change
due to the adjustments to the Mortgage Interest Rate on each Interest Rate
Adjustment Date, with interest calculated and payable in arrears, sufficient to
amortize the Mortgage Loan fully by the stated maturity date, over an original
term of not more than 30 years from commencement of amortization. The due date
of the first payment under the Mortgage Note is no more than 60 days from the
date of the Mortgage Note.
(u) Customary Provisions. The Mortgage Note has a stated maturity.
--------------------
The Mortgage contains customary and enforceable provisions such as to render the
rights and remedies of the holder thereof adequate for the realization against
the Mortgaged Property of the benefits of the security provided thereby,
including, (i) in the case of a Mortgage designated as a deed of trust, by
trustee's sale, and (ii) otherwise by judicial foreclosure. Upon default by a
Mortgagor on a Mortgage Loan and foreclosure on, or trustee's sale of, the
Mortgaged Property pursuant to the proper procedures, the holder of the Mortgage
Loan will be able to deliver good and merchantable title to the Mortgaged
Property. There is no homestead or other exemption available to a Mortgagor
which would interfere with the right to sell the Mortgaged Property at a
trustee's sale or the right to foreclose the Mortgage.
(v) Conformance with Underwriting Guidelines and Agency Standards.
-------------------------------------------------------------
The Mortgage Loan was underwritten in accordance with the Underwriting
Guidelines. The Mortgage Note and Mortgage are on forms similar to those
used by FHLMC or FNMA and the Borrower has made no representations to a
Mortgagor that are inconsistent with the mortgage instruments used.
(w) Occupancy of the Mortgaged Property. As of the Funding Date the
-----------------------------------
Mortgaged Property is lawfully occupied under applicable law. All inspections,
licenses and certificates required to be made or issued with respect to all
occupied portions of the Mortgaged Property and, with respect to the use and
occupancy of the same, including but not limited to certificates of occupancy
and fire underwriting certificates, have been made or obtained from the
appropriate authorities. The Borrower has not received notification from any
Governmental Authority that the Mortgaged Property is in material non-compliance
with such laws or regulations, is being used, operated or occupied unlawfully or
has failed to have or obtain such inspection, licenses or certificates, as the
case may be. The Borrower has not received notice of any violation or failure to
conform with any such law, ordinance, regulation, standard, license or
certificate. No Mortgagor is a Mortgagor with respect to more than five Eligible
Mortgage Loans whose aggregate Collateral Value is included in the calculation
of the Borrowing Base.
(x) No Additional Collateral. The Mortgage Note is not and has not
------------------------
been secured by any collateral except the lien of the corresponding Mortgage and
the security interest of any applicable security agreement or chattel mortgage
referred to in clause (j) above.
(y) Deeds of Trust. In the event the Mortgage constitutes a deed of
--------------
trust, a trustee, authorized and duly qualified under applicable law to serve as
such, has been properly designated and currently so serves and is named in the
Mortgage, and no fees or expenses are or will become payable by the Custodian or
the Lender to the trustee under the deed of trust, except in connection with a
trustee's sale after default by the Mortgagor.
Schedule 1-7
<PAGE>
(z) Delivery of Mortgage Documents. The Mortgage Note, the Mortgage,
the Assignment of Mortgage and any other documents required to be delivered
under the Custodial Agreement for each Mortgage Loan have been delivered to the
Custodian. The Borrower or its agent is in possession of a complete, true and
accurate Mortgage File in compliance with the Custodial Agreement, except for
such documents the originals of which have been delivered to the Custodian.
(aa) Transfer of Eligible Mortgage Loans. The Assignment of Mortgage
-----------------------------------
is in recordable form and is acceptable for recording under the laws of the
jurisdiction in which the Mortgaged Property is located.
(bb) Due-On-Sale. The Mortgage contains an enforceable provision for
-----------
the acceleration of the payment of the unpaid principal balance of the Mortgage
Loan in the event that the Mortgaged Property is sold or transferred without the
prior written consent of the mortgagee thereunder.
(cc) No Buydown Provisions; No Graduated Payments or Contingent
----------------------------------------------------------
Interests. The Mortgage Loan does not contain provisions pursuant to which
- ---------
Monthly Payments are paid or partially paid with funds deposited in any separate
account established by the Borrower, the Mortgagor, or anyone on behalf of the
Mortgagor, or paid by any source other than the Mortgagor nor does it contain
any other similar provisions which may constitute a "buydown" provision. The
Mortgage Loan is not a graduated payment mortgage loan and the Mortgage Loan
does not have a shared appreciation or other contingent interest feature.
(dd) Consolidation of Future Advances. Any future advances made to
--------------------------------
the Mortgagor prior to the Funding Date have been consolidated with the
outstanding principal amount secured by the Mortgage, and the secured principal
amount, as consolidated, bears a single interest rate and single repayment term.
With respect to each Mortgage Loan, the lien of the Mortgage securing the
consolidated principal amount is expressly insured as having (A) first lien
priority with respect to each Mortgage Loan which is indicated by the Borrower
to be a First Lien Mortgage Loan (as reflected on the Mortgage Loan Tape), or
(B) second lien priority with respect to each Mortgage Loan which is indicated
by the Borrower to be a Second Lien Mortgage Loan (as reflected on the Mortgage
Loan Tape), in either case, by a title insurance policy, an endorsement to the
policy insuring the mortgagee's consolidated interest or by other title evidence
acceptable to FNMA and FHLMC. The consolidated principal amount does not exceed
the original principal amount of the Mortgage Loan.
(ee) Mortgaged Property Undamaged. The Mortgaged Property is
----------------------------
undamaged by waste, fire, earthquake or earth movement, windstorm, flood,
tornado or other casualty so as to affect adversely the value of the Mortgaged
Property as security for the Mortgage Loan or the use for which the premises
were intended and each Mortgaged Property is in good repair. There have not been
any condemnation proceedings with respect to the Mortgaged Property and the
Borrower has no knowledge of any such proceedings.
(ff) Collection Practices; Escrow Deposits; Interest Rate Adjustments.
----------------------------------------------------------------
The origination and collection practices used by the originator, each servicer
of the Mortgage Loan and the Borrower with respect to the Mortgage Loan have
been in all respects in compliance with
Schedule 1-8
<PAGE>
Accepted Servicing Practices, applicable laws and regulations, and have been in
all respects legal and proper. With respect to escrow deposits and Escrow
Payments, all such payments are in the possession of, or under the control of,
the Borrower and there exist no deficiencies in connection therewith for which
customary arrangements for repayment thereof have not been made. All Escrow
Payments have been collected in full compliance with state and federal law. An
escrow of funds is not prohibited by applicable law and has been established in
an amount sufficient to pay for every item that remains unpaid and has been
assessed but is not yet due and payable. No escrow deposits or Escrow Payments
or other charges or payments due the Borrower have been capitalized under the
Mortgage or the Mortgage Note. All Mortgage Interest Rate adjustments have been
made in strict compliance with state and federal law and the terms of the
related Mortgage Note. Any interest required to be paid pursuant to state,
federal and local law has been properly paid and credited.
(gg) Other Insurance Policies. No action, inaction or event has
------------------------
occurred and no state of facts exists or has existed that has resulted or will
result in the exclusion from, denial of, or defense to coverage under any
applicable special hazard insurance policy or bankruptcy bond, irrespective of
the cause of such failure of coverage. In connection with the placement of any
such insurance, no commission, fee, or other compensation has been or will be
received by the Borrower or by any officer, director, or employee of the
Borrower or any designee of the Borrower or any corporation in which the
Borrower or any officer, director, or employee had a financial interest at the
time of placement of such insurance.
(hh) Soldiers' and Sailors' Civil Relief Act. The Mortgagor has not
---------------------------------------
notified the Borrower of, and the Borrower has no knowledge, of any relief
requested or allowed to the Mortgagor under the Soldiers' and Sailors' Civil
Relief Act of 1940.
(ii) Appraisal. The Mortgage File contains an appraisal of the
---------
related Mortgaged Property signed prior to the approval of the Mortgage Loan
application by a qualified appraiser who had no interest, direct or indirect in
the Mortgaged Property or in any loan made on the security thereof, and whose
compensation is not affected by the approval or disapproval of the Mortgage
Loan, and the appraisal and appraiser both satisfy the requirements of FNMA or
FHLMC and Title XI of the Federal Institutions Reform, Recovery, and
Enforcement Act of 1989 as amended and the regulations promulgated thereunder,
all as in effect on the date the Mortgage Loan was originated.
(jj) Construction or Rehabilitation of Mortgaged Property. No
----------------------------------------------------
Mortgage Loan was made in connection with the construction or rehabilitation of
a Mortgaged Property or facilitating the trade-in or exchange of a Mortgaged
Property.
(kk) No Defense to Insurance Coverage. No action has been taken or
--------------------------------
failed to be taken, no event has occurred and no state of facts exists or has
existed on or prior to the Funding Date (whether or not known to the Borrower on
or prior to such date) which has resulted or will result in an exclusion from,
denial of, or defense to coverage under any private mortgage insurance
(including, without limitation, any exclusions, denials or defenses which would
limit or reduce the availability of the timely payment of the full amount of the
loss otherwise due thereunder to the insured) whether arising out of actions,
representations, errors, omissions, negligence, or fraud of the Borrower, the
related Mortgagor or any party involved in
Schedule 1-9
<PAGE>
the application for such coverage, including the appraisal, plans and
specifications and other exhibits or documents submitted therewith to the
insurer under such insurance policy, or for any other reason under such
coverage, but not including the failure of such insurer to pay by reason of such
insurer's breach of such insurance policy or such insurer's financial inability
to pay.
(ll) Capitalization of Interest. The Mortgage Note does not by its
--------------------------
terms provide for the capitalization or forbearance of interest. None of the
Mortgage Loans provides for Negative Amortization.
(mm) No Equity Participation. No document relating to the Mortgage
-----------------------
Loan provides for any contingent or additional interest in the form of
participation in the cash flow of the Mortgaged Property or a sharing in the
appreciation of the value of the Mortgaged Property. The indebtedness evidenced
by the Mortgage Note is not convertible to an ownership interest in the
Mortgaged Property or the Mortgagor and the Borrower has not financed, nor does
it own directly or indirectly, any equity of any form in the Mortgaged Property
or the Mortgagor.
(nn) No Exception. The Custodian has not noted any material
------------
exceptions on an Exception Report (as defined in the Custodial Agreement) with
respect to the Mortgage Loan which would materially adversely affect the
Mortgage Loan or the Lender's security interest, granted by the Borrower in the
Mortgage Loan.
(oo) Qualified Originator. The Mortgage Loan has been originated by,
--------------------
and, if applicable, purchased by the Borrower from, a Qualified Originator.
(pp) Mortgage Submitted for Recordation. The Mortgage either has been
----------------------------------
or will promptly be submitted for recordation in the appropriate governmental
recording office of the jurisdiction where the Mortgaged Property is located.
(qq) Disclosure Materials. The Mortgagor has executed a statement to
--------------------
the effect that the Mortgagor has received all disclosure materials required by
and the Qualified Originator has complied with all applicable law with respect
to the making of the Mortgage Loans. The Borrower shall maintain such statement
in the Mortgage File.
(rr) Section 32 Loans. The related Mortgagor has been provided with
----------------
all disclosure materials required by Section 226.32 of the Federal Reserve Board
Regulation Z with respect to any Mortgage Loans subject to such Section of the
Federal Reserve Board Regulation Z.
(ss) Texas Home Equity Loans. With respect to any Mortgage Loan which
-----------------------
is a Texas Home Equity Loan, any and all requirements of Section 50, Article XVI
of the Texas Constitution applicable to Texas Home Equity Loans which were in
effect at the time of the origination of the Mortgage Loan have been complied
with.
(tt) Wet-Ink Mortgage Loans. With respect to each Mortgage Loan that
----------------------
is a Wet-Ink Mortgage Loan, the Settlement Agent has been instructed in writing
by the Borrower to hold the related Mortgage Loan Documents as agent and bailee
for the Lender or the Lender's agent and to promptly forward such Mortgage Loan
Documents in accordance with the provisions of the Custodial Agreement and the
Escrow Instruction Letter.
Schedule 1-10
<PAGE>
Notwithstanding the representations and warranties set forth in paragraphs (u)
(x) or (mm) hereof, a Mortgage Loan (a) which is an interest only Mortgage Loan,
or (b) is a Negative Amortization Mortgage Loan may be considered an Eligible
Mortgage Loan if (i) the Borrower has received the prior written consent of the
Lender with respect to the inclusion of such Mortgage Loan, and (ii) the related
Mortgage Loan Schedule identifies such Mortgage Loan as being an interest only
Mortgage Loan or a Negative Amortization Mortgage Loan.
Schedule 1-11
<PAGE>
SCHEDULE 2
----------
PART I. REPRESENTATIONS AND WARRANTIES FOR ELIGIBLE SECURITIES
As to each Eligible Security included in the Borrowing Base on a
Funding Date, the Borrower who intends to pledge such Eligible Security to the
Lender pursuant to the Loan Agreement shall be deemed to make the following
representations and warranties to the Lender as of such date and as of each date
Collateral Value is determined (certain defined terms used herein and not
otherwise defined in the Loan Agreement appearing in Part II to this Schedule
2).
(a) Validity of Governing Agreement. Each of the Governing
-------------------------------
Agreements and any other agreement executed and delivered in connection with an
Eligible Security is genuine, and each is the legal, valid and binding
obligation of the maker thereof enforceable in accordance with its terms. The
parties to each Governing Agreement had legal capacity to enter into such
Governing Agreement and any such agreement, and such Governing Agreement and any
such other related agreement thereto have been duly and properly executed by the
parties thereto. Each Governing Agreement constitutes a legal, valid, binding
and enforceable obligation of the parties thereto. Each Governing Agreement is
in full force and effect, and the enforceability of the Governing Agreement has
not been contested by the parties thereto.
(b) Original Terms Unmodified. The terms of each Governing Agreement
-------------------------
and the related Eligible Security have not been impaired, altered or modified in
any respect.
(c) No Waiver. The Borrower has not waived the performance by the
---------
parties thereto of any action, if the failure to perform such action would cause
the Governing Agreements to be in default, nor has the Borrower waived any
default resulting from any action or inaction by the parties thereto.
(d) No Defaults. There is no default, breach, violation or event of
-----------
acceleration existing under any Governing Agreement and no event has occurred
which, with the passage of time or giving of notice or both and the expiration
of any grace or cure period, would constitute a default, breach, violation or
event of acceleration thereunder, and neither the Borrower nor its predecessors
in interest have waived any such default, breach, violation or event of
acceleration.
(e) Delivery of Governing Agreement. The Governing Agreements for
-------------------------------
the related Eligible Security have been or shall be delivered to the Lender at
least 5 Business Days prior to each Funding Date.
(f) Eligible Securities Assignable. Each Eligible Security is
------------------------------
assignable to the Lender and to the Lender's successors and assigns. The
Governing Agreements permit NCCC to sell, assign, pledge, transfer or
rehypothecate the Eligible Security.
(g) Ownership. Each Eligible Security is owned by NCCC free from all
---------
Liens.
Schedule 2-1
<PAGE>
PART II. DEFINED TERMS
In addition to terms defined elsewhere in the Loan Agreement, the
following terms shall have the following meanings when used in Schedule 1 and
Schedule 2:
"Acceptable State" shall mean any state notified by the Borrowers to
----------------
the Lender from time to time and approved in writing by the Lender, which
approval has not been revoked by the Lender in their sole discretion, any such
notice of revocation to be given no later than 10 Business Days prior to its
intended effective date.
"Accepted Servicing Practices" shall mean, with respect to any
----------------------------
Mortgage Loan, those mortgage servicing practices of prudent mortgage lending
institutions which service mortgage loans of the same type as such Mortgage
Loans in the jurisdiction where the related Mortgaged Property is located.
"ALTA" means the American Land Title Association.
----
"Appraised Value" shall mean the value set forth in an appraisal made
---------------
in connection with the origination of the related Mortgage Loan as the value of
the Mortgaged Property.
"Best's" means Best's Key Rating Guide, as the same shall be amended
------
from time to time.
"Combined LTV" or "CLTV" shall mean with respect to any Mortgage Loan
------------ ----
that is a Second Lien Mortgage Loan, the ratio of (a) the outstanding principal
balance on the date of origination of (i) the Mortgage Loan constituting the
first lien plus (ii) the Mortgage Loan constituting the second lien to (b) the
lesser of (i) the Appraised Value of the Mortgaged Property and (ii) if the
Mortgaged Property was purchased within 6 months of the origination of the
Mortgage Loan, the purchase price of the Mortgaged Property.
"Cut-off Date" means the first day of the month in which the related
------------
Funding Date occurs.
"Due Date" means the day of the month on which the Monthly Payment is
--------
due on a Mortgage Loan, exclusive of any days of grace.
"Escrow Payments" means with respect to any Mortgage Loan, the amounts
---------------
constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, mortgage insurance premiums, fire and hazard insurance
premiums, condominium charges, and any other payments required to be escrowed by
the Mortgagor with the mortgagee pursuant to the Mortgage or any other document.
"FHLMC" means the Federal Home Loan Mortgage Corporation, or any
-----
successor thereto.
Schedule 2-2
<PAGE>
"First Lien Mortgage Loan" shall mean a Mortgage Loan secured by the
------------------------
lien on the related Mortgaged Property, subject to no prior liens on such
Mortgaged Property.
"FNMA" means the Federal National Mortgage Association, or any
----
successor thereto.
"Gross Margin" means with respect to each adjustable rate Mortgage
------------
Loan, the fixed percentage amount set forth in the related Mortgage Note.
"Index" means with respect to each adjustable rate Mortgage Loan, the
-----
index set forth in the related Mortgage Note for the purpose of calculating the
interest rate thereon.
"Insurance Proceeds" means with respect to each Mortgage Loan,
------------------
proceeds of insurance policies insuring the Mortgage Loan or the related
Mortgaged Property.
"Interest Rate Adjustment Date" means with respect to each adjustable
-----------------------------
rate Mortgage Loan, the date, specified in the related Mortgage Note and the
Mortgage Loan Schedule, on which the Mortgage Interest Rate is adjusted.
"Loan-to-Value Ratio" or "LTV" means with respect to any Mortgage
------------------- ---
Loan, the ratio of the original outstanding principal amount of the Mortgage
Loan to the lesser of (a) the Appraised Value of the Mortgaged Property at
origination or (b) if the Mortgaged Property was purchased within 6 months of
the origination of the Mortgage Loan, the purchase price of the Mortgaged
Property.
"Monthly Payment" means the scheduled monthly payment of principal and
---------------
interest on a Mortgage Loan as adjusted in accordance with changes in the
Mortgage Interest Rate pursuant to the provisions of the Mortgage Note for an
adjustable rate Mortgage Loan.
"Mortgage Interest Rate" means the annual rate of interest borne on a
----------------------
Mortgage Note, which shall be adjusted from time to time with respect to
adjustable rate Mortgage Loans.
"Mortgage Interest Rate Cap" means with respect to an adjustable rate
--------------------------
Mortgage Loan, the limit on each Mortgage Interest Rate adjustment as set forth
in the related Mortgage Note.
"Mortgagee" means the related Borrower or any subsequent holder of a
---------
Mortgage Loan.
"Negative Amortization" means a gradual increase in the mortgage debt
---------------------
that occurs when the monthly fixed installment is not sufficient for full
application to both principal and interest. The interest shortage is added to
the unpaid principal balance to create "negative" amortization.
"Origination Date" shall mean, with respect to each Mortgage Loan, the
----------------
date of the Mortgage Note relating to such Mortgage Loan, unless such
information is not provided by the Borrowers with respect to such Mortgage Loan,
in which case the Origination Date shall be
Schedule 2-3
<PAGE>
deemed to be the date that is 40 days prior to the date of the first payment
under the Mortgage Note relating to such Mortgage Loan.
"Qualified Insurer" means an insurance company duly qualified as such
-----------------
under the laws of the states in which the Mortgaged Property is located, duly
authorized and licensed in such states to transact the applicable insurance
business and to write the insurance provided, and approved as an insurer by FNMA
and FHLMC and whose claims paying ability is rated in the two highest rating
categories by Best's with respect to hazard and flood insurance.
"Second Lien Mortgage Loan" shall mean an Eligible Mortgage Loan
-------------------------
secured by a lien on the Mortgaged Property, subject to one prior lien on such
Mortgaged Property.
"Servicing File" means with respect to each Mortgage Loan, the file
--------------
retained by the related Servicer consisting of originals of all documents in the
Mortgage File which are not delivered to a Custodian and copies of the Mortgage
Loan Documents set forth in Section 2 of the Custodial Agreement.
"Texas Home Equity Loan" means an extension of credit described by
----------------------
Section 50(a)(6), Article XVI of the Texas Constitution.
Schedule 2-4
<PAGE>
SCHEDULE 3
----------
FILING JURISDICTIONS AND OFFICES
Secretary of State of Minnesota
Secretary of State of California
Schedule 3-1
<PAGE>
SCHEDULE 4
----------
Option Breakage Fee Collateral Value and Applicable Margin
"Collateral Value" shall mean (1) with respect to all Eligible
----------------
Mortgage Loans (other than Wet-Ink Mortgage Loans) with respect to the initial
Funding Date with respect thereto, the lesser of (i) 100% of the Market Value of
such Eligible Mortgage Loan and (ii) 100% of the unpaid principal balance of
such Eligible Mortgage Loan, and thereafter, the lesser of (i) 98% of the Market
Value of such Eligible Mortgage Loans; provided that the Collateral Value with
respect to any Eligible Mortgage Loan in respect of which there is a delinquency
in the payment of principal and/or interest which continues for a period in
excess of 59 days (without regard to any applicable grace periods) shall equal
the 85% of the Market Value of such Mortgage Loan or (ii) 100% of the unpaid
principal balance of such Eligible Mortgage Loans, (2) with respect to Wet-Ink
Mortgage Loans, the lesser of (i) 96% of Market Value and (ii) 98% of current
unpaid principal balance of such Wet-Ink Mortgage Loans and (3) with respect to
Eligible Securities, 50% of Market Value of such Eligible Securities provided
that such percentage shall be (i) reduced to 40% of Market Value on any Eligible
Security pledged for more than 6 months and (ii) reduced a further 1.5% of
Market Value each month thereafter that such Eligible Security continues to be
pledged, provided, that, the following additional limitations on Collateral
Value apply:
(i) the aggregate Collateral Value of Eligible Mortgage Loans that
are Delinquent Mortgage Loans may not exceed $15,000,000;
(ii) the aggregate Collateral Value of Eligible Securities may not
exceed $30,000,000;
(iii) the aggregate Collateral Value of Eligible Mortgage Loans that
are Wet-Ink Mortgage Loans may not exceed $30,000,000;
(iv) the Collateral Value shall be deemed to be zero with respect to
each Eligible Mortgage Loan or with respect to each Eligible Security, as
applicable (1) in respect of which there is a breach of a representation
and warranty set forth on Schedule 1 or Schedule 2 (assuming each
representation and warranty is made as of the date Collateral Value is
determined), as applicable, (2) in respect of which there is a delinquency
in the payment of principal and/or interest which continues for a period in
excess of 89 days (without regard to any applicable grace periods), (3)
which has been released from the possession of the Custodian under the
Custodial Agreement to the Borrower for a period in excess of 14 days, or
(4) which exceed the limitations on Collateral Value set forth in (i)
through (iii) above;
(v) the Collateral Value shall be deemed to be zero with respect to
each Eligible Mortgage Loan which (1) is a Wet-Ink Mortgage Loan for which
the Custodian has failed to receive the related Mortgage Loan Documents by
the seventh (7th) Business Day following the applicable Funding Date and
(2) is both a Wet-Ink Mortgage Loan and a Borrower Refinanced Loan for
which the Custodian has failed to receive
Schedule 3-1
<PAGE>
facsimile copies of the Mortgage, Mortgage Note, and Assignment of Mortgage
by the first (1st) Business Day following the applicable Funding Date; and
(vi) the Collateral Value shall be deemed to be zero with respect to
each Eligible Mortgage Loan which remains pledged to the Lender hereunder
for more than 180 days after the first Funding Date therefor.
"Applicable Margin" shall mean with respect to (i) Eligible Mortgage
-----------------
Loans (other than Wet-Ink Mortgage Loans), 1.25%, (2) Wet-Ink Mortgage Loans,
1.50% and (3) Eligible Securities 3.00%.
Schedule 2-2
<PAGE>
EXHIBIT A
---------
FORM OF PROMISSORY NOTE
$300,000,000 July 20, 1999
New York, New York
FOR VALUE RECEIVED, NEW CENTURY MORTGAGE CORPORATION, AND NC CAPITAL
CORPORATION, (the "Borrowers"), hereby promise to pay, jointly and severally, to
---------
the order of PAINE WEBBER REAL ESTATE SECURITIES INC. (the "Lender"), at the
------
principal office of the Lender at 1285 Avenue of the Americas, New York, New
York 10019, in lawful money of the United States, and in immediately available
funds, the principal sum of THREE HUNDRED MILLION DOLLARS ($300,000,000) (or
such lesser amount as shall equal the aggregate unpaid principal amount of the
Loans made by the Lender to the Borrowers under the Loan Agreement), on the
dates and in the principal amounts provided in the Loan Agreement, and to pay
interest on the unpaid principal amount of each such Loan, at such office, in
like money and funds, for the period commencing on the date of such Loan until
such Loan shall be paid in full, at the rates per annum and on the dates
provided in the Loan Agreement.
The date, amount and interest rate of each Loan made by the Lender to
the Borrowers, and each payment made on account of the principal thereof, shall
be recorded by the Lender on its books and, prior to any transfer of this Note,
endorsed by the Lender on the schedule attached hereto or any continuation
thereof; provided, that the failure of the Lender to make any such recordation
--------
or endorsement shall not affect the obligations of the Borrowers to make a
payment when due of any amount owing under the Loan Agreement or hereunder in
respect of the Loans made by the Lender.
This Note is the Note referred to in the Master Loan and Security
Agreement dated as of _______________, 1999 (as amended, supplemented or
otherwise modified and in effect from time to time, the "Loan Agreement")
--------------
between each of the Borrowers and the Lender, and evidences Loans made by the
Lender thereunder. Terms used but not defined in this Note have the respective
meanings assigned to them in the Loan Agreement.
The Borrowers agree to pay all the Lender's costs of collection and
enforcement (including reasonable attorneys' fees and disbursements of Lender's
counsel) in respect of this Note when incurred, including, without limitation,
reasonable attorneys' fees through appellate proceedings.
Notwithstanding the pledge of the Collateral, each of the Borrowers
hereby acknowledges, admits and agrees that the Borrowers' obligations under
this Note are recourse obligations of each of the Borrowers to which each of the
Borrowers pledges its full faith and credit.
Each of the Borrowers, and any indorsers or guarantors hereof, (a)
severally waives diligence, presentment, protest and demand and also notice of
protest, demand, dishonor and nonpayments of this Note, (b) expressly agrees
that this Note, or any payment hereunder, may be extended from time to time, and
consent to the acceptance of further Collateral, the
A-1
<PAGE>
release of any Collateral for this Note, the release of any party primarily or
secondarily liable hereon, and (c) expressly agrees that it will not be
necessary for the Lender, in order to enforce payment of this Note, to first
institute or exhaust the Lender's remedies against the Borrowers or any other
party liable hereon or against any Collateral for this Note. No extension of
time for the payment of this Note, or any installment hereof, made by agreement
by the Lender with any person now or hereafter liable for the payment of this
Note, shall affect the liability under this Note of the Borrowers, even if the
Borrowers are not a party to such agreement; provided, however, that the Lender
-------- -------
and each of the Borrowers, by written agreement between them, may affect the
liability of the Borrowers.
Any reference herein to the Lender shall be deemed to include and
apply to every subsequent holder of this Note. Reference is made to the Loan
Agreement for provisions concerning optional and mandatory prepayments,
Collateral, acceleration and other material terms affecting this Note.
This Note shall be governed by and construed under the laws of the
State of New York (without reference to choice of law doctrine) whose laws each
of the Borrowers expressly elects to apply to this Note. Each of the Borrowers
agrees that any action or proceeding brought to enforce or arising out of this
Note may be commenced in the Supreme Court of the State of New York, Borough of
Manhattan, or in the District Court of the United States for the Southern
District of New York.
NEW CENTURY MORTGAGE CORPORATION
By ________________________________________
Name:
Title:
NC CAPITAL CORPORATION
By ________________________________________
Name:
Title:
A-2
<PAGE>
SCHEDULE OF LOANS
This Note evidences Loans made under the within-described Loan
Agreement to the Borrowers, on the dates, in the principal amounts and bearing
interest at the rates set forth below, and subject to the payments and
prepayments of principal set forth below:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
DATE MADE PRINCIPAL AMOUNT INTEREST AMOUNT PAID OR UNPAID PRINCIPAL AMOUNT NOTATION
OF LOAN RATE PREPAID MADE BY
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
A-3
<PAGE>
EXHIBIT B
---------
FORM OF CUSTODIAL AGREEMENT
B-1
<PAGE>
EXHIBIT C
---------
FORM OF OPINION OF COUNSEL TO BORROWERS
(date)
Paine Webber Real Estate Securities Inc.
1285 Avenue of the Americas
New York, New York 10019
Dear Sirs and Mesdames:
You have requested [our] [my] opinion, as counsel to [New Century
Mortgage Corporation and NC Capital Corporation], [each] a California
corporation (the "Borrowers"), with respect to certain matters in connection
---------
with that certain Master Loan and Security Agreement, dated _______________ (the
"Loan and Security Agreement"), by and between the Borrowers and Paine Webber
---------------------------
Real Estate Securities Inc. (the "Lender"), being executed contemporaneously
------
with a Promissory Note dated ___________, 199___ from the Borrowers to the
Lender (the "Note"), a Custodial Agreement, dated as of _______________ (the
----
"Custodial Agreement"), by and among the Borrowers, U.S. Bank National
-------------------
Association (the "Custodian"), and the Lender. Capitalized terms not otherwise
---------
defined herein have the meanings set forth in the Loan and Security Agreement.
[We] [I] have examined the following documents:
1. the Loan and Security Agreement;
2. the Note;
3. Custodial Agreement;
4. unfiled copies of the financing statements listed on Schedule 1
(collectively, the "Financing Statements") naming the Borrowers as Debtors and
--------------------
the Lender as Secured Party and describing the Collateral (as defined in the
Loan and Security Agreement) as to which security interests may be perfected by
filing under the Uniform Commercial Code of the States listed on Schedule 1 (the
----------
"Filing Collateral"), which I understand will be filed in the filing offices
-----------------
listed on Schedule 1 (the "Filing Offices");
---------- --------------
5. the reports listed on Schedule 2 as to UCC financing statements
----------
(collectively, the "UCC Search Report"); and
6. such other documents, records and papers as we have deemed
necessary and relevant as a basis for this opinion.
To the extent [we] [I] have deemed necessary and proper, [we] [I] have
relied upon the representations and warranties of the Borrowers contained in the
Loan and Security
C-1
<PAGE>
Agreement. [We] [I] have assumed the authenticity of all documents submitted to
me as originals, the genuineness of all signatures, the legal capacity of
natural persons and the conformity to the originals of all documents.
Based upon the foregoing, it is [our] [my] opinion that:
1. [Each of] the Borrower[s] is a California corporation duly
organized, validly existing and in good standing under the laws of California
and is qualified to transact business in, and is in good standing under, the
laws of the state of California.
2. [Each of] the Borrower[s] has the corporate power to engage in the
transactions contemplated by the Loan and Security Agreement, the Note, and the
Custodial Agreement and all requisite corporate power, authority and legal right
to execute and deliver the Loan and Security Agreement, the Note, and the
Custodial Agreement and observe the terms and conditions of such instruments.
[Each of] the Borrower[s] has all requisite corporate power to borrow under the
Loan and Security Agreement and to grant a security interest in the Collateral
pursuant to the Loan and Security Agreement.
3. The execution, delivery and performance by [each of] the
Borrower[s] of the Loan and Security Agreement, the Note, and the Custodial
Agreement, and the borrowings by the Borrower[s] and the pledge of the
Collateral under the Loan and Security Agreement have been duly authorized by
all necessary corporate action on the part of such Borrower. Each of the Loan
and Security Agreement, the Note and the Custodial Agreement have been executed
and delivered by each of the Borrower[s] and are legal, valid and binding
agreements, enforceable in accordance with their respective terms against such
Borrower, subject to bankruptcy laws and other similar laws of general
application affecting rights of creditors and subject to the application of the
rules of equity, including those respecting the availability of specific
performance, none of which will materially interfere with the realization of the
benefits provided thereunder or with the Lender's security interest in the
Collateral.
4. No consent, approval, authorization or order of, and no filing or
registration with, any court or governmental agency or regulatory body is
required on the part of [any of] the Borrower[s] for the execution, delivery or
performance by such Borrower of the Loan and Security Agreement, the Note and
the Custodial Agreement or for the borrowings by the Borrower under the Loan and
Security Agreement or the granting of a security interest to the Lender in the
Collateral pursuant to the Loan and Security Agreement.
5. The execution, delivery and performance by [each of] the
Borrower[s] of, and the consummation of the transactions contemplated by, the
Loan and Security Agreement, the Note and the Custodial Agreement do not and
will not (a) violate any provision of such Borrower's charter or by-laws, (b)
violate any applicable law, rule or regulation, (c) violate any order, writ,
injunction or decree of any court or governmental authority or agency or any
arbitral award applicable to such Borrower of which I have knowledge (after due
inquiry) or (d) result in a breach of, constitute a default under, require any
consent under, or result in the acceleration or required prepayment of any
indebtedness pursuant to the terms of, any agreement or instrument of which I
have knowledge (after due inquiry) to which such Borrower is a party or by which
it is bound or to which it is subject, or (except for the Liens created pursuant
to the Loan and
C-2
<PAGE>
Security Agreement) result in the creation or imposition of any Lien upon any
Property of such Borrower pursuant to the terms of any such agreement or
instrument.
6. There is no action, suit, proceeding or investigation pending or,
to the best of [our] [my] knowledge, threatened against [any of] the Borrower[s]
which, in [our] [my] judgment, either in any one instance or in the aggregate,
would be reasonably likely to result in any material adverse change in the
properties, business or financial condition, or prospects of such Borrower or in
any material impairment of the right or ability of such Borrower to carry on its
business substantially as now conducted or in any material liability on the part
of such Borrower or which would draw into question the validity of the Loan and
Security Agreement, the Note, the Custodial Agreement, the Eligible Mortgage
Loans, the Eligible Securities or any Governing Agreement or of any action taken
or to be taken in connection with the transactions contemplated thereby, or
which would be reasonably likely to impair materially the ability of such
Borrower to perform under the terms of the Loan and Security Agreement, the
Note, the Custodial Agreement, the Eligible Mortgage Loans, the Eligible
Securities or any Governing Agreement.
7. The Loan and Security Agreement is effective to create, in favor
of the Lender, a valid security interest under the Uniform Commercial Code in
all of the right, title and interest of each of the Borrower[s] in, to and under
the Collateral as collateral security for the payment of the Secured Obligations
(as defined in the Loan and Security Agreement), except that (a) such security
interests will continue in Collateral after its sale, exchange or other
disposition only to the extent provided in Section 9-306 of the Uniform
Commercial Code, (b) the security interests in Collateral in which [each of] the
Borrower[s] acquires rights after the commencement of a case under the
Bankruptcy Code in respect of such Borrower may be limited by Section 552 of the
Bankruptcy Code.
8. With respect to that portion of the Collateral consisting of
Eligible Securities, the security interest of the Lender will be a perfected,
first-priority security interest, and a "security entitlement" (as defined in
Section 8-102(a)(17) of the UCC) with respect to the Eligible Securities will be
created in favor of the Lender, upon (i) the registration of the Eligible
Securities by the issuer thereof in the name of the Lender, (ii) delivery of the
certificates representing the Eligible Securities to the Lender, registered in
the name of the Lender or duly endorsed to the Lender or in blank, or (iii) the
making by [_______], in its capacity as a "securities intermediary" (as defined
in Section 8-102(a) of the UCC) of appropriate and accurate entries in its
records to indicate the credit of a "security entitlement" (as defined in
Section 8-501(a) of the UCC) to the Eligible Securities to the "securities
account" of the Lender. Such "security entitlement" will be subject to no prior
interest.
9. (a) Upon the filing of financing statements on Form UCC-1 naming
the Lender as "Secured Party" and the Borrower[s] as "Debtor[s]", and describing
the filing Collateral, in the jurisdictions and recording offices listed on
Schedule 1 attached hereto, the security interests referred to in paragraph 7
above will constitute fully perfected security interests under the Uniform
Commercial Code in all right, title and interest of [each of] the Borrower[s]
in, to and under the filing Collateral.
C-3
<PAGE>
(b) The UCC Search Report sets forth the proper filing offices and
the proper debtors necessary to identify those Persons who have on file in the
jurisdictions listed on Schedule 1 financing statements covering the Filing
----------
Collateral as of the dates and times specified on Schedule 2. The UCC Search
----------
Report identifies no Person who has filed in any Filing Office a financing
statement describing the Filing Collateral prior to the effective dates of the
UCC Search Report.
10. The Assignments of Mortgage are in recordable form, except for
the insertion of the name of the assignee, and upon the name of the assignee
being inserted, are acceptable for recording under the laws of the state where
each related Mortgaged Property is located.
Very truly yours,
C-4
<PAGE>
EXHIBIT D
---------
FORM OF NOTICE OF REQUEST FOR BORROWING AND PLEDGE
Master Loan and Security Agreement, dated as of ______________________
(the "Loan and Security Agreement"), by and between the Borrowers and Paine
---------------------------
Webber Real Estate Securities Inc. (the "Lender"),
------
Lender: Paine Webber Real Estate Securities Inc.
Borrowers: New Century Mortgage Corporation, and NC
Capital Corporation
Requested Funding Date:
Number of Eligible
Mortgage Loans to be
Pledged:
Original UPB: $
Current UPB: $
Number of Eligible Securities
to be Pledged: _________________________________
UPB: $
Number of Other Mortgage
Assets to be Pledged: _________________________________
UPB: $
Requested Wire Amount: $
Requested Maturity Date:
Applicable Margin for
Eligible Mortgage Loans
(other than Wet-Ink Mortgage
Loans): __________ basis points (_____%)
Applicable Margin for Wet-Ink
Mortgage Loans: __________ basis points (_____%)
Applicable Margin for
Eligible Securities: __________ basis points (_____%)
Wire Instructions:
[I] hereby certify as an [Officer of New Century Mortgage Corporation] [NC
Capital Corporation] that the following conditions are true and accurate:
D-1
<PAGE>
1. No Default or Event of Default has occurred and is continuing on the
date hereof nor will occur after giving effect to such Loan as a
result of such Loan.
2. Each of the representations and warranties made by the Borrowers in or
pursuant to the Loan Documents is true and correct in all material
respects on and as of such date (in the case of the representations
and warranties in respect of Eligible Mortgage Loans or Eligible
Securities, solely with respect to Eligible Mortgage Loans or Eligible
Securities being included the Borrowing Base on the Funding Date) as
if made on and as of the date hereof (or, if any such representation
or warranty is expressly stated to have been made as of a specific
date, as of such specific date).
3. The Borrower[s] [is] [are] in compliance with all governmental
licenses and authorizations and is qualified to do business and is in
good standing in all required jurisdictions.
All Capitalized terms used herein shall have the meanings set forth in that
certain Master Loan and Security Agreement, dated as of ________________,
between the Borrowers and the Lender.
Requested and certified to by:
[New Century Mortgage Corporation] [NC Capital Corporation]
By:________________________________
Name:
Title:
ACCEPTED AND AGREED:
- --------------------
PAINE WEBBER REAL ESTATE
SECURITIES INC.
By _______________________
Name:
Title:
Date: ____________________
D-2
<PAGE>
SCHEDULE OF
ASSETS TO BE PLEDGED
D-3
<PAGE>
EXHIBIT E-1
-----------
FORM OF BORROWERS' RELEASE LETTER
[Date]
Paine Webber Real Estate Securities Inc.
1285 Avenue of the Americas
New York, New York 10019
Re: Master Loan and Security Agreement, dated as of _____________
(the "Loan and Security Agreement"), by and between New Century
---------------------------
Mortgage Corporation, NC Capital Corporation (the "Borrowers")
---------
and Paine Webber Real Estate Securities Inc. (the "Lender")
------
Ladies and Gentlemen:
With respect to the mortgage loans described in the attached Schedule
--------
A (the "Eligible Mortgage Loans") (a) we hereby certify to you that the Eligible
- - -----------------------
Mortgage Loans are not subject to a lien of any third party and (b) we hereby
release all right, interest or claim of any kind with respect to such Eligible
Mortgage Loans, such release to be effective automatically without further
action by any party upon payment from Paine Webber Real Estate Securities Inc.,
of the amount of the Loan contemplated under the Loan and Security Agreement
(calculated in accordance with the terms thereof) in accordance with the wiring
instructions set forth in the Loan and Security Agreement.
Very truly yours,
NEW CENTURY MORTGAGE CORPORATION
By:_____________________________________
Name:
Title:
NC CAPITAL CORPORATION
By:_____________________________________
Name:
Title:
E-1-1
<PAGE>
EXHIBIT E-2
-----------
FORM OF WAREHOUSE LENDER'S RELEASE LETTER
(Date)
Paine Webber Real Estate Securities Inc.
1285 Avenue of the Americas
New York, New York 10019
Re: Certain Eligible Mortgage Loans Identified on Schedule A hereto
----------
and owned by [New Century Mortgage Corporation] [NC Capital
Corporation]
The undersigned hereby releases all right, interest, lien or claim of
any kind with respect to the mortgage loan(s) described in the attached Schedule
--------
A, such release to be effective automatically without any further action by any
- -
party upon payment in one or more installments, in immediately available funds
of $__________________, in accordance with the following wire instructions:
____________________
____________________
Very truly yours,
[WAREHOUSE LENDER]
By:___________________________
Name:_________________________
Title:________________________
E-2-1
<PAGE>
EXHIBIT F
---------
FORM OF BLOCKED ACCOUNT AGREEMENT
July 20, 1999
New Century Mortgage Corporation
18400 Von Karman, Suite 1000
Irvine, California 92612
Attn: Patti Dodge
U.S. National Bank Association
601 second Avenue South
Minneapolis, MN 55402-4302
Attn: Ed Jenkins
Re: Collection Account Established by New Century Mortgage
Corporation (in such capacity, the "Servicer") at U.S. Bank
--------
National Association (the "Bank") Pursuant to that Certain
----
Servicing Agreement (as amended, supplemented or otherwise
modified from time to time, the "Servicing Agreement"), dated
-------------------
December 1, 1998, between Servicer and NC Capital Corporation
(together with the Servicer, the "Borrowers")
---------
Ladies and Gentlemen:
We hereby notify the Bank that we have collaterally assigned ownership
and exclusive control of and all right, title and interest in and to our demand
deposit account number 1047-5623-4282 ABA# 091000022 maintained with you (the
"Collection Account"), and all funds from time to time credited to such account,
------------------
to Paine Webber Real Estate Securities, Inc., 1285 Avenue of the Americas, New
York, New York 10019, att: George Mangiaracina (the "Lender"), and agree with
------
you as follows:
The Servicer will, from time to time, deposit funds received in
accordance with the Servicing Agreement into the Collection Account. Paine
Webber Real Estate Securities Inc. (the "Lender") has established a secured
------
loan arrangement with us. By our execution of this letter, we acknowledge that
we have granted a security interest in all of our right, title and
F-1
<PAGE>
interest in and to the Collection Account and any funds from time to time on
deposit therein, that such funds are received by the Servicer in trust for the
benefit of Lender and, except as provided below, are for application against the
our liabilities to Lender.
The Collection Account shall be under the exclusive dominion and
control of the Lender. Neither we nor any other Person claiming on behalf of or
through us shall have any right or authority, whether express or implied, to
close or make use of, or withdraw any funds from, the Collection Account, except
as expressly provided herein.
The Lender shall be irrevocably entitled (until the Lender shall
notify you to the contrary) to exercise any and all rights (without notice to us
or further consent by us) in respect of or in connection with the Collection
Account including, without limitation, the right to prevent us from withdrawing
funds from the Collection Account, to specify when transfers of funds are to be
made out of or in connection with the Collection Account and to make withdrawals
of funds therefrom. If the Lender shall at any time instruct you to make
transfers of funds from the Collection Account directly to the Lender, such
transfers shall be made to such account as the Lender shall specify.
At the request of the Lender, you shall provide to the Lender a report
of all amounts credited to the Collection Account not later than the close of
business on any business day.
All fees, expenses and other charges arising out of or in connection
with the Collection Account shall remain our obligation; provided that the
--------
Lender shall be notified by you of any default in our payment of such obligation
and the Lender shall be entitled to cure any such default within a reasonable
period of time after its receipt of such notice.
In the event that any provision of any instrument, certificate or
other document delivered in connection with the Collection Account shall be
inconsistent with any provision of this letter agreement, the provisions of this
letter agreement shall govern.
You hereby waive any right that you may now or hereafter have to
security interests, bank's or other possessory liens, rights to offset or other
claims against the funds in the Collection Account. You agree to hold the funds
in the Collection Account as the bailee and custodian for the benefit of the
Lender, to indicate on your records the assignment of the funds in the
Collection Account in favor of the Lender and to provide the Lender, at the
request of the Lender, with information concerning the amounts on deposit in the
Collection Account. You agree not to pay to us all or any part of the funds in
the Collection Account or any income, distributions, profits or proceeds of the
funds in the Collection Account without the prior written consent of the Lender.
Notwithstanding anything contained herein to the contrary, we agree
and the Lender agrees that you shall be entitled to be reimbursed from funds in
the Collection Account for your fees related to your services in connection with
the Collection Account and for amounts in respect of returned and otherwise
uncollected items previously credited to the Collection Account.
F-2
<PAGE>
By the Bank's execution of this letter, it agrees and acknowledges
that this letter constitutes notice pursuant to Section 9302 of the California
Commercial Code of the Lender's security interest in the Collection Account and
such notice is intended to satisfy the requirements of such section. The Bank
further acknowledges that (a) it has not received notice from any other party
(each a "Third Party") of a Third Party's interest in the Collection Account and
-----------
(b) it shall deliver prompt written notice to the Lender of its receipt of any
notice from any Third Party of such Third Party's interest in the Collection
Account.
By the Servicer's execution of this letter, it agrees: (a) that all
funds from time to time hereafter in the Collection Account are the property of
the Borrowers held in trust for the benefit of the Lender and that unless and
until the Servicer receives notice from the Lender that an event of default has
occurred and is continuing under the Lender's secured lending arrangement with
the Borrowers (a "Notice of Event of Default"), the Servicer shall transfer
--------------------------
funds from the Collection Account in accordance with the instructions of the
Borrowers; (b) that Servicer will not exercise any right of set-off, banker's
lien or any similar right in connection with such funds provided, that in the
--------
event any check is returned to the Servicer because of insufficient funds (or is
otherwise unpaid) the Servicer shall be entitled to set off the amount of any
such returned check; (c) that until the Servicer receives written notification
from the Lender to the contrary, the Servicer will not withdraw (other than as
expressly set forth in the Servicing Agreement or herein) or permit any person
or entity to withdraw or transfer funds from the Collection Account; and (d)
that if the Servicer receives a Notice of Event of Default from the Lender, the
Servicer shall not withdraw or permit NC Capital Corporation to withdraw or
transfer funds from the Collection Account and shall cause or permit withdrawals
from the Collection Account only in the manner as the Lender may instruct.
By its acknowledgment and acceptance of this letter agreement, the
Lender hereby instructs the Bank, until such instruction is rescinded by the
Lender or superseded by a different instruction from the Lender, that we shall
have the right to withdraw collected amounts then standing to the credit of the
Collection Account from time to time.
All bank statements in respect to the Collection Account shall be sent
to the Borrowers with copies to:
Paine Webber Real Estate Securities Inc.
1285 Avenue of the Americas
New York, New York 10019
[SIGNATURE PAGE FOLLOWS]
F-3
<PAGE>
Please acknowledge your agreement to the terms of the foregoing by
signing in the space provided below on three copies hereof sent herewith, and
returning a one such signed copy to the undersigned and two such signed copies
to the Lender.
Very truly yours,
NEW CENTURY MORTGAGE CORPORATION
as Borrower
By______________________________________
Name:
Title:
NC CAPITAL CORPORATION
as Borrower
By______________________________________
Name:
Title:
[Signatures Continue on Next Page]
F-4
<PAGE>
Agreed and Acknowledged:
PAINE WEBBER REAL ESTATE SECURITIES INC.
By_________________________
Name:
Title:
[SERVICER]
as Servicer
By_________________________
Name:
Title:
[BANK]
as Bank
By_________________________
Name:
Title:
F-5
<PAGE>
EXHIBIT G
---------
FORM OF SERVICER NOTICE
__________ __, 199__
[SERVICER], as Servicer
[ADDRESS]
Attention: ___________
Re: Master Loan and Security Agreement, dated as of ________________
(the "Loan and Security Agreement"), by and between New Century
---------------------------
Mortgage Corporation, NC Capital Corporation (the "Borrowers")
---------
and Paine Webber Real Estate Securities Inc. (the "Lender")
------
Ladies and Gentlemen:
[SERVICER] (the "Servicer") is servicing certain mortgage loans for
--------
the Borrowers pursuant to certain Servicing Agreements between the Servicer and
the Borrowers. Pursuant to the Loan Agreement between the Lender and the
Borrowers, the Servicer is hereby notified that the Borrowers have pledged to
the Lender certain mortgage loans which are serviced by Servicer which are
subject to a security interest in favor of the Lender.
Upon receipt of a Notice of Event of Default from the Lender in which
the Lender shall identify the mortgage loans which are then pledged to Lender
under the Loan Agreement (the "Eligible Mortgage Loans"), the Servicer shall
-----------------------
segregate all amounts collected on account of such Eligible Mortgage Loans, hold
them in trust for the sole and exclusive benefit of the Lender, and remit such
collections in accordance with the Lender's written instructions. Following
such Notice of Event of Default, Servicer shall follow the instructions of
Lender with respect to the Eligible Mortgage Loans, and shall deliver to Lender
any information with respect to the Eligible Mortgage Loans reasonably requested
by Lender.
Notwithstanding any contrary information which may be delivered to the
Servicer by the Borrowers, the Servicer may conclusively rely on any information
or Notice of Event of Default delivered by the Lender, and the Borrowers,
jointly and severally, shall indemnify and hold the Servicer harmless for any
and all claims asserted against it for any actions taken in good faith by the
Servicer in connection with the delivery of such information or Notice of Event
of Default.
Please acknowledge receipt of this instruction letter by signing in
the signature block below and forwarding an executed copy to the Lender promptly
upon receipt. Any notices to the Lender should be delivered to the following
address: ________________________; Attention: ________________________, with a
copy to ______________________; Telephone: _______________; Facsimile:
_______________.
G-1
<PAGE>
Very truly yours,
NEW CENTURY MORTGAGE CORPORATION
By:_____________________________________
Name:
Title:
NC CAPITAL CORPORATION
By _____________________________________
Name:
Title:
ACKNOWLEDGED:
_____________________________, as Servicer
By:_____________
Name:
Title:
Telephone:
Facsimile:
G-2
<PAGE>
EXHIBIT H
---------
FORM OF INSTRUCTION LETTER
__________ __, 1999
____________________, as Trustee
____________________
____________________
Attention: _______________
Re: Master Loan and Security Agreement, dated as of _______________
(the "Loan and Security Agreement"), by and between New Century
---------------------------
Mortgage Corporation, NC Capital Corporation, (the "Borrowers")
---------
and Paine Webber Real Estate Securities Inc. (the "Lender")
------
Ladies and Gentlemen:
Pursuant to the Master Loan and Security Agreement, dated as of
__________ (the "Loan and Security Agreement"), between the Lender and the
---------------------------
Borrowers, you are hereby notified that: (i) the Borrowers have pledged to the
Lender the asset described on Schedule 1 hereto (the "Security"), (ii) the
---------- --------
Security is subject to a security interest in favor of the Lender, (iii) unless
notified by the Lender in writing, any payments or distributions made with
respect to the [Borrowers'] interest in each Security should be remitted by the
Trustee (or other paying agent) directly to the Lender in accordance with the
following wire instructions:
Account No.:_______________
ABA No.:___________________
Reference:_________________
Please acknowledge receipt of this instruction letter and confirm that
the Security is registered in the name of [__________] and you are aware of
Paine Webber Real Estate Securities Inc.'s interest in the Security as Lender
under the Loan Agreement and your agreement to the terms hereof by signing in
the signature block below and forwarding an executed copy to the Lender promptly
upon receipt. Any notices to the Lender should be delivered to the following
address: ________________________________________; Attention:
_________________________, with a copy to ______________________; Telephone:
(___) ___________; Facsimile: (___) ___________________.
H-1
<PAGE>
Very truly yours,
NEW CENTURY MORTGAGE CORPORATION
By:_____________________________________
Name:
Title:
NC CAPITAL CORPORATION
By _____________________________________
Name:
Title:
ACKNOWLEDGED:
________________________________, not in its individual capacity, but as Trustee
for ________________
By:______________________
Name:
Title:
Telephone:
Facsimile:
H-2
<PAGE>
EXHIBIT I
---------
FORM OF MORTGAGE NOTE
I-1
<PAGE>
EXHIBIT J
---------
UNDERWRITING GUIDELINES
J-1
<PAGE>
EXHIBIT K
---------
FORM OF CONTRIBUTION AGREEMENT
------------------------------
THIS CONTRIBUTION AGREEMENT (this "Agreement") is entered into as of
---------
the 20th day of July, 1999, by and among NEW CENTURY MORTGAGE CORPORATION, a
California corporation ("New Century"), NC CAPITAL CORPORATION a California
-----------
corporation ("NCCC"), each of which has a mailing address at 18400 Von Karman,
----
Suite 1000, Irvine, California 92612, (NCCC together with New Century, the
"Borrowers"), and PAINE WEBBER REAL ESTATE SECURITIES INC. ("Lender"), a
--------- ------
Delaware corporation, having an office at 1285 Avenue of the Americas, New York,
New York 10019.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, concurrently herewith, the Borrowers have entered into a
Master Loan and Security Agreement (the "Loan Agreement") with Paine Webber Real
--------------
Estate Securities Inc. (the "Lender"), pursuant to which the Lender shall
------
consider on an uncommitted basis making Loans to the Borrowers, collectively, in
an aggregate principal sum of up to $300 million (the "Loans") , which Loans are
-----
evidenced by a promissory note made by the Borrowers to the Lender (the "Note")
----
in the amount of the Loans and secured by certain collateral (the "Collateral")
----------
pledged by the Borrowers in favor of the Lender;
WHEREAS, each Borrower is jointly and severally liable under the Note
for payment of the full amount of the Note;
WHEREAS, each of the Borrowers will receive substantial benefits by
reason of the Loan; and
WHEREAS, the Borrowers are desirous of providing for certain rights of
contribution and subrogation as more particularly hereinafter provided.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Borrowers agree as follows:
(a) In the event of (a) any payment by any one or more of the
Borrowers of any amount in excess of the principal amount borrowed by such
Borrower under the Loan Agreement (each such amount, as the same may be
amortized pursuant to the Note, an "Allocable Principal Balance") together with
---------------------------
interest thereon and any other amounts payable with respect thereto, (b) the
foreclosure of, or the delivery of deeds in lieu of foreclosure relating to, any
of the Collateral owned by one or more of the Borrowers, each Borrower (the
"Overpaying Borrower") whose Collateral or assets have been utilized to satisfy
-------------------
obligations under the Loan or otherwise for the benefit of one or more other
Borrowers shall be entitled, after payment in full of the Note and the
satisfaction of all the Borrowers other obligations to Lender, to contribution
from each of the benefited Borrowers, for the amounts so paid, advanced or
benefited, up to such benefited Borrower's then current Allocable Principal
Balance. Any such contribution payments shall be made within ten (10) days after
demand therefor.
J-1
<PAGE>
(b) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns.
(c) This Agreement shall be construed and enforced in accordance with
the laws of the State of New York.
(d) This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same instrument.
(e) Any notices required to be given under this Agreement shall be
given in the manner provided in the Loan Agreement. All capitalized terms,
unless otherwise defined herein, have the same meanings as defined in the Loan
Agreement.
(f) This Agreement may not be modified, amended or terminated except
by a written agreement executed by all of the parties hereto.
H-2
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first written above.
PAINE WEBBER REAL ESTATE
SECURITIES INC.
By:____________________________________
Name:
Title:
NEW CENTURY MORTGAGE CORPORATION
By:____________________________________
Name:
Title:
NC CAPITAL CORPORATION
By:____________________________________
Name:
Title:
H-3
<PAGE>
EXHIBIT 10.8
================================================================================
PREFERRED STOCK PURCHASE AGREEMENT
BETWEEN
NEW CENTURY FINANCIAL CORPORATION
AND
U.S. BANCORP
Dated as of
July 26, 1999
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT dated as of July 26, 1999, is made
between New Century Financial Corporation, a Delaware corporation (the
"Company"), and U.S. Bancorp, a Delaware corporation (the "Purchaser").
RECITALS
WHEREAS, the Company wishes to sell, and the Purchaser wishes to purchase,
20,000 shares (the "Shares") of the Series 1999A Convertible Preferred Stock
(the "Preferred Stock") of the Company upon the terms and conditions set forth
herein; and
WHEREAS, concurrent with the closing of the sale of the Shares the
Purchaser and the Company intend to enter into an agreement (the "Registration
Rights Agreement") relating to the registration for public sale under the
Securities Act of 1933 of the shares the Company's Common Stock issuable upon
conversion of the Preferred Stock; and
WHEREAS, the Company and the Purchaser wish to set forth in this Agreement
certain other terms and conditions for the sale and purchase of the Shares.
AGREEMENT
NOW, THEREFORE, the Purchaser and the Company hereby agree as follows:
1. Authorization of the Shares. The Company has authorized the
---------------------------
issuance and sale of the Shares to the Purchaser. The Preferred Stock will have
the relative rights and preferences set forth in the Certificate of Designations
attached as Exhibit A to this Agreement.
2. Sale of Shares. Subject to the terms and conditions of this Agreement,
--------------
at the Closing the Company agrees to sell to the Purchaser, and the Purchaser
agrees to purchase from the Company, 20,000 Shares at a purchase price of $1,000
per Share.
3. Closing Date; Delivery.
----------------------
3.1 Closing Date. Following the satisfaction or waiver of all
------------
conditions to the obligations of the parties to consummate the transactions
contemplated hereby as set forth in Article 7, the closing (the "Closing") of
the purchase and sale of Shares pursuant to this Agreement will take place at
9:00 a.m. at the offices of Dorsey & Whitney LLP, 220 South Sixth Street,
Minneapolis, Minnesota 55402, on July 26, 1999, or at such other time and place
as the Company and the Purchaser may agree (the date of the Closing is
hereinafter referred to as the "Closing Date").
<PAGE>
3.2 Delivery. At the Closing, the Company will deliver to the
--------
Purchaser a certificate registered in the Purchaser's name representing the
Shares purchased by the Purchaser at the Closing, and the Purchaser will pay the
purchase price for the Shares being purchased by wire transfer.
4. Definitions. Unless the context otherwise requires, the terms defined
-----------
in this Section 4 shall have the meanings herein specified for all purposes of
this Agreement. Certain other capitalized terms used herein are defined
elsewhere in this Agreement.
"Affiliate" means any person that directly or indirectly controls or
is controlled by, or is under common control with, another specified person.
"Agreement" means this Preferred Stock Purchase Agreement.
"BHCA" is defined in Section 6.2.
"Basket Amount" is defined in Section 11.12.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the shares of common stock, par value $.01 per
share, of the Company.
"Conversion Shares" shall mean the shares of Common Stock issuable
upon the conversion of the Shares.
"DGCL" is defined in Section 5.14.
"Disclosure Schedules" is defined in Section 5.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System or any agency having regulatory responsibility with respect to the
Purchaser under the BHCA.
"Form 10-K Report" is defined in Section 5.4(a).
"Form 10-Q Report" is defined in Section 5.4(a).
"Latest Balance Sheet" is defined in Section 5.4(b).
<PAGE>
"Liabilities" is defined in Section 5.6.
"Losses" is defined in Section 11.12.
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, liabilities, results of operations or financial condition of
the Company and the Subsidiaries, taken as a whole, or (b) on the ability of the
Company to perform its obligations under or with respect to, or to consummate
the transactions contemplated by, this Agreement.
"OCC" means the Office of the Comptroller of the Currency or any
agency having regulatory responsibility with respect to any national bank
subsidiary of the Purchaser under the National Bank Act.
"Person" means any natural person, corporation, limited liability
company, association, partnership (general or limited), joint venture,
proprietorship, governmental body, trust, estate, association, custodian,
nominee or any other individual or entity, whether acting in an individual,
fiduciary, representative or other capacity.
"Preferred Stock" is defined in the Recitals to this Agreement.
"Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement to be dated as of the Closing Date between the
Company and the Purchaser relating to the registration under the Securities Act
of the Conversion Shares the form of which has been hereto as Exhibit B.
"Related Statements" is defined in Section 5.4(b).
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Shares" is defined in the Recitals to this Agreement.
"Subsidiary" is defined in Section 5.1.
"Subsidiaries" means the entities identified as subsidiaries on
Schedule 5.5.
"Takeover Laws" is defined in Section 5.14.
"Year 2000 Compliant" is defined in Section 5.13.
"Year 2000 Problem" is defined in Section 5.13.
"1998 Certificate of Designations" means the Certificate of
Designations for the Series 1998A Convertible Preferred Stock of the Company, as
filed with the Delaware Secretary of State on November 24, 1998.
<PAGE>
5. Representations and Warranties by the Company. Except as disclosed in
---------------------------------------------
the Disclosure Schedules delivered by the Company herewith (the "Disclosure
Schedules"), the Company hereby represents and warrants to the Purchaser that:
5.1. Organization and Qualification. The Company is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has the requisite corporate power to carry on its
business as now conducted. New Century Mortgage Corporation (the "Subsidiary")
is a corporation duly organized, validly existing and in good standing under the
laws of California and has the requisite corporate power to carry on its
business as now conducted. The copies of the charter and the bylaws of each of
the Company and the Subsidiary which have been provided to Purchaser prior to
the date of this Agreement are correct and complete and reflect all amendments
made thereto through the date hereof. Each of the Company and the Subsidiary is
licensed or qualified to do business in every jurisdiction in which the nature
of its respective business or its ownership of property requires it to be
licensed or qualified, except where the failure to be so licensed or qualified
would not reasonably be expected to have a Material Adverse Effect.
5.2. Authority Relative to this Agreement; Non-Contravention. The
-------------------------------------------------------
Company has the requisite corporate power and authority to enter into this
Agreement and the Registration Rights Agreement, to carry out its obligations
hereunder and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of this Agreement and the Registration Rights
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby have been duly authorized by the Board of
Directors of the Company and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement, the Registration Rights
Agreement and such transactions. Each of this Agreement and the Registration
Rights Agreement has been duly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms, except as the enforceability hereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
enforcement of creditors' rights generally and to judicial limitations on the
enforcement of the remedy of specific performance and other equitable remedies
and except as the indemnification provisions of the Registration Rights
Agreement may be limited by principles of public policy. Except as set forth on
Schedule 5.2, neither the Company nor any of the Subsidiaries is subject to, or
obligated under, any provision of (a) its charter or bylaws, (b) any agreement,
arrangement or understanding, (c) any license, franchise or permit or (d) any
law, regulation, order, judgment or decree, which would be breached or violated,
or in respect of which a right of termination or acceleration or any encumbrance
on any of its assets would be created, by the execution, delivery or performance
of this Agreement or the Registration Rights Agreement or the consummation of
the transactions contemplated hereby or thereby, other than any such breaches,
violations, terminations, accelerations or encumbrances which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Assuming the accuracy of the representations of Purchaser
contained in Section 6, no authorization, consent or approval of, or filing
with, any public body, court or authority is necessary on the part of the
Company or the Subsidiary for the consummation by the Company of the
transactions contemplated by this Agreement or the Registration Rights
Agreement.
<PAGE>
5.3. Capitalization. The authorized, issued and outstanding capital
--------------
stock of the Company as of the date hereof is set forth on Schedule 5.3. All of
the issued and outstanding shares of capital stock of the Subsidiary are owned
by the Company, free and clear of any lien, pledge, security interest,
encumbrance or charge of any kind. The issued and outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully paid and
nonassessable and have not been issued in violation of any preemptive rights.
Except as set forth on Schedule 5.3, there are no options, warrants, conversion
privileges or other rights, agreements, plans, arrangements or commitments
obligating the Company or the Subsidiary to issue, sell, purchase or redeem any
shares of their capital stock or securities or obligations of any kind
convertible into or exchangeable for any shares of their capital stock or of any
of their subsidiaries or affiliates, nor are there any stock appreciation,
phantom or similar rights outstanding based upon the book value or any other
attribute of any of the capital stock of the Company, or the earnings or other
attributes of the Company. The Company has heretofore delivered to Purchaser
true and correct copies of all such agreements, arrangements (including all
stock option and other stock-based plans) or commitments identified on Schedule
5.3.
5.4. Exchange Act Reports; Financial Statements.
------------------------------------------
(a) Prior to the execution of this Agreement, the Company has
delivered or made available to the Purchaser complete and accurate copies of (a)
the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
as amended (the "Form 10-K Report"), as filed under the Exchange Act with the
Commission, (b) all proxy statements and annual reports to shareholders of the
Company used in connection with meetings of its shareholders held since June 25,
1997, and (iii) the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999 (the "Form 10-Q Report"), as filed under the Exchange Act
with the Commission. As of their respective dates, such documents (x) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and (y)
complied as to form in all material respects with the applicable laws and rules
and regulations of the Commission. Since June 25, 1997, the Company has filed
in a timely manner all reports that it was required to file with the Commission
pursuant to the Exchange Act.
(b) The Company has furnished Purchaser with a copy of the
consolidated balance sheet of the Company as of June 30, 1999 (the "Latest
Balance Sheet") and the related statements of operations for the six-month
period then ended (the "Related Statements"). The Latest Balance Sheet and the
Related Statements have been prepared on a basis consistent with the financial
statements included in the Form 10-K, except for the absence of notes and normal
year end adjustments consistent with past practice. The Latest Balance Sheet and
the Related Statements fairly present the consolidated financial position of the
Company and as of the date thereof and the consolidated results of operations
and, as applicable, changes in shareholders' equity and cash flows for the
period then ended.
<PAGE>
5.5. Subsidiary. Except as disclosed on Schedule 5.5, neither the
----------
Company nor the Subsidiary owns any stock, partnership interest, joint venture
interest or any other security issued by any other corporation, organization or
entity. Other than the Subsidiary, NC Capital Corporation and PWF Corporation,
the assets and operations of the entities listed on Schedule 5.5, individually
and in the aggregate, are not material to the Company and the Subsidiary, taken
as a whole.
5.6. Absence of Undisclosed Liabilities. All of the obligations or
----------------------------------
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, and regardless of when asserted, including taxes)
("Liabilities") required to be reflected on the "Latest Balance Sheet" in
accordance with generally accepted accounting principles have been so reflected.
To the best knowledge of the Company and the Subsidiary, neither the Company nor
any of the Subsidiaries has any Liabilities except (a) as reflected on the
Latest Balance Sheet, (b) Liabilities which have arisen after the date of the
Latest Balance Sheet in the ordinary course of business, none of which is an
uninsured liability which could reasonably be expected to have a Material
Adverse Effect, (c) Liabilities which have arisen outside of the ordinary course
of business, none of which is an uninsured liability which could reasonably be
expected to have a Material Adverse Effect or (d) as otherwise disclosed on
Schedule 5.6.
5.7. No Material Adverse Changes. Since the date of the Latest
---------------------------
Balance Sheet, there has been no adverse change in, and no event, occurrence or
development in, the business of the Company or any of the Subsidiaries that,
taken together with other events, occurrences and developments with respect to
such business, has had, or would reasonably be expected to have, a Material
Adverse Effect; provided that, for purposes of this Section 5.7 only, general
industry trends in the subprime mortgage lending market, including those set
forth on Schedule 5.7, shall not be deemed to be such a change, event,
occurrence or development.
5.8. Tax Matters. Neither the Company nor any of the Subsidiaries is
-----------
delinquent in the payment of any material foreign, federal, state or local tax
or in the payment of any material assessment or governmental charge. The Company
and each of the Subsidiaries has filed all required foreign, federal, state or
local tax returns or appropriate extension requests on a timely basis, except
for such returns or requests which the failure to file would not reasonably be
expected to have a Material Adverse Effect. Neither the Company nor any of the
Subsidiaries has requested any extension of time within which to file any tax
return that has not since been filed. Neither the Company nor any of the
Subsidiaries has received notice of any tax deficiency proposed or assessed
against it or has executed any waiver of any statute of limitations on the
assessment or collection of any tax.
<PAGE>
5.9. Litigation. There are no actions, suits, proceedings, orders or
----------
investigations pending or, to the best knowledge of the Company and the
Subsidiary, threatened against the Company or any of the Subsidiaries, at law or
in equity, or before or by any federal, state or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. Set forth on Schedule 5.9 are each of such pending
actions, suits, proceedings, orders or investigations as of the date of this
Agreement which could reasonably be expected to have a Material Adverse Effect.
5.10. Compliance with Laws; Permits. The Company and each of the
-----------------------------
Subsidiaries has complied in all respects with all applicable laws and
regulations of foreign, federal, state and local governments and all agencies
thereof which affect the business or any owned or leased properties of the
Company or any of the Subsidiaries and to which the Company or any of the
Subsidiaries is subject, except where the failure to do so would not have a
Material Adverse Effect. No claims have been filed by such governments or
agencies against the Company or any of the Subsidiaries alleging failures to
comply with any such law or regulation which claims (a) individually or in the
aggregate, if successful, could reasonably be expected to have a Material
Adverse Effect, and (b) have not been resolved to the satisfaction of such
governments or agencies. The Company and each of the Subsidiaries holds all of
the permits, licenses, certificates and other authorizations of foreign,
federal, state and local governmental agencies required for the conduct of the
business, except where the failure to do so would not reasonably be expected to
have a Material Adverse Effect.
5.11. Shares. The Shares to be sold to the Purchaser at the Closing,
------
when issued and paid for pursuant to the terms of this Agreement, will be duly
and validly authorized, issued and outstanding, fully paid, nonassessable and
free and clear of all pledges, liens, encumbrances and restrictions.
5.12. No Brokers or Finders. No Person has or will have, as a result
---------------------
of any act or omission of the Company, any right, interest or valid claim
against the Company or the Purchaser for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement.
5.13. Year 2000 Compliance. The Company has (a) initiated a review
--------------------
and assessment of all areas of its business and operations and of each of its
Subsidiaries (including those affected by their respective suppliers, vendors
and customers) that could be adversely affected by the risk that computer
applications used by it or any of the Subsidiaries (or their respective
suppliers, vendors and customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999 (the "Year 2000 Problem"), (b) developed a plan and
timetable for addressing the Year 2000 Problem on a timely basis, and (c) to
date, implemented that plan in accordance with that timetable. Based on the
foregoing, the Company believes that all computer applications used by it or any
of the Subsidiaries (or their respective suppliers, vendors and customers) are
reasonably expected on a timely basis to be Year 2000 Compliant (as defined
below), except to the extent that a failure to do so could not reasonably be
expected to have a Material Adverse Effect. The
<PAGE>
costs of all assessment, remediation, testing and integration related to the
Company's plan for becoming Year 2000 Compliant is not reasonably expected to
have a Material Adverse Effect. As used in this Agreement, the term "Year 2000
Compliant" shall mean the ability of such computer application to (w)
consistently and accurately handle date information before, during and after
January 1, 2000, including but not limited to accepting date input, providing
date output, and performing calculations on dates or portions of dates; (x)
function accurately substantially in accordance with its specifications and
without material interruption before, during and after January 1, 2000, without
any change of operations associated with the advent of the new century; (y)
respond to any two-digit date input in a way that resolves any ambiguity as to
century in a disclosed, defined and predetermined manner; and (z) store and
provide output of date information in ways that are unambiguous as to century.
5.14. Takeover Laws. The Company has taken all action required to be
-------------
taken by it, if any, in order to exempt the purchase and sale of the Shares
from, and such transaction is exempt from, the requirements of any "moratorium",
"control share", "fair price" or other antitakeover laws and regulations of the
States of Delaware and California (collectively, "Takeover Laws"), including,
without limitation, Section 203 of the Delaware General Corporation Law
("DGCL").
6. Representations and Warranties of the Purchaser. The Purchaser
-----------------------------------------------
hereby represents and warrants to the Company that:
6.1 Investment Representations. The Shares being acquired by the
--------------------------
Purchaser are being purchased for the Purchaser's own account and not with the
view to, or for resale in connection with, any distribution or public offering
thereof within the meaning of the Securities Act. The Purchaser understands
that neither the Shares nor the Conversion Shares have been registered under the
Securities Act by reason of their contemplated issuance in transactions exempt
from the registration and prospectus delivery requirements of the Securities Act
pursuant to Section 4(2) thereof, and that the reliance of the Company upon this
exemption from such registration is predicated in part upon the representations
and warranties of the Purchaser contained herein. The Purchaser is an
"accredited investor" as that term is defined in Regulation D promulgated under
the Securities Act and has such knowledge and experience in financial and
business matters that the Purchaser is capable of evaluating the merits and
risks of the investment to be made hereunder by the Purchaser.
<PAGE>
6.2. Organization and Qualification. The Purchaser is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has the requisite corporate power to carry on its
business as now conducted. The Purchaser is registered as a bank holding company
under the Bank Holding Company Act of 1956, as amended from time to time,
including any regulations or orders of the Federal Reserve thereunder (the
"BHCA"). The Purchaser is licensed or qualified to do business in every
jurisdiction in which the nature of its business or its ownership of property
requires it to be licensed or qualified, except where the failure to be so
licensed or qualified would not reasonably be expected to have a material
adverse effect on (a) the business, assets, liabilities, results of operations
or financial condition of the Purchaser or (b) on the ability of the Purchaser
to perform its obligations under or with respect to, or to consummate the
transactions contemplated by, this Agreement.
6.3. Authority Relative to this Agreement; Non-Contravention. The
-------------------------------------------------------
Purchaser has the requisite corporate power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Purchaser and the consummation by the Purchaser of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on behalf of the Purchaser and no other corporate proceedings on the part of the
Purchaser are necessary to authorize this Agreement and such transactions. This
Agreement has been duly executed and delivered by the Purchaser and constitutes
a valid and binding obligation of the Purchaser, enforceable in accordance with
its terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the enforcement
of creditors' rights generally and to judicial limitations on the enforcement of
the remedy of specific performance and other equitable remedies and except as
the indemnification provisions of the Registration Rights Agreement may be
limited by principles of public policy. The Purchaser is neither subject to,
nor obligated under, any provision of (a) its charter or bylaws, (b) any
agreement, arrangement or understanding, (c) any license, franchise or permit or
(d) any law, regulation, order, judgment or decree, which would be breached or
violated, or in respect of which a right of termination or acceleration or any
encumbrance on any of its assets would be created, by the execution, delivery or
performance of this Agreement or the consummation of the transactions
contemplated hereby, other than any such breaches, violations, terminations,
accelerations or encumbrances which would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on (y) the business,
assets, liabilities, results of operations or financial condition of the
Purchaser and its subsidiaries, taken as a whole, or (z) on the ability of the
Purchaser to perform its obligations under or with respect to, or to consummate
the transactions contemplated by, this Agreement. Assuming the accuracy of the
representations of the Company contained in Section 5, no authorization, consent
or approval of, or filing with, any public body, court or authority is necessary
on the part of the Purchaser for the consummation by the Purchaser of the
transactions contemplated by this Agreement.
<PAGE>
6.4 No Brokers or Finders. No Person has or will have, as a result
---------------------
of any act or omission of the Purchaser, any right, interest or valid claim
against the Company or the Purchaser for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement.
6.5 Restriction on Transfer of Shares.
---------------------------------
(a) The Purchaser acknowledges and agrees that the Shares and the
Conversion Shares are only transferable pursuant to (i) a public offering
registered under the Securities Act, (ii) Rule 144 promulgated by the Commission
under the Securities Act (or any similar rule then in effect) if such rule is
available and (iii), subject to the conditions specified elsewhere in this
Section 6.5, any other legally available means of transfer.
(b) Legend. Each certificate representing Shares shall be endorsed
------
with the following legend:
"The shares represented by this certificate may not be
transferred without (i) an opinion of counsel satisfactory to
this corporation that such transfer may lawfully be made without
registration under the Securities Act of 1933, as amended, and
all applicable state securities laws or (ii) such registration."
Upon the conversion of any Shares, unless the Company receives an opinion of
counsel satisfactory to the Company to the effect that a subsequent transfer of
the Conversion Shares may be made without registration or further restriction or
transfer, or unless such Conversion Shares are being disposed of pursuant to a
registration statement filed under the Securities Act, the same legend shall be
endorsed on each certificate evidencing such Conversion Shares.
(c) Removal of Legend. Any legend endorsed on a certificate
-----------------
evidencing Shares or Conversion Shares pursuant to Section 6.5(b) hereof shall
be removed, and the Company shall issue a certificate without such legend to the
holder of such Shares or Conversion Shares, if such Shares or Conversion Shares
are being disposed of pursuant to a registration statement filed under the
Securities Act or pursuant to Rule 144 or any similar rule then in effect or if
such holder provides the Company with an opinion of counsel satisfactory to the
Company to the effect that a transfer of such Shares or Conversion Shares may be
made without registration. In addition, if the holder of such Shares or
Conversion Shares delivers to the Company an opinion of such counsel to the
effect that no subsequent transfer of such Shares or Conversion Shares will
require registration under the Securities Act, the Company will promptly deliver
new certificates evidencing such Shares or Conversion Shares that do not bear
the legend set forth in Section 6.5(b).
7. Conditions to Closing.
---------------------
7.1 Conditions to Purchaser's Obligation. The Purchaser's obligation
------------------------------------
to purchase and pay for the Shares is subject to the fulfillment prior to or on
the Closing Date of the following conditions, any of which may be waived in
whole or in part by the Purchaser:
<PAGE>
(a) Representations and Compliance. The representations and
------------------------------
warranties of the Company in this Agreement shall have been true and correct as
of the date hereof, and such representations and warranties shall be true and
correct as of the Closing Date as if made at and as of the Closing Date; and the
Company shall have performed in all material respects each obligation and
agreement and complied in all material respects with each covenant to be
performed and complied with by it hereunder at or prior to the Closing Date.
(b) Officers' Certificate of the Company. The Company shall have
------------------------------------
furnished to the Purchaser a certificate of the Chief Executive Officer and the
Chief Financial Officer of the Company, dated as of the Closing Date, in which
such officers shall certify on behalf of the Company that (ii) the conditions
set forth in Section 7.1(a) have been fulfilled, and (ii) except as disclosed in
such certificate, Schedule 5.9 is true and correct as of the Closing Date.
(c) Secretary's Certificate. The Company shall have furnished to
-----------------------
the Purchaser (i) copies of the text of the resolutions by which the corporate
action on the part of the Company necessary to approve this Agreement and the
Registration Rights Agreement and the transactions contemplated hereby and
thereby were taken, and (ii) a certificate dated as of the Closing Date executed
on behalf of the Company by its corporate secretary or one of its assistant
corporate secretaries certifying to the Purchaser that such copies are true,
correct and complete copies of such resolutions and that such resolutions were
duly adopted and have not been amended or rescinded.
(d) Material Adverse Change. Since the date of this Agreement, there
-----------------------
shall have been no adverse change in, and no event, occurrence or development
in, the business of the Company or the Subsidiary that, taken together with
other events, occurrences and developments with respect to such business, would
have or would reasonably be expected to have a Material Adverse Effect.
(e) Proceedings. All corporate proceedings and actions taken by the
-----------
Company in connection with the transactions contemplated by this Agreement
(including the authorization of the Shares through the filing of the Certificate
of Designations in the State of Delaware) and all certificates, agreements,
instruments and other documents referenced herein or incident to any such
transaction shall be reasonably satisfactory in form and substance to the
Purchaser.
(f) Registration Rights Agreement. The Company shall have executed
-----------------------------
and delivered to the Purchaser the Registration Rights Agreement substantially
in the form attached hereto as Exhibit B.
(g) Absence of Undisclosed Liabilities As of the Closing Date, neither
----------------------------------
the Company nor any of the Subsidiaries has any Liabilities except (a) as
reflected on the Latest Balance Sheet, (b) Liabilities which have arisen after
the date of the Latest Balance Sheet in the ordinary course of business, none of
which is an uninsured liability which could reasonably be expected to have a
Material Adverse Effect, (c) Liabilities which have arisen outside of the
<PAGE>
ordinary course of business, none of which is an uninsured liability which could
reasonably be expected to have a Material Adverse Effect or (d) as otherwise
disclosed on Schedule 5.6.
7.2 Conditions to Obligations of the Company. The obligation of
----------------------------------------
the Company to issue and sell the Shares to the Purchaser is subject to the
fulfillment prior to or on the Closing Date of the following conditions, any of
which may be waived in whole or in part by the Company:
(a) Representations and Compliance. The representations and
------------------------------
warranties of the Purchaser in this Agreement shall have been true and correct
as of the date hereof, and such representations and warranties shall be true and
correct as of the Closing Date as if made at and as of the Closing Date; and the
Purchaser shall have performed in all material respects each obligation and
agreement and complied in all material respects with each covenant to be
performed and complied with by it hereunder at or prior to the Closing Date.
(b) Officers' Certificate of the Purchaser. The Purchaser shall have
--------------------------------------
furnished to the Company a certificate of a senior executive officer of the
Purchaser, dated as of the Closing Date, in which such officer shall certify, on
behalf of the Purchaser, that the conditions set forth in Section 7.2(a) have
been fulfilled.
(c) Material Adverse Change. Since the date of this Agreement, there
-----------------------
shall have been no adverse change in, and no event, occurrence or development
in, the business of the Purchaser that, taken together with other events,
occurrences and developments with respect to such business, would have or would
reasonably be expected to have a material adverse effect on the ability of the
Purchaser to perform its obligations under or with respect to, or to consummate
the transactions contemplated by, this Agreement.
(d) Proceedings. All corporate proceedings and actions taken by the
-----------
Purchaser in connection with the transactions contemplated by this Agreement and
all certificates, agreements, instruments and other documents referenced herein
or incident to any such transaction shall be reasonably satisfactory in form and
substance to the Company.
7.3 Mutual Conditions. The obligation of either of the parties hereto
-----------------
to consummate the transactions contemplated hereby is subject to the fulfillment
prior to or on the Closing Date of the following conditions, any of which may be
waived in whole or in part only by the party against whom enforcement of this
Agreement is sought:
(a) No Injunction. No injunction or other order entered by a state or
-------------
federal court of competent jurisdiction shall have been issued and remain in
effect which would impair the consummation of the transactions contemplated
hereby.
(b) No Prohibitive Change of Law. There shall have been no law,
----------------------------
statute, rule or regulation, domestic or foreign, enacted or promulgated which
would materially impair the consummation of the transactions contemplated
hereby.
<PAGE>
(c) Governmental Action. There shall not be any action taken, or any
-------------------
statute, rule, regulation, judgment, order or injunction proposed, enacted,
entered, enforced, promulgated, issued or deemed applicable to the transactions
contemplated hereby by any federal, state or other court, government or
governmental authority or agency, which would reasonably be expected to result,
directly or indirectly, in restraining or prohibiting the consummation of the
transactions contemplated hereby or obtaining material damages from the Company
or any of the Subsidiaries, or the Purchaser or any of Purchaser's subsidiaries,
in connection with the transactions contemplated hereby.
8. Covenants of the Company. The Company covenants and agrees with the
------------------------
Purchaser that:
8.1 Use of Proceeds. The proceeds from the sale of the Shares shall
---------------
be used for working capital and general corporate purposes (other than dividends
and extraordinary disbursements).
8.2 Regulatory Compliance.
---------------------
(a) As long as the Shares or the Conversion Shares are owned and
controlled by the Purchaser or by a nonbank subsidiary of the Purchaser, the
Company shall (i) conduct its current activities in conformity with the Federal
Reserve's regulations and orders under the BHCA governing such activities, (ii)
not engage in any new activities (A) that are impermissible for any bank holding
company under the BHCA and (B) until the Purchaser has provided prior notice to
the Federal Reserve, if required, under the BHCA of the Purchaser's intent to
engage in such activities and, if required, obtained the prior approval of the
Federal Reserve under the BHCA to engage in such activities through the Company,
and (iii) be subject to supervision and examination by the Federal Reserve;
provided, however, that the Company need not comply with this Section 8.8(a) in
- -----------------------
the event (i) that the Shares or the Conversion Shares represent less than 5% of
any "class of voting shares" (as such term is defined in the Federal Reserve's
regulations and orders) of the Company or (ii) that the Purchaser ceases to be
regulated as a bank holding company under the BHCA.
(b) Following the assignment and transfer of the Shares or the
Conversion Shares to a national bank subsidiary of the Purchaser and, following
such assignment and transfer, for as long as the Shares or the Conversion Shares
are owned and controlled by a national bank subsidiary of the Purchaser, the
Company shall (i) conduct its current activities in conformity with the OCC's
regulations and orders under the National Bank Act governing such activities,
(ii) not engage in any new activities (A) that are impermissible for any
national bank under the National Bank Act and (B) until the Purchaser has
provided prior notice to the OCC, if required, under the National Bank Act of
the Purchaser's intent to engage in such activities and, if required, obtained
the prior approval of the OCC under the National Bank Act to engage in such
activities through the Company, and (iii) be subject to supervision and
examination by the OCC; provided, however, that the Purchaser shall not assign
or transfer the Shares or the Conversion Shares to a national bank subsidiary of
the Purchaser, unless and until the Purchaser determines, in its reasonable
discretion, that the Company would be deemed to be an "affiliate" of Purchaser
for purposes of Section 23A of the Federal Reserve Act as a result of
Purchaser's
<PAGE>
ownership of the Shares or the Conversion Shares or any shares of Common Stock
of the Company which Purchaser may acquire in its discretion in accordance with
the terms of this Agreement or as a result of Purchaser's representation on the
Company's Board of Directors or as otherwise as required by Section 23A of the
Federal Reserve Act.
9. Mutual Covenants
----------------
9.1 Brokers and Finders Fees. Each of the parties hereto will
------------------------
indemnify and hold the other party harmless against any and all liability to any
Person with respect to any commission, fee or other compensation as a finder or
broker, or in any similar capacity, that may be payable or is determined to be
payable in connection with the transactions contemplated by this Agreement by
reason of any act or omission of the indemnifying party.
9.2 Notification of Certain Matters. Each party shall give prompt
-------------------------------
notice to the other parties of (a) the occurrence or failure to occur of any
event or the discovery of any information, which occurrence, failure or
discovery would be likely to cause any representation or warranty on its part
contained in this Agreement to be untrue or inaccurate when made, at the Closing
Date or at any time prior to the Closing Date, and (b) any failure of such party
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder.
9.3 Takeover Laws. No party shall take any action that would cause
-------------
the purchase and sale of the Shares to be subject to requirements imposed by any
Takeover Law and each party shall take all necessary steps within its control to
exempt (or ensure the continued exemption of) the purchase and sale of the
Shares, or if necessary challenge the validity or applicability of, any
applicable Takeover Law, as now or hereafter in effect, including, without
limitation, Section 203 of the DGCL, or any other Takeover Laws that purport to
apply to this Agreement, or the transactions contemplated hereby.
9.4 Amendment to Credit Agreement. The Company and the Purchaser each
-----------------------------
shall use their respective reasonable best efforts to cause an amendment in
substantially the form attached hereto as Exhibit C (the "Amendment") to the
Fourth Amended and Restated Credit Agreement dated as of May 26, 1999 by and
among New Century Mortgage Corporation, the lenders party thereto and U.S. Bank
National Association, as Agent (the "Credit Agreement") to be executed and
delivered by the Required Lenders (as defined in the Credit Agreement) as
promptly as practicable following the Closing.
10. Termination.
-----------
10.1 Methods of Termination. Prior to Closing, this Agreement may be
----------------------
terminated as follows:
(a) by the mutual consent of the parties hereto; or
<PAGE>
(b) by either the Purchaser or the Company if there has been a
misrepresentation, breach of warranty or breach of covenant on the part of the
other party under this Agreement; or
(c) by either the Purchaser or the Company, if any of the conditions
to such party's obligation to consummate the transactions contemplated in this
Agreement shall have become impossible to satisfy; or
(d) by the Purchaser if, between the date hereof and the Closing
Date, there shall have been any occurrence that has resulted or could reasonably
be expected to result in a Material Adverse Effect.
10.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 10.1, this Agreement shall become void (other
than Section 11.15 which shall remain in full force and effect) and there shall
be no liability on the part of any party hereto, or their respective
stockholders, officers, or directors.
11. Miscellaneous.
-------------
11.1 Press Releases and Announcements. No party hereto shall issue
--------------------------------
any press release (or make any other public announcement) related to this
Agreement or the transactions contemplated hereby without prior written approval
of the other party hereto, except as may be necessary, in the opinion of counsel
to the party seeking to make disclosure, to comply with any applicable laws,
including securities laws. If any such press release is so required, the party
making such disclosure shall, to the extent practicable, consult with the other
party prior to making such disclosure, and the parties shall use all reasonable
efforts, acting in good faith, to agree upon a text for such disclosure which is
satisfactory to all of the parties.
11.2 Entire Agreement. This Agreement (including the exhibits,
----------------
schedules and other documents referred to herein) and the Registration Rights
Agreement contain the entire understanding between the parties hereto with
respect to the subject matter hereof and thereof and supersede any prior
understandings, agreements or representations, written or oral, relating to the
subject matter hereof and thereof. Notwithstanding the foregoing, this
Agreement shall not amend or supercede and shall not affect the agreements of
the Company and Purchaser contained in the Preferred Stock Purchase Agreement
dated as of October 18, 1998 (including the exhibits, schedules and other
documents referred to therein); provided, however, that the Registration Rights
Agreement, dated as of November 24, 1998, between the Company and the Purchaser
shall be amended and restated in its entirety as contemplated by the
Registration Rights Agreement.
11.3 Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which will be an original and all of which taken together
shall constitute one and the same agreement, and any party hereto may execute
this Agreement by signing any such counterpart.
<PAGE>
11.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law but if any provision of this Agreement is held to be
invalid, illegal or unenforceable under any applicable law or rule, the
validity, legality and enforceability of the other provisions of this Agreement
will not be affected or impaired thereby.
11.5 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective heirs, personal
representatives and, to the extent permitted by Section 11.6, successors and
assigns.
11.6 Assignment. This Agreement and the rights and obligations of the
----------
parties hereunder shall not be assignable, in whole or in part, by either party
without the prior written consent of the other party.
11.7 Modification, Amendment, Waiver or Termination. No provision of
----------------------------------------------
this Agreement may be modified, amended, waived or terminated except by an
instrument in writing signed by the parties to this Agreement. No course of
dealing between the parties will modify, amend, waive or terminate any provision
of this Agreement or any rights or obligations of any party under or by reason
of this Agreement.
11.8 Notices. All notices, consents, requests, instructions,
-------
approvals or other communications provided for herein shall be in writing and
delivered by personal delivery, overnight courier, mail or electronic facsimile
addressed to the receiving party at the address set forth herein. All such
communications shall be effective when received.
Notices to the Purchaser: with a copy to:
- ------------------------ --------------
U.S. Bancorp Dorsey & Whitney LLP
601 Second Avenue South 220 South Sixth Street
Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402
Attention: Lee R. Mitau, Esq. Attention: Elizabeth C. Hinck, Esq.
Telecopy: (612) 973-4333 Telecopy: (612) 340-8738
Notices to the Company: with a copy to:
- ----------------------- --------------
New Century Financial Corporation O'Melveny & Myers LLP
18400 Von Karman, Suite 1000 610 Newport Center Drive, 17th Floor
Irvine, California 92612 Newport Beach, California 92660
Attention: Brad A. Morrice Attention: Karen K. Dreyfus, Esq.
Telecopy: 949-440-7033 Telecopy: 949-823-6994
Any party may change the address set forth above by notice to each other party
given as provided herein.
<PAGE>
11.9 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
11.10 Governing Law. All matters relating to the interpretation,
-------------
construction, validity and enforcement of this Agreement shall be governed by
the internal laws of the state of Delaware, without giving effect to any choice
of law provisions thereof.
11.11 Third-Party Benefit. Nothing in this Agreement, express or
-------------------
implied, is intended to confer upon any other person any rights, remedies,
obligations or liabilities of any nature whatsoever.
11.12 Survival of Representations and Warranties. Notwithstanding
------------------------------------------
any investigation made by either of the parties hereto and notwithstanding the
Closing or any actions taken after the execution hereof, the representations and
warranties made in this Agreement shall survive for 18 months after the Closing
Date, except for the representation and warranty in Section 5.11 which shall
survive the Closing indefinitely. Purchaser shall not assert a claim against
the Company for a breach or breaches of the representations and warranties made
in this Agreement unless and until Purchaser has a claim or claims for damages,
liabilities, losses or expenses arising from or relating to such breach or
breaches ("Losses") in excess of $300,000 in the aggregate (the "Basket
Amount"); provided that once Purchaser has a claim or claims for aggregate
Losses in excess of the Basket Amount it shall be entitled to assert a claim
against the Company for the entire amount of Purchaser's aggregate Losses.
11.13 Jurisdiction and Venue. This Agreement may be enforced in any
----------------------
federal court or state court sitting in California, and each party consents to
the jurisdiction and venue of any such court and waives any argument that venue
in such forum is not convenient. If any party commences any action under any
tort or contract theory arising directly or indirectly from the relationship
created by this Agreement in another jurisdiction or venue, the other party to
this Agreement shall have the option of transferring the case to the above-
described venue or jurisdiction or, if such transfer cannot be accomplished, to
have such case dismissed without prejudice.
11.14 Remedies. The parties agree that money damages may not be an
--------
adequate remedy for any breach of the provisions of this Agreement and that any
party may, in its discretion, apply to any court of law or equity of competent
jurisdiction for specific performance and injunctive relief in order to enforce
or prevent any violations this Agreement, and any party against whom such
proceeding is brought hereby waives the claim or defense that such party has an
adequate remedy at law and agrees not to raise the defense that the other party
has an adequate remedy at law.
<PAGE>
11.15 Expenses. Except as otherwise expressly provided for herein,
--------
each party will pay its own expenses (including attorneys' and accountants'
fees) incurred in connection with the negotiation of this Agreement, the
performance of its respective obligations hereunder and the consummation of the
transactions contemplated by this Agreement (whether consummated or not).
11.16 No Adjustment to Conversion Rate. The Purchaser hereby
--------------------------------
acknowledges and agrees that the issuance and sale of the Shares and the
Conversion Shares do not and will not cause an adjustment to the Conversion Rate
(as defined 1998 Certificate of Designations) of the Series 1998A Convertible
Preferred Stock of the Company pursuant to Section 8 of the 1998 Certificate of
Designations or otherwise.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized representatives as of
the day and year first above written.
NEW CENTURY FINANCIAL CORPORATION
By: /s/ Robert K. Cole
------------------------------------------
Its: CEO
-----------------------------
U.S. BANCORP
By: /s/ Lee R. Mitau
------------------------------------------
Lee R. Mitau
Its Executive Vice President, General Counsel
and Secretary
<PAGE>
EXHIBITS
EXHIBIT A................................... Form of Certificate of Designations
EXHIBIT B............ Form of Amended and Restated Registration Rights Agreement
EXHIBIT C........................... Form of First Amendment to Credit Agreement
<PAGE>
EXHIBIT A
NEW CENTURY FINANCIAL CORPORATION
CERTIFICATE OF DESIGNATIONS
FOR
SERIES 1999A CONVERTIBLE PREFERRED STOCK
(PURSUANT TO DELAWARE GENERAL CORPORATION LAW, SECTION 151(G))
______________
The undersigned, being respectively the Chairman and Chief Executive
Officer and the Secretary of New Century Financial Corporation (the
"Corporation"), a corporation organized and existing under the Delaware General
-----------
Corporation Law, in accordance with the provisions of the Delaware General
Corporation Law, Section 151(g), do hereby certify that:
Pursuant to the authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation, the Board of
Directors on July 23, 1999, in accordance with the Delaware General Corporation
Law, Section 151, duly adopted the following resolution establishing a series of
20,000 shares of the Corporation's Preferred Stock, to be designated as its
Series 1999A Convertible Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation (the "Board of Directors") by the Certificate of
------------------
Incorporation of the Corporation, the Board of Directors hereby establishes a
series of Series 1999A Convertible Preferred Stock, of the Corporation and
hereby states the number of shares, and fixes the powers, designations,
preferences and relative, participating, optional and other rights, and the
qualifications, limitations and restrictions thereof, of such series of shares
as follows:
SERIES 1999A CONVERTIBLE PREFERRED STOCK
Section 1. Designation; Number of Shares. The shares of such series
-----------------------------
shall be designated as "Series 1999A Convertible Preferred Stock" (the
"Convertible Preferred Stock"), and the number of shares constituting the
---------------------------
Convertible Preferred Stock shall be 20,000. Such number of shares may be
decreased by resolution of the Board of Directors adopted and filed pursuant to
the Delaware General Corporation Law, Section 151(g), or any successor
provision; provided, that no such decrease shall reduce the number of authorized
shares of Convertible Preferred Stock to a number less than the number of shares
then outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, warrants, convertible or exchangeable
securities or other rights to acquire shares of Convertible Preferred Stock.
<PAGE>
Section 2. Stated Capital. The amount to be represented in the stated
--------------
capital of the Corporation for each share of Convertible Preferred Stock shall
be $0.01.
Section 3. Rank. The Convertible Preferred Stock (i) shall rank prior to
----
all of the Corporation's Common Stock, par value $.01 per share (the "Common
------
Stock"), now outstanding or hereafter issued, both as to payment of dividends
- -----
and as to distributions of assets upon the liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary and (ii) shall rank on
parity with all of the Corporation's Series 1998A Convertible Preferred Stock,
par value $.01 per share (the 1998A Convertible Preferred Stock), now
outstanding or hereafter issued, both as to payment of dividends and as to
distributions of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
Section 4. Dividends and Distributions.
---------------------------
(a) The holders of shares of Convertible Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors out of funds
legally available for such purpose, dividends at the rate of $70.00 per annum
per share. Such dividends shall be fully cumulative, shall accumulate without
interest from the date of original issuance of the Convertible Preferred Stock
and shall be payable quarterly in arrears in cash on each January 31, April 30,
July 31 and October 31, commencing October 31, 1999 (provided, that if any such
date is a Saturday, Sunday or legal holiday in the place where such dividend is
to be paid, then such dividend shall be payable without interest on the next day
that is not a Saturday, Sunday or legal holiday) to holders of record as they
appear on the stock books of the Corporation on such record dates as shall be
fixed by the Board of Directors. Such record dates shall be not more than 60
nor less than 10 days preceding the respective dividend payment dates. The
amount of dividends payable per share of Convertible Preferred Stock for each
full quarterly dividend period shall be computed by dividing the annual dividend
amount by four. The amount of dividends payable for the initial dividend period
and for any other period shorter than a full quarterly dividend period shall be
computed on the basis of a 360-day year of twelve 30-day months. No dividends
or other distributions, other than dividends payable solely in shares of Common
Stock or other capital stock of the Corporation ranking junior as to payment of
dividends to the Convertible Preferred Stock (such Common Stock and other
capital stock being referred to herein collectively as "Junior Dividend Stock"),
---------------------
shall be paid or set apart for payment on, and no purchase, redemption or other
acquisition shall be made by the Corporation of, any shares of Junior Dividend
Stock unless and until all accumulated and unpaid dividends on the Convertible
Preferred Stock, including the full dividend for the then-current quarterly
dividend period, shall have been paid or declared and set apart for payment.
(b) Notwithstanding the provisions of Section 4(a), dividends shall not be
declared or paid, but shall accumulate, on the Convertible Preferred Stock until
such time as the execution and delivery of the Amendment (as defined in the
Preferred Stock Purchase Agreement dated as of July 26, 1999 between the
Corporation and U.S. Bancorp (the "1999 Preferred Stock Purchase Agreement")) to
---------------------------------------
the Fourth Amended and Restated Credit Agreement dated as of May 26, 1999 by and
among New Century Mortgage Corporation, the lenders party thereto and U.S. Bank
<PAGE>
National Association, as Agent (the "Credit Agreement"), by the Required Lenders
----------------
(as defined in the Credit Agreement).
(c) If at any time any dividend on any capital stock of the Corporation
ranking senior as to payment of dividends to the Convertible Preferred Stock
(such capital stock being referred to herein as "Senior Dividend Stock") shall
---------------------
be in default, in whole or in part, no dividend shall be paid or declared and
set apart for payment on the Convertible Preferred Stock unless and until all
accumulated and unpaid dividends with respect to the Senior Dividend Stock,
including the full dividend for the then-current dividend period, shall have
been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any capital
stock of the Corporation ranking, as to payment of dividends, on a parity with
the Convertible Preferred Stock (such capital stock being referred to herein as
"Parity Dividend Stock") for any period unless full cumulative dividends have
---------------------
been, or contemporaneously are, paid or declared and set apart for payment on
the Convertible Preferred Stock for all dividend periods terminating on or prior
to the date of payment of such full cumulative dividends. No full dividends
shall be paid or declared and set apart for payment on the Convertible Preferred
Stock for any period unless full cumulative dividends have been, or
contemporaneously are, paid or declared and set apart for payment on any Parity
Dividend Stock for all dividend periods terminating on or prior to the date of
payment of such full cumulative dividends. When dividends are not paid in full
upon the Convertible Preferred Stock and any Parity Dividend Stock, all
dividends paid or declared and set apart for payment upon shares of Convertible
Preferred Stock and Parity Dividend Stock shall be paid or declared and set
apart for payment pro rata, so that the amount of dividends paid or declared and
set apart for payment per share on the Convertible Preferred Stock and the
Parity Dividend Stock shall in all cases bear to each other the same ratio that
accumulated and unpaid dividends per share on the shares of Convertible
Preferred Stock and Parity Preferred Stock bear to each other.
(d) Any reference to "distribution" contained in this Section 4 shall not
be deemed to include any distribution made in connection with a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Section 5. Liquidation Preference. In the event of a liquidation,
----------------------
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Convertible Preferred Stock shall be entitled to receive out of
the assets of the Corporation, whether such assets constitute stated capital or
surplus of any nature, an amount equal to the dividends accumulated and unpaid
thereon to the date of final distribution to such holders, whether or not
declared, without interest, plus a sum equal to $1,000 per share, and no more,
before any payment shall be made or any assets distributed to the holders of
Common Stock or any other capital stock of the Corporation ranking junior as to
liquidation rights to the Convertible Preferred Stock (such Common Stock and
other capital stock being referred to herein collectively as "Junior Liquidation
------------------
Stock"); provided, that such rights shall accrue to the holders of Convertible
- -----
Preferred Stock only in the event that the Corporation's payments with respect
to the liquidation preferences of the holders of capital stock of the
Corporation ranking senior as to liquidation rights to the Convertible Preferred
Stock (such capital stock being referred to herein as "Senior Liquidation
------------------
Stock") are fully met. If upon liquidation, dissolution or winding up of the
- -----
Corporation, the assets of the Corporation available for distribution after the
liquidation
<PAGE>
preferences of any Senior Liquidation Stock are insufficient to pay the holders
of the Convertible Preferred Stock and any other capital stock of the
Corporation which ranks on a parity as to liquidation rights with the
Convertible Preferred Stock, the entire assets of the Corporation then available
for distribution shall be distributed ratably among the holders of the
Convertible Preferred Stock and any other capital stock of the Corporation which
ranks on a parity as to liquidation rights with the Convertible Preferred Stock
in proportion to the respective preferential amounts to which each is entitled
(but only to the extent of such preferential amounts). After payment in full of
the liquidation preference of the shares of the Convertible Preferred Stock, the
holders of such shares shall not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a consolidation or merger of
the Corporation with another corporation nor a sale or transfer of all or part
of the Corporation's assets for cash, securities or other property will be
deemed a liquidation, dissolution or winding up of the Corporation for purposes
of this Section 5.
Section 6. Redemption at Option of the Corporation.
---------------------------------------
(a) Subject to Section 6(b), the Corporation may not redeem the
Convertible Preferred Stock prior to July 26, 2003. The Corporation, at its
option, may, on or after July 26, 2003, redeem at any time all, or from time to
time any portion, of the Convertible Preferred Stock on any date set by the
Board of Directors, at $1,000 per share, plus an amount per share in cash equal
to all dividends on the Convertible Preferred Stock accumulated and unpaid on
such share, whether or not declared, to the date fixed for redemption (such sum
being hereinafter referred to as the "Redemption Price").
----------------
(b) The Corporation may, at its option, redeem the Convertible Preferred
Stock concurrently with an Acquisition Event (as defined herein) if each of the
following conditions are met: (i) the Corporation has complied with the
covenants contained in Sections 8.4 and 8.5 of the Preferred Stock Purchase
Agreement dated October 18, 1998 between the Corporation and U.S. Bancorp (the
"1998 Preferred Stock Purchase Agreement") in all material respects; (ii) the
---------------------------------------
Purchaser (as defined in the 1998 Preferred Stock Purchase Agreement) has been
notified in writing of all material terms of the Acquisition Proposal (as
defined herein) that relates to such Acquisition Event; and (iii) either (A)
such Purchaser, within 15 days of the first date on which it had been so
notified of such Acquisition Proposal, failed to make an offer that is similar
to, and on terms no less favorable to the Company and its shareholders than, the
Acquisition Proposal; or (B) prior to the date of a definitive agreement with
respect to an Acquisition Transaction with Purchaser or an affiliate of
Purchaser, (x) the terms of the Acquisition Proposal are improved or a new
proposal regarding an Acquisition Transaction that is financially superior to
such original proposal (a "Superior Proposal") is received by the Company and
-----------------
the Purchaser fails to match such improved terms or such Superior Proposal
within five business days of Purchaser's receipt of written notice of all
material terms thereof or (y) the Purchaser withdraws its offer. Any redemption
pursuant to this Section 6(b) shall be at the Redemption Price, and the
redemption date for any such redemption shall not be earlier than, but may be
concurrent with, the effective time of the Acquisition Event. For purposes of
this Section 6(b), the following terms shall have the following meanings:
"Acquisition Proposal" shall mean a proposal relating to any of the following
--------------------
actions: (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company; or (B) a
sale, lease or transfer of a
<PAGE>
material amount of assets of the Company, or a reorganization, recapitalization,
dissolution or liquidation of the Company; "Acquisition Transaction" shall mean
-----------------------
any of the actions described in (A) or (B) of the definition of "Acquisition
-----------
Proposal"; and "Acquisition Event" shall mean the consummation of an Acquisition
- -------- -----------------
Transaction.
(c) The following provisions will apply to any redemption pursuant to
Section 6(a) or 6(b):
(i) In case of the redemption of less than all of the then outstanding
Convertible Preferred Stock, the Corporation shall designate by lot, or in such
other manner as the Board of Directors may determine, the shares to be redeemed,
or shall effect such redemption pro rata. Notwithstanding the foregoing, the
Corporation shall not redeem less than all of the Convertible Preferred Stock at
any time outstanding until all dividends accumulated and in arrears upon all
Convertible Preferred Stock then outstanding shall have been paid for all past
dividend periods.
(ii) Not more than 60 nor less than 30 days prior to the redemption date,
notice by first class mail, postage prepaid, shall be given to the holders of
record of the Convertible Preferred Stock to be redeemed, addressed to such
shareholders at their last addresses as shown on the stock books of the
Corporation. Each such notice of redemption shall specify the date fixed for
redemption; the redemption price; the place or places of payment; the then-
effective Conversion Rate and Conversion Price (as defined in Section 7); that
the right of holders of Convertible Preferred Stock called for redemption to
exercise their conversion right pursuant to Section 7 shall expire as to such
shares at the close of business on the date fixed for redemption (provided that
there is no default in payment of the Redemption Price); that payment of the
Redemption Price will be made upon presentation and surrender of certificates
representing the shares of Convertible Preferred Stock; that accumulated but
unpaid dividends to the date fixed for redemption will be paid on the date fixed
for redemption; that accumulated but unpaid dividends will not be paid in the
case of a conversion of Convertible Preferred Stock; and that on and after the
redemption date, dividends will cease to accumulate on such shares.
(iii) On or after the date fixed for redemption as stated in such notice,
each holder of the shares called for redemption (other than shares which have
been duly surrendered for conversion at or before the close of business on the
date fixed for redemption) shall surrender the certificate or certificates
evidencing such shares to the Corporation at the place designated in such notice
and shall thereupon be entitled to receive payment of the Redemption Price. If
fewer than all the shares represented by any such surrendered certificate or
certificates are redeemed, a new certificate shall be issued representing the
unredeemed shares. If, on the date fixed for redemption, funds necessary for
the redemption shall be available therefor and shall have been irrevocably
deposited or set aside, then, notwithstanding that the certificates evidencing
any shares so called for redemption shall not have been surrendered, the
dividends with respect to the shares so called shall cease to accumulate on and
after the date fixed for redemption, such shares shall no longer be deemed
outstanding, the holders thereof shall cease to be shareholders, and all rights
whatsoever with respect to such shares (except the right of the holders thereof
to receive the Redemption Price without interest upon surrender of their
certificates) shall terminate.
<PAGE>
Section 7. Conversion at Option of Holders. Holders of Convertible
-------------------------------
Preferred Stock may, at their option upon surrender of the certificates
therefor, convert any or all of their shares of Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock (and such other securities
and property as they may be entitled to, as hereinafter provided) at any time
after issuance thereof; provided, that such conversion right shall expire at the
close of business on the date, if any, fixed for the redemption of Convertible
Preferred Stock in any notice of redemption given pursuant to Section 6 hereof
if there is no default in payment of the Redemption Price. Each share of
Convertible Preferred Stock shall be convertible at the office of any transfer
agent for the Convertible Preferred Stock, and at such other office or offices,
if any, as the Board of Directors may designate, into that number of fully paid
and nonassessable shares of Common Stock (calculated as to each conversion to
the nearest 1/100th of a share) as shall be equal to the Conversion Rate,
determined as hereinafter provided, in effect at the time of conversion. Shares
of Convertible Preferred Stock may initially be converted into full shares of
Common Stock at the rate of 46.80 shares of Common Stock for each share of
Convertible Preferred Stock, subject to adjustment from time to time as provided
in Section 8 (such conversion rate, as so adjusted from time to time, being
referred to herein as the "Conversion Rate"). The "Conversion Price" shall be
--------------- ----------------
equal to $1,000 divided by the Conversion Rate. Upon conversion, no adjustment
or payment shall be made in respect of accumulated and unpaid dividends on the
Convertible Preferred Stock surrendered for conversion.
The right of holders of Convertible Preferred Stock to convert their shares
shall be exercised by surrendering for such purpose to the Corporation or its
agent, as provided above, certificates representing shares to be converted, duly
endorsed in blank or accompanied by proper instruments of transfer. The
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of Common Stock or other
securities or property upon conversion of Convertible Preferred Stock in a name
other than that of the holder of the shares of Convertible Preferred Stock being
converted, nor shall the Corporation be required to issue or deliver any such
shares or other securities or property unless and until the person or persons
requesting the issuance thereof shall have paid to the Corporation the amount of
any such tax or shall have established to the satisfaction of the Corporation
that such tax has been paid.
A number of shares of the authorized but unissued Common Stock sufficient
to provide for the conversion of the Convertible Preferred Stock outstanding
upon the basis hereinbefore provided shall at all times be reserved by the
Corporation, free from preemptive rights, for such conversion, subject to the
provisions of the next paragraph. If the Corporation shall issue any securities
or make any change in its capital structure which would change the number of
shares of Common Stock into which each share of the Convertible Preferred Stock
shall be convertible as herein provided, the Corporation shall at the same time
also make proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved, free from preemptive rights,
for conversion of the outstanding Convertible Preferred Stock on the new basis.
The Corporation shall comply with all securities laws regulating the offer and
delivery of shares of Common Stock upon conversion of the Convertible Preferred
Stock and shall use its best efforts to list such shares on each national
securities exchange on which the
<PAGE>
Common Stock is listed or to have such shares admitted for quotation on the
Nasdaq National Market if the Common Stock is admitted for quotation thereon.
Upon the surrender of certificates representing shares of Convertible
Preferred Stock to be converted, duly endorsed or accompanied by proper
instruments of transfer as provided above, the person converting such shares
shall be deemed to be the holder of record of the Common Stock issuable upon
such conversion, and all rights with respect to the shares surrendered shall
forthwith terminate except the right to receive the Common Stock or other
securities, cash or other assets as herein provided.
No fractional shares of Common Stock shall be issued upon conversion of
Convertible Preferred Stock but, in lieu of any fraction of a share of Common
Stock which would otherwise be issuable in respect of the aggregate number of
such shares surrendered for conversion at one time by the same holder, the
Corporation shall pay in cash an amount equal to the product of (a) the Closing
Price of a share of Common Stock (as defined in the next sentence) on the last
trading day before the conversion date and (b) such fraction of a share. The
"Closing Price" for such day shall be the last reported sale price regular way
-------------
or, in case no sale takes place on such day, the average of the closing bid and
asked prices regular way on such day, in either case as reported on the New York
Stock Exchange Composite Tape, or, if the Common Stock is not listed or admitted
to trading on such Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or, if the Common Stock
is not listed or admitted to trading on any national securities exchange, on the
Nasdaq National Market System, or, if the Common Stock is not admitted for
quotation on the Nasdaq National Market System, the average of the high bid and
low asked prices on such day as recorded by the National Association of
Securities Dealers, Inc. through Nasdaq, or, if the National Association of
Securities Dealers, Inc. through Nasdaq shall not have reported any bid and
asked prices for the Common Stock on such day, the average of the bid and asked
prices for such day as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation for such purpose, or, if no such
bid and asked prices can be obtained from any such firm, the fair market value
of one share of the Common Stock on such day as determined in good faith by the
Board of Directors of the Corporation.
Section 8. Adjustments to Conversion Rate. Notwithstanding anything in
------------------------------
this Section 8 to the contrary, no change in the Conversion Rate shall be made
until the cumulative effect of the adjustments called for by this Section 8
since the date of the last change in the Conversion Rate would change the
Conversion Rate by more than 1%. However, once the cumulative effect would
result in such a change, then the Conversion Rate shall be changed to reflect
all adjustments called for by this Section 8 and not previously made. Subject
to the foregoing, the Conversion Rate shall be adjusted from time to time as
follows:
(a) In case of any consolidation or merger of the Corporation with
any other corporation (other than a wholly owned subsidiary of
the Corporation), or in case of any sale or transfer of all or
substantially all of the assets of the Corporation, or in case of
any share exchange pursuant to which all of the outstanding
shares of Common Stock are
<PAGE>
converted into other securities or property, the Corporation
shall, prior to or at the time of such transaction, make
appropriate provision or cause appropriate provision to be made
so that holders of each share of Convertible Preferred Stock then
outstanding shall have the right thereafter to convert such share
of Convertible Preferred Stock into the kind and amount of shares
of stock and other securities and property receivable upon such
consolidation, merger, sale, transfer or share exchange by a
holder of the number of shares of Common Stock into which such
share of Convertible Preferred Stock could have been converted
immediately prior to the effective date of such consolidation,
merger, sale, transfer or share exchange. If in connection with
any such consolidation, merger, sale, transfer or share exchange,
each holder of shares of Common Stock is entitled to elect to
receive either securities, cash or other assets upon completion
of such transaction, the Corporation shall provide or cause to be
provided to each holder of Convertible Preferred Stock the right
to elect the securities, cash or other assets into which the
Convertible Preferred Stock held by such holder shall be
convertible after completion of any such transaction on the same
terms and subject to the same conditions applicable to holders of
the Common Stock (including, without limitation, notice of the
right to elect, limitations on the period in which such election
shall be made and the effect of failing to exercise the
election).
(b) In case the Corporation shall (i) pay a dividend or make a
distribution on its Common Stock in shares of its capital stock, (ii)
subdivide its outstanding Common Stock into a greater number of shares,
(iii) combine the shares of its outstanding Common Stock into a smaller
number of shares, or (iv) issue by reclassification of its Common Stock any
shares of its capital stock, then in each such case the Conversion Rate in
effect immediately prior thereto shall be proportionately adjusted so that
the holder of any Convertible Preferred Stock thereafter surrendered for
conversion shall be entitled to receive, to the extent permitted by
applicable law, the number and kind of shares of capital stock of the
Corporation which such holder would have owned or have been
<PAGE>
entitled to receive after the happening of such event had such Convertible
Preferred Stock been converted immediately prior to the record date for
such event (or if no record date is established in connection with such
event, the effective date for such action). An adjustment pursuant to this
subparagraph (b) shall become effective immediately after the record date
in the case of a stock dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or reclassification.
(c)(i) In case the Corporation shall issue Additional Shares of Common
Stock (as defined herein) (including, without limitation, Additional Shares
of Common Stock deemed to be issued pursuant to Section 8(c)(iii)) without
consideration or for a consideration per share less than the Current Market
Price (as defined herein) calculated as provided herein as of the date of
and immediately prior to such issue, then in each such case the Conversion
Rate in effect on such issue date shall be adjusted in accordance with the
formula:
O + N
C//1//= C x
O + N x P
-----
M
where
C//1// = the adjusted Conversion Rate.
C = the current Conversion Rate.
O = the number of shares of Common Stock outstanding immediately
prior to such issue.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the Current Market Price per share of Common Stock immediately
prior to such issue.
For the purpose of such calculation, the number of shares of Common Stock
outstanding immediately prior to such issue shall be calculated on a fully
diluted basis, as if all shares of Convertible Preferred Stock and all
Convertible Securities had been fully converted into shares of Common Stock
immediately prior to such issuance and any outstanding warrants, options or
other rights for the purchase of shares of stock or convertible securities
had been fully exercised immediately prior to such issuance (and the
resulting securities fully converted into shares of Common Stock, if so
convertible) as of such date.
(ii) For purposes of this Section 8(c), the following definitions
shall apply: (A) "Options" shall mean rights, options or warrants to
-------
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities; (B) "Convertible Securities" shall mean any
----------------------
evidences of indebtedness, shares or other securities convertible into or
exchangeable for Common Stock; (C) "Additional Shares of Common Stock"
---------------------------------
shall mean all shares of Common Stock issued (or, pursuant to Section
8(c)(iii), deemed to be issued) by the Corporation after July 26, 1999,
other than shares of Common Stock issued or issuable: (1) upon conversion
of shares of the Convertible Preferred Stock or upon
<PAGE>
conversion of shares of 1998A Convertible Preferred Stock; (2) pursuant to
a stock grant, option plan or purchase plan, other employee stock incentive
program or agreement approved by the Board of Directors which was disclosed
in Schedule 5.3 of the 1999 Preferred Stock Purchase Agreement (the "Option
------
Pool"); or (3) pursuant to the terms of any stock grant, option, warrant,
----
employment agreement or other written obligation, agreement or commitment
to which the Corporation was a party as of July 26, 1999 and which was
disclosed in Schedule 5.3 of the 1999 Preferred Stock Purchase Agreement;
and (D) "Current Market Price" shall mean the average of the daily Closing
---------------------
Prices of the Common Stock (as defined in Section 7) on the 30 consecutive
business days commencing 45 business days before such issue date, as
applicable.
(iii) In the event the Corporation at any time or from time to time
after July 26, 1999 shall issue any Options (other than the issuance of
Options pursuant to the Option Pool) or Convertible Securities or shall fix
a record date for the determination of holders of any class of securities
entitled to receive any such Options or Convertible Securities, then the
maximum number of shares (as set forth in the instrument relating thereto
without regard to any provisions contained therein for a subsequent
adjustment of such number) of Common Stock issuable upon the exercise of
such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall
be deemed to be Additional Shares of Common Stock issued as of the time of
such issue or, in case such a record date shall have been fixed, as of the
close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the
consideration per share of such Additional Shares of Common Stock would be
less than the Current Market Price calculated as provided herein as of the
date of and immediately prior to such issue, or such record date, as the
case may be, and provided further that in any such case in which Additional
Shares of Common Stock are deemed to be issued no further adjustment in the
Conversion Price shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities.
(iv) Upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not
have been exercised, the Conversion Price and Conversion Rate computed upon
the original issue thereof (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon
such expiration, be recomputed as if:
(A) in the case of Convertible Securities or Options for Common
Stock the only Additional Shares of Common Stock issued were the shares of
Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by
the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration actually received by the corporation upon
such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or exchange;
and
<PAGE>
(B) in the case of Options for Convertible Securities only the
Convertible Securities, if any, actually issued upon the exercise thereof
were issued at the time of issue of such Options, and the consideration
received by the Corporation for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration deemed to have been received by the
Corporation upon the issue of the Convertible Securities or Convertible
Preferred Stock with respect to which such Options were actually exercised.
(e) All calculations hereunder shall be made to the nearest cent or
to the nearest 1/100 of a share, as the case may be.
(f) In the event that at any time, as a result of an adjustment made
pursuant to subparagraph (a) or (b) above, the holder of any Convertible
Preferred Stock thereafter surrendered for conversion shall become entitled
to receive securities, cash or assets other than Common Stock, the number
or amount of such securities or property so receivable upon conversion
shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in subparagraphs (a) through (e) above.
Except as otherwise provided above in this Section 8, no adjustment in the
Conversion Rate shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Conversion Rate is adjusted as herein provided, the
Corporation shall send to each transfer agent for the Convertible Preferred
Stock and the Common Stock, and to the principal securities exchange, if any, on
which the Convertible Preferred Stock and the Common Stock is traded, or the
Nasdaq National Market if the Convertible Preferred Stock or Common Stock is
admitted for quotation thereon, a statement signed by the Chairman of the Board,
the President or any Vice President of the Corporation and by its Treasurer or
its Secretary stating the adjusted Conversion Rate determined as provided in
this Section 8; and any adjustment so evidenced, given in good faith, shall be
binding upon all shareholders and upon the Corporation. Whenever the Conversion
Rate is adjusted, the Corporation shall give notice by mail at the time of, and
together with, the next dividend payment to the holders of record of Convertible
Preferred Stock, setting forth the adjustment and the new Conversion Rate and
Conversion Price. Notwithstanding the foregoing notice provisions, failure by
the Corporation to give such notice or a defect in such notice shall not affect
the binding nature of such corporate action of the Corporation.
Whenever the Corporation shall propose to take any of the actions specified
in subparagraphs (a), (b) or (c) of the first paragraph of this Section 8 which
would result in any adjustment in the Conversion Rate, the Corporation shall
cause a notice to be mailed at least 20 days prior to the date on which the
books of the Corporation will close or on which a record will be taken for such
action to the holders of record of the outstanding Convertible Preferred Stock
on the date of such notice. Such notice shall specify the action proposed to be
taken by the Corporation and the date as of which holders of record of the
Common Stock shall participate in
<PAGE>
any such actions or be entitled to exchange their Common Stock for securities or
other property, as the case may be. Failure by the Corporation to give such
notice or any defect in such notice shall not affect the validity of the
transaction.
Anything herein to the contrary notwithstanding, no adjustment will be made
to the Conversion Price or Conversion Rate by reason of (i) the issuance of
Common Stock, Options or Convertible Securities to employees, directors,
officers or consultants of the Corporation or any subsidiary of the Corporation
pursuant to the Option Pool or the issuance of Common Stock upon the conversion,
exercise or exchange thereof, (ii) the issuance of Common Stock upon the
conversion, exercise or exchange of Options or Convertible Securities issued and
outstanding on July 26, 1999, including, without limitation, the issuance of
Common Stock upon the conversion of any shares of 1998A Convertible Preferred
Stock, (iii) the issuance of Common Stock upon the conversion of the Convertible
Preferred Stock, (iv) rights to purchase Common Stock pursuant to a Corporation
plan for reinvestment of dividends or interest, (v) the issuance of Common Stock
upon the exercise, conversion or exchange of Options or Convertible Securities
of the Corporation where the Conversion Price had previously been adjusted
pursuant to this Section 8 upon the initial issuance of such Options or
Convertible Securities. In addition, no adjustment in the Conversion Price need
be made for a change in the par value of the Common Stock.
Section 9. Convertible Preferred Stock Not Redeemable at Option of Holders
---------------------------------------------------------------
or Exchangeable; No Sinking Fund. The Convertible Preferred Stock shall not be
- --------------------------------
redeemable upon the request of holders thereof or exchangeable for other capital
stock or indebtedness of the Corporation or other property. The shares of
Convertible Preferred Stock shall not be subject to the operation of a purchase,
retirement or sinking fund.
Section 10. Voting Rights. Except as herein provided or as otherwise
-------------
required by law, holders of Convertible Preferred Stock shall be entitled to the
same voting rights as, and shall vote together as one class with, holders of
Common Stock, with each holder of shares of Convertible Preferred Stock having
such voting rights as are attributable to the number of whole shares of Common
Stock into which such shares of Convertible Preferred Stock are convertible in
accordance with Sections 7 and 8 hereof as of the date of such vote.
In addition to any matters requiring a separate vote of the Convertible
Preferred Stock as a single class under applicable law, the approval of the
holders of a majority of the issued and outstanding shares of Convertible
Preferred Stock, voting as a class, shall be required as set forth in Section 11
hereof with respect to the priority and rights of the Convertible Preferred
Stock hereunder and under the Corporation's Certificate of Incorporation, as
amended.
At each meeting of shareholders at which the holders of shares of
Convertible Preferred Stock shall have the right, voting separately as a single
class, to take any action, the presence in person or by proxy of the holders of
record of at least 50% of the shares of Convertible Preferred Stock outstanding
and entitled to vote on the matter shall be necessary and sufficient to
constitute a quorum. At each such meeting, each holder of shares of Convertible
Preferred Stock shall be entitled to vote for each share of Convertible
Preferred Stock then held. In the absence of a quorum of the holders of shares
of Convertible Preferred Stock, a majority of the holders of such
<PAGE>
shares present in person or by proxy shall have the power to adjourn the meeting
as to the actions to be taken by the holders of shares of Convertible Preferred
Stock from time to time and place to place without notice other than
announcement at the meeting until a quorum shall be present.
Section 11. Certain Actions Not to be Taken Without Vote of Holders of
----------------------------------------------------------
Convertible Preferred Stock. Without the consent or affirmative vote of the
- ---------------------------
holders of at least a majority of the outstanding shares of Convertible
Preferred Stock, voting separately as a class, the Corporation shall not
authorize, create or issue any shares of any other class or series of capital
stock ranking senior to the Convertible Preferred Stock as to dividends or upon
liquidation. The affirmative vote or consent of the holders of at least a
majority of the outstanding shares of the Convertible Preferred Stock, voting
separately as a class, shall be required for any amendment, alteration or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation (including any certificate of designations
establishing any class or series of Preferred Stock of the Corporation) if the
amendment, alteration or repeal adversely affects the rights or preferences of
the Convertible Preferred Stock; provided, however, that any increase in the
authorized Preferred Stock of the Corporation or the creation and issuance of
any other capital stock of the Corporation ranking on a parity with or junior to
the Convertible Preferred Stock shall not be deemed to materially affect such
powers, preferences or special rights.
Section 12. Outstanding Shares. For purposes of this Certificate of
-------------------
Designations, all shares of Convertible Preferred Stock shall be deemed
outstanding except for (a) shares of Convertible Preferred Stock held of record
or beneficially by the Corporation or any subsidiary of the Corporation; (b)
from the date of surrender of certificates representing Convertible Preferred
Stock for conversion pursuant to Section 7, all shares of Convertible Preferred
Stock which have been converted into Common Stock or other securities or
property pursuant to Section 7; and (c) from the date fixed for redemption
pursuant to Section 6, all shares of Convertible Preferred Stock which have been
called for redemption, provided that funds necessary for such redemption are
available therefor and have been irrevocably deposited or set aside for such
purpose.
Section 13. Status of Convertible Preferred Stock Upon Retirement. Shares
-----------------------------------------------------
of Convertible Preferred Stock which are acquired or redeemed by the Corporation
or converted pursuant to Section 7 shall be retired pursuant to the Delaware
General Corporation Law, Section 243, or any successor provision, and thereupon
shall return to the status of authorized and unissued shares of Preferred Stock
of the Corporation without designation as to series. Upon the acquisition or
redemption by the Corporation or conversion pursuant to Section 7 of all
outstanding shares of Convertible Preferred Stock, all provisions of this
Certificate of Designations shall cease to be of further effect. Upon the
occurrence of such event, the Board of Directors of the Corporation shall have
the power, pursuant to the Delaware General Corporation Law, Section 151(g), or
any successor provision and without shareholder action, to cause this
Certificate of Designations to be eliminated from the Corporation's Certificate
of Incorporation.
<PAGE>
IN WITNESS WHEREOF, New Century Financial Corporation has caused this
certificate to be signed by Robert K. Cole, its Chairman and Chief Executive
Officer, and attested by Brad A. Morrice, its Secretary, this 26th day of July,
1999.
NEW CENTURY FINANCIAL
CORPORATION
By _________________________
Robert K. Cole
Chairman and Chief Executive Officer
Attest:
By _________________________
Brad A. Morrice
Secretary
<PAGE>
EXHIBIT 10.9
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "Agreement")
is entered into as of July 26, 1999, by and between New Century Financial
Corporation, a Delaware corporation (the "Company"), and U.S. Bancorp, a
Delaware corporation (the "Purchaser").
WHEREAS, on November 24, 1998, the Purchaser purchased shares of the
Company's Series 1998A Convertible Preferred Stock.
WHEREAS, the Company and the Purchaser are a party to the Registration
Rights Agreement dated as of November 24, 1998 (the "1998 Registration Rights
Agreement") relating to the Company's agreements to register under the
Securities Act the shares of the Company's Common Stock issuable upon conversion
of the Company's outstanding Series 1998A Convertible Preferred Stock.
WHEREAS, the Purchaser has agreed to purchase shares of the Company's
Series 1999A Convertible Preferred Stock.
WHEREAS, in connection with such purchase, the Company and the Purchaser
desire to amend and restate the 1998 Registration Rights Agreement to include
certain arrangements with respect to the registration for public sale under the
Securities Act of 1933, as amended (the "Securities Act"), of the shares of the
Company's Common Stock, $.01 par value per share, issuable upon conversion of
the Series 1999A Convertible Preferred Stock.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
1. Definitions.
-----------
1.1 "Affiliate" shall mean any person that directly or indirectly
controls or is controlled by, or is under common control with, another specified
person.
1.2 "Commission" shall mean the Securities and Exchange Commission or
----------
any other federal agency at the time administering the Securities Act.
1.3 "Company" shall mean New Century Financial Corporation, a
-------
Delaware corporation.
<PAGE>
1.4 "Common Shares" shall mean the shares of common stock, par value
-------------
$.01 per share, authorized by the Company's Certificate of Incorporation and any
additional shares of common stock which may be authorized in the future by the
Company, and any stock into which such Common Shares may hereafter be changed,
and shall also include capital stock of any other class of the Company which is
not preferred as to dividends or assets over any other class of stock of the
Company and which is not subject to redemption.
1.5 "Founding Managers" shall mean Robert K. Cole, Brad A. Morrice,
-----------------
Steven G. Holder and Edward F. Gotschall.
1.6 "Other Shareholders" shall mean Paul B. Akers and Kirk Redding,
------------------
and their successors in interest, under that certain Merger Agreement, dated as
of December 17, 1997, among the Company, NC Acquisition Corp., PFW Corporation
and the shareholders named therein.
1.7 "Preferred Stock" shall mean all outstanding shares of (a) the
---------------
Series 1999A Convertible Preferred Stock, par value $.01 per share, of the
Company, and any securities (other than Common Shares) into which such shares
may hereafter be changed and (b) the Series 1998A Convertible Preferred Stock,
par value $.01 per share, of the Company, and any Securities (other than the
Common Shares) into which such shares may hereafter be changed.
1.8 "Public Offering" shall mean any offering of Common Shares to the
---------------
public, either on behalf of the Company or any of its security holders, pursuant
to an effective registration statement under the Securities Act.
1.9 "Purchaser" shall mean U.S. Bancorp, a Delaware corporation.
---------
1.10 "Registrable Securities" shall mean (a) the Common Shares at any
----------------------
time issued or subject to issuance upon the conversion of the Preferred Stock
and (b) any additional securities issued with respect to the above-described
securities upon any stock split, stock dividend, recapitalization, or similar
event. Registrable Securities shall cease to be Registrable Securities when (w)
a registration statement with respect to the sale of such securities shall have
been declared effective under the Securities Act and such securities shall have
been disposed of in accordance with such registration statement, (x) such
securities shall be eligible to be distributed pursuant to Rule 144(k) under the
Securities Act, (y) such securities shall have ceased to be outstanding, or (z)
such securities are transferred in a transaction in which the rights hereunder
are not assigned as permitted by Section 9.
1.11 "Registration Expenses" shall mean the expenses described in
---------------------
Section 5.
1.12 "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended.
1.13 "Stock Purchase Agreement" shall mean the Preferred Stock
------------------------
Purchase Agreement dated July 26, 1999 between the Company and the Purchaser.
<PAGE>
2. Demand Registration.
-------------------
2.1 Subject to Sections 2.3, 2.4, 2.5 and 2.6, if at any time the
Company shall receive a written request therefor from the record holder or
holders of an aggregate of at least 51% of the Registrable Securities, the
Company shall prepare and file a registration statement under the Securities Act
covering such number of Registrable Securities as are the subject of such
request and shall use its best efforts to cause such registration statement to
become effective. Upon the receipt of a registration request meeting the
requirements of this Section 2.1, the Company shall promptly give written notice
to all other record holders of Registrable Securities that such registration is
to be effected. The Company shall include in such registration statement such
additional Registrable Securities as such other record holders request in
writing within fifteen (15) days after the date of the Company's written notice
to them. If (a) the holders of a majority of the Registrable Securities for
which registration has been requested pursuant to this Section 2.1 determine for
any reason not to proceed with the registration at any time before the related
registration statement has been declared effective by the Commission, (b) such
registration statement, if theretofore filed with the Commission, is withdrawn
and (c) the holders of the Registrable Securities subject to such registration
statement agree to bear their own Registration Expenses incurred in connection
therewith and to reimburse the Company for the Registration Expenses incurred by
it in such connection or if such registration statement, if theretofore filed
with the Commission, is withdrawn at the initiative of the Company, then the
holders of the Registrable Securities shall not be deemed to have exercised
their demand registration right pursuant to this Section 2.1.
2.2 At the request of the holders of a majority of the Registrable
Securities to be registered, the method of disposition of all Registrable
Securities included in such registration shall be an underwritten Public
Offering. The managing underwriter of any such Public Offering shall be
selected by the majority of the Registrable Securities, provided that such
managing underwriter is reasonably acceptable to the Company.
2.3 The Company shall be obligated to prepare, file and cause to be
effective not more than two registration statements pursuant to Section 2.1.
2.4 Notwithstanding the foregoing, the Company may delay initiating
the preparation and filing of any registration statement requested pursuant to
Section 2.1 for a period not to exceed one hundred eighty (180) days if, in the
good faith judgment of the Company's Board of Directors, filing the registration
statement would reasonably be expected to have a Material Adverse Effect (as
defined in the Stock Purchase Agreement), which Material Adverse Effect could
reasonably be expected to be avoided by delaying such filing for such period.
2.5 Notwithstanding anything to the contrary contained herein, at any
time within thirty (30) days after receiving a demand for registration pursuant
to Section 2.1, the Company may elect to effect an underwritten primary
registration in lieu of the requested registration. If the Company so elects,
the Company shall give prompt written notice to all holders of Registrable
Securities of its intention to effect such a registration and shall afford such
holders the rights contained in Article 3 with respect to "piggyback"
registrations. In such event, the demand for registration pursuant to Section
2.1 shall be deemed to have been withdrawn.
<PAGE>
2.6 The Company shall not be obligated to effect a demand
registration (a) within 180 days after the effective date of a previous demand
registration or a previous registration in which the holders of Registrable
Securities were given piggy-back registration rights pursuant to this Agreement
and in which there was no reduction in the number of Registrable Securities
requested to be included or (b) prior to the first anniversary of this
Agreement, provided that this Section 2.6(b) shall not be applicable if the
Purchaser notifies the Company in writing that Purchaser, in its reasonable
judgment, has determined that it is required to divest all or a portion of the
Registrable Securities in order to satisfy or comply with regulatory
requirements applicable to Purchaser.
3. Piggyback Registration.
----------------------
3.1 Each time the Company shall determine to proceed with the actual
preparation and filing of a registration statement under the Securities Act in
connection with the proposed offer and sale for money of any of its securities
by it or any of its security holders (other than a registration statement on
Form S-8, Form S-4 or other limited purpose form), the Company will give written
notice of its determination to all record holders of Registrable Securities.
Upon the written request of a record holder of any Registrable Securities given
within 15 days after the date of the receipt of any such notice from the
Company, the Company will, except as herein provided, use its best efforts to
cause all Registrable Securities the registration of which is requested to be
included in such registration statement, all to the extent requisite to permit
the sale or other disposition by the prospective seller or sellers of the
Registrable Securities to be so registered; provided, however, that nothing
-------- -------
herein shall prevent the Company from, at any time, abandoning or delaying in
its sole and absolute discretion any registration.
3.2 If any registration pursuant to Section 3.1 is underwritten in
whole or in part, the Company may require that the Registrable Securities
included in the registration be included in the underwriting on the same terms
and conditions as the securities otherwise being sold through the underwriters.
If, in the good faith judgment of the managing underwriter of the Public
Offering, marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may exclude some or all of the
Registrable Securities from such registration and underwriting. Any reduction
in the number of securities of the Company included in such registration and
underwriting shall be borne (i) first by the Founding Managers and the Other
Shareholders pro rata based on the number of shares, if any, for which
registration was requested by the Founding Managers and the Other Shareholders,
(ii) second by the Holders of Registrable Securities pro rata based on the
number of shares, if any, for which registration was requested by such Holders,
and (iii) then equally by the other holders of securities of the Company
requested to be included in such registration and underwriting, as a group, pro
rata based on the number of shares for which registration was requested by such
holders. The Registrable Securities which are thus excluded from the
underwritten Public Offering shall be withheld from the market by the holders
thereof for a period which the managing underwriter reasonably determines is
necessary in order to effect the Public Offering.
<PAGE>
4. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Article 2 or Article 3 to effect a registration of Registrable
Securities under the Securities Act, the Company will use its best efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended methods of disposition specified by the holders participating
therein. Without limiting the foregoing, the Company in each such case will, as
expeditiously as possible:
4.1 In the case of a demand registration pursuant to Section 2.1,
prepare and file with the Commission the requisite registration statement to
effect such registration (including such audited financial statements as may be
required by the Securities Act or the rules and regulations thereunder) and use
its best efforts to cause such registration statement to become effective;
provided, however, that as far in advance as practical before filing such
- -------- -------
registration statement or any amendment thereto, the Company will furnish
counsel for the requesting holders of Registrable Securities with copies of
reasonably complete drafts of all such documents proposed to be filed (including
exhibits), and any such holder shall have the opportunity to object to any
information pertaining solely to such holder that is contained therein and the
Company will make the corrections reasonably requested by such holder with
respect to such information prior to filing such registration statement or
amendment.
4.2 Prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in connection
therewith as may be necessary to maintain the effectiveness of such registration
statement and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities included in such registration
statement, in accordance with the intended methods of disposition thereof, until
the earlier of (a) such time as all of the Registrable Securities included in
such registration statement have been disposed of in accordance with the
intended methods of disposition by the holder or holders thereof as set forth in
such registration statement or (b) 180 days (or, if the filing was on a Form S-3
registration statement, 365 days) after such registration statement becomes
effective; provided, that, in the event the holder of Registrable Securities is
required to discontinue such holder's disposition of Registrable Securities
pursuant to Section 4.11 hereof, such 180-days (or 365 days, if applicable)
shall be extended for such additional period as is equal to the period during
which such holders was required to discontinue such disposition.
4.3 Promptly notify each requesting holder and the underwriter or
underwriters, if any, of:
(a) when such registration statement or any prospectus used in
connection therewith, or any amendment or supplement thereto, has been filed
and, with respect to such registration statement or any post-effective amendment
thereto, when the same has become effective;
(b) any written request by the Commission for amendments or
supplements to such registration statement or prospectus;
<PAGE>
(c) any notification received by the Company from the Commission
regarding the Commission's initiation of any proceeding with respect to, or of
the issuance by the Commission of, any stop order suspending the effectiveness
of such registration statement; and
(d) the receipt by the Company of any notification with respect to
the suspension of the qualification of any Registrable Securities for sale under
the applicable securities or blue sky laws of any jurisdiction.
4.4 Furnish to each holder of Registrable Securities included in such
registration statement such number of conformed copies of such registration
statement and of each amendment and supplement thereto, and such number of
copies of the prospectus contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 promulgated under the Securities Act relating to such
seller's Registrable Securities, and such other documents, as such holder may
reasonably request to facilitate the disposition of its Registrable Securities.
4.5 Use its best efforts to register or qualify all Registrable
Securities included in such registration statement under the securities or "blue
sky" laws of such states as each holder of Registrable Securities shall
reasonably request within twenty (20) days following the original filing of such
registration statement and to keep such registration or qualification in effect
for so long as such registration statement remains in effect, and take any other
action which may be reasonably necessary or advisable to enable such holder to
consummate the disposition in such states of the Registrable Securities owned by
such holder, except that the Company shall not for any such purpose be required
(a) to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this Section 4.5
be obligated to be so qualified, (b) to consent to general service of process in
any such jurisdiction or (c) to subject itself to taxation in any such
jurisdiction by reason of such registration or qualification.
4.6 Use its best efforts to cause all Registrable Securities included
in such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable each holder
thereof to consummate the disposition of such Registrable Securities.
4.7 Notify each holder whose Registrable Securities are included in
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which any prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at the request of any such holder promptly prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the Purchaser of such Registrable Securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
<PAGE>
4.8 Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
4.9 Use its best efforts to cause all Registrable Securities included
in such registration statement to be listed, upon official notice of issuance,
on any securities exchange or quotation system on which any of the securities of
the same class as the Registrable Securities are then listed.
4.10 The Company may require each holder whose Registrable Securities
are being registered to, and each such holder, as a condition to including
Registrable Securities in such registration statement, shall, furnish the
Company and the underwriters with such information and affidavits regarding such
holder and the distribution of such Registrable Securities as the Company and
the underwriters may from time to time reasonably request in writing in
connection with such registration statement. At any time during the
effectiveness of any registration statement covering Registrable Securities
offered by a holder, if such holder becomes aware of any change materially
affecting the accuracy of the information contained in such registration
statement or the prospectus (as then amended or supplemented) relating to such
holder, it will immediately notify the Company of such change.
4.11 Upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 4.7, each holder will forthwith
discontinue such holder's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such holder
receives the copies of the supplemented or amended prospectus contemplated by
Section 4.7 and, if so directed by the Company, shall deliver to the Company all
copies, other than permanent file copies, then in such holder's possession of
the prospectus relating to such Registrable Securities.
4.12 As used in this Agreement, the term "best efforts" shall not mean
efforts which require the performing party to do any act that is unreasonable
under the circumstances or to expend any funds other than reasonable out-of-
pocket expenses incurred in satisfying its obligations hereunder, including but
not limited to the fees, expenses and disbursements of its accountants, counsel
and other professionals.
5. Expenses. With respect to any registration requested pursuant to
--------
Article 2 (except as otherwise provided in such Article with respect to a
registration voluntarily terminated at the request of the requesting holders of
Registrable Securities) the Company shall bear all of the expenses
("Registration Expenses") incident to the Company's performance of or compliance
with its obligations under this Agreement in connection with such registration
including, without limitation, all registration, filing, securities exchange
listing and NASD fees, all registration, filing, qualification and other fees
and expenses or complying with state securities or "blue sky" laws, all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and compliance,
premiums and other costs of any policies of insurance against liabilities
arising out of the Public Offering of the Registrable Securities being
registered obtained by the Company (it being understood that the Company shall
have no
<PAGE>
obligation to obtain such insurance) and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities; but excluding
underwriting discounts and commissions and transfer taxes, if any, in respect of
Registrable Securities and any fees and disbursements of counsel and accountants
to the holders of the Registrable Securities, which discounts, commissions,
transfer taxes, fees and disbursements shall in any registration be payable by
the holders of the Registrable Securities being registered, pro rata in
--- ----
proportion to the number of Registrable Securities being sold by them.
6. Indemnification.
---------------
6.1 The Company will, to the full extent permitted by law, indemnify
and hold harmless each holder of Registrable Securities which are included in a
registration statement pursuant to the provisions of this Agreement, and its
directors, officers and partners and each other person, if any, who controls
such holder within the meaning of the Securities Act, from and against any and
all losses, claims, damages, expenses or liabilities, joint or several
(collectively, "Losses") to which such holder or any such director, officer,
partner or controlling person may become subject under the Securities Act or
otherwise, insofar as such Losses (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in a
registration statement prepared and filed hereunder, any preliminary, final or
summary prospectus contained therein or any amendment or supplement thereto or
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, and the Company will reimburse the holder and each such director,
officer, partner and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
against any such Losses (or action or proceeding in respect thereof); provided,
--------
however, that the Company will not be liable in any such case to the extent that
- -------
any such Losses arise out of or are based upon (a) an untrue statement or
alleged untrue statement or omission or alleged omission made in conformity with
written information furnished by such holder specifically for use in the
preparation of the registration statement or (b) such holder's failure to send
or give a copy of the final prospectus to the persons asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
person if such statement or omission was corrected in such final prospectus.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such holder or any such director, officer,
partner or controlling person of such holder and shall survive the transfer of
such securities by such holder. The Company shall also indemnify each other
person who participates (including as an underwriter) in the offering or sale of
Registrable Securities, their officers and directors, and partners, and each
other person, if any, who controls any such participating person within the
meaning of the Securities Act to the same extent provided above with respect to
holders of Registrable Securities.
6.2 Each holder of Registrable Securities which are included in a
registration pursuant to the provisions of this Agreement will, to the full
extent permitted by law, indemnify and hold harmless the Company, its officers,
directors and each other person, if any, who controls the Company within the
meaning of the Securities Act from and against any and all
<PAGE>
Losses to which the Company or any such officer, director or controlling person
may become subject under the Securities Act or otherwise, insofar as such Losses
(or actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in a registration statement prepared and filed
hereunder, any preliminary, final or summary prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was so
made in reliance upon and in strict conformity with written information
furnished by such holder specifically for use in the preparation of such
registration statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Company or any such
director, officer or controlling person of the Company. The holder of
Registrable Securities included in a registration statement shall also indemnify
each other person who participates (including as an underwriter) in the offering
or sale of Registrable Securities, their officers and directors, and partners,
and each other person, if any, who controls any such participating person within
the meaning of the Securities Act to the same extent as provided above with
respect to the Company. In no event shall the liability of any holder under this
Section 6.2 exceed the gross proceeds received by such holder from the sale of
their Registrable Securities.
6.3 Promptly after receipt by a party indemnified pursuant to the
provisions of Section 6.1 or Section 6.2 of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of Section 6.1 or Section 6.2,
promptly notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against any indemnified party,
the indemnifying party shall have the right to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if the defendants in any action include both the
-------- -------
indemnified party and the indemnifying party and the indemnified party
reasonably concludes that there is a conflict of interest that would prevent
counsel for the indemnifying party from also representing the indemnified party,
the indemnified party shall have the right to select one separate counsel to
participate in the defense of such action on behalf of the indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party pursuant to the provisions of Section 6.1 or
Section 6.2 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof unless (a) the
indemnified party shall have employed counsel in accordance with the proviso of
the preceding sentence, (b) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
of the action or (c) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party. If
the indemnifying party is not entitled to, or elects not to,
<PAGE>
assume the defense of a claim, it will not be obligated to pay the fees and
expenses of more than one counsel for the indemnified parties with respect to
such claim, unless in the reasonable judgment of any indemnified party a
conflict of interest may exist between such indemnified party and any other
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of additional counsel or
counsels for the indemnified parties, but only to the extent necessary to cure
such conflict of interest. No indemnifying party shall consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation without
the consent of the indemnified party. No indemnifying party shall be subject to
any liability for any settlement made without its consent. An indemnified party
may at any time elect to participate in the defense of any claim or proceeding
at its own expense.
7. Underwritten Offerings. If a distribution of Registrable Securities
----------------------
pursuant to a registration statement is to be underwritten, the holders whose
Registrable Securities are to be distributed by such underwriters shall be
parties to such underwriting agreement. No requesting holder may participate in
such underwritten offering unless such holder agrees to sell its Registrable
Securities on the basis provided in such underwriting agreement and completes
and executes all questionnaires, powers of attorney, indemnities and other
documents reasonably required under the terms of such underwriting agreement.
If any requesting holder disapproves of the terms of an underwriting, such
holder may elect to withdraw therefrom and from such registration by notice to
the Company and the managing underwriter, and each of the remaining requesting
holders shall be entitled to increase the number of Registrable Securities being
registered to the extent of the Registrable Securities so withdrawn in the
proportion which the number of Registrable Securities being registered by such
remaining requesting holder bears to the total number of Registrable Securities
being registered by all such remaining requesting holders.
8. Stand-Off Agreement. Each holder of Registrable Securities agrees, so
-------------------
long as such holder holds at least 5% of the Company's outstanding voting equity
securities, in connection with a Public Offering, upon request of the Company or
the underwriters managing such Public Offering, not to sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
Common Shares of the Company without the prior written consent of the Company or
such underwriters, as the case may be, for such period of time (not exceeding
180 days) from the effective date of the registration statement relating to such
Public Offering as may be requested by the underwriters; provided, however, that
-------- -------
all other persons with registration rights (whether or not pursuant to this
Agreement) and all of the executive officers and directors of the Company who
own stock of the Company must also agree to not less onerous restrictions.
9. Assignment of Registration Rights. The rights to cause the Company to
---------------------------------
register the Registrable Securities pursuant to this Agreement may not be
assigned by the Purchaser except (a) to an Affiliate of the Purchaser without
limitation or (b) to a transferee or assignee of Registrable Securities
representing or convertible into 5% or more of the Company's outstanding Common
Shares. In the case of either (a) or (b) the Purchaser shall, within a
reasonable time after such transfer or assignment, furnish to the Company
written notice of the name and address
<PAGE>
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned. Any transferee asserting registration
rights hereunder shall be bound by the applicable provisions of this Agreement.
10. Amendment. The Company shall not amend this Agreement without the
---------
written consent of the holders of more than 50% of the Registrable Securities.
11. Termination. This Agreement, and all of the Company's obligations
-----------
hereunder (other than its obligations pursuant to Article 6, which obligations
shall survive such termination), shall terminate upon the earlier to occur of
(i) the date on which there are no Registrable Securities outstanding and (ii)
July 26, 2004.
12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law but if any provision of this Agreement is held to be invalid,
illegal or unenforceable under any applicable law or rule, the validity,
legality and enforceability of the other provision of this Agreement will not be
affected or impaired thereby.
13. Notices. All notices, consents, requests, instructions, approvals or
-------
other communications provided for herein shall be in writing and delivered by
personal delivery, overnight courier, mail or electronic facsimile addressed to
the receiving party at the address set forth herein. All such communications
shall be effective when received.
(a) If to any holder of any Registrable Securities addressed to
such holder at its address as shown on the books of the Company, or at
such other address as such holder may specify by written notice to the
Company, or
(b) if to the Company, at New Century Financial Corporation,
18400 Von Karman, Suite 1000, Irvine, California 92612, Attention:
Brad A. Morrice, Fax: 949-440-7033; or at such other address as the
Company may specify by written notice to the holders of Registrable
Securities hereunder.
14. Counterparts. This Agreement may be executed concurrently in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Facsimile signatures
shall constitute original signatures for all purposes of this Agreement.
15. Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties.
16. Governing Law. This Agreement shall be governed by, interpreted
-------------
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to the conflicts or choice of laws, of the State of
Delaware.
<PAGE>
17. Entire Agreement; Effectiveness. This Agreement is intended by the
-------------------------------
parties hereto to be the final expression of their agreement and constitutes and
embodies the entire agreement and understanding between the parties hereto with
regard to the subject matter hereof and is a complete and exclusive statement of
the terms and conditions thereof, and shall supersede any and all prior oral or
written correspondence, conversations, negotiations, agreements and
understandings relating to the same subject matter. This Agreement shall take
effect upon its execution by the Company and the Purchaser and shall amend and
replace the 1998 Registration Rights Agreement. Upon the effectiveness of this
Agreement, the 1998 Registration Rights Agreement shall be of no further force
and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized representatives as of
the day and year first above written.
NEW CENTURY FINANCIAL CORPORATION
By: /s/ Robert K. Cole
--------------------------------
Its:CEO_____________________________
U.S. BANCORP
By: /s/ Lee R. Mitau
--------------------------------
Lee R. Mitau
Its Executive Vice President, General Counsel
and Secretary
<PAGE>
EXHIBIT C
FIRST AMENDMENT TO
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT (the
"Amendment") dated as of July 26, 1999 by and among NEW CENTURY MORTGAGE
CORPORATION, a California corporation (the" Company"), the lenders party to the
Credit Agreement referred to below (collectively, the "Lenders" and
individually, 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 thereunder, the "Agent").
WITNESSETH THAT:
WHEREAS, the Company, the Lenders and the Agent are parties to a Fourth
Amended and Restated Credit Agreement dated as of May 26, 1999 (the "Credit
Agreement"), pursuant to which the Lenders provide the Company with a revolving
mortgage warehousing credit facility; 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:
<PAGE>
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. Amendments to Credit Agreement. The Credit Agreement is hereby
------------------------------
amended as follows:
Section 4.13 of the Credit Agreement is hereby amended in its entirety
to read as follows:
4.13 Restricted Payments. The Company and NCFC will not make
-------------------
any Restricted Payments, other than (a) dividends paid by NCFC on its
1998A Convertible Preferred Stock and its 1999A Convertible Preferred
Stock in an aggregate amount not to exceed $3,000,000 per annum, (b)
dividends paid by the Company to NCFC to enable NCFC to pay such
dividends in an amount not to exceed $3,000,000 per annum, and (c)
repurchases by NCFC of shares of its common stock pursuant to the
Stock Repurchase Program, in each case provided that, both before and
after giving effect to such dividend payments or repurchases, the
Borrower and NCFC are in compliance with the covenants set forth in
Section 4 of this Agreement and no Event of Default or Unmatured Event
of Default has occurred and is continuing.
3. Conditions to Effectiveness of this Amendment. This Amendment shall
---------------------------------------------
become effective when the Agent shall have received at least thirteen (13)
counterparts of this Amendment, duly executed by the Company and the Required
Lenders, 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, Section 5 of the Pledge and Security Agreement and Section 4 of
the Servicing Security Agreement, of NCFC in Section 15 of the Guaranty,
and of NCCC in Section 15 of the NCCC 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.
(c) No material adverse change in the business, assets, financial
condition or prospects of the Company or NCFC shall have occurred since May
26, 1999.
(d) The Agent shall have received the following, each duly executed
or certified, as the case may be, and dated as of the date of delivery
thereof:
(i) copy of resolutions of the Board of Directors of the
Company, certified by its respective Secretary or Assistant Secretary,
authorizing or ratifying the execution, delivery and performance of
this Amendment;
<PAGE>
(ii) 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;
(iii) certified copies of all documents evidencing any necessary
corporate action, consent or governmental or regulatory approval (if
any) with respect to this Amendment;
(iv) a Reaffirmation of NCFC Guaranty duly executed by NCFC;
(v) a Reaffirmation of NCCC Guaranty duly executed by NCCC; and
(vi) such other documents, instruments, opinions and approvals
as the Agent may reasonably request.
(e) The Agent shall have received the amendment fee required by
Section 8.16 of the Credit Agreement.
4. 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, and 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 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 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.
5. General.
-------
(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.
<PAGE>
(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.
<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 _________________________________
Its ________________________________
U.S. BANK NATIONAL ASSOCIATION,
By _________________________________
Its ________________________________
GUARANTY FEDERAL BANK, FSB
By _________________________________
Its ________________________________
COMERICA BANK
By _________________________________
Its ________________________________
FIRST UNION NATIONAL BANK
By _________________________________
Its ________________________________
[Signature Page for First Amendment to
Fourth Amended and Restated Credit Agreement]
<PAGE>
RESIDENTIAL FUNDING CORPORATION
By _________________________________
Its ________________________________
BANK ONE, TEXAS, N.A.
By _________________________________
Its ________________________________
THE BANK OF NEW YORK
By _________________________________
Its ________________________________
THE FIRST NATIONAL BANK OF
CHICAGO
By _________________________________
Its ________________________________
NATIONSBANK OF TEXAS, N.A.
FLEET BANK, N.A.
By _________________________________
Its ________________________________
[Signature Page for First Amendment to
Fourth Amended and Restated Credit Agreement]
<PAGE>
REAFFIRMATION OF NCFC GUARANTY
THE UNDERSIGNED, NEW CENTURY FINANCIAL CORPORATION, HEREBY (1) AGREES THAT
EACH REFERENCE TO THE CREDIT AGREEMENT, OR WORDS OF SIMILAR IMPORT, CONTAINED IN
THE THIRD AMENDED AND RESTATED GUARANTY DATED AS OF MAY 29, 1998 (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 ____________________________________
Its ___________________________________
<PAGE>
REAFFIRMATION OF NCCC GUARANTY
THE UNDERSIGNED, NC CAPITAL CORPORATION, HEREBY (1) AGREES THAT EACH
REFERENCE TO THE CREDIT AGREEMENT, OR WORDS OF SIMILAR IMPORT, CONTAINED IN THE
THIRD AMENDED AND RESTATED GUARANTY DATED AS OF DECEMBER 11, 1998 (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.
NC CAPITAL CORPORATION
By ______________________________
Its _____________________________
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized representatives as of
the day and year first above written.
NEW CENTURY FINANCIAL CORPORATION
By /s/
-----------------------------------
Its ___________________________________
U.S. BANCORP
By /s/ Lee R. Mitau
-----------------------------------
Lee R. Mitau
Its Executive Vice President, General
Counsel and Secretary
<PAGE>
EXHIBIT 10.10
NEW CENTURY FINANCIAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
(Composite Plan Document Incorporating 1999 Plan Amendment)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
1. PURPOSE................................................ 3
2. DEFINITIONS............................................ 3
3. ELIGIBILITY............................................ 5
4. STOCK SUBJECT TO THIS PLAN; SHARE LIMITATIONS.......... 5
5. OFFERING PERIODS....................................... 5
6. PARTICIPATION.......................................... 6
7. METHOD OF PAYMENT OF CONTRIBUTIONS..................... 6
8. GRANT OF OPTION........................................ 7
9. EXERCISE OF OPTION..................................... 7
10. DELIVERY............................................... 8
11. TERMINATION OF EMPLOYMENT; CHANGE IN ELIGIBLE STATUS... 8
12. ADMINISTRATION......................................... 8
13. DESIGNATION OF BENEFICIARY............................. 9
14. TRANSFERABILITY........................................ 10
15. USE OF FUNDS; INTEREST................................. 10
16. REPORTS................................................ 10
17. ADJUSTMENTS OF AND CHANGES IN THE STOCK................ 10
18. TERM OF PLAN; AMENDMENT OR TERMINATION................. 11
19. NOTICES................................................ 12
20. CONDITIONS UPON ISSUANCE OF SHARES..................... 12
21. PLAN CONSTRUCTION...................................... 12
22. EMPLOYEES' RIGHTS...................................... 13
23. MISCELLANEOUS.......................................... 13
</TABLE>
-i-
<PAGE>
NEW CENTURY FINANCIAL CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
(Composite Plan Document Incorporating 1999 Plan Amendment)
The following constitute the provisions of the New Century Financial
Corporation Employee Stock Purchase Plan.
1. PURPOSE
The purpose of this Plan is to provide Eligible Employees with an incentive
to advance the best interests of the Corporation (and those Subsidiaries
which may be designated by the Committee as "Participating Corporations")
by providing a method whereby they may voluntarily purchase Common Stock at
a favorable price and upon favorable terms.
2. DEFINITIONS
Capitalized terms used herein which are not otherwise defined shall have
the following meanings.
"Account" shall mean the bookkeeping account maintained by the
-------
Corporation, or by a recordkeeper on behalf of the Corporation, for a
Participant pursuant to Section 7(a).
"Board" shall mean the Board of Directors of the Corporation.
-----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
----
"Committee" shall mean the committee appointed by the Board to
---------
administer this Plan pursuant to Section 12.
"Common Stock" shall mean the common stock of the Corporation.
------------
"Company" shall mean the Corporation and its Subsidiaries.
-------
"Compensation" shall mean an Eligible Employee's regular earnings,
------------
overtime pay, sick pay, commissions, vacation pay, incentive
compensation and bonuses. Compensation also includes any amounts
contributed as salary reduction contributions to a plan qualifying
under Section 401(k), 125 or 129 of the Code. Any other form of
remuneration is excluded from Compensation, including (but not limited
to) the following: prizes, awards, housing allowances, stock option
exercises, stock appreciation rights, restricted stock exercises,
performance
3
<PAGE>
awards, auto allowances, tuition reimbursement and other forms of
imputed income.
"Contributions" shall mean all bookkeeping amounts credited to the
-------------
Account of a Participant pursuant to Section 7(a).
"Corporation" shall mean New Century Financial Corporation, a Delaware
-----------
corporation.
"Eligible Employee" shall mean any employee of the Corporation, or of
-----------------
any Subsidiary which has been designated in writing by the Committee
as a "Participating Corporation" (including any Subsidiaries which
have become such after the date that this Plan is approved by
shareholders). Notwithstanding the foregoing, "Eligible Employee"
shall not include any employee who (i) has not as of the Grant Date
completed at least 90 days of continuous full-time employment with the
Company, (ii) whose customary employment is for less than 20 hours per
week, or (iii) whose customary employment is for not more than five
months in a calendar year.
"Effective Date" shall mean October 13, 1997.
--------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
"Exercise Date" shall mean, with respect to an Offering Period, the
-------------
last day of that Offering Period.
"Fair Market Value" shall mean the closing price of a Share on The New
-----------------
York Stock Exchange on such date (or, in the event that the Common
Stock is not traded on such date, on the immediately preceding trading
date), as reported in The Wall Street Journal or, in the event the
-----------------------
Common Stock is not listed on The New York Stock Exchange, the "Fair
Market Value" shall be the closing price of the Common Stock for such
date (or, in the event that the Common Stock is not traded on such
date, on the immediately preceding trading date), as reported by the
National Association of Securities Dealers Automated Quotation
("NASDAQ") or, if such price is not reported, the mean of the bid and
asked prices per Share as reported by NASDAQ or, if such prices are
not so listed or reported, as determined by the Committee (or its
delegate), in its discretion
"Grant Date" shall mean the first day of each Offering Period.
----------
"Offering Period" shall mean the six-consecutive month period
---------------
commencing on each January 1 and July 1; provided, however, that the
initial Offering Period shall be a short Offering Period which shall
commence on the Effective Date and end on December 31, 1997.
4
<PAGE>
"Option" shall mean the stock option to acquire Shares granted to a
------
Participant pursuant to Section 8.
"Option Price" shall mean the per share exercise price of an Option as
------------
determined in accordance with Section 8(b).
"Participant" shall mean an Eligible Employee who has elected to
-----------
participate in this Plan and who has filed a valid and effective
Subscription Agreement to make Contributions pursuant to Section 6.
"Plan" shall mean this New Century Financial Corporation Employee
----
Stock Purchase Plan, as amended from time to time.
"Rule 16b-3" shall mean Rule 16b-3 promulgated under Section 16.
----------
"Section 16" shall mean Section 16 of the Exchange Act.
----------
"Share" shall mean a share of Common Stock.
-----
"Subscription Agreement" shall mean the written agreement filed by an
----------------------
Eligible Employee with the Corporation pursuant to Section 6 to
participate in this Plan.
"Subsidiary" shall mean any corporation in an unbroken chain of
----------
corporations (beginning with the Corporation) in which each
corporation (other than the last corporation) owns stock possessing
50% or more of the total combined voting power of all classes of stock
in one or more of the other corporations in the chain.
3. ELIGIBILITY
Any person employed as an Eligible Employee as of a Grant Date shall be
eligible to participate in this Plan during the Offering Period in which
such Grant Date occurs, subject to the Eligible Employee satisfying the
requirements of Section 6.
4. STOCK SUBJECT TO THIS PLAN; SHARE LIMITATIONS
The total number of Shares to be made available under this Plan is
2,000,000 authorized and unissued or treasury shares of Common Stock, or
Shares repurchased on the open market, subject to adjustments pursuant to
Section 17. In the event that all of the Shares made available under this
Plan are subscribed prior to the expiration of this Plan, this Plan may be
terminated in accordance with Section 18.
5. OFFERING PERIODS
During the term of this Plan, the Corporation will offer Options to
purchase Shares to all Participants during each Offering Period. Each
Option shall become effective on the Grant Date. The term of each Option
shall be six months (except with respect to those
5
<PAGE>
Options granted during the first Offering Period) and shall end on the
Exercise Date. The first Offering Period shall commence on or after the
Effective Date. Offering Periods shall continue until this Plan is
terminated in accordance with Section 18, or, if earlier, until no Shares
remain available for Options pursuant to Section 4.
6. PARTICIPATION
An Eligible Employee may become a participant in this Plan by completing a
Subscription Agreement on a form approved by and in a manner prescribed by
the Committee (or its delegate). To become effective, Subscription
Agreements must be filed with the Corporation prior to the applicable Grant
Date and must set forth the amount or whole percentage of the Eligible
Employee's Compensation (which shall not be less than 1% and not more than
10% of such Eligible Employee's Compensation) to be credited to the
Participant's Account as Contributions each pay period. The Committee may
permit Eligible Employees to make separate Contribution elections with
respect to the bonus portion of their Compensation, on such terms and
conditions as the Committee may prescribe. Subscription Agreements shall
contain the Eligible Employee's authorization and consent to the
Corporation's withholding from his or her Compensation the amount of his or
her Contributions. A Subscription Agreement shall remain valid only for
the Offering Period for which it relates.
7. METHOD OF PAYMENT OF CONTRIBUTIONS
(a) The Corporation shall maintain on its books, or cause to be maintained
by a recordkeeper, an Account in the name of each Participant. The
percentage of Compensation elected to be applied as Contributions by a
Participant shall be deducted from such Participant's Compensation on
each payday during the period for payroll deductions set forth below
and such payroll deductions shall be credited to that Participant's
Account as soon as administratively practicable after such date. A
Participant may not make any additional payments to his or her
Account. A Participant's Account shall be reduced by any amounts used
to pay the Option Price of Shares acquired, or by any other amounts
distributed pursuant to the terms hereof.
(b) Payroll deductions with respect to an Offering Period shall commence
as of the first day of the payroll period which coincides with or
immediately follows the applicable Grant Date and shall end on the
last day of the payroll period which coincides with or immediately
precedes the applicable Exercise Date, unless sooner terminated by the
Participant as provided in this Section or until his or her
participation terminates pursuant to Section 11.
(c) A Participant may terminate his or her Contributions during an
Offering Period by completing and filing with the Corporation, in such
form and on such terms as the Committee (or its delegate) may
prescribe, a written withdrawal form which shall
6
<PAGE>
be signed by the Participant. Such termination shall be effective as
soon as administratively practicable after its receipt by the
Corporation.
(d) A Participant may discontinue or otherwise change the level of his or
her Contributions (within Plan limits) during an Offering Period by
completing and filing with the Corporation, in such form and on such
terms as the Committee (or its delegate) may prescribe, a written
change in Contributions election which shall be signed by the
Participant. Such change shall be effective as soon as
administratively practicable after its receipt by the Corporation. A
Participant shall make no more than two elections pursuant to this
Section 7(d) in any one Offering Period and any elections in excess of
such limit shall be invalid.
8. GRANT OF OPTION
(a) On each Grant Date, each Eligible Employee who is a participant during
that Offering Period shall be granted an Option to purchase a number
of Shares. The Option shall be exercised on the Exercise Date. The
number of Shares subject to the Option shall be determined by dividing
the Participant's Account balance as of the applicable Exercise Date
by the Option Price.
(b) The Option Price per Share of the Shares subject to an Option shall be
the lesser of: (i) 90% of the Fair Market Value of a Share on the
applicable Grant Date; or (ii) 90% of the Fair Market Value of a Share
on the applicable Exercise Date.
(c) Notwithstanding anything else contained herein, a person who is
otherwise an Eligible Employee shall not be granted any Option or
other right to purchase Shares under this Plan to the extent (i) it
would, if exercised, cause the person to own "stock" (as such term is
defined for purposes of Section 423(b)(3) of the Code) possessing 5%
or more of the total combined voting power or value of all classes of
stock of the Corporation, or any Subsidiary, or (ii) such Option
causes such individual to have rights to purchase stock under this
Plan and any other plan of the Company qualified under Section 423 of
the Code which accrue at a rate which exceeds $25,000 of the fair
market value of the stock of the Corporation or of a Subsidiary
(determined at the time the right to purchase such Stock is granted)
for each calendar year in which such right is outstanding. For this
purpose a right to purchase Shares accrues when it first become
exercisable during the calendar year. In determining whether the
stock ownership of an Eligible Employee equals or exceeds the 5% limit
set forth above, the rules of Section 424(d) of the Code (relating to
attribution of stock ownership) shall apply.
9. EXERCISE OF OPTION
Unless a Participant's Plan participation is terminated as provided in
Section 11, his or her Option for the purchase of Shares shall be exercised
automatically on the Exercise Date for that Offering Period, without any
further action on the Participant's part, and the
7
<PAGE>
maximum number of Shares subject to such Option shall be purchased at the
Option Price with the balance of such Participant's Account. The Committee,
in its discretion and prior to the applicable Offering Period, may limit
the purchase of fractional Shares under the Plan; provided that if any
amount (which is not sufficient to purchase a whole Share) remains in a
Participant's Account after the exercise of his or her Option on the
Exercise Date: (i) such amount shall be credited to such Participant's
Account for the next Offering Period, if he or she is then a Participant;
or (ii) if such Participant is not a Participant in the next Offering
Period, or if the Committee so elects, such amount shall be refunded to
such Participant as soon as administratively practicable after such date.
10. DELIVERY
As soon as administratively practicable after the Exercise Date, the
Corporation shall deliver to each Participant a certificate representing
the Shares purchased upon exercise of his or her Option. The Corporation
may make available an alternative arrangement for delivery of Shares to a
recordkeeping service. The Committee (or its delegate), in its discretion,
may either require or permit the Participant to elect that such
certificates be delivered to such recordkeeping service. In the event the
Corporation is required to obtain from any commission or agency authority
to issue any such certificate, the Corporation will seek to obtain such
authority. Inability of the Corporation to obtain from any such commission
or agency authority which counsel for the Corporation deems necessary for
the lawful issuance of any such certificate shall relieve the Corporation
from liability to any Participant except to return to the Participant the
amount of the balance in his or her Account.
11. TERMINATION OF EMPLOYMENT; CHANGE IN ELIGIBLE STATUS
(a) Upon a Participant's termination from employment with the Company for
any reason or in the event that a Participant is no longer an Eligible
Employee or if the Participant elects to terminate Contributions
pursuant to Section 7(c), at any time prior to the last day of an
Offering Period in which he or she participates, such Participant's
Account shall be paid to him or her or in cash, or, in the event of
such Participant's death, paid to the person or persons entitled
thereto under Section 13, and such Participant's Option for that
Offering Period shall be automatically terminated.
(b) A Participant's termination from Plan participation precludes the
Participant from again participating in this Plan during that Offering
Period. However, such termination shall not have any effect upon his
or her ability to participate in any succeeding Offering Period,
provided that the applicable eligibility and participation
requirements are again then met. A Participant's termination from
Plan participation shall be deemed to be a revocation of that
Participant's Subscription Agreement and such Participant must file a
new Subscription Agreement to resume Plan participation in any
succeeding Offering Period.
8
<PAGE>
12. ADMINISTRATION
(a) The Board shall appoint the Committee, which shall be composed of not
less than two members of the Board. Each member of the Committee, in
respect of any transaction at a time when an affected Participant may
be subject to Section 16 of the Exchange Act, shall be a "non-employee
director" within the meaning of Rule 16b-3 promulgated under Section
16. The Board may, at any time, increase or decrease the number of
members of the Committee, may remove from membership on the Committee
all or any portion of its members, and may appoint such person or
persons as it desires to fill any vacancy existing on the Committee,
whether caused by removal, resignation, or otherwise. The Board may
also, at any time, assume or change the administration of this Plan.
(b) The Committee shall supervise and administer this Plan and shall have
full power and discretion to adopt, amend and rescind any rules deemed
desirable and appropriate for the administration of this Plan and not
inconsistent with the terms of this Plan, and to make all other
determinations necessary or advisable for the administration of this
Plan. The Committee shall act by majority vote or by unanimous
written consent. No member of the Committee shall be entitled to act
on or decide any matter relating solely to himself or herself or any
of his or her rights or benefits under this Plan. The Committee shall
have full power and discretionary authority to construe and interpret
the terms and conditions of this Plan, which construction or
interpretation shall be final and binding on all parties including the
Corporation, Participants and beneficiaries. The Committee may
delegate ministerial non-discretionary functions to third parties,
including officers of the Corporation.
(c) Any action taken by, or inaction of, the Corporation, the Board or the
Committee relating to this Plan shall be within the absolute
discretion of that entity or body. No member of the Board or
Committee, or officer of the Corporation shall be liable for any such
action or inaction.
13. DESIGNATION OF BENEFICIARY
(a) A Participant may file, in a manner prescribed by the Committee (or
its delegate), a written designation of a beneficiary who is to
receive any Shares or cash from such Participant's Account under this
Plan in the event of such Participant's death. If a Participant's
death occurs subsequent to the end of an Offering Period but prior to
the delivery to him or her of any Shares deliverable under the terms
of this Plan, such Shares and any remaining balance of such
Participant's Account shall be paid to such beneficiary (or such other
person as set forth in Section 13(b)) as soon as administratively
practicable after the Corporation receives notice of such
Participant's death and any outstanding unexercised Option shall
terminate. If a Participant's death occurs at any other time, the
balance of such
9
<PAGE>
Participant's Account shall be paid to such beneficiary (or such other
person as set forth in Section 13(b)) in cash as soon as
administratively practicable after the Corporation receives notice of
such Participant's death and such Participant's Option shall
terminate. If a Participant is married and the designated beneficiary
is not his or her spouse, spousal consent shall be required for such
designation to be effective.
(b) Beneficiary designations may be changed by the Participant (and his or
her spouse, if required) at any time on forms provided and in the
manner prescribed by the Committee (or its delegate). If a
Participant dies with no validly designated beneficiary under this
Plan who is living at the time of such Participant's death, the
Corporation shall deliver all Shares and/or cash payable pursuant to
the terms hereof to the executor or administrator of the estate of the
Participant, or if no such executor or administrator has been
appointed, the Corporation, in its discretion, may deliver such Shares
and/or cash to the spouse or to any one or more dependents or
relatives of the Participant, or if no spouse, dependent or relative
is known to the Corporation, then to such other person as the
Corporation may designate.
14. TRANSFERABILITY
Neither Contributions credited to a Participant's Account nor any Options
or rights with respect to the exercise of Options or right to receive
Shares under this Plan may be anticipated, alienated, encumbered, assigned,
transferred, pledged or otherwise disposed of in any way (other than by
will, the laws of descent and distribution, or as provided in Section 13)
by the Participant. Any such attempt at anticipation, alienation,
encumbrance, assignment, transfer, pledge or other disposition shall be
without effect and all amounts shall be paid and all shares shall be
delivered in accordance with the provisions of this Plan. Amounts payable
or Shares deliverable pursuant to this Plan shall be paid or delivered only
to the Participant or, in the event of the Participant's death, to the
Participant's beneficiary pursuant to Section 13.
15. USE OF FUNDS; INTEREST
All Contributions received or held by the Corporation under this Plan will
be included in the general assets of the Corporation and may be used for
any corporate purpose. No interest will be paid to any Participant or
credited to his or her Account under this Plan.
16. REPORTS
Statements shall be provided to Participants as soon as administratively
practicable following each Exercise Date. Each Participant's statement
shall set forth, as of such Exercise Date, that Participant's Account
balance immediately prior to the exercise of his or her Option, the Fair
Market Value of a Share, the Option Price, the number of Shares purchased
and his or her remaining Account balance, if any.
10
<PAGE>
17. ADJUSTMENTS OF AND CHANGES IN THE STOCK
(a) The following provisions will apply if any extraordinary dividend or
other extraordinary distribution occurs in respect of the Shares
(whether in the form of cash, Common Stock, other securities, or other
property), or any reclassification, recapitalization, stock split
(including a stock split in the form of a stock dividend), reverse
stock split, reorganization, merger, combination, consolidation,
split-up, spin-off, combination, repurchase, or exchange of Common
Stock or other securities of the Corporation, or any similar, unusual
or extraordinary corporate transaction (or event in respect of the
Common Stock) or a sale of substantially all the assets of the
Corporation as an entirety occurs. The Committee will, in such manner
and to such extent (if any) as it deems appropriate and equitable
(i) proportionately adjust any or all of (1) the number and type of
Shares (or other securities) that thereafter may be made the
subject of Options (including the specific maxima and numbers of
Shares set forth elsewhere in this Plan), (2) the number, amount
and type of Shares (or other securities or property) subject to
any or all outstanding Options, (3) the Option Price of any or
all outstanding Options, or (4) the securities, cash or other
property deliverable upon exercise of any outstanding Options, or
(ii) in the case of an extraordinary dividend or other distribution,
recapitalization, reclassification, merger, reorganization,
consolidation, combination, sale of assets, split up, exchange,
or spin off, make provision for the substitution, settlement, or
exchange of any or all outstanding Options or the cash,
securities or property deliverable to the holder of any or all
outstanding Options based upon the distribution or consideration
payable to holders of the Common Stock upon or in respect of such
event.
In each case, no such adjustment will be made that would cause this
Plan to violate Section 423 of the Code or any successor provisions
without the written consent of the holders materially adversely
affected thereby. In any of such events, the Committee may take such
action sufficiently prior to such event if necessary to permit the
Participant to realize the benefits intended to be conveyed with
respect to the underlying shares in the same manner as is available to
stockholders generally.
(b) Upon a dissolution of the Corporation, or any other event described in
Section 17(a) that the Corporation does not survive, the Plan and, if
prior to the last day of an Offering Period, any outstanding Option
granted with respect to that Offering Period shall terminate, subject
to any provision that has been expressly made by the Committee through
a plan or reorganization approved by the Board or otherwise for the
survival, substitution, assumption, exchange or other settlement
11
<PAGE>
of the Plan and Options. In the event a Participant's Option is
terminated pursuant to this Section 17(b), such Participant's Account
shall be paid to him or her in cash.
18. TERM OF PLAN; AMENDMENT OR TERMINATION
(a) This Plan shall become effective as of the Effective Date. No new
Offering Periods shall commence on or after the tenth anniversary of
the Effective Date and this Plan shall terminate on such date unless
sooner terminated pursuant to this Section 18.
(b) The Board may amend, modify or terminate this Plan at any time without
notice. Shareholder approval for any amendment or modification shall
not be required, except to the extent required by Section 423 of the
Code or other applicable law, or deemed necessary or advisable by the
Board. No amendment, modification, or termination pursuant to this
Section 18(b) shall, without written consent of the Participant,
affect in any manner materially adverse to the Participant any rights
or benefits of such Participant or obligations of the Corporation
under any Option granted under this Plan prior to the effective date
of such change. Changes contemplated by Section 17 shall not be
deemed to constitute changes or amendments requiring Participant
consent. Notwithstanding the foregoing, the Committee shall have the
right to designate from time to time the Subsidiaries whose employees
may be eligible to participate in this Plan and such designation shall
not constitute any amendment to this Plan requiring shareholder
approval.
19. NOTICES
All notices or other communications by a Participant to the Corporation
contemplated by this Plan shall be deemed to have been duly given when
received in the form and manner specified by the Committee (or its
delegate) at the location, or by the person, designated by the Committee
(or its delegate) for that purpose.
20. CONDITIONS UPON ISSUANCE OF SHARES
Shares shall not be issued with respect to an Option unless the exercise of
such Option and the issuance and delivery of such Shares complies with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, any
applicable state securities laws, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the
Shares may then be listed.
As a condition precedent to the exercise of any Option, if, in the opinion
of counsel for the Corporation such a representation is required under
applicable law, the Corporation may require any person exercising such
Option to represent and warrant that the Shares
12
<PAGE>
subject thereto are being acquired only for investment and without any
present intention to sell or distribute such Shares.
21. PLAN CONSTRUCTION
(a) It is the intent of the Corporation that transactions in and affecting
Options in the case of Participants who are or may be subject to the
prohibitions of Section 16 satisfy any then applicable requirements of
Rule 16b-3 so that such persons (unless they otherwise agree) will be
entitled to the exemptive relief of Rule 16b-3 in respect of those
transactions and will not be subject to avoidable liability
thereunder. Accordingly, this Plan shall be deemed to contain and the
Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-
3 to qualify for the maximum exemption from Section 16 with respect to
Plan transactions.
(b) This Plan and Options are intended to qualify under Section 423 of the
Code.
(c) If any provision of this Plan or of any Option would otherwise
frustrate or conflict with the intents expressed above, that provision
to the extent possible shall be interpreted so as to avoid such
conflict. If the conflict remains irreconcilable, the Committee may
disregard the provision if it concludes that to do so furthers the
interest of the Corporation and is consistent with the purposes of
this Plan as to such persons in the circumstances.
22. EMPLOYEES' RIGHTS
Nothing in this Plan (or in any agreement related to this Plan) shall
confer upon any Eligible Employee or Participant any right to continue in
the service or employ of the Company or constitute any contract or
agreement of service or employment, or interfere in any way with the right
of the Company to reduce such person's compensation or other benefits or to
terminate the services or employment or such Eligible Employee or
Participant, with or without cause, but nothing contained in this Plan or
any document related hereto shall affect any other contractual right of any
Eligible Employee or Participant. No Participant shall have any rights as
a shareholder until a certificate for Shares has been issued in the
Participant's name following exercise of his or her Option. No adjustment
will be made for dividends or other rights as a shareholder for which a
record date is prior to the issuance of such Share certificate. Nothing in
this Plan shall be deemed to create any fiduciary relationship between the
Corporation and any Participant.
23. MISCELLANEOUS
(a) This Plan and related documents shall be governed by, and construed in
accordance with, the laws of the State of California. If any
provision shall be held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions of this Plan shall
continue to be fully effective.
13
<PAGE>
(b) Captions and headings are given to the sections of this Plan solely as
a convenience to facilitate reference. Such captions and headings
shall not be deemed in any way material or relevant to the
construction of interpretation of this Plan or any provision hereof.
(c) The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company. Nothing in this Plan shall
be construed to limit the right of the Company (i) to establish any
other forms of incentives or compensation for employees of the
Company, or (ii) to grant or assume options (outside the scope of and
in addition to those contemplated by this Plan) in connection with any
proper corporate purpose.
14
<PAGE>
New Century Financial Corporation Exhibit 11.1
Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
--------------------------------------------------------------
1999 1998 1999 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic:
Net earnings $20,691,000 $13,725,000 $10,879,000 $ 7,492,000
=============================================================
Weighted average common shares outstanding 14,299,783 14,037,678 14,353,488 14,070,835
--------------------------------------------------------------
Earnings per share $ 1.45 $ 0.98 $ 0.76 $ 0.53
=============================================================
Diluted:
Net earnings $20,691,000 $13,725,000 $10,879,000 $ 7,492,000
=============================================================
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares outstanding 14,299,783 14,037,678 14,353,488 14,070,835
Dilutive effect of convertible preferred stock,
stock options and warrants, after application 3,769,039 869,200 3,814,245 947,744
--------------------------------------------------------------
18,068,821 14,906,878 18,167,732 15,018,579
=============================================================
Earnings per share $ 1.15 $ 0.92 $ 0.60 $ 0.50
=============================================================
</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 six months ended June 30, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 12,365,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 392,263,000
<CURRENT-ASSETS> 0
<PP&E> 6,862,000
<DEPRECIATION> 4,116,000
<TOTAL-ASSETS> 676,219,000
<CURRENT-LIABILITIES> 24,859,000
<BONDS> 489,958,000
0
0
<COMMON> 146,000
<OTHER-SE> 134,399,000
<TOTAL-LIABILITY-AND-EQUITY> 676,219,000
<SALES> 59,615,000
<TOTAL-REVENUES> 110,169,000
<CGS> 0
<TOTAL-COSTS> 51,591,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,352,000
<INCOME-PRETAX> 35,226,000
<INCOME-TAX> 14,535,000
<INCOME-CONTINUING> 20,691,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,691,000
<EPS-BASIC> 1.45
<EPS-DILUTED> 1.45
</TABLE>
