<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 March 31, 2000
--------------
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 April 30, 2000, 14,765,814 shares of common stock of New Century Financial
Corporation were outstanding.
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
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 14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of
Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
EXHIBIT INDEX 25
2
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Certain information included in this Form 10-Q may include "forward-looking"
statements under federal securities laws, and the Company intends that such
forward-looking statements be subject to the safe-harbor created thereby.
Such statements include the anticipated mix of whole loan sales and
securitizations for the remainder of 2000, the expectations regarding the
condition of the whole loan and securitization markets for the remainder of
2000, 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, 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, 1999 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)
March 31, December 31,
2000 1999
------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents .................................... $ 14,184 $ 4,496
Loans receivable held for sale, net (notes 2 and 5) .......... 470,858 442,653
Residual interests in securitizations (note 3) ............... 401,781 364,689
Mortgage servicing assets (note 4) ........................... 22,802 22,145
Accrued interest receivable .................................. 1,889 1,538
Income taxes receivable ...................................... -- 548
Office property and equipment ................................ 3,565 3,780
Prepaid expenses and other assets ............................ 30,822 23,860
------------------------
TOTAL ASSETS ................................................. $ 945,901 $ 863,709
========================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Warehouse and aggregation lines of credit (note 5) ........... $ 463,757 $ 428,726
Residual financing ........................................... 207,797 177,493
Subordinated debt ............................................ 30,000 20,000
Notes payable ................................................ 2,582 3,051
Income taxes payable ......................................... 4,781 --
Accounts payable and accrued liabilities ..................... 22,044 26,484
Deferred income taxes ........................................ 34,992 34,992
------------------------
Total liabilities .................................... 765,953 690,746
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 7,500,000 shares;
40,000 shares issued and outstanding ..................... -- --
Common stock, $.01 par value. Authorized 45,000,000 shares;
issued and outstanding 14,737,912 shares at March 31, 2000
and 14,694,984 shares at December 31, 1999 ............... 147 147
Additional paid-in capital ................................... 85,972 85,625
Retained earnings, restricted ................................ 93,899 87,351
------------------------
180,018 173,123
Deferred compensation costs .................................. (70) (160)
------------------------
Total stockholders' equity ........................... 179,948 172,963
------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................... $ 945,901 $ 863,709
========================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
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New Century Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
Three Months Ended March 31,
----------------------------
2000 1999
----------------------------
Revenues:
Gain on sale of loans ........................... $ 22,810 $ 29,428
Interest income ................................. 18,441 15,318
Servicing income ................................ 19,133 9,465
-------------------------
Total revenues ................................ 60,384 54,211
-------------------------
Expenses:
Personnel ....................................... 13,245 12,191
Interest ........................................ 18,086 12,416
General and administrative ...................... 11,488 9,474
Advertising and promotion ....................... 3,464 2,385
Professional services ........................... 1,384 1,120
-------------------------
Total expenses ................................ 47,667 37,586
-------------------------
Earnings before income taxes ...................... 12,717 16,625
Income taxes ...................................... 5,444 6,813
-------------------------
Net earnings ...................................... $ 7,273 $ 9,812
=========================
Basic earnings per share (note 6) ................. $ 0.45 $ 0.66
=========================
Diluted earnings per share (note 6) ............... $ 0.38 $ 0.55
=========================
See accompanying notes to unaudited condensed consolidated financial statements.
5
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New Century Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended March 31,
2000 1999
---------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings ........................................................ $ 7,273 $ 9,812
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization ..................................... 2,220 1,405
NIR gains ......................................................... (25,023) (40,936)
Initial deposits to over-collateralization accounts ............... (14,104) (21,845)
Deposits to over-collateralization accounts ....................... (18,661) (3,121)
Release of cash from over-collateralization accounts .............. 14,311 2,557
Servicing gains ................................................... (2,062) (4,519)
Amortization (accretion) of NIRs/I/O's ............................ 6,385 (1,119)
General valuation provision for NIRs .............................. -- 4,000
Net proceeds from NIMS transaction ................................ -- 76,098
Provision for losses .............................................. 2,267 3,469
Loans originated or acquired for sale ............................. (956,203) (892,722)
Loan sales, net ................................................... 926,456 872,880
Principal payments on loans receivable held for sale .............. 6,709 233
Increase (decrease) in warehouse and aggregation lines of credit .. 29,228 (642)
Net change in other assets and liabilities ........................ (8,176) 4,165
---------------------------
Net cash provided by (used in) operating activities ................. (29,380) 9,715
---------------------------
Cash flows from investing activities:
Purchase of office property and equipment ......................... (304) (55)
Acquisition of Primewest .......................................... (43) (108)
---------------------------
Net cash used in investing activities ............................... (347) (163)
Cash flows from financing activities:
Net proceeds from residual financing .............................. 30,304 (29,281)
Proceeds from issuance of subordinated debt ....................... 10,000 --
Net repayments of notes payable ................................... (469) (505)
Payment of dividends on convertible preferred stock ............... (725) (279)
Net proceeds from issuance of stock/purchase of treasury stock .... 305 157
---------------------------
Net cash provided by financing activities ........................... 39,415 (29,908)
---------------------------
Net increase (decrease) in cash and cash equivalents ................ 9,688 (20,356)
Cash and cash equivalents, beginning of period ...................... 4,496 30,875
---------------------------
Cash and cash equivalents, end of period ............................ $ 14,184 $ 10,519
===========================
Supplemental cash flow disclosure:
Interest paid ..................................................... $ 18,156 $ 12,397
Income taxes paid ................................................. $ 115 $ 3,087
Supplemental non-cash financing activity:
Stock issued in connection with acquisition of Primewest .......... $ 43 $ 108
Net assets acquired through acquisition of subsidiary ............. $ 553 $ --
</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)
March 31, 2000 and 1999
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 three months ended March 31, 2000 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 2000.
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 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
7
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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 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
8
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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 0.55%
to 1.25% for adjustable rate first trust deeds, 0.40% to 0.80% for fixed rate
first trust deeds and 0.75% to 1.30% 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 2.06% to 3.57% for
adjustable rate first trust deeds, 1.95% to 2.97% for fixed rate first trust
deeds and 2.84% to 2.97% for second trust deeds. These estimates are based on
current pool performance, historical loss data for comparable loans and the
specific characteristics of the loans originated by the Company. The Company
estimates prepayments by evaluating historical prepayment performance of
comparable mortgage loans and the impact of trends in the industry. The Company
has used a prepayment curve to estimate the prepayment characteristics of the
mortgage loans. The rate of increase, duration, severity and decrease of the
curve depends on the age and nature of the mortgage loans, primarily whether the
mortgage loans are fixed or adjustable and the interest rate adjustment
characteristics of the mortgage loans (6 month, 1 year, 2 year, 3 year or 5 year
adjustment periods). The Company's prepayment curve and default estimates have
resulted in weighted average lives of between 1.93 to 3.23 years for its
adjustable mortgage loans and 3.80 to 4.37 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 has
historically established a general valuation allowance. 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. The Company has also
historically recorded write-downs in the carrying value of its residual
interests as a result of actual prepayment and loss experience. During the years
ended December 31, 1999 and 1998, the Company recorded $28.5 million and $5.9
million, respectively, in write-downs of the carrying value of its residual
interests.
As of March 31, 2000, the Company determined that the carrying value of its
residual interests approximated their fair market value at that date.
Consequently, no write-down or addition to the general valuation allowance was
necessary.
9
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2. Loans Receivable Held for Sale, Net
A summary of loans receivable held for sale, at the lower of cost or market at
March 31, 2000 and December 31, 1999 follows (dollars in thousands):
March 31, December 31,
2000 1999
--------- ---------
Mortgage loans receivable .......................... $ 470,008 $ 441,803
Net deferred origination costs ..................... 850 850
--------- ---------
$ 470,858 $ 442,653
========= =========
3. Residual Interests in Securitizations
Residual interests in securitizations consist of the following components at
March 31, 2000 and December 31, 1999 (dollars in thousands):
March 31, December 31,
2000 1999
--------- ---------
Over-collateralization account ..................... $ 202,999 $ 184,545
Net interest receivable (NIR) ...................... 203,782 185,144
--------- ---------
406,781 369,689
General valuation allowance ........................ (5,000) (5,000)
--------- ---------
$ 401,781 $ 364,689
========= =========
The following table summarizes activity in the NIR amounts for the three months
ended March 31, 2000 and 1999 (dollars in thousands):
2000 1999
--------- ---------
Balance, beginning of period ....................... $ 185,144 $ 126,103
Sale of NIR through NIMS ........................... -- (71,156)
NIR gains .......................................... 25,023 40,936
Write-down of NIR .................................. -- (4,000)
NIR accretion (amortization) ....................... (6,385) 1,119
--------- ---------
Balance, end of period ............................. $ 203,782 $ 93,002
========= =========
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The following table summarizes activity in the OC accounts for the three months
ended March 31, 2000 and 1999 (dollars in thousands):
2000 1999
--------- ---------
Balance, beginning of period ....................... $ 184,545 $ 89,792
Initial deposits to OC accounts .................... 14,104 21,845
Additional deposits to OC accounts ................. 18,661 3,121
Release of cash from OC accounts ................... (14,311) (2,557)
--------- ---------
Balance, end of period ............................. $ 202,999 $ 112,201
========= =========
The following table summarizes activity in the allowance for NIR losses for the
three months ended March 31, 2000 and 1999 (dollars in thousands):
2000 1999
--------- ---------
Balance, beginning of period ....................... $ 5,000 $ 10,500
Provision for NIR losses ........................... -- 4,000
Charge-offs of NIR ................................. -- (4,000)
--------- ---------
Balance, end of period ............................. $ 5,000 $ 10,500
========= =========
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 three months ended March 31, 2000 and 1999 (dollars in
thousands):
2000 1999
--------- ---------
Balance, beginning of period ....................... $ 22,145 $ 8,665
Additions .......................................... 2,062 4,519
Amortization ....................................... (1,405) (396)
--------- ---------
Balance, end of period ............................. $ 22,802 $ 12,788
========= =========
The table below summarizes activity in the Company's mortgage loan servicing
portfolio for the three months ended March 31, 2000 and 1999 (dollars in
millions):
2000 1999
--------- ---------
Balance, beginning of period ....................... $ 5,950 $ 3,786
Loans funded ....................................... 956 892
Payoffs/servicing released sales ................... (839) (213)
--------- ---------
Balance, end of period ............................. $ 6,067 $ 4,465
========= =========
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5. Warehouse and Aggregation Lines of Credit
Warehouse and aggregation lines of credit consist of the following at March 31,
2000 and December 31, 1999 (dollars in thousands):
March 31, December 31,
2000 1999
-------- -----------
A $320 million line of credit expiring in May 2000
secured by loans receivable held for sale, bearing
interest based on one month LIBOR (6.13% at
March 31, 2000) .................................... $ 251,156 $ 234,778
A $603 million master repurchase agreement bearing
interest based on one month LIBOR (6.13% at
March 31, 2000), secured by loans receivable held
for sale. The agreement may be terminated
by the lender giving 28 days written notice ........ 137,433 164,326
A $300 million loan and security agreement bearing
interest based on one month LIBOR (6.13% at
March 31, 2000), secured by loans receivable held
for sale, expiring in June 2000 .................... 44,733 17,682
$13 million in warehouse lines of credit from two
commercial banks bearing interest based on
prime rate, secured by loans receivable held for sale,
which may be terminated by the lender giving
written notice ..................................... 5,803 --
A $293 million loan and security agreement bearing
interest based on one month LIBOR (6.13% at
March 31, 2000), secured by loans receivable held
for sale, expiring in August 2000 .................. 24,632 11,940
--------- ---------
$ 463,757 $ 428,726
========= =========
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 March 31, 2000, the Company was in
compliance with these financial and other covenants.
12
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6. Earnings per Share
The following table illustrates the computation of basic and diluted earnings
per share for the periods indicated (dollars in thousands, except per share
amounts):
Three Months Ended March 31,
2000 1999
----------------------------
Basic:
Net earnings $ 7,273 $ 9,812
Less: dividends earned on preferred stock (725) (375)
--------- ---------
Earnings available to common shareholders $ 6,548 $ 9,437
Weighted average common shares outstanding 14,594 14,279
--------- ---------
Earnings per share $ 0.45 $ 0.66
========= =========
Diluted:
Net earnings $ 7,273 $ 9,812
========= =========
Weighted average number of common and
Common equivalent shares outstanding:
Weighted average common shares outstanding 14,594 14,279
Dilutive effect of convertible preferred stock,
stock options and warrants, after application 4,720 3,704
--------- ---------
19,314 17,983
Earnings per share $ 0.38 $ 0.55
========= =========
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
New Century Financial Corporation (together with its subsidiaries, 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 and anyloan.com subsidiaries. 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 March 31, 2000, the Company's Wholesale Division was operating through
five regional operating centers and 31 additional sales offices. The
Wholesale Division funded $709.3 million in loans during the three months
ended March 31, 2000. As of March 31, 2000, the Company's Retail Division was
operating through 76 sales offices. The Retail Division funded $247.1 million
in loans during the three months ended March 31, 2000, which includes loans
funded through the Company's Primewest and anyloan.com subsidiaries.
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 March 31, 2000, $496.8 million, or 53.6%, of the Company's loan
sales were in the form of whole loan sales. Based on current liquidity and
profit projections and current market conditions, the Company anticipates the
percentage of whole loan sales will remain more than 50% of loan sales in
future quarters of 2000.
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The Company has, to date, elected to fund the required OC at the closing of most
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):
For the Three Months
Ended March 31,
2000 1999
-----------------------
Whole loan sales ................................... $ 496,776 $ 296,011
Securitizations .................................... 429,680 576,869
-----------------------
Total loan sales .......................... $ 926,456 $ 872,880
=======================
Condition of Secondary Market. For the past several quarters, whole loan
prices have remained at levels significantly lower than the prices received
by the Company in earlier periods. Although prices have increased in the
first quarter of 2000 and there are indications of further price increases in
the second quarter of 2000, whole loan prices are still significantly lower
than in 1997 and early 1998. 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
first quarter of 2000, the Company's whole loan sales were characterized by
smaller pools of more narrow characteristics sold to a larger number of
buyers. However, if whole loan prices continue to increase, the Company can
take advantage of the benefit to a higher cash component of earnings, and
reduce the risk inherent in selling loans through securitization.
These factors will continue to 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 2000 more than 50% of its sales will be in the form of whole loan
sales.
15
<PAGE>
Results of Operations
As of March 31, 2000, the Company's Wholesale Division operated through 31 sales
offices and five regional operating centers located in 24 states. The number of
account executives in the Wholesale Division decreased slightly to 144 at March
31, 2000, compared to 155 at March 31, 1999. The Company's Retail Division
operates through 76 sales offices located in 28 states. The number of loan
officers in the Retail Division, including the Primewest and Anyloan
subsidiaries, increased to 359 at March 31, 2000, from 309 at March 31, 1999.
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
The Company originated and purchased $956.5 million in loans for the three
months ended March 31, 2000, compared to $891.9 million for the three months
ended March 31, 1999. Loans originated and purchased through the Company's
Wholesale Division were $709.3 million, or 74.2%, of total originations and
purchases for the three months ended March 31, 2000. Loans originated through
the Company's Retail Division, including its Primewest and Anyloan
subsidiaries, were $247.1 million, or 25.8%, of total originations and
purchases for the three month period. For the same period in 1999, Wholesale
and Retail originations and purchases totaled $646.1 million, or 72.4% and
$245.8 million, or 27.6%, respectively, of total originations and purchases.
Total revenues for the three months ended March 31, 2000 increased to $60.4
million, from $54.2 million for the three months ended March 31, 1999. This
increase was due to (i) the increase in loan originations and purchases and
sales in 2000, and (ii) the increase in servicing revenues due to the
increase in the mortgage loan servicing portfolio and the portfolio of
residual interests in securitizations. Gain on sale of loans decreased to
$22.8 million for the three months ended March 31, 2000 from $29.4 million
for the three months ended March 31, 1999, due to (i) the decrease in whole
loan prices; (ii) the decrease in securitizations; and (iii) the increase in
premiums paid to acquire wholesale loans, which allowed the Company to
quickly increase coupon rates in response to rising interest rates.
16
<PAGE>
The components of the gain on sale of loans are illustrated in the following
table (dollars in thousands):
Three Months Ended March 31,
2000 1999
---- ----
Gain from whole loan sale transactions $ 12,711 $ 10,398
Non-cash gain from securitizations 25,023 40,936
Non-cash gain from servicing asset 2,062 4,519
Cash loss from securitizations/NIMS -- (4,659)
Securitization expenses (2,163) (3,426)
Accrued interest (2,814) (3,874)
Provision for losses (2,267) (3,469)
General valuation provision for NIR -- (4,000)
Non-refundable loan fees 13,572 11,451
Premiums paid (7,814) (4,200)
Origination costs (15,500) (14,000)
Hedging losses -- (248)
-------- --------
Gain on sale of loans $ 22,810 $ 29,428
======== ========
Whole loan sales increased to $496.8 million for the three months ended March
31, 2000, from $296.0 million for the corresponding period in 1999. This
increase is the result of a change in the mix of whole loan sales versus
securitizations. Loans sold through whole loan sales increased to 53.6% of total
loan sales in the three months ended March 31, 2000, compared to 33.9% for the
corresponding period in 1999.
Interest income increased to $18.4 million for the three months ended March 31,
2000, from $15.3 million for the same period in 1999, primarily due to increased
interest income from loans held for sale. Interest income is earned on loans
held in inventory for sale. Such interest income accrues during periods when
loans are accumulated for future sales, and increases as loan originations and
purchases increase. The increase in interest income for the three months ended
March 31, 2000 is the result of a higher average inventory of loans held for
sale compared to the corresponding period in 1999, primarily as a result of
increased loan originations and purchases.
Servicing income increased to $19.1 million for the three months ended March 31,
2000, from $9.5 million for the three months ended March 31, 1999. This increase
resulted from the increase in securitizations, pursuant to which the Company
retains ownership of the servicing rights and the residual interests. 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 March 31, 2000,
the Company had securitized over $6.8 billion in loans and retained the
servicing rights. As of March 31, 1999, the Company had securitized $4.0 billion
in loans. The portfolio of residual interests in securitizations grew from
$205.4 million at December 31, 1998 to $364.7 million at December 31, 1999.
Total expenses increased to $47.7 million for the three months ended March 31,
2000, from $37.6 million for the three months ended March 31, 1999. Interest
expense increased due to the higher level of loan inventory and corresponding
warehouse and
17
<PAGE>
aggregation borrowings. All other expense components increased from 1999 to 2000
due primarily to higher loan origination volume in the three months ended March
31, 2000 compared to the same period in 1999.
Residual Securities
The carrying value of the Company's residual securities at March 31, 2000 and
December 31, 1999 is summarized below (dollars in thousands):
March 31, December 31,
2000 1999
-------- -----------
Carrying value of securities $406,781 $369,689
Less: general valuation allowance for NIR (5,000) (5,000)
-------- --------
Net book value $401,781 $364,689
======== ========
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 and adjusts the carrying value of the securities based on
actual experience and trends in the industry. During the first quarter of 2000,
there was no adjustment to the carrying value of the Company's residual
interests, compared to a $4.0 million write-down recorded in the first 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. In May 1999, the
Company 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%. During the first quarter of
2000, the facility was increased to $320.0 million. At March 31, 2000, the
balance outstanding under the warehouse line of credit was $251.2 million.
The Company expects to renew this warehouse line of credit prior to its
expiration.
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 March 31, 2000, the Company's
"zero-collateral" balance was not material and did not affect the Company's
liquidity.
As of March 31, 2000, the Company also had a $600.0 million aggregation
facility with Salomon Smith Barney (Salomon), which is subject to renewal by
Salomon on a monthly basis and bears interest at a rate generally equal to
the one month LIBOR plus 1.25%. This facility was renewed on April 1, 2000.
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.
In April 2000, the maximum borrowing under this facility was increased to
$25.0 million, bearing interest at a rate equal to one-month LIBOR plus 2.00%.
18
<PAGE>
The balance of the combined Salomon facilities as of March 31, 2000 was
$137.4 million.
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%. The 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. At March 31, 2000, the
balance outstanding under the aggregation facility was $24.6 million. The
Company expects to renew this facility prior to its expiration.
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 an uncommitted facility and is
structured as a loan and security agreement, bearing interest at a rate based
on the one month LIBOR. 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. As of March 31, 2000, the balance outstanding
under this facility was $44.7 million.
At present, the Company utilizes the U.S. Bank warehouse line to finance the
actual funding of its loan originations and purchases. In future periods, 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 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 March 31,
2000, the balance outstanding under these facilities was $207.8 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, all amounts outstanding under the facility would
become immediately due and payable and, coupled with the loss of borrowing
capacity, this could have a material adverse impact on the Company's results
of operations, business and financial condition unless the Company found a
suitable alternative financing source.
19
<PAGE>
Industry Liquidity Environment. Although the Company currently has access to
numerous financing sources, 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.
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.
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, the Company
established the Greenwich and Paine Webber facilities. In addition, the
Company has devoted significant efforts to reducing its origination costs.
Although 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 - increased
from the first quarter of 2000 compared to the first quarter of 1999, the
Company took significant steps to reduce its expenses during the first
quarter of 2000. Specifically, the Company reduced staffing by more than 10%,
and closed several sales offices.
Cash Flow. For the three months ended March 31, 2000, the Company's
operations used approximately $29.4 million in cash, which is primarily
attributable to cash invested in the OC account for the first quarter
securitization. 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 the next few quarters; and (vi) income tax payments arising
from the recognition of gain on sale of
20
<PAGE>
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 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 March 31, 2000, the balance outstanding
under this facility was $2.6 million, and the weighted-average interest rate was
9.21%.
The Company has various non-revolving operating lease agreements totaling $19.1
million at March 31, 2000, 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.
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
During the first quarter of 2000, the Company received an additional $10.0
million in subordinated debt from U.S. Bank. In addition, in April 2000, the
parties entered into an agreement pursuant to which U.S. Bank (i) provided an
additional $5.0 million in subordinated debt, (ii) committed to provide an
additional $5.0 million in subordinated debt over the remainder of 2000
provided that the Company achieves certain milestones, and (iii) extended the
term of all subordinated debt, including the new commitment, to June 2002. In
exchange, the Company (i) amended the conversion rate of the Series 1999A
Convertible Preferred Stock from 46.80 to 69.98 and (ii) granted U.S. Bank up
to 725,000 warrants, 650,000 of which are exercisable at $9.5625 per share
and the remainder of which are exercisable at the market value of Company
Common Stock on the date of issuance. Approximately 75% of the warrants have
vested. Of the remainder, a portion vest in quarterly increments if the
Company has not prepaid the subordinated debt and a portion are granted
concurrently with funding the additional $5.0 million in subordinated debt.
21
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2000, the Company had $401.8 million in residual interests in
securitizations and $22.8 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.
22
<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
In consideration of U.S. Bank's investment of an additional $5.0
million in subordinated debt and its commitment to provide another $5.0
million in subordinated debt, on April 28, 2000, the Company
amended its Certificate of Designation for the Series 1999A
Convertible Preferred Stock ("1999A Preferred Stock"), changing the
conversion rate from 46.80 to 69.98. As a result thereof, the
20,000 shares of 1999A Preferred Stock outstanding are convertible
into 1,399,600 shares of Company Common Stock, as opposed to
936,000 shares prior to the amendment. Furthermore, in
consideration of the foregoing, the Company issued to U.S. Bank up
to 725,000 warrants, 650,000 of which are exercisable at $9.5625
per share and the remainder of which are exercisable at the market
value of Company Common Stock on the date of issuance.
Approximately 75% of the warrants have vested. Of the remainder, a
portion vest in quarterly increments if the Company has not prepaid
the subordinated debt and a portion are granted concurrently with
funding the additional $5.0 million in subordinated debt. The sale
and issuance of the warrants were exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) of the
Securities Act and Regulation D thereunder.
On March 20, 2000, the Company acquired all of the outstanding
capital stock of Worth Funding Incorporated, a California
corporation, from its sole stockholder (the "Seller"). In partial
consideration therefor, the Company issued 13,577 shares of Company
Common Stock to the Seller and has agreed to issue an additional
number of shares to the Seller with a market value of $125,000 on
January 1, 2001. 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.
In connection with this transaction, the Company also issued to the
Seller and others options to purchase 90,000 shares of Common Stock
at $7.00 per share.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. (a) Exhibits required by Item 601 of Regulation S-K
See "Exhibit Index."
(b) Reports on Form 8-K
None.
23
<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: May 12, 2000 By: /s/ Robert K. Cole
-----------------------------------
Robert K. Cole
Chief Executive Officer
DATE: May 12, 2000 By: /s/ Edward F. Gotschall
-----------------------------------
Edward F. Gotschall
Chief Financial Officer
(Principal Financial and Accounting Officer)
24
<PAGE>
EXHIBIT INDEX
Exhibit Description of
Number Exhibit
- ------ --------------
*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
3.5 Amended Certificate of Designations for Series 1999A Convertible
Preferred Stock
*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 Subordinated Loan Agreement by and among New Century Mortgage
Corporation and U.S. Bank National Association, dated
April 28, 2000
10.2 Warrant Issuance Agreement by and among New Century Financial
Corporation, U.S. Bancorp and U.S. Bank National Association, dated
April 28, 2000
10.3 Promissory Note by New Century Mortgage Corporation, dated
April 28, 2000
10.4 Amended and Restated Registration Rights Agreement by and among
New Century Financial Corporation, U.S. Bancorp and U.S. Bank
National Association, dated April 28, 2000
10.5 Amended and Restated Pledge and Security Agreement by and among
New Century Mortgage Corporation and U.S. Bank National
Association, dated April 30, 2000
10.6 Amended and Restated Security Agreement by and among NC Capital
Corporation, NC Residual II Corporation and U.S. Bank National
Association, dated April 30, 2000
10.7 Amended and Restated Servicing Security Agreement by and among
New Century Mortgage Corporation and U.S. Bank National
Association, dated April 30, 2000
10.8 Intercreditor Agreement by and among US Bank National
Association, NC Capital Corporation, NC Residual II Corporation and
Salomon Smith Barney, Inc. dated April 26, 2000
10.9 Master Loan & Security Agreement, by and among New Century
Mortgage Corporation, NC Capital Corporation and Salomon Brothers
Realty Corp, dated April 1, 2000
10.10 Letter Agreement Salomon Brothers Realty Corp, NC Capital
Corporation and New Century Mortgage Corporation, dated
April 1, 2000
27.1 Financial Data Schedule
* 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 Quarterly Report on Form
10-Q as filed with the SEC on August 16, 1999.
**** Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 as filed with the SEC.
25
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 04/28/2000
001219034. - 2560596
NEW CENTURY FINANCIAL CORPORATION
-----------------------------------
AMENDED CERTIFICATE OF DESIGNATIONS
FOR
SERIES 1999A CONVERTIBLE PREFERRED STOCK
(Pursuant to Delaware General Corporation Law, Section 242)
-----------------------------------
The undersigned, being respectively the Vice Chairman and President 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 242, 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 established a series of 20,000 shares of the
Corporation's Preferred Stock, to be designated as its Series 1999A Convertible
Preferred Stock; and
Pursuant to (a) resolutions passed at a meeting of the Board of Directors
of the Corporation on March 27, 2000, (b) resolutions passed at a meeting of the
Executive Committee of the Board of Directors of the Corporation on March 28,
2000, and (c) written consent of the sole holder of all shares of the Series
1999A Convertible Preferred Stock dated April 27, 2000, the Board of Directors
and all shareholders entitled to vote thereon have authorized the Corporation to
amend and restate the Certificate of Designation for its Series 1999A
Convertible Preferred Stock 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
-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 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
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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 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
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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 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
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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 69.98 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
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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 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
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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 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:
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(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 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,
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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
(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.
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(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 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
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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 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,
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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.
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IN WITNESS WHEREOF, New Century Financial Corporation has caused this
certificate to be signed by Brad A. Morrice, its Vice Chairman and President,
and attested by Stergios Theologides, its Secretary, this 27th day of April,
2000.
NEW CENTURY FINANCIAL
CORPORATION
By /s/ Brad A. Morrice
----------------------------------
Brad A. Morrice
Vice Chairman and President
Attest:
By /s/ Stergios Theologides
--------------------------------
Stergios Theologides
Secretary
<PAGE>
SUBORDINATED LOAN AGREEMENT
THIS SUBORDINATED LOAN AGREEMENT, dated as of April 28, 2000, is by
and between NEW CENTURY MORTGAGE CORPORATION, a corporation organized under the
laws of the State of California (the "Borrower"), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association (the "Lender").
RECITALS
A. The Borrower has executed and delivered to the Lender an Amended
and Restated Subordinated Promissory Note dated as of February 17, 2000 (the
"Existing Note"), evidencing and setting forth the terms of a $30,000,000
subordinated loan made by the Lender to the Borrower.
B. The Borrower has requested that the Lender make up to an
additional $10,000,000 in subordinated loans to the Borrower.
C. The Lender and the Borrower desire to amend and restate the terms
of the Existing Note and set forth the terms for such additional subordinated
loans.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants herein contained, the Borrower and the Lender agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
Section 1.1 Defined Terms.Section 1.1 Defined Terms. As used in this
Agreement the following terms shall have the following respective meanings:
"Additional Subordinated Loan": As defined in Section 2.1.
"Agent": The Lender, in its capacity as agent pursuant to the
Warehousing Agreement and as collateral agent pursuant to the Security
Documents.
"Appraisal Review Policy": The Borrower's appraisal review policy
attached hereto as Exhibit A, as hereafter modified in accordance with Section
5.2(b) or otherwise, in each case with the consent of the Lender.
"Automated Underwriting System": The software package and related
material known as "JET," or another product selected by Borrower and acceptable
to Lender, that is capable of analyzing the loan quality of, and assigning a
credit grade to, Mortgage Loans, and which in any case must evaluate the credit
grade of each Mortgage Loan based on all relevant factors required pursuant to
the Borrower's underwriting guidelines (including, without
<PAGE>
limitation, the mortgagor's FICO score except in connection with the Borrower's
"Mortgage Only" program).
"Business Day": Any day (other than a Saturday, Sunday or legal
holiday in the State of Minnesota) on which national banks are permitted to be
open at the principal location of the Lender.
"Change of Control": The occurrence, after the Closing Date, of any
of the following circumstances: (a) NCFC not owning, directly or indirectly, all
of the issued and outstanding capital stock of the Borrower; 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 25% 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 25% 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.
"Closing Date": Any Business Day on or after the date of this
Agreement on which all the conditions precedent to the obligation of the Lender
to make the initial Additional Subordinated Loan, as set forth in Section 3.1,
have been satisfied.
"Commitment": The obligation of the Lender to make Additional
Subordinated Loans to the Borrower upon the terms and subject to the conditions
and limitations of this Agreement.
"Company Securitization Transaction": As defined in the Warehousing
Agreement on the date hereof.
"Default": Any event which, with the giving of notice, lapse of
time, or both, would constitute an Event of Default.
"Equity Documents": An Amended and Restated Certificate of
Designation for Series 1999A Convertible Preferred Stock, an Amended and
Restated Registration Rights Agreement, a Warrant Issuance Agreement and the
Warrants to be issued pursuant thereto, giving effect to the terms set forth in
the letter agreement dated as of March 28, 2000 between the Borrower and the
Lender with respect to NCFC's common and preferred stock and containing terms
and conditions in all respects satisfactory to the Lender.
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"Event of Default": As defined in the Note.
"GAAP": Generally accepted accounting principles 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 any date of
determination.
"Lien": With respect to any Person, any security interest, mortgage,
pledge, lien, charge, encumbrance, title retention agreement or analogous
instrument or device (including the interest of each lessor under any
capitalized lease), in, of or on any assets or properties of such Person, now
owned or hereafter acquired, whether arising by agreement or operation of law.
"Loan Documents": This Agreement, the Note, and the Security
Documents.
"Management Shareholders": Robert K. Cole, Brad A. Morrice, Edward
F. Gotschall and Steven Holder.
"Mortgage-backed Security": As defined in the Warehousing Agreement
on the date hereof.
"Mortgage Loan": As defined in the Warehousing Agreement on the date
hereof.
"NCCC": NC Capital Corporation, a California corporation.
"NCFC": New Century Financial Corporation, a Delaware corporation.
"NCRC": NC Residual II Corporation, a Delaware corporation.
"Note": The Second Amended and Restated Subordinated Promissory Note
of even date herewith, made by the Borrower and payable to the Lender, as the
same may be amended, supplemented, restated or otherwise modified.
"Origination Cost Percentage": For any period of determination, the
ratio (expressed as a percentage) of 1) costs to originate or acquire mortgage
loans in accordance with the definition below to 2) the aggregate principal
balance of all Mortgage Loans originated or acquired in accordance with the
definition below. Costs to originate or acquire mortgage loans shall be defined
as (a) points and fees paid to brokers (excluding points and fees paid to
brokers by Worth Funding, Inc.), plus (b) total expenses incurred by New Century
for the period except for servicing expenses, loan loss provision, incentive
compensation payments to the Management Shareholders, and expenses incurred by
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<PAGE>
anyloan.com and Worth Funding, Inc., minus (c) points and fees received from
retail borrowers and brokers (excluding points and fees received by anyloan.com,
Worth Funding, Inc., and the Loan Servicing Division). The aggregate principal
balance of all Mortgage Loans originated or acquired shall be defined as the
aggregate principal balance of all Mortgage Loans so originated or acquired,
excluding loans originated or acquired by anyloan.com, Worth Funding, Inc. and
the Loan Servicing Division.
"Person": Any natural person, corporation, partnership, limited
partnership, joint venture, firm, association, trust, unincorporated
organization, government or governmental agency or political subdivision or any
other entity, whether acting in an individual, fiduciary or other capacity.
"Residual Security Agreement": The Amended and Restated Security
Agreement of even date herewith between NCCC and NCRC, as Grantors, and the
Agent.
"Security Documents": The Amended and Restated Pledge and Security
Agreement from the Borrower to the Agent, the Amended and Restated Servicing
Security Agreement from the Borrower to the Agent, and the Residual Security
Agreement, each of even date herewith, as the same may be amended, supplemented,
restated or otherwise modified from time to time.
"Securitization Percentage": For any period of determination, the
ratio (expressed as a percentage) of (a) the aggregate principal amount of
Mortgage Loans sold or pledged by the Company in Securitization Transactions, to
(b) the sum of the aggregate principal amount of Mortgage Loans sold or pledged
by the Company in Securitization Transactions and all Mortgage Loans sold by the
Company in Whole Loan Transactions.
"Securitization Transaction" means (i) a sale or pledge of Mortgage
Loans to back a Company Securitization Transaction or (ii) another sale of
Mortgage Loans in connection with the issuance of Mortgage-backed Securities, to
the extent there is recourse to the Company for defaults under such Mortgage
Loans (other than a default resulting from the mortgagor's failure to make the
first payment on a Mortgage Loan, if applicable), or the purchase price is
contingent upon the performance of such Mortgage Loans or not payable entirety
at the time of sale.
"Subsidiary": Any corporation or other entity of which securities or
other ownership interests having ordinary voting power for the election of a
majority of the board of directors or other Persons performing similar functions
are owned by the Borrower either directly or through one or more Subsidiaries.
"Warehouse Debt": Obligations incurred to finance, and secured by,
Mortgage Loans, Mortgage-backed Securities and related assets.
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"Warehousing Agreement": The Fourth Amended and Restated Credit
Agreement dated as of May 26, 1999 by and among the Borrower, the Lenders party
thereto and the Agent, as the same has been and may hereafter be amended,
supplemented, restated or otherwise modified and in effect from time to time.
"Whole Loan Transaction" means a sale of Mortgage Loans that does
not involve any recourse to the Company for defaults under such Mortgage Loans
(other than a default resulting from the mortgagor's failure to make the first
payment on a Mortgage Loan, if applicable) for a purchase price that is not
contingent upon the performance of such Mortgage Loans and that is payable
entirely at the time of sale.
Section 1.2 Accounting Terms and Calculations.Section 1.2 Accounting
Terms and Calculations. Except as may be expressly 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.
Section 1.3 Other Definitional Terms, Terms of Construction.Section
1.3 Other Definitional Terms, Terms of Construction. 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. References to Sections, Exhibits, Schedules and the like
references are to Sections, Exhibits, Schedules and the like of this Agreement
unless otherwise expressly provided. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation."
Unless the context in which used herein otherwise clearly requires, "or" has the
inclusive meaning represented by the phrase "and/or." All incorporations by
reference of covenants, terms, definitions or other provisions from other
agreements are incorporated into this Agreement as if such provisions were fully
set forth herein, and include all necessary definitions and related provisions
from such other agreements. All such covenants, terms, definitions and other
provisions from other agreements shall survive any termination of such other
agreements until the obligations of the Borrower under this Agreement and the
Note are irrevocably paid in full, and shall not be affected by any amendments
thereto unless such amendments are separately adopted by the Borrower and the
Lender for purposes of this Agreement.
ARTICLE II
TERMS OF LENDING ARTICLE II TERMS OF LENDING
Section 2.1 Additional Subordinated Loans. Section 2.1 Additional
Subordinated Loans. Upon the terms and subject to the conditions hereof, the
Lender agrees to make the following loans (each, an "Additional Subordinated
Loan") to the Borrower upon the terms and subject to the conditions set forth
herein: (a) on the Closing Date, a single loan in the amount of $5,000,000, (b)
between July 1, 2000 and September 30, 2000, a single loan in the
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amount of $2,500,000, and (c) between October 1, 2000 and December 31, 2000, a
single loan in the amount of $2,500,000.
Section 2.2 Loan Requests. The Borrower's request for each
Additional Subordinated Loan shall be in writing or by telephone and must be
given so as to be received by the Lender not later than 3:30 p.m. (Minneapolis
time) three Business Days prior to the date of the requested Additional
Subordinated Loan.
Section 2.3 The Note.Section 2.2 Loan Requests. The Borrower's
request for each Additional Subordinated Loan shall be in writing or by
telephone and must be given so as to be received by the Lender not later than
330 p.m. (Minneapolis time) three Business Days prior to the date of the
requested Additional Subordinated Loan. Section 2.3 The Note. The obligations of
the Borrower to the Lender evidenced by the Existing Note and the Additional
Subordinated Loans shall be evidenced by a promissory note (the " Note"),
substantially in the form of Exhibit C hereto, in the amount of $40,000,000. The
Lender shall enter in its ledgers and records the Additional Subordinated Loans
made and the payments made on the Note, and the Lender is authorized by the
Borrower to enter on a schedule attached to the Note a record of such payments.
Section 2.4 Interest.Section 2.4 Interest. Interest shall accrue and
be payable on the unpaid balance of the Note as provided therein.
Section 2.5 Principal Payments. The principal amount of the Note
shall be payable as provided therein.Section 2.5 Principal Payments. The
principal amount of the Note shall be payable as provided therein.
Section 2.6 Use of Proceeds. Section 2.6 Use of Proceeds. The
proceeds of the Additional Subordinated Loans shall be used for the Borrower's
working capital needs in a manner not inconsistent with the terms of the Loan
Documents.
Section 2.7 Subordination. Payment of the obligations of the
Borrower to the Lender evidenced by the Note or otherwise for principal and
interest under this Agreement is subordinated to payment of all obligations of
the Borrower to the Lender and certain other lenders who are parties to the
Warehousing Agreement pursuant to that certain Subordination Agreement dated as
of October 14, 1999 made by the Lender in favor of such lenders.
ARTICLE III
CONDITIONS PRECEDENT
ARTICLE III CONDITIONS PRECEDENT
Section 3.1 Conditions of the Initial Additional Subordinated
Loan.Section 3.1 Conditions of the Initial Additional Subordinated Loan. The
obligation of the Lender to make
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the initial Additional Subordinated Loan hereunder shall be subject to the prior
or simultaneous fulfillment of each of the following conditions:
3.1 (a) Documents.3.1 (a) Documents. The Lender shall have
received the following:
(i) The Note executed by a duly authorized officer (or
officers) of the Borrower and dated the Closing Date.
(ii) The Security Documents executed by duly authorized
officers of the Borrower, NCCC or NCRC, as applicable, and the
Agent.
(iii) The Equity Documents adopted by the Board of Directors
or executed by duly authorized officers of NCFC.
(iv) A letter agreement in form and substance satisfactory to
the Lender with respect to the Agent's security interests granted
pursuant to the Residual Security Agreement in Mortgage-backed
Securities sold to Saloman Brothers International, Limited, an
English corporation ("SBI"), and the rights of NCCC and NCRC under
repurchase agreements with SBI.
(v) Consent of the "Required Lenders" (as defined in the
Warehousing Agreement) to the transactions contemplated by the Loan
Documents.
(vi) Copies of the corporate resolutions of the Borrower,
NCFC, NCCC and NCRC authorizing the execution, delivery and
performance of the Loan Documents and the Equity Documents, and
containing an incumbency certificate showing the names and titles,
and bearing the signatures of, the officers of each of the Borrower,
NCFC, NCCC and NCRC authorized to execute the Loan Documents and the
Equity Documents to which it is a party, certified as of the Closing
Date by its Secretary or an Assistant Secretary.
(vii) Copies of the Articles or Certificate of Incorporation
of the Borrower, NCFC, NCCC and NCRC with all amendments thereto,
certified by the appropriate governmental official of the
jurisdiction of its incorporation as of a date not more than 10 days
prior to the Closing Date, or a certificate of either the Secretary
or an Assistant Secretary of each of them stating that there have
been no changes to its Articles or Certificate of Incorporation
since the date of the most recent certified copy thereof delivered
to the Lender.
(viii) Certificates of good standing for the Borrower, NCFC,
NCCC and NCRC in the jurisdictions of their incorporation, certified
by the appropriate
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governmental officials as of a date not more than 10 days prior to
the Closing Date.
(ix) Copies of the bylaws of the Borrower, NCFC, NCCC and NCRC
certified as of the Closing Date by their respective Secretaries or
Assistant Secretaries.
(x) The opinion of counsel to the Borrower covering such
matters as the Lender may request.
3.1 (b) Other Matters..1 (b) Other Matters. All organizational
and legal proceedings relating to the Borrower and all instruments and
agreements in connection with the transactions contemplated by this Agreement
shall be satisfactory in scope, form and substance to the Lender and its
counsel, and the Lender shall have received all information and copies of all
documents, including records of corporate proceedings, which it may reasonably
have requested in connection therewith, such documents where appropriate to be
certified by proper Borrower or governmental authorities.
3.1 (c) Fees and Expenses.3.1 (c) Fees and Expenses. The
Lender shall have received all fees and other amounts due and payable by the
Borrower on or prior to the Closing Date, including the reasonable fees and
expenses of counsel to the Lender payable pursuant to Section 7.2.
Section 3.2 Conditions Precedent to all Additional Subordinated
Loans. The obligations of the Lender to make each Additional Subordinated Loan
hereunder (including the initial Additional Subordinated Loan) shall be subject
to the fulfillment of the following conditions:
3.2(a) The representations and warranties contained in Article
IV shall be true and correct on and as of the Closing Date and on the date of
each Additional Subordinated Loan, with the same force and effect as if made on
such date.
3.2(b) No Default or Event of Default shall have occurred and
be continuing on the Closing Date and on the date of each Additional
Subordinated Loan, or will exist after giving effect to the Additional
Subordinated Loan made on such date.
3.2(c) As an additional condition to the making of the
Additional Subordinated Loan to be made between July 1, 2000 and September 30,
2000, the Origination Cost Percentage for all Mortgage Loans originated by the
Borrower between April 1, 2000 and June 30, 2000 shall not exceed 3%.
3.2(d) As an additional condition to the making of the
Additional Subordinated Loan to be made between October 1, 2000 and December 31,
2000, the Origination
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Cost Percentage for all Mortgage Loans originated by the Borrower between July
1, 2000 and September 30, 2000 shall not exceed 2.75%.
3.2(e) The Lender shall have received the Borrowers' request
for such Additional Subordinated Loan as required under Section 2.2, and, except
with respect to the initial Additional Subordinated Loan, the reports required
pursuant to Section 5.2(e) as of the end of the preceding fiscal quarter.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
ARTICLE IV REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender:
Section 4.1 Organization, Standing, Etc. Section 4.1 Organization,
Standing, Etc. Each of the Borrower, NCFC, NCCC and NCRC is a corporation duly
incorporated and validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority to carry on its business as now conducted, to enter into the Loan
Documents and Equity Documents to which it is a party and to perform its
obligations thereunder. The Loan Documents and the Equity Documents have been
duly authorized by all necessary corporate action and when executed and
delivered will be the legal and binding obligations of the Borrower, NCFC, NCCC
or NCRC, as applicable. The execution and delivery of the Loan Documents and the
Equity Documents will not violate the Articles or Certificates of Incorporation
or bylaws of, or any law applicable to, the Borrower, NCFC, NCCC or NCRC, as
applicable. No governmental consent or exemption is required in connection with
the execution and delivery of the Loan Documents and the Equity Documents.
Section 4.2 Representations and Warranties in Warehousing Agreement.
Each of the representations and warranties set forth in Sections 3.01 through
3.16 of the Warehousing Agreement as in effect on the date hereof is true and
correct.
ARTICLE V
COVENANTS ARTICLE V COVENANTS
Until the Note and all of the Borrower's other obligations to the
Lender under this Agreement shall have been paid in full, unless the Lender
shall otherwise consent in writing:
Section 5.1 Financial Statements and Reports.Section 5.1 Financial
Statements and Reports. The Borrower will furnish to the Lender the financial
statements and reports required pursuant to Sections 4.01(a), (b), (e), (f),
(g), (h) and (i) of the Warehousing Agreement as in effect on the date hereof,
and in addition thereto:
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5.1 (a) As soon as practicable and in any event within 30 days
after the end of each March, June, September and December, a statement signed by
the chief financial officer of the Borrower stating that as at the end of such
fiscal quarter there did not exist any Default or Event of Default or, if such
Default or Event of Default existed, specifying the nature and period of
existence thereof and what action the Borrower proposes to take with respect
thereto, and, in the case of such statements for March, June and September,
2000, demonstrating compliance or non-compliance, as the case may be, with
Section 5.2 of this Agreement.
5.1 (b) Immediately upon any officer of the Borrower becoming
aware of any Default or Event of Default, a notice describing the nature thereof
and what action the Borrower proposes to take with respect thereto.
Section 5.2 Milestones.
5.2 (a) For the Borrower's fiscal quarter ended March 31,
2000, the Borrower shall have (i) reduced the number of officers and employees
of NCFC and its Subsidiaries by 10% since December 31, 1999, excluding, for this
purpose, Persons who became officers or employees of NCFC or a Subsidiary as a
result of the Borrower's acquisition of Worth Funding, Inc., and (ii) had a
Securitization Percentage of less than 50%.
5.2 (b) For the Borrower's fiscal quarter ended June 30, 2000,
the Borrower shall have (i) on or before May 1, 2000, implemented the Appraisal
Review Policy for its wholesale division, (ii) on or before June 1, 2000,
implemented the Automated Underwriting System for its wholesale division, (iii)
on or before June 30, 2000, proposed to the Lender (A) modifications to the
Appraisal Review Policy for its retail division, bringing such policies closer
to those for the wholesale division (in particular, with respect to "exclusion
criteria," "statistical screening" and "risk scoring"), and (B) quantitative
measurement criteria for the effectiveness of the Appraisal Review Policy, both
of which must be acceptable to the Lender, and (iv) had a Securitization
Percentage of less than 50%.
5.2 (c) For the Borrower's fiscal quarter ended September 30,
2000, the Borrower shall have (i) conducted its wholesale lending operations in
compliance with the Appraisal Review Policy, and satisfied the quantitative
measurement criteria described in clause (iii) of Section 5.2(b), (ii)
implemented the Automated Underwriting System and the Appraisal Review Policies
(as modified) for its retail lending operations, (iii) produced credit grades by
use of the Automated Underwriting System that, for at least 92.5% of the
Mortgage Loans originated or acquired by it through its wholesale division
during such quarter, match the credit grades required for such Mortgage Loans by
the Borrower's underwriting guidelines; (iv) with respect to all Mortgage Loans
originated or acquired by it during such quarter, included in its file for such
Mortgage Loan an explanation of any steps taken to verify the original appraisal
(such as a drive-by appraisal) and any change to appraised value as a result of
such steps; and (v) had a Securitization Percentage of less than 40%.
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5.2 (d) For each subsequent fiscal quarter of the Borrower,
the Borrower shall have (i) conducted its lending operations in compliance with
the Appraisal Review Policy, and satisfied the quantitative measurement criteria
described in clause (iii) of Section 5.2(b), (ii) produced credit grades by use
of the Automated Underwriting System that, for at least 95% of the Mortgage
Loans originated or acquired by it during such quarter, match the credit grades
required for such Mortgage Loans by the Borrower's underwriting guidelines;
(iii) with respect to all Mortgage Loans originated or acquired by it during
such quarter, included in its file for such Mortgage Loan an explanation of any
steps taken to verify the original appraisal (such as a drive-by appraisal) and
any change to appraised value as a result of such steps; and (iv) had a
Securitization Percentage of less than 50%.
5.2 (e) The Borrower shall report to the Lender in writing
regarding the Borrower's progress in implementing the Appraisal Review Policy
and the Automated Underwriting System, within 30 days after the end of each
month and at such other times as the Lender may reasonably request. The Borrower
shall certify its compliance with subsection 5.2(a), (b), (c) or (d) in writing,
delivered to the Lender no later than 30 days after the end of the relevant
fiscal quarter. Each such certification shall include a comparison of the
Borrower's actual performance with the relevant milestone. The Borrower's
compliance with subsections 5.2(a), (b), (c) and (d) may be verified by the
Lender through such visits, audits and inspections of the Borrower (by the
Lender or by third parties retained by the Lender) as the Lender may request.
All such visits, audits and inspections shall be at the Borrower's expense;
provided, that unless a Default or an Event of Default has occurred and is
continuing, the Borrower shall not be responsible for more than $50,000 of such
expenses.
Section 5.3 Warehouse Debt. The Borrower shall not, and shall not
permit any Subsidiary to, incur any Warehouse Debt, except (a) pursuant to the
Warehousing Agreement, and (b) Warehouse Debt permitted pursuant to Section
4.08(g) of the Warehousing Agreement as in effect on the date hereof.
Section 5.4 Inspections, Visitations, Etc. The Company will permit,
and will cause its Subsidiaries to 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 Company or such Subsidiaries and
discuss its affairs and finances with the principal officers of the Company or
such Subsidiaries and their independent public accountants, all at such times as
the Lender shall reasonably request.
Section 5.5 Warehousing Agreement Covenants. The Borrower shall
comply in all respects with the requirements of Sections 4.02 through 4.05 and
4.07 through 4.24 of the Warehousing Agreement.
ARTICLE VI
REMEDIES
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ARTICLE VI REMEDIES
Section 6.1 Remedies.Section 6.1 Remedies. If (a) any Event of
Default described in clause (2) of the definition thereof shall occur with
respect to the Borrower, the Commitment shall terminate and the Note and all
other obligations of the Borrower to the Lender under this Agreement shall
automatically become immediately due and payable, or (b) any other Event of
Default shall occur and be continuing, then the Lender may declare the
Commitment to be terminated and the Note and all other obligations of the
Borrower to the Lender under this Agreement to be forthwith due and payable,
whereupon the same 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 the Note to the
contrary notwithstanding. Upon the occurrence of any of the events described in
clauses (a) or (b) of the preceding sentence the Lender may exercise all rights
and remedies under the Loan Documents
Section 6.2 Offset.Section 6.2 Offset. In addition to the remedies
set forth in Section 6.1, upon the occurrence of any Event of Default and
thereafter while the same be continuing, the Borrower hereby irrevocably
authorizes the Lender to set off all sums owing by the Borrower to the Lender
against all deposits and credits of the Borrower with, and any and all claims of
the Borrower against, the Lender.
ARTICLE VII
MISCELLANEOUS
ARTICLE VII MISCELLANEOUS
Section 7.1 Modifications.Section 7.1 Modifications. Notwithstanding
any provisions to the contrary herein, any term of this Agreement may be amended
with the written consent of the Borrower; provided that no amendment,
modification or waiver of any provision of this Agreement or consent to any
departure by the Borrower therefrom shall in any event be effective unless the
same shall be in writing and signed by the Lender, and then such amendment,
modification, waiver or consent shall be effective only in the specific instance
and for the purpose for which given.
Section 7.2 Costs and Expenses.Section 7.2 Costs and Expenses.
Whether or not the transactions contemplated hereby are consummated, the
Borrower agrees to reimburse the Lender upon demand for all reasonable
out-of-pocket expenses paid or incurred by the Lender (including filing and
recording costs and fees and expenses of Dorsey & Whitney LLP, counsel to the
Lender) in connection with the negotiation, preparation, approval, review,
execution, delivery, amendment, modification, interpretation, collection and
enforcement of the Loan Documents and the Equity Documents. The obligations of
the Borrower under this Section shall survive any termination of this Agreement.
Section 7.3 Waivers, etc.Section 7.3 Waivers, etc. No failure on the
part of the Lender or the holder of the Note to exercise and no delay in
exercising any power or right hereunder shall operate as a waiver thereof; nor
shall any single or partial exercise of any power or right preclude any other or
further exercise thereof or the exercise of any other power or right.
- 12 -
<PAGE>
The rights and remedies of the Lender hereunder are cumulative and not exclusive
of any right or remedy the Lender otherwise has.
Section 7.4 Notices.Section 7.4 Notices. Except when telephonic
notice is expressly authorized by this Agreement, any notice or other
communication to any party in connection with this Agreement shall be in writing
and shall be sent by manual delivery, telegram, telex, facsimile transmission,
overnight courier or United States mail (postage prepaid) addressed to such
party at the address specified on the signature page hereof, or at such other
address as such party shall have specified to the other party hereto in writing.
All periods of notice shall be measured from the date of delivery thereof if
manually delivered, from the date of sending thereof if sent by telegram, telex
or facsimile transmission, from the first Business Day after the date of sending
if sent by overnight courier, or from four days after the date of mailing if
mailed; provided, however, that any notice to the Lender under Article II hereof
shall be deemed to have been given only when received by the Lender.
Section 7.5 Successors and Assigns; Disposition of Loans.Section 7.5
Successors and Assigns; Disposition of Loans. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Borrower may not assign its rights or
delegate its obligations hereunder without the prior written consent of the
Lender. The Lender may at any time sell, assign, transfer, grant participations
in, or otherwise dispose of any portion of the Note to banks or other financial
institutions. The Lender may disclose any information regarding the Borrower in
the Lender's possession to any prospective buyer or participant.
Section 7.6 Governing Law and Construction.Section 7.6 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.
Section 7.7 Consent to Jurisdiction.Section 7.7 Consent to
Jurisdiction. AT THE OPTION OF THE LENDER, THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING
IN HENNEPIN OR RAMSEY COUNTY, MINNESOTA; AND THE BORROWER 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 BORROWER 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 LENDER AT ITS
OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
- 13 -
<PAGE>
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE.
Section 7.8 Waiver of Jury Trial. EACH OF THE BORROWER AND THE
LENDER IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE AND ANY OTHER
LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
Section 7.9 Captions.Section 7.9 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.
Section 7.10 Entire Agreement.Section 7.10 Entire Agreement. This
Agreement and the other Loan Documents embody the entire agreement and
understanding between the Borrower and the Lender with respect to the subject
matter hereof and thereof. This Agreement supersedes all prior agreements and
understandings relating to the subject matter hereof.
Section 7.11 Counterparts.Section 7.11 Counterparts. This Agreement
may be executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument, and either of the parties hereto may
execute this Agreement by signing any such counterpart.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.
NEW CENTURY MORTGAGE
CORPORATION
By /s/ Patrick Flanagan
-----------------------------------
Print Name
---------------------------
Title EVP/COO
--------------------------------
Borrower's Address:
18400 Von Karman, Suite 1000
Irvine, CA 92612
Attention: Brad A. Morrice
Chairman
Fax: 949-440-7033
U.S. BANK NATIONAL ASSOCIATION
By /s/ Edwin Jenkins
----------------------------------
Print Name
---------------------------
Title
--------------------------------
Lender's Address:
U.S. Bank National Association
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention: Edwin D. Jenkins
Vice President
Fax: 612-973-0826
[Signature Page to Subordinated Loan Agreement]
S-1
<PAGE>
WARRANT ISSUANCE AGREEMENT
This Warrant Issuance Agreement dated as of April 28, 2000 is made
by and among New Century Financial Corporation, a Delaware corporation (the
"Company"), U.S. Bancorp, a Delaware corporation ("USB"), and U.S. Bank National
Association, a national banking association and a wholly owned subsidiary of USB
("US Bank").
WHEREAS, the Company proposes to issue warrants as hereinafter
described (the "Warrants") to purchase up to 725,000 shares (the "Warrant
Shares") of the Company's Common Stock, $.01 par value per share (the "Common
Stock"), in connection with the Subordinated Loan Agreement dated as of April
28, 2000 (the "Subordinated Loan Agreement") by and between US Bank and New
Century Mortgage Corporation ("NCMC");
WHEREAS, the Company has taken all necessary action to permit the
issuance of the Warrants and the issuance of the Warrant Shares issuable upon
exercise or conversion of the Warrants; and
WHEREAS, the parties hereto desire to provide for the issuance of
the Warrants to US Bank as herein provided and to set forth certain agreements
of the Company in connection with the issuance of the warrants and other matters
relating to its Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements hereinafter set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. In addition to the definitions set forth
elsewhere herein, as used herein:
"Agreement" shall mean this Warrant Issuance Agreement.
"Expiration Date" shall mean 5:00 p.m., Minneapolis time, on April
28, 2005.
"First Funding Date" shall mean such date, if any, during the second
calendar quarter of 2000 that US Bank advances funds to NCMC pursuant to the
Subordinated Loan Agreement.
"Preferred Stock" shall mean the Company's Series 1998A Convertible
Preferred Stock and/or the Company's Series 1999A Convertible Preferred Stock.
<PAGE>
"Registered Holder" or "Holder" shall mean the person in whose name
any Warrant Certificate shall be registered on the books maintained by the
Company.
"Second Funding Date" shall mean such date, if any, during the third
calendar quarter of 2000 that US Bank advances funds to NCMC pursuant to the
Subordinated Loan Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Third Funding Date" shall mean such date, if any, during the fourth
calendar quarter of 2000 that US Bank advances funds to NCMC pursuant to the
Subordinated Loan Agreement.
"Warrant Certificate" shall mean the certificates representing the
Warrants issued as herein provided.
"Warrants" shall mean the Warrants issued pursuant to this
Agreement.
ARTICLE II
ISSUANCE OF WARRANTS; WARRANT CERTIFICATES
Section 2.1 Issuance of Warrants. Subject to the conditions and on
the terms specified herein, the Company shall issue Warrants as follows:
(a) On the date hereof, the Company shall issue to US Bank Warrants
to purchase 650,000 Warrant Shares at an exercise price of $9.5625 per Common
Share with vesting to be in accordance with the following schedule:
Number of Warrant Shares Vesting Date
------------------------ ------------
518,750 shares On the date hereof
43,750 shares July 1, 2000
43,750 shares October 1, 2000
43,750 shares January 1, 2001
Notwithstanding the foregoing, with respect to Warrants vesting after the
date hereof, such Warrants will not vest nor be exercisable if as of the
relevant vesting date NCMC has repaid all amounts owed to US Bank pursuant to
the Subordinated Loan Agreement and the Second Amended and Restated Subordinated
Promissory Note dated as of April 28, 2000 made by NCMC to US Bank. Warrants
that fail to vest on the applicable vesting date in accordance with the
immediately preceding sentence shall terminate as of such date and shall be of
no further force and effect.
(b) On the First Funding Date, the Company shall issue to US Bank
Warrants to purchase that number of Warrant Shares equal to the product of (i)
75,000 times (ii) a fraction
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<PAGE>
equal to the amount funded by US Bank under the Subordinated Loan Agreement on
such date divided by $10 million.
(c) On the Second Funding Date, the Company shall issue to US Bank
Warrants to purchase that number of Warrant Shares equal to the product of (i)
75,000 times (ii) a fraction equal to the amount funded by US Bank under the
Subordinated Loan Agreement on such date divided by $10 million.
(d) On the Third Funding Date, the Company shall issue to US Bank
Warrants to purchase that number of Warrant Shares equal to the product of (i)
75,000 times (ii) a fraction equal to the amount funded by US Bank under the
Subordinated Loan Agreement on such date divided by $10 million.
Section 2.2 Warrant Certificates. The Company shall execute and
deliver the Warrant Certificates in accordance with the terms of, and subject to
the conditions contained in, Section 2.1. The Warrant Certificates for Warrants
issued pursuant to Section 2.1(a) shall be substantially as set forth in Exhibit
A hereto and Warrants issued pursuant to Sections 2.1(b), (c) and (d) shall be
substantially as set forth in Exhibit B hereto. Such Warrant Certificates may
have such legends, summaries or endorsements printed thereon as the Company may
deem appropriate and as are not inconsistent with the provisions of this
Agreement. The Warrant Certificates shall be dated as of the date of their
issuance.
Section 2.3 Warrant Terms and Conditions. The Warrants shall have
the terms and shall be subject to the conditions set forth herein and in the
form of Warrant Certificate attached hereto as Exhibit A or Exhibit B, as
applicable. The exercise price per Warrant Share for any Warrant issued pursuant
to Section 2.1(b), (c) or (d) hereof shall be equal to the closing price per
share of Common Stock as reported on the Nasdaq Stock Market on the trading date
immediately preceding the First Funding Date, the Second Funding Date or the
Third Funding Date, respectively.
Section 2.4 Execution of Warrant Certificates. The Warrants shall be
executed on behalf of the Company by a duly authorized officer of the Company.
ARTICLE III
EXERCISE OR CONVERSION OF WARRANTS
Section 3.1 Exercise or Conversion. Any or all of the Warrants
represented by each Warrant Certificate which have vested pursuant to Section
2.1 may be exercised or converted, upon the terms and subject to the conditions
set forth herein and in such Warrant Certificate, at any time on or after the
date of such Warrant and before the Expiration Date. Each Warrant not exercised
or converted on or before the Expiration Date shall thereupon become void and
all rights of the Holder thereunder and under this Agreement shall cease. In the
event that less than all of the Warrants evidenced by a Warrant Certificate
surrendered upon the exercise of Warrants are exercised at any time prior to the
Expiration Date, a new Warrant
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<PAGE>
Certificate or Certificates will be issued for the remaining number of Warrants
evidenced by the Warrant Certificate so surrendered.
Section 3.2 Time of Exercise or Conversion. Each exercise or
conversion of Warrants shall be deemed to have been effective immediately prior
to the close of business on the business day on which the Warrant Certificate
relating to such Warrant shall have been surrendered as provided in Section 3.1
and in such Warrant Certificate. Thereafter, the Holder shall have, with respect
to the Warrant Shares purchased or otherwise acquired upon exercise or
conversion, all the rights and obligations of any other stockholder of the
Company holding Common Stock.
ARTICLE IV
CERTAIN OBLIGATIONS OF THE COMPANY
Section 4.1 Performance by the Company.
(a) The Company has reserved and shall at times keep reserved, out
of the authorized and unissued capital stock of the Company, such number of
Warrant Shares sufficient to provide for the exercise of the rights of purchase
represented by all Warrants issued pursuant to this Agreement. The Company shall
authorize and direct the transfer agent for the Common Stock (and any successor
thereto, the "Transfer Agent") at all times to reserve such number of Warrant
Shares as may be issuable upon exercise of outstanding Warrants under this
Agreement. The Company shall provide a copy of this Agreement and each Warrant
Certificate issued hereunder to the Transfer Agent. The Company shall, at its
expense, use its best efforts to cause the Warrant Shares to be listed (subject
to official notice of issuance) on the Nasdaq Stock Market and such other stock
exchanges, if any, or markets on which the Common Stock may become listed from
and after the date of issuance of such Warrants through the Expiration Date.
(b) The Company will not, by any voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Agreement or the
Warrant Certificate, but will at all times in good faith assist in the carrying
out of all such terms. Without limiting the generality of the foregoing, the
Company (i) shall take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue the Warrant Shares upon the
exercise of all Warrants from time to time outstanding, and (ii) will not (A)
transfer all or substantially all of its properties and assets to any other
person or entity, (B) consolidate with or merge into any other entity where the
Company is not the surviving entity, or (C) permit any other entity to
consolidate with or merge into the Company, where the Company is not the
surviving entity, where in connection with such transfer, consolidation or
merger, the Warrant Shares then issuable upon the exercise of the Warrant shall
be changed into or exchanged for shares or other securities or property of any
other entity unless, in any such case, the other entity acquiring such
properties and assets, continuing or surviving after such consolidation or
merger or issuing or distributing such shares or other securities or property,
as the case may be, shall expressly assume in writing and be bound by all the
terms of this Agreement and the Warrant Certificates.
-4-
<PAGE>
Section 4.2 Repurchase or Redemption of Common Stock. The Company
will not repurchase or otherwise redeem outstanding shares of its Common Stock
if such repurchase or redemption would cause USB's ownership of Common Stock
(assuming conversion of all shares of Preferred Stock) to exceed 24.99% of the
outstanding shares of Common Stock, without the consent of USB, unless or until
the Company has made provision to redeem or otherwise repurchase a sufficient
number of shares of the Preferred Stock or Common Stock then held by USB such
that USB's ownership of Common Stock (assuming conversion of all shares of
Preferred Stock) does not exceed 24.99% of the outstanding shares of Common
Stock.
Section 4.3 No Predatory Lending. For so long as USB owns any of the
Preferred Stock or Common Stock of the Company, (i) the Company will not, and
will not allow NCMC or any other subsidiary, to engage in any "predatory
behaviors" (as defined in that certain letter dated April 4, 2000 from USB to
the Company), and (ii) the Company will provide USB with a quarterly report, on
or as soon as reasonably practicable after the last business day of each fiscal
quarter, regarding the Company's and its subsidiaries' adherence to
non-predatory lending practices during that fiscal quarter.
Section 4.4 Cooperation; Further Assurances. The Company shall
cooperate with USB and use its commercially reasonable efforts to take such
actions, or to cause to be made such amendments to this Agreement and the
agreements and certificates referred to herein, as may be reasonably requested
by USB as necessary, proper or advisable under applicable regulations, policies
and guidelines of the Board of Governors of the Federal Reserve System, the
Office of the Comptroller of the Currency or other applicable bank regulatory
authority.
ARTICLE V
CERTAIN OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANT CERTIFICATES
Section 5.1 No Rights of Holders of Common Stock. The Warrant
Certificates shall be issued in registered form only. No Warrant Certificate
shall entitle the Holder thereof to any of the rights of a holder of Common
Stock of the Company, including, without limitation, the right to vote, to
receive other distributions, to elect directors of the Company or to receive
notice of or to attend the meetings of stockholders or any other proceeding of
the Company.
Section 5.2 Loss, Theft, Destruction or Mutilation of Warrant
Certificates. In case any of the Warrant Certificates shall be lost, stolen,
destroyed or mutilated, the Company will issue and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant Certificate, or
in lieu of and substitution for the Warrant Certificate lost, stolen or
destroyed, a new Warrant Certificate of like tenor and representing an
equivalent right or interest, but (a) in the case of such loss, theft or
destruction, only upon receipt of evidence satisfactory to the Company of such
loss, theft or destruction of such Warrant Certificate and indemnity, if
requested, also satisfactory to it or (b) in the case of any such mutilation,
only upon surrender to and cancellation by the Company of such Warrant
Certificate.
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<PAGE>
ARTICLE VI
TRANSFER AND EXCHANGE OF WARRANT CERTIFICATES
Section 6.1 Transfer or Exchange of Warrant Certificates. The
Warrants, the rights thereunder and the Warrant Shares may be sold, transferred
or otherwise disposed of or in any manner transferred upon the books of the
Company, in whole or in part, (a) to a successor to US Bank or any affiliate of
US Bank and (b) to any other person or entity, subject to the requirements of
the Securities Act and any applicable state securities law. Any such transfer
may be made at the principal office of the Company by the Holder of such Warrant
in person or by duly authorized attorney, upon surrender of the Warrant properly
endorsed. Upon surrender for transfer or exchange of any Warrant Certificate,
properly endorsed, to the Company, the Company will issue and deliver to or upon
the order of the Holder thereof a new Warrant Certificate of like tenor, in the
name of such Holder or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct. Any Warrant Certificate surrendered for
transfer or exchange shall be canceled by the Company.
ARTICLE VII
REGISTRATION RIGHTS
Section 7.1 Registration Rights Agreement. The Warrant Shares shall
be subject to the registration rights as set forth in that Amended and Restated
Registration Rights Agreement dated as of April 28, 2000 (the "Registration
Rights Agreement") by and between USB and the Company (subject in all cases to
any restrictions or limitations set forth in Section 9 thereof).
ARTICLE VIII
OTHER MATTERS
Section 8.1 Successors and Assigns. All the covenants and provisions
of this Agreement by or for the benefit of the Company or the Holder shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 8.2 Notices. Any notice or demand authorized by this
Agreement to be given or made by the Holder of any Warrant Certificate to the
Company shall be sufficiently given or made if sent by first-class or registered
mail, postage prepaid, addressed as follows:
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<PAGE>
New Century Financial Corporation
18400 Von Karman, Suite 1000
Irvine, California 92612
Attention: Brad A. Morrice
Telecopy: 949-440-7033
Any notice pursuant to this Agreement to be given or made by the
Company to the Holder of any Warrant shall be sufficiently given or made (unless
otherwise specifically provided for herein) if sent by first-class or registered
mail, postage prepaid, addressed to said registered Holder at his or her address
appearing on the Warrant register.
Section 8.3 Governing Law. This Agreement and each Warrant
Certificate issued hereunder shall be governed by and construed in accordance
with the laws of the State of Delaware.
Section 8.4 No Benefits Conferred. Nothing in this Agreement
expressed and nothing that may be implied from any of the provisions hereof is
intended, or shall be construed, to confer upon, or to give to any person or
entity other than the Company, USB and the Holders of Warrant Certificates any
legal or equitable right, remedy or claim under or by reason of this Agreement,
or of any covenant, condition, stipulation, promise or agreement herein; and all
covenants, conditions, stipulations, promises and agreements in this Agreement
shall be for the sole and exclusive benefit of the Company and its successors,
USB and its successors and the Holders of Warrant Certificates and the
Registrable Securities (as defined in the Registration Rights Agreement).
Section 8.5 Counterparts. This Agreement may be executed in any
number of counterparts, and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 8.6 Headings. The descriptive headings used in this
Agreement are inserted for convenience only and shall not control or affect the
meaning or construction of any of the provisions hereof.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, all as of the day and year first above written.
NEW CENTURY FINANCIAL CORPORATION
By: /s/ Patrick Flanagan
----------------------------------
Its: EVP
---------------------------------
U.S. BANCORP
By: /s/ Edwin Jenkins
----------------------------------
Its:
---------------------------------
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Edwin Jenkins
----------------------------------
Its:
---------------------------------
-8-
<PAGE>
SECOND AMENDED AND RESTATED SUBORDINATED
PROMISSORY NOTE
$40,000,000.00 April 28, 2000
FOR VALUE RECEIVED, the undersigned, NEW CENTURY MORTGAGE CORPORATION (the
"Borrower"), hereby promises to pay to the order of U.S. BANK NATIONAL
ASSOCIATION (the "Lender", which term includes any subsequent holder hereof) at
Minneapolis, Minnesota or at such other place as the Lender may from time to
time hereafter designate to the Borrower in writing the principal sum of all
loans made by the Lender to the Borrower evidenced by this Note. The aggregate
principal amount of all such loans outstanding hereunder shall not exceed FORTY
MILLION DOLLARS AND NO CENTS ($40,000,000.00). The amount and date of each loan
evidenced hereby shall be entered by the Lender into its records, which records
shall be conclusive evidence of the subject matter thereof absent manifest
error.
The unpaid principal balance hereof from time to time outstanding shall
bear interest at the rate of twelve percent (12.0%) per annum. Interest shall be
computed on the basis of actual days elapsed and a year of 360 days. Upon the
happening of any Event of Default, this Note, at the option of the Lender, shall
bear interest until paid in full at a rate per annum equal to the rate of
interest applicable immediately prior to such Event of Default plus two percent
(2.0%) per annum. Interest shall be payable monthly in arrears five (5) business
days after the end of the preceding calendar month, and at final maturity.
The entire principal balance hereof and all accrued, unpaid interest
hereon is payable on June 1, 2002.
This Note is the Note referred to in the Subordinated Loan Agreement of
even date herewith between the Borrower and the Lender (as the same may be
amended, modified or restated from time to time, the "Subordinated Loan
Agreement"). Terms capitalized and used herein without being defined will have
the meanings given to them in the Subordinated Loan Agreement.
Payment of this Note is subordinated to payment of all obligations of the
Borrower to the Lender and certain other lenders who are parties to the
Warehousing Agreement pursuant to that certain Subordination Agreement dated as
of October 14, 1999 made by the Lender in favor of such lenders. This Note is
the "Subordinated Note" referred to in such Subordination Agreement.
- 1 -
<PAGE>
This Note is secured by liens granted pursuant to (i) the Amended and
Restated Pledge and Security Agreement of even date herewith, made and given by
the Borrower (as the same may hereafter be amended, modified or supplemented, or
any agreement entered into in substitution or replacement therefor, the "Pledge
and Security Agreement"), (ii) the Amended and Restated Servicing Security
Agreement of even date herewith, made and given by the Borrower (as the same may
hereafter be amended, modified or supplemented, or any agreement entered into in
substitution or replacement therefor, the "Servicing Security Agreement"), and
(iii) the Amended and Restated Security Agreement of even date herewith, made
and given by NC Capital Corporation and NC Residual II Corporation (as the same
may hereafter be amended, modified or supplemented, or any agreement entered
into in substitution or replacement therefor, the "Residual Security
Agreement").
The occurrence of any one or more of the following events shall constitute
an Event of Default, and upon the occurrence of any Event of Default the Lender
may exercise all rights and remedies under the Subordinated Loan Agreement, the
Security Documents and as may otherwise be allowed by applicable law:
(1) The Borrower shall fail to make any payment of principal or interest
hereon when due.
(2) The Borrower shall become insolvent or shall generally not pay its
debts as they mature or shall apply for, shall consent to, or shall
acquiesce in the appointment of a custodian, trustee or receiver for
the Borrower 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 Borrower
or for a substantial part of the property thereof; or any
bankruptcy, reorganization, debt arrangement or other proceedings
under any bankruptcy or insolvency law shall be instituted by or
against the Borrower.
(3) The maturity of any material indebtedness of the Borrower (other
than the indebtedness on this Note) shall be accelerated or the
Borrower shall fail to pay any such material indebtedness when due
or, in the case of indebtedness payable on demand, when demanded.
For these purposes, indebtedness of the Borrower shall be deemed
material if it exceeds $250,000 as to any item of indebtedness or in
the aggregate for all items of
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<PAGE>
indebtedness with respect to which any of the events described in
this paragraph has occurred.
(4) Any default shall occur under the terms of any Security Document and
shall continue for more than the period of grace, if any, applicable
thereto.
(5) An "Event of Default" as defined in the Warehousing Agreement as in
effect on the date hereof has occurred, whether or not the
Warehousing Agreement has been amended, supplemented, restated or
otherwise modified after the date hereof or remains in effect, and
whether or not such Event of Default or \the events or circumstances
which caused it have been waived pursuant to the Warehousing
Agreement.
(6) 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
Borrower and the Borrower shall not discharge the same or provide
for its discharge, or procure a stay of execution thereof, prior to
any execution on such judgment, within 60 days from the date of
entry thereof, and within said period of 60 days, or such longer
period during which execution shall be stayed, appeal therefrom and
cause the execution to be stayed during such appeal.
(7) Any execution or attachment shall be issued whereby any substantial
part of the property of the Borrower 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.
(8) The Borrower shall fail to comply in all respects with Article V of
the Subordinated Loan Agreement, and such failure shall not be cured
or waived within 10 days after the earlier of: (i) the date the
Borrower gives notice of such failure to the Lender, and (ii) the
date the Lender gives notice of such failure to the Borrower.
(9) Any representation or warranty made by or on behalf of the Borrower
in Subordinated Loan Agreement or by or on behalf of the Borrower in
any certificate, statement, report or document herewith or hereafter
furnished to the Lender pursuant to this Note or the Subordinated
Loan Agreement shall prove to have been false or misleading in any
material respect on the date as of which the facts set forth are
stated or certified.
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<PAGE>
(10) The Borrower shall fail to comply with any other agreement,
covenant, condition, provision or term contained in the Subordinated
Loan Agreement or any other Loan Document or Equity Document (other
than those hereinabove set forth in clauses (8) or (9)) and such
failure to comply shall continue for ten calendar days after
whichever of the following dates is the earliest: (i) the date the
Borrower gives notice of such failure to the Lender, (ii) the date
the Borrower should have given notice of such failure to the Lender
pursuant to the terms of the Subordinated Loan Agreement , or (iii)
the date the Lender gives notice of such failure to the Borrower.
(11) A Change of Control shall occur.
THE VALIDITY, CONSTRUCTION AND ENFORCEABILITY OF THIS NOTE SHALL BE
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT
TO CONFLICT OF LAWS PRINCIPLES THEREOF.
AT THE OPTION OF THE LENDER THIS NOTE MAY BE ENFORCED IN ANY FEDERAL COURT
OR MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY OR RAMSEY COUNTY, MINNESOTA;
AND THE BORROWER CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND
WAIVES ANY ARGUMENT THAT THE VENUE IN SUCH FORUMS IS NOT CONVENIENT. IF THE
BORROWER COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR
CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY
THIS NOTE, THE LENDER 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.
EACH OF THE BORROWER, BY ITS EXECUTION AND DELIVERY HEREOF, AND THE
LENDER, BY ITS ACCEPTANCE HEREOF, IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL
BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
The Borrower hereby waives presentment for payment, notice of dishonor,
protest and notice of protest.
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<PAGE>
If this Note is not paid when due, the Borrower shall pay all of the
Lender's costs of collection including reasonable attorneys' fees.
This Note amends and restates the remaining unpaid principal indebtedness
of the undersigned to the Lender evidenced by an Amended and Restated
Subordinated Promissory Note dated February 17, 2000, in the original principal
amount of $30,000,000 issued by the undersigned to the order of the Lender (the
"Prior Subordinated Note"). The Borrower hereby acknowledges and agrees that the
entire principal balance of the Prior Subordinated Note has been loaned to the
Borrower by the Lender, and is currently due and owing by the Borrower to the
Lender without defense, offset or counterclaim. It is expressly intended,
understood and agreed that this note shall replace the Prior Subordinated Note
as evidence of the remaining unpaid principal indebtedness of the undersigned to
Lender under the Prior Subordinated Note and accrued and unpaid interest
thereon, and such indebtedness of the undersigned to the Lender heretofore
represented by the Prior Subordinated Note, as of the date hereof, shall be
considered outstanding hereunder from and after the date hereof and shall not be
considered paid (nor shall the undersigned's obligation to pay the same be
considered discharged or satisfied) as a result of the issuance of this note.
NEW CENTURY MORTGAGE
CORPORATION
By /s/ Patrick Flanagan
-----------------------------------
Patrick Flanagan
Executive Vice President
Chief Operating Officer
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AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "Agreement")
is entered into as of April 28, 2000, by and among New Century Financial
Corporation, a Delaware corporation (the "Company"), and U.S. Bancorp, a
Delaware corporation ("USB") and U.S. Bank National Association ("US Bank").
WHEREAS, the Company and USB are a party to the Amended and Restated
Registration Rights Agreement dated as of July 26, 1999 (the "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 and the
Series 1999A Convertible Preferred Stock.
WHEREAS, in connection with a Subordinated Loan Agreement dated as of
April 28, 2000 between New Century Mortgage Corporation (a wholly owned
subsidiary of the Company) and US Bank, the Company has agreed to issue to US
Bank warrants to purchase up to an aggregate of 725,000 shares of the Company's
Common Stock, $.01 par value per share, upon the terms and subject to the
conditions set forth in the Warrant Issuance Agreement dated as of April 28,
2000 among the Company, USB and US Bank.
WHEREAS, in connection with the issuance of such warrants, the Company and
USB desire to amend and restate the 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 issuable upon conversion of the warrants and to make US
Bank a party to such Agreement.
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, USB and US Bank
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 "Registrable Securities" shall mean (a) the Common Shares at any
time issued or subject to issuance upon the conversion of the Preferred Stock,
(b) the Common Shares at any time issued or subject to issuance upon exercise or
conversion of the Warrants, and (c) 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.
1.10 "Registration Expenses" shall mean the expenses described in
Section 5.
1.11 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.12 "Stock Purchase Agreement" shall mean the Preferred Stock
Purchase Agreement dated October 18, 1998 between the Company and USB.
1.13 "USB" shall mean U.S. Bancorp, a Delaware corporation.
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<PAGE>
1.14 "Warrants" shall mean the warrants to purchase up to 725,000
Common Shares issued or to be issued pursuant to the Warrant Issuance Agreement
dated as of April 28, 2000 among the Company, USB and US Bank.
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.
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<PAGE>
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.
2.6 The Company shall not be obligated to effect a demand
registration 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.
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
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<PAGE>
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.
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;
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<PAGE>
(b) any written request by the Commission for amendments or
supplements to such registration statement or prospectus;
(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 each holder of such Registrable Securities, such
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<PAGE>
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.
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,
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<PAGE>
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 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
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<PAGE>
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 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
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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, 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
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<PAGE>
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 USB or US Bank except (a) to an Affiliate of USB or US Bank 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) USB or US Bank shall, within a
reasonable time after such transfer or assignment, furnish to the Company
written notice of the name and address 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)
April 28, 2005.
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.
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<PAGE>
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.
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, USB and US Bank and shall amend and
replace the Registration Rights Agreement. Upon the effectiveness of this
Agreement, the Registration Rights Agreement shall be of no further force and
effect.
-12-
<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/ Patrick Flanagan
-----------------------------------
Its Executive Vice President
----------------------------------
U.S. BANCORP
By /s/ Edwin Jenkins
-----------------------------------
Its
----------------------------------
U.S. BANK NATIONAL ASSOCIATION
By /s/ Edwin Jenkins
-----------------------------------
Its
----------------------------------
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<PAGE>
AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (this "Security
Agreement"), dated as of April 30, 2000, is by and between NEW CENTURY MORTGAGE
CORPORATION, a California corporation (the "Company"), and U.S. BANK NATIONAL
ASSOCIATION, a national banking association ("USBNA"), as collateral agent (in
such capacity, together with any successor Agent hereunder, the "Agent") for (A)
the Lenders (as defined below), (B) U.S. Bancorp Leasing & Financial, as
successor in interest to FBS Business Finance Corp. (the "Lessor"), as lessor
under any present or future leases of equipment by the Lessor, as lessor, to the
Company or New Century Financial Corporation ("NCFC"), as lessee, or as lender
under any present or future loan by the Lessor, as lender, to the Company or
NCFC, as borrower, secured by equipment, and (C) the Subordinated Noteholder (as
defined below).
RECITALS:
A. The Company, the lenders party thereto (the "Lenders") and the Agent
are party to the Fourth Amended and Restated Credit Agreement dated as of May
26, 1999 (as the same has heretofore been amended and as may hereafter be
amended, modified, extended or restated and in effect from time to time, the
"Credit Agreement").
B. The Lessor has leased, and may from time to time hereafter lease,
equipment to the Company or NCFC, or make loans to the Company or NCFC secured
by equipment.
C. USBNA has extended and has agreed to extend subordinated loans to the
Company under a Subordinated Loan Agreement (as the same may hereafter be
amended, modified, extended or restated and in effect from time to time, the
"Subordinated Loan Agreement") and a Second Amended and Restated Subordinated
Promissory Note in the principal amount of $40,000,000 (as the same may
hereafter be amended, modified, extended or restated and in effect from time to
time, the "Subordinated Note"), both of even date herewith.
D. It is a condition precedent to the agreement of USBNA to loan or
advance additional monies under such Subordinated Loan Agreement and the
Subordinated Note that the Company and the Agent execute and deliver this
Security Agreement to amend and restate the Pledge and Security Agreement dated
as of May 29, 1998, as amended, from the Grantors to the Agent (the "Existing
Pledge Agreement").
<PAGE>
E. The Company finds it advantageous, desirable and in the Company's best
interest to comply with the requirement that the Existing Pledge Agreement be
amended and restated pursuant to this Security Agreement.
Accordingly, the Company and the Agent hereby agree to amend and restate
the Existing Pledge Agreement as follows:
Section 1. DEFINITIONS
Each capitalized term used herein which is not otherwise defined
herein shall have the meaning ascribed to such term in the Credit Agreement,
including Exhibit E thereto. In addition, the following terms shall have the
following respective meanings:
"Agreement to Pledge": an agreement to pledge substantially in the
form of Attachment 1 hereto.
"Bailee Letter": a letter substantially in the form of Attachment 2
hereto.
"Closing Agent": with respect to any Mortgage Loan, the title
company or other Person performing the functions of a title company in
connection with the closing of such Mortgage Loan.
"Collateral": as defined in Section 2 hereof.
"Collateral Identification Letter": a letter substantially in the
form of Attachment 3 hereto.
"Collections": as defined in Section 2(h) hereof.
"FIRREA Qualifying Appraisal": with respect to any Pledged Mortgage
Loan, an appraisal of the real estate securing such Pledged Mortgage Loan
which meets the requirements of the applicable appraisal regulations under
Title XI of the Financial Institutions Reform, Recovery and Enforcement
Act of 1989, including, without limitation, the appraisal regulations
applicable to mortgage warehousing loans (but if said regulations do not
require an appraisal with respect to a Pledged Mortgage Loan, then no
appraisal shall be required with respect thereto hereunder).
"Lease Agreement": each and any agreement for the lease of equipment
or for the making of a loan secured by equipment now existing or at
anytime entered
<PAGE>
into between the Lessor, as lessor or lender, and the Company or NCFC, as
lessee or borrower.
"Lease Obligations": all of the obligations now or hereafter arising
owed by the Company or NCFC to Lessor in connection with any lease of
equipment or loan secured by equipment.
"Loan Detail Listing": a loan detail listing substantially in the
form of Attachment 4 hereto, which data may be electronically transmitted.
"Obligor": a person or other entity who now or hereafter is or
becomes liable to the Company with respect to any of the Collateral.
"Pledged Mortgage Loans": Mortgage Loans deemed to have been
delivered to the Agent as provided in Section 4.01 hereof and Mortgage
Loans delivered to the Agent as provided in Section 4.02 hereof.
"Related Mortgage-backed Security": a Mortgage-backed Security,
whether certificated or uncertificated, that represents an interest in, or
is secured by, any Mortgage Loans that were Pledged Mortgage Loans at the
time of formation of the related pool, unless the Agent's security
interest for the benefit of the Secured Parties in such Pledged Mortgage
Loan is released as provided herein prior to or simultaneously with the
issuance of such Mortgage-backed Security.
"Secured Parties" shall mean the Agent, the Lenders, the Lessor, and
the Subordinated Noteholder.
"Subordinated Note" shall have the meaning assigned to it in the
Recital C hereto.
"Subordinated Note Obligations" shall mean the obligations of the
Company to pay principal and interest on the Subordinated Note and all
fees, costs, expenses and indemnities for which the Company is liable in
connection therewith.
"Subordinated Noteholder" shall mean USBNA and any subsequent holder
of the Subordinated Note.
"Transmittal Letter": a transmittal letter substantially in the form
of Attachment 5 hereto.
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<PAGE>
"Trust Receipt": a trust receipt substantially in the form of
Attachment 6 hereto.
"Wet Funding Clearing Account": such accounts of the Company with
the Agent as may be designated from time to time by the Agent, which shall
be under the sole dominion and control of the Agent.
Section 2. PLEDGE
As collateral security for the due and punctual payment and
performance of all of the Obligations, Lease Obligations and Subordinated Note
Obligations, the Company does hereby pledge, hypothecate, assign, transfer and
convey to the Agent, for the benefit of the Secured Parties, and grants to the
Agent, for the benefit of the Secured Parties, a security interest in and to,
the following described property (the "Collateral"):
(a) all right, title and interest of the Company in and to the
Pledged Mortgage Loans and Related Mortgage-backed Securities and all
promissory notes, participation agreements, participation certificates, or
other instruments or agreements which evidence the Pledged Mortgage Loans
and Related Mortgage-backed Securities;
(b) all right, title and interest of the Company in and to all
Mortgage Notes, Mortgages and other notes, real estate mortgages, deeds of
trust, security agreements, chattel mortgages, assignments of rent and
other security instruments whether now or hereafter owned, acquired or
held by the Company which evidence or secure (or constitute collateral for
any note, instrument or agreement evidencing or securing) any of the
Pledged Mortgage Loans;
(c) all right, title and interest of the Company in and to all
financing statements perfecting any security interest securing any Pledged
Mortgage Loan or property securing any Pledged Mortgage Loan;
(d) all right, title and interest of the Company in and to all
guaranties, mortgage insurance policies and other instruments by which the
persons or entities executing the same guarantee or insure, among other
things, the payment or performance of the Pledged Mortgage Loans;
4
<PAGE>
(e) all right, title and interest of the Company in and to all title
insurance policies, title insurance binders, commitments or reports
insuring or relating to any Pledged Mortgage Loan or property securing any
Pledged Mortgage Loan;
(f) all right, title and interest of the Company in and to all
surveys, bonds, hazard and liability insurance policies, participation
agreements and any other agreement, instrument or document pertaining to,
affecting, obtained by the Company in connection with, or arising out of,
the Pledged Mortgage Loans;
(g) all right, title and interest of the Company in and to all
Take-Out Commitments and other agreements to purchase any Pledged Mortgage
Loans or Related Mortgage-backed Securities;
(h) all right, title and interest of the Company in and to all
collections on, and proceeds of or from, any and all of the foregoing
(hereinafter collectively called "Collections");
(i) all right, title and interest of the Company in and to any other
asset of the Company which has been or hereafter at any time is delivered
to the Agent or any Secured Party for the purpose of being pledged
hereunder;
(j) all files, surveys, certificates, correspondence, appraisals,
computer programs, tapes, discs, cards, accounting records, and other
records, information, and data of the Company relating to the Pledged
Mortgage Loans and Related Mortgage-backed Securities (including all
information, data, programs, tapes, discs and cards necessary to
administer and service the Pledged Mortgage Loans and Related
Mortgage-backed Securities);
(k) all balances, credits and deposits of the Company contained in
the Collateral Account and in the Wet Funding Clearing Account;
(l) all right, title and interest of the Company in and to any
Hedging Arrangements entered into to protect the Company against changes
in the value of any of the Pledged Mortgage Loans or changes in the
interest rate applicable to the Loans, including, without limitation, all
rights to payment arising under such Hedging Arrangements; and
(m) any and all balances, credits, deposits, accounts or moneys of,
or in the name of, the Company representing or evidencing the foregoing or
any proceeds thereof, and any and all proceeds of any of the foregoing.
5
<PAGE>
Section 3. REPORTS CONCERNING EXISTING COLLATERAL AND HEREAFTER ACQUIRED
COLLATERAL
From time to time hereafter as reasonably requested by the Agent,
the Company will promptly give a written report to the Agent describing and
listing each document, instrument or other paper which evidences, secures,
guarantees, insures or pertains to any item of the Collateral whether now or
hereafter owned, acquired or held by the Company. Such written report shall
contain sufficient information to enable the Agent to identify each such
document, instrument or other paper. The Company (a) upon the request of the
Agent, shall promptly provide additional information concerning, or a more
complete description of, each such document, instrument or other paper and (b)
at the request of the Agent, shall promptly deliver the same to the Agent.
Section 4. DELIVERY OF COLLATERAL DOCUMENTS
4.01 Delivery of Mortgage Loans. A Mortgage Loan shall be deemed to
have been delivered and pledged to the Agent for the benefit of the Secured
Parties under this Security Agreement when:
(a) the Agent has received, with respect to such Mortgage Loan, (i)
an Agreement to Pledge, duly completed and executed by the Company, (ii) a
Collateral Identification Letter duly completed and executed by the
Company and (iii) a Loan Detail Listing, duly completed; and
(b) either
(i) a wire transfer of funds from the Wet Funding Clearing
Account has been initiated for the purpose of funding the
origination or purchase of such Mortgage Loan;
(ii) a draft drawn upon the Agent for the purpose of funding
the origination or purchase of such Mortgage Loan has been received
by the Agent and has cleared the Agent's payment process; or
(iii) a draft drawn upon the Agent for the purpose of funding
the origination or purchase of such Mortgage Loan
6
<PAGE>
has been accepted by the Agent, or the Agent has otherwise assured
payment thereof.
The documents referred to in clause (a) of the preceding sentence shall be
transmitted to the Agent by telecopier or electronic data transmission not later
than 3:30 p.m. (Minneapolis time) on the applicable Borrowing Date selected for
funding such Mortgage Loan, and the originally executed copies of such documents
shall be delivered to the Agent by courier on the following Business Day.
4.02 Delivery of Pledged Mortgage Loan Documentation. The Company
shall deliver to the Agent, with respect to each Pledged Mortgage Loan, the
following described instruments and documents within seven Business Days after
the Borrowing Date on which the applicable Warehousing Loan was made for the
purpose of funding such Mortgage Loan:
(a) the original Mortgage Note evidencing such Pledged Mortgage
Loan,duly endorsed in blank as follows:
"Pay to the order of
_____________________________________,
without recourse
NEW CENTURY MORTGAGE CORPORATION
By
-----------------------------------
Title "
-------------------------------
(b) a copy of the Mortgage securing such Pledged Mortgage Loan,
certified by the Closing Agent to be a true and exact copy of the original
Mortgage as submitted for recording;
(c) a duly executed appropriate assignment of said Mortgage in blank
and in recordable form;
(d) if there are any intermediate assignments of said Mortgage, two
copies of each such assignment, certified by the Closing Agent or the
Company to be a true and exact copy of the original thereof as submitted
for recording;
(e) if any of the foregoing documents was executed on behalf of a
party thereto by another Person under a power of attorney, a copy of the
original
7
<PAGE>
executed copy of such power of attorney, certified by the Closing Agent to
be a true and exact copy of the original thereof;
(f) if requested by the Agent, a copy of the Company's closing
instructions to the Closing Agent for such Pledged Mortgage Loan,
containing the language set forth on Exhibit G to the Credit Agreement,
and a Transmittal Letter listing all documents being delivered to the
Agent;
(g) if requested by the Agent, a copy of the Closing Agent's
Settlement Statement for such Mortgage Loan; and
(h) if requested by the Agent, a completed Company Worksheet
Concerning Applicability of Section 32 of Regulation Z (12 CFR Section
226.32) and, if said Section 32 applies, copies of the disclosure and
other related documentation delivered to the mortgagor, or executed by the
mortgagor, evidencing compliance with said Section 32.
In the event the Company complies with all of the requirements of this Section
4.02 with respect to a Mortgage Loan, such Mortgage Loan shall be deemed pledged
to the Agent for the benefit of the Secured Parties under this Security
Agreement even if the requirements of Section 4.01 hereof have not been
satisfied.
4.03 Delivery of Additional Mortgage Loan Documents Upon Request.
Within five Business Days after receiving a written request from the Agent to
deliver the same with respect to any Pledged Mortgage Loan, the Company shall
deliver to the Agent the following:
(a) All original guaranties, assignments of rents and other
instruments and documents relating to security for and payment of such
Pledged Mortgage Loan, together with duly executed assignments thereof;
(b) A mortgagee's title insurance policy (or commitment therefor) in
the form of an American Land Title Association standard policy (revised
coverage, most recent form) from a substantial and reputable title
insurance company acceptable to the Agent in favor of the Company insuring
the lien of the Mortgage securing such Pledged Mortgage Loan (subject only
to such liens and encumbrances as are generally acceptable to reputable
lending institutions, mortgage investors and securities dealers) or, if
such a mortgagee's title policy (or commitment therefor) is generally not
available in the state in which the real
8
<PAGE>
property subject to such Mortgage is located, an opinion of an attorney
reasonably acceptable to the Agent to the effect that the Mortgage
securing such Pledged Mortgage Loan is a valid first lien free and clear
of all other liens, encumbrances and restrictions except such as are
generally acceptable to reputable lending institutions, mortgage investors
and securities dealers;
(c) Evidence satisfactory to the Agent that the premises covered by
the Mortgage securing such Pledged Mortgage Loan is insured against fire
and perils of extended coverage for an amount at least equal to the lesser
of (i) 80% of the outstanding principal balance of such Pledged Mortgage
Loan or (ii) the full replacement cost of such premises;
(d) With respect to such Pledged Mortgage Loan and each Related
Mortgage-backed Security, copies of the applicable Take-Out Commitment and
all documents and instruments called for thereunder, together with a
certificate signed by an officer of the Company that, as of the date of
delivery thereof, such Pledged Mortgage Loan and all documentation
therefor satisfies all requirements and conditions of the applicable
Take-Out Commitment;
(e) Originals, or photocopies, as the Agent may request, of surveys
(or plat maps, if surveys are not available) and all other instruments,
documents and other papers pertaining to such Pledged Mortgage Loan which
are in the possession or control of the Company or which the Company has
the right to possess or control;
(f) The original of each Mortgage referred to Section 4.02(b)
hereof, together with satisfactory evidence of its recordation, or, if the
original recorded Mortgage has not been returned to the Company by the
applicable recording officer, a copy of the original recorded Mortgage
certified as a true and exact copy thereof by the applicable recording
officer;
(g) Evidence satisfactory to the Agent that the Company has obtained
and maintains in its files, as agent for the Agent and the Secured
Parties, a FIRREA Qualifying Appraisal with respect to such Pledged
Mortgage Loan, which evidence may include, but is not limited to, a copy
of such FIRREA Qualifying Appraisal certified by the Company to be a true
and exact copy of the original thereof as maintained in the Company's
files; and
(h) copies of all truth-in-lending disclosures showing compliance
with Regulation Z of the Board of Governors of the Federal Reserve System
and copies
9
<PAGE>
of all disclosures under the Real Estate Settlement Procedures Act of
1974, as amended.
4.04 Form of Assignments. All assignments executed and delivered by
the Company pursuant to this Section 4 shall be in form satisfactory for
recording in the real estate records of the applicable jurisdiction and in form
and substance acceptable to and approved by the Agent.
4.05 Effect of Transmittal Letters. Any Transmittal Letter delivered
to the Agent hereunder, together with the documents accompanying such
Transmittal Letter, shall conclusively be presumed to have been delivered to the
Agent on behalf of the Company notwithstanding that such Transmittal Letter
shall not have been signed or submitted by a person who has been authorized in
writing to do so by the Company through its Board of Directors or otherwise.
4.06 Endorsement and Delivery of Checks, Etc. The Company will from
time to time whenever an Event of Default exists, upon the request of the Agent,
endorse and deliver to the Agent any draft, check, note or other writing which
evidences a right to the payment of money which constitutes Collateral.
4.07 Defects in Collateral Documentation; Loss of Collateral Value.
A Pledged Mortgage Loan which has been delivered to the Agent under this
Security Agreement in accordance with Section 4.01 or Section 4.02 hereof shall
be and remain Collateral which is subject to the lien and security interest
granted to the Agent under Section 2 hereof until such Pledged Mortgage Loan is
sold to an Investor in accordance with Sections 10.02 and 10.03 hereof (in which
case the proceeds thereof, including, without limitation, any Related
Mortgage-backed Security, shall constitute Collateral) or released pursuant to
Section 10.04 hereof or until this Security Agreement terminates in accordance
with Section 21 hereof, notwithstanding (a) any defect in any document delivered
to the Agent pursuant to Section 4.01, 4.02, or 4.03 hereof, (b) the failure of
such Pledged Mortgage Loan to have or continue to have Warehousing Collateral
Value, (c) the failure of the Company to make timely delivery of any document
required to be delivered to the Agent under Section 4.02 hereof, (d) the failure
of the Company to make timely delivery of any document required to be delivered
to the Agent under Section 4.03 hereof, or (e) any other fact, circumstance,
condition or event whatsoever. For purposes of the preceding sentence, the
funding of the origination or purchase of a Pledged Mortgage Loan from the
proceeds of a Warehousing Loan and/or the assignment of Warehousing Collateral
Value to such Pledged Mortgage Loan by the Agent shall be deemed to be
conclusive evidence of the delivery of such Pledged Mortgage Loan under
10
<PAGE>
Section 4.01 hereof, notwithstanding any subsequent determination by the Agent
that the documentation delivered for such Pledged Mortgage Loan was incomplete
or defective in any respect or that such Pledged Mortgage Loan should not have
been assigned Warehousing Collateral Value.
Section 5. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants that: (a) all of the
representations and warranties set forth in the Credit Agreement and the
Subordinated Loan Agreement are true and correct; (b) the Company is or will be
the legal and equitable owner of the Collateral and its interests therein are or
will be free and clear of all liens, security interests, charges and
encumbrances of every kind and nature (other than as created hereunder or under
Take-Out Commitments or under assignments to purchasers under such Take-Out
Commitments); (c) no financing statement or other evidence of lien covering any
of the Collateral is or will be on file in any public office other than
financing statements filed with respect to the Company as debtor and the Agent,
for the benefit of the Secured Parties, as secured party; (d) the Company has
good right, power and lawful authority to pledge, assign and deliver the
Collateral in the manner hereby done or contemplated; (e) no consent or approval
of any governmental body, regulatory authority, person, trust, or entity is or
will be (i) necessary to the validity or enforceability of the rights created
hereunder or (ii) required prior to the assignment, transfer and delivery of any
of the Collateral to the Agent; (f) to the Company's knowledge, no material
dispute, right of setoff, counterclaim or defense exists with respect to all or
any part of the Collateral; (g) this Security Agreement constitutes the legal,
valid and binding obligation of the Company enforceable against the Company and
the Collateral in accordance with its terms (subject to limitations as to
enforceability which might result from bankruptcy, reorganization, arrangement,
insolvency or other similar laws affecting creditors' rights generally); (h) in
making and closing each Pledged Mortgage Loan, the Company has or will have
fully complied in all material respects with, and all collateral documents
delivered with respect to such Pledged Mortgage Loan comply or will comply in
all material respects with, all applicable federal, state and local laws,
regulations and rules, including, but not limited to, (i) usury laws, (ii) the
Real Estate Settlement Procedures Act of 1974, (iii) the Equal Credit
Opportunity Act, (iv) the Federal Truth in Lending Act, (v) Regulation Z of the
Board of Governors of the Federal Reserve System (including, without limitation,
Section 32 thereof, to the extent applicable) and (vi) all other consumer
protection and truth-in-lending laws which may apply, and in each case with the
regulations promulgated in connection therewith, as the same may be amended from
time to time; and the Company shall maintain sufficient
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<PAGE>
documentary evidence in its files with respect to such Pledged Mortgage Loans to
substantiate such compliance; (i) the Company has obtained or will obtain prior
to the delivery of any Mortgage Loan to the Agent in accordance with Section
4.01 hereof, and will maintain in its files as agent for the Agent and the
Secured Parties, a FIRREA Qualifying Appraisal with respect to such Mortgage
Loan; (j) immediately upon (i) the execution and delivery of the Credit
Agreement, the Notes and the other Loan Documents, (ii) the acquisition by the
Company of rights in a Mortgage Loan funded by a Warehousing Loan, and (iii) the
execution and delivery to the Agent of an Agreement to Pledge and related
Collateral Identification Letter and Loan Detail Listing in connection with such
Mortgage Loan, the Agent, for the benefit of the Secured Parties, will have a
valid and perfected first priority security interest in such Mortgage Loan and
in the related Mortgage Note and Mortgage evidencing and securing such Mortgage
Loan (without the Agent taking possession of said Mortgage Note) for a period of
21 days from the date such Warehousing Loan is made for the purpose of funding
such Mortgage Loan; (k) upon the delivery of the Mortgage Note evidencing a
Pledged Mortgage Loan to the Agent as contemplated by Section 4.02 hereof, the
Agent, for the benefit of the Secured Parties, shall have a valid and perfected
first priority security interest in such Pledged Mortgage Loan, without regard
to the 21-day temporary perfection period referred to in clause (j) of this
sentence; (l) immediately upon (i) the execution and delivery of the Credit
Agreement, the Notes and the other Loan Documents, (ii) the acquisition by the
Company of rights in such Collateral and (iii) the filing with the Secretary of
State of California of a financing statement showing the Company as debtor and
the Agent for the benefit of the Secured Parties as secured party and describing
the Collateral, the Agent, for the benefit of the Secured Parties, shall have a
valid and perfected first priority security interest in the Collateral which is
other than as described in clauses (j) and (k) of this Section 5, to the extent
that a security interest in such other Collateral can be perfected by filing a
financing statement; (m) each Pledged Mortgage Loan has been fully advanced and
is a first lien on the premises described therein; (n) each Pledged Mortgage
Loan complies with all requirements of this Security Agreement and the Credit
Agreement applicable thereto; (o) except as described in the reports provided by
the Company to the Agent and the Lenders pursuant to Section 4.01 of the Credit
Agreement, or as otherwise disclosed to the Agent and the Secured Parties, there
is no monetary default existing under any Pledged Mortgage Loan that remains in
effect on the date the Compliance/Borrowing Base Certificate for the month in
which such default occurred is required to be delivered to the Agent and the
Lenders pursuant to Section 4.01(c)(ii) of the Credit Agreement and, to the
knowledge of the Company, there is no other default existing under any Pledged
Mortgage Loan; and (p) all Pledged Mortgage Loans secured by properties located
in special flood hazard areas designated by the Secretary of Housing
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and Urban Development are and shall continue to be covered by flood insurance
under the National Flood Insurance Program.
Section 6. POSSESSION OF COLLATERAL; STANDARD OF CARE
The Agent shall exercise reasonable care in the custody and
preservation of the Collateral, shall keep the documents delivered to it in
connection with Pledged Mortgage Loans at a facility protected against fire and
shall keep the Collateral separate from similar collateral furnished by third
parties. The Agent shall be deemed to have exercised reasonable care in the
custody and preservation of any of the Collateral in its possession if it takes
such action for that purpose as the Company requests in writing, but failure of
the Agent to comply with any such request shall not itself be deemed a failure
to exercise reasonable care, and no failure of the Agent to preserve or protect
any rights with respect to such Collateral not so requested by the Company shall
be deemed a failure to exercise reasonable care in the custody or preservation
of such Collateral. The Agent shall also be deemed to have exercised reasonable
care in the custody and preservation of any Collateral in its possession if such
Collateral is accorded treatment substantially equal to that which the Agent
accords its own property of like kind.
Section 6A. AGENT'S DUTIES
The powers conferred on the Agent hereunder are solely to protect
its interest in the Collateral, for the benefit of the Secured Parties, and
shall not impose any duty upon it to exercise any such powers. Except for the
safekeeping of any Collateral in its possession and the accounting for monies
and for other properties actually received by it hereunder, the Agent shall have
no duty, as to any Collateral, as to ascertaining or taking action with respect
to calls, conversions, exchanges, maturities, tenders or other matters relative
to any Collateral, whether or not the Agent has or is deemed to have knowledge
of such matters, or as to the taking of any necessary steps to preserve rights
against any Persons or any other rights pertaining to any Collateral.
Section 7. COLLECTIONS ON COLLATERAL BY THE COMPANY; ACCOUNTING
Until the Agent gives notice to the Company pursuant to the
penultimate sentence of this Section 7 or exercises its rights under Section 8
or 13 hereof, the Company shall be entitled to receive all Collections and use
the same in the normal course of business. Upon notice from the Agent to the
Company given after the occurrence and during the continuation of an Event of
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Default or an Unmatured Event of Default, the Company shall furnish to the Agent
not later than the tenth Business Day after the end of each month a report on
all Collections received during the preceding month and provide the same
accounting therefor as the Company customarily furnishes the permanent investors
therein, including with respect to Collections on each Pledged Mortgage Loan:
(a) the name of the Obligor(s), (b) the Company's loan number for such Pledged
Mortgage Loan, (c) the current principal balance of such Pledged Mortgage Loan,
(d) the current escrow balance with respect to such Pledged Mortgage Loan, (e)
the number and amount of past due payments on such Pledged Mortgage Loan and (f)
the amount of the collections received during such month with respect to such
Pledged Mortgage Loan, itemized to show (i) principal portion, (ii) interest
portion and (iii) portion thereof representing amounts paid in escrow for real
estate taxes and insurance.
Upon notice from the Agent to the Company given after the occurrence
and during the continuation of an Event of Default or of an Unmatured Event of
Default, the Company shall hold all collections representing principal payments
and prepayments and interest and escrows for real estate taxes and insurance in
trust for the Secured Parties and shall promptly remit the same to the Agent.
All amounts representing the principal payments and prepayments and interest
delivered to the Agent pursuant to the preceding sentence shall be deposited in
the Collateral Account and all amounts representing real estate taxes and
insurance escrows delivered to the Agent pursuant to the preceding sentence
shall be deposited in an escrow account with any bank satisfactory to the
Company and the Agent, to be held as Collateral for, or applied to, the
Obligations, the Lease Obligations and the Subordinated Note Obligations.
Section 8. COLLECTIONS ON COLLATERAL BY THE AGENT
Upon the occurrence and during the continuation of an Event of
Default or an Unmatured Event of Default, the Agent may at any time and from
time to time, notify and direct any or all Obligors with respect to any of the
Collateral thereafter to make all payments on such Collateral directly to the
Agent, regardless of whether the Company was previously making collections
thereon. The Agent shall promptly account to the Company for all such payments
received by the Agent. Each Obligor making such payment to the Agent shall be
fully protected in relying on the written statement of the Agent that the Agent
then holds the security interests herein granted and assigned, which entitle the
Agent to receive such payment, and the receipt of the Agent for such payment
shall be full acquittance therefor to the Obligor making such payment.
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Section 9. DEFAULTED LOANS; COLLECTION AND FORECLOSURE PROCEEDINGS
If the Company wishes to institute collection or foreclosure
proceedings with respect to a Pledged Mortgage Loan, it shall substitute other
Collateral so that it is entitled pursuant to the terms of the Credit Agreement
to a release of such Pledged Mortgage Loan. If the Company does not own
sufficient other Collateral to obtain a release of such Pledged Mortgage Loan,
then so long as an Event of Default or an Unmatured Event of Default has not
occurred and is continuing, the Agent, upon written request of the Company, will
deliver, upon such terms and conditions as the Agent in its sole discretion may
establish, to an attorney at law, as the agent of the Agent, to the extent
necessary for the purpose of enabling said attorney to institute, in the name of
the Company or the Agent, or in their names or in the names of their nominees,
as the Agent may determine, collection and/or foreclosure proceedings on any
Pledged Mortgage Loan in default the following: (a) the promissory note or other
instrument evidencing such Pledged Mortgage Loan in default and (b) the mortgage
or deed of trust, if any, that secures such promissory note, or other Collateral
needed by said attorney in connection with such collection and/or foreclosure
proceedings in such manner and in such form as the Agent deems necessary or
desirable to preserve its security interest for the benefit of the Secured
Parties in such Collateral, provided such Collateral and all proceeds of any
such collection and/or foreclosure efforts shall remain subject to this Security
Agreement and the security interests granted herein and all such proceeds shall
be delivered to the Agent as and when and in the form received to the extent
required by the terms of the Credit Agreement. The Company hereby covenants and
agrees that, without first obtaining the prior written consent of the Agent, it
will not request or accept any discount on, or any conveyance, endorsement,
transfer or assignment of any right, title or interest in and to any of the
real, personal or mixed properties sold, pledged, mortgaged, hypothecated,
assigned, transferred, set over or conveyed to the Agent for the benefit of the
Secured Parties as security for any of the promissory notes or other instruments
or agreements which evidence Pledged Mortgage Loans in lieu of foreclosure
proceedings if, after giving effect to any such proposed transaction, the
Borrowing Base would be less than the aggregate unpaid principal amount of the
outstanding Warehousing Loans. At such time as such delivery of the Collateral
is no longer required in connection with said collection and/or foreclosure
efforts, to the extent such Collateral has not been released pursuant to this
Security Agreement, the same shall be reassigned and redelivered to the Agent.
Section 10. SALES AND RELEASES OF COLLATERAL
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10.01 Redelivery of Collateral for Correction. If no Event of
Default or Unmatured Event of Default exists, the Agent may redeliver to the
Company, for correction, any instrument or document which constitutes or relates
to any of the Collateral; provided, that any such redelivery shall be made
against a Trust Receipt duly completed and executed by the Company requiring,
within 21 days after the redelivery thereof to the Company, the return to the
Agent of each such instrument and document. The Company shall deliver to the
Agent each such instrument and document as soon as it has completed the
correction thereof and, in any event, within 21 days after its receipt thereof.
10.02 Delivery for Sale of Pledged Mortgage Loans. If no Event of
Default or Unmatured Event of Default exists, the Company may direct the Agent
to, and the Agent will, transmit on behalf of the Company Pledged Mortgage
Loans, accompanied by a duly completed and executed Bailee Letter, to an
Investor who has issued a Take-Out Commitment or a custodian for such Investor
that is acceptable to the Agent. All sale proceeds transferred to the Agent
pursuant to such Bailee Letter and all Mortgage Notes and other documents
returned to the Agent pursuant to such Bailee Letter shall remain a part of the
Collateral unless and until released pursuant to Section 10.04 of this Security
Agreement. If required by the applicable Take-Out Commitment, Pledged Mortgage
Loans may be duly assigned of record to the issuer of such Take-Out Commitment
subject to reassignment if not purchased and with beneficial title to any such
assigned Pledged Mortgage Loans being subject to the above-stated escrow
condition. All Pledged Mortgage Loans which are so transmitted or otherwise
delivered but not paid for shall constitute Collateral and shall, subject to the
limits contained herein, be included in determining the Borrowing Base. The
proceeds received by the Agent from the sale of any Pledged Mortgage Loans
pursuant to this Section 10.02 shall be deposited by the Agent in the Collateral
Account and shall be promptly applied to the payment of principal of the Notes;
provided, however, that if an Event of Default has occurred and is continuing,
such proceeds shall be applied in accordance with Section 17 hereof.
10.03 Formation of Pools. The Agent may, from time to time in its
sole discretion, at the request of the Company, transmit Pledged Mortgage Loans
to a custodian that is acceptable to the Agent in connection with the issuance
of Mortgage-backed Securities and the formation of pools of Mortgage Loans,
subject, however, to the provisions of Sections 6A and 22 hereof. The Agent and
its designated agent shall be entitled to rely on the written instructions of
the Company in this regard and shall have no obligation to act in the absence of
such written instructions.
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10.04 Release of Particular Collateral.
(a) If no Event of Default or Unmatured Event of Default has
occurred which is continuing, the Agent shall, at the written request of
the Company, release its security interest for the benefit of the Lenders
in any item of Collateral specified by the Company in such written
request, provided that, after giving effect to such requested release, the
Borrowing Base (including therein the Warehousing Collateral Value of any
Collateral given in substitution for the Collateral to be released) shall
not be less than the aggregate principal amount outstanding under the
Notes. If the Company requests and is entitled to a release of a Pledged
Mortgage Loan pursuant to the preceding sentence, the Agent shall promptly
redeliver to the Company or its designee (i) the Mortgage Note evidencing
such Pledged Mortgage Loan endorsed without recourse upon, or
representation or warranty by, the Agent or any Secured Party and (ii) a
reassignment, without recourse upon, or representation or warranty by, the
Agent or any Secured Party, of any part of the Collateral that secures
such Mortgage Note.
(b) Whether or not the Company, by the terms of this Section 10.04,
is entitled to a release of the Agent's security interest for the benefit
of the Secured Parties in the Collateral, the Agent shall release such
security interest in any Pledged Mortgage Loan to the extent necessary to
permit the Company to execute any full or partial release of any mortgage,
deed of trust, security agreement, financing statement or other security
instrument or deed which the Company is contractually obligated to release
upon payment thereof or of a minimum release price, provided the Company
arranges to have such payment remitted directly by the applicable Obligor
or closing agent to the Agent for application upon the unpaid principal
amount outstanding under the Notes, unless an Event of Default has
occurred which is continuing, in which case such payment shall be applied
as provided in Section 17 hereof.
(c) Upon the Agent's receipt of the proceeds from the sale of a
Pledged Mortgage Loan delivered to an Investor pursuant to Section 10.02
hereof or to a pool custodian pursuant to Section 10.03 hereof, the
security interest of the Agent for the benefit of the Secured Parties in
such Pledged Mortgage Loan and in the Mortgage Note and other documents
related thereto shall terminate without further action by the Agent.
(d) Upon the Agent's receipt of the proceeds from the sale of a
Related Mortgage-backed Security representing an interest in, or which is
secured by, Pledged Mortgage Loans delivered pursuant to Section 10.03
hereof, the security
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interest of the Agent for the benefit of the Secured Parties in such
Related Mortgage-backed Security and in such Pledged Mortgage Loans shall
terminate without further action by the Agent.
Section 11. FURTHER ASSURANCES
The Company, upon the request of the Agent, will promptly correct
any patent defect, error or omission which may be discovered in the contents of
this Security Agreement or in the execution hereof and will do such further acts
and things, and execute, acknowledge, endorse and deliver such further
instruments, agreements, schedules and certificates, including, but not limited
to, notes, mortgages, deeds of trust, assignments, chattel mortgages, security
agreements and financing statements covering the title to any real, personal or
mixed property now owned or hereafter acquired by the Company and now or
hereafter constituting Collateral, schedules and certificates respecting all or
any of the Collateral at the time subject to the security interest hereunder,
the items or amounts received by the Company in full or partial payment, or
otherwise as proceeds, of any of the Collateral and supplements to and
amendments of this Security Agreement, that the Agent may at any time and from
time to time reasonably request in connection with the administration or
enforcement of this Security Agreement or related to the Collateral or any part
thereof or in order to assure and confirm unto the Agent the rights, powers and
remedies hereunder or to subject all of the real, personal or mixed properties
now owned or hereafter acquired by the Company and now or hereafter constituting
Collateral to, or to confirm or clearly establish that all of said properties
are subject to and encumbered by, a lien to secure the due and punctual payment
of the Obligations, any Lease Obligations or the Subordinated Note Obligations.
Any such instrument, agreement, schedule or certificate shall be executed by a
duly authorized officer of the Company and shall be in such form and detail as
the Agent may reasonably specify. Promptly upon the request of the Agent, the
Company will mark, or permit the Agent to mark in a reasonable manner, the
Company's books, records and accounts showing or dealing with the Collateral
with a notation clearly setting forth that the Collateral has been assigned to
the Agent, for the benefit of the Secured Parties, which notation shall be in
form and substance satisfactory to the Agent.
The Company will do all acts and things, and will execute and file
or record all instruments (including mortgages, pledges, assignments, security
agreements, financing statements, amendments to financing statements,
continuation statements, etc.) required or reasonably requested by the Agent to
establish, perfect, maintain and continue the perfection and priority of the
security interest of the Agent, for the benefit of the Secured Parties, in the
Collateral and will pay the costs and expenses of: all filings and recordings,
including taxes thereon; all searches necessary or reasonably deemed
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necessary by the Agent to establish and determine the validity and the priority
of such security interest of the Agent; and also to satisfy all other liens
which in the reasonable opinion of the Agent prejudice, imperil or otherwise
affect the Collateral or the existence or priority of such security interest. A
carbon, photographic or other reproduction of this Security Agreement or of a
financing statement shall be sufficient as a financing statement and may be
filed in lieu of the original in any or all jurisdictions which accept such
reproductions.
The Company shall give at least 30 days' prior written notification
to the Agent of the opening of a new place of business where any of the
Collateral or records relating thereto are to be located and of any change in
the location of its chief executive office. The Company will not permit any
Collateral to be located in any state (and, if any county filing is required, in
any county) in which a financing statement covering such Collateral is required
to be, but has not in fact been, filed to perfect the Agent's security interest,
for the benefit of the Secured Parties, in such Collateral.
Section 12. COVENANTS OF THE COMPANY
So long as this Security Agreement shall remain in effect, the
Company will (a) defend the right, title and interest of the Agent, for the
benefit of the Secured Parties, in the Collateral against the claims and demands
of all Persons; (b) not amend, modify, or waive any of the terms and conditions
of, or settle or compromise any claim in respect of, any Collateral in a manner
which would materially adversely affect the interests of the Agent, for the
benefit of the Secured Parties; (c) not sell, assign, transfer, or otherwise
dispose of, or grant any option with respect to, or pledge or otherwise
encumber, or release, any of the Collateral or any interest therein except in a
manner whereby the Agent alone would be entitled to receive the proceeds
therefrom; (d) notify the Agent and the Secured Parties monthly of any default
that continues beyond any applicable notice or grace period under any Pledged
Mortgage Loan which has Warehousing Collateral Value; (e) maintain, or cause to
be maintained, in its chief executive office or in the offices of a computer
service bureau approved by the Agent, for the processing of Mortgage Notes and
Mortgage-backed Securities, originals, or copies if the original has been
delivered to the Agent, of its Mortgage Notes and all files, surveys,
certificates, correspondence, appraisals, computer programs, tapes, discs,
cards, accounting records and other records, information and data, relating to
the Collateral, and give the Agent written notice of the place where such
records, information and data will be maintained; and (f) maintain sufficient
documentary evidence in its files with respect to each Pledged Mortgage Loan to
substantiate compliance with all applicable federal,
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state and local laws, regulations and rules, including but not limited to those
specified in Section 5(h) hereof.
Section 13. AGENT APPOINTED ATTORNEY-IN-FACT
The Company hereby appoints the Agent the Company's
attorney-in-fact, with full power of substitution, to submit any Pledged
Mortgage Loan or Mortgage-backed Security which constitutes Collateral and
related documents to a purchaser under a Take-Out Commitment and for the purpose
of carrying out the provisions of this Security Agreement and taking any action
and executing in the name of the Company without recourse to the Agent or any
Lender any instrument, including, but not limited to, the instruments described
in Section 2 hereof, which the Agent may deem necessary or advisable to
accomplish the purpose hereof, which appointment is irrevocable and coupled with
an interest. Without limiting the generality of the foregoing, the Agent shall
have the right and power to receive, endorse and collect checks and other orders
for the payment of money made payable to the Company representing any payment or
reimbursement made under, or pursuant or with respect to, the Collateral or any
part thereof and to give full discharge for the same. The Agent agrees that it
shall not, without further instructions of the Company, exercise the foregoing
power of attorney unless an Event of Default or Unmatured Event of Default has
occurred and is continuing. Whether or not an Event of Default or an Unmatured
Event of Default shall have occurred or be continuing, the Company hereby
authorizes the Agent in its discretion at any time and from time to time to (i)
complete or cause to be completed any assignment of real estate mortgage or deed
of trust which heretofore was, or hereafter at any time may be, executed and
delivered by the Company to the Agent so that such assignment describes a real
estate mortgage or deed of trust which is security for any Pledged Mortgage Loan
now or hereafter at any time constituting Collateral and (ii) complete or cause
to be completed any other assignment or endorsement that was delivered in blank
hereunder.
Section 14. EVENTS OF DEFAULT; REMEDIES
If one or more Events of Default shall occur and be continuing, then
the Agent, in addition to any and all other rights and remedies which it may
then have hereunder, under the Credit Agreement or any other Loan Document, or
under any other instrument, or which the Agent or the Secured Parties may have
at law, in equity or otherwise, may, at its option, (a) in the name of the
Company, or otherwise, demand, collect, receive and receipt for, compound,
compromise, settle and give acquittance for, and prosecute and discontinue any
suits or proceedings in respect of any or all of the Collateral; (b) take any
action which the Agent may deem necessary or desirable in order
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to realize on the Collateral, including, without limitation, the power to
perform any contract, endorse in the name of the Company without recourse to the
Company any checks, drafts, notes or other instruments or documents received in
payment of or on account of the Collateral; (c) enter upon the premises where
any of the Collateral not in the possession of the Agent is located and take
possession thereof and remove the same, with or without judicial process; (d)
reduce the claims of the Agent or the Secured Parties to judgment or foreclosure
or otherwise enforce the security interests herein granted and assigned, in
whole or in part, by any available judicial procedure; (e) after notification,
if any, provided for herein (the Company agreeing that, to the extent notice of
sale shall be required at law, at least ten days' prior notice to the Company of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification), sell, lease, or
otherwise dispose of, at the office of the Agent, on the premises of the
Company, or elsewhere, all or any part of the Collateral, in its then condition
or following any commercially reasonable preparation or processing, and any such
sale or other disposition may be as a unit or in parcels, by public or private
proceedings, and by way of one or more contracts at any exchange, broker's
board, or at any of the Agent's offices or elsewhere, for cash, or credit, or
for future delivery, without assumption of any credit risk, and upon such other
terms as the Agent may deem commercially reasonable (it being agreed that the
sale of any part of Collateral shall not exhaust the power of sale granted
hereby, but sales may be made from time to time, and at any time, until all the
Collateral has been sold or until all Obligations, Lease Obligations and
Subordinated Note Obligations have been fully paid and performed, and it being
further agreed that the Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given, and that the Agent
may adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor, and such sale may, without further notice, be
made at the time and place to which it was adjourned), and at any such sale it
shall not be necessary to exhibit any of the Collateral; (f) at its discretion,
surrender any policies of insurance on the Collateral consisting of real or
personal property owned by the Company and receive the unearned premiums, and in
connection therewith the Company hereby appoints the Agent as the agent and
attorney-in-fact for the Company to collect such premiums; (g) at its
discretion, retain the Collateral in satisfaction of the Obligations, the Lease
Obligations and the Letter of Credit Obligations whenever the circumstances are
such that the Agent and the Secured Parties are entitled to do so under the Code
(as defined below) or otherwise; (h) exercise any and all other rights, remedies
and privileges which the Agent may have under this Security Agreement, or any of
the other promissory notes, assignments, mortgages, deeds of trust, chattel
mortgages, security agreements, transfers of lien, and any other instruments,
documents, and agreements executed and delivered pursuant to the terms hereof or
pursuant to the terms of the Credit Agreement; and (i) exercise any other remedy
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available to it as a secured party under the Uniform Commercial Code of the
State of Minnesota or of any other pertinent jurisdiction (the "Code"). The
Company acknowledges and agrees that (x) a private sale of the Collateral
pursuant to any Take-Out Commitment or other arrangement entered into by the
Company shall be deemed to be a sale of the Collateral in a commercially
reasonable manner and (y) the Collateral is intended to be sold and none of the
Collateral is a type or kind intended by the Company to be held for investment
or any purpose other than for sale.
Section 15. WAIVERS
The Company, for itself and all who may claim under the Company, as
far as the Company now or hereafter lawfully may, also waives all right to have
all or any portion of the Collateral marshalled upon any foreclosure hereof and
agrees that any court having jurisdiction over this Security Agreement may order
the sale of all or any portion of the Collateral as an entirety. Any sale of, or
the grant of options to purchase (for the option period thereof or after
exercise thereof), or any other realization upon, all or any portion of the
Collateral under clause (e) of Section 14 hereof shall operate to divest all
right, title, interest, claim and demand, either at law or in equity, of the
Company in and to the Collateral so sold, optioned or realized upon, and shall
be a perpetual bar both at law and in equity against the Company and against any
and all persons claiming or attempting to claim the Collateral so sold, optioned
or realized upon or any part thereof, from, through and under the Company. No
delay on the part of the Agent in exercising any power of sale, lien, option or
other right hereunder and no notice or demand which may be given to or made upon
the Company with respect to any power of sale, lien, option or right hereunder
shall constitute a waiver thereof, or limit or impair the right of the Agent,
any Lender, the Lessor or the Subordinated Noteholder to take any action or to
exercise any power of sale, lien, option or any other right under this Security
Agreement, the Credit Agreement, any other Loan Document, any lease agreement,
the Subordinated Loan Agreement, the Subordinated Note or otherwise, nor shall
any single or partial exercise thereof, or the exercise of any power, lien,
option or other right under this Security Agreement or otherwise, all without
notice or demand (except as otherwise provided by the terms of this Security
Agreement), prejudice their rights against the Company in any respect. Each and
every remedy given the Agent or any Secured Party shall, to the extent permitted
by law, be cumulative and shall be in addition to any other remedy given
hereunder or now or hereafter existing at law or in equity or by statute.
Section 16. NOTICE OF SALE OF COLLATERAL
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The Company acknowledges and agrees that Mortgage Loans and
Mortgage-backed Securities are property of a type customarily sold on a
recognized market, and that accordingly the Agent may (a) sell or otherwise
dispose of the Collateral without notification, advertisement, or other notice
of any kind, and (b) purchase the Collateral at a private sale thereof. To the
extent notice of sale or other disposition of any of the Collateral is required
by law, it is agreed that notice sent or given not less than ten (10) calendar
days prior to the taking of the action to which the notice relates is reasonable
notification and notice of the purposes of this Section 16. All notices and
other communications provided for in this Security Agreement shall be given to
the parties at their respective addresses described in Section 19.
Section 17. APPLICATION OF PROCEEDS
Until the Company has paid all Obligations, Lease Obligations and
Subordinated Note Obligations in full, any and all proceeds ever received by the
Agent from any sale or other disposition of the Collateral, or any part thereof,
or the exercise of any other remedy pursuant to Section 8 hereof or by virtue of
Section 14 hereof, shall be applied by the Agent as follows:
FIRST, ratably to the payment of the costs and expenses of the Agent
and the Secured Parties in connection with the enforcement of this
Security Agreement (including, without limitation, any costs or expenses
related to the sale or other disposition of the Collateral) and the
reasonable fees and out of pocket expenses of counsel employed in
connection therewith, to the payment of all costs and expenses incurred by
the Agent in connection with the administration of this Security Agreement
and to the payment of all advances made by the Agent and the Secured
Parties for the account of the Company hereunder, to the extent that such
costs, expenses and advances have not been reimbursed to the Agent and the
Secured Parties, as the case may be;
SECOND, to the payment in full of the principal of and any Balances
Deficiency Fees, Usage Fees, facility fees and interest on the Notes;
THIRD, to the payment of all other Obligations, as provided in the
Credit Agreement, as the Agent or the Lenders may determine;
FOURTH, to the payment in full of the Lease Obligations, as provided
in the Lease Agreements, or otherwise, in such order as the Lessor may
determine;
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FIFTH, to the payment in full of the Subordinated Note Obligations
until all of the Subordinated Note Obligations have been paid in full;
SIXTH, the balance (if any) of such proceeds shall be paid to the
Company, its successors or assigns, or as a court of competent
jurisdiction may direct; provided, that if such proceeds are not
sufficient to satisfy the Obligations, the Lease Obligations and the
Subordinated Note Obligations in full, the Company shall remain liable to
the Agent, the Lenders, the Lessor and the holder(s) of the Subordinated
Note, as applicable, for any deficiency.
The Company hereby agrees to pay all expenses incurred by the Agent or the
Secured Parties in the collection of the Collateral, including the reasonable
attorneys' fees incurred in connection therewith by the Agent or the Secured
Parties.
Section 18. AMENDMENTS AND MODIFICATIONS.
No amendment to this Security Agreement, waiver of any provision of
this Security Agreement 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 Agent (with the consent of the Required
Lenders, the Lessor and the Subordinated Noteholder), and any such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given.
Section 19. 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 (i) in the case of the Agent or the Lenders, in
the Credit Agreement, (ii) in the case of the Company, in the Credit Agreement,
(iii) in the case of the Lessor, by the Lessor to the Company from time to time,
and (iv) in the case of the Subordinated Noteholder, in the Subordinated Loan
Agreement. 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.
Section 20. INDEMNIFICATION AND COSTS AND EXPENSES
24
<PAGE>
The Company will (a) pay all reasonable out-of-pocket expenses,
including, without limitation, any recording or filing fees, fees of title
insurance companies in connection with records or filings, costs of mortgage
insurance policies and endorsements thereof and mortgage registration taxes (or
any similar fees or taxes), incurred by the Agent or any Secured Party in
connection with (i) the enforcement and administration of this Security
Agreement (whether or not the transactions hereby contemplated shall be
consummated), and (ii) the enforcement of the rights of the Agent and the
Secured Parties in connection with this Security Agreement, including, without
limitation, the reasonable fees and disbursements of counsel for the Agent and
the Secured Parties; (b) pay, and hold the Agent and the Secured Parties
harmless from and against, any and all present and future stamp and other
similar taxes with respect to the foregoing matters, and save the Agent and the
Secured Parties harmless from and against any and all liabilities with respect
to or resulting from any delay in paying or omission to pay such taxes; and (c)
pay, and indemnify and hold harmless the Agent and the Secured Parties from and
against, any and all liabilities, obligations, losses, damages, penalties,
judgments, suits, costs, expenses and disbursements of any kind whatsoever (the
"Indemnified Liabilities") which may be imposed on, incurred by or asserted
against any of them in any way relating to or arising out of this Security
Agreement or any of the transactions contemplated hereby or thereby, WHETHER OR
NOT THE SAME ARE CAUSED BY THE SIMPLE NEGLIGENCE OF THE AGENT OR ANY SECURED
PARTY, unless the same are caused by the gross negligence or willful misconduct
of the Agent or such Secured Party, as the case may be. The undertakings of the
Company set forth in this Section 20 shall survive the payment in full of the
Obligations, the Lease Obligations, the Subordinated Note Obligations, and the
termination of this Security Agreement, the Credit Agreement, the other Loan
Documents, all Lease Agreements, the Subordinated Loan Agreement and the
Subordinated Note.
Section 21. TERMINATION
This Security Agreement shall terminate when all the Obligations,
Lease Obligations and Subordinated Note Obligations have been fully and
indefeasibly paid and performed and the Commitments, all Lease Agreements and
the Subordinated Loan Agreement have expired, at which time the Agent shall
reassign and redeliver, without recourse upon, or representation or warranty by,
the Agent or any Secured Party and at the expense of the Company, to the
Company, or to such other Person or Persons as the Company shall designate,
against receipt, such of the Collateral (if any) as shall not have been sold or
otherwise disposed of by the Agent pursuant to the terms hereof, of the Credit
Agreement, the other Loan Documents, any Lease Agreement, the Subordinated Loan
Agreement and the Subordinated Note, and shall still be held by the Agent,
together
<PAGE>
with appropriate instruments of reassignment and release; provided, however,
that this Security Agreement shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the Obligations, the Lease
Obligations, or the Subordinated Note Obligations is rescinded or must otherwise
be returned by the Agent or any Secured Party or any other Person upon the
insolvency, bankruptcy or reorganization of the Company or otherwise, all as
though such payment had not been made.
Section 22. NON-ASSUMPTION OF LIABILITY; NO FIDUCIARY RESPONSIBILITY
Nothing herein contained shall relieve the Company from performing
any covenant, agreement or obligation on the part of the Company to be performed
under or in respect of any of the Collateral or from any liability to any party
or parties having an interest therein or impose any liability on the Agent or
any Secured Party for the acts or omissions of the Company in connection with
any of the Collateral. The Agent and the Secured Parties shall not assume or
become liable for, nor shall any of them be deemed or construed to have assumed
or become liable for, any obligation of the Company with respect to any of the
Collateral, or otherwise, by reason of the grant to the Agent, for the benefit
of the Secured Parties, of security interests in the Collateral. While the Agent
shall use reasonable care in the custody and preservation of the Collateral as
provided in Section 6 hereof, the Agent shall not have any fiduciary
responsibility to the Company with respect to the holding, maintenance or
transmittal of the Collateral delivered hereunder.
Section 23. WAIVERS, ETC.
No failure on the part of the Agent to exercise, and no delay in
exercising, any power or right hereunder, shall operate as a waiver thereof; nor
shall any single or partial exercise of any power or right preclude any other or
further exercise thereof or the exercise of any other power or right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
Section 24. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY
TRIAL
THIS SECURITY AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW, BUT NOT THE LAW OF
CONFLICTS, OF THE STATE OF
<PAGE>
MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. THE COMPANY HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION AND VENUE OF ANY MINNESOTA
STATE OR FEDERAL COURT SITTING IN HENNEPIN OR RAMSEY COUNTIES, STATE OF
MINNESOTA, FOR ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
SECURITY AGREEMENT, AND THE COMPANY HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN
RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH
MINNESOTA STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT.
THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY
DO SO, THE DEFENSE OF AN INCONVENIENT FORUM AND VENUE OBJECTIONS TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. THE COMPANY HEREBY WAIVES PERSONAL
SERVICE OF PROCESS AND CONSENTS THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED
OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 19 OF THIS SECURITY
AGREEMENT, AND SERVICE SO MADE SHALL BE DEEMED COMPLETED ON THE THIRD BUSINESS
DAY AFTER SUCH SERVICE IS DEPOSITED IN THE MAIL. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE AGENT, ANY LENDER, THE LESSOR, THE SUBORDINATED NOTEHOLDER OR ANY
OTHER INDEMNIFIED PERSON TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
THE COMPANY AND THE AGENT HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS SECURITY AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
Section 25. MISCELLANEOUS
(a) Benefit of Agreement. This Security Agreement shall be binding
upon and inure to the benefit of the Company and the Agent and their
respective successors and assigns, and shall inure to the benefit of the
Secured Parties and their respective successors and assigns, except that
the Company may not assign or transfer any of its rights or obligations
under this Security Agreement without the prior written consent of the
Secured Parties.
<PAGE>
(b) Successor Collateral Agent. In the event a successor Agent is
appointed pursuant to the Credit Agreement, such successor Agent shall
also succeed to the duties and responsibilities of the Agent hereunder.
From and after the payment in full of all of the Obligations and the
termination of the Commitments, the Agent under the Credit Agreement at
the time of such payment and termination shall remain the Agent hereunder
until the Lease Obligations and the Subordinated Note Obligations have
been paid in full and all Lease Agreements and the Subordinated Note
Agreement have been terminated; provided, however, that if any Person
other than USBNA is the Agent hereunder at such time, USBNA may direct
that such Person resign as Agent and appoint USBNA as successor Agent
hereunder.
(c) No Commitment by Lessor or Subordinated Noteholder. Nothing in
this Security Agreement shall be construed as a commitment on the part of
the Lessor to lease any equipment or make any loan, or on the part of the
Subordinated Noteholder to extend any loan pursuant to the Subordinated
Loan Agreement or the Subordinated Note, under any existing agreement or
otherwise, to or for the account of the Company or NCFC.
(d) Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants made by the Company to the Agent
or any Secured Party in connection with this Security Agreement shall
survive the execution and delivery of this Security Agreement. All
statements contained in any certificate or other instrument delivered to
the Agent or any Secured Party pursuant to this Security Agreement shall
be deemed representations, warranties and covenants hereunder of the
Company.
(e) Headings. Section headings in this Security Agreement are for
convenience of reference only, and shall not govern the interpretation of
any of the provisions of this Security Agreement.
(f) Execution in Counterparts. This Security Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument and either of the parties hereto
may execute this Security Agreement by signing any such counterpart.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be executed as of the day and year first above written.
NEW CENTURY MORTGAGE
CORPORATION
By /s/ Patrick Flanagan
-----------------------------------
Its EVP/COO
----------------------------------
U.S. BANK NATIONAL ASSOCIATION,
as Agent
By /s/ Edwin Jenkins
-----------------------------------
Its
----------------------------------
[Signature Page to Amended and Restated Pledge and Security Agreement]
<PAGE>
AMENDED AND RESTATED SECURITY AGREEMENT
AMENDED AND RESTATED SECURITY AGREEMENT (this "Security Agreement"), dated
as of April 30, 2000 by and between NC CAPITAL CORPORATION, a California
corporation ("NCCC" or a "Grantor"), NC RESIDUAL II CORPORATION , a Delaware
corporation ("NCRC" or a "Grantor" and together with NCCC, the "Grantors"), and
U.S. BANK NATIONAL ASSOCIATION, a national banking association ("USBNA"), as
collateral agent (in such capacity, together with any successor Agent hereunder,
the "Agent") for (A) the Lenders (as defined below), (B) U.S. Bancorp Leasing &
Financial, successor in interest to FBS Business Finance Corp. (the "Lessor"),
as lessor under any present or future leases of equipment by the Lessor, as the
lessor, to New Century Mortgage Corporation (the "Company") or New Century
Financial Corporation ("NCFC"), as lessee, or as lender under any present or
future loan by the Lessor, as lender, to the Company or NCFC, as Company,
secured by equipment, and (C) the Subordinated Noteholder (as defined below).
RECITALS
1. The Company, the lenders party thereto (the "Lenders") and the Agent
are party to the Fourth Amended and Restated Credit Agreement dated as of May
26, 1999 (as the same has heretofore been amended and as may hereafter be
amended, modified, extended or restated and in effect from time to time, the
"Credit Agreement").
B. The Lessor has leased, and may from time to time hereafter lease,
equipment to the Company or NCFC, or make loans to the Company or NCFC secured
by equipment.
C. USBNA has extended and has agreed to extend subordinated loans to the
Company under a Subordinated Loan Agreement (as the same may hereafter be
amended, modified, extended or restated and in effect from time to time, the
"Subordinated Loan Agreement") and a Second Amended and Restated Subordinated
Promissory Note in the principal amount of $40,000,000 (as the same may
hereafter be amended, modified, extended or restated and in effect from time to
time, the "Subordinated Note"), both of even date herewith.
D. It is a condition precedent to the agreement of USBNA to loan or
advance additional monies under such Subordinated Loan Agreement and the
Subordinated Note that each Grantor and the Agent execute and deliver this
Security Agreement to amend and restate the Security Agreement dated as of
February 17, 2000 from the Grantors to the Agent (the "Existing Security
Agreement").
E. NCCC is a wholly owned subsidiary of the Company and NCRC is a wholly
owned subsidiary of NCCC. Each Grantor participates with the Company in Company
Securitization Transactions, and has concluded that it is in its best interests
that the Company borrow the additional loans from USBNA.
<PAGE>
Accordingly, each Grantor and the Agent hereby agree to amend and restate
the Existing Security Agreement as follows:
Section 1. Defined Terms.
Section 1.01. Terms Defined in Credit Agreement. All terms used herein
that are not otherwise defined herein but that are defined in the Credit
Agreement, including Exhibit E thereto, shall have the respective meanings
assigned to them therein unless otherwise expressly defined herein.
Section 1.02. Definition of Certain Terms. As used herein, 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):
"Bankruptcy Code" shall mean 11 U.S.C.ss.101 et. seq., as amended from
time to time.
"Collateral" shall mean all property and rights in property now owned or
hereafter at any time acquired by either Grantor in or upon which a Lien is
granted to the Agent by such Grantor under this Security Agreement or under any
other document or instrument executed by such Grantor pursuant to this Security
Agreement, including, without limitation, the property described in Section 2.
"Company" shall have the meaning assigned to it in the introductory
paragraph hereof.
"Financing Statement" shall have the meaning given to such term in Section
4(c).
"GCFPI" shall mean Greenwich Capital Financial Products, Inc., a Delaware
corporation.
"Grantor Address" shall mean 18400 Von Karman, Suite 1000, Irvine,
California 92612.
"Lease Agreement" shall mean each and any agreement for the lease of
equipment or for the making of a loan secured by equipment now existing or at
anytime entered into between the Lessor, as lessor or lender, and the Company or
NCFC, as lessee or borrower.
"Lease Obligations" shall mean all of the obligations now or hereafter
arising owed by the Company or NCFC to the Lessor in connection with any lease
of equipment or loan secured by equipment.
"Proceeds" shall mean any consideration received from the sale, exchange,
lease or other disposition of any asset or property which constitutes
Collateral, any value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other person or entity
as a result of the destruction, loss, theft, damage or other involuntary
2
<PAGE>
conversion of whatever nature of any asset or property which constitutes
Collateral, and shall include all cash and negotiable instruments received or
held on behalf of the Agent pursuant to this Security Agreement.
"PWRESI" shall mean Paine Webber Real Estate Securities Inc., a Delaware
corporation.
"Residual Financing" shall have the meaning assigned to it in Section
4(c).
"SBI": Salomon Brothers International, Limited, an English corporation.
"Secured Parties" shall mean the Agent, the Lenders, the Lessor, and the
Subordinated Noteholder.
"Securitization Documents" shall mean all agreements, instruments,
certificates, and other documents executed and delivered in connection with any
Company Securitization Transaction, as the same may be amended, modified,
extended or restated and in effect from time to time.
"Subordinated Note" shall have the meaning assigned to it in the Recital C
hereto.
"Subordinated Note Obligations" shall mean the obligations of the Company
to pay principal and interest on the Subordinated Note and all fees, costs,
expenses and indemnities for which the Company is liable in connection
therewith.
"Subordinated Noteholder" shall mean USBNA and any subsequent holder of
the Subordinated Note.
Section 1.03. Terms Defined in Uniform Commercial Code. All other terms
used in this Agreement that are not specifically defined herein or the
definitions of which are not incorporated herein by reference shall have the
meaning assigned to such terms in the Uniform Commercial Code in effect in the
State of Minnesota as of the date first above written (the "Uniform Commercial
Code") to the extent such other terms are defined therein.
Section 1.04. Rules of Interpretation. Unless the context of this Security
and Agreement otherwise clearly requires, references to "or" has the inclusive
meaning represented by the phrase "and/or." The words "hereof," "herein,"
"hereunder," and similar terms in this Security Agreement refer to this Security
Agreement as a whole and not to any particular provision of this Security
Agreement. References to Sections, Attachments and Schedules are references to
Sections in, and Attachments and Schedules to, this Security Agreement unless
otherwise provided.
Section 2. Grant of Security Interest. As security for the payment and
performance of all of the Obligations (as defined in the Credit Agreement),
Lease Obligations, and Subordinated
3
<PAGE>
Note Obligations, each Grantor hereby assigns and pledges to the Agent for the
benefit of the Secured Parties and their respective successors and assigns, and
hereby grants to the Agent for the benefit of the Secured Parties and their
respective successors and assigns, a security interest in and to, all of such
Grantor's right, title, and interest in and to the following:
(a) all Junior Securitization Interests described on Schedules 1, 2
and 3 hereto, and all Junior Securitization Interests hereafter arising
(the "Pledged Junior Securitization Interests");
(b) all rights, remedies and other interests of such Grantor to and
under any agreement pursuant to which any Pledged Junior Securitization
Interest was, is or may be acquired, sold or financed, either before or
after the date hereof;
(c) all rights, remedies and other interests of such Grantor in any
Securitization Documents related to the Pledged Junior Securitization
Interests;
(d) all sums paid or payable to such Grantor under or by virtue of
any Pledged Junior Securitization Interests;
(e) all books, correspondence, credit files, records, invoices,
bills of lading, and other documents, including, without limitation, all
tapes, cards, computer runs, and other papers and documents in the
possession or control of such Grantor or any computer bureau from time to
time acting for such Grantor relating to the foregoing;
(f) any and all Hedging Arrangements related to the Pledged Junior
Securitization Interests or the Mortgage Loans backing the related Company
Securitization Transactions, and any and all rights, remedies and other
interests of such Grantor therein or thereunder;
(g) any and all balances, credits, deposits, accounts or moneys of,
or in the name of, such Grantor representing or evidencing the foregoing
or any proceeds thereof; and
(h) all Proceeds of any of the foregoing;
provided, however, that with respect to the Junior Securitization Interests
listed on Schedule 1 hereto, and any related Collateral described in clauses
(b), (c), (d), (e), (f), (g) and (h) above, such security interest shall not
take effect until consented to by GCFPI, and with respect to the Junior
Securitization Interests listed on Schedule 3 hereto, and any related Collateral
described in clauses (b), (c), (d), (e), (f), (g) and (h) above, such security
interest shall not take effect until consented to by PWRESI.
4
<PAGE>
Section 3. The Grantors Remain Liable. Anything herein to the contrary
notwithstanding, (a) each Grantor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Security Agreement had not been executed, (b) the exercise by the Agent of any
of the rights hereunder shall not release either Grantor from any of its duties
or obligations under the contracts and agreements included in the Collateral,
and (c) none of the Agent or the Secured Parties shall have any obligation or
liability under the contracts and agreements included in the Collateral by
reason of this Security Agreement, nor shall the Agent or the Secured Parties be
obligated to perform any of the obligations or duties of either Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
Section 4. Representations and Warranties. Each Grantor represents and
warrants as follows:
(a) The chief place of business and the office where each Grantor
keeps its books and records concerning the Collateral is located at the
Grantor Address. The chief executive office of each Grantor is located at
the Grantor Address.
(b) Each Junior Securitization Interest described in Schedule 1, 2
or 3, or which is at any time hereafter created or acquired by either
Grantor is, or upon the creation or acquisition thereof by such Grantor
will be, in full force and effect without modification or amendment of any
kind.
(c) Each Grantor is the legal and beneficial owner of the Collateral
free and clear of any Lien except for the security interests created by
this Security Agreement and (i) in the case of Junior Securitization
Interests listed on Schedule 1, a Lien in favor of GCFPI, (ii) in the case
of Junior Securitization Interests listed on Schedule 2, a Lien in favor
of SBI, (iii) in the case of Junior Securitization Interests listed on
Schedule 3, a Lien in favor of PWRESI, and (iv) in the case of future
Junior Securitization Interests, a Lien in favor of the Person(s)
providing financing described in Section 4.08(d) of the Credit Agreement
("Residual Financing") secured by such Junior Securitization Interests. No
effective financing statement or other similar document used to perfect
and preserve a security interest under the laws of any jurisdiction (a
"Financing Statement") covering all or any part of the Collateral is on
file in any recording office, except such as may have been filed in favor
of the Agent relating to this Security Agreement or to perfect permitted
Liens as described above.
5
<PAGE>
(d) Each Grantor has good right, power and lawful authority to
pledge, assign and deliver the Collateral in the manner hereby done or
contemplated.
(e) No consent or approval of any governmental body, regulatory
authority, person, trust, or entity is or will be (i) necessary to the
validity of the rights created hereunder or (ii) required prior to the
assignment, transfer and delivery of any of the Collateral to the Agent,
except for the consent of SBI to the Agent's security interest in the
Junior Securitization Interests listed on Schedule 2, which has been
obtained.
(f) To each Grantor's knowledge, no material dispute, right of
setoff, counterclaim or defense exists with respect to all or any part of
the Collateral.
(g) This Security Agreement constitutes the legal, valid and binding
obligation of each Grantor enforceable against such Grantor and the
Collateral in accordance with its terms (subject to limitations as to
enforceability which might result from bankruptcy, reorganization,
arrangement, insolvency or other similar laws affecting creditors' rights
generally and general principles of equity).
(h) Immediately upon the acquisition by either Grantor of rights in
the Collateral and the filing of an appropriate financing statement in the
appropriate filing office or offices, the Agent shall have a valid,
perfected security interest and lien in the Collateral, subject to no
other security interest or lien except as provided in this Security
Agreement.
(i) Neither Grantor has used any trade names and styles in its
business during the last five years. No such trade names or styles and no
trademarks or other similar marks owned by either Grantor are or have been
registered with any governmental unit during the last five years.
Section 5. Covenants of the Grantors.
(a) Name Change. Without the prior written consent of the Agent,
neither Grantor will change its name from that set forth in the first
paragraph of this Security Agreement nor use any other name.
(b) Change of Location or Jurisdiction of Organization. Each Grantor
shall give at least 30 days' prior written notification to the Agent of
the opening of a new place of business where any of the Collateral or
records relating thereto are
6
<PAGE>
to be located, any other change in the location of the office where it
keeps its books and records concerning the Collateral, and of any change
in the location of its chief executive office. Neither Grantor will take
any action that would cause its jurisdiction of organization to change
without giving at least 30 days' prior written notification of such change
to the Agent and executing and delivering such financing statements
covering the Collateral as the Agent may request in connection therewith.
(c) Use of Trade Names or Styles. Neither Grantor will, except after
giving at least 30 days' prior written notice to the Agent, use any trade
names or styles in its business in any state.
(d) Inspection and Verification of Books Records and Collateral. The
Agent, or any persons designated by the Agent, shall have the right, at
reasonable times, without hindrance or delay, to inspect the books and
records of each Grantor relating to the Collateral. The Agent, or any
persons designated by the Agent, shall have the right to make such
verifications concerning each Grantor's business and the Collateral as may
be reasonable.
(e) Marking Collateral and Records. Promptly upon the request of the
Agent, each Grantor will mark, or will permit the Agent to mark in a
reasonable manner, such Grantor's books, records and accounts showing or
dealing with the Collateral with a notation clearly setting forth that a
security interest in the Collateral has been granted to the Agent for the
benefit of the Secured Parties, which notations shall be in form and
substance reasonably satisfactory to the Agent.
(f) Reports and Schedules. Each Grantor will from time to time as
the Agent may reasonably request, deliver to the Agent such schedules and
such certificates and reports respecting all or any of the Collateral, and
the items or amounts received by such Grantor in full or partial payment,
or otherwise as proceeds of any of the Collateral, all to such extent as
the Agent may reasonably request. Any such schedule, certificate or report
shall be executed by a duly authorized officer of such Grantor and shall
be in such form and detail as the Agent may reasonably specify. Each
Grantor will also furnish the Agent such additional information concerning
the Collateral as it may from time to time reasonably request.
7
<PAGE>
(g) Maintenance of Security Interest. Each Grantor will do all acts
and things, and will execute and file or record all instruments
(including, but not limited to, mortgages, pledges, assignments, security
agreements, financing statements, amendments to financing statements,
continuation statements, etc.) required, or reasonably requested by the
Agent, to establish, perfect, maintain and continue the perfection and
priority of the interests of the Agent in the Collateral. Each Grantor
will also pay the costs and expenses of: all filings and recordings,
including taxes thereon; all searches necessary, or reasonably deemed
necessary by the Agent, to establish and determine the validity and the
priority of such interests; and also to satisfy all other liens which in
the reasonable opinion of the Agent might prejudice, imperil or otherwise
affect the Collateral or the existence or priority of such interests. A
carbon, photographic or other reproduction of this Security Agreement or
of a financing statement shall be sufficient as a financing statement and
may be filed in lieu of the original in any or all jurisdictions which
accept such reproductions. On or before May 31, 2000, the Grantors shall
cause GCFPI and PWRESI to enter into intercreditor and agency agreements,
on terms reasonably acceptable to the Agent, concerning the Agent's
security interest in the Junior Securitization Interests described in
Schedules 1 and 3.
(h) Collections. Until notified in writing by the Agent to the
contrary, each Grantor shall, at its own expense, endeavor to collect as
and when due, all amounts due with respect to amounts payable under or
with respect to the Collateral, including the taking of such action with
respect to collection as such Grantor may deem advisable. Whenever an
Event of Default shall have occurred and be continuing, all collections of
the Collateral received by either Grantor shall be held in trust for the
Agent and shall be promptly remitted to the Agent in the form received,
properly endorsed, or as the Agent may otherwise direct in writing.
(i) Indemnity. Each Grantor will indemnify and save and hold the
Secured Parties harmless from and against any and all claims, damages,
losses, liability or judgments which may be incurred or sustained by, or
asserted against, any one or more of the Secured Parties, directly or
indirectly, in connection with the existence of or the exercise of any of
its or their rights under this Security Agreement; provided, that such
Grantor shall not be liable to any Secured Party for any portion of such
claims, damages, losses, liabilities or judgments resulting from (i) the
gross negligence or willful misconduct of the Secured Party seeking
indemnification, (ii) any breach by the Secured Party seeking
indemnification of the terms of the Loan Documents to which such Secured
Party is a party, or (iii) any violation of law by the Secured Party
seeking indemnification.
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<PAGE>
(j) Third-Party Claims. Each Grantor will defend the Collateral and
the security interests therein against all claims and demands of all
Persons, at any time claiming any adverse interest with respect thereto,
except for claims of (i) GCFPI with respect to the Junior Securitization
Interests listed on Schedule 1, (ii) SBI with respect to the Junior
Securitization Interests listed on Schedule 2, (iii) PWRESI with respect
to the Junior Securitization Interests listed on Schedule 3, and (iv) in
the case of future Junior Securitization Interests, the Person(s)
providing Residual Financing secured by such Junior Securitization
Interests.
(k) Taxes. Each Grantor will promptly pay any and all taxes,
assessments and governmental charges upon the Collateral prior to the date
that penalties are attached thereto or the same become a lien on any of
the Collateral, except to the extent that such taxes, assessments and
charges shall be contested by such Grantor in good faith and through
appropriate proceedings.
(l) Additional Junior Securitization Interests. With respect to any
Junior Securitization Interests created or acquired after the date hereof,
the Grantors will promptly deliver the following documents to the Agent:
(i) copies of all Securitization Documents relating thereto, (ii) such
amendments to this Security Agreement and the related financing statements
as the Agent may deem necessary to describe more fully such Junior
Securitization Interests and any related Hedging Arrangements or other
Collateral, and (iii) an intercreditor and agency agreement with the
Person providing Residual Financing to either Grantor, on terms reasonably
acceptable to the Agent, with respect to such Junior Securitization
Interests.
(m) Disposition of Collateral. Neither Grantor will sell or offer to
sell or otherwise assign, transfer or dispose of any of the Collateral or
any interest therein except as and to the extent permitted under the
Credit Agreement.
Section 6. Remedies.
(a) Collections.
(i) Each Grantor shall have the right to collect all amounts
payable under the Collateral in the ordinary course of its business;
provided, however, that during the occurrence and continuation of an
Event of Default, each Grantor agrees, upon the request of the
Agent, promptly to
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deposit all payments received by such Grantor on account of the
Collateral, whether in the form of cash, checks, notes, drafts,
bills of exchange, money orders or otherwise, in one or more
accounts designated by the Agent in precisely the form received (but
with any endorsements of such Grantor necessary for deposit or
collection), subject to withdrawal by the Agent only, as hereinafter
provided, and until they are deposited, such payments shall be
deemed to be held in trust by such Grantor for and as the property
of the Secured Parties and shall not be commingled with any of such
Grantor's other funds. Notwithstanding the occurrence and
continuation of an Event of Default, each Grantor agrees to perform
under all Securitization Documents in accordance with its normal
collection practices, whether the remittances received in connection
with the Junior Subordination Interests are transferred to an
account for the benefit of the Agent or otherwise.
(ii) Upon receipt by the Agent of notice that an Event of
Default has occurred and is continuing, the Agent shall have the
right, as the true and lawful agent of each Grantor, with power of
substitution for each Grantor and in either Grantor's name, the
Agent's name or otherwise, for the use and benefit of the Secured
Parties, (A) to receive, endorse, assign and/or deliver any and all
notes, acceptances, checks, drafts, money orders or other evidences
of payment relating to the Collateral or any part thereof; (B) to
demand, collect, receive payment of, give receipt for and give
discharges and releases of all or any of the Collateral; (C) to sign
the name of either Grantor on any invoice or bill of lading relating
to any of the Collateral; (D) to commence and prosecute any and all
suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect or otherwise realize on all or any
of the Collateral or to enforce any rights in respect of any
Collateral; (E) to settle, compromise, compound, adjust or defend
any actions, suits or proceedings relating to all or any of the
Collateral; (F) to notify, or to require either Grantor to notify,
the Person obligated on any of or all the Collateral to make payment
thereof directly to the Agent; and (G) to use, sell, assign,
transfer, pledge, make any agreement with respect to or otherwise
deal with all or any of the Collateral, and to do all other acts and
things necessary to carry out the purposes of this Security
Agreement, as fully and completely as though the Agent were the
absolute owner of the Collateral for all purposes; provided,
however, that nothing herein contained shall be construed as
requiring or obligating the Agent or the Secured Parties to make any
commitment or to make any inquiry as to the nature or sufficiency of
any payment received by the Agent or the Secured Parties, or to
present or file any claim or notice, or to take any action with
respect to the Collateral or any part thereof or the moneys due or
to become due in respect thereof or any property covered thereby,
and no action taken or omitted to be taken by the Agent or the
Secured
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Parties with respect to the Collateral or any part thereof shall
give rise to any defense, counterclaim or offset in favor of either
Grantor or to any claim or action against the Agent or the Secured
Parties. It is understood and agreed that the appointment of the
Agent as the agent of each Grantor for the purposes set forth above
is coupled with an interest and is irrevocable. The provisions of
this Section 6(a) shall in no event relieve either Grantor of any of
its obligations hereunder or under any of the other Loan Documents
with respect to the Collateral or any part thereof or impose any
obligation on the Agent or the Secured Parties to proceed in any
particular manner with respect to the Collateral or any part
thereof, or in any way limit the exercise by the Agent or any
Secured Party of any other or further right which it may have on the
date of this Security Agreement or hereafter, whether hereunder,
under any Loan Documents or by law or otherwise.
(iii) the rights of the Agent set forth in clauses (i) and
(ii) above, in Section 5(h) above and in Section 6(c) below are
subject to (A) with respect to the Junior Securitization Interests
described on Schedule 1, the rights of GCFPI, (B) with respect to
the Junior Securitization Interests described on Schedule 2, the
rights of SBI, (C) with respect to the Junior Securitization
Interests described on Schedule 3, the rights of PWRESI, and (D)
with respect to future Junior Securitization Interests, the rights
of the Person providing Residual Financing therefor.
(b) Right to Use Certain Assets of the Grantors. Upon receipt by the
Agent of notice that an Event of Default has occurred and is continuing,
the Agent and any representatives of the Agent shall have, in addition to
all its other rights under this Security Agreement, the right to obtain
access to each Grantor's data processing equipment, computer hardware and
software relating to the Collateral and to use all of the foregoing and
the information contained therein in any manner the Agent deems necessary
for the purpose of effectuating its rights under this Security Agreement
and any other Loan Documents. Each Grantor agrees that the Agent has no
obligation to preserve rights to the Collateral against any other parties.
The Agent is hereby granted a license or other right to use, without
charge, each Grantor's labels, patents, copyrights, rights of use of any
name, trade secrets, trade names, trademarks, service marks and
advertising matter, or any
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property of a similar nature, as it pertains to the Collateral, in
advertising for sale and selling any Collateral and each Grantor's rights
under all licenses and all franchise agreements shall inure to the Agent's
benefit until the Obligations are paid in full.
(c) Other Remedies. Upon receipt by the Agent of notice that an
Event of Default has occurred and is continuing, the Agent may, in
addition to any other right or remedy available to the Agent or the
Secured Parties under any Loan Documents, exercise any and all rights and
remedies available to it and/or the Secured Parties under the Uniform
Commercial Code as in effect in the State of Minnesota and any other
applicable law to the fullest extent permitted thereby. Without limiting
the foregoing, upon receipt of notice by the Agent that an Event of
Default has occurred and is continuing, the Agent may exercise any of the
following rights and remedies: (a) in the name of either Grantor, any
Secured Party or otherwise, to demand, collect, receive and receipt for,
compound, compromise, settle and give acquittance for, and prosecute and
discontinue any suits or proceedings in respect of any or all of the
Collateral; (b) upon written notice to either Grantor and any other Person
entitled to receive such notice under any Junior Securitization Interest
or the related Securitization Documents, specifying the effective date of
any assumption thereof, to assume, become bound by, and agree to perform
and observe the covenants, agreements, obligations and conditions to be
performed and observed under any Servicing Contract specified in such
notice and to exercise all of the rights, powers and privileges of such
Grantor thereunder; (c) to sell and assign to any other Person or Persons
the right, title and interest of either Grantor in any Servicing Contract
or Servicing Rights; (d) to require each Grantor to, and each Grantor
hereby agrees that it will at its expense and upon request of the Agent
forthwith, assemble all or part of the Collateral as directed by the Agent
and make it available to the Agent at a place to be designated by the
Agent that is reasonably convenient to both the Agent and the Grantors;
(e) without notice except as specified below, to sell the Collateral or
any part thereof in one or more parcels at public or private sale, at any
of the Agent's offices or elsewhere, for cash, on credit, or for future
delivery, and upon such other terms as the Agent may reasonably believe
are commercially reasonable; (f) to occupy any premises owned or leased by
either Grantor where the Collateral or any part thereof or any books and
records relating thereto is assembled for a reasonable period in order to
effectuate the Agent's rights and remedies hereunder or under law, without
obligation to compensate such Grantor for such occupation; (g) to take any
action which the Agent may reasonably deem necessary or desirable in order
to realize on the Collateral, including, the power to endorse in
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<PAGE>
the name of either Grantor any checks, drafts, notes or other instruments
or documents received in payment of or on account of the Collateral; and
(h) to exercise any and all rights and remedies of either Grantor under or
in connection with the Collateral. Each Grantor agrees that, to the extent
notice of sale shall be required by law, at least ten days' prior written
notice to such Grantor (which such Grantor agrees is reasonable
notification within the meaning of Section 9-504(3) of the Uniform
Commercial Code) of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. The Agent shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. The Agent may
adjourn any public or private sale from time to time by announcement at
the time and place fixed therefor, and such sale may, without further
notice, be made at the time and place to which it was so adjourned. The
Agent may, but shall not be obligated to, advance any sums or do any act
or thing necessary to uphold and enforce its security interest hereunder,
including, without limitation, payment of amounts secured by prior Liens,
delinquent taxes or assessments and insurance premiums. All advances,
charges, costs and expenses, including reasonable attorneys' fees and
disbursements, incurred or paid by the Agent in exercising any right,
power or remedy conferred by this Agreement, or in the enforcement hereof,
together with interest thereon, at a rate per annum equal to the Reference
Rate plus the Applicable Margin plus 2.0%, from the time of payment until
repaid, shall become a part of the Obligations secured hereby.
(d) Waiver of Certain Claims. Each Grantor acknowledges that because
of present or future circumstances, a question may arise under the
Securities Act of 1933, as from time to time amended (the "Securities
Act"), with respect to any disposition of the Collateral permitted
hereunder. Each Grantor understands that compliance with the Securities
Act may very strictly limit the course of conduct of the Agent if the
Agent were to attempt to dispose of all or any portion of the Collateral
and may also limit the extent to which or the manner in which any
subsequent transferee of the Collateral or any portion thereof may dispose
of the same. There may be other legal restrictions or limitations
affecting the Agent in any attempt to dispose of all or any portion of the
Collateral under the applicable Blue Sky or other securities laws or
similar laws analogous in purpose or effect. The Agent may be compelled to
resort to one or more private sales to a restricted group of purchasers
who will be obliged to agree, among other things, to acquire such
Collateral for their own account for investment only and not to engage in
a distribution or resale thereof. Each Grantor agrees that the Agent shall
not incur any liability, and any liability of either Grantor for any
deficiency shall not be
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impaired, as a result of the sale of the Collateral or any portion thereof
at any such private sale in a manner that in all other respects is
commercially reasonable (within the meaning of Section 9-504(3) of the
Uniform Commercial Code). Each Grantor hereby waives any claims against
the Agent arising by reason of the fact that the price at which the
Collateral may have been sold at such sale was less than the price that
might have been obtained at a public sale or was less than the aggregate
amount of the Obligations, even if the Agent shall accept the first offer
received and does not offer any portion of the Collateral to more than one
possible purchaser. Each Grantor further agrees that the Agent has no
obligation to delay sale of any Collateral for the period of time
necessary to permit the issuer of such Collateral to qualify or register
such Collateral for public sale under the Securities Act, applicable Blue
Sky laws and other applicable state and federal securities laws, even if
said issuer would agree to do so. Without limiting the generality of the
foregoing, the provisions of this Section would apply if, for example, the
Agent were to place all or any portion of the Collateral for private
placement by an investment banking firm, or if such investment banking
firm purchased all or any portion of the Collateral for its own account,
or if the Agent placed all or any portion of the Collateral privately with
a purchaser or purchasers.
Section 7. Application of Proceeds. The Agent shall apply the proceeds of
any collection, sale or other disposition of the Collateral as follows:
FIRST, ratably to the payment of the costs and expenses of the Agent
and the Secured Parties in connection with the enforcement of this
Security Agreement (including, without limitation, any costs or expenses
related to the sale or other disposition of the Collateral and any
advances made by the Agent pursuant to section 6(c) hereof) and the
reasonable fees and out of pocket expenses of counsel employed in
connection therewith, to the payment of all costs and expenses incurred by
the Agent in connection with the administration of this Security Agreement
and to the payment of all advances made by the Agent and the Secured
Parties for the account of the Company hereunder, to the extent that such
costs, expenses and advances have not been reimbursed to the Agent and the
Secured Parties, as the case may be;
SECOND, to the payment in full of the principal of and any Balances
Deficiency Fees, Usage Fees, facility fees and interest on the Notes;
THIRD, to the payment of all other Obligations, as provided in the
Credit Agreement, as the Agent or the Lenders may determine;
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FOURTH, to the payment in full of the Lease Obligations, as provided
in the Lease Agreements, or otherwise, in such order as the Lessor may
determine;
FIFTH, to the payment in full of the Subordinated Note Obligations
until all of the Subordinated Note Obligations have been paid in full;
SIXTH, the balance (if any) of such proceeds shall be paid to the
Grantors, their successors or assigns, or as a court of competent
jurisdiction may direct; provided, that if such proceeds are not
sufficient to satisfy the Obligations, the Lease Obligations and the
Subordinated Note Obligations in full, the Company shall remain liable to
the Agent, the Lenders, the Lessor and the holder(s) of the Subordinated
Note, as applicable, for any deficiency.
The Company hereby agrees to pay all expenses incurred by the Agent or the
Secured Parties in the collection of the Collateral, including the reasonable
attorneys' fees incurred in connection therewith by the Agent or the Secured
Parties.
The Agent shall apply any such proceeds, moneys or balances in accordance with
this Security Agreement as promptly as is reasonably practicable. Upon any sale
of the Collateral by the Agent (including, pursuant to a power of sale granted
by statute or under a judicial proceeding), the receipt of the Agent or of the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of the Collateral so sold and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Agent or such officer or be answerable in any way for the
misapplication thereof.
Section 8. Amendments and Modifications. No amendment to this Security
Agreement, waiver of any provision of this Security Agreement or consent to any
departure by the Grantors therefrom shall in any event be effective unless the
same shall be in writing and signed or consented to in writing by the Agent
(with the consent of the Required Lenders, the Lessor and the Subordinated
Noteholder), and any such waiver or consent shall be effective only in the
specific instance and for the purpose for which given.
Section 9. 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 (i) in the case of the Agent or
the Lenders, in the Credit Agreement, (ii) in the
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case of the Grantors, for the Company in the Credit Agreement, (iii) in the case
of the Lessor, by the Lessor to the Company from time to time, and (iv) in the
case of the Subordinated Noteholder, in the Subordinated Loan Agreement. 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.
Section 10. Indemnification and Costs and Expenses. The Grantors will (a)
pay all reasonable out-of-pocket expenses incurred by the Agent or the Secured
Parties in connection with (i) the administration of this Security Agreement
(whether or not the transactions hereby contemplated shall be consummated), and
(ii) the enforcement of the rights of the Agent and the Secured Parties in
connection with this Security Agreement; (b) pay, and hold the Agent and the
Secured Parties harmless from and against, any and all present and future stamp
and other similar taxes with respect to the foregoing matters, and save the
Agent and the Secured Parties harmless from and against any and all liabilities
with respect to or resulting from any delay in paying or omission to pay such
taxes; and (c) pay, and indemnify and hold harmless the Agent and the Secured
Parties from and against, any and all liabilities, obligations, losses, damages,
penalties, judgments, suits, costs, expenses and disbursements of any kind
whatsoever (the "Indemnified Liabilities") which may be imposed on, incurred by
or asserted against any of them in any way relating to or arising out of this
Security Agreement or any of the transactions contemplated hereby or thereby,
WHETHER OR NOT THE SAME ARE CAUSED BY THE SIMPLE NEGLIGENCE OF THE AGENT OR ANY
SECURED PARTY, unless the same are caused by the gross negligence or willful
misconduct of the Agent or such Secured Party, as the case may be. The
undertakings of the Company set forth in this Section 10 shall survive the
payment in full of the Obligations, the Lease Obligations, the Subordinated Note
Obligations, and the termination of this Security Agreement, the Credit
Agreement, the other Loan Documents, all Lease Agreements and the Subordinated
Note.
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Section 11. Termination. This Security Agreement shall terminate when all
the Obligations, Lease Obligations and Subordinated Note Obligations have been
fully and indefeasibly paid and performed and the Commitments, all Lease
Agreements and the Subordinated Loan Agreement have expired, at which time the
Agent shall reassign and redeliver, without recourse upon, or representation or
warranty by, the Agent or any Secured Party and at the expense of the Grantors,
to the Grantors or to such other Person or Persons as the Grantors shall
designate, against receipt, such of the Collateral (if any) as shall not have
been sold or otherwise disposed of by the Agent pursuant to the terms hereof,
and shall still be held by the Agent, together with appropriate instruments of
reassignment and release; provided, however, that this Security Agreement shall
continue to be effective or be reinstated, as the case may be, if at any time
any payment of any of the Obligations, the Lease Obligations, or the
Subordinated Note Obligations is rescinded or must otherwise be returned by the
Agent, any Secured Party or any other Person upon the insolvency, bankruptcy or
reorganization of either Grantor or otherwise, all as though such payment had
not been made.
Section 12. Waivers, etc. No failure on the part of the Agent to exercise
and no delay in exercising, any power or right hereunder, shall operate as a
waiver thereof; nor shall any single or partial exercise of any power or right
preclude any other or further exercise thereof or the exercise of any other
power or right. The remedies herein provided are cumulative and not exclusive of
any remedies provided by law.
Section 13. Governing Law; Consent to Jurisdiction; Waiver of Jury Trial.
THIS SECURITY AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAW, BUT NOT THE LAW OF CONFLICTS, OF
THE STATE OF MINNESOTA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES
THEREOF, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. THE
GRANTORS HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE JURISDICTION AND VENUE
OF ANY MINNESOTA STATE OR FEDERAL COURT SITTING IN HENNEPIN OR RAMSEY COUNTIES,
STATE OF MINNESOTA, FOR ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS SECURITY AGREEMENT, AND THE GRANTORS HEREBY IRREVOCABLY AGREE THAT ALL
CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN SUCH MINNESOTA STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH
FEDERAL COURT. THE GRANTORS HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT THEY
MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM AND VENUE OBJECTIONS
TO THE
17
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MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING. THE GRANTORS HEREBY WAIVE PERSONAL
SERVICE OF PROCESS AND CONSENT THAT SERVICE OF PROCESS UPON IT MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED
OR DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 9 OF THIS SECURITY
AGREEMENT, AND SERVICE SO MADE SHALL BE DEEMED COMPLETED ON THE THIRD BUSINESS
DAY AFTER SUCH SERVICE IS DEPOSITED IN THE MAIL. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE AGENT, ANY SECURED PARTY OR ANY OTHER INDEMNIFIED PERSON TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. THE GRANTORS AND THE AGENT HEREBY
IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
Section 14. Miscellaneous.
(a) Benefit of Agreement. This Security Agreement shall be binding
upon and inure to the benefit of each Grantor and the Agent and their
respective successors and assigns, and shall inure to the benefit of the
Secured Parties and their respective successors and assigns, except that
neither Grantor may assign or transfer any of its rights or obligations
under this Security Agreement without the prior written consent of the
Secured Parties.
(b) Successor Collateral Agent. In the event a successor Agent is
appointed pursuant to the Credit Agreement, such successor Agent shall
also succeed to the duties and responsibilities of the Agent hereunder.
From and after the payment in full of all of the Obligations and the
termination of the Commitments, the Agent under the Credit Agreement at
the time of such payment and termination shall remain the Agent hereunder
until the Lease Obligations and the Subordinated Note Obligations have
been paid in full and all Lease Agreements and the Subordinated Note
Agreement have been terminated; provided, however, that if any Person
other than USBNA is the Agent hereunder at such time, USBNA may direct
that such Person resign as Agent and appoint USBNA as successor Agent
hereunder.
(c) No Commitment by Lessor or Subordinated Noteholder. Nothing in
this Security Agreement shall be construed as a commitment on the part of
the Lessor to lease any equipment or make any loan, or on the part of the
Subordinated Noteholder to extend any loan pursuant to the Subordinated
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Loan Agreement or the Subordinated Note, to or for the account of the
Company or NCFC.
(d) Survival of Representations, Warranties and Covenants. All
representations, warranties and covenants made by either Grantor to the
Agent or the Secured Parties in connection with this Security Agreement
shall survive the execution and delivery of this Security Agreement. All
statements contained in any certificate or other instrument delivered to
the Agent or the Secured Parties pursuant to this Security Agreement shall
be deemed representations, warranties and covenants hereunder of such
Grantor.
(e) Headings. Section headings in this Security Agreement are for
convenience of reference only, and shall not govern the interpretation of
any of the provisions of this Security Agreement.
(f) Execution in Counterparts. This Security Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument and either of the parties hereto
may execute this Security Agreement by signing any such counterpart.
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IN WITNESS WHEREOF, the parties hereto have duly executed this
Security Agreement as of the day and year first above written.
NC CAPITAL CORPORATION
By: /s/ Patrick Flanagan
----------------------------------
Name:
---------------------------------
Title: President
-------------------------------
NC RESIDUAL II CORPORATION
By: /s/ Patrick Flanagan
----------------------------------
Name:
---------------------------------
Title: President
-------------------------------
U.S. BANK NATIONAL ASSOCIATION, as
Agent
By: /s/ Edwin Jenkins
----------------------------------
Name:
---------------------------------
Title:
-------------------------------
[Signature Page to Amended and Restated Security Agreement]
<PAGE>
AMENDED AND RESTATED SERVICING SECURITY AGREEMENT
AMENDED AND RESTATED SERVICING SECURITY AGREEMENT ("Security Agreement")
dated as of April 30, 2000 between NEW CENTURY MORTGAGE CORPORATION, a
California corporation ("the Company"), U.S. BANK NATIONAL ASSOCIATION, a
national banking association ("USBNA"), as collateral agent (in such capacity,
together with any successor Agent hereunder, the "Agent") for (A) the "Lenders"
(as defined below), (B) U.S. Bancorp Leasing & Financial, successor in interest
to FBS Business Finance Corporation (the "Lessor") as lessor under any present
or future leases of equipment by the Lessor, as lessor, to the Company or New
Century Financial Corporation ("NCFC"), as lessee, or as lender under any
present or future loan by the Lessor, as lender, to the Company or NCFC, as
borrower, secured by equipment, and (C) the "Subordinated Noteholder" (as
defined below).
RECITALS:
A. The Company, the lenders party thereto (the "Lenders") and the Agent
are party to the Fourth Amended and Restated Credit Agreement dated as of May
26, 1999 (as the same has heretofore been amended and as may hereafter be
amended, modified, extended or restated and in effect from time to time, the
"Credit Agreement").
B. The Lessor has leased, and may from time to time hereafter lease,
equipment to the Company or NCFC, or make loans to the Company or NCFC secured
by equipment.
C. USBNA has extended and has agreed to extend subordinated loans to the
Company under a Subordinated Loan Agreement (as the same may hereafter be
amended, modified, extended or restated and in effect from time to time, the
"Subordinated Loan Agreement") and a Second Amended and Restated Subordinated
Promissory Note in the principal amount of $40,000,000 (as the same may
hereafter be amended, modified, extended or restated and in effect from time to
time, the "Subordinated Note"), both of even date herewith.
D. It is a condition precedent to the agreement of USBNA to loan or
advance additional monies under such Subordinated Loan Agreement and the
Subordinated Note that the Company and the Agent execute and deliver this
Security Agreement to amend and restate the Servicing Security Agreement dated
as of May 29, 1998, as amended, from the Grantors to the Agent (the "Existing
Security Agreement").
<PAGE>
E. The Company finds it advantageous, desirable and in the Company's best
interest to comply with the requirement that the Existing Security Agreement be
amended and restated pursuant to this Security Agreement.
Accordingly, the Company and the Agent hereby agree to amend and restate
the Existing Security Agreement as follows:
Section 1. DEFINITIONS.
Each capitalized term used herein which is not otherwise defined
herein shall have the meaning ascribed to such term in the Credit Agreement. In
addition, the following terms shall have the following respective meanings:
"Account" shall mean all rights of the Company to payment of
whatever kind or character, whether or not evidenced by an
instrument or chattel paper, whether or not such right has been
earned by performance, all guaranties and security therefor and all
security or other interests in property relating thereto, including,
without limitation, tax refunds and insurance proceeds.
"Acknowledgement Agreement" shall have the meaning given it in
Section 5(d) hereof.
"Cash and Bank Accounts" shall mean any and all cash,
short-term investments, and any and all balances, credits, deposits,
accounts, or monies of the Company or in the Company's name in the
possession or control of, or in transit to, any bank or other
financial institution.
"Collateral" shall have the meaning given it in Section 2
hereof.
"Company Address" shall mean 18400 Von Karman, Suite 1000,
Irvine, California 92612.
"Equipment" shall mean all equipment in all of its forms,
wherever located, whether existing on the date of this Security
Agreement or at any time thereafter, owned by the Company or in
which the Company has an interest (including, but not limited to,
all machinery, all manufacturing, distribution, selling, data
processing and office equipment, all computers and computer
components, terminals, monitors and keyboards, and all furniture,
fixtures and trade fixtures), all computer assisted design systems,
management information systems, computer software programs,
programming systems and other similar intangible assets used or
useful in the operation of any equipment, and all accessions and
additions thereto,
<PAGE>
parts and appurtenances thereof, substitutions therefor and
replacements thereof.
"Foreclosure Advance Receivable" shall mean, 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.
"General Intangibles" shall mean any personal property (other
than goods, Accounts, and money) including choses in action, causes
of action, contract rights, corporate and other business records,
inventions, designs, patents, patent applications, service marks,
trademarks, tradenames, trade secrets, engineering drawings, good
will, registrations, copyrights, licenses, franchises, customer
lists, tax refund claims, royalties, licensing and product rights,
rights to the retrieval from third parties of electronically
processed and recorded data and all rights to payment resulting from
an order of any court.
"Hedge Contract" shall mean any prepayment cap agreement or
arrangement purchased by the Company to provide prepayment
protection with respect to all or any portion of the Servicing
Rights.
"Lease Agreement" shall mean each and any agreement for the
lease of equipment or for the making of a loan secured by equipment
now existing or at anytime entered into between the Lessor, as
lessor or lender, and the Company or NCFC, as lessee or borrower.
"Lease Obligations" shall mean all of the obligations now or
hereafter arising owed by the Company or NCFC to Lessor in
connection with any lease of equipment or loan secured by equipment.
"NCRC" shall mean NC Residual II Corporation, a Delaware
corporation.
"Pool P&I Payment Receivable" shall mean, 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.
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"Proceeds" shall mean any consideration received from the
sale, exchange, lease or other disposition of any asset or property
which constitutes Collateral, any value received as a consequence of
the possession of any Collateral and any payment received from any
insurer or other person or entity as a result of the destruction,
loss, theft, damage or other involuntary conversion of whatever
nature of any asset or property which constitutes Collateral, and
shall include all cash and negotiable instruments received or held
on behalf of the Agent pursuant to this Security Agreement.
"Secured Parties" shall mean the Agent, the Lenders, the
Lessor and the Subordinated Noteholder.
"Servicing Contracts" shall mean any and all contracts or
agreements 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 (other than NCCC or NCRC).
"Servicing Rights" shall mean 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 for others (other
than NCCC or NCRC), 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 Purchase Agreements" shall mean, collectively, all
purchase agreements between the Company and any other Person
pursuant to which the Company has purchased or hereafter purchases
Servicing Rights, or a mortgage banking company that owns Servicing
Rights, as any of the same may have been or may be amended,
supplemented or otherwise modified from time to time in accordance
with this Security Agreement.
"Servicing Purchase Documents" shall mean, collectively, the
Servicing Purchase Agreements, any related subservicing agreements
and all other agreements, instruments, certificates and other
documents executed and delivered pursuant to or in connection
therewith, as the same may be
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amended, supplemented or otherwise modified from time to time in
accordance with this Security Agreement.
"Servicing Sale Agreements" shall mean, collectively, all sale
agreements between the Company and any other Person pursuant to
which the Company has sold or hereafter sells Servicing Contracts or
Servicing Rights, as the same may have been or may be amended,
supplemented or otherwise modified from time to time in accordance
with the Credit Agreement.
"Servicing Sale Documents" shall mean, collectively, the
Servicing Sale Agreements, any related subservicing agreements and
all other agreements, instruments, certificates or other documents
executed and delivered pursuant to or in connection with any
Servicing Sale Agreement, as the same may be amended, supplemented
or otherwise modified from time to time in accordance with the
Credit Agreement.
"Subordinated Note" shall have the meaning assigned to it in
Recital C hereto.
"Subordinated Note Obligations" shall mean the obligations of
the Company to pay principal and interest on the Subordinated Note
and all fees, costs, expenses and indemnities for which the Company
is liable in connection therewith.
"Subordinated Noteholder" shall mean USBNA and any subsequent
holder of the Subordinated Note.
"T&I Payment Receivable" shall mean, on any date of
determination, a valid, readily enforceable claim against any
obligor on any Mortgage Loan (other than a Mortgage Loan that is in
bankruptcy or in the process of foreclosure) 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.
(c) All other terms used in this Security Agreement which are not
specifically defined herein or the definitions of which are not incorporated
herein by reference shall have the meaning assigned to such terms in the Uniform
Commercial Code in effect in the State of Minnesota as of the date hereof to the
extent such other terms are defined therein.
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Section 2. SECURITY INTEREST.
As collateral security for the due and punctual payment of all the
Obligations, the Lease Obligations and the Subordinated Note Obligations, the
Company does hereby pledge, hypothecate, assign, transfer and convey to the
Agent, for the benefit of the Secured Parties, and hereby creates in and grants
to the Agent, for the benefit of the Secured Parties, a continuing security
interest in and to all of its right, title and interest in and to the following,
whether now existing or hereafter arising or at any time acquired (all of the
foregoing being herein referred to as the "Collateral"):
(a) all Servicing Contracts and Servicing Rights;
(b) all Accounts, Equipment and General Intangibles;
(c) all Cash and Bank Accounts;
(d) all books, correspondence, credit files, records, invoices,
bills of lading, and other documents, including, without limitation, all
tapes, cards, computer runs, and other papers and documents in the
possession or control of the Company or any computer bureau from time to
time acting for the Company, but specifically excluding books,
correspondence, credit files, records, invoices, bills of lading, and
other documents relating to Mortgage Loans pledged to third parties to
secure Indebtedness permitted by Section 4.08(g) of the Credit Agreement;
(e) all rights, remedies and other interests of the Company in, to
and under any and all Servicing Purchase Agreements and other Servicing
Purchase Documents, and any and all Servicing Sale Agreements and other
Servicing Sale Documents;
(f) all sums paid or payable to the Company under or by virtue of
any Servicing Purchase Agreements and other Servicing Purchase Documents
or by virtue of any Servicing Sale Agreements and other Servicing Sale
Documents, whether as compensation for the performance by the Company of
its obligations thereunder, damages for any breach thereof, amounts
payable upon cancellation or termination of any Servicing Purchase
Agreements and other Servicing Purchase Documents, or of any Servicing
Sale Agreements or other Servicing Sale Documents, or otherwise and any
claims of the Company therefor;
(g) any and all Hedge Contracts and any and all rights, remedies and
other interests of the Company therein or thereunder;
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(h) all sums paid or payable to the Company under or by virtue of
the Servicing Contracts, Servicing Rights or Acknowledgment Agreements,
and each of them, whether as compensation for the performance by the
Company of its obligations thereunder, damages for any breach thereof,
amounts payable upon cancellation or termination of any or all of the
Servicing Contracts or Servicing Rights, interest on any such amounts, or
otherwise, and any claims of the Company therefor;
(i) all accessions and additions to, parts and appurtenances of,
substitutions for and replacements and products of any of the foregoing,
including, without limitation, claims of rights to payments thereunder;
(j) any and all Foreclosure Advance Receivables, Pool P&I Payment
Receivables and T&I Payment Receivables;
(k) all balances, credits and deposits contained in or credited to
the Collateral Account or any other account held by the Agent which are
attributable to the proceeds of Foreclosure Advance Receivables, Pool P&I
Payment Receivables, T&I Payment Receivables or other Collateral described
herein;
(l) any other asset of the Company which has been or hereafter at
any time prior to an Event of Default is delivered to the Agent pursuant
to this Security Agreement;
(m) all books, records, files, documents, tapes, programs,
print-outs and other such materials relating to any Foreclosure Advance
Receivables, Pool P&I Payment Receivables or T&I Payment Receivables;
(n) any and all balances, credits, deposits, accounts or moneys of,
or in the name of, the Company representing or evidencing the foregoing or
any proceeds thereof; and
(o) all Proceeds of any of the foregoing.
The security interests granted pursuant to this Section 2 (the
"Security Interests") are granted as security only, and shall not subject the
Agent or any Secured Party to, or transfer or in any way affect or modify, any
obligation or liability of the Company with respect to any of the Collateral or
any transaction which gave rise thereto. Nothing herein contained shall relieve
the Company from performing any covenant, agreement or obligation on the part of
the Company to be performed or from observing any condition on the part of the
Company to be observed under or in respect of any
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Servicing Contract or Servicing Rights or from any liability thereunder or
impose any liability on the Agent or any Secured Party for the acts or omissions
of the Company thereunder or for the performance of the covenants, agreements or
obligations on the part of the Company to be performed or for the observance of
any condition on the part of the Company to be observed until and unless the
Agent shall have elected, as provided in Section 5(a) hereof, to become bound to
perform and observe the covenants, agreements, obligations and conditions to be
performed and observed by the Company under any Servicing Contract or Servicing
Rights specified by the Agent in accordance with Section 5(a) hereof.
Section 3. REPORTS CONCERNING EXISTING COLLATERAL AND HEREAFTER ACQUIRED
COLLATERAL.
From time to time hereafter as reasonably requested by the Agent,
the Company will promptly give a written report to the Agent describing and
listing each document, instrument or other paper which evidences, secures,
guarantees, insures or pertains to any item of the Collateral whether now or
hereafter owned, acquired or held by the Company. Such written report shall
contain sufficient information to enable the Agent to identify each such
document, instrument or other paper. The Company (a) upon the request of the
Agent, shall promptly provide additional information concerning, or a more
complete description of, each such document, instrument or other paper and (b)
at the request of the Agent, shall promptly deliver the same to the Agent.
Section 4. REPRESENTATIONS, WARRANTIES AND COVENANTS.
The Company hereby represents, warrants and agrees as follows:
(a) Locations. The chief executive office of the Company is located
at the Company Address. All records with respect to all the Collateral are
kept at the Company Address. As of the Signing Date, all Collateral is
kept at the Company Address or one of the other locations listed in
Attachment 1 hereto.
(b) Title to Collateral. The Company is, and will at all times be,
the lawful owner of its interest in and to all the Collateral now owned or
hereafter acquired by it, which is and at all times shall be free and
clear of any lien or security interest except security interests in favor
of the Agent, for the benefit of the Secured Parties. No financing
statement or other evidence of lien covering any of the Collateral is on
file in any public office.
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(c) Name Change. Without the prior written consent of the Agent, the
Company will not change its name from that set forth in the first
paragraph of this Security Agreement nor use any other name.
(d) Change of Location or Jurisdiction of Organization. The Company
shall give at least 30 days' prior written notification to the Agent of
the opening of a new place of business where any of the Collateral or
records relating thereto are to be located and of any change in the
location of its chief executive office. The Company will not permit any
Collateral to be located in any state (and, if any county filing is
required, in any county) in which a financing statement covering such
Collateral is required to be, but has not in fact been, filed to perfect
the Agent's security interest, for the benefit of the Secured Parties, in
such Collateral. The Company will not take any action that would cause its
jurisdiction of organization to change without giving at least 30 days'
prior written notification of such change to the Agent and executing and
delivering such financing statements covering the Collateral as the Agent
may request in connection therewith.
(e) Use of Trade Names or Styles. The Company will not, except after
giving at least 30 days' prior written notice to the Agent, use any trade
names or styles in its business in any state other than the use of those
trade names and styles and in the states listed in Attachment 1 hereto.
(f) Inspection and Verification of Books, Records and Collateral.
The books and records with respect to the Collateral will be kept at the
Company Address. The Agent, or any persons designated by it, shall have
the right, at reasonable times and, prior to the occurrence of an Event of
Default, on reasonable prior notice, without hindrance or delay, to
inspect the books and records of the Company relating to the Collateral.
The Agent, or any persons designated by it, shall have the right to make
such verifications concerning the Company's business and the Collateral as
may be reasonable. The Company will furnish to the Secured Parties such
other information as the Agent shall reasonably request.
(g) Marking Collateral and Records. Promptly upon the request of the
Agent, the Company will mark, or will permit the Agent to mark in a
reasonable manner, the Company's books, records and accounts showing or
dealing with the Collateral with a notation clearly setting forth that the
Collateral has been assigned to the Agent, for the benefit of the Secured
Parties, which notation shall be in form and substance reasonably
satisfactory to the Agent.
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(h) Reports and Schedules. The Company will from time to time, as
the Agent may reasonably request, deliver to the Secured Parties such
schedules and such certificates and reports respecting all or any of the
Collateral at the time subject to the security interests, and the items or
amounts received by the Company in full or partial payment, or otherwise
as proceeds, of any of the Collateral, all to such extent as the Agent may
reasonably request. Any such schedule, certificate or report shall be
executed by a duly authorized officer of the Company and shall be in such
form and detail as the Agent may reasonably specify. The Company will also
furnish the Secured Parties such additional information concerning the
Collateral as the Agent may from time to time reasonably request.
(i) Maintenance of Security Interest. The Company will do all acts
and things, and will execute and file or record all instruments (including
mortgages, pledges, assignments, security agreements, financing
statements, amendments to financing statements, continuation statements,
etc.) required, or reasonably requested, by the Agent to establish,
perfect, maintain and continue the perfection and priority of the security
interest of the Agent in the Collateral, for the benefit of the Secured
Parties, including, without limitation, obtaining any necessary agreements
with any Investor. The Company will also pay the costs and expenses of the
following: all filings and recordings, including taxes thereon; all
searches necessary, or reasonably deemed necessary by the Agent, to
establish and determine the validity, perfection or priority of such
security interest of the Agent; and all actions necessary to satisfy all
other liens which in the reasonable opinion of the Agent might prejudice,
imperil or otherwise affect the Collateral or the existence or priority of
such security interest. A carbon, photographic or other reproduction of
this Security Agreement or of a financing statement shall be sufficient as
a financing statement and may be filed in lieu of the original in any or
all jurisdictions which accept such reproductions. In addition, the
Company agrees to execute and deliver to the Agent any power of attorney
that the Agent may at any time request to enable it to comply with the
terms of any Acknowledgment Agreement.
(j) Collections. Until notified in writing by the Agent to the
contrary, the Company will, at its own expense, take all necessary action
to collect, as and when due, all amounts due with respect to amounts
payable under or with respect to the Servicing Contracts and Servicing
Rights, including the taking of such action with respect to collection as
the Company may deem advisable. Whenever an Event of Default shall have
occurred and be continuing, all collections of the Collateral received by
the Company will be held in trust for the Agent, for the benefit of the
Secured Parties and will be promptly remitted to the Agent, for the
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benefit of the Secured Parties, in the form received, properly endorsed,
or as the Agent may otherwise direct in writing.
(k) Power of Attorney. During the continuance of any Event of
Default, the Company appoints the Agent the Company's attorney-in-fact,
with full power of substitution, to perform any act which the Company
herein has agreed to perform but has failed to do, which appointment is
coupled with an interest and irrevocable.
(l) Status of Servicing Contracts and Other Agreements Included in
the Collateral; Maintenance and Modification Thereof. All Servicing
Contracts, Servicing Rights and other agreements included in the
Collateral, in the form delivered to the Agent, are in full force and
effect without modification or amendment of any kind except the
modifications and amendments delivered with said Servicing Contracts,
Servicing Rights and other agreements included in the Collateral, and
there has been no prepayment of any amount payable thereunder. The Company
will maintain all Servicing Contracts, Servicing Rights and other
agreements included in the Collateral in full force and effect, will fully
and faithfully perform all of the obligations and observe all of the
conditions to be performed or observed by it thereunder and under the
applicable Acknowledgment Agreement, if any, and will not, except with the
prior written consent of the Agent, (i) cancel or terminate any Servicing
Contracts, Servicing Rights or other agreements included in the Collateral
on account of the default thereunder by the other party thereto without
first consulting with the Agent or consent to any other cancellation or
termination thereof, (ii) amend, modify or otherwise effect a change in
any Servicing Contracts, Servicing Rights or other agreements included in
the Collateral, except in the ordinary course of business and in a manner
not materially deleterious to the Company, (iii) waive any material
default under or breach of any Servicing Contracts, Servicing Rights or
other agreements included in the Collateral, (iv) consent to any
prepayment or discount of amounts payable to it under any Servicing
Contracts, Servicing Rights or other agreements included in the
Collateral, or (v) give any consent, waiver or approval under any
Servicing Contracts, Servicing Rights or other agreements included in the
Collateral which would have the effect of impairing the value thereof or
the position of the Agent in respect of amounts payable thereunder.
(m) New Servicing Rights. Quarterly on the fifth Business Day of
each January, April, July and October, the Company will deliver to the
Agent copies of all Servicing Contracts entered into or acquired and a
list of all new pools of Mortgage Loans serviced pursuant to Servicing
Rights, during the preceding fiscal quarter.
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(n) Third-Party Claims. The Company will defend the Collateral and
the security interests of the Agent therein, for the benefit of the
Secured Parties, against all claims and demands of all Persons, at any
time claiming any adverse interest with respect thereto.
(o) Taxes. The Company will promptly pay any and all taxes,
assessments and governmental charges upon the Collateral prior to the date
that penalties are attached thereto or the same become a lien on any of
the Collateral, except to the extent that such taxes, assessments and
charges shall be contested by the Company in good faith and through
appropriate proceedings, for which adequate reserves in conformity with
GAAP have been provided.
(p) Impairment of Collateral. The Company will immediately notify
the Agent of any event causing a loss or diminution in the value of all or
any material part of the Collateral, and the amount (or the Company's best
estimate of the amount) of such loss or diminution.
(q) Insurance. The Company will at all times have and maintain
insurance with respect to the Collateral in accordance with the terms and
conditions of the Credit Agreement. All such insurance policies covering
losses to the Collateral shall name the Agent as a loss payee and shall be
payable to the Agent as its interests may appear. All policies of
insurance shall provide for a minimum of thirty (30) days' written notice
to the Agent prior to any cancellation, modification or non-renewal
thereof. The Company shall furnish the Agent with certificates or other
evidence reasonably satisfactory to the Agent of compliance with the
foregoing insurance provisions.
(r) Disposition of Collateral. The Company will not sell or offer to
sell or otherwise assign, transfer or dispose of any of the Collateral or
any interest therein except in the ordinary course of its business, and
may otherwise deal with its property as and to the extent permitted under
the Credit Agreement.
(s) Condition of Collateral. Except for Liens in favor of the Agent,
for the benefit of the Secured Parties, the Company will keep all of the
Collateral free from any and all adverse liens, security interests or
encumbrances and in good order and repair, reasonable wear and tear
excepted, and will not waste or destroy the Collateral or any part
thereof. To the Company's knowledge, no material dispute, right of setoff,
counterclaim or defense exists with respect to all or any part of the
Collateral (other than applicable rights of redemption).
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(t) Fixtures. If any part or all of the Collateral consisting of
Equipment will become so related to particular real estate as to become a
fixture, the Company will promptly advise the Agent as to the real estate
concerned and the record owner thereof and execute and deliver any and all
instruments necessary to perfect the security interest therein and to
assure that such security interest will be prior to the interest therein
of the owner of such real estate.
(u) Binding Agreement. The Company has good right, power and lawful
authority to pledge, assign and deliver the Collateral in the manner
hereby done or contemplated. This Security Agreement constitutes the
legal, valid and binding obligation of the Company enforceable against the
Company and the Collateral in accordance with its terms (subject to
limitations as to enforceability which might result from bankruptcy,
reorganization, arrangement, insolvency or other similar laws affecting
creditors' rights generally).
(v) Compliance with Applicable Laws. The Company has complied with
all applicable federal, state and local laws, regulations and rules
regarding the Collateral.
(w) Consent. No consent or approval (other than any which may be
incidental to any filing which may be necessary to perfect the security
interests in the Collateral) of any governmental body, regulatory
authority, person, trust, or entity is or will be (i) necessary to the
validity or enforceability of the rights created hereunder or (ii)
required prior to the assignment, transfer and delivery of any of the
Collateral to the Agent hereunder.
Section 5. REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT.
(a) If an Event of Default shall have occurred and be continuing,
the Agent shall have the right to exercise, for the benefit of the Secured
Parties, any and all rights and remedies available to it under the Uniform
Commercial Code as in effect in the State of Minnesota and any other
applicable law to the fullest extent permitted thereby. Without limiting
the foregoing, upon the occurrence of an Event of Default and during the
continuance thereof, the Agent or any Secured Parties may exercise any of
the following rights and remedies: (i) the right, in the name of the
Company or otherwise, to demand, collect, receive and receipt for,
compound, compromise, settle and give acquittance for, and prosecute and
discontinue any suits or proceedings in respect of any or all of the
Collateral; (ii) the right upon written notice to the Company and any
other Person entitled to receive such notice under any Servicing Contract
or Servicing Rights, specifying the effective date of any assumption
thereof, to assume, become bound by, and
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agree to perform and observe the covenants, agreements, obligations and
conditions to be performed and observed under any Servicing Contract or
Servicing Rights specified in such notice and to exercise all of the
rights, powers and privileges of the Company thereunder; (iii) the right
to sell and assign to any Person or Persons the right, title and interest
of the Company in any Servicing Contract or Servicing Rights; (iv) the
right to require the Company to, and the Company hereby agrees that it
will at its expense and upon request of the Agent forthwith, assemble all
or part of the Collateral as directed by the Agent and make it available
to the Agent at a place to be designated by the Agent that is reasonably
convenient to both the Agent and the Company; (v) without notice except as
specified below, the right to sell the Collateral or any part thereof in
one or more parcels at public or private sale, at any of the Agent's
offices or elsewhere, for cash, on credit, or for future delivery, and
without assumption of any credit risk, and upon such other terms as the
Agent may reasonably believe are commercially reasonable (the Company
agrees that, to the extent notice of sale shall be required by law, at
least ten days' prior notice to the Company of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification, and the Company further agrees that
the Agent shall not be obligated to make any sale of Collateral regardless
of notice of sale having been given, and that the Agent may adjourn any
public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made
at the time and place to which it was so adjourned); (vi) the right to
occupy any premises owned or leased by the Company where the Collateral or
any part thereof or any books and records relating thereto is assembled
for a reasonable period in order to effectuate the Agent's rights and
remedies hereunder or under law, without obligation to compensate the
Company for such occupation; (vii) the right to take any action which the
Agent may reasonably deem necessary or desirable in order to realize on
the Collateral, including, the power to endorse in the name of the Company
without recourse to the Company any checks, drafts, notes or other
instruments or documents received in payment of or on account of the
Collateral; and (viii) the right to exercise any and all rights and
remedies of the Company under or in connection with the Collateral.
(b) In addition to the foregoing, if an Event of Default shall have
occurred and be continuing, the Company shall, upon the request of the
Agent, immediately initiate the transfer of its responsibilities and
rights as servicer under or with respect to any Servicing Contract or
Servicing Rights to a servicer designated by the Agent, which may be a
Secured Party or any Affiliate of a Secured Party.
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(c) Unless prohibited by the terms of a particular Servicing
Contract, the Company agrees that during the exercise by the Agent of any
of its remedies:
(i) Pending any sale or transfer of Servicing Contracts and/or
Servicing Rights, the Agent may appoint a subservicer (which may be
a Lender or an Affiliate of a Lender) for the Mortgage Loans that
are the subject of such Servicing Contracts and/or Servicing Rights
and the Company shall take all necessary action to implement said
appointment. Said subservicer shall be entitled to compensation for
its services as subservicer in accordance with its schedule of fees
for such services, said fees to be paid from the compensation
otherwise payable under the Servicing Contracts.
(ii) The Agent may, by written notice to the Company, direct
it to, and thereupon the Company shall, at its own expense, take all
necessary action to collect, as and when due, all monies, checks,
notes, drafts and other payments relating to or constituting
Servicing Contracts, Servicing Rights or proceeds thereof in trust
for the Agent, for the benefit of the Secured Parties, not commingle
the same with any other property or funds of the Company and deliver
or cause to be delivered all such payments in the exact form
received, together with any necessary endorsements, to the Agent or
to such other person as the Agent may designate. The portion of the
Servicing Rights representing compensation or termination fees under
such Servicing Contracts shall in any event be delivered to the
Agent immediately upon the Company's receipt thereof.
(iii) The Agent may notify, or request the Company to notify,
in writing or otherwise, each owner of Mortgage Loans that are
subject to Servicing Contracts and/or Servicing Rights to make
payments directly to the Agent of any fees or compensation payable
by said owners thereunder. If, notwithstanding the giving of any
notice, any such owner shall make payments to the Company, the
Company shall hold all such payments it receives in trust for the
Agent, for the benefit of the Secured Parties, without commingling
the same with other funds or property of the Company or any other
person, and shall deliver the same to the Agent immediately upon
receipt by the Company in the identical form received, together with
any necessary endorsements.
(iv) The Agent may, without notice to the Company and at such
time or times as the Agent in its sole discretion may determine,
exercise any or all of the Company's rights in, to and under, or in
any way connected
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with or related to, any or all of the Servicing Contracts and
Servicing Rights, including (A) demanding and enforcing payment and
performance of, and exercising any or all of the Company's rights
and remedies with respect to the collection, enforcement or
prosecution of, any or all of the Servicing Contracts and Servicing
Rights, in each case by legal proceedings or otherwise, (B)
settling, adjusting, compromising, extending, renewing, discharging
and releasing any or all of, and any legal proceedings brought to
collect or enforce any or all of, the Servicing Contracts and
Servicing Rights, (C) preparing, filing and signing the name of the
Company on (1) any proof of claim or similar document to be filed in
any bankruptcy or similar proceeding involving any account debtor
covered by the Servicing Contracts and/or Servicing Rights and (2)
any notice of lien, assignment or satisfaction of lien, or similar
document in connection with any Servicing Rights, and (D) using the
information recorded on or contained in any data processing
equipment and computer hardware and software relating to the
Servicing Contracts and Servicing Rights to which the Company has
access.
(v) The Agent may settle or adjust disputes and claims
directly with any owner of Mortgage Loans which are subject to
Servicing Contracts and/or Servicing Rights for amounts and on terms
that the Agent considers advisable and in all such cases only the
net amounts received by the Agent in payment of such amounts, after
deduction of out-of-pocket costs and expenses of collection,
including reasonable attorney's fees, shall be available for
application as provided in Section 4(e) hereof.
(d) The Company acknowledges that the Company and the Agent may from
time to time hereafter enter into agreements ("Acknowledgment Agreements")
in order to obtain consent to the assignment of any security interest
granted in the Servicing Contracts and Servicing Rights pursuant to
Section 2 hereof. The Company further acknowledges that the Acknowledgment
Agreements may contain certain provisions concerning the enforcement by
the Agent of its security interest hereunder in the Servicing Contracts
and Servicing Rights. The Company agrees that the disposition of its
rights in any Servicing Contract or Servicing Rights pursuant to the terms
of the applicable Acknowledgment Agreement shall be deemed commercially
reasonable within the meaning of Section 9-504(3) of the Uniform
Commercial Code. The Company hereby waives any claims it might otherwise
have against the Agent or the Secured Parties as a result of the Agent's
compliance with the terms of any Acknowledgment Agreement.
16
<PAGE>
(e) Any proceeds of any disposition of any of the Collateral,
including without limitation the appropriation or application of any and
all balances, credits, deposits, accounts or moneys received by the Agent,
shall be applied by the Agent as follows:
FIRST, ratably to the payment of the costs and expenses of the Agent
and the Secured Parties in connection with the enforcement of this
Security Agreement (including, without limitation, any costs or
expenses related to the sale or other disposition of the Collateral)
and the reasonable fees and out of pocket expenses of counsel
employed in connection therewith, to the payment of all costs and
expenses incurred by the Agent in connection with the administration
of this Agreement and to the payment of all advances made by the
Agent and the Secured Parties for the account of the Company
hereunder, to the extent that such costs, expenses and advances have
not been reimbursed to the Agent and the Secured Parties, as the
case may be;
SECOND, to the payment in full of the principal of and any Balances
Deficiency Fees, Usage Fees, facility fees and interest on the
Notes;
THIRD, to the payment of all other Obligations, as provided in the
Credit Agreement, as the Agent or the Lenders may determine;
FOURTH, to the payment in full of the Lease Obligations, as provided
in the Lease Agreements, or otherwise, in such order as the Lessor
may determine;
FIFTH, to the payment in full of the Subordinated Note Obligations
until all of the Subordinated Note Obligations have been paid in
full;
SIXTH, the balance (if any) of such proceeds shall be paid to the
Company, its successors or assigns, or as a court of competent
jurisdiction may direct; provided, that if such proceeds are not
sufficient to satisfy the Obligations, the Lease Obligations and the
Subordinated Note Obligations in full, the Company shall remain
liable to the Agent, the Lenders, the Lessor and the holder(s) of
the Subordinated Note, as applicable, for any deficiency.
The Company hereby agrees to pay all expenses incurred by the Agent or the
Secured Parties in the collection of the Collateral, including the reasonable
attorneys' fees incurred in connection therewith by the Agent or the Secured
Parties.
Section 6. MISCELLANEOUS.
17
<PAGE>
(a) Amendments and Modifications. No amendment to this Security
Agreement, waiver of any provision of this Security Agreement 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 Agent (with the consent of the Required Lenders, the Lessor and the
Subordinated Noteholder), and any such waiver or consent shall be
effective only in the specific instance and for the purpose for which
given.
(b) 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 (i) in
the case of the Agent or the Lenders, in the Credit Agreement, (ii) in the
case of the Company, in the Credit Agreement, (iii) in the case of the
Lessor, by the Lessor to the Company from time to time, and (iv) in the
case of the Subordinated Noteholder, in the Subordinated Loan Agreement.
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.
(c) Benefit of Agreement. This Security Agreement shall be binding
upon and inure to the benefit of the Company and the Agent and their
respective successors and assigns, and shall inure to the benefit of the
Secured Parties and their respective successors and assigns, except that
the Company may not assign or transfer any of its rights or obligations
under this Security Agreement without the prior written consent of the
Secured Parties.
(d) Waivers. No failure on the part of the Agent to exercise, and no
delay in exercising, any remedy, right, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of
any right, remedy, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, remedy, power
or privilege, and no waiver whatsoever shall be valid unless in writing
signed by the Agent and the Company and then only to the extent
specifically set forth in such writing.
(e) Remedies. All remedies, rights, power and privileges, either
under this Security Agreement, the other Loan Documents, by law or
otherwise, afforded the Agent or any Secured Party shall be cumulative and
not be exclusive of any remedies, rights, power and privileges provided by
law and shall be available until
18
<PAGE>
the Obligations, the Lease Obligations and the Subordinated Note
Obligations have been paid in full in lawful money of the United States of
America. The Agent may exercise all such remedies in any order of
priority.
(f) Care of Collateral. The Agent shall be deemed to have exercised
reasonable care in the custody and preservation of any of the Collateral
in its possession if it takes such action for that purpose as the Company
requests in writing, but failure of the Agent to comply with any such
request shall not of itself be deemed a failure to exercise reasonable
care, and no failure of the Agent to preserve or protect any rights with
respect to such Collateral against prior parties, or to do any act with
respect to the preservation of such Collateral not so requested by the
Company, shall be deemed a failure to exercise reasonable care in the
custody or preservation of such Collateral. The Agent shall also be deemed
to have exercised reasonable care in the custody and preservation of any
Collateral in its possession if such Collateral is accorded treatment
substantially equal to that which the Agent accords its own property of
like kind.
(g) Termination; Reinstatement. This Security Agreement shall
terminate when all of the Obligations, the Lease Obligations and the
Subordinated Note Obligations have been paid in full and the Commitments,
all Lease Agreements and the Subordinated Loan Agreements have been
terminated, at which time the Agent shall reassign, release and/or deliver
to the Company the Collateral and proceeds thereof in which the Agent
shall have an interest hereunder and upon request of the Company, shall
execute and deliver termination statements to the Company for filing in
each office in which a financing statement has been filed by the Agent,
all without recourse upon or warranty by the Agent or any Secured Party
and at the cost and expense of the Company; provided, however, this
Security Agreement shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Obligations, the
Lease Obligations or the Subordinated Note Obligations is rescinded or
must otherwise be returned by the Agent, any Secured Party or any other
Person upon the insolvency, bankruptcy, or reorganization of the Company
or otherwise, all as though such payment had not been made.
(h) Survival of Representations; Warranties and Covenants. All
representations, warranties and covenants made by the Company to the Agent
or any Secured Party in connection with this Security Agreement shall
survive the execution and delivery of this Security Agreement. All
statements contained in any certificate or other instrument delivered to
the Agent or any Secured Party pursuant to this Security Agreement shall
be deemed representations, warranties and covenants hereunder of the
Company.
19
<PAGE>
(i) Form of Reports, Schedules and Assignments. All reports,
schedules, assignments, certificates and other items delivered to the
Agent or any Secured Party pursuant to this Security Agreement or any
other statement, instrument or transaction contemplated hereby or relating
hereto and all endorsements in connection therewith, shall be executed by
an authorized representative of the Company and shall be in form and
substance satisfactory to the Agent.
(j) Governing Law; Construction; Consent to Jurisdiction; Waiver of
Trial by Jury.
(i) THIS SECURITY AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAW OF THE STATE OF MINNESOTA, WITHOUT
GIVING EFFECT TO THE CHOICE OF LAW PROVISIONS THEREOF BUT GIVING
EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
(ii) Whenever possible, each provision of this Security
Agreement and any other statement, instrument or transaction
contemplated hereby or relating hereto shall be interpreted in such
manner as to be effective and valid under such applicable law, but,
if any provision of this Security Agreement or any other statement,
instrument or transaction contemplated hereby or relating hereto
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 Security
Agreement or any other statement, instrument or transaction
contemplated hereby or relating hereto and shall not affect the
enforceability of such provision in any other jurisdiction. In the
event of any conflict within, between or among the provisions of
this Security Agreement or any other statement, instrument or
transaction contemplated hereby or relating hereto those provisions
giving the Agent and the Secured Parties the greater right shall
govern.
(iii) THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE
NON-EXCLUSIVE JURISDICTION AND VENUE OF ANY MINNESOTA STATE OR
FEDERAL COURT SITTING IN HENNEPIN OR RAMSEY COUNTIES, STATE OF
MINNESOTA, FOR ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING
TO THIS SECURITY AGREEMENT, AND THE COMPANY HEREBY
20
<PAGE>
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH MINNESOTA STATE COURT
OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT. THE
COMPANY HEREBY WAIVES PERSONAL SERVICE OF PROCESS AND CONSENTS THAT
SERVICE OF PROCESS UPON IT MAY BE MADE BY CERTIFIED OR REGISTERED
MAIL, RETURN RECEIPT REQUESTED, AT ITS ADDRESS SPECIFIED OR
DETERMINED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 6(a) OF THIS
SECURITY AGREEMENT, AND SERVICE SO MADE SHALL BE DEEMED COMPLETED ON
THE THIRD BUSINESS DAY AFTER SUCH SERVICE IS DEPOSITED IN THE MAIL.
NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT, ANY OTHER
SECURED PARTY OR ANY OTHER INDEMNIFIED PERSON TO SERVE PROCESS IN
ANY OTHER MANNER PERMITTED BY LAW.
(iv) THE COMPANY HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT
FORUM AND VENUE OBJECTIONS TO THE MAINTENANCE OF ANY SUCH ACTION OR
PROCEEDING. THE COMPANY AND THE AGENT HEREBY IRREVOCABLY WAIVE ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM
(WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS SECURITY AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY.
(k) Indemnification and Costs and Expenses. The Company will (a) pay
all reasonable out-of-pocket expenses, including, without limitation, any
recording or filing fees, fees of title insurance companies in connection
with records or filings, costs of mortgage insurance policies and
endorsements thereof and mortgage registration taxes (or any similar fees
or taxes), incurred by the Agent or any Secured Party in connection with
the enforcement and administration of this Security Agreement (whether or
not the transactions hereby contemplated shall be consummated), or the
enforcement of the rights of the Agent or any Secured Party in connection
with this Security Agreement, including, without limitation, the
reasonable fees and disbursements of counsel for the Agent and each
Secured Party; (b) pay, and hold the Agent and each Secured Party harmless
from and against, any and all present and future stamp and other similar
taxes with respect to the foregoing matters and save the Agent and each
Secured Party harmless from and against any and all liabilities with
respect to or resulting from any delay in
21
<PAGE>
paying or omission to pay such taxes; and (c) pay, and indemnify and hold
harmless the Agent and each Secured Party from and against, any and all
liabilities, obligations, losses, damages, penalties, judgments, suits,
costs, expenses and disbursements of any kind whatsoever (the "Indemnified
Liabilities") which may be imposed on, incurred by or asserted against
them in any way relating to or arising out of this Security Agreement or
any of the transactions contemplated hereby or thereby, WHETHER OR NOT THE
SAME ARE CAUSED BY THE SIMPLE NEGLIGENCE OF THE AGENT OR ANY SECURED
PARTY, unless the same are caused by the gross negligence or willful
misconduct of the Agent or such Secured Party, as the case may be. The
undertakings of the Company set forth in this Section 6(k) shall survive
the payment in full of the Obligations, the Lease Obligations, the
Subordinated Note Obligations, and the termination of this Security
Agreement, the Credit Agreement, the other Loan Documents, the Lease
Agreements and the Subordinated Note Agreement.
(l) Successor Collateral Agent. In the event a successor Agent is
appointed pursuant to the Credit Agreement, such successor Agent shall
also succeed to the duties and responsibilities of the Agent hereunder.
From and after the payment in full of all of the Obligations and the
termination of the Commitments, the Agent under the Credit Agreement at
the time of such payment and termination shall remain the Agent hereunder
until the Lease Obligations and the Subordinated Note Obligations have
been paid in full and all Lease Agreements and the Subordinated Note
Agreement have been terminated; provided, however, that if any Person
other than USBNA is the Agent hereunder at such time, USBNA may direct
that such Person resign as Agent and appoint USBNA as successor Agent
hereunder.
(m) No Commitment by Lessor or Subordinated Noteholder. Nothing in
this Security Agreement shall be construed as a commitment on the part of
the Lessor to lease any equipment or make any loan, or on the part of the
Subordinated Noteholder to extend any loan pursuant to the Subordinated
Loan Agreement or the Subordinated Note, to or for the account of the
Company or NCFC.
(n) Headings. Section headings in this Security Agreement are for
convenience of reference only, and shall not govern the interpretation of
any of the provisions of this Security Agreement.
(o) Execution in Counterparts. This Security Agreement may be
executed in any number of counterparts, all of which taken together shall
constitute one and the same instrument and either of the parties hereto
may execute this Security Agreement by signing any such counterpart.
22
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Security
Agreement to be executed on the date first above written.
NEW CENTURY MORTGAGE CORPORATION
By /s/ Patrick Flanagan
-----------------------------------
Its EVP/COO
----------------------------------
U.S. BANK NATIONAL ASSOCIATION,
as Agent
By /s/ Edwin Jenkins
-----------------------------------
Its
-------------------------------
[Signature Page to Amended and Restated Servicing Security Agreement]
<PAGE>
April 26, 2000
NC Capital Corporation
18400 Von Karman
Suite 1000
Irvine, CA 92612
Attention: Patrick Flanagan, President
NC Residual II Corporation
18400 Von Karman
Suite 1000
Irvine, CA 92612
Attention: Patrick Flanagan, President _______________
Salomon Smith Barney, Inc.
as Agent for Salomon Brothers International, Ltd.
390 Greenwich Street
New York, NY 10013
Attention: Matthew R. Bollo, Vice President
Re: Global Master Repurchase Agreements dated as of (a) December 11,
1998 between Salomon Smith Barney, Inc., as Agent for Salomon
Brothers International, Inc. ("Salomon") and NC Capital Corporation
("NCCC"), and (b) December 11, 1998 between Salomon and NC Residual
II Corporation ("NCRC")
Ladies and Gentlemen:
We refer to the above-referenced Global Master Repurchase Agreements (the
"Repurchase Agreements"), pursuant to which Salomon has purchased and may from
time to time hereafter purchase from NCCC and NCRC certain residual
mortgage-backed securities (the "Securities"), subject to the obligations of
NCCC and NCRC, respectively, to repurchase the Securities. Terms capitalized and
used herein without being defined will have the meanings given to them in the
Repurchase Agreements. NCCC and NCRC have each granted to U.S. Bank National
Association, as collateral agent for itself and certain other lenders (in such
capacity, the "Collateral Agent"), a security interest in the rights of NCCC and
NCRC under the Repurchase Agreements. Salomon has previously consented to such
security interest.
The Collateral Agent hereby requests that Salomon agree to the following
with respect to the Repurchase Agreements and the Securities:
1. Salomon will notify the Collateral Agent (at the address provided
below) of any default by NCCC or NCRC under the Repurchase Agreements in
the same manner and at the same time Salomon notifies NCCC or NCRC
thereunder.
2. The Collateral Agent will have the same rights as NCCC and NCRC
to
<PAGE>
______________, 2000
Page 2
cure any defaults under the Repurchase Agreements, and the right to
purchase the Securities from Salomon at the Repurchase Price, at any time
before Salomon exercises its remedies with respect to the Securities under
the Repurchase Agreements; provided, that the Collateral Agent shall have
no obligation to cure any default or purchase any Securities. In addition,
the Collateral Agent will have the right to purchase the Securities from
Salomon after Salomon exercises remedies with respect to the Securities,
for a period of 14 calendar days after Salomon notifies the Collateral
Agent of its exercise of remedies, for the Repurchase Price (including
interest to the date of purchase by the Collateral Agent). Once Salomon
has obtained an offer for the Securities (including, without limitation,
for any securities backed by the Securities), for a period of 3 business
days after Salomon notifies the Collateral Agent of such offer, the
Collateral Agent will have a "right-of-first refusal" with respect to such
Securities at a price equal to the greater of (A) the Repurchase Price
(plus interest to the date of such purchase), or (B) the amount of the
offer received for the Securities (including the fair market value, as
reasonably determined by Salomon, of any interest in the Securities to be
retained in connection with a sale of securities backed by the
Securities). Upon any purchase of the Securities by the Collateral Agent
pursuant to this agreement, as between NCCC or NCRC, on the one hand, and
the Collateral Agent, on the other hand, such Securities shall be owned by
NCCC or NCRC, as applicable, subject to the Collateral Agent"s security
interest therein as set forth in the applicable security agreement between
NCCC and NCRC, as debtors, and the Collateral Agent, as secured party.
3. If at any time following the exercise by Salomon of its remedies
with respect to the Securities there is any amount payable to NCCC or NCRC
under the Repurchase Agreements, such amounts shall be paid to the
Collateral Agent by wire transfer of immediately available funds to:
U.S. Bank National Association
U.S. Bank Place
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
ABA Routing Number 091000022
Account Number: 1731-0097-1378
4. If at any time Salomon receives the Repurchase Price with respect
to any of the Securities, unless Salomon purchases such Securities again
on the same day in a new Transaction, Salomon will deliver to the
Collateral Agent at the address set forth below, such Securities, together
with any assignment documentation required to transfer record ownership of
such Securities, duly executed in blank.
5. Salomon is under no obligation to violate any applicable law
(including, without limitation, 11 U.S.C. ss. 362) or order of any court
of competent jurisdiction with
<PAGE>
______________, 2000
Page 3
respect to the Securities or the proceeds thereof. In the event NCCC, NCRC
or any other person or entity seeks to recover from Salomon any Securities
or proceeds delivered to the Collateral Agent pursuant to paragraphs 3 or
4 hereof, Salomon shall notify the Collateral Agent thereof and permit the
Collateral Agent to assume the defense thereof. Provided that Salomon has
complied with the foregoing sentence, the Collateral Agent will reimburse
Salomon for any amount recovered from Salomon with respect to the
Securities or the proceeds thereof.
6. Salomon confirms to the Collateral Agent that it has not received
notice of any other security interests in or encumbrances on the
Repurchase Agreements or the Collateral, and agrees to notify the
Collateral Agent within two (2) Business Days after it receives notice of
any such security interest or encumbrance.
Except as set forth above, Salomon will have no other obligation to the
Collateral Agent with respect to the Repurchase Agreements or the Securities.
NCCC and NCRC agree that this letter in no way limits Salomon's rights under the
Repurchase Agreements. NCCC and NCRC, by their acknowledgment hereof, hereby
consent to Salomon's compliance with the provisions set forth above.
<PAGE>
______________, 2000
Page 4
Please indicate your agreement to the foregoing by acknowledging this
letter in the space provided below.
Very truly yours,
U.S. BANK NATIONAL ASSOCIATION
By /s/ Edwin Jenkins
--------------------------------------
Its
-------------------------------------
Address: U.S. Bank National Association
U.S. Bank Place - MPFP0508
601 Second Avenue South
Minneapolis, Minnesota 55402
Attention: Mr. Edwin D. Jenkins
Facsimile: (612) 973-0826
Acknowledged and Agreed to this _____
day of _______________, 2000
NC CAPITAL CORPORATION
By /s/ Patrick Flanagan
---------------------------------
Its President
--------------------------------
NCRC RESIDUAL II CORPORATION
By /s/ Patrick Flanagan
---------------------------------
Its President
--------------------------------
SALOMON SMITH BARNEY, INC.,
as Agent for Salomon Brothers International, Ltd.
By /s/ [ILLEGIBLE]
---------------------------------
Its
--------------------------------
<PAGE>
================================================================================
MASTER LOAN AND SECURITY AGREEMENT
---------------------------
Dated as of April 1, 2000
---------------------------
NEW CENTURY MORTGAGE CORPORATION
as Servicer
NC CAPITAL CORPORATION
as Borrower
and
SALOMON BROTHERS REALTY CORP.
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
Section 1. Definitions and Accounting Matters ............................ 1
1.01 Certain Defined Terms ................................. 1
1.02 Accounting Terms and Determinations ................... 12
Section 2. Advances, Note and Prepayments ................................ 12
2.01 Advances .............................................. 12
2.02 Notes ................................................. 12
2.03 Procedure for Borrowing ............................... 13
2.04 Limitation on Types of Advances; Illegality ........... 13
2.05 Repayment of Advances; Interest ....................... 14
2.06 Mandatory Prepayments or Pledge ....................... 14
2.07 Optional Prepayments .................................. 15
2.08 Requirements of Law ................................... 15
2.09 Extension ............................................. 16
2.10 Reserved .............................................. 17
Section 3. Payments; Computations; Taxes; Fees ........................... 17
3.01 Payments .............................................. 17
3.02 Computations .......................................... 17
3.03 U.S. Taxes ............................................ 17
3.04 Additional Fees and Payments to Lender ................ 18
Section 4. Collateral Security ........................................... 18
4.01 Collateral; Security Interest ......................... 18
4.02 Further Documentation ................................. 20
4.03 Changes in Locations, Name, etc. ...................... 20
4.04 Lender's Appointment as Attorney-in-Fact .............. 20
4.05 Performance by Lender of Borrower's Obligations ....... 21
4.06 Proceeds .............................................. 22
4.07 Remedies .............................................. 22
4.08 Limitation on Duties Regarding Presentation of
Collateral ............................................ 23
4.09 Powers Coupled with an Interest ....................... 23
4.10 Release of Security Interest .......................... 23
4.11 REO Subsidiary; Formation; REO Property
Representations and Warranties ........................ 23
Section 5. Conditions Precedent .......................................... 24
5.01 Initial Advance ....................................... 24
5.02 Initial and Subsequent Advances ....................... 26
Section 6. Representations and Warranties ................................ 28
6.01 Existence ............................................. 28
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<PAGE>
6.02 Reserved .............................................. 28
6.03 Litigation ............................................ 28
6.04 No Breach ............................................. 28
6.05 Action ................................................ 29
6.06 Approvals ............................................. 29
6.07 Margin Regulations .................................... 29
6.08 Taxes ................................................. 29
6.09 Investment Company Act ................................ 29
6.10 No Legal Bar .......................................... 29
6.11 No Default ............................................ 29
6.12 Collateral; Collateral Security ....................... 30
6.13 Chief Executive Office; Chief Operating Office ........ 30
6.14 Location of Books and Records ......................... 30
6.15 True and Complete Disclosure .......................... 31
6.16 Reserved .............................................. 31
6.17 ERISA ................................................. 31
6.18 Licenses .............................................. 31
6.19 True Sales ............................................ 31
6.20 No Burdensome Restrictions ............................ 31
6.21 Reserved .............................................. 31
6.22 Acquisition of Mortgage Loans ......................... 31
6.23 No Adverse Selection .................................. 32
6.24 Borrower Solvent; Fraudulent Conveyance ............... 32
Section 7. Covenants of the Borrower ..................................... 32
7.01 Financial Statements .................................. 32
7.02 Litigation ............................................ 34
7.03 Existence, Etc. ....................................... 34
7.04 Prohibition of Fundamental Changes .................... 35
7.05 Borrowing Base Deficiency ............................. 35
7.06 Notices ............................................... 36
7.07 Servicing ............................................. 36
7.08 Servicer Reports; Management of Assets ................ 36
7.09 True and Complete Disclosure .......................... 37
7.10 Lines of Business ..................................... 37
7.11 Transactions with Affiliates .......................... 37
7.12 Reserved .............................................. 37
7.13 Limitation on Liens ................................... 37
7.14 Limitation on Sale of Assets .......................... 37
7.15 Plans and Multiemployer Plans ......................... 37
7.16 Reserved .............................................. 37
7.17 Reserved .............................................. 37
7.18 Reserved .............................................. 37
7.19 Restricted Payments ................................... 37
7.20 Reserved .............................................. 38
7.21 No Amendment or Waiver ................................ 38
-iii-
<PAGE>
7.22 Maintenance of Property; Insurance .................... 38
7.23 Further Identification of Collateral .................. 38
7.24 Mortgage Loan or REO Property Determined to be
Defective ............................................. 38
7.25 Reserved .............................................. 38
7.26 Reserved .............................................. 38
7.27 Special Purpose Entity ................................ 38
7.28 Broker's Price Opinions ............................... 39
Section 8. Events of Default ............................................. 40
Section 9. Remedies Upon Default ......................................... 42
Section 10. No Duty on Lender's Part ...................................... 43
Section 11. Miscellaneous ................................................. 43
11.01 Waiver ................................................ 43
11.02 Notices ............................................... 43
11.03 Indemnification and Expenses .......................... 43
11.04 Amendments ............................................ 44
11.05 Successors and Assigns ................................ 44
11.06 Survival .............................................. 44
11.07 Captions .............................................. 44
11.08 Counterparts .......................................... 45
11.09 Loan Agreement Constitutes Security Agreement;
Governing Law ......................................... 45
11.10 SUBMISSION TO JURISDICTION; WAIVERS ................... 45
11.11 WAIVER OF JURY TRIAL .................................. 45
11.12 Acknowledgments ....................................... 46
11.13 Hypothecation or Pledge of Collateral ................. 46
11.14 Assignments; Participations ........................... 46
11.15 Servicing ............................................. 47
11.16 Periodic Due Diligence Review ......................... 48
11.17 Set-Off ............................................... 49
Section 12. Limitations on Liability ...................................... 49
12.01 Limitation on Liability ............................... 49
12.02 Limitation on Liability of Lender's Officer's,
Employees, Etc. ....................................... 50
12.03 Reserved .............................................. 50
12.04 Conflict of Terms ..................................... 50
12.05 New Century ........................................... 50
-iv-
<PAGE>
SCHEDULES
SCHEDULE 1 Representations and Warranties re: Mortgage Loans
SCHEDULE 2 Filing Jurisdictions and Offices
SCHEDULE 3 Representations and Warranties re: REO Properties
EXHIBITS
EXHIBIT A Form of Promissory Note
EXHIBIT B Form of Custodial Agreement
EXHIBIT C Form of Opinion of Counsel to the Borrower
EXHIBIT D Form of Notice of Borrowing and Pledge
EXHIBIT E [Reserved]
EXHIBIT F Required Fields for Servicing Transmission
EXHIBIT G Required Fields for Asset Data Transmission
EXHIBIT H [Reserved]
EXHIBIT I Form of REO Subsidiary Pledge Agreement
-v-
<PAGE>
MASTER LOAN AND SECURITY AGREEMENT
MASTER LOAN AND SECURITY AGREEMENT, dated as of April 1, 2000, among
NC Capital Corporation, a California corporation (the "Borrower"), New Century
Mortgage Corporation (the "Servicer") and Salomon Brothers Realty Corp., a New
York corporation (the "Lender").
RECITALS
The Borrower wishes to obtain financing from time to time.
The Lender has agreed, subject to the terms and conditions of this
Loan Agreement (as defined herein), to provide such financing to the Borrower 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" the servicing standards set forth in
Section 3.01 of the Pooling and Servicing Agreement.
"Advance" shall have the meaning specified in Section 2.01(a)
hereof.
"Affiliate" means with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect to
any specified Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Aggregation Facility" means the Letter Agreement, dated as of April
1, 2000, among the Lender, Salomon Smith Barney Inc., the Borrower and the
Servicer.
"ALTA" means the American Land Title Association.
"Applicable Percentage" means the following percentages:
- --------------------------------------------------------------------------------
Principal Balance of Mortgage Loan
or value of REO Property or the BPO Value Applicable Percentage
- ----------------------------------------- ---------------------
- --------------------------------------------------------------------------------
$50,000.00 or less 25%
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
$50,000.01 to $75,000.00 50%
- --------------------------------------------------------------------------------
$75,000.01 or greater 65%
- --------------------------------------------------------------------------------
"Asset Data Transmission" shall mean a computer-readable magnetic or
other electronic format incorporating the fields identified on Exhibit G.
"Asset File" shall have the meaning assigned thereto in the
Custodial Agreement.
"Asset Schedule" shall mean the hard copy report provided by the
Borrower which shall include (a) with respect to each Mortgage Loan to be
included as Collateral: (i) the Mortgage Loan number, (ii) the Mortgagor's last
name, (iii) the original principal amount of the Mortgage Loan, and (iv) the
current principal balance of the Mortgage Loan, and (b) with respect to each REO
Property, the street address of the REO Property.
"Assignment of Mortgage" shall mean, with respect to any Mortgage,
an assignment of the Mortgage, notice of transfer or equivalent instrument in
blank or in recordable form (excepting therefrom mortgage recordation
information that has not yet been returned by the applicable recorder's office),
sufficient under the laws of the jurisdiction wherein the related Mortgaged
Property is located to reflect the assignment and pledge of the Mortgage.
"Available Proceeds" shall mean, as of each Payment Date, the amount
available in the Collection Account for distribution to Borrower after
distribution of amounts required by Section 11.15(c)(ii) and after
reconciliation for chargebacks and other items; provided, however, that
Available Proceeds for any Payment Date shall not include any amounts in the
Collection Account received after the last day of the related Collection Period.
"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 (i)
all Mortgage Loans that have been, and remain, pledged to the Lender hereunder
and (ii) any REO Property then owned by an REO Subsidiary.
"Borrowing Base Certificate" shall mean a certificate prepared by
the Lender setting forth the Borrowing Base and the aggregate outstanding
principal amount of Advances.
"Borrowing Base Deficiency" shall have the meaning provided in
Section 2.06 hereof.
"BPO" shall mean, with respect to a Mortgage Loan or REO Property, a
broker's price opinion prepared by a duly licensed real estate broker who has no
interest, direct or indirect, in the Mortgage Loan or REO Property or in the
Borrower or any Affiliate or REO Subsidiary of the Borrower and whose
compensation is not affected by the results of the broker's price opinion and
which valuation indicates the expected proceeds for a sale of the related
Mortgaged Property or REO
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Property and, with respect to any condominium development or planned unit
development that was not Fannie Mae or Freddie Mac approved, the amount, if any,
by which the valuation was decreased as a result of such lack of approval, and
includes certain assumptions, including those as to the condition of the
interior of the applicable Mortgaged Property or REO Property and marketing
time.
"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 Servicer 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.
"Change of Control" means 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 and Exchange Commission under 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 stock or (ii) the
existing shareholders of the Borrower 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 assigned to such term in Section
4.01(b) hereof.
"Collateral Value" shall mean:
(a) (I) with respect to any Mortgage Loan which, in the Lender's sole
discretion, is of insufficient quality to be purchased pursuant to the terms of
the Aggregation Facility or (II) with respect to any Mortgage Loan which is
missing documentation or other information and such problem is not cured by the
Borrower in sixty days, an amount equal to (A) for the first ninety-day period
after such Mortgage Loan becomes subject to the terms of this Agreement, 90% of
the unpaid principal balance of the Mortgage Loan as of such date and (B)
thereafter, 90% of the unpaid principal balance of the Mortgage Loan, minus an
additional 10% of the unpaid principal balance of such Mortgage Loan for each
additional month after the initial ninety-day period;
(b) with respect to any Mortgage Loan which was more than thirty days but
less than sixty days delinquent on more than one occasion in the prior twelve
months and is now current, an amount equal to (A) 95% of the unpaid principal
balance of the Mortgage Loan as of the date such Mortgage Loan becomes subject
to the terms of this Agreement, if such Mortgage Loan has been more than thirty
days delinquent but less than sixty days delinquent on two occasions in the
prior twelve months; (B) 90% of the unpaid principal balance of the Mortgage
Loan as of the date such Mortgage Loan becomes subject to the terms of this
Agreement, if such Mortgage Loan has been sixty days
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delinquent on one occasion in the prior twelve months and (C) 85% of the unpaid
principal balance of the Mortgage Loan, if such Mortgage Loan does not meet the
requirements set forth in (A) or (B) above; or
(c) (I) with respect to each Mortgage Loan that is delinquent one Monthly
Payment or delinquent two Monthly Payments, an amount equal to the lesser of (i)
the Market Value and (ii) 90% of the unpaid principal balance of such Mortgage
Loan; (II) with respect to each Mortgage Loan that is delinquent three Monthly
Payments, the lesser of (i) the Market Value and (ii) 80% of the unpaid
principal balance of such Mortgage Loan; (III) for a maximum of $25,000,000 in
Mortgage Loans and REO Properties, with respect to each Mortgage Loan that is
delinquent four or more Monthly Payments or with respect to each REO Property,
the least of (i) the Market Value, (ii) the Applicable Percentage of the unpaid
principal balance of such Mortgage Loan (or with respect to an REO Property, the
related Mortgage Loan immediately prior to foreclosure) and (iii) the Applicable
Percentage of the most recent BPO; provided, that, the Collateral Value shall be
deemed to be zero:
(1) with respect to any Mortgage Loan or REO Property, there is a
material breach of a representation and warranty set forth on
Schedule 1 or Schedule 3, as applicable (assuming each
representation and warranty is made as of the date Collateral Value
is determined);
(2) if any Mortgage Loan or REO Property has been released from the
possession of the Custodian under Section 5(a) of the Custodial
Agreement to the Borrower or its bailee for a period in excess of
ten (10) Business Days;
(3) if any Mortgage Loan or REO Property 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;
(4) (a) if 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 (b) if such Mortgage is not a
valid, subsisting, enforceable and perfected first lien on the
Mortgaged Property; or
(5) with respect to any Mortgage Loan or REO Property whose
Collateral Value has been determined pursuant to (c)(III) of this
definition for greater than 90 days.
"Collection Account" shall mean the account established by the
Servicer in accordance with the terms and provisions of the Pooling and
Servicing Agreement with the Custodian, except that such account is subject to a
security interest in favor of the Lender and into which all Collections shall be
deposited.
"Collection Period" shall mean, with respect to each Payment Date,
the immediately preceding calendar month (or in the case of the first Payment
Date following the date as of which any
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Eligible Asset is funded under this Agreement, the period from and including the
Funding Date through the end of the calendar month in which the Funding Date
occurs).
"Collections" shall mean, collectively, all Principal Collections,
all Interest Collections, all Operation Proceeds, all Sale Proceeds and Other
Collections.
"Contractual Obligation" shall mean as to any Person, any material
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 material
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, its
successors and permitted assigns.
"Custodian Asset Transmission" shall have the meaning assigned
thereto in the Custodial Agreement.
"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.
"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.
"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, the REO Properties or the Borrower, any REO
Subsidiary or the Servicer, 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 Asset" shall mean a Mortgage Loan which is secured by a
first mortgage lien on a one-to-four family residential property or an REO
Property and as to which (i) the representations and warranties in Section 6.12
and Schedule 1 (or, in the case of an REO Property, the representations and
warranties in Schedule 3) hereof are correct, (ii) the related Asset File
contains all required Mortgage Loan Documents without Material Exceptions unless
otherwise waived by the Lender and (iii) 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.
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<PAGE>
"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 the Borrower 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 the Borrower is a member.
"Event of Default" shall have the meaning provided in Section 8
hereof.
"Exception Report" shall mean the exception report prepared by the
Custodian pursuant to the Custodial Agreement.
"Existing Financing Documents" shall mean the Greenwich Capital
Financing Documents, the PaineWebber Financing Documents and the U.S. Bank
Financing Documents.
"Fannie Mae" means Fannie Mae, formerly known as the Federal
National Mortgage Association, or any successor thereto.
"Freddie Mac" means Freddie Mac, formerly known as the Federal Home
Loan Mortgage Corporation, or any successor thereto.
"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 the Borrower,
any REO Subsidiaries or any of their properties.
"Greenwich Capital Financing Documents" shall mean (i) the Master
Loan and Security Agreement, dated as of June 23, 1999, by and between the
Borrower and Greenwich Capital Financial Products, Inc. ("GCFP"), as amended as
of October 23, 1999, (ii) the Residual Financing Facility Agreement, dated as of
June 23, 1999, by and between the Borrower and GCFP, (iii) the Custodial
Agreement, dated as of June 23, 1999 by and among the Borrower, U.S. Bank
National Association and GCFP, (iv) the Affiliate Guaranty, dated as of June 23,
1999, made by the Servicer and New Century Financial Corporation in favor of
GCFP and (v) all other documents or agreements executed in connection therewith,
or replacement facilities or extensions thereof with substantially similar
terms.
"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
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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.
"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 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; (i) Indebtedness of general partnerships of which such Person is
a general partner; and (j) any other indebtedness of such Person evidenced by a
note, bond, debenture or similar instrument.
"Insurance Proceeds" means with respect to each Mortgage Loan,
proceeds of insurance policies insuring the Mortgage Loan or the related
Mortgaged Property.
"Interest Collections" shall mean collections on the Mortgage Loans
attributable to interest paid thereon.
"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 Maturity Date.
"Junior Securitization Interests" shall mean a mortgage-backed
security created in a securitization transaction that represents a subordinated
right to receive principal or interest payments on the mortgage loans underlying
such securitization (whether or not such subordination arises only under
particular circumstances).
"Lender" shall have the meaning assigned thereto in the heading
hereto.
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"LIBO Base Rate" shall mean with respect to any Interest Period, the
rate per annum equal to the rate appearing at page 3750 of the Telerate Screen
as one-month LIBOR at or about 11:00 A.M., eastern time, on the second Business
Day preceding 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., eastern time, on such date by prime banks in the interbank eurodollar
market where the eurodollar and foreign currency and 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 Interest Period
pertaining to an Advance, a rate per annum equal to the LIBO Base Rate plus 200
basis points (rounded upwards to the nearest 0.0625%).
"Lien" shall mean any mortgage, lien, pledge, charge, security
interest or similar encumbrance.
"Loan Agreement" shall mean this Master Loan and Security Agreement,
as such agreement may be amended, supplemented or otherwise modified from time
to time as mutually agreed by the parties in writing.
"Loan Documents" shall mean, collectively, this Loan Agreement, the
Note, any REO Subsidiary Pledge Agreement and the Custodial Agreement.
"Market Value" shall mean the market value as determined by the
Lender in its sole discretion.
"Material Adverse Effect" shall mean a material adverse effect on
(a) the property, business, operations, financial condition or prospects of the
Borrower, (b) the ability of the Borrower to perform in all material respects
its obligations under any of the Loan Documents to which it is a party, (c) the
validity or enforceability in all material respects 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
(other than changes in Market Value due to market conditions).
"Material Exception" shall have the meaning assigned thereto in the
Custodial Agreement.
"Maturity Date" shall mean March 31, 2001, 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 $25,000,000.
"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.
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"Mortgage" shall mean the mortgage, deed of trust or other
instrument creating a first lien on, or first priority security interest in, a
Mortgaged Property securing a Mortgage Note.
"Mortgage 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 (together with any
related prepayment charges and the related servicing rights) 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, the
related Mortgage and all other Mortgage Loan Documents 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 Asset File for such Mortgage Loan.
"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" means the real property (including all
improvements, buildings and fixtures 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.
"Mortgagee" means either the Borrower or any subsequent holder of a
Mortgage Loan.
"Mortgagor" means 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 the Borrower or any ERISA Affiliate and that is covered by Title IV of
ERISA.
"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 assigned to
such term in Section 2.03(a).
"Operation Proceeds" shall mean collections of rent and other
amounts realized from the operation of REO Property.
"Other Collections" shall mean all collections and proceeds on or in
respect of the Mortgage Loans or REO Properties (other than Principal
Collections, Interest Collections, Operation Proceeds and Sale Proceeds) and
excluding collections required to be paid to a Mortgagor on the Mortgage Loans
or held for the Mortgagor, whether or not in escrow, including, without
limitation, collections for taxes and insurance.
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"PaineWebber Financing Documents" shall mean (i) the Master Loan and
Security Agreement, dated as of July 20, 1999, by and among the Borrower, the
Servicer and PaineWebber Real Estate Securities, Inc. ("PaineWebber"), as
amended as of September 30, 1999, (ii) the Custodial Agreement dated as of July
20, 1999, by and among the Borrower, the Servicer, U.S. Bank National
Association and PaineWebber, and (iii) all other documents or agreements
executed in connection therewith, or replacement facilities or extensions
thereof with substantially similar terms.
"Payment Date" shall mean the thirtieth (30th) 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 Liens" shall mean (i) those Liens that existed on an REO
Property as of the Funding Date; (ii) any taxes, assessments or governmental
charges on any of the REO Properties which the Servicer has not advanced because
the Servicer has determined, in accordance with Accepted Servicing Practices
that any advance of such charges would not be likely recoverable from the sale
of such REO Property; (iii) any obligation to cure existing violations under
environmental laws with regard to REO Properties which the Servicer has not
advanced because the Servicer has determined, in accordance with Accepted
Servicing Practices and the terms and conditions of the Pooling and Servicing
Agreement, that any advance on such obligations would not be likely recoverable
from the sale of such REO Property; and (iv) any Liens granted by Borrower in
favor of Lender.
"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 the Borrower or any ERISA Affiliate and that is covered by Title
IV of ERISA, other than a Multiemployer Plan.
"Pooling and Servicing Agreement" shall mean the Pooling and
Servicing Agreement, Series 1999-NC5 dated as of December 1, 1999 among U.S.
Bank National Association, Salomon Brothers Mortgage Securities VII, Inc. and
the Servicer, as the same may be amended, supplemented or otherwise modified and
in effect from time to time.
"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 (other than the Custodial Agreement) that is not paid when due to
the Lender (whether at stated maturity, by acceleration 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%
per annum, plus (i) the interest rate otherwise applicable to such Advance or
other amount, or (ii) if no interest rate is otherwise applicable, the LIBO
Rate.
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"Principal Collections" shall mean collections on the Mortgage Loans
attributable to principal payments thereon.
"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, the Servicer or
any of their affiliates and (b) any other originator of Mortgage Loans;
provided, however, the Lender shall have the right to reject an originator (in
its reasonable discretion) by delivering written notice to the Borrower 15 days
prior to ceasing to accept Collateral originated by such person.
"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.
"Reimbursable Expenses" shall mean (x) all costs and expenses
reasonably incurred in the ordinary course of business consistent with Accepted
Servicing Practices to preserve, protect, maintain or secure the Eligible Assets
or otherwise reasonably incurred in the course of the Servicer's performance of
its services under this Agreement to the extent related to such Eligible Assets
(other than the Servicer's overhead expenses), or similar costs incurred
directly by the Borrower in connection with the Eligible Assets and (y) any
other costs and expenses otherwise authorized in writing by the Borrower and
approved in writing by the Lender. Reimbursable Expenses specifically excludes
any servicing advances outstanding by the Servicer or any other servicer prior
to the date of this Agreement.
"REO Property" shall mean any Mortgaged Property (together with the
related servicing rights) the title to which has been acquired by an REO
Subsidiary by foreclosure, deed-in-lieu of foreclosure or similar means, in each
case together with all buildings, fixtures and improvements thereon and all
other rights, benefits and proceeds arising from and in connection with such REO
Property.
"REO Subsidiary" shall have the meaning assigned to such term in
Section 4.11 hereof.
"REO Subsidiary Pledge Agreement" shall mean a pledge agreement made
by the Borrower in favor of the Lender, substantially in the form of Exhibit I
hereto, as the same may be amended, supplemented or otherwise modified from time
to time.
"REO Subsidiary Pledged Stock" shall mean all capital stock or other
equity interests of any REO Subsidiary, which capital stock or interests (x)
evidence the Borrower's 100% equity ownership interest in such REO Subsidiary,
together with all stocks, certificates, options or rights of any nature
whatsoever that may be issued or granted by such REO Subsidiary to the Borrower
while this Loan Agreement is in effect and (y) are pledged to the Lender
pursuant to an REO Subsidiary Pledge Agreement.
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"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.
"Required Documents" shall mean those documents identified in
Section 2(I) of the Custodial Agreement.
"Residual Finance Subsidiaries" shall mean any wholly-owned
Subsidiary of the Borrower 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.
"Responsible Officer" shall mean, as to any Person, the chief
operating officer, the chief executive officer, the chief financial officer and
any executive vice president or senior vice president of such Person and, with
respect to the Borrower and any REO Subsidiary, any other Person designated as a
responsible officer by the Borrower or such REO Subsidiary (including any
manager) to the Lender; 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 by a certificate of corporate resolution.
"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.
"Sale Proceeds" shall mean (i) any proceeds of any sales,
liquidations, transfers or dispositions of any Mortgage Loan, net of reasonable
costs, including reasonable attorneys' fees, and (ii) any proceeds of any sales,
liquidations, dispositions, condemnations, casualty insurance and other amounts
from any disposition, taking, damage or destruction of all or any portion of any
Mortgaged Property or REO Property, net of reasonable costs of closing,
including but not limited to brokerage commissions, make-ready expenses, title
insurance, financing costs, recording fees, transfer taxes, tax certificates,
title and closing agent fees and pro-rated items; provided, however, that with
respect to the foreclosure of any Mortgaged Property that is acquired by an REO
Subsidiary, Sale Proceeds shall not include any proceeds of such foreclosure
sale if the entire amount of such proceeds were advanced to such REO Subsidiary
by an Affiliate of such REO Subsidiary to enable such REO Subsidiary to acquire
such Mortgaged Property.
"Secured Obligations" shall have the meaning assigned thereto in
Section 4.01(c) hereof.
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"Servicing Records" shall have the meaning assigned thereto in
Section 11.15(b) hereof.
"Servicing Transmission" shall mean a computer-readable magnetic or
other electronic format acceptable to the parties containing the information
identified on Exhibit F.
"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.
"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 the
Servicer and U.S. Bank National Association ("U.S. Bank"), as amended August 31,
1999 and October 14, 1999, (ii) the Pledge and Security Agreement, dated as of
May 29, 1998, by and between the Servicer and U.S. Bank, as amended, (iii) the
Servicing Security Agreement, dated as of May 29, 1998, between the Servicer and
U.S. Bank, (iv) the Guaranty dated December 11, 1998 by the Borrower in favor of
U.S. Bank, (v) the Security Agreement, dated as of February 17, 2000, by and
among the Borrower, NC Residual II Corporation and U.S. Bank and (vi) all other
documents or agreements executed in connection therewith, or replacement
facilities or extensions thereof with substantially similar terms.
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 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, from time to time, on the terms
and conditions of this Loan Agreement, to make loans
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(individually, an "Advance"; collectively, the "Advances") to the Borrower in
immediately available funds, on any Business Day from and including the
Effective Date to but excluding the Maturity Date in an aggregate principal
amount at any one time outstanding up to but not exceeding the lesser of (i) the
Maximum Credit and (ii) the Borrowing Base as in effect from time to time.
(b) Subject to the terms and conditions of this Loan Agreement,
during such period the Borrower may borrow, repay and reborrow hereunder.
(c) In no event shall an Advance be made when any Default or Event
of Default has occurred and is continuing.
(d) The minimum amount of any Advance made by the Lender hereunder
shall be $500,000.
(e) The Lender shall not be obligated to make more than four
Advances in any one calendar month.
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 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 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, noted by the Lender on the grid attached to the Note or any
continuation thereof; provided, that the failure of the Lender to make any such
recordation or notation 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 outstanding Advances.
2.03 Procedure for Borrowing.
(a) Borrowing Procedure for Requesting an Advance. The Borrower may
request a borrowing to be secured by any Eligible Assets hereunder, on any
Business Day during the period from and including the Effective Date to but
excluding the Maturity Date, by delivering to the Lender, with a copy to the
Custodian, an Asset Data Transmission and an irrevocable Notice of Borrowing and
Pledge substantially in the form of Exhibit D hereto (a "Notice of Borrowing and
Pledge"), appropriately completed, which must be received no later than three
(3) Business Days prior to the requested Funding Date. Such Notice of Borrowing
and Pledge shall include an Asset Schedule in respect of the Eligible Assets
that the Borrower proposes to pledge to the Lender and to be included in the
Borrowing Base in connection with such borrowing.
(b) Pursuant to the Custodial Agreement, the Custodian shall review
any Required Documents delivered prior to 12:00 p.m. (eastern time) on the
second Business Day prior to the
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requested Funding Date in time to include the related Mortgage Loans and REO
Properties in the Borrowing Base determination for such Funding Date. Not later
than 1:00 p.m. (eastern time) on the Business Day prior to each Funding Date,
the Custodian shall deliver to the Lender, via electronic transmission
acceptable to the Lender, the Custodian Asset Transmission and an Exception
Report showing the status of all Mortgage Loans and REO Properties then held by
the Custodian, including but not limited to the Mortgage Loans and REO
Properties which are subject to document exceptions, and the time the related
Mortgage Loan Documents have been released pursuant to Section 5(a) or 5(b) of
the Custodial Agreement. In addition, the Custodian shall deliver to the Lender
no later than 1:00 p.m. (eastern time) by facsimile transmission on the Business
Day prior to each Funding Date, one or more Trust Receipts (as defined in the
Custodial Agreement) relating to the Mortgage Loans and REO Properties. The
original copies of such Trust Receipts shall be delivered to Mr. Gerald
Mullooly, Salomon Brothers Realty Corp., 333 West 34th Street, 4th Floor, New
York, New York 10001 (telephone number (212) 615-7725) by overnight delivery
using a nationally recognized insured overnight delivery service for receipt on
each Funding Date.
(c) Upon the Borrower's request for a borrowing pursuant to Section
2.03(a) above, the Lender shall, assuming all conditions precedent set forth in
this Section 2.03 and in Sections 5.01 and 5.02 have been met, and provided no
Default shall have occurred and be continuing (in accordance with Section 2.01),
not later than 1:00 p.m. (eastern time) on the requested Funding Date make an
Advance in an amount (determined by the Lender) which would not cause the
aggregate amount of Advances then outstanding to exceed the lesser of (i) the
Maximum Credit or (ii) the Borrowing Base shown on the latest Borrowing Base
Certificate of the Lender. Subject to the foregoing, such borrowing will be made
available to the Borrower by the Lender transferring, via wire transfer
(pursuant to wire transfer instructions provided by the Borrower in the related
Notice of Borrowing and Pledge), in the aggregate amount of such borrowing in
funds immediately available to the Borrower.
2.04 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) 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
such Advances or pay interest on such Advances at a rate per annum as determined
by the Lender taking into account the increased cost, if any, to the Lender of
making the Advances.
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2.05 Repayment of Advances; Interest.
(a) The entire unpaid principal amount of all Advances, together
with all accrued and unpaid interest thereon, if not previously paid, shall be
due and payable to the Lender on the Maturity Date.
(b) No later than the Business Day prior to each Payment Date, the
Lender shall provide to the Borrower a report which shall state the interest
amount due for the current Interest Period on the Advances and the amount of any
mandatory principal prepayment pursuant to Section 2.06. The calculation on such
report shall be based upon information provided in the most recent Servicing
Transmission and the most recent Custodian Asset Transmission and Exception
Report.
(c) The Borrower shall pay to the Lender interest on the unpaid
principal amount of each Advance for the period from and including the 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. Notwithstanding the foregoing, the
Borrower shall 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 as calculated in Section
2.05(b) above shall be payable monthly on each Payment Date and on the Maturity
Date, except that interest payable at the Post-Default Rate shall accrue daily
and shall be payable promptly upon receipt of invoice. Promptly after the
determination of any interest rate provided for herein or any change therein,
the Lender shall give written notice thereof to the Borrower.
2.06 Mandatory Prepayments or Pledge.
Pursuant to the Custodial Agreement, on each Business Day on which
there is a sale, release or other change in the Mortgage Loans held by the
Custodian or REO Properties owned by an REO Subsidiary, the Custodian shall
deliver to the Lender and the Borrower a Custodian Asset Transmission and an
Exception Report. On the fifth Business Day of each calendar month, the Borrower
shall cause the Servicer to deliver to the Lender the Servicing Transmission. No
later than 5:00 p.m. eastern time on the Business Day preceding each Payment
Date the Lender shall deliver to the Borrower a Borrowing Base Certificate, the
calculation in such certificate to be based on (a) the principal balance and
appraised value of the Mortgage Loans as of the last day of the preceding
calendar month and (b) the appraised value of the REO Properties as of the last
day of the preceding calendar month. Such information shall be ascertained from
the Custodian Asset Transmission, the Exception Report and the Servicing
Transmission. In the event that such Borrowing Base Certificate indicates that
the aggregate outstanding principal amount of Advances exceeds the Borrowing
Base (a "Borrowing Base Deficiency"), the Borrower shall on the related Payment
Date, either prepay the Advances in part or in whole or pledge additional
Eligible Assets (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 Advances does not
exceed the Borrowing Base.
2.07 Optional Prepayments.
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(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 an Advance in whole or in part from any source, the
Borrower shall give two (2) 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 $1,000,000.
(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 (excluding any lost profit or
opportunity cost) which the Lender may sustain or incur arising from (a) the
re-employment of funds obtained by the Lender to maintain the Advances hereunder
or (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 through the following Payment Date over (ii) the amount of interest
likely to be realized by the 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 the adoption of 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) made subsequent to the
date hereof 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 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 or other
extensions of credit by the Lender, or any other acquisition of funds by
any office of the Lender which requirement 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
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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
thereafter incurred.
(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 could have
achieved but for such adoption, change or compliance (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 in its commercially reasonable
discretion, then from time to time, after the Lender submits to the Borrower a
written request therefor, the Borrower shall promptly pay to the Lender such
additional amount or amounts as will thereafter 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 (providing
reasonable support as to amounts requested) 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 Extension.
At the request of the Borrower, at least thirty (30) days prior to
the Maturity Date, the Lender may in its sole discretion extend the Maturity
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 more than thirty (30)
days, prior to the Maturity Date.
2.10 Reserved.
Section 3. Payments; Computations; Taxes; Fees.
3.01 Payments.
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 immediately available funds, without
deduction, set-off or counterclaim, to the Lender at the following account
maintained by the Lender at The Chase Manhattan Bank: Account Number 066612187,
Account Name: Salomon Brothers Realty Corp., ABA Number: 021000021, Attention:
Gerald Mullooly, not later than 2:00 p.m., eastern time, on the date on which
such payment shall become due (each such payment made after such time on such
due date to be deemed to have been made on the next succeeding Business Day).
The Borrower acknowledges that it has no rights of
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withdrawal from the foregoing account. Notwithstanding the foregoing, if payment
is made after 2:00 p.m., eastern time but prior to 5:00 p.m., eastern time, the
Borrower will owe an additional day's interest but such late payment will not
constitute an Event of Default hereunder.
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 U.S. Taxes.
(a) The Borrower agrees to pay to the Lender such additional amounts
as are necessary in order that the net payment of any amount due to the Lender
hereunder after deduction for or withholding in respect of any U.S. Tax (as
defined below) imposed with respect to such payment (or in lieu thereof, payment
of such U.S. Tax by the Lender), will not be less than the amount stated herein
to be then due and payable; provided, that the foregoing obligation to pay such
additional amounts shall not apply:
(i) to any payment to the Lender hereunder unless the Lender is
entitled to submit a Form 1001 (relating to the Lender and entitling it to
a complete exemption from withholding on all interest to be received by it
hereunder in respect of the Advances) or Form 4224 (relating to all
interest to be received by the Lender hereunder in respect of the
Advances), or
(ii) to any U.S. Tax imposed solely by reason of the failure by the
Lender to comply with applicable certification, information, documentation
or other reporting requirements concerning the nationality, residence,
identity or connections with the United States of America of the Lender if
such compliance is required by statute or regulation of the United States
of America as a precondition to relief or exemption from such U.S. Tax.
For the purposes of this Section 3.03(a), (i) "Form 1001" shall mean Form 1001
(Ownership, Exemption, or Reduced Rate Certificate) of the Department of the
Treasury of the United States of America, (ii) "Form 4224" shall mean Form 4224
(Exemption from Withholding of Tax on Income Effectively Connected with the
Conduct of a Trade or Business in the United States) of the Department of the
Treasury of the United States of America (or in relation to either such Form
such successor and related forms as may from time to time be adopted by the
relevant taxing authorities of the United States of America to document a claim
to which such Form relates) and (iii) "U.S. Taxes" shall mean any present or
future tax, assessment or other charge or levy imposed by or on behalf of the
United States of America or any taxing authority thereof or therein.
(b) Within 30 days after paying any such amount to the Lender, and
within 30 days after it is required by law to remit such deduction or
withholding to any relevant taxing or other authority, the Borrower shall
deliver to the Lender evidence satisfactory to the Lender of such deduction,
withholding or payment (as the case may be).
(c) The Lender represents and warrants to the Borrower that on the
date hereof the Lender is either incorporated under the laws of the United
States or a State thereof or is entitled
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to submit a Form 1001 (relating to the Lender and entitling it to a complete
exemption from withholding on all interest to be received by it hereunder in
respect of the Advances) or Form 4224 (relating to all interest to be received
by the Lender hereunder in respect of the Advances).
3.04 [Reserved]
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 the terms of the Custodial Agreement and shall deliver to the Lender
Trust Receipts with Exception Reports (as such terms are defined in the
Custodial Agreement) to the effect that it has reviewed such Mortgage Loan
Documents in the manner required by the Custodial Agreement and identifying any
deficiencies in such Mortgage Loan Documents as so reviewed.
(b) Each of the following items or types 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 Assets identified on an Asset Schedule attached to
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 (as defined in Section
11.15(b) hereof), and any other collateral pledged or otherwise relating
to such Mortgage Loans, together with all files, material documents,
instruments, surveys (if available), certificates, correspondence,
appraisals, computer records, computer storage media, Mortgage Loan
accounting records and other books and records relating to any Mortgage
Loan or REO Property, in each case, only to the extent such collateral
relates to the Mortgage Loan or REO Property;
(iii) 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
Mortgage Loans and all claims and payments thereunder;
(iv) all other insurance policies and insurance proceeds relating to
any Mortgage Loans or the related Mortgaged Property or to any REO
Property;
(v) the Custodial Agreement;
(vi) any purchase agreements or other agreements or contracts
relating to or constituting any or all of the foregoing;
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(vii) all purchase or take-out commitments relating to or
constituting any or all of the foregoing;
(viii) the Collection Account and all monies from time to time on
deposit therein;
(ix) the escrow accounts and similar arrangements relating to the
Mortgage Loans and REO Properties and all monies from time to time on
deposit therein;
(x) any REO Subsidiary Pledged Stock;
(xi) all "accounts", "chattel paper" and "general intangibles" as
defined in the Uniform Commercial Code relating to or constituting any or
all of the foregoing; and
(xii) any and all replacements, substitutions, distributions on or
proceeds of any or all of the foregoing.
(c) The Borrower hereby assigns, pledges and grants a security
interest to the Lender in all of its right, title and interest in, to and under
all the Collateral, whether now owned or hereafter acquired, now existing or
hereafter created and wherever located, to secure the repayment of principal of
and interest on all Advances and all other amounts owing to the Lender
hereunder, under the Note and under the other Loan Documents (collectively, the
"Secured Obligations"). The Borrower agrees to mark its computer records and
tapes to evidence the security interests granted to the Lender hereunder.
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 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 reasonably necessary by the Lender to continue its perfected status in
the Collateral with the same or higher priority.
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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 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 portion 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, or 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 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.
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(b) The Borrower also authorizes the Lender, at any time and from
time to time, to execute, in connection with the 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 material agreements
contained in the Loan Documents and the Lender may itself perform or comply, or
otherwise cause performance or compliance, with such agreement, the reasonable
out-of-pocket 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 of Collateral received by the Lender will be
applied by the Lender against the Secured Obligations. 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 promptly 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 amounts on deposit in the Collection
Account, all prepayments and payoffs, insurance claims, condemnation awards,
sale proceeds, real estate owned rents and any other income and all other
amounts received in each case with respect to the Collateral.
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
(all and each of which demands, defenses, 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 and at prices that are consistent with the
prevailing market for similar
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collateral 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 act in good faith to obtain the best execution possible under
prevailing market conditions. 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 2.05(b) hereof) if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Secured Obligations and the reasonable 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.
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, until such
payments have been made.
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4.11 REO Subsidiary; Formation; REO Property Representations and
Warranties. The Borrower shall cause any REO Property to be taken by deed in the
name of a wholly-owned subsidiary of the Borrower (any such subsidiary, an "REO
Subsidiary") formed for the sole purpose of holding any REO Property. The
Borrower may establish one or more REO Subsidiaries. Promptly upon the formation
of any REO Subsidiary, the Borrower shall (or shall cause the applicable REO
Subsidiary to):
(A) provide written notice thereof to the Lender;
(B) execute and deliver to the Lender an REO Subsidiary Pledge
Agreement (or, if an REO Subsidiary Pledge Agreement shall have already
been executed and delivered, a supplement thereto) pursuant to which all
REO Subsidiary Pledged Stock of such REO Subsidiary shall be pledged to
the Lender or the Custodian, as instructed by the Lender;
(C) deliver all certificates representing REO Subsidiary Pledged
Stock, together with an undated transfer power for each such certificate
duly executed in blank on behalf of the Borrower, to the Lender or the
Custodian, as instructed by the Lender;
(D) deliver an acknowledgment of such REO Subsidiary in the form
attached to the REO Subsidiary Pledge Agreement;
(E) deliver an officer's certificate signed by a Responsible Officer
and a secretary of such REO Subsidiary, together with a good standing
certificate with respect to such REO Subsidiary and certified copies of
the certificate of formation, articles of incorporation, bylaws and
operating agreement (or equivalent documents) of such REO Subsidiary and
of all resolutions or other authority of such REO Subsidiary with respect
to holding REO Property, all in form and substance satisfactory to the
Lender, all of which organizational documents shall contain such terms and
provisions, including, without limitation, provisions relating to the
nature of the REO Subsidiary as a special, single purpose vehicle, as the
Lender may reasonably require; and
(F) deliver an opinion of counsel satisfactory to the Lender as to
the formation of the REO Subsidiary, the attachment and perfection of the
security interest in favor of the Lender in the REO Subsidiary Pledged
Stock and such other matters as the Lender may reasonably request.
Upon the acquisition of title to the underlying property by an REO Subsidiary,
the Borrower shall be deemed to make the representations and warranties listed
on Schedule 3 hereto with respect to such REO Property. The Borrower shall, at
its sole cost and expense, take all such other steps as may be necessary in
connection with the pledge of all REO Subsidiary Pledged Stock to properly
perfect the security interest created pursuant to the REO Subsidiary Pledge
Agreement therein.
Section 5. Conditions Precedent.
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5.01 Initial Advance. The obligation of the Lender to make its
initial Advance 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) Loan Documents. The Lender shall have received the following
documents, each of which shall be satisfactory to the Lender in form and
substance:
(i) Note. The Note, duly completed and executed;
(ii) Custodial Agreement. The Custodial Agreement, duly
executed and delivered by the Borrower and the Custodian. In
addition, the Borrower shall have filed all Uniform Commercial Code
and related filings and performed under the Custodial Agreement and
taken such other action as the Lender shall have requested in order
to perfect the security interests created pursuant to the Loan
Agreement; and
(iii) Pooling and Servicing Agreement. A copy of the Pooling
and Servicing Agreement.
(c) Organizational Documents. A good standing certificate and
certified copies of the charter and by-laws (or equivalent documents) of
the Borrower and of all corporate or other authority for the Borrower with
respect to the execution, delivery and performance of the Loan Documents
and each other document to be delivered by the Borrower from time to time
in connection herewith (and the Lender may conclusively rely on such
certificate until it receives notice in writing from the Borrower to the
contrary).
(d) Legal Opinion. A legal opinion of counsel to the Borrower,
substantially in the form attached hereto as Exhibit C.
(e) 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 Permitted Liens and 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
reasonable 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.
(f) 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. In addition any
other ongoing fees and expenses required to be paid by the Borrower to the
Lender may be netted out of any Advance made by the Lender hereunder.
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(g) REO Subsidiary. The Borrower shall have established an REO
Subsidiary and complied with the provisions set forth in Section 4.11 with
respect to such REO Subsidiary.
(h) Financial Statements. The Lender shall have received the
financial statements referenced in Section 7.01(a).
(i) 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.
(j) 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 7.22 hereof.
(k) Collection Account. The Collection Account shall have been
established with a financial institution satisfactory to the Lender, and
the terms of all documentation relating to such accounts shall be in
accordance with the requirements of the Loan Documents and shall be
satisfactory to the Lender in form and substance and the Borrower shall
provide evidence of same, including any agreements with respect thereto.
The Borrower shall provide to the Lender evidence of the foregoing.
(l) 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 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:
(a) no Default or Event of Default shall have occurred and be
continuing;
(b) both immediately prior to the making of such Advance and also
after giving effect thereto and to the intended use thereof, the
representations and warranties made by the Borrower in Section 6 hereof,
and in each of the other Loan Documents, shall be true and complete on and
as of the date of the making of such Advance in all material respects (in
the case of the representations and warranties set forth on Schedule 1
solely with respect to Mortgage Loans 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). At the request of the
Lender, the Lender shall have received an officer's certificate signed by
a Responsible 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 is qualified to do business and in good
standing in all required jurisdictions;
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(c) the aggregate outstanding principal amount of the Advances shall
not exceed the Borrowing Base;
(d) 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 its reasonable discretion deems appropriate to review and such
review shall be satisfactory to the Lender in its reasonable discretion;
(e) the Lender shall have received a Notice of Borrowing and Pledge,
Asset Schedule and Asset Data Transmission and all other documents
required under Section 2.03;
(f) the Lender shall have received from the Custodian, a Custodian
Asset Transmission and one or more Trust Receipts in respect of Mortgage
Loans to be pledged hereunder on such Business Day and an Exception
Report, in each case dated such Business Day and duly completed;
(g) 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 of counsel acceptable to the Lender in such state, substantially
in the form of items number 12 and 13 of Exhibit C;
(h) 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;
(i) 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
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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;
(j) Reserved.
(k) with respect to each Eligible Asset that is an REO Property at
the time that an Advance is made with respect to such Eligible Asset, the
Borrower shall deliver, or cause to be delivered, to the Custodian for
recordation in the appropriate governmental recording office of the
jurisdiction where such REO Property is located, the original executed
deed (in recordable form) to such REO Property, naming the related REO
Subsidiary as the grantee;
(l) Reserved.
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. The Borrower represents
and warrants to the Lender that throughout the term of this Loan Agreement:
6.01 Existence. The Borrower (a) is a California 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 on its property, business or financial condition, or
prospects, (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 would not be
reasonably likely (either individually or in the aggregate) to have a Material
Adverse Effect on its property, business or financial condition, or prospects
and (d) is in compliance in all material respect with all Requirements of Law.
6.02 Reserved.
6.03 Litigation. There are no actions, suits, arbitrations,
investigations or proceedings pending or, to its knowledge, threatened against
the Borrower or affecting any of its property before any Governmental Authority,
(i) as to which individually or in the aggregate there is a reasonable
likelihood of an adverse decision which would be reasonably likely to have a
Material Adverse Effect on the property, business or financial condition, or
prospects of the Borrower or (ii) which questions the validity or enforceability
of any of the Loan Documents or any action to be taken
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in connection with the transactions contemplated hereby and there is a
reasonable likelihood of a materially adverse effect or decision.
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 conflict with or result in
a breach of the certificate of incorporation or bylaws of the Borrower, 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 any of its REO 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 any of its REO
Subsidiaries, pursuant to the terms of any such agreement or instrument.
6.05 Action. The Borrower has all necessary corporate or other
power, authority and legal right to execute, deliver and perform its obligations
under each of the Loan Documents to which it is a party; the execution, delivery
and performance by the Borrower of each of the Loan Documents to which it is a
party has 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
the Borrower and constitutes a legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with its terms, except
as enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or 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).
6.06 Approvals. No authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority, or any other Person,
are necessary for the execution, delivery or performance by the Borrower of the
Loan Documents to which it is a party 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 Advance
hereunder, nor the use of the proceeds thereof, will violate or be inconsistent
with the provisions of Regulation G, T, U or X.
6.08 Taxes. The Borrower and its REO 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,
if any, that 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 the
Borrower and its REO Subsidiaries in respect of taxes and other governmental
charges are, in the opinion of the Borrower, adequate.
6.09 Investment Company Act. Neither the Borrower nor any of its REO
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company",
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within the meaning of the Investment Company Act of 1940, as amended. The
Borrower is not subject to any Federal or state statute or regulation which
limits its ability to incur indebtedness.
6.10 No Legal Bar. The execution, delivery and performance of this
Loan Agreement and the Note, the borrowings hereunder and the use of the
proceeds thereof will not violate any Requirement of Law or Contractual
Obligation of the Borrower 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 its or their respective properties or revenues pursuant to
any such Requirement of Law or Contractual Obligation.
6.11 No Default. Neither the Borrower nor any of its Affiliates, is
in default under or with respect to any of its 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.
6.12 Collateral; Collateral Security.
(a) The Borrower has not assigned, pledged, or otherwise conveyed or
encumbered any Mortgage Loan to any other Person, and immediately prior to the
pledge of each such Mortgage Loan, the Borrower was the sole owner of such
Mortgage Loan and had good and marketable title thereto, 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 and following such release no
Person other than the Borrower has any Lien on any Mortgage Loan.
Notwithstanding the foregoing, the Borrower may sell, transfer, assign or pledge
or otherwise convey any foreclosed Mortgaged Property to an REO Subsidiary.
(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 receipt by the Custodian of each Mortgage Note, endorsed in
accordance with the Custodial Agreement, the Lender shall have a fully perfected
first priority security interest therein, in the Mortgage Loan evidenced thereby
and in the Borrower's interest in the related Mortgaged Property.
(d) 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 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 the Borrower in, to and
under such Collateral, which can be perfected by filing under the Uniform
Commercial Code.
(e) The REO Subsidiary Pledged Stock of any REO Subsidiary will
constitute all of the issued and outstanding capital stock or other equity
interests of all classes of such REO Subsidiary, and all of such REO Subsidiary
Pledged Stock will have been duly and validly issued and, if capital stock,
shall have been fully paid and non-assessable. Upon the delivery to the Lender
or
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Custodian of any certificates or stocks evidencing such REO Subsidiary Pledged
Stock, the security interest created by the REO Subsidiary Pledge Agreement
therein will constitute a perfected first priority security interest in such REO
Subsidiary Pledged Stock in favor of the Lender as security for the Secured
Obligations.
6.13 Chief Executive Office; Chief Operating Office. The Borrower's
chief executive office and chief operating office on the Effective Date are
located at 18400 Von Karman, Irvine, California 92612.
6.14 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 the office of the Servicer
located at 17701 Cowan, Irvine, California 92614 or the chief operating office
or offices of the Custodian.
6.15 True and Complete Disclosure. The written information, reports,
financial statements, exhibits and schedules (other than projections) prepared
by the Borrower and furnished to the Lender (and, to the Borrower's knowledge,
prepared on behalf of the Borrower and furnished 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 Borrower 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 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.
6.16 Reserved.
6.17 ERISA. Each Plan to which the Borrower 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. No event or
condition has occurred and is continuing as to which the Borrower would be under
an obligation to furnish a report to the Lender under Section 7.01(d) hereof.
6.18 Reserved.
6.19 True Sales. Any and all interest of a Qualified Originator in,
to and under any Mortgage funded in the name of or acquired by such Qualified
Originator or seller 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.
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6.20 No Burdensome Restrictions. No Requirement of Law or
Contractual Obligation of the Borrower or any of its Affiliates has a Material
Adverse Effect.
6.21 Reserved.
6.22 Acquisition of Mortgage Loans. The Mortgage Loans were acquired
by the Borrower, and the collection practices used by the Servicer with respect
to the Mortgage Loans have been, in all material respects, legal, proper,
reasonable and customary in the residential sub-prime mortgage loan servicing
business. Each of the Mortgage Loans complies with the representations and
warranties listed on Schedule 1 hereto.
6.23 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.
6.24 Borrower Solvent; Fraudulent Conveyance. As of the date hereof
and immediately after giving effect to each Advance, the fair value of the
assets of the Borrower is greater than the fair value of the liability
(including, without limitation, contingent liabilities if and to the extent
required to be recorded as a liability on the financial statements of the
Borrower in accordance with GAAP) of the Borrower and the Borrower 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. The Borrower does not intend to incur, or
believe that it has incurred, debt beyond its ability to pay such debts as they
mature. The Borrower is not 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 the
Borrower or any of its assets. The Borrower is not pledging any Mortgage Loans
with any intent to hinder, delay or defraud any of its creditors.
Section 7. Covenants of the Borrower. The Borrower covenants and
agrees with the Lender that, so long as any Advance is outstanding and until
payment in full of all Secured Obligations:
7.01 Financial Statements. The Borrower shall deliver to the Lender:
(a)(i) as soon as available and in any event within 30 days after
the end of each month (other than those calendar months that are
quarter-end months), the unaudited (or, upon request of the Lender, the
audited) consolidated balance sheets of the Borrower and each REO
Subsidiary as at the end of such month and the related unaudited
consolidated statements of income and retained earnings and of cash flows
for the Borrower and each REO Subsidiary for such month and the portion of
the fiscal year through the end of such month, setting forth in each case
in comparative form the figures for the previous year, accompanied by a
certificate of a Responsible Officer of the Borrower, which certificate
shall state that said consolidated financial statements fairly present the
consolidated financial condition and results of operations of the Borrower
and each REO Subsidiary as at the end of, and for, such month (subject to
normal year-end audit adjustments);
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(ii) 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 the Borrower and each REO Subsidiary, the unaudited (or, upon
request of the Lender, the audited) consolidated balance sheets of the
Borrower and each REO Subsidiary as at the end of such period and the
related unaudited consolidated statements of income and retained earnings
and of cash flows for the Borrower and each REO Subsidiary 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 the Borrower,
which certificate shall state that said consolidated financial statements
fairly present the consolidated financial condition and results of
operations of the Borrower and each REO Subsidiary 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 120 days after the
end of each fiscal year of the Borrower, the consolidated balance sheets
of the Borrower and each REO Subsidiary as at the end of such fiscal year
and the related consolidated statements of income and retained earnings
and of cash flows for the Borrower and each REO Subsidiary for such year,
setting forth in each case in comparative form the figures for the
previous year, 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 the Borrower
and each REO Subsidiary at the end of, and for, such fiscal year in
accordance with GAAP, and a certificate of such accountants stating that,
in making the examination necessary for their opinion, they obtained no
knowledge, except as specifically stated, of any Default or Event of
Default; and
(c) from time to time such other information regarding the financial
condition, operations, or business of the Borrower and each REO Subsidiary
as the Lender may reasonably request.
(d) as soon as reasonably possible, and in any event within thirty
(30) days after a Responsible Officer knows, or with respect to any Plan
or Multiemployer Plan to which the 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 the Borrower setting forth details respecting such event or
condition and the action, if any, that the 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 the Borrower or an ERISA
Affiliate with respect to such event or condition):
(i) any reportable event (a "Reportable Event"), as defined in
Section 4043(b) of ERISA and the regulations issued thereunder, with
respect to a Plan, as to which PBGC has not by regulation or
otherwise 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 minimum funding standard of
Section 412 of the Code or Section 302 of ERISA, including, without
limitation, the failure to
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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 the
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 the 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 the 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 the 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 the 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 the Borrower or an ERISA Affiliate fails to timely
provide security to such Plan in accordance with the provisions of
said Sections.
The Borrower will furnish to the Lender, at the time it furnishes each set of
financial statements pursuant to paragraphs (a) and (b) above, a certificate of
a Responsible Officer of the Borrower to the effect that, to the best of such
Responsible Officer's knowledge, the Borrower 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 Litigation. The Borrower 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 legal or arbitrable proceedings affecting the Borrower or any of
its REO Subsidiaries that questions or challenges the
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validity or enforceability of any of the Loan Documents or as to which there is
a reasonable likelihood of adverse determination which would result in a
Material Adverse Effect.
7.03 Existence, Etc. The Borrower shall, and shall cause each REO
Subsidiary to:
(a) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises;
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of Governmental Authorities (including, without
limitation, truth in lending, real estate settlement procedures and 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 or chief operating office
from the addresses referred to in Section 6.13 unless it shall have
provided the Lender 15 days prior written notice of such change;
(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;
(f) permit representatives of the Lender, during normal business
hours upon three (3) Business Days' prior written notice at a mutually
desirable time, 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. The Borrower hereby acknowledges and confirms that the Lender (i)
will rely on such information in the performance of the services
contemplated by Agreement without independently investigating or verifying
any of it and (ii) assumes no responsibility for the accuracy or
completeness of such information. The Lender hereby acknowledges the
confidential nature of the information to be provided to it by the
Borrower and agrees that it will not disclose any such information to any
third party (other than its Affiliates, its counsel or its independent
accountants) without the prior written consent of the Borrower; provided
however, the Lender may use such information if necessary in connection
with an Event of Default hereunder to market the Mortgage Loans or REO
Properties for sale; and
(g) at all times, maintain and keep in force insurance with
financially sound and reputable insurance companies or associations in
such amounts and covering such risks as are usually carried by companies
engaged in the same or a similar business and similarly situated, which
insurance may provide for reasonable deductibility from coverage thereof.
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7.04 Prohibition of Fundamental Changes. Except as otherwise
contemplated by the Loan Documents, the Borrower shall not 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.
7.05 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.
7.06 Notices. The Borrower shall give notice to the Lender promptly:
(a) 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 which could reasonably be expected to have a Material Adverse
Effect;
(b) upon, and in any event within three (3) Business Days after,
service of process on the Borrower or any of its REO Subsidiaries, or any
agent thereof for service of process, in respect of any legal or
arbitrable proceedings affecting the Borrower or any of its REO
Subsidiaries (i) that questions or challenges the validity or
enforceability of any of the Loan Documents or (ii) in which the
cumulative amount of such controversies exceeds $1,000,000;
(c) upon the Borrower becoming aware of any default related to any
Collateral, any Material Adverse Effect and any event or change in
circumstances which should reasonably be expected to have a Material
Adverse Effect;
(d) upon the Borrower becoming aware during the normal course of its
business that the Mortgaged Property in respect of any Mortgage Loan or
Mortgage Loans with an aggregate unpaid principal balance of at least
$100,000 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;
(e) upon the entry of a judgment or decree against the Borrower or
any of its REO Subsidiaries in an amount in excess of $500,000 and
(f) upon, and in any event within three (3) Business Days after,
service of process on the Servicer, or any agent thereof for service of
process, in respect of any legal or arbitrable proceedings affecting the
Servicer (i) that seeks certification of a class of plaintiffs, (ii) that
questions or challenges the validity or enforceability of any mortgage
loan based on a violation of federal or state law with respect to the
origination or servicing of such mortgage loan and the cumulative amount
of liability to the Servicer, if such proceedings are adversely
determined, exceeds $1,000,000 or (iii) whenever the cumulative amount of
liability to the Servicer, if such proceedings are adversely determined,
exceeds $5,000,000..
Each notice pursuant to this Section 7.06 (other than 7.06(e)) 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.
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7.07 Servicing. The Borrower shall not permit any Person other than
the Servicer to service Mortgage Loans without the prior written consent of the
Lender, which consent shall not be unreasonably withheld.
7.08 Servicer Reports; Management of Assets. The Servicer shall: (i)
promptly deliver to the Lender all reports, statements and other materials
relating to the Collateral or the financial condition of the Servicer in
accordance with the provisions of the Pooling and Servicing Agreement, (ii)
fully perform all of its covenants, agreements and obligations in accordance
with the provisions of the Pooling and Servicing Agreement, (iii) promptly
deliver to the Lender any notice of default or prospective termination of the
Servicer and any notice of default or termination given by the Servicer and (iv)
cause the Collateral to be administered in accordance with the standards set
forth in the Pooling and Servicing Agreement.
7.09 True and Complete Disclosure. All written information furnished
after the date hereof by or on behalf of the Borrower 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.
7.10 Reserved.
7.11 Transactions with Affiliates. Except for (i) the guaranties of
Indebtedness created under this Loan Agreement and under the Existing Financing
Documents, (ii) transfers of mortgage loans and REO properties between
Affiliates and the Borrower and (iii) transfers of Junior Securitization
Interests between Affiliates and the Borrower, the Borrower will not 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 the Borrower's business and (c) upon fair and reasonable
terms no less favorable to the 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 7.11 to any Affiliate;
provided, however, that nothing contained in this Section 7.11 is intended to
limit the Borrower's ability to sell any Collateral that has a Collateral Value
deemed by the Lender to be zero on terms that do not comply with clause (c)
above.
7.12 Reserved.
7.13 Limitation on Liens. The Borrower will not, nor will it permit
or allow others to, create, incur or permit to exist any material Lien, security
interest or claim on or to any of the Collateral, except for Permitted Liens.
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 Permitted Liens and 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.
7.14 Limitation on Sale of Assets. Except as specifically
contemplated in Section 5(b) of the Custodial Agreement, the Borrower shall not
convey, sell, lease, assign, transfer or
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otherwise dispose of (collectively, "Transfer"), any of the Collateral, business
or assets whether now owned or hereafter acquired or allow any REO Subsidiary to
Transfer any of its assets to any Person.
7.15 Plans and Multiemployer Plans. Neither the Borrower nor any REO
Subsidiary shall adopt or make direct contributions to any Plan or Multiemployer
Plan.
7.16 Reserved.
7.17 Reserved.
7.18 Reserved.
7.19 Restricted Payments. The Borrower shall not make any Restricted
Payments following an Event of Default or if the making of such Restricted
Payment is reasonably likely to result in the occurrence of an Event of Default.
7.20 Reserved.
7.21 No Amendment or Waiver. Except as expressly provided in the
Pooling and Servicing Agreement, 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 could reasonably be
expected to materially and adversely affect the value of such Mortgage Loan as
Collateral.
7.22 Maintenance of Property; Insurance. The Borrower shall cause
the Servicer to keep all property useful and necessary in its business in good
working order and condition. The Borrower shall, and shall cause each REO
Subsidiary to, 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 the Lender in writing) and shall not
reduce such coverage without the written consent of the Lender, and shall also
maintain, or cause to be maintained, title and hazard insurance with financially
sound and reputable insurance companies, 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.
7.23 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 may reasonably request, all in reasonable detail.
7.24 Mortgage Loan or REO Property 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 or on
Schedule 3 hereto applicable to any REO Property, the party discovering such
breach shall promptly give notice of such discovery to the other.
7.25 Reserved.
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7.26 Reserved.
7.27 Special Purpose Entity. (a) The Borrower shall cause such REO
Subsidiary to: (i) continue to be duly formed and existing and a single purpose
entity; (ii) continue to comply with the provisions of its organizational
documentation delivered to the Lender pursuant to Sections 4.11 and 5.01(c)
hereof and the laws of the state of its formation relating to entities of the
same type; (iii) observe all legal requirements regarding its existence; (iv)
continue to accurately maintain its financial statements, accounting records and
other documents separate and apart from those of any other Person; (v) not
commingle its assets with those of any other Person; (vi) continue to accurately
maintain its own bank accounts and separate books of account; (vii) continue to
pay its own liabilities (other than those liabilities incurred under the
Custodial Agreement) from its own separate assets; (viii) continue to identify
itself under its own name (or its d/b/a name as required by the laws of certain
jurisdictions in order to do business therein) and as a separate and distinct
entity in all dealings with the public; (ix) not identify itself as being a
division or part of any other entity (except, in the case of an REO Subsidiary,
as a wholly-owned subsidiary of the Borrower); (x) not identify any other Person
as being a division or part of such REO Subsidiary and (xi) to the extent
permitted by applicable law, not cause such REO Subsidiary to become the debtor
in any case or proceeding, or otherwise avail itself of relief under, any
bankruptcy, insolvency or similar law; provided, however, that nothing contained
in this Section 7.27(a) is intended to prevent the Borrower and any one or more
REO Subsidiaries from (x) maintaining joint accounting records and books of
account with each other, (y) paying their liabilities from each others' assets
and (z) identifying themselves as related entities in dealings with the public.
(b) The Borrower shall not permit such REO Subsidiary to: (i)
create, incur, assume or suffer to exist any Indebtedness (other than under this
Loan Agreement) or guarantee obligation; (ii) create, incur or permit to exist,
or permit or allow others to create, incur or permit to exist, any Lien,
security interest or claim on or to any of its property, other than the Liens in
favor of the Lender; (iii) consummate any transaction of merger or consolidation
or amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution) or sell all or substantially all of its assets; (iv)
convey, sell, lease, assign, transfer or otherwise dispose of, any of its
property, business or assets (including, without limitation, receivables and
leasehold interests) whether now owned or hereafter acquired, except as
specifically contemplated in Section 5(b) of the Custodial Agreement, provided
that the Sale Proceeds thereof are deposited into the Collection Account; (v)
make any advance, loan, extension of credit or capital contribution to, or
purchase any stock, bonds, notes, debentures or other securities of or any
assets constituting a business unit of, or make any other investment in (any of
the foregoing, an "Investment"), any Person other than an REO Subsidiary; (vi)
amend its certificate of incorporation or by-laws or other similar
organizational or constitutive documents without the prior written consent of
the Lender which consent shall not be unreasonably withheld; (vii) form any
Subsidiaries other than REO Subsidiaries or (viii) with respect to each REO
Subsidiary, engage in or transact any business or operations other than the
acquisition of REO Properties.
(c) The Borrower shall cause each REO Subsidiary to maintain the REO
Properties in the condition received (reasonable wear and tear excepted) and
promptly repair any damage or casualty (except to the extent that the Servicer
reasonably has determined in accordance
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with Accepted Servicing Practices and the terms and provisions of the Pooling
and Servicing Agreement, not to apply the related insurance proceeds or
condemnation awards to the repair or restoration of the REO Property, in which
event such unapplied proceeds shall be included in Collections for purposes
hereof). The Borrower shall cause each REO Subsidiary to permit the Lender and
its agents, representatives and employees, upon reasonable prior notice, at the
Lender's cost, to inspect any REO Property and conduct such environmental and
engineering studies as the Lender may require; provided, that such inspections
and studies do not materially and unreasonably interfere with the use, operation
and occupancy of such REO Property.
7.28 Broker's Price Opinions. The Lender may obtain, at the
Borrower's expense, within the month prior to the related Funding Date (or
immediately, if an Advance has already been made with respect to a Mortgage Loan
and such Mortgage Loan subsequently becomes delinquent three Monthly Payments),
a BPO with respect to each Mortgage Loan that is delinquent three or more
Monthly Payments and with respect to each REO Property for which an Advance will
be made on such Funding Date; provided, however, that the vendor providing such
BPO must be approved by the Lender. The Lender hereby approves Hanson Quality
Loan Services, Nationwide Appraisal Services Corp. and Ocwen Federal Bank FSB.
The Lender has the right to obtain a new BPO, at the expense of the Borrower,
with respect to each Mortgage Loan delinquent more than three Monthly Payments
and with respect to each REO Property every six (6) months.
Section 8. Events of Default. Each of the following events shall
constitute an event of default (an "Event of Default") hereunder:
(a) the Borrower shall default in the payment of any principal of or
interest on any Advance when due (whether at stated maturity, upon
acceleration or at mandatory prepayment) and such default shall have
continued unremedied for one Business Day; or
(b) the Borrower 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 three Business Days; or
(c) any representation, warranty or certification made or deemed
made herein or in any other Loan Document by the Borrower 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 (other than the representations and warranties
set forth in Schedule 1 or Schedule 3 which shall be considered solely for
the purpose of determining the Collateral Value of the Mortgage Loan or
REO Properties; unless the Borrower shall have made any such
representations and warranties with knowledge that they were materially
false or misleading at the time made) and, within 30 days after written
notice thereof shall have been given to the applicable Borrower by the
Lender, the condition or circumstance in respect of which such
representation, warranty or certification was false or misleading shall
not have been eliminated as otherwise cured; or
(d) the Borrower shall fail to comply with the requirements of
Section 7.03(a), Section 7.04, Section 7.06(a) or (c), Section 7.13,
Section 7.14, Section 7.19 or Section 7.22 hereof; or the Borrower shall
default in the performance of its obligations under Section 7.05
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hereof, and such default shall continue unremedied for a period of one (1)
Business Day; or the Borrower shall otherwise fail to observe or perform
any other 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 ten (10) Business Days; or
(e) a final judgment or judgments for the payment of money in excess
of $1,000,000 in the aggregate shall be rendered against the Borrower or
any REO Subsidiary by one or more courts, administrative tribunals or
other bodies having jurisdiction over them and the same shall not be
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 the Borrower or any such REO Subsidiary
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) the Borrower shall admit in writing its inability to pay its
debts as such debts become due; or
(g) either the Borrower or any REO Subsidiary shall (i) apply for or
consent to the appointment of, or the taking of possession by, a receiver,
custodian, 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
(h) a proceeding or case shall be commenced, without the application
or consent of the Borrower or any of its REO 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 Borrower or any such REO
Subsidiary or of all or any substantial part of its property, or (iii)
similar relief in respect of the Borrower or any such REO 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 Borrower or any such REO Subsidiary shall be entered in an involuntary
case under the Bankruptcy Code; or
(i) the Custodial Agreement or any Loan Document shall for whatever
reason (including an event of default thereunder) be terminated by the
Borrower or the lien on the Collateral created by this Agreement or the
Borrower's material obligations hereunder shall
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cease to be in full force and effect as to the Borrower, or the
enforceability thereof shall be contested by the Borrower; or
(j) any other event shall occur which, in the sole judgment of the
Lender, may have a Material Adverse Effect; or
(k) (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 material "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 the Borrower or any commonly controlled entity as defined under
ERISA, (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 Lender, 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) the Borrower or any commonly controlled entity as defined under ERISA
shall, or in the reasonable opinion of the Lender 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
(l) any Change of Control of the Borrower shall have occurred
without the prior consent of the Lender or any of the key personnel (as
determined by the Lender) shall fail to continue to be employed by the
Borrower, the Servicer or any of their Affiliates; or
(m) the Borrower shall grant, or suffer to exist, any Lien on any
Collateral except Permitted Liens and 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
(n) the Borrower shall default under, or fail to perform as
requested under, or shall otherwise materially breach the terms of any
instrument, agreement or contract between the Borrower and the Lender or
any of the Lender's Affiliates and such failure or breach is not cured
within the applicable cure period; or
(o) 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, provided that the nature and scope of such request are
such that the Borrower could reasonably be expected to respond within such
period.
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Section 9. Remedies Upon Default.
(a) Upon the occurrence of one or more Events of Default (subject to
the expiration of the applicable cure period contained therein) other than those
referred to in Section 8(g) or (h), 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 reasonable
fees and out-of-pocket expenses accruing under this Loan Agreement; provided
that 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 the
Borrower, and the Lender may thereupon exercise any remedies available to it at
law and pursuant to the Loan Documents.
(b) Upon the occurrence of one or more Events of Default (subject to
the expiration of the applicable cure period contained therein), 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 Lender shall be entitled to specific performance of all agreements
of the Borrower contained in this Loan Agreement.
Section 10. No Duty on Lender's Part. 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 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
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communications shall be deemed to have been duly given when transmitted by telex
or telecopier 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 harmless from and
indemnify the Lender against all liabilities, losses, 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, 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 in connection with any Mortgage
Loan for any sum owing thereunder, or to enforce any provisions of any Mortgage
Loan, the Borrower (subject to Section 12.01) 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 of 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 reasonable out-of-pocket 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 reasonable fees and
disbursements of its counsel. The Borrower hereby acknowledges that,
notwithstanding the fact that the Note is secured by the Collateral, the
obligations of the Borrower under the Note are recourse obligations 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 of counsel to the Lender, (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 other than any costs and expenses incurred in connection with the
Lender's rehypothecation of the Mortgage Loans prior to an Event of Default and
(iii) initial and ongoing fees and expenses incurred by the Custodian and any
trustee with respect to the Mortgage Loans.
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
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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
succesors and permitted assigns.
11.06 Survival. The obligations of the Borrower under Section 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 Loan Agreement Constitutes Security Agreement; Governing Law.
This Loan Agreement shall be governed by New York law 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; WAIVERS. EACH PARTY HERETO 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;
(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
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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, THE LENDER AND THE
SERVICER 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 to
which it is a party;
(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 among or between the Lender and the
Borrower.
11.13 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 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 their rights or obligations
hereunder or under the Note only with the prior written consent of the Lender.
The Lender may assign or transfer all or any of its rights or obligations under
this Loan Agreement and the other Loan Documents; provided, however, the Lender
must give one Business Day's notice to the Borrower.
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(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 the 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 2.07 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 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.
Notwithstanding the Borrower's obligations set forth in this Section 11.14(c),
the Borrower shall not be obligated to incur either (i) material additional
obligations or (ii) material additional costs or expenses in connection with the
fulfillment of such obligations except with respect to clause (ii) above if the
Lender agrees to reimburse such costs and expenses.
11.15 Servicing.
(a) Unless otherwise agreed to among the parties hereto, the
Borrower hereby appoints the Servicer to service; and the Servicer hereby
covenants and agrees to service the Mortgage Loans and REO Properties for an
initial term, commencing on the first Funding Date and ending 30 days
thereafter, which term shall be extendable by the Borrower for successive terms
of one calendar month thereafter, until the Maturity Date; provided, however,
that if an Event of Default has occurred and is continuing or has not been
cured, the Servicer shall immediately be terminated as servicer. The Mortgage
Loans and REO Properties shall be serviced in accordance with the servicing
provisions of the Pooling and Servicing Agreement, including the representations
and warranties and servicing standards with respect to the prepayment charges.
As part of its servicing duties, the Servicer shall enforce "due-on-sale"
provisions to the extent permitted by law, shall administer all escrow/impound
deposits and shall make all servicing advances (not including advances
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of delinquent principal and interest) on the Mortgage Loans. The Mortgage Loans
shall be serviced for a servicing fee equal to 0.50% per annum payable monthly
on the then-outstanding principal balance of each Mortgage Loan (the "Servicing
Fee") and any additional servicing compensation as set forth in Section 3.18 of
the Pooling and Servicing Agreement, which Servicing Fee and additional
servicing compensation will be paid in accordance with the provisions of the
Pooling and Servicing Agreement. Notwithstanding the foregoing, in the event an
Event of Default shall occur and be continuing, the Servicer will no longer be
servicer, unless the term of servicing is extended by the Lender in its sole
discretion. In such event, Lender shall have the right to transfer such
servicing to another servicer without payment of any fee to the Servicer;
provided, however, that the Servicer will be entitled to all amounts owed to it
in respect of its Servicing Fee up to the date the Servicer is terminated as
servicer. In addition, in the event any proceeds from any sale of the Mortgage
Loans to a third party in connection with a default by Borrower exceeds the
amounts owed to Lender under this Loan Agreement, the Lender will reimburse the
Servicer for any unpaid servicing advances and any ancillary income accrued
during the Servicer's period as servicer. The Servicer will cooperate in good
faith to effect such servicing transfer and shall pay all costs associated with
such servicing transfer. The Borrower shall cause the Servicer to service the
Mortgage Loans and REO Properties in accordance with the terms of the Pooling
and Servicing Agreement and this Loan Agreement and the Borrower shall enforce
all of the obligations of the Servicer.
(b) (i) The Borrower agrees that the Lender has a first priority
perfected security interest in all servicing records of the Borrower relating to
the Collateral, 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 the Mortgage Loans and REO Properties (the
"Servicing Records"), and (ii) the Borrower grants the Lender a security
interest in all servicing rights relating to the Mortgage Loans and REO
Properties 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 to deliver them promptly to the Lender or its designee
(including the Custodian) at the Lender's request; provided that prior to an
Event of Default, delivery of copies of the Servicing Records will satisfy the
Borrower's obligations on the last sentence of this Section 11.15(b).
(c) (i) The Borrower shall deposit or cause the Servicer to deposit
all Collections into the Collection Account within one Business Day of receipt
of good funds thereof.
(ii) Except as expressly provided for in this paragraph (ii)
and paragraph (iii) below, no withdrawals shall be made from the Collection
Account. On each Payment Date prior to an Event of Default, the Servicer shall
distribute upon receipt of notice from the Borrower or the Lender as to the
amount due and payable (the calculation of such amounts shall be the
responsibility of the party submitting the notice), from such amounts available
in the Collection Account as of the close of business on the last Business Day
of the immediately preceding Collection Period for application in the following
priority:
(a) to the Borrower and the Servicer, an amount equal to
Reimbursable Expenses (to the extent not previously
reimbursed); and (B) to
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the Servicer, an amount equal to the Servicing Fee and all
unpaid Servicing Fees from prior Payment Dates.
(b) to the Lender, all amounts due (including the
amounts sufficient to cause the outstanding principal amount
of Advances to equal the Borrowing Base) as of such Payment
Date pursuant to this Loan Agreement; and
(c) to the Borrower, an amount equal to all Available
Proceeds.
At any time after Servicer receives notice from Lender that an Event
of Default under this Agreement is then continuing, Servicer shall make payments
from the Collection Account only in accordance with the express written
instructions of Lender.
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 and REO Properties, 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 five (5) Business Day's) prior notice to the Borrower, the Lender or
its authorized representatives will be permitted during normal business hours to
examine, inspect, make copies of, and make extracts of, the Asset Files and any
and all documents, records, agreements, instruments or information relating to
such Mortgage Loans or REO Properties in the possession, or under the control,
of the Borrower and/or the Custodian. The Borrower also shall make available to
the Lender a knowledgeable financial or accounting officer for the purpose of
answering questions respecting the Asset Files and the Mortgage Loans and REO
Properties. 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 by the Borrower to the Lender in the Asset Data
Transmission 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, lien searches, new BPO's or other appraisals on the related Mortgaged
Properties and otherwise re-generating the information used to originate such
Mortgage Loan or REO Properties. The Lender may underwrite such Mortgage Loans
itself or engage a 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
or REO Properties 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 Borrower further agrees to provide to the Lender upon
request an updated appraisal with respect to any Mortgaged Property. The
Borrower and the 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 the Borrower and the Lender.
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,
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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 Property and
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.
Section 12. Limitations on Liability.
12.01 Limitation on Liability. Except as otherwise provided below,
the Lender's recourse shall be limited to the Borrower and none of its
Affiliates, officers, directors, employees, shareholders or any other Person,
disclosed or undisclosed, shall be personally liable for the repayment of any of
the Advances, except that the Servicer (but not any direct or indirect general
or limited partners or shareholders, officers, directors or employees of the
general or limited partners in the Servicer) shall be personally liable (1) for
either the Borrower's fraud (but only to the extent of actual damages suffered
by the Lender caused by such fraud) and (2) whether prior to or after an Event
of Default for the Borrower's misappropriation of any amounts on deposit or
required to be on deposit in the Collection Account and any other amounts
required to be held by the Borrower in escrow or segregated accounts pursuant to
the terms hereof and any other escrow deposits, but only to the extent of the
amounts so misapplied. By separately executing this Loan Agreement and as
further consideration for the making of the Advances by the Lender, the Servicer
agrees that it shall be liable and responsible for the liabilities referenced in
clauses (1) and (2) above to the extent set forth above.
12.02 Limitation on Liability of Lender's Officer's, Employees, Etc.
Any obligation or liability whatsoever of the Lender which may arise at any time
under this Loan Agreement or any other Loan Document shall be satisfied, if at
all, out of the Lender's assets only. No such obligation or liability shall be
personally binding upon, nor shall resort for the enforcement thereof be had to,
the property of any of the Lender's shareholders, directors, officers, employees
or agents, regardless of whether such obligation is in the nature of contract,
tort or otherwise.
12.03 Reserved.
12.04 Conflict of Terms. In the event of any conflict between the
provisions of this Loan Agreement and the provisions of any of the other Loan
Documents, the provisions of this Loan Agreement shall prevail; provided,
however, that if there is a specific cross-reference in this Loan Agreement to
one of the other Loan Documents or to the other Loan Documents generally with
respect to a provision or a right or obligation which this Loan Agreement
permits only as provided therein and not otherwise, then such other Loan
Document or Loan Documents shall govern.
12.05 The Servicer. The parties to this Loan Agreement hereby
acknowledge and agree that the Servicer is a signatory to this Loan Agreement
only with respect to Section 11.11, Section 11.15 and Section 12.01 hereof.
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12.06 Termination. Other than those sections intended to survive in
the Master Loan and Security Agreement dated November 18, 1998 among the
Servicer and Liquidation Properties, Inc. (including those sections related to
indemnification), such agreement is hereby terminated.
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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.
Address for Notices: NC CAPITAL CORPORATION
NC Capital Corporation
18400 Von Karman
Irvine, California 92612 By: /s/ John Kontoulis
Attention: Patrick J. Flanagan ------------------------
Telecopier No.: (949) 225-7860 Name:
Telephone No.: (949) 225-7843 Title: Senior Vice President
Address for Notices: NEW CENTURY MORTGAGE
CORPORATION
New Century Mortgage Corporation
18400 Von Karman
Irvine, California 92612 By: /s/ Patrick Flanagan
Attention: Patrick J. Flanagan ------------------------
Telecopier No.: (949) 225-7860 Name:
Telephone No.: (949) 225-7843 Title: EVP / COO
Address for Notices: SALOMON BROTHERS REALTY
390 Greenwich Street CORP.
New York, New York 10013
Attention: Mr. Joe Little By: /s/ [ILLEGIBLE]
Telecopier No.: (212) 723-8604 ------------------------
Telephone No.: (212) 723-6395 Name:
Title:
<PAGE>
SALOMON BROTHERS REALTY CORP.
390 Greenwich Street, 4th Floor
New York, New York 10013
April 1, 2000
NC Capital Corporation
18400 Von Karman, Suite 1000
Irvine, California 92612
Attention: Mr. Patrick Flanagan
President
New Century Mortgage Corporation
18400 Von Karman, Suite 1000
Irvine, California 92612
Attention: Mr. Brad Morrice
Chief Executive Officer
Ladies and Gentlemen:
This letter agreement (the "Letter Agreement") confirms the understanding
and agreements among NC Capital Corporation ("NCCC"), New Century Mortgage
Corporation ("New Century"), Salomon Brothers Realty Corp. ("SBRC") and Salomon
Smith Barney Inc. ("Salomon Smith Barney"), under the terms set forth herein,
regarding SBRC's agreement to provide an aggregation line (the "Aggregation
Line") to NCCC in connection with certain adjustable-rate and fixed-rate, first
lien mortgage loans that are originated by New Century.
1. Mortgage Loans.
(a) In General. NCCC hereby agrees to deliver Mortgage Loans with an
unpaid principal balance of not less than $1,000,000,000 between April 1, 2000
and March 31, 2001 through the Aggregation Line.
(b) Servicing of the Mortgage Loans. The purchase by SBRC of a
Mortgage Loan pursuant to the Aggregation Line shall include the purchase of the
related servicing rights for such Mortgage Loan. Unless otherwise agreed to
between SBRC and NCCC, SBRC hereby covenants and agrees to hire New Century to
service; and New Century hereby covenants and agrees to service the Mortgage
Loans for a term beginning on the related Settlement Date (as defined in Section
2(a) hereof) and ending on the related repurchase date as provided for in the
Purchase and Sale Agreement (as defined in Section 2(a) hereof); provided that
if a Termination Event (as defined in Section 4(b) hereof) has occurred, New
Century shall immediately be terminated as servicer. In connection with its
servicing duties, New Century can service the Mortgage Loans itself or through
such other sub-servicer which SBRC has accepted in writing, as the sub-servicer
(the "Sub-Servicer") provided that, SBRC shall have the right to perform due
diligence on any entity appointed as servicer or sub-servicer
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
April 1, 2000 Page 2.
of the Mortgage Loans and may require New Century to select another servicer or
sub-servicer to the extent that SBRC is not satisfied with the results of such
due diligence. The Mortgage Loans shall be serviced in accordance with the
servicing provisions specified in the Pooling and Servicing Agreement, Series
1999-NCS dated as of December 1, 1999 among Firstar Bank, N.A., U.S. Bank
National Association, Salomon Brothers Mortgage Securities VII, Inc. and New
Century. New Century or the Sub-Servicer shall enforce "due-on-sale" provisions
to the extent permitted by law, shall administer all escrow/impound deposits,
shall pay compensating interest on principal prepayments in any month up to the
amount of its servicing compensation in such month and shall make all servicing
advances on any Mortgage Loan (including advances of delinquent principal and
interest payments). New Century or the Sub-Servicer shall be required to make
advances in respect of delinquent payments of principal and interest on the
Mortgage Loans through foreclosure, subject to New Century's or the
Sub-Servicer's determination regarding recoverability. The Mortgage Loans shall
be serviced for a servicing fee equal to 0.50% per annum payable monthly on the
then-outstanding principal balance of each Mortgage Loan (the "Servicing Fee").
Any fee payable to the Sub-Servicer shall be paid by New Century without any
right of reimbursement by SBRC. Any Sub-Servicer shall execute a letter
agreement recognizing SBRC's interest in the Mortgage Loans in the form of
Exhibit A. Notwithstanding the foregoing, in the event NCCC fails to repurchase
a Mortgage Loan on the related repurchase date or if a Termination Event occurs,
New Century and any related Sub-Servicer will no longer be servicer with respect
to such Mortgage Loan or Mortgage Loans, unless the term of servicing is
extended by SBRC in its sole discretion. In such event, SBRC shall have the
right to transfer such servicing to another servicer without payment of any fee
to New Century. New Century will cooperate in good faith to effect such
servicing transfer and shall pay all costs associated with such servicing
transfer.
(c) Conditions Precedent to Mortgage Loan Purchases. SBRC's
obligation to purchase any Mortgage Loans and related servicing rights which it
accepts for its Aggregation Line shall be subject to each of the following
conditions:
(i) there shall have been delivered to SBRC a Trust Receipt
issued by U.S. Bank National Association ("U.S. Bank")
with a mortgage loan schedule attached thereto and an
exception report which is acceptable to SBRC in its sole
discretion, at least 24 hours prior to purchase;
(ii) SBRC shall have had an opportunity to perform a due
diligence review of each Mortgage Loan and shall have
arranged for reappraisals of value with respect to each
Mortgage Loan if desired by SBRC;
(iii) NCCC shall have provided to SBRC such other documents
which are then required to have been delivered under the
Purchase and Sale Agreement or which are reasonably
requested by SBRC, which other documents may include UCC
financing statements, a favorable opinion or opinions of
counsel with respect to matters which are
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
April 1, 2000 Page 3.
reasonably requested by SBRC, and/or an officer's or
secretary's certificate; and
(iv) there shall have been delivered to SBRC a limited
guaranty of New Century, in the form of Exhibit B
hereto, by which New Century guarantees the obligations
of NCCC under this Letter Agreement and the Purchase and
Sale Agreement.
(d) Termination Fee. To the extent that the amount of Mortgage Loans
(i) sold to SBRC, (ii) securitized using the Salomon Brothers Mortgage
Securities VII, Inc. ("SBMSVII") shelf registration or (iii) securitized using
the New Century Mortgage Securities, Inc. ("NCMSI") shelf registration so long
as Salomon Smith Barney Inc. acts as underwriter, between April 1, 2000 and
March 31, 2001 is less than $1,000,000,000, NCCC must pay the termination fee as
provided in Section 4(a)(ii) hereof. In addition, NCCC will pay to Salomon Smith
Barney promptly upon the closing of each securitization using the SBMSVII shelf
registration or the NCMSI shelf registration, an underwriting discount equal to
the product of (i) the applicable Underwriting Fee Percentage multiplied by (ii)
the aggregate unpaid principal balance of the Mortgage Loans subject to such
securitization (the "Underwriting Fee"). The "Underwriting Fee Percentage" with
respect to each securitization shall be three-eighths of one percent (0.375%).
(e) Information. NCCC and New Century will furnish Salomon Smith
Barney with all financial and other information concerning NCCC and New Century
as Salomon Smith Barney deems reasonably appropriate in connection with the
performance of the services contemplated by this letter, including (without
limitation) "Monthly Cash Flow Projections and Sensitivity Analyses," and will
provide Salomon Smith Barney with reasonable access during normal business hours
to NCCC's and New Century's officers, directors, employees, accountants, and
other representatives. NCCC and New Century acknowledge and confirm that Salomon
Smith Barney (i) will rely on such information in the performance of the
services contemplated by this letter without independently investigating or
verifying any of it, (ii) assumes no responsibility for the accuracy or
completeness of such information and (iii) will not disclose such information to
any third party without the prior written consent of NCCC or New Century, as
applicable.
2 Aggregation Line.
(a) In General. Pursuant to the terms of this Aggregation Line, SBRC
shall simultaneously purchase from, and sign a forward commitment to resell to,
NCCC Mortgage Loans and the related servicing rights that are deemed acceptable
for such Aggregation Line as set forth below. The Aggregation Line shall be more
fully documented pursuant to the Mortgage Loan Purchase and Sale Agreement (the
"Purchase and Sale Agreement") to be entered into among NCCC, New Century and
SBRC, which shall be substantially similar in form to the Mortgage Loan Purchase
and Sale Agreement dated December 11, 1998 between New Century and SBRC but
shall provide for servicing provisions similar to those set forth in Section
1(b) of this Letter Agreement. Under the Purchase and Sale Agreement, NCCC will
make standard secondary market corporate representations
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
April 1, 2000 Page 4.
and warranties as of the date such Purchase and Sale Agreement is executed and
as of any settlement date for the purchase and sale of any Mortgage Loans
pursuant to such Purchase and Sale Agreement (each such date, a "Settlement
Date") and NCCC shall make standard secondary market representations and
warranties with respect to each Mortgage Loan as of the Settlement Date on which
such Mortgage Loan is sold to SBRC. In the event that NCCC satisfies its
obligations under the terms of this Letter Agreement, the Aggregation Line shall
terminate on the last day of the calendar quarter in which NCCC satisfies its
obligations to SBRC pursuant to Section 1(a) of this Letter Agreement.
The "Purchase Price" with respect to each Mortgage Loan and related
servicing rights which conforms to the Underwriting Standards of New Century
which were most recently reviewed and approved by SBRC and which is not a
Problem Mortgage Loan (as defined in Section 2(b) hereof) or a Non-Standard
Mortgage Loan (as defined in Section 2(c) hereof) (a "Standard Mortgage Loan")
shall be equal to 102.00% of the unpaid principal balance of such Standard
Mortgage Loan. The "Purchase Price" for each Non-Standard Mortgage Loan and
related servicing rights shall be equal to the amount determined in accordance
with the provisions of Section 2(c)(ii) hereof. Notwithstanding the foregoing,
the "Purchase Price" for each Mortgage Loan will be reduced by the amount of any
Collateral Value Deficiency paid by NCCC with respect to such Mortgage Loan.
The repurchase price shall reflect the agreed upon return to SBRC
for providing the Aggregation Line (the "Aggregation Cost"). With respect to any
Standard Mortgage Loan, the Aggregation Cost shall equal One Month LIBOR (as
defined herein) plus 1.25%. With respect to any Non-Standard Mortgage Loan, the
Aggregation Cost shall equal One Month LIBOR plus 2.00%. NCCC shall retain
principal and interest on any Mortgage Loans subject to the Aggregation Line.
"One Month LIBOR" means as of the related Settlement Date, the 30
day London Interbank Offered Rate as of 11:00 a.m. (London time) on such date,
as indicated on page number 3750 of the Telerate Service. If One Month LIBOR
cannot be so determined, then One Month LIBOR shall mean the rate determined by
SBRC in its sole discretion.
The Aggregation Line at any one time shall be initially limited to
$600,000,000 in amount of Mortgage Loans which limit shall be reduced by an
amount equal to the principal balance of each Mortgage Loan (calculated at the
time such Mortgage Loan was first added to the Aggregation Line) removed from
the Aggregation Line (excluding any unfundings, Mortgage Loans repurchased for
due diligence reasons or Mortgage Loans removed for a breach of a representation
or warranty set forth on Exhibit B to the Purchase and Sale Agreement) and shall
have a term of one month. The maximum amount of Non-Standard Mortgage Loans in
the Aggregation Line shall not exceed $78,000,000 at any one time.
NCCC shall have the right to add Mortgage Loans to the Aggregation
Line up to four times each month. Standard Mortgage Loans may be removed from
the Aggregation Line up to four times a month (one of which shall be on the roll
date). Non-Standard Mortgage Loans may be removed from the Aggregation Line with
24 hours prior written notice by NCCC to SBRC.
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
April 1, 2000 Page 5.
If NCCC removes any Mortgage Loan from the Aggregation Line
(excluding any unfundings, Mortgage Loans repurchased for due diligence reasons
or Mortgage Loans removed for a breach of a representation or warranty set forth
on Exhibit B to the Purchase and Sale Agreement), in addition to all other
amounts owed under this Letter Agreement, NCCC must pay to SBRC (or an affiliate
of SBRC) a termination fee equal to 0.25% times the principal balance of each
such Mortgage Loan calculated at the time such Mortgage Loan was first added to
the Aggregation Line on the date the related Mortgage Loan is removed from the
Aggregation Line; provided, however, such termination fee will not be payable if
the removed Mortgage Loans are either (i) sold to SBRC in a whole-loan sale,
(ii) securitized using the SBMSVII shelf registration or (iii) securitized using
the NCMSI shelf registration so long as Salomon Smith Barney Inc. acts as
underwriter. In addition, NCCC will pay to Salomon Smith Barney promptly upon
the closing of each securitization using the SBMSVII shelf registration or the
NCMSI shelf registration the Underwriting Fee.
SBRC shall provide not less than twenty eight days' prior notice to
NCCC and U.S. Bank National Association (or such other warehouse lender as
directed by NCCC) in the event that SBRC elects to not renew the Aggregation
Line for any month.
(b) Problem Mortgage Loans. A "Problem Mortgage Loan" is defined as
any Mortgage Loan (i) which is in SBRC's sole discretion of insufficient quality
to be financed as a Standard Mortgage Loan or a Non-Standard Mortgage Loan or
purchased, provided, however, that if SBRC agrees, it can finance any Mortgage
Loan rejected from a securitization or whole loan purchase as a Non-Standard
Mortgage Loan, (ii) which is missing documentation or other information and such
problem is not cured by NCCC in sixty days, (iii) which is delinquent at the
time of financing by SBRC, which becomes delinquent during such financing by
SBRC or (iv) was more than thirty days but less than sixty days delinquent on
more than one occasion in the prior twelve months and is now current. Problem
Mortgage Loans shall be financed by SBRC pursuant to the Master Loan and
Security Agreement, dated April 1, 2000, the ("Loan and Security Agreement"),
among New Century Mortgage Corporation as servicer, NC Capital Corporation as
borrower and SBRC as Lender.
With respect to any Mortgage Loan that is a Problem Mortgage Loan based on
clause (i) or clause (ii) above, in the event that SBRC determines in its sole
discretion that such Problem Mortgage Loan has ceased to be a Problem Mortgage
Loan, such Mortgage Loan shall be treated as a Standard Mortgage Loan or a
Non-Standard Mortgage Loan, as the case may be, as of the first day of the month
following such determination.
(c) Non-Standard Mortgage Loans. A "Non-Standard Mortgage Loan" is
defined as any Mortgage Loan (i) with an unpaid principal balance in excess of
$1,000,000; or (ii) that has a loan-to-value ratio in excess of 85.00% (up to a
maximum of 95.00%); provided, however, at its option, SBRC may deem a Mortgage
Loan with an unpaid principal balance of no more than $1,500,000 to be a
Standard Mortgage Loan. In addition, if (i) Mortgage Loans with a loan-to-value
ratio greater than 80.00% (but not more than 85.00%) have an aggregate unpaid
principal balance in excess of $120,000,000 and (ii) Mortgage Loans with unpaid
principal balances greater than
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
April 1, 2000 Page 6.
$500,000 and less than or equal to $1,500,000 have an aggregate unpaid principal
balance in excess of $42,000,000, such excess amounts shall be deemed
"Non-Standard Mortgage Loans". No Mortgage Loan shall be subject to the terms of
the Aggregation Line if: (i) the unpaid principal balance of such Mortgage Loan
exceeds $1,500,000 or (ii) such Mortgage Loan has a loan-to-value ratio greater
than 95.00%. Non-Standard Mortgage Loans shall be subject to the following
qualifications with respect to the Aggregation Line:
(i) the maximum Aggregation Line with respect to Non-Standard
Mortgage Loans shall equal $78,000,000 (of which no more than
$30,000,000 shall have unpaid principal balances greater than
$1,000,000 and no more than $50,000,000 shall be Mortgage
Loans with a loan-to-value ratio in excess of 85.00% (up to a
maximum of 95.00%)), as of any trade date on which there was
formal notification of a trade by a confirmation letter or
trade ticket;
(ii) with respect to the Non-Standard Mortgage Loans, the Purchase
Price for the first sixty days shall be the market value of
such Mortgage Loans as determined by SBRC acting in good
faith, and thereafter, the Purchase Price shall decrease by
10% of such market value and by an additional 10% thereof for
each succeeding month.
(d) Mark-to-Market. If with respect to any Standard Mortgage Loan or
any Non-Standard Mortgage Loan, SBRC at any time determines, in its sole
discretion, that there exists a Collateral Value Deficiency (as defined below)
and SBRC notifies NCCC in writing of such Collateral Value Deficiency, NCCC
shall, no later than one (1) Business Day after receipt of such notice, pay to
SBRC an amount equal to such Collateral Value Deficiency, such that after giving
effect to such payment, the Collateral Value Deficiency is reduced to zero. With
respect to any Mortgage Loan, a "Collateral Value Deficiency" shall mean any
time the excess, if any, of (a) the outstanding Purchase Price of such Mortgage
Loan as defined in Section 2(a) hereof over (b) the Market Value of such
Mortgage Loan. "Market Value" shall mean, as of any date in respect of any
Standard Mortgage Loan or any Non-Standard Mortgage Loan, the value of such
Mortgage Loan as determined by SBRC in its sole discretion. SBRC shall have the
right to mark-to-market any Mortgage Loan on a daily basis.
(e) Mortgage Loan Schedule. No Mortgage Loan shall be included in
the Aggregation Line unless NCCC shall have delivered to SBRC at least 48 hours
prior to such inclusion, a magnetic tape, in a format acceptable to SBRC,
consisting of the loan characteristics agreed upon by SBRC and NCCC with respect
to each Mortgage Loan.
(f) Marketing of Mortgage Loans. SBRC may (subject to NCCC's consent
unless a Termination Event has occurred) market the Non-Standard Mortgage Loans
on NCCC's behalf for a purchase price acceptable to NCCC and shall provide NCCC
with a copy of a trade ticket or letter of intent with respect to any commitment
to sell such Mortgage Loans.
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
April 1, 2000 Page 7.
(g) Hedging. NCCC will have the option to establish one or more
securities or commodities accounts at Salomon Smith Barney and to enter into
transactions in such accounts (and only in such accounts) that are intended to
hedge the interest rate risk on Mortgage Loans included in the Aggregation Line.
3 Financing of Trigger Buybacks. SBRC shall finance under the terms
set forth in the Loan and Security Agreement mortgage loans which are
repurchased by New Century and sold or contributed to NCCC based upon trigger
buybacks in effect pursuant to the pooling and servicing agreements for SBMSVII
1997-NC1, 1997-NC2, 1997-NC3, 1998-NC5 and New Century Home Equity Loan Trust
Series 1997-NC5.
4. Termination.
(a) NCCC shall have the right to terminate its obligations hereunder
upon (i) any material default by SBRC of its obligations under this Letter
Agreement which is not cured within 30 days following written notice of such
default to SBRC by NCCC or (ii) the payment by NCCC to SBRC of a termination fee
equal to (1) 0.25% multiplied by (2) $1,000,000,000 minus (a) the principal
balance of all Mortgage Loans (i) sold to SBRC as whole loans, (ii) securitized
using the SBMSVII shelf registration or (iii) securitized using the NCMSI shelf
registration so long as Salomon Smith Barney Inc. acts as underwriter and (b)
the principal balance of each Mortgage Loan for which a termination fee has
already been paid pursuant to the next to last paragraph of Section 2(a) hereof.
In addition, NCCC will pay to Salomon Smith Barney promptly upon the closing of
each securitization using the SBMSVII shelf registration or the NCMSI shelf
registration, the Underwriting Fee.
(b) SBRC shall have the right to terminate this Letter Agreement
upon the occurrence of any of the following events (each, a "Termination
Event"):
(i) the judgment by SBRC in good faith that a material adverse
change has occurred with respect to the business, properties,
assets or condition (financial or otherwise) of NCCC;
(ii) SBRC shall reasonably request, specifying the reasons for such
request, information, and/or written responses to such
requests, regarding the financial well-being of NCCC and such
information and/or responses shall not have been provided
within three business days of such request;
(iii) Either (A) a change in control of NCCC shall have occurred
without the consent of SBRC, other than in connection with and
as a result of the issuance and sale by NCCC of registered,
publicly offered common stock; or (B) SBRC determines in its
sole discretion that any material adverse change has occurred
in the management of NCCC;
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
April 1, 2000 Page 8.
(iv) There is (A) a material breach by NCCC of any representation
and warranty contained in the Purchase and Sale Agreement,
other than a representation or warranty relating to particular
Mortgage Loans, and SBRC has reason to believe in good faith
either that such breach is not curable within 30 days or that
such breach may not have been cured in all material respects
at the expiration of 30 days following discovery thereof by
NCCC or (B) a failure by NCCC to make any payment payable by
it under the Purchase and Sale Agreement or (C) any other
failure by NCCC to observe and perform in any material respect
its material covenants, agreements and obligations with SBRC,
including without limitation those contained in the Purchase
and Sale Agreement, and SBRC has reason to believe in good
faith that such failure may not have been cured in all
material respects at the expiration of 30 days following
discovery thereof by NCCC;
(v) There shall have occurred any outbreak or material escalation
of hostilities, declaration by the United States of a national
emergency or war or other calamity or crisis, the effect of
which on the financial markets is such as to make it, in the
judgment of SBRC, impracticable to continue the commitment; or
(vi) NCCC fails to provide written notification to SBRC of any
material change in its loan origination, acquisition or
appraisal guidelines or practices, or NCCC, without the prior
consent of SBRC (which shall not be unreasonably withheld),
amends in any material respect its loan origination,
acquisition or appraisal guidelines or practices; or
(vii) NCCC's default in the payment of the amount of any Collateral
Value Deficiency for more than one (1) Business Day after
receipt of written notice of such Collateral Value Deficiency
as provided in Section 2(d) hereof;
provided, that SBRC shall have the right to dispose of any collateral held by
SBRC pursuant to this Letter Agreement. In connection with a Termination Event
under this Section 4, SBRC shall have the right to transfer servicing as
provided in Section 1(b).
(c) Subject to the provisions of Section 4 of this Letter Agreement,
this Letter Agreement shall terminate upon the earlier of (i) satisfaction of
the $1,000,000,000 commitment and (ii) March 31, 2001; provided that the Master
Loan and Security Agreement provided for in Section 3(b) shall continue under
its terms; provided, further, that SBRC may, in its sole discretion, extend the
terms of this Letter Agreement until such time that NCCC has been able to
fulfill its commitment without payment of a termination fee.
Notwithstanding any other provision of this Section 4, any grace or
notice period provided herein in respect of a notice to be given or action to be
taken by SBRC may be shortened
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
April 1, 2000 Page 9.
or eliminated by SBRC if, in its sole good faith discretion, it is unreasonable
to do so under the circumstances, taking into consideration, among other things,
the volatility of the market for the Mortgage Loans involved, the extent and
nature of any Termination Event (or events which with the giving of such notice
and passage of time would constitute Termination Events) and the risks inherent
in deferring the exercise of remedies for the otherwise applicable grace or
notice period.
5. General Provisions.
(a) Salomon Smith Barney's Discretion. It is understood that Salomon
Smith Barney shall have absolute discretion in determining whether to accept or
reject any Mortgage Loan. Notwithstanding the foregoing, however, subject to
NCCC's representations, warranties and covenants as set forth herein and in any
related agreements, all Standard Mortgage Loans and Non-Standard Mortgage Loans
originated by New Century in accordance with the underwriting standards of New
Century which were most recently approved by SBRC shall be eligible for
financing under the Aggregation Line in accordance with the terms hereof. It is
further understood that SBRC shall have absolute discretion in determining
whether any Mortgage Loan is a Standard Mortgage Loan, Non-Standard Mortgage
Loan or Problem Mortgage Loan and SBRC shall have the right to approve or
disapprove any Mortgage Loan with an unpaid principal balance in excess of
$1,000,000 (for which such Mortgage Loans, NCCC shall have obtained two
appraisals).
(b) Governing Law. This Letter Agreement shall be governed by and
construed in accordance with the laws of the State of New York (without regard
to its conflicts of laws principles).
(c) Amendment or Waiver. This Letter Agreement may not be amended or
modified except in writing signed by each of the parties hereto.
(d) Counterparts. This Letter Agreement may be executed
simultaneously in any number of counterparts. Each counterpart shall be deemed
to be an original, and all such counterparts shall constitute one and the same
instrument.
(e) Severability Clause. Any part, provision, representation or
warranty of this Letter Agreement which is prohibited or which is held to be
void or unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any part,
provision, representation or warranty of this Letter Agreement which is
prohibited or unenforceable or is held to be void or unenforceable in any
jurisdiction shall be ineffective, as to such jurisdiction, to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. To the extent permitted by applicable law, the parties hereto
waive any provision of law which prohibits or renders void or unenforceable any
provision hereof. If the invalidity of any part, provision, representation or
warranty of this Letter Agreement shall deprive any party of the economic
benefit intended to be conferred by this Letter Agreement, the parties shall
negotiate, in good-faith, to develop a structure the economic effect of which is
nearly as possible the same as the economic effect of this Letter Agreement
without regard to such invalidity.
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
April 1, 2000 Page 10.
(f) No Partnership. Nothing herein contained shall be deemed or
construed to create a co-partnership or joint venture between the parties
hereto.
(g) Further Agreements. NCCC and SBRC each agree to execute and
deliver to the other such reasonable and appropriate additional documents,
instruments or agreements as may be necessary or appropriate to effectuate the
purposes of this Letter Agreement.
(h) Termination. Other than those sections intended to survive in
the letter agreement dated September 1, 1999 among New Century, NCCC, Salomon
Smith Barney and SBRC (including those sections related to indemnification),
such letter agreement is hereby terminated.
(i) Expenses. NCCC shall pay the expenses of Thacher Proffitt &
Wood, counsel for SBRC, in connection with the Aggregation Line and any
amendment thereto, which fees and expenses will not exceed $[20,000] in
connection with the Aggregation Line and will not exceed a negotiated cap
between the parties in connection with each amendment thereto, if any.
<PAGE>
Please confirm that the foregoing is in accordance with your
understanding by signing this letter of agreement and two enclosed copies and
returning to us the enclosed copies. The letter signed by you shall constitute a
binding agreement between us as of the date first above written.
Yours sincerely,
SALOMON BROTHERS REALTY CORP.
By: /s/ [ILLEGIBLE]
-------------------------------
Name:
Title:
SALOMON SMITH BARNEY INC.
By: /s/ [ILLEGIBLE]
-------------------------------
Name:
Title:
ACCEPTED AND AGREED TO
AS OF THE DATE FIRST ABOVE WRITTEN:
NEW CENTURY MORTGAGE CORPORATION
By: /s/ Patrick Flanagen
------------------------------
Name:
Title: EVP/COO
NC CAPITAL CORPORATION
By: /s/ John Kontoulis
------------------------------
Name:
Title: Senior Vice President
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
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0
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