<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 000-23089
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
(Exact name of registrant as specified in its charter)
MARYLAND
(State or other jurisdiction of incorporation or organization)
95-4648345
(I.R.S. Employer Identification No.)
11601 WILSHIRE BLVD., SUITE 2080
LOS ANGELES, CA 90025
(Address of principal executive offices) (Zip Code)
(310) 231-1280
(Registrant's telephone number, including area code)
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 12 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 [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $0.0001 par value - 34,500,000 shares as of April 30, 1998
1
<PAGE>
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
--------
<S> <C>
Item 1. Interim Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 1998 (Unaudited) and December 31, 1997 3
Consolidated Statement of Earnings for the three months ended March 31, 1998 (Unaudited) 4
Consolidated Statement of Cash Flows for the three months ended March 31, 1998 (Unaudited) 5
Consolidated Statement of Changes in Stockholders' Equity for the three months ended March 31, 1998 6
(Unaudited)
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosure About Market Risk 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 16
</TABLE>
2
<PAGE>
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 (UNAUDITED) AND DECEMBER 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Cash and interest bearing deposits $ 24,339 11,902
Repurchase agreements 0 148,711
Securities available-for-sale, at market value 64,925 59,321
Mortgage loans, net 414,967 272,009
Accrued interest receivable 4,305 2,085
Other assets 1,116 1,109
----------------------
Total Assets $509,652 495,137
======================
LIABILITIES
Dividends and distributions payable $ 8,280 4,485
Accrued expenses, payables and other liabilities 21,797 10,950
----------------------
Total Liabilities 30,077 15,435
======================
STOCKHOLDER'S EQUITY:
Common stock, par value $0.0001 per share.
Authorized 500,000,000 shares, 34,500,000 shares issued and outstanding 3 3
Additional paid-in capital 481,856 481,856
Accumulated other comprehensive income 474 169
Distributions in excess of earnings (2,758) (2,326)
----------------------
Total Stockholder's Equity 479,575 479,702
----------------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $509,652 495,137
======================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA)
<TABLE>
<S> <C>
INTEREST INCOME
Mortgage loans $ 5,973
Repurchase agreements and interest bearing deposits 2,119
Securities available-for-sale 1,454
-----------
Total Interest Income 9,546
-----------
OPERATING EXPENSES
Management fees 1,200
Due diligence expenses 150
Other 348
-----------
Total Expenses 1,698
-----------
NET EARNINGS 7,848
Dividends and distributions 8,280
-----------
Distributions in excess of earnings $ (432)
===========
EARNINGS PER SHARE
Basic $ 0.23
Diluted 0.23
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 34,500,000
Diluted 34,570,167
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 7,848
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 18
Amortization of premium on mortgage loans 282
Amortization of discount on investment securities available-for-sale (1,454)
Net change in:
Accrued interest receivable (2,220)
Other assets (25)
Other liabilities 10,847
----------
Total Cash Provided by Operating Activities 15,296
----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available-for-sale (6,096)
Payments received on investment securities available-for-sale 2,251
Purchases of mortgage loans (149,757)
Principal reductions on mortgage loans 6,517
----------
Total Cash Used for Investing Activities (147,085)
----------
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid (4,485)
----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (136,274)
Cash and cash equivalents at beginning of period 160,613
----------
Cash and cash equivalents at end of period $ 24,339
==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Accumulated
Additional Other Distributions Total
Common Paid-In Comprehensive in Excess of Comprehensive Stockholders'
Stock Capital Income Earnings Income Equity
------ ---------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of
period $ 3 $ 481,856 $ 169 $ (2,326) $ 479,702
Change in unrealized gain
on securities
available-for-sale 305 305 305
Net earnings 7,848 7,848 7,848
Dividends declared ($0.24
per share) (8,280) (8,280)
----------------------------------------------------------------------------------------------------
Balance at end of period $ 3 $ 481,856 $ 474 $ (2,758) $ 8,153 $ 479,575
====================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION
Imperial Credit Commercial Mortgage Investment Corp. (the "Company") was
incorporated in Maryland on July 31, 1997 and was initially capitalized on such
date through the sale of 100 shares of its Common Stock, par value $0.0001 per
share (the "Common Stock"), for $2. On October 22, 1997, the Company commenced
its operations upon consummation of an initial public offering of 34,500,000
shares of its Common Stock, with gross proceeds of $513,857 and net proceeds to
the Company of $479,309 after discounts and expenses. The Company acquires
mortgage loans, real property and interests in commercial mortgage-backed
securities ("CMBS"). Most of the Company's mortgage loans and all of the
Company's interests in CMBS were acquired from Imperial Credit Industries, Inc.
("Imperial Credit") and affiliates. The Company intends to operate so as to
qualify as a real estate investment trust ("REIT") under the requirements of the
Internal Revenue Code of 1986, as amended (the "Code").
The Company has entered into a management agreement (the "Management Agreement")
with Imperial Credit Commercial Asset Management Corporation (the "Manager"), a
wholly-owned subsidiary of Imperial Credit, under which the Manager advises the
Company on various aspects of its business and manages its day-to-day
operations, subject to the supervision of the Board of Directors of the Company.
Imperial Credit currently owns 3,070,000 shares (8.9%) of the Company's
outstanding common stock and the Manager has options to purchase an additional
1,691,250 shares at $15 per share, exercisable over a three year period. The
Manager is entitled to receive a base management fee of 1% per annum of the
first $1 billion of average invested assets, 0.75% of the next $250 million of
average invested assets, and 0.5% of average invested assets above $1.25
billion, payable quarterly. In addition, the Manager is entitled to a quarterly
incentive fee generally based on 25% of Funds from Operations, as adjusted, in
excess of certain defined levels of return, as fully set forth in the Management
Agreement. Only base management fees have been earned to date.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company and its subsidiary are
prepared in accordance with generally accepted accounting principles. All
material intercompany transactions have been eliminated in consolidation.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Actual
results could differ from those estimates.
In management's opinion, the accompanying unaudited consolidated financial
statements of the Company and its subsidiary contain all adjustments (consisting
of normal recurring adjustments) necessary to present fairly the consolidated
financial position of the Company and subsidiary at March 31, 1998 and their
results of operations and cash flows for the three months then ended. These
unaudited financial statements have been prepared in accordance with the rules
and regulations of the Securities and Exchange Commission ("SEC") for interim
financial statements and accordingly are not as comprehensive as annual
financial statements prepared in accordance with generally accepted accounting
principles. Various information and note disclosure normally included in such
annual financial statements have been condensed or omitted. While management
believes that the disclosures presented herein are adequate to make the
information not misleading, users are advised to read the accompanying unaudited
interim financial statements in conjunction with the audited consolidated
financial statements and notes included in the Company's 1997 annual report on
Form 10-K filed with the SEC on March 31, 1998. Operating results for the
period ended March 31, 1998 are not necessarily indicative of the results that
may be expected for any other interim periods or the entire year ending December
31, 1998.
7
<PAGE>
Investment Securities
The Company classifies investment securities as held-to-maturity, available-for-
sale, and/or trading securities at the time of purchase based upon management's
intent and the Company's ability to hold the securities. Held-to-maturity
investment securities are reported at amortized cost, available-for-sale
securities are reported at fair value with unrealized gains and losses, net of
related income taxes, reported as a component of comprehensive income, and
trading securities are reported at fair value with unrealized gains and losses
reported in income. Discounts obtained or premiums paid on investment
securities are amortized to interest income over the estimated life of the
investment securities using the interest method.
Mortgage Loans Held For Investment
The Company purchases certain mortgage loans to be held as long-term
investments. Mortgage loans held for investment are recorded at cost at the
date of purchase. Premiums and discounts related to these loans are amortized
over their estimated lives using the interest method. Loans are continually
evaluated for collectibility and, if appropriate, loans may be placed on non-
accrual status. Loans are placed on non-accrual status generally after they
become 90 days past due, in which case previously accrued interest is reversed
from income. Future collections of interest are included in interest income or
applied to the loan balance based on an assessment of the likelihood that the
principal will be collected.
The Company maintains an allowance for losses on mortgage loans held for
investment at an amount which it believes is sufficient to provide adequate
protection against future losses in the mortgage loan portfolio. The allowance
for losses is determined primarily on the basis of management's judgment of net
loss potential, including specific allowances for known impaired loans and other
factors such as changes in the nature and volume of the portfolio, value of the
collateral and current economic conditions that may affect the borrowers'
ability to pay.
Income Taxes
The Company will elect to be taxed as a REIT under Sections 856 through 860 of
the Code. A REIT generally will not be subject to federal income taxation on
that portion of its income that qualifies as REIT taxable income to the extent
that it distributes at least 95% of its taxable income to its stockholders and
complies with certain other requirements. Accordingly, no provision has been
made for federal income taxes for the Company and its subsidiary in the
accompanying consolidated financial statements.
Earnings Per Share
Basic earnings per share is computed on the basis of the weighted average number
of shares outstanding for the period. Diluted earnings per share is computed on
the basis of the weighted average number of shares and common equivalent shares
outstanding for the period. For purposes of diluted earnings per share, the
computation of the weighted average number of shares outstanding includes the
impact of the assumed exercise of the outstanding dilutive options to purchase
common stock and assumes that the proceeds from such issuance are used to
repurchase common shares at the average market price of the Company's common
stock for the period.
Reporting Comprehensive Income
The Company has adopted Financial Accounting Standards Board Statement 130 ("FAS
130"), "Comprehensive Income: Financial Statement Presentation," in the
accompanying unaudited consolidated financial statements. Pursuant to FAS 130,
standards have been established for reporting and displaying comprehensive
income and its components in a full set of general-purpose financial statements.
The Company has elected to adopt FAS 130 by including separate columns for
comprehensive income and accumulated other comprehensive income in the
consolidated statement of changes in stockholders' equity. Unrealized gain
(loss) on securities available-for-sale has been included in comprehensive
income. Comprehensive income for the three months ended March 31, 1998
aggregated $8,153 and was comprised of net income of $7,848 and the increase in
unrealized gain on securities available-for-sale of $305.
8
<PAGE>
3. INVESTMENT SECURITIES AVAILABLE-FOR-SALE
At March 31, 1998, the Company's investment securities available-for-sale
consisted of shares of a private equity REIT, subordinated securities
collateralized by commercial mortgages and interest only securities and certain
subordinated asset-backed notes issued by Franchise Mortgage Acceptance Corp.
("FMAC"), an affiliate of Imperial Credit. In general, subordinated classes and
interest only securities of a particular series of securities bear all losses
prior to the related senior classes. Such securities or investments may subject
the Company to credit, interest rate and/or prepayment risks.
The amortized cost and estimated fair value of investment securities available-
for-sale are summarized as follows:
<TABLE>
<CAPTION>
Balance at March 31, 1998
------------------------- Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Security Description Cost Gain Loss Value
- -------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
CMBS interests:
Non-investment grade rated subordinated interests $ 34,469 $ 1,551 $ $ 36,020
Investment grade rated senior interest only interests 6,170 520 5,650
Non-investment grade rated subordinated interest only interests 6,379 456 5,923
Non-rated subordinated interest only interests 1,975 243 1,732
Other non-rated subordinated interests 4,362 142 4,504
-----------------------------------------------
Total CMBS interests 53,355 1,693 1,219 53,829
Non-investment grade rated subordinated notes 6,096 6,096
Private equity REIT 5,000 5,000
-----------------------------------------------
Total $ 64,451 $ 1,693 $ 1,219 $ 64,925
===============================================
Balance at December 31, 1997
---------------------------- Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Security Description Cost Gain Loss Value
- -------------------- --------- ---------- ---------- ---------
CMBS interests:
Non-investment grade rated subordinated interests $ 34,405 $ 1,411 $ 14 $ 35,802
Investment grade rated senior interest only interests 6,642 486 6,156
Non-investment grade rated subordinated interest only interests 6,645 532 6,113
Non-rated subordinated interest only interests 1,987 236 1,751
Other non-rated subordinated interests 4,473 26 4,499
-----------------------------------------------
Total CMBS interests 54,152 1,437 1,268 54,321
Private equity REIT 5,000 5,000
-----------------------------------------------
Total $ 59,152 $ 1,437 $ 1,268 $ 59,321
===============================================
</TABLE>
The Company's CMBS interests are secured by adjustable and fixed rate commercial
and multifamily mortgage loans. The yield to maturity on each security depends
on, among other things, the rate and timing of principal payments (including
prepayments, repurchases, defaults and liquidations), the pass-through rate and
interest rate fluctuations. The Company's interest in some of these securities
is subordinated so that, in the event of a loss, payments to senior certificate
holders will be made before the Company receives its payments. All of the
Company's CMBS interests were acquired from Imperial Credit and its wholly-owned
subsidiary, Southern Pacific Bank ("SPB"), the originator or purchaser of the
underlying mortgage loans.
The unamortized discount on investment securities available-for-sale was $29,407
and $28,211 at March 31, 1998 and December 31, 1997, respectively. There were no
sales of investment securities available-for-sale during the period ended March
31, 1998.
9
<PAGE>
4. MORTGAGE LOANS
Mortgage loans held for investment include various types of adjustable-rate and
fixed-rate loans secured by mortgages on commercial and multifamily real estate
properties.
As of March 31, 1998 and December 31, 1997, the Company's mortgage loan
portfolio consisted of the following:
<TABLE>
<CAPTION>
As of March 31, 1998 As of December 31, 1997
-------------------- -----------------------
Number Amount Number Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Multifamily loans 876 $232,108 681 $171,312
Commercial loans 297 152,331 191 90,050
Construction loan participation 1 18,000 0 0
-------------------------------------------------------------
Total principal 1,174 402,439 872 261,362
====== ======
Unamortized premium 14,990 12,374
Unearned loan fees (735) 0
Allowance for loan losses (1,727) (1,727)
-------- --------
Net carrying amount $414,967 $272,009
======== ========
Principal balance of SPB loans 820 $289,680 568 $196,801
Principal balance of FMAC loans 25 21,234 2 6,182
-------------------------------------------------------------
Total principal balance of loans
acquired from affiliates of Manager 845 $310,914 570 $202,983
=============================================================
</TABLE>
5. SUBSEQUENT EVENTS
Subsequent to March 31, 1998, the Company made certain draw downs pursuant to
two loan agreements that were recently put in place. The Company entered into a
Master Loan and Security Agreement dated as of March 30, 1998 with Morgan
Guaranty Trust Company of New York (a subsidiary of J.P. Morgan & Co.
Incorporated) for a $500,000 warehouse line of credit. The Company borrowed
$52,000 in May 1998 against this facility. In addition, the Company entered
into a Master Assignment Agreement dated as of March 31, 1998 with Merrill Lynch
Mortgage Capital Inc. for a $25,000 reverse repurchase loan facility. The
Company borrowed $14,400 in April 1998 against this facility. Borrowings under
both of these loan arrangements have been used to fund the Company's additional
investments.
The Company's CMBS securities have been assigned (and it is anticipated that
most of the Company's mortgage loans will be assigned) as collateral security
under the warehouse line of credit. The Company's $18,000 first mortgage loan
participation for the redevelopment of a major hotel and casino in Las Vegas has
been assigned as collateral security under the reverse repurchase loan facility.
On April 30, 1998, the Company completed a forward swap transaction whereby
$77,467 of anticipated borrowings based on the LIBOR index were effectively tied
to a fixed interest rate. Under the swap, the Company will receive monthly
payments of interest based on one-month LIBOR and will remit monthly payments
based on a fixed interest rate of approximately 5.99%. The interest payments
are computed on the notional balance of $77,467 which declines pursuant to a
specified amortizing balance schedule over a ten year period. The swap is
effective as of May 15, 1998 and the first payments are due on June 15, 1998.
In May 1998, the Company acquired approximately $49,000 of loans from FMAC, an
affiliate of the Manager, and approximately $21,846 of used car dealerships and
related facilities pursuant to a purchase leaseback transaction with Ugly
Duckling Corporation, an unrelated third party.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Dollar amounts herein are expressed in thousands, other than per share amounts.
The Company was incorporated in Maryland on July 31, 1997 for the purpose of
investing in mortgage loans, real property and CMBS interests. The Company
expects to generate income for distribution to its stockholders primarily from
the net earnings derived from its investments in real estate related assets. The
Company intends to operate in a manner that permits it to maintain its status as
a REIT for federal income tax purposes.
On October 22, 1997, the Company completed its initial public offering of
34,500,000 shares, with gross proceeds of $513,857 and net proceeds to the
Company of $479,309. As of March 31, 1998, the Company's assets included
$414,967 of mortgage loans and $64,925 of securities available-for-sale. The
Company is currently performing due diligence review and analysis on a variety
of investment opportunities and has begun the process of leveraging its
investments.
During the three months ended March 31, 1998, total interest income of $9,546
was generated resulting in net income of $7,848, $0.23 per share of common stock
(basic and diluted).
FUNDS FROM OPERATIONS ("FFO")
Most industry analysts, including the Company, consider FFO an appropriate
supplementary measure of operating performance of a REIT. In general, FFO
adjusts net earnings for non-cash charges such as real property depreciation,
certain amortization expenses and most non-recurring gains and losses. However,
FFO does not represent cash provided by operating activities in accordance with
GAAP and should not be considered an alternative to net earnings as an
indication of the results of the Company's performance or to cash flow as a
measure of liquidity.
In 1995, the National Association of Real Estate Investment Trusts ("NAREIT")
established new guidelines clarifying its definition of FFO and requested that
REITs adopt this new definition beginning in 1996. The Company computes FFO in
accordance with the definition recommended by NAREIT.
For the three months ended March 31, 1998, the Company's FFO was identical to
its net income.
RESULTS OF OPERATIONS
Dividends Declared and Distributions In Excess Of Earnings. The Company declared
a dividend of $8,280, $0.24 per share of common stock, to stockholders of record
on March 31, 1998 which was paid on April 14, 1998. This dividend covered the
Company's remaining portion of undistributed taxable income for 1997 and the
three-month period of operations ended March 31, 1998 and was accrued at March
31, 1998. As a result of this dividend the Company incurred distributions in
excess of earnings of $432 for the three months ended March 31, 1998.
INTEREST INCOME. The following table sets forth information regarding the total
amount of income from interest-earning assets and the resultant average yields.
Information is based on daily average balances during the reported period.
<TABLE>
<CAPTION>
Interest Average Annualized
Income Balance Yield
-------- -------- ----------
<S> <C> <C> <C>
For the three months ended March 31, 1998:
Mortgage loans $5,973 $273,382 8.74%
Repurchase agreements and interest bearing deposits 2,119 152,551 5.56%
Securities available-for-sale 1,454 54,693 10.63%
------ --------
Total $9,546 $487,608 7.83%
====== ========
</TABLE>
11
<PAGE>
OPERATING EXPENSES. Management fees of $1,200 are comprised solely of the 1%
(per annum) base management fee payable to the Manager for the period (as
provided pursuant to the management agreement between the Manager and the
Company). The Manager earned no incentive management fee for such period. In
addition to the management fee, the Company incurred due diligence and asset
acquisition expenses of $150 during the period. Other expenses are comprised of
insurance premiums, directors' fees, occupancy costs, investor relations
expenses, professional fees and other miscellaneous expenses.
CHANGES IN FINANCIAL POSITION
GENERAL. During the quarter, total assets increased by $14,515. This increase
was comprised of $145,178 of mortgage loans and accrued interest, $5,604 of
securities available-for-sale, $12,437 of cash and interest bearing deposits and
$7 of other assets offset by a decrease in repurchase agreements of $148,711.
Total liabilities increased to $30,077 during the quarter, as a result of an
increase in declared but unpaid dividends of $3,795, an increase in amounts
payable for mortgage loans purchased of $11,350, and unpaid management fees of
$1,200 offset by reductions in various payables of $1,703.
CASH AND INTEREST BEARING DEPOSITS. At March 31, 1998, the Company's total cash
and interest bearing deposits of $24,339 were comprised entirely of interest
bearing deposits, an increase of $12,437 from December 31, 1997.
REPURCHASE AGREEMENTS. The Company's repurchase agreements of $148,711 at the
end of last year were liquidated during the quarter for investment acquisitions.
The Company earned interest income of $2,119 during the quarter from its
investments in interest bearing deposits and repurchase agreements. Of such
income, the Company earned $2,077 from investments in repurchase agreements.
Given the Company's intention to invest cash and cash equivalents of the Company
in other types of assets, operating results for the period presented are
unlikely to be indicative of the results that may be expected for future
periods.
SECURITIES AVAILABLE-FOR-SALE. At March 31, 1998, the Company included $474 of
net unrealized gains related to securities available-for-sale in accumulated
other comprehensive income. The Company's securities available-for-sale,
carried at estimated fair value, included the following at March 31, 1998 and
December 31, 1997:
<TABLE>
<CAPTION>
3/31/98 12/31/97
-----------------------
<S> <C> <C>
CMBS interests:
Non-investment grade rated subordinated interests $36,020 $35,802
Investment grade rated senior interest only interests 5,650 6,156
Non-investment grade rated subordinated interest only interests 5,923 6,113
Non-rated subordinated interest only interests 1,732 1,751
Other non-rated subordinated interests 4,504 4,499
-----------------------
Total CMBS interests 53,829 54,321
Non-investment grade rated subordinated notes 6,096 0
Private equity REIT 5,000 5,000
-----------------------
Total $64,925 $59,321
=======================
</TABLE>
The increase in securities available-for-sale of $5,604 during the quarter is
due to purchases of $6,096, discount amortization of $1,454 and unrealized gains
(included in comprehensive income) of $305, offset by $2,251 of interest
payments. The Company acquired all of its CMBS interests from Imperial Credit
or its affiliates and the subordinated notes were obtained through an FMAC
asset-backed securitization.
MORTGAGE LOANS. As of March 31, 1998, the Company's mortgage loan portfolio
consisted of 297 commercial mortgage loans ($152,331 principal balance), 876
multifamily mortgage loans ($232,108 principal balance) and a construction loan
participation ($18,000 principal balance) with a total carrying cost of $414,967
after unamortized premium of $14,990 and net of an allowance for loan losses of
$1,727, which management considers adequate to provide for potential losses, and
unearned loan fees of $735. At December 31, 1997, the Company had 191
commercial mortgage loans ($90,050 principal balance) and 681 multifamily
mortgage loans ($171,312 principal balance) with a total carrying cost of
12
<PAGE>
$272,009 after unamortized premium of $12,374 and net of an allowance for loan
losses of $1,727. At March 31, 1998, four loans in the aggregate amount of
$1,431 were more than three months delinquent as compared to one loan in the
amount of $116 at December 31, 1997. No additions to the allowance for loan
losses were made during the quarter.
The Company's mortgage loans were primarily acquired from entities affiliated
with the Manager, a wholly-owned subsidiary of Imperial Credit. The principal
balance of mortgage loans at March 31, 1998 included $310,914 acquired from SPB
and FMAC and $91,525 acquired from or originated through unrelated third
parties. At December 31, 1997, $202,983 principal balance of mortgage loans had
been acquired from SPB and FMAC and $58,379 principal balance had been acquired
from unrelated third parties.
The increase in mortgage loans during the quarter is attributable to additional
investments of $149,757 offset by principal repayments of $6,517 and
amortization of premium of $282. The investments made during the quarter
include 284 mortgage loans acquired from SPB and FMAC for $117,098 and 26
mortgage loans and a construction loan participation acquired from unrelated
third parties for $33,394 less unearned loan fees of $735.
ACCRUED EXPENSES, PAYABLES AND OTHER LIABILITIES. As of March 31, 1998, accrued
expenses, payables and other liabilities of $21,797 were comprised of amounts
payable for mortgage loans purchased of $17,735, hold backs related to
documentation deficiencies for certain mortgage loan purchases of $361, unpaid
management fees of $2,140, amounts due for financed insurance of $725 and other
unpaid amounts of $836. The increase during the quarter in accrued expenses,
payables and other liabilities is due to increased unpaid dividends of $3,795,
amounts payable for mortgage loans purchased of $11,350 and unpaid management
fees of $1,200 offset by various reductions of $1,703.
STOCKHOLDERS' EQUITY. Stockholders' equity decreased by $127 during the
quarter to $479,575. The decrease was attributable to distributions in excess of
earnings of $432 offset by the increase in unrealized gains on securities
available-for-sale of $305 (included in accumulated other comprehensive income).
CAPITAL RESOURCES AND LIQUIDITY
Liquidity is a measurement of the Company's ability to meet potential cash
requirements, including ongoing commitments to fund acquisitions and
investments, repay borrowings and for other general business purposes. The
primary sources of funds for liquidity consist of secured borrowings and
principal payments and repayments at maturity on loans and securities.
The Company's operating activities provided cash of $15,296 during the quarter.
During this quarter, cash resources from operating activities were provided
primarily by the increase in other liabilities and net earnings.
The Company's investment activities used cash totaling $147,085 during the
quarter. During this quarter, cash flows from investment activities were used
primarily to purchase mortgage loans and securities available-for-sale.
The Company's financing activities used $4,485 in cash during the quarter for
dividend distributions accrued and unpaid as of December 31, 1997.
The Company's $500,000 warehouse line of credit with Morgan Guaranty Trust
Company of New York provides a source of funds to the Company provided that
adequate collateral is posted with the custodian and accepted by the custodian
and the lender. Based on collateral posted to date and the draw downs made after
March 31, 1998, as indicated in note 5 to the unaudited consolidated financial
statements, the Company currently has approximately $19,612 of available credit
under the line. As the Company posts additional mortgage loans as collateral
under the line, the amount of available credit should increase. The Company does
not currently have sufficient assets to post as collateral in order to access
the full $500 million. In addition, the warehouse line expires in approximately
one year, subject to renewal at the discretion of the lender. There can be no
assurance that the Company will post sufficient acceptable collateral, that the
line will be extended or that adequate funds will be available to the Company
under this line for sufficient time periods to meet the Company's liquidity
needs.
The Company's $25,000 reverse repurchase loan facility with Merrill Lynch
Mortgage Capital Inc. has been collateralized and drawn upon as discussed in
note 5 to the unaudited consolidated financial statements. The Company
13
<PAGE>
currently has no additional borrowing availability under this credit facility.
This facility cannot be further drawn upon unless the Company assigns additional
acceptable collateral to the lender, which cannot be assured.
As explained in note 5 to the unaudited consolidated financial statements, the
Company has entered into a forward interest rate swap effective May 15, 1998
covering an amortizing notional balance of $77,467 over a ten year period.
There can be no assurance that this swap will adequately protect the Company's
exposure to interest rate risk.
The Company currently is engaged in due diligence review and analysis with
respect to a variety of investment opportunities and has begun to leverage its
investments. As a result, the Company's liquidity and capital resources could
be materially adversely affected. Furthermore, as noted above, there can be no
assurance that the Company will have adequate funds available to take advantage
of all investment opportunities that become available. At March 31, 1998, the
Company has an outstanding commitment to fund additional mortgage loans to an
existing borrower for $7,500.
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Company recognizes
the need to ensure its operations will not be adversely impacted by year 2000
software failures. Since the Company's systems are new and are based on
networked personal computers, management does not believe that year 2000
compliance will present any significant problems for the Company's internal
computer systems. The Company is, however, currently evaluating the risks of
year 2000 issues on companies which are now servicing the Company's mortgage
loan portfolio and companies involved in trust, administration and servicing
activities in connection with the Company's CMBS interests. The Company will
also consider year 2000 issues in connection with evaluating companies which may
be engaged in the future to provide servicing, trust, administration or other
services in connection with the Company's investments. The Company could be
adversely impacted by the failure of any of its service providers to adequately
solve applicable year 2000 issues.
MARKET CONDITIONS
Over the past several months, the competitive conditions in some of the markets
in which the Company operates have increased due to the significant amount of
new capital available in the marketplace. This competition is particularly
evident in the subordinated CMBS market. New CMBS issuances have reduced
subordination levels with yield spreads declining. Although the Company
believes that investments in certain subordinated CMBS still may provide
attractive risk adjusted returns, the Company intends to invest cautiously in
this market segment. The Company intends to take advantage of the reduced CMBS
subordination levels when it securitizes its pools of commercial and multifamily
mortgage loans, thereby reducing its borrowing costs.
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED HEREIN ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES ACT OF
1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY
REFERENCE TO A FUTURE PERIOD(S) OR BY THE USE OF FORWARD-LOOKING TERMINOLOGY,
SUCH AS "MAY," "WILL," "INTEND," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE" OR
"CONTINUE" OR THE NEGATIVES THEREOF OR OTHER COMPARABLE TERMINOLOGY. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH
FORWARD-LOOKING STATEMENTS DUE TO A VARIETY OF FACTORS, INCLUDING, BUT NOT
LIMITED TO, CHANGES IN NATIONAL, REGIONAL OR LOCAL ECONOMIC ENVIRONMENTS,
COMPETITIVE PRODUCTS AND PRICING, GOVERNMENT FISCAL AND MONETARY POLICIES,
CHANGES IN PREVAILING INTEREST RATES, THE COURSE OF NEGOTIATIONS, THE
FULFILLMENT OF CONTRACTUAL CONDITIONS, FACTORS INHERENT TO THE VALUATION AND
PRICING OF INTERESTS IN COMMERCIAL MORTGAGE-BACKED SECURITIES, CREDIT RISK
MANAGEMENT, ASSET/LIABILITY MANAGEMENT, THE FINANCIAL AND SECURITIES MARKETS,
THE AVAILABILITY OF AND COSTS ASSOCIATED WITH SOURCES OF LIQUIDITY, OTHER
FACTORS GENERALLY UNDERSTOOD TO AFFECT THE REAL ESTATE ACQUISITION, MORTGAGE AND
LEASING MARKETS AND SECURITY INVESTMENTS, AND THE OTHER RISKS DETAILED IN THE
COMPANY'S REGISTRATION STATEMENT ON FORM S-11, AS AMENDED, FILED WITH THE SEC,
THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q FILED WITH THE SEC ON NOVEMBER 26,
1997, THE COMPANY'S ANNUAL REPORT ON FORM 10-K FILED WITH THE SEC ON MARCH 31,
1998 AND OTHER FILINGS MADE BY THE COMPANY WITH THE SEC. THE COMPANY DOES NOT
UNDERTAKE, AND SPECIFICALLY DISCLAIMS ANY OBLIGATION, TO PUBLICLY RELEASE THE
RESULTS OF ANY REVISIONS WHICH MAY BE MADE TO ANY FORWARD-LOOKING STATEMENTS TO
REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED EVENTS OR CIRCUMSTANCES
AFTER THE DATE OF SUCH STATEMENTS.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As of March 31, 1998, the Company had not yet begun the process of leveraging
its assets and had no outstanding borrowings or derivative instruments. The
Company is, however, subject to exposure for fluctuations in interest rates.
Adverse changes in interest rates could negatively impact the value of the
Company's portfolio of mortgage loans and investment in CMBS securities as well
as the levels of interest income to be derived from these assets.
On April 30, 1998, the Company completed a forward interest rate swap
transaction whereby the Company will receive monthly payments of interest based
on one-month LIBOR and will remit monthly payments based on a fixed interest
rate of approximately 5.99%. The interest payments are computed on the notional
balance of $77,467 which declines over a ten year period. There can be no
assurance that the swap will adequately protect the Company's exposure to
interest rate risk.
14
<PAGE>
The Company's CMBS interests are secured by adjustable and fixed interest rate
commercial and multifamily mortgage loans. The yield to maturity on each
security depends on, among other things, the price at which such security is
purchased, the rate and timing of principal payments (including prepayments,
repurchases, defaults and liquidations), the pass-through rate and interest rate
fluctuations. The Company's interest in some of these securities is
subordinated so that, in the event of a loss, payments to senior certificate
holders will be made before the Company receives its payments. Changes in
interest rates could impact prepayment rates as well as default rates, which in
turn would impact the value and yield to maturity of the Company's CMBS
interests. While the Company has invested in various classes of CMBS interests,
including interest only interests, in order to diversify its exposure to such
uncertainties, there can be no assurance that such strategy will be successful.
The Company's mortgage loan portfolio includes fixed and variable interest rate
commercial and multifamily mortgage loans. Fluctuations in interest rates may
affect prepayment rates and default rates, notwithstanding any existing
prepayment penalty or yield maintenance provisions, and such rate changes would
in turn impact the value and yield to maturity of the Company's portfolio of
mortgage loans. While the Company has attempted to mitigate such exposures by
diversifying its loan portfolio, there can be no assurance that this strategy
will enable the Company to avoid adverse consequences in the future.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Dollar amounts herein are expressed in thousands, other than per share amounts.
On October 15, 1997, the Securities and Exchange Commission declared effective
the Company's Registration Statement on Form S-11 (File No. 333-32683)(the
"Registration Statement") relating to the initial public offering of 30,000,000
shares of its Common Stock at an initial public offering price of $15.00 per
share. On October 16, 1997, the Securities and Exchange Commission declared
effective the Company's Registration Statement on Form S-11 (File No. 333-
38015), filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended, relating to the initial public offering of an additional 4,500,000
shares of its Common Stock at an initial public offering price to the public of
$15.00 per share.
On October 22, 1997, the Company completed its initial public offering of
34,500,000 shares, with gross proceeds of $513,857 and net proceeds to the
Company of $479,309. The expenses of the initial public offering aggregated
$34,548 and were comprised of underwriting discounts and commissions of $32,581,
expenses paid to the underwriter of $125 and other expenses of $1,842.
Concurrently with the closing of the Company's initial public offering, the
Company acquired 270 mortgage loans for a purchase price of $109,130 and certain
CMBS interests for $55,000 from Imperial Credit and SPB, affiliates of the
Manager.
In December 1997, the Company acquired 299 mortgage loans for $97,641 from SPB
and two mortgage loans for $6,385 from FMAC, affiliates of the Manager. Also in
December 1997, the Company acquired from unrelated third parties an interest in
a private REIT for $5,000 and two pools totaling 302 mortgage loans for $59,894.
In March 1998, the Company acquired 260 mortgage loans for $99,363 from SPB, 24
mortgage loans for $17,735 from FMAC and asset-backed notes for $6,096 issued by
FMAC as part of a securitization. Also in March 1998, the Company acquired from
unrelated third parties participations in two tranches of a construction loan
facility for the redevelopment of a major hotel and casino in Las Vegas for
$18,000, four mortgage loans for $12,500 in connection with certain acquisitions
by On Stage Entertainment, Inc. and 22 mortgage loans for $2,894.
As a result of these acquisitions, the Company has fully invested the proceeds
of its initial public offering and has begun the process of leveraging its
investments. The investments noted above aggregate $489,641, including $391,350
acquired from Imperial Credit, SPB and FMAC, all affiliates of the Manager.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 10.1 - Master Loan and Security Agreement between Morgan Guaranty Trust
Company of New York and the Company dated as of March 30, 1998
Exhibit 27 - Financial Data Schedule
(b) REPORTS ON FORM 8-K
A Form 8-K dated January 8, 1998 was filed with the Commission with the
Company's press release covering investments made during the fourth quarter of
1997.
A Form 8-K dated February 10, 1998 was filed with the Commission with the
Company's press release covering earnings for the period ended December 31,
1997.
A Form 8-K dated March 24, 1998 was filed with the Commission with the Company's
press release covering the dividend declared during the first quarter of 1998.
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 thereunto duly authorized.
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
Date: May 14, 1998
/s/ Mark S. Karlan
- ------------------
Mark S. Karlan, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Michael Meltzer
- -------------------
Michael Meltzer, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
16
<PAGE>
EXHIBIT 10.1
EXECUTION COPY
================================================================================
MASTER LOAN AND SECURITY AGREEMENT
_____________________________
DATED AS OF MARCH 30, 1998
_____________________________
IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP.
AS BORROWER
AND
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
AS LENDER
================================================================================
<PAGE>
<TABLE>
TABLE OF CONTENTS
<C> <S> <C>
RECITALS...................................................................... 1
SECTION 1 Definitions and Accounting Matters................................ 1
1.01 Certain Defined Terms............................................. 1
1.02 Accounting Terms and Determinations...............................15
SECTION 2 Advances, Note and Prepayments....................................15
2.01 Advances..........................................................15
2.02 Notes.............................................................16
2.03 Procedure for Borrowing...........................................16
2.04 Repayment of Advances; Interest...................................17
2.05 Limitation on Types of Advances; Illegality.......................18
2.06 Conversion and Continuation Options...............................18
2.07 Determination of Borrowing Base; Mandatory Prepayments or Pledge..19
2.08 Optional Prepayments..............................................19
2.09 Requirements of Law...............................................19
2.10 Purpose of Advances...............................................20
2.11 Taxes.............................................................20
2.12 Extension of Termination Date.....................................22
2.13 Processing Fees...................................................22
2.14 Indemnity.........................................................23
SECTION 3 Payments; Computations; Etc.......................................23
3.01 Payments..........................................................23
3.02 Computations......................................................24
SECTION 4 Collateral Security...............................................24
4.01 Collateral; Security Interest.....................................24
4.02 Further Documentation.............................................25
4.03 Changes in Locations, Name, etc...................................26
4.04 Lender's Appointment as Attorney-in-Fact..........................26
4.05 Performance by Lender of Borrower's Obligations...................27
4.06 Proceeds..........................................................27
4.07 Remedies..........................................................27
4.08 Limitation on Duties Regarding Presentation of Collateral.........28
4.09 Powers Coupled with an Interest...................................28
4.10 Release of Security Interest......................................28
SECTION 5 Conditions Precedent..............................................29
5.01 Initial Advance...................................................29
5.02 Initial and Subsequent Advances...................................31
SECTION 6 Representations and Warranties....................................32
6.01 Financial Condition...............................................32
6.02 No Change.........................................................33
6.03 Corporate Existence; Compliance with Law..........................33
6.04 Corporate Power; Authorization; Enforceable Obligations...........33
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
6.05 No Legal Bar......................................................33
6.06 No Material Litigation............................................34
6.07 No Default........................................................34
6.08 Collateral; Collateral Security...................................34
6.09 Chief Executive Office............................................34
6.10 Location of Books and Records.....................................34
6.11 No Burdensome Restrictions........................................34
6.12 Taxes.............................................................34
6.13 Margin Regulations................................................35
6.14 Investment Company Act; Other Regulations.........................35
6.15 Subsidiaries......................................................35
6.16 Eligible Assets...................................................35
6.17 No Adverse Selection..............................................35
6.18 Borrower Solvent; Fraudulent Conveyance...........................35
6.19 ERISA.............................................................35
6.20 True and Complete Disclosure......................................35
6.21 Licenses..........................................................36
6.22 True Sales........................................................36
6.23 Tangible Net Worth................................................36
SECTION 7 Covenants of the Borrower.........................................36
7.01 Financial Statements..............................................36
7.02 Existence, Etc....................................................37
7.03 Maintenance of Property; Insurance................................37
7.04 Notices...........................................................37
7.05 Other Information.................................................38
7.06 Further Identification of Collateral..............................38
7.07 Asset Determined to be Defective..................................38
7.08 Reports...........................................................38
7.09 Borrowing Base Certificates.......................................39
7.10 Financial Condition Covenants.....................................39
7.11 Borrowing Base Deficiency.........................................39
7.12 Prohibition of Fundamental Changes................................39
7.13 Limitation on Liens on Collateral.................................39
7.14 Limitation on Sale or Other Disposition of Collateral.............39
7.15 Limitation on Transactions with Affiliates........................39
7.16 Underwriting Guidelines...........................................39
7.17 Limitations on Modifications, Waivers and Extensions of Mortgage
Loans............................................................40
7.18 Servicing.........................................................40
7.19 Limitation on Distributions.......................................40
7.20 Use of Proceeds...................................................40
7.21 Selection of Collateral...........................................40
SECTION 8 Events of Default.................................................40
SECTION 9 Remedies Upon Default.............................................43
SECTION 10 No Duty of Lender.................................................43
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
SECTION 11 Miscellaneous....................................................43
11.01 Waiver...........................................................43
11.02 Notices..........................................................43
11.03 Indemnification and Expenses.....................................44
11.04 Amendments.......................................................44
11.05 Successors and Assigns...........................................45
11.06 Survival.........................................................45
11.07 Captions.........................................................45
11.08 Counterparts.....................................................45
11.09 Governing Law; etc...............................................45
11.10 Submission to Jurisdiction; Waivers..............................45
11.11 Waiver of Jury Trial.............................................46
11.12 Acknowledgments..................................................46
11.13 Assignments; Participations......................................46
11.14 Servicing........................................................47
11.15 Periodic Due Diligence Review....................................48
11.16 Set-Off..........................................................48
</TABLE>
SCHEDULES
- ---------
SCHEDULE 1 Eligibility Criteria for Conduit Loans
SCHEDULE 2 Eligibility Criteria for Illiquid Loans
SCHEDULE 3 Eligibility Criteria for Mezzanine Loans
SCHEDULE 4 Eligibility Criteria for Participation Certificates
SCHEDULE 5 Eligibility Criteria for Second Mortgage Loans
SCHEDULE 6 Eligibility Criteria for Securities
SCHEDULE 7 Filing Jurisdictions and Offices
SCHEDULE 8 Subsidiaries
EXHIBITS
- --------
EXHIBIT A Form of Note
EXHIBIT B Form of Custodial Agreement
EXHIBIT C Form of Opinion of Counsel to Borrower
EXHIBIT D Form of Notice of Borrowing and Pledge
EXHIBIT E Underwriting Guidelines
EXHIBIT F Form of Borrowing Base Certificate
-iii-
<PAGE>
EXECUTION COPY
MASTER LOAN AND SECURITY AGREEMENT
MASTER LOAN AND SECURITY AGREEMENT, dated as of March 30, 1998,
between IMPERIAL CREDIT COMMERCIAL MORTGAGE INVESTMENT CORP., a Maryland
corporation (the "Borrower"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, a
--------
New York banking corporation (the "Lender").
------
RECITALS
The Borrower wishes to obtain financing from time to time to provide
interim funding for the origination, acquisition and holding of certain Conduit
Loans (as defined herein), Illiquid Loans (as defined herein), Mezzanine Loans
(as defined herein); Second Mortgage Loans (as defined herein), Securities (as
defined herein) and Participation Certificates (as defined herein) (each an
"Asset", collectively, the "Assets"), some of which Assets are to be sold or
- ------ ------
contributed by the Borrower to one or more trusts or other entities to be
sponsored by the Borrower or an Affiliate (as defined herein) thereof, or to
third parties, and which Assets shall secure Advances (as defined herein) to be
made by the Lender hereunder.
The Lender has agreed, subject to the terms and conditions of this
Loan Agreement (as defined herein), to provide such financing to the Borrower.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1 Definitions and Accounting Matters.
----------------------------------
1.01 Certain Defined Terms. As used herein, the following terms
---------------------
shall have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Loan Agreement in the singular to have the same
meanings when used in the plural and vice versa):
---- -----
"Accepted Servicing Practices" shall have the meaning assigned thereto
----------------------------
in Section 11.14(a) hereof.
"Advance" shall have the meaning assigned to such term in Section
-------
2.01(a).
"Affiliate" means, with respect to any Person, any other Person which,
---------
directly or indirectly, controls, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" (together with the
correlative meanings of "controlled by" and "under common control with") means
possession, directly or indirectly, of the power (a) to vote 10% or more of the
securities (on a fully diluted basis) having ordinary voting power for the
directors or managing general partners (or their equivalent) of such Person, or
(b) to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by contract, or
otherwise.
"Applicable Collateral Percentage" shall mean:
--------------------------------
(a) for Conduit Loans, 95%;
(b) for Illiquid Loans, 80%;
<PAGE>
(c) for Mezzanine Loans, 60%;
(d) for Second Mortgage Loans, 60%;
(e) for each Security, the corresponding percentage set forth
below:
<TABLE>
<CAPTION>
Rating Percentage
------ ----------
<S> <C>
BB Rated 80%
B Rated and the Borrower owns
the corresponding unrated Security 75%
B Rated and the Borrower does not
own the corresponding unrated Security 60%
Unrated 0%
IO Securities (Rated AAA) 70%
IO Securities (not Rated AAA) to be determined by the
Lender in its sole discretion;
</TABLE>
(f) for each Participation Certificate, the Applicable Collateral
Percentage corresponding to the underlying Conduit Loan or Illiquid Loan, as the
case may be; provided, in the event that, and for such period during which, the
--------
aggregate Collateral Value of Conduit Loans, Illiquid Loans and Participation
Certificates pledged hereunder relating to property located in Southern
California exceeds 30% of the Borrowing Base, the Applicable Collateral
Percentage for that portion of such Assets relating to property located in
Southern California which causes the excess over 30% of the Borrowing Base shall
be 5% less than is otherwise applicable to such Assets (the Lender to designate
which Assets cause the excess over 30%).
"Applicable Margin" shall mean, for each Class of Advance, whether a
Base Rate Advance or a LIBOR Advance, the corresponding percentage set forth
below:
<TABLE>
<CAPTION>
Class of Advance Margin
---------------- ------
<S> <C>
Class CL Advance .90%
Class IL Advance 1.00%
Class ML Advance 1.00%
Class PC Advance the Applicable Margin corresponding
to the underlying loan type.
Class S-B Advance .90%
Class S-BB Advance .90%
</TABLE>
-2-
<PAGE>
<TABLE>
<S> <C>
Class S-IO Advance .90%
Class SML Advance 1.00%
</TABLE>
"Appraised Value" shall mean the value set forth in an appraisal made
---------------
in connection with the origination of the related Conduit Loan, Illiquid Loan,
Mezzanine Loan or Second Mortgage Loan as the value of the related Mortgaged
Property (or Mortgaged Properties if more than one property collateralizes a
single Asset).
"Asset" shall have the meaning provided in the recitals hereof.
-----
"Asset Documents" shall mean, with respect to an Asset, the documents
---------------
comprising the Asset File for such Asset.
"Asset File" shall have the meaning assigned thereto in the Custodial
----------
Agreement.
"Asset Schedule" shall have the meaning assigned thereto in the
--------------
Custodial Agreement.
"Asset Schedule and Exception Report" shall mean the asset schedule
-----------------------------------
and exception report prepared by the Custodian pursuant to the Custodial
Agreement.
"Asset Tape" shall mean an electronic file containing the information
----------
with respect to each Asset, to be delivered by the Borrower to the Lender
pursuant to the Asset Schedule.
"Bankruptcy Code" shall mean the United States Bankruptcy Code of
---------------
1978, as amended from time to time.
"Base Rate" shall mean the Federal Funds Rate plus .50%.
---------
"Base Rate Advance" shall mean any Advance designated to accrue
-----------------
interest at the Base Rate.
"Borrower" shall have the meaning provided in the heading hereof.
--------
"Borrowing Base" shall mean the aggregate Collateral Value of all
--------------
Eligible Assets, provided that:
--------
(i) the aggregate principal amount of all Advances relating to
Illiquid Loans, Mezzanine Loans and Second Mortgage Loans (other than
Illiquid Loans, Mezzanine Loans and Second Mortgage Loans purchased by the
Borrower from the Lender or any Affiliate of the Lender) may not at any one
time exceed $45,000,000;
(ii) the aggregate principal amount of all Advances relating to
Securities may not at any one time exceed $55,000,000;
(iii) the aggregate principal amount of all Advances relating to
Participation Certificates may not at any one time exceed $50,000,000;
(iv) prior to the first time when an aggregate of $150,000,000 of
Conduit Loans has been pledged to the Lender hereunder, the aggregate
principal amount of all Advances relating
-3-
<PAGE>
to Illiquid Loans, Mezzanine Loans, Second Mortgage Loans and Securities
may not at any one time exceed 50% of the aggregate outstanding amount of
the Advances;
(v) no more than 15% of the aggregate principal amount of all
Advances relating to Conduit Loans, Illiquid Loans and Participation
Certificates may be secured by properties located in any one zip code area,
and no more than 25% of the aggregate principal amount of all Advances
relating to Conduit Loans, Illiquid Loans and Participation Certificates
may be secured by properties located in any one state, with the exception
of California, in which case no more than 60% of the aggregate principal
amount of all Advances relating to Conduit Loans, Illiquid Loans and
Participation Certificates may be secured by properties located in
California, and no more than 50% of the aggregate principal amount of all
Advances relating to Conduit Loans, Illiquid Loans and Participation
Certificates may be secured by properties located in Southern California;
(vi) no single Illiquid Loan, or Participation Certificate relating
to an Illiquid Loan, may have a principal balance exceeding $15,000,000;
(vii) no single Mezzanine Loan or Second Mortgage Loan may have a
principal balance exceeding $15,000,000;
(viii) no single Conduit Loan, or Participation Certificate relating
to a Conduit Loan, may have a principal balance exceeding $20,000,000;
(ix) at such times as the Borrowing Base exceeds $50,000,000, no
single Conduit Loan, Illiquid Loan, Mezzanine Loan, Second Mortgage Loan or
Participation Certificate may have a Collateral Value in excess of 30% of
the Borrowing Base;
(x) if the aggregate principal balance of Conduit Loans, Illiquid
Loans, Mezzanine Loans, Second Mortgage Loans or Participation Certificates
made to or relating to a single Obligor or group of Obligors which are
Affiliates of one another exceeds the greater of (A) 10% of the Borrowing
Base and (B) $20,000,000, such excess shall not be included in the
Borrowing Base;
(xi) the Collateral Value shall be zero for each Eligible Asset:
----
(A) in respect of which the applicable eligibility criteria
set forth on Schedules 1 through 6 are not satisfied;
(B) in respect of which there is a delinquency in the
payment of principal and/or interest which continues for a period in
excess of 30 days (without regard to any applicable grace periods); or
(C) which has been released from the possession of the
Custodian under the Custodial Agreement to any Person other than the
Lender or its bailee for a period in excess of fourteen (14) days.
"Borrowing Base Certificate" shall mean a certificate substantially in
--------------------------
the form of Exhibit F, containing, from time to time, the Borrowing Base of the
Borrower.
"Borrowing Base Deficiency" shall have the meaning provided in Section
-------------------------
2.07 hereof.
-4-
<PAGE>
"Business Day" shall mean any day other than (i) a Saturday or Sunday,
------------
(ii) a day on which the New York Stock Exchange, the Federal Reserve Bank of New
York or the Custodian is authorized or obligated by law or executive order to be
closed, or (iii) with respect to the determination of the LIBO Base Rate, a day
on which the LIBO Base Rate is not determinable (other than in circumstances
where the LIBO Base Rate is no longer determinable).
"Class CL Advance" shall mean an Advance secured by Eligible Conduit
----------------
Loans.
"Class IL Advance" shall mean an Advance secured by Eligible Illiquid
----------------
Loans.
"Class ML Advance" shall mean an Advance secured by Eligible Mezzanine
----------------
Loans.
"Class PC Advance" shall mean an Advance secured by Eligible
----------------
Participation Certificates.
"Class S-B Advance" shall mean an Advance secured by Eligible
-----------------
Securities that are Rated B.
"Class S-BB Advance" shall mean an Advance secured by Eligible
------------------
Securities that are Rated BB.
"Class S-IO Advance" shall mean an Advance secured by Eligible
------------------
Securities that are interest-only securities that are Rated AAA.
"Class SML Advance" shall mean an Advance secured by Eligible Second
-----------------
Mortgage Loans.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
----
time to time.
"Collateral" shall have the meaning provided in Section 4.01(b)
----------
hereof.
"Collateral Value" shall mean, with respect to each Eligible Asset,
----------------
the Applicable Collateral Percentage of the lowest of (a) the Par Amount of such
Asset divided by the Applicable Collateral Percentage, (b) the Market Value of
such Asset, and (c) the acquisition price of such Asset net of any discount or
fees associated with yield and net of the allocable cost of any associated
servicing rights.
"Commercial Mortgage-Backed Securities" or "CMBS" shall mean
------------------------------------- ----
securities issued pursuant to a securitization of commercial mortgage loans.
"Commonly Controlled Entity" shall mean an entity, whether or not
--------------------------
incorporated, which is under common control with the Borrower within the meaning
of Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414 of the Code.
"Conduit Loan" shall mean a first mortgage loan on commercial real
------------
estate, which is originated or purchased by the Borrower, and which satisfies
the general requirements for, a conduit program in a commercial mortgage-backed
securities offering, and which Conduit Loan includes, without limitation (i) a
Mortgage Note and related Mortgage and (ii) all right, title and interest of the
holder of such Mortgage Note in and to the Mortgaged Property covered by such
Mortgage.
-5-
<PAGE>
"Continue", "Continuation" and "Continued" shall refer to the
-------- ------------ ---------
continuation of a LIBOR Advance from one Interest Period to the next Interest
Period.
"Contractual Obligation" shall mean as to any Person, any provision of
----------------------
any agreement, instrument or other undertaking to which such Person is a party
or by which it or any of its property is bound or any provision of any security
issued by such Person.
"Convert", "Conversion" and "Converted" shall refer to a conversion of
------- ---------- ---------
Base Rate Advances into LIBOR Advances or of LIBOR Advances into Base Rate
Advances.
"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 [Name of Custodian], as custodian under the
---------
Custodial Agreement, and its successors and permitted assigns thereunder.
"Debt Service Coverage Ratio" or "DSCR" shall mean for any Property
--------------------------- ----
securing an Asset (or in the case of any Mezzanine Loan, any Property relating
to such Asset), at any date of determination for any period, the ratio of (i)
the cash flow available for debt service coverage produced by such Property for
such period, determined in accordance with general underwriting conventions, to
(ii) the Debt Service Charges relating to such Property for such period.
"Debt Service Charges" shall mean, with respect to any Property
--------------------
securing an Asset (or in the case of any Mezzanine Loan, any Property relating
to such Asset), for any period, the sum (without duplication) of:
(a) Interest Expense of the Person owning the Property which is
attributable to Indebtedness secured by such Property for such period; and
(b) Scheduled amortization of Indebtedness of the Person owning the
Property which is attributable to Indebtedness secured by such Property for
such period for such period and discount or premium relating to any such
Indebtedness for such period, whether expensed or capitalized;
"Default" shall mean an Event of Default or an event that with notice
-------
or lapse of time or both would become an Event of Default.
"Dollars" and "$" shall mean lawful money of the United States of
------- -
America.
"Due Diligence Review" shall mean the performance by the Lender of any
--------------------
or all of the reviews permitted under Section 11.15 hereof with respect to any
or all of the Assets, as desired by the Lender from time to time.
"Duff & Phelps" shall mean Duff & Phelps Credit Rating Co., or any
-------------
successor thereto.
"EBITDA": shall mean, as to any Person, for any period, the sum of
------
(i) Net Income of such Person for such period plus, to the extent any of the
----
following were deducted in determining Net Income of such Person for such
period, (ii) the sum of (A) Interest Expense of such Person for such
-6-
<PAGE>
period, (B) income taxes paid or accrued by such Person during such period, (C)
depreciation of fixed or capital assets of such Person during such period and
(D) amortization of intangible assets of such Person during such period.
"Effective Date" shall mean the date upon which the conditions
--------------
precedent set forth in Section 5.01 shall have been satisfied.
"Eligible Assets" shall mean the collective reference to Eligible
---------------
Conduit Loans, Eligible Illiquid Loans, Eligible Mezzanine Loans, Eligible
Participation Certificates, Eligible Second Mortgage Loans and Eligible
Securities.
"Eligible Conduit Loan" shall mean a Conduit Loan which satisfies the
---------------------
eligibility characteristics set forth on Schedule 1 hereto on and as of the
applicable Funding Date and which continues to satisfy such eligibility
characteristics at all times thereafter while such Conduit Loan is included in
the Borrowing Base.
"Eligible Illiquid Loan" shall mean an Illiquid Loan which satisfies
----------------------
the eligibility characteristics set forth on Schedule 2 hereto on and as of the
applicable Funding Date and which continues to satisfy such eligibility
characteristics at all times thereafter while such Illiquid Loan is included in
the Borrowing Base.
"Eligible Mezzanine Loan" shall mean a Mezzanine Loan which satisfies
-----------------------
the eligibility characteristics set forth on Schedule 3 hereto on and as of the
applicable Funding Date and which continues to satisfy such eligibility
characteristics at all times thereafter while such Mezzanine Loan is included in
the Borrowing Base.
"Eligible Participation Certificate" shall mean a Participation
----------------------------------
Certificate which satisfies the eligibility characteristics set forth on
Schedule 4 hereto on and as of the applicable Funding Date and which continues
to satisfy such eligibility characteristics at all times thereafter while such
Participation Certificate is included in the Borrowing Base.
"Eligible Second Mortgage Loan" shall mean a Second Mortgage Loan
-----------------------------
which satisfies the eligibility characteristics set forth on Schedule 5 hereto
on and as of the applicable Funding Date and which continues to satisfy such
eligibility characteristics at all times thereafter while such Second Mortgage
Loan is included in the Borrowing Base.
"Eligible Security" shall mean a Security which satisfies the
-----------------
eligibility characteristics set forth on Schedule 6 hereto on and as of the
applicable Funding Date and which continues to satisfy such eligibility
characteristics at all times thereafter while such Security is included in the
Borrowing Base.
"ERISA" shall mean the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
"ERISA Affiliate" shall mean any corporation or trade or business that
---------------
is a member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which 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.
-7-
<PAGE>
"Event of Default" shall have the meaning provided in Section 8
----------------
hereof.
"Fee Letter" shall mean the Fee Letter, dated as of March 30, 1998,
----------
between the Borrower and the Lender.
"Federal Funds Rate" shall mean, with respect to each day during the
------------------
period commencing on the borrowing or Conversion date, as the case may be, with
respect to a Base Rate Advance (the "FFR Determination Date") and ending on the
----------------------
next succeeding tenth day of a month (or if such date is not a Business Day, the
next succeeding Business Day), the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve System arranged
by federal funds brokers, as published on the Business Day next succeeding the
FFR Determination Date by the Federal Reserve Bank of New York, or, if such rate
is not so published for any day which is a Business Day, the average of the
quotations for the day of such transactions received by the Lender from three
federal funds brokers of recognized standing selected by it.
"Fitch" shall mean Fitch Investor's Service, 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 of its Subsidiaries or any of its properties.
"Guarantee Obligation" shall mean, as to any Person, any obligation of
--------------------
such Person directly or indirectly guaranteeing any Indebtedness of any other
Person or in any manner providing for the payment of any Indebtedness of any
other Person or otherwise protecting the holder of such Indebtedness against
loss (whether by virtue of partnership arrangements, by agreement to keep-well,
to purchase assets, goods, securities or services, or to take-or-pay or
otherwise); provided that the term "Guarantee" shall not include (i)
endorsements for collection or deposit in the ordinary course of business, or
(ii) obligations to make servicing advances for delinquent taxes and insurance
or other obligations in respect of a Mortgaged Property. 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.
"Illiquid Loan" shall mean a first mortgage loan on commercial real
-------------
estate, which is originated or purchased by the Borrower and which does not
qualify as a Conduit Loan, and which Illiquid Loan includes, without limitation
(i) a Mortgage Note and related Mortgage and (ii) all right, title and interest
of the holder of such Mortgage Note in and to the Mortgaged Property covered by
such Mortgage.
"Indebtedness" shall mean, of any Person at any date, without
------------
duplication, (a) all indebtedness of such Person for borrowed money (whether by
loan or the issuance and sale of debt securities) or for the deferred purchase
price of property or services (other than current trade liabilities
-8-
<PAGE>
incurred in the ordinary course of business and payable in accordance with
customary practices), (b) any other indebtedness of such Person which is
evidenced by a note, bond, debenture or similar instrument, (c) all obligations
of such Person under financing leases, (d) all obligations of such Person in
respect of letters of credit, acceptances or similar instruments issued or
created for the account of such Person and (e) all liabilities secured by any
Lien on any property owned by such Person even though such Person has not
assumed or otherwise become liable for the payment thereof.
"Indemnified Party" shall have the meaning provided in Section 11.03
-----------------
hereof.
"Interest Coverage Ratio" shall mean, at the end of any month, the
-----------------------
ratio of (i) the EBITDA of the Borrower for the twelve-month period ending at
the end of such month to (ii) the Interest Expense of the Borrower for such
twelve-month period.
"Interest Expense" shall mean with respect to any Person, for any
----------------
period, the amount of interest expense, both expensed and capitalized, of such
Person, for such period on the aggregate principal amount of its Indebtedness.
"Interest Period" shall mean, with respect to any LIBOR Advance:
---------------
(i) initially, the period commencing on the borrowing or
Conversion date, as the case may be, with respect to such LIBOR
Advance, which shall be a LIBOR Borrowing Date, and ending one, two or
three months thereafter, as selected by the Borrower in its notice of
borrowing or notice of Conversion, as the case may be, given with
respect thereto; and
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such LIBOR Advance and
ending one, two or three months thereafter, as selected by the
Borrower by irrevocable notice to the Lender not less than three
Business Days prior to the last day of the then current Interest
Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods are
- --------
subject to the following:
(1) if any Interest Period pertaining to a LIBOR Advance would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day;
(2) any Interest Period that would otherwise extend beyond the
Termination Date shall end on the Termination Date or such date of
final payment, as the case may be; and
(3) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any LIBOR Advance during an
Interest Period for such LIBOR Advance.
"Interest Rate Protection Agreement" shall mean, with respect to any
----------------------------------
or all of the Assets, any interest rate swap, cap or collar agreement or similar
arrangements providing for protection against fluctuations in interest rates or
the exchange of nominal interest obligations, either generally or under specific
contingencies, entered into by the Borrower and reasonably acceptable to the
Lender.
-9-
<PAGE>
"Investment Company Act" shall mean the Investment Company Act of
----------------------
1940, as amended.
"IO" shall mean with respect to any Security, a bond, debenture, note,
--
certificate, certificate of participation or other certified security or
uncertified security that entitles the holder to payments based only or
primarily on the interest portion of payments on the underlying assets.
"Lender" shall have the meaning provided in the heading hereof.
------
"LIBO Base Rate" shall mean, with respect to any LIBOR Advance for any
--------------
Interest Period therefor, the rate per annum equal to the rate appearing at page
3750 of the Telerate Screen as one-month LIBOR, two-month LIBOR or three-month
LIBOR (as corresponds to the Interest Period designated by the Borrower in the
Notice of Borrowing and Pledge) on the second Business Day immediately 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., New
York City time, on such date by prime banks in the interbank eurodollar market
where the eurodollar and foreign currency exchange operations in respect of its
Advances are then being conducted for delivery on such day for a period of one
month, two months or three months (as corresponds to the Interest Period
designated by the Borrower in the Notice of Borrowing and Pledge), and in an
amount comparable to the amount of the Advances to be outstanding on such day.
"LIBO Rate" shall mean with respect to each day during each Interest
---------
Period pertaining to an Advance, a rate per annum determined by the Lender in
accordance with the following formula (rounded upwards to the nearest 1/100th of
one percent), which rate as determined by the Lender shall be conclusive absent
manifest error by the Lender:
LIBO Base Rate
--------------------------------
1.00 - LIBO Reserve Requirements
"LIBO Reserve Requirements" shall mean for any Interest Period for any
-------------------------
Advance, the aggregate (without duplication) of the rates (expressed as a
decimal fraction) of reserve requirements in effect on such day or during such
Interest Period, as applicable (including, without limitation, basic,
supplemental, marginal and emergency reserves under any regulations of the Board
of Governors of the Federal Reserve System or other Governmental Authority
having jurisdiction with respect thereto), dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of such Board) maintained by a member bank of such
Governmental Authority.
"LIBOR Advance" shall mean any Advance designated to accrue interest
-------------
at the LIBO Rate.
"LIBOR Borrowing Date" shall mean the tenth day of a month, or if such
--------------------
day is not a Business Day, the next succeeding Business Day.
"Lien" shall mean any mortgage, lien, pledge, charge, security
----
interest or similar encumbrance.
"Loan Agreement" shall mean this Master Loan and Security Agreement,
--------------
as the same may be amended, supplemented or otherwise modified from time to
time.
-10-
<PAGE>
"Loan Documents" shall mean, collectively, this Loan Agreement, the
--------------
Note and the Custodial Agreement.
"Loan-to-Value Ratio" or "LTV" shall mean with respect to any Conduit
----------------------------
Loan, Illiquid Loan or Mezzanine Loan, the ratio of the Par Amount of such Asset
as of the date of origination (unless otherwise indicated) to the Appraised
Value of the related Mortgaged Property or Mortgaged Properties if more than one
Property collateralizes a single Asset.
"Market Value" shall mean, with respect to any Asset, the price at
------------
which such Asset could be sold to a third-party, as determined by the Lender in
its sole discretion (exercised in good faith), taking into account the positive
value, if any, of any related Interest Rate Protection Agreements then pledged
exclusively to the Lender hereunder, which Market Value may be determined to be
zero.
"Material Adverse Effect" shall mean a material adverse effect on (a)
-----------------------
the business, assets, property, business, condition (financial or otherwise) or
prospects of the Borrower and any consolidated Subsidiaries, taken as a whole,
(b) the ability of the Borrower to perform its obligations under any of the Loan
Documents to which it is a party, (c) the validity or enforceability of any of
the Loan Documents, (d) the rights and remedies of the Lender under any of the
Loan Documents, (e) the timely payment of the principal of or interest on the
Advances or other amounts payable in connection therewith or (f) the Collateral,
taken as a whole (excluding changes in the Market Value or delinquency status of
Assets pledged to the Lender).
"Material Exception" shall mean, with respect to any Asset, any
------------------
Exception listed on the Asset Schedule and Exception Report consisting of the
absence from the Asset File, or deficiency in respect of, any of the Asset
Documents set forth in Section 2(a)(i), 2(a)(iii), 2(a)(iv), 2(a)(v), 2(a)(vi),
2(a)(vii), (a)(viii), 2(b)(i), 2(b)(iii), 2(b)(iv), 2(c)(i), or 2(a)(i) of the
Custodial Agreement.
"Maximum Credit" shall mean $300,000,000; provided, that the Maximum
-------------- --------
Credit shall be increased to $500,000,000 if (i) the Borrowing Base exceeds
$300,000,000, (ii) no Event of Default has occurred or is continuing and (iii)
the Borrower requests an Advance that would cause the aggregate principal amount
of all Advances outstanding to exceed $300,000,000.
"Mezzanine Loan" shall mean a loan that is secured by a pledge of the
--------------
equity interests in an entity which owns, directly or through one or more
special purpose bankruptcy remote entities, one or more income producing
commercial properties, which commercial properties are subject to a first
mortgage lien.
"Mezzanine Note" shall mean the original executed promissory note or
--------------
other evidence of the indebtedness of an Obligor with respect to a Mezzanine
Loan.
"Monthly Payment" means the scheduled monthly payment of principal and
---------------
interest on an Asset as adjusted in accordance with changes in the Mortgage
Interest Rate pursuant to the provisions of the Mortgage Note or Mezzanine Note
for an adjustable rate loan, if applicable.
"Moody's" shall mean Moody's Investors Service Inc. or any successor
-------
entity thereto.
"Mortgage" shall mean the mortgage, deed of trust or other instrument
--------
securing a Mortgage Note, which creates a first lien or second lien, as the case
may be, on the fee in real property securing the Mortgage Note.
-11-
<PAGE>
"Mortgage Interest Rate" means the annual rate of interest borne on a
----------------------
Mortgage Note or Mezzanine Note, which shall be adjusted from time to time with
respect to adjustable rate mortgage loans.
"Mortgage Note" shall mean the original executed promissory note or
-------------
other evidence of the indebtedness of an Obligor with respect to a Conduit Loan,
Illiquid Loan or Second Mortgage Loan.
"Mortgaged Property" shall mean the real property (including all
------------------
improvements, buildings, fixtures, building equipment and personal property
thereon and all additions, alterations and replacements made at any time with
respect to the foregoing) and all other collateral securing repayment of the
debt evidenced by a Mortgage Note.
"Multiemployer Plan" shall mean a Plan which is a multiemployer plan
------------------
as defined in Section 4001(a)(3) of ERISA.
"Net Income" shall mean, with respect to any Person, for any period,
----------
net income of such Person, determined in accordance with GAAP, for such period.
"Non-Excluded Taxes" shall have the meaning provided in Section
------------------
2.11(a) hereof.
"Non-Recourse Indebtedness" shall mean Indebtedness with respect to
-------------------------
which the liability of the debtor is limited to specific assets or is limited to
a special-purpose Subsidiary rather than the Borrower, subject to customary
exceptions providing for recourse to the Borrower in certain situations for
specific events or liabilities.
"Note" shall have the meaning assigned to such term in Section 2.02(a)
----
and any promissory note delivered in substitution or exchange therefor, in each
case as the same shall be modified and supplemented and in effect from time to
time.
"Notice of Borrowing and Pledge" shall have the meaning provided in
------------------------------
Section 2.03(a) hereof.
"Obligor" shall mean the obligor under a Mortgage Note or a Mezzanine
-------
Note or other Asset Document.
"Par Amount" shall mean, in respect of an Asset at any time, the
----------
outstanding principal balance of such Asset at such time.
"Participants" shall have the meaning set forth in Section 11.13(b)
------------
hereof.
"Participation Certificate" shall mean a certificate or other
-------------------------
instrument evidencing the ownership by the holder thereof in an undivided
interest in a Conduit Loan or an Illiquid Loan.
"Payoff" shall mean, with respect to any Asset, repayment by the
------
applicable Obligor of all outstanding principal thereunder together with all
interest accrued thereon to the date of such repayment and any penalty or
premium thereon.
"Payoff Proceeds" shall mean, with respect to any Asset, all funds
---------------
received from the applicable Obligor in connection with a Payoff.
-12-
<PAGE>
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
----
entity succeeding to any or all of its functions under ERISA.
"Person" shall mean any individual, corporation, company, voluntary
------
association, partnership, joint venture, limited liability company, trust,
unincorporated association, government (or any agency, instrumentality or
political subdivision thereof) or any other entity of whatever nature.
"Plan" shall mean at a particular time, any employee benefit plan
----
which is covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.
"Post-Default Rate" shall mean, in respect of any principal of any
-----------------
Advance or any other amount under this Loan Agreement, the Note or any other
Loan Document that is not paid when due to the Lender (whether at stated
maturity, by acceleration, by optional or mandatory prepayment or otherwise), a
rate per annum during the period from and including the due date to but
excluding the date on which such amount is paid in full equal to 2% per annum
plus (a) the interest rate otherwise applicable to such Advance or other amount,
- ----
or (b) if no interest rate is otherwise applicable, the Base Rate.
"Principal Paydowns" shall mean, with respect to any Asset, any
------------------
payment or other recovery of principal on such Asset (other than Payoff
Proceeds), which is received by or on behalf of the Borrower, including any
penalty or premium 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.
"Rated" shall mean in the case of any Security, (i) the rating
-----
assigned to such security by either S&P, Moody's, Fitch or Duff & Phelps and
(ii) in the case of a Security to which a rating has not been assigned by S&P,
Moody's, Fitch or Duff & Phelps the long-term rating that has been assigned by
either S&P, Moody's, Fitch or Duff & Phelps generally to the most junior of the
rated debt securities of the issuer of such Security. The ratings that appear
herein refer the conventions of S&P, but shall include the ratings of other
agencies equivalent to such S&P rating.
"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.
"Reportable Event" shall mean any of the events set forth in Section
----------------
4043(b) of ERISA, other than those events as to which the thirty day notice
period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg.
(S) 2615.
"Responsible Officer" shall mean, as to any Person, the chief
-------------------
executive officer or, with respect to financial matters, the chief financial
officer of such Person; provided, that in the event any such officer is
--------
unavailable at any time he or she is required to take any action hereunder,
Responsible Officer shall mean any officer authorized to act on such officer's
behalf as demonstrated to the Lender to its reasonable satisfaction.
"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
-13-
<PAGE>
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.
"S&P" shall mean Standard & Poor's Corporation and any successor
---
entity thereto.
"Second Mortgage Loan" shall mean a second mortgage loan on commercial
--------------------
real estate, which is originated or purchased by the Borrower, and which Second
Mortgage Loan includes, without limitation (i) a Mortgage Note and related
Mortgage and (ii) all right, title and interest of the Borrower in and to the
Mortgaged Property covered by such Mortgage.
"Secured Obligations" shall mean the unpaid principal amount of, and
-------------------
interest on the Advances, and all other obligations and liabilities of the
Borrower to the Lender, whether direct or indirect, absolute or contingent, due
or to become due, or now existing or hereafter incurred, which may arise under,
out of or in connection with this Loan Agreement, the Note, any other Loan
Document and any other document made, delivered or given in connection herewith
or therewith, whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses (including, without limitation,
all fees and disbursements of counsel to the Lender that are required to be paid
by the Borrower pursuant to the terms hereof or thereof) or otherwise. For
purposes hereof, "interest" shall include, without limitation, interest accruing
after the maturity of the Advances and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding, relating to the Borrower, whether or not a claim for post-
filing or post-petition interest is allowed in such proceeding.
"Security" shall mean a Commercial Mortgage-Backed Security purchased
--------
or retained by the Borrower or an Affiliate of the Borrower.
"Servicer" shall mean Midland Loan Services, a Missouri limited
--------
partnership, and Southern Pacific Bank, a California Industrial Thrift and Loan
or other servicer approved by the Lender in its sole discretion, exercised in
good faith.
"Servicing Agreement" shall mean the agreement with the Servicer
-------------------
relating to the servicing of the Assets pursuant to this Loan Agreement.
"Servicing Records" shall have the meaning provided in Section
-----------------
11.14(b) hereof.
"Single Employer Plan" shall mean any Plan which is covered by Title
--------------------
IV of ERISA, but which is not a Multiemployer Plan.
"Southern California" shall mean all areas within the State of
-------------------
California with zip code numbers less than or equal to 93600.
"Subsidiary" shall mean, with respect to any Person, any other Person
----------
of which at least a majority of the securities or other ownership interests
having by the terms thereof ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions of such
corporation, partnership or other entity (irrespective of whether or not at the
time securities or other ownership interests of any other class or classes of
such corporation, partnership or other entity shall have or might have voting
power by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by such Person or one or more Subsidiaries of
such Person or by such Person and one or more Subsidiaries of such Person.
-14-
<PAGE>
"Tangible Net Worth" shall mean, as of a particular date,
------------------
(a) all amounts which would be included under "capital" on a
consolidated balance sheet of the Borrower and its consolidated Subsidiaries at
such date, determined in accordance with GAAP, less
----
(b) to the extent not already deducted in calculating "capital", (i)
"liabilities" of Affiliates owing to the Borrower and (ii) "intangible assets"
of the Borrower, each as determined in accordance with GAAP.
"Termination Date" shall mean March 29, 1999 or such earlier date on
----------------
which this Loan Agreement shall terminate in accordance with the provisions
hereof or by operation of law, as same may be extended in accordance with
Section 2.12 hereof.
"Tranche" shall mean the collective reference to LIBOR Advances the
-------
then current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such LIBOR Advances shall
originally have been made on the same day).
"Trust Receipt" shall have the meaning assigned to such term in the
-------------
Custodial Agreement.
"Type" shall mean a Base Rate Advance or a LIBOR Advance, each
----
constituting a Type.
"Underwriting Guidelines" shall mean the underwriting guidelines of
-----------------------
the Borrower for Conduit Loans, Illiquid Loans and Mezzanine Loans, a copy of
each of which has been delivered to the Lender.
"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.
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 accourdance with GAAP.
SECTION 2 Advances, Note and Prepayments.
------------------------------
2.01 Advances.
--------
(a) Subject to the terms and conditions of this Loan Agreement, the
Lender agrees to make loans (individually, an "Advance"; collectively, the
-------
"Advances") to the Borrower, from time to time on any Business Day from and
- ---------
including the Effective Date to but excluding the Termination Date, in an
aggregate principal amount at any one time outstanding up to but not exceeding
the lesser of (i) the Maximum Credit, and (ii) the Borrowing Base at such time.
-15-
<PAGE>
(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 Advances may from time to time be (i) LIBOR Advances, (ii)
Base Rate Advances or (iii) a combination thereof, as determined by the Borrower
and notified to the Lender; provided, that LIBOR Advances can only be made on a
--------
LIBOR Borrowing Date; and provided further, that no Advance may be made as a
----------------
LIBOR Advance after the date that is one month prior to the Termination Date.
(e) The Advances may from time to time be any one of the following:
Class CL Advance, Class IL Advance, Class ML Advance, Class PC Advance, Class
S-B Advance, Class S-BB Advance, Class S-IO Advance, Class SML Advance, or any
combination thereof, as determined by the Borrower and notified to the Lender.
(f) All LIBOR Advances shall have an Interest Period that ends on a
LIBOR Borrowing Date.
(g) No more than six (6) LIBOR Tranches may be outstanding at any
one time.
(h) All Base Rate Advances shall be converted to LIBOR Advances on
the next LIBOR Borrowing Date following the Funding Date for such Advance;
provided, that such conversion shall comply with the borrowing procedures of
- --------
Section 2.03 and the provisions relating to LIBOR Advances of this Section 2.01.
2.02 Note.
----
(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 lesser of (i) the amount of the Maximum Credit and (ii) the amount
of Advances outstanding hereunder, 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, Type and interest rate, and with respect to
LIBOR Advances, the Interest Period with respect thereof, of each Advance made
or Converted by the Lender to the Borrower, and each payment made on account of
the principal and interest thereof, shall be recorded by the Lender on its books
and, prior to any transfer of the Note, endorsed by the Lender on the schedule
attached to the Note or any continuation thereof; provided, that the failure of
--------
the Lender to make any such recordation or endorsement shall not affect the
obligations of the Borrower to make a payment when due of any amount owing
hereunder or under the Note in respect of the Advances.
2.03 Procedure for Borrowing.
-----------------------
(a) The Borrower may request an Advance hereunder, on any Business
Day during the period from and including the Effective Date to and including the
Termination Date, by delivering to the Lender, with a copy to the Custodian, an
irrevocable written Notice of Borrowing and Pledge substantially in the form of
Exhibit D hereto (a "Notice of Borrowing and Pledge"), appropriately
- --------- ------------------------------
-16-
<PAGE>
completed which Notice of Borrowing and Pledge must be received by the Lender,
with a copy to the Custodian, prior to 2:00 p.m., New York City time, three (3)
Business Days prior to the requested Funding Date in the case of LIBOR Advances,
and one (1) day prior to the requested Funding Date in the case of Base Rate
Advances. Such Notice of Borrowing and Pledge shall (i) attach a schedule
identifying the Eligible Assets that the Borrower proposes to pledge to the
Lender and to be included in the Borrowing Base in connection with such Advance,
(ii) contain the amount of the requested Advance to be made on such Funding
Date, which shall in any event be at least equal to $5,000,000 (setting forth
the amount of the Advance allocable to each Asset set forth on the attached
schedule), (iii) specify the requested Funding Date, (iv) designate the Advance
as either a LIBOR Advance (with designation of a one, two or three-month
Interest Period), a Base Rate Advance or a combination thereof, (v) designate
the Advance as one consisting of one or more of the following: Class CL Advance,
Class IL Advance, Class ML Advance, Class PC Advance, Class S-BB Advance, Class
S-B Advance or Class S-IO Advance, Class SML Advance, and specifying the portion
of such Advance so designated, (vi) attach an officer's certificate signed by a
Responsible Officer of the Borrower as required by Section 5.02(b) hereof, and
(vii) contain (by attachment) such other information reasonably requested by the
Lender from time to time.
(b) In accordance with Section 2 of the Custodial Agreement, the
Borrower shall deliver (or cause to be delivered) and release to the Custodian a
complete Asset File pertaining to each Eligible Asset to be pledged to the
Lender and included in the Borrowing Base on such requested Funding Date, in
accordance with the terms and conditions of the Custodial Agreement.
(c) Pursuant to the Custodial Agreement, the Custodian shall deliver
to the Lender and the Borrower, no later than 12:00 noon, New York City time, on
a Funding Date, a Trust Receipt in respect of all Assets pledged to the Lender
on such Funding Date and an Asset Schedule and Exception Report in respect of
all Assets so pledged to the Lender.
(d) Subject to Section 5 hereof, the requested Advance will then be
made available to the Borrower by the Lender transferring, via wire transfer
(pursuant to wire transfer instructions provided by the Borrower on or prior to
such Funding Date) the aggregate amount of such Advance in immediately available
funds.
(e) The Borrower may request Advances on a maximum of two (2)
Funding Dates per month, except for December 1998, during which the Borrower may
request Advances on a maximum of five (5) Funding Dates.
2.04 Repayment of Advances; Interest.
-------------------------------
(a) The Borrower hereby promises to repay in full on the Termination
Date the then aggregate outstanding principal amount of the Advances.
(b) The Borrower hereby promises to pay to the Lender interest on
the unpaid principal amount of each Advance for the period from and including
the Funding Date of such Advance to but excluding the date such Advance shall be
paid in full, at a rate per annum equal to:
(i) in the case of LIBOR Advances, the LIBO Rate as of two Business
Days prior to the Funding Date for such LIBOR Advance plus the Applicable
----
Margin; or
-17-
<PAGE>
(ii) in the case of Base Rate Advances, the Base Rate as of the later
of (A) the most recent Base Rate Advance Funding Date and (B) the date of the
last prepayment of any Base Rate Advance plus the Applicable Margin.
----
Notwithstanding the foregoing, the Borrower hereby promises to pay to the Lender
interest at the applicable Post-Default Rate on any principal of any Advance and
on any other amount payable by the Borrower hereunder or under the Note that
shall not be paid in full when due (whether at stated maturity, by acceleration
or by mandatory prepayment or otherwise) for the period from and including the
due date thereof to but excluding the date the same is paid in full. Accrued
interest on each LIBOR Advance shall be payable monthly in arrears on the tenth
day of each month (or if such date is not a Business Day, the next succeeding
Business Day) and on the Termination Date. Accrued interest on each Base Rate
Advance shall be payable upon the earlier of the repayment or Conversion of such
Base Rate Advance and the date of the next Base Rate Advance Funding Date.
Notwithstanding the foregoing, interest accruing at the Post-Default Rate shall
be payable to the Lender on demand. Promptly after the determination of any
interest rate provided for herein or any change therein, the Lender shall give
notice thereof to the Borrower.
2.05 Limitation on Types of Advances; Illegality. Anything herein to
-------------------------------------------
the contrary notwithstanding, if, on or prior to the determination of any LIBO
Base Rate:
(a) the Lender 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 LIBOR Advances as provided
herein; or
(b) it becomes unlawful for the Lender to honor its obligation to
make or maintain LIBOR 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 LIBOR Advances, Continue LIBOR Advances or Convert Base Rate
Advances into LIBOR Advances, and the Borrower shall, at its option, either
prepay all such LIBOR Advances as may be outstanding or convert such LIBOR
Advances to Base Rate Advances. If such Conversion or prepayment of a LIBOR
Advance occurs on a day that is not the last day of the relevant Interest
Period, the Borrower shall pay the Lender such amounts, if any, as may be
required pursuant to Section 2.08(b).
2.06 Conversion and Continuation Options.
-----------------------------------
(a) The Borrower may elect from time to time to Convert LIBOR
Advances to Base Rate Advances by giving the Lender at least one Business Day's
prior irrevocable notice of such election, provided that any such Conversion of
--------
LIBOR Advances may only be made on the last day of an Interest Period with
respect thereto. The Borrower may elect from time to time to Convert Base Rate
Advances to LIBOR Advances by giving the Lender at least three Business Days'
prior irrevocable notice of such election; provided that such Conversion may
--------
only occur on a LIBOR Borrowing Date. Any such notice of Conversion to LIBOR
Advances shall specify the length of the initial Interest Period or Interest
Periods therefor. All or any part of outstanding LIBOR Advances and Base Rate
Advances may be Converted as provided herein, provided that (i) no Loan may be
--------
Converted into a LIBOR Advance when any Event of Default has occurred and is
continuing and the
-18-
<PAGE>
Lender has determined that such a Conversion is not appropriate and (ii) no Base
Rate Advance may be converted into a LIBOR Advance after the date that is one
month or 30 days prior to the Termination Date.
(b) Any LIBOR Advances may be Continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
notice to the Lender of the length of the next Interest Period to be applicable
to such Advances, provided that no LIBOR Advance may be Continued as such (i)
--------
when any Event of Default has occurred and is continuing and the Lender has
determined that such a Continuation is not appropriate or (ii) after the date
that is one month or 30 days prior to the Termination Date; provided, further,
-------- -------
that if the Borrower shall fail to give such notice, such Advances shall be
automatically Continued as LIBOR Advances for an equivalent Interest Period on
the last day of such then expiring Interest Period; provided, however, that if
-------- -------
such Continuation is not permitted, such Advance shall be automatically
Converted into a Base Rate Advance on the last day of such then expiring
Interest Period.
2.07 Determination of Borrowing Base; Mandatory Prepayments or
---------------------------------------------------------
Pledge.
- ------
If at any time the aggregate outstanding principal amount of Advances
exceeds the Borrowing Base (a "Borrowing Base Deficiency"), as determined by the
-------------------------
Lender and notified to the Borrower on or before 11:00 a.m. on any Business Day,
the Borrower shall no later than three (3) Business Days after receipt of such
notice, at the option of the Borrower, either prepay the Advances in part or in
whole (subject to the provisions of Section 2.08 and the prepayment breakage
cost provisions of Section 2.14) or pledge additional Eligible Assets to the
Lender (which shall in all respects conform to the eligibility criteria
contained herein), such that after giving effect to such prepayment or pledge
the aggregate outstanding principal amount of the Advances does not exceed the
Borrowing Base.
2.08 Optional Prepayments.
--------------------
(a) The Borrower may prepay, in whole or in part, Base Rate Advances
at any time and LIBOR Advances on the last day of any Interest Period with
respect thereto, without premium or penalty. 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
one (1) Business Day's prior written notice thereof to the Lender, specifying
the date, amount of prepayment and whether the prepayment is of LIBOR Advances,
Base Rate Advances or a combination thereof, and if of a combination thereof,
the amount allocable to each. If such notice is given but is revoked, the
Borrower shall be liable to the Lender pursuant to Section 2.14 for any loss or
expense borne by the Lender. Partial prepayments shall be in an aggregate
principal amount of at least $500,000.
(b) Unless an Event of Default has occurred and is continuing and so
long as no Borrowing Base Deficiency (as defined in Section 2.07) exists, any
proceeds from a sale of Assets not used to prepay Advances shall be remitted to
the Borrower.
2.09 Requirements of Law.
-------------------
(a) If any Requirement of Law (other than with respect to any
amendment made to the Lender's certificate of incorporation and by-laws or other
organizational or governing documents) or any change in the interpretation or
application thereof or compliance by the Lender with any request
-19-
<PAGE>
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, Advances
or other extensions of credit by, or any other acquisition of funds by, any
office of the Lender which is not otherwise included in the determination
of the LIBO Base Rate or the Base Rate hereunder; or
(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, Converting into,
Continuing or maintaining any Advance or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall
promptly pay the Lender such additional amount or amounts as will compensate the
Lender for such increased cost or reduced amount receivable.
(b) If the Lender shall have determined that the adoption of or any
change in any Requirement of Law (other than with respect to any amendment made
to the Lender's certificate of incorporation and by-laws or other organizational
or governing documents) regarding capital adequacy or in the interpretation or
application thereof or compliance by the Lender or any corporation controlling
the Lender with any request or directive regarding capital adequacy (whether or
not having the force of law) from any Governmental Authority made subsequent to
the date hereof shall have the effect of reducing the rate of return on the
Lender's or such corporation's capital as a consequence of its obligations
hereunder to a level below that which the Lender or such corporation (taking
into consideration the Lender's or such corporation's policies with respect to
capital adequacy) by an amount deemed by the Lender to be material, then from
time to time, the Borrower shall promptly pay to the Lender such additional
amount or amounts as will compensate the Lender for such reduction.
(c) If the Lender becomes entitled to claim any additional amounts
pursuant to this subsection, it shall promptly notify the Borrower of the event
by reason of which it has become so entitled. No amounts may be claimed for
periods more than ninety (90) days prior to the date of such claim. A
certificate as to any additional amounts payable pursuant to this subsection
submitted by the Lender to the Borrower shall be conclusive in the absence of
manifest error.
2.10 Purpose of Advances. Each Advance shall be used to finance the
-------------------
origination, acquisition or holding of Eligible Assets identified to the Lender
in writing on each Asset Schedule, as such Asset Schedule may be amended from
time to time.
2.11 Taxes.
-----
(a) All payments made by the Borrower under this Loan Agreement and
the Note shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
-20-
<PAGE>
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Lender as a result of a present or former
connection between the Lender and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or taxing authority thereof or
therein (other than any such connection arising solely from the Lender having
executed, delivered or performed its obligations or received a payment under, or
enforced, this Loan Agreement or the Note). If any such non-excluded taxes,
levies, imposts, duties, charges, fees deductions or withholdings ("Non-Excluded
------------
Taxes") are required to be withheld from any amounts payable to the Lender
- -----
hereunder or under the Note, the amounts so payable to the Lender shall be
increased to the extent necessary to yield to the Lender (after payment of all
Non-Excluded Taxes) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in this Loan Agreement; provided, however,
-------- -------
that the Borrower shall not be required to increase any such amounts payable to
the Lender if the Lender is not organized under the laws of the United States of
America or a state thereof and the Lender fails to comply with the requirements
of clause (b) of this Section. Whenever any Non-Excluded Taxes are payable by
the Borrower, as promptly as possible thereafter the Borrower shall send to the
Lender a certified copy of an original official receipt received by the Borrower
showing payment thereof. If the Borrower fails to pay any Non-Excluded Taxes
when due to the appropriate taxing authority or fails to remit to the Lender the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Lender for any incremental taxes, interest or penalties that may
become payable by the Lender as a result of any such failure. The agreements in
this Section shall survive the termination of this Loan Agreement and the
payment of the Advances and all other amounts payable hereunder.
(b) If the Lender hereunder (or an assignee or participant that
acquires an interest hereunder in accordance with Section 11.13 hereof) that is
not incorporated under the laws of the United States of America or a state
thereof shall:
(i) deliver to the Borrower (A) two duly completed copies of United
States Internal Revenue Service Form 1001 or 4224, or successor applicable
form, as the case may be, and (B) an Internal Revenue Service Form W-8 or
W-9, or successor applicable form, as the case may be;
(ii) deliver to the Borrower two further copies of any such form or
certification on or before the date that any such form or certification
expires or becomes obsolete and after the occurrence of any event requiring
a change in the most recent form previously delivered by it to the
Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower. Such Lender
shall certify (i) in the case of a Form 1001 or 4224, that it is entitled to
receive payments under this Loan Agreement without deduction or withholding of
any United States federal income taxes and (ii) in the case of a Form W-8 or
W-9, that it is entitled to an exemption from United States backup withholding
tax. Each Person that shall become a Lender or a participant pursuant to Section
11.13 hereof shall, upon the effectiveness of the related transfer, be required
to provide all of the forms and statements required pursuant to this Section,
provided that in the case of a participant, such participant shall
- --------
-21-
<PAGE>
furnish all such required forms and statements to the Lender from which the
related participation shall have been purchased.
2.12 Extension of Termination Date. At the request of the Borrower,
-----------------------------
at least one hundred and fifty (150) days prior to the then current Termination
Date, the Lender may in its sole discretion extend the Termination Date for a
period of 364 days, dating from the date one hundred and twenty (120) days prior
to the Termination Date, by giving written notice of such extension to the
Borrower no later than one hundred and twenty (120) days prior to the then
current Termination Date.
2.13 Processing Fees.
---------------
(a) In connection with any Advance, the Borrower shall pay to the
Lender, monthly in arrears following the inclusion of an Asset in the Borrowing
Base, a processing fee equal to the sum of:
(i) subject to Section 2.13(b), $1,000 for each Conduit Loan ($250
if the Conduit Loan has a Par Amount of less than $1,000,000) pledged as
Collateral; provided, that this fee shall be inapplicable if an associated
--------
Mezzanine Loan or Second Mortgage Loan is also included in the Borrowing
Base;
(ii) subject to Section 2.13(b), $3,000 for each Illiquid Loan
pledged as Collateral;
(iii) subject to Section 2.13(b), $3,000 for each Mezzanine Loan
($1,000 if the Mezzanine Loan has a Par Amount of less than $250,000)
pledged as Collateral;
(iv) subject to Section 2.13(b), $3,000 for each Second Mortgage Loan
($1,000 if the Second Mortgage Loan has a Par Amount of less than $250,000)
pledged as Collateral;
(v) $40,000 for all Securities that are Rated BB or B issued in
connection with a single securitization transaction; provided, that this
--------
fee shall be inapplicable if such Securities relate to Assets already
included in the Borrowing Base;
(vi) $10,000 for all IO Securities issued in connection with a single
securitization transaction; provided, that this fee shall be inapplicable
--------
if such Securities relate to Assets already included in the Borrowing Base;
(vii) In the case of Participation Certificates, an amount equal to
the fee otherwise applicable to the Asset underlying such Participation
Certificate; and
(b) If the Borrower plans to acquire a pool of Conduit Loans or
Illiquid Loans having an average Par Amount of less than $1,000,000, or a pool
of Mezzanine Loans or Second Mortgage Loans, from an originator of such Assets,
the Borrower may elect to have the Lender perform due diligence on such
originator's program and servicing upon payment to the Lender of a fee in the
amount of $10,000, plus reasonable out-of-pocket expenses; provided, that any
--------
single Conduit Loan or Illiquid Loan with a Par Amount in excess of $2,000,000
shall be treated as a separate Asset and not part of the pool for the purposes
of this Section, unless otherwise agreed by the Lender. At the election of the
Borrower, for pools of such Assets purchased from an originator that has met the
Lender's approval upon completion
-22-
<PAGE>
of its due diligence, in lieu of fees otherwise applicable herein, the
processing fee shall be equal to $1,000 plus $50 for each Asset sampled by the
Lender, plus reasonable out-of-pocket expenses (the size of samples to be
determined by the Lender in its sole discretion, but not to be less than 10% of
the pool). Southern Pacific Bank shall be treated as an originator that is
approved by the Lender for the purposes of this Section 2.13(b).
(c) Notwithstanding the provisions of Section 2.13(a) to the
contrary, there will be no fee for a Conduit Loan, Illiquid Loan, Mezzanine
Loan, Second Mortgage Loan or Securities if the Lender is an underwriter in the
proposed or completed related securitization or has otherwise already conducted
due diligence on such Asset for its own purposes prior to the request by the
Borrower for such Asset to be included in the Borrowing Base.
(d) The Lender shall commence its due diligence review of an Asset
proposed to be included in the Borrowing Base following execution and delivery
by the Borrower and a seller of a commitment for the sale of such Asset to the
Borrower; provided, that the Borrower may reserve the right to terminate such
--------
acquisition for any reason, including Lender's rejection of the related Asset.
2.14 Indemnity. The Borrower agrees to indemnify the Lender and to
---------
hold the Lender harmless from any loss or expense which the Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, Conversion into or Continuation of LIBOR Advances after the Borrower has
given a notice requesting the same in accordance with the provisions of this
Loan Agreement, (b) default by the Borrower in making any prepayment after the
Borrower has given a notice thereof in accordance with the provisions of this
Loan Agreement or (c) the making of a prepayment of LIBOR Advances on a day
which is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest which would have accrued at the applicable interest rate
(excluding, however, the Applicable Margin included therein, if any) on the
amount so prepaid, or not so borrowed, Converted or Continued, for the period
from the date of such prepayment or of such failure to borrow, Convert or
Continue to the last day of such Interest Period (or, in the case of a failure
to borrow, Convert or Continue, the Interest Period that would have commenced on
the date of such failure) in each case at the applicable rate of interest for
such Advances provided for herein (excluding, however, the Applicable Margin
included therein, if any) over (ii) the amount of interest (as reasonably
determined by such Lender) which would have accrued to the Lender on such amount
by placing such amount on deposit for a comparable period with leading banks in
the interbank eurodollar market. This covenant shall survive the termination of
this Loan Agreement and the payment of the Advances and all other amounts
payable hereunder.
SECTION 3 Payments; Computations; Etc.
----------------------------
3.01 Payments.
--------
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrower under this Loan
Agreement and the Note, shall be made in Dollars, in immediately available
funds, without deduction, set-off or counterclaim, to the Lender at the
following account maintained by the Lender: Account No. 999-99-090, for the A/C
of Morgan Guaranty Trust Company of New York, ABA# 021-000-238, Attention:
Robert Nichols, Telephone: (302) 634-4208, reference: ICCMIC-Warehouse, not
later than 2:00 p.m., New York City
-23-
<PAGE>
time, on the date on which such payment shall become due (and each such payment
made after such time on such due date shall be deemed to have been made on the
next succeeding Business Day). The Borrower acknowledges that it has no rights
of withdrawal from the foregoing account.
(b) Except to the extent otherwise expressly provided herein, if the
due date of any payment under this Loan Agreement or the Note would otherwise
fall on a day that is not a Business Day, such date shall be extended to the
next succeeding Business Day, and interest shall be payable for any principal so
extended for the period of such extension.
3.02 Computations. Interest on the Advances shall be computed on the
------------
basis of a 360-day year for the actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
SECTION 4 Collateral Security.
-------------------
4.01 Collateral; Security Interest.
-----------------------------
(a) Pursuant to the Custodial Agreement, the Custodian shall hold
the Asset Documents as exclusive bailee and agent for the Lender pursuant to
terms of the Custodial Agreement and shall deliver Trust Receipts to the Lender
each to the effect that it has reviewed such Asset Documents in the manner and
to the extent required by the Custodial Agreement and identifying any exceptions
in such Asset Documents as so reviewed in the Asset Schedule and Exception
Reports.
(b) Each of the following items of property is hereinafter referred
to as the "Collateral":
----------
(i) all Conduit Loans identified on a Notice of Borrowing and Pledge
delivered by the Borrower to the Lender and the Custodian from
time to time;
(ii) all Illiquid Loans identified on a Notice of Borrowing and
Pledge delivered by the Borrower to the Lender and the Custodian
from time to time;
(iii) all Mezzanine Loans identified on a Notice of Borrowing and
Pledge delivered by the Borrower to the Lender and the Custodian
from time to time;
(iv) all Participation Certificates identified on a Notice of
Borrowing and Pledge delivered by the Borrower to the Lender and
the Custodian from time to time;
(v) all Second Mortgage Loans identified on a Notice of Borrowing
and Pledge delivered by the Borrower to the Lender and the
Custodian from time to time;
(vi) all Securities identified on a Notice of Borrowing and Pledge
delivered by the Borrower to the Lender and the Custodian from
time to time;
(vii) all Asset Documents relating to the foregoing, including without
limitation all promissory notes, and all Servicing Records,
Servicing Agreements, servicing rights, pledge agreements and
any other collateral pledged or otherwise relating to the
Assets, together with all files, documents, instruments,
surveys, certificates, correspondence, appraisals, computer
programs, computer storage media, accounting records and other
books and records relating thereto;
-24-
<PAGE>
(viii) all mortgage guaranties and insurance relating to such Assets
(issued by governmental agencies or otherwise), if any, and any
mortgage insurance certificate or other document evidencing such
mortgage guaranties or insurance relating to such Assets and all
claims and payments thereunder;
(ix) all other insurance policies and insurance proceeds relating to
any Asset or the related Mortgaged Property;
(x) all Interest Rate Protection Agreements relating to such Assets,
if any;
(xi) all collateral, however defined, under any other agreement
between the Borrower or any of its Subsidiaries on the one hand
and the Lender or any of its Subsidiaries on the other hand;
(xii) all "securities accounts", as defined in the Uniform Commercial
Code, relating to any of the foregoing and each "financial
asset", as defined in the Uniform Commercial Code, contained
therein;
(xiii) all "accounts", "chattel paper" and "general intangibles" as
defined in the Uniform Commercial Code relating to or
constituting any and all of the foregoing; and
(xiv) any and all replacements, substitutions, distributions on or
proceeds of any and all of the foregoing.
(c) The Borrower hereby pledges to the Lender, and grants a security
interest in favor of the Lender in, all of the Borrower's right, title and
interest in, to and under the Collateral, whether now owned or hereafter
acquired, now existing or hereafter created and wherever located, to secure the
Secured Obligations. The Borrower agrees to mark its computer records and tapes
to evidence the interests granted to the Lender hereunder.
(d) In the case of a Mezzanine Loan secured by a pledge of equity
interests, the Borrower shall deliver to the Lender certificates evidencing such
equity interests, together with stock powers, if any, endorsed in blank, or take
such other action (including, without limitation, causing written instructions
to be given to the financial institution at which such equity interests are held
sufficient to effect and perfect a legally valid transfer of the interests
granted therein to the Lender or taking such other action as shall be acceptable
to the Lender) as shall be necessary or advisable for the security interest of
the Lender in such equity interest to be a fully perfected first priority
security interest on which the Lender may foreclose without further action by
the Borrower.
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
-25-
<PAGE>
other reproduction of this Loan Agreement shall be sufficient as a financing
statement for filing in any jurisdiction.
4.03 Changes in Locations, Name, etc. The Borrower shall not (i)
-------------------------------
change the location of its chief executive office/chief place of business from
that specified in Section 6 hereof or (ii) change its name, identity or
corporate structure (or the equivalent) or change the location where it
maintains its records with respect to the Collateral unless it shall have given
the Lender at least 30 days prior written notice thereof and shall have
delivered to the Lender all Uniform Commercial Code financing statements and
amendments thereto as the Lender shall request and taken all other actions
deemed necessary by the Lender to continue its perfected status in the
Collateral with the same or better priority.
4.04 Lender's Appointment as Attorney-in-Fact.
----------------------------------------
(a) The Borrower hereby irrevocably constitutes and appoints the
Lender and any officer or agent thereof, with full power of substitution, as its
true and lawful attorney-in-fact with full irrevocable power and authority in
the place and stead of the Borrower and in the name of the Borrower or in its
own name, from time to time in the Lender's discretion, for the purpose of
carrying out the terms of this Loan Agreement, to take any and all appropriate
action and to execute any and all documents and instruments which may be
necessary or desirable to accomplish the purposes of this Loan Agreement, and,
without limiting the generality of the foregoing, the Borrower hereby gives the
Lender the power and right, on behalf of the Borrower, without assent by, but
with notice to, the Borrower, if an Event of Default shall have occurred and be
continuing, to do the following:
(i) in the name of the Borrower or its own name, or otherwise, to
take possession of and endorse and collect any checks, drafts, notes,
acceptances or other instruments for the payment of moneys due under any
mortgage insurance or with respect to any other Collateral and to file any
claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Lender for the purpose of
collecting any and all such moneys due under any such mortgage insurance or
with respect to any other Collateral whenever payable;
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral; and
(iii) (A) to direct any party liable for any payment under any
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Lender or as the Lender shall direct; (B) to ask
or demand for, collect, receive payment of and receipt for, any and all
moneys, claims and other amounts due or to become due at any time in
respect of or arising out of any Collateral; (C) to sign and endorse any
invoices, assignments, verifications, notices and other documents in
connection with any of the Collateral; (D) to commence and prosecute any
suits, actions or proceedings at law or in equity in any court of competent
jurisdiction to collect the Collateral or any thereof and to enforce any
other right in respect of any Collateral; (E) to defend any suit, action or
proceeding brought against the Borrower with respect to any Collateral; (F)
to settle, compromise or adjust any suit, action or proceeding described in
clause (E) above and, in connection therewith, to give such discharges or
releases as the Lender may deem appropriate; and (G) generally, to sell,
transfer, pledge and make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though the
Lender were the absolute owner thereof for all purposes, and to do, at
-26-
<PAGE>
the Lender's option and the Borrower's expense, at any time, and from time
to time, all acts and things which the Lender deems necessary to protect,
preserve or realize upon the Collateral and the Lender's Liens thereon and
to effect the intent of this Loan Agreement, all as fully and effectively
as the Borrower might do.
The Borrower hereby ratifies all that said attorneys shall lawfully do or cause
to be done by virtue hereof. This power of attorney is a power coupled with an
interest and shall be irrevocable.
(b) The Borrower also authorizes the Lender, at any time and from
time to time, to execute, in connection with any sale provided for in Section
4.07 hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
(c) The powers conferred on the Lender are solely to protect the
Lender's interests in the Collateral and shall not impose any duty upon the
Lender to exercise any such powers. The Lender shall be accountable only for
amounts that it actually receives as a result of the exercise of such powers,
and neither the Lender nor any of its officers, directors, or employees shall be
responsible to the Borrower for any act or failure to act hereunder, except for
its own gross negligence or willful misconduct.
4.05 Performance by Lender of Borrower's Obligations. If the
-----------------------------------------------
Borrower fails to perform or comply with any of its agreements contained in the
Loan Documents and the Lender may itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the expenses of the Lender
incurred in connection with such performance or compliance, together with
interest thereon at a rate per annum equal to the Post-Default Rate, shall be
payable by the Borrower to the Lender on demand and shall constitute Secured
Obligations.
4.06 Proceeds. If an Event of Default shall occur and be continuing,
--------
(a) all proceeds of Collateral received by the Borrower consisting of cash,
checks and other near-cash items shall be held by the Borrower in trust for the
Lender, segregated from other funds of the Borrower, and shall forthwith upon
receipt by the Borrower be turned over to the Lender in the exact form received
by the Borrower (duly endorsed by the Borrower to the Lender, if required) and
(b) any and all such proceeds received by the Lender (whether from the Borrower
or otherwise) may, in the sole discretion of the Lender, be held by the Lender
as collateral security for, and/or then or at any time thereafter may be applied
by the Lender against, the Secured Obligations (whether matured or unmatured),
such application to be in such order as the Lender shall elect. Any balance of
such proceeds remaining after the Secured Obligations shall have been paid in
full and this Loan Agreement shall have been terminated shall be paid over to
the Borrower or to whomsoever may be lawfully entitled to receive the same. For
purposes hereof, proceeds shall include, but not be limited to, all principal
and interest payments, all prepayments and payoffs, insurance claims,
condemnation awards, sale proceeds, real estate owned rents and any other income
and all other amounts received with respect to the Collateral.
4.07 Remedies. If an Event of Default shall occur and be continuing,
--------
the Lender may exercise, in addition to all other rights and remedies granted to
it in this Loan Agreement and in any other instrument or agreement securing,
evidencing or relating to the Secured Obligations, all rights and remedies of a
secured party under the Uniform Commercial Code. Without limiting the generality
of the foregoing, the Lender, without demand of performance or other demand,
presentment, protest, advertisement or notice of any kind (except any notice
required by law referred to below) to or upon the Borrower or any other Person
(each and all of which demands, presentments, protests, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive,
-27-
<PAGE>
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell (on a servicing released basis, at the Lender's option), lease,
assign, give option or options to purchase, or otherwise dispose of and deliver
the Collateral or any part thereof (or contract to do any of the foregoing), in
one or more parcels or as an entirety at public or private sale or sales, at any
exchange, broker's board or office of the Lender or elsewhere upon such terms
and conditions as it may deem advisable and at such prices as it may deem best,
for cash or on credit or for future delivery without assumption of any credit
risk. The Lender shall have the right upon any such public sale or sales, and,
to the extent permitted by law, upon any such private sale or sales, to purchase
the whole or any part of the Collateral so sold, free of any right or equity of
redemption in the Borrower, which right or equity is hereby waived or released.
The Borrower further agrees, at the Lender's request, to assemble the Collateral
and make it available to the Lender at places which the Lender shall reasonably
select, whether at the Borrower's premises or elsewhere. The Lender shall apply
the net proceeds of any such collection, recovery, receipt, appropriation,
realization or sale, after deducting all reasonable costs and expenses of every
kind incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the Lender
hereunder, including without limitation reasonable attorneys' fees and
disbursements, to the payment in whole or in part of the Secured Obligations, in
such order as the Lender may elect, and only after such application and after
the payment by the Lender of any other amount required or permitted by any
provision of law, including without limitation Section 9-504(1)(c) of the
Uniform Commercial Code, need the Lender account for the surplus, if any, to the
Borrower. To the extent permitted by applicable law, the Borrower waives all
claims, damages and demands it may acquire against the Lender arising out of the
exercise by the Lender of any of its rights hereunder, other than those claims,
damages and demands arising from the gross negligence or willful misconduct of
the Lender. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 Business Days before such sale or other disposition. The
Borrower shall remain liable for any deficiency (plus accrued interest thereon
as contemplated pursuant to Section 2.04(b) hereof) if the proceeds of any sale
or other disposition of the Collateral are insufficient to pay the Secured
Obligations and the fees and disbursements of any attorneys employed by the
Lender to collect such deficiency. The Lender agrees to give notice to the
Borrower if the Lender elects to exercise its remedies under this or any other
Loan Document; provided, that failure to give notice shall in no way impair the
--------
rights of the Lender to exercise its remedies under the Loan Documents or
otherwise. The Lender agrees to act in a commercially reasonable manner in its
exercise of its rights to sell Collateral pursuant to this section.
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.
----------------------------
(a) 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
-28-
<PAGE>
release its security interest in any remaining Collateral; provided that if any
--------
payment, or any part thereof, of any of the Secured Obligations is rescinded or
must otherwise be restored or returned by the Lender upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Borrower, or upon
or as a result of the appointment of a receiver, intervenor or conservator of,
or a trustee or similar officer for, the Borrower or any substantial part of its
Property, or otherwise, this Loan Agreement, all rights hereunder and the Liens
created hereby shall continue to be effective, or be reinstated, as though such
payments had not been made.
(b) In the event that the Collateral Value assigned to any Asset
pledged hereunder shall be reduced to zero or, upon request from the Borrower
with respect to one or more Assets constituting excess Collateral, the Lender
shall cause the Custodian to release to the Borrower the Asset File relating to
such Asset and to execute and deliver to the Borrower any instruments reasonably
necessary to release the Lien of the Lender on such Asset, so long as, at the
time of such release and after giving effect thereto, no Default or Event of
Default shall have occurred and be continuing.
SECTION 5 Conditions Precedent.
--------------------
5.01 Initial Advance. The agreement of the Lender to make the initial
---------------
Advance requested to be made by it hereunder is subject to the satisfaction,
immediately prior to or concurrently with the making of such Advance, of the
following conditions precedent:
(a) Loan Agreement. The Lender shall have received this Loan
--------------
Agreement, executed and delivered by a duly authorized officer of the
Borrower.
(b) Note. The Lender shall have received the Note, conforming to the
----
requirements hereof and executed by a duly authorized officer of the
Borrower.
(c) Custodial Agreement. The Lender shall have received the
-------------------
Custodial Agreement, conforming to the requirements hereof and executed by
a duly authorized officer of the Borrower and the Custodian.
(d) Servicing Agreement(s). The Lender shall have received any
-------------------
Servicing Agreement(s), each certified as a true, correct and complete copy
of the original, with a letter of the applicable Servicer attached thereto
in which such Servicer consents to terminate such Servicing Agreement upon
notification by the Lender of the occurrence of an Event of Default.
(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 those created hereunder, shall have been properly prepared and
executed for filing (including the applicable county(ies) if the Lender
determines such filings are necessary in its sole discretion), registration
or recording in each office in each jurisdiction in which such filings,
registrations and recordations are required to perfect such first-priority
security interest; provided, that assignments of the Mortgages securing or
--------
related to the Assets shall not be required to be recorded prior to the
occurrence of an Event of Default.
(f) Closing Certificate. The Lender shall have received a
-------------------
certificate of the Secretary or Assistant Secretary of the Borrower, dated
as of the date hereof, and certifying (A) that attached thereto is a true,
complete and correct copy of (i) the articles of incorporation
-29-
<PAGE>
of the Borrower, (ii) the by-laws of the Borrower, and (iii) resolutions
duly adopted by the Board of Directors of the Borrower authorizing the
execution, delivery and performance of this Loan Agreement, the Note and
the other Loan Documents to which it is a party, and the borrowings
contemplated hereunder, and that such resolutions have not been amended,
modified, revoked or rescinded, and (B) as to the incumbency and specimen
signature of each officer executing any Loan Documents on behalf of the
Borrower and authorized to execute any Notice of Borrowing, and such
certificate and the resolutions attached thereto shall be in form and
substance satisfactory to the Lender.
(g) Good Standing Certificates. The Lender shall have received
--------------------------
copies of certificates evidencing the good standing of the Borrower, dated
as of a recent date, from the Secretary of State (or other appropriate
authority) of the jurisdiction under which the Borrower is organized and of
each other jurisdiction where the ownership, lease or operation of
property, or the conduct of business, requires the Borrower to qualify as a
foreign corporation, except where the failure to qualify would not have a
Material Adverse Effect.
(h) Legal Opinions. The Lender shall have received the executed
--------------
legal opinions of Sonnenschein Nath & Rosenthal, legal counsel of the
Borrower, addressing the matters set forth in the form attached hereto as
Exhibit C, dated the initial Funding Date and otherwise in form and
substance acceptable to the Lender and covering such other matters incident
to the transactions contemplated by this Loan Agreement as the Lender shall
reasonably request.
(i) 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 the Borrower shall have
received the Fee Letter, signed, executed and delivered by the Borrower.
(j) Financial Statements. The Lender shall have received the
--------------------
financial statements referenced in Section 6.01(a).
(k) Underwriting Guidelines. The Lender and the Borrower shall have
-----------------------
agreed upon the Underwriting Guidelines and the Lender shall have received
a certified copy thereof.
(l) 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.
(m) Insurance. The Lender shall have received evidence in form and
---------
substance satisfactory to the Lender showing compliance by the Borrower as
of such initial Funding Date with Section 7.03 hereof.
(n) Termination Letter. The Lender shall have received a letter from
------------------
the Servicer consenting to the termination of the Servicer as servicer of
the Assets in the event that an Event of Default shall have occurred and be
continuing.
(o) Other Documents. The Lender shall have received such other
---------------
documents as the Lender or its counsel may reasonably request.
-30-
<PAGE>
5.02 Initial and Subsequent Advances. The making of each Advance to
-------------------------------
the Borrower (including the initial Advance) on any Business Day is subject to
the satisfaction of the following further conditions precedent, both immediately
prior to the making of such Advance and also after giving effect thereto and to
the intended use thereof:
(a) No Default. No Default or Event of Default shall have occurred
----------
and be continuing.
(b) Representations and Warranties. Each representation and warranty
------------------------------
made by the Borrower in Section 6 hereof and elsewhere in each of the Loan
Documents, shall be true and correct on and as of the date of the making of
such Advance (in the case of the representations and warranties in
Schedules 1 through 6, solely with respect to the pledged Assets included
in the Borrowing Base on such date) with the same force and effect as if
made on and as of such date (or, if any such representation or warranty is
expressly stated to have been made as of a specific date, as of such
specific date). The Borrower shall also be in compliance with all
governmental licenses and authorizations and qualified to do business and
in good standing in all required jurisdictions where the failure to be so
qualified should reasonably be expected to have a Material Adverse Effect.
(c) Borrowing Base. The aggregate outstanding principal amount of
--------------
the Advances shall not exceed the Borrowing Base.
(d) Borrowing Base Certificate. The Lender shall have received a
--------------------------
Borrowing Base Certificate, substantially in the form of Exhibit F,
reflecting the assets to be pledged in connection with the requested
Advance.
(e) Notice of Borrowing and Pledge. The Lender shall have received a
------------------------------
Notice of Borrowing and Pledge and Asset Schedule in accordance with
Section 2.03(a) hereof, appropriately completed.
(f) Trust Receipt; Asset Schedule and Exception Report. The
--------------------------------------------------
Custodian shall have received all Asset Files relating to the pledged
Assets and the Lender shall have received from the Custodian a Trust
Receipt in respect of all Assets to be pledged hereunder on such Business
Day and a corresponding Asset Schedule and Exception Report, with
Exceptions (as defined in the Custodial Agreement) in respect of such Asset
acceptable to the Lender in its sole discretion, in each case dated such
Business Day and duly completed.
(g) Interest Rate Protection Agreements. The Lender shall have
-----------------------------------
received fully-executed copies of any Interest Rate Protection Agreements,
if any, each certified as a true, correct and complete copy of the
original.
(h) Additional Documents. The Lender shall have received, in the
--------------------
case of Mezzanine Loans, certificates and stock powers, if applicable,
endorsed in blank relating to the pledged equity interests (or evidence
satisfactory to the Lender that written instructions have been given to the
financial institution at which such equity interests are held that are
sufficient to effect and perfect a legally valid transfer of a security
interest therein to the Lender), and with regard to all Assets, such title
insurance, surveys, appraisals and other information, documents, agreement
or instruments as the Lender deems advisable with respect to Assets to
-31-
<PAGE>
be pledged hereunder on such Business Day, each in form and substance
reasonably satisfactory to the Lender.
(i) Additional Matters. All corporate and other proceedings, and all
------------------
documents, instruments and other legal matters in connection with the
transactions contemplated by this Loan Agreement and the other Loan
Documents shall be reasonably satisfactory in form and substance to the
Lender, and the Lender shall have received such other documents and legal
opinions in respect of any aspect or consequence of the transactions
contemplated hereby or thereby as it shall reasonably request.
(j) No Material Adverse Effect. There shall not have occurred one or
--------------------------
more events that, in the reasonable judgment of the Lender, constitutes or
should reasonably be expected to constitute a Material Adverse Effect.
(k) Due Diligence Review. Subject to the Lender's right to perform
--------------------
one or more Due Diligence Reviews pursuant to Section 11.15 hereof, the
Lender shall have completed its due diligence review of the Asset Documents
for each Advance and such other documents, records, agreements,
instruments, mortgaged properties or information relating to such Advances
as the Lender in its sole discretion deems appropriate to review and such
review shall be satisfactory to the Lender in its sole discretion.
(l) True Sale Opinion. With respect to any Conduit Loan, Illiquid
-----------------
Loan or Mezzanine Loan that was originated by an originator other than the
Borrower, the Lender may, in its sole discretion, require the Borrower to
provide evidence sufficient to satisfy the Lender that such Conduit Loan,
Illiquid Loan, Mezzanine Loan or Second Mortgage Loan was acquired in a
legal sale, including without limitation, an opinion, in form and substance
and from regular counsel for the Borrower or another attorney, in both
cases, acceptable to the Lender in its sole discretion exercised in good
faith, that such Conduit Loan, Illiquid Loan, Mezzanine Loan or Second
Mortgage Loan was acquired in a true and legal sale.
(m) Other Conditions. The Borrower shall have satisfied all other
----------------
conditions that the Lender may reasonably request.
SECTION 6 Representations and Warranties. As of the Effective Date
------------------------------
and each Funding Date, Borrower represents and warrants to the Lender that:
6.01 Financial Condition.
-------------------
(a) The audited consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at December 31, 1997, reported thereon by KPMG Peat
Marwick, a copy of which shall have been furnished to the Lender prior to the
initial Funding Date, unless otherwise agreed by the Lender, is complete and
correct and presents fairly the consolidated financial condition of the Borrower
and its consolidated Subsidiaries as at such dates and the consolidated results
of their operations and their consolidated cash flows for the fiscal year then
ended.
(b) Such financial statement, including the related schedules and
notes thereto, has been prepared in accordance with GAAP applied consistently
throughout the periods involved (except as approved by such accountants or
Responsible Officer, as the case may be, and as disclosed therein).
-32-
<PAGE>
(c) Neither the Borrower nor any of its consolidated Subsidiaries
had, at the date of the financial statement referred to above, any material
Guarantee Obligation, contingent liability or liability for taxes, or any long-
term lease or unusual forward or long-term commitment, including, without
limitation, any interest rate or foreign currency swap or exchange transaction,
or other financial derivative, which is not reflected in the foregoing
statements or in the Note thereto.
6.02 No Change. Since December 31, 1997, there has been no
---------
development or event nor any prospective development or event which has had or
should reasonably be expected to have a Material Adverse Effect.
6.03 Corporate Existence; Compliance with Law. The Borrower (a) is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization, (b) has the corporate power and authority,
and has all governmental licenses, authorizations, consents and approvals
necessary, to own and operate its property, to lease the property it operates as
lessee and to carry on its business as now being or as proposed to be conducted,
(c) is duly qualified to do business and is in good standing under the laws of
each jurisdiction in which the nature of the business conducted by it makes such
qualification necessary and where failure so to qualify should be reasonably
expected (either individually or in the aggregate) to have a Material Adverse
Effect, and (d) is in compliance in all material respects with all Requirements
of Law.
6.04 Corporate Power; Authorization; Enforceable Obligations.
-------------------------------------------------------
(a) The Borrower has the corporate power and authority, and the
legal right, to make, deliver and perform this Loan Agreement, the Note, and
each other Loan Document, and to borrow and to grant Liens hereunder, and has
taken all necessary corporate action to authorize the borrowings and the
granting of Liens on the terms and conditions of this Loan Agreement, the Note,
and each other Loan Document to which it is a party, and the execution, delivery
and performance of this Loan Agreement, the Note, and each other Loan Document.
(b) No consent or authorization of, approval by, notice to, filing
with or other act by or in respect of, any Governmental Authority or any other
Person is required or necessary in connection with the borrowings hereunder or
with the execution, delivery, performance, validity or enforceability of this
Loan Agreement or the Note or any other Loan Document, except (i) for filings
and recordings in respect of the Liens created pursuant to this Loan Agreement,
and (ii) as previously obtained and currently in full force and effect.
(c) Each Loan Document has been duly and validly executed and
delivered by the Borrower and constitutes, a legal, valid and binding obligation
of the Borrower, enforceable against the Borrower in accordance with their
terms, except as enforceability may be limited by applicable 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).
6.05 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.
-33-
<PAGE>
6.06 No Material Litigation. There are no actions, suits,
----------------------
arbitrations, investigations or proceedings of or before any arbitrator or
Governmental Authority pending or, to the knowledge of the Borrower, threatened
against the Borrower or any of its Subsidiaries or against any of its or their
respective properties or revenues which should reasonably be expected to have a
Material Adverse Effect.
6.07 No Default. Neither the Borrower nor any of its Subsidiaries 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.
6.08 Collateral; Collateral Security.
-------------------------------
(a) The Borrower has not assigned, pledged, or otherwise conveyed or
encumbered any of the Collateral to any Person other than the Lender, and
immediately prior to the pledge of such Collateral, the Borrower was the sole
owner of the Collateral and had good and marketable title thereto, free and
clear of all Liens, in each case except for Liens that have been released or are
to be released simultaneously with the Liens granted in favor of the Lender
hereunder.
(b) The provisions of this Loan Agreement are effective to create in
favor of the Lender a valid security interest in all right, title and interest
of the Borrower in, to and under the Collateral.
(c) Upon (i) receipt by the Custodian of each Mortgage Note,
Mezzanine Note, certificate or instrument evidencing a Security or a
Participation Certificate (ii) the filing (to the extent such interest can be
perfected by filing under the Uniform Commercial Code) of financing statements
on Form UCC-1 naming the Lender as "Secured Party" and the Borrower as "Debtor",
and describing the Collateral, in the jurisdictions and recording offices listed
on Schedule 7 attached hereto, (iii) the taking of possession of the
certificates representing any pledged equity interests under a Mezzanine Loan,
and (iv) the taking of such other actions with respect to the Assets as the
Borrower shall have notified the Lender, the security interests and Liens
granted hereunder in the Collateral will constitute fully perfected first-
priority security interests under the Uniform Commercial Code or applicable
state real property law, as the case may be, in all right, title and interest of
the Borrower in, to and under such Collateral.
6.09 Chief Executive Office. The Borrower's chief executive office
----------------------
on the Effective Date is located at 11601 Wilshire Boulevard, Suite 2080, Los
Angeles, California 90025.
6.10 Location of Books and Records. The location where the Borrower
-----------------------------
keeps its books and records, including all computer tapes and records relating
to the Collateral is its chief executive office.
6.11 No Burdensome Restrictions. No Requirement of Law or
--------------------------
Contractual Obligation of the Borrower or any of its Subsidiaries has a Material
Adverse Effect.
6.12 Taxes. Each of the Borrower and its Subsidiaries has filed all
-----
Federal and state income tax returns and all other material tax returns that are
required to be filed by them and has paid all taxes due pursuant to such returns
or pursuant to any assessment received by any of them, except for any such taxes
or assessments, if any, that are being appropriately contested in good faith by
-34-
<PAGE>
appropriate proceedings diligently conducted and with respect to which adequate
reserves in conformity with GAAP have been provided. No tax Lien has been filed,
and, to the knowledge of the Borrower, no claim is being asserted, with respect
to any such tax or assessment with respect to an amount in controversy of
$1,000,000 or more.
6.13 Margin Regulations. No part of the proceeds of any Advances
------------------
will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under, or for any other purpose
which violates or would be inconsistent with the provisions of, Regulation G, T,
U or X.
6.14 Investment Company Act; Other Regulations. The Borrower is not
-----------------------------------------
an "investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended. The
Borrower is not subject to regulation under any Federal or state statute or
regulation which limits its ability to incur Indebtedness.
6.15 Subsidiaries. All of the Subsidiaries of the Borrower at the
------------
date hereof are listed on Schedule 8 to this Loan Agreement.
6.16 Eligible Assets. Each Asset included in the Borrowing Base
---------------
is an Eligible Asset.
6.17 No Adverse Selection. The Borrower has not selected Assets
--------------------
to be pledged to the Lender through a process that is adverse to the Lender or
which results in the Lender receiving pledged Assets that are of lesser quality,
determined in the sole discretion of the Lender, than those Assets pledged to
other lenders pursuant to any other facility to which the Borrower may be a
party.
6.18 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 liabilities
(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. Borrower does not intend to incur, or
believe that it has incurred, debts beyond its ability to pay such debts as they
mature. 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
Borrower or any of its assets. Borrower is not transferring any Assets with any
intent to hinder, delay or defraud any of its creditors.
6.19 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.
6.20 True and Complete Disclosure. The information, reports,
----------------------------
financial statements, exhibits and schedules furnished in writing by or on
behalf of the Borrower to the Lender in connection with the negotiation,
preparation or delivery of this Loan Agreement and the other Loan Documents or
included herein or therein or delivered pursuant hereto or thereto, do not
contain any untrue statement of material fact or omit to state any material fact
necessary to make the statements herein or therein not
-35-
<PAGE>
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, correct and accurate in every material respect, or (in the case of
projections) based on reasonable estimates, on the date as of which such
information is stated or certified. There is no fact known to a Responsible
Officer of the Borrower that, after due inquiry, should reasonably be expected
to have a Material Adverse Effect that has not been disclosed herein, in the
other Loan Documents or in a report, financial statement, exhibit, schedule,
disclosure letter or other writing furnished to the Lender for use in connection
with the transactions contemplated hereby or thereby.
6.21 Licenses. The Lender will not be required as a result of
--------
financing or taking a pledge of the Assets to be licensed, registered or
approved or to obtain permits or otherwise qualify (i) to do business in any
state in which it currently so required or (ii) under any state consumer
lending, fair debt collection or other applicable state statute or regulation.
6.22 True Sales. Any Conduit Loan, Illiquid Loan or Mezzanine
----------
Loan originated by an originator other than the Borrower has been conveyed to
the Borrower pursuant to a legal sale and is covered by an opinion of counsel to
that effect in form and substance acceptable to the Lender.
6.23 Tangible Net Worth. On the Effective Date, the Tangible
------------------
Net Worth of the Borrower is not less than $175,000,000.
SECTION 7 Covenants of the Borrower. The Borrower covenants and
-------------------------
agrees with the Lender that, so long as any Advance is outstanding and until the
later to occur of the payment in full of all Secured Obligations and the
termination of this Loan Agreement:
7.01 Financial Statements. The Borrower shall deliver to the Lender:
--------------------
(a) as soon as available and in any event within forty-five (45)
days after the end of each of the first three quarterly fiscal periods of each
fiscal year of the Borrower, the audited consolidated and consolidating balance
sheets of the Borrower and its consolidated Subsidiaries as at the end of such
period and the related audited consolidated and consolidating statements of
income and of cash flows for the Borrower and its consolidated Subsidiaries for
such period and the portion of the fiscal year through the end of such period,
setting forth in each case in comparative form the figures for the previous
year, 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 and consolidating financial statements fairly present the
consolidated and consolidating financial condition and results of operations of
the Borrower and its consolidated Subsidiaries as at the end of, and for, such
fiscal year in accordance with GAAP;
(b) as soon as available and in any event within one hundred and
twenty (120) days after the end of each fiscal year of the Borrower, the audited
consolidated and consolidating balance sheets of the Borrower and its
consolidated Subsidiaries as at the end of such fiscal year and the related
consolidated and consolidating statements of income and retained earnings and of
cash flows for the Borrower and its consolidated Subsidiaries 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 and consolidating financial statements fairly present
-36-
<PAGE>
the consolidated and consolidating financial condition and results of operations
of the Borrower and its consolidated Subsidiaries as at the end of, and for,
such fiscal year in accordance with GAAP; and
(c) from time to time such other information regarding the financial
condition, operations, or business of the Borrower and its Subsidiaries as the
Lender may reasonably request.
7.02 Existence, Etc. The Borrower will:
---------------
(a) preserve and maintain its legal existence as a real estate
investment trust;
(b) preserve and maintain all of its material rights, privileges,
licenses and franchises;
(c) comply with the requirements of all applicable Requirements of
Law (including, without limitation, the Truth in Lending Act, the Real
Estate Settlement Procedures Act and all environmental laws) if failure to
comply with such requirements should reasonably be expected (either
individually or in the aggregate) to have a Material Adverse Effect; and
(d) keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied.
7.03 Maintenance of Property; Insurance. The Borrower shall keep all
----------------------------------
property useful and necessary in its business in good working order and
condition. The Borrower shall maintain errors and omissions insurance and/or
mortgage impairment insurance and blanket bond coverage in such amounts as are
in effect on the Effective Date (as disclosed to Lender in writing) and shall
not reduce such coverage without the written consent of the Lender, and shall
also maintain such other insurance with financially sound and reputable
insurance companies, and with respect to property and risks of a character
usually maintained by entities engaged in the same or similar business similarly
situated, against loss, damage and liability of the kinds and in the amounts
customarily maintained by such entities.
7.04 Notices.
-------
(a) The Borrower shall give notice to the Lender promptly:
(i) upon the Borrower becoming aware of, and in any event within one
(1) Business Day after, the occurrence of any Default or Event of Default
or any Event of Default or Default under any other material agreement of
the Borrower;
(ii) upon, and in any event within three (3) Business Days after,
service of process on the Borrower or any of its Subsidiaries, or any agent
thereof for service of process, in respect of any legal or arbitrable
proceedings affecting the Borrower or any of its Subsidiaries (a) that
questions or challenges the validity or enforceability of any of the Loan
Documents or (b) in which the amount in controversy exceeds $1,000,000;
(iii) upon the Borrower becoming aware of any 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;
-37-
<PAGE>
(iv) upon the Borrower becoming aware that the Mortgaged Property in
respect of any Conduit Loan has been damaged by waste, fire, earthquake or
earth movement, windstorm, flood, tornado or other casualty, or otherwise
damaged so as to materially and adversely affect the Collateral Value of
such Conduit Loan;
(v) upon the Borrower's receipt of any Payoff Proceeds of any
Conduit Loan or Mezzanine Loan, and in any event within one (1) Business
Day after receipt thereof;
(vi) of entry of a judgment or decree against the Borrower in an
amount in excess of $500,000.
Each notice pursuant to this Section 7.04(a) (other than 7.04(a)(v)) shall be
accompanied by a statement of a Responsible Officer of the Borrower setting
forth details of the occurrence referred to therein and stating what action the
Borrower has taken or proposes to take with respect thereto.
7.05 Other Information. The Borrower shall furnish to the Lender, as
-----------------
soon as available, copies of any and all press releases, proxy statements,
financial statements and reports which the Borrower sends to its stockholders,
and copies of all regular, periodic and special reports, and all registration
statements filed with the Securities and Exchange Commission and any other
Governmental Authority which supervises the issuance of securities by the
Borrower.
7.06 Further Identification of Collateral. The Borrower will furnish
------------------------------------
to the Lender from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Lender or any Lender may reasonably request, all in reasonable
detail.
7.07 Asset Determined to be Defective. Upon discovery by the
--------------------------------
Borrower or the Lender that a pledged Asset no longer meets the applicable
eligibility criteria listed on Schedules 1 through 6 hereto applicable to any
such Asset, the party discovering such condition shall promptly give notice of
such discovery to the other.
7.08 Reports.
-------
(a) The Borrower shall deliver or cause to be delivered to the
Lender, promptly after receipt by the Borrower, but at least once a month, a
servicing report and Asset Tape in a computer-readable format reasonably
acceptable to the Lender, listing and setting forth such information in respect
of, all Assets as the Lender may reasonably request, including, without
limitation, the outstanding principal balance and delinquency status of each
Asset.
(b) The Borrower shall deliver to the Lender and/or permit the
Lender to inspect any property, books, valuations, records, audits or other
information as the Lender may reasonably request.
-38-
<PAGE>
7.09 Borrowing Base Certificates. The Borrower shall provide to the
---------------------------
Lender a Borrowing Base Certificate (i) at the time of delivery of any Notice of
Borrowing and Pledge and (ii) five (5) days prior to the end of each calendar
month.
7.10 Financial Condition Covenants.
-----------------------------
(a) Maintenance of Tangible Net Worth. The Borrower shall not permit
---------------------------------
Tangible Net Worth at any time to be less than $175,000,000.
(b) Maintenance of Ratio of Indebtedness to Tangible Net Worth. The
----------------------------------------------------------
Borrower shall not permit the ratio of consolidated Indebtedness of the Borrower
and its consolidated Subsidiaries (determined in accordance with GAAP but
excluding Non-Recourse Indebtedness) to Tangible Net Worth at any time to be
greater than 4 to 1.
(c) Maintenance of Interest Coverage Ratio. The Borrower shall not
--------------------------------------
permit the Interest Coverage Ratio of the Borrower at any time to be less than
1.60 to 1.00.
7.11 Borrowing Base Deficiency. If at any time there exists a
-------------------------
Borrowing Base Deficiency the Borrower shall cure same in accordance with
Section 2.07 hereof.
7.12 Prohibition of Fundamental Changes. Neither the Borrower nor
----------------------------------
any of its Subsidiaries shall enter into any transaction of merger or
consolidation or amalgamation (other than between the Borrower with one of its
wholly-owned Subsidiaries (so long as the Borrower is the surviving entity), or
between Subsidiaries), or liquidate, wind up or dissolve itself (or suffer any
liquidation, winding up or dissolution) or sell all or substantially all of its
assets, without the prior written consent of the Lender.
7.13 Limitation on Liens on Collateral. The Borrower will defend the
---------------------------------
Collateral against, and will take such other action as is necessary to remove,
any Lien, security interest or claim on or to the Collateral, other than the
security interests created under this Loan Agreement, and the Borrower will
defend the right, title and interest of the Lender in and to any of the
Collateral against the claims and demands of all persons whomsoever.
7.14 Limitation on Sale or Other Disposition of Collateral. The
-----------------------------------------------------
Borrower will not lease, transfer, assign, sell or otherwise dispose of any
Collateral without the prior written consent of the Lender, unless the proceeds
of such sale or disposition are applied to repay Advances so that, after giving
effect to such transaction, any Advances then outstanding do not exceed the
Borrowing Base.
7.15 Limitation on Transactions with Affiliates. Neither the
------------------------------------------
Borrower nor any of its Subsidiaries shall enter into any transaction,
including, without limitation, any purchase, sale, lease or exchange of property
or the rendering of any service, with any Affiliate unless such transaction is
(a) not otherwise prohibited under this Loan Agreement, (b) in the ordinary
course of the Borrower's business and (c) upon fair and reasonable terms no less
favorable to the Borrower, as the case may be, than it would obtain in a
comparable arm's length transaction with a Person which is not an Affiliate.
7.16 Underwriting Guidelines. Without prior written consent of the
-----------------------
Lender, the Borrower shall not amend or otherwise modify its Underwriting
Guidelines in any material respect, other than changes which are more onerous
for the relevant Obligors.
-39-
<PAGE>
7.17 Limitations on Modifications, Waivers and Extensions of Asset
-------------------------------------------------------------
Documents. The Borrower will not, nor will it permit or allow others to, amend,
- ---------
modify, terminate or waive any provision of any Asset Document to which the
Borrower is a party in any manner which should reasonably be expected to
materially and adversely affect the value of such Asset as Collateral.
7.18 Servicing. The Borrower shall not permit any Person other than
---------
the Servicer to service Assets without the prior written consent of the Lender.
7.19 Limitation on Distributions. After the occurrence and during
---------------------------
the continuation of any Event of Default, the Borrower shall not make any
payment on account of, or set apart assets for, a sinking or other analogous
fund for the purchase, redemption, defeasance, retirement or other acquisition
of any equity or partnership interest of the Borrower, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Borrower.
7.20 Use of Proceeds. The Borrower will use the proceeds of the
---------------
Advances solely to originate, acquire, fund, manage and service Assets or for
expenditures related to the sale or securitization of Assets.
7.21 Selection of Collateral. The Borrower shall not select
-----------------------
Assets to be pledged to the Lender through a process that is adverse to the
Lender or which results in the Lender receiving pledged Assets that are of
lesser quality, determined in the sole discretion of the Lender, than those
Assets pledged to other lenders pursuant to any other facility to which the
Borrower may be a party.
SECTION 8 Events of Default. Each of the following events shall
-----------------
constitute an event of default (an "Event of Default") hereunder:
----------------
(a) Borrower Default in the Payment of any Advance. 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 or optional
prepayment); or
(b) Borrower Default in the Payment of Other Amount. The Borrower
-----------------------------------------------
shall default in the payment of any other amount payable by it hereunder or
under any other Loan Document, and such default shall have continued unremedied
for three (3) Business Days; or
(c) Failure of Representation or Warranty. Any representation,
-------------------------------------
warranty or certification made or deemed made by the Borrower herein or by the
Borrower in any other Loan Document or any certificate furnished to the Lender
pursuant to the provisions thereof, shall prove to have been false or misleading
in any material respect as of the time made or furnished; or
(d) Default of Covenant. The Borrower shall:
-------------------
(i) fail to comply with the requirements of Section 7 hereof
(other than Sections 7.01, 7.02(d), 7.03, 7.05, 7.06, 7.08 or 7.09),
(ii) fail to comply with the requirements of Sections 7.01,
7.02(d), 7.03, 7.05, 7.06, 7.08 or 7.09 and such default shall continue
unremedied for a period of five (5) Business Days,
-40-
<PAGE>
(iii) fail to observe or perform any other covenant, condition
or agreement contained in this Loan Agreement or any other Loan Document
and such failure to observe or perform shall continue unremedied for a
period of ten (10) Business Days following the earlier of actual knowledge
of the Borrower or notice thereof from the Lender to the Borrower; or
(e) Cross Default. The Borrower or any of its Subsidiaries shall:
-------------
(i) default in any payment of principal of or interest on
any Indebtedness (other than the Advances) or in the payment of any
Guarantee Obligation if the aggregate amount of the Indebtedness and/or
Guarantee Obligations in respect of which such default or defaults shall
have occurred is $1,000,000 or more; or
(ii) default in the observance or performance of any other
agreement or condition relating to any Indebtedness (other than the
Advances) or Guarantee Obligation or contained in any instrument or
agreement evidencing, securing or relating thereto, in each case beyond the
applicable period of grace (not to exceed 30 days), if any, provided in the
instrument or agreement under which such Indebtedness or Guarantee
Obligation was created.
the effect of which default or other event or condition is to cause, or give the
holder or holders of such Indebtedness or the beneficiary or beneficiaries of
such Guarantee Obligation (or a trustee or agent on behalf of such holder or
holders or beneficiary or beneficiaries) the immediate right to cause, with the
giving of notice if required, such Indebtedness to become due prior to its
stated maturity or such Guarantee Obligation to become payable; or
(f) Unsatisfied Judgment. One or more judgments or decrees shall be
--------------------
entered against the Borrower or any of its Subsidiaries involving in the
aggregate a liability (not paid or fully covered by insurance) of $1,000,000 or
more, and all such judgments or decrees shall not have been vacated, discharged,
stayed or bonded pending appeal within 60 days from the entry thereof; or
(g) Inability to Pay Debts. The Borrower shall admit in writing its
----------------------
inability to pay its debts as such debts become due; or
(h) Voluntary Bankruptcy Event. The Borrower or any of its
--------------------------
Subsidiaries 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
(i) Involuntary Bankruptcy Event. A proceeding or case shall be
----------------------------
commenced, without the application or consent of the Borrower or any of its
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
Subsidiary or of all or any substantial part of its property, or (iii) similar
relief in respect of the Borrower or any such Subsidiary under any law relating
to bankruptcy, insolvency, reorganization, winding-up, or composition or
adjustment of debts,
-41-
<PAGE>
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 Subsidiary shall be entered in an involuntary
case under the Bankruptcy Code; or
(j) Termination of Loan Documents. The Custodial Agreement, or any
-----------------------------
other Loan Document, shall for whatever reason be terminated or cease to be in
full force and effect, or the enforceability thereof shall be contested by any
party thereto; or
(k) ERISA Default. (i) any Person shall engage in any "prohibited
-------------
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to any
Plan or any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall occur
with respect to, or proceedings shall commence to have a trustee appointed, or a
trustee shall be appointed, to administer or to terminate, any Single Employer
Plan, which Reportable Event or commencement of proceedings or appointment of
a trustee is, in the reasonable opinion of the Lenders, likely to result in the
termination of such Plan for purposes of Title IV of ERISA, (iv) any Single
Employer Plan shall terminate for purposes of Title IV of ERISA, (v) the
Borrower or any Commonly Controlled Entity shall, or in the reasonable opinion
of the Lenders is likely to, incur any liability in connection with a withdrawal
from, or the insolvency or reorganization of, a Multiemployer Plan or (vi) any
other event or condition shall occur or exist with respect to a Plan; and in
each case in clauses (i) through (vi) above, such event or condition, together
with all other such events or conditions, if any, could reasonably be expected
to have a Material Adverse Effect; or
(l) Material Adverse Effect. Any other event shall occur which, in
-----------------------
the sole good faith discretion of the Lender, should reasonably be expected to
have a Material Adverse Effect; or
(m) REIT Advisor Change. The REIT advisor to the Borrower is
-------------------
changed without the prior written consent of the Lender; or
(n) Pre-Existing Condition. The discovery by the Lender during its
----------------------
continuing due diligence of the Borrower of a condition or event which existed
at or prior to the execution hereof and which the Lender, in its sole reasonable
discretion, determines materially and adversely affects: (i) the condition
(financial or otherwise) of the Borrower, its Subsidiaries or Affiliates; or
(ii) the ability of either the Borrower or the Lender to fulfill its respective
obligations under this Agreement; or
(o) Other Liens. The Borrower shall grant, or suffer to exist, any
-----------
Lien on any Collateral except the Liens contemplated hereby; or the Liens
contemplated hereby shall cease to be first priority perfected Liens on the
Collateral in favor of the Lender or shall be Liens in favor of any Person other
than the Lender, except to the extent attributable to the Lender's gross
negligence or willful misconduct; or
(p) Failure to Answer. The Lender shall reasonably request,
-----------------
specifying the reasons for such request, information, and/or written responses
to such requests, regarding the financial well-being of the Borrower and such
information and/or responses shall not have been provided within three (3)
Business Days of such request.
-42-
<PAGE>
SECTION 9 Remedies Upon Event of Default.
------------------------------
(a) Upon the occurrence and during the continuance of one or more
Events of Default other than those referred to in Sections 8(h) or (i), and in
addition to the remedies provided in Section 4.07 hereof and otherwise provided
in this Loan Agreement, the Lender may immediately declare the principal amount
of the Advances then outstanding under the Note to be immediately due and
payable, together with all interest thereon and fees and expenses accruing under
this Loan Agreement. Upon the occurrence of an Event of Default referred to in
Sections 8(h) or (i), and in addition to the remedies provided in Section 4.07
hereof and otherwise provided in this Loan Agreement, such amounts shall
immediately and automatically become due and payable without any further action
by any Person. Upon such declaration or such automatic acceleration, the
balance then outstanding on the Note shall become immediately due and payable,
without presentment, demand, protest or other formalities of any kind, all of
which are hereby expressly waived by the Borrower.
(b) Upon the occurrence and during the continuance of one or more
Events of Default, and in addition to the remedies provided in Section 4.07
hereof and otherwise provided in this Loan Agreement, the Lender shall have the
right to obtain physical possession of the Servicing Records and all other files
of the Borrower relating to the Collateral and all documents relating to the
Collateral which are then or may thereafter come in to the possession of the
Borrower or any third party acting for the Borrower and the Borrower shall
deliver to the Lender such assignments as the Lender shall request. The Borrower
shall be responsible for paying any fees of any Servicer resulting from the
termination of a Servicer due to an Event of Default. The Lender shall have the
right to demand transfer of all servicing rights and obligations to a new
servicer acceptable to the Lender, and such new servicer shall receive amounts
necessary to assure the ability of the Lender to find an appropriate successor
servicer. The Lender shall be entitled to specific performance of all agreements
of the Borrower contained in this Loan Agreement.
SECTION 10 No Duty of Lender. The powers conferred on the Lender
-----------------
hereunder are solely to protect the Lender's interests in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Lender shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Borrower for any act or failure
to act hereunder, except for its or their own gross negligence or willful
misconduct.
SECTION 11 Miscellaneous.
-------------
11.01 Waiver. No failure on the part of the Lender to exercise and
------
no delay in exercising, and no course of dealing with respect to, any right,
power or privilege under any Loan Document shall operate as a waiver thereof,
nor shall any single or partial exercise of any right, power or 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 thereof); or, as to
any party, at such other address as shall be designated by
-43-
<PAGE>
such party in a written notice to each other party. Except as otherwise provided
in this Loan Agreement and except for notices given under Section 2 (which shall
be effective only on receipt), all such communications shall be deemed to have
been duly given when transmitted by telex or telecopy or personally delivered
or, in the case of a mailed notice, upon receipt, in each case given or
addressed as aforesaid.
11.03 Indemnification and Expenses.
----------------------------
(a) The Borrower agrees to hold the Lender and each of its
officers, directors, agents and employees (each, an "Indemnified Party")
-----------------
harmless from and indemnify each Indemnified Party against all liabilities,
losses, damages, judgments, costs and expenses of any kind which may be imposed
on, incurred by or asserted against such Indemnified Party in any suit, action,
claim or proceeding relating to or arising out of this Loan Agreement, the Note,
any other Loan Document or any transaction contemplated hereby or thereby, or
any amendment, supplement or modification of, or any waiver or consent under or
in respect of, this Loan Agreement, the Note, any other Loan Document or any
transaction contemplated hereby or thereby, except, in each case, to the extent
arising from such Indemnified Party's gross negligence or willful misconduct. In
any suit, proceeding or action brought by the Lender in connection with any
Asset for any sum owing thereunder, or to enforce any provisions of any such
Asset, the Borrower will save, indemnify and hold the Lender harmless from and
against all expense, loss or damage suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction or liability whatsoever of the account
debtor or obligor thereunder, arising out of a breach by the Borrower of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to or in favor of such account debtor or obligor or
its successors from the Borrower. The Borrower also agrees to reimburse the
Lender as and when billed by the Lender for all the Lender's costs and expenses
incurred in connection with the enforcement or the preservation of the Lender's
rights under this Loan Agreement, the Note, any other Loan Document or any
transaction contemplated hereby or thereby, including without limitation the
fees and disbursements of its counsel (including all fees and disbursements
incurred in any action or proceeding between the Borrower and an Indemnified
Party or between an Indemnified Party and any third party relating hereto). The
Borrower hereby acknowledges that, notwithstanding the fact that the Note is
secured by the Collateral, the obligation of the Borrower under the Note is a
recourse obligation of the Borrower.
(b) The Borrower agrees to pay as and when billed by the Lender all
of the out-of-pocket costs and expenses incurred by the Lender in connection
with the development, preparation and execution of, and any amendment,
supplement or modification to, this Loan Agreement, the Note, any other Loan
Document or any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including without limitation (i) all the reasonable fees,
disbursements and expenses of counsel to the Lender, in accordance with the Fee
Letter and (ii) all the due diligence, inspection, testing and review costs and
expenses incurred by the Lender with respect to Collateral under this Loan
Agreement.
11.04 Amendments. Except as otherwise expressly provided in this
----------
Loan Agreement, any provision of this Loan Agreement may be modified or
supplemented only by an instrument in writing signed by the Borrower and the
Lender and any provision of this Loan Agreement may be waived by the Lender.
-44-
<PAGE>
11.05 Successors and Assigns. This Loan Agreement shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 Survival. The obligations of the Borrower under 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
because any such representation or warranty shall have proved to be false or
misleading, notwithstanding that the Lender may have had notice or knowledge or
reason to believe that such representation or warranty was false or misleading
at the time such Advance was made.
11.07 Captions. The table of contents and captions and section
--------
headings appearing herein are included solely for convenience of reference and
are not intended to affect the interpretation of any provision of this Loan
Agreement.
11.08 Counterparts. This Loan Agreement may be executed in any
------------
number of counterparts, all of which taken together shall constitute one and the
same instrument, and any of the parties hereto may execute this Loan Agreement
by signing any such counterpart.
11.09 GOVERNING LAW; ETC. THIS LOAN AGREEMENT SHALL BE GOVERNED BY
------------------
THE LAW OF THE STATE OF NEW YORK WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE
(BUT WITH REFERENCE TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW,
WHICH BY ITS TERMS APPLIES TO THIS LOAN AGREEMENT), AND SHALL CONSTITUTE A
SECURITY AGREEMENT WITHIN THE MEANING OF THE UNIFORM COMMERCIAL CODE.
11.10 SUBMISSION TO JURISDICTION; WAIVERS. THE BORROWER 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
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
-45-
<PAGE>
OF MAIL), POSTAGE PREPAID, TO ITS ADDRESS SET FORTH UNDER ITS SIGNATURE
BELOW OR AT SUCH OTHER ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN
NOTIFIED; AND
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT THE
RIGHT TO SUE IN ANY OTHER JURISDICTION.
11.11 WAIVER OF JURY TRIAL. EACH OF THE BORROWER AND THE LENDER
--------------------
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR
RELATING TO THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY.
11.12 Acknowledgments. The Borrower hereby acknowledges that:
---------------
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Loan Agreement, the Note and the other Loan Documents;
(b) the Lender has no fiduciary relationship to the Borrower, and
the relationship between the Borrower and the Lender is solely that of
debtor and creditor; and
(c) no joint venture exists between the Lender and the Borrower.
11.13 Assignments; Participations.
---------------------------
(a) The Borrower may assign any of its rights or obligations
hereunder or under the Note with the prior written consent of the Lender. The
Lender may assign or transfer to any bank or other financial institution that
makes or invests in loans or any Affiliate of the Lender all of its rights or
obligations under this Loan Agreement and the other Loan Documents with the
prior written consent of the Borrower, which consent shall not be unreasonably
withheld or delayed, provided, that such consent shall not be required in the
--------
case of an assignment by the Lender to an Affiliate or successor entity or if an
Event of Default shall have occurred and be continuing.
(b) The Lender may, in accordance with applicable law, at any time
sell to one or more lenders or other entities ("Participants") participating
------------
interests in any Advance, the Note, its commitment to make Advances, or any
other interest of the Lender hereunder and under the other Loan Documents. In
the event of any such sale by the Lender of participating interests to a
Participant, the Lender's obligations under this Loan Agreement to the Borrower
shall remain unchanged, the Lender shall remain solely responsible for the
performance thereof, the Lender shall remain the holder of the Note for all
purposes under this Loan Agreement and the other Loan Documents, and the
Borrower and the Lender shall continue to deal solely and directly with the
Lender in connection with the Lender's rights and obligations under this Loan
Agreement and the other Loan Documents. The Borrower agrees that if amounts
outstanding under this Loan Agreement and the Note are due or unpaid, or shall
have been declared or shall have become due and payable upon the occurrence of
an Event of Default, each Participant shall be deemed to have the right of set-
off in respect of its participating interest in amounts owing under this Loan
Agreement and the Note to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under this Loan
-46-
<PAGE>
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 2.09 and 11.03 with respect to its participation in
the Advances outstanding from time to time; provided, that the Lender and all
--------
Participants shall be entitled to receive no greater amount in the aggregate
pursuant to such Sections than the Lender would have been entitled to receive
had no such transfer occurred.
(c) The Lender may furnish any information concerning the Borrower
or any of its Subsidiaries in the possession of such Lender from time to time to
assignees and participants (including prospective assignees and participants);
provided, that such assignees and Participants agree to keep confidential any
- --------
non-public information so furnished to them.
(d) The Borrower agrees to cooperate with the Lender in connection
with any such assignment and/or participation, to execute and deliver such
replacement notes, and to enter into such restatements of, and amendments,
supplements and other modifications to, this Loan Agreement and the other Loan
Documents in order to give effect to such assignment and/or participation. The
Borrower further agrees to furnish to any Participant identified by the Lender
to the Borrower copies of all reports and certificates to be delivered by the
Borrower to the Lender hereunder, as and when delivered to the Lender.
11.14 Servicing.
---------
(a) The Borrower covenants to maintain the servicing of the Assets,
or cause the servicing of the Assets to be maintained, in conformity with
accepted customary and prudent servicing practices in the industry for the same
type of assets as the Assets and in a manner at least equal in quality to the
servicing the Borrower provides for Assets which it owns ("Accepted Servicing
------------------
Practices"). In the event that the preceding language is interpreted as
- ---------
constituting one or more servicing contracts, each such servicing contract shall
terminate automatically upon the earlier of (i) an Event of Default, or (ii) the
Termination Date.
(b) The Borrower agrees that the Lender is the collateral assignee
of all servicing records, including but not limited to any and all servicing
agreements, files, documents, records, data bases, computer tapes, copies of
computer tapes, proof of insurance coverage, insurance policies, appraisals,
other closing documentation, payment history records, and any other records
relating to or evidencing the servicing of Assets (the "Servicing Records"), and
-----------------
(ii) the Borrower grants the Lender a security interest in all of the Borrower's
rights relating to the Assets 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.
(c) After the Funding Date, until the pledge of any Asset is
relinquished by the Custodian, the Borrower will have no right to modify or
alter in any material respect the terms of such Asset Documents except with the
prior written consent of the Lender, which shall not be unreasonably withheld or
delayed, and the Borrower will have no obligation or right to repossess such
Asset or substitute another Asset, except as provided in the Custodial
Agreement; provided, that the Borrower or the Servicer may enter into
--------
forbearance agreements or plans with Obligors consistent with its collection
activities as servicer of the Assets and in conformity with Accepted Servicing
Practices.
-47-
<PAGE>
(d) The Borrower shall permit the Lender to inspect the Borrower's
or its Affiliate's servicing facilities, as the case may be, for the purpose of
satisfying the Lender that the Borrower or its Affiliate, as the case may be,
has the ability to service the Assets as provided in this Loan Agreement.
11.15 Periodic Due Diligence Review. The Borrower acknowledges that
-----------------------------
the Lender has the right to perform continuing due diligence reviews with
respect to the Assets, for purposes of verifying compliance with the
representations, warranties and specifications made hereunder, or otherwise, and
the Borrower agrees that upon reasonable (but no less than one (1) Business
Day's) prior notice to the Borrower (which prior notice shall not be required
after the occurrence and during the continuation of an Event of Default), the
Lender or its authorized representatives will be permitted during normal
business hours to examine, inspect, and make copies and extracts of, the Asset
Files and any and all documents, records, agreements, instruments or information
relating to such Assets 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 Assets. Without limiting the
generality of the foregoing, the Borrower acknowledges that the Lender may make
Advances to the Borrower based solely upon the information provided by the
Borrower to the Lender and the representations, warranties and covenants
contained herein, and that the Lender, at its option, has the right at any time
to conduct a partial or complete due diligence review on some or all of the
Assets securing such Advance, including without limitation ordering new credit
reports and new appraisals on the related Mortgaged Properties and otherwise re-
generating the information used to originate such Assets. The Lender may
underwrite such Assets itself or engage a mutually agreed upon third party
underwriter to perform such underwriting. The Borrower agrees to cooperate with
the Lender and any third party underwriter in connection with such underwriting,
including, but not limited to, providing the Lender and any third party
underwriter with access to any and all documents, records, agreements,
instruments or information relating to such Assets in the possession, or under
the control, of the Borrower. The Borrower further agrees that the Borrower
shall reimburse the Lender for all reasonable out-of-pocket costs and expenses
incurred by the Lender in connection with the Lender's activities pursuant to
this Section 11.16.
11.16 Set-Off. In addition to any rights and remedies of the
-------
Lender provided by this Loan Agreement and by law, the Lender shall have the
right, without prior notice to the Borrower, any such notice being expressly
waived by the Borrower to the extent permitted by applicable law, upon any
amount becoming due and payable by the Borrower hereunder (whether at the stated
maturity, by acceleration or otherwise) to set-off and appropriate and apply
against such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by the Lender or any
Affiliate thereof to or for the credit or the account of the Borrower. The
Lender agrees promptly to notify the Borrower after any such set-off and
application made by the Lender; provided that the failure to give such notice
--------
shall not affect the validity of such set-off and application.
[SIGNATURE PAGE FOLLOWS]
-48-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be duly executed and delivered as of the day and year first above written.
BORROWER
--------
IMPERIAL CREDIT COMMERCIAL
MORTGAGE INVESTMENT CORP.
By: /s/ Joseph R. Parise
---------------------
Name: Joseph R. Parise
Title: Managing Director
Address for Notices:
-------------------
11601 Wilshire Boulevard
Suite 2080
Los Angeles, California 90025
Attention: General Counsel
Telecopier No.: (310) 231-1281
Telephone No.: (310) 231-5902
<PAGE>
LENDER
------
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: /s/ Clive Bull
---------------
Name: Clive Bull
Title: Vice President
Address for Notices:
-------------------
60 Wall Street, 18th Floor
New York, New York 10260
Attention: Clive Bull
Telecopier No.: (212) 648-5138
Telephone No.: (212) 648-9496
With a copy to:
Attention: General Counsel
Telecopier No.: (212) 648-9344
Telephone No.: (212) 648-5124
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 24,339
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 509,652
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 479,572
<TOTAL-LIABILITY-AND-EQUITY> 509,652
<SALES> 0
<TOTAL-REVENUES> 9,546
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,698
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,848
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,848
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
