<PAGE> 1
FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____________ TO _____________
Commission File No. 0-23381
BINGHAM FINANCIAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
STATE OF MICHIGAN 38-3313951
State of Incorporation I.R.S. Employer I.D. No.
260 EAST BROWN STREET
SUITE 200
BIRMINGHAM, MICHIGAN 48009
(248) 644-5470
(Address of principal executive offices and telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[ ]
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
--- ---
As of December 4, 1998, the aggregate market value of the Registrant's voting
stock held by non-affiliates of the Registrant was approximately $17,767,187.50,
determined in accordance with the highest price at which the stock was sold on
such date as reported by the Nasdaq SmallCap Market.
As of December 4, 1998, there were 1,576,818 shares of the Registrant's common
stock issued and outstanding.
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Bingham Financial Services Corporation (the "Company") is a specialized
financial services company, providing financing for new and previously owned
manufactured homes. Through acquisitions during 1998, the Company's business has
expanded to include commercial lending and mortgage servicing for
income-producing properties.
The Company has recently moved its executive office to 260 East Brown Street,
Suite 200, Birmingham, Michigan 48009 and its new telephone number is (248)
644-5470. The Company, which is a Michigan corporation, employed 25 people as of
September 30, 1998.
HISTORY OF THE COMPANY
The Company was incorporated in August, 1996 as an affiliate of Sun Communities,
Inc. ("Sun"), a fully integrated publicly held real estate investment trust
("REIT"), and began transacting business in January of 1997. The Company
completed its initial public offering on November 13, 1997. At that time, the
Company's business was focused primarily on providing financing for new and
previously owned manufactured homes by making conventional loans under
installment loan contracts secured by the borrower's manufactured home
("Contracts").
The Company was formed by Sun in response to the growing need to provide timely
and competitive financing to residents in manufactured home communities owned
and managed by Sun ("Sun Communities"). Sun is one of the nation's largest
owners and managers of manufactured housing communities. Established in 1975,
Sun became a public company in 1993 with its common stock listed on the New York
Stock Exchange under the symbol SUI. Sun has experienced rapid growth since
becoming public, growing from 24 communities and 6,500 developed sites to 104
communities and over 37,000 developed sites as of September 30, 1998.
STRUCTURE OF THE COMPANY
Sun assisted in forming the Company by loaning the Company amounts required to
fund the Company's Contracts pursuant to a demand note which was paid in full
with the proceeds from the Company's initial public offering. In addition, Sun
through its operating subsidiary, Sun Communities Operating Limited Partnership
(collectively, "Sun"), continues to provide financial assistance pursuant to a
subordinated debt facility consisting of a $4 million term loan and a $6 million
five year revolving credit facility (the "Subordinated Debt Facility") as well
as a $12 million demand line of credit. In connection with the Subordinated Debt
Facility, the Company issued common stock purchase warrants to Sun to purchase
up to 400,000 shares of common stock at the initial public offering price of $10
per share. Sun also entered into an arrangement with the Company whereby Sun
offers the Company as the only preferred financing source to home purchasers and
home owners in Sun Communities. For its services, Sun receives an annual fee
based on average loan balances, which fee was $85,000 for the year ended
September 30, 1998, and the Company granted Sun 330,000 options to purchase
common stock of the Company which will vest in eight equal annual amounts
beginning in January 2001. The Company paid Sun a fee of $75,000 for the year
ended September 30, 1998 as reimbursement for general and administrative
expenses.
The operations of the Company are carried on through certain subsidiaries (the
"Subsidiaries"), including MHFC, Inc., a Michigan corporation ("MHFC"), I.J.K.
Insurance Agency, Inc., MHFC
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of New Mexico, Inc., Bloomfield Acceptance Company, L.L.C. ("Bloomfield") and
Bloomfield Servicing Company, L.L.C. ("Bloomfield Servicing"). Substantially all
of the Company's assets are held by or through MHFC and Bloomfield, of which the
Company is the sole shareholder and sole member, respectively.
MAJOR ACQUISITIONS
In March of 1998, the Company, through two wholly owned subsidiaries, acquired
(the "Transaction") Bloomfield and its mortgage servicing affiliate Bloomfield
Servicing, expanding the Company's business into commercial lending and
servicing. As consideration for the Transaction, the Company issued 272,727
shares of Bingham common stock to the members of Bloomfield and Bloomfield
Servicing and an additional 9,091 shares of Bingham common stock to certain
members to be held in escrow for a period of three years from the closing of the
Transaction in accordance with the terms of an escrow agreement. In addition, at
some time between May 31, 1999 and May 31, 2000, the Company is required to
issue up to that number of shares of Bingham common stock equal in value to
$500,000 as additional consideration if the businesses of Bloomfield and
Bloomfield Servicing meet certain requirements.
FINANCING AND OTHER ACTIVITIES
MANUFACTURED HOUSING
The Company originates conventional loans that generally range in size from
$4,500 to $90,000 and have a term of 5-25 years. The Company has focused its
marketing efforts principally through manufactured home community owners and
operators. This effort has been targeted at Sun Communities, where the Company's
services are offered as the preferred source of financing. The Company continues
to take the steps necessary to capture a greater share of the loans generated by
home purchasers and owners in Sun Communities. In addition, the Company has also
started to originate loans through manufactured home dealers.
The Company is responsible for processing credit applications for potential
borrowers and adheres to a set of uniform underwriting guidelines to maintain an
acceptable level of credit risk with respect to its growing portfolio of loans.
The Company has a scoring model which uses a statistically based automated
credit scoring system, that is continually refined, which quantifies responses
using variables obtained from the applicant's credit application and credit
report. This scoring model is based on empirical historical data which helps the
Company determine the probability of loan failure and assess what changes in
loan terms would make the loan an acceptable risk. The most significant criteria
in the scoring model are the applicant's payment history and income. While the
scoring model is based on objective criteria, the underwriter has the discretion
to award a limited number of points to an applicant for certain credit and value
factors.
The Company retains a security interest in any manufactured home it finances. To
perfect its security interest in the manufactured home, the Company delivers the
application for a new certificate of title to the applicable state agency for
processing. Once either the new certificate of title or a stamped application
form is received by the Company, its security interest is deemed "perfected"
under applicable state law.
The Company has entered into an agreement with an unaffiliated third party, St.
James Servicing Corporation (the "Subservicer") for the servicing of the
Contracts (the "Subservicer Agreement"). The Subservicer receives a monthly fee
per Contract depending on the number of Contracts it is servicing. The
Subservicer Agreement has a 10 year term and terminates if the entire amounts of
principal and interest on all loans are paid in full. The Company may terminate
the agreement earlier with or without cause upon 90 days written notice to the
Subservicer. If the
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Company terminates the Subservicer Agreement without cause it must pay the
Subservicer 3 months' servicing fees.
The Company's ability to finance Contracts is dependent on its availability of
funds. In March 1998, Sun extended a line of credit of up to $12 million to the
Company. The loan is evidenced by a demand promissory note bearing interest at a
per annum rate equal to LIBOR plus 140 basis points. The loan is unsecured but
with full recourse. In addition, the Company continues to draw from funds
available under the Subordinated Debt Facility. The Company has entered into a
repurchase arrangement with an unrelated party and has also sold a significant
number of Contracts to unrelated financial institutions without retaining
servicing and with full recourse to the Company in the event of a default by the
borrower.
COMMERCIAL MORTGAGE BANKING BUSINESS
GENERAL
Through Bloomfield and Bloomfield Servicing, the Company participates and is
active in all aspects of commercial real estate mortgage banking, including
originating, underwriting, placing, securitizing, and servicing commercial real
estate loans. Bloomfield acts as both a direct lender, making commercial real
estate loans for its own portfolio as well as for accumulation and
securitization, and as a traditional mortgage banker, placing commercial real
estate loans with institutional investors.
Much of Bloomfield's activities are focused on the manufactured housing industry
and the Company believes that Bloomfield is one of the largest originators of
loans on manufactured home communities in the country. A manufactured home
community is a residential subdivision designed and improved with sites for the
placement of manufactured homes and related improvements and amenities. From
January 1, 1998 through the end of the Company's fiscal year, Bloomfield had
originated approximately $185 million of loans on manufactured home communities.
LENDING
Bloomfield sources lending opportunities on a nationwide basis from direct
borrower inquiry as well as from mortgage bankers. Loan applications are
processed at the Company's offices in Birmingham, Michigan where due diligence
is performed, including an analysis of property operating history, appraisal
report, environmental report, borrower creditworthiness, credit history and
experience. Bloomfield performs on-site property inspection and local market
analysis.
Bloomfield historically has funded its direct lending operations through
simultaneous buy/sell arrangements with major institutional investors, earning
origination and servicing fees. Beginning in May 1998, Bloomfield began funding
loans primarily through a repurchase agreement with a Wall Street investment
bank, in expectation of receiving the benefit of greater securitization profits
by taking on the risk of hedging and aggregation. It is expected that Bloomfield
will fund the bulk of its future direct lending activities through similar
arrangements. A portion of Bloomfield's direct lending activities will remain on
the balance sheet.
As of the end of the fiscal year, Bloomfield maintained a portfolio of $65.5
million of loans.
TRADITIONAL MORTGAGE BANKING
Bloomfield places commercial real estate mortgage loans with institutional
investors, primarily life insurance companies that it represents on an exclusive
or semi-exclusive basis. The bulk of
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these activities take place in Michigan.
SERVICING
Bloomfield Servicing services loans that Bloomfield originates. Historically,
the majority of the loans made on a direct lending basis were serviced until the
loan was securitized, at which time Bloomfield Servicing received a servicing
termination fee. Beginning in May 1998, Bloomfield Servicing began retaining the
servicing of its direct loans and it is expected that the size of Bloomfield
Servicing's servicing portfolio will increase.
It addition to Bloomfield's loans, Bloomfield Servicing services commercial real
estate loans on behalf of five institutional investors. The majority of these
loans are in Michigan.
As of September 30, 1998, Bloomfield Servicing's servicing portfolio totaled
approximately $374 million. The entire portfolio was current.
DELINQUENCY AND REPOSSESSION
The Subservicer is responsible for the servicing of Contracts from the time of
funding until the loan is paid in full. This servicing includes processing
payments and issuing delinquent letters of 7 days and 17 days, and a 27 day
default letter. The Company is responsible for collecting loans that are over 30
days delinquent and it hires a local attorney after the expiration of the 27 day
default letter. The local attorney issues a 30 day demand letter, at which time
full payment must be made on all arrearages including late fees and attorney
fees. The Company generally repossesses the manufactured home after payments
have become 60 to 90 days delinquent if the Company is not able to work out a
satisfactory arrangement with the borrower. Sun and an affiliate of Sun may
assist with foreclosure and the sale of the manufactured home after
repossession.
In an effort to minimize repossessions on Contracts sold with full recourse, the
Company monitors the servicing and collection efforts of the financial
institutions to which the Company has sold Contracts with full recourse.
The Company maintains a reserve for estimated credit losses on Contracts owned
by the Company or sold to third parties with full recourse. The Company provides
for losses in amounts necessary to maintain the reserves at levels the Company
believes are sufficient to provide for future losses based on the Company's
historical loss experience, current economic conditions and portfolio
performance measures. For fiscal 1998 and 1997, as a result of expenses incurred
due to defaults and repossessions, $39,000 and $0, respectively was charged to
the reserve for losses on credit sales. The Company's reserve for losses on
credit sales at September 30, 1998 was $185,000, as compared to $58,000 at
September 30, 1997.
In fiscal 1998 and 1997, the Company repossessed 15 and 1 manufactured homes,
respectively. The Company's inventory of repossessed homes was 8 homes at
September 30, 1998 as compared to 1 home at September 30, 1997. The estimated
net realizable value of the repossessed homes in inventory at September 30, 1998
was approximately $194,000.
The net losses resulting from repossessions on Company originated loans as a
percentage of the average principal amount of such loans outstanding for fiscal
1998 and 1997 was .23% and 0.0%.
At September 30, 1998 and September 30, 1997, delinquent installment sales
contracts and loans expressed as a percentage of the total number, and of the
total amount, of installment sales
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contracts and loans which the Company services, or has sold with full recourse
and are serviced by others, were as follows:
<TABLE>
<CAPTION>
TOTAL DELINQUENCY PERCENTAGE
NUMBER OF SEPTEMBER 30, 1998
CONTRACTS ------------------------------------------------------------
AND LOANS
---------
30 DAYS 60 DAYS 90 DAYS TOTAL
------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Company-serviced contracts and loans 803 3.9% 2.2% 2.0% 8.2%
(Manufactured Home loans)
Contracts and loans sold with full 382 0.0% 0.0% 0.0% 0.0%
recourse serviced by others(1) --- ---- ---- ---- ----
1185 2.6% 1.5% 1.4% 5.5%
Company-serviced contracts and loans 13 0.0% 0.0% 0.0% 0.0%
(Commercial loans)
</TABLE>
<TABLE>
<CAPTION>
TOTAL NUMBER DELINQUENCY PERCENTAGE
OF CONTRACTS SEPTEMBER 30, 1997
AND LOANS -----------------------------------------------------------
---------
30 DAYS 60 DAYS 90 DAYS TOTAL
------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Company -serviced contracts and loans 366 0.0% 0.3% 0.3% 0.6%
(Manufactured Home loans)
Contracts and loans sold with full 0 0.0% 0.0% 0.0% 0.0%
recourse serviced by others - ---- ---- ---- ----
366 0.0% 0.3% 0.3% 0.6%
Company-serviced contracts and loans 0 0.0% 0.0% 0.0% 0.0%
(Commercial loans)
</TABLE>
<TABLE>
<CAPTION>
TOTAL AMOUNT DELINQUENCY PERCENTAGE
OF CONTRACTS SEPTEMBER 30, 1998
AND LOANS -----------------------------------------------------------
--------- (Dollars in thousands)
30 DAYS 60 DAYS 90 DAYS TOTAL
------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Company-serviced contracts and loans $ 22,674 3.2% 2.2% 1.6% 7.0%
(Manufactured Home loans)
Contracts and loans sold with full $11,218 0.0% 0.0% 0.0% 0.0%
recourse serviced by others(1) ------- ---- ---- ---- ----
$33,892 2.2% 1.5% 0.5% 4.2%
Company-serviced contracts and loans $65,546 0.0% 0.0% 0.0% 0.0%
(Commercial loans)
</TABLE>
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<TABLE>
<CAPTION>
TOTAL AMOUNT DELINQUENCY PERCENTAGE
OF CONTRACTS SEPTEMBER 30, 1997
AND LOANS -----------------------------------------------------------
--------- (Dollars in thousands)
30 DAYS 60 DAYS 90 DAYS TOTAL
------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Company-serviced contracts and loans $9,556 .59% .13% .61% 1.33%
(Manufactured Home loans)
Contracts and loans sold with full 0 0.0% 0.0% 0.0% 0.0%
recourse serviced by others - ---- ---- ---- ----
$9,556 .59% .13% .61% 1.33%
Company-serviced contracts and loans 0 0.0% 0.0% 0.0% 0.0%
(Commercial loans)
</TABLE>
(1) On September 30, 1998 the Company completed a sale of 382 loans with a total
principal balance of approximately $11.2 million. At the time of the sale the
loans were all current. They are included in the above tables to more accurately
reflect delinquency percentages of the portfolio.
INSURANCE
IJK Insurance Agency, Inc., a subsidiary of the Company, is a licensed agent
placing property and casualty, credit life and warranty insurance, primarily for
the Company's manufactured home loans.
COMPETITION
The manufactured housing finance industry is very fragmented and highly
competitive. There are numerous non-traditional consumer finance sources serving
this market. Several of these financing sources are larger than the Company and
have greater financial resources. In addition, some of the manufactured housing
industry's larger manufacturers maintain their own finance subsidiaries to
provide financing for purchasers of their manufactured homes. Historically,
traditional financing sources (commercial banks, savings and loans, credit
unions and other consumer lenders), many of which have significantly greater
resources than the Company and may be able to offer more attractive terms to
potential customers, have not consistently served this market.
The Company believes that its relationship with Sun, its focus on community
owners and operators, its prompt and consistent review of credit applications
and its emphasis on providing a high level of service enable it to compete
effectively for the purchase price financing and refinancing of manufactured
homes. However, to the extent that traditional and non-traditional lenders
significantly expand their activity in this market, the Company may be adversely
affected. There is no assurance that the Company will be able to effectively
compete against its existing or any future competitors.
The Company's manufactured home finance business is generally subject to
seasonal trends, reflecting the general pattern of sales of manufactured homes
peaking during the spring and summer months and declining to lower levels from
mid-November through January.
The Company's commercial lending business is highly competitive and Bloomfield
operates on a nationwide basis against a host of local, regional and national
lenders. Many of its competitors are larger and have greater financial resources
than the Company. Traditionally, the Company's competitors included banks and
thrifts, life insurance companies, mortgage bankers and credit companies. More
recently, the competition has expanded to encompass Wall Street brokerage
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houses, either directly or through proxies or "conduits." The Company believes
that the industry is in a state of transition and rapid consolidation and while
the Company believes that it is well-positioned to compete effectively in this
environment, there can be no assurances that it will do so.
REGULATION AND SUPERVISION
The Company is subject to regulation and licensing under various federal and
state statutes and regulations. The Company's manufactured home finance business
currently is conducted in the states of Alabama, Arizona, Colorado, Delaware,
Florida, Georgia, Illinois, Indiana, Kansas, Michigan, Missouri, North Carolina,
Ohio, Oregon, South Carolina, Texas and Virginia, and the Company currently
intends to operate in the states of California, Idaho, Nevada, North Dakota, New
Mexico, Utah and Washington. Most states where the Company operates: (i) limit
the interest rate and other charges that may be imposed under, or prescribe
certain other terms of, the Contracts; (ii) regulate the sale and type of
insurance products that the Company may offer and the insurers for which it will
act as agent; and (iii) define the Company's rights to repossess and sell
collateral. The Company is licensed to conduct its finance operations in the
states of Alabama, Colorado, Delaware, Florida, Indiana, Kansas, Michigan,
Missouri, North Carolina, Ohio, Texas and Virginia. No license is required to
conduct the Company's manufactured home finance operations in Arizona, Georgia,
Illinois, Oregon and South Carolina.
The Company is subject to numerous federal laws, including the Truth in Lending
Act, the Equal Credit Opportunity Act and the Fair Credit Reporting Act and the
rules and regulations promulgated thereunder, and certain rules of the Federal
Trade Commission. These laws require the Company to provide certain disclosures
to applicants, prohibit misleading advertising and protect against
discriminatory financing or unfair credit practices. The Truth in Lending Act
and Regulation Z promulgated thereunder require disclosure of, among other
things, the terms of repayment, the final maturity, the amount financed, the
total finance charge and the annual percentage rate charged on each Contract.
The Equal Credit Opportunity Act prohibits creditors from discriminating against
loan applicants (including retail installment contract obligors) on the basis of
race, color, sex, age or marital status. Under the Equal Credit Opportunity Act,
creditors are required to make certain disclosures regarding consumer rights and
advise consumers whose credit applications are not approved of the reasons for
the rejection. The Fair Credit Reporting Act requires the Company to provide
certain information to consumers whose credit applications are not approved on
the basis of a report obtained from a consumer reporting agency. The rules of
the Federal Trade Commission limit the types of property a creditor may accept
as collateral to secure a consumer loan and its holder in due course rules
provide for the preservation of the consumer's claims and defenses when a
consumer obligation is assigned to a subject holder. The Credit Practices Rule
of the Federal Trade Commission imposes additional restrictions on loan
provisions and credit practices.
The sale of insurance products by the Company is subject to various state
insurance laws and regulations which govern allowable charges and other
practices.
The regulatory procedures discussed above are subject to changes by the
regulatory authorities. There are no assurances that future regulatory changes
will not occur. These regulatory changes could place additional burdens on the
Company.
ITEM 2. PROPERTIES
FACILITY
The Company's corporate headquarters is approximately 14,800 square feet,
terminates on October 31, 2001 and is located in Birmingham, Michigan. The lease
on this space currently
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provides for monthly rent of $28,700 per month, including base rent and a pro
rata share of operating expenses and real estate taxes. The Company has an
option to renew the lease for an additional 3 years.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal, governmental, administrative or other
proceedings to which the Company is a party or of which any of its property is
the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock has been listed on the Nasdaq SmallCap Market
("Nasdaq") since May 11, 1998 under the symbol "BFSC" and was previously traded
on the NASD OTC Bulletin Board. On December 4, 1998, the closing sales price of
the Common Stock was 16 1/8 and the Common Stock was held by approximately 38
holders of record and approximately 750 beneficial holders. The following table
sets forth, for the periods indicated, the range of the high and low sales
prices.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
FISCAL YEAR ENDED SEPTEMBER 30, 1998
First Quarter ended 12/31/97................................... 10 3/8 9
Second Quarter ended 3/31/98................................... 16 9 3/8
Third Quarter ended 6/30/98................................... 22 3/4 16 1/8
Fourth Quarter ended 9/30/98................................... 28 1/2 13 1/4
</TABLE>
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any earnings for use in its operations and does not
anticipate paying cash dividends in the foreseeable future.
The following chart sets forth the information regarding all securities issued
by the Company during the year ended September 30, 1998, which were not
registered under the Securities Act:
<TABLE>
<CAPTION>
Conversion/
Securities Issued Date of Issuance Purchaser Consideration Exemption Exercise price
- ----------------- ---------------- --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Sun
25,000 shares of Communities, (4)2 of the
Common Stock 10/27/97 Inc. $250,000 Securities Act N/A
96,730 shares of Membership (4)2 of the
Common Stock 3/05/98 Daniel E. Bober Interest (1) Securities Act N/A
96,730 shares of Creighton J. Membership (4)2 of the
Common Stock 3/05/98 Weber Interest (1) Securities Act N/A
</TABLE>
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<TABLE>
<CAPTION>
Conversion/
Securities Issued Date of Issuance Purchaser Consideration Exemption Exercise price
- ----------------- ---------------- --------- ------------- --------- --------------
<S> <C> <C> <C> <C> <C>
25,695 shares of Joseph Membership (4)2 of the
Common Stock 3/05/98 Drolshagen Interest in (1) Securities Act N/A
17,130 shares of Membership (4)2 of the
Common Stock 3/05/98 James Bennett Interest (1) Securities Act N/A
5,136 shares of Patricia Membership (4)2 of the
Common Stock 3/05/98 Jorgensen Interest (1) Securities Act N/A
13,689 shares of Membership (4)2 of the
Common Stock 3/05/98 Deborah Jenkins Interest (1) Securities Act N/A
1,708 shares of Membership (4)2 of the
Common Stock 3/05/98 Lynn Baszczuk Interest (1)(2) Securities Act N/A
15,000 shares of Membership (4)2 of the
Common Stock 3/05/98 James Simpson Interest in (1) Securities Act N/A
7,500 shares of Katheryne Membership 4)2 of the
Common Stock 3/05/98 Zelenock Interest (1) Securities Act N/A
2,500 shares of Membership (4)2 of the
Common Stock 3/05/98 Jeffrey Urban Interest (1) Securities Act N/A
</TABLE>
(1) Membership interest in Bloomfield Acceptance Company, L.L.C and
Bloomfield Servicing Company, L.L.C. For a description of the acquisition
of Bloomfield Acceptance Company, L.L.C. and Bloomfield Servicing Company,
L.L.C., see the Company's Current Report on Form 8-K dated March 5, 1998.
(2) Ms. Baszczuk did not hold a membership interest in Bloomfield Servicing
Company, L.L.C.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED PERIOD JANUARY 2
SEPTEMBER 30, 1998 TO SEPTEMBER 30, 1997
------------------ ---------------------
(Dollars in thousands)
<S> <C> <C>
INCOME STATEMENT DATA:
- ----------------------
Revenue $ 6,141 $ 280
Loss before income tax benefit (793) (110)
Net loss (574) (110)
Loss per common share, basic and diluted (0.46) -
BALANCE SHEET DATA:
Total assets $ 94,859 $ 9,652
Total debt 78,230 9,747
Stockholders' equity (deficiency) 13,457 (110)
SELECTED RATIOS:
Return on average assets (1.23%) (2.28%)
Return on average equity (deficiency) (4.13) (100.00)
Average equity (deficiency) to average assets 29.77 (1.14)
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company commenced operations in January 1997, for the primary purpose of
originating loans on manufactured home "Contracts" located within the
communities owned by Sun. The Company was formed by Sun in response to the
growing need to provide timely and competitive financing to residents in
manufactured home communities. The Company provides financing for new and
previously owned manufactured homes to borrowers whose credit needs may or may
not be met by traditional financial institutions due to credit expectations or
other factors. The Company through one of its subsidiaries also provides
warranty, credit life and disability insurance on the contracts it finances.
Through acquisitions the Company's business has expanded to include commercial
lending and mortgage servicing for income producing properties.
The Company expects to extend its business to include the origination of
manufactured home loans to communities not owned and operated by Sun, other
types of installment loans, expand its mortgage servicing operations and engage
in other related businesses through the initiation of new businesses or through
the acquisition of existing ones.
RESULTS OF OPERATIONS
The Company had a loss before federal income tax benefit of $793,000 for the
year ended September 30, 1998 on gross revenues of $6.1 million and expenses of
$6.9 million. This is compared to a loss of $110,000 on gross revenues of
$280,000 and expenses of $390,000 for the period January 2, 1997 (date of
inception) through September 30, 1997. Net loss for the Company increased
$464,000 versus the $110,000 loss for 1997.
The large increase in total gross income was due to a greater number of loans
originated in the manufactured home loan portfolio and through the acquisition
of a commercial mortgage loan originator in March, 1998. Interest income on
manufactured home loans increased to $2.2 million from $280,000 for the year
ended September 30, 1998 versus the period ended September 30, 1997. Interest
income on the commercial mortgage loan portfolio for the period March 1, 1998
through September 30, 1998 was $1.1 million.
The following table sets forth the extent to which the Company's net interest
income has been affected by changes in average interest rates and average
balances of interest-earning assets and interest-bearing liabilities:
-11-
<PAGE> 12
<TABLE>
<CAPTION>
YEAR AND PERIOD ENDED SEPTEMBER 30, 1998 AND 1997
----------------------------------------------------------------------------------
AVERAGE BALANCE AVERAGE RATE INTEREST INCREASE VARIANCE DUE TO:
----------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 (DECREASE)VOLUME RATE
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $51,480 $3,879 8.60% 10.83% $3,296 $ 280 $3,016 $2,991 $ 25
Cash and equivalents 3,839 - 3.75% - 84 - 84 84 -
----------------------------------------------------------------------------------
55,319 3,879 8.26% 10.83% 3,380 280 3,100 3,075 25
----------------------------------------------------------------------------------
Interest-bearing
Liabilities
Term loan 4,000 3,727 11.75% 6.98% 392 195 197 20 177
Revolving line of credit 9,540 - 7.00% - 668 - 668 668 -
Loans sold under
agreement to repurchase 32,549 - 7.15% - 873 - 873 873 -
----------------------------------------------------------------------------------
46,089 3,727 7.52% 6.98% 1,933 195 1,738 1,561 177
----------------------------------------------------------------------------------
Interest rate spread 0.74% 3.85%
Excess average earning assets $ 9,230 $ 152 8.26% 10.83%
==================================
Net interest margin 2.00% 4.12% $1,447 $ 85 $1,362 $1,514 $(152)
=============================================================
</TABLE>
Mortgage origination and refinance fees totaled $1.2 million for fiscal 1998 on
the brokered commercial mortgage loans. The sale of mortgage servicing rights in
connection with the commercial mortgage loans originated and serviced resulted
in gross revenues of approximately $600,000. No comparable is reported for
fiscal 1997 as this is the first year of commercial mortgage origination for the
Company.
During the latter part of the fourth quarter of 1998, the Company incurred
losses due to unprecedented market conditions related to commercial mortgage
backed securities and related instruments. The Company recorded $2.4 million of
losses related to mark-to-market valuations of commercial mortgage loans held
for sale and the related hedge positions.
Gain on sale of loans represents the gross income from the sale of approximately
$11.2 million of manufactured home loans on a servicing released basis. This is
the first year in which the Company has sold a portion of its manufactured home
loan portfolio.
Interest expense for the year ended September 30, 1998 was $1.9 million versus
$195,000 for the period ended September 30, 1997. The Company maintained a
significantly higher level of borrowings to fund its increased manufactured home
loan originations and commercial mortgage portfolio.
Provision for credit losses increased to $147,000 in 1998 from $58,000 in 1997
due to the large increase in the manufactured home loan portfolio. Provision for
loan losses is recorded in amounts sufficient to maintain an allowance at a
level considered adequate to cover losses from liquidating manufactured home
loans and loans sold with recourse.
General and administrative and other operating expenses increased to $2.5
million in fiscal 1998 as compared to $137,000 for the period ended September
30, 1997. The large increase was the result of underwriting and originating
significantly higher manufactured home loan volumes in fiscal 1998, operations
for the full year rather than the shorter period from inception to September 30,
1997, and through the acquisition of Bloomfield and Bloomfield Servicing with
the related underwriting, originating and servicing of commercial mortgage
loans. The largest
-12-
<PAGE> 13
increase in general and administrative expenses related to the increase in the
number of employees from 4 to 25, including the increase through acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company consummated an initial public offering of 1,200,000 shares of common
stock on November 19, 1997. The initial offering price was $10.00, which
provided approximate proceeds of $11.2 million. On December 16, 1997, an
additional 70,000 shares were issued, which provided approximate proceeds of
$651,000. The Company also sold 25,000 shares of common stock to Sun in a
private transaction resulting in an additional $250,000 in gross proceeds.
In connection with the initial public offering the Company entered into a
subordinated loan agreement with Sun. The subordinated loan agreement provides
for a subordinated debt facility of up to $10 million, which indebtedness shall
be subordinated to all senior debt of the Company. The facility consists of a $4
million term loan with an annual interest rate of 9.75% and a five year
revolving line of credit for up to $6 million at an annual interest rate equal
to the prime rate plus 125 basis points. In March 1998, Sun provided an
additional $12 million revolving line of credit payable upon demand with an
annual interest equal to "LIBOR" plus 140 basis points. At September 30, 1998
the Company had used $21.3 million of the subordinated debt and revolving line
of credit facilities.
In accordance with the subordinated loan agreement the Company issued detachable
warrants to Sun covering 400,000 shares of common stock at a price of $10.00 per
warrant share. The detachable warrants have a term of seven years and may be
exercised at any time after the fourth anniversary of the issuance.
In March 1998 the Company's commercial mortgage originating subsidiary entered
into a one year master repurchase agreement with a lender to finance up to $150
million of fixed rate commercial loans secured by real estate. In September of
1998 that agreement was amended to include financing of manufactured home, floor
plan and bridge loans. At the time of the amendment the maximum financing limit
was increased to $250 million. The annual interest rate on the facility is a
variable rate of interest equal to "LIBOR" plus a spread, dependent on the
advance rate and the asset class. As of September 30, 1998 approximately $56.9
million of borrowings were outstanding under the facility.
In September 1998, the Company completed a sale of approximately $11.2 million
outstanding principal balance amount of loans from its manufactured home loan
portfolio. The sale resulted in approximate proceeds to the Company of $12
million.
The Company expects to meet its short-term liquidity requirements through
working capital provided by operating activities and proceeds from additional
sales of its loan portfolio. Long term liquidity requirements will be met
through additional equity offerings, draws on its revolving lines of credit,
advances under repurchase agreements and periodic securitizations of its loan
portfolio.
MARKET RISK
Market risk is the risk of loss arising from adverse changes in market prices
and interest rates. The Company's market risk arises from interest rate risk
inherent in its financial instruments. The Company is not currently subject to
foreign currency exchange rate risk or commodity price risk.
In the normal course of business, the Company also faces risks that are either
nonfinancial or nonquantifiable. Such risks principally include credit risk
-13-
<PAGE> 14
and legal risk and are not included in the following table.
The following table shows the Company's expected maturity dates of its assets
and liabilities. For each maturity category in the table the difference between
interest-earning assets and interest-bearing liabilities reflects an imbalance
between repricing opportunities for the two sides of the balance sheet. The
consequences of a positive cumulative gap at the end of one year suggests that,
if interest rates were to rise, liability costs would increase more quickly than
asset yields, placing negative pressure on earnings.
<TABLE>
<CAPTION>
MATURITY
------------------------------------------------------------
0 TO 3 4 TO 12 1 TO 5 OVER 5
MONTHS MONTHS YEARS YEARS TOTAL
- --------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Cash and equivalents....................... $ 1,979 $ - $ - $ - $ 1,979
Restricted cash............................ 716 1,537 - - 2,253
Loans receivable........................... 204 85,871 - - 86,075
Other assets............................... 399 2,464 755 934 4,552
------------------------------------------------------------
$ 3,298 $ 89,872 $ 755 $ 934 $ 94,859
TOTAL ASSETS ============================================================
Liabilities:
Advances by mortgagors..................... $ 701 $ 1,537 $ - $ - $ 2,238
Accounts payable and accrued expenses...... 503 123 10 - 636
Advances under repurchase agreement........ 150 56,742 - - 56,892
Subordinated debt.......................... (19) 3,509 - - 3,490
Notes Payable - Sun Communities............ - 17,848 - - 17,848
Other liabilities.......................... - - - 298 298
------------------------------------------------------------
TOTAL LIABILITIES 1,335 79,759 10 298 81,402
------------------------------------------------------------
Stockholders' Equity
Common stock............................... - - - 13,608 13,608
Paid-in-capital............................ - - - 533 533
Retained deficit........................... - - - (684) (684)
-------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 1,335 $ 79,759 $ 10 $ 13,755 $94,859
=============================================================
Reprice difference......................... $ 1,963 $ 10,113 $ 745 $ (12,821)
Cumulative gap............................. $ 1,963 $ 12,076 $12,821 $ -
Percent of total assets.................... 2.07% 12.73% 13.52% -
</TABLE>
The following table shows the Company's financial instruments and derivative
instruments that are sensitive to changes in interest rates, categorized by
expected maturity, and the instruments' fair values at September 30, 1998.
Management believes the negative effect of a rise in interest rates is reduced
by the anticipated short duration of the Company's loan receivables. Management
intends that the loan receivables will be securitized or sold as part of a whole
loan sale prior to the end of 1999. Proceeds from the securitization or whole
loan sales would be used to pay down the corresponding debt. This strategy
reduces interest rate exposure that might otherwise arise from maturities of
debt instruments not matching maturities of assets. The instruments held by the
Company are held for purposes other than trading.
The Company also manages interest rate risk through the use of forward sales of
U.S. Treasury
-14-
<PAGE> 15
securities to hedge the commercial loan portfolio. The Company
uses these instruments to reduce risk by essentially creating offsetting market
exposures since the majority of the commercial loans are fixed rate loans that
have an annual interest rate equal to a spread over U.S. Treasuries.
<TABLE>
<CAPTION>
MATURITY
------------------------------------------------------------------------------------------
TOTAL
1999 2000 2001 2002 2003 THEREAFTER FAIR VALUE
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Loans receivable $ 90,369 $ - $ - $ - $ - $ - $ 90,369
Average interest rate 8.60% - - - - - 8.60%
Interest bearing deposits 1,979 - - - - - 1,979
Average interest rates 3.75% - - - - - 3.75%
------------------------------------------------------------------------------------------
Total interest sensitive assets $92,348 $ - $ - $ - $ - $ - $ 92,348
==========================================================================================
Interest sensitive liabilities:
Borrowings:
Advances under
repurchase agreements $ 56,892 $ - $ - $ - $ - $ - $ 56,892
Average interest rate 7.15% - - - - - 7.15%
Forward sales of U.S.
Treasury securities 48,497 - - - - - 48,497
Average interest rate 5.84% - - - - - 5.84%
Subordinated debt 3,490 - - - - - 3,490
Average interest rate 11.75% - - - - - 11.75%
Note payable - Sun 17,848 - - - - - 17,848
Average interest rate 7.00% - - - - - 7.00%
------------------------------------------------------------------------------------------
Total interest sensitive liabilities $ 126,727 $ - $ - $ - $ - $ - $ 126,727
==========================================================================================
</TABLE>
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report form 10-K which are not
historical fact, may be deemed to be forward-looking statements under the
federal securities laws. There are many factors that could cause the Company's
actual results to differ materially from those indicated in the forward-looking
statements. Such factors include but are not limited to general economic
conditions, interest rate risk, delinquency and default rates, demand for the
Company's services, the degree to which the Company is leveraged and its needs
for financing. In addition, it should be noted that past financial and
operational performance of the Company is not necessarily indicative of future
financial and operational performance.
YEAR 2000
Background. Some computers, software, and other equipment include a programming
code in which calendar year data is abbreviated to only two digits. As a result
of this design decision, some of these systems could fail to operate or fail to
produce correct results if "00" is interpreted to mean 1900, rather than 2000.
These problems are widely expected to increase in frequency
-15-
<PAGE> 16
and severity as the year 2000 approaches, and are commonly referred to as "Year
2000 Problem".
The Year 2000 Problem could affect computers, software and other equipment used
and operated by the Company. Accordingly, the Company is reviewing its internal
computer programs and systems to ensure that the programs and systems will be
Year 2000 compliant. The Company presently believes that its computer systems
will be Year 2000 compliant in a timely manner.
The Company believes that it has identified substantially all of the major
computers, software applications, and related equipment used in connection with
its internal operations that must be modified, upgraded or replaced to minimize
the possibility of a material disruption to its business. The Company has
commenced the process of modifying, upgrading and replacing those systems that
have been identified as adversely affected, and expects to complete this process
by early 1999.
The Company estimates the total cost of completing any required modifications,
upgrades, or replacements of these internal systems will not have a material
adverse effect on the Company's business or results of operations. This estimate
is being monitored and will be revised as additional information becomes
available.
The Company is in the process of identifying and contacting its critical
suppliers, service providers and contractors to determine the extent to which
the Company's interface systems are vulnerable to those third parties' failure
to remedy their own Year 2000 issues. To the extent that responses to Year 2000
readiness are unsatisfactory, the Company will seek to change suppliers, service
providers or contractors to those that have demonstrated year 2000 readiness,
but cannot be assured that it will be successful in finding such alternatives.
In the event that any of the Company's significant suppliers, service providers
and contractors do not successfully achieve Year 2000 compliance, and the
Company is unable to replace them, the Company's business or operations could be
adversely affected.
The Company expects to identify and resolve all Year 2000 Problems that could
materially adversely affect business operations. However, management believes it
is not possible to determine with complete certainty that all Year 2000 Problems
affecting the Company have been identified or corrected. The number of devices
that could be affected and the interactions among these devices are simply too
numerous. As a result, management expects that the Company could possibly suffer
the following consequences:
1. a significant number of operational inconveniences and
inefficiencies for the Company and its clients that may divert
management's time and attention and financial and human
resources from its ordinary business activities; and
2. a lesser number of serious system failures that may require
significant efforts by the Company to prevent or alleviate
material business disruptions.
The Company does not yet have a comprehensive contingency plan with respect to
the Year 2000 Problem, but intends to establish such a plan during fiscal 1999
as part of its ongoing Year 2000 compliance effort.
The discussion of the Company's efforts, and management's expectations, relating
to Year 2000 compliance are forward-looking statements. The Company's ability to
achieve Year 2000 compliance and the level of incremental costs associated
therewith, could be adversely impacted by, among other things, the availability
and cost of programming and testing resources, vendors' ability to modify
proprietary software, and unanticipated problems identified in the ongoing
compliance review.
-16-
<PAGE> 17
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued SFAS
No. 130 "Reporting Comprehensive Income" ("SFAS 130") which is effective for
fiscal years beginning after December 15, 1997. SFAS 130 establishes standards
for reporting comprehensive income and its components in a full set of
general-purpose financial statements. SFAS 130 requires that all components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The adoption of this standard
will not have an impact on the Company's financial position or results of
operations.
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131") which is effective for fiscal
years beginning after December 15, 1997. SFAS 131 establishes standards for
reporting information about operating segments in annual financial statements
and in interim financial reports. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The adoption of this standard will not have an impact on the Company's financial
position or results of operations.
In February 1998, FASB issued SFAS 132 "Employers' Disclosures about Pensions
and Other Postretirement Benefits" ("SFAS 132")), This standard standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer as useful as
they were when FASB Statement No. 87, Employers' Accounting for Pensions, No.
88, Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions, were issued. It will be adopted
effective October 1, 1998 and is not expected to have a material effect on the
Company's financial statements.
In June 1998, FASB issued SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). This Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging Activities. This statement will be adopted
effective October 1, 1999.
In October 1998, FASB issued SFAS No. 134 "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise", this statement establishes accounting and
reporting standards for certain activities of mortgage banking enterprises and
other enterprises that conduct operations that are substantially similar to the
primary operations of a mortgage banking enterprise. This statement will be
adopted effective October 1, 1999 and is not expected to have a material effect
on the Company's financial statements.
-17-
<PAGE> 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BINGHAM FINANCIAL SERVICES CORPORATION
FINANCIAL STATEMENTS FURNISHED PURSUANT TO
THE REQUIREMENTS OF FORM 10-K
AND
REPORT OF INDEPENDENT ACCOUNTANTS
FOR THE YEAR AND PERIOD ENDED SEPTEMBER 30, 1998 AND 1997
-18-
<PAGE> 19
BINGHAM FINANCIAL SERVICES CORPORATION
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants........................................... 20
Financial Statements:
Consolidated Balance Sheets - September 30, 1998 and 1997................... 21
Consolidated Statements of Operations for the year and period ended
September 30, 1998 and 1997........................................ 22
Consolidated Statements of Changes in Stockholders' Equity for the
year and period ended September 30, 19987 and 1997................. 23
Consolidated Statements of Cashflows for the year and period ended
September 30, 1998 and 1997........................................ 24
Notes to Consolidated Financial Statements.................................. 25
-19-
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Bingham Financial Services Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Bingham Financial Services Corporation and its subsidiaries at September 30,
1998 and 1997, and the results of their operations and their cash flows for the
year ended September 30, 1998 and for the period from January 2, 1997 (date of
inception) through September 30, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Detroit, Michigan
December 18, 1998
-20-
<PAGE> 21
BINGHAM FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------
ASSETS 1998 1997
---------------------------------------
<S> <C> <C>
Cash and equivalents $ 1,979 $ -
Restricted cash 2,253 -
Loans receivable 86,075 9,541
Property and equipment, net 655 7
Other assets 3,897 104
============ ============
Total assets $ 94,859 $ 9,652
============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities:
Advances by mortgagors $ 2,238 $ -
Accounts payable and accrued expenses 636 15
Advances under repurchase agreements 56,892 -
Subordinated debt, net of debt discount
of $510 3,490 -
Note payable - Sun Communities 17,848 9,747
------------ -----------
Total liabilities
81,104 9,762
------------ -----------
Minority Interest 298 -
------------ -----------
Stockholders' equity (deficiency)
Preferred stock, no par value, 10,000,000 shares
authorized; no shares issued and outstanding - -
Common Stock, no par value, 10,000,000 shares
authorized; 1,576,818 and 100 shares issued
and outstanding at 1998 and 1997
respectively 13,608 -
Paid-in capital 533 -
Retained earnings (deficit) (684) (110)
------------ -----------
Total stockholders equity (deficiency) 13,457 (110)
------------ -----------
Total liabilities and stockholders' equity $ 94,859 $ 9,652
(deficiency) ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-21-
<PAGE> 22
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR AND PERIOD ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
PERIOD
JANUARY 2,
YEAR ENDED THROUGH
REVENUES SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Interest income on loans $ 3,296 $ 280
Mortgage origination and servicing fees 1,361 -
Gain on sale of loans 738 -
Sale of mortgage servicing rights 618 -
Other income 128 -
------------------ ------------------
Total revenues 6,141 280
------------------ ------------------
COSTS AND EXPENSES
Interest expense 1,933 195
Provision for credit losses 147 58
Provision for unrealized hedge loss 2,400 -
General and administrative 1,250 -
Other operating expenses 1,204 137
------------------ ------------------
Total costs and expenses 6,934 390
------------------ ------------------
Loss before income tax benefit (793) (110)
Income tax benefit (219) -
------------------ ------------------
Net loss $ (574) $ (110)
================== ==================
Weighted average common shares outstanding 1,261,031
==================
Loss per share:
Basic and diluted $ (0.46)
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
-22-
<PAGE> 23
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR AND PERIOD ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT FOR SHARES)
<TABLE>
<CAPTION>
TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL DEFICIT EQUITY
----- ------- ------- ------
<S> <C> <C> <C> <C>
Balance January 2, 1997 $ - $ - $ - $ -
Issuance of 100 shares
of common stock - -
Net loss (110) (110)
-------- ------- --------- -----------
Balance, September 30, 1997 - - (110) (110)
Issuance of 1,295,000 shares
of common stock, net 11,583 11,583
Issuance of 281,818 shares of
common stock in conjunc-
tion with acquisition 2,025 (119) 1,906
Issuance of 400,000 warrants
with subordinated debt 577 577
Option amortization 75 75
Net loss (574) (574)
-------- ------- --------- -----------
Balance, September 30, 1998 $ 13,608 $ 533 $ (684) $ 13,457
======== ======= ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-23-
<PAGE> 24
BINGHAM FINANCIAL SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASHFLOWS
FOR THE YEAR AND PERIOD ENDED SEPTEMBER 30, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED JANUARY 2 TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Net loss $ (574) $ (110)
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for unrealized hedge loss 2,400 -
Provision for credit losses 147 58
Depreciation and amortization 516 18
Gain on sale of investment securities (13) -
Gain on sale of loans (738) -
Increase in other assets (2,386) (129)
Increase in other liabilities 115 210
------------ --------------------
Net cash provided (used) by operating activities (533) 47
------------ --------------------
Commercial loans originated (65,796) -
Manufactured home loans originated (27,010) (9,844)
Collections on installment contracts receivable 2,191 244
Proceeds from the sale of loans 12,513 -
Proceeds from the sale of investment securities 71 -
Capital expenditures (27) -
------------ --------------------
Net cash used in investing (78,058) (9,600)
------------ --------------------
Proceeds from issuance of common stock 11,582 -
Proceeds from issuance of subordinated debt,
and related warrants 4,000 -
Advances under repurchase agreements 56,892 -
Advances on note payable, Sun Communities 30,117 9,553
Repayment of note payable, Sun Communities (22,021) -
------------ --------------------
Net cash provided by financing activities 80,570 9,553
------------ --------------------
Net increase in cash and cash equivalents 1,979 -
Cash and cash equivalents, beginning of period - -
------------ --------------------
Cash and cash equivalents, end of period $ 1,979 $ -
============ ====================
Supplemental disclosures of cash flow information:
Interest paid $ 2,128 $ -
Federal income taxes paid $ 290 $ -
</TABLE>
The accompanying notes are an integral part of these financial statements.
-24-
<PAGE> 25
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: The Company was incorporated as an affiliate of Sun
Communities, Inc. for the purpose of providing financing to residents
living in manufactured housing communities for the purchase of new and used
manufactured homes. The Company originates conventional loans that
generally range in size from $4,500 to $90,000 and have a term of 5-25
years. The Company has focused its marketing efforts principally through
manufactured home community owners and operators. This effort has been
targeted at Sun Communities, where the Company's services are offered as
the preferred source of financing. The Company continues to take the steps
necessary to capture a greater share of the loans generated by home
purchasers and owners in Sun Communities. In addition, the Company has also
started to originate loans through manufactured home dealers.
The Company also participates and is active in all aspects of commercial
real estate mortgage banking, including originating, underwriting, placing,
securitizing, and servicing commercial real estate loans through Bloomfield
and Bloomfield Servicing. Bloomfield acts as both a direct lender, making
commercial real estate loans for its own portfolio as well as for
accumulation and securitization, and as a traditional mortgage banker,
placing commercial real estate loans with institutional investors.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts and transactions of the Company and its subsidiaries.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
For purposes of income statement and cashflow comparison, the Company does
not have a period covering the twelve months ended September 30, 1997.
Information presented covers the period from January 2, 1997 (date of
inception) through September 30, 1997. Earnings per share information for
the period ending September 30, 1997 is based on the 100 shares issued for
initial capitalization. The Company's initial public offering of common
stock did not take place until the quarter ended December 31, 1997.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS: The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents represent short-term
highly liquid investments with original maturities of three months or less
and include cash and interest bearing deposits at banks. The Company has
restricted cash related to servicing on loans held by others which is held
in trust for subsequent payment to the owners of those loans.
LOANS RECEIVABLE: Loans receivable consist of commercial real estate loans
and manufactured home loans. The commercial loans primarily consist of
fixed rate loans secured by mortgages on commercial property. Commercial
loans originated are either sold immediately to permanent investors or held
for sale. Manufactured home loans are conventional fixed rate loans under
contracts secured by the borrowers' manufactured homes.
-25-
<PAGE> 26
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
Loans held for sale are carried at the lower of cost or market value
determined on an aggregate basis. Loans receivable include accrued interest
and are net of deferred hedging gains or losses and an allowance for
expected losses.
DERIVATIVE FINANCIAL INSTRUMENTS: The Company uses forward sales of U.S.
Treasury securities to hedge its commercial mortgage loan portfolio. These
forward sales are used as a means to hedge interest rate risk connected to
anticipated sales or securitizations of the commercial mortgage loans. The
Company's accounting for derivative financial instruments that are used to
manage risk is in accordance with the concepts established in SFAS No. 80,
"Accounting for Futures Contracts".
Deferral (hedge) accounting is applied if the derivative reduces the risk
of the underlying hedged item and is designated at inception as a hedge
with respect to the hedged item. Additionally, the derivative must result
in payoffs that are expected to be inversely correlated to the hedged item.
Derivatives are measured for effectiveness both at inception and on an
ongoing basis. If a derivative instrument ceases to meet the criteria for
deferral accounting, any subsequent gains and losses are currently
recognized in income.
ALLOWANCE FOR LOAN LOSSES: The allowance for possible losses on loans is
maintained at a level believed adequate by management to absorb potential
losses from impaired loans, loans sold with recourse and the remainder of
the loan portfolio. The allowance for loan losses is based upon periodic
analysis of the portfolio, economic conditions and trends, historical
credit loss experience, borrowers' ability to repay and collateral values.
CAPITALIZED MORTGAGE SERVICING RIGHTS: The Company accounts for mortgage
servicing rights in accordance with SFAS No. 125 "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS
125"). SFAS 125 requires that a separate asset or liability be recorded
representing the right or obligation to service loans for others. A
servicing asset or liability is determined by allocating the loans'
previous carrying amount between the servicing asset and the loans that
were sold, based on their relative fair values at the date of sale. The
fair value of the servicing asset or liability is based on an analysis of
discounted cash flows that incorporates estimates of market servicing
costs, projected ancillary servicing revenue, projected prepayment rates
and market profit margins.
Mortgage servicing rights are periodically assessed for impairment based on
the fair value of those rights calculated on a discounted basis. This
assessment is performed on a disaggregate basis, stratified by mortgage
type and term. Identified impairments are recognized through a valuation
allowance.
INTEREST ON LOANS: Interest on loans is credited to income when earned. An
allowance for interest on loans is provided when a loan becomes more than
75 days past due as the collection of these loans is considered doubtful.
LOAN FEES: Loan origination fees and certain direct loan origination costs
are deferred and recognized over the lives of the related loans as an
adjustment of the yields using a level-yield method.
REPOSESSED HOMES: Manufactured homes acquired through foreclosure or
similar proceedings are recorded at the lower of the related loan balance
plus any operating expenses of such homes or the estimated fair value of
the home at acquisition date.
-26-
<PAGE> 27
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
OTHER ASSETS: Other assets is comprised of margin deposits with brokers,
organization costs, prepaid expenses, deferred financing costs and other
miscellaneous receivables. Margin deposits with brokers totaled $1.3
million and are invested in short-term treasury bills. Organization costs
are amortized on a straight-line basis over a five-year life. Deferred
financing costs are capitalized and amortized over the life of the
corresponding line of credit.
LOANS SOLD UNDER AGREEMENTS TO REPURCHASE: The Company enters into sales of
loans under agreements to repurchase the loans. The agreements are
short-term and are accounted for as secured borrowings. The obligations to
repurchase the loans sold are reflected as a liability, and the loans that
collateralize the agreements are reflected as assets in the balance sheet.
DEPRECIATION: Provisions for depreciation are computed using the
straight-line method over the estimated useful lives of office properties
and equipment, as follows: leasehold improvements - life of the lease;
furniture and fixtures - seven years; capitalized software - five years;
computers - five years.
INCOME TAXES: The Company uses the liability method in accounting for
income taxes. Under this method, deferred income taxes result from
temporary differences between the tax bases of assets and liabilities and
the bases reported in consolidated financial statements. The deferred taxes
are measured using the enacted tax rates and laws that will be in effect
when the differences are expected to reverse.
GOODWILL: Goodwill, which represents the excess of purchase price over the
fair value of net assets acquired, is amortized on a straight-line basis
over the expected periods to be benefited, generally 25 years.
PER SHARE DATA: SFAS No. 128, "Earnings Per Share", was issued in March
1997 and is effective for financial statements issued after December 15,
1997. This Statement establishes standards for computing and presenting
earnings per share ("EPS") and supersedes Accounting Principles Board
Opinion No. 15 and its related interpretations. The Statement replaces the
presentation of primary EPS with a presentation of basic EPS. Basic EPS
excludes dilution, whereas diluted EPS includes the potential dilution that
could occur if securities or contracts to issue shares of common stock were
to be exercised or converted into shares of common stock.
Basic earnings per share are computed by dividing net income available to
common shareholders by the weighted average common shares outstanding. At
September 30, 1998 there were approximately 260,000 potential shares of
common stock from stock options and warrants outstanding. Had these stock
options and warrants been exercised they would have had an anti-dilutive
effect on the net loss. In accordance with SFAS No. 128 the effect of the
anti-dilutive shares is not included in the earnings per share calculation.
The following table presents a reconciliation of the numerator (income
applicable to common shareholders) and denominator (weighted average common
shares outstanding) for the basic loss per share calculation for the year
ended September 30, 1998:
-27-
<PAGE> 28
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
Net Loss Per
Loss Shares Share
------------------------------------------------------
(In thousands, except loss per share)
<S> <C> <C> <C>
Basic and diluted loss per share............... $ (574) 1,261 $ (0.46)
</TABLE>
B. ACQUISITIONS
In March 1998 the Company acquired 100% of the outstanding stock of
Bloomfield Acceptance Company, L.L.C. ("Bloomfield") and Bloomfield
Servicing Company, L.L.C. ("Bloomfield Servicing") for 281,818 shares of
the Company's common stock valued at approximately $2.1 million. Bloomfield
is engaged in the business of the origination of mortgages and real estate
lending. Loans originated by Bloomfield primarily consist of fixed rate
loans secured by mortgages on commercial property. Bloomfield Servicing was
formed to service the loans originated by Bloomfield and other investors.
In addition to the shares of common stock issued to the former owners of
Bloomfield and Bloomfield Servicing, additional consideration of up to
$500,000, in the form of the Company's common stock, will be paid to the
owners subject to the performance of the merged entities over the two year
period following the date of merger.
Each of the acquisitions was accounted for as a purchase. The results of
operations for the year ended September 30, 1998 include the results of
operations for each of the acquired companies since the date of their
respective acquisitions.
The aggregate purchase price for the acquisitions completed for the year
ended September 30, 1998, was $2.1 million. The purchase price was
allocated to the assets acquired and liabilities assumed based on the
related fair values at the date of acquisition. The excess of the aggregate
purchase price over the fair values of the assets acquired and liabilities
assumed has been allocated to goodwill and is being amortized on a
straight-line method over 25 years.
In conjunction with these acquisitions, liabilities assumed and other
non-cash consideration was as follows (in thousands, unaudited):
<TABLE>
<S> <C>
Fair value of assets acquired.................................... $ 4,668
Goodwill......................................................... 664
Stock issued in consideration of companies acquired... (2,067)
------------------
Liabilities assumed.............................................. $ 3,265
==================
</TABLE>
-28-
<PAGE> 29
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
The following table summarizes pro forma unaudited results of operations as
if each of the acquisitions completed during 1998 had occurred at the
beginning of each year presented:
<TABLE>
<CAPTION>
PERIOD JANUARY 2
SEPTEMBER 30, TO SEPTEMBER 30,
1998 1997
-----------------------------------------------------------------------------------------------------------------
(In thousands, except earnings per share)
<S> <C> <C>
Revenues............................................................... $ 7,660 $ 2,329
Income before income taxes............................................. (684) 624
Net Income ............................................................ (503) 367
Basic and diluted loss per share....................................... $ (0.40)
</TABLE>
C. LOANS RECEIVABLE
The carrying amounts and fair values of loans receivable consisted of the
following:
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------------------------------------------------------
1998 1997
-------------------------------------------------------------------
Book Value Market Value Book Value Market Value
----------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Manufactured home loans............ $ 22,674 $ 24,098 $ 9,556 $ 9,556
Commercial loans................... 65,546 61,722 - -
Accrued interest receivable........ 440 440 43 43
Valuation allowance................ (2,400) - - -
Reserve for credit loss............ (185) - (58) -
-------------------------------------------------------------------
$ 86,075 $ 86,260 $ 9,541 $ 9,599
===================================================================
</TABLE>
The carrying amount of loans receivable includes a valuation allowance for
mark-to-market adjustments on the hedge positions. The following table
shows the valuation allowance and any related additions or deductions:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------
(In thousands)
<S> <C> <C>
Balance at beginning of year $ - -
Valuation allowance.......... 2,400 -
-------------------------
Balance at end of year... $ 2,400 -
=========================
</TABLE>
-29-
<PAGE> 30
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
The following table sets forth the average loan balance, weighted average
loan yield and weighted average initial term of the loan portfolio:
<TABLE>
<CAPTION>
SEPTEMBER 30
-----------------------------------------------------------
1998 1997 1998 1997
-----------------------------------------------------------
Manufactured Home Commercial Mortgage
-------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Principal balance loans receivable,
net................................. 22,673 $ 9,541 $ 63,402 $ -
Number of loans receivable.......... 803 366 13 -
Average loan balance................ $ 29 $ 26 $ 5,042 $ -
Weighted average loan yield......... 10.9% 10.7% 7.6% -
Weighted average initial term....... 22 years 23 years 9.7 years -
</TABLE>
The contracts are secured by manufactured homes, which range in age from
1963 to 1998, with approximately 56% of the manufactured homes built since
1996. The following table sets forth the concentration by state of the loan
portfolio:
<TABLE>
<CAPTION>
SEPTEMBER 30
------------------------------------------------------------------------------------------------
1998 1997 1998 1997
--------------------------------------------------------------------------------------------------
Manufactured Home Commercial Mortgage
-------------------------------------------------------------------------------------------------
Principal % Principal % Principal % Principal %
------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michigan 9,177 40.5% 4,644 48.7% 29,107 44.4% - -
Indiana 5,729 25.3% 2,257 23.7% - - - -
Arizona - - - - 9,953 15.2% - -
Texas 1,859 8.2% 1,458 15.3% - - - -
Florida 1,805 8.0% 830 8.7% 14,260 21.8% - -
California - - - - 8,504 13.0% - -
Other 4,104 18.1% 352 3.6% 3,722 5.6% - -
</TABLE>
The following table sets forth the number and value of loans for various terms
for the manufactured home loan portfolio:
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------------------------------------------
1998 1997
----------------------------------------------------------------------
Number of Principal Number of Principal
Term Loans Balance Loans Balance
---- ------------- ---------- ------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
5 or less.. 27 $ 209 7 $ 40
6-10........ 88 1,073 29 342
11-12...... 9 100 3 45
13-15...... 104 1,876 51 745
16-20...... 210 6,020 71 1,357
21-25...... 363 13,291 196 6,557
26-30...... 2 105 9 455
</TABLE>
-30-
<PAGE> 31
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
The commercial mortgage loans have amortization terms of between 25 and 30
years. In certain cases they also have a hyper-amortization feature that
takes effect if the loan is not repaid on its anticipated repayment date.
At that time the interest rate increases and any excess cash flows from the
project are used to pay down the principal balance.
Delinquency statistics for the manufactured home loan portfolio are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
----------------------------------------------------------------------
1998 1997
----------------------------------------------------------------------
Days No. of Principal % of No. of Principal % of
Loans Balance Portfolio Loans Balance Portfolio
----------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
31-60........... 31 $ 730 3.2% 2 $ 56 .59%
61-90........... 18 508 2.2% 1 12 .13%
Greater than 90 16 357 1.6% 2 58 .61%
</TABLE>
No commercial mortgage loans were delinquent as of September 30, 1998.
D. ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses and related additions and deductions to the
allowance for the years ended September 30, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------------------------------------
(In thousands)
<S> <C> <C>
Balance at beginning of year $ 58 $ -
Provision for loan losses....... 147 58
Net losses...................... (20) -
-------------------------
Balance at end of year... $ 185 $ 58
=========================
</TABLE>
E. SERVICING RIGHTS
Changes in capitalized mortgage servicing rights are summarized as follows:
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------------
(In thousands)
<S> <C>
Balance at beginning of year......................... -
Addition through acquisition of Bloomfield Servicing $ 552
Additional servicing asset net....................... 104
Amortization ........................................ (28)
Sales ............................................... (472)
------------
Balance at end of year........................... $ 156
============
</TABLE>
Bloomfield Servicing services loans that Bloomfield originates. In
addition to Bloomfield's loans, Bloomfield Servicing services commercial
real estate loans on behalf of five institutional investors. The majority
of these loans are in Michigan. As of September 30, 1998, Bloomfield
Servicing's servicing portfolio totaled approximately $374 million. The
Company had no servicing rights in 1997.
-31-
<PAGE> 32
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
F. PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
<TABLE>
<CAPTION>
September 30
---------------------------------
1998 1997
-----------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Cost:
Furniture and fixtures....................... $ 159 $ -
Leasehold improvements....................... 33 -
Capitalized Software......................... 322 -
Computer equipment........................... 175 8
---------------------------------
689 8
Less accumulated depreciation.................. 34 1
=================================
$ 655 $ 7
=================================
</TABLE>
Depreciation expense was $33,700 and $1,100 in 1998 and 1997 respectively.
G. DEBT
At the time of its initial public offering the Company entered into a
subordinated debt facility with Sun Communities. The facility consisted of
a $4.0 million term loan and a five-year revolving line of credit for up to
$6.0 million. The term loan was at an annual interest rate of 9.75% and the
revolving line of credit is at an annual rate equal to the prime rate plus
125 basis points. In accordance with the subordinated debt loan agreement
the Company has issued detachable warrants to Sun covering 400,000 shares
of common stock at a price of $10 per warrant share. The detachable
warrants have a term of seven years and may be exercised at any time after
the fourth anniversary of issuance.
In March 1998 Sun provided an additional line of credit of up to $12.0
million payable upon demand at an annual interest rate equal to "LIBOR"
plus 140 basis points.
In March 1998 the Company's commercial mortgage subsidiary entered into a
one-year master repurchase agreement with a lender to finance up to $150
million of fixed rate commercial loans secured by real estate. In September
1998 that agreement was amended and restated to include manufactured home
and floor plan loans. The borrowing limit was also increased to $250
million. The loans are sold at 85- 92% of the then current face value,
depending on the asset class and certain concentration constraints. The
repurchase transactions are for 30 days and may be rolled over for up to
nine months.
At September 30, 1998 and 1997 debt outstanding was as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30
---------------------------------
1998 1997
---------------------------------
(In thousands)
<S> <C> <C>
Loans sold under agreements to repurchase....... $ 56,900 $ -
Revolving line of credit........................ 17,800 5,700
Term loan, net of discount...................... 3,500 4,000
================= ==============
$ 78,200 $ 9,700
================= ==============
</TABLE>
-32-
<PAGE> 33
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
H. PARTICIPANTS SUPPORT AGREEMENT
As of September 30, 1997 the Company entered into a participant support
agreement with Sun Communities. Pursuant to the agreement, participants
options were granted to Sun September 30, 1997 and will vest if, and only
if, Sun is a party to and in compliance with the terms of the participant
support agreement on the vesting date and on December 31 of the previous
year. The options will vest in eight equal annual amounts, each consisting
of 41,250 options, on January 31, 2001 through 2008. The options may be
exercised at any time after vesting until expiration ten years after the
date of vesting. Each option vesting January 31, 2001 to 2003 will entitle
the holder to purchase one share of common stock for a purchase price of
$10. Each option vesting on January 31, 2004, 2005 and 2006 will entitle
the holder to purchase one share of common stock for $12. Each option
vesting on January 31, 2007 and 2008 will entitle the holder to purchase
one share of common stock for $14.
The Company recognizes service costs related to the options based on the
fair value method as prescribed by Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock based Compensation".
Service costs are amortized based on the vesting periods of the options.
Amortization for the year ended September 30, 1998 was $74,700.
I. STOCK OPTION PLAN
The Company has stock option plans in which 157,681 shares of common stock
have been reserved for issuance as of September 30, 1998. Under the plans,
the exercise price of the options will not be less than the fair market
value of the common stock on the date of grant. The date on which the
options are first exercisable is determined by the administrator of the
Company's stock option plan, the Compensation Committee of the Board of
Directors or the entire Board of Directors, and options generally have
vested over a three-year period from the date of grant. The term of an
option may not exceed ten years from the date of grant.
The Company has adopted the disclosure requirements of Statements of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for
Stock-Based Compensation." Accordingly, the fair value of each option grant
in 1998 was estimated using the Black-Scholes option pricing model based on
the assumptions stated below:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------------------
<S> <C>
Estimated weighted average fair value
Per share of options granted........................... $ 5.44
Assumptions:
Annualized dividend yield ..................... -%
Common stock price volatility.................. 44.14%
Weighted average risk free rate of return...... 5.83%
Weighted average expected option term (in years) 6
</TABLE>
-33-
<PAGE> 34
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
The Company has elected to measure compensation cost using the intrinsic value
method, in accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly since all options are granted at a fixed price not less
than the fair market value of the Company's common stock on the date of grant,
no compensation cost has been recognized for its stock option plan. Had stock
option costs of the plan been determined based on the fair value at the 1998
grant dates for awards under those plans consistent with the methodology of SFAS
123, the pro forma effects on the Company's net income and earnings per share
would be as follows:
<TABLE>
<CAPTION>
1998
================================================================================
(In thousands, except earnings per share)
<S> <C>
Net loss (as reported)................................... $ (574)
Stock option compensation cost........................... 143
===============
Pro forma net loss............................... $ (717)
===============
Basic and diluted loss per share (as reported)........... $ (0.46)
Stock option compensation cost........................... .11
===============
Pro forma basic and diluted loss per share....... $ (0.57)
===============
</TABLE>
The following table sets forth changes in options outstanding:
<TABLE>
<CAPTION>
1998
================================================================================
WEIGHTED
AMOUNT AVG. PRICE
- --------------------------------------------------------------------------------
<S> <C> <C>
Shares under option:
Outstanding at beginning of year.................. - $ -
Granted........................................... 111,850 10.65
Forfeited......................................... (1,950) 13.00
Canceled.......................................... - -
Exercised ........................................ - -
---------------------
Outstanding at end of year........................ 109,900 10.65
---------------------
Exercisable at end of year........................ 30,000 $ 10.00
---------------------
</TABLE>
The following table sets forth details of options outstanding at September 30,
1998
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
RANGE OF NUMBER REMAINING RANGE OF NUMBER REMAINING
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 10.00 85,900 9.08 Years $ 10.00 30,000 9.08 Years
13.00 24,000 9.42 Years
- ------------------------------------------------------------------------------------------------------
$10.00 -13.00 109,900 9.15 Years $ 10.00 30,000 9.08 Years
======================================================================================================
</TABLE>
There were no options outstanding in 1997.
-34-
<PAGE> 35
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
J. FEDERAL INCOME TAXES
Federal income tax expense consisted of the following:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Current.............................. $ 683 $ -
Deferred............................. (902) -
======================================
$ (219) $ -
======================================
</TABLE>
A reconciliation of the statutory federal income tax rate to the effective
income tax rate follows:
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------
<S> <C>
Statutory tax rate................................. (34.00%)
Effect of:
Change in valuation of deferred tax assets (4.70)
Other, net .................................... 11.09
========
Effective tax rate ................................ (27.61%)
========
</TABLE>
There was no federal income tax provision in 1997.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The
Company believes its current tax planning strategy will allow for the
recovery of the total net deferred tax asset. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1998
------------------------------------------------------------------
(In thousands)
<S> <C>
Deferred Tax Assets:
Option amortization............................ $ 25
Net deferral required by FAS 91................ 130
Reserve for loan losses ....................... 14
Valuation allowance for unrealized hedge loss.. 816
Other items, net .............................. 5
-------------
Total deferred tax assets ................ 990
Deferred Tax Liabilities:
Deferred closing costs ........................ 88
-------------
Total deferred tax liabilities ............ 88
-------------
Total net deferred tax assets...................... 902
=============
Total net federal income tax assets $ 902
=============
</TABLE>
Total net deferred tax assets are shown as a part of other assets in the
consolidated balance sheets. There were no deferred taxes at September 30, 1997.
-35-
<PAGE> 36
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
K. STOCKHOLDERS' EQUITY
The Company consummated an initial public offering of 1,200,000 shares of
common stock on November 19, 1997. The initial offering price was $10.00,
which provided approximate proceeds to the Company of $11,160,000. On
December 16, 1997, an additional 70,000 shares were issued which provided
approximate proceeds to the Company of $651,000.
Prior to the initial public offering, on October 27, 1997 the Company sold
25,000 shares to Sun Communities for gross proceeds of $250,000.
L. LITIGATION
The Company is subject to various claims and legal proceedings arising out
of the normal course of business, none of which in the opinion of
management are expected to have a material effect on the Company's
financial position.
M. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS: At September 30, 1998 aggregate minimum rental
commitments under noncancelable leases having terms of more than one year
were $917,000, payable $280,000 (1999), $314,000 (2000) and $323,000
(2001). Total rental expense for the year ended September 30, 1998 was
$83,000. These leases are for office facilities and equipment and generally
contain either clauses for cost of living increases and/or options to renew
or terminate the lease.
LOAN COMMITMENTS: At September 30, 1998 and 1997 the Company had
commitments to originate manufactured home installment contracts
approximating $4.8 million and $3 million respectively. Commercial mortgage
loan commitments totaled $14.7 million at September 30, 1998.
N. FINANCIAL INSTRUMENTS AND OFF-BALANCE SHEET ACTIVITY
FINANCIAL INSTRUMENTS: The Company hedges its commercial mortgage loan
portfolio as part of its interest rate risk management strategy and as a
condition of the related repurchase agreement which finances the portfolio.
The Company hedges the interest rate risk on its portfolio by doing forward
sales of U.S. Treasury Securities. The Company classifies these forward
sales as hedges on specific loan receivables. Any gross unrealized gains or
losses on these forward sales are an adjustment to the basis of the
mortgage loan portfolio and are used in the lower of cost or market
valuation to establish a valuation allowance as shown in Note C.
The following table identifies the gross unrealized gains and losses of the
forward sales as of September 30, 1998 and 1997:
-36-
<PAGE> 37
BINGHAM FINANCIAL SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------------
<TABLE>
<CAPTION>
SEPTEMBER 30
-------------------------------------------------------------------------------
1998 1998 1997 1997
-------------------------------------------------------------------------------
GROSS GROSS GROSS GROSS
UNREALIZED UNREALIZED UNREALIZED UNREALIZED
SECURITY DESCRIPTION GAINS LOSSES GAINS LOSSES
----------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Treasury 6.125% - 8/07 $ - $ (2,019) $ - $ -
U.S. Treasury 6.375% - 8/27 - (294) - -
U.S. Treasury 5.500% - 2/08 - (1,649) - -
U.S. Treasury 5.625% - 5/08 - (321) - -
--------------------------------- ---------------------------------
$ - $ (4,283) $ - $ -
================================= =================================
</TABLE>
LOANS SOLD WITH RECOURSE: In September 1998 the Company sold $11.2 million
of its manufactured home loan portfolio with recourse. The Company is
required to repurchase any contract that goes into default, as defined in
the loan agreement, for the life of the loan.
FAIR VALUE OF FINANCIAL INSTRUMENTS: Statement of Financial Accounting
Standards No. 107 ("SFAS 107") requires disclosure of fair value
information about financial instruments, whether or not recognized in the
Balance Sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques.
The carrying amount for cash and cash equivalents approximate their fair
value. Fair values for the Company's loans are estimated using discounted
cash flow analyses, using interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. The carrying
amount of accrued interest approximates its fair value. Due to their short
maturity, accounts payable and accrued expense carrying values approximate
fair value
O. SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION> FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------------------------------------------------------------------------------------------------
(In thousands, except earnings per share)
<S> <C> <C> <C> <C>
1998:
Interest income $ 316 $ 433 $ 819 $ 1,797
Interest expense 151 135 405 1,241
Net income (loss) 22 120 435 (1,151)
Diluted earnings (loss) per share .04 .08 .22 (0.73)
1997:
Interest income $ - $ 10 $ 112 $ 158
Interest expense - 15 70 110
Net loss - (62) (3) (45)
</TABLE>
-37-
<PAGE> 38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in the Company's independent public
accountants during the past two fiscal years.
PART III
The information required by ITEMS 10, 11, 12 AND 13 will be included
in the Company's proxy statement for its 1999 Annual Meeting of Shareholders,
and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed herewith as part of this Form
10-K:
(1) A list of the financial statements required to be filed as
part of this Form 10-K is shown in the "Index to the Financial Statements"
included in Part II, Item 8 of this report.
(2) Schedules other than those listed in the "Index to the
Financial Statements" contained in Part II, Item 8 of this report are omitted
because of the absence of the conditions under which they are required or
because the information required is included in the consolidated financial
statements or notes thereto.
(3) A list of the exhibits required by Item 601 of Regulation
S-K to be filed as a part of this Form 10-K is shown on the "Exhibit Index"
filed herewith.
(b) Reports on Form 8-K
The Company filed a report on Form 8-K detailing the merger of
Bloomfield Acceptance Company, L.L.C. and Bloomfield Servicing Company, L.L.C.
with subsidiaries of the Company pursuant to an Agreement and Plan of Merger
dated as of February 17, 1998. The date of the report was March 5, 1998. The
required financial statements of the businesses acquired and the required pro
forma financial information were filed with an amendment to the Form 8-K on
May 12, 1998.
-38-
<PAGE> 39
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: December 28, 1998
BINGHAM FINANCIAL
SERVICES CORPORATION
By: /s/ Jeffrey P. Jorissen
--------------------------------
Jeffrey P. Jorissen, President
Chief Executive Officer
and Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Gary A. Shiffman Chairman of the Board of December 28, 1998
------------------------------------------- Directors, Secretary
Gary A. Shiffman
/s/ Jeffrey P. Jorissen President, Chief Executive Officer, December 28, 1998
------------------------------------------- Chief Financial Officer and Director
Jeffrey P. Jorissen
/s/ Milton M. Shiffman Director December 28, 1998
-------------------------------------------
Milton M. Shiffman
/s/ Robert H. Orley Director December 28, 1998
-------------------------------------------
Robert H. Orley
/s/ Brian M. Hermelin Director December 28, 1998
-------------------------------------------
Brian M. Hermelin
</TABLE>
-39-
<PAGE> 40
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Arthur A. Weiss Director December 28, 1998
--------------------------------------------
Arthur A. Weiss
/s/ Daniel E. Bober Director and Vice President December 28, 1998
--------------------------------------------------
Daniel E. Bober
/s/ Creighton J. Weber Director and Vice President December 28, 1998
--------------------------------------------
Creighton J. Weber
</TABLE>
-40-
<PAGE> 41
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
DESCRIPTION
-----------
<S> <C>
2.1 Agreement And Plan of Merger dated as of February 17, 1998 by and among Bingham Financial
Services Corporation, a Michigan corporation, BAC Acquiring Corp., a Michigan corporation, BSC
Acquiring Corp., a Michigan corporation, Bloomfield Acceptance Company, L.L.C., a Michigan
limited liability company, and Bloomfield Servicing Company, L.L.C., a Michigan limited
liability company. Omitted from such exhibit, as filed, are the remaining exhibits referenced
in such agreement. The Registrant will furnish supplementally a copy of any such exhibits to
the Commission upon request. (incorporated by reference to the Company's Current Report on
Form 8-K dated March 5, 1998)
2.2 Certificate of Merger for BAC Acquiring Corp. and Bloomfield Acceptance Company, L.L.C., dated
March 5, 1998. (incorporated by reference to the Company's Current Report on Form 8-K dated
March 5, 1998)
2.3 Certificate of Merger for BSC Acquiring Corp. and Bloomfield Servicing Company, L.L.C.,
dated March 5, 1998. (incorporated by reference to the Company's Current Report on Form
8-K dated March 5, 1998)
3.1 Amended and Restated Articles of Incorporation of Bingham Financial Services Corporation
(incorporated by reference to the Company's registration Statement on Form S-1; File No.
333-34453)
3.2 Amended and Restated Bylaws of Bingham Financial Services Corporation (incorporated by
reference to the Company's registration Statement on Form S-1; File No. 333-34453)
4.1 Shareholders Agreement dated March 4, 1998 (incorporated by reference to the Company's Current
Report on Form 8-K dated March 5, 1998)
4.2 Bloomfield Shareholders Agreement dated March 5, 1998 (incorporated by reference to the
Company's Current Report on Form 8-K dated March 5, 1998)
10.1 Participants Support Agreement, by and between Bingham Financial Services Corporation and Sun
Communities, Inc. (assigned to Sun Communities Operating Limited Partnership as of December
31, 1997) entered into on September 30, 1997, but effective as of July 1, 1997 (incorporated
by reference to the Company's registration Statement on Form S-1; File No. 333-34453)
10.2 Administration Agreement, by and between Bingham Financial Services Corporation and Sun
Communities, Inc., dated July 1, 1997 (incorporated by reference to the Company's registration
Statement on Form S-1; File No. 333-34453)
10.3 Form of Indemnification Agreement (incorporated by reference to the Company's registration
Statement on Form S-1; File No. 333-34453)
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
DESCRIPTION
-----------
<S> <C>
10.4 Employment Agreement between the Company and William L. Mulvaney (incorporated by
reference to the Company's registration Statement on Form S-1; File No. 333-34453)
10.5 Employment Agreement dated as of March 4, 1998 by and between Bingham Financial Services
Corporation and Daniel E. Bober (incorporated by reference to the Company's Current Report on
Form 8-K dated March 5, 1998)
10.6 Employment Agreement dated as of March 4, 1998 by and between Bingham Financial Services
Corporation and Creighton J. Weber (incorporated by reference to the Company's Current Report
on Form 8-K dated March 5, 1998)
10.7 Subordinated Loan Agreement dated September 30, 1997 between Bingham Financial Services
Corporation and Sun Communities, Inc. (assigned to Sun Communities Operating Limited
Partnership as of December 31, 1997) (incorporated by reference to the Company's registration
Statement on Form S-1; File No. 333-34453)
10.8 Form of Line of Credit Promissory Note, dated September 30, 1997 between Bingham Financial
Corporation and Sun Communities, Inc. (assigned to Sun Communities Operating Limited
Partnership as of December 31, 1997) (incorporated by reference to the Company's registration
Statement on Form S-1; File No. 333-34453)
10.9 Form of Term Promissory Note, dated September 30, 1997 between Bingham Financial Corporation
and Sun Communities, Inc. (assigned to Sun Communities Operating Limited Partnership as of
December 31, 1997) (incorporated by reference to the Company's registration Statement on Form
S-1; File No. 333-34453)
10.10 Loan Agreement between Bingham Financial Services Corporation and Sun Communities Operating
Limited Partnership, dated March 1, 1998 (filed herewith)
10.11 Demand Promissory Note between Bingham Financial Services Corporation and Sun Communities
Operating Limited Partnership, dated March 1, 1998 (filed herewith)
10.12 Amended and Restated Master Repurchase Agreement dated October 5, 1998, by and among
Bloomfield Acceptance Company, L.L.C., MHFC, Inc. and Lehman Commercial Paper Inc. Omitted
from such exhibit, as filed, are the remaining exhibits referenced in such agreement. The
Registrant will furnish supplementally a copy of any such exhibits to the Commission upon
request. (filed herewith)
10.13 Bingham Financial Services Corporation 1997 Stock Option Plan (incorporated by reference to
the Company's registration Statement on Form S-1; File No. 333-34453)
10.14 Detachable Warrant Agreement, dated September 30, 1997 between Bingham Financial Services
Corporation and Sun Communities, Inc.
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
------
DESCRIPTION
-----------
<S> <C>
(assigned to Sun Communities Operating Limited Partnership as of December 31, 1997)
(incorporated by reference to the Company's registration Statement on Form S-1; File No.
333-34453)
10.15 Form of Detachable Warrant of Bingham Financial Corporation dated September 30, 1997
(incorporated by reference to the Company's registration Statement on Form S-1; File No.
333-34453)
10.16 Subservicer Agreement between Bingham Financial Services Corporation and St. James Servicing
Corporation, dated January 1, 1997 (incorporated by reference to the Company's registration
Statement on Form S-1; File No. 333-34453)
11 Calculation of Earnings Per Share (filed herewith)
21 List of Subsidiaries (filed herewith)
27 Financial Data Schedule (filed herewith)
</TABLE>
<PAGE> 1
EXHIBIT 10.10
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement") is made and entered into as of
March 1, 1998 by and between Sun Communities Operating Limited Partnership, a
Michigan limited partnership ("Lender"), whose address is 31700 Middlebelt Road,
Suite 145, Farmington Hills, Michigan 48334, and BINGHAM FINANCIAL SERVICES
CORPORATION, a Michigan corporation ("Borrower"), whose address is 31700
Middlebelt Road, Suite 125, Farmington Hills, Michigan 48334.
RECITAL:
A. Borrower has requested from Lender, and Lender has agreed to make
the loan described below (the "Loan") to Borrower, in accordance with the terms
and conditions set forth in this Agreement.
NOW, THEREFORE, the parties agree as follows:
1. LOAN. Lender will make the following Loan to Borrower:
<TABLE>
<CAPTION>
Type of Loan Interest Rate Note Amount Maturity
------------ ------------- ----------- --------
<S> <C> <C> <C>
Line of Credit 140 basis points $12,000,000 Demand
over LIBOR
</TABLE>
The Loan and any amendments, extensions, renewals, or refinancing thereof are
subject to this Agreement.
2. LINE OF CREDIT DEMAND LOAN. Provided that no Event of Default
exists and no Event of Default will be caused by any draw under the Loan, Lender
agrees to loan to Borrower, from time to time upon not less than fifteen (15)
days written notice to Lender, up to the aggregate principal amount of
$12,000,000 (the "Line of Credit Loan"), in increments at the discretion of
Lender. Lender's obligation to make any advance to Borrower under the Loan and
the Note shall automatically suspend upon any earlier occurrence of an Event of
Default unless and until waived by Lender in writing. Lender may, in its sole
discretion, refuse to make advances or readvances for any reason whatsoever.
3. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants to Lender, all of which representations and warranties shall be
continuing until the Loan is fully paid and Borrower's obligations under this
Agreement and the Related Documents are fully performed, as follows:
A. Borrower's Existence and Authority. Borrower is a Michigan
corporation, the person executing this Agreement has full power and
complete authority to execute this Agreement and all Related Documents,
and this Agreement and the Related Documents are valid, binding and
enforceable against Borrower.
B. Financial Information. All financial information provided to
Lender has been prepared and will continue to be prepared in accordance
with generally accepted accounting principles ("GAAP"), consistently
applied, and fully and fairly presents the financial condition of
Borrower as of the date or for the operating period thereof. There has
been no material adverse change in Borrower's business, property, or
financial condition since the date of Borrower's latest Financial
Statements provided to Lender.
<PAGE> 2
C. No Litigation/No Misrepresentations. There are no civil or
criminal proceedings pending before any court, government agency,
arbitration panel, or administrative tribunal or, to Borrower's
knowledge, threatened against Borrower, which may result in any
material adverse change in the business, property, or financial
condition of Borrower. All representations and warranties in this
Agreement and the Related Documents are true and correct and no
material fact has been omitted.
4. AFFIRMATIVE COVENANTS. As of the date of this Agreement and
continuing until all of Borrower's obligations under this Agreement and the
Related Documents are fully performed and until the Loan is fully repaid to
Lender, Borrower shall at all times comply with the following covenants:
A. Notice of Adverse Events. Borrower shall promptly notify
Lender in writing of any litigation, indictment, governmental
proceeding, default, or any other occurrence which may have a material
adverse effect on Borrower's business, property or financial condition.
B. Maintain Business Existence and Operations. Borrower shall
do all things necessary to keep in full force and effect Borrower's
corporate existence and continue its business as presently conducted.
C. General Compliance with Law. Borrower shall at all times
operate its business in strict compliance with all applicable Federal,
State, and local laws, ordinances and regulations, and refrain from
engaging in any civil or criminal activity proscribed by Federal, State
or local law.
5. EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an Event of Default under this Agreement:
A. Failure to Pay Amounts Due. Any principal or interest under
either of the Notes is not paid when due.
B. Insecurity. Lender deems itself insecure believing that the
prospect of payment of the Loan is impaired.
C. Misrepresentations; False Financial Information. Any
statement, warranty or representation of Borrower in connection with or
contained in this Agreement, the Related Documents, or any Financial
Statements now or hereafter furnished to Lender by or on behalf of
Borrower, is false or misleading.
D. Noncompliance with Loan Agreements. Borrower breaches any
covenant, term, condition or agreement stated in this Agreement or the
Related Documents.
E. Cessation/Termination of Existence. Borrower shall cease
doing business or Borrower's existence is terminated by sale,
dissolution, merger or otherwise.
F. Bankruptcy or Receivership. Any conveyance is made of
substantially all of Borrower's assets, any assignment is made for the
benefit of creditors, any receiver is appointed, or any insolvency,
liquidation or reorganization proceeding under the Bankruptcy Code or
otherwise shall be filed by or against Borrower.
G. Attachments; Tax Liens. Any attachment, execution, levy,
forfeiture, tax lien or similar writ or process is issued against any
property of Borrower.
-2-
<PAGE> 3
H. Material Adverse Change. Any material adverse change occurs
or is imminent the effect of which would be to substantially diminish
Borrower's financial condition, business, or the ability to perform its
agreements with Lender.
I. Other Lender Default. Any other indebtedness to Lender or
any other creditor (including, without limitation, Financial
Institutions (as defined below)) becomes due and remains unpaid after
acceleration of the maturity or after the stated maturity.
6. REMEDIES ON DEFAULT.
A. Acceleration Set-Off. Upon the occurrence of any Event of
Default, Lender may, at Lender's option, declare the Loan to be
immediately due and payable. The foregoing shall not in any way impair
Lender's right to demand repayment under the terms of the Note.
B. Remedies; No Waiver. The remedies provided in this Agreement
are cumulative and not exclusive, and Lender may exercise any remedies
available to it at law, in equity, and as are provided in this
Agreement, and any other written agreement between Borrower and Lender.
No delay or failure of Lender in exercising any right, remedy, power,
or privilege under this Agreement or the Related Documents shall affect
that right, remedy, power or privilege, nor shall any single or partial
exercise preclude the exercise of any other right, remedy, power or
privilege. No delay or failure of Lender to demand strict adherence to
the terms of this Agreement or the Related Documents shall be deemed to
constitute a course of conduct inconsistent with Lender's right at any
time, before or after any Event of Default, to prospectively demand
strict adherence to the terms of this Agreement and the Related
Documents.
7. MISCELLANEOUS.
A. Compliance with Lender Agreements. Borrower acknowledges
that Borrower has read and understands this Agreement, the Related
Documents, and all other written agreements between Borrower and
Lender, and Borrower agrees to fully comply with all of the agreements.
B. Further Action. Borrower agrees, from time to time, upon
Lender's request to make, execute, acknowledge, and deliver to Lender,
such further and additional instruments, documents, and agreements, and
to take such further action as may be required to carry out the intent
and purpose of this Agreement and prompt repayment of the Loan.
C. Governing Law/Partial Illegality. This Agreement and the
Related Documents shall be interpreted and the rights of the parties
determined under the laws of the State of Michigan. Should any part,
term, or provision of this Agreement be adjudged illegal or in conflict
with any law of the United States of America or State of Michigan, the
validity of the remaining portion or provisions of the Agreement shall
not be affected.
D. Writings Constitute Entire Agreement; Modifications Only in
Writing. This Agreement together with all other written agreements
between Borrower and Lender, including, without limitation, the Related
Documents, constitute the entire agreement of the parties and there are
no other agreements, express or implied. None of the parties shall be
bound by anything not expressed in writing, and neither this Agreement
nor the Related Documents can be modified except by a writing executed
by Borrower and by Lender. This Agreement shall inure to the benefit of
and shall be
-3-
<PAGE> 4
binding upon all of the parties to this Agreement and their respective
successors and assigns; provided however, that Borrower cannot assign
or transfer its rights or obligations under this Agreement without
Lender's prior written consent.
E. Headings. All section and paragraph headings in this
Agreement are included for reference only and do not constitute a part
of this Agreement.
F. Term of Agreement. This Agreement shall continue in full
force and effect until all of Borrower's obligations to Lender are
fully satisfied and the Loan is fully repaid.
8. DEFINITIONS. The following words shall have the following meanings
in this Agreement:
A. "Event of Default" shall mean any of the events described in
Section 5 of this Agreement or in the Related Documents.
B. "Financial Institution" shall mean any bank as defined in
section 3(a)(2) of the Securities Act of 1933, as amended (the "Act"),
savings and loan association or other institution as defined in section
3(a)(5) (A) of the Act, insurance company as defined in section 2(13)
of the Act, or investment banking firm.
C. "Financial Statements" shall mean all balance sheets, income
statements, and other financial information which have been, are now,
or in the future are furnished to Lender.
D. "LIBOR" shall mean the rate as quoted by the Dow Jones
Telerate System "LIBO Page" report of such interest rates as determined
by Reuter's News Service.
E. "Note" shall mean that certain $12,000,000 demand promissory
note from Borrower to Lender, in the form attached hereto as Exhibit A.
F. "Related Documents" shall mean any and all documents,
promissory notes, and agreements executed in connection with this
Agreement. The term shall include documents existing before, at the
time of execution of, and documents executed concurrent with or after
the date of, this Agreement.
[The remainder of this page intentionally left blank.]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Loan Agreement as of
the date first written above.
BORROWER:
BINGHAM FINANCIAL SERVICES CORPORATION, a Michigan
corporation
By: /s/ Jeffrey P. Jorissen
--------------------------------------------
Jeffrey P. Jorissen
Its: President, Chief Executive Officer and Chief
Financial Officer
LENDER:
SUN COMMUNITIES OPERATING LIMITED PARTNERSHIP, a
Michigan limited partnership
By: Sun Communities, Inc., a Maryland
corporation
Its: General Partner
By: /s/ Gary A.Shiffman
--------------------------------------------
Gary A. Shiffman
Its: President
<PAGE> 1
EXHIBIT 10.11
DEMAND PROMISSORY NOTE
$12,000,000.00 DETROIT, MICHIGAN
DATED: AS OF MARCH 1, 1998
FOR VALUE RECEIVED, BINGHAM FINANCIAL SERVICES CORPORATION, a Michigan
corporation ("Borrower"), promises to pay ON DEMAND to the order of Sun
Communities Operating Limited Partnership, a Michigan limited partnership
("Lender"), at 31700 Middlebelt Road, Suite 145, Farmington Hills, Michigan
48334, or at such other place as Lender may designate in writing, the principal
sum of TWELVE MILLION AND NO/100 DOLLARS ($12,000,000.00) or such lesser sum as
shall have been advanced by Lender to Borrower under the loan account
hereinafter described, plus interest as hereinafter provided, all in lawful
money of the United States of America, in accordance with the terms hereof. This
Note is subject to the terms of that certain Loan Agreement between Borrower and
Lender of even date herewith (the "Agreement"), the terms of which are
incorporated herein by reference.
Lender will loan to Borrower, upon not less than fifteen (15) days
written notice to Lender, up to the aggregate principal amount of
$12,000,000.00, in increments at the discretion of Lender, provided, however,
that the aggregate principal outstanding at any time does not exceed
$12,000,000.00. All advances made hereunder shall be charged to a loan account
in Borrower's name on Lender's books, and Lender shall debit to such account the
amount of each advance made to, and credit to such account the amount of each
repayment made by Borrower. From time to time but not less than quarterly,
Lender shall furnish Borrower a statement of Borrower's loan account, which
statement shall be deemed to be correct, accepted by, and binding upon Borrower,
unless Lender receives a written statement of exceptions from Borrower within
ten (10) days after such statement has been furnished.
The unpaid principal balance of this promissory note ("Note") shall
bear interest, computed at a rate equal to "LIBOR" as quoted by the Dow Jones
Telerate System "LIBO Page" report of such interest rates as determined by
Reuter's News Service, or (in the sole discretion of the Lender) as quoted in
the Wall Street Journal, as of one business day before the date of this Note,
plus one hundred forty (140) basis points (the "Rate") (which Rate shall be
adjusted for purposes of this Note every six (6) months from the date hereof to
be equal to "LIBOR" as quoted by the Dow Jones Telerate System "LIBO Page"
report of such interest rates as determined by Reuter's News Service, or (in the
sole discretion of the Holder) as quoted in the Wall Street Journal, as of the
business day preceding the date of such adjustment, plus one hundred forty (140)
basis points), in lawful money of the United States of America, in the manner
provided below. On demand, the entire unpaid principal balance of this Note,
together with all accrued and unpaid interest, shall be due and payable in full
within ten (10) days after the date of the demand.
Advances of principal, repayment and readvances may be made under this
Note from time to time but Lender, in its sole discretion, may refuse to make
advances or readvances hereunder for any reason whatsoever. All payments
received hereunder shall, at the option of Lender, first be applied against
accrued and unpaid interest and the balance against principal. Borrower
expressly assumes all risks of loss or delay in the delivery of any payments
made by mail, and no course of conduct or dealing shall affect Borrower's
assumption of these risks.
Upon the occurrence of an Event of Default, as defined in the
Agreement, the entire unpaid principal balance and all accrued and unpaid
interest owing under this Note shall be immediately due and payable, together
with costs and attorneys fees reasonably incurred by Lender in collecting or
enforcing payment. Borrower acknowledges and agrees that the Lender has the
right to demand repayment of the entire balance of this Note, in its sole and
absolute discretion, whether or not an Event of Default has occurred.
<PAGE> 2
Upon the occurrence and during the continuance of an Event of Default
under this Note, the outstanding principal amount hereof shall bear interest at
a rate which is three percent (3.0%) per annum greater than the Rate otherwise
applicable.
Acceptance by Lender of any payment in an amount less than the amount
then due shall be deemed an acceptance on account only, and Borrower's failure
to pay the entire amount then due shall be and continue to be a default. Upon
the occurrence of any Event of Default, neither the failure of Lender promptly
to exercise its right to declare the outstanding principal and accrued unpaid
interest hereunder to be immediately due and payable, nor the failure of Lender
to demand strict performance of any other obligation of Borrower or any other
person who may be liable hereunder, shall constitute a waiver of any such
rights, nor a waiver of such rights in connection with any future default on the
part of Borrower or any other person who may be liable hereunder.
Borrower and all endorsees, sureties and guarantors hereof hereby
jointly and severally waive presentment for payment, demand, notice of
non-payment, notice of protest or protest of this Note, and Lender diligence in
collection or bringing suit, and do hereby consent to any and all extensions of
time, renewals, waivers or modifications as may be granted by Lender with
respect to payment or any other provisions of this Note. The liability of
Borrower under this Note shall be absolute and unconditional, without regard to
the liability of any other party.
Notwithstanding anything herein to the contrary, in no event shall
Borrower be required to pay a rate of interest in excess of the Maximum Rate.
The term "Maximum Rate" shall mean the maximum non-usurious rate of interest
that Lender is allowed to contract for, charge, take, reserve or receive under
the applicable laws of any applicable state or of the United States of America
(whichever from time to time permits the highest rate for the use, forbearance
or detention of money) after taking into account, to the extent required by
applicable law, any and all relevant payments or charges hereunder, or under any
other document or instrument executed and delivered in connection herewith and
the indebtedness evidenced hereby.
In the event Lender ever receives, as interest, any amount in excess of
the Maximum Rate, such amount as would be excessive interest shall be deemed a
partial prepayment of principal, and, if the principal hereof is paid in full,
any remaining excess shall be returned to Borrower. In determining whether or
not the interest paid or payable, under any specified contingency, exceeds the
Maximum Rate, Borrower and Lender shall, to the maximum extent permitted by law,
(a) characterize any non-principal payment as an expense, fee, or premium rather
than as interest; (b) exclude voluntary prepayments and the effects thereof; and
(c) amortize, prorate, allocate and spread the total amount of interest through
the entire contemplated term of such indebtedness until payment in full of the
principal (including the period of any extension or renewal thereof) so that the
interest on account of such indebtedness shall not exceed the Maximum Rate.
[The remainder of this page intentionally left blank.]
-2-
<PAGE> 3
This Note shall be binding upon Borrower and its successors and
assigns, and the benefits hereof shall inure to Lender and its successors and
assigns. This Note has been executed in the State of Michigan, and all rights
and obligations hereunder shall be governed by the laws of the State of
Michigan.
BORROWER:
BINGHAM FINANCIAL SERVICES
CORPORATION, a Michigan corporation
By: /s/ Jeffrey P. Jorissen
--------------------------------------------
Jeffrey P. Jorissen
Its: President, Chief Executive Officer and
Chief Financial Officer
-3-
<PAGE> 1
EXHIBIT 10.12
AMENDED AND RESTATED
MASTER REPURCHASE AGREEMENT
DATED AS OF SEPTEMBER 30, 1998
AMONG
LEHMAN COMMERCIAL PAPER INC.,
AS BUYER
AND
BLOOMFIELD ACCEPTANCE COMPANY, L.L.C.,
AS SELLER
AND
MHFC, INC.
AS SELLER
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. APPLICABILITY.................................................................................................1
2. DEFINITIONS...................................................................................................1
3. CONDITIONS PRECEDENT; INITIATION; CONFIRMATION; TERMINATION; MAXIMUM TRANSACTION AMOUNTS; FEES...............24
4. COLLATERAL MAINTENANCE AMOUNT................................................................................30
5. INCOME PAYMENTS..............................................................................................31
6. SECURITY INTEREST............................................................................................32
7. PAYMENT, TRANSFER AND CUSTODY................................................................................33
8. REHYPOTHECATION OR PLEDGE OF PURCHASED LOANS.................................................................34
9. SUBSTITUTION.................................................................................................35
10. REPRESENTATIONS AND WARRANTIES..............................................................................35
11. NEGATIVE COVENANTS OF THE SELLERS...........................................................................44
12. AFFIRMATIVE COVENANTS OF THE SELLERS........................................................................46
13. EVENTS OF DEFAULT...........................................................................................50
14. REMEDIES....................................................................................................53
15. DUE DILIGENCE...............................................................................................56
16. SINGLE AGREEMENT............................................................................................57
17. NOTICES AND OTHER COMMUNICATIONS............................................................................57
18. ENTIRE AGREEMENT; SEVERABILITY..............................................................................58
19. NON-ASSIGNABILITY...........................................................................................58
20. TERMINABILITY...............................................................................................58
21. GOVERNING LAW...............................................................................................58
</TABLE>
ii
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
22. CONSENT TO JURISDICTION.....................................................................................58
23. NO WAIVERS, ETC.............................................................................................59
24. INTENT......................................................................................................59
25. SERVICING...................................................................................................59
26. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS..........................................................60
27. NETTING.....................................................................................................61
28. INDEMNIFICATION.............................................................................................61
29. ESTABLISHMENT OF COLLECTION ACCOUNT.........................................................................62
30. CONFIDENTIALITY OF AGREEMENT................................................................................64
31. MISCELLANEOUS...............................................................................................64
</TABLE>
iii
<PAGE> 4
EXHIBITS
--------
<TABLE>
<CAPTION>
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EXHIBIT I Specific Loan Program Terms and Provisions
Part 1 Fees Payable by Sellers
Part 2 Applicable Purchase Price Percentages, Applicable Collateral Maintenance
Percentages and Pricing Spreads
Part 3 Limitations by Loan Type
Part 4 Allowable Extra Costs
EXHIBIT II Specific Representations and Warranties by Loan Type
Part 1 Representations and Warranties Regarding Mortgage Loans
Part 2 Representations and Warranties Regarding Credit Leases
Part 3 Representations and Warranties Regarding MH Loans
Part 4 Representations and Warranties Regarding Floorplan Loans
EXHIBIT III Seller's Underwriting Guidelines
Part 1 Mortgage Loans
Part 2 MH Loans
Part 3 Floorplan Loans
EXHIBIT IV Loan Eligibility Requirements
Part 1 Conduit Mortgage Loans and Credit Lease Mortgage Loans
Part 2 Interim Mortgage Loans
Part 3 Bridge Mortgage Loans
Part 4 MH Loans
Part 5 Floorplan Loans
EXHIBIT V List of Sellers' Loan Documents
Part 1 Mortgage Loans
Part 2 MH Loans
Part 3 Floorplan Loans
</TABLE>
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AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT
This is an AMENDED AND RESTATED MASTER REPURCHASE AGREEMENT dated
as of September 30, 1998, between LEHMAN COMMERCIAL PAPER INC. (the "Buyer");
BLOOMFIELD ACCEPTANCE COMPANY, L.L.C. ("BAC"); and MHFC, Inc. ("MHFC",
collectively, with BAC, "Sellers", and each individually a "Seller"), amending
and restating the Master Repurchase Agreement Governing Purchases and Sales of
Mortgage Loans, dated as of March 19, 1998, between Buyer and BAC (the "Original
Agreement").
Whereas, the Buyer and BAC desire to amend and restate the
Original Agreement, which governed Credit Lease Mortgage Loans and Conduit
Mortgage Loans, to provide terms and conditions under which the Buyer is
additionally prepared to purchase (i) Bridge Mortgage Loans, Interim Mortgage
Loans, and Floorplan Loans from BAC, each as defined herein, and (ii) MH Loans,
as defined herein, from MHFC, an Affiliate of BAC;
NOW, THEREFORE, for good and valuable consideration the receipt
and sufficiency of which is hereby acknowledged, the Original Agreement is
hereby amended and restated in its entirety to read as follows, adding MHFC as
party hereto:
1. APPLICABILITY
From time to time, until the Final Repurchase Date applicable to
each type of Loan (as hereinafter defined), the Buyer agrees, subject to the
terms and conditions hereof, to enter into transactions upon the request of a
Seller in which such Seller agrees to transfer to Buyer certain Loans against
the transfer of funds by Buyer, with a simultaneous agreement by Buyer to
transfer to such Seller such Loans at a date specified in the Confirmation,
against the transfer of funds by Buyer. Each such transaction shall be referred
to herein as a "Transaction" and shall be governed by this Agreement and the
related Confirmation, unless otherwise agreed in writing. Buyer shall have the
option, upon the completion of a Transaction and receipt of a Request for
Purchase, to enter into additional Transactions with respect to the related
Loans provided that the maximum aggregate term of any Loan subject to
Transactions shall not exceed the respective Maximum Aggregate Term applicable
to those Loans. Notwithstanding anything in this Agreement to the contrary,
Buyer shall have no obligation to enter into any Transaction hereunder if there
shall have occurred any material adverse change, as determined by Buyer in its
reasonable good faith judgment, in the financial condition of either Seller, the
financial markets generally or the secondary market for Loans. Buyer shall
promptly notify Sellers of any determination by Buyer that any of the foregoing
has occurred. All obligations of either Seller under all Transactions shall be
full recourse to both Sellers.
2. DEFINITIONS
When used in this Agreement, the following capitalized terms have the
meanings given to them in this Section.
"Accepted Servicing Practices" means with respect to any Loan,
those loan servicing practices of prudent lending institutions which service
loans of the same type as such Loan in the jurisdiction where the related
Underlying Asset is located with a view to the
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maximization of timely recovery of principal and interest on such Loan, but
without regard to: (1) any relationship that a Servicer or any Affiliate of a
Servicer has with a Seller or an Affiliate of a Seller; (2) a Servicer's or any
subservicer's obligation to advance expenses with respect to the Loan; (3) a
Servicer's or subservicer's right to receive compensation for its services; or
(4) the ownership, management or servicing for others by a Servicer or
subservicer of any other loans or property.
"Act of Insolvency" means, with respect to any party and its
Affiliates, (i) the filing of a petition, commencing, or authorizing the
commencement of any case or proceeding under any bankruptcy, insolvency,
reorganization, liquidation, dissolution or similar law relating to the
protection of creditors of such party or its Affiliates, or suffering any such
petition or proceeding to be commenced by another which is consented to, not
timely contested or results in entry of an order for relief; (ii) the seeking
the appointment of a receiver, trustee, custodian or similar official for such
party or an Affiliate or any substantial part of the property of either, (iii)
the involuntary appointment of a receiver, conservator, or manager for such
party or an Affiliate by any governmental agency or authority having the
jurisdiction to do so, and that appointment shall not have been dismissed or
stayed within 30 days after its occurrence; (iv) the making or offering by such
party or an Affiliate of a composition with its creditors or a general
assignment for the benefit of creditors, (v) the admission by such party or an
Affiliate of such party of its inability to pay its debts or discharge its
obligations as they become due or mature; or (vi) that any governmental
authority or agency or any person, agency or entity acting or purporting to act
under governmental authority shall have taken any action to condemn, seize or
appropriate, or to assume custody or control of, all or any substantial part of
the property of such party or of any of its Affiliates, or shall have taken any
action to displace the management of such party or of any of its Affiliates or
to curtail its authority in the conduct of the business of such party or of any
of its Affiliates, and that action shall not have been dismissed or stayed
within 30 days after its initiation.
"Additional Costs" has the meaning specified in Section 3(h)
hereof.
"Additional Loans" means Eligible Loans or cash provided by a
Seller to Buyer or its designee pursuant to Section 4(a) hereof.
"Add-ons" means, (A) with respect to new Manufactured Homes,
Dealer-installed equipment, attachments, improvements and related out-buildings
or (B) with respect to Pre-owned Manufactured Homes, existing Dealer-installed
equipment, in each case not to exceed the lesser of (i) actual cost or (ii) 25%
of the lesser of NADA Retail Value or the retail sales price of the Manufactured
Home, the aggregate value of which is consolidated into the principal
outstanding balance of the MH Paper.
"Administration Fee" means a fee on certain types of Loans,
payable by a Seller on or before the initial Purchase Date for such Loan as set
forth in Exhibit I, Part 1 to this Agreement, as may be amended from time to
time upon agreement of the parties hereto.
"Adverse Claim" means any claim of ownership or any lien, or any
rights that under the law could give rise to such liens (including mechanics or
similar liens or claims which have been filed for work, labor or materials
affecting the Manufactured Home securing the MH Loan), security interest, title
retention, trust or other charge or encumbrance, equity, loan, pledge,
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claim, or other type of preferential arrangement having the effect or purpose of
creating a lien or security interest, other than the security interest created
under this Agreement.
"Affiliate" means, with respect to any Person, another Person that
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
means possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Agreement" means this Amended and Restated Master Repurchase
Agreement among Buyer and Sellers, as amended from time to time.
"ALTA" means the American Land Title Association.
"Applicable Collateral Maintenance Percentage" means the fraction,
expressed as a percentage, the numerator of which is 1, and the denominator of
which is the Applicable Purchase Price Percentage for a given Loan as set forth
in Exhibit I, Part 2 to this Agreement, as may be amended from time to time upon
agreement of the parties hereto. The Applicable Collateral Maintenance
Percentage is multiplied by the Repurchase Price to determine the minimum
Collateral Maintenance Amount, for purposes of determining if a Collateral
Deficit exists for any Transaction.
"Applicable Purchase Price Percentage" has the meaning set forth
in Exhibit I, Part 2 to this Agreement, as may be amended from time to time upon
agreement of the parties hereto.
"Appraised Value" means, (A) with respect to a Mortgage Loan, the
reconciled value of the Mortgaged Property as set forth in the appraisal
prepared in accordance with the Underwriting Guidelines made in connection with
the origination of the related Mortgage Loan; (B) with respect to an MH Loan
secured by a Manufactured Home (i) that was not a Pre-owned Manufactured Home at
the time that the MH Loan was originated, the retail purchase price of the
Manufactured Home, including any Add-ons, (plus, with respect to a Land-and-Home
Loan, the Appraised Value of the Mortgaged Property as determined in accordance
with (A) hereof), or (ii) that was a Pre-owned Manufactured Home at the time the
related MH Loan was originated, the lesser of (i) the total delivered sales
price of the Manufactured Home (except for refinancings), (ii) the acceptable
appraised value determined by an appraisal prepared in accordance with the
Underwriting Guidelines or (iii) the estimate of value determined in accordance
with the NADA Retail Value (plus, with respect to a Land-and-Home Loan, the
Appraised Value of the Mortgaged Property as determined in accordance with (A)
hereof); and (C) with respect to a Floorplan Loan secured by a Manufactured Home
(i) that was not a Pre-owned Manufactured Home at the time the related Floorplan
Loan was originated (or subject to a subsequent Transaction), the manufacturer's
invoice (to the Dealer from the manufacturer) or (ii) that was a Pre-owned
Manufactured Home at the time the related Floorplan Loan was originated (or
subject to a subsequent Transaction), the lesser of the NADA Wholesale Value or
the price paid by the Dealer for such Manufactured Home (including, in both
cases, Add-ons added by Dealer subsequent to Dealer's acquisition of the
Manufactured Home).
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"APR" or "Annual Percentage Rate" means the interest cost of the
loan, i.e. the finance charge, expressed as a percentage rate, which rate is
obtained from computations required by Regulation Z.
"Asset Value Net Worth" means (x) the aggregate sum of the
products of the Book Values for each of the following asset types multiplied by
(y) the percentages indicated below with respect to each asset type:
<TABLE>
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Asset Type % of Book Value
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<S> <C>
Conduit Mortgage Loans - Performing 10.0%
Credit Lease Mortgage Loans - Performing 10.0%
Interim Mortgage Loans - Performing 20.0%
Bridge Mortgage Loans - Performing 35.0%
MH Loans - Performing 17.5%
Floorplan Loans - Performing 20.0%
Residential Mortgage Loans - Performing 8.0%
Mortgage Loans - Non-Performing 50.0%
Residential Mortgage Loans - Non-Performing 50.0%
MH Paper - Non-Performing 50.0%
Cash and Cash Equivalents (as defined herein) 0.0%
Property and Equipment 50.0%
Accounts Receivable - Net 15.0%
Retained Interests in Securitizations-Commercial 25.0%
Retained Interests in Securitizations-Residential and MH Paper 25.0%
Corporate Loans 50.0%
Investments in Marketable Securities (as defined herein) 50.0%
All Other Assets 100.0%
</TABLE>
"Assignment and Conveyance" means an assignment of right, title
and interest in either a Mortgage Loan, a Floorplan Loan, or a pool of MH Loans,
substantially in the form of Exhibit 13 to the Custodial Agreement.
"Assignment of Consignment Agreement" means an assignment from
Seller to Buyer of a Consignment Agreement, in form and substance acceptable to
Buyer.
"Assignment of Mortgage" means, with respect to any Mortgage, an
assignment of the mortgage, notice of transfer or equivalent instrument in
recordable form, sufficient under the laws of the jurisdiction wherein the
related property is located to reflect the assignment and pledge of the
Mortgage.
"Back-up Servicer" means Hatfield Philips Inc. or such other
entity designated by Buyer from time to time.
"Back-up Servicing Agreement" means back-up servicing agreements,
in form and substance satisfactory to Buyer, executed by the Back-up Servicer,
the Buyer and each Seller,
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as such agreements may be amended, supplemented or otherwise modified from time
to time, providing for the assumption of servicing by the Back-up Servicer upon
the Buyer's request.
"Blanket Fidelity Bond and Errors and Omissions Insurance" means
blanket fidelity bond and errors and omissions insurance, both with broad
coverage with insurance companies acceptable to the Buyer, on all officers,
employees or other persons acting in any capacity with regard to the Loans to
handle funds, money, documents and papers or provide professional services
relating to the Loans. Blanket Fidelity Bond and Errors and Omissions Insurance
coverage shall protect and insure the Sellers and all Servicers against losses,
including forgery, theft, embezzlement, fraud, errors and omissions and
negligent acts of such persons, and coverage shall be in an amount that is
customary for servicers that service a portfolio of comparable Loans and that
are generally acceptable as servicers to institutional investors, but the scope
of coverage, amounts and terms shall be at least equal to the FNMA Guidelines
for multifamily mortgage loans, as amended from time to time.
"Blocked Account" has the meaning specified in Section 29 hereof.
"Blocked Account Agreement" means (i) that certain Amended and
Restated Blocked Account Agreement, dated as of September 30, 1998, among Buyer,
NBD Bank and its successors and assigns as Lockbox Bank, BAC and Bloomfield
Servicing, as Servicer, as the same may be amended, supplemented or otherwise
modified from time to time, or (ii) that certain Blocked Account Agreement,
dated as of September 30, 1998, among Buyer, NBD Bank and its successors and
assigns as Lockbox Bank, MHFC and St. James Servicing as Servicer, as the same
may be amended, supplemented or otherwise modified from time to time, or such
other Blocked Account Agreements that may be entered from time to time, in which
the respective Lockbox Bank acknowledges the Buyer's lien on the Blocked
Account, and agrees that the Lockbox Bank shall only withdraw and allow
withdrawal of funds from the Blocked Accounts on instruction from the Buyer.
"Bloomfield Blocked Account" has the meaning specified in Section
29(a).
"Bloomfield Servicing" means Bloomfield Servicing Company, L.L.C.
"Book Value" means the net value of the related balance sheet
accounts in accordance with GAAP.
"Breach", as that term relates to any representation, warranty or
covenant in this Agreement, means that such representation or warranty was
incorrect or untrue in any material respect when made or repeated or deemed to
have been made or repeated, or either Seller has failed to comply with a
covenant, and which condition (i.e., untruth or incorrectness or failure to
comply) has a Material Adverse Effect.
"Breakage Costs" has the meaning specified in Section 3(j)(3)
hereof.
"Bridge Mortgage Loan" means a Mortgage Loan which satisfies the
Loan Eligibility Requirements for Bridge Mortgage Loans set forth in Exhibit IV,
Part 3 to this Agreement, as may be amended from time to time upon agreement of
the parties hereto.
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"Business Day" means a day other than (i) a Saturday or Sunday, or
(ii) a day in which the Buyer or the New York Stock Exchange is authorized or
obligated by law or executive order to be closed.
"Buyer" means Lehman Commercial Paper Inc. and its successors and
assigns.
"Buyer's LTV" means the effective loan-to-value to Buyer
(expressed as a percentage) attributable to the Purchase Price for a Bridge
Mortgage Loan (calculated as the Purchase Price for the related Bridge Mortgage
Loan divided by the market value of the related Mortgaged Property, as
determined in good faith by Buyer in its sole discretion, based upon its due
diligence review), which shall equal one of the Pricing Rate selections
reflected for Bridge Mortgage Loans in Exhibit I, Part 2 to this Agreement, as
may be amended from time to time upon agreement of the parties hereto, and which
shall be chosen by Seller in connection with the fixing of the Pricing Spread.
"Buyer's Underwriter" means Hatfield Philips Inc. or such other
entity designated by Buyer from time to time.
"Capital Lease Obligations" means, for any Person, all obligations
of such Person to pay rent or other amounts under a lease of (or other agreement
conveying the right to use) Property to the extent such obligations are required
to be classified and accounted for as a capital lease on a balance sheet of such
Person under GAAP, and, for purposes of this Agreement, the amount of such
obligations shall be the capitalized amount thereof, determined in accordance
with GAAP.
"Cash Equivalents" means (i) direct obligations of, and
obligations fully guaranteed as to the full and timely payment of principal and
interest by, the U.S. government or any agency or instrumentality thereof, (ii)
demand deposits, time deposits, bankers' acceptances, repurchase agreements, or
certificates of deposit of depository institutions or trust companies
incorporated under the laws of the U.S. or any state of the U.S. and insured by
the FDIC and which have the highest rating from Standard & Poor's and/or
Moody's, (iii) commercial paper which has an A-1+ or P-1+ rating and (iv) money
market funds or money market savings accounts, which have the highest rating
from Standard & Poor's and Moody's.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" has the meaning specified in Section 6 hereof.
"Collateral Deficit" means either a Market Value Collateral
Deficit or a Securitization Value Collateral Deficit.
"Collateral Information" means, with respect to each Loan, that
information set forth in Exhibits 6-1, 6-2 and 6-3 of the Custodial Agreement,
or as otherwise approved by Buyer, which information is set forth on a Loan
Schedule provided by Seller to Buyer in paper and electronic form.
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"Collateral Maintenance Amount" means, with respect to any
Transaction, the amount obtained by multiplying (i) the Applicable Collateral
Maintenance Percentage, as set forth in Exhibit I, Part 2 to this Agreement, as
may be amended from time to time upon agreement of the parties hereto, by (ii)
the related Repurchase Price for such Transaction.
"Collections" means, with respect to any Loan, all cash
collections and other Proceeds of such Loan (including late charges, fees and
interest arising thereon and all recoveries with respect to Loans that have been
written off as uncollectible.
"Commitment Fee" means the fee or fees by type of Loan, paid or to
be paid, as provided in Exhibit I, Part 1 to this Agreement, as may be amended
from time to time upon agreement of the parties hereto.
"Commonly Controlled Entity" means an entity, whether or not
incorporated, which is under common control with a Seller within the meaning of
Section 4001 of ERISA or is part of a group which includes a Seller and which is
treated as a single employer under Section 414 of the Code.
"Conduit Mortgage Loan" means a Mortgage Loan which satisfies the
Loan Eligibility Requirements set forth in Exhibit IV, Part 1 to this Agreement,
as may be amended from time to time upon agreement of the parties hereto, but
which is not backed by a Credit Lease.
"Confirmation" has the meaning specified in Section 3(e) hereof.
"Consignment Agreement" means the consignment agreement between a
Dealer and a consignee in which Dealer consigns Manufactured Home inventory to
the consignee, which agreement is in form and substance acceptable to Buyer, in
its sole discretion.
"Credit Lease" means a bond type triple net lease to a Credit
Tenant which occupies 100% of the related Mortgaged Property.
"Credit Lease Mortgage Loan" means a Mortgage Loan secured by a
Mortgage backed by a Credit Lease, which satisfies the Loan Eligibility
Requirements set forth in Exhibit IV, Part 1 to this Agreement, as may be
amended from time to time upon agreement of the parties hereto.
"Credit Tenant" means a tenant rated at least Baa3 by Moody's and
BBB- by Standard & Poor's, approved by Buyer, under a Credit Lease.
"Curtailment" means the required periodic repayment, every 90
days, of at least 10% of the outstanding principal balance on the loan amount
advanced to a Dealer by a Seller (or such other periodic payment as may be
approved by Buyer, in its sole discretion) with respect to each Manufactured
Home securing each Floorplan Loan subject to a Transaction as of that date.
"Custodial Agreement" means the Amended and Restated Custodial
Agreement, dated as of the date hereof, by and among Buyer, Sellers and the
Custodian, as amended from time to time.
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"Custodial Delivery" means the form, executed by a Seller and
delivered with the Loan Schedule and the Loan File to Buyer or its designee
(including the Custodian) pursuant to Section 7 hereof, in the form of Exhibit
7-1 to the Custodial Agreement for BAC and Exhibit 7-2 to the Custodial
Agreement for MHFC, as such forms may be amended from time to time.
"Custodian" means the custodian under the Custodial Agreement. The
initial custodian is LaSalle National Bank.
"Dealer" means a dealer in Manufactured Homes held for sale to
third-parties, which Dealer is the Obligor on a Dealer Note secured by such
Manufactured Homes.
"Dealer Financing Agreement" means the agreement between Seller
and a Dealer that provides for the financing of a Floorplan Loan.
"Dealer Note" means, with respect to a Floorplan Loan, the note
executed by the Dealer evidencing indebtedness in connection with the purchase
of Manufactured Homes for inventory pursuant to a Dealer Financing Agreement.
There shall be one Dealer Note for each Floorplan Loan, regardless of the number
of Manufactured Homes financed.
"Default" means an event that with notice or lapse of time or both
would become an Event of Default.
"Delinquent" means, with respect to any Eligible Loan, the period
of time from the date on which an Obligor fails to pay an obligation under the
terms of such Eligible Loan (without regard to any applicable grace periods) to
the date on which such payment is made.
"Delinquent MH Loan" means an MH Loan that is more than 29 days
Delinquent but less than 60 days Delinquent.
"Designated Fax Distributor" means the Person designated to
receive and distribute faxes from the Settlement Agent, which shall initially be
Simpson Zelenock, a professional corporation of attorneys, located at 260 East
Brown Street, Suite 300, Birmingham, Michigan 48009-6232.
"Distribution Worksheet" means the monthly worksheet prepared by a
Seller or a Servicer of the Loans and delivered to Buyer which sets forth the
servicing activities for the prior calendar month and the resulting deposits in,
and requested distributions from, a Blocked Account related thereto, in form and
substance satisfactory to Buyer.
"DSCR" shall mean the quotient obtained by dividing (x) Obligor's
consolidated after-tax net operating income, exclusive of extraordinary gains
and losses, interest expense, depreciation and amortization to the extent
included in the calculation of net operating income by (y) debt service (i.e.,
payments of interest and principal scheduled and required under borrowing
facilities) on Indebtedness (excluding balloon loan maturity payments).
"Due Date" means the day of the month on which the Monthly Payment
is due on a Loan, exclusive of any days of grace.
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"Eligible Floorplan Loan" means a Floorplan Loan which conforms to
the Floorplan Loan Eligibility Requirements individually and which, when added
to the aggregate Eligible Floorplan Loans purchased hereunder does not cause
such Eligible Floorplan Loans, as a whole, to fail to conform to the Floorplan
Loan Eligibility Requirements.
"Eligible Loans" means, Eligible Mortgage Loans, Eligible MH
Loans, Eligible Floorplan Loans and any other type of Loans that may be
subsequently added to this Agreement by the mutual written agreement of Buyer
and the applicable Seller.
"Eligible MH Loan" means an MH Loan which conforms to the MH Loan
Eligibility Requirements individually and which, when added to the aggregate
Eligible MH Loans purchased hereunder does not cause such Eligible MH Loans, as
a whole, to fail to conform to the MH Loan Eligibility Requirements.
"Eligible Mortgage Loan" means a Mortgage Loan which conforms to
the Loan Eligibility Requirements for Mortgage Loans, individually, and which,
when added to the aggregate Eligible Mortgage Loans purchased hereunder does not
cause such Eligible Mortgage Loans, as a whole, to fail to conform to the Loan
Eligibility Requirements for Mortgage Loans.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Escrow Account" means an account established for receipt of
Escrow Payments, which account is subject to a Blocked Account Agreement.
"Escrow Instructions" means the escrow instructions approved by
Buyer.
"Escrow Payments" means with respect to any Loan, the amounts
constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, mortgage insurance premiums, fire and hazard insurance
premiums, condominium charges, and any other payments required to be escrowed by
the Obligor with the obligee pursuant to a Mortgage or any other document.
"Event of Default" has the meaning specified in Section 13 hereof.
"Executive Bonus Plan" has the meaning set forth in the definition
of Restricted Payment.
"Exit Fee" has the meaning provided in Section 3(j)(4) hereof.
"Extra Costs" means the set-up costs, delivery costs, title fees,
appraisal fees, flood hazard determination fees, Seller, broker, and/or Dealer
closing fees, insurance costs, taxes, and licensing fees, each of which is no
greater than the amount specified in Exhibit I, Part 4 to this Agreement, as may
be amended from time to time upon agreement of the parties hereto, the aggregate
value of which is consolidated into the principal outstanding balance of the MH
Paper.
"Facility Documents" has the meaning specified in Section 3(a)
hereof.
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"FCCR" means, for any calendar quarter, the quotient obtained by
dividing (x) Guarantor's consolidated after-tax net operating income, exclusive
of extraordinary gains and losses, interest expense, depreciation and
amortization to the extent included in the calculation of net operating income
by (y) debt service (i.e., payments of principal and interest scheduled and
required under borrowing facilities, excluding payments due to Buyer solely as a
result of pass-throughs of scheduled amortization, Curtailments and prepayments
on the Loans) on Guarantor's consolidated Indebtedness (excluding balloon loan
maturity payments) plus preferred stock dividends of the Sellers and Guarantor.
"Final Repurchase Date" has the meaning set forth in Exhibit I,
Part 3 to this Agreement, as may be amended from time to time upon agreement of
the parties hereto or such earlier date to which it may be accelerated pursuant
to Section 8 of this Agreement.
"Floorplan Loan" means MH Paper which satisfies the Floorplan Loan
Eligibility Requirements. A Floorplan Loan is made to finance a Dealer's
inventory of Manufactured Homes, in whole or in part.
"Floorplan Loan Eligibility Requirements" means the Loan
Eligibility Requirements with respect to Floorplan Loans as set forth on Exhibit
IV, Part 5 to this Agreement, as may be amended from time to time upon agreement
of the parties hereto.
"GAAP" means generally accepted accounting principles as in effect
from time to time in the United States.
"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 Sellers,
any of its Affiliates or any of its properties.
"Grandfathered Loans" means the Transactions consisting of the
purchase of Loans on the following Properties: (i) Thomas Edison Hotel in Port
Huron, Michigan and (ii) A-Secured Self & Vehicle Storage II in Maricopa County,
Arizona.
"Gross Margin" means with respect to each adjustable rate Loan,
the fixed percentage amount that is added to the Index, as set forth in the
related Note.
"Ground Lease" means a lease for all or any portion of the real
property comprising the Mortgaged Property, the lessee's interest in which is
held by the Mortgagor of the related Mortgage Loan.
"Guarantee" means, as to any Person, any obligation of such Person
directly or indirectly guaranteeing any Indebtedness of any other Person or in
any manner providing for the payment of any Indebtedness of any other Person or
otherwise protecting the holder of such Indebtedness against loss (whether by
virtue of partnership arrangements, by agreement to keep-well, to purchase
assets, goods, securities or services, or to take-or-pay or otherwise); provided
that the term "Guarantee" shall not include (i) endorsements for collection or
deposit in the ordinary course of business, or (ii) obligations to make
servicing advances for delinquent taxes and insurance or other obligations in
respect of a Mortgaged Property, to the extent required by Buyer. The amount of
any Guarantee of a Person shall be deemed to be an amount equal to the
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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 in accordance with GAAP.
The terms "Guarantee" and "Guaranteed" used as verbs shall have correlative
meanings.
"Guarantor" means Bingham Financial Services Corporation, the sole
parent of Sellers.
"Guaranty" means that certain Amended and Restated Affiliate
Guaranty dated as of the date hereof.
"Hedge" means, with respect to any or all of the Purchased Loans,
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 Sellers with Buyer or its Affiliates, and
reasonably acceptable to the Buyer.
"Index" means with respect to each adjustable rate Loan, the index
set forth in the related Note for the purpose of calculating the interest rate
thereon.
"Income" means, with respect to any Purchased Loan at any time,
any principal thereof then payable and all interest, dividends or other
distributions payable thereon less any related servicing fee(s) charged by a
subservicer as approved by Buyer.
"Indebtedness" means, for any Person: (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another Person
subject to an understanding or agreement, contingent or otherwise, to repurchase
such Property from such Person); (b) obligations of such Person to pay the
deferred purchase or acquisition price of Property or services, other than trade
accounts payable (other than for borrowed money) arising, and accrued expenses
incurred, in the ordinary course of business so long as such trade accounts
payable are payable in accordance with their terms within 60 days of the date
the respective goods are delivered or the respective services are rendered; (c)
Indebtedness of others secured by a Lien on the Property of such Person, whether
or not the respective Indebtedness so secured has been assumed by such Person;
(d) obligations (contingent or otherwise) of such Person in respect of letters
of credit or similar instruments issued or accepted by banks and other financial
institutions for account of such Person; (e) Capital Lease Obligations of such
Person; (f) obligations of such Person under repurchase agreements or like
arrangements; (g) Indebtedness of others Guaranteed by such Person; (h) all
obligations of such Person incurred in connection with the acquisition or
carrying of fixed assets by such Person; and (i) Indebtedness of general
partnerships of which such Person is a general partner.
"Initial Table Funded Loan Documents" means (a) the Mortgage Note,
(b) the Escrow Instructions, (c) the Settlement Agent Trust Receipt (d) the
Insured Closing Letter and (e) the Custodial Delivery.
"Insured Closing Letter" means a letter addressed to BAC and Buyer
from the title insurance underwriter for which the Settlement Agent is serving
as an agent for Table Funded
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Mortgage Loans, which letter shall be in form and substance reasonably
acceptable to BAC and Buyer.
"Intercreditor Agreement" means an agreement between Seller and
other creditors of any Dealer, providing, among other things, for the
subordination of such creditor's security interests to Seller's security
interests and/or the distinguishing between or among security interests so that
such creditor does not claim a security interest in the Property or interests
that are subject to Seller's security interests.
"Interest Period" means, with respect to any Transaction, (i)
initially, the period commencing on the Purchase Date and ending on the day
immediately preceding the next Payment Date (the "Interest Reset Date"), and
(ii) thereafter, each period from and including the day following the
immediately preceding Interest Reset Date up to and including the succeeding
Interest Reset Date or such shorter period as agreed among Buyer and a Seller
when the current LIBOR period expires. Notwithstanding the foregoing, each
Interest Period that commences on the last Business Day of a calendar month (or
on any day for which there is no numerically corresponding day in the
appropriate calendar month when the Interest Period expires) shall end on the
last Business Day of the appropriate calendar month. Notwithstanding the
foregoing: (i) no Interest Period may begin before and end after the Final
Repurchase Date; and (ii) each Interest Period that would otherwise end on a day
that is not a Business Day shall end on the next succeeding Business Day (or, if
such next succeeding Business Day falls in the next succeeding calendar month,
on the next preceding Business Day).
"Interest Reset Date" has the meaning set forth in the definition
of Interest Period.
"Interim Mortgage Loan" means a Mortgage Loan which satisfies the
Loan Eligibility Requirements set forth in Exhibit IV, Part 2 to this Agreement,
as may be amended from time to time upon agreement of the parties hereto.
"Land-and-Home Loan" means an MH Loan secured by a Mortgage on the
Obligor's real property and the Manufactured Home permanently affixed to it.
"LIBOR" means the rate per annum calculated with respect to each
Transaction as set forth below:
(i) Two (2) Business Days prior to each Interest Reset Date,
LIBOR shall be determined by Buyer on the basis of the offered rate for one
month deposits of not less than U.S. $1,000,000, which appears on the date of
determination on Telerate Page 3750 as of 11:00 a.m., London time (or such other
page as may replace the Telerate Page on that service for the purposes of
displaying London interbank offered rates of major banks). If no such offered
rate appears, LIBOR with respect to the relevant Interest Period shall be
determined as described in (ii) below.
(ii) With respect to an Interest Reset Date on which no such
offered rate appears two (2) Business Days prior to each Interest Reset Date on
Telerate Page 3750 as described in (i) above (or the Wall Street Journal, if the
Telerate Page is no longer used for the purposes of displaying London interbank
offered rates of major banks), LIBOR shall be the arithmetic mean, expressed as
a percentage, of the offered rates for one month deposits in U.S. dollars that
appears on the Reuters Screen LIBOR Page as of 11:00 a.m., London time, on the
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<PAGE> 17
date of determination. If, in turn, such rate is not displayed on the Reuters
Screen LIBOR Page at such time, then LIBOR for such date shall be reasonably
determined by Buyer to be the arithmetic mean of the offered quotations to
first-class banks in the Interbank LIBOR Market.
All percentages resulting from any calculations of LIBOR referred
to in this Agreement shall be rounded up to the nearest multiple of 1/100 of 1%
and all U.S. dollar amounts used in or resulting from such calculations shall be
rounded to the next higher cent.
"Lien" means any mortgage, lien, pledge, charge, security interest
or similar encumbrance.
"Lien Certificate" shall mean, with respect to any Manufactured
Home, if applicable, an original certificate of title, certificate of lien or
other notification issued by the Registrar of Titles of the applicable state to
a secured party which indicates that the Lien of the secured party on the
Manufactured Home is recorded on the original certificate of title.
"Loan" means a Mortgage Loan, a Floorplan Loan, or an MH Loan.
"Loan Agreement" means a Dealer Financing Agreement or an MH
Contract.
"Loan Documents" means, with respect to a Loan, the documents
comprising the Loan File for that Loan.
"Loan Eligibility Requirements" means the eligibility requirements
with respect to the particular type of Loan as set forth on Exhibit IV, Parts 1
through 5 to this Agreement and such other additions to Exhibit IV that may be
added from time to time for other Loan types, and any amendments thereto.
"Loan File" means the required documents for each Loan type set
forth in Annex A to the Custodial Agreement (and set forth in table form in
Annex B to the Custodial Agreement), together with any additional documents and
information required to be delivered to Buyer or its designee (including the
Custodian).
"Loan Interest Rate" means the annual rate of interest borne on a
Note, which shall be adjusted from time to time with respect to adjustable rate
Loans.
"Loan Interest Rate Adjustment Date" means with respect to each
adjustable rate Loan, the date, specified in the related Note and Loan Schedule,
on which the Loan Interest Rate is adjusted.
"Loan Interest Rate Cap" means with respect to an adjustable rate
Loan, the limit on each Interest Rate adjustment as set forth in the related
Note.
"Loan Limitations" means the aggregate, type and individual
sublimits and other constraints with respect to Loans, as set forth in Exhibit
I, Part 3 to this Agreement, as may be amended from time to time upon agreement
of the parties hereto.
"Loan Representations" means those representations and warranties
set forth in Exhibit II and in Section 10(c) hereof.
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<PAGE> 18
"Loan Schedule" means a schedule of Loans attached to each Trust
Receipt and Custodial Delivery, and also delivered to Buyer monthly and at other
times, from time to time, containing Collateral Information with respect to each
Loan.
"Loan-to-Value Ratio" or "LTV" means with respect to any Loan, as
of any date, the fraction, expressed as a percentage, the numerator of which is
the principal balance of such Loan at the date of determination and the
denominator of which is the Appraised Value.
"Loan Transfer Agreements" means the repurchase or loan agreements
or other transactions under which a Qualified Originator transfers Eligible
Loans to a Seller.
"Lockbox Bank" means, with respect to the Blocked Accounts under
which Bloomfield Servicing and St. James Servicing act as Servicers, NBD Bank, a
Michigan banking corporation, and with respect other Blocked Accounts, the bank
designated as such upon mutual agreement of Buyer and Seller.
"Manufactured Home" means a unit of new, pre-owned, or used
manufactured housing consisting of a pre-fabricated manufactured unit affixed to
a permanent foundation, or a mobile home (including all Add-ons, attachments,
improvements and accessions) which meets the requirements of Section 25(e)(10)
of the Internal Revenue Code of 1986, 26 U.S.C. 25(e)(10) as amended, securing
the indebtedness of the Obligor under the related MH Loan.
"Manufacturer's Floorplan Agreement" means an agreement between a
Seller and a Manufactured Home manufacturer that specifies, among other things,
that such manufacturer will repurchase, at the price and terms described in that
agreement, Manufactured Homes sold to a Dealer by that manufacturer and financed
by a Seller, in the event that the Seller acquires possession of those
Manufactured Homes through repossession, voluntary surrender or otherwise.
"Market Value" means as of any date with respect to any Loan, the
price at which such Loan could readily be sold, as determined in good faith by
Buyer in its sole discretion, provided that, the Market Value shall be deemed to
be zero with respect to each Loan (i) which has been subject to Transactions for
more than the Maximum Aggregate Term; (ii) other than an MH Loan, which is more
than 29 days Delinquent; (iii) which fails to meet the Loan Eligibility
Requirements for that Loan type; (iv) with respect to which there is a Breach
(other than a Breach of a Loan Representations) that has not been cured; (v)
which violates the Loan Limitations established for the applicable Loan type
under Exhibit I, Part 3 to this Agreement; and (vi) which is a Table Funded
Mortgage Loan for which the Custodian has failed to receive the related Mortgage
Loan Documents on the third Business Day following the applicable Purchase Date.
The Market Value of a Loan as to which there has been a Breach of a Loan
Representation that has not been cured, shall be reduced to a value determined
by Buyer in its sole good faith discretion, which value may be zero. The
determination of Market Value will be determined by Buyer based upon its due
diligence review and will include the benefit of Hedges provided directly by
Buyer or its Affiliate, and in each case pledged as additional collateral to the
Buyer. The Market Value of Purchased Loans shall be determined by the Buyer no
less frequently than monthly. Market Value adjustments as a result of interest
rate movements can be performed daily by the Buyer. Sellers hereby acknowledge
that Market Value will be negatively impacted by the lack of current due
diligence information.
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"Market Value Collateral Deficit" has the meaning specified in
Section 4(a) hereof.
"Marketable Securities" means securities which have an investment
grade rating from a national rating agency, which are registered with and
actively traded on a nationally recognized exchange, and for which a quoted
market price is readily available.
"Material Adverse Effect" means a material adverse effect, as
determined by Buyer in its sole discretion, upon (i) the business operations,
properties, assets, condition (financial or otherwise) or prospects of either
Seller or Guarantor taken as a whole, (ii) the ability of either Seller to
perform its obligations, or of Buyer to enforce any of its rights or remedies,
under this Agreement or any of documents to be executed and/or delivered
hereunder, (iii) the individual or aggregate Market Value or the Securitization
Value of any or all of the Purchased Loans (or other Collateral) or (iv) the
ability of Guarantor to perform its obligations under the Guaranty. Any negative
impact on the value of a Loan, however small such impact may be, shall be
considered a Material Adverse Effect on such Loan, as to which Buyer may adjust
the Market Value and/or Securitization Value.
"Maximum Aggregate Term" has the meaning specified in Exhibit I,
Part 3 to this Agreement, as may be amended from time to time upon agreement of
the parties hereto.
"Maximum Committed Amount" means the total amount committed
hereunder, for each Loan type, or group of Loan types, as set forth in Exhibit
I, Part 3 to this Agreement, as may be amended from time to time upon agreement
of the parties hereto.
"Maximum Leverage Ratio" means, for any calendar quarter, the
quotient obtained by dividing (x) Guarantor's consolidated Indebtedness by (y)
Guarantor's consolidated Tangible Net Worth.
"Maximum Single Park Exposure" means the value of MH Loans that
may be originated in a single Manufactured Home park, as set forth in Exhibit I,
Part 3 to this Agreement, as may be amended from time to time upon agreement of
the parties hereto.
"Maximum Single State Exposure" means the value of MH Loans that
may be originated in a single state, as set forth in Exhibit I, Part 3 to this
Agreement, as may be amended from time to time upon agreement of the parties
hereto.
"MH Contract" means the installment loan agreement or retail
installment sales contract executed by an Obligor evidencing indebtedness in
connection with the financing of a Manufactured Home.
"MH Insurance" means property, casualty, credit life and/or
warranty insurance purchased by an Obligor in connection with the financing of
an MH Loan.
"MH Loan" means MH Paper which satisfies the MH Loan Eligibility
Requirements. The term MH Loan includes Land-and-Home Loans. MH Loans are made
under MH Contracts or MH Notes.
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<PAGE> 20
"MH Loan Eligibility Requirements" means the eligibility
requirements with respect to MH Loans as set forth on Exhibit IV, Part 4 to this
Agreement, as may be amended from time to time upon agreement of the parties
hereto.
"MH Note" means a note or other evidence of indebtedness of an
Obligor (other than a Dealer) secured by a Manufactured Home, and, if a
Land-and-Home Loan, secured by the related Mortgaged Property.
"MH Paper" means a non-securitized whole loan, which shall be a
loan secured by a perfected first priority Lien on a Manufactured Home, and, in
the case of Land-and-Home Loans, secured also by a perfected first priority Lien
on the related Mortgaged Property and the Manufactured Home permanently affixed
to it. The term MH Paper consists of MH Loans and Floorplan Loans.
"MH Servicer" means St. James Servicing with respect to the
invoicing and accounting services set forth in the MH Servicing Agreement and
MHFC for all other activities customarily provided by servicers of loans of the
same type as the MH Loans, or any successor Servicer approved by Buyer.
"MH Servicing Agreement" means the Servicing Agreement between
MHFC and the MH Servicer, as may hereafter be amended by the parties thereto
with Buyer's consent.
"MH Side Letter" means that certain letter agreement, the subject
matter of which is MH Paper, dated as of the date hereof, between Lehman
Brothers Inc. and MHFC, as it may hereafter be amended by the parties thereto.
"MHFC" means MHFC, Inc., a Michigan corporation.
"Monthly Payment" means the scheduled Monthly Payment of principal
and/or interest on a Loan, including adjustments made in accordance with changes
in the Loan Interest Rate pursuant to the provisions of the Note for an
adjustable rate Loan.
"Moody's" means Moody's Investor Service, Inc.
"Mortgage" means a mortgage, deed of trust, deed to secure debt or
other instrument, creating a valid and enforceable first lien on or a first
priority ownership interest in an estate in fee simple in real property and the
improvements thereon, securing a Mortgage Note or similar evidence of
indebtedness.
"Mortgage Loan" means a non-securitized whole loan, which shall be
a mortgage loan secured by a perfected first priority lien on commercial real
estate assets. The term Mortgage Loan includes Conduit Mortgage Loans, Credit
Lease Mortgage Loans, Bridge Mortgage Loans and Interim Mortgage Loans, any of
which may be Table Funded Mortgage Loans.
"Mortgage Loan Servicer" means Bloomfield Servicing, or any
successor Servicer approved by Buyer.
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<PAGE> 21
"Mortgage Loan Servicing Agreement" means the Servicing Agreement
between BAC and the Mortgage Loan Servicer, as it may hereafter be amended by
the parties thereto with Buyer's consent.
"Mortgage Note" means a note or other evidence of indebtedness of
a Mortgagor secured by a Mortgage.
"Mortgaged Property" means the real property securing repayment of
the debt evidenced by a Mortgage Note (or securing an MH Note, in the case of
Land-and-Home Loans).
"Mortgagee" means the record holder of a Mortgage Note secured by
a Mortgage.
"Mortgagor" means the obligor on a Mortgage Note and the grantor
of the related Mortgage.
"Multiemployer Plan" means a Plan which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA.
"NADA Retail Value" and "NADA Wholesale Value" means the retail
and wholesale value, respectively, of a Manufactured Home as stated in the then
current N.A.D.A. Manufactured Housing Appraisal Guide ("Blue Book") published by
National Appraisal Guides, Inc., or any successor publication similarly
recognized by the trade and approved by Buyer.
"Non-Use Fee" means the fee for not using this facility, payable
on certain types of Loans, by a Seller to Buyer as set forth in Exhibit I, Part
1 to this Agreement, as may be amended from time to time upon agreement of the
parties hereto.
"Note" means a Mortgage Note, MH Note or Dealer Note.
"Obligor" means, the Dealer on a Dealer Note, the obligor on a MH
Note, or a Mortgagor on a Mortgage Note.
"Officer's Certificate" means, with respect to any Person, a
certificate of the chief executive officer, chief operating officer or vice
president or, with respect to financial matters, a certificate of the chief
financial officer or treasurer of such Person.
"Original Agreement" means that certain Master Repurchase
Agreement Governing Purchases and Sales of Mortgage Loans between Buyer and BAC,
dated as of March 19, 1998.
"Park Concentration Limit" has the meaning specified in Exhibit I,
Part 2 to this Agreement, as may be amended from time to time upon agreement of
the parties hereto.
"Payment Date" means (i) with respect to all Loans other than MH
Loans, the first (1st) calendar day of the month, and (ii) with respect to MH
Loans, the tenth (10th) calendar day of the month, provided in both cases that
if any such calendar day is not a Business Day, the succeeding Business Day.
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"Payoff Letter" means a letter from a Prior Lender, that details
the amount necessary to extinguish indebtedness owed by Dealer to such Prior
Lender, which indebtedness is secured by Manufactured Homes and/or other
Property that will secure a Floorplan Loan, and which provides an automatic
release and/or subordination in favor of Seller (and its successors and/or
assigns) of its security interest in all such Property upon receipt of payment
of such amount.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to subtitle A of Title IV of ERISA.
"Perfection Requirements Memorandum" has the meaning specified in
Section 12(r).
"Periodic Payment" has the meaning specified in Section 5(d)
hereof.
"Permitted Delinquencies" means the sublimit allowed for
Delinquent MH Loans, set forth in Exhibit I, Part 3 to this Agreement, as may be
amended from time to time upon agreement of the parties hereto.
"Person" means an individual, partnership, corporation, limited
liability company, joint stock company, trust or unincorporated organization or
a governmental agency or political subdivision thereof.
"Pipeline Report" means the report, in that form agreed upon by
the parties as amended from time-to-time, provided by a Seller with respect to
all Mortgage Loans being actively processed by that Seller for intended
inclusion in Transactions under this Agreement.
"Plan" means at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which Sellers 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.
"PMI Policy" or "Primary Mortgage Insurance Policy" means a policy
of primary mortgage guaranty insurance issued by a Qualified Insurer.
"Pre-owned Manufactured Home" means a Manufactured Home that was
previously sold to or leased by a third-party for residential purposes, and, as
referenced in this Agreement, shall include Used Manufactured Homes.
"Price Differential" means, with respect to any Transaction
hereunder as of any date, the aggregate amount obtained by daily application of
the Pricing Rate for such Transaction to the Purchase Price for such Transaction
on a 360 day per year basis for the actual number of days during the period
commencing on (and including) the Purchase Date for such Transaction and ending
on (but excluding) the Repurchase Date (reduced by any amount of such Price
Differential previously paid by a Seller to Buyer with respect to such
Transaction).
"Pricing Rate" means the per annum percentage rate specified in
the Confirmation for determination of the Price Differential which shall not
exceed LIBOR plus the applicable Pricing Spread.
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<PAGE> 23
"Pricing Spread" has the meaning set forth in Exhibit I, Part 2 to
this Agreement, as may be amended from time to time upon agreement of the
parties hereto.
"Prior Lender" means a previous lender to a Dealer, which lender
has financed Manufactured Homes which will secure a Floorplan Loan.
"Proceeds" means, with respect to any Collateral, whatever is
receivable or received when such Collateral is sold, collected, exchanged or
otherwise disposed of, whether such disposition is voluntary or involuntary, and
includes all rights to payment, including returned premiums, with respect to any
insurance relating to such Collateral.
"Property" means any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"Purchase Date" means the date on which Purchased Loans are
transferred by a Seller to Buyer or its designee (including the Custodian) as
specified in the Confirmation.
"Purchase Price" means on each Purchase Date, the price at which
Purchased Loans are sold or transferred by a Seller to Buyer or its designee
(including the Custodian), which, with respect to:
(i) Conduit Mortgage Loans, Credit Lease Mortgage Loans,
Interim Mortgage Loans, MH Loans and Floorplan Loans, is
equal to the Applicable Purchase Price Percentage multiplied
by the lowest of (x) the Market Value of such Purchased
Loans, (y) the Securitization Value of such Purchased Loans,
or (z) the outstanding principal amount of such Purchased
Loans on the Purchase Date.
(ii) Bridge Mortgage Loans, is the Buyer's LTV multiplied
by the market value of the Mortgaged Property, as determined
in good faith by the Buyer in its sole discretion, based
upon its due diligence review.
"Purchased Loans" means the Loans sold by a Seller to the Buyer in
a Transaction, any Additional Loans and any Substituted Loans, whether or not
such Loans were in fact Eligible Loans at the time of purchase, or thereafter.
"Qualified Insurer" means an insurance company duly qualified as
such under the laws of the states in which the Underlying Asset is located, duly
authorized and licensed in such states to transact the applicable insurance
business and to write the insurance provided and whose claims paying ability at
the time of determination is (i) rated not less than A3 by Moody's or A- or
better by Standard & Poor's or (ii) if such insurance company is not rated by
either Moody's or Standard & Poor's, rated A:VII or better by Best's Insurance
Reports.
"Qualified Originator" means either Seller or another originator
of Loans approved by Buyer in writing.
"Registrar of Titles" means, with respect to any state, the
governmental agency or body responsible for the registration of, and the
issuance of certificates of title relating to, motor vehicles, Manufactured
Homes and liens thereon.
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"Reorganization" means, with respect to any Multiemployer Plan,
the condition that such Plan is in reorganization within the meaning of Section
4241 of ERISA.
"Replacement Loans" has the meaning specified in Section 14(b)(ii)
hereof.
"Reportable Event" means 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 Sections .13, .14, .16, .18, .19 or .20 of PBGC Reg. ss.
4043.
"Repurchase Date" means the date on which a Seller is to
repurchase Purchased Loans from Buyer, including any date determined by
application of the provisions of Sections 3 or 14 hereof, as specified in the
Confirmation; provided that in no event shall such date be (i) more than 30 days
after the Purchase Date or (ii) after the expiration of the Maximum Aggregate
Term.
"Repurchase Price" means the price at which Purchased Loans are to
be transferred from Buyer or its designee (including the Custodian) to a Seller
upon termination of a Transaction, which will be determined in each case as the
sum of the Purchase Price and the Price Differential as of the date of such
determination decreased by all cash, Income (including Curtailments and
prepayments) and Periodic Payments actually received by Buyer.
"Request for Purchase" means written notice of a Seller's request
to enter into a Transaction, in a form acceptable to the applicable Seller and
Buyer. Such Request for Purchase shall (i) specify the requested Purchase Date
and Repurchase Date, (ii) include the Loan Schedule containing Collateral
Information with respect to the Loan or Loans that the Seller proposes to sell
to Buyer in connection with such Transaction, and (iii) be for at least the
minimum amount set forth in Exhibit I, Part 3 to this Agreement, as may be
amended from time to time upon agreement of the parties hereto. A Request for
Purchase covering a Floorplan Loan as to which Buyer has already disbursed funds
shall clearly specify this, and shall include BAC's Loan Number and the Dealer
name on the Floorplan Loan as to which an additional purchase is requested.
"Restricted Payments" means any of the following actions: (i)
declaring or paying any dividend (other than dividends payable solely in common
stock of either Seller or Guarantor) on, or making any payment on account of, or
setting apart assets for a sinking or other analogous fund for, the purchase,
redemption, defeasance, retirement or other acquisition of, any shares of any
class of capital stock of the Guarantor or any warrants or options to purchase
any such stock, whether now or hereafter outstanding, or making any other
distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of the Sellers, Guarantor or any Subsidiary, or
(ii) making any payments in excess of the amounts set forth in (A) Sellers'
executive bonus plans (each an "Executive Bonus Plan"), and (B) the employment
agreements as entered into between Guarantor and each of Daniel E. Bober,
Creighton J. Weber and William L. Mulvaney, as in effect as of the date hereof.
"Restrictions on Transferability" means any material condition to,
or restriction on, the ability of the holder or an assignee of the holder of any
right, title or interest to sell, assign, transfer or otherwise liquidate such
right, title or interest in a commercially reasonable
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<PAGE> 25
time and manner or which would otherwise materially deprive the holder or any
assignee of the holder of the benefits thereof.
"St. James Servicing" means St. James Servicing Corporation.
"St. James Blocked Account" has the meaning specified in Section
29(a).
"Second Side Letter" means that certain letter agreement, the
subject of which is Bridge Mortgage Loans and Interim Mortgage Loans, dated as
of the date hereof, between Lehman Brothers Inc. and BAC, as may be hereafter
amended by the parties thereto.
"Second Subordination Letter" means that certain letter agreement
dated as of the date hereof, among Buyer, Sellers and Sun Communities, Inc.
"Securitization Value" means as of any date with respect to any
Loan, the price at which such Loan could readily be securitized or sold in a
securitization, as determined in good faith by Buyer in its sole discretion,
provided that, the Securitization Value shall be deemed to be zero with respect
to each Loan (i) which has been subject to Transactions for more than the
Maximum Aggregate Term; (ii) other than an MH Loan, which is more than 29 days
Delinquent; (iii) which fails to meet the Loan Eligibility Requirements for that
Loan type; (iv) with respect to which there is a Breach (other than a Breach of
a Loan Representations) that has not been cured; (v) which violates the Loan
Limitations established for the applicable Loan type under Exhibit I, Part 3 to
this Agreement; and (vi) which is a Table Funded Mortgage Loan for which the
Custodian has failed to receive the related Mortgage Loan Documents on the third
Business Day following the applicable Purchase Date. The Securitization Value of
a Loan as to which there has been a Breach of a Loan Representation that has not
been cured, shall be reduced to a value determined by Buyer in its sole good
faith discretion, which value may be zero. The determination of Securitization
Value will be determined by Buyer based upon its due diligence review and will
include the benefit of Hedges provided directly by Buyer or its Affiliate, and
in each case pledged as additional collateral to the Buyer. Sellers hereby
acknowledge that Securitization Value will be negatively impacted by the lack of
current due diligence information.
"Securitization Value Collateral Deficit" has the meaning
specified in Section 4(a) hereof.
"Seller" means BAC with respect to Mortgage Loans and Floorplan
Loans, and MHFC with respect to MH Loans.
"Seller's Loan Documents" means the documents identified for each
Loan type as set forth in Exhibit V, Parts 1, 2 and 3 to this Agreement as
approved by Buyer as may be amended from time to time with Buyer's written
consent.
"Servicer" means the Mortgage Loan Servicer and the MH Servicer.
"Servicing Agreement" has the meaning specified in Section 25
hereof.
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"Servicing File" means with respect to each Loan, the file
retained by a Seller or Servicer consisting of originals of all documents
related to a Loan which are not delivered to a Buyer or its designee and copies
of the Loan Documents.
"Servicing Letter" has the meaning specified in Section 25.
"Servicing Records" has the meaning specified in Section 25
hereof.
"Settlement Agent" shall mean, with respect to any Transaction, an
entity satisfactory to the Buyer in its sole discretion (which may be a title
company, escrow company or attorney in accordance with local law and practice in
the jurisdiction where the related Table Funded Mortgage Loan is being
originated), to which the proceeds of such Transaction are to be wired by Buyer.
"Settlement Agent Trust Receipt" means a trust receipt issued by
the Settlement Agent evidencing the Purchased Loans it holds, in the form of
Exhibit 1-6 to the Custodial Agreement, and delivered to the Buyer and the
Custodian by the Designated Fax Distributor.
"Side Letter" means that certain letter agreement, the subject of
which is Conduit Mortgage Loans and Credit Lease Mortgage Loans, dated March 19,
1998, between Buyer and BAC, as may be hereafter amended by the parties thereto.
"Significant Modification" means any modification that would be a
"significant modification" as such term is defined in U.S. Department of the
Treasury Regulations Section 1.1001-3(e) which includes a modification that,
based upon on all the facts and circumstances, is economically significant to
the Purchased Loan in the sole discretion of the Buyer, including, but not
limited to any changes in the interest rate, payment schedule, maturity date,
Obligor, guarantor or Underlying Asset.
"Single Employer Plan" means any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Standard & Poor's" means Standard & Poor's Rating Services, a
division of the McGraw Hill Companies, Inc.
"State Concentration Limit" has the meaning specified in Exhibit
I, Part 2 to this Agreement, as may be amended from time to time upon agreement
of the parties hereto.
"Subsidiary" means, with respect to any Person, any corporation,
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions of such corporation, partnership or other entity (irrespective of
whether or not at the time securities or other ownership interests of any other
class or classes of such corporation, partnership or other entity shall have or
might have voting power by reason of the happening of any contingency) is at the
time directly or indirectly owned or controlled by such Person or one or more
Subsidiaries of such Person or by such Person and one or more Subsidiaries of
such Person.
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"Substituted Loans" means any Eligible Loans substituted for
Purchased Loans in accordance with Section 9 hereof.
"Table Funded Mortgage Loan" shall mean a Mortgage Loan which is
sold to the Buyer simultaneously with the origination thereof by the Seller,
which origination is financed in part or in whole with proceeds of Transactions
advanced directly to the Settlement Agent. A Mortgage Loan shall cease to be a
Table Funded Mortgage Loan after the Custodian has delivered a Trust Receipt to
Buyer certifying its receipt of the corresponding Loan File.
"Table Funded Trust Receipt" has the meaning specified in the
Custodial Agreement.
"Tangible Net Worth" means the consolidated Total Assets of
Guarantor minus an amount equal to the sum of (x) consolidated Indebtedness of
Guarantor and (y) consolidated intangible assets (including, without limitation,
goodwill) as set forth in the consolidated financial statement of Guarantor.
"Title Policy" has the meaning specified in Paragraph 2 of Exhibit
II, Part 1.
"Total Assets" of any Person shall mean, at any date, the Book
Value of all its properties and assets, whether real, personal or mixed;
provided that Buyer and the respective Seller shall mutually agree upon the
assumptions to be used to evaluate the Book Value of any residual interest or
interest-only securities owned by that Seller or its Affiliates prior to its
inclusion in the calculation of Book Value.
"Total Committed Amount" has the meaning specified in Exhibit I,
Part 3 to this Agreement, as may be amended from time to time upon agreement of
the parties hereto.
"Transaction" has the meaning specified in Section 1 hereof.
"Trust Receipt" means a trust receipt issued by Custodian to Buyer
confirming the Custodian's possession of certain Loan Files which are the
property of and held by Custodian for the benefit of the Buyer or the registered
holder of such trust receipt.
"Underlying Asset" means the Mortgaged Property with respect to a
Mortgage Loan and Land-and-Home Loan, and a Manufactured Home (including
Add-ons) with respect to an MH Loan and Floorplan Loan.
"Underwriting Guidelines" means the underwriting guidelines for
Mortgage Loans, MH Loans, and Floorplan Loans, substantially in the form of
Exhibit III, Parts 1, 2 and 3, to this Agreement as may be amended from time to
time.
"Uniform Commercial Code" or "UCC" means 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.
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"Used Manufactured Home" means a Manufactured Home that is older
than the 1996 model year.
3. CONDITIONS PRECEDENT; INITIATION; CONFIRMATION;
TERMINATION; MAXIMUM TRANSACTION AMOUNTS; FEES
(a) Conditions Precedent to Initial Transaction. Buyer's
obligation to enter into the initial Transaction hereunder is subject to the
satisfaction, immediately prior to or concurrently with the making of such
Transaction, of the condition precedent that Buyer shall have received the
Commitment Fee from Sellers and any other fees and expenses payable hereunder,
and all of the following documents with respect to each Loan type that is
eligible for purchase, each of which shall be satisfactory to Buyer and its
counsel in form and substance (together with the Confirmation, collectively, the
"Facility Documents"):
(1) Agreement. This Agreement, duly completed, and executed
and delivered by Sellers;
(2) Amended and Restated Custodial Agreement. Amended and
Restated Custodial Agreement, duly executed and delivered by Sellers
and the Custodian;
(3) Uniform Commercial Code Filings. Any filings requested by
Buyer or required under the Uniform Commercial Code duly completed and
executed and such other actions as Buyer shall have requested in order
to perfect the security interests created pursuant to this Agreement;
(4) Blocked Account Agreements. The two Blocked Account
Agreements, duly executed and delivered, respectively, by (i) BAC,
Bloomfield Servicing and NBD Bank, and (ii) MHFC, St. James Servicing,
and NBD Bank;
(5) Opinions of Counsel. An opinion or opinions of counsel to
the Sellers and to the Guarantor regarding corporate authority and
perfection of security interests in Loans, in form and substance
acceptable to the Buyer, including affirmations of the current validity
of previously delivered documents; an opinion or opinions of counsel to
MHFC regarding perfection of security interests in MH Paper, in all
states in which MH Paper will be originated, and a written analysis,
satisfactory to Buyer in its sole discretion, from outside counsel to
MHFC regarding the effect on the validity and enforceability of Buyer's
interests in MH Loans and the related Manufactured Homes in those
states in which MHFC has not yet obtained licensing.
(6) Guaranty. The Guaranty, duly executed and delivered by
Guarantor;
(7) Second Side Letter. The Second Side Letter, duly executed
and delivered by BAC;
(8) MH Side Letter. MH Side Letter, duly executed and
delivered by MHFC;
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(9) Second Subordination Letter. The Second Subordination
Letter, duly executed and delivered by all the parties thereto;
(10) Mortgage Loan Servicing Agreement. The Servicing
Agreement, duly executed and delivered by BAC and Mortgage Loan
Servicer;
(11) MH Servicing Agreement. The MH Servicing Agreement, duly
executed and delivered by MHFC and MH Servicer;
(12) Servicing Letter - Mortgage Loan Servicer. A Servicing
Letter, as required under Section 25(d), duly executed and delivered by
the Mortgage Loan Servicer.
(13) Servicing Letter - MH Servicer. A Servicing Letter, as
required under Section 25(d), duly executed and delivered by the MH
Servicer.
(14) Organizational Documents. For each of BAC, MHFC and the
Guarantor, Buyer shall have received a certificate of good standing and
a certificate of the Secretary or Assistant Secretary of each entity
certifying: (i) a copy of its articles of incorporation, (ii) a copy of
its by-laws; (iii) the names and signatures of the officers authorized
on its behalf to execute, deliver and perform under the Facility
Documents, and any other documents to be delivered by it from time to
time in connection therewith (on which the Buyer conclusively rely
until such time as the Buyer shall receive from the Sellers or the
Guarantor, respectively, a revised certificate); and (iv) resolutions
of the Board of Directors of each entity authorizing that entity to
execute, perform under, and deliver the Facility Documents;
(15) Officer's Certificates. An Officer's Certificate of each
Seller, regarding representations and warranties;
(16) Power of Attorney. Two omnibus powers of attorney in
form and substance satisfactory to Buyer, one duly executed and
delivered by each Seller with respect to all of the Loans delivered or
to be delivered by that Seller to Buyer or its designee (including the
Custodian), irrevocably appointing Buyer its attorney-in-fact with full
power to complete, record and/or file the Assignments of Mortgages and
other assignments, complete the endorsement of the Notes and/or MH
Contracts and take such other steps as may be necessary or desirable to
enforce Buyer's rights against such Loans, the related Loan Files and
the Servicing Records;
(17) Underwriting Guidelines. A copy of Sellers' current
Underwriting Guidelines for MH Loans and a copy of any material changes
to BAC's Underwriting Guidelines made since the Underwriting Guidelines
for Conduit Mortgage Loans and Credit Lease Mortgage Loans were last
delivered to Buyer;
(18) Sellers' Loan Documents. Seller's Loan Documents for MH
Loans, as identified in Exhibit V attached hereto, and confirmation
that the previously delivered Seller's Loan Documents for Conduit and
Credit Lease Mortgage Loans remain the complete and true copies of
those used by BAC for such Loans.
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(19) Financial Statements. Interim unaudited (for the period
ended June 30, 1998) financial statements and financial projections for
the upcoming fiscal year for Sellers and Guarantor, to be replaced by
updated final projections within thirty (30) days of the date hereof ;
(20) Insurance Policies. Insurance policies required by
Section 12(o) hereof;
(21) SMMEA Memo. Memo on status of each Seller's SMMEA
qualification;
(22) Designated Fax Distributor Letter. Letter from the
Designated Fax Distributor in which the Designated Fax Distributor
agrees to act as Designated Fax Distributor.
(23) Other Documents. Such other documents as Buyer may
reasonably request.
(b) Conditions Precedent to all Transactions. Buyer's obligation
to enter into each Transaction (including the initial Transaction) is subject to
the satisfaction of the following further conditions precedent, both immediately
prior to entering into such Transaction and also after giving effect thereto to
the intended use thereof:
(1) Underwriting Summary and Draft Loan Schedule. At least
one (1) week prior to the Purchase Date, Buyer and Buyer's Underwriter
shall have received a materially completed underwriting summary (which
may be updated prior to the Purchase Date) and a draft Loan Schedule
for all Loans in the form mutually agreed to by Buyer and the
applicable Seller with respect to each Mortgage Loan to be purchased on
such Purchase Date;
(2) Completion of Due Diligence. Buyer shall have completed
its due diligence to its satisfaction with respect to each Eligible
Loan to be purchased on such Purchase Date;
(3) Requests for Purchase. With respect to each Loan other
than a Table Funded Mortgage Loan, no later than 12:00 noon (New York
time) three Business Days prior to the specified Purchase Date and
promptly upon rate-locking with respect to any Table Funded Mortgage
Loan, Buyer, and Custodian, shall have received an executed final
Request for Purchase containing an Officer's Certificate of a Seller
certifying that such Seller is in compliance with all covenants,
representations and warranties in the Agreement, including without
limitation, the Loan Representations, and a final Loan Schedule, via
facsimile and in electronic form, with respect to each Loan to be
purchased on the Purchase Date;
(4) Trust Receipts. For each Loan other than a Table Funded
Mortgage Loan, a Trust Receipt and a Loan Schedule, with such
exceptions as are acceptable to Buyer in its sole discretion in respect
of Eligible Loans to be sold hereunder on such Purchase Date, in each
case dated such Purchase Date and duly completed. For each
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Table Funded Mortgage Loan, a Table Funded Trust Receipt and a Loan
Schedule, in each case dated such Purchase Date and duly completed;
(5) Documents. For each Loan other than a Table Funded
Mortgage Loan, the documentation set forth in Annex A and Annex B of
the Custodial Agreement. For each Table Funded Mortgage Loan, Buyer and
Custodian shall have received a fax of the Initial Table Funded Loan
Documents;
(6) No Seller Default. No Event of Default or material
Default shall have occurred and be continuing;
(7) Underwriting Guidelines. The applicable Seller shall have
provided Buyer with any changes to that Seller's Underwriting
Guidelines prior to the effectiveness of any such change;
(8) Payment of Administration Fees. Buyer shall have received
the Administration Fee for each Loan that will be purchased in such
Transaction, as to which an Administration Fee is payable, or the Buyer
may deduct such Administration Fees from the Purchase Price disbursed
on such Purchase Date; and
(9) Loan Transfer Agreements. Any Loan Transfer Agreements
applicable to Loans to be purchased by Buyer hereunder.
(c) Conditions Precedent to Bridge Mortgage Loan and Interim
Mortgage Loan Transactions. Buyer's obligation to enter into each Transaction
that includes Bridge Mortgage Loans or Interim Mortgage Loans (other than the
Grandfathered Loans) is subject to satisfaction of the conditions precedent set
forth in Section 3(b) hereof, as they relate to Bridge Mortgage Loans and
Interim Mortgage Loans, and delivery of the Underwriting Guidelines and Seller's
Loan Documents for Bridge Mortgage Loans and Interim Mortgage Loans. BAC shall
not be assessed a Commitment Fee or Non-Use Fee on Bridge Mortgage Loans or
Interim Mortgage Loans until such time as a Bridge Mortgage Loan or Interim
Mortgage Loan (other than the Grandfathered Loans) becomes subject to a
Transaction, and, at such time, the fees payable with respect to Bridge Mortgage
Loans and Interim Mortgage Loans, respectively, shall be those set forth in
Exhibit I, Part I of this Agreement, as may be amended from time to time by the
parties hereto.
(d) Conditions Precedent to Floorplan Loan Transactions. Buyer's
obligation to enter into each Transaction that includes Floorplan Loans is
subject to the satisfaction of the conditions precedent set forth in Section
3(b) hereof as they relate to Floorplan Loans, delivery of the Underwriting
Guidelines and Seller's Loan Documents for Floorplan Loans, delivery of executed
Consignment Agreements and Assignments of Consignment Agreements with respect to
each consignee of Manufactured Homes, and delivery of opinions and other
documents requested by Buyer to assure that its interests in Floorplan Loans
will be protected.
(e) Initiation and Confirmation. An agreement to enter into a
Transaction shall be initiated by a Seller's delivery of a Request for Purchase
to Buyer. Buyer shall confirm the terms of each Transaction by issuing a written
confirmation (a "Confirmation") to such Seller promptly after the Buyer's
receipt of the Request for Purchase. Such Confirmation shall describe
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the Purchased Loans, identify Buyer and Seller and set forth (i) the Purchase
Date, (ii) the Purchase Price, (iii) the Repurchase Date, (iv) the Pricing Rate
applicable to the Transaction and the Buyer's LTV in the case of Bridge Mortgage
Loans, (v) the Applicable Collateral Maintenance Percentages and (vi) additional
terms or conditions not inconsistent with this Agreement. After receipt of the
Confirmation, the Seller shall sign the Confirmation and promptly return it to
Buyer.
Any Confirmation by Buyer shall be deemed to have been received by
the Seller on the date actually received by the Seller. Each Confirmation,
together with this Agreement, shall be conclusive evidence of the terms of the
Transaction(s) covered thereby unless objected to in writing by the Seller no
more than three (3) Business Days after the date the Confirmation was received
by the Seller or unless a corrected Confirmation is sent by Buyer. An objection
sent by a Seller must specifically state the objection, must specify the
provision(s) being objected to by the Seller, must set forth such provision(s)
in the manner that the Seller believes they should be stated, and must be
received by Buyer no more than three (3) Business Days after the Confirmation
was received by the Seller.
(f) Funding of Transactions. Buyer will only provide funds for
purchase of Table Funded Mortgage Loans to and through the Settlement Agent as
provided in the Request for Purchase approved by Buyer. All other Transactions
will be funded in accordance with the Seller's written instructions in the
Request for Purchase approved by Buyer. All such fundings will be in immediately
available funds in U.S. dollars and effected through wire transfer arrangements
acceptable to both Seller and Buyer.
(g) Minimum and Maximum Transaction Amounts. With respect to all
Transactions hereunder, the aggregate Purchase Price for all Purchased Loans at
any one time subject to then outstanding Transactions under this Agreement shall
not exceed the Total Committed Amount. Further, the aggregate Purchase Price of
all Eligible Loans for which a Request for Purchase is submitted by a Seller
pursuant to this Agreement, and the aggregate outstanding principal balance of
all Purchased Loans at any one time subject to then outstanding Transactions
under this Agreement, shall conform to the amounts and limitations set forth in
Exhibit I, Part 3. Buyer shall have no obligation to enter any Transaction if at
such time a Default or Event of Default shall have occurred and be continuing.
(h) Additional Costs. The Sellers shall pay directly to Buyer
from time to time such amounts as Buyer may determine to be necessary to
compensate Buyer for any costs that Buyer determines are attributable to its
using a LIBOR-based Pricing Rate or its obligation to use a LIBOR-based Pricing
Rate hereunder, or any reduction in any amount receivable by Buyer hereunder in
respect of the Pricing Rate (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any change
that:
(1) shall subject Buyer to any tax, duty or other
charge in respect of such LIBOR-based Pricing Rate or changes the basis
of taxation of any amounts payable to such Buyer under this Agreement
in respect of any of such LIBOR-based Pricing Rate (excluding changes
in the rate of tax on the overall net income of such Buyer by the
jurisdiction in which Buyer has its principal office); or
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(2) imposes or modifies any reserve, special deposit or
similar requirements relating to any LIBOR-based Pricing Rate; or
(3) imposes any other condition affecting this Agreement or
the transactions contemplated hereby or thereby.
Buyer shall deliver to the Sellers a statement setting forth the
amount and basis of determination of any Additional Costs in such detail as
determined in good faith by Buyer to be adequate, it being agreed that such
statement and the method of its calculation shall be adequate and shall be
conclusive and binding upon the Sellers, absent manifest error.
(i) Limitation on Pricing Rate Used; Illegality. Anything
herein to the contrary notwithstanding, if, on or prior to the determination
of the Pricing Rate:
(1) the Buyer determines, which determination shall be
conclusive, that quotations of interest rates for the relevant deposits
referred to in the definition of "LIBOR" in Section 2 hereof are not
being provided in the relevant amounts or for the relevant maturities
for purposes of determining the Pricing Rates as provided herein; or
(2) the Buyer determines, which determination shall be
conclusive, that the relevant rate of interest referred to in the
definition of "Pricing Rate" in Section 2 hereof upon the basis of
which the Pricing Rate is to be determined is not likely adequately to
cover the cost to the Buyer of purchasing the Purchased Loans using
such Pricing Rate; or
(3) it becomes unlawful for the Buyer to honor its obligation
to purchase Loans hereunder using a Pricing Rate based upon LIBOR;
then the Buyer shall give the Sellers prompt notice thereof and,
so long as such condition remains in effect, the Buyer shall be under no
obligation to enter into additional Transactions, and the Sellers shall, either
repurchase all Purchased Loans then subject to a Transaction or the new Pricing
Rate shall be determined based upon the rate selected by the Buyer in a manner
that is reasonably satisfactory to Buyer so as to adequately reflect the cost to
Buyer of purchasing the Purchased Loans using such substituted Pricing Rate (in
which case Buyer shall continue to be obligated to enter into additional
Transactions using that substituted Pricing Rate).
(j) Termination and Repurchase; Exit Fee.
(1) Notice of Repurchase. A Seller may at any time and from
time to time repurchase the Purchased Loans subject to a Transaction,
in whole or in part, upon at least one (1) Business Day's irrevocable
notice to Buyer, specifying the Repurchase Date of such repurchase and
the Repurchase Price. If any such notice is given, the Repurchase Price
specified in such notice shall be due and payable on the Repurchase
Date specified therein, together with any amounts payable pursuant to
subsection 3(j)(3) hereof. Notice of repurchase pursuant to this
subsection 3(j)(1) shall be made by a Seller by telephone or otherwise,
no later than 1:00 p.m. (New York Time) on the Business Day prior to
the day on which such repurchase will be effected.
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(2) Transfer of Purchased Loans. On the Repurchase Date,
termination of the Transaction will be effected by transfer to a Seller
or its designee of the Purchased Loans (and any Income in respect
thereof received by Buyer not previously credited or transferred to, or
applied to the obligations of, the Seller pursuant to Section 5 hereof)
against the simultaneous transfer of the Repurchase Price plus any
Breakage Costs, as defined below, payable by the Seller to Buyer
pursuant to the succeeding paragraph to an account of Buyer. The Seller
is obligated to obtain the Loan Files from Buyer or its designee at
Seller's expense on the Repurchase Date.
(3) Breakage Costs. If a Seller repurchases the Purchased
Loans on any day which is not a Repurchase Date for such Loans, such
Seller shall indemnify Buyer and hold Buyer harmless from any loss or
expense which Buyer may sustain or incur arising from the reemployment
of funds obtained by Buyer hereunder or from fees payable to terminate
the deposits from which such funds were obtained, but not including
loss of profit ("Breakage Costs"). Buyer shall deliver to the Seller a
statement setting forth the amount and basis of determination of any
Breakage Costs in such detail as determined in good faith by Buyer to
be adequate, it being agreed that such statement and the method of its
calculation shall be adequate and shall be conclusive and binding upon
the Seller, absent manifest error. This Section shall survive
termination of this Agreement and repurchase of all Purchased Loans
subject to Transactions hereunder.
(4) Exit Fee. In the event that a Seller repurchases any
Purchased Loans subject to a Transaction whether on the Repurchase Date
or otherwise, that Seller agrees to pay Buyer an exit fee (the "Exit
Fee"), if such Purchased Loan is subject to an Exit Fee pursuant to
Exhibit I, Part 1 hereof, each such payment to be made in U.S. dollars,
in immediately available funds, without deduction, set-off or
counterclaim, to Buyer at the account designated by Buyer. Without
limiting the generality of the foregoing, any Exit Fee shall accrue and
be payable as a condition to delivery by Buyer of the related Purchased
Loans that are subject to this Agreement at the time of any repurchase
or termination of this Agreement. No Exit Fee shall be payable if the
Seller refinances the Purchased Loan due for repurchase and
simultaneously subjects such refinanced Mortgage Loan to a Transaction.
However, an Exit Fee shall be payable on such refinanced Mortgage Loan
at the earlier of (i) the time of its repurchase or (ii) termination of
this Agreement, at the rates set forth in Exhibit 1, Part 1 depending
on the classification of such Loan.
(k) Non-Use Fee. Seller shall pay Buyer any Non-Use
Fee as and when required, as set forth in Exhibit I, Part 1 to this Agreement.
4. COLLATERAL MAINTENANCE AMOUNT
(a) Collateral Deficit; Additional Loans. If at any time (i) the
aggregate Market Value of all Purchased Loans subject to then outstanding
Transactions is less than the aggregate Collateral Maintenance Amount for all
such Transactions (a "Market Value Collateral Deficit"), or (ii) the aggregate
Securitization Value of all Purchased Loans subject to then outstanding
Transactions is less than the aggregate Collateral Maintenance Amount for all
such Transactions (a "Securitization Value Collateral Deficit"), then Buyer may
by notice to the Seller require the Seller to transfer to Buyer or its designee
(including the Custodian) additional Eligible
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Loans ("Additional Loans") or cash, so that the cash and aggregate Market Value
and aggregate Securitization Value of the Purchased Loans, including any such
Additional Loans, will thereupon equal or exceed the aggregate Collateral
Maintenance Amount. Any cash remitted by a Seller to Buyer pursuant to this
Section 4(a) shall be deemed a payment of all or part of the Repurchase Price
and such Seller shall be liable for and shall pay promptly to Buyer any Breakage
Cost as a result therefrom.
(b) Notice of Deficit and Required Payment or Delivery. Notice
required pursuant to subsection (a) above may be given by means of telecopier or
telegraphic transmission. A notice for the payment or delivery in respect of a
Collateral Deficit received before noon on a Business Day, local time of the
party receiving the notice, must be met not later than 5:00 p.m. (New York time)
on the Business Day following the day upon which the notice was given, local
time of the party receiving the notice. Any notice given on a Business Day after
noon, local time of the party receiving the notice, shall be met not later than
2:00 p.m. (New York time) on the second succeeding Business Day. The failure of
Buyer, on any one or more occasions, to exercise its rights under subsection (a)
of this Section 4 shall not change or alter the terms and conditions to which
this Agreement is subject or limit the right of the Buyer to do so at a later
date. Buyer and Sellers agree that a failure or delay to exercise its rights
under subsection (a) of this Section 4 shall not limit Buyer's rights under this
Agreement or otherwise existing by law or in any way create additional rights
for Sellers.
(c) No Further Transactions Until Deficit Remedied. In the event
that either of the Sellers fail to comply with the provisions of this Section 4,
Buyer shall not be obligated to enter into any additional Transactions under
this Agreement after the date of such failure.
5. INCOME PAYMENTS
(a) Sellers' Limited Right to Income Payments. All Income with
respect to Purchased Loans subject to Transactions shall be held in a segregated
Blocked Account established with respect to that Seller at the Lockbox Bank for
the benefit of Buyer (pursuant to Section 29 of this Agreement) and distributed
under the relevant Blocked Account Agreement. Where a particular Transaction's
term extends over an Income payment date on the Purchased Loans subject to that
Transaction such Income shall be the property of Buyer. Notwithstanding the
foregoing, so long as no Event of Default shall have occurred and be continuing,
each Seller shall be entitled to all Income with respect to that Seller's
respective Purchased Loans subject to Transactions. An Event of Default by
either Seller is considered an Event of Default by both Sellers.
(b) Payments by Obligors. The parties understand and agree that
each Obligor must be instructed to remit payments to a Blocked Account
established at the Lockbox Bank in the name of a Seller subject to the lien of
Buyer, as more particularly addressed in Section 29 of this Agreement.
(c) Curtailments, Principal Payments and Prepayments. BAC must
instruct Dealers to make Curtailment payments, and both Sellers shall instruct
all Obligors on all Loans to make all payments, including prepayment payments,
directly to the appropriate Blocked Account for distribution to the Buyer on the
Payment Date following receipt thereof. Principal prepayments, Curtailments, or
any other payment received in respect of Purchased Loans shall be
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deposited into the Blocked Account, no later than one (1) Business Day following
receipt by a Seller, Mortgage Loan Servicer or MH Servicer thereof, as
applicable. Whenever a Curtailment payment or prepayment on any Loan is made to
the Buyer, the Repurchase Price of the corresponding Loan shall be reduced by
the amount of such payment, or, at Seller's option, and subject to a notice of
repurchase given pursuant to Section 3(j)(1) hereof, the Loans may be
repurchased pursuant to Section 3(j)(2) hereof, subject to any Breakage Cost due
pursuant to Section 3(j)(3) hereof.
(d) Required Periodic Payments to Buyer. Notwithstanding that
Buyer and Sellers intend that the Transactions hereunder be sales to Buyer of
the Purchased Loans, Sellers shall pay by wire transfer to Buyer the accreted
value of the Price Differential (less any amount of such Price Differential
previously paid by Sellers to Buyer) (each such payment, a "Periodic Payment")
on each Payment Date.
(e) Payments on Payment Date. All payments received from Obligors
in respect of Purchased Loans shall be remitted to Buyer on the Payment Date in
accordance with Section 29 to this Agreement. Each Seller shall deliver or cause
to be delivered to Buyer on the second Business Day immediately preceding the
Payment Date (i) a Distribution Worksheet and (ii) the updated Collateral
Information with respect to all of that Seller's Loans then subject to
Transactions.
(f) Deduction from Repurchase Price. Buyer shall deduct from the
Repurchase Price of each such Transaction all Income payments, including
Curtailment payments, and all Periodic Payments related thereto, actually
received by Buyer pursuant to Sections 5(a) through (d) hereof.
6. SECURITY INTEREST
(a) Grant of Security Interest and Cross-Collateralization. Buyer
and the Sellers intend that the Transactions hereunder be sales to Buyer of the
Purchased Loans and not loans from Buyer to Sellers secured by the Purchased
Loans. However, in order to preserve Buyer's rights under this Agreement in the
event that a court or other forum recharacterizes the Transactions hereunder as
loans and as security for the performance by Sellers of all of Sellers'
obligations to Buyer under this Agreement and the Transactions entered into
pursuant to this Agreement, both Sellers grant Buyer, on a cross-collateralized
basis with all outstanding Transactions, a first priority security interest in
the Purchased Loans, including the indebtedness of Obligors and the Underlying
Assets, including all Manufactured Homes now owned or hereafter acquired, as
collateral for Floorplan Loans and MH Loans, and all other collateral provided
as security for the Purchased Loans; Servicing Agreements, Back-up Servicing
Agreements, Servicing Records, insurance, guarantees, indemnities and warranties
and proceeds thereof, financing statements and other agreements or arrangements
of whatever character from time relating to the Purchased Loans, Income, any and
all Hedges, all Insured Closing Letters and the Escrow Instructions covering any
or all of the Loans, all Collections and the Blocked Accounts and all amounts on
deposit therein, any and all collection accounts and escrow accounts relating to
the Purchased Loans, all MH Contracts, Dealer Financing Agreements, and other
Loan Agreements, the Loan Documents, all Consignment Agreements, sale contracts,
security agreements, the right to payment of interest or finance charges and
collateral securing such obligations, and any other contract rights, and other
assets relating to the Purchased Loans
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or any interest in the Purchased Loans, whether constituting real or personal
property, accounts, chattel paper, equipment, goods, instruments, general
intangibles, inventory or proceeds, or securities backed by or representing an
interest in such Loans, and any and all replacements, substitutions,
distributions on or Proceeds of any and all of the foregoing (collectively, the
"Collateral").
(b) Payment of Costs of Perfection. Sellers shall pay all fees
and expenses associated with perfecting Buyer's security interest in the
Collateral, including, without limitation, the cost of filing financing
statements under the Uniform Commercial Code and recording Assignments of
Mortgages and other assignments, as and when required by Buyer in its sole
discretion.
(c) Additional Actions. Sellers covenant to take such further
actions as are necessary in order to perfect Buyer's first priority security
interest in the Hedges or in any other Collateral.
(d) Joint and Several Liability. Each Seller hereby acknowledges
and agrees that such Seller shall be jointly and severally liable for all
representations, warranties, covenants, obligations and indemnities of the
Sellers hereunder.
7. PAYMENT, TRANSFER AND CUSTODY
(a) Payments by Sellers. Unless otherwise mutually agreed in
writing, all transfers of funds by Sellers hereunder shall be made in
immediately available funds in U.S. dollars, without deduction, set-off or
counterclaim, to Buyer at the account designated by Buyer.
(b) Custodial Delivery. On or before each Purchase Date, the
respective Seller shall deliver or cause to be delivered to Buyer or its
designee the Custodial Delivery in the form of Exhibit 7-1 and Exhibit 7-2 of
the Custodial Agreement. With respect to each Table Funded Mortgage Loan, BAC
shall cause the Settlement Agent or Designated Fax Distributor to deliver to the
Custodian by facsimile the Initial Table Funded Loan Documents. A Designated Fax
Distributor acts as fiduciary on behalf of Buyer in performing its
responsibilities hereunder.
(c) Transfer of Ownership. On the Purchase Date for each
Transaction, ownership of the Purchased Loans shall be transferred to the Buyer
or its designee (including the Custodian) against the simultaneous transfer of
the Purchase Price to an account of the respective Seller specified in the
Confirmation. The Seller, simultaneously with the delivery to Buyer or its
designee (including the Custodian) of the Purchased Loans relating to each
Transaction hereby sells, transfers, conveys and assigns to Buyer or its
designee (including the Custodian) without recourse, but subject to the terms of
this Agreement, all the right, title and interest of the Seller in and to the
Purchased Loans together with all right, title and interest in and to the
proceeds of any related insurance policies.
(d) Delivery of Loan File. In connection with each sale,
transfer, conveyance and assignment, or pledge, (i) three (3) Business Days
prior to each Purchase Date with respect to each Loan other than a Table Funded
Mortgage Loan, and (ii) by no later than 12:00 noon (New York time) on the third
Business Day following the applicable Purchase Date with respect to each Table
Funded Mortgage Loan, the Sellers shall deliver or cause to be delivered and
released to the Custodian the original documents pertaining to each Purchased
Loan set forth in Annex A
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and Annex B of the Custodial Agreement. The Loan Files shall be maintained in
accordance with the Custodial Agreement.
(e) Buyer shall deposit the Loan Files representing the Purchased
Loans, or direct that the Loan Files be deposited directly, with the Custodian.
The Loan Files shall be maintained in accordance with the Custodial Agreement.
(f) Any documents related to a Loan which have not been delivered
to Buyer or its designee (including the Custodian) are and shall be held in
trust by the applicable Seller or its designees for the benefit of Buyer as the
owner thereof. The Seller or its designees shall maintain the related Servicing
File consisting of a copy of the Loan File and the originals of other documents
related to the Loans not delivered to Buyer or its designee. The possession of
the Servicing Files by Sellers or their designees is at the will of the Buyer
for the sole purpose of servicing the related Purchased Loan(s), and such
retention and possession by the Sellers or their designees is in a custodial
capacity only. In addition to copies of the Loan Documents, the Servicing File
shall include, without limitation, (i) the original or copy certified by an
employee of the Seller of the credit application signed by the Obligor and the
Obligor credit bureau report(s) obtained by the Seller during the underwriting
of the Obligor's credit application, (ii) the Seller's credit worksheet together
with the credit score of the Obligor (which may be maintained by the Seller in
its computer database), (iii) in the case of a new Manufactured Home, the
manufacturer's invoice in respect of such Manufactured Home, and in the case of
Mortgage Loans, Pre-owned Manufactured Homes and Land-and-Home Loans, an
appraisal or other acceptable documentation as permitted pursuant to the terms
and conditions of the Underwriting Guidelines, corroborating the indicated value
thereof, (iv) proof of all insurance coverage required hereunder, including
without limitation, hazard insurance or blanket hazard insurance, (v) copies of
the letter or other written instruction delivered to each Obligor directing that
payments be made to the relevant Lockbox Account, (vi) all documents evidencing
origination in accordance with the Underwriting Guidelines and (vii) copies of
all material correspondence. The books and records (including, without
limitation, any computer records or tapes) of each Seller or their designees
shall be marked appropriately to reflect clearly the sale of the related
Purchased Loan to Buyer. Sellers and their designees (including the Custodian)
shall release their custody of Servicing Files only in accordance with written
instructions from Buyer, unless such release is in connection with a repurchase
of any Purchased Loan by a Seller.
8. REHYPOTHECATION OR PLEDGE OF PURCHASED LOANS
Title to all Purchased Loans shall pass to Buyer and Buyer shall
have free and unrestricted use of all Purchased Loans. Nothing in this Agreement
shall preclude Buyer from engaging in repurchase transactions with the Purchased
Loans or otherwise pledging, repledging, hypothecating, or rehypothecating the
Purchased Loans, but no such transaction shall relieve Buyer of its obligations
to transfer Purchased Loans to Sellers pursuant to Section 3 hereof. Nothing
contained in this Agreement shall obligate Buyer to segregate any Purchased
Loans delivered to Buyer by Sellers; provided that Buyer acknowledges that the
Custodian is contractually obligated to segregate the Loan Files pursuant to the
Custodial Agreement. In the event that there is a material adverse change or
other development in the repurchase markets which result in the Buyer being
unable to finance its position through the repurchase market with its
traditional repurchase counterparties, Buyer may accelerate the Final Repurchase
Date of one
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or more, or all, of any Loan or Loans and/or types of Purchased Loans to the
date of such occurrence.
9. SUBSTITUTION
(a) Sellers' Right to Substitute Eligible Loans. Subject to
Section 9(b) below, Sellers may, upon one (1) Business Days' written notice to
Buyer, with a copy to Custodian, substitute other Eligible Loans for any
Purchased Loans. Such substitution shall be made by transfer to Buyer or its
designee (including the Custodian) of the Loan Files of such other Eligible
Mortgage Loans together with a Custodial Delivery and transfer to the Seller or
its designee of the Purchased Loans requested for release. After substitution,
the substituted Eligible Loans shall be deemed to be Purchased Loans subject to
the same Transaction as the released Mortgage Loans.
(b) Limitation on Substitution. Notwithstanding anything to the
contrary in this Agreement, Sellers may not substitute other Eligible Loans for
any Purchased Loans (i) if after taking into account such substitution, a
Collateral Deficit would occur, (ii) such substitution would cause a breach of
any provision of this Agreement or (iii) a Default shall have occurred and be
continuing.
10. REPRESENTATIONS AND WARRANTIES
(a) Mutual Representations and Warranties. Each of Buyer and each
Seller (for itself, not jointly, but severally) represents and warrants to the
other that (i) it is duly authorized to execute and deliver this Agreement, to
enter into the Transactions contemplated hereunder and to perform its
obligations hereunder and has taken all necessary action to authorize such
execution, delivery and performance; (ii) it will engage in such Transactions as
principal; (iii) the person signing this Agreement on its behalf is duly
authorized to do so on its behalf; (iv) this Agreement is legal, valid and
binding obligation of it, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar debtor/creditor laws
and general principles of equity and public policy, (v) no approval, consent or
authorization of any Transaction contemplated by this Agreement from any
federal, state, or local regulatory authority having jurisdiction over it is
required or, if required, such approval, consent or authorization has been or
will, prior to the Purchase Date for such Transaction, be obtained; (vi) the
execution, delivery, and performance of this Agreement and the Transactions
hereunder will not violate any law, regulation, order, judgment, decree,
ordinance, charter, by-law, or rule applicable to it or its property or
constitute a default (or an event which, with notice or lapse of time, or both
would constitute a default) under or result in a breach of any material
agreement or other material instrument by which it is bound or by which any of
its assets are affected; (vii) it has received approval and authorization to
enter into this Agreement and each and every Transaction actually entered into
hereunder pursuant to its internal policies and procedures; and (viii) neither
this Agreement nor any Transaction pursuant hereto are entered into in
contemplation of insolvency or with intent to hinder, delay or defraud any
creditor.
(b) Representations and Warranties for Individual Transactions.
BAC and MHFC each represents and warrants to Buyer, with respect to itself, that
as of the Purchase Date for the purchase of any Purchased Loans by Buyer and as
of the date of this Agreement and any
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Transaction hereunder and at all times while this Agreement and any Transaction
hereunder is in full force and effect:
(1) Confirmation. All of the representations and warranties
in this Agreement, including the Loan Representations, are true with
respect to, and all other conditions precedent to the effectiveness of
this Agreement and to each Transaction have been and continue to be met
and satisfied.
(2) Organization. Seller is duly organized, validly existing
and in good standing under the laws and regulations of the state of
Michigan and is duly licensed, qualified, and in good standing in every
state where Seller transacts business and at all times when it held the
Loan in any state where any Underlying Asset is located if the laws of
such state require licensing or qualification in order to conduct
business of the type conducted by Seller therein except where the
failure to be so qualified, licensed or in good standing in such other
jurisdiction could not, individually or in the aggregate, have a
Material Adverse Effect;
(3) No Litigation. There is no action, suit, proceeding,
arbitration or investigation pending or threatened against Seller
which, either in any one instance or in the aggregate, (within the
meaning of Statement of Financial Accounting Standards No. 5), which if
adversely determined would individually or in the aggregate result in
any material adverse change in the business, operations, financial
condition, properties or assets of Seller, or in any material
impairment of the right or ability of Seller to carry on its business
substantially as now conducted, or in any material liability on the
part of Seller, or would affect the validity of this Agreement or any
of the Purchased Loans or of any action taken or to be taken in
connection with the obligations of Seller contemplated herein, or which
would be likely to impair materially the ability of Seller to perform
under the terms of this Agreement;
(4) No Broker. Seller has not dealt with any broker,
investment banker, agent, or other person, except for Buyer, who may be
entitled to any commission or compensation in connection with the sale
of Purchased Loans to Buyer pursuant to this Agreement;
(5) Selection Process. The Purchased Loans were selected from
among the Loans in Seller's portfolio as to which the representations
and warranties set forth in this Agreement could be made and such
selection was not made in a manner so as to result in a Material
Adverse Effect upon Buyer;
(6) Taxes. Seller has filed all Federal income tax returns
and all other material tax returns that are required to be filed by
Seller and have paid all taxes due pursuant to such returns or pursuant
to any assessment received by Seller, except for any such taxes as are
being appropriately contested in good faith by appropriate proceedings
diligently conducted and with respect to which adequate reserves in
accordance with GAAP have been provided. The charges, accruals and
reserves on Seller's books in respect of taxes and other governmental
charges are, in Seller's opinion, adequate;
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(7) No Untrue Statements. To the best of Seller's knowledge,
neither this Agreement nor any written statement made, including
without limitation all financial statements of the Seller or its
Affiliates delivered to Buyer, or any report or other document issued
or delivered or to be issued or delivered by Seller pursuant to this
Agreement, or in connection with, the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or
therein not misleading;
(8) Servicing Practices. The servicing and collection
practices used by Seller, and the origination practices of the related
Qualified Originator, have been in all material respects legal, proper
and prudent and have meet customary industry standards applicable to
similar loans.
(9) Performance of Agreement. Seller does not believe, nor
does it have any reason or cause to believe, that it cannot perform
each and every covenant contained in this Agreement on its part to be
performed;
(10) Seller Not Insolvent. Seller is not, and with the
passage of time does not expect to become, insolvent;
(11) No Event of Default. No Event of Default has occurred
and is continuing under this Agreement;
(12) ERISA. Each Plan to which Seller or its Subsidiaries
make direct contributions, and, to the knowledge of Seller, 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;
(13) Requirements for Perfection. The Perfection Requirements
Memorandum required under Section 12(r) is a true, complete, current
and accurate explanation of document and filing requirements necessary
to effect perfection of Buyer's interests Manufactured Homes and the
related MH contracts.
(14) Lending facilities. Neither Seller has a line of credit
or other lending arrangement with any Person other than Sun
Communities, Inc. and/or Guarantor.
(15) Computer Systems The computer systems utilized by each
Seller and Servicer (other than the Mortgage Servicer) in the
performance of their servicing activities under this Agreement and any
Servicing Agreement is capable of properly performing any calculations
and recordkeeping functions with respect to the Loans on and after
January 1, 2000.
(c) Individual Loans. Each Seller makes the following
representations and warranties with respect to each individual Loan it sells in
a Transaction hereunder, as of the related Purchase Date and as of each day such
Transaction is in effect, except as shall be specifically disclosed in the
schedule attached to the related Request for Purchase.
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(1) Good Title; No Adverse Claims. Seller is the sole owner
and holder of the Loan and has good, valid, indefeasible, marketable
title thereto, and full right, power and authority to sell, transfer
and assign such Loan to Buyer, free and clear of any Adverse Claim
(including, with respect to Mortgage Loans, mechanics', materialman's
or other similar liens or claims which have been filed for work, labor
or materials affecting Mortgaged Property which are or may be liens
prior to, or equal or coordinate with, the lien of the Mortgage, unless
such lien is insured against under a Title Policy) or Restrictions on
Transferability. The Loan, if purchased or otherwise acquired by
Seller, was acquired by Seller for fair value and in the ordinary and
regular course of its business, and Seller took possession thereof
without knowledge that the Loan was subject to a security interest. The
Qualified Originator, if any, has not sold, assigned or pledged the
Loan to any Person other than Seller and, prior to the transfer of the
Loan by Qualified Originator to Seller, Qualified Originator had good
and indefeasible title thereto free and clear of any Adverse Claim or
Restrictions on Transferability and was the sole owner and holder
thereof with full right to sell, assign and transfer the Loan to Seller
free and clear of any Adverse Claim, and upon such sale, Seller
acquired a valid ownership interest in such Loan, free and clear of any
Adverse Claim and any other Restriction on Transferability. Neither
Seller or any other party has sold, assigned or pledged the Loan to any
Person other than Buyer (unless a collateral assignment that has been
fully terminated prior to the assignment of that Loan by Seller to
Buyer under this Agreement). Following the purchase by Buyer of each
Loan, the Buyer will hold such Loan free and clear of any Adverse Claim
or Restrictions on Transferability.
(2) Security Interest in the Loan. Although intended as a
sale to Buyer, in the event of recharacterization of the sale of any
Loan to Buyer as a financing, Buyer has a valid, binding, enforceable
first priority perfected security interest therein. The Loan is not and
has not been secured by any collateral except the lien of the
corresponding Underlying Asset.
(3) Origination Practices. The Loan was originated by a
Qualified Originator in the regular course of its business, and, if
purchased by Seller, was purchased in the regular course of its
business. The origination practices used by Seller or by any Affiliate
of Seller with respect to each Purchased Loan (as well as all parties
which have had any interest in the creditor/lender's interest in each
such Loan, during the period in which they held and disposed of such
interest) (i) have been and are in all respects legal and proper in the
mortgage origination business and in compliance with the requirements
of federal and state laws, rules and regulations applicable to each
Loan, including without limitation, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit
opportunity and disclosure laws and (ii) are in accordance with the
Underwriting Guidelines attached hereto as Exhibit III and the
documentation is consistent in form and substance with the Seller's
Loan Documents approved by Buyer for use under this Agreement, and each
material deviation therefrom appears on a schedule attached to the
Request for Purchase and no such deviation (regardless of whether or
not considered material by Seller) would be deemed to be imprudent by a
prudent lender experienced in originating Loans of that nature, and in
no event will have a Material Adverse Effect. All Loan Documents
included in the Loan File have been duly executed as required by their
provisions and the provisions of applicable law and are in a
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form generally acceptable to prudent institutional lenders that
regularly originate and purchase Loans of the type subject to each Loan
Transaction.
(4) Loan Eligibility Requirements. Each of the Purchased
Loans and each Eligible Loan delivered hereunder as Additional Loans or
Substituted Loans conforms to the Loan Eligibility Requirements in all
material respects and has a stated maturity and is denominated in
United States Dollars. It is understood and agreed that the Loan
Representations shall survive delivery of the respective Loan File to
Buyer or its designee (including the Custodian).
(5) Conformance with Representations and Warranties. Each
Loan sold hereunder and each pool of Purchased Loans sold by a Seller
in a Transaction hereunder conforms to the applicable representations
and warranties in Exhibit II of this Agreement in all material respects
and each Eligible Loan delivered hereunder as an Additional Loan or
Substituted Loan conforms to those representations and warranties in
all material respects.
(6) Correct Collateral Information. As of the date of its
delivery, the Collateral Information with respect to the Loan in the
Request for Purchase and the Loan Schedule is complete, true and
correct in all material respects.
(7) Enforceability of Loan Documents. (A) The Loan Documents
have been duly and properly executed, and (B) the Loan Documents are
legal, valid and binding obligations of the Obligor, and their terms
are enforceable against the Obligor or other Obligor thereunder,
subject only to bankruptcy, insolvency, moratorium, fraudulent
transfer, fraudulent conveyance and similar laws affecting rights of
creditors generally and to the application of general principles of
equity (regardless of whether such enforcement is considered in a
proceeding at law or in equity). Subject to (B), above, the Loan
Documents contain customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for the
realization against each related Underlying Asset of the material
benefits of the security, including realization by judicial or, if
applicable, non-judicial foreclosure, and there is no homestead of
other exemption under applicable state or federal law that is available
to the Obligor which would materially interfere with such right to
foreclosure. Upon default by an Obligor on a Loan and foreclosure on,
or trustee's sale of, the Underlying Asset pursuant to the proper
procedures, the holder of the Loan will be able to deliver good and
merchantable or marketable title to the Underlying Asset. Any interest
required to be paid by Seller pursuant to state, Federal and local law
has been properly paid and credited.
(8) Legal Capacity. To the best of Seller's knowledge, all
parties to the Note and the related Loan Documents delivered in
connection with the Loan, including individual persons, had the legal
capacity to enter into such documents.
(9) No Limitation Upon Assignment. In connection with the
assignment, transfer or conveyance of any individual Loan or MH
Contract, the Note and other Loan Documents do not contain any
provision limiting the right or ability of the applicable Qualified
Originator to assign, transfer and convey the to any other person or
entity. The Loan was not originated in and is not subject to the laws
of any jurisdiction
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whose laws would make the transfer of the Loan pursuant to any
applicable Loan Transfer Agreement or this Agreement unlawful or render
the Loan unenforceable.
(10) No Usury. The Purchased Loan does not violate or is
exempt from applicable usury laws. All Loan Interest Rate adjustments
have been made in strict compliance with state and Federal law and the
terms of the related Loan.
(11) No Waiver or Modification of Loan Terms. Since the date
of origination of the Loan, the terms of the Loan have not been
impaired, waived, altered, released, rescinded, satisfied, canceled,
extended, subordinated or modified in any respect (except by a written
instrument which has been recorded, if necessary, to protect the
interests of the Buyer, and which has been delivered to the Buyer or
its designee (including the Custodian) for inclusion in the Loan File,
and with respect to which the economic terms of which are reflected in
the Loan Schedule and the Collateral Information), and no portion of
the collateral for the Loan has been released in any manner from the
lien of the encumbrance or security interest created upon the closing
of that Loan in favor of Seller (except if specifically called for
under and pursuant to the Loan Documents and in compliance with the
applicable Underwriting Guidelines, and summarized in the underwriting
summary or other document delivered to Buyer at the time of, or in
connection with, the related Request for Purchase). The substance of
any such waiver, alteration or modification has been approved by the
issuer of any related insurance policy, to the extent required by such
policy.
(12) Full Disbursement; No Additional Services. Except if
specifically permitted under the applicable Loan Eligibility
Requirements and contemplated by the Loan Documents, and the proceeds
of the Loan have been fully disbursed and there is no requirement for
future advances thereunder and Seller covenants that it will not make
any future advances under the Loan to the Obligor. All costs, fees and
expenses incurred by Seller (or which are otherwise payable by the
Obligor under the Loan Documents) in making or closing the Loan and the
recording of the Loan were paid, and the Obligor is not entitled to any
refund of any amounts paid or due under the Loan. Except if
specifically called for under and pursuant to the Loan Documents and in
compliance with the applicable Underwriting Guidelines, and summarized
in the underwriting summary or other document delivered to Buyer at the
time of, or in connection with, the related Request for Purchase, the
Loan is not subject to the performance of additional services by any
Person.
(13) Completion of Improvements. Except for the escrows and
disbursements therefrom, or if specifically permitted under the
applicable Loan Eligibility Requirements, and in each case as
contemplated by the Loan Documents, any Obligor requirements for on or
off-site improvements as to disbursement of any escrow funds therefor
have been complied with.
(14) Commencement of Payments by Obligor. Except for
interest-only Loans (if permitted under the applicable Loan Eligibility
Requirements and Underwriting Guidelines), principal payments on the
Loan commenced, or under the terms of the Loan Documents are to
commence, no more than 60 days after funds were disbursed in connection
with the Loan.
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(15) No Lender Participation. The Loan does not have a shared
appreciation feature or provide for contingent or additional interest
in the form of participation in cash flow, or (except in connection
with Mortgage Loan hyperamortization terms approved by Buyer) negative
amortization. Except in connection with Interim Mortgage Loans and
Bridge Mortgage Loans including "preferred equity" features consistent
with the applicable Underwriting Guidelines approved by Buyer, the
indebtedness evidenced by the Loan is not convertible to an ownership
interest in the Underlying Asset or the Obligor and Seller has not
financed nor does it own directly or indirectly, any equity of any form
in the Underlying Asset or the Obligor, unless otherwise approved in
writing by Buyer.
(16) Whole Loan. The Loan is a whole loan and contains no
equity participation by the lender.
(17) No Fraud. No fraudulent acts were committed by Seller or
its affiliates in connection with the origination process of the Loan.
(18) No Default. To the best knowledge of Seller, and other
than with respect to Permitted Delinquencies in connection with MH
Loans, there is no material default, breach, violation or event of
acceleration existing under any of the Loan Documents and Seller has
not received actual notice of any event (other than payments due but
not yet delinquent) which, with the passage of time or with notice and
the expiration of any grace or cure period, would and does constitute a
default, breach, violation or event of acceleration; no waiver by
Seller of the foregoing exists and no person other than the holder of
the Note may declare any of the foregoing. The first Monthly Payment
shall be made, or shall have been made, with respect to the Loan on its
Due Date or within its grace period, all in accordance with the terms
of the related Loan Documents.
(19) No Breach of Obligor's Representations. Seller has not
taken any action, nor has knowledge that the Obligor has taken any
action, that would cause the representations and warranties made by the
Obligor in the Loan Documents not to be true in any material respect.
(20) No Defenses. The Loan is not subject to (and the
assignment thereof to the Buyer pursuant to this Agreement will not
subject the Loan to) any right of rescission, setoff, counterclaim or
defense, including the defense of usury, nor will the operation of any
of the terms of the Loan or the exercise of any right thereunder will
not render the Loan unenforceable in whole or in material part or
subject to any right of rescission, setoff, counterclaim or defense,
including the defense of usury, and to Seller's knowledge, no such
right of rescission, setoff, counterclaim or defense has been asserted
with respect thereto.
(21) No Pending Proceedings. To the best of Seller's
knowledge, there are no proceedings or investigations pending or
threatened before any Governmental Authority (A) asserting the
invalidity of the Loan, (B) asserting the bankruptcy or insolvency of
the related Obligor, (C) seeking the payment of the Loan or payment and
performance of the Loan (other than with respect to Permitted
Delinquencies, if applicable), or (D) seeking any determination or
ruling that might materially and
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adversely affect the validity or enforceability of the Loan, and no
other material action, suit, proceeding, arbitration or investigation
with respect to any of the Underlying Asset is pending (or to Seller's
knowledge) threatened against Seller.
(22) Funded Escrows. Any escrow accounts for taxes or other
reserves required to be funded on the date of origination of the Loan
pursuant to the Loan documents have been funded and all such escrow
accounts required to have been funded as of the Purchase Date (taking
into account any applicable notice and grace period) have been funded
in accordance with the applicable Underwriting Guidelines. All Escrow
Payments have been collected in full compliance with state and Federal
law. All escrow deposits and Escrow Payments required as of the
Purchase Date are in the possession of, or under the control of, Seller
and there exist no deficiencies in connection therewith for which
customary arrangements for repayment thereof have not been made. No
escrow deposits, Escrow Payments or other charges or payments (other
than Extra Costs) due to either Seller have been capitalized under the
Loans.
(23) No Violation of Environmental Laws. Neither Seller nor
any of its Affiliates has received any notice of violation, alleged
violation, non-compliance, liability or potential liability regarding
environmental matters or compliance with any environmental laws with
regard to any of the Underlying Assets, nor does Seller have knowledge
or reason to believe that any such notice will be received or is being
threatened. Seller has not taken any actions which would cause any
Underlying Asset not to be in compliance with all applicable federal,
state and local laws pertaining to environmental hazards.
(24) Delivery of Loan File. The Loan File Documents have been
delivered to the Custodian (or with respect to Table Funded Mortgage
Loans, will be delivered to the Custodian within the time period
required under Section 7 of this Agreement), and (ii) Seller has
delivered to Buyer or its designee all documents required to be
delivered pursuant to this Agreement. Seller or its designee is in
possession of a complete, true and accurate Loan File with respect to
each Purchased Loan, except for such documents the originals of which
have been delivered to the Custodian. All documentation required to be
delivered to the applicable Servicer has been received by that
Servicer.
(25) No Advance of Funds by Seller or Third Party for Debt
Service. Except insofar as the proceeds of the Loan are to be applied
in satisfaction of payments due under the terms of the Loan, as
provided in the Loan Documents, Seller has not advanced funds, or
knowingly received any advance of funds from a party other than the
Obligor subject to the related Loan, directly or indirectly, for the
payment of any amount required by the Loan, and no provision exists in
the Loan Documents anticipating payments by anyone on behalf of the
Obligor by any source other than the Obligor, except under guarantees
that are in the related Loan File.
(26) Recording and Filing Fees. All applicable recording
taxes and other filing fees have been paid in full or deposited with
the Settlement Agent (or the issuer of the Title Policy issued in
connection with a Mortgage Loan or Land and Home Loan) for payment upon
recordation and/or filing of the relevant documents.
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(27) Collateral Undamaged. To the best of Seller's knowledge,
(i) there is no proceeding pending or threatened for the total or
partial condemnation of the Underlying Asset, if any; (ii) the
Underlying Asset is undamaged by waste, fire, earthquake or earth
movement, windstorm, flood, tornado, explosion, accident, riot, war, or
act of God or the public enemy or other casualty so as to materially
and adversely affect the value of the Underlying Asset as security for
the Loan or the use for which the premises (if applicable) were
intended and each Underlying Asset is in good condition and repair and,
except as disclosed in the engineering report and summarized in the
underwriting summary or other document delivered to the Buyer at the
of, or in connection with, the related Request for Purchase, no
material deferred maintenance exists; and (iii) no Underlying Asset has
suffered damage that is not covered by a Hazard Insurance Policy (if
that insurance coverage is required under this Agreement for that
Underlying Asset).
(28) Due on Sale or Transfer Provisions. The Loan Documents
contain provisions for the acceleration of the payment of the unpaid
principal balance of the Loan if (A) the Obligor voluntarily transfers
or encumbers all or any portion of any related Mortgaged Property, or
(B) any direct or indirect interest in Obligor is voluntarily
transferred or assigned, other than, in each case, as permitted under
the terms and conditions of the Loan Documents.
(29) Acceptable Investment. Sellers have no knowledge of any
circumstances or conditions with respect to the Loan or the Underlying
Asset, the Obligor or the Obligor's credit standing that can reasonably
be expected to cause private institutional investors to regard the Loan
as an unacceptable investment, cause the Loan to become delinquent, or
materially and adversely affect the value or marketability of the Loan.
(30) Payment Instructions. Each Obligor has been directed,
and is required to, remit or wire all payments, including prepayment
payments and Curtailment payments, with respect to each Loan for
deposit directly to the appropriate Blocked Account.
(31) Outstanding Charges. All taxes, governmental
assessments, insurance premiums, water, sewer, park and municipal
charges, leasehold payments or ground rents which previously became due
and owing have been paid, or an escrow of funds has been established in
an amount sufficient to pay for every such item which remains unpaid
and which has been assessed but not yet due and payable.
(32) Loan Eligibility Requirements. The Loan meets all of the
Loan Eligibility Requirements set forth herein for that Loan type.
(33) Knowledge of Defects. Seller has no knowledge of any
fact which would lead a reasonably prudent lender to expect at the time
of origination of such Loan that any scheduled payment on such Loan
would not be paid in full when due or to expect any other material
adverse effect on (A) the performance by Seller of its obligations
under the Facility Documents or Loan Documents (B) the validity or
enforceability of any of the Facility Documents or Loan Documents to
which it is a party, (C) the Loans or the
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interests of Seller or Dealer therein or (D) the federal income tax
attributes of the sale or pledge of the Loans.
(34) Necessary Documentation. Seller has submitted to the
Obligor all necessary documentation (including an invoice for Floorplan
Loans, and for MH Loans, as applicable) for payment of such Loan and
has fulfilled all its other obligations in respect thereof. The Obligor
has submitted to Seller all documentation necessary for disbursement of
such Loan and has fulfilled all its other obligations in respect
thereof.
(d) For the purposes of this Agreement (including the Loan
Representations): (i) the term "to Seller's knowledge," means that the
applicable Seller reasonably believes such representation or warranty to be
true, and has no actual knowledge or notice that such representation or warranty
is inaccurate or incomplete, but that such Seller, consistent with the standard
of care exercised by prudent lending institutions originating Loans of the type
to which that representation or warranty applies, has no knowledge of any facts
or circumstances that would render reliance thereon unjustified without further
inquiry; (ii) the term "to the best of Seller's knowledge," means that to such
Seller's knowledge, the representation or warranty is not incomplete or
inaccurate, and such Seller has conducted a reasonable inquiry (consistent with
the standard of care exercised by prudent lending institutions originating Loans
of the type to which that representation or warranty applies) to assure the
accuracy and completeness of the applicable statement; and (iii) the term "in
reliance on" or "based on," means that such Seller has examined and relied in
whole or in part upon the certificate, report, opinion or other referenced
document, that the information contained in such document is sufficient to
support accurately and in all material respects the substance of the applicable
representation or warranty, that such Seller's reliance on such document is
reasonable, prudent and consistent with the standard of care exercised by
prudent lending institutions originating Loans of the type to which that
representation or warranty applies, and although the Seller is under no
obligation to independently verify the information contained in such document,
the Seller believes the information contained therein to be true and accurate in
all material respects and has no knowledge of any facts or circumstances that
would render reliance thereon unjustified without further inquiry. With respect
to any representations and warranties made by each Seller, in the event that it
is discovered that the circumstances with respect to the related Loan are not
accurately reflected in such representation and warranty notwithstanding the
actual knowledge or lack of knowledge of a Seller, then, notwithstanding that
such representation and warranty is made "to the best of the Seller's
knowledge," or "to Seller's knowledge," or in reliance on or based on other
information, the Market Value and/or Securitization Value of such Loans may, in
the Buyer's sole good faith discretion, be reduced to zero based on such Breach.
11. NEGATIVE COVENANTS OF THE SELLERS
On and as of the date of this Agreement and each Purchase Date and
until this Agreement is no longer in force with respect to any Transaction, each
Seller covenants for itself that:
(a) Impair Value of Loans. It will not take any action which
would directly or indirectly impair or adversely affect Buyer's title and right
to the Market Value or Securitization Value of the Purchased Loans;
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(b) Further Liens. It will not pledge, assign, convey, grant,
bargain, sell, set over, deliver or otherwise transfer any interest in the
Purchased Loans or other Collateral to any person not a party to this Agreement
nor will either Seller create, incur or permit to exist any Lien in or on the
Purchased Loans or other Collateral except as described in Section 6 hereof
without the prior express written consent of Buyer;
(c) Merger or Dissolution. It will not enter into any transaction
of merger or consolidation or amalgamation, or liquidate, wind up or dissolve
itself (or suffer any liquidation or dissolution), sell all or substantially all
of its assets or change its name, identity or corporate structure, provided that
the Seller may merge and consolidate with any Person if the Seller is the
surviving corporation, or the entity into which it merges has equity and a
market value of at least that of the Seller immediately prior to such merger and
such entity expressly assumes the obligations of the Seller at the time of such
merger and, after giving effect thereto, no Default or Event of Default would
exist hereunder;
(d) Engage in Other Lines of Business. It will not engage, to any
substantial extent, in any line or lines of business activity other than the
businesses now generally carried on by it;
(e) Restrictions Upon Other Transactions. It will not enter into
any transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of Seller's business and (c) upon fair and reasonable terms no
less favorable to Seller than it would obtain in a comparable arm's length
transaction with a Person which is not an Affiliate, or make a payment to any
Affiliate that is not otherwise permitted by this Agreement;
(f) Loans and Advances. It will not make any advance (other than
advances made as required in connection with servicing Loans in the ordinary
course as to which it owns the servicing rights), loan, extension of credit or
capital contribution to, or purchase any stock, bonds, notes, debentures or
other securities of or any assets constituting a business unit of, or make any
other investment in, any Person;
(g) No Change in Fiscal Year. Its fiscal year will end on
September 30 and it will not make any changes to its fiscal year;
(h) No Adverse Action. It will not take any action which would
result in a Material Adverse Effect upon its business operations and/or
financial condition;
(i) Relocate Offices. It will not move its chief executive office
from its address as of the date hereof unless it shall have provided Buyer
fifteen (15) days' prior written notice of such change; or
(j) Restrictions On Distributions. It will not, after the
occurrence and during the continuation of any Default of which it has notice or
knowledge, or an Event of Default, make any distribution, 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 Seller, whether now or hereafter outstanding, or make
any other
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distribution in respect thereof, either directly or indirectly, whether in cash
or property or in obligations of Seller.
12. AFFIRMATIVE COVENANTS OF THE SELLERS
For so long as this Agreement is in effect:
(a) Notification of Material Adverse Changes. Each Seller
covenants that it will promptly notify Buyer of any material adverse change in
its business operations and/or financial condition;
(b) Confirming Documents Regarding Representations and
Warranties. Each Seller shall provide Buyer with copies of such documentation as
Buyer may reasonably request evidencing the truthfulness of the representations
set forth in Section 10 hereof, including but not limited to resolutions
evidencing the approval of this Agreement by Seller's board of directors or loan
committee, copies of the minutes of the meetings of Seller's board of directors
or loan committee at which this Agreement and the Transactions contemplated by
this Agreement were approved;
(c) Maintenance of First Lien Position. Each Seller shall, at
Buyer's request, take all action necessary to ensure that Buyer will have a
first priority security interest in the related Collateral, including, among
other things, filing such Uniform Commercial Code financing statements as Buyer
may reasonably request;
(d) Notice of Defaults. Each Seller shall notify Buyer, no later
than one (1) Business Day after obtaining actual knowledge thereof, if any event
has occurred that constitutes a Breach, a Default, or an Event of Default with
respect to either Seller;
(e) Changes to Underwriting Guidelines and Loan Documents. Each
Seller covenants to provide Buyer with a copy of any material changes to that
Seller's Underwriting Guidelines or Seller's Loan Documents prior to the
effectiveness of any such change. Buyer shall use reasonable efforts to review
and approve or disapprove such changes within five (5) Business Days or
otherwise within a reasonable amount of time following receipt thereof. In the
event that Buyer does not approve such change in writing, Buyer shall not be
obligated to enter into any Transactions with respect to Eligible Loans
underwritten to such changed Underwriting Guidelines or relating to such changed
Seller's Loan Documents. Each Seller shall notify Buyer prior to entering into
any Significant Modification or assumption agreements with any Obligor and shall
deliver such documents to the Custodian for inclusion in the related Loan Files.
However, MHFC may act in the ordinary course of business as a prudent lender in
connection with MH Loans in making modifications other than Significant
Modifications (which must have prior approval from Buyer), prior to notifying
Buyer, if any only if, such action will not impair Buyer's interest therein and
MHFC notifies Buyer promptly upon making any such change. Any modification or
assumption agreements shall conform with the Seller's Underwriting Guidelines.
If a change in circumstances results in impairment of the marketability of Loans
that are underwritten pursuant to previously approved Underwriting Guidelines,
Buyer may notify Seller that it objects to continued use of such Underwriting
Guidelines, and Buyer shall thereafter be under no obligation to enter into any
Transactions with respect to Loans underwritten in accordance therewith (other
than Transactions for which Seller has issued a commitment letter,
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as to which Buyer shall use good faith efforts to effect the purchase, but the
Market Value and/or Securitization Values given the Loans subject thereto may be
re-adjusted by Buyer, in Buyer's sole discretion, to reflect the impairment of
marketability).
(f) Hedging. Each Seller shall at all times maintain Hedges,
having a notional amount not less than the aggregate outstanding balance of all
fixed rate Purchased Loans with Buyer or an Affiliate thereof, having terms with
respect to protection against fluctuations in interest rates reasonably
acceptable to Buyer. Buyer acknowledges that Seller's purchases of short sales
on U.S. Treasury Securities of equal duration to the Purchased Loans shall be an
acceptable interest rate protection strategy and Hedge program and Buyer shall
make available to Seller a knowledgeable individual for discussion purposes;
(g) Provision of Collateral Information for Each Loan. Each
Seller covenants to provide or cause to be provided to Buyer, by no later than
12:00 noon (New York time), two Business Days immediately preceding each Payment
Date, either by direct modem electronic transmission or via a computer diskette,
the Collateral Information in computer readable format with respect to all
Purchased Loans then subject to Transactions and covenants to provide Buyer with
access to operating statements, the occupancy status and other property level
information, with respect to the properties, plus any such additional reports as
Buyer may reasonably request with respect to pending originations of mortgage
loans;
(h) BAC's Provision of Pipeline Report. BAC covenants to provide,
or cause to be provided to Buyer, the Pipeline Report by no later than 12:00
noon (New York time) two (2) Business Days immediately preceding each Payment
Date, either by direct modem electronic transmission or via computer diskette;
(i) Seller Financial Reporting. Each Seller covenants to provide
Buyer with the following financial and reporting information with respect to
that Seller:
(i) Annual Statements. Within 90 days after the last day of
its fiscal year, Seller's audited consolidated statements of income and
statements of changes in cash flow for such year and balance sheets as
of the end of such year in each case presented fairly in accordance
with GAAP, and accompanied, in all cases, by an unqualified report of a
nationally recognized independent certified public accounting firm
consented to by Buyer (which consent shall not be unreasonably
withheld);
(ii) Quarterly Statements. Within 45 days after the last day
of the first three fiscal quarters in any fiscal year, Seller's
consolidated statements of income and statements of changes in cash
flow for such quarter and balance sheets as of the end of such quarter
presented fairly in accordance with GAAP and certified by an Officer's
Certificate as being complete and correct and fairly presenting the
results of operations, assets and liabilities and financial condition
of that Seller;
(iii) Compliance Certificates. Upon request and in any event
not more frequently than quarterly, an Officer's Certificate from a
senior officer of each Seller addressed to Buyer certifying that, as of
such calendar month, (x) that Seller is in compliance with all of the
terms, conditions and requirements of this Agreement, and (y) no Event
of Default exists; and
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(iv) Consolidated Statements. Buyer acknowledges that each
Seller is a wholly-owned subsidiary of Guarantor and that its financial
statements are prepared in connection with the preparation of audited
statements for Guarantor. For the purposes of satisfying the foregoing
reporting requirements, Sellers shall provide Buyer with copies of
Guarantor's corresponding consolidated statements with consolidating
information specifically applicable to each Seller and Bloomfield
Servicing;
(j) Servicer Financial Reporting. Each Seller covenants for
itself to cause any Servicer or subservicer of its respective Purchased Loans to
provide Buyer with the following financial and reporting information with
respect to that party:
(i) Annual Statements. Within 90 days after the last day of
its fiscal year, the Servicer's or subservicer's audited consolidated
statements of income and statements of changes in cash flow for such
year and balance sheets as of the end of such year in each case
presented fairly in accordance with GAAP, and accompanied, in all
cases, by an unqualified report of a nationally recognized independent
certified public accounting firm (or other independent certified public
accounting firm for the MH Servicer's annual statements for the 1998
fiscal year only) consented to by Buyer (which consent shall not be
unreasonably withheld);
(ii) Quarterly Statements. Within 45 days after the last day
of the first three (3) fiscal quarters in any fiscal year, the
Servicer's or subservicer's consolidated statements of income and
statements of changes in cash flow for such quarter and balance sheets
as of the end of such quarter presented fairly in accordance with GAAP;
(iii) Compliance Certificates. Within 90 days after the last
day of its fiscal year, an Officer's Certificate of the Servicer or
subservicer addressed to Buyer certifying that, as of such calendar
month, the Servicer or subservicer is in compliance with all of the
terms, conditions and requirements of the Servicing Agreement and no
default exists thereunder; and
(iv) Consolidated Statements. Buyer acknowledges that
Bloomfield Servicing is a wholly-owned subsidiary of Guarantor, and
that its financial statements are prepared in connection with the
preparation of audited statements for Guarantor. For the purposes of
satisfying the foregoing reporting requirements with respect to
Bloomfield Servicing, Sellers shall provide Buyer with copies of
Guarantor's corresponding consolidated statements with consolidating
information specifically applicable to each Seller and Bloomfield
Servicing;
(k) Evidence of Compliance with Legal Requirements. For at least
the term of this Agreement, each Seller shall maintain in its possession,
available for Buyer's inspection, and shall deliver to Buyer promptly upon
written request, evidence of compliance with all legal and organizational
requirements applicable to its existence and the origination, servicing and
collection of all Purchased Loans subject to Transactions at any time.
(l) Accepted Servicing Practices. Each Seller shall cause the
servicing of the Purchased Loans to conform to Accepted Servicing Practices;
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(m) Compliance with Representations, Warranties and Eligibility
Requirements. Each Seller shall continue to comply with the representations and
warranties as provided in this Agreement and with the Loan Eligibility
Requirements in all material respects and shall promptly notify Buyer upon
obtaining notice or knowledge of any Breach;
(n) Notice of Benefit Plan Events. Each Seller shall promptly
give notice to Buyer of the following events, as soon as possible and in any
event within 30 days after Seller knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect to any
Plan, a failure to make any required contribution to a Plan, the creation of any
Lien in favor of the PBGC or a Plan or any withdrawal from, or the termination,
Reorganization or Act of Insolvency of, any Multiemployer Plan or (ii) the
institution of proceedings or the taking of any other action by the PBGC or
Seller or any Commonly Controlled Entity or any Multiemployer Plan with respect
to the withdrawal from, or the terminating, Reorganization or Act of Insolvency
of, any Plan;
(o) Maintenance of Insurance. Each Seller covenants to maintain
with financially sound and reputable insurance companies insurance as set forth
below in at least such amounts and against at least such risks as are usually
insured against in the same general area by companies engaged in the same or a
similar business, which insurance shall name the Buyer as an additional loss
payee, in the case of property or casualty insurance, and shall furnish to
Buyer, a certified true copy of such bond and insurance policies, including
policies for Blanket Fidelity Bond and Errors and Omissions Insurance and
key-man life insurance for Daniel Bober and Creighton Weber in the amount of at
least $1,000,000 each, and upon Buyer's request, shall furnish a statement from
the surety and the insurer that such fidelity bond or insurance policy shall in
no event be terminated or materially modified without 30 days' prior written
notice to the Buyer, and such other information with respect thereto as Buyer
may reasonably request;
(p) GAAP. Each Seller covenants that, unless otherwise expressly
stated to the contrary, all financial representations, warranties, covenants and
calculations shall be made in accordance with GAAP;
(q) Transfer of Servicing Upon Default. Each Seller will, upon
the occurrence of a Default, at the Buyer's instruction, transfer servicing to
the Back-up Servicer in a prudent and prompt manner, safeguarding the Buyer's
interest therein.
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(r) Perfection Requirements Memorandum. Sellers shall provide
Buyer and Custodian with a memorandum (the "Perfection Requirements Memorandum"
of the state requirements for perfection of security interests in MH Paper and
the Underlying Assets, indicating which documents must be delivered to Custodian
in order to evidence perfection of Buyer's interest in the collateral covered
thereby and shall keep that list current to reflect any material changes in
those requirements. MHFC shall not propose any MH Loan for purchase and BAC
shall not propose any Floorplan Loan for purchase if the Perfection Requirements
Memorandum not been delivered to Buyer and Custodian;
(s) Executive Bonus Plans. Each Seller shall provide Buyer with a
copy of any Executive Bonus Plans to be adopted by that Seller, as and when
finalized; and
(t) Monthly Inspections. BAC will conduct, or cause to be
conducted by a qualified third party under contract to BAC or the applicable
Servicer, monthly inspections of each Dealer's Property to verify the existence
and condition of the Manufactured Homes securing all Floorplan Loans and shall
provide copies of the results of such inspection to Buyer after completion.
(u) SMMEA-eligibility for Manufactured Homes. MHFC will
diligently pursue its application to the Secretary of Housing and Urban
Development pursuant to section 1703 of Title 12 (Title 1 of the National
Housing Act), for approval for insurance, and will provide Buyer with a
quarterly update of the status of the application at the time it delivers its
financial reports required under Section 12(i) (ii) hereof.
(v) UCC filing for Change of Address. Promptly upon each Seller's
change of address, such Seller shall file a change of address amendment to the
UCC-1 filing previously made in favor of Buyer, in the appropriate filing
office, and shall send an acknowledgment thereof to Buyer.
(w) Provision of forms for effecting assignment of security
interest in Manufactured Homes. MHFC will obtain all applications, documents and
forms that would be required by state recording officers to record Buyer's
interest in the Manufactured Homes that secure MH Loans subject to Transactions,
and will forward such forms to Custodian, as and when received.
(x) Computer Systems The computer systems utilized by the
Mortgage Servicer in the performance of their servicing activities under this
Agreement and its Servicing Agreement will be capable before June 30, 1999 of
properly performing any calculations and recordkeeping functions with respect to
the Loans on and after January 1, 2000.
13. EVENTS OF DEFAULT
(a) If any of the following events (each an "Event of Default")
occur, Sellers and Buyer shall have the rights set forth in Section 14 hereof,
as applicable:
(i) Either Seller, Buyer, or Guarantor fails to satisfy or
perform either:
(A) Any payment or purchase obligation under this
Agreement including without limitation, the payment of the
Repurchase Price when due; or
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(B) Any other material obligation or covenant under this
Agreement, other than an Event of Default specifically included in
any of the other subsections of this Section 13(a) within five (5)
Business Days after notice of such Breach;
(ii) An Act of Insolvency occurs with respect to either
Seller or Buyer or Guarantor;
(iii) There shall occur a Breach of any representation or
warranty made by either Seller or Guarantor that is not corrected or
cured of its inaccuracy within five (5) Business Days of the earlier of
notice or knowledge of such Breach (other than a Breach of a Loan
Representation, which shall not be considered as a Default or an Event
of Default, and instead shall be considered solely for the purpose of
determining the Market Value and Securitization Value of the Loans,
unless a Seller has made any such representation or warranty with
knowledge that it was materially false or misleading at the time made,
in which case it shall constitute an Event of Default);
(iv) Either Seller or Buyer shall admit its inability to, or
its intention not to, perform any of its obligations hereunder,
Guarantor shall admit is inability to perform under the Guaranty;
(v) Any governmental, regulatory, or self-regulatory
authority, including, but not limited to, the Agencies, takes any
action that removes, limits, restricts, suspends or terminates the
rights, privileges, or operations of either Seller or any of its
Affiliates, including suspension as an issuer, lender or
seller/servicer of mortgage loans, which suspension has a Material
Adverse Effect and which continues for more than 24 hours;
(vi) Either Seller or Guarantor dissolves, merges or
consolidates with another entity (unless (A) it is the surviving party
or (B) the entity into which it merges has equity and a market value of
at least that of the Seller or Guarantor, as the case may be,
immediately prior to such merger and such entity expressly assumes the
obligations of the Seller or Guarantor at the time of such merger), or
sells, transfers, or otherwise disposes of a material portion of its
business or assets without Buyer's prior written consent;
(vii) Buyer, in its good faith judgment, believes that there
has been a material adverse change in the business, operations,
corporate structure or financial condition of either Seller or the
Guarantor or that either Seller or the Guarantor will not meet any of
its obligations under any Transaction pursuant to the Facility
Documents, this Agreement, servicing requirements, the Guaranty or any
other agreement between the parties;
(viii) A final nonappealable judgment by any competent court
in the United States of America for the payment of money in an amount
of at least $250,000 is rendered against either Seller or the
Guarantor, and the same remains undischarged, unbonded or unpaid for a
period of sixty (60) days during which execution of such judgment is
not effectively stayed;
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(ix) This Agreement and the related Facility Documents
shall for any reason cease to create a valid, first priority security
interest in any of the Purchased Loans purported to be covered hereby;
(x) A Market Value Collateral Deficit or Securitization
Value Collateral Deficit occurs with respect to either Seller, as
applicable, and is not eliminated within the time period specified in
Section 4(b) hereof;
(xi) An "event of default" or other material breach has
occurred pursuant to (A) a Hedge entered into upon request of Buyer
pursuant to Section 12(f) hereof, (B) the Custodial Agreement, (C) any
Blocked Account Agreement, (D) the Side Letter, (E) the Second Side
Letter, (F) the MH Side Letter (G) the Second Subordination Letter or
(H) the Guaranty;
(xii) Either Seller or any of its Affiliates shall be in
default under any note, indenture, loan agreement, guaranty, swap
agreement or any other material contract to which it is a party, which
default (i) involves the failure to pay a matured obligation, or (ii)
permits the acceleration of the maturity of obligations by any other
party to or beneficiary;
(xiii) Guarantor's Maximum Leverage Ratio shall exceed 9:1
at any time;
(xiv) Guarantor's Tangible Net Worth shall at any time be
less than the greater of (a) Guarantor's Asset Value Net Worth minus
unsecured subordinated debt of the Guarantor which is subject to a
subordinated agreement acceptable to Buyer and (b) the sum of (x)
$10,300,000, (y) 85% of equity contributions to Guarantor received
since March 19, 1998 and (z) 75% of cumulative positive net income of
Sellers and other Subsidiaries of Guarantor from March 19, 1998;
(xv) Guarantor's FCCR for any calendar quarter shall be
less than 1.25x at any time;
(xvi) Guarantor shall have made a Restricted Payment;
(xvii) Guarantor shall have entered into a line of business
other than the lines of business expressly contemplated in that certain
prospectus, dated November 13, 1997, for 1,200,000 shares of common
stock of Guarantor; or
(xviii) Either Seller shall fail to fully transfer servicing
to the Back-up Servicer within five (5) Business Days of Buyer's
request.
(b) In making a determination as to whether an Event of Default
has occurred, and where more specific information is not reasonably available to
the party making the determination, the parties hereto shall be entitled to rely
on reports published or broadcast by media sources believed by such party to be
generally reliable and on information provided to it by any other sources
believed by it to be generally reliable, provided that such party in good faith
believes such information to be accurate and has taken such steps as may be
reasonable in the circumstances to attempt to verify such information, provided
however, without impairing the
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ability of any party to rely on the above-listed information, the party against
which such information is used shall have the right to establish any disputed
facts or conclusions with evidence from more reliable sources.
14. REMEDIES
(a) Buyer's Remedies. If an Event of Default occurs with respect
to either Seller or Guarantor, the following rights and remedies are available
to Buyer:
(i) Acceleration of Repurchase Date. At the option of Buyer,
exercised by written notice to the Sellers (which option shall be
deemed to have been exercised, even if no notice is given, immediately
upon the occurrence of an Act of Insolvency), the Repurchase Date for
each Transaction hereunder shall be deemed immediately to occur.
(ii) Sellers' Repurchase Obligations. If Buyer exercises or
is deemed to have exercised the option referred to in subsection (a)(i)
of this Section,
(A) Sellers' obligations hereunder to repurchase all
Purchased Loans in such Transactions shall thereupon become
immediately due and payable,
(B) to the extent permitted by applicable law, the
Repurchase Price with respect to each such Transaction shall be
increased by the aggregate amount obtained by daily application of,
on a 360 day per year basis for the actual number of days during
the period from and including the date of the exercise or deemed
exercise of such option to but excluding the date of payment of the
Repurchase Price as so increased, (x) the Pricing Rate for each
such Transaction plus 4.0% to (y) the Repurchase Price for such
Transaction as of the Repurchase Date as determined pursuant to
subsection (a)(i) of this Section (decreased as of any day by (I)
any amounts actually in the possession of Buyer pursuant to clause
(C) of this subsection, (II) any proceeds from the sale of
Purchased Loans applied to the Repurchase Price pursuant to
subsection (a)(xii) of this Section, and (III) any amounts applied
to the Repurchase Price pursuant to subsection (a)(iii) of this
Section), and
(C) all Income actually received by the Buyer or its
designee (including the Custodian) pursuant to Section 5 shall be
applied to the aggregate unpaid Repurchase Price owed by Sellers.
(iii) Sale or Other Disposition of Loans by Buyer. After one
(1) Business Day's notice to the Sellers (which notice need not be
given if an Act of Insolvency shall have occurred, and which may be the
notice given under subsection (a)(i) of this Section 14), Buyer may (A)
immediately sell, without notice or demand of any kind, at a public or
private sale and at such price or prices Buyer may reasonably deem
satisfactory any or all Purchased Loans subject to a Transaction
hereunder or (B) in its sole discretion elect, in lieu of selling all
or a portion of such Purchased Loans, to give Sellers credit for such
Purchased Loans in an amount equal to the Market Value of the Purchased
Loans against the aggregate unpaid Repurchase Price and any other
amounts owing by Sellers hereunder. The proceeds of any disposition of
Purchased Loans shall be
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applied first to the costs and expenses incurred by Buyer in connection
with the Event of Default; second to the actual costs of cover and/or
related hedging transactions; third to the Repurchase Price; and fourth
to any other outstanding obligation of Sellers to Buyer or its
Affiliates.
(iv) Buyer's Discretion in Connection with Liquidation of
Loans. The parties recognize that it may not be possible to purchase or
sell all of the Purchased Loans on a particular Business Day, or in a
transaction with the same purchaser, or in the same manner because the
market for such Purchased Loans may not be liquid. In view of the
nature of the Purchased Loans, the parties agree that liquidation of a
Transaction or the underlying Purchased Loans does not require a public
purchase or sale and that a good faith private purchase or sale shall
be deemed to have been made in a commercially reasonable manner.
Accordingly, Buyer may elect, in its sole discretion, the time and
manner of liquidating any Purchased Loan and nothing contained herein
shall (A) obligate Buyer to liquidate any Purchased Loan on the
occurrence of an Event of Default or to liquidate all Purchased Loans
in the same manner or on the same Business Day or (B) constitute a
waiver of any right or remedy of Buyer. However, in recognition of the
parties' agreement that the Transactions hereunder have been entered
into in consideration of and in reliance upon the fact that all
Transactions hereunder constitute a single business and contractual
relationship and that each Transaction has been entered into in
consideration of the other Transactions, the parties further agree that
Buyer shall use its best efforts to liquidate all Transactions
hereunder upon the occurrence of an Event of Default as quickly as is
prudently possible in the reasonable judgment of Buyer.
(v) Appointment of a Receiver for Collateral. Buyer shall,
without regard to the adequacy of the security for the Sellers'
obligations under this Agreement, be entitled to the appointment of a
receiver by any court having jurisdiction, without notice, to take
possession of and protect, collect, manage, liquidate, and sell the
Collateral or any portion thereof, and collect the payments due with
respect to the Collateral or any portion thereof. Sellers shall pay all
costs and expenses incurred by Buyer in connection with the appointment
and activities of such receiver, including, without limitation, legal
fees.
(vi) Injunction. Sellers agree that Buyer may obtain an
injunction or an order of specific performance to compel Sellers to
fulfill their obligations as set forth in Section 25 hereof, if Sellers
fail or refuse to perform their obligations as set forth therein.
(vii) Joint and Several Obligation. Sellers shall be jointly
and severally liable to Buyer for the amount of all expenses,
reasonably incurred by Buyer in connection with or as a consequence of
an Event of Default, including, without limitation, reasonable legal
fees and expenses and reasonable costs incurred in connection with
hedging or covering transactions.
(viii) Remedies Not Exclusive. Buyer shall have all the
rights and remedies provided herein, provided by applicable federal,
state, foreign, and local laws (including, without limitation, the
rights and remedies of a secured party under the Uniform Commercial
Code of the State of New York, to the extent that the Uniform
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Commercial Code is applicable, and the right to offset any mutual debt
and claim), in equity, and under any other agreement between Buyer and
either or both Sellers.
(ix) Concurrent Remedies. Buyer may exercise one or more of
the remedies available to Buyer immediately upon the occurrence of an
Event of Default and, except to the extent provided in subsections
(a)(i) and (iii) of this Section, at any time thereafter without notice
to Sellers. All rights and remedies arising under this Agreement as
amended from time-to-time hereunder are cumulative and not exclusive of
any other rights or remedies which Buyer may have.
(x) Recourse to Other Assets of Sellers. In addition to its
rights hereunder, Buyer shall have the right to proceed against any
assets of Sellers which may be in the possession of Buyer or its
designee (including the Custodian) including the right to liquidate
such assets and to set off the proceeds against monies owed by Sellers
to Buyer pursuant to this Agreement. Buyer may set off cash, the
proceeds of the liquidation of the Purchased Loans, any Collateral or
its proceeds, and all other sums or obligations owed by Buyer or its
affiliates to Sellers against all of Sellers' obligations to Buyer,
whether under this Agreement, under a Transaction, or under any other
agreement between the parties, or otherwise, whether or not such
obligations are then due, without prejudice to Buyer's right to recover
any deficiency. Any cash, proceeds, or property in excess of any
amounts due, or which Buyer reasonably believes may become due, to it
from Sellers shall be returned to Sellers after satisfaction of all
obligations of Sellers to Buyer.
(xi) Nonjudicial Processes. Buyer may enforce its rights and
remedies hereunder without prior judicial process or hearing, and
Sellers hereby expressly waive any defenses Sellers might otherwise
have to require Buyer to enforce its rights by judicial process.
Sellers also waive any defense Sellers might otherwise have arising
from the use of nonjudicial process, enforcement and sale of all or any
portion of the Collateral, or from any other election of remedies.
Sellers recognizes that nonjudicial remedies are consistent with the
usages of the trade, are responsive to commercial necessity and are the
result of a bargain at arm's length.
(xii) Sales Pursuant to Securities Offerings. Buyer and
Sellers hereby agree that sales of the Purchased Loans shall be deemed
to include and permit the sales of Purchased Loans pursuant to a
securities offering.
(b) Sellers' Remedies. If an Event of Default occurs with respect
to Buyer, the following rights and remedies are available to Sellers:
(i) Repurchase of All Purchased Loans. Upon tender by
Sellers of payment of the aggregate Repurchase Price for all such
Transactions, Buyer's right, title and interest in all Purchased Loans
subject to such Transactions shall be deemed transferred to the
respective Seller, and Buyer shall deliver or cause to be transferred
all such Purchased Loans to Sellers or their designees at Buyer's
expense.
(ii) Replacement Loans. If Sellers exercise the option
referred to in subsection (b)(i) of this Section and Buyer fails to
deliver or cause to be delivered the
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Purchased Loans to the respective Seller or its designee, after one
Business Day's notice to Buyer, such Seller may (A) purchase Loans
("Replacement Loans") that are as similar as is reasonably practicable
in characteristics, outstanding principal amounts (as a pool) and
interest rate to any Purchased Loans that are not delivered by Buyer to
Sellers or its designees as required hereunder or (B) in its sole
discretion elect, in lieu of purchasing Replacement Loans, to be deemed
to have purchased Replacement Loans at a price therefor on such date,
equal to the Market Value of the Purchased Loans.
(iii) Buyer's Liability. Buyer shall be liable to the
Sellers, and Buyer shall pay to the Sellers on demand, (A) with respect
to Purchased Loans (other than Additional Loans), for any excess of the
price paid (or deemed paid) by Sellers for Replacement Loans therefor
over the Repurchase Price for such Purchased Loans and (B) with respect
to Additional Loans, for the price paid (or deemed paid) by Sellers for
the Replacement Loans therefor. In addition, Buyer shall be liable to
Sellers for interest on such remaining liability with respect to each
such purchase (or deemed purchase) of Replacement Loans calculated on a
360-day year basis for the actual number of days during the period from
and including the date of such purchase (or deemed purchase) until paid
in full by Buyer. Such interest shall be at the greater of the Pricing
Rate or the Prime Rate.
(iv) Sellers' Expenses. Buyer shall be liable to Sellers for
the amount of all expenses reasonably incurred by Sellers in connection
with or as a consequence of an Event of Default, including, without
limitation, reasonable legal expenses and reasonable expenses incurred
in connection with covering existing hedging transactions with respect
to the Purchased Loans.
(v) Remedies Not Exclusive. Sellers shall have all the
rights and remedies provided herein, provided by applicable federal,
state, foreign, and local laws, in equity, and under any other
agreement between Buyer and Sellers, including, without limitation, the
right to offset any debt or claim.
(vi) Concurrent Remedies. Sellers may exercise one or more
of the remedies available to Sellers immediately upon the occurrence of
an Event of Default and at any time thereafter without notice to Buyer.
All rights and remedies arising under this Agreement as amended from
time-to-time hereunder are cumulative and not exclusive of any other
rights or remedies which Sellers may have.
15. DUE DILIGENCE
Sellers acknowledge that Buyer has the right to perform continuing
due diligence reviews with respect to the Loans, for purposes of verifying
compliance with the representations, warranties and specifications made
hereunder, or otherwise, and Sellers agree that upon reasonable prior notice to
Sellers, provided that, in the event that a Default shall have occurred, then
without notice, Buyer or its authorized representatives will be permitted during
normal business hours to examine, inspect, and make copies and extracts of, the
Loan Files, Servicing Records and any and all documents, records, agreements,
instruments or information relating to such Loans in the possession or under the
control of Sellers, any Servicer or subservicer and/or the Custodian. Sellers
also shall make available to Buyer a knowledgeable financial or
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accounting officer for the purpose of answering questions respecting the Loan
Files and the Loans. Without limiting the generality of the foregoing, Sellers
acknowledge that Buyer may enter into Transactions with the Sellers based solely
upon the Collateral Information provided by each respective Seller to Buyer and
the representations, warranties and covenants contained herein, and that Buyer,
at its option, has the right at any time to conduct a partial or complete due
diligence review on some or all of the Loans. Buyer may underwrite such Loans
itself or engage a mutually agreed upon third party underwriter to perform such
underwriting. Sellers agree to cooperate with Buyer and any third party
underwriter in connection with such underwriting, including, but not limited to,
providing Buyer and any third party underwriter with access to any and all
documents, records, agreements, instruments or information relating to such
Loans in the possession, or under the control, of Sellers. Sellers further agree
that Sellers shall reimburse Buyer for any and all out-of-pocket costs and
expenses reasonably incurred by Buyer in connection with Buyer's activities
pursuant to this Section 15 hereof.
16. SINGLE AGREEMENT
Buyer and Sellers acknowledge that, and have entered hereunto and
will enter into each Transaction hereunder in consideration of and in reliance
upon the fact that, all Transactions hereunder constitute a single business and
contractual relationship and that each has been entered into in consideration of
the other Transactions. Accordingly, each of Buyer and Sellers agree (i) to
perform all of their respective obligations in respect of each Transaction
hereunder, and that a default in the performance of any such obligations shall
constitute a default in respect of all Transactions hereunder, (ii) that each of
them shall be entitled to set off claims and apply property held by them in
respect of any Transaction against obligations owing to them in respect of any
other Transactions hereunder and (iii) that payments, deliveries, and other
transfers made by either of them in respect of any Transaction shall be deemed
to have been made in consideration of payments, deliveries, and other transfers
in respect of any other Transactions hereunder, and the obligations to make any
such payments, deliveries, and other transfers may be applied against each other
and netted; provided, however, that the parties hereto acknowledge and agree
that each Purchased Loan is identified and unique and nothing in this Agreement
should limit or reduce Buyer's obligation to deliver the Purchased Loans to
Sellers as and when provided herein.
17. NOTICES AND OTHER COMMUNICATIONS
Unless another address is specified in writing by the respective
party to whom any written notice or other communication is to be given
hereunder, all such notices or communications shall be in writing or confirmed
in writing (including without limitation by telex or telecopy) and delivered to
the intended recipient at the "Address for Notices" specified below its name on
the signature page hereof), or, as to any party, at such other address as shall
be designated by such party in a written notice to each other party. All notices
to Buyer's Underwriter shall be made in writing to Hatfield Philips, 285
Peachtree Center Avenue, Marquis Two Tower, Suite 2300, Atlanta, Georgia 30303,
Attention: P. Conrad Nelson (phone: (404) 420-5600 and fax: (404) 420-5610).
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18. ENTIRE AGREEMENT; SEVERABILITY
This Agreement together with the applicable Facility Documents and
Confirmations constitute the entire understanding between Buyer and Sellers with
respect to the subject matter it covers and shall supersede any existing
agreements between the parties containing general terms and conditions for
repurchase transactions involving Purchased Loans. By acceptance of this
Agreement, Buyer and Sellers acknowledge that they have not made, and are not
relying upon, any statements, representations, promises or undertakings not
contained in this Agreement. Each provision and agreement herein shall be
treated as separate and independent from any other provision or agreement herein
and shall be enforceable notwithstanding the unenforceability of any such other
provision or agreement.
19. NON-ASSIGNABILITY
The rights and obligations of the parties under this Agreement and
under any Transaction shall not be assigned by Sellers without the prior written
consent of Buyer. Subject to the foregoing, this Agreement and any Transactions
shall be binding upon and shall inure to the benefit of the parties and their
respective successors and assigns. Nothing in this Agreement express or implied,
shall give to any person, other than the parties to this Agreement and their
successors hereunder, any benefit or any legal or equitable right, power, remedy
or claim under this Agreement.
20. TERMINABILITY
This Agreement shall terminate upon the earlier of (i) the Final
Repurchase Date and (ii) written notice from either Seller to Buyer to such
effect, except that this Agreement shall, notwithstanding the above clause,
remain applicable to any Transaction then outstanding and provided however, that
as a condition precedent to any termination by either Seller, the Exit Fee
required pursuant to Section 3(j)(4) hereof shall be paid by BAC to Buyer.
Notwithstanding any such termination or the occurrence of an Event
of Default, all of the representations, warranties and indemnities hereunder
(including the Loan Representations) shall continue and survive.
21. GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAW PRINCIPLES THEREOF.
22. CONSENT TO JURISDICTION
The parties irrevocably agree to submit to the personal
jurisdiction of the United States District Court for the Southern District of
New York, the parties irrevocably waiving any objection thereto. If, for any
reason, federal jurisdiction is not available, and only if federal jurisdiction
is not available, the parties irrevocably agree to submit to the personal
jurisdiction of the Supreme Court of the State of New York, the parties
irrevocably waiving any objection thereto.
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23. NO WAIVERS, ETC.
No express or implied waiver of any Event of Default by any party
shall constitute a waiver of any other Event of Default and no exercise of any
remedy hereunder by any party shall constitute a waiver of its right to exercise
any other remedy hereunder. No modification or waiver of any provision of this
Agreement and no consent by any party to a departure herefrom shall be effective
unless and until such shall be in writing and duly executed by both of the
parties hereto. Any such waiver or modification shall be effective only in the
specific instance and for the specific purpose for which it was given.
24. INTENT
The parties understand and intend that this Agreement and each
Transaction hereunder constitute a "repurchase agreement" and a "securities
contract" as those terms are defined under the relevant provisions of Title 11
of the United States Code, as amended.
25. SERVICING
(a) Servicing for Buyer using Accepted Servicing Practices.
Notwithstanding the purchase and sale of the Purchased Loans hereby, the
respective Seller and, pursuant to their respective Servicing Agreement, the MH
Servicer and the Mortgage Loan Servicer, as applicable, shall continue to
service the respective Purchased Loans for the benefit of Buyer and, if Buyer
shall exercise its rights to pledge or hypothecate the Purchased Loan prior to
the related Repurchase Date pursuant to Section 8 hereof, Buyer's assigns;
provided, however, that the obligations of a Seller to service Purchased Loans
shall cease, at that Seller's option, upon the payment by Seller to Buyer of the
Repurchase Price therefor. The respective Seller shall service or cause the
respective Servicer to service the Purchased Loans in accordance with Accepted
Servicing Practices approved by Buyer and maintained by other prudent mortgage
lenders with respect to mortgage loans similar to those Purchased Loans.
(b) Servicing Agreements and Servicing Records. Each Seller
agrees that Buyer is the owner of all servicing records, including but not
limited to any and all servicing agreements (the "Servicing Agreements"), files,
documents, books, records, data bases, computer tapes, disks, copies of computer
tapes, Seller's rights in any data processing software, computer programs and
related property and rights, proof of insurance coverage, insurance policies,
appraisals, other closing documentation, payment history records, and any other
records relating to or evidencing the servicing of Purchased Loans (the
"Servicing Records") so long as the Purchased Loans are subject to this
Agreement. Each Seller grants Buyer a security interest in all the respective
servicing fees and rights relating to the Purchased Loans and all Servicing
Records to secure the obligation of both Sellers or their designees to service
in conformity with this Section and any other obligation of the respective
Seller to Buyer. Sellers covenant to safeguard their respective Servicing
Records and to deliver them promptly to Buyer or its designee (including the
Custodian) at Buyer's request.
(c) Buyer's Options Upon Default by Servicers. Upon the
occurrence and continuance of a Default (including upon the failure of a Seller,
Servicer or any subservicer to meet Accepted Servicing Practices after notice of
default and failure by the Servicer to cure any such default within 15 days
thereafter), Buyer may, in its sole discretion, (i) sell its right to the
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Purchased Loans on a servicing released basis or (ii) terminate the Sellers,
Servicer or any subservicer as servicer of the Purchased Loans with or without
cause, in each case without payment of any termination fee, in which case
Sellers will promptly, within five (5) Business Days, transfer servicing, or
cause servicing to be transferred, to the Back-up Servicer. Buyer agrees that if
Buyer has caused the transfer of servicing to the Back-up Servicer pursuant to a
Default, and such Default does not become an Event of Default within sixty (60)
days, Buyer shall transfer servicing back to the Servicer, at Buyer's expense.
(d) Each Seller shall provide to the Buyer a letter from its
Servicer (the "Servicing Letter") (i) acknowledging Buyer's security interest in
the Loans, (ii) granting Buyer a security interest in all servicing fees and
rights relating to Loans and all Servicing Records related thereto to secure the
obligation of Servicer to service in conformity with this Agreement, (iii)
acknowledging that Buyer is the collateral assignee of all Servicing Records,
(iv) acknowledging that upon a Default, the Seller may terminate any Servicing
Agreement upon request of the Buyer, and Servicer shall transfer servicing to
Buyer's designee, at no cost or expense to the Buyer, it being agreed that the
Seller will pay any and all fees required to terminate the Servicing Agreement
and to effectuate the transfer of servicing to the designee of the Buyer, and
(v) agreeing to allow Buyer to inspect the Servicer's servicing facilities, for
the purpose of satisfying the Buyer that the Servicer has the ability to service
the Loans as provided herein.
(e) No Subservicers Without Buyer Consent. Sellers shall not
employ subservicers to service the Purchased Loans without the prior written
approval of Buyer, which approval shall not be unreasonably withheld. If the
Purchased Loans are serviced by a subservicer, Sellers irrevocably assign all of
their rights, title and interest in any such subservicing agreement, with
respect to the Purchased Loans, to Buyer. The applicable Seller shall cause any
subservicers engaged by or for the benefit of that Seller to execute a letter
agreement with Buyer acknowledging Buyer's security interest and agreeing that,
upon notice from Buyer (or the Custodian on its behalf) that an Event of Default
has occurred and is continuing hereunder, it shall deposit all Income with
respect to the Purchased Loans in the account specified in the third sentence of
Section 5(a) hereof.
(f) Subordination of Servicing Fees. The payment of servicing
fees shall be subordinate to payment of amounts outstanding under any
Transaction and this Agreement.
26. DISCLOSURE RELATING TO CERTAIN FEDERAL PROTECTIONS
The parties acknowledge that they have been advised that in the
case of Transactions in which one of the parties is an "insured depository
institution" as that term is defined in Section 1831(a) of Title 12 of the
United States Code, as amended, funds held by the financial institution pursuant
to a Transaction hereunder are not a deposit and therefore are not insured by
the Federal Deposit Insurance Corporation, the Savings Association Insurance
Fund or the Bank Insurance Fund, as applicable.
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27. NETTING
If Buyer and Sellers are "financial institutions" as now or
hereinafter defined in Section 4402 of Title 12 of the United States Code
("Section 4402") and any rules or regulations promulgated thereunder:
(a) All amounts to be paid or advanced by any one party to or on
behalf of the other under this Agreement or any Transaction hereunder shall be
deemed to be "payment obligations" and all amounts to be received by or on
behalf of one party from the other under this Agreement or any Transaction
hereunder shall be deemed to be "payment entitlements" within the meaning of
Section 4402, and this Agreement shall be deemed to be a "netting contract" as
defined in Section 4402.
(b) The payment obligations and the payment entitlements of the
parties hereto pursuant to this Agreement and any Transaction hereunder shall be
netted as follows. In the event that either party (the "Defaulting Party") shall
fail to honor any payment obligation under this Agreement or any Transaction
hereunder, the other party (the "Nondefaulting Party") shall be entitled to
reduce the amount of any payment to be made by the Nondefaulting Party to the
Defaulting Party by the amount of the payment obligation that the Defaulting
Party failed to honor.
28. INDEMNIFICATION
Each Seller agrees to jointly and severally hold Buyer harmless
from and indemnify Buyer against all liabilities, losses, damages, judgments,
reasonably incurred costs and expenses of any kind which may be imposed on,
incurred by or asserted against Buyer (collectively, the "Costs") relating to or
arising out of the Transactions or this Agreement, including reasonable legal
costs and settlement costs, except if such losses, liabilities, claims, damages
or expenses result from Buyer's gross negligence or willful misconduct. Without
limiting the generality of the foregoing, each Seller agrees to jointly and
severally hold Buyer harmless from and indemnify Buyer against all Costs with
respect to all Loans relating to or arising out of any violation or alleged
violation of any environmental law, rule or regulation or any consumer credit
laws, including without limitation ERISA, the Truth in Lending Act and/or the
Real Estate Settlement Procedures Act, that, in each case, results from anything
other than Buyer's gross negligence or willful misconduct. In any suit,
proceeding or action brought by Buyer in connection with any Loan for any sum
owing thereunder, or to enforce any provisions of any Loan, each Seller will
jointly and severally save, indemnify and hold Buyer 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 either Seller 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 Sellers. Each Seller also agrees to reimburse Buyer as and
when billed by Buyer for all Buyer's costs and expenses incurred in connection
with the enforcement or the preservation of Buyer's rights under this Agreement
or any Transaction contemplated hereby, amendments and waivers, including
without limitation the reasonable fees and disbursements of its counsel. Each
Seller hereby acknowledges that, the obligations of both Sellers hereunder are
recourse obligations of each Seller.
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29. ESTABLISHMENT OF COLLECTION ACCOUNT
(a) Each Seller shall, or shall cause each Servicer to, establish
and maintain one or more collection accounts for the Buyer's benefit, which may
be interest-bearing, entitled, as applicable: (i) "Bloomfield Servicing Company,
L.L.C. in trust for Bloomfield Acceptance Company, L.L.C." (the "Bloomfield
Blocked Account") or (ii) "St. James Servicing Corporation in trust for MHFC,
Inc." (the "St. James Blocked Account") (together, the "Blocked Accounts"). The
Blocked Accounts shall be governed by the terms in this Section 29 and the
Blocked Account Agreements. The provisions of this Section 29 apply separately
to each Blocked Account and to BAC with respect to the Bloomfield Blocked
Account and MHFC with respect to the St. James Blocked Account, and to BAC's and
MHFC's respective Servicers.
(b) Sellers shall, or shall cause the Servicers to, deposit all
payments received and all proceeds received from sales of any Loans, within one
(1) Business Day following receipt thereof. BAC must instruct all Obligors on
Mortgage Loans and Floorplan Loans to remit all payments directly to the
Bloomfield Blocked Account. MHFC must instruct all Obligors on MH Loans to remit
all payments directly to the St. James Blocked Account.
(c) Permitted Withdrawals
(A) Distributions. Subject to the provisions
hereof, and to the extent available for distribution, all funds
held in the Blocked Accounts, or received by the applicable Seller
or Servicer as of one calendar day prior to two Business Days
immediately preceding each Payment Date during the period in which
there is no Default, shall be distributed on each Payment Date
(subject to any restrictions contained herein or in the Facility
Documents) in the following order of priority:
FIRST: To Escrow Accounts for amounts representing
Escrow Payments as per the Loan Documents;
SECOND: To the Buyer in accordance with the Buyer's
wire transfer instructions as provided herein or as amended from
time to time, in an amount sufficient to pay:
(i) any Periodic Payment due and owing;
(ii) the amount of any Collateral Deficit; and
(iii) the amount of any fees or expenses or
other amounts due and owing to the Buyer hereunder or in the
Facility Documents;
THIRD: To payment to Buyer of Curtailment and other
prepayments received on any Loans;
FOURTH: To the Servicer for any reasonable servicing
fees due and owing;
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FIFTH: To the respective Seller in accordance with its
wire transfer instructions, an amount equal to any proceeds
indicated on that Seller's most recent Distribution Worksheet for
such Payment Date as are remaining in the Blocked Account and
available for distribution to that Seller on such Payment Date.
The relevant Seller or the Servicer, as the case may
be, shall be entitled to transfer funds on deposit in a Blocked
Account to one or more Escrow Accounts for the purpose of holding
funds attributable to Escrow Payments; provided that any Escrow
Account is identified and is subject to a Blocked Account
Agreement.
(B) Distribution in the Event of Default. To the extent
available for distribution to Sellers on each Payment Date, all
funds held in the Blocked Account or received by either Seller or
Servicer during a period in which there is a Default which has
occurred and is known to the Sellers or as to which Buyer has
notified Sellers, and which is continuing, shall be distributed on
each Payment Date in the following order of priority:
FIRST: To payment to the Buyer of amounts as set forth
in the subheadings entitled "SECOND AND THIRD" in Subsection (A)
above;
SECOND: To payment of the Repurchase Price for any then
outstanding Transactions;
THIRD: To any additional amounts owing to the Buyer
hereunder; and
FOURTH: Any surplus then remaining shall be paid to the
respective Sellers or their successors or assigns or to whomsoever
may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct.
(d) The distributions set forth in subsection (c) of this Section
shall be determined pursuant to the Distribution Worksheet for each respective
Seller. Each Seller shall or shall cause its Servicer to deliver its respective
Distribution Worksheet to that Seller and Buyer by facsimile by no later than
12:00 noon (New York time) on the second preceding Business Day prior to each
Payment Date. Prior to remitting any distributions pursuant to this Section, the
respective Seller and its Servicers shall have received by facsimile, the
written consent of Buyer to the information set forth on a Distribution
Worksheet. In the event that Buyer shall have failed to consent to a
Distribution Worksheet by 5:00 p.m. (New York time) on the Business Day prior to
each Payment Date, the affected Seller or its Servicer shall promptly contact
Buyer and shall use its best efforts to obtain such written consent. In the
event that Buyer disputes any calculation set forth on a Distribution Worksheet,
the affected Servicer shall promptly contact Buyer and the respective Seller,
and all parties shall use their best efforts to resolve such dispute; provided
that, Buyer's good faith determination that accrued interest is due and owing or
that a Collateral Deficit exists under this Agreement shall be conclusive absent
manifest error.
63
<PAGE> 68
(e) Reliance on Distribution Worksheets. The Lockbox Bank and the
Servicers may rely upon any Distribution Worksheet which has been consented to
by Buyer, and neither the Lockbox Bank nor the Servicers shall have any
liability to Buyer for actions taken in reliance on such Distribution Worksheet.
All distributions made by a Servicer pursuant to this Section shall be (subject
to any decree of any court of competent jurisdiction) final, and that Servicer
shall have no duty to inquire as to the application by Buyer of any amounts
distributed to it.
(f) Appointment of Third Party Upon Default. In the event a
Default shall occur and be continuing, Buyer may select a third party to prepare
and distribute the Distribution Worksheets to all of the parties.
(g) Accrued Interest and Sellers' Separate Funds. Unless an Event
of Default has occurred and is continuing, all interest accrued on Blocked
Account(s) shall be allocated to the applicable Seller and shall constitute part
of the funds available for distribution to Sellers in accordance with the
foregoing procedure. Any of a Seller's separate funds used to establish any
Blocked Account may be distributed to the relevant Seller at any time prior to
an Event of Default in accordance with the Distribution Worksheet.
30. CONFIDENTIALITY OF AGREEMENT
Sellers and Buyer agree to maintain the confidentiality of this
Agreement and its terms and agree not to disclose this Agreement or its terms to
any other party except as required for the enforcement of its terms, or as
required by law, regulatory requirements or court order or discovery, or to
Affiliates of Sellers or Guarantor or to their respective accountants, attorneys
and similar Persons who provide professional or advisory services to them.
Nonetheless, each Person given confidential information relating to this
Agreement shall be informed by the giver of the confidential nature of this
Agreement, and shall agree to maintain its confidentiality. Sellers shall be
responsible for any breach of this agreement by their Affiliates and any other
Persons to whom this Agreement or information about this Agreement is given. In
the event Sellers determine, in consultation with legal counsel experienced in
securities regulation, that the Agreement must be filed with the Securities and
Exchange Commission pursuant to applicable law, such filing may only be made
after consultation with Buyer and agreement upon redaction of certain terms of
the Agreement (including, without limitation, the Pricing Spread and Commitment
Fee).
31. MISCELLANEOUS
(a) Time is of the essence under this Agreement and all
Transactions and all references to a time shall mean New York time in effect on
the date of the action unless otherwise expressly stated in this Agreement.
(b) Buyer shall be authorized to accept orders and take any other
action affecting any accounts of the respective Seller in response to
instructions given in writing or orally by telephone or otherwise by any person
with apparent authority to act on behalf of that Seller, and the relevant Seller
shall indemnify Buyer, defend, and hold Buyer harmless from and against any and
all liabilities, losses, damages, costs, and expenses of any nature arising out
of, or
64
<PAGE> 69
in connection with, any action taken by Buyer in response to such instructions
received or reasonably believed to have been received from such Seller.
(c) If there is any conflict between the terms of this Agreement
or any Transaction entered into hereunder and the Custodial Agreement or any
other Facility Document, this Agreement shall prevail.
(d) If there is any conflict between the terms of a Confirmation
or a corrected Confirmation issued by the Buyer and this Agreement, the
Confirmation and/or corrected Confirmation shall prevail.
(e) This Agreement may be executed in counterparts, each of which
so executed shall be deemed to be an original, but all of such counterparts
shall together constitute but one and the same instrument.
(f) Sellers agree to reimburse Buyer for all reasonable costs and
expenses of Buyer in connection with this Agreement, and the Sellers agree to
reimburse Buyer for all reasonable costs and expenses of Buyer in connections
with any Transactions hereunder including, respectively but without limitation,
(i) the fees, expenses and disbursement of outside counsel to Buyer, (ii) due
diligence expenses, (iii) on-going auditing fees, (iv) custodial fees, (v)
Lockbox Bank fees and (vi) the fees, expenses and disbursements of the Back-up
Servicer, if servicing has been transferred to the Back-up Servicer pursuant to
Section 12(q) hereof.
(g) The headings in this Agreement are for convenience of
reference only and shall not affect the interpretation or construction of this
Agreement.
[SIGNATURE PAGE FOLLOWS.]
65
<PAGE> 70
IN WITNESS WHEREOF, THE PARTIES HAVE ENTERED INTO THIS AGREEMENT
AS OF THE DATE SET FORTH ABOVE.
LEHMAN COMMERCIAL PAPER
INC.,
Buyer
By:
-----------------------------------
Title:
--------------------------------
Date:
--------------------------------
Address for Notices:
Lehman Commercial Paper Inc.
101 Hudson Street
Jersey City, New Jersey 07306
Attention: Chris Czako
Phone: (201) 524-4494
Fax: (201) 524-4439
with a copy to:
Lehman Commercial Paper Inc.
200 Vesey Street, 8th Floor
New York, New York 10285-0900
Attention: John Ng
Phone (212) 526-3165
Fax: (212) 526-7423
BLOOMFIELD ACCEPTANCE
COMPANY, L.L.C.,
Seller
By: /s/
------------------------------------
Title:
---------------------------------
Date:
---------------------------------
Address for Notices:
Bloomfield Acceptance Company, L.L.C.
260 East Brown, Suite 350
Birmingham, Michigan 48009-6229
Attention: Daniel E. Bober, President
Phone: (248) 644-3375
Fax: (248) 644-5760
MHFC, INC.,
By: /s/
------------------------------------
Title:
---------------------------------
Date:
---------------------------------
Address for Notices:
MHFC, Inc.
31700 Middlebelt, Suite 125
Farmington Hills, Michigan 48334
Attention: William L. Mulvaney
Chief Operating Officer
Phone: (248) 932-9656
Fax: (248) 932-4073
<PAGE> 1
EXHIBIT 11
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
Basic and
Diluted
-------------
<S> <C>
Net loss $ (574)
=============
Average Shares
Common 1,261
-------------
Total 1,261
=============
Loss per common share $ (0.46)
=============
</TABLE>
<PAGE> 1
EXHIBIT 21
List of Subsidiaries of Bingham Financial Services Corporation
1. MHFC, Inc., a Michigan corporation
2. Bloomfield Acceptance Company, L.L.C., a Michigan limited liability
company
3. Bloomfield Servicing Company, L.L.C., a Michigan limited liability
company
4. MHFC of New Mexico, Inc., a Michigan corporation and wholly owned
subsidiary of MHFC, Inc.
5. IJK Insurance Agency, Inc., a Michigan corporation and wholly owned
subsidiary of MHFC, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 86,075,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 94,859,000
<CURRENT-LIABILITIES> 81,104,000
<BONDS> 0
0
0
<COMMON> 13,608,000
<OTHER-SE> (151,000)
<TOTAL-LIABILITY-AND-EQUITY> 94,859,000
<SALES> 0
<TOTAL-REVENUES> 6,141,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,854,000
<LOSS-PROVISION> 147,000
<INTEREST-EXPENSE> 1,933,000
<INCOME-PRETAX> (793,000)
<INCOME-TAX> (219,000)
<INCOME-CONTINUING> (574,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (574,000)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
</TABLE>
