<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1998
REGISTRATION NO. 333-55875
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
ATHERTON CAPITAL INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
<TABLE>
<CAPTION>
DELAWARE 6162 94-3263361
<S> <C> <C>
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
1001 BAYHILL DRIVE, SUITE 155
SAN BRUNO, CA 94066
(650) 827-7800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS PRINCIPAL EXECUTIVE OFFICES)
---------------
DAVID L. ELDER
CHIEF EXECUTIVE OFFICER
ATHERTON CAPITAL INCORPORATED
1001 BAYHILL DRIVE, SUITE 155
SAN BRUNO, CA 94066
(650) 827-7800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
---------------
COPIES TO:
<TABLE>
<S> <C>
ALAN K. AUSTIN, ESQ. MARK R. LEVIE, ESQ.
BRIAN C. ERB, ESQ. LAWRENCE T. KANE, ESQ.
WILSON SONSINI GOODRICH & ROSATI ORRICK, HERRINGTON & SUTCLIFFE LLP
PROFESSIONAL CORPORATION OLD FEDERAL RESERVE BANK BUILDING
650 PAGE MILL ROAD 400 SANSOME STREET
PALO ALTO, CA 94304-1050 SAN FRANCISCO, CA 94111-3143
(650) 493-9300 (415) 392-1122
</TABLE>
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
---------------
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE (1) REGISTRATION FEE (2)
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value..... $60,000,000 $17,700
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o).
(2) The Company paid the $17,700 registration fee in connection with the
initial filing.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of Common Stock being registered. All amounts are
estimates except the Securities and Exchange Commission registration fee and
the NASD filing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Securities and Exchange Commission registration fee............... $17,700
NASD filing fee................................................... 6,500
Nasdaq National Market listing fee................................ *
Printing and engraving expenses................................... *
Legal fees and expenses........................................... *
Accounting fees and expenses...................................... *
Blue Sky fees and expenses........................................ *
Transfer agent fees............................................... *
Miscellaneous..................................................... *
-------
Total........................................................... $ *
=======
</TABLE>
- --------
* To be provided by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify directors and officers as well as other employees
and individuals against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such person
in connection with any threatened, pending or completed actions, suits or
proceedings in which such person is made a party by reason of such person
being or having been a director, officer, employee or agent to the Registrant.
The Delaware General Corporation Law provides that Section 145 is not
exclusive of other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise. Section 6.1 of the Registrants Bylaws provides for
indemnification by the Registrant of its directors, officers and employees to
the fullest extent permitted by the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) for unlawful payments of dividends or unlawful stock repurchases,
redemptions or other distributions, or (iv) for any transaction from which the
director derived an improper personal benefit. The Registrants Certificate of
Incorporation provides for such limitation of liability.
The Registrant has obtained directors and officers, insurance providing
indemnification for certain of the Registrant's directors, officers and
employees for certain liabilities.
Reference is also made to the Underwriting Agreement to be filed as Exhibit
1.1 to the Registration Statement for information concerning the Underwriter's
obligation to indemnify the Registrant and its officers and directors in
certain circumstances.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In January 1997, in connection with the formation of the Registrant, the
Registrant issued an aggregate of 20,000,000 shares of Common Stock to The
Atherton Group Incorporated, David L. Elder, Arthur P. Brazy, Jr. and
Franchise Finance Corp. in exchange for their respective partnership interests
in Atherton Capital Partners, L.P., the predecessor of the Registrant. The
shares of Common Stock were issued in a private placement in reliance on
Section 4(2) of the Securities Act. In March 1997, the Registrant issued
3,231,000 shares of Common Stock to Franchise Finance Corp. at a purchase
price of $0.92 per share. The shares of Common Stock were issued in a private
placement in reliance on Section 4(2) of the Securities Act. In October 1997,
the Registrant issued options to purchase 1,614,987 shares of Common Stock to
11 current employees of the Company at an exercise price of $1.43 per share.
The options were issued in a private placement in reliance on Section 4(2) of
the Securities Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1(a)++ Certificate of Incorporation of the Registrant, as amended.
3.1(b)++ Form of Amended and Restated Certificate of Incorporation of the
Registrant.
3.2(a)++ Bylaws of the Registrant.
3.2(b)++ Form of Amended and Restated Bylaws of the Registrant.
4.1* Form of Registrant's Common Stock certificate.
4.2 Stockholders' Agreement dated March 11, 1997 by and among David L.
Elder, Arthur P. Brazy, Jr., The Atherton Group Incorporated,
Franchise Finance Corp. and the Registrant.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, regarding the legality of the securities being issued.
10.1* Form of 1997 Stock Plan and related agreements.
10.2* Form of 1998 Employee Stock Purchase Plan.
10.3(a) Warehouse Credit Agreement dated January 8, 1997 between Atherton
Capital Partners, L.P. and Franchise Finance Corp.
10.3(b) First Amendment to the Warehouse Credit Agreement dated November 14,
1997 between Franchise Finance Corp. and the Registrant.
10.3(c) Second Amendment to the Warehouse Credit Agreement dated April 1998
between Franchise Finance Corp. and the Registrant.
10.4 Subordinated Debt Credit Agreement dated January 8, 1997 between
Atherton Capital Partners, L.P. and Franchise Finance Corp.
10.5+ Pooling and Servicing Agreement dated as of January 26, 1996 between
Bankers Trust Company, Atherton Capital Partners, L.P. and Marine
Midland Bank.
10.6+ Servicing and Custodial Agreement dated as of January 8, 1997
between Atherton Capital Partners, L.P., Bankers Trust Company and
Franchise Finance Corp.
10.7 Loan Sale and Purchase Agreement dated as of March 14, 1997 between
the Registrant and Orinda Management Company.
10.8 Loan Sale and Purchase Agreement dated as of March 14, 1997 between
Orinda Management Company and Atherton Franchisee Loan Funding 1997-
A LLC.
10.9+ Servicing and Custodial Agreement dated March 14, 1997 among
Atherton Franchisee Loan Funding 1997-A LLC, Bankers Trust Company,
First Bank National Association and the Registrant.
10.10+ Master Custodial Agreement dated March 14, 1997 between Bankers
Trust Company and Orinda Management Company.
10.11+ Indenture of Trust dated as of August 1, 1998 between Atherton
Franchisee Loan Funding 1998-A LLC and Bankers Trust Company.
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
10.12+ Certificate Purchase Agreement dated as of August 1, 1998 between Atherton
Intermediate Funding
1998-A Inc. and Atherton Franchisee Loan Funding 1998-A LLC.
11.1* Statement of computation of net income per share.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (included
in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP, independent auditors.
24.1++ Power of Attorney.
27.1++ Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
+ The Company has requested confidential treatment from the Commission for
portions of this document.
++ Previously filed with the Commission on June 3, 1998 as an exhibit to the
Company's Registration Statement on Form S-1.
(b) Financial Statement Schedules
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
(a) The undersigned hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions referenced in Item 14 of this
Registration Statement or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered hereunder, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed
to be the initial bona fide Offering thereof.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT
ON FORM S-1 TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF SAN BRUNO, STATE OF CALIFORNIA, ON THIS 21ST DAY OF
AUGUST, 1998.
Atherton Capital Incorporated
/s/ Arthur P. Brazy, Jr.
By___________________________________
ARTHUR P. BRAZY, JR.
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
David L. Elder* Chief Executive Oficer and August 21, 1998
____________________________________ Director (Principal
DAVID L. ELDER Executive Officer)
/s/ Arthur P. Brazy, Jr. President and Director August 21, 1998
____________________________________
ARTHUR P. BRAZY, JR.
Mark H. McGourty* Senior Vice President and August 21, 1998
____________________________________ Chief Financial Oficer
MARK H. MCGOURTY (Principal Financial and
Accounting Officer
Jeffrey R. Thompson* Director August 21, 1998
____________________________________
JEFFREY R. THOMPSON
Richard A. Doppelt* Director August 21, 1998
____________________________________
RICHARD A. DOPPELT
</TABLE>
*By: /s/ Arthur P. Brazy*
---------------------------
ARTHUR P. BRAZY
ATTORNEY-IN-FACT
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
1.1* Form of Underwriting Agreement
3.1(a)++ Certificate of Incorporation of the Registrant, as
amended.
3.1(b)++ Form of Amended and Restated Certificate of
Incorporation of the Registrant.
3.2(a)++ Bylaws of the Registrant.
3.2(b)++ Form of Amended and Restated Bylaws of the Registrant.
4.1* Form of Registrant's Common Stock certificate.
4.2 Stockholders' Agreement dated March 11, 1997 by and
among David L. Elder, Arthur P. Brazy, Jr., The
Atherton Group Incorporated, Franchise Finance Corp.
and the Registrant.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, regarding the legality of the
securities being issued.
10.1* Form of 1997 Stock Plan and related agreements.
10.2* Form of 1998 Employee Stock Purchase Plan.
10.3(a) Warehouse Credit Agreement dated January 8, 1997
between Atherton Capital Partners, L.P. and Franchise
Finance Corp.
10.3(b) First Amendment to the Warehouse Credit Agreement dated
November 14, 1997 between Franchise Finance Corp. and
the Registrant.
10.3(c) Second Amendment to the Warehouse Credit Agreement
dated April 1998 between Franchise Finance Corp. and
the Registrant.
10.4 Subordinated Debt Credit Agreement dated January 8,
1997 between Atherton Capital Partners, L.P. and
Franchise Finance Corp.
10.5+ Pooling and Servicing Agreement dated as of January 26,
1996 between Bankers Trust Company, Atherton Capital
Partners, L.P. and Marine Midland Bank.
10.6+ Servicing and Custodial Agreement dated as of January
8, 1997 between Atherton Capital Partners, L.P.,
Bankers Trust Company and Franchise Finance Corp.
10.7 Loan Sale and Purchase Agreement dated as of March 14,
1997 between the Registrant and Orinda Management
Company.
10.8 Loan Sale and Purchase Agreement dated as of March 14,
1997 between Orinda Management Company and Atherton
Franchisee Loan Funding 1997-A LLC.
10.9+ Servicing and Custodial Agreement dated March 14, 1997
among Atherton Franchisee Loan Funding 1997-A LLC,
Bankers Trust Company, First Bank National Association
and the Registrant.
10.10+ Master Custodial Agreement dated March 14, 1997 between
Bankers Trust Company and Orinda Management Company.
10.11+ Indenture of Trust dated as of August 1, 1998 between
Atherton Franchisee Loan Funding 1998-A LLC and Bankers
Trust Company.
10.12+ Certificate Purchase Agreement dated as of August 1,
1998 between Atherton Intermediate Funding 1998-A Inc.
and Atherton Franchisee Loan Funding 1998-A LLC.
11.1* Statement of computation of net income per share.
21.1 Subsidiaries of the Registrant.
23.1* Consent of Wilson Sonsini Goodrich & Rosati,
Professional Corporation (included in Exhibit 5.1).
23.2 Consent of KPMG Peat Marwick LLP, independent auditors.
24.1++ Power of Attorney.
27.1++ Financial Data Schedule.
</TABLE>
- --------
* To be supplied by amendment.
+ The Company has requested confidential treatment from the Commission for
portions of this document.
++ Previously filed with the Commission on June 3, 1998 as an exhibit to the
Company's Registration Statement on Form S-1.
<PAGE>
ATHERTON CAPITAL INCORPORATED
STOCKHOLDERS' AGREEMENT
DATED MARCH 11, 1997
A-3
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
CERTAIN DEFINITIONS
ARTICLE 2
RESTRICTIONS ON TRANSFERS OF SHARES
2.1 Restricted Shares............................................ 2
2.2 Legend....................................................... 2
2.3 Initial Holding Requirement.................................. 3
2.4 Sale of Shares............................................... 3
2.5 Co-Sale Right................................................ 5
2.6 Offered Shares Not Purchased by Stockholders................. 5
2.7 Effect of Notices............................................ 6
2.8 Certain Exclusions........................................... 6
2.9 No Transfer to Certain Entities.............................. 6
2.10 Transfers in Violation of Agreement.......................... 7
ARTICLE 3
RIGHT OF FIRST REFUSAL FOR NEW ISSUANCES
3.1 Grant of Right of First Refusal by Company................... 9
3.2 Definition of New Securities................................. 9
3.3 Company Notice of Proposed Issuance.......................... 10
3.4 Company's Sale Right......................................... 10
3.5 Right Not Assignable......................................... 10
ARTICLE 4
REGISTRATION RIGHTS
4.1 Certain Definitions.......................................... 10
4.2 Company Registration......................................... 11
4.3 Requested Registration....................................... 13
4.4 Expenses of Registration..................................... 15
4.5 Registration Procedures...................................... 15
4.6 Conditions to Participation.................................. 17
4.7 Indemnification.............................................. 17
4.8 Transfer or Assignment of Registration Rights................ 19
4.9 "Market Stand-Off" Agreement................................. 19
4.10 Allocation of Registration Opportunities..................... 20
4.11 Delay of Registration........................................ 20
4.12 Limitation on Subsequent Registration Rights................. 20
4.13 Termination of Registration Rights........................... 21
ARTICLE 5
CERTAIN VOTING AND APPROVAL RIGHTS
5.1 Voting....................................................... 21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
5.2 FFC Approval Right............................................ 22
5.3 Other Approval Requirements................................... 22
ARTICLE 6
ADDITIONAL COVENANTS
6.1 Financial Information......................................... 23
6.2 Inspection Rights............................................. 23
6.3 Opportunities................................................. 23
ARTICLE 7
NO SOLICITATION
7.1 By FFC........................................................ 25
7.2 By Elder...................................................... 25
7.3 By Brazy...................................................... 25
7.4 Definition of Solicitation.................................... 26
ARTICLE 8
MISCELLANEOUS
8.1 Retirement of Debt............................................ 26
8.2 Termination................................................... 26
8.3 Notices....................................................... 26
8.4 Successors and Assigns........................................ 26
8.5 Counterparts.................................................. 26
8.6 Severability.................................................. 26
8.7 Amendment..................................................... 27
8.8 Construction.................................................. 27
8.9 Attorney's Fees............................................... 27
8.10 Entire Agreement.............................................. 27
8.11 Arbitration or Mediation...................................... 27
8.12 Remedies...................................................... 27
8.13 Confidentiality Restrictions.................................. 28
</TABLE>
ii
<PAGE>
EXECUTION VERSION
STOCKHOLDERS' AGREEMENT
-----------------------
This Stockholders' Agreement (this "Agreement") is made this 11th day
---------
of March, 1997, by and among Atherton Capital Incorporated, a Delaware
corporation (the "Company"), David L. Elder, an individual ("Elder"), Arthur P.
------- -----
Brazy, Jr., an individual ("Brazy"), The Atherton Group Incorporated, a
-----
California corporation ("TAG"), and Franchise Finance Corp., a Delaware
---
corporation ("FFC" and, together with Elder, Brazy and TAG, each a
---
"Stockholder," and jointly and severally, the "Stockholders").
----------- ------------
RECITALS
--------
WHEREAS, the Stockholders constitute all of the stockholders of the
Company; and
WHEREAS, the Company and the Stockholders wish to provide for certain
rights and obligations relating to their shares in the Company;
AGREEMENT
---------
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
1.1 "Affiliate" means any person or entity, including a trust, that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with a specified person or entity.
1.2 "Immediate Family" means any spouse, child, grandchild, parent,
brother, or sister of a Stockholder, and any trust for the benefit of any such
relatives.
1.3 "Initial Public Offering" means the closing of the first
underwritten public offering of securities of the Company registered with the
Securities and Exchange Commission under the Securities Act.
1.4 "Securities Act" means the Securities Act of 1933, as amended, or
any similar successor federal statute and the rules and regulations thereunder,
all as the same shall be in effect
1
<PAGE>
from time to time.
1.5 "Shares" means any shares of capital stock of the Company or any
securities convertible into or exchangeable for any class of capital stock of
the Company and all securities into which such Shares may be converted or
reclassified as a result of any merger, consolidation, stock split, stock
dividend, or other recapitalization of the Company whether now owned or
hereafter acquired.
1.6 The words "sale," "sell," "transfer" and the like shall include
any disposition by way of transfer, with or without consideration, to any person
for any purpose and shall include but shall not be limited in any way to
redemption by the issuer, private or public sale, exchanges of securities on
account of merger, consolidation, reorganization or any other transaction
affecting the securities of the Company held by the Stockholder; provided,
however, that the rights of the Stockholders under this Agreement shall not
pertain or apply to any pledge of Shares made by the Stockholder pursuant to a
bona fide loan transaction which creates a mere security interest provided that
any pledgee or transferee shall furnish the Stockholders with a written
agreement to be bound by and comply with all provisions of this Agreement
applicable to the Stockholder and any foreclosure upon any pledged Shares shall
be subject to Section 2.11.
ARTICLE 2
RESTRICTIONS ON TRANSFERS OF SHARES
2.1 Restricted Shares. Each Stockholder agrees that during the term
-----------------
of this Agreement all Shares owned by such Stockholder shall be subject to the
terms and conditions of this Agreement. No sale (as defined in Article 1
hereof), whether voluntary or involuntary, of any Shares shall be valid unless
the terms and conditions of this Agreement have been complied with. The Company
and each Stockholder represent and warrant that the total number of shares of
common stock (the "Common Stock") presently owned by each of the Stockholders is
------------
set forth under the signature of such Stockholder on the signature page of this
Agreement and that each Stockholder is the sole legal and beneficial owner of
such shares.
2.2 Legend. Each certificate representing Shares shall forthwith be
------
endorsed on the face thereof with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
TERMS AND CONDITIONS OF A CERTAIN STOCKHOLDERS' AGREEMENT BY
AND AMONG THE CORPORATION AND CERTAIN STOCKHOLDERS OF THE
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF
2
<PAGE>
THE CORPORATION."
This legend shall be removed upon termination of Article 2 of this Agreement in
accordance with the provisions of Section 8.2 hereof.
2.3 Initial Holding Requirement. No Stockholder may sell, assign or
---------------------------
transfer its Shares to any person prior to January 1, 1999, other than (a) to
another Stockholder, an Immediate Family member of any Stockholder or an
employee of the Company, provided that in each case the Stockholder retains the
right to vote any Shares transferred to any such persons or entities, (b) to an
Affiliate of the Stockholder or (c) in connection with the Initial Public
Offering.
2.4 Sale of Shares.
--------------
a. Notice of Sale. From and after January 1, 1999, a
--------------
Stockholder may sell any or all Shares provided such sale is made pursuant to
the terms and conditions of this Agreement. If a Stockholder desires to sell any
Shares such Stockholder (the "Selling Stockholder") shall deliver a written
-------------------
notice of the intended sale (the "Sale Notice") to the other Stockholders and to
-----------
the Secretary of the Company at least forty-five (45) calendar days prior to the
date of such intended sale, including, without limitation, the name and address
of the prospective purchaser, the purchase price and other terms and conditions
of payment, the date on or about which such sale is intended to be made, the
number of Shares to be sold (such Shares hereinafter being referred to as the
"Offered Shares"), the percentage of all Shares of such Selling Stockholder
- ---------------
which the Offered Shares represent and that the purchaser has been informed of
the rights of the Stockholders under this Agreement.
b. Right of First Offer. Each Stockholder shall have the right,
--------------------
exercisable upon written notice to the Selling Stockholder within twenty-five
(25) calendar days from the date of receipt by such Stockholder of the Sale
Notice, to elect to purchase, in substitution for and in place of the intended
purchaser thereof, such percentage of the Offered Shares as set forth below:
(i) If only one Stockholder elects to purchase the
Offered Shares such Stockholder may elect to purchase all, or, subject to
clause (iii) below, any part of, the Offered Shares on the terms and
conditions stated in such Sale Notice.
(ii) If more than one Stockholder elects to exercise the
right of first offer granted hereby as to the Offered Shares, then each
electing Stockholder may purchase only the pro rata portion of the Offered
Shares determined by multiplying the number of Shares constituting Offered
Shares, by a fraction (A) the numerator of which shall be the number of
shares of Common Stock held by such Stockholder (assuming
3
<PAGE>
the conversion, exchange or exercise of all securities held by such
Stockholder convertible into or exchangeable or exercisable for Common
Stock at the close of business on the date of the mailing of the Sale
Notice to the Stockholders) and (B) the denominator of which shall be the
number of shares of Common Stock (assuming the conversion, exchange or
exercise of all outstanding securities of the Company convertible into or
exchangeable or exercisable for Common Stock at the close of business on
the date of the mailing of the Sale Notice to the Stockholders) held by all
Stockholders who have elected to exercise the right of first offer granted
hereby, rounded to the nearest whole share. If any Stockholder should elect
not to purchase his entire pro rata portion, the Selling Stockholder shall
give written notice of such failure to the Stockholders that did elect to
purchase their pro rata portion within five (5) calendar days from the date
on which the Stockholders' right to elect to purchase the Offered Shares
expires pursuant to Section 2.4(b) hereof. The Stockholders who did so
elect then shall have the right on a pro rata basis, exercisable upon
notice to the Selling Stockholder within ten (10) calendar days from the
date of receipt by such Stockholders of the notice referred to in the prior
sentence, to purchase the remainder of the Offered Shares.
(iii) If the Stockholders in the aggregate do not elect to
purchase all of the Offered Shares, the Company may purchase any of the
remaining Offered Shares upon the terms and conditions stated in the Sale
Notice; provided, however, that if the Stockholders and the Company do not
elect to purchase all of the Offered Shares, the Selling Stockholder shall
not be required to sell more than 50% of the Offered Shares pursuant to
this Section 24, allocated among the Stockholders as specified in clause
(ii), or may rescind its offer to sell any Shares.
In the event that the consideration to be paid to the Selling
Stockholder shall consist, in whole or in part, of property other than cash, the
Selling Stockholder shall specify the cash equivalent value of such property in
the Sale Notice. In the event such property consists of securities for which a
public market exists, the cash equivalent value shall mean the average closing
price or quotation for such securities in the applicable public market for the
five business days prior to the date of the Sale Notice.
Except where determined pursuant to sales in a public market, the
Stockholders shall have the right to contest in good faith the cash equivalent
value set forth in the Sale Notice, provided such Stockholders (the "Contesting
----------
Stockholders") so notify the Selling Stockholder in writing within five (5)
- ------------
calendar days of their receipt of the Sale Notice. Upon receipt of such notice
of contest the Selling Stockholder and the Contesting Stockholders shall appoint
one (1) mutually acceptable independent
4
<PAGE>
appraiser to determine, within thirty (30) calendar days of such appointment,
the cash equivalent value of such property. If the Selling Stockholder and the
Contesting Stockholders cannot agree upon a mutually acceptable appraiser within
twenty (20) calendar days, then the Selling Stockholder shall appoint one
independent appraiser and the Contesting Stockholders, collectively, shall
appoint one independent appraiser, each within ten (10) calendar days. If the
two appraisers are unable to agree on the cash equivalent value of such property
within thirty (30) calendar days of their appointment, they shall appoint a
third independent appraiser within ten (10) calendar days. The decision in
writing of the single appraiser or, if applicable, any two of the three
appraisers so appointed, shall be binding on all parties. All fees and expenses
of such appraiser(s) shall be paid by the Selling Stockholder. During the period
preceding such determinations by the appraiser(s), all actions otherwise to be
taken hereunder shall be extended for the number of days between the appointment
of the single appraiser or the appointment of the two appraisers, as applicable,
and the announcement by the appraiser(s) to the Stockholders of its or their
final determination.
2.5 Co-Sale Right. In addition to its rights under Section 24 of
-------------
this Agreement, each Stockholder shall have the right, exercisable upon written
notice to the Selling Stockholder within twenty (25) calendar days after receipt
of the Sale Notice, to elect to sell all of its Shares to the purchaser named in
the Sale Notice upon the terms specified in the Sale Notice if, after giving
effect to the proposed purchase, such purchaser would own more than 50% of the
issued and outstanding Common Stock, or Shares convertible into Common Stock, of
the Company (assuming the conversion, exchange or exercise of all outstanding
securities of the Company convertible into or exchangeable or exercisable for
Common Stock at the close of business on the date of the mailing of the Sale
Notice to the Stockholders). A Selling Stockholder may not sell its Shares to
any such purchaser unless such purchaser agrees to purchase all of the Shares
elected to be sold pursuant to this Section 2.5.
Each Stockholder which elected to sell Shares pursuant to this
Section 25 shall effect its participation in the sale by promptly delivering to
the Selling Stockholder for transfer to the prospective purchaser, upon receipt
of consideration therefor, one or more certificates, properly endorsed for
transfer, which represent the type and number of Shares which such Stockholder
elects to sell.
2.6 Offered Shares Not Purchased by Stockholders. Stockholders may
--------------------------------------------
elect to either (a) purchase Offered Shares pursuant to the terms of Section 24
or (b) sell Shares pursuant to Section 25, but not both. To the extent the
------------
Stockholders do not elect to either purchase or sell their Shares as provided in
Sections 24 or 25, the Selling Stockholder may sell the remaining number of
Offered Shares to the purchaser at a price and upon
5
<PAGE>
terms no more favorable to the purchaser than specified in the Sale Notice. Any
Shares may only be sold, assigned or otherwise transferred to the prospective
purchaser if the prospective purchaser agrees to be bound by this Agreement. If
the Selling Stockholder has not sold the Offered Shares at a price and upon
terms no more favorable to the purchaser than specified in the Sale Notice
within one hundred and twenty (120) calendar days after the mailing of the Sale
Notice to the Stockholders, the Selling Stockholder shall not sell such Offered
Shares without again complying with the terms of this Agreement.
2.7 Effect of Notices. Any notice given by a Stockholder pursuant to
-----------------
Section 24 or 25 above shall, when taken together with the Sale Notice mailed to
such Stockholder, constitute a binding legal agreement on the terms and
conditions therein set forth, it being understood that any modification,
amendment, variance or other change by the Stockholder of the terms and
conditions set forth in the Sale Notice mailed to it other than as provided
herein shall be of no force and effect unless consented to in writing by the
Selling Stockholder.
The Selling Stockholder and each participating Stockholder shall
be entitled to rely conclusively upon any notice received pursuant to Section 24
or 25 above with respect to their respective rights and obligations under this
Article 2.
2.8 Certain Exclusions. Sections 24 and 25 shall not apply to a
------------------
transfer of Shares: (a) to a member of the Stockholder's Immediate Family or to
a trust established for the benefit of a member or members of the Stockholder's
Immediate Family, where the Stockholder retains the right to vote such Shares,
(b) from Elder to Brazy or from Brazy to Elder, provided that the aggregate
cumulative amount of Shares so transferred does not exceed ten percent (10%) of
the issued and outstanding Common Stock, or Shares convertible into Common
Stock, of the Company (assuming the conversion, exchange or exercise of all
outstanding securities of the Company convertible into or exchangeable or
exercisable for Common Stock at the close of business on the date of any such
transfer), (c) to an Affiliate of the Stockholder, (d) to an employee of the
Company where the Stockholder retains the right to vote such Shares or (e) to
the estate of any of the foregoing by gift, will or intestate succession;
provided that the Stockholder notifies the Company of such transfer not less
than ten (10) nor more than ninety (90) calendar days prior to the transfer and
that the proposed transferee agrees to be bound by the terms and provisions of
this Agreement and to become a party to this Agreement immediately upon the
receipt of such Shares.
2.9 No Transfer to Certain Entities. A Stockholder may not transfer
-------------------------------
any Shares to (a) a competitor of the Company, or to any stockholder, partner or
other beneficial holder of an equity interest in a competitor or (b) an entity
whose ownership of Shares would prevent the Company from conducting its business
substantially in the manner conducted on the date of such proposed
6
<PAGE>
sale, including without limitation, the Company's ability to obtain any license
necessary to operate its business or to otherwise comply with any material
requirements applicable to the conduct of its business.
2.10 Transfers in Violation of Agreement. A transfer in violation of
-----------------------------------
this Agreement is null and void and the Company agrees to issue stop transfer
instructions to its stock transfer agent, or, so long as it acts as its own
transfer agent, to make a stop transfer notation in its appropriate stock record
with respect to any such void transfer. The Company shall continue to treat any
Stockholder who made such transfer of Shares in violation of this Agreement as
the holder of such Shares.
2.11 Other Options to Purchase Shares.
--------------------------------
a. Option Events.
-------------
(i) Upon the bankruptcy or incompetency of any
Stockholder, all of the Shares held by such Stockholder or his or her
estate shall be subject to the option to purchase Shares upon the terms
specified in this Section 2.11.
(ii) Upon the sale of any Shares to satisfy a judgment
against a Stockholder in any litigation or governmental proceeding, all of
the Shares so sold shall be subject to the option to purchase Shares upon
the terms specified in this Section 2.11.
(iii) Upon the acquisition by foreclosure of any Shares
pledged as collateral for an obligation, the Shares so foreclosed upon
shall be subject to the option to purchase Shares upon the terms specified
in this Section 2.11.
(iv) Each of the events specified in clauses (i) through
(iii) of this Section 2.11(a) is referred to as an "Option Event" and the
------------
Shares that are subject to such an Option Event are referred to herein as
the "Option Shares."
--------------
b. Procedure. Each Stockholder or its legal representative shall
---------
promptly notify the Company and the other Stockholders in writing of the
occurrence of any Option Event with respect to any Shares owned by such
Stockholder (any such notice, an "Option Notice"). Upon the occurrence of an
-------------
Option Event, each Stockholder (other than the Stockholder as to which the
Option Event has occurred) shall have the right, and the Stockholder as to which
the Option Event has occurred and any person or entity that owns any Option
Shares (any of such persons, a "Seller") shall be obligated, to sell and
------
transfer the Option Shares pursuant to this Section 2.11.
Each Stockholder desiring to exercise its rights
7
<PAGE>
under this Section 2.11 shall so notify the Seller within thirty (30) calendar
days from the date of receipt by such Stockholder of the Option Notice.
Purchases of Option Shares are subject to the following requirements:
(i) If only one Stockholder elects to purchase the Option
Shares such Stockholder may elect to purchase all or any part of the Option
Shares at the Option Purchase Price (as defined in Section 2.11(c) below).
(ii) If more than one Stockholder elects to purchase Option
Shares, then each electing Stockholder may purchase only the pro rata
portion of the Option Shares determined by multiplying the number of shares
constituting Option Shares, by a fraction (A) the numerator of which shall
be the number of shares of Common Stock held by such Stockholder (assuming
the conversion, exchange or exercise of all securities held by such
Stockholder convertible into or exchangeable or exercisable for Common
Stock at the close of business on the date of the mailing of the Sale
Notice to the Stockholders) and (B) the denominator of which shall be the
number of shares of Common Stock (assuming the conversion, exchange or
exercise of all outstanding securities of the Company convertible into or
exchangeable or exercisable for Common Stock at the close of business on
the date of the mailing of the Sale Notice to the Stockholders) held by all
Stockholders who have elected to exercise the right to purchase Option
Shares granted hereby, rounded to the nearest whole share. If any
Stockholder should elect not to purchase his entire pro rata portion, the
Seller shall give written notice of such failure to the Stockholders that
did elect to purchase their pro rata portion within five (5) calendar days
from the date on which the Stockholders' right to elect to purchase the
Option Shares expires. The Stockholders who did so elect then shall have
the right on a pro rata basis, exercisable upon notice to the Seller within
ten (10) calendar days from the date of receipt by such Stockholders of the
notice referred to in the prior sentence, to purchase the remainder of the
Option Shares.
(iii) If the Stockholders in the aggregate do not elect to
purchase all of the Option Shares, the Company may purchase any of the
remaining Option Shares for the Option Purchase Price. Any Option Shares
not purchased by the Stockholders or the Company may be transferred to a
third party provided that such transferee agrees in writing to be bound by
and comply with the terms and conditions of this Agreement.
c. Price. The purchase price for any Shares to be purchased
-----
pursuant to this Section 2.11 (the "Option Purchase Price") shall be equal to
---------------------
the fair market value of the Company as of the last day of the Company's fiscal
quarter immediately preceding the date of the Option Event, as determined in
good
8
<PAGE>
faith by the Board of Directors of the Company within thirty (30) calendar
days of receipt by the Company of the Option Notice, divided by the number of
shares of Common Stock of the Company issued and outstanding as of such date.
d. Price Disagreements. If the Company, the Seller and any
-------------------
Stockholder exercising its rights under Section 2.11(b) (a "Purchasing
----------
Stockholder") are not able to agree on the fair market value of the Company
- -----------
within thirty (30) calendar days following the date on which the Company
notifies the Seller and any Purchasing Stockholder of the determination of the
Option Purchase Price by the Board of Directors of the Company pursuant to
paragraph (c) above, the Company and the Purchasing Stockholders shall
collectively appoint one independent appraiser and the Seller shall appoint one
independent appraiser within thirty (30) calendar days. If the two appraisers
are unable to agree on the value of the Shares within thirty (30) calendar days
of their appointment, they shall appoint a third independent appraiser within
ten (10) calendar days. The decision in writing of any two of the three
appraisers so appointed shall be binding on the Stockholders, the Company and
the Seller. The Company and the Seller shall each pay one half of the fees and
expenses of each appraiser.
ARTICLE 3
RIGHT OF FIRST REFUSAL FOR NEW ISSUANCES
3.1 Grant of Right of First Refusal by Company. The Company hereby
------------------------------------------
grants to each Stockholder the right of first refusal to purchase a pro rata
share of New Securities (as defined in Section 32) which the Company may, from
time to time, propose to sell and issue. Such Holder's pro rata share, for
purposes of this right of first refusal, is the ratio of the number of shares of
Common Stock owned by such Holder immediately prior to the issuance of New
Securities (assuming the conversion, exchange or exercise of all securities of
the Company held by such Holder convertible into or exchangeable or exercisable
for Common Stock) to the total number of shares of Common Stock outstanding
immediately prior to the issuance of New Securities (assuming the conversion,
exchange or exercise of all outstanding securities of the Company convertible
into or exchangeable or exercisable for Common Stock). This right of first
refusal shall be subject to the provisions of this Article 3.
3.2 Definition of New Securities. "New Securities" means any capital
---------------------------- --------------
stock of the Company, rights, options or warrants to purchase such capital stock
and securities of any type whatsoever that are, or may become, convertible into
capital stock; provided that the term "New Securities" does not include the
following securities: (a) securities, including rights, options and warrants to
acquire such securities, issued pursuant to the acquisition of another business
entity or business segment of any such entity by the Company by merger, purchase
of
9
<PAGE>
substantially all the assets, purchase of shares or other reorganization whereby
the Company will own more than 50% of the voting power of such business entity
or business segment of any such entity; (b) securities, including rights,
options and warrants to acquire such securities, issued to employees,
consultants, officers or directors of the Company pursuant to any stock option,
stock purchase, stock bonus or other employee benefit plan, agreement or
arrangement approved by the Board of Directors and by FFC; (c) securities,
including rights, options and warrants to acquire such securities, issued in a
public offering pursuant to a registration under the Securities Act; and (d)
securities issued in connection with any stock split, stock dividend or
recapitalization of the Company.
3.3 Company Notice of Proposed Issuance. In the event the Company
-----------------------------------
proposes to undertake an issuance of New Securities, it shall give each
Stockholder written notice of its intention, describing the type of New
Securities, and their price and the general terms upon which the Company
proposes to issue the same. Each Stockholder shall have thirty (30) calendar
days after any such notice is received to agree to purchase such person's pro
rata share (or any part thereof) of such New Securities for the price and upon
the terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased. Each
Stockholder may provide in its notice that, if one or more Stockholders do not
fully exercise their rights of first refusal, it will purchase such New
Securities as are not subject to such exercise (or a specified quantity of such
New Securities). All such Stockholders specifying their desire to purchase New
Securities exceeding their pro rata share shall, to the extent allocation is
required, share pro rata.
3.4 Company's Sale Right. In the event the Stockholders fail to
--------------------
exercise fully the right of first refusal within said thirty (30) calendar day
period, the Company shall have (120) calendar days thereafter to sell the New
Securities in respect of which the right of first refusal option set forth in
this Article 3 was not exercised, at a price and upon terms no more favorable to
the purchasers thereof than specified in the Company's notice pursuant to
Section 33. In the event the Company has not sold the New Securities within the
time limits specified in the preceding sentence, the Company shall not
thereafter issue or sell any New Securities, without first again offering such
securities to the Stockholders provided in Section 33.
3.5 Right Not Assignable. The right of first refusal set forth in
--------------------
this Article 3 may not be assigned or transferred without the prior written
consent of each Stockholder, except that such right is assignable without such
consent by each Stockholder to its respective Affiliates and Immediate Family.
10
<PAGE>
ARTICLE 4
REGISTRATION RIGHTS
4.1 Certain Definitions.
-------------------
"Holder" or "Holders" means any person or persons who holds
Registrable Securities and any assignee of Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred in
compliance with Section 48.
"Initiating Holders" means the Holder or Holders who have requested
registration of their Registrable Securities under Section 43.
"Other Stockholders" means persons other than Holders who, by virtue
of agreements with the Company, are entitled to include their securities in
certain registrations hereunder.
"Registrable Securities" means the shares of Common Stock owned by the
Stockholders as of the date hereof, as specified on the signature page hereto,
and any other shares of Common Stock purchased by the Stockholders in the future
or issued as a dividend or other distribution with respect to or in exchange for
or in replacement of such shares or issued in respect of or pursuant to any
stock split, reverse stock split, combination, recapitalization,
reclassification, merger or consolidation; provided, however, that Registrable
Securities shall not include any shares of Common Stock that have previously
been registered or that have been sold to the public or that have been sold in a
private transaction in which the transferor's registration rights under this
Agreement are not assigned pursuant to Section 4.8.
The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" means all expenses incurred in effecting any
registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
and expenses of any regular or special audits incident to or required by any
such registration, but shall not include Selling Expenses.
"Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder (if not Company counsel).
11
<PAGE>
4.2 Company Registration.
--------------------
a. If the Company shall determine to register any of its
securities either for its own account or the account of a Holder or Other
Stockholder exercising its registration rights (other than a registration
relating solely to an employee stock option, stock purchase or savings plan, a
registration relating to a transaction under Rule 145 of the Securities Act, the
Company will give to each Holder prompt written notice thereof. Each Holder
shall be given fifteen (15) calendar days after receipt of such notice to
request in writing to the Company that some or all of such person's Registrable
Securities be included in such registration statement. The Company shall use its
best efforts to cause to be registered, subject to Sections 42(b) and 42(c), all
the Registrable Securities that each such Holder has timely requested to be
registered to the extent necessary to permit their sale or other disposition in
accordance with the methods of disposition specified by the Holder in such
request; provided, however, that if the Company registration is in connection
with the Initial Public Offering, each Holder may sell its Registrable
Securities, allocated on a pro rata basis among the Holders, only as part of the
over-allotment option, if any, purchased by the underwriters.
b. If the registration of which the Company gives notice is for
a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to Section
42(a). In such event, the right of any Holder to registration pursuant to this
Section 42 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders of securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
c. Notwithstanding any other provision of this Section 42, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be registered
or underwritten, the representative may (subject to the limitations set forth
below) exclude all Registrable Securities from, or limit the number of
Registrable Securities to be included in, the registration and underwriting. The
Company shall so advise all persons requesting registration, and the number of
shares of securities that are entitled to be included in the registration and
underwriting shall be allocated first to the Company for securities being sold
for its own account and thereafter as set forth in Section 4.10. If any person
does not agree to the terms of any such underwriting, such person shall be
excluded therefrom by written notice from the Company or the underwriter. Any
Registrable Securities or other
12
<PAGE>
securities excluded shall also be withdrawn from such registration. If shares
are so withdrawn from the registration and if the number of shares of
Registrable Securities to be included in such registration was previously
reduced as a result of marketing factors pursuant to this Section 42(c), then
the Company shall offer to all persons who have retained rights to include
securities in the registration the right to include additional securities in the
registration in an aggregate amount equal to the number of shares so withdrawn,
with such shares to be allocated among the persons requesting additional
inclusion in accordance with Section 410.
d. The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section 42 prior to the effectiveness of
such registration whether or not any Holder has elected to include securities in
such registration.
4.3 Requested Registration.
----------------------
a. If the Company shall receive from the Initiating Holders at
any time not earlier than the later of (i) twenty four (24) months after the
Initial Public Offering and (ii) December 31, 1999, a written request that the
Company effect any registration with respect to all or a part of the Registrable
Securities, and only in the event that the aggregate offering price (net of
underwriting discounts and expenses related to the issuance) of the Registrable
Securities proposed to be registered equals or exceeds $10,000,000, the Company
will within ten (10) calendar days of the receipt thereof, give written notice
of the proposed registration to all other Holders. Each such Holder shall have
the right, by giving written notice to the Company within ten (10) calendar days
after receipt of the Company's notice, to elect to include some or all of such
Holder's Registrable Securities in such registration statement. Such notice of
election shall set forth the number of such Holder's Registrable Securities
requested to be included in such registration statement. The Company shall,
subject to the limitations set forth in Section 43(b), file as soon as
practicable a registration statement covering all Registrable Securities which
the Holders have timely requested to be registered.
b. The Company shall not be obligated to effect, or take any
action to effect, any such registration pursuant to this Section 43:
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification, or compliance, unless the
Company is already subject to service in such jurisdiction and except as
may be required by the Securities Act;
(ii) during the period starting with the date sixty (60)
calendar days prior to the Company's good faith
13
<PAGE>
estimate of the date of filing of, and ending on a date one hundred and
twenty (120) calendar days after the effective date of, a registration
statement; provided the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become
effective; and
(iii) more than twice with respect to any Initiating Holder.
c. If (i) in the good faith judgment of the Board of Directors
of the Company such registration would adversely affect the Company, and the
Board of Directors of the Company concludes, as a result, that it is essential
to defer the filing of such registration statement at such time, and (ii) the
Company shall furnish to the Initiating Holders a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would adversely affect the Company for such
registration statement to be filed in the near future and that it is, therefore,
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for the period during which such
disclosure would adversely affect the Company, provided that, except as provided
in Section 43(b)(ii) above, the Company may not defer the filing for a period of
more than one hundred and twenty (120) calendar days after the receipt of the
request of the Initiating Holders and, provided further, that the Company shall
not defer its obligation in this manner more than once in any twelve (12) month
period. The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Sections 43(b) and 410,
include other securities of the Company, with respect to which registration
rights have been granted, and may include securities of the Company being sold
for the account of the Company.
d. If the Initiating Holders intend to distribute their
Registrable Securities covered by their request by means of an underwritten
public offering, they shall so advise the Company as a part of their request to
the Company and the Company shall include such information in the written notice
referred to in Section 43(a). In such event, the right of any Holder to include
such Holder's Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by the Initiating Holders) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall,
together with the Company, enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company.
e. Notwithstanding any other provision of this Section 43, if
the Initiating Holders intend to distribute the Registrable Securities covered
by their request by means of an
14
<PAGE>
underwritten public offering and if the representative of the underwriters
advises the Initiating Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten or registered, the number
of shares to be included in the underwriting or registration shall be allocated
as set forth in Section 410. If a person who has requested inclusion in such
registration as provided above does not agree to the terms of any such
underwriting, such person shall be excluded therefrom by written notice from the
Company or the underwriter. Any Registrable Securities or other securities
excluded shall also be withdrawn from such registration. If shares are so
withdrawn from the registration and if the number of shares of Registrable
Securities to be included in such registration was previously reduced as a
result of marketing factors pursuant to this Section 43(e), then the Company
shall offer to all Holders who have retained rights to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among such Holders requesting additional inclusion in accordance
with Section 410.
4.4 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
Sections 42 and 43 shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 43, if the registration request is
subsequently withdrawn at any time at the request of the Holders of a majority
of the Registrable Securities to be registered (in which case all participating
Holders shall bear such expenses ratably on the basis of the number of shares of
Registrable Securities requested to be registered), unless such withdrawal is
based upon material adverse information relating to the Company that is
different from the information known to the Holders requesting registration at
the time of their request for registration under Section 43.
All Selling Expenses relating to securities so registered shall be
borne by the Holders of such securities ratably on the basis of the number of
shares of Registrable Securities so registered on their behalf, provided that if
the Holders are represented by separate counsel each Holder shall bear the fees
and expenses of its own counsel.
4.5 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Article 4,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense, the Company will, as expeditiously as reasonably
possible:
a. Prepare and file with the Securities and Exchange Commission
(the "SEC") a registration statement with
---
15
<PAGE>
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective.
b. Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
c. Keep such registration, qualification or compliance effective
for a period of one hundred and twenty (120) calendar days or until the Holder
or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs.
d. Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request.
e. Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders of
the Registrable Securities covered by such registration statement, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
f. In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
g. Furnish, at the request of any Holder registering Registrable
Securities pursuant to this Agreement, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration pursuant to this Agreement, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the outside
counsel of recognized standing (or reasonably acceptable to the Holder)
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the
16
<PAGE>
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
h. As promptly as practicable after becoming aware of such
event, notify each Holder of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the registration statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Holder as such Holder may reasonably request.
i. Provide Holders with written notice of the date that a
registration statement registering the resale of the Registrable Securities is
declared effective by the SEC.
j. Provide Holders and their representatives the opportunity to
conduct a reasonable due diligence inquiry of the Company's pertinent financial
and other records and make available its officers, directors and employees for
questions regarding such information as it relates to information contained in
the registration statement.
k. Provide Holders and their representatives the opportunity to
review the registration statement and all amendments thereto a reasonable period
of time prior to their filing with the SEC and refrain from filing any document
in a form to which Holders reasonably object.
4.6 Conditions to Participation.
---------------------------
a. It shall be a condition precedent to the obligations of the
Company pursuant to this Article 4 that the persons selling Registrable
Securities shall furnish to the Company such information regarding themselves,
the Registrable Securities held by them, and the intended method of disposition
of such securities as shall be required to effect the registration of the
Registrable Securities.
b. No Holder may participate in any underwritten registration
hereunder unless such Holder (i) agrees to sell such Holder's securities on the
basis provided in any underwriting arrangements approved by the Holders entitled
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
17
<PAGE>
4.7 Indemnification.
---------------
a. The Company will indemnify each Holder, each of its officers
and directors and each person controlling such Holder within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification, or compliance has been effected pursuant to this Article 4,
against all expenses, claims, losses, damages, and liabilities (or actions,
proceedings, or settlements in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any blue sky law or any rule or regulation
thereunder applicable to the Company and relating to any action or inaction
required of the Company in connection with any such registration, qualification,
or compliance, and will reimburse each such Holder, each of its officers and
directors and each person controlling such Holder, for any legal and any other
expenses reasonably incurred in connection with investigating and defending or
settling any such claim, loss, damage, liability, or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability, or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to the Company by
such Holder or underwriter and stated to be specifically for use therein. It is
agreed that the indemnity agreement contained in this Section 47 shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company. The
indemnity provided for herein shall remain in full force and effect regardless
of any investigation made by or on behalf of such Holder or controlling person
and shall survive transfer of such securities by such Holder.
b. Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification, or compliance is being effected, indemnify the Company, each of
its directors, officers and stockholders and each underwriter, if any, of the
Company's securities covered by such a registration statement, each person who
controls the Company or such underwriter within the meaning of Section 15 of the
Securities Act, each other such Holder and Other Stockholder, and each of their
officers, directors, and stockholders, and each person controlling such Holder
or Other Stockholder, against all claims, losses, damages and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular, or
other document, or
18
<PAGE>
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and will reimburse the Company and such Holders, Other Stockholders, directors,
officers, stockholders, underwriters, or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability, or action, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular, or other document in reliance upon and in
conformity with written information furnished to the Company by such Holder and
stated to be specifically for use therein, provided, however, that the
obligations of such Holder hereunder shall not apply to amounts paid in
settlement of any such claims, losses, damages, or liabilities (or actions in
respect thereof) if such settlement is effected without the consent of such
Holder. The indemnity provided for herein shall survive transfer of such
securities held by said Holder.
c. Each party entitled to indemnification under this Section 47
(the "Indemnified Party") shall give notice to the party required to provide
-----------------
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
------------------
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under Section 47, to the extent such
failure is not prejudicial. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release from all liability in respect to such
claim or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
4.8 Transfer or Assignment of Registration Rights. The rights to
---------------------------------------------
cause the Company to register securities granted to each Holder by the Company
under this Article 4 and related rights may be transferred or assigned by a
Holder (a) only to an Affiliate or Immediate Family member of the Holder or (b)
with the prior written consent of each Stockholder; provided, however, that in
each case registration rights may be transferred only if the
19
<PAGE>
Holder transfers to any transferee of such rights Registrable Securities
representing not less than 15% of the Company's outstanding Common Stock
(assuming the conversion, exchange or exercise of all outstanding securities of
the Company convertible into or exchangeable or exercisable for Common Stock) as
of the date of such transfer. Each Stockholder shall give prompt notice of any
transfer of registration rights to the Company.
4.9 "Market Stand-Off" Agreement. If requested by the Company or an
----------------------------
underwriter of Common Stock or other securities of the Company, each Holder
shall agree not to sell or otherwise transfer or dispose of any Common Stock or
other securities of the Company held by such Holder (other than those included
in the registration) during the one hundred and twenty (120) calendar day period
following the effective date of a registration statement of the Company filed
under the Securities Act. The Company may impose stop-transfer instructions with
respect to the shares subject to the foregoing restriction until the end of said
one hundred and twenty (120) calendar day period.
4.10 Allocation of Registration Opportunities. In any circumstance in
----------------------------------------
which all of the Registrable Securities and other shares of Common Stock of the
Company with registration rights requested to be included in a registration on
behalf of the Holders or Other Stockholders cannot be so included as a result of
limitations of the aggregate number of shares of Registrable Securities and
other securities that may be so included, the number of shares of Registrable
Securities and other securities that may be so included shall be allocated among
the Holders and Other Stockholders requesting inclusion of shares pro rata on
the basis of the number of shares of Registrable Securities and other securities
that would be held by such Holders and Other Stockholders (assuming the
conversion, exchange or exercise of all securities of the Company held by such
Holders and Other Stockholders convertible into or exchangeable or exercisable
for Common Stock); provided, however, that (a) the number of shares of
Registrable Securities to be registered by Initiating Holders, if any, shall not
be reduced until the number of other Shares to be registered in such
registration and shares to be registered by the Company in such registration
shall have been reduced to zero and (b), so that such allocation shall not
operate to reduce the aggregate number of Registrable Securities and other
securities to be included in such registration, if any Holder or Other
Stockholder does not request inclusion of the maximum number of shares of
Registrable Securities and other securities allocated to it pursuant to the
above-described procedure, the remaining portion of its allocation shall be
reallocated among those requesting Holders and Other Stockholders whose
allocations did not satisfy their requests pro rata on the basis of the number
of shares of Registrable Securities and other securities which would be held by
such Holders and Other Stockholders (assuming the conversion, exchange or
exercise of all securities of the Company held by such Holders and Other
Stockholders convertible into or exchangeable or exercisable for Common Stock),
and this procedure
20
<PAGE>
shall be repeated until all of the shares of Registrable Securities and other
securities which may be included in the registration on behalf of the Holders
and Other Stockholders have been so allocated.
4.11 Delay of Registration. No Holder shall have any right to take
---------------------
any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Article 4.
4.12 Limitation on Subsequent Registration Rights. The Company shall
--------------------------------------------
not, without the prior written consent of each Stockholder, enter into any
agreement that would allow any holder of securities of the Company to include
such securities in any registration of securities of the Company with the SEC
unless, under the terms of any such agreement, such holder may include such
securities in any such registration only to the extent that the inclusion of its
securities will not reduce the amount of Registrable Securities which are
includable pursuant to this Agreement.
4.13 Termination of Registration Rights. The right of any Holder to
----------------------------------
request registration or inclusion in any registration pursuant to this Article 4
shall terminate on the earlier of (a) the fifth anniversary date of the closing
of the Initial Public Offering and (b) the date when all shares of Registrable
Securities held by such Holder may immediately be sold under Rule 144 under the
Securities Act, or any successor provision, during any ninety (90) calendar day
period.
21
<PAGE>
ARTICLE 5
CERTAIN VOTING AND APPROVAL RIGHTS
5.1 Voting. The Stockholders shall take all actions necessary
------
(including, without limitation, voting such number of shares of the voting stock
of the Company now owned or hereafter acquired or controlled by them, calling
special meetings of stockholders and executing and delivering written consents)
and use their best efforts as stockholders or directors of the Company to enable
FFC to nominate and elect that number of directors which represents the FFC
Percentage of the aggregate number of members of the Board of Directors, rounded
to the nearest whole number, but in no event less than one (1) director. The
"FFC Percentage" on any date shall equal the percentage that results from
--------------
dividing the number of Shares of Common Stock and Shares convertible into Common
Stock then owned by FFC by the number of shares of Common Stock of the Company
then outstanding, assuming in each case the conversion, exchange or exercise of
all outstanding securities of the Company convertible into or exchangeable or
exercisable for Common Stock at the close of business on any such date. The
Company shall nominate for election to the Board of Directors of the Company the
person or persons designated by FFC pursuant to this Section 5.1 and shall take
all other actions necessary to cause such designee(s) to be elected to the Board
of Directors of the Company. Each of the Stockholders hereby grants to FFC an
irrevocable proxy to vote all Shares presently or at any future time owned
beneficially or of record by such Stockholder which the Stockholder is entitled
to vote, and to represent and otherwise act as such Stockholder could act, in
the same manner and with the same effect as if such Stockholder were personally
present at any meeting of the Stockholders or pursuant to any written consent in
lieu of a meeting or otherwise, solely for the purpose of electing the FFC
designee(s) to the Board of Directors of the Company. Such proxy may not be used
for any other purpose and the Stockholder retains all other voting rights with
respect to any Shares owned by it.
Notwithstanding the foregoing, following an Initial Public Offering,
the number of directors that FFC shall be entitled to nominate and elect
pursuant to this Section 5.1 shall be limited to one (1) and this Section 5.1
shall remain in effect only for so long as (a) FFC continues to own not less
than fifteen percent (15%) of the issued and outstanding Common Stock of the
Company (assuming the conversion, exchange or exercise of all outstanding
securities of the Company convertible into or exchangeable or exercisable for
Common Stock) and (b) FFC continues to be the lender to the Company under the
Warehouse Credit Agreement dated as of January 8, 1997 by and between FFC and
the Company (as successor to Atherton Capital Partners, L.P.), as amended from
time to time.
5.2 FFC Approval Right. The Company shall not effect any of the
------------------
following actions without the prior written consent of FFC:
22
<PAGE>
a. Dissolution or liquidation of the Company prior to December
31, 1998.
b. The issuance of any additional equity interests in the
Company.
c. Any change to the Certificate of Incorporation of the
Company that would materially impair the distributions, liquidation and other
rights, powers, preferences, privileges, immunities or other interests of FFC.
d. Engaging the Company in any activities or transactions other
than in furtherance of the specific business of the Company of exploiting
current and long term income and/or capital gain opportunities in structuring
and implementing debt and equity financings to franchisees or franchisors of the
Eligible Concepts, and conducting such other activities as may be necessary or
incidental to or desirable in connection with the foregoing.
e. Merging, consolidating or exchanging the assets of the
Company with any other person or entity.
f. Filing any bankruptcy petition (or any similar petition) on
behalf of the Company, making a general assignment for the benefit of creditors,
filing an answer admitting the material allegations of or consenting to or
defaulting in filing an answer to any petition for relief filed against the
Company in any bankruptcy or similar proceeding.
g. Originating or purchasing loans to franchisees of any
concepts other than those concepts specified on Exhibit A hereto (the "Eligible
--------
Concepts"), provided that Exhibit A may be amended from time to time with the
- --------
consent of each Stockholder.
5.3 Other Approval Requirements. The Company shall not, without the
---------------------------
prior written consent of each Stockholder, (a) declare or pay any dividends to
any stockholders or (b) issue any securities in connection with the acquisition
of another business entity or business segment of any such entity by the Company
by merger, purchase of substantially all the assets, purchase of shares or other
reorganization whereby the Company will own more than 50% of the voting power of
such business entity or business segment of any such entity.
23
<PAGE>
ARTICLE 6
ADDITIONAL COVENANTS
6.1 Financial Information. The Company shall furnish to each
---------------------
Stockholder, so long as such Stockholder owns at least ten percent (10%) of the
issued and outstanding Common Stock of the Company, the following:
a. not later than thirty (30) calendar days after the end of
each calendar quarter, a quarterly report which shall include an unaudited
balance sheet, income statement and statement of cash flows for the quarterly
period then ended; and
b. not later than one hundred twenty (120) calendar days after
the close of the Company's fiscal year, a report containing (i) a balance sheet
of the Company as of the end of the fiscal year, (ii) an income statement for
the fiscal year, (iii) a statement of cash flows for the fiscal year and (iv) a
statement of stockholders' equity as of the end of the fiscal year, prepared in
accordance with GAAP, consistently applied, and accompanied by the report
thereon of the nationally recognized independent accountants engaged by the
Company.
6.2 Inspection Rights. The Company shall permit each Stockholder, so
-----------------
long as such Stockholder owns at least ten percent (10%) of the issued and
outstanding Common Stock of the Company, at such Stockholder's expense, upon
reasonable notice and during normal business hours, to visit and inspect any of
its properties and offices, to examine its books of account and to discuss the
affairs, finances and accounts of the Company with, and to be advised as to the
same by, its officers, auditors and accountants; provided that the Company shall
not be obligated pursuant to this Section 6.2 to provide access to any
information which it reasonably considers to be a trade secret or similar
confidential information if it reasonably believes that providing such
information would place the Company at a competitive disadvantage.
6.3 Opportunities.
-------------
a. For purposes of this Section 6.3, the term "Enterprise Loan"
---------------
shall mean a loan that is underwritten primarily on the basis of the enterprise
value of a business operated by a franchisee or franchisor of an Eligible
Concept, rather than on the basis of the value of any fee or leasehold interest
in real property securing such loan and occupied by a franchisee or franchisor
of an Eligible Concept or any other criteria.
Each of Elder, Brazy and TAG (the "Principals") agree that all lending
----------
opportunities for Enterprise Loans in the Eligible Concepts to which he or it
has access shall be brought to the Company for so long as the Company is
operationally and financially capable of exploiting the opportunities. The Board
of Directors shall exercise its judgment in good faith as to whether any such
opportunity may be exploited by the Company.
24
<PAGE>
In the event that any of the Principals brings to the Company any
loans that are not Enterprise Loans in the Eligible Concepts, such loans must be
approved by FFC on a case-by-case basis until an underwriting manual, a
processing manual and appropriate related documentation, if any, have been
approved by each of the Stockholders. If FFC does not approve any such loan upon
the terms proposed by the Principal, or such other terms as are mutually agreed
to by the Principal, FFC and the Company, within ten (10) business days after
receiving notice thereof from the Principal, the Principal or any Affiliate
thereof may pursue such loan independently of the Company.
In addition, each of the Principals agrees that it will present to FFC
all lending opportunities to which such Principal has access for loans in the
Eligible Concepts that are not Enterprise Loans. If FFC does not agree to
participate in any such lending opportunity upon the terms proposed by the
Principal, or such other terms as are mutually agreed to by the Principal and
FFC, within ten (10) business days after receiving notice thereof from the
Principal, the Principal or any Affiliate thereof may pursue such lending
opportunity independently of FFC.
b. Each Principal will bring any concepts identified in the
following industry groups to FFC for approval as Eligible Concepts for
Enterprise Loans: quick service restaurants, family dining and casual dining
restaurants, quick service restaurants co-branded with major gasoline company
franchises, video retailing and automotive after-market retailing. If FFC does
not approve the addition of any such concept as an Eligible Concept upon the
terms proposed by the Principal, or such other terms as are mutually agreed to
by the Principal, the Company and FFC, within ten (10) business days after
receiving notice thereof from the Principal, the Principal or any Affiliate
thereof may pursue opportunities in such concept independently of the Company.
c. Subject to Sections 6.3(a) and 6.3(b), the Principals and
their officers, directors, shareholders, partners, agents, employees and
Affiliates shall have the right to engage in any business, investment, or
activity, and neither the Company nor any Stockholder shall have any rights or
claims as a result of such activities. Subject to Sections 6.3(a) and 6.3(b),
each Principal shall have no duty or obligation whatsoever to offer, share, or
offer to share investment opportunities with the Company. The Stockholders
hereby waive any and all rights and claims which they may otherwise have against
any Principal and their officers, directors, shareholders, partners, agents,
employees and Affiliates as a result of any of such activities.
d. Subject to Sections 6.3(a) and 6.3(b), no Stockholder shall
be required to refer investment opportunities to the Company, to account for any
benefits from transactions in any way connected with the Company or its business
nor shall any
25
<PAGE>
Stockholder be under any obligation to refrain from, or disclose, dealings
between the Company (and/or its Affiliates) and such Stockholder or its
Affiliates; provided, however, that FFC agrees and acknowledges that the Company
shall be (i) the exclusive Affiliate of Koch Industries, Inc. to provide
financing proceeds to the Eligible Concepts (other than quick service restaurant
concepts co-branded with major gasoline company franchise concepts that include
convenience stores) until June 30, 1997 and (ii) the primary, but not exclusive,
Affiliate of Koch Industries, Inc. to provide financing proceeds to the Eligible
Concepts (other than quick service restaurant concepts co-branded with major
gasoline company franchise concepts that include convenience stores) thereafter
until the earlier of the termination of the warehouse credit line provided to
the Company by FFC or the sale by FFC of all of its Shares to an entity
unaffiliated with Koch Industries, Inc. If FFC or any Affiliate thereof were to
learn of an Eligible Concept financing opportunity prior to June 30, 1997, FFC
or its Affiliate shall present such opportunity to the Company. If the Company
does not elect to proceed with such opportunity within ten (10) business days
after receiving notice thereof from FFC, FFC or its Affiliate shall be permitted
to pursue such opportunity independently of the Company. The Stockholders hereby
waive any and all rights and claims which they may otherwise have against FFC
and its officers, directors, shareholders, partners, agents, employees and
Affiliates as a result of any of such activities. The Stockholders acknowledge
that FFC and its Affiliates intend to enter into other similar businesses in the
franchise industry, particularly related to the convenience store and retail gas
outlet businesses, independently of FFC's interest in the Company.
e. The obligations of the Principals specified in Sections
6.3(a) and 6.3(b) shall terminate, with respect to TAG and Elder, at such time
as Elder is no longer an officer or director of the Company and, with respect to
Brazy, at such time as Brazy is no longer an officer or director of the Company.
ARTICLE 7
NO SOLICITATION
7.1 By FFC. As long as FFC has an equity interest in the Company and
------
for a period of one year thereafter, FFC shall not solicit for hire any of the
employees, officers or directors of the Company.
7.2 By Elder. As long as Elder has an equity interest in the Company
--------
and for a period of one year thereafter, Elder shall not solicit for hire any of
the employees, officers or directors of the Company or Koch Industries, Inc.
7.3 By Brazy. As long as Brazy has an equity interest in the Company
--------
and for a period of one year thereafter, Brazy shall not solicit for hire any of
the employees, officers or directors of the Company or Koch Industries, Inc.
26
<PAGE>
7.4 Definition of Solicitation. For purposes of this Article 7 the
--------------------------
term "solicitation" shall not include solicitation by advertising in a newspaper
or periodical of general circulation.
ARTICLE 8
MISCELLANEOUS
8.1 Retirement of Debt. The Company may retire all or a portion of
------------------
the outstanding debt under the Subordinated Debt Credit Agreement dated January
8, 1997, as amended from time to time, between the Company and FFC with the
proceeds of any public offering of Shares if the Board of Directors determines
that it is in the best economic interest of the Company to retire such debt.
8.2 Termination. This Agreement, other than the provisions of
-----------
Article 4, Section 5.1, Article 7 and Article 8, shall terminate upon the
Initial Public Offering, and shall terminate with respect to each Stockholder at
such time as that Stockholder shall no longer be the owner of any Shares.
8.3 Notices. Whenever notice is required to be given by any party
-------
hereunder, such notice shall be deemed sufficient only if in writing and
personally delivered to or mailed first class mail by certified or registered
mail, return receipt requested, to the party or parties to be notified at the
address set forth in this Agreement or to such other addresses as the respective
parties hereto shall from time to time designate by ten (10) calendar days'
advance notice to the others in writing. Any notice so given shall be deemed to
have been received upon actual receipt.
8.4 Successors and Assigns. This Agreement and the rights and
----------------------
obligations of the parties hereunder shall be binding upon and shall inure to
the benefit of each Stockholder and such stockholder's respective successors,
heirs, executors, administrators, permitted assigns and legal representatives,
and to the Company and its successors and assigns.
8.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8.6 Severability. In case any one or more of the provisions or parts
------------
of a provision contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement or with respect to any other
jurisdiction, but this Agreement shall be reformed and construed in any such
jurisdiction as if such invalid or
27
<PAGE>
illegal or unenforceable provision or part of a provision had never been
contained herein and such provision or part reformed so that it would be valid,
legal and enforceable to the maximum extent permitted in such jurisdiction.
8.7 Amendment. Any provision of this Agreement may be amended or
---------
waived only by a written instrument signed by each Stockholder and the Company.
8.8 Construction. This Agreement and all documents contemplated
------------
hereby, and all remedies in connection therewith and all questions or
transactions relating thereto, shall be construed in accordance with and
governed by the laws of the state of Delaware. This Agreement shall be
interpreted according to its fair meaning and not strictly for or against any
party.
8.9 Attorney's Fees. In the event that any dispute among the parties
---------------
to this Agreement should result in litigation, the prevailing party shall be
entitled to recover all fees, costs and expenses of enforcing any right under or
with respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
8.10 Entire Agreement. This Agreement constitutes the full and
----------------
entire understanding and agreement among or between the parties with regard to
the subjects hereof, and supersedes any prior or contemporaneous understandings,
representations, warranties or agreements related thereto (oral or written).
8.11 Arbitration or Mediation. Subject to Section 7.12, all parties
------------------------
hereto shall subject any controversy, claim or dispute arising out of or
relating to the offer or sale of Shares, this Agreement, or the operation of the
Company, either during the existence of the Company or afterwards, among the
Company, the Stockholders, their assigns, their Affiliates, their officers,
directors, attorneys, or agents to non-binding arbitration or mediation in San
Francisco, California prior to commencing litigation with respect to any such
controversy, claim or dispute. Any such arbitration or mediation shall be
conducted by a single arbitrator or mediator selected by the mutual agreement of
the parties. Such arbitrator or mediator shall establish the rules and
procedures for the arbitration or mediation. If such dispute, claim or
controversy is not resolved within ninety (90) days following the selection of
the arbitrator or mediator, the parties shall be entitled to seek any other
remedy to which they may be entitled. All applicable statutes of limitation and
defenses based on the passage of time shall be stayed while the procedures
specified in this Section 811 are continuing.
8.12 Remedies. Each party hereto acknowledges that in the event of
--------
any breach of this Agreement by such party, the other parties hereto (a) would
be irreparably and immediately harmed by such breach, (b) could not be made
whole by monetary damages, and
28
<PAGE>
(c) shall be entitled to temporary and permanent injunctions (or their
functional equivalents) to prevent any such breach and/or to compel specific
performance with this Agreement, in addition to all other remedies to which such
parties may be entitled at law or in equity. The remedies of each party hereto
under this Agreement shall be cumulative of each other and of the remedies
available at law or in equity. Any party's full or partial exercise of any such
remedy shall not preclude any subsequent exercise by such party of the same or
any other remedy.
8.13 Confidentiality Restrictions:
----------------------------
a. Restrictions on Disclosure and Use of Proprietary
-------------------------------------------------
Information. Each Stockholder, on its own behalf and on behalf of all of its
- ------------
Affiliates (each, a "recipient" as the context requires), hereby agrees that
during the period of time such entity or any Affiliate is a Stockholder of the
Company and for a period of three (3) years thereafter, it shall (i) not
disclose any Proprietary Information of the Company (as defined below), (ii)
hold and maintain the Proprietary Information in strictest confidence, and (iii)
not use the Proprietary Information in any way other than for the benefit of the
Company.
b. Definition of Proprietary Information. "Proprietary
------------------------------------- -----------
Information" is hereby defined to include all financial, technical, commercial
- -----------
or other proprietary and confidential information or material relating to the
Company, its Affiliates and any predecessors in interest to the Company. By way
of example, Proprietary Information includes, but is not limited to, any and all
information of the following or similar nature, whether or not reduced to
writing:
Client lists, client characteristics, agreements, marketing
knowledge, pricing information, marketing plans and
business plans, strategies, forecasts, financial
information, budgets, software, projections, procedures,
routines, processes, formulas, trade secrets, innovations,
inventions, discoveries, improvements, research or
development and test results, specifications, data, know-
how, formats, plans, specifications, and any other
information or procedures that are treated as or designated
secret or confidential by the Company.
c. Exclusions from Definition. Proprietary Information does
--------------------------
not include information that: (i) was in the recipient's possession prior to its
being furnished to the recipient by the Company, its Affiliates or any
predecessors in interest of the Company, provided the source of that information
was not known by the recipient to be bound by a confidentiality agreement with
or other contractual, legal or fiduciary obligation of confidentiality to
Company, its Affiliates or any predecessors
29
<PAGE>
in interest to the Company; (ii) is now, or hereafter becomes, through no act or
failure to act on the part of the recipient, generally known to the public;
(iii) is rightfully obtained by the recipient from a third party who, to the
best knowledge of the recipient, has the right to make such disclosure, without
breach of any obligation to the Company, its Affiliates or any predecessor in
interest to the Company; or (iv) is independently developed by or for the
recipient without use of or reference to the Proprietary Information.
d. Permitted Disclosures. The recipient of Proprietary
---------------------
Information may disclose the Proprietary Information to the recipient's
employees, officers, directors, agents, consultants, partners, representatives
and Affiliates (each, a "representative") with a bona fide need to know such
Proprietary Information and who are not engaged in activities considered
competitive with those of the Company, but only if such representatives are
advised of the confidential nature of such Proprietary Information and agree to
be bound by the terms of this Agreement for the purposes of protecting the
confidentiality of such Proprietary Information. The recipient may also disclose
the Proprietary Information if required by law, regulation or legal process,
provided that the recipient shall provide prompt written notice to the Company
of any such request and the opportunity to contest any such request. For
purposes of this Section 8.13, the relationship between FFC and/or its
Affiliates with Enterprise Mortgage Acceptance Company, LLC ("EMAC") shall be
considered an activity that is competitive with those of the Company, and no
Proprietary Information shall be disclosed to EMAC's representatives, other than
Jeffrey R. Thompson who, by his execution of this Agreement, agrees not to use
such Proprietary Information other than for the benefit of the Company.
e. Irreparable Harm. The Stockholders understand and
----------------
acknowledge that any disclosure or misappropriation of any of the Proprietary
Information in violation of this Agreement may cause the Company irreparable
harm, the amount of which may be difficult to ascertain, and therefore agrees
that the Company shall have the right to apply to a court of competent
jurisdiction for specific performance and/or an order restraining and enjoining
any such further disclosure or breach and for such other relief as the Company
shall deem appropriate. Such right of the Company is to be in addition to the
remedies otherwise available to the Company at law or in equity. Recipient
expressly waives the defense that a remedy in damages will be adequate and any
requirement in an action for specific performance or injunction for the posting
of a bond by the Company.
f. Franchise Finance Corp. Notwithstanding any of the
----------------------
foregoing, the Stockholders agree that FFC may use and disclose Proprietary
Information as necessary to enforce its rights as a lender to the Company.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
-- ------- -------
the day and year first above written.
ATHERTON CAPITAL INCORPORATED,
a Delaware corporation
By: /s/ David L. Elder
___________________________________
Name: David L. Elder
_________________________________
Title: President
_______________________________
Address: 1001 Bayhill Drive
Suite 155
San Bruno, CA 94066
AGREED TO by the following Stockholders and their spouses, each of
whom herewith certifies that such stockholder owns the number of shares of
Common Stock of the Company following such stockholder's name.
THE ATHERTON GROUP INCORPORATED,
a California corporation
By: /s/ David L. Elder
___________________________________
Name: David L. Elder
_________________________________
Title: President
_______________________________
Number of Shares of
Common Stock held: 200
Address: 1001 Bayhill Drive
Suite 155
San Bruno, CA 94066
FRANCHISE FINANCE CORP.,
a Delaware corporation
By: /s/ Jeffrey R. Thompson
___________________________________
Name: Jeffrey R. Thompson
Title: President
Number of Shares of
Common Stock held: 8,131
Address: 4111 East 37th Street
North Wichita, Kansas 67201
31
<PAGE>
/s/ David L. Elder
________________________________________
DAVID L. ELDER
Number of Shares of
Common Stock held: 8,950
Address: 1001 Bayhill Drive
Suite 155
San Bruno, CA 94066
Spouse:
/s/ Karlene L Elder
________________________________________
KARLENE L. ELDER
/s/ Arthur P. Brazy, Jr.
________________________________________
ARTHUR P. BRAZY, JR.
Number of Shares of
Common Stock held: 5,950
Address: 1001 Bayhill Drive
Suite 155
San Bruno, CA 94066
Spouse:
/s/ Angela M. Luchini
________________________________________
ANGELA M. LUCHINI
32
<PAGE>
EXECUTION VERSION
WAREHOUSE CREDIT AGREEMENT
between
ATHERTON CAPITAL PARTNERS, L.P.
and
FRANCHISE FINANCE CORP.
January 8, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
SECTION I. INTERPRETATION
1.01. Definitions................................................................................... 1
1.02. Headings...................................................................................... 1
1.03. Plural Terms.................................................................................. 1
1.04. Time.......................................................................................... 1
1.05. Governing Law................................................................................. 2
1.06. Construction.................................................................................. 2
1.07. Entire Agreement.............................................................................. 2
1.08. Calculation of Interest and Fees.............................................................. 2
SECTION II. CREDIT FACILITY
2.01. Revolving Credit Facility..................................................................... 2
2.02. Proceeds of Revolving Loan.................................................................... 4
2.03. Payments of Interest and Principal on Payment
Date....................................................................................... 4
2.04. Principal Prepayments......................................................................... 5
2.05. Other Payment Terms........................................................................... 5
2.06. Note.......................................................................................... 5
2.07. Remedies and Recourse......................................................................... 6
2.08. Use of Proceeds............................................................................... 7
SECTION III. CONDITIONS PRECEDENT
3.01. Conditions Precedent to Initial Revolving Loan................................................ 7
3.02. Conditions Precedent to Each Revolving Loan................................................... 7
SECTION IV. REPRESENTATIONS AND WARRANTIES
4.01. Borrower's General Representations and
Warranties................................................................................. 8
4.02. Representations and Warranties With Respect to
the Collateral Loans....................................................................... 10
4.03. Reaffirmation................................................................................. 15
4.04. Survival...................................................................................... 15
SECTION V. COVENANTS
5.01. Affirmative Covenants......................................................................... 15
5.02. Negative Covenants............................................................................ 18
SECTION VI. DEFAULT
6.01. Events of Default............................................................................. 18
6.02. Remedies...................................................................................... 20
6.03. Defaults...................................................................................... 21
SECTION VII. SERVICING OF COLLATERAL LOANS
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SECTION VIII. MISCELLANEOUS
8.01. Notices................................................... 21
8.02. Expenses.................................................. 22
8.03. Indemnification........................................... 22
8.04. Waivers; Amendments....................................... 23
8.05. Successors and Assigns.................................... 23
8.06. No Third Party Rights..................................... 23
8.07. Partial Invalidity........................................ 23
8.08. Jury Trial................................................ 23
8.09. Counterparts.............................................. 23
8.10. Assignment, Participations and Additional
Lenders................................................. 23
</TABLE>
SCHEDULE I - DEFINITIONS
SCHEDULE II - INITIAL CONDITIONS PRECEDENT
SCHEDULE III - APPROVED FRANCHISE CONCEPTS AND APPROVED REAL
ESTATE CONCEPTS
EXHIBIT A - NOTICE OF BORROWING
EXHIBIT B - NOTE
EXHIBIT C - FORM OF SECURITY AGREEMENT
EXHIBIT D - FORM OF SERVICING AGREEMENT
<PAGE>
WAREHOUSE CREDIT AGREEMENT
--------------------------
THIS WAREHOUSE CREDIT AGREEMENT, dated as of January 8, 1997, is
entered into by and among:
(1) ATHERTON CAPITAL PARTNERS, L.P., a California limited partnership
(the "Borrower"); and
--------
(2) FRANCHISE FINANCE CORP., a Delaware corporation ("FFC").
---
RECITALS
--------
A. FFC is a partner of the Borrower.
B. FFC is willing to provide a credit facility to the Borrower upon
the terms and subject to the conditions set forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants herein contained, and for other good and valuable consideration the
receipt and sufficiency of which are acknowledged by both parties hereto, the
parties hereto hereby agree as follows:
SECTION I. INTERPRETATION.
--------------
1.01. DEFINITIONS. Each term set forth in Schedule I, when used in this
----------- ----------
Agreement or any other Credit Document, shall have the respective meaning given
to that term in Schedule I or in the provision of this Agreement or other Credit
----------
Document referenced in Schedule I. Capitalized terms used but not defined in
----------
this Agreement shall have the meanings given to them in the Servicing Agreement.
1.02. HEADINGS. Headings in this Agreement and each of the other Credit
--------
Documents are for convenience of reference only and are not part of the
substance hereof or thereof.
1.03. PLURAL TERMS. All terms defined in this Agreement or any other
------------
Credit Document in the singular form shall have comparable meanings when used in
the plural form and vice versa.
---- -----
1.04. TIME. All references in this Agreement and each of the other Credit
----
Documents to a time of day shall mean San Francisco, California time, unless
otherwise indicated.
1.05. GOVERNING LAW. This Agreement and each of the other Credit
-------------
Documents shall be governed by and construed in accordance with the laws of the
State of Kansas without reference to conflicts of law rules.
<PAGE>
1.06. CONSTRUCTION. Each of this Agreement and the other Credit Documents
------------
is the result of negotiations among, and has been reviewed by, the Borrower, FFC
and their respective counsel. Accordingly, this Agreement and the other Credit
Documents shall be deemed to be the product of all parties hereto, and no
ambiguity shall be construed in favor of or against the Borrower or FFC.
1.07. ENTIRE AGREEMENT. This Agreement and each of the other Credit
----------------
Documents, taken together, constitute and contain the entire agreement of the
Borrower and FFC and supersede any and all prior agreements, negotiations,
correspondence, understandings and communications among the parties, whether
written or oral, respecting the subject matter hereof.
1.08. CALCULATION OF INTEREST AND FEES. All calculations of interest and
--------------------------------
fees under this Agreement and the other Credit Documents for any period shall
include the first day of such period and exclude the last day of such period.
SECTION II. CREDIT FACILITY.
---------------
2.01. REVOLVING CREDIT FACILITY.
-------------------------
(a) Revolving Credit Availability. Subject to the terms and
-----------------------------
conditions of this Agreement, FFC agrees to advance to the Borrower from
time to time during the period beginning on the Closing Date and ending on
the Facility Termination Date or such other date as is specified in Section
6.02 or 6.03, such loans as the Borrower may request under this Section
-------
2.01 (individually, a "Revolving Loan"); provided, however, that the
---- -------------- -------- -------
aggregate outstanding principal balance of all Revolving Loans at any time
shall not exceed the Maximum Commitment Amount. Except as otherwise
provided herein, the Borrower may borrow, repay and reborrow Revolving
Loans until the Facility Termination Date or such other date as is
specified in Section 6.02 or 6.03.
(b) Revolving Loan Maturity Date. The outstanding principal balance
----------------------------
of, together with all accrued but unpaid interest on, the Revolving Loans
shall be due and payable (without demand, defense, set-off or counterclaim)
in full upon the Facility Termination Date.
(c) Principal Amount of Each Revolving Loan. Each Revolving Loan
---------------------------------------
shall be in a principal amount not exceeding the lesser of (i) the Maximum
Commitment Amount minus the unpaid principal amount of all outstanding
Revolving Loans and (ii) 95% of the aggregate outstanding principal balance
of all Collateral Loans, including Collateral Loans to be originated or
purchased using the proceeds of such Revolving Loan, as of the funding date
of such Revolving Loan, minus the unpaid principal amount of all other
outstanding Revolving Loans.
(d) Notice of Borrowing. The Borrower shall request each Revolving
-------------------
Loan, which may be funded only on a Business
<PAGE>
Day, by delivering to FFC a written notice in the form of Exhibit A hereto,
----------------
appropriately completed (a "Notice of Borrowing").
-------------------
The Borrower shall give each Notice of Borrowing to FFC by 1:00 p.m.,
Kansas time, on the Business Day immediately before the funding date of the
requested Revolving Loan. Each Notice of Borrowing shall be delivered by
telecopy to FFC at the telecopy number and during the hours specified in
Section 8.01 hereof.
------------
(e) Revolving Loan Interest Rate. The Borrower shall pay interest on
----------------------------
the unpaid principal amount of each Revolving Loan from the funding date of
such Revolving Loan until the date such Revolving Loan (or portion thereof)
is actually repaid in full (the "Repayment Date") at a rate per annum equal
--------------
to the Applicable LIBOR Rate plus 2.00% per annum. If a Revolving Loan is
----
made on a day other than the first Business Day of a calendar month, the
Applicable LIBOR Rate for such Revolving Loan shall be the Stub LIBOR Rate
until the first Business Day of the next calendar month, from and after
which time the Applicable LIBOR Rate for such Revolving Loan shall be at
the Monthly LIBOR Rate. All computations of interest on Revolving Loans
shall be based on a year of 360 days for actual days elapsed. Interest
shall accrue on any payment that is not paid when due under this Agreement
at a rate equal to the Applicable LIBOR Rate plus three percent (3%).
(f) Termination of Maximum Commitment Amount. On the Facility
----------------------------------------
Termination Date, the obligation of FFC to make Revolving Loans pursuant to
this Agreement shall terminate automatically without any further action,
and the Maximum Commitment Amount shall be zero.
(g) Extension of Facility Termination Date. At least ninety (90) days
--------------------------------------
prior to the Stated Termination Date, the Borrower may, by delivering a
written request to FFC, request that FFC extend for up to one year the
Stated Termination Date. Upon receipt of the request from the Borrower,
FFC may, in its sole discretion, agree to extend the Stated Termination
Date and shall, within thirty (30) days after receipt of such request,
notify the Borrower of its approval or rejection of such request. If FFC
does not respond to the Borrower's request within such thirty (30) day
period, FFC shall be deemed to have rejected the request. If FFC approves
the request for extension, the Stated Termination Date shall be extended
for the requested period, commencing on the Stated Termination Date.
2.02. PROCEEDS OF REVOLVING LOAN. Subject to the satisfaction of the
--------------------------
conditions set forth in Section 3.02 hereof, on the day requested by the
------------
Borrower in the related Notice of Borrowing, FFC shall pay each Revolving Loan
to the account designated in the related Notice of Borrowing.
2.03. PAYMENTS OF INTEREST AND PRINCIPAL ON PAYMENT DATE.
--------------------------------------------------
<PAGE>
On the twelfth (12th) day of each month (or if such day is not a Business Day,
the next succeeding Business Day) (each such date, a "Payment Date"), the
Borrower shall cause to be allocated all payments received with respect to
Collateral Loans from Collateral Borrowers on or prior to the eighth (8th) day
of such month (a "Determination Date") as follows:
------------------
(a) to the Servicer, the compensation specified in the Servicing
Agreement and any accrued but unpaid compensation payable pursuant to the
Servicing Agreement;
(b) to the Servicing Advisor, the compensation specified in the
Servicing Agreement and any accrued but unpaid compensation payable
pursuant to the Servicing Agreement;
(c) to the Servicer and/or the Custodian, any out-of-pocket expenses
required to be reimbursed by the Borrower pursuant to the Servicing
Agreement;
(d) to the Servicing Advisor, any out-of-pocket expenses required to
be reimbursed by the Borrower pursuant to the Servicing Agreement;
(e) to FFC, the amount of interest accrued at the applicable rate
during the preceding calendar month on the average of (i) the outstanding
daily balance of all Revolving Loans outstanding on the first day of the
preceding calendar month minus (ii) the unpaid principal balance of each
Nonperforming Loan multiplied by the applicable Collateral Ratio, in each
case determined for each day during the preceding calendar month;
(f) to FFC, the amount of interest accrued during the preceding
calendar month at the applicable rate on any Revolving Loan not outstanding
on the first day of the preceding calendar month, based on the outstanding
principal balance thereof and the number of days such Revolving Loan has
been outstanding during the preceding calendar month;
(g) to FFC, the amount, if any, paid by a Collateral Borrower and
accepted by the Borrower with respect to a Nonperforming Loan to the extent
that any payment previously made to FFC with respect to such Nonperforming
Loan was reduced pursuant to the preceding paragraph (e);
(h) to FFC, a principal payment equal to the sum of (i) ninety-five
percent (95%) of the principal payments made by the Collateral Borrowers as
of such Determination Date on the Collateral Loans and (ii) ninety-five
percent (95%) of any prepayments of principal made by any Collateral
Borrowers since the preceding Determination Date. All such payments of
principal shall reduce the aggregate outstanding principal balance of the
Revolving Loans; and
(i) to the Borrower, any remaining amount.
<PAGE>
2.04. PRINCIPAL PREPAYMENTS. The outstanding principal balance of each
---------------------
Revolving Loan may be prepaid, in whole or in part, on any Business Day. Such
prepayment shall be without premium or penalty.
2.05. OTHER PAYMENT TERMS.
-------------------
(a) Place and Manner. The Borrower shall make (or shall direct the
----------------
Servicer to make), without setoff, deduction or counterclaim, all payments
due to FFC hereunder at FFC's office, located at the address specified in
Section 8.01(a), or such other office as FFC shall request in writing, in
---------------
lawful money of the United States and in same day or immediately available
funds not later than 2:00 p.m., Kansas time, on the date due. Funds
received after such time shall be deemed to have been received by FFC on
the next Business Day.
(b) Date. Whenever any payment due hereunder shall fall due on a day
----
other than a Business Day, such payment shall be made on the next Business
Day.
(c) Application of Payments. All payments hereunder shall be applied
-----------------------
first to unpaid costs and expenses then due and payable under this
Agreement or the other Credit Documents, second to accrued interest then
due and payable under this Agreement or the other Credit Documents and
finally to reduce the principal amount of outstanding Revolving Loans.
2.06. NOTE.
----
(a) Revolving Loan Note. The obligation of the Borrower to repay the
-------------------
Revolving Loans and to pay interest thereon at the rates provided herein
shall be evidenced by a promissory note in the form of Exhibit B, as
---------
amended from time to time (the "Note"), which note shall be (i) in the
----
principal amount of two hundred and fifty million dollars
($250,000,000.00), (ii) dated the Closing Date and (iii) otherwise
appropriately completed. The Borrower authorizes FFC to record on the
schedule annexed to the Note the date and amount of each Revolving Loan and
of each payment of principal thereon made by or on behalf of the Borrower,
and agrees that all such notations shall constitute prima facie evidence of
the matters noted; provided, however, that the failure of FFC to make any
-------- -------
such notation shall not affect the Borrower's obligations. The Borrower
further authorizes FFC to attach to and make a part of the Note
continuations of the schedule attached thereto as necessary.
(b) Record of Interest. The Borrower authorizes FFC to record in its
------------------
books (i) the Applicable LIBOR Rate for all Revolving Loans and the
effective dates of all changes thereto, (ii) the date and amount of each
principal and interest payment on each Revolving Loan, and (iii) such
other information as FFC may determine is necessary for the
<PAGE>
computation of interest payable by the Borrower hereunder.
2.07. REMEDIES AND RECOURSE. FFC's remedies and recourse to the Borrower
---------------------
and its assets are limited as set forth in this Section 2.07.
------------
(a) Recourse. Except as specified in Section 2.07(b), 2.07(c) and
-------- --------------- -------
2.07(d), the Borrower shall be obligated to pay the principal of and
-------
interest on the Revolving Loans only with funds received by the Borrower
from Collateral Borrowers as payments of principal of and interest on the
Collateral Loans, and FFC shall otherwise have no recourse to the Borrower
or its assets for payment of the principal of or interest on the Revolving
Loans; provided, however, that, prior to allocating any payments with
respect to Collateral Loans to the Borrower pursuant to Section 2.03,
payments of principal of and interest on all Collateral Loans shall be
allocated to the payment of principal of and interest on all Revolving
Loans, without regard to whether the proceeds of a Revolving Loan were used
to purchase, originate or finance any such Collateral Loans.
(b) Recourse to Collateral. If any Collateral Loan is a Nonperforming
----------------------
Loan and the Borrower and FFC are unable to agree, after negotiating in
good faith, to the terms of a work out plan for such loan within thirty
(30) days following the date when such loan became a Nonperforming Loan,
FFC shall be entitled to take the actions with respect to such Collateral
Loan and each Affiliated Collateral Loan and any related Collateral as
specified in the Security Agreement. When any such Nonperforming Loan has
become a Liquidated Loan, the outstanding principal balance of the
Revolving Loans shall be reduced by (i) the unpaid principal balance of the
Liquidated Loan multiplied by (ii) the Collateral Ratio. The "Collateral
----------
Ratio" shall mean, with respect to any Nonperforming Loan, the outstanding
-----
principal balance of the Revolving Loans divided by the outstanding
principal balance of the Collateral Loans, determined as of the Payment
Date immediately following the date of the occurrence of the first event of
default under the related Loan Documents that caused such Collateral Loan
to become a Nonperforming Loan.
(c) Limited Recourse. Notwithstanding any other provision of this
----------------
Agreement to the contrary, in the event that there shall be a Lien on any
Collateral superior in priority to any Lien of FFC, FFC shall have full
recourse to the Borrower and its assets with respect to any principal,
interest, fee, expense or other amount owing to FFC in an amount equal to
the amount of the obligation secured by such superior Lien.
(d) Full Recourse. Notwithstanding any other provision of this
-------------
Agreement to the contrary, FFC shall have full recourse to the Borrower and
all of its assets with respect to the payment of any principal, interest,
fee, expense or other amount which is or becomes due and payable
<PAGE>
solely as a result of, or accrues after, the occurrence of any Recourse
Event.
2.08. USE OF PROCEEDS. The Borrower shall apply the proceeds of each
---------------
Revolving Loan solely for the purpose of purchasing, originating or financing
Collateral Loans.
SECTION III. CONDITIONS PRECEDENT.
--------------------
3.01. CONDITIONS PRECEDENT TO INITIAL REVOLVING LOAN. The obligation of
----------------------------------------------
FFC to make the initial Revolving Loan is subject to receipt by FFC, on or prior
to the Closing Date, of each item listed in Schedule II, each in form and
-----------
substance satisfactory to FFC.
3.02. CONDITIONS PRECEDENT TO EACH REVOLVING LOAN. The making of each
-------------------------------------------
Revolving Loan is subject to the further conditions that FFC shall have received
the Notice of Borrowing requesting such Revolving Loan in accordance with this
Agreement and that on the date such Revolving Loan is to be made and after
giving effect to such Revolving Loan, the following shall be true and correct:
(a) The representations and warranties set forth in Sections 4.01 and
-----------------
4.02 are true and correct in all material respects as if made on such date;
----
(b) No Default or Event of Default has occurred and is continuing
under any Credit Document;
(c) Each of the Credit Documents remains in full force and effect;
and
(d) If applicable, the Borrower shall have delivered the Collateral
Loan Documentation for the related Collateral Loan to FFC or a custodian or
bailee acceptable to FFC by the Business Day prior to the date of funding.
The submission by the Borrower to FFC of each Notice of Borrowing shall be
deemed to be a representation and warranty by the Borrower as of the date
thereof as to the paragraphs set forth above.
SECTION IV. REPRESENTATIONS AND WARRANTIES.
------------------------------
4.01. BORROWER'S GENERAL REPRESENTATIONS AND WARRANTIES. To induce FFC
-------------------------------------------------
to enter into this Agreement and to make Revolving Loans hereunder, the Borrower
represents and warrants to FFC that:
(a) Due Organization, Qualification, etc. The Borrower (i) is a
------------------------------------
limited partnership duly organized, validly existing and in good standing
under the laws of its state of organization; (ii) has the power and
authority to own, lease and operate its properties and carry on its
business as now conducted; and (iii) is duly qualified and licensed to do
business and is in good standing as a foreign
<PAGE>
entity in each jurisdiction where the failure to be so qualified or
licensed might have a Material Adverse Effect.
(b) Authority. The execution, delivery and performance by the
---------
Borrower of each Credit Document to be executed by the Borrower and the
consummation by the Borrower of the transactions contemplated thereby (i)
are within the power of the Borrower and (ii) have been duly authorized by
all necessary actions on the part of the Borrower.
(c) Enforceability. Each Credit Document executed, or to be executed,
--------------
by the Borrower has been, or will be, duly executed and delivered by the
Borrower and constitutes, or will constitute, a legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance
with its terms, except as limited by bankruptcy, insolvency or other laws
of general application relating to or affecting the enforcement of
creditors' rights generally and general principles of equity.
(d) Non-Contravention. The execution and delivery by the Borrower of
-----------------
the Credit Documents executed by the Borrower and the performance and
consummation of the transactions contemplated thereby do not (i) conflict
with or violate any Requirement of Law applicable to the Borrower; (ii)
conflict with or violate any provision of, or result in the breach or the
acceleration of, or entitle any other Person to accelerate (whether after
the giving of notice or lapse of time or both), any Contractual Obligation
of the Borrower; or (iii) result in the creation or imposition of any Lien
upon any property, asset or revenue of the Borrower (except such Liens as
may be created in favor of FFC pursuant to the Credit Documents).
(e) Approvals. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with, any Governmental Authority or
other Person (including, without limitation, the shareholders of any
Person) is required in connection with the execution and delivery of the
Credit Documents by the Borrower and the performance and consummation by
the Borrower of the transactions contemplated hereby and thereby.
(f) No Violation or Default. The Borrower is not in violation of or
-----------------------
in default with respect to (i) any Requirement of Law applicable to the
Borrower; (ii) any Contractual Obligation of the Borrower (nor is there any
waiver in effect which, if not in effect, would result in such a violation
or default), where, in each case, such violation or default could have a
Material Adverse Effect. No Default or Event of Default has occurred and
is continuing.
(g) Litigation. No actions (including, without limitation, derivative
----------
actions), suits, proceedings or investigations are pending or, to the
knowledge of the
<PAGE>
Borrower, threatened against the Borrower at law or in equity in any court
or before any other Governmental Authority which (i) could have a Material
Adverse Effect or (ii) seek to enjoin, either directly or indirectly, the
execution, delivery or performance by the Borrower of the Credit Documents
or the transactions contemplated thereby.
(h) Other Regulations. The Borrower is not subject to regulation
-----------------
under the Investment Company Act of 1940, the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act,
any state public utilities code or to any federal or state statute or
regulation limiting its ability to incur Indebtedness.
(i) Licenses and Other Rights. The Borrower owns, or has the full
-------------------------
right to license without the consent of any other Person, all licenses,
trademarks, trade names, trade secrets, service marks, copyrights and all
rights with respect thereto, which are required to conduct its businesses
as now conducted.
(j) Governmental Charges and Other Indebtedness. The Borrower has
-------------------------------------------
filed or caused to be filed all tax returns which are required to be filed
by it. The Borrower has paid, or made provision for the payment of, all
taxes and other Governmental Charges which have or may have become due
pursuant to said returns or otherwise and all other Indebtedness, except
such Governmental Charges or Indebtedness, if any, which are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided or which could not have a Material
Adverse Effect if unpaid.
(k) Margin Stock. The Borrower owns no Margin Stock which, in the
------------
aggregate, would constitute a substantial part of the assets of the
Borrower, and no proceeds of any Revolving Loan will be used to purchase or
carry, directly or indirectly, any Margin Stock or to extend credit,
directly or indirectly, to any Person for the purpose of purchasing or
carrying any Margin Stock.
(l) Solvency, etc. The Borrower is Solvent and, after the execution
-------------
and delivery of the Credit Documents and the consummation of the
transactions contemplated thereby, will be Solvent.
(m) Security Interest. When the filings listed on Schedule II have
----------------- -----------
been made and the Collateral Loan Documentation relating to Collateral
Loans has been delivered to FFC (or any custodian or bailee of FFC), the
Lien of the Security Agreement will constitute a valid and first priority
perfected security interest in all of the Borrower's right, title and
interest in the property described in the Security Agreement, subject to no
other Lien.
(n) Accuracy of Information. None of the Credit
-----------------------
<PAGE>
Documents and none of the other certificates, statements or information
furnished to FFC by the Borrower in connection with the Credit Documents or
the transactions contemplated thereby contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(o) Intent. None of the transactions contemplated by this Agreement
------
have been or will be made with an actual intent to hinder, delay or defraud
any present or future creditors of the Borrower. The Borrower is able to
pay its debts as they become due.
4.02. REPRESENTATIONS AND WARRANTIES WITH RESPECT TO THE COLLATERAL LOANS.
-------------------------------------------------------------------
The Borrower represents and warrants to FFC with respect to each Collateral Loan
to be purchased, originated or financed with the proceeds of the related
Revolving Loan:
(a) Documents. The Collateral Loan Documentation delivered by the
---------
Borrower to FFC or its designee constitute either original documents (with
respect to the note, loan agreement, collateral documents and such other loan
documents required by FFC) or genuine and true copies thereof.
(b) Standard Loan. Unless the Collateral Loan is a Non-Standard Loan,
-------------
each Collateral Loan (i) conforms in all material respects to the underwriting
guidelines contained in the Underwriting Manual, (ii) has been processed in
accordance with the Processing Manual and (iii) is documented using the Loan
Documents. The terms of the Collateral Loan Documentation are consistent with
the related Notice of Borrowing.
(c) No Waivers. The terms of the Collateral Loan Documentation have
----------
not been waived, altered or modified in any material respect, except by
instruments or documents identified in the related Collateral Loan Documentation
Checklist.
(d) Binding Obligation. The Collateral Loan Documentation relating to
------------------
the Collateral Loan is the legal, valid and binding obligation of the Collateral
Borrower or other maker thereof or obligor thereunder, enforceable in accordance
with its terms, except that the enforceability thereof may be (i) limited by
bankruptcy, insolvency or other laws of general application relating to or
affecting the enforcement of creditors rights generally and general principles
of equity and (ii) subject to, with respect to any Leasehold Mortgage, the
recording thereof and the obtaining of any necessary landlord signature. To the
knowledge of the Borrower, all parties to the Collateral Loan Documentation had
the legal capacity to execute such Collateral Loan Documentation.
(e) No Defenses. The Collateral Loan Documentation is not subject to
-----------
any right of rescission, setoff, abatement, diminution, counterclaim or defense,
including the defense of usury, and the operation of any of the terms of the
Collateral Loan Documentation or the exercise of any right thereunder will
<PAGE>
not render the Collateral Loan Documentation unenforceable in whole or in part
or subject to any right of rescission, setoff, abatement, diminution,
counterclaim or defense, including the defense of usury, and no such right of
rescission, setoff, abatement, diminution, counterclaim or defense has been
asserted with respect thereto.
(f) Lawful Pledge. No Collateral Loan has been originated or sold in
-------------
or is subject to the laws of any jurisdiction, the laws of which would make the
pledge of the Collateral Loan or any interest therein (including any interest in
the related property and collateral securing such Collateral Loan, as
applicable) by the Borrower to FFC hereunder unlawful, void or voidable.
(g) Compliance with Law. All requirements of any federal, state or
-------------------
local law, including, without limitation, usury, truth-in-lending, real estate
settlement procedures, consumer credit protection, equal credit opportunity, and
disclosure laws applicable to the origination of the Collateral Loan, and the
execution, delivery and performance by the Borrower of the Collateral Loan
Documentation have been complied with, and the Borrower shall for at least the
period of this Agreement, maintain in its possession, available for FFC's
inspection, and shall deliver to FFC upon demand, evidence of compliance with
all such requirements. The Mortgage, if any, is in appropriate form for
recordation in the state in which the related real property is located.
(h) Collateral Loans in Force. The Collateral Loan is in full force
-------------------------
and effect and has not been satisfied in whole or in part or rescinded, and the
collateral and property securing the Collateral Loan, as applicable, have not
been released from the lien of the Collateral Loan in whole or in part.
(i) No Defaults. As of the funding date for the Collateral Loan, to
-----------
the best of the Borrower's knowledge there is no default, breach, violation or
event permitting acceleration existing under the Collateral Loan Documentation
and no event which, with notice and the expiration of any grace or cure period,
would constitute such a default, breach, violation or event permitting
acceleration under the Collateral Loan Documentation. The Borrower has not
waived any such default, breach, violation or event permitting acceleration. No
payment of principal of or interest on any Collateral Loan of the related
Collateral Borrower or any Affiliated Collateral Loan is overdue by more than
thirty (30) days.
(j) One Original. There is only one original executed promissory
------------
note.
(k) Proceedings. There is no proceeding pending or, to the Borrower's
-----------
knowledge, threatened for the total or partial condemnation of the Property or
of the collateral securing the Collateral Loan. There is no foreclosure action,
exercise of power of sale or other remedy pending or, to the knowledge of the
Borrower, currently or previously threatened or commenced with
<PAGE>
respect to the Collateral Loan, the collateral securing such Collateral Loan or
the Property. The Property relating to the Collateral Loan is free of material
damage and in good condition and repair.
(l) Accuracy of Information. To the best of the Borrower's knowledge,
-----------------------
after due inquiry, all of the information provided to FFC with respect to the
Collateral Loan is true, complete and correct in all material respects. To the
knowledge of the Borrower, none of the Collateral Loan Documentation contains or
will contain, any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(m) Satisfaction of Closing Conditions. All conditions to closing
----------------------------------
specified in the related Collateral Loan Documentation, other than those
previously waived by FFC by facsimile or otherwise in writing with respect to
the Collateral Loan, have been satisfied.
(n) No Other Agreements. To the best of the Borrower's knowledge,
-------------------
there are no other written or oral agreements that would affect, modify or
impair the Collateral Loan Documentation.
(o) Title. The Borrower has good and marketable title to, and is the
-----
sole legal and beneficial owner of, the Collateral Loan and related Collateral
Loan Documentation, free and clear of any pledge or Lien (other than to FFC
pursuant to the Security Agreement); the Borrower has the full right and power
to assign and pledge such Collateral Loan and related Collateral Loan
Documentation to FFC and neither such Collateral Loan nor the related Collateral
Loan Documentation expressly prohibit or restrict the assignment or pledge
thereof to FFC.
(p) Franchise Agreement. With respect to each Franchisee Loan, the
-------------------
Collateral Borrower has entered into a legal, valid and binding franchise
agreement with respect to the store relating to the Franchisee Loan. With
respect to each Real Estate Loan, the Property relating to the Real Estate Loan
is or will be occupied by a franchisor or a franchisee who has entered into a
legal, valid and binding franchise agreement with respect to the store located
on the Property.
(q) Insurance. The Collateral Borrower has provided to the Borrower
---------
certificates or copies of policies evidencing that the collateral securing the
Collateral Loan and the Property relating to such Collateral Loan are insured
under insurance policies conforming to the requirements under the Collateral
Loan Documentation.
(r) Mortgage. The related Mortgage, if any, secures the full amount
--------
of such Collateral Loan and has not been satisfied, cancelled or rescinded by
the Borrower, and the related Mortgaged Property has not been released from the
lien of such Mortgage, in whole or in part, nor has any instrument been
<PAGE>
executed by the Borrower that would effect any such satisfaction, cancellation,
rescission or release. The Borrower has not entered into any agreement
subordinating such Mortgage, except as set forth in the related Notice of
Borrowing and approved by FFC.
(s) Property. The Property relating to the Collateral Loan is in
--------
compliance with all governmental rules, and has such appurtenant and
indefeasible rights and easements as are necessary for the legal operation,
occupancy and use thereof.
(t) Mortgage Priority; Security Interest. The Mortgage, if any,
------------------------------------
securing the Collateral Loan is, or will be when recorded, a properly recorded,
valid and enforceable lien on the related Mortgaged Property that is a first
lien or, with respect to a Collateral Loan that is subordinate to a Small
Business Administration loan, a second lien subject to no prior secured debt
except as described in the related Notice of Borrowing with respect thereto and
approved by FFC. Such Mortgage contains an absolute and present assignment of
leases and rents. Such Mortgage with respect to the Mortgaged Property and the
security agreement delivered in connection with such Collateral Loan establish
and create a valid and enforceable lien and security interest on the property
and collateral described therein, as the case may be, in each case for the
benefit and security of the Borrower. The Collateral Loan Documentation
delivered to the Servicer pursuant to the Servicing Agreement shall be
sufficient to enforce the obligations of the Collateral Borrower under the
Collateral Loan and the security interest granted by such Collateral Borrower in
the property and collateral securing such Collateral Loan.
(u) No Other Pledge or Assignment. The Collateral Loan has not been
-----------------------------
otherwise assigned or pledged by the Borrower.
(v) Environmental Matters. With respect to a Collateral Loan secured
---------------------
by a Mortgage, to the Borrower's knowledge, the Mortgaged Property and the use
thereof comply with all environmental laws, and the applicable Collateral
Borrower has provided the Borrower with responses to an environmental
questionnaire that indicate that there is no hazardous waste on the Mortgaged
Property that could have a material adverse effect on such Collateral Loan; with
respect to such Collateral Loan, if it is secured by a Mortgage, the Collateral
Borrower has provided an environmental report from Vista Environmental
Information or a similar report indicating that there is no hazardous waste on
the Mortgaged Property that could have a material adverse effect on such
Collateral Loan.
(w) No Adverse Proceedings. To the knowledge of the Borrower, there
----------------------
are no proceedings or investigations pending or threatened by any Collateral
Borrower or governmental authority adversely affecting the enforceability of the
Collateral Loan Documentation.
(x) Cross-Collateral. The Collateral Loan is not cross-collateralized
----------------
with any other loan or other indebtedness other than another Collateral Loan.
<PAGE>
(y) Full Disbursement. Upon the funding of the initial principal
-----------------
amount of the Collateral Loan, such Collateral Loan shall have been fully funded
and there is and will be no obligation or requirement for future advances
thereunder by the Borrower and, except for any escrowed funds deposited pursuant
to the Collateral Loan Documentation, no cash deposits, letters of credit,
pledged account, surety bonds or other cash equivalent items are held by or for
the account of the Borrower to assure compliance by the Collateral Borrower with
any of its obligations in respect of such Collateral Loan or the related
Collateral Loan Documentation.
4.03. REAFFIRMATION. The Borrower shall be deemed to have reaffirmed, for
-------------
the benefit of FFC, each representation and warranty contained in Sections 4.01
-------------
and 4.02 on and as of the funding date of each Revolving Loan.
- --------
4.04. SURVIVAL. The representations and warranties set forth in Section
--------
4.01 and Section 4.02 shall remain in full force and effect until the expiration
or earlier termination of this Agreement and until the related Revolving Loan is
repaid in full, as applicable.
SECTION V. COVENANTS.
---------
5.01. AFFIRMATIVE COVENANTS. Until the termination of this Agreement and
---------------------
the satisfaction in full by the Borrower of all Obligations, the Borrower shall
comply, and shall cause compliance, with the following affirmative covenants
unless FFC shall otherwise consent in writing:
(a) Financial Statements, Reports, etc. The Borrower shall furnish
----------------------------------
to FFC the following:
(i) not later than thirty (30) days after the end of each
calendar quarter, a quarterly report which shall include an unaudited
balance sheet, income statement and statement of cash flows for the
quarterly period then ended;
(ii) not later than one hundred twenty (120) days after the
close of the Borrower's fiscal year, a report containing (a) a balance
sheet of the Borrower as of the end of the fiscal year, (b) an income
statement for the fiscal year, (c) a statement of cash flows for the
fiscal year and (d) a statement of partners' capital as of the end of
the fiscal year, prepared in accordance with GAAP, consistently
applied, and accompanied by the report thereon of the nationally
recognized independent accountants engaged by the Borrower; and
(iii) such other instruments, agreements, certificates, opinions,
statements, documents and information relating to the operations or
condition (financial or otherwise) of the Borrower, and compliance by
the Borrower with the terms of this
<PAGE>
Agreement and the other Credit Documents as FFC may from time to time
reasonably request.
(b) Books and Records. The Borrower shall at all times keep proper
-----------------
books of record and account in which full, true and correct entries will be
made of its transactions in accordance with GAAP. With respect to each
Collateral Loan, the record keeping practices used by the Borrower with
respect to each Collateral Loan shall be in all respects legal, proper and
prudent.
(c) General Inspections. The Borrower shall permit any Person
-------------------
designated by FFC, upon reasonable notice and during normal business hours,
to visit and inspect any of its properties and offices, to examine its
books of account, all relevant information in the possession of the
Borrower or its Affiliates and agents (including any bailee, custodian,
accountant or attorney) concerning the transactions contemplated by this
Agreement and each other Credit Document and to discuss the affairs,
finances and accounts of the Borrower with, and to be advised as to the
same by, their officers, auditors and accountants, all at such times and
intervals as FFC may reasonably request.
(d) Governmental Charges and Other Indebtedness. The Borrower shall
-------------------------------------------
promptly pay and discharge when due (i) all taxes and other Governmental
Charges prior to the date upon which penalties accrue thereon, (ii) all
Indebtedness which, if unpaid, could result in a Lien upon the Collateral,
and (iii) all other Indebtedness which, if unpaid, could have a Material
Adverse Effect, except such Indebtedness as may in good faith be contested
or disputed, or for which arrangements for deferred payment have been made,
provided that in each such case appropriate reserves are maintained to the
reasonable satisfaction of FFC.
(e) General Business Operations. The Borrower shall (i) preserve and
----------------------------
maintain its partnership existence and all of its rights, privileges and
franchises reasonably necessary to the conduct of its business, (ii)
conduct its business activities in compliance with all Requirements of Law
and Contractual Obligations applicable to such Person, the violation of
which could have a Material Adverse Effect, and (iii) keep all property
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted.
(f) Further Assurances. The Borrower shall deliver to FFC such other
------------------
instruments, agreements, certificates, opinions and documents as FFC may
reasonably request to evidence and maintain the rights of FFC and under
each Credit Document. The Borrower shall fully cooperate with FFC and
perform all additional acts reasonably requested by FFC to effect the
purposes of the foregoing. Without limiting the generality of the
foregoing:
(i) The Borrower agrees from time to time, at the
<PAGE>
expense of the Borrower, to promptly execute and deliver all further
instruments and documents, and to take all further action, that FFC
reasonably determines is necessary or desirable, or that FFC might
reasonably request, in order to create, perfect and protect any
security interest granted or purported to be granted hereby and under
the Security Agreement or to enable FFC to exercise and enforce its
rights and remedies hereunder with respect to any Collateral.
(ii) The Borrower (A) will execute financing or continuation
statements, and amendments thereto, and such other instruments or
notices, as FFC reasonably determines may be necessary or desirable in
order to perfect and preserve the security interests granted or
purported to be granted hereby and by the Security Agreement and (B)
hereby authorizes FFC to file one or more financing or continuation
statements, and amendments thereto, relative to all or any part of the
Collateral without the signature of the Borrower where permitted by
law. A carbon, photographic or other reproduction of this Agreement
or any financing statement covering the Collateral or any part thereof
shall be sufficient as a financing statement where permitted by law.
(iii) The Borrower agrees to furnish to FFC from time to time
statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as
FFC may reasonably request, all in reasonable detail.
(iv) The Borrower shall promptly notify FFC of any levy,
foreclosure or other seizure by legal process or otherwise of any part
of the Collateral and of any threatened or filed claims or proceedings
which might in any way affect or impair the Collateral or any of the
terms of the Credit Documents.
(g) Protection of Collateral. Subject to the terms of the Servicing
------------------------
Agreement, the Borrower shall enforce its rights under the Collateral Loan
Documentation so as to protect the value of the Collateral.
(h) Loan Documentation. With respect to each Collateral Loan, the
------------------
Borrower shall deliver, or cause to be delivered, the Collateral Loan
Documentation to the Custodian and shall cause the Custodian to deliver to
FFC a certification, in accordance with the Servicing Agreement, as to the
Collateral Loan Documentation received by the Custodian within ninety (90)
days of the date such Collateral Loan became a Collateral Loan.
(i) Notices. The Borrower shall promptly notify FFC upon:
-------
(i) the commencement of any litigation against the
<PAGE>
Borrower that may have a Material Adverse Effect;
(ii) the occurrence of any Default or Event of Default under
this Agreement;
(iii) the occurrence of any default with respect to the
Subordinated Debt;
(iv) a Collateral Loan becoming a Nonperforming Loan; and
(v) any material adverse change in the business, operations or
condition (financial or otherwise) of the Borrower.
5.02. NEGATIVE COVENANTS. Until the termination of this Agreement and the
------------------
satisfaction in full by Borrower of all Obligations, Borrower shall comply, and
shall cause compliance, with the following negative covenants unless FFC shall
otherwise consent in writing:
(a) Liens. The Borrower shall not create, incur, assume or permit to
-----
exist any Lien on or with respect to any Collateral or pledge or otherwise
transfer the Collateral or any part thereof, except pursuant to this
Agreement and the Security Agreement.
(b) Mergers, Acquisitions, etc. The Borrower shall not consolidate
---------------------------
with or merge into any other Person or permit any other Person to merge or
consolidate with or into, the Borrower; provided, however, that (i) the
--------- --------
Borrower may merge or consolidate with or into any other Person or entity
if immediately after giving effect to such proposed transaction, no Default
or Event of Default would exist, and (ii) the Borrower is either the
surviving entity or the surviving entity agrees to assume all of the
Borrower's obligations hereunder and each other Credit Document in an
agreement or instrument satisfactory in form and substance to FFC.
SECTION VI. DEFAULT.
-------
6.01. EVENTS OF DEFAULT. The occurrence or existence of any one or more
-----------------
of the following shall constitute an "Event of Default" hereunder:
----------------
(a) the Borrower shall fail to cause payments made by the Collateral
Borrowers to be made to FFC in accordance with Article II; or
----------
(b) the Borrower shall fail to observe or perform any other covenant,
obligation, condition or agreement contained in this Agreement or the other
Credit Documents and such failure shall continue unremedied for thirty (30)
Business Days following the earlier of (i) discovery thereof by the
Borrower or (ii) notice thereof by FFC to the Borrower; or
<PAGE>
(c) any representation, warranty, certificate, or other statement
(financial or otherwise) (other than any representation or warranty set
forth in Section 4.02) made or furnished by the Borrower to FFC in this
------------
Agreement or any of the other Credit Documents shall be false, incorrect,
incomplete or misleading in any respect when made or furnished, and
(i) the same was made in bad faith; or
(ii) the same may result in a Material Adverse Effect described
in clause (a) of the definition of Material Adverse Effect, and such
----------
Material Adverse Effect is not cured within 30 days after the earlier
of (A) discovery thereof by the Borrower, or (B) notice thereof by FFC
to the Borrower; or
(iii) the same results in any other Material Adverse Effect; or
(d) any representation or warranty set forth in Section 4.02 made by
------------
or on behalf of the Borrower to FFC shall be false, incorrect, incomplete
or misleading in any material respect when made or furnished, and
(i) was made in bad faith; or
(ii) the same may result in a Material Adverse Effect and is not
cured within 30 days after the earlier of (A) discovery thereof by the
Borrower, or (B) notice thereof by FFC to the Borrower; or
(e) the Borrower shall (i) apply for or consent to the appointment of
a receiver, trustee, liquidator or custodian of itself or of all or a
substantial part of its property, (ii) be unable, or admit in writing its
inability, to pay its debts generally as they mature, (iii) make a general
assignment for the benefit of its or any of its creditors, (iv) be
dissolved or liquidated in full or in part, (v) become insolvent (as such
term may be defined or interpreted under any applicable statute), (vi)
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession
of its property by any official in an involuntary case or other proceeding
commenced against it, or (vii) take any action for the purpose of affecting
any of the foregoing; or
<PAGE>
(f) proceedings for the appointment of a receiver, trustee,
liquidator or custodian of the Borrower or of all or a substantial part of
the property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to the Borrower or
the debts thereof under any bankruptcy, insolvency or other similar law now
or hereafter in effect shall be commenced and an order for relief entered
or such proceeding shall not be dismissed or discharged within ninety (90)
days of commencement; or
(g) the Borrower shall grant any security interests in any Collateral
Loan which constitutes a fraudulent conveyance under applicable law and
such breach is not cured within 30 days after the earlier of (i) discovery
thereof by the Borrower, or (ii) notice thereof by FFC to the Borrower; or
(h) any Credit Document or any material term thereof shall cease to
be, or be asserted by the Borrower not to be, a legal, valid and binding
obligation of the Borrower enforceable in accordance with its terms; or
(i) any default or event of default under any other Credit Document
has occurred and is continuing after any applicable cure period; or
(j) the Borrower shall be in default in the payment to FFC of any
interest on any Revolving Loan when it becomes due and payable and
continuance of such default for a period of TEN (10) days; or
(k) the aggregate amount of reserves for losses of the Borrower with
respect to Nonperforming Loans, as agreed to in good faith by the Borrower
and FFC, exceeds the greater of (i) three percent (3%) of the aggregate
outstanding principal balance of the Revolving Loans and (ii) two million
five hundred thousand dollars ($2,500,000).
6.02. REMEDIES. Upon the occurrence or existence of any Event of Default
--------
(other than an Event of Default referred to in Section 6.01(e) or 6.01(f)) and
--------------- -------
at any time thereafter during the continuance of such Event of Default, FFC may,
by written notice to Borrower, (a) terminate its obligation to make Revolving
Loans hereunder and/or (b) declare all outstanding Obligations payable by the
Borrower hereunder to be immediately due and payable without presentment,
demand, protest or any other notice of any kind, all of which are hereby
expressly waived, anything contained herein or in the Note to the contrary
notwithstanding. Upon the occurrence or existence of any Event of Default
described in Section 6.01(e) or 6.01(f), immediately and without notice, (1) the
--------------- -------
obligations of FFC to make Revolving Loans shall automatically terminate and (2)
all outstanding Obligations payable by the Borrower hereunder shall
automatically become immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby
<PAGE>
expressly waived, anything contained herein or in the Note to the contrary
notwithstanding. In addition to the foregoing remedies, upon the occurrence or
existence of any Event of Default, FFC may exercise any other right, power or
remedy granted to it by the Credit Documents or otherwise permitted to it by
law, either by suit in equity or by action at law, or both.
6.03. DEFAULTS. Upon the occurrence of any Default, the obligation of FFC
--------
to make Revolving Loans shall be terminated unless such event is either waived
by FFC or, to the extent allowed hereunder, cured by the Borrower within the
applicable cure period.
SECTION VII. SERVICING OF COLLATERAL LOANS.
-----------------------------
The Collateral Loans shall be serviced by Bankers Trust Company and the
Borrower pursuant to the Servicing Agreement in the form of Exhibit D hereto.
SECTION VIII. MISCELLANEOUS.
-------------
8.01. NOTICES. Except as otherwise provided herein, all notices,
-------
requests, demands, consents, instructions or other communications to or upon FFC
or the Borrower under this Agreement or the other Credit Documents shall be in
writing and telecopied, mailed or delivered to each party at its telecopier
number or address set forth below (or to such other telecopier number or address
for any party as indicated in any notice given by that party to the other
party). All such notices and communications shall be effective (a) when sent by
Federal Express or other overnight service of recognized standing, on the
Business Day following the deposit with such service; (b) when mailed, first
class postage prepaid and addressed as aforesaid through the United States
Postal Service, upon receipt; (c) when delivered by hand, upon delivery; and (d)
when telecopied, upon confirmation of receipt.
FFC: For Notices of Borrowing:
4111 East 37th Street North
Wichita, Kansas 67220
Attn: Dawn Dagenais
Telephone: (316) 828-6478
Telecopier: (316) 828-4081
FFC: For all other notices:
4111 East 37th Street North
Wichita, Kansas 67220
Attn: Jeffrey R. Thompson
Telephone: (316) 828-4744
Telecopier: (316) 828-4321
<PAGE>
Borrower: Atherton Capital Partners, L.P.
1001 Bayhill Drive, Suite 155
San Bruno, CA 94066
Attn: David L. Elder
Telephone: (415) 827-7800
Telecopier: (415) 827-7950
Each Notice of Borrowing shall be given by the Borrower to FFC's office located
at the address referred to above during FFC's normal business hours; provided,
--------
however, that any such notice received by FFC after 1:00 p.m., Kansas time on
- -------
any Business Day shall be deemed received by FFC on the next Business Day.
8.02. EXPENSES. Upon the occurrence of any Event of Default hereunder, the
--------
Borrower shall pay on demand all reasonable fees and expenses, including
reasonable attorneys' fees and expenses, incurred by FFC in the enforcement or
attempted enforcement of any of the Obligations or in preserving any of FFC's
rights and remedies (including, without limitation, all such fees and expenses
incurred in connection with any "workout" or restructuring affecting the Credit
Documents or the Obligations or any bankruptcy or similar proceeding). As used
herein, the term "reasonable attorneys' fees and expenses" shall include,
without limitation, allocable costs and expenses of Borrower's or FFC's in-house
legal counsel and staff.
8.03. INDEMNIFICATION. To the fullest extent permitted by law, the
---------------
Borrower agrees to protect, indemnify, defend and hold harmless FFC and its
respective directors, officers, employees, agents and any Affiliate thereof
("Indemnitees") from and against any and all liabilities, losses, damages or
-----------
expenses of any kind or nature and from any and all suits, claims or demands
(including, without limitation, in respect of or for reasonable attorney's fees
and other expenses) arising on account of or in connection with any action or
failure to act by the Borrower arising out of or relating to the Revolving Loans
or the Collateral Loans, including without limitation any use by the Borrower of
any proceeds of the Revolving Loans or any use by any Collateral Borrower of the
proceeds of any Collateral Loan, except to the extent such liability arises from
the willful misconduct or gross negligence of the Indemnitees. Upon receiving
knowledge of any suit, claim or demand asserted by a third party that FFC
believes is covered by this indemnity, FFC shall give the Borrower notice of the
matter and an opportunity to defend it, at the Borrower's sole cost and expense,
with legal counsel satisfactory to FFC. Any failure or delay of FFC to notify
the Borrower of any such suit, claim or demand shall not relieve the Borrower of
its obligations under this Section 8.03 but shall reduce such obligations to the
------------
extent of any increase in those obligations caused solely by an unreasonable
failure or delay. The obligations of the Borrower under this Section 8.03 shall
------------
survive the payment and performance of the Obligations and the termination of
this Agreement.
8.04. WAIVERS; AMENDMENTS. Any term, covenant, agreement or condition of
-------------------
this Agreement or any other Credit Document may
<PAGE>
be amended or waived if such amendment or waiver is in writing and is signed by
the Borrower and FFC. No failure or delay by FFC in exercising any right
hereunder shall operate as a waiver thereof or of any other right nor shall any
single or partial exercise of any such right preclude any other further exercise
thereof or of any other right. Unless otherwise specified in such waiver or
consent, a waiver or consent given hereunder shall be effective only in the
specific instance and for the specific purpose for which given.
8.05. SUCCESSORS AND ASSIGNS. This Agreement and the other Credit
----------------------
Documents shall be binding upon and inure to the benefit of the Borrower, FFC
and their respective successors and permitted assigns, except that the Borrower
may not assign or transfer any of its rights or obligations under any Credit
Document without the prior written consent of FFC. All references in this
Agreement to any Person shall be deemed to include all successors and assigns of
such Person.
8.06. NO THIRD PARTY RIGHTS. Nothing expressed in or to be implied from
---------------------
this Agreement or any other Credit Document is intended to give, or shall be
construed to give, any Person, other than the parties hereto and thereto and
their permitted successors and assigns, any benefit or legal or equitable right,
remedy or claim under or by virtue of this Agreement or any other Credit
Document.
8.07. PARTIAL INVALIDITY. If at any time any provision of this Agreement
------------------
is or becomes illegal, invalid or unenforceable in any respect under the law of
any jurisdiction, neither the legality, validity or enforceability of the
remaining provisions of this Agreement nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.
8.08. JURY TRIAL. EACH OF THE BORROWER AND FFC, TO THE FULLEST EXTENT
----------
PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY AS TO ANY ISSUE RELATING TO ANY CREDIT DOCUMENT IN ANY ACTION, PROCEEDING,
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENT.
8.09. COUNTERPARTS. This Agreement may be executed in any number of
------------
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
<PAGE>
8.10. ASSIGNMENT, PARTICIPATIONS AND ADDITIONAL LENDERS.
-------------------------------------------------
(a) The Borrower understands and acknowledges that FFC may desire,
prior to the Facility Termination Date, to assign all or a portion of the
Maximum Commitment Amount, together with a ratable portion of the Revolving
Loans, or sell a participating interest in a portion of its Maximum
Commitment Amount and/or Revolving Loans hereunder. In the event that FFC
desires to assign or participate all or any portion of the Maximum
Commitment Amount or all or any portion of the Revolving Loans to another
Person or financial institution, FFC shall so notify the Borrower in
writing not less than six (6) months prior to the effective date of such
assignment or participation; provided, however, that such notices shall not
be given more than once during any three month period; and provided
further, however, that such notice may be given not less than thirty (30)
days prior to the effective date of any such assignment or participation if
the terms of such assignment or participation do not require any amendments
to the Credit Documents other than those required to reflect the addition
of additional lenders.
The Borrower hereby agrees to assist and cooperate fully with FFC in
negotiating the terms and conditions of such assignment or participation
and in making any amendments, additions or deletions to the Credit
Documents as may be necessary to accomplish such assignment or
participation; provided that any such assignee or participant shall be
reasonably acceptable to the Borrower; and provided further that the
Borrower may require that an alternate assignee or participant be used, up
to the amount that FFC had determined to assign or participate, if the
Borrower obtains terms from such alternate or alternates that are
materially better to the Borrower than the terms offered by FFC's proposed
assignee or participant.
(b) FFC understands and acknowledges that the Borrower may desire,
prior to the Facility Termination Date, to increase the Maximum Commitment
Amount by bringing in other lenders to participate in the Revolving Loans
hereunder. In the event that the Borrower desires to cause additional
lenders to become parties hereto in order to increase the Maximum
Commitment Amount, FFC hereby agrees to assist and cooperate fully with the
Borrower in negotiating the terms and conditions of such participation and
in making any amendments, additions or deletions to the Credit Documents as
may be necessary to accomplish such participation; provided, however, that
any such participant shall be reasonably acceptable to FFC.
(c) The Borrower shall pay the costs and expenses associated with any
participation or assignment made pursuant to this Section 8.10, and shall
receive the benefits and cost savings, if any, of any such participation or
assignment; provided, however, that if FFC assigns its
<PAGE>
rights under the Credit Documents and not its obligations hereunder and
thereunder, FFC shall pay the costs and expenses thereof and receive the
benefits and cost savings, if any, of any such assignment.
(d) Any borrowings and payments under this Agreement shall be made on
a pro rata basis among FFC and any participants and assignees.
<PAGE>
IN WITNESS WHEREOF, the Borrower and FFC have caused this Agreement to
be executed as of the day and year first above written.
ATHERTON CAPITAL PARTNERS, L.P.
By: The Atherton Group Incorporated,
General Partner
By: /s/ David L. Elder
_____________________________________
Name: David L. Elder
Title: President
FRANCHISE FINANCE CORP.
By: /s/ Jeffrey R. Thompson
-------------------------------------
Name: Jeffrey R. Thompson
Title: President
<PAGE>
SCHEDULE I
----------
DEFINITIONS
-----------
"Affiliate" shall mean, with respect to any Person, (a) each Person
---------
that, directly or indirectly, owns or controls, whether beneficially or as a
trustee, guardian or other fiduciary, fifty percent (50%) or more of any class
of Equity Securities of such Person, (b) each Person that controls, is
controlled by or is under common control with such Person or any Affiliate of
such Person or (c) each of such Person's officers, directors, joint venturers
and partners; provided, however, that in no case shall FFC be deemed to be an
-------- -------
Affiliate of the Borrower, or any of its Subsidiaries for purposes of this
Agreement. For the purpose of this definition, "control" of a Person shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.
"Affiliated Collateral Loan" shall mean, with respect to any
--------------------------
Collateral Loan, any other Collateral Loan that is cross-defaulted and cross-
collateralized with such Collateral Loan.
"Agreement" shall mean this Warehouse Credit Agreement, as amended
---------
from time to time.
"Applicable LIBOR Rate" shall mean, for each Revolving Loan made on
---------------------
the first Business Day of a calendar month, the Monthly LIBOR Rate and, for each
Revolving Loan made on a date other than the first Business Day of a calendar
month, the Stub LIBOR Rate for that period of time beginning on (and including)
the date on which a Revolving Loan is made and ending on (but excluding) the
first Business Day of the next calendar month, and the Monthly LIBOR Rate from
and after such date.
"Approved Franchise Concept" shall mean those franchise concepts
--------------------------
specified on Section A of Schedule III hereto and such additional franchise
concepts as are approved in writing by the Borrower and FFC from time to time.
"Approved Real Estate Concept" shall mean those concepts specified on
----------------------------
Section B of Schedule III hereto and such additional concepts as are approved in
writing by the Borrower and FFC from time to time.
"Borrower" shall have the meaning given that term in clause (1) of the
-------- -----------------
introductory paragraph hereof.
- -----------------------------
"Business Day" shall mean any day other than a Saturday, Sunday, legal
------------
holiday or other day on which commercial banks are authorized or required by law
to close in San Francisco, California, Wichita, Kansas, or New York, New York.
"Closing Date" shall mean January 8, 1997.
------------
<PAGE>
"Collateral" shall mean the Collateral as defined in the Security
----------
Agreement.
"Collateral Borrower" shall mean the borrower under a Collateral Loan.
-------------------
"Collateral Loan" shall mean each Non-Standard Loan which has been
---------------
approved by FFC and the Borrower and each Standard Loan, in each case purchased,
originated or financed, in whole or in part, using the proceeds of a Revolving
Loan, including without limitation, all related security interests and, in each
case, all rights to receive payments which are collected with respect thereto
from and after the related date of origination, purchase or financing.
"Collateral Loan Documentation" shall mean, with respect to each
-----------------------------
Collateral Loan:
(1) the original note executed by the Collateral Borrower and
endorsed to the Borrower and endorsed "Pay to the order of
________________________, without recourse" and signed by the Borrower;
(2) an executed original of the Collateral Loan Agreement;
(3) an executed original of the collateral security agreement;
(4) the original Mortgage, if applicable, with evidence of recording
thereon, or a duplicate original Mortgage, if applicable, together with a
certificate of an officer of the settlement agent stating that such Mortgage
will be dispatched to the appropriate public recording office for recordation
and that the original Mortgage, with evidence of recording thereon, will be
promptly delivered to the Custodian upon receipt thereof by the settlement
agent;
(5) the original Leasehold Mortgage, if applicable, in appropriate
form for recording (with the possible exception of the obtaining of a landlord
signature) or with evidence of recording thereon;
(6) an executed original Guaranty, if applicable;
(7) the UCC-1 financing statement, with evidence of filing thereon,
or a copy of the original UCC-1 financing statement, together with a certificate
of an officer of the settlement agent or the Borrower stating that such UCC-1
financing statement will be dispatched to the appropriate public filing office
and that the original UCC-1 financing statement, with evidence of filing
thereon, will be promptly delivered to the Custodian upon receipt thereof by the
settlement agent;
(8) one or more UCC-2 or UCC-3 Assignments assigning the UCC-1 to the
Borrower and then executed by the Borrower in blank but otherwise in form and
substance acceptable for filing;
<PAGE>
(9) an executed original of each landlord, mortgagee or prior lien or
estoppel, if applicable;
(10) an executed original of a Franchisor Intercreditor Agreement, if
applicable;
(11) an executed original of a Franchisor Subordination of Lessor's
Lien, if applicable;
(12) the original title insurance policy, if applicable;
(13) copies of the insurance policies indicated in the Collateral Loan
Documentation Checklist;
(14) the environmental indemnity, if applicable;
(15) an assignment of Mortgage, if applicable;
(16) a general assignment of the Collateral Loan Documentation to the
Borrower and then in blank (the "Loan Assignment"), assigning all of the
---------------
grantor's right, title and interest in the Collateral Loan, including but not
limited to, the Collateral Loan Agreement, the note, the collateral security
agreement, the Mortgage, the Leasehold Mortgage, the Franchisor Intercreditor
Agreement, the Franchisor Subordination of Lessor's Lien, the origination escrow
agreement and the Guaranty, as applicable; and
(17) any other credit or security document, if any, necessary for the
documentation and enforcement of such Collateral Loan.
"Collateral Ratio" shall have the meaning given to such term in
----------------
Section 2.07(b).
"Contractual Obligation" of any Person shall mean, any indenture,
----------------------
note, security, deed of trust, mortgage, security agreement, lease, guaranty,
instrument, contract, agreement or other form of obligation or undertaking to
which such Person is a party or by which such Person or any of its property is
bound.
"Credit Documents" shall mean and include this Agreement, the Note,
----------------
the Security Agreement and all other documents, instruments and agreements
delivered to FFC in connection with this Agreement, as the same may be amended
from time to time.
"Custodian" shall mean Bankers Trust Company, as custodian of the
---------
Collateral Loans under the Servicing Agreement, or any successor custodian
approved by FFC.
"Default" shall mean any event or circumstance not yet constituting an
-------
Event of Default but which, with the giving of any notice or the lapse of any
period of time or both, would become an Event of Default.
<PAGE>
"Determination Date" shall have the meaning given to such term in
------------------
Section 2.03.
"Dollars" and "$" shall mean the lawful currency of the United States
------- -
of America and, in relation to any payment under this Agreement, same day or
immediately available funds.
"Equity Securities" of any Person shall mean (a) all common stock,
-----------------
preferred stock, shares, partnership interests or other equity interests in and
of such Person (regardless of how designated and whether or not voting or non-
voting) and (b) all warrants, options and other rights to acquire any of the
foregoing.
"Event of Default" shall have the meaning given to that term in
----------------
Section 6.01 hereof.
- ------------
"Facility Termination Date" shall mean the earliest of (a) the Stated
-------------------------
Termination Date, (b) the occurrence of an Event of Default described in Section
6.01(e) or Section 6.01(f) and the expiration of any related cure period and (c)
the occurrence and continuance of any other Event of Default and the declaration
of the Revolving Loans to become due and payable pursuant to Section 6.02.
"FFC" shall mean Franchise Finance Corp., a Delaware corporation.
---
"Franchisee Loan" shall mean each loan to a franchisee of an Approved
---------------
Franchise Concept.
"GAAP" shall mean generally accepted accounting principles and
----
practices as in effect in the United States of America from time to time,
consistently applied.
"Governmental Authority" shall mean any domestic or foreign national,
----------------------
state or local government, any political subdivision thereof, any department,
agency, authority or bureau of any of the foregoing, or any other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Governmental Charges" shall mean all levies, assessments, fees,
--------------------
claims or other charges imposed by any Governmental Authority upon or relating
to (i) Borrower, (ii) the Revolving Loans, (iii) employees, payroll, income or
gross receipts of the Borrower, (iv) the ownership or use of any of its assets
by the Borrower or (v) any other aspect of the business of the Borrower.
"Governmental Rule" shall mean any law, rule, regulation, ordinance,
-----------------
order, code interpretation, judgment, decree, directive, guidelines, policy or
similar form of decision of any Governmental Authority.
<PAGE>
"Indebtedness" of any Person shall mean and include (a) all items of
------------
indebtedness and liabilities which, in accordance with GAAP, would be included
in determining liabilities that are shown on the liability side of the balance
sheet of such Person, (b) all indebtedness and liabilities of other Persons
assumed or guaranteed by such Person or in respect to which such Person is
secondarily or contingently liable whether by any agreement to acquire
indebtedness and liabilities or to supply or advance funds or otherwise, and (c)
all indebtedness and liabilities of other Persons secured by any Lien in any
property of such Person (including without limitation capital leases).
"Lien" shall mean, with respect to any property, any security
----
interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or
on such property or the income therefrom, including, without limitation, the
interest of a vendor or lessor under a conditional sale agreement, lease or
other title retention agreement, or any agreement to provide any of the
foregoing, and the filing of any financing statement or similar instrument under
the Uniform Commercial Code or comparable law of any jurisdiction.
"List of Collateral Loans" shall mean the list specifying the
------------------------
Collateral Loans to be originated, purchased or financed with the proceeds of a
Revolving Loan specifying for each Collateral Loan, as applicable, the loan or
store number, the Collateral Borrower name, the initial and current principal
balance, the origination fees paid or to be paid by the Collateral Borrower, the
initial loan-to-value ratio, the initial fixed charge coverage ratio, the
maturity date, the interest rate and the monthly principal and interest
payments.
"Loan Documents" shall mean the form of loan agreement, note, security
--------------
agreement, mortgage, leasehold mortgage, deed of trust, leasehold deed of trust,
guaranty, landlord estoppel, intercreditor agreement, subordination of lessor's
lien, environmental indemnity and other related documents prepared by the
Borrower, dated December 29, 1995, as such documents may be amended from time to
time with the prior written approval of FFC for material amendments.
"Margin Stock" shall have the meaning given to that term in Regulation
------------
U issued by the Federal Reserve Board, as amended from time to time, and any
successor regulation thereto.
"Material Adverse Effect" shall mean a material adverse effect on (a)
-----------------------
the business, assets, operations, prospects or financial or other condition of
the Borrower; (b) the ability of the Borrower to pay or perform the Obligations
in accordance with the terms of this Agreement and the other Credit Documents;
(c) the rights and remedies of FFC under this Agreement, the other Credit
Documents or any related document, instrument or agreement; or (d) the value of
the Collateral Loans or the collateral and Mortgaged Property securing such
Collateral Loans.
<PAGE>
"Maximum Commitment Amount" shall mean one hundred and seventy-five
-------------------------
million dollars ($175,000,000); provided, however, that if the average daily
principal amount outstanding under the Note is at least one hundred and twenty-
five million dollars ($125,000,000) for at least two consecutive months, the
"Maximum Commitment Amount" shall mean two hundred and fifty million dollars
($250,000,000) or such other amount ranging between one hundred seventy-five
million dollars ($175,000,000) and two hundred and fifty million dollars
($250,000,000) as the Borrower shall specify in writing to FFC from time to
time.
"Monthly LIBOR Rate" shall mean, with respect to a Revolving Loan and
------------------
a calendar month period, a rate per annum (rounded upwards, if necessary, to the
nearest whole multiple of 0.0625% per annum) equal to the average of the rates
per annum, for deposits for a period of one month, that are posted by each of
the principal London offices of the banks posting rates as displayed on the
Reuters Screen LIBOR Page as of 11:00 a.m. (London time) on the first Business
Day of each calendar month. In the event that no such rates are posted, the
Monthly LIBOR Rate shall be the rate per annum shown on page 3750 of Dow Jones
Company Telerate screen or any successor page as the composite offered rate for
London interbank deposits with a period of one month, as shown under the heading
"USD" as of 11:00 a.m. (London time) on the first Business Day of each calendar
month. The Monthly LIBOR Rate shall be determined and reset monthly on the
first Business Day of each calendar month.
"Nonperforming Loan" shall mean any Collateral Loan with respect to
------------------
which no payment of principal or interest has been made for at least (90) days.
"Non-Standard Loan" shall mean any loan that does not conform to the
-----------------
underwriting guidelines contained in the Underwriting Manual but which has been
approved by FFC and the Borrower.
"Note" shall have the meaning given to such term in Section 2.06
---- ------------
hereof.
"Notice of Borrowing" shall have the meaning given to that term in
-------------------
Section 2.01(d) hereof.
- ---------------
"Obligations" shall mean and include all loans, advances, debts,
-----------
liabilities, and obligations, howsoever arising, owed by the Borrower to FFC of
every kind and description (whether or not evidenced by any note or instrument
and whether or not for the payment of money), direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising pursuant to
the terms of this Agreement or any of the other Credit Documents, including
without limitation all interest, fees, charges, expenses, attorneys' fees and
accountants' fees chargeable to the Borrower or payable by the Borrower
hereunder or thereunder.
"Payment Date" shall have the meaning given to that term in Section
------------ -------
2.03 hereof.
- ----
<PAGE>
"Person" shall mean and include an individual, a partnership, a
------
corporation (including a business trust), a joint stock company, limited
liability company, an unincorporated association, a joint venture, a trust or
other entity or a Governmental Authority.
"Processing Manual" shall mean the Processing Manual prepared by the
-----------------
Borrower, dated as of December 13, 1995, with respect to the processing
guidelines and procedures for Collateral Loans, as such manual may be amended
from time to time with the prior written approval of FFC and the Borrower for
material amendments.
"Property" shall mean the property where the store relating to a
--------
Collateral Loan is located, which property consists of either a fee or a
leasehold estate in real property and the related store improvements located on
such real property, including the store.
"Real Estate Loan" shall mean a loan underwritten primarily on the
----------------
basis of the value of the fee or leasehold interest in real property securing
such loan and occupied by a franchisee or franchisor of an Approved Real Estate
Concept, rather than primarily on the basis of the value of the business
operated on such real property.
"Recourse Event" means either
--------------
(a) the declaration of any Event of Default described in Section
-------
6.01(a), 6.01(c)(i) or (d)(i), or
------------------- ------
(b) the incurrence by FFC of any liability, loss, damages or
expenses of any kind as a result of any wilful misappropriation or
misapplication of funds or wilful damage to or impairment of any
Collateral on the part of the Borrower.
"Requirement of Law" applicable to any Person shall mean (a) the
------------------
Articles or Certificate of Incorporation and By-laws, Partnership Agreement or
other organizational or governing documents of such Person, (b) any Governmental
Rule applicable to such Person, (c) any license, permit, approval or other
authorization granted by any Governmental Authority to or for the benefit of
such Person and (d) any judgment, decision or determination of any Governmental
Authority or arbitrator, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"Repayment Date" shall have the meaning given to that term in Section
-------------- -------
2.01(e) hereof.
- -------
"Revolving Loan" shall have the meaning given to such term in Section
-------------- -------
2.01(a) hereof.
- -------
"Security Agreement" shall mean that certain Security
------------------
<PAGE>
Agreement in the form of Exhibit C hereto by and between the Borrower and FFC.
---------
"Servicing Agreement" shall mean that certain Servicing and Custodial
-------------------
Agreement substantially in the form of Exhibit D attached hereto as amended from
---------
time to time by and among FFC, the Borrower and Bankers Trust Company.
"Solvent" shall mean, with respect to any Person on any date, that on
-------
such date (a) the fair value of the property of such Person is greater than the
fair value of the liabilities (including, without limitation, contingent
liabilities) of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature and (d) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute an unreasonably small capital.
"Standard Loan" shall mean a Franchisee Loan in an Approved Franchise
-------------
Concept or a Real Estate Loan in an Approved Real Estate Concept (i) conforming
in all material respects to the underwriting guidelines contained in the
Underwriting Manual, (ii) processed in accordance with the Processing Manual and
(iii) documented using the Loan Documents.
"Stated Termination Date" shall mean December 31, 1999, unless
-----------------------
otherwise extended pursuant to Section 2.01(g).
"Stub LIBOR Rate" shall mean, with respect to a Revolving Loan, a rate
---------------
per annum (rounded upwards, if necessary, to the nearest whole multiple of
0.0625% per annum) equal to the average of the rates per annum, for deposits for
a period of one month, that are posted by each of the principal London offices
of the banks posting rates as displayed on the Reuters Screen LIBOR Page as of
11:00 a.m. (London time) on the date such Revolving Loan is made. In the event
that no such rates are posted, the Stub LIBOR Rate shall be the rate per annum
shown on page 3750 of Dow Jones Company Telerate screen or any successor page as
the composite offered rate for London interbank deposits with a period of one
month, as shown under the heading "USD" as of 11:00 a.m. (London time) on the
date a Revolving Loan is made.
"Subordinated Debt" shall mean the obligations of the Borrower under
-----------------
the Subordinated Debt Credit Agreement between the Borrower and FFC dated the
date hereof.
"Subsidiary" of any Person shall mean (a) any corporation of which
----------
more than 50% of the issued and outstanding Equity Securities having ordinary
voting power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting
<PAGE>
power upon the occurrence of any contingency) is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or more of
its other Subsidiaries or by one or more of such Person's other Subsidiaries,
(b) any partnership, joint venture, or other association of which more than 50%
of the equity interest having the power to vote, direct or control the
management of such partnership, joint venture or other association is at the
time owned and controlled by such Person, by such Person and one or more of the
other Subsidiaries or by one or more of such Person's other subsidiaries and (c)
any other Person included in the financial statements of such Person on a
consolidated basis.
"Underwriting Manual" shall mean the Underwriting Manual prepared by
-------------------
the Borrower, dated as of February 12, 1996, with respect to the underwriting
procedures and guidelines for Collateral Loans, as such manual may be amended
from time to time with the prior written approval of FFC and the Borrower for
material amendments.
<PAGE>
EXHIBIT 10.3(b)
FIRST AMENDMENT
TO THE
WAREHOUSE CREDIT AGREEMENT
between
ATHERTON CAPITAL INCORPORATED
and
FRANCHISE FINANCE CORP.
This First Amendment to the Warehouse Credit Agreement (this "Amendment")
between Atherton Capital Incorporated, a Delaware corporation, successor-in-
interest to Atherton Capital Partners, L.P. ("Borrower"), and Franchise Finance
Corp., a Delaware corporation ("FFC"), is dated as of this 14th day of November,
1997.
WHEREAS, Borrower and FFC have entered into that certain Warehouse Credit
Agreement dated as of January 8, 1997 (the "Original Agreement");
WHEREAS, Borrower desires to have the ability to fund construction loans
under the Original Agreement to certain specified Collateral Borrowers;
WHEREAS, Borrower and FFC have agreed to certain terms and conditions to
include construction loans with a seasoning period at interest rates above those
of the Standard Loans in the Original Agreement; and
WHEREAS, Borrower desires to amend the Original Agreement to implement the
terms and conditions agreed upon by Borrower and FFC regarding the inclusion of
$50,000,000 of construction loans within the Maximum Commitment Amount.
NOW THEREFORE, for and in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto do hereby covenant and agree as follows:
1. DEFINED TERMS. Terms not otherwise defined herein shall have the
respective meanings assigned to such terms in the Original Agreement.
2. AMENDMENTS TO THE ORIGINAL AGREEMENT. The parties hereto do hereby
agree to amend the Original Agreement as follows:
(a) The caption for section 2.01(e) shall be amended by adding after the
words "Interest Rate" the phrase: "and Fees". In addition, section 2.01(e) is
--------
further amended by deleting the rest of the sentence after the underlined word
"plus" in the sixth line thereof
- -----
<PAGE>
and replacing such with the following: "(i) 3.50% per annum for each
Construction Loan, (ii) 2.75% per annum for each Collateral Loan during the
Seasoning Period, and (iii) 2.00% for all other Collateral Loans". Also, section
2.01(e) is further amended by deleting the last line thereof in its entirety and
replacing it with the following: "plus (i) 4.50% per annum for each Construction
Loan, (ii) 3.75% per annum for each Collateral Loan during the Seasoning Period,
and (iii) 3.00% for all other Collateral Loans." Finally, section 2.01(e) is
further amended by adding the following at the end of such section: "In addition
to the interest rates stated above, FFC shall receive a fee equal to 1% of the
loan balance at the closing of each Construction Loan."
(b) Section 2.07(b) is hereby amended by inserting the word "Collateral"
after the word "Liquidated" in the tenth line thereof.
(c) A new section 2.09 and 2.10 is hereby added as follows:
"2.09. Terms of Construction Loans. (a) Notwithstanding anything to the
---------------------------
contrary above, all Construction Loans will be funded in single monthly draws
with a minimum draw of $50,000. Construction Loan funds will be disbursed no
more than one time per month based upon a standard staged draw system, subject
to Borrower approved independent construction progress inspection and
supplementary reporting. Advances under the Construction Loans shall be funded
based upon a formal review of general and sub-contractor invoices by Borrower,
together with a percentage of completion letter certified by the general
contractor and the architect. Borrower shall maintain a 10% reserve which will
be funded upon receipt and approval of the final permits and certificate of
occupancy.
(b) The first payment due under each Construction Loan shall be due on
the date that such Construction Loan closes and will be paid from an interest
reserve established with the Collateral Borrower at closing in an amount equal
to the sum of the interest payable from the date of closing through the last day
of the month. Thereafter, interest only payments will be made monthly on the
first day of the month.
"2.10. Right of Last Look. If Borrower obtains a Construction Loan
------------------
proposal from another source other than FFC, FFC shall have the right to match
the other proposed terms."
(d) Section 4.02(d) is hereby amended by deleting the word "creditors" in
the seventh line thereof and replacing such word with "creditor's".
<PAGE>
3. AMENDMENT OF SCHEDULE I, "DEFINITIONS". The parties hereto do hereby
agree to amend Schedule I, Definitions, of the Original Agreement as follows:
(a) The definition of "Collateral Loan" is hereby amended by adding in the
---------------
second line thereof after the word "Borrower", the following phrase: ", each
Construction Loan,".
(b) After the definition of "Collateral Ratio", but before the definition
----------------
of "Contractual Obligation", the following definition is hereby added:
"Construction Loan" shall mean each loan to a Collateral Borrower in the
-----------------
Approved Franchise Concepts listed on Schedule IV attached hereto and
incorporated herein by reference for 100% financing for new or
reconstructed store development for established restaurant operators with
three or more units and development experience or operators with ten or
more units and no development experience. The minimum loan amount for each
Construction Loan shall be $250,000 and the maximum loan amount for each
Construction Loan per site shall be $1,750,000 with a maximum loan amount
of Construction Loans to any one Collateral Borrower of $5,000,000. The
principal amount of all outstanding Construction Loans shall not exceed
$50,000,000 of the Maximum Commitment Amount. The maximum term shall be
the earlier of (i) nine (9) months from the date of the loan or (ii) within
30 days of receipt of a certificate of occupancy. No further Construction
Loans shall be funded from and after November 14, 1998."
(c) After the definition of "Revolving Loan", but before the definition of
--------------
"Security Agreement", the following definition is hereby added:
------------------
"Seasoning Period" shall mean for any Construction Loan that period of time
----------------
which commences on the day of the store opening and continues for a period
of three hundred sixty-five (365) days thereafter.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first above written.
ATHERTON CAPITAL INCORPORATED
By: /s/ David L. Elder
----------------------------------
David L. Elder, President
FRANCHISE FINANCE CORP.
By: /s/ Jeffrey P. Thompson
----------------------------------
Print Name: Jeffrey P. Thompson
----------------------
Title: President
---------------------------
3180
<PAGE>
EXHIBIT 10.3(c)
SECOND AMENDMENT
TO THE
WAREHOUSE CREDIT AGREEMENT
between
ATHERTON CAPITAL INCORPORATED
and
FRANCHISE FINANCE CORP.
This Second Amendment to the Warehouse Credit Agreement (this "Second
Amendment") between Atherton Capital Incorporated, a Delaware corporation,
successor-in-interest to Atherton Capital Partners, L.P. ("Borrower"), and
Franchise Finance Corp., a Delaware corporation ("FFC"), is dated as of 6th day
of April, 1998.
WHEREAS, Borrower and FFC have entered into that certain Warehouse Credit
Agreement dated as of January 8, 1997, and as amended from time to time (the
"Original Agreement");
WHEREAS, Borrower desires to increase the Maximum Commitment Amount
(defined in the Original Agreement) from $250,000,000 to $300,000,000 for a
period of approximately six (6) months.; and
WHEREAS, Borrower desires to amend the Original Agreement to implement the
terms and conditions agreed upon by Borrower and FFC regarding the increase in
the Maximum Commitment Amount.
NOW THEREFORE, for and in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto do hereby covenant and agree as follows:
1. DEFINED TERMS. Terms not otherwise defined herein shall have the
respective meanings assigned to such terms in the Original Agreement.
2. AMENDMENTS TO THE ORIGINAL AGREEMENT. The parties hereto do hereby
agree to amend the Original Agreement as follows:
(a) Section 2.06(a)(i) is hereby amended to read "(i) in the principal
amount of three hundred million dollars ($300,000,000),"
<PAGE>
(b) Section 6.01(k)(ii) is hereby amended to read "(ii) three hundred
million dollars ($300,000,000)."
3. AMENDMENT OF SCHEDULE I, "DEFINITIONS." The parties hereto do hereby
agree to amend Schedule I, Definitions, of the Original Agreement as follows:
(a) The definition of "Maximum Commitment Amount" is hereby amended by
deleting the words "two hundred and fifty million dollars
($250,000,000)" on lines 6, 7, 8 and 9 and replacing such words with
"three hundred million dollars ($300,000,000)."
4. AMENDMENT OF EXHIBIT B, "NOTE." The parties hereto do hereby agree to
amend Exhibit B, Note, of the Original Agreement as follows:
(a) Paragraph one is hereby amended by deleting the words "TWO HUNDRED AND
FIFTY MILLION DOLLARS ($250,000,000)" on lines 4 and 5 and replacing
such words with "THREE HUNDRED MILLION DOLLARS ($300,000,000)."
5. TERM. The terms and conditions of this Second Amendment shall be in
full force and effect until October 1, 1998, at which time this Second Amendment
shall be null and void and the Maximum Commitment Amount shall return to
$250,000,00 as stated in the Original Agreement unless otherwise amended.
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
as of the date first above written.
ATHERTON CAPITAL INCORPORATED
By: /s/ David L. Elder
------------------------------------
David L. Elder, CEO
FRANCHISE FINANCE CORP.
By:
------------------------------------
Jeffrey R. Thompson, President
<PAGE>
AMENDED AND RESTATED NOTE
-------------------------
$300,000,000.00 San Bruno, California
Dated as of April 6, 1998
FOR VALUE RECEIVED, ATHERTON CAPITAL INCORPORATED, a Delaware corporation
("Borrower"), hereby promises to pay to the order of Franchise Finance Corp., a
Delaware corporation ("FFC"), the principal sum of THREE HUNDRED MILLION DOLLARS
($300,000,000) or such lesser amount as shall equal the aggregate outstanding
principal balance of the Revolving Loans made by FFC to the borrower pursuant to
the Warehouse Credit Agreement, dated as of January 8,1997, between the
Borrower, as successor in interest to Atherton Capital Partners, L.P., a
California limited partnership, and FFC, as amended from time to time (the
"Warehouse Credit Agreement"), on or before the Facility Termination Date
specified in the Warehouse Credit Agreement; and to pay interest on said sum, or
such lesser amount, at the rates and on the dates provided in the Warehouse
Credit Agreement.
The Borrower shall make all payments hereunder to FFC as indicated in the
Warehouse Credit Agreement, in lawful money of the United States and in same day
or immediately available funds.
The Borrower hereby authorizes FFC to record on the schedule(s) annexed to
this Note the date and amount of each Revolving Loan and of each payment or
prepayment of principal made by the Borrower and agrees that all such notations
shall constitute prima facie evidence of the matters noted; provided, however,
-------- -------
that the failure of FFC to make any such notation shall not affect the
Borrower's obligations.
This Note is an amendment and complete restatement of, and not an addition
to, the Note made by Atherton Capital Incorporated referred to in the Warehouse
Credit Agreement. This Note is subject to the terms of the Warehouse Credit
Agreement, including the rights of acceleration of maturity. Terms used herein
have the meanings assigned to those terms in the Warehouse Credit Agreement,
unless otherwise defined herein.
This Note is made in connection with, and is secured by, among other
instruments, the provisions of that certain Security Agreement dated as of
January 8, 1997 between the Borrower and FFC. Reference is hereby made to the
Warehouse Credit Agreement and Security Agreement, for the provisions, among
others, with respect to the custody and applications of collateral, the nature
and extent of the security provided thereunder, the rights, duties and
obligations of the Borrower and the rights of the holder of this Note.
The Borrower shall pay all costs of collection, including reasonable
attorney's fees and legal expenses, if this Note is not paid when due, whether
or not proceedings are commenced. Borrower shall also pay such fees and expenses
of FFC as provided in the Warehouse Credit Agreement. This Note shall be
governed by and construed in accordance with the laws of the State of Kansas.
<PAGE>
Upon the occurrence of any one or more Events of Default, all amounts then
remaining unpaid on this Note may become or be declared to be immediately due
and payable as provided in the Warehouse Capital Agreement and other Credit
Documents, and except as otherwise expressly provided therein, without notice of
nonpayment or dishonor, or notices or demands of any kind, all of which are
expressly waived by the Borrower.
Nothing contained in this Note or the Warehouse Credit Agreement shall be
deemed to require the payment of interest or other charges by the Borrower or
any other Person in excess of the amount which FFC may lawfully charge under any
applicable usury laws. In the event that FFC shall collect moneys under this
Note or the Warehouse Credit Agreement or any other Credit document which are
deemed to constitute interest which would increase the effective interest rate
to a rate in excess of that permitted to be charged by applicable law, all such
sums deemed to constitute interest in excess of the legal rate shall, upon such
determination, at the option of FFC, be returned to the Borrower or credited
against the outstanding principal balance of this Note.
The principal balance of this Note may be prepaid, in whole or in part, on
any Business Day. Such prepayment shall be without premium or penalty.
ATHERTON CAPITAL INCORPORATED
By: /s/ David L. Elder
--------------------------------
Name: DAVID L. ELDER
------------------------------
Title: CEO
-----------------------------
<PAGE>
EXHIBIT 10.4
EXECUTION VERSION
================================================================================
SUBORDINATED DEBT CREDIT AGREEMENT
between
ATHERTON CAPITAL PARTNERS, L.P.
and
FRANCHISE FINANCE CORP.
January 8, 1997
================================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
SECTION I. INTERPRETATION
1.01. Definitions......................................................................... 1
1.02. Headings............................................................................ 1
1.03. Plural Terms........................................................................ 1
1.04. Time................................................................................ 1
1.05. Governing Law....................................................................... 2
1.06. Construction........................................................................ 2
1.07. Entire Agreement.................................................................... 2
1.08. Calculation of Interest and Fees.................................................... 2
SECTION II. CREDIT FACILITY
2.01. Revolving Credit Facility........................................................... 2
2.02. Proceeds of Revolving Loan.......................................................... 4
2.03. Interest Payment Dates and Delinquent Payments...................................... 4
2.04. Principal Prepayments............................................................... 5
2.05. Other Payment Terms................................................................. 5
2.06. Note................................................................................ 6
2.07. Use of Proceeds..................................................................... 6
SECTION III. SUBORDINATION
3.01. Subordination...................................................................... 6
3.02. Payments on Subordinated Indebtedness.............................................. 6
3.03. Insolvency, etc.................................................................... 7
3.04. Payments and Distributions Received................................................ 9
3.05. Subrogation........................................................................ 9
3.06. Amendment.......................................................................... 9
3.07. Reinstatement of Terms of Subordination............................................ 9
3.08. Limitation on the Exercise of Remedies in Respect of Obligations................... 9
3.09. Notice............................................................................. 10
SECTION IV. CONDITIONS PRECEDENT
4.01. Conditions Precedent to Initial Revolving Loan..................................... 10
4.02. Conditions Precedent to Each Revolving Loan........................................ 10
SECTION V. REPRESENTATIONS AND WARRANTIES
5.01. Borrower's General Representations and Warranties................................. 10
5.02. Reaffirmation..................................................................... 13
5.03. Survival.......................................................................... 13
SECTION VI. COVENANTS
6.01. Affirmative Covenants............................................................. 13
6.02. Negative Covenants................................................................ 15
SECTION VII. DEFAULT
7.01. Events of Default................................................................. 17
7.02. Remedies.......................................................................... 19
7.03. Defaults.......................................................................... 19
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
SECTION VIII. MISCELLANEOUS
8.01. Notices........................................................................... 19
8.02. Expenses.......................................................................... 20
8.03. Indemnification................................................................... 20
8.04. Waivers; Amendments............................................................... 21
8.05. Successors and Assigns............................................................ 21
8.06. No Third Party Rights............................................................. 21
8.07. Partial Invalidity................................................................ 21
8.08. Jury Trial........................................................................ 22
8.09. Counterparts...................................................................... 22
</TABLE>
SCHEDULE I - DEFINITIONS
SCHEDULE II - INITIAL CONDITIONS PRECEDENT
SCHEDULE III - APPROVED FRANCHISE CONCEPTS AND APPROVED REAL ESTATE
CONCEPTS
EXHIBIT A - NOTICE OF BORROWING
EXHIBIT B - NOTE
ii
<PAGE>
SUBORDINATED DEBT CREDIT AGREEMENT
----------------------------------
THIS SUBORDINATED DEBT CREDIT AGREEMENT, dated as of January 8, 1997,
is entered into by and between:
(1) Atherton Capital Partners, L.P., a California limited partnership
(the "Borrower"); and
--------
(2) FRANCHISE FINANCE CORP., a Delaware corporation ("FFC").
---
RECITALS
--------
A. FFC is a partner of the Borrower.
B. FFC is willing to provide a subordinated debt credit facility
upon the terms and subject to the conditions set forth herein.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the above Recitals and the mutual
covenants herein contained, and for other good and valuable consideration the
receipt and sufficiency of which are acknowledged by both parties hereto, the
parties hereto hereby agree as follows:
SECTION I. INTERPRETATION.
--------------
1.01. DEFINITIONS. Each term set forth in Schedule I, when used in
----------- ----------
this Agreement or any other Credit Document, shall have the respective meaning
given to that term in Schedule I or in the provision of this Agreement or other
----------
Credit Document referenced in Schedule I.
----------
1.02. HEADINGS. Headings in this Agreement and each of the other
--------
Credit Documents are for convenience of reference only and are not part of the
substance hereof or thereof.
1.03. PLURAL TERMS. All terms defined in this Agreement or any other
------------
Credit Document in the singular form shall have comparable meanings when used in
the plural form and vice versa.
---- -----
1.04. TIME. All references in this Agreement and each of the other
----
Credit Documents to a time of day shall mean San Francisco, California time,
unless otherwise indicated.
<PAGE>
1.05. GOVERNING LAW. This Agreement and each of the other Credit
-------------
Documents shall be governed by and construed in accordance with the laws of the
State of Kansas without reference to conflicts of law rules.
1.06. CONSTRUCTION. Each of this Agreement and the other Credit
------------
Documents is the result of negotiations among, and has been reviewed by, the
Borrower, FFC and their respective counsel. Accordingly, this Agreement and the
other Credit Documents shall be deemed to be the product of all parties hereto,
and no ambiguity shall be construed in favor of or against the Borrower or FFC.
1.07. ENTIRE AGREEMENT. This Agreement and each of the other Credit
----------------
Documents, taken together, constitute and contain the entire agreement of the
Borrower and FFC and supersede any and all prior agreements, negotiations,
correspondence, understandings and communications among the parties, whether
written or oral, respecting the subject matter hereof.
1.08. CALCULATION OF INTEREST AND FEES. All calculations of interest
--------------------------------
and fees under this Agreement and the other Credit Documents for any period
shall include the first day of such period and exclude the last day of such
period.
SECTION II. CREDIT FACILITY.
---------------
2.01. REVOLVING CREDIT FACILITY.
-------------------------
(a) Revolving Credit Availability. Subject to the terms and
-----------------------------
conditions of this Agreement, FFC agrees to advance to the Borrower, from
time to time during the period beginning on the Closing Date and ending on
the earliest of (i) the Facility Termination Date, (ii) the occurrence of a
Termination Event and (iii) such other date as is specified in Section 7.02
or 7.03, such loans as the Borrower may request under this Section 2.01
------------
(including any Warehouse Revolving Loan and any Support Revolving Loan,
each a "Revolving Loan"); provided, however, that the aggregate outstanding
-------------- -------- -------
principal balance of all Revolving Loans at any time shall not exceed the
Maximum Commitment Amount. Except as otherwise provided herein, the
Borrower may borrow, repay and reborrow Revolving Loans until the earliest
of (i) the Facility Termination Date, (ii) the occurrence of a Termination
Event and (iii) such other date as is specified in Section 7.02 or 7.03;
provided, however, that if FFC's obligation to make Revolving Loans
hereunder terminates as the result of the occurrence of a Termination
Event, FFC's right to terminate such obligation is conditioned by and
subject to the following:
(1) FFC shall give the Borrower not less than thirty (30) days'
prior written notice (the
2
<PAGE>
"Notice Period") of its intent to terminate its obligation to
-------------
make Revolving Loans hereunder (the "Termination Notice").
------------------
(2) The Borrower shall have the opportunity to cure the Termination
Event during the Notice Period and cure has not occurred at or
prior to the end of the Notice Period.
(3) During the Notice Period, FFC shall not be obligated to make
additional Revolving Loans other than Warehouse Revolving Loans
relating to Collateral Loans for which documented loan
commitments were outstanding at the time the Termination Notice
was given to the Borrower by FFC; provided, however, that the
principal amount of any such Warehouse Revolving Loan shall not
exceed five percent (5%) of the principal amount of any
Collateral Loans that are being originated or purchased with
the proceeds of such Revolving Warehouse Loan.
(b) Maturity Date. The outstanding principal balance of, together
-------------
with all accrued but unpaid interest on, the Revolving Loans shall be due
and payable (without demand, defense, set-off or counterclaim) in full upon
the Facility Termination Date.
(c) Notice of Borrowing. The Borrower shall request each Revolving
-------------------
Loan, which may be funded only on a Business Day, by delivering to FFC a
written notice in the form of Exhibit A hereto, appropriately completed (a
----------------
"Notice of Borrowing"). The Borrower shall give each Notice of Borrowing
-------------------
to FFC by 1:00 p.m., Kansas time, on the Business Day immediately before
the funding date of the requested Revolving Loan. Each Notice of Borrowing
shall be delivered by telecopy to FFC at the telecopy number and during the
hours specified in Section 8.01 hereof.
------------
(d) Revolving Loan Interest Rate. The Borrower shall pay interest on
----------------------------
the unpaid principal amount of each Revolving Loan from the funding date of
such Revolving Loan until the date such Revolving Loan (or portion thereof)
is actually repaid in full (the "Repayment Date") at a rate per annum equal
--------------
to (i) the Applicable Treasury Rate plus 7.00% per annum for all Support
----
Revolving Loans and (ii) the Applicable LIBOR Rate plus 7.50% per annum for
----
all other Revolving Loans. If a Revolving Loan, other than a Support
Revolving Loan, is made on a day other than the first Business Day of a
calendar month, the Applicable LIBOR Rate for such Revolving Loan shall be
the Stub LIBOR Rate until the first Business Day of the next calendar
month, from and after which time the Applicable LIBOR Rate for such
Revolving Loan shall be at the Monthly LIBOR Rate. All
3
<PAGE>
computations of interest on Revolving Loans shall be based on a year of 360
days for actual days elapsed.
(e) Termination of Maximum Commitment Amount. On the Facility
----------------------------------------
Termination Date, the obligation of FFC to make Revolving Loans pursuant to
this Agreement shall terminate automatically without any further action,
and the Maximum Commitment Amount shall be zero.
(f) Extension of Facility Termination Date. At least ninety (90) days
--------------------------------------
prior to the Stated Termination Date, the Borrower may, by delivering a
written request to FFC, request that FFC extend for up to one year the
Stated Termination Date. Upon receipt of the request from the Borrower, FFC
may, in its sole discretion, agree to extend the Stated Termination Date
and shall, within thirty (30) days after receipt of such request, notify
the Borrower of its approval or rejection of such request. If FFC does not
respond to the Borrower's request within such thirty (30) day period, FFC
shall be deemed to have rejected the request. If FFC approves the request
for extension, the Stated Termination Date shall be extended for the
requested period, commencing on the Stated Termination Date.
2.02. PROCEEDS OF REVOLVING LOAN. Subject to the satisfaction of the
--------------------------
conditions set forth in Section 4.02 hereof, on the day requested by the
------------
Borrower in the related Notice of Borrowing, FFC shall pay each Revolving Loan
to the account designated in the related Notice of Borrowing:
(a) to fund no more than fifteen percent (15%) of the principal
amount of the related Collateral Loans, in which case such Revolving Loan
shall be deemed to be a "Warehouse Revolving Loan";
------------------------
(b) to support pricing on securitizations or whole loan sales by the
Borrower through the financing of related subordinate tranches or
certificates or the funding of purchase price holdback amounts or loans, in
each case upon terms approved by FFC, which approval shall not be
unreasonably withheld, in which case any such Revolving Loan shall be
deemed to be a "Support Revolving Loan";
----------------------
(c) to pay for Borrower Expenses; provided, however, that the
aggregate amount of Revolving Loans used to pay for Borrower Expenses shall
not exceed one million dollars ($1,000,000); or
(d) to fund any other use approved in writing by FFC.
2.03. INTEREST PAYMENT DATES AND DELINQUENT PAYMENTS.
----------------------------------------------
On the twelfth (12th) day of each month (or if such day is not a
Business Day, the next succeeding Business Day) (each
4
<PAGE>
such day, an "Interest Payment Date"), the Borrower shall pay (a) interest at
---------------------
the applicable rate accrued during the preceding calendar month on the average
outstanding daily balance of all Revolving Loans, other than Support Revolving
Loans, outstanding on the first day of the preceding calendar month, (b)
interest accrued during the preceding calendar month at the applicable rate on
any Revolving Loan, other than any Support Revolving Loan, not outstanding on
the first day of the preceding calendar month, based on the outstanding
principal balance thereof and the number of days such Revolving Loan has been
outstanding during the preceding calendar month and (c) interest at the
applicable rate accrued during the preceding calendar month on the average
outstanding daily balance of all Support Revolving Loans.
Interest shall accrue on any payment that is not paid when due
hereunder at a rate equal to the sum of (i) the applicable rate, based on
whether such interest payment relates to a Support Revolving Loan or other
Revolving Loan, plus (ii) one percent (1.00%).
2.04. PRINCIPAL PREPAYMENTS.
---------------------
The outstanding principal balance of each Revolving Loan may be
prepaid, in whole or in part, on any Business Day. Such prepayment shall be
without premium or penalty.
2.05. OTHER PAYMENT TERMS.
-------------------
(a) Place and Manner. The Borrower shall make, without setoff,
----------------
deduction or counterclaim, all payments due to FFC hereunder at FFC's
office, located at the address specified in Section 8.01(a), or such other
---------------
office as FFC shall request in writing, in lawful money of the United
States and in same day or immediately available funds not later than 2:00
p.m., Kansas time, on the date due. Funds received after such time shall
be deemed to have been received by FFC on the next Business Day.
(b) Date. Whenever any payment due hereunder shall fall due on a day
----
other than a Business Day, such payment shall be made on the next Business
Day.
(c) Application of Payments. All payments hereunder shall be applied
-----------------------
first to unpaid costs and expenses then due and payable under this
Agreement or the other Credit Documents, second to accrued interest then
due and payable under this Agreement or the other Credit Documents and
finally to reduce the principal amount of outstanding Revolving Loans then
bearing the highest interest rate.
5
<PAGE>
2.06. NOTE.
----
(a) Revolving Loan Note. The obligation of the Borrower to repay the
-------------------
Revolving Loans and to pay interest thereon at the rates provided herein
shall be evidenced by a subordinated promissory note in the form of Exhibit
-------
B, as amended from time to time (the "Note"), which note shall be (i) in
- ----
the principal amount of twenty (20) million dollars ($20,000,000), (ii)
dated the Closing Date and (iii) otherwise appropriately completed. The
Borrower authorizes FFC to record on the schedule annexed to the Note the
date and amount of each Revolving Loan and of each payment of principal
thereon made by or on behalf of the Borrower, and agrees that all such
notations shall constitute prima facie evidence of the matters noted;
provided, however, that the failure of FFC to make any such notation shall
-------- -------
not affect the Borrower's obligations. The Borrower further authorizes FFC
to attach to and make a part of the Note continuations of the schedule
attached thereto as necessary.
(b) Record of Interest. The Borrower authorizes FFC to record in its
------------------
books (i) the Applicable Treasury Rate for all Support Revolving Loans and
the effective dates of all changes thereto, (ii) the Applicable LIBOR Rate
for all other Revolving Loans, (iii) the date and amount of each principal
and interest payment on each Revolving Loan, and (iv) such other
information as FFC may determine is necessary for the computation of
interest payable by the Borrower hereunder.
2.07. USE OF PROCEEDS. The Borrower shall apply the proceeds of each
---------------
Revolving Loan solely for the purposes specified in Section 2.02, as set forth
in the related Notice of Borrowing.
SECTION III. SUBORDINATION.
-------------
3.01. SUBORDINATION. The Obligations shall be subordinated and junior
-------------
in right of payment, to the extent and in the manner hereinafter set forth, to
all Senior Debt of the Borrower. The term "Senior Debt" shall mean all
-----------
obligations of the Borrower under that certain Warehouse Credit Agreement dated
January 8, 1997 by and between FFC and Borrower, as amended from time to time,
and such other obligations as FFC and the Borrower shall specifically designate
as "Senior Debt" by an amendment to this Agreement.
3.02. PAYMENTS ON SUBORDINATED INDEBTEDNESS. The Borrower will not,
-------------------------------------
directly or indirectly, make or agree to make, and neither the holder nor any
assignee or successor holder of any right to receive payment of the Obligations
(a "Noteholder") will demand, accept or receive, any payment (by set-off or
----------
otherwise), direct or indirect, of or on account of any principal
6
<PAGE>
or interest in respect of any Obligations, and no such payment shall be due, if,
at the time of making any such payment:
(a) a default (a "Payment Default") in the payment when due (whether
---------------
at the stated maturity thereof, by acceleration or otherwise) of all or any
portion of any of the Senior Debt shall have occurred and be continuing; or
(b) all of the following four conditions shall be satisfied:
(i) an event of default other than a Payment Default
shall have occurred with respect to any Senior Debt (a "Covenant
--------
Default") which permits the requisite holder or holders thereof to
--------
accelerate the maturity thereof;
(ii) the Borrower shall have received written notice (each
a "Subordination Notice") of such Covenant Default from the holders of
--------------------
at least 51% of the outstanding principal amount of Senior Debt, or
their representative or representatives;
(iii) such Covenant Default shall not have been cured or
waived in writing by the requisite holder or holders of Senior Debt;
and
(iv) fewer than six months shall have elapsed after the
date of receipt by the Borrower of such Subordination Notice (the
period during which the restrictions imposed by this subdivision (b)
are in effect being hereinafter referred to as a "Blockage Period").
---------------
Notwithstanding the foregoing, Blockage Periods shall not be in effect for
more than an aggregate of 180 days during any period of 360 consecutive days.
Following an acceleration of the maturity of any Senior Debt, and as long
as such acceleration shall continue unrescinded and unannulled, such Senior Debt
shall first be paid in full in cash before any payment is made on account of or
applied to the Obligations.
3.03. INSOLVENCY, ETC. In the event of (a) any insolvency, bankruptcy,
----------------
receivership, liquidation, reorganization, readjustment, composition or other
similar proceeding relating to the Borrower or its property, (b) any proceeding
for the liquidation, dissolution or other winding-up of the Borrower, voluntary
or involuntary, and whether or not involving insolvency or bankruptcy
proceedings, (c) any assignment for the benefit of creditors, or (d) any
distribution, division, marshalling or application of any of the properties or
assets of the Borrower or the proceeds thereof to creditors,
7
<PAGE>
voluntary or involuntary, and whether or not involving legal proceedings, then
and in any such event:
(i) all Senior Debt shall first be paid in full
(including all principal, premium, if any, and interest, including
interest accruing after the commencement of any such proceeding)
before any payment or distribution of any character, whether in cash,
securities or other property shall be made in respect of any
Obligations;
(ii) all principal and interest on the Obligations shall
forthwith become due and payable, and any payment or distribution of
any character, whether in cash, securities or other property, which
would otherwise (but for the terms hereof) be payable or deliverable
in respect of any Obligations, shall be paid or delivered directly to
the holders of the Senior Debt, for application to the payment of the
Senior Debt, until all Senior Debt shall have been paid in full, and
the Noteholders at the time outstanding irrevocably authorize, empower
and direct all receivers, trustees, liquidators, conservators, fiscal
agents and others having authority in the premises to effect all such
payments and deliveries;
(iii) each Noteholder at the time outstanding irrevocably
authorizes and empowers each holder of the Senior Debt and such
holder's representatives (without imposing any obligation on any
holder of the Senior Debt or such holder's representative) to demand,
sue for, collect and receive such holder's ratable share of all such
payments and distributions and to receipt therefor, and to file and
prove all claims therefor and take all such other action in the name
of such holder or otherwise, as such holder of the Senior Debt or such
holder's representative may determine to be necessary or appropriate
for the enforcement of this Section 3.03; and
(iv) the Noteholders shall execute and deliver to each
holder of the Senior Debt or such holder's representative all such
further instruments confirming the above authorization, and all such
powers of attorney, proofs of claim, assignments of claim and other
instruments, and shall take all such other action as may be reasonably
requested by such holder of the Senior Debt or such holder's
representative to enforce all claims upon or in respect of the
Obligations.
For all purposes of this instrument, Senior Debt shall not be deemed to have
been paid in full unless the holders thereof shall have received cash equal to
the amount of principal, premium, if any, and interest in respect of all Senior
Debt at the time
8
<PAGE>
outstanding, and in case there are two or more holders of the Senior Debt any
payment or distribution required to be paid or delivered to the holders of the
Senior Debt shall be paid or delivered to such holders ratably according to the
respective aggregate amounts remaining unpaid on the Senior Debt held by such
holders.
3.04. PAYMENTS AND DISTRIBUTIONS RECEIVED. If any payment or
-----------------------------------
distribution of any character, whether in cash, securities or other property,
shall be received by any Noteholder, or such holder's representative, in
contravention of any of the terms of this instrument, such payment or
distribution or security shall be held in trust for the benefit of, and shall be
paid over or delivered and transferred to, the holders of the Senior Debt or
such holders' representative or representatives for application to the payment
of all Senior Debt remaining unpaid, to the extent necessary to pay all such
Senior Debt in full. In the event of the failure of any Noteholder to endorse
or assign any such payment or distribution, any holder of the Senior Debt or
such holder's representative is hereby irrevocably authorized to endorse or
assign the same.
3.05. SUBROGATION. In case cash, securities or other property
-----------
otherwise payable or deliverable to the Noteholders shall have been applied
pursuant to Sections 3.02 or 3.03 hereof to the payment of Senior Debt in full,
then and in each such case, the Noteholders shall be subrogated to any rights of
any holders of Senior Debt to receive any further payments or distributions in
respect of or applicable to the Senior Debt.
3.06. AMENDMENT. The subordination provisions of this Article III have
---------
been entered into for the benefit of the holders of the Senior Debt, and may not
be supplemented, amended or otherwise modified without the written consent of
all such holders or, if the instruments pursuant to which the Senior Debt shall
have been issued provide for effective consent by less than all the holders
thereof, by the requisite number or percentage of such holders provided for in
such instruments.
3.07. REINSTATEMENT OF TERMS OF SUBORDINATION. The terms of this
---------------------------------------
instrument shall continue to be effective or be reinstated, as the case may be,
if at any time any payment of any Senior Debt is rescinded, annulled or must
otherwise be returned by any holder of Senior Debt or such holder's
representative, upon the insolvency, bankruptcy or reorganization of the
Borrower or any of its Subsidiaries or otherwise, all as though such payment has
not been made.
3.08. LIMITATION ON THE EXERCISE OF REMEDIES IN RESPECT OF OBLIGATIONS.
----------------------------------------------------------------
In no event may any Noteholder exercise any right or remedy available to it on
account of any Default or Event of Default (a) at any time at which payments
with respect thereto may not be made by the Borrower on account of the terms of
Section 3.02 above, or (b) prior to the expiration of forty-
9
<PAGE>
five (45) days after the Noteholders shall have given notice to the Borrower and
to the holders of the Senior Debt of their intention to take such action.
3.09. NOTICE. Immediately upon receipt by the Borrower of any
------
Subordination Notice pursuant to Section 3.02(b)(ii) hereof, the Borrower shall
deliver to the Noteholders a copy of such notice.
SECTION IV. CONDITIONS PRECEDENT.
--------------------
4.01. CONDITIONS PRECEDENT TO INITIAL REVOLVING LOAN. The obligation
----------------------------------------------
of FFC to make the initial Revolving Loan is subject to receipt by FFC, on or
prior to the Closing Date, of each item listed in Schedule II, each in form and
-----------
substance satisfactory to FFC.
4.02. CONDITIONS PRECEDENT TO EACH REVOLVING LOAN. The making of each
-------------------------------------------
Revolving Loan is subject to the further conditions that FFC shall have received
the Notice of Borrowing requesting such Revolving Loan in accordance with this
Agreement and that on the date such Revolving Loan is to be made and after
giving effect to such Revolving Loan, the following shall be true and correct:
(a) The representations and warranties set forth in Section 5.01 are
------------
true and correct in all material respects as if made on such date;
(b) No Default or Event of Default has occurred and is continuing
under any Credit Document; and
(c) Each of the Credit Documents remains in full force and effect.
The submission by the Borrower to FFC of each Notice of Borrowing shall be
deemed to be a representation and warranty by the Borrower as of the date
thereof as to the paragraphs set forth above.
SECTION V. REPRESENTATIONS AND WARRANTIES.
------------------------------
5.01. BORROWER'S GENERAL REPRESENTATIONS AND WARRANTIES. To induce
-------------------------------------------------
FFC to enter into this Agreement and to make Revolving Loans hereunder, the
Borrower represents and warrants to FFC that:
(a) Due Organization, Qualification, etc. The Borrower (i) is a
------------------------------------
limited partnership duly organized, validly existing and in good standing
under the laws of its state of organization; (ii) has the power and
authority to own, lease and operate its properties and carry on its
10
<PAGE>
business as now conducted; and (iii) is duly qualified and licensed to do
business and is in good standing as a foreign entity in each jurisdiction
where the failure to be so qualified or licensed might have a Material
Adverse Effect.
(b) Authority. The execution, delivery and performance by the
---------
Borrower of each Credit Document to be executed by the Borrower and the
consummation by the Borrower of the transactions contemplated thereby (i)
are within the power of the Borrower and (ii) have been duly authorized by
all necessary actions on the part of the Borrower.
(c) Enforceability. Each Credit Document executed, or to be executed,
--------------
by the Borrower has been, or will be, duly executed and delivered by the
Borrower and constitutes, or will constitute, a legal, valid and binding
obligation of the Borrower, enforceable against the Borrower in accordance
with its terms, except as limited by bankruptcy, insolvency or other laws
of general application relating to or affecting the enforcement of
creditors' rights generally and general principles of equity.
(d) Non-Contravention. The execution and delivery by the Borrower of
-----------------
the Credit Documents executed by the Borrower and the performance and
consummation of the transactions contemplated thereby do not (i) conflict
with or violate any Requirement of Law applicable to the Borrower; (ii)
conflict with or violate any provision of, or result in the breach or the
acceleration of, or entitle any other Person to accelerate (whether after
the giving of notice or lapse of time or both), any Contractual Obligation
of the Borrower; or (iii) result in the creation or imposition of any Lien
upon any property, asset or revenue of the Borrower.
(e) Approvals. No consent, approval, order or authorization of, or
---------
registration, declaration or filing with, any Governmental Authority or
other Person (including, without limitation, the shareholders of any
Person) is required in connection with the execution and delivery of the
Credit Documents by the Borrower and the performance and consummation by
the Borrower of the transactions contemplated hereby and thereby.
(f) No Violation or Default. The Borrower is not in violation of or
-----------------------
in default with respect to (i) any Requirement of Law applicable to the
Borrower; (ii) any Contractual Obligation of the Borrower (nor is there any
waiver in effect which, if not in effect, would result in such a violation
or default), where, in each case, such violation or default could have a
Material Adverse Effect. No Default or Event of Default has occurred and
is continuing.
11
<PAGE>
(g) Litigation. No actions (including, without limitation, derivative
----------
actions), suits, proceedings or investigations are pending or, to the
knowledge of the Borrower, threatened against the Borrower at law or in
equity in any court or before any other Governmental Authority which (i)
could have a Material Adverse Effect or (ii) seek to enjoin, either
directly or indirectly, the execution, delivery or performance by the
Borrower of the Credit Documents or the transactions contemplated thereby.
(h) Other Regulations. The Borrower is not subject to regulation
-----------------
under the Investment Company Act of 1940, the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce Act,
any state public utilities code or to any federal or state statute or
regulation limiting its ability to incur Indebtedness.
(i) Licenses and Other Rights. The Borrower owns, or has the full
-------------------------
right to license without the consent of any other Person, all licenses,
trademarks, trade names, trade secrets, service marks, copyrights and all
rights with respect thereto, which are required to conduct its businesses
as now conducted.
(j) Governmental Charges and Other Indebtedness. The Borrower has
-------------------------------------------
filed or caused to be filed all tax returns which are required to be filed
by it. The Borrower has paid, or made provision for the payment of, all
taxes and other Governmental Charges which have or may have become due
pursuant to said returns or otherwise and all other Indebtedness, except
such Governmental Charges or Indebtedness, if any, which are being
contested in good faith and as to which adequate reserves (determined in
accordance with GAAP) have been provided or which could not have a Material
Adverse Effect if unpaid.
(k) Margin Stock. The Borrower owns no Margin Stock which, in the
------------
aggregate, would constitute a substantial part of the assets of the
Borrower, and no proceeds of any Revolving Loan will be used to purchase or
carry, directly or indirectly, any Margin Stock or to extend credit,
directly or indirectly, to any Person for the purpose of purchasing or
carrying any Margin Stock.
(l) Solvency, etc. The Borrower is Solvent and, after the execution
-------------
and delivery of the Credit Documents and the consummation of the
transactions contemplated thereby, will be Solvent.
(m) Accuracy of Information. None of the Credit Documents and none of
-----------------------
the other certificates, statements or information furnished to FFC by the
Borrower in connection with the Credit Documents or the transactions
contemplated thereby contains or will contain any untrue statement of a
12
<PAGE>
material fact or omits or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
(n) Intent. None of the transactions contemplated by this Agreement
------
have been or will be made with an actual intent to hinder, delay or defraud
any present or future creditors of the Borrower. The Borrower is able to
pay its debts as they become due.
5.02. REAFFIRMATION. The Borrower shall be deemed to have reaffirmed,
-------------
for the benefit of FFC, each representation and warranty contained in Section
-------
5.01 on and as of the funding date of each Revolving Loan.
- ----
5.03. SURVIVAL. The representations and warranties set forth in
--------
Section 5.01 shall remain in full force and effect until the expiration or
- ------------
earlier termination of this Agreement and the satisfaction in full by the
Borrower of all Obligations.
SECTION VI. COVENANTS.
---------
6.01. AFFIRMATIVE COVENANTS. Until the termination of this Agreement
---------------------
and the satisfaction in full by the Borrower of all Obligations, the Borrower
shall comply, and shall cause compliance, with the following affirmative
covenants unless FFC shall otherwise consent in writing:
(a) Financial Statements, Reports, etc. The Borrower shall furnish to
----------------------------------
FFC the following:
(i) not later than thirty (30) days after the end of each
calendar quarter, a quarterly report which shall include an unaudited
balance sheet, income statement and statement of cash flows for the
quarterly period then ended;
(ii) not later than one hundred twenty (120) days after
the close of the Borrower's fiscal year, a report containing (a) a
balance sheet of the Borrower as of the end of the fiscal year, (b) an
income statement for the fiscal year, (c) a statement of cash flows
for the fiscal year and (d) a statement of partners' capital as of the
end of the fiscal year, prepared in accordance with GAAP, consistently
applied, and accompanied by the report thereon of the nationally
recognized independent accountants engaged by the Borrower; and
(iii) such other instruments, agreements, certificates,
opinions, statements, documents and information relating to the
operations or condition (financial or otherwise) of the Borrower, and
13
<PAGE>
compliance by the Borrower with the terms of this Agreement and the
other Credit Documents as FFC may from time to time reasonably
request.
(b) Books and Records. The Borrower shall at all times keep proper
-----------------
books of record and account in which full, true and correct entries will be
made of its transactions in accordance with GAAP. With respect to each
Collateral Loan, the record keeping practices used by the Borrower with
respect to each Collateral Loan shall be in all respects legal, proper and
prudent.
(c) General Inspections. The Borrower shall permit any Person
-------------------
designated by FFC, upon reasonable notice and during normal business hours,
to visit and inspect any of its properties and offices, to examine its
books of account, all relevant information in the possession of the
Borrower or its Affiliates and agents (including any bailee, custodian,
accountant or attorney) concerning the transactions contemplated by this
Agreement and each other Credit Document and to discuss the affairs,
finances and accounts of the Borrower with, and to be advised as to the
same by, their officers, auditors and accountants, all at such times and
intervals as FFC may reasonably request.
(d) Governmental Charges and Other Indebtedness. The Borrower shall
-------------------------------------------
promptly pay and discharge when due (i) all taxes and other Governmental
Charges prior to the date upon which penalties accrue thereon and (ii) all
other Indebtedness which, if unpaid, could have a Material Adverse Effect,
except such Indebtedness as may in good faith be contested or disputed, or
for which arrangements for deferred payment have been made, provided that
in each such case appropriate reserves are maintained to the reasonable
satisfaction of FFC.
(e) General Business Operations. The Borrower shall (i) preserve and
----------------------------
maintain its partnership existence and all of its rights, privileges and
franchises reasonably necessary to the conduct of its business, (ii)
conduct its business activities in compliance with all Requirements of Law
and Contractual Obligations applicable to such Person, the violation of
which could have a Material Adverse Effect, and (iii) keep all property
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted.
(f) Notices. The Borrower shall promptly notify FFC upon:
--------
(i) the commencement of any litigation against the Borrower
that may have a Material Adverse Effect;
14
<PAGE>
(ii) the occurrence of any Default or Event of Default
under this Agreement;
(iii) the occurrence of any default with respect to any
Senior Debt;
(iv) a Collateral Loan becoming a Nonperforming Loan and
the unpaid principal balance thereof; and
(v) any material adverse change in the business,
operations or condition (financial or otherwise) of the Borrower.
6.02. NEGATIVE COVENANTS.
------------------
(a) No Merger. Until the termination of this Agreement and the
---------
satisfaction in full by Borrower of all Obligations, the Borrower shall not
consolidate with or merge into any other Person or permit any other Person
to merge or consolidate with or into, the Borrower; provided, however, that
--------- --------
(i) the Borrower may merge or consolidate with or into any other Person or
entity if immediately after giving effect to such proposed transaction, no
Default or Event of Default would exist, and (ii) the Borrower is either
the surviving entity or the surviving entity agrees to assume all of the
Borrower's obligations hereunder and each other Credit Document in an
agreement or instrument satisfactory in form and substance to FFC.
(b) Senior Debt. The Borrower shall not amend in any material
-----------
respect the terms, conditions or covenants of any Senior Debt without the
written consent of FFC.
(c) Underwriting Guidelines. The Borrower shall not amend in any
-----------------------
material respect the terms of its Underwriting Manual without the written
consent of FFC.
(d) Additional Indebtedness. The Borrower shall not incur
-----------------------
Indebtedness other than:
(i) the Senior Debt and Indebtedness under this Agreement;
(ii) Indebtedness relating to any lending program of the
Borrower in the ordinary course of its business that has been approved
by FFC, which approval shall not be unreasonably withheld;
(iii) Indebtedness to subcontractors and trade creditors
incurred in the ordinary course of business and not delinquent for
more than 45 days or being contested in good faith;
15
<PAGE>
(iv) Indebtedness under capital leases and operating
leases incurred in the ordinary course of business; and
(v) Other Indebtedness incurred in the ordinary course of
business not exceeding $250,000 at any time.
(e) Additional Liens. The Borrower shall not create, incur, assume or
----------------
permit to exist any Lien on any of its assets or property except for:
(i) Liens for taxes or other governmental charges not at
the time delinquent or thereafter payable without penalty or being
contested in good faith;
(ii) Liens of carriers, warehousemen, mechanics,
materialmen, vendors, and landlords incurred in the ordinary course of
business for sums not overdue or being contested in good faith;
(iii) Deposits under workers' compensation, unemployment
insurance and social security laws or to secure the performance of
bids, tenders, contracts (other than for the repayment of borrowed
money) or leases in the ordinary course of business, or to secure
statutory obligations of surety or appeal bonds or to secure
indemnity, performance or other similar bonds in the ordinary course
of business;
(iv) Liens arising out of a judgment or award with respect
to which an appeal is being prosecuted, a stay of execution pending
appeal having been secured;
(v) Liens relating to any lending program of the Borrower
in the ordinary course of its business that has been approved by FFC,
which approval shall not be unreasonably withheld; and
(vi) Liens in favor of the lender or lenders of any Senior
Debt.
(f) Distributions, Redemptions, Etc. The Borrower shall not (i) pay
--------------------------------
any dividends or make any distributions on its Equity Securities; (ii)
purchase, redeem, retire, defease or otherwise acquire for value any of its
Equity Securities; or (iii) make any distribution of assets, Equity
Securities, obligations or securities to any holder of its Equity
Securities; provided, however, that the Borrower may make distributions to
enable holders of its Equity Securities to pay tax obligations relating to
such holdings, as permitted by the Borrower's Partnership Agreement.
16
<PAGE>
(g) Asset Dispositions. The Borrower shall not sell, transfer or
------------------
otherwise dispose of substantially all of its assets except in connection
with a whole loan sale or securitization in the ordinary course of its
business.
(h) Investments. The Borrower shall not make any loans or advances
-----------
of funds to any Person or acquire Equity Securities other than (i) Eligible
Investments (as defined in the Borrower's Restated Agreement of Limited
Partnership dated January 8, 1997, as it may be amended from time to time),
(ii) Collateral Loans, (iii) other loans originated or purchased in the
ordinary course of the Borrower's business pursuant to lending programs
that have been approved by FFC, which approval shall not be unreasonably
withheld, and (iv) up to $148,313 pursuant to loans existing on the date
hereof made to Affiliates of the Borrower.
SECTION VII. DEFAULT.
7.01. EVENTS OF DEFAULT. The occurrence or existence of any one or
-----------------
more of the following shall constitute an "Event of Default" hereunder:
----------------
(a) the Borrower shall fail to observe or perform any other covenant,
obligation, condition or agreement contained in this Agreement or the other
Credit Documents and such failure shall continue unremedied for ten (10)
Business Days; or
(b) any representation, warranty, certificate, or other statement
(financial or otherwise) made or furnished by the Borrower to FFC in this
Agreement or any of the other Credit Documents shall be false, incorrect,
incomplete or misleading in any respect when made or furnished, and
(i) the same was made in bad faith; or
(ii) the same may result in a Material Adverse Effect
described in clause (a) of the definition of Material Adverse Effect,
----------
and such Material Adverse Effect is not cured within 30 days after the
earlier of (A) discovery thereof by the Borrower, or (B) notice
thereof by FFC to the Borrower; or
(iii) the same results in any other Material Adverse
Effect; or
(c) the Borrower shall (i) apply for or consent to the appointment of
a receiver, trustee, liquidator or custodian of itself or of all or a
substantial part of its property, (ii) be unable, or admit in writing its
inability, to pay its debts generally as they mature, (iii) make a general
17
<PAGE>
assignment for the benefit of its or any of its creditors, (iv) be
dissolved or liquidated in full or in part, (v) become insolvent (as such
term may be defined or interpreted under any applicable statute), (vi)
commence a voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to itself or its debts under
any bankruptcy, insolvency or other similar law now or hereafter in effect
or consent to any such relief or to the appointment of or taking possession
of its property by any official in an involuntary case or other proceeding
commenced against it, or (vii) take any action for the purpose of affecting
any of the foregoing; or
(d) proceedings for the appointment of a receiver, trustee, liquidator
or custodian of the Borrower or of all or a substantial part of the
property thereof, or an involuntary case or other proceedings seeking
liquidation, reorganization or other relief with respect to the Borrower or
the debts thereof under any bankruptcy, insolvency or other similar law now
or hereafter in effect shall be commenced and an order for relief entered
or such proceeding shall not be dismissed or discharged within ninety (90)
days of commencement; or
(e) any Credit Document or any material term thereof shall cease to
be, or be asserted by the Borrower not to be, a legal, valid and binding
obligation of the Borrower enforceable in accordance with its terms.
(f) any default or event of default under any other Credit Document
has occurred and is continuing after any applicable cure period;
(g) the Borrower shall be in default in the payment to FFC of any
interest on or principal of any Revolving Loan when it becomes due and
payable and continuance of such default for a period of TEN (10) days;
(h) the Borrower shall fail to make any payment when due under the
terms of any Senior Debt and the holder of any Senior Debt has caused such
Senior Debt to become due and payable prior to its stated date of maturity;
(i) a final judgment or order for the payment of money shall be
rendered against the Borrower, the same shall remain undischarged for a
period of sixty (60) days during which execution shall not be effectively
stayed, and such judgment or order has a Material Adverse Effect;
(j) a final, nonappealable judgment or order that prevents the
Borrower from conducting its business substantially in the manner conducted
on the date of such judgment or order shall be entered against the
Borrower; or
18
<PAGE>
(k) both David L. Elder and Arthur P. Brazy, Jr. cease to be
associated with the Borrower as an officer, director, employee, or
consultant actively involved in the management of the business and affairs
of the Borrower.
7.02. REMEDIES. Upon the occurrence or existence of any Event of
--------
Default (other than an Event of Default referred to in Section 7.01(c) or
---------------
7.01(d)) and at any time thereafter during the continuance of such Event of
- -------
Default, FFC may, by written notice to Borrower, (a) terminate its obligation to
make Revolving Loans hereunder and/or (b) declare all outstanding Obligations
payable by the Borrower hereunder to be immediately due and payable without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived, anything contained herein or in the Note to the
contrary notwithstanding. Upon the occurrence or existence of any Event of
Default described in Section 7.01(c) or 7.01(d), immediately and without notice,
--------------- -------
(1) the obligations of FFC to make Revolving Loans shall automatically terminate
and (2) all outstanding Obligations payable by the Borrower hereunder shall
automatically become immediately due and payable, without presentment, demand,
protest or any other notice of any kind, all of which are hereby expressly
waived, anything contained herein or in the Note to the contrary
notwithstanding. In addition to the foregoing remedies, upon the occurrence or
existence of any Event of Default, FFC may exercise any other right, power or
remedy granted to it by the Credit Documents or otherwise permitted to it by
law, either by suit in equity or by action at law, or both.
7.03. DEFAULTS. Upon the occurrence of any Default, the obligation of
--------
FFC to make Revolving Loans shall be terminated unless such event is either
waived by FFC or, to the extent allowed hereunder, cured by the Borrower within
the applicable cure period.
SECTION VIII. MISCELLANEOUS.
-------------
8.01. NOTICES. Except as otherwise provided herein, all notices,
-------
requests, demands, consents, instructions or other communications to or upon FFC
or the Borrower under this Agreement or the other Credit Documents shall be in
writing and telecopied, mailed or delivered to each party at its telecopier
number or address set forth below (or to such other telecopier number or address
for any party as indicated in any notice given by that party to the other
party). All such notices and communications shall be effective (a) when sent by
Federal Express or other overnight service of recognized standing, on the
Business Day following the deposit with such service; (b) when mailed, first
class postage prepaid and addressed as aforesaid through the United States
Postal Service, upon receipt; (c) when delivered by hand, upon delivery; and (d)
when telecopied, upon confirmation of receipt.
19
<PAGE>
FFC: For Notices of Borrowing:
4111 East 37th Street North
Wichita, Kansas 67220
Attn: Dawn Dagenais
Telephone: (316) 828-6478
Telecopier: (316) 828-4081
FFC: For all other notices:
4111 East 37th Street North
Wichita, Kansas 67220
Attn: Jeffrey R. Thompson
Telephone: (316) 828-4744
Telecopier: (316) 828-4321
Borrower: Atherton Capital Partners, L.P.
1001 Bayhill Drive, Suite 155
San Bruno, California 94066
Attn: David L. Elder
Telephone: (415) 827-7800
Telecopier: (415) 827-7950
Each Notice of Borrowing shall be given by the Borrower to FFC's office located
at the address referred to above during FFC's normal business hours; provided,
--------
however, that any such notice received by FFC after 1:00 p.m., Kansas time on
- -------
any Business Day shall be deemed received by FFC on the next Business Day.
8.02. EXPENSES. Upon the occurrence of any Event of Default hereunder,
--------
the Borrower shall pay on demand all reasonable fees and expenses, including
reasonable attorneys' fees and expenses, incurred by FFC in the enforcement or
attempted enforcement of any of the Obligations or in preserving any of FFC's
rights and remedies (including, without limitation, all such fees and expenses
incurred in connection with any "workout" or restructuring affecting the Credit
Documents or the Obligations or any bankruptcy or similar proceeding). As used
herein, the term "reasonable attorneys' fees and expenses" shall include,
without limitation, allocable costs and expenses of Borrower's or FFC's in-house
legal counsel and staff.
8.03. INDEMNIFICATION. To the fullest extent permitted by law, the
---------------
Borrower agrees to protect, indemnify, defend and hold harmless FFC and its
respective directors, officers, employees, agents and any Affiliate thereof
("Indemnitees") from and against any and all liabilities, losses, damages or
-----------
expenses of any kind or nature and from any and all suits, claims or demands
(including, without limitation, in respect of or for reasonable attorney's fees
and other expenses) arising on account of or in connection with any action or
failure to act by the Borrower arising out of or relating to the Revolving
Loans, including without limitation any use by the Borrower of any proceeds of
the Revolving Loans, except to the extent such
20
<PAGE>
liability arises from the willful misconduct or gross negligence of the
Indemnitees. Upon receiving knowledge of any suit, claim or demand asserted by a
third party that FFC believes is covered by this indemnity, FFC shall give the
Borrower notice of the matter and an opportunity to defend it, at the Borrower's
sole cost and expense, with legal counsel satisfactory to FFC. Any failure or
delay of FFC to notify the Borrower of any such suit, claim or demand shall not
relieve the Borrower of its obligations under this Section 8.03 but shall reduce
------------
such obligations to the extent of any increase in those obligations caused
solely by an unreasonable failure or delay. The obligations of the Borrower
under this Section 8.03 shall survive the payment and performance of the
------------
Obligations and the termination of this Agreement.
8.04. WAIVERS; AMENDMENTS. Any term, covenant, agreement or condition
-------------------
of this Agreement or any other Credit Document may be amended or waived if such
amendment or waiver is in writing and is signed by the Borrower and FFC. No
failure or delay by FFC in exercising any right hereunder shall operate as a
waiver thereof or of any other right nor shall any single or partial exercise of
any such right preclude any other further exercise thereof or of any other
right. Unless otherwise specified in such waiver or consent, a waiver or
consent given hereunder shall be effective only in the specific instance and for
the specific purpose for which given.
8.05. SUCCESSORS AND ASSIGNS. This Agreement and the other Credit
----------------------
Documents shall be binding upon and inure to the benefit of the Borrower, FFC
and their respective successors and permitted assigns, except that (a) the
Borrower may not assign or transfer any of its rights or obligations under any
Credit Document without the prior written consent of FFC and (b) FFC may assign
its rights and benefits, but not is obligations, under any Credit Document
without the consent of the Borrower. All references in this Agreement to any
Person shall be deemed to include all successors and assigns of such Person.
8.06. NO THIRD PARTY RIGHTS. Nothing expressed in or to be implied
---------------------
from this Agreement or any other Credit Document is intended to give, or shall
be construed to give, any Person, other than the parties hereto and thereto and
their permitted successors and assigns, any benefit or legal or equitable right,
remedy or claim under or by virtue of this Agreement or any other Credit
Document.
8.07. PARTIAL INVALIDITY. If at any time any provision of this
------------------
Agreement is or becomes illegal, invalid or unenforceable in any respect under
the law of any jurisdiction, neither the legality, validity or enforceability of
the remaining provisions of this Agreement nor the legality, validity or
enforceability of such provision under the law of any other jurisdiction shall
in any way be affected or impaired thereby.
21
<PAGE>
8.08. JURY TRIAL. EACH OF THE BORROWER AND FFC, TO THE FULLEST EXTENT
----------
PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY
JURY AS TO ANY ISSUE RELATING TO ANY CREDIT DOCUMENT IN ANY ACTION, PROCEEDING,
OR COUNTERCLAIM ARISING OUT OF OR RELATING TO ANY CREDIT DOCUMENT.
8.09. COUNTERPARTS. This Agreement may be executed in any number of
------------
identical counterparts, any set of which signed by all the parties hereto shall
be deemed to constitute a complete, executed original for all purposes.
22
<PAGE>
IN WITNESS WHEREOF, the Borrower and FFC have caused this Agreement to
be executed as of the day and year first above written.
ATHERTON CAPITAL PARTNERS, L.P.
By: The Atherton Group Incorporated,
General Partner
By: /s/ David L. Elder
---------------------------------
Name: DAVID L. ELDER
---------------------------
Title: PRESIDENT
--------------------------
FRANCHISE FINANCE CORP.
By: /s/ Jeffrey R. Thompson
---------------------------------
Name: Jeffrey R. Thompson
Title: President
23
<PAGE>
SCHEDULE I
----------
DEFINITIONS
-----------
"Affiliate" shall mean, with respect to any Person, (a) each Person
---------
that, directly or indirectly, owns or controls, whether beneficially or as a
trustee, guardian or other fiduciary, fifty percent (50%) or more of any class
of Equity Securities of such Person, (b) each Person that controls, is
controlled by or is under common control with such Person or any Affiliate of
such Person or (c) each of such Person's officers, directors, joint venturers
and partners; provided, however, that in no case shall FFC be deemed to be an
-------- -------
Affiliate of the Borrower, or any of its Subsidiaries for purposes of this
Agreement. For the purpose of this definition, "control" of a Person shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of its management or policies, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" shall mean this Subordinated Debt Credit Agreement, as
---------
amended from time to time.
"Applicable LIBOR Rate" shall mean, for each Revolving Loan made on
---------------------
the first Business Day of a calendar month, the Monthly LIBOR Rate and, for each
Revolving Loan made on a date other than the first Business Day of a calendar
month, the Stub LIBOR Rate for that period of time beginning on (and including)
the date on which a Revolving Loan is made and ending on (but excluding) the
first Business Day of the next calendar month, and the Monthly LIBOR Rate from
and after such date.
"Applicable Treasury Rate" shall mean, with respect to any funding
------------------------
date for a Revolving Loan (the "Funding Date"), the yield to maturity implied by
------------
the monthly equivalent of either (a) the yield reported as of 10:00 a.m. (New
York City time) on the Business Day preceding the Funding Date on the display
designated PX6 or PX7 on the Bloomberg service (or such other display as may
replace such displays on the Bloomberg service or specify the applicable data on
any other generally available service) for actively traded U.S. Treasury
Securities maturing on or as close as possible to December 31, 1999, or (b) if
such yields shall not be reported as of such time or the yields reported as of
such time shall not be ascertainable, the Treasury Constant Maturity Series
yields reported for the latest day for which such yields shall have been so
reported as of the Business Day next preceding the Funding Date in Federal
Reserve Statistical Release H-15 (519) (or any comparable successor publication)
for actively traded U.S. Treasury Securities maturing on or as close as possible
to December 31, 1999. Such implied yield shall be determined, if necessary, by
(i) converting U.S. Treasury bill quotations to bond-equivalent
I-1
<PAGE>
yields in accordance with accepted financial practice, and (ii) interpolating
linearly between reported yields.
"Approved Franchise Concept" shall mean those franchise concepts
--------------------------
specified on Section A of Schedule III hereto and such additional franchise
concepts as are approved in writing by the Borrower and FFC from time to time.
"Approved Real Estate Concept" shall mean those concepts specified on
----------------------------
Section B of Schedule III hereto and such additional concepts as are approved in
writing by the Borrower and FFC from time to time.
"Blockage Period" shall have the meaning given to such term in Section
---------------
3.02(b) hereof.
"Borrower" shall have the meaning given that term in clause (1) of the
-------- -----------------
introductory paragraph hereof.
- -----------------------------
"Borrower Expenses" shall mean the expenses incurred by the Borrower
-----------------
in connection with the origination, purchase and aggregation of Collateral Loans
(the "Aggregation Period Expenses"), including (i) outside and inside legal
counsel, (ii) accounting fees for loan file review prior to origination or
purchase of such Collateral Loans by the Borrower, if any, (iii) revisions to
loan documents by legal counsel, (iv) revisions to the Borrower's Underwriting
Manual and Processing Manual by legal counsel, (v) servicing fees and expenses,
(vi) other necessary and reasonable expenses relating to the aggregation and
servicing of the Collateral Loans prior to securitization or sale and (vii) the
expenses incurred by the Borrower in connection with the securitization or sale
of the Collateral Loans, including (a) legal counsel and other professional
fees, (b) credit rating agency fees and expenses, (c) trustee, custodian and/or
servicer acceptance fees and out-of-pocket expenses, (d) fees, costs and
expenses related to a loan pool audit by accountants, (e) costs and expenses of
printing offering documents and certificates, (f) fees, costs and expenses of
the underwriter or placement agent and (g) other necessary and reasonable
expenses relating to the securitization or sale of the Collateral Loans.
"Business Day" shall mean any day other than a Saturday, Sunday, legal
------------
holiday or other day on which commercial banks are authorized or required by law
to close in San Francisco, California, or Wichita, Kansas.
"Closing Date" shall mean January 8, 1997.
------------
"Collateral Loan" shall mean each Non-Standard Loan which has been
---------------
approved by FFC and the Borrower and each Standard Loan, in each case purchased,
originated or financed, in whole or in part, using the proceeds of a Revolving
Loan, including without limitation, all related security interests and, in each
I-2
<PAGE>
case, all rights to receive payments which are collected with respect thereto
from and after the related date of origination, purchase or financing.
"Contractual Obligation" of any Person shall mean, any indenture,
----------------------
note, security, deed of trust, mortgage, security agreement, lease, guaranty,
instrument, contract, agreement or other form of obligation or undertaking to
which such Person is a party or by which such Person or any of its property is
bound.
"Covenant Default" shall have the meaning given to such term in
----------------
Section 3.02(b) hereof.
"Credit Documents" shall mean and include this Agreement, the Note and
----------------
all other documents, instruments and agreements delivered to FFC in connection
with this Agreement, as the same may be amended from time to time.
"Default" shall mean any event or circumstance not yet constituting an
-------
Event of Default but which, with the giving of any notice or the lapse of any
period of time or both, would become an Event of Default.
"Dollars" and "$" shall mean the lawful currency of the United States
------- -
of America and, in relation to any payment under this Agreement, same day or
immediately available funds.
"Equity Securities" of any Person shall mean (a) all common stock,
-----------------
preferred stock, shares, partnership interests or other equity interests in and
of such Person (regardless of how designated and whether or not voting or non-
voting) and (b) all warrants, options and other rights to acquire any of the
foregoing.
"Event of Default" shall have the meaning given to that term in
----------------
Section 7.01 hereof.
- ------------
"Facility Termination Date" shall mean the earliest of (a) the Stated
-------------------------
Termination Date, (b) the occurrence of an Event of Default described in Section
7.01(c) or Section 7.01(d) and the expiration of any related cure period, (c)
the occurrence and continuance of any other Event of Default and the declaration
of the Revolving Loans to become due and payable pursuant to Section 7.02 and
(d) the expiration of the Notice Period, if any, following the occurrence of a
Termination Event.
"FFC" shall mean Franchise Finance Corp., a Delaware corporation.
---
"Franchisee Loan" shall mean each loan to a franchisee of an Approved
---------------
Franchise Concept.
I-3
<PAGE>
"GAAP" shall mean generally accepted accounting principles and
----
practices as in effect in the United States of America from time to time,
consistently applied.
"Governmental Authority" shall mean any domestic or foreign national,
----------------------
state or local government, any political subdivision thereof, any department,
agency, authority or bureau of any of the foregoing, or any other entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Governmental Charges" shall mean all levies, assessments, fees,
--------------------
claims or other charges imposed by any Governmental Authority upon or relating
to (i) Borrower, (ii) the Revolving Loans, (iii) employees, payroll, income or
gross receipts of the Borrower, (iv) the ownership or use of any of its assets
by the Borrower or (v) any other aspect of the business of the Borrower.
"Governmental Rule" shall mean any law, rule, regulation, ordinance,
-----------------
order, code interpretation, judgment, decree, directive, guidelines, policy or
similar form of decision of any Governmental Authority.
"Indebtedness" of any Person shall mean and include (a) all items of
------------
indebtedness and liabilities which, in accordance with GAAP, would be included
in determining liabilities that are shown on the liability side of the balance
sheet of such Person, (b) all indebtedness and liabilities of other Persons
assumed or guaranteed by such Person or in respect to which such Person is
secondarily or contingently liable whether by any agreement to acquire
indebtedness and liabilities or to supply or advance funds or otherwise, and (c)
all indebtedness and liabilities of other Persons secured by any Lien in any
property of such Person (including without limitation capital leases).
"Interest Payment Date" shall have the meaning given to that term in
---------------------
Section 2.03 hereof.
- ------------
"Lien" shall mean, with respect to any property, any security
----
interest, mortgage, pledge, lien, claim, charge or other encumbrance in, of, or
on such property or the income therefrom, including, without limitation, the
interest of a vendor or lessor under a conditional sale agreement, lease or
other title retention agreement, or any agreement to provide any of the
foregoing, and the filing of any financing statement or similar instrument under
the Uniform Commercial Code or comparable law of any jurisdiction.
"Liquidated Loan" shall mean any Collateral Loan as to which the
---------------
Borrower has determined in accordance with customary servicing practices that
all amounts expected by the Borrower to be recovered from or on account of such
Collateral Loan, whether
I-4
<PAGE>
from scheduled loan payments, condemnation proceeds, insurance proceeds,
liquidation proceeds or otherwise, following final liquidation of such
Collateral Loan and the disposition of the related collateral, have been
recovered.
"Loan Documents" shall mean the form of loan agreement, note, security
--------------
agreement, mortgage, leasehold mortgage, deed of trust, leasehold deed of trust,
guaranty, landlord estoppel, intercreditor agreement, subordination of lessor's
lien, environmental indemnity and other related documents prepared by the
Borrower, dated December 29, 1995, as such documents may be amended from time to
time with the prior written approval of FFC for material amendments.
"Margin Stock" shall have the meaning given to that term in Regulation
------------
U issued by the Federal Reserve Board, as amended from time to time, and any
successor regulation thereto.
"Material Adverse Effect" shall mean a material adverse effect on (a)
-----------------------
the business, assets, operations, prospects or financial or other condition of
the Borrower; (b) the ability of the Borrower to pay or perform the Obligations
in accordance with the terms of this Agreement and the other Credit Documents;
or (c) the rights and remedies of FFC under this Agreement, the other Credit
Documents or any related document, instrument or agreement.
"Maximum Commitment Amount" shall mean twenty million dollars
-------------------------
($20,000,000) minus the aggregate amount of reserves for losses of the Borrower
with respect to Nonperforming Loans, as agreed to in good faith by the Borrower
and FFC; provided, however, that when any such Nonperforming Loan is no longer a
Nonperforming Loan or when such Nonperforming Loan has become a Liquidated Loan,
the Maximum Commitment Amount shall no longer be reduced by the reserve for
losses relating to such Nonperforming Loan.
"Monthly LIBOR Rate" shall mean, with respect to a Revolving Loan and
------------------
a calendar month period, a rate per annum (rounded upwards, if necessary, to the
nearest whole multiple of 0.0625% per annum) equal to the average of the rates
per annum, for deposits for a period of one month, that are posted by each of
the principal London offices of the banks posting rates as displayed on the
Reuters Screen LIBOR Page as of 11:00 a.m. (London time) on the first Business
Day of each calendar month. In the event that no such rates are posted, the
Monthly LIBOR Rate shall be the rate per annum shown on page 3750 of Dow Jones
Company Telerate screen or any successor page as the composite offered rate for
London interbank deposits with a period of one month, as shown under the heading
"USD" as of 11:00 a.m. (London time) on the first Business Day of each calendar
month. The Monthly LIBOR Rate shall be determined and reset monthly on the
first Business Day of each calendar month.
I-5
<PAGE>
"Nonperforming Loan" shall mean any Collateral Loan with respect to
------------------
which no payment of principal or interest has been made for at least ninety (90)
days.
"Non-Standard Loan" shall mean any loan that does not conform to the
-----------------
underwriting guidelines contained in the Underwriting Manual but which has been
approved by FFC and the Borrower.
"Note" shall have the meaning given to such term in Section 2.06
---- ------------
hereof.
"Noteholder" shall have the meaning given to such term in Section 3.02
----------
hereof.
"Notice of Borrowing" shall have the meaning given to that term in
-------------------
Section 2.01(c) hereof.
- ---------------
"Notice Period" shall have the meaning given to such term in Section
-------------
2.01(a)(1) hereof.
"Obligations" shall mean and include all loans, advances, debts,
-----------
liabilities, and obligations, howsoever arising, owed by the Borrower to FFC of
every kind and description (whether or not evidenced by any note or instrument
and whether or not for the payment of money), direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising pursuant to
the terms of this Agreement or any of the other Credit Documents, including
without limitation all interest, fees, charges, expenses, attorneys' fees and
accountants' fees chargeable to the Borrower or payable by the Borrower
hereunder or thereunder.
"Payment Default" shall have the meaning given to such term in Section
---------------
3.02(a) hereof.
"Person" shall mean and include an individual, a partnership, a
------
corporation (including a business trust), a joint stock company, limited
liability company, an unincorporated association, a joint venture, a trust or
other entity or a Governmental Authority.
"Processing Manual" shall mean the Processing Manual prepared by the
-----------------
Borrower, dated as of December 13, 1995, with respect to the processing
guidelines and procedures for Collateral Loans, as such manual may be amended
from time to time with the prior written approval of FFC and the Borrower for
material amendments.
"Real Estate Loan" shall mean a loan underwritten primarily on the
----------------
basis of the value of the fee or leasehold interest in real property securing
such loan and occupied by a franchisee or franchisor of an Approved Real Estate
Concept,
I-6
<PAGE>
rather than primarily on the basis of the value of the business operated on such
real property.
"Requirement of Law" applicable to any Person shall mean (a) the
------------------
Articles or Certificate of Incorporation and By-laws, Partnership Agreement or
other organizational or governing documents of such Person, (b) any Governmental
Rule applicable to such Person, (c) any license, permit, approval or other
authorization granted by any Governmental Authority to or for the benefit of
such Person and (d) any judgment, decision or determination of any Governmental
Authority or arbitrator, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"Repayment Date" shall have the meaning given to that term in Section
-------------- -------
2.01(d) hereof.
- -------
"Revolving Loan" shall have the meaning given to such term in Section
-------------- -------
2.01(a) hereof.
- -------
"Senior Debt" shall have the meaning given to such term in Section
----------- -------
3.01 hereof.
- ----
"Solvent" shall mean, with respect to any Person on any date, that on
-------
such date (a) the fair value of the property of such Person is greater than the
fair value of the liabilities (including, without limitation, contingent
liabilities) of such Person, (b) the present fair saleable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person does not intend to, and does not believe that it will,
incur debts or liabilities beyond such Person's ability to pay as such debts and
liabilities mature and (d) such Person is not engaged in business or a
transaction, and is not about to engage in business or a transaction, for which
such Person's property would constitute an unreasonably small capital.
"Standard Loan" shall mean a Franchisee Loan in an Approved Franchise
-------------
Concept or a Real Estate Loan in an Approved Real Estate Concept (i) conforming
in all material respects to the underwriting guidelines contained in the
Underwriting Manual, (ii) processed in accordance with the Processing Manual and
(iii) documented using the Loan Documents.
"Stated Termination Date" shall mean December 31, 1999, unless
-----------------------
otherwise extended pursuant to Section 2.01(f) hereof.
---------------
"Stub LIBOR Rate" shall mean, with respect to a Revolving Loan, a rate
---------------
per annum (rounded upwards, if necessary, to the nearest whole multiple of
0.0625% per annum) equal to the average of the rates per annum, for deposits for
a period of one month, that are posted by each of the principal London offices
of
I-7
<PAGE>
the banks posting rates as displayed on the Reuters Screen LIBOR Page as of
11:00 a.m. (London time) on the date such Revolving Loan is made. In the event
that no such rates are posted, the Stub LIBOR Rate shall be the rate per annum
shown on page 3750 of Dow Jones Company Telerate screen or any successor page as
the composite offered rate for London interbank deposits with a period of one
month, as shown under the heading "USD" as of 11:00 a.m. (London time) on the
date a Revolving Loan is made.
"Subordination Notice" shall have the meaning given to such term in
--------------------
Section 3.02(b) hereof.
"Subsidiary" of any Person shall mean (a) any corporation of which
----------
more than 50% of the issued and outstanding Equity Securities having ordinary
voting power to elect a majority of the Board of Directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned or controlled by such
Person, by such Person and one or more of its other Subsidiaries or by one or
more of such Person's other Subsidiaries, (b) any partnership, joint venture, or
other association of which more than 50% of the equity interest having the power
to vote, direct or control the management of such partnership, joint venture or
other association is at the time owned and controlled by such Person, by such
Person and one or more of the other Subsidiaries or by one or more of such
Person's other subsidiaries and (c) any other Person included in the financial
statements of such Person on a consolidated basis.
"Support Revolving Loan" shall have the meaning given to such term in
----------------------
Section 2.02(b) hereof.
- ---------------
"Termination Event" shall mean the inability of the Borrower, for a
-----------------
period of at least sixty (60) continuous days, (a) to obtain additional advances
under the Senior Debt to finance Collateral Loans as a result of a default under
such credit agreement and (b) to obtain a replacement credit agreement for the
Senior Debt.
"Termination Notice" shall have the meaning given to such term in
------------------
Section 2.01(a)(1) hereof.
"Underwriting Manual" shall mean the Underwriting Manual prepared by
-------------------
the Borrower, dated as of February 12, 1996, with respect to the underwriting
procedures and guidelines for Collateral Loans, as such manual may be amended
from time to time with the prior written approval of FFC and the Borrower for
material amendments.
"Warehouse Revolving Loan" shall have the meaning given to such term
------------------------
in Section 2.02(a) hereof.
---------------
I-8
<PAGE>
EXHIBIT 10.5
================================================================================
ATHERTON CAPITAL PARTNERS, L.P.
(Servicing Advisor),
BANKERS TRUST COMPANY
(Servicer)
and
MARINE MIDLAND BANK
(Trustee)
POOLING AND SERVICING AGREEMENT
Dated as of January 26, 1996
$22,414,500
VIDEO FRANCHISE CAPITAL TRUST 1996-1
Asset-Backed Certificates
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - DEFINITIONS.................................................................................... 1
Section 1.01. Definitions............................................................................ 1
Section 1.02. Effect of Headings and Table of Contents............................................... 22
Section 1.03. Benefits of Agreement.................................................................. 22
Section 1.04. Statement of Intent.................................................................... 22
ARTICLE II - THE TRUST ESTATE; ORIGINAL ISSUANCE OF THE CERTIFICATES....................................... 22
Section 2.01. The Trust Estate....................................................................... 22
Section 2.02 Authorization of Trustee; Execution and Delivery of
Certificates and Agreements............................................................ 23
ARTICLE III - THE SERVICING ADVISOR; REVIEW PANEL.......................................................... 23
Section 3.01. The Servicing Advisor to Act as Servicing Advisor...................................... 23
Section 3.02. Duties of the Servicing Advisor........................................................ 24
Section 3.03. Servicing Advisor's Compensation....................................................... 25
Section 3.04. Indemnification; Third Party Claims.................................................... 26
Section 3.05. Liability of the Servicing Advisor; Rights of the Servicer and the Trustee
in Respect of the Servicing Advisor.................................................... 26
ARTICLE IV - THE SERVICER.................................................................................. 26
Section 4.01. The Servicer to Act as Servicer........................................................ 26
Section 4.02. Collection of Loan Payments and Remittances............................................ 28
Section 4.03. Records................................................................................ 29
Section 4.04. Servicer's Compensation................................................................ 29
Section 4.05. Realization Upon Defaulted Loans....................................................... 29
Section 4.06. Indemnification; Third Party Claims.................................................... 30
Section 4.07. Fidelity Bond and Errors and Omissions Insurance....................................... 31
Section 4.08. Reporting by the Servicer.............................................................. 31
Section 4.09. Annual Accountants' Reports............................................................ 35
Section 4.10. Rights of the Servicing Advisor and the Trustee in Respect
of the Servicer........................................................................ 35
Section 4.11. Tax Reporting Obligations.............................................................. 36
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE V - COLLECTION ACCOUNT; RESERVE ACCOUNT DISTRIBUTIONS IN
RESPECT OF CERTIFICATES; STATEMENTS AND REPORTS................................................ 36
Section 5.01. Establishment of Collection Account.................................................... 36
Section 5.02. The Reserve Account.................................................................... 37
Section 5.03. Class A Shortfall Amounts Distributions................................................ 40
Section 5.04. Statements and Reports of Paying Agent and Servicer.................................... 46
Section 5.05. Tender of Class B Certificates......................................................... 48
Section 5.06. Allocation of Realized Losses.......................................................... 50
ARTICLE VI - THE CERTIFICATES.............................................................................. 50
Section 6.01. The Certificates....................................................................... 50
Section 6.02. Registration of Transfer and Exchange of Certificates.................................. 51
Section 6.03. Access to List of Certificateholders' Names and Addresses.............................. 53
Section 6.04. Maintenance of Office or Agency........................................................ 53
ARTICLE VII - CERTAIN MATTERS REGARDING THE SERVICING ADVISOR AND THE
SERVICER..................................................................................... 53
Section 7.01. Merger or Consolidation of the Servicing Advisor or the Servicer;
Transfer of Servicing.................................................................. 53
Section 7.02. Limitation on Liability of the Servicing Advisor, the Servicer and Others.............. 54
Section 7.03. The Servicing Advisor and the Servicer Not to Resign; Removal
of the Servicing Advisor and the Servicer.............................................. 54
Section 7.04. Representations and Warranties of the Servicing Advisor
and the Servicer....................................................................... 56
ARTICLE VIII - SERVICER DEFAULTS........................................................................... 57
Section 8.01. Servicer Events of Default............................................................. 57
Section 8.02. Other Remedies of Trustee.............................................................. 59
Section 8.03. Action upon Certain Failures of the Defaulting Servicer and
upon Servicer Event of Default......................................................... 59
Section 8.04. Trustee or Servicer to Act; Appointment of Successor................................... 59
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE IX - CONCERNING THE TRUSTEE........................................................................ 61
Section 9.01. Duties of Trustee..................................................................... 61
Section 9.02. Certain Matters Affecting the Trustee................................................. 63
Section 9.03. Trustee Not Required to Make Investigation............................................ 63
Section 9.04. Trustee Not Liable for Certificates or Loans.......................................... 63
Section 9.05. Trustee May Own Certificates.......................................................... 63
Section 9.06. Trustee's Fees and Trustee's Expenses................................................. 64
Section 9.07. Eligibility Requirements for Trustee.................................................. 64
Section 9.08. Trustee Events of Default............................................................. 64
Section 9.09. Resignation and Removal of Trustee.................................................... 66
Section 9.10. Successor Trustee..................................................................... 67
Section 9.11. Merger or Consolidation of Trustee.................................................... 67
Section 9.12. Authenticating Agent Paying Agent and Transfer Agent and Certificate Registrar........ 68
Section 9.13. Direction of Trustee.................................................................. 68
Section 9.14. No Action Except Under Agreement or Upon Instructions................................. 68
Section 9.15. Representations and Warranties of the Trustee......................................... 69
Section 9.16. Separate Trustees and Co-Trustees..................................................... 69
ARTICLE X - TERMINATION OF TRUST........................................................................... 71
ARTICLE XI - MISCELLANEOUS PROVISIONS...................................................................... 72
Section 11.01. Amendment............................................................................. 72
Section 11.02. Limitation on Rights of Certificateholders............................................ 73
Section 11.03. Governing Law; Jurisdiction........................................................... 74
Section 11.04. Notices............................................................................... 74
Section 11.05. Severability of Provisions............................................................ 74
Section 11.06. Consent to Jurisdiction and Service................................................... 74
Section 11.07. Indemnification Payments.............................................................. 75
Section 11.08. Arbitration........................................................................... 76
Section 11.09. Rule 144A Information................................................................. 77
Section 11.10. Third Party Beneficiary............................................................... 77
</TABLE>
-iii-
<PAGE>
This Pooling and Servicing Agreement, effective as of January 26, 1996,
executed by Atherton Capital Partners, L.P., as Servicing Advisor, Bankers Trust
Company, as Servicer, and Marine Midland Bank, as Trustee of the Trust formed
pursuant to the provisions hereof.
WITNESSETH THAT:
In consideration of the mutual agreements herein contained, the Servicing
Advisor, the Servicer and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01. Definitions. Whenever used herein, the following words and
-----------
phrases, unless the context otherwise requires, shall have the meanings
specified in this Article:
Act: The Securities Act of 1933, as amended.
---
Adjusted Free Cash Flow: With respect to any Store for any period, an
-----------------------
amount equal to the net income (loss) of such Store, determined in accordance
with GAAP, for such period, adjusted as follows:
(a) plus, to the extent included in the determination of net income (loss)
----
for such period (i) income taxes in respect of such net income plus interest
expense in respect of the Loan, (ii) all non-cash charges to such net income
(loss), including depreciation and amortization and non-cash charges to
inventory, (iii) the amount of expenses paid for the following during such
period: the Management Fee, automobiles, administrative fees, legal and
accounting services, other professional services, office supplies and travel and
entertainment; and (iv) nonrecurring expenses required by Blockbuster;
(b) minus, (i) to the extent not deducted in the determination of net
-----
income expenditures made for the purchase of video cassettes and games held for
rental during such period and (ii) the amount of the Standard Management Fee or
the Basic Allocation Amount, as provided in the related Loan Agreement,
allocable to such period.
Affiliate: With respect to any Person, any other Person directly or
---------
indirectly controlling, controlled by or under direct or indirect common control
with such specified Person. For the purposes of this definition, "control",
when used with respect to any specified Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
Aggregate Certificate Principal Balance: means (a) with respect to the
---------------------------------------
Class A Certificates and any Distribution Date, the Aggregate Class A
Certificate Principal Balance with respect to such Distribution Date and (b)
with respect to the Class B Certificates and any Distribution Date, the
Aggregate Class B Certificate Principal Balance with respect to such
Distribution Date.
<PAGE>
Aggregate Class A Certificate Principal Balance: With respect to any
-----------------------------------------------
Distribution Date, the aggregate initial certificate principal balance of the
Class A Certificates less the sum of (a) all distributions in respect of
principal made to the Class A Certificateholders prior to such date, other than
amounts distributed pursuant to Section 5.03(b)(iv)(D), and (b) the principal
portion of any Realized Losses occurring on or after the date on which the
Aggregate Class B Certificate Principal Balance is reduced to zero, allocated to
the Class A Certificates on or prior to such Distribution Date pursuant to
Section 5.06.
Aggregate Class B Certificate Principal Balance: With respect to any
-----------------------------------------------
Distribution Date, the aggregate of the Class B Certificate Principal Balances
with respect to such Distribution Date.
Agreement: This Pooling and Servicing Agreement and all amendments and
---------
supplements hereto.
Assignment of Leases: With respect to a Loan Agreement, the collateral
--------------------
assignment of leases dated as of the date of such Loan Agreement, from the
related Borrower to the Trust pursuant to such Loan Agreement, as such
collateral assignment of leases may be amended, supplemented or otherwise
modified from time to time.
Atherton: Atherton Capital Partners, L.P., a California limited
--------
partnership.
Authenticating Agent: Bankers Trust Company or its successor in interest,
--------------------
or any successor authenticating agent appointed by the Trustee pursuant to
Section 9.12.
Available Distribution Amount: With respect to any Distribution Date, (a)
-----------------------------
the sum of (i) all Loan Payments received during the preceding Collection Period
(including on any Defaulted Loans or Extended Loans but excluding any Early
Payments not scheduled to be received during such Collection Period), (ii) Early
Payments scheduled to be received during such Collection Period but received in
a prior Collection Period, (iii) Net Liquidation Proceeds received during the
preceding Collection Period, (iv) any Net Insurance Proceeds and Condemnation
Proceeds received during the preceding Collection Period and (v) earnings on
investments of funds on deposit in the Collection Account since the preceding
Distribution Date (net of losses and investment expenses), less (b) the sum of
(i) the Trustee Fee and any Trustee Expenses; (ii) the Servicer Fee; and (iii)
with respect to any Distribution Date on which Atherton or an Affiliate thereof
is not the Servicing Advisor, the Servicing Advisor Fee.
Basic Allocation Amount: With respect to a Borrower, if specified in the
-----------------------
related Loan Agreement, $10,000 for each fiscal year of such Borrower.
Blockbuster: Blockbuster Entertainment Inc., a Delaware corporation, and
-----------
its successor and assigns.
-2-
<PAGE>
Borrower: Each of ***/1/ each in its capacity as an obligor on a Note.
--------
Business Day: Any day other than (i) a Saturday or a Sunday, or (ii) a
------------
legal holiday in the City of New York or (iii) a day on which banking
institutions in the City of New York are authorized or obligated by law or
executive order to be closed.
Cash Tender Amount: On any Distribution Date, with respect to a Loan
------------------
prepaid pursuant to Section 2.3 of the related Loan Agreement and with respect
to which all or a portion of the related Class B Certificate is being tendered
for purchase pursuant to Section 5.05(b) or 5.05(c), (a) reduced by (b), where
(a) is:
the product of (i) a fraction the numerator of which is the outstanding
principal balance of such Loan and the denominator of which is the aggregate
principal balance of the related Tendering Holder's Related Loans on the date
such prepayment was made and (ii) the Class B Certificate Principal Balance of
such Tendering Holder's Class B Certificate on the first Distribution Date on
which principal payments are to be allocated to such Tendering Holder pursuant
to Section 5.03(c) (viii);
and where (b) is:
the sum of, for each Distribution Date on which the Class B Certificate
Principal Balance of such Class B Certificate is reduced pursuant to clause (b)
or (d) of the definition of "Class B Certificate Principal Balance", the product
of (i) any such reductions in the Class B Certificate Principal Balance of such
Class B Certificate occurring on or subsequent to such first Distribution Date
but prior to the Distribution Date of such reduction (net of recoveries in
respect of Realized Losses allocated to increase such Class B Certificate
Principal Balance during such period) and (ii) a fraction the numerator of which
is the amount determined pursuant to clause (a) above less in the case of a
tender pursuant to Section 5.05(b) the sum of (A) with respect to all
Distribution Dates subsequent to such first Distribution Date on which the
Prepayment Conditions were satisfied, all principal distributions made in
respect of such Class B Certificate on such Distribution Dates and (B) with
respect to all Distribution Dates subsequent to such first Distribution Date on
which the Prepayment Conditions were not satisfied, the product of the fraction
determined pursuant to clause (a)(i) above and all principal distributions made
in respect of such Class B Certificate on such Distribution Dates and, in the
case of a tender pursuant to Section 5.05(c), all principal distributions made
in respect of such Class B Certificate subsequent to such first Distribution
Date and the denominator of which is the Aggregate Class B Certificate Principal
Balance on the Distribution Date of each such reduction.
Certificate: Any one of the Class A Certificates or Class B Certificates
-----------
issued hereunder and evidencing in the aggregate a 100% undivided ownership
interest in the Trust.
- ------------------
/1/ Certain information has been deleted from this document where denoted
by asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
-3-
<PAGE>
Certificate Register: The register maintained pursuant to Section 6.02.
--------------------
Certificateholder or Holder: The Person in whose name a Certificate is
---------------------------
registered in the Certificate Register, except that, solely for the purposes of
the taking of any action under Articles VIII or IX, any Certificate registered
in the name of the Servicing Advisor, the Servicer or the Trustee or any
Affiliate thereof shall be deemed not to be outstanding and the aggregate
certificate principal balance evidenced thereby shall not be taken into account
in determining whether the requisite percentage of Certificates necessary to
effect any such action has been obtained.
Class: All Certificates whose form is identical except for variation in
-----
the Percentage Interest evidenced thereby and the Denomination and Holder
thereof.
Class A Certificate: Any one of the Class A Certificates executed by the
-------------------
Trustee and authenticated by the Authenticating Agent in substantially the form
set forth in Exhibit A and Exhibit C hereto.
Class A Certificateholder: The Holder of a Class A Certificate.
-------------------------
Class A Certificateholder Expenses: With respect to any Collection Period,
----------------------------------
any fees or expenses incurred by or any indemnity payments owing to any Class A
Certificateholder during such Collection Period or any prior Collection Period
and reimbursable in accordance with the terms hereof, of the Class A Purchase
Agreement or of the Loan Documents and not reimbursed or paid to Class A
Certificateholders prior to such date pursuant to the terms of any of such
agreements.
Class A Interest Distribution Amount: With respect to any Distribution
------------------------------------
Date, the sum of (a) the product of (i) 1/12th of the Class A Pass-Through Rate
and (ii) the Aggregate Class A Certificate Principal Balance as in effect
immediately prior to such Distribution Date, (b) the product of (i) the Class A
Percentage and (ii) the amount of Extended Loan Interest due with respect to the
preceding Collection Period, (c) any Unpaid Class A Interest Amount and (d) with
respect to the first Distribution Date only, the product of (i) the Class A
Pass-Through Rate, divided by 360, (ii) the number of days in the period from
and including the Closing Date to and including the last day of the calendar
month in which the Closing Date occurs and (iii) the initial Aggregate Class A
Certificate Principal Balance.
Class A Pass-Through Rate: ***/2/.
-------------------------
Class A Percentage: ***.
------------------
Class A Principal Distribution Amount: With respect to any Distribution
-------------------------------------
Date, the lesser of (a) the Aggregate Class A Certificate Principal Balance and
(b) the sum of (i) the product of (A) the
- -------------------
/2/ Certain information has been deleted from this document where denoted
by asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
-4-
<PAGE>
Class A Percentage and (B) the sum of (1) scheduled Principal Payment on the
Loans (including Defaulted Loans and Extended Loans in accordance with the
original amortization schedules thereof) due to be received during the preceding
Collection Period (including any Early Payments received during a prior
Collection Period representing payments which were scheduled to be received
during such Collection Period) and (2) any Prepayments received in respect of
the Loans during such Collection Period, (ii) the product of the Class A
Percentage and the initial principal balance of any Loan which became a
Liquidated Loan during such Collection Period, net of the sum of all Principal
Payments and any Prepayments received in respect of such Loan during or prior to
such Collection Period, and (iii) any Unpaid Class A Principal Amount. In the
case of a tender of a Class B Certificate in connection with the prepayment of a
Loan pursuant to Section 5.05(a), the Class B Certificate or portion thereof so
tendered will be deemed to have been a cash payment for purposes of clause
(i)(B)(2) of the Class A Principal Distribution Amount.
Class A Purchase Agreement: The purchase agreement between the Trust and
--------------------------
the initial purchasers of the Class A Certificates.
Class A Shortfall Amount: With respect to a Distribution Date, the excess,
------------------------
if any, of (a) the Formula Class A Distribution Amount over (b) the Available
Distribution Amount.
Class B Certificate: Any one of the Certificates executed by the Trustee
-------------------
and authenticated by the Authenticating Agent in substantially the form set
forth in Exhibit B and Exhibit C hereto.
Class B Certificate Principal Balance: With respect to any Class B
-------------------------------------
Certificate and any Distribution Date, the original principal balance of such
Class B Certificate minus the sum of (a) all distributions of principal made to
-----
the Holder (or any prior Holder) of such Class B Certificate prior to such
Distribution Date (including payments in purchase of any portion of such Class B
Certificate tendered pursuant to Section 5.05(b) or (c) hereof but excluding any
distributions of principal deemed to be made to such Holder pursuant to Section
5.05(d)), other than amounts distributed pursuant to Section 5.03(b)(iv)(S), (b)
the principal amount of any Realized Losses allocated to such Class B
Certificate pursuant to Section 5.06 hereof on or prior to such Distribution
Date, (c) deposits to the related Class B Certificateholder's Holder Reserve
Account made prior to such Distribution Date (other than the portion of the
Initial Deposit allocated thereto pursuant to Section 5.02 and other than any
portion of such deposits representing Holder Reserve Account Reimbursement
Amounts) and (d) the amount of any Class A Certificateholder Expenses or
Indemnification Payments allocable to such Class B Certificate and deducted from
the amount of principal distributions in respect of such Certificate pursuant to
Section 5.03(c)(iii).
Class B Certificateholder: The Holder of a Class B Certificate.
-------------------------
Class B Interest Distribution Amount: With respect to any Distribution
------------------------------------
Date, the sum of (a) the product of (i) 1/12th of the Class B Pass-Through Rate
and (ii) the Aggregate Class B Certificate Principal Balance in effect
immediately prior to such Distribution Date, (b) the product of (i) the Class B
Percentage and (ii) the amount of Extended Loan Interest due with respect to the
preceding Collection Period, (c) any Unpaid Class B Interest Distribution Amount
and (d) with respect to the first Distribution
-5-
<PAGE>
Date only, the product of (i) the Class B Pass-Through Rate, divided by 360,
(ii) the number of days in the period from and including the Closing Date to and
including the last day of the calendar month in which the Closing Date occurs
and (iii) the initial Aggregate Class B Certificate Principal Balance.
Class B Pass-Through Rate: ***/3/.
-------------------------
Class B Percentage: ***.
------------------
Class B Principal Distribution Amount: With respect to any Distribution
-------------------------------------
Date, the sum of (a) the product of (i) the Class B Percentage and (ii) the sum
of (A) scheduled Principal Payments on the Loans (including Defaulted Loans and
Extended Loans in accordance with the original amortization schedules thereof)
due to be received during the preceding Collection Period (including any Early
Payments received during a prior Collection Period representing payments which
were scheduled to be received during such Collection Period) and (B) any
Prepayments received during such Collection Period, (b) the product of the Class
B Percentage and the initial principal balance of any Loan which became a
Liquidated Loan during such Collection Period less all Principal Payments and
any Prepayments received with respect to such Loan during or prior to such
Collection Period, to the extent all or a portion of such Principal Payments and
Prepayments were distributed to Class B Certificateholders and (c) any Unpaid
Class B Principal Amount.
Closing Date: January 26, 1996.
------------
Closing Date Pool Balance: $22,414,500.
-------------------------
Code: The Internal Revenue Code of 1986, as it may be amended from time to
----
time, any successor statutes thereto, and applicable U.S. Department of the
Treasury temporary or final regulations promulgated thereunder.
Collection Account: The account established by the Servicer pursuant to
------------------
Section 5.01 hereof, which shall be entitled "Marine Midland Bank, as trustee
for the benefit of the holders of the Video Franchise Capital Trust 1996-1
Asset-Backed Certificates."
Collection Period: With respect to any Distribution Date, the period
-----------------
commencing on the eleventh day of the month in which the preceding Distribution
Date occurs (or, in the case of the first Distribution Date, the Closing Date)
and ending on the tenth day of the month in which such Distribution Date occurs.
Condemnation Proceeds: All compensation, awards and proceeds received by
---------------------
or on behalf of a Borrower as a result of condemnation (which term shall include
any damage or taking by any
- -------------------
/3/ Certain information has been deleted from this document where denoted
by asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
-6-
<PAGE>
governmental or quasi-governmental authority and any transfer by private sale in
lieu thereof), net of costs (exclusive of overhead) and disbursements reasonably
and customarily incurred in connection with the collection thereof.
Contractual Debt Service: With respect to any Store for any period, an
------------------------
amount equal to the aggregate of all payments made or required to be made by the
Borrower that owns such Store with respect to any Store-Related Indebtedness of
such Store during such period.
Controlling Class: Until the aggregate outstanding principal amount of the
-----------------
Class A Certificates has been paid in fall with all accrued interest thereon,
the Class A Certificates, and thereafter, the Class B Certificates.
Corporate Trust Office: The principal office of the Trustee at which at
----------------------
any particular time its corporate trust business shall be administered, which
office at the date of the execution of this instrument is located at 140
Broadway, 12th Floor, New York, New York 10005.
D&P: Duff & Phelps Credit Rating Co., or its successor.
---
Debt Service Coverage Ratio: With respect to any Store for any period of
---------------------------
determination thereof, the ratio of Adjusted Free Cash Flow of such Store for
such period to Contractual Debt Service of such Store for such period; provided
that
(a) there shall be excluded from the period during which the Debt Service
Coverage Ratio is calculated any period, not to exceed six months, during which
(i) the Store is not operating or the operations of the Store have been
substantially reduced by reason of a casualty loss and (ii) the related Borrower
is proceeding diligently to restore such Store to full operations, as certified
by the Borrower to the Trust in accordance with Section 6.4(c) of the related
Loan Agreement;
(b) there shall be included in the calculation of the Debt Service Coverage
Ratio of a Store the Adjusted Free Cash Flow and the Contractual Debt Service of
any other Stores and related Store Related Assets that have become and remain
"Additional Collateral" as described in Section 3.11(b)(ii) or 3.12 of the
related Loan Agreement; and
(c) there shall be excluded from the calculation of the Debt Service
Coverage Ratio of a Store that is relocated pursuant to Section 3.11(b)(ii) of
the related Loan Agreement the Adjusted Free Cash Flow of such Store at its
prior location.
Defaulted Loan: Any Loan in respect of which there shall have occurred a
--------------
Loan Event of Default which has occurred and is continuing and which is not a
Liquidated Loan.
Defaulted Loan Interest: With respect to a Defaulted Loan, interest
-----------------------
payable on such Loan in excess of the original interest rate set forth in the
related Note and payable by the Borrower as a result of such Loan being a
Defaulted Loan.
-7-
<PAGE>
Defaulting Class B Certificateholder: A Class B Certificateholder for
------------------------------------
which a Related Delinquency Amount exists.
Defaulting Servicer: As defined in Section 8.01.
-------------------
Delinquent Interest Payment: With respect to a Determination Date and a
---------------------------
Loan, any Interest Payment, X Prepayment Amount or Y Prepayment Amount scheduled
to be received but not received by the Servicer with respect to such Loan in the
related Collection Period.
Delinquent Principal Payment: With respect to a Determination Date and a
----------------------------
Loan, any Principal Payment not received by the Servicer with respect to such
Loan in the related Collection Period.
Denomination: The amount, if any, specified on the face of each
------------
Certificate, representing the principal portion of the initial Aggregate Class A
Certificate Principal Balance or Aggregate Class B Certificate Principal
Balance, as the case may be, evidenced by such Certificate.
Determination Date: With respect to a Distribution Date, the twelfth day
------------------
of the month in which such Distribution Date occurs (or if such day is not a
Business Day, the preceding Business Day).
Distribution Date: The 15th day of each month, or if such day is not a
-----------------
Business Day, the next succeeding Business Day, commencing March 15, 1996.
Early Payment: With respect to a Loan, any Scheduled Payment in respect of
-------------
such Loan received prior to the Collection Period in which such Scheduled
Payment is due. An Early Payment shall not be deemed a Prepayment.
Eligible Account: One or more accounts that are maintained with (A) a
----------------
depository institution whose long-term debt obligations (or, in the case of a
depository institution which is part of a holding company structure, the long-
term debt obligations of such holding company), at the time of deposit in such
account, are rated at least "AA" (or the equivalent) by D&P, or if such
obligations are not rated by D&P, by Moody's and S&P, or if such obligations are
not rated by both of Moody's and S&P, by either of Moody's or S&P, and (i) the
deposits in which are fully insured by the FDIC through either the Bank
Insurance Fund or the Savings Association Insurance Fund or (ii) the deposits in
which are insured by the FDIC through either the Bank Insurance Fund or the
Savings Association Insurance Fund (to the limit established by the FDIC) and
the uninsured deposits in which accounts are otherwise secured such that, as
evidenced by an Opinion of Counsel delivered to the Trustee, D&P, the Class A
Certificateholders and the Paying Agent, the Trustee, on behalf of the
Certificateholders has a claim with respect to the funds in such accounts or a
perfected first priority security interest against any collateral securing such
funds that is superior to claims of any other depositors or creditors of the
depository institution with which such accounts are maintained, (B) a trust
account or accounts maintained with the trust department of a federal or state
chartered depository institution or trust company acting in its fiduciary
capacity, provided that such institution or company is subject to regulations or
have internal guidelines regarding funds on deposit that are substantially
similar to 12 C.F.R. Section 9.10(b) or (C) the Servicer.
-8-
<PAGE>
Eligible Investments: At any time, any one or more of the following
--------------------
obligations and securities which shall mature not later than the Business Day
preceding the Distribution Date next succeeding the date of such investment:
(i) obligations of or guaranteed as to principal and interest by the United
States of America or any agency thereof, provided such obligations are backed by
the full faith and credit of the United States of America;
(ii) general obligations of or obligations guaranteed by any state of the
United States of America or the District of Columbia receiving the highest
short-term or highest long-term rating of D&P or, if such obligations are not
rated by D&P, of two other Nationally Recognized Statistical Rating
Organizations;
(iii) commercial or finance company paper which has the highest short-term
or the highest long-term commercial or finance company paper rating of D&P or,
if such paper is not rated by D&P, of two other Nationally Recognized
Statistical Rating Organizations;
(iv) certificates of deposit, demand or time deposits, federal funds or
banker's acceptances issued by any depository institution or trust company
incorporated under the laws of the United States or of any state thereof and
subject to supervision and examination by federal and/or state banking
authorities, provided that the commercial paper and/or debt obligations of such
depository institution or trust company (or in the case of the principal
depository institution in a holding company system, the commercial paper or debt
obligations of such holding company) has the highest short-term or the highest
long-term rating for such securities of D&P or, if such paper and/or obligations
are not rated by D&P, of two other Nationally Recognized Statistical Rating
Organizations;
(v) secured repurchase agreements on obligations with respect to any
security described in clause (i) or (ii) above or any other security issued or
guaranteed by an agency or instrumentality of the United States of America, in
either case entered into with a depository institution or trust company (acting
as principal) described in (iv) above;
(vi) securities (other than stripped bonds or stripped coupon securities)
bearing interest or sold at a discount issued by any corporation incorporated
under the laws of the United States of America or any state thereof which, at
the time of such investment or contractual commitment providing for such
investment, have the highest short-term or the highest long-term rating of D&P
or, if such securities are not rated by D&P, of two other Nationally Recognized
Statistical Rating Organizations; and
(vii) investments in money market funds (including funds for which the
Servicer or the Paying Agent or any of their respective Affiliates serves as
investment manager or advisor) which maintain a net asset value of not less than
$1.00 per share and have the highest short-term rating of D&P or, if such funds
are not rated by D&P, of two other Nationally Recognized Statistical Rating
Organizations.
In no event shall an instrument be an Eligible Investment if such
instrument evidences either (i) a right to receive only interest payments with
respect to the obligations underlying such instrument, or
-9-
<PAGE>
(ii) a right to receive both principal and interest payments derived from
obligations underlying such instrument and the interest and principal payments
with respect to such instrument provide a yield to maturity at the date of
investment of greater than 120% of the yield to maturity at par of such
underlying obligations.
Eligible Trustee: A depository institution organized under the laws of the
----------------
United States or any state thereof which has a net worth in excess of
$100,000,000 and (a) the deposits of which are (i) insured by the FDIC and (ii)
subject to regulation by federal or state banking authorities and (b) which
depository institution's holding company's long-term debt obligations are rated
in one of the three highest rating categories by at least two Nationally
Recognized Statistical Rating Organizations or is otherwise acceptable to D&P.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
-----
ERISA Plan: Any Person which is an employee benefit plan within the
----------
meaning of Section 3(3) of ERISA.
Extended Loan: A Loan with respect to which the maturity date has been
-------------
extended pursuant to the related Loan Agreement and in accordance with the
Review Panel Agreement.
Extended Loan Interest: With respect to an Extended Loan, interest payable
----------------------
thereon in excess of the original interest rate set forth in the related Note
and payable by the Borrower as a result of such Loan becoming an Extended Loan.
Extraordinary Trustee Expenses: Any and all reasonable expenses,
------------------------------
disbursements or advances incurred or made by the Trustee in accordance with any
provisions of this Agreement, to the extent not previously paid to the Trustee
hereunder or by the related Borrower under the related Loan Documents.
FDIC: The Federal Deposit Insurance Corporation or any successor thereto.
----
Final Distribution Date: The Distribution Date on which the final
-----------------------
distribution in respect of the Certificates is made pursuant to Section 5.03 or
Article X.
Final Trust Termination Date: As defined in Article X.
----------------------------
Financing Lease: With respect to a Borrower, (a) any lease of property,
---------------
real or personal, the obligations under which are capitalized on the most recent
audited consolidated balance sheet of such Borrower, and (b) any other such
lease to the extent that the then present value of the minimum rental commitment
thereunder should, in accordance with GAAP, be capitalized on a balance sheet of
the lessee.
Fitch: Fitch Investors Service, L.P. or its successor in interest.
-----
-10-
<PAGE>
Formula Class A Distribution Amount: With respect to any Distribution
-----------------------------------
Date, the sum of (a) the Class A Interest Distribution Amount and (b) the Class
A Principal Distribution Amount.
GAAP: Generally accepted accounting principles in the United States of
----
America in effect from time to time.
GAAS: Generally accepted auditing standards in the United States of
----
America in effect from time to time.
Holder Reserve Account: As defined in Section 5.02(a).
----------------------
Holder Reserve Account Maximum: With respect to a Holder Reserve Account
------------------------------
and any Distribution Date, the sum of (a) the related Class B
Certificateholder's Percentage Interest of the Reserve Account Required Amount
with respect to such Distribution Date and (b) such Class B Certificateholder's
Holder Reserve Account Reimbursement Amount as of such Distribution Date.
Holder Reserve Account Reimbursement Amount: With respect to a Class B
-------------------------------------------
Certificateholder and any Distribution Date, the aggregate amount of funds
withdrawn from such Class B Certificateholder's Holder Reserve Account on or
prior to such date less the sum of (a) amounts previously deposited into such
Holder Reserve Account on a Distribution Date in respect of such Holder Reserve
Account reimbursement Amount and (b) without duplication, funds paid to such
Class B Certificateholder in respect of such Holder Reserve Account
Reimbursement Amount pursuant to Section 5.02(f) hereof.
Indebtedness: With respect to any Person at any date, the sum (without
------------
duplication) at such date of (a) indebtedness for borrowed money or for the
deferred purchase price of property or services in respect of which such Person
is liable, as obligor, other than accounts payable on open account arising in
connection with the purchase of Inventory and other items used in the business
on terms customary in the trade (not to exceed ninety days), (b) obligations of
such Person under Financing Leases, (c) obligations of such Person in respect of
letters of credit, acceptances, or similar obligations issued or created for the
account of such Person, and reimbursement obligations in respect thereof, (d)
obligations of such Person evidenced by bonds, debentures or notes or other
similar instruments, and (e) all guaranties by such Person excluding endorsement
of instruments for deposit or collection in the ordinary course of business (the
amount of any guarantee being deemed to be an amount equal to the stated or
determinable amount of the primary obligation guaranteed or, if not stated or
determinable, the maximum reasonably anticipated liability in respect thereof as
determined by such Borrower in good faith).
Indemnification Payment: With respect to a Distribution Date, any or all
-----------------------
Servicing Advisor Indemnification Payments, Servicer Indemnification Payments
and Trustee Indemnification Payments to be made on such Distribution Date.
Indemnified Party: As defined in Section 11.07.
-----------------
-11-
<PAGE>
Independent: When used with respect to any specified Person, such Person
-----------
who (i) is not an Affiliate of or controlled by and is in fact independent of
each of the Servicing Advisor and the Servicer, (ii) does not have any direct
financial interest or any material indirect financial interest in Servicing
Advisor or the Servicer or in an Affiliate thereof, and (iii) is not connected
with the Servicing Advisor or the Servicer as an officer, employee, promoter,
underwriter, trustee, partner, director or Person performing similar functions.
Initial Class A Certificateholder: The Class A Certificateholder that is
---------------------------------
the Class A Certificateholder on the Closing Date.
Initial Deposit: As defined in Section 5.02.
---------------
Insurance Policy or Insurance Policies: Any insurance policy or policies
---------------- ------------------
required to be maintained by a Borrower with respect to a Loan.
Insurance Proceeds: With respect to a Loan, any amounts received upon
------------------
settlement of a claim filed under an Insurance Policy, net of direct fees, costs
(exclusive of overhead) and disbursements reasonably and customarily incurred in
connection with the collection thereof
Interest Payment: With respect to a Determination Date and a Loan, any
----------------
payment of interest due from the Borrower in respect of such Loan in the related
Collection Period.
Inventory: With respect to any Store, all inventory (as defined in the
---------
UCC), now owned or hereafter acquired by the related Borrower in respect of such
Store, and wherever located, and shall also mean and include, without
limitation, all video cassettes, games, raw materials and materials and
supplies, work in progress and finished goods and any products made or processed
therefrom and all substances, if any, commingled therewith or added thereto.
Lender: The Trust, in its capacity as lender under a Loan Agreement.
------
Liquidated Loan: A Loan with respect to which (i) the Trustee or the
---------------
Servicer has effected a disposition of the related Loan Collateral and with
respect to which the Servicer has in good faith determined that all Liquidation
Proceeds which it expects to recover have been recovered and paid to the Trustee
or (ii) has been a Defaulted Loan for 15 consecutive months.
Liquidation Expenses: Reasonable expenses incurred by the Servicer or the
--------------------
Trustee in connection with the liquidation of any Defaulted Loan, Loan
Collateral or other property acquired in respect thereof (including, without
limitation, reasonable legal fees and expenses).
Liquidation Proceeds: Amounts received by the Servicer or the Trustee in
--------------------
connection with the liquidation of Defaulted Loans, Loans defined as Liquidated
Loans pursuant to clause (ii) of the definition of Liquidated Loan or Loan
Collateral acquired in respect thereof, whether through foreclosure, sale or
otherwise, including payments in connection with such Loans received from the
related Borrower (other than amounts required to be paid to such Borrower
pursuant to the terms of the
-12-
<PAGE>
applicable Loan Agreement or to be applied otherwise pursuant to law) and net
proceeds realized by the Trust from the operation of any Loan Collateral by the
Trustee or the Servicer during the period of ownership of such Loan Collateral
by the Trust.
List of Loans: The schedule, attached hereto as Schedule I, as such
-------------
schedule may be revised or amended from time to time pursuant to Section 3.02(e)
or 3.02(h), of all Loans constituting a part of the Trust Estate hereunder,
which schedule shall set forth or include for each Loan (i) the name and address
of the Borrower under such Loan, (ii) the location of the related Store and
(iii) the original principal amount of the related Note as such schedule shall
be amended as provided herein.
Loan: Each loan evidenced by the Note therefor and secured by the Loan
----
Collateral.
Loan Agreement: Each of the term loan and security agreements between the
--------------
Trust and the related Borrower evidencing one or more Loans.
Loan Collateral: With respect to a Loan, the Trust's entire right, title,
---------------
interest and estate in, to and under the Loan Agreement, the Assignment of
Leases and any other Loan Documents and all cash and noncash proceeds thereof,
including, but not limited to, Insurance Proceeds relating to such Loan. Loan
Collateral will include any Substitute Store Assets.
Loan Documents: With respect to a Loan, the collective reference to the
--------------
related Loan Agreement, Note, Assignment of Leases and Management Fee
Subordination Agreement, as the same may be modified, amended, consolidated,
continued or extended from time to time and any Supplement to Collateral Lease
Assignment or Supplement to Loan Agreement.
Loan Event of Default: With respect to a Loan, any event defined as an
---------------------
"Event of Default" in the related Loan Agreement.
Loan File: shall mean the following instruments and documents in
---------
connection with each Loan:
(i) the executed original of the Note endorsed in blank, without recourse,
plus amendments thereto;
(ii) an executed original of the Loan Agreement (or a copy thereof, if such
original is contained in the Loan File related to another Loan of the related
Borrower);
(iii) copies of all Uniform Commercial Code financing statements filed on
behalf of the Trust with respect to such Loan;
(iv) the executed original Assignment of Leases;
(v) a copy of the Deloitte & Touche or Coopers & Lybrand valuation relating
to such Loan;
-13-
<PAGE>
(vi) evidence of the insurance policies required pursuant to Section 6.4 of
the related Loan Agreement, each naming the Trustee as an additional insured or
"loss payee" thereunder for the benefit of the Certificateholders;
(vii) a copy of the franchise agreement or license agreement of the
related Borrower under which the related Store is operated; and
(viii) a copy of the lease pursuant to which the related Borrower occupies
the commercial space at which the related Store is located.
Loan Payment Date: The fifth day of each month (or if such day is not a
-----------------
Business Day, the next succeeding Business Day), commencing with the month
immediately following the first fall month following the month in which the
Closing Date occurs and ending on the maturity date for such Loan.
Loan Payments: With respect to a Distribution Date and a Loan (including
-------------
any Defaulted Loan or Extended Loan), the sum of all Principal Payments,
Interest Payments, Early Payments, X Prepayment Amounts, Y Prepayment Amounts,
Prepayments and any other amounts received from the Borrower in respect of such
Loan in the related Collection Period.
Management Fee: Any management fee or similar payment payable by a
--------------
Borrower with respect to a Store, to the Operator of such Store or to another
Person for managing such Store, excluding reasonable salaries to sales clerks.
Management Fee Subordination Agreement: With respect to a Loan, any
--------------------------------------
Management Fee Subordination Agreement, dated as of the Closing Date, by and
among the Lender, the related Borrower and the related Operator, as such
Agreement may be amended, supplemented or otherwise modified from time to time.
Marine Midland: Marine Midland Bank, a New York banking corporation and
--------------
trust company.
Moody's: Moody's Investors Service, Inc., or its successor in interest.
-------
Nationally Recognized Statistical Rating Organizations: D&P, Fitch,
------------------------------------------------------
Moody's and S&P.
Net Insurance Proceeds: With respect to a Loan, Insurance Proceeds in
----------------------
respect of such Loan and any investment income earned thereon (net of any losses
and investment expenses) to be applied to Prepayment of such Loan pursuant to
Section 6.4 of the related Loan Agreement.
Net Liquidation Proceeds: With respect to any Liquidated Loan, Liquidation
------------------------
Proceeds net of the sum of (a) Liquidation Expenses and (b) the amount of
unreimbursed advances made by the Servicer on behalf of the Trust in respect of
such Liquidated Loan pursuant to Section 4.05 hereof. For all purposes of this
Agreement, Net Liquidation Proceeds shall be allocated first to accrued and
unpaid interest on the related Loan, second to any X Prepayment Amount due on
such Loan, third to the unpaid principal balance of such Loan, and fourth to any
Y Prepayment Amount due on such Loan.
-14-
<PAGE>
Non-Defaulting Class B Certificateholder: A Class B Certificateholder for
----------------------------------------
which no Related Delinquency Amount exists.
Note: The secured promissory note executed by a Borrower as evidence of
----
the obligation of such Borrower to repay funds borrowed by such Borrower from
the Trust pursuant to the related Loan Agreement and constituting a Loan, as
such Note may be amended, extended, modified or renewed from time to time.
Officers' Certificate: With respect to any Person, a certificate signed by
---------------------
the Chairman of the Board, the President or a Vice President (or, in the case of
an Officer's Certificate of the Servicer delivered pursuant to Section 4.08(c),
by a Responsible Officer of the Servicer), and by the Treasurer, the Secretary
or one of the Assistant Secretaries of such Person.
Operator: With respect to a Loan, the Person identified as such on
--------
Schedule 2, if any, to the related Loan Agreement.
Opinion of Counsel: A written opinion of counsel, who may be outside or
------------------
salaried counsel for the Servicing Advisor or the Servicer, or any Affiliate of
such Persons, acceptable to the Required Holders, if delivered to the Required
Holders, or the Trustee if delivered to the Trustee and not to the Required
Holders; provided, however, that with respect to matters relating to the
-------- -------
determination of Eligible Accounts, such counsel shall be Independent.
Paying Agent: Bankers Trust Company, or its successor in interest or any
------------
successor paying agent appointed by the Trustee pursuant to Section 9.12.
Percentage Interest: With respect to a Class A Certificate, the
-------------------
percentage interest obtained by dividing the original principal balance of such
Certificate by the aggregate original principal balance of the Class A
Certificates. With respect to a Class B Certificate and a Distribution Date,
the percentage interest obtained by dividing the Class B Certificate Principal
Balance of such Class B Certificate with respect to such Distribution Date by
the Aggregate Class B Certificate Principal Balance with respect to such
Distribution Date. As used in Section 5.05, with respect to a Loan to a Class B
Certificateholder, and any date of determination, the percentage interest
obtained by multiplying (a) a fraction, the numerator of which is the then-
current Aggregate Class B Certificate Principal Balance and the denominator of
which is the then-current Pool Balance, (b) a fraction, the numerator of which
is the then current Percentage Interest represented by such Class B
Certificateholder's Class B Certificate and the denominator of which is the
initial Percentage Interest represented by such Class B Certificate and (c) the
outstanding principal amount of such Loan.
Person: Any individual, corporation, partnership, limited liability
------
company, joint venture, association, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision thereof.
Pool Balance: With respect to any date, the aggregate outstanding
------------
principal balance of the Loans on such date. The principal balance of any
Liquidated Loan will be zero.
-15-
<PAGE>
Prepayment: With respect to any Loan, any prepayment of principal with
----------
respect to such Loan made in accordance with Section 2.3 or 2.4 of the related
Loan Agreement.
Prepayment Amount: As defined in Section 5.05.
-----------------
Prepayment Conditions: As defined in Section 5.05.
---------------------
Prepayment Date: As defined in Section 5.05.
---------------
Principal Payment: With respect to a Determination Date and a Loan, any
-----------------
payment of principal due in respect of such Loan in the preceding Collection
Period.
Realized Loss: With respect to a Liquidated Loan and the date of
-------------
determination thereof, the excess of (a) the then outstanding principal balance
of such Loan, plus all accrued and unpaid interest thereon to such date of
determination and any X Prepayment Amounts and Y Prepayment Amounts due in
respect of such Loan over (b) Net Liquidation Proceeds in respect of such
Liquidated Loan.
Record Date: With respect to a Distribution Date, the last Business Day of
-----------
the month preceding the month in which such Distribution Date occurs.
Related Delinquency Amount: With respect to a Class B Certificateholder
--------------------------
and a Determination Date, the aggregate amount of Delinquent Interest Payments
and Delinquent Principal Payments in respect of such Class B Certificateholder's
Related Loans with respect to the preceding Collection Period.
Related Loans: With respect to a Class B Certificate, the Loans made by
-------------
the Trust to the Borrower to whom such Class B Certificate was issued pursuant
to Section 6.01 hereof.
Related Loss Amount: With respect to a Class B Certificateholder and a
-------------------
Distribution Date, the aggregate amount of Realized Losses in respect of such
Class B Certificateholder's Related Loans occurring prior to such Distribution
Date less any recoveries in respect of such Realized Losses.
Requesting Holders: For so long as the Class A Certificates are the
------------------
Controlling Class, either (a) any of the Class A Certificateholders that is a
Class A Certificateholder on the Closing Date or a transferee who is an
Affiliate holding the same Percentage Interest of Class A Certificates as was
held by the transferring Class A Certificateholder on the Closing Date, or (b)
at any time, Class A Certificateholders holding in the aggregate not less than
5.5% of the Aggregate Class A Certificate Principal Balance.
Requesting Party: As defined in Section 11.07.
----------------
Required Holders: The collective reference to the holders of at least 66
----------------
2/3% of the Aggregate Certificate Principal Balance of the Controlling Class.
In the event that the Class B Certificateholders
-16-
<PAGE>
are the Controlling Class, for purposes of determining the Required Holders, the
Class B Certificate of the Borrower with respect to which a vote is being taken
will be treated as if it were not outstanding.
Reserve Account: The account and the related subaccounts established by
---------------
the Servicer pursuant to Section 5.02 hereof.
Reserve Account Interest Withdrawal Amount: As defined in Section 5.02(c).
------------------------------------------
Reserve Account Principal Withdrawal Amount: As defined in Section
-------------------------------------------
5.02(c).
Reserve Account Required Amount: With respect to any Distribution Date, an
-------------------------------
amount equal to the greater of (a) $200,000 or (b) the product of (i) 2.5% and
(ii) the Pool Balance.
Responsible Officer: (i) When used with respect to the Trustee, the
-------------------
Chairman or Vice-Chairman of the Board of Directors or Trustees, the Chairman or
Vice-Chairman of the Executive or Standing Committee of the Board of Directors
or Trustees, the President, the Chairman of the Committee on Trust Matters, any
Vice-President, any Assistant Vice-President, the Secretary, any Assistant
Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant
Cashier, any Trust Officer or Assistant Trust Officer, the Controller and any
Assistant Controller or any other officer of the Trustee customarily performing
functions similar to those performed by any of the above-designated officers of
the Trustee and also, with respect to a particular matter, any other officer to
whom such matter is referred because of such officer's knowledge of and
familiarity with the particular subject, (ii) when used with respect to the
Servicing Advisor, the chief executive officer, chief financial officer, or any
Vice-President of the Servicing Advisor's General Partner, The Atherton Group
Incorporated, and (iii) when used with respect to the Servicer, Transfer Agent
and Certificate Registrar, or the Paying Agent, any officer within the corporate
trust office of the Servicer, Transfer Agent and Certificate Registrar, or the
Paying Agent, including any Vice President, Managing Director, Assistant Vice
President, Assistant Treasurer, Assistant Secretary or any other officer of the
Servicer, Transfer Agent and Certificate Registrar, or the Paying Agent (as the
case may be) customarily performing functions similar to those performed by any
of the above-designated officers of the Servicer and also, with respect to a
particular matter, any other officer to whom such matter is referred because of
such officer's knowledge of and familiarity with the particular subject.
Review Panel: The review panel established pursuant to the Review Panel
------------
Agreement.
Review Panel Agreement: The Review Panel Agreement dated as of the Closing
----------------------
Date among the Borrowers and the Review Panel Coordinator.
Review Panel Coordinator: Atherton, in its capacity as such under the
------------------------
Review Panel Agreement.
S&P: Standard & Poor's Ratings Group, a division of The McGraw-Hill
---
Companies, Inc., or its successor in interest.
-17-
<PAGE>
Scheduled Payment: With respect to a Determination Date and a Loan, the
-----------------
sum of the scheduled Principal Payment and interest Payment due from the
Borrower in respect of such Loan for the related Collection Period in accordance
with the terms of the related Note and the amortization schedule then applicable
thereto.
Servicer: Bankers Trust Company, a New York banking corporation, its
--------
successor in interest or any successor Servicer appointed hereunder as provided
in Section 8.04.
Servicer Certificate: As defined in Section 4.08(a).
--------------------
Servicer Default: Any event which, due to the passage of time or giving of
----------------
notice, will become a Servicer Event of Default if not cured.
Servicer Event of Default: As defined in Section 8.01.
-------------------------
Servicer Fee: With respect to a Distribution Date, the excess, if any, of
------------
(a) 1/12th of the product of (i) the Servicer Fee Rate and (ii) the Pool Balance
as of the first day of the preceding Collection Period over (b) the sum of the
Trustee Fee and the Trustee Expenses.
Servicer Fee Rate: ***/4/.
-----------------
Servicer Indemnification Payments: With respect to a Distribution Date,
---------------------------------
any amounts payable to the Servicer pursuant to Section 7.02 since the preceding
Distribution Date (or the Closing Date in the case of the first Distribution
Date) plus the aggregate amount by which the Servicer Indemnification Payments
on all prior Distribution Dates exceed the amount distributed to the Servicer
pursuant to Section 5.03(b)(iv)(M) or reserved pursuant to Section 11.07 on such
prior Distribution Dates.
Servicing Advisor: Atherton, in its capacity as Servicing Advisor under
-----------------
this Agreement, its successor in interest, or any successor thereto appointed
hem-under as provided in Section 8.04.
Servicing Advisor Fee: With respect to a Distribution Date, 1/12th of the
---------------------
product of (i) the Servicing Advisor Fee Rate and (ii) the Pool Balance as of
the first day of the preceding Collection Period.
Servicing Advisor Fee Rate: ***.
--------------------------
Servicing Advisor Indemnification Payments: With respect to a Distribution
------------------------------------------
Date, any amounts payable to the Servicing Advisor pursuant to Section 7.02
hereof since the preceding Distribution Date (or the Closing Date, in the case
of the first Distribution Date) (including any amounts to be reserved
- -----------------------
/4/ Certain information has been deleted from this document where denoted
by asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
-18-
<PAGE>
pursuant to Section 11.07) plus the aggregate amount by which Servicing Advisor
Indemnification Payments on all prior Distribution Dates exceeded the amount
distributed to the Servicing Advisor pursuant to Section 5.03(b)(iv)(O) or
reserved pursuant to Section 11.07 on such prior Distribution Dates.
Significantly Underperforming Loan: Any Loan with respect to which the
----------------------------------
Debt Service Coverage Ratio of the Store to which such Loan relates is less than
1.0 for the immediately preceding twelve-month period ending on the last day of
the fiscal quarter immediately preceding the date of determination thereof;
provided that in the case of any Store that has relocated in accordance with
- -------- ----
Section 3.11(b)(i) of the related Loan Agreement, until such Store shall have
operated for twelve complete consecutive months, the related Loan shall be a
Significantly Underperforming Loan if the Debt Service Coverage Ratio for such
Store is less than 1.0 for (a) the six-month period ending at the end of the
sixth full month of operation of such Store or (b) the nine-month period ending
at the end of the ninth full month of operation of such Store.
Specified Accounting Firm: Any one of Deloitte & Touche, Arthur Andersen &
-------------------------
Co., KPMG Peat Marwick, Coopers & Lybrand, Ernst & Young or Price Waterhouse.
Standard Management Fee: With respect to a Borrower, if specified in the
-----------------------
related Loan Agreement, a Management Fee payable in an amount of $10,000 per
annum.
Store: Any of the video superstores identified on the List of Loans in
-----
respect of which a Loan is being advanced by the Trust on the Closing Date, and
any permitted replacements thereof.
Store-Related Assets: With respect to any Store owned by a Borrower, (a)
--------------------
the franchise agreement or license agreement of such Borrower under which such
Store is operated, (b) all accounts, general intangibles, documents, instruments
and money arising as a result of any activities conducted by a Borrower through
or at such Store, (c) all inventory and equipment located, held or maintained at
any time at such Store or otherwise used in the ownership or operation of such
Store, (d) all rights under the lease pursuant to which such Borrower occupies
the commercial space at which such Store is located, and (e) all other property
of such Borrower constituting collateral with respect to such Store under the
related Loan Agreement.
Store-Related Indebtedness: With respect to any Store, all Indebtedness of
--------------------------
the Borrower that owns such Store that was incurred in connection with, or the
proceeds of which were used in connection with, and which directly relates to
the ownership or operation of such Store.
Subordinated Advisory Fee: With respect to a Distribution Date, the sum of
-------------------------
(a) 1/12th of the product of (i) ***/5/ and (ii) the Pool Balance as of the
first day of the preceding Collection Period and
- --------------------
/5/ Certain information has been deleted from this document where denoted
by asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
-19-
<PAGE>
(b) the excess of the aggregate amount of the Subordinated Advisory Fee
determined under clause (a) of this definition on all prior Distribution Dates
over the sum of the amounts distributed to Atherton pursuant to Sections
5.03(b)(iv)(E)(3), 5.03(b)(iv)(F)(3) and 5.03(b)(iv)(J) on all prior
Distribution Dates.
Subordination and Consent Agreement: With respect to a Loan, each of the
-----------------------------------
Subordination and Consent Agreements, dated as of the Closing Date, by and among
Blockbuster, the Borrower with respect to such Loan and the Trust, as amended,
supplemented or otherwise modified from time to time.
Substitute Store: As defined in Section 3.02.
----------------
Substitute Store Assets: As defined in Section 3.02.
-----------------------
Substitution: As defined in Section 3.02.
------------
Supplement to Collateral Lease Assignment: With respect to a Loan, a
-----------------------------------------
supplement to collateral lease assignment substantially in the form of Exhibit
F-1 to the related Loan Agreement, pursuant to which a Borrower may grant a Lien
on its interest in a Store Lease in connection with the designation of a
Substitute Store or the granting of Additional Collateral.
Supplement to Loan Agreement: With respect to a Loan, a supplement to term
----------------------------
loan and security agreement, substantially in the form of Exhibit F-2 to the
related Loan Agreement, pursuant to which a Borrower may grant a Lien on its
interest in a Substitute Store or on Additional Collateral.
Tendering Holder: The Holder of a Class B Certificate all or a portion of
----------------
which is being tendered for purchase by the other Class B Certificateholders
pursuant to Section 5.05 hereof.
Transfer Agent and Certificate Registrar: Bankers Trust Company or its
----------------------------------------
successor in interest or any successor transfer agent and certificate registrar
appointed by the Trustee pursuant to Section 9.12.
Treasury Rate: With respect to a Loan and the date of any determination
-------------
thereof, shall mean (a) the rate per annum equal to the yield reported, as of
10:00 a.m. (New York City time) on the Business Day immediately preceding the
Prepayment Date, on the display designated as "Page 500" on the Telerate Service
(or such other display as may replace Page 500 on the Telerate Service), for
actively traded United States Treasury Securities, adjusted to a constant
maturity equal to the weighted average life to maturity of the Loan (without
regard to any extension of the Loan) determined, if necessary, by interpolating
such yield on United States Treasury Securities adjusted to the particular
constant maturity greater than (but nearest to) and less than (but nearest to)
the weighted average life to maturity of the Loan, or (b) if such yield shall
not be reported as of such time or if the yield so reported as of such time
shall not be ascertainable, the rate per annum equal to the arithmetic average
of the two most recent weekly average yields on issues of United States Treasury
Securities adjusted to a constant maturity equal to the weighted average life to
maturity of the Loan (without regard to any extension of the Loan) (determined,
if necessary, by interpolating such yields on United States Treasury Securities
adjusted to the particular constant maturities greater than (but nearest to) and
less than (but nearest to) the weighted
-20-
<PAGE>
average life to maturity of the Loan), as published by the Federal Reserve Board
for release on the first Business Day of the week immediately prior to the week
in which such determination is made in its Statistical Release H.15(519) under
the heading "Treasury Constant Maturities" for the two calendar weeks ending on
the two Wednesdays immediately preceding the date of such release or, if such
average is not published for such periods, of such reasonably comparable index
as may be designated for such period by the Required Holders. Such yields shall
be determined, if necessary, by converting United States Treasury Securities
quotations to monthly equivalent yields in accordance with accepted financial
practice.
Trust: Video Franchise Capital Trust 1996-1, a trust created pursuant to
-----
Section 2.01 hereof, and its successors and assigns.
Trust Estate: As defined in Section 2.01.
------------
Trustee: Marine Midland, an Eligible Trustee, its successor in interest or
-------
any successor trustee appointed as provided in Section 9.08, 9.09 or 9.10.
Trustee Default: Any event which, due to the passage of time or giving of
---------------
notice or both, will become a Trustee Event of Default if not cured.
Trustee Event of Default: As defined in Section 9.08.
------------------------
Trustee Expenses: The expenses payable to the Trustee with respect to each
----------------
Distribution Date as agreed upon in writing by the Servicer and the Trustee,
subject, however, to Section 9.06.
Trustee Fee: The fee payable to the Trustee with respect to each
-----------
Distribution Date as agreed upon in writing by the Servicer and the Trustee,
subject, however, to Section 9.06.
Trustee Indemnification Payments: With respect to a Distribution Date, any
--------------------------------
amounts payable to the Trustee pursuant to Section 9.01 hereof since the
preceding Distribution Date (or the Closing Date, in the case of the first
Distribution Date) (including any amounts to be reserved pursuant to Section
11.07) plus the aggregate amount by which Trustee Indemnification Payments on
all prior Distribution Dates exceeded the amount distributed to the Trustee
pursuant to Section 5.03(b)(iv)(M) or reserved pursuant to Section 11.07 on such
prior Distribution Dates.
Underperforming Loan: Any Loan with respect to which the Debt Service
--------------------
Coverage Ratio of the Store to which such Loan relates is less than 1.2 for the
immediately preceding twelve month period, ending on the last day of the month
immediately preceding the date of determination thereof; provided that in the
-------- ----
case of any Store that has relocated in accordance with Section 3.11(b)(i) of
the related Loan Agreement, until such Store shall have operated for twelve
complete consecutive months, the related Loan shall be an Underperforming Loan
if the Debt Service Coverage Ratio for such Store is less than 1.2 for either
(a) the six-month period ending at the end of the sixth full month of operation
of such Store or (b) the nine-month period ending at the end of the ninth full
month of operation of such Store.
-21-
<PAGE>
Unpaid Class A Interest Amount: With respect to a Distribution Date, the
------------------------------
aggregate amount, if any, by which the Class A Interest Distribution Amount on
all prior Distribution Dates exceeded the sum of (i) the amount distributed to
Class A Certificateholders pursuant to Section 5.03(b)(iv)(A) on such prior
Distribution Dates and (ii) the interest portion of any Realized Losses
allocated to the Class A Certificates on such prior Distribution Dates, together
with interest on the amount of each such excess at the Class A Pass-Through Rate
from the Distribution Date on which such excess occurred.
Unpaid Class A Principal Amount: With respect to a Distribution Date, the
-------------------------------
aggregate amount, if any, by which the Class A Principal Distribution Amount on
all prior Distribution Dates exceeded the sum of (i) the amount distributed to
the Class A Certificateholders pursuant to Section 5.03(b)(iv)(B) on such prior
Distribution Dates and (ii) the principal portion of any Realized Losses
allocated to the Class A Certificates pursuant to Section 5.06 on such prior
Distribution Dates.
Unpaid Class B Interest Distribution Amount: With respect to a
-------------------------------------------
Distribution Date, the aggregate amount, if any, by which the Class B Interest
Distribution Amount on all prior Distribution Dates exceeded the sum of (i) the
amounts distributed to Class B Certificateholders pursuant to Sections
5.03(b)(iv)(F)(4) and 5.03(b)(iv)(K) on such prior Distribution Dates and (ii)
the interest portion of any Realized Losses allocated to any of the Class B
Certificates on such prior Distribution Dates. Interest shall not accrue on the
amount of any Unpaid Class B Interest Distribution Amounts.
Unpaid Class B Principal Amount: With respect to a Distribution Date, the
-------------------------------
aggregate amount, if any, by which the Class B Principal Distribution Amount on
all prior Distribution Dates exceeded the sum of (i) the amount deposited into
the Reserve Account pursuant to Section 5.03(b)(iv)(G) other than any portion
thereof representing a Holder Reserve Account Reimbursement Amount on such prior
Distribution Dates, (ii) the amount distributed to the Class B
Certificateholders pursuant to Section 5.03(b)(iv)(Q) on such prior Distribution
Dates and (iii) the principal portion of any Realized Losses allocated to any of
the Class B Certificates pursuant to Section 5.06 on such prior Distribution
Dates.
X Prepayment Amount: With respect to any prepayment or acceleration of a
-------------------
Loan on any date, an amount equal to the X Prepayment Amount as defined in the
related Loan Agreement.
Y Prepayment Amount: With respect to any prepayment or acceleration of a
-------------------
Loan on any date, an amount equal to the Y Prepayment Amount as defined in the
related Loan Agreement.
Section 1.02. Effect of Headings and Table of Contents. The Article and
----------------------------------------
Section headings in this Agreement and the Table of Contents are for convenience
of reference only and shall not affect the interpretation or construction of
this Agreement.
Section 1.03. Benefits of Agreement. Nothing in this Agreement or in the
---------------------
Certificates, express or implied, shall give to any Person, other than the
parties to this Agreement and their successors hereunder and the
Certificateholders, any benefit or any legal or equitable right, power, remedy
or claim under this Agreement.
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Section 1.04. Statement of Intent. The Trust is intended to qualify as a
-------------------
"fixed investment trust" within the meaning of Treasury Regulation 301.7701-
4(c), and it is neither the purpose nor the intent of the parties hereto to
create a partnership, joint venture, or association taxable as a corporation
between or among any or all of the Certificateholders, the Trustee, the
Servicing Advisor, and/or the Servicer. In furtherance of the foregoing, the
purpose of the Trust shall be to protect and conserve the assets of the Trust,
and the Trust shall not at any time engage in or carry on any kind of business
or any kind of investment activity, except as otherwise contemplated by this
Agreement. In no event shall the Trustee or any other person have any power to
vary the investment of the Certificateholders in the Certificates or to
substitute new investments or reinvest so as to enable the Trust to take
advantage of variations in the market to improve the investment of the
Certificateholders in the Certificates.
ARTICLE II
THE TRUST ESTATE; ORIGINAL
ISSUANCE OF THE CERTIFICATES
Section 2.01. The Trust Estate. By the execution hereof, the Trust is
----------------
hereby created which shall be known as "Video Franchise Capital Trust 1996-1",
in which name the Trustee may enter into contracts and conduct the activities
contemplated hereby. Marine Midland is hereby appointed as the trustee of the
Trust to conduct the business of the Trust in the name of the Trust and to
perform the duties of the Trustee specified herein. Marine Midland hereby
accepts such appointment and confirms the receipt from the Servicing Advisor of
the sum of $10.00, constituting the initial trust property.
The property of the Trust shall consist of the Trust's entire right, title,
interest and estate, whether now owned or hereafter acquired, in, to and under
(i) each Loan and the related Loan Collateral, including the present and
continuing exclusive right, power and authority to exercise each and every
right, remedy, power and authority of the Trust under or in respect of such
Loans and Loan Collateral; (ii) the present and continuing exclusive right,
power and authority to make claim for, collect, receive and receipt for any of
the sums, amounts, income, revenues, issues, profits and proceeds under, on
account of or with respect to, each Loan and the related Loan Collateral,
including, without limitation, (A) all payments made in respect thereof,
voluntary or involuntary, whether upon maturity, prepayment, acceleration,
conversion, liquidation, casualty or otherwise and paid from any source
(including both timely and delinquent payments), (B) Insurance Policies and any
Insurance Proceeds and (C) Condemnation Proceeds and any Net Liquidation
Proceeds; (iii) all moneys received to or held by the Servicer in respect of the
Loans and the Loan Collateral; (iv) all moneys and securities from time to time
held in the Collection Account or the Reserve Account; (v) upon the occurrence
of a Loan Event of Default, the present and continuing exclusive right, power
and authority to give and receive notices and other communications, to make
waivers or other agreements subject to the provisions hereof, to make claims for
and demand performance on, under or pursuant to any of the related Loan
Collateral, to bring actions and proceedings thereunder or for the enforcement
thereof, and to exercise all remedies, powers, privileges and options and to do
any and all things which the Trust is or may become entitled to do under such
Loan Collateral; (vi) the Loan Files; (vii) any and all property of every name
and nature, now or hereafter transferred, mortgaged, pledged or assigned as
security or additional security for payment or performance of any obligation of
the Borrowers to the Trust under any Loans or any of the
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related Loan Collateral or otherwise, and the liabilities, obligations and
indebtedness evidenced thereby or reflected therein; (viii) any Loan Collateral
acquired by the Trust through foreclosure or otherwise in connection with a
Liquidated Loan; and (ix) all income, revenues, issues, products, revisions,
substitutions, replacements, profit and proceeds of and from all of the
foregoing (collectively, the "Trust Estate").
------------
The Trustee, for itself and its successors and assigns, hereby declares
that it shall hold all the estate, right, title and interest in any property
received by it hereunder, including, without limitation, the Trust Estate, in
trust for the benefit of all present and future Certificateholders, subject to
the terms hereof. Marine Midland accepts the trusts hereunder in accordance
with the provisions hereof and as Trustee agrees to perform fully the duties
herein required of it.
Section 2.02. Authorization of Trustee; Execution and Delivery of
---------------------------------------------------
Certificates and Agreements. The Trustee is authorized and directed to execute
- ---------------------------
and deliver to the Authenticating Agent for authentication on the date hereof
Certificates evidencing ownership of the entire Trust Estate in denominations
and names as directed by the Servicing Advisor. The Trustee is authorized and
directed to execute and deliver on behalf of the Trust, and is authorized to
perform on behalf of the Trust, this Agreement, the Loan Documents to which it
is a party, the Subordination and Consent Agreement, the Class A Purchase
Agreement and each other agreement, instrument or certificate contemplated
hereby or thereby.
ARTICLE III
THE SERVICING ADVISOR; REVIEW PANEL
Section 3.01. The Servicing Advisor to Act as Servicing Advisor. The
-------------------------------------------------
Servicing Advisor shall perform the duties specified in this Agreement to be
performed by it in accordance with the terms hereof, acting alone or through the
Servicer.
Section 3.02. Duties of the Servicing Advisor.
-------------------------------
(a) Upon the prior written request of the Servicer, the Servicing Advisor
will forward to the Servicer all monthly reports received in respect of the
Stores pursuant to Section 6.2(a) of the Loan Agreements within two Business
Days of receipt thereof. On the 25th day of each February, May, August and
November, commencing May 25, 1996, the Servicing Advisor will calculate and
report the Debt Service Coverage Ratio for each Store in a report substantially
in the form of Schedule IV hereto and shall promptly provide a copy of such
report to the Trustee, the Servicer, the Initial Class A Certificateholder or
upon request by any other Class A Certificateholders.
(b) A copy of the minutes of each Review Panel meeting will be maintained
by the Servicing Advisor and delivered by the Servicing Advisor promptly
following such meeting to the Trustee, the Servicer, the Initial Class A
Certificateholder and, if requested, to any Class B Certificateholder or any
other Class A Certificateholder. A copy of all other records or other documents
kept by the Servicing
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Advisor pursuant to the Review Panel Agreement will be available to the Trustee,
the Servicer, and the Certificateholders upon request.
(c) Not later than the Distribution Date following a date on which the
Review Panel has proposed any action which requires consent of the Required
Holders pursuant to the Review Panel Agreement or a Loan Agreement, the
Servicing Advisor shall provide written notice to the Trustee and the Servicer
of such proposed action with a form of notification to Certificateholders
attached thereto specifying the action so proposed and containing such
information reasonably available to the Servicing Advisor and which the
Servicing Advisor reasonably believes would enable a Certificateholder to make
an informed decision.
(d) In the event that a Borrower proposes to substitute (a "Substitution")
------------
another store (a "Substitute Store") and such store's assets ("Substitute Store
---------------- ----------------
Assets") pursuant to Section 3.11(a) of the related Loan Agreement for a Store
- ------
and the related Loan Collateral, the Servicing Advisor will determine whether
all conditions precedent to such Substitution under the related Loan Agreement
(other than the requirement to obtain the consent of the Required Holders) have
been fulfilled. If the Servicing Advisor determines that such conditions have
been fulfilled, the Servicing Advisor will provide written notice to the Trustee
and the Servicer of such proposed Substitution not later than the Distribution
Date preceding the date on which such Substitution is proposed to take place
with a form of notification to Certificateholders attached thereto containing a
description of the Substitute Store and Substitute Store Assets and such
information reasonably available to the Servicing Advisor which the Servicing
Advisor reasonably believes would enable a Certificateholder to make an informed
decision together with a certification that all other conditions precedent to
such Substitution under the related Loan Agreement have been fulfilled.
(e) In the event that a Borrower proposes to transfer any Loan Collateral
pursuant to Section 7.6 of the related Loan Agreement which requires the consent
of the Required Holders pursuant to the Review Panel Agreement or such Loan
Agreement, the Servicing Advisor will determine whether all conditions precedent
to such transfer under the related Loan Agreement (other than the requirement to
obtain consent of the Required Holders) have been fulfilled. If the Servicing
Advisor determines that such conditions have been fulfilled, the Servicing
Advisor will provide notice of such proposed transfer to the Trustee and the
Servicer with a form of notification to Certificateholders attached thereto
containing a description of such transfer and such information reasonably
available to the Servicing Advisor which the Servicing Advisor reasonably
believes would enable a Certificateholder to make an informed decision together
with a certification that all other conditions precedent to such transfer under
such Loan Agreement have been fulfilled. In the event that the transfer is
approved by the Required Holders, the Servicing Advisor shall direct the
Servicer to revise the List of Loans upon the occurrence of such transfer and
the Servicer shall promptly revise the List of Loans and deliver a copy thereof
to the Trustee.
(f) Not less than ten Business Days prior to a Determination Date, a Class
A Certificateholder may provide a written notice to the Servicing Advisor
requesting the Paying Agent, on behalf of the Trust, to pay such Class A
Certificateholder, on the following Distribution Date pursuant to Section
5.03(b), Class A Certificateholder Expenses incurred by such Class A
Certificateholder. Such
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notice shall set forth the nature of such Class A Certificateholder Expenses,
shall have attached thereto evidence of payment of such Class A
Certificateholder Expenses by such Class A Certificateholder and shall specify
the Section of this Agreement, of the Class A Purchase Agreement or of the
applicable Loan Documents under which the claim for such expenses is made. The
Servicing Advisor shall promptly (but in no event later than the next
Determination Date) notify the Servicer, the Trustee, the Paying Agent and the
Certificateholders of the Class A Certificateholder Expenses to be paid on the
related Distribution Date.
(g) The Servicing Advisor agrees (i) on each Distribution Date, to direct
the Paying Agent, on behalf of the Trust, to invest funds remaining on deposit
in the Collection Account and the Reserve Account; (ii) to direct the Paying
Agent on behalf of the Trust, to disburse Insurance Proceeds pursuant to Section
6.4 of the related Loan Agreement; (iii) to determine whether the conditions
precedent to allowing the pledge of additional collateral for a Loan pursuant to
Section 3.12 of the related Loan Agreement are satisfied; (iv) to promptly
respond to any inquiries from the Servicer, the Certificateholders or the
Trustee; (v) to notify promptly Blockbuster, the Trustee, the Servicer and the
Certificateholders if the Servicing Advisor becomes aware of the occurrence of
any Loan Event of Default and (vi) to maintain copies of all reports and records
required to be prepared by it hereunder.
(h) In the event the Servicing Advisor becomes aware of any fact which
would make any of the information contained in the List of Loans incorrect, the
Servicing Advisor will promptly prepare an amended List of Loans and deliver a
copy of such amended List of Loans to the Servicer, the Trustee and the
Certificateholders.
(i) In the event the Servicing Advisor becomes aware of any Loan Event of
Default or any event which the Servicing Advisor expects will have a material
adverse effect on a Loan or will become a Loan Event of Default, the Servicing
Advisor win promptly deliver a notice of such event to the Servicer, the Trustee
and the Certificateholders.
Section 3.03. Servicing Advisor's Compensation. As compensation for the
--------------------------------
performance of its obligations under this Agreement, the Servicing Advisor shall
be entitled to receive from funds on deposit in the Collection Account on each
Distribution Date the Servicing Advisor Fee in accordance with Section 5.03(b).
The Servicing Advisor agrees to pay all fees and expenses payable or incurred by
it hereunder.
Section 3.04. Indemnification: Third Party Claims. The Servicing Advisor
-----------------------------------
agrees to indemnify and hold the Trustee, the Servicer, the Trust and the
Certificateholders harmless against any and all claims of third parties and all
losses, penalties, fines, forfeitures, legal fees, and related costs, judgments,
and any other costs, fees and expenses in connection therewith that any of them
may sustain because of the failure by the Servicing Advisor to perform its
duties in strict compliance with the terms of this Agreement or the Loan
Documents. Each of the Trustee and the Servicer shall notify the Servicing
Advisor and the Certificateholders if a claim is made by a third party against
it or the Trust with respect to the Loans or this Agreement, and the Servicing
Advisor may, if such claim alleges a failure of the Servicing Advisor to perform
its duties in compliance with this Agreement, assume, with the consent of the
Trustee, the Servicer or the Certificateholders, as applicable, the defense of
any such claim and
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<PAGE>
pay all expenses in connection therewith, including counsel fees and expenses,
and shall promptly pay, discharge and satisfy any final judgment or decree which
may be entered against it, the Servicer, the Certificateholders, or the Trustee
in respect of such claim. Subject to Section 7.02, if it is determined that the
Servicing Advisor failed to perform its duties in strict compliance with this
Agreement, satisfaction of such expenses, judgments or decrees shall be at the
sole expense of the Servicing Advisor.
Section 3.05. Liability of the Servicing Advisor; Rights of the Servicer
----------------------------------------------------------
and the Trustee in Respect of the Servicing Advisor. Notwithstanding any of
- ---------------------------------------------------
the provisions of this Agreement, the Servicing Advisor shall remain obligated
and liable to the Trustee for the performance of the duties set forth herein
regardless of any delegation of duties to the Servicer pursuant to the terms
hereof. To the extent that the Servicer or the Trustee performs any such
obligation of the Servicing Advisor, the cost of performing such obligation
shall be deducted from the Servicing Advisor Fee and paid to the Servicer or the
Trustee, as applicable (but not in excess of the Servicing Advisor Fee).
Subject to Section 8.04, the Trustee or the Servicer may, but is not obligated
to, enforce the obligations of the Servicing Advisor hereunder and may perform,
or cause a designee to perform, any defaulted obligation of the Servicing
Advisor hereunder; provided, that the Servicing Advisor shall not be relieved of
-------- ----
any of its obligations hereunder by virtue of such performance by the Trustee,
the Servicer or any designee. The Trustee and the Servicer shall not have any
responsibility or liability for any action or failure to act by the Servicing
Advisor and neither the Trustee nor the Servicer is obligated to supervise the
performance of the Servicing Advisor under this Agreement or otherwise.
ARTICLE IV
THE SERVICER
Section 4.01. The Servicer to Act as Servicer. The Servicer, as an
-------------------------------
independent contract servicer, shall service and administer the Loans on behalf
of the Trust in accordance with the terms of this Agreement and the Loan
Documents and shall have full power and authority acting alone and subject only
to the specific requirements and prohibitions of this Agreement and the
restrictions on servicing the Loans set forth in the Subordination and Consent
Agreement, to do any and all things in connection with such servicing and
administration which it may deem necessary or desirable; provided, however, that
-------- -------
the Servicer agrees that its servicing of the Loans shall be carried out in
accordance with customary and usual procedures of prudent financial institutions
which service loans similar to the Loans and, to the extent more exacting, the
procedures which the Servicer would use if the Loans were owned by the Servicer.
The Servicer shall exercise reasonable care and due diligence in the performance
of its duties hereunder. The Servicer shall instruct the Trustee to execute
such documents as are necessary for the fulfillment of the Servicer's duties
hereunder.
The Servicer shall not, without determining whether all conditions
precedent thereto have been fulfilled under the related Loan Agreement, (a)
allow the assignment of any Loan, or (b) permit the substitution of a Substitute
Store or Substitute Store Assets for any Store as the related Loan Collateral.
Neither the Servicing Advisor, the Trustee nor the Servicer shall allow the
prepayment of a Loan or consent to the modification of the terms of, or any
amendment to, or any waiver of any of the terms of any Loan Agreement, except to
the extent expressly provided for, and solely in accordance with the
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terms of, the Review Panel Agreement and the related Loan Documents. No change
shall be made in any material term of a Loan that would be treated as an
"exchange" under Section 1001 of the Code at any time that the Loan is not a
Defaulted Loan or a default with respect to such Loan is not reasonably
foreseeable.
Without limiting the generality of the foregoing, but subject to the
provisions of this Agreement and the Subordination and Consent Agreement, the
Servicer is hereby authorized and empowered by the Trust to execute and deliver,
in the Servicer's own name, on behalf of the Trust, any and all instruments of
satisfaction or cancellation, or of partial or full release or discharge, and
all other comparable instruments, with respect to the Loans and with respect to
the Loan Collateral.
Upon the execution and delivery of this Agreement, the Servicer shall
deliver to the Trustee and the Servicing Advisor a list of officers and their
specimen signatures of the Servicer involved in, or responsible for, the
administration and servicing as required of the Loans, which list shall from
time to time be updated by the Servicer.
The Servicer shall take such actions as may be necessary to ensure that the
security interest granted by each Borrower under the related Loan Documents will
continue to be deemed to be a perfected security interest of first priority
(subject, with respect to each Assignment of Leases, however, to paragraph 31
thereof) under applicable law and will be maintained as such throughout the term
of this Agreement. Without limiting the generality of the foregoing, the
Servicer shall prepare and deliver to the Trustee not less than 15 days prior to
any filing date and the Trustee shall forward for filing, or shall cause to be
forwarded for filing, at the expense of the Servicer, all filings necessary to
maintain the effectiveness of any original filings necessary under the Uniform
Commercial Code as in effect in any jurisdiction to perfect the Trust's security
interest in or lien on any Loan Collateral, including without limitation (x)
continuation statements, and (y) such other required statements as may be
occasioned by (1) any change of name of any Borrower, the Trust or the Trustee
(such preparation and filing shall be at the expense of the Trustee, if
occasioned by a change in the Trustee's name) or (2) any change of location of
the place of business or the chief executive office of any Borrower, the Trust
or the Trustee.
The Servicer shall cause to be maintained, if not maintained by any
Borrower, in respect of each Loan, the Insurance Policies referred to in the
related Loan Agreement. The Servicer shall be entitled to deduct from Loan
Payments in respect of a Loan the expense of maintaining such Insurance
Policies.
The Servicer is hereby authorized and directed to, and hereby agrees to,
assume and perform all duties of the Trustee and Lender (as defined in the Loan
Agreements) under the Loan Documents other than those duties delegated to the
Servicing Advisor hereunder.
Section 4.02. Collection of Loan Payments and Remittances. The Servicer
-------------------------------------------
shall use its best efforts to cause the collection of all payments called for
under the terms and provisions of each Loan and shall use its best efforts to
cause each Borrower to make all payments in respect of its Loan. In addition to
any other customary services which the Servicer may perform, the Servicer shall
perform the following servicing and collection activities:
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(1) perform standard accounting services and general record keeping
services with respect to the Loans;
(2) respond to any telephone and written inquiries of Borrowers concerning
the Loans;
(3) keep Borrowers informed of the proper place and method for making
payments with respect to the Loans;
(4) contact Borrowers to effect collection and to discourage delinquencies
in the payment of Loans, doing so by any lawful means, including, but
not limited to, the following:
(i) transmittal of routine past due notices;
(ii) preparing and mailing collection letters;
(iii) contacting delinquent Borrowers by telephone to encourage
payment;
(iv) transmittal of reminder notices to delinquent Borrowers; and
(v) subject to Sections 4.01 and 4.05 hereof, initiating and
pursuing termination or foreclosure actions deemed necessary by
the Servicer;
(5) report tax information to Borrowers as required by law;
(6) promptly respond to any inquiries from Certificateholders, the
Servicing Advisor, the Trustee and D&P; and
(7) take such other action as may be reasonably necessary or appropriate
to carry out the duties and obligations imposed upon the Servicer
pursuant to the terms of this Section.
Section 4.03. Records.
-------
(a) The Servicer shall retain all Loan Files and other data (including,
without limitation, computerized records) relating to or maintained in
connection with the servicing of the Loans for the benefit of and on behalf of
the Trust at the address of the Servicer set forth in Section 11.04 or, upon 15
days' prior written notice to the Trustee, at such other place where the
servicing offices of the Servicer are located, and shall give the Trustee, the
Class A Certificateholders and the Servicing Advisor access to all Loan Files
and other data at all reasonable times and upon reasonable notice, and, while a
Servicer Event of Default with respect to the Servicer shall be continuing, the
Servicer shall, on demand of the Trustee, deliver to the Trustee copies of all
Loan Files and other data (including, without limitation, computerized records)
related to or necessary for the servicing of the Loans. If the rights of the
Servicer shall have been terminated in accordance with Section 8.04 or if this
Agreement shall have been terminated pursuant to Article X, the Servicer shall,
upon demand of the Trustee or the Certificateholders, in the case of Section
8.04, or of the successor to the rights of the Trust, in the case
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of Article X, deliver to the Trustee all Loan Files and other data (including,
without limitation, computerized records) related to or necessary for the
servicing of the Loans. In addition to delivering such data, the Servicer shall,
at its expense, use its best efforts to effect the orderly and efficient
transfer of the servicing of the Loans with respect to which such termination
shall have occurred to the party which will be assuming responsibility for such
servicing, including, without limitation, directing Borrowers to remit Scheduled
Payments and all other payments in respect of the Loans to an account or address
designated by the Trustee or such new Servicer. The provisions of this paragraph
shall not require the Servicer to transfer any proprietary material or computer
programs unrelated to the servicing of the Loans.
(b) The Servicer shall hold all documents constituting each Loan File
received by it for and on behalf of the Trust, and shall make disposition of the
Loan Files only in accordance with the instructions furnished by the Trustee or
as otherwise specifically provided for herein. The Servicer shall segregate and
maintain continuous custody of all documents constituting each Loan File
received by it in secure and fireproof facilities in accordance with customary
standards for such custody.
Section 4.04. Servicer's Compensation. As compensation for the
-----------------------
performance of its obligations under this Agreement, the Servicer shall be
entitled to receive from funds on deposit in the Collection Account on each
Distribution Date the Servicer Fee as provided in Section 5.03(b). Except as
otherwise provided herein, the Servicer agrees to pay all fees and expenses
payable or incurred by it hereunder.
Section 4.05. Realization Upon Defaulted Loans. The Servicer agrees to
--------------------------------
take all actions required to be taken by the Trust under the Subordination and
Consent Agreement in respect of the Loan Collateral and agrees not to take any
actions inconsistent with the rights and obligations of the Trust under the
Subordination and Consent Agreement. In accordance with the servicing
procedures specified in Section 4.01, the Servicer, as agent of the Trust, shall
accelerate any Loan and foreclose upon any Loan Collateral securing a Loan that
is a Defaulted Loan. Not less than five Business Days prior to the date on
which the Servicer intends to commence foreclosure proceedings against any Loan
Collateral securing a Defaulted Loan, the Servicer shall give notice of such
proposed action to the Trustee, the Servicing Advisor and the Certificateholders
identifying the Defaulted Loan and specifying the date on which foreclosure is
to commence. Unless otherwise instructed by the Required Holders within such
time period, the Servicer shall commence foreclosure proceedings on or after the
date specified in such notice. The Servicer shall cease any foreclosure
proceedings upon the instructions of the Required Holders. In connection with
the commencement of foreclosure proceedings against any Loan Collateral, the
Servicer shall follow such practices and procedures as it shall deem necessary
or advisable and as shall be consistent with the servicing standards set forth
in Section 4.01 hereof and the guidelines set forth in Schedule II hereto. In
addition, the Servicer shall comply with all applicable laws in connection with
the foreclosure of any Loan Collateral and may commence and prosecute any
proceedings in respect of such related Loan in the name of and on behalf of the
Trust. The Servicer shall not acquire on behalf of the Trust any Loan
Collateral except in connection with a Defaulted Loan. If the Trust shall have
come into possession of any Store or Store-Related Assets, it shall not have as
its primary purpose the carrying on of a profit-making business, but rather the
sale of such assets and the distribution of the proceeds thereof to the
Certificateholders, and all of the activities of the Servicer in regard thereto
shall be reasonably necessary to, and consistent with, the accomplishment of
that purpose. Accordingly, the
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Servicer shall administer all Loan Collateral acquired by the Trust in a manner
consistent with the prompt disposition of such Loan Collateral in order to
maximize the preservation of capital of the Certificateholders and not with a
view to the maximization of profit, and in all events not more than one year
after the Trust acquired such Loan Collateral; provided, that such one year
--------
period may be extended for not more than two successive six-month periods upon
certification to the Servicing Advisor, the Class A Certificateholders and the
Review Panel that such extension will increase the likelihood of finding a
purchaser of the Loan Collateral at a price that will preserve the return of
capital to Certificateholders.
In connection with a foreclosure proceeding against any Loan Collateral,
the Servicer will advance the costs and expenses of any such proceeding and will
also advance operating expenses and payments to creditors of the related
Borrower (including Blockbuster) in order to cure a default by such Borrower of
its obligations with respect to such creditors; provided that the Servicer will
not be obligated to make any such advance to the extent the Servicer determines,
in its good faith judgment, after consultation with the Servicing Advisor and
the Review Panel, that such advance would not be ultimately recoverable from
future payments or Liquidation Proceeds in respect of the related Defaulted
Loan. All Net Liquidation Proceeds, Insurance Proceeds (net of reasonable
direct expenses incurred by the Servicer) and Condemnation Proceeds shall be
deposited into the Collection Account not later than the Business Day
immediately following receipt thereof. Such Net Liquidation Proceeds, Insurance
Proceeds and Condemnation Proceeds shall, for all purposes of this Agreement, be
allocated first to accrued and unpaid interest on the related Loan (and interest
shall be deemed to have accrued to but excluding the Loan Payment Date next
following the receipt of such proceeds), second to the X Prepayment Amount, if
any, due on such Loan (determined and calculated in the same manner as if such
Loan were being prepaid in full), third to the unpaid principal balance of such
Loan and then to the Y Prepayment Amount, if any, due on such Loan (determined
and calculated in the same manner as if such Loan were being prepaid in full).
Section 4.06. Indemnification; Third Party Claims. The Servicer, in its
-----------------------------------
capacity as Servicer, Paying Agent, Authenticating Agent, Transfer Agent and
Certificate Registrar, agrees to indemnify and hold the Trustee, the Trust, the
Servicing Advisor and the Certificateholders harmless against any and an claims,
losses, penalties, fines, forfeitures, legal fees and related costs, judgments,
and any other costs, fees and expenses that any of them may sustain because of
the failure by the Servicer to perform, in each such capacities, its duties and
service the Loans in strict compliance with the terms of this Agreement or the
Loan Documents. Each of the Trustee and the Servicing Advisor shall notify the
Servicer and the Certificateholders if a claim is made by a third party against
it, or the Trust with respect to the Loans or this Agreement, and the Servicer
may, if such claim alleges a failure of the Servicer to perform, in each such
capacities, its duties in compliance with this Agreement, assume, with the
consent of the Trustee, the Servicing Advisor, or the Certificateholders, as
applicable, the defense of any such claim and pay all expenses in connection
therewith, including counsel fees and expenses, and shall promptly pay,
discharge and satisfy any judgment or decree which may be entered against it,
the Trustee, the Certificateholders or the Servicing Advisor in respect of such
claim. Subject to Section 7.02, if it is determined that the Servicer failed to
perform its duties in strict compliance with this Agreement, satisfaction of
such expenses, judgments or decrees shall be at the sole expense of the
Servicer.
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<PAGE>
Section 4.07. Fidelity Bond and Errors and Omissions Insurance. The
------------------------------------------------
Servicer shall maintain, at its own expense, a blanket fidelity bond and an
errors and omissions insurance policy, with broad coverage with responsible
companies on all officers, employees or other persons acting on behalf of the
Servicer in any capacity with regard to the Loans to handle funds, money,
documents and papers relating to the Loans. Any such fidelity bond and errors
and omissions insurance shall protect and insure the Servicer against losses,
including forgery, theft, embezzlement, fraud, errors and omissions and
negligent acts of such persons and shall be maintained in a form and amount that
would meet the requirements of prudent institutional loan servicers. No
provision of this Section 4.07 requiring such fidelity bond and errors and
omissions insurance shall diminish or relieve the Servicer from its duties and
obligations as set forth in this Agreement. The Servicer shall be deemed to
have complied with this provision if one of its respective Affiliates has such
fidelity bond and errors and omissions policy coverage and, by the terms of such
fidelity bond and errors and omission policy, the coverage afforded thereunder
extends to the Servicer. Upon written request of the Trustee or a Class A
Certificateholder, the Servicer shall cause to be delivered to the Trustee or
such Class A Certificateholder, as applicable, a certification evidencing
coverage under such fidelity bond and insurance policy. Any such fidelity bond
or insurance policy shall not be canceled or modified in a materially adverse
manner without thirty days' prior written notice to the Trustee and the
Certificateholders.
Section 4.08. Reporting by the Servicer.
-------------------------
(a) On each Distribution Date, the Servicer shall transmit to the Servicing
Advisor, the Trustee and the Paying Agent a certificate of a Responsible Officer
(the "Servicer Certificate") setting forth the following information in respect
--------------------
of the immediately preceding Collection Period:
(i) the amount of funds that have been deposited into the Collection
Account with respect to such Collection Period, together with a
breakdown of such total amount by categories (i.e., the amount of any
----
Interest Payments, Principal Payments, Early Payments, X Prepayment
Amounts, Y Prepayment Amounts, Prepayments and other payments);
(ii) the Servicing Advisor Fee, the Servicer Fee, the Trustee Fee, the
Subordinated Advisory Fee, and any Trustee Expenses (as reported by
the Trustee), Servicing Advisor Indemnification Payments, Servicer
Indemnification Payments, Trustee Indemnification Payments (as
reported by the Trustee) and Class A Certificateholder Expenses with
respect to the following Distribution Date;
(iii) with respect to the Class A Certificates, the Class A Principal
Distribution Amount, the amount of the distribution to be made on the
following Distribution Date allocable to principal, any Unpaid Class
A Principal Amount included in such distribution and any remaining
Unpaid Class A Principal Amount after giving effect to such
distributions;
(iv) with respect to the Class A Certificates, the Class A Interest
Distribution Amount, the amount of the distribution to be made on the
following Distribution Date allocable to interest, setting forth
separately the amount of Extended Loan Interest, X Prepayment
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Amount and any Unpaid Class A Interest Amount included in such
distribution, and any remaining Unpaid Class A Interest Amount after
giving effect to such distribution;
(v) with respect to the Class A Certificates, the Class A Shortfall
Amount (stating separately the amount of any shortfall in the
required distribution of interest and principal);
(vi) the amount of any Reserve Account Interest Withdrawal Amount or
Reserve Account Principal Withdrawal Amount with respect to such
distribution and the amount to be withdrawn from each Holder Reserve
Account in respect of such amounts;
(vii) the Aggregate Class A Certificate Principal Balance and the Class A
Principal Factor (the Aggregate Class A Certificate Principal
Balance divided by the original Aggregate Class A Certificate
Principal Balance), each after giving effect to the distribution of
principal on such Distribution Date;
(viii) with respect to the Class B Certificates, the Class B Principal
Distribution Amount, the amount of the distribution to be made on
the following Distribution Date allocable to principal and the
amount to be distributed to each Class B Certificateholder in
respect of principal, any Unpaid Class B Principal Amount included
in such distribution and any remaining Unpaid Class B Principal
Amount after giving effect to such distributions;
(ix) with respect to the Class B Certificates, the Class B Interest
Distribution Amount, the amount of such distribution allocable to
interest, setting forth separately the amount of Extended Loan
Interest, Defaulted Loan Interest and any Unpaid Class B Interest
Distribution Amount included in such distribution, and further
setting forth any remaining Unpaid Class B Interest Distribution
Amount after giving effect to such distributions, the amount to be
distributed to each Class B Certificateholder in respect of interest
and the portions of Extended Loan Interest, Defaulted Loan Interest
and the remaining Unpaid Class B Interest Distribution Amount
allocable to each Class B Certificateholder;
(x) with respect of the Class B Certificates, the amount of any
shortfall in the required distribution of current interest and
current principal (stated separately) to the Class B Certificates
for the following Distribution Date, setting forth separately the
amount of such shortfalls in respect of each Class B Certificate;
(xi) with respect of the Class B Certificates, the principal amount of
any Class B Certificates tendered for purchase pursuant to Section
5.05 hereof;
(xii) the Aggregate Class B Certificate Principal Balance and the Class B
Certificate Principal Balance of each of the Class B Certificates
after giving effect to the distribution of principal and adjustment
thereto on the following Distribution Date;
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(xiii) the amount on deposit in the Collection Account, the Reserve Account
and each Holder Reserve Account after giving effect to the
distributions on the following Distribution Date;
(xiv) the Reserve Account Required Amount and the amount of deposits to
the Reserve Account with respect to the following Distribution Date,
setting forth separately the amount to be deposited to each Holder
Reserve Account;
(xv) the Pool Balance as of the last day of the related Collection
Period;
(xvi) with respect to each Loan that became and remains a Defaulted Loan
or became an Extended Loan or a Liquidated Loan:
(A) its Borrower, loan number, outstanding principal balance and
stated Loan maturity;
(B) the effective date as of which such Loan became a Defaulted
Loan, Extended Loan or Liquidated Loan;
(C) if such Loan is a Defaulted Loan, the amount of any recoveries,
if any, with respect to such Defaulted Loan or, if such Loan is a
Liquidated Loan, the amount of Net Liquidation Proceeds in respect of such
Liquidated Loan;
(D) if such Loan is a Defaulted Loan, the amount of Delinquent
Principal Payments and Delinquent Interest Payments in respect of such
Defaulted Loan and the date as of which such payments were delinquent;
(E) if such Loan is a Liquidated Loan, the amount of Liquidation
Proceeds, Liquidation Expenses and any Realized Loss in respect of such
Liquidated Loan, and each portion of such Realized Loss that represents a
Realized Loss in respect of interest, X Prepayment Amount, Y Prepayment
Amount and principal;
(xvii) with respect to each Loan that was the subject of a Prepayment
during such Collection Period:
(A) its Borrower, loan number and stated Loan maturity;
(B) the date of such Prepayment;
(C) the Prepayment received;
(D) the amount of interest paid in respect of each Prepayment and
the X Prepayment Amount and Y Prepayment Amount, if any, received in
connection with such Prepayment and
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a verification of the accuracy of the calculation of the X Prepayment
Amount and the Y Prepayment Amount; and
(E) the outstanding principal balance of such Loan (before and after
giving effect to such Prepayment);
(xviii) the Related Delinquency Amount, the Related Loss Amount and the
Holder Reserve Account Reimbursement Amount with respect to each
Class B Certificateholder;
(xix) any other information relating to the Loans reasonably requested by
the Servicing Advisor, the Trustee or the Requesting Holders; and
(xx) the book value (within the meaning of 12 C.F.R. Part 571.13 or any
comparable replacement provision) of any assets acquired through
the exercise of remedies with respect to Defaulted Loans and the
amount of proceeds received in connection with the operation of any
Loan Collateral acquired through foreclosure or otherwise.
In the case of information furnished pursuant to clauses (iii), (iv), (v),
(viii), (ix) and (x) above, the amounts shall be expressed as a dollar amount
per Certificate per $1,000 denomination.
(b) Within 90 days after the end of each calendar year, the Servicer will
prepare for mailing to each Person who at any time during the calendar year was
a holder of record of a Class A Certificate a statement containing the
applicable information set forth in clauses (ii), (iii), (iv), (v) and (xvii)(D)
of the Servicer Certificate and to each Person who at any time during the
calendar year was a holder of record of a Class B Certificate a statement
containing the applicable information set forth in clauses (ii), (viii), (ix)
and (x) of the Servicer Certificate, as applicable, aggregated for such calendar
year, or, in the case of each Person who was a Certificateholder for a portion
of such calendar year, setting forth such information for each month thereof.
The obligation of the Servicer to prepare such statements shall be deemed to be
satisfied to the extent that substantially comparable information is provided by
the Paying Agent in accordance with the requirements of the Code as from time to
time in effect.
(c) On or before the 90th day after the end of the fiscal year of the
Servicer which ends in 1996, and each fiscal year thereafter, the Servicer shall
deliver an Officer's Certificate to the Trustee, the Servicing Advisor, and the
Class A Certificateholders and, upon request, to each Class B Certificateholder
stating, as to each signer thereof, that (i) a review of the activities of the
Servicer during the Servicer's preceding fiscal year (or since the Closing Date
in the case of the first such Officers' Certificate required to be delivered)
has been made under the supervision of the officers executing such Officers'
Certificate, (ii) to the best of each such officer's knowledge, based on such
review, the Servicer has fulfilled all of its obligations, including but not
limited to its obligations under Section 4.01 of this Agreement, in all material
respects throughout such year and no default by the Servicer under this
Agreement has occurred, or if such a default has occurred, specifying each such
default known to such officer and the nature and status thereof.
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(d) The Servicer agrees to provide all other notices and reports as
required under this Agreement including those required by Section 5.04.
(e) The Servicer agrees to maintain copies of all reports and certificates
prepared or received by it pursuant to the terms of this Agreement.
Section 4.09. Annual Accountants' Reports. On or before the 90th day
---------------------------
after the end of the fiscal year of the Servicer which ends in 1996, and each
fiscal year thereafter, the Servicer shall deliver to the Trustee a separate
report, prepared by a Specified Accounting Firm, stating that (i) they have
examined the balance sheet of the Servicer as of the last day of such fiscal
year and the related statements of operations, retained earnings and cash flows
for such fiscal year and have issued an opinion thereon, specifying the date
thereof, (ii) they have also examined such documents and records relating to the
servicing of the Loans by the Servicer as set forth in Schedule III, (iii) their
examination as described under clauses (i) and (ii) above was made in
accordance with GAAS and accordingly included such tests of the accounting
records and such other auditing procedures as they considered necessary in the
circumstances, and (iv) their examinations described under clauses (i) and (ii)
above disclosed no exceptions which, in their opinion, were material, relating
to the servicing of the Loans, or, if any such exceptions disclosed thereby were
material, setting forth such exceptions.
Section 4.10. Rights of the Servicing Advisor and the Trustee in Respect
----------------------------------------------------------
of the Servicer. The Servicer shall afford, at the Servicer's expense (except
- ---------------
in the case of the Certificateholders, in which case any expenses shall be paid
by such Certificateholders), the Servicing Advisor, the Trustee and any
Certificateholders, upon reasonable notice, during normal business hours access
to all records maintained by the Servicer in respect of its rights and
obligations hereunder and reasonable access to officers of the Servicer
responsible for such obligations. Subject to Section 8.04, the Trustee or the
Servicing Advisor may, but is not obligated to, enforce the obligations of the
Servicer (whether in its capacity as Servicer, Authenticating Agent, Paying
Agent or Transfer Agent and Certificate Registrar) hereunder and may, but is not
obligated to, perform, or cause a designee to perform, any defaulted obligation
of the Servicer hereunder without hiring a replacement Servicer or exercise the
rights of the Servicer hereunder; provided that the Servicer shall not be
--------
relieved of any of its obligations hereunder by virtue of such performance by
the Trustee, the Servicing Advisor or any designee. To the extent that the
Servicing Advisor or the Trustee performs any such obligation of the Servicer,
the cost of performing such obligation shall be deducted from the Servicer Fee
and paid to the Servicing Advisor or the Trustee, as applicable. The Trustee
and the Servicing Advisor shall not have any responsibility or liability for any
action or failure to act by the Servicer and is not obligated to supervise the
performance of the Servicer under this Agreement or otherwise.
Section 4.11. Tax Reporting Obligations. The Servicer shall maintain the
-------------------------
books and records of the Trust. The Servicer shall prepare or cause to be
prepared by a Specified Accounting Firm and, to the extent required by law, the
Trustee shall sign, the applicable federal, state or local information returns
of the Trust and all applicable statements or schedules thereto, including
statements of Certificateholders' pro rata shares of the items of income and
deduction of the Trust, and the Servicer shall file on behalf of the Trust with
the Internal Revenue Service or applicable state or local authorities and
furnish to Certificateholders such information returns, statements and schedules
at the time and in the manner
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required by the Code or applicable state or local ordinance. The Servicer shall
comply with the information reporting requirements of Section of the Code with
respect to foreclosures on or abandonments of real property forming a part of
any Loan Collateral.
ARTICLE V
COLLECTION ACCOUNT; RESERVE ACCOUNT
DISTRIBUTIONS IN RESPECT OF
CERTIFICATES; STATEMENTS AND REPORTS
Section 5.01. Establishment of Collection Account. The Servicer shall
-----------------------------------
establish and maintain or cause to be established and maintained, in trust for
the benefit of the Certificateholders and in the name of the Trustee, on behalf
of the Trust, an Eligible Account (the "Collection Account"), bearing a
------------------
designation clearly indicating that the funds deposited therein are held for the
benefit of the Certificateholders. The Trustee, for the benefit of the
Certificateholders, shall possess all right, title and interest in all funds on
deposit from time to time in the Collection Account and in all proceeds thereof;
provided, however, that the Trustee hereby authorizes the Servicer and the
- -------- -------
Paying Agent to make deposits into and withdrawals from the Collection Account
in accordance with the terms of this Agreement, but in any event subject to the
operation of the next to last paragraph of Section 8.01. If, at any time, the
Collection Account ceases to be an Eligible Account, the Servicer shall within
ten Business Days establish a new Collection Account meeting the conditions
specified above as an Eligible Account, transfer any cash and/or any proceeds
from investments to such new Collection Account and from the date such new
Collection Account is established, it shall be the "Collection Account". The
Servicer shall promptly give notice in writing to the Trustee, the Paying Agent,
the Class A Certificateholders, and D&P of the location of the Collection
Account and of any change thereof.
The Servicer shall deposit all Loan Payments, Condemnation Proceeds and Net
Liquidation Proceeds into the Collection Account promptly but in any event not
later than the Business Day next succeeding the date of receipt thereof. The
Servicer shall keep a record of all amounts so deposited. All Insurance
Proceeds received by the Servicer shall be deposited by the Servicer into a
segregated account, which shall be an Eligible Account, not later than the
Business Day next succeeding the date of receipt thereof, and held therein until
disbursed in accordance with the instructions of the Servicing Advisor pursuant
to Section 3.02(g)(ii) hereof. The Servicer shall keep a record of all amounts
so deposited. Insurance Proceeds shall be invested by the Servicer at the
direction of the Servicing Advisor in Eligible Investments. All interest and
other earnings (net of losses and investment expenses) on Insurance Proceeds
shall be deposited in the Collection Account upon the disbursement of such
Insurance Proceeds and shall be paid to the related Borrower, if such Insurance
Proceeds are to be applied to repair or restoration of the related Loan
Collateral, or applied in connection with the prepayment of the related Loans,
if such Insurance Proceeds are to be applied as a Prepayment. Funds on deposit
in the Collection Account (other than amounts deposited therein from the Reserve
Account pursuant to Section 5.02) shall be invested by the Servicer solely in
Eligible Investments as directed by the Servicing Advisor. All such Eligible
Investments shall be held by the Servicer for the benefit of the
Certificateholders. Funds on deposit in the Collection Account shall be
invested in Eligible Investments that will mature so that such funds will be
available at the close of business on the Business Day preceding the
Distribution Date
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following such Collection Period and no Eligible Investment shall be disposed of
prior to its maturity. On each Distribution Date, all interest and other
investment earnings (net of losses and investment expenses) on funds on deposit
in the Collection Account shall be included in the Available Distribution Amount
for such Distribution Date.
Section 5.02. The Reserve Account.
-------------------
(a) The Servicer shall establish and maintain or cause to be established
and maintained, in trust for the benefit of Certificateholders and in the name
of the Trustee, on behalf of the Trust, an Eligible Account (the "Reserve
-------
Account"), bearing a designation clearly indicating that the funds deposited
- -------
therein are held for the benefit of the Certificateholders. The Trustee shall
possess all right, title and interest in all funds on deposit from time to time
in the Reserve Account and in all proceeds thereof; provided, however, that the
-------- -------
Trustee hereby authorizes the Servicer and the Paying Agent to make deposits
into and withdrawals from the Reserve Account in accordance with the terms of
this Agreement, but in any event subject to the operation of the next to last
paragraph of Section 8.01. If, at any time, the Reserve Account ceases to be an
Eligible Account, the Servicer shall within ten Business Days establish a new
Reserve Account meeting the conditions specified above as an Eligible Account,
transfer any cash and/or any investments to such new Reserve Account and from
the date such new Reserve Account is established, it shall be the "Reserve
Account". The Servicer shall give notice in writing to the Trustee, the Paying
Agent, the Class A Certificateholders, and D&P of the location of the Reserve
Account and of any change thereof. On the Closing Date, the Trustee will deposit
into the Reserve Account from the proceeds of the sale of the Class A
Certificates $560,363 (the "Initial Deposit"). The Initial Deposit shall be
---------------
deemed to have been contributed by each Class B Certificateholder to its
respective Holder Reserve Account (as defined below) out of the proceeds of
Related Loans in the proportion that the initial principal amount each such
Class B Certificateholder's Related Loans bears to the aggregate principal
balance of the Loans. The Servicer shall calculate the respective amounts of
such deemed contributions and furnish such calculations to the Trustee.
The Servicer will create one sub-account of the Reserve Account
corresponding to each Class B Certificateholder (each, a "Holder Reserve
--------------
Account") for the purpose of allocating amounts contributed to the Reserve
Account from each Class B Certificateholder's portion of the Initial Deposit and
from distributions pursuant to Section 5.03(b)(iv)(G) and allocating withdrawals
from the Reserve Account. In the event of a transfer of any portion of a Class
B Certificate pursuant to Section 6.02(d) hereof to a Person other than another
Class B Certificateholder, the Servicer shall establish a Holder Reserve Account
in the name of the transferee of such Class B Certificate or portion thereof.
The Servicer shall withdraw from the Holder Reserve Account of the transferring
Class B Certificateholder and deposit into such new Holder Reserve Account (or,
if the transferee is another Class B Certificateholder, such Class B
Certificateholder's Holder Reserve Account) an amount equal to the product of
(i) the percentage equivalent of a fraction the numerator of which is equal to
the principal amount of the Class B Certificate or portion thereof so
transferred and the denominator of which is the Class B Certificate Principal
Balance of such Class B Certificate and (ii) the amount on deposit in the
transferring Class B Certificateholder's Holder Reserve Account. The Servicer
will maintain accounting records with respect to withdrawals from and deposits
to each Holder Reserve Account. On the Closing Date, the Servicer
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shall credit a portion of the Initial Deposit to each Holder Reserve Account in
accordance with the Servicer's calculations performed pursuant to the preceding
paragraph.
(b) Funds on deposit in the Reserve Account (other than investment
earnings) shall be invested by the Servicer solely in Eligible Investments as
directed by the Servicing Advisor. All such Eligible Investments shall be held
by the Servicer for the benefit of the Certificateholders. All such funds shall
be invested in Eligible Investments that will mature so that such funds will be
available at the close of business on the Business Day preceding the following
Distribution Date, and no Eligible Investment shall be disposed of prior to
maturity. On each Distribution Date, all interest and other investment earnings
(net of losses and investment expenses) on funds on deposit in the Reserve
Account shall be credited to each Holder Reserve Account, pro rata, based on the
amount on deposit in each Holder Reserve Account. The amount of reinvestment
income with respect to each Class B Certificateholder's Holder Reserve Account
shall be allocated to such Class B Certificateholder for income tax purposes.
(c) (i) On each Determination Date, the Servicer shall determine the
amount, if any, by which the Class A Interest Distribution Amount for the
related Distribution Date exceeds the Available Distribution Amount (any such
excess, a "Reserve Account Interest Withdrawal Amount"). If a Reserve Account
------------------------------------------
Interest Withdrawal Amount exists for such Distribution Date, on or prior to the
Business Day preceding such Distribution Date, the Servicer shall withdraw from
the Reserve Account in accordance with paragraph (d)(i) below an amount equal to
the lesser of such Reserve Account Interest Withdrawal Amount and the amount
then on deposit in the Reserve Account and withdraw such amount from the Reserve
Account and deposit such amount into the Collection Account.
(ii) On each Determination Date, the Servicer shall determine the
excess, if any, of the Class A Shortfall Amount over the Reserve Account
Interest Withdrawal Amount for the related Distribution Date (such excess, if
any, a "Reserve Account Principal Withdrawal Amount"). If a Reserve Account
-------------------------------------------
Principal Withdrawal Amount exists for such Distribution Date, on or prior to
the Business Day preceding such Distribution Date, the Servicer shall withdraw
from the Reserve Account in accordance with paragraph (d)(ii) below an amount
equal to the lesser of such Reserve Account Principal Withdrawal Amount and the
amount then on deposit in the Reserve Account (after giving effect to any
withdrawals in respect of a Reserve Account Interest Withdrawal Amount with
respect to such Distribution Date) and deposit such amount into the Collection
Account.
(d) (i) Withdrawals from the Reserve Account in respect of a Reserve
Account Interest Withdrawal Amount will be made by the Servicer as follows:
first, from the Holder Reserve Accounts of Class B Certificateholders for which
- -----
a Related Loss Amount in respect of interest and/or X Prepayment Amount, pro
rata, based on such amounts (provided that the amount so withdrawn from any such
Holder Reserve Account on any date will not exceed the interest and/or X
Prepayment Amount portion of the Related Loss Amount of the related Class B
Certificateholder with respect to such date); second, from the Holder Reserve
------
Accounts of Class B Certificateholders for which a Related Delinquency Amount
exists, pro rata, based on such Related Delinquency Amounts (provided that the
amount so withdrawn from any such Holder Reserve Account on any date will not
exceed the Related Delinquency Amount of the related Class B Certificateholder
as of the preceding Determination Date);
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and third, from the Holder Reserve Accounts of all Class B Certificateholders,
-----
pro rata, based on the Percentage Interests of such Class B Certificateholders.
(ii) Withdrawals from the Reserve Account in respect of a Reserve
Account Principal Withdrawal Amount will be made by the Servicer as follows:
first, from the Holder Reserve Accounts of Class B Certificateholders for which
- -----
a Related Loss Amount in respect of principal exists, pro rata, based on such
portions (provided that the amount so withdrawn from any such Holder Reserve
Account on any date will not exceed the principal portion of the Related Loss
Amount of the related Class B Certificateholder with respect to such date);
second, from the Holder Reserve Accounts of Class B Certificateholders for which
- ------
a Related Delinquency Amount exists, pro rata, based on such Related Delinquency
Amounts (provided that the amount so withdrawn from a Holder Reserve Account on
any date will not exceed the Related Delinquency Amount of the related Class B
Certificateholder as of the preceding Determination Date reduced by simultaneous
withdrawals in respect of Reserve Account Interest Withdrawal Amounts and
Reserve Account Principal Withdrawal Amounts attributable to such Class B
Certificateholder's Related Loans); and third, from the Holder Reserve Accounts
-----
of all Class B Certificateholders, pro rata, based on the Percentage Interests
of such Class B Certificateholders.
(e) Deposits to the Reserve Account pursuant to Section 5.03(b)(iv)(G)
shall be allocated among the Holder Reserve Accounts by the Servicer as follows:
first, to the Holder Reserve Accounts of each Non-Defaulting Class B
- -----
Certificateholder, up to the Holder Reserve Account Maximum for each such Holder
Reserve Account, pro rata, based on the respective Class B Certificateholders'
Percentage Interests; second, to the Holder Reserve Accounts of each Defaulting
------
Class B Certificateholder, up to the amount of the Holder Reserve Account
Reimbursement Amount for each such Defaulting Class B Certificateholder, pro
rata, based on such Holder Reserve Account Reimbursement Amounts; and third, to
-----
the Holder Reserve Accounts for each Defaulting Class B Certificateholder, up to
each Class B Certificateholder's Percentage Interest of the Reserve Account
Required Amount, pro rata, based on the Percentage Interests of such Class B
Certificateholders.
(f) (i) On each Distribution Date on which the amount on deposit in the
Reserve Account exceeds the Reserve Account Required Amount for such
Distribution Date (after giving effect to any deposits to and withdrawals from
the Reserve Account (other than withdrawals pursuant to this paragraph (i)) to
be made on such Distribution Date), the Servicer shall withdraw from the Reserve
Account the amount of such excess. Such withdrawals shall be made by the
Servicer as follows: first, from the Holder Reserve Accounts of each Non-
-----
Defaulting Class B Certificateholder, up to the Holder Reserve Account
Reimbursement Amount for each such Class B Certificateholder, pro rata, based on
such Holder Reserve Account Reimbursement Amounts; and second, from each Holder
------
Reserve Account based on the amount on deposit in such Holder Reserve Accounts.
Each such withdrawal shall be paid by the Servicer as follows: first, to the
-----
applicable parties for any amounts due pursuant to Sections 5.03(b)(iv)(H)
through 5.03(b)(iv)(O), inclusive, on any prior Distribution Date that have not
been previously paid, or due on such Distribution Date for which funds on
deposit in the Collection Account when distributed pursuant to Section
5.03(b)(iv) are insufficient to satisfy in full on such Distribution Date, in
the order of priority as set forth in such Sections; and second, to the Class B
------
Certificateholders relating to the Holder Reserve Accounts from which such
withdrawals were made, pro rata.
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(ii) On each Distribution Date on which a Class B Certificate is
deemed purchased by Class B Certificateholders pursuant to Section 5.05 hereof,
the Servicer shall withdraw from the Holder Reserve Account of the Class B
Certificateholder holding the Class B Certificate or portion thereof deemed
purchased, and pay to such Class B Certificateholder, an amount equal to the
product of (i) the percentage equivalent of a fraction the numerator of which is
the aggregate principal amount of the Class B Certificate or portion thereof so
purchased and the denominator of which is the Class B Certificate Principal
Balance of such Class B Certificate and (ii) the amount on deposit in such Class
B Certificateholder's Holder Reserve Account.
(iii) On the Final Distribution Date, the Servicer shall withdraw from
each Holder Reserve Account the amount on deposit in such account (after giving
effect to all deposits to and withdrawals from such account to be made on such
date) and pay such amount to the related Class B Certificateholder.
(g) Any Class B Certificateholder shall have the right to contest the
calculation of the amount of deposits to or withdrawal from its Holder Reserve
Account pursuant to this Section 5.02 by delivering to the Servicer written
notice of its objection to such calculation within two Business Days of its
receipt of a Servicer Certificate. As soon as practicable after receipt thereof,
the Servicer shall forward a copy of the notice to the Servicing Advisor, the
Trustee and the Certificateholders. The Servicer will respond to such objection
within one Business Day following its receipt thereof and notify the objecting
Class B Certificateholder of such response and will, as soon as practicable,
notify the Servicing Advisor, the Trustee and the Certificateholders of such
response. Any dispute with respect to amounts allocated to or withdrawn from a
Holder Reserve Account will be resolved in accordance with Section 11.08 hereof.
Neither the allocation of a deposit to or withdrawal from the Reserve Account
nor the failure by the Class B Certificateholders to make a timely objection
shall be deemed a waiver by the Class B Certificateholder of any rights to
contest such allocation.
Section 5.03. Class A Shortfall Amounts Distributions.
---------------------------------------
(a) On each Determination Date, the Servicer shall determine whether a
Class A Shortfall Amount exists with respect to the following Distribution Date.
(b) On each Distribution Date, the Paying Agent shall withdraw from the
Collection Account and apply, in the following priority, an amount equal to:
(i) the Trustee Fee and any Trustee Expenses, and pay such amounts to
the Trustee;
(ii) the Servicer Fee, and pay such amount to the Servicer;
(iii) so long as Atherton or any Affiliate thereof is not the
Servicing Advisor, the Servicing Advisor Fee, and pay such amount to the
Servicing Advisor;
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(iv) the Available Distribution Amount and any amount withdrawn from
the Reserve Account and deposited in the Collection Account with respect to such
Distribution Date pursuant to Section 5.02(c)(ii) or Section 5.02(c)(iii), and
apply such amounts in the following order of priority:
(A) first, to the Class A Certificateholders, the Class A
-----
Interest Distribution Amount, minus, after the Aggregate Certificate
Principal Balance of the Class B Certificates has been reduced to zero, the
interest portion of any Realized Losses allocable to the Class A
Certificates on such Distribution Date pursuant to Section 5.06;
(B) second, to the Class A Certificateholders, the Class A
------
Principal Distribution Amount, minus, after the Aggregate Certificate
Principal Balance of the Class B Certificates has been reduced to zero, the
principal portion of any Realized Losses allocable to the Class A
Certificates on such Distribution Date pursuant to Section 5.06;
(C) third, so long as the Servicing Advisor is Atherton or an
-----
Affiliate thereof, to the Servicing Advisor, an amount equal to the
Servicing Advisor Fee;
(D) fourth, to the Class A Certificateholders, to the extent of
------
any reduction in the Class A Principal Balance attributable to Realized
Losses allocated to the Class A Certificates on prior Distribution Dates
pursuant to Section 5.06, to the extent not previously reimbursed pursuant
to this clause, together with interest thereon at a rate per annum equal to
9.07% from and including the respective date of allocation to but excluding
such Distribution Date;
(E) fifth, an amount equal to the Subordinated Advisory Fee, in
-----
the following order of priority;
(1) first, to the Class A Certificateholders, the related
-----
Class A Certificateholder Expenses, if any;
(2) second, to the Class A Certificateholders, any X
------
Prepayment Amount due with respect to the preceding Collection Period;
(3) third, the balance to Atherton, up to an amount equal
-----
to the Subordinated Advisory Fee;
(F) sixth, an amount equal to the Class B Interest Distribution
-----
Amount (less the aggregate amount by which a distribution to Class B
Certificateholders will be reduced pursuant to Sections 5.03(c)(i) and 5.06
and/or Section 5.03(c)(iii));
(1) first, to the Class A Certificateholders, an amount
-----
equal to the related Class A Certificateholder Expenses, if any, over
the amount applied pursuant to Section 5.03(b)(iv)(E)(1);
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<PAGE>
(2) second, to the Class A Certificateholders, an amount
------
equal to the X Prepayment Amount due with respect to the preceding
Collection Period, over the amount applied pursuant to Section
5.03(b)(iv)(E)(2);
(3) third, to Atherton, an amount equal to the Subordinated
-----
Advisory Fee over the amount applied pursuant to Section
5.03(b)(iv)(E)(3);
(4) fourth, the balance to the Class B Certificateholders,
------
up to an amount equal to the Class B Interest Distribution Amount
(less the aggregate amount by which a distribution to Class B
Certificateholders will be reduced pursuant to Sections 5.03(c)(i) and
5.06 and/or Section 5.03(c)(iii));
(G) seventh, to the Reserve Account, until the amount on deposit
-------
therein is equal to the sum of the Reserve Account Required Amount
(determined after giving effect to any withdrawals to be made therefrom
pursuant to Section 5.02(f)(ii)) and the aggregate Holder Reserve Account
Reimbursement Amounts existing on such date;
(H) eighth, to the Class A Certificateholders, an amount equal
------
to the excess of the related Class A Certificateholder Expenses, if any,
over the sum of the amounts applied pursuant to Sections 5.03(b)(iv)(E)(1)
and 5.03(b)(iv)(F)(1);
(I) ninth, to the Class A Certificateholders, an amount equal to
-----
the excess of the X Prepayment Amount due with respect to the preceding
Collection Period over the sum of the amounts applied pursuant to Sections
5.03(b)(iv)(E)(2) and 5.03(b)(iv)(F)(2);
(J) tenth, to Atherton, an amount equal to the excess of the
-----
Subordinated Advisory Fee over the sum of the amounts applied pursuant to
Sections 5.03(b)(iv)(E)(3) and 5.03(b)(iv)(F)(3);
(K) eleventh, to the Class B Certificateholders, an amount
--------
equal to the excess of the Class B Interest Distribution Amount (less the
aggregate amount by which a distribution to Class B Certificateholders will
be reduced pursuant to Sections 5.03(c)(i) and 5.06 and/or Section
5.03(c)(iii)) over the amount applied pursuant to Section
5.03(b)(iv)(F)(4);
(L) twelfth, to Atherton, any Y Prepayment Amount due with
-------
respect to the preceding Collection Period;
(M) thirteenth, any Servicer Indemnification Payments and/or
----------
Trustee Indemnification Payments, and pay such amounts to the Servicer and
the Trustee, as applicable, pro rata, based on the amounts of such
payments;
(N) fourteenth, to the Trustee, any Extraordinary Trustee
----------
Expenses;
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(O) fifteenth, to the Servicing Advisor, any Servicing Advisor
---------
Indemnification Payments;
(P) sixteenth, to each Class B Certificateholder, the amount of
---------
any withdrawals from such Certificateholder's Holder Reserve Account
pursuant to Section 5.02(f) and not paid to such Certificateholder, pro
rata based on such unpaid amounts;
(Q) seventeenth, to the Class B Certificateholders, the Class B
-----------
Principal Distribution Amount and any Defaulted Loan Interest due with
respect to the preceding Collection Period (less the aggregate amount by
which distributions to Class B Certificateholders will be reduced pursuant
to Sections 5.03(c)(ii) and 5.06 and/or Section 5.03(c)(iii));
(R) eighteenth, to the extent of any reinvestment income earned
----------
on funds on deposit in the Collection Account, to the Class B
Certificateholders as a subordination fee;
(S) nineteenth, to the Class B Certificateholders, to the
----------
extent of any reduction in the Aggregate Class B Certificate Principal
Balance attributable to Realized Losses allocated to the Class B
Certificates on prior Distribution Dates, to the extent not previously
reimbursed pursuant to this clause, together with interest thereon at the
Class B Pass-Through Rate from and including the date of allocation to but
excluding such Distribution Date; and
(T) twentieth, to the Class A Certificateholders and the Class B
---------
Certificateholders, based on the Class A Percentage and the Class B
Percentage, respectively.
(c) Distributions to the Certificateholders of any Class pursuant to
paragraph (b) above will be made pro rata among such Certificateholders based
upon such Certificateholders' Percentage Interests; provided that distributions
--------
to Class B Certificateholders will be subject to the following rules of
application:
(i) Distributions otherwise required to be made to a Class B
Certificateholder pursuant to Sections 5.03(b)(iv)(F)(4) and 5.03(b)(iv)(K) will
be reduced on each Distribution Date until there shall have been deducted from
such distributions an aggregate amount equal to the sum of (a) the aggregate
amount of Delinquent Interest Payments in respect of such Class B
Certificateholder's Related Loans which have not been paid by such Class B
Certificateholder and (b) if any of such Class B Certificateholder's Related
Loans are Liquidated Loans, the aggregate amount of the excess, if any, of
accrued and unpaid interest and the X Prepayment Amount and Y Prepayment Amount
due in respect of each such Liquidated Loan over the amount of Net Liquidation
Proceeds applied to interest in respect of such Liquidated Loan.
(ii) Distributions otherwise required to be made to a Class B
Certificateholder pursuant to Section 5.03(b)(iv)(Q) will be reduced on each
Distribution Date until there shall have been deducted from such distributions
an aggregate amount equal to the sum of (a) the aggregate amount of Delinquent
Principal Payments in respect of such Class B Certificateholder's Related Loans
which have
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<PAGE>
not been paid by such Class B Certificateholder and (b) if any of such Class B
Certificateholder's Related Loans are Liquidated Loans, an aggregate amount
equal to the excess, if any, of the amount referred to in clause (b)(i)(B)(3) of
the definition of Class A Principal Distribution Amount over the portion of Net
Liquidation Proceeds applied to principal in respect of each such Liquidated
Loan.
(iii) Distributions otherwise required to be made to a Class B
Certificateholder with respect to which Class A Certificateholder Expenses
and/or Indemnification Payments have been incurred will be reduced on each
Distribution Date until there shall have been deducted from such distributions
an aggregate amount equal to such Class A Certificateholder Expenses and/or
Indemnification Payments. Such reductions will first be allocated to a
reduction of distributions pursuant to Sections 5.03(b)(iv)(F) and
5.03(b)(iv)(K) otherwise payable to such Class B Certificateholders and then to
a reduction of distributions pursuant to Section 5.03(b)(iv)(Q) otherwise
payable to such Class B Certificateholders.
(iv) On each Distribution Date with respect to which payments have
been received in respect of Delinquent Interest Payments and/or Delinquent
Principal Payments, to the extent the amount to be distributed pursuant to
Sections 5.03(b)(iv)(4)(F) and 5.03(b)(iv)(K) or Section 5.03(b)(iv)(Q) includes
all or a portion of such payments, an amount equal to such payments will be
distributed as among the Class B Certificates on such Distribution Date in the
following order of priority: first, to each Class B Certificateholder (other
-----
than the Class B Certificateholder responsible for such Delinquent Interest
Payments or Delinquent Principal Payment) in an amount equal to the reductions
in distributions to such Class B Certificateholders on prior Distribution Dates
attributable to such Delinquent Interest Payments and Delinquent Principal
Payments, pro rata, based on the amount of such reductions; second, to each of
------
such Class B Certificateholders in an amount equal to the reductions in
distributions to such Class B Certificateholder which would have been allocated
to the Class B Certificateholder responsible for such Delinquent Interest
Payments and Delinquent Principal Payments (in respect of other Loans as to
which there were Delinquent Interest Payments or Delinquent Principal Payments
or Realized Losses) if such payments had not been delinquent, pro rata, based on
the amount of such reductions; and third, to the Class B Certificateholder on
-----
whose behalf such payments were made.
(v) On each Distribution Date following a Collection Period in respect
of which Defaulted Loan Interest accrued on any Loan, any Defaulted Loan
Interest actually received and included in the amounts distributable to Class B
Certificateholders pursuant to Section 5.03(b)(iv)(Q) will be distributed as
among the Class B Certificateholders on such Distribution Date in the following
order of priority: first, to each Class B Certificateholder, other than the
-----
Class B Certificateholder as to which such Loan is or was a Related Loan and
other than any Class B Certificateholder as to which any other Loan is a
Defaulted Loan, up to an amount equal to the product of such Class B
Certificateholder's Percentage Interest and the amount of Defaulted Loan
Interest so accrued on such Loan in respect of such Collection Period, pro rata,
among such Class B Certificateholders according to such amounts; second, to each
------
Class B Certificateholder as to which any other Loan is a Defaulted Loan, other
than the Class B Certificateholder as to which the Loan on which such Defaulted
Loan Interest accrued is a Related Loan, up to an amount equal to the product of
such Class B Certificateholder's Percentage Interest and the amount of Defaulted
Loan Interest accrued on such Loan in respect of such Collection Period, pro
rata,
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<PAGE>
among such Class B Certificateholders according to such amounts; third, to each
Class B Certificateholder described in the preceding clause first, up to an
-----
amount equal to any Realized Losses on such Loan (as to which Defaulted Loan
Interest accrued) theretofore allocated to such Class B Certificateholder which
has not previously been reimbursed to such Class B Certificateholder pursuant to
the terms of this Agreement, pro rata, among such Class B Certificateholders
according to their respective amounts of such Realized Losses; fourth, to each
------
Class B Certificateholder described in the preceding clause second, up to an
------
amount equal to any Realized Losses on such Loan (as to which Defaulted Loan
Interest accrued) theretofore allocated to such Class B Certificateholder which
has not previously been reimbursed to such Class B Certificateholder pursuant to
the terms of this Agreement, pro rata, among such Class B Certificateholders
according to their respective amounts of such Realized Losses; and fifth, to the
-----
Class B Certificateholder as to which such Loan (as to which Defaulted Loan
Interest accrued) is a Related Loan, any remainder of such Defaulted Loan
Interest actually received.
(vi) On each Distribution Date with respect to which recoveries are
received in respect of a Realized Loss on a Liquidated Loan, distributions
pursuant to Section 5.03(b)(iv)(S) will be distributed on such Distribution Date
in the following order of priority: first, to each Class B Certificateholder
-----
(other than the Class B Certificateholder with respect to which the Liquidated
Loan was a Related Loan) in an amount equal to the reductions in distributions
to such Class B Certificateholder attributable to such Realized Loss, pro rata,
based on the amount of such reductions; second, to each of such Class B
------
Certificateholders in an amount equal to the reductions in distributions to such
Class B Certificateholder which would have been allocated to the Class B
Certificateholder with respect to which the related Liquidated Loan was a
Related Loan (in respect of other Loans as to which there were Delinquent
Interest Payments or Delinquent Principal Payments or Realized Losses) had such
Related Loan not been a Liquidated Loan, pro rata, based on the amount of such
reductions; and third, to the Class B Certificateholder with respect to which
-----
the related Liquidated Loan was a Related Loan.
(vii) The amount, if any, distributable to Class B Certificateholders
on any Distribution Date pursuant to Section 5.03(b)(iv)(R) shall be distributed
as among the Class B Certificateholders on such Distribution Date in the
following priority: first, to each Class B Certificateholder, other than any
-----
Class B Certificateholder with respect to which any Defaulted Loan is a Related
Loan, up to an amount equal to the product of such Class B Certificateholder's
Percentage Interest and the aggregate amount distributable pursuant to such
Section, pro rata, among such Class B Certificateholders according to such
amounts; second, to each Class B Certificateholder described in the preceding
------
clause first, up to an amount equal to any Realized Losses theretofore allocated
to such Class B Certificateholder on any Loan that is then a Defaulted Loan
which have not previously been reimbursed to such Class B Certificateholder
pursuant to the terms of this Agreement, pro rata, among such Class B
Certificateholders according to such amounts; and third, to each Class B
-----
Certificateholder with respect to which any Defaulted Loan is a Related Loan,
the remainder of the amount distributable pursuant to such Section.
(viii) Notwithstanding anything in this Agreement to the contrary, in
connection with the tender of all or a portion of a Class B Certificate pursuant
to Section 5.05(b) or 5.05(c) hereof, the Paying Agent shall allocate (pursuant
to the instructions of the Servicer) on each Distribution Date subsequent to the
date of prepayment of the Loan on which the Prepayment Conditions are satisfied,
in
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<PAGE>
the case of Section 5.05(b), and on each Distribution Date following the date of
prepayment of the Related Loan, in the case of Section 5.05(c), all amounts
available to be distributed in respect of principal on the Class B Certificates
pursuant to Section 5.03(b)(iv)(Q) to any Tendering Holder until such Tendering
Holder has received an amount equal to the Cash Tender Amount with respect to
such Loan in order to effectuate the purchase of such Tendering Holder's Class B
Certificate or portion thereof. In the event that on any Distribution Date there
is more than one such Tendering Holder, amounts distributable pursuant to this
clause (c)(viii) will be allocated among such Certificateholders, pro rata,
based upon the Cash Tender Amounts of the Loans of such Tendering Holders.
(ix) The distribution to Class B Certificateholders to be made on the
Final Distribution Date pursuant to Section 5.03(b)(iv)(Q) will be reduced by an
amount necessary to cover the reasonable expenses to be incurred in connection
with the filing of the final tax returns of the Trust.
(d) Notwithstanding any provision to the contrary in this Agreement or the
Class A Certificates, the Paying Agent will pay, in immediately available funds
(using its best efforts to pay by 1:00 P.M. New York City time) on the date
payment is due, to the extent amounts are available therefor, all amounts
payable to the Holders of Class A Certificates (without the necessity for any
presentation or surrender thereof or any notation of such payment thereon) in
the manner and at the address for such purpose specified below the name of the
Holder in Schedule I to the Class A Purchase Agreement, or at any other address
as such Class A Certificateholder may from time to time direct the Paying Agent
in writing. Payments to Class B Certificateholders will be made by check mailed
to the address of such Holder as reflected on the Certificate Register, or upon
written request made to the Paying Agent at least five Business Days prior to
the related Distribution Date, by wire transfer of immediately available funds
to an account designated by the Holder. Each Holder of a Class A Certificate
agrees that, as promptly as practicable after the payment or prepayment in whole
of any Certificate held by such Holder or its nominee and receipt by it of a
written request from the Transfer Agent and Certificate Registrar to surrender
such Certificate to the Transfer Agent and Certificate Registrar for
cancellation, each such Holder will surrender such Class A Certificate at the
office of the Transfer Agent and Certificate Registrar maintained at the address
set forth in Section 11.04 hereof. Notwithstanding the foregoing, payments on
the Class B Certificates on the Final Distribution Date shall be made only in
accordance with Article X. Each Holder of a Certificate agrees that if it sells,
assigns or transfers any Certificate, it will, prior to any such sale,
assignment or transfer, make a proper notation thereon of the amount of
principal paid thereon as of the date of such sale, assignment or transfer.
Section 5.04. Statements and Reports of Paying Agent and Servicer.
---------------------------------------------------
(a) On each Distribution Date the Paying Agent will forward to each
Certificateholder at the address set forth for such Certificateholder in the
Certificate Register (or as otherwise provided for by a Class A
Certificateholder) a copy of the Servicer Certificate with respect to such
Distribution Date.
(b) As soon as practicable after the receipt thereof from the Servicer, the
Paying Agent will mail to each Certificateholder the applicable statement
prepared by the Servicer pursuant to Section 4.08(b) hereof.
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<PAGE>
(c) On each Distribution Date, the Paying Agent shall deliver to the
Servicing Advisor, the Trustee, the Servicer and to each Certificateholder a
certificate of a Responsible Officer setting forth:
(i) the amount on deposit in the Collection Account on the preceding
Distribution Date (after giving effect to all withdrawals from and deposits to
the Collection Account on such date);
(ii) the amount of investment income expected to be earned on funds on
deposit in the Collection Account during the period from the preceding
Distribution Date (or the Closing Date, in the case of the first Determination
Date) and ending the day preceding the Distribution Date for which such
certificate is being delivered;
(iii) the aggregate amount on deposit in the Reserve Account on the
preceding Distribution Date (or the Closing Date, in the case of the first
Distribution Date) and on the day preceding the Distribution Date for which such
certificate is being delivered and the amount on deposit in each Holder Reserve
Account on such dates (in each case after giving effect to all withdrawals from
and deposits to such accounts on such date);
(iv) the amount of reinvestment income expected to be earned on
amounts on deposit in the Reserve Account since the preceding Distribution Date
(or the Closing Date, in the case of the first Determination Date) and the
amount of such reinvestment income allocable to each Holder Reserve Account
pursuant to Section 5.02(b); and
(v) the Trustee Fee and any Trustee Expenses and Trustee
Indemnification Payments with respect to the Distribution Date for which such
certificate is being delivered.
(d) (i) Upon receipt of a notice from the Servicing Advisor that the
Review Panel has proposed any action pursuant to Section 3.02(c) hereof, the
Servicer shall forward to the Class A Certificateholders a copy of the form of
notification attached to the Servicing Advisor's notice at the addresses set
forth for such Certificateholders in the Certificate Register. In the event that
the Holders of Class A Certificates evidencing not less than a majority of the
Aggregate Certificate Principal Balance evidenced by the Class A Certificates do
not object to such action by written notice within 20 days of written
confirmation by the Trustee that the Class A Certificateholders have received
such notification, the Class A Certificateholders will be deemed to have
approved such action.
(ii) Upon receipt of a notice from the Servicing Advisor that a
Substitution is proposed pursuant to Section 3.11(a) of the Related Loan
Agreement, the Servicer will forward to the Class A Certificateholders a copy of
the form of notification attached to the Servicing Advisor's notice at the
addresses set forth for such Holders in the Certificate Register. No such
Substitution will be permitted unless (a) the Trustee has reasonably determined
that all conditions precedent to such Substitution, as set forth in the related
Loan Agreement, have been satisfied, (b) the Required Holders (without giving
effect to the Class B Certificates held by the Borrower subject of such
Substitution) give notice to the Trustee and the Servicer of their approval of
such Substitution within 30 days of the mailing by the Servicer of such notice,
which approval shall not be unreasonably withheld, and (c) the Trust has
received an opinion of counsel reasonably satisfactory to the Servicing Advisor
and the Required
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<PAGE>
Holders and upon which the Servicer, the Certificateholders, and the Trustee may
rely to the effect that such Substitution will not adversely affect the status
of the Trust as a fixed investment trust (taxable as a grantor trust) for
federal, state or local income tax purposes. Any such opinion shall be an
expense of the Borrower requesting such Substitution and shall not be an expense
of the Trustee, the Servicing Advisor, the Servicer or the Trust.
(iii) Upon receipt of a notice from the Servicing Advisor that a
Borrower proposes to transfer any Loan Collateral pursuant to Section 3.02(e)
hereof, the Servicer will forward to the Class A Certificateholders a copy of
the form of notification attached to the Servicing Advisor's notice at the
addresses set forth for such Certificateholders in the Certificate Register
(without giving effect to the Class B Certificates held by the Borrower
proposing such transfer). Such transfer shall not be permitted unless (a) the
Trustee has reasonably determined that all conditions precedent to such
transfer, as set forth in the related Loan Agreement, have been satisfied and
(b) the Required Holders give notice to the Trustee and the Servicer of their
approval of such transferee within 20 days of the mailing by the Servicer of
such notice.
(e) The Servicer shall, as soon as practicable after receipt thereof,
notify the Certificateholders of any notice received from the Servicing Advisor
pursuant to Section 3.02(a) hereof of any Loans which have become
Underperforming Loans or Significantly Underperforming Loans.
Section 5.05. Tender of Class B Certificates.
------------------------------
(a) In connection with a Prepayment in full of a Related Loan, a Class B
Certificateholder may tender for exchange by the other Class B
Certificateholders on the following Distribution Date all or a portion of its
Class B Certificate having a principal balance equal to the Percentage Interest
of the outstanding amount of the Related Loan being prepaid (such amount, the
"Prepayment Amount") for credit against the amount required to be paid by such
-----------------
Class B Certificateholder in connection with such Prepayment pursuant to the
applicable Loan Agreement; provided that on the Loan Payment Date on which such
Prepayment is to be made (a "Prepayment Date") the Servicing Advisor will have
---------------
determined the following conditions (the "Prepayment Conditions") are satisfied:
---------------------
(i) no Loan Event of Default described in Section VIII(a) of any Loan
Agreement (other than such a Loan Event of Default in respect of the Loan being
prepaid) has occurred and is continuing,
(ii) no Loan Event of Default has occurred and is continuing in
respect of any Related Loan of such Class B Certificateholder under the Loan
Agreement to which such related Class B Certificateholder is a party (other than
such a Loan Event of Default in respect of the Loan being prepaid),
(iii) Loans (other than the Loan being prepaid) in respect of no more
than 2 Stores are Underperforming Loans, and
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<PAGE>
(iv) the average Debt Service Ratio for the twelve-month period ending
on the last day of the calendar quarter immediately preceding the Prepayment
Date, as determined by the Servicing Advisor, of all of the Stores weighted
according to the outstanding principal amount of each Loan (other than the Loan
being prepaid), is not less than 1.6; provided that, in determining such Debt
-------- ----
Service Coverage Ratio for such twelve-month period, no more than three Stores
shall be excluded from such determination of the Debt Service Coverage Ratio by
reason of clause (a) of the definition thereof (in the event more than three
Stores would be excluded by operation of said proviso, the three Stores that
first suffered a casualty loss and were therefore excluded from the
determination of the Debt Service Coverage Ratio by operation of said proviso
shall be excluded from such determination for such twelve-month period).
Any Borrower intending to tender its Class B Certificate pursuant to this
paragraph (a) must comply with the provisions of Section 2.3 of the applicable
Loan Agreement. On or prior to the applicable Prepayment Date, the Servicing
Advisor will notify such Borrower and the Servicer and the Trustee whether the
Prepayment Conditions are satisfied and the principal amount of the Class B
Certificate to be tendered.
(b) In the event a Class B Certificateholder does not tender all or a
portion of its Class B Certificate as described in paragraph (a) above in
connection with a Prepayment of a Related Loan (other than a Prepayment
described in paragraph (c) below), on each subsequent Distribution Date on which
the Prepayment Conditions are satisfied such Class B Certificateholder will be
deemed to have tendered a portion of its Class B Certificate for purchase by the
other Class B Certificateholders in an amount equal to the amount of principal
distributed in respect of such Class B Certificate until such Certificateholder
has received a principal amount equal to the related Cash Tender Amount.
(c) In the event that Net Insurance Proceeds are applied to the prepayment
of a Loan, on each Distribution Date following the Collection Period in which
the Prepayment was made, the Class B Certificateholder with respect to which
such Loan is a Related Loan will be deemed to have tendered a portion of its
Class B Certificate for purchase by the other Class B Certificateholders in an
amount equal to the amount of principal distributed in respect of such Class B
Certificate until such Certificateholder has received a principal amount equal
to the related Cash Tender Amount.
(d) Any deemed tender of a Class B Certificate pursuant to Section 5.05(a)
will be deemed to be an exchange of the Tendering Holder's interest in the
Related Loans of each other Class B Certificateholder for such other Class B
Certificateholder's interest in the Tendering Holder's Related Loans. Any deemed
tender of a Class B Certificate pursuant to Section 5.05(b) or 5.05(c) shall be
satisfied by the application of amounts distributable in respect of principal in
respect of the Class B Certificates as described in Section 5.03(c)(viii).
Notwithstanding such application, such distribution will be deemed to be a
distribution of principal to all Class B Certificateholders, pro rata, based on
the Percentage Interests of such Class B Certificateholders and a purchase by
each non-tendering Class B Certificateholder of a principal amount of the Class
B Certificate or portion thereof so tendered in a principal amount equal to such
deemed distribution. Each non-tendering Class B Certificateholder will be deemed
to have acquired an additional pro rata undivided interest in the Loans other
than the Loan that was prepaid in an amount equal to the product of the amount
of the Prepayment and a fraction, the
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<PAGE>
numerator of which is the Class B Certificate Principal Balances of such non-
tendering Class B Certificateholder and the denominator of which is the sum of
the Class B Certificate Principal Balances of all such non-tendering Class B
Certificateholders.
Section 5.06. Allocation of Realized Losses. On any Determination Date,
-----------------------------
the principal portion of any Realized Loss in respect of a Loan which became a
Liquidated Loan during the related Collection Period will be allocated by the
Servicer in the following priority: first, to reduce the Class B Certificate
-----
Principal Balance of the Class B Certificate for which such Loan is a Related
Loan, until such Class B Certificate Principal Balance is reduced to zero;
second, to reduce the Class B Certificate Principal Balance of each Class B
- ------
Certificate, pro rata, based on the Percentage Interests represented by such
Class B Certificates, until the Aggregate Class B Certificate Principal Balance
is reduced to zero; and third, to the extent that the portion of any Realized
-----
Loss of principal not allocated pursuant to the immediately preceding clauses
first and second exceeds the amount withdrawn from the Reserve Account pursuant
- ----- ------
to Section 5.02(c)(ii), to reduce the outstanding principal balances of the
Class A Certificates, pro rata, based on the Percentage Interests represented by
such Certificates. The portion of Realized Losses in respect of a Liquidated
Loan representing Realized Losses of interest, the X Prepayment Amount and/or
the Y Prepayment Amount will be allocated by the Servicer in the following order
of priority: first, to reduce the portion of the Class B Interest Distribution
-----
Amount otherwise payable to the Holder of the Class B Certificate for which such
Loan is a Related Loan, until such amount otherwise payable is reduced to zero
(and the Certificate Principal Balance of such Class B Certificate is reduced to
zero); second, to reduce the portions of the Class B Interest Distribution
------
Amount otherwise payable to the Holders of the other Class B Certificates, pro
rata, according to such amounts payable to each, until such amounts otherwise
payable are reduced to zero (and the Aggregate Class B Certificate Principal
Balance is reduced to zero); and third, to the extent that any such Realized
-----
Loss not allocated pursuant to the immediately preceding clauses first and
-----
second exceeds the amount withdrawn from the Reserve Account pursuant to Section
- ------
5.02(c)(i), to reduce the Class A Interest Distribution Amount otherwise payable
to the Holders of the Class A Certificates. Allocations of Realized Losses
pursuant to clause first of either of the first two sentences of this Section
-----
5.06 shall be effected by operation of Section 5.03(c)(i) or Section
5.03(c)(ii), as the case may be.
ARTICLE VI
THE CERTIFICATES
Section 6.01. The Certificates. The Class A Certificates shall be issued
----------------
only in minimum denominations of $250,000 and integral multiples of $1,000 in
excess thereof (except, if necessary, for one Certificate in such denomination
as is required in order for all Certificates of such Class to equal the initial
Aggregate Class A Certificate Principal Balance) and shall be substantially in
the form set forth as Exhibits A and C (reverse side of Certificates) hereto.
On original issue, the Class A Certificates shall be executed and delivered by
the Trustee on behalf of the Trust to the Authenticating Agent, who shall
authenticate such Certificates and deliver them to or upon the order of the
purchasers thereof pursuant to the Class A Purchase Agreement. One Class B
Certificate will be issued to each Borrower in an initial Denomination equal to
the product of the Class B Percentage and the aggregate initial principal
balance of the Related Loans of such Borrower. The Class B Certificates shall
be issued in the form set forth
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as Exhibits B and C (reverse side of Certificates) hereto. The aggregate
principal portion of each Holder's undivided interest evidenced by the Class A
and Class B Certificates shall be the sum of the amounts specifically set forth
in the respective Certificates. The Certificates shall be executed by manual or
facsimile signature on behalf of the Trust by the Trustee by any Responsible
Officer thereof. Certificates bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Trustee shall bind
the Trustee and the Trust notwithstanding that such individuals or any of them
have ceased to hold such offices prior to such execution of such Certificates or
did not hold such offices at the date of such Certificates. No Certificate shall
be entitled to any benefit under this Agreement, or be valid for any purpose,
unless there appears on such Certificate a certificate of authentication
executed by the Authenticating Agent by manual signature, and such certificate
of authentication upon a Certificate shall be conclusive evidence, and the only
evidence, that such Certificate has been duly authenticated and delivered
hereunder.
Section 6.02. Registration of Transfer and Exchange of Certificates.
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(a) The Certificates issuable under this Agreement shall be registered
certificates. The Transfer Agent and Certificate Registrar will keep, at its
office required to be maintained pursuant to Section 6.04 hereof, a Certificate
Register, in which the Transfer Agent and Certificate Registrar shall provide
for the registration of Certificates and of transfers and exchanges of
Certificates as herein provided. Prior to presentation of any Certificate for
registration of transfer, the Trustee, the Servicing Advisor, the Servicer, the
Authenticating Agent, the Paying Agent and the Certificate Registrar shall treat
the Person in whose name such Certificate is registered as the owner and Holder
of such Certificate for all purposes whatsoever, and neither the Trustee, the
Servicing Advisor, the Servicer, the Authenticating Agent, the Paying Agent or
the Certificate Registrar shall be affected by notice to the contrary.
(b) Subject to paragraphs (d), (e) and (f) below, the Holder of any
Certificate, at its option, may in person or by duly authorized attorney
surrender the same for exchange at the office maintained pursuant to Section
6.04 hereof, and promptly thereafter and at the expense of the Transfer Agent
and Certificate Registrar, except as provided below and subject to Section 6.01
above, receive in exchange therefor one or more new Certificates, each in the
denomination requested by such Holder, dated the date of the Certificate so
surrendered and registered in the name of such Person or Persons as shall have
been designated in writing by such Holder or its attorney for the same principal
balance as the then unpaid principal balance of the Certificate so surrendered.
Subject to Section 6.04 hereof, the Transfer Agent and Certificate Registrar may
require payment of a sum sufficient to cover any stamp or other tax or
governmental charge imposed in respect of any transfer involved in such
exchange.
(c) Upon receipt by the Transfer Agent and Certificate Registrar of
evidence satisfactory to it of the ownership of and the loss, theft, destruction
or mutilation of any Certificate and (i) in the case of loss, theft or
destruction, of an indemnity bond or other indemnity satisfactory to it
(indemnifying the Trust, Transfer Agent and Certificate Registrar and the
Trustee); provided, however, that if the Holder of such Certificate is the
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original purchaser of the Certificate or any Affiliate or nominee thereof or any
institutional investor or nominee thereof, which in each case, has a net worth
of $50 million or more or which has an unsecured debt rating of investment grade
by a Nationally Recognized Statistical Rating
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Organization, its own unsecured agreement of indemnity shall be deemed to be
satisfactory; or (ii) in the case of mutilation, upon surrender thereof, to the
Transfer Agent and Certificate Registrar, the Trustee will execute, the
Authenticating Agent will authenticate and the Transfer Agent and Certificate
Registrar will deliver in lieu thereof a new Certificate of the same Class
executed in the same manner as the Certificate being replaced, in the same
principal balance as the unpaid principal balance of such Certificate and dated
the date of such Certificate. Upon the execution and delivery of the new
Certificate, the Certificate being replaced shall be deemed canceled.
All Certificates surrendered for transfer and exchange shall be canceled by
the Trustee in accordance with its standard procedures.
(d) The Class B Certificates are not transferable except in connection with
an assignment and assumption of the Related Loan and in accordance with Section
7.6 of the related Loan Agreement. In the event of any such transfer, the
principal amount of the portion of the Class B Certificate to be transferred
will be equal to the Percentage Interest of the Related Loan so assigned. The
Transfer Agent and Certificate Registrar will not register the transfer of any
Class B Certificate until the Transfer Agent and Certificate Registrar, in its
capacity as Servicer, has determined that such transfer complies with the terms
of the applicable Loan Agreement.
(e) No transfer of a Class A Certificate shall be made unless the
registration and qualification requirements of the Act and any applicable State
securities laws are complied with, or such transfer is exempt from the
registration and qualification requirements under the Act and such laws. The
Holder of a Class A Certificate desiring to effect such transfer shall, and does
hereby agree to, indemnify (which indemnity shall be unsecured) the Trust, the
Trustee, the Servicing Advisor, the Transfer Agent and Certificate Registrar,
the Trust and the Servicer against any liability that may result if the transfer
is not so exempt or is not made in accordance with such federal and state laws.
Notwithstanding anything herein to the contrary, the Class A Certificateholders
will not be required to indemnify any party hereto other than pursuant to this
Section 6.02(e). None of the Servicing Advisor, the Servicer, the Transfer Agent
and Certificate Registrar and the Trustee is under any obligation to register
the Certificates under the Act or any other securities law. Without limiting any
of the foregoing, no transfer of a Class A Certificate purported to be made
under Rule 144A under the Act shall be effected unless the Transfer Agent and
Certificate Registrar shall have received a representation letter from the
prospective transferee of such Class A Certificate in the form of Exhibit D-1
hereto.
(f) No transfer of a Class A Certificate shall be made unless the Trustee,
the Transfer Agent and Certificate Registrar, the Servicer and the Servicing
Advisor shall have received either (i) a representation letter from the
transferee of such Class A Certificate in the form of Exhibit D-2 hereto (the
provisions of which letter may alternatively be set forth in the representation
letter delivered by such transferee pursuant to Section 6.02(e)), which
representation letter shall not be an expense of the Trustee, the Trust, the
Servicing Advisor, the Transfer Agent and Certificate Registrar, or the
Servicer, or (ii) in the case of any such Class A Certificate presented for
registration in the name of an employee benefit plan subject to Section 406 of
ERISA and/or Section 4975 of the Code (or comparable provisions of any
subsequent enactments), or a person acting on behalf of any such plan, an
Opinion of Counsel satisfactory to the Trustee, the Transfer Agent and
Certificate Registrar and the Servicing Advisor to the
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effect that the purchase or holding of such Class A Certificate (a) will not
result in (x) the assets of the Trust Estate being deemed to be "plan assets" of
such plan or (y) any non-exempt prohibited transaction under Section 406 of
ERISA or Section 4975 of the Code and (b) will not subject the Trustee, the
Servicing Advisor, the Transfer Agent and Certificate Registrar, or the Servicer
to any obligation in addition to those undertaken in this Agreement, which
Opinion of Counsel shall not be an expense of the Trustee, the Trust, the
Servicing Advisor, the Transfer Agent and Certificate Registrar or the Servicer.
The Class A Certificates shall bear a legend referring to the foregoing
restrictions contained in this paragraph and the preceding paragraph.
Section 6.03. Access to List of Certificateholders' Names and Addresses.
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The Transfer Agent and Certificate Registrar shall, as soon as practicable upon
the written request of a Class A Certificateholder or the Trustee, and in no
event more than five days following such request, furnish such Certificateholder
or the Trustee, as applicable, with a list of all other Holders of Class A
Certificates.
Section 6.04. Maintenance of Office or Agency. The Trustee and the
-------------------------------
Transfer Agent and Certificate Registrar will each maintain, at its office
located at its respective address for notices provided in Section 11.04, an
office or agency where notices, presentations and demands in respect of this
Agreement, and the Certificates may be given to and made upon them; provided,
--------
however, that each of them may, upon 15 Business Days prior written notice to
- -------
the Certificateholders, move such office to any other location within the
continental boundaries of the United States. The Transfer Agent and Certificate
Registrar hereby agrees that it will pay, and will save any Certificateholder
harmless against liability for any stamp or other tax or governmental charge
imposed in respect of any transfer of a Certificate resulting from such a change
in the office of the Transfer Agent and Certificate Registrar described in the
proviso to the preceding sentence, and said obligation of the Transfer Agent and
Certificate Registrar shall survive the payment or prepayment of the
Certificates and the termination of this Agreement.
ARTICLE VII
CERTAIN MATTERS REGARDING
THE SERVICING ADVISOR AND THE SERVICER
Section 7.01. Merger or Consolidation of the Servicing Advisor or the
-------------------------------------------------------
Servicer; Transfer of Servicing. Any Person into which the Servicing Advisor
- -------------------------------
or the Servicer may be merged or consolidated, or any Person resulting from any
merger, conversion or consolidation to which the Servicing Advisor or the
Servicer shall be a party, or any Person succeeding to the business of the
Servicing Advisor or the Servicer, shall be the successor of the Servicing
Advisor or the Servicer, as the case may be, hereunder, without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding; provided, however, that if the
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long-term debt obligations of such Person are not rated in one of the three
highest rating categories by D&P and at least one other Nationally Recognized
Statistical Rating Agency or, if such obligations are not rated by D&P, by at
least two other Nationally Recognized Statistical Rating Organizations, such
successor must be approved in writing by the Required Holders.
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Section 7.02. Limitation on Liability of the Servicing Advisor, the
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Servicer and Others. Neither the Servicing Advisor or the Servicer, nor any of
- -------------------
their respective partners, shareholders, directors, officers, employees or
agents, shall be under any liability to the Trust or the Certificateholders for
any action taken or for refraining from the taking of any action in good faith
pursuant to this Agreement or any Loan Document, or for errors in judgment;
provided, however, that this provision shall not protect the Servicing Advisor,
- -------- -------
the Servicer or any such person against any liability which would otherwise be
imposed by reason of willful misfeasance, bad faith or negligence in the
performance of its duties or by reason of reckless disregard of his or its
obligations and duties hereunder. The Servicing Advisor, the Servicer and any
of their respective partners, directors, officers or employees, may rely in good
faith on any document of any kind prima facie properly executed and submitted by
any Person respecting any matters arising hereunder. The Servicing Advisor, the
Servicer and each of their respective partners, shareholders, directors,
officers, employees or agents, shall be indemnified by the Trust and held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to this Agreement, any Loan Document or the Certificates,
other than any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence in the performance of his or its duties
hereunder or by reason of reckless disregard of his or its obligations and
duties hereunder. Neither the Servicing Advisor nor the Servicer shall be under
any obligation to appear in, prosecute or defend any legal action which is not
incidental to its duties under this Agreement and that in its opinion may
involve it in any expense or liability; provided, however, that the Servicing
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Advisor or the Servicer, as the case may be, may in its discretion and with the
prior written consent of the Required Holders (and if the Class A Certificates
are outstanding, Holders of Class B Certificates evidencing at least 66 2/3% of
the Aggregate Class B Certificate Principal Balance), undertake any such action
which it may deem necessary or desirable in respect of this Agreement and the
rights and duties of the parties hereto and the interest of the
Certificateholders hereunder and, in such event, the reasonable legal expenses
and costs of such action and any liability resulting therefrom shall be
expenses, costs and liabilities of the Trust Estate, and the Servicing Advisor
or the Servicer shall be entitled to be reimbursed therefor.
Any amounts payable to the Servicing Advisor or the Servicer under this
Section 7.02 will be payable solely from funds available to be distributed on
each Distribution Date pursuant to Section 5.03(b)(iv)(M) or Section
5.03(b)(iv)(O) hereof, as applicable, and in no event will be payable prior to
the payment of distributions required to be made to Class A Certificateholders
on any Distribution Date.
Section 7.03. The Servicing Advisor and the Servicer Not to Resign;
-----------------------------------------------------
Removal of the Servicing Advisor and the Servicer.
- -------------------------------------------------
(a) Neither the Servicing Advisor nor the Servicer shall resign from the
obligations and duties hereby imposed on it, except upon determination that its
duties hereunder are no longer permissible under applicable law; provided that
--------
such activities shall not have been commenced after the date of this Agreement.
Any such determination permitting the resignation of the Servicing Advisor or
the Servicer shall be evidenced by an Opinion of Counsel to such effect
delivered to the Trustee, the Class A Certificateholders, and D&P. Such Opinion
of Counsel shall be an expense of the Servicing Advisor or the Servicer, as
applicable, and shall not be an expense of the Trustee, the Class A
Certificateholders or the Trust. No such resignation shall become effective
until the Trustee or a
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successor servicer shall have assumed the Servicing Advisor's or the Servicer's
responsibilities and obligations in accordance with Section 8.04 hereof.
(b) (i) In the event that any consent, approval, authorization or order of
any state or federal court or federal or state governmental agency or body is
required for the consummation or performance by the Servicing Advisor of its
duties hereunder and the Servicing Advisor fails to obtain such consent,
approval, authorization or order within 30 days of acquiring knowledge of such
event, the Holders of Certificates evidencing in the aggregate not less than a
majority of the Aggregate Certificate Principal Balance of the Controlling Class
may, upon, 30 days' written notice (or such shorter time period as such Holders
shall designate in writing to the Servicing Advisor if such Holders reasonably
determine that the continuation of the Servicing Advisor in its role as such
would have a material adverse effect on the Certificateholders of the
Controlling Class) remove the Servicing Advisor.
(ii) In the event that Atherton or any Affiliate is the Servicing
Advisor and the cumulative Realized Losses exceed 15% of the Pool Balance, the
Required Holders may, upon 30 days' written notice, remove Atherton or such
Affiliate as the Servicing Advisor.
As a condition precedent to a removal (a) pursuant to Section 7.03(b)(i),
the Holders of Certificates evidencing in the aggregate not less than a majority
of the Aggregate Certificate Principal Balance of the Controlling Class or (b)
pursuant to Section 7.03(b)(ii), the Required Holders, shall have appointed a
successor Servicing Advisor meeting the requirements of Section 8.04 prior to
the removal of the Servicing Advisor, unless such Holders cannot locate such a
successor and such Holders reasonably believe that the continuation of the
Servicing Advisor in its role as such would have a material adverse effect on
the Certificateholders of the Controlling Class.
In such event, the Servicer shall act as successor to the Servicing Advisor
in the manner prescribed in Section 8.04 hereof until a successor Servicing
Advisor can be engaged. The Holders removing the Servicing Advisor will
continue to use their best efforts to engage a successor Servicing Advisor.
The Servicing Advisor agrees to promptly notify the Trustee, the Servicer
and the Certificateholders of the occurrence of any event described in the first
paragraph of this Section 7.03(b).
(c) The Holders of Certificates evidencing in the aggregate not less than a
majority of the Aggregate Certificate Principal Balance of the Controlling Class
may at any time remove the Servicer only after appointing a successor Servicer
meeting the requirements set forth in Section 8.04 by written instrument or
instruments, in quadruplicate, signed by such holders or their attorneys-in-fact
duly authorized, one complete set of which shall be delivered to the Servicing
Advisor, one complete set of which shall be delivered to the Trustee, one
complete set of which shall be delivered to the Servicer so removed and one
complete set of which shall be delivered to the successor so appointed.
Section 7.04. Representations and Warranties of the Servicing Advisor and
-----------------------------------------------------------
the Servicer. Each of the Servicing Advisor and the Servicer hereby
- ------------
represents, warrants and covenants to the Trustee for the benefit of the
Certificateholders that, as of the date of execution of this Agreement:
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(i) In the case of the Servicing Advisor, it is a limited partnership duly
formed and validly existing under the laws of its state of organization, or, in
the case of the Servicer, it is a banking corporation duly formed and validly
existing under the laws of the State of New York;
(ii) The execution and delivery of this Agreement by it and its performance
and compliance with the terms of this Agreement will not violate, in the case of
the Servicing Advisor, its limited partnership agreement, or, in the case of the
Servicer, its corporate charter or by-laws, or constitute a default (or an event
which, with notice or lapse of time, or both, would constitute a default) under,
or result in the breach of, any material contract, agreement or other instrument
to which it is a party or which may be applicable to it or any of its assets;
(iii) This Agreement has been duly authorized, executed and delivered by it
and, assuming due authorization, execution and delivery by the other parties
hereto, constitutes a valid, legal and binding obligation of such party,
enforceable against it in accordance with the terms hereof subject to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
enforcement of creditors' rights generally and to general principles of equity,
regardless of whether such enforcement is considered in a proceeding in equity
or at law;
(iv) It is not in default with respect to any order or decree of any court
or any order, regulation or demand of any federal, state, municipal or
governmental agency, which default might have consequences that would materially
and adversely affect its condition (financial or other) or operations or its
properties or might have consequences that would affect its performance
hereunder;
(v) No litigation is pending or, to the best of its knowledge, threatened
against it which would prohibit its entering into this Agreement or performing
its obligations under this Agreement; and
(vi) No consent, approval, authorization, or order of, registration or
filing with, or notice to, any governmental authority or court or any other
Person is required under the laws of the United States of America or the laws of
the States of New York or the State of its organization for the execution,
delivery and performance by it of, or compliance by it with, this Agreement or
the Certificates, or the consummation by it of any other transaction
contemplated hereby or by the Certificates.
ARTICLE VIII
SERVICER DEFAULTS
Section 8.01. Servicer Events of Default. In case one or more of the
--------------------------
following conditions or events ("Servicer Events of Default") by the Servicing
--------------------------
Advisor or the Servicer (in either case, the "Defaulting Servicer") shall occur
-------------------
and be continuing, that is to say:
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(i) any failure by the Servicer to deposit into the Collection Account or
the Reserve Account, or any other account required to be established hereunder,
any amount required to be so deposited by the Servicer pursuant to and in
accordance with the term of this Agreement, or any failure by the Servicer, in
its capacity as Paying Agent, to distribute to Certificateholders when due any
payment required to be made under the terms of the Certificates and this
Agreement provided funds are available therefor; or
(ii) any failure on the part of the Defaulting Servicer duly to observe or
perform in any material respect any of the other covenants or agreements on the
part of it in the Certificates or in this Agreement (in the case of the
Servicer, whether in the Servicer's capacity as Servicer, Authenticating Agent,
Paying Agent or Transfer Agent and Certificate Registrar) which continues
unremedied for a period of 30 days after the date on which the Servicer, or the
Servicing Advisor, as appropriate, the Trustee, or the Holders of Certificates
evidencing in the aggregate not less than 25% of the Aggregate Certificate
Principal Balance of the Controlling Class shall have given written notice of
such failure, specifying the nature thereof; or
(iii) there shall be commenced against the Defaulting Servicer any case,
proceeding or other action (a) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (b)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, which remains
undismissed, undischarged or unbonded for a period of 60 days; or
(iv) a decree or order of a court or agency or supervisory authority having
jurisdiction in the premises for the appointment of a trustee, conservator,
receiver or liquidator in any bankruptcy, insolvency, readjustment of debt,
marshaling of assets and liabilities or similar proceedings, or for the winding-
up or liquidation of its affairs, shall have been entered against the Defaulting
Servicer and such decree or order shall have remained in force undischarged and
unstayed for a period of 60 days; or
(v) the Defaulting Servicer shall consent to the appointment of a trustee,
conservator, receiver or liquidator or liquidating committee in any bankruptcy,
insolvency, readjustment of debt, marshaling of assets and liabilities,
voluntary liquidation or similar proceedings of or relating to the Defaulting
Servicer, or of or relating to all or substantially all of its property; or
(vi) the Defaulting Servicer shall admit in writing its inability to pay
its debts generally as they become due, file a petition to take advantage of any
applicable insolvency, bankruptcy or reorganization statute, make an assignment
for the benefit of its creditors or voluntarily suspend payment of its
obligations; or
(vii) the Defaulting Servicer shall be dissolved, or shall dispose of all
or substantially all of its assets; or consolidate with or merge into another
entity or shall permit another entity to
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consolidate or merge into it, such that the resulting entity does not meet
the criteria for a successor servicer, as specified in Section 7.01 hereof;
or
(viii) the Defaulting Servicer shall cease business operations or fail
to conduct its business as presently conducted.
then, and in each and every such case, subject to applicable law, so long as
each Servicer Event of Default shall not have been remedied, either the Trustee
or the Holders of Certificates evidencing in the aggregate not less than a
majority of the Aggregate Certificate Principal Balance represented by the
Controlling Class, by notice in writing to the Defaulting Servicer (and to the
Trustee if given by the Certificateholders) may terminate all or any of the
rights and obligations of the Defaulting Servicer under this Agreement. Upon
receipt by the Defaulting Servicer of such written notice, and, with respect to,
the Servicer only, if such written notice specified a Servicer Event of Default
other than an event specified in clauses (i) or (ii) above, all authority and
power of the Defaulting Servicer under this Agreement, whether with respect to
the Certificates or the Loans or otherwise, shall pass to and be vested in the
Trustee or if the Servicing Advisor is the Defaulting Servicer, the Servicer,
pursuant to and under this Section, subject to the provisions of Section 8.04;
and, without limitation, the Trustee or the Servicer, as applicable, is hereby
authorized and empowered to execute and deliver, on behalf of the Defaulting
Servicer, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination. The
Defaulting Servicer agrees to cooperate with the Trustee or the Servicer, as
applicable, in effecting the termination of the Defaulting Servicer's,
responsibilities and rights hereunder and shall promptly provide the Trustee or
the Servicer, as applicable, all documents and records reasonably requested by
it to enable it to assume the Defaulting Servicer's functions hereunder. In the
event of the occurrence of a Servicer Event of Default specified in clauses (i)
or (ii) above with respect to the Servicer, any removal of the Servicer shall
become effective upon acceptance of an appointment of a successor Servicer as
provided in Section 8.04 below.
Without limiting the generality of the foregoing or any other provision of
this Agreement, upon the occurrence of a Servicer Event of Default with respect
to the Servicer (whether in its capacity as Servicer, Paying Agent, Transfer
Agent and Certificate Registrar or Authenticating Agent), the Trustee shall have
all authority over the Collection Account, the Reserve Account and any other
account maintained hereunder, all collections and other funds which upon or
after such Servicer Event of Default are or shall be held by the Servicer for
deposit into the Collection Account, the Reserve Account or any other account
maintained hereunder, or which are or shall be on deposit in such accounts, and
simultaneously therewith, the authority granted to the Servicer and the Paying
Agent to make withdrawals from such accounts pursuant to Section 5.02 and
Section 5.03 shall cease; provided, however, that the Trustee shall be required
to make the transfers, withdrawals and distributions otherwise required to be
made by the Servicer (whether in its capacity as Servicer, Paying Agent,
Transfer Agent and Certificate Registrar or Authenticating Agent) pursuant to
the terms hereof.
Each of the Servicing Advisor and the Servicer agrees to notify each other
and the Trustee, the Certificateholders and D&P of the occurrence of a Servicer
Default or a Servicer Event of Default with respect to itself and the Trustee
shall notify Certificateholders and D&P promptly upon acquiring
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knowledge of the occurrence of a Servicer Default or Servicer Event of Default.
Notwithstanding the foregoing, the Required Holders may waive any Servicer Event
of Default by written notice to the Servicing Advisor, the Servicer and the
Trustee.
Section 8.02. Other Remedies of Trustee. During the continuance of any
-------------------------
Servicer Event of Default, so long as such Servicer Event of Default shall not
have been remedied, the Trustee, in addition to the rights specified in Section
8.01 and subject to Section 9.01, shall, after prompt notice to and pursuant to
the direction of holders of Certificates evidencing in the aggregate not less
than a majority of the Aggregate Certificate Principal Balance of the
Controlling Class, take any actions now or hereafter existing at law, in equity
or by statute to enforce its rights and remedies and to protect the interests,
and enforce the rights and remedies, of the Certificateholders (including the
institution and prosecution of all judicial, administrative and other
proceedings and the filing of proofs of claim and debt in connection therewith).
Except as otherwise expressly provided in this Agreement, no remedy provided for
by this Agreement shall be exclusive of any other remedy, and each and every
remedy shall be cumulative and in addition to any other remedy and no delay or
omission to exercise any right or remedy shall impair any such right or remedy
or shall be deemed to be a waiver of any Servicer Event of Default.
Section 8.03. Action upon Certain Failures of the Defaulting Servicer and
-----------------------------------------------------------
upon Servicer Event of Default. In the event that the Trustee shall have
- ------------------------------
knowledge of any Servicer Event of Default or of any failure of the Servicer
specified in Section 8.01(i) which would become a Servicer Event of Default upon
the Servicing Advisor's or the Servicer's failure to remedy the same within the
applicable time period, the Trustee shall promptly give notice thereof to the
Certificateholders and to the Servicing Advisor or the Servicer. For all
purposes of this Agreement, in the absence of actual knowledge by a Responsible
Officer of the Trustee, the Trustee shall not be deemed to have knowledge of any
failure of the Defaulting Servicer as specified in clauses (i) or (ii) of
Section 8.01 or any Servicer Event of Default unless notified thereof in writing
by the Servicing Advisor, the Servicer or by a Certificateholder. The Trustee
shall not have any duty to inquire as to the existence of any such failure or
Servicer Event of Default.
Section 8.04. Trustee or Servicer to Act; Appointment of Successor.
----------------------------------------------------
Promptly upon receipt of notice of a Servicer Event of Default with respect to
the Servicer, the Servicing Advisor shall use its best efforts to engage a
successor Servicer meeting the standards and requirements set forth herein.
When the Defaulting Servicer receives notice of termination pursuant to Section
8.01 (other than, in the case of the Servicer, a notice with respect to a
Servicer Event of Default described in clause (i) of such Section 8.01) or the
Trustee receives the resignation of the Servicing Advisor or the Servicer
accompanied by an Opinion of Counsel pursuant to Section 7.03, the following
shall occur:
(i) in the case of such termination or resignation of the Servicing
Advisor and provided the Servicer is not a Defaulting Servicer at such
time, the Servicer shall be the successor in all respects to the Servicing
Advisor;
(ii) in the case of such termination or resignation of the Servicing
Advisor and the Servicer is a Defaulting Servicer at such time, the Trustee
shall be the successor in all respects to the Servicing Advisor; or
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(iii) in the case of such termination or resignation of the Servicer,
the Trustee shall be the successor in all respects to the Servicer.
As a successor Servicing Advisor, the Servicer or Trustee, as the case may
be, or as a successor Servicer, the Trustee, shall be such successor in each of
its capacities as such under this Agreement and the transactions set forth or
provided for herein and shall have the rights and powers and be subject to all
the responsibilities, duties and liabilities relating thereto placed on the
Servicing Advisor or the Servicer, as the case may be, by the terms and
provisions hereof and in the case of the Trustee, in its capacity as such
successor, shall have the same limitation of liability herein granted to the
Trustee pursuant to Section 9.01 hereof. In the event that the Trustee or the
Servicer is succeeding to the Servicing Advisor, as compensation therefor, the
Trustee or the Servicer, as applicable, shall be entitled to receive monthly
such portion of the Servicing Advisor's Fee as is reasonably necessary to
compensate the Trustee or the Servicer, as applicable, for its activities as
Servicing Advisor until the date of final cessation of the Servicing Advisor's
servicing activities hereunder and thereafter, the Servicing Advisor Fee. In
the event that the Trustee is succeeding to the Servicer, as compensation
therefor, the Trustee shall be entitled to receive monthly such portion of the
Servicer's Fee reasonably necessary to compensate the Trustee for its activities
as Servicer until the date of final cessation of the Servicer's servicing
activities hereunder and thereafter, the Servicer Fee. In the event that the
Servicer Fee is less than the amount of reasonable compensation for the
activities of the Trustee in its role as successor Servicer, the Trustee shall
be entitled to receive monthly from the Servicing Advisor such portion of the
Servicing Advisor Fee which, when added to the Servicer Fee, will reasonably
compensate the Trustee for such activities. Any dispute with respect to the
portion of the Servicing Advisor Fee will be resolved pursuant to Section 11.08.
Notwithstanding the above, the Trustee may, if it shall be unwilling to so
act, engage a successor servicer meeting the standards and requirements set
forth herein, as the successor to the Servicing Advisor or the Servicer
hereunder in the assumption of all or any part of the responsibilities, duties
or liabilities of such servicer hereunder; provided, however, that until such a
successor servicer is appointed and has assumed the responsibilities, duties and
liabilities of the Servicing Advisor or Servicer hereunder, as applicable, the
Trustee shall continue as the successor as provided above. The Trustee shall
give notice of any proposed successor to the Certificateholders and D&P. The
appointment of the successor shall be subject to approval by the Holders of
Certificates evidencing in the aggregate not less than a majority of the
Aggregate Certificate Principal Balance of the Controlling Class, and if the
Class A Certificates are outstanding, Holders of Class B Certificates evidencing
in the aggregate not less than a majority of the Aggregate Certificate Principal
Balance of the Class B Certificates (provided, however, that if such Class B
-------- -------
Certificateholders do not give notice to the Trustee of their approval or
disapproval of such successor within 30 days of the Trustee's notice, the Class
B Certificateholders will have deemed to have approved such successor). Without
the consent of such Holders, the compensation of any successor to the Servicing
Advisor so appointed shall not exceed the Servicing Advisor Fee and the
compensation of any successor to the Servicer so appointed shall not exceed the
Servicer's Fee; provided, however, that in the event the Trustee or the
-------- -------
Servicing Advisor is unable, after diligent effort, to engage a successor
Servicer meeting the standards and requirements set forth herein for
compensation equal to the Servicer Fee, the Trustee or the Servicing Advisor may
agree to pay as compensation to a successor Servicer the Servicer Fee and such
portion of the Servicing Advisor Fee necessary to engage
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such successor Servicer if such compensation will not exceed reasonable
compensation for services of a portfolio of loans similar to and having an
aggregate principal balance approximately equal to the Loans. The Trustee and
such successor shall take such action, consistent with this Agreement, as shall
be necessary to effectuate any such succession. Upon the assumption of all
responsibilities, duties or liabilities of the Servicing Advisor or the Servicer
by such successor, the Trustee shall no longer be subject to such
responsibilities, duties or liabilities and no longer shall be entitled to
compensation therefor. The Servicing Advisor and the Servicer each agree to
reasonably cooperate with the Trustee and any successor servicer in effecting
the termination of its servicing responsibilities and rights hereunder and shall
promptly provide the Trustee or such successor servicer, as applicable, all
documents and records reasonably requested by it to enable it to assume its
function hereunder. Neither the Trustee nor any successor servicing advisor or
servicer shall be deemed to be in default of any of its obligations under this
Section 8.04 if such default arises from failure of the Servicing Advisor or
Servicer, as applicable, to timely provide all applicable books, records and
other documents necessary to effectuate the sale, transfer or assignment of
servicing rights to the Trustee or a successor servicing advisor or servicer in
accordance with Section 8.04.
ARTICLE IX
CONCERNING THE TRUSTEE
Section 9.01. Duties of Trustee. The Trustee, prior to the occurrence of
-----------------
a Servicer Event of Default and after the curing of all Servicer Events of
Default which may have occurred, undertakes to perform such duties and only such
duties as are specifically set forth in this Agreement. Subject to the last
paragraph of this Section 9.01, the Trustee shall follow the directions of the
Servicing Advisor, the Servicer and the Certificateholders given in accordance
with the terms of this Agreement. No implied duties or obligations of the
Trustee shall be read into this Agreement. In case a Servicer Event of Default
has occurred (which has not been cured), the Trustee shall exercise such of the
rights and powers vested in it by Article VIII of this Agreement, and use the
same degree of care and skill it would use in exercising such rights and powers
under the circumstances in the conduct of its affairs. In no event will the
Trustee be required to act as an operator of a Store.
The Trustee, upon receipt of all resolutions, certificates, statements,
opinions, reports, documents, orders or other instruments furnished to the
Trustee which are specifically required to be furnished pursuant to any
provision of this Agreement, shall examine them to determine whether they are in
the form required by this Agreement; provided, however, that the Trustee shall
-------- --------
not be responsible for the accuracy or content of any certificate, statement,
instrument, report, notice or other document furnished by the Servicing Advisor
or the Servicer hereunder (whether in its capacity as Servicer, Authenticating
Agent, Transfer Agent, Paying Agent or Certificate Registrar).
No provision of this Agreement shall be construed to relieve the Trustee
from liability for its own grossly negligent action, its own grossly negligent
failure to act or its own willful misconduct; provided, however, that:
-------- -------
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(i) The Trustee shall not be personally liable with respect to any
action taken, suffered or omitted to be taken by it in accordance with the
direction of holders of Certificates which evidence in the aggregate not
less than 50% of the Aggregate Certificate Principal Balance represented by
the Controlling Class relating to the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any
trust or power conferred upon the Trustee, under this Agreement; and
(ii) The Trustee shall not be liable for any error of judgment made in
good faith by any Responsible Officer, unless the Trustee or such
Responsible Officer was grossly negligent in ascertaining the pertinent
facts.
Neither the Trustee (in its capacity as Trustee, Servicing Advisor,
Servicer or Lender) nor any of its shareholders, directors, officers, employees
or agents shall be under any liability to the Trust or the Certificateholders
for any action taken or for refraining from the taking of any action in good
faith pursuant to this Agreement or any Loan Document, or for errors in
judgment; provided, however, that this provision shall not protect the Trustee
-------- -------
or any such person against any liability which would otherwise be imposed by
reason of willful misfeasance, bad faith or negligence in the performance of his
or its duties or by reason of reckless disregard of his or its obligations and
duties hereunder. The Trustee and each of its shareholders, directors,
officers, employees or agents shall be indemnified by the Trust and held
harmless against any loss, liability or expense incurred in connection with any
legal action relating to this Agreement, any Loan Document or the Certificates,
other than any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or gross negligence in the performance of his or its
duties hereunder or by reason of reckless disregard of his or its obligations
and duties hereunder.
Notwithstanding any other provision of this Agreement or the Loan
Documents, the Trustee, in its capacity as Trustee, Servicer, Servicing Advisor
and/or Lender, shall not be required to perform any of its duties, or exercise
any of its rights or powers, under this Agreement or the Loan Documents if the
Trustee determines, in its sole discretion, that (i) performing such duty or
exercising such right or power might require it to expend or risk its own funds
or otherwise incur personal liability, and (ii) repayment of such funds or
indemnity against such risk or liability is not assured to it. For purposes of
clause (ii) of the preceding sentence, an unsecured indemnity from any of the
original Holders of the Class A Certificates shall be a satisfactory indemnity.
Any amounts payable to the Trustee under this Section 9.01 will be payable
solely from funds available to be distributed on each Distribution Date pursuant
to Section 5.03(b)(iv)(M) hereof and in no event will be payable prior to the
payment of distributions required to be made to Class A Certificateholders
pursuant to Sections 5.03(b)(iv)(A) and (b)(iv)(B) on any Distribution Date.
Section 9.02. Certain Matters Affecting the Trustee. Except as otherwise
-------------------------------------
provided in Section 9.01:
(i) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate,
certificate of auditors or any other certificate,
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statement, instrument, opinion, report, notice, request, consent, order,
appraisal, bond or other paper or document believed by it to be genuine and
to have been signed or presented by the proper party or parties;
(ii) In the event the Trustee succeeds to the duties and obligations
of the Servicer pursuant to Section 8.04 hereof, in determining whether
conditions precedent to a Substitution on a transfer of Loan Collateral
have been met under the related Loan Agreement, the Trustee may rely upon,
and shall be protected in relying upon any certificate, instrument, notice
or other paper or document delivered to it by the related Borrower or the
Servicing Advisor and believed by it to be genuine and to have been signed
as presented by the proper party or parties; and
(iii) The Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys.
Section 9.03. Trustee Not Required to Make Investigation. Prior to the
------------------------------------------
Trustee gaining actual knowledge of the occurrence of a Servicer Event of
Default hereunder and after the curing of all Servicer Events of Default which
may have occurred, the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal, bond,
Loan Document or other paper or document (provided the same appears regular on
its face), unless requested in writing to do so by Holders of Certificates
evidencing in the aggregate not less than a majority of the Aggregate
Certificate Principal Balance represented by the Controlling Class. Any
reasonable expense incurred by the Trustee in conducting any investigation
pursuant to this Section 9.03 will be considered Extraordinary Trustee Expenses.
Section 9.04. Trustee Not Liable for Certificates or Loans. The recitals
--------------------------------------------
contained herein and in the Certificates (other than the certificate of
authentication on the Certificates) shall be taken as the statements of the
Trust, and the Trustee assumes no responsibility as to the correctness of the
same (other than the representations and warranties set forth in Section 9.15
below), including the certificate of authentication on the Certificates. The
Trustee makes no representations for the correctness of the same. Other than as
set forth in Section 9.15 below, the Trustee makes no representations as to the
validity or sufficiency of this Agreement or of the Certificates or of any Loan
or related Loan Document.
Section 9.05. Trustee May Own Certificates. The Trustee and any agent of
----------------------------
the Trustee in its individual or any other capacity may become the owner or
pledgee of Certificates with the same rights it would have if it were not
Trustee or such agent and may otherwise deal with Blockbuster or any Borrower as
if it were not Trustee or such agent.
Section 9.06. Trustee's Fees and Trustee's Expenses. As compensation and
-------------------------------------
reimbursement for the performance of its obligations under this Agreement, the
Trustee shall be entitled to receive from funds on deposit in the Collection
Account on each Distribution Date the Trustee Fee and the Trustee Expenses for
such Distribution Date in accordance with Section 5.03(b)(i); provided, however,
that for all purposes of this Agreement the sum of the Trustee Fee and the
Trustee Expenses for any Distribution Date shall not exceed an amount equal to
the product of 1/12th of the Servicer Fee Rate and the Pool Balance as of the
first day of the preceding Collection Period.
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Section 9.07. Eligibility Requirements for Trustee. The Trustee
------------------------------------
hereunder shall at all times be an Eligible Trustee. In case at any time the
Trustee shall cease to be eligible in accordance with the definition of Eligible
Trustee, the Trustee shall notify the Certificateholders and D&P of such fact
and, if instructed to do so by the Required Holders, resign immediately in the
manner and with the effect specified in Section 9.09.
Section 9.08. Trustee Events of Default.
-------------------------
(a) In case one or more of the following conditions or events ("Trustee
-------
Events of Default") by the Trustee shall occur and be continuing, that is to
- -----------------
say:
(i) at any time during which the Trustee is acting under the next to
last paragraph of Section 8.01, the Trustee shall fail to distribute to any
Certificateholders when due any payment required to be made under the terms
of the Certificates and this Agreement;
(ii) any failure on the part of the Trustee duly to observe or perform
in any material respect any of the covenants or agreements on the part of
it in the Certificates or in this Agreement which continues unremedied for
a period of 30 days after the date on which the Servicing Advisor, Servicer
or the Holders of Certificates evidencing in the aggregate not less than
25% of the Aggregate Certificate Principal Balance represented by either
the Class A Certificates or the Class B Certificates, shall have acquired
knowledge of such failure; or
(iii) there shall be commenced against the Trustee any case,
proceeding or other action (a) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (b) seeking appointment of a receiver, trustee, custodian or
other similar official for it or for all or any substantial part of its
assets, which remains undismissed, undischarged or unbonded for a period of
60 days; or
(iv) a decree or order of a court of agency or supervisory authority
having jurisdiction in the premises for the appointment of a trustee,
conservator, receiver or liquidator in any bankruptcy, insolvency,
readjustment of debt, marshaling of assets and liabilities or similar
proceedings, or for the winding-up or liquidation of its affairs, shall
have been entered against the Trustee and such decree or order shall have
remained in force undischarged and unstayed for a period of 60 days; or
(v) the Trustee shall consent to the appointment of a trustee,
conservator, receiver or liquidator or liquidating committee in any
bankruptcy, insolvency, readjustment of debt, marshaling of assets and
liabilities, voluntary liquidation or similar proceedings or relating to
the Trustee, or of or relating to all or substantially all of its property;
or
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(vi) the Trustee shall admit in writing its inability to pay its debts
generally as they become due, file a petition to take advantage of any
applicable insolvency, bankruptcy or reorganization statute, make an
assignment for the benefit of its creditors or voluntarily suspend payment
of its obligations; or
(vii) the Trustee shall be dissolved, or shall dispose of all or
substantially all of its assets; or consolidate with or merge into another
entity or shall permit another entity to consolidate or merge into it, such
that the resulting entity does not meet the criteria for an Eligible
Trustee; or
(viii) the Trustee shall cease business operations or fail to conduct
its business as presently conducted.
then, and in each and every such case, subject to applicable law, so long as a
Trustee Event of Default shall not have been remedied, the Holders of
Certificates evidencing in the aggregate not less than a majority of the
Aggregate Certificate Principal Balance represented by the Controlling Class,
may in addition to exercising any and all other remedies available at law or in
equity (i) terminate all of the rights (other than its rights under Sections
3.04, 4.06 or 9.01 to be reimbursed for all reasonable expenses incurred in
connection with the performance of its duties under the Agreement, and its right
to receive compensation for all services previously rendered in accordance with
the terms hereof) and obligations of the Trustee under this Agreement (other
than with respect to liabilities of the Trustee then existing), and (ii) name
and appoint a successor or successors to succeed to and assume all of such
obligations and duties. Such appointment (a) shall be made by written
instrument or instruments, in triplicate, signed by such Holders or their
attorneys-in-fact duly authorized, one complete set of which instruments shall
be delivered to the Servicing Advisor, one set of which shall be delivered to
the Trustee so removed, one complete set of which shall be delivered to the
successor so appointed and one complete set of photocopies of which shall be
delivered by the Servicing Advisor to the Servicer and (b) shall be subject to
the provisions of Section 9.10.
The Trustee agrees to notify the Servicing Advisor, the Servicer, the
Certificateholders and D&P of the occurrence of any Trustee Default or a Trustee
Event of Default and each of the Servicing Advisor and the Servicer shall notify
the Certificateholders and D&P promptly upon acquiring knowledge of the
occurrence of a Trustee Default or a Trustee Event of Default. Notwithstanding
the foregoing, the Required Holders may waive any Trustee Event of Default upon
written notice to the Servicing Advisor, the Servicer and the Trustee, a copy of
which notice shall be delivered by the Servicer to D&P.
(b) In the event that the Servicing Advisor or the Servicer shall have
knowledge of any Trustee Event of Default or of any failure of the Trustee
specified in Section 9.08(i) which would become a Trustee Event of Default upon
the Trustee's failure to remedy the same within the applicable time period, the
Servicing Advisor shall promptly give notice thereof to the Certificateholders,
the Servicer and D&P. For all purposes of this Agreement, in the absence of
actual knowledge by a Responsible Officer of the Servicing Advisor, the
Servicing Advisor shall not be deemed to have knowledge of any failure of the
Trustee as specified in Section 9.08(i) or Section 9.08(ii) or any Trustee
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Event of Default. Notification by the Trustee, the Servicer or any
Certificateholder of such failure shall be deemed to provide the Servicing
Advisor with actual knowledge of such event.
Section 9.09. Resignation and Removal of Trustee. The Trustee may at any
----------------------------------
time resign and be discharged from the trusts hereby created by giving written
notice of resignation to the Servicing Advisor, the Servicer, the
Certificateholders and D&P, such resignation to be effective upon the
appointment of a successor trustee. Upon receiving such notice of resignation,
the Servicing Advisor shall promptly notify the Certificateholders of such
resignation. The Holders of Certificates evidencing not less than a majority of
the Aggregate Certificate Principal Balance represented by the Controlling Class
may appoint a successor trustee by written instrument or instruments, in
triplicate, signed by such holders or their attorneys-in-fact, duly authorized,
one copy of which shall be delivered to the Servicing Advisor and one complete
set of which shall be delivered to the Trustee and one copy of which shall be
delivered to the successor so appointed. In the event that a majority of the
Aggregate Certificate Principal Balance represented by the Controlling Class
does not appoint a successor trustee within 20 days of the mailing of such
notice, the Servicing Advisor shall appoint a successor trustee by written
instrument, in duplicate, one original copy of which instrument shall be
delivered to the resigning Trustee, one original copy of which instrument shall
be delivered to the successor trustee and one photocopy of which instrument
shall be delivered by the Servicing Advisor to the Servicer. If no successor
trustee shall have been appointed and have accepted appointment within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
trustee.
If at any time the Trustee shall cease to be eligible in accordance with
the definition of Eligible Trustee and shall fail to resign after written
request for the Trustee's resignation by the Servicing Advisor, or if at any
time the Trustee shall become incapable of acting, or an order for relief shall
have been entered in any bankruptcy or insolvency proceeding with respect to the
Trustee, or a receiver of the Trustee or of its property shall be appointed, or
any public officer shall take charge or control of the Trustee or of its
property or affairs for the purpose of rehabilitation, conversion or
liquidation, or in order to change the situs of the Trust for state tax reasons,
then the Servicing Advisor shall remove the Trustee and notify the
Certificateholders and D&P of such removal. The Holders of Certificates
evidencing in the aggregate not less than a majority of the Aggregate
Certificate Principal Balance represented by the Controlling Class may appoint a
successor trustee by written instrument or instruments, in triplicate, signed by
such holders or their attorneys-in-fact, duly authorized, one copy of which
shall be delivered to the Servicing Advisor and one complete set of which shall
be delivered to the Trustee and one copy of which shall be delivered to the
successor so appointed. In the event that Holders of Certificates evidencing a
majority of the Aggregate Certificate Principal Balance of the Controlling Class
does not so appoint a successor within 20 days of such notice, the Servicing
Advisor shall appoint a successor trustee by written instrument, in duplicate,
one copy of which instrument shall be delivered to the Trustee so removed and
one copy to the successor trustee and a photocopy of which shall be delivered to
the Servicer and notice of such appointment shall be given to the
Certificateholders.
The Holders of Certificates evidencing in the aggregate not less than a
majority of the Aggregate Certificate Principal Balance of the Controlling Class
may at any time remove the Trustee and appoint a successor trustee by written
instrument or instruments, in triplicate, signed by such holders or their
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attorneys-in-fact duly authorized, one complete set of which instruments shall
be delivered to the Servicing Advisor, one complete set of which shall be
delivered to the Trustee so removed and one complete set of which shall be
delivered to the successor so appointed.
Any resignation or removal of the Trustee and appointment of a successor
trustee pursuant to any of the provisions of this Section shall become effective
upon acceptance of appointment by the successor trustee as provided in Section
9.10. The Servicing Advisor agrees to promptly notify D&P of the appointment of
any successor trustee. The resignation or removal of the Trustee will not
affect its rights under Section 3.04, 4.06 or 9.01, its right to be reimbursed
for all reasonable expenses incurred in connection with the performance of its
duties under the Agreement and its rights to indemnification, and its right to
receive compensation for all services previously rendered hereunder.
Section 9.10. Successor Trustee. Any successor trustee appointed as
-----------------
provided in Section 9.08 or Section 9.09 shall execute, acknowledge and deliver
to the Servicing Advisor and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee shall become effective, and such successor trustee, without
any further act, deed or reconveyance, shall become fully vested with all the
rights, powers, duties and obligations of its predecessor hereunder, with like
effect as if originally named as trustee herein. The predecessor trustee shall
deliver to the successor trustee all documents and statements held by it
hereunder, and the Servicing Advisor, the Servicer and the predecessor trustee
shall execute and deliver such instruments and do such other things as may
reasonably be "required for more fully and certainly vesting and confirming in
the successor trustee all such rights, powers, duties and obligations."
No successor trustee shall accept appointment as provided in this Section
unless at the time of such acceptance such successor trustee shall be an
Eligible Trustee.
Section 9.11. Merger or Consolidation of Trustee. Any Person into which
----------------------------------
the Trustee may be merged or converted or with which it may be consolidated, to
which it may sell or transfer its corporate trust business and assets as a whole
or substantially as a whole or any Person resulting from any merger, sale,
transfer, conversion or consolidation to which the Trustee shall be a party, or
any Person succeeding to the business of the Trustee, shall be the successor of
the Trustee hereunder, provided that such Person shall be an Eligible Trustee,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto, anything herein to the contrary notwithstanding. The
Trustee shall notify Certificateholders and D&P of the occurrence of any event
described in this Section 9.11 as soon as practicable after the occurrence of
such event.
Section 9.12. Authenticating Agent Paying Agent and Transfer Agent and
--------------------------------------------------------
Certificate Registrar.
- ---------------------
(a) The initial Servicer hereby agrees to act as Authenticating Agent,
Paying Agent and Transfer Agent and Certificate Registrar on behalf of the Trust
and to perform and fulfill all of the obligations of the Authenticating Agent,
Paying Agent and Transfer Agent and Certificate Registrar set forth in this
Agreement. The rights, powers and privileges afforded to the Trustee in Section
9.01, Section 9.02, Section 9.03 and Section 9.04 shall also be afforded to the
Servicer solely in its capacities
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as Authenticating Agent, Paying Agent and Transfer Agent and Certificate
Registrar and subject to the limitations and conditions set forth in such
Sections.
(b) The terms of resignation or termination otherwise applicable to the
Servicer hereunder shall apply to the Servicer in its capacities as
Authenticating Agent, the Paying Agent and the Transfer Agent and Certificate
Registrar, except that references therein to the Servicer shall be deemed to
refer to the Authenticating Agent, the Paying Agent or the Transfer Agent and
Certificate Registrar, as the case may be. If the Servicer, Authenticating
Agent, Paying Agent or Transfer Agent and Certificate Registrar resigns or is
terminated pursuant to the terms hereof in one of its capacities as Servicer,
Authenticating Agent, Paying Agent or Transfer Agent and Certificate Registrar,
then the Servicer shall be deemed, without any further action or deed by any
Person, to have resigned or been terminated in each other such capacity in which
it is then serving hereunder. Any successor Servicer appointed pursuant to
Article VIII shall also be appointed and serve as successor Authenticating
Agent, Paying Agent and Transfer Agent and Certificate Registrar and such
successor Servicer shall execute in writing a written agreement to be bound by
the terms hereof relating to the Authenticating Agent, the Paying Agent and the
Transfer Agent and Certificate Registrar.
(c) Any successor to the Servicer under Section 7.01 shall also be a
successor to the Servicer in its capacities as Authenticating Agent, Paying
Agent and Transfer Agent and Certificate Registrar, without the execution or
filing of any paper or any further act on the part of such Person or the
Trustee.
(d) The fees and expenses of the Authenticating Agent, the Paying Agent
and the Transfer Agent and Certificate Registrar (and any successors thereto)
shall be paid by the Servicer from its own funds, without reimbursement
therefor.
Section 9.13. Direction of Trustee. Subject to Section 9.01, the Holders
--------------------
of Certificates evidencing not less than a majority of the Aggregate Certificate
Principal Balance of the Controlling Class shall have the right (x) to cause the
institution of and direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or (y) to direct the Trustee
in writing with respect to its exercise of any right, remedy, trust or power
conferred on the Trustee; provided that such direction shall not be in conflict
with any rule of law or with this Agreement (including, without limitation, any
provision hereof which expressly provides for a greater percentage of
Certificateholders to effect an action hereunder).
Section 9.14. No Action Except Under Agreement or Upon Instructions. The
-----------------------------------------------------
Trustee agrees that it will not manage, control, use, sell, dispose of or
otherwise deal with the Trust Estate except (a) in accordance with the powers
granted to, or the authority conferred upon, it in or pursuant to this
Agreement, or (b) in accordance with the express terms of this Agreement or
instructions received from the Holders of Certificates evidencing in the
aggregate not less than a majority of the Aggregate Certificate Principal
Balance of the Controlling Class at the time such instructions are given.
Section 9.15. Representations and Warranties of the Trustee. The Trustee
---------------------------------------------
hereby represents, warrants and covenants to the Servicing Advisor, the Servicer
and the Certificateholders that, as of the date of execution of this Agreement:
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(i) It is a banking corporation and trust company duly formed
and validly existing under the laws of the State of New York;
(ii) The execution and delivery of this Agreement by it and its
performance and compliance with the terms of this Agreement will not
violate its organization certificate or by-laws or constitute a default (or
an event which, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach of, any material contract,
agreement or other instrument to which it is a party or which may be
applicable to it or any of its assets;
(iii) This Agreement has been duly authorized, executed and
delivered by it and, assuming due authorization, execution and delivery by
the other parties hereto, constitutes a valid, legal and binding obligation
of such party, enforceable against it in accordance with the terms hereof
subject to applicable bankruptcy, insolvency, reorganization, moratorium
and other laws affecting the enforcement of creditors' rights generally and
to general principles of equity, regardless of whether such enforcement is
considered in a proceeding in equity or at law;
(iv) It is not in default with respect to any order or decree of
any court or any order, regulation or demand of any federal, state,
municipal or governmental agency, which default might have consequences
that would materially and adversely affect its condition (financial or
other) or operations or its properties or might have consequences that
would affect its performance hereunder;
(v) No litigation is pending or, to the best of its knowledge,
threatened against it which would prohibit its entering into this Agreement
or performing its obligations under this Agreement; and
(vi) No consent, approval, authorization, or order of,
registration or filing with, or notice to, any governmental authority or
court or any other Person is required under the laws of the United States
of America or the laws of the State of New York for the execution, delivery
and performance by it of, or compliance by it with, this Agreement, or the
Certificates, or the consummation by the Trustee of any other transaction
contemplated hereby or by the Certificates.
Section 9.16. Separate Trustees and Co-Trustees. The Trustee shall have
---------------------------------
the power from time to time to appoint one or more persons or corporations to
act either as co-trustees jointly with the Trustee or as separate trustees, for
the purpose of holding title to, foreclosing or otherwise taking action with
respect to any Loan outside the state where the Trustee has its principal place
of business, where such separate trustee or co-trustee is necessary or advisable
(or the Trustee is advised by the Servicer that such separate trustee or co-
trustee is necessary or advisable) under the laws of any state in which any Loan
Collateral is located or for the purpose of otherwise conforming to any legal
requirement, restriction or condition in any state in which any Loan Collateral
is located or in any state in which any portion of the Trust Estate is located.
The Servicer shall advise the Trustee when, in its good faith opinion, a
separate trustee or co-trustee is necessary or advisable as aforesaid. The
separate trustees or co-trustees so appointed shall be trustees for the benefit
of all of the Certificateholders and shall have such powers, rights and remedies
as shall be specified in the instrument of appointment; provided, however, that
no
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such appointment shall, or shall be deemed to, constitute the appointment of an
agent of the Trustee. The Servicing Advisor and the Servicer shall join in any
such appointment, but such joining shall not be necessary for the effectiveness
of such appointment. The Trustee shall notify the Servicing Advisor, the
Servicer and the Certificateholders of its intention to appoint a separate
trustee a co-trustee, and such notice shall specify whether such separate
trustee or co-trustee meets the requirements set forth in the definition of
"Eligible Trustee". If the proposed separate trustee or co-trustee does not meet
such requirements, such separate trustee or co-trustee will not be appointed
unless the Holders of Certificates evidencing in the aggregate not less than a
majority of the Aggregate Certificate Principal Balance of the Controlling Class
have approved the appointment of such separate trustee or co-trustee. In
appointing a separate trustee or co-trustee, the Trustee shall be subject to the
standard of care set forth in Section 9.01.
Every separate trustee and co-trustee shall, to the extent permitted by
law, be appointed and act subject to the following provisions and conditions:
(i) all powers, duties, obligations and rights conferred upon the
Trustee in respect of the receipt, custody and payment of moneys shall be
exercised solely by the Trustee;
(ii) all other rights, powers, duties and obligations conferred or
imposed upon the Trustee shall be conferred or imposed upon and exercised
or performed by the Trustee and such separate trustee or co-trustee
jointly, except to the extent that under any law of any jurisdiction in
which any particular act or acts are to be performed (whether as Trustee
hereunder or as successor to the Servicer hereunder) the Trustee shall be
incompetent or unqualified to perform such act or act, in which event such
rights, powers, duties and obligations (including the holding of title to
the Trust Estate or any portion thereof in any such jurisdiction) shall be
exercised and performed by such separate trustee or co-trustee;
(iii) no separate trustee or co-trustee hereunder shall be
personally liable by reason of any act or omission of any other separate
trustee or co-trustee hereunder;
(iv) the Trustee may at any time accept the resignation of or
remove any separate trustee or co-trustee so appointed by it, if such
resignation or removal does not violate the other terms of this Agreement;
and
(v) any separate trustee or co-trustee appointed hereunder shall
be subject to the standard of care applicable to the Trustee set forth in
Section 9.01.
Any notice, request or other writing given to the Trustee shall be deemed
to have been given to each of the then separate trustees and co-trustees, as
effectively as if given to each of them. Every instrument appointing any
separate trustee, co-trustee, or custodian shall refer to this Agreement and the
conditions of this Article. Each separate trustee and co-trustee, upon its
acceptance of the trusts conferred, shall be vested with the estates or property
specified in its instrument of appointment, either jointly with the Trustee or
separately, as may be provided therein, subject to all the provisions of this
Agreement, specifically including every provision of this Agreement relating to
the conduct of, affecting
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the liability of, or affording protection to, the Trustee. Every such instrument
shall be furnished to the Trustee.
Any separate trustee, co-trustee, or custodian may, at any time, constitute
the Trustee, its agent or attorney-in-fact, with full power and authority, to
the extent not prohibited by law, to do any lawful act under or in respect of
this Agreement on its behalf and in its name. If any separate trustee or co-
trustee shall die, become incapable of acting, resign or be removed, all of its
estates, properties, rights, remedies and trusts shall vest in and be exercised
by the Trustee, to the extent permitted by law, without the appointment of a new
or successor trustee.
The Trustee agrees to instruct the co-trustees, if any, to the extent
necessary to fulfill the Trustee's obligations thereunder.
To the extent a co-trustee is required to be retained, fees and expenses of
such co-trustee will be deemed to be Extraordinary Trustee Expenses; provided
that to the extent any co-trustee performs the duties of the Servicing Advisor
or the Servicer, such fees and expenses will be deducted from the Servicing
Advisor Fee or the Servicer Fee, as appropriate.
ARTICLE X
TERMINATION OF TRUST
The Trust and the respective obligations and responsibilities of the
Servicing Advisor, the Servicer and the Trustee created hereby (other than the
obligation of the Paying Agent to make payments to Certificateholders as
hereafter set forth) shall terminate, except with respect to the obligations and
duties described below and Sections 3.04 and 4.06, upon the earlier of (i)
February 15, 2006 (the "Final Trust Termination Date") and (ii) the day
----------------------------
following the Distribution Date on which the Pool Balance has been reduced to
zero. If by the Final Trust Termination Date the sum of the Certificate
Principal Balance (after giving effect to any distributions to be made on such
date) is greater than zero, the Servicing Advisor will use its best efforts to
sell, dispose of or otherwise liquidate the Loans in a commercially reasonable
manner and on commercially reasonable terms, which shall include the
solicitation of competitive bids. The proceeds of any such sale, disposition or
liquidation of the Loans will be treated as Loan Payments, will be immediately
deposited in the Collection Account and will be distributed in the same manner
as amounts on deposit in the Collection Account pursuant to Section 5.03.
Notice of any termination, specifying the Final Distribution Date upon
which the Class B Certificateholders may surrender their Certificates to the
Paying Agent for payment of the final distribution and cancellation, shall be
given promptly by the Servicer by letter to Certificateholders mailed not
earlier than the 10th day of the month preceding the month of such final
distribution and not later than the last day of the month preceding such final
distribution specifying (a) the Final Distribution Date upon which final payment
of the Certificates will be made at the office or agency of the Paying Agent
therein designated, (b) the amount of any such final payment and (c) that the
Record Date otherwise applicable to the Class B Certificates and such
Distribution Date is not applicable, payments
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being made only upon presentation and surrender of the Class B Certificates at
the office or agency of the Paying Agent therein specified.
In the event that all of the Class B Certificateholders shall not surrender
their Class B Certificates for final payment and cancellation within three
months following the Final Distribution Date, the Paying Agent shall on such
date cause all funds, if any, in the Collection Account not distributed in final
distribution to Class B Certificateholders to be withdrawn therefrom and
credited to the remaining Class B Certificateholders by depositing such funds in
a separate escrow account for the benefit of such Class B Certificateholders,
and the Paying Agent shall give a second written notice to the remaining Class B
Certificateholders to surrender their Class B Certificates for cancellation and
receive the final distribution with respect thereto. If within three months
after the second notice all the Class B Certificates shall not have been
surrendered for cancellation, the Servicing Advisor may take appropriate steps,
or may appoint an agent to take appropriate steps, to contact the remaining
Class B Certificateholders concerning surrender of their Class B Certificates,
and the cost thereof shall be paid out of the funds on deposit in such escrow
account.
ARTICLE XI
MISCELLANEOUS PROVISIONS
Section 11.01. Amendment. Neither this Agreement nor any provision
---------
hereof may be amended or supplemented except in a writing executed by the
Servicing Advisor, the Servicer, the Trustee and with the prior written consent
of the Holders of Certificates evidencing in the aggregate not less than a
majority of the Aggregate Certificate Principal Balance of the Controlling Class
(and, if the Class A Certificates are still outstanding, Holders of Class B
Certificates evidencing in the aggregate not less than a majority of the
Aggregate Certificate Principal Balances of the Class B Certificates) for the
purpose of adding any provisions to or changing in any manner or eliminating any
of the provisions of this Agreement or of modifying in any manner the rights of
Certificateholders; provided, however, that no such amendment shall (i) reduce
-------- -------
in any manner the amount of, or delay the timing of, payments received on Loans
which are required to be distributed with respect to any Certificate without the
consent of the Holder of such Certificate, (ii) adversely affect in any material
respect the interest of the Holders of Certificates of any Class in a manner
other than as described in clause (i) hereof without the consent of Holders of
Certificates of such Class evidencing, as to such Class, Aggregate Certificate
Principal Balances aggregating not less than a majority, (iii) adversely affect
the status of the Trust as a fixed investment trust (treated as a grantor trust)
for federal income tax purposes, as evidenced by an Opinion of Counsel provided
to the Trustee and the Class A Certificateholders at the expense of the Person
or Persons seeking such amendment, or (iv) reduce the aforesaid percentage of
Certificates of any Class the Holders of which are required to consent to any
such amendment, without the consent of the Holders of all Certificates of such
Class then outstanding.
The Trustee shall not be required to execute any amendment which adversely
affects its rights, privileges or indemnities hereunder. No amendment shall be
effective until the Trustee shall have received an Opinion of Counsel, at the
expense of the Person or Persons seeking such amendment, to the effect that such
amendment is permitted by this Section 11.01.
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Not less than 30 days prior to the date on which an amendment is proposed
to be executed, the Trustee shall mail to each Certificateholder a copy of such
amendment.
Section 11.02. Limitation on Rights of Certificateholders. The death or
------------------------------------------
incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust Estate, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or take any action or proceeding
in any court for a partition or winding up of the Trust Estate, nor otherwise
affect the rights, obligations and liabilities of the parties hereto or any of
them.
Except as otherwise expressly provided herein, no Certificateholder, solely
by virtue of its status as a Certificateholder, shall have any right to vote or
in any manner otherwise control the operation and management of the Trust
Estate, or the obligations of the parties hereto, nor shall anything herein set
forth, or contained in the terms of the Certificates, be construed so as to
constitute the Certificateholders from time to time as partners or members of an
association, nor shall any Certificateholder be under any liability to any third
person by reason of any action taken by the parties to this Agreement pursuant
to any provision hereof.
No Certificateholder, solely by virtue of its status as Certificateholder,
shall have any right by virtue or by availing of any provision of this Agreement
to institute any suit, action or proceeding in equity or at law upon or under or
with respect to this Agreement, unless (i) a default shall have occurred and be
continuing of which the Trustee shall have been notified or of which it shall
have knowledge, (ii) the Holders of Certificates evidencing not less than a
majority of the Aggregate Certificate Principal Balance of the Class A
Certificates or the Class B Certificates shall have made written request upon
the Trustee to institute such action, suit or proceeding as Trustee hereunder,
and (iii) the Trustee, for 20 days after its receipt of such request shall have
neglected or refused to institute any such action, suit or proceeding; it being
understood and intended, that no one or more Holders of Certificates shall have
any right in any manner whatever by virtue or by availing of any provision of
this Agreement to affect, disturb or prejudice the rights of the Holders of any
other of such Certificates, or to obtain or seek to obtain priority over or
preference to any other such Holder, or to enforce any right under this
Agreement, except in the manner herein provided and for the benefit of all
Certificateholders. Nothing contained in this Agreement shall affect or impair
(a) the right of the Holder of any Certificate to the payment of the principal
of and interest on such Certificate at and after the time when the same shall be
due and payable, (b) the obligation of the Trust to pay the principal of and
interest on each of the Certificates issued hereunder to the Holder thereof at
the time and place and in the manner herein expressed, (c) the right of action
of such Holder under such Certificate or this Agreement to enforce such payment,
and (d) the rights of the Holder of a Certificate to enforce any obligation of
the Servicing Advisor or the Servicer under any indemnity provision hereunder
(each of the foregoing obligation being absolute and unconditional).
Section 11.03. GOVERNING LAW; JURISDICTION. THIS AGREEMENT SHALL BE
---------------------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD
TO CONFLICTS OF LAWS PRINCIPLES), AND THE OBLIGATIONS, RIGHTS AND REMEDIED OF
THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
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Section 11.04. Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by certified or registered mail, return
receipt requested, or if transmitted by facsimile transmission and promptly
confirmed in writing in the aforesaid manner, (i) in the case of the Trustee, to
Marine Midland Bank, 140 Broadway, 12th Floor, New York, New York 10005,
Attention: Corporate Trust Administration (Video 1996), fax no. (212) 658-6425,
or such other address as may hereafter be furnished to the Servicing Advisor,
the Class A Certificateholders and the Servicer in writing by the Trustee, (ii)
in the case of the Servicing Advisor, to Atherton Capital Partners, L.P., 1001
Bayhill Drive, Suite 155, San Bruno, California 94066, fax no. (415) 827-7950,
Attention: Arthur P. Brazy, Jr., or such other address as may hereafter be
furnished to the Trustee, the Class A Certificateholders and the Servicer in
writing by the Servicing Advisor, and (iii) in the case of the Servicer, the
Authenticating Agent, the Paying Agent and the Transfer Agent and Certificate
Registrar, to Bankers Trust Company, Four Albany Street, 9th Floor, New York,
New York 10006, fax no. (212) 250-6439, Attention: Asset Services, or such
other address as may hereafter be furnished to the Servicing Advisor, the Class
A Certificateholders and the Trustee in writing by the Servicer. Any notice
required or permitted to be mailed to any party hereunder shall be given by
first class mail, postage prepaid, at the address set forth above or, if to a
Certificateholder, the address of such Holder as shown in the Certificate
Register; provided, that notices to the original Holders of the Class A
Certificates or their transferees that are Affiliates will be delivered in
accordance with the terms of the Class A Purchase Agreement. Any notice mailed
or transmitted within the time prescribed in this Agreement shall be
conclusively presumed to have been duly given, whether or not the addressee
receives such notice; provided, however, that any demand, notice or
-------- -------
communication to or upon the Servicing Advisor, the Servicer, the Class A
Certificateholders or the Trustee shall not be effective until received.
Section 11.05. Severability of Provisions. If any one or more of the
--------------------------
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity or
enforceability of the other provisions of this Agreement or of the Certificates
or the rights of the Certificateholders, the Trustee, the Servicing Advisor or
the Servicer.
Section 11.06. Consent to Jurisdiction and Service. Each of the parties
-----------------------------------
hereto hereby absolutely and irrevocably consents and submits to the
jurisdiction of the courts of New York and of the federal court for the Southern
District of New York in connection with any actions or proceedings brought
against it arising out of or relating to this Agreement or any of the agreements
or transactions contemplated hereby and hereby irrevocably agrees that all
claims in respect of any such action or proceeding may be heard and determined
in any such court. In any such action or proceedings, each such party hereby
absolutely and irrevocably waives personal service of any summons, complaint,
declaration, or other process and hereby absolutely and irrevocably agrees that
the service thereof may be made, in addition to other methods permitted by law,
by certified, registered or recorded first-class mail directed to it at its
address in accordance with Section 11.04 hereof. Each party hereto hereby
waives and agrees not to assert in any such action or proceeding, in each case,
to the fullest extent permitted by applicable law, any claim that (a) it is not
personally subject to the jurisdiction of any such court, (b) it is immune from
any legal process (whether through service or notice, attachment prior to
judgment, attachment in
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aid of execution, execution or otherwise) with respect to it or its property,
(c) any such suit, action or proceeding is brought in an inconvenient forum, (d)
the venue of such suit, action or proceeding is improper, or (e) that this
Agreement may not be enforced in or by any such court.
Section 11.07. Indemnification Payments. Not less than ten Business Days
------------------------
prior to a Determination Date, each of the Trustee, the Servicing Advisor and
the Servicer (each, an Indemnified Party") may, (any such requesting Indemnified
-----------------
Party, a "Requesting Party") by written notice to the other Indemnified Parties
----------------
and the Certificateholders, request to be paid on the following Distribution
Date Indemnification Payments pursuant to Section 5.03(b)(iv)(M) or Section
5.03(b)(iv)(O), as the case may be. In the event that (i) the Requesting Party
is then involved in any legal action for which it reasonably believes it is
entitled to indemnification under Section 7.02, in the case of the Servicing
Advisor and the Servicer, or Section 9.01, in the case of the Trustee, (ii) the
Requesting Party reasonably believes in good faith that amounts expected to be
available to be distributed pursuant to Section 5.03(b)(iv)(M) or Section
5.03(b)(iv)(O), as the case may be, on subsequent Distribution Dates will not be
sufficient to cover such indemnification and (iii) the aggregate principal
balance of the Loans (other than Defaulted Loans) is less than 20% of the
Initial Pool Balance, the Requesting Party may also request in such written
notice that such Indemnification Payments include an amount to be set aside as a
reserve to provide a source of such Indemnification Payments.
Any written request for Indemnification Payments shall set forth, as
applicable, the nature and amount of the Indemnification Payments requested, for
the amount of any reserve to be established and the basis for the Requesting
Party's belief that the establishment of a reserve is necessary. Each
Indemnified Party (other than the Requesting Party) and the Class B
Certificateholders, shall have the right to contest the reasonableness of the
amount of the Indemnification Payments claimed by delivering to the Trustee
written notice of its objection to the Indemnification Payments within ten
Business Days of its receipt of the notice relating to the Indemnification
Payments claimed and setting forth the basis for such objection. As soon as
practicable after receipt thereof, the Trustee shall forward a copy of the
notice of the objecting party to the remaining Indemnified Party and to the
Certificateholders. Any dispute with respect to Indemnification Payments will
be resolved in accordance with Section 11.08 hereof; provided that if the
Indemnification Payments relate to a legal action among or between any of the
parties hereto the Servicing Advisor, the Servicer or Trustee, the Required
Holders may make a recommendation with respect to the settlement of such
dispute. No Indemnification Payments will be paid to the Requesting Party until
such dispute has been resolved provided that amounts may be reserved pending
resolution of such dispute. Neither the payments of Indemnification Payments by
the Trust nor the failure by a party to make a timely objection shall be deemed
a waiver by the party of any rights to contest the payment of any
Indemnification Payments. It shall not be a basis for contesting
Indemnification Payments claimed that the objecting party believes that the
standard of conduct required by the Section under which such Indemnification
Payments are claimed is not met.
In the event that a reserve for Indemnification Payments is established
pursuant to this Section 11.07, on each Distribution Date, the Servicer shall
deposit the funds to be reserved, as described in the first paragraph of this
Section 11.07, into an Eligible Account bearing such designation that the funds
on deposit therein are for the benefit of the Requesting Party and the Class B
Certificateholders (an "Indemnification Account"). The Requesting Party shall
have the sole right to withdraw funds from
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the Indemnification Account. Any funds remaining in an Indemnification Account
upon termination of the related legal action (after payment of all necessary
Indemnification Payments to the Requesting Party) will be withdrawn from the
Indemnification Account and distributed to the Class B Certificateholders by the
Paying Agent pursuant to the instructions of the Servicer.
In the event that it is determined that a Requesting Party was not entitled
to receive Indemnification Payment pursuant to Section 7.02 or 9.01, as
applicable, the Requesting Party shall pay to the Class B Certificateholders the
amount of any Indemnification Payments received by it pursuant to this Section
11.07 together with interest thereon at the Class B Pass-Through Rate from the
date such payments were made. The obligation to pay such amounts to the Class B
Certificateholders will survive the termination of this Agreement.
Amounts payable to Class B Certificateholders pursuant to this Section
11.07 will be distributed first to all Class B Certificateholders whose
-----
distributions were reduced as a result of each Indemnification Payments being
made, pro rata based on the amounts of such reductions, and second to any Class
--- ---- ------
B Certificateholders responsible for such Indemnification Payments, pro rata
based on the amounts distributed to such Class B Certificateholder were reduced
pursuant to Section 5.03(c)(iii).
Section 11.08. Arbitration. Controversies, claims and matters of
-----------
difference arising under Section 5.02(g), 8.04 or 11.07 will be submitted to
binding arbitration in the State of New York according to the expedited
procedures of the Commercial Rules of The American Arbitration Association from
time to time in force, as modified by this Section 11.08. This submission and
agreement to arbitrate shall be specifically enforceable.
The party submitting a controversy, claim or matter of difference to
arbitration shall notify the other parties that it is invoking the provisions of
this Section 11.08. The parties may agree on a retired judge as sole
arbitrator. If for any reason the parties do not agree on a retired judge as
sole arbitrator within three Business Days following the effective date of the
notices described in the first sentence of this paragraph, the parties shall
request, in accordance with the rules of The American Arbitration Association,
that The American Arbitration Association appoint, within three Business Days
following such request, one expert in commercial lending, having not less than
five years experience in such lending, to serve as sole arbitrator, and the
parties shall accept such appointment. The parties agree to abide by all awards
rendered in such proceedings. The costs and attorney's fees incurred by a party
in connection with such arbitration shall be allocated among the parties by the
arbitrator. Awards shall be final and binding on all parties. There shall be
no appeal therefrom other than for fraud or misconduct. Such awards may be
filed with the clerk of one or more courts, State or Federal, having
jurisdiction over the party against whom such an award is rendered or its
property as a basis of judgment and of the issuance of execution for its
collection. Nothing in this Agreement shall be deemed to prevent the arbitrator
from exercising authority to permit exercise by a party of its legal and/or
equitable remedies including right of offset and specific performance. It is
understood by the parties that there is not intended in this Agreement hereto
that there be a waiver of a party's right to any remedy which may be enforced
through arbitration specifically including, but not, by way of limitation, the
right of set off, injunctive relief or specific performance. Any arbitration
proceeding commenced hereunder will begin no later than 10 days following the
date of the dispute giving rise to such arbitration and shall be
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concluded within 30 days of such date. In the event that any dispute relates to
Indemnification Payments for ongoing litigation, an arbitrator may establish
guidelines to be followed with respect to future Indemnification Payments.
Section 11.09. Rule 144A Information. For so long as any of the Class A
---------------------
Certificates are "restricted securities" within the meaning of Rule 144(a)(3)
under the Act, each of the Servicing Advisor, the Servicer and the Trustee agree
to cooperate with one another to provide to any Class A Certificateholder and to
any prospective purchaser of Class A Certificates designated by such Class A
Certificateholder, upon the request of such Holder or prospective purchaser, any
information required to be provided to such Holder or prospective purchaser to
satisfy the condition set forth in Rule 144A(d)(4) under the Act.
Section 11.10. Third Party Beneficiary. Each of the Servicing Advisor,
-----------------------
Servicer, the Authenticating Agent, the Paying Agent, the Transfer Agent and
Certificate Registrar and the Trustee hereby agree and acknowledge that the
Certificateholders are third party beneficiaries of this Agreement and that each
Certificateholder shall be entitled to enforce all rights and remedies available
to it as a third party beneficiary.
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IN WITNESS WHEREOF, the Servicing Advisor, the Servicer, the Authenticating
Agent, the Paying Agent, the Transfer Agent and Certificate Registrar and the
Trustee have caused their names to be signed hereto by their respective officers
thereunto duly authorized, all as of the day and year first above written.
ATHERTON CAPITAL PARTNERS, L.P.,
as Servicing Advisor
By: The Atherton Group Incorporated,
its General Partner
By: /s/ Arthur P. Brazy, Jr.
--------------------------------
Name: Arthur P. Brazy, Jr.
--------------------------------
Title: Executive Vice President
--------------------------------
BANKERS TRUST COMPANY,
as Servicer, Authenticating Agent, Paying
Agent and Transfer Agent and Certificate
Registrar
By: /s/ Marie C. Rasch
-------------------------------
Name: Marie C. Rasch
-------------------------------
Title: Vice President
-------------------------------
MARINE MIDLAND BANK,
solely as Trustee and not in its
individual capacity
By: /s/ Frank J. Godino
-------------------------------
Name: Frank J. Godino
-------------------------------
Title. Corporate Trust Officer
-------------------------------
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MARINE MIDLAND BANK,
in its individual capacity solely with
respect to Section 2.01 and Section 9.15
By: /s/ Frank J. Godino
-------------------------------
Name: Frank J. Godino
-------------------------------
Title: Corporate Trust Officer
-------------------------------
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EXECUTION VERSION
================================================================================
EXHIBIT 10.6
BANKERS TRUST COMPANY,
Custodian and Servicer,
and
ATHERTON CAPITAL PARTNERS, L.P.,
Servicing Advisor and Owner,
and
FRANCHISE FINANCE CORP.,
Lender
SERVICING AND CUSTODIAL AGREEMENT
Dated as of January 8, 1997
================================================================================
<PAGE>
THIS SERVICING AND CUSTODIAL AGREEMENT, dated as of January 8, 1997
(this "Agreement"), is hereby executed by and between ATHERTON CAPITAL PARTNERS,
L.P., a California limited partnership, in its capacity as owner of the
Collateral Loans defined below (the "Owner") and in its capacity as servicing
advisor (the "Servicing Advisor"), BANKERS TRUST COMPANY, a New York banking
corporation, in its capacity as custodian, acting either directly or through an
agent (the "Custodian"), and in its capacity as servicer (the "Servicer"), and
FRANCHISE FINANCE CORP., a Delaware corporation, in its capacity as a lender to
the Owner and, if applicable, in its capacity as agent for lenders to the Owner
(the "Lender").
PRELIMINARY STATEMENT
A. The Owner will originate, purchase or finance Collateral Loans (as
defined herein) using, in part, funds borrowed from the Lender pursuant to a
Warehouse Credit Agreement dated the date hereof (as such agreement may be
amended, modified or supplemented from time to time, the "Credit Agreement"),
between the Owner and the Lender.
B. The Collateral Loans will be pledged to the Lender to secure the
Owner's obligations under the Credit Agreement.
C. The Owner and the Lender wish to engage (1) the Custodian to hold
custody of the Collateral Loans and the Servicer to service the Collateral Loans
on behalf of the Owner and the Lender as specified herein and (2) the Servicing
Advisor to provide servicing advice with respect to the Collateral Loans as
specified herein.
AGREEMENT:
In consideration of the mutual agreements herein contained and for
other good and valuable consideration, the receipt and sufficiency of which are
acknowledged by the parties hereto, the Servicer, the Custodian, the Servicing
Advisor, the Owner and the Lender agree as follows:
Section 1. Definitions. The following terms shall have the
-----------
respective meanings specified below.
"Additional Servicing Advisor Standards and Procedures": The
additional standards and procedures of the Servicing Advisor, as set forth in
Exhibit B and incorporated and made a part of this Agreement as though set forth
herein.
"Agreement" is defined in the preamble hereto.
"Applicable Servicing Fee Rate" is defined in Section 6 hereof.
"Approved Concepts" shall mean those concepts specified in Exhibit C
hereto and such additional concepts as are approved in writing by the Owner and
the Lender.
"Business Day" means any day other than a Saturday, Sunday, legal
holiday or other day on which commercial banks are authorized or required by law
to close in San Francisco, California, Wichita, Kansas, or New York, New York.
<PAGE>
"Cash Equivalent Investments" means, at any time:
(a) any evidence of direct indebtedness, maturing not more than
one year after such time, issued or guaranteed by the United States
government;
(b) commercial paper, maturing not more than nine months from the
date of issue, which is issued by a corporation organized under the
laws of any state of the United States and rated at least A-1/P-1 (or
the equivalent) by at least two rating agencies;
(c) any certificate of deposit or bankers acceptance, maturing
not more than one year after such time, which is issued by (i) a
commercial banking institution that is a member of the Federal Reserve
System and has a combined capital and surplus and undivided profits of
not less than $500,000,000 that has a long-term debt rating of at
least A+ (or the equivalent) by at least one rating agency, or (ii) a
commercial banking institution that is organized in a jurisdiction
outside the United States and has a combined capital and surplus and
undivided profits of not less than $500,000,000 that has a long-term
debt rating of at least A+ (or the equivalent) by at least one rating
agency; or
(d) any money market fund having a rating from a rating agency in
the highest investment category granted thereby at the time of the
purchase of such money market fund, including any funds for which the
Servicer may be a manager.
"Collateral" is defined in the Collateral Loan Agreement relating to
each Collateral Loan.
"Collateral Borrower" means the borrowers to whom Collateral Loans are
made.
"Collateral Loan" means those loans originated, purchased or financed
by Atherton Capital Partners, L.P. or The Atherton Group Incorporated that are
serviced pursuant to this Agreement.
"Collateral Loan Agreement" means the loan agreement between a
Collateral Borrower and the Originator relating to a Collateral Loan.
"Collateral Loan Documentation" means, with respect to each Collateral
Loan:
(1) the original Note (as defined in the Collateral
Loan
<PAGE>
Agreement) executed by the Collateral Borrower and endorsed
to the Owner and endorsed "Pay to the order of
___________________, without recourse" and signed by the Owner;
(2) an executed original of the Collateral Loan
Agreement;
(3) an executed original of the Security Agreement (as
defined in the Collateral Loan Agreement);
(4) the original Mortgage, if applicable, with evidence
of recording thereon, or a duplicate original Mortgage, if
applicable, together with a certificate of an officer of the
settlement agent stating that such Mortgage will be dispatched to
the appropriate public recording office for recordation and that
the original Mortgage, with evidence of recording thereon, will
be promptly delivered to the Custodian upon receipt thereof by
the settlement agent;
(5) the original Leasehold Mortgage, if applicable, in
appropriate form for recording (with the possible exception of
the obtaining of a landlord signature) or with evidence of
recording thereon;
(6) an executed original Guaranty, if applicable;
(7) the UCC-1 Financing Statement, with evidence of
filing thereon, or a copy of the original UCC-1 Financing
Statement, together with a certificate of an officer of the
settlement agent or the Originator stating that such UCC-1
Financing Statement will be dispatched to the appropriate public
filing office and that the original UCC-1 Financing Statement,
with evidence of filing thereon, will be promptly delivered to
the Custodian upon receipt thereof by the settlement agent;
(8) one or more UCC-2 or UCC-3 Assignments assigning
the UCC-1 to the Owner and then executed by the Owner in blank
but otherwise in form and substance acceptable for filing;
(9) an executed original of each landlord, mortgagee or
prior lien or estoppel, if applicable;
(10) an executed original of a Franchisor Intercreditor
Agreement, if applicable;
<PAGE>
(11) an executed original of a Franchisor Subordination
of Lessor's Lien, if applicable;
(12) the original title insurance policy, if
applicable;
(13) copies of the insurance policies indicated in the
Collateral Loan Documentation Checklist;
(14) the environmental indemnity, if applicable;
(15) an assignment of Mortgage, if applicable;
(16) a general assignment of the Collateral Loan
Documentation to the Owner and then in blank by the Owner (the
"Loan Assignment"), assigning all of the grantor's right, title
----------------
and interest in the Collateral Loan, including but not limited
to, the Collateral Loan Agreement, the Note, the Security
Agreement, the Mortgage, the Leasehold Mortgage, the Franchisor
Intercreditor Agreement, the Franchisor Subordination of Lessor's
Lien, the origination escrow agreement and the Guaranty, as
applicable; and
(17) any other credit or security document, if any,
necessary for the documentation and enforcement of such
Collateral Loan.
"Collateral Loan Event of Default": With respect to any Collateral
Loan, an "Event of Default" as defined in the related Collateral Loan Agreement.
"Collateral Loan Documentation Checklist" is defined in Section 4(c).
"Collection Account" means a segregated account maintained by the
Servicer for the benefit of and in the name of Franchise Finance Corp., as
Lender, which shall be an Eligible Account.
"Condemnation": Any condemnation or other taking or temporary or
permanent requisition of a Mortgaged Property, any interest therein or right
appurtenant thereto, or any change of grade affecting the Mortgaged Property as
a result of the exercise of any right of condemnation or eminent domain. A
transfer in lieu or anticipation of condemnation shall be deemed to be a
Condemnation.
"Condemnation Proceeds": All compensation, awards and proceeds
received by or on behalf of a Collateral Borrower as a result of condemnation
(which term shall include any damage
<PAGE>
or taking by any governmental or quasi-governmental authority and any transfer
by private sale in lieu thereof).
"Default Rate" is the Default Rate as defined in the Collateral Loan
Agreement relating to each Collateral Loan.
"Delinquent Collateral Loan" means any Collateral Loan with respect to
which any payment of principal or interest is overdue as of the relevant
Distribution Date.
"Determination Date" means the eighth day of each month, or if such
day is not a Business Day, the next succeeding Business Day.
"Distribution Date" means the twelfth day of each month, or if such
day is not a Business Day, the next succeeding Business Day.
"Eligible Account": One or more accounts that are maintained with a
depository institution (i) whose long-term debt obligations (or, in the case of
a depository institution which is part of a holding company structure, the long-
term debt obligations of such holding company) at the time of deposit therein
are rated at least "AA" (or the equivalent) by Duff & Phelps or, if Duff &
Phelps does not rate such obligations of such Person, by at least two other
rating agencies or (ii) a trust account or accounts maintained with the trust
department of a federal or state chartered depository institution or trust
company acting in its fiduciary capacity subject to regulations relating to
fiduciary funds on deposit substantially similar to those set forth in 12 C.F.R.
' 9.10(b).
"Escrow Account" is defined in Section 3(b) of the Servicing Standards
and Procedures.
"Escrow Payments": All payments that a Collateral Borrower may be
required to pay into escrow pursuant to a Mortgage or a Leasehold Mortgage.
"Franchisor Intercreditor Agreement" means, with respect to certain
Collateral Loan Agreements, a related intercreditor or similar agreement among a
Franchisor, the Originator and the Collateral Borrower, as such agreement may be
amended, supplemented or otherwise modified from time to time.
"Franchisor Subordination of Lessor's Lien" means, with respect to
certain Collateral Loan Agreements, the related subordination of lessor's lien
or similar agreement between a Franchisor and the Originator, as such agreement
may be amended, supplemented or otherwise modified from time to time.
<PAGE>
"Franchisor" shall mean any franchisor of an Approved Concept.
"Guaranty" means, with respect to a Collateral Loan, the related
guaranty, if any, as such guaranty may be amended, supplemented or otherwise
modified from time to time.
"Hazardous Substances": Any hazardous or toxic substance or waste
that is regulated as such or may form the basis of liability under any present
or future law or regulation including, but not limited to, any substance or
waste: (a) defined as a "hazardous substance" under Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended from time to time, and (b) petroleum or any by-products or fractions
thereof, any form of natural gas, asbestos and asbestos-containing materials,
PCBs and PCB-containing equipment, radon, mutagenic or etiologic agents,
pesticides, defoliants, explosives and flammables.
"Independent": When used with respect to any specified Person, such
Person who (a) is not an Affiliate of or controlled by and is in fact
independent of each of the Lender, the Servicer, the Custodian, the Servicing
Advisor, the Owner and any Collateral Borrower with respect to any Collateral
Loan, (b) does not have any direct financial interest or any material indirect
financial interest in the Lender, the Servicer, the Custodian, the Servicing
Advisor, the Owner, any Collateral Borrower with respect to any Collateral Loan,
or an Affiliate thereof, and (c) is not connected with the Lender, the Servicer,
the Custodian, the Servicing Advisor, the Owner or any Collateral Borrower with
respect to any of the Collateral Loans as an officer, employee, promoter,
underwriter, trustee, partner, director or Person performing similar functions.
"Insurance Policy: Any insurance policy required to be maintained by
a Collateral Borrower with respect to a Collateral Loan.
"Insurance Proceeds": With respect to a Collateral Loan, any amounts
received upon settlement of a claim filed under an Insurance Policy.
"Leasehold Mortgage": With respect to a Collateral Loan, the related
leasehold mortgage or deed of trust (in recordable form, with the possible
exception of the obtaining of a landlord signature) from the related Collateral
Borrower to the Originator that has been executed and delivered in connection
with the Note evidencing such Collateral Loan, if any, as such leasehold
mortgage or deed of trust may be amended, supplemented or otherwise modified
from time to time.
"Liquidated Collateral Loan": Any Collateral Loan as to which the
Servicer has determined in accordance with customary servicing practices that
all amounts expected by the Servicer to be recovered from or on account of such
Collateral Loan, whether from scheduled loan payments, Condemnation Proceeds,
Insurance Proceeds, Liquidation Proceeds or otherwise, following final
liquidation of such Collateral Loan and the disposition of the Collateral, have
been
<PAGE>
recovered. The determination by the Servicer that a Collateral Loan has
become a Liquidated Collateral Loan shall be evidenced by a Responsible
Officer's Certificate of the Servicer delivered to the Owner, the Lender and the
Servicing Advisor, detailing the reasons for such determination and the
aggregate amount of Liquidation Proceeds, Liquidation Expenses and Net
Liquidation Proceeds with respect to such Liquidated Collateral Loan, and
specifying any Realized Loss with respect thereto.
"Liquidation Expenses": Reasonable out-of-pocket expenses incurred by
the Servicer in connection with the liquidation of any Collateral Loan with
respect to which a Collateral Loan Event of Default has occurred, Collateral, or
other property acquired in respect thereof (including, without limitation,
reasonable legal fees and expenses).
"Liquidation Proceeds": Amounts received by the Servicer or the
Servicing Advisor in connection with the liquidation of a Collateral Loan with
respect to which a Collateral Loan Event of Default has occurred, Collateral or
other property acquired in respect thereof, whether through foreclosure, sale or
otherwise, including Net Condemnation Proceeds, Net Insurance Proceeds and
payments in connection with such Collateral Loan received from the related
Collateral Borrower (other than amounts required to be paid to such Collateral
Borrower pursuant to the terms of the applicable Collateral Loan Agreement or to
be applied otherwise pursuant to law) or from any Person pursuant to a related
Guaranty and net proceeds realized from the operation of any Collateral by the
Servicer or the Servicing Advisor during the period of ownership of such
Collateral by the Originator or the Owner.
"Mortgage": With respect to a Collateral Loan, the related fee
mortgage or deed of trust from the related Collateral Borrower to the Originator
securing the Note evidencing such Collateral Loan, if any, as such fee mortgage
or deed of trust may be amended, supplemented or otherwise modified from time to
time.
"Mortgaged Property": The real property subject to a Mortgage or
Leasehold Mortgage, as the case may be.
"Net Condemnation Proceeds": With respect to a Collateral Loan,
Condemnation Proceeds in respect of such Collateral Loan net of out-of-pocket
costs and disbursements reasonably and customarily incurred in connection with
the collection thereof, which are not used to restore or repair the related
Mortgaged Property or released to the Collateral Borrower in accordance with the
Collateral Loan Agreement.
"Net Insurance Proceeds": With respect to a Collateral Loan,
Insurance Proceeds in respect of such Collateral Loan net of out-of-pocket costs
and disbursements reasonably and customarily incurred in connection with the
collection thereof which are not used to restore or repair
<PAGE>
the related Mortgaged Property or released to the Collateral Borrower in
accordance with the Collateral Loan Agreement.
"Net Liquidation Proceeds": With respect to any Liquidated Collateral
Loan, Liquidation Proceeds net of Liquidation Expenses.
"Notice Response Period": With respect to any Servicer
Recommendation, a period of time equal to fifteen (15) Business Days following
the delivery of such Servicer Recommendation to the Lender, or such lesser
period of time as shall be specified in such Servicer Recommendation if, in the
good faith judgment of the Servicer or the Servicing Advisor, as the case may
be, such lesser period of time is necessary in order to preserve and protect the
rights, remedies and interests of the Owner or the Lender in respect of the
Collateral Loan Documentation relating to the Collateral Loans or the
Collateral.
"Origination Escrow": Any amount held back and deposited in an Escrow
Account at the origination of the related Collateral Loan from the loan proceeds
pursuant to the related Collateral Loan Agreement or any other Collateral Loan
Documentation, the amount and terms of which shall be indicated in writing to
the Servicer by the Originator of such Collateral Loan upon its origination.
"Originator" means Atherton Capital Partners, L.P., a California
limited partnership, or The Atherton Group Incorporated, a California
corporation, as applicable, in each case in its capacity as the originator of a
Collateral Loan.
"Owner" has the meaning set forth in the preamble hereto.
"Permitted Liens", if any, shall mean the liens permitted by the
Collateral Loan Agreement relating to any Collateral Loan.
"Person" means and includes an individual, a partnership, a
corporation, a business trust, a joint stock company, an unincorporated
association, a joint venture, a limited liability company, a governmental
authority, a trust or any other legal entity.
"Prepayments": With respect to any Collateral Loan, any prepayment of
principal and accrued interest with respect to such Collateral Loan made in
accordance with the related Collateral Loan Agreement (whether by acceleration
or otherwise), including any required Yield Maintenance Payment, and the
application of any Net Insurance Proceeds, Net Condemnation Proceeds and Net
Liquidation Proceeds in accordance with the Collateral Loan Agreement.
"Realized Loss": With respect to a Liquidated Collateral Loan, and
the date of
<PAGE>
determination thereof, the excess of (a) the then outstanding principal balance
of such Liquidated Collateral Loan, plus all accrued and unpaid interest thereon
to such date of determination over (b) the Net Liquidation Proceeds in respect
of such Liquidated Collateral Loan. For the purposes of calculating Realized
Loss, the amounts withdrawn from each REO Account and deposited into the
Collection Account with respect to each Distribution Date shall be applied as if
the related Collateral Loan had remained outstanding, first, to accrued and
unpaid interest on the related Collateral Loan, second, to the unpaid principal
balance of such related Collateral Loan, and third, to the Yield Maintenance
Payment due with respect to such related Collateral Loan (based on the
acceleration thereof).
"Record Holder" shall mean, with respect to any Collateral Loan,
either the Lender or the Owner, as applicable, as the record holder of such
Collateral Loan.
"REO Account" is defined in Section 8(b) of the Servicing Standards
and Procedures.
"REO Property": Any Mortgaged Property or other Collateral acquired
by the Servicer in foreclosure, by deed in lieu of foreclosure or otherwise.
"Request for Release": A Request for Release in the form of Schedule
2 hereto.
"Responsible Officer": When used with respect to the Servicer, any
officer within the corporate trust office of the Servicer, including any Vice
President, Assistant Vice President, Assistant Treasurer, Assistant Secretary or
any other officer of the Servicer customarily performing functions similar to
those performed by any of the above-designated officers of the Servicer and
also, with respect to a particular matter, any other officer to whom such matter
is referred because of such officer's knowledge of and familiarity with the
particular subject. When used with respect to the Servicing Advisor, the
President or the Executive Vice President.
"Responsible Officer's Certificate": A certificate signed by a
Responsible Officer.
"Servicer Recommendation": A written notice delivered by a
Responsible Officer of the Servicer or the Servicing Advisor, as the case may
be, to the Lender, with a copy to the Owner, that shall (i) recommend a course
of action predicated on the servicing standards set forth in Section 1(a) the
Servicing Standards and Procedures, (ii) state in such notice that the Lender
must consent in writing to such course of action during the Notice Response
Period and that absent such consent in writing, the Servicer or the Servicing
Advisor, as the case may be, shall not take the course of action stated in the
notice, and (iii) set forth a brief description of why the lesser period of time
is necessary if the Notice Response Period indicated in such Servicer
Recommendation is less than fifteen (15) Business Days. Each Servicer
Recommendation, regardless of the Notice Response Period, shall be delivered to
the Lender, with a copy to the Owner, by facsimile transmission if
<PAGE>
commercially reasonable, followed by hard copy thereof delivered by overnight
delivery service.
"Servicing Standards and Procedures": The standards and procedures
for the servicing and administration of the Collateral Loans and the related
Collateral Loan Documentation, as set forth in Exhibit A and incorporated and
made a part of this Agreement as though set forth herein.
"Servicing Advisor Fee Rate" is defined in Section 6 hereof.
"Store": A Restaurant or Store, if any, as defined in the Collateral
Loan Agreement relating to certain Collateral Loans.
Section 2. Representations and Warranties. Each of the
------------------------------
Servicer and the Servicing Advisor hereby represents, warrants and covenants to
each other and to the Owner and the Lender that as of the date of execution of
this Agreement:
(i) In the case of the Servicing Advisor, it is a limited
partnership duly formed and validly existing under the laws of the State of
California, and in the case of the Servicer, it is a banking corporation
duly formed and validly existing under the laws of the State of New York;
(ii) The execution and delivery of this Agreement by it, and its
performance and compliance with the terms of this Agreement will not
violate its certificate of limited partnership and partnership agreement or
its corporate charter and by-laws, as applicable, or constitute a default
(or an event, with notice or lapse of time, or both, would constitute a
default) under, or result in the breach of, any material contract,
agreement or other instrument to which it is a party or which may be
applicable to it or any of its assets;
(iii) This Agreement has been duly authorized, executed and delivered
by it and, assuming due authorization, execution and delivery by the other
parties hereto, constitutes its valid, legal and binding obligation,
enforceable against it in accordance with the terms hereof, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and other
laws affecting the enforcement of creditors' rights generally and to
general principles of equity, regardless of whether such enforcement is
considered in a proceeding in equity or at law;
(iv) It is not in default with respect to any order or decree of any
court or any order, regulation or demand of any federal, state, municipal
or governmental agency, which default might have consequences that would
materially and adversely affect its condition (financial or other) or
operations or its properties or might have consequences that would
<PAGE>
affect its performance hereunder;
(v) No litigation is pending or, to the best of its knowledge,
threatened against it which would prohibit its entering into this Agreement
or performing its obligations under this Agreement; and
(vi) No consent, approval, authorization, or order of, registration
or filing with, or notice to, any governmental authority or court or any
other Person is required under the laws of the United States of America,
the laws of the State of New York and, with respect to the Servicing
Advisor, the laws of the State of California, for the execution, delivery
and performance by it of, or compliance by it with, this Agreement.
Section 3. Administration and Servicing of Collateral Loans. The
------------------------------------------------
Servicer and the Servicing Advisor, pursuant to this Agreement shall service the
Collateral Loans as provided in the Servicing Standards and Procedures and the
Additional Servicing Advisor Standards and Procedures. All funds paid by the
Collateral Borrowers in respect of the Collateral Loans shall be deposited by
the Servicer into the Collection Account within one (1) Business Day of receipt
thereof. The Servicer shall keep a record of all amounts received by it.
Section 4. Custodial Duties.
----------------
(a) Custody of Loan Documentation. The Custodian shall take
-----------------------------
possession of the Collateral Loan Documentation relating to the Collateral Loans
as the custodian for, and bailee of, the Lender in accordance with the terms and
conditions of this Agreement. The Custodian shall hold the Collateral Loans in
trust for the benefit of the Lender.
(b) List of Loans. The Custodian shall maintain a complete list of
-------------
the Collateral Loans serviced hereunder, as such list may be amended from time
to time, and provide copies of such list to the Lender, the Owner, the Servicer
and the Servicing Advisor upon request.
(c) Certification. Upon delivery to the Custodian of any Collateral
-------------
Loan Documentation, together with a Collateral Submission Summary in the form of
Schedule 1 hereto, the Custodian shall review the same and provide to the Owner
and the Lender, within three (3) Business Days, the certification specified in
Schedule 1 hereto indicating that (i) all the documents required to be
delivered, as specified in a checklist included in such Schedule 1 hereto
certified by an officer of the Originator (the "Collateral Loan Documentation
Checklist"), have been delivered, or a list of the exceptions to the documents
required to be delivered, and (ii) the Custodian holds such documents on behalf
of the Lender pursuant to this Agreement.
(d) Obligation to Lender. Subject to the terms of this Agreement,
--------------------
the Custodian,
<PAGE>
either directly or by acting through an agent, shall hold all documents relating
to any Collateral Loan that come into its possession for the exclusive use and
benefit of the Lender and shall make disposition thereof only in accordance with
the written instructions furnished by the Lender in the form of Schedule 3
hereto. The Custodian shall segregate and maintain continuous custody of all
such documents received by it in secure facilities in accordance with customary
standards for such custody and shall not release such documents or transfer such
documents to any other party, including any subcustodian, without the express
written consent of the Lender.
(e) Fees Paid by Servicer. The fees of the Custodian shall be deemed
---------------------
to be included in the fees paid to the Servicer pursuant to Section 6(b). The
Servicer shall be responsible for any fees of any Custodian, subcustodian or
agent.
Section 5. Distributions.
-------------
(a) On the Business Day following each Determination Date, the
Servicer shall prepare and send by facsimile to the Servicing Advisor, the Owner
and the Lender a statement (the "Distribution Statement") specifying the
distributions to be made from the Collection Account on the following
Distribution Date, including, without limitation, the servicing compensation
specified in Section 6 hereof and any other reasonable and necessary out-of-
pocket expenses, including legal fees and expenses, incurred by the Servicer or
any of its agents in connection with the servicing of the Collateral Loans or by
the Custodian in connection with its activities as Custodian hereunder. The
Servicing Advisor shall approve or correct such Distribution Statement as soon
as practicable, but in no event later than the Business Day preceding the
Distribution Date; provided that if the Servicer does not receive the Servicing
Advisor's response by 12:00 noon, California time, on such Business Day, such
Distribution Statement shall be deemed approved, subject to adjustment at a
later date, if necessary. The Servicer shall provide to the Servicing Advisor
such additional information as the Servicing Advisor may reasonably request
relating to the Distribution Statement.
(b) On each Distribution Date, the Servicer shall make payments from
the Collection Account in accordance with the Distribution Statement in the
following order of priority:
(i) to the Servicer, the compensation specified in Section 6(b)
and any accrued but unpaid compensation payable pursuant to
Section 6(b);
(ii) to the Servicing Advisor, the compensation specified in
Section 6(a) and any accrued but unpaid compensation
payable pursuant to Section 6(a);
(iii) to the Servicer and/or the Custodian, any out-of-pocket
expenses required to be reimbursed by the Owner;
<PAGE>
(iv) to the Servicing Advisor, any out-of-pocket expenses
required to be reimbursed by the Owner, as approved in
writing by the Owner; and
(v) to the Lender, the amount of interest and principal payable
under the Credit Agreement; and
(vi) to the Owner, any remaining amounts in the Collection
Account.
(c) Funds in the Collection Account shall be invested by the Servicer
upon the written direction of the Owner in Cash Equivalent Investments, provided
that such investments shall mature not later than the Business Day preceding the
next Distribution Date. In the absence of written directions from the Owner,
funds in the Collection Account will be invested in investments described in
clause (d) of the definition of Cash Equivalent Investments. Any interest
earned on the funds in the Collection Account in excess of the amounts required
to pay each of items (i) through (v) in paragraph (b) above shall be distributed
to the Owner on each Distribution Date.
Section 6. Servicing Compensation. (a) The Owner shall pay the
----------------------
Servicing Advisor, as compensation for its activities hereunder, on each
Distribution Date an amount, with respect to each Collateral Loan serviced
hereunder, equal to the product of (i) ***/1/ per annum (the "Servicing Advisor
Fee Rate") multiplied by (ii) a fraction, the numerator of which shall be the
number of days since the immediately prior Distribution Date for such Collateral
Loan, or in the case of the first Distribution Date for such Collateral Loan,
the number of days since such loan became a Collateral Loan, and the denominator
of which shall be 360, multiplied by (iii) the outstanding principal balance of
such Collateral Loan. The Owner hereby directs the Servicer to deduct the
amount of the compensation payable to the Servicing Advisor pursuant to this
Section 6(a), as specified in the Distribution Statement, and remit such
compensation directly to the Servicing Advisor on each Distribution Date. The
Servicing Advisor shall be responsible for its own out-of-pocket costs and
expenses incurred in connection with its services hereunder, to the extent not
reimbursed by any Collateral Borrower, except for such reasonable and necessary
out-of-pocket costs and expenses incurred with respect to (A) a Collateral Loan
as to which a default has occurred, (B) the liquidation or foreclosure of a
Collateral Loan, (C) the condemnation of a Mortgaged Property or (D) the
collection of Insurance Proceeds.
(b) The Owner shall pay the Servicer, as compensation for its
activities hereunder, on each Distribution Date an amount equal to the product
of (i) the Applicable Servicing Fee Rate (as defined below) multiplied by (ii) a
fraction, the numerator of which shall be the number of days
- -----------------
/1/ Certain information has been deleted from this document where denoted
by asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
<PAGE>
since the immediately prior Distribution Date for such Collateral Loan, or in
the case of the first Distribution Date for such Collateral Loan, the number of
days since such loan became a Collateral Loan, and the denominator of which
shall be 360, multiplied by (iii) the outstanding principal balance of such
Collateral Loan. The "Applicable Servicing Fee Rate" with respect to any such
Collateral Loan and any such Distribution Date shall be ***/2/ per annum. The
Owner hereby directs the Servicer to deduct the amount of the servicing
compensation payable to the Servicer pursuant to this Section 6(b), as specified
in the Distribution Statement, and remit such servicing compensation directly to
the Servicer on each Distribution Date.
Section 7. Reports to the Lender and the Owner; Account Statements.
-------------------------------------------------------
No later than three (3) Business Days prior to each Distribution Date, the
Servicer shall deliver to the Servicing Advisor, the Owner and the Lender a
statement setting forth the status of each Collateral Loan (including whether it
is a Delinquent Collateral Loan) as of the close of business on the
Determination Date preceding such Distribution Date showing, for the period
covered beginning on the day following the immediately prior Determination Date
and ending at the close of business on such Determination Date, the payments
received on each such Collateral Loan during such period, the payments scheduled
to be made with respect to such Collateral Loan for such period and such other
information as may reasonably be requested by the Lender, the Owner or the
Servicing Advisor.
Section 8. Resignation and Termination.
---------------------------
(a) At any time, upon sixty (60) days' prior written notice, the
Servicer or the Custodian may resign as Servicer or Custodian, or the Owner or
the Lender may terminate the appointment of the Servicer or the Custodian under
this Agreement; provided, that neither the resignation nor the termination of
--------
the Servicer or the Custodian shall be effective until a successor thereto has
been appointed by the Owner and approved by the Lender.
(b) The Servicing Advisor may not resign as servicing advisor and
neither the Owner nor the Lender may terminate the appointment of the Servicing
Advisor under this Agreement; provided, however, that in the event the Servicing
Advisor has breached its duties and obligations under this Agreement, the Lender
may terminate the appointment of the Servicing Advisor under this Agreement upon
sixty (60) days' prior written notice to the other parties. Any such
termination shall not be effective until a successor has been appointed by the
Lender.
(c) If the Servicer, the Custodian or the Servicing Advisor gives
notice of its
- -------------------
/2/ Certain information has been deleted from this document where denoted by
asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
<PAGE>
resignation (with respect to the Servicer or the Custodian) or has
received notice of its termination pursuant to this Section 8 and by the
twentieth day before the expiration of such sixty day notice period a successor
has not been appointed by the Owner and approved by the Lender or, in the case
of the Servicing Advisor, appointed by the Lender, such Servicer, Custodian or
Servicing Advisor, as the case may be, may itself, following consultation with
the Owner and the Lender as may be practicable under the circumstances, appoint
as its successor an entity that (i) is experienced in servicing commercial loans
and loans to franchisees, taking into account such experience of the Servicer,
the Custodian and the Servicing Advisor, as applicable, and, with respect to the
Servicer, (ii) has a net worth of at least $100,000,000.
(d) Upon acceptance of any appointment as Servicer, Custodian or
Servicing Advisor hereunder by a successor thereto, such successor shall be
entitled to receive from the retiring Servicer, Custodian or Servicing Advisor,
as applicable, such documents of transfer and assignment as such successor may
reasonably request, and shall thereupon succeed to and become vested with all
rights, powers, privileges and duties of the retiring Servicer, Custodian or
Servicing Advisor, and the retiring Servicer, Custodian or Servicing Advisor
shall be discharged from its duties and obligations under this Agreement and
shall not be liable for the acts or omissions of any such successor.
(e) Any payments with respect to Collateral Loans received by the
Servicer or the Custodian or the Servicing Advisor subsequent to (or with
respect to any period subsequent to) the termination or resignation of such
Servicer, Custodian or Servicing Advisor hereunder shall be promptly remitted by
it to the Owner. Each of the Servicer, the Custodian and the Servicing Advisor
shall cooperate fully with the Owner in effectuating the termination of its
responsibilities and rights hereunder and shall promptly provide all documents
and records reasonably necessary to enable its successor to assume its functions
hereunder.
Section 9. Duration. Unless otherwise terminated pursuant to Section
--------
8 hereof, this Agreement shall terminate on December 31, 1999, unless extended
by the written consent of the Owner, the Lender, the Servicing Advisor, the
Custodian and the Servicer; provided, however, that Sections 8(d), 8(e), 10 and
11 shall survive termination of this Agreement.
Section 10. Limitation on Liability of the Servicing Advisor, the
-----------------------------------------------------
Servicer and the Custodian.
- --------------------------
(a) None of the Servicing Advisor, the Servicer, the Custodian or any
of their respective shareholders, directors, officers, employees or agents shall
be under any liability to each other or to the Owner or the Lender for any
action taken or for refraining from the taking of any action in good faith
pursuant to this Agreement or any Collateral Loan Documentation, or for errors
in judgment; provided, however, that this provision shall not protect the
-------- -------
Servicing Advisor, the
<PAGE>
Servicer, the Custodian or any such Person against any liability that would
otherwise be imposed by reason of willful misfeasance, bad faith or negligence
in the performance of such Person's duties or by reason of a breach of such
Person's obligations and duties hereunder. Each of the Servicing Advisor, the
Servicer, the Custodian and any of its directors, officers or employees, may
rely in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder.
(b) The Owner shall indemnify and hold harmless each of the Servicing
Advisor, the Servicer, the Custodian and each of its shareholders, directors,
officers, employees or agents (each, an "Indemnified Party") against any claims,
losses, penalties, fines, forfeitures, legal fees and expenses, judgments and
any other costs, fees and expenses ("Damages") incurred in connection with any
legal action relating to this Agreement, or any Collateral Loan Documentation,
other than any Damages incurred by the Indemnified Party which relate to or are
the result of the willful misfeasance, bad faith or negligence in the
performance of the Indemnified Party's duties hereunder or by reason of a breach
of the Indemnified Party's obligations and duties hereunder. The Owner shall
not indemnify the Servicer, the Servicing Advisor or the Custodian for Damages
which relate to or are the result of the willful misfeasance, bad faith or
negligence of the officers, directors, employees or agents of such party.
The rights, duties and obligations of each party pursuant to this
Section 10 shall survive any termination of this Agreement.
Section 11. Indemnification; Third Party Claims. Each of the
-----------------------------------
Servicing Advisor, the Servicer and the Custodian shall indemnify and hold
harmless each other, the Owner and the Lender and each of their respective
shareholders, directors, officers, employees or agents against any and all
Damages incurred by the party seeking indemnification due to the failure of the
Servicing Advisor, the Servicer or the Custodian to perform its obligations in
accordance with the terms of this Agreement; provided that in connection with
the events giving rise to such claim for indemnification, the party seeking
indemnification and the officers, directors, employees or agents of such party
shall not have engaged in any willful misfeasance, bad faith or negligence.
The rights, duties and obligations of each party pursuant to this
Section 11 shall survive any termination of this Agreement.
<PAGE>
Section 12. Governing Law; Jurisdiction. This Agreement shall be
---------------------------
construed in accordance with the laws of the State of New York (without regard
to conflicts of laws principles), and the obligations, rights and remedies of
the parties hereunder shall be determined in accordance with such laws. Each of
the Servicer, the Custodian, the Owner, the Lender and the Servicing Advisor
hereby irrevocably and unconditionally submits for itself and its property in
any legal action or proceeding relating to this Agreement, or for recognition
and enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the courts of the state of New York, the courts of the United
States of America for the Southern District of New York and appellate courts
from any jurisdiction thereof.
Section 13. Modifications. This Agreement may not be altered or
-------------
modified without the express written consent of the parties hereto. No course
of conduct shall constitute a waiver of any of the terms or conditions of this
Agreement, unless such waiver is specified in writing, and then only to the
extent so specified. A waiver of any of the terms of this Agreement on one
occasion shall not constitute a waiver of the other terms of this Agreement, or
of such terms and conditions, on any other occasion.
Section 14. Incorporation by Reference. Exhibit A, Exhibit B and
--------------------------
Exhibit C to this Agreement are hereby incorporated by reference herein, and
shall be an integral part of this Agreement, with the same force and effect as
if set forth herein.
Section 15. Notices. All demands, notices and communications
-------
hereunder shall be in writing and shall be deemed to have been duly given if
personally delivered at or mailed by facsimile or certified or registered mail,
return receipt requested, to the following addresses:
Servicer and Bankers Trust Company
Custodian: Corporate Trust and Agency Group
Four Albany Street
New York, New York 10006
Attention: Karla Leonffu
Telephone: 212/250-6746
Facsimile: 212/250-6151
Servicing Advisor Atherton Capital Partners, L.P.
and Owner: 1001 Bayhill Drive
Suite 155
San Bruno, California 94066
Attention: Mark McGourty
Telephone: 415/827-7800
Facsimile: 415/827-7950
<PAGE>
Lender: Franchise Finance Corp.
4111 East 37th Street North
Wichita, Kansas 67220
Attention: Dawn Dagenais
Telephone: 316/828-6478
Facsimile: 316/828-4081
Any demand, notice or communication given pursuant to this Agreement shall not
be effective until received.
Notwithstanding the foregoing, during any period in which a Person is
required hereunder to make demands, notices or communications to itself in
another capacity under this Agreement or another agreement contemplated hereby,
no such demands, notices or communications need be made or delivered.
Section 16. Counterpart Signatures. This Agreement may be executed
----------------------
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts shall constitute but one and
the same instrument.
Section 17. Successors and Assigns. The provisions of this Agreement
----------------------
shall be binding upon and inure to the benefit of the Servicer, the Servicing
Advisor, the Custodian, the Owner and the Lender and their respective successors
and assigns including, but not limited to, successors in interest in and to the
Collateral Loans; provided, however, that the Servicer, the Servicing Advisor
and the Custodian may not assign their duties hereunder without the written
consent of the Owner and the Lender.
Section 18. Confidentiality. The Servicer and the Custodian hereby
---------------
agree not to use or provide any information relating to the Collateral Loans or
the Collateral Loan Documentation other than for the purpose of fulfilling their
duties and obligations hereunder. Notwithstanding anything herein to the
contrary, the foregoing shall not be construed to prohibit (i) disclosure of any
and all information that is or becomes publicly known (other than as a result of
the actions of the Servicer or the Custodian), or information obtained by the
Servicer or the Custodian from sources other than the Owner, the Lender, the
Servicing Advisor or a third party actually known by a Responsible Officer of
the Servicer or Custodian to be bound by an obligation of confidentiality to the
Owner or Servicing Advisor, (ii) disclosure of any and all information (A) if
required to do so by an applicable statute, law, rule or regulation, (B) if
required to do so by any government agency or regulatory body having or claiming
authority to regulate or oversee any aspects of the Servicer's or the
Custodian's business or that of its affiliates, (C) pursuant to any subpoena,
civil investigative demand or similar demand or request of any court, regulatory
authority, arbitrator or arbitration to which the Servicer or the Custodian or
an affiliate or an officer, director, employer or shareholder
<PAGE>
thereof is a party, and (D) to any affiliate, independent or internal auditor,
agent, employee or attorney of the Servicer or the Custodian having a need to
know the same, provided that in each of (A), (B), (C) and (D) above, the
Servicer or the Custodian advises such recipient of the confidential nature of
the information being disclosed, or (iii) any other disclosure authorized in
writing by the Owner or the Lender, as applicable.
<PAGE>
IN WITNESS WHEREOF, the Servicer, the Custodian, the Owner, the Lender
and the Servicing Advisor have caused their names to be signed hereto by their
respective officers thereunto duly authorized all as of the date specified in
the preamble of this document.
BANKERS TRUST COMPANY,
as the Custodian and the Servicer
By: /s/ Marie C. Rasch
--------------------------------------
Name: Marie C. Rasch
Title: Vice President
ATHERTON CAPITAL PARTNERS, L.P.,
as the Owner and the Servicing Advisor
By: The Atherton Group Incorporated,
its General Partner
By: /s/ David L. Elder
--------------------------------------
Name: David L. Elder
Title: President
FRANCHISE FINANCE CORP.
as the Lender
By: /s/ Jeffrey R. Thompson
--------------------------------------
Name: Jeffrey R. Thompson
Title: President
<PAGE>
EXHIBIT 10.7
LOAN SALE AND PURCHASE AGREEMENT
Loan Sale and Purchase Agreement ("Agreement"), dated as of March 14,
1997, between Atherton Capital Incorporated (the "Seller") and Orinda Management
Company (the "Purchaser").
The Seller agrees to sell and the Purchaser agrees to purchase certain
loans made to owners or lessees of franchised restaurant concepts identified on
the schedule (the "List of Loans") annexed hereto as Exhibit 1 (the "Loans") as
described herein. The Purchaser will sell the Loans to Atherton Franchisee Loan
Funding 1997-A LLC (the "Issuer") in exchange for the Issuer's Class A Notes,
certain membership interests in the Issuer and immediately available funds. The
Loan Documents will be held and the Loans will be serviced pursuant to a
Servicing and Custodial Agreement (the "Servicing Agreement") to be dated as of
March 14, 1997, by and among the Issuer, Bankers Trust Company (in its capacity
as servicer thereunder, the "Servicer", and in its capacity as custodian
thereunder, the "Custodian"), the Seller and First Bank National Association, as
indenture trustee (the "Indenture Trustee") under the Indenture (as defined
below).
The Issuer will pledge, among other things, the Loans and the Loan
Collateral to the Indenture Trustee pursuant to an Indenture of Trust (the
"Indenture") to be dated as of March 14, 1997. The Issuer will issue its
Atherton Franchisee Loan Notes, Series 1997-A, pursuant to the Indenture.
Pursuant to the Master Custodial Agreement to be dated as of March 1, 1997
between Bankers Trust Company, as note custodian, and the Purchaser, as
depositor, the Purchaser will exchange the Class A Notes for Class A Custody
Receipts and Class A-IO Custody Receipts (together, the "Custody Receipts").
The Purchaser intends to sell the Custody Receipts to certain
qualified institutional buyers. Pursuant to a Placement Agent Agreement dated
March 14, 1997 (the "Placement Agent Agreement") with Lehman Brothers Inc. (the
"Placement Agent"), the Placement Agent will offer the Custody Receipts, as well
as the Class B Notes and Class C Notes to be sold by the Issuer, for sale to
certain qualified institutional buyers in transactions exempt from the
registration requirements of the Securities Act of 1933. Such securities are
described in a Private Placement Memorandum dated as of March 14, 1997 (the
"Memorandum").
Capitalized terms used herein but not defined herein shall have the
meanings assigned to them in the Indenture.
In consideration of the mutual agreements contained herein, the Seller
and the Purchaser hereby agree as follows:
SECTION 1. Agreement to Purchase. The Seller agrees to sell, and the
---------------------
Purchaser agrees to purchase, on the date hereof and on a servicing released
basis, the Loans. The Loans have an aggregate principal balance as of the close
of business on the Cut Off Date, after giving
<PAGE>
effect to any payments due before such date, whether or not received, of
$97,276,237.82. The consideration paid by the Purchaser for the Loans is 100
shares of the Purchaser's common stock.
On the date hereof, (1) the Purchaser will assign to the Issuer
(pursuant to a Loan Sale and Purchase Agreement between the Purchaser and the
Issuer) all of its right, title and interest in and to the Loans and its rights
under this Agreement, (2) the Issuer will then pledge and assign to the
Indenture Trustee pursuant to the Indenture, all of its right, title and
interest in and to the Loans and its rights under this Agreement, and the
Indenture Trustee shall succeed to such right, title and interest in and to the
Loans and the Purchaser's rights under this Agreement.
SECTION 2. Conveyance of Loans. The Seller does hereby transfer,
-------------------
assign, set over and otherwise convey to the Purchaser, without recourse, all
the right, title and interest of the Seller in and to the Loans, the Loan Files
and other Loan Documents, together with all escrow deposits related thereto. In
connection with such transfer and assignment, except as set forth in the fourth
paragraph of this Section 2, the Seller has delivered to the Custodian, on
behalf of the Purchaser, on or prior to the date hereof, all of the Loan Files.
The Loan File for each Loan, which is described more specifically in
the Loan Submission Summary delivered to the Custodian in connection with such
Loan, shall contain the following documents:
(a) the executed original of the Promissory Note endorsed "Pay to the
order of ____________, without recourse," with all intervening endorsements, if
any, showing a complete chain of title from the originator to the party
endorsing such Promissory Note, plus amendments thereto;
(b) an executed original of the Franchisee Loan Agreement;
(c) an executed original Security Agreement;
(d) the original Mortgage, if applicable, with evidence of recording
thereon, or a duplicate original Mortgage, if applicable, together with escrow
instructions requiring such Mortgage to be dispatched to the appropriate public
recording office for recordation;
(e) the original Leasehold Mortgage with evidence of recording thereon
or in appropriate form for recording (subject to, with respect to each Loan
listed on Schedule A to Exhibit 2 hereto, the exception of the obtaining of a
landlord signature), if applicable, or a duplicate original Leasehold Mortgage,
if applicable, together with escrow instructions requiring such Leasehold
Mortgage to be dispatched to the appropriate public recording office for
recordation;
(f) an executed original Guaranty, if applicable;
<PAGE>
(g) the UCC-1 Financing Statement, with evidence of filing thereon, or
a copy of the original UCC-1 Financing Statement, together with escrow
instructions requiring such UCC-1 Financing Statement to be dispatched to the
appropriate public filing office;
(h) one or more UCC-2 or UCC-3 Assignments in form and substance
acceptable for filing;
(i) an executed original of each landlord, mortgagee or prior lien or
estoppel, if applicable;
(j) an executed original of a Franchisor Intercreditor Agreement, if
applicable;
(k) an executed original of a Franchisor Subordination of Lessor's
Lien, if applicable;
(l) the original title insurance policy, if applicable;
(m) applicable certificate(s) of insurance;
(n) the environmental indemnity, if applicable;
(o) an assignment of Mortgage, if applicable;
(p) a general assignment of the Loan File from the Seller, assigning,
without recourse, all of the Seller's right, title and interest in each Loan,
Loan File and other Loan Documents, including but not limited to, the Franchisee
Loan Agreement, the Promissory Note, the Security Agreement, the Mortgage, the
Leasehold Mortgage, the Franchisor Intercreditor Agreement, the Franchisor
Subordination of Lessor's Lien, the origination escrow agreement and the
Guaranty, as applicable; and
(q) any other credit or security document necessary for the
documentation and enforcement of such Loan.
The assignment of Mortgage and general assignment of Loan File
referred to in clauses (o) and (p) may be in the form of a single instrument
assigning the Mortgage and Loan File to the extent permitted by applicable law.
The Seller will deliver the original Promissory Note to the Custodian on behalf
of the Purchaser, endorsed in blank, to effect the transfer to the Purchaser of
the Promissory Notes and all related Leasehold Mortgages, Mortgages and other
Loan Documents. Concurrently herewith, the Purchaser has contracted to sell the
Loans to the Issuer and the Issuer in turn has pledged the Loans (pursuant to
the Indenture) to the Indenture Trustee on behalf of the Noteholders. To avoid
the unnecessary expense and administrative inconvenience associated with the
execution and recording or filing of multiple assignments of mortgages and
assignments of UCC financing statements the Seller has executed and recorded or
filed assignments of mortgages and assignments of UCC financing statements
naming the
<PAGE>
Indenture Trustee on behalf of the Noteholders as assignee. Notwithstanding the
fact that the assignments of mortgages and the assignments of UCC financing
statements name the Indenture Trustee on behalf of the Noteholders as assignee,
the parties hereto acknowledge and agree that the Loans shall for all purposes
be deemed to have been transferred from the Seller to the Purchaser, from the
Purchaser to the Issuer and from the Issuer to the Indenture Trustee on behalf
of the Noteholders.
If the Seller cannot deliver, or cause to be delivered, to the
Custodian any of the documents or instruments referred to in clause (d), (e) or
(g) with evidence of recording thereon for any reason, the Seller shall deliver
or cause to be delivered to the Custodian within 180 days of the date hereof a
photocopy of such document or instrument with evidence of recording thereon and
certified by the appropriate county recorder's office to be a true and complete
copy of the original thereof submitted for recording.
The Indenture Trustee, as assignee or pledgee of the Issuer, shall be
entitled to all scheduled payments of principal due after the Cut Off Date, all
other payments of principal collected after the Cut Off Date (other than
scheduled payments of principal due on or before the Cut Off Date), and all
payments of interest on the Loans allocable to the period commencing on the Cut
Off Date. All scheduled payments of principal and interest due on or before the
Cut Off Date and collected after the Cut Off Date shall belong to the Seller.
Upon the sale of the Loans by the Seller to the Purchaser pursuant to
this Agreement, the ownership of each Promissory Note, Mortgage, Leasehold
Mortgage and the other contents of the related Loan File shall be vested in the
Purchaser and its assigns, and the ownership of all records and documents with
respect to the related Loan prepared by or which come into the possession of the
Seller shall immediately vest in the Purchaser and its assigns, and shall be
delivered promptly by the Seller to the Custodian. The Seller's records shall
reflect the transfer of each Loan to the Purchaser and its assigns as a sale.
It is the express intent of the parties hereto that the conveyance of
the Loans and related property to the Purchaser, by the Seller as provided in
this Section 2 be, and be construed as, an absolute sale of the Loans and
related property. It is, further, not the intention of the parties that such
conveyance be deemed a pledge of the Loans and related property by the Seller to
the Purchaser to secure a debt or other obligation of the Seller. However, in
the event that, notwithstanding the intent of the parties, the Loans or any
related property is held to be the property of the Seller, or if for any other
reason this Agreement is held or deemed to create a security interest in the
Loans or any related property, then:
(i) this Agreement shall be deemed to be a security agreement;
and
(ii) the conveyance provided for in this Section 2 shall be
deemed to be a grant by the Seller to the Purchaser, of a
security interest in all of the Seller's right, title, and
interest, whether now owned or hereafter acquired, in and
to:
<PAGE>
(A) All accounts, contract rights, general intangibles, chattel
paper, instruments, documents, money, deposit accounts, certificates of
deposit, goods, letters of credit, advices of credit, investment property
and uncertificated securities consisting of, arising from or relating to
any of the following property: the Loans including the Promissory Notes,
the related Leasehold Mortgages, the related Mortgages, the related
Security Agreements, and title, hazard and other insurance policies, all
distributions with respect thereto payable on and after the Cut Off Date,
and the Loan Files;
(B) All accounts, contract rights, general intangibles, chattel
paper, instruments, documents, money, deposit accounts, certificates of
deposit, goods, letters of credit, advices of credit, uncertificated
securities, investment property, and other rights arising from or by virtue
of the disposition of, or collections with respect to, or insurance
proceeds payable with respect to, or claims against other Persons with
respect to, all or any part of the collateral described in clause (A) above
(including any accrued discount realized on liquidation of any investment
purchased at a discount); and
(C) All cash and non-cash proceeds of the collateral described
in clauses (A) and (B) above and all products, rents and profits of such
property.
The possession by the Purchaser or its designee of the Promissory
Notes, the Leasehold Mortgages, the Mortgages and such other goods, letters of
credit, advices of credit, instruments, money, documents, chattel paper or
certificated securities shall be deemed to be "possession by the secured party,"
or possession by a purchaser or a person designated by him or her, for purposes
of perfecting the security interest pursuant to the Uniform Commercial Code
(including, without limitation, Sections 9-305, 8-313 or 8-321 thereof) as in
force in the relevant jurisdiction.
Notifications to Persons holding such property, and
acknowledgments, receipts or confirmations from Persons holding such property,
shall be deemed to be notifications to, or acknowledgments, receipts or
confirmations from, financial intermediaries, bailees or agents (as applicable)
of the Purchaser or its designee for the purpose of perfecting such security
interest under applicable law.
The Seller shall, to the extent consistent with this Agreement,
take such reasonable actions as may be necessary to ensure that, if this
Agreement were deemed to create a security interest in the property described
above, such security interest would be deemed to be a perfected security
interest of first priority under applicable law and will be maintained as such
throughout the term of the Agreement. The Seller shall file all filings
necessary to maintain the effectiveness of any original filings necessary under
the Uniform Commercial Code as in effect in any jurisdiction to perfect such
security interest in such property. In connection herewith, the Purchaser shall
have all of the rights and remedies of a secured party and creditor under the
Uniform Commercial Code as in force in the relevant jurisdiction.
<PAGE>
SECTION 3. Examination of Loan Files and Due Diligence Review. On
--------------------------------------------------
or prior to the date hereof, the Seller has delivered to the Custodian, Loan
Files with respect to the Loans. The fact that the Custodian has conducted or
has failed to conduct any partial or complete examination of the Loan Files for
the Loans shall not affect the right of the Purchaser or the Indenture Trustee
to cause the Seller to cure any Material Document Defect or Material Breach
(each as defined below), or to repurchase or replace the defective Loans
pursuant to Section 5 of this Agreement.
SECTION 4. Representations and Warranties of the Seller and the
----------------------------------------------------
Purchaser. (a) To induce the Purchaser to enter into this Agreement, the Seller
- ---------
hereby makes for the benefit of the Purchaser and its assigns with respect to
each Loan as of the date hereof (or as of such other date specifically set forth
in the particular representation and warranty) each of the representations and
warranties set forth on Exhibit 2 hereto and hereby further represents and
warrants to the Purchaser as of the date hereof that:
(i) The Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and is qualified and in
good standing in each other jurisdiction where such qualification is required
for the Seller in connection with its ownership of the Loans and performance of
its obligations under this Agreement. The Seller has the requisite power and
authority and legal right to own the Loans and to transfer and convey the Loans
to the Purchaser and has the requisite power and authority to execute and
deliver, engage in the transactions contemplated by, and perform and observe the
terms and conditions of, this Agreement.
(ii) This Agreement has been duly and validly authorized, executed and
delivered by the Seller, and (assuming the due authorization, execution and
delivery hereof by the Purchaser) this Agreement constitutes the valid, legal
and binding agreement of the Seller, enforceable in accordance with its terms,
except as such enforcement may be limited by (A) laws relating to bankruptcy,
insolvency, reorganization, receivership or moratorium, (B) other laws relating
to or affecting the rights of creditors generally or (C) general equity
principles (regardless of whether such enforcement is considered in a proceeding
in equity or at law).
(iii) No consent, approval, authorization or order of, registration or
filing with, or notice to, any governmental authority or court, is required,
under federal or state law, for the execution, delivery and performance of or
compliance by the Seller with this Agreement, or the consummation by the Seller
of any transaction contemplated hereby.
(iv) Neither the transfer of the Loans to the Purchaser, nor the
execution, delivery or performance of this Agreement by the Seller, conflicts or
will conflict with, results or will result in a breach of, or constitutes or
will constitute a default under (A) any term or provision of the Seller's
certificate of incorporation or by-laws, (B) any term or provision of any
material agreement, contract, instrument or indenture, to which the Seller is a
party or which may be applicable to any of its assets, or (C) any law, rule,
regulation, order, judgment, writ, injunction or decree of any court or
governmental authority having jurisdiction over the Seller or its assets.
<PAGE>
(v) There are no actions or proceedings against, or investigations of,
the Seller pending or, to the Seller's knowledge, threatened against the Seller
before any court, administrative agency or other tribunal.
(vi) The form of this Agreement and the related instruments of
transfer are in form sufficient to transfer all rights, title and interest in
and to the Loans to the Purchaser. The Seller has given or caused to be given
all notices legally necessary to be given by the Seller to effect the sale of
the Loans. The sale of the Loans pursuant to this Agreement will effect a
transfer by the Seller of all of its right, title and interest in and to the
Loans to the Purchaser.
(vii) The transfer of the Loans to the Purchaser will be treated by
the Seller for financial accounting and reporting purposes as a sale of assets.
(viii) The Seller's principal place of business and chief executive
office is in the State of California.
(ix) The Seller is not insolvent and will not be rendered insolvent as
a result of the transactions contemplated hereby and it has not entered into
this Agreement with any intent to hinder, delay or defraud any of its creditors.
Each of the representations, warranties and covenants made by the
Seller pursuant to this Section 4(a) shall survive the sale of the Loans and
shall continue in full force and effect notwithstanding any restrictive or
qualified endorsement on the Promissory Notes.
(b) To induce the Seller to enter into this Agreement, the Purchaser
hereby represents and warrants to the Seller as of the date hereof:
(i) The Purchaser is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware with full power and
authority to carry on its business as presently conducted by it.
(ii) The Purchaser has full power and authority to acquire the Loans,
to execute and deliver this Agreement and to enter into and consummate all
transactions contemplated by this Agreement. The Purchaser has duly and validly
authorized the execution, delivery and performance of this Agreement and has
duly and validly executed and delivered this Agreement. This Agreement, assuming
due authorization, execution and delivery by the Seller, constitutes the valid
and binding obligation of the Purchaser, enforceable against it in accordance
with its terms, except as such enforcement may be limited by (A) laws relating
to bankruptcy, insolvency, reorganization, receivership or moratorium, (B) other
laws relating to or affecting the rights of creditors generally or (C) general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(iii) The execution, delivery and performance of this Agreement by the
Purchaser will not violate the Purchaser's certificate of incorporation or by-
laws or constitute a default (or an event that, with notice or lapse of time or
both, would constitute a default) under,
<PAGE>
or result in a breach of, any material agreement, contract, instrument or
indenture to which the Purchaser is a party or which may be applicable to the
Purchaser or its assets.
(iv) The Purchaser is not in violation of, and its execution and
delivery of this Agreement and its performance and compliance with the terms of
this Agreement will not constitute a violation of, any law, rule, writ,
injunction, or any order or decree of any court, or any order or regulation of
any federal, state or municipal government agency having jurisdiction over the
Purchaser or its assets, which violation could materially and adversely affect
the condition (financial or otherwise) or the operation of the Purchaser or its
assets or could materially and adversely affect its ability to perform its
obligations and duties hereunder.
(v) There are no actions or proceedings against, or investigations of,
the Purchaser pending or, to the Purchaser's knowledge, threatened against the
Purchaser before any court, administrative agency or other tribunal, the outcome
of which could reasonably be expected to adversely affect the execution,
delivery or performance by, or enforceability against the Purchaser of this
Agreement or have an effect on the financial condition of the Purchaser that
would materially and adversely affect the ability of the Purchaser to perform
its obligation and duties hereunder.
Each of the representations and warranties made by the Purchaser
pursuant to this Section 4(b) shall survive the purchase of the Loans.
SECTION 5. Remedies Upon Breach of Representations and Warranties
------------------------------------------------------
Made by the Seller. (a) It is hereby acknowledged that the Purchaser shall make
- ------------------
for the benefit of the holders of the Notes and the Custody Receipts, whether
directly or by way of assignment of its rights hereunder to the Indenture
Trustee, the representations and warranties set forth on Exhibit 2 hereto.
(b) It is hereby further acknowledged that if any document
required to be delivered to the Custodian pursuant to Section 2 with respect to
a Loan is not delivered as and when required, not properly executed or is
defective on its face, or if there is a breach of any of the representations and
warranties required to be made by the Seller regarding the characteristics of a
Loan as set forth in Exhibit 2 hereto, and in either case such defect or breach,
individually or in the aggregate with any other defect or breach, materially and
adversely affects such Loan (a "Material Document Defect" and a "Material
Breach", respectively) the party discovering such Material Document Defect or
Material Breach shall promptly notify the other parties and within 60 days of
receipt by the Seller of notice of such Material Document Defect or such
Material Breach, as the case may be, the Seller shall correct or cure such
Material Document Defect or Material Breach. Any delay or failure to provide the
notice called for in the prior sentence shall not limit or impair any of the
rights and obligations of the Purchaser hereunder.
The Seller hereby covenants and agrees that, if any such Material
Document Defect or Material Breach cannot be corrected or cured within the above
cure periods, the Seller shall, not later than 60 days after its discovery or
the Purchaser's or its assignee's notice to it respecting such Material Document
Defect or Material Breach, either (i) repurchase the related
<PAGE>
Loan from the Purchaser or its assignee at a price equal to the sum of (x) 100%
of the unpaid principal balance of such Loan, plus (y) accrued but unpaid
interest thereon calculated at the applicable interest rate for such Loan, but
not including, the scheduled payment date for such Loan in the Due Period in
which such purchase occurs such price, the "Purchase Price," and any such
purchase, the "Repurchase Option"), or (ii) within one year of the date hereof,
at its option replace any Loan to which such defect relates with another Loan
satisfactory to the Credit Enhancer and meeting the requirements set forth in
the Indenture. The Seller agrees that any such substitution shall be completed
in accordance with the terms and conditions of the Indenture.
The obligations of the Seller set forth in this Section 5(b) to cure a
Material Document Defect or a Material Breach or repurchase or replace a
defective Loan constitute the sole remedies of the Purchaser or its assignees
with respect to a Material Document Defect or Material Breach against the
Seller; provided, that this limitation shall not in any way limit the
--------
Purchaser's rights or remedies upon breach of any other representation or
warranty or covenant by the Seller set forth in this Agreement (other than those
set forth in Exhibit 2).
(c) If the Seller repurchases any Loan pursuant to this Section
5, the Purchaser or its assignee, following receipt by the Custodian of the
Purchase Price therefor, promptly shall deliver or cause to be delivered to the
Seller all Loan Documents with respect to such Loan, and each document that
constitutes a part of the Loan File that was endorsed or assigned to the
Indenture Trustee shall be endorsed and assigned to the Seller in the same
manner.
SECTION 6. Closing. The closing of the sale of the Loans shall be
-------
held at the offices of Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New
York, New York 10103 at 10:00 a.m. (New York time) on the date hereof.
The closing shall be subject to each of the following conditions:
(a) All of the representations and warranties of the Seller
and the Purchaser specified in Section 4 of this Agreement (including,
without limitation, the representations and warranties set forth on
Exhibit 2 to this Agreement) shall be true and correct as of the date
hereof.
(b) All Closing Documents specified in Section 7 of this
Agreement, in such forms as are agreed upon and acceptable to the
Seller or the Purchaser, as applicable, shall be duly executed and
delivered by all signatories as required pursuant to the respective
terms thereof.
(c) All other terms and conditions of this Agreement required
to be complied with on or before the date hereof shall have been
complied with and the Seller and the Purchaser shall have the ability
to comply with all terms and conditions and perform all duties and
obligations required to be complied with or performed after the date
hereof.
<PAGE>
(d) The Notes and the Custody Receipts shall have been assigned
ratings by the Rating Agencies that are at least as high as those
specified in the Memorandum.
(e) The Placement Agent shall not have terminated the Placement
Agent Agreement.
The Seller and the Purchaser agree to use their best efforts to
perform their respective obligations hereunder in a manner that will enable the
Purchaser to purchase the Loans on the date hereof. If any of the foregoing
conditions is not satisfied by the Seller, other than as a result of bad faith
nonperformance on the part of the Purchaser, the Purchaser shall be entitled to
terminate this Agreement (exclusive of any payment or reimbursement obligations
of the Seller hereunder).
SECTION 7. Closing Documents. The Closing Documents shall consist of
-----------------
the following:
(a) This Agreement duly executed by the Purchaser and the Seller.
(b) A certificate of the Seller, executed by a duly authorized
officer of the Seller and dated the date hereof, and upon which the
Purchaser and its successors and assigns may rely, to the effect that
the Seller has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied on or prior to the
date hereof.
(c) True, complete and correct copies of the Seller's certificate
of incorporation and by-laws;
(d) A good standing certificate of the Seller from the Secretary
of State of Delaware, dated not earlier than 30 days prior to the date
hereof.
(e) A certificate of the Secretary of the Seller, dated the date
hereof, and upon which the Purchaser may rely, to the effect that each
individual who, as an officer or representative of the Seller, signed
this Agreement or any other document or certificate delivered on or
before the date hereof in connection with the transactions
contemplated herein, was at the respective times of such signing and
delivery, and is as of the date hereof, duly elected or appointed,
qualified and acting as such officer or representative, and the
signatures of such persons appearing on such documents and
certificates are their genuine signatures.
(f) An opinion of Orrick, Herrington & Sutcliffe LLP, special
counsel to the Seller, dated the date hereof and in the form attached
hereto as Exhibit 3.
(g) Such other opinions of counsel as the Rating Agencies or
the Credit Enhancer may request in connection with the sale of the
Loans by the
<PAGE>
Seller to the Purchaser or the Seller's execution and delivery of, or
performance under, this Agreement.
(h) A letter from KPMG Peat Marwick LLP, certified public
accountants, dated the date hereof, to the effect that they have
performed certain specified procedures as a result of which they
determined that certain information of an accounting, financial or
statistical nature set forth in the Memorandum under the caption "The
Pool" agrees with the records of the Seller.
(i) Such further certificates, opinions and documents as the
Purchaser may reasonably request.
SECTION 8. Notices. All communications provided for or permitted
-------
hereunder shall be in writing and shall be deemed to have been duly given if (a)
personally delivered, (b) mailed by registered or certified mail, postage
prepaid and received by the addressee, (c) sent by express courier delivery
service and received by the addressee, or (d) transmitted by telex or facsimile
transmission (or any other type of electronic transmission agreed upon by the
parties) and confirmed by a writing delivered by any of the means described in
(a), (b) or (c), if (i) to the Purchaser, addressed to the Purchaser at Two Wall
Street, New York New York 10005, Attention: President (or such other address as
may hereafter be furnished in writing by the Purchaser); (ii) if to the Seller,
addressed to the Seller at 1001 Bayhill Drive, Suite 155, San Bruno, California
94066, Attention: David Elder (or to such other address as the Seller may
designate in writing); or (iii) if to the Indenture Trustee or the Credit
Enhancer, at their respective addresses set forth in the Indenture (or to such
other address as the Indenture Trustee or the Credit Enhancer may designate in
writing).
SECTION 9. Severability of Provisions. Any part, provision,
--------------------------
representation, warranty or covenant of this Agreement that is prohibited or
which is held to be void or unenforceable shall be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. Any part, provision, representation, warranty or covenant of
this Agreement that is prohibited or unenforceable or is held to be void or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable law, the parties
hereto waive any provision of law which prohibits or renders void or
unenforceable any provision hereof.
SECTION 10. Further Assurances. The Seller and the Purchaser each
------------------
agree to execute and deliver such instruments and take such actions as the other
may, from time to time, reasonably request in order to effectuate the purpose
and to carry out the terms of this Agreement.
SECTION 11. Survival. The Seller agrees that the representations,
--------
warranties and agreements made by it herein and in any certificate or other
instrument delivered pursuant
<PAGE>
hereto shall be deemed to be relied upon by the Purchaser, notwithstanding any
investigation heretofore or hereafter made by the Purchaser or on its behalf,
and that the representations, warranties and agreements made by the Seller
herein or in any such certificate or other instrument shall survive the delivery
of and payment for the Loans and shall continue in full force and effect until
the Seller ceases to exist pursuant to the terms of its certificate of
incorporation and by-laws, notwithstanding any restrictive or qualified
endorsement on the Promissory Notes and notwithstanding subsequent termination
of this Agreement.
SECTION 12. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS, DUTIES,
-------------
OBLIGATIONS AND RESPONSIBILITIES OF THE PARTIES HERETO SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF NEW
YORK AND THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL AND
CONSENT TO THE JURISDICTION OF ANY NEW YORK STATE COURT OF COMPETENT
JURISDICTION. THE PARTIES HERETO INTEND THAT THE PROVISIONS OF SECTION 5-1401 OF
THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY TO THIS AGREEMENT.
SECTION 13. Benefits of Loan Sale and Purchase Agreement. This
--------------------------------------------
Agreement shall inure to the benefit of and shall be binding upon the Seller,
the Purchaser and their respective successors, legal representatives, and
permitted assigns.
SECTION 14. No Petition. Neither the Seller nor the Purchaser
-----------
shall file a bankruptcy petition against the other in connection with any
obligations arising from this Agreement.
SECTION 15. Credit Enhancer as Third-Party Beneficiary. The
------------------------------------------
Credit Enhancer is a third-party beneficiary of this Agreement entitled to
enforce its rights hereunder as if actually a party hereto. Any right conferred
upon the Credit Enhancer shall be suspended during any period in which the
Credit Enhancer is in default (as defined in Section 11.3 of the Indenture).
During any period of suspension, the Credit Enhancer's rights hereunder shall
vest in the Noteholders and shall be exercisable by the Majority-in-Interest
(unless specified otherwise in a particular provision of the Indenture). At such
time as the Class A Notes are no longer Outstanding under the Indenture and the
Credit Enhancer has been paid all Credit Enhancement Premiums, reimbursable
expenses and Credit Enhancement Reimbursement Amounts, the Credit Enhancer's
rights hereunder shall terminate.
Unless the Class A Notes are no longer Outstanding under the Indenture
and the Credit Enhancer has been paid all Credit Enhancement Premiums,
reimbursable expenses and Credit Enhancement Reimbursement Amounts, or the
Credit Enhancer is in default (as defined in Section 11.3 of the Indenture), (i)
this Agreement shall not be amended without the consent of the Credit Enhancer,
and (ii) any notices to be sent pursuant to this Agreement also shall be sent to
the Credit Enhancer at the address provided in the Indenture.
<PAGE>
SECTION 16. Miscellaneous. This Agreement may be executed in two or
-------------
more counterparts, each of which when so executed and delivered shall be an
original, but all of which together shall constitute one and the same
instrument. Neither this Agreement nor any term hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against whom enforcement of the change, waiver, discharge or
termination is sought. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof. The
rights and obligations of the Seller under this Agreement shall not be assigned
by the Seller without the prior written consent of the Purchaser, except that
any person into which the Seller may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Seller is a party, or any person succeeding to the entire business of the Seller
shall be the successor to the Seller hereunder.
<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Seller have caused their
names to be signed by their respective duly authorized officers as of the date
first above written.
ATHERTON CAPITAL INCORPORATED
By: /s/ David L. Elder
---------------------------------
Name: David L. Elder
Title: President
ORINDA MANAGEMENT COMPANY
By: /s/ David L. Elder
---------------------------------
Name: David L. Elder
Title: President
<PAGE>
EXHIBIT 10.8
LOAN SALE AND PURCHASE AGREEMENT
Loan Sale and Purchase Agreement ("Agreement"), dated as of March 14, 1997,
between Orinda Management Company (the "Seller") and Atherton Franchisee Loan
Funding 1997-A LLC (the "Purchaser").
The Seller agrees to sell and the Purchaser agrees to purchase certain
loans made to owners or lessees of franchised restaurant concepts identified on
the schedule (the "List of Loans") annexed hereto as Exhibit 1 (the "Loans") as
described herein. The Loan Documents will be held and the Loans will be
serviced pursuant to a Servicing and Custodial Agreement (the "Servicing
Agreement") to be dated as of March 14, 1997, by and among the Purchaser,
Bankers Trust Company (in its capacity as servicer thereunder, the "Servicer",
and in its capacity as custodian thereunder, the "Custodian"), Atherton Capital
Incorporated ("Atherton") and First Bank National Association, as indenture
trustee (the "Indenture Trustee") under the Indenture (as defined below).
The Purchaser will pledge, among other things, the Loans and the Loan
Collateral to the Indenture Trustee pursuant to an Indenture of Trust (the
"Indenture") to be dated as of March 14, 1997. The Purchaser will issue its
Atherton Franchisee Loan Notes, Series 1997-A, pursuant to the Indenture.
Pursuant to the Master Custodial Agreement to be dated as of March 1, 1997
between Bankers Trust Company, as note custodian, and the Seller, as depositor,
the Seller will exchange the Class A Notes for Class A Custody Receipts and
Class A-IO Custody Receipts (together, the "Custody Receipts").
The Seller intends to sell the Class B Notes and the Class C Notes to
certain qualified institutional buyers. Pursuant to a Placement Agent Agreement
dated March 14, 1997 (the "Placement Agent Agreement") with Lehman Brothers Inc.
(the "Placement Agent"), the Placement Agent will offer the Class B Notes and
Class C Notes, as well as the Custody Receipts to be sold by the Seller, for
sale to certain qualified institutional buyers in transactions exempt from the
registration requirements of the Securities Act of 1933. Such securities are
described in a Private Placement Memorandum dated as of March 14, 1997 (the
"Memorandum").
Capitalized terms used herein but not defined herein shall have the
meanings assigned to them in the Indenture.
In consideration of the mutual agreements contained herein, the Seller
and the Purchaser hereby agree as follows:
SECTION 1. Agreement to Purchase. The Seller agrees to sell, and the
---------------------
Purchaser agrees to purchase, on the date hereof and on a servicing released
basis, the Loans. The Loans have an aggregate principal balance as of the close
of business on the Cut Off Date, after giving effect to any payments due before
such date, whether or not received, of $97,276,237.82. The consideration paid
by the Purchaser for the Loans is $48,698,000 principal amount of Class A-1
Notes, $35,931,000 principal amount of Class A-2 Notes, 100% of each of the
Class A
<PAGE>
Membership Interests and Class C Membership Interests in the Purchaser, and
$7,128,893.66 in immediately available funds.
On the date hereof, the Purchaser will pledge and assign to the Indenture
Trustee pursuant to the Indenture, all of its right, title and interest in and
to the Loans and its rights under this Agreement, and the Indenture Trustee
shall succeed to such right, title and interest in and to the Loans and the
Purchaser's rights under this Agreement.
SECTION 2. Conveyance of Loans; Assignment and Assumption. The Seller does
----------------------------------------------
hereby transfer, assign, set over and otherwise convey to the Purchaser, without
recourse, all the right, title and interest of the Seller in and to the Loans,
the Loan Files and other Loan Documents, together with all escrow deposits
related thereto. In connection with such transfer and assignment, except for
certain UCC financing statements, Mortgages and Leasehold Mortgages dispatched
for filing or recordation, as described in Section 2 of the Atherton Loan Sale
and Purchase Agreement (defined below), the Seller has caused to be delivered to
the Custodian, on behalf of the Purchaser, on or prior to the date hereof, all
of the Loan Files.
The Seller hereby transfers and assigns to the Purchaser all of the right,
title and interest of the Seller under that certain Loan Sale and Purchase
Agreement (the "Atherton Loan Sale and Purchase Agreement") dated as of March
14, 1997, between the Seller, as purchaser, and Atherton, as seller, and
attached hereto as Exhibit 2. Atherton will deliver the original Promissory
Notes to the Custodian, on behalf of the Purchaser, endorsed in blank, to effect
the transfer to the Purchaser of the Promissory Notes and all related Mortgages
and other Loan Documents. To avoid the unnecessary expense and administrative
inconvenience associated with the execution and recording or filing of multiple
assignments of mortgages and assignments of UCC financing statements, Atherton
has executed and recorded or filed assignments of mortgages and assignments of
UCC financing statements naming the Indenture Trustee on behalf of the
Noteholders as assignee. Notwithstanding the fact that the assignments of
mortgages and the assignments of UCC financing statements name the Indenture
Trustee on behalf of the Noteholders as assignee, the parties hereto acknowledge
and agree that the Loans shall for all purposes be deemed to have been
transferred from Atherton to the Seller, from the Seller to the Purchaser and
from the Purchaser to the Indenture Trustee on behalf of the Noteholders.
The Indenture Trustee, as assignee or pledgee of the Purchaser for the
benefit of the holders of the Notes, shall be entitled to all scheduled payments
of principal due after the Cut Off Date, all other payments of principal
collected after the Cut Off Date (other than scheduled payments of principal due
on or before the Cut Off Date) and all payments of interest on the Loans
allocable to the period commencing on the Cut Off Date.
Upon the sale of the Loans by the Seller to the Purchaser pursuant to this
Agreement, the ownership of each Promissory Note, Mortgage, Leasehold Mortgage
and the other contents of the related Loan File shall be vested in the Purchaser
and its assigns, and the ownership of all records and documents with respect to
the related Loan prepared by or which come into the possession of the Seller
shall immediately vest in the Purchaser and its assigns, and shall be delivered
promptly by the Seller to the Custodian. The Seller's records shall reflect the
transfer of each Loan to the Purchaser and its assigns as a sale.
<PAGE>
It is the express intent of the parties hereto that the conveyance of the
Loans and related property to the Purchaser, by the Seller as provided in this
Section 2 be, and be construed as, an absolute sale of the Loans and related
property. It is, further, not the intention of the parties that such conveyance
be deemed a pledge of the Loans and related property by the Seller to the
Purchaser to secure a debt or other obligation of the Seller. However, in the
event that, notwithstanding the intent of the parties, the Loans or any related
property is held to be the property of the Seller, or if for any other reason
this Agreement is held or deemed to create a security interest in the Loans or
any related property, then:
(i) this Agreement shall be deemed to be a security agreement; and
(ii) the conveyance provided for in this Section 2 shall be deemed to
be a grant by the Seller to the Purchaser, of a security interest in all of
the Seller's right, title, and interest, whether now owned or hereafter
acquired, in and to:
(A) All accounts, contract rights, general intangibles, chattel
paper, instruments, documents, money, deposit accounts, certificates
of deposit, goods, letters of credit, advices of credit, investment
property and uncertificated securities consisting of, arising from or
relating to any of the following property: the Loans including the
Promissory Notes, the related Leasehold Mortgages, the related
Mortgages, the related Security Agreements, and title, hazard and
other insurance policies, all distributions with respect thereto
payable on and after the Cut Off Date, and the Loan Files;
(B) All accounts, contract rights, general intangibles, chattel paper,
instruments, documents, money, deposit accounts, certificates of deposit,
goods, letters of credit, advices of credit, uncertificated securities,
investment property, and other rights arising from or by virtue of the
disposition of, or collections with respect to, or insurance proceeds
payable with respect to, or claims against other Persons with respect to,
all or any part of the collateral described in clause (A) above (including
any accrued discount realized on liquidation of any investment purchased
at a discount); and
(C) All cash and non-cash proceeds of the collateral described in
clauses (A) and (B) above and all products, rents and profits of such
property.
The possession by the Purchaser or its designee of the Promissory Notes,
the Leasehold Mortgages, the Mortgages and such other goods, letters of credit,
advises of credit, instruments, money, documents, chattel paper or certificated
securities shall be deemed to be "possession by the secured party," or
possession by a purchaser or a person designated by him or her, for purposes of
perfecting the security interest pursuant to the Uniform Commercial Code
(including, without limitation, Sections 9-305, 8-313 or 8-321 thereof) as in
force in the relevant jurisdiction.
Notifications to Persons holding such property, and acknowledgments,
receipts or confirmations from Persons holding such property, shall be deemed to
be notifications to, or acknowledgments, receipts or confirmations from,
financial intermediaries, bailees or agents (as
<PAGE>
applicable) of the Purchaser or its designee for the purpose of perfecting such
security interest under applicable law.
The Seller shall, to the extent consistent with this Agreement, take such
reasonable actions as may be necessary to ensure that, if this Agreement were
deemed to create a security interest in the property described above, such
security interest would be deemed to be a perfected security interest of first
priority under applicable law and will be maintained as such throughout the term
of the Agreement. The Seller shall file all filings necessary to maintain the
effectiveness of any original filings necessary under the Uniform Commercial
Code as in effect in any jurisdiction to perfect such security interest in such
property. In connection herewith, the Purchaser shall have all of the rights and
remedies of a secured party and creditor under the Uniform Commercial Code as in
force in the relevant jurisdiction.
SECTION 3. Examination of Loan Files and Due Diligence Review. On or
--------------------------------------------------
prior to the date hereof, the Seller shall have caused to be delivered to the
Custodian, Loan Files with respect to the Loans. The fact that the Custodian
has conducted or has failed to conduct any partial or complete examination of
the Loan Files for the Loans shall not affect the right of the Purchaser or the
Indenture Trustee to cause the Seller to enforce Atherton's obligation to cure
any Material Document Defect or Material Breach (each as defined in the Atherton
Loan Sale and Purchase Agreement), or to repurchase or replace the defective
Loans pursuant to Section 5 of the Atherton Loan Sale and Purchase Agreement.
SECTION 4. Representations and Warranties of the Seller and the Purchaser.
--------------------------------------------------------------
(a) To induce the Purchaser to enter into this Agreement, the Seller
hereby represents and warrants to the Seller as of the date hereof:
(i) The Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. The Seller has the
requisite power and authority and legal right to own the Loans and to transfer
and convey the Loans to the Purchaser and has the requisite power and authority
and legal right to execute and deliver, engage in the transactions contemplated
by, and perform and observe the terms and conditions of, this Agreement.
(ii) This Agreement has been duly and validly authorized, executed and
delivered by the Seller, and (assuming the due authorization, execution and
delivery hereof by the Purchaser) this Agreement constitutes the valid, legal
and binding agreement of the Seller, enforceable in accordance with its terms,
except as such enforcement may be limited by (A) laws relating to bankruptcy,
insolvency, reorganization, receivership or moratorium, (B) other laws relating
to or affecting the rights of creditors generally or (C) general equity
principles (regardless of whether such enforcement is considered in a proceeding
in equity or at law).
(iii) No consent, approval, authorization or order of, registration or
filing with, or notice to, any governmental authority or court, is required,
under federal or state law, for the execution, delivery and performance of or
compliance by the Seller with this Agreement, or the consummation by the Seller
of any transaction contemplated hereby.
<PAGE>
(iv) Neither the transfer of the Loans to the Purchaser, nor the
execution, delivery or performance of this Agreement by the Seller, conflicts or
will conflict with, results or will result in a breach of, or constitutes or
will constitute a default under (A) any term or provision of the Seller's
certificate of incorporation or by-laws, (B) any term or provision of any
material agreement, contract, instrument or indenture, to which the Seller is a
party or which may be applicable to the Seller or any of its assets, or (C) any
law, rule, regulation, order, judgment, writ, injunction or decree of any court
or governmental authority having jurisdiction over the Seller or its assets.
(v) There are no actions or proceedings against, or investigations
of, the Seller pending or, to the Seller's knowledge, threatened against the
Seller before any court, administrative agency or other tribunal.
(vi) The form of this Agreement and the related instruments of
transfer are in form sufficient to transfer all rights, title and interest in
and to the Loans to the Purchaser. The Seller has given or caused to be given
all notices legally necessary to be given by the Seller to effect the sale of
the Loans. The sale of the Loans pursuant to this Agreement will effect a
transfer by the Seller of all of its right, title and interest in and to the
Loans to the Purchaser.
(vii) The transfer of the Loans to the Purchaser will be treated by the
Seller for financial accounting and reporting purposes as a sale of assets.
(viii) The Seller's principal place of business and chief executive
office is in the State of New York.
(ix) The Seller is not insolvent and will not be rendered insolvent as
a result of the transactions contemplated hereby and it has not entered into
this Agreement with any intent to hinder, delay or defraud any of its creditors.
(x) The Seller has not caused or permitted any impairment of its
title to, or beneficial ownership of, any Loan or the related Loan Documents, or
granted any security interests, options, encumbrances or rights of others in or
to any Loan or the related Loan Documents.
Each of the representations, warranties and covenants made by the
Seller pursuant to this Section 4(a) shall survive the sale of the Loans and
shall continue in full force and effect notwithstanding any restrictive or
qualified endorsement on the Promissory Notes.
(b) To induce the Seller to enter into this Agreement, the Purchaser
hereby represents and warrants to the Seller as of the date hereof:
(i) The Purchaser is a limited liability company duly organized,
validly existing, and in good standing under the laws of the State of Delaware
with full power and authority to carry on its business as presently conducted by
it.
(ii) The Purchaser has full power and authority to acquire the Loans,
to execute and deliver this Agreement and to enter into and consummate all
transactions contemplated by this Agreement. The Purchaser has duly authorized
the execution, delivery and
<PAGE>
performance of this Agreement and has duly executed and delivered this
Agreement. This Agreement, assuming due authorization, execution and delivery by
the Seller, constitutes the valid and binding obligation of the Purchaser,
enforceable against it in accordance with its terms, except as such enforcement
may be limited by (A) laws relating to bankruptcy, insolvency, reorganization,
receivership or moratorium, (B) other laws relating to or affecting the rights
of creditors generally or (C) general equity principles (regardless of whether
such enforcement is considered in a proceeding in equity or at law).
(iii) The execution and delivery of this Agreement by the Purchaser
and its performance of and compliance with the terms of this Agreement will not
violate the Purchaser's certificate of formation or limited liability company
agreement or constitute a default (or an event that, with notice or lapse of
time or both, would constitute a default) under, or result in a breach of, any
material agreement or instrument to which the Purchaser is a party or which may
be applicable to the Purchaser or its assets.
(iv) The Purchaser is not in violation of, and its execution and
delivery of this Agreement and its performance and compliance with the terms of
this Agreement will not constitute a violation of, any law, any order or decree
of any court, or any order or regulation of any federal, state or municipal
government agency having jurisdiction over the Purchaser or its assets, which
violation could materially and adversely affect the condition (financial or
otherwise) or the operation of the Purchaser or its assets or could materially
and adversely affect its ability to perform its obligations and duties
hereunder.
(v) There are no actions or proceedings against, or investigations
of, the Purchaser pending or, to the Purchaser's knowledge, threatened against
the Purchaser before any court, administrative agency or other tribunal.
Each of the representations and warranties made by the Purchaser
pursuant to this Section 4(b) shall survive the purchase of the Loans.
SECTION 5. Closing. The closing of the sale of the Loans shall be held at
-------
the offices of Orrick, Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York,
New York 10103 at 10:00 a.m. (New York time) on the date hereof.
The closing shall be subject to each of the following conditions:
(a) All of the representations and warranties of the Seller
specified in Section 4 of this Agreement shall be true and correct as
of the date hereof.
(b) All Closing Documents specified in Section 6 of this
Agreement, in such forms as are agreed upon and acceptable to the
Seller or the Purchaser, as applicable, shall be duly executed and
delivered by all signatories as required pursuant to the respective
terms thereof.
(c) All other terms and conditions of this Agreement required to
be complied with on or before the date hereof shall have been complied
with and the Seller and the Purchaser shall have the ability to comply
with all terms and
<PAGE>
conditions and perform all duties and obligations required to be
complied with or performed after the date hereof.
(d) The Notes and the Custody Receipts shall have been assigned
ratings by the Rating Agencies that are at least as high as those
specified in the Memorandum.
(e) The Placement Agent shall not have terminated the Placement
Agent Agreement.
The Seller and the Purchaser agree to use their best efforts to
perform their respective obligations hereunder in a manner that will enable the
Purchaser to purchase the Loans on the date hereof. If any of the foregoing
conditions is not satisfied by the Seller, other than as a result of bad faith
nonperformance on the part of the Purchaser, the Purchaser shall be entitled to
terminate this Agreement (exclusive of any payment or reimbursement obligations
of the Seller hereunder).
SECTION 6. Closing Documents. The Closing Documents shall consist of the
-----------------
following:
(a) This Agreement duly executed by the Purchaser and the Seller.
(b) A certificate of the Seller, executed by a duly authorized
officer of the Seller and dated the date hereof, and upon which the
Purchaser and its successor and assigns may rely, to the effect that
the Seller has complied with all agreements and satisfied all
conditions on its part to be performed or satisfied on or prior to the
date hereof.
(c) True, complete and correct copies of the Seller's certificate
of incorporation and by-laws;
(d) A good standing certificate of the Seller from the Secretary
of State of Delaware, dated not earlier than 30 days prior to the date
hereof.
(e) A certificate of the Secretary of the Seller, dated the date
hereof, and upon which the Purchaser may rely, to the effect that each
individual who, as an officer or representative of the Seller, signed
this Agreement or any other document or certificate delivered on or
before the date hereof in connection with the transactions
contemplated herein, was at the respective times of such signing and
delivery, and is as of the date hereof, duly elected or appointed,
qualified and acting as such officer or representative, and the
signatures of such persons appearing on such documents and
certificates are their genuine signatures.
(f) An opinion of Orrick, Herrington & Sutcliffe LLP, special
counsel to the Seller, dated the date hereof and in the form attached
hereto as Exhibit 3.
(g) Such other opinions of counsel as the Rating Agencies or the
Credit Enhancer may request in connection with the sale of the Loans
by the
<PAGE>
Seller to the Purchaser or the Seller's execution and delivery of, or
performance under, this Agreement.
(h) A letter from KPMG Peat Marwick LLP, certified public
accountants, dated the date hereof, to the effect that they have
performed certain specified procedures as a result of which they
determined that certain information of an accounting, financial or
statistical nature set forth in the Memorandum under the caption "The
Pool" agrees with the records of the Seller.
(i) Such further certificates, opinions and documents as the
Purchaser may reasonably request.
SECTION 7. Notices. All communications provided for or permitted hereunder
-------
shall be in writing and shall be deemed to have been duly given if (a)
personally delivered, (b) mailed by registered or certified mail, postage
prepaid and received by the addressee, (c) sent by express courier delivery
service and received by the addressee, or (d) transmitted by telex or facsimile
transmission (or any other type of electronic transmission agreed upon by the
parties) and confirmed by a writing delivered by any of the means described in
(a), (b) or (c), if (i) to the Purchaser, addressed to the Purchaser, care of
Orinda Management Company at Two Wall Street, New York, New York 10005,
Attention: Managing Member (or such other address as may hereafter be furnished
in writing by the Purchaser); (ii) if to the Seller, addressed to the Seller at
Two Wall Street, New York, New York 10005, Attention: David Elder (or to such
other address as the Seller may designate in writing); or (iii) if to the
Indenture Trustee or the Credit Enhancer, at their respective addresses set
forth in the Indenture (or to such other address as the Indenture Trustee or the
Credit Enhancer may designate in writing).
SECTION 8. Severability of Provisions. Any part, provision, representation,
--------------------------
warranty or covenant of this Agreement that is prohibited or which is held to be
void or unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any part,
provision, representation, warranty or covenant of this Agreement that is
prohibited or unenforceable or is held to be void or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction. To the extent permitted by applicable law, the parties
hereto waive any provision of law which prohibits or renders void or
unenforceable any provision hereof.
SECTION 9. Further Assurances. The Seller and the Purchaser each agree to
------------------
execute and deliver such instruments and take such actions as the other may,
from time to time, reasonably request in order to effectuate the purpose and to
carry out the terms of this Agreement.
SECTION 10. Survival. The Seller agrees that the representations,
--------
warranties and agreements made by it herein and in any certificate or other
instrument delivered pursuant hereto shall be deemed to be relied upon by the
Purchaser, notwithstanding any investigation heretofore or hereafter made by the
Purchaser or on its behalf, and that the representations, warranties and
agreements made by the Seller herein or in any such certificate or other
<PAGE>
instrument shall survive the delivery of and payment for the Loans and shall
continue in full force and effect until the Seller ceases to exist pursuant to
the terms of its certificate of incorporation and by-laws, notwithstanding any
restrictive or qualified endorsement on the Promissory Notes and notwithstanding
subsequent termination of this Agreement.
SECTION 11. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS, DUTIES,
-------------
OBLIGATIONS AND RESPONSIBILITIES OF THE PARTIES HERETO SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS AND DECISIONS OF THE STATE OF NEW
YORK AND THE PARTIES HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL AND
CONSENT TO THE JURISDICTION OF ANY NEW YORK STATE COURT OF COMPETENT
JURISDICTION. THE PARTIES HERETO INTEND THAT THE PROVISIONS OF SECTION 5-1401
OF THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY TO THIS AGREEMENT.
SECTION 12. Benefits of Loan and Sale Purchase Agreement. This Agreement
--------------------------------------------
shall inure to the benefit of and shall be binding upon the Seller, the
Purchaser and their respective successors, legal representatives, and permitted
assigns.
SECTION 13. No Petition. Neither the Seller nor the Purchaser shall
-----------
file a bankruptcy petition against the other in connection with any obligations
arising from this Agreement.
SECTION 14. Credit Enhancer as Third-Party Beneficiary. The Credit
------------------------------------------
Enhancer is a third-party beneficiary of this Agreement entitled to enforce its
rights hereunder as if actually a party hereto. Any right conferred upon the
Credit Enhancer shall be suspended during any period in which the Credit
Enhancer is in default (as defined in Section 11.3 of the Indenture). During
any period of suspension, the Credit Enhancer's rights hereunder shall vest in
the Noteholders and shall be exercisable by the Majority-in-Interest (unless
specified otherwise in a particular provision of the Indenture). At such time
as the Class A Notes are no longer Outstanding under the Indenture and the
Credit Enhancer has been paid all Credit Enhancement Premiums, reimbursable
expenses and Credit Enhancement Reimbursement Amounts, the Credit Enhancer's
rights hereunder shall terminate.
Unless the Class A Notes are no longer Outstanding under the Indenture
and the Credit Enhancer has been paid all Credit Enhancement Premiums,
reimbursable expenses and Credit Enhancement Reimbursement Amounts, or the
Credit Enhancer is in default (as defined in Section 11.3 of the Indenture), (i)
this Agreement shall not be amended without the consent of the Credit Enhancer,
and (ii) any notices to be sent pursuant to this Agreement also shall be sent to
the Credit Enhancer at the address provided in the Indenture.
SECTION 15. Miscellaneous. This Agreement may be executed in two or more
-------------
counterparts, each of which when so executed and delivered shall be an original,
but all of which together shall constitute one and the same instrument. Neither
this Agreement nor any term hereof may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against whom enforcement of the change, waiver, discharge or termination is
sought. The headings in this Agreement are for purposes of reference only and
shall not limit or otherwise affect the meaning hereof. The rights and
obligations of the Seller under this Agreement shall not be assigned by the
Seller without the prior written consent of the
<PAGE>
Purchaser, except that any person into which the Seller may be merged or
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Seller is a party, or any person succeeding to the
entire business of the Seller shall be the successor to the Seller hereunder.
<PAGE>
IN WITNESS WHEREOF, the Purchaser and the Seller have caused their
names to be signed by their respective duly authorized officers as of the date
first above written.
ORINDA MANAGEMENT COMPANY
By:/s/ David L. Elder
------------------
Name: David L. Elder
Title: President
ATHERTON FRANCHISEE LOAN FUNDING
1997-A LLC
By: ORINDA MANAGEMENT COMPANY,
as Managing Member
By:/s/ David L. Elder
------------------
Name: David L. Elder
Title: President
<PAGE>
EXHIBIT 10.9
SERVICING AND CUSTODIAL AGREEMENT
Dated March 14, 1997
among
ATHERTON FRANCHISEE LOAN FUNDING 1997-A LLC,
as Issuer
BANKERS TRUST COMPANY,
as Servicer and Custodian
ATHERTON CAPITAL INCORPORATED,
as Servicing Advisor
and
FIRST BANK NATIONAL ASSOCIATION,
as Indenture Trustee
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
DEFINITIONS
SECTION 1.1. Defined Terms............................................................. 2
ARTICLE 2
ADMINISTRATION, SERVICING AND CUSTODY OF LOANS
SECTION 2.1. The Servicer to Act as the Servicer; Servicing
Advisor to Act as the Servicing Advisor................................... 3
SECTION 2.2. Collection of Loan Payments and Remittances;
Collection Account........................................................ 4
SECTION 2.3. Records................................................................... 6
SECTION 2.4. No Offset................................................................. 7
SECTION 2.5. Servicing Compensation; Reimbursement for Advances........................ 7
SECTION 2.6. [Reserved]................................................................ 7
SECTION 2.7. Nonpetition Covenant...................................................... 7
SECTION 2.8. Fidelity Bond and Errors and Omissions Coverage........................... 8
SECTION 2.9. [Reserved]................................................................ 8
SECTION 2.10. Custodial Duties.......................................................... 8
SECTION 2.11. Servicing Standards and Procedures........................................ 9
SECTION 2.12. Servicing Advisor Duties.................................................. 18
ARTICLE 3
STATEMENTS AND REPORTS
SECTION 3.1. Reporting by the Servicer................................................. 18
SECTION 3.2. Rule 144A Information..................................................... 21
SECTION 3.3. Annual Accountants' Reports............................................... 21
ARTICLE 4
THE SERVICER, THE CUSTODIAN AND THE SERVICING ADVISOR
SECTION 4.1. Representations and Warranties Concerning the Servicer,
the Custodian and the Servicing Advisor................................... 22
SECTION 4.2. [Reserved]................................................................ 23
SECTION 4.3. Performance of Obligations................................................ 23
SECTION 4.4. Merger; Resignation and Assignment; Status and Qualification.............. 26
SECTION 4.5. Servicer and Servicing Advisor Not to Resign.............................. 27
SECTION 4.6. Termination of Custodian.................................................. 28
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE 5
DEFAULT
SECTION 5.1. Defaults.............................................. 28
SECTION 5.2. No Effect on Other Parties............................ 31
SECTION 5.3. Rights Cumulative..................................... 32
ARTICLE 6
MISCELLANEOUS PROVISIONS
SECTION 6.1. Termination of Agreement.............................. 32
SECTION 6.2. Amendment............................................. 33
SECTION 6.3. Governing Law......................................... 33
SECTION 6.4. Notices............................................... 33
SECTION 6.5. Severability of Provisions............................ 34
SECTION 6.6. Inspection and Audit Rights........................... 34
SECTION 6.7. Binding Effect; Limited Rights of Others.............. 35
SECTION 6.8. Control by Majority Affected Noteholders.............. 35
SECTION 6.9. The Credit Enhancer................................... 36
SECTION 6.10. Article and Section Headings.......................... 36
SECTION 6.11. Counterparts.......................................... 36
</TABLE>
Appendix A - Definitions
Schedule 1 - Loan Submission Summary
Schedule 2 - Form of Request for Release
<PAGE>
SERVICING AND CUSTODIAL AGREEMENT, dated March 14, 1997 (the "Agreement"),
by and among ATHERTON FRANCHISEE LOAN FUNDING 1997-A LLC, a limited liability
company organized and existing under the laws of the State of Delaware (herein,
together with its successors and assigns, called the "Issuer"), BANKERS TRUST
COMPANY, a New York banking corporation (herein, together with its successors
and assigns, in its capacity as servicer called the "Servicer" and in its
capacity as custodian called the "Custodian"), ATHERTON CAPITAL INCORPORATED, a
Delaware corporation, as servicing advisor (the "Servicing Advisor"), and FIRST
BANK NATIONAL ASSOCIATION, a national banking association, as trustee (the
"Indenture Trustee").
PRELIMINARY STATEMENT
---------------------
WHEREAS, the Issuer has entered into an Indenture of Trust (the
"Indenture") dated as of the date of this Agreement with the Indenture Trustee,
as trustee, pursuant to which the Issuer has issued its Atherton Franchisee Loan
Notes, Series 1997-A, Class A-1, its Atherton Franchisee Loan Notes, Series
1997-A, Class A-2, its Atherton Franchisee Loan Notes, Series 1997-A, Class B
and its Atherton Franchisee Loan Notes, Series 1997-A, Class C (collectively,
the "Notes"), on the terms and in the amounts described therein. Pursuant to
the Indenture, as security for the indebtedness represented by the Notes, the
Issuer is and will be Granting to the Indenture Trustee on behalf of the
Noteholders and the Credit Enhancer, the Trust Estate, which includes, among
other things, the Loans and the Loan Collateral, its rights under this
Agreement, the Collection Account and all proceeds of the foregoing.
WHEREAS, the parties desire to enter into this Agreement to provide, among
other things, for the Custodian to hold custody of the Loans, for the servicing
of the Loans by the Servicer and for the Servicing Advisor to provide servicing
advice and assistance with respect to the servicing of the Loans. The
Custodian, Servicer and the Servicing Advisor acknowledge that, in order to
further secure the Notes, the Issuer is and will be Granting to the Indenture
Trustee, among other things, this Agreement, and the Servicer, the Custodian and
the Servicing Advisor agree that all covenants and agreements made by each of
them herein with respect to the Loans securing the Notes shall also be for the
benefit and security of the Indenture Trustee, the Credit Enhancer and the
Noteholders. For its services hereunder, the Servicer, the Custodian and the
Servicing Advisor will each receive the compensation specified herein.
NOW THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the Issuer, the Custodian, the Servicer, the Servicing
Advisor and the Indenture Trustee agree as follows:
<PAGE>
ARTICLE 1
DEFINITIONS
-----------
SECTION 1.1. Defined Terms.
-------------
(a) For all purposes of this Agreement, except as otherwise expressly
provided herein or unless the context otherwise requires, capitalized terms not
otherwise defined herein shall have the meanings ascribed to such terms in
Appendix A hereto which is incorporated by reference herein. All other
capitalized terms used herein shall have the meanings specified herein.
(b) All terms defined in this Agreement shall have the defined meanings
when used in any certificate or other document made or delivered pursuant hereto
unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other document made
or delivered pursuant hereto or thereto, accounting terms not defined in this
Agreement or in any such certificate or other document, and accounting terms
partly defined in this Agreement or in any such certificate or other document to
the extent not defined, shall have the respective meanings given to them under
generally accepted accounting principles. To the extent that the definitions of
accounting terms in this Agreement or in any such certificate or other document
are inconsistent with the meanings of such terms under generally accepted
accounting principles, the definitions contained in this Agreement or in any
such certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of similar import
when used in this Agreement shall refer to this Agreement as a whole and not to
any particular provision of this Agreement; Section, Appendix, and Exhibit
references contained in this Agreement are references to Sections, Appendices,
and Exhibits in or to this Agreement unless otherwise specified; and the term
"including" shall mean "including without limitation".
(e) The definitions contained in this Agreement are applicable to the
singular as well as the plural forms of such terms and to the masculine as well
as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to herein or
in any instrument or certificate delivered in connection herewith means such
agreement, instrument or statute as from time to time amended, modified or
supplemented and includes (in the case of agreements or instruments) references
to all attachments thereto and instruments
<PAGE>
incorporated therein; references to a Person are also to its permitted
successors and assigns.
ARTICLE 2
ADMINISTRATION, SERVICING AND CUSTODY OF LOANS
----------------------------------------------
SECTION 2.1. The Servicer to Act as the Servicer; Servicing Advisor to Act
------------------------------------------------------
as the Servicing Advisor.
- ------------------------
(a) Engagement of the Servicer and Servicing Advisor. The Servicer and the
------------------------------------------------
Servicing Advisor, pursuant to this Agreement, shall service the Loans as
provided herein and in accordance with the servicing standards described in
Section 2.11(a). In furtherance thereof, the Servicer shall have full power and
authority, acting alone and subject only to the specific requirements and
prohibitions of this Agreement and the servicing standards described in Section
2.11(a), to do and take any and all actions, or (subject to the provisions
herein, including, without limitation, Section 2.10 hereof) to refrain from
taking any such actions and to do any and all things in connection with such
servicing and administration which it may deem necessary or desirable,
including, without limitation, calculating and compiling information required in
connection with any report to be delivered pursuant to this Agreement, and any
and all actions and things related to charging interest at the Default Rate or
Late Payment Charges, as contemplated by the servicing standards described in
Section 2.11(a). Without limiting the generality of the foregoing, but subject
to the provisions of the Indenture and this Agreement, the Servicer is hereby
authorized and empowered by the Issuer to execute and deliver, in the Servicer's
own name, on behalf of the Issuer, any and all instruments of satisfaction or
cancellation, or of partial or full release or discharge, and all other
comparable instruments, with respect to the Loans and with respect to the
Collateral. Notwithstanding the foregoing, except as expressly provided herein
or in connection with any repurchase or substitution of a Loan in accordance
with the Indenture, the Servicer shall not release or waive the right to collect
the stated, non-default rate of interest on, the unpaid balance of, or any Loan
Yield Maintenance Amount payable in respect of any Loan.
(b) List of Officers. Promptly after the execution and delivery of this
----------------
Agreement, the Servicer, the Custodian and the Servicing Advisor each shall
deliver to the Issuer, the Credit Enhancer and the Indenture Trustee a list of
their respective officers involved in, or responsible for, the administration
and servicing of the Loans, the maintenance of the Loan Files and the
performance of their respective obligations under this Agreement, which list
shall from time to time be updated by the Servicer, the Custodian and the
Servicing Advisor, respectively, on request of the Indenture Trustee or the
Credit Enhancer.
<PAGE>
(c) Actions to Perfect Security Interests. The Servicer shall file UCC
-------------------------------------
financing statements in order to maintain the security interests granted by
the Borrowers under the respective Loans. The Issuer shall file or cause
to be filed the financing statements on Form UCC-1 and assignments of
financing statements on Form UCC-3 required to be filed in connection with
the Loan Sale and Purchase Agreements relating to the Loans, the Indenture
and the transactions contemplated thereby and shall prepare and deliver to
the Indenture Trustee, the Credit Enhancer and the Rating Agencies the UCC
filing lists contemplated by Section 3.3 of the Indenture.
(d) Actions to Maintain Insurance. The Servicer shall cause to be
-----------------------------
maintained, at the Servicer's cost and expense (subject to reimbursement as
provided in Section 2.5 hereof) if not maintained by any Borrower, in respect of
each Loan the Insurance Policies referred to in the Security Agreement therefor.
The Servicer acknowledges that to the extent that it is named as "loss payee" or
"additional insured" under any Insurance Policies with respect to any Loan it is
so named in its capacity as the Servicer, it shall within 1 Business Day deposit
in the Collection Account or any related REO Account (as defined in Section
2.11(h)(2) hereof), as appropriate, any Insurance Proceeds received by the
Servicer under such Insurance Policies. The Servicer shall use its commercially
reasonable efforts to cause the Indenture Trustee to be named as "loss payee"
under all Insurance Policies at the time of renewal or replacement.
(e) In the event that the Servicer shall obtain and maintain a blanket
policy insuring against hazard losses on all of the Loans, it shall conclusively
be deemed to have satisfied its obligations as set forth in Section 2.1(d), it
being understood and agreed that such policy may contain a deductible clause on
terms substantially equivalent to those commercially available and maintained by
comparable servicers, and provided that the provider of such blanket policy
provides comparable policies for such purpose to comparable servicers, and is
rated by A.M. Best Company A:VIII or higher; provided, however, that any such
blanket policy shall be reasonably acceptable to the Credit Enhancer. If (i)
such policy contains a deductible clause, (ii) there shall have been a loss that
would have been covered by such a policy, and (iii) there shall not have been
maintained on the related Mortgaged Property a policy complying with the related
Loan Agreement, then the Servicer shall deposit in the Collection Account an
amount equal to such deductible, and deliver to the Issuer, the Indenture
Trustee, the Credit Enhancer and the Servicing Advisor an Authorized Officer's
Certificate describing the calculation of such amount. In connection with its
activities as administrator and servicer of the Loans, the Servicer agrees to
present, on behalf of itself, the Indenture Trustee and the Credit Enhancer,
claims under any such blanket policy.
<PAGE>
SECTION 2.2. Collection of Loan Payments and Remittances; Collection
-------------------------------------------------------
Account.
- -------
(a) Collection of Payments. The Servicer shall use its reasonable best
----------------------
efforts to cause the collection of all payments called for under the terms and
provisions of each Loan and to cause each Borrower to make all payments directly
to the Servicer for deposit into the Collection Account. In addition to any
other customary services which the Servicer may perform, the Servicer shall
perform the following servicing and collection supervision activities:
(1) perform standard accounting services and general recordkeeping
services with respect to the Loans;
(2) respond to any telephone and written inquiries of Borrowers
concerning the Loans;
(3) keep Borrowers informed of the proper place and method for making
payments with respect to the Loans;
(4) contact Borrowers to effect collection and to discourage
delinquencies in the payment of Loans, doing so by any lawful
means, including, but not limited to, the following:
(i) transmittal of routine past due notices;
(ii) preparing and mailing collection letters;
(iii) contacting delinquent Borrowers by telephone to
encourage payment;
(iv) transmittal of reminder notices to delinquent Borrowers; and
(v) initiating and pursuing foreclosure actions deemed necessary
by the Servicer;
(5) report tax information to Borrowers, if any, as required by law;
and
(6) take such other action as may be reasonably necessary or
appropriate to carry out the duties and obligations imposed upon
the Servicer pursuant to the terms of this Section.
The Servicer shall deposit upon receipt thereof all payments received in
connection with each Loan, including Scheduled Payments, Prepayment Amounts,
Insurance Proceeds, Condemnation Proceeds, and proceeds of any Liquidated Loan
received by it, into the Collection Account. All such amounts shall be
deposited
<PAGE>
to the Collection Account no later than the Business Day immediately following
receipt thereof by the Servicer.
(b) No Commingling. The Servicer shall not commingle with its own assets
--------------
and shall keep separate, segregated and appropriately marked and identified all
Loan Documents, Loans or any property comprising any part of the Trust Estate
that come into the possession of the Servicer, and for such time, if any, as
such Loans, Loan Collateral or property are in the possession or control of the
Servicer, the Servicer shall hold the same in trust for the benefit of the
Indenture Trustee, the Noteholders and the Credit Enhancer (or, following
termination of the Indenture, for the benefit of the Issuer).
(c) Misdirected Payments. In the event the Servicing Advisor receives any
--------------------
payments in respect of the Loans, the Servicing Advisor shall hold such payments
in trust for the benefit of the Indenture Trustee, the Noteholders and the
Credit Enhancer (or, following termination of the Indenture, for the benefit of
the Issuer) and, no later than the Business Day following such receipt, remit
such payments to the Servicer for deposit into the Collection Account.
SECTION 2.3. Records.
-------
The Servicer shall retain all data (including, without limitation,
computerized records) relating directly to or maintained in connection with the
servicing of the Loans at the Corporate Trust Office. If the rights of the
Servicer shall have been terminated in accordance with Section 5.1 or if this
Agreement shall have been terminated pursuant to Section 6.1(b), the Servicer
shall deliver to the Indenture Trustee all data (whether maintained directly by
the Servicer or maintained on behalf of the Servicer by the Servicing Advisor
including, without limitation, computerized records) necessary for the servicing
of the Loans. If the rights of the Servicer shall have been terminated in
accordance with Section 5.1 or if this Agreement shall have been terminated
pursuant to Section 6.1(b), the Servicer shall, upon demand of the Indenture
Trustee or the Credit Enhancer (or, if the Credit Enhancer is in default under
the Credit Enhancement Policy, any Noteholder representing a Majority-In-
Interest of Notes), in the case of Section 5.1, or of the successor to the
rights of the Issuer, in the case of Section 6.1(b), deliver to the Indenture
Trustee all data (including, without limitation, computerized records) necessary
for the servicing of the Loans. In addition to delivering such data, the
Servicer shall, at its expense (or at the expense of the Issuer's successor in
the event of termination under Section 6.1(b)), use its best efforts to effect
the orderly and efficient transfer of the servicing of the Loans with respect to
which such termination shall have occurred to the party which will be assuming
responsibility for such servicing, including, without limitation, directing
Borrowers to remit Scheduled Payments and all other
<PAGE>
payments in respect of the Loans to an account or address designated by, with
the consent of the Credit Enhancer, the Indenture Trustee or such new servicer.
The provisions of this paragraph shall not require the Servicer to transfer any
proprietary material or computer programs unrelated to the servicing of the
Loans.
SECTION 2.4. No Offset.
---------
Prior to the termination of this Agreement, the obligations of the Servicer
under this Agreement shall not be subject to, and the Servicer hereby waives,
any defense, counterclaim or right of offset which the Servicer has or may have
against the Issuer or the Indenture Trustee, whether in respect of this
Agreement, any Loan or otherwise.
SECTION 2.5. Servicing Compensation; Reimbursement for Advances.
--------------------------------------------------
As compensation for the performance of its obligations under this
Agreement, the Servicer shall be entitled to receive the Servicing Fee from the
Issuer on each Payment Date out of amounts released by the Indenture Trustee
from the Collection Account on such Payment Date pursuant to Section 5.2(c) of
the Indenture. Each of the Servicer and the Servicing Advisor shall be entitled
to reimbursement pursuant to the Indenture of funds advanced by the Servicer or
the Servicing Advisor in respect of expenses in connection with the Loans
(whether for maintaining insurance, protecting or maintaining collateral, or
otherwise), if any, during the related Due Period. In addition, the Servicer or
the Servicing Advisor or Servicing Advisor shall be entitled to reimbursements
for such advances made by the Servicer or the Servicing Advisor from recoveries.
Such reimbursements from recoveries may be made by the Servicer netting the
unreimbursed advanced amount from recoveries or by remittance from the Indenture
Trustee in respect of recoveries received by the Indenture Trustee. The
Servicer shall notify the Credit Enhancer in writing when the aggregate
reimbursable expenses so advanced by the Servicer and the Servicing Advisor with
respect to a particular Loan exceeds $35,000 in the aggregate.
The Servicer shall pay the Servicing Advisor Fee to the Servicing Advisor
on a monthly basis from its Servicing Fee.
SECTION 2.6. [Reserved].
----------
SECTION 2.7. Nonpetition Covenant.
--------------------
None of the Servicer, the Custodian or the Servicing Advisor shall, prior
to the date that is one year and one day after the payment in full of all
Outstanding Notes, petition or otherwise invoke the process of any court or
government authority for the purpose of commencing or sustaining a case against
the Issuer or
<PAGE>
the Managing Member under any Bankruptcy Law or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or other similar official
of the Issuer or the Managing Member or any substantial part of the property of
either, or ordering the winding up or liquidation of the affairs of the Issuer
or the Managing Member.
SECTION 2.8. Fidelity Bond and Errors and Omissions Coverage.
-----------------------------------------------
On the Closing Date and for the term hereof, the Servicer shall, at its own
expense, maintain and keep in full force and effect (i) fidelity insurance (ii)
theft of document insurance and (iii) forgery insurance.
SECTION 2.9. [Reserved]
----------
SECTION 2.10. Custodial Duties.
----------------
(a) Custody of Loan Documentation. The Indenture Trustee hereby appoints
-----------------------------
Bankers Trust Company as Custodian of the Loan Files and Bankers Trust Company
hereby accepts such appointment. The Custodian shall take possession of the Loan
File relating to each Loan solely as the custodian for, and bailee of, the
Indenture Trustee and the Credit Enhancer in accordance with the terms and
conditions of this Agreement. The Custodian shall hold the Loan Files in trust
solely for the benefit of the Indenture Trustee and the Credit Enhancer.
(b) List of Loans. The Custodian shall maintain a complete list of the
-------------
Loans serviced hereunder, as such list may be amended from time to time, and
provide copies of such list to the Issuer, the Indenture Trustee, the Credit
Enhancer, the Servicer and the Servicing Advisor upon reasonable request.
(c) Certification. On the Closing Date, the Custodian shall provide
-------------
certification in the form attached hereto as Schedule 3. Upon delivery to the
Custodian of any Loan File, together with a Loan Submission Summary in the form
of Schedule 1 hereto, the Custodian shall review the same and provide to the
Issuer, the Indenture Trustee and the Credit Enhancer, within 20 Business Days,
the certification specified in Schedule 1 hereto indicating that (i) all the
documents required to be contained in the Loan File, have been delivered, or a
list of the exceptions to the documents required to be delivered, and (ii) the
Custodian holds such documents solely on behalf of the Indenture Trustee and the
Credit Enhancer, pursuant to this Agreement.
(d) Obligation. Subject to the terms of this Agreement, the Custodian,
----------
either directly or by acting through an agent, nominee or subcustodian, shall
hold all documents relating to any Loan File that come into its possession for
the exclusive use and benefit of the Indenture Trustee and the Credit Enhancer
and
<PAGE>
shall make disposition thereof only in accordance with the terms of Section
8.3 of the Indenture. The Custodian shall segregate and maintain continuous
custody of all such documents received by it in secure facilities in accordance
with customary standards for such custody and shall not release such documents
or transfer such documents to any other party, including any subcustodian,
without the express written consent of the Indenture Trustee.
(e) Fees Paid by Servicer. The Servicer shall pay mutually agreed upon fees
---------------------
to the Custodian. The Servicer shall be responsible for any fees of any
Custodian, nominee, subcustodian or agent.
(f) Certain Rights of the Custodian. In the absence of bad faith or gross
-------------------------------
negligence the Custodian conclusively may rely on and shall be protected in
acting or refraining from acting when doing so, in each case in accordance with
any resolution, certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, note or other paper or document
believed by the Custodian to be genuine and to have been signed or presented by
the proper party or parties, and the Custodian need not investigate any facts
stated therein.
Before the Custodian acts or refrains from acting, it may require an
Officer's Certificate or Opinion of Counsel, or both, and the Custodian shall
not be liable for any action it takes, suffers or omits in reliance on either
thereof; the Custodian may consult with counsel, and the advice of such counsel
or any Opinion of Counsel shall be full and complete authorization and
protection in respect of the legality of any action taken, suffered or omitted
by the Custodian hereunder in good faith and in reliance thereon.
The Custodian shall not be bound to make any investigation into the facts
or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, note or other
paper or document, but the Custodian in its discretion may make such further
inquiry or investigation into such facts or matters as it may see fit.
The Custodian shall not be liable for any action it takes or omits to take
in good faith which it believes to be authorized or within the rights or powers
conferred upon it by this Agreement.
SECTION 2.11. Servicing Standards and Procedures.
----------------------------------
(a) Servicing Standard and Authorization.
------------------------------------
(1) The Servicer shall service and administer the Loans in the best
interests and on behalf of the Noteholders and the Credit Enhancer, in
accordance with the terms hereof and of the Loan Documents in a manner that is
consistent with the standards of prudent lenders servicing loans similar to the
Loans and (i)
<PAGE>
without regard to any relationship that the Servicer or any Affiliate may have
with any Borrower or the Issuer, and (ii) without intentionally favoring one
class of Securities over any other class of Securities. The Servicer shall
service the Loans in accordance with procedures that, to the extent they are
consistent with this Agreement, are followed with respect to loans comparable to
the Loans and held in portfolios of prudent lenders and, to the extent more
exacting, the procedures the Servicer would follow if the Loans were owned by
the Servicer. The Servicing Advisor shall perform its duties hereunder in
accordance with the terms hereof and of the Loan Documents in a manner that is
consistent with the standards of prudent lenders servicing loans similar to the
Loans and without regard to any relationship that the Servicing Advisor or any
Affiliate thereof may have with any Borrower or the Servicer. The Servicer shall
not accelerate or foreclose with respect to any Loan, Mortgaged Property or
other real property without (i) consulting in advance with the Credit Enhancer,
and (ii) following any instruction provided by the Credit Enhancer.
Subject to (i) the servicing standards and procedures set forth herein and
(ii) the terms of the respective Loan Documents relating to any Loan, the
Servicer shall have full power and authority to do or cause to be done any and
all things in connection with such servicing and administration that it may deem
necessary or desirable in its reasonable discretion, including, without
limitation, the power and authority to bring actions and defend the interests of
the Indenture Trustee and the Issuer in any Loan in order to enforce the terms
of the Loan relating to such Loans. The Servicer is hereby authorized and
empowered by the Indenture Trustee and the Issuer, as applicable, as attorney-
in-fact to execute and deliver or cause to be executed and delivered on behalf
thereof (i) any and all financing statements, continuation statements and other
documents or instruments necessary to maintain the lien on each Mortgaged
Property and the security interest in all other Loan Collateral relating to any
Loan, (ii) subject to Section 2.11(f) below, modifications, waivers, consents or
amendments with respect to any Loan Documents, and (iii) subject to Section
2.11(f) below, any and all instruments of satisfaction or cancellation, or of
partial or full release or discharge.
(2) In the event that the Servicer or the Servicing Advisor is uncertain as
to which course of action to take the Servicer and the Servicing Advisor shall
submit a written request for instruction to (i) the Credit Enhancer, so long as
the Class A Notes are Outstanding and no Authorized Officer of the Servicer or
the Servicing Advisor has actual knowledge of any default by the Credit
Enhancer, or (ii) to the Issuer (a) so long as no Class A Notes are Outstanding
and the Class B Notes or the Class C Notes are Outstanding. The Servicer or the
Servicing Advisor shall follow any instruction received pursuant to the
immediately preceding sentence. Subject to the servicing standards described
<PAGE>
in Section 2.11(a), if the Servicer shall not have received appropriate
instructions within ten days of such delivery of such written request for
instruction (or within such shorter period of time as may be specified in such
notice) to the Issuer or the Credit Enhancer, as applicable, the Servicer or
Servicing Advisor may, but shall be under no duty to, take or refrain from
taking such action, not inconsistent with this Agreement or the Basic Documents,
as the Servicer or the Servicing Advisor shall deem to be in the best interests
of the Indenture Trustee and the Credit Enhancer, and the Servicer or the
Servicing Advisor shall have no liability to any Person for such action or
inaction except for its own willful misconduct or negligence.
(b) If the Servicer or the Servicing Advisor believes that any course of
action recommended by the Credit Enhancer is inconsistent with the servicing
standards specified in Section 2.11(a) hereof or the terms of the related Loan
Documents, or could otherwise subject the Servicer or the Servicer to liability
under any lender liability law or similar law or principle, it shall so notify
the Credit Enhancer. If the Credit Enhancer nonetheless does not change its
recommended course of action, the Servicer and the Servicing Advisor shall have
no liability to any Noteholder or the Credit Enhancer in connection with any act
or failure to act as a result of such course of action subject to the servicing
standard specified in Section 2.11(a).
(c) Maintenance of Records of Taxes, Assessments and Similar Items.
--------------------------------------------------------------
With respect to each Loan, the Servicer shall maintain accurate records
with respect to any information it receives from the Borrower or Servicing
Advisor relating to each related Mortgaged Property reflecting the status of
taxes, assessments and other similar items that are or may become a lien
thereon. With respect to each Loan, the Servicer shall maintain accurate records
with respect to the status of insurance premiums payable in respect thereof.
(d) The Servicing Advisor will not cause any collections on the Loans,
other than assumption fees or other fees paid to the Servicing Advisor in
connection with the servicing of the Loans, that are under its control to be
commingled with any monies that are not collections on the Loans.
(e) Assumption Agreements and Borrower Releases.
-------------------------------------------
(1) Promptly after receiving written notice from a Borrower or the
Servicing Advisor that such Borrower desires to sell the Collateral and all of
the Borrower's interest in the related Mortgaged Property with respect to any
Loan and requests that the assumption of such Borrower's obligations under such
Loan be permitted pursuant to the related Loan Documents, the Servicer shall
send written notice of such Borrower's request, together
<PAGE>
with any materials received from the Borrower with respect thereto, to the
Indenture Trustee, the Issuer, the Credit Enhancer, the Rating Agencies and the
Servicing Advisor. The Servicing Advisor shall review all materials provided by
the Borrower. At such time as all conditions precedent to an assumption have
been met, the Servicing Advisor shall consent to such assumption. In connection
with any such assumption, the Servicing Advisor shall not agree to modify, waive
or amend any material term of any Loan Documents, except to reflect such
assumption and as may be necessary to effect the substitution of liability of
the assuming party.
(2) Upon the closing of the transactions contemplated by such documents,
the Servicer shall cause the originals of the assumption agreement, the release
(if any), or the modification or supplement to the Loan Documents to be
delivered to the Custodian for deposit with the Loan Documents for such Loan.
Any assumption fee paid in connection with an assumption shall be paid to the
Servicing Advisor as compensation for its services in connection with such
assumption if such services are provided.
(3) The Servicer shall review the documentation relating to certain
Borrowers that have effectuated transfers or assignments of leases or Franchise
Agreements to a single borrowing entity and have requested releases of specified
co-borrowers from the Loan Documents. The Custodian shall follow the written
instructions of the Servicer with respect to the release of specified co-
borrowers on these Loans. The Servicer shall notify the Indenture Trustee, the
Issuer, the Rating Agencies and the Credit Enhancer of any such releases.
(4) The Servicer will not release any obligor under a Loan without the
consent of the Credit Enhancer unless such release is required under the terms
of such Loan.
(f) Modifications, Waivers, Amendments and Consents.
-----------------------------------------------
(1) Subject to the provisions of Section 2.11(a), this Section 2.11(f) and
Section 4.3(b), the Servicer shall have the right, but not the obligation, to
agree to any immaterial modification, waiver, or amendment, of any term of any
Loan, or to grant any immaterial consent or approval or to release or discharge
any immaterial Collateral with respect to any Loan without the consent of any
person. The Servicer shall notify the Credit Enhancer of any such amendments
and deliver to the Credit Enhancer an executed copy of such amendments. All
modifications, waivers, amendments, consents, approvals, releases, and
discharges, shall be in writing and shall be consistent with the servicing
standards described in Section 2.11(a).
(2) The Servicer shall notify the Indenture Trustee, the Issuer, the
Servicing Advisor, the Custodian, the Rating Agencies and the Credit Enhancer of
any material modification, waiver,
<PAGE>
amendment, consent, approval, release or discharge with respect to any Loan and
the date thereof and shall deliver to the Custodian for deposit with the related
Loan Documents an original counterpart of the agreement relating to such
modification, waiver, amendment, consent, approval, release or discharge,
promptly following the execution thereof.
(3) The Servicer shall not allow any modification, waiver or amendment of
any term of any Loan, without the consent of the Credit Enhancer (unless such
modification, waiver or amendment is immaterial, in which case no such consent
is required).
Notwithstanding the foregoing, except as expressly provided herein or in
connection with any repurchase or substitution of a Loan in accordance with the
Indenture, the Servicer shall not release or waive the right to collect the
stated, non-default rate of interest on, the unpaid balance of, or any Loan
Yield Maintenance Amount payable in respect of any Loan.
(g) Realization Upon Defaulted Loans.
--------------------------------
(1) Subject to the servicing standard set forth in Section 2.11(a) and this
Section 2.11(g), the Servicer shall send to the Borrower a notice of a default
in connection with any payment default of which an Authorized Officer of the
Servicer has actual knowledge. With respect to any non-payment default of which
an Authorized Officer of the Servicer has actual knowledge, the Servicer shall
determine whether to send a notice of default to the related Borrower in
accordance with the servicing standards set forth in Section 2.11(a). The
Servicer shall deliver a copy of any notice of default to the Credit Enhancer.
(2) [Reserved].
(3) The Servicer shall not be required to expend its own funds in
connection with any foreclosure or toward the restoration, repair, protection or
maintenance of any property or in performing the duties set forth in paragraphs
(3) through (6) of this Section 2.11(g). In connection with the commencement of
any proceedings against any Collateral, any Borrower or any guarantor of any
Loans, the Servicer shall retain local counsel and comply with all applicable
laws in connection therewith and may commence and prosecute any proceeding in
respect of such related Loan in the name of and on behalf of the Indenture
Trustee and the Issuer.
(4) Before obtaining title to any Mortgaged Property or any real property
in connection with the foreclosure of a Loan, the Servicer shall obtain an
environmental assessment report prepared by an experienced Independent
environmental assessment firm which regularly conducts environmental audits for
purchasers of commercial property (an "Environmental Report"). Notwithstanding
any provision to the contrary contained in this Agreement, the
<PAGE>
Servicer shall not obtain title to any Mortgaged Property or any real property,
as a result of or in lieu of foreclosure, deed in lieu of foreclosure or
otherwise, and shall not otherwise acquire possession of, or take any action
with respect to, any Mortgaged Property if, as a result of any such action, the
Indenture Trustee or the Issuer would be considered to hold title to, to be a
"mortgagee-in-possession" of or to be an "owner" or "operator" of such Mortgaged
Property within the meaning of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time, or any
comparable law, unless the Servicer obtained the written consent of the
Indenture Trustee, the Issuer and the Credit Enhancer after the Servicer has
determined in accordance with the servicing standards set forth in Section
2.11(a) based on an Environmental Report that, as of a date not more than three
months prior to obtaining title to a Mortgaged Property:
(i) such Mortgaged Property is in compliance
with applicable Environmental Laws (in the reasonable
judgment of such Independent Person based upon all
available information) or, if not, that it would
be in the best economic interest of the Indenture
Trustee and the Issuer to take such actions as are
necessary to bring such Mortgaged Property in
compliance therewith, and
(ii) there are no circumstances present at such
Mortgaged Property relating to the use, management or
disposal of any Hazardous Substances for which
investigation, testing, monitoring, containment,
clean-up or remediation could be required under any
currently effective federal, state or local law or
regulation (in the reasonable judgment of such
Independent Person based upon all available
information), or if, such Hazardous Substances are
present for which such action could be required, it
would be in the best economic interest of the
Indenture Trustee and the Issuer to take such action
with respect to such Mortgaged Property.
In the event that the Environmental Report first obtained by the Servicer
hereunder indicates that such Mortgaged Property may not be in compliance with
applicable Environmental Laws or that Hazardous Substances may be present but
does not definitively establish such fact, the Servicer shall cause such further
environmental tests to be conducted as the Servicer shall deem prudent to
protect the interests of the Indenture Trustee and the Issuer.
<PAGE>
The Servicer shall promptly forward a copy of each Environmental Report it
receives to the Servicing Advisor, the Indenture Trustee, the Credit Enhancer
and the Issuer. If any environmental issue with respect to compliance,
containment, clean-up or remediation is reported in any such Environmental
Report, the Servicer and the Servicing Advisor shall consult with respect
thereto, in particular in order to evaluate whether it is in the best economic
interest of the Indenture Trustee, the Credit Enhancer and the Issuer to take
such actions as are necessary to bring such Mortgaged Property in compliance
with any Environmental Law or take such action as may be necessary to contain,
clean-up or remediate any Hazardous Substance. After such consultation, the
Servicer shall make a written request for instruction together with its
recommendation with respect thereto, send such written request to the Credit
Enhancer and the Issuer and follow the related instruction it receives from the
Credit Enhancer.
(5) The Servicer shall act on behalf of the Indenture Trustee, the Credit
Enhancer and the Issuer, as applicable, in negotiating and taking any other
action necessary or appropriate in connection with the sale of any REO Property,
including the collection of all amounts payable in connection therewith. If the
Servicer shall have negotiated terms and conditions of any proposed disposition
of any REO Property, the Servicer shall prepare a written report thereto
summarizing such terms and conditions. If neither the Indenture Trustee, the
Credit Enhancer nor the Issuer objects in writing to such sale within twenty
(20) Business Days of the date such notice is received by the Indenture Trustee,
the Credit Enhancer and the Issuer, or such shorter period as may be specified
in the notice that, in the good faith judgment of the Servicer, is necessary to
preserve the interests of the Indenture Trustee, the Credit Enhancer and the
Issuer in the Collateral, then the REO Property may be sold upon the terms and
conditions specified in the written report. Any sale of an REO Property shall
be without recourse to, or representation or warranty by the Indenture Trustee,
the Issuer, the Seller, the Managing Member, the Custodian, the Servicing
Advisor or the Servicer, provided that any contract of sale and conveyance
documents may contain limited or special warranties if they are customary in the
area in which the REO Property is located and are limited to the period of time
in which the Issuer has owned the REO Property, so long as the only recourse for
breach thereof is to the Issuer. The Servicer shall prepare, or cause to be
prepared, any deed, contract of sale or other instrument of conveyance necessary
in connection with the sale of any REO Property and shall provide the same to
the Issuer with written direction to the Issuer to execute the same and return
it to the Servicer. All proceeds resulting from the disposition of any REO
Property shall be transmitted by the Servicer to the applicable REO Account.
<PAGE>
(h) Title and Management of REO Properties.
--------------------------------------
(1) In the event that title to any REO Property is acquired by the Servicer
on behalf of the Issuer and the Indenture Trustee, the Servicer shall manage,
conserve, protect and operate each REO Property for the Issuer and Indenture
Trustee solely for the purpose of its prompt disposition and sale in a manner
that is commercially reasonable and in the best interest of the Issuer and the
Indenture Trustee in accordance with Section 2.11(g) and this Section 2.11(h).
(2) The Servicer shall establish and maintain with respect to each REO
Property a segregated account in the corporate trust department in the name of
the Indenture Trustee which shall be an Eligible Account, and shall account
separately for funds received or expended with respect to each REO Property (an
"REO Account"). Each REO Account is under the lien of the Indenture and part of
the Trust Estate.
(3) The Servicer shall have full power and authority, subject only to this
Agreement, to do any and all things in connection with any REO Property as are
consistent with the servicing standards set forth in Section 2.11(a). In
connection therewith, the Servicer shall deposit or cause to be deposited on a
daily basis in the applicable REO Account all revenues received by the Servicer
with respect to the related REO Property.
(i) Custodian to Cooperate; Release of Loan Files.
---------------------------------------------
Upon the payment in full of any Loan in accordance with its terms, or the
receipt by the Servicer of a notification that payment in full has been escrowed
in a manner customary for such purposes, the Servicer shall immediately notify
the Servicing Advisor, the Indenture Trustee, the Credit Enhancer and the Issuer
by a certification (which certification shall include a statement to the effect
that all amounts received or to be received in connection with such payment that
are required to be deposited in the Collection Account have been or will be so
deposited) of an Authorized Officer of the Servicer and shall request delivery
to the Servicer of the related Loan Documents. Upon receipt of such
certification and request, the Indenture Trustee shall direct the Custodian in
writing to promptly release the related Loan Documents to the Servicer.
Whenever the Servicer deems it appropriate in connection with its servicing
obligations hereunder, the Servicer may request the Custodian to deliver all or
any portion of the Loan Documents to the Servicer. Upon receipt of a Request
for Release in the form of Schedule 2 hereto, the Custodian shall promptly
release and deliver to the Servicer the Loan Documents or portion thereof
specified by the Servicer in such Request for Release. The Servicer shall
return any such Loan Documents or portion thereof to the Custodian when the
Servicer's need therefor no
<PAGE>
longer exists, unless the related Loan is liquidated or becomes an REO Property,
in which case the Servicer shall provide a certificate of an Authorized Officer
of the Servicer as described in clause (b) of the following sentence. Upon
receipt by the Custodian (a) of such Loan Documents (or portion thereof) from
the Servicer, or (b) in the event of a liquidation of the Loan or its becoming
an REO Property, of a certificate of an Authorized Officer stating that such
Loan was liquidated and that all amounts received or to be received in
connection with such liquidation that are required to be deposited into the
Collection Account have been deposited or that such Loan has become an REO
Property, the Custodian shall acknowledge receipt of the Loan Documents or the
certificate of the Servicer specified in clause (b) above.
(j) Franchisor Relations.
--------------------
The Servicer shall review any information that it receives under the terms
of the related Loans as to each Borrower's compliance with requirements of the
related Franchisor, and shall notify the Indenture Trustee, the Credit Enhancer
and the Issuer if the Servicer becomes aware that any Borrower is not in
compliance with the requirements of the related Franchisor.
(k) Franchisee Loan Performance and Relations with Franchisee Borrowers;
--------------------------------------------------------------------
Prepayments.
-----------
The Servicer shall monitor the fixed charge coverage ratio as reported by
the Borrowers and shall notify the Indenture Trustee, the Credit Enhancer and
the Issuer if any such ratios fall below those required to be maintained in the
related Loan Documents. The Servicer shall respond to inquiries or questions
from any Borrower regarding the status of a related Loan, possible changes or
modifications thereto, the servicing of such Loan or otherwise relating to the
Loans. The Servicer shall review and verify any calculation of the Loan Yield
Maintenance Amount payable in connection with a prepayment, and shall notify the
Indenture Trustee and the Issuer of any disagreement over such calculation.
(l) Communications with Investors, Bankers, Rating Agencies.
-------------------------------------------------------
The Servicer shall respond to questions from, and provide reasonably
requested information to, investors, bankers and rating agencies regarding
individual Loans, Borrowers and the pool or a sub-pool of Loans serviced by the
Servicer.
<PAGE>
SECTION 2.12. Servicing Advisor Duties.
------------------------
The Servicing Advisor shall fulfill its obligations set forth in this
Agreement. The Servicer delegates to the Servicing Advisor, and the Servicing
Advisor accepts, the obligations of the Servicer set forth in paragraphs (e),
(f), (g), (j), (k) and (l) of Section 2.11 hereof. In performing any delegated
obligations of the Servicer, the Servicing Advisor shall be held to the
servicing standard of the Servicer described in Section 2.11(a). Such
delegation shall remain in effect until such time as the Servicer elects to
terminate such delegation in the event that an act or omission of the Servicing
Advisor results in a Default hereunder.
The Servicing Advisor shall monitor the performance of the Servicer and the
Custodian under the Servicing Agreement, and shall notify the Indenture Trustee
and the Issuer promptly of any breach of the Servicing Agreement by the Servicer
or the Custodian of which it becomes aware in the course of such monitoring.
ARTICLE 3
STATEMENTS AND REPORTS
----------------------
SECTION 3.1. Reporting by the Servicer.
-------------------------
(a) Not later than 11:00 am on the third Business Day preceding each
Servicer Report Date, the Servicer shall transmit the information specified
below to the Servicing Advisor. Not later than 11:00 am on each Servicer Report
Date, the Servicer shall transmit to the Issuer, the Credit Enhancer, the Paying
Agent and the Indenture Trustee and, upon written request, to any Securityholder
having an initial Aggregate Principal Amount or initial notional amount of at
least $10,000,000, and upon receipt the Indenture Trustee shall forward to the
Rating Agencies a certificate (the "Servicer's Certificate") setting forth the
following information in respect of the Loans:
(1) (i) except with respect to prepaid, repurchased and Defaulted
Loans, the amount of funds which have been deposited in the
Collection Account pursuant to Section 5.2(b) of the Indenture
as of the immediately preceding Accounting Date with respect to
payments due in the preceding Due Period in respect of the
Loans together with a breakdown of such total amount by
categories (i.e., Loan Payments (including the components
thereof), Early Payments, Insurance Proceeds, Condemnation
Proceeds and Recoveries), and (ii) with respect to Prepayment
Amounts received during the preceding Due Period, the
Servicer's
<PAGE>
Certificate shall set forth with respect to each prepaid,
repurchased and Defaulted Loan: (x) the Borrower, loan number,
and stated Loan maturity; (y) the date of such Prepayment; and
(z) the Prepayment Amount received, specifying the components
thereof;
(2) the information required by, and in the format specified in,
Section 5.6 of the Indenture;
(3) with respect to each Loan that became a Defaulted Loan during
the preceding Due Period or remains a Defaulted Loan as of the
last day of the preceding Due Period:
(i) its Borrower, loan number and stated Loan maturity;
(ii) the effective date as of which such Loan became a
Defaulted Loan;
(iii) the Prepayment Amount for such Defaulted Loan,
specifying the components thereof;
(iv) the amount of any Recoveries with respect to such
Defaulted Loan;
(v) the cumulative amount of Recoveries for all Defaulted
Loans deposited in the Collection Account for all prior
Due Periods; and
(vi) whether a Net Loss Condition has occurred;
(4) with respect to each Loan that was a Delinquent Loan as of the
preceding Accounting Date:
(i) its Borrower, loan number, and stated Loan maturity;
(ii) the effective date as of which such Loan became a
Delinquent Loan;
(iii) the amount of Loan Payments which have not been
received with respect to such Delinquent Loan; and
(iv) whether a Delinquency Condition has occurred;
(5) the related Note Rates;
(6) with respect to each Loan, the Class A-1 Scheduled Principal
Portion and the Class A-2 Scheduled Principal Portion; and
<PAGE>
(7) whether a Restricting Event has occurred.
(b) On or before 60 days after the end of each year beginning with the
quarter ending March 31, 1998, the Servicer shall deliver an Officer's
Certificate to the Servicing Advisor, the Issuer, the Indenture Trustee and the
Credit Enhancer to the effect that a review of the activities of the Servicer
during the Servicer's preceding fiscal year (or since the Closing Date in the
case of the first such Officer's Certificate required to be delivered) has been
made under the supervision of the officers executing such Officer's Certificate
with a view to determining whether during such period the Servicer has performed
and observed all of its obligations under this Agreement, and either stating
that to the best of their knowledge no default by the Servicer, under this
Agreement has occurred and is continuing, or if such a default has occurred and
is continuing, specifying such default and the nature and status thereof. The
Servicing Advisor shall be required to deliver an Officer's Certificate at the
same time to the same parties and to the same effect with respect to its
activities.
(c) The Servicer and the Servicing Advisor will provide any such
information relating to the Loans and the Notes as the Credit Enhancer shall
reasonably request in writing.
(d) In accordance with the servicing standards described in Section
2.11(a), the Servicing Advisor shall perform its semi-annual review of each
Borrower's compliance with its Unit FCR covenants, and shall provide the
Servicer, the Indenture Trustee and the Credit Enhancer with copies of the
results of such review within five (5) Business Days of completion and the
Servicing Advisor shall include with such information a list of the Loans on
either the Servicer's credit watch or audit warning list as of such date. With
respect to any Borrower that is in breach of its Unit FCR, the Servicer shall
provide the Loan number(s) and Remaining Payments for such Loan(s), and any
other information relating to the Loans reasonably requested by the Issuer, the
Indenture Trustee or the Credit Enhancer.
(e) The Servicer shall send the Servicing Advisor, the Indenture Trustee
and the Credit Enhancer a copy of any default notices sent by the Servicer to
any Borrower.
(f) The Servicer shall send the Indenture Trustee such other information
concerning the Loans as the Indenture Trustee shall reasonably request in
writing from time to time as necessary to perform the Indenture Trustee's
obligations under the Indenture.
(g) Commencing not later than June 1997, the Servicer shall provide the
Indenture Trustee with monthly Loan information on Loan-by-Loan basis in an
electronic form to be agreed upon by the
<PAGE>
Servicer and Indenture Trustee and which shall be reasonably acceptable to the
Credit Enhancer and Issuer.
SECTION 3.2. Rule 144A Information.
---------------------
The Servicer covenants to make available on behalf of the Issuer the
information requested by prospective purchasers of Securities necessary to
satisfy the requirements of paragraph (d)(4) of Rule 144A (the "Rule 144A
Information"). The Rule 144A Information shall include, without limitation, any
or all of the following items requested by the prospective purchasers:
(a) the Private Placement Memorandum and any amendments and
supplements thereto;
(b) the Basic Documents and any amendments thereto;
(c) the Servicer's Certificate required pursuant to this Agreement;
and
(d) such other information as is reasonably available to the
Servicer, in order to comply with requests for information pursuant to Rule
144A under the Act.
SECTION 3.3. Annual Accountants' Reports.
---------------------------
On or before 120 days after the end of the fiscal year of the Servicer
which ends on December 31, 1997, and each fiscal year thereafter, the Servicer
shall deliver to the Servicing Advisor, the Issuer, the Indenture Trustee, the
Credit Enhancer and the Rating Agencies and, upon request, to any Holder of at
least $10,000,000 Initial Principal Amount or initial notional amount of
Securities, a separate report, prepared by a firm of "Big Six" independent
accountants appointed by the Servicer, stating (i) they examined the balance
sheet of the Servicer as of the last day of such fiscal year and the related
statements of operations, retained earnings and cash flows for such fiscal year
and have issued an opinion thereon, specifying the date thereof, (ii) they also
examined such documents and records relating to the servicing of the Loans by
the Servicer, (iii) their examination as described under clauses (i) and (ii)
above was made in accordance with GAAP and accordingly included such tests of
the accounting records and such other auditing procedures as they considered
necessary in the circumstances, and (iv) their examinations described under
clauses (i) and (ii) above disclosed no exceptions which, in their opinion, were
material, relating to the servicing of the Loans, or, if any such exceptions
disclosed thereby were material, setting forth such exceptions.
On or before 120 days after the end of the fiscal year of the Servicer
which ends on December 31, 1997, and each fiscal year thereafter, the Servicer
shall deliver to the Servicing Advisor, the Issuer, the Indenture Trustee, the
Credit Enhancer
<PAGE>
and the Rating Agencies and, upon request, to any Securityholder of at least
$10,000,000 Initial Principal Amount or initial notional amount of Securities,
its annual audited financial statements, and within 30 days after the end of
each fiscal quarter following the Closing Date, the Servicing Advisor shall
deliver to said parties its quarterly financial statements; provided, however,
that so long as Bankers Trust Company is the Servicer, it shall not be required
to comply with the provisions of this paragraph.
ARTICLE 4
THE SERVICER, THE CUSTODIAN AND THE SERVICING ADVISOR
-----------------------------------------------------
SECTION 4.1. Representations and Warranties Concerning the Servicer, the
-----------------------------------------------------------
Custodian and the Servicing Advisor.
- ------------------------------------
Each of the Servicer, the Custodian and the Servicing Advisor represents
and warrants to each other and to the Issuer, the Credit Enhancer and the
Indenture Trustee for the benefit of the Credit Enhancer and the Noteholders,
effective as of the Closing Date, as follows:
(a) Each of the Servicer and the Servicing Advisor (i) has been duly
organized and is validly existing and in good standing under the laws of the
state of its formation and organization, except with respect to the Servicer,
has qualified to do business and is in good standing in each jurisdiction where
failure to so qualify would have a material and adverse effect on its ability to
perform its obligations hereunder, and has full power, authority and legal right
to own its property, to carry on its business as presently conducted, and to
enter into and perform its obligations under this Agreement.
(b) The execution and delivery of this Agreement by it, and its performance
and compliance with the terms of this Agreement will not violate its corporate
charter and by-laws, or constitute a default (or an event, with notice or lapse
of time, or both, would constitute a default) under, or result in the breach of,
any material contract, agreement or other instrument to which it is a party or
which may be applicable to it or any of its assets.
(c) This Agreement has been duly authorized, executed and delivered by it
and, assuming due authorization, execution and delivery by the other parties
hereto, constitutes its valid, legal and binding obligation, enforceable against
it in accordance with the terms hereof, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and other laws affecting the enforcement
of creditors' rights generally and to general principles of equity, regardless
of whether such enforcement is considered in a proceeding in equity or at law.
<PAGE>
(d) It is not in default with respect to any order or decree of any court
or any order, regulation or demand of any federal, state, municipal or
governmental agency, which default might have consequences that would materially
and adversely affect its condition (financial or other) or operations or its
properties.
(e) No litigation is pending or, to the best of its knowledge, threatened
against it which would prohibit its entering into this Agreement or
performing its obligations under this Agreement.
(f) No consent, approval or authorization of or registration with or notice
to, any New York State or federal banking authority is required for the
execution, delivery or performance by the Servicer and Custodian of this
Agreement.
(g) No consent, approval or authorization or registration with or notice to
any governmental authority or court or any other Person is required under the
laws of the United States of America or the laws of the State of Delaware is
required for the execution, delivery or performance by the Servicing Advisor of
this Agreement.
SECTION 4.2. [Reserved]
----------
SECTION 4.3. Performance of Obligations.
--------------------------
(a) Each of the Servicer, the Custodian and the Servicing Advisor,
respectively, shall punctually perform and observe all of its obligations and
agreements contained in this Agreement in accordance with the terms hereof.
(b) None of the Servicer, the Custodian or the Servicing Advisor shall take
any action, or permit any action to be taken by others, which would excuse any
person from any of its covenants or obligations under any of the Loan Documents
or under any other instrument included in the Trust Estate, or which would
result in the amendment, hypothecation, subordination, termination or discharge
of, or impair the validity, enforceability or effectiveness of, any of the Loan
Documents or any such instrument, including, without limitation, the obligation
of any Borrower to pay Loan Yield Maintenance Amounts under its Promissory Note,
except as expressly provided herein and therein or as determined in keeping with
the servicing standards described in Section 2.11(a).
(c) Limitations of Responsibility. None of the Servicer, the Custodian or
-----------------------------
the Servicing Advisor will have any responsibility under this Agreement other
than to render the services called for hereunder in good faith. None of the
Servicer, the Custodian or the Servicing Advisor, their respective affiliates,
directors, officers, shareholders and
<PAGE>
employees will be liable to the Issuer, the Indenture Trustee, the Noteholders
or others, except by reason of acts or omissions constituting bad faith, willful
misconduct, negligence (or in the case of the Custodian, gross negligence) or
reckless disregard of its duties.
(d) [Reserved]
(e) No Duties Except as Specified in this Agreement or in Instructions.
------------------------------------------------------------------
None of the Servicer, the Custodian or the Servicing Advisor shall have any duty
or obligation to manage, make any payment in respect of, register, record, sell,
reinvest, dispose of, create, perfect or maintain title or any security interest
in, or otherwise deal with the Trust Estate, to prepare or file any report or
other document, or to otherwise take or refrain from taking any action under, or
in connection with, any document contemplated hereby to which the Servicer, the
Custodian or the Servicing Advisor is a party, except as expressly provided by
the terms of this Agreement and no implied duties or obligations shall be read
into this Agreement against the Servicer, the Custodian or the Servicing
Advisor.
(f) No Action Except Under Specified Documents or Instructions. The
----------------------------------------------------------
Servicer shall not manage, control, use, sell, reinvest, dispose of or otherwise
deal with any part of the Trust Estate except in accordance with the powers
granted to and the authority conferred upon the Servicer pursuant to this
Agreement, or in accordance with instructions delivered to the Servicer, the
Custodian and Servicing Advisor pursuant hereto.
(g) Limitations on the Liability. Subject to the servicing standards
----------------------------
described in Section 2.11(a), and except for the Servicer's, the
Custodian's or the Servicing Advisor's own willful misconduct or negligence
(or in the case of the Custodian, gross negligence), the Servicer, the
Custodian and the Servicing Advisor shall not be personally liable under
any circumstances, including, without limitation:
(1) for any error of judgment made in good faith by an Authorized
Officer of any of them;
(2) for any action taken or omitted to be taken by the Servicer, the
Custodian or the Servicing Advisor in good faith in accordance
with the instructions of the Credit Enhancer or the Issuer made in
accordance with Section 2.11(a)(2) hereof;
(3) for any representation, warranty, covenant, agreement or
indebtedness of the Issuer under the Notes or any Basic Document,
or for any other liability or obligation of the Issuer;
<PAGE>
(4) for or in respect of the validity or sufficiency of this Agreement
or for the due execution hereof by any party hereto other than the
Servicer, in the case of the Servicer, the Custodian in the case
of the Custodian, or other than the Servicing Advisor, in the case
of the Servicing Advisor, or for the form, character, genuineness,
sufficiency, value or validity of any part of the Trust Estate, or
for or in respect of the validity or sufficiency of the Basic
Documents; and
(5) for any action or inaction of the Indenture Trustee or the Issuer,
and none of the Servicer, the Custodian or the Servicing Advisor
shall be responsible for performing or supervising the performance
of any obligation under this Agreement or any Basic Document that
is required to be performed by the Indenture Trustee or the Issuer
under any Basic Document.
(h) No provision of this Agreement shall require the Servicer, the
Custodian or the Servicing Advisor to expend or risk its personal funds or
otherwise incur any financial liability in the performance of any of its rights
or powers hereunder, if the Servicer, the Custodian or the Servicing Advisor
shall have reasonable grounds for believing that repayment of such funds or
indemnity satisfactory to it against such risk or liability is not reasonably
assured or provided to it.
(i) Furnishing of Documents. The Servicer, the Custodian or the Servicing
-----------------------
Advisor, as the case may be, shall furnish to the Indenture Trustee, the Credit
Enhancer and Issuer, promptly upon their written request, duplicates or copies
of all material reports, notices, requests, demands, certificates, financial
statements and any other instruments furnished to the Servicer, the Custodian or
the Servicing Advisor, as the case may be, respectively, hereunder.
(j) Reliance; Advice of Counsel. The Servicer, the Custodian and the
---------------------------
Servicing Advisor may conclusively rely on and shall be fully protected in
acting or refraining from acting when doing so, in each case in accordance with
any signature, instrument, notice, resolution, request, consent, order,
certificate, report, opinion, bond or other document or paper believed by it to
be genuine and believed by it to be signed by the proper party or parties. The
Servicer, the Custodian and the Servicing Advisor each may accept a certified
copy of a resolution of the board of directors or other governing body of any
corporate party as conclusive evidence that such resolution has been duly
adopted by such body and that the same is in full force and effect. As to any
fact or matter the manner or ascertainment of which is not specifically
prescribed herein, the
<PAGE>
Servicer, the Custodian or the Servicing Advisor, as the case may be, may for
all purposes hereof rely conclusively on a certificate, signed by an Authorized
Officer as to such fact or matter, and such certificate shall constitute full
protection to the Servicer, the Custodian or the Servicing Advisor, as the case
may be, for any action taken or omitted to be taken by it in good faith in
reliance thereon.
(k) In the exercise and performance of their respective duties and
obligations hereunder or under any of the Basic Documents, the Servicer, the
Custodian and the Servicing Advisor (i) may act directly or through agents,
attorneys, custodians or nominees pursuant to agreements entered into with any
of them and (ii) may consult with counsel, accountants and other skilled persons
to be selected with reasonable care and employed by it, and the Servicer, the
Custodian and the Servicing Advisor shall not be liable for anything done,
suffered or omitted in good faith by it in accordance with the advice or opinion
of any such counsel, accountants or other skilled persons. Neither the Servicer,
the Custodian nor the Servicing Advisor shall be liable for the acts or
omissions of any agents, attorneys, custodians or nominees referred to in (i)
above selected with due care.
(l) Independent Contractor. In performing their respective obligations as
----------------------
servicer, custodian and servicing advisor hereunder the Servicer, the Custodian
and the Servicing Advisor, respectively, acts solely as an independent
contractor of the Issuer and Indenture Trustee. Nothing in this Agreement shall,
or shall be deemed to, create or constitute any joint venture, partnership
employment, or any other relationship between the Issuer and the Indenture
Trustee on the one hand and the Servicer, the Custodian and the Servicing
Advisor, respectively, on the other hand, other than the independent contractor
contractual relationship established hereby. The Servicer, the Custodian and the
Servicing Advisor, respectively, shall not be and shall not be deemed to be
liable for any acts or obligations of the Issuer or the Indenture Trustee, and,
without limiting the foregoing, the Servicer, the Custodian and the Servicing
Advisor, respectively, shall not be liable under or in connection with the Notes
and all Persons having any claim under or in respect of this Agreement or the
Basic Documents shall look only to the Trust Estate for payment or satisfaction
thereof.
SECTION 4.4. Merger; Resignation and Assignment; Status and Qualification.
------------------------------------------------------------
(a) (i) The Servicing Advisor may not merge into any corporation or
convey, transfer or lease substantially all of its assets as an entity, unless
and until the Servicing Advisor notifies the Issuer of such contemplated action,
the Issuer notifies the Rating Agencies in advance of the proposed merger and
the Rating Agencies confirm that the selection of such successor, in and of
itself, will not result in the downgrading
<PAGE>
of any rating assigned to the Notes by the Rating Agencies (without giving
effect to the Credit Enhancement Policy).
(ii) Any corporation into or with which the Servicer or Custodian may
be merged, consolidated or converted, or any transferee of all or substantially
all of the corporate trust and/or servicing business of the Servicer or
Custodian, shall be the successor of such Servicer or Custodian under this
Agreement without the execution or filing of any document or any further act.
Notwithstanding the above, such successor Servicer or Custodian may be removed
by the Credit Enhancer or the Issuer in the event that the succession of such
successor Servicer or Custodian results in the downgrading or withdrawal of any
rating assigned to the Notes by the Rating Agencies.
(b) The Servicer, the Custodian or the Servicing Advisor may engage an
agent to perform its duties hereunder, or assign this agreement to any Affiliate
thereof; provided that no such arrangement or assignment shall be effective
unless and until (i) an agent or Affiliate consented to by the Indenture Trustee
and the Credit Enhancer (or if the Credit Enhancer is in default under the
Credit Enhancement Policy a Majority-in-Interest of the Notes) executes and
delivers to the Indenture Trustee and the Issuer an agreement in form and
substance reasonably satisfactory to the Issuer, the Credit Enhancer and the
Indenture Trustee, which contains an agreement to perform and observe, or in the
case of an assignment an assumption by such an agent or Affiliate entity of the
due and punctual performance and observance of each covenant and condition to be
performed or observed by the Servicer, the Custodian or the Servicing Advisor,
as the case may be, under this Agreement; and (ii) such agreement or assignment
and assumption by such entity in and of itself, will not result in the
downgrading of any rating assigned to them by the Rating Agencies (without
giving effect to the Credit Enhancement Policy). From and after such
effectiveness, such entity shall be "the Servicer", "the Custodian" or "the
Servicing Advisor", as the case may be, hereunder. Except as provided in Section
2.12 or in the first sentence of this Section 4.4(b), none of the Servicer, the
Custodian or the Servicing Advisor may assign this Agreement or any of its
rights, powers, duties or obligations hereunder.
(c) Except as provided in Sections 4.4(a) and (b), the duties and
obligations of the Servicer, the Custodian and the Servicing Advisor under this
Agreement shall continue until this Agreement shall have been terminated as
provided in Section 6.1, and shall survive the exercise by the Issuer, the
Credit Enhancer or the Indenture Trustee of any right or remedy under this
Agreement, or the enforcement by the Issuer, the Indenture Trustee, the Credit
Enhancer or any Noteholder of any provision of the Indenture, the Notes or this
Agreement.
<PAGE>
(d) Each of the Servicer, the Custodian and the Servicing Advisor,
respectively, shall keep in full effect its rights and franchises under the laws
of the state of its formation and organization, and will obtain and preserve its
qualification to do business in each jurisdiction in which such qualification is
or shall be necessary to protect the validity and enforceability of the Loan
Documents, the Indenture and this Agreement or to perform its obligations
hereunder.
SECTION 4.5. Servicer and Servicing Advisor Not to Resign. Subject to
--------------------------------------------
the provisions of Section 4.4, neither the Servicer nor the Servicing Advisor
shall resign from the obligations and duties imposed on it by this Agreement as
Servicer or Servicing Advisor, as applicable, except upon a determination that
the performance of its duties under this Agreement shall no longer be
permissible under applicable law or are in material conflict by reason of
applicable law with any other activities carried on by it or its subsidiaries or
Affiliates, the other activities of the Servicer or Servicing Advisor so causing
such a conflict being of a type and nature carried on by the Servicer or
Servicing Advisor or its subsidiaries or Affiliates at the date of this
Agreement. Notice of any determination that the performance by either the
Servicer or the Servicing Advisor of its duties hereunder is no longer permitted
under applicable law shall be communicated to the Indenture Trustee and the
Credit Enhancer at the earliest practicable time (and, if such communication is
not in writing, shall be confirmed in writing at the earliest practicable time)
and any such determination shall be evidenced by an Opinion of Counsel to such
effect delivered by the Servicer or Servicing Advisor, as applicable, to the
Indenture Trustee and the Credit Enhancer concurrently with or promptly after
such notice. No resignation of the Servicer shall become effective until a
successor Servicer shall have assumed the responsibilities and obligations of
the Servicer. No resignation of the Servicing Advisor shall become effective
until an entity acceptable to the Indenture Trustee and the Credit Enhancer
shall have assumed the responsibilities and obligations of the Servicing
Advisor. No appointment of, or assumption of responsibilities or obligations
hereunder by, any successor to the Servicer or the Servicing Advisor shall
become effective unless the Rating Agencies are notified in advance of such
appointment, and the Indenture Trustee has received a letter from the Rating
Agencies that such appointment will not result in any of the ratings of the
Notes and the Custody Receipts being withdrawn or reduced.
SECTION 4.6. Termination of Custodian. The Issuer may terminate the
------------------------
Custodian hereunder in the event that any representation, warranty or statement
of the Custodian made in this Agreement or in the Insurance Agreement by the
Custodian in such capacity in any certificate, report or other writing delivered
pursuant hereto shall prove to be incorrect in any material respect as of the
time when the same shall have been made.
<PAGE>
ARTICLE 5
DEFAULT
-------
SECTION 5.1. Defaults.
--------
(a) Any of the following acts or occurrences shall constitute a Default
under this Agreement:
(1) any failure by the Servicer to deposit any payments received by it
into the Collection Account or by the Servicing Advisor to remit
any payments received by it to the Servicer in accordance with any
provision hereof; or
(2) the Indenture Trustee shall not have received a report in
accordance with Section 3.1(a) or Section 3.3 or the Servicer shall
have defaulted in the due observance of any provision of Section
4.2 or Section 4.4 (other than failure to enter into an assumption
agreement under Section 4.4(b), which is a Default only if the
failure continues for ten (10) Business Days after the Indenture
Trustee or the Credit Enhancer has requested the agreement in
writing); or
(3) the Servicer shall default in the due performance and observance of
any other provision of this Agreement applicable to it or the
Servicing Advisor or Custodian, respectively, shall default in the
due performance and observance of any provision of this Agreement
applicable to it and in each case such default shall have continued
for a period of 30 days after its Authorized Officer has obtained
actual knowledge of, or has been notified by the Indenture Trustee
or the Credit Enhancer of, such default; or (4)ab any
representation, warranty or statement of the Servicer or the
Servicing Advisor, respectively, made in this Agreement or in the
Insurance Agreement by the Servicer or the Servicing Advisor, in
each case, in its capacity as such in any certificate, report or
other writing delivered pursuant hereto shall prove to be incorrect
in any material respect as of the time when the same shall have
been made; or
(5) the Servicer, the Custodian or the Servicing Advisor makes an
assignment for the benefit of creditors or is generally not paying
its debts as such debts become due; or
<PAGE>
(6) the Servicer, the Custodian or the Servicing Advisor petitions or
applies to any tribunal for, or consents to, the appointment of, or
taking possession by, a trustee, receiver, custodian, liquidator or
similar official of the Servicer, or of any substantial part of the
assets of the Servicer, or commences a voluntary case under the
Bankruptcy Law of the United States or any proceedings relating to
the Servicer, under the Bankruptcy Law of any other jurisdiction;
or
(7) any such petition or application is filed, or any such proceedings
are commenced, against the Servicer, the Custodian or the Servicing
Advisor and the Servicer, the Custodian or the Servicing Advisor by
any act indicates its approval thereof, consent thereto or
acquiescence therein, or any order, judgment or decree is entered
appointing any such trustee, receiver, custodian, liquidator or
similar official, or approving the petition in any such proceedings
and such order, judgment or decree remains unstayed and in effect
for more than 45 days; or
(8) any order, judgment or decree is entered in any proceedings against
the Servicer, the Custodian or the Servicing Advisor decreeing the
dissolution of the Servicer, the Custodian or the Servicing Advisor
and such order, judgment or decree remains unstayed and in effect
for more than 60 days.
(9) a final judgment for an amount in excess of $500,000 (exclusive of
any portion thereof which is insured) is rendered against the
Servicing Advisor, and within 60 days after the entry thereof, such
judgment is not discharged or the execution thereof is stayed
pending appeal, or within 60 days after the expiration of any such
stay, such judgment is not discharged.
(b) Upon the occurrence and continuance of a Default specified in clauses
(6), (7) or (8) above, all of the rights and powers of the Servicer, the
Servicing Advisor or the Custodian, as the case may be, under this Agreement
shall automatically terminate, including without limitation all rights of the
Servicer or the Custodian, as the case may be, to receive from and after such
termination the compensation provided for in Section 2.5 or Section 2.10, as the
case may be, or any compensation or expense reimbursement hereunder, other than
to the extent accrued prior to such termination and not previously paid. Upon
the occurrence and continuance of any other Default, the Issuer or the Indenture
Trustee (upon the direction of, or with the consent of, the Credit Enhancer) or
the Credit Enhancer
<PAGE>
(or, if the Credit Enhancer is in default under the Credit Enhancement Policy, a
Majority-In-Interest of the Notes) may, by notice given to the Servicer, the
Custodian or the Servicing Advisor, as the case may be (with copies to the
Issuer, the Credit Enhancer and the Indenture Trustee), terminate all of the
rights and powers of the Servicer, the Custodian or the Servicing Advisor, as
the case may be, under this Agreement, including without limitation all rights
of the Servicer, the Custodian or the Servicing Advisor, as the case may be, to
receive the compensation provided for in Section 2.5 or Section 2.10, as the
case may be; provided, however, that in no event shall the Servicer, the
Custodian or the Servicing Advisor be terminated unless its acts or omissions in
the course of its activities resulted in the related Default. Upon any automatic
termination or the giving of the notice referred to in the preceding sentence,
all rights, powers, duties and responsibilities of the Servicer, the Custodian
or the Servicing Advisor, as the case may be, under this Agreement, whether with
respect to the related Loan Documents, Collection Account, any Servicing Fee,
Servicer Advisor Fee or otherwise shall vest in and be assumed by the Indenture
Trustee or a new servicer, new custodian or new servicing advisor as provided in
Section 4.4(c) of the Indenture. Notwithstanding the immediately preceding
sentence, in the event that the Servicer (but not the Servicing Advisor) is
terminated in accordance with this paragraph (b), the Indenture Trustee shall
serve as Servicer hereunder until a successor Servicer is appointed. In the
event that the Servicing Advisor (but not the Servicer) is terminated in
accordance with this paragraph (b), the Servicer shall fulfill the obligations
of the Servicing Advisor until a successor Servicing Advisor is appointed. From
and during the continuation of a Default, the Issuer and the Indenture Trustee
upon the direction of, or with the consent of, the Credit Enhancer are each
hereby irrevocably authorized and empowered to execute and deliver, on behalf of
the Servicer, as attorney-in-fact or otherwise, all documents and other
instruments (including any notices to Borrowers deemed necessary or advisable by
the Indenture Trustee upon the direction of, or with the consent of, the Credit
Enhancer), and to do or accomplish all other acts or things necessary or
appropriate to effect such vesting and assumption. Except as otherwise expressly
provided in the Indenture, the Issuer shall not have any right to waive any
Default by the Servicer, the Custodian or the Servicing Advisor under this
Agreement.
(c) Promptly after the Indenture Trustee shall have notice of the
occurrence of any Default, the Indenture Trustee shall transmit by mail to all
Noteholders, the Credit Enhancer, and the Rating Agencies notice of such Default
known to the Indenture Trustee.
SECTION 5.2. No Effect on Other Parties.
--------------------------
<PAGE>
Upon any termination of the rights and powers of the Servicer, the
Custodian or the Servicing Advisor from time to time pursuant to Section 5.1 or
upon any appointment of a successor to the Servicer, the Custodian or to the
Servicing Advisor, all the rights, powers, duties and obligations of the Issuer,
the Credit Enhancer or the Indenture Trustee under this Agreement or under the
Indenture shall remain unaffected by such termination or appointment and shall
remain in full force and effect thereafter, except as otherwise expressly
provided in this Agreement or in the Indenture.
SECTION 5.3. Rights Cumulative.
-----------------
All rights and remedies from time to time conferred upon or reserved to the
Issuer, the Indenture Trustee, the Credit Enhancer or the Noteholders or to any
or all of the foregoing are cumulative, and none is intended to be exclusive of
another or any right or remedy which they may have at law or in equity. No
delay or omission in insisting upon the strict observance or performance of any
provision of this Agreement, or in exercising any right or remedy, shall be
construed as a waiver or relinquishment of such provision, nor shall it impair
such right or remedy. Every right and remedy may be exercised from time to time
and as often as deemed expedient.
ARTICLE 6
MISCELLANEOUS PROVISIONS
------------------------
SECTION 6.1. Termination of Agreement.
------------------------
(a) The respective duties and obligations of the Servicer, the Custodian,
the Servicing Advisor, the Indenture Trustee and the Issuer created by this
Agreement shall terminate upon the latest to occur of (i) the final payment or
other liquidation of the last outstanding Loan included in the Trust Estate,
(ii) the satisfaction and discharge of the Indenture pursuant to Article VIII of
the Indenture, and (iii) with respect to any Loan, the disposition of all
property acquired upon foreclosure of any Collateral. Upon termination of this
Agreement pursuant to this Section 6.1(a), the Servicer shall pay over to the
Issuer, the Indenture Trustee or any other Person entitled thereto all monies
received from Borrowers and held by the Servicer. The provisions of Section 2.5
and 2.10 shall survive the termination of this Agreement.
(b) Following a Default under the Indenture and foreclosure of the Trust
Estate pursuant thereto, the successor to the rights of the Issuer in respect of
the Loans (including, without limitation, the Indenture Trustee, the Credit
Enhancer or any or all of the related Noteholders), with the prior written
consent of the Credit Enhancer so long as the Credit Enhancer is not in default
under the Credit Enhancement Policy, shall have the right
<PAGE>
to terminate this Agreement, by notice to the Servicer, the Custodian, the
Servicing Advisor, the Credit Enhancer and the Issuer, within 90 days after the
date such successor shall have succeeded to such rights of the Issuer. Upon such
termination, the Servicer, the Custodian and the Servicing Advisor shall be
entitled to receive only the accrued and unpaid compensation to the extent
provided for in Section 2.5 and Section 2.10, as the case may be, to the date of
such termination and any other reimbursement to which it would otherwise be
entitled of amounts theretofore advanced by it.
SECTION 6.2. Amendment.
---------
(a) This Agreement may only be amended from time to time by the Issuer,
the Servicer, the Custodian, the Servicing Advisor and the Indenture Trustee,
with the consent of the Credit Enhancer (or, if the Credit Enhancer is in
default under the Credit Enhancement Policy, the Majority-in-Interest of the
Notes) for the purpose of adding any provisions to or changing in any manner or
eliminating any of the provisions of this Agreement, provided, however, that no
such amendment shall, without consent of each Holder of Outstanding Securities,
(i) reduce in any manner the amount of, or the timing of, payments received on
the related Loans which are required to be deposited in the Collection Account;
(ii) alter the priorities with which any allocation of funds shall be made under
this Agreement; (iii) permit the creation of any lien (other than the lien of
the Indenture) on the Trust Estate for the Notes or any portion thereof or
deprive any such Holder of the benefit of this Agreement with respect to the
Trust Estate or any portion thereof; or modify this Section 6.2 or Section 4.2,
4.3(b) or 4.4. The Rating Agencies shall receive a copy of any proposed
amendment prior to its adoption.
(b) Promptly after the execution of any amendment pursuant to Section
6.2(a) the Issuer shall cause to be sent to the Rating Agencies and each
Noteholder a copy of such amendment. Any failure to do so shall not affect the
validity of such amendment.
(c) It shall not be necessary, in any consent of the Credit Enhancer or
Noteholders under this Section 6.2, to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing the
authorization of the execution thereof by Noteholders shall be subject to such
reasonable regulations as the Indenture Trustee may prescribe.
(d) Any amendment or modification effected contrary to the provisions of
this Section 6.2 shall be void.
<PAGE>
SECTION 6.3. Governing Law.
-------------
This Agreement shall be construed in accordance with and governed by the
laws of the State of New York, without regard to the conflict of law provisions
thereof.
SECTION 6.4. Notices.
-------
All notices, requests or other communications desired or required to be
given under this Agreement shall be in writing and shall be sent by (a)
certified or registered mail, return receipt requested, postage prepaid, (b)
national prepaid overnight delivery service, (c) telecopy or other facsimile
transmission (following with hard copies to be sent by national prepaid
overnight delivery service) or (d) personal delivery with receipt acknowledged
in writing, as follows: (i) if to the Issuer, Atherton Franchisee Loan Funding
1997-A LLC, c/o Lord Securities Corporation, 2 Wall Street, New York, New York,
Attention: Peter H. Sorensen, (ii) if to the Servicer, to the Servicer and
Custodian, Bankers Trust Company, Corporate Trust and Agency Group, Four Albany
Street, New York, New York 10006, Attention: Chris Browne, Telephone: 212/250-
4984, Facsimile: 212/250-6151; if to the Servicing Advisor, to the Servicing
Advisor at Atherton Capital Incorporated, 1001 Bayhill Drive, Suite 155, San
Bruno, California 94066, Attention: Mark McGourty, Telephone: 415/827-7800,
Facsimile: 415/827-7950, (iii) if to any Noteholder, at the address of such
Holder as it appears in the related Note Register with a copy to the Indenture
Trustee, (iv) if to the Indenture Trustee, at First Bank National Association,
First Trust Center, 180 East Fifth Street, St. Paul, Minnesota 55101, Attention:
Structured Finance. Notices required under this Agreement to be sent to
Noteholders shall also be sent to Standard & Poor's Ratings Service, a division
of The McGraw-Hill Companies, Inc., 25 Broadway - 15th Floor, New York, New York
10004, Moody's Investors Service, Inc., ABS Monitoring Department, 99 Church
Street, New York, N.Y. 10007, and Duff & Phelps, 17 State Street, New York, New
York 10004 (v) if to the Credit Enhancer, at Capital Markets Assurance
Corporation, 885 Third Avenue, 14th Floor, New York, New York 10022. Any of the
persons in subclauses (i) through (v) above may change its address for notices
hereunder by giving notice of such change to the other persons. Any change of
address shown on a Note Register shall, after the date of such change, be
effective to change the address for such Noteholder hereunder. All notices and
demands shall be deemed to have been given either at the time of the delivery
thereof to any officer of the Person entitled to receive such notices and
demands at the address of such person for notices hereunder, or on the third day
after the mailing thereof to such address, as the case may be.
<PAGE>
SECTION 6.5. Severability of Provisions.
--------------------------
If one or more of the provisions of this Agreement shall be for any reason
whatsoever held invalid or unenforceable, such provisions shall be deemed
severable from the remaining covenants, agreements and provisions of this
Agreement and such invalidity or unenforceability shall in no way affect the
validity or enforceability of such remaining provisions, the rights of any
parties hereto, or the rights of the Indenture Trustee, the Credit Enhancer or
any Noteholders. To the extent permitted by law, the parties hereto waive any
provision of law which renders any provision of this Agreement invalid or
unenforceable in any respect.
SECTION 6.6. Inspection and Audit Rights.
---------------------------
The Servicer, the Servicing Advisor and the Custodian each agree that, on
reasonable prior notice, it will permit any representative of the Indenture
Trustee, the Issuer, the Credit Enhancer or any Noteholder representing a
Majority-In-Interest of the Notes during the Servicer's, the Servicing Advisor
or the Custodian's normal business hours to examine all the books of account,
records, reports and other papers of the Servicer, the Servicing Advisor or the
Custodian relating to the Loans, to make copies and extracts therefrom, to
cause, in the case of the Servicer, such books to be audited by Independent
Accountants and to discuss the affairs, finances and accounts relating to the
Loans with its officers, employees and Independent Accountants (and by this
provision the Servicer hereby authorizes said Accountants to discuss with such
representatives such affairs, finances and accounts), all at such reasonable
times and as often as may be reasonably requested. Any expense incident to the
exercise by the Indenture Trustee, the Credit Enhancer, the Issuer, or any
Noteholder representing a Majority-In-Interest of the Notes of any right under
this Section 6.6 shall be borne by the Indenture Trustee, the Credit Enhancer,
the Issuer, or such Noteholder representing a Majority-In-Interest of the Notes,
as the case may be.
SECTION 6.7. Binding Effect; Limited Rights of Others.
----------------------------------------
The provisions of this Agreement shall be binding upon and inure to the
benefit of the respective successors and assigns of the parties hereto, and all
such provisions shall inure to the benefit of the Indenture Trustee, the Credit
Enhancer and the related Noteholders, provided that following an Event of
Default under the Indenture and foreclosure of the Trust Estate pursuant
thereto, the successor to the rights of the Issuer in respect of the related
Loans (including without limitation the Indenture Trustee, the Credit Enhancer
or any or all of the related Noteholders) shall not be bound by the provisions
of this Agreement unless, within 90 days after the date on which such successor
shall have succeeded to such rights of the Issuer, such
<PAGE>
successor shall not have terminated this Agreement pursuant to Section 6.1(b).
The parties hereto agree that the Credit Enhancer shall be a third party
beneficiary of this Agreement. Except as provided in the immediately preceding
sentence, nothing in this Agreement expressed or implied, shall be construed to
give any Person other than the parties hereto any legal or equitable right,
remedy or claim under or in respect of this Agreement or any covenants,
agreements, representations or provisions contained herein.
SECTION 6.8. Control by Majority Affected Noteholders.
----------------------------------------
Notwithstanding any other provision of this Agreement, in the event the
Credit Enhancer is in default under the Credit Enhancement Policy, all consents
required to be received from, or actions permitted to be taken by, the Credit
Enhancer shall be received from or taken by the Majority of Affected
Noteholders.
SECTION 6.9. The Credit Enhancer. The Credit Enhancer is a third-party
-------------------
beneficiary of this Indenture entitled to enforce its rights hereunder as
if actually a party hereto. Any right conferred upon the Credit Enhancer shall
be suspended during any period in which the Credit Enhancer is in default under
the Credit Enhancement Policy or involved in an insolvency proceeding. During
any period of suspension, the Credit Enhancer's rights hereunder shall vest in
the Noteholders and shall be exercisable by the Majority-in-Interest (unless
specified otherwise in the particular provision herein). At such time as the
Class A Notes are no longer Outstanding hereunder and the Credit Enhancer has
been paid all Credit Enhancement Premiums, reimbursable expenses, and Credit
Enhancement Reimbursement Amounts and reimbursed for all Insured Payments to
which it is entitled under the Indenture and the Insurance Agreement, the Credit
Enhancer's rights hereunder shall terminate.
SECTION 6.10. Article and Section Headings.
----------------------------
The article and section headings herein are for convenience of reference
only, and shall not limit or otherwise affect the meaning hereof.
SECTION 6.11. Counterparts.
------------
This Agreement may be executed in several counterparts, each of which shall
be an original and all of which shall constitute but one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of the
day and year first above written.
ATHERTON FRANCHISEE LOAN FUNDING 1997-A LLC
By: Orinda Management Company
By: /s/ David L. Elder
-------------------------
Name: David L. Elder
Title: President
BANKERS TRUST COMPANY, as Servicer and
Custodian
By: /s/Marie C. Rasch
--------------------------
Name: Marie C. Rasch
Title: Vice President
ATHERTON CAPITAL INCORPORATED
By: /s/ David L. Elder
---------------------------
Name: David L. Elder
Title: President
FIRST BANK NATIONAL ASSOCIATION,
not in its individual capacity but solely in its
capacity as Indenture Trustee
By: /s/ Christina Hatfield
----------------------
Name: Christina Hatfield
Title: Asst. Vice President
<PAGE>
APPENDIX A
DEFINITIONS
The definitions contained herein are incorporated into and made a part of
the Private Placement Memorandum, the Indenture, the Custodial Agreement and the
Servicing Agreement each as defined below.
Acceleration Date shall mean the date on which occurs the acceleration of
-----------------
the maturity of the Notes pursuant to Section 7.2 of the Indenture.
Account shall mean any account or fund, and any subaccount thereof,
-------
established under Article V of the Indenture.
Accounting Date shall mean with respect to a Payment Date the fifth
---------------
Business Day preceding such Payment Date.
Accrual Period shall mean with respect to any Payment Date, the period from
--------------
and including the first day of the calendar month preceding the month in which
such Payment Date occurs through and including the last day of such month.
Affiliate shall mean with respect to any Person, any other Person directly
---------
or indirectly controlling, controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
Aggregate Notional Amount shall mean as of any date of determination with
-------------------------
respect to the Class A-IO Custody Receipts, the Initial Aggregate Notional
Amount of the Class A-IO Custody Receipts, less any payment of principal paid to
the Class A-2 Notes prior to such date of determination.
Aggregate Outstanding Principal Amount shall mean as of any date of
--------------------------------------
determination, (i) with respect to the Notes, the Initial Aggregate Principal
Amount of all Notes less any payment of principal on such Notes prior to such
date of determination, (ii) with respect to any class of Notes, the Initial
Aggregate Principal Amount of all Notes of such class, less any payment of
principal on such Notes prior to such date of determination and (iii) with
respect to the Loans, the aggregate Loan Balances of all Loans at such date of
determination.
Assigned Assets shall mean the Loans and related Loan Collateral, together
---------------
with all interest accrued thereon from and including the Cut Off Date to but not
including the Closing Date
41
<PAGE>
(but not including Pre-Cut Off Date Loan Payments) and all escrow deposits
relating thereto.
Assignment of Leasehold Mortgage shall mean with respect to each Leasehold
--------------------------------
Mortgage, the one or more executed original assignments in recordable form
evidencing the assignment of the related Leasehold Mortgage from the Seller to
the Issuer and from the Issuer to the Indenture Trustee for the benefit of the
Noteholders and the Credit Enhancer.
Atherton shall mean Atherton Capital Incorporated, a Delaware corporation.
--------
Atherton Loan Sale and Purchase Agreement shall mean the Loan Sale and
-----------------------------------------
Purchase Agreement, dated March 14, 1997 between Atherton, as seller, and the
Managing Member, as purchaser, with respect to the Loans, as the same may be
amended or supplemented from time to time.
Authorized Officer (i) in the case of the Issuer, shall mean the Managing
------------------
Member, (ii) in the case of the Servicing Advisor or the Managing Member, shall
mean any Vice President or more senior officer, (iii) in the case of the
Servicer, shall mean any officer assigned to the Corporate Trust Office,
including any managing director, vice president, assistant vice president,
assistant treasurer, assistant secretary or any other officer of the Servicer
customarily performing functions similar to those performed by any of the above
designated officers and having direct responsibility for the administration of
the Servicing Agreement, and also, with respect to a particular matter, any
other officer, to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject, (iv) in the case of
any Prospective Owner or any transferor or prospective transferee of Class C
Notes, shall mean any Vice President or more senior officer, and (v) in the case
of the Indenture Trustee, shall mean a trust officer or other officer in the
Corporate Trust Department of the Indenture Trustee customarily performing
functions similar to those of a trust officer.
Available Funds shall mean with respect to a Payment Date, (i) any and all
---------------
amounts held in the Collection Account (other than with respect to Loan
prepayments or payments made in respect of Defaulted Loans) on the related
Accounting Date which were due in the related Due Period or any prior Due
Period, (ii) with respect to any Loan prepayment (or repurchase) or payment made
in respect of a Defaulted Loan received during the related Due Period or any
prior Due Period (to the extent not distributed on the related Payment Date),
the Prepayment Amount relating thereto (in the case of a Defaulted Loan, to the
extent actually received), and (iii) any and all Insured Payments received by
the Indenture Trustee on or before 12:00 noon on such Payment Date and held in
the Collection Account or for deposit in the
42
<PAGE>
Collection Account or distribution in accordance with the Indenture; provided,
however, that Available Funds shall not include any Early Payments held in the
Collection Amount.
Bankruptcy Law shall mean any bankruptcy, reorganization, compromise,
--------------
arrangement, insolvency, readjustment of debt, dissolution, or liquidation or
similar law, whether now or hereafter in effect.
Basic Documents shall mean the Limited Liability Company Agreement, the
---------------
Certificate of Formation, the Indenture, the Servicing Agreement, the Custodial
Agreement and other documents and certificates delivered in connection with any
of the above.
Borrower shall mean the party executing a Promissory Note to evidence its
--------
obligations thereunder, and its successors and assigns.
Business Day shall mean any day that is not a Saturday, Sunday or a day on
------------
which banking institutions located in the City of New York, New York, in
Wilmington, Delaware or in the city and state where the principal offices of
each of the Indenture Trustee and the Servicer are located, are authorized or
obligated by law or executive order to be closed.
Cash Equivalent Investments means, at any time:
---------------------------
(a) any evidence of direct indebtedness, maturing not more than one
year after such time, issued or guaranteed by the United States government;
(b) commercial paper, maturing not more than nine months from the date
of issue, which is issued by a corporation organized under the laws of any
state of the United States and rated at least A-1/P-1 (or the equivalent)
by Duff & Phelps, Moody's and S&P and, if not rated by Duff & Phelps, by
Moody's and S&P;
(c) any certificate of deposit or bankers acceptance, maturing not
more than one year after such time, which is issued by (i) a commercial
banking institution that is a member of the Federal Reserve System and has
a combined capital and surplus and undivided profits of not less than
$500,000,000 that has a long-term debt rating of at least A+ (or the
equivalent) by Duff & Phelps, Moody's and S&P and, if not rated by Duff &
Phelps, by Moody's and S&P, or (ii) a commercial banking institution that
is organized in a jurisdiction outside the United States and has a combined
capital and surplus and undivided profits of not less than $500,000,000
that has a long-term debt rating of at least A+ (or the equivalent) by Duff
& Phelps, Moody's and S&P and, if not rated by Duff & Phelps, by Moody's
and S&P; or
43
<PAGE>
(d) any money market mutual fund having a rating in the highest
investment category from Duff & Phelps, Moody's and S&P and, if not rated
by Duff & Phelps, by Moody's and S&P at the time of the purchase of such
money market fund, including any funds for which the Servicer may be a
manager.
Class A Custody Receipt shall mean each Class A Custody Receipt issued
-----------------------
pursuant to Article II of the Custodial Agreement.
Class A Custody Receipt Interest Distribution shall mean with respect to
---------------------------------------------
the Class A Custody Receipts on any Payment Date, the sum of (a) the amount of
interest accrued during the related Accrual Period at the Class A Custody
Receipt Interest Rate on the sum of (i) the Custody Receipt Balance of the Class
A Custody Receipts on the Business Day immediately prior to such Payment Date
and (ii) any previously accrued and unpaid interest at the Class A Custody
Receipt Interest Rate for prior Payment Dates, and (b) any previously accrued
and unpaid interest at the Class A Custody Receipt Interest Rate for prior
Payment Dates.
Class A Custody Receipt Interest Rate shall mean a rate equal to 7.200% per
-------------------------------------
annum.
Class A Custody Receipt Yield Maintenance Amount shall mean with respect to
------------------------------------------------
each Payment Date the present value, using the Reinvestment Yield as a discount
rate, of a series of monthly interest cash flows from the immediately succeeding
Payment Date to the Expected Maturity of the Class A Notes calculated using as a
balance the lesser of (a) the sum of (i) the amount of the Loan Reduction Amount
(other than with respect to any scheduled Principal Payments) allocated to the
Class A-1 Notes and (ii) the amount of the Loan Reduction Amount (other than
with respect to any scheduled Principal Payments) allocated to the Class A-2
Notes, or (b) the Outstanding Custody Receipt Balance, each immediately prior to
such Payment Date, and using as a coupon the excess of the Class A Custody
Receipt Interest Rate over the Reinvestment Yield (compounding monthly).
Class A Note Rate shall mean a rate equal to weighted average of the Class
------------------
A-1 Note Rate and the Class A-2 Note Rate weighted on the basis of the Aggregate
Outstanding Principal Amount of the Class A-1 Notes and the Aggregate
Outstanding Principal Amount of the Class A-2 Notes, respectively.
Class A Notes shall mean the Class A-1 Notes and the Class A-2 Notes.
-------------
Class A-1 Interest Distribution shall mean with respect to the Class A-1
-------------------------------
Notes on any Payment Date, the sum of (a) the amount of interest accrued during
the related Accrual Period at the Class A-1 Note Rate on the sum of (i) the
Aggregate Outstanding Principal Amount of the Class A-1 Notes on the Business
Day immediately prior to such Payment Date and (ii) any
44
<PAGE>
previously accrued and unpaid interest at the Class A-1 Note Rate for prior
Payment Dates, and (b) any previously accrued and unpaid interest at the Class
A-1 Note Rate for prior Payment Dates.
Class A-1 Note shall mean each Class A-1 Note issued pursuant to Article II
--------------
of the Indenture.
Class A-1 Note Rate shall mean a rate equal to 7.200% per annum.
-------------------
Class A-1 Scheduled Principal Amount shall mean for any Payment Date the
------------------------------------
aggregate of the Class A-1 Scheduled Principal Portions for such Payment Date.
Class A-1 Scheduled Principal Portion shall mean for any Payment Date and
-------------------------------------
Loan, the portion of the related Loan Reduction Amount for such Payment Date and
Loan determined by multiplying the reduction in principal balance as a result of
such Loan Reduction Amount by a fraction the numerator of which is the Class A-2
Note Rate minus the Net Rate for such Loan less the Insurance Premium Rate and
the denominator of which is the Class A-2 Note Rate minus the Class A-1 Note
Rate; provided that the Class A-1 Scheduled Principal Portion shall be 100% if
the Class A-1 Notes remain outstanding and the Class A-2 Notes have been paid in
full.
Class A-1 Yield Maintenance Amount shall mean with respect to each
----------------------------------
Payment Date the present value, using the Reinvestment Yield as a discount rate,
of a series of monthly interest cash flows from the immediately succeeding
Payment Date to the Expected Maturity of the Class A Notes calculated (i) using
as a balance the lesser of (a) the Loan Reduction Amount (other than with
respect to any scheduled Principal Payment for such Payment Date) allocated to
the Class A-1 Notes or (b) the Outstanding Aggregate Principal Amount of the
Class A-1 Notes, each immediately prior to such Payment Date and (ii) using as a
coupon the excess of the Class A-1 Note Rate over the Reinvestment Yield
(compounding monthly).
Class A-2 Interest Distribution shall mean with respect to the Class A-2
-------------------------------
Notes on any Payment Date, the sum of (a) the amount of interest accrued during
the related Accrual Period at the Class A-2 Note Rate on the sum of (i) the
Aggregate Outstanding Principal Amount of the Class A-2 Notes on the Business
Day immediately prior to such Payment Date and (ii) any previously accrued and
unpaid interest at the Class A-2 Note Rate for prior Payment Dates, and (b) any
previously accrued and unpaid interest at the Class A-2 Note Rate for prior
Payment Dates.
Class A-2 Note shall mean each Class A-2 Note issued pursuant to Article II
--------------
of the Indenture.
45
<PAGE>
Class A-2 Note Rate shall mean a rate equal to 12.200% per annum.
-------------------
Class A-2 Scheduled Principal Amount shall mean for any Payment Date the
------------------------------------
aggregate of the Class A-2 Scheduled Principal Portions for such Payment Date.
Class A-2 Scheduled Principal Portion shall mean for any Payment Date and
-------------------------------------
Loan, the portion of the related Loan Reduction Amount for such Payment Date and
Loan determined by multiplying the reduction in principal balance as a result of
such Loan Reduction Amount by a fraction the numerator of which is the Net Rate
for such Loan less the Insurance Premium Rate minus the Class A-1 Note Rate and
the denominator of which is the Class A-2 Note Rate minus the Class A-1 Note
Rate; provided that the Class A-2 Scheduled Principal Portion shall be 100% if
the Class A-2 Notes remain outstanding and the Class A-1 Notes have paid in
full.
Class A-2 Yield Maintenance Amount shall mean with respect to each
----------------------------------
Payment Date the present value, using the Reinvestment Yield as a discount rate,
of a series of monthly interest cash flows from the immediately succeeding
Payment Date to the Expected Maturity of the Class A Notes calculated (i) using
as a balance the lesser of (a) the Loan Reduction Amount (other than with
respect to any scheduled Principal Payment for such Payment Date) allocated to
the Class A-2 Notes or (b) the Outstanding Aggregate Principal Amount of the
Class A-2 Notes, each immediately prior to such Payment Date and (ii) using as a
coupon the excess of the Class A-2 Note Rate over the Reinvestment Yield
(compounding monthly).
Class A-IO Custody Receipt shall mean each Class A-IO Custody Receipt
--------------------------
issued pursuant to Article II of the Custodial Agreement.
Class A-IO Custody Receipt Interest Distribution shall mean with respect to
------------------------------------------------
the Class A-IO Custody Receipts, the sum of (a) the amount of interest accrued
during the related Accrual Period at the Class A-IO Custody Receipt Interest
Rate on the sum of (i) the Aggregate Notional Amount of the Class A-IO Custody
Receipts on the Business Day immediately prior to such Payment Date and (ii) any
previously accrued and unpaid interest at the Class A-IO Custody Receipt
Interest Rate for prior Payment Dates, and (b) any previously accrued and unpaid
interest at the Class A-IO Custody Receipt Interest Rate for prior Payment
Dates.
Class A-IO Custody Receipt Interest Rate shall mean 5.000%.
----------------------------------------
Class A-IO Custody Receipt Yield Maintenance Amount shall mean with
---------------------------------------------------
respect to each Payment Date the present value, using the Reinvestment Yield as
a discount rate, of a series of monthly interest cash flows from the immediately
succeeding Payment Date
46
<PAGE>
to the Expected Maturity of the Class A Notes calculated (i) using as a balance
the lesser of (a) the Loan Reduction Amount (other than with respect to any
scheduled Principal Payment) allocated to Class A-2 Notes or (b) the Aggregate
Notional Amount, each immediately prior to such Payment Date and (ii) using as a
coupon the Class A-IO Custody Receipt Interest Rate.
Class B Interest Distribution shall mean with respect to the Class B Notes
-----------------------------
on any Payment Date, the sum of (a) the amount of interest accrued during the
related Accrual Period at the Class B Note Rate on the sum of (i) the Aggregate
Outstanding Principal Amount of the Class B Notes on the Business Day
immediately prior to such Payment Date and (ii) any previously accrued and
unpaid interest at the Class B Note Rate for prior Payment Dates, and (b) any
previously accrued and unpaid interest at the Class B Note Rate for prior
Payment Dates.
Class B Note shall mean each Class B Note issued pursuant to Article II of
------------
the Indenture.
Class B Note Rate shall mean with respect to any Accrual Period, a per
-----------------
annum rate equal to 8.400% but in no event greater than the Weighted Average Net
Rate.
Class C Interest Distribution shall mean with respect to the Class C Notes
-----------------------------
on any Payment Date, the sum of (a) the amount of interest accrued during the
related Accrual Period at the Class C Note Rate on the sum of (i) the Aggregate
Outstanding Principal Amount of the Class C Notes on the Business Day
immediately prior to such Payment Date and (ii) any previously accrued and
unpaid interest at the Class C Note Rate for prior Payment Dates, and (b) any
previously accrued and unpaid interest at the Class C Note Rate for prior
Payment Dates.
Class C Note shall mean each Class C Note issued pursuant to Article II of
------------
the Indenture.
Class C Note Rate shall mean a rate equal to the Weighted Average Net Rate.
-----------------
Class C Noteholder shall mean any Person in whose name the Class C Notes
------------------
are registered in the Note Register.
Closing Date shall mean the date on which the Notes are first executed,
------------
authenticated and delivered.
Code shall mean the Internal Revenue Code of 1986, as amended, or any
----
successor statute thereto, including the regulations promulgated thereunder.
Collateral shall mean with respect to any Loan, the personal property
----------
collateral pledged by the Borrower in the related Security Agreement.
47
<PAGE>
Collection Account shall mean the Account by that name established,
------------------
maintained and disbursed pursuant to Article V of the Indenture.
Condemnation Proceeds shall mean all compensation, awards and proceeds
---------------------
received by or on behalf of a Borrower as a result of a condemnation (which term
shall include any damage or taking by any governmental or quasi-governmental
authority and any transfer by private sale in lieu thereof), net of all
reasonable direct fees, costs (exclusive of overhead) and disbursements incurred
in connection with the collection thereof or the restoration or replacement of
the Borrower's collateral as contemplated by the Loan Documents.
Converted Treasury Yield shall mean with respect to any Loan the yield
------------------------
available, or if there is more than one yield available the average yields, on
United States Treasury non-callable bonds (excluding Flower Bonds) and notes
having a maturity date closest to (before, on or after) the Remaining Average
Life of such Loan, as reported in The Wall Street Journal or similar publication
on the fifth Business Day preceding the date such Loan is prepaid converted to a
twelve-month "equivalent yield" plus twenty-five basis points (0.25%). The
----
terms "Converted Treasury Yield" and a twelve-month "equivalent yield" are
annualized rates that reflect the frequency of the interest payments made during
a calendar year.
Credit Enhancement Policy means the policy issued by the Credit Enhancer
-------------------------
that guarantees Insured Payments on the Class A Notes.
Credit Enhancer shall mean Capital Markets Assurance Corporation, a New
---------------
York-domiciled monoline stock insurance company.
Credit Enhancement Premium shall mean with respect to any Payment Date an
--------------------------
amount equal to the product of (i) the Insurance Premium Rate and (ii) the
Aggregate Outstanding Principal Amount of the Class A Notes for such Payment
Date prior to giving effect to any principal paid on the Class A Notes on such
Payment Date, rounded to the nearest dollar.
Credit Enhancement Reimbursement Amount shall mean an amount equal to all
---------------------------------------
unreimbursed payments made by the Credit Enhancer under the Credit Enhancement
Policy with respect to the Class A Notes plus interest thereon from the time of
the disbursements at the applicable Class A Note Rate.
Custodial Agreement shall mean the Master Custody Agreement dated March 14,
-------------------
1997 between Bankers Trust Company, as Note Custodian, and Orinda Management
Company, as Depositor, as the same may be amended or supplemented from time to
time.
48
<PAGE>
Custodian shall mean Bankers Trust Company and any successor thereto as a
---------
custodian under the Servicing Agreement.
Custody Receipt Available Funds shall mean for each Payment Date the amount
-------------------------------
paid on the Class A Notes on such Payment Date.
Custody Receipt Balance shall mean with respect to the Class A Custody
-----------------------
Receipts and any Payment Date, the Aggregate Outstanding Principal Amount of the
Class A Notes immediately prior to such Payment Date.
Custody Receipt Rate shall mean either the Class A Custody Receipt Interest
--------------------
Rate or the Class A-IO Custody Receipt Interest Rate, as the case may be.
Custody Receipt Registrar shall mean Bankers Trust Company and any
-------------------------
successor thereto under the Custodial Agreement.
Custody Receipts shall mean the Class A Custody Receipts and the Class A-IO
----------------
Custody Receipts.
Cut Off Date shall mean March 1, 1997, or if such date is not a Business
------------
Day, the next succeeding Business Day.
Default shall mean any occurrence which is, or with notice or the lapse of
-------
time or both would become, an Event of Default or, with respect to the Custodial
Agreement only, any "Default" as defined in the Custodial Agreement.
Default Rate shall mean with respect to a Loan the meaning assigned thereto
------------
in the related Loan Documents.
Defaulted Loan shall mean a Loan which is a Delinquent Loan for which a
--------------
Scheduled Payment is overdue (without taking into account any extension of the
due date for any such Scheduled Payment) for more than the greater of (x) 120
consecutive days or (y) such period of consecutive days which may be consented
to in writing with notice to the Rating Agencies by either (i) the Credit
Enhancer, so long as the Credit Enhancer is not in default under the Credit
Enhancement Policy, or (ii) in all other cases, the Indenture Trustee, and which
consent, in any case, shall not be unreasonably withheld or delayed.
Delinquency Condition shall be deemed to exist with respect to any Payment
---------------------
Date if on the Accounting Date for such Payment Date, the Aggregate Outstanding
Principal Amount of all Delinquent Loans and Defaulted Loans exceeds 5% of the
Aggregate Outstanding Principal Amount of all Loans.
Delinquent Loan shall mean a Loan (a) as to which a Scheduled Payment was
---------------
not received as of the date on which such payment was due and payable, including
any applicable grace period, and (b) which is not a Defaulted Loan.
49
<PAGE>
Depositor shall mean Orinda Management Company.
---------
Determination Date, as used in the definitions of the terms Prepayment
------------------
Amount and Remaining Payments, shall mean the date Remaining Payments are to be
prepaid (in the case of a prepaid Loan) or accelerated (in the case of a
Defaulted Loan).
Due Period shall mean with respect to a Payment Date, the period from and
----------
including the second day of the calendar month preceding the month in which such
Payment Date occurs through and including the first day of the calendar month in
which such Payment Date occurs.
Duff & Phelps shall mean Duff & Phelps Credit Rating Co.
-------------
Early Payment shall mean with respect to a Loan and any Payment Date, any
-------------
Scheduled Payment in respect of such Loan which is due for any Due Period
subsequent to the Due Period relating to such Payment Date. An Early Payment
shall not be deemed a prepayment of any Loan.
Eligible Institution shall mean (a) a depository institution acceptable to
--------------------
the Credit Enhancer organized under the laws of the United States of America or
any one of the States thereof, the deposits of which depository institution are
insured, to the full extent permitted by applicable law, by the FDIC, which is
subject to supervision and examination by federal or state authorities and whose
long-term unsecured debt obligations are rated at least "A" by Standard & Poor's
and Duff & Phelps and "A2" by Moody's, or if not rated by Duff & Phelps, rated
at least "A" by Standard & Poor's and "A2" by Moody's at the time of any deposit
therein, or (b) a federal or state chartered depository institution whose long-
term unsecured debt obligations are rated at least "A" by Standard & Poor's and
Duff & Phelps and "A2" by Moody's, or if not rated by Duff & Phelps, rated at
least "A" by Standard & Poor's and "A2" by Moody's subject to regulations
regarding fiduciary funds on deposit substantially similar to 12 C.F.R. Section
9.10(b).
Eligible Investments at any time means any of the following:
--------------------
(i) Government Obligations; or
(ii) commercial paper having (a) an original maturity of less than 270
days and (b) a rating in the highest rating category of Duff & Phelps,
Moody's and S&P at the time of such investment, and if not rated by Duff &
Phelps, a rating in the highest rating category of Moody's and S&P at the
time of such investment; or
(iii) certificates of deposit of, banker's acceptances issued by or
federal funds sold by any depository institution or trust company
(including the
50
<PAGE>
Indenture Trustee or any agent of the Indenture Trustee acting in their
commercial capacity so long as they are an Eligible Institution)
incorporated under the laws of the United States of America or any State
thereof and subject to supervision and examination by federal and/or state
authorities, so long as at the time of such investment or contractual
commitment providing for such investment such depository institution or
trust company has a long-term unsecured debt rating in the highest rating
category of Duff & Phelps, Moody's and S&P, and if not rated by Duff &
Phelps, a rating in the highest rating category of Moody's and S&P, and
provided that each such investment has an original maturity of less than
365 days, and any other demand or time deposit or certificate of deposit
which is fully insured by the FDIC and rated at least "P-1" by Moody's; or
(iv) repurchase obligations with respect to (A) any security described
in clause (i) collateralized at 105% of the principal amount of such
repurchase obligations or (B) any other security issued or guaranteed as to
timely payment by an agency or instrumentality of the United States of
America, collateralized at 105% of the principal amount of such repurchase
obligations in either case entered into with a depository institution or
trust company (including the Indenture Trustee), acting as principal, whose
obligations having the same maturity as that of the repurchase agreement
would be Eligible Investments under clause (iii) above (provided that the
counter party is rated at least "P-1" by Moody's, "A-1+" by Standard &
Poor's and D-1 by Duff & Phelps; or, if not rated by Duff & Phelps, "P-1"
by Moody's and "A-1+" by Standard & Poor's); or
(v) a guaranteed investment contract issued by any insurance company
or other corporation having a long-term unsecured debt rating in the
highest rating category of S&P, Duff & Phelps and Moody's or, if not rated
by Duff & Phelps, in the highest rating category of S&P and Moody's at the
time of such investment and approved in writing by the Credit Enhancer; or
(vi) money market mutual funds having ratings in the highest rating
category of S&P, Duff & Phelps and Moody's or, if not rated by Duff &
Phelps, in the highest rating category of S&P and Moody's; or
(vii) investments approved in writing by the Credit Enhancer and the
Majority-in-Interest and acceptable to the Rating Agencies.
Environmental Laws shall mean any federal, state or local statute, code,
------------------
ordinance, rule, regulation, permit, consent, approval, license, judgment,
order, writ, judicial decision,
51
<PAGE>
common law rule, decree, agency interpretation, injunction or other
authorization or requirement whenever promulgated, issued, or modified,
including the requirement to register underground storage tanks, relating to:
(i) emissions, discharges, spills, releases or threatened releases of
pollutants, contaminants, Hazardous Substances, materials containing Hazardous
Substances, or hazardous or toxic materials or wastes into ambient air, surface
water, groundwater, watercourses, publicly or privately owned treatment works,
drains, sewer systems, wetlands, septic systems or onto land; (ii) the use,
treatment, storage, disposal, handling, manufacturing, transportation, or
shipment of Hazardous Substances, materials containing Hazardous Substances or
hazardous and/or toxic wastes, materials, products or by-products (or of
equipment or apparatus containing Hazardous Substances) as defined in or
regulated under the following statutes and their implementing regulations: the
Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801 et seq., the Resource
-- ---
Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., the Comprehensive
-- ---
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act, 42 U.S.C. (S) 9601 et seq., and/or
-- ---
the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq. each as amended
-- ---
from time to time; or (iii) otherwise relating to environmental pollution or the
protection of human health and the environment.
Event of Default shall have the meaning specified in Section 7.1 of the
----------------
Indenture.
Expected Maturity of the Class A Notes shall mean August, 15, 2009.
--------------------------------------
FDIC shall mean The Federal Deposit Insurance Corporation, or any successor
----
thereto.
Final Maturity Date shall mean February 15, 2013, which is the final
-------------------
Payment Date on the Notes and Custody Receipts.
Fiscal Year shall mean the calendar year from each January 1 (or in the
-----------
case of 1997, from March 1) to the following December 31.
Franchisee Loan Agreement shall mean the loan agreement between a Borrower
-------------------------
and an Originator relating to a Loan.
Franchisor shall mean any franchisor of a System.
----------
Franchisor Intercreditor Agreement shall mean, with respect to each
----------------------------------
Franchisee Loan Agreement, a related intercreditor or similar agreement among a
Franchisor, the Seller and the Borrower, if any, as such agreement may be
amended, supplemented or otherwise modified from time to time.
52
<PAGE>
Franchisor Subordination of Lessor's Lien means, with respect to each Loan,
-----------------------------------------
the related subordination of lessor's lien or similar agreement between a
Franchisor and the Seller, if any, as such agreement may be amended,
supplemented or otherwise modified from time to time.
Government Obligations shall mean (i) non-callable direct obligations of,
----------------------
or non-callable obligations fully guaranteed by, the United States of America or
any agency or instrumentality of the United States of America the obligations of
which are backed by the full faith and credit of the United States of America or
(ii) an investment in a no-load money market fund rated AAAm-G by Standard &
Poor's, Aaa by Moody's and AAA by Duff & Phelps (or, if not rated by Duff &
Phelps, AAAm-G by Standard & Poor's and Aaa by Moody's), the assets of which are
invested solely in obligations described in clause (i) of this definition.
Grant shall have the meaning specified in the Granting Clauses of the
-----
Indenture.
Guaranty, with respect to a Loan, shall mean the guaranty (including a
--------
secured guaranty) contained in the Loan Documents of certain Borrowers relating
to each such Borrower's Loan from an Affiliate of the Borrower of the Borrower's
obligations under such Loan.
Hazardous Substances shall mean (a) hazardous materials, hazardous wastes,
--------------------
and hazardous substances as those terms are defined under the following statutes
and their implementing regulations as they may be amended from time to time: the
Hazardous Materials Transportation Act, 49 U.S.C. (S) 1791 et seq., the Resource
-- ---
Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., the Comprehensive
-- ---
Environmental Response, Compensation and Liability Act, as amended by the Super-
fund Amendments and Reauthorization Act, 42 U.S.C. (S) 9601 et seq., the Clean
-- ---
Water Act, 33 U.S.C. (S) 1251 et seq., (b) petroleum and petroleum products
-- ----
including crude oil and any fractions thereof, (c) natural gas, synthetic gas,
and any mixtures thereof, (d) asbestos and/or any material which contains any
hydrated mineral silicate, including, without limitation, chrysotile, amosite,
crocidolite, tremolite, anthophylite and/or actinolite, whether friable or
nonfriable, (e) PCBs, or PCB-containing materials or fluids, (f) radon, (g) any
other hazardous radioactive, toxic or noxious substance, material, pollutant, or
solid, liquid or gaseous waste, and (h) any substance with respect to which a
federal, state or local agency requires environmental investigation, monitoring
or remediation.
Highest Lawful Rate shall have the meaning specified in Section 11.14 of
-------------------
the Indenture.
Holdback Amount shall mean an amount initially equal to the excess of (i)
---------------
the Aggregate Outstanding Principal Amount of the
53
<PAGE>
Loans as of the Cut Off Date over (ii) the sum of (A) the Aggregate Outstanding
Principal Amount of the Class A Notes as of the Closing Date, (B) the Aggregate
Outstanding Principal Amount of the Class B Notes as of the Closing Date, and
(C) the Aggregate Outstanding Principal Amount of the Class C Notes as of the
Closing Date. Such amount will be reduced through payments made pursuant to
Section 5.2(c) of the Indenture and Net Losses allocated to the Holdback Amount.
Holder shall mean a Noteholder.
------
Indenture shall mean the Indenture of Trust, dated March 14, 1997 between
---------
the Issuer and the Indenture Trustee, as the same may be amended or supplemented
from time to time.
Indenture Trustee shall mean First Bank National Association, a national
-----------------
banking association, until a successor Person shall have become the Indenture
Trustee pursuant to the applicable provisions of the Indenture, and thereafter
"Indenture Trustee" shall mean such successor Person.
Independent shall mean, when used with respect to any specified Person,
-----------
such Person who (a) is not an Affiliate of or controlled by and is in fact
independent of each of the Seller, the Servicer, the Note Custodian, the
Servicing Advisor, the Issuer and any Borrower with respect to any Loan, (b)
does not have any direct financial interest or any material indirect financial
interest in the Seller, the Servicer, the Note Custodian, the Servicing Advisor,
the Issuer, any Borrower with respect to any Loan, or an Affiliate thereof, and
(c) is not connected with the Seller, the Servicer, the Note Custodian, the
Servicing Advisor, the Issuer or any Borrower with respect to any of the Loans
as an officer, employee, promoter, underwriter, trustee, partner, director or
Person performing similar functions.
Independent Accountant shall mean the firm of independent accountants
----------------------
appointed by the Issuer pursuant to Section 3.2 of the Servicing Agreement.
Individual Note shall mean a Note of an original principal amount equal to
---------------
the minimum denomination for Notes as specified in the Indenture; a Note of an
original principal amount in excess of such minimum denomination shall be deemed
to be a number of Individual Notes equal to the quotient obtained by dividing
such original principal amount by such minimum denomination.
Ineligible Loan shall have the meaning accorded to such term in the Loan
---------------
Sale and Purchase Agreement.
Initial Aggregate Class A-IO Custody Receipt Notional Amount shall mean
------------------------------------------------------------
$35,931,000.
54
<PAGE>
Initial Aggregate Principal Amount shall mean (i) with respect to all
----------------------------------
Notes, $92,411,000, (ii) with respect to the Class A-1 Notes, $48,698,000, (iii)
with respect to the Class A-2 Notes, $35,931,000, (iii) $3,891,000 with respect
to the Class B Notes, (iv) $3,891,000 with respect to the Class C Notes, and (v)
with respect to the Loans, $97,276,237.82.
Initial Custody Receipt Balance shall mean $84,443,000.
-------------------------------
Initial Principal Amount shall mean, with respect to any Note, the initial
------------------------
principal amount of such Note on the Closing Date as indicated thereon.
Insurance Agreement shall mean the Insurance Agreement dated March 14, 1997
-------------------
among the Issuer, the Seller and the Credit Enhancer, as it may be amended from
time to time.
Insurance Policy or Insurance Policies shall mean any insurance policy or
--------------------------------------
policies maintained by a Borrower in accordance with the requirements of its
Loan Documents or by the Servicer pursuant to the Servicing Agreement with
respect to any Loan.
Insurance Premium Rate shall mean the percentage set forth in the Insurance
----------------------
Agreement.
Insurance Proceeds shall mean any amounts received upon settlement of a
------------------
claim filed under an Insurance Policy (including proceeds of title insurance),
net of direct fees, costs (exclusive of overhead) and disbursements incurred in
connection with the collection thereof or the restoration or replacement of such
Borrower's collateral as contemplated by the Loan Documents.
Insured Payment shall have the meaning provided in the Credit Enhancement
---------------
Policy.
Intercreditor Agreement means, with respect to each Loan, a related
-----------------------
intercreditor or similar agreement among a Franchisor, the Seller and the
Borrower, if any, as such agreement may be amended, supplemented or otherwise
modified from time to time.
Interest Payment shall mean with respect to a Payment Date and a Loan, any
----------------
payment of interest due from the Borrower in respect of such Loan in the related
Due Period.
Issuer shall mean Atherton Franchisee Loan Funding 1997-A LLC, a special
------
purpose limited liability company organized under the laws of the State of
Delaware, and its successors and assigns.
Late Payment Charges shall mean with respect to a Payment Date and a Loan,
--------------------
all Late Payment Charges (as described in the
55
<PAGE>
Promissory Note) due for such Loan in respect of the related Due Period.
Leasehold Mortgage shall mean the leasehold mortgage (or collateral
------------------
assignment of lease) with respect to any lease, if any, securing the obligations
of the Borrower under its Promissory Note, as such leasehold mortgage (or
assignment of lease) may be amended, modified or renewed from time to time.
Limited Liability Company Agreement shall mean the limited liability
-----------------------------------
company agreement dated March 14, 1997 between Orinda Management Company and
Atherton.
Liquidated Loan shall mean with respect to any Defaulted Loan the earlier
---------------
of (i) the date the Servicer reasonably determines that it has collected all
amounts it reasonably expects to collect with respect to such Defaulted Loans
and (ii) the date such Defaulted Loan has been delinquent for a period of 20
months.
Liquidation Date shall mean, with respect to a Defaulted Loan, the date on
----------------
which such Defaulted Loan is determined to be a Liquidated Loan.
List of Loans shall mean the schedule, attached to the Indenture as
-------------
Schedule I, respectively, together listing all of the Loans constituting a part
of the Trust Estate under the Indenture, which schedule shall set forth or
include for each Loan listed thereon (i) the name of the Borrower under such
Loan, (ii) the original Principal Amount (as defined in the Promissory Note) of
the Promissory Note evidencing such Loan, (iii) the original and the remaining
term to the maturity date of such Loan, (iv) the amortization term of such Loan,
(v) the interest rate and (vi) a list of certain Loan Documents for such Loan
identifying, to the extent applicable, the Loan Documents required to be
included in the Loan File.
Loan shall mean each loan made by the Originator to franchisees of one or
----
more of the Systems, which Loan (i) is evidenced by a Promissory Note owned by
the Issuer listed on the List of Loans and Granted and delivered to the
Indenture Trustee under the Indenture as security for the Notes, and (ii) is not
a Liquidated Loan.
Loan Balance shall mean as of any date and Loan the unpaid principal
------------
balance thereof.
Loan Collateral shall mean with respect to a Loan, the related Security
---------------
Agreement, the Leasehold Mortgage or the Mortgage, if any, the Guaranty, if any,
and any other Loan Documents.
56
<PAGE>
Loan Documents shall mean with respect to a Loan, those instruments,
--------------
agreements, guaranty documents, certificates or other writings, now or hereafter
executed and delivered by the Borrower in respect of such Loan, including,
without limitation, those which are required to be included in the Loan File
therefor, as the same may be modified, amended, consolidated, continued or
extended from time to time.
Loan File shall mean the following instruments and documents in connection
---------
with each Loan:
(i) the executed original of the Promissory Note endorsed "Pay to the
order of ____________, without recourse," with all intervening
endorsements, if any, showing a complete chain of title from the originator
to the party endorsing such Promissory Note, plus amendments thereto;
(ii) an executed original of the Franchise Loan Agreement;
(iii) an executed original Security Agreement;
(iv) the original Mortgage, if applicable, with evidence of recording
thereon, or a duplicate original Mortgage, if applicable, together with
escrow instructions requiring such Mortgage to be dispatched to the
appropriate public recording office for recordation;
(v) an executed original recorded Leasehold Mortgage, if applicable,
in appropriate form for recording (with the possible exception of the
obtaining of a landlord signature) or with evidence of recording thereon;
(vi) an executed original Guaranty, if applicable;
(vii) the UCC-1 Financing Statement, with evidence of filing thereon,
or a copy of the original UCC-1 Financing Statement, together with escrow
instructions requiring such UCC-1 Financing Statement to be dispatched to
the appropriate public filing office;
(viii) one or more UCC-2 or UCC-3 Assignments in form and substance
acceptable for filing;
(ix) an executed original of each landlord, mortgagee or prior lien or
estoppel, if applicable;
(x) an executed original of a Franchisor Intercreditor Agreement, if
applicable;
(xi) an executed original of a Franchisor Subordination of Lessor's
Lien, if applicable;
57
<PAGE>
(xii) the original title insurance policy, if applicable;
(xiii) applicable certificate(s) of insurance;
(xiv) the environmental indemnity, if applicable;
(xv) an assignment of Mortgage, if applicable;
(xvi) a general assignment of the Loan File from the Seller (the "Loan
----
Assignment"), assigning, without recourse, all of the grantor's right,
----------
title and interest in each Loan, including but not limited to, the
Franchisee Loan Agreement, the Promissory Note, the Security Agreement, the
Mortgage, the Leasehold Mortgage, the Franchisor Intercreditor Agreement,
the Franchisor Subordination of Lessor's Lien, the origination escrow
agreement and the Guaranty, as applicable; and
(xvii) any other credit or security document necessary for the
documentation and enforcement of such Loan.
Loan Payments shall mean with respect to a Payment Date and a Loan, the sum
-------------
of all Principal Payments, Interest Payments, Loan Yield Maintenance Amounts, if
any, Late Payment Charges, if any, and any other amounts received from the
Borrower in respect of such Loan for the related Due Period.
Loan Prepayment Principal Amount shall mean with respect to any Loan any
--------------------------------
unscheduled principal amount received in respect of a Loan and with respect to
which a Loan Yield Maintenance Amount is due.
Loan Rate shall mean, with respect to each Loan, the rate of interest borne
---------
thereby as set forth on the List of Loans.
Loan Reduction Amount shall mean with respect to any Payment Date and Loan
---------------------
the sum of (i) the related scheduled Principal Payments for such Payment Date;
(ii) the related Loan Prepayment Principal Amount received during the related
Due Period, or (iii) the related Net Loss incurred during the related Due
Period.
Loan Sale and Purchase Agreement shall mean the Loan Sale and Purchase
--------------------------------
Agreement, dated March 14, 1997 between the Managing Member, as seller, and the
Issuer, as purchaser, with respect to the Loans as the same may be amended or
supplemented from time to time.
Loan Sale and Purchase Agreements shall mean the Atherton Loan Sale and
---------------------------------
Purchase Agreement and the Loan Sale and Purchase Agreement.
58
<PAGE>
Loan Submission Summary shall mean any loan submission summary in
-----------------------
substantially the form set forth in Schedule 1 of the Servicing Agreement.
Loan Yield Maintenance Amount shall mean the greater of the following two
-----------------------------
amounts: (a) one percent (1%) of the then outstanding Loan balance; and (b) an
amount determined by: (i) calculating the sum of the present values of all
unpaid principal and interest payments required under the loan documents by
discounting such payments from their scheduled payment dates back to the date
prepayment will be made, utilizing a discount rate equal to the Converted
Treasury Yield divided by the frequency of the interest payments made during a
calendar year, and (ii) subtracting from such sum the outstanding principal
balance as of the date prepayment will be made.
Majority-in-Interest shall mean Holders of Notes representing in excess of
--------------------
fifty percent (50%) of the Percentage Interests of the Notes.
Majority of Affected Securityholders shall mean, with respect to a proposed
------------------------------------
action in respect of the Notes, a Majority-in-Interest of each class of Notes
affected by such proposed action.
Managing Member shall mean Orinda Management Company.
---------------
Maturity shall mean, with respect to any Note, the date on which the unpaid
--------
principal of such Note becomes due and payable as therein or in the Indenture
provided, whether at its stated maturity or otherwise.
Maturity Date shall mean, with respect to any Loan, its stated maturity
-------------
date.
Members shall mean the Owners of any Membership Interests.
-------
Membership Interest shall mean the membership interests issued by Atherton
-------------------
Franchisee Loan Funding 1997-A LLC pursuant to the Limited Liability Company
Agreement.
Moody's shall mean Moody's Investors Service, Inc.
-------
Mortgage shall mean any mortgage or deed of trust or deed to secure a Loan
--------
entered into by a Borrower (but not including Leasehold Mortgages) creating a
lien on and a security interest in the Mortgaged Property securing the
obligations of the Borrower under the related Promissory Note, together with any
other security instruments and any related UCC financing and continuation
statements delivered by the Borrower, including, in all events, the property and
rights assigned under all such instruments, together with all amendments,
substitutions and replacements of any of the foregoing.
59
<PAGE>
Mortgage Assignment shall mean with respect to each Mortgage, one or more
-------------------
executed original assignments in recordable form evidencing the assignment of
the related Mortgage from the Seller to the Managing Member, from the Managing
Member to the Issuer and from the Issuer to the Indenture Trustee for the
benefit of the Noteholders.
Mortgaged Property shall mean, collectively, all fee simple (or ground
------------------
lessee) interests of the mortgagor in any real property, including the
improvements thereon, subject to the lien of a Mortgage which secures a Loan.
Net Loss shall mean, with respect to a Liquidated Loan, the amount equal to
--------
(i) the Remaining Principal Payments with respect of such Loan on the Business
Day immediately prior to the Liquidation Date for such Liquidated Loan, less
(ii) all principal received in liquidation of such Loan, net of the reasonable
liquidation expenses of the Servicer.
Net Loss Condition shall be deemed to exist with respect to any Payment
------------------
Date on the Accounting Date for such Payment Date, the Aggregate Outstanding
Principal Amount of all Defaulted Loans with respect to which Net Losses have
occurred exceeds 1% of the Initial Aggregate Principal Amount of all Loans.
Net Rate shall mean with respect to any Accrual Period and Loan, a per
--------
annum rate equal to (i) the Loan Rate, (ii) less the sum of (A) the Servicing
Fee Rate and (B) the Trustee Fee Rate.
1933 Act shall mean the Securities Act of 1933, as amended, and the
--------
applicable published rules and regulations thereunder.
1940 Act shall mean the Investment Company Act of 1940, as amended, and the
--------
applicable published rules and regulations thereunder.
Note or Notes shall mean any note or notes, as the case may be, issued
---- -----
pursuant to the Indenture.
Note Custodian shall mean Bankers Trust Company and any successor thereto
--------------
as a note custodian under the Custodial Agreement.
Note Obligations shall mean any and all liabilities and obligations under
----------------
or in connection with the Notes, including, without limitation, any and all
liabilities and obligations for payment of principal, interest and Yield
Maintenance Amount, if any, under the Notes.
Note Rate shall mean, as determined by the Indenture Trustee, (i) with
---------
respect to the Class A-1 Notes, the Class A-1 Note Rate, (ii) with respect to
the Class A-2 Notes, the Class A-2 Note Rate, (iii) with respect to the Class B
Notes, the Class B
60
<PAGE>
Note Rate, and (iv) with respect to the Class C Notes, the Class C Note Rate.
Note Register and Note Registrar shall have the respective meanings
------------- --------------
specified in Section 2.6 of the Indenture.
Noteholder shall mean the registered owner of a Note as evidenced by the
----------
Note Register. Notwithstanding any other provision hereof, the Credit Enhancer
shall be considered the Holder of the Class A Notes for which it has paid all
principal and interest thereon and the Indenture Trustee shall note the Credit
Enhancer's interest in the Class A Notes with respect to interest payments made
therein in its books and shall note the Credit Enhancer's ownership interest in
the Class A Notes as to which the Credit Enhancer has paid all principal and
interest thereon.
Officer's Certificate shall mean, unless otherwise specified, a certificate
---------------------
signed by any Authorized Officer of the party delivering such certificate,
delivered to the Indenture Trustee and complying with the applicable
requirements of Section 11.1 of the Indenture.
Opinion of Counsel shall mean one or more written opinions of counsel who
------------------
may, except as otherwise expressly provided in the Indenture, be counsel for the
Issuer or its Affiliates.
Origination Escrow shall mean any amount held back and deposited in an
------------------
escrow account at the origination of the related loan from the loan proceeds
pursuant to the related Loan Documents, the amount and terms of which shall be
provided in writing by the Seller to the Servicer.
Originator shall mean The Atherton Group Incorporated or Atherton Capital
----------
Partners, L.P.
Outstanding shall mean, as of the date of determination, all Notes
-----------
theretofore authenticated and delivered under the Indenture except:
(i) Notes theretofore canceled by the Note Registrar or delivered to
the Note Registrar for cancellation;
(ii) Notes for the payment of which money in the necessary amount has
been theretofore deposited with the Indenture Trustee in trust for the
Holder of such Notes;
(iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered under the Indenture; and
61
<PAGE>
(iv) Notes alleged to have been mutilated, destroyed, lost or stolen
for which replacement Notes have been issued as provided for in Section 2.8
of the Indenture;
provided, however, that in determining whether the Holders of Notes having the
- -------- -------
requisite aggregate Percentage Interest have given any request, demand,
authorization, direction, notice, consent or waiver under the Indenture, Notes
owned by the Issuer or any Affiliate of the Issuer shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Indenture
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes which the
Indenture Trustee knows to be so owned shall be so disregarded. Notes so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Indenture Trustee the pledgee's
right so to act with respect to such Notes and that the pledgee is not the
Issuer or any other obligor upon the Notes or any Affiliate of the Issuer or
such other obligor; and provided further that Notes which have been paid with
the proceeds of the Credit Enhancement Policy shall continue to remain
Outstanding for purposes of the Indenture until the Credit Enhancer has been
paid the Credit Enhancement Reimbursement Amount with respect to such Notes and
the Credit Enhancer shall be deemed to be the Holder thereof to the extent of
any principal payments made thereon.
Outstanding Notional Amount shall mean as of any date of determination with
---------------------------
respect to any Class A-IO Custody Receipt, the Initial Notional Amount thereof
less any reductions of the notional amount thereof prior to such date of
determination.
Outstanding Principal Amount shall mean as of any date of determination
----------------------------
with respect to any Note, the Initial Principal Amount thereof less any payment
of principal on such Note prior to such date of determination.
Owner means the registered owner of a Custody Receipt.
-----
Paying Agent shall mean Bankers Trust Company or any successor thereto as
------------
Paying Agent with respect to the Notes pursuant to the Indenture.
Payment Date shall mean the fifteenth day of each month in each year, or if
------------
such day is not a Business Day, the next succeeding Business Day, commencing
April 15, 1997.
Percentage Interest shall mean (i) with respect to each Note a fraction,
-------------------
expressed as a percentage, the numerator of which is the Initial Principal
Amount of such Note and the denominator of which is the Initial Aggregate
Principal Amount of all Notes, (ii) with respect to a class of Notes, a
fraction, expressed as a percentage, the numerator of which is the Initial
Principal
62
<PAGE>
Amount of such Note, and the denominator of which is the Initial Aggregate
Principal Amount of all Notes of the same class, (iii) with respect to a Class A
Custody Receipt or a Class A-IO Custody Receipt, the percentage set forth on the
face thereof and (iv) with respect to the Notes of a class, a fraction,
expressed as a percentage, the numerator of which is the Initial Principal
Amount of such Notes and the denominator of which is the Initial Aggregate
Principal Amount of all Notes.
Periodic Filings shall mean any filings or submissions that the Issuer is
----------------
required to make with any state or federal regulatory agency or under the Code.
Permitted Encumbrances shall have the meaning specified in the Security
----------------------
Agreement with respect to each Loan.
Person shall mean any legal person, including any individual, corporation,
------
limited liability company, partnership, joint venture, association, joint stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
Placement Agent Agreement shall mean, with respect to the private placement
-------------------------
of any series of Securities, that certain Placement Agent Agreement between the
Issuer and Lehman Brothers Inc. relating thereto.
Pre-Cut Off Date Loan Payments shall mean all payments under the Loans
------------------------------
(including all payments of principal and interest) due on and prior to the Cut
Off Date.
Prepayment Amount shall mean as of any Determination Date (i) with respect
-----------------
to a prepaid Loan or a Defaulted Loan, an amount equal to the sum of (1) the
Remaining Payments of such Loan or Defaulted Loan together with any other
principal payments due on the Loan, (2) accrued interest on such Loan or
Defaulted Loan to the date of prepayment not included in clause (i) above, and
(3) an amount equal to the Loan Yield Maintenance Amount, if any, with respect
to such prepaid Loan or Defaulted Loan; and (ii) with respect to a Repurchased
Loan, an amount equal to the Repurchase Price for such Loan.
Principal Payment shall mean with respect to a Payment Date and a Loan, any
-----------------
payment of principal due in respect of such Loan in the related Due Period.
Proceeding shall mean any suit in equity, action at law or other judicial
----------
or administrative proceeding.
Promissory Note shall mean the note executed by a Borrower as evidence of
---------------
the obligation of such Borrower to repay funds borrowed by the Borrower from the
Originator, as such note may be amended, extended, modified or renewed from time
to time.
63
<PAGE>
Property shall mean the property where the restaurant relating to a Loan is
--------
located, which property consists of either a fee or leasehold estate in real
property and the related improvements located on such real property, including
the restaurant.
Rating Agencies shall mean S&P, Moody's and Duff & Phelps, and their
---------------
successors.
Record Date shall mean, with respect to a Payment Date, (i) the last day of
-----------
the immediately preceding calendar month or (ii) with respect to the initial
Payment Date, the Closing Date.
Recoveries shall mean for any Due Period occurring after the date on which
----------
any Loan becomes a Defaulted Loan and with respect to such Defaulted Loan, all
payments or amounts received on or in respect of such Loan (whether in
connection with the disposition of such Loan or any of the related Loan
Collateral or otherwise) during such Due Period in respect of amounts then
payable pursuant to such Defaulted Loan (including, without limitation, any
amounts received by the Servicer or the Indenture Trustee in connection with the
management or operation of any REO Property (as defined in the Servicing
Agreement)), net of out-of-pocket direct costs (exclusive of overhead) and
expenses reasonably incurred (including legal fees and expenses) by the Servicer
or the Indenture Trustee in connection with any such payments or amounts and any
preservation and disposition of the Loan or related Loan Collateral.
Reinvestment Yield shall mean, with respect to any Payment Date, the yield
------------------
available, or if there is more than one yield available, the average yields, on
United States Treasury non-callable bonds (excluding Flower Bonds) and notes
having a maturity date closest to (before, on or after) the Expected Maturity
Date for the Class A Notes, as reported in The Wall Street Journal or similar
publication on the last Business Day of the Due Period converted to a twelve-
month "equivalent yield" plus 50 basis points (0.50%).
----
Remaining Average Life shall mean, with respect to a Loan on any date, the
----------------------
number of years (calculated to the nearest one-twelfth year) obtained by
dividing (a) the sum of the products obtained by multiplying (i) each remaining
principal payment (but not interest thereon) by (ii) the number of years
(calculated to the nearest one-twelfth year) which will elapse between the date
of determination and the scheduled due date of such remaining principal payment
by (b) the outstanding principal balance of the Loan.
Remaining Payments shall mean with respect to any Loan or Defaulted Loan,
------------------
all Scheduled Payments with respect to such Loan or Defaulted Loan that would be
or become due on or after the
64
<PAGE>
Determination Date for such Loan or Defaulted Loan if no Principal Payment were
made prior to its scheduled due date.
REO Property shall mean any mortgaged property or other loan collateral
------------
acquired by the Servicer in foreclosure, by deed in lieu of foreclosure or
otherwise.
Repurchase Price shall mean an amount equal to the then Aggregate
----------------
Outstanding Principal Amount of such Loan plus any unpaid interest thereon that
has accrued at the Loan Rate to the date of repurchase.
Repurchased Loan shall mean any Loan repurchased by the Seller or the
----------------
Managing Member pursuant to the Loan Sale and Purchase Agreements.
Restricting Event shall mean, as of any Payment Date, the existence of (i)
-----------------
a Delinquency Condition or (ii) a Net Loss Condition as reported in the
Servicer's Certificate for such Payment Date.
Rule 144A shall mean 17 CFR 230.144A, or any comparable successor rule or
---------
regulation under the 1933 Act.
Scheduled Payment shall mean with respect to a Payment Date and a Loan, the
-----------------
sum of the scheduled Principal Payments and Interest Payments (as such terms are
defined in the Loan Documents with respect to such Loan), if any, due from the
Borrower in respect of such Loan in the related Due Period in accordance with
the terms of the related Promissory Note and the amortization schedule then
applicable thereto; provided that with respect to any Loan that becomes a
Liquidated Loan during the related Due Period the scheduled Principal Payment
shall mean the sum of the Remaining Principal Payments with respect to such
Loan.
Scheduled Principal Amount shall mean, with respect to any Payment Date,
--------------------------
the aggregate of the Loan Reduction Amounts relating to such Payment Date.
Secured Party with respect to any Loan shall have the meaning accorded to
-------------
such term in the Loan Documents for such Loan.
Securities shall mean the Notes and the Custody Receipts.
----------
Securities Purchase Agreements shall mean the Securities Purchase
------------------------------
Agreements, among the Issuer or the Depositor, as applicable, and the Securities
Purchaser and relating to the purchases of Securities on the Closing Date.
Securities Purchaser shall mean any of the purchasers of the Securities
--------------------
pursuant to a Securities Purchase Agreement.
65
<PAGE>
Security Agreement shall mean with respect to a Loan, the Security
------------------
Agreement included in the Loan Documents in respect of such Loan providing for
the grant of a security interest in the restaurant equipment and other personal
property relating to the restaurant business in one of the Systems to secure
such Loan.
Securityholder shall mean a Holder of a Security or of a Custody Receipt.
--------------
Seller shall mean Atherton Capital Incorporated, in its capacity as seller
------
under the Loan Sale and Purchase Agreement.
Servicer shall mean Bankers Trust Company, a New York banking corporation,
--------
in its capacity as servicer under the Servicing Agreement, together with its
subservicers, successors and assigns as permitted thereunder.
Servicer Recommendation shall mean a recommendation with respect to a Loan
-----------------------
as to which a default has occurred prepared by the Servicing Advisor pursuant to
the Servicing Agreement.
Servicer Report Date shall mean with respect to a Payment Date the third
--------------------
Business Day preceding such Payment Date.
Servicer's Certificate shall mean a certificate to be provided by the
----------------------
Servicer in accordance with the Servicing Agreement and signed by an Authorized
Officer of the Servicer and furnished to the Issuer, the Credit Enhancer and the
Indenture Trustee by the Servicer.
Servicing Advisor shall mean Atherton.
-----------------
Servicing Advisor Fee shall mean with respect to any Payment Date the
---------------------
Servicing Advisor Fee Rate multiplied by the Aggregate Outstanding Principal
Amount of the Loans on the first day of the related Due Period.
Servicing Advisor Fee Rate shall mean ***/1/ per annum.
--------------------------
Servicing Agreement shall mean the Servicing and Custodial Agreement dated
-------------------
March 14, 1997, by and among the Issuer, the Indenture Trustee, the Servicer and
the Servicing Advisor.
Servicing Fee shall mean with respect to any Payment Date an amount equal
-------------
to the sum of (i) one-twelfth of the product of (x) the Servicing Fee Rate and
(y) the Aggregate Outstanding Principal Amount of the Loans for such Payment
Date, plus (ii)
- ---------------------
/1/ Certain information has been deleted from this document where denoted
by asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
66
<PAGE>
Late Payment Charges, if any, received during the related Due Period with
respect to Loans.
Servicing Fee Rate shall mean ***/2/ per annum.
------------------
S&P shall mean Standard & Poor's Ratings Services, a division of The
---
McGraw-Hill Companies, Inc.
State shall mean any one of the states of the United States of America, or
-----
the District of Columbia.
Stated Payment Amount shall, with respect to any Loan, have the meaning
---------------------
accorded to such term in the Promissory Note included in the Loan Documents for
such Loan.
Subordination Deficit shall mean, as of any Payment Date, the excess, if
---------------------
any, of (i) the Aggregate Outstanding Amount of the Class A Notes over (ii) the
Aggregate Outstanding Principal Amount of the Loans.
Super-Majority-in-Interest shall mean Holders of Notes representing in
--------------------------
excess of sixty-six and two-thirds percent (66-2/3%) of the Percentage Interests
of the Notes.
Systems shall mean one or more of the following concepts: ***.
-------
Title Insurance Policy shall mean with respect to a particular Mortgaged
----------------------
Property, an ALTA (extended coverage) Loan Title Insurance Policy or Policies or
other title insurance (including all riders or endorsements thereto) and
insuring the Seller that the Mortgage constitutes a valid first lien on the
Mortgaged Property, subject to Permitted Encumbrances.
Transfer shall have the meaning accorded to such term in Section 3.3 of the
--------
Indenture.
Trust Estate shall have the meaning specified in the Granting Clauses of
------------
the Indenture.
Trustee Fee Rate shall mean *** per annum.
----------------
UCC shall mean Uniform Commercial Code.
---
Unit FCR, with respect to any Loan, shall have the meaning set forth for
--------
"FCR" in the Underwriting Guidelines delivered with the Loan Sale and Purchase
Agreement.
- -----------------------
/2/ Certain information has been deleted from this document where denoted
by asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
67
<PAGE>
Unpaid Principal Shortfall shall mean as of any Payment Date (i) with
--------------------------
respect to each class of Custody Receipts and Notes, an amount, to the extent
unpaid on any previous Payment Date, equal to the remainder, if any, of (A) the
related Scheduled Principal Amount allocable to such class of Custody Receipts
or Notes on all preceding Payment Dates less (B) the actual amount of the
related Scheduled Principal Amount actually distributed to such class of Notes
or Class C Notes on such Payment Dates.
Weighted Average Net Rate shall mean as to any Payment Date, the average of
-------------------------
the Net Rates of the Loans weighted on the basis of the Loan Balances as of the
first day of the related Due Period.
Yield Maintenance Amount shall mean either the Class A Custody Receipt
------------------------
Yield Maintenance Amount, the Class A-IO Custody Receipt Yield Maintenance
Amount, the Class A-1 Yield Maintenance or the Class A-2 Yield Maintenance
Amount, as the context requires.
68
<PAGE>
EXHIBIT 10.10
- --------------------------------------------------------------------------------
MASTER CUSTODIAL AGREEMENT
between
BANKERS TRUST COMPANY,
as Note Custodian
and
ORINDA MANAGEMENT COMPANY
as Depositor
Dated March 14, 1997
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE II
CUSTODY ACCOUNTS AND CUSTODY RECEIPTS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 2.01. Creation of Custody Accounts................................. 4
Section 2.02. Custody Receipts............................................. 5
Section 2.03. Delivery of Custody Receipts................................. 6
Section 2.04. Mutilated, Lost, Stolen or Destroyed Custody Receipts........ 7
Section 2.05. Registration and Transfer of Ownership;
Persons Treated as Owners.................................... 8
Section 2.06. Deposits With Depositories................................... 12
SECTION 2.07. Payment on Custody Receipts.................................. 14
</TABLE>
ARTICLE III
ADMINISTRATION AND CUSTODY ACCOUNTS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 3.01. Payments in Respect of the Underlying Securities............. 15
Section 3.02. Redemptions; Notices; Consents to Amendments
to Issuance Agreements...................................... 16
Section 3.03. Statements to Owners......................................... 17
Section 3.04. Defaults..................................................... 18
Section 3.05. Unclaimed Monies............................................. 20
Section 3.06. Obligation of Owners With Respect to Certain
Taxes and Filings.......................................... 20
Section 3.07. Transfers of Related Underlying Securities by
Note Custodian............................................. 20
Section 3.08. Termination of Custody Accounts.............................. 20
</TABLE>
ARTICLE IV
THE NOTE CUSTODIAN
<TABLE>
<CAPTION>
<S> <C> <C>
Section 4.01. Standard of Liability........................................ 21
Section 4.02. Resignation and Removal of the Note
Custodian; Appointment of Successor........................ 23
Section 4.03. Charges and Expenses......................................... 24
Section 4.04. Limitation of Liability...................................... 24
Section 4.05. Non-Petition................................................. 25
</TABLE>
2
<PAGE>
ARTICLE V
MISCELLANEOUS
<TABLE>
<CAPTION>
<S> <C> <C>
Section 5.01. Amendments, Etc............................................. 25
Section 5.02. Counterparts................................................ 26
Section 5.03. Exclusive Benefit of Parties; Effective Date................ 26
Section 5.04. Invalidity of Provisions.................................... 26
Section 5.05. Notices..................................................... 26
Section 5.06. Business Day................................................ 27
Section 5.07. Term of Agreement........................................... 27
Section 5.08. Governing Law............................................... 27
Section 5.09. Headings.................................................... 27
</TABLE>
APPENDIX A - Definitions
EXHIBIT 1 - Form of Class A Custody Receipt
EXHIBIT 2 - Form of Class A-IO Custody Receipt
EXHIBIT 3 - Form of Investment Letter
Annex 1 - Form of Terms Agreement
3
<PAGE>
MASTER CUSTODIAL AGREEMENT
PRELIMINARY STATEMENT
MASTER CUSTODIAL AGREEMENT dated March 14, 1997, between BANKERS TRUST
COMPANY, a New York banking corporation, as custodian for the Owners from time
to time of Custody Receipts (the "Note Custodian"), and Orinda Management
Company, as depositor (the "Depositor"), for the benefit of the Owners from time
to time of Custody Receipts. (Capitalized terms used herein and not otherwise
defined shall have the meanings provided in Article I hereof.)
WHEREAS, the Note Custodian and the Depositor desire to enter into this
Custodial Agreement to provide for the issuance of one or more Series of Custody
Receipts, each Series of Custody Receipts to be composed of Class A Custody
Receipts and Class A-IO Custody Receipts evidencing the Underlying Securities
indicated on the related Custody Receipts Register on the terms and conditions
set forth herein and in the related Terms Agree ment; and
WHEREAS, the parties hereto desire to establish the terms and conditions
pursuant to which the Underlying Securities are to be deposited with, and held
in custody by, the Note Custodian, the terms and conditions for the issuance,
transfer and exchange of Custody Receipts and the terms for the payment of
certain fees and expenses associated with this Custodial Agreement;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto do hereby agree, for the benefit of the Owners from time to time of
Custody Receipts, as follows:
ARTICLE I
DEFINITIONS
Capitalized terms used herein and not defined in this Article I are used
with the definitions assigned thereto in Appendix A to the related Terms
Agreement which is incorporated herein and made a part hereof.
"Authorized Denomination" means, with respect to a Series of Custody
Receipts, the Authorized Denomination set forth in the related Terms Agreement.
"Authorized Officer" means with respect to the Note Custodian, any officer
assigned to the Corporate Trust Office, including any managing director, vice
president, assistant vice president, assistant treasurer, assistant secretary or
any other officer of the Note Custodian customarily performing functions
4
<PAGE>
similar to those performed by any of the above designated officers and having
direct responsibility for the administration of this Agreement, and also, with
respect to a particular matter, any other officer, to whom such matter is
referred because of such officer's knowledge of and familiarity with the
particular subject.
"Beneficial Owner" means, with respect to a Custody Receipt that is a Book-
Entry Custody Receipt, the person or entity who is the beneficial owner of such
Book-Entry Custody Receipt.
"Book-Entry Custody Receipt" means any beneficial interest in the Custody
Receipts, ownership and transfers of which shall be made through book entries by
the Depository as described in Section 2.06(c) hereof.
"Class A Distribution Amount" means, as to the Class A Custody Receipts and
any Payment Date, an amount equal to the sum of (i) the related Scheduled
Principal Amount, (ii) the Class A Custody Receipt Interest Distribution and
(iii) the Class A Custody Receipt Yield Maintenance Amount, to the extent
received with respect to such Payment Date.
"Custody Account" means, with respect to a Series of Custody Receipts, the
account relating to such Series established and maintained pursuant to Section
2.01 of this Custodial Agreement.
"Definitive Custody Receipts" has the meaning set forth in Section 2.06(c).
"Depository" means, with respect to a Series of Custody Receipts which are
Book-Entry Custody Receipts or any Underlying Securities which are issued in
book-entry form, the securities depository with which the Related Underlying
Securities or one or both classes of such Series of Custody Receipts are
deposited, which depository shall be registered under Section 17A of the
Securities Exchange Act of 1934.
"Depository Agreement" means, with respect to a Series of Book-Entry
Custody Receipts, the letter of representations relat ing to such Series among
the Depositor, the Note Custodian and the Depository substantially in the form
attached to the related Terms Agreement.
"Depository Participant" means a broker, dealer, bank, other financial
institution or other person or entity for whom from time to time a Depository
effects book-entry transfers and pledges of Custody Receipts deposited with such
Depository.
"Fee Letter" means the side letter between the Depositor and the Note
Custodian dated March 14, 1997 regarding the amounts payable to the Note
Custodian in respect of its fees and expenses
5
<PAGE>
under this Custodial Agreement, as amended from time to time by written
agreement of the parties hereto.
"Issuance Agreement" means, with respect to a Series of Custody Receipts,
the agreement pursuant to which the related Underlying Securities were issued
and which is specified in the related Terms Agreement.
"Issuer" means, with respect to a Series of Custody Receipts, the Issuer of
the related Underlying Securities, if any, specified in the related Terms
Agreement.
"Mail" means mail by first-class postage to specified Owners of a Series of
Custody Receipts at their addresses set forth in the Related Custody Receipts
Register.
"Note Custodian's Principal Office" means the principal office of the Note
Custodian at which at any particular time its corporate trust business shall be
administered which office at the date of the execution of this Agreement is
located at Four Albany Street, New York, New York 10006, Attention: Corporate
Trust and Agency Group - Structured Finance Team or at any other time at such
other address as the Note Custodian may designate from time to time by notice to
the Depositor.
"Notice of Transfer or Exchange" means the Notice of Transfer or Exchange
printed on a Custody Receipt.
"Payment Date" means, with respect to the Underlying Securities of a Series
of Custody Receipts, any Payment Date set forth in the related Terms Agreement.
"Series" means all Custody Receipts issued and outstanding from time to
time that represent the Underlying Securities of the same issue deposited at the
same time with the Note Custodian pursuant to Section 2.03 of this Custodial
Agreement.
"Servicer" means, with respect to a Series of Custody Receipts, the person
or entity as specified in the related Terms Agreement.
"Terms Agreement" means, with respect to a Series of Custody Receipts, the
Terms Agreement, substantially in the form set forth in Annex I hereto,
delivered by the Depositor to the Note Custodian pursuant to this Custodial
Agreement and accepted by the Note Custodian in connection with the issuance of
such Series of Custody Receipts.
"Transfer Limitations" means, with respect to a Series of Custody Receipts,
the Transfer Limitations set forth in the related Terms Agreement.
6
<PAGE>
"Trustee" means, with respect to a Series of Custody Receipts, the bank or
trust company serving as trustee or indenture trustee with respect to the
Underlying Securities, as specified in the related Terms Agreement.
"Underlying Securities" means, with respect to a Series of Custody
Receipts, the Underlying Securities specified in the related Terms Agreement.
"Voting Rights" means, with respect to the Class A Custody Receipts 90% and
with respect to the Class A-IO Custody Receipt 10% and such Voting Rights with
respect to each Custody Receipt of a Class means the pro rata share of the
percentage allocated to the related Class of Custody Receipts based on the
Initial Custody Receipt Balance or the Initial Aggregate Class A-IO Custody
Receipt Notional Amount, as the case may be.
ARTICLE II
CUSTODY ACCOUNTS AND CUSTODY RECEIPTS
Section 2.01. Creation of Custody Accounts. The Note Custodian shall
----------------------------
establish and maintain, with respect to each Series of Custody Receipts, a
separate Custody Account in the corporate trust office of the Note Custodian to
be designated "[Name of Related Underlying Securities (as specified in the
related Terms Agreement) --Custody Receipts Series [ ]] --Custody Account." The
Note Custodian shall purchase the Underlying Securities from the Depositor,
without recourse, in return for the Custody Receipts. The Note Custodian shall
deposit into such Custody Account the related Underlying Securities, and any
monies received in connection therewith. Each Custody Account shall at all
times be maintained as a custodial account for the benefit of the related
Owners, separated and segregated on the books of the Note Custodian from all
other accounts, funds and property in the possession of the bank or trust
company acting as Note Custodian, including any other Custody Account. The
related Underlying Securities and any monies held in a related Custody Account
shall not at any time be commingled on the books of the Note Custodian with any
other assets or property held by the Note Custodian, including the assets or
property of any other Custody Account. The Note Custodian shall maintain
separate records in connection with any monies which it may hold, in such
Custody Account or otherwise, in connection with the Related Underlying
Securities. To the extent practicable, the Note Custodian shall arrange for
distributions on the related Underlying Securities to be made in immediately
available funds to the Note Custodian, by wire transfer or otherwise, pursuant
to the payment provisions of each Issuance Agreement. Each Custody Account
shall be maintained at all times with an Eligible Institution. If the Note
Custodian ceases to be an Eligible Institution, the Custody Account shall
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be transferred to an Eligible Institution within five Business Days.
It is the express intent of the parties hereto that the conveyance of the
Underlying Securities and any monies received in connection therewith to the
Note Custodian, by the Depositor be, and be construed as, an absolute sale of
the Underlying Securities and related property. It is, further, not the
intention of the parties that such conveyance be deemed a pledge of the
Underlying Securities and related property by the Depositor to the Note
Custodian to secure a debt or other obligation of the Depositor. However, in
the event that, notwithstanding the intent of the parties, the Underlying
Securities or any related property is held to be the property of the Depositor,
or if for any other reason this Agreement is held or deemed to create a security
interest in the Underlying Securities or any related property, then:
(1) this Agreement shall be deemed to be a security agreement; and
(2) the conveyance provided for hereunder shall be deemed to be a grant by
the Depositor to the Note Custodian, of a security interest in all of
the Depositor's right, title, and interest, whether now owned or
hereafter acquired, in and to the Underlying Securities, any monies
received in connection therewith and any proceeds thereof.
The Depositor shall, to the extent consistent with this Agreement, take such
reasonable actions as may be necessary to ensure that, if this Agreement were
deemed to create a security interest in the property described above, such
security interest would be deemed to be a perfected security interest of first
priority under applicable law and will be maintained as such throughout the term
of this Agreement. The Depositor shall file all filings necessary to maintain
the effectiveness of any original filings necessary under the Uniform Commercial
Code as in effect in any jurisdiction to perfect such security interest in such
property. In connection herewith, the Note Custodian shall have all of the
rights and remedies of a secured party and creditor under the Uniform Commercial
Code as in force in the relevant jurisdiction.
Section 2.02. Custody Receipts. The Note Custodian shall issue one or
----------------
more Series of Custody Receipts in Authorized Denominations from time to time as
hereinafter provided, each such Series to be composed of Class A Custody
Receipts and Class A-IO Custody Receipts evidencing a beneficial ownership
interest in the related Underlying Securities for such Custody Receipts (as set
forth in such Custody Receipt and in the related Custody Receipt Register) on
the terms and conditions set forth herein and in the related Terms Agreement.
Class A Custody Receipts
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shall be substantially in the form set forth in Exhibit 1 hereto, unless
otherwise agreed to by the parties hereto in connection with a particular Series
of Custody Receipts, in which case they shall be substantially in the form set
forth in Schedule A to the related Terms Agreement, and shall be assigned
consecutive registration numbers. The Class A-IO Custody Receipts shall be
substantially in the form set forth in Exhibit 2 hereto unless otherwise agreed
to by the parties hereto in connection with a particular Series of Custody
Receipts, in which case they shall be substantially in the form set forth in
Exhibit B to the related Terms Agreement, and shall be assigned consecutive
registration numbers. Each Custody Receipt shall be executed by the Note
Custodian by the manual signature of an Authorized Officer and no Custody
Receipt shall be entitled to any benefits under this Custodial Agreement, or be
valid or obligatory for any purpose, unless so executed by the Note Custodian.
In case any Authorized Officer whose signature shall appear on any Custody
Receipt shall cease to be an Authorized Officer, such signature shall
nevertheless be valid and sufficient for all purposes as if such person had
remained in office. The Custody Receipts shall not evidence any financial
obligation of the Depositor or the Note Custodian except that the Note Custodian
shall be required, as provided in Section 3.01 hereof, to distribute in the
amount specified in the related Terms Agreement all payments received in respect
of the related Underlying Securities deposited hereunder to the Custody Receipts
evidencing such Underlying Securities without making any deduction whatsoever,
other than as expressly provided in this Custodial Agreement.
Section 2.03. Delivery of Custody Receipts. Unless other wise specified
----------------------------
in the related Terms Agreement, the Note Custodian shall deliver, at the
direction of the Depositor, to the Owners thereof the initial Custody Receipts
of a Series, registered in the names and in the denominations specified in
writing by the Depositor at least three Business Days prior to such delivery,
upon receipt by the Note Custodian of the following:
(a) original executed counterparts of the related Terms Agreement;
(b) in the case of related Underlying Securities issued in
certificated form, the related Underlying Securities in the aggregate
outstanding principal amount specified in the related Terms Agreement,
registered in the name of the Note Custodian (or its nominee or its agent's
nominee) or endorsed by the registered owner thereof for transfer to the
Note Custodian (or its nominee or its agent's nominee) or in blank, and all
documents necessary to effect the registra tion of the related Underlying
Securities (as specified in the related Issuance Agreement) in the name of
the Note Custodian;
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(c) a list of the names, addresses and United States taxpayer
identification numbers (or, if a United States taxpayer identification
number is not appropriate, a copy of Form W-8 or such other appropriate
federal tax identifica tion as the Note Custodian may reasonably request)
of the persons in whose names, and the denominations in which, such Custody
Receipts are to be registered; and
(d) a copy of the related Issuance Agreement.
The Note Custodian may accept the form of the related Issuance Agreement
delivered to it by the Depositor as being a true and correct copy of such
Issuance Agreement and shall not be deemed to have knowledge of, and need not
give effect to, any amendment unless a copy of such amendment is delivered to
it.
The initial Custody Receipts of a Series to be executed and delivered by
the Note Custodian as provided in this Section 2.03 shall be delivered to or
upon the written order of the Depositor in The City of New York (or such other
city in the United States of America as may be specified by the Depositor and
agreed upon by the Note Custodian) at a location specified by the Depositor and
agreed upon by the Note Custodian. Such delivery shall be made on the date that
the related Underlying Securities are received by the Note Custodian as provided
in paragraph (b) of this Section 2.03. If the Depositor shall so request
reasonably in advance, the Note Custodian shall make such Custody Receipts
available to the Depositor or the person designated by the Depositor for
inspection on the Business Day preceding the date of any such delivery, at a
location in The City of New York (or such other city specified above) specified
by the Depositor and agreed upon by the Note Custodian. The Depositor shall
provide the Note Custodian, on (and in the numbers specified in) the Note
Custodian's reasonable request, Custody Receipt forms to facili tate issuance
and transfer of Custody Receipts and permit any temporary Custody Receipts
issued to be exchanged for permanent Custody Receipts.
Any temporary Custody Receipts that may be issued shall be exchangeable for
definitive Custody Receipts upon surrender of the temporary Custody Receipts at
the Note Custodian's Principal Office without charge to the Owner and after any
waiting period that may be applicable. Any tax or governmental charge that may
be imposed in connection with any such exchange shall be borne by the Owner.
Upon surrender for cancellation of any one or more temporary Custody Receipts,
the Note Custodian shall execute and deliver in exchange therefor definitive
Custody Receipts of like denominations. Until so exchanged, the temporary
Custody Receipts shall in all respects be entitled to the same benefits under
this Agreement as definitive Custody Receipts.
Section 2.04. Mutilated, Lost, Stolen or Destroyed Custody Receipts. In
-----------------------------------------------------
the event a Custody Receipt is mutilated, lost,
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stolen or destroyed, the Note Custodian shall cancel such Custody Receipt, if
possible, and execute and deliver in lieu thereof a new Custody Receipt of the
same Series, Class and denomination, provided that:
(a) in the case of any mutilated Custody Receipt, such mutilated
Custody Receipt shall be first surrendered to the Note Custodian; and
(b) in the case of any lost, stolen or destroyed Custody Receipt,
there shall first be delivered to the Note Custodian evidence of such loss,
theft or destruction satis factory to the Note Custodian and the
Depositor, together with indemnity satisfactory to each of them, and
neither the Depositor nor the Note Custodian shall have received written
notice that such Custody Receipt has been acquired by a bona fide purchaser
for value.
All replacement Custody Receipts issued pursuant to this Section shall be
entitled to the full benefits hereunder, whether or not, in the case of clause
(b), any lost, stolen or destroyed Custody Receipt shall be found at any time.
The Note Custodian shall be entitled to customary compensation from the Owner
for its expenses, including any tax or governmental charge that may be payable
by it, in connection with any such replacement of Custody Receipts.
Section 2.05. Registration and Transfer of Ownership; Persons Treated as
----------------------------------------------------------
Owners.
- ------
(a) The Note Custodian shall maintain a Custody Receipts Register for
each Series of Custody Receipts at the Note Custodian's Principal Office to
provide for the registration of such Custody Receipts and the registration
of transfers of such Custody Receipts entitled to be registered or
transferred as herein provided. A copy of the Custody Receipts Register
for both classes of any Series of Custody Receipts shall be provided by the
Note Custodian to the Depositor (or its designee), to a designated
representative of Owners of Custody Receipts of such Series evidencing more
than 25% of the Initial Custody Receipt Balance or of the Initial Aggregate
Class A-IO Custody Receipt Notional Amount at the expense of and upon
written request by the Depositor or such Owners, as the case may be. The
Note Custodian shall maintain on the Custody Receipts Register for any
Series of Custody Receipts, with respect to each such Custody Receipt, (i)
the name, address and, unless not required to be maintained under
applicable laws and regulations, United States taxpayer identification
number of the Owner of such Custody Receipt, (ii) the registration number
of such Custody Receipt and (iii) the Custody Receipt Balance or the
Custody Receipt Notional Amount.
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(b) The initial issuance of the Custody Receipts of a Series shall be
recorded on the related Custody Receipts Register in such names as the
Depositor shall specify upon satisfaction of the conditions set forth in
Section 2.05(g) and as provided in Section 2.03 hereof. Thereafter, regis
tration of transfer of such Custody Receipts may be made only on the
Related Custody Receipts Register upon satisfac tion of the conditions set
forth in Section 2.05(g). Upon (i) surrender for registration of transfer
of any Custody Receipt to the Note Custodian at the Note Custodian's
Principal Office, with the Notice of Transfer or Exchange for such Custody
Receipt fully completed, (ii) receipt by the Note Custodian of a
certificate of the proposed transferee in the form annexed to the related
Terms Agreement that it has fully complied, in respect of such transfer,
with any Transfer Limitations applicable to Custody Receipts of such Series
and (iii) receipt by the Note Custodian of a written agreement on the part
of such transferee that it agrees to indemnify the Note Custodian for any
expenses or liability that may result from such transfer, the Note
Custodian shall (A) execute and deliver to the transferee or transferees
named in such Notice at the Note Custodian's Principal Office a new Custody
Receipt or Receipts of the same Series and Class in Authorized Denomi
nations, evidencing Initial Custody Receipt Balance or Initial Aggregate
Class A-IO Custody Receipt Notional Amount, as the case may be, or portion
thereof of the surrendered Custody Receipt so transferred, registered in
the name or names of such transferee or transferees and (B) execute and
deliver to the Owner of the surrendered Custody Receipt at the Note
Custodian's Principal Office a new Custody Receipt or Receipts of the same
Series and Class in Authorized Denominations evidencing the portion of
Initial Custody Receipt Balance or Initial Aggregate Class A-IO Custody
Receipt Notional Amount of the surrendered Custody Receipt not so
transferred. Each Custody Receipt issued upon such a registration of
transfer shall bear a registra tion number not assigned previously.
(c) A Custody Receipt or Receipts may be exchanged for a Custody
Receipt or Receipts of the same Series and Class evidencing in the
aggregate the same Initial Custody Receipt Balance or Initial Aggregate
Class A-IO Custody Receipt Notional Amount, but having different
denominations, upon surrender of such Custody Receipt or Receipts to the
Note Custodian at the Note Custodian's Principal Office with the Notice
of Transfer or Exchange for such Custody Receipt fully completed. The Note
Custodian shall execute and deliver to the Owner of the exchanged Custody
Receipt, at the Note Custodian's Principal Office, a Custody Receipt or
Receipts of the same Series and Class, denominated in Authorized
Denominations registered in the name of such
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Owner and bearing registration numbers not assigned previously.
(d) The Note Custodian may require payment by the Owner of a Custody
Receipt of a sum sufficient to cover any tax, governmental fee or other
governmental charge that may be imposed in connection with any registration
of a transfer or exchange of such Custody Receipt, and may require that
such taxes, fees or other charges be paid prior to the issuance of a new
Custody Receipt, and shall have no obligation to issue such new Custody
Receipt in the absence of such payment. The Note Custodian may, but shall
not be required to, issue or register the transfer of any Custody Receipt
during any period when the related Trustee would not be required to issue
or register the transfer of any related Underlying Security pursuant to the
terms of the related Issuance Agreement.
(e) The Note Custodian may treat the person in whose name a Custody
Receipt is registered as the absolute owner thereof, for all purposes
whatsoever, and shall not be bound or affected by any notice to the
contrary, other than an order of a court having jurisdiction in the
premises.
(f) Whenever any Custody Receipt shall be delivered to the Note
Custodian for registration of transfer, exchange or final payment, upon
such registration of transfer, exchange or payment, the Note Custodian
shall cancel such Custody Receipt, and shall maintain a record of such
cancellation, in accordance with its standard procedures.
(g) If so specified in the related Terms Agreement
(i) Each Class A Custody Receipt and Class A-IO Custody Receipt
is required to bear the following legend:
"THIS [CLASS A CUSTODY RECEIPT/CLASS A-IO CUSTODY RECEIPT] HAS
NOT BEEN REGISTERED UNDER THE SECURI TIES ACT OF 1933, AS
AMENDED ("1933 ACT"), OR THE SECURITIES LAWS OR "BLUE SKY" LAWS
OF ANY STATE AND HAS BEEN SOLD IN RELIANCE UPON AN EXEMPTION
PROVIDED IN THE 1933 ACT AND APPLICABLE STATE SECURITIES AND BLUE
SKY LAWS. THIS [CLASS A CUSTODY RECEIPT/CLASS A-IO CUSTODY
RECEIPT] MAY NOT BE SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF (EACH A "TRANSFER") UNLESS REGISTERED UNDER
THE 1933 ACT AND APPLICABLE STATE SECURITIES AND BLUE SKY LAWS OR
UNLESS AN EXEMP TION FROM SUCH REGISTRATION IS AVAILABLE AND THE
DEPOSITOR OR THE NOTE CUSTODIAN MAY, AS CONTEMPLATED IN THE
MASTER CUSTODIAL AGREEMENT,
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REQUIRE AN OPINION OF COUNSEL TO SUCH EFFECT PRIOR TO EFFECTING
ANY SUCH TRANSFER."
(ii) No Class A Custody Receipt and Class A-IO Custody Receipt
(or any interest therein) may be Trans ferred (including, without
limitation, by pledge or hypothecation) except in accordance with the
following restrictions:
(a) no sale, assignment, pledge, hypothecation, transfer (each a
"Transfer") of a Class A Custody Receipt or of a Class A-IO Custody
Receipt or any beneficial interest therein will be made to any Person
unless such Transfer is exempt from the registration requirements of
the 1933 Act and any applicable state securities law or is made in
accordance with the 1933 Act and state laws. In the event of any such
Transfer, (i) unless such transfer is made in reliance upon Rule 144A
under the 1933 Act, the Note Custodian, the Issuer, the Indenture
Trustee, the Servicer and the Depositor shall require a written
Opinion of Counsel (which may be in-house counsel) acceptable to and
in form and substance reasonably satisfactory to the Note Custodian,
the Issuer, the Trustee, the Servicer, the Depositor and the Credit
Enhancer that such transfer may be made pursuant to an exemption,
describing the applicable exemption and the basis therefor, from the
1933 Act or is being made pursuant to the 1933 Act, which Opinion of
Counsel shall not be an expense of the Note Custodian, the Issuer, the
Trustee, the Servicer or the Depositor and (ii) the Note Custodian
shall require the transferee to execute an Investment Letter (in
substantially the form attached hereto as Exhibit 3) acceptable to and
in form and substance reasonably satisfactory to the Note Custodian,
the Issuer, the Trustee, the Servicer and the Depositor certifying to
the Note Custodian, the Issuer, the Trustee, the Servicer and the
Depositor the facts surrounding such transfer, which investment letter
shall not be an expense of the Note Custodian, the Issuer, the
Trustee, the Servicer and the Depositor;
(b) the Holder of a Class A Custody Receipt or of a Class A-IO
Custody Receipt desiring to effect a Transfer of a Class A Custody
Receipt or of a Class A-IO Custody Receipt shall indemnify the Note
Custodian, the Issuer, the Trustee, the Servicer and the Depositor
against any liability that may result if the Transfer is not so exempt
or is not made in accor dance with such federal and state laws; and
(c) the Class A Custody Receipts and Class A-IO Custody Receipts
may not be Transferred, directly or
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indirectly, to any Person unless such transferee certifies in an
Officer's Certificate to the Issuer, the Depositor, the Note Custodian
and the Trustee (and in a form reasonably acceptable to the Issuer,
the Depositor and Trustee) that such Person is either (x) an
"accredited investor" within the meaning of Rule 501(a)(1), (2), (3)
and (7) under the 1933 Act (each an "institutional accredited
investor"), (y) a Qualified Institutional Buyer as defined in Rule
144A under the 1933 Act, or (z) a Person (other than the Rating
Agencies) involved in the organization and operation of the Issuer or
an affiliate, as defined in Rule 405 under the 1933 Act, of such
Person within the meaning of Rule 3a-7 under the 1940 Act, and, if
requested by the Issuer or the Trustee, the transferee delivers an
Opinion of Counsel to such effect.
(iii) All Opinions of Counsel required in connec tion with any
Transfer shall be by counsel reasonably acceptable to the Issuer, the
Trustee and the Credit Enhancer. None of the Note Custodian, the
Issuer or the Indenture Trustee is obligated to register the Custody
Receipts or the related Underlying Securities under the 1933 Act or
any other securities law. Any Transfer in violation of the provision
hereof will be void ab initio.
Section 2.06. Deposits With Depositories.
--------------------------
(a) Notwithstanding anything in this Custodial Agree ment to the
contrary, to the extent Underlying Securities are eligible for deposit with
a Depository, the Note Custodian may take delivery of the related
Underlying Securities by transfer of such Underlying Securities to its
account (or the account of its nominee or the nominee of its agent) with
such Depository and may maintain such Underlying Securities on deposit with
such Depository.
(b) In the event the related Terms Agreement provides that one or both
Classes of Custody Receipts will be Book Entry Custody Receipts, then such
Class of Custody Receipts shall, upon original issuance, be issued in the
form of one or more typewritten certificates representing such Class of
Book-Entry Custody Receipts and shall be delivered to the Depository by, or
on behalf of, the Depositor. The Book-Entry Custody Receipts shall
initially be registered on the Custody Receipts Register in the name of the
Depository or its nominee, and no Beneficial Owner of a Book-Entry Custody
Receipt will receive a definitive certificate representing such Beneficial
Owner's interest in a Book-Entry Custody Receipt except as provided in
subsections (c) and (d) below. Unless and until definitive, fully
registered Custody Receipts ("Definitive Custody Receipts") have been
issued to
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Beneficial Owners of Custody Receipts pursuant to subsections (c)and
(d) below:
(i) the provisions of this Section 2.06(b) shall be in full force
and effect;
(ii) the Depositor and the Note Custodian may deal with the
Depository which is the registered holder of the Custody Receipts for
all purposes (including the making of distributions on the Custody
Receipts) as the authorized representative of the Beneficial Owners of
Custody Receipts;
(iii) to the extent that the provisions of this Section 2.06(b)
conflict with any other provisions of this Custodial Agreement, the
provisions of this Section 2.06(b) shall control;
(iv) the rights of Beneficial Owners of Custody Receipts shall be
exercised only through the Depository which is the registered holder
of the Custody Receipts and the Depository Participants and shall be
limited to those established by law and agreement between such
Beneficial Owners of Custody Receipts and the Deposi tory and/or the
Depository Participants. Pursuant to the Depository Agreement, unless
and until Definitive Custody Receipts are issued pursuant to
subsection (c) below, the initial Depository will make book-entry
transfers among the Depository Participants and receive and transmit
distributions on the Custody Receipts to such Depository Participants;
and
(v) Whenever a notice, report or other communica tion to the
Beneficial Owners of Custody Receipts is required under this Custodial
Agreement, unless and until Definitive Custody Receipts shall have
been issued to Beneficial Owners of Custody Receipts pur suant to
subsection (c) below, the Note Custodian shall give all such notices
and communications specified herein to be given to Beneficial Owners
of Custody Receipts to the Depository which is the registered holder
of the Custody Receipts.
(c) In the event that:
(i) (A) the Depositor advises the Note Custodian in writing that
the Depository which is the registered holder of the Custody Receipts
is no longer willing or able to discharge properly its
responsibilities as Depository, and (B) the Depositor is unable to
locate a qualified successor; or
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(ii) the Depositor, at its option, advises the Note Custodian in
writing that it elects to terminate the book-entry system through the
Depository; or
(iii) after the occurrence of a default by the Servicer under the
Servicing Agreement or an Event of Default under the Indenture,
Beneficial Owners representing at least a majority of the aggregate
outstanding principal amount of the Custody Receipts advise the
Depository in writing that the continuation of a book-entry system
through the Depository is no longer in the best interests of the
Beneficial Owners;
the Note Custodian shall notify all Beneficial Owners, through the Depository
which is the registered holder of the Custody Receipts, of the occurrence of any
such event and of the avail ability of Definitive Custody Receipts to
Beneficial Owners of Custody Receipts requesting the same. Upon surrender to
the Note Custodian of the Custody Receipts by the Depository, accompanied by
registration instructions from the Depository which is the registered holder of
the Custody Receipts, the Note Custodian shall issue the Definitive Custody
Receipts which shall be issued in Authorized Denominations. Neither the
Depositor nor the Note Custodian shall be liable for any delay in delivery of
such instructions and may conclusively rely on, and shall be protected in fully
relying on, such instructions. The Depositor shall arrange for, and will bear
the costs of, printing, issuance and delivery of any Definitive Custody
Receipts.
(d) Custody Receipts purchased by, or beneficial interests in Book-
Entry Custody Receipts transferred to, institutional accredited investors
will be evidenced by Definitive Custody Receipts, registered in the name of
the purchaser thereof or any nominee of such purchaser. Definitive Custody
Receipts will be issued to a Beneficial Owner (or its nominee) at any time
(subject to the rules and procedures of DTC) upon the request to the
Custodian by such Beneficial Owner that its interest in a Book-Entry
Custody Receipt be exchanged for a Definitive Custody Receipt or Custody
Receipts.
SECTION 2.07 Payment on Custody Receipts. So long as the Note Custodian
---------------------------
is the registered holder of the Class A Notes, the Note Custodian shall, on each
Payment Date, make the following payment to Holders of Custody Receipts to the
extent of Custody Receipt Available Funds for such Payment Date in the following
order of priority:
(i) to the Holders of Class A Custody Receipts and Class A-IO, Custody
Receipts the Class A Custody Receipt Interest Distribution and the Class A-IO
Custody Receipt Interest Distribution, respectively (any shortfall being
allocated between
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each such Class of Custody Receipts based on the total amount each such Class
would otherwise have been entitled to);
(ii) to the Holders of the Class A Custody Receipts, any Unpaid
Principal Shortfall due and payable in respect of the Class A Custody Receipts;
(iii) to the Holders of the Class A Custody Receipts, an amount up to
the Scheduled Principal Amount until the Aggregate Outstanding Principal Amount
of the Class A Custody Receipts is reduced to zero;
(iv) pro rata in proportion to the aggregate amount scheduled to be
distributed to each class pursuant to this clause, (A) to the Holders of Class A
Custody Receipts, all accrued and unpaid Class A Custody Receipt Yield
Maintenance Amounts, if any, payable to the Holders of the Class A Custody
Receipts as of any Payment Date prior to the current Payment Date and unpaid as
of the current Payment Date and (B) to the Holders of Class A-IO Custody
Receipt, all accrued and unpaid Class A-IO Custody Receipts Yield Maintenance
Amounts, if any, payable to the Holders of the Class A-IO Custody Receipts as of
any Payment Date prior to the current Payment Date and unpaid as of the current
Payment Date, but only to the extent such Class A Custody Receipt Yield
Maintenance Amounts and Class A-IO Custody Receipt Yield Maintenance Amounts
have been collected; and
(v) pro rata in proportion to the aggregate amount scheduled to be
distributed to each class pursuant to this clause, (A) to the Holders of Class A
Custody Receipts, any Class A Custody Receipt Yield Maintenance Amounts, if any,
payable as a result of the prepayment of a Loan or Loans or the acceleration of
a Defaulted Loan or Defaulted Loans in the related Prepayment Period and, (B) to
the Holders of the Class A-IO Custody Receipts, any Class A-IO Custody Receipt
Yield Maintenance Amounts, if any, payable as a result of the prepayment of a
Loan or Loans or the acceleration of a Defaulted Loan or Defaulted Loans in the
related Due Period, but only to the extent such Class A Custody Receipt Yield
Maintenance Amounts and Class A-IO Custody Receipt Yield Maintenance Amounts
have been collected.
ARTICLE III
ADMINISTRATION AND CUSTODY ACCOUNTS
Section 3.01. Payments in Respect of the Underlying Securities.
------------------------------------------------
(a) Unless otherwise provided in the related Terms Agreement, the Note
Custodian shall remit to the Owners of Class A Custody Receipts on the
Record Date preceding any Payment Date, other than the final Payment Date,
the Class A
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Distribution Amount with respect to such Payment Date, on each Payment
Date. The Note Custodian shall remit to the Owners of Class A-IO Custody
Receipts on the Record Date preceding any Payment Date, other than the
final Payment Date, the Class A-IO Custody Receipt Interest Distribution
and the Class A-IO Custody Receipt Yield Maintenance Amount (to the extent
received) with respect to such Payment Date. The Class A Distribution
Amount, the Class A-IO Custody Receipt Interest Distribution and the Class
A-IO Custody Receipt Yield Maintenance Amount shall be paid to Owners of
Custody Receipts of the related class pro rata based on the Initial Custody
Receipt Balance or Initial Aggregate Class A-IO Custody Receipt Notional
Amount of the Custody Receipts held by such Owners.
(b) The Note Custodian (or its agent) shall duly present (or cause to
be presented) each related Underlying Security for payment on or prior to
its final Payment Date in accordance with the provisions of the related
Underlying Security and the related Issuance Agreement. Upon receipt of
such payment, the Note Custodian shall, on the Business Day following
receipt of such payment, remit to the Owners of Class A Custody Receipts
and Class A-IO Custody Receipts, on the date set by the related Issuance
Agreement (initially, as set forth in the related Terms Agreement) as the
date for determining the person to whom such payment shall be paid, the
final Class A Distribution Amount, the final Class A-IO Custody Receipt
Interest Distribution Amount and the final Class A-IO Custody Receipt Yield
Maintenance Amount (to the extent received) with respect such Payment Date
for such Class of Custody Receipts. The final Class A Distribution Amount,
the final Class A-IO Custody Receipt Interest Distribution and the final
Class A-IO Custody Receipt Yield Maintenance Amount shall be paid to Owners
of Custody Receipts of the related class pro rata based on the Initial
Custody Receipt Balance or Initial Aggregate Class A-IO Custody Receipt
Notional Amount of the Custody Receipts held by such Owners.
(c) Payments to an Owner pursuant to Sections 3.01(a) and 3.01(b)
shall be made by bank check payable in currency of the United States of
America sent by Mail to such Owner at the address shown on the related
Custody Receipt Register or by such other method as may be requested in
writing by an Owner and consented to by the Note Custodian; provided that
payments with respect to Custody Receipts on deposit with a Depository will
be made in accordance with the procedures of such Depository.
Notwithstanding the preceding sentence, in the event that the related
Issuance Agreement requires (initially, as set forth in the related Terms
Agreement) the presentment of the related Underlying Securities as a condi
tion to receipt of any payment (including a redemption pay ment
contemplated by Section 3.02 hereof) then, likewise,
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<PAGE>
any payment received by the Note Custodian upon such presentment shall be
remitted, in accordance with the terms of this Custodial Agreement, by the
Note Custodian to the Owners of the Class A Custody Receipts and the Owners
of the Class A-IO Custody Receipts evidencing such Underlying Securities
upon presentation of such Custody Receipt at the Note Custodian's Principal
Office.
(d) Neither the Depositor nor the Note Custodian shall have any
obligation to advance its own funds to make any payment to any Owner.
Section 3.02. Redemptions; Notices; Consents to Amendments to Issuance
--------------------------------------------------------
Agreements.
- ----------
(a) Upon receipt of any notice of redemption of a related Underlying
Security, the Note Custodian shall promptly forward a copy of such notice
by Mail to the Owners of the Class A Custody Receipts and the Owners of the
Class A-IO Custody Receipts evidencing such Underlying Security. Upon
receipt of any such notice, the Note Custodian (or its agent) shall present
the Underlying Security so called for redemption on or prior to the date of
such redemption to the related Trustee on behalf of such Owners for
redemption in accordance with the terms of such notice and, if applicable,
the related Issuance Agreement. The redemption price received by the Note
Custodian shall be paid to such Owners in accordance with the provisions of
Section 3.01 hereof.
(b) Upon receipt from a Trustee of any other notice with respect to a
related Underlying Security, the Note Custodian shall promptly transmit a
copy of such notice by Mail to the Owners of the Class A Custody Receipts
evidencing such Underlying Security and the Owners of the Class A-IO
Custody Receipts evidencing such Underlying Security. For such purpose,
the Note Custodian shall consider the date of the receipt of any such
notice as the record date for the purpose of determining the Owners of
record to whom such notices shall be transmitted. In the event such notice
requests or requires any vote, action or consent by the holder of any
related Underlying Security, the Note Custodian shall no later than the
Business Day following receipt of such notice, Mail to the Owners of the
Class A Custody Receipts and Owners of Class A-IO Custody Receipts
evidencing such Underlying Security a letter of direction with respect to
such vote, action or consent, returnable to the Note Custodian, and subject
to Section 3.02(c), the Note Custodian shall vote such Underlying Security
in accordance with such letters of direction proportionately based on the
Voting Rights of the related Owners. The Note Custodian shall not vote,
take any action or consent except in accordance with such letters of
direction. Any record date established by such notice for
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<PAGE>
purposes specified in such notice shall be the record date for the purpose
of determining the Owners of record for such purposes. If no record date is
established by the Related Trustee, the date such notice is received by the
Note Custodian shall be the record date.
(c) Notwithstanding Section 3.02(b), without the consent of all of the
Owners of the Class A-IO Custody Receipts of any Series, neither the Note
Custodian nor the Owners of the Class A Custody Receipts of such Series
shall vote or consent to any amendments to the related Issuance Agreement
or any other actions which would reduce the amount of or change the timing
of or currency of any amounts to be paid to Owners of Class A-IO Custody
Receipts of such Series.
(d) The Note Custodian shall promptly transmit by hand or telecopy to
the Depositor a copy of any notice received from a Trustee with respect to
any Underlying Securities.
Section 3.03. Statements to Owners. (a) With each distri bution on the
--------------------
Custody Receipts of any Series the Note Custodian shall prepare and forward by
Mail (together with a copy of any report relating to a Payment Date received by
the Note Custodian from the related Trustee pursuant to the related Issuance
Agreement) a statement to the Rating Agencies and each Owner of Custody Receipts
of such Series stating:
(i) the Class A Distribution Amount, the Scheduled Principal Amount
and the Class A Custody Receipt Interest Distribution distributable with
respect to the related Payment Date to the Owner of a Class A Custody
Receipt of such Series in the denomination of $100,000;
(ii) the Class A-IO Custody Receipt Interest Distribu tion and any
Class A-IO Custody Receipt Yield Maintenance Amount distributable with
respect to the related Payment Date to the Owner of a Class A-IO Custody
Receipt of such Series in the notional amount of $100,000;
(iii) the aggregate outstanding principal balance of the related
Underlying Securities evidenced by the Custody Receipts of such Series
after giving effect to the Scheduled Principal Amount distributed thereon
on the related Payment Date.
(b) The Note Custodian shall prepare and file all federal, state and local
tax and information returns and reports required to be filed with respect to the
custody arrangement created pursuant to the Custodial Agreement and, in
connection with any such filing, shall assume that such arrangement constitutes
a device to facilitate the creation of "stripped coupons" from the Underlying
Securities within the meaning of section 1286 of the
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Code. Consistent with the above treatment, the Custodian shall, within a
reasonable time after the end of each calendar year, furnish to each Owner such
information which is necessary, or required by federal, state and local tax law,
to enable such Owners to prepare their tax returns and properly account for
their allocable share of income from the Underlying Securities.
Section 3.04. Defaults.
--------
(a) The Note Custodian is not authorized hereunder to proceed against
any Servicer or any Trustee in the event of a default under the related
Issuance Agreement and has no power or obligation hereunder to assert any
of the rights and privileges of the related Owners.
(b) In the event of any default in payment by an Issuer or Trustee, as
the case may be, or any Servicer default or similar event with respect to
an Issuer, a Trustee or a Servicer, as the case may be, each related Owner
will have the right to direct the Note Custodian to take specific actions
on behalf of such Owner pursuant to Section 3.04(c) hereof. Such Owner
will not be required to act in concert with the Note Custodian (unless such
Owner so directs) or other related Owners. The Note Custodian shall take
such actions as reasonably directed by the Owners in accordance with their
respective Voting Rights. The issuance of a Custody Receipt of a Series
and Class shall not in any manner: (i) alter, modify or increase the rights
of the Owner of such Custody Receipt with respect to the related Underlying
Securities evidenced by such Custody Receipt (provided that payments in
respect of such related Underlying Securities shall be paid to such Owner
as provided herein), (ii) grant to any Owners of Custody Receipts of any
other Series or Class rights with respect to such Custody Receipt or the
related Underlying Securities evidenced thereby or (iii) grant to such
Owner, through ownership of such Custody Receipt, any rights with respect
to any other Custody Receipt or the related Underlying Securities evidenced
thereby. The parties hereto understand and the agree that the Owners of
Custody Receipts of a Series are the beneficial owners of the related
Underlying Securities evidenced thereby on the terms and conditions set
forth herein and in the related Terms Agreement (but shall have no interest
in any Underlying Securities evidenced by Custody Receipts of another
series) and that the Note Custodian shall hold Underlying Securities as
custodian for the Owners of Custody Receipts evidencing such Underlying
Securities.
(c) Notwithstanding anything in this Section 3.04 to the contrary, the
Note Custodian, shall have no obligation to undertake to perform any
ministerial acts unless it has received from the Owners requesting such
action indemnity
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satisfactory to it against all costs, losses, liabilities and expenses
(including legal fees and expenses) and such requests have been confirmed
in writing.
(d) The Note Custodian shall have no obligation to notify the
Depositor or any Owner of any default in payment by an Issuer or Trustee,
as the case may be, or any Servicer default or similar event with respect
to an Issuer, a Trustee or a Servicer, and shall not be deemed to have
knowledge thereof unless an Authorized Officer of the Note Custodian has
actual knowledge thereof or is informed thereof in writing.
(e) In the event that the Note Custodian fails to distribute the Class
A Distribution Amount, the Class A-IO Custody Receipt Interest Distribution
or the Class A-IO Yield Maintenance Amount within 3 days following receipt
of the full amount required to be distributed on the related Underlying
Securities, Owners of Custody Receipts evidencing more than 50% of Voting
Rights may terminate the Note Custodian as custodian hereunder. The
provisions of Section 4.02 hereof relating to appointment of a successor
custodian in the event of a removal of the Note Custodian by the Owners of
Custody Receipts shall apply in the event of a termination of the Note
Custodian pursuant to this Section 3.04(e).
Section 3.05. Unclaimed Monies. In the event any monies to be paid to an
----------------
Owner of a Custody Receipt in respect of the final payment thereof remains
unclaimed, the Note Custodian shall segregate and hold such monies in a
subaccount within the related Custody Account, without liability for interest
thereon, for the account of the Owner entitled thereto. Such monies shall not
be invested by the Note Custodian, but shall be held in trust for the benefit of
such Owner. All such monies that remain in any such subaccount on the date that
is two (2) years and eleven (11) months after the date on which such monies were
originally due, and as to which such Owner has not indicated an interest as
evidenced by a memorandum on file with the Note Custodian, shall be disbursed to
the Depositor and such Owner shall thereafter look only to the Depositor for
payment.
Section 3.06. Obligation of Owners With Respect to Certain Taxes and
------------------------------------------------------
Filings. If any tax or other governmental charge shall become payable by or on
- -------
behalf of the Note Custodian, including any tax or charge required to be
withheld from any payment to or by the Note Custodian under the provisions of
any applicable law or regulation, with respect to any Custody Receipt or any
related Underlying Security, such tax or charge shall be payable by the Owner of
such Custody Receipt (in the case of any tax or charge with respect to such
Custody Receipt) or by the Owners of the related Class A and Class A-IO Custody
Receipts in proportion to their respective share of the interest payable on such
related
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Underlying Security (in the case of any tax or charge with respect to such
related Underlying Security) and may, following written notice from the Note
Custodian to such Owner, be withheld by the Note Custodian.
Section 3.07. Transfers of Related Underlying Securities by Note
--------------------------------------------------
Custodian. The Note Custodian shall hold the related Underlying Securities in
- ---------
custody only and shall not assign, transfer, pledge, set off or otherwise
dispose of any Underlying Security or any interest therein except as
specifically provided hereunder or as required by an order of a court having
jurisdiction in the premises.
Section 3.08. Termination of Custody Accounts. The Note Custodian shall
-------------------------------
maintain in a Custody Account each related Under lying Security until payment
of all amounts in respect of such related Underlying Security in full, on its
expected final pay ment date or earlier redemption. The Note Custodian hereby
disclaims any equitable or beneficial interest in the Underlying Securities. No
Underlying Security will be available to the Note Custodian for its own use or
profit, nor will any Underlying Security be deemed part of the general assets of
the Note Custodian or be reflected as an asset of the Note Custodian on any
balance sheet or similar document prepared by the Note Custodian in its
individual capacity. The Underlying Securities will not be subject to any
right, charge, security interest, lien or claim of any kind in favor of the Note
Custodian.
ARTICLE IV
THE NOTE CUSTODIAN
Section 4.01. Standard of Liability.
---------------------
(a) The Note Custodian shall not be liable under this Custodial
Agreement other than by reason of bad faith or gross negligence in the
performance of such duties as are specifically set forth in this Custodial
Agreement. The Note Custodian shall not be liable for any damages
resulting from any distribution from a related Custody Account to an Owner
at the address of record of such Owner in the related Custody Receipts
Register. The Note Custodian shall not be liable for any action taken or
inaction by it in reliance upon the written opinion of its legal counsel or
the written advice of its accountants. The Note Custodian may request and
conclusively rely and shall be fully protected in acting in reliance upon
any written notice, request, direction or other document reasonably
believed by it to be genuine and to have been signed or presented by the
proper party or parties.
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<PAGE>
(b) The Depositor agrees to indemnify the Note Custodian and any of
its agents, officers, directors or employees for, and to hold them harmless
against any cost, loss, liability or expense, including legal fees and
expenses incurred without their own gross negligence or bad faith, arising,
directly or indirectly, out of, relating to, or in connection with the
acceptance, administration or performance of their duties, or the duties of
the Note Custodian, as well as the costs and expenses of defending
themselves against any action, suit, or other proceeding involving any
claim or liability arising directly or indirectly, out of, relating to or
in connection with the exercise or performance of any of their powers or
duties hereunder. Notwithstanding any provisions of this Agreement to the
contrary, the obligations of the Depositor to indemnify the Note Custodian
and its agents, officers, directors and employees under this Section 4.01
shall survive the resignation or removal of the Note Custodian or the
termination of this Custodial Agreement.
(c) The Note Custodian shall have no duties or responsibilities other
than those expressly set forth herein. No implied duties or obligations
shall be read into this Custodial Agreement against the Note Custodian.
The Note Custodian shall be under no liability to any party hereto, or to
any Owner, by reason of any failure on the part of the Depositor or any
maker, guarantor, endorser or other signatory of any document or
instrument, including any Underlying Security, or any other person to
perform such person's obligations under any such document or instrument.
Except for amendments to this Custodial Agreement referred to below, and
except for instructions, notices or demands to the Note Custodian under
this Custodial Agreement, the Note Custodian shall not be obligated to
recognize any agreement between the Depositor and any Owner, or between any
Owner and any other person or entity, notwithstanding that references
thereto may be made hard; and whether or not it has knowledge thereof.
(d) In the absence of gross negligence or bad faith on the part of the
Note Custodian, the Note Custodian may rely conclusively and shall be fully
protected in acting upon any order, notice, demand, certificate, opinion of
counsel (including counsel chosen by the Note Custodian), statement,
instrument, report or other paper or document (not only as to its due
execution and the validity and effectiveness of its provisions, but also as
to the truth, completeness and acceptability of any information therein
contained) which is believed by the Note Custodian to be genuine and,
without independent investigation, to be correct and to be signed or
presented by the proper person or persons.
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<PAGE>
(e) The Note Custodian shall not be responsible for the sufficiency or
accuracy, the form or the execution, valid ity, value or genuineness of
any document or property received or held by it hereunder, including
without limita tion any Underlying Securities, or the authority of the
Depositor in executing this Custodial Agreement.
(f) ANY ACTION OR PROCEEDING ALLEGING ANY BREACH BY THE NOTE CUSTODIAN
OF ITS DUTIES UNDER THIS CUSTODIAL AGREEMENT SHALL BE PROSECUTED ONLY IN A
STATE OR FEDERAL COURT LOCATED IN THE STATE OF NEW YORK, COUNTY OF NEW
YORK. THE NOTE CUSTODIAN SHALL HAVE THE RIGHT AT ANY TIME TO SEEK
INSTRUCTIONS FROM ANY COURT OF COMPETENT JURISDICTION.
(g) No provision of this Custodial Agreement shall require the Note
Custodian to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the
exercise of its rights and powers hereunder, and the Note Custodian shall
not be required to take any action which, in the Note Custodian's sole and
absolute judgment, could involve it in expense or liability unless
furnished with security and indemnity which the Note Custodian deems, in
its sole and absolute discretion, to be satisfactory.
(h) The Note Custodian does not have any equitable or beneficial
interest in the Underlying Securities deposited with it hereunder but is
serving as custodian only and having only possession and legal title
thereof. The Note Custodian makes no representation as to the validity,
value, genuineness or collectibility of any Underlying Security or other
document or instrument held by or delivered to it. The Note Custodian shall
not be called upon to advise any Owner as to the wisdom in selling or
retaining or taking or refraining from taking any action with respect to
any Underlying Security or other property deposited hereunder.
(i) The Note Custodian shall be deemed to have exercised reasonable
care in the custody and preservation of the Underlying Securities in its
possession if the Underlying Securities are accorded treatment
substantially equal to that which a prudent person accords its own
property, it being understood that, except as expressly provided herein,
the Note Custodian shall not have responsibility for (i) ascertaining or
taking action with respect to calls, conversions, exchanges, maturities,
tenders or other matters relative to any Underlying Security, whether or
not the Note Custodian has or is deemed to have knowledge of such matter,
or (ii) taking any necessary steps to preserve rights against any parties
with respect to any Underlying Securities.
26
<PAGE>
Section 4.02. Resignation and Removal of the Note Custodian; Appointment
----------------------------------------------------------
of Successor.
- ------------
(a) The Note Custodian may resign with respect to all of its duties
hereunder at any time by written notice thereof delivered to the Depositor and
given by Mail to each Owner, such resigna tion to take effect upon the
appointment of a successor Note Custodian and its acceptance of such appointment
as hereinafter provided. Upon 30 days' written notice to the Note Custodian,
either the Depositor or the Owners of Custody Receipts of a Series evidencing
Voting Rights at least 66-2/3% of the Voting Rights allocated to the Class A
Custody Receipts and to the Class A-IO Custody Receipts of a Series may remove
the Note Custodian with respect to such Series of Custody Receipts, in which
event the Depositor may appoint a successor Note Custodian with respect to such
Series of Custody Receipts meeting the qualifications set forth in the next
succeeding paragraph. In the event of such removal or resignation, the Note
Custodian shall pay over to its successor Note Custodian any fees or charges
previously paid to the Note Custodian with respect to such Series of Custody
Receipts in respect of duties not yet performed under this Custodial Agreement
which remain to be performed by a successor Note Custodian. No resignation or
removal of the Note Custodian shall be effective until the appointment of a
successor Note Custodian and its acceptance of such appointment as hereinafter
provided.
(b) In case at any time the Note Custodian acting hereunder shall resign or
be removed in respect of any Series of Custody Receipts, the Depositor shall,
within 90 days after the delivery of the notice of resignation, appoint a
successor Note Custodian in respect of such Series of Custody Receipts. Any
successor Note Custodian shall be (i) a bank or trust company having its
principal office in the United States of America and having a combined capital
and surplus of at least $50,000,000 and (ii) an Eligible Institution whose long-
term unsecured debt or bank deposits are rated at least Baa3 (or the equivalent)
by Duff & Phelps, Moody's and S&P and, if not rated by Duff & Phelps, by Moody's
and S&P. If no successor Note Custodian has been appointed within such 90 days,
the resigning Note Custodian may petition any court of competent jurisdiction
for the appointment of a successor Note Custodian.
(c) In the event of removal or resignation of the Note Custodian in respect
of any Series of Custody Receipts, the fees of a successor Note Custodian shall
be borne by the Depositor in accordance with the Fee Letter (except if the Note
Custodian is removed by the Owners (other than the Credit Enhancer in which case
such fees shall be borne by the Depositor), in which case the fees of a
successor Note Custodian are required to be borne by the Owners voting in favor
of removing the Note Custodian). Any successor Note Custodian shall execute and
deliver to its
27
<PAGE>
predecessor and to the Depositor an instrument in writing accepting its
appointment hereunder, and thereupon such successor Note Custodian, without any
further act or deed, shall become fully vested with all the rights, powers,
duties and obligations of its predecessor and for all purposes shall be the Note
Custodian under this Custodial Agreement with respect to such Series of Custody
Receipts, and such predecessor, upon payment of all sums due it and on the
written request of the Depositor shall execute and deliver an instrument
transferring to such successor all rights, obligations and powers of such
predecessor hereunder with respect to such Series of Custody Receipts, and shall
duly assign, transfer and deliver all right, title and interest in the related
Custody Account and all records relating thereto to such successor. Any
successor Note Custodian with respect to a Series of Custody Receipts shall
promptly give notice of its appointment to the related Owners by Mail.
(d) Any corporation into or with which the Note Custodian may be merged,
consolidated or converted or any transferee of all or substantially all of the
Note Custodian's corporate trust business shall be the successor of such Note
Custodian without the execution or filing of any document or any further act.
Section 4.03. Charges and Expenses. Except as expressly provided in this
--------------------
Custodial Agreement, no charges or expenses of the Note Custodian or any other
person shall be payable by or withheld from any Owner. The Depositor shall be
responsible for the fees and expenses of the Note Custodian as provided in the
Fee Letter.
Section 4.04. Limitation of Liability. It is expressly understood and
-----------------------
agreed by the parties hereto that (a) this Agreement is executed and delivered
by Bankers Trust Company, not individually or personally but solely as Note
Custodian, in the exercise of the powers and authority conferred and vested in
it and (b) under no circumstances shall Bankers Trust Company be personally
liable for the payment of any indebtedness or expenses of the Depositor or be
liable for the breach or failure of any obligation, representation, warranty or
covenant made or undertaken by the Depositor under this Agreement.
Section 4.05. Non-Petition. None of the Note Custodian or any Owner of
------------
Custody Receipts shall, prior to the date that is one year and one day after the
payment in full of all Custody Receipts, petition or otherwise invoke the
process of any court or government authority for the purpose of commencing or
sustaining a case against the Depositor under any Bankruptcy Law or appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Depositor or any substantial part of the property of
either, or ordering the winding up or liquidation of the affairs of the
Depositor.
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ARTICLE V
MISCELLANEOUS
Section 5.01. Amendments, Etc. Without notice to or con sent of any
---------------
Owners, any provisions of this Custodial Agreement may be amended (i) to cure
any formal defect, omission, incon sistency or ambiguity in this Custodial
Agreement, (ii) to add to the covenants and agreements of the Note Custodian or
the Depositor or to surrender any right or power herein conferred upon the Note
Custodian or the Depositor, (iii) to effectuate the assignment of the Note
Custodian's rights and duties hereunder to a qualified successor as provided
herein, or (iv) to modify, alter, amend or supplement this Custodial Agreement
in any other respect not inconsistent herewith which, in the opinion of counsel
acceptable to the Note Custodian, is not adverse to the Note Custodian or any of
the Owners. Except for amendments made pursuant to clause (i), (ii), (iii) or
(iv) above, no amendment affecting the Owners of Custody Receipts of any class
of any Series may be made to this Custodial Agreement without the consent of
Owners of Custody Receipts of such class evidencing at least 66-2/3% of the
Voting Rights allocated to such class, pro vided that no amendment may be made
which would (i) reduce the Voting Rights or the amount or change timing or
currency of any payments to be made to the Owners of any Class of Custody
Receipts without the consent of each Owner affected thereby or (ii) modify any
of the provisions of this Section 5.01 except to provide that certain other
provisions of this Custodial Agreement cannot be modified without the consent of
any Owner affected thereby. No amendment or waiver of any provision of this
Custodial Agreement nor consent to any departure herefrom shall in any event be
effective unless the same shall be in writing and signed by the Note Custodian
and the Depositor, and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given; provided,
however, that the Note Custodian shall have no duty to sign any amendment,
waiver or consent which affects its rights and powers under this Agreement. In
connection with any amendment pursuant to this Section, the Note Custodian shall
send to the Rating Agencies a copy of each proposed amendment prior to its
adoption and a copy of each executed amendment.
Section 5.02. Counterparts. This Custodial Agreement may be executed in
------------
any number of counterparts by the parties hereto on separate counterparts, each
of which, when so executed and delivered, shall be deemed an original, but all
such counterparts shall together constitute one and the same instrument. Copies
of this Custodial Agreement shall be filed with the Note Custodian and shall be
open to inspection at reasonable times during business hours at the Note
Custodian's Principal Office by any Owner upon prior written notice.
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Section 5.03. Exclusive Benefit of Parties; Effective Date. This
--------------------------------------------
Custodial Agreement is for the exclusive benefit of the Note Custodian, the
Depositor and the Owners of the Custody Receipts from time to time, and their
respective successors hereunder, and shall not be deemed to give any legal or
equitable right, remedy or claim to any other person whatsoever. The Owners
shall be the beneficiaries of this Custodial Agreement and, pursuant to the
terms of the Custody Receipts, shall acknowledge and accept all of the terms and
conditions and agree to be bound by all of the provisions hereof and of the
Custody Receipts by acceptance of delivery of the Custody Receipts without the
necessity of any written acknowledgement or signature. This Custodial Agreement
shall become effective as to the Note Custodian upon execution of this Custodial
Agreement.
Section 5.04. Invalidity of Provisions. In case any one or more of the
------------------------
provisions contained in this Custodial Agreement or in the Custody Receipts
should be or become invalid, illegal or unenforceable in any respect, the
validity, legality and enforce ability of the remaining provisions contained
herein or therein shall in no way be affected, prejudiced or disturbed thereby.
Section 5.05. Notices. Notices given owners shall be given by Mail and
-------
shall be effective two Business Days following the date postmarked. All other
communications shall be mailed or delivered as follows:
(a) To the Depositor: ORINDA MANAGEMENT COMPANY
2 Wall Street
New York, New York 10005
Attention: Peter Sorensen
(b) To the Note Custodian: BANKERS TRUST COMPANY
Four Albany Street
New York, New York 10006
Attention: Corporate Trust
and Agency Group - Structured Finance Team
or as to each party at such other address as shall be designated by such party
in a written notice to the other parties.
Any communication so addressed and mailed or delivered to the Depositor or
the Note Custodian shall be deemed to be given when received, and any notice
sent by telecopy shall be deemed to be given when receipt of such transmission
is acknowledged, and any communication delivered in person shall be deemed to be
given when receipted for or actually received by an authorized officer of the
recipient.
Section 5.06. Business Day. In any case where the date on which any
------------
action is required to be taken hereunder shall not be a
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<PAGE>
Business Day, then such action shall be taken on the next succeeding Business
Day with the same force and effect as if made on the date that such action is
otherwise required to be taken hereunder.
Section 5.07. Term of Agreement. Whenever the Underlying Securities of a
-----------------
Series have been paid in full on an expected final payment date or earlier
redemption and the Owners of the Class A and Class A-IO Custody Receipts of such
Series have received all the amounts to which they are entitled, this Agree
ment shall terminate with respect to such Series.
The bankruptcy, death or other incapacity of any or all Owners of Class A
or Class A-IO Custody Receipts shall not operate to terminate this Custodial
Agreement, nor entitle any such Owner's legal representatives or heirs to claim
an account ing or to take any action or proceeding in any court for a partition
or winding up of the custodial arrangement created by this Custodial Agreement,
nor otherwise affect the rights, obligations and liabilities of the parties
hereto or any of the Owners of the Class A or Class A-IO Custody Receipts.
Section 5.08. Governing Law. THIS CUSTODIAL AGREEMENT AND THE CUSTODY
-------------
RECEIPTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK.
Section 5.09. Headings. The headings of articles and sections in this
--------
Custodial Agreement have been inserted and the table of contents has been
provided for convenience only and are not to be regarded as a part of this
Custodial Agreement or to have any bearing upon the meaning or interpretation of
any provision contained herein.
31
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Master Custodial Agreement, all as of the day and year first above mentioned.
ORINDA MANAGEMENT COMPANY,
as Depositor
By: /s/ David L. Elder
-----------------------------
Name: David L. Elder
Title: President
BANKERS TRUST COMPANY,
not in its individual capacity,
but solely as Note Custodian
By: /s/ Marie C. Rasch
-------------------------------
Name: Marie C. Rasch
Title: Vice President
32
<PAGE>
APPENDIX A
DEFINITIONS
The definitions contained herein are incorporated into and made a part of
the Private Placement Memorandum, the Indenture, the Custodial Agreement and the
Servicing Agreement each as defined below.
Acceleration Date shall mean the date on which occurs the acceleration of
-----------------
the maturity of the Notes pursuant to Section 7.2 of the Indenture.
Account shall mean any account or fund, and any subaccount thereof,
-------
established under Article V of the Indenture.
Accounting Date shall mean with respect to a Payment Date the fifth
---------------
Business Day preceding such Payment Date.
Accrual Period shall mean with respect to any Payment Date, the period from
--------------
and including the first day of the calendar month preceding the month in which
such Payment Date occurs through and including the last day of such month.
Affiliate shall mean with respect to any Person, any other Person directly
---------
or indirectly controlling, controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
Aggregate Notional Amount shall mean as of any date of determination with
-------------------------
respect to the Class A-IO Custody Receipts, the Initial Aggregate Notional
Amount of the Class A-IO Custody Receipts, less any payment of principal paid to
the Class A-2 Notes prior to such date of determination.
Aggregate Outstanding Principal Amount shall mean as of any date of
--------------------------------------
determination, (i) with respect to the Notes, the Initial Aggregate Principal
Amount of all Notes less any payment of principal on such Notes prior to such
date of determination, (ii) with respect to any class of Notes, the Initial
Aggregate Principal Amount of all Notes of such class, less any payment of
principal on such Notes prior to such date of determination and (iii) with
respect to the Loans, the aggregate Loan Balances of all Loans at such date of
determination.
Assigned Assets shall mean the Loans and related Loan Collateral, together
---------------
with all interest accrued thereon from and including the Cut Off Date to but not
including the Closing Date
<PAGE>
(but not including Pre-Cut Off Date Loan Payments) and all escrow deposits
relating thereto.
Assignment of Leasehold Mortgage shall mean with respect to each Leasehold
--------------------------------
Mortgage, the one or more executed original assignments in recordable form
evidencing the assignment of the related Leasehold Mortgage from the Seller to
the Issuer and from the Issuer to the Indenture Trustee for the benefit of the
Noteholders and the Credit Enhancer.
Atherton shall mean Atherton Capital Incorporated, a Delaware corporation.
--------
Atherton Loan Sale and Purchase Agreement shall mean the Loan Sale and
-----------------------------------------
Purchase Agreement, dated March 14, 1997 between Atherton, as seller, and the
Managing Member, as purchaser, with respect to the Loans, as the same may be
amended or supplemented from time to time.
Authorized Officer (i) in the case of the Issuer, shall mean the Managing
------------------
Member, (ii) in the case of the Servicing Advisor or the Managing Member, shall
mean any Vice President or more senior officer, (iii) in the case of the
Servicer, shall mean any officer assigned to the Corporate Trust Office,
including any managing director, vice president, assistant vice president,
assistant treasurer, assistant secretary or any other officer of the Servicer
customarily performing functions similar to those performed by any of the above
designated officers and having direct responsibility for the administration of
the Servicing Agreement, and also, with respect to a particular matter, any
other officer, to whom such matter is referred because of such officer's
knowledge of and familiarity with the particular subject, (iv) in the case of
any Prospective Owner or any transferor or prospective transferee of Class C
Notes, shall mean any Vice President or more senior officer, and (v) in the case
of the Indenture Trustee, shall mean a trust officer or other officer in the
Corporate Trust Department of the Indenture Trustee customarily performing
functions similar to those of a trust officer.
Available Funds shall mean with respect to a Payment Date, (i) any and all
---------------
amounts held in the Collection Account (other than with respect to Loan
prepayments or payments made in respect of Defaulted Loans) on the related
Accounting Date which were due in the related Due Period or any prior Due
Period, (ii) with respect to any Loan prepayment (or repurchase) or payment made
in respect of a Defaulted Loan received during the related Due Period or any
prior Due Period (to the extent not distributed on the related Payment Date),
the Prepayment Amount relating thereto (in the case of a Defaulted Loan, to the
extent actually received), and (iii) any and all Insured Payments received by
the Indenture Trustee on or before 12:00 noon on such Payment Date and held in
the Collection Account or for deposit in the
<PAGE>
Collection Account or distribution in accordance with the Indenture; provided,
however, that Available Funds shall not include any Early Payments held in the
Collection Amount.
Bankruptcy Law shall mean any bankruptcy, reorganization, compromise,
--------------
arrangement, insolvency, readjustment of debt, dissolution, or liquidation or
similar law, whether now or hereafter in effect.
Basic Documents shall mean the Limited Liability Company Agreement, the
---------------
Certificate of Formation, the Indenture, the Servicing Agreement, the Custodial
Agreement and other documents and certificates delivered in connection with any
of the above.
Borrower shall mean the party executing a Promissory Note to evidence its
--------
obligations thereunder, and its successors and assigns.
Business Day shall mean any day that is not a Saturday, Sunday or a day on
------------
which banking institutions located in the City of New York, New York, in
Wilmington, Delaware or in the city and state where the principal offices of
each of the Indenture Trustee and the Servicer are located, are authorized or
obligated by law or executive order to be closed.
Cash Equivalent Investments means, at any time:
---------------------------
(a) any evidence of direct indebtedness, maturing not more than one
year after such time, issued or guaranteed by the United States government;
(b) commercial paper, maturing not more than nine months from the date
of issue, which is issued by a corporation organized under the laws of any
state of the United States and rated at least A-1/P-1 (or the equivalent)
by Duff & Phelps, Moody's and S&P and, if not rated by Duff & Phelps, by
Moody's and S&P;
(c) any certificate of deposit or bankers acceptance, maturing not
more than one year after such time, which is issued by (i) a commercial
banking institution that is a member of the Federal Reserve System and has
a combined capital and surplus and undivided profits of not less than
$500,000,000 that has a long-term debt rating of at least A+ (or the
equivalent) by Duff & Phelps, Moody's and S&P and, if not rated by Duff &
Phelps, by Moody's and S&P, or (ii) a commercial banking institution that
is organized in a jurisdiction outside the United States and has a combined
capital and surplus and undivided profits of not less than $500,000,000
that has a long-term debt rating of at least A+ (or the equivalent) by Duff
& Phelps, Moody's and S&P and, if not rated by Duff & Phelps, by Moody's
and S&P; or
<PAGE>
(d) any money market mutual fund having a rating in the highest
investment category from Duff & Phelps, Moody's and S&P and, if not rated
by Duff & Phelps, by Moody's and S&P at the time of the purchase of such
money market fund, including any funds for which the Servicer may be a
manager.
Class A Custody Receipt shall mean each Class A Custody Receipt issued
-----------------------
pursuant to Article II of the Custodial Agreement.
Class A Custody Receipt Interest Distribution shall mean with respect to
---------------------------------------------
the Class A Custody Receipts on any Payment Date, the sum of (a) the amount of
interest accrued during the related Accrual Period at the Class A Custody
Receipt Interest Rate on the sum of (i) the Custody Receipt Balance of the Class
A Custody Receipts on the Business Day immediately prior to such Payment Date
and (ii) any previously accrued and unpaid interest at the Class A Custody
Receipt Interest Rate for prior Payment Dates, and (b) any previously accrued
and unpaid interest at the Class A Custody Receipt Interest Rate for prior
Payment Dates.
Class A Custody Receipt Interest Rate shall mean a rate equal to 7.200% per
-------------------------------------
annum.
Class A Custody Receipt Yield Maintenance Amount shall mean with respect to
------------------------------------------------
each Payment Date the present value, using the Reinvestment Yield as a discount
rate, of a series of monthly interest cash flows from the immediately succeeding
Payment Date to the Expected Maturity of the Class A Notes calculated using as a
balance the lesser of (a) the sum of (i) the amount of the Loan Reduction Amount
(other than with respect to any scheduled Principal Payments) allocated to the
Class A-1 Notes and (ii) the amount of the Loan Reduction Amount (other than
with respect to any scheduled Principal Payments) allocated to the Class A-2
Notes, or (b) the Outstanding Custody Receipt Balance, each immediately prior to
such Payment Date, and using as a coupon the excess of the Class A Custody
Receipt Interest Rate over the Reinvestment Yield (compounding monthly).
Class A Note Rate shall mean a rate equal to weighted average of the Class
------------------
A-1 Note Rate and the Class A-2 Note Rate weighted on the basis of the Aggregate
Outstanding Principal Amount of the Class A-1 Notes and the Aggregate
Outstanding Principal Amount of the Class A-2 Notes, respectively.
Class A Notes shall mean the Class A-1 Notes and the Class A-2 Notes.
-------------
Class A-1 Interest Distribution shall mean with respect to the Class A-1
-------------------------------
Notes on any Payment Date, the sum of (a) the amount of interest accrued during
the related Accrual Period at the Class A-1 Note Rate on the sum of (i) the
Aggregate Outstanding Principal Amount of the Class A-1 Notes on the Business
Day immediately prior to such Payment Date and (ii) any
<PAGE>
previously accrued and unpaid interest at the Class A-1 Note Rate for prior
Payment Dates, and (b) any previously accrued and unpaid interest at the
Class A-1 Note Rate for prior Payment Dates.
Class A-1 Note shall mean each Class A-1 Note issued pursuant to Article II
--------------
of the Indenture.
Class A-1 Note Rate shall mean a rate equal to 7.200% per annum.
-------------------
Class A-1 Scheduled Principal Amount shall mean for any Payment Date the
------------------------------------
aggregate of the Class A-1 Scheduled Principal Portions for such Payment Date.
Class A-1 Scheduled Principal Portion shall mean for any Payment Date and
-------------------------------------
Loan, the portion of the related Loan Reduction Amount for such Payment Date and
Loan determined by multiplying the reduction in principal balance as a result of
such Loan Reduction Amount by a fraction the numerator of which is the Class A-2
Note Rate minus the Net Rate for such Loan less the Insurance Premium Rate and
the denominator of which is the Class A-2 Note Rate minus the Class A-1 Note
Rate; provided that the Class A-1 Scheduled Principal Portion shall be 100% if
the Class A-1 Notes remain outstanding and the Class A-2 Notes have been paid in
full.
Class A-1 Yield Maintenance Amount shall mean with respect to each
----------------------------------
Payment Date the present value, using the Reinvestment Yield as a discount rate,
of a series of monthly interest cash flows from the immediately succeeding
Payment Date to the Expected Maturity of the Class A Notes calculated (i) using
as a balance the lesser of (a) the Loan Reduction Amount (other than with
respect to any scheduled Principal Payment for such Payment Date) allocated to
the Class A-1 Notes or (b) the Outstanding Aggregate Principal Amount of the
Class A-1 Notes, each immediately prior to such Payment Date and (ii) using as a
coupon the excess of the Class A-1 Note Rate over the Reinvestment Yield
(compounding monthly).
Class A-2 Interest Distribution shall mean with respect to the Class A-2
-------------------------------
Notes on any Payment Date, the sum of (a) the amount of interest accrued during
the related Accrual Period at the Class A-2 Note Rate on the sum of (i) the
Aggregate Outstanding Principal Amount of the Class A-2 Notes on the Business
Day immediately prior to such Payment Date and (ii) any previously accrued and
unpaid interest at the Class A-2 Note Rate for prior Payment Dates, and (b) any
previously accrued and unpaid interest at the Class A-2 Note Rate for prior
Payment Dates.
Class A-2 Note shall mean each Class A-2 Note issued pursuant to Article II
--------------
of the Indenture.
<PAGE>
Class A-2 Note Rate shall mean a rate equal to 12.200% per annum.
-------------------
Class A-2 Scheduled Principal Amount shall mean for any Payment Date the
------------------------------------
aggregate of the Class A-2 Scheduled Principal Portions for such Payment Date.
Class A-2 Scheduled Principal Portion shall mean for any Payment Date and
-------------------------------------
Loan, the portion of the related Loan Reduction Amount for such Payment Date and
Loan determined by multiplying the reduction in principal balance as a result of
such Loan Reduction Amount by a fraction the numerator of which is the Net Rate
for such Loan less the Insurance Premium Rate minus the Class A-1 Note Rate and
the denominator of which is the Class A-2 Note Rate minus the Class A-1 Note
Rate; provided that the Class A-2 Scheduled Principal Portion shall be 100% if
the Class A-2 Notes remain outstanding and the Class A-1 Notes have paid in
full.
Class A-2 Yield Maintenance Amount shall mean with respect to each
----------------------------------
Payment Date the present value, using the Reinvestment Yield as a discount rate,
of a series of monthly interest cash flows from the immediately succeeding
Payment Date to the Expected Maturity of the Class A Notes calculated (i) using
as a balance the lesser of (a) the Loan Reduction Amount (other than with
respect to any scheduled Principal Payment for such Payment Date) allocated to
the Class A-2 Notes or (b) the Outstanding Aggregate Principal Amount of the
Class A-2 Notes, each immediately prior to such Payment Date and (ii) using as a
coupon the excess of the Class A-2 Note Rate over the Reinvestment Yield
(compounding monthly).
Class A-IO Custody Receipt shall mean each Class A-IO Custody Receipt
--------------------------
issued pursuant to Article II of the Custodial Agreement.
Class A-IO Custody Receipt Interest Distribution shall mean with respect to
------------------------------------------------
the Class A-IO Custody Receipts, the sum of (a) the amount of interest accrued
during the related Accrual Period at the Class A-IO Custody Receipt Interest
Rate on the sum of (i) the Aggregate Notional Amount of the Class A-IO Custody
Receipts on the Business Day immediately prior to such Payment Date and (ii) any
previously accrued and unpaid interest at the Class A-IO Custody Receipt
Interest Rate for prior Payment Dates, and (b) any previously accrued and unpaid
interest at the Class A-IO Custody Receipt Interest Rate for prior Payment
Dates.
Class A-IO Custody Receipt Interest Rate shall mean 5.000%.
----------------------------------------
Class A-IO Custody Receipt Yield Maintenance Amount shall mean with
---------------------------------------------------
respect to each Payment Date the present value, using the Reinvestment Yield as
a discount rate, of a series of monthly interest cash flows from the immediately
succeeding Payment Date
<PAGE>
to the Expected Maturity of the Class A Notes calculated (i) using as a balance
the lesser of (a) the Loan Reduction Amount (other than with respect to any
scheduled Principal Payment) allocated to Class A-2 Notes or (b) the Aggregate
Notional Amount, each immediately prior to such Payment Date and (ii) using as a
coupon the Class A-IO Custody Receipt Interest Rate.
Class B Interest Distribution shall mean with respect to the Class B Notes
-----------------------------
on any Payment Date, the sum of (a) the amount of interest accrued during the
related Accrual Period at the Class B Note Rate on the sum of (i) the Aggregate
Outstanding Principal Amount of the Class B Notes on the Business Day
immediately prior to such Payment Date and (ii) any previously accrued and
unpaid interest at the Class B Note Rate for prior Payment Dates, and (b) any
previously accrued and unpaid interest at the Class B Note Rate for prior
Payment Dates.
Class B Note shall mean each Class B Note issued pursuant to Article II of
------------
the Indenture.
Class B Note Rate shall mean with respect to any Accrual Period, a per
-----------------
annum rate equal to 8.400% but in no event greater than the Weighted Average Net
Rate.
Class C Interest Distribution shall mean with respect to the Class C Notes
-----------------------------
on any Payment Date, the sum of (a) the amount of interest accrued during the
related Accrual Period at the Class C Note Rate on the sum of (i) the Aggregate
Outstanding Principal Amount of the Class C Notes on the Business Day
immediately prior to such Payment Date and (ii) any previously accrued and
unpaid interest at the Class C Note Rate for prior Payment Dates, and (b) any
previously accrued and unpaid interest at the Class C Note Rate for prior
Payment Dates.
Class C Note shall mean each Class C Note issued pursuant to Article II of
------------
the Indenture.
Class C Note Rate shall mean a rate equal to the Weighted Average Net Rate.
-----------------
Class C Noteholder shall mean any Person in whose name the Class C Notes
------------------
are registered in the Note Register.
Closing Date shall mean the date on which the Notes are first executed,
------------
authenticated and delivered.
Code shall mean the Internal Revenue Code of 1986, as amended, or any
----
successor statute thereto, including the regulations promulgated thereunder.
Collateral shall mean with respect to any Loan, the personal property
----------
collateral pledged by the Borrower in the related Security Agreement.
<PAGE>
Collection Account shall mean the Account by that name established,
------------------
maintained and disbursed pursuant to Article V of the Indenture.
Condemnation Proceeds shall mean all compensation, awards and proceeds
---------------------
received by or on behalf of a Borrower as a result of a condemnation (which term
shall include any damage or taking by any governmental or quasi-governmental
authority and any transfer by private sale in lieu thereof), net of all
reasonable direct fees, costs (exclusive of overhead) and disbursements incurred
in connection with the collection thereof or the restoration or replacement of
the Borrower's collateral as contemplated by the Loan Documents.
Converted Treasury Yield shall mean with respect to any Loan the yield
------------------------
available, or if there is more than one yield available the average yields, on
United States Treasury non-callable bonds (excluding Flower Bonds) and notes
having a maturity date closest to (before, on or after) the Remaining Average
Life of such Loan, as reported in The Wall Street Journal or similar publication
on the fifth Business Day preceding the date such Loan is prepaid converted to a
twelve-month "equivalent yield" plus twenty-five basis points (0.25%). The
----
terms "Converted Treasury Yield" and a twelve-month "equivalent yield" are
annualized rates that reflect the frequency of the interest payments made during
a calendar year.
Credit Enhancement Policy means the policy issued by the Credit Enhancer
-------------------------
that guarantees Insured Payments on the Class A Notes.
Credit Enhancer shall mean Capital Markets Assurance Corporation, a New
---------------
York-domiciled monoline stock insurance company.
Credit Enhancement Premium shall mean with respect to any Payment Date an
--------------------------
amount equal to the product of (i) the Insurance Premium Rate and (ii) the
Aggregate Outstanding Principal Amount of the Class A Notes for such Payment
Date prior to giving effect to any principal paid on the Class A Notes on such
Payment Date, rounded to the nearest dollar.
Credit Enhancement Reimbursement Amount shall mean an amount equal to all
---------------------------------------
unreimbursed payments made by the Credit Enhancer under the Credit Enhancement
Policy with respect to the Class A Notes plus interest thereon from the time of
the disbursements at the applicable Class A Note Rate.
Custodial Agreement shall mean the Master Custody Agreement dated March 14,
-------------------
1997 between Bankers Trust Company, as Note Custodian, and Orinda Management
Company, as Depositor, as the same may be amended or supplemented from time to
time.
<PAGE>
Custodian shall mean Bankers Trust Company and any successor thereto as a
---------
custodian under the Servicing Agreement.
Custody Receipt Available Funds shall mean for each Payment Date the amount
-------------------------------
paid on the Class A Notes on such Payment Date.
Custody Receipt Balance shall mean with respect to the Class A Custody
-----------------------
Receipts and any Payment Date, the Aggregate Outstanding Principal Amount of the
Class A Notes immediately prior to such Payment Date.
Custody Receipt Rate shall mean either the Class A Custody Receipt Interest
--------------------
Rate or the Class A-IO Custody Receipt Interest Rate, as the case may be.
Custody Receipt Registrar shall mean Bankers Trust Company and any
-------------------------
successor thereto under the Custodial Agreement.
Custody Receipts shall mean the Class A Custody Receipts and the Class A-IO
----------------
Custody Receipts.
Cut Off Date shall mean March 1, 1997, or if such date is not a Business
------------
Day, the next succeeding Business Day.
Default shall mean any occurrence which is, or with notice or the lapse of
-------
time or both would become, an Event of Default or, with respect to the Custodial
Agreement only, any "Default" as defined in the Custodial Agreement.
Default Rate shall mean with respect to a Loan the meaning assigned thereto
------------
in the related Loan Documents.
Defaulted Loan shall mean a Loan which is a Delinquent Loan for which a
--------------
Scheduled Payment is overdue (without taking into account any extension of the
due date for any such Scheduled Payment) for more than the greater of (x) 120
consecutive days or (y) such period of consecutive days which may be consented
to in writing with notice to the Rating Agencies by either (i) the Credit
Enhancer, so long as the Credit Enhancer is not in default under the Credit
Enhancement Policy, or (ii) in all other cases, the Indenture Trustee, and which
consent, in any case, shall not be unreasonably withheld or delayed.
Delinquency Condition shall be deemed to exist with respect to any Payment
---------------------
Date if on the Accounting Date for such Payment Date, the Aggregate Outstanding
Principal Amount of all Delinquent Loans and Defaulted Loans exceeds 5% of the
Aggregate Outstanding Principal Amount of all Loans.
Delinquent Loan shall mean a Loan (a) as to which a Scheduled Payment was
---------------
not received as of the date on which such payment was due and payable, including
any applicable grace period, and (b) which is not a Defaulted Loan.
<PAGE>
Depositor shall mean Orinda Management Company.
---------
Determination Date, as used in the definitions of the terms Prepayment
------------------
Amount and Remaining Payments, shall mean the date Remaining Payments are to be
prepaid (in the case of a prepaid Loan) or accelerated (in the case of a
Defaulted Loan).
Due Period shall mean with respect to a Payment Date, the period from and
----------
including the second day of the calendar month preceding the month in which such
Payment Date occurs through and including the first day of the calendar month in
which such Payment Date occurs.
Duff & Phelps shall mean Duff & Phelps Credit Rating Co.
-------------
Early Payment shall mean with respect to a Loan and any Payment Date, any
-------------
Scheduled Payment in respect of such Loan which is due for any Due Period
subsequent to the Due Period relating to such Payment Date. An Early Payment
shall not be deemed a prepayment of any Loan.
Eligible Institution shall mean (a) a depository institution acceptable to
--------------------
the Credit Enhancer organized under the laws of the United States of America or
any one of the States thereof, the deposits of which depository institution are
insured, to the full extent permitted by applicable law, by the FDIC, which is
subject to supervision and examination by federal or state authorities and whose
long-term unsecured debt obligations are rated at least "A" by Standard & Poor's
and Duff & Phelps and "A2" by Moody's, or if not rated by Duff & Phelps, rated
at least "A" by Standard & Poor's and "A2" by Moody's at the time of any deposit
therein, or (b) a federal or state chartered depository institution whose long-
term unsecured debt obligations are rated at least "A" by Standard & Poor's and
Duff & Phelps and "A2" by Moody's, or if not rated by Duff & Phelps, rated at
least "A" by Standard & Poor's and "A2" by Moody's subject to regulations
regarding fiduciary funds on deposit substantially similar to 12 C.F.R. Section
9.10(b).
Eligible Investments at any time means any of the following:
--------------------
(i) Government Obligations; or
(ii) commercial paper having (a) an original maturity of less than 270
days and (b) a rating in the highest rating category of Duff & Phelps,
Moody's and S&P at the time of such investment, and if not rated by Duff &
Phelps, a rating in the highest rating category of Moody's and S&P at the
time of such investment; or
(iii) certificates of deposit of, banker's acceptances issued by or
federal funds sold by any depository institution or trust company
(including the
<PAGE>
Indenture Trustee or any agent of the Indenture Trustee acting in their
commercial capacity so long as they are an Eligible Institution)
incorporated under the laws of the United States of America or any State
thereof and subject to supervision and examination by federal and/or state
authorities, so long as at the time of such investment or contractual
commitment providing for such investment such depository institution or
trust company has a long-term unsecured debt rating in the highest rating
category of Duff & Phelps, Moody's and S&P, and if not rated by Duff &
Phelps, a rating in the highest rating category of Moody's and S&P, and
provided that each such investment has an original maturity of less than
365 days, and any other demand or time deposit or certificate of deposit
which is fully insured by the FDIC and rated at least "P-1" by Moody's; or
(iv) repurchase obligations with respect to (A) any security described
in clause (i) collateralized at 105% of the principal amount of such
repurchase obligations or (B) any other security issued or guaranteed as to
timely payment by an agency or instrumentality of the United States of
America, collateralized at 105% of the principal amount of such repurchase
obligations in either case entered into with a depository institution or
trust company (including the Indenture Trustee), acting as principal, whose
obligations having the same maturity as that of the repurchase agreement
would be Eligible Investments under clause (iii) above (provided that the
counter party is rated at least "P-1" by Moody's, "A-1+" by Standard &
Poor's and D-1 by Duff & Phelps; or, if not rated by Duff & Phelps, "P-1"
by Moody's and "A-1+" by Standard & Poor's); or
(v) a guaranteed investment contract issued by any insurance company
or other corporation having a long-term unsecured debt rating in the
highest rating category of S&P, Duff & Phelps and Moody's or, if not rated
by Duff & Phelps, in the highest rating category of S&P and Moody's at the
time of such investment and approved in writing by the Credit Enhancer; or
(vi) money market mutual funds having ratings in the highest rating
category of S&P, Duff & Phelps and Moody's or, if not rated by Duff &
Phelps, in the highest rating category of S&P and Moody's; or
(vii) investments approved in writing by the Credit Enhancer and the
Majority-in-Interest and acceptable to the Rating Agencies.
Environmental Laws shall mean any federal, state or local statute, code,
------------------
ordinance, rule, regulation, permit, consent, approval, license, judgment,
order, writ, judicial decision,
<PAGE>
common law rule, decree, agency interpretation, injunction or other
authorization or requirement whenever promulgated, issued, or modified,
including the requirement to register underground storage tanks, relating to:
(i) emissions, discharges, spills, releases or threatened releases of
pollutants, contaminants, Hazardous Substances, materials containing Hazardous
Substances, or hazardous or toxic materials or wastes into ambient air, surface
water, groundwater, watercourses, publicly or privately owned treatment works,
drains, sewer systems, wetlands, septic systems or onto land; (ii) the use,
treatment, storage, disposal, handling, manufacturing, transportation, or
shipment of Hazardous Substances, materials containing Hazardous Substances or
hazardous and/or toxic wastes, materials, products or by-products (or of
equipment or apparatus containing Hazardous Substances) as defined in or
regulated under the following statutes and their implementing regulations: the
Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801 et seq., the Resource
-- ---
Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., the Comprehensive
-- ---
Environmental Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act, 42 U.S.C. (S) 9601 et seq., and/or
-- ---
the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq. each as amended
-- ---
from time to time; or (iii) otherwise relating to environmental pollution or the
protection of human health and the environment.
Event of Default shall have the meaning specified in Section 7.1 of the
----------------
Indenture.
Expected Maturity of the Class A Notes shall mean August, 15, 2009.
--------------------------------------
FDIC shall mean The Federal Deposit Insurance Corporation, or any successor
----
thereto.
Final Maturity Date shall mean February 15, 2013, which is the final
-------------------
Payment Date on the Notes and Custody Receipts.
Fiscal Year shall mean the calendar year from each January 1 (or in the
-----------
case of 1997, from March 1) to the following December 31.
Franchisee Loan Agreement shall mean the loan agreement between a Borrower
-------------------------
and an Originator relating to a Loan.
Franchisor shall mean any franchisor of a System.
----------
Franchisor Intercreditor Agreement shall mean, with respect to each
----------------------------------
Franchisee Loan Agreement, a related intercreditor or similar agreement among a
Franchisor, the Seller and the Borrower, if any, as such agreement may be
amended, supplemented or otherwise modified from time to time.
<PAGE>
Franchisor Subordination of Lessor's Lien means, with respect to each Loan,
-----------------------------------------
the related subordination of lessor's lien or similar agreement between a
Franchisor and the Seller, if any, as such agreement may be amended,
supplemented or otherwise modified from time to time.
Government Obligations shall mean (i) non-callable direct obligations of,
----------------------
or non-callable obligations fully guaranteed by, the United States of America or
any agency or instrumentality of the United States of America the obligations of
which are backed by the full faith and credit of the United States of America or
(ii) an investment in a no-load money market fund rated AAAm-G by Standard &
Poor's, Aaa by Moody's and AAA by Duff & Phelps (or, if not rated by Duff &
Phelps, AAAm-G by Standard & Poor's and Aaa by Moody's), the assets of which are
invested solely in obligations described in clause (i) of this definition.
Grant shall have the meaning specified in the Granting Clauses of the
-----
Indenture.
Guaranty, with respect to a Loan, shall mean the guaranty (including a
--------
secured guaranty) contained in the Loan Documents of certain Borrowers relating
to each such Borrower's Loan from an Affiliate of the Borrower of the Borrower's
obligations under such Loan.
Hazardous Substances shall mean (a) hazardous materials, hazardous wastes,
--------------------
and hazardous substances as those terms are defined under the following statutes
and their implementing regulations as they may be amended from time to time: the
Hazardous Materials Transportation Act, 49 U.S.C. (S) 1791 et seq., the Resource
-- ---
Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., the Comprehensive
-- ---
Environmental Response, Compensation and Liability Act, as amended by the Super-
fund Amendments and Reauthorization Act, 42 U.S.C. (S) 9601 et seq., the Clean
-- ---
Water Act, 33 U.S.C. (S) 1251 et seq., (b) petroleum and petroleum products
-- ----
including crude oil and any fractions thereof, (c) natural gas, synthetic gas,
and any mixtures thereof, (d) asbestos and/or any material which contains any
hydrated mineral silicate, including, without limitation, chrysotile, amosite,
crocidolite, tremolite, anthophylite and/or actinolite, whether friable or
nonfriable, (e) PCBs, or PCB-containing materials or fluids, (f) radon, (g) any
other hazardous radioactive, toxic or noxious substance, material, pollutant, or
solid, liquid or gaseous waste, and (h) any substance with respect to which a
federal, state or local agency requires environmental investigation, monitoring
or remediation.
Highest Lawful Rate shall have the meaning specified in Section 11.14 of
-------------------
the Indenture.
Holdback Amount shall mean an amount initially equal to the excess of (i)
---------------
the Aggregate Outstanding Principal Amount of the
<PAGE>
Loans as of the Cut Off Date over (ii) the sum of (A) the Aggregate Outstanding
Principal Amount of the Class A Notes as of the Closing Date, (B) the Aggregate
Outstanding Principal Amount of the Class B Notes as of the Closing Date, and
(C) the Aggregate Outstanding Principal Amount of the Class C Notes as of the
Closing Date. Such amount will be reduced through payments made pursuant to
Section 5.2(c) of the Indenture and Net Losses allocated to the Holdback Amount.
Holder shall mean a Noteholder.
------
Indenture shall mean the Indenture of Trust, dated March 14, 1997 between
---------
the Issuer and the Indenture Trustee, as the same may be amended or supplemented
from time to time.
Indenture Trustee shall mean First Bank National Association, a national
-----------------
banking association, until a successor Person shall have become the Indenture
Trustee pursuant to the applicable provisions of the Indenture, and thereafter
"Indenture Trustee" shall mean such successor Person.
Independent shall mean, when used with respect to any specified Person,
-----------
such Person who (a) is not an Affiliate of or controlled by and is in fact
independent of each of the Seller, the Servicer, the Note Custodian, the
Servicing Advisor, the Issuer and any Borrower with respect to any Loan, (b)
does not have any direct financial interest or any material indirect financial
interest in the Seller, the Servicer, the Note Custodian, the Servicing Advisor,
the Issuer, any Borrower with respect to any Loan, or an Affiliate thereof, and
(c) is not connected with the Seller, the Servicer, the Note Custodian, the
Servicing Advisor, the Issuer or any Borrower with respect to any of the Loans
as an officer, employee, promoter, underwriter, trustee, partner, director or
Person performing similar functions.
Independent Accountant shall mean the firm of independent accountants
----------------------
appointed by the Issuer pursuant to Section 3.2 of the Servicing Agreement.
Individual Note shall mean a Note of an original principal amount equal to
---------------
the minimum denomination for Notes as specified in the Indenture; a Note of an
original principal amount in excess of such minimum denomination shall be deemed
to be a number of Individual Notes equal to the quotient obtained by dividing
such original principal amount by such minimum denomination.
Ineligible Loan shall have the meaning accorded to such term in the Loan
---------------
Sale and Purchase Agreement.
Initial Aggregate Class A-IO Custody Receipt Notional Amount shall mean
------------------------------------------------------------
$35,931,000.
<PAGE>
Initial Aggregate Principal Amount shall mean (i) with respect to all
----------------------------------
Notes, $92,411,000, (ii) with respect to the Class A-1 Notes, $48,698,000, (iii)
with respect to the Class A-2 Notes, $35,931,000, (iii) $3,891,000 with respect
to the Class B Notes, (iv) $3,891,000 with respect to the Class C Notes, and (v)
with respect to the Loans, $97,276,237.82.
Initial Custody Receipt Balance shall mean $84,443,000.
-------------------------------
Initial Principal Amount shall mean, with respect to any Note, the initial
------------------------
principal amount of such Note on the Closing Date as indicated thereon.
Insurance Agreement shall mean the Insurance Agreement dated March 14, 1997
-------------------
among the Issuer, the Seller and the Credit Enhancer, as it may be amended from
time to time.
Insurance Policy or Insurance Policies shall mean any insurance policy or
--------------------------------------
policies maintained by a Borrower in accordance with the requirements of its
Loan Documents or by the Servicer pursuant to the Servicing Agreement with
respect to any Loan.
Insurance Premium Rate shall mean the percentage set forth in the Insurance
----------------------
Agreement.
Insurance Proceeds shall mean any amounts received upon settlement of a
------------------
claim filed under an Insurance Policy (including proceeds of title insurance),
net of direct fees, costs (exclusive of overhead) and disbursements incurred in
connection with the collection thereof or the restoration or replacement of such
Borrower's collateral as contemplated by the Loan Documents.
Insured Payment shall have the meaning provided in the Credit Enhancement
---------------
Policy.
Intercreditor Agreement means, with respect to each Loan, a related
-----------------------
intercreditor or similar agreement among a Franchisor, the Seller and the
Borrower, if any, as such agreement may be amended, supplemented or otherwise
modified from time to time.
Interest Payment shall mean with respect to a Payment Date and a Loan, any
----------------
payment of interest due from the Borrower in respect of such Loan in the related
Due Period.
Issuer shall mean Atherton Franchisee Loan Funding 1997-A LLC, a special
------
purpose limited liability company organized under the laws of the State of
Delaware, and its successors and assigns.
Late Payment Charges shall mean with respect to a Payment Date and a Loan,
--------------------
all Late Payment Charges (as described in the
<PAGE>
Promissory Note) due for such Loan in respect of the related Due Period.
Leasehold Mortgage shall mean the leasehold mortgage (or collateral
------------------
assignment of lease) with respect to any lease, if any, securing the obligations
of the Borrower under its Promissory Note, as such leasehold mortgage (or
assignment of lease) may be amended, modified or renewed from time to time.
Limited Liability Company Agreement shall mean the limited liability
-----------------------------------
company agreement dated March 14, 1997 between Orinda Management Company and
Atherton.
Liquidated Loan shall mean with respect to any Defaulted Loan the earlier
---------------
of (i) the date the Servicer reasonably determines that it has collected all
amounts it reasonably expects to collect with respect to such Defaulted Loans
and (ii) the date such Defaulted Loan has been delinquent for a period of 20
months.
Liquidation Date shall mean, with respect to a Defaulted Loan, the date on
----------------
which such Defaulted Loan is determined to be a Liquidated Loan.
List of Loans shall mean the schedule, attached to the Indenture as
-------------
Schedule I, respectively, together listing all of the Loans constituting a part
of the Trust Estate under the Indenture, which schedule shall set forth or
include for each Loan listed thereon (i) the name of the Borrower under such
Loan, (ii) the original Principal Amount (as defined in the Promissory Note) of
the Promissory Note evidencing such Loan, (iii) the original and the remaining
term to the maturity date of such Loan, (iv) the amortization term of such Loan,
(v) the interest rate and (vi) a list of certain Loan Documents for such Loan
identifying, to the extent applicable, the Loan Documents required to be
included in the Loan File.
Loan shall mean each loan made by the Originator to franchisees of one or
----
more of the Systems, which Loan (i) is evidenced by a Promissory Note owned by
the Issuer listed on the List of Loans and Granted and delivered to the
Indenture Trustee under the Indenture as security for the Notes, and (ii) is not
a Liquidated Loan.
Loan Balance shall mean as of any date and Loan the unpaid principal
------------
balance thereof.
Loan Collateral shall mean with respect to a Loan, the related Security
---------------
Agreement, the Leasehold Mortgage or the Mortgage, if any, the Guaranty, if any,
and any other Loan Documents.
<PAGE>
Loan Documents shall mean with respect to a Loan, those instruments,
--------------
agreements, guaranty documents, certificates or other writings, now or hereafter
executed and delivered by the Borrower in respect of such Loan, including,
without limitation, those which are required to be included in the Loan File
therefor, as the same may be modified, amended, consolidated, continued or
extended from time to time.
Loan File shall mean the following instruments and documents in connection
---------
with each Loan:
(i) the executed original of the Promissory Note endorsed "Pay to the
order of ____________, without recourse," with all intervening
endorsements, if any, showing a complete chain of title from the originator
to the party endorsing such Promissory Note, plus amendments thereto;
(ii) an executed original of the Franchise Loan Agreement;
(iii) an executed original Security Agreement;
(iv) the original Mortgage, if applicable, with evidence of recording
thereon, or a duplicate original Mortgage, if applicable, together with
escrow instructions requiring such Mortgage to be dispatched to the
appropriate public recording office for recordation;
(v) an executed original recorded Leasehold Mortgage, if applicable,
in appropriate form for recording (with the possible exception of the
obtaining of a landlord signature) or with evidence of recording thereon;
(vi) an executed original Guaranty, if applicable;
(vii) the UCC-1 Financing Statement, with evidence of filing thereon,
or a copy of the original UCC-1 Financing Statement, together with escrow
instructions requiring such UCC-1 Financing Statement to be dispatched to
the appropriate public filing office;
(viii) one or more UCC-2 or UCC-3 Assignments in form and substance
acceptable for filing;
(ix) an executed original of each landlord, mortgagee or prior lien or
estoppel, if applicable;
(x) an executed original of a Franchisor Intercreditor Agreement, if
applicable;
(xi) an executed original of a Franchisor Subordination of Lessor's
Lien, if applicable;
<PAGE>
(xii) the original title insurance policy, if applicable;
(xiii) applicable certificate(s) of insurance;
(xiv) the environmental indemnity, if applicable;
(xv) an assignment of Mortgage, if applicable;
(xvi) a general assignment of the Loan File from the Seller (the
"Loan Assignment"), assigning, without recourse, all of the grantor's
----------------
right, title and interest in each Loan, including but not limited to, the
Franchisee Loan Agreement, the Promissory Note, the Security Agreement, the
Mortgage, the Leasehold Mortgage, the Franchisor Intercreditor Agreement,
the Franchisor Subordination of Lessor's Lien, the origination escrow
agreement and the Guaranty, as applicable; and
(xvii) any other credit or security document necessary for the
documentation and enforcement of such Loan.
Loan Payments shall mean with respect to a Payment Date and a Loan, the sum
-------------
of all Principal Payments, Interest Payments, Loan Yield Maintenance Amounts, if
any, Late Payment Charges, if any, and any other amounts received from the
Borrower in respect of such Loan for the related Due Period.
Loan Prepayment Principal Amount shall mean with respect to any Loan any
--------------------------------
unscheduled principal amount received in respect of a Loan and with respect to
which a Loan Yield Maintenance Amount is due.
Loan Rate shall mean, with respect to each Loan, the rate of interest borne
---------
thereby as set forth on the List of Loans.
Loan Reduction Amount shall mean with respect to any Payment Date and Loan
---------------------
the sum of (i) the related scheduled Principal Payments for such Payment Date;
(ii) the related Loan Prepayment Principal Amount received during the related
Due Period, or (iii) the related Net Loss incurred during the related Due
Period.
Loan Sale and Purchase Agreement shall mean the Loan Sale and Purchase
--------------------------------
Agreement, dated March 14, 1997 between the Managing Member, as seller, and the
Issuer, as purchaser, with respect to the Loans as the same may be amended or
supplemented from time to time.
Loan Sale and Purchase Agreements shall mean the Atherton Loan Sale and
---------------------------------
Purchase Agreement and the Loan Sale and Purchase Agreement.
<PAGE>
Loan Submission Summary shall mean any loan submission summary in
-----------------------
substantially the form set forth in Schedule 1 of the Servicing Agreement.
Loan Yield Maintenance Amount shall mean the greater of the following two
-----------------------------
amounts: (a) one percent (1%) of the then outstanding Loan balance; and (b) an
amount determined by: (i) calculating the sum of the present values of all
unpaid principal and interest payments required under the loan documents by
discounting such payments from their scheduled payment dates back to the date
prepayment will be made, utilizing a discount rate equal to the Converted
Treasury Yield divided by the frequency of the interest payments made during a
calendar year, and (ii) subtracting from such sum the outstanding principal
balance as of the date prepayment will be made.
Majority-in-Interest shall mean Holders of Notes representing in excess of
--------------------
fifty percent (50%) of the Percentage Interests of the Notes.
Majority of Affected Securityholders shall mean, with respect to a proposed
------------------------------------
action in respect of the Notes, a Majority-in-Interest of each class of Notes
affected by such proposed action.
Managing Member shall mean Orinda Management Company.
---------------
Maturity shall mean, with respect to any Note, the date on which the unpaid
--------
principal of such Note becomes due and payable as therein or in the Indenture
provided, whether at its stated maturity or otherwise.
Maturity Date shall mean, with respect to any Loan, its stated maturity
-------------
date.
Members shall mean the Owners of any Membership Interests.
-------
Membership Interest shall mean the membership interests issued by Atherton
-------------------
Franchisee Loan Funding 1997-A LLC pursuant to the Limited Liability Company
Agreement.
Moody's shall mean Moody's Investors Service, Inc.
-------
Mortgage shall mean any mortgage or deed of trust or deed to secure a Loan
--------
entered into by a Borrower (but not including Leasehold Mortgages) creating a
lien on and a security interest in the Mortgaged Property securing the
obligations of the Borrower under the related Promissory Note, together with any
other security instruments and any related UCC financing and continuation
statements delivered by the Borrower, including, in all events, the property and
rights assigned under all such instruments, together with all amendments,
substitutions and replacements of any of the foregoing.
<PAGE>
Mortgage Assignment shall mean with respect to each Mortgage, one or more
-------------------
executed original assignments in recordable form evidencing the assignment of
the related Mortgage from the Seller to the Managing Member, from the Managing
Member to the Issuer and from the Issuer to the Indenture Trustee for the
benefit of the Noteholders.
Mortgaged Property shall mean, collectively, all fee simple (or ground
------------------
lessee) interests of the mortgagor in any real property, including the
improvements thereon, subject to the lien of a Mortgage which secures a Loan.
Net Loss shall mean, with respect to a Liquidated Loan, the amount equal to
--------
(i) the Remaining Principal Payments with respect of such Loan on the Business
Day immediately prior to the Liquidation Date for such Liquidated Loan, less
(ii) all principal received in liquidation of such Loan, net of the reasonable
liquidation expenses of the Servicer.
Net Loss Condition shall be deemed to exist with respect to any Payment
------------------
Date on the Accounting Date for such Payment Date, the Aggregate Outstanding
Principal Amount of all Defaulted Loans with respect to which Net Losses have
occurred exceeds 1% of the Initial Aggregate Principal Amount of all Loans.
Net Rate shall mean with respect to any Accrual Period and Loan, a per
--------
annum rate equal to (i) the Loan Rate, (ii) less the sum of (A) the Servicing
Fee Rate and (B) the Trustee Fee Rate.
1933 Act shall mean the Securities Act of 1933, as amended, and the
--------
applicable published rules and regulations thereunder.
1940 Act shall mean the Investment Company Act of 1940, as amended, and the
--------
applicable published rules and regulations thereunder.
Note or Notes shall mean any note or notes, as the case may be, issued
---- -----
pursuant to the Indenture.
Note Custodian shall mean Bankers Trust Company and any successor thereto
--------------
as a note custodian under the Custodial Agreement.
Note Obligations shall mean any and all liabilities and obligations under
----------------
or in connection with the Notes, including, without limitation, any and all
liabilities and obligations for payment of principal, interest and Yield
Maintenance Amount, if any, under the Notes.
Note Rate shall mean, as determined by the Indenture Trustee, (i) with
---------
respect to the Class A-1 Notes, the Class A-1 Note Rate, (ii) with respect to
the Class A-2 Notes, the Class A-2 Note Rate, (iii) with respect to the Class B
Notes, the Class B
<PAGE>
Note Rate, and (iv) with respect to the Class C Notes, the Class C Note Rate.
Note Register and Note Registrar shall have the respective meanings
------------- --------------
specified in Section 2.6 of the Indenture.
Noteholder shall mean the registered owner of a Note as evidenced by the
----------
Note Register. Notwithstanding any other provision hereof, the Credit Enhancer
shall be considered the Holder of the Class A Notes for which it has paid all
principal and interest thereon and the Indenture Trustee shall note the Credit
Enhancer's interest in the Class A Notes with respect to interest payments made
therein in its books and shall note the Credit Enhancer's ownership interest in
the Class A Notes as to which the Credit Enhancer has paid all principal and
interest thereon.
Officer's Certificate shall mean, unless otherwise specified, a certificate
---------------------
signed by any Authorized Officer of the party delivering such certificate,
delivered to the Indenture Trustee and complying with the applicable
requirements of Section 11.1 of the Indenture.
Opinion of Counsel shall mean one or more written opinions of counsel who
------------------
may, except as otherwise expressly provided in the Indenture, be counsel for the
Issuer or its Affiliates.
Origination Escrow shall mean any amount held back and deposited in an
------------------
escrow account at the origination of the related loan from the loan proceeds
pursuant to the related Loan Documents, the amount and terms of which shall be
provided in writing by the Seller to the Servicer.
Originator shall mean The Atherton Group Incorporated or Atherton Capital
----------
Partners, L.P.
Outstanding shall mean, as of the date of determination, all Notes
-----------
theretofore authenticated and delivered under the Indenture except:
(i) Notes theretofore canceled by the Note Registrar or delivered to
the Note Registrar for cancellation;
(ii) Notes for the payment of which money in the necessary amount has
been theretofore deposited with the Indenture Trustee in trust for the
Holder of such Notes;
(iii) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered under the Indenture; and
<PAGE>
(iv) Notes alleged to have been mutilated, destroyed, lost or stolen
for which replacement Notes have been issued as provided for in Section 2.8
of the Indenture;
provided, however, that in determining whether the Holders of Notes having the
requisite aggregate Percentage Interest have given any request, demand,
authorization, direction, notice, consent or waiver under the Indenture, Notes
owned by the Issuer or any Affiliate of the Issuer shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the Indenture
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Notes which the
Indenture Trustee knows to be so owned shall be so disregarded. Notes so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Indenture Trustee the pledgee's
right so to act with respect to such Notes and that the pledgee is not the
Issuer or any other obligor upon the Notes or any Affiliate of the Issuer or
such other obligor; and provided further that Notes which have been paid with
the proceeds of the Credit Enhancement Policy shall continue to remain
Outstanding for purposes of the Indenture until the Credit Enhancer has been
paid the Credit Enhancement Reimbursement Amount with respect to such Notes and
the Credit Enhancer shall be deemed to be the Holder thereof to the extent of
any principal payments made thereon.
Outstanding Notional Amount shall mean as of any date of determination with
---------------------------
respect to any Class A-IO Custody Receipt, the Initial Notional Amount thereof
less any reductions of the notional amount thereof prior to such date of
determination.
Outstanding Principal Amount shall mean as of any date of determination
----------------------------
with respect to any Note, the Initial Principal Amount thereof less any payment
of principal on such Note prior to such date of determination.
Owner means the registered owner of a Custody Receipt.
-----
Paying Agent shall mean Bankers Trust Company or any successor thereto as
------------
Paying Agent with respect to the Notes pursuant to the Indenture.
Payment Date shall mean the fifteenth day of each month in each year, or if
------------
such day is not a Business Day, the next succeeding Business Day, commencing
April 15, 1997.
Percentage Interest shall mean (i) with respect to each Note a fraction,
-------------------
expressed as a percentage, the numerator of which is the Initial Principal
Amount of such Note and the denominator of which is the Initial Aggregate
Principal Amount of all Notes, (ii) with respect to a class of Notes, a
fraction, expressed as a percentage, the numerator of which is the Initial
Principal
<PAGE>
Amount of such Note, and the denominator of which is the Initial Aggregate
Principal Amount of all Notes of the same class, (iii) with respect to a Class A
Custody Receipt or a Class A-IO Custody Receipt, the percentage set forth on the
face thereof and (iv) with respect to the Notes of a class, a fraction,
expressed as a percentage, the numerator of which is the Initial Principal
Amount of such Notes and the denominator of which is the Initial Aggregate
Principal Amount of all Notes.
Periodic Filings shall mean any filings or submissions that the Issuer is
----------------
required to make with any state or federal regulatory agency or under the Code.
Permitted Encumbrances shall have the meaning specified in the Security
----------------------
Agreement with respect to each Loan.
Person shall mean any legal person, including any individual, corporation,
------
limited liability company, partnership, joint venture, association, joint stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
Placement Agent Agreement shall mean, with respect to the private placement
-------------------------
of any series of Securities, that certain Placement Agent Agreement between the
Issuer and Lehman Brothers Inc. relating thereto.
Pre-Cut Off Date Loan Payments shall mean all payments under the Loans
------------------------------
(including all payments of principal and interest) due on and prior to the Cut
Off Date.
Prepayment Amount shall mean as of any Determination Date (i) with respect
-----------------
to a prepaid Loan or a Defaulted Loan, an amount equal to the sum of (1) the
Remaining Payments of such Loan or Defaulted Loan together with any other
principal payments due on the Loan, (2) accrued interest on such Loan or
Defaulted Loan to the date of prepayment not included in clause (i) above, and
(3) an amount equal to the Loan Yield Maintenance Amount, if any, with respect
to such prepaid Loan or Defaulted Loan; and (ii) with respect to a Repurchased
Loan, an amount equal to the Repurchase Price for such Loan.
Principal Payment shall mean with respect to a Payment Date and a Loan, any
-----------------
payment of principal due in respect of such Loan in the related Due Period.
Proceeding shall mean any suit in equity, action at law or other judicial
----------
or administrative proceeding.
Promissory Note shall mean the note executed by a Borrower as evidence of
---------------
the obligation of such Borrower to repay funds borrowed by the Borrower from the
Originator, as such note may be amended, extended, modified or renewed from time
to time.
<PAGE>
Property shall mean the property where the restaurant relating to a Loan is
--------
located, which property consists of either a fee or leasehold estate in real
property and the related improvements located on such real property, including
the restaurant.
Rating Agencies shall mean S&P, Moody's and Duff & Phelps, and their
---------------
successors.
Record Date shall mean, with respect to a Payment Date, (i) the last day of
-----------
the immediately preceding calendar month or (ii) with respect to the initial
Payment Date, the Closing Date.
Recoveries shall mean for any Due Period occurring after the date on which
----------
any Loan becomes a Defaulted Loan and with respect to such Defaulted Loan, all
payments or amounts received on or in respect of such Loan (whether in
connection with the disposition of such Loan or any of the related Loan
Collateral or otherwise) during such Due Period in respect of amounts then
payable pursuant to such Defaulted Loan (including, without limitation, any
amounts received by the Servicer or the Indenture Trustee in connection with the
management or operation of any REO Property (as defined in the Servicing
Agreement)), net of out-of-pocket direct costs (exclusive of overhead) and
expenses reasonably incurred (including legal fees and expenses) by the Servicer
or the Indenture Trustee in connection with any such payments or amounts and any
preservation and disposition of the Loan or related Loan Collateral.
Reinvestment Yield shall mean, with respect to any Payment Date, the yield
------------------
available, or if there is more than one yield available, the average yields, on
United States Treasury non-callable bonds (excluding Flower Bonds) and notes
having a maturity date closest to (before, on or after) the Expected Maturity
Date for the Class A Notes, as reported in The Wall Street Journal or similar
publication on the last Business Day of the Due Period converted to a twelve-
month "equivalent yield" plus 50 basis points (0.50%).
----
Remaining Average Life shall mean, with respect to a Loan on any date, the
----------------------
number of years (calculated to the nearest one-twelfth year) obtained by
dividing (a) the sum of the products obtained by multiplying (i) each remaining
principal payment (but not interest thereon) by (ii) the number of years
(calculated to the nearest one-twelfth year) which will elapse between the date
of determination and the scheduled due date of such remaining principal payment
by (b) the outstanding principal balance of the Loan.
Remaining Payments shall mean with respect to any Loan or Defaulted Loan,
------------------
all Scheduled Payments with respect to such Loan or Defaulted Loan that would be
or become due on or after the
<PAGE>
Determination Date for such Loan or Defaulted Loan if no Principal Payment were
made prior to its scheduled due date.
REO Property shall mean any mortgaged property or other loan collateral
------------
acquired by the Servicer in foreclosure, by deed in lieu of foreclosure or
otherwise.
Repurchase Price shall mean an amount equal to the then Aggregate
----------------
Outstanding Principal Amount of such Loan plus any unpaid interest thereon that
has accrued at the Loan Rate to the date of repurchase.
Repurchased Loan shall mean any Loan repurchased by the Seller or the
----------------
Managing Member pursuant to the Loan Sale and Purchase Agreements.
Restricting Event shall mean, as of any Payment Date, the existence of (i)
-----------------
a Delinquency Condition or (ii) a Net Loss Condition as reported in the
Servicer's Certificate for such Payment Date.
Rule 144A shall mean 17 CFR 230.144A, or any comparable successor rule or
---------
regulation under the 1933 Act.
Scheduled Payment shall mean with respect to a Payment Date and a Loan, the
-----------------
sum of the scheduled Principal Payments and Interest Payments (as such terms are
defined in the Loan Documents with respect to such Loan), if any, due from the
Borrower in respect of such Loan in the related Due Period in accordance with
the terms of the related Promissory Note and the amortization schedule then
applicable thereto; provided that with respect to any Loan that becomes a
Liquidated Loan during the related Due Period the scheduled Principal Payment
shall mean the sum of the Remaining Principal Payments with respect to such
Loan.
Scheduled Principal Amount shall mean, with respect to any Payment Date,
--------------------------
the aggregate of the Loan Reduction Amounts relating to such Payment Date.
Secured Party with respect to any Loan shall have the meaning accorded to
-------------
such term in the Loan Documents for such Loan.
Securities shall mean the Notes and the Custody Receipts.
----------
Securities Purchase Agreements shall mean the Securities Purchase
------------------------------
Agreements, among the Issuer or the Depositor, as applicable, and the Securities
Purchaser and relating to the purchases of Securities on the Closing Date.
Securities Purchaser shall mean any of the purchasers of the Securities
--------------------
pursuant to a Securities Purchase Agreement.
<PAGE>
Security Agreement shall mean with respect to a Loan, the Security
------------------
Agreement included in the Loan Documents in respect of such Loan providing for
the grant of a security interest in the restaurant equipment and other personal
property relating to the restaurant business in one of the Systems to secure
such Loan.
Securityholder shall mean a Holder of a Security or of a Custody Receipt.
--------------
Seller shall mean Atherton Capital Incorporated, in its capacity as seller
------
under the Loan Sale and Purchase Agreement.
Servicer shall mean Bankers Trust Company, a New York banking corporation,
--------
in its capacity as servicer under the Servicing Agreement, together with its
subservicers, successors and assigns as permitted thereunder.
Servicer Recommendation shall mean a recommendation with respect to a Loan
-----------------------
as to which a default has occurred prepared by the Servicing Advisor pursuant to
the Servicing Agreement.
Servicer Report Date shall mean with respect to a Payment Date the third
--------------------
Business Day preceding such Payment Date.
Servicer's Certificate shall mean a certificate to be provided by the
----------------------
Servicer in accordance with the Servicing Agreement and signed by an Authorized
Officer of the Servicer and furnished to the Issuer, the Credit Enhancer and the
Indenture Trustee by the Servicer.
Servicing Advisor shall mean Atherton.
-----------------
Servicing Advisor Fee shall mean with respect to any Payment Date the
---------------------
Servicing Advisor Fee Rate multiplied by the Aggregate Outstanding Principal
Amount of the Loans on the first day of the related Due Period.
Servicing Advisor Fee Rate shall mean ***/1/ per annum.
--------------------------
Servicing Agreement shall mean the Servicing and Custodial Agreement dated
-------------------
March 14, 1997, by and among the Issuer, the Indenture Trustee, the Servicer and
the Servicing Advisor.
Servicing Fee shall mean with respect to any Payment Date an amount equal
-------------
to the sum of (i) one-twelfth of the product of (x) the Servicing Fee Rate and
(y) the Aggregate Outstanding Principal Amount of the Loans for such Payment
Date, plus (ii)
- --------------
/1/ Certain information has been deleted from this document where denoted
- ---
by asterisks, and has been filed separately with the Commission. The Company
has requested confidential treatment for such omitted information.
<PAGE>
Late Payment Charges, if any, received during the related Due Period with
respect to Loans.
Servicing Fee Rate shall mean ***/2/ per annum.
------------------
S&P shall mean Standard & Poor's Ratings Services, a division of The
---
McGraw-Hill Companies, Inc.
State shall mean any one of the states of the United States of America, or
-----
the District of Columbia.
Stated Payment Amount shall, with respect to any Loan, have the meaning
---------------------
accorded to such term in the Promissory Note included in the Loan Documents for
such Loan.
Subordination Deficit shall mean, as of any Payment Date, the excess, if
---------------------
any, of (i) the Aggregate Outstanding Amount of the Class A Notes over (ii) the
Aggregate Outstanding Principal Amount of the Loans.
Super-Majority-in-Interest shall mean Holders of Notes representing in
--------------------------
excess of sixty-six and two-thirds percent (66-2/3%) of the Percentage Interests
of the Notes.
Systems shall mean one or more of the following concepts: ***.
-------
Title Insurance Policy shall mean with respect to a particular Mortgaged
----------------------
Property, an ALTA (extended coverage) Loan Title Insurance Policy or Policies or
other title insurance (including all riders or endorsements thereto) and
insuring the Seller that the Mortgage constitutes a valid first lien on the
Mortgaged Property, subject to Permitted Encumbrances.
Transfer shall have the meaning accorded to such term in Section 3.3 of the
--------
Indenture.
Trust Estate shall have the meaning specified in the Granting Clauses of
------------
the Indenture.
Trustee Fee Rate shall mean *** per annum.
----------------
UCC shall mean Uniform Commercial Code.
---
Unit FCR, with respect to any Loan, shall have the meaning set forth for
--------
"FCR" in the Underwriting Guidelines delivered with the Loan Sale and Purchase
Agreement.
- ------------
/2/ Certain information has been deleted from this document where denoted
- ---
by asterisks, and has been filed separately with the Commission. The Company
has requested confidential treatment for such omitted information.
<PAGE>
Unpaid Principal Shortfall shall mean as of any Payment Date (i) with
--------------------------
respect to each class of Custody Receipts and Notes, an amount, to the extent
unpaid on any previous Payment Date, equal to the remainder, if any, of (A) the
related Scheduled Principal Amount allocable to such class of Custody Receipts
or Notes on all preceding Payment Dates less (B) the actual amount of the
related Scheduled Principal Amount actually distributed to such class of Notes
or Class C Notes on such Payment Dates.
Weighted Average Net Rate shall mean as to any Payment Date, the average of
-------------------------
the Net Rates of the Loans weighted on the basis of the Loan Balances as of the
first day of the related Due Period.
Yield Maintenance Amount shall mean either the Class A Custody Receipt
------------------------
Yield Maintenance Amount, the Class A-IO Custody Receipt Yield Maintenance
Amount, the Class A-1 Yield Maintenance or the Class A-2 Yield Maintenance
Amount, as the context requires.
<PAGE>
EXHIBIT 10.11
INDENTURE OF TRUST
Dated as of August 1, 1998
ATHERTON FRANCHISEE LOAN FUNDING 1998-A LLC,
as Issuer
and
BANKERS TRUST COMPANY,
as Indenture Trustee
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
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<S> <C>
ARTICLE I
DEFINITIONS AND ASSUMPTIONS
Section 1.1. Definitions..................................................... 3
Section 1.2. Construction.................................................... 3
ARTICLE II
THE NOTES
Section 2.1. Authorization of Notes: Notes to Constitute Full
Recourse Obligations.......................................... 4
Section 2.2. Forms of Notes.................................................. 5
Section 2.3. Authorized Principal Amount..................................... 5
Section 2.4. Date of Notes; Denominations.................................... 5
Section 2.5. Execution, Authentication, and Delivery......................... 6
Section 2.6. Transfer and Registry; Exchange; Negotiability.................. 6
Section 2.7. Regulations With Respect to Exchanges and Transfers............. 10
Section 2.8. Mutilated, Destroyed, Stolen or Lost Notes...................... 10
Section 2.9. Medium of Payment; Payment of Interest; Payment of Principal.... 11
Section 2.10. Persons Deemed Noteholders...................................... 12
Section 2.11. Cancellation.................................................... 13
Section 2.12. Access to List of Noteholders' Names and Addresses.............. 13
Section 2.13. Acts of Noteholders............................................. 13
Section 2.14. Certain Tax Matters............................................. 14
ARTICLE III
ISSUANCE OF NOTES
Section 3.1. Conditions to Authentication and Delivery of Notes
on the Closing Date........................................... 14
Section 3.2. Transfer of Indenture Trust Estate.............................. 16
ARTICLE IV
COVENANTS OF THE ISSUER
Section 4.1. Payment of Principal, Interest and Loan Yield
Maintenance Amount............................................ 16
Section 4.2. Maintenance of Existence........................................ 16
</TABLE>
i
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<TABLE>
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Section 4.3. Protection of Indenture Trust Estate............................ 17
Section 4.4. [Reserved]...................................................... 17
Section 4.5. Books of Account................................................ 17
Section 4.6. Performance of Obligations...................................... 18
Section 4.7. Negative Covenants.............................................. 18
Section 4.8. Availability of Information..................................... 19
Section 4.9. Protection of Security; Power to Issue Notes and Grant
Indenture Trust Estate; Indenture to Constitute Contract...... 20
Section 4.10. Annual Statement as to Compliance............................... 24
Section 4.11. Maintenance of Offices or Agency................................ 24
Section 4.12. Further Assurances.............................................. 25
Section 4.13. Money for Payments to Be Held in Trust.......................... 25
ARTICLE V
ACCOUNTS, DISBURSEMENTS AND RELEASES
Section 5.1. Collection of Money............................................. 25
Section 5.2. Distribution Account............................................ 25
Section 5.3. Reserve Account................................................. 28
Section 5.4. Investment of Funds............................................. 28
Section 5.5. Repayment to the Issuer from the Accounts....................... 28
Section 5.6. Reports to the Noteholders...................................... 29
Section 5.7. Write-Down Amounts.............................................. 29
Section 5.8. Optional Redemption............................................. 29
ARTICLE VI
[RESERVED]
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1. Events of Default............................................... 30
Section 7.2. Acceleration of Maturity........................................ 31
Section 7.3. Enforcement of Remedies......................................... 32
Section 7.4. Application of Money Collected Upon Acceleration................ 34
Section 7.5. Unconditional Rights of Noteholders to Receive Principal
and Interest.................................................. 34
Section 7.6. Restoration of Rights and Remedies.............................. 34
Section 7.7. Rights and Remedies Cumulative.................................. 35
Section 7.8. Delay or Omission not to Constitute a Waiver.................... 35
Section 7.9. Control By Majority-In-Interest................................. 35
Section 7.10. Waiver of Past Events of Default................................ 36
</TABLE>
ii
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<S> <C>
Section 7.11. Undertaking for Costs........................................... 36
Section 7.12. Issuer Waiver of Stay or Extension Laws......................... 36
Section 7.13. Sale of Indenture Trust Estate.................................. 37
Section 7.14. Action on Notes................................................. 37
ARTICLE VIII
RELEASE, SATISFACTION AND DISCHARGE
Section 8.1. Satisfaction and Discharge of Indenture......................... 38
Section 8.2. Application of Trust Money...................................... 38
Section 8.3. Release of Indenture Trust Estate............................... 38
ARTICLE IX
THE INDENTURE TRUSTEE
Section 9.1. Certain Duties and Responsibilities............................. 39
Section 9.2. Notice of Events of Default..................................... 41
Section 9.3. Certain Rights of the Indenture Trustee......................... 41
Section 9.4. Not Responsible for Recitals or Issuance of Notes............... 43
Section 9.5. May Hold Notes.................................................. 43
Section 9.6. Money Held in Trust............................................. 44
Section 9.7. Compensation and Reimbursement.................................. 44
Section 9.8. Indenture Trustee Eligibility................................... 45
Section 9.9. Resignation and Removal; Appointment of Successor............... 46
Section 9.10. Acceptance of Appointment by Successor.......................... 47
Section 9.11. Merger, Conversion, Consolidation or Succession to Business
of Indenture Trustee.......................................... 48
Section 9.12. Co-trustees and Separate Indenture Trustees..................... 48
Section 9.13. Streit Act...................................................... 49
Section 9.14. Tax Reporting................................................... 50
ARTICLE X
AMENDMENTS
Section 10.1. Amendments Without Consent of Noteholders....................... 50
Section 10.2. Amendments with Consent of Noteholders and Third Parties........ 51
Section 10.3. Execution of Amendments......................................... 52
Section 10.4. Effect of Amendment............................................. 52
Section 10.5. Reference in Notes to Amendments................................ 53
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iii
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ARTICLE XI
MISCELLANEOUS
Section 11.1. Compliance Certificates......................................... 53
Section 11.2. Form of Documents Delivered to Indenture Trustee................ 54
Section 11.3. Notices, Etc. to Parties........................................ 55
Section 11.4. Notices and Information to Noteholders; Waiver.................. 56
Section 11.5. Effect of Headings and Table of Contents........................ 56
Section 11.6. Successors and Assigns.......................................... 56
Section 11.7. Severability.................................................... 56
Section 11.8. Legal Holidays.................................................. 56
Section 11.9. Recording of Indenture.......................................... 57
Section 11.10. Limited Obligations............................................. 57
Section 11.11. Governing Law................................................... 57
Section 11.12. Counterparts.................................................... 57
</TABLE>
EXHIBITS
EXHIBIT A-1 - Form of Class A-1 Note
EXHIBIT A-2 - Form of Class A-2 Note
EXHIBIT A-3 - Form of Class A-X Note
EXHIBIT A-4 - Form of Class B Note
EXHIBIT A-5 - Form of Class C Note
EXHIBIT A-6 - Form of Class D Note
EXHIBIT A-7 - Form of Class E Note
EXHIBIT A-8 - Form of Class F Note
EXHIBIT B - Form of Authentication Order
EXHIBIT C - Form of Confidentiality Agreement
EXHIBIT D - Form of Transferee Certificate
iv
<PAGE>
INDENTURE OF TRUST (herein, as amended or supplemented from time to
time as permitted hereby, this or the "INDENTURE"), dated as of August 1, 1998,
by and between ATHERTON FRANCHISEE LOAN FUNDING 1998-A LLC, a limited liability
company organized under the laws of the State of Delaware (the "ISSUER"), and
BANKERS TRUST COMPANY, a New York banking corporation, as trustee (together with
its permitted successors in the trusts hereunder, the "INDENTURE TRUSTEE").
W I T N E S S E T H:
- - - - - - - - - --
WHEREAS, on the Closing Date (as such term and such other capitalized
terms used herein and not otherwise defined are defined in Appendix A hereof),
the Issuer proposes to issue its Atherton Franchisee Loan Notes, Series 1998-A,
pursuant to this Indenture;
WHEREAS, as security for the Notes, the Issuer proposes to pledge and
assign the Indenture Trust Estate;
WHEREAS, the Issuer has duly authorized the execution and delivery of
this Indenture to provide for the issuance, payment, administration and securing
of the Notes for the benefit of the Holders thereof;
WHEREAS, the Issuer and the Indenture Trustee agree that the Indenture
Trustee be appointed under this Indenture and be charged with and accept the
trusts and duties set forth in this Indenture in connection with the issuance,
payment, administration and securing of the Notes under this Indenture for the
benefit of the Holders of the Notes;
WHEREAS, the Indenture Trustee has duly authorized the execution and
delivery of this Indenture and is duly authorized to accept the trusts and to
perform its obligations under this Indenture;
WHEREAS, all things necessary to make this Indenture a valid agreement
of the Issuer and the Indenture Trustee in accordance with its terms have been
done; and
WHEREAS, all things necessary to make the Notes, when executed and
delivered by the Issuer and authenticated by the Indenture Trustee and issued as
in this Indenture provided, the valid, binding and legal obligations of the
Issuer according to the import thereof, have been done and performed.
GRANTING CLAUSE
NOW, THEREFORE, in order to secure the payment of the principal of,
interest on, Loan Yield Maintenance Amounts, if any, and all other amounts
payable with respect to the Notes to be issued pursuant to this Indenture, and
in order to secure the performance and observance of all the covenants and
conditions contained herein and in such Notes, and in order to declare the terms
and conditions upon which the Notes are
<PAGE>
executed, authenticated, issued, delivered, secured and accepted by all Persons
who shall from time to time be or become Holders thereof, and for and in
consideration of the mutual covenants contained herein, of acceptance by the
Indenture Trustee of the trusts hereby created, and of the purchase and
acceptance of the Notes by the Holders thereof, the Issuer has executed and
delivered this Indenture and by these presents, the Issuer does hereby pledge,
bargain, sell, warrant, alienate, remise, convey, assign, transfer, create and
grant a lien upon and a security interest in and a right of set-off against
(collectively, "GRANT") unto the Indenture Trustee, its successor or successors
and its or their assigns forever, in trust and as collateral security for the
benefit of the Holders of the Notes, the Issuer's entire right, title, interest
and estate, whether now owned or hereafter acquired, in, to and under (i) the
Certificate of Beneficial Ownership; (ii) the present and continuing exclusive
right, power and authority to make claim for, collect, receive and make receipt
for any of the sums, amounts, income, revenues, issues, profits and proceeds
under, on account of or with respect to, the Certificate of Beneficial
Ownership; (iii) all moneys and securities from time to time held by the
Indenture Trustee in any Account created under the terms of this Indenture and
all interest, profits, proceeds, or other income derived from such moneys and
securities; (iv) the present and continuing exclusive right, power and authority
to give and receive notices and other communications, to make waivers or other
agreements in respect of, or to make claims for and demand performance on, under
or pursuant to the Certificate of Beneficial Ownership, to bring actions and
proceedings thereunder or for the enforcement thereof, and to exercise all
remedies, powers, privileges and options and to do any and all things which the
Issuer is or may become entitled to do under or in respect of the Certificate of
Beneficial Ownership; and (v) all income, revenues, issues, products, revisions,
substitutions, replacements, profit and proceeds of and from all of the
foregoing (collectively, the "INDENTURE TRUST ESTATE").
TO HAVE AND TO HOLD IN TRUST all and singular the Indenture Trust
Estate whether now or hereafter acquired, unto the Indenture Trustee and its
successor or successors and its or their assigns forever for the benefit of the
Holders of the Notes, but:
IN TRUST NEVERTHELESS, upon the terms, trusts and conditions
hereinafter set forth for the equal and proportionate benefit, security and
protection of all present and future Holders of the Notes without preference,
privilege, priority or distinction as to the lien or otherwise of any of the
Notes over any of the other Notes, except as otherwise may be provided in this
Indenture (including, without limitation, Article V hereof), subject to the
priority payment rights of the Holders of the Notes;
PROVIDED, HOWEVER, that if the Issuer, its successors or assigns (i)
shall pay, or cause to be paid, the principal of, interest on, and Loan Yield
Maintenance Amounts, if any, payable with respect to the Notes due or to become
due thereon, at the times and in the manner mentioned in the Notes, or shall
provide, as permitted hereby, for the payment thereof, (ii) shall keep, perform
and observe all the covenants and conditions pursuant to the terms of this
Indenture to be kept, performed and observed by it, and (iii) shall pay or cause
to be paid to the Indenture Trustee all sums
2
<PAGE>
of money due or to become due to it and any other fiduciary appointed hereunder
in accordance with the terms and provisions hereof, then upon the final payment
thereof this Indenture, all rights of the Holders of the Notes under this
Indenture and the rights hereby granted for the benefit thereof shall cease,
terminate and be void; otherwise this Indenture shall be and remain in full
force and effect.
The Indenture Trustee, for itself and its successors and assigns,
hereby declares that it shall hold all the estate, right, title and interest in
any property received by it under this Indenture, including, without limitation,
the Indenture Trust Estate, in trust for the benefit of all present and future
Holders of the Notes, subject to the terms of this Indenture. The Indenture
Trustee acknowledges the Grant of the Indenture Trust Estate hereunder, accepts
the trusts hereunder in accordance with the provisions hereof and agrees to
perform fully the duties herein required of it to the end that the interests of
the Holders of the Notes may be adequately and effectively protected in
accordance with the provisions of this Indenture.
THIS INDENTURE FURTHER WITNESSETH, and it is expressly declared, that
all Notes issued and secured hereunder are to be issued, authenticated and
delivered and all said property, rights and interests and other amounts hereby
assigned and pledged, are to be dealt with and disposed of under, upon and
subject to the terms, conditions, stipulations, covenants, agreements, trusts,
uses and purposes as hereinafter expressed, and the Issuer has agreed and
covenanted, and does hereby agree and covenant with the Indenture Trustee and
with the respective Holders of the Notes, as follows:
ARTICLE I
DEFINITIONS AND ASSUMPTIONS
SECTION 1.1. DEFINITIONS. For all purposes of this Indenture,
-----------
except as otherwise expressly provided herein or unless the context otherwise
requires, capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in Appendix A hereto, which is hereby incorporated by
reference herein. All other capitalized terms used herein shall have the
meanings specified herein.
SECTION 1.2. CONSTRUCTION. In this Indenture, unless the context
------------
otherwise requires:
(a) The terms "hereby," "hereof," "hereto," "herein," "hereunder" and
any similar terms, as used in this Indenture, refer to this Indenture, and
the term "hereafter" shall mean after, and the term "heretofore" shall mean
before, the date of the execution and delivery of this Indenture.
(b) Words of the masculine gender shall mean and include correlative
words of the feminine and neuter genders and words importing the singular
number shall mean and include the plural number and vice versa.
3
<PAGE>
(c) Words importing persons shall include firms, associations,
limited liability companies, partnerships (including limited partnerships),
trusts, corporations and other legal entities, including public bodies, as
well as natural persons.
(d) Any headings preceding the texts of the several Articles and
Sections of this Indenture, and any table of contents appended to copies
hereof, shall be solely for convenience of reference and shall not
constitute a part of this Indenture, nor shall they affect its meaning,
construction or effect.
(e) The term "related" when used with reference to a Payment Date and
either an Accrual Period, Prepayment Period, Due Period or an Accounting
Date shall mean the Accrual Period, Prepayment Period, Due Period or
Accounting Date immediately preceding such Payment Date.
(f) All references to any time of any date (e.g., 11:00 a.m.) shall
refer to such time on such day in New York City, New York.
ARTICLE II
THE NOTES
SECTION 2.1. AUTHORIZATION OF NOTES: NOTES TO CONSTITUTE FULL
-------------------------------------------------
RECOURSE OBLIGATIONS.
- --------------------
(a) The Notes issuable hereunder shall be issued as registered Notes,
without coupons, in eight Classes authorized by the Issuer on the Closing Date.
The Notes of all Classes shall be known and entitled generally as the "Atherton
Franchisee Loan Notes, Series 1998-A." The Notes of each Class shall have such
further particular designation as the Issuer may adopt for each Class, and each
Note issued hereunder shall bear upon the face thereof the designation so
adopted for the Class to which it belongs. The Indenture Trustee is hereby
authorized and directed to authenticate and deliver on the Closing Date eight
Classes of Notes of the Issuer, which shall be designated "Atherton Franchisee
Loan Notes, Series 1998-A, Class A-1," "Atherton Franchisee Loan Notes, Series
1998-A, Class A-2," "Atherton Franchisee Loan Notes, Series 1998-A, Class A-X,"
"Atherton Franchisee Loan Notes, Series 1998-A, Class B," "Atherton Franchisee
Loan Notes, Series 1998-A, Class C," "Atherton Franchisee Loan Notes, Series
1998-A, Class D," "Atherton Franchisee Loan Notes, Series 1998-A, Class E," and
"Atherton Franchisee Loan Notes, Series 1998-A, Class F," respectively.
(b) The Notes shall constitute full recourse obligations of the
Issuer. The Notes when issued shall not constitute direct or indirect
indebtedness or obligations of, nor are they guaranteed by, the Indenture
Trustee. The Indenture Trustee shall not be liable to the Holders of the Notes
for the payment of the principal thereof, interest thereon, or Loan Yield
Maintenance Amounts, if any, payable thereon or for any liability
4
<PAGE>
under this Indenture. Neither the Notes nor the Loans are insured by any
governmental agency.
SECTION 2.2. FORMS OF NOTES. The Notes and the Indenture Trustee's
--------------
certificate of authentication shall be in substantially the forms set forth in
EXHIBIT A attached hereto, with necessary or appropriate variations, omissions
and insertions, as permitted or required by this Indenture and may have such
letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may, consistent herewith, be determined by the
Authorized Officers of the Issuer executing such Notes, as evidenced by their
execution of such Notes. Definitive Notes, if any, shall be typewritten,
photocopied, printed, lithographed or engraved or produced by any combination of
these methods (with or without steel engraved borders), all as determined by the
Authorized Officers of the Issuer executing such Notes, as evidenced by their
execution of such Notes.
SECTION 2.3. AUTHORIZED PRINCIPAL AMOUNT. The Initial Aggregate
---------------------------
Principal Amount of the Notes, other than the Class A-X Notes, that may be
authenticated and delivered under this Indenture is $190,266,110 and the Initial
Aggregate Notional Amount of the Class A-X Notes that may be authenticated and
delivered under this Indenture is $201,339,779, except for Notes authenticated
and delivered upon registration of transfer of, or in exchange for, or in lieu
of, Notes pursuant to Section 2.6, 2.7, 2.8 or 10.5 hereof. Except for such
differences among the Class A-X Notes and the other Notes as are expressly
provided for herein and differences to reflect the subordination of: the Class F
Notes to all other Classes of Notes; the Class E Notes to the Class D Notes, the
Class C Notes, the Class B Notes, and the Class A Notes; the Class D Notes to
the Class C Notes, the Class B Notes and the Class A Notes; the Class C Notes to
the Class B Notes and the Class A Notes; and the Class B Notes to the Class A
Notes, all Notes Outstanding shall be identical in all respects other than the
maturity thereof, the interest rate thereon and the denominations thereof. All
Notes issued under this Indenture shall in all respects be equally and ratably
entitled to the benefits hereof without preference, priority or distinction on
account of the actual time or times of authentication and delivery, all in
accordance with the terms and provisions of this Indenture.
SECTION 2.4. DATE OF NOTES; DENOMINATIONS
----------------------------
(a) Notes which are authenticated and delivered by the Indenture
Trustee to or upon the order of the Issuer on the Closing Date shall be dated as
of the Closing Date. All other Notes which are authenticated for any other
purpose hereunder shall be dated the date of their authentication. The Notes,
other than the Class A-X Notes, issued in fully registered, certificated form
shall be issued in minimum denominations of $100,000, with respect to the Class
A-1, Class A-2, Class B, Class C, Class D, Class E and Class F Notes and in
integral multiples of $1,000 in excess thereof; provided, however, that one Note
-------- -------
in each such Class of Notes may be issued in a different
5
<PAGE>
denomination. The Class A-X Notes issued in fully registered, certificated form
shall be issued in minimum percentage interests of 10%.
(b) Notes issued upon transfer, exchange or replacement of other
Notes shall be issued in authorized denominations reflecting the Initial
Aggregate Principal Amount or Initial Aggregate Notional Amount, as the case may
be, of the Notes so transferred, exchanged or replaced, but shall represent only
the then current Aggregate Outstanding Principal Amount or Outstanding Notional
Amount, as the case may be, of the Notes so transferred, exchanged or replaced.
In the event that any Note is divided into more than one Note in accordance with
the provisions hereof, the principal amount or notional amount, as the case may
be, of such Note shall be proportionately divided among the Notes delivered in
exchange therefor.
SECTION 2.5. EXECUTION, AUTHENTICATION, AND DELIVERY
---------------------------------------
(a) Each Note shall be executed on behalf of the Issuer with the
manual or facsimile signature of an Authorized Officer of the Issuer.
(b) Notes bearing the manual or facsimile signature of individuals
who were at any time Authorized Officers of the Issuer shall bind the Issuer,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Notes or did not hold
such offices at the date of such Notes.
(c) At any time and from time to time after the execution and
delivery of this Indenture, the Issuer may deliver Notes executed by the Issuer
to the Indenture Trustee for authentication. Upon a written order from the
Issuer in the form of EXHIBIT B hereto, the Indenture Trustee shall authenticate
and deliver such Notes as provided in this Indenture and not otherwise. No Note
shall be entitled to any benefit under this Indenture or be valid or obligatory
for any purpose, unless there appears on such Note a certificate of
authentication substantially in the form of such Note set forth in EXHIBIT A
hereto executed by the Indenture Trustee by the manual signature of an
Authorized Officer of the Indenture Trustee, and such certificate upon any Note
shall be conclusive evidence, and the only evidence, that such Note has been
duly authenticated and delivered hereunder.
SECTION 2.6. TRANSFER AND REGISTRY; EXCHANGE; NEGOTIABILITY
----------------------------------------------
(a) Notes of each Class will be represented initially by beneficial
interests in a single global Note in definitive, fully registered form without
coupons deposited with a custodian for, and registered in the name of, The
Depository Trust Company ("DTC"). Beneficial interests in such global Note will
trade in DTC's same-day funds settlement system. Beneficial interests in such
global Note will be shown on, and transfers thereof will be effected only
through, records maintained by DTC and its participants. Bankers Trust Company
or its affiliate may serve as custodian for DTC. Beneficial owners of the
global Note may obtain certificated Notes in exchange for their beneficial
interests in the
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global Note upon request in accordance with DTC's and the Registrar's
procedures. In addition, certificated Notes shall be transferred to all
beneficial owners in exchange for their beneficial interests in the global Note
if (i) the Issuer notifies the Indenture Trustee in writing that DTC is
unwilling or unable to act as a depositary for the global Note and the Issuer is
unable to locate a qualified successor within 90 days or (ii) the Issuer, at its
option, notifies the Indenture Trustee in writing that it elects to change the
issuance of Notes in the form of certificated Notes under the Indenture. In
addition, application may be made to have the Class E Notes and the Class F
Notes designated as eligible for trading on The PORTAL Market of The Nasdaq
Stock Market, Inc.
(b) (i) Each Note in registered and certificated form shall be
transferable only upon the books of the Issuer (the "REGISTER"), which
shall be kept for that purpose at the office of the Person acting as
registrar of the Issuer (the "REGISTRAR"). The Indenture Trustee is hereby
designated as the initial Registrar. Subject to the provisions of
paragraph (c) of this Section 2.6, the transfers of any Note may be
effected on the books of the Issuer by the Holder thereof in person or by
its attorney duly authorized in writing, upon surrender thereof together
with a written instrument of transfer satisfactory to the Registrar duly
executed by the Holder or its duly authorized attorney. Upon the transfer
of any such Note, the Issuer shall issue in the name of the transferee a
new Note or Notes of the same aggregate principal or notional amount,
Class, interest rate and maturity as the surrendered Note.
(ii) At the option of the Holder, Notes may be exchanged for
other Notes of any authorized denominations, and of a like aggregate
principal or notional amount, Class, interest rate and maturity, upon
surrender of the Notes to be exchanged at such office or agency. Whenever
any Notes are so surrendered for exchange, the Issuer shall execute, and
the Indenture Trustee shall authenticate and deliver, the Notes which the
Noteholder making the exchange is entitled to receive.
(iii) All Notes issued upon any registration of transfer or
exchange of Notes shall be the valid obligations of the Issuer, evidencing
the same debt, and entitled to the same benefits under this Indenture, as
the Notes surrendered upon such registration of transfer or exchange.
(iv) Every Note presented or surrendered for registration of
transfer or exchanged shall (if so required by the Issuer or the Indenture
Trustee) be duly endorsed, or be accompanied by a written instrument of
transfer in form satisfactory to the Issuer and the Indenture Trustee duly
executed, by the Holder thereof or its attorney duly authorized in writing.
(v) Each Note shall bear a legend substantially to the following
effect:
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "1933 ACT"), OR
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ANY STATE SECURITIES LAW AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT (A) TO THE ISSUER, (B) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE 1933 ACT, (C) FOR SO LONG
AS THE NOTES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
1933 ACT ("RULE 144A") TO A PERSON THE TRANSFEROR REASONABLY BELIEVES
IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING
MADE IN RELIANCE ON RULE 144A, OR (D) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE 1933 ACT, SUBJECT
TO THE ISSUER'S, THE REGISTRAR'S AND THE INDENTURE TRUSTEE'S RIGHT
PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSE (B)
OR (D) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION
AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN
EACH OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER
IN THE FORM APPEARING ON THIS NOTE IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE REGISTRAR, AND THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF
THE RESALE RESTRICTIONS REFERRED TO ABOVE. NEITHER THE ISSUER NOR THE
INDENTURE TRUSTEE IS OBLIGATED TO REGISTER THE NOTES UNDER THE 1933
ACT OR ANY STATE SECURITIES OR BLUE SKY LAWS. TRANSFER OF THIS NOTE
IS SUBJECT TO ADDITIONAL TRANSFER RESTRICTIONS CONTAINED IN SECTION
2.6 OF THE INDENTURE.
(c) No Note (or any interest therein) may be Transferred (including,
without limitation, by pledge or hypothecation) except in accordance with the
following additional restrictions:
(i) No Transfer of a Note or any beneficial interest therein may
be made to any Person unless such Transfer is (A) to the Issuer, (B)
pursuant to an effective registration statement under the 1933 Act, (C) for
so long as the Notes are eligible for resale pursuant to Rule 144A under
the 1933 Act to a Person the transferor reasonably believes is a "qualified
institutional buyer" as defined in Rule 144A that purchases for its own
account or for the account of a qualified institutional buyer to whom
notice is given that the Transfer is being made in reliance on Rule 144A,
or (D) pursuant to another available exemption from the registration
requirements of the 1933 Act and any applicable state securities and
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<PAGE>
blue sky laws or is made in accordance with said Act and state laws. The
Holder of a Note desiring to effect a Transfer of a Note shall indemnify
the Issuer, the Indenture Trustee, the Registrar, the Servicer, the
Servicing Advisor, the Depositor and the Seller against any liability that
may result if the Transfer is not so exempt or is not made in accordance
with such federal and state laws.
(ii) Once definitive Notes have been issued, the Notes may not be
Transferred, directly or indirectly, to any Person unless (A) the
transferee of the Note certifies in a certificate to the Issuer and the
Indenture Trustee, in substantially the form set forth as EXHIBIT D hereto,
that such Person is a Qualified Institutional Buyer as defined in Rule 144A
under the 1933 Act or (B) the transferee delivers to the Indenture Trustee
and the Issuer an Opinion of Counsel that such Transfer is permitted
pursuant to clauses (i)(B) or (i)(D) above.
(iii) No Note may be Transferred if, as a result of such Transfer,
there would be registered record owners of Notes in denominations or
percentage interests of less than the minimum denominations or percentage
interests set forth in Section 2.4 hereto.
(iv) Each Transferee of a Senior Note will be deemed to
represent, warrant and covenant that (i) it is not a Plan or an entity
whose underlying assets are Plan assets or (ii) it is an "insurance company
general account" as such term is defined in ptce 95-60 and no assets of any
Plan with respect to which the aggregate amount of such general account's
reserves and liabilities for the contracts held by or on behalf of such
Plan and all other such plans maintained by the same employer (and its
affiliates as defined in Section V(a)(1) of ptce 95-60) or by the same
employee organization exceeds or will exceed 10% of the total of all
reserves and liabilities of such general account (determined in accordance
with ptce 95-60, exclusive of separate account liabilities, plus any
applicable surplus) or (iii) its purchase and holding of the Senior Note is
otherwise covered by a Prohibited Transaction Class Exemption issued by the
Department of Labor. Each Transferee of the Class A-X, Class E and Class F
Notes will be deemed to represent, warrant and covenant that (i) no part of
the funds being used to purchase such Notes constitutes assets of a Benefit
Plan Investor or (ii) it is an "insurance company general account" as such
term is defined in ptce 95-60 and (1) no assets of any Benefit Plan
Investor with respect to which the aggregate amount of such general
account's reserves and liabilities for the contracts held by or on behalf
of such Benefit Plan Investor and all other such plans maintained by the
same employer (and its affiliates as defined in Section V(a)(1) of ptce 95-
60) or by the same employee organization exceeds or will exceed 10% of the
total of all reserves and liabilities of such general account (determined
in accordance with ptce 95-60, exclusive of separate account liabilities,
plus any applicable surplus) and (2) the assets of such general account
held with respect to all Benefit Plan Investors do not, and will not during
the entire period that the purchaser or transferee holds such Notes, equal
or exceed 25% of such reserves and liabilities.
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<PAGE>
(v) None of the Notes may be Transferred to the Issuer or the
Depositor.
(vi) The Indenture Trustee may require an Opinion of Counsel to
be delivered to it in connection with any Transfer of the Notes pursuant to
clauses (i)(B) or (i) (D) above. All Opinions of Counsel required in
connection with any Transfer shall be by counsel reasonably acceptable to
the Indenture Trustee. None of the Issuer, the Registrar or the Indenture
Trustee is obligated to register the Notes under the 1933 Act or any other
securities law. Any Transfer in violation of the provisions of this
Section 2.6 shall be void ab initio.
SECTION 2.7. REGULATIONS WITH RESPECT TO EXCHANGES AND TRANSFERS.
---------------------------------------------------
In all cases in which the privilege of exchanging or transferring Notes is
exercised, the Issuer shall execute and the Indenture Trustee shall authenticate
and deliver Notes in accordance with the provisions of this Indenture. For
every such exchange or registration of transfer of Notes, whether temporary or
definitive, the Issuer and the Indenture Trustee may require the payment of a
sum sufficient to cover any tax or other governmental charge required to be paid
with respect to such exchange or registration of transfer. The Indenture
Trustee shall not be required to exchange or register any such transfer of Notes
without the receipt of full payment of all amounts referred to in the preceding
sentence. Neither the Issuer nor the Indenture Trustee shall be required to
register the transfer of or exchange Notes for a period beginning on the Record
Date next preceding a Payment Date and ending on such Payment Date.
SECTION 2.8. MUTILATED, DESTROYED, STOLEN OR LOST NOTES
------------------------------------------
(a) In case any Note shall become mutilated or be destroyed, stolen
or lost, the Issuer shall execute by its Authorized Officer, and thereupon the
Indenture Trustee shall authenticate and deliver, a new Note or Notes of like
aggregate principal or notional amount, Class, interest rate and maturity as the
Note so mutilated, destroyed, stolen or lost, in exchange and substitution for
such mutilated Note, upon surrender and cancellation of such mutilated Note or
in lieu of and substitution for the Note destroyed, stolen or lost, upon (x)
filing with the Indenture Trustee evidence satisfactory to the Issuer and the
Indenture Trustee that such Note has been destroyed, stolen or lost and proof of
ownership thereof, (y) furnishing the Issuer and Indenture Trustee with such
security or indemnity as may be requested by either of them to save each of them
harmless and (z) payment of any tax or governmental charge the Issuer and
Indenture Trustee may incur. All Notes so surrendered to the Indenture Trustee
shall be cancelled by it and destroyed in accordance with its customary
practice. Any new Notes issued pursuant to this Section 2.8 in substitution for
Notes alleged to be destroyed, stolen or lost shall constitute original
additional contractual obligations on the part of the Issuer, whether or not the
Notes so alleged to be destroyed, stolen or lost shall be found at any time, or
be enforceable by anyone, and shall be equally secured by, and entitled to equal
and proportionate benefits with all other Notes issued under the Indenture.
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(b) Notwithstanding the foregoing provisions of this Section 2.8, in
the event any such Note shall have matured, and no default has occurred which is
then continuing in the payment of the principal of, interest on, or Loan Yield
Maintenance Amounts, if any, of the Notes, the Issuer may authorize the payment
of such amounts (upon surrender thereof as provided in Section 2.9) instead of
issuing a substitute Note; provided, that security or indemnification is
---------
furnished as above provided in this Section 2.8.
(c) The provisions of this Section 2.8 are exclusive and shall
preclude (to the extent lawful) all of the rights and remedies with respect to
the payment of mutilated, lost, stolen or destroyed Notes, including those
granted by any law or statute now existing or hereafter enacted.
SECTION 2.9. MEDIUM OF PAYMENT; PAYMENT OF INTEREST; PAYMENT OF
--------------------------------------------------
PRINCIPAL
- ---------
(a) The Notes shall be payable, with respect to interest, principal
and Loan Yield Maintenance Amounts, if any, in lawful currency of the United
States of America and shall be payable by check mailed by first class mail to
the Person entitled thereto at such Person's address as it appears on the
Register on the applicable Record Date except that payments to Holders having
Notes having an Initial Aggregate Principal Amount of $500,000 or greater, or
Holders of Class A-X Notes having percentage interests of 10% or greater, shall
be made in immediately available funds or otherwise to an account at a banking
institution in the United States; provided, that such Holder has provided its
--------
wire transfer instructions to the Indenture Trustee no later than five Business
Days prior to the relevant Payment Date.
(b) Each Note shall bear interest at the applicable Note Rate on the
Outstanding Principal Amount or Outstanding Notional Amount, as the case may be,
thereof from and including the Cut-Off Date. Interest on each Class of Notes
will be due on each Payment Date, commencing on September 15, 1998, in an
amount equal to the interest accrued in the applicable Accrual Period at the
related Note Rate on the Aggregate Outstanding Principal Amount or Aggregate
Notional Amount, as the case may be, of such Class of Notes as of the Business
Day immediately preceding such Payment Date. Interest on the Notes shall be
calculated on the basis of a 360-day year consisting of 12 months of 30 days
each. Interest on the Notes for the Accrual Period relating to a Payment Date
is payable on each Payment Date from and after the Closing Date, until payment
in full of the Aggregate Outstanding Principal Amount thereof (or reduction in
full of the Aggregate Notional Amount thereof) shall have been made, whether at
stated maturity or otherwise.
(c) (i)(i) Payments of principal to be made on any Class of Notes
will be allocated pro rata among the Notes of such Class based upon their
respective Percentage Interests.
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(ii) No principal is payable in respect of the Class A-X Notes;
payments in reduction of the Aggregate Outstanding Principal Amounts of the
Notes, other than the Class A-X Notes, will proportionately reduce the
Aggregate Notional Amount of the Class A-X Notes. All reductions in the
Outstanding Principal Amount of a Note effected by payments of installments
of principal of a Note made on any Payment Date shall be binding upon all
future Holders of the Note and of any Note issued upon the registration of
transfer thereof or in exchange therefor or in lieu thereof, whether or not
such payment is noted on such Note. The Notes are subject to redemption at
the option of the Issuer prior to Maturity as set forth in Section 5.8
hereof.
(iii) Whenever the entire remaining unpaid Outstanding Principal
Amount of any Note shall become due and payable (or the Aggregate Notional
Amount of any Note shall be reduced to zero) on the next Payment Date, the
Indenture Trustee shall notify the Person in whose name such Note is
registered as of the close of business on the Record Date prior to such
Payment Date that such final installment is expected to be paid on such
Payment Date. Such notice shall be given by the Indenture Trustee in the
name and at the expense of the Issuer by first-class mail, postage prepaid,
mailed no later than the Servicer's Report Date prior to such Payment Date.
Such notice shall set forth the following information: the fact of such
expectation of payment in full, restating the requirement set forth in this
Indenture that such payment shall be payable only upon presentation of such
Note (or in the case of mutilated, destroyed, lost or stolen Notes, a
certificate to that effect and an indemnity as provided in Section 2.8
hereof) on or after the Payment Date therefor at the Trust Office of the
Indenture Trustee for payment, the place where such Notes are to be
surrendered for payment and that no interest shall accrue on such Notes for
any period after the Accrual Period immediately preceding such Payment
Date.
(iv) The final installment of principal of, interest on, and Loan
Yield Maintenance Amounts, if any, with respect to any Note made on any
Payment Date shall be payable, subject to Section 2.8(b) hereof, only upon
presentation of such Note (or in the case of mutilated, destroyed, lost or
stolen Notes, a certificate to that effect and an indemnity as provided in
Section 2.8 hereof) on or after the Payment Date therefor at the Trust
Office of the Indenture Trustee for payment.
SECTION 2.10. PERSONS DEEMED NOTEHOLDERS. The Issuer, the
--------------------------
Indenture Trustee, and the Registrar may deem and treat the Person in whose name
any Note shall be registered upon the Register as the absolute owner of such
Note, whether such Note shall be overdue or not, for the purpose of receiving
payment of, or on account of, the principal of, interest on and Loan Yield
Maintenance Amount, if any, with respect to such Note and for all other
purposes, and all such payments so made to any such Holder or upon its order
shall be valid and effective to satisfy and discharge the liability upon such
Note to the extent of the sum or sums so paid, and none of the Issuer, the
Indenture Trustee or the Registrar shall be affected by any notice to the
contrary.
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SECTION 2.11. CANCELLATION. All Notes surrendered upon payment of
------------
the final installment pursuant to Section 2.9(c) hereof after notation of
payment or otherwise surrendered for registration of transfer or exchange shall
be delivered to the Indenture Trustee and shall be promptly cancelled by it.
The Issuer may at any time deliver to the Indenture Trustee for cancellation any
Notes previously authenticated and delivered hereunder which the Issuer may have
acquired in any manner whatsoever, and all Notes so delivered shall be promptly
cancelled by the Indenture Trustee. No Notes shall be authenticated in lieu of
or in exchange for any Notes cancelled as provided in this Section 2.11, except
as expressly permitted by this Indenture. All cancelled Notes shall be
delivered to the Indenture Trustee and shall be destroyed by the Indenture
Trustee in accordance with any standard policy adopted by the Indenture Trustee.
SECTION 2.12. ACCESS TO LIST OF NOTEHOLDERS' NAMES AND ADDRESSES.
--------------------------------------------------
The Registrar will furnish or cause to be furnished to the Indenture Trustee,
the Issuer or any Noteholder promptly after receipt by the Registrar of a
request therefor from the Indenture Trustee, the Issuer or such Noteholder in
writing, a list, in such form as the Indenture Trustee, the Issuer or such
Noteholder may reasonably require, of the names and addresses of the Noteholders
as of the most recent Record Date. Every Noteholder, by receiving and holding
Notes, agrees with the Issuer, the Registrar and the Indenture Trustee that none
of the Issuer, the Registrar or the Indenture Trustee shall be held accountable
by reason of the disclosure of any such information as to the names and
addresses of the Noteholders hereunder, regardless of the source from which such
information was derived.
SECTION 2.13. ACTS OF NOTEHOLDERS
-------------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Noteholders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Noteholders in person or by an agent
duly appointed in writing, and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Indenture Trustee and, where required, to the Issuer. Proof of
execution of any such instrument or of a writing appointing any such agent shall
be sufficient for any purpose of this Indenture and conclusive in favor of the
Indenture Trustee and the Issuer if made in the manner provided in this Section
2.13.
(b) The fact and date of the execution by any Noteholder of any such
instrument or writing may be proven in any reasonable manner which the Indenture
Trustee deems sufficient.
(c) The ownership of Notes shall be proven by the Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other act by a Noteholder shall bind every Holder of Notes issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof,
in respect of anything done,
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<PAGE>
or omitted to be done by the Indenture Trustee or the Issuer in reliance
thereon, whether or not notation of such action is made upon such Notes.
(e) Any Notes held by Affiliates of the Issuer shall be disregarded
for the purposes of calculating the Majority-in-Interest or any other Percentage
Interest in respect of any act of the Noteholders.
(f) The Indenture Trustee may require such additional proof of any
matter referred to in this Section 2.13 as it shall deem necessary.
SECTION 2.14. CERTAIN TAX MATTERS. The parties hereto agree that
-------------------
it is their mutual intent that, for all applicable tax purposes, the Notes shall
constitute indebtedness. Further, each party hereto, and the Noteholders (by
receiving and holding a Note), hereby covenants to every other party hereto and
the Noteholders to treat the Notes as indebtedness for all applicable tax
purposes in all tax filings, reports and returns and otherwise. All successors
and assigns of the parties hereto shall be bound by the provisions hereof.
ARTICLE III
ISSUANCE OF NOTES
SECTION 3.1. CONDITIONS TO AUTHENTICATION AND DELIVERY OF NOTES ON
-----------------------------------------------------
THE CLOSING DATE. Following execution and delivery of this Indenture by the
- ----------------
Issuer and the Indenture Trustee on the Closing Date, the Notes shall be
executed by the Authorized Officer of the Issuer and delivered to the Indenture
Trustee for authentication and delivery together with the written order required
pursuant to Section 2.5 hereof, and, thereupon, the Notes shall be
authenticated. Following such authentication, the Indenture Trustee will
deliver the Notes to be authenticated to the Noteholders upon receipt by the
Indenture Trustee of the following:
(a) A computer printout of the List of Loans relating to the
Certificate of Beneficial Ownership, certified by an Authorized Officer of
the Servicer;
(b) A certificate from the Custodian, pursuant to Section 2.12(b) of
the Servicing Agreement, stating that the Loan Files of the Loans relating
to the Certificate of Beneficial Ownership are in the possession of the
Custodian and the documents listed in clauses (i), (ii), (iii), (iv) and
(vi) of the definition of "Loan File" are contained therein;
(c) A copy of an officially certified document, dated not more than
30 days prior to the Closing Date (and, if available, confirmed on the
Business Day prior to the Closing Date by telegram, telephone or other
similar means), evidencing the due organization and good standing of the
Issuer;
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(d) A certificate of an Authorized Officer of the Issuer dated as of
the Closing Date, certifying to the Indenture Trustee that: (a) the Issuer
is not in Default under the Indenture; (b) the issuance of such Notes will
not result in any breach of any of the terms, conditions or provisions of,
or constitute a default under any indenture, mortgage, deed of trust or
other agreement or instrument to which the Issuer is a party or by which it
or its property is bound, or any order of any court or administrative
agency entered in any Proceeding to which the Issuer is a party or by which
it or its property may be bound or may be subject; (c) the Issuer is the
owner of the Certificate of Beneficial Ownership Granted to the Indenture
Trustee; the Issuer has not assigned any interest or participation in the
Certificate of Beneficial Ownership; and the Issuer has the right to Grant
the Certificate of Beneficial Ownership to the Indenture Trustee; (d) the
Issuer has Granted to the Indenture Trustee all of its right, title, and
interest in the Certificate of Beneficial Ownership; (e) other than liens
created under or pursuant to the Indenture, the Indenture Trust Estate is
free and clear of any pledge, charge or encumbrance thereon or with respect
thereto created by or through the Issuer, and all action on the part of the
Issuer to that end has been duly and validly taken; and (f) all conditions
precedent provided in the Indenture relating to the issuance,
authentication and delivery of such Notes to be complied with by the Issuer
have been complied with;
(e) A fully executed copy of each of the following agreements:
(i) this Indenture;
(ii) the Loan Sale and Purchase Agreement;
(iii) the Certificate Purchase Agreement;
(iv) the Pooling Agreement; and
(v) the Servicing Agreement.
(f) A certificate of an Authorized Officer of the Issuer, dated as of
the date of authentication of such Notes, that the Issuer has filed or
caused to be filed financing statements on Form UCC-1 in the appropriate
filing offices executed by the Issuer, as debtor, and naming the Indenture
Trustee as secured party, and identifying the Indenture Trust Estate as
collateral;
(g) Copies of resolutions of the Board of Directors of the sole
member of the Issuer approving the execution, delivery and performance of
the Basic Documents and the transactions contemplated thereby, certified by
an officer of the sole member of the Issuer;
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(h) A copy of an officially certified document, dated not more than
30 days prior to the date of authentication of such Notes, evidencing the
due organization and good standing of the Issuer in the State of its
organization;
(i) The certified Certificate of Formation of the Issuer;
(j) A copy of the Limited Liability Company Agreement of the Issuer,
certified by an Authorized Officer of the Issuer;
(k) A certificate of the Indenture Trustee, signed by an Authorized
Officer of the Indenture Trustee, to the effect that no Authorized Officer
of the Indenture Trustee has received written notice of any adverse
security interest in the Indenture Trust Estate other than the lien of this
Indenture; and
(l) Evidence that each Class of Notes has received from each of the
Rating Agencies the respective rating specified on the cover page of the
Offering Circular.
SECTION 3.2. TRANSFER OF INDENTURE TRUST ESTATE. On the Closing
----------------------------------
Date, the Issuer shall deliver to the Indenture Trustee the Certificate of
Beneficial Ownership to be held by the Indenture Trustee in safekeeping and make
such filings under the Uniform Commercial Code as may be required to perfect the
lien of the Indenture Trustee on the Indenture Trust Estate.
ARTICLE IV
COVENANTS OF THE ISSUER
SECTION 4.1. PAYMENT OF PRINCIPAL, INTEREST AND LOAN YIELD
---------------------------------------------
MAINTENANCE AMOUNT. The Issuer shall duly and punctually pay the principal of,
- ------------------
interest on, and the Loan Yield Maintenance Amount, if any, with respect to the
Notes in accordance with the terms of the Notes and this Indenture.
SECTION 4.2. MAINTENANCE OF EXISTENCE
------------------------
(a) Except as permitted by Section 4.2(c), the Issuer shall keep in
full effect its existence, rights and franchises as a special purpose limited
liability company under the laws of the State of its organization. The Issuer
at all times shall hold itself out as being a special purpose limited liability
company and an entity with an existence separate from that of the Seller, the
Depositor, any Noteholder or any other Person, and shall keep books and records
separate from those of the Seller, the Depositor, any Noteholder or any other
Person.
(b) Except as permitted by Section 4.2(c), the Issuer or any
permitted successor hereunder will obtain and preserve its qualification in each
jurisdiction in which such qualification is or shall be necessary to protect the
validity and enforceability
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of this Indenture, the Notes, the Loan Sale and Purchase Agreement, the
Certificate Purchase Agreement, the Servicing Agreement or any of the Loan
Documents.
(c) Any Person into which the Issuer hereunder may be merged or with
which it may be consolidated on an involuntary basis, or any Person resulting
from any such merger or consolidation to which the Issuer hereunder shall be a
party, shall be the successor Issuer under this Indenture without the execution
or filing of any paper, instrument or further act to be done on the part of the
parties hereto, anything herein, or in any agreement relating to such merger or
consolidation, by which any such successor Issuer may seek not to retain certain
powers, rights and privileges theretofore obtaining for any period of time
following such merger or consolidation, to the contrary notwithstanding.
Notification of any successor entity shall be given promptly to the Indenture
Trustee in writing.
SECTION 4.3. PROTECTION OF INDENTURE TRUST ESTATE. The Issuer will
------------------------------------
from time to time execute and deliver or cause to be delivered all amendments
hereto and all such financing statements, continuation statements, instruments
of further assurance and other instruments, and will take all such other action
as shall be necessary or advisable to:
(i) Grant more effectively all or any portion of the Indenture
Trust Estate to the Indenture Trustee;
(ii) maintain or preserve the lien (and the priority thereof) of
this Indenture or carry out more effectively the purposes hereof;
(iii) perfect, publish notice of, or protect the validity of any
Grant made or to be made by this Indenture;
(iv) preserve and defend title to the Indenture Trust Estate and the
rights of the Indenture Trustee and the Noteholders in such Indenture Trust
Estate against the claims of all Persons and parties; and
(v) pay any and all taxes levied or assessed upon all or any part
of the Indenture Trust Estate.
SECTION 4.4. [RESERVED.]
SECTION 4.5. BOOKS OF ACCOUNT. The Issuer covenants that the books
----------------
record and account of the Issuer shall at all times upon reasonable notice (but
in no event more frequently than once per calendar month unless a Default has
occurred) be subject to the inspection of the Indenture Trustee, holders of a
Majority-in-Interest of the Notes and any of their respective agents and
attorneys in accordance with the terms of this Indenture.
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SECTION 4.6. PERFORMANCE OF OBLIGATIONS. The Issuer shall
--------------------------
punctually perform and observe all of its obligations and agreements under the
terms of this Indenture and the Notes. The Issuer will not take any action,
and, subject to the provisions of the Servicing Agreement, will use its best
efforts not to permit any action to be taken by others, which would release any
Person's covenants or obligations under any instrument included in the Indenture
Trust Estate, or which would result in the hypothecation, subordination,
termination or discharge of, or impair the validity or effectiveness of, any
such instrument, except as expressly provided in this Indenture or as
contemplated by the Servicing Agreement or the Loan Documents.
SECTION 4.7. NEGATIVE COVENANTS. Except as expressly permitted by
------------------
any of its organizational documents, this Indenture or contemplated by the
Servicing Agreement and the Loan Documents, the Issuer will not:
(a) sell, Transfer, exchange or otherwise dispose of any of the
Indenture Trust Estate;
(b) claim any credit on or make any deduction from the principal,
interest, or Loan Yield Maintenance Amount, if any, payable in respect of
the Notes (other than amounts required to be withheld from such payments
under the Code or any other applicable state or federal law) or assert any
claim against any present or former Noteholder by reason of the payment of
any taxes levied or assessed upon any of the Indenture Trust Estate;
(c) engage in any business or activity or create, incur, assume,
guarantee or in any manner become liable on any debt other than in
connection with, or relating to, the issuance of the Notes pursuant to this
Indenture;
(d) amend the Certificate of Formation, the Limited Liability Company
Agreement or any of its other organizational documents without the prior
written consent of Holders of a Majority-in-Interest of the Notes and
written confirmation from each Rating Agency that the rating assigned to
the Notes will not be lowered or removed as a result of such amendment, or
take any actions which would jeopardize its status as a special purpose
limited liability company;
(e) dissolve or liquidate in whole or in part;
(f) consolidate with or merge into any other Person or convey,
transfer or lease substantially all of its assets as an entirety to any
Person unless, subject to the prior written consent of the Holders of a
Majority-in-Interest of the Notes, the Person formed by such consolidation
or into which the Issuer has been merged or the Person which acquires
substantially all of the assets of the Issuer as an entirety is an
organization organized under the laws of the United States of America or a
State, can lawfully perform the obligations of the Issuer hereunder and
executes and delivers to the Indenture Trustee an agreement, in form and
substance reasonably satisfactory to the Indenture Trustee, which contains
an assumption by
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such successor entity of the due and punctual performance and observance of
each representation, warranty, covenant and obligation to be made,
performed or observed by the Issuer under this Indenture; and unless such
consolidation, merger, conveyance, transfer or lease does not result in a
lowering or withdrawal of any rating which is then assigned to the Notes;
or
(g) (i) permit the validity or effectiveness of this Indenture to be
impaired or permit the lien of this Indenture with respect to the Indenture
Trust Estate to be subordinated, terminated or discharged, or permit any
Person to be released from any covenants or obligations under this
Indenture, the Loans or the Collateral, (ii) permit any lien, pledge,
charge, adverse claim, security interest, mortgage or other encumbrance
(other than liens created under or pursuant to this Indenture) to be
created on or extend to or otherwise arise upon or burden the Indenture
Trust Estate or any part thereof or any interest therein or the proceeds
thereof or (iii) permit the lien of this Indenture not to constitute a
perfected security interest in the Indenture Trust Estate.
SECTION 4.8. AVAILABILITY OF INFORMATION. Upon request of any
---------------------------
Noteholder to the Issuer, the Indenture Trustee or the Servicer in the manner
set forth below, the Issuer or Indenture Trustee shall provide, or, with respect
to items in the possession of the Servicer, the Issuer shall cause the Servicer
to provide, such Noteholder or any such potential transferee of such Noteholder
that is a "qualified institutional buyer" within the meaning of Rule 144A with
such financial and other information required to permit compliance with the
requirements of Rule 144A in connection with the resale by a Noteholder of any
Notes. Such information shall include, without limitation, the Basic Documents
and additional documents as follows:
(a) All Servicer's Certificates delivered to the Indenture Trustee
since the initial issuance of the Notes;
(b) All officer's certificates and accountants' reports delivered or
caused to be delivered annually by the Servicer or the Servicing Advisor to
the Indenture Trustee since the initial issuance of the Notes; and
(c) The most recent available compliance certificates, operating
statements and financial statements of the related Borrowers collected by
the Servicer.
The Indenture Trustee shall, to the extent it has in its possession (or shall
make a written request to the Servicer to) make available, upon reasonable
advance notice and at the expense of the requesting party, copies of the above
items to any direct or beneficial Holder of Notes and to prospective transferees
of Notes; provided, that the Indenture Trustee will require (x) in the case of a
---------
direct or beneficial Holder of Notes, a confidentiality agreement in the form of
EXHIBIT C hereto executed by the requesting party generally to the effect that
such party is a direct or beneficial Holder of Notes, as applicable, is
requesting the information solely for use in evaluating such party's investment
in the Notes and will otherwise keep such information confidential and (y) in
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the case of a prospective transferee, the designation of the requesting party as
a prospective transferee by a Holder and a confidentiality agreement in the form
of EXHIBIT C hereto executed by the requesting party generally to the effect
that such party is a prospective transferee of Notes, is requesting the
information solely for use in evaluating a possible investment in Notes and will
otherwise keep such information confidential.
SECTION 4.9. PROTECTION OF SECURITY; POWER TO ISSUE NOTES AND GRANT
------------------------------------------------------
INDENTURE TRUST ESTATE; INDENTURE TO CONSTITUTE CONTRACT. The Issuer warrants
- --------------------------------------------------------
and covenants for the benefit of the Indenture Trustee and the Noteholders that:
(a) The Issuer is, and at all times during the term of this Indenture
will be, a special purpose limited liability company duly organized and
validly existing in good standing under the laws of the State of Delaware;
Issuer has filed and at all times during the term of this Indenture will
file all required tax returns; and the Issuer is, and at all times during
the term of this Indenture will be, duly qualified and in good standing
under the laws of each jurisdiction where such qualification is necessary
except where the failure to be so qualified will not have a material
adverse effect on the Issuer or its ability to perform its obligations
under this Indenture or any other documents or transactions contemplated
hereunder or the validity or enforceability of the Certificate of
Beneficial Ownership or the Loans.
(b) The Issuer holds, and at all times during the term of this
Indenture will hold, all necessary licenses, certificates, franchises and
permits from all governmental authorities, the lack of which, singly or in
the aggregate, would materially and adversely affect its ability to perform
its obligations under this Indenture or any other documents or transactions
contemplated hereunder or the validity or enforceability of the Certificate
of Beneficial Ownership or the Loans.
(c) The Issuer is in compliance with all material laws, rules,
regulations and orders applicable to Issuer and the Indenture Trust Estate.
The Issuer has, and at all times during the term of this Indenture will
have, all requisite power and authority to own its properties, to execute
and deliver this Indenture and all documents and transactions contemplated
hereunder, to perform all of its obligations under this Indenture and any
other documents or transactions contemplated hereunder, to issue the Notes
and to Grant the Indenture Trust Estate in the manner and to the extent
provided herein. The Issuer has all requisite power and authority to
acquire, own, sell and convey the Certificate of Beneficial Ownership to
the Indenture Trustee as part of the Indenture Trust Estate.
(d) This Indenture, the Notes, the other Basic Documents to which the
Issuer is a party and all other documents and instruments required or
contemplated hereby and thereby to be executed and delivered by the Issuer
have been duly authorized, executed and delivered by the Issuer and,
assuming the due execution
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and delivery by the other party or parties hereto and thereto, if any,
constitute legal, valid and binding agreements enforceable against the
Issuer in accordance with their respective terms subject, as to the
enforcement of remedies, to bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting the enforceability of
creditors' rights generally applicable in the event of the bankruptcy,
insolvency or reorganization of the Issuer and to general principles of
equity.
(e) The execution, delivery and performance by the Issuer of this
Indenture, the Notes, the other Basic Documents to which the Issuer is a
party and any other documents and transactions in connection herewith and
therewith to which the Issuer is a party do not and will not (i) violate
any of the provisions of the Certificate of Formation, the Limited
Liability Company Agreement or any of the organizational documents of the
Issuer; (ii) violate any provision of any law, governmental rule or
regulation currently in effect applicable to the Issuer or any material
portion of its properties or by which the Issuer or any material portion of
its properties may be bound or affected, (iii) violate any judgment,
decree, writ, injunction, award, determination or order currently in effect
applicable to the Issuer or its properties or by which the Issuer or any
material portion of its properties are bound or affected, (iv) conflict
with, or result in a breach of, or constitute a default under, any of the
provisions of any indenture, mortgage, deed of trust, contract or other
instrument to which the Issuer is a party or by which it is bound or (v)
except for the Grant hereunder, result in the creation or imposition of any
lien upon any of its properties pursuant to the terms of any such
indenture, mortgage, deed of trust, contract or other instrument.
(f) Except for the filing of financing statements (and assignments
thereof) and continuation statements, no consent, approval, order or
authorization of, and no filing with or notice to, any court or other
governmental authority in respect of the Issuer is required in connection
with the authorization, execution, delivery or performance by the Issuer of
this Indenture, the Notes or any of the other documents or transactions
contemplated hereunder.
(g) The Issuer is not in default under any material agreement,
contract, instrument or indenture to which the Issuer is a party or by
which it or its properties is or are bound, or with respect to any order of
any court, administrative agency, arbitrator or governmental body which
would have a material adverse effect on the transactions contemplated
hereunder; and no event has occurred which with notice or lapse of time or
both would constitute such a default with respect to any such agreement,
contract, instrument or indenture, or with respect to any such order of any
court, administrative agency, arbitrator or governmental body.
(h) There is no pending or, to the best of the Issuer's knowledge,
threatened action, suit, proceeding or investigation before any court,
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administrative agency, arbitrator or governmental body against or, to the
Issuer's knowledge, affecting the Issuer which, if decided adversely, would
materially and adversely affect (i) the condition (financial or otherwise)
of the Issuer, (ii) the ability of the Issuer to perform its obligations
under, or the validity or enforceability of, this Indenture or any other
documents or transactions contemplated under this Indenture or (iii) the
Indenture Trust Estate.
(i) No document, certificate or report furnished or required to be
furnished by the Issuer pursuant to this Indenture contains or will contain
when furnished any untrue statement of a material fact.
(j) Other than liens created under or pursuant to this Indenture, the
Indenture Trust Estate is and will be free and clear of any pledge, charge
or encumbrance thereon or with respect thereto created by or through the
Issuer, and all action on the part of the Issuer to that end has been duly
and validly taken.
(k) The Issuer shall at all times, to the extent permitted by law,
defend, preserve and protect the Grant of the Indenture Trust Estate and
all the rights of Noteholders under this Indenture against all claims and
demands of all Persons whomsoever claiming by, through or under the Issuer
(except claims and demands of the Indenture Trustee under or pursuant to
this Indenture).
(l) The Issuer shall not be or become an "investment company" or at
any time be under the "control" of an "investment company" as such terms
are defined in the Investment Company Act of 1940, as amended (or any
successor or amendatory statute), or shall be otherwise exempt from the
requirements of the Investment Company Act of 1940, as amended, and the
rules and regulations thereunder (taking into account not only the general
definition of the term "investment company," but also any available
exceptions to such general definition).
(m) The Issuer shall furnish to the Indenture Trustee, the
Noteholders and the Rating Agencies copies of the form of each proposed
amendment to the Limited Liability Company Agreement or Certificate of
Formation at least ten (10) Business Days prior to the proposed date of
adoption of any such proposed amendment.
(n) The Issuer shall at all times hold itself out to the public,
including creditors of any of its members or managers, and conduct its
affairs as a separate and distinct entity from the Seller, the Depositor,
or any other Person and under the Issuer's own name.
(o) The Issuer shall at all times be responsible for the payment of
all its obligations and indebtedness, shall at all times maintain records,
books of account and funds separate from the Seller, the Depositor, or any
other Person and shall observe all customary formalities of independent
existence.
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(p) The Issuer shall make its books and records and the Register
reasonably available to the Indenture Trustee at the Issuer's expense, and,
upon prior written request, the Noteholders at their own expense, for
purposes of inspection and copying during the Issuer's normal business
hours (but in no event more frequently than once per calendar month, unless
a Default has occurred and is continuing, in which case, the Indenture
Trustee will have access at its discretion), and shall at the Issuer's
expense furnish, or cause to be furnished, to the Indenture Trustee or any
Noteholder, promptly after receipt by the Issuer of a request therefor from
the Indenture Trustee or such Noteholder in writing, a list of the names
and addresses of the Noteholders as of the Record Date immediately
preceding such request.
(q) As long as any Note is Outstanding, the Issuer shall not issue,
incur, assume or guarantee any indebtedness except for such indebtedness as
may be incurred by the Issuer pursuant to this Indenture and related
documents or instruments.
(r) The Issuer shall act solely through its authorized officers or
agents.
(s) The Issuer shall maintain separate corporate records and books of
account from both the Seller and the Depositor.
(t) The financial statements and books and records of the Issuer
prepared after the Closing Date shall reflect the separate existence of the
Seller and the Issuer.
(u) The Issuer shall maintain its assets separately from the assets
of the Seller (including through the maintenance of separate bank
accounts), the Issuer's funds and assets, and records relating thereto,
have not been, are not and will not be commingled with those of the Seller
and the separate creditors of the Seller will be entitled to be satisfied
out of the Seller's assets prior to any value in the Seller becoming
available to the Seller's stockholders.
(v) The Issuer shall be operated such that the Issuer would not be
substantively consolidated in the trust estate of the Seller in the event
of a bankruptcy of the Seller, such that the separate existence of the
Issuer and the Seller would be disregarded in the event of a bankruptcy or
insolvency of the Seller.
(w) The Issuer shall not act as an agent of the Seller in any
capacity, but instead presents itself to the public as an entity separate
from the Seller.
(x) The Issuer has not and will not guaranty the obligations of the
Seller or any other Person nor will it hold itself out or permit itself to
be held out as having agreed to pay or as being liable for the debts of the
Seller, the Issuer or any other Person, and has not received, nor will it
accept any credit or financing from any
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Person who is relying upon the availability of the assets of the Seller to
satisfy the claims of such creditor.
(y) All transactions between the Issuer, on the one hand, and the
Seller on the other hand (including, without limitation, transactions
governed by intercompany agreements and contracts for other services and
facilities, such as payroll, purchasing, accounting, legal and personnel
services and office space) will be on terms and conditions (including,
without limitation, terms relating to amounts to be paid thereunder) which
are believed by each such party thereto to be both fair and reasonable and
comparable to those available on an arms-length basis from persons who are
not affiliates.
(z) The Issuer's sole member shall have at least one director who is
an Independent Director, and the affirmative vote of such Independent
Director shall be necessary for the filing of any voluntary petition with
respect to the Issuer under the Bankruptcy Laws.
(aa) To the extent such compliance with the requirements of any
provision of this Section 4.9 involves questions of law, the Issuer shall
be deemed in such compliance if it is acting in accordance with an Opinion
of Counsel as to such requirements.
SECTION 4.10. ANNUAL STATEMENT AS TO COMPLIANCE. On or before 90
---------------------------------
days after December 31, 1998, and on or before 90 days after the end of each
fiscal year of the Issuer thereafter, the Issuer shall deliver to the Indenture
Trustee and to the Rating Agencies a written statement with respect to the
Notes, signed by two Authorized Officers of the Issuer, stating, as to each
signer thereof, that:
(1) a review of the fulfillment by the Issuer during such year of its
obligations under this Indenture has been made under such Authorized
Officer's supervision; and
(2) to the best of such Authorized Officer's knowledge, based on such
review, the Issuer has fulfilled all its obligations under this Indenture
throughout such year, or, if there has been a Default in the fulfillment of
any such obligation, specifying each such Default known to such Authorized
Officer and the nature and status thereof.
SECTION 4.11. MAINTENANCE OF OFFICES OR AGENCY. For the limited
--------------------------------
purposes of establishing a location to surrender or exchange Notes, the Issuer
will maintain an office or agency, which may be changed in the discretion of the
Issuer, within the United States of America at which Notes may be presented or
surrendered for payment, Notes may be surrendered for registration of transfer
or exchange. For such limited purposes the Issuer hereby initially appoints the
Indenture Trustee at its corporate trust office such office or agency. The
Issuer will give prompt written notice to the Indenture Trustee of the location,
and of any change in the location, of any such office or
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agency. If at any time the Issuer shall fail to maintain any such office or
agency or shall fail to furnish the Indenture Trustee with the address thereof,
such presentations and surrenders may be made at the Trust Office of the
Indenture Trustee, and the Issuer hereby appoints the Indenture Trustee at its
corporate trust office its agent to receive all such presentations and
surrenders.
SECTION 4.12. FURTHER ASSURANCES. The Issuer will execute and
------------------
deliver, or cause to be executed and delivered, all such additional instruments
and do, or cause to be done, all such additional actions as (i) may be necessary
or proper, consistent with the Granting Clause hereof, to carry out the purposes
of this Indenture and to make subject to the lien hereof any property intended
so to be subject, (ii) may be necessary or proper to transfer to any successor
trustee the estate, powers, instruments and funds held in trust hereunder and to
confirm the lien of this Indenture with respect to the Notes, or (iii) the
Indenture Trustee may reasonably request for any of the foregoing purposes. The
Issuer hereby authorizes the Indenture Trustee (at the expense of the Issuer and
without creating any obligation or duty on the Indenture Trustee with respect
thereto), upon failure of the Issuer to do so after request by the Indenture
Trustee, to execute and file all such financing statements, continuation
statements and other documents as the Indenture Trustee may deem necessary or
advisable to make or keep effective the lien of this Indenture or any
supplemental indenture and the priority thereof.
SECTION 4.13. MONEY FOR PAYMENTS TO BE HELD IN TRUST. As provided
--------------------------------------
in Section 5.2(c), all payments of amounts due and payable with respect to any
Notes that are to be made from amounts withdrawn from the Distribution Account
pursuant to Section 5.2(c) shall be made on behalf of the Issuer by the
Indenture Trustee, and no amounts so withdrawn from the Distribution Account for
payments of Notes shall be paid over to the Issuer except as provided in Section
5.2(c).
ARTICLE V
ACCOUNTS, DISBURSEMENTS AND RELEASES
SECTION 5.1. COLLECTION OF MONEY. Except as otherwise expressly
-------------------
provided herein and in the Servicing Agreement, the Indenture Trustee may demand
payment or delivery of, and shall receive and collect, directly and without
intervention or assistance from any fiscal agent or other intermediary, pursuant
to the terms hereof, all money and other property payable to or receivable by
the Indenture Trustee pursuant to this Indenture, including all payments due on
the Certificate of Beneficial Ownership, in accordance with the respective terms
and conditions thereof. Except as otherwise expressly provided herein, the
Indenture Trustee shall hold all such money and property received by it as part
of the Indenture Trust Estate and shall apply it as provided in this Indenture.
SECTION 5.2. DISTRIBUTION ACCOUNT
--------------------
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(a) On or prior to the Closing Date, the Indenture Trustee shall
establish and thereafter maintain a separate trust account in the corporate
trust department under the sole control of the Indenture Trustee entitled
"Bankers Trust Company, in trust for the benefit of the holders of the Atherton
Franchisee Loan Funding 1998-A LLC, Atherton Franchisee Loan Notes, Series 1998-
A--Distribution Account" and referred to herein as the "Distribution Account."
The Indenture Trustee shall make withdrawals from the Distribution Account and
the subaccounts thereof only as provided in this Indenture. Moneys on deposit
in the Distribution Account shall be invested in accordance with Section 5.4
hereof.
(b) Not later than 10:00 a.m., New York time, on the Business Day
immediately preceding each Payment Date, the Servicer shall be required,
pursuant to the Servicing Agreement, to remit from the Collection Account to the
Distribution Account all Available Funds on deposit in the Collection Account.
(c) On each Payment Date, Available Funds (excluding Yield
Maintenance Available Funds) on deposit in the Distribution Account will be
distributed in the following descending order of priority; provided, however,
that Available Funds constituting funds transferred from the Reserve Account
shall only be available to make the payments specified in clauses (i) through
(xv) below:
(i) to the Indenture Trustee and the Certificate Trustee, all
accrued and unpaid fees and reimbursable expenses due and payable to the
Indenture Trustee and the Certificate Trustee;
(ii) to the Servicer, an amount equal to the unpaid Servicing Fee
due and payable on such Payment Date;
(iii) pro rata in proportion to the aggregate amount to be
distributed pursuant to this clause, (1) to the Holders of the Class A-1
Notes, the Class A-1 Interest Distribution, (2) to the Holders of the Class
A-2 Notes, the Class A-2 Interest Distribution and (3) to the Holders of
the Class A-X Notes, the Class A-X Distribution;
(iv) to the Holders of the Class A-1 Notes, an amount up to the
Optimal Principal Amount until the Aggregate Outstanding Principal Amount
of the Class A-1 Notes is reduced to zero;
(v) to the Holders of the Class A-2 Notes, an amount up to the
remaining Optimal Principal Amount until the Aggregate Outstanding
Principal Amount of the Class A-2 Notes is reduced to zero;
(vi) to the Holders of the Class B Notes, the Class B Interest
Distribution;
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(vii) to the Holders of the Class B Notes, an amount up to the
remaining Optimal Principal Amount until the Aggregate Outstanding
Principal Amount of the Class B Notes is reduced to zero;
(viii) to the Holders of the Class C Notes, the Class C Interest
Distribution;
(ix) to the Holders of the Class C Notes, an amount up to the
remaining Optimal Principal Amount until the Aggregate Outstanding
Principal Amount of the Class C Notes is reduced to zero;
(x) to the Holders of the Class D Notes, the Class D Interest
Distribution;
(xi) to the Holders of the Class D Notes, an amount up to the
remaining Optimal Principal Amount until the Aggregate Outstanding
Principal Amount of the Class D Notes is reduced to zero;
(xii) to the Holders of the Class E Notes, the Class E Interest
Distribution;
(xiii) to the Holders of the Class E Notes, an amount up to the
remaining Optimal Principal Amount until the Aggregate Outstanding
Principal Amount of the Class E Notes is reduced to zero;
(xiv) to the Holders of the Class F Notes, the Class F Interest
Distribution;
(xv) to the Holders of the Class F Notes, an amount up to the
remaining Optimal Principal Amount until the Aggregate Outstanding
Principal Amount of the Class F Notes is reduced to zero; and
(xvi) to the Issuer, any remaining amounts, which shall be released
from the lien of this Indenture.
(d) On each Payment Date, Yield Maintenance Available Funds on
deposit in the Distribution Account will be distributed as follows:
(i) the Loan Yield Maintenance Amount collected in the Prepayment
Period attributable to each prepaid or Defaulted Loan shall be distributed
to the Holders of each of the Class A-1, Class A-2, Class B, Class C, Class
D, Class E and Class F Notes in an amount for each such Class equal to the
product of (i) a fraction, the numerator of which is the amount distributed
as principal to such Class on such Payment Date, and the denominator of
which is the total amount distributed as principal to all Classes of Notes
on such Payment Date, (ii) the Base
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Interest Fraction for the related principal prepayment and such Class of
Notes and (iii) the collected Loan Yield Maintenance Amount.
(ii) any remaining Yield Maintenance Available Funds shall be paid
to the Holders of the Class A-X Notes.
(e) On each Payment Date, all amounts remaining in the Distribution
Account, including Investment Income but excluding Early Payments, after payment
of the distributions specified in paragraphs (c) and (d) above, shall be
released from the lien of this Indenture and paid to the Issuer.
SECTION 5.3. RESERVE ACCOUNT
---------------
(a) On or prior to the Closing Date, the Indenture Trustee shall
establish and thereafter maintain a separate trust account in its corporate
trust department under the sole control of the Indenture Trustee, which shall be
entitled "Bankers Trust Company, in trust for the benefit of the holders of the
Atherton Franchisee Loan Funding 1998-A LLC Notes, Series 1998-A--Reserve
Account" and referred to herein as the "Reserve Account." The Indenture Trustee
shall make deposits into and withdrawals from the Reserve Account only as
provided in this Indenture.
(b) On Closing Date, the Issuer shall deposit in the Reserve Account,
from the proceeds of the offering of the Notes, the Reserve Deposit Amount.
(c) On each Payment Date, the Indenture Trustee shall withdraw from
the Reserve Account and deposit into the Distribution Account any amounts
required to make the distributions specified under Section 5.2(c)(i) through
(xv) hereof.
SECTION 5.4. INVESTMENT OF FUNDS. Amounts on deposit in the
-------------------
Distribution Account or Reserve Account shall, if and to the extent then
permitted by law, be invested by the Indenture Trustee in Eligible Investments
at the written direction of an Authorized Officer of the Issuer. Net income or
gain received and collected from such investments shall be credited and losses
charged to the applicable Account. All investments shall mature on the Business
Day next preceding the following Payment Date and shall be held until required
to be liquidated to provide moneys required to be applied from the Distribution
Account or Reserve Account, as the case may be, as provided in the Indenture.
SECTION 5.5. REPAYMENT TO THE ISSUER FROM THE ACCOUNTS. After
-----------------------------------------
payment in full of the principal of, interest on, Loan Yield Maintenance
Amounts, if any, and all other amounts due and payable with respect to the Notes
and the payment of all fees, reimbursable charges and expenses of or other
amounts owed to the Issuer, the Indenture Trustee and the Registrar and all
other amounts required to be paid hereunder, all amounts remaining in the
Distribution Account shall be paid to the Issuer on its written order.
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SECTION 5.6. REPORTS TO THE NOTEHOLDERS. On each Payment Date, the
--------------------------
Indenture Trustee will furnish to the Issuer, the Rating Agencies and the
Noteholders a statement (which statement shall be based upon information
furnished by the Servicer to the Indenture Trustee in the Servicer's Certificate
delivered pursuant to Section 3.1(a) of the Servicing Agreement) setting forth
the following information:
(i) The Aggregate Outstanding Principal Amount or Aggregate
Notional Amount of each Class of Notes and the Issuer Balance, before
giving effect to the payment of principal on such Payment Date;
(ii) The Note Rate in respect of each Class of Notes as of such
Payment Date and the Interest Distribution payable in respect of each Class
of Notes as of such Payment Date;
(iii) An itemized statement of the amounts payable pursuant to
Section 5.2(c) hereof on such Payment Date;
(iv) The aggregate amount of Loan Yield Maintenance Amounts, if any,
payable as of such Payment Date;
(v) The Servicing Fees payable to the Servicer as of such Payment
Date;
(vi) With respect to each of the amounts specified in paragraph
(iii) above, the amounts actually distributed on such Payment Date; and
(vii) The Aggregate Outstanding Principal Amounts or Aggregate
Notional Amount of each Class of Notes and the Issuer Balance, after giving
effect to the payment of principal in respect of principal on such Payment
Date.
SECTION 5.7. WRITE-DOWN AMOUNTS. In the event any Net Loss is
------------------
incurred in respect of a Liquidated Loan, the sum of the Aggregate Outstanding
Principal Amount of the Notes and the Issuer Balance will be greater than the
Aggregate Outstanding Principal Amount of the Loans (such excess, if any, the
"WRITE-DOWN AMOUNT"). The amount of such Write-down Amount shall be allocated
on the immediately following Payment Date, prior to making any distributions on
such Payment Date, first to the Issuer Balance until the Issuer Balance is
reduced to zero and then shall be allocated among the Holders of the Notes in
inverse order of the priority of distributions in respect of principal set forth
in Section 5.2(c).
SECTION 5.8. OPTIONAL REDEMPTION. The Seller may cause the Issuer
-------------------
to redeem, at its option, all of the Outstanding Notes on any Payment Date if
the Aggregate Outstanding Principal Amount of the Loans is less than 1% of the
Initial Aggregate Principal Amount thereof, upon written notice to the Indenture
Trustee at least 45 days prior to the date of such redemption, which notice
shall specify the date of such redemption, the redemption price, the date the
interest on the Notes redeemed shall stop
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accruing and the place for surrender of Notes to be redeemed. The Seller may
cause the Issuer to redeem all, and not less than all, of the Notes by
depositing with the Indenture Trustee the Aggregate Outstanding Principal Amount
of the Notes and accrued but unpaid interest thereon as of the date of
redemption (which shall be the following Payment Date), for payment to Holders
of Notes on the following Payment Date. The Issuer shall cause the Indenture
Trustee to give notice of such redemption in the name and at the expense of the
Issuer to Holders of Notes not less than five nor more than 25 days prior to the
date of such redemption.
ARTICLE VI
[RESERVED]
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
SECTION 7.1. EVENTS OF DEFAULT. Each of the events described in
-----------------
clauses (a) through (l) below shall constitute an "EVENT OF DEFAULT" with
respect to the Notes (whatever the reason for such Event of Default and whether
it be voluntary or involuntary or effected by operation of law or pursuant to
any judgment, decree or order of any court or any order, rule or regulation of
any administrative or governmental body):
(a) (i) The Issuer shall fail to make any required payment of
principal on the Notes when the same becomes due and payable or (ii) the
Issuer shall fail to make any required payment of principal on the Notes at
the maturity thereof; or
(b) The Issuer shall fail to make any required payment of interest on
the Notes when the same becomes due and payable; or
(c) The Issuer shall fail to make any payment of Loan Yield
Maintenance Amount, if any, with respect to the Notes when the same becomes
due and payable (it being understood that Loan Yield Maintenance Amount is
only due and payable to the extent actually received and held in the
Distribution Account as Yield Maintenance Available Funds); or
(d) The Issuer shall fail to observe or perform in any material
respect any of the covenants of the Issuer under Section 4.2(b), 4.3, 4.5,
4.6, 4.8, 4.9 or 4.10 hereof, which failure has continued for a period of
30 days after it obtains knowledge thereof; or
(e) The Issuer shall fail to observe or perform in any material
respect the covenants of the Issuer under Section 4.2(a) or 4.7 hereof; or
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(f) Any representation or warranty of the Issuer set forth in Section
4.9 of this Indenture shall prove to be false in any material respect as of
the date when made; or
(g) The Issuer shall make an assignment for the benefit of creditors
or is generally not paying its debts as such debts become due; or
(h) The Issuer shall petition or apply to any tribunal for, or
consent to, the appointment of, or taking possession by, a trustee,
receiver, custodian, liquidator or similar official of the Issuer, or of
any substantial part of the assets of the Issuer, or commence a voluntary
case under the bankruptcy law of the United States or any proceedings
relating to the Issuer under the bankruptcy law of any other jurisdiction,
or any such petition or application shall be filed, or any such proceedings
commenced, against the Issuer and the Issuer by any act shall indicate its
approval thereof, consent thereto or acquiescence therein; or
(i) Any order, judgment or decree shall be entered appointing any
such trustee, receiver, custodian, liquidator or similar official, or
approving the petition in any such proceedings and such order, judgment or
decree shall remain unstayed and in effect for more than 60 days; or
(j) Any order, judgment or decree shall be entered in any proceedings
against the Issuer decreeing the dissolution of the Issuer and such order,
judgment or decree shall be remain unstayed and in effect for more than 60
days; or
(k) A final judgment in an amount in excess of $100,000 shall be
rendered against the Issuer, and within 60 days after entry thereof, such
judgment shall not be discharged or execution thereof stayed pending
appeal, or within 90 days after the expiration of any such stay, such
judgment shall not be discharged; or
(l) The Issuer shall assign or delegate any of its duties or rights
hereunder, except as specifically permitted hereunder.
SECTION 7.2. ACCELERATION OF MATURITY
------------------------
(a) Upon the occurrence and continuance of an Event of Default, (i)
if such event is an Event of Default specified in clause (g), (h), (i) or (j) of
Section 7.1, all of the Notes at the time outstanding shall automatically become
immediately due and payable at par together with interest accrued thereon and
all accrued and unpaid Loan Yield Maintenance Amounts, to the extent paid as a
result of the prepayment of a Loan or Loans or the acceleration of a Defaulted
Loan or Defaulted Loans, without presentment, demand, protest or notice of any
kind, all of which are hereby waived by the Issuer, and (ii) if such event is
any other Event of Default, the Indenture Trustee may, and, upon the written
request of the Holders of a Majority-in-Interest of the Notes (by notice in
writing to the Issuer and the Indenture Trustee), the Indenture Trustee shall,
declare all of the Notes to be, and all of the Notes shall thereupon be and
become, immediately due and
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payable together with all accrued and unpaid interest thereon and all accrued
and unpaid Loan Yield Maintenance Amounts, to the extent paid as a result of the
prepayment of a Loan or Loans or the acceleration of a Defaulted Loan or
Defaulted Loans, without presentment, demand, protest or other notice of any
kind, all of which are hereby waived by the Issuer.
(b) At any time after an acceleration pursuant to Section 7.2(a), but
before any judgment or decree for the payment of moneys due shall have been
obtained or entered, unless the same has been discharged, and before the Notes
have matured by their terms, or as otherwise provided herein, if all overdue
payments of principal, Loan Yield Maintenance Amount, if any, and interest upon
such Notes, together with the reasonable and proper charges, expenses and
liabilities of the Indenture Trustee, the Holders of such Notes and their
respective agents and attorneys and all other sums then payable by the Issuer
under this Indenture (except the principal of, Loan Yield Maintenance Amount, if
any, and interest accrued since the next preceding Payment Date on such Notes or
due and payable solely by virtue of such declaration) shall either be paid by or
for the account of the Issuer or provisions satisfactory to the Holders of a
Majority-in-Interest of the Notes shall be made for such payment, and all Events
of Default under such Notes and under this Indenture (other than the payment of
principal and interest due and payable solely by reason of such declaration)
have been cured to the satisfaction of the Holders of a Majority-in-Interest of
the Notes or provision deemed by the Holders of a Majority-in-Interest of the
Notes to be adequate has been made therefor, then and in every such case, the
Holders of a Majority-in-Interest of the Notes by written notice to the Issuer
and to the Indenture Trustee, shall have the right, but shall not be obligated,
to rescind such declaration and annul such Event of Default in its entirety. No
such rescission and annulment shall extend to or affect any subsequent Event of
Default or impair or exhaust any right or power consequent thereon.
SECTION 7.3. ENFORCEMENT OF REMEDIES
-----------------------
(a) If an Event of Default shall have occurred and be continuing and
the Notes have become or been declared due and payable and such acceleration and
its consequences have not been rescinded and annulled, the Indenture Trustee may
(and, upon the written request of the Holders of a Majority-in-Interest of the
Notes, shall) proceed to protect and enforce its rights and the rights of the
Noteholders under the Notes and this Indenture and take one or more of the
following actions without limitation:
(i) proceed to protect and enforce its rights and the rights of the
Noteholders by appropriate Proceedings whether by the specific enforcement
of any covenant or agreement in this Indenture or in the aid of the
exercise of any power granted herein, or to enforce any other proper
remedy;
(ii) institute Proceedings for the collection of all amounts then
payable on the Notes, whether by declaration or otherwise, enforce any
judgment obtained, and collect any moneys adjudged due;
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(iii) in accordance with Section 7.13, sell the Indenture Trust
Estate or any portion thereof or rights or interest therein, at one or more
public or private sales called and conducted in any manner permitted by
law; provided, that, unless the Event of Default is in respect of the non-
--------
payment of principal of, interest on, or Loan Yield Maintenance Amounts on
the Notes, the Indenture Trustee may not sell the Indenture Trust Estate
unless either (x) such sale is for an amount greater than or equal to the
sum of the Aggregate Outstanding Principal Amount of the Notes, accrued and
unpaid interest thereon, unpaid Loan Yield Maintenance Amounts in respect
thereof, and amounts due to the Indenture Trustee, the Certificate Trustee,
the Servicer and the Servicing Advisor (other than Atherton Capital
Incorporated) or (y) 100% of the Holders of the Notes consent to such sale
and deliver to the Indenture Trustee a written direction to such effect;
(iv) institute Proceedings from time to time for the complete or
partial foreclosure of this Indenture with respect to the Indenture Trust
Estate; and
(v) exercise any remedies of a secured party under the UCC and take
any other appropriate action to protect and enforce the rights and remedies
of the Indenture Trustee or the Noteholders hereunder.
(b) In the enforcement of any right or remedy under the Notes or this
Indenture, the Indenture Trustee shall be entitled to sue for, enforce payment
on and receive any and all amounts then or during any Event of Default becoming,
and any time remaining, due from the Issuer, for principal and interest, Loan
Yield Maintenance Amount, if any, or otherwise, under any of the provisions of
the Notes or this Indenture, and unpaid, with interest on overdue payments at
the rate or rates of interest specified in the Notes, together with any and all
costs and expenses of collection and of all Proceedings under the Notes or the
Indenture, without prejudice to any other right or remedy of the Indenture
Trustee or the Noteholders and to recover and enforce judgments or decrees
against the Issuer, but solely as provided in this Indenture and in the Notes
for any amounts remaining unpaid, with interest, costs and expenses, and to
collect from any funds or assets of the Issuer, or, in accordance with other
provisions hereof, the Indenture Trust Estate, in any manner provided by law,
the moneys adjudged or decreed to be payable. The Indenture Trustee shall file
such proof of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Indenture Trustee and the
Noteholders allowed in any judicial proceeding, relative to the Issuer or its
creditors or property.
(c) The Indenture Trustee may institute and maintain such suits and
proceedings or take such other acts as it may be advised shall be necessary or
expedient to prevent any impairment of the security under this Indenture or
under any Collateral by any acts which may be unlawful or in violation of this
Indenture or of such Collateral, and such suits and proceedings as the Indenture
Trustee may be advised shall be necessary or expedient to preserve or protect
its interests and the interests of the
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Noteholders; provided, that such request shall not be otherwise than in
--------
accordance with the provisions of law and of this Indenture.
SECTION 7.4. APPLICATION OF MONEY COLLECTED UPON ACCELERATION. If
------------------------------------------------
the Notes have become or been declared due and payable pursuant to Section 7.2
hereof, any moneys collected by the Indenture Trustee pursuant to this Article
VII or otherwise held by the Indenture Trustee as part of the Indenture Trust
Estate shall be applied in the following order at the date or dates fixed by the
Indenture Trustee and, in case of the distribution of such moneys on account of
principal of, interest and Loan Yield Maintenance Amount, if any, on the Notes
upon presentation and surrender thereof:
FIRST: To the payment of amounts then due the Indenture Trustee and
the Certificate Trustee pursuant to Section 9.7 hereof including amounts
payable to the Indenture Trustee acting as Servicer or Servicing Advisor
and the Indenture Trustee's expenses of collection;
SECOND: To the payment of amounts then due to the Servicer and the
Servicing Advisor;
THIRD: To the payment of all the amounts then due and unpaid upon the
Notes for all accrued and unpaid interest payable on the Notes from the
last date on which interest has been paid, to the Holders in accordance
with the relative amounts and priorities set forth in Section 5.2(c)
hereof;
FOURTH: To the payment of all amounts then due and unpaid upon the
Notes for principal, to the Holders of the Notes in accordance with the
relative amounts and priorities set forth in Section 5.2(c) hereof;
FIFTH: To the payment of all amounts then due and unpaid representing
the Loan Yield Maintenance Amounts relating to the Notes, to the Holders of
the Notes in accordance with the relative priorities set forth in Section
5.2(c) hereof; and
SIXTH: To the payment of all other amounts to the Persons entitled
thereto in accordance with the priorities set forth in Section 5.2(c)
hereof.
SECTION 7.5. UNCONDITIONAL RIGHTS OF NOTEHOLDERS TO RECEIVE
----------------------------------------------
PRINCIPAL AND INTEREST. Notwithstanding any other provision in this Indenture,
- ----------------------
the Holder of any Note shall have an absolute and unconditional right to receive
payment of the principal of, interest on and the Loan Yield Maintenance Amounts,
if any, due and payable with respect to such Note (subject to Sections 2.9,
5.2(c) and 7.1(c) hereof) on or after the respective Payment Dates expressed in
such Note, and such right shall not be impaired without the consent of such
Holder.
SECTION 7.6. RESTORATION OF RIGHTS AND REMEDIES. If the Indenture
----------------------------------
Trustee or any Noteholder has instituted any Proceeding to enforce any right or
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remedy under this Indenture and such Proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Indenture
Trustee or such Noteholder, then and in every such case the Issuer, the
Indenture Trustee, and the Noteholders shall, subject to any determination in
such Proceedings, be restored severally and respectively to their former
positions hereunder, and thereafter all rights and remedies of the Indenture
Trustee and the Noteholders shall continue as though no such Proceeding had been
instituted.
SECTION 7.7. RIGHTS AND REMEDIES CUMULATIVE. No right or remedy
------------------------------
herein conferred upon or reserved to the Indenture Trustee or to the Noteholders
is intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise; the assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
SECTION 7.8. DELAY OR OMISSION NOT TO CONSTITUTE A WAIVER. No
--------------------------------------------
delay or omission of the Indenture Trustee or any Holder to exercise any right
or remedy accruing upon the occurrence of any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every such right and remedy given by this Article VII or
by law to the Indenture Trustee or to the Noteholders may be exercised from time
to time, and as often as may be deemed expedient, by the Indenture Trustee or by
the Noteholders, as the case may be.
SECTION 7.9. CONTROL BY MAJORITY-IN-INTEREST. Subject to the
-------------------------------
provisions of Sections 7.2, 7.3 and 7.6 hereof, the Holders of a Majority-in-
Interest of the Notes shall have the sole right to direct the time, method and
place of conducting any Proceeding for any remedy available to the Indenture
Trustee with respect to the Notes or exercising any trust or power conferred on
the Indenture Trustee with respect to the Notes; provided, that:
--------
(a) such direction shall not be in conflict with any rule of law or
with this Indenture;
(b) the Indenture Trustee shall have been provided with indemnity
reasonably satisfactory to it;
(c) subject to clause (d) below, any direction to the Indenture
Trustee to undertake a sale of the Indenture Trust Estate shall be by the
Holders of a Super-Majority-in-Interest of the Notes; and
(d) the Indenture Trustee may take any other action deemed proper by
the Indenture Trustee which is not inconsistent with such direction;
provided, however, that, subject to Section 9.1 hereof, the Indenture
-------- -------
Trustee need not take any action which it determines might expose it to any
liability or might be
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detrimental to the Indenture Trustee in any other respect or be unjustly
prejudicial to the Noteholders not consenting.
SECTION 7.10. WAIVER OF PAST EVENTS OF DEFAULT. PRIOR TO THE TIME
--------------------------------
A JUDGMENT OR DECREE FOR PAYMENT OF THE MONEY DUE HAS BEEN OBTAINED BY THE
INDENTURE TRUSTEE, AS PROVIDED IN THIS ARTICLE VII, THE INDENTURE TRUSTEE, AT
THE WRITTEN DIRECTION OF THE HOLDERS OF A MAJORITY-IN-INTEREST OF THE NOTES MAY
WAIVE ANY PAST EVENT OF DEFAULT WITH RESPECT TO THE NOTES AND ITS CONSEQUENCES
EXCEPT AN EVENT OF DEFAULT (A) IN THE PAYMENT OF PRINCIPAL OF, INTEREST ON OR
LOAN YIELD MAINTENANCE AMOUNTS, IF ANY, WITH RESPECT TO ANY OF THE NOTES OR (B)
IN RESPECT OF A COVENANT OR PROVISION HEREOF WHICH CANNOT BE MODIFIED OR AMENDED
WITHOUT THE CONSENT OF THE HOLDER OF EACH NOTE AFFECTED. UPON ANY SUCH WAIVER,
SUCH EVENT OF DEFAULT SHALL CEASE TO EXIST AND BE DEEMED TO HAVE BEEN CURED AND
NOT TO HAVE OCCURRED, AND ANY EVENT OF DEFAULT ARISING THEREFROM SHALL BE DEEMED
TO HAVE BEEN CURED, AND NOT TO HAVE OCCURRED FOR EVERY PURPOSE OF THIS
INDENTURE. IN THE CASE OF ANY SUCH WAIVER, THE ISSUER, THE INDENTURE TRUSTEE AND
THE HOLDERS OF THE NOTES SHALL BE RESTORED TO THEIR FORMER POSITIONS AND RIGHTS
HEREUNDER, RESPECTIVELY; BUT NO SUCH WAIVER SHALL EXTEND TO ANY SUBSEQUENT OR
OTHER EVENT OF DEFAULT OR IMPAIR ANY RIGHT CONSEQUENT THEREON. UPON ANY SUCH
WAIVER, THE INDENTURE TRUSTEE SHALL PROVIDE NOTICE OF SUCH WAIVER TO THE RATING
AGENCIES.
SECTION 7.11. UNDERTAKING FOR COSTS. The Issuer and the Indenture
---------------------
Trustee agree, and each Noteholder by such Noteholder's acceptance of a Note
shall be deemed to have agreed, that any court may in its discretion require, in
any suit for the enforcement of any right or remedy under this Indenture
undertaken by the Indenture Trustee at the direction of the Noteholders, or in
any suit against the Indenture Trustee for any action taken, suffered or omitted
by it as Indenture Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section 7.11 shall not apply to any suit instituted by the
Indenture Trustee, to any suit instituted by the Holders of a Majority-in-
Interest of the Notes, or to any suit instituted by any Noteholder for the
enforcement of the payment of principal of, interest on or Loan Yield
Maintenance Amounts, if any, of any Note, which principal, interest or Loan
Yield Maintenance Amount is due and payable.
SECTION 7.12. ISSUER WAIVER OF STAY OR EXTENSION LAWS. The Issuer
---------------------------------------
covenants (to the extent that it may lawfully do so) that it will not at any
time insist
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upon, plead, or in any manner whatsoever claim or take the benefit or advantage
of, any stay or extension law wherever enacted, now or at any time hereafter in
force, which may affect the covenants or the performance of this Indenture; and
the Issuer (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Indenture
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 7.13. SALE OF INDENTURE TRUST ESTATE
------------------------------
(a) The power to effect any sale of any portion of the Indenture
Trust Estate pursuant to Section 7.3 hereof shall not be exhausted by any one or
more sales as to any portion of the Indenture Trust Estate remaining unsold, but
shall continue unimpaired until either the entire Indenture Trust Estate shall
have been sold or all amounts payable on the Notes and under this Indenture
shall have been paid pursuant to Section 7.4. The Indenture Trustee may from
time to time postpone any sale by public announcement made at the time and place
of such sale.
(b) The Indenture Trustee may bid for and acquire any portion of the
Indenture Trust Estate in connection with a public sale or, to the extent
permitted by law, a private sale thereof, and in lieu of paying cash to the
Issuer therefor, may make settlement for the purchase price by applying to the
gross sale price in payment therefor the sum of (i) the amount of unpaid
principal of, accrued interest on and Loan Yield Maintenance Amounts, if any, of
the Notes, and (ii) the expenses of the sale and of any proceedings in
connection therewith which are reimbursable to it pursuant to Section 9.7 hereof
and other amounts due hereunder and secured by the Indenture Trust Estate. The
Notes need not be produced to complete any such sale.
(c) The Indenture Trustee shall execute and deliver an appropriate
instrument of conveyance transferring its interest in any portion of the
Indenture Trust Estate in connection with a sale hereof. In addition, the
Indenture Trustee is hereby irrevocably appointed an agent and attorney-in-fact
of the Issuer to transfer and convey the Issuer's interest in any portion of the
Indenture Trust Estate in connection with a sale thereof, and to take all action
necessary to effect such sale. No purchaser or transferee at such a sale shall
have any obligation to ascertain the Indenture Trustee's authority, inquire into
the satisfaction of any conditions precedent or see to the application of any
moneys.
SECTION 7.14. ACTION ON NOTES. The Indenture Trustee's right to
---------------
seek and recover judgment on the Notes or under this Indenture shall not be
affected by the seeking, obtaining or application of any other relief under or
with respect to this Indenture. Neither the lien of this Indenture nor any
rights or remedies of the Indenture Trustee or the Noteholders shall be impaired
by the recovery of any judgment by the Indenture Trustee against the Issuer or
by the levy of any execution under such judgment upon any portion of the
Indenture Trust Estate or upon any of the assets of the Issuer.
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ARTICLE VIII
RELEASE, SATISFACTION AND DISCHARGE
SECTION 8.1. SATISFACTION AND DISCHARGE OF INDENTURE. This
---------------------------------------
Indenture shall cease to be of further effect except as to (a) rights of
registration of transfer and exchange, (b) rights of substitution of new Notes
for mutilated, destroyed, lost or stolen Notes, (c) rights of Noteholders to
receive payments of principal of, interest on and Loan Yield Maintenance
Amounts, if any, with respect to the Notes, (d) the rights, obligations and
immunities of the Indenture Trustee hereunder and (e) the rights of Noteholders
as beneficiaries hereof with respect to the property so deposited with the
Indenture Trustee and payable to them, and the Indenture Trustee, on demand of
and at the expense of the Issuer, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when (i) all Notes theretofore
authenticated and delivered (other than Notes which have been mutilated,
destroyed, stolen and which have been replaced, or paid as provided in Section
2.8 hereof) have been delivered to the Indenture Trustee for cancellation, and
(ii) the Issuer has delivered to the Indenture Trustee an Officer's Certificate
stating that there has been compliance with all conditions precedent herein
provided for the satisfaction and discharge of this Indenture.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Issuer to the Indenture Trustee under Section 9.7 hereof and
of the Indenture Trustee to the Issuer and the Noteholders, as the case may be,
under Section 8.2 hereof and the provisions of Article II hereof with respect to
lost, stolen, destroyed or mutilated Notes, registration of transfer and
exchange of Notes, and rights to receive payments of principal of, interest on
or Loan Yield Maintenance Amounts, if any, with respect to the Notes shall
survive.
SECTION 8.2. APPLICATION OF TRUST MONEY. All moneys deposited with
--------------------------
the Indenture Trustee pursuant to Article V hereof shall be held in trust by
the Indenture Trustee, in its trust capacity and not in its commercial capacity,
and applied by the Indenture Trustee in accordance with the provisions of the
Notes and this Indenture, to the payment to the Holders of the Notes, and, if
required hereunder, to the Issuer.
SECTION 8.3. RELEASE OF INDENTURE TRUST ESTATE
---------------------------------
(a) Subject to the payment of its fees, expenses and indemnities
pursuant to Section 9.7 hereof and only when and to the extent required by the
provisions of this Indenture, the Indenture Trustee shall execute instruments,
agreements, certificates or other writings (including, without limitation, UCC
termination statements) to release property from the lien of this Indenture, or
convey the Indenture Trustee's interest in the same, in a manner and under
circumstances which are not inconsistent with the provisions of this Indenture.
No party relying upon an instrument executed by the Indenture Trustee as
provided in this Article VIII shall be bound to ascertain the Indenture
Trustee's authority, inquire into the satisfaction of any conditions precedent
or see to the application of any moneys.
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(b) The Indenture Trustee shall, at such time as all sums due the
Indenture Trustee and the Certificate Trustee pursuant to Section 9.7 hereof
have been paid and the provisions of Section 8.1 have been satisfied, release
the Indenture Trust Estate from the lien of this Indenture.
ARTICLE IX
THE INDENTURE TRUSTEE
SECTION 9.1. CERTAIN DUTIES AND RESPONSIBILITIES
-----------------------------------
(a) Except during the continuance of an Event of Default:
(i) the duties of the Indenture Trustee shall be determined solely
by the express provisions of this Indenture and the Indenture Trustee need
perform only those duties expressly set forth herein and no others; the
Indenture Trustee undertakes to perform such duties and only such duties as
are specifically set forth in this Indenture, and no implied covenants or
obligations shall be read into this Indenture against the Indenture
Trustee; and
(ii) in the absence of bad faith on its part, the Indenture Trustee
may conclusively rely upon certificates, opinions and all other notices and
documents furnished to the Indenture Trustee and conforming as to form to
the requirements of this Indenture, including investment instructions
received pursuant to Section 5.4 hereof, as to the truth of the statements
and the correctness of the opinions expressed therein; but in the case of
any such certificates, opinions and all other notices and documents which
by any provision of this Indenture are specifically required to be
furnished to the Indenture Trustee, the Indenture Trustee shall be under a
duty to examine the same to determine whether or not they meet the
requirements of this Indenture.
(b) In case an Event of Default has occurred and is continuing, the
Indenture Trustee shall exercise such of the rights and powers vested in it by
this Indenture, and use the same degree of care and skill in their exercise, as
a prudent person would exercise or use under the circumstances in the conduct of
his or her own affairs.
(c) No provision of this Indenture, including, without limitation,
Section 9.7, shall be construed to relieve the Indenture Trustee from liability
for its own negligent action, its own negligent failure to act, or its own
willful misconduct, except that:
(i) this subsection shall not be construed to limit the effect of
subsection (a) of this Section 9.1;
(ii) the Indenture Trustee shall not be liable for any error of
judgment made in good faith by an Authorized Officer of the Indenture
Trustee, unless it
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shall be proved that the Indenture Trustee was negligent in ascertaining
the pertinent facts; and
(iii) the Indenture Trustee shall not be personally liable with
respect to any action taken or omitted to be taken by it in good faith in
accordance with any direction received by the Indenture Trustee in
accordance with the terms of this Indenture from the Holders of a Majority-
in-Interest (or other percentage as may be required by the terms hereof) of
the Notes relating to the time, method and place of conducting any
Proceeding for any remedy available to the Indenture Trustee, or exercising
any trust or power conferred upon the Indenture Trustee, under this
Indenture.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct of, affecting the liability of or
affording protection to the Indenture Trustee shall be subject to the provisions
of this Section 9.1.
(e) For all purposes under this Indenture, the Indenture Trustee
shall not be deemed to have notice of any Default or Event of Default (other
than an Event of Default described in Section 7.1(a), (b) or (c) hereof) or a
Default or Event of Default under any document included in the Indenture Trust
Estate, unless an Authorized Officer of the Indenture Trustee has actual
knowledge thereof or unless an Authorized Officer of the Indenture Trustee has
received written notice thereof and such notice references the Notes generally,
the Issuer, the Indenture Trust Estate or this Indenture; provided, that the
--------
Indenture Trustee will not be responsible for conducting or performing any
investigations or inquiries with respect to any such matters. For purposes of
determining the Indenture Trustee's responsibility and liability hereunder,
whenever reference is made in this Indenture to a Default or an Event of
Default, such reference shall be construed to refer only to the Default or the
Event of Default of which the Indenture Trustee is deemed to have notice of the
type described in this Section 9.1(e).
(f) No provision of this Indenture shall require the Indenture
Trustee to expend or risk its own funds or otherwise incur financial liability
in the performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if there shall be reasonable ground for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it, the Indenture Trustee having the right to require
an indemnity pursuant to subparagraph (g) below.
(g) The Indenture Trustee shall, at its own expense, maintain at all
times and keep in full force and effect (i) fidelity insurance, (ii) theft of
documents insurance, (iii) forgery insurance and (iv) insurance covering the
risk of errors and omissions. Such insurance may be maintained by the Indenture
Trustee in the form of self-insurance. The Indenture Trustee shall not be under
any obligation to institute any suit, or to take any remedial Proceeding under
this Indenture, or to enter any appearance in or in any way defend any suit in
which it may be made defendant, or to take any steps in the execution of the
trusts hereby created, the performance of any of its duties hereunder or in the
40
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enforcement of any rights and powers hereunder until it shall be indemnified to
its reasonable satisfaction against any and all costs and expenses, outlays and
counsel fees and other reasonable disbursements and against all liability,
except liability which is adjudicated to have resulted from its own negligence
or willful misconduct, in connection with any action so taken.
(h) Notwithstanding any extinguishment of all right, title and
interest of the Issuer in and to the Indenture Trust Estate following an Event
of Default and a consequent acceleration of the maturity of the Notes, whether
such extinguishment occurs through a sale of the Indenture Trust Estate to
another person, the acquisition of the Indenture Trust Estate by the Indenture
Trustee or otherwise, the rights, powers and duties of the Indenture Trustee
with respect to the Indenture Trust Estate (or the proceeds thereof) and the
Noteholders and the rights of the Noteholders shall continue to be governed by
the terms of this Indenture.
(i) The Indenture Trustee shall keep and maintain proper books of
record and accounts relating to the Notes in which full, true and correct
entries will be made of all dealings or transactions of the Indenture Trustee in
relation to the Notes, the Accounts and the Issuer. The Indenture Trustee shall
keep such books of record and accounts reasonably available for inspection
during normal business hours and upon reasonable advance notice to the Indenture
Trustee (but in no event more frequently than one inspection per calendar month)
by the Issuer and under reasonable circumstances in accordance with the terms of
this Indenture.
(j) Until one year and one day after such time as the Notes issued
under the Indenture are paid in full, no Indenture Trustee or successor trustee
nor any Holder shall institute the filing of an involuntary bankruptcy petition
against the Issuer or the Seller.
SECTION 9.2. NOTICE OF EVENTS OF DEFAULT. Promptly after an
---------------------------
Authorized Officer of the Indenture Trustee shall have received written notice
of the occurrence of any Default or Event of Default, the Indenture Trustee
shall promptly transmit by mail to all Holders, the Rating Agencies and the
Issuer notice of such Event of Default actually known to the Indenture Trustee.
SECTION 9.3. CERTAIN RIGHTS OF THE INDENTURE TRUSTEE. Except as
---------------------------------------
otherwise expressly provided in Section 9.1 hereof:
(a) in the absence of bad faith or negligence the Indenture Trustee
conclusively may rely on, and shall be protected in acting or refraining
from acting when doing so, in each case in accordance with, any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, note or other paper or document believed
by the Indenture Trustee to be genuine and to have been signed or presented
by the proper party or parties, and the Indenture Trustee need not
investigate any facts stated therein;
41
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(b) whenever in the administration of this Indenture the Indenture
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the Indenture
Trustee (unless other evidence be herein specifically prescribed) may, in
the absence of bad faith on its part, rely upon an Officer's Certificate;
(c) before the Indenture Trustee acts or refrains from acting, it may
require an Officer's Certificate or Opinion of Counsel, or both, and the
Indenture Trustee shall not be liable for any action it takes, suffers or
omits in reliance on either thereof; the Indenture Trustee may consult with
counsel, and the advice of such counsel or any Opinion of Counsel shall be
full and complete authorization and protection in respect of the legality
of any action taken, suffered or omitted by the Indenture Trustee hereunder
in good faith and in reliance thereon;
(d) the Indenture Trustee shall not be under any obligation to
exercise any of the rights or powers vested in it by this Indenture at the
request or direction of any of the Noteholders pursuant to this Indenture
(i) unless such Noteholders shall have offered to the Indenture Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with such request
or direction and (ii) in the event and to the extent that the Indenture
Trustee has received prior written notice from a Rating Agency that such
exercise shall result in the withdrawal or downgrading of any rating
assigned by such Rating Agency to the Notes;
(e) the Indenture Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, note or other paper or document, but the
Indenture Trustee in its discretion may make such further inquiry or
investigation into such facts or matters as it may see fit, and if the
Indenture Trustee shall determine to make such further inquiry or
investigation, it shall be entitled, on reasonable prior notice to the
Issuer and during the Issuer's normal business hours (but in no event more
frequently than once per calendar month), to examine the books, records and
premises of the Issuer, personally or by agent or attorney; provided, that
--------
the Indenture Trustee shall and shall cause its agents to hold in
confidence all such information except to the extent disclosure may be
required by law and except to the extent that the Indenture Trustee, in its
sole judgment, may determine that such disclosure is consistent with its
obligations hereunder. Notwithstanding anything herein to the contrary,
the forgoing shall not be construed to prohibit (i) disclosure of any and
all information that is or becomes publicly known, or information obtained
by the Indenture Trustee from sources other than the Issuer or the
Servicer, (ii) disclosure of any and all information (A) if required to do
so by any applicable statute, law, rule or regulation, (B) to any
government agency or regulatory body having or claiming authority to
regulate or oversee any respects of the Indenture Trustee's business or
that of its affiliates, (C) pursuant to any subpoena, civil investigative
42
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demand or similar demand or request of any court, regulatory authority,
arbitrator or arbitration to which the Indenture Trustee an affiliate or an
officer, director, employer or shareholder thereof is a party, (D) in any
preliminary or final offering circular, registration statement or contract
or other document pertaining to the transactions contemplated by this
Indenture approved in advance by the Issuer or (E) to any affiliate,
independent or internal auditor, agent, employee or attorney of the
Indenture Trustee having a need to know the same provided that the
Indenture Trustee advises such recipient of the confidential nature of the
information being disclosed, or (iii) any other disclosure authorized by
the Issuer;
(f) the Indenture Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or through
agents or attorneys and the Indenture Trustee shall not be responsible for
any misconduct or negligence on the part of any agent or attorney appointed
with due care by it hereunder;
(g) the Indenture Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within
the rights or powers conferred upon it by this Indenture if such action or
omission is not negligent; and
(h) to the extent a Person other than the Indenture Trustee is
appointed by the Issuer to act as Registrar, the Indenture Trustee shall
not be liable or responsible by reason of any act or omission of any such
Person.
SECTION 9.4. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF NOTES.
-------------------------------------------------
The recitals contained herein and in the Notes, except any such recitals
relating to the Indenture Trustee, shall be taken as the statements of the
Issuer, and the Indenture Trustee assumes no responsibility for their
correctness. The Indenture Trustee shall not be responsible for and makes no
representation as to the validity or sufficiency of this Indenture, the Notes or
the Indenture Trust Estate. The Indenture Trustee shall not be accountable for
the Issuer's issue of the Notes or application of the proceeds thereof or for
any money paid to the Issuer or upon the Issuer's direction under any of the
provisions of this Indenture. The Indenture Trustee is not responsible for the
use or application of any moneys by any agent other than the Indenture Trustee,
including, without limitation, any co-trustee, the Servicer or the Servicing
Advisor. The Indenture Trustee shall not be responsible for any statement in
the Notes or in any other document prepared, executed or delivered in connection
with the sale and issuance of the Notes or the execution and delivery of this
Indenture except its certificate of authentication.
SECTION 9.5. MAY HOLD NOTES. The Indenture Trustee, in its
--------------
individual or any other capacity, may become the owner or pledgee of Notes and
may otherwise deal with the Issuer with the same rights it would have if it were
not the Indenture Trustee.
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SECTION 9.6. MONEY HELD IN TRUST. Money held by the Indenture
-------------------
Trustee in trust hereunder will be held by the Indenture Trustee in its trust
capacity and not in its commercial capacity, in a segregated account in
accordance with the Indenture. The Indenture Trustee shall be under no
liability for interest on any money received by it hereunder except as otherwise
agreed in writing with the Issuer and except to the extent of income or other
gain on Eligible Investments which are obligations of the Indenture Trustee and
income or other gain actually received by the Indenture Trustee on Eligible
Investments which are obligations of a third party.
SECTION 9.7. COMPENSATION AND REIMBURSEMENT
------------------------------
(a) The Issuer agrees:
(1) subject to any separate written agreement with the Indenture
Trustee, to pay the Indenture Trustee from time to time compensation at the
Trustee Fee Rate for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(2) to reimburse the Indenture Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or made by the
Indenture Trustee in accordance with any provision of this Indenture
(including the compensation and the reasonable expenses and disbursements
of its agents, including the co-trustee, if any, and counsel and costs and
expenses of collection); and
(3) to indemnify the Indenture Trustee, including any of its
directors, officers, employees, agents, and any co-trustee appointed
pursuant to this Indenture, and counsel of the Indenture Trustee for, and
to hold them harmless against, any loss, penalties, fines, forfeitures,
legal fees, liability or expense incurred without negligence or bad faith
on their part, arising out of or in connection with the acceptance or
administration of this trust, including the reasonable costs and expenses,
including reasonable attorneys' fees, of defending themselves against any
claim or liability in connection with the exercise or performance of any of
their powers or duties hereunder; provided, that:
--------
(i) with respect to any such claim, the Indenture Trustee shall
have given the Issuer written notice thereof promptly after
the Indenture Trustee shall have knowledge thereof;
provided, however, that the failure of the Indenture
-------- -------
Trustee to so notify the Issuer shall not relieve the Issuer
of its obligations pursuant to this subparagraph;
(ii) the Issuer shall assume the defense of any such claim;
provided, that if the Issuer shall not have employed counsel
--------
reasonably satisfactory to the Indenture Trustee to direct
the defense of such claim within a reasonable time after
such notice of the claim
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pursuant to paragraph (i) above, the Indenture Trustee
shall have the right to direct the defense of such claim
and retain its own counsel;
(iii) the Indenture Trustee shall have the right to employ
separate counsel with respect to any claim and to
participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of the
Indenture Trustee unless the payment of such counsel has
been authorized in writing by the Issuer, which consent
shall not be unreasonably withheld by the Issuer;
provided, that a conflict of interest shall be deemed to
--------
be reasonable grounds for retaining separate counsel by
the Indenture Trustee; provided, further, that if the
-------- -------
Indenture Trustee shall assume the defense of any claim
as described in paragraph (ii) above, the Issuer shall
pay the reasonable fees and expenses of Indenture
Trustee's counsel in connection with the defense of such
claim; and
(iv) notwithstanding anything to the contrary in this Section
9.7(a)(3), the Issuer shall not be liable for settlement
of any such claim by the Indenture Trustee entered into
without the prior consent of the Issuer, which consent
shall not be unreasonably withheld.
Nothing in this Section 9.7 shall be construed to limit the exercise
by the Indenture Trustee of any right or remedy permitted under this Indenture
or otherwise in the event of the Issuer's failure to pay any sums due the
Indenture Trustee pursuant to this Section 9.7.
(b) The provisions of this Section 9.7 shall govern all other
provisions of this Indenture regarding the payment of the fees and expenses of
the Indenture Trustee.
(c) The Issuer's payment obligations under Section 9.7(a)(3) shall be
satisfied solely from the funds owing to the Issuer pursuant to Section
5.2(c)(xvi). To secure the Issuer's payment obligations under Section
9.7(a)(3), the Indenture Trustee shall have a lien subordinate to the
Noteholders on the Indenture Trust Estate. Such lien shall survive the
satisfaction and discharge of this Indenture or the resignation or removal of
the Indenture Trustee.
(d) The payment obligations of the Issuer under this Section 9.7
shall survive the satisfaction and discharge of this Indenture or the
resignation or removal of the Indenture Trustee.
SECTION 9.8. INDENTURE TRUSTEE ELIGIBILITY. The Indenture Trustee
-----------------------------
shall be a corporation, bank or trust company organized and doing business under
the laws of the United States of America or of any State authorized under such
laws to exercise corporate trust powers, having a combined capital and surplus
of at least $50,000,000, subject to supervision or examination by any federal or
state banking
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authority (except as provided in Section 9.9 hereof). If such Indenture Trustee
publishes reports of condition annually, or more frequently, pursuant to law or
to the requirements of the aforesaid supervising or examining authority, then
for the purposes of this Section 9.8, the combined capital and surplus of such
corporation shall be deemed to be the respective amount set forth in its most
recently published report of condition. If at any time the Indenture Trustee
shall cease to be eligible in accordance with the provisions of this Section
9.8, it shall resign immediately in the manner and with the effect hereinafter
specified in this Article IX.
SECTION 9.9. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR
-------------------------------------------------
(a) No resignation or removal of the Indenture Trustee and no
appointment of a successor trustee pursuant to this Article IX shall become
effective until the acceptance of appointment by the successor trustee under
Section 9.10 hereof.
(b) The Indenture Trustee or any trustee hereafter appointed may
resign at any time by giving written notice of resignation to the Issuer, and by
mailing notice of resignation by first-class mail, postage prepaid, to all of
the Noteholders at their addresses appearing on the Register and to the Rating
Agencies. Upon receiving notice of resignation of the Indenture Trustee, the
Issuer may appoint a successor trustee, by written instrument, in duplicate, one
copy of which instrument shall be delivered to the resigning Indenture Trustee
and one copy to the successor trustee or trustees. The Indenture Trustee shall
serve as trustee hereunder until a successor trustee shall have been appointed
and shall have accepted such appointment; provided, however, that if no
-------- -------
successor trustee shall have been appointed and have accepted appointment within
30 days after the giving of such notice of resignation, the Indenture Trustee
may appoint a successor trustee.
(c) If at any time:
(1) the Indenture Trustee shall cease to be eligible under Section
9.8 hereof and shall fail to resign, after written request therefor by the
Issuer; or
(2) (A) the Indenture Trustee shall become incapable of acting, (B) a
court or governmental agency having jurisdiction in the premises in respect
of the Indenture Trustee in an involuntary case under the federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy, insolvency or other similar law, shall have
entered a decree or order granting relief or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or similar
official) for the Indenture Trustee or for any substantial part of the
Indenture Trustee's property, or ordering the winding-up or liquidation of
the Indenture Trustee's affairs, and any such decree or order shall have
continued unstayed and in effect for a period of 60 consecutive days or (C)
the Indenture Trustee commences a voluntary case under the federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
federal or state bankruptcy,
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<PAGE>
insolvency or other similar law, or consents to the appointment of or
taking possession by a receiver, liquidator, assignee, trustee, custodian,
sequestrator (or other similar official) for the Indenture Trustee or for
any substantial part of the Indenture Trustee's property, or makes any
assignment for the benefit of creditors or fails generally to pay its debts
as such debts become due or takes any corporate action in furtherance of
any of the foregoing;
then, in any such case the Issuer hereby agrees with the Noteholders that it
shall remove the Indenture Trustee by written request and appoint a successor
trustee acceptable to Issuer by written instrument, in five counterparts, one
copy of which instrument shall be delivered to the Indenture Trustee so removed,
one copy to the successor trustee, and one copy to each of the Rating Agencies.
(d) If Issuer fails to appoint a successor Indenture Trustee, the
Indenture Trustee may be removed at any time by act of the Holders of a
Majority-in-Interest of the Notes.
(e) The Issuer shall give notice of the resignation or removal of the
Indenture Trustee by mailing notice of such event by first-class mail, postage
prepaid, to the Holders of the Notes as their names and addresses appear in the
Register. Each notice shall include the name of the successor trustee and the
address of its trust division or department. The notice required by this
paragraph (e) may be given at the same time as the notice required by Section
9.10.
SECTION 9.10. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR
--------------------------------------
(a) Every successor trustee appointed hereunder shall execute,
acknowledge and deliver to the Issuer and its predecessor trustee an instrument
accepting such appointment hereunder. Upon the delivery and execution of the
required instruments, the resignation or removal of the predecessor trustee
shall become effective and such successor trustee, without any further act, deed
or conveyance, shall become vested with all the rights, powers, trusts, duties
and obligations of its predecessor hereunder. Notwithstanding the foregoing, on
request of the Issuer, or the successor trustee, such predecessor trustee shall,
upon payment of its then unpaid charges due and payable under Section 9.7
hereof, execute and deliver an instrument transferring to such successor trustee
all of the rights, powers and trusts of the predecessor trustee and shall duly
assign, transfer and deliver to such successor trustee all property and money
held by such predecessor trustee hereunder. Upon request of any such successor
trustee, the Issuer shall execute any and all instruments providing for more
full and certain vesting in and confirming to such successor trustee all such
rights, powers and trusts of this Indenture.
(b) Upon acceptance of appointment by a successor trustee as provided
in this Section 9.10, the Issuer shall mail notice thereof by first-class mail,
postage prepaid, to the Holders at the Holders' addresses appearing upon the
Register. If the Issuer fails to
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<PAGE>
mail such notice within 10 days after acceptance of appointment by the successor
trustee, the successor trustee shall cause such notice to be mailed at the
expense of the Issuer.
(c) Any successor trustee is subject to the approval of the Rating
Agencies and must, at the time of such successor's acceptance of its
appointment, meet the eligibility requirements set forth in this Article IX, and
otherwise exercise the rights, remedies, powers and authority of the predecessor
trustee with respect to the Indenture Trust Estate.
(d) Notwithstanding the replacement of the Indenture Trustee or any
successor trustee pursuant to the provisions of this Indenture, the Issuer's
obligations set forth in Section 9.7 hereof shall survive such replacement and
continue for the benefit of the resigning or replaced trustee.
SECTION 9.11. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
--------------------------------------------------
BUSINESS OF INDENTURE TRUSTEE. Any corporation into which the Indenture
- -----------------------------
Trustee may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Indenture Trustee shall be a party, or any corporation succeeding to all or
substantially all of the corporate trust business of the Indenture Trustee shall
be the successor of the Indenture Trustee hereunder without the execution or
filing of any paper or any further act on the part of any of the parties hereto;
provided, that such corporation shall be otherwise qualified and eligible under
- --------
this Article IX. In case any Notes have been authenticated, but not delivered,
by the Indenture Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Indenture Trustee may deliver the Notes so
authenticated with the same effect as if such successor trustee had itself
authenticated such Notes.
SECTION 9.12. CO-TRUSTEES AND SEPARATE INDENTURE TRUSTEES
-------------------------------------------
(a) At any time or times, for the purpose of meeting the legal
requirements of any jurisdiction in which any of the Indenture Trust Estate may
at any time be located, the Issuer and the Indenture Trustee shall have power to
appoint, and, upon the written request of the Indenture Trustee, the Issuer
shall for such purpose join with the Indenture Trustee in the execution,
delivery and performance of all instruments and agreements necessary or proper
to appoint, one or more Persons approved by the Indenture Trustee either to act
as co-trustee, jointly with the Indenture Trustee, of all or any part of such
Indenture Trust Estate, or to act as separate trustee of any such property, in
either case with such powers as may be provided in the instrument of
appointment, and to vest in such Person or Persons in the capacity aforesaid,
any property, title, right or power deemed necessary or desirable to meet such
legal requirements, subject to the other provisions of this Section 9.12. If
the Issuer does not join in such appointment within 15 days after the receipt by
it of a request so to do, or in case an Event of Default has occurred and is
continuing, the Indenture Trustee alone shall have power to make such
appointment.
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<PAGE>
(b) Should any written instrument from the Issuer be required by any
co-trustee or separate trustee so appointed for more fully confirming to such
co-trustee or separate trustee such property, title, right or power, any and all
such instruments shall, on request, be executed, acknowledged and delivered by
the Issuer.
(c) Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the following
terms, namely:
(1) The Notes shall be authenticated and delivered and all rights,
powers, duties and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Indenture Trustee hereunder, shall be
exercised, solely by the Indenture Trustee.
(2) The rights, powers, duties and obligations hereby conferred or
imposed upon the Indenture Trustee shall be conferred or imposed upon and
exercised or performed by the Indenture Trustee or by the Indenture Trustee
and such co-trustee or separate trustee jointly, as shall be provided in
the instrument appointing such co-trustee or separate trustee, except to
the extent that under any law of any jurisdiction in which any particular
act is to be performed, the Indenture Trustee shall be incompetent or
unqualified to perform such act, in which event such rights, powers, duties
and obligations shall be exercised and performed by such co-trustee or
separate trustee.
(3) The Indenture Trustee at any time, by an instrument in writing
executed by it, with the concurrence of the Issuer evidenced by an
Officer's Certificate to such effect, may accept the resignation of or
remove any co-trustee or separate trustee appointed under this Section
9.12, and, in case an Event of Default has occurred and is continuing, the
Indenture Trustee shall have power to accept the resignation of, or remove,
any such co-trustee or separate trustee without the concurrence of the
Issuer. Upon the written request of the Indenture Trustee, the Issuer
shall join with the Indenture Trustee in the execution, delivery and
performance of all instruments and agreements necessary or proper to
effectuate such resignation or removal. A successor to any co-trustee or
separate trustee so resigned or removed may be appointed in the manner
provided in this Section 9.12.
(4) No co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Indenture Trustee, or any
other such trustee hereunder.
(5) Any act of Noteholders delivered to the Indenture Trustee shall
be deemed to have been delivered to each such co-trustee and separate
trustee.
SECTION 9.13. STREIT ACT. Any provisions required to be contained
----------
in this Indenture by Section 126 of Article 4-A of the New York Real Property
Law are
49
<PAGE>
hereby incorporated, and such provisions shall be in addition to those conferred
or imposed by this Indenture; provided, however, that to the extent that such
-------- -------
Section 126 shall not apply to this Indenture, said Section 126 shall not have
any effect, and if said Section 126 should at any time be repealed or cease to
apply to this Indenture; or be construed by judicial decision to be
inapplicable, said Section 126 shall cease to have any further effect upon the
provisions of this Indenture. In case of a conflict between the provisions of
this Indenture and any mandatory provisions of Article 4-A of the New York Real
Property Law, such mandatory provisions of said Article 4-A shall prevail;
provided, that if said Article 4-A shall not apply to this Indenture, should at
- --------
any time be repealed, or cease to apply to this Indenture, or be construed by
judicial decision to be inapplicable, such mandatory provisions of such Article
4-A shall cease to have any further effect upon the provisions of this
Indenture.
SECTION 9.14. TAX REPORTING. Not later than February 1 of each
-------------
calendar year, the Indenture Trustee shall report to each Noteholder the amount
of interest paid on the Notes, the amount of any original issue discount on the
Notes, to the extent such amount was provided to the Indenture Trustee by the
Issuer, and the amount of interest actually withheld for federal income taxes,
if any, for the preceding calendar year.
ARTICLE X
AMENDMENTS
SECTION 10.1. AMENDMENTS WITHOUT CONSENT OF NOTEHOLDERS. Without
-----------------------------------------
the consent of, or notice to, the Holders of any Notes, the Issuer and the
Indenture Trustee may amend this Indenture at any time and from time to time for
any of the following purposes:
(a) to correct or amplify the description of any property at any time
subject to the lien of this Indenture, or better to assure, convey and
confirm unto the Indenture Trustee any property subject or required to be
subjected to the lien of this Indenture, or to subject to the lien of this
Indenture additional property; or
(b) to evidence the succession, in compliance with the provisions of
Section 4.2(b) hereof, of another Person to the Issuer, and the assumption
by any such successor of the covenants of the Issuer contained herein and
in the Notes; or
(c) to add to the covenants of the Issuer or the Indenture Trustee,
for the benefit of the Noteholders, or to surrender any right or power
herein conferred upon the Issuer; or
(d) to convey, transfer, assign, mortgage or pledge any property to
the Indenture Trustee to constitute additional Indenture Trust Estate; or
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<PAGE>
(e) to cure any ambiguity, correct or supplement any provision herein
which may be defective or inconsistent with any other provisions herein or
amend any other provisions with respect to matters or questions arising
under this Indenture; provided, that such action shall not adversely affect
--------
the interests of the Holders; or
(f) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee or note registrar, pursuant to the
requirements of Section 9.9 or Section 9.10 hereof.
The Indenture Trustee is hereby authorized to join in the execution of
any such amendment and to make any further appropriate agreements and
stipulations which may be therein contained or required.
SECTION 10.2. AMENDMENTS WITH CONSENT OF NOTEHOLDERS AND THIRD
------------------------------------------------
PARTIES
- -------
(a) With the consent of the Holders of a Majority-in-Interest of the
Notes delivered to the Issuer and the Indenture Trustee, the Issuer, pursuant to
a written request, and the Indenture Trustee may amend this Indenture for the
purpose of adding to, changing or eliminating any of the provisions of this
Indenture or of modifying the rights of Holders under this Indenture; provided,
--------
however, that no such amendment shall, without the consent of the Holder of each
- -------
Outstanding Note:
(1) change the Maturity of the principal of, or any installment of
principal of, interest on or Loan Yield Maintenance Amount, if any, with
respect to any Note, or reduce the principal amount thereof or change the
interest rate thereon, or change the provisions of this Indenture relating
to the application of the Indenture Trust Estate to payment of principal of
Notes, or change any place of payment where, or the coin or currency in
which, the principal of or the interest of any Note is payable, or impair
the right to institute Proceedings for the enforcement of the provisions of
the Indenture requiring the application of funds available therefor, as
provided in Article VII, to the payment of any amount due on the Notes on
or after the Maturity thereof; or
(2) reduce the percentage of the Aggregate Outstanding Principal
Amount of the Notes, the consent of the Holders of which is required for
any amendment, or the consent of the Holders of which is required for any
waiver of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences provided for in this Indenture;
or
(3) modify or alter the provisions of the proviso to the definition
of the term "Outstanding"; or
(4) permit the creation of any lien ranking prior to or on a parity
with the lien of this Indenture with respect to any part of the Indenture
Trust Estate or
51
<PAGE>
terminate the lien of this Indenture on any property at any time subject
hereto or deprive any Holder of the security afforded by the lien of this
Indenture except as provided in 8.3(d) hereof or as otherwise expressly
permitted hereby; or
(5) reduce the percentage of the Aggregate Outstanding Principal
Amount of the Notes, the consent of the Holders of which is required to
direct the Indenture Trustee to sell the Indenture Trust Estate pursuant to
Section 7.10 hereof; or
(6) modify any of the provisions of this Section 10.2, except to
increase any percentage specified herein or to provide that certain
additional provisions of this Indenture cannot be modified or waived
without the consent of each Holder of an Outstanding Note affected thereby;
or
(7) modify any of the provisions of this Indenture in such a manner
as to affect the calculation of the amount of any payment of interest or
principal due on any Note on any Payment Date (including the calculation of
any of the individual components of such calculation).
(b) Notwithstanding anything to the contrary herein, the prior
written consent of Servicer shall be required in connection with any amendment
that amends, modifies or alters any of the provisions of this Indenture with
respect to the Servicing Fee or which would have the effect of subordinating,
reducing or eliminating the payment of such amounts to Servicer or otherwise
affecting the Servicer's rights with respect thereto.
(c) Promptly after the execution by the Issuer and the Indenture
Trustee of any amendment pursuant to this Section 10.2, the Indenture Trustee
shall mail to the Holders and each Rating Agency a copy of the executed
amendment. Any failure of the Indenture Trustee to mail such copy, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such amendment.
SECTION 10.3. EXECUTION OF AMENDMENTS. In executing, or permitting
-----------------------
the modifications of the trusts created by this Indenture or the additional
trusts created by, any amendment of the Indenture permitted by this Article X,
the Indenture Trustee, and the Noteholders shall be entitled to receive, and
(subject to Sections 9.1 and 9.3 hereof) shall be fully protected in relying
upon, an Opinion of Counsel to the Issuer stating that the execution of such
amendment is authorized or permitted by this Indenture and that all conditions
precedent thereto have been complied with. The Indenture Trustee may, but shall
not be obligated to, enter into any such amendment which affects the Indenture
Trustee's own rights, duties, liabilities or immunities under this Indenture or
otherwise unless indemnified to the Indenture Trustee's satisfaction.
SECTION 10.4. EFFECT OF AMENDMENT. Upon the execution of any
-------------------
amendment of this Indenture pursuant to the provisions hereof, this Indenture
shall be and be deemed to be modified and amended in accordance therewith with
respect to each Note and the respective rights, limitations, obligations,
duties, liabilities and immunities
52
<PAGE>
under this Indenture of the Indenture Trustee, the Issuer and the Holders shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and conditions
of any such amendment shall be and be deemed to be part of the terms and
conditions of this Indenture for any and all purposes.
SECTION 10.5. REFERENCE IN NOTES TO AMENDMENTS. Notes
--------------------------------
authenticated and delivered after the execution of any amendment of this
Indenture pursuant to this Article X may, and, if required by the Issuer shall,
bear a notation in form approved by the Indenture Trustee as to any matter
provided for in such amendment. If the Issuer shall so require, new Notes so
modified as to conform, in the opinion of the Indenture Trustee and the Issuer,
to any such amendment may be prepared and executed by the Issuer and
authenticated and delivered by the Indenture Trustee in exchange for Outstanding
Notes.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1. COMPLIANCE CERTIFICATES. Whenever, upon any
-----------------------
application or request by the Issuer to the Indenture Trustee to take any action
under any provision of this Indenture, the Issuer shall, to the extent required
by any provision of this Indenture, furnish to the Indenture Trustee and the
Rating Agencies an Officer's Certificate stating that all conditions precedent,
if any, provided for in this Indenture relating to the proposed action have been
complied with, and except in the case of any application or request as to which
the furnishing of additional documents is specifically required by any provision
of this Indenture, no additional certificate or opinion need be furnished.
Every certificate with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(a) a statement that the Person making such certificate has read such
covenant or condition;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate are based;
(c) a statement that, in the opinion of each such Person, such Person
has made such examination or investigation as necessary to enable such
person to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
53
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(d) a statement as to whether or not, in the opinion of each such
Person, such condition or covenant has been complied with.
SECTION 11.2. FORM OF DOCUMENTS DELIVERED TO INDENTURE TRUSTEE. In
------------------------------------------------
any case where several matters are required to be certified by, or covered by an
opinion of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may certify
or give an opinion with respect to some matters and one or more other such
Persons as to other matters, and any such Person may certify or give an opinion
as to such matters in one or several documents. Where any Person is required to
make, give or execute two or more applications, requests, consents,
certificates, statements, opinions or other instruments under this Indenture,
they may, but need not, be consolidated and form one instrument.
Any certificate or opinion of the Issuer may be based, insofar as it
relates to legal matters, upon an opinion of, or representations by, counsel,
unless the Issuer knows, or in the exercise of reasonable care should know, that
the certificate or opinion or representations with respect to the matters upon
which its certificate or opinion is based are erroneous. Any Officer's
Certificate or Opinion of Counsel by any other Person may be based, without
independent investigation, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, the Issuer, the Indenture
Trustee or other appropriate Person, stating that the information with respect
to such factual matters is in the possession of the Issuer, the Indenture
Trustee or other appropriate Person, as the case may be, unless such Person
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to such matters are erroneous.
In connection with any application, certificate or report to the
Indenture Trustee, whenever this Indenture provides that the Issuer shall
deliver any document as a condition of the granting of such application, or as
evidence of the Issuer's compliance with any terms hereof, it is intended that
the truth and accuracy of the facts and opinions stated in such document, at the
time of the granting of such application or at the effective date of such
certificate or report (as the case may be), shall in such case be conditions
precedent to the right of the Issuer to have such application granted or to the
sufficiency of such certificate or report. The foregoing shall not, however, be
construed to affect the Indenture Trustee's right to rely upon the truth and
accuracy of any statement or opinion contained in any such document as provided
in Article IX hereof or to impose a duty on the Indenture Trustee to ascertain
such truth or inaccuracy.
Whenever this Indenture provides that the absence of the occurrence
and continuation of a Default or Event of Default is a condition precedent to
the taking of any action by the Indenture Trustee at the request or direction of
the Issuer, then, notwithstanding that the satisfaction of such condition is a
condition precedent to the Issuer's right to make such request or direction, the
Indenture Trustee shall be protected in acting in accordance with such request
or direction if it does not have knowledge of the
54
<PAGE>
occurrence and continuance of a Default or Event of Default as provided in
Section 9.1(e) hereof.
SECTION 11.3. NOTICES, ETC. TO PARTIES. All notices, requests or
------------------------
other communications desired or required to be given under this Indenture to the
Indenture Trustee and the Issuer shall be in writing and shall be sent by (a)
certified or registered mail, return receipt requested, postage prepaid, (b)
national prepaid overnight delivery service, (c) telecopy or other facsimile
transmission (following with hard copies to be sent by national prepaid
overnight delivery service) or (d) personal delivery with receipt acknowledged
in writing, as follows:
(a) If to the Indenture Trustee:
Bankers Trust Company
Corporate Trust and Agency Services
4 Albany Street
New York, New York 10006
Attention: Structured Finance Team
Telecopy: 212-250-6439
(b) If to the Issuer:
Atherton Franchisee
Loan Funding 1998-A LLC
1001 Bayhill Drive, Suite 155
San Bruno, California 94066
Attention: Treasurer
Telecopy: 650-827-7950
(c) If to a Noteholder: to such Person at the address of such Person
listed in the Register;
(d) Notices or consents required under this Indenture to be sent to
Noteholders, including, but not limited to, notice of (i) the appointment
of a successor Indenture Trustee, (ii) the payment of the Notes in full,
(iii) any amendments to this Indenture (including amendments pursuant to
Sections 10.1 and 10.2), (iv) any amendments or modifications to the
documents specified in Section 3.1 hereof, shall in addition be sent by the
Indenture Trustee (unless the Issuer or the Servicer is required to provide
such notices to the Rating Agencies) to each Rating Agency at its
respective address at (A) in the case of Standard & Poor's, 26 Broadway,
15th Floor, New York, New York 10004, (B) in the case of DCR, 17 State
Street, 12th Floor, New York, New York 10004 and (C) in the case of Fitch
IBCA, One State Street Plaza, New York, New York 10004.
(e) Notices required under this Indenture to be sent to the
Noteholders shall in addition be sent to the Issuer.
55
<PAGE>
All notices shall be deemed given when actually received or refused by the party
to whom the same is directed (except to the extent sent by certified or
registered mail, return receipt requested, postage prepaid, in which event such
notice shall be deemed given three days after the date of mailing). Each party
may designate a change of address or supplemental address(es) by notice to the
other parties, given at least 15 days before such change of address is to become
effective.
SECTION 11.4. NOTICES AND INFORMATION TO NOTEHOLDERS; WAIVER.
----------------------------------------------
Where this Indenture provides for notice to Noteholders of any event, such
notice shall be sufficiently given (unless otherwise herein expressly provided)
if in writing and mailed, first-class, postage prepaid, to each Noteholder
affected by such event, at its address as it appears on the Register, not later
than the latest date, and not earlier than the earliest date, prescribed for the
giving of such notice. In any case where notice to Noteholders is given by
mail, neither the failure to mail such notice, nor any defect in any notice so
mailed, to any particular Noteholder shall affect the sufficiency of such notice
with respect to other Noteholders, and any notice which is mailed in the manner
herein provided shall conclusively be presumed to have been duly given.
Where this Indenture provides for notice in any manner, such notice
may be waived in writing by any Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Noteholders shall be filed with the Indenture
Trustee but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such a waiver.
In case, by reason of the suspension of regular mail service as a
result of a strike, work stoppage or similar activity, it shall be impractical
to mail notice of any event to Noteholders when such notice is required to be
given pursuant to any provision of this Indenture, then any manner of giving
such notice as shall be satisfactory to the Indenture Trustee shall be deemed to
be a sufficient giving of such notice.
SECTION 11.5. EFFECT OF HEADINGS AND TABLE OF CONTENTS. The
----------------------------------------
Article and Section headings herein and the Table of Contents are for
convenience only and shall not affect the construction hereof.
SECTION 11.6. SUCCESSORS AND ASSIGNS. All covenants and agreements
----------------------
this Indenture by the Issuer shall bind its successors and assigns, whether so
expressed or not.
SECTION 11.7. SEVERABILITY. In case any provision in this
------------
Indenture or in the Notes shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
SECTION 11.8. LEGAL HOLIDAYS. If any Payment Date or other date
--------------
for the payment of principal of, interest on or Loan Yield Maintenance Amount,
if any, in respect of, any Note is proposed to be paid, or any date on which
mailing of notices by
56
<PAGE>
the Indenture Trustee to any person is required pursuant to any provision of
this Indenture, shall not be a Business Day, then (notwithstanding any other
provision of the Notes or this Indenture) payment or mailing of such notice need
not be made on such date, but may be made or mailed on the next succeeding
Business Day with the same force and effect, and in the case of payments, no
interest shall accrue for the period from and after the date on which such
payment was due to the next succeeding Business Day when paid.
SECTION 11.9. RECORDING OF INDENTURE. If this Indenture is subject
----------------------
to recording in any appropriate public recording office, such recording is to be
effected by the Issuer at its expense.
SECTION 11.10. LIMITED OBLIGATIONS. No recourse for obligations
-------------------
hereunder or any other obligation running directly for the benefit of the
Indenture Trustee may be taken, directly or indirectly, against any member,
officer or director of the Issuer or of any predecessor or successor of the
Issuer, any member of, or Holder of a beneficial interest in, the Issuer or any
incorporator, subscriber to the capital stock, stockholder, officer, director or
employee of the Indenture Trustee or of any predecessor or successor of the
Indenture Trustee with respect to the Issuer's obligations with respect to the
Notes or the obligation of the Issuer or the Indenture Trustee under this
Indenture or any certificate or other writing delivered in connection herewith
or therewith.
SECTION 11.11. GOVERNING LAW. THIS INDENTURE, EACH INDENTURE
-------------
SUPPLEMENTAL HERETO AND EACH NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF.
SECTION 11.12. COUNTERPARTS. This Indenture may be executed by the
------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original, and all of which shall together
constitute but one and the same instrument.
[Remainder of Page Intentionally Left Blank]
57
<PAGE>
IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused
this Indenture to be duly executed by their duly authorized officers all as of
the day and year first above written.
ATHERTON FRANCHISEE LOAN FUNDING
1998-A LLC
By: Atherton Intermediate Funding
1998-A, Inc., its Managing Member
By: /s/ Mark H. McGourty
------------------------------------
Name: Mark H. McGourty
Title: Treasurer
BANKERS TRUST COMPANY,
not in its individual capacity but
solely in its capacity as Indenture
Trustee
By: /s/ Peter Becker
------------------------------------
Name: Peter Becker
Title: Assistant Secretary
<PAGE>
APPENDIX A
DEFINITIONS
Acceleration Date shall mean the date on which the acceleration of the
maturity of the Notes occurs pursuant to Section 7.2 of the Indenture.
Account shall mean any account or fund, and any subaccount thereof,
established under Article V of the Indenture. In the event any Account is not
maintained in the corporate trust department of the Indenture Trustee or the
Certificate Trustee, such Account shall be maintained at an Eligible
Institution.
Accounting Date shall mean with respect to a Payment Date the fifth
Business Day preceding such Payment Date.
Accrual Period shall mean with respect to any Payment Date, the period
from and including the first day of the calendar month preceding the month in
which such Payment Date occurs through and including the last day of such month.
Affiliate shall mean with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control", when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing.
Affiliate Guarantee, with respect to a Loan, shall mean the guarantee
(including a secured guarantee) contained in the Loan Documents of certain
Borrowers relating to each such Borrower's Loan from an Affiliate of the
Borrower of the Borrower's obligations under such Loan.
Affiliated Borrowers shall mean Borrowers under common control.
Agent Member shall mean a DTC participant who maintains accounts for
purchasers of securities.
Aggregate Notional Amount shall mean as of any date of determination
with respect to the Class A-X Notes, the sum of the Aggregate Outstanding
Principal Amount of the Notes and the Issuer Balance.
Aggregate Outstanding Principal Amount shall mean as of any date of
determination, (i) with respect to the Notes, other than the Class A-X Notes,
the Initial Aggregate Principal Amount of all Notes less any payment of
principal on such Notes and all Write-down Amounts attributable to the Notes
prior to such date of determination, (ii) with respect to any Class of Notes,
other than the Class A-X Notes, the Initial Aggregate Principal Amount of all
Notes of such Class, less any payment of principal on such Notes and all Write-
down Amounts
<PAGE>
attributable to such Class of Notes prior to such date of determination and
(iii) with respect to the Loans, the aggregate Remaining Principal Payments of
all Loans, less all Net Losses, at such date of determination.
Assigned Assets shall mean the Loans and related Collateral, together
with all interest accrued thereon from and including the Cut-Off Date to but not
including the Closing Date (but not including the Pre-Cut-Off Date Loan
Payments) and all escrow deposits relating thereto.
Assignment of Leasehold Mortgage shall mean with respect to each
Leasehold Mortgage, the one or more executed original assignments in recordable
form evidencing the assignment of the related Leasehold Mortgage from the Seller
to the Issuer and from the Issuer to the Indenture Trustee for the benefit of
the Noteholders.
Authorized Officer (i) in the case of the Issuer, shall mean the
President, Treasurer, Secretary or any Vice President of the Depositor, as sole
member of the Issuer, (ii) in the case of the Servicer, shall mean any Vice
President or more senior officer thereof and (iii) in the case of the Indenture
Trustee, shall mean any officer in the Corporate Trust and Agency Group of the
Indenture Trustee (or any successor group of the Indenture Trustee) including
any managing director, vice president, assistant vice president, assistant
secretary, assistant treasurer of any other officer or assistant officer of the
Indenture Trustee customarily performing functions similar to those performed by
the Persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred at the Indenture Trustee's Trust Office
because of such officer's knowledge and familiarity with the particular subject.
Available Funds shall mean with respect to a Payment Date, (i) any and
all of amounts held in the Distribution Account (other than with respect to Loan
prepayments, repurchases or payments made in respect of Defaulted Loans) on the
related Accounting Date representing payments on the Loans which were due in the
related Due Period or any prior Due Period, (ii) with respect to any Loan
prepayment (or repurchase) or payment made in respect of a Defaulted Loan
received during the related Prepayment Period or any prior Prepayment Period (to
the extent not distributed on the related Payment Date), the Prepayment Amount
relating thereto (in the case of Defaulted Loan, to the extent actually received
and net of related reimbursements for advances of servicing expenses), (iii) all
amounts on deposit in the Reserve Account on the related Accounting Date, and
(iv) any P&I Advances on deposit in the Distribution Account on such Payment
Date; provided, however, that Available Funds shall not include any Early
-------- -------
Payments held in the Collection Account.
Bankruptcy Code shall mean Title 11 of the United States Code, as
amended.
Bankruptcy Law shall have the meaning accorded such term in the
Servicing Agreement.
Base Interest Fraction shall mean, with respect to any principal
prepayment on any Loan and with respect to any Class of Notes (other than the
Class A-X Notes), a fraction (A) whose numerator is the greater of (x) zero and
(y) the difference between (i) the Note Rate on the
A-2
<PAGE>
most senior Class of Notes receiving a distribution of principal on such Payment
Date (and, if the most senior Class of Notes receiving distributions is the
Class A Notes, as long as the Class A-1 Notes are outstanding, the Class A-1
Note Rate, otherwise the Class A-2 Note Rate) and (ii) the Prepayment Discount
Rate for such Loan and (B) whose denominator is the difference between (i) the
Loan Rate of the Loan and (ii) the Converted Treasury Yield; provided, however,
-------- -------
that with respect to Loans for which the Loan Yield Maintenance Amount is a
fixed amount or based on a fixed percentage, the Base Interest Fraction shall be
equal to 25%; provided, further, however, that under no circumstances shall the
-------- ------- -------
Base Interest Fraction be greater than one. If such Prepayment Discount Rate for
such Loan is greater than the Loan Rate on such Loan, then the Base Interest
Fraction shall equal zero.
Basic Documents shall mean the Loan Sale and Purchase Agreement, the
Pooling Agreement, the Certificate Purchase Agreement, the Indenture, the
Servicing Agreement, and other documents and certificates delivered in
connection with any of the above.
Benefit Plan Investor shall mean each purchaser and each transferee of
a Note for which part of the funds being used to purchase such Notes constitutes
assets of an employee benefit plan (as defined in section 3(3) of ERISA),
whether or not it is subject to the provisions of Title I of ERISA, or assets of
a plan described in section 4975(e)(l) of the Code.
Borrower shall mean the party executing a Promissory Note to evidence
its obligations thereunder, and its successors and assigns.
Business Day shall mean any day that is not a Saturday, Sunday or a
day on which banking institutions located in (a) the City of New York, New York,
(b) San Francisco, California, or (c) the city and state where the principal
offices of each of the Indenture Trustee and the Servicer are located, are
authorized or obligated by law or executive order to be closed.
Business Value means what one franchisee in good standing would pay
another franchisee for the right to operate a franchise unit in the specified
location, as determined by a third party independent valuation consultant.
CERCLA shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
Certificate of Beneficial Ownership shall mean the Certificate of
Beneficial Ownership issued pursuant to the Pooling Agreement.
Certificate of Formation shall mean the Certificate of Formation of
the Issuer filed with the Secretary of State of the State of Delaware.
Certificate Purchase Agreement shall mean the Certificate Purchase
Agreement between the Depositor and the Issuer.
Certificate Trustee shall mean Bankers Trust Company, a New York
banking corporation, until a successor Person shall have become the Certificate
Trustee pursuant to the
<PAGE>
applicable provisions of the Pooling Agreement, and thereafter "Certificate
Trustee" shall mean such successor Person.
Class shall mean each respective class of Notes.
Class A Note shall mean each Class A-1 Note, Class A-2 Note and the
Class A-X Note issued pursuant to Article II of the Indenture.
Class A Interest Distribution shall mean with respect to any Payment
Date, the sum of (a) the Class A-1 Interest Distribution and (b) the Class A-2
Interest Distribution.
Class A-1 Interest Distribution shall mean with respect to the Class
A-1 Notes on any Payment Date, the sum of (a) the amount of interest accrued
during the related Accrual Period at the Class A-1 Note Rate on the Aggregate
Outstanding Principal Amount of the Class A-1 Notes on the Business Day
immediately prior to such Payment Date and (b) any previously accrued and unpaid
interest for prior Payment Dates.
Class A-1 Note shall mean each Class A-1 Note issued pursuant to
Article II of the Indenture.
Class A-1 Note Rate shall mean, with respect to any Accrual Period, a
per-annum rate equal to ***/1/.
Class A-2 Interest Distribution shall mean with respect to the Class
A-2 Notes on any Payment Date, the sum of (a) the amount of interest accrued
during the related Accrual Period at the Class A-2 Note Rate on the Aggregate
Outstanding Principal Amount of the Class A-2 Notes on the Business Day
immediately prior to such Payment Date, plus (b) any previously accrued and
unpaid interest for prior Payment Dates.
Class A-2 Note shall mean each Class A-2 Note issued pursuant to
Article II of the Indenture.
Class A-2 Note Rate shall mean, with respect to any Accrual Period, a
per-annum rate equal to ***.
Class A-X Distribution shall mean with respect to the Class A-X Notes
on any Payment Date, the amount of interest accrued during the related Accrual
Period at the Class A-X Note Rate on the Aggregate Notional Amount of the Class
A-X Notes on the Business Day immediately prior to such Payment Date.
- ------------------
/1/ Certain information has been deleted from this document where denoted
by asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
A-4
<PAGE>
Class A-X Note shall mean each Class A-X Note issued pursuant to
Article II of the Indenture.
Class A-X Note Rate shall mean, with respect to any Accrual Period, a
per annum rate equal to (i) the calculated WAPT Rate less (ii) the Total
Weighted Average Rate.
Class B Interest Distribution shall mean, with respect to the Class B
Notes on any Payment Date, the sum of (a) the amount of interest accrued during
the related Accrual Period at the Class B Note Rate on the Aggregate Outstanding
Principal Amount of the Class B Notes on the Business Day immediately prior to
such Payment Date and (b) any previously accrued and unpaid interest for prior
Payment Dates.
Class B Note shall mean each Class B Note issued pursuant to Article
II of the Indenture.
Class B Note Rate shall mean, with respect to any Accrual Period, a
per-annum rate equal to ***/2/.
Class C Interest Distribution shall mean, with respect to the Class C
Notes on any Payment Date, the sum of (a) the amount of interest accrued during
the related Accrual Period at the Class C Note Rate on the Aggregate Outstanding
Principal Amount of the Class C Notes on the Business Day immediately prior to
such Payment Date and (b) any previously accrued and unpaid interest for prior
Payment Dates.
Class C Note shall mean each Class C Note issued pursuant to Article
II of the Indenture.
Class C Note Rate shall mean, with respect to any Accrual Period, a
per-annum rate equal to ***.
Class D Interest Distribution shall mean, with respect to the Class D
Notes on any Payment Date, the sum of (a) the amount of interest accrued during
the related Accrual Period at the Class D Note Rate on the Aggregate Outstanding
Principal Amount of the Class D Notes on the Business Day immediately prior to
such Payment Date and (b) any previously accrued and unpaid interest for prior
Payment Dates.
Class D Note shall mean each Class D Note issued pursuant to Article
II of the Indenture.
- ----------------------
/2/ Certain information has been deleted from this document where denoted
by asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
A-5
<PAGE>
Class D Note Rate shall mean, with respect to any Accrual Period, a
per annum rate equal to ***/3/.
Class E Interest Distribution shall mean with respect to the Class E
Notes on any Payment Date, the sum of (a) the amount of interest accrued during
the related Accrual Period at the Class E Note Rate on the Aggregate Outstanding
Principal Amount of the Class E Notes on the Business Day immediately prior to
such Payment Date and (b) any previously accrued and unpaid interest for prior
Payment Dates.
Class E Note shall mean each Class E Note issued pursuant to Article
II of the Indenture.
Class E Note Rate shall mean with, respect to any Accrual Period, a
per-annum rate equal to ***.
Class F Interest Distribution shall mean with respect to the Class F
Notes on any Payment Date, the sum of (a) the amount of interest accrued during
the related Accrual Period at the Class F Note Rate on the Aggregate Outstanding
Principal Amount of the Class F Notes on the Business Day immediately prior to
such Payment Date and (b) any previously accrued and unpaid interest for prior
Payment Dates.
Class F Note shall mean each Class F Note issued pursuant to Article
II of the Indenture.
Class F Note Rate shall mean, with respect to any Accrual Period, a
per-annum rate equal to ***.
Closing Date shall mean the date on which the Notes are first
executed, authenticated and delivered.
Code shall mean the Internal Revenue Code of 1986, as amended, or any
successor statute thereto, including the regulations promulgated thereunder.
Collateral shall mean, with respect to a Loan, the related Security
Agreement, the Leasehold Mortgage or the Mortgage, if any, the Affiliate
Guarantee, if any, and any other Loan Documents and the security interests and
liens granted thereunder.
Collection Account shall mean the Account by that name established,
maintained and disbursed pursuant to Article V of the Indenture.
- ------------------
/3/ Certain information has been deleted from this document where denoted
by asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
A-6
<PAGE>
Concept or Concepts shall mean individually or collectively the
franchise concepts owned or leased and operated under ***./4/
Condemnation Proceeds shall mean all compensation, awards and proceeds
received by or on behalf of a Borrower as a result of a condemnation (which term
shall include any damage or taking by any governmental or quasi-governmental
authority and any transfer by private sale in lieu thereof), net of all
reasonable direct fees, costs (exclusive of overhead) and disbursements incurred
in connection with the collection thereof or the restoration or replacement of
the Borrower's collateral as contemplated by the Loan Documents.
Controlling Class shall mean the most subordinate Class of Notes then
outstanding whose Aggregate Principal Amount is at least equal to 25% of the
Initial Aggregate Principal Amount of such Class of Notes.
Controlling Party shall mean (x) while the Issuer Balance is greater
than zero, the Issuer, and (y) after the Issuer Balance has been reduced to
zero, the Holders of a Majority-in-Interest of the Controlling Class.
Converted Treasury Yield shall mean the yield available, or if there
is more than one yield available, the average yields, on United States Treasury
non-callable bonds (excluding Flower Bonds) and notes having a maturity date
closest to the Remaining Average Life, as reported in The Wall Street Journal or
similar publication on the fifth Business Day preceding the date prepayment will
be made, converted to a twelve-month "equivalent yield" plus twenty-five basis
----
points (0.25%).
Custodian shall mean Bankers Trust Company of California, N.A., a
national banking association.
Cut-Off Date shall mean the close of business August 1, 1998.
DCR shall mean Duff & Phelps Credit Rating Co.
Default shall mean any occurrence that is, or with notice or the lapse
of time or both, would become an Event of Default.
Defaulted Loan shall mean a Loan (a) as to which the Servicing Advisor
has determined in its sole discretion, for purposes of the Indenture, that
eventual payment of Scheduled Payments is unlikely or (b) which is a Delinquent
Loan for which a Scheduled
- -------------------
/4/ Certain information has been deleted from this document where denoted
by asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
A-7
<PAGE>
Payment is overdue (without taking into account any extension of the due date
for any such Scheduled Payment) for more than 120 consecutive days.
Delinquent Borrower shall mean a Borrower of a Delinquent or Defaulted
Loan.
Delinquent Loan shall mean a Loan (a) as to which a Scheduled Payment
was not received as of the date on which such payment was due and payable and
(b) which is not a Defaulted Loan.
Depositor shall mean Atherton Intermediate Funding 1998-A, Inc., a
special purpose corporation organized under the laws of the State of Delaware,
and its successors and assigns.
Determination Date, as used in the definitions of the terms Prepayment
Amount and Remaining Principal Payments, shall mean the date Remaining Principal
Payments are to be prepaid (in the case of a prepaid Loan) or accelerated (in
the case of a Defaulted Loan).
Distribution Account shall mean the Distribution Account established
and maintained by the Indenture Trustee for the benefit of the Noteholders
pursuant to the Indenture.
DOL shall mean the United States Department of Labor.
DTC shall mean The Depository Trust Company.
Due Period shall mean with respect to a Payment Date, the period from
and including the second day of the calendar month preceding the month in which
such Payment Date occurs through and including the first day of the calendar
month in which such Payment Date occurs.
Early Payment shall mean with respect to a Loan and any Payment Date,
any Scheduled Payment in respect of such Loan which is due for any Due Period
subsequent to the Due Period relating to such Payment Date. An Early Payment
shall not be deemed a prepayment of any Loan.
Eligible Institution shall mean a depository institution organized
under the laws of the United States of America or any one of the States thereof
(a) the deposits of which are insured, to the full extent permitted by
applicable law, by the FDIC through the Bank Insurance Fund, which is subject to
supervision and examination by federal or state authorities, (b) whose long-term
unsecured debt rating is AAA by each of Standard & Poor's, Fitch IBCA, if rated
by Fitch IBCA, and DCR, if rated by DCR, or certificate of deposit rating is at
least A-1+ by Standard & Poor's, F1+ by Fitch IBCA, if rated by Fitch IBCA, and
D-1+ by DCR, if rated by DCR) or (c) with respect to the Collection Account, as
long as Mellon Mortgage Company is the Servicer, Mellon Bank, N.A.
Eligible Investments at any time means any of the following:
(i) Government Obligations; or
A-8
<PAGE>
(ii) commercial paper having an original maturity of less than 270
days and a rating in the highest rating category of Standard & Poor's,
Fitch IBCA, if rated by Fitch IBCA, and DCR, if rated by DCR, at the time
of such investment; or
(iii) certificates of deposit of, banker's acceptances issued by or
federal funds sold by any depository institution or trust company
(including the Indenture Trustee or any agent of the Indenture Trustee
acting in its commercial capacity so long as it is an Eligible Institution)
incorporated under the laws of the United States of America or any State
thereof and subject to supervision and examination by federal and/or state
authorities, so long as at the time of such investment or contractual
commitment providing for such investment such (a) depository institution or
trust company has a long-term unsecured debt rating (in the case of
obligations of 270 days or over) or short-term unsecured debt rating (in
the case of obligations under 270 days) in the highest rating category of
Standard & Poor's, Fitch IBCA, if rated by Fitch IBCA, and DCR, if rated by
DCR, and provided that each such investment has an original maturity of
less than 365 days, or (b) demand or time deposit or certificate of deposit
is fully insured by the FDIC through the Bank Insurance Fund; or
(iv) repurchase obligations with respect to (a) any security
described in clause (i) collateralized at 105% of the principal amount of
such repurchase obligations or (b) any other security issued or guaranteed
as to timely payment by an agency or instrumentality of the United States
of America, collateralized at 105% of the principal amount of such
repurchase obligations in either case entered into with a depository
institution or trust company (including the Indenture Trustee), acting as
principal, whose obligations having the same maturity as that of the
repurchase agreement would be Eligible Investments under clause (iii) above
(provided that the counterparty is rated at least A-1+ by Standard &
Poor's, F1+ by Fitch IBCA, if rated by Fitch IBCA, and D-1+ by DCR, if
rated by DCR); or
(v) a guaranteed investment contract issued by any insurance
company or other corporation having a claims-paying ability rating,
counter-party risk rating, long-term unsecured debt rating or guaranteed by
an entity with such rating in the highest rating category of Standard &
Poor's, Fitch IBCA, if rated by Fitch IBCA, and DCR, if rated by DCR, at
the time of such investment; or
(vi) investments in money market funds (which may be 12b-1 funds, as
contemplated under the rules promulgated by the Securities and Exchange
Commission under the Investment Company Act of 1940) having a rating of
AAA-m or AAAM-G from Standard & Poor's (including funds for which the
Indenture Trustee or any of its affiliates acts as an investment advisor or
manager), having a rating of AAA by Fitch IBCA, if rated by Fitch IBCA,
and having a rating of AAA by DCR, if rated by DCR; or
(vii) investments approved in writing by the Majority-in-Interest
of the Notes and acceptable to the Rating Agencies.
A-9
<PAGE>
Environmental Laws shall mean any foreign, federal, state or local
statute, code, ordinance, rule, regulation, permit, consent, approval, license,
judgment, order, writ, judicial decision, common law rule, decree, agency
interpretation, injunction or other authorization or requirement whenever
promulgated, issued, modified or otherwise in effect, including the requirement
to register underground storage tanks, relating to: (i) emissions, discharges,
spills, releases or threatened releases of Hazardous Substances or materials
containing Hazardous Substances, into ambient air, surface water, groundwater,
watercourses, publicly or privately owned treatment works, drains, sewer
systems, wetlands, septic systems or onto land; (ii) the use, treatment,
storage, disposal, handling, manufacturing, transportation, or shipment of
Hazardous Substances, materials containing Hazardous Substances (or of equipment
or apparatus containing Hazardous Substances) as defined in or regulated under
the Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901 et seq., the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
(S) 9601 et seq., and/or the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et
seq., and their implementing regulations as they may be amended from time to
time or (iii) otherwise relating to pollution or the protection of human health
or the environment.
ERISA shall mean the Employee Retirement Income Security Act of 1974,
as amended.
Event of Default shall have the meaning accorded to such term in
Article VII of the Indenture.
FCR shall mean the fixed charge coverage ratio which, for any 12-month
period is equal to the sum of the adjusted fee cash flow and occupancy cost
divided by the sum of occupancy cost and total debt service.
FDIC shall mean The Federal Deposit Insurance Corporation, or any
successor thereto.
Fee Mortgage Loan shall mean a Loan secured by a mortgage on the fee
interest of the real property where the franchise unit is located.
Fiduciary with respect to a Plan shall have the meaning accorded to
such term in ERISA.
1st Leasehold Mortgage, 3rd Party Lessor Loan shall mean a Loan
secured by a tenant's leasehold interest in the building and the land.
Fiscal Year shall mean the calendar year from each January 1 to the
following December 31.
Fitch shall mean Fitch IBCA, Inc.
A-10
<PAGE>
Franchise Agreement shall mean with respect to any Borrower, the
franchise agreement with a franchisor pursuant to which the Borrower operates
its franchise business at the location specified in such agreement.
Franchisor Lease Loan shall mean any Loan whereby the franchisor is
the lessor under the related lease and the Borrower is the lessee and an
intercreditor or tri-party agreement among the Seller, the Borrower and the
franchisor provides each party with specific cure rights based upon the nature
of the default.
Garn Act shall mean the Garn-St. Germain Depository Institutions Act
of 1982.
Global Securities shall mean Notes issued in the form of one or more
fully registered global notes deposited with, or on behalf of, DTC and
registered in the name of DTC or its nominee.
Government Obligations shall mean (i) non-callable direct obligations
of, or non-callable obligations fully guaranteed by, the United States of
America or any agency or instrumentality of the United States of America the
obligations of which are backed by the full faith and credit of the United
States of America, or (ii) an investment in a no-load money market fund rated
AAA-G by Standard & Poor's, the assets of which are invested solely in
obligations described in (i).
Grant shall have the meaning specified in the Granting Clauses of the
Indenture.
Grantor Trust shall mean the grantor trust created pursuant to the
terms of the Pooling Agreement.
Ground Lease Loan shall mean a Loan secured by a trust deed/mortgage
on both the tenant's interest under the ground lease and the tenant's ownership
of the improvements subject to the ground lease.
Hazardous Substances shall mean (a) hazardous materials, hazardous
wastes, hazardous substances and toxic substances as those terms are defined
under the following statutes and their implementing regulations as they may be
amended from time to time: the Hazardous Materials Transportation Act, 49 U.S C.
(S) 1791 et seq., the Resource Conservation and Recovery Act, 42 U.S.C. (S) 6901
et seq., the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. (S) 9601 et seq., the Clean Water Act, 33 U.S.C. (S) 1251 et
seq., and the Toxic Substances Control Act, 15 U.S.C. (S) 2601 et seq., (b)
petroleum and petroleum products including crude oil and any fractions thereof,
(c) natural gas, synthetic gas and any mixtures thereof, (d) asbestos and/or any
material which contains any hydrated mineral silicate, including, without
limitation, chrysotile, amosite, crocidolite, tremolite, anthophyllite and/or
actinolite, whether friable or nonfriable, (e) PCBs, or PCB-containing materials
or fluids, (f) radon, (g) any other hazardous, radioactive, toxic or noxious
substance, material, pollutant, contaminant, product, by-product or solid,
liquid or gaseous waste, and (h) any other substance regulated by any
Environmental Laws.
A-11
<PAGE>
Holder shall mean a Noteholder.
Indenture shall mean the Indenture of Trust, dated as of August 1,
1998, between the Issuer and the Indenture Trustee, as the same may be amended
or supplemented from time to time.
Indenture Trust Estate shall have the meaning specified in the
Granting Clauses of the Indenture.
Indenture Trustee shall mean Bankers Trust Company, a New York banking
corporation, until a successor Person shall have become the Indenture Trustee
pursuant to the applicable provisions of the Indenture, and thereafter
"Indenture Trustee" shall mean such successor Person.
Independent Accountant shall mean the firm of independent accountants
appointed by the Servicer pursuant to Section 3.3 of the Servicing Agreement.
Independent Director with respect to the Depositor shall mean a
natural person who, for the five-year period prior to his or her appointment as
Independent Director has not been, and during the continuation of his or her
service as Independent Director is not: (i) an employee, director, stockholder,
partner or officer of the Depositor or any of its affiliates (other than his or
her service as an Independent Director of the Depositor or any affiliate of the
Depositor); (ii) a customer or supplier that derives more than ten percent of
its revenues from the Issuer or any of its affiliates; or (iii) any member of
the immediate family of a person described in (i) or (ii).
Ineligible Loan shall have the meaning accorded to such term in the
Loan Sale and Purchase Agreement.
Initial Aggregate Notional Amount shall mean with respect to the Class
A-X Notes, $201,339,799.
Initial Aggregate Principal Amount shall mean approximately (i)
$190,266,110 with respect to all Notes, (ii) $ ***/5/ with respect to the Class
A-1 Notes, (iii) $ *** with respect to the Class A-2 Notes, (iv) $ *** with
respect to the Class B Notes, (v) $ *** with respect to the Class C Notes, (vi)
$ *** with respect to the Class D Notes, (vii) $ *** with respect to the Class E
Notes, (viii) $ *** with respect to the Class F Notes and (ix) $ *** with
respect to the Loans.
- -------------------
/5/ Certain information has been deleted from this document where
denoted by asterisks, and has been filed separately with the Commission. The
Company has requested confidential treatment for such omitted information.
A-12
<PAGE>
Initial Deposit shall mean the initial deposit into the Collection
Account and represents payments, if any, made in respect of the Loans after the
Cut-Off Date and prior to the Closing Date.
Initial Issuer Balance shall mean $11,073,689.
Initial Notional Amount shall mean, with respect any Class A-X Note,
the initial notional amount of such Class A-X Note on the Closing Date as
indicated thereon.
Initial Principal Amount shall mean, with respect to any Note, the
initial principal amount of such Note on the Closing Date as indicated thereon.
Initial Purchaser shall mean PaineWebber Incorporated and its
successors and assigns.
Insurance Policy or Insurance Policies shall mean any insurance policy
or policies maintained by a Borrower in accordance with the requirements of its
Loan Documents or by the Servicer pursuant to the Servicing Agreement with
respect to any Loan.
Insurance Proceeds shall mean any amounts received upon settlement of
a claim filed under an Insurance Policy (including proceeds of title insurance),
net of direct fees, costs (exclusive of overhead) and disbursements incurred in
connection with the collection thereof or the restoration or replacement of such
Borrower's collateral as contemplated by the Loan Documents.
Interest Distribution shall mean, with respect to each Class of Notes
other than the Class A-X Notes, the amount designated as the Interest
Distribution for such Class of Notes, and with respect to the Class A-X Notes,
the Class A-X Distribution.
Interest Payment shall mean, with respect to a Payment Date and a
Loan, any payment of interest due from the Borrower in respect of such Loan in
the related Due Period.
Investment Income shall mean the difference (but not below zero) of
(i) the sum of all investment interest or other earnings on Accounts that are
part of the Trust Estate, minus (ii) any investment losses incurred in respect
of Accounts that are part of the Trust Estate.
IRS shall mean the Internal Revenue Service.
Issuer shall mean Atherton Franchisee Loan Funding 1998-A LLC, a
special purpose limited liability company organized under the laws of the State
of Delaware, and its successors and assigns.
Issuer Balance shall mean on any date, an amount equal to the
difference, if any, obtained by subtracting (i) the Aggregate Outstanding
Principal Amount of the Notes from (ii) the Aggregate Outstanding Principal
Amount of the Loans.
A-13
<PAGE>
Issuer Rate shall mean, with respect to any Accrual Period, a per
annum rate equal to ***./6/
Late Payment Charges shall mean, with respect to a Payment Date and a
Loan, all late payment charges (as described in the Promissory Note) due for
such Loan in respect of the related Due Period.
Leasehold Mortgage shall mean the leasehold mortgage (or collateral
assignment of lease) with respect to any lease, if any, securing the obligations
of the Borrower under its Promissory Note, as such leasehold mortgage (or
assignment of lease) may be amended, modified or renewed from time to time.
Limited Liability Company Agreement shall mean the limited liability
company agreement of the Issuer.
Liquidated Loan shall mean any Defaulted Loan as to which the
Servicing Advisor has reasonably determined that all amounts it reasonably
expects to collect with respect to such Defaulted Loan have been collected.
Liquidation Date shall mean, with respect to a Defaulted Loan, the
date on which such Defaulted Loan is determined to be a Liquidated Loan.
List of Loans shall mean the schedule listing all of the Loans
constituting a part of the Trust Estate under the Indenture, which schedule
shall set forth or include for each Loan listed thereon (i) the name of the
Borrower under such Loan, (ii) the original principal amount of the Promissory
Note evidencing such Loan, (iii) the original and the remaining term to the
Maturity Date of such Loan, (iv) the amortization term of such Loan and (v) the
interest rate.
Loan shall mean any Restaurant Loan or Specialty Retail Loan and
Loans, collectively, shall mean the Restaurant Loans and the Specialty Retail
Loans.
Loan Documents shall mean, with respect to a Loan, those instruments,
agreements, guaranty documents, certificates or other writings, now or hereafter
executed and delivered by the Borrower in respect of such Loan, including,
without limitation, those which are required to be included in the Loan File
therefor, as the same may be modified, amended, consolidated, continued or
extended from time to time.
Loan File shall mean the following instruments and documents in
connection with each Loan:
- ------------------
/6/ Certain information has been deleted from this document where
denoted by asterisks, and has been filed separately with the Commission. The
Company has requested confidential treatment for such omitted information.
A-14
<PAGE>
(i) the executed original of the Promissory Note endorsed to the
order of the Depositor and then to the order of the Certificate Trustee, on
behalf of the Grantor Trust;
(ii) an executed original of the loan agreement between the Borrower
and the Seller relating to the Loan;
(iii) an executed original Security Agreement;
(iv) either
(a) the original Mortgage, with evidence of recording thereon,
or a duplicate original of such Mortgage, if applicable,
together with escrow instructions requiring such Mortgage to
be dispatched to the appropriate public recording office for
recordation; or
(b) an executed original Leasehold Mortgage, in appropriate form
for recording (with the possible exception of the obtaining
of a landlord signature) or with evidence of recording
thereon;
(v) an executed original Affiliate Guaranty, if applicable;
(vi) the UCC-1 financing statement, with evidence of filing thereon,
or a copy of the original UCC-1 financing statement, together with escrow
instructions requiring such UCC-1 financing statement to be dispatched to
the appropriate public filing office;
(vii) an executed original of each landlord, mortgagee or prior
lien or estoppel, if applicable;
(viii) an executed original of an intercreditor or similar
agreement among the franchisor, the Seller and the Borrower, if applicable;
(ix) an executed original of a subordination of lessor's lien or
similar agreement between the franchisor and the Seller, if applicable;
(x) the original title insurance policy, if applicable; together
with all riders thereto; or in the event that the original title policy has
not been received from the insurer, any one of an original title binder, an
original preliminary title report, or an original title commitment, or copy
thereof certified by the title company;
(xi) applicable certificates of insurance;
(xii) the environmental indemnity, if applicable;
(xiii) an assignment of Mortgage; and
(xiv) any other credit or security document necessary for the
enforcement of such Loan, if applicable.
Loan Payments shall mean, with respect to a Payment Date and a Loan,
the sum of all Principal Payments, Interest Payments, Loan Yield Maintenance
Amounts, if any, Late Payment Charges, if any, and any other amounts received
from the Borrower in respect of such Loan for the related Due Period.
A-15
<PAGE>
Loan Rate shall mean, with respect to each Loan, the rate of interest
borne as set forth on the List of Loans.
Loan Sale and Purchase Agreement shall mean the Loan Sale and Purchase
Agreement, dated as of August 1, 1998, between the Seller and the Issuer.
Loan Yield Maintenance Amount, with respect to any prepaid Loan or
Defaulted Loan which is not a Repurchased Loan, shall mean the loan yield
maintenance amount specified in the related loan agreement.
LTV or LTV Ratio shall mean with respect to any Loan the original
principal amount of a Loan divided by the related Business Value determined at
origination.
LUST shall mean leaking underground storage tank.
Majority-in-Interest shall mean Holders of Notes representing in
excess of fifty percent (50%) of the Percentage Interests or, with respect to
any Class of Notes, Holders of Notes representing in excess of fifty percent
(50%) of the Percentage Interests of such Class or, with respect to the Class A-
X Notes, the Class A-X Noteholders representing in excess of fifty percent (50%)
of the Percentage Interests of such members.
Maturity shall mean, with respect to any Note, the date on which the
unpaid principal of such Note becomes due and payable as provided in the
Indenture, whether at its stated maturity or otherwise.
Maturity Date, with respect to any Loan, shall have the meaning
specified in the Promissory Note evidencing such Loan.
Mortgage shall mean any mortgage or deed of trust or deed to secure a
Loan entered into by a Borrower (but not including Leasehold Mortgages) creating
a lien on and a security interest in the Mortgaged Property securing the
obligations of the Borrower under the related Promissory Note, together with any
other security instruments and any related UCC financing and continuation
statements delivered by the Borrower, including, in all events, the property and
rights assigned under all such instruments, together with all amendments,
substitutions and replacements of any of the foregoing.
Mortgage Assignment shall mean, with respect to each Mortgage, one or
more executed original assignments in recordable form evidencing the assignment
of the related Mortgage from the Seller to the Issuer and from the Issuer to the
Indenture Trustee for the benefit of the Noteholders.
Mortgage Title Insurance shall mean title insurance obtained by the
Seller in connection with a Mortgage or Leasehold Mortgage securing a Loan.
A-16
<PAGE>
Mortgaged Property shall mean, collectively, all fee simple (or ground
lessee) interests of the mortgagor in any real property, including the
improvements thereon, subject to the lien of a Mortgage which secures a Loan.
Net Loss shall mean, with respect to a Liquidated Loan, the amount
equal to (i) the Remaining Principal Payments with respect to such Loan on the
Business Day immediately prior to the Liquidation Date for such Liquidated Loan,
less (ii) all principal received in liquidation of such Loan, net of any
Servicing Advances and Reimbursements of the Servicer and Servicing Advisor.
1933 Act shall mean the Securities Act of 1933, as amended, and the
applicable published rules and regulations thereunder.
1934 Act shall mean the Securities Exchange Act of 1934, as amended,
and the applicable published rules and regulations thereunder.
1940 Act shall mean the Investment Company Act of 1940, as amended,
and the applicable published rules and regulations thereunder.
Note or Notes shall mean any note or notes, as the case may be, issued
pursuant to the Indenture.
Noteholder shall mean the registered owner of a Note as evidenced by
the Note Register.
Note Obligations shall mean any and all liabilities and obligations
under or in connection with the Notes, including, without limitation, any and
all liabilities and obligations for payment of principal, interest and Loan
Yield Maintenance Amount, if any, under the Notes.
Note Rate shall mean (i) with respect to the Class A-1 Notes, the
Class A-1 Note Rate, (ii) with respect to the Class A-2 Notes, the Class A-2
Note Rate, (iii) with respect to the Class A-X Notes, the Class A-X Note Rate,
(iv) with respect to the Class B Notes, the Class B Note Rate, (v) with respect
to the Class C Notes, the Class C Note Rate, (vi) with respect to the Class D
Notes, the Class D Note Rate, (vii) with respect to the Class E Notes, the Class
E Note Rate and (viii) with respect to the Class F Notes, the Class F Note Rate.
Offering Circular shall mean the Confidential Offering Circular dated
July 31, 1998, relating to the Notes.
Officer's Certificate shall mean, unless otherwise specified, a
certificate signed by any Authorized Officer of the party delivering such
certificate, delivered to the Indenture Trustee and complying with the
applicable requirements of Section 11.1 of the Indenture or, with respect to a
transferee under Section 2.6(c) of the Indenture, complying with the
requirements thereof.
OID shall mean "original issue discount." A Note will have OID if its
stated redemption price at maturity exceeds its issue price by more than a
statutory de minimis amount.
A-17
<PAGE>
Opinion of Counsel shall mean one or more written opinions of counsel
who may, except as otherwise expressly provided in the Indenture, be counsel for
the Issuer or its affiliates.
Optimal Principal Amount shall mean, with respect to any Payment Date,
an amount equal to the sum of the following, without duplication:
(i) for all Loans (other than Loans included in (iii)), an amount
equal to scheduled monthly payments received on such Loans attributable to
reductions in principal less advances of principal with respect thereto
made with respect thereto for any prior Due Period;
(ii) all advances of principal made by the Servicer with respect to
such Due Period;
(iii) for each prepaid Loan (or Repurchased Loan) for which a
Prepayment Amount (or, with respect to a Repurchased Loan, the Repurchase
Price therefor) has been received during the Prepayment Period and not
distributed on any prior Payment Date, an amount equal to the Remaining
Principal Payments of such Loan as of the date of prepayment (or
repurchase); and
(iv) all Principal Payments, Insurance Proceeds, Condemnation
Proceeds and other moneys constituting principal in respect of the Loans
(including, without limitation, Remaining Principal Payments in respect of
prepaid or Defaulted Loans) received in the related Due Period and not
included in (i) or (ii).
Origination Date shall mean, with respect to a Loan, the date on which
such Loan was originated.
Outstanding shall mean, as of the date of determination, all Notes
theretofore authenticated and delivered under the Indenture except:
(i) Notes theretofore canceled by the Registrar or delivered to the
Registrar for cancellation;
(ii) Notes for the payment of which money in the necessary amount
has been theretofore deposited with the Indenture Trustee in trust for the
Holders of such Notes;
(iii) Notes in exchange for or in lieu of which other Notes have
been authenticated and delivered under the Indenture; and
(iv) Notes alleged to have been mutilated, destroyed, lost or stolen
for which replacement Notes have been issued as provided for in Section 2.8
of the Indenture;
provided, however, that in determining whether the Holders of Notes having the
- -------- -------
requisite aggregate Percentage Interest have given any request, demand,
authorization, direction, notice, consent or waiver under the Indenture, Notes
owned by the Issuer or any other obligor upon the Notes or any Affiliate of the
Issuer or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Indenture Trustee shall be
protected in relying upon any such request, demand, authorization, direction,
notice, consent or waiver, only Notes which the Indenture Trustee knows to be so
owned shall be so disregarded. Notes so
A-18
<PAGE>
owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Indenture Trustee the
pledgee's right so to act with respect to such Notes and that the pledgee is not
the Issuer or any other obligor upon the Notes or any Affiliate of the Issuer or
such other obligor.
Outstanding Notional Amount shall mean as of any date of determination
with respect to the Class A-X Notes, the sum of the Aggregate Outstanding
Principal Amount of the Notes and the Issuer Balance.
Outstanding Principal Amount shall mean as of any date of
determination, with respect to any Note, other than a Class A-X Note, the
Initial Principal Amount thereof less any payment of principal on such Note and
all Write-down Amounts attributable to such Note prior to such date of
determination.
P&I Advance shall mean an advance required to be made by the Servicer,
subject to a recoverability determination within two Business Days following the
Accounting Date, with respect to each Payment Date in an amount that is
generally equal to the aggregate of all Scheduled Payments, due or deemed due,
as the case may be, on or in respect of a Delinquent Loan during the related Due
Period, in each case to the extent that such amount was not paid by or on behalf
of the related Borrower as of the close of business on the Accounting Date for
the related Payment Date. The Servicer will not be required to make any P&I
Advances to the extent that the Servicer determines that the Servicer will not
be able to recover the Reimbursements with respect to any such P&I Advances.
Payment Date shall mean the fifteenth day of each month in each year,
or if such day is not a Business Day, the next succeeding Business Day
commencing September 15, 1998.
Percentage Interest shall mean (i) with respect to each Class of
Notes, other than the Class A-X Notes, a fraction, expressed as a percentage,
the numerator of which is the Initial Aggregate Principal Amount of such Class
of Notes and the denominator of which is the Initial Aggregate Principal Amount
of all Notes, (ii) with respect to each Note, other than a Class A-X Note, a
fraction, expressed as a percentage, the numerator of which is the Initial
Principal Amount of such Note, and the denominator of which is the Initial
Aggregate Principal Amount of all Notes of the same Class and (iii) with respect
to a Class A-X Note, the percentage interest set forth on the face thereof.
Periodic Filings shall mean any filings or submissions that the Issuer
is required to make with any state or federal regulatory agency or under the
Code.
Person shall mean any legal person, including any individual,
corporation, partnership, joint venture, limited liability company, association,
joint stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
Plan shall mean any employee benefit plan subject to ERISA or plans or
arrangements subject to Code Section 4975.
A-19
<PAGE>
Plan Asset Regulations shall mean the DOL final regulations concerning
the definition of what constitutes the assets of a Plan for purposes of ERISA
and the prohibited transaction provisions.
Pooling Agreement shall mean the Pooling Agreement dated as of August
1, 1998 by and between the Issuer and the Certificate Trustee.
PORTAL shall mean The PortalSM Market, a subsidiary of the Nasdaq
Stock Market, Inc.
Pre-Cut-Off Date Loan Payments shall mean all payments under the Loans
(including all payments of principal and interest) due on and prior to the Cut-
Off Date.
Prepayment Amount shall mean as of any Determination Date (x) with
respect to a prepaid Loan or a Defaulted Loan, an amount equal to the sum of (1)
the Remaining Principal Payments of such Loan or Defaulted Loan, together with
any other principal payments due on the Loan, (2) accrued interest on such Loan
or Defaulted Loan to the date of prepayment, and (3) an amount equal to the Loan
Yield Maintenance Amount, if any, with respect to such prepaid Loan or Defaulted
Loan; and (y) with respect to a Repurchased Loan, an amount equal to the
Repurchase Price for such Loan.
Prepayment Discount Rate shall mean, with respect to a prepaid Loan,
the discount rate utilized in calculating the Loan Yield Maintenance Amount for
such Loan.
Prepayment Period shall mean (i) with respect to the first Payment
Date, the period from but excluding the Cut-Off Date through and including the
last day of the related Due Period and (ii) with respect to each Payment Date
after the first Payment Date, the related Due Period.
Principal Balance shall mean with respect to any Note or Class of
Notes, other than the Class A-X Notes, and any date of determination, the
Initial Aggregate Principal Amount of such Note or Classes of Notes reduced by
all distributions in respect of principal on such Note or Class of Notes and all
Write-down Amounts allocated to such Notes or Class of Notes.
Principal Payment shall mean, with respect to a Payment Date and a
Loan, any payment of principal due in respect of such Loan in the related Due
Period.
Proceeding shall mean any suit in equity, action at law or other
judicial or administrative proceeding.
Promissory Note shall mean the promissory note executed by a Borrower
as evidence of the obligation of such Borrower to repay funds borrowed by the
Borrower from the Seller constituting a Loan, as such promissory note may be
amended, extended, modified or renewed from time to time.
Prospective Owner shall mean each prospective transferee of an
interest in Notes.
A-20
<PAGE>
Purchase Agreement shall mean, with respect to the purchase and resale
of the Notes, that certain Purchase Agreement between the Issuer and the Initial
Purchaser relating thereto.
QIBs shall mean "qualified institutional buyers" as defined in Rule
144A under the 1933 Act.
Rated Final Distribution Date shall mean for each Class of Notes, May
15, 2002.
Rating Agencies shall mean Standard & Poor's, DCR and Fitch IBCA.
Record Date shall mean, with respect to a Payment Date, the last day
of the immediately preceding calendar month.
Recoveries shall mean for any Prepayment Period occurring after the
date on which any Loan becomes a Defaulted Loan and with respect to such
Defaulted Loan all payments or amounts received on or in respect of such Loan
(whether in connection with the disposition of such Loan or any or the related
Collateral or otherwise) during such Prepayment Period in respect of amounts
then payable pursuant to such Defaulted Loan (including, without limitation, any
amounts received by the Servicer or the Indenture Trustee in connection with the
management or operation of any REO Property), net of out-of-pocket direct costs
(exclusive of overhead) and expenses reasonably incurred by the Servicer, the
Servicing Advisor or the Indenture Trustee in connection with any such payments
or amounts and any preservation and disposition of the Loan or related
Collateral.
Register shall have the meaning specified in Section 2.6 of the
Indenture.
Registrar shall have the meaning specified in Section 2.6 of the
Indenture.
Reimbursement shall mean amount entitled to be recovered by the
Servicer in respect of P&I Advances, equal to (i) the amount of any P&I Advance
made by the Servicer and (ii) interest on such P&I Advance from the date it was
made at the Reimbursement Rate.
Reimbursement Rate shall mean a per annum rate equal to the "prime
rate" published in the "Money Rates" section of The Wall Street Journal, as such
"prime rate" may change from time to time.
Remaining Average Life shall mean, with respect to a Loan on any date,
the number of years (calculated to the nearest one-twelfth year) obtained by
dividing (a) the sum of the products obtained by multiplying (i) each remaining
principal payment (but not interest thereon) by (ii) the number of years
(calculated to the nearest one-twelfth year) which will elapse between the date
of determination and the scheduled due date of such remaining principal payment
by (b) the outstanding Principal Balance of the Loan.
Remaining Principal Payments shall mean as of any date, with respect
to any Loan or a Loan that is a Defaulted Loan, all scheduled Principal Payments
with respect to such
A-21
<PAGE>
Loan or Loan that is a Defaulted Loan that would be or become due on or after
such date for such Loan or Loan that is a Defaulted Loan; provided, however,
-------- -------
that the Remaining Principal Payments of any Liquidated Loan shall be deemed to
be zero.
REO Properties shall mean collateral related to any Loan acquired by
or on behalf of the Noteholders through foreclosure, deed in lieu of foreclosure
or otherwise.
Repurchase Option shall mean, with respect to any Loan which has
become an Ineligible Loan, the right to require the Seller to repurchase such
Loan for the Repurchase Price for such Loan, which right is granted in the Loan
Sale and Purchase Agreement with respect to such Loan and is exercisable during
the related Repurchase Option Period by written notice of election to exercise
to the Seller.
Repurchase Option Date shall mean the date upon which the Issuer
delivers written notice to the Seller stating that one or more of the Seller's
representations and warranties with respect to a Loan set forth in the Loan Sale
and Purchase Agreement were inaccurate in a material and adverse respect on the
date and time in which such representations and warranties were made.
Repurchase Option Period shall mean, with respect to any Repurchase
Option, the period commencing on the Repurchase Option Date and terminating on
the earliest of (i) the date that the Seller assigns to the Grantor Trust a Loan
meeting the requirements established for a substituted Loan in exchange for the
Loan subject to the Repurchase Option; (ii) the date such breached
representations and warranties are cured to the reasonable satisfaction of the
Issuer; and (iii) the date which is 90 days from the Repurchase Option Date.
Repurchase Price shall mean, with respect to any Loan which is
repurchased in accordance with the Loan Sale and Purchase Agreement, an amount
equal to the then outstanding principal amount of such Loan plus any unpaid
interest thereon that has accrued at the Loan Rate to the date of repurchase and
any unreimbursed P&I Advances or Servicing Advances and accrued interest thereon
at the Reimbursement Rate.
Repurchased Loan shall mean any Loan repurchased by the Seller for the
Repurchase Price in accordance with the Loan Sale and Purchase Agreement and
shall be treated as a prepaid Loan for purposes of the Indenture.
Reserve Account shall mean the account by that name created,
maintained and disbursed, from time to time, pursuant to Article V of the
Indenture.
Reserve Deposit Amount shall mean $100,000.
Restaurant Borrower shall mean the Borrower of a Restaurant Loan, and
its successors and assigns.
Restaurant Business shall mean a retail business that operates a quick
service or casual dining restaurant business.
A-22
<PAGE>
Restaurant Loan shall mean each Loan made or acquired by the Seller to
a Restaurant Borrower that operates a Restaurant Business which Loans are
evidenced by a Promissory Note owned by the Issuer listed on the List of Loans
as a Restaurant Loan and granted and delivered to the Indenture Trustee under
the Indenture as security for the Notes.
Rule 144A Information shall mean the information requested by
prospective purchasers necessary to satisfy the requirements of Rule 144A under
the 1933 Act.
Scheduled Payment shall mean, with respect to a Payment Date and a
Loan, the sum of the scheduled principal payments and interest payments, if any,
due from the Borrower in respect of such Loan in the related Due Period in
accordance with the terms of the related Loan Documents.
Secured Party shall, with respect to any Loan, have the meaning
accorded to such term in the Loan Documents for such Loan.
Security Agreement shall mean, with respect to a Loan, the Security
Agreement included in the Loan Documents in respect of such Loan.
Seller shall mean Atherton Capital Incorporated, a Delaware
corporation.
Senior Notes shall mean the Class A-1 Notes, the Class A-2 Notes, the
Class B Notes, the Class C Notes, and the Class D Notes.
Servicer shall mean Mellon Mortgage Company in its capacity as
servicer under the Servicing Agreement, together with its subservicers,
successors and assigns as permitted thereunder.
Servicer Report Date shall mean, with respect to a Payment Date, the
fifth Business Day preceding such Payment Date.
Servicer's Certificate shall mean a certificate to be provided by the
Servicer in accordance with Section 3.1 of the Servicing Agreement and signed by
an Authorized Officer of the Servicer and furnished to the Issuer and the
Indenture Trustee by the Servicer.
Servicing Advances shall mean funds advanced by the Servicer or the
Servicing Advisor in respect of expenses in connection with the Loans (whether
for maintaining insurance, protecting or maintaining Collateral, or otherwise).
Servicing Advisor shall mean Atherton Capital Incorporated, a Delaware
corporation, in its capacity as servicing advisor under the Servicing Agreement,
together with its subservicers, successors and assigns as permitted thereunder.
A-23
<PAGE>
Servicing Advisor Fee shall mean the fee payable to the Servicing
Advisor pursuant to the Servicing Agreement which for any Payment Date shall
mean an amount equal to one twelfth of the product of (a) ***/7/ and (b) the
Aggregate Outstanding Principal Amount of the Loans for such Payment Date.
Servicing Agreement shall mean the Servicing and Custodial Agreement,
dated as of August 1, 1998, by and among the Certificate Trustee, the Indenture
Trustee, the Custodian, the Servicer and the Servicing Advisor wherein the
Servicer and the Servicing Advisor agreed to provide administrative, servicing
and collection supervision services in respect of the Loans for the benefit of
the Noteholders.
Servicing Fee shall mean the fee payable to the Servicer pursuant to
the Servicing Agreement which for any Payment Date shall mean an amount equal to
the sum of (i) one twelfth of the product of (x) the Servicing Fee Rate and (y)
the Aggregate Outstanding Principal Amount of the Loans for such Payment Date,
plus (ii) Late Payment Charges, if any, received during the related Prepayment
Period with respect to the Loan plus (iii) plus amounts in respect of Servicing
Advances in respect of the Loan, if any, during the related Prepayment Period
that are reimbursable pursuant to the Servicing Agreement, plus any
Reimbursements of P&I Advances.
Servicing Fee Rate shall mean *** per annum.
Servicing Standard shall mean such customary, prudent and usual
procedures of financial institutions which service loans similar to the Loans
and to the extent more exacting, the procedures which the Servicer would use if
the Loans were owned by the Servicer.
SMMEA shall mean the Secondary Mortgage Market Enhancement Act of
1984.
Specially Serviced Loan shall mean (i) a Loan which is a Delinquent
Loan for a period of 60 consecutive days and (ii) a Loan with respect to which
the related Borrower is a debtor in any proceeding under any Bankruptcy Law.
Specialty Retail Borrower shall mean the Borrower of a Specialty
Retail Loan and its successor and assigns.
Specialty Retail Business shall mean a retail business that sells
quick lube and automotive maintenance services.
Specialty Retail Loan shall mean each Loan made by the Seller to an
Specialty Retail Borrower that operates an Specialty Retail Business, which
Loans are evidenced by a
- --------------
/7/ Certain information has been deleted from this document where denoted
by asterisks, and has been filed separately with the Commission. The Company has
requested confidential treatment for such omitted information.
A-24
<PAGE>
Promissory Note owned by the Issuer listed on the List of Loans as an Specialty
Retail Loan and delivered to the Indenture Trustee under the Indenture as
security for the Notes.
Standard & Poor's or S&P shall mean Standard & Poor's Ratings
Services, a division of The McGraw-Hill Companies, Inc.
State shall mean any one of the states of the United States of
America, or the District of Columbia.
Super-Majority-in-Interest shall mean Holders of Notes representing in
excess of sixty-six and two-thirds percent (66 2/3 %) of the Percentage
Interests of the Notes.
Tax Counsel shall mean Dewey Ballantine LLP, as special tax counsel to
the Issuer.
Third Party Pledgee shall have the meaning accorded such term in "Risk
Factors--The Loans--Cross-Collateralization Considerations" in the Offering
Circular.
Title Insurance Policy shall mean, with respect to a particular
Mortgaged Property, an ALTA (extended coverage) Loan Title Insurance Policy or
Policies or other title insurance (including all riders or endorsements thereto)
containing no survey exceptions and insuring the Seller that the Mortgage
constitutes a valid first lien on the Mortgaged property, subject to permitted
encumbrances.
Total Weighted Average Rate shall mean, for any Accrual Period, a per
annum rate equal to (a) the sum of (i) the sum of the products of the Aggregate
Outstanding Principal Amount of each Class of Notes, other than the Class A-X
Notes, multiplied by the related Note Rate and (ii) and the product of the
Issuer Balance multiplied by the Issuer Rate, divided by (b) the sum of the
Aggregate Outstanding Principal Amount of the Notes and the Issuer Balance.
Transfer shall mean an event by which a Note is sold, pledged,
hypothecated or otherwise transferred.
Trustee Fee shall mean the fee payable to the Indenture Trustee
pursuant to the Indenture which for any Payment Date shall be an amount equal to
one-twelfth of the product of (x) the Trustee Fee Rate and (y) the Aggregate
Outstanding Principal Amount of the Loans for such Payment Date.
Trustee Fee Rate shall mean ***/8/ per annum.
- -----------------------
/8/ Certain information has been deleted from this document where
denoted by asterisks, and has been filed separately with the Commission. The
Company has requested confidential treatment for such omitted information.
A-25
<PAGE>
Trust Estate shall mean the Loans and other Collateral deposited in
the Grantor Trust by the Depositor.
Trust Office shall mean the office of the Indenture Trustee located at
4 Albany Street, New York, New York 10006, as such location may be changed from
time to time in accordance with the Indenture.
UCC shall mean Uniform Commercial Code.
Underwriting Guidelines shall mean, with respect to the Seller and a
Loan, the underwriting guidelines of the Seller under which the Loan was
originated.
Unit FCR, with respect to any Loan, shall mean the FCR of the financed
franchise unit.
WAPT Rate shall mean with respect to any Accrual Period, a per annum
rate equal to (i) (a) the sum of the products of the Outstanding Principal
Balance of each Loan multiplied by the related Loan Rate in respect of such
Accrual Period, divided by (b) the Aggregate Outstanding Principal Balance of
the Loans, less (ii) the sum of (a) the Trustee Fee Rate and (b) the Servicing
Fee Rate.
Write-down Amount shall mean, with respect to any Net Loss incurred in
respect of any Liquidated Loan, the amount by which (a) the sum of the Aggregate
Outstanding Principal Amount of the Notes and the Issuer Balance is greater than
(b) the Aggregate Outstanding Principal Amount of the Loans.
Yield Maintenance Available Funds shall mean, with respect to any
Prepayment Period, all Loan Yield Maintenance Amounts collected in the
Collection Account during such Prepayment Period.
Zoning Laws shall mean, with respect to any Borrower and franchise
unit, the applicable building and zoning ordinances and codes affecting such
franchise unit.
A-26
<PAGE>
EXHIBIT 10.12
CERTIFICATE PURCHASE AGREEMENT
Dated as of August 1, 1998
between
ATHERTON INTERMEDIATE FUNDING 1998-A INC.,
as Depositor
and
ATHERTON FRANCHISEE LOAN FUNDING 1998-A LLC,
as Issuer
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Definitions.............................................................. 1
2. Agreement to Sell and Purchase........................................... 2
3. Conveyance of Assets and Payment of Purchase Price....................... 2
4. Representations, Warranties and Covenants................................ 2
5. UCC Filings.............................................................. 3
6. Depositor's Acknowledgment............................................... 3
7. Intent to Effect Irrevocable, Absolute Sale and not a Transfer as
Collateral or Security................................................... 3
8. Receipt.................................................................. 4
9. GOVERNING LAW............................................................ 4
10. Counterparts............................................................. 4
</TABLE>
i
<PAGE>
This CERTIFICATE PURCHASE AGREEMENT, dated as of August 1, 1998 (this
"AGREEMENT"), is entered into by and between ATHERTON INTERMEDIATE FUNDING 1998-
A INC., a Delaware corporation (the "DEPOSITOR"), and ATHERTON FRANCHISEE LOAN
FUNDING 1998-A LLC, a limited liability company organized under the laws of the
state of Delaware (the "ISSUER").
W I T N E S S E T H:
WHEREAS, the Depositor is a corporation duly organized and existing
under and by virtue of the laws of the State of Delaware and has full power and
authority to enter into this Agreement and to undertake the obligations
undertaken by it herein;
WHEREAS, the Issuer is a limited liability company duly organized and
existing under and by virtue of the laws of the State of Delaware and has full
power and authority to enter into this Agreement and to undertake the
obligations undertaken by it herein;
WHEREAS, the Depositor is the Holder of a Certificate of Beneficial
Ownership (the "CERTIFICATE OF BENEFICIAL OWNERSHIP") evidencing a 100%
beneficial interest in the Atherton Intermediate Funding 1998-A Grantor Trust
(the "GRANTOR TRUST"), the assets of which consist of a pool of franchise loans
(the "LOANS") and certain other assets (collectively, the "TRUST ESTATE");
WHEREAS, the Depositor desires to sell, and the Issuer desires to
purchase, the Certificate of Beneficial Ownership, subject to the terms and
conditions of this Agreement;
WHEREAS, the Issuer intends to pledge the Certificate of Beneficial
Ownership as security for the Issuer's Notes issued pursuant to the terms of an
Indenture of Trust, dated as of August 1, 1998 (the "INDENTURE"), between the
Issuer and Bankers Trust Company, as indenture trustee (the "INDENTURE TRUSTEE")
NOW THEREFORE, the parties hereto agree as follows:
1. Definitions
-----------
(a) For all purposes of this Agreement, except as otherwise
expressly provided herein or unless the context otherwise requires, capitalized
terms not otherwise defined herein shall have the meanings ascribed to such
terms in Appendix A to the Indenture which is incorporated by reference herein.
All other capitalized terms used herein shall have the meanings specified
herein.
(b) All terms defined in this Agreement shall have the defined
meanings ascribed to such terms herein when used in any certificate or other
document made or delivered pursuant hereto unless otherwise defined therein.
(c) As used in this Agreement and in any certificate or other
document made or delivered pursuant hereto or thereto, accounting terms not
defined in this Agreement or in any
<PAGE>
such certificate or other document, and accounting terms partly defined in this
Agreement or in any such certificate or other document to the extent not
defined, shall have the respective meanings given to them under generally
accepted accounting principles. To the extent that the definitions of accounting
terms in this Agreement or in any such certificate or other document are
consistent with the meanings of such terms under generally accepted accounting
principles, the definitions contained in this Agreement or in any such
certificate or other document shall control.
(d) The words "hereof," "herein," "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement; Section and Exhibit
references contained in this Agreement are references to Sections and Exhibits
in or to this Agreement unless otherwise specified; and the term "including"
shall mean "including without limitation."
(e) The definitions contained in this Agreement are applicable
to the singular as well as the plural forms of such terms and to the masculine
as well as to the feminine and neuter genders of such terms.
(f) Any agreement, instrument or statute defined or referred to
herein or in any instrument or certificate delivered in connection herewith
means such agreement, instrument or statute as from time to time amended,
modified or supplemented and includes (in the case of agreements or instruments)
references to all attachments thereto and instruments incorporated therein;
references to a Person are also to its permitted successors and assigns.
2. Agreement to Sell and Purchase. The Depositor agrees to
------------------------------
sell, and the Issuer agrees to purchase, on the date hereof, the Certificate of
Beneficial Ownership in consideration of $ *** /1/ (the "CERTIFICATE PURCHASE
PRICE") to be paid by the Issuer. On the date hereof, the Issuer will Grant to
the Indenture Trustee, pursuant to the Indenture, all of the Issuer's right,
title and interest in, to and under the Certificate of Beneficial Ownership and
this Agreement.
3. Conveyance of Assets and Payment of Purchase Price. In
--------------------------------------------------
consideration of the payment and delivery by the Issuer to the Depositor of the
Purchase Price, the Depositor does hereby (a) transfer, grant, bargain, sell,
assign, convey, set over and deliver to the Issuer, absolutely and not as
collateral security, without recourse except as expressly provided herein, and
the Issuer does hereby purchase, accept and receive, all of the Depositor's
right title and interest in, to and under the Certificate of Beneficial
Ownership and (b) agree to protect and defend the Issuer's interest in the
Certificate of Beneficial Ownership.
4. Representations, Warranties and Covenants
-----------------------------------------
(a) The Issuer hereby expressly assumes and agrees and undertakes
to pay, perform and otherwise discharge as the same shall become due in
accordance with their
- --------------
/1/ Certain information has been deleted from this document where
denoted by asterisks, and has been filed separately with the Commission. The
Company has requested confidential treatment for such omitted information.
2
<PAGE>
respective terms, all duties, responsibilities and obligations of the Holder of
the Certificate of Beneficial Ownership under the Pooling Agreement;
(b) Each of the Depositor and the Issuer hereby agrees, at any time
and from time to time, to obtain, procure, execute, deliver, affix and file all
such further agreements, bills of sale and assignments, instruments, documents,
receipts, notices, statements, powers, writings and information, and to do and
cause to be done all such further acts and things as the other party may
reasonably request in connection herewith;
(c) Each of the Depositor and the Issuer represents and warrants to
the other that, effective as of the Closing Date, (i) it is duly organized,
validly existing and in good standing in the jurisdiction of its organization
and that its principal place of business and chief executive office is in the
State of California, (ii) it has full power and authority to enter into this
Agreement and to perform its obligations hereunder, (iii) neither the execution
and delivery of this Agreement, nor the performance of its obligations
hereunder, will conflict with or result in a breach or default under any of its
organizational documents, any law, rule, regulation, judgment, order or decree
to which it is subject or any agreement or instrument to which it is a party,
and (iv) this Agreement, and its execution, delivery and performance hereof have
been duly authorized by it, and this Agreement has been duly executed and
delivered by it and constitutes its valid and binding obligation enforceable
against it in accordance with the terms hereof;
5. UCC Filings. The Depositor hereby covenants and agrees to
-----------
file, or cause to be filed, at the Depositor's sole cost and expense such
financing statements on Form UCC-1 as the Issuer shall reasonably request in
connection with the sale and conveyance of the Certificate of Beneficial
Ownership, and the Depositor shall deliver file-stamped copies of all documents
filed pursuant to this Section 5 to the Issuer and the Indenture Trustee as soon
as available following such filing.
6. Depositor's Acknowledgment. The Depositor hereby agrees
--------------------------
and acknowledges that the Issuer intends to Grant its rights hereunder and its
rights to the Certificate of Beneficial Ownership to the Indenture Trust Estate
and to the Indenture Trustee pursuant to the terms of the Indenture. The
Depositor further agrees and acknowledges that the Indenture Trustee and the
Noteholders have relied and will continue to rely upon each of the foregoing
representations and warranties, and further agrees that such Persons are
entitled so to rely thereon. Each of the above representations and warranties
shall survive the Grant of the Certificate of Beneficial Ownership to the
Indenture Trustee and shall continue in full force and effect, notwithstanding
subsequent termination of this Agreement. The above representations and
warranties shall inure to the benefit of any permitted transferee of the
Indenture Trustee, and title to such Certificate of Beneficial Ownership shall
not be a part of the debtor's estate in the event of the filing of a bankruptcy
petition by or against the Depositor under any bankruptcy law.
7. Intent to Effect Irrevocable, Absolute Sale and not a
-----------------------------------------------------
Transfer as Collateral or Security. The Depositor and the Issuer hereby confirm
- ----------------------------------
their intent and agree that the Depositor is irrevocably transferring, granting,
bargaining, selling, assigning, conveying and delivering to the Issuer the
Certificate of Beneficial Ownership absolutely and not as collateral security.
If, notwithstanding the parties' intent to effect a sale, the transactions
contemplated hereby are
3
<PAGE>
characterized as a financing, the Depositor hereby grants to the Issuer a
security interest in the Certificate of Beneficial Ownership, and this Agreement
shall be deemed a security agreement within the meaning of the UCC.
8. Receipt. By their respective signatures below, the
-------
Depositor hereby acknowledges receipt of the Certificate Purchase Price, and the
Issuer hereby acknowledges receipt of the Certificate of Beneficial Ownership.
9. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
10. Counterparts. This Agreement may be executed by the
------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which shall together
constitute but one and the same instrument.
[Remainder of Page Intentionally Left Blank]
4
<PAGE>
IN WITNESS WHEREOF, the Depositor and the Issuer have caused this
Agreement to be duly executed as of the date first written above.
ATHERTON INTERMEDIATE FUNDING 1998-A, INC.,
as Depositor
By: /s/ Mark H. McGourty
---------------------------------
Name: Mark H. McGourty
Title: Treasurer
ATHERTON FRANCHISEE LOAN FUNDING 1998-A LLC
By: Atherton Intermediate Funding 1998-A,
Inc., its Managing Member
By: /s/ Mark H. McGourty
---------------------------------
Name: Mark H. McGourty
Title: Treasurer
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
1. Orinda Management Company, a Delaware corporation.
2. Atherton Franchisee Loan Funding 1997-A LLC, a Delaware limited liability
company.
3. Atherton Franchisee Loan Funding 1998-A LLC, a Delaware limited liability
company.
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Atherton Capital Incorporated:
We consent to the use of our report included herein and to the reference to
our Firm under the heading "Experts" in the Prospectus.
KPMG Peat Marwick LLP
San Francisco, California
August 20, 1998
