<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-8630
------
AMRESCO, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 59-1781257
- ---------------------------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 N. Pearl Street, Suite 2400 LB 342 Dallas, Texas 75201-7424
- ---------------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 953-7700
----------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
27,203,997 shares of common stock, $.05 par value per share,
as of November 11, 1996.
Page 1
<PAGE>
AMRESCO, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996 and
December 31, 1995 3
Consolidated Statements of Income - Three and Nine Months
Ended September 30, 1996 and 1995 4
Consolidated Statement of Stockholders' Equity - Nine
Months Ended September 30, 1996 5
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
Page 2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMRESCO, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 14,157 $ 16,139
Temporary investments 36,392 21,942
Accounts receivable, net of reserves of
$2,091 and $1,737, respectively 16,445 20,158
Mortgage loans held for sale 402,738 160,843
Investments:
Loans 175,784 138,180
Asset-backed and other securities 89,891 46,187
Partnerships and joint ventures 31,102 34,694
Real estate 16,961 5,686
Deferred income taxes 12,529 12,184
Premises and equipment, net of accumulated
depreciation of $4,229 and $2,335,
respectively 6,233 5,904
Intangible assets, net of accumulated
amortization of $7,888 and $4,136,
respectively 46,417 49,863
Other assets 19,049 9,933
-------- --------
TOTAL ASSETS $867,698 $521,713
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 6,805 $ 14,124
Accrued employee compensation and benefits 9,978 10,487
Notes payable 116,921 127,796
Warehouse loans payable 381,560 153,158
Senior mid-term notes 57,500
Senior subordinated notes 57,500
Convertible debt 45,000 45,000
Income taxes payable 2,744 2,897
Other liabilities 4,597 7,457
-------- --------
Total liabilities 682,605 360,919
-------- --------
STOCKHOLDERS' EQUITY:
Common stock, $0.05 par value, authorized
50,000,000 shares; 27,189,497 and 26,689,331
shares issued in 1996 and 1995, respectively 1,359 1,334
Capital in excess of par 110,121 106,054
Reductions for employee stock (1,409) (2,238)
Treasury stock, $0.05 par value, 24,339 shares (160) (160)
Net unrealized gains (losses) (1,207) 114
Retained earnings 76,389 55,690
-------- --------
Total stockholders' equity 185,093 160,794
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $867,698 $521,713
-------- --------
-------- --------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 3
<PAGE>
AMRESCO, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- -----------------------
1996 1995 1996 1995
------- ------- -------- -------
<S> <C> <C> <C> <C>
REVENUES:
Asset management and resolution fees $ 9,177 $ 8,311 $ 27,214 $27,279
Interest and other investment income 22,481 9,877 65,728 24,446
Mortgage banking fees 10,095 5,753 25,032 14,077
Gain on sale of loans and investments, net 3,177 928 8,966 973
Other revenues 556 427 2,255 5,302
------- ------- -------- -------
Total revenues 45,486 25,296 129,195 72,077
------- ------- -------- -------
EXPENSES:
Personnel 17,031 12,744 52,662 38,151
Other general and administrative 4,832 1,696 15,489 8,489
Interest 7,983 1,495 21,478 2,771
Depreciation and amortization 1,919 931 5,899 2,694
------- ------- -------- -------
Total expenses 31,765 16,866 95,528 52,105
------- ------- -------- -------
Income from continuing operations before income taxes 13,721 8,430 33,667 19,972
Income tax expense 5,165 3,234 12,968 7,542
------- ------- -------- -------
INCOME FROM CONTINUING OPERATIONS 8,556 5,196 20,699 12,430
Gain from discontinued operation, net of income taxes 2,425
------- ------- -------- -------
NET INCOME $ 8,556 $ 5,196 $ 20,699 $14,855
------- ------- -------- -------
------- ------- -------- -------
Earnings per share from continuing operations:
Primary $ 0.31 $0.21 $ 0.75 $ 0.51
Fully-diluted 0.29 0.21 0.71 0.51
Earnings per share:
Primary 0.31 0.21 0.75 0.61
Fully-diluted 0.29 0.21 0.71 0.61
Weighted average number of common shares outstanding
and common share equivalents 28,004,515 24,677,789 27,647,629 24,429,822
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 4
<PAGE>
AMRESCO, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
Common Stock
$0.05 Par Value Reduction Net
------------------- Capital in for Unrealized Total
Number of Excess of Employee Treasury Gains Retained Stockholders'
Shares Amount Par Stock Stock (Losses) Earnings Equity
---------- ------ --------- -------- -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1, 1996 26,689,331 $1,334 $106,054 $(2,238) $(160) $ 114 $55,690 $160,794
Exercise of stock options 452,260 22 1,924 1,946
Issuance of common stock for
earnout 57,186 3 774 777
Cancellation of restricted
common stock for unearned
stock compensation (9,280) (79) 79
Amortization of unearned stock
compensation 750 750
Tax benefits from employee
stock compensation 1,448 1,448
Foreign currency translation
adjustments (862) (862)
Unrealized loss on securities
available for sale, net (459) (459)
Net income 20,699 20,699
---------- ------ -------- ------- ----- ------- ------- --------
SEPTEMBER 30, 1996 27,189,497 $1,359 $110,121 $(1,409) $(160) $(1,207) $76,389 $185,093
---------- ------ -------- ------- ----- ------- ------- --------
---------- ------ -------- ------- ----- ------- ------- --------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 5
<PAGE>
AMRESCO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
Nine Months Ended September 30,
-------------------------------
1996 1995
----------------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 20,699 $ 14,855
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Gain from discontinued operation, net (2,425)
Gain on sale of mortgage loans and related securities (8,227)
Depreciation and amortization 5,899 2,694
Deferred tax provision (68) 4,397
Other 750 227
Increase (decrease) in cash for changes in:
Accounts receivable 3,713 13,025
Mortgage loans held for sale and related securities, net (310,513) (7,767)
Warehouse loans payable, net 228,402
Other assets (9,684) (788)
Accounts payable (3,436) (630)
Income taxes payable (153) (1,507)
Other liabilities 68 (21,588)
---------- ----------
Net cash provided by (used in) operating activities (72,550) 493
---------- ----------
INVESTING ACTIVITIES:
Purchase of temporary investments, net (14,450) (27,222)
Purchase of investments (113,508) (139,123)
Collections on investments 68,221 34,569
Purchase of investment securities available for sale (8,717)
Collections on investment securities available for sale 1,347
Proceeds from sale of subordinated interest in securitizations 39,775
Proceeds from sale of subsidiary 6,250
Cash used for purchase of subsidiary (3,106) (4,401)
Purchase of premises and equipment (2,214) (1,627)
---------- ----------
Net cash used in investing activities (32,652) (131,554)
---------- ----------
FINANCING ACTIVITIES:
Proceeds from notes payable and other debt 501,669 238,048
Repayment of notes payable and other debt (401,843) (113,987)
Stock options exercised 1,946 1,166
Tax benefit of employee stock compensation 1,448 1,537
Payment of dividends (3,578)
Acquisition of treasury stock (71)
Repayment of notes receivable for officers' shares 220
---------- ----------
Net cash provided by financing activities 103,220 123,335
---------- ----------
Net decrease in cash and cash equivalents (1,982) (7,726)
Cash and cash equivalents, beginning of period 16,139 20,446
---------- ----------
Cash and cash equivalents, end of period $ 14,157 $ 12,720
---------- ----------
---------- ----------
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 21,227 $ 2,912
Income taxes paid 13,121 2,990
Exchange of loans for interest in securitization 73,843
Common stock issued for earnout related to purchase of subsidiary 777 777
Common stock issued (canceled) for unearned stock compensation (79) 649
Settlement of notes receivable for officers' shares with common stock 89
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 6
<PAGE>
AMRESCO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements of AMRESCO,
INC. and subsidiaries (the "Company") have been prepared by the Company in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended September
30, 1996 are not necessarily indicative of the results that may be expected for
the entire fiscal year or any other interim period. It is recommended that
these statements be read in conjunction with the Company's consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1995. Certain reclassifications of
prior period amounts have been made to conform to the current period
presentation.
SECURITIZATION AND SALE OF ASSETS - Revenues from the Company's residential
capital markets activities consist of interest earned on residential mortgage
loans purchased, gains on the securitization and sale of such loans and other
related securities, accrued earnings on certificates purchased or retained from
securitization trusts and gains on sales, if any, of such retained certificates.
The gains on the securitization and sale of mortgage loans and other related
securities represent the amount by which the proceeds received (including the
estimated value of any certificates retained) exceed the sum of the basis of the
assets sold and the cost of securitization. When assets are securitized and
sold, the certificates retained are valued at the discounted present value of
the cash flow expected to be realized over the anticipated average life of the
assets sold less future estimated credit losses and normal servicing and other
fees relating to the assets sold. The discounted present value of such
certificates is computed using management's assumptions of market discount rates
(currently approximately 20%), prepayment rates, default rates and other costs.
Interest income on mortgage loans held for sale and retained interests in
securitizations is recorded as earned. Interest income represents the interest
earned on the loans during the warehousing period (the period prior to their
securitization) and the recognition of interest income on the securities
retained after securitization, which generally is the recognition of the
increased time value of the discounted estimated cash flows.
2. NOTES PAYABLE AND OTHER DEBT
REVOLVER - Effective June 13, 1996, the Company entered into a First
Amendment of the First Amended and Restated Revolving Loan Agreement (the
"Revolving Loan Agreement") with a syndicate of lenders, led by NationsBank of
Texas, N.A. The $200.0 million Revolving Loan Agreement matures May 31, 1998
and replaces the Company's September 29, 1995, revolving loan agreement. As of
September 30, 1996, $61.4 million was outstanding under this facility.
SENIOR NOTES - On July 16, 1996, the Company completed a sale of $57.5
million principal amount of Senior Notes, Series 1996-A (the "Senior Notes").
The net proceeds (aggregating approximately $55.8 million) from such sale were
used to repay borrowings under the Revolving Loan Agreement. The Senior Notes
bear interest at a rate of 8.75% per annum and will mature on July 1, 1999.
There is no sinking fund or amortization of principal prior to maturity. The
capitalized debt offering costs are included in other assets and are amortized
over three years. The Senior Notes are not redeemable prior to July 1, 1999.
The Senior Notes are unsecured senior obligations of the Company and
subordinated to the rights of holders of secured unsubordinated indebtedness of
the Company to the extent of the value of the collateral securing such
indebtedness. There are certain limited restrictions on the ability of the
Company to, among other things, create or incur any additional senior debt, pay
dividends or make certain other restricted payments.
WAREHOUSE DEBT - A subsidiary of the Company entered into a Global Master
Repurchase Agreement with CS First Boston Mortgage Capital Corp. for an amount
not to exceed $500.0 million (the "Repurchase Facility") to finance the
acquisition and warehousing of residential mortgage loans. As of September 30,
1996, no amount was outstanding under the Repurchase Facility.
Page 7
<PAGE>
Effective September 19, 1996, a subsidiary of the Company entered into a
$200.0 million mortgage warehouse line with Morgan Stanley Mortgage Capital,
Inc. to finance the purchase of certain mortgage loans. No amount was
outstanding under this facility at September 30, 1996.
On February 26, 1996, and as amended June 28, 1996 and October 25, 1996, a
subsidiary of the Company entered into a $500.0 million line of credit under the
Prudential Warehouse Facility to finance the acquisition and warehousing of
residential mortgage loans. A total of $316.5 million was outstanding under the
Prudential Warehouse Facility at September 30, 1996 bearing interest at 6.13%.
Indebtedness under this line of credit is secured by the mortgage loans acquired
with funds advanced under this line of credit.
3. SUBSEQUENT EVENTS
On October 25, 1996, the Company acquired substantially all of the
operating assets of Quality Mortgage USA, Inc., ("Quality") for $65.0 million.
Quality is an originator of non-conforming (B & C) mortgages with a network of
approximately 50 branches located in 31 states, and is headquartered in Irvine,
California.
On October 23, 1996, the Company filed a Registration Statement with the
Securities and Exchange Commission with respect to the offering and sale of
7,760,000 shares of common stock. The Company will offer 1,828,148 shares and
5,931,852 will be offered by certain selling shareholders of the Company. Up to
an additional 1,164,000 shares will be available from the Company to cover
underwriters' overallotments, if any. Proceeds from the sale of common stock
offered by the Company will be used to reduce the Company's outstanding
borrowings under the Revolving Loan Agreement (including $65.0 million of
borrowings utilized to fund the purchase of Quality). The Company anticipates
closing this offering in mid-November 1996.
On October 31, 1996, the Company called for redemption, on December 27,
1996, all of its outstanding 8% Convertible Subordinated Debentures due 2005
("Convertible Debentures"). The Convertible Debentures can be converted at a
conversion rate of 80 shares of common stock of the Company for each $1,000
principal amount of Convertible Debentures or may be redeemed at a redemption
price of $1,080, plus accrued interest, per $1,000 principal amount. As of
September 30, 1996, $45.0 million aggregate principal amount of Convertible
Debentures were outstanding.
On November 14, 1996, the Company entered into a joint venture agreement
with a Wall Street firm to fund and securitize commercial mortgage loans.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
AMRESCO, INC. (the "Company") is a leading specialty financial services
company engaged in asset acquisition and resolution, non-conforming residential
mortgage acquisition and securitization, commercial mortgage banking and
institutional real estate investment advisory services. On October 25, 1996 the
Company acquired substantially all of the operating assets of Quality Mortgage
USA, Inc. ("Quality"). Quality originates non-conforming residential mortgage
loans. The Company's business may be affected by many factors, including real
estate and other asset values, the availability and price of assets and
residential mortgages to be purchased, the level of and fluctuations in interest
rates, changes in the securitization market and competition. In addition, the
Company's operations require continued access to short and long term sources of
financing.
Since the second quarter of 1995, the Company has extended its business
lines to offer a full range of mortgage banking services, including commercial
loan origination and servicing, developed its residential capital markets
activities, increased the amount it invests in asset portfolios and developed
its institutional real estate investment advisory business. These significant
changes in the composition of the Company's business are reflected in the
Company's results of operations and may limit the comparability of the Company's
results from period to period.
RESULTS OF OPERATIONS
The following discussion and analysis presents the significant changes in
results of continuing operations of the Company for the three and nine months
ended September 30, 1996 and 1995 by primary business lines. The results of
Page 8
<PAGE>
operations of acquired businesses are included in the consolidated financial
statements from the date of acquisition. This discussion should be read in
conjunction with the consolidated financial statements and notes thereto.
The following is a summary of the Company's results of operations for the
three and nine months ended September 30, 1996 and 1995.
<TABLE>
THREE MONTHS ENDED NINE MONTHS ENDED
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA) SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Asset acquisition and resolution $20,803 $19,025 $ 65,569 $ 53,727
Residential capital markets 11,475 88 28,339 88
Commercial mortgage banking 13,579 5,952 33,974 14,720
Institutional real estate investment advisory 1,244 3,217
Corporate, other and intercompany eliminations (1,615) 231 (1,904) 3,542
---------- ---------- ---------- ----------
Total revenues 45,486 25,296 129,195 72,077
---------- ---------- ---------- ----------
Operating expenses:
Asset acquisition and resolution 10,033 8,136 33,489 24,906
Residential capital markets 4,866 209 11,488 209
Commercial mortgage banking 9,364 4,804 26,566 12,426
Institutional real estate investment advisory 1,088 2,906
Corporate, other and intercompany eliminations 6,414 3,717 21,079 14,564
---------- ---------- ---------- ----------
Total operating expenses 31,765 16,866 95,528 52,105
---------- ---------- ---------- ----------
Operating profit:
Asset acquisition and resolution 10,770 10,889 32,080 28,821
Residential capital markets 6,609 (121) 16,851 (121)
Commercial mortgage banking 4,215 1,148 7,408 2,294
Institutional real estate investment advisory 156 311
Corporate, other and intercompany eliminations (8,029) (3,486) (22,983) (11,022)
---------- ---------- ---------- ----------
Total operating profit 13,721 8,430 33,667 19,972
Income tax expense 5,165 3,234 12,968 7,542
---------- ---------- ---------- ----------
Income from continuing operations 8,556 5,196 20,699 12,430
Gain from discontinued operation, net of income taxes 2,425
---------- ---------- ---------- ----------
Net income $ 8,556 $ 5,196 $ 20,699 $ 14,855
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Earnings per share from continuing operations:
Primary $0.31 $0.21 $0.75 $0.51
Fully-diluted 0.29 0.21 0.71 0.51
Earnings per share:
Primary 0.31 0.21 0.75 0.61
Fully-diluted 0.29 0.21 0.71 0.61
Weighted average shares outstanding and equivalents 28,004,515 24,677,789 27,647,629 24,429,822
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
The Company reported an 80% increase in revenues and a 63% increase in
operating profit for the third quarter of 1996 compared to the comparable 1995
period. The increases in both revenues and operating profit were due primarily
to the inclusion of residential capital markets operations initiated in
September 1995 and an increase in commercial mortgage banking activities.
Weighted average shares outstanding and equivalents for the three months ended
September 30, 1996 increased 13% over the same period of 1995, primarily due to
the issuance of 2.3 million shares of common stock in December 1995. Fully-
diluted earnings per share increased 38% from $0.21 per share for the third
quarter of 1995 to $0.29 per share for the third quarter of 1996.
ASSET ACQUISITION AND RESOLUTION. Revenues for the third quarter of 1996
were comprised of $11.7 million in interest and other investment income,
$8.0 million in asset management and resolution fees and $1.1 million in other
revenues. The $1.8 million, or 9%, increase in revenues from the same period of
1995 was primarily comprised of a
Page 9
<PAGE>
$1.7 million increase in interest and other investment income and a $0.4
million increase in management and resolution fees, offset by a $0.3 million
decrease in other revenues. Interest and investment income increased due to
an increase in aggregate investments of $78.8 million from September 30, 1995
related to a shift from primarily managing and investing in partnerships and
joint ventures to investing in wholly-owned portfolios.
Expenses for the quarter ended September 30, 1996 were primarily comprised
of $4.1 million in personnel costs, $1.8 million in other general and
administrative expenses and $4.0 million in interest expense. The $1.9 million,
or 23%, increase in expenses over the same period in 1995 was primarily due to a
$1.0 million increase in interest expense due to the financing incurred for a
$78.8 million increase in aggregate investments from September 30, 1995.
RESIDENTIAL CAPITAL MARKETS. The Company initiated the operation of the
residential capital markets business in September 1995. Revenues for the three
months ended September 30, 1996 primarily consisted of $9.0 million in interest
and other investment income and a $2.6 million gain on the securitization and
sale of $311.0 million of residential mortgage loans. Interest and other
investment income primarily consists of interest earned on mortgage loans held
for sale, which averaged approximately $215.4 million during the three months
ended September 30, 1996, compared to no such loans held during the same period
of 1995. Gains on the securitization and sale of mortgage loans represent the
amount by which the proceeds received (including the estimated value of any
certificates retained) exceed the sum of the basis of the assets sold and the
cost of securitization. When assets are securitized and sold, the certificates
retained are valued at the discounted present value of the cash flow expected to
be realized over the anticipated average life of the assets sold less future
estimated credit losses and normal servicing and other fees relating to the
assets sold. The discounted present value of such certificates is computed
using management's assumptions of market discount rates (currently approximately
20%), prepayment rates, default rates and other costs.
Expenses for the three months ended September 30, 1996 were comprised of
$4.0 million in interest expense, $0.5 million in personnel expense and
$0.4 million in other general and administrative expense. The $4.0 million in
interest expense primarily relates to borrowing under warehouse loans payable
which funded the acquisition of mortgage loans held for sale.
COMMERCIAL MORTGAGE BANKING. Revenues for the three months ended
September 30, 1996 consisted of $10.1 million in origination, underwriting and
servicing revenues and $3.5 million in interest and other investment income.
Origination, underwriting and servicing revenues increased $4.3 million and
interest and other investment income increased $3.1 million due to the inclusion
of the operations of the commercial loan servicing business acquired in October
1995 and increases in the loan originations and servicing volumes of the
Company's previously existing mortgage banking operations.
Expenses for the three months ended September 30, 1996 were primarily
comprised of $6.9 million in personnel expense, $2.0 million in other general
and administrative expense and $0.4 million in interest expense. The
$4.6 million increase in expenses is primarily due to a $3.2 million increase in
personnel expenses and a $1.0 million increase in other general and
administrative expense. Expenses increased primarily due to the inclusion of
operations of the commercial loan servicing business acquired during October
1995 and the growth in commercial mortgage banking operations which began late
in 1994.
INSTITUTIONAL REAL ESTATE INVESTMENT ADVISORY. The Company acquired
substantially all of the assets of Acacia Realty Advisors, Inc. in
November 1995. Third quarter 1996 revenues of $1.2 million were earned in
conjunction with providing real estate investment advisory services to
institutional and corporate investors, including acquisition, portfolio/asset
management and disposition services. Expenses of $1.1 million were incurred,
including $0.7 million in personnel expense and $0.4 million in other general
and administrative expenses.
CORPORATE, OTHER AND INTERCOMPANY ELIMINATIONS. Operating losses for the
three months ended September 30, 1996 increased $4.5 million, or 130%, over the
comparable 1995 quarter. The increase is primarily due to increases in
personnel costs and other overhead related to expanded operations since the
third quarter of 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30,1995
The Company reported a 79% increase in revenues and a 69% increase in
operating profit for the nine months ended September 30, 1996 compared to the
comparable 1995 period. The operating profit increase over the same period in
1995 was primarily due to the inclusion of residential capital markets
operations which were initiated in September
Page 10
<PAGE>
1995. Additionally, commercial mortgage banking posted a 223% increase in
operating profit and asset acquisition and resolution operating profit rose
11%. Weighted average shares outstanding and equivalents for the nine months
ended September 30, 1996 increased 13% over the first nine months of 1995
primarily due to the issuance of 2.3 million shares of common stock in
December 1995. Fully-diluted earnings per share from continuing operations
for the nine months ended September 30, 1996 were $0.71 compared to $0.51 for
the same period in 1995, a 39% increase.
ASSET ACQUISITION AND RESOLUTION. Revenues for the first nine months of
1996 were comprised of $39.1 million in interest and other investment income,
$24.1 million in asset management and resolution fees and $2.4 million in other
revenues. The $11.8 million, or 22%, increase in revenues from the same period
of 1995 was primarily comprised of a $14.5 million increase in interest and
other investment income due to an increase in aggregate investments of
$78.8 million from September 30, 1995. This increase was offset in part by a
$1.9 million decrease in asset management and resolution fees due to a shift
from primarily managing and investing in partnerships and joint ventures to
investing in wholly-owned portfolios.
Expenses for the nine months ended September 30, 1996 were primarily
comprised of $14.7 million in personnel costs, $11.8 million in interest expense
and $6.4 million in other general and administrative expenses. The $8.6 million,
or 34%, increase in expenses over the same period in 1995 was primarily due to a
$5.9 million increase in interest expense and a $3.5 million increase in other
general and administrative expenses. The increase in interest expense was due to
the financing incurred for a $78.8 million increase in aggregate investments
from September 30, 1995.
RESIDENTIAL CAPITAL MARKETS. The Company initiated the operation of the
residential capital markets business in September 1995. Revenues for the nine
months ended September 30, 1996 consisted of $20.2 million in interest and other
investment income and $8.2 million in gains on the securitization and sale of
$1.1 billion of residential mortgage loans in four separate transactions.
Interest and other investment income primarily consisted of interest earned on
mortgage loans held for sale which averaged approximately $186.7 million during
the nine months ended September 30, 1996, compared to no such loans held during
the same period of 1995.
Expenses for the nine months ended September 30, 1996 were comprised of
$9.3 million in interest expense, $1.2 million in personnel expense and
$1.0 million in other general and administrative expense. The $9.3 million in
interest expense relates primarily to borrowing under warehouse loans payable
which funded the acquisition of mortgage loans held for sale.
COMMERCIAL MORTGAGE BANKING. Revenues for the nine months ended
September 30, 1996 consisted primarily of $24.9 million in origination,
underwriting and servicing revenues and $9.0 million in interest and other
investment income. Origination, underwriting and servicing revenues increased
$10.9 million and interest and other investment income increased $8.4 million
due to the inclusion of the operations of the commercial loan servicing business
acquired in October 1995 and increases in the loan originations and servicing
volumes of the Company's previously existing mortgage banking operations.
Expenses for the nine months ended September 30, 1996 were primarily
comprised of $19.4 million in personnel expense, $5.4 million in other general
and administrative expense and $1.2 million in interest expense. The
$14.1 million increase in expenses was primarily due to a $9.7 million increase
in personnel expenses, a $3.0 million increase in other general and
administrative expense and a $1.1 million increase in interest expense. Expenses
increased primarily due to the inclusion of operations of the commercial loan
servicing business which was acquired during October 1995 and the growth in
commercial mortgage banking operations which were initiated late in 1994.
INSTITUTIONAL REAL ESTATE INVESTMENT ADVISORY. The Company acquired
substantially all of the assets of Acacia Realty Advisors, Inc. in
November 1995. Revenues for the first nine months of 1996 totaled $3.2 million
and were earned in conjunction with providing real estate investment advisory
services to institutional and corporate investors, including acquisition,
portfolio/asset management and disposition services. Expenses of $2.9 million
were incurred, including $2.0 million in personnel expense and $0.8 million in
other general and administrative expenses.
CORPORATE, OTHER AND INTERCOMPANY ELIMINATIONS. Operating losses for the
nine months ended September 30, 1996 increased $12.0 million, or 109%, over the
comparable 1995 period. The increase is primarily due to increases in personnel
costs and other overhead related to expanded operations.
Page 11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $14.2 million at September 30, 1996.
Cash flows from operating activities plus principal cash collections on
investments and proceeds from sale of subordinated interest in securitizations
totaled $36.8 million for the first nine months of 1996 compared to $35.1
million for the same period in 1995. The following table is a summary of cash
flow activity during the first nine months of 1996 and 1995 (dollars in
millions):
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1996 1995
------- -------
Cash provided by operations, collections on
investments and sale of subordinated interest
in securitizations, net $ 36.8 $ 35.1
Cash provided by borrowings, net 99.8 124.1
Cash used for purchase of investments (122.2) (139.1)
Ratio of core debt (excluding warehouse debt
and investment line) to capital 1.3:1 0.8:1
Ratio of total debt (excluding investment line)
to capital 3.4:1 0.9:1
Interest coverage ratio * 2.8x 9.2x
* Interest coverage ratio is defined as the ratio of earnings before gain
from discontinued operation, interest, taxes, depreciation and amortization
to interest expense.
The following table shows the components of the Company's capital structure
at September 30, 1996 (dollars in millions):
SEPTEMBER 30, % OF
1996 TOTAL
------------- -----
Stockholders' equity $185.1 23%
Warehouse loans payable 381.6 47%
Notes payable (excluding investment line) 80.5 10%
Senior subordinated notes 57.5 7%
Senior mid-term notes 57.5 7%
Convertible debentures 45.0 6%
Total assets increased $263.8 million to $867.7 million at September 30,
1996 from $603.9 million at June 30, 1996 primarily due to the increase in
mortgage loans held for sale of $212.5 million which is primarily a result of
the acquisition of residential loans for securitization and sale.
On August 12, 1996, the lenders commitment under the Revolving Loan
Agreement was increased to $200.0 million, subject to borrowing base
limitations. Effective April 25, 1996, the Company replaced its $150.0 million
revolving loan agreement, under which the lenders had a $105.0 million
commitment at March 31, 1996 and $185.0 million at June 30, 1996, with a $200.0
million revolving loan agreement. As of September 30, 1996, $61.4 million was
outstanding under this facility.
On July 16, 1996, the Company completed a sale of $57.5 million principal
amount of Senior Notes, Series 1996-A (the "Senior Notes"). The net proceeds
(aggregating approximately $55.8 million) from such sale were used to repay
borrowings under the Revolving Loan Agreement. The Senior Notes bear interest
at a rate of 8.75% per annum and will mature on July 1, 1999. There is no
sinking fund or amortization of principal prior to maturity. The Senior Notes
are not redeemable prior to July 1, 1999. The Senior Notes are unsecured senior
obligations of the Company and subordinated to the rights of holders of secured
unsubordinated indebtedness of the Company to the extent of the value of the
collateral securing such indebtedness. There are certain limited restrictions
on the ability of the Company to, among other things, create or incur any
additional senior debt, pay dividends or make certain other restricted payments.
On February 26, 1996, and as amended June 28, 1996 and October 25, 1996, a
subsidiary of the Company entered into a $500.0 million line of credit under the
Prudential Warehouse Facility to finance the acquisition and
Page 12
<PAGE>
warehousing of residential mortgage loans. A total of $316.5 million was
outstanding under the Prudential Warehouse Facility at September 30, 1996
bearing interest at 6.13%.
Effective September 19, 1996, a subsidiary of the Company entered into a
$200.0 million mortgage warehouse line with Morgan Stanley Mortgage Capital,
Inc. to finance the purchase of certain mortgage loans. No amount was
outstanding under this facility at September 30, 1996.
During the next twelve months, the Company intends to pursue (i) additional
investment opportunities by acquiring assets both for its own account and as an
investor with various capital partners who acquire such investments, (ii)
acquisitions of new businesses and (iii) expansion of current businesses. The
funds for such acquisitions and investments are anticipated to be provided by
cash flows and borrowings under the Company's Revolving Loan Agreement. As a
result, interest expense for the remainder of 1996 is expected to be higher than
interest expense for the corresponding period in 1995 and 1997 interest expense
is expected to be higher than 1996.
The Company believes its funds on hand of $14.2 million at September 30,
1996, its cash flow from operations, its unused borrowing capacity under its
credit lines ($136.8 under the Revolving Loan Agreement and $849.5 million under
warehouse lines at September 30, 1996, excluding availability under a mortgage
warehouse line which has no stated limit) and its continuing ability to obtain
financing should be sufficient to meet its anticipated operating needs and
capital expenditures, as well as planned new acquisitions and investments, for
at least the next twelve months. The magnitude of the Company's acquisition and
investment program will be governed to some extent by the availability of
capital.
Page 13
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits and Exhibit Index
Exhibit No.
-----------
2 Asset PurchaseAgreement dated October 9, 1996 by and among
AMRESCO Residential Mortgage Corporation, on the one hand,
and Quality Mortgage USA, Inc., Calmac Funding, Inc., DLJ
Mortgage Capital, Inc., DLJ Quality Partners, L.P., Russell
Jedinak and Rebecca Jedinak, on the other hand (incorporated
by reference to Exhibit No. 2.1 to the Company's
Registration Statement on Form S-3, as amended, filed with
the Securities and Exchange Commission on October 23, 1996
(File No. 0-8630)).
4 Indenture, dated as of July 1, 1996, between the Company and
Comerica Bank, as trustee, (incorporated by reference to
Exhibit No. 4.1 to the Company's Current Report on Form 8-K,
dated July 19, 1996).
10.(a) Amended and Restated Master Loan and Security Agreement
among AMRESCO Residential Capital Markets, Inc., AMRESCO
Residential Mortgage Corporation and Morgan Stanley Mortgage
Capital, Inc.
10.(b) Amended and Restated Interim Warehouse and Security
Agreement among AMRESCO Residential Capital Markets, Inc.,
and Prudential Securities Credit Corporation.
10.(c) Third Amendment To First Amended And Restated Revolving Loan
Agreement among AMRESCO, INC. and other entities designated
as Borrowers, and NationsBank of Texas, N.A., as agent for
the Lenders.
11 Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K, dated July 19,
1996, reporting pursuant to Items 5 and 7 of such Form the offering
of Senior Notes. The Registrant filed a Current Report on Form 8-K,
dated November 6, 1996, reporting pursuant to Items 2 and 7 of such
Form the acquisition of Quality Mortgage USA, Inc. The Registrant
filed an amendment to the 8-K dated November 6, 1996 on Form 8K/A,
dated October 25, 1996.
Page 14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMRESCO, INC.
Registrant
Date: November 14, 1996 By: /s/ Barry L. Edwards
--------------------------------
Barry L. Edwards
Executive Vice President
and Chief Financial Officer
Page 15
<PAGE>
Page 1
AMENDED AND RESTATED
MASTER LOAN AND SECURITY AGREEMENT
_____________________________
DATED AS OF OCTOBER 25, 1996
______________________________
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
AS BORROWER
AND
AMRESCO RESIDENTIAL MORTGAGE CORPORATION
AS PLEDGOR
AND
MORGAN STANLEY MORTGAGE CAPITAL INC.
AS LENDER
<PAGE>
Table of Contents
Page
----
RECITALS 1
Section 1. DEFINITIONS AND ACCOUNTING MATTERS. 2
1.01 Certain Defined Terms 2
1.02 Accounting Terms and Determinations 13
Section 2. LOANS, NOTE AND PREPAYMENTS 13
2.01 Loans 13
2.02 Notes 13
2.03 Procedure for Borrowing 14
2.04 Limitation on Types of Loans; Illegality 14
2.05 Repayment of Loans; Interest 15
2.06 Mandatory Prepayments or Pledge 16
Section 3. PAYMENTS; COMPUTATIONS, ETC 16
3.01 Payments 16
3.02 Computations 17
Section 4. COLLATERAL SECURITY 17
4.01 Collateral; Security Interest 17
4.02 Further Documentation 19
4.03 Changes in Locations, Name, etc 19
4.04 Lender's Appointment as Attorney-in-Fact 19
4.05 Performance by Lender of Borrower's Obligations 19
4.06 Proceeds 21
4.07 Remedies 21
4.08 Limitation on Duties Regarding Presentation of Collateral 22
4.09 Powers Coupled with an Interest 22
4.10 Release of Security Interest 22
Section 5. CONDITIONS PRECEDENT 22
5.01 Initial Loan 22
5.02 Initial and Subsequent Loans 23
Section 6. REPRESENTATIONS AND WARRANTIES 25
6.01 Existence 25
-i-
<PAGE>
6.02 Financial Condition 25
6.03 Litigation 26
6.04 No Breach 26
6.05 Action 26
6.06 Approvals 26
6.07 Margin Regulations 26
6.08 Taxes 26
6.09 Investment Company Act 27
6.10 Collateral; Collateral Security 27
6.11 Chief Executive Office 27
6.12 Location of Books and Records 27
6.13 True and Complete Disclosure 28
6.14 Tangible Net Worth 28
6.15 ERISA 28
6.16 Solvency 28
Section 7. COVENANTS OF THE BORROWER 28
7.01 Financial Statements 29
7.02 Litigation 30
7.03 Existence, etc 31
7.04 Prohibition of Fundamental Changes 31
7.05 Borrowing Base Deficiency 31
7.06 Notices 31
7.07 Interest Rate Protection Agreements 32
7.08 Servicing Tape 32
7.09 Credit Criteria 32
7.10 Lines of Business 33
7.11 Transactions with Affiliates 33
7.12 Use of Proceeds 33
7.13 Limitation on Liens 33
7.14 Limitation on Guarantees 33
7.15 Limitation on Sale of Assets 33
7.16 Limitation on Distributions 33
7.17 Organizational Documents 33
7.18 Maintenance of Tangible Net Worth 34
7.19 Maintenance of Ratio of Total Indebtedness to Tangible
Net Worth 34
7.20 Maintenance of Profitability 34
-ii-
<PAGE>
7.21 No Amendment or Waiver 34
Section 8. EVENTS OF DEFAULT 34
Section 9. REMEDIES UPON DEFAULT 36
Section 10. NO DUTY ON LENDER'S PART 36
Section 11. MISCELLANEOUS 36
11.01 Waiver 36
11.02 Notices 37
11.03 Indemnification and Expenses 37
11.04 Amendments 38
11.05 Successors and Assigns 38
11.07 Captions 38
11.08 Counterparts 38
11.09 Loan Agreement Constitutes Security Agreement;
Governing Law 38
11.10 SUBMISSION TO JURISDICTION; WAIVERS 38
11.11 WAIVER OF JURY TRIAL 39
11.12 Acknowledgments 39
11.13 Hypothecation or Pledge of Loans 39
11.14 Servicing 39
11.15 Periodic Due Diligence Review 40
11.16 Intent 41
-iii-
<PAGE>
SCHEDULES
SCHEDULE 1 Eligibility Criteria
SCHEDULE 2 Filing Jurisdictions and Offices
EXHIBITS
- --------
EXHIBIT A Form of Promissory Note
EXHIBIT B Form of Custodial Agreement
EXHIBIT C Form of Opinion of Counsel to the Borrower
EXHIBIT D Credit Criteria for PAG I Credit Mortgage Loans
EXHIBIT E Credit Criteria for PAG II Credit Mortgage Loans
EXHIBIT F Credit Criteria for PAG III Credit Mortgage Loans
EXHIBIT G Credit Criteria for PAG IV Credit Mortgage Loans
EXHIBIT H Credit Criteria for PAG V Credit Mortgage Loans
EXHIBIT I Form of Pledge and Security Agreement
EXHIBIT J Form of Language for Underlying Custodial Agreements
-iv-
<PAGE>
AMENDED AND RESTATED
MASTER LOAN AND SECURITY AGREEMENT
AMENDED AND RESTATED MASTER LOAN AND SECURITY AGREEMENT, dated as of
October 25, 1996, among AMRESCO RESIDENTIAL CAPITAL MARKETS, INC., a Delaware
corporation formerly known as AMRESCO Residential Mortgage Corporation (the
"BORROWER"), AMRESCO RESIDENTIAL MORTGAGE CORPORATION, a Delaware corporation
formerly known as AMRESCO B & C, Inc. (the "PLEDGOR"), and MORGAN STANLEY
MORTGAGE CAPITAL INC., a Delaware corporation (the "LENDER").
RECITALS
AMRESCO Residential Mortgage Corporation entered into the Loan and
Security Agreement, dated September 19, 1996 (the "EXISTING AGREEMENT") with
the Lender to finance the purchase by the Borrower of certain mortgage loans
on the terms and conditions as set forth in the Existing Agreement. On or
about September 25, 1996, the Borrower underwent a name change resulting in
the name of AMRESCO Residential Capital Markets, Inc. On or about September 5,
1996, an affiliate of the Borrower was formed as AMRESCO B & C, Inc. On
or about September 25, 1996, AMRESCO B & C, Inc. underwent a name change
resulting in the name of AMRESCO Residential Mortgage Corporation.
The Pledgor is an Affiliate (as defined herein) of the Borrower which may
from time to time originate residential Mortgage Loans and which may transfer
such Mortgage Loans to the Borrower pursuant to purchase and sale agreements,
pledge agreements or other agreements under which the Pledgor will obtain
consideration from the Borrower in exchange for such transfer (the "AMRESCO
FINANCING ARRANGEMENTS"). Affiliates of the Borrower may also originate or
acquire residential Mortgage Loans which such affiliates will transfer to the
Borrower pursuant to purchase and sale agreements, pledge agreements or other
agreements under which such affiliates will obtain funding from the Borrower
in exchange for such transfer. Other persons that are not affiliates of the
Borrower ("OTHER ORIGINATORS") may originate residential Mortgage Loans and
transfer them to the Borrower pursuant to purchase and sale agreements,
pledge agreements or other agreements under which such Other Originators will
obtain funding from the Borrower in exchange for such transfer.
The Borrower has requested that the Lender from time to time make
revolving credit loans to it to finance (w) the origination or acquisition of
certain Mortgage Loans by the Borrower, (x) the obligations of the Borrower
under the AMRESCO Financing Arrangements, (y) the funding by the Borrower of
the origination or acquisition of Mortgage Loans by Affiliated Originators
and/or (z) the funding by the Borrower of the origination of Mortgage Loans
by Other Originators. The Lender is prepared to make such loans upon the
terms and conditions hereof.
The Borrower and the Lender desire to amend and restate the Existing
Agreement to provide terms and conditions under which the Lender is prepared
to make further loans to the Borrower from and after the date hereof.
The Pledgor shall derive substantial benefit from the agreement between
the Borrower and the Lender set forth herein. In consideration of such
benefit and as an inducement to the Lender to
-1-
<PAGE>
enter into this Agreement, the Pledgor is a party hereto with respect to its
interest in the Mortgage Loans and the AMRESCO Financing Arrangements.
NOW, THEREFORE, the Existing Agreement is hereby amended and restated in
its entirety, as provided in the heading and recitals hereto, to read in its
entirety as follows:
Section 1. DEFINITIONS AND ACCOUNTING MATTERS.
1.01 CERTAIN DEFINED TERMS. As used herein, the following terms shall
have the following meanings (all terms defined in this Section 1.01 or in
other provisions of this Loan Agreement in the singular to have the same
meanings when used in the plural and VICE VERSA):
"AFFILIATE" shall mean, with respect to any Person, any other Person
which, directly or indirectly controls, is controlled by, or is under common
control with, such Person. For purposes of this definition, "control"
(together with the correlative meanings of "controlled by" and "under common
control with") means possession, directly or indirectly, of the power (a) to
vote 30% or more of the securities (on a fully diluted basis) having ordinary
voting power for the directors or managing general partners (or their
equivalent) of such Person, or (b) to direct or cause the direction of the
management or policies of such Person, whether through the ownership of
voting securities, by contract, or otherwise.
"AFFILIATE TRANSFER" shall mean the transfer of Mortgage Loans or any
interest therein by an Affiliate of the Borrower to the Borrower which may be
in connection with an Underlying Loan or otherwise, with respect to which
Mortgage Loans the Custodian has been instructed to hold the Mortgage Loan
Documents for the Lender pursuant to the Custodial Agreement.
"AFFILIATE TRANSFER DOCUMENTS" with respect to any Affiliate Transfer
shall mean all documents and agreements evidencing the Underlying Obligation
or related to the Affiliate Transfer, including without limitation all
agreements pursuant to which any Affiliate of the Borrower transfers the
residential Mortgage Loans or any interest therein or any other collateral
securing the Underlying Obligation, including without limitation all
guarantees, copies of acknowledgment, copies of all Uniform Commercial Code
financing statements and assignments thereof filed in connection with the
Underlying Obligation or in connection with the pledge thereof to the Lender
hereunder.
"AGREEMENT" shall mean this Amended and Restated Master Loan and Security
Agreement, as the same may be further amended, supplemented or otherwise
modified in accordance with the terms hereof.
"APPLICABLE COLLATERAL PERCENTAGE" shall mean (a) in the case of Eligible
Mortgage Loans other than Delinquent Mortgage Loans, 96%, and (b) in the case
of Delinquent Mortgage Loans, 75%.
"APPLICABLE MARGIN" shall mean:
(a) with respect to Loans that are Tranche A Loans and Tranche B Loans,
respectively, and which are secured by the Mortgage Loans, the applicable
rate per annum set forth below for each day that such Loans shall be so
secured:
Tranche A Loans 0.70%
Tranche B Loans 1.00%
-2-
<PAGE>
(b) In determining at any time to what extent Loans shall bear interest
at the Applicable Margin set forth in (a) above, (1) the Collateral Value of
all Eligible Mortgage Loans other than Delinquent Mortgage Loans shall be
taken into account first to determine the Applicable Margin for the
applicable Tranche A Loans, then (2) the Collateral Value of all Eligible
Mortgage Loans which are Delinquent Mortgage Loans shall be taken into
account first to determine the Applicable Margin for the applicable Tranche B
Loans.
"APPROVED ORIGINATOR REPRESENTATIONS" shall mean, with respect to any
Mortgage Loan, the representations and warranties made or given to the
Borrower by the Qualified Originator of such Mortgage Loan in connection with
the origination thereof and reviewed and approved by the Lender in advance,
whether in the underlying Transaction Documents or any purchase agreement.
"ASSET FILE" shall have the meaning assigned thereto in the Custodial
Agreement.
"BANKRUPTCY CODE" shall mean the United States Bankruptcy Code of 1978, as
amended from time to time.
"BASIC COLLATERAL" shall have the meaning assigned to such term in Section
4.01(b) hereof.
"BORROWER" shall have the meaning provided in the heading hereof.
"BORROWER COLLATERAL" shall have the meaning assigned to such term in
Section 4.01(b) hereof.
"BORROWING BASE" shall mean the aggregate Collateral Value of all
Eligible Mortgage Loans.
"BORROWING BASE DEFICIENCY" shall have the meaning provided in Section
2.06 hereof.
"BUSINESS DAY" shall mean any day other than (i) a Saturday or Sunday, or
(ii) a day in which the New York Stock Exchange, the Federal Reserve Bank of
New York or the Custodian is authorized or obligated by law or executive
order to be closed.
"CAPITAL LEASE OBLIGATIONS" shall mean, for any Person, all obligations
of such Person to pay rent or other amounts under a lease of (or other
agreement conveying the right to use) Property to the extent such obligations
are required to be classified and accounted for as a capital lease on a
balance sheet of such Person under GAAP, and, for purposes of this Loan
Agreement, the amount of such obligations shall be the capitalized amount
thereof, determined in accordance with GAAP.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time to
time.
"COLLATERAL" shall have the meaning assigned to such term in Section
4.01(b) hereof.
"COLLATERAL DEPOSIT ACCOUNT" shall mean any account established pursuant
to any Underlying Custodial Agreement into which an Underlying Obligor is to
pay any and all proceeds of sale of any Mortgage Loan or Mortgage Loans or
payments or prepayments of any repurchase obligation with respect thereto to
be paid by it to the Borrower.
-3-
<PAGE>
"COLLATERAL VALUE" shall mean, with respect to each Mortgage Loan, the
lesser of (a) the Applicable Collateral Percentage of the Market Value of
such Mortgage Loan, and (b) 100% of the outstanding principal balance of such
Mortgage Loan; PROVIDED, THAT,
(i) the Collateral Value shall be deemed to be zero with respect
to each Eligible Mortgage Loan (1) in respect of which (a) the
eligibility criteria set forth on Part I of Schedule 1 are not met or
(b) the eligibility criteria with respect to the related Underlying
Transaction set forth on Part II of Schedule 1 are not met (assuming,
in the cases identified in clauses (a) and (b) above, that such
eligibility criteria are examined as of the date Collateral Value is
determined), (2) in respect of which there is a delinquency in the
payment of principal and/or interest which continues for a period in
excess of (A) 29 days for any Mortgage Loan other than a Delinquent
Mortgage Loan or (B) 59 days for any Delinquent Mortgage Loan (in
either case, without regard to any applicable grace periods), (3) which
remains pledged to the Lender hereunder later than 180 days after the
date on which it is first included in the Collateral, (4) which has
been released from the possession of the Custodian under the Custodial
Agreement to the Borrower for a period in excess of 14 days or (5)
which is a Wet-Ink Mortgage Loan and for which the Custodian has failed
to receive the related Mortgage Loan Documents on the tenth Business
Day following the applicable Funding Date; and
(ii) the aggregate Collateral Value of Mortgage Loans which the
related Mortgaged Property is located in an Unacceptable State may not
exceed 1% of the Maximum Credit; and
(iii) the aggregate Collateral Value of Mortgage Loans which the
related Mortgaged Property is a manufactured dwelling may not exceed 5%
of the Maximum Credit; and
(iv) the aggregate Collateral Value of Mortgage Loans which the
related Mortgage Note provides for a balloon payment at maturity may
not exceed 5% of the Maximum Credit; and
(v) the aggregate Collateral Value of Mortgage Loans which are
Delinquent Mortgage Loans may not exceed 2% of the aggregate
outstanding principal balance of the Loans at any time; and
(vi) the aggregate Collateral Value of Mortgage Loans which are
Wet-Ink Mortgage Loans may not exceed 10% of the Maximum Credit at any
time; and
(vii) subject to clauses (i)(5) and (vi) above, the aggregate
Collateral Value of Mortgage Loans which are Wet-Ink Mortgage Loans for
a period of time in excess of five (5) Business Days may not exceed
$10,000,000;
(viii) the aggregate Collateral Value of Second Lien Mortgage
Loans may not exceed 10% of the Maximum Credit; and
(ix) the aggregate Collateral Value of Mortgage Loans related to
an Underlying Obligation may not exceed the lesser of (x) the Market
Value of such Eligible Underlying Obligation and (y) the outstanding
principal balance of such Eligible Underlying Obligation.
"CREDIT CRITERIA" shall mean collectively, the credit criteria attached
as EXHIBITS D, E, F, G and H hereto.
-4-
<PAGE>
"CUSTODIAL AGREEMENT" shall mean the Amended and Restated Master Custodial
Agreement, dated as of November 1, 1995, between the Borrower and the Custodian
as attached hereto as EXHIBIT B, as amended by that certain Addendum to the
Custodial Agreement, dated as of September 19, 1996, among the Borrower, the
Lender and the Custodian, as the same shall be modified and supplemented and in
effect from time to time.
"CUSTODIAN" shall mean Bankers Trust Company of California, N.A., its
successors and permitted assigns.
"DEFAULT" shall mean an Event of Default or an event that with notice or
lapse of time or both would become an Event of Default.
"DELINQUENT MORTGAGE LOAN" shall mean an Eligible Mortgage Loan which
is more than 29 days, but not more than 59 days, delinquent (without regard
to any applicable grace period).
"DISCREPANCY" shall have the meaning assigned to such term in Section
2.05(c) hereof.
"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"DUE DILIGENCE REVIEW" shall mean the performance by the Lender of
any or all of the reviews permitted under Section 11.15 hereof with respect
to any or all of the Mortgage Loans or Underlying Transactions, as desired by
the Lender from time to time.
"EFFECTIVE DATE" shall mean the date upon which the conditions precedent
set forth in Section 5.01 shall have been satisfied.
"ELIGIBLE MORTGAGE LOAN" shall mean a Mortgage Loan secured by a first
or second mortgage lien on a one-to-four family residential property, as to
which the eligibility criteria in Section 6.10 and Schedule 1 hereof have
been met and which is a PAG I Credit Mortgage Loan, a PAG II Credit Mortgage
Loan, a PAG III Credit Mortgage Loan, a PAG IV Credit Mortgage Loan, or a PAG
V Credit Mortgage Loan.
"ELIGIBLE UNDERLYING OBLIGATION" shall mean an Underlying Obligation and
a related Underlying Transaction as to which the eligibility criteria in
Section 6.10 and Part II of Schedule 1 hereof are met.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"ERISA AFFILIATE" shall mean any corporation or trade or business that is a
member of any group of organizations (i) described in Section 414(b) or (c)
of the Code of which the Borrower is a member and (ii) solely for purposes of
potential liability under Section 302(c)(11) of ERISA and Section 412(c)(11)
of the Code and the lien created under Section 302(f) of ERISA and Section
412(n) of the Code, described in Section 414(m) or (o) of the Code of which
the Borrower is a member.
"EUROCURRENCY RESERVE REQUIREMENTS" shall mean for any day as applied to
a Loan, the aggregate (without duplication) of the rates (expressed as a
decimal fraction) of reserve requirements in effect on such day (including,
without limitation, basic, supplemental, marginal and emergency reserves
under any regulations of the Board of Governors of the Federal Reserve System
or other Governmental Authority having jurisdiction with respect thereto),
dealing with reserve
-5-
<PAGE>
requirements prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained by a
member bank of such Governmental Authority.
"EURODOLLAR BASE RATE" shall mean with respect to each day a Loan is
outstanding (or if such day is not a Business Day, the next succeeding
Business Day), the rate per annum equal to the rate appearing at page 5 of
the Telerate Screen as one-month LIBOR on such date, and if such rate shall
not be so quoted, the rate per annum at which the Lender is offered Dollar
deposits at or about 10:00 A.M., New York City time, on such date by prime
banks in the interbank eurodollar market where the eurodollar and foreign
currency and exchange operations in respect of its Loans are then being
conducted for delivery on such day for a period of 30 days and in an amount
comparable to the amount of the Loans to be outstanding on such day.
"EURODOLLAR RATE" shall mean with respect to each day a Loan is
outstanding, a rate per annum determined by the Lender in its sole discretion
in accordance with the following formula (rounded upwards to the nearest
1/100th of one percent), which rate as determined by the Lender shall be
conclusive absent manifest error by the Lender:
Eurodollar Base Rate
--------------------
1.00 - Eurocurrency Reserve Requirements
"EVENT OF DEFAULT" shall have the meaning assigned thereto in Section 8
hereof.
"FEDERAL FUNDS RATE" shall mean, for any day, the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published on the next
succeeding Business Day by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of
the quotations for the day of such transactions received by the Lender from
three federal funds brokers of recognized standing selected by it.
"FUNDING DATE" shall mean the date on which a Loan is made hereunder.
"GAAP" shall mean generally accepted accounting principles as in effect
from time to time in the United States.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state
or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government and any court or arbitrator having jurisdiction over
the Borrower, any of its Subsidiaries or any of its properties.
"GUARANTEE" shall mean, as to any Person, any obligation of such Person
directly or indirectly guaranteeing any Indebtedness of any other Person or
in any manner providing for the payment of any Indebtedness of any other
Person or otherwise protecting the holder of such Indebtedness against loss
(whether by virtue of partnership arrangements, by agreement to keep-well, to
purchase assets, goods, securities or services, or to take-or-pay or
otherwise), provided that the term "Guarantee" shall not include (i)
endorsements for collection or deposit in the ordinary course of business, or
(ii) obligations to make servicing advances for delinquent taxes and
insurance, or other obligations in respect of a Mortgaged Property, to the
extent required by the Lender. The amount of any Guarantee of a Person shall
be deemed to be an amount equal to the stated or determinable amount of the
primary obligation in respect of which such Guarantee is made or, if not
stated or determinable,
-6-
<PAGE>
the maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith. The terms "GUARANTEE" and "GUARANTEED" used as
verbs shall have correlative meanings.
"INDEBTEDNESS" shall mean, for any Person: (a) obligations created,
issued or incurred by such Person for borrowed money (whether by loan, the
issuance and sale of debt securities or the sale of Property to another
Person subject to an understanding or agreement, contingent or otherwise, to
repurchase such Property from such Person); (b) obligations of such Person to
pay the deferred purchase or acquisition price of Property or services, other
than trade accounts payable (other than for borrowed money) arising, and
accrued expenses incurred, in the ordinary course of business so long as such
trade accounts payable are payable within 90 days of the date the respective
goods are delivered or the respective services are rendered; (c) Indebtedness
of others secured by a Lien on the Property of such Person, whether or not
the respective Indebtedness so secured has been assumed by such Person; (d)
obligations (contingent or otherwise) of such Person in respect of letters of
credit or similar instruments issued or accepted by banks and other financial
institutions for account of such Person; (e) Capital Lease Obligations of
such Person; (f) obligations of such Person under repurchase agreements or
like arrangements; (g) Indebtedness of others Guaranteed by such Person; (h)
all obligations of such Person incurred in connection with the acquisition or
carrying of fixed assets by such Person; and (i) Indebtedness of general
partnerships of which such Person is a general partner.
"INTEREST RATE PROTECTION AGREEMENT" shall mean with respect to any or all
of the Mortgage Loans any interest rate swap, cap or collar agreement or
similar arrangements providing for protection against fluctuations in
interest rates or the exchange of nominal interest obligations, either
generally or under specific contingencies, entered into by the Borrower with
MS & Co. or its affiliate, and reasonably acceptable to the Lender.
"INTEREST RECALCULATION" shall have the meaning assigned to such term in
Section 2.05(c) hereof.
"LENDER" shall have the meaning assigned thereto in the heading hereto.
"LIEN" shall mean any mortgage, lien, pledge, charge, security interest or
similar encumbrance.
"LOAN" shall have the meaning specified in Section 2.01(a) hereof.
"LOAN AGREEMENT" shall mean this Master Loan and Security Agreement, as may
be amended, supplemented or otherwise modified from time to time.
"LOAN DOCUMENTS" shall mean, collectively, this Loan Agreement, the Note,
the Custodial Agreement and each Pledge Agreement.
"LOAN PARTIES" shall mean, collectively, the Borrower and the Pledgor; each
individually, a "LOAN PARTY".
"MAPPING MATERIALS" shall mean the materials used by the Borrower in order to
translate the Qualified Originator's classification of each Mortgagor's credit
rating under the Underwriting Guidelines into a classification under the Credit
Criteria (i.e., a PAG I, PAG II, PAG III, PAG IV, or PAG V Credit Mortgage
Loan).
-7-
<PAGE>
"MARKET VALUE" shall mean as of any date in respect of an Eligible Mortgage
Loan, the price at which such Eligible Mortgage Loan could readily be sold as
determined in good faith by the Lender, which price may be determined to be
zero. The Lender's determination of Market Value shall be conclusive upon the
parties absent manifest error on the part of the Lender.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a) the
Property, business, operations, financial condition or prospects of the
Borrower, (b) the ability of the Borrower to perform its obligations under
any of the Loan Documents to which it is a party, (c) the validity or
enforceability of any of the Loan Documents, (d) the rights and remedies of
the Lender under any of the Loan Documents, (e) the timely payment of the
principal of or interest on the Loans or other amounts payable in connection
therewith or (f) the Collateral.
"MAXIMUM CREDIT" shall mean $200,000,000.
"MISCLASSIFIED MORTGAGE LOAN" shall have the meaning specified in Section
2.05(c) hereof.
"MORTGAGE" shall mean the mortgage, deed of trust or other instrument
securing a Mortgage Note, which creates a first lien on the fee in real
property securing the Mortgage Note.
"MORTGAGE FILE" shall have the meaning assigned thereto in the Custodial
Agreement.
"MORTGAGE LOAN" shall mean a mortgage loan which the Custodian has been
instructed to hold for the Lender, and which Mortgage Loan includes, without
limitation, (i) a Mortgage Note and related Mortgage and (ii) all right, title
and interest of the Borrower and the Underlying Obligor, if any, in and to the
Mortgaged Property covered by such Mortgage; provided that Mortgage Loans for
which the Collateral Value is zero shall not be included in the definition of
"Mortgage Loan" as used herein.
"MORTGAGE LOAN DOCUMENTS" shall mean, with respect to a Mortgage Loan, the
documents comprising the Mortgage File for such Mortgage Loan.
"MORTGAGE LOAN SCHEDULE" shall have the meaning assigned to the term "Loan
Schedule" in the Custodial Agreement.
"MORTGAGE LOAN TAPE" shall mean a computer-readable magnetic tape
containing the following information with respect to each Mortgage Loan, to
be delivered by the Borrower to the Lender pursuant to Section 2.03(a)
hereof: (i) a field detailing whether the Mortgage Loan is a PAG I Credit
Mortgage Loan, a PAG II Credit Mortgage Loan, a PAG III Credit Mortgage Loan,
a PAG IV Credit Mortgage Loan or a PAG V Credit Mortgage Loan; (ii) a field
indicating whether the Mortgage Loan is a Wet-Ink Mortgage Loan or a
Delinquent Mortgage Loan; and other tape fields to be mutually agreed upon by
Borrower and Lender.
"MORTGAGE LOAN SUMMARY" shall mean the report prepared by the Custodian
and delivered to the Lender in accordance with Section 3(b) of the Custodial
Agreement on any Funding Date and within ten days after the end of each month
on which the Custodian holds the Mortgage Files under the Custodial Agreement
for such month and date, and upon request of the Lender.
"MORTGAGE NOTE" shall mean the original executed promissory note or other
evidence of the indebtedness of a mortgagor/borrower with respect to a
Mortgage Loan.
-8-
<PAGE>
"MORTGAGED PROPERTY" means the real property (including all improvements,
buildings, fixtures, building equipment and personal property thereon and all
additions, alterations and replacements made at any time with respect to the
foregoing) and all other collateral securing repayment of the debt evidenced
by a Mortgage Note.
"MORTGAGOR" means the obligor on a Mortgage Note.
"MS & CO." shall mean Morgan Stanley & Co. Incorporated, a registered
broker-dealer.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan defined as such in
Section 3(37) of ERISA to which contributions have been or are required to be
made by the Borrower or any ERISA Affiliate and that is covered by Title IV
of ERISA.
"NET INCOME" shall mean, for any period, the net income of the Borrower
for such period as determined in accordance with GAAP.
"NOTE" shall mean the promissory note provided for by Section 2.02(a)
hereof for Loans and any promissory note delivered in substitution or
exchange therefor, in each case as the same shall be modified and
supplemented and in effect from time to time.
"PAG I CREDIT MORTGAGE LOAN" shall mean a Mortgage Loan originated or
acquired by the Borrower to which the related Qualified Originator has
assigned a rating classified as PAG I in accordance with the PAG I Credit
Criteria attached as EXHIBIT D hereto and which is underwritten in accordance
with the applicable Underwriting Guidelines.
"PAG II CREDIT MORTGAGE LOAN" shall mean a Mortgage Loan originated or
acquired by the Borrower to which the related Qualified Originator has
assigned a rating classified as PAG II in accordance with the PAG II Credit
Criteria attached as EXHIBIT E hereto and which is underwritten in accordance
with the applicable Underwriting Guidelines.
"PAG III CREDIT MORTGAGE LOAN" shall mean a Mortgage Loan originated or
acquired by the Borrower to which the related Qualified Originator has
assigned a rating classified as PAG III in accordance with the PAG III Credit
Criteria attached as EXHIBIT F hereto and which is underwritten in accordance
with the applicable Underwriting Guidelines.
"PAG IV CREDIT MORTGAGE LOAN" shall mean a Mortgage Loan originated or
acquired by the Borrower to which the related Qualified Originator has
assigned a rating classified as PAG IV in accordance with the PAG IV Credit
Criteria attached as EXHIBIT G hereto and which is underwritten in accordance
with the applicable Underwriting Guidelines.
"PAG V CREDIT MORTGAGE LOAN" shall mean a Mortgage Loan originated or
acquired by the Borrower to which the related Qualified Originator has
assigned a rating classified as PAG V in accordance with the PAG V Credit
Criteria attached as EXHIBIT H hereto and which is underwritten in accordance
with the applicable Underwriting Guidelines.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
-9-
<PAGE>
"PERSON" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, limited liability company, trust,
unincorporated association or government (or any agency, instrumentality or
political subdivision thereof).
"PLAN" shall mean an employee benefit or other plan established or
maintained by the Borrower or any ERISA Affiliate and that is covered by
Title IV of ERISA, other than a Multiemployer Plan.
"PLEDGE AGREEMENT" shall mean an agreement substantially in the form of
EXHIBIT I hereto, which shall be entered into between each Underlying Obligor
that is an Affiliate of the Borrower and the Lender.
"PLEDGOR" shall have the meaning provided in the heading hereof.
"PLEDGOR COLLATERAL" shall have the meaning assigned to such term in
Section 4.01(b) hereof.
"POST-DEFAULT RATE" shall mean, in respect of any principal of any Loan or
any other amount under this Loan Agreement, the Note or any other Loan
Document that is not paid when due to the Lender (whether at stated maturity,
by acceleration, by optional or mandatory prepayment or otherwise), a rate
per annum during the period from and including the due date to but excluding
the date on which such amount is paid in full equal to 2% per annum PLUS the
Prime Rate.
"PRIME RATE" SHALL MEAN The prime rate announced to be in effect from time
to time, as published as the average rate in THE WALL STREET JOURNAL.
"PROPERTY" shall mean any right or interest in or to property of any kind
whatsoever, whether real, personal or mixed and whether tangible or
intangible.
"QUALIFIED ORIGINATOR" means (a) the Borrower, (b) the Pledgor and (c) any
other originator of Mortgage Loans reasonably acceptable to the Lender,
whether or not an Affiliate of the Borrower.
"REGULATIONS G, T, U AND X" shall mean Regulations G, T, U and X of the
Board of Governors of the Federal Reserve System (or any successor), as the
same may be modified and supplemented and in effect from time to time.
"RESPONSIBLE OFFICER" shall mean, as to any Person, the chief executive
officer, President or any Vice President or, with respect to financial
matters, the chief financial officer, chief accounting officer or any senior
Vice President of such Person.
"SECOND LIEN" shall mean with respect to each Mortgaged Property, the
lien of the mortgage, deed of trust or other instrument securing a mortgage
note which creates a second lien on the Mortgaged Property.
"SECURED OBLIGATIONS" shall have the meaning assigned thereto in Section
4.01(c) hereof.
"SERVICER" shall have the meaning assigned thereto in Section 11.14(c)
hereof.
-10-
<PAGE>
"SERVICING AGREEMENT" shall have the meaning assigned thereto in Section
11.14(c) hereof.
"SERVICING FILE" means with respect to each Mortgage Loan, the file
retained by the Borrower or the Servicer consisting of originals of all
documents in the Mortgage File which are not delivered to a Custodian and
copies of the Mortgage Loan Documents set forth in Section 2 of the Custodial
Agreement.
"SERVICING RECORDS" shall have the meaning assigned thereto in Section
11.14(b) hereof.
"SETTLEMENT AGENT" shall mean, with respect to any Loan related to a
Wet-Ink Mortgage Loan, any entity approved or selected by the Qualified
Originator and not disapproved by the Lender in its reasonable discretion
(which may be a title company, escrow company or attorney in accordance with
local law and practice in the jurisdiction where the related Wet-Ink Mortgage
Loan is being originated) to which the proceeds of such Loan are to be wired
pursuant to the instructions of the Lender.
"SUBSIDIARY" shall mean, with respect to any Person, any corporation,
partnership or other entity of which at least a majority of the securities or
other ownership interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors or other persons performing
similar functions of such corporation, partnership or other entity
(irrespective of whether or not at the time securities or other ownership
interests of any other class or classes of such corporation, partnership or
other entity shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned or controlled
by such Person or one or more Subsidiaries of such Person or by such Person
and one or more Subsidiaries of such Person.
"TANGIBLE NET WORTH" shall mean, as of a particular date,
(a) all amounts which would be included under capital on a balance sheet
of the Borrower at such date, determined in accordance with GAAP, LESS
(b) (i) amounts owing to the Borrower from Affiliates other than AMRESCO,
Inc. and (ii) intangible assets, as determined in accordance with GAAP.
"TERMINATION DATE" shall mean October 24, 1997 or such earlier date on
which this Loan Agreement shall terminate in accordance with the provisions
hereof or by operation of law.
"TEST PERIOD" shall have the meaning assigned to such term in Section 7.20
hereof.
"TOTAL INDEBTEDNESS" shall mean, for any period, the aggregate
Indebtedness of the Borrower during such period LESS the amount of any
nonspecific balance sheet reserves maintained in accordance with GAAP.
"TRANCHE A LOANS" shall mean Loans so long as, and to the extent that,
they are secured by Eligible Mortgage Loans other than Delinquent Mortgage
Loans.
"TRANCHE B LOANS" shall mean Loans so long as, and to the extent that,
they are secured by Delinquent Mortgage Loans.
-11-
<PAGE>
"UNACCEPTABLE STATE" shall mean the states of Alaska, Alabama and
Louisiana, and any other state notified by the Lender to the Borrower from
time to time as determined by the Lender in its sole discretion.
"UNDERLYING CUSTODIAL AGREEMENT" shall mean a custodial agreement among
the Custodian, the Borrower and an Underlying Obligor, containing language in
the form of EXHIBIT J hereto, as such custodial agreement may be modified,
supplemented and in effect from time to time.
"UNDERLYING LOAN" shall mean (i) the purchase of the Mortgage Loans by the
Borrower, subject to the repurchase obligation of an Underlying Obligor to
the Borrower or (ii) the extension of funds or other lending arrangements by
the Borrower to the Underlying Obligor, in either case secured by a pool of
Mortgage Loans owned by the Underlying Obligor with respect to which (x)
either the Custodian has been instructed to hold the Underlying Loan
Documents for the Lender pursuant to the Custodial Agreement or the Lender
possesses such Underlying Loan Documents and (y) the Custodian has been
instructed to hold the Mortgage Loan Documents for the Lender pursuant to the
Custodial Agreement. The term "Underlying Loan" includes, without
limitation, the Underlying Obligation, any Underlying Note, the Underlying
Loan Documents and all right, title and interest of the Borrower as secured
party in and to the Mortgage Notes and Mortgages and all other collateral
securing such Underlying Obligation and all guarantees of such Underlying
Loan.
"UNDERLYING LOAN DOCUMENTS" with respect to any Underlying Loan shall mean
any repurchase or loan agreements between the Borrower and the Underlying
Obligor, any document or agreement evidencing any Underlying Obligation,
including without limitation any Underlying Note, any loan agreement between
the Borrower and the Underlying Obligor, all agreements pursuant to which the
Underlying Obligor pledges the Mortgage Loans and any other collateral
securing such Underlying Loan to the Borrower, all guarantees, copies of
acknowledgment copies of all Uniform Commercial Code financing statements and
assignments thereof filed in connection with the Underlying Loan or in
connection with the pledge thereof and the rehypothecation of the related
Mortgage Loans to the Lender hereunder, all interest rate swap, cap, collar
agreements or similar arrangements providing for the protection against
fluctuation in interest rates or the exchange of nominal interest
obligations, the Underlying Custodial Agreement and all other documents
related to such Underlying Loan (including the related Mortgage Loans and
any other collateral for such Underlying Loan).
"UNDERLYING NOTE" shall mean the original executed promissory note or
other evidence of indebtedness with respect to an Underlying Loan.
"UNDERLYING OBLIGATION" shall mean the obligations of any Underlying
Obligor with respect to an Underlying Transaction.
"UNDERLYING OBLIGOR" shall mean a Qualified Originator which is either (a)
an Affiliate of the Borrower which is party to an Affiliate Transfer or (b) a
Person which is not an Affiliate of the Borrower and is party to an
Underlying Loan.
"UNDERLYING TRANSACTION" shall mean an Affiliate Transfer or Underlying
Loan, as applicable.
"UNDERLYING TRANSACTION DOCUMENTS" shall mean Affiliate Transfer Documents
or Underlying Loan Documents, as applicable.
-12-
<PAGE>
"UNDERWRITING GUIDELINES" shall mean the underwriting guidelines of the
Qualified Originator of Mortgage Loans pledged to the Lender hereunder.
"UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as in
effect on the date hereof in the State of New York; provided that if by
reason of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of the security interest in any Collateral is
governed by the Uniform Commercial Code as in effect in a jurisdiction other
than New York, "Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect in such other jurisdiction for purposes of the provisions
hereof relating to such perfection or effect of perfection or non-perfection.
"WET-INK MORTGAGE LOAN" shall mean a Mortgage Loan which is pledged to the
Lender simultaneously with the origination thereof by the Qualified
Originator, which origination is financed in part or in whole with proceeds
of Loans remitted directly to a Settlement Agent.
1.02 ACCOUNTING TERMS AND DETERMINATIONS. Except as otherwise expressly
provided herein, all accounting terms used herein shall be interpreted, and
all financial statements and certificates and reports as to financial matters
required to be delivered to the Lender hereunder shall be prepared, in
accordance with GAAP.
Section 2. LOANS, NOTE AND PREPAYMENTS
2.01 LOANS.
(a) Subject to fulfillment of the conditions precedent set forth in
Sections 5.01 and 5.02 hereof, and provided that no Default shall have
occurred and be continuing hereunder, the Lender agrees from time to time, on
the terms and conditions of this Loan Agreement, to make loans (individually,
a "LOAN"; collectively, the "LOANS") to the Borrower in Dollars, from and
including the Effective Date to and including the Termination Date in an
aggregate principal amount at any one time outstanding up to but not
exceeding the Maximum Credit as in effect from time to time.
(b) Subject to the terms and conditions of this Loan Agreement, during
such period the Borrower may borrow, repay and reborrow hereunder.
(c) In no event shall a Loan be made when any Default or Event of Default
has occurred and is continuing.
2.02 NOTE.
(a) The Loans made by the Lender shall be evidenced by a single
promissory note of the Borrower substantially in the form of EXHIBIT A hereto
(the "NOTE"), dated the date hereof, payable to the Lender in a principal
amount equal to the amount of the Maximum Credit as originally in effect and
otherwise duly completed. The Lender shall have the right to have its Note
subdivided, by exchange for promissory notes of lesser denominations or
otherwise, at the Lender's sole cost.
(b) The date, amount and interest rate of each Loan made by the Lender to
the Borrower, and each payment made on account of the principal thereof,
shall be recorded by the Lender on its books and, prior to any transfer of
the Note, endorsed by the Lender on the schedule attached to the Note or any
continuation thereof; PROVIDED, that the failure of the Lender to make any
such
-13-
<PAGE>
recordation or endorsement shall not affect the obligations of the Borrower
to make a payment when due of any amount owing hereunder or under the Note in
respect of the Loans.
2.03 PROCEDURE FOR BORROWING.
(a) The Borrower may request a borrowing hereunder, on any Business Day
during the period from and including the Effective Date to and including the
Termination Date, by delivering to the Lender, with a copy to the Custodian,
an irrevocable written request for borrowing, which request must be received
by the Lender prior to 2:00 p.m., New York City time, on the requested
Funding Date. Such request for borrowing shall (i) attach a schedule
identifying the Eligible Mortgage Loans that the Borrower proposes to pledge
to the Lender and to be included in the Borrowing Base in connection with
such borrowing, (ii) specify the requested Funding Date and (iii) include a
Mortgage Loan Tape containing information with respect to the Eligible
Mortgage Loans that the Borrower proposes to pledge to the Lender and to be
included in the Borrowing Base in connection with such borrowing.
(b) Upon the Borrower's request for a borrowing pursuant to this Section
2.03(a), the Lender shall, assuming all conditions precedent set forth in
Section 5.01 and 5.02 have been met and provided no Default shall have
occurred and be continuing, make a Loan to the Borrower on the requested
Funding Date, in the amount so requested.
(c) The Borrower shall release to the Custodian no later than 12:00 noon,
Custodian's time, on the requested Funding Date, the Mortgage File pertaining
to each Eligible Mortgage Loan (other than a Wet-Ink Mortgage Loan) to be
pledged to the Lender and included in the Borrowing Base on such requested
Funding Date, in accordance with the terms and conditions of the Custodial
Agreement.
(d) Pursuant to the Custodial Agreement, the Custodian shall deliver to the
Lender and the Borrower, no later than 3:00 p.m., New York City time, on a
Funding Date, a Trust Receipt and a Mortgage Loan Schedule and Exception
Report (each as defined in the Custodial Agreement) in respect of all
Mortgage Loans and Underlying Obligations pledged to the Lender on such
Funding Date. Subject to Section 5 hereof, such borrowing will then be made
available to the Borrower by the Lender's transferring the aggregate amount
of such borrowing in funds immediately available to the Borrower, on such
Funding Date, via wire transfer to the following account of the Borrower:
Account no. 1295188388, NationsBank of Texas, Dallas, Texas, ABA #111000025,
for the A/C of AMRESCO Residential Capital Markets Operating Account, Attn:
Nick Polyak, or as otherwise specified in the request for borrowing delivered
by the Borrower pursuant to clause (a) above.
2.04 LIMITATION ON TYPES OF LOANS; ILLEGALITY. Anything herein to the
contrary notwithstanding, if, on or prior to the determination of any
Eurodollar Base Rate:
(a) the Lender determines, which determination shall be conclusive, that
quotations of interest rates for the relevant deposits referred to in the
definition of "Eurodollar Base Rate" in Section 1.01 hereof are not being
provided in the relevant amounts or for the relevant maturities for purposes
of determining rates of interest for Loans as provided herein; or
(b) the Lender determines, which determination shall be conclusive, that
the relevant rate of interest referred to in the definition of "Eurodollar
Base Rate" in Section 1.01
-14-
<PAGE>
hereof upon the basis of which the rate of interest for Loans is to be
determined is not likely adequately to cover the cost to the Lender of making
or maintaining Loans; or
(c) it becomes unlawful for the Lender to honor its obligation to make or
maintain Loans hereunder using a Eurodollar Rate;
then the Lender shall give the Borrower prompt notice thereof and, so long
as such condition remains in effect, the Lender shall be under no obligation
to make additional Loans, and the Borrower shall, either prepay such Loans or
pay interest on such Loans at a rate per annum equal to the Federal Funds
Rate plus 1%.
2.05 REPAYMENT OF LOANS; INTEREST.
(a) The Borrower hereby promises to repay in full on the Termination
Date, or in full or in part on the date of any required prepayment pursuant
to Section 2.06(a), the then aggregate outstanding principal amount of the
Loans.
(b) The Borrower hereby promises to pay to the Lender interest on the
unpaid principal amount of each Loan for the period from and including the
date of such Loan to but excluding the date such Loan shall be paid in full,
at a rate per annum equal to the Eurodollar Rate PLUS the Applicable Margin.
Notwithstanding the foregoing, the Borrower hereby promises to pay to the
Lender interest at the applicable Post-Default Rate on any principal of any
Loan and on any other amount payable by the Borrower hereunder or under the
Note, that shall not be paid in full when due (whether at stated maturity, by
acceleration or by mandatory prepayment or otherwise), for the period from
and including the due date thereof to but excluding the date the same is paid
in full. Accrued interest on each Loan shall be payable monthly on the first
Business Day of each month and for the last month of the Loan Agreement on
the first Business Day of such last month and on the Termination Date, except
that interest payable at the Post-Default Rate shall accrue daily and shall
be payable upon such accrual. Promptly after the determination of any
interest rate provided for herein or any change therein, the Lender shall
give notice thereof to the Borrower.
(c) Following each Funding Date and from time to time (as further
described in Section 11.15 hereof), the Lender shall have the right to
perform a Due Diligence Review with respect to any or all of the Mortgage
Loans. In the event that the Lender discovers any discrepancy between the
information set forth on the Mortgage Loan Tape and the information
discovered as a result of the Lender's Due Diligence Review (in each case, a
"DISCREPANCY"), then the Lender shall give notice thereof to the Borrower and
the Borrower shall promptly correct the information set forth on the related
Mortgage Loan Tape. In the event that any Discrepancy affects the
classification of a Mortgage Loan as a non-Delinquent Mortgage Loan or a
Delinquent Mortgage Loan (in each case, a "MISCLASSIFIED MORTGAGE LOAN"),
then the Lender shall recalculate the accrued interest on the Loans
outstanding during the period of time during which such Misclassified
Mortgage Loan was pledged to the Lender hereunder (in each case, an "INTEREST
RECALCULATION"), using the Applicable Margin which would have been applied
for the Loans then outstanding if such Misclassified Mortgage Loan had been
properly classified. The Borrower shall promptly remit to the Lender the
excess (if any) of the Interest Recalculation over the accrued interest
previously calculated and paid by the Borrower for the affected period of
time. The Lender shall promptly remit to the Borrower the excess (if any) of
the accrued interest previously calculated and paid by the Borrower for the
affected period of time over the Interest Recalculation.
-15-
<PAGE>
2.06 MANDATORY PREPAYMENTS OR PLEDGE; PAYMENTS ON UNDERLYING LOANS.
(a) If at any time the aggregate outstanding principal amount of Loans
exceeds the Borrowing Base (a "BORROWING BASE DEFICIENCY"), as determined by
the Lender and notified to the Borrower on any Business Day, the Borrower
shall no later than one Business Day after receipt of such notice, either
prepay the Loans in part or in whole or pledge additional Eligible Mortgage
Loans (which Collateral shall be in all respects acceptable to the Lender) to
the Lender, such that after giving effect to such prepayment or pledge the
aggregate outstanding principal amount of the Loans does not exceed the
Borrowing Base.
(b) The Borrower shall instruct each Underlying Obligor to remit all
proceeds of sale of any Mortgage Loan or Mortgage Loans (other than sales of
Mortgage Loans (which continued to be pledged to the Lender hereunder) by the
Underlying Obligor to the Borrower), or principal payments or prepayments of
any Underlying Obligation with respect thereto ("PRINCIPAL PROCEEDS") to the
Collateral Deposit Account established pursuant to the applicable Underlying
Custodial Agreement. Any and all Principal Proceeds received by the Lender
pursuant to the Custodial Agreement (whether or not such payments represent
remittances from a Collateral Deposit Account) shall be applied to amounts
outstanding under the Loans in such order as Lender may elect. If the
Borrower receives any Principal Proceeds in respect of an Underlying
Transaction, it shall hold such payments in trust for the Lender, segregated
from all other funds of the Borrower, and immediately turn such payment over
to the Lender, in the exact form received, with any necessary endorsements,
for application by the Lender to amounts outstanding under the Loans in such
order as Lender may elect.
Section 3. PAYMENTS; COMPUTATIONS; ETC.
3.01 PAYMENTS.
(a) Except to the extent otherwise provided herein, all payments of
principal, interest and other amounts to be made by the Borrower under this
Loan Agreement and the Note, shall be made in Dollars, in immediately
available funds, without deduction, set-off or counterclaim, to the Lender at
the following account maintained by the Lender: Account No. 40615114,
Citibank, N.A., ABA# 021000089, For the A/C of MSMCI, Ref: AMRESCO
Residential Capital Markets, Inc., not later than 1:00 p.m., New York City
time, on the date on which such payment shall become due (each such payment
made after such time on such due date to be deemed to have been made on the
next succeeding Business Day). The Borrower acknowledges that it has no
rights of withdrawal from the foregoing account.
(b) Except to the extent otherwise expressly provided herein, if the due
date of any payment under this Loan Agreement or the Note would otherwise
fall on a day that is not a Business Day, such date shall be extended to the
next succeeding Business Day, and interest shall be payable for any principal
so extended for the period of such extension.
3.02 COMPUTATIONS. Interest on the Loans shall be computed on the basis
of a 360-day year for the actual days elapsed (including the first day but
excluding the last day) occurring in the period for which payable.
Section 4. COLLATERAL SECURITY.
-16-
<PAGE>
4.01 COLLATERAL; SECURITY INTEREST.
(a) Pursuant to the Custodial Agreement, the Custodian shall hold the
Mortgage Loan Documents as exclusive bailee and agent for the Lender pursuant
to the terms of the Custodial Agreement and shall deliver to the Lender Trust
Receipts (as defined in the Custodial Agreement) each to the effect that it
has reviewed such Mortgage Loan Documents in the manner required by the
Custodial Agreement and identifying any deficiencies in such Mortgage Loan
Documents as so reviewed.
(b) Each of the following items or types of property, whether now owned or
hereafter acquired, now existing or hereafter created and wherever located, is
hereinafter referred to as the "BASIC COLLATERAL":
(i) all Mortgage Loans;
(ii) all Underlying Obligations and all Underlying Transactions;
(iii) all Underlying Transaction Documents and all Mortgage Loan Documents,
including without limitation all promissory notes, and all Servicing Records
(as defined in Section 11.14(b) below) and any other collateral pledged or
otherwise relating to such Mortgage Loans, Underlying Transactions or
Underlying Obligations, together with all files, documents, instruments,
surveys, certificates, correspondence, appraisals, computer programs,
computer storage media, accounting records and other books and records
relating thereto;
(iv) all mortgage guaranties and insurance (issued by governmental agencies
or otherwise) and any mortgage insurance certificate or other document
evidencing such mortgage guaranties or insurance relating to any Mortgage
Loan and all claims and payments thereunder;
(v) all other insurance policies and insurance proceeds relating to any
Mortgage Loans or the related Mortgaged Property or to any Underlying
Transaction;
(vi) all Interest Rate Protection Agreements relating to or constituting
any or all of the foregoing;
(vii) all Collateral Deposit Accounts and all amounts, funds and
other property from time to time credited to any Collateral Deposit
Account, all other amounts received or receivable by the Custodian from
any Underlying Obligor pursuant to any Underlying Custodial Agreement,
the Underlying Transaction Documents or otherwise;
(viii) all "general intangibles" as defined in the Uniform
Commercial Code relating to or constituting any and all of the
foregoing; and
(ix) any and all replacements, substitutions, distributions on or
proceeds of any and all of the foregoing.
All right, title and interest of the Borrower in and to (A) the Basic
Collateral, (B) all obligations of the Pledgor owing to the Borrower in
respect of the Basic Collateral and all collateral security therefor and (C)
any and all replacements or substitutions for, distributions on or proceeds
of
-17-
<PAGE>
any and all of the foregoing is hereinafter referred to as the "BORROWER
COLLATERAL". All right, title and interest of the Pledgor in and to the
Basic Collateral (but excluding any and all obligations of the Pledgor
thereunder) and any and all replacements or substitutions for, distributions
on or proceeds of any and all of the foregoing is hereinafter referred to as
the "PLEDGOR COLLATERAL" The Borrower Collateral and the Pledgor Collateral
is hereinafter collectively referred to as the "COLLATERAL".
(c) The Borrower hereby assigns, pledges and grants a security interest
to the Lender in all of its right, title and interest in, to and under all
the Borrower Collateral, whether now owned or hereafter acquired, now
existing or hereafter created and wherever located, to secure the repayment
of principal of and interest on all Loans and all other amounts owing to the
Lender hereunder, under the Note and under the other Loan Documents
(collectively, the "SECURED OBLIGATIONS"). The Borrower agrees to mark its
computer records and tapes to evidence the security interests granted to the
Lender hereunder. The Lender shall have sole and exclusive dominion and
control of all Collateral Deposit Accounts and all amounts, funds and
property from time to time credited thereto and in no event shall the
Borrower have any rights with respect thereto, including without limitation,
any rights of withdrawal therefrom.
(d) To further secure the obligations of the Borrower, in consideration
of the Borrower's transferring funds to the Pledgor and to induce the Lender
to make Loans to the Borrower, the Pledgor hereby assigns, pledges and grants
a security interest to the Lender in all of its right, title and interest in,
to and under all Pledgor Collateral, whether now owned or hereafter acquired,
now existing or hereafter created and wherever located, to secure the Secured
Obligations. The Pledgor agrees to mark its computer records and tapes to
evidence the security interests granted to the Lender hereunder. The parties
hereto recognize that the Pledgor is not an obligor hereunder and is entering
into this Agreement in consideration of the Lender's agreeing to make funding
available to the Borrower, which the Borrower may, at its option, make
available to the Pledgor. The Pledgor and the Borrower have concurrently
entered into Affiliate Transfer Documents which set forth the rights and
obligations of each of such parties to each other in the event that the
Lender forecloses on the Pledgor Collateral. Such Affiliate Transfer
Documents are not binding on the Lender and nothing set forth herein or
therein shall limit, alter or impair any of the Lender's rights hereunder.
(e) The Pledgor acknowledges and agrees that Borrower may sell, resell
(pursuant to a repurchase), pledge, repledge, hypothecate and rehypothecate
to the Lender all or any portion of the Basic Collateral, including without
limitation the pledge or rehypothecation of any or all Mortgage Loans
transferred by the Pledgor to Borrower and hypothecation of any or all
Underlying Obligations and Affiliate Transfers. The Pledgor acknowledges and
agrees that in connection with the funding being made available to the
Borrower under this Agreement the Borrower is pledging to the Lender its
interests in the Underlying Obligations and Affiliate Transfers and the
Affiliate Transfer Documents and rehypothecating to the Lender the Mortgage
Loans related to the Affiliate Transfers. The Pledgor acknowledges and
agrees that the Lender's rights with respect to the Basic Collateral are and
shall continue to be senior and superior to the rights of the Pledgor and
that the Lender shall have the absolute right to exercise any and all
remedies with respect to the Mortgage Loans either pursuant to the pledge of
the Mortgage Loans by the Pledgor to the Lender hereunder, pursuant to the
pledge of the Mortgage Loans by the Borrower hereunder, or in connection with
a foreclosure on the Borrower's interest in the Affiliate Transfers, whether
or not any default has occurred or exists pursuant to any arrangement between
the Pledgor and the Borrower. In the event of an Event of Default, the
Lender shall have the right, but not the obligation, to proceed either prior,
concurrently or subsequently with respect to the Borrower's interest in the
Affiliate Transfers or any other collateral or other support for the
Borrower's obligations under the Loans. Each of the Pledgor and the Borrower
acknowledges and
-18-
<PAGE>
agrees that its rights with respect to the Basic Collateral are and shall
continue to be at all times junior and subordinate to the rights of the
Lender hereunder. Each of the Borrower and the Pledgor agrees that it will
forbear and take no action without the express prior written consent of the
Lender with respect to the Basic Collateral pursuant to any agreement between
them or otherwise prior to 91 days after the time the Lender has sold or
disposed of all of the Mortgage Loans and this Agreement is terminated.
4.02 FURTHER DOCUMENTATION. At any time and from time to time, upon the
written request of the Lender, and at the sole expense of the Borrower, each
Loan Party will promptly and duly execute and deliver, or will promptly cause
to be executed and delivered, such further instruments and documents and take
such further action as the Lender may reasonably request for the purpose of
obtaining or preserving the full benefits of this Loan Agreement and of the
rights and powers herein granted, including, without limitation, the filing
of any financing or continuation statements under the Uniform Commercial Code
in effect in any jurisdiction with respect to the Liens created hereby. Each
Loan Party also hereby authorizes the Lender to file any such financing or
continuation statement without the signature of such Loan Party to the extent
permitted by applicable law. A carbon, photographic or other reproduction of
this Loan Agreement shall be sufficient as a financing statement for filing
in any jurisdiction.
4.03 CHANGES IN LOCATIONS, NAME, ETC. Neither Loan Party shall (i)
change the location of its chief executive office/chief place of business
from that specified in Section 6 hereof or (ii) change its name, identity or
corporate structure (or the equivalent) or change the location where it
maintains its records with respect to the Collateral unless it shall have
given the Lender at least 30 days prior written notice thereof and shall have
delivered to the Lender all Uniform Commercial Code financing statements and
amendments thereto as Lender shall request and taken all other actions deemed
necessary by Lender to continue its perfected status in the Collateral with
the same or better priority.
4.04. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) Each Loan Party hereby irrevocably constitutes and appoints the
Lender and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of such Loan Party and in the name of such
Loan Party or in its own name, from time to time in the Lender's discretion
if an Event of Default shall have occurred and be continuing, for the purpose
of carrying out the terms of this Loan Agreement, to take any and all
appropriate action and to execute any and all documents and instruments which
may be necessary or desirable to accomplish the purposes of this Loan
Agreement, and, without limiting the generality of the foregoing, such Loan
Party hereby gives the Lender the power and right, on behalf of such Loan
Party, without assent by, but with notice to, such Loan Party, if an Event of
Default shall have occurred and be continuing, to do the following:
(i) in the name of such Loan Party or its own name, or otherwise,
to take possession of and endorse and collect any checks, drafts,
notes, acceptances or other instruments for the payment of moneys due
under any mortgage insurance or with respect to any other Collateral
and to file any claim or to take any other action or proceeding in any
court of law or equity or otherwise deemed appropriate by the Lender
for the purpose of collecting any and all such moneys due under any
such mortgage insurance or with respect to any other Collateral
whenever payable;
-19-
<PAGE>
(ii) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral; and
(iii) (A) to direct any party liable for any payment under any
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Lender or as the Lender shall direct; (B) to
ask or demand for, collect, receive payment of and receipt for, any and
all moneys, claims and other amounts due or to become due at any time
in respect of or arising out of any Collateral; (C) to sign and endorse
any invoices, assignments, verifications, notices and other documents
in connection with any of the Collateral; (D) to commence and prosecute
any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any thereof and to
enforce any other right in respect of any Collateral; (E) to defend any
suit, action or proceeding brought against such Loan Party with respect
to any Collateral; (F) to settle, compromise or adjust any suit, action
or proceeding described in clause (E) above and, in connection
therewith, to give such discharges or releases as the Lender may deem
appropriate; and (G) generally, to sell, transfer, pledge and make any
agreement with respect to or otherwise deal with any of the Collateral
as fully and completely as though the Lender were the absolute owner
thereof for all purposes, and to do, at the Lender's option and the
Borrower's expense, at any time, or from time to time, all acts and
things which the Lender deems necessary to protect, preserve or realize
upon the Collateral and the Lender's Liens thereon and to effect the
intent of this Loan Agreement, all as fully and effectively as such
Loan Party might do.
Such Loan Party hereby ratifies all that said attorneys shall lawfully do or
cause to be done by virtue hereof. This power of attorney is a power coupled
with an interest and shall be irrevocable.
(b) Such Loan Party also authorizes the Lender, at any time and from time
to time, to execute, in connection with the sale provided for in Section 4.07
hereof, any endorsements, assignments or other instruments of conveyance or
transfer with respect to the Collateral.
(c) The powers conferred on the Lender are solely to protect the Lender's
interests in the Collateral and shall not impose any duty upon the Lender to
exercise any such powers. The Lender shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers, and
neither the Lender nor any of its officers, directors, or employees shall be
responsible to such Loan Party for any act or failure to act hereunder,
except for its own gross negligence or willful misconduct.
4.05. PERFORMANCE BY LENDER OF BORROWER'S OBLIGATIONS. If such Loan
Party fails to perform or comply with any of its agreements contained in the
Loan Documents and the Lender may itself perform or comply, or otherwise
cause performance or compliance, with such agreement, the expenses of the
Lender incurred in connection with such performance or compliance, together
with interest thereon at a rate per annum equal to the Post-Default Rate,
shall be payable by the Borrower to the Lender on demand and shall constitute
Secured Obligations.
4.06. PROCEEDS. If an Event of Default shall occur and be continuing,
(a) all proceeds of Collateral received by such Loan Party consisting of
cash, checks and other near-cash items shall be held by such Loan Party in
trust for the Lender, segregated from other funds of such Loan Party, and
shall forthwith upon receipt by such Loan Party be turned over to the Lender
in the exact form received by the such Loan Party (duly endorsed by such Loan
Party to the Lender, if required) and (b) any and all such proceeds received
by the Lender (whether from such Loan Party or otherwise) may, in the sole
-20-
<PAGE>
discretion of the Lender, be held by the Lender as collateral security for,
and/or then or at any time thereafter may be applied by the Lender against,
the Secured Obligations (whether matured or unmatured), such application to
be in such order as the Lender shall elect. Any balance of such proceeds
remaining after the Secured Obligations shall have been paid in full and this
Loan Agreement shall have been terminated shall be paid over to such Loan
Party or to whomsoever may be lawfully entitled to receive the same. For
purposes hereof, proceeds shall include, but not be limited to, all principal
and interest payments, all prepayments and payoffs, insurance claims,
condemnation awards, sale proceeds, real estate owned rents and any other
income and all other amounts received with respect to the Collateral.
4.07. REMEDIES. If an Event of Default shall occur and be continuing,
the Lender may exercise, in addition to all other rights and remedies granted
to it in this Loan Agreement and in any other instrument or agreement
securing, evidencing or relating to the Secured Obligations, all rights and
remedies of a secured party under the Uniform Commercial Code. Without
limiting the generality of the foregoing, the Lender without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon any
Loan Party or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or
any part thereof, and/or may forthwith sell, lease, assign, give option or
options to purchase, or otherwise dispose of and deliver the Collateral or
any part thereof (or contract to do any of the foregoing), in one or more
parcels or as an entirety at public or private sale or sales, at any
exchange, broker's board or office of the Lender or elsewhere upon such terms
and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk. The Lender shall have the right upon any such public sale or
sales, and, to the extent permitted by law, upon any such private sale or
sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in such Loan Party, which right or equity
is hereby waived or released. Such Loan Party further agrees, at the
Lender's request, to assemble the Collateral and make it available to the
Lender at places which the Lender shall reasonably select, whether at such
Loan Party's premises or elsewhere. The Lender shall apply the net proceeds
of any such collection, recovery, receipt, appropriation, realization or
sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral or the rights of the
Lender hereunder, including, without limitation, reasonable attorneys' fees
and disbursements, to the payment in whole or in part of the Secured
Obligations, in such order as the Lender may elect, and only after such
application and after the payment by the Lender of any other amount required
or permitted by any provision of law, including, without limitation, Section
9-504(1)(c) of the Uniform Commercial Code, need the Lender account for the
surplus, if any, to such Loan Party. To the extent permitted by applicable
law, such Loan Party waives all claims, damages and demands it may acquire
against the Lender arising out of the exercise by the Lender of any of its
rights hereunder, other than those claims, damages and demands arising from
the gross negligence or willful misconduct of the Lender. If any notice of a
proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least 10 days
before such sale or other disposition. Such Loan Party shall remain liable
for any deficiency (plus accrued interest thereon as contemplated pursuant to
Section 2.05(b) hereof) if the proceeds of any sale or other disposition of
the Collateral are insufficient to pay the Secured Obligations and the fees
and disbursements of any attorneys employed by the Lender to collect such
deficiency.
4.08. LIMITATION ON DUTIES REGARDING PRESENTATION OF COLLATERAL. The
Lender's duty with respect to the custody, safekeeping and physical
preservation of the Collateral in its possession,
-21 -
<PAGE>
under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to
deal with it in the same manner as the Lender deals with similar property for
its own account. Neither the Lender nor any of its directors, officers or
employees shall be liable for failure to demand, collect or realize upon all
or any part of the Collateral or for any delay in doing so or shall be under
any obligation to sell or otherwise dispose of any Collateral upon the
request of any Loan Party or otherwise.
4.09. POWERS COUPLED WITH AN INTEREST. All authorizations and agencies
herein contained with respect to the Collateral are irrevocable and powers
coupled with an interest.
4.10 RELEASE OF SECURITY INTEREST. Upon termination of this Loan
Agreement and repayment to the Lender of all Secured Obligations and the
performance of all obligations under the Loan Documents the Lender shall
release its security interest in any remaining Collateral.
Section 5. CONDITIONS PRECEDENT.
5.01 INITIAL LOAN. The obligation of the Lender to make its initial Loan
hereunder is subject to the satisfaction, immediately prior to or
concurrently with the making of such Loan, of the following conditions
precedent:
(a) LOAN DOCUMENTS. The Lender shall have received the following
documents, each of which shall be satisfactory to the Lender in form and
substance:
(i) NOTE. The Note, duly completed and executed;
(ii) CUSTODIAL AGREEMENT. The Custodial Agreement, duly executed and
delivered by the Borrower and the Custodian. In addition, the Borrower
shall have taken such other action as the Lender shall have requested
in order to perfect the security interests created pursuant to the Loan
Agreement;
(b) ORGANIZATIONAL DOCUMENTS. A good standing certificate and
certified copies of the charter and by-laws (or equivalent documents)
of each Loan Party and of all corporate or other authority for each
Loan Party with respect to the execution, delivery and performance of
the Loan Documents and each other document to be delivered by each Loan
Party from time to time in connection herewith (and the Lender may
conclusively rely on such certificate until it receives notice in
writing from such Loan Party to the contrary);
(c) LEGAL OPINION. A legal opinion of counsel to the Loan Parties,
substantially in the form attached hereto as EXHIBIT C; and
(d) OTHER DOCUMENTS. Such other documents as the Lender may
reasonably request.
5.02 INITIAL AND SUBSEQUENT LOANS. The making of each Loan to the
Borrower (including the initial Loan) on any Business Day is subject to the
following further conditions precedent, both immediately prior to the making
of such Loan and also after giving effect thereto and to the intended use
thereof:
(a) no Default or Event of Default shall have occurred and be
continuing;
-22-
<PAGE>
(b) both immediately prior to the making of such Loan and also
after giving effect thereto and to the intended use thereof, the
representations and warranties made by each Loan Party in Section 6
hereof, and in each of the other Loan Documents, shall be true and
complete on and as of the date of the making of such Loan in all
material respects (in the case of the representations and warranties in
Section 6.10 and Schedule 1, solely with respect to Mortgage Loans,
Underlying Loans, Affiliate Transfers and Underlying Obligations
included in the Borrowing Base) with the same force and effect as if
made on and as of such date (or, if any such representation or warranty
is expressly stated to have been made as of a specific date, as of such
specific date). The Lender shall have received a request for borrowing
in accordance with Section 2.03(a) signed by a Responsible Officer of
the Borrower, which shall specifically include a statement that each of
the Borrower and the Pledgor is in compliance with all governmental
licenses and authorizations and is qualified to do business and in good
standing in all required jurisdictions and that the Borrower is not in
Default under this Agreement and shall affirm the Borrower's
representations and warranties herein.
(c) the aggregate outstanding principal amount of the Loans shall
not exceed the Borrowing Base;
(d) subject to the Lender's right to perform one or more Due
Diligence Reviews pursuant to Section 11.15 hereof, the Lender shall
have completed its due diligence review of the Mortgage Loan Documents,
the Underlying Loan Documents and the Affiliate Transfer Documents, as
applicable, for each Loan and such other documents, records,
agreements, instruments, mortgaged properties or information relating
to such Loans as the Lender in its sole discretion deems appropriate to
review and such review shall be satisfactory to the Lender in its sole
discretion;
(e) the Lender shall have received from the Custodian a Trust
Receipt in respect of Eligible Mortgage Loans to be pledged hereunder
on such Business Day and a Mortgage Loan Summary, in each case dated
such Business Day and duly completed;
(f) in the case of each Underlying Loan and the related Mortgage
Loans;
(i) the Lender shall have received for filing in the
appropriate jurisdictions an executed (i) UCC-3 assignment, naming
the Lender as assignee, with respect to each financing statement
naming an Underlying Obligor as debtor and the Borrower as secured
party and covering the Mortgage Loans or any other collateral
securing such Underlying Loan and (ii) unless a UCC-1 financing
statement satisfactory to the Lender in its sole discretion is
already on file describing such Collateral, a UCC-1 financing
statement naming the Borrower as debtor and the Lender as secured
party covering the Underlying Loan, the Mortgage Loans and all
other security for the Underlying Loan, each in form and substance
satisfactory to the Lender; and
(ii) the Lender shall have received the original Underlying
Note endorsed in blank and certified copies of all of the other
Underlying Loan Documents (including the Underlying Custodial
Agreement but not including the Mortgage Loan Documents) and each
such Underlying Loan Document shall be satisfactory to the Lender
in form and substance;
(g) in the case of each Affiliate Transfer and the related Mortgage
Loans;
-23-
<PAGE>
(i) the Lender shall have received for filing in the
appropriate jurisdictions an executed (i) UCC-3 assignment, naming
the Lender as assignee, with respect to each financing statement
naming an Underlying Obligor as debtor and the Borrower as secured
party and covering the Mortgage Loans or any other collateral
securing such Affiliate Transfer and (ii) unless a UCC-1 financing
statement satisfactory to the Lender in its sole discretion is
already on file describing such Collateral, a UCC-1 financing
statement naming the Borrower as debtor and the Lender as secured
party covering the Affiliate Transfer, the Mortgage Loans and all
other security for the Affiliate Transfer, each in form and
substance satisfactory to the Lender;
(ii) the Lender shall have received certified copies of all
of the Affiliate Transfer Documents (including the Underlying
Custodial Agreement but not including the Mortgage Loan Documents)
and each such Affiliate Transfer Document shall be satisfactory to
the Lender in form and substance; and
(iii) the Lender shall have received, with respect to any
Underlying Obligor which is an Affiliate of the Borrower other
than the Pledgor, a Pledge Agreement substantially in the form of
EXHIBIT I hereto, duly executed by all parties thereto and duly
delivered by the Underlying Obligor.
(h) the Lender shall have received any Servicing Agreement covering
all or a portion of the Mortgage Loans, certified as a true, correct
and complete copy of the original (which shall be acceptable to the
Lender in its sole discretion), and the letter of the applicable
Servicer, if any, required under Section 11.14(d);
(i) none of the following shall have occurred and/or be continuing:
(1) a catastrophic event or events shall have occurred resulting in
the effective absence of a "repo market" or comparable "lending market"
for financing debt obligations secured by mortgage loans or securities
for a period of (or reasonably expected to be) at least 30 consecutive
days and the same has resulted in the Lender not being able to finance
any Loans through the "repo market" or "lending market" with
traditional counterparties at rates which would have been reasonable
prior to the occurrence of such catastrophic event or events; or
(2) a catastrophic event or events shall have occurred resulting in
the effective absence of a "securities market" for securities backed by
mortgage loans for a period of (or reasonably expected to be) at least
30 consecutive days and the same results in the Lender not being able
to sell securities backed by mortgage loans at prices which would have
been reasonable prior to such catastrophic event or events; or
(3) there shall have occurred a material adverse change in the
financial condition of the Lender which affects (or can reasonably be
expected to affect) materially and adversely the ability of the Lender
to fund its obligations under this Loan Agreement;
(k) the Lender shall have received Underwriting Guidelines for such
Mortgage Loans acceptable to the Lender in its sole discretion;
-24-
<PAGE>
(l) the Lender shall have received from the Borrower the applicable
Mapping Materials; and
(m) the Lender shall have received the Approved Originator
Representations and shall have approved them as acceptable to the
Lender.
Each request for a borrowing by the Borrower hereunder shall constitute a
certification by the Borrower to the effect set forth in this Section (both
as of the date of such notice, request or confirmation and as of the date of
such borrowing).
Section 6. REPRESENTATIONS AND WARRANTIES. Each of the Pledgor (only as
to Sections 6.01, 6.04, 6.05, 6.06, 6.10(b), 6.10(d), 6.11 and 6.12, the last
sentence of Section 6.15 and Section 6.16) and the Borrower represents and
warrants to the Lender that throughout the term of this Loan Agreement:
6.01 EXISTENCE. Such Loan Party (a) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization, (b) has all requisite corporate or other power, and has all
governmental licenses, authorizations, consents and approvals, necessary to
own its assets and carry on its business as now being or as proposed to be
conducted, except where the lack of such licenses, authorizations, consents
and approvals would not be reasonably likely to have a material adverse
effect on its property, business or financial condition, or prospects; and
(c) is qualified to do business and is in good standing in all other
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary, except where failure so to qualify would not be
reasonably likely (either individually or in the aggregate) to have a
material adverse effect on its property, business or financial condition, or
prospects.
6.02 FINANCIAL CONDITION. The Borrower has heretofore furnished to the
Lender a copy of its consolidated balance sheet and the related consolidated
statements of income and retained earnings and of cash flows as at December
31, 1995, with the opinion thereon of Deloitte & Touche, and the related
consolidated balance sheet and consolidated statements of income and retained
earnings and of cash flows for the Borrower and certain Affiliates thereof
for the first two quarterly fiscal periods of 1996. All such financial
statements are complete and correct and fairly present the consolidated
financial condition of the Borrower and such Affiliates and the consolidated
results of their operations for the fiscal year ended on such date or for
such fiscal periods, as the case may be, all in accordance with GAAP applied
on a consistent basis.
6.03 LITIGATION. There are no actions, suits, arbitrations,
investigations or proceedings pending or, to its knowledge, threatened
against the Borrower or any of its Subsidiaries or affecting any of the
property thereof before any Governmental Authority, (i) as to which
individually or in the aggregate there is a reasonable likelihood of an
adverse decision which would be reasonably likely to have a material adverse
effect on the property, business or financial condition, or prospects of the
Borrower or (ii) which questions the validity or enforceability of any of the
Loan Documents or any action to be taken in connection with the transactions
contemplated hereby.
6.04 NO BREACH. Neither (a) the execution and delivery of the Loan
Documents or (b) the consummation of the transactions therein contemplated in
compliance with the terms and provisions thereof will conflict with or result
in a breach of the charter or by-laws of such Loan Party, or any applicable
law, rule or regulation, or any order, writ, injunction or decree of any
Governmental Authority, or any Servicing Agreement or other material
agreement or instrument to which such Loan
-25-
<PAGE>
Party, or any of its Subsidiaries, is a party or by which any of them or any
of their property is bound or to which any of them is subject, or constitute
a default under any such material agreement or instrument, or (except for the
Liens created pursuant to this Loan Agreement) result in the creation or
imposition of any Lien upon any property of such Loan Party or any of its
Subsidiaries pursuant to the terms of any such agreement or instrument.
6.05 ACTION. Such Loan Party has all necessary corporate or other power,
authority and legal right to execute, deliver and perform its obligations
under each of the Loan Documents; the execution, delivery and performance by
such Loan Party of each of the Loan Documents have been duly authorized by
all necessary corporate or other action on its part; and each Loan Document
has been duly and validly executed and delivered by such Loan Party and
constitutes a legal, valid and binding obligation of such Loan Party,
enforceable against such Loan Party in accordance with its terms.
6.06 APPROVALS. No authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority, or any securities
exchange, are necessary for the execution, delivery or performance by such
Loan Party of the Loan Documents or for the legality, validity or
enforceability thereof, except for filings and recordings in respect of the
Liens created pursuant to this Loan Agreement.
6.07 MARGIN REGULATIONS. Neither the making of any Loan hereunder, nor
the use of the proceeds thereof, will violate or be inconsistent with the
provisions of Regulation G, T, U or X.
6.08 TAXES. The Borrower and its Subsidiaries have filed all Federal
income tax returns and all other material tax returns that are required to be
filed by them and have paid all taxes due pursuant to such returns or
pursuant to any assessment received by any of them, except for any such
taxes, if any, that are being appropriately contested in good faith by
appropriate proceedings diligently conducted and with respect to which
adequate reserves have been provided. The charges, accruals and reserves on
the books of the Borrower and its Subsidiaries in respect of taxes and other
governmental charges are, in the opinion of the Borrower, adequate.
6.09 INVESTMENT COMPANY ACT. Neither the Borrower nor any of its
Subsidiaries is an "investment company", or a company "controlled" by an
"investment company", within the meaning of the Investment Company Act of
1940, as amended.
6.10 COLLATERAL; COLLATERAL SECURITY.
(a) The Borrower has not assigned, pledged, or otherwise conveyed or
encumbered any Mortgage Loan or any Underlying Obligation to any other
Person, and immediately prior to the pledge of such Mortgage Loan or
Underlying Obligation, the Borrower was the sole owner of such Underlying
Obligation and had good and marketable title thereto, free and clear of all
Liens, except for Liens to be released simultaneously with the Liens granted
in favor of the Lender hereunder and either (i) the Borrower was the sole
owner of such Mortgage Loan and had good and marketable title thereto, free
and clear of all Liens, in each case except for Liens to be released
simultaneously with the Liens granted in favor of the Lender hereunder or
(ii) the Underlying Obligor was the sole owner of such Mortgage Loan and had
good and marketable title thereto, free and clear of all Liens, except for
Liens granted in favor of the Borrower pursuant to the applicable Underlying
Transaction Documents and the Borrower has the legal right to rehypothecate
the Mortgage Loan to the Lender hereunder.
-26-
<PAGE>
(b) The provisions of this Agreement are effective to create in favor of
the Lender a valid security interest in all right, title and interest of such
Loan Party in, to and under the Collateral.
(c) Upon receipt by the Custodian of each Mortgage Note, endorsed in
blank by a duly authorized officer of the Borrower, the Lender shall have a
fully perfected first priority security interest therein, in the Mortgage
Loan evidenced thereby and in the Borrower's interest in the related
Mortgaged Property.
(d) Upon the filing of financing statements and assignments of financing
statements identified in Sections 5.02(f) and 5.02(g) in the jurisdictions
and recording offices listed on Schedule 2 attached hereto, the security
interests granted hereunder in the Collateral will constitute fully perfected
first priority security interests under the applicable Uniform Commercial
Code in all right, title and interest of each Loan Party in, to and under
such Collateral, which can be perfected by filing under the applicable
Uniform Commercial Code.
6.11 CHIEF EXECUTIVE OFFICE. The Borrower's chief executive office on
the Effective Date is located at 700 N. Pearl Street, Suite 2400, Dallas,
Texas 75201-7424. The Pledgor's chief executive office on the Effective Date
is located at 3401 Centrelake Drive, Suite 480, Ontario, California.
6.12 LOCATION OF BOOKS AND RECORDS. The location where the Borrower
keeps its books and records, including all computer tapes and records
relating to the Collateral is 3401 Centrelake Drive, Suite 480, Ontario,
California. The location where the Pledgor keeps its books and records,
including all computer tapes and records relating to the Collateral is 16800
Aston Street, Irvine, California 92714.
6.13 TRUE AND COMPLETE DISCLOSURE. The information, reports, financial
statements, exhibits and schedules furnished in writing by or on behalf of
the Borrower to the Lender in connection with the negotiation, preparation or
delivery of this Loan Agreement and the other Loan Documents or included
herein or therein or delivered pursuant hereto or thereto, when taken as a
whole, do not contain any untrue statement of material fact or omit to state
any material fact necessary to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading. All
written information furnished after the date hereof by or on behalf of the
Borrower to the Lender in connection with this Loan Agreement and the other
Loan Documents and the transactions contemplated hereby and thereby will be
true, complete and accurate in every material respect, or (in the case of
projections) based on reasonable estimates, on the date as of which such
information is stated or certified. There is no fact known to a Responsible
Officer that, after due inquiry, could reasonably be expected to have a
Material Adverse Effect that has not been disclosed herein, in the other Loan
Documents or in a report, financial statement, exhibit, schedule, disclosure
letter or other writing furnished to the Lender for use in connection with
the transactions contemplated hereby or thereby.
6.14 TANGIBLE NET WORTH. On the Effective Date, the Tangible Net Worth of
the Borrower is not less than $30,000,000.
6.15 ERISA. Each Plan to which the Borrower or its Subsidiaries make
direct contributions, and, to the knowledge of the Borrower, each other Plan
and each Multiemployer Plan, is in compliance in all material respects with,
and has been administered in all material respects in compliance with, the
applicable provisions of ERISA, the Code and any other Federal or State law.
No event or condition has occurred and is continuing as to which the Borrower
would be under an
-27-
<PAGE>
obligation to furnish a report to the Lender under Section 7.01(d) hereof.
Such Loan Party is not a Plan or a Multiemployer Plan.
6.16 SOLVENCY. The actions taken by such Loan Party pursuant to this
Agreement are not undertaken with the intent to hinder, delay or defraud any
of such Loan Party's creditors. Such Loan Party is not insolvent within the
meaning of 11 U.S.C. Section 101(32) and the consummation of the transactions
contemplated herein (a) will not cause such Loan Party to become insolvent,
(b) will not result in any property remaining with such Loan Party to be
unreasonably small capital, and (c) will not result in debts that would be
beyond such Loan Party's ability to pay as same mature. Such Loan Party is
receiving reasonably equivalent value in exchange for the transfer and pledge
of such Loan Party's interest in the Basic Collateral made pursuant to this
Agreement.
Section 7. COVENANTS OF THE PLEDGOR AND THE BORROWER. Each of the
Pledgor (only as to Sections 7.03(a), 7.03(d) and 7.13) and the Borrower
covenants and agrees with the Lender that, so long as any Loan is outstanding
and until payment in full of all Secured Obligations:
7.01 FINANCIAL STATEMENTS. The Borrower shall deliver to the Lender:
(a) as soon as available and in any event within 45 days after
the end of each of the first three quarterly fiscal periods of each fiscal
year of the Borrower, the consolidated balance sheets of the Borrower and its
consolidated Subsidiaries as at the end of such period and the related
unaudited consolidated statements of income and retained earnings and of cash
flows for the Borrower and its consolidated Subsidiaries for such period and
the portion of the fiscal year through the end of such period, setting forth
in each case in comparative form the figures for the previous year,
accompanied by a certificate of a Responsible Officer of the Borrower, which
certificate shall state that said consolidated financial statements fairly
present the consolidated financial condition and results of operations of the
Borrower and its Subsidiaries in accordance with GAAP, consistently applied,
as at the end of, and for, such period (subject to normal year-end audit
adjustments);
(b) as soon as available and in any event within 120 days after the end
of each fiscal year of the Borrower, the consolidated balance sheets of the
Borrower and its consolidated Subsidiaries as at the end of such fiscal year
and the related consolidated statements of income and retained earnings and
of cash flows for the Borrower and its consolidated Subsidiaries for such
year, setting forth in each case in comparative form the figures for the
previous year, accompanied by an opinion thereon of independent certified
public accountants of recognized national standing, which opinion shall not
be qualified as to scope of audit or going concern and shall state that said
consolidated financial statements fairly present the consolidated financial
condition and results of operations of the Borrower and its consolidated
Subsidiaries as at the end of, and for, such fiscal year in accordance with
GAAP;
(c) from time to time such other information regarding the financial
condition, operations, or business of the Borrower as the Lender may
reasonably request; and
(d) as soon as reasonably possible, and in any event within thirty (30)
days after a Responsible Officer knows, or with respect to any Plan or
Multiemployer Plan to which the Borrower or any of its Subsidiaries makes
direct contributions, has reason to believe, that any of the events or
conditions specified below with respect to any Plan or Multiemployer Plan has
occurred or exists, a statement signed by a senior financial officer of the
Borrower setting forth
-28-
<PAGE>
details respecting such event or condition and the action, if any, that the
Borrower or its ERISA Affiliate proposes to take with respect thereto (and a
copy of any report or notice required to be filed with or given to PBGC by
the Borrower or an ERISA Affiliate with respect to such event or condition):
(i) any reportable event, as defined in Section 4043(b) of ERISA
and the regulations issued thereunder, with respect to a Plan, as to
which PBGC has not by regulation waived the requirement of Section
4043(a) of ERISA that it be notified within thirty (30) days of the
occurrence of such event (PROVIDED that a failure to meet the minimum
funding standard of Section 412 of the Code or Section 302 of ERISA,
including, without limitation, the failure to make on or before its due
date a required installment under Section 412(m) of the Code or Section
302(e) of ERISA, shall be a reportable event regardless of the issuance
of any waivers in accordance with Section 412(d) of the Code); and any
request for a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041(c) of ERISA of a notice of
intent to terminate any Plan or any action taken by the Borrower or an
ERISA Affiliate to terminate any Plan;
(iii) the institution by PBGC of proceedings under Section 4042
of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan, or the receipt by the Borrower or any ERISA
Affiliate of a notice from a Multiemployer Plan that such action has
been taken by PBGC with respect to such Multiemployer Plan;
(iv) the complete or partial withdrawal from a Multiemployer
Plan by the Borrower or any ERISA Affiliate that results in liability
under Section 4201 or 4204 of ERISA (including the obligation to
satisfy secondary liability as a result of a purchaser default) or the
receipt by the Borrower or any ERISA Affiliate of notice from a
Multiemployer Plan that it is in reorganization or insolvency pursuant
to Section 4241 or 4245 of ERISA or that it intends to terminate or
has terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Borrower or any ERISA Affiliate to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30 days; and
(vi) the adoption of an amendment to any Plan that, pursuant to Section
401(a)(29) of the Code or Section 307 of ERISA, would result in the loss of
tax-exempt status of the trust of which such Plan is a part if the Borrower
or an ERISA Affiliate fails to timely provide security to such Plan in
accordance with the provisions of said Sections.
The Borrower will furnish to the Lender, at the time it furnishes each set of
financial statements pursuant to paragraphs (a) and (b) above, a certificate
of a Responsible Officer of the Borrower to the effect that, to the best of
such Responsible Officer's knowledge, the Borrower during such fiscal period
or year has observed or performed all of its covenants and other agreements,
and satisfied every condition, contained in this Loan Agreement and the other
Loan Documents to be observed, performed or satisfied by it, and that such
Responsible Officer has obtained no knowledge of any Default or Event
-29-
<PAGE>
of Default except as specified in such certificate (and, if any Default or
Event of Default has occurred and is continuing, describing the same in
reasonable detail and describing the action the Borrower has taken or
proposes to take with respect thereto).
7.02 LITIGATION. The Borrower will promptly, and in any event within
10 days after service of process on any of the following, give to the Lender
notice of all legal or arbitrable proceedings affecting the Borrower or any
of its Subsidiaries that questions or challenges the validity or
enforceability of any of the Loan Documents or as to which there is a
reasonable likelihood of adverse determination which would result in a
Material Adverse Effect.
7.03 EXISTENCE, ETC. Such Loan Party will:
(a) preserve and maintain its legal existence and all of its material
rights, privileges, licenses and franchises (PROVIDED, that nothing in this
Sction 7.03 shall prohibit any transaction expressly permitted under Section
7.04 hereof);
(b) comply with the requirements of all applicable laws, rules,
regulations and orders of Governmental Authorities (including, without
limitation, all environmental laws) if failure to comply with such
requirements would be reasonably likely (either individually or in the
aggregate) to have a material adverse effect on its property, business or
financial condition, or prospects;
(c) keep adequate records and books of account, in which complete
entries will be made in accordance with GAAP consistently applied;
(d) not move its chief executive office from the address referred to in
Section 6.11 unless it shall have provided the Lender 30 days prior written
notice of such change;
(e) pay and discharge all taxes, assessments and governmental charges
or levies imposed on it or on its income or profits or on any of its
Property prior to the date on which penalties attach thereto, except for
any such tax, assessment, charge or levy the payment of which is being
contested in good faith and by proper proceedings and against which
adequate reserves are being maintained; and
(f) permit representatives of the Lender, during normal business
hours, to examine, copy and make extracts from its books and records, to
inspect any of its Properties, and to discuss its business and affairs
with its officers, all to the extent reasonably requested by the Lender.
7.04 PROHIBITION OF FUNDAMENTAL CHANGES. The Borrower shall not enter
into any transaction of merger or consolidation or amalgamation, or
liquidate, wind up or dissolve itself (or suffer any liquidation, winding up
or dissolution) or sell all or usbstantially all of its assets (other than
the sale of mortgage loans and residual certificates by the Borrower in the
Borrower's ordinary course of business); PROVIDED, that the Borrower may
merge or consolidate with (a) any wholly owned subsidiary of the Borrower, or
(b) any other Person if the Borrower the surviving corporation; and PROVIDED
FURTHER, that if after giving effect thereto, no Default would exist
hereunder.
7.05 BORROWING BASE DEFICIENCY. If at any time there exists a Borrowing
Base Deficiency the Borrower shall cure same in accordance with Section 2.06
hereof.
-30-
<PAGE>
7.06 NOTICES. Upon obtaining knowledge of the following, the Borrower
shall ive notice to the Lender:
(a) promptly of the occurrence of any Default or Event of
Default;
(b) with respect to any Mortgage Loan pledged to the Lender
hereunder, immediately upon receipt of any principal prepayment (in
full or partial) of such pledged Mortgage Loan;
(c) with respect to any Mortgage Loan pledged to the Lender
hereunder, immediately if the underlying Mortgaged Property has been
damaged by waste, fire, earthquake or earth movement, windstorm, flood,
tornado or other casualty, or otherwise damaged so as to affect
adversely the Collateral Value of such pledged Mortgage Loan;
(d) promptly of any default related to any Collateral and any
event or change in circumstances which could reasonably be expected to
have a Material Adverse Effect;
(e) promptly, and in any event within 10 days, after service of
process in respect thereof, of any legal or arbitrable proceedings
affecting the Borrower, any Underlying Obligor or any of the
Subsidiaries of any of them that questions or challenges the validity
or enforceability of any of the Affiliate Transfer Documents, the
validity, enforceability, or rights of the Lender with respect to the
pledge to the Lender of any Underlying Loan or the rehypothecation of
any Underlying Loan or as to which there is a reasonable likelihood of
adverse determination which would result in a Material Adverse Effect;
and
(f) with respect to any Underlying Loan pledged to the Lender
hereunder, immediately (i) upon receipt of notice from the related
Underlying Obligor of such Underlying Obligor's intention to prepay, in
full or partial, such pledged Underlying Loan, or (ii) upon receipt of
any principal prepayment (in full or partial) of such pledged
Underlying Loan.
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer of the Borrower setting forth details of the occurrence
referred to therein and stating what action the Borrower has taken or
proposes to take with respect thereto.
7.07 INTEREST RATE PROTECTION AGREEMENTS. The Borrower shall deliver to
the Custodian and the Lender monthly a written summary of the notional amount
of all outstanding Interest Rate Protection Agreements. In addition, prior
to entering into any Interest Rate Protection Agreement related to the
Mortgage Loans, the Borrower shall provide MS & Co. with the right to bid on
becoming a party to such Interest Rate Protection Agreement.
7.08 SERVICING TAPE. The Borrower shall provide or cause the Servicer to
provide to the Lender on a monthly basis a computer readable magnetic tape
and hard copy containing servicing information, on a loan-by-loan basis and
in the aggregate, with respect to the Mortgage Loans serviced hereunder by
such Borrower or a third party servicer in form and substance acceptable to
Lender.
7.09 CREDIT CRITERIA. Without the prior written consent of the Lender
(which consent shall not be unreasonably withheld), the Borrower shall not
amend or otherwise modify the Credit Criteria in such a manner which may have
an adverse effect on the credit quality of any or all of the Mortgage Loans.
The Borrower shall promptly send a copy of any changes in the Credit Criteria
to the Lender.
-31-
<PAGE>
7.10 LINES OF BUSINESS. The Borrower will not engage to any substantial
extent in any line or lines of business activity other than the businesses
now generally carried on by it.
7.11 TRANSACTIONS WITH AFFILIATES. The Borrower will not enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate
unless such transaction is (a) otherwise permitted under this Loan Agreement
(including without limitation any Affiliate Transfer permitted hereunder),
(b) in the ordinary course of the Borrower's business and (c) upon fair and
reasonable terms no less favorable to the Borrower than it would obtain in a
comparable arm's length transaction with a Person which is not an Affiliate,
or make a payment that is not otherwise permitted by this Section 7.11 to
any Affiliate.
7.12 USE OF PROCEEDS. The Borrower will use the proceeds of the Loans
solely to originate, acquire, fund, manage and service Eligible Mortgage
Loans and Eligible Underlying Obligations.
7.13 LIMITATION ON LIENS. Such Loan Party will defend the Collateral
against, and will take such other action as is necessary to remove, any Lien,
security interest or claim on or to the Collateral, other than the security
interests created under this Loan Agreement, and such Loan Party will defend
the right, title and interest of the Lenders in and to any of the Collateral
against the claims and demands of all persons whomsoever.
7.14 LIMITATION ON GUARANTEES. Without the prior written consent of the
Lender (which consent shall not be unreasonably withheld), the Borrower shall
not create, incur, assume or suffer to exist any Guarantees which, in the
aggregate, exceed $1,000,000.
7.15 LIMITATION ON SALE OF ASSETS. The Borrower shall not convey, sell,
lease, assign, transfer or otherwise dispose of, any of its Property,
business or assets (including, without limitation, receivables and leasehold
interests) whether now owned or hereafter acquired, except for (i) sales of
mortgage loans not included in the Collateral, (ii) the sale of any obsolete
or worn-out equipment no longer used or useful, for cash, the net proceeds of
which are reinvested in replacement equipment, and (iii) the sale of any
residual pieces of mortgage-backed securities.
7.16 LIMITATION ON DISTRIBUTIONS. After the occurrence and during the
continuation of any Event of Default, the Borrower shall not make any payment
on account of, or set apart assets for a sinking or other analogous fund for
the purchase, redemption, defeasance, retirement or other acquisition of, any
equity interest of the Borrower, whether now or hereafter outstanding, or
make any dividend payment or other distribution in respect thereof, either
directly or indirectly, whether in cash or property or in obligations of the
Borrower.
7.17 ORGANIZATIONAL DOCUMENTS. The Borrower shall not amend its
organizational documents such that the result would impair the Borrower's
ability to perform under this Loan Agreement or otherwise impair the Lender's
rights or interest in the Collateral, without the prior written consent of
the Lender, which shall not be unreasonably withheld.
7.18 MAINTENANCE OF TANGIBLE NET WORTH. The Borrower shall not permit
Tangible Net Worth at any time to be less than $30,000,000.
-32-
<PAGE>
7.19 MAINTENANCE OF RATIO OF TOTAL INDEBTEDNESS TO TANGIBLE NET WORTH.
The Borrower shall not permit the ratio of Total Indebtedness to Tangible Net
Worth at any time to be greater than 8:1.
7.20 MAINTENANCE OF PROFITABILITY. The Borrower shall not permit, for any
period of three consecutive fiscal quarters (each such period, a "TEST
PERIOD"), Net Income for such Test Period before income taxes for such Test
Period, and distributions made during such Test Period, to be less than $1.00.
7.21 NO AMENDMENT OR WAIVER. The Borrower shall not amend or modify any
Underlying Loan Documents or Affiliate Transfer Documents or waive compliance
with any provision thereunder without the prior written consent of the Lender
and shall strictly enforce the obligations, duties and covenants of the
Underlying Obligor thereunder.
Section 8. EVENTS OF DEFAULT. Each of the following events shall
constitute an event of default (an "EVENT OF DEFAULT") hereunder:
(a) the Borrower shall default in the payment of any principal
of or interest on any Loan when due (whether at stated maturity, upon
acceleration or at mandatory or optional prepayment); or
(b) the Borrower shall default in the payment of any other
amount payable by it hereunder or under any other Loan Document after
notification by the Lender of such default, and such default shall have
continued unremedied for five Business Days; or
(c) any representation, warranty or certification made or deemed
made herein or in any other Loan Document by any Loan Party, or any
certificate furnished to the Lender pursuant to the provisions hereof
or thereof, shall prove to have been false or misleading in any
material respect as of the time made or furnished; or
(d) the Borrower or the Pledgor, as the case may be, shall fail
to comply with the requirements of Section 7.03(a), Section 7.04,
Section 7.06, or Sections 7.09 through 7.21 hereof; or the Borrower
shall default in the performance of its obligations under Section 7.05
hereof and such default shall continue unremedied for a period of one
(1) Business Day; or the Borrower or the Pledgor, as the case may be,
shall otherwise fail to comply with the requirements of Section 7.03
hereof and such default shall continue unremedied for a period of five
Business Days; or the Borrower or the Pledgor shall fail to observe or
perform any other agreement contained in this Loan Agreement or any
other Loan Document and such failure to observe or perform shall
continue unremedied for a period of seven Business Days; or
(e) a final judgment or judgments for the payment of money in
excess of $5,000,000 in the aggregate shall be rendered against the
Borrower or any of its Subsidiaries by one or more courts,
administrative tribunals or other bodies having jurisdiction over them
and the same shall not be discharged (or provision shall not be made
for such discharge) or bonded, or a stay of execution thereof shall not
be procured, within 60 days from the date of entry thereof and the
Borrower or any such Subsidiary shall not, within said period of 60
days, or such longer period during which execution of the same shall
have been stayed or bonded, appeal therefrom and cause the execution
thereof to be stayed during such appeal; or
-33-
<PAGE>
(f) the Borrower shall admit in writing its inability to pay its
debts as such debts become due; or
(g) the Borrower or any of its Subsidiaries shall (i) apply for
or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee, examiner or liquidator of itself or of
all or a substantial part of its property, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a voluntary
case under the Bankruptcy Code, (iv) file a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency,
reorganization, liquidation, dissolution, arrangement or winding-up, or
composition or readjustment of debts, (v) fail to controvert in a
timely and appropriate manner, or acquiesce in writing to, any petition
filed against it in an involuntary case under the Bankruptcy Code or
(vi) take any corporate or other action for the purpose of effecting any
of the foregoing; or
(h) a proceeding or case shall be commenced, without the
application or consent of the Borrower or any of its Subsidiaries, in
any court of competent jurisdiction, seeking (i) its reorganization,
liquidation, dissolution, arrangement or winding-up, or the composition
or readjustment of its debts, (ii) the appointment of a receiver,
custodian, trustee, examiner, liquidator or the like of the Borrower or
any such Subsidiary or of all or any substantial part of its property,
or (iii) similar relief in respect of the Borrower or any such
Subsidiary under any law relating to bankruptcy, insolvency,
reorganization, winding-up, or composition or adjustment of debts, and
such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be
entered and continue unstayed and in effect, for a period of 60 or more
days; or an order for relief against the Borrower or any such
Subsidiary shall be entered in an involuntary case under the Bankruptcy
Code; or
(i) the Custodial Agreement or any Loan Document shall for
whatever reason be terminated or cease to be in full force and effect,
or the enforceability thereof shall be contested by the Borrower; or
(j) the Borrower shall grant, or suffer to exist, any Lien on
the Collateral other than those in favor of the Lender, or the Liens
contemplated hereby cease to be first priority perfected Liens in favor
of the Lender or become Liens on any Collateral in favor of any Person
other than the Lender; or
(k) any materially adverse change in the Properties, business or
financial condition, or prospects of the Borrower or any of its
Subsidiaries, in each case as determined by the Lender in its sole
discretion, or the existence of any other condition which, in the
Lender's sole discretion, constitutes a material impairment of the
Borrower's ability to perform its obligations under this Loan
Agreement, the Note or any other Loan Document; or
(l) the Lender determines that the number of Misclassified
Mortgage Loans equals at least 5% of the Mortgage Loans reviewed
pursuant to a Due Diligence Review during any four month period of
time; or
(m) a material default or breach shall have occurred and
be continuing under any Underlying Transaction Document; or
-34-
<PAGE>
(n) a material default or breach shall have occurred and be
continuing under any Pledge Agreement.
SECTION 9. REMEDIES UPON DEFAULT.
(a) Upon the occurrence of one or more Events of Default other than those
referred to in Section 8(g) or (h), the Lender may immediately declare the
principal amount of the Loans then outstanding under the Note or Notes to be
immediately due and payable, together with all interest thereon and fees and
expenses accruing under this Loan Agreement; PROVIDED that upon the
occurrence of an Event of Default referred to in Sections 8(g) or (h), such
amounts shall immediately and automatically become due and payable without
any further action by any Person. Upon such declaration or such automatic
acceleration, the balance then outstanding on the Note or Notes shall become
immediately due and payable, without presentment, demand, protest or other
formalities of any kind, all of which are hereby expressly waived by the
Borrower.
(b) Upon the occurrence of one or more Events of Default, the Lender
shall have the right to obtain physical possession of the Servicing Records
and all other files of the Borrower relating to the Collateral and all
documents relating to the Collateral which are then or may thereafter come in
to the possession of the Borrower or any third party acting for the Borrower
and the Borrower shall deliver to the Lender such assignments as the Lender
shall request. The Lender shall be entitled to specific performance of all
agreements of the Borrower contained in this Loan Agreement.
SECTION 10. NO DUTY ON LENDER'S PART. The powers conferred on the Lender
hereunder are solely to protect the Lender's interests in the Collateral and
shall not impose any duty upon it to exercise any such powers. The Lender
shall be accountable only for amounts that it actually receives as a result
of the exercise of such powers, and neither it nor any of its officers,
directors, employees or agents shall be responsible to the Borrower for any
act or failure to act hereunder, except for its or their own gross negligence
or willful misconduct.
SECTION 11. MISCELLANEOUS.
11.01 WAIVER. No failure on the part of the Lender to
exercise and no delay in exercising, and no course of dealing with respect
to, any right, power or privilege under any Loan Document shall operate as a
waiver thereof, nor shall any single or partial exercise of any right, power
or privilege under any Loan Document preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The remedies
provided herein are cumulative and not exclusive of any remedies provided by
law.
11.02 NOTICES. Except as otherwise expressly permitted by this Loan
Agreement, all notices, requests and other communications provided for herein
and under the Custodial Agreement (including, without limitation, any
modifications of, or waivers, requests or consents under, this Loan
Agreement) shall be given or made in writing (including, without limitation,
by telecopy) delivered to the intended recipient at the "Address for Notices"
specified below its name on the signature pages hereof); or, as to any party,
at such other address as shall be designated by such party in a written
notice to each other party. Except as otherwise provided in this Loan
Agreement and except for notices given under Section 2 (which shall be
effective only on receipt), all such communications shall be deemed to have
been duly given when transmitted by telecopier or personally delivered or, in
the case of a mailed notice, upon receipt, in each case given or addressed as
aforesaid.
-35-
<PAGE>
11.03 INDEMNIFICATION AND EXPENSES.
(a) The Borrower agrees to hold the Lender harmless from and indemnify the
Lender against all liabilities, losses, damages, judgments, costs and
expenses of any kind which may be imposed on, incurred by, or asserted
against the Lender, relating to or arising out of, this Loan Agreement, the
Note or Notes, any other Loan Document or any transaction contemplated hereby
or thereby, or any amendment, supplement or modification of, or any waiver or
consent under or in respect of, this Loan Agreement, the Note or Notes, any
other Loan Document or any transaction contemplated hereby or thereby, that,
in each case, results from anything other than the Lender's gross negligence
or willful misconduct. In any suit, proceeding or action brought by the Lender
in connection with any Mortgage Loan, Underlying Obligation or Underlying
Transaction for any sum owing thereunder, or to enforce any provisions of any
such Mortgage Loan, Underlying Obligation or Underlying Transaction, the
Borrower will save, indemnify and hold the Lender harmless from and against
all expense, loss or damage suffered by reason of any defense, set-off,
counterclaim, recoupment or reduction or liability whatsoever of the account
debtor or obligor thereunder, arising out of a breach by the Borrower of any
obligation thereunder or arising out of any other agreement, indebtedness
or liability at any time owing to or in favor of such account debtor or
obligor or its successors from the Borrower. The Borrower also agrees to
reimburse the Lender as and when billed by the Lender for all the Lender's
costs and expenses incurred in connection with the enforcement or the
preservation of the Lender's rights under this Loan Agreement, the Note or
Notes, any other Loan Document or any transaction contemplated hereby or
thereby, including without limitation the reasonable fees and disbursements
of its counsel. The Borrower hereby acknowledges that, notwithstanding the
fact that the Note is secured by the Collateral, the obligation of the
Borrower under the Note or Notes is a recourse obligation of the Borrower.
(b) Except as set forth in Section 2.02(a) hereof, the Borrower agrees to
pay as and when billed by the Lender all of the out-of-pocket costs and
expenses incurred by the Lender in connection with the development,
preparation and execution of, and any amendment, supplement or modification
to, this Loan Agreement, the Note or Notes, any other Loan Document or any
other documents prepared in connection herewith or therewith. The Borrower
agrees to pay as and when billed by the Lender all of the out-of-pocket costs
and expenses incurred in connection with the consummation and administration
of the transactions contemplated hereby and thereby including, without
limitation, (i) all the reasonable fees, disbursements and expenses of
counsel to the Lender, and (ii) all the due diligence, inspection, testing
and review costs and expenses incurred by the Lender with respect to
Collateral under this Loan Agreement, including, but not limited to, those
costs and expenses incurred by the Lender pursuant to Sections 11.03(a),
11.14 and 11.15 hereof.
11.04 AMENDMENTS. Except as otherwise expressly provided in this Loan
Agreement, any provision of this Loan Agreement may be modified or
supplemented only by an instrument in writing signed by the Borrower and the
Lender and any provision of this Loan Agreement may be waived by the Lender.
11.05 SUCCESSORS AND ASSIGNS. This Loan Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
11.06 SURVIVAL. The obligations of the Borrower under Section 11.03
hereof shall survive the repayment of the Loans and the termination of this
Loan Agreement. In addition, each representation and warranty made, or deemed
to be made by a request for a borrowing, herein or pursuant hereto shall
survive the making of such representation and warranty, and the Lender shall
not
-36-
<PAGE>
be deemed to have waived, by reason of making any Loan, any Default that
may arise by reason of such representation or warranty proving to have been
false or misleading, notwithstanding that the Lender may have had notice or
knowledge or reason to believe that such representation or warranty was false
or misleading at the time such Loan was made.
11.07 CAPTIONS. The table of contents and captions and section headings
appearing herein are included solely for convenience of reference and are not
intended to affect the interpretation of any provision of this Loan Agreement.
11.08 COUNTERPARTS. This Loan Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Loan Agreement by
signing any such counterpart.
11.09 LOAN AGREEMENT CONSTITUTES SECURITY AGREEMENT; GOVERNING LAW. This
Loan Agreement shall be governed by New York law without reference to choice of
law doctrine, and shall constitute a security agreement within the meaning of
the Uniform Commercial Code.
11.10 SUBMISSION TO JURISDICTION; WAIVERS. EACH LOAN PARTY HEREBY
IRREVOCABLY AND UNCONDITIONALLY:
(A) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS LOAN AGREEMENT, THE NOTE AND THE OTHER LOAN
DOCUMENTS, OR FOR RECOGNITION AND ENFORCEMENT OF ANY JUDGMENT IN
RESPECT THEREOF, TO THE NON-EXCLUSIVE GENERAL JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK, THE FEDERAL COURTS OF THE UNITED
STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, AND APPELLATE
COURTS FROM ANY THEREOF;
(B) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT IN SUCH
COURTS AND, TO THE EXTENT PERMITTED BY LAW, WAIVES ANY OBJECTION THAT
IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS
BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE
SAME;
(C) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR PROCEEDING
MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR CERTIFIED
MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE PREPAID, TO
ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR AT SUCH OTHER
ADDRESS OF WHICH THE LENDER SHALL HAVE BEEN NOTIFIED; AND
(D) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL LIMIT
THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
11.11 WAIVER OF JURY TRIAL. EACH OF THE LENDER AND THE LOAN PARTIES
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
-37-
<PAGE>
BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS LOAN AGREEMENT, ANY OTHER LOAN DOCUMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
11.12 ACKNOWLEDGMENTS. Each Loan Party hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution
and delivery of this Loan Agreement, the Note and the other Loan
Documents;
(b) the Lender has no fiduciary relationship to any Loan Party,
and the relationship between each Loan Party and the Lender is solely
that of debtor and creditor; and
(c) no joint venture exists between the Lender and any Loan Party.
11.13 HYPOTHECATION OR PLEDGE OF LOANS. The Lender shall have free
and unrestricted use of all Collateral and nothing in this Loan Agreement
shall preclude the Lender from engaging in repurchase transactions with the
Collateral or otherwise pledging, repledging, transferring, hypothecating, or
rehypothecating the Collateral. Nothing contained in this Loan Agreement
shall obligate the Lender to segregate any Collateral delivered to the Lender
by the Borrower.
11.14 SERVICING.
(a) The Borrower covenants to maintain or cause the servicing of the
Mortgage Loans to be maintained in conformity with accepted and prudent
servicing practices in the industry for the same type of mortgage loans as
the Mortgage Loans. In the event that the preceding language is interpreted
as constituting one or more servicing contracts, each such servicing contract
shall terminate automatically upon the earliest of (i) an Event of Default,
or (ii) the date on which all the Secured Obligations have been paid in full,
or (iii) the transfer of servicing approved by the Borrower.
(b) If the Mortgage Loans are serviced by the Borrower, (i) the
Borrower agrees that Lender is the owner of all servicing records, including
but not limited to any and all servicing agreements, files, documents,
records, data bases, computer tapes, copies of computer tapes, proof of
insurance coverage, insurance policies, appraisals, other closing
documentation, payment history records, and any other records relating to or
evidencing the servicing of Mortgage Loans (the "SERVICING RECORDS"), and
(ii) the Borrower grants the Lender a security interest in all servicing fees
and rights relating to the Mortgage Loans and all Servicing Records to secure
the obligation of the Borrower or its designee to service in conformity with
this Section and any other obligation of Borrower to the Lender. The
Borrower covenants to safeguard such Servicing Records and to deliver them
promptly to the Lender or its designee (including the Custodian) at the
Lender's request.
(c) If the Mortgage Loans are serviced by a third party servicer (such
third party servicer, the "SERVICER"), the Borrower (i) shall provide a copy
of the servicing agreement to the Lender, which shall be in form and
substance acceptable to the Lender (the "SERVICING AGREEMENT"); and (ii)
hereby irrevocably assigns to the Lender and Lender's successors and assigns
all right, title, interest and the benefits of the Servicing Agreements with
respect to the Mortgage Loans.
(d) If the Servicer is the Borrower or an Affiliate of the Borrower,
the Borrower shall provide to the Lender a letter from the Servicer to the
effect that upon the occurrence of an Event of Default, the Lender may
terminate the Servicing Agreement and transfer such servicing to its
-38-
<PAGE>
designee, at no cost or expense to the Lender, it being agreed that the
Borrower will pay any and all fees required to terminate the Servicing
Agreement and to effectuate the transfer of servicing to the Lender.
(e) After the Funding Date, until the pledge of any Mortgage Loan,
Underlying Obligation, Underlying Loan and Affiliate Transfer is relinquished
by the Custodian, the Borrower will have no right to modify or alter the
terms of the Mortgage Loan or Underlying Obligation, Underlying Loan or
Affiliate Transfer and the Borrower will have no obligation or right to
repossess the Mortgage Loan or Underlying Obligation, Underlying Loan or
Affiliate Transfer or substitute another Mortgage Loan or Underlying
Obligation, Underlying Loan or Affiliate Transfer, except as provided in the
Custodial Agreement.
(f) In the event the Borrower or its Affiliate is servicing the
Mortgage Loans, the Borrower shall permit the Lender to inspect the
Borrower's or its Affiliate's servicing facilities, as the case may be, for
the purpose of satisfying the Lender that the Borrower or its Affiliate, as
the case may be, has the ability to service the Mortgage Loans as provided in
this Loan Agreement.
11.15 PERIODIC DUE DILIGENCE REVIEW. The Loan Parties acknowledge
that the Lender has the right to perform continuing due diligence reviews
with respect to the Mortgage Loans, the Underlying Loans and the Affiliate
Transfers, for purposes of verifying compliance with the representations,
warranties and specifications made hereunder, or otherwise, and each of the
Loan Parties agrees that upon reasonable (but no less than one (1) Business
Day's) prior notice to the Borrower, the Lender or its authorized
representatives will be permitted during normal business hours to examine,
inspect, make copies of, and make extracts of, the Mortgage Files and any and
all documents, records, agreements, instruments or information relating to
such Mortgage Loans or the Underlying Loans and Affiliate Transfers in the
possession, or under the control, of any Loan Party and/or the Custodian.
The Borrower also shall make available to the Lender a knowledgeable
financial or accounting officer for the purpose of answering questions
respecting the Mortgage Files, the Mortgage Loans, the Underlying Loans and
the Affiliate Transfers. Without limiting the generality of the foregoing,
the Borrower acknowledges that the Lender shall make Loans to the Borrower
based solely upon the information provided by the Borrower to the Lender in
the Mortgage Loan Tape and the representations, warranties and covenants
contained herein, and that the Lender, at is option, has the right, at any
time to conduct a partial or complete due diligence review on some or all of
the Mortgage Loans or the Underlying Loans and Affiliate Transfers securing
such Loan, including, without limitation, ordering new credit reports, new
appraisals on the related Mortgaged Properties and otherwise re-generating
the information used to originate such Mortgage Loan. The Lender may
underwrite such Mortgage Loans itself or engage a mutually agreed upon third
party underwriter to perform such underwriting. The Borrower agrees to
cooperate with the Lender and any third party underwriter in connection with
such underwriting, including, but not limited to, providing the Lender and
any third party underwriter with access to any and all documents, records,
agreements, instruments or information relating to such Mortgage Loans in the
possession, or under the control, of the Borrower. The Borrower further
agrees that the Borrower shall reimburse the Lender for any and all
out-of-pocket costs and expenses incurred by the Lender in connection with
the Lender's activities pursuant to this Section 11.15.
11.16 INTENT. The parties recognize that each Loan is a "securities
contract" as that term is defined in Section 741 of Title 11 of the United
States Code, as amended.
[SIGNATURE PAGE FOLLOWS]
-39-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Loan Agreement
to be duly executed and delivered as of the day and year first above written.
BORROWER
AMRESCO RESIDENTIAL CAPITAL
MARKETS, INC.
By
---------------------------------
Title:
ADDRESS FOR NOTICES:
c/o AMRESCO Residential Credit Corporation
3401 Centrelake Drive
Suite 480
Ontario, California 91761
Attention: Mr. Michael W. Trickey
Telecopier No.: (909) 605-7619
Telephone No.: (909) 605-7600
with a copy to:
ARMC
700 N. Pearl Street
Suite 2400, Lock Box 342
Dallas, Texas 75201-7424
Attention: General Counsel
Telecopier No.: (214) 953-7757
Telephone No.: (214) 953-7700
PLEDGOR
AMRESCO RESIDENTIAL MORTGAGE CORPORATION
By
--------------------------------
Title:
ADDRESS FOR NOTICES:
3401 Centrelake Drive
Suite 480
Ontario, California 91761
Attention: Mr. Michael W. Trickey
-40-
<PAGE>
Telecopier No.: (909) 605-7619
Telephone No.: (909) 605-7600
with a copy to:
ARMC
700 N. Pearl Street
Suite 2400, Lock Box 342
Dallas, Texas 75201-7424
Attention: General Counsel
Telecopier No.: (214) 953-7757
Telephone No.: (214) 953-7700
LENDER
MORGAN STANLEY MORTGAGE CAPITAL INC.
By
---------------------------------
Title:
ADDRESS FOR NOTICES:
1585 Broadway
New York, New York 10036
Attention: Mr. Peter Mozer
Telecopier No.: 212-761-0570
Telephone No.: 212-761-2408
-41-
<PAGE>
SCHEDULE 1
ELIGIBILITY CRITERIA
Part I. ELIGIBLE MORTGAGE LOANS
As to each Mortgage Loan included in the Borrowing Base on a Funding Date
(and the related Mortgage, Mortgage Note, Assignment of Mortgage and
Mortgaged Property), the following eligibility criteria shall be met as of
such date and as of each date Collateral Value is determined:
(a) Such Mortgage Loan and all Mortgage Loan Documents are complete and
authentic and all signatures thereon are genuine.
(b) Such Mortgage Loan arose from a bona fide loan, complying
with all applicable State and Federal laws and regulations, to persons
having legal capacity to contract and is not subject to any defense,
set-off or counterclaim.
(c) No default has occurred with respect to any provisions of such
Mortgage Loan.
(d) To the best of the Borrower's knowledge, any property subject to
any security interest given in connection with such Mortgage Loan is
not subject to any encumbrances other than "permitted encumbrances"
which may be allowed under the Approved Originator Representations.
(e) (i) As to any Mortgage Loan not subject to an Underlying
Transaction, the Borrower pledging such Mortgage Loan hereunder (A)
holds good and indefeasible title to, and is the sole owner of, such
Mortgage Loan subject to no Liens, charges, mortgages, participations,
encumbrances or rights of others and to no other Liens released
simultaneously with such pledge and (B) has the right freely to
assign, pledge and grant a security interest in such Mortgage Loan
to the Lender subject to the rights of no third parties.
(ii) As to any Mortgage Loan subject to an Underlying
Transaction, (A) the Underlying Obligor holds good and indefeasible
title to, and is the sole owner of, such Mortgage Loan subject to no
Liens, charges, mortgages, participations, encumbrances or rights of
others and to no other Liens released simultaneously with such pledge
and (B) the Borrower has the right freely to assign, pledge and grant
a security interest in such Mortgage Loan to the Lender.
(f) Each Mortgage Loan conforms to the description thereof as
set forth on the related Mortgage Loan Schedule delivered to the
Custodian and the Lender.
(g) All disclosures required by the Real Estate Settlement Procedures
Act, by Regulation X promulgated thereunder and by Regulation Z of the
Board of Governors of the Federal Reserve System promulgated pursuant
to the statute commonly
Schedule 1-1
<PAGE>
known as the Truth-in-Lending Act and the Notice of the Right of
Rescission required by said statute and regulation have been properly
made and given.
(h) Such Mortgage Loan (other than a Delinquent Mortgage Loan) is not
29 or more days delinquent as of the last payment due date for such
Mortgage Loan. Each Delinquent Mortgage Loan is not 59 or more days
delinquent as of the last payment due date for such Delinquent Mortgage
Loan.
(i) Each of the Approved Originator Representations given or made by
the Qualified Originator in connection with such Mortgage Loan was and
is true and correct as made as of the date made.
(j) With respect to each Mortgage Loan that is a Wet-Ink Mortgage
Loan, the Settlement Agent has been instructed in writing by the
Approved Originator to promptly forward such Mortgage Loan Documents to
the Custodian for receipt on the Business Day following the applicable
Funding Date.
Schedule 1-2
<PAGE>
Page 50
Part II. AFFILIATE TRANSFERS AND UNDERLYING LOANS
As to each Mortgage Loan which is related to an Underlying Transaction,
and as to the related Underlying Transaction Documents and Underlying
Obligation, the following eligibility criteria shall be met as of the
applicable Funding Date and as of each date Collateral Value is determined:
(a) VALIDITY OF UNDERLYING TRANSACTION DOCUMENTS. The Underlying
Transaction Documents and any other agreement executed and delivered by
the Underlying Obligor or guarantor, if applicable, in connection with
an Underlying Transaction are genuine, and each is the legal, valid and
binding obligation of the maker thereof enforceable in accordance
with its terms. The Borrower and the Underlying Obligor had legal
capacity to enter into the Underlying Transaction and the Underlying
Obligor had the legal capacity to execute and deliver the Underlying
Transaction Documents and any such agreement, and the Underlying
Transaction Documents and any such other related agreement to which
such Borrower or the Underlying Obligor are parties have been duly
and properly executed by such Borrower and the Underlying Obligor, as
applicable. The Underlying Transaction Documents to which the
Underlying Obligor is a party constitute legal, valid, binding and
enforceable obligations of the Underlying Obligor. The Underlying
Transaction and the Underlying Transaction Documents are in full
force and effect, and the enforceability of the Underlying
Transaction Documents has not been contested by the Underlying
Obligor.
(b) ORIGINAL TERMS UNMODIFIED. The terms of the Underlying
Transaction Documents have not been impaired, altered or modified in
any respect.
(c) NO DEFENSES. The Underlying Transaction is not subject to any
right of rescission, set-off, counterclaim or defense nor will the
operation of any of the terms of any Underlying Transaction
Documents, or the exercise of any right thereunder, render any
Underlying Transaction Document unenforceable in whole or in part
and no such right of rescission, set-off, counterclaim or defense has
been asserted with respect thereto.
(d) NO BANKRUPTCY. The Underlying Obligor is not a debtor in any
state or federal bankruptcy or insolvency proceeding. To the best of
such Borrower's knowledge, the Underlying Obligor is not
contemplating either the filing of a petition by it under any state
or federal bankruptcy or insolvency laws or the liquidation of all or
a major portion of the Underlying Obligor's assets or any of the
Mortgage Loans.
(e) COMPLIANCE WITH APPLICABLE LAWS; CONSENTS. Any and all
requirements of any federal, state or local law including, without
limitation, usury, consumer credit protection, or disclosure laws
applicable to the Underlying Transaction have been complied with, the
consummation of the transactions contemplated hereby will not involve
the violation of any such laws or regulations, and the Borrower shall
maintain or shall cause its agent to maintain in its possession,
available for the inspection of the Lender, and shall deliver to the
Lender, upon demand, evidence of compliance with all such requirements.
All consents of and all
Schedule 1-3
<PAGE>
filings with any federal or state Governmental Authority necessary in
connection with the execution, delivery or performance of the
Underlying Transaction have been obtained or made and are in full
force and effect.
(f) NO WAIVER. The Borrower has not waived the performance by the
Underlying Obligor of any action, if the Underlying Obligor's failure
to perform such action would cause the Underlying Transaction to be
in default, nor has such Borrower waived any default resulting from
any action or inaction by the Underlying Obligor.
(g) NO DEFAULTS. There is no default, breach, violation or event of
acceleration existing under the Underlying Transaction Documents and
no event has occurred which, with the passage of time or giving of
notice or both and the expiration of any grace or cure period, would
constitute a default, breach, violation or event of acceleration
thereunder, and neither such Borrower nor its predecessors in
interest have waived any such default, breach, violation or event of
acceleration.
(h) DELIVERY OF UNDERLYING TRANSACTION DOCUMENTS. The Underlying
Transaction Documents have been delivered to the Lender.
(i) ORGANIZATION. The Underlying Obligor has been duly organized
and is validly existing and in good standing under the laws of the
jurisdiction of its formation. The Underlying Obligor has requisite
power and authority to (i) own its properties, (ii) transact the
business in which it is now engaged, (iii) execute and deliver the
Underlying Transaction Documents and (iv) consummate the transactions
contemplated thereby. The Underlying Obligor is duly qualified to do
business and is in good standing in the jurisdictions where it is
required to be so qualified in connection with the ownership,
maintenance, management and operation of its business. The
Underlying Obligor possesses all rights, licenses, permits and
authorizations, governmental or otherwise, necessary to entitle it to
own its properties and to transact the businesses in which is now
engaged.
(j) NO CONFLICTS. The execution, delivery and performance of the
Underlying Transaction Documents by the Underlying Obligor do not
conflict with or constitute a default under, or result in the
creation or imposition of any lien (other than pursuant to the
Underlying Transaction Documents) under, any mortgage, deed of trust,
loan agreement, partnership agreement, or other agreement or
instrument to which the Underlying Obligor is a party or to which any
of its property is subject, nor will such action result in any
violation of the provisions of any statute of any jurisdiction over
the Underlying Obligor, and any qualification of or with any
governmental authority required for the execution, delivery, and
performance by the Underlying Obligor of the Underlying Transaction
Documents has been obtained and is in full force and effect.
(k) COMPLIANCE. The Underlying Obligor complies in all material
respects with all applicable legal requirements. The Underlying
Obligor is not in default or
Schedule 1-4
<PAGE>
violation of any order, writ, injunction, decree or demand of any
Governmental Authority, the violation of which might materially
adversely affect the condition (financial or otherwise) or
business of the Underlying Obligor.
(l) UNDERLYING TRANSACTION ASSIGNABLE. Each Underlying Transaction
Document is assignable to the Lender. The Underlying Transaction
Documents permit the Borrower to sell, assign, pledge, transfer or
rehypothecate the Mortgage Loans related to such Underlying
Transactions.
(m) SOLVENCY. The transfer of the Mortgage Loans subject to the
Underlying Transaction Documents is not undertaken with the intent to
hinder, delay or defraud any of the Underlying Obligor's creditors.
The Underlying Obligor is not insolvent within the meaning of 11
U.S.C. Section 101(32) and the transfer and pledge of the Mortgage
Loans pursuant to the Underlying Transaction Documents (i) will not
cause the Underlying Obligor to become insolvent, (ii) will not
result in any property remaining with the Underlying Obligor to be
unreasonably small capital, and (iii) will not result in debts that
would be beyond the Underlying Obligor's ability to pay as same
mature. The Underlying Obligor receives reasonably equivalent value
in exchange for the transfer and pledge of the Mortgage Loans in
accordance with the Underlying Transaction Documents.
(n) UNDERLYING LOAN AND MORTGAGE LOANS AS DESCRIBED. As to each
Underlying Loan only, the information set forth in the Mortgage Loan
Tape with respect to the Underlying Loan is complete, true and
correct in all material respects.
(o) NO SATISFACTION OR PREPAYMENT OF UNDERLYING LOAN. As to each
Underlying Loan only, the Underlying Loan has not been satisfied,
canceled, subordinated, released or rescinded, in whole or in part.
(p) OWNERSHIP. As to each Underlying Loan only, the Borrower is the
sole owner and holder of the Underlying Loan. The Underlying Loan has
not been assigned or pledged by the Borrower, and the Borrower has
good, indefeasible and marketable title to the Underlying Loan, and
has full right to transfer, pledge and assign the Underlying Loan to
the Lender free and clear of any encumbrance, equity, participation
interest, lien, pledge, charge, claim or security interest, and has
full right and authority subject to no interest or participation of,
or agreement with, any other party, to assign, transfer and pledge
the Underlying Loan pursuant to this Agreement, and following the
pledge of the Underlying Loan, the Lender will hold such Underlying
Loan free and clear of any encumbrance, equity, participation
interest, lien, pledge, charge, claim or security interest except any
such security interest created pursuant to the terms of this
Agreement.
(q) NO PLAN ASSETS. As to each Underlying Loan only, the related
Underlying Obligor is not an "employee benefit plan," as defined in
Section 3(3) of ERISA, subject to Title I of ERISA, and none of the
assets of the Mortgagor constitutes or will constitute "plan assets"
of one or more such plans within the meaning of 29 C.F.R. Section
2510.3-101.
Schedule 1-5
<PAGE>
(r) FINANCIAL INFORMATION. As to each Underlying Loan only, based
upon the related Underlying Obligor's representations and warranties,
all financial data, including, without limitation the statements of
cash flow and income and operating expense, that have been delivered
to the Borrower (i) are true, complete, and correct in all material
respects, and (ii) accurately represent the financial condition of
such Underlying Obligor as of the date of such reports.
(s) UNDERLYING LOAN AND MORTGAGE LOANS ASSIGNABLE; LENDER'S SECURITY
INTEREST. As to each Underlying Loan only, the Asset File with
respect to the Underlying Loan has been delivered to the Custodian
and the Uniform Commercial Code Financing Statements naming the
Borrower as debtor and the Lender as secured party and covering the
Underlying Loans have been filed in all appropriate jurisdictions and
the Lender has a first priority perfected security interest in the
Underlying Loan.
[(t) MORTGAGE LOAN POOL. The Mortgage Loan Pool conforms to the
requirements set forth on Schedule 3 hereto.]
(u) UNDERLYING CUSTODIAL AGREEMENT. The Custodian is not an
affiliate of the Borrower or the Underlying Obligor.
Schedule 1-6
<PAGE>
SCHEDULE 2
FILING JURISDICTIONS AND OFFICES
[TO BE PROVIDED BY COUNSEL TO BORROWER]
Schedule 2-1
<PAGE>
EXHIBIT A
[Form of Note]
AMENDED AND RESTATED PROMISSORY NOTE
$ 200,000,000.00 Dated September 19, 1996,
as amended and restated as of October 25, 1996
New York, New York
FOR VALUE RECEIVED, AMRESCO RESIDENTIAL CAPITAL MARKETS, INC. (formerly
known as AMRESCO Residential Mortgage Corporation), a Delaware corporation (the
"BORROWER"), hereby promises to pay to the order of MORGAN STANLEY MORTGAGE
CAPITAL INC. (the "LENDER"), at the principal office of the Lender at 1585
Broadway, New York, New York, 10036, in lawful money of the United States, and
in immediately available funds, the principal sum of TWO HUNDRED MILLION DOLLARS
($ 200,000,000.00) (or such lesser amount as shall equal the aggregate unpaid
principal amount of the Loans made by the Lender to the Borrower under the Loan
Agreement), on the dates and in the principal amounts provided in the Loan
Agreement, and to pay interest on the unpaid principal amount of each such Loan,
at such office, in like money and funds, for the period commencing on the date
of such Loan until such Loan shall be paid in full, at the rates per annum and
on the dates provided in the Loan Agreement.
The date, amount and interest rate of each Loan made by the Lender to the
Borrower, and each payment made on account of the principal thereof, shall be
recorded by the Lender on its books and, prior to any transfer of this Note,
endorsed by the Lender on the schedule attached hereto or any continuation
thereof; PROVIDED, that the failure of the Lender to make any such recordation
or endorsement shall not affect the obligations of the Borrower to make a
payment when due of any amount owing under the Loan Agreement or hereunder in
respect of the Loans made by the Lender.
This Amended and Restated Promissory Note is the Note referred to in the
Loan and Security Agreement dated as of September 29, 1996, between the
Borrower and the Lender as amended by the Amended and Restated Master Loan
and Security Agreement dated as of October 25, 1996 (as so amended and as
further amended, supplemented or otherwise modified and in effect from time
to time, the "LOAN AGREEMENT") the Borrower, AMRESCO Residential Mortgage
Corporation and the Lender, and evidences Loans made by the Lender
thereunder. On or about September 25, 1996, AMRESCO Residential Mortgage
Corporation underwent a name change resulting in the name AMRESCO Residential
Capital Markets, Inc. Terms used but not defined in this Note have the
respective meanings assigned to them in the Loan Agreement.
The Borrower agrees to pay all the Lender's costs of collection and
enforcement (including reasonable attorneys' fees and disbursements of
Lender's counsel) in respect of this Note when incurred, including, without
limitation, reasonable attorneys' fees through appellate proceedings.
Notwithstanding the pledge of the Collateral, the Borrower hereby
acknowledges, admits and agrees that the Borrower's obligations under this
Note are recourse obligations of the Borrower to which the Borrower pledges
its full faith and credit.
The Borrower, and any indorsers or guarantors hereof, (a) severally
waive diligence,
A-1
<PAGE>
presentment, protest and demand and also notice of protest, demand, dishonor
and nonpayments of this Note, (b) expressly agree that this Note, or any
payment hereunder, may be extended from time to time, and consent to the
acceptance of further Collateral, the release of any Collateral for this
Note, the release of any party primarily or secondarily liable hereon, and
(c) expressly agree that it will not be necessary for the Lender, in order to
enforce payment of this Note, to first institute or exhaust the Lender's
remedies against the Borrower or any other party liable hereon or against any
Collateral for this Note. No extension of time for the payment of this Note,
or any installment hereof, made by agreement by the Lender with any person
now or hereafter liable for the payment of this Note, shall affect the
liability under this Note of the Borrower, even if the Borrower is not a
party to such agreement; PROVIDED, HOWEVER, that the Lender and the Borrower,
by written agreement between them, may affect the liability of the Borrower.
Any reference herein to the Lender shall be deemed to include and apply
to every subsequent holder of this Note. Reference is made to the Loan
Agreement for provisions concerning optional and mandatory prepayments,
Collateral, acceleration and other material terms affecting this Note.
This Amended and Restated Promissory Note amends and restates in its
entirety the Promissory Note dated September 19, 1996 (the "Existing
Promissory Note") and is given as a continuation, rearrangement and
extension, and not a novation, release or satisfaction, of the Existing
Promissory Note. The issuance and delivery of this Amended and Restated
Promissory Note is in substitution for the Existing Promissory Note. This
Amended and Restated Promissory Note does not create or evidence any
principal indebtedness other than the principal indebtedness evidenced by the
Existing Promissory Note. The Borrower hereby acknowledges and agrees that
simultaneously with the Borrower's execution and delivery of this Amended and
Restated Promissory Note to the Lender, the Lender has delivered to the
Borrower the Existing Promissory Note.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE STATE
OF NEW YORK (WITHOUT REFERENCE TO CHOICE OF LAW DOCTRINE) WHOSE LAWS THE
BORROWER EXPRESSLY ELECTS TO APPLY TO THIS NOTE. THE BORROWER AGREES THAT
ANY ACTION OR PROCEEDING BROUGHT TO ENFORCE OR ARISING OUT OF THIS NOTE MAY
BE COMMENCED IN THE SUPREME COURT OF THE STATE OF NEW YORK, BOROUGH OF
MANHATTAN, OR IN THE DISTRICT COURT OF THE UNITED STATES FOR THE SOUTHERN
DISTRICT OF NEW YORK.
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
By:
---------------------------------------
Name:
Title:
A-2
<PAGE>
SCHEDULE OF LOANS
This Note evidences Loans made under the within-described Loan Agreement
to the Borrower, on the dates, in the principal amounts and bearing interest
at the rates set forth below, and subject to the payments and prepayments of
principal set forth below:
PRINCIPAL AMOUNT PAID UNPAID NOTATION
DATE MADE AMOUNT OF LOAN OR PREPAID PRINCIPAL AMOUNT MADE BY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-3
<PAGE>
EXHIBIT B
[FORM OF CUSTODIAL AGREEMENT]
[to be added]
B-1
<PAGE>
Page 59
EXHIBIT C
[FORM OF OPINION OF COUNSEL TO THE BORROWER]
(date)
Morgan Stanley Mortgage Capital Inc.
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
You have requested [our] [my] opinion, as counsel to AMRESCO
Residential Capital Markets, Inc., a Delaware corporation, formerly known as
AMRESCO Residential Mortgage Corporation (the "Borrower") AMRESCO Residential
Mortgage Corporation, A Delaware corporation formerly known as AMRESCO B&C,
Inc. (the "PLEDGOR"), with respect to certain matters in connection with that
certain Amended and Restated Master Loan and Security Agreement, dated as of
October 25, 1996 (the "LOAN AND SECURITY AGREEMENT"), by and between the
Borrower, Pledgor and Morgan Stanley Mortgage Capital Inc. (the "LENDER"),
being executed contemporaneously with a Promissory Note dated October 25,
1996 from the Borrower to the Lender (the "NOTE"), and that certain Amended
and Restated Master Custodial Agreement, dated as of November 1, 1995 (the
"CUSTODIAL AGREEMENT"), by and among the Borrower and Bankers Trust Company
of California, N.A. (the "CUSTODIAN"), and that certain Amended and Restated
Addendum thereto (the "ADDENDUM") dated October 25, 1996. Capitalized terms
not otherwise defined herein have the meanings set forth in the Loan and
Security Agreement.
[We] [I] have examined the following documents:
1. the Loan and Security Agreement;
2. the Note;
3. Custodial Agreement;
4. unfiled copies of the financing statements listed on SCHEDULE
1 (collectively, the "FINANCING STATEMENTS") naming
the Borrower or Pledgor as Debtor and the Lender as Secured Party
and describing the Collateral (as defined in the Loan and
Security Agreement) which I understand will be filed in the
filing offices listed on SCHEDULE 1 (the "FILING OFFICES"); and
5. such other documents, records and papers as we have deemed
necessary and relevant as a basis for this opinion.
To the extent [we] [I] have deemed necessary and proper, [we] [I]
have relied upon the representations and warranties of the Borrower and the
Pledgor contained in the Loan and Security Agreement. [We] [I] have assumed
the authenticity of all documents submitted to me as originals, the
genuineness of all signatures, the legal capacity of natural persons and the
conformity to the originals of all documents.
<PAGE>
Page 60
Based upon the foregoing, it is [our] [my] opinion that:
1. The Borrower is a Delaware corporation duly organized, validly
existing and in good standing under the laws of Delaware and is qualified to
transact business in, and is in good standing under, the laws of the state of
Delaware and Texas.
2. The Pledgor is a Delaware corporation duly organized, validly
existing and in good standing under the laws of Delaware and is qualified to
transact business in, and is in good standing under, the laws of several
states, including without limitation, Delaware, Texas and California.
3. Both the Borrower and the Pledgor (as applicable) have the
corporate power to engage in the transactions contemplated by the Loan and
Security Agreement, the Note, and the Custodial Agreement (sometimes referred
herein collectively as the "LOAN DOCUMENTS") and all requisite corporate
power, authority and legal right to execute and deliver the Loan and Security
Agreement, the Note, and the Custodial Agreement and observe the terms and
conditions of such instruments. The Borrower has all requisite corporate
power to borrow under the Loan and Security Agreement and both the Borrower
and the Pledgor have all requisite corporate power to grant a security
interest in the Collateral (to the extent of their interest therin) pursuant
to the Loan and Security Agreement.
4. The execution, delivery and performance by the Borrower or the
Pledgor (as applicable) of the Loan and Security Agreement, the Note, and the
Custodial Agreement, and the borrowings by the Borrower and the pledge of the
Collateral under the Loan and Security Agreement by the Borrower and the
Pledgor (as applicable) have been duly authorized by all necessary corporate
action on the part of the Borrower and the Pledgor (as applicable). Each of
the Loan and Security Agreement, the Note and the Custodial Agreement have
been executed and delivered by the Borrower and the Pledgor (as applicable)
and are legal, valid and binding agreements enforceable in accordance with
their respective terms against the Borrower and the Pledgor (as applicable),
subject to bankruptcy laws and other similar laws of general application
affecting rights of creditors and subject to the application of the rules of
equity, including those respecting the availability of specific performance,
none of which will materially interfere with the realization of the benefits
provided thereunder or with the Lender's security interest in the Mortgage
Loans.
5. No consent, approval, authorization or order of, and no filing
or registration with, any court or governmental agency or regulatory body is
required on the part of the Borrower or the Pledgor for the execution,
delivery or performance by such party of the Loan and Security Agreement, the
Note and the Custodial Agreement or for the borrowings by the Borrower under
the Loan and Security Agreement or the granting of a security interest to the
Lender in the Collateral by the Borrower and the Pledgor, pursuant to the
Loan and Security Agreement.
6. The execution, delivery and performance by the Borrower and
the Pledgor (as applicable) of, and the consummation of the transactions
contemplated by, the Loan and Security Agreement, the Note and the Custodial
Agreement do not and will not (a) violate any provision of the such party's
charter or by-laws, (b) violate any applicable law, rule or regulation, (c)
violate any order, writ, injunction or decree of any court or governmental
authority or agency or any arbitral award applicable to such party of which I
have knowledge (after due inquiry) or (d) result in a breach of, constitute a
default under, require any consent under, or result in the acceleration or
required prepayment of any indebtedness pursuant to the terms of, any
agreement or instrument of which I have knowledge (after due inquiry) to
which the Borrower or the Pledgor is a party or by which it is bound or to
which they are subject, or (except for the Liens created pursuant to the Loan
and Security Agreement) result in the creation or imposition of any Lien upon
any Property of the Borrower or the Pledgor pursuant to the terms of any such
agreement or instrument.
<PAGE>
Page 61
7. There is no action, suit, proceeding or investigation pending
or, to the best of [our] [my] knowledge, threatened against the Borrower or
the Pledgor which, in [our] [my] judgment, either in any one instance or in
the aggregate, would be reasonably likely to result in any material adverse
change in the properties, business or financial condition, or prospects of
the Borrower or the Pledgor or in any material impairment of the right or
ability of the Borrower or the Pledgor to carry on its business substantially
as now conducted or in any material liability on the part of the Borrower or
the Pledgor or which would draw into question the validity of the Loan and
Security Agreement, the Note, the Custodial Agreement or the Mortgage Loans
or of any action taken or to be taken in connection with the transactions
contemplated thereby, or which would be reasonably likely to impair
materially the ability of the Borrower or Pledgor to perform under the terms
of the Loan and Security Agreement, the Note, the Custodial Agreement or the
Mortgage Loans.
8. The Loan and Security Agreement is effective to create, in
favor of the Lender, a valid security interest under the Uniform Commercial
Code in all of the right, title and interest of the Borrower and the Pledgor
in, to and under the Collateral as collateral security for the payment of the
Secured Obligations (as defined in the Loan and Security Agreement), except
that (a) such security interests will continue in Collateral after its sale,
exchange or other disposition only to the extent provided in Section 9-306 of
the Uniform Commercial Code, (b) the security interests in Collateral in
which the Borrower or the Pledgor acquires rights after the commencement of a
case under the Bankruptcy Code in respect of the Borrower or the Pledgor (as
applicable) may be limited by Section 552 of the Bankruptcy Code.
9. When the Mortgage Notes are delivered to the Custodian,
endorsed in blank by a duly authorized officer of the Borrower, the security
interest referred to in paragraph 7 above in the Mortgage Notes will
constitute a fully perfected first priority security interest in all right,
title and interest of the Borrower therein, in the Mortgage Loans evidenced
thereby.
10. The Assignments of Mortgage are in recordable form, except for
the insertion of the name of the assignee, and upon the name of the assignee
being inserted, are acceptable for recording under the laws of the state
where each related Mortgaged Property is located.
In addition to the qualifications and assumptions set forth
elsewhere herein, this opinion is limited by, subject to and based on the
following:
(a) This opinion is limited in all respects to the laws of the
State of Texas, the corporate laws of the state of Delaware and applicable
federal law. I am licensed to practice law in the State of Texas and do not
hold myself to be competent as to the laws of any jurisdiction other than the
State of Texas, the corporate laws of Delaware and the United States of
America. However, for the purpose of rendering the opinion set forth in the
second sentence of paragraph 3 above only, I have assumed that the law of
Texas is identical to the law of New York.
(b) I have assumed that the Lender is validly existing, has all
requisite power and authority to enter into and perform its obligations under
the documents to which it is a party, and has duly authorized, executed and
delivered the documents to which it is a party.
(c) The enforceability of the respective obligations of the
parties to the Loan and Security Agreement, and the availability of certain
rights and remedies provided for therein, may be limited by (i) the rights of
the United States under the Federal Tax Lien Act of 1966, as amended, liens
under Title IV of ERISA, and the power of the United States and other
governmental authorities to take actions injurious to the Lenders under the
protection of the principle of sovereign immunity, (ii) principles of equity
and (iii) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium and similar laws applicable to creditors' rights generally. The
enforceability of particular obligations, rights and remedies provided for in
the Loan Documents may also be limited by various additional state and
federal laws and judicial decisions, but, to my knowledge such additional
<PAGE>
Page 62
limitations should not affect the validity of the Loan Documents and do not
substantially interfere with the practical realization of the benefits
expressed in the Loan Documents, except for the consequences any procedural
delay which may result therefrom.
(d) This opinion is give as of the date hereof and I assume no
obligation to update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to my attention or any change in law
which may hereafter occur.
The opinions herein expressed are for the benefit of the Lender and
its counsel exclusively and may be relied upon only by the Lender and their
counsel only in consummating the transactions evidenced by the Loan and
Security Agreement.
Very truly yours,
<PAGE>
Page 63
EXHIBIT D
CREDIT CRITERIA FOR PAG I CREDIT MORTGAGE LOANS
<PAGE>
Page 64
EXHIBIT E
CREDIT CRITERIA FOR PAG II CREDIT MORTGAGE LOANS
<PAGE>
Page 65
EXHIBIT F
CREDIT CRITERIA FOR PAG III CREDIT MORTGAGE LOANS
<PAGE>
Page 66
EXHIBIT G
CREDIT CRITERIA FOR PAG IV CREDIT MORTGAGE LOANS
<PAGE>
Page 67
EXHIBIT H
CREDIT CRITERIA FOR PAG V CREDIT MORTGAGE LOANS
<PAGE>
Page 68
EXHIBIT I
FORM OF PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT is made as of the ___ day of
__________, 1996 by [________________] (the "PLEDGOR"), a [_______________]
organized and existing under the laws of the State of [________________] and
having its principal office at [________________], in favor of MORGAN STANLEY
MORTGAGE CAPITAL INC., a New York corporation (the "LENDER").
WHEREAS, the Lender has entered into a Amended and Restated Master Loan
and Security Agreement, dated as of October 25, 1996 (the "LOAN AGREEMENT"),
with AMRESCO Residential Capital Markets, Inc. ("BORROWER") and AMRESCO
Residential Mortgage Corporation (the "ADDITIONAL PLEDGOR") providing for the
extension of loans by Lender to Borrower, from time to time; and
WHEREAS, the Pledgor is an Affiliate of Borrower and/or is financially
interested in its affairs and expects to derive advantage from each and every
such Loan;
NOW, THEREFORE, to induce Lender, at its option, to extend Loans to
Borrower, from time to time, and for other good and valuable consideration
receipt of which is hereby acknowledged, Pledgor hereby agrees as follows:
1. DEFINED TERMS. (a) Unless otherwise defined herein, capitalized
terms which are defined in the Loan Agreement and used herein shall have the
meanings given to them in the Loan Agreement; and the following terms shall
have the following meanings:
"BORROWER": As defined in the recitals hereto.
"COLLATERAL": All Mortgage Loans; all Underlying Obligations, all
Underlying Loans and all Affiliate Transfers; all Affiliate Transfer
Documents, all Underlying Loan Documents and all Mortgage Loan
Documents, including without limitation all promissory notes, and all
Servicing Records and any other collateral pledged to secure or otherwise
relating to such Mortgage Loans, Underlying Loans, Affiliate Transfers or
Underlying Obligations, together with all files, documents, instruments,
surveys, certificates, correspondence, appraisals, computer programs,
computer storage media, accounting records and other books and records
relating thereto; all mortgage guaranties and insurance (issued by
governmental agencies or otherwise) and any mortgage insurance
certificate or other document evidencing such mortgage guaranties or
insurance relating to any Mortgage Loan and all claims and payments
thereunder; all other insurance policies and insurance proceeds relating
to any Mortgage Loans or the related Mortgaged Property or to any
Underlying Obligation; all Interest Rate Protection Agreements relating
to or constituting any or all of the foregoing; all "general intangibles"
as defined in the Uniform Commercial Code relating to or constituting any
and all of the foregoing; and any and all replacements, substitutions,
distributions on or proceeds of any and all of the foregoing.
"LENDER": As defined in the introductory paragraph hereto.
<PAGE>
"LOAN AGREEMENT": As defined in the recitals hereto.
"PLEDGE AGREEMENT": This Pledge and Security Agreement, as amended,
supplemented or otherwise modified from time to time.
"PLEDGE IDENTIFICATION CERTIFICATE": A certificate substantially in
the form of EXHIBIT A hereto.
"PLEDGOR": As defined in the introductory paragraph hereto.
(b) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and not to any particular provision of this Agreement, and Section, Schedule,
Annex, and Exhibit references are to this Agreement unless otherwise
specified. The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. GRANT OF SECURITY INTEREST BY PLEDGOR. To further secure the
Secured Obligations of the Borrower and in consideration of Lender's
extending Loans to Borrower, Pledgor hereby assigns, pledges and grants
Lender a first priority security interest in all of Pledgor's right, title
and interest in, to and under all Collateral, whether now owned or hereafter
acquired, now existing or hereafter created and wherever located. Pledgor
agrees to mark its computer records and tapes to evidence the security
interests granted to Lender hereunder. The Pledgor and the Borrower have
currently entered into Affiliate Transfer Documents which set forth the
rights and obligations of each of such parties to each other in the event
that the Lender forecloses on the Collateral. Such Affiliate Transfer
Documents are not binding on the Lender and nothing set forth herein or
therein shall limit, alter or impair any of the Lender's rights hereunder.
Upon the occurrence of any Event of Default, the Lender shall have all the
remedies of a secured party under the UCC and all remedies available under
any other applicable law.
3. PLEDGOR ACKNOWLEDGMENT AND RIGHTS OF LENDER IN THE CASE OF AN EVENT
OF DEFAULT. (a) The Pledgor acknowledges and agrees that Borrower may sell,
resell (pursuant to a repurchase transaction), pledge, repledge, hypothecate
and rehypothecate to the Lender all or any portion of the Collateral,
including without limitation the pledge or rehypothecation of any or all
Mortgage Loans transferred by the Pledgor to Borrower and the hypothecation
of any or all Underlying Obligations and Affiliate Transfers. The Pledgor
acknowledges and agrees that in connection with the funding being made
available to the Borrower under the Loan Agreement the Borrower is pledging
to the Lender its interests in the Underlying Obligations and Affiliate
Transfers and the Affiliate Transfer Documents and rehypothecating to the
Lender the Mortgage Loans related to the Affiliate Transfers. The Pledgor
acknowledges and agrees that the Lender's rights with respect to the
Collateral are and shall continue to be senior and superior to the rights of
the Pledgor and that the Lender shall have the absolute right to exercise any
and all remedies with respect to the Mortgage Loans either pursuant to the
pledge of the Collateral by the Pledgor to the Lender hereunder, pursuant to
the pledge of the Collateral by the Borrower under the Loan Agreement, or in
connection with a foreclosure on the Borrower's interest in the Affiliate
Transfers, whether or not any default has occurred or exists pursuant to any
arrangement between the Pledgor and the Borrower. In the event of an Event of
Default, the Lender shall have (i) all rights and remedies of a secured party
under the Uniform Commercial Code with respect to the Collateral and (ii) the
right, but not the obligation, to proceed either prior, concurrently or
subsequently with respect to the Borrower's interest in the Affiliate
Transfers or any other collateral or other support for the Borrower's
obligations under the Loans. The
-2-
<PAGE>
Pledgor acknowledges and agrees that its rights with respect to the
Collateral are and shall continue to be at all times junior and subordinate
to the rights of the Lender hereunder. The Pledgor agrees that it will
forebear and take no action without the express prior written consent of the
Lender with respect to the Collateral pursuant to any agreement between them
or otherwise prior to 91 days after the time the Lender has sold or disposed
of all of the Mortgage Loans and this Pledge Agreement is terminated.
(b) Notwithstanding realization by Lender upon any Collateral of the
Pledgor, Pledgor shall not be entitled to be subrogated to any of the rights
of the Lender against the Borrower nor shall the Pledgor seek or be entitled
to seek any contribution or reimbursement from the Borrower with respect to
the Pledgor's rights in the Collateral, until all amounts owing to the Lender
on account of the Secured Obligations are paid in full. The pledge hereunder
is irrevocable and shall remain in effect notwithstanding that, without any
reservation of rights against the Pledgor and without notice to or further
assent by the Pledgor, any demand for payment of any of the Secured
Obligations made by Lender may be rescinded by Lender, and the Secured
Obligations may, from time to time, in whole or in part, be continued,
renewed, extended, amended, modified, accelerated or compromised, or may in
part, be waived, surrendered or released by Lender, and the Loan delivered in
connection therewith may be amended, modified, supplemented or terminated, in
whole or in part, as Lender may deem advisable from time to time, and any
guarantee, other collateral security, or right of offset at any time held by
Lender for the payment of the Secured Obligations may be sold, exchanged,
waived, surrendered or released. Any failure by Lender to make demand or to
collect any payments from the Borrower shall not affect the pledge hereunder
or impair or affect the rights and remedies, express or implied, or as a
matter of law, of the Lender against the Pledgor. For the purposes hereof,
"demand" shall include without limitation the commencement and continuance of
any legal proceedings. The Lender shall have no obligation to protect,
secure, perfect or insure any lien at any time held by it as security for the
Secured Obligations or any property subject thereto. Pledgor waives any and
all notice of the creation, renewal, extension or accrual of any of the
Secured Obligations and notice or proof of reliance by Lender upon this
Pledge and Security Agreement. The Pledgor waives diligence, presentment,
protest, demand for payment and notice of default or nonpayment to or upon
the Borrower or the Pledgor with respect to the Secured Obligations.
4. PLEDGE IDENTIFICATION CERTIFICATE; FURTHER ASSURANCES. Pledgor
shall execute and deliver to Lender a Pledge Identification Certificate,
pursuant to which Pledgor shall confirm its grant of a security interest in
the Collateral hereunder by specifically granting to Lender a first priority
security interest in and lien upon the specific Eligible Mortgage Loans and
Eligible Underlying Obligations (and other assets, if any) being pledged by
Borrower to Lender on Funding date to secure the Secured Obligations. The
pledge in connection with the Pledge Identification Certificate relates to
the grant of the security interest pursuant to Section 2 hereof and is not a
new, additional or replacement pledge. In furtherance of the foregoing,
Pledgor shall execute all documents, including but not limited to financing
statements under the Uniform Commercial Code as in effect in any applicable
jurisdictions, as Lender may reasonably require to effectively perfect and
evidence Lender's first priority security interest in the Collateral. Pledgor
also covenants not to pledge, assign or grant to any other party any security
interest in any Eligible Mortgage Loan or other Collateral.
5. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and
warrants to Lender, as of the date hereof, and as of each Funding Date, as
follows:
(a) EXISTENCE. The Pledgor (a) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its organization, (b) has all requisite corporate or other power, and has all
governmental licenses, authorizations, consents and approvals, necessary to
-3-
<PAGE>
own its assets and carry on its business as now being or as proposed to be
conducted, except where the lack of such licenses, authorizations, consents
and approvals would not be reasonably likely to have a material adverse
effect on its property, business or financial condition, or prospects; and
(c) is qualified to do business and is in good standing in all other
jurisdictions in which the nature of the business conducted by it makes such
qualification necessary, except where failure so to qualify would not be
reasonably likely (either individually or in the aggregate) to have a
material adverse effect on its property, business or financial condition, or
prospects; and (c) is qualified to do business and is in good standing in all
other jurisdictions in which the nature of the business conducted by it makes
such qualification necessary, except where failure so to qualify would not be
reasonably likely (either individually or in the aggregate) to have a
material adverse effect on its property, business or financial condition, or
prospects.
(b) NO BREACH. Neither (a) the execution and delivery of this Pledge
Agreement or (b) the consummation of the transactions therein contemplated in
compliance with the terms and provisions thereof will conflict with or result
in a breach of the charter or by-laws of the Pledgor, or any applicable law,
rule or regulation, or any order, writ, injunction or decree of any
Governmental Authority, or any Servicing Agreement or other material
agreement or instrument to which the Pledgor, or any of its Subsidiaries, is
a party or by which any of them or any of their property is bound or to which
any of them is subject, or constitute a default under any such material
agreement or instrument, or (except for the Liens created pursuant to this
Pledge Agreement) result in the creation or imposition of any Lien upon any
property of the Pledgor or any of its Subsidiaries pursuant to the terms of
any such agreement or instrument.
(c) ACTION. The Pledgor has all necessary corporate or other power,
authority and legal right to execute, deliver and perform its obligations
under this Pledge Agreement; the execution, delivery and performance by the
Pledgor of this Pledge Agreement have been duly authorized by all necessary
corporate or other action on its part; and this Pledge Agreement has been
duly and validly executed and delivered by the Pledgor and constitutes a
legal, valid and binding obligation of the Pledgor, enforceable against the
Pledgor in accordance with its terms.
(d) APPROVALS. No authorizations, approvals or consents of, and no
filings or registrations with, any Governmental Authority, or any securities
exchange, are necessary for the execution, delivery or performance by the
Pledgor of this Pledge Agreement or for the legality, validity or
enforceability thereof, except for filings and recordings in respect of the
Liens created pursuant to this Pledge Agreement.
(e) COLLATERAL; COLLATERAL SECURITY.
(i) The provisions of this Pledge Agreement are effective to create in
favor of the Lender a valid security interest in all right, title and
interest of the Pledgor in, to and under the Collateral.
(ii) Upon the filing of financing statements and assignments of
financing statements identified in Sections 5.02(f) and 5.02(g) of the Loan
Agreement in the jurisdictions and recording offices listed on Schedule 2
attached thereto, the security interests granted hereunder in the Collateral
will constitute fully perfected first priority security interests under the
Uniform Commercial Code in all right, title and interest of the Pledgor in,
to an under such Collateral which can be perfected by filing under the
Uniform Commercial Code.
(f) CHIEF EXECUTIVE OFFICE. The Pledgor's chief executive office on
the date hereof is located at [________________________________________].
-4-
<PAGE>
(g) LOCATION OF BOOKS AND RECORDS. The location where the Pledgor
keeps its books and records, including all computer tapes and records
relating to the Collateral on the date hereof is [________________________].
(h) SOLVENCY. The actions taken by the Pledgor pursuant to this Pledge
Agreement are not undertaken with the intent to hinder, delay or defraud any
of the Pledgor's creditors. Such Pledgor is not insolvent within the meaning
of 11 U.S.C. Section 101(32) and the consummation of the transactions
contemplated herein (a) will not cause the Pledgor to become insolvent, (b)
will not result in any property remaining with the Pledgor to be unreasonably
small capital, and (c) will not result in debts that would be beyond the
Pledgor's ability to pay as same mature. Such Pledgor is receiving reasonably
equivalent value in exchange for the transfer and pledge of the Pledgor's
interest in the Basic Collateral made pursuant to this Pledge Agreement.
6. COVENANTS. So long as the Loan Agreement remains in effect or
Borrower shall have any obligations thereunder, Pledgor hereby covenants and
agrees with Lender as follows:
(a) EXISTENCE, ETC. The Pledgor will:
(i) preserve and maintain its legal existence and all of its
material rights, privileges, licenses and franchises;
(ii) not move its chief executive office from the address referred
to in Section 5(f) unless it shall have provided the Lender 30 days'
prior written notice of such change and shall have delivered to the
Lender all financing statements and amendments to financing statements
necessary in the sole judgment of the Lender to cause the Lender's
security interest in the Collateral to be continuously perfected from
and after such change in location; and
(iii) not change its name, identity or corporate structure unless it
shall have provided the Lender 30 days' prior written notice of such
change and shall have delivered to the Lender all financing statements
and amendments to financing statements necessary in the sole judgment of
the Lender to cause the Lender's security interest in the Collateral to
be continuously perfected from and after such change.
(b) LIMITATION ON LIENS. The Pledgor will defend the Collateral
against, and will take such other action as is necessary to remove, any Lien,
security interest or claim on or to the Collateral, other than the security
interests created under the Loan Agreement and this Pledge Agreement, and the
Pledgor will defend the right, title and interest of the Lender in and to any
of the Collateral against the claims and demands of all persons whomsoever.
(c) MAINTENANCE OF RECORDS. The Pledgor will keep and maintain at its
own cost and expense satisfactory and complete records of the Collateral. The
Pledgor will mark its books and records pertaining to the Collateral to
evidence this Pledge Agreement and the security interests granted hereby.
Upon the occurrence and during the continuance of an Event of Default, the
Pledgor shall turn over any books and records pertaining to the Collateral to
the Lender or to its representatives during normal business hours at the
request of the Lender.
(d) RIGHT OF INSPECTION. The Lender shall at all times have full and
free access during normal business hours to all the books, correspondence and
records of the Pledgor, and the Lender or its representatives may examine the
same, take extracts therefrom and make
-5-
<PAGE>
photocopies thereof, and the Pledgor agrees to render to the Lender at the
Pledgor's cost and expense, such clerical and other assistance as may be
reasonably requested with regard thereto. The Lender and its representatives
shall at all times also have the right to enter into and upon any premises
where any of the Collateral is located for the purpose of inspecting the same
or otherwise protecting its interests therein.
(e) LIMITATIONS ON MODIFICATIONS OF AFFILIATE TRANSFER DOCUMENTS. The
Pledgor will not amend, modify, terminate or waive any provision of any
Affiliate Transfer Document or any agreement giving rise to an Underlying
Obligation in any manner.
(f) FURTHER IDENTIFICATION OF COLLATERAL. The Pledgor will furnish to
the Lender from time to time statements and schedules further identifying and
describing the Collateral and such other reports in connection with the
Collateral as the Lender may reasonably request, all in reasonable detail.
(g) FURTHER DOCUMENTATION. At any time and from time to time, upon the
written request of Lender, and at the sole expense of Pledgor, Pledgor will
promptly and duly execute and deliver such further instruments and documents
and take such further action as Lender may reasonably request for the purpose
of obtaining or preserving the full benefits of this Pledge Agreement and of
the rights and powers herein granted, including, without limitation, the
filing of any financing or continuation statements under the Uniform
Commercial Code in effect in any jurisdiction with respect to the security
interests created hereby. Pledgor also hereby authorizes Lender to file any
such financing or continuation statement without the signature of Pledgor to
the extent permitted by applicable law. A carbon, photographic or other
reproduction of this Pledge Agreement shall be sufficient as a financing
statement for filing in any jurisdiction.
7. LENDER'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) POWERS. Anything in this paragraph 7 to the contrary
notwithstanding, Lender agrees that it will not exercise any rights under the
power of attorney provided for in this paragraph unless and Event of Default
has occurred and is continuing. Pledgor hereby irrevocably constitutes and
appoints Lender and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of Pledgor and in the name of
Pledgor or in its own name, from time to time in the Lender's discretion, for
the purpose of carrying out the terms of this Pledge Agreement, to take any
and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Pledge Agreement. Pledgor hereby ratifies all that said attorneys shall
lawfully do or cause to be done by virtue hereof. This power of attorney is a
power coupled with an interest and is irrevocable.
(b) NO DUTY ON LENDER'S PART. The powers conferred on Lender,
hereunder are solely to protect Lender's interests in the Collateral and
shall not impose any duty upon the Lender to exercise any such powers. Lender
shall be accountable only for amounts that it actually receives as a result
of the exercise of such powers, and neither it nor any of its officers,
directors, employees or agents shall be responsible to Pledgor for any act or
failure to act hereunder, except for its own gross negligence or willful
misconduct. Lender's sole responsibility with respect to the custody,
safekeeping and physical preservation of the Collateral in its possession,
under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to
deal with it in the same manner as Lender deals with similar property for its
own account.
-6-
<PAGE>
8. NOTICES. All notices, demands and other communications hereunder
shall be given in writing and delivered or telefaxed (i) to Pledgor, at
[____________________________] with a copy to: c/o AMRESCO Residential Credit
Corporation, 3401 Centrelake Drive, Suite 480, Ontario, California 91761,
Attention: Mr. Michael W. Trickey, Telecopier No.: (909) 605-7619, Telephone
No.: (909) 605-7600, and ARMC, 700 N. Pearl Street, Suite 2400, Lock Box 342,
Dallas, Texas 75201-7424, Attention: General Counsel, Telecopier No.: (214)
953-7757, Telephone No.: (214) 953-7700, Attention: Anne Duffield, Facsimile:
(212) 207-2980, and (ii) to Lender at 1585 Broadway, New York, New York
10036, Attention: Mr. Peter Mozer, Facsimile: (212) 761-9949, and shall be
effective upon actual receipt.
9. GOVERNING LAW; AMENDMENTS. THIS PLEDGE 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 RULES THEREOF. This Pledge Agreement
may not be modified, altered or amended except by a writing signed by both
Pledgor and Lender.
10. SUBMISSION TO JURISDICTION; WAIVERS. EACH OF OBLIGOR AND PURCHASER
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH
OF MANHATTAN, CITY OF NEW YORK, IN ANY ACTION, SUIT OR PROCEEDING BROUGHT
AGAINST IT WHICH IS RELATED TO ANY MATTER CONTAINED IN THIS PLEDGE AGREEMENT,
AND EACH OF OBLIGOR AND PURCHASER HEREBY WAIVES AND AGREES NOT TO ASSERT BY
WAY OF MOTION, DEFENSE OR OTHERWISE, IN ANY SUCH ACTION, SUIT OR PROCEEDING,
THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, THAT
ANY SUCH COURT IS AN INCONVENIENT FORUM OR THAT VENUE IN ANY SUCH COURT IS
IMPROPER. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF OBLIGOR AND
PURCHASER IRREVOCABLY WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION WITH THIS PLEDGE
AGREEMENT OR ANY MATTER ARISING HEREUNDER.
11. SEVERABILITY. Any provision of this Pledge Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
12. PARAGRAPH HEADINGS; COUNTERPARTS. The paragraph headings used in
this Pledge Agreement are for convenience of reference only and are not to
affect the construction hereof or be taken into consideration in the
interpretation hereof. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
shall constitute one and the same instrument.
13. NO WAIVER; CUMULATIVE REMEDIES. Lender shall not by any act
(except by a written instrument pursuant to paragraph 14 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Required Sale Event or Event of
Termination or in any breach of any of the terms and conditions hereof. No
failure to exercise, nor any delay in exercising, on the part of Lender, any
right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege
-7-
<PAGE>
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by Lender of any right or
remedy hereunder on any one occasion shall not be construed as a bar to any
right or remedy which Lender would otherwise have on any future occasion.
The rights and remedies herein provided are cumulative, may be exercised
singly or concurrently and are not exclusive of any rights or remedies
provided by Law.
14. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS. None of the terms
or provisions of this Pledge Agreement may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by Pledgor and
Lender, PROVIDED that any provision of this Pledge Agreement may be waived by
Lender in a written instrument executed by Lender. This Pledge Agreement
shall be binding upon the successors and assigns of pledgor and shall inure
to the benefit of Lender and its successors and assigns.
[SIGNATURE PAGE FOLLOWS]
-8-
<PAGE>
IN WITNESS WHEREOF, Pledgor and Lender have caused this Pledge Agreement
to be duly executed and delivered as of the date first above written.
[___________________________________]
By
-----------------------------------
Name:
Title: Authorized Signatory
MORGAN STANLEY MORTGAGE
CAPITAL INC.
By
-----------------------------------
Name:
Title:
<PAGE>
Page 69
EXHIBIT J
FORM OF LANGUAGE FOR UNDERLYING CUSTODIAL AGREEMENTS
COLLATERAL DEPOSIT ACCOUNT; REHYPOTHECATION OF MORTGAGE LOANS
[Underlying Obligor] hereby agrees that any and all proceeds of
sale of any Mortgage Loan or Mortgage Loans (other than proceeds of sale
received from [Borrower] upon [Borrower's] purchase of Mortgage Loans), or
payments or prepayments of any repurchase obligation or any loan obligation
with respect thereto, to be paid by it to [Borrower] pursuant to the terms of
any agreement between them with respect to the [Mortgage Loans] shall be made
directly by wire transfer to the Custodian (Account #________________)
[ABA# ___________] (the "Collateral Deposit Account") and shall be accompanied
by a letter from the [Underlying Obligor] to the Custodian and [the Borrower]
describing such payment and the reason therefor.
The [Underlying Obligor] hereby consents to the assignments by the
[Borrower] to any third party of any and all loans, repurchase agreements or
other financing obligations owed by it to the Borrower and any and all
security and guarantees therefor, including the Mortgage Loans, together with
all payments to be made by it in connection therewith, including the payments
described in the preceding paragraph and together with the Collateral Deposit
Account and all amounts, funds and property from time to time credited
thereto. [Underlying Obligor]understands and agrees that all such payments
and the Collateral Deposit Account and all amounts, funds and property from
time to time credited thereto shall be held for the benefit of, and subject
to the security interest of, any third party to whom the [Borrower] has
assigned or rehypothecated the Mortgage Loans. [Underlying Obligor] has no
rights with respect to the Collateral Deposit Account or amounts, funds or
other property from time to time credited thereto.
The [Underlying Obligor] further consents to the rehypothecation by
the [Borrower] of the Mortgage Loans. The [Underlying Obligor] understands
and agrees that upon any such assignment or rehypothecation the Mortgage
Loans will be held for the benefit of the third party to whom the [Borrower]
has assigned or rehypothecated them.
<PAGE>
AMENDED AND RESTATED ADDENDUM
TO
AMENDED AND RESTATED MASTER CUSTODIAL AGREEMENT
This AMENDED AND RESTATED ADDENDUM TO AMENDED AND RESTATED MASTER
CUSTODIAL AGREEMENT (this "ADDENDUM"), dated as of October 25, 1996, among
AMRESCO Residential Capital Markets, Inc., a Delaware corporation formerly known
as AMRESCO Residential Mortgage Corporation (the "OWNER"), Morgan Stanley
Mortgage Capital Inc. (the "REGISTERED HOLDER") and Bankers Trust Company of
California, N.A. (the "CUSTODIAN") amends and restates that certain Addendum,
dated as of September 19, 1996, among the Owner, the Registered Holder and the
Custodian (the "ORIGINAL ADDENDUM") to that certain Amended and Restated Master
Custodial Agreement, dated as of November 1, 1995, between the Owner and the
Custodian (the "CUSTODIAL AGREEMENT"). The Original Addendum is hereby amended
and restated to read in its entirety as follows:
1. This Addendum applies only with respect to the Mortgage Loans
held by the Custodian for the benefit of the Registered Holder identified
herein, or any pledgee or Secured Party of such Registered Holder.
Notwithstanding anything to the contrary set forth in the Custodial Agreement,
this Addendum shall govern the rights and obligations of the parties hereto with
respect to the Custodial Agreement and the Mortgage Loans held for the benefit
of the Registered Holder and its designees. This Addendum amends the Custodial
Agreement and in the event of a conflict between the terms of this Addendum and
the terms of the Custodial Agreement, the terms of this Addendum shall control
and be binding upon the parties hereto. Capitalized terms used but not defined
herein shall have the meanings assigned to them in the Custodial Agreement.
2. The Registered Holder shall be deemed a party to the Custodial
Agreement for all purposes with respect to the Mortgage Loans held by the
Custodian for the Registered Holder's benefit hereunder.
3. With respect to any provisions of the Custodial Agreement which
direct the Custodian to take instructions from the Registered Holder and the
Owner, in the event of a conflict between the instructions of the Registered
Holder and the instructions of the Owner, the instructions of the Registered
Holder shall control and be binding upon the Custodian.
4. The following definitions shall be added to Section 1 of the
Custodial Agreement in their proper alphabetical order:
"AFFILIATE TRANSFER": The transfer of Mortgage Loans or any interest
therein by an Affiliate of the Owner to the Owner which may be in connection
with an Underlying Loan or otherwise, with respect to which Mortgage Loans the
Custodian has been instructed to hold the Mortgage Loan Documents for the
Registered Holder pursuant to the Custodial Agreement.
"COLLATERAL AGENT": The Person indicated in writing by the Registered
Holder pursuant to delivery by the Registered Holder to the Custodian of a
Notice of Collateral Agent, or its successor in interest.
"COLLATERAL AGENT TERMINATION": As defined in Section 25 hereof.
-1-
<PAGE>
"COLLATERAL DEPOSIT ACCOUNT": The collateral deposit account
established by the Custodian pursuant to Section 27 hereof.
"EXCEPTION": With respect to any Mortgage Loan, any of the following:
(i). the variances from the requirements of Section 2 hereof with respect to the
Custodial Files (giving effect to the Owner's right to deliver certified copies
in lieu of original documents in certain circumstances), (ii) a Mortgage Loan
which has been pledged to the Registered Holder under the Loan Agreement in
excess of 180 calendar days, (iii) a Mortgage Loan that has been released to the
Owner hereunder in excess of 10 calendar days, (iv) a Wet-Ink Mortgage Loan for
which the Custodian has not received the original Mortgage Loan Documents by the
fifth Business Day following the applicable Funding Date, and (v) any Mortgage
Loan with respect to which the Custodian receives written notice or has actual
knowledge of a lien subject or security interest in favor of a Person other than
the Registered Holder with respect to such Mortgage Loan.
"FUNDING DATE" shall mean the date on which a Loan is made under the
Loan Agreement.
"LOAN": As defined in the Loan Agreement.
"LOAN AGREEMENT": That certain Master Loan and Security Agreement,
dated as of September 19, 1996, between the Owner and the Registered Holder, as
amended and restated by that certain Amended and Restated Master Loan and
Security Agreement, dated as of October 25, 1996 among the Owner, the Registered
Holder and the Pledgor identified therein, as the same may be further amended or
supplemented from time to time in accordance with its terms.
"MORTGAGE LOAN": As defined in the Loan Agreement.
"MORTGAGE LOAN DOCUMENTS": As to each Mortgage Loan, those documents
listed in Exhibit 6 of this Custodial Agreement that are delivered to the
Custodian or which at any time come into the possession of the Custodian.
"MORTGAGE LOAN SCHEDULE AND EXCEPTION REPORT": A list of the Mortgage
Loans held by the Custodian for the benefit of the Registered Holder pursuant to
this Agreement, accompanied by codes indicating any Exceptions with respect to
each Mortgage Loan listed thereon. Each Mortgage Loan Schedule and Exception
Report shall set forth all Exceptions with respect thereto, with any updates
thereto from the time last delivered.
"NOTICE OF COLLATERAL AGENT": The written notice of the security
interest of a Collateral Agent in the form of EXHIBIT 11 hereto.
"QUALIFIED ORIGINATOR": As defined in the Loan Agreement.
"REGISTERED HOLDER": Morgan Stanley Mortgage Capital Inc.
"SETTLEMENT AGENT": With respect to any Loan related to a Wet-Ink
Mortgage Loan, any entity approved or selected by the Qualified Originator and
not disapproved by the Registered Holder in its reasonable discretion (which may
be a title company, escrow company or attorney in accordance with local law and
practice in the jurisdiction where the related Wet-Ink Mortgage Loan is being
originated) to which the proceeds of such Loan are to be wired pursuant to the
instructions of the Registered Holder.
-2-
<PAGE>
"TRUST ACCOUNT": The trust account established by the Custodian
pursuant to Section 27 hereof.
"TRUST RECEIPT": A Trust Receipt in the form attached hereto as
EXHIBIT 14 delivered to the Registered Holder and the Owner by the Custodian
covering all of the Mortgage Loans subject to this Agreement from time to time,
as reflected on the Mortgage Loan Schedule and Exception Report attached thereto
in accordance with Section 3(g).
"UNDERLYING CUSTODIAL AGREEMENT": A custodial agreement between an
Underlying Obligor, the Owner and the Custodian with respect to Mortgage Loans
securing an Underlying Transaction.
"UNDERLYING LOAN": Either (i) the purchase of the Mortgage Loans by
the Owner, subject to the repurchase obligation of an Underlying Obligor to the
Owner or (ii) the extension of funds or other lending arrangements by the Owner
to an Underlying Obligor, secured by a pool of Mortgage Loans owned by the
Underlying Obligor with respect to which (x) either the Custodian has been
instructed to hold the Underlying Loan Documents for the Registered Holder
pursuant to the Custodial Agreement or the Registered Holder possesses such
Underlying Loan Documents and (y) the Custodian has been instructed to hold the
Mortgage Loan Documents for the Registered Holder pursuant to the Custodial
Agreement. The term "Underlying Loan" includes, without limitation, the
Underlying Obligation, any Underlying Note, the Underlying Loan Documents and
all right, title and interest of the Owner as secured party in and to the
Mortgage Notes and Mortgages and all other collateral securing such Underlying
Obligation and all guarantees of such Underlying Loan.
"UNDERLYING LOAN DOCUMENTS": As defined in the Loan Agreement.
"UNDERLYING OBLIGOR": A Person acceptable to the Registered Holder in
its sole discretion that transfers Mortgage Loans to the Owner.
"UNDERLYING TRANSACTION": An Affiliate Transfer or Underlying Loan,
as applicable.
"WET-INK MORTGAGE LOAN": A Mortgage Loan which is pledged to the
Registered Holder simultaneously with the origination thereof by the Owner,
which origination is financed in part or in whole with proceeds of Loans
advanced directly to a Settlement Agent.
5. The references to "Owner" in the fifth line from the end of
Section 2(4) and in the sixth line from the end of Section 2(6) shall be changed
to "Custodian".
6. The following paragraph shall be inserted prior to the last
paragraph of Section 2:
"On or prior to each Funding Date, the Owner shall deposit the
documents required in Section 2(B) of hereof with the Custodian.
Notwithstanding anything to the contrary set forth herein, with Respect to each
Wet-Ink Mortgage Loan, by no later than 12:00 noon, New York City time, on the
fifth Business Day following the applicable Funding Date, the Owner shall cause
the Settlement Agent to deliver to the Custodian the documents listed above in
this Section."
7. The following paragraphs shall be added immediately following
Section 3(d):
-3-
<PAGE>
"(e) On each Business Day on which the Custodian holds Custodial
Files hereunder, the Custodian shall deliver to the Registered Holder and the
Owner, via facsimile no later than 3:00 p.m., New York City time, a Mortgage
Loan Schedule and Exception Report for each Mortgage Loan pledged to the
Registered Holder on such Business Day, with Exceptions identified by the
Custodian as of the date and time of delivery of such Mortgage Loan Schedule and
Exception Report. Upon request of the Registered Holder (which may be a
standing request) the Custodian shall deliver by modem to the Registered Holder
by no later than 3:00 p.m., New York City time, substantially the same
information that is set forth on the Mortgage Loan Schedule and Exception
Report, in a format that is mutually agreed upon by the parties."
"(f) Each Mortgage Loan Schedule and Exception Report shall list
all Exceptions using such codes as shall be in form and substance agreed to by
the Custodian and the Registered Holder. Each Mortgage Loan Schedule and
Exception Report shall be superseded by a subsequently issued Mortgage Loan
Schedule and Exception Report. The delivery of each Mortgage Loan Schedule and
Exception Report to the Registered Holder shall be the Custodian's
representation that, other than the Exceptions listed as part of the Exception
Report: (i) all documents other than those those described in Section 2(3), (5)
and (7) of this Custodial Agreement required to be delivered in respect of such
Mortgage Loan pursuant to Section 2 of this Custodial Agreement have been
delivered and are in the possession of the Custodian as part of the Mortgage
File for such Mortgage Loan, (ii) all documents delivered to the Custodian have
been reviewed by the Custodian and appear on their face to be regular and to
relate to such Mortgage Loan and to satisfy the requirements set forth in
Sections 2 and 3(b) of this Custodial Agreement and (iii) each Mortgage Loan
identified on such Mortgage Loan Schedule and Exception Report is being held by
the Custodian as the bailee for the Registered Holder pursuant to this
Agreement."
"(g) In connection with a Mortgage Loan Schedule and Exception
Report delivered hereunder by the Custodian, the Custodian shall make no
representations as to and shall not be responsible to verify (A) the validity,
legality, enforceability, due authorization, recordability, sufficiency, or
genuineness of any of the documents contained in each Custodial File or (B) the
collectability, insurability, effectiveness or suitability of any such Mortgage
Loan. Subject to the following sentence, the Owner and the Registered Holder
hereby give the Custodian notice that from and after the Funding Date, the
Registered Holder shall have a security interest in each Mortgage Loan
identified on a Mortgage Loan Schedule and Exception Report until such time that
the Custodian receives written notice from the Registered Holder that the
Registered Holder no longer has a security interest in such Mortgage Loan.
Pursuant to such notice, the Custodian shall hold or release to the Owner,
pursuant to the Owner's written instructions, the Mortgage Loans identified
therein. Each Mortgage Loan Schedule and Exception Report delivered to the
Registered Holder by the Custodian, via facsimile shall be deemed superseded and
canceled upon the delivery of a subsequent Mortgage Loan Schedule and Exception
Report."
"(h) In addition to the foregoing, on the initial Funding Date,
the Custodian shall deliver to the Registered Holder a Trust Receipt with a
Mortgage Loan Schedule and Exception Report attached thereto. Each Mortgage
Loan Schedule and Exception Report delivered by the Custodian to the
Registered Holder shall supersede and cancel the Mortgage Loan Schedule and
Exception Report previously delivered by the Custodian to the Registered
Holder hereunder, and shall replace the then existing Mortgage Loan Schedule
and Exception Report to be attached to the Trust Receipt. Notwithstanding
anything to the contrary set forth herein, in the event that the Mortgage Loan
Schedule and Exception Report attached to the Trust Receipt is different from
the most recently
-4-
<PAGE>
delivered Mortgage Loan Schedule and Exception Report, then the most recently
delivered Mortgage Loan Schedule and Exception Report shall control and be
binding upon the parties hereto."
8. The following paragraphs shall be added immediately following the
last sentence of Section 6:
"The preceding sentences respecting release to the Owner or the
Servicer, of the Custodial Files or other such documents shall be operative only
to the extent that at any time the Custodian shall not have released to the
Owner or Servicer, Custodial Files pertaining to more than twenty (20) Mortgage
Loans at the time being held by the Custodian on behalf of the Registered
Holder. In the event the Owner or Servicer requests more than twenty (20)
Mortgage Loans to be released by the Custodian to the Owner or Servicer, the
Custodian shall notify the Registered Holder. Any additional Custodial Files
requested to be released by the Owner or Servicer may be released only upon
written authorization of the Registered Holder. The Owner or Servicer shall
return to the Custodian each document previously released from the Custodial
File within 10 calendar days of receipt thereof. Any document held by the Owner
or Servicer shall be held by the Owner or Servicer, as the case may be, as
bailee of the Registered Holder."
"So long as the Custodian does not have actual knowledge that an
Event of Default (as defined in the Loan Agreement) has occurred and is
continuing, the Custodian and the Registered Holder shall take such steps as
they may reasonably be directed from time to time by the Owner in writing, which
the Owner deems necessary and appropriate, to transfer promptly and deliver to
the Owner any Custodial File in the possession of the Custodian relating to any
Mortgage Loan previously included in the Borrowing Base (as defined in the Loan
Agreement) as an Eligible Mortgage Loan (as defined in the Loan Agreement) but
which the Owner, with the written consent of the Registered Holder, has notified
the Custodian has ceased to be an Eligible Mortgage Loan (as defined in the Loan
Agreement)."
9. The following paragraphs shall be added in lieu of Section 8,
"Removal of Custodian":
"The Registered Holder upon at least 30-days prior written notice
to the Custodian and the Owner, may, with cause, remove and discharge the
Custodian (or any successor custodian thereafter appointed) from the performance
of its obligations under this Agreement. Promptly after the giving of notice of
removal of the Custodian, the Owner shall appoint, by written instrument, a
successor custodian, subject to written approval of the Registered Holder (which
approval shall be granted or withheld in the Registered Holder's sole
discretion). One original counterpart of such instrument of appointment shall
be delivered to each of the Owner, the Custodian and the successor custodian.
In the event of any such removal, the Custodian shall promptly
transfer to the successor custodian, as directed in writing, all the Custodial
Files being administered under this Agreement and, if the endorsements on the
Mortgage Notes and the Assignments of Mortgage have been completed in the name
of the Custodian, assign the Mortgages and endorse without recourse the
Mortgage Notes to the successor Custodian or as otherwise directed by the
Registered Holder. The cost of the shipment of Custodial Files arising out
of the removal of the Custodian shall be at the expense of the Registered
Holder. The Owner shall be responsible for the fees and expenses of the
successor custodian and the fees and expenses for endorsing the Mortgage
Notes and assigning the Mortgages to the successor custodian if required
pursuant to this paragraph."
-5-
<PAGE>
10. The following paragraph shall be added in lieu of Section 14,
"Termination by Custodian":
"The Custodian may at any time resign and terminate its
obligations under this Custodial Agreement upon at least 60-days prior written
notice to the Owner and the Registered Holder. Promptly after receipt of notice
of the Custodian's resignation, the Owner shall appoint, by written instrument,
a successor custodian, subject to written approval by the Registered Holder
(which approval shall be granted or withheld in the Registered Holder's sole
discretion). One original counterpart of such instrument of appointment shall
be delivered to each of the Owner, the Custodian and the successor custodian."
In the event of any such resignation, the Custodian shall
promptly transfer to the successor custodian, as directed in writing, all the
Custodial Files being administered under this Agreement and, if the endorsements
on the Mortgage Notes and the Assignments of Mortgage have been completed in the
name of the Custodian, assign the Mortgages and endorse without recourse the
Mortgage Notes to the successor Custodian or as otherwise directed by the
Registered Holder. The cost of the shipment of Custodial Files arising out of
the resignation of the Custodian shall be at the expense of the Custodian. The
Owner shall be responsible for the fees and expenses of the successor custodian
and the fees and expenses for endorsing the Mortgage Notes and assigning the
Mortgages to the successor custodian if required pursuant to this paragraph."
11. The last sentence of the second paragraph of Section 19 is hereby
deleted in its entirety.
12. The following paragraph shall be added in lieu of Section 23,
"Pledging of the Mortgage Loans by the Owner":
"In connection with a pledge of the Mortgage Loans as collateral
for an obligation of the Owner, the Owner may pledge its interest in the
Mortgage Loans covered by any Trust Receipt and Certification by delivering to
the pledgee (the "HOLDER") such Trust Receipt and Certification, together with
an appropriate notice to the Custodian in form of EXHIBIT 9 hereto (the "NOTICE
OF PLEDGE"). Such Notice of Pledge shall be delivered to the Custodian at least
one Business Day prior to any such pledge and shall have attached thereto a
Schedule of the Mortgage Loans being so pledged. Such Schedule shall also be
delivered at the same time to the Custodian on computer readable magnetic tape
or disk, or other medium acceptable to the Custodian. Upon receipt of the
Notice of Pledge, the Custodian shall mark its records to reflect to the pledge
of the Mortgage Loans to the Registered Holder. The Custodian acknowledges that
on the date hereof, the Owner has pledged certain Mortgage Loans to the
Registered Holder as collateral for an obligation of the Owner. In connection
with a pledge of the Mortgage Loans as collateral for an obligation of the
Registered Holder, the Registered Holder may pledge its interest in the Mortgage
Loans covered by any Trust Receipt and Certification from time to time by
delivering written notice to the Custodian in the form of EXHIBIT 12 hereto,
stating that the Registered Holder has pledged its interest in the Mortgage
Loans and the Custodial Files, and the identity of the party to whom the
Mortgage Loans have been pledged (such party, the "PLEDGEE"). Upon receipt
of such notice from the Registered Holder, the Custodian shall mark its
records to reflect the pledge of the Mortgage Loans by the Registered Holder
to the Pledgee. The Custodian's records shall reflect the pledge of the
Mortgage Loans by the Registered Holder to the Pledgee until such time as the
Custodian receives written instructions from the Registered Holder that the
Mortgage Loans are no longer pledged by the Registered Holder to the Pledgee,
at which time the Custodian shall change its records to reflect the release
of the pledge of the Mortgage Loans."
-6-
<PAGE>
13. The following section shall be added to the Custodial Agreement
immediately following Section 23:
"Section 24 AMENDMENT. This Agreement may be amended from time
to time by written agreement signed by the Owner, the Registered Holder and the
Custodian."
14. The following section shall be added to the Custodial Agreement
immediately following Section 24:
Section 25. NOTICE AND DESIGNATION OF COLLATERAL AGENT.
Notwithstanding anything to the contrary contained in this Agreement,
a Collateral Agent may be designated hereunder for the Mortgage Loans from time
to time subject to this Agreement by delivery to the Custodian of a Notice of
Collateral Agent. From and after the receipt by the Custodian of a Notice of
Collateral Agent as provided hereunder until a Collateral Agent Termination, (a)
this Section shall supersede Section 23, and (b) the Custodian shall promptly
mark its books and records to reflect that the Mortgage Loans are being held for
the benefit of the Collateral Agent as representative secured party of the
persons or entities to whom the obligations secured by such Mortgage Loans are
owed.
Upon the designation of a Collateral Agent, the Registered Holder
shall promptly deliver to the Custodian the Trust Receipt issued by the
Custodian to the Registered Holder. Upon receipt of the Trust Receipt from the
Registered Holder, the Custodian shall deliver to the Collateral Agent a Trust
Receipt indicating that the Custodian is holding the Mortgage Loans for the
benefit of the Collateral Agent as representative secured party for the
Registered Holder and the persons or entities to whom the Registered Holder owes
the obligations secured by such Mortgage Loans.. The delivery of such Trust
Receipt shall satisfy the requirements of delivery thereof to the Registered
Holder hereunder so long as no Collateral Agent Termination has occurred. Any
amendments or modifications to such Trust Receipt shall be delivered to the
Collateral Agent. The Custodian is hereby notified of the security interest in
the Mortgage Loans of the Collateral Agent as representative secured party for
the Registered Holder and the persons or entities to whom the Registered Holder
owes the obligations secured by such Mortgage Loans.
The Custodian and the Owner shall each treat the Collateral Agent as
the Registered Holder under this Agreement in accordance with the provisions of
this Section. Without limiting the generality of the foregoing, upon receipt of
Notice of Collateral Agent from the then Registered Holder and the Collateral
Agent and until receipt by the Custodian of Collateral Agent Termination, the
Custodian and the Owner shall each report to, and correspond and communicate
with the Collateral Agent and in all other regards treat the Collateral Agent as
the Registered Holder hereunder with respect to the Mortgage Loans. Upon such
Notice of Collateral Agent, the Collateral Agent shall have all rights of the
Registered Holder to enforce the covenants and conditions set forth in this
Agreement with respect to the Mortgage Loans, and the Custodian and the Owner,
respectively, shall each follow the instructions of the Collateral Agent under
this Agreement. The Collateral Agent shall have the right to give any waivers
or consents required or allowed under this Agreement, and such waivers and
consents shall be binding upon the Registered Holder and any party for whom the
Collateral Agent acts as representative secured party as if the Registered
Holder or such party had given the same. All amounts due the Registered Holder
under this Agreement shall be remitted to the Collateral Agent in accordance
with the Collateral Agent's instructions.
-7-
<PAGE>
The Custodian shall send all reports and like communications
required under this Agreement to the Collateral Agent. In addition to all
other obligations of the Custodian hereunder, upon the Notice of Collateral
Agent, the Custodian shall deliver to the Collateral Agent, by 1:00 p.m.
Custodian's time on each Business Day, by bulletin board, electronic mail or
such other medium as may be acceptable to the Collateral Agent in its
discretion, in a computer-readable format acceptable to the Collateral Agent,
a Mortgage Loan Schedule and Exception Report with respect to each Mortgage
Loan pledged to the Registered Holder and held by the Custodian on such
Business Day. Unless the Collateral Agent otherwise requests in writing, the
information described therein shall be delivered in lieu of the identical
hard copy information required to be delivered to the Registered Holder
pursuant to this Agreement. It is understood and agreed that the information
contained on the Mortgage Loan Schedule and Exception Report (except for the
information pertaining to Exceptions) shall be provided by the Owner and the
Custodian shall not be responsible for the accuracy or contents of such
information, except as expressly set forth in this Agreement.
The Custodian and the Owner shall continue to deal with the
Collateral Agent and hold Mortgage Loans for the Collateral Agent in
accordance with the provisions of this Section unless and until the Custodian
and the Owner each receive written notice from the Collateral Agent appointed
hereunder and the then current Registered Holder under this Agreement (as
evidenced by delivery to the Custodian of executed Assignment and Assumption
Agreements showing a complete chain of assignment of this Agreement from the
initial Registered Holder hereunder to the then current Registered Holder)
that the then current Registered Holder has terminated the Collateral Agent
(such notice, the "COLLATERAL AGENT TERMINATION") Upon receipt of the
Collateral Agent Termination, the Custodian shall no longer remit reports to
the Collateral Agent or hold Mortgage Loans for the benefit of the Collateral
Agent, but shall instead hold Mortgage Loans for the benefit of the
Registered Holder. Upon the Collateral Agent Termination, a new Collateral
Agent may be designated in accordance with the provisions set forth herein.
The Registered Holder agrees to indemnify and hold the Custodian and
its directors, officers, agents and employees harmless against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements, including reasonable attorney's
fees, that may be imposed on, incurred by, or asserted against it or them in
any way relating to or arising out of any action taken or not taken by it or
them in accordance with the instructions of the Collateral Agent hereunder,
unless (a) such instructions from the Collateral Agent are inconsistent with
the terms of this Agreement or (b) such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements (other than special, indirect, punitive or consequential
damages, which shall in no event be paid by the Custodian) were imposed on,
incurred by or asserted against the Custodian because of the breach by the
Custodian of its obligations hereunder, which breach was caused by
negligence, lack of good faith or willful misconduct on the part of the
Custodian or any of its directors, officers, agents or employees.
15. The following section shall be added to the Custodial Agreement
immediately following Section 25:
"Section 26 INDEMNIFICATION BY CUSTODIAN. In the event that
the Custodian fails to produce an original Mortgage Note, Assignment of Mortgage
or any other document related to a Mortgage Loan (each an "ORIGINAL") that was
in its possession pursuant to Section 2 within five (5) Business Days after
required or requested by the Owner or Registered Holder (a "CUSTODIAL DELIVERY
FAILURE"), and PROVIDED that (i) Custodian previously delivered to the
Registered Holder a Trust Receipt and Certification with respect to such
document; (ii) such document is not outstanding pursuant to a
-8-
<PAGE>
request for release; and (iii) such document was held by the Custodian on
behalf of the Owner or Registered Holder, as applicable, then the Custodian
shall (a) with respect to any missing Mortgage Note, promptly deliver to the
Registered Holder or Owner upon request, a Lost Note Affidavit in the form
of EXHIBIT 13 hereto and (b) with respect to any missing document related to
such Mortgage Loan, including but not limited to a missing Mortgage Note,
indemnify the Owner or Registered Holder in accordance with the succeeding
paragraph of this Section 26 and (b) if required by any rating agency in
connection with placing such Originals into a structured and rated
transaction, shall obtain a surety bond from an insurer acceptable to the
applicable rating agency in an amount acceptable to such rating agency to
cover any Losses with respect to such Originals.
The Custodian agrees to indemnify and hold the Registered Holder and
Owner, and their respective designees harmless against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever, including reasonable
attorney's fees, that may be imposed on, incurred by, or asserted against it or
them in any way relating to or arising out of the Custodian's negligence or a
Custodial Delivery Failure. The foregoing indemnification shall survive any
termination or assignment of this Custodial Agreement."
16. The following section shall be added to the Custodial Agreement
immediately following Section 26:
"Section 27 ADDITIONAL OBLIGATIONS OF CUSTODIAN; ESTABLISHMENT
OF THE TRUST AND THE SETTLEMENT ACCOUNTS.
I. The Owner, Registered Holder, and Custodian agree as follows:
a) ESTABLISHMENT OF TRUST ACCOUNT. Custodian shall establish and
maintain a trust account (the "TRUST ACCOUNT") for and on behalf
of the Owner entitled "AMRESCO Residential Capital Markets, Inc.,
Account Number _____________. Re: Amended And Restated Master
Custodial Agreement, dated as of November 1, 1995, among AMRESCO
Residential Capital Markets, Inc., a Delaware corporation formerly
known as AMRESCO Residential Mortgage Corporation, Morgan Stanley
Mortgage Capital Inc. and Bankers Trust Company of California, N.A.,
as further amended" All amounts remitted on account of Loans made
by the Registered Holder to the Owner, which the Owner instructs the
Registered Holder to remit to the Custodian, shall be deposited in
such Trust Account by the Custodian. The Registered Holder shall
not be required to remit any funds to the Trust Account, unless and
until all conditions precedent set forth in the Loan Agreement have
been satisfied. All related fees and expenses for the Trust
Account shall be borne by the Owner. Upon request, Custodian
shall provide the Settlement Agent, the Owner, or the Registered
Holder with the federal wire reference number for a particular
payment. All funds received from the Registered Holder will
be deposited to the Trust Account to be applied as directed by
the Owner.
b) ESTABLISHMENT OF COLLATERAL DEPOSIT ACCOUNT. Custodian shall
establish and maintain one or more trust accounts (each a "COLLATERAL
DEPOSIT ACCOUNT") for and on behalf of the Registered Holder entitled
"Morgan Stanley Mortgage Capital Inc., as secured party, Account
Number ____________; Re: Amended And
-9-
<PAGE>
Restated Master Custodial Agreement, dated as of November 1, 1995,
among AMRESCO Residential Capital Markets, Inc., a Delaware
corporation formerly known as AMRESCO Residential Mortgage
Corporation, Morgan Stanley Mortgage Capital Inc. and Bankers
Trust Company of California, N.A., as further amended" All proceeds
from the sale of designated Mortgage Loans (other than sales of
Mortgage Loans which continue to be pledged to the Lender hereunder
by an Underlying Obligor to the Borrower), will either be sent
directly to the Registered Holder or to the Collateral Deposit
Account. All related fees and expenses for such Collateral Deposit
Account shall be borne by Owner. The Owner shall provide Custodian
and the Registered Holder with notice of funds anticipated to be
received by Custodian and the Registered Holder respectively.
c) DISBURSEMENT OF FUNDS FROM TRUST ACCOUNT. Unless otherwise agreed,
with respect to the Trust Account, the Owner shall notify Custodian in
writing of disbursement instructions in the form of EXHIBIT 15 by 3
p.m. New York City time. Custodian will release such wire
instructions and immediately disburse such funds provided (i)
sufficient funds exist in the Trust Account; (i) such instructions do
not include Owner as payee, unless, otherwise authorized by the
Registered Holder in writing to the Custodian; (iii) Custodian has
received an executed Escrow Letter from such payee in the form of
EXHIBIT 16; and (iv) if a conflict exists between the instructions of
the Registered Holder and the instructions of the Owner, Custodian
shall follow the Registered Holder's instructions.
d) DISBURSEMENT OF FUNDS FROM COLLATERAL DEPOSIT ACCOUNT. Unless
otherwise agreed, with respect to the Collateral Deposit Account,
the Owner will submit to Custodian and the Registered Holder a
Position and Settlement Report substantially in the form of
EXHIBIT 17 hereto (the "P&S REPORT"), unless a Default or an Event
of Default shall have occurred and be continuing, upon receipt of
written authorization by the Registered Holder, Custodian will
immediately release funds in the amount designated in the P&S Report
from the Collateral Deposit Account and shall wire such funds to the
account designated in the P&S Report, provided that, notwithstanding
the amount designated in the P&S Report, the Custodian shall only
wire an amount up to but not greater than, the amount of available
funds in the Collateral Deposit Account. Notwithstanding anything
to the contrary, if a conflict exists between the P&S Report and
the instructions of the Registered Holder, Custodian shall follow
the Registered Holder's instructions.
e) OBLIGATIONS WITH RESPECT TO THE COLLATERAL DEPOSIT AND TRUST
ACCOUNTS. The Owner and the Registered Holder hereby notify the
Custodian that pursuant to the Loan Agreement, the Owner has granted
the Registered Holder a security interest in all Collateral Deposit
Accounts established pursuant to any Underlying Custodial Agreement
and this Custodial Agreement. The Registered Holder shall have sole
and exclusive dominion and control over each such Collateral Deposit
Account and the Owner shall not have any rights with respect thereto,
including without limitation any rights of withdrawal therefrom. The
Custodian agrees that, with respect to the Collateral Deposit
Accounts, it shall act solely and exclusively upon instructions of the
Registered Holder and in no event shall any amounts, funds or property
credited thereto be released to the Owner or in accordance with any
request of the Owner unless the Registered Holder shall have given
express written
-10-
<PAGE>
instructions with respect to such release. If the Custodian shall
receive any amounts other than amounts deposited in a Collateral
Deposit Account from any Underlying Owner in respect of any
Underlying Loan pursuant to any Underlying Loan Document or otherwise,
the Custodian shall hold such amounts in trust for the Registered
Holder and shall immediately transfer such payments to the Registered
Holder, in the exact form received with any necessary endorsement.
Funds retained in the Trust Account and the Collateral Deposit Account
shall remain uninvested.
II. The Custodian and the Owner each hereby represents, warrants and
covenants as follows:
Neither the Custodian nor the Owner shall amend the terms of any Underlying
Custodial Agreement without the express written consent of the
Registered Holder.
The Custodian is not an affiliate of or otherwise controlled by the
Owner or any Underlying Obligor.
17. The last two (2) paragraphs of Exhibit 9 shall be deleted in
their entirety.
18. The exhibits attached hereto as Exhibit 1, 2, 3, 4, 5, 6 and 7
respectively, shall be inserted in their entirety into the Custodial Agreement
as Exhibits 11, 12, 13, 14, 15, 16 and 17.
-11-
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Addendum to Amended and
Restated Master Custodial Agreement was duly executed by the parties hereto as
of the day and year first above written.
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
By
----------------------------------
Name:
Title:
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
By
----------------------------------
Name:
Title:
MORGAN STANLEY MORTGAGE CAPITAL INC.
By
----------------------------------
Name:
Title:
-12-
<PAGE>
EXHIBIT 1
EXHIBIT 11
TO CUSTODIAL AGREEMENT
____________, 199__
Bankers Trust Company of California, N.A.
3 Park Plaza, Sixteenth Floor
Irvine, California 92614
Attention:___________________
Re: Notice of Collateral Agent under that certain Amended and
Restated Custodial Agreement dated as of November 1, 1995
between AMRESCO Residential Capital Markets, Inc., formerly
known as AMRESCO Residential Mortgage Corporation (the
"OWNER"), and Bankers Trust Company of California, N.A. (the
"CUSTODIAN"), as amended by that certain Amended and Restated
Addendum to Amended and Restated Custodial Agreement dated as
of October 25, 1996 among Morgan Stanley Mortgage Capital Inc.
("MSMCI") the Owner and the Custodian (as so amended, the
"AGREEMENT")
Gentlemen and Mesdames:
In accordance with Section 25 of the Agreement, MSMCI hereby
notifies the Custodian that (a) [NAME OF COLLATERAL AGENT, Street Address,
City, State, ZIP Code, Attention or Reference Line, Telecopier Number] is
the Collateral Agent and (b) the Collateral Agent has security interests
in the Mortgage Loans as representative secured party for the persons or
entities to whom the obligations secured by the Mortgage Loans are owed.
Accordingly, the Custodian is hereby instructed and authorized to mark its
books and records that it holds such Mortgage Loans for the benefit of the
Collateral Agent as the representative secured party for the benefit of such
persons or entities, and for the Collateral Agent unless and until it
receives a Collateral Agent Termination in accordance with Section 25 of the
Agreement.
Capitalized terms not otherwise defined herein shall have the
respective meanings assigned to them in the Agreement.
Kindly acknowledge your receipt of this letter by signing and
returning one original counterpart to each of MSMCI and the Collateral Agent.
Very truly yours,
-13-
<PAGE>
MORGAN STANLEY MORTGAGE
CAPITAL INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
RECEIPT ACKNOWLEDGED:
BANKERS TRUST COMPANY OF CALIFORNIA, N.A.
(Custodian)
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
The Collateral Agent named below hereby acknowledges that it has received a
copy of the Custodial Agreement and will assume all rights and duties of
Registered Holder under the Custodial Agreement.
[NAME OF COLLATERAL AGENT]
(Collateral Agent)
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
-14-
<PAGE>
EXHIBIT 2
EXHIBIT 12
TO CUSTODIAL AGREEMENT
NOTICE OF PLEDGE BY REGISTERED HOLDER
[TO BE PROVIDED BY MORGAN STANLEY]
-15-
<PAGE>
EXHIBIT 3
FORM OF LOST NOTE AFFIDAVIT
EXHIBIT 13
TO CUSTODIAL AGREEMENT
I, as ___________________________ (title) of Bankers Trust Company
of California, N.A. (the "CUSTODIAN"), am authorized to make this Affidavit
on behalf of the Custodian. In connection with the administration of the
Mortgage Loans held by the Custodian on behalf of Morgan Stanley Mortgage
Capital Inc. (the "REGISTERED HOLDER"), _______________ (hereinafter called
"DEPONENT"), being duly sworn, deposes and says that:
1. Custodian's address is:
3 Park Plaza, Sixteenth Floor
Irvine, California 92614
2. Custodian previously delivered to the Registered Holder a
signed collateral certification with respect to the Mortgage Note and/or
Assignment of Mortgage identified as follows:
3. Such Mortgage Note and/or Assignment of Mortgage was assigned
or sold to the Registered Holder by _________________________ pursuant to the
terms and provisions of a ____________________ Agreement dated and effective
as of _________ ______, 199_;
4. Such Mortgage Note and/or Assignment or Mortgage is not
outstanding pursuant to a Request for Release of Documents;
5. Aforesaid Mortgage Note and/or Assignment of Mortgage
(hereinafter called the "ORIGINAL") has been lost, misplaced or destroyed;
6. Deponent has made or has caused to be made diligent search for
Original and has been unable to find or recover same;
7. The Custodian was the Custodian of the Original at the time of
loss; and
8. Deponent agrees that, if said Original should ever come into
Custodian's possession, custody or power, Custodian will immediately and
without consideration surrender Original to the Registered Holder.
9. Attached hereto is a true and correct copy of (i) the Mortgage
Note, endorsed in blank by the Mortgagee, and (ii) the Mortgage which secures
the Mortgage Note, which Mortgage is recorded at ___________________
10. Deponent hereby agrees that the Custodian (a) shall indemnify
and hold harmless the Registered Holder, its successors, and assigns, against
any loss, liability or damage, including reasonable attorney's fees,
resulting from the unavailability of any Originals, including but not limited
to any loss, liability or damage arising from (i) any false statement contained
in this Affidavit, (ii) any claim of any party that it has already purchased a
mortgage loan evidenced by the
-16-
<PAGE>
Originals or any interest in such mortgage loan, (iii) any claim of any
borrower with respect to the existence of terms of a Mortgage Loan evidenced
by the Originals, (iv) the issuance of new instrument in lieu thereof and (v)
any claim whether or not based upon or arising from honoring or refusing to
honor the Original when presented by anyone (items (i) through (iv) above are
hereinafter referred to as the "LOSSES") and (b) if required by any rating
agency in connection with placing such Originals into a structured and rated
transaction, shall obtain a surety bond from an insurer acceptable to the
applicable rating agency in an amount acceptable to such rating agency to
cover any Losses with respect to such Originals.
11. This Affidavit is intended to be relied on by the Registered
Holder, its successors, and assigns and _______________________ represents
and warrants that it has the authority to perform its obligations under this
Affidavit.
EXECUTED THIS ____ day of _______, 199_, on
behalf of the Custodian by:
__________________________________________
Signature
__________________________________________
Typed Name
On this _________ day of _______________________, 199_, before me
appeared ____________________________________________, to me personally know,
who being duly sworn did say that she/he is the
______________________________ of ______________________, and that said
Affidavit of Lost Note was signed and sealed on behalf of such corporation
and said _____________________________ acknowledged this instrument to be the
free act and deed of said corporation.
- --------------------------------------
Notary Public in and for the
State of .
-----------------------------
My Commission expires: ."
---------------
-17-
<PAGE>
EXHIBIT 4
TRUST RECEIPT
EXHIBIT 14
TO CUSTODIAL AGREEMENT
Morgan Stanley Mortgage Capital Inc.
1585 Broadway
New York, New York 10036
Attention: Mr. Peter Mozer
____________, 199_
Re: Amended and Restated Custodial Agreement, dated as of November 1,
1995, between AMRESCO Residential Capital Markets, Inc., formerly
known as AMRESCO Residential Mortgage Corporation (the "OWNER"),
and Bankers Trust Company of California, N.A. (the "CUSTODIAN"),
as amended by the Amended and Restated Addendum to Amended and
Restated Custodial Agreement dated October 25, 1996 among the
Owner, the Custodian and Morgan Stanley Mortgage Capital Inc.
(the "REGISTERED HOLDER") (as so amended, the "CUSTODIAL
AGREEMENT").
Ladies and Gentlemen:
In accordance with the provisions of Section [3(g)] [25] of the
above-referenced Custodial Agreement (capitalized terms not otherwise defined
herein having the meanings ascribed to them in the Custodial Agreement), the
undersigned, as the Custodian, hereby certifies as to each Mortgage Loan
described in the attached Mortgage Loan Schedule and Exception Report all
matters (subject to the Exceptions listed therein) set forth in Section 3(e)
of the Custodial Agreement.
The delivery of the Mortgage Loan Schedule and Exception Report
attached hereto evidences that as of the date and time of such Mortgage Loan
Schedule and Exception Report, (i) the Custodian has reviewed all documents
required to be delivered in respect of each Mortgage Loan listed herein
pursuant to Section 2 of the Custodial Agreement, and such documents other
than the Exceptions listed herein are in the possession of the Custodian as
part of the Mortgage File for such Mortgage Loan, and (ii) the Custodian is
holding each Mortgage Loan identified on the Mortgage Loan Schedule and
Exception Report as of the date and time identified therein, pursuant to the
Custodial Agreement, as the bailee of and custodian for
[the Registered Holder] [_______________ [Name of Collateral Agent] as
representative secured party for the benefit of the Registered Holder and the
persons or entities to whom Registered Holder owes the obligations secured by
such Mortgage Loans]. The Custodian has no obligation to recognize or deal
with any Person other than the Person identified in the preceding sentence.
PURSUANT TO THE CUSTODIAL AGREEMENT, THE CUSTODIAN IS REQUIRED TO
DELIVER AN UPDATED MORTGAGE LOAN SCHEDULE AND EXCEPTION REPORT ON EACH
BUSINESS DAY. THE HOLDER OF THIS TRUST RECEIPT SHOULD CONTACT THE CUSTODIAN
TO CONFIRM THAT THE MORTGAGE LOAN SCHEDULE AND EXCEPTION REPORT ATTACHED
HERETO HAS NOT BEEN SUPERSEDED BY A MORE RECENTLY DELIVERED MORTGAGE LOAN
SCHEDULE AND EXCEPTION REPORT.
-18-
<PAGE>
The Custodian makes no representations as to, and shall not be
responsible to verify, (i) the validity, legality, enforceability, due
authorization, recordability, sufficiency, or genuineness of any of the
documents contained in each Mortgage File or (ii) the collectability,
insurability, effectiveness or suitability of any such Mortgage Loan.
-19-
<PAGE>
This Trust Receipt shall be deemed superseded and canceled upon the
issuance of a subsequent Trust Receipt to the Registered Holder or the
Collateral Agent covering the Mortgage Loans identified herein and the
Registered Holder shall thereupon promptly return this Trust Receipt to the
Custodian.
BANKERS TRUST COMPANY OF
CALIFORNIA, N.A.,
Custodian
By:
-----------------------------
Name:
Title:
-20-
<PAGE>
EXHIBIT 5
FORM OF LOAN DISBURSEMENT INSTRUCTIONS
EXHIBIT 15
TO CUSTODIAL AGREEMENT
AMRESCO Residential Capital Markets, Inc.
Loan Disbursement Instructions
TO: FROM: AMRESCO Residential Capital
Markets, Inc.,
c/o AMRESCO Residential
Credit Corporation
cc: Bankers Trust Company of California, N.A. 3401 Centrelake Drive
Suite 480
Ontario, California 91761
Attention: Mr. Michael W.
Trickey
Telecopier No.:
(909) 605-7619
Telephone No.:
(909) 605-7600
Name of Borrower: Funding Date:
Name of Borrower: Loan Number:
Property Address: Application #:
Loan Amount:
Please wire the amounts indicated using the receiver's information below:
1. Title Insurance Company - net wire Wire Amount $:
Bank: ABA #:
City/State: Reference #:
For Credit To: Acct #:
Further Credit To: Credit Acct #:
Attn:
Bank: BANKERS TRUST City/State: NEW YORK, NY
For Credit To: BANKERS TRUST COMPANY OF CALIFORNIA AS CUSTODIAN FOR AMRESCO
RESIDENTIAL CAPITAL MARKETS, INC.
Credit Account: ATTN:
LOAN SERVICER: Wire Amount: $
Wire consists of the following:
Prepaid Interest - Odd Days: Tax Service:
Prepaid interest - One Month: Impounds-Taxes:
Impounds-insurance:
OMI - ORIGINATION POINTS & FEES Wire Amount: $__________
Yield Spread Premium: $(___________)
SAVEMORE Insurance Premium ____________
-21-
<PAGE>
Bank:
ABA#: CITY/STATE: LONG BEACH, CA
For Credit To:
CREDIT ACCOUNT: ATTN: JIM KUCERA/JOHN JARAMILLO
SECTION 32 MORTGAGE: YES NO
Interest Rate _____________ Margin ____________ Credit Rating Risk ____________
LTV _____________%
Appraised value $ _____________ Term _____________ Fixed - Reg
Fixed - Step-Rated: 6 Mos-Low 6 Mos-Reg 2 YR 3 YR 7 YR
____________________ is acting as principal in this transaction.
Rate charges and prepayment penalties will be the property of __________________
APPROVED FOR DISBURSEMENT:
____ Representative: Date:
Morgan Stanley Representative: Date:
Funder: Date:
-22-
<PAGE>
EXHIBIT 6
FORM OF ESCROW LETTER
EXHIBIT 16
TO CUSTODIAL AGREEMENT
[TO BE PROVIDED]
-23-
<PAGE>
EXHIBIT 7
FORM OF P&S REPORT
EXHIBIT 17
TO CUSTODIAL AGREEMENT
RE: POSITION and SETTLEMENT REPORT
TO: PHONE:
------------------------------- -------------------------------------
FAX:
-------------------------------
Morgan Stanley
Attention: PHONE:
--------------------- -------------------------------------
FAX:
-------------------------------
DATE:
--------------------------
CUSTODIAN MORTGAGE LOAN BALANCES
(Market Value) (Face Value)
Loan balance yesterday $ $
------------------ ------------------
Add: New loans $ $
------------------ ------------------
Loan balance before repayments $ $
------------------ ------------------
MORGAN STANLEY ADVANCES
Advance balance yesterday (Net) $
------------------
Add: Overnight accrued interest $
------------------
Add: New advances today $
------------------
Today's advance (A.M.) $
------------------
PAYMENTS
(Market Value) (Face Value)
Loan balance before repayments $ $
------------------ ------------------
Today's payments $ $
------------------ ------------------
-24-
<PAGE>
Loan balance after repayments $ $
------------------ ------------------
Market Value
(Max Advance) $ $
------------------ ------------------
Funds received $
------------------
Transfer to customer today $
------------------
Wire to Morgan today $
------------------
Today's advance (A.M.) $
------------------
= % of face value (100% max.)
----
-25-
<PAGE>
Today's balance (NET) $
------------------
By:
---------------------
Mortgage Loans verified at By:
-------------------------- ---------------------
Wire Authorized by Morgan Stanley By:
---------------------
Morgan Stanley Mortgage Capital Inc.
-26-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMENDED AND RESTATED INTERIM WAREHOUSE AND
SECURITY AGREEMENT
by and among
PRUDENTIAL SECURITIES CREDIT
CORPORATION,
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.,
and
AMRESCO RESIDENTIAL MORTGAGE CORPORATION
Dated as of October 25, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
Section 1. The Loan . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2. Additional Conditions Precedent to Advance; Required
Characteristics of Mortgage Loans, Correspondents and
Servicers. . . . . . . . . . . . . . . . . . . . . . . . 9
Section 3. Mortgage Files and Custodian . . . . . . . . . . . . . . 11
Section 4. Representations, Warranties and Covenants. . . . . . . . 11
Section 5. Mandatory Prepayment of Loan . . . . . . . . . . . . . . 16
Section 6. Release of Mortgage Files following Payment of Loan. . . 17
Section 7. [Reserved] . . . . . . . . . . . . . . . . . . . . . . . 18
Section 8. No Oral Modifications; Successors and Assigns;
Assignment of Collateral . . . . . . . . . . . . . . . . 18
Section 9. Reports. . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 10. Events of Default. . . . . . . . . . . . . . . . . . . . 19
Section 11. Remedies Upon Default. . . . . . . . . . . . . . . . . . 20
Section 12. Indemnification. . . . . . . . . . . . . . . . . . . . . 21
Section 13. Power of Attorney. . . . . . . . . . . . . . . . . . . . 21
Section 14. Agreement Constitutes Security Agreement . . . . . . . . 22
Section 15. Lender May Act Through Affiliates. . . . . . . . . . . . 22
Section 16. Notices . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 17. Severability . . . . . . . . . . . . . . . . . . . . . . 23
Section 18. Counterparts . . . . . . . . . . . . . . . . . . . . . . 23
Appendix I - Definitions
Exhibit A - Form of Secured Note
Exhibit B - Form of Opinion
Exhibit C - Form of Credit Increase Confirmation and Note Amendment
Exhibit D - Form of Funding Notice
i
<PAGE>
AMENDED AND RESTATED INTERIM WAREHOUSE AND SECURITY AGREEMENT
AMENDED AND RESTATED INTERIM WAREHOUSE AND SECURITY AGREEMENT, dated as
of October 25, 1996 (as amended or otherwise modified from time to time, this
"AGREEMENT") among PRUDENTIAL SECURITIES CREDIT CORPORATION, a Delaware
corporation, having an office at 1220 N. Market Street, Wilmington, Delaware
19801 (the "LENDER"), AMRESCO RESIDENTIAL CAPITAL MARKETS, INC., a Delaware
corporation, having its principal office at 700 North Pearl Street, Suite 2400,
Dallas, Texas 75201 (the "BORROWER") and AMRESCO RESIDENTIAL MORTGAGE
CORPORATION, a Delaware corporation, having its principal office at 700 North
Pearl Street, Suite 2400, Dallas, Texas 75201 ("ARMC").
WHEREAS, the Borrower (formerly known as AMRESCO Residential Mortgage
Corporation) and the Lender (formerly known as Prudential Securities Realty
Funding Corporation) entered into that certain Interim Warehouse and Security
Agreement, dated as of February 26, 1996 (as amended and modified from time to
time, the "ORIGINAL AGREEMENT"), to provide the Borrower with a loan from the
Lender secured by certain mortgage loans;
WHEREAS, in consideration of the premises and mutual agreements
hereinafter set forth, the Borrower and the Lender hereby amend and restate the
Original Agreement as hereinafter set forth;
WHEREAS, the Lender intends to lend and the Borrower intends to borrow
up to $500,000,000 (Five Hundred Million Dollars) to fund the purchase by (i)
the Borrower of fixed and floating rate, "B and C credit", first lien, one-to-
four family residential mortgage loans and (ii) the Borrower's subsidiary ARMC
of certain delinquent mortgage loans and REO Properties (as defined herein); and
WHEREAS, the Lender's affiliate, Prudential Securities Incorporated
("PSI") will act as the underwriter for at least 35% of each of the next two
mortgage-backed securities issuances occurring in the fourth quarter of 1996
and/or the first quarter of 1997 (the first issuance, the proposed AMRESCO
Securities Corporation Mortgage Loan Trust 1996-5 transaction, is hereinafter
referred to as the "FIRST SECURITIZATION", and the second issuance, the proposed
AMRESCO Securities Corporation Mortgage Loan Trust 1996-6 or 1997-1 transaction,
as the case may be, is hereinafter referred to as the "SECOND SECURITIZATION",
with each such issuance hereinafter referred to as a "SECURITIZATION") to be
sponsored by the Borrower (or by an affiliate thereof) and collateralized by the
Pledged Mortgage Loans.
An index to the location of the definitions of the defined terms used
herein is set forth as Appendix I hereto.
<PAGE>
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the parties hereto hereby agree as follows:
SECTION 1. THE LOAN.
A. Subject to the terms of this Agreement:
1. The Lender agrees to lend to the Borrower up to a maximum of
$500,000,000 (such borrowing, the "LOAN") to be made in one or more
advances (each, an "ADVANCE"); PROVIDED, HOWEVER, that in no event shall
the outstanding debt owed to the Lender by the Borrower under any loan
agreement (including, without limitation, this Agreement) exceed
$500,000,000; PROVIDED, FURTHER, that if a prefunding account is utilized
in connection with the Second Securitization, the maximum outstanding
borrowings at any time from the date on which the Second Securitization
occurs (the "SECURITIZATION CLOSING DATE") (or such later date as provided
in Section 1(B)(2)) to the earlier to occur of (a) June 30, 1997 and (b)
the closing of the last prefunding relating to the Second Securitization
(such earlier date, the "FUNDING TERMINATION DATE") may not exceed the
amount on deposit at any time in the prefunding account for the Second
Securitization; PROVIDED, FURTHER, that in no event shall the outstanding
debt (including, without limitation, the Loan) owed to the Lender by the
Borrower under any loan agreement (including, without limitation, this
Agreement) relate to outstanding Wet Funded Advances (as defined in Section
1(A)(3)) in excess of $20,000,000; PROVIDED, FURTHER, that in no event
shall the outstanding debt (including, without limitation, the Loan) owed
to the Lender by the Borrower under any loan agreement (including, without
limitation, this Agreement) which is secured by Mortgage Loans owned by the
Borrower or ARMC which are more than 59 days delinquent but less than 180
days delinquent and are not REO Properties (as defined below) (each such
Mortgage Loan, a "DELINQUENT MORTGAGE LOAN") exceed $7,000,000; and
PROVIDED, FURTHER, that in no event shall the outstanding debt (including,
without limitation, the Loan) owed to the Lender by the Borrower under any
loan agreement (including, without limitation, this Agreement) which is
secured by real property acquired by the Borrower or ARMC through
foreclosure or deed-in-lieu of foreclosure (such acquired property, "REO
PROPERTY") exceed $3,000,000 (as each such foregoing amount may be adjusted
by the Lender in its sole and unreviewable discretion by execution of a
Credit Increase Confirmation and Note Amendment, in the form of Exhibit C
attached hereto, between the Lender and the Borrower). The Borrower agrees
that the Loan shall be used to warehouse (i) Delinquent Mortgage Loans and
REO Properties and (ii) fixed and floating rate, "B and C credit", first
lien, one-to-four family residential mortgage loans that are to be included
in each Securitization (the "MORTGAGE LOANS"), as such Mortgage Loans are
identified to the Lender in writing and in electronic form from time to
time. For purposes of this Agreement, "Mortgage Loans" shall include any
REO Properties financed hereunder, as applicable. All Mortgage Loans
financed hereunder shall be closed loans; I.E., this facility shall not be
used for "table" fundings. Subject to the limitations set forth herein for
Delinquent Mortgage Loans and REO Properties, the Lender may refuse to lend
against any other Mortgage Loan(s) which the Lender reasonably believes
will
2
<PAGE>
not be eligible for inclusion in the securitized pool either (x) due
to the characteristics of such Mortgage Loan or (y) due to the expected
aggregate characteristics of the Mortgage Loans.
2. Each Advance shall be made on a date prior to the Maturity Date
referred to below (each such date, a "FUNDING DATE"); PROVIDED that:
(i) the conditions precedent to the making of Advances set forth in
Section 2 hereof shall have been satisfied, and the representations and
warranties of the Borrower and ARMC in Section 4 hereof shall be true and
correct on and as of such Funding Date as if made on and as of such date;
(ii) no Event of Default shall have occurred and be continuing or would
exist after the making of the Advance on such Funding Date;
(iii) the Lender shall have received (A) in connection with each
Advance, a certificate from the Custodian referred to below to the effect
that it has reviewed the mortgage files relating to the Mortgage Loans
being pledged in connection with the Advance being made on such Funding
Date and has found no material deficiencies in such mortgage files (the
"CUSTODIAN'S CERTIFICATION"), it being acknowledged that the Custodian's
Certification may consist of an initial certification, which must be
delivered on or prior to the related Funding Date with respect to the notes
and assignments of mortgage, and a final certification with respect to the
remainder of the mortgage files within 30 days of such Funding Date and (B)
prior to the initial Advance, a legal opinion from counsel (which may be
in-house counsel) to the Borrower and ARMC in the form of Exhibit B
attached hereto;
(iv) the Borrower shall have delivered or caused to be delivered to the
Custodian all required documents with respect to the Mortgage Loans being
pledged to the Lender hereunder on such Funding Date;
(v) if any Delinquent Mortgage Loans are being pledged to the Lender
hereunder on such Funding Date, the Borrower or ARMC shall have delivered
to the Lender broker's price opinions (each a "BPO"), prepared at the
expense of the Borrower or ARMC, in form and substance satisfactory to the
Lender, setting forth the estimated value of the real property securing
each such Delinquent Mortgage Loan; PROVIDED, HOWEVER, that with respect
any Delinquent Mortgage Loans to be pledged hereunder on the initial
Funding Date, the Borrower shall have 15 days following such Funding Date
to deliver the BPOs to the Lender);
(vi) if any REO Properties are being pledged to the Lender hereunder on
such Funding Date, the Borrower or ARMC shall have delivered (A) to the
Lender (1) updated appraisals (substantially in FNMA form) of such REO
Properties prepared at the time of foreclosure of such REO Properties at
the expense of the Borrower or ARMC (such appraisals, the "APPRAISALS"), in
form and substance satisfactory to the Lender, setting forth the appraised
value of such REO Properties and (2) with respect to each REO Property then
in escrow
3
<PAGE>
to be sold, a copy of the contract for sale of such REO Property (the
"CONTRACT"), and (B) to the Custodian, (1) with respect to each REO
Property for which the Lender has received a Contract, the original
mortgage executed by ARMC in favor of the Lender which mortgage shall be
in form and substance acceptable for recording in the state or other
jurisdiction where the REO Property is located, and (2) with respect to
all other REO Properties, the original mortgage executed by ARMC in
favor of the Lender with evidence of recording thereon from the state or
other jurisdiction where the REO Property is located (or (x) in the
event of a delay caused by such recording office, an officer's
certificate from the Borrower certifying that such mortgage (a photocopy
of which is attached thereto) has been delivered to the appropriate
recording office for recordation and that the original mortgage or a
copy of such mortgage certified by such recording office to be a true
and complete copy of the original recorded mortgage shall be delivered
to the Custodian upon receipt thereof by the Borrower or (y) in the
event of a mortgage where the recording office retains the original
recorded mortgage, a copy of such mortgage with the recording
information thereon certified by such recording office to be a true and
complete copy of the original recorded Mortgage); and
(vii) to the extent described in Section 5(C) hereof, no notice
described in said Section 5(C) shall have been received by PSI.
3. In addition to the Advances made pursuant to Section 1(A) (2)
above, the Lender, in its absolute and sole discretion, may make Advances
without receipt of the items specified in clause (iii) (A) and (iv) of
Section 1 (A) (2) above; PROVIDED, that (i) the Borrower shall have
delivered to the Lender and the Custodian at least one business day prior
to the related Funding Date a Mortgage Loan Schedule with respect to the
Mortgage Loans being pledged in connection with the Advance being made on
such Funding Date (such Advance, a "WET FUNDED ADVANCE") and (ii) the
Borrower shall have delivered to the Lender an officer's certificate
certifying that with respect to each such Mortgage Loan securing a Wet
Funded Advance (each such Mortgage Loan, a "WET FUNDED MORTGAGE LOAN"), (a)
each such Wet Funded Mortgage Loan (1) is a closed loan, (2) is not a
Delinquent Mortgage Loan and (3) is not a REO Property, and (b) the
Borrower or its authorized agent is in possession of each of the Mortgage
Loan Files, including, without limitation, the original executed note that
evidences the indebtedness of the related mortgagor, with respect to each
such Wet Funded Mortgage Loan; and PROVIDED, FURTHER, that outstanding
Advances under this Agreement, not including any Wet Funded Advance, exceed
$20,000,000 on such Funding Date. In connection with any Wet Funded
Advance,the Borrower hereby agrees to deliver or cause to be delivered to
the Custodian, within 15 days of the related Funding Date, all required
documents with respect to the Mortgage Loans pledged on such Funding Date.
Upon receipt by the Lender of the Custodian's Certification with respect to
the Mortgage Loans pledged in connection with a Wet Funded Advance, such
Advance will no longer be deemed a Wet Funded Advance for purposes of the
aggregate debt limit for Wet Funded Advances referred to in Section 1 (A)
(1) above and the related Mortgage Loans shall no longer be deemed Wet
Funded Mortgage Loans for purposes of the definition of Applicable Margin.
In the
4
<PAGE>
event that all documents relating to the Wet Funded Mortgage Loans are
not delivered to the Custodian within such 15 day period, the Lender
shall notify the Borrower to take such action as specified in Section
5(D) hereof and thereafter, such Wet Funded Mortgage Loans may not then
be re-pledged in connection with any other Wet Funded Advance to be made
by the Lender hereunder.
4. The Loan shall accrue interest daily on its outstanding principal
amount, with interest calculated for the actual number of days elapsed,
based on a 360-day year. The interest rate on the Loan shall be (except as
otherwise provided in Section 1 (E)(2) or Section 11(D) hereof) LIBOR plus
the Applicable Margin and shall be reset on each business day. Interest
which accrues during each calendar month shall be payable on the third
business day of the following month with any outstanding interest due and
payable in its entirety on the date of termination of this warehouse
facility (including the Maturity Date).
For purposes of this Agreement:
APPLICABLE MARGIN means (i) with respect to that portion of the Loan
secured by Delinquent Mortgage Loans and REO Properties (to the extent such
REO Properties are not then in escrow to be sold), 2.00 for the first sixty
(60) days each such Mortgage Loan or REO Property, as applicable, is
pledged hereunder PLUS 0.50 for each additional thirty (30) day period
following such initial sixty (60) day period each such Mortgage Loan or REO
Property, as applicable, is pledged hereunder until, with respect to each
REO Property, the Borrower has delivered to the Lender a Contract with
respect to such REO Property, (ii) with respect to that portion of the Loan
secured by REO Properties (to the extent such REO Properties are then in
escrow to be sold and the Borrower has delivered to the Lender a Contract
with respect to each such REO Property), 1.10 for the first thirty (30)
days following the later to occur of (x) the related Funding Date for such
REO Property or (y) the date on which such REO Property is placed into
escrow to be sold PLUS (other than with respect to any REO Properties
pledged to the Lender hereunder on the initial Funding Date which are then
in escrow to be sold and for which the Lender has received a Contract, with
respect to which there will be no additional margin) 0.50 for each
additional thirty (30) day period following such initial thirty (30) day
period each such REO Property is pledged hereunder, (iii) with respect to
that portion of the Loan secured by Wet Funded Mortgage Loans, 0.90 and
(iv) with respect to the remainder of the Loan, 0.70.
LIBOR means, for each day, a fluctuating interest rate per annum equal
to the overnight London Interbank Offered Rate as determined by the Lender
from time to time.
B. The amount of each Advance (the Advance with respect to each Mortgage
Loan or REO Property, the "ADVANCED AMOUNT") shall not exceed the sum
of:
5
<PAGE>
1. With respect to the Delinquent Mortgage Loans, if any, the lesser
of:
(a) 90% of the aggregate outstanding principal balance of the
Delinquent Mortgage Loans (calculated as of the related Cut-Off Date
or, if the Borrower is using the proceeds of the Advance to purchase,
or fund ARMC's purchase of, such Delinquent Mortgage Loans at their
aggregate outstanding principal balance as of the settlement date for
the purchase, then their aggregate outstanding principal balance as of
such settlement date) proposed to be pledged to the Lender in
connection with such Advance; and
(b) the product of (x) the lesser of (A) the original appraised value
(as set forth on the Mortgage Loan Schedule) of the related real
property securing the Delinquent Mortgage Loans proposed to be pledged
to the Lender in connection with such Advance and (B) the estimated
value set forth in the BPO delivered to the Lender by the Borrower or
ARMC with respect to each of the Delinquent Mortgage Loans proposed to
be pledged to the Lender in connection with such Advance (such lesser
amount with respect to each Delinquent Mortgage Loan, the "ESTIMATED
VALUE"), and (y) 0.60;
PLUS,
2. With respect to the REO Properties, if any, the lesser of:
(a) 90% of the aggregate outstanding principal balance of the
Mortgage Loans that related to REO Properties (calculated as of the day
prior to the date on which the Borrower or ARMC, as applicable,
foreclosed on such property (such balance, the "REO PROPERTY BALANCE"))
proposed to be pledged to the Lender in connection with such Advance;
and
(b) the product of (x) the aggregate appraised value of such REO
Properties as set forth in each of the Appraisals delivered to the
Lender by the Borrower with respect to each of the REO Properties
proposed to be pledged to the Lender in connection with such Advance
(the appraised value with respect to each REO Property, the "APPRAISED
VALUE"), and (y) 0.60;
PLUS,
3. With respect to all other Mortgage Loans, if any, the lesser of:
(a) 100% of the aggregate outstanding principal balance of such
Mortgage Loans (calculated as of the related Cut-Off Date or, if the
Borrower is using the proceeds of the Advance to purchase such Mortgage
Loans at their aggregate outstanding principal balance as of the
settlement date for the purchase, then their aggregate outstanding
6
<PAGE>
principal balance as of such settlement date) proposed to be pledged to
the Lender in connection with such Advance; and
(b) the product of (x) the Market Value of the Mortgage Loans
proposed to be pledged to the Lender in connection with such Advance
and (y) 0.96;
MINUS,
4. In the event that a Collateral Deficiency Situation exists as of
the date of such Advance, the Restoration Amount as of the date of such
Advance.
For purposes of this Agreement:
A COLLATERAL DEFICIENCY SITUATION shall be deemed to be existing (i) as
of any day on which (a) the outstanding principal amount of the Loan as of
such day exceeds, by more than $250,000, (b) the sum of (1) the product of
(x) the Estimated Value of the real property securing the Pledged Mortgage
Loans which are Delinquent Mortgage Loans (disregarding the Estimated Value
of the real property securing any Delinquent Mortgage Loans proposed to be
pledged to the Lender on such day) and (y) 0.60, PLUS (2) the product of
(x) the Appraised Value of the REO Properties which are then pledged to the
Lender hereunder (disregarding the Appraised Value of any REO Properties
proposed to be pledged to the Lender on such day) and (y) 0.60, PLUS (3)
the product of (x) the Market Value of all other Pledged Mortgage Loans
(disregarding the Market Value of any such Mortgage Loans proposed to be
pledged to the Lender on such day) and (y) 0.96, and (ii) as of the
sixteenth day following any Funding Date in the event that the Borrower has
failed to deliver the required documents to the Custodian with respect to
any Wet Funded Mortgage Loan in accordance with Section 1(A)(3) hereof.
CUT-OFF DATE means, as of any date, the close of business on the date
set forth in the related Mortgage Loan Schedule. In no event shall the
Cut-Off Date precede by more than thirty days the date on which the related
Mortgage Loan Schedule is delivered.
MARKET VALUE means, as of any date and with respect to any Mortgage
Loans, the whole-loan servicing-retained fair market value of such Mortgage
Loans as of such date as determined by the Lender (or an affiliate thereof)
in its sole discretion.
MATURITY DATE means (i) if no prefunding account is utilized in the
Second Securitization, the earlier to occur of (a) March 31, 1997 and (b)
the Securitization Closing Date or (ii) if a prefunding account is utilized
in the Second Securitization, the Funding Termination Date. The Maturity
Date may be extended by Lender, in Lender's sole and unreviewable
discretion, on any date by the execution and delivery of a Credit Increase
Confirmation and Note Amendment in the form of Exhibit C hereto.
7
<PAGE>
PLEDGED MORTGAGE LOANS means, as of any date of determination, any
Mortgage Loans then held by the Custodian on behalf of the Lender to secure
the Loan.
RESTORATION AMOUNT means, as of any date of determination, the amount,
if any, by which (i) the outstanding principal amount of the Loan as of
such date (including accrued interest) exceeds (ii) the sum of (a) the
lesser of (1) the product of (x) the Estimated Value of the real property
securing the Pledged Mortgage Loans which are Delinquent Mortgage Loans
(disregarding the Estimated Value of the real property securing any
Delinquent Mortgage Loans proposed to be pledged to the Lender on such
date) and (y) 0.60, and (2) 90% of the outstanding principal balance of the
Pledged Mortgage Loans which are Delinquent Mortgage Loans (disregarding
the outstanding principal balance of any Delinquent Mortgage Loans to be
pledged to the Lender on such date), PLUS (b) the lesser of (1) the product
of (x) the Appraised Value of the REO Properties which are then pledged to
the Lender hereunder (disregarding the Appraised Value of any REO
Properties proposed to be pledged to the Lender on such date) and (y) 0.60,
and (2) 90% of the REO Property Balance (disregarding the REO Property
Balance of any REO Properties to be pledged to the Lender on such date),
PLUS (c) the lesser of (1) the product of (x) the Market Value of all other
Pledged Mortgage Loans (disregarding (A) the Market Value of any such
Mortgage Loans proposed to be pledged to the Lender on such date and (B)
the Market Value of any Wet Funded Mortgage Loans which are the subject of
a Collateral Deficiency Situation pursuant to clause (ii) of the definition
thereof) and (y) 0.96, and (2) the outstanding principal balance of all
other Pledged Mortgage Loans (disregarding (A) the outstanding principal
balance of any such Mortgage Loans to be pledged to the Lender on such date
and (B) the outstanding principal balance of any Wet Funded Mortgage Loans
which are the subject of a Collateral Deficiency Situation pursuant to
clause (ii) of the definition thereof).
C. The Loan evidenced hereby shall mature on the Maturity Date and all
amounts outstanding hereunder shall be due and payable on the Maturity Date.
D. The Loan is pre-payable at any time without premium or penalty, in
whole or in part; PROVIDED, that Pledged Mortgage Loans may not be removed from
this facility (including in connection with any prepayment of the Loan in part)
with the result that, in the Lender's sole reasonable determination, the
remaining Pledged Mortgage Loans, are, in the aggregate, materially inferior as
collateral as compared to the pool of Pledged Mortgage Loans immediately prior
to such removal. In addition, no Pledged Mortgage Loans may be removed from
this facility with the result that a Collateral Deficiency Situation would then
exist. Notwithstanding the foregoing, however, a Pledged Mortgage Loan, may in
any event be removed from this facility if such Pledged Mortgage Loan has been
paid in full by the mortgagor. If the Borrower intends to prepay the Loan in
whole or in substantial part from a source other than the proceeds of the
Securitization, the Borrower shall give two business days' written notice to the
Lender. Any amounts pre-paid under this Agreement prior to the Maturity Date
may be re-borrowed, subject to the terms and conditions of this Agreement, until
the Maturity Date.
8
<PAGE>
E.1. If the Loan is not extended by means of a Credit Increase
Confirmation and Note Amendment, the Loan shall immediately and automatically
become due and payable without any further action by the Lender on the then
scheduled Maturity Date, and in the event of non-payment in full on such
Maturity Date the Lender may exercise all rights and remedies available to it as
the holder of a first perfected security interest under the Uniform Commercial
Code of the State of New York (the "NEW YORK UCC").
2. If the Borrower awards a Securitization involving any Pledged
Mortgage Loans to a group of managers (or to an investment banking house, agent,
broker, or underwriter) which does not give PSI at least 35% of the securities
to be issued in such Securitization, then the interest rate on the Loan shall
increase to LIBOR plus 3.00%, which higher rate shall retroactively be applied
as of the related Funding Date for all prior Advances or Pledged Mortgage Loans
so involved.
F. The Loan shall be evidenced by the secured promissory note of the
Borrower in the form attached hereto as Exhibit A (the "SECURED NOTE").
G. In the event that the Loan is extended beyond its then scheduled
Maturity Date by means of a Credit Increase Confirmation and Note Amendment, the
factors set forth in the definitions of "Advanced Amount" , "Collateral
Deficiency Situation" and "Restoration Amount" may be revised by the Lender in
its sole discretion.
SECTION 2. ADDITIONAL CONDITIONS PRECEDENT TO ADVANCE; REQUIRED
CHARACTERISTICS OF MORTGAGE LOANS, CORRESPONDENTS AND SERVICERS.
A. Not later than two business days prior to the proposed Funding
Date for an Advance the Borrower shall deliver to the Lender (i) a written
notice in the form of Exhibit D hereto and (ii) an electronic disk or tape, in a
mutually satisfactory form to be agreed upon detailing certain specified
characteristics of the Mortgage Loans proposed to be pledged in connection with
such Advance (each such schedule, a "MORTGAGE LOAN SCHEDULE"). The "mortgage
loan schedule" as defined in the Borrower's "Continuing Loan Purchase Agreement"
with Long Beach Mortgage Company is considered to be in satisfactory form.
B. It is the Lender's understanding that the Borrower's current
business strategy (the "PROGRAM") is to operate as a "conduit" for the
securitization of non-conforming credit mortgage loans (also referred to as
"B/C" mortgages) which the Borrower will purchase from others and with respect
to which the Borrower will retain one or more third-party contract servicers.
In connection with the Program, the Borrower agrees as follows:
(i) the Borrower shall supply to the Lender and/or its counsel copies
of all purchase agreements ("PURCHASE AGREEMENTS") and third-party
servicing agreements ("SERVICING AGREEMENTS") (or, if such
9
<PAGE>
agreements have not been finalized, the latest drafts of such
agreements), together with copies of all underwriting guidelines
applicable to any Mortgage Loans proposed to be financed hereunder,
not later than the second business day prior to the proposed Funding
Date (it being understood that if the same agreements and guidelines
apply to multiple Funding Dates they only need to be furnished once);
(ii) the Lender may in its reasonable discretion reject for financing
hereunder any Mortgage Loans based upon the identity of the entity
selling such Mortgage Loans to the Borrower (each such entity, a
"CORRESPONDENT"), or, if the originator of such Mortgage Loans is not
the Correspondent, upon the identity of such originator, PROVIDED,
that, in furtherance of the foregoing the Borrower and the Lender agree
to communicate with reasonable frequency concerning the Borrower's
pipeline and upcoming trades, and PROVIDED FURTHER that AMRESCO
Residential Mortgage Corporation, Long Beach Mortgage Company, New
Century Financial Corp., Option One Mortgage Corporation and Quality
Mortgage USA, Inc. ("QUALITY") are approved originators as of the date
of this Agreement; PROVIDED, FURTHER, that with respect to Quality such
approval is only through December 31, 1996, unless otherwise approved
by the Lender in its sole and unreviewable discretion;
(iii) the Lender may in its sole discretion reject for financing
hereunder any Mortgage Loans based upon the identity of the entity
proposed to service such Mortgage Loans; PROVIDED that the Lender may,
as an alternative to rejecting any such Mortgage Loans, require that
the Borrower name Advanta Mortgage Corp. USA ("ADVANTA MORTGAGE") as
the servicer and effect a servicing transfer to Advanta Mortgage on the
earliest date practicable;
(iv) each Servicing Agreement shall provide that upon an Event of
Default under this Agreement the servicer may be terminated thereunder,
with or without cause, on not more than 30 days' prior notice, and
without the payment of any termination fee by the Lender; the servicing
fee under any Servicing Agreement will not exceed 60 basis points; the
Borrower shall terminate a servicer at the request of the Lender if
such servicer is in default under the related Servicing Agreement; the
Borrower shall not transfer servicing with respect to any Pledged
Mortgage Loan without the Lender's prior consent; each Servicing
Agreement shall allow the Lender to direct the servicer to remit
collections directly to the Lender if an Event of Default occurs
hereunder; it is understood and agreed that the foregoing provisions
may be contained in a side agreement or letter executed by the related
servicer and need not be set forth in the main text of a Servicing
Agreement;
(v) the Borrower hereby assigns to the Lender, as collateral security
for the Loan, all of the Borrower's right, title and interest in and to
each Servicing Agreement, each Purchase Agreement and the
10
<PAGE>
Amended and Restated Master Custodial Agreement (collectively, the
"PROGRAM AGREEMENTS");
(vi) notwithstanding the collateral assignment granted in clause (v)
above, the Borrower agrees and covenants with the Lender (x) to enforce
diligently the Borrower's rights and remedies set forth in the Program
Agreements and (y) to provide the Lender with prompt written notice of
any default or event which, with the passage of time, will become a
default, by any party to any Program Agreement and of which the
Borrower is aware.
C. The Borrower shall reimburse the Lender for any of the Lender's
reasonable out-of-pocket costs, including due diligence review costs and
reasonable attorney's fees, incurred by the Lender in determining the
acceptability to the Lender of (x) any Mortgage Loans, (y) any Program Agreement
or (z) the identity of any Correspondent, originator or servicer, PROVIDED that
(1) the attorney's fees payable in connection with the Lender's counsel's review
of the Program Agreements to be in place for the initial Funding Date, together
with all of the Lender's counsel's fees in connection with the preparation of
this Agreement shall not exceed $12,000 and (2) no such costs shall be incurred
with respect to Advanta Mortgage, Long Beach Mortgage Company or Option One
Mortgage Corporation, each of which shall be considered an acceptable servicer.
The Borrower shall also pay, or reimburse the Lender if the Lender shall pay,
any termination fee which may be due to any servicer.
SECTION 3. MORTGAGE FILES AND CUSTODIAN. The Borrower shall deliver
to Bankers Trust Company of California, N.A. as custodian (the "CUSTODIAN") on
behalf of the Lender, (i) with respect to each Mortgage Loan owned by the
Borrower, the documents and instruments listed in Section 2 of that certain
Amended and Restated Master Custodial Agreement, dated as of November 1, 1995
(as amended and modified from time to time, the "AMENDED AND RESTATED MASTER
CUSTODIAL AGREEMENT"), between the Borrower and the Custodian, (ii) with respect
to each Mortgage Loan owned by ARMC (other than REO Properties), the documents
and instruments listed in Section 2 of that certain Master Custodial Agreement,
dated as of October 25, 1996 (as amended and modified from time to time, the
"MASTER CUSTODIAL AGREEMENT") between ARMC and the Custodian, and (iii) with
respect to each REO Property, the documents and instruments listed in Section 2
of that certain Master Custodial Agreement (REO Properties), dated as of October
25, 1996, among ARMC, the Lender and the Custodian (as amended and modified from
time to time, the "REO PROPERTY CUSTODIAL AGREEMENT" and together with the
Master Custodial Agreement, the "ARMC CUSTODIAL AGREEMENTS"). Such documents
and instruments evidencing and relating to the Mortgage Loans including, without
limitation, the REO Properties (collectively, the "MORTGAGE LOAN FILES"),
together with any proceeds thereof, and together with the Borrower's right,
title and interest in and to the Program Agreements are hereinafter referred to
as the "COLLATERAL". Each of the Borrower and ARMC hereby pledges all of its
respective right, title and interest in and to the Collateral to the Lender to
secure the repayment of principal of and interest on the Loan and all other
amounts owing by the Borrower to the Lender hereunder or under any other
agreement or arrangement (collectively, the "SECURED OBLIGATIONS").
11
<PAGE>
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS.
A. The Borrower represents and warrants to the Lender that:
1. It has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
2. It is duly licensed as a "Licensee" or is otherwise qualified in
each state in which it transacts business and is not in default of such
state's applicable laws, rules and regulations. It has the requisite power
and authority and legal right to own and grant a lien on all of its right,
title and interest in and to the Collateral, and to execute and deliver,
engage in the transactions contemplated by, and perform and observe the
terms and conditions of, this Agreement, each Program Agreement and the
Secured Note.
3. At all times after the Custodian has received a Mortgage Loan
from the Borrower and until payment in full of the Loan, the Borrower will
not knowingly and intentionally commit any act in violation of applicable
laws, or regulations promulgated with respect thereto.
4. The Borrower is solvent and is not in default under any mortgage,
borrowing agreement or other instrument or agreement pertaining to
indebtedness for borrowed money, and the execution, delivery and
performance by the Borrower of this Agreement, the Secured Note and the
Program Agreements do not conflict with any term or provision of the
certificate of incorporation or by-laws of the Borrower or any law, rule,
regulation, order, judgment, writ, injunction or decree applicable to the
Borrower of any court, regulatory body, administrative agency or
governmental body having jurisdiction over the Borrower and will not result
in any violation of any such mortgage, instrument or agreement.
5. All financial statements or certificates of the Borrower, any
Affiliate of the Borrower or any of its officers furnished to the Lender
are true and complete and do not omit to disclose any material liabilities
or other facts relevant to the Borrower's or such Affiliate's condition.
As used in this Agreement, "AFFILIATE" means AMRESCO and any entity
controlled (within the definition of "control" set forth in the Securities
and Exchange Act of 1934, as amended) by AMRESCO. All such financial
statements have been prepared in accordance with GAAP. No financial
statement or other financial information as of a date later than that
supplied to the Lender, has been furnished by the Borrower or AMRESCO to
another lender of the Borrower or AMRESCO that has not been furnished to
the Lender.
6. No consent, approval, authorization or order of, registration or
filing with, or notice to any governmental authority or court is required
under applicable law in connection with the execution, delivery and
performance by the Borrower of this Agreement, the Secured Note and the
Program Agreements.
12
<PAGE>
7. There is no action, proceeding or investigation pending with
respect to which the Borrower has received service of process or, to the
best of the Borrower's knowledge threatened against it before any court,
administrative agency or other tribunal (A) asserting the invalidity of
this Agreement, the Secured Note or any Program Agreement, (B) seeking to
prevent the consummation of any of the transactions contemplated by this
Agreement, the Secured Note or any Program Agreement, or (C) which might
materially and adversely affect the validity of the Mortgage Loans or the
performance by it of its obligations under, or the validity or
enforceability of, this Agreement, the Secured Note or any Program
Agreement.
8. There has been no material adverse change in the business,
operations, financial condition, properties or prospects of the Borrower or
AMRESCO since the date set forth in the financial statements supplied to
the Lender.
9. This Agreement, the Secured Note and the Program Agreements have
been (or, in the case of Program Agreements not yet executed, will be) duly
authorized, executed and delivered by the Borrower, all requisite corporate
action having been taken, and each is valid, binding and enforceable
against the Borrower in accordance with its terms except as such
enforcement may be affected by bankruptcy, by other insolvency laws, or by
general principles of equity.
B. With respect to every Mortgage Loan (other than REO Properties)
pledged to the Lender, each of the Borrower and ARMC represents and warrants to
the Lender that:
1. Such Mortgage Loan and all accompanying collateral documents are
complete and authentic and all signatures thereon are genuine.
2. Such Mortgage Loan arose from a bona fide loan, complying with
all applicable State and Federal laws and regulations, to persons having
legal capacity to contract and is not subject to any defense, set-off or
counterclaim.
3. Except as set forth in Section 4(B)(8) below, no default has
occurred in any provisions of such Mortgage Loan.
4. To the best of the Borrower's and ARMC's knowledge, any property
subject to any security interest given in connection with such Mortgage
Loan is not subject to any other encumbrances other than "permitted
encumbrances" which may be allowed under the related Purchase Agreement.
5. The Borrower or ARMC, as applicable, pledging such Mortgage Loan
hereunder holds good and indefeasible title to, and is the sole owner of,
such Mortgage Loan subject to no liens, charges, mortgages, participations,
encumbrances or rights of others or other liens released simultaneously
with such pledge.
13
<PAGE>
6. Each Mortgage Loan conforms to the description thereof as set
forth on the related Mortgage Loan Schedule delivered to the Custodian and
the Lender.
7. All disclosures required by the Real Estate Settlement Procedures
Act, by Regulation X promulgated thereunder and by Regulation Z of the
Board of Governors of the Federal Reserve System promulgated pursuant to
the statute commonly known as the Truth-in-Lending Act and the Notice of
the Right of Rescission required by said statute and regulation have been
properly made and given.
8. Subject to the concentration covenant set forth in Section
4(C)(4), (a) such Mortgage Loan (other than Delinquent Mortgage Loans and
REO Properties) is not 31 or more days delinquent as of the last payment
due date for such Mortgage Loan and (b) if such Mortgage Loan is a
Delinquent Mortgage Loan, such Delinquent Mortgage Loan is not more than
180 days delinquent as of the last payment due date for such Mortgage Loan.
9. Each representation and warranty made by the related
Correspondent in the related Purchase Agreement was true and correct as of
its date.
10. No Collateral (including, without limitation, the related real
property) relating to a Mortgage Loan is located in any jurisdiction other
than in one of the fifty (50) states of the United States of America.
C. The Borrower covenants with the Lender that, during the term of
this facility:
1. The Borrower shall maintain minimum tangible equity capital equal
to the greater of (a) $25,000,000 and (b) the Borrower's liabilities
divided by 10 (I.E., a leverage ratio of 10:1, such leverage ratio being
the ratio of (x) the Borrower's total liabilities to (y) the Borrower's
tangible equity capital minus the amount of any receivable from AMRESCO or
Affiliates).
2. That AMRESCO will continue to maintain, for it and its
subsidiaries, insurance coverage with respect to employee dishonesty,
forgery or alteration, theft, disappearance and destruction, robbery and
safe burglary, property (other than money and securities) and computer
fraud or an aggregate amount of at least $1,000,000, which insurance shall
name the Lender as a loss payee.
3. The Borrower shall engage PSI as an underwriter of at least 35%
of the mortgage-backed securities to be issued in connection with each
Securitization.
14
<PAGE>
4. The outstanding balance of the Loan with respect to Pledged
Mortgages Loans which have scheduled payments which are 31 or more days
delinquent but less than 60 days delinquent shall not comprise more than
the lesser of (a) $10,000,000 and (b) 5% of all Pledged Mortgage Loans
(determined by the Advanced Amount with respect to such Pledged Mortgage
Loans).
5. The outstanding balance of the Loan with respect to Pledged
Mortgage Loans which are Delinquent Mortgage Loans shall not comprise more
than $7,000,000 (determined by the Advanced Amount with respect to such
Delinquent Mortgage Loans).
6. The outstanding balance of the Loan with respect to REO
Properties pledged to the Lender hereunder shall not comprise more than
$3,000,000 (determined by the Advanced Amount with respect to such REO
Properties).
7. The outstanding balance of the Loan with respect to Pledged
Mortgage Loans which are Wet Funded Mortgages Loans shall not comprise more
than $20,000,000 (determined by the Advanced Amount with respect to such
Wet Funded Mortgage Loans).
D. ARMC represents and warrants to the Lender that:
1. It has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware.
2. It is duly licensed as a "Licensee" or is otherwise qualified in
each state in which it transacts business and is not in default of such
state's applicable laws, rules and regulations. It has the requisite power
and authority and legal right to own and grant a lien on all of its right,
title and interest in and to the Collateral, and to execute and deliver,
engage in the transactions contemplated by, and perform and observe the
terms and conditions of, this Agreement and the ARMC Custodial Agreements.
3. At all times after the Custodian has received a Mortgage Loan from
the Borrower and until payment in full of the Loan, ARMC will not knowingly
and intentionally commit any act in violation of applicable laws, or
regulations promulgated with respect thereto.
4. ARMC is solvent and is not in default under any mortgage,
borrowing agreement or other instrument or agreement pertaining to
indebtedness for borrowed money, and the execution, delivery and
performance by ARMC of this Agreement and the ARMC Custodial Agreements do
not conflict with any term or provision of the certificate of incorporation
or by-laws of ARMC or any law, rule, regulation, order, judgment, writ,
injunction or decree applicable to ARMC of any court, regulatory body,
administrative agency or governmental body having jurisdiction over ARMC
and will not result in any violation of any such mortgage, instrument or
agreement.
15
<PAGE>
5. No consent, approval, authorization or order of, registration or
filing with, or notice to any governmental authority or court is required
under applicable law in connection with the execution, delivery and
performance by ARMC of this Agreement and the ARMC Custodial Agreements.
6. There is no action, proceeding or investigation pending with
respect to which ARMC has received service of process or, to the best of
ARMC's knowledge threatened against it before any court, administrative
agency or other tribunal (A) asserting the invalidity of this Agreement or
the ARMC Custodial Agreements, (B) seeking to prevent the consummation of
any of the transactions contemplated by this Agreement or the ARMC
Custodial Agreements, or (C) which might materially and adversely affect
the validity of the Collateral or the performance by it of its obligations
under, or the validity or enforceability of, this Agreement or the ARMC
Custodial Agreements.
7. There has been no material adverse change in the business,
operations, financial condition, properties or prospects of ARMC since the
date set forth in the financial statements of the Borrower and AMRESCO
supplied to the Lender.
8. This Agreement and the ARMC Custodial Agreements have been duly
authorized, executed and delivered by ARMC, all requisite corporate action
having been taken, and each is valid, binding and enforceable against ARMC
in accordance with its terms except as such enforcement may be affected by
bankruptcy, by other insolvency laws, or by general principles of equity.
E. With respect to every REO Property pledged to the Lender, each of
the Borrower and ARMC represents and warrants to the Lender that:
1. To the best of such party's knowledge, such REO Property is not
subject to any encumbrances other than the mortgage in favor of the Lender.
2. The Borrower or ARMC, as applicable, holds good and indefeasible
title to, and is the sole owner of, such REO Property subject to no liens,
charges, mortgages, participations, encumbrances or rights of others or
other liens released simultaneously with such pledge other than the
mortgage in favor of the Lender.
3. Such REO Property Loan conforms to the description thereof as set
forth on the related Mortgage Loan Schedule delivered to the Custodian and
the Lender.
4. With respect to any insurance policies maintained by the Borrower
or ARMC which covers such REO Property, the Lender shall be named as loss
payee thereunder.
5. No REO Property is located in any jurisdiction other than in one
of the fifty (50) states of the United States of America.
16
<PAGE>
SECTION 5. MANDATORY PREPAYMENT OF LOAN.
A. Upon discovery by the Borrower, ARMC or the Lender of any breach
of any of the representations, warranties or covenants listed in Section 4
preceding, the party discovering such breach shall promptly give notice of such
discovery to the others.
The Lender has the right to require, in its unreviewable discretion,
the Borrower to repay the Loan in part with respect to any Mortgage Loan (i)
which breaches one or more of the representations, warranties or covenants
listed in Section 4(B), Section 4(C), Section 4(D) or Section 4(E) preceding or
(ii) which is determined by the Lender to be unacceptable for inclusion in such
Securitization.
B. If any Mortgage Loan, as indicated on any Supplemental Mortgage
Loan Schedule delivered pursuant to Section 9(A) hereof or otherwise, (i)
breaches any of the concentration covenants set forth in Sections 4(C)(4)
through (7), (ii) if such Mortgage Loan is a Delinquent Mortgage Loan, becomes
more than 180 days delinquent, (iii) if such Mortgage Loan is an REO Property,
has been pledged to the Lender hereunder for more than 150 days and (iv) if such
Mortgage Loan is not a Delinquent Mortgage Loan and is not a REO Property and,
subject to the concentration covenant set forth in Section 4(C)(4), becomes 31
or more days delinquent, in any such event, the Lender may require the Borrower
to prepay the Loan in part with respect to such Mortgage Loan, or, with the
Lender's consent, deliver a qualifying substitute mortgage loan (which mortgage
loan shall not be a Wet Funded Mortgage Loan) in its place.
C. If the Borrower awards a Securitization involving any Pledged
Mortgage Loans to an investment banking house, agent or underwriter other than
PSI, or to a group of managers which does not give PSI at least 35% of the
securities to be issued in such Securitization (such PSI role, a "35%
UNDERWRITER") then (x) the Lender may demand that the Borrower prepay any
portion of the Loan evidenced hereby relating to the dollar amount of the
Mortgage Loans to be included in such Securitization, in which PSI has not
awarded at least a 35% Underwriter role, for payment within five business days
of the demand for prepayment, (y) the Lender may refuse to make further Advances
hereunder if such Advances would relate to Mortgage Loans to be included in such
Securitization in which PSI has not been selected for participation as a 35%
Underwriter and (z) the interest rate on the Loan shall increase as set forth in
Section 1(E)(2) hereof. The Borrower shall give immediate notice, by facsimile
transmission, to the attention of Elizabeth Castagna at the Lender and to Len
Blum at PSI (fax 212-778-7401) of any decision to not award PSI with a 35%
Underwriter role in a Securitization.
D. If, on any date other than a Funding Date, the Lender determines
that a Collateral Deficiency Situation exists, the Lender shall so notify the
Borrower, and the Borrower, within one business day, shall either (i) pay to the
Lender the Restoration Amount or (ii) deliver to the Custodian on behalf of the
Lender additional Mortgage Loans (which Mortgage Loans shall not be Wet Funded
Mortgage Loans) having an aggregate Market Value at least equal to the
Restoration Amount. The
17
<PAGE>
provisions of Section 1(B) shall govern with regard to a Collateral
Deficiency Situation as of a Funding Date.
SECTION 6. RELEASE OF MORTGAGE FILES FOLLOWING PAYMENT OF LOAN. The
Lender agrees to cause to be released from the lien hereof the documents
described in Section 2 of the Amended and Restated Master Custodial Agreement,
Section 2 of the Master Custodial Agreement and Section 2 of the REO Property
Custodial Agreement at the request of the Borrower upon payment in full of the
Loan, or, if a partial payment of the Loan occurs, the documents relating to a
PRO RATA portion of the Pledged Mortgage Loans, PROVIDED, THAT, with respect to
payments in full of a Pledged Mortgage Loan, the Borrower agrees to (i) provide
the Lender with a copy of a report from the related Servicer indicating that
such Pledged Mortgage Loan has been paid in full and (ii) pay to the Lender in
full the outstanding Advance with respect to such Pledged Mortgage Loan. The
Lender agrees to release such lien within one Business Day after receipt of both
(i) and (ii) from the immediately preceding sentence.
SECTION 7. [Reserved]
SECTION 8. NO ORAL MODIFICATIONS; SUCCESSORS AND ASSIGNS; ASSIGNMENT
OF COLLATERAL. No provisions of this Agreement shall be waived or modified
except by a writing duly signed by the authorized agents of the Lender, ARMC and
the Borrower. This Agreement shall be binding upon the successors and assigns
of the parties hereto. The Borrower and ARMC acknowledge and agree that the
Lender may re-pledge, enter into repurchase transactions, and otherwise re-
hypothecate (including the granting of participation interests therein) the
Collateral for the Loan; PROVIDED, that no such act shall in any way (x) affect
the Borrower's or ARMC's rights to the Collateral, (y) change the location of
the Mortgage Loan documents, which shall remain with the Custodian or (z) grant
to any other person any direct rights against the underlying mortgagors.
SECTION 9. REPORTS.
A. The Borrower shall provide the Lender with an electronic disk or
tape (each, a "SUPPLEMENTAL MORTGAGE LOAN SCHEDULE") within two business days
following any request made by the Lender or any affiliate thereof for such a
report, but in any event at least once a month within two business days of the
Borrower's receipt of the related servicer's monthly report, setting forth on a
loan-by-loan basis, the current principal balance outstanding for each Mortgage
Loan as of the end of the prior calendar month. Such Supplemental Mortgage Loan
Schedule will also contain information concerning all Mortgage Loans then held
in the warehouse facility, and shall be in the format as may be agreed upon by
the Borrower and the Lender from time to time.
B. The Borrower shall furnish to Lender (x) promptly, copies of any
material and adverse notices (including, without limitation, notices of
defaults, breaches, potential defaults or potential breaches) given to or
received from the Borrower's or ARMC's other lenders, (y) immediately, notice of
the occurrence of any "Event of Default" hereunder or of any situation which the
Borrower, with the passage
18
<PAGE>
of time, reasonably expects to develop into an "Event of Default" hereunder
and (z) the following:
(i) consolidated audited financial statements of AMRESCO INC.
("AMRESCO"), within 120 days of AMRESCO's fiscal year end;
(ii) consolidated audited financial statements of the Borrower within
120 days of the Borrower's fiscal year end;
(iii) Consolidated unaudited financial statements of AMRESCO for each
of AMRESCO's first three quarters of each fiscal year, within 45 days
after quarter end;
(iv) unaudited financial statements of the Borrower within 45 days
after quarter end;
(v) quarterly and annual consolidated financial statements of AMRESCO
reflecting material intercompany adjustments within 5 business days of
their release; and
(vi) copies of all SEC filings by the Borrower and its Affiliates,
within five business days of their filing with the SEC, PROVIDED, THAT,
AMRESCO will provide PSI with a copy of AMRESCO's annual 10-K filed
with the SEC no later than 90 days after the end of the year.
All required financial statements, information and reports shall be
prepared in accordance with U.S. GAAP, or, if applicable to SEC filings, SEC
accounting regulations.
SECTION 10. EVENTS OF DEFAULT. Each of the following shall constitute
an "Event of Default" hereunder:
A. Failure of the Borrower to (i) make any payment of interest or
principal or any other sum which has become due, whether by acceleration or
otherwise, under the terms of the Secured Note, this Agreement, any other
warehouse and security agreement or any other document evidencing or securing
indebtedness of the Borrower to the Lender or to any affiliate of the Lender, or
(ii) pay or deliver any Restoration Amount.
B. Any "event of default" by the Borrower or AMRESCO under any
agreement (after the expiration of any applicable grace period under any such
agreement) relating to any indebtedness of the Borrower or AMRESCO, as
applicable, in excess of $1,000,000.
C. Assignment or attempted assignment by the Borrower or ARMC of
this Agreement or any rights hereunder, without first obtaining the specific
written consent of Lender, or the granting by the Borrower or ARMC of any
security interest, lien or other encumbrance on any Collateral to other than the
Lender.
19
<PAGE>
D. The filing by the Borrower, ARMC or AMRESCO of a petition for
liquidation, reorganization, arrangement or adjudication as a bankrupt or
similar relief under the bankruptcy, insolvency or similar laws of the United
States or any state or territory thereof or of any foreign jurisdiction; the
failure of the Borrower, ARMC or AMRESCO to secure dismissal of any such
petition filed against it within thirty (30) days of such filing; the making of
any general assignment by the Borrower, ARMC or AMRESCO for the benefit of
creditors; the appointment of a receiver or trustee for the Borrower, ARMC or
AMRESCO, or for any part of the Borrower's, ARMC's or AMRESCO's assets; the
institution by the Borrower, ARMC or AMRESCO of any other type of insolvency
proceeding (under the Bankruptcy Code or otherwise) or of any formal or informal
proceeding, for the dissolution or liquidation of, settlement of claims against,
or winding up of the affairs of, the Borrower, ARMC or AMRESCO; the institution
of any such proceeding against the Borrower, ARMC or AMRESCO if the Borrower,
ARMC or AMRESCO shall fail to secure dismissal thereof within thirty (30) days
thereafter; the consent by the Borrower, ARMC or AMRESCO to any type of
insolvency proceeding against the Borrower, ARMC or AMRESCO (under the
Bankruptcy Code or otherwise); the occurrence of any event or existence of any
condition which could be the ground, basis or cause for any proceeding or
petition described in this Section 10.
E. Any material adverse change in the financial condition of the
Borrower or of AMRESCO or the existence of any other condition which, in the
Lender's sole determination, constitutes an impairment of the Borrower's or
ARMC's ability to perform its obligations under this Agreement or the Borrower's
obligations under the Secured Note and which condition is not remedied within
ten (10) days after written notice to the Borrower, ARMC or AMRESCO thereof or,
if the conditions cannot be fully remedied within said ten days, substantial
progress has not been made within said ten days toward remedy of the condition.
F. Any servicer terminates its Servicing Agreement with the Borrower
provided that no replacement servicer reasonably acceptable to the Lender is
found within 15 days of notice of such termination.
G. A breach by the Borrower or ARMC of any representation, warranty
or covenant set forth in Section 4, Section 5 or Section 9 hereof, as
applicable, or a use by the Borrower of the proceeds of the Loan for a purpose
other than as set forth in Section 1(A) hereof.
SECTION 11. REMEDIES UPON DEFAULT.
A. Upon the happening of one or more Events of Default, the Lender may
(x) refuse to make further Advances hereunder and (y) immediately declare the
principal of the Secured Note then outstanding to be immediately due and
payable, together with all interest thereon and fees and expenses accruing under
this Agreement; PROVIDED that, upon the occurrence of the Event of Default
referred to in Section 9(D), such amounts shall immediately and automatically
become due and payable without any further action by any person or entity. Upon
such declaration or such automatic acceleration, the balance then outstanding on
the Secured Note shall
20
<PAGE>
become immediately due and payable without presentation, demand or further
notice of any kind to the Borrower.
B. Upon the happening of one or more Events of Default, the Lender
shall have the right to obtain physical possession, and to commence an action to
obtain physical possession, of all files of the Borrower and ARMC relating to
the Collateral and all documents relating to the Collateral which are then or
may thereafter come in to the possession of the Borrower, ARMC or any third
party acting for the Borrower or ARMC. The Lender shall be entitled to specific
performance of all agreements of the Borrower and ARMC contained in this
Agreement. The Borrower, ARMC and the Lender hereby acknowledge that the
Lender's right to obtain physical possession of the Collateral is deemed for all
purposes to be equivalent to the rights of "seizure of property or maintenance
or continuation of perfection of an interest in property" as specified under
Bankruptcy Code Sections 362(b) and 546(b)(2).
C. Upon the happening of one or more Events of Default, the Lender
shall have the right to direct all servicers then servicing any Pledged Mortgage
Loans to remit all collections on the Pledged Mortgage Loans to the Lender, and
if any such payments are received by the Borrower, the Borrower shall not
commingle the amounts received with other funds of the Borrower and shall
promptly pay them over to the Lender. In addition, the Lender shall have the
right to dispose of the Collateral as provided herein, or as provided in the
other documents executed in connection herewith, or in any commercially
reasonable manner, or as provided by law. Such disposition may be on either a
servicing-released or a servicing-retained basis. The Lender shall be entitled
to place the Mortgage Loans which it recovers after any default in a pool for
issuance of mortgage-backed securities at the then-prevailing price for such
securities and to sell such securities for such prevailing price in the open
market as a commercially reasonable disposition of Collateral, subject to the
applicable requirements of the New York UCC. The Lender shall also be entitled
to sell any or all of such Mortgage Loans individually for the prevailing price
as a commercially reasonable disposition of Collateral subject to the applicable
requirements of the New York UCC. The specification in this Section of manners
of disposition of collateral as being commercially reasonable shall not preclude
the use of other commercially reasonable methods (as contemplated by the New
York UCC) at the option of the Lender.
D. Following the occurrence and during the continuance of an Event
of Default, interest shall accrue on the Loan at a default interest rate of
federal funds plus 5.00%.
SECTION 12. INDEMNIFICATION. The Borrower agrees to hold the Lender
harmless from and indemnifies the Lender against all liabilities, losses,
damages, judgments, costs and expenses of any kind which may be imposed on,
incurred by, or asserted against the Lender relating to or arising out of this
Agreement, the Secured Note, the ARMC Custodial Agreements, any Program
Agreement or any transaction contemplated hereby or thereby resulting from
anything other than the Lender's negligence or willful misconduct. The Borrower
also agrees to reimburse the Lender for all reasonable expenses in connection
with the enforcement of this Agreement, the Secured Note, the ARMC Custodial
Agreements and any Program Agreement, including
21
<PAGE>
without limitation the reasonable fees and disbursements of counsel. The
Borrower's agreements in this Section shall survive the payment in full of
the Secured Note and the expiration or termination of this Agreement. The
Borrower hereby acknowledges that, notwithstanding the fact that the Secured
Note is secured by the Collateral, the obligations of the Borrower under the
Secured Note are recourse obligations of the Borrower.
SECTION 13. POWER OF ATTORNEY. The Borrower and ARMC hereby authorize
the Lender, at the Borrower's expense, to file such financing statement or
statements relating to the Collateral without the Borrower's or ARMC's
signatures thereon as the Lender at its option may deem appropriate, and
appoints the Lender as the Borrower's and ARMC's attorney-in-fact to execute any
such financing statement or statements in the Borrower's and ARMC's respective
names and to perform all other acts which the Lender deems appropriate to
perfect and continue the security interest granted hereby and to protect,
preserve and realize upon the Collateral, including, but not limited to, the
right to endorse notes, complete blanks in documents, transfer servicing, and
sign assignments on behalf of the Borrower and ARMC as its attorney-in-fact.
This Power of Attorney is coupled with an interest and is irrevocable without
the Lender's consent. Notwithstanding the foregoing, the power of attorney
hereby granted may be exercised only during the occurrence and continuance of
any Event of Default hereunder.
SECTION 14. AGREEMENT CONSTITUTES SECURITY AGREEMENT. This Agreement
is intended by the parties hereto to be governed by New York Law, and to
constitute a security agreement within the meaning of the New York UCC.
SECTION 15. LENDER MAY ACT THROUGH AFFILIATES. The Lender may, from
time to time, designate one or more affiliates for the purpose of performing any
action hereunder.
SECTION 16. NOTICES. All demands, notices and communications relating
to this Agreement shall be in writing and shall be deemed to have been duly
given if mailed, by registered or certified mail, return receipt requested, or
by overnight courier, or, if by other means, when received by the other party or
parties at the address shown below, or such other address as may hereafter be
furnished to the other party or parties by like notice. Any such demand, notice
or communication hereunder shall be deemed to have been received on the date
delivered to or received at the premises of the addressee (as evidenced, in the
case of registered or certified mail, by the date noted on the return receipt).
If to the Borrower or ARMC:
c/o AMRESCO Residential Credit Corporation
3401 CentreLake Drive
Suite 480
Ontario, California 91761
Attention: President
Phone Number: (909) 605-7600
Fax Number: (909) 605-7619
22
<PAGE>
with a copy to:
AMRESCO, INC.
700 North Pearl Street
Suite 2400
Dallas, Texas 75201
Attention: General Counsel
Phone Number: 214-953-7700
Fax Number: 214-953-7757
If to the Lender:
Prudential Securities Credit
Corporation
One Seaport Plaza, 27th Floor
Treasury Department
New York, New York 10292
Attention: Ms. Elizabeth Castagna
Phone Number: 212-214-7772
Fax Number: 212-214-7572
With copies to:
Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Attention: Len Blum
Phone Number: 212-778-1397
Fax Number: 212-778-7401
Chris DiAngelo
Dewey Ballantine
1301 Avenue of the Americas
New York, NY 10019
Phone Number: 212-259-6718
Fax Number: 212-259-6333
SECTION 17. SEVERABILITY. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization, without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
SECTION 18. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, and all such
counterparts shall together constitute one and the same instrument.
23
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
AMRESCO RESIDENTIAL CAPITAL
MARKETS, INC.
By:
----------------------------------
Name:
Title:
AMRESCO RESIDENTIAL MORTGAGE
CORPORATION
By:
----------------------------------
Name:
Title:
PRUDENTIAL SECURITIES CREDIT
CORPORATION
By:
----------------------------------
Name:
Title:
<PAGE>
Appendix I
CERTAIN DEFINITIONS. The following capitalized terms are defined in
the corresponding sections specified below:
"ADVANCE" - Section 1(A)(1).
"ADVANCED AMOUNT" - Section 1(B).
"ADVANTA MORTGAGE" - Section 2(B)(iii).
"AFFILIATE" - Section 4(A)(5).
"AGREEMENT" - Introductory Clause.
"AMENDED AND RESTATED MASTER CUSTODIAL AGREEMENT" - Section 3.
"AMRESCO" - Section 9(B)(i).
"APPLICABLE MARGIN" - Section 1(A)(4).
"APPRAISALS" - Section 1(A)(2)(vi).
"APPRAISED VALUE" - Section 1(B)(2)(b).
"ARMC" - Introductory Clause.
"ARMC CUSTODIAL AGREEMENTS" - Section 3.
"BORROWER" - Introductory Clause.
"BPO" - Section 1(A)(2)(v).
"COLLATERAL" - Section 3.
"COLLATERAL DEFICIENCY SITUATION" - Section 1(B).
"CONTINUING LOAN PURCHASE AGREEMENT" - Section 2(A).
"CONTRACT" - Section 1(A)(2)(vi).
"CORRESPONDENT" - Section 2(B)(ii).
"CUSTODIAN" - Section 3.
"CUSTODIAN'S CERTIFICATION" - Section 1(A)(2)(iii).
"CUT-OFF DATE" - Section 1(B).
25
<PAGE>
"DELINQUENT MORTGAGE LOAN" - Section 1(A)(1).
"DEFAULT" - Section 14.
"ESTIMATED VALUE" - Section 1(B)(1)(b).
"EVENT OF DEFAULT" - Section 9(B).
"FIRST SECURITIZATION" - Recitals.
"FUNDING DATE" - Section 1(A)(2).
"FUNDING TERMINATION DATE" - Section 1(A)(1).
"LENDER" - Introductory Clause.
"LIBOR" - Section 1(A)(4).
"LOAN" - Section 1(A)(1).
"MARKET VALUE" - Section 1(B).
"MASTER CUSTODIAL AGREEMENT" - Section 3.
"MATURITY DATE" - Section 1(B).
"MORTGAGE LOANS" - Section 1(A)(1).
"MORTGAGE LOAN FILES" - Section 3.
"MORTGAGE LOAN SCHEDULE" - Section 2(A).
"NY UCC" - Section 1(E)(1).
"ORIGINAL AGREEMENT" - Recitals.
"PLEDGED MORTGAGE LOANS" - Section (1)(B).
"PROGRAM" - Section 2(B).
"PROGRAM AGREEMENTS" - Section 2(B)(iv).
"PSI" - Recitals.
"PURCHASE AGREEMENTS" - Section 2(B)(i).
"REO PROPERTY" - Section 1(A)(1).
"REO PROPERTY BALANCE" - Section 1(B)(2)(a).
26
<PAGE>
"REO PROPERTY CUSTODIAL AGREEMENT" - Section 3.
"RESTORATION AMOUNT" - Section 1(B).
"SECOND SECURITIZATION" - Recitals.
"SECURED NOTE" - Section 1(F).
"SECURED OBLIGATIONS" - Section 3.
"SECURITIZATION" - Recitals.
"SERVICING AGREEMENTS" - Section 2(B)(i).
"SUPPLEMENTAL MORTGAGE LOAN SCHEDULE" - Section 9.
"35% UNDERWRITER" - Section 5(C).
"WET FUNDED ADVANCE" - Section 1(A)(3).
"WET FUNDED MORTGAGE LOAN" - Section 1(A)(3).
27
<PAGE>
EXHIBIT A
SECURED NOTE
Dated as of October 25, 1996
FOR VALUE RECEIVED, the undersigned, AMRESCO RESIDENTIAL CAPITAL MARKETS,
INC., a Delaware corporation organized under the laws of the State of Delaware,
whose address is 700 North Pearl Street, Suite 2400, Dallas, Texas 75201 (the
"Borrower"), promises to pay to the order of PRUDENTIAL SECURITIES CREDIT
CORPORATION, a Delaware corporation, whose address is One New York Plaza, New
York, New York 10292 (the "Lender") on or before the Maturity Date the amount
then outstanding (including accrued interest) under that certain Amended and
Restated Interim Warehouse and Security Agreement dated as of October 25, 1996
(the "Agreement"). Initially, the maximum principal amount which may be
outstanding is $500,000,000 (subject to certain limitations as set forth
therein). Capitalized terms used herein and not defined herein shall have their
respective meanings as set forth in the Agreement.
The holder of this Note is authorized to record the date and amount of
each Advance and the date and amount of each repayment of principal thereof on
the schedule to be maintained by the Lender (which schedule may be obtained upon
borrower's request), and any such recordation shall constitute prima facie
evidence of the accuracy of the amount so recorded; provided that the failure of
the holder hereof to make such recordation (or any error in such recordation)
shall not affect the obligations of the Borrower hereunder or under the
Agreement.
MAXIMUM RATE OF INTEREST: It is intended that the rate of interest herein
shall never exceed the maximum rate, if any, which may be legally charged on the
Loan evidenced by this Note ("Maximum Rate"), and if the provisions for interest
contained in this Note would result in a rate higher than the Maximum Rate,
interest shall nevertheless be limited to the Maximum Rate and any amounts which
may be paid toward interest in excess of the Maximum Rate shall be applied to
the reduction of principal, or, at the option of the Lender, returned to the
Borrower.
DUE DATE: The Loan evidenced hereby not paid before the Maturity Date
shall be due and payable on the Maturity Date.
PLACE OF PAYMENT: All payments hereon shall be made, and all notices to
the Lender required or authorized hereby shall be given, at the office of the
Lender at the address designated in the heading of this Note, or to such other
place as the Lender may from time to time direct by written notice to the
Borrower.
PAYMENT AND EXPENSES OF COLLECTION: All amounts payable hereunder are
payable by wire transfer in immediately available funds to the account number
specified by the Lender, in lawful money of the United States. Payments
remitted by the Borrower via wire transfer initiated after 1:00 p.m. New York
City time shall be deemed to be received on the next business day. The Borrower
agrees to pay all costs
A-1
<PAGE>
of collection when incurred, including, without limiting the generality of
the foregoing, reasonable attorneys' fees through appellate proceedings, and
to perform and comply with each of the covenants, conditions, provisions and
agreements contained in every instrument now evidencing or securing said
indebtedness.
SECURITY: This Note is issued pursuant to the Agreement and is secured by
a pledge of the collateral described therein. Notwithstanding the pledge of the
collateral, the Borrower hereby acknowledges, admits and agrees that the
Borrower's obligations under this Note are recourse obligations of the Borrower
to which the Borrower pledges its full faith and credit.
DEFAULTS: Upon the happening of an Event of Default (as defined in the
Agreement), the Lender shall have all rights and remedies set forth in the
Agreement.
The failure to exercise any of the rights and remedies set forth in the
Agreement shall not constitute a waiver of the right to exercise the same or any
other option at any subsequent time in respect of the same event or any other
event. The acceptance by the Lender of any payment hereunder which is less than
payment in full of all amounts due and payable at the time of such payment shall
not constitute a waiver of the right to exercise any of the foregoing rights and
remedies at that time or at any subsequent time or nullify any prior exercise of
any such rights and remedies without the express consent of Lender, except as
and to the extent otherwise provided by law.
WAIVERS: The Borrower waives diligence, presentment, protest and demand
and also notice of protest, demand, dishonor and nonpayments of this Note, and
expressly agree that this Note, or any payment hereunder, may be extended from
time to time, and consent to the acceptance of further collateral, the release
of any collateral for this Note, the release of any party primarily or
secondarily liable hereon, and that it will not be necessary for the Lender, in
order to enforce payment of this Note, to first institute or exhaust Lender's
remedies against the Borrower or any other party liable hereon or against any
collateral for this Note. None of the foregoing shall affect the liability of
the Borrower. No extension of time for the payment of this Note, or an
installment hereof, made by agreement by the Lender with any person now or
hereafter liable for the payment of this Note, shall affect the liability under
this Note of the Borrower, even if the Borrower is not a party to such
agreement; provided, however, the Lender and the Borrower, by written agreement
between them, may affect the liability of the Borrower.
TERMINOLOGY: If more than one party joins in the execution of this Note,
the covenants and agreements herein contained shall be the joint and several
obligation of each and all of them and of their respective heirs, executors,
administrators, successors and assigns, and relative words herein shall be read
as if written in the plural when appropriate. Any reference herein to the
Lender shall be deemed to include and apply to every subsequent holder of this
Note. Words of masculine or neuter import shall be read as if written in the
neuter or masculine or feminine when appropriate.
A-2
<PAGE>
AGREEMENT: Reference is made to the Agreement for provisions as to
Advances, rates of interest, mandatory principal repayments, collateral and
acceleration. If there is any conflict between the terms of this Note and the
terms of the Agreement, the terms of the Agreement shall control.
APPLICABLE LAW: This Note shall be governed by and construed under the
laws of the State of New York, the laws of which the Borrower hereby expressly
elects to apply to this Note. The Borrower agrees that any action or proceeding
brought to enforce or arising out of this Note may be commenced in the Supreme
Court of the State of New York, or in the District Court of the United States
for the Southern District of New York.
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
By:
----------------------------------
Name:
Title:
A-3
<PAGE>
EXHIBIT B
October 25, 1996
Bankers Trust Company of California, N.A.
3 Park Plaza
16th Floor
Irvine, California 92714
Prudential Securities Credit Corporation
One New York Plaza
New York, NY 10292-2015
Re: INTERIM FUNDING ARRANGEMENT FOR
MORTGAGE LOANS
Gentlemen:
I am the counsel to AMRESCO Residential Capital Markets, Inc., a Delaware
corporation (the "Borrower"), and AMRESCO Residential Mortgage Corporation, a
Delaware corporation ("ARMC"). I have represented the Borrower and ARMC in
connection with the execution and delivery of the following documents:
(i) Amended and Restated Interim Warehouse and Security Agreement, dated
as of October 25, 1996 (the "Interim Warehouse and Security Agreement"),
among the Borrower, ARMC and Prudential Securities Credit Corporation (the
"Lender");
(ii) Secured Note executed as of October 25, 1996 by the Borrower in
favor of the Lender (the "Note");
(iii) Amended and Restated Master Custodial Agreement, dated as of
November 1, 1995 (the "Amended and Restated Custodial Agreement"), between
the Borrower and Bankers Trust Company of California, N.A. (the "Custodian");
(iv) Master Custodial Agreement, dated as of October 25, 1996 (the
"Master Custodial Agreement"), between ARMC and the Custodian; and
(v) Master Custodial Agreement (REO Properties), dated as of October 25,
1996 (the "REO Property Custodial Agreement", together with the Master
Custodial Agreement, the "ARMC Custodial Agreements" and collectively with
the Amended and Restated Custodial Agreement, the "Custodial Agreements"),
among ARMC, the Lender and the Custodian.
Capitalized terms used herein, but not defined herein, shall have the
meanings assigned to them in the Interim Warehouse and Security Agreement.
B-1
<PAGE>
I have examined executed copies of the Interim Warehouse and Security
Agreement, the Note, and the Custodial Agreements. I have also examined
originals or photostatic or certified copies of all such corporate records of
the Borrower and ARMC and such certificates of public officials, certificates of
corporate officers, and other documents, and such questions of law, as I have
deemed appropriate and necessary as a basis for the opinions hereinafter
expressed. In making my examination and rendering the opinions herein
expressed, I have made the following assumptions: i) each party to each of the
Interim Warehouse and Security Agreement and the Custodial Agreements (other
than the Borrower and ARMC, as applicable) has the power to enter into and
perform all of its obligations thereunder, (ii) the due authorization, execution
and delivery of each of the Interim Warehouse and Security Agreement and the
Custodial Agreements by all parties thereto (other than the Borrower and ARMC,
as applicable), and (iii) the validity and binding effect on all parties thereto
(other than the Borrower and ARMC, as applicable) of each of the Interim
Warehouse and Security Agreement and the Custodial Agreements.
The opinions expressed below with respect to enforceability are subject to
the following additional qualifications:
(a) The effect of insolvency, reorganization, moratorium,
conservatorship, receivership, or other similar laws relating to or affecting
the rights of creditors of institutions having deposits insured by the Federal
Deposit Insurance Corporation in the event of insolvency, reorganization,
moratorium, conservatorship or receivership.
(b) The application of general principles of equity, including, but not
limited to, the right of specific performance (regardless of whether
enforceability is considered in a proceeding in equity or at law).
(c) The unenforceability of provisions to the effect that failure to
exercise or delay in exercising rights or remedies will not operate as a waiver
of any such rights or remedies, or to the effect that provisions therein may
only be waived in writing to the extent that an oral agreement has been entered
into modifying such provisions.
I am licensed to practice law in the State of Texas. For purposes of this
opinion, I have assumed that the laws of the State of Texas are substantially
similar to the laws of the State of New York. Subject to such assumption, each
opinion hereinafter set forth is an opinion concerning only the law of the
States of Texas and New York, the corporate laws of Delaware and applicable
federal law. All opinions expressed herein are based on laws, regulations and
policy guidelines currently enforced and may be affected by future changes in
law. Furthermore, no opinion is expressed herein regarding the applicable state
Blue Sky, legal investment or real estate syndication laws.
Based upon the foregoing, and subject to the last paragraph hereof, I am
of the opinion that:
1. The Interim Warehouse and Security Agreement, the Note and the Amended
and Restated Custodial Agreement each constitutes the valid, legal and
binding
B-2
<PAGE>
agreement of the Borrower, and each is enforceable against the Borrower in
accordance with its terms.
2. No consent, approval, authorization or order of, registration or
filing with, or notice to, any governmental authority or court is required
under federal laws or the laws of the States of Texas, New York or Delaware
for the execution, delivery and performance of the Interim Warehouse and
Security Agreement, the Note, or the Amended and Restated Custodial
Agreement, as applicable, by the Borrower, except such of which as have been
obtained.
3. The execution, delivery and performance by the Borrower of the
Interim Warehouse and Security Agreement, the Note and the Amended and
Restated Custodial Agreement, does not conflict with or result in a breach
of, or constitute a default under any law, rule or regulation of the federal
government or of the States of Texas, New York or Delaware.
4. The execution, delivery and performance of the Interim Warehouse and
Security Agreement, the Note and the Amended and Restated Custodial Agreement
by the Borrower will not result in a default under any mortgage, borrowing
agreement, or other instrument or agreement pertaining to indebtedness for
borrowed money to which the Borrower is a party.
5. The Interim Warehouse and Security Agreement and the ARMC Custodial
Agreements each constitutes the valid, legal and binding agreement of ARMC
and each is enforceable against ARMC in accordance with its terms.
6. No consent, approval, authorization or order of, registration or
filing with, or notice to, any governmental authority or court is required
under federal laws or the laws of the States of Texas, New York or Delaware
for the execution, delivery and performance of the Interim Warehouse and
Security Agreement or the ARMC Custodial Agreements by ARMC, except such of
which as have been obtained.
7. The execution, delivery and performance by ARMC of the Interim
Warehouse and Security Agreement and the ARMC Custodial Agreements does not
conflict with or result in a breach of, or constitute a default under any
law, rule or regulation of the federal government or of the States of Texas,
New York or Delaware.
8. The execution, delivery and performance of the Interim Warehouse and
Security Agreement and the ARMC Custodial Agreements by ARMC will not result
in a default under any mortgage, borrowing agreement, or other instrument or
agreement pertaining to indebtedness for borrowed money to which ARMC is a
party.
9. Upon the execution of the Interim Warehouse and Security Agreement, a
valid security interest in the Mortgage Loans and the proceeds thereof is
granted to the Lender, which security interest would be a valid, first-
priority, perfected security interest with respect to such Mortgage Loans and
the proceeds thereof upon the delivery of the Mortgage Loan Files to the
Custodian or, with respect to
B-3
<PAGE>
the Wet Funded Mortgage Loans, for a period of twenty-one days following the
date of the related Wet Funded Advance and thereafter upon the delivery to
the Custodian of the Mortgage Loan Files related thereto.
This Opinion is furnished by me as counsel to the Borrower and ARMC and is
solely for the benefit of the addressees hereof; except that this Opinion may be
relied upon by any holder in due course of the Note.
Yours truly,
B-4
<PAGE>
EXHIBIT C
CREDIT INCREASE CONFIRMATION AND
NOTE AMENDMENT
Dated ________________
Reference is made to (x) the Amended and Restated Interim Warehouse and
Security Agreement, dated as of October 25, 1996 (the "Interim Warehouse
Agreement"), among Prudential Securities Credit Corporation (the "Lender"),
AMRESCO Residential Capital Markets, Inc. (the "Borrower") and AMRESCO
Residential Mortgage Corporation ("ARMC") and (y) the Secured Note dated as of
October 25, 1996 (the "Note") from the Borrower to the Lender. Capitalized
terms used and not otherwise defined herein shall have the meaning ascribed to
such terms in the Interim Warehouse Agreement.
SECTION 1.
The "Maturity Date" referenced in the Interim Warehouse Agreement and
in the Note shall be ___________________________.
[Any other changes.]
SECTION 2.
As amended by Section 1 hereof all provisions of the Interim Warehouse
Agreement and of the Note are reconfirmed as of the date hereof. Each of the
Borrower and ARMC, in addition, hereby reconfirms and remakes as of the date
hereof each and every of its respective representations, warranties and
covenants set forth in the Interim Warehouse Agreement and the Note, as
applicable.
C-1
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the day
and year first above written.
AMRESCO RESIDENTIAL CAPITAL
MARKETS, INC.
By:
-----------------------------------
Name:
Title:
AMRESCO RESIDENTIAL MORTGAGE
CORPORATION
By:
-----------------------------------
Name:
Title:
PRUDENTIAL SECURITIES CREDIT CORPORATION
By:
-----------------------------------
Name:
Title:
C-2
<PAGE>
APPROVAL AS TO LEGALITY
I, Karen H. Cornell, corporate counsel to the Borrower and ARMC hereby
confirm that:
I delivered, on October 25, 1996, the opinion letter, a copy of which
is attached hereto (the "Opinion Letter") relating to the Interim
Warehouse Agreement and the Note.
I have represented the Borrower and ARMC in connection with its
execution and delivery of the Credit Increase Confirmation and Note
Amendment (the "Confirmation") to which this Approval as to Legality
is attached.
I hereby extend, as of the date hereof, the opinions set forth in the
Opinion Letter to cover both the Confirmation itself as well as the
transactions described on the Confirmation and confirm, as of the date
hereof, and subject to any and all assumptions and qualifications set
forth therein, the opinions set forth in the Opinion Letter.
Yours truly,
---------------------------------------
Karen H. Cornell
Corporate Counsel
Dated:
-------------------
C-3
<PAGE>
FUNDING NOTICE
_________ __, 199_
Prudential Securities Credit
Corporation
One New York Plaza
New York, NY 10292
Re: AMENDED AND RESTATED INTERIM WAREHOUSE AND SECURITY AGREEMENT
DATED AS OF OCTOBER 25, 1996 ("AGREEMENT")
Gentlemen:
Reference is made to the Agreement for defined terms used herein.
Pursuant to Section 2(A) of the Agreement, this letter constitutes notice that
the undersigned desires to obtain an Advance in the principal amount of
$____________, with respect to the Mortgage Loans shown on the attached Mortgage
Loan Schedule. Attached as Schedule I hereto is the calculation of the Advanced
Amount in accordance with the Agreement including a breakdown of each
calculation required to determine such Advanced Amount (other than any Market
Value calculations).
This letter will further certify that: (1) the undersigned has no
notice or knowledge of any Event of Default; (2) the representations, warranties
and covenants in the Agreement relating to the Mortgage Loans shown on the
attached Mortgage Loan Schedule are true and correct as of the date hereof; (3)
each of the conditions precedents to an Advance listed in Section 1(A)(2) or
1(A)(3), as applicable, of the Agreement are true and correct as of the date
hereof and shall be true and correct on the date of the Advance requested
herein, before and after giving effect thereto; and (4) prior to, and following
the making of such Advance, none of the concentration covenants set forth in
Sections 4(c)(4) through (7) have been, or shall be, breached.
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
By:
---------------------------------------
Name:
Title:
D-1
<PAGE>
THIRD AMENDMENT TO
FIRST AMENDED AND RESTATED REVOLVING LOAN AGREEMENT
This THIRD AMENDMENT TO FIRST AMENDED AND RESTATED REVOLVING LOAN AGREEMENT
(this "AMENDMENT") is entered into as of the 23rd day of October, 1996, by and
among AMRESCO, INC., a Delaware corporation ("AMRESCO") and the other entities
designated as "Borrowers" in SCHEDULE I attached hereto (collectively,
"BORROWERS") and NationsBank of Texas, N.A., a national banking association, as
agent ("AGENT") for the Lenders (as defined in the Loan Agreement (defined
below)).
WITNESSETH:
WHEREAS, on April 25, 1996, Borrowers, Agent and the Initial Lenders
entered into that certain First Amended and Restated Revolving Loan Agreement
(together with the amendments described below, the "LOAN AGREEMENT") which
provided for the Lenders to provide to Borrowers thereunder a revolving credit
facility in the original aggregate principal amount of $200,000,000; and
WHEREAS, the Loan Agreement was amended by First Amendment to First Amended
and Restated Revolving Loan Agreement dated as of June 13, 1996, and Second
Amendment to First Amended and Restated Revolving Loan Agreement dated as of
August 9, 1996, each of which added additional Lenders to the original Loan
Agreement and provided for other technical amendments to the Loan Agreement; and
WHEREAS, by letter dated October 7, 1996, Agent, on behalf of the Required
Lenders, pursuant to Section 8.10(a) of the Loan Agreement, granted its prior
written consent for the acquisition by ARMC (as defined below) of substantially
all assets of Quality Mortgage USA, Inc., for a total purchase price of
$65,000,000; and
WHEREAS, the parties to this Amendment desire to grant certain consents
pursuant to the terms of the Loan Agreement and to amend the terms of the Loan
Agreement as set forth below.
AGREEMENT:
NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS: That, for and in
consideration of the covenants and agreements set forth herein, and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, Borrowers, Agent, and Required Lenders hereby agree
as follows:
1. DEFINED TERMS. All capitalized terms used herein but not otherwise
defined in this Amendment shall be defined as set forth in the Loan
Agreement.
Page 1
<PAGE>
a. Section 1.1 of the Agreement is amended by adding the following
defined terms:
ACCC means AMRESCO Capital Conduit Corporation, a Delaware
corporation, which is the general partner of ACMF.
ACL means AMRESCO Capital Limited, Inc., a Delaware corporation, which
is a limited partner of ACMF.
ACMF means AMRESCO Commercial Mortgage Funding, L.P., a Delaware
limited partnership whose sole general partner is ACCC and whose
limited partners are ACL and MLQ Investors, L.P..
ACMF TRANSACTION DOCUMENTS means, collectively, (i) the Keepwell
Agreement; (ii) Guaranty dated as of September 3, 1996 executed by
ACCC (the "ACCC GUARANTY"); (iii) Agreement of Limited Partnership
dated as of August 30, 1996 executed by ACCC as general partner, ACL
as one of two limited partners, and MLQ Investors, L.P. as the other
limited partner; (iv) Master Repurchase Agreement dated as of
September 3, 1996 executed by ACMF and Goldman Sachs Mortgage
Corporation ("GSMC"); (v) Mortgage Loan Origination and Sale Agreement
dated as of September 3, 1996, between AMRESCO Capital Corporation and
ACMF; (vi) Custodial Agreement dated as of September 3, 1996, between
ACMF, GSMC, and LaSalle National Bank; (vii) Servicing Agreement dated
as of September 3, 1996, between ACMF and AMRESCO Management, Inc.;
(viii) the letter agreement between ACMF and GSMC dated as of October
__, 1996, with respect to the Master Repurchase Agreement; and (ix)
the Securitization Agreement (herein so called) to be entered into
between ACC and/or ACMF and Goldman Sachs & Co., which will include an
indemnification of Goldman Sachs & Co. against securities liability
arising from ACC's or ACMF's material misstatements or omissions of
material facts in information provided in the offering materials
related to securities backed by mortgages originated by ACC and sold
by ACMF; as such documents may be amended from time to time subject to
the limitations and conditions contained in the Loan Agreement and
this Amendment.
ADDITIONAL CAPITAL means capital raised by AMRESCO after the date of
this Amendment, whether through issuance of stock, Approved
Subordinated Debt or Approved Senior Debt, or in any other manner
approved by the Required Lenders.
APPROVED ACQUISITIONS means acquisitions of corporate entities or
substantially all assets of a corporate entity or division thereof,
which are approved by the Required Lenders as contemplated by SECTION
8.10(A) of the Loan Agreement.
APPROVED SENIOR DEBT means Debt issued by AMRESCO which is unsecured
and
Page 2
<PAGE>
senior to other unsecured Debt of AMRESCO and the terms of which have
been approved in writing by the Required Lenders and shall include,
without limitation, (i) the Debt evidenced by promissory notes
aggregating $57,500,000 issued pursuant to the terms of the Senior
Indenture as Series 1996-A due 1999, and pursuant to that certain
Officers' Certificate and Company Order dated as of July 19, 1996, and
(ii) any other promissory notes issued pursuant to the Senior
Indenture, provided that (a) the $45,000,000 in outstanding
convertible Approved Subordinated Debt has been converted into equity;
(b) Agent has received projections from AMRESCO showing financial
covenant compliance following issuance of such notes; (c) no Default
or Event of Default has occurred and has not been cured; and (d) Agent
has approved the terms for the issuance of such notes; and further
provided that the total outstanding Approved Senior Debt is not
more than One Hundred Fifteen Million and No/100 Dollars
($115,000,000.00) in the aggregate.
ARMC means AMRESCO Residential Mortgage Corporation, a Delaware
corporation, formerly known as AMRESCO B&C, Inc.
KEEPWELL AGREEMENT means that certain Limited Keepwell Agreement dated
as of September 3, 1996, executed by AMRESCO for the benefit of ACMF.
OTHER PERMITTED INVESTMENTS means, collectively, investments by any
Borrower in bridge loans, non-conventional commercial loans and other
high-yield loans, commercial real estate interests not included as
Assigned Loans, wholly-owned Permitted Foreign Assets not included in
the Borrowing Base, Excluded Subsidiaries (other than ARSC) and
Commercial Residual Interests not held by an Excluded Subsidiary.
RESIDENTIAL CAPITAL MARKETS GROUP means, collectively or individually,
ARMC, ARCC, ARSC and ARCMI.
SENIOR INDENTURE means that certain Indenture dated July 1, 1996,
executed by and between AMRESCO and Comerica Bank, as Trustee.
TOTAL CAPITAL means the sum of Consolidated Tangible Net Worth and the
outstanding balances of (1) Approved Subordinated Debt and (2)
Approved Senior Debt, in all cases calculated as of the end of the
calendar month immediately preceding the investment.
UK SUBSIDIARIES means, collectively, AMRESCO UK Holdings Limited,
AMRESCO UK Limited, AMRESCO UK Ventures Limited, AMRESCO Jersey
Ventures Limited, and Old Midland House Limited.
Page 3
<PAGE>
b. The definition of BORROWING BASE contained in Section 1.1 of the Loan
Agreement is hereby amended to read as follows:
BORROWING BASE means an amount equal to the lesser of (a) 62.5%
of the Available Commitment, (b) the Net Investment Value
Availability, or (c) the Net Present Value Availability; provided that
the Borrowing Base shall be limited such that the portion of the
Borrowing Base attributable to (A) Wholly-Owned Real Estate Portfolios
shall not exceed 33% of the Wholly-Owned Non-Real Estate Portfolios
and (B) the Foreign Portfolio shall not exceed $75,000,000. In
determining the Net Investment Value Availability, the Net Present
Value Availability or any other calculation required in determining
the Borrowing Base, the Foreign Portfolio and related assets shall be
included based on the Dollar Equivalent.
c. The definition of EXCLUDED SUBSIDIARIES contained in Section 1.1 of
the Loan Agreement is hereby amended to read as follows:
EXCLUDED SUBSIDIARIES means, collectively, (a) Whiterock
Investments, Inc., a Delaware corporation, AMRESCO Advisors, Inc., a
Texas corporation, and any other existing or future Subsidiary of any
Borrower which is subject to the Investment Advisors Act of 1940, as
amended, (b) any non-Borrower special purpose subsidiary which has
been established to acquire loan portfolios and has obtained
Nonrecourse Debt in connection with such acquisitions or indebtedness
where recourse is limited just to such special purpose subsidiary,
and which does not own Eligible Investments or any other Collateral
included in determining the Borrowing Base, (c) AMRESCO-MBS I, Inc., a
Delaware corporation, ARSC, ACCC, and such other Subsidiaries as are
designated in writing to Agent by AMRESCO as Excluded Subsidiaries.
d. The definition of ARMC contained in Section 1.1 of the Loan Agreement
is hereby deleted and the following definition is hereby substituted:
ARCMI means AMRESCO Residential Capital Markets, Inc., a Delaware
corporation, formerly known as AMRESCO Residential Mortgage
Corporation.
e. The definition of ARMC Warehousing Facility contained in Section 1.1
of the Loan Agreement is hereby amended to read as follows:
ARMC WAREHOUSING FACILITY means one or more warehouse lines of
credit made to ARMC or to ARCMI (without recourse or with recourse
only to ARMC and/or ARCMI) from one or more institutional lenders in
order to finance the origination or purchase by ARMC or ARCMI of
various single-family residential real estate loans, as the same may
be renewed, extended, modified, amended or replaced from time to time.
Page 4
<PAGE>
f. The definition of Permitted Investments contained in Section 1.1 of
the Loan Agreement is hereby amended to read as follows:
PERMITTED INVESTMENTS means (a) time deposits or certificates of
deposit in any Lender or other investments or securities offered by
any Lender (including eurodollar deposits), (b) obligations backed by
the full faith and credit of the United States of America,
(c) commercial paper rated P-1 by Moody's Investors Service, Inc. or
A-1 by Standard & Poor's Corporation on the date of acquisition, (d)
subject to any limitations contained in this Agreement, including,
without limitation, the limitations set forth in SECTION 8.5,
participations in any Interest and Foreign Exchange Hedge Agreements
or (e) subject to any limitations contained in this Agreement,
including, without limitation, the limitations set forth in SECTION
8.10, (i) acquisitions of corporate entities, (ii) investments in
Related Investments, (iii) amounts advanced by AMRESCO or AMRESCO
Capital Corporation in connection with Warehouse Line Loans and/or
Residential Funding Loans, (iv) investments in Asset Portfolios, or
Persons acquiring an Asset Portfolio, that will be managed by a
Borrower or an Affiliate of a Borrower, including, without limitation
Eligible Investments, (v) purchases of Residential Residual Interests
(including those from net interest margin trusts) located in the
United States, (vi) amounts advanced by ARMC or ARCMI with respect to
any ARMC Warehousing Loans located in the United States, or (vii)
Invested Capital in the Residential Capital Markets Group and Other
Permitted Investments.
f. The definition of Collateral in Section 1.1 of the Loan Agreement is
hereby amended to read as follows:
COLLATERAL means all property, assets and interests of any kind
securing the Credit Facility (including, without limitation, all
Advances and the Letters of Credit) pursuant to this Agreement or any
of the other Loan Documents, which shall include, without limitation,
all Assigned Loans, all Commercial Residual Interests and Residential
Residual Interests, all fixtures, furniture and equipment owned by any
of the Borrowers, all general inventory of any of the Borrowers, and
any material asset of any Borrower (provided that, for this purpose,
"material assets" shall be deemed to be those assets with an
acquisition cost in excess of $5,000,000).
2. REQUIRED CONSENTS/APPROVALS
a. AMRESCO CAPITAL CORPORATION/GOLDMAN JOINT VENTURE: Pursuant to SECTION
8.10(B) of the Loan Agreement, Borrowers are prohibited from investing
in Related Investments in excess of $10,000,000 without the prior
written consent of Agent and the Required Lenders. Upon execution
hereof, this Amendment shall constitute such
Page 5
<PAGE>
prior written consent for the investment evidenced by the ACMF
Transaction Documents in an amount up to $25,000,000 (the "ACMF CAP
AMOUNT"). In addition, AMRESCO, ACL and ACCC may advance additional
amounts (such additional advances not to exceed $35,000,000 in the
aggregate outstanding at any time) to ACMF if required to do so under
the terms of the Keepwell Agreement, ACCC Guaranty or the Limited
Partnership Agreement of ACMF without additional consents; provided,
however, that (i) the obligations of AMRESCO and ACCC under such
agreements shall be limited to obligations under the Master Repurchase
Agreement dated as of September 3, 1996 executed by ACMF and GSMC and
the Securitization Agreement to be executed between ACMF and Goldman
Sachs & Co., and (ii) such $35,000,000 limitation shall in no way limit
the liability of AMRESCO to the extent that the Keepwell Agreement
includes a guaranty otherwise permitted by Section 8.5(h) of the Loan
Agreement. Any investments made pursuant to the terms of this consent
shall be Related Investments and shall not increase any limitations
contained in SECTION 8.10 concerning Related Investments.
b. NIM TRUSTS. To the extent required by the Loan Agreement, the
Required Lenders consent to the creation by ARSC of one or more net
interest margin trusts, and authorize Agent to release their security
interest in Residential Residual Interests as may be necessary to
facilitate creation of such trusts, provided that (i) no Default or
Event of Default has occurred and remains uncured, and (2) the
proceeds to ARSC from the creation of such trusts are used to reduce
the outstanding balance of the Credit Facility.
3. Section 7.1(c) of the Loan Agreement is hereby amended to read as follows:
(c) Simultaneously with the delivery of each set of financial
statements referred to in SECTIONS 7.1(a) AND (b), a certificate of an
Authorized Officer of AMRESCO, (i) setting forth in reasonable detail the
calculations required to establish whether Borrowers were in compliance
with the requirements of SECTIONS 8.1 through and including SECTION 8.4,
and SECTION 8.10 (c), (i) AND (j) on the date of such financial statements,
and (ii) with respect to only the financial statements delivered pursuant
to SECTIONS 7.1(a) AND (b), stating, to the best of such Authorized
Officer's knowledge and belief, whether or not such financial statements
fairly reflect the financial condition of AMRESCO and its Subsidiaries and
results of AMRESCO's and its Subsidiaries' operations as of the date of the
delivery of such financial statements.
4. Section 8.1 of the Loan Agreement is hereby amended to read as follows:
SECTION 8.1. MINIMUM CONSOLIDATED TANGIBLE NET WORTH. Borrowers
shall not permit Consolidated Tangible Net Worth to be less than the sum of
(a) One Hundred Ten Million and No/100 Dollars ($110,000,000.00) PLUS (b)
fifty percent (50%) of the cumulative
Page 6
<PAGE>
Consolidated Net Income for each calendar quarter commencing on April 1,
1996, through the quarter ending immediately prior to, or on, the date as
of which compliance with this covenant is being measured, PLUS (c) the
amount of any proceeds (less reasonable and customary transaction costs)
received by AMRESCO from the issuance of any additional shares of stock or
other equity instruments, LESS (d) intangible assets shown on the financial
statements of Borrower as prepared in accordance with GAAP (net of
amortization) attributed to Approved Acquisitions.
5. Section 8.5 of the Loan Agreement is hereby amended to read as follows:
SECTION 8.5. LIMITATION ON DEBT AND FOREIGN EXCHANGE EXPOSURE. No
Borrower shall, and no Borrower shall permit any of its Subsidiaries to,
incur any Debt, except
(a) the Credit Facility (including the Letters of Credit);
(b) the Residential Capital Markets Group or an Excluded Subsidiary
may have liability under unsecured Interest and Foreign Exchange Hedge
Agreements in an aggregate notional amount not to exceed $500,000,000,
so long as (i) there is no recourse to AMRESCO or any Subsidiary under
any such Interest and Foreign Exchange Hedge Agreements, other than
the Residential Capital Markets Group or an Excluded Subsidiary, (ii)
each such Interest and Foreign Exchange Hedge Agreement has a maturity
of no more than 18 months, other than Interest and Foreign Exchange
Hedge Agreements in an aggregate notional amount not to exceed
$100,000,000, which can have a maturity of no more than seven years,
(iii) the purpose of each such Interest and Foreign Exchange Hedge
Agreement is to hedge the Borrowers' interest rate or foreign exchange
or other business risk, and is not speculative in nature, and (iv) the
Borrowers do not deviate from their current practices and policies
related to obtaining Interest and Foreign Exchange Hedge Agreements;
(c) obligations under secured Interest and Foreign Exchange Hedge
Agreements, so long as the provider of any such Interest and Foreign
Exchange Hedge Agreements is a Lender and such Lender's Liens are
evidenced by the Security Documents;
(d) the Investment Line of Credit, the Warehouse Line of Credit, the
Residential Funding Warehousing Facility, and the ARMC Warehousing
Facility; provided, however, that at no time shall the outstanding
principal balance of the ARMC Warehousing Facility exceed One Billion
and No/100 Dollars ($1,000,000,000.00);
(e) Debt of any Borrower owed to any other Borrower;
(f) Debt secured by purchase money security interests not to exceed
$250,000.00 in the aggregate at any time;
Page 7
<PAGE>
(g) Guaranties in connection with Debt otherwise permitted by this
SECTION 8.5 other than in connection with the Residential Funding
Warehousing Facility or the ARMC Warehousing Facility (provided,
however, that ARCMI may guarantee loans made to ARMC under an ARMC
Warehousing Facility);
(h) Guaranties in the form of indemnity obligations or typical
repurchase obligations related to the sale by any Borrower of assets
in the ordinary course of its business;
(i) Leases of office space used by any Borrower in the ordinary course
of its business;
(j) Debt in respect of current accounts payable incurred in the
ordinary course of any Borrower's business;
(k) Approved Subordinated Debt or Approved Senior Debt; provided that
no Borrower or Subsidiary shall make payments on or redeem, or approve
by board of director action or otherwise the payment of any amounts
on, or redemption of, the Approved Subordinated Debt or Approved
Senior Debt after the occurrence of a Default or, prior to the
occurrence of a Default, which would exceed the scheduled payments due
under the documents evidencing the Approved Subordinated Debt or the
Approved Senior Debt, such prohibited payments including any payments
made under Article 11 or Article 14 of that certain Indenture dated as
of November 21, 1995, by and between AMRESCO and First Interstate Bank
of Texas, N.A., as Trustee or Article 11 of that certain Indenture,
dated January 15, 1996, by and between AMRESCO and Bank One, Columbus,
N.A., as Trustee;
(l) Excluded Subsidiary Debt in an aggregate amount not to exceed One
Hundred Million and No/100 Dollars ($100,000,000.00);
(m) Guaranties of AMRESCO, AMRESCO CAPITAL CORPORATION, ACCC and ACL
as evidenced by the ACMF Transaction Documents, as amended, copies of
which have previously been provided to Agent; PROVIDED, HOWEVER, that
except as expressly provided in Section 2(a) of this Amendment, any
payments under the ACMF Transaction Documents or investment in ACMF
under the ACMF Transaction Documents which at any one time would
aggregate in excess of the ACMF Cap Amount are subject to the prior
written consent of the Required Lenders and Agent;
(n) Debt of ARMC to DLJ Mortgage Capital, Inc., as evidenced by a
Master Repurchase Agreement dated October 25, 1996, and secured by
subordinate certificates from DLJ 1996-QB and DLJ 1996-QJ; and
Page 8
<PAGE>
(o) Debt of the UK Subsidiaries (or any of them) not to exceed
$1,000,000 in the aggregate, provided that such Debt is nonrecourse
and secured only by one or more Letter(s) of Credit issued pursuant to
the Credit Facility.
6. Section 8.7 of the Loan Agreement is hereby amended to read as follows:
SECTION 8.7. LIMITATIONS ON LIENS. No Borrower shall, and no
Borrower shall permit any of its Subsidiaries to, create, incur, assume or
suffer to exist any Lien upon any of its assets (including, without
limitation, the stock of any Subsidiary incorporated outside of the United
States and not pledged to Lenders) or to give a negative pledge to any
Person with respect to any of its assets, except for
(a) the Lenders' Liens;
(b) the Permitted Encumbrances;
(c) with respect to equipment or inventory, (i) landlord's Liens
arising in the ordinary course of any Borrower's business and (ii)
Liens on equipment or supplies hereafter acquired by any Borrower in
the ordinary course of such Borrower's business to secure the purchase
price of such equipment or supplies and any such Lien existing on such
equipment or supplies at the time of acquisition by such Borrower
(individually, a "PURCHASE MONEY LIEN"), provided that (1) no Purchase
Money Lien shall cover any property other than the equipment or
supplies so acquired, and (2) the Debt secured by such Purchase Money
Lien shall not exceed one hundred percent (100%) of the purchase price
of such equipment or supplies;
(d) Liens on the Collateral to secure obligations under Interest and
Foreign Exchange Hedge Agreements, so long as the provider of any such
Interest and Foreign Exchange Hedge Agreement is a Lender and such
Liens are evidenced by the Security Documents;
(e) Liens to secure permitted Excluded Subsidiary Debt, provided that
(i) no such Lien shall cover any property other than property
purchased or refinanced with proceeds of permitted Excluded Subsidiary
Debt, and (ii) the Excluded Subsidiary Debt secured by such Lien shall
not exceed one hundred percent (100%) of the purchase price of such
property;
(f) the six percent (6%) net profits interest granted by AMRESCO New
Hampshire, Inc. to Heller Financial, Inc. pursuant to Section 3.6 of
that certain Term Loan Agreement, dated as of December 31, 1993, among
AMRESCO New Hampshire, Inc., AMRESCO Holdings, Inc. and Heller
Financial, Inc.;
Page 9
<PAGE>
(g) Liens involuntarily filed against any asset of any Borrower or
Subsidiary, provided, that within fifteen (15) days after such filing,
the applicable Borrower or Subsidiary has obtained a release of any
such Lien or is contesting the filing of such Lien in good faith and
an adequate bond has been obtained to satisfy in full any claim which
such Lien secures;
(h) Liens securing the Investment Line of Credit, the Warehouse Line
of Credit, the Residential Funding Warehousing Facility or the ARMC
Warehousing Facility; and
(i) Lien in favor of DLJ Mortgage Capital, Inc. against certain
subordinate certificates issued to Quality Mortgage USA, Inc. and
purchased by ARMC from DLJ Series 1996-QB and 1996-QJ.
7. Section 8.10 of the Loan Agreement is hereby amended to read as follows:
SECTION 8.10. INVESTMENTS. No Borrower shall, and no Borrower shall
permit any of its Subsidiaries to, directly or indirectly, make any loans,
advances, extensions of credit or capital contributions to, make any
investment in, or purchase any stock or securities of, or interest in, any
Person (including, without limitation, a Subsidiary of any Borrower unless
such Subsidiary has become a "Borrower" under this Agreement as required
hereby), except for Permitted Investments; provided, that
(a) with respect to any acquisition of corporate entities for which
the aggregate purchase price and all the consideration for such
acquisition is in excess of Five Million Dollars ($5,000,000.00),
Borrowers must obtain the prior written consent of the Required
Lenders to make such acquisition;
(b) with respect to Related Investments, if the aggregate amount of
any such Related Investment exceeds five percent (5%) of Total
Capital, AMRESCO shall provide to Agent all information regarding such
Related Investment as Agent shall request, and Borrowers must obtain
the prior written consent of the Required Lenders and Agent prior to
making such Related Investment;
(c) in no event shall the aggregate Related Investments made by
Borrowers during the Credit Period exceed Thirty-five Million and
No/100 Dollars ($35,000,000.00) (based on Borrowers' costs);
(d) in no event shall the sum of (i) any advances, extensions of
credit, or other investments made by AMRESCO or AMRESCO Capital
Corporation in connection with Warehouse Line Loans or Residential
Funding Loans (excluding, however, any investment in any Warehouse
Line Loans or Residential Funding Loans not covered by clause (ii)
below representing the amount required to be funded by AMRESCO
Page 10
<PAGE>
or AMRESCO Capital Corporation to enable such loans to be initially
funded under the terms of any warehouse facility established to fund
such Warehouse Line Loans or Residential Funding Loans) plus (ii) the
aggregate amount of Warehouse Line Loans and Residential Funding Loans
which continue to be held by AMRESCO, AMRESCO Capital Corporation or
any Subsidiary 360 days (in the case of Warehouse Line Loans) or 80
days (in the case of Residential Funding Loans) after the origination
thereof exceed Fifteen Million and No/100 Dollars ($15,000,000.00) at
any time;
(e) without the prior written consent of the Required Lenders, no
Borrower and no Subsidiary of a Borrower (other than the Residential
Capital Markets Group) shall acquire or invest in any Asset Portfolio
if more than twenty-five percent (25%) of the purchase price of such
Asset Portfolio is attributable to loans secured by single family
residences or duplexes;
(f) in no event shall the Residential Capital Markets Group acquire or
invest in any asset or Person, other than (i) amounts advanced by
ARMC, ARCMI or ARCC to purchase Residential Residual Interests located
in the United States (including net interest margin trusts), (ii)
amounts advanced by ARMC or ARCMI with respect to any ARMC
Warehousing Loans located in the United States or (iii) amounts
advanced by ARMC, ARCMI or ARCC to acquire or invest in any
Residential Asset Portfolio located in the United States or to
originate loans secured by 1-to-4 family residences;
(g) without the prior written consent of the Required Lenders, no
Borrower shall acquire or invest in any Asset Portfolio if the amount
of such investment exceeds fifteen percent (15%) of Total Capital;
(h) without the prior written consent of the Required Lenders, no
Borrower shall acquire or invest in any Acquired Loan which has a
purchase price allocation greater than five percent (5%) of Total
Capital; and
(i) in no event shall the aggregate Invested Capital in the
Residential Capital Markets Group (exclusive however of the cost of
acquisition of Quality Mortgage USA, Inc.) and Other Permitted
Investments exceed an amount equal to the sum of (A) Adjusted
Consolidated Tangible Net Worth, plus (B) the amount of Approved
Subordinated Debt; nor shall (i) the aggregate Invested Capital in the
Residential Capital Markets Group (exclusive however of the cost of
acquisition of Quality Mortgage USA, Inc.) exceed 75% of the sum of
(A) Adjusted Consolidated Tangible Net Worth, plus (B) the amount of
Approved Subordinated Debt, or (ii) the aggregate Invested Capital in
Other Permitted Investments exceed 60% of the sum of (A) Adjusted
Consolidated Tangible Net Worth, plus (B) the amount of Approved
Subordinated Debt; and
Page 11
<PAGE>
(j) with respect to Residential Residual Interests which are part of a
net interest margin trust, such investments by Borrowers shall not
exceed 10% of Adjusted Consolidated Tangible Net Worth plus
outstanding principal balance of Approved Subordinated Debt;
provided that, the outstanding proceeds from issuance of Approved Senior
Debt may be applied to increase the amount allocated to (c) of this
paragraph, OR to increase the Adjusted Consolidated Net Worth for purposes
of (i) or (j) of this paragraph, or both (provided that the total
adjustment does not exceed the aggregate Approved Senior Debt outstanding),
from time to time in Borrower's sole discretion.
8. ADDITIONAL CAPITAL; ACQUISITION FEE. It is the intention of AMRESCO
to raise Additional Capital in an amount not less than $45,000,000
within ninety (90) days of the acquisition of the assets of Quality
Mortgage USA, Inc. (the "QUALITY CLOSING DATE"). Notwithstanding
anything in the Loan Agreement to the contrary, if such Additional
Capital has not been raised on or prior to the 90th day following the
Quality Closing Date, then the interest rate charged on all LIBOR Rate
Advances shall increase to the applicable LIBOR Rate plus 200 basis
points until such Additional Capital has been raised, at which time the
interest rate shall be reduced to the amount set forth in the Loan
Agreement. If $45,000,000 in Additional Capital has not been raised by
March 31, 1997, then a fee (the "ACQUISITION FEE") equal to 25 basis
points times the net purchase price for the assets of Quality Mortgage
USA, Inc. shall be payable to the Lenders hereunder; likewise, on June
30, 1997, September 30, 1997 and/or December 31, 1997, an additional 25
basis point Acquisition Fee shall be payable to the Lenders at the close
of the Business Day on each of such dates unless the additional
$45,000,000 in Additional Capital has been raised.
9. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF BORROWERS. Each
Borrower hereby represents and warrants to, and agrees with, Agent and
Required Lenders as follows:
(a) AUTHORIZATION. The execution and delivery of this Amendment and each
other document executed herewith and the performance of all covenants
contemplated herein and therein have been duly authorized by each Borrower
and will not violate the articles of incorporation, bylaws or partnership
agreement, as applicable, of any Borrower or any other material agreement
to which any Borrower is a party, and the consent of no other party or
parties is required.
(b) NO CLAIMS OR DEFENSES. No Borrower has any offsets, claims,
counterclaims, defenses or other causes of action against Agent or any
Lender arising out of the Credit Facility, the Loan Documents, the
modifications of the Credit Facility pursuant to this Amendment, any
document executed in connection herewith or otherwise.
(c) BINDING OBLIGATION. This Amendment and each other document executed
in connection herewith has been duly and validly executed and delivered by
each Borrower and
Page 12
<PAGE>
constitutes a valid and legally binding obligation of each Borrower
enforceable in accordance with its terms, except as enforcement may be
limited by equitable principles or by bankruptcy, insolvency, reorganization
or other similar laws relating to or affecting enforcement of creditors'
rights generally.
10. NON-WAIVER OF RIGHTS OR REMEDIES. Except as otherwise set forth
herein, neither this Amendment nor any other document executed in
connection herewith constitutes or shall be deemed (a) a waiver of, or
consent by Agent or any Lender to any default or event of default which
may exist or hereafter occur under any of the Loan Documents, (b) a
waiver by Agent or any Lender of any of Borrowers' obligations under the
Loan Documents, or (c) a waiver by Agent or any Lender of any rights,
offsets, claims, or other causes of action that Agent or any Lender may
have against any Borrower.
11. MODIFICATION EXPENSES. Borrowers agree to pay all reasonable legal
fees and other expenses of the Agent incurred in connection with the
preparation and negotiation of this Amendment and each other document
executed in connection herewith, as well as an Amendment Fee to the
Lenders equal to $200,000 in the aggregate.
12. VALIDITY OF EXISTING DOCUMENTS. The Notes, the Loan Agreement and
all other Loan Documents, as modified hereby and by the other documents
executed in connection herewith, are each legal, valid, binding and
enforceable in accordance with their respective terms, are each in full
force and effect, and shall continue to inure to the benefit of and be
binding upon each Borrower, Agent and each Lender, and their respective
successors and assigns.
13. SUCCESSORS AND ASSIGNS. This Amendment shall inure to the benefit
of and be binding upon the parties hereto and their respective
successors and assigns.
14. CONFORMING PROVISIONS. Any and all of the terms and provisions of
the Notes, the Loan Agreement, the Security Documents and all of the
other Loan Documents are hereby amended and modified wherever necessary,
and even though not specifically addressed herein, so as to conform to
the amendments and modifications thereto set forth in this Amendment and
each other document executed in connection herewith.
15. CAPTIONS. The captions, headings and arrangements used in this
Amendment are for convenience only and do not in any way affect, limit,
amplify, or modify the terms and provisions hereof.
16. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS.
17. COUNTERPARTS. This Amendment may be executed in a number of
duplicate counterparts, each of which shall be deemed an original for
all purposes, and all of which, collectively, shall constitute one
agreement.
Page 13
<PAGE>
18. NO ORAL AGREEMENTS. THIS AMENDMENT TOGETHER WITH EACH OTHER
DOCUMENT EXECUTED IN CONNECTION HEREWITH AND EACH OTHER LOAN DOCUMENT,
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES HERETO CONCERNING THE
MATTERS SET FORTH HEREIN, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
(intentionally left blank)
Page 14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers effective as of the
Closing Date.
BORROWERS:
AMRESCO, INC., a Delaware corporation, for itself
and as agent and attorney-in-fact for each of the
Borrowers listed on Schedule 1
By:
-----------------------------------------
Thomas J. Andrus,
Vice President and Treasurer
NEW BORROWERS:
AMRESCO RESIDENTIAL MORTGAGE CORPORATION
f/k/a AMRESCO B&C, INC.
By:
-----------------------------------------
Printed Name: Michael W. Trickey
Title: Sr. Vice President
AMRESCO PRINCIPAL MANAGERS I, INC.
AMRESCO CAPITAL LIMITED, INC.
By:
----------------------------------------
Thomas J. Andrus, as
Treasurer for each of the
above companies
AMRESCO PORTFOLIO INVESTMENTS, INC.
By:
----------------------------------------
Printed Name: Michael W. Trickey
Title: Vice President
Page 15
<PAGE>
AGENT:
NATIONSBANK OF TEXAS, N.A.,
a national banking association, as
Agent for Lenders
By:
----------------------------------------
Brian K. Schneider,
Vice President
LENDERS:
NATIONSBANK OF TEXAS, N.A., a
national banking association
By:
----------------------------------------
Brian K. Schneider,
Vice President
BANK ONE, TEXAS, NA,
a national banking association
By:
----------------------------------------
Name:
Title:
WELLS FARGO BANK (TEXAS), N.A.,
a national banking association
By:
----------------------------------------
Name:
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK, a New York state bank
By:
---------------------------------------
Name:
Title:
Page 16
<PAGE>
COMERICA BANK - TEXAS,
a state banking association
By:
----------------------------------------
Name: David Terry
Title: Assistant Vice President
BANK UNITED,
a federal savings bank
By:
----------------------------------------
Name:
Title:
THE BANK OF NEW YORK,
a national banking association
By:
----------------------------------------
Name:
Title:
THE NIPPON CREDIT BANK, LTD.,
a national banking association
By:
----------------------------------------
Name:
Title:
Page 17
<PAGE>
SCHEDULE 1
BORROWERS
AMRESCO ATLANTA INDUSTRIAL, INC.
AMRESCO CANADA INC.
AMRESCO CAPITAL CORPORATION
AMRESCO CONSOLIDATION CORP. f/k/a AMRESCO
MORTGAGE CAPITAL, INC.
AMRESCO EQUITIES CANADA INC.
AMRESCO FINANCIAL I, L.P.
AMRESCO FUNDING CORPORATION
AMRESCO INSTITUTIONAL, INC.
AMRESCO JERSEY VENTURES LIMITED
AMRESCO MANAGEMENT, INC. f/k/a BEI
MANAGEMENT, INC.
AMRESCO NEW ENGLAND II, L.P.
AMRESCO NEW HAMPSHIRE, L.P.
AMRESCO NEW ENGLAND II, INC.
AMRESCO NEW HAMPSHIRE, INC.
AMRESCO NEW ENGLAND, L.P.
AMRESCO OVERSEAS, INC. f/k/a AMRESCO
SERVICES, INC.
AMRESCO PRINCIPAL MANAGERS II, INC.
AMRESCO RESIDENTIAL CAPITAL MARKETS, INC.
f/k/a AMRESCO RESIDENTIAL MORTGAGE
CORPORATION
AMRESCO RESIDENTIAL CREDIT CORPORATION
AMRESCO RHODE ISLAND, INC.
AMRESCO SERVICES CANADA INC.
AMRESCO UK HOLDINGS LIMITED
AMRESCO UK LIMITED
AMRESCO UK VENTURES LIMITED
AMRESCO VENTURES, INC. f/k/a AMRESCO GENERAL
PARTNERS, INC.
AMRESCO 1994-N2, INC.
ASSET MANAGEMENT RESOLUTION COMPANY
BEI 1992 - N1, INC.
BEI 1993 - N3, INC.
BEI 1994 - N1, INC.
BEI MULTI-POOL, INC.
Page 18
<PAGE>
BEI PORTFOLIO INVESTMENTS, INC.
BEI PORTFOLIO MANAGERS, INC.
BEI REAL ESTATE SERVICES, INC.
BEI SANJAC, INC.
ENT MIDWEST, INC.
ENT NEW JERSEY, INC.
ENT SOUTHERN CALIFORNIA, INC.
GRANITE EQUITIES, INC.
HOLLIDAY FENOGLIO, INC.
LIFETIME HOMES OF NEW JERSEY, INC.
OAK CLIFF FINANCIAL, INC.
OLD MIDLAND HOUSE LIMITED
PRESTON HOLLOW ASSET HOLDINGS, INC.
Page 19
<PAGE>
AMRESCO, INC.
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
<TABLE>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ---------------------------
1996 1995 1996 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
PRIMARY:
Net income $8,556,000 $5,196,000 $20,699,000 $14,855,000
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average common shares outstanding 26,964,529 24,132,895 26,843,989 23,928,519
Net effect of dilutive stock options based
on the Treasury stock method using average
market price 1,039,986 544,894 803,640 501,303
---------- ---------- ----------- -----------
Total 28,004,515 24,677,789 27,647,629 24,429,822
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Earnings per share $ 0.31 $ 0.21 $ 0.75 $ 0.61
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
FULLY DILUTED:
Net income $8,556,000 $5,196,000 $20,699,000 $14,855,000
Interest expense related to convertible
debentures, net of income tax expense 549,000 1,647,000
---------- ---------- ----------- -----------
Adjusted net income $9,105,000 $5,196,000 $22,346,000 $14,855,000
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Weighted average common shares outstanding,
assuming conversion of convertible debentures
to 3,600,000 shares of common stock in
November 1995 30,564,529 24,132,895 30,443,989 23,928,519
Net effect of dilutive stock options based on
the Treasury stock method using the higher of
average or ending market price 1,096,673 674,685 1,014,820 603,227
---------- ---------- ----------- -----------
Total 31,661,202 24,807,580 31,458,809 24,531,746
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
Earnings per share $ 0.29 $ 0.21 $ 0.71 $ 0.61
---------- ---------- ----------- -----------
---------- ---------- ----------- -----------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AMRESCO,
INC. SEPTEMBER 30, 1996 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 14,157
<SECURITIES> 36,392
<RECEIVABLES> 18,536
<ALLOWANCES> 2,091
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,462
<DEPRECIATION> 4,229
<TOTAL-ASSETS> 867,698
<CURRENT-LIABILITIES> 0
<BONDS> 276,921
0
0
<COMMON> 1,359
<OTHER-SE> 183,734
<TOTAL-LIABILITY-AND-EQUITY> 867,698
<SALES> 0
<TOTAL-REVENUES> 129,195
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 74,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,478
<INCOME-PRETAX> 33,667
<INCOME-TAX> 12,968
<INCOME-CONTINUING> 20,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,699
<EPS-PRIMARY> 0.75
<EPS-DILUTED> 0.71
</TABLE>
