<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [fee required]
For the fiscal year ended March 27, 1994
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [no fee required]
Commission File Number 0-19292
PATTEN CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 03-0300793
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
5295 Town Center Road, Boca Raton, Florida 33486
---------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (407) 391-6336
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, $.01 par value New York Stock Exchange, Pacific Stock Exchange
8-1/4% Convertible Subordinated Debentures due 2012 New York Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained
in the definitive proxy statement incorporated by reference into Part III of
this Form 10-K. [ ]
State the aggregate market value of the voting stock held by
non-affiliates of the registrant:
$58,944,711 based upon the closing sale price of the Company's Common
Stock on the New York Stock Exchange on June 13, 1994 (or $3.25 per share) and
assuming conversion of $28,543,000 principal amount of 8 1/4% Convertible
Subordinated Debentures at a conversion rate of $9.09 per share. The
$58,944,711 includes 4,400,453 shares of Common Stock held by Franklin
Resources, Inc. or its wholly-owned subsidiaries ("Franklin"), including
302,200 shares issuable upon conversion of $2,747,000 aggregate principal
amount of 8 1/4% Convertible Subordinated Debentures. Shares held by Franklin
represent holdings as reported on the most recent Form 13(G) filed with the
Securities and Exchange Commission, retroactively adjusted to reflect a 4%
stock dividend paid on May 31, 1994.
<PAGE> 2
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares Outstanding
Class as of June 13,1994
----- ------------------
Common Stock, $.01 par value 18,507,050
DOCUMENTS INCORPORATED BY REFERENCE
Specifically identified portions of the registrant's annual report to
shareholders for the fiscal year ended March 27, 1994 are incorporated by
reference into Part II hereof and specifically identified portions of the
registrant's definitive proxy statement to be filed for its Special Meeting in
Lieu of Annual Meeting of Shareholders to be held on July 27, 1994 are
incorporated by reference into Part III hereof.
<PAGE> 3
PATTEN CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
PART I
<TABLE>
<CAPTION>
PAGE
<S> <C>
Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Acquisition of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Marketing and Sale of Inventory . . . . . . . . . . . . . . . . . . . . . . . . . 8
Customer Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Loan Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Collection Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Sales of Loans/Pledging of Loans . . . . . . . . . . . . . . . . . . . . . . . . . 12
Loan Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Customer Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Executive Officers of the Company . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PART III
PAGE
<S> <C>
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Financial Statement Schedules -- Schedule II - Amounts Receivable From Related Parties and
Indemnitees, Promoters and Employees Other Than Related Parties . . . . . . . . . . . . . . . . . . 23
Schedule X - Supplementary Income Statement Information . . . . . . . . . . . . . . . . . . . . . . 24
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
<PAGE> 5
PART I
ITEM 1. BUSINESS.
SUMMARY
Patten Corporation, together with its subsidiaries, (the "Company") is the
successor to a business that was formed by Harry S. Patten in 1966. The
Company's primary business is to acquire undeveloped rural properties ranging
in size from approximately 30 to 8,000 acres and to subdivide those properties
into parcels typically one to 35 acres in size. The Company markets and sells
the subdivided parcels primarily to residents of metropolitan areas who seek to
own rural land to satisfy a desire for property ownership and recreational
activities such as hunting, fishing, camping, and for possible future vacation,
retirement or primary homesites. Historically, the Company has not built on or
otherwise developed the land it sells. However, in fiscal 1994, the Company
introduced a housing program in the Southwestern, Southeastern and Western
regions of the United States with plans to expand this program in fiscal 1995.
Additionally, in fiscal 1994, the Company purchased property in Gatlinburg,
Tennessee, for the site of its first timeshare project. The housing program
and timeshare project target markets comparable to the Company's primary
business. At March 27, 1994, the Company had 197 properties consisting of
3,803 parcels and approximately 17,800 acres located in 26 states and the
Province of Ontario, Canada.
Since 1989, all acquisitions of land have required the prior approval of the
Company's investment committee, which currently consists of the Chairman of the
Board and four senior executive officers of the Company (the "Investment
Committee"). The Company seeks to reduce its cash outlay and risks by making
small down payments, generally 1% to 4% of the total purchase price, when
contracting to acquire properties and by completing as many preparations for
resale as possible before actually completing the purchase. Although the
Company has historically acquired substantially all of the inventory it has
placed under contract, its down payment and any preliminary development costs
are the only amounts at risk if it fails to complete the purchase.
Prior to purchasing a property, the Company usually completes surveys,
subdivision plans, soil testing and environmental testing, the scope of which
is based upon the proposed use of the land. The Company reviews applicable
environmental and zoning laws and regulations and seeks all necessary
regulatory approvals to permit subdivision and sale of the property. After
purchasing a property, the improvements necessary to comply with applicable
regulations regarding the sale of subdivided lots, such as construction of
roads and the provision of certain utilities, are frequently commenced. With
regard to the housing operation, the Company expends capital on building
materials and other related infrastructure costs with the Company's risk
minimized by pre-selling houses prior to commencing construction. The Company
also seeks to minimize its timeshare development risk. The Company commenced
infrastructure and amenity development subsequent to purchasing the land for
its first timeshare project and is pre-selling timeshare weeks by utilizing a
model unit. Seller or bank financing is frequently obtained by the Company for
the properties it purchases, and in some cases for development costs.
Typically, such indebtedness is reduced by a predetermined percentage of the
proceeds from the sale of individual parcels or units. During fiscal 1994 and
fiscal 1993, the Company financed $12.8 million and $9.3 million, or 33.3% and
36.6%, respectively, of its property inventory, including acquisition and
development costs.
The Company begins to market parcels as soon as practicable, with the sale of
acquired properties typically being completed within two to 24 months from
closing of the acquisition. The holding period may be extended in areas where
the subdivision approval process is more complex. Sales of real estate in
fiscal 1994, fiscal 1993 and fiscal 1992 were $63.4 million, $53.3 million and
$45.1 million, respectively.
The Company offers up to 90% financing for buyers of its parcels and timeshare
units who qualify for financing. The Company structures its sales and
financing activities so that the purchase money mortgage loans (the
"Receivables") arising from land sales and contracts for deed from timeshare
sales may be pledged or sold in separate financing transactions to provide
liquidity for the Company. This liquidity allows the Company to continue to
provide financing for the sale of its parcels. During fiscal 1994 and fiscal
1993, the Company received in cash approximately $41 million and $28 million,
or 65.9% and 56.3%, respectively, of the aggregate purchase price of the
5
<PAGE> 6
sales of properties which closed during these years, while financing the
remaining amounts. Housing sales are financed by third party lenders.
The Receivables originated by the Company are typically packaged in portfolios
and sold, utilized as collateral in financing transactions, or combined in
pools that serve to support issuance of mortgage-backed securities, as either
debt or pass-through securities collateralized or evidenced by interests in
distributions from such specific pools. In three instances, the Company has
elected to have the issuance of its mortgage-backed securities treated as Real
Estate Mortgage Investment Conduits ("REMIC"s), which election permits
favorable tax treatment to investors who purchase securities collateralized by,
or representing undivided fractional interests in, mortgage obligations, which
securities generally have different maturity terms and payment priorities.
The Company's continued growth depends upon obtaining outside sources of
funding to finance new property purchases, fund operations, satisfy debt
obligations and provide loans to purchasers of parcels. In the past, the
Company has funded its activities through various sources, including borrowings
under secured and unsecured lines of credit, sales of Receivables and the sale
of debt and equity securities. These arrangements require the Company to
comply with certain covenants and retain certain contingent liabilities. As of
March 27, 1994, the Company had outstanding $34.7 million of 8 1/4% convertible
subordinated debentures, $25.8 million in mortgage-backed notes payable and
$11.5 million in lines of credit and notes payable, with an aggregate weighted
average interest rate on all such indebtedness of 8.4%. The Company
anticipates that it will continue to require external sources of funding. See
Item 7 under Part II below.
In response to economic and real estate market conditions, primarily in the
Northeast, which adversely affected the Company's operations, the Company has
actively pursued regional diversification, with greater emphasis on the
Southeast, Southwest and West regions of the United States.
At March 27, 1994, the Company had 333 full-time and part-time employees. The
Company's executive offices are located at 5295 Town Center Road, Boca Raton,
Florida 33486. Its telephone number at such address is (407) 391-6336.
The Company's common stock is listed on the New York Stock Exchange ("NYSE")
and on the Pacific Stock Exchange ("PSE") under the symbol "PAT." The
Company's 8 1/4% convertible subordinated debentures due 2012 are also listed
on the NYSE.
ACQUISITION OF INVENTORY
In order to provide centralized and uniform controls on the type, location and
amount of inventory that the Company acquires, since 1989, all inventory
acquisitions have required the approval of the Investment Committee, presently
comprised of Harry S. Patten, Chairman of the Board, George F. Donovan,
President and Chief Executive Officer, Alan L. Murray, Treasurer and Chief
Financial Officer, Daniel C. Koscher, Vice President, Chief Accounting Officer
and Assistant Secretary, and Patrick E. Rondeau, Vice President, Director of
Legal Affairs and Clerk/Secretary. The Investment Committee reviews each
proposed acquisition to determine whether the property to be acquired meets
certain criteria. In the approval process, the Investment Committee considers
such established criteria as the economic conditions in the area in which the
parcel is located, environmental sensitivity, availability of financing,
whether the property is consistent with the Company's general policies and the
anticipated ability of that property to produce acceptable profit margins and
cash flow. Since May 1990, sales of property approved by the Investment
Committee have resulted in average gross margins of approximately 58%. Prior
to the formation of the Investment Committee, the determination of whether to
buy most properties was typically made by the Company's regional managers,
together with one or more members of the Company's senior management.
The Company, through its regional offices, and subject to Investment Committee
review and approval, typically acquires inventory that is located within one to
five hours driving distance of metropolitan areas, are suitable for
subdivision, have attractive topographical features and, based upon anticipated
resale value, will result in an acceptable profit margin and cash flow to the
Company. Properties acquired by the Company in fiscal 1994 ranged in size from
33 to 2,274 acres. Properties are generally subdivided for resale into parcels
ranging in size from one to 35 acres. In fiscal 1994, the Company acquired
12,529 acres in 35 separate transactions with a total purchase price
6
<PAGE> 7
of $18.8 million, or $1,500 per acre. Seller or bank financing of $11.7
million, or 62% of the total purchase price, was obtained.
The Company has several specialists who assist regional management in locating
inventory for acquisition. The Company has established contacts with numerous
land owners and real estate brokers in many of its market areas, and because of
such contacts and its long history of acquiring properties, the Company is
generally in a favorable position to learn of available inventory. The
Company's objective is to develop strong relationships with major property
owners and brokers. Regional offices regularly contact such property owners,
such as timber companies and financial institutions, as well as real estate
brokers, by a combination of telephone, mail and personal visits. In addition,
the Company occasionally places advertisements in local and national newspapers
indicating an interest in acquiring land. To date, the Company's regional
offices have been able to locate and acquire adequate quantities of inventory
which meet the criteria established by the Investment Committee to support
their operational activities.
Once an appropriate property is located, the Company begins performing due
diligence procedures and enters into a purchase agreement with the seller. It
is generally the Company's policy to advance only a small down payment, which
typically ranges from 1% to 4% of the total purchase price, when signing a
contract to acquire inventory and to limit the liquidated damages associated
with properties under contract for purchase to the amount of its down payment
and any preliminary development costs. In most cases, the Company is not
required to advance the full purchase price or enter into a note payable
obligation until all regulatory approvals for the subdivision and sale of land
have been obtained. While local approvals are being sought, the Company will,
in certain instances, engage in test marketing of the subdivided parcels and,
with the consent of the seller and the knowledge of prospective purchasers,
occasionally attempt to pre-sell parcels, subject to closing its purchase of
the property. When substantially all approvals have been received, the closing
on the property occurs and the Company obtains title. Typically, the time
between execution of a purchase agreement and closing on a property has
generally been six to 12 months. Although the Company generally retains the
right to cancel purchase agreements without any loss beyond forfeiture of the
down payment and preliminary development costs, few purchase agreements have
been canceled.
By requiring, in most cases, that all regulatory approvals be obtained prior to
closing and by making small down payments upon signing purchase agreements, the
Company is typically able to place a number of properties under contract
without expending significant amounts of cash. This strategy enables the
Company to reduce the time during which it actually owns specific properties,
the market risk associated with holding real estate and the risk of acquiring
property that may not be suitable for sale. It also provides a source of
available properties to meet customer demand. In certain instances, however,
the Company has acquired properties and then held such properties until their
prime marketing seasons.
As of March 27, 1994, the Company had aggregate down payments of $739,500
associated with 18 properties under contract for purchase. Such properties
represent 40,994 acres with an aggregate purchase price of $24.4 million, or
$595 per acre.
Prior to closing on a purchase of inventory, the Company's policy is to
complete its own environmental assessment of the property. The purpose of the
Company's assessment is to evaluate the impact the proposed subdivision will
have on such items as flora and fauna, wetlands, endangered species, open
space, scenic vistas, recreation, transportation and community growth and
character. To obtain this information, the Company's acquisition specialists
typically consult with various groups and agencies including the appropriate
county and state planning agencies, environmental groups, state heritage
programs, soil conservation agencies and forestry groups. If the Company's
environmental assessment indicates that the proposed subdivision meets
environmental criteria and zoning, building, health and other laws, the Company
develops a formal land use plan, which forms a basis for determining an
appropriate acquisition price. The Company attempts, where possible, to
accommodate the existing topographical features of the land, such as streams,
hills, wooded areas, stone walls, farm buildings and roads. Prior to closing
on an acquisition, the Company will typically have the property surveyed by a
professional surveyor as well as have soil analyses conducted to determine the
suitability of the site for septic systems. At closing, the Company obtains
title insurance on the property.
7
<PAGE> 8
The following table sets forth as of the periods indicated, the aggregate cost
of property owned by the Company classified by major geographic region.
<TABLE>
<CAPTION>
MARCH 27, 1994 MARCH 28, 1993
----------------------------------------- ------------------------------------
INVENTORY INVENTORY
TOTAL VALUATION TOTAL VALUATION
GEOGRAPHIC REGION ACRES COST RESERVE ACRES COST RESERVE
----------------- ----- ------- ------------ ----- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Northeast . . . . . . . 1,242 $ 7,110,231 $ 2,523,180 1,717 $ 8,979,960 $3,275,409
Mid-Atlantic . . . . . 2,160 5,218,675 36,497 3,049 4,856,762 129,917
Southeast . . . . . . . 1,429 13,135,384 1,932,971 3,409 13,768,159 2,919,175
Midwest . . . . . . . . 1,723 7,532,470 50,555 908 2,198,219 57,982
Southwest . . . . . . . 3,630 5,191,291 5,450 2,311 3,632,534 29,943
West . . . . . . . . . 7,384 6,102,910 14,950 8,471 3,669,354 15,099
Ontario, Canada . . . . 224 386,584 --- 200 448,396 ---
------ ----------- ----------- ------ ---------- ----------
17,792 44,677,545 $ 4,563,603 20,065 37,553,384 $6,427,525
====== =========== ====== ==========
Inventory valuation
reserve . . . . . . (4,563,603) (6,427,525)
----------- -----------
Inventory, net . . . . $40,113,942 $31,125,859
=========== ===========
</TABLE>
MARKETING AND SALE OF INVENTORY
In general, as soon as a property has been acquired and any appropriate
improvements have been completed, the Company establishes selling prices for
the individual parcels taking into account such matters as regional economic
conditions, quality as a building site, scenic views, road frontage and natural
features such as lakes, streams, ponds and wooded areas. The Company also
considers recent sales of comparable parcels in the area. Initial decisions on
pricing of parcels in a given area are made by the Company's regional managers
and, in all cases, are subject to approval by the Investment Committee.
The Company's most widely used marketing technique is advertisement in major
newspapers in metropolitan areas located within a one to five hour drive from
the property, as well as local newspapers. A sales representative
knowledgeable about the property answers each call, discusses the property with
the prospective purchaser, attempts to ascertain the purchaser's needs and
whether the parcel would be suitable for that person, and arranges an
appointment for the purchaser to visit the property. Substantially all
prospective customers inspect a property before purchasing. The Company also
conducts direct mail campaigns to market property using brochures describing
available parcels, as well as television and radio advertising. During fiscal
1994, the Company incurred $4.5 million in advertising expense, or 7.1% of
sales of real estate, compared to $3.6 million incurred in advertising expense,
or 6.8% of sales of real estate during fiscal 1993.
The success of the Company's marketing effort depends heavily on the knowledge
and experience of its sales personnel, substantially all of whom are employees
of the Company. The Company requires that prior to initiating the marketing
effort for a property, every sales representative walk the property and become
knowledgeable about each parcel and applicable zoning, subdivision and building
code requirements. The Company maintains continued training programs,
including training with regional office sales managers, weekly sales meetings,
and frequent meetings with an executive officer of the Company. Additionally,
the sales staff are evaluated against performance standards as established by
the executive officers of the Company. Substantially all of a sales
representative's compensation is commission-based.
The Company requires its sales staff to provide each customer with a written
disclosure statement regarding the real estate to be sold prior to the time the
customer signs a purchase agreement. Either a U.S. Department of Housing and
Urban Development ("HUD") lot information statement, where required, or a
Company generated "Vital Information Statement" sets forth relevant information
with respect to, and risks associated with, the property and is signed by every
purchaser. The Company believes that each information statement contains all
material and relevant information a customer requires to make an informed
decision as to whether or not to purchase, such as availability
8
<PAGE> 9
and estimated cost of utilities, restrictions regarding property usage, status
of access roads and information regarding rescission rights.
After deciding to purchase a parcel or unit, the buyer enters into a contract
and pays the Company a deposit of at least 10% of the purchase price. It is
the Company's policy to give all purchasers the right to cancel purchase
agreements within specified periods after execution in accordance with
statutory requirements. The closing of a land sale usually occurs two to eight
weeks after payment of the deposit while a house sale closing may occur two to
six months after payment of the deposit. Upon closing of a land or house sale,
the Company delivers to the buyer a warranty deed and a recent survey of the
property. For timeshare sales, the Company delivers a deed to the customer
when the purchase price has been paid in full. Title insurance is available at
the purchaser's expense.
The following table sets forth certain information regarding sales of parcels
for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------------------
MARCH 27, MARCH 28, MARCH 29,
1994 1993 1992
------------- ------------- -------------
<S> <C> <C> <C>
Number of parcels sold (1) . . . . . . 2,489 (2) 2,560 2,151
Average sales price per parcel (1) . . $ 25,511 (2) $ 21,368 $ 21,513
Average sales price per acre (1) . . . 3,851 (3) 1,990 2,392
Gross margins on sales of real estate . 51.5% 46.7% 36.3%
Percentage of closed sales financed
by the Company (4) . . . . . . . . . 34.1% 43.7% 47.8%
</TABLE>
(1) Calculated by adding back sales of real estate deferred under the
percentage of completion method of accounting during the respective
periods. The average sales price per parcel, net of the effects of
deferred sales, was $25,468, $20,839 and $20,967 for fiscal 1994, 1993 and
1992, respectively.
(2) Parcels sold in fiscal 1994 included 2,445 parcels sold from the Company's
land operation and 44 parcels sold from the Company's housing operation.
The average sales price of all parcels sold during fiscal 1994 excluding
housing operation sales was $24,665. The average sales price of housing
parcels including the housing unit during fiscal 1994 was $70,044.
(3) The aggregate acres sold in fiscal 1994 was approximately 16,459,
including 16,342 acres sold from the land operation and 117 acres sold
from the housing operation. The average sales price per acre excluding
housing operations in fiscal 1994 was $3,690.
(4) Computed by dividing the aggregate dollar amount of financed sales of real
estate that closed during the period by the aggregate dollar amount of
total closed sales for the period.
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<PAGE> 10
The following tables below outline sales, parcels sold and average sales price
per parcel by geographic region for the fiscal years indicated.
REAL ESTATE SALES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------------------------------
MARCH 27, 1994 MARCH 28, 1993 MARCH 29, 1992
------------------ ------------------- --------------------
GEOGRAPHIC REGION AMOUNT % AMOUNT % AMOUNT %
----------------- ------ ----- ------ ----- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Northeast . . . . . . . . $ 2,034 3.2% $ 3,794 7.1% $ 7,596 16.8%
Mid-Atlantic . . . . . . 7,899 12.5 12,710 23.9 12,355 27.4
Southeast . . . . . . . . 9,978 15.8 6,728 12.6 4,236 9.4
Midwest . . . . . . . . . 10,645 16.8 6,222 11.7 5,118 11.4
Southwest . . . . . . . . 24,244 38.2 16,015 30.0 10,938 24.3
West . . . . . . . . . . 8,432 13.3 7,710 14.4 4,214 9.3
Canada . . . . . . . . . 157 .2 170 .3 643 1.4
-------- ----- -------- ------ --------- -----
Totals (1) . . . . . . . $ 63,389 (2) 100.0% $ 53,349 100.0% $ 45,100 100.0%
======== ===== ======== ===== ========= =====
</TABLE>
PARCELS SOLD AND AVERAGE SALES PRICE PER PARCEL
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------------------------------------------
MARCH 27, 1994 MARCH 28, 1993 MARCH 29, 1992
------------------------ -------------------------- --------------------------
AVERAGE AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF SALES PRICE NUMBER OF SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL PARCELS SOLD PER PARCEL PARCELS SOLD PER PARCEL
----------------- ------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Northeast . . . . . . . 115 $ 17,687 251 $ 15,018 366 $ 20,754
Mid-Atlantic . . . . . 367 20,700 545 23,538 563 22,128
Southeast . . . . . . . 376 26,537 439 15,227 252 16,808
Midwest . . . . . . . . 437 22,767 279 23,049 225 24,741
Southwest . . . . . . . 940 27,140 740 22,970 541 21,370
West . . . . . . . . . 242 34,180 292 26,785 180 23,409
Canada . . . . . . . . 12 13,037 14 12,101 24 26,805
----- -------- ----- --------- ----- ---------
Totals (1) . . . . . . 2,489 (2) $ 25,511 (2) 2,560 $ 21,368 2,151 $ 21,513
===== ======== ===== ========= ===== =========
</TABLE>
(1) Calculated by adding back sales of real estate deferred under the
percentage of completion method of accounting during the respective
periods.
(2) Fiscal 1994 sales of $63.4 million include 44 housing operation unit sales
aggregating $3.1 million. The average sales price per parcel excluding
housing operation sales during fiscal 1994 was $24,665. The average sales
price of housing parcels including the housing unit during fiscal 1994 was
$70,044. There were no timeshare in fiscal 1994.
The Company's gross margins were 51.5%, 46.7% and 36.3% for fiscal 1994, 1993
and 1992, respectively.
In fiscal 1994 and fiscal 1993, sales of real estate increased 18.8% and 18.3%,
respectively, from sales during the prior year. Furthermore, the Company has
experienced an improvement in sales of real estate from fiscal 1992 to fiscal
1994 in many of its operations outside of the Northeast. Sales remain
depressed in the Northeast, where approximately 11.4% of the Company's net
inventory at March 27, 1994, was located.
The Company merged seven of its Northeast subsidiaries into a new corporation.
The new corporation has operated as Patten Liquidation Sales Corporation since
March 29, 1993. The new corporation has availed itself of an exemption
provided by HUD, which allows the cross referral of customers from one
Northeast office to another.
10
<PAGE> 11
Management believes this action will accelerate the liquidation of Northeast
inventory, result in reduced advertising, selling and other disposal costs and
the common promotion of substantially all of the Company's inventory in the
Northeast.
CUSTOMER FINANCING
The Company offers financing of up to 90% of the purchase price of a parcel to
all buyers of its properties who qualify for such financing. The term of
repayment on such financing has historically ranged from five to 15 years
although the Company, by offering reduced interest rates, has been successful
in encouraging customers during the last two years to finance their purchases
over shorter terms and provide increased down payments. Management believes
such strategy has improved the quality of its notes receivable during the last
three fiscal years. During fiscal 1994, fiscal 1993 and fiscal 1992, the
Company received in cash 65.9%, 56.3% and 52.2%, respectively, of the aggregate
purchase price of the sale of real estate which closed during that period and
financed the remaining amounts. Purchasers who utilize the Company's financing
generally pay 10% to 50% of the purchase price of a parcel in cash and the
balance is supported by a promissory note, secured by a first mortgage on the
parcel sold. During fiscal 1994, the average down payment provided by
customers who used Company financing was 21.5% of the purchase price of
parcels. The promissory notes may be prepaid without penalty. As of March 27,
1994, the Company or its special purpose financing subsidiaries (the
"Receivable Subsidiaries") held $42.9 million in Receivables net of reserves
for loan losses from purchasers of parcels, representing 2,959 customers. As
of March 28, 1993, the Company or its Receivables Subsidiaries held $32.8
million in Receivables net of reserves for loan losses from purchasers of
parcels, representing 2,255 customers. See Note 8 and 9 to the Consolidated
Financial Statements which are incorporated by reference into Item 8, Part II
from the Company's 1994 Annual Report to Shareholders. Approximately 92% of
the principal amount of the Company's Receivables from customers bear interest
at a variable rate, with rates up to 9.9% over the applicable index, subject to
applicable usury laws. The Company believes its financing is attractive to
purchasers because buyers find it convenient to handle all facets of the
purchase of real estate through a single source and because down payments
required by the Company are typically competitive with those required by banks
and mortgage companies on similar properties when such institutions offer this
type of credit.
At March 27, 1994, 3.3% of the aggregate $48.9 million principal amount of
Company-originated loans which were held by the Company or sold through
programs under which the Company has a contingent liability were more than 30
days past due compared to 4.8% of the aggregate $40 million principal amount of
such loans as of March 28, 1993. In cases of default, the Company may take
title to the parcel in lieu of foreclosure. If the Company is unable to obtain
a deed in lieu of foreclosure, the Company forecloses on the mortgage securing
such note. The Company has been less successful reselling reacquired parcels
located in the Northeast at historical profit levels, due primarily to soft
real estate market conditions since fiscal 1990. The Company recorded loan
loss provisions of $795,000 during fiscal 1994, $400,000 during fiscal 1993 and
$780,000 during fiscal 1992, respectively. In fiscal 1994, the Company charged
$797,113 against its reserve for loan losses to reflect the difference between
the unpaid balance of non-performing notes receivable and the estimated net
realizable value of the reacquired inventory, compared to $990,000 charged in
fiscal 1993.
LOAN UNDERWRITING
The Company has established loan underwriting criteria and procedures designed
to reduce credit losses on its loan portfolio. The loan underwriting process
includes reviewing the credit history, verifying employment, calculating
certain debt-to-income ratios and, on a selective basis, conducting a telephone
interview with the customer. The primary focus of the Company's underwriting
is to determine the applicant's ability to repay the loan. This assessment is
based on a number of factors, including the relationship of the applicant's
required monthly payment to disposable income. The Company also examines the
applicant's credit history through various credit reporting agencies. In order
to verify an applicant's employment status, the Company generally contacts the
applicant's employer and, if necessary, obtains current pay stubs and recent
tax returns and other tax forms. Loans by the Company are made solely to
finance real estate sold by the Company.
Customer financing requires the submission of a completed and signed credit
application, purchase and sale agreement and pre-authorized checking agreement
accompanied by a voided check, if applicable, to the credit
11
<PAGE> 12
department located at the Company's corporate headquarters where all credit
decisions are made. Loan amounts under $50,000 are approved by designated
personnel located in the Company's corporate headquarters. Loan amounts of
$50,000 or more require approval from a senior executive officer. In addition,
rejected applications and any material exceptions to the underwriting policy
are also reviewed by senior management. Customers are notified of the reasons
for credit rejection by mail.
After the credit decision has been made, the credit department categorizes the
file as either approved, pending or declined. Upon receipt of a credit
approval, the regional office schedules the closing with the customer.
Closings are typically conducted at the office of the Company's local attorney
or settlement agent, although in some cases the closing may take place by mail.
The Company encourages customers to increase their down payment and reduce the
loan term through the structure of its loan programs. Customers receive a
lower rate of interest as their down payment increases and the loan term
shortens. Additionally, the Company encourages its customers to make timely
payments through a pre-authorized payment arrangement. Customers who do not
choose a pre-authorized payment plan are charged interest at a rate which is
one percent greater than the prevailing rate.
When the original closing documents are received from the closing agent, the
Company verifies that the loan closed under terms approved by the Company's
credit department. A complete quality control audit is performed to verify
that required documents have been received and have been prepared and executed
correctly. If any corrections are required, notification is sent to the
regional office.
A loan file typically includes a copy of the signed security instrument, the
mortgage note, a copy of the deed, Truth-in-Lending disclosure, purchase and
sale agreement, credit application, local counsel opinion, Vital Information
Statement or purchaser's acknowledgment of receipt of HUD lot information
statement, HUD settlement statement and a copy of the assignment of mortgage
and an original note endorsement from the Company's subsidiary originating the
sale and the loan to the Company. After the initial closing documents are
received, the recorded mortgage and assignment and original title insurance
policy are required in order to complete the loan file.
COLLECTION POLICIES
With respect to delinquent mortgage loans, collection efforts and delinquency
information are managed at the Company's corporate headquarters. Servicing of
the mortgage portfolio is handled by a staff of experienced collectors,
assisted by an on-line mortgage collection computer system. Unless
circumstances otherwise dictate, collection efforts are generally made by mail
and telephone. Collection efforts begin when an account is five days past due,
at which time the Company mails a reminder letter. When an account reaches 10
days past due, attempts are made to contact the borrower via telephone to
determine the reason for the delinquency and to attempt to bring the account
current. The determination of how to work out a delinquent loan is based upon
many factors, including the borrower's payment history and the reason for the
current inability to make timely payments. If no agreement is made or the
borrower does not abide by the agreement, collection efforts continue until the
account is brought current or legal action is commenced. Under the terms of
the promissory note executed by the borrower, the borrower is in default when
the loan becomes 30 days delinquent. The Company declares the loan in default
when the loan becomes 45 days delinquent. When the loan is 90 days past due,
the accrual of interest is stopped (unless the loan is considered an
in-substance foreclosure loan, in which case all accrued interest is reversed
since the Company's means of recovery in such cases is determined to be through
resale of the underling collateral and not through collection on the note) and
the Credit and Collection Manager, Asset Recovery Specialist Manager and Vice
President and Director of the Mortgage Department determine the action to be
taken.
SALES OF LOANS/PLEDGING OF LOANS
Since 1986, the Company, primarily through its Receivables Subsidiaries, has
sold or pledged substantially all of its mortgage loan originations, generally
retaining the right and obligation to service the loans. Generally, the Company
transfers the mortgage loans to the Receivables Subsidiaries, which in turn
enter into institutional financing transactions or securitizations. The loans
are typically sold with limited recourse, with the Company retaining limited
contingent liability for defaults by borrowers. In the case of certain sales,
the Company is only required to
12
<PAGE> 13
guarantee the repayment of a note until a portion of the amount due on the note
is paid. In the case of loans pledged, the Company generally must repurchase
or replace mortgage loans which are more than 90 days delinquent. At March 27,
1994, the Company was subject to limited recourse requirements on approximately
$5.3 million of Receivables sold. The delinquency on such loans was immaterial
at March 27, 1994.
The Company, through its Receivable Subsidiaries, completed two REMIC
transactions in 1989 and 1992. A third REMIC transaction closed on May 11,
1994. Under the terms of these transactions, the Company has no obligation to
repurchase the Receivables due to default by the borrowers. The Company does,
however, have the obligation to repurchase the Receivables in the event that
there is any material defect in the loan documentation and related
representations and warranties. See Notes 8 and 9 to the Consolidated
Financial Statements which are incorporated by reference into Item 8, Part II
from the Company's 1994 Annual Report to Shareholders.
LOAN SERVICING
Mortgage loan servicing includes collecting payments from borrowers and
remitting such funds to the owners of or investors in such loans, accounting
for loan principal and interest, making advances when required, contacting
delinquent borrowers, foreclosing in the event that defaults are not remedied
and performing other administrative duties. A servicer's obligation to provide
mortgage loan servicing and its rights to collect fees are set forth in a
servicing agreement. The Company has the obligation and right to service all
the loans it originates and retains the obligation and right with respect to
substantially all the loans it sells. The Company typically receives a
servicing fee of approximately .5% of the outstanding scheduled principal
balance which is deducted from payments received on substantially all of the
Company's servicing portfolio. At March 27, 1994, the Company's loan servicing
portfolio totaled $131.8 million.
CUSTOMER SERVICE
The Company stresses customer satisfaction and maintains two full-time customer
service representatives in its Boca Raton headquarters to respond to customer
inquiries. In addition, an annual customer service survey is conducted which
polls each customer who has purchased property in the last twelve months. At
closing, purchasers are provided with a toll-free customer service phone number
to facilitate any additional information requests.
REGULATION
The real estate industry is subject to extensive regulation. The Company is
subject to compliance with various federal, state and local environmental,
zoning and other statutes and regulations regarding the acquisition,
subdivision and sale of real estate and timeshare interests and various aspects
of its financing operations. The Interstate Land Sales Full Disclosure Act
establishes strict guidelines with respect to the marketing and sale of land in
interstate commerce. HUD has enforcement powers with respect to this statute.
In some instances, the Company has been exempt from HUD registration
requirements because of the size or number of the subdivided parcels and the
limited nature of its offerings. The Company, at its discretion, may formally
request an exemption advisory opinion from HUD to confirm the exempt status of
any particular offering. Several such exemption requests have been submitted
to and approved by HUD. In those cases where the Company and its legal counsel
determine parcels must be registered to be sold, the Company files registration
materials disclosing financial information concerning the property, evidence of
title and a description of the intended manner of offering and advertising such
property. The Company bears the cost of such registration, which includes
legal and filing fees. Many states also have statutes and regulations
governing the sale of real estate. Consequently, the Company regularly
consults with counsel for assistance in complying with federal, state and local
law. The Company believes that it is in compliance in all material respects
with existing regulations. The Company must obtain the approval of numerous
governmental authorities for its acquisition and marketing activities and
changes in local circumstances or applicable laws may necessitate the
application for, or the modification of, existing approvals. The expansion of
such regulation in recent years has increased the average time period from
acquisition to sale of certain property and has imposed additional compliance
costs.
The Company's customer financing activities are also subject to extensive
regulation, which may include without limitation, Truth-in-Lending-Reg. Z,
Fair Debt Collection Practices Act, Equal Credit Opportunity Act-Reg. B,
13
<PAGE> 14
Electronic Funds Transfer Act-Reg. E, Home Mortgage Disclosure Act-Reg.
C, Unfair or Deceptive Acts or Practices-Reg. AA and Right to Financial Privacy
Act. The Company believes that it is in compliance in all material respects
with such regulations.
In fiscal 1988, the Company established regional operations in Ontario, Canada.
The Company's operations in Canada are subject to compliance with all
applicable Canadian federal and provincial environmental, zoning, financing and
other statutes regarding the acquisition, subdivision, financing and sale of
real estate. During fiscal 1994, 1993 and 1992, the Company's operations in
Canada accounted for .3%, .3% and 1.4%, respectively, of the Company's total
real estate sales during those periods.
Management is currently not aware of any pending regulatory contingencies that
are expected to have a materially adverse impact on the Company.
COMPETITION
The real estate industry is highly competitive. In each of its markets, the
Company competes against numerous developers and others in the real estate
business, some of which are larger and have greater financial resources than
the Company. Such competition may be generally smaller in more rural markets
in which the Company operates. The Company believes that it can compete on the
basis of its reputation and the price, location and quality of the products it
offers for sale, as well as its experience in acquiring and selling
recreational rural real estate. In its customer financing activities, the
Company competes with banks, mortgage companies, other financial institutions
and governmental agencies offering financing of real estate. The Company
believes that, based on its interest rates and repayment schedules, the
financing packages it offers are competitive with those of other institutions
which offer such financing.
PERSONNEL
As of March 27, 1994, the Company had 333 full-time and part-time employees, 66
of which are located at the Company's headquarters in Boca Raton, Florida and
267 employees including three divisional presidents, 18 regional and district
managers, 150 sales personnel, 11 acquisition specialists and 85 administrative
and other support personnel located in regional offices throughout the United
States and Canada. None of the Company's employees is represented by a
collective bargaining unit, and the Company believes that relations with its
employees generally are excellent.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information regarding the executive
officers of the Company.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
George F. Donovan 55 President and Chief Executive Officer
Alan L. Murray 47 Treasurer and Chief Financial Officer
Daniel C. Koscher 36 Vice President, Chief Accounting Officer and Assistant Secretary
Patrick E. Rondeau 47 Vice President, Director of Corporate Legal Affairs and Clerk/Secretary
</TABLE>
GEORGE F. DONOVAN joined the Company as a Director in 1991 and was appointed
President and Chief Operating Officer in October 1993 and Chief Executive
Officer in December 1993. Mr. Donovan also has served as an officer of a
number of other recreational real estate corporations, including Leisure
Management International, of which he was President from 1991 to 1993. From
1989 to 1991, Mr. Donovan served as President and Chief Executive Officer of
Thousand Trails, and from 1988 to 1989 he formed and operated the Donovan
Companies.
14
<PAGE> 15
ALAN L. MURRAY joined the Company in July 1990 and was elected Treasurer in
September 1990. Mr. Murray was elected Chief Financial Officer in May 1991.
Prior to joining the Company, Mr. Murray had previously held the position of
President of Mount Holly, Inc. and Northeast Country Properties, Inc.,
practiced as a certified public accountant in southern Vermont and western
Massachusetts, held the position of corporate controller of Felters Company and
practiced as a certified public accountant in the audit department of Coopers &
Lybrand.
DANIEL C. KOSCHER joined the Company in 1986. He served as Divisional
Controller of the Company and subsequently as Director of Accounting until he
became Vice President and Chief Accounting Officer in June 1990. Prior to his
employment with the Company, Mr. Koscher held various accounting positions
with the William Carter Company, a manufacturing company located in Needham,
Massachusetts, and Cipher Data Products, Inc., a computer peripheral
manufacturer located in San Diego, California. Mr. Koscher also held the
position of audit agent for the State of Nevada.
PATRICK E. RONDEAU joined the Company in July 1990 and was elected Vice
President and Director of Corporate Legal Affairs in September 1990 and
Clerk/Secretary in February 1993. For more than five years prior to his
employment with the Company, Mr. Rondeau was a senior partner of Freedmen,
DeRosa & Rondeau, located in North Adams, Massachusetts, which firm serves as
legal counsel to the Company on various matters.
The Company's By-Laws provide that except as otherwise provided by law or the
charter and by-laws of the Company, the Chairman, President, Treasurer and the
Clerk hold office until the first meeting of the Board of Directors following
the next annual meeting of shareholders and until their respective successors
are chosen and qualified and that all other officers hold office for the same
period unless a shorter time is specified in the vote appointing such officer
or officers.
ITEM 2. PROPERTIES.
The Company's principal executive office is located in Boca Raton, Florida in
approximately 14,000 square feet of leased space. On March 27, 1994, the
Company also maintained regional sales offices in the Northeastern,
Mid-Atlantic, Southeastern, Midwestern, Southwestern and Western regions of the
United States as well as the Province of Ontario, Canada.
ITEM 3. LEGAL PROCEEDINGS.
In the ordinary course of its business, the Company from time to time becomes
subject to claims or proceedings relating to the purchase, subdivision, sale
and/or financing of parcels of land. Additionally, from time to time, the
Company becomes involved in disputes with existing and former employees,
occasionally involving charges of wrongful acts by the Company and its officers
or other employees. The Company believes that substantially all of the above
are incidental to its business. During fiscal 1994, the Company defended and
settled approximately 23 claims, proceedings or disputes. The total cost of
such defense and settlements was not material in amount. The Company currently
is a party to approximately 20 claims, proceedings or disputes, some of which
are in the early administrative or demand stage and have not yet resulted in
civil lawsuits. Based upon the information available to it, the Company
believes that it has various defenses to all of the charges and intends to
vigorously defend each of the claims. However, the potential outcome or
exposure of the Company with respect to these proceedings is not determinable
at this time. See Note 11 to the Consolidated Financial Statements which are
incorporated by reference into Item 8, Part II from the Company's 1994 Annual
Report to Shareholders.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
The Company's common stock is listed on the NYSE and on the PSE under the
symbol "PAT." The Company's 8 1/4% convertible subordinated debentures due
2012 are also listed on the NYSE. The following table sets forth, for the
periods indicated, the high and low sales price per share of common stock as
reported on the NYSE.
<TABLE>
<CAPTION>
Fiscal 1994 (1): High Low
---- ---
<S> <C> <C>
First Quarter . . . $3 7/8 $2 5/8
Second Quarter . . . 4 1/8 3 1/8
Third Quarter . . . 5 3 1/8
Fourth Quarter . . . 4 3 1/8
Fiscal 1993 (1): High Low
---- ---
<S> <C> <C>
First Quarter . . . $ 1 3/4 $ 1 5/8
Second Quarter . . . 2 1/8 1 1/2
Third Quarter . . . 3 3/8 2
Fourth Quarter . . . 4 1/8 3
</TABLE>
(1) Because the 4% common stock dividends declared in June, 1993 and
April, 1994 were not material in terms of number of shares issuable nor was
the market price materially affected, no adjustment to the high or low sales
prices has been made to the above table.
As of May 2, 1994, there were 2,017 registered holders of record of common
stock and approximately 2,500 holders of common stock in "street name."
No cash dividends have been declared on the Company's common stock since the
third quarter of fiscal 1990. The Company is restricted from paying cash
dividends under the terms of certain of its debt instruments. See Note 6 to
the Consolidated Financial Statements which are incorporated by reference into
Item 8, Part II from the Company's 1994 Annual Report to Shareholders.
The registrar and transfer agent for the Company's common stock is Mellon
Securities Transfer Services of East Hartford, Connecticut 06105.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA.
The following table summarizes certain selected financial data with respect to
the operations of the Company and its subsidiaries. The information provided
should be read in conjunction with the Consolidated Financial Statements and
related Notes which are incorporated by reference into Item 8, Part II from the
Company's 1994 Annual Report to Shareholders.
PATTEN CORPORATION
SELECTED FINANCIAL DATA
(Amounts in thousands except for per share data)
<TABLE>
<CAPTION>
MARCH 27, MARCH 28, MARCH 29, MARCH 31, APRIL 1,
1994 1993 1992 1991 (3) 1990 (3)
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
---------------------
Sales of real estate ......... $63,389 $53,349 $ 45,100 $63,691 $ 101,195
Interest Income (1) ......... 7,952 10,191 16,515 17,966 19,174
------- ------- ------- ------- ---------
Total revenues .............. 71,341 63,540 61,615 81,657 120,369
Income (loss) from
operations .................. 6,778 3,604 1,089 (49,253) (23,932)
Net income (loss) ........... 4,931 3,457 1,368 (32,189) (12,894)
Net income (loss)
per common share -
Primary and fully diluted .25 .18 .07 (1.82) (.73)
OPERATING DATA
--------------
Gross margin on sales of
real estate (2) ............. 51.5% 46.7% 36.3% 30.2% 46.8%
Average sales price per period $25,468 $20,839 $ 20,967 $24,217 $ 24,273
Number of parcels sold ....... 2,489 2,560 2,151 2,630 4,169
Average interest rate earned on
notes receivable at period
end .......................... 10.9% 11.0% 12.1% 13.9% 14.0%
BALANCE SHEET DATA
------------------
Notes receivable, net ....... $42,882 $32,772 $102,304 102,693 106,923
Inventory, net ............... 40,114 31,126 33,749 34,600 70,245
Total assets ................. 139,617 122,853 182,193 198,799 261,371
Short-term debt ............. --- 6,500 --- --- ---
Current portion of lines
of credit, notes payable and
mortgage backed debt ........ 5,741 5,684 13,503 16,549 22,298
Long-term portion of lines
of credit, notes payable and
mortgage backed debt ........ 31,556 14,418 76,209 89,969 96,524
8 1/4% convertible
subordinated debentures .... 34,739 34,739 34,739 34,739 34,739
Shareholders' equity ......... 51,854 46,868 43,378 42,010 74,183
Cash dividends per common
share......................... --- --- --- --- .06
Book value per common share... $ 2.91 $ 2.74 $ 2.54 $ 2.46 $ 4.35
Shares outstanding at end
of year (000's) ............. 17,796 17,083 17,061 17,061 17,038
ASSET QUALITY RATIOS
--------------------
Inventory valuation reserve
to gross inventory (3) ...... 10.2% 17.1% 29.6% 43.4% 12.9%
Charge-offs net of recoveries
to average loans ............ 2.1% 2.1% 1.3% 1.5% --
Reserve for loan losses to
period end loans ............ 1.2% 1.9% 2.1% 2.6% .5%
</TABLE>
17
<PAGE> 18
(1) Fiscal 1993 includes a $695,000 gain from the 1992 REMIC transaction.
(2) Gross margin is computed by reference to the difference between the sale
price and the related cost of inventory, including the cost of
improvements and amenities, divided by the sale price.
(3) During fiscal 1990 and 1991, the Company experienced a downturn in the
market for real estate, particularly in the Northeast. Accordingly,
significant provisions for the write-down of inventory to estimated net
realizable value and estimated loan losses were recorded which
contributed to substantial net losses in each fiscal year. The Company's
operating results improved subsequent to fiscal 1991 due, in part, to the
gradual improvement in the real estate market as well as the Company's
program to liquidate inventory in the Northeast in favor of greater
geographic diversification in markets less affected by adverse market
conditions. The inventory reserve to gross inventory asset quality ratio
has decreased in connection with the liquidation of the related inventory
previously reserved for.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information provided under the heading "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in the Company's
1994 Annual Report to Shareholders, which is an exhibit hereto, is incorporated
herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements of the Company and its subsidiaries and
the related Notes thereto and auditor's report appearing on pages 24 through 38
of the Company's 1994 Annual Report to Shareholders, which is an exhibit
hereto, are incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
18
<PAGE> 19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning the directors of the Company provided under the
headings "Election of Directors" and "Certain Transactions and Other
Information" in the Company's definitive notice of annual meeting and proxy
statement (the "Proxy Material") to be filed in connection with the Special
Meeting in Lieu of Annual Meeting of Shareholders of the Company to be held on
July 27, 1994 is incorporated herein by reference. Information concerning the
executive officers of the Company appears in Part I of this Annual Report on
Form 10-K.
The present members of the Board of Directors of the Company are:
Joseph C. Abeles, Trustee, Abel Associates Trust
George F. Donovan, President and Chief Executive Officer, Patten Corporation
Ralph A. Foote, Esq., Senior Partner, Conley & Foote
Frederick M. Myers, Esq., Senior Partner, Cain, Hibbard, Myers & Cook
Harry S. Patten, Chairman of the Board, Patten Corporation
Stuart A. Shikiar, General Partner, Omega Advisors
Bradford T. Whitmore, General Partner, Grace Brothers, Ltd.
SECTION 16 COMPLIANCE
Rule 16(a)-3 of the Securities Exchange Act of 1934 requires that, subject to
certain exceptions, a statement of changes in beneficial ownership of
securities of an issuer held by a director or officer be reported on Form 4
within ten (10) days after the end of the month in which the change occurs.
In November, 1993, Harry S. Patten, the Chairman of the Board of Directors of
the Company, sold 23,300 shares of Common Stock. The transaction was reported
to the Securities and Exchange Commission on Form 4 on January 7, 1994,
twenty-eight (28) days after the required filing date.
ITEM 11. EXECUTIVE COMPENSATION.
The information provided under the headings "Election of Directors," "Board of
Directors and its Committees," "Executive Compensation" and "Certain
Transactions and Other Information" in the Company's Proxy Material is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security ownership of certain beneficial owners: the information
provided under the heading "Principal Stockholders," in the Company's
Proxy Material is incorporated herein by reference.
(b) Security ownership of management: the information concerning
beneficial ownership of the Company's common stock by its directors
and executive officers provided under the headings "Election of
Directors" and "Principal Stockholders" in the Company's Proxy
Material is incorporated herein by reference.
(c) Changes in control: None.
19
<PAGE> 20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Transactions with management and others: the information provided
under the headings "Election of Directors," "Executive Compensation,"
"Principal Stockholders" and "Certain Transactions and Other
Information" in the Company's Proxy Material is incorporated herein by
reference.
(b) Certain business relationships: the information concerning
relationships regarding directors, or nominees for director, that
exist or have existed during the Company's fiscal year ended March 27,
1994 provided under the headings "Election of Directors" and "Certain
Transactions and Other Information" in the Company's Proxy Material is
incorporated herein by reference.
(c) Indebtedness of management: the information provided under the
heading "Certain Transactions and Other Information" in the Company's
Proxy Material and the information contained in Financial Statement
Schedule II contained in this Annual Report on Form 10-K is
incorporated herein by reference.
(d) Transactions with promoters: None.
20
<PAGE> 21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) and (a)(2) List of Financial Statements and Schedules.
1. The following Consolidated Financial Statements of the Company and its
subsidiaries and the auditor's report relating thereto, included in
the Company's 1994 Annual Report to Shareholders on the pages
indicated, are incorporated by reference into Item 8 hereto:
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Consolidated Balance Sheets as of March 27, 1994
and March 28, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Consolidated Statements of Income for
each of the three years in the period ended
March 27, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Consolidated Statements of Cash Flows for
each of the three years in the period ended
March 27, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26-27
Consolidated Statements of Shareholders'
Equity for each of the three years in the
period ended March 27, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28-38
</TABLE>
2. The following financial statement schedules of Patten Corporation and
its subsidiaries are filed herewith on pages 23 and 24 and included in
Item 14(a)(2):
Schedule II - Amounts Receivable from Related Parties and Indemnitees,
Promoters, and Employees other than Related Parties
Schedule X - Supplementary Income Statement Information
All other schedules to the Consolidated Financial Statements are omitted as the
required information is inapplicable or the information is presented in the
financial statements or related notes.
(a)(3) List of Exhibits.
The exhibits which are filed with this Annual Report on Form 10-K or which are
incorporated herein by reference are set forth in the Exhibit Index which
appears at pages 25-26 hereof, which Exhibit Index is incorporated herein by
reference.
(b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K dated May 11, 1994 reporting
information under Item 5 of Form 8-K.
(c) Exhibits. See (a)(3) above.
(d) Financial Statement Schedules. See (a)(2) above.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PATTEN CORPORATION
(Registrant)
<TABLE>
<S> <C>
Date: June 21, 1994 By: /s/ GEORGE F. DONOVAN
------------------------------------------------
George F. Donovan, President and Chief Executive Officer
Date: June 21, 1994 By: /s/ ALAN L. MURRAY
------------------------------------------------
Alan L. Murray, Treasurer and Chief Financial Officer
(Principal Financial Officer)
Date: June 21, 1994 By: /s/ DANIEL C. KOSCHER
------------------------------------------------
Daniel C. Koscher, Chief Accounting Officer,
Vice President and Assistant Secretary
(Principal Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on the 21st day of June, 1994.
<TABLE>
<S> <C>
/s/ HARRY S. PATTEN Chairman of the Board
- - - ---------------------------------
Harry S. Patten
/s/ GEORGE F. DONOVAN President, Chief Executive Officer and Director
- - - ---------------------------------
George F. Donovan
/s/ ALAN L. MURRAY Treasurer and Chief Financial Officer
- - - ---------------------------------
Alan L. Murray (Principal Financial Officer)
/s/ DANIEL C. KOSCHER Chief Accounting Officer, Vice President
- - - --------------------------------- and Assistant Secretary
Daniel C. Koscher (Principal Accounting Officer)
/s/ JOSEPH C. ABELES Director
- - - ---------------------------------
Joseph C. Abeles
/s/ RALPH A. FOOTE Director
- - - ---------------------------------
Ralph A. Foote
/s/ FREDERICK M. MYERS Director
- - - ---------------------------------
Frederick M. Myers
/s/ BRADFORD T. WHITMORE Director
- - - ---------------------------------
Bradford T. Whitmore
/s/ STUART A. SHIKIAR Director
- - - ---------------------------------
Stuart A. Shikiar
</TABLE>
22
<PAGE> 23
PATTEN CORPORATION
SCHEDULE II
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND INDEMNITEES,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
For each of the three years in the period ended March 27, 1994
<TABLE>
<CAPTION>
BALANCE AT END OF PERIOD
BALANCE AT ------------------------
BEGINNING AMOUNTS AMOUNTS
OF PERIOD ADDITION COLLECTED CURRENT LONG TERM
--------- ----------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Name of Debtor
--------------
Year ended March 29, 1992
-------------------------
Michael S. Patten and
Michael T. Emmons (1) . . . $ 174,368 $ --- $ 36,591 $ 3,807 $ 133,970
Harry S. Patten and
Willard A. Rhodes (1) . . . 211,027 --- 35,997 11,754 163,276
Joseph R. O'Brien . . . . . 117,006 --- 4,877 112,129 ---
Year ended March 28, 1993
-------------------------
Michael S. Patten and
Michael T. Emmons . . . . . 137,777 --- 4,867 11,227 121,683
Harry S. Patten and
Willard A. Rhodes . . . . . 175,030 --- 130,348 3,627 41,055
Joseph R. O'Brien . . . . . 112,129 --- 50,533 61,596 ---
Year ended March 27, 1994
-------------------------
Michael S. Patten and
Michael T. Emmons . . . . . 132,910 --- 107,981 2,491 22,438
Harry S. Patten and
Willard A. Rhodes . . . . . 44,682 --- 44,682 --- ---
Joseph R. O'Brien . . . . . 61,596 9,580 -- 70,864 ---
</TABLE>
(1) Notes secured by land purchased from Patten Corporation. The notes bear
interest at an initial rate of 10% per annum, adjustable annually to a
rate not in excess of prime plus 2% and have a term of 15 years.
23
<PAGE> 24
PATTEN CORPORATION
SCHEDULE X
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
For each of the three years in the period ended March 27, 1994
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------------------------
MARCH 27, 1994 MARCH 28, 1993 MARCH 29, 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Advertising costs . . . . . . $ 4,480,345 $ 3,641,947 $3,123,225
=========== =========== ==========
Taxes, other than payroll
and income taxes . . . . . $ 742,304 $ 1,025,242 $ 878,314
=========== =========== ==========
</TABLE>
Amounts for maintenance and repairs and royalties are not presented as such
amounts are less than 1% of total sales and revenues.
24
<PAGE> 25
PATTEN CORPORATION
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<S> <C>
3.1 Restated Articles of Organization as amended (incorporated by reference to exhibit of
same designation to Annual Report on Form 10-K for the fiscal year ended April 2, 1989)
3.2 By-laws of Registrant, as amended May 31, 1991 (incorporated by reference to exhibit of
same designation to Annual Report on Form 10-K for the fiscal year ended March 31, 1991)
4.3 Form of Warrant Agreement among Registrant, Drexel Burnham Lambert Incorporated and
First Albany Corporation with form of Warrant Certificate attached (incorporated by
reference to exhibit of same designation to Registration Statement on Form S-1, File
No. 33-756)
4.4 Specimen of Common Stock Certificate (incorporated by reference to exhibit of same
designation to Registration Statement on Form S-1, File No. 33-13076)
4.6 Form of Indenture dated as of May 15, 1987 relating to the Company's 8 1/4% Convertible
Subordinated Debentures Due 2012, including Form of Debenture (incorporated by
reference to exhibit of same designation to Registration Statement on Form S-1, File
No. 33-13753)
10.17 Registrant's 1988 Outside Directors Stock Option Plan (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended
March 31, 1987)
10.24 Form of Agreement dated June 27, 1989 between Registrant and Peoples Heritage Savings
Bank relating to sale of mortgage notes receivable (incorporated by reference to
exhibit of same designation to Annual Report on Form 10-K for the fiscal year ended
April 2, 1989)
10.27 Registrant's Second Amended and Restated 1985 Stock Option Plan (incorporated by
reference to exhibit of same designation to Registration Statement on Form S-1, File
No. 3-13753)
10.41 Pooling and Servicing Agreement dated September 15, 1989 among Patten Mortgage Trust I,
Patten Corporation, Patten Receivables Finance Corporation VII and Bankers Trust
Company as Trustee (incorporated by reference to exhibit of same designation to Current
Report on Form 8-K dated October 19, 1989)
10.47 Amended and Restated Loan and Security Agreement entered into as of January 9, 1990 by
Patten Receivables Finance Corporation VI, Greyhound Real Estate Finance Company and
Patten Corporation as Guarantor (incorporated by reference to exhibit of same
designation to Annual Report on Form 10-K for the fiscal year ended April 1, 1990)
10.53 Modification dated July 16, 1990 of Amended and Restated Loan and Security Agreement
entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI,
Greyhound Real Estate Finance Company and Patten Corporation as Guarantor (incorporated
by reference to exhibit of same designation to Annual Report on Form 10-K for the
fiscal year ended April 1, 1990)
10.58 Amendment to the Security Agreement entered into as of March 23, 1991, by Patten
Receivables Finance Corporation VI, Greyhound Real Estate Finance Company and Patten
Corporation as Guarantor (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the fiscal year ended March 31, 1991)
10.74 Waiver dated May 11, 1992 together with modification letter dated June 15, 1992 with
respect to the Amended Security Agreement entered into as of March 23,1991 by Patten
Receivables Finance Corporation VI, Greyhound Real Estate Finance Company and Patten
Corporation as guarantor (incorporated by reference to exhibit of same designation to
Annual Report on Form 10-K for the fiscal year ended March 29, 1992)
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT PAGE
------- ---------------------- ----
<S> <C>
10.77 Registrant's Amended 1988 Outside Directors Stock Option Plan (incorporated by
reference to exhibit of same designation to Annual Report on Form 10-K for the fiscal
year ended March 29, 1992)
10.79 Registrant's Retirement Savings Plan (incorporated by reference to Registration
Statement on Form S-8, File No. 33-48075)
10.81 Pooling and Servicing Agreement dated June 30, 1992 among Patten Corporation REMIC
Trust, Series 1992-1, Patten Corporation, Patten Receivables Finance Corporation VIII
and First Trust National Association as Trustee (incorporated by reference to exhibit
of same designation in Registration Statement on Form S-2, File No. 33-61476)
10.82 Employment Agreement dated as of December 20, 1993 by and between Patten Corporation
and George F. Donovan (incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q for the period ended December 26, 1993)
10.83 Employment Agreement dated as of December 20, 1993 by and between Patten Corporation
and Harry S. Patten (incorporated by reference to exhibit of same designation to
Quarterly Report on Form 10-Q for the period ended December 26,1993)
10.84 Pooling and Servicing Agreement dated as of April 15, 1994, among Patten Receivables
Finance Corporation IX, Patten Corporation, Patten Corporation REMIC Trust, Series
1994-1 and First Trust National Association, as Trustee
10.85 Loan and Security Agreement by and between Patten Corporation and Foothill Capital
Corporation dated as of October 29, 1993
10.86 First Amendment dated December 23, 1993 to Loan and Security Agreement by and between
Patten Corporation and Foothill Capital Corporation dated as of October 29, 1993
10.87 Loan and Security Agreement dated as of June 11, 1993 by and among Patten Receivables
Finance Corporation III, Patten Corporation and General Electric Capital Corporation
10.88 Amendment dated May 12, 1993 to Amended and Restated Loan and Security Agreement
entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI,
Greyhound Real Estate Finance Company and Patten Corporation as Guarantor
10.89 Amendment dated February 18, 1994 to Amended and Restated Loan and Security Agreement
entered into as of January 9, 1990 by Patten Receivables Finance Corporation VI,
Greyhound Real Estate Finance Company and Patten Corporation as Guarantor
11.1 Statement re: Computation of Earnings Per Share (such information is incorporated by
reference to the Statement of Income of the Consolidated Financial Statements appearing
on page 25 of the Company's 1994 Annual Report to Shareholders, which is an exhibit
hereto)
13.1 1994 Annual Report to Shareholders (with the exception of the information incorporated
by reference included in Items 7 and 8, the 1994 Annual Report to Shareholders is not
deemed filed as part of this Annual Report on Form 10-K)
18 Letter re: Change in Accounting Principle (incorporated by reference to exhibit of
same designation to Annual Report on Form 10-K for the fiscal year ended April 1, 1990)
23 Consent of Ernst & Young
</TABLE>
26
<PAGE> 1
EXHIBIT 10.47
AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
BY THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT entered into
as of the date set forth at the end hereof, GREYHOUND REAL ESTATE FINANCE
COMPANY, an Arizona corporation ("Lender"), and PATTEN RECEIVABLES FINANCE
CORPORATION VI, a Delaware corporation ("Borrower") confirm and agree as
follows:
WITNESSETH:
WHEREAS, Borrower and Lender have entered into a Loan and Security
Agreement dated September 8, 1988 and Letter Amendment dated November 17, 1988
(collectively, "Loan Agreement"), whereby Lender agreed to lend to Borrower the
sum of money, not to exceed $8,444,850.07 (the "Loan"); and
WHEREAS, Borrower and Lender wish to amend, modify and restate the Loan
Agreement for the purpose, of among other things to increase the amount of the
Loan from $8,444,850.07 to an amount not to exceed $18,444,850.00 which shall
replace and super cede the Loan and Security Agreement dated September 8, 1988
in its entirety and shall further confirm and ratify the Loan and Security
Agreement as hereby Amended and Restated.
I. DEFINITIONS
Unless the context clearly otherwise requires, the capitalized terms
used in this Agreement shall have the meaning given to them below or elsewhere
provided herein:
1.1 "Advance": an advance of the Loan made from time to time as herein
provided.
1.2 "Agreement": this "Loan and Security Agreement", as from time to
time supplemented, modified, extended, renewed, amended or restated.
1.3 "Applicable Usury Law": the usury law applicable pursuant to the
terms of paragraph 8.10 hereof or such other usury law which is applicable if
the law chosen by the parties is not.
1.4 "Assignments": written assignments from time to time delivered to
Lender by Borrower of specific Instruments and/or Purchaser Mortgages and the
proceeds thereof.
1.5 "Borrower": collectively Patten Corporation, whose address is 646
Main Road, Stamford, Vermont 05352 and Patten Receivables Finance Corporation
VI, whose address is 646 Main Road, Stamford, Vermont 05352 hereof and,
collectively subject to the restrictions on merger, consolidation and
assignment herein contained, thier successors and assigns.
1
<PAGE> 2
1.6 "Borrowing Base": an amount equal to the lesser of:
(a) ninety percent (90%) of the then unpaid principal balance of the
Eligible Instruments; or
(b) ninety percent (90%) of the present value of the then unmatured
installments of principal and interest under the Eligible Instruments,
discounted at the higher of (i) the then applicable interest rate under the
terms of the Note or (ii) fourteen percent (14%), in the case of Instruments
which bear interest at a fixed rate;
provided that the Purchasers of 90% of the Parcels based on number of Parcels
which are the subject of the Eligible Instruments used in making Borrowing Base
computations must be United States or Canadian residents.
1.7 "Borrowing Term": the period commencing on the date hereof and
ending on the close of Lender's business on October 8, 1990 (or, if such is not
a normal business day of Lender, on the next business day of Lender)
1.8 "Collection Agent": Bank of New England, N.A., or should such
entity cease to act as collection agent under the Lock Box Agreement, its
successor as collection agent under the Lock Box Agreement.
1.9 "Documents": the Note, the Guarantee, the Assignments, the
Servicing Agreement, the Lock Box Agreement, this Agreement and the other
documents and instruments executed in connection with the Loan, together with
any and all renewals, extensions, amendments, restatements or modifications
thereof, whether now or hereafter existing.
1.10 "Eligible Instrument": an Instrument which conforms to the
standards set forth in Exhibit 1 attached hereto. An Instrument that has
qualified as an Eligible Instrument shall cease to be an Eligible Instrument
upon the date of the occurrence of any of the following: (a) any one
installment due with respect to an Eligible Instrument becomes more than 89
days past due, or (b) the Eligible Instrument otherwise fails to continue to
meet the requirements of an Eligible Instrument.
1.11 "Event of Default": the meaning set forth in paragraph 7.1 hereof.
1.12 "Guarantee": the "Guarantee and Subordination Agreement" made anal
delivered by Patten to Lender pursuant to paragraph 4.1(b)(ii) hereof, as from
time to time modified, replaced or restated.
1.13 "Guarantor": Patten Corporation.
1.14 "Impositions": any and all taxes (other than any tax measured by
net income payable by Lender to any state or political subdivision thereof or
to the U. S. under Section 11 or 1201 of the Internal Revenue Code, as amended,
in consequence of the receipt of payments provided for herein), license fees,
assessments, charges, fines, penalties, property, privilege, excise, real
estate or other taxes currently or hereafter levied or imposed by any state,
local or federal authority upon or in connection with or measured by the
Documents or the Receivables Collateral.
2
<PAGE> 3
1.15 "Instrument": a promissory note which has arisen out of the sale
of a Parcel by Patten or an Operating Subsidiary to a Purchaser and is secured
by a Purchaser Mortgage, or a contract for sale which has arisen out of the
sale of a Parcel by Patten or an Operating Subsidiary to a Purchaser and which
has been assigned to Lender under the terms of this Agreement.
1.16 "Loan": the loan made pursuant hereto.
1.17 "Lock Box Agreement": the Lock Box Agreement to be made among
Borrower, Lender and Collection Agent, more specifically referred to in
paragraph 4.1 hereof . The Lock Box Agreement may be amended, modified or
restated from time to time as agreed by the parties hereto.
1.18 "Maturity Date": ten (10) years from the date of the last Advance.
1.19 "Maximum Loan Amount": Eighteen Million Four Hundred Forty-Four
Thousand Eight Hundred Fifty and No/100 Dollars ($18,444,850.00).
1.20 "Land Contract Mortgage": a mortgage to be made and delivered by
Borrower to Lender which encumbers all right, title and interest of Borrower in
and to the Parcels which are the subject of certain Instruments covered by a
contemporaneously delivered Assignment wherein a Purchaser does not receive
legal title to the Parcel, said mortgage being in recordable form and otherwise
in form and substance satisfactory to Lender.
1.21 "Note": the "Replacement Promissory Note" to be made and delivered
by Borrower to Lender pursuant to paragraph 4.1(b) (i) hereof, as from time to
time modified, renewed, extended, replaced or restated.
1.22 "Obligations": each and every obligation, duty, covenant,
undertaking and condition of Borrower contained in the Documents and each and
every other obligation of Borrower now or hereafter owing to Lender.
1.23 "Opening Prepayment Date": the date specified in Schedule A
hereto.
1.24 "Operating Subsidiary": a corporation which has sold a Parcel to a
Purchaser and in which Patten owns a majority of the outstanding capital stock.
1.25 "Overdue Rate": the meaning given to it in the Note.
1.26 "Parcel": a lot or parcel of land located in a Project.
1.27 "Patten": Patten Corporation, a Massachusetts corporation.
1.28 "Performance" or "Perform": full, timely and faithful performance
and compliance or to do the same.
1.29 "Permitted Encumbrances": each and every restriction, reservation and
easement of record, inchoate mechanics' liens and inchoate liens for taxes and
assessments, which individually and in the aggregate do not render title to the
property which they encumber unmarketable.
3
<PAGE> 4
1.30 "Project": a lot or parcel of land located in the following
vacation communities: Deer Run on Lake Carroll located in Carroll County,
Illinois; Sun Valley Lakes located in Ring gold County, Iowa; Sleepy Hollow
Lake located in Greene County, New York; Carolina Lakes located in Harnett
County, North Carolina; Carolina Trace located in Lee County, North Carolina;
Holiday Shores located in Hancock County, Georgia; Eagle Creek Ranch located in
Wilson County, Texas; Point Aquarius located in Montgomery County, Texas; I
Pelican Bay Subdivision located in Montgomery County, Texas; Big Canoe located
in Pick ens and Dawson Counties, Georgia, or such other vacation communities as
Lender may in its discretion from time to time hereafter approve in writing.
1.31 "Purchaser": a purchaser of a Parcel from Patten or an Operating
Subsidiary.
1.32 "Purchaser Mortgage": the purchase money mortgage or deed of trust
given to Patten or an Operating Subsidiary by the Purchaser to secure an
Instrument.
1.33 "Receivables Collateral": (a) the Instruments which are, now or
hereafter, assigned, endorsed or delivered to Lender pursuant hereto or against
which an Advance has been made; (b) all purchase contracts, Purchaser
Mortgages, guarantees and other documents or instruments evidencing or securing
the obligations of the Purchasers and/or any other person primarily or
secondarily liable on such Instruments; (c) all Title Insurance Policies
related to such Instruments or delivered in connection therewith; (d) if any,
all rights under escrow agreements and all impound and/or reserve accounts
pertaining to the foregoing; (e) all files, books and records of Borrower
pertaining to any of the foregoing; and (f) the proceeds from the foregoing.
1.34 "Security Interest": a perfected, direct and first security
interest under the Uniform Commercial Code of the State(s) in which any such
security interest needs to be perfected; provided that with respect to any
portion of the Receivables Collateral not covered by the Uniform Commercial
Code, it shall mean a direct and first lien on such property which has been
perfected against third parties in the manner provided by law.
1.35 "Servicing Agent": Patten, or should such entity cease to act as
servicing agent under the Servicing Agreement, its successor as servicing agent
under the Servicing Agreement.
1.36 "Servicing Agreement": The Servicing Agreement to be made among
Borrower, Lender and Servicing Agent, more specifically referred to in
paragraph 4.1 hereof . The Servicing Agreement may be amended, modified or
restated from time to time as agreed by the parties hereto.
1.37 "Term": the duration of this Agreement commencing on the date
hereof and ending when all of the Obligations shall have been Performed.
1.38 "Title Insurance Policy": a mortgagee's title insurance or title
guarantee on an ALTA form, issued with respect to the Parcel securing a
Purchaser Mortgage, in an amount at least equal to the outstanding principal
balance of such Purchaser Mortgage.
4
<PAGE> 5
lI. LOAN COMMITMENT; USE OF PROCEEDS
2.1 Subject to the terms and conditions hereinafter set forth, Lender
will from time to time make Advances to Borrower in amounts equal to (a) the
then Borrowing Base less (b) the then unpaid principal balance of the Loan;
Provide, at no time shall the unpaid principal balance of the Loan exceed the
Maximum Loan Amount. Lender shall have no obligation to make any Advance after
the Borrowing Term has expired.
2.2 The Loan is a revolving line of credit against which during the
Borrowing Term, subject to the terms and conditions of this Agreement, Borrower
shall have the right to obtain Advances, repay Advances (to the extent that
payments are made with respect to the Eligible Instruments by Purchasers) and
obtain additional Advances; however, all of the Advances hereunder shall be
viewed as a single loan. Borrower shall not be entitled to obtain Advances
after the expiration of the Borrowing Term unless Lender, in its sole and
absolute discretion, agrees in writing with Borrower to make Advances
thereafter on terms and conditions satisfactory in all respects to Lender. This
Agreement and Borrower's liability for Performance of the Obligations shall
continue, however, until the end of the Term.
2.3 The proceeds of the Loan will be used by Patten and the
subsidiaries of Patten for working capital purposes.
II. SECURITY
3.1 To secure the Performance of all of the Obligations, Borrower
hereby grants to Lender a Security Interest in and assigns to Lender the
Receivables Collateral. The Security Interest shall be, subject to the terms of
this Agreement, absolute, continuing and applicable to all existing and future
Advances and to all of the Obligations; and all of the Receivables Collateral
shall secure repayment of the Loan and the Performance of the other Obligations
throughout the Term. Subject to the terms of this Agreement, Borrower will
unconditionally deliver and endorse to Lender, with full recourse, all
Instruments against which Advances are made and will execute and deliver to
Lender recordable absolute Assignments with respect to such Instruments. Lender
is and shall be the attorney-in-fact of Borrower with respect to the collection
and remittance of payments on the Receivables Collateral with full power and
authority to give instructions with respect to the collection and remittance of
such payments and to endorse payment items; Provided, however, that unless an
Event of default has occurred and is continuing, Lender shall have no right to
take any of the actions specified in paragraph 7.2(c) hereof. Borrower has its
chief executive office and principal place of business at the address set forth
above and will promptly notify Lender of any change in such address. Upon
Performance of the Obligations, Lender will re-assign and/or endorse to
Borrower, without recourse or warranty of any kind, the Receivables Collateral.
3.2 If a previously Eligible Instrument that is part of the Receivables
Collateral ceases to qualify as, or is otherwise determined not to be, an
Eligible Instrument, then within 11 days after the month in which an Eligible
Instrument ceases to qualify, Borrower will either (i) pay to
5
<PAGE> 6
Lender an amount equal to the Borrowing Base of the ineligible
Instrument, together with interest, costs and expenses, attributable to the
ineligible Instrument, or (ii) replace such ineligible Instrument with an
Eligible Instrument against which an Advance could be made in an amount not
less than the Borrowing Base of the ineligible Instrument being replaced.
Simultaneously with the delivery of the replacement Instrument to Lender,
Borrower will deliver to Lender all of the items (except for a "Request for
Advance and Certification") required to be delivered by Borrower to Lender
pursuant to paragraph 4.2 hereof, together with a "Borrower's Certificate" in
form and substance identical to Exhibit 2 attached hereto and by this reference
incorporated herein. If no Event of Default and no act or event which after
notice and/or lapse of time would constitute an Event of Default has occurred
and is continuing, then upon (x) payment of an amount equal to the Borrowing
Base of such Ineligible Instrument, together with interest, costs and expenses
attributable to the Ineligible Instruments, or (y) the substitution of Eligible
Instruments for Ineligible Instruments, Lender will re-assign and/or endorse to
Borrower, without recourse or warranty of any kind, the ineligible Instruments.
The re-assignment instrument shall be prepared by Borrower and submitted to
Lender unless Lender otherwise specifies in its sole discretion and be in form
and substance satisfactory to Lender.
3.3 Borrower will deliver or cause to be delivered to Lender and
thereafter throughout the Term will maintain or cause to be maintained in full
force and effect according to the terms thereof the Guarantee Agreement from
the Guarantor.
3.4 Other than as set forth in paragraph 9.1 herein, at the time of
delivery of an Assignment, Borrower will, at its expense, deliver to Lender a
policy or policies of Title Insurance insuring Lender's interest in the
Mortgage given to Lender by Borrower or in the Purchaser Mortgages which are
the subject of the Assignment. Such policy or policies shall be in the amount
of the Advances made against or, in the case of substitutions, the portion of
the Loan attributable to the Instruments secured by the insured Purchaser
Mortgages; and shall be issued by a title insurer and be in form and substance
safisfactory to Lender in its sole discretion.
IV. ADVANCES
4.1 (a) Notwithstanding paragraphs (j) and (k) of this section, Lender
shall have no obligation to make the initial Advance until the conditions set
forth in the following sub-paragraphs and elsewhere herein have been satisfied
at the expense of Borrower, as determined by Lender in its discretion.
(b) Borrower shall have delivered to Lender the following loan
documents, duly executed, delivered and in form (including, when appropriate,
form required for recording or filing) and substance satisfactory to Lender:
(i) a "Replacement Promissory Note" in form and substance
identical to Exhibit 3 attached hereto;
(ii) a "Guarantee and Subordination Agreement" executed by
Patten guaranteeing Performance of the Obligations and
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subordinating to the Obligations the indebtedness owing by
Borrower-to such Guarantor;
(iii) a "Servicing Agreement" providing for the servicing of
the Instruments constituting part of the Receivables Collateral;
(iv) a "Lock Box Agreement" providing for the collection of the
Instrments constituting part of the Receivables Collateral;
(v) UCC financing statements for filing and/or recording, as
appropriate, where necessary to perfect the Security Interest in the
Receivables Collateral and all other security for the Performance of
the Obligations which is subject to Article 9 of the Uniform
Commercial Code;
(vi) evidence satisfactory to Lender showing dimensions of all
Projects, access thereto, street lines, easements and other details;
(vii) Certificate of Good Standing, Charter documents certified
by the state of incorporation and certified bylaws of each Operating
Subsidiary of Borrower in accordance with the Projects;
(viii) consumer documents for each Project, which the Borrower
and appropriate Operating Subsidiary represent and warrant to be in
true and correct form and satisfactory to Lender;
(ix) a favorable opinion from Borrower's and Patten's
independent legal counsel in form and substance substantially
identical to Exhibit 4 attached hereto and as to such other matters as
Lender may reasonably require;
(x) this Agreement.
(c) Borrower shall have delivered to Lender in form and substance
satisfactory to Lender at least 5 days prior to the date of the initial
Advance, and to the extent applicable each Advance thereafter, unless waived by
Lender:
(i) evidence that Borrower and/or Operating Subsidiary is duly
organized. validly existing and in good standing under the laws of the
State of Delaware and is duly qualified to do business and in good
standing in the state of Vermont;
(ii) a copy of the resolutions of Borrower, certified to be
true and complete by the secretary or an assistant secretary of
Borrower and at least one other officer of Borrower, authorizing the
execution, delivery and Performance of the Documents and evidencing
the authority of all persons signing the Documents on behalf of
Borrower to do so;
(iii) should Lender request for due diligence purposes,
Borrower must provide Lender access to review any subdivision maps of
the Project(s) or other surveys and certifications by surveyors or
engineers acceptable to Lender, showing dimensions of the
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Parcels, access thereto, street lines, easements and other
details, together with other evidence satisfactory to Lender that the
Project(s) complies with all applicable laws, rules and regulations
and public and private restrictions affecting the use of the
Project(s);
(iv) opinions of counsel, if any, which have been rendered to
Borrower or Patten, which exempt a Project(s) from registration with
the federal Office of Interstate Land Sales Registration;
(v) a copy of the purchase contract, deed, if requested, note,
mortgage/deed of trust and all other documents referred to in
paragraph 6.4(d) and all exhibits, including, without limitation, the
Project governing documents and the Project management agreement which
have been or are being used by Borrower in connection with the Project
or the sale of Parcels therein;
(vi) the Title Insurance Policies required pursuant to
paragraph 6.9 hereof and evidence of fidelity insurance coverage for
all persons handling assessment payments made to any Parcel owners'
association(s);
(vii)the items described in Exhibit 5 hereto; and
(viii)such other items as Lender requests which are reasonably
necessary to evaluate the request for the Advance and the satisfaction
of the conditions precedent thereto.
(d) No material adverse change shall have occurred in any Projects,
Borrower's or Patten's business or financial condition since the date of the
latest financial and operating statements given to Lender by or on behalf of
Borrower or Patten.
(e) There shall have been no change in the warranties and
representations made by Borrower and/or Patten in the Documents.
(f) Neither an Event of Default nor an act or event which after notice
and/or lapse of time would constitute an Event of Default shall have occurred
and be continuing.
(g) The interest rate applicable to the Advance (before giving effect
to any savings clause) will not exceed the maximum contract rate permitted by
the Applicable Usury Law.
(h) Borrower shall have paid to Lender all of the commitment fee for
the Loan required to be paid by the time of the Advance.
(i) If required by Lender, Lender shall have received a favorable
opinion from Lender's Special counsel as to the matters set forth in paragraphs
6.1(b) (as to the second sentence), 6.3(b) (to counsel's knowledge after due
inquiry), 6.4(a) (assuming proper completion and due execution and delivery),
and 6.4(e) (as to membership in and authority of Parcel owners' association
(s)), and to such other matters as Lender shall reasonably require;
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(j) Borrower shall use its best efforts to deliver to Lender on the
date of the initial Advance and to the extent applicable each Advance
thereafter a true copy of each of the original Purchaser Mortgages securing
such Advance certified by the public recording office, or a photocopy of the
Purchaser Mortgages with a file stamp evidencing the recordation thereof. With
respect to each Purchaser Mortgage for which this is not possible, Borrower
shall deliver to Lender such Purchaser Mortgage and such evidence of recording
within 180 days after the date of the Advance. If the Borrower is unable to
obtain a Purchaser Mortgage and such evidence of recording within the time
limit provided herein, the Borrower shall either replace such Purchaser
Mortgage with an Eligible Instrument or pay to Lender an amount equal to the
Borrowing Base of such Purchaser Mortgage pursuant to Section 3.2 hereof.
(k) Not later than 180 days after the date of the initial Advance and
to the extent applicable each Advance thereafter, the Borrower shall cause an
absolute Assignment, in form and substance satisfactory to Lender, assigning to
Lender with recourse, Borrower's entire right, title and interest under each of
the Purchaser Mortgages securing such Advance, to be duly recorded in the
public records in which the related Purchaser Mortgage shall have been
recorded, and shall deliver to Lender the recorded Assignments (or certified
copies thereof or copies thereof that have been stamped filed by the
appropriate public recording official). Pending the return of such recorded
Assignments to Lender, the Borrower shall leave a photocopy of each Assignment,
properly completed, executed and acknowledged, with Lender. During such 180-day
period referred to above, Borrower shall use its best efforts to record all of
the Assignments which are required to be recorded as provided above as rapidly
as possible. If the Borrower fails to record an Assignment within the time
limit prescribed hereunder, Borrower shall either replace the related Purchaser
Mortgage with an Eligible Instrument or pay to Lender an amount equal to the
Borrowing Base of such Purchaser Mortgage pursuant to Section 3.2 hereof.
4.2 Lender shall have no obligation to make any Advance after the
initial Advance until the conditions specified in (a) items 4.1(c)(ix)-(x) and
(b) items 4.1(d) - (h) herein have been satisfied as determined by Lender in
its discretion.
4.3 Advances shall not be made more frequently than monthly or in
amounts less than one hundred thousand dollars ($100,000.00).
4.4 Advances shall be requested in writing, by those officers of
Borrower named in authorizing resolutions of Borrower from time to time
delivered to Lender and which are in form and substance satisfactory to Lender.
4.5 Advances may be wire transferred to accounts requested in writing
by Borrower and/or disbursed by checks or drafts payable in immediate funds to
Borrower; or at the option of Lender after Borrower's written request, to
others, either severally or jointly with Borrower, for the credit or benefit of
Borrower.
4.6 Although Lender shall have no obligation to make an Advance unless
and until all of the conditions thereto set forth herein have been
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satisfied, Lender may, at its sole discretion, make Advances prior to
that time without waiving or releasing any of the Obligations, but Borrower
shall continue to be required to strictly Perform all such Obligations.
V. NOTE; MAINTENANCE OF BORROWING BASE; PAYMENTS; SERVICING AND COLLECTION
5.1 The Loan shall be evidenced by the Note and shall be repaid
according to the terms thereof and such provisions of this Agreement as are
applicable. Payments of the Loan and Note shall be made in immediately
available funds.
5.2 Subject to Borrower's rights pursuant to paragraph 3.2 hereof, if
for any reason the aggregate principal amount of the Loan outstanding at any
time shall exceed the then Borrowing Base, Borrower, without notice or demand,
will immediately make to Lender a principal payment in an amount equal to such
excess plus accrued and unpaid interest thereon.
5.3 Except as provided herein and in the Note, Borrower will not be
entitled to prepay, in whole or in part, the Loan until the Opening Prepayment
Date. Thereafter, if (a) neither an Event of Default nor an act or event that,
with notice or lapse of time or both, would constitute an Event of Default, has
occurred and is continuing, (b) Borrower has paid all sums due and payable to
Lender in connection with the Loan, and (c) Borrower has given Lender at least
60 days prior written notice of the prepayment and paid to Lender at the time
of prepayment a prepayment premium equal to a percentage, determined as set
forth in Schedule A attached hereto, of the then principal balance of the Loan,
then Borrower shall have the option to prepay the Loan in full, but not in
part, on any date an Installment is due on the Note. If there should occur a
casualty to or condemnation of the Project or an acceleration of maturity
following an Event of Default and such occurrence results in prepayment of the
Loan, a prepayment premium will be required in the amount specified above; or
if occurring prior to the Opening Prepayment Date, Borrower will pay to Lender
with the prepayment a prepayment premium equal to a percentage, determined as
set forth in Schedule A hereto, of the then principal balance of the Loan being
prepaid.
5.4 (a) Collection Agent, as agent for Lender, shall collect payments
on the Eligible Instruments used in making Borrowing Base computations or
otherwise constituting part of the Receivables Collateral and remit them to
Lender on Wednesday of each and every week according to the terms of the Lock
Box Agreement. However, the obligation to make or any requirement that Lender
receive, payments called for in the Documents will not be deemed satisfied
until Lender actually receives such payments from Collection Agent. For the
purpose of determining the adequacy of such payments, Borrower will cause
Collection Agent to furnish to Lender at Borrowers' sole cost and expense, no
later than the 10th day of each month commencing with the first full Calendar
month following the date hereof, a report meeting the following requirements:
(i) shows as of the end of the prior month with respect to each
Instrument which is used in making Borrowing Base computations or
otherwise constitutes part of the Receivables Collateral (A) all
payments received during the prior month on the Instrument,
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allocated as between principal, interest, late charges, taxes,
and the like, (B) the opening and closing balances during the prior
month on each such Instrument, (C) the present value of the cash flow
calculated in accordance with paragraph 1.6(b), above, and (D)
extensions, refinances, prepayments, and other similar adjustments and
(ii) itemizes the Instruments which are used in making Borrowing Base
computations or otherwise constitute part of the Receivables
Collateral to show delinquencies of 30. 60. 90 and in excess of 90
days addition, at the end of each calendar quarter, Borrower shall
deliver, or cause to be delivered to Lender a current list of names
and addresses of the Purchasers related to the Instruments comprising
the Receivables Collateral. On the basis of such reports, Lender will
compute the amount, if any, which was due and payable by Borrower on
the last day of the preceding month and will notify Borrower as soon
as possible of any amount due. If such reports are not timely
received, Lender may estimate the amount which was due and payable;
and, in such event, Borrower will pay upon demand the amount estimated
by Lender to be due and payable. If payment is made on the basis of
Lender's estimate and thereafter reports required by this paragraph
are received by Lender, the estimated payment amount shall be adjusted
by an additional payment or a refund to the correct amount, as the
reports may indicate; such additional amount to be paid by Borrower
upon demand and such refund to be made by Lender within 5 business
days after receipt of written request there for by Borrower.
(b) Lender, subject to any restriction thereon contained in the
Servicing Agreement, may at any time and from time to time in its discretion
substitute a successor or successors to any servicing Agent acting under the
Servicing Agreement if the Servicing Agent is not in Performance of its
Obligations thereunder.
5.5 Subject to Lender's rights under Article VII hereof, all proceeds
from the Receivables Collateral (except payments which are identified by
Purchasers as tax and insurance impounds or maintenance and other assessment
payments and are required to be so treated by Borrower) during the Term hereof
shall be applied first to the payment of all costs, fees and expenses required
by the Documents to be paid by Borrower, second to accrued and unpaid interest
due on the Note, third to the unpaid principal balance of the Note, and then to
the other Obligations in such order and manner as Lender may determine. Unless
and until all the Obligations have been Performed, Borrower shall have no right
to any portion of the proceeds of the Receivables Collateral.
5.6 Whether or not the proceeds from the Receivables Collateral shall
be sufficient for that purpose, Borrower will pay when due all payments
required to be made Pursuant to the Note or the other Documents; and any and
all amounts payable by Borrower under the Note or the other Documents shall be
paid without notice (except as otherwise expressly provided therein), demand,
counterclaim, set-off, deduction, recoupment or defense, and without abatement,
suspension, deferment, diminution or pro ration by reason of any circumstance
or occurrence whatsoever, Borrower's Obligation to make such payments being
absolute and unconditional.
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5.7 All payments to be made by Borrower under the Documents will be
free of expense to Lender with respect to the amount of any Impositions, all of
which Impositions Borrower assumes and will pay on demand in addition to the
other payments provided for in the Documents to be made by it. Borrower's
Obligation to pay Impositions shall likewise include the Obligation to pay any
increase to Lender in federal, state, or local income tax as a result of
inclusion in income of Lender of any amount required by this paragraph to be
paid to or for Lender. Notwithstanding the above, Borrower shall in no event be
required to pay income taxes owed by Lender resulting from interest payments
made on the Note.
VI . BORROWER' S ADDITIONAL REPRESENTATIONS . WARRANTIES AND COVENANTS
6.1 (a) Borrower is, and will be, duly organized, validly existing and
in good standing as a corporation under the laws of the State of Delaware.
Borrower also is, and will be, qualified to do business and in good standing in
the state of Vermont. Borrower has, and will have, powers adequate for making
and Performing under the Documents, for undertaking and Performing the
Obligations, and for carrying on its business and owning its property.
(b) Borrower has good right and power to grant the Security Interest in
the Receivables Collateral and to execute and deliver this Agreement and the
other Documents and to Perform the Obligations. All action necessary and
required by Borrower's governance documents and all applicable laws for the
obtaining of the Loan and for the execution and delivery of this Agreement and
all other Documents executed and delivered in connection with the Loan has been
duly and effectively taken; and this Agreement is and shall be, and all other
Documents are and shall be, legal, valid, binding and enforceable against
Borrower in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium, or other laws relating to creditors'
rights generally, and do not violate the usury laws of the State of Vermont.
The execution, delivery and Performance of the provisions of this Agreement and
all of the other Documents will not violate, constitute a default under, or
result in the creation or imposition of any lien, charge or encumbrance upon
any of the properties or assets of Borrower pursuant to, the terms of any
provision of: any law, regulation, judgment, decree, order, franchise or permit
applicable to Borrower; Borrower's governance documents; or any contract or
other agreement or instrument to which Borrower is a party or by which Borrower
or Borrower's properties or assets are bound. No consent of any government or
agency thereof, or any other person, firm or entity not a party hereto is or
will be required as a condition to the execution, delivery, Performance or
enforceability of the Documents.
(c) Borrower hereby warrants, represents, and covenants that all of its
Operating Subsidiaries are duly organized, validly existing and in good
standing under the laws of the jurisdictions in which they are selling Parcels
in each of the respective Project,.
6.2 (a) There is no action, litigation or other proceeding pending or,
to Borrower's knowledge, threatened before any arbitration tribunal, court,
governmental agency or administrative body against Borrower, which, if
adversely determined, might adversely affect Lender's ability to
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realize upon the Receivables Collateral or any other security for the
Performance of the Obligations, or materially adversely affect the Project, the
business or financial condition of Borrower, or the ability of Borrower to
complete Performance of the Obligations; or which questions the validity of the
Documents.
(b) If Borrower or Patten becomes a party to any action, litigation or
other proceeding which asserts a material claim against Borrower and/or a
Guarantor, or Borrower becomes the subject of an investigation by a
governmental agency or administrative body with respect to the Project, then
Borrower will within 10 days after it obtains knowledge thereof notify Lender
of such action, litigation, proceeding or investigation and the particulars
thereof. Thereafter, if requested by Lender, Borrower will report to Lender
with respect to the status of such matter and the particulars thereof. For
purposes of this provisions, an action against Patten shall not be deemed
material if it shall involve an amount less than two hundred fifty thousand
dollars ($250,000.00).
6.3 (a) Except for violations which do not individually or in the
aggregate affect Lender's ability to realize upon the Receivables Collateral or
any other security for the Performance of the Obligations or do not materially
adversely affect the business or financial condition of Borrower or the ability
of Borrower to complete Performance of the Obligations, Borrower has complied,
and will comply, with all laws and regulations of the United States, the State,
County, if any, and municipal jurisdiction, in which the Project is located and
each State or other Jurisdiction in which Parcels have been sold or offered for
sale.
(b) Without limiting the generality of any other representation or
warranty contained herein, use and occupancy of the Parcels for residential
purposes will not violate any private covenant or restriction or any zoning,
use or similar law, ordinance or regulation affecting the use or occupancy of
the Project to which such Parcels relate.
6.4 (a) Each Instrument at the time it is assigned to Lender in
connection with the Loan and this Agreement shall be an Eligible Instrument.
Borrower or an Operating Subsidiary has performed all its obligations to
Purchasers, and there are no executory obligations to Purchasers to be
performed by Borrower. Borrower further warrants and guarantees the value and
enforceability of the Receivables Collateral.
(b) Without the prior written consent of Lender, Borrower will not
cancel or materially modify, or consent to or acquiesce in any material
modification to, or solicit the prepayment of any Instrument used in making
Borrowing Base computations or which otherwise constitutes part of the
Receivables Collateral; or waive the timely performance of the obligations of
the Purchaser thereunder. Borrower will not pay or advance directly or
indirectly for the account of any Purchaser any sum owing by the Purchaser
under any of the Instruments used in making Borrowing Base computations or
which otherwise constitute part of the Receivables Collateral.
(c) Assuming the Purchasers are not then in default, Borrower at all
times will fulfill and will cause its affiliates, agents and independent
contractors at all times to fulfill all obligations of any nature
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whatsoever to Purchasers under all Instruments which are used in making
Borrowing Base computations or otherwise constitute part of the Receivables
Collateral.
(d) To the extent Lender may reasonably request from time to time for
due diligence purposes, Borrower shall deliver to Lender or make available to
Lender at Lender's request in connection with a particular Project, true and
complete copies of the Project governing documents, the purchase contract,
deed, advertising materials and other documents and exhibits thereto which have
been and are being used in connection with the Project and the sale or offering
for sale of Parcels located therein. Such documents are the only ones which
have been used in connection with the Project and the sale of Parcels therein.
Borrower, or any of its Operating Subsidiaries, without the prior written
consent of the Lender, will not cancel or materially modify any such documents.
Assuming the Purchasers are not then in default with respect to any of their
obligations to Borrower, Patten or any affiliate of Patten, Borrower shall
cause the relevant Operating Subsidiary to perform all of its obligations under
the Project governing documents.
(e) In any Project with respect to which there exists a Parcel Owners'
Association, each Purchaser is automatically a member of a Parcel owners'
association or associations and is entitled to vote on the affairs thereof.
Each such owners' association is governed by a board of directors, which has
the authority to fix and levy pro rat a upon each Purchaser annual assessments
to cover the costs of maintaining and operating the Project (including, without
limitation, taxes and assessments not levied by the appropriate taxing
authority directly against owners of Parcels) and to establish a reasonable
reserve for capital improvements, the replacement of capital items and
contingencies. To Borrower's knowledge, each owners' association is solvent. If
Borrower controls a Par Cal owners' association, Borrower will while it
controls such association: (i) cause such owners' association to (A) discharge
timely and completely its obligations under the Project governing documents and
(B) maintain the reserve described above; and (ii) pay to such owners'
association not less often than every 12 months hereafter the difference
between (A) the cumulative total amount of the maintenance and operating
expenses incurred by such association, together with the amount of any
installment of real property taxes currently due and payable with respect to
the common areas and other amenities in the Project, through the end of the
calendar month preceding the month in which such payment is made and (B) the
cumulative total amount of assessments (less amounts thereof allocated to
reserve expenses) payable to the association by Parcel owners other than
Borrower through the end of the calendar month preceding the month in which
such payment is made.
(f) Except as otherwise permitted by the Project governing documents
relating to a Project where a Parcel Owners' Association shall exist (i) the
Parcel owners' association(s) own(s) all the common areas in the Project and
other amenities which have been promised or represented as being available to
Purchasers, and (ii) all roads and off-site improvements have been dedicated to
and/or accepted by the responsible governmental authority or utility. Borrower
will maintain or cause to be maintained in good condition and repair all
amenities and common areas which have been promised or represented by the
relevant Operating Subsidiary as being
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available to Purchasers and all roads and off-site improvements which
are the responsibility of the relevant Operating Subsidiary or Patten to
maintain and repair.
6.5 LENDER DOES NOT ASSUME AND SHALL HAVE NO RESPONSIBILITY, OBLIGATION
OR LIABILITY TO PURCHASERS, LENDER' S RELATIONSHIP BEING THAT ONLY OF A
CREDITOR WHO HAS TAKEN, AS SECURITY FOR INDEBTEDNESS OWED TO IT, A COLLATERAL
ASSIGNMENT FROM BORROWER OF INSTRUMENTS. EXCEPT AS REQUIRED BY LAW, BORROWER
WILL NOT, AT ANY TIME, USE THE NAME OF OR MAKE REFERENCE TO LENDER WITH RESPECT
TO A PROJECT, THE SALE OF PARCELS OR OTHERWISE, WITHOUT THE EXPRESS WRITTEN
CONSENT OF LENDER.
6.6 The Servicing Agent will undertake the collection of amounts
delinquent under each Instrument which is used in making Borrowing Base
computations or otherwise constituting part of the Receivables Collateral, will
bear the entire expense of such collection work, and will diligently and timely
do such work respecting collection, including forfeiture or foreclosure
proceedings. Lender shall have no obligation to undertake any collection,
eviction or foreclosure action against the obligor under any Instrument or to
otherwise realize upon any Instrument.
6.7 Borrower will maintain in a secure place in its offices at 646 Main
Road, Stamford, Vermont 05352 proper and accurate books, records, ledgers,
correspondence and other papers relating to the Receivables Collateral. For
"due diligence" purposes, Lender may notify the appropriate Purchasers of the
existence of Lender's interest as assignee in the Receivables Collateral and
request from such Purchasers any information relating to the Receivables
Collateral. Borrower will cooperate with Lender in giving such notice and will
do so under its letterhead if requested.
6.8 Borrower, without the prior written consent of Lender, will not:
(a) sell, convey, pledge, hypothecate, encumber or otherwise transfer (i) any
security for the Performance of the Obligations; or (b) permit or suffer to
exist any liens, security interests or other encumbrances on any security for
the Performance of the Obligations, except for the Permitted Encumbrances and
liens and security interests expressly granted to Lender.
6.9 (a) With respect to Projects where an Owners' Association shall
exist, Borrower will keep or cause to be kept insured against risks of physical
damage the improved common areas in the Project and other amenities which have
been promised or represented as being available to Purchasers for use by them
under policies of "all risks" insurance in an amount not less than the full
insurable value on a replacement cost basis. All such insurance shall be
without cost or expense to Lender and shall provide for 30 days notice to
Lender of cancellation or material change. Borrower will further insure, or
cause to be insured, against such other risks with respect to the Project and
Receivables Collateral as Lender may from time to time reasonably require.
(b) Borrower will use its best efforts to cause fidelity insurance coverage to
be maintained with respect to all persons handling monies belonging to the
Parcel owners' association(s).
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(c) Borrower will maintain such other insurance with respect to its
business and properties as is normally maintained by prudent persons engaged in
similar businesses or owning similar properties similarly situated.
(d) Borrower hereby represents and warrants that none of the Projects
are located within a "special flood hazard" area as such term is used in the
National Flood Insurance Act of 1968, as amended and supplemented by the Flood
Disaster Protection Act of 1973, and in regulations, interpretations and
rulings thereunder.
6.10 (a) This Agreement and the other Documents, certificates,
financial statements and written materials furnished to Lender by or on behalf
of Borrower in connection with the transactions contemplated hereby do not
contain any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements contained herein and therein in
light of the circumstances under which they were made, not misleading. There is
no fact known to Borrower which materially adversely affects or in the future
may (so far as Borrower can reasonably now foresee) materially adversely affect
the Receivables Collateral or any other security for the Performance of the
Obligations or the business or financial condition of Borrower or any Project
which has not been set forth in this Agreement or in the other Documents,
certificates, financial statements or written materials furnished to Lender in
connection with the transactions contemplated hereby.
(b) The fact that Lender's representatives may have made certain
examinations and inspections of or received certain information pertaining to
the Receivables Collateral or any Project and the proposed operation thereof
does not in any way affect or reduce the full scope and protection of the
warranties, representations and Obligations contained herein, which have
induced Lender to enter into this Agreement.
6.11 (a) Borrower will maintain a standard, modern system of accounting
and will keep and maintain all books and records in accordance with generally
accepted accounting principles applied on a consistent basis.
(b) On or before the 10th day of each month, Borrower will furnish or
cause to be furnished to Lender the reports of the Collection Agent and
Servicing Agent and Borrower required pursuant to paragraph 5.4(a) hereof.
(c) Borrower will furnish or cause to be furnished to Lender, as soon
as the same are available, and in any event within 90 days of the end of each
fiscal year and within 45 days of each interim quarterly fiscal period, a copy
of the current financial statements of the Borrower, Patten, and, to the best
efforts of Borrower, and to the extent they are available, the Parcel owners'
association(s). Such financial statements shall contain a balance sheet as of
the end of the relevant fiscal period and statements of income and cash flow
for such fiscal period (together, in each case to the extent applicable, with
the comparable figures for the corresponding period of the previous fiscal
year), all in reasonable detail, prepared in accordance with generally accepted
accounting principles consistently applied throughout the period involved and
with prior periods and, in the case of an audited statement, with generally
accepted auditing standards.
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All financial statements of the Borrower required pursuant hereto shall be
certified to, as the case may be, by the chief financial officer of Borrower or
Patten, as the case may be, Provided that if the statement is an annual
statement and audited financial statements of the subject have previously been
prepared, the statement shall be certified to by a recognized firm of
accountants reasonably satisfactory to Lender. Together with such financial
statements, Borrower will deliver to Lender: (i) if such financial statements
shall have been audited, a certificate from the auditors stating that in making
the examination necessary for the audit they obtained no knowledge of any
default by Borrower in the Performance of any of the Obligations, or if they
shall have obtained knowledge of any such default, specifying the same; and
(ii) a certificate signed by the chief financial officer of Borrower stating
that there exists no Event of Default and no condition, event or act, which
with notice or lapse of time or both, would become an Event of Default or, if
any such Event of Default or any such condition, event or act exists,
specifying the nature and period of existence thereof and what action Borrower
proposes to take with respect thereto.
Notwithstanding anything herein to the contrary, so long as there
exists no Event of Default, the financial statements of Patten and Borrower
need only be prepared in accordance with the standards of the financial
statements previously submitted to and accepted by Lender.
(d) For "due diligence" purposes with respect to any particular
Project, Borrower will deliver to Lender, upon Lender's request and as
available, and properly upon amendment or effective date, current Parcel price
lists, sales literature, registrations/consents to sell, final subdivisions
public reports/public offering statements/prospectuses, and other items
requested by Lender which relate to the Project.
(e) So long as the same shall be pertinent to the Loan, any Project,
the Documents or any transactions contemplated therein, Borrower will at its
expense (i) permit Lender and its representatives at all reasonable times to
inspect, audit and copy, as appropriate, the Project, Borrower's facilities,
activities, books of account, logs and records, (ii) cause its employees,
agents and accountants to give their full cooperation and assistance in
connection with any such visits of inspection or financial conferences and
(iii) make available such further information concerning its business and
affairs as Lender may from time to time reasonably request.
(f) For "due diligence" purposes with respect to a Project where an
Owners' Association shall exist, Borrower will use its best efforts to submit
to Lender proposed annual maintenance and operating budgets of the Parcel
owners' association(s), certified to be adequate by the managing agent for such
association(s) and a statement of the annual assessment to be levied upon the
Purchasers; and will use its best efforts to cause to be made available to
Lender for inspection, auditing and copying, to the extent Lender may
reasonably request there for, the books of account, logs and records of the
Parcel owners' association(s).
6.12 Borrower will not, without Lender's prior written consent: (a)
sell, lease, transfer or dispose of its all or substantially all of its assets
to another entity; or (b) consolidate with or merge into another
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entity, permit any other entity to merge into it or consolidate with
it, or permit any transfer of the ownership of, or power to control, Borrower.
6.13 Borrower is not in default of any payment on account of
indebtedness for borrowed money or of any repurchase obligations in connection
with a receivables purchase financing, or in violation of or in default under
any material term in any agreement, instrument, order, decree or judgment of
any court, arbitration or governmental authority to which it is a party or by
which it is bound.
6.14 Borrower has filed all tax returns and paid all taxes,
assessments, levies and penalties, if any, in respect thereof required to be
filed by it or paid by it to any governmental or quasi-governmental authority
or subdivision.
6.15 Borrower will pay to Lender at closing but in any event prior to
the end of the Borrowing Term, a non-refundable commitment fee in the amount
provided of Twenty-Five Thousand and No/100 Dollars ($25,000.00). Borrower will
pay on demand any and all out-of-pocket costs and expenses incurred or to be
incurred by Lender in connection with the initiation, documentation and closing
of the Loan, the making of Advances hereunder, the protection of the security
for the Performance of the Obligations, or the enforcement of the Obligations
against Borrower or Guarantor, including, without limitation, travel costs,
reasonable attorneys' fees, all filing and recording fees, all charges for
consumer credit reports, all revenue and documentary stamp and intangible
taxes, and all fees and expenses of Servicing Agent to perform the services
contemplated hereunder and under the terms of the Servicing Agreement.
6.16 Borrower wiU INDEMNIFY, SAVE AND HOLD HARMLESS, and defend Lender,
its successors, assigns and shareholders (including corporate shareholders),
and the directors, officers, employees, agents and servants of the foregoing,
from any and all losses, costs, expenses (including, without limitation, court
costs and attorneys' fees), demands, claims, suits, proceedings (whether civil
or criminal), orders, judgments, penalties, fines and other sanctions arising
from or brought in connection with (a) the Project, the security for the
Performance of the Obligations, Lender's status by virtue of the Assignments,
creation of Security Interests, the terms of the Documents or the transactions
related thereto, or any act or omission of Borrower or Servicing Agent, or the
employees or agents of either of them, whether actual or alleged, and (b) any
and all brokers' commissions or finders' fees or other costs of similar type,
or claims by any broker, agent or other party in connection with this
transaction. on written request by a person or other entity covered by the
above agreement of indemnity, Borrower will undertake, at its own cost and
expense, on behalf of such indemnitee, using counsel reasonably satisfactory to
the indemnitee, the defense of any legal action or proceeding to which such
person or entity shall be a party, provided that such action or proceeding
shall result from, or grow or arise out of any of the events set forth in this
paragraph.
6.17 (a) Neither the Borrower nor, to the best knowledge of the
Borrower, any other person or entity has ever caused or permitted any Hazardous
Material to be placed, held, located or disposed of on, under or at the Project
or any part thereof or into the atmosphere or any
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<PAGE> 19
watercourse, body of water or wetlands or any other real property
legally or beneficially owned (or any interest or estate in which is owned) by
the Borrower (including, without limitation, any property owned by a land trust
the beneficial interest in which is owned, in whole or in part, by the
Borrower), and neither the Project, any part thereof, nor any other real
property legally or beneficially owned (or any interest or estate in which is
owned by the Borrower (including, without limitation, any property owned by a
land trust the beneficial interest in which is owned, in whole or in part, by
the Borrower) has ever been used (whether by the Borrower or, to the best
knowledge of the Borrower, by any other person) as a treatment, storage or
disposal (whether permanent or temporary) site for any Hazardous Material. For
purposes of this Agreement, "Hazardous Material" means and includes any
hazardous substance or any pollutant or contaminant defined as such in (or for
purposes of) the Comprehensive Environmental Response, Compensation, and
Liability Act, any so-called "Super fund" or "Super lien" law, the Toxic
Substance Control Act, or any other Federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree, regulating, relating to, or
imposing liability or standards of conduct concerning, any hazardous, toxic or
dangerous waste, substance or material, as now or at any time hereafter in
effect, asbestos or any substance or compound containing asbestos, or any other
hazardous, toxic or dangerous, waste, substance or material.
(b) Borrower will not place, hold, locate or dispose of on, under or at
the Project or any part thereof or into the atmosphere or any watercourse, body
of water or wetlands or any other real property legally or beneficially owned
(or any interest or estate in which is owned) by the Borrower (including
without limitation, any property owned by a land trust the beneficial interest
in which is owned, in whole or in part, by the Borrower) any Hazardous
Material. Nor will Borrower permit or cause any other person to do any of the
aforesaid.
(c) Borrower hereby indemnifies the Lender and agrees to hold the
Lender harmless from and against any and all losses, liabilities, damages,
injuries, costs, expenses and claims of any and every kind whatsoever,
including reasonable attorneys' fees, paid, incurred or suffered by, or
asserted against, the Lender for, with respect to, or as a direct or indirect
result of, the presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission, discharging or release from, the Project or into or upon
the land, the atmosphere, or any watercourse, body of water or wetland of any
Hazardous Material (including, without limitation, any losses, liabilities,
damages, injuries, costs, expenses or claims asserted or arising under the
Comprehensive Environmental Response, Compensation and Liability Act, any
so-called "Super fund" or "Super lien" law, or any other Federal, state or
local statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to or imposing liability or standards of conduct
concerning any Hazardous Material) .
6.18 Borrower will not directly or indirectly invest all or any part of
the proceeds of the Loan in any investment security subject to the margin
requirements of Regulation "G".
6.19 Borrower will execute or cause to be executed all documents and do
or cause to be done all acts necessary for Lender to perfect and to
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<PAGE> 20
continue the perfection of the Security Interest of Lender in the Receivables
Collateral or the other security for the Performance of the Obligations or
otherwise to effect the intent and purposes of the Documents. Borrower will
prosecute or defend any action involving the priority, validity or
enforceability of the Security Interest granted to Lender; provided that, at
Lender's option, Lender may do so at Borrower's expense.
6.20 Borrower is fully familiar with all of the terms and conditions of
the Documents and is not in default thereunder. No act or event has occurred
which after notice and/or lapse of time would constitute such a default or an
Event of Default.
6.21 The representations, warranties and covenants contained in this
Article VI are in addition to, and not in derogation of, the representations
and warranties elsewhere contained herein and in the other Documents .
6.22 The representations and warranties contained in this Agreement are
continuing and shall be deemed to be made and reaffirmed prior to the making of
each Advance under this Agreement.
VII. DEFAULT
7.1 The occurrence of any of the following events or conditions shall
constitute an Event of Default by Borrower under the Documents:
(a) Lender fails to receive from Borrower when due and payable (i) any
amount that Borrower is obliged to pay on the Note or (ii) any other payment
due under the Documents; and such failure shall continue for 5 days after
notice thereof to Borrower, except for the payment of the final Installment due
at the Maturity Date for which no grace period is allowed;
(b) any representation or warranty of Borrower contained in the
Documents or in any certificate furnished under the Documents proves to be, in
any material respect, false or misleading as of the date deemed made;
(c) there is a default in the Performance of the Obligations set forth
in paragraphs 3.2, 6.8(a), or 6.12 hereof;
(d) there is a default in the Performance of the Obligations or a
violation of any term, covenant or provision of the Documents (other than a
default or violation referred to elsewhere in this paragraph 7.1) and such
default or Violation continues unremedied (i) for a period of 5 days after
notice thereof to Borrower in the case of a default under or violation of
paragraphs 6.8(b) or 6.9 hereof or any other default or violation which can be
cured by the payment of money alone or (ii) for a period of 30 days after
notice to Borrower in the case of any other default or violation;
(e) Patten fails to maintain marketing and sales cost (i.e., lead
generation, direct selling, and sales administration) at a level not to exceed
forty-five percent (45%) of net sales of Parcels.
(f) an "Event of Default", as defined elsewhere herein or in any of the
other Documents, occurs, or an act or event occurs under any of the
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<PAGE> 21
Documents, whether or not denominated as an "Event of Default", which
expressly entitles Lender to accelerate any of the Obligations and/or exercise
its other remedies upon the occurrence of an Event of Default hereunder;
(g) any material default by Borrower under any other agreement
evidencing, guaranteeing, or securing borrowed money or a receivables purchase
financing has occurred permitting the acceleration of such indebtedness or
repurchase obligations, which accelerated repayment or repurchase obligations
are in excess of $100,000.00 in the aggregate;
(h) any final, non-appealable judgment or decree for money damages or
for a fine or penalty against Borrower which is not paid and discharged or
stayed within 30 days thereafter and when aggregated with all other judgment(s)
or decree(s) that have remained unpaid and undischarged or stayed for such
period is in excess of $50,000.00;
(i) any party holding a lien or security interest in the Receivables
Collateral or any other security for the Performance of the Obligations
commences foreclosure or similar sale thereof;
(j) (i) Borrower or Patten becomes insolvent or unable to pay its debts
when due; generally fails to pay its debts when due; files a petition in any
bankruptcy, reorganization, winding-up or liquidation proceeding or other
proceeding analogous in purpose or effect relating to such entity; applies for
or consents to the appointment of a receiver, trustee or other custodian for
the bankruptcy, reorganization, winding-up or liquidation of such entity; makes
an assignment for the benefit of creditors; or admits in writing that it is
unable to pay its debts; (ii) any court order or judgment is entered confirming
the bankruptcy or insolvency of Borrower or Patten or approving any
reorganization, winding-up or liquidation of such entity or a substantial
portion of its assets; (iii) there is instituted against Borrower or Patten any
bankruptcy, reorganization, winding up or liquidation proceeding or other
proceeding analogous in purpose or effect and the same is not dismissed within
60 days after the institution thereof; or (iv) a receiver, trustee or other
custodian is appointed for any part of the Receivables Collateral or the
Project or all or a substantial portion of the assets of Borrower or Patten;
(k) performance by Borrower or Patten of any material obligation under
any Document or Guarantee, as the case may be, is rendered unenforceable in any
material respect, or Patten repudiates, rescinds, limits or annuls its
Guarantee; or
(l) there occurs a material adverse change in any Project in the
business or financial condition of Borrower or Patten or in the Receivables
Collateral or any other security for the Performance of the Obligations, which
change is not enumerated in this paragraph 7.1 and as the result of which
Lender in good faith deems the prospect of Performance of the Obligations
impaired or its security there for imperiled.
(m) there is a default under any of the documents by and between
Greyhound Real Estate Finance Company as Lender and Yellowstone Basin
Properties, Inc. as Borrower under that certain Loan and Security
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<PAGE> 22
Agreement dated January 3, 1983, or any amendments or modifications thereto.
7.2 At any time after an Event of Default has occurred and while it is
continuing, Lender may, but without obligation, do any one or more of the
following:
(a) cease to make further Advances;
(b) declare the Note, together with prepayment premiums and all other
sums owing by Borrower to Lender in connection with the Documents, immediately
due and payable without notice, presentment, demand or protest, which are
hereby waived by Borrower (to the extent it may lawfully do so);
(c) with respect to the Receivables Collateral, (i) institute
collection actions against Purchasers and other persons obligated thereon (to
the extent they are then in default), (ii) enter into modification agreements
and make extension agreements with respect to payments and other performances,
(iii) release persons liable for the payment and performance thereof or the
securities for such payment and performance, and (iv) settle and compromise
disputes with respect to payments and performances claimed due thereon, all
without notice to Borrower, without being called to account there for by
Borrower and without relieving Borrower from Performance of the Obligations;
and
(d) proceed to protect and enforce its rights and remedies under this
Agreement or any other Documents and to foreclose or otherwise realize upon its
security for the Performance of the Obligations, or to exercise any other
rights and remedies available to it at law, in equity or by statute.
The rights and powers granted pursuant to this paragraph are not intended to
limit the rights and powers granted elsewhere herein.
7.3 Notwithstanding anything in the Documents to the contrary, while an
Event of Default exists, any cash received and retained by Lender in connection
with the Receivables Collateral shall be applied to payment of the Obligations
in the manner provided in paragraph 7.5 hereof.
7.4 (a) Pursuant to its option under paragraph 7.2 hereof following an
Event of Default, and subject to the terms and conditions hereof, Lender may
sell, assign and deliver the Receivables Collateral, or any part thereof, at
public or private sale, conducted in a commercially reasonable manner by any
officer, or agent of, or auctioneer or attorney for, Lender at Lender's place
of business or elsewhere, for cash, upon credit or future delivery, and at such
price or prices as Lender shall reasonably determine, and Lender may be the
purchaser of any or all of the Receivables Collateral so sold. Lender may, in
its reasonable discretion, at any such sale, restrict the prospective bidders
or purchasers as to number, nature of business and investment intention, and,
without limitation, may require that the persons making such purchases
represent and agree to the satisfaction of Lender that they are purchasing the
Receivables Collateral for their account, for investment, and not with a view
to the distribution or resale of any thereof. Lender shall have no obligation
to delay sale of
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<PAGE> 23
any Receivables Collateral for the period of time necessary to permit
such Receivables Collateral to be registered for public sale under the
Securities Act of 1933, as amended, and any applicable state securities laws.
Private sales made without registration shall not be deemed to have been made
in a commercially unreasonable manner by virtue of any terms less favorable to
the seller resulting from the private nature of such sales.
(b) Without prejudice to the right of Lender to make such sale within
such shorter period as may be reasonable under the circumstances, foreclosure
sale of all or any part of the Receivables Collateral shall be deemed held
pursuant to reasonable notice if held:
(i) 45 days after notice is given, based upon default
consisting of insolvency, bankruptcy or other default of a nature
which cannot be corrected by Borrower, or default for which no grace
period is specified herein; or
(ii) 60 days after notice of any other act, circumstance or
event which, if uncorrected, after expiration of any applicable grace
period, shall constitute a default hereunder.
Where any notice to Borrower and grace period thereafter is required under this
Agreement, such grace period shall be deducted from the 60 day notice of
foreclosure sale specified in item (ii) above, so that the maximum period
between notice to Borrower of an act, circumstance or event which, if
uncorrected after elapse of any applicable grace period, would constitute an
Event of Default and the foreclosure sale of the Receivables Collateral based
upon such Event of Default shall in no event be required to exceed 60 days.
(c) At any sale following an Event of Default, the Receivables
Collateral may be sold as an entirety or in partial interests. Lender shall not
be obligated to make any sale pursuant to any notice previously given. In case
of any sale of all or any part of the Receivables Collateral on credit or for
future delivery, the Receivables Collateral so sold may be retained by Lender
until the selling price is paid by the purchaser thereof, but Lender shall not
incur any liability in case of the failure of such purchaser to take up and pay
for the collateral so sold; and in case of any such failure, such Receivables
Collateral may again be sold under and pursuant to and in compliance with the
provisions hereof.
(d) In connection with sales made following an Event of Default, Lender
may, in the name and stead of Borrrower or in its own name, make and execute
all conveyances, assignments and transfers of the Receivables Collateral sold
pursuant to this Agreement; and Lender is hereby appointed Borrower's
attorney-in-fact for this purpose. Nevertheless, Borrower will, if so requested
by Lender, ratify and confirm any sale or sales by executing and delivering to
Lender, or to such purchaser or purchasers, all such instruments as may, in the
judgment of Lender, be advisable for that purpose.
(e) The receipt by Lender of the purchase money paid at any sale made
following an Event of Default shall be a sufficient discharge there for to any
purchaser of the Receivables Collateral or any portion thereof, and
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<PAGE> 24
no such purchaser, after paying such purchase money and receiving such
receipt, shall be bound to see to the application of such purchase money or any
part thereof or in any manner whatsoever be answerable for any loss,
misapplication or nonapplication of any such purchase money, or any part
thereof, or be bound to inquire as to the authorization, necessity, expediency
or regularity of any such sale.
(f) Each purchaser at any sale following an Event of Default shall hold
the Receivables Collateral so sold absolutely free from every claim or right of
Borrower, including, without limitation, any equity or right of redemption of
Borrower, which Borrower hereby specifically waives to the extent Borrower may
lawfully do so. Lender, its employees and agents shall after such sale be fully
discharged from any liability or responsibility in any matter relating to the
Receivables Collateral and such other security that is sold and resulting from
any action or inaction on the part of such purchaser or any
successor-in-interest of such purchaser.
7.5 The proceeds of any sale of all or any part of the Receivables
Collateral shall be applied in the following order or priorities: first, to the
payment of all costs and expenses of such sale, including, without limitation,
reasonable compensation to Lender and its agents, attorneys' fees, and all
other expenses, liabilities and advances incurred or made by Lender, its agents
and attorneys, in connection with such sale, and any other unreimbursed
expenses for which Lender may be reimbursed pursuant to the Documents; second,
to the payment of the Obligations, in such order and manner as Lender shall in
its discretion determine, with no amounts applied to payment of principal until
all Interest has been paid; and third, to the payment to Borrower, its
successors or assigns, or to whosoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct, of any surplus then
remaining from such proceeds.
7.6 Lender may, at its option, and without any obligation to do so,
pay, perform and discharge any and all amounts, costs, expenses and liabilities
herein agreed to be paid or performed by Borrower if Borrower fails to do so;
and for such purposes Lender may use the proceeds of the Receivables Collateral
and is hereby appointed Borrower's attorney-in-fact. All amounts expended by
Lender in so doing or in exercising its remedies hereunder following an Event
of Default shall become part of the Obligations secured hereby, shall be
immediately due and payable by Borrower to Lender upon demand there for, and
shall bear interest at the overdue Rate from the dates of such expenditures
until paid. Exercise by Lender of its option under this paragraph will not cure
any default of Borrower.
7.7 No remedy herein or in any other Document conferred on or reserved
to Lender is intended to be exclusive of any other remedy or remedies, but each
and every such remedy shall be cumulative and shall be in addition to every
other remedy given hereunder, under any other Document or now or hereafter
existing at law or in equity. Notwithstanding anything herein to the contrary,
in any non-judicial, public or private sale or sales under the Uniform
Commercial Code or in any judicial foreclosure and sale of the Receivables
Collateral, the Receivables Collateral may be sold in any manner whatsoever not
prohibited
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<PAGE> 25
by law. No delay or omission to exercise any right or power shall be
construed to be a waiver of any default or acquiescence therein or a waiver of
any right or power; and every such right and power may be exercised from time
to time and as often as may be deemed expedient. Lender's acceptance of any
performance due hereunder which does not comply strictly with the terms hereof
shall not be deemed to be a waiver of any right of Lender to strict Performance
by Borrower. Acceptance of past due amounts or partial payments shall not
constitute a waiver of full and timely payment of the Obligations. No Event of
Default, declaration of the unpaid principal of the Loan to be immediately due
and payable or exercise of any other right or remedy upon default shall stay,
waive, or otherwise affect Lender's right to receive payments on and other
proceeds of the Receivables Collateral.
7.8 Borrower, for itself and for all who may claim through or under it,
hereby expressly waives and releases (to the extent legally permitted) all
right to have the Receivables Collateral or any other security for the
Performance of the Obligations, or any part thereof, marshalled on any
foreclosure, sale or other enforcement hereof.
7.9 While an Event of Default exists, Borrower will, on the request of
Lender, assemble the Receivables Collateral not already in Lender's possession
and make it available to Lender at a time and place reasonably convenient to
Lender.
VIII. CONSTRUCTION AND GENERAL TERMS
8.1 All moneys payable hereunder or under the Documents shall be paid
to Lender at its address set forth after is signature on the signature page
hereof, unless otherwise designated in the Documents or by Lender by notice.
8.2 This Agreement and the other Documents exclusively and completely
state the rights and obligations of Lender and Borrower with respect to the
Loan. No modification, variation, termination, discharge or abandonment hereof
and no waiver of any of the provisions or conditions shall be valid unless in
writing and signed by duly authorized representatives of Lender and Borrower or
the successor, transferees or assigns of either, subject, however, to the
limitations on assignment herein by Borrower. This Agreement supersedes any and
all prior representations, warranties and/or inducements, written or oral,
heretofore made by Lender (other than in the other Documents) concerning this
transaction, including any commitment for financing, which are null and void
and of no force or effect whatsoever.
8.3 The powers and agency hereby granted by Borrower are coupled with
an interest and are irrevocable and are granted as cumulative to the remedies
for collection of the indebtedness secured hereby provided by law.
8.4 This Agreement may be executed simultaneously in any number of
identical copies each of which shall constitute an original for all purposes.
8.5 Any notice required or permitted to be given hereunder shall be in
writing and shall be (a) personally delivered to the party being
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<PAGE> 26
notified if an individual or to an officer of such party, or (b)
transmitted by postage prepaid, certified or registered mail to such party at
its address after its signature on the signature page hereof or such other
address as the party being notified may have otherwise designated in a notice
given as provided in this paragraph. Such notice shall be deemed to be
effective, unless actual receipt is expressly elsewhere specified herein, upon
(x) the date of receipt or (y) the date 3 business days after posting if
transmitted by mail, whichever shall first occur.
8.6 All the covenants, promises, stipulations and agreements of
Borrower and all the rights and remedies of the Lender in this Agreement
contained shall bind Borrower, and, subject to the restrictions on merger,
consolidation and assignment herein contained, its successors and assigns, and
shall inure to the benefit of Lender, its successors and assigns, whether so
expressed or not. Borrower may not assign its rights herein in whole or in
part. Except as may be expressly provided herein, no person or other entity
shall be deemed a third party beneficiary of this Agreement.
8.7 Subject to the provisions of Article VII hereof, if any one or more
of the provisions contained in this Agreement shall be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
8.8 Time is of the essence in the Performance of the Obligations.
8.9 All headings are inserted for convenience only and shall not affect
any construction or interpretation of this Agreement. The provisions of this
Agreement shall apply to the parties according to the context hereof and
without regard to the number or gender of swords and expressions used herein.
Unless otherwise indicated, all references herein to clauses and other
subdivisions refer to the corresponding paragraphs, clauses and other
subdivisions of this Agreement; the words 'herein", "hereof", "hereto",
"hereunder" and words of similar import refer to this Agreement as a whole and
not to any particular paragraph, clause or other subdivision hereof; and
reference to a numbered or lettered subdivision of an Article, or paragraph
shall include relevant matter within the Article or paragraph which is
applicable to but not within such numbered or lettered subdivision.
8.10 This Agreement has been executed and delivered in the State of
Arizona. The provisions of this Agreement and all rights and obligations of the
parties hereunder shall be governed by and construed in accordance with the
internal laws of the State of Arizona and to the extent they preempt such laws,
the laws of the United States; Provided that if any covenant, agreement or
waiver on the part of Borrower or right or remedy of Lender shall be invalid or
unenforceable under such laws but would be valid and enforceable under the
internal laws of the State of Vermont, then ihe internal laws of such State
shaU apply. Borrower (a) hereby irrevocably submits itself to the process,
jurisdiction and venue of the courts of the State of Arizona, Maricopa County,
and to the process, jurisdiction, and venue of the United States District Court
for Arizona, for the purposes of suit, action or other proceedings arising out
of or relating to this Agreement or the subject matter, hereof brought by
Lender and (b) without limiting the generality of the foregoing, hereby waives
and
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agrees (to the extent it may lawfully do so) not to assert by way of
motion, defense or otherwise in any such suit, action or proceeding any claim
that Borrower is not personally subject to the jurisdiction of the above-named
courts, that such suit, action or proceeding is brought in an inconvenient
forum or that the venue of such suit, action or proceeding is improper.
8.11 It is the intent of the parties hereto to comply with the
Applicable Usury Law. Accordingly, notwithstanding any provisions to the
contrary in this Agreement or in any of the other Documents in no event shall
this Agreement or the Documents require the payment or permit the collection of
interest in excess of the maximum contract rate permitted by the Applicable
Usury Law. If (a) any such excess of interest otherwise would be contracted
for, charged or received from Borrower or otherwise in connection with the
Obligations or (b) the maturity of the Obligations is accelerated in whole or
in part, or (c) all or part of the principal or interest of the Obligations
shall be prepaid, so that under any of such circumstances the amount of
interest contracted for, charged or received in connection with the Obligations
would exceed the maximum contract rate permitted by the Applicable Usury Law,
then in any such event (1) the provisions of this paragraph shall govern and
control, (2) neither Borrower nor any other person or entity now or hereafter
liable for the payment hereof will be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum contract rate
permitted by the Applicable Usury Law, (3) any such excess which may have been
collected shall be either applied as a credit against the then unpaid principal
amount of the Obligations of Borrower or refunded to Borrower, at Lender's
option, and (4) the effective rate of interest will be automatically reduced to
the maximum contract rate permitted by the Applicable Usury Law. Without
limiting the generality of the foregoing, to the extent permitted by the
Applicable Usury Law: (x) all calculations of the rate of interest which are
made for the purpose of determining whether such rate would exceed the maximum
contract rate permitted by the Applicable Usury Law shall be made by
amortizing, prorating, allocating and spreading during the period of the full
stated term of the Obligations, all interest at any time contracted for,
charged or received from Borrower or otherwise in connection with the
Obligations; and (y) in the event that the effective rate of interest on the
Obligations should at any time exceed the maximum contract rate permitted by
the Applicable Usury Law, such excess interest that would otherwise have been
collected had there been no ceiling imposed by the Applicable Usury Law shall
be paid to Lender from time to time, if and when the effective interest rate on
the Obligations otherwise falls below the maximum contract rate permitted by
the Applicable Usury Law, to the extent that interest paid to the date of
calculation does not exceed the maximum contract rate permitted by the
Applicable Usury Law, until the entire amount of interest which would have
otherwise been collected had there been no ceiling imposed by the Applicable
Usury Law has been paid in full. Should the maximum contract rate permitted by
the Applicable Usury Law be increased at any time hereafter because of a Change
in tne law, then to the extent not prohibited by the Applicable Usury Law, such
increases shall apply to all Obligations regardless of when incurred; but,
again to the extent not prohibited by the Applicable Usury Law, should the
maximum contract rate permitted by the Applicable Usury Law be decreased
because of a change in the law, such decreases shall not apply to the
27
<PAGE> 28
Obligations regardless if resulting from an advance of the Loan made after the
effective date of such decrease.
IX. SPECIAL PROVISIONS
9.1 Borrower shall not be required to deliver to Lender policies of
title insurance with respect to Purchaser Mortgages arising upon the sale of
real property in the state of New York; provided however that at no time during
the term of the Loan shaU such uninsured Purchaser Mortgages arising from the
sale of real property in the state of New York comprise more than twenty-five
percent (25%) of the outstanding balance of the Eligible Instruments.
9.2 Patten shaU maintain tangible net worth (i.e., exclusive of
goodwill) of at least $75,000,000.00) and such failure to maintain the stated
net worth shall, at the option of Lender, be an Event of Default under this
Agreement and the Documents.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their respective names, personally or by their duly authorized
representatives, all as of the ______day of _________________________, 1989.
PATTEN RECEIVABLES FINANCE GREYHOUND REAL ESTATE
CORPORATION VI, FINANCE COMPANY,
"Borrower" "Lender"
By:/s/ Jeffery Lavin By:
----------------------------- -----------------------------
Its: Vice President Vice President
-------------------------
ATTEST:
By: By:
----------------------------- -----------------------------
Its: Attorney
-------------------------
Address: Address:
- - - ----------------------------- Greyhound Tower, #1001
- - - ----------------------------- Phoenix, Arizona 85077
- - - ----------------------------- (Attn: Manager, Administration)
28
<PAGE> 1
EXHIBIT 10.84
PATTEN CORPORATION REMIC TRUST, SERIES 1994-1
Issuer,
PATTEN CORPORATION
Individually
and as
Servicer,
PATTEN RECEIVABLES FINANCE CORPORATION IX
Depositor
and
FIRST TRUST NATIONAL ASSOCIATION
Trustee
__________________________
POOLING AND SERVICING AGREEMENT
Dated as of April 15, 1994
__________________________
Adjustable Rate REMIC Mortgage Pass-Through Certificates,
Class A, Class B, Class C and Class R
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Section Page
- - - ------- ----
ARTICLE I
DEFINITIONS
ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
<S> <C> <C>
Section 2.1 Conveyance of Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.2 Acceptance by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.3 Representations and Warranties of Patten . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.4 Execution, Countersignature and Delivery of Certificates . . . . . . . . . . . . . . . . . . . . . 44
ARTICLE III
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 3.1 Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 3.2 Collection of Certain Mortgage Loan Payments; Collection Account; Certificate Account . . . . . . 46
Section 3.3 Collection of Taxes, Assessments and Other Items . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 3.4 Permitted Withdrawals from the Collection Account . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 3.5 Maintenance of Hazard Insurance; Property Protection Expenses . . . . . . . . . . . . . . . . . . 51
Section 3.6 Assumption and Modification Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 3.7 Realization upon Defaulted Mortgage Loans; Title and Management of REO Property . . . . . . . . . 52
Section 3.8 Trustee to Cooperate; Release of Mortgage Documents . . . . . . . . . . . . . . . . . . . . . . . 54
Section 3.9 Servicing Compensation; Payment of Certain Expenses by the Servicer . . . . . . . . . . . . . . . 54
Section 3.10 Annual Statement as to Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 3.11 Annual Independent Public Accountant's Servicing Report . . . . . . . . . . . . . . . . . . . . . 55
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Section Page
- - - ------- ----
<S> <C> <C>
Section 3.12 Access to Certain Documentation and Information Regarding the Mortgage Loans . . . . . . . . . . . . . .55
Section 3.13 Maintenance of Certain Servicing Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Section 3.14 Preparation of Tax Returns and Other Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56
Section 3.15 Trustee's Interest in the Trust Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .57
ARTICLE IV
SERVICER'S CERTIFICATE; MONTHLY ADVANCES; ETC.
Section 4.1 Servicer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59
Section 4.2 Monthly Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Section 4.3 Reports of Foreclosures and Abandonment of Mortgaged Property . . . . . . . . . . . . . . . . . . . . .61
ARTICLE V
PAYMENTS AND STATEMENTS TO
CERTIFICATEHOLDERS
Section 5.1 Distributions; Accrual of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
Section 5.2 Statements to Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
Section 5.3 Determination of LIBOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .68
ARTICLE VI
THE CERTIFICATES
Section 6.1 The Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71
Section 6.2 Registration of Transfer and Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . .72
Section 6.3 Mutilated, Destroyed, Lost or Stolen Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . .77
Section 6.4 Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .78
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Section Page
- - - ------- ----
ARTICLE VII
PATTEN AND THE SERVICER
<S> <C> <C>
Section 7.1 Liability of Patten and the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 7.2 Merger or Consolidation of, or Assumption of the Obligations of, Patten and the Servicer . . . . . . . . . 79
Section 7.3 Limitation on Liability of Patten, the Servicer and Others . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 7.4 Patten and the Servicer Not to Resign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Section 7.5 Sale, Assignment or Delegation of Duties by Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
ARTICLE VIII
DEFAULT
Section 8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Section 8.2 Trustee to Act; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
Section 8.3 Notification to Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
ARTICLE IX
THE TRUSTEE
Section 9.1 Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
Section 9.2 Certain Matters Affecting the Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Section 9.3 Trustee Not Liable for Certificates or Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 9.4 Trustee May Own Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 9.5 Trustee's Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 9.6 Eligibility Requirements for Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Section 9.7 Resignation or Removal of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 9.8 Successor Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Section 9.9 Merger or Consolidation of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 9.10 Appointment of Co-Trustee or Separate Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
Section Page
- - - ------- ----
ARTICLE X
TERMINATION
<S> <C> <C>
Section 10.1 Termination Upon Repurchase by Patten or Liquidation of All Mortgage Loans . . . . . . . . . . . . . . . . 96
Section 10.2 Additional Termination Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
ARTICLE XI
REMIC ADMINISTRATION
Section 11.1 REMIC Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Section 11.2 REO Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
Section 11.3 Modifications of Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
Section 11.4 Prohibited Transactions and Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
Section 11.5 Indemnification with Respect to Certain Taxes and Loss of REMIC Status . . . . . . . . . . . . . . . . . . 105
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1 Amendment of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
Section 12.2 Recordation of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Section 12.3 Limitation on Rights of Certificateholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
Section 12.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 12.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
Section 12.6 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 12.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 12.8 Certificates Nonassessable and Fully Paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
Section 12.9 Reports to Rating Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Section 12.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
Section 12.11 Headings Not to Affect Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
</TABLE>
SIGNATURES
iv
<PAGE> 6
<TABLE>
<CAPTION>
Section Page
- - - ------- ----
EXHIBITS
<S> <C>
Exhibit A - Form of Class A Certificate
Exhibit B - Form of Class B Certificate
Exhibit C - Form of Class C Certificate
Exhibit D - Form of Class R Certificate
Exhibit E - Mortgage Loan Schedule
Exhibit F - Schedule of Litigation
Exhibit G-1(a) - Form of Class R Affidavit (US Holder)
Exhibit G-1(b) - Form of Class R Affidavit (Foreign Holder)
Exhibit G-2(a) - Form of Class R Transferee's Letter (US Holder)
Exhibit G-2(b) - Form of Class R Transferee's Letter (Foreign Holder)
Exhibit H - Form of Nonrecoverable Advance Certificate
Exhibit I-A - Form of Class A Transferee's Agreement
Exhibit I-B - Form of Class B Transferee's Agreement
Exhibit I-C - Form of Class C Transferee's Agreement
Exhibit J-1 - Form of Initial Certification
Exhibit J-2 - Form of Interim Certification
Exhibit J-3 - Form of Final Certification
</TABLE>
v
<PAGE> 7
POOLING AND SERVICING AGREEMENT, dated as of April 15, 1994, among
PATTEN CORPORATION REMIC TRUST, SERIES 1994-1, as Issuer ("PRT"), PATTEN
CORPORATION, individually ("Patten") and as Servicer (the "Servicer"), PATTEN
RECEIVABLES FINANCE CORPORATION IX, as depositor ("Depositor"), and FIRST
TRUST NATIONAL ASSOCIATION, as trustee (the "Trustee").
W I T N E S S E T H
In consideration of the mutual agreements herein contained, PRT,
Patten, the Servicer, the Depositor and the Trustee agree as follows:
ARTICLE I
DEFINITIONS
Whenever used herein, the following words and phrases, unless the
context otherwise requires, shall have the meanings specified in this Article:
Accepted Servicing Practices: As defined in Section 3.1.
Affiliate: When used with respect to any Person, any officer, director
or partner of such Person or any other Person which, directly or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with such Person. For the purposes of this definition,
"control" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract, relation to
individuals or otherwise and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
Agreement: This Pooling and Servicing Agreement and all amendments and
supplements hereto.
Amount Available: As to any Remittance Date, an amount equal to the
sum (without duplication) of (i) the amount on deposit in the Collection
Account (not including any amounts therein due on or before the Cut-off Date),
including investment income thereon, (ii) any Monthly Advance, (iii) any
Substitution Adjustment and (iv) the Purchase Price of any Defective Mortgage
<PAGE> 8
Loan to be purchased pursuant to Section 2.3 on the Business Day preceding
such Remittance Date, less the sum of (x) the Amount Held for Future
Distribution and (y) amounts permitted to be withdrawn from the Collection
Account pursuant to clauses (i)- (ix) inclusive of Section 3.4.
Amount Held for Future Distribution: As to any Remittance Date, the
total of all amounts held in the Collection Account on the preceding
Determination Date on account of (i) Principal Prepayments and Liquidation
Proceeds received subsequent to the related Collection Period and (ii)
Periodic Payments due subsequent to the related Collection Period.
Appraised Value: With respect to any Mortgaged Property, the sales
price of such Mortgaged Property to the Obligor on the related Mortgage Loan.
Assignment: With respect to each Mortgage that is not an unrecorded
Land Contract, (i) the original instrument of assignment, recorded in the real
estate records of the appropriate public office in which the related Mortgage
is recorded, of each Mortgage made by the mortgagee thereunder to the Trustee
or, if such original instrument of assignment has not yet been so recorded or
returned to the Trustee, the original instrument of assignment or a copy
thereof certified by the Depositor to be a true and correct copy thereof, and
(ii) if applicable, each original intervening instrument of assignment of such
Mortgage made by each mortgagee thereunder, showing a complete chain of title
from the original mortgagee thereunder to the mortgagee that is transferring
such Mortgage to the Trustee as set forth in clause (i) above, or, if any such
original instrument of assignment has not yet been so recorded or returned to
the Trustee, a copy thereof certified by the Depositor to be a true and
correct copy thereof; each such instrument of assignment may be a blanket
assignment covering more than one Mortgage to the extent permitted by
applicable law. Any certification referred to in clauses (i) or (ii) above
may be in the form of one blanket certification delivered to the Trustee with
respect to the documents referred to therein.
Base Principal Distribution Amount: For any Remittance Date, an amount
equal to the sum (without duplication) of (i) the aggregate payments in
respect of principal received on or with respect to the Mortgage Loans,
whether (A) paid by the Obligor thereunder, (B) paid by Patten with respect to
any Mortgage Loan repurchased pursuant to this Agreement or (C) advanced by
the Servicer on the Mortgage Loans, in each such case including all
2
<PAGE> 9
scheduled principal payments, Insurance Proceeds and Net Liquidation Proceeds,
any Substitution Adjustment and the principal portion of the Purchase Price of
any Defective Mortgage Loan repurchased by Patten, to the extent that such
amounts are included in the Amount Available for such Remittance Date,
provided, that the Base Principal Distribution Amount for such Remittance Date
shall not include any Principal Prepayments (in whole or in part) or any
portion of any amounts paid by Patten or the Servicer as described above to
the extent that such amounts effectively are prepayments in that the
application of such amounts in reduction (in whole or in part) of the
outstanding Principal Balance of any Mortgage Loan would reduce such Principal
Balance to an amount less than the Scheduled Principal Balance of such
Mortgage Loan as of the last Installment Due Date in the Collection Period
related to such Remittance Date, (ii) all Realized Losses on the Mortgage
Loans incurred during the preceding Collection Period and (iii) any portion of
the Base Principal Distribution Amount for any prior Remittance Date which was
not paid to the Class A or Class B Certificateholders on any previous
Remittance Date.
Bi-Weekly Mortgage Loan: Any Mortgage Loan (other than a Current
Market Rate Loan) that provides for the payment of Periodic Payments once
every two weeks.
Business Day: Any day on which the Trustee, the Servicer and
commercial banks in New York City or Boca Raton, Florida, are open for the
purpose of conducting a commercial banking business.
Certificate: Any one of the Class A Certificates, Class B
Certificates, Class C Certificates or Class R Certificates.
Certificate Account: The Eligible Account or Accounts created and
maintained with the Trustee pursuant to Section 3.2(c) and collectively
entitled "First Trust National Association, as trustee for the benefit of the
holders of Patten Corporation REMIC Trust, Series 1994-1, Adjustable Rate
REMIC Mortgage Pass-Through Certificates."
Certificateholder or Holder: The Person in whose name a Certificate is
registered in the Certificate Register, except that, solely for the purpose of
the taking of any action under Article VIII, or giving any consent pursuant to
this Agreement, any Certificate registered in the name of Patten or any
Affiliate thereof shall be deemed not to be outstanding and the Percentage
3
<PAGE> 10
Interest evidenced thereby shall not be taken into account in determining
whether the requisite amount of Percentage Interests necessary to take any
such action or to effect any such consent has been obtained.
Certificate Register and Certificate Registrar: The register
maintained pursuant to, and the registrar provided for in, Section 6.2.
Class: All certificates whose form is identical except for variations
in Percentage Interest.
Class A Certificate: Any one of the Certificates signed and
countersigned by the Trustee in substantially the form set forth in Exhibit A
hereto.
Class A Certificateholder: The registered holder of a Class A
Certificate.
Class A Cross-Over Remittance Date: The earliest Remittance Date for
which the Class A Percentage is equal to or less than 68%, provided, however,
that if, as of any Determination Date, the aggregate Realized Losses with
respect to the Mortgage Loans exceed 10% of the Cut-off Date Pool Principal
Balance, then notwithstanding anything to the contrary the Class A Cross-Over
Remittance Date shall be deemed not to have occurred for purposes of any
succeeding Remittance Date.
Class A Pass-Through Rate: During each Interest Accrual Period, a rate
per annum equal to the lesser of (a) 2.50% in excess of LIBOR and (b) the
weighted average of the Net Mortgage Interest Rate of each Mortgage Loan,
other than the Current Market Rate Loans, in effect for the period ending on
the Installment Due Date for such Mortgage Loan in such Interest Accrual
Period. Interest at the Class A Pass-Through Rate shall be calculated on the
basis of a 360-day year consisting of 12, 30-day months.
Class A Percentage: For any Remittance Date, the percentage equal to a
fraction, the numerator of which is the Class A Principal Balance as of the
next preceding Remittance Date and the denominator of which is the aggregate
outstanding Principal Balance of the Mortgage Loans as of the end of the
Collection Period related to the next preceding Remittance Date (or as of the
Cut-off Date in the case of the first Remittance Date).
4
<PAGE> 11
Class A Principal Balance: As of the Closing Date, $23,293,525.62. As
of any Remittance Date, the Class A Principal Balance as of the Closing Date
plus all interest accrued thereon that has not been paid to the Class A
Certificateholders and has been added to principal pursuant to Section 5.1 up
to and including such Remittance Date, less all amounts distributed to the
Holders of the Class A Certificates on account of principal up to and
including such Remittance Date.
Class B Certificate: Any one of the Certificates signed and
countersigned by the Trustee in substantially the form set forth in Exhibit B
hereto.
Class B Certificateholder: The registered Holder of a Class B
Certificate.
Class B Pass-Through Rate: During each Interest Accrual Period, a rate
per annum equal to the lesser of (a) 3.50% in excess of LIBOR and (b) the
weighted average of the Net Mortgage Interest Rate of each Mortgage Loan,
other than the Current Market Rate Loans, in effect for the period ending on
the Installment Due Date for such Mortgage Loan in such Interest Accrual
Period. Interest at the Class B Pass-Through Rate shall be calculated on the
basis of a 360-day year consisting of 12, 30-day months.
Class B Percentage: For any Remittance Date, the percentage equal to a
fraction, the numerator of which is the Class B Principal Balance as of the
next preceding Remittance Date and the denominator of which is the aggregate
outstanding Principal Balance of the Mortgage Loans as of the end of the
Collection Period related to the next preceding Remittance Date (or as of the
Cut-off Date in the case of the first Remittance Date).
Class B Principal Balance: As of the Closing Date $2,773,038.77. As
of any Remittance Date, the Class B Principal Balance as of the Closing Date
plus all interest accrued thereon that has not been paid to the Class B
Certificateholders and has been added to principal pursuant to Section 5.1 up
to and including such Remittance Date, less all amounts distributed to the
Holders of the Class B Certificates on account of principal up to and
including such Remittance Date.
Class C Certificate: Any one of the Certificates signed and
countersigned by the Trustee in substantially the form set forth in Exhibit C
hereto.
5
<PAGE> 12
Class C Certificateholder: The registered Holder of a Class C
Certificate.
Class C Pass-Through Rate: During each Interest Accrual Period, a rate
per annum equal to the lesser of (a) 4.50% in excess of LIBOR and (b) the
weighted average of the Net Mortgage Interest Rate of each Mortgage Loan,
other than the Current Market Rate Loans, in effect for the period ending on
the Installment Due Date for such Mortgage Loan in such Interest Accrual
Period. Interest at the Class C Pass-Through Rate shall be calculated on the
basis of a 360-day year consisting of 12, 30-day months.
Class C Principal Balance: As of the Closing Date $1,663,823.26. As
of any Remittance Date, the Class C Principal Balance as of the Closing Date
plus all interest accrued thereon that has not been paid to the Class C
Certificateholders and has been added to principal pursuant to Section 5.1 up
to and including such Remittance Date, less all amounts distributed to the
Holders of the Class C Certificates on account of principal up to and
including such Remittance Date.
Class Principal Balance: Any of the Class A, Class B or Class C
Principal Balances.
Class R Certificate: Any one of the Certificates signed and
countersigned by the Trustee in substantially the form set forth in Exhibit D
hereto.
Class R Certificateholder: The registered Holder of a Class R
Certificate.
Closing Date: May 11, 1994.
Code: The Internal Revenue Code of 1986, as amended, any successor
statutes thereto, and applicable U.S. Department of Treasury regulations
issued pursuant thereto in temporary or final form and proposed regulations
thereunder, to the extent that, by reason of their proposed effective date,
such proposed regulations would apply to the Trust Fund.
Collection Account: The Eligible Account or Accounts created and
maintained pursuant to Section 3.2(b) and collectively entitled "First Trust
National Association, as trustee for the benefit of the holders of Patten
Corporation REMIC Trust, Series 1994-1, Adjustable Rate REMIC Mortgage Pass-
Through Certificates."
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Collection Period: With respect to any Remittance Date, the period
commencing on the 16th day of the second month preceding the month of such
Remittance Date and ending on the 15th day of the month next preceding the
month of such Remittance Date.
Corporate Trust Office: The corporate trust office of the Trustee in
Minneapolis or St. Paul, Minnesota, at which at any particular time its
corporate trust business shall be administered, which office at the date of
the execution of this Agreement is located at 180 East 5th Street, St. Paul,
Minnesota 55101.
Current Index: As to any adjustable-rate Mortgage Loan, a value of the
applicable Index in effect no earlier than three months prior to the Rate
Adjustment Date for such Mortgage Loan.
Current Market Rate Loan: An adjustable-rate Mortgage Loan on which
the holder of the Mortgage Note has the right to adjust the interest rate
payable under the Mortgage Note on each related Rate Adjustment Date to an
annual rate not to exceed the most recent average, effective mortgage rate for
all homes and all major lender types as computed by the successor to the
Federal Home Loan Bank Board, provided that the minimum adjustment shall be
1/4 of 1% and the maximum adjustment shall be 3% during each one year period
and provided further that the rate of interest may not be increased to a rate
greater than 5% above the initial rate on the Mortgage Loan over the first 10
years of the term of the Mortgage Note.
Cut-off Date: April 15, 1994.
Cut-off Date Pool Principal Balance: The aggregate of the Cut-off Date
Principal Balances of the Mortgage Loans.
Cut-off Date Principal Balance: As to any Mortgage Loan, the unpaid
principal balance thereof at the Cut-off Date, reduced by all payments of
principal due on or before the Cut-off Date but not received on or before the
Cut-off Date, and increased by Periodic Payments of principal due after the
Cut-off Date but received on or before the Cut-off Date.
Defective Mortgage Loan: Any Mortgage Loan which is required to be
replaced by a Qualified Replacement Mortgage Loan or Loans or repurchased by
Patten pursuant to Sections 2.2 and 2.3.
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Depositor: Patten Receivables Finance Corporation IX.
Determination Date: With respect to any Remittance Date, the fifth
Business Day prior thereto.
Development: Any parcel of land some or all of which is mortgaged to
secure a Mortgage Loan.
Disqualified Organization: Any of (i) the United States, (ii) any
state or political subdivision thereof, (iii) any foreign government, (iv) any
international organization, (v) any agency or instrumentality of any of the
foregoing, (vi) any tax-exempt organization (other than a cooperative
described in Section 521 of the Code) which is exempt from the tax imposed by
Chapter 1 of the Code unless such organization is subject to the tax imposed
by Section 511 of the Code, (vii) any organization described in Section
1381(a)(2)(C) of the Code, or (viii) any other entity designated as a
Disqualified Organization by relevant legislation amending the REMIC
Provisions and in effect at or proposed to be effective as of the time of the
determination. In addition, a corporation will not be treated as an
instrumentality of the United States or of any state or political subdivision
thereof if all of its activities are subject to tax and a majority of its
board of directors is not selected by such governmental unit. The terms
"United States" and "international organization" shall have the meanings set
forth in Section 7701 of the Code.
Eligible Account: An account that is either (i) maintained with a
depository institution or trust company the long-term unsecured debt
obligations of which (or, in the case of a depository institution or trust
company that is the principal subsidiary of a holding company, the debt
obligations of such holding company) have been rated by a Rating Organization
in one of its two highest rating categories or (ii) a trust account or
accounts maintained with a federal or state chartered depository institution
or trust company with trust powers acting in its fiduciary capacity, provided,
however, that if the trust account is maintained with a state chartered
depository institution, the long-term unsecured debt obligations of such
institution are rated by a Rating Organization in one of its four highest
rating categories.
ERISA: The Employee Retirement Income Security Act of 1974, as
amended.
Event of Default: As defined in Section 8.1.
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<PAGE> 15
FDIC: The Federal Deposit Insurance Corporation, or any successor
thereto.
Full Floating Loan: An adjustable rate Mortgage Loan on which the
Mortgage Interest Rate adjusts simultaneously with any change in the
underlying Index, which may occur more frequently than adjustments to its
Periodic Payment.
Gross Margin: With respect to the adjustable-rate Mortgage Loans other
than the Current Market Rate Loans and the Missouri Loans, the amount set
forth in each related Mortgage Note which is added to the Index on each Rate
Adjustment Date to arrive at the Mortgage Interest Rate for each such Mortgage
Loan, subject to any Periodic Rate Cap or Lifetime Rate Cap. The parties
acknowledge that the applicable Gross Margin on certain Mortgage Loans may
change from that in effect on the Cut-off Date in certain circumstances.
Independent: When used with respect to any specified Person means such
a Person who (i) is in fact independent of Patten, (ii) does not have any
material indirect financial interest in Patten or in any Affiliate thereof,
and (iii) is not connected with Patten as an officer, employee, promoter,
trustee, partner, director or person performing similar functions.
Index: With respect to the adjustable-rate Mortgage Loans other than
the Current Market Rate Loans, the applicable index set forth in each related
Mortgage Note which is added to the Gross Margin on each Rate Adjustment Date
to arrive at the Mortgage Interest Rate for each such Mortgage Loan, subject
to any Periodic Rate Cap or Lifetime Rate Cap.
Installment Due Date: As to each Mortgage Loan, the date set forth on
the related Mortgage Note as the date on which a Periodic Payment is due.
Insurance Proceeds: Proceeds paid by any insurer pursuant to any
insurance policy covering a Mortgage Property and any insurance policy
required to be maintained by the Servicer pursuant to Section 3.5.
Interest Accrual Period: With respect to any Remittance Date, the
period beginning on the 16th day of the second month preceding the month of
such Remittance Date and ending on the 15th day of the month next preceding
the month of such Remittance Date.
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Land Contract: An agreement for deed, land contract for deed, real
estate purchase agreement, purchase and sale agreement, contract for deed or
similar conditional land sales agreement, executed by Patten or an Affiliate,
as vendor, and a purchaser of the property, as vendee.
Land Contract Deed: A deed executed by Patten (or an Affiliate thereof
if such Affiliate currently holds title to a Mortgaged Property subject to a
Land Contract) in favor of the Trustee, with respect to each Mortgaged
Property related to a Mortgage Loan evidenced by a Land Contract, conveying
the fee simple interest in such Mortgaged Property to the Trustee, subject to
the rights of the Obligor under the related Land Contract.
LIBOR: The London interbank offered rate for six-month United States
dollar deposits established by the Servicer on each Determination Date
pursuant to Section 5.3.
Lifetime Rate Cap: As to each adjustable-rate Mortgage Loan, the
lesser of (i) the rate, if any, set forth as such on the related Mortgage Note
or (ii) the highest rate permitted by applicable law.
Liquidated Mortgage Loan: As to any Remittance Date, any defaulted
Mortgage Loan as to which the Servicer has determined during the preceding
Collection Period that all amounts which it expects to recover from or on
account of such Mortgage Loan have been recovered.
Liquidation Expenses: Reasonable and customary expenses incurred by
the Servicer in connection with the liquidation of any defaulted Mortgage Loan
or property acquired in respect thereof, including, without limitation, legal
fees and expenses, any unreimbursed amount expended by the Servicer pursuant
to Sections 3.5 and 3.7 respecting the related Mortgage Loan (to the extent
such amount is reimbursable pursuant to Section 3.5 or 3.7, as the case may
be), any commissions and advertising expenses and any unreimbursed
expenditures for real property taxes or for property restoration or
preservation relating to the real property that secured such Mortgage Loan.
Liquidation Proceeds: Amounts received by the Servicer as a result of
condemnation awards or similar payments (to the extent the same are not
required to be paid to the related Obligor pursuant to law or the terms of the
applicable Mortgage) and amounts received in connection with the liquidation
of
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defaulted Mortgage Loans or property acquired in respect thereof, whether
through trustee's sale, foreclosure sale or otherwise, other than amounts
required to be paid to the Obligor pursuant to law or the terms of the
applicable Mortgage.
Lot: A legally subdivided piece, parcel or tract of land in a
Development, which is mortgaged to secure a Mortgage Loan or is subject to a
Land Contract.
Loan-to-Value Ratio: As of any date, the fraction, expressed as a
percentage, the numerator of which is the then unpaid Principal Balance of a
particular Mortgage Loan and the denominator of which is the Appraised Value.
Missouri Loan: An adjustable rate Mortgage Loan originated in Missouri
for which the amount of the Periodic Payment is prohibited by applicable law
from increasing or decreasing when the Index on such Mortgage Loan increases
or decreases. Missouri Loans adjust to the lesser of 24% or two times the 26-
week Treasury Bill, and the result of an increase or decrease in the
applicable Mortgage Interest Rate on a Missouri Loan is to increase or
decrease the remaining term of such Mortgage Loan, with the Periodic Payment
remaining the same.
Monthly Advance: With respect to a Mortgage Loan and any Determination
Date, any advance made by the Servicer pursuant to Section 4.2, the amount of
which shall be equal to any installments of principal and interest (less, in
each case, the Servicing Fee) on such Mortgage Loan which (x) were due after
the Cut-off Date, were delinquent as of the end of the related Collection
Period and had not been received as of the close of business on such
Determination Date and (y) were not the subject of a previous Monthly Advance,
which advance is not determined by the Servicer to be Nonrecoverable Advances.
Mortgage: The mortgage, deed of trust, contract right, security
agreement and all agreements and other documents securing a Mortgage Note,
which term shall include, unless expressly excluded or the context otherwise
clearly requires, a Land Contract.
Mortgage Documents: With respect to each Mortgage Loan, (a) except
with respect to a Mortgage Loan evidenced by a Land Contract, the indebtedness
of the Obligor under which is not evidenced by a separate Mortgage Note, the
original Mortgage Note executed by the Obligor, endorsed by the current holder
thereof to the order of the Trustee, without recourse, representation or
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warranty express or implied (except, to the extent the holder is Patten, as
provided in this Agreement), and including all intervening endorsements of the
Mortgage Note showing a complete chain of title from the original holder
thereof to the holder so endorsing to the order of the Trustee, (b) the
Mortgage executed by the Obligor (which shall be either the original recorded
Mortgage or, if the original recorded Mortgage is retained by the public
recording office or has been lost as certified by an officer of the Depositor,
then a copy of such recorded Mortgage with evidence of recordation in the
public recording office, or, if the original Mortgage has not yet been
recorded, a copy thereof certified by the Depositor to be a true and correct
copy thereof, provided that the original Mortgage has been delivered to the
appropriate recording office for recordation or, in the case of a Land
Contract, will be so delivered in accordance with Section 2.1) which, in the
case of a Land Contract, has been endorsed or assigned by the current holder
thereof to the Trustee, without recourse, representation or warranty express
or implied (except, to the extent the holder is Patten, as provided in this
Agreement), and including all intervening endorsements or assignments of the
Land Contract showing a complete chain of title from the original holder
thereof to the holder so endorsing or assigning to the order of the Trustee
(or will be so endorsed or assigned in accordance with Section 2.1) (c) except
with respect to Mortgage Loans evidenced by an unrecorded Land Contract, the
Assignment, (d) the original of all guaranties or other documentation, if any,
of which a Responsible Officer of the Trustee has been notified in writing by
an officer of the Depositor whereby the indebtedness evidenced by the Mortgage
Note has been guaranteed by any Person other than the maker thereof or
otherwise modified by any Person, (e) the original of all assumption and
modification agreements, if any, (f) the title insurance policy with respect
to such Mortgage, if any, and (g) in the case of a Land Contract, the Land
Contract Deed (which shall be either the original recorded Land Contract Deed
or, if the original recorded Land Contract Deed is retained by the public
recording office or has been lost as certified by an officer of the Depositor,
then a copy of such recorded Land Contract Deed with evidence of recordation
in the public recording office, or, if the original Land Contract Deed has not
yet been recorded, a copy thereof certified by the Depositor to be a true and
correct copy thereof, provided that the original Land Contract Deed has been
delivered to the appropriate recording office for recordation or will be so
delivered in accordance with Section 2.1). Any certification referred to in
or delivered pursuant to clauses (b), (c) or (g) above may be in the form of
one blanket certifi-
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<PAGE> 19
cation delivered to the Trustee with respect to the documents referred to
therein.
Mortgage Interest Rate: With respect to any Mortgage Loan and
Installment Due Date, the per annum rate of interest applicable to the
Periodic Payment due on such Installment Due Date.
Mortgage Loan: Each Mortgage and Mortgage Note (except with respect to
Land Contracts not having a related Mortgage Note) transferred and assigned to
and held by the Trustee pursuant to this Agreement and which are listed on the
Mortgage Loan Schedule from time to time.
Mortgage Loan Schedule: As of any date of determination, the schedule
of Mortgage Loans which are included in the Trust Fund, as such schedule may
be amended to delete any Mortgage Loans repurchased pursuant to the terms
hereof or paid in full and to include any Qualified Replacement Mortgage Loans
deposited into the Trust Fund. The initial schedule of Mortgage Loans as of
the Cut-off Date is attached hereto as Exhibit E, such schedule setting forth
the following information as to each Mortgage Loan: (i) the customer loan
number; (ii) the Obligor's name, address, county and state; (iii) the city and
state of the Mortgaged Property; (iv) the frequency of scheduled payments (bi-
weekly or monthly); (v) the Appraised Value of the Mortgaged Property; (vi)
the original amount financed by the Obligor; (vii) the Cut-off Date Principal
Balance; (viii) the principal and interest due on the Mortgage Loan on the
next Installment Due Date; (ix) the current Mortgage Interest Rate; (x) the
date the Mortgage was originated; (xi) the next Installment Due Date; (xii)
the original amortization term; (xiii) the remaining amortization term; (xiv)
the type of Mortgage Loan (fixed, adjustable or Current Market Rate); (xv) the
Index used to determine the interest rate, if applicable; and (xvi) the Gross
Margin used to determined the interest rate, if applicable.
Mortgage Note: The note or other evidence of indebtedness evidencing
the indebtedness of an Obligor under a Mortgage Loan.
Mortgaged Property: The fee simple interest in real property securing
a Mortgage Note or subject to a Land Contract.
Net Liquidation Proceeds: The amount derived by subtracting from the
Liquidation Proceeds of any defaulted Mortgage Loan the related Liquidation
Expenses.
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Net Mortgage Interest Rate: As to any Mortgage Loan, other than a Bi-
Weekly Mortgage Loan, the Mortgage Interest Rate thereon minus the Servicing
Fee Rate and the Trustee Fee Rate. The Net Mortgage Interest Rate for any Bi-
Weekly Mortgage Loan for any Interest Accrual Period shall equal twelve times
the sum of the interest portions of each Periodic Payment due on such Bi-
Weekly Mortgage Loan in such Interest Accrual Period, expressed as a
percentage of the Scheduled Principal Balance of such Bi-Weekly Mortgage Loan
as of the beginning of such Interest Accrual Period, less the Servicing Fee
Rate and the Trustee Fee Rate.
Nondisqualification Opinion: An opinion of Independent counsel that a
contemplated action will neither cause the Trust REMIC to fail to qualify as a
REMIC at any time that Class A, Class B or Class C Certificates are
outstanding nor cause a "prohibited transaction" or "prohibited contribution"
tax to be imposed on the Trust REMIC.
Nonrecoverable Advance: Any portion of a Monthly Advance previously
made or proposed to be made in respect of a Mortgage Loan which has not been
previously reimbursed to the Servicer and which, in the sole determination of
the Servicer, will not or, in the case of a proposed Monthly Advance, would
not be ultimately recoverable from Liquidation Proceeds or other recoveries in
respect of the related Mortgage Loan. The determination by the Servicer that
it has made a Nonrecoverable Advance or that any proposed advance, if made,
would constitute a Nonrecoverable Advance, shall be evidenced by an Officers'
Certificate of the Servicer substantially in the form of Exhibit H hereto
delivered to the Trustee and detailing the reasons for such determination.
Obligor: All Persons obligated to make payments with respect to a
Mortgage Loan (including the vendee/purchaser under a Land Contract).
Officers' Certificate: A Certificate signed by the Chairman of the
Board, the President, a Vice President or the Chief Financial Officer, and co-
signed by the Clerk, one of the Assistant Clerks, the Secretary or one of the
Assistant Secretaries, the Treasurer or one of the Assistant Treasurers of a
Person and delivered to the Trustee.
Opinion of Counsel: A written opinion of counsel acceptable to the
Trustee.
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Ownership Interest: As to any Certificate, any ownership interest in
such Certificate, including any interest in such Certificate as the Holder
thereof and any other interest therein, whether direct or indirect, legal or
beneficial.
Outstanding Mortgage Loan: As to any Installment Due Date, a Mortgage
Loan that was not the subject of a Principal Prepayment in Full prior to such
Installment Due Date, that did not become a Liquidated Mortgage Loan prior to
such Installment Due Date and was not repurchased prior to such Installment
Due Date pursuant to Section 2.3.
Pass-Through Rate: Any of the Class A, Class B or Class C Pass-Through
Rates.
Patten: Patten Corporation, a Massachusetts corporation, or its
successor in interest or any successor under this Agreement as herein
provided.
Percentage Interest: As to any Class A, Class B or Class C
Certificate, the percentage interest evidenced thereby in the distributions
required to be made hereunder with respect to the related Class, and derived
by dividing the denomination of such Certificate by the aggregate
denominations of all Certificates of such Class. As to any Class R
Certificate, the percentage interest set forth on the face thereof.
Periodic Payment: As to any Mortgage Loan and Installment Due Date,
the payment due thereon in accordance with the amortization schedule at the
time applicable thereto without regard to any adjustment to such amortization
schedule by reason of any bankruptcy or similar proceeding or any moratorium
or similar waiver or grace period and assuming, in the case of a defaulted
Mortgage Loan which is not a Liquidated Mortgage Loan and as to which title to
the underlying Mortgaged Property has been acquired, that such amortization
schedule has continued in effect notwithstanding the related foreclosure or
other acquisition of title.
Periodic Rate Cap: The provision in certain of the adjustable-rate
Mortgage Notes that limits permissible changes in the Mortgage Interest Rate
on any Rate Adjustment Date.
Permitted Investments: At any time, any one or more of the following
obligations and securities:
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(i) obligations of the United States or any agency thereof,
provided the timely payment of such obligations are backed by the full
faith and credit of the United States;
(ii) general obligations of or obligations guaranteed by any state
of the United States or the District of Columbia receiving one of the
two highest long-term debt ratings of a Rating Organization, or such
lower rating as will not result in the downgrading or withdrawal of the
rating then assigned to the Class A Certificates by the Rating Agency;
(iii) commercial or finance company paper which is then rated in
the highest rating category of a Rating Organization, issue by an
entity whose unsecured long-term debt obligations are rated in one of
the three highest rating categories of a Rating Organization, or in
each case such lower category as will not result in the downgrading or
withdrawal of the rating then assigned to the Class A Certificates by
the Rating Agency;
(iv) certificates of deposit, demand or time deposits, federal
funds or bankers' acceptances issued by any depository institution or
trust company incorporated under the laws of the United States or of
any state thereof and subject to supervision and examination by federal
and/or state banking authorities, provided that the commercial paper
and/or long-term unsecured debt obligations of such depository
institution or trust company (or in the case of the principal
depository institution in a holding company system, the commercial
paper or long-term unsecured debt obligations of such holding company)
are then rated in one of the two highest rating categories for such
securities of a Rating Organization, or such lower categories as will
not result in the downgrading or withdrawal of the rating then assigned
to the Class A Certificates by the Rating Agency;
(v) guaranteed reinvestment agreements issued by any bank,
insurance company or other corporation acceptable to the Rating Agency
at the time of the issuance of such agreements;
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<PAGE> 23
(vi) repurchase obligations with respect to any security described
in clauses (i) and (ii) above or any other security issued or
guaranteed by any agency or instrumentality of the United States, in
either case entered into with a depository institution or trust company
(acting as principal) described in clause (iv) above;
(vii) overnight investments in units of short-term taxable money
market funds composed of obligations with maturities not in excess of
30 days and backed by the full faith and credit of the United States;
(viii) such other investments bearing interest or sold at a
discount acceptable to the Rating Agency as will not result in the
downgrading or withdrawal of the rating then assigned to the Class A
Certificates by such Rating Agency.
Permitted Transferee: As defined in Section 6.2(d).
Person: Any individual, corporation, partnership, joint venture, bank,
joint-stock company, trust, unincorporated organization or government or any
agency or political subdivision thereof.
PRT: Patten Corporation REMIC Trust, Series 1994-1, the trust formed
pursuant to this Agreement to hold the Trust Fund and issue the Certificates.
Prepayment Period: As to any Remittance Date, the Collection Period
ending in the month immediately preceding the month of such Remittance Date.
Principal Balance: With respect to any Mortgage Loan on any date of
determination, the Cut-off Date Principal Balance thereof minus the sum of (a)
the principal portion of all Periodic Payments due during or prior to the
Collection Period immediately preceding such date of determination, whether or
not received during or prior to such Collection Period, (b) all Principal
Prepayments and all Insurance Proceeds and Net Liquidation Proceeds (to the
extent identified and applied by the Servicer as recoveries of principal)
received through the end of such Collection Period and (c) any Realized Loss
on such Mortgage Loan to the extent treated as a principal loss and which is
realized during or prior to such Collection Period.
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Principal Prepayment: Any payment of principal on a Mortgage Loan
which is received in advance of its scheduled Installment Due Date.
Principal Prepayment in Full: Any Principal Prepayment of the entire
Principal Balance of the related Mortgage Loan.
Purchase Price: With respect to any Defective Mortgage Loan
repurchased pursuant to Section 2.3, an amount equal to the sum of (i) 100% of
the Principal Balance thereof at the end of the Collection Period prior to the
Collection Period in which such Mortgage Loan is purchased and (ii) unpaid
accrued interest thereon at the applicable Mortgage Interest Rate from the
Installment Due Date to which interest was last paid (or from the Cut-off Date
if no Periodic Payment has been received) through the last Installment Due
Date in the Collection Period preceding the Remittance Date on which the
proceeds of the related purchase are to be distributed to Certificateholders.
Qualified Replacement Mortgage Loan: A Mortgage Loan substituted by
Patten for a Defective Mortgage Loan which must, on the date of such
substitution, (i) have an outstanding Principal Balance, after deduction of
the principal portion of the monthly payment due in the month of substitution
(or in the case of a substitution of more than one Mortgage Loan for a
Defective Mortgage Loan, an aggregate Principal Balance), not in excess of the
Principal Balance of the Defective Mortgage Loan; (ii) have a Mortgage
Interest Rate not less than the Mortgage Interest Rate of the Defective
Mortgage Loan; (iii) have a remaining term to maturity not more than 30 years
after the second Remittance Date and not more than two years less or one year
more than the remaining term of the Defective Mortgage Loan; (iv) comply with
each representation and warranty set forth in Section 2.3(a); (v) have an
original Loan-to-Value Ratio not greater than that of the Defective Mortgage
Loan; (vi) have a Periodic Rate Cap no lower than the Defective Mortgage Loan,
if any; (vii) have a Lifetime Rate Cap no lower than that of the Defective
Mortgage Loan, if any; (viii) have a Gross Margin no smaller than that of the
Defective Mortgage Loan, if any; and (ix) have a Mortgage Interest Rate that
is based on the same Index as that of the Defective Mortgage Loan, if any.
Rate Adjustment Date: With respect to each adjustable-rate Mortgage
Loan, the date on which the Mortgage Interest Rate thereon may be adjusted as
set forth in each Mortgage Note.
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<PAGE> 25
Rating Agency: The Rating Organization that has rated the Class A
Certificates at the request of Patten, or each of such organizations if more
than one, which shall initially be Duff & Phelps Credit Rating Co.
Rating Organization: A nationally recognized statistical rating
organization.
Realized Loss: With respect to any Liquidated Mortgage Loan, the
Principal Balance of such Mortgage Loan as of the date it became a Liquidated
Mortgage Loan, and accrued interest thereon from the date interest was last
paid on such Mortgage Loan through the last Installment Due Date in the
Collection Period in which such Mortgage Loan became a Liquidated Mortgage
Loan, in each case remaining unpaid after application of the Net Liquidation
Proceeds thereof following final liquidation of such Mortgage Loan and/or all
property securing such Mortgage Loan.
Record Date: The 20th day of the month preceding the month of the
related Remittance Date.
REMIC: A "real estate mortgage investment conduit" within the meaning
of Section 860D of the Code.
REMIC Provisions: Provisions of the federal income tax law relating to
real estate mortgage investment conduits, which appear at Section 860A through
860G of Subchapter M of Chapter 1 of the Code, and related provisions, and
regulations promulgated thereunder, as the foregoing may be in effect from
time to time and including any proposed legislation which, as proposed, would
have an effective date prior to enactment thereof and any proposed
regulations.
Remittance Certificate: A certificate completed by and executed on
behalf of the Trustee in accordance with Section 5.2.
Remittance Date: The first day of any month, beginning in June 1994
or, if such first day is not a Business Day, the Business Day immediately
following.
REO Property: Any Mortgaged Property which is either (a) acquired by
the Trust Fund by foreclosure or acceptance of a deed in lieu of foreclosure
or (b) held by the Trustee subject to a Land Contract which is cancelled or as
to which the rights of the Obligor thereunder are otherwise terminated.
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Responsible Officer: When used with respect to the Trustee, an officer
of the Trustee assigned to the Corporate Trust Office, including any Senior
Vice President, Vice President, Assistant Vice President, any Assistant
Secretary, any Assistant Treasurer, any trust officer or any other officer of
the Trustee customarily performing functions similar to those performed by any
of the above designated officers and also, with respect to a particular
matter, any other officer to whom such matter is referred because of such
officer's knowledge of and familiarity with the particular subject.
Scheduled Principal Balance: As to any Mortgage Loan and any date of
determination, the principal balance of such Mortgage Loan as of the last
Installment Due Date in the Collection Period next preceding such date as
specified in the amortization schedule at the time relating thereto (before
any adjustment to such amortization schedule by reason of any bankruptcy or
similar proceeding or any moratorium or similar waiver or grace period) by
treating as paid any payment of principal due on each such Installment Due
Date and irrespective of any delinquency in payment by the related Obligor.
Servicer: Patten, until a successor servicer shall have become such
pursuant to this Agreement, and thereafter "Servicer" shall mean such
successor.
Servicer Errors and Omissions Insurance Policy: means an errors and
omissions insurance policy maintained by the Servicer which names the Trustee
as a loss payee.
Servicer Fidelity Bond: means a bond or insurance policy issued by an
insurance company duly authorized and licensed to transact the applicable
insurance business and to write the insurance provided, and either (i) whose
claims paying ability is rated in one of the four highest rating categories by
a Rating Organization or (ii) whose selection as an insurer will not adversely
affect the rating of the Class A Certificates by the Rating Agency, under
which such insurer (a) agrees to indemnify the Servicer (subject to standard
exclusions) for all losses (less any deductible) sustained as a result of any
theft, embezzlement, fraud or other dishonest act on the part of the
Servicer's directors, officers or employees, (b) provides for limits of
liability under such bond for each director, officer or employee of not less
than an amount required by the Rating Agency and (c) names the Trustee as a
loss payee.
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Servicer's Certificate: A certificate completed by and executed on
behalf of the Servicer in accordance with Section 4.1.
Servicing Fee: The fee the Certificateholders shall pay to the
Servicer, equal to the Servicing Fee Rate times the Scheduled Principal
Balance of each Mortgage Loan as of each Installment Due Date for such
Mortgage Loan. Such fee shall either be retained by the Servicer from the
Periodic Payments it collects or withdrawn from the Collection Account monthly
pursuant to Section 3.4 and shall be computed on the basis of the same
principal amount and for the period respecting which any related interest
payment on a Mortgage Loan is computed. Such fee shall be payable only at the
time of and with respect to those Mortgage Loans for which payment is in fact
made of the entire amount of the Periodic Payments.
Servicing Fee Rate: 0.50% per annum.
Servicing Officer: Any individual involved in, or responsible for, the
administration and servicing of the Mortgage Loans whose name appears on a
list of servicing officers furnished to the Trustee by the Servicer, as such
list may from time to time be amended.
Single Certificate: A Certificate of any Class that evidences the
smallest permissible denomination for such Class of Certificates, as specified
in Section 6.1.
60 Day Delinquent Mortgage Loan: Any Mortgage Loan which as of the
Cut-off Date had a Periodic Payment which remained unpaid for 60 or more but
less than 90 days.
Subordinate Certificates: Collectively, the Class B, Class C and Class
R Certificates.
Substitution Adjustment: As of any Remittance Date, any amount
required to be deposited by Patten in the Collection Account on the Business
Day next preceding such Remittance Date pursuant to Section 2.3(e).
30 Day Delinquent Mortgage Loan: Any Mortgage Loan which as of the
Cut-off Date had a Periodic Payment which remained unpaid for more than 30 but
less than 60 days.
Transfer: Any direct or indirect transfer or sale of any Ownership
Interest in a Certificate.
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Trustee: First Trust National Association, a national banking
association, and its successors and any corporation resulting from or
surviving any consolidation or merger to which it or its successors may be a
party and any successor trustee at the time serving as successor trustee
hereunder.
Trustee's Fee: The fee the Certificateholders shall pay to the
Trustee, equal to the aggregate with respect to all of the Mortgage Loans of
0.11% per annum times the Scheduled Principal Balance of each Mortgage Loan as
of each Installment Due Date for such Mortgage Loan. Such fee shall be
withdrawn from the Collection Account monthly pursuant to Section 3.4.
Trustee's Fee Rate: 0.11% per annum.
Trust Fund: The corpus of the trust created by this Agreement,
consisting of the Mortgage Loans (including without limitation all Land
Contracts and the rights of the seller/vendor, including all rights to
payment, thereunder), all payments on or collections in respect of the
Mortgage Loans due after the Cut-off Date, all Net Liquidation Proceeds,
Insurance Proceeds and Principal Prepayments received after the Cut-off Date,
but not including any amounts representing amounts due on or prior to the Cut-
off Date, such amounts as shall from time to time be held in the Collection
Account and the Certificate Account (to the extent provided for in this
Agreement), the insurance policies for which the Trustee is beneficiary or
loss payee, if any, relating to the Mortgaged Properties, any REO Property,
and proceeds of all of the foregoing.
Trust REMIC: The segregated pool of assets in the Trust Fund
designated as a REMIC pursuant to Section 11.1(a).
Uninsured Cause: Any cause of damage to Mortgaged Property such that
the complete restoration of such Mortgaged Property is not fully reimbursable
(less any applicable deductible) by the insurance policies required to be
maintained pursuant to Section 3.5.
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ARTICLE II
CONVEYANCE OF MORTGAGE LOANS;
ORIGINAL ISSUANCE OF CERTIFICATES
Section 2.1 Conveyance of Mortgage Loans. The Depositor, concurrently
with the execution and delivery of this Agreement, does hereby sell, transfer,
assign, set over and otherwise convey to the Trustee without recourse,
representation or warranty (except as provided herein) all the right, title
and interest of the Depositor in and to the Trust Fund, including all interest
and principal received by the Servicer on or with respect to the Mortgage
Loans after the Cut-off Date (and including scheduled payments of principal
and interest due after the Cut-off Date but received by the Servicer on or
before the Cut-off Date, but not including payments of principal and interest
due on the Mortgage Loans on or before the Cut-off Date), to have and to hold,
in trust, and the Trustee declares that, subject to the review provided for in
Section 2.2, it has received and shall hold the Trust Fund as Trustee, in
trust, for the benefit and use of the Holders of the Certificates and for the
purposes and subject to the terms and conditions set forth in this Agreement.
In connection with such transfer and assignment, the Depositor does
hereby deliver to, and deposit with, the Trustee (with copies to the Servicer)
the Mortgage Documents.
Promptly following such transfer and assignment, the Trustee shall
release to the Servicer the unrecorded Assignments, the original Land
Contracts to the extent available, whether or not previously recorded, and, if
initially included in the Mortgage Documents delivered to the Trustee, the
Land Contract Deeds (while maintaining a copy of each thereof) delivered to
the Trustee. The Servicer shall hold the Assignments, Land Contracts and, if
applicable, Land Contract Deeds in trust for the benefit of
Certificateholders. The Servicer, at the expense of the Depositor, shall,
within 45 days of the Closing Date, or, with respect to recently originated
Mortgage Loans as to which the Servicer has not received, as of the Closing
Date, recording information for the related Mortgage, within 45 days of
receipt of such recording information, cause such Assignments, unrecorded Land
Contracts (to the extent an original was available) and, whether or not
initially included in the Mortgage Documents, the Land Contract Deeds, to be
duly submitted for recording in the name of the Trustee in the appropriate
records depository for the jurisdictions in which the Mortgaged Properties are
located and shall cause the receipt evidencing submission for recording and
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the Assignments, Land Contracts and Land Contract Deeds after recordation to
be delivered to the Trustee promptly upon the release thereof to the Servicer.
The Servicer shall cause all Land Contracts, whether or not recorded, to be
endorsed or assigned to the Trustee in the manner described in the definition
of "Mortgage Documents" prior to returning such Land Contracts to the Trustee.
If an original Land Contract is not available for recording as provided above,
then the Land Contract Deed with respect to the related Mortgaged Property
shall recite that such Deed is given subject to the rights of the Obligor
under such unrecorded Land Contract. All Land Contract Deeds shall recite
that the transferor is assigning all of its rights under the related Land
Contract. The Trustee shall hold legal title to the Mortgage Loans as trustee
for the benefit of the Certificateholders.
The ownership of the Mortgage Notes, the Mortgages and the other
Mortgage Documents is vested in the Trustee for the benefit of the
Certificateholders. The Depositor, Patten and the Servicer agree to take no
action inconsistent with the Trustee's ownership of the Mortgage Loans and to
promptly indicate to all inquiring parties that the Mortgage Loans have been
sold and to claim no ownership interest in the Mortgage Loans, other than in
connection with a repurchase or substitution of a Defective Mortgage Loan by
Patten.
The parties intend that the conveyance of the Depositor's right, title
and interest in and to the Mortgage Loans pursuant to this Agreement shall
constitute a purchase and sale and not a pledge of security for a loan.
However, if such conveyance is deemed to be a pledge for a loan, the parties
intend that the rights and obligations of the parties to such loan shall be
established pursuant to the terms of this Agreement, the Depositor shall be
deemed to have granted and the Depositor hereby grants to the Trustee a first
priority security interest in all of the Depositor's right, title and interest
in, to and under the Trust Fund, all payments of principal of or interest on
such Mortgage Loans, all other payments made in respect of such Mortgage
Loans, and all proceeds thereof, to secure the obligations of the Depositor to
the Trustee under this Agreement, and this Agreement shall constitute a
security agreement under applicable law. If such conveyance is deemed to be a
loan and the trust created by this Agreement terminates prior to the
satisfaction of the claims of any Person in any Certificates, the security
interest created hereby shall continue in full force and effect, and the
Trustee shall be deemed to be the collateral agent for the benefit of such
Person.
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Within 60 days after the Closing Date, Patten will send, or cause to be
sent, written notice to each Obligor of the sale, transfer and assignment of
the related Mortgage Loan to the Trustee, on behalf of the Certificateholders.
Section 2.2 Acceptance by Trustee. The Trustee acknowledges receipt
of the Mortgage Documents delivered pursuant to Section 2.1, subject to the
Trustee's review thereof under this Section 2.2, and declares that the Trustee
holds and will hold such documents in trust, upon the terms herein set forth,
for the use and benefit of the Certificateholders. The Trustee does not have
any actual knowledge of any adverse claims, liens or encumbrances on any of
the assets so delivered, including without limitation, federal tax liens or
liens arising under ERISA. The Trustee shall execute and deliver to Patten
and the Depositor on the Closing Date the Initial Certification in the form
annexed hereto as Exhibit J-1 to the effect that it has received the documents
referred to in the definition of "Mortgage Documents" pertaining to each
Mortgage Loan listed on the Mortgage Loan Schedule, subject to its further
review of the Mortgage Documents pursuant to Section 2.2 and provided that the
Mortgage Documents need not include the Land Contract Deeds for purposes of
the Initial Certification.
The Trustee agrees, for the benefit of Certificateholders, to review
the Mortgage Documents within 45 days after the Closing Date to ascertain that
(i) all the Mortgage Documents required to be delivered by Section 2.1 have
been executed and received, (ii) the Mortgages (including the Land Contracts
to the extent an original is available), Land Contract Deeds and Assignments
have been filed or recorded or, if certified copies of any Mortgages, Land
Contract Deeds or Assignments are delivered to the Trustee on the Closing Date
in accordance with the definition of "Mortgage Documents" or "Assignment,"
that such certified copies have been received by the Trustee, and (iii) such
documents relate to the Mortgage Loans, and the Trustee shall deliver to
Patten, the Depositor and the Servicer (if other than Patten) an Interim
Certification, in the form annexed hereto as Exhibit J-2, to the foregoing
effect. In so doing the Trustee may rely on the purported due execution and
genuineness of any such document and on the purported genuineness of any
signature thereon. The Trustee shall have no responsibility for reviewing any
Mortgage Document except as expressly set forth in this Section 2.2. The
Trustee shall be under no duty or obligation to inspect, review or examine any
such documents, instruments or certificates to independently determine that
they are genuine, enforceable or appropriate for the represented purpose,
whether
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the text of any assignment or endorsement is in proper or recordable form
(except, if applicable, to determine if the Trustee is the assignee or
endorsee or if the endorsement or assignment on the Mortgage Note or Land
Contract conforms to the requirements of the definition of "Mortgage
Documents"), whether any document has been recorded in accordance with the
requirements of any applicable jurisdiction, or to independently determine
that any document has actually been filed or recorded or that any document is
other than what it purports to be on its face.
Prior to the 9-month anniversary date of the Closing Date, the Trustee
shall deliver to Patten, the Depositor and the Servicer (if other than Patten)
a Final Certification in the form annexed hereto as Exhibit J-3 evidencing the
completeness of the Mortgage Documents required to be delivered pursuant to
Section 2.1 and certifying that the Mortgages (including the Land Contracts),
Land Contract Deeds and Assignments have all been filed or recorded.
If the Trustee finds any document constituting a part of the Mortgage
Documents not to have been executed, recorded, delivered or received pursuant
to the terms hereof or to be unrelated to the Mortgage Loans or to be
otherwise missing or defective (that is, mutilated, damaged, defaced,
incomplete, improperly dated, clearly forged or otherwise physically altered)
in any material respect, the Trustee shall promptly (and in any event within
five Business Days after such discovery) notify Patten thereof. Within 60
days from the date it was notified of such omission or defect, Patten shall,
at its option, (i) cure such omission or defect in all material respects; (ii)
repurchase the Mortgage Loan in accordance with the provisions of Section 2.3;
or (iii) substitute in place of the related Mortgage Loan a Qualified
Replacement Mortgage Loan or Loans in accordance with the provisions of
Section 2.3. It is understood and agreed that the obligation of Patten to
cure any material defect in or omission of a constituent document with respect
to a Mortgage Loan shall constitute the sole remedy respecting such defect or
omission available to the Certificateholders or the Trustee on behalf of
Certificateholders.
Section 2.3 Representations and Warranties of Patten. Patten hereby
represents and warrants to the Trustee that:
(a) With respect to each individual Mortgage Loan as of the Cut-off
Date, or as of the date such Mortgage Loan is deposited in the Trust Fund in
the case of a Qualified Replacement Mortgage Loan:
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(1) The information set forth on the Mortgage Loan
Schedule is complete, true and correct as of the Cut-off Date;
(2) Immediately prior to the transfer of such Mortgage Loan to the
Trustee, the Depositor had good and marketable title to, or
beneficial ownership of, the Mortgage Note and the Mortgage,
and was the sole owner and holder of the Mortgage Loan free
and clear of any and all liens, claims, encumbrances,
participation interests, equities, pledges, charges or
security interests of any nature and had full right and
authority, subject to no interest or participation of, or
agreement with, any other party, to sell and assign the same
pursuant to this Agreement. The Depositor has validly and
effectively transferred or caused to be transferred the
Mortgage Loan to the Trustee, free and clear of any and all
liens, claims, encumbrances, participation interests, equities,
pledges, charges or security interests of any nature;
(3) With respect to Mortgages that are not Land Contracts, the
Mortgage securing such Mortgage Loan has been duly recorded
or submitted for recording in the proper public office and is
a valid and enforceable first lien on the fee simple interest
in the property therein described, and the Mortgaged Property
is free and clear of all encumbrances and liens having
priority over the first lien of the Mortgage subject only to
taxes and assessments not yet due and payable, and covenants,
conditions and restrictions, rights of way, easements and
other matters of public record as of the date of recording of
such Mortgage, such exceptions appearing of record being
acceptable to mortgage lending institutions generally; each
Land Contract, to the extent an original is available, and
Land Contract Deed has been duly recorded or submitted for
recording in the proper public office, or will be so submitted
in accordance with Section 2.1, and the Land Contract Deed upon
recordation will be sufficient to convey to
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the Trustee the fee simple interest in the property
therein described, and such Mortgaged Property is free and
clear of all encumbrances and liens having priority over the
fee interest of the Trustee subject only to the rights of the
Obligor under the related Land Contract, taxes and assessments
not yet due and payable, and covenants, conditions and
restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Land Contract
Deed, such exceptions appearing of record being acceptable to
mortgage lending institutions generally;
(4) The terms of the Mortgage Note and the Mortgage have not been
impaired, altered or modified in any respect, except by a
written instrument which has been recorded, if necessary to
protect the interest of Certificateholders and which has been
delivered to the Trustee, or except as is otherwise reflected
in the Mortgage Loan Schedule;
(5) No instrument of release or waiver has been executed in
connection with the Mortgage Loan, and no Obligor has been
released, in whole or in part, except in connection with an
assumption agreement which has been delivered to the Trustee,
except as is otherwise reflected in the Mortgage Loan
Schedule;
(6) To the best of Patten's knowledge, there are no defaults
(other than as set forth in Section 2.3(b)(5) and
delinquencies which are less than 31 days past due) in
complying with the terms of the Mortgage, and all taxes,
governmental assessments, insurance premiums, water, sewer and
municipal charges, leasehold payments or ground rents which
previously became due and owing have been paid;
(7) There is no proceeding pending or, to the best of Patten's
knowledge, threatened for the total or partial condemnation
of the Mortgaged Property, nor is such a proceeding currently
occurring, and, to the best of
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Patten's knowledge, such property is undamaged by waste,
fire, earthquake or earth movement, windstorm, flood or other
casualty, so as to affect adversely the value of the Mortgaged
Property as security for the Mortgage Loan;
(8) To the best of Patten's knowledge, there are no mechanics' or
similar liens or claims which have been filed for work, labor
or material (and no rights are outstanding that under law
could give rise to such lien) affecting the Mortgaged
Property which are, or may be, liens prior or equal to, or
coordinate with, the lien of the Mortgage, or the fee interest
of the Trustee in the case of Mortgaged Properties subject to
Land Contracts;
(9) All of the improvements which were included for the purpose
of determining the Appraised Value of the Mortgaged Property
lie wholly within the boundaries and building restriction
lines of such property and do not encroach upon easements
burdening the Mortgaged Property, and, to the best of
Patten's knowledge, no improvements on adjoining properties
encroach upon the Mortgaged Property. The Mortgaged Property
fronts on and is contiguous to a public road or easements or
other legal rights benefit the Mortgaged Property which allow
access thereto. The Mortgaged Property either has all
necessary permits and approvals for ingress to and egress from
the Mortgaged Property over such public road or easements or
other legal rights benefit the Mortgaged Property which allow
access to such public road;
(10) To the best of Patten's knowledge, no improvement located on
or being part of the Mortgaged Property is in violation of
any applicable zoning law or regulation;
(11) To the extent required under applicable law, Patten and its
Affiliates, or, to the best of Patten's knowledge, each other
mortgagee
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under the Mortgage was authorized to transact and do
business in each jurisdiction in which such authorization is
necessary for Patten, such Affiliates or such mortgagee to
transact and do business at all times when it held the Mortgage
Loan;
(12) The Mortgage Note and the related Mortgage are genuine, and
each is the legal, valid and binding obligation of the maker
thereof, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency and other similar laws
affecting the rights of creditors generally, and to general
principles of equity. All parties to the Mortgage Note and
the Mortgage had legal capacity to execute the Mortgage Note
and the Mortgage and each Mortgage Note and Mortgage have
been duly and properly executed by such parties;
(13) Any and all requirements of any federal, state or local law
including, without limitation, usury, truth-in-lending, real
estate settlement procedures, consumer credit protection,
equal credit opportunity or disclosure laws applicable to the
Mortgage Loan have been complied with, and Patten shall
maintain in its possession evidence of compliance with all
such requirements;
(14) The proceeds, if any, of the Mortgage Loan have been fully
disbursed, there is no requirement for future advances
thereunder and any and all requirements as to completion of
any on-site or off-site improvements and as to disbursements
of any escrow funds therefor have been complied with. All
costs, fees and expenses incurred in making, or closing or
recording the Mortgage Loans were paid;
(15) Except as set forth in Section 2.3(b)(5) and delinquencies
which are less than 31 days past due, and except as is
otherwise reflected in the Mortgage Loan Schedule, there is
no default, breach, violation or event of acceleration
existing under the Mortgage or the related Mortgage Note and no
event which,
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with the passage of time or with notice and the
expiration of any grace or cure period, would constitute a
default, breach, violation or event of acceleration; and
neither Patten nor any of its Affiliates have waived any
default, breach, violation or event of acceleration, except any
default, breach, violation or event of acceleration as may have
been previously cured by the related Obligor;
(16) The Mortgage Loan is not subject to any right of
rescission, set-off, counterclaim or defense, including the
defense of usury, nor will the operation of any of the terms of
the Mortgage Note or the Mortgage, or the exercise of any right
thereunder, render either the Mortgage Note or the Mortgage
unenforceable, in whole or in part, or subject to any right of
rescission, set-off, counterclaim or defense, including the
defense of usury, and no such right or rescission, set-off,
counterclaim or defense has been asserted with respect thereto;
(17) Except in the case of the Missouri Loans and the
Full Floating Loan, the related Mortgage Note is payable in
self-amortizing installments of principal and interest, with
interest payable in arrears, over an original term of not more
than 30 years. The current Mortgage Interest Rate borne by the
related Mortgage Note (or in the case of a Land Contract where
there is no separate Mortgage Note, by the Land Contract) is
not less than 5.98% and not greater than 18.0%. Except for a
Current Market Rate Loan and a Missouri Loan, the Mortgage
Interest Rate on an adjustable-rate Mortgage Note is subject to
adjustment on each Rate Adjustment Date to a new Mortgage
Interest Rate equal to the sum of the Current Index plus the
Gross Margin, subject to the limitations imposed by the
Periodic Rate Cap and Lifetime Rate Cap, if any. Except for a
Current Market Rate Loan and a Missouri Loan, the Gross Margin
for an adjustable-rate Mortgage Loan is not less than 0.0% or
more than 10.9%. With respect to an adjustable rate
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Mortgage Loan, other than a Missouri Loan or Full
Floating Loan, on each Rate Adjustment Date, the Obligor's new
Periodic Payment with respect to each such Mortgage Loan will
be adjusted to an amount equal to the payment which when paid
in substantially equal installments during the then remaining
term of such Mortgage Loan would amortize fully the unpaid
principal balance of such Mortgage Loan at the then applicable
Mortgage Interest Rate. No such Mortgage Loan other than a
Missouri Loan or a Full Floating Loan contains terms or
provisions that would result in negative amortization. With
respect to the remaining adjustable-rate Mortgage Loans, except
as otherwise reflected in the Private Placement Memorandum
dated May 11, 1994 the Obligor's Periodic Payment with respect
to each such Mortgage Loan will be adjusted no less than
annually to an amount equal to the payment which when paid in
substantially equal installments during the then remaining term
of such Mortgage Loan would amortize fully the unpaid principal
balance of such Mortgage Loan at the then applicable Mortgage
Interest Rate;
(18) The related Mortgage Note is not and has not been
secured by any collateral except the lien of the corresponding
Mortgage (including the retention of title with respect to a
Land Contract), other than any guarantee of the Mortgage Loan;
(19) The related Mortgage contains customary and
enforceable provisions which render the rights and remedies of
the holder thereof adequate for the realization against the
Mortgaged Property of the benefits of the security, including,
(i) in the case of a Mortgage designated as a deed of trust, by
trustee's sale and (ii) in all other cases, by judicial
foreclosure (or retention of title in the case of a terminated
Land Contract). There is no homestead or other exemption
available to the Mortgagor which would interfere with the right
to sell the
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Mortgaged Property at a trustee's sale or the right to
foreclose the Mortgage or the right to retain title in the case
of a terminated Land Contract;
(20) With respect to each Mortgage constituting a deed
of trust, a trustee, duly qualified under applicable law to
serve as such, has been properly designated and currently so
serves and is named in such Mortgage, and no fees or expenses
are or will become payable by the Trustee or the
Certificateholders to the trustee under the deed of trust;
(21) The Mortgaged Property is located in the state
identified in the Mortgage Loan Schedule and consists of either
raw land, a condominium or a one-family residence;
(22) The Mortgage Loan was underwritten in accordance
with Patten's then prevailing customary and usual underwriting
standards;
(23) There exist no deficiencies with respect to
escrow deposits and payments, if such are required, for which
customary arrangements for repayment thereof have not been
made, and no escrow deposits or payments of other charges or
payments due Patten or any of its Affiliates have been
capitalized under the Mortgage or the related Mortgage Note;
(24) The origination and collection practices used by
Patten and its Affiliates with respect to the Mortgage Loan
have been in all respects legal, proper, prudent and customary
in the mortgage servicing business for mortgage loans similar
to the Mortgage Loans;
(25) The Mortgage Note, the Mortgage, the Assignment
and any other documents required to be delivered pursuant to
Section 2.1 with respect to the Mortgage Loan have been
delivered to the Trustee;
(26) Other than the Monthly Advance provided for in
Section 4.2, there is no obligation on the
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part of Patten or any other Person to make supplemental
payments in addition to those made by the Obligor;
(27) There is no pledged account or other security
other than real estate securing the Obligor's obligations other
than any guarantee of the Mortgage Loan. Neither Patten nor
any Affiliate thereof, including the Depositor, has guaranteed
the Mortgage Loan;
(28) No adjustable-rate Mortgage Loan contains a
provision allowing the related Obligor to convert such Mortgage
Loan into a fixed-rate Mortgage Loan;
(29) The Mortgaged Property consists of an estate in
fee simple as evidenced by a recorded deed, or a vendee's
interest under a Land Contract to which the fee simple interest
of the Trustee is subject, in real property and improvements
located on the Mortgaged Property with such appurtenant and
indefeasible rights and easements as are necessary for the
legal operation, occupancy and use thereof;
(30) No more than 3% of the Mortgage Loans (by Cut-off
Date Principal Balance) are secured by Mortgaged Properties
that are not covered by a title insurance policy. With respect
to the remainder of the Mortgage Loans, either the Development
in which the Mortgaged Property relating to the Mortgage Loan
is located is covered by an owner's title insurance policy or
the Mortgaged Property relating to the Mortgage Loan is covered
by a lender's title insurance policy; each such title insurance
policy is in full force and effect and will be in full force
and effect upon the consummation of transactions contemplated
by this Agreement; no claims have been made under such title
insurance policy; full premiums for the policy, endorsements or
all special endorsements have been paid; and no prior holder of
the related Mortgage, including Patten or any Affiliate
thereof, has done anything, by act or omission, or possessed
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any knowledge of any matter, which would impair or
diminish the coverage of such title insurance policy;
(31) Patten has no actual knowledge of any
circumstances with respect to the Obligor, the Mortgage, the
Mortgaged Property or any guarantor of the Mortgage Loan that
can reasonably be expected to cause the Mortgage Loan to become
delinquent, other than as specified in Section 2.3(b)(5) and
delinquencies that are less than 31 days past due, and other
than defaults previously cured by the Obligor;
(32) There is no current obligation on the part of any
person to make payments on behalf of the Obligor in respect of
the Mortgage Loan except that there may be a guarantor who is
guaranteeing full and timely payment of the Mortgage Loan until
the maturity thereof. No such guarantor has been released from
such guarantee and no such release is contemplated;
(33) The Mortgage Note and, if applicable, the Land
Contract, has been or will be endorsed pursuant to the
requirements of the definition of "Mortgage Documents" and
Section 2.1 and, together with the Mortgage, the Assignment and
any other documents required to be delivered under this
Agreement, have been or will be delivered to the Trustee. The
Servicer is in possession of all documents relating to the
Mortgage, other than the Mortgage Documents and any other
documents held by the Trustee, and there are no custodial
agreements in effect adversely affecting the right or ability
of the Trustee to make the deliveries required under this
Agreement;
(34) To the best of Patten's knowledge, the Mortgaged
Property is not now and has never been used to generate,
manufacture, refine, transport, treat, store, handle, dispose
of, transfer, produce, process or in any manner deal with
gasoline, petroleum products, ex-
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plosives, radioactive materials, hazardous materials,
hazardous wastes, hazardous or toxic substance, polychlorinated
biphenyls or related or similar materials, asbestos or any
material containing asbestos, or any other substance or
material as may be defined as a hazardous or toxic substance by
any Federal, state or local environmental law, ordinance, rule,
or regulation ("Hazardous Materials") in violation of any such
Federal, state or local environmental law, ordinance, rule or
regulation. To the best of Patten's knowledge, no Hazardous
Materials have ever been installed, placed, or in any manner
dealt with on the Mortgaged Property in violation of any such
Federal, state or local environmental law, ordinance, rule or
regulation. To the best of Patten's knowledge, no owner,
including Patten or any Affiliate thereof, operator or manager
of the Mortgaged Property or any tenant, subtenant, occupant,
prior tenant, prior subtenant, prior occupant or Person
(collectively, "Occupant") has received any notice or advice
from any governmental agency or any Occupant with regard to
Hazardous Materials on, from or affecting the Mortgaged
Property; and
(35) Either, at the time of origination of the Mortgage Loan,
the fair market value of the related Mortgaged Property was not
less than 80% of the original principal balance of the Mortgage
Loan or, at the Cut-off Date, the fair market value of the
related Mortgaged Property was not less than 80% of the Cut-off
Date Principal Balance of the Mortgage Loan.
(b) With respect to the Mortgage Loans in the aggregate, as of the
Cut-off Date:
(1) No more than 1.3% of the Mortgage Loans (by
Cut-off Date Principal Balance) had a Loan-to-Value ratio at
origination of greater than 90% and no Mortgage Loan had a
Loan-to-Value Ratio at origination in excess of 100%;
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(2) Approximately 17.3% of the Mortgage Loans (by
Cut-off Date Principal Balance) bear a fixed rate of interest
(including Mortgage Loans as to which the holder thereof has
the option to adjust the rate of interest thereon but such
option has never been exercised on a prior Rate Adjustment
Date), and approximately 82.7% (by Cut-off Date Principal
Balance) bear an adjustable rate of interest (including Current
Market Rate Loans);
(3) Approximately 78.8% of the Mortgage Loans (by
Cut-off Date Principal Balance) contain a provision whereby
Patten or an Affiliate has the right to draw the Obligor's
Periodic Payment directly from the Obligor's bank account;
(4) No Mortgage Loan had a principal balance at
origination of less than $2,800 or more than $612,500, and the
average remaining Cut-off Date Principal Balance of the
Mortgage Loans was approximately $15,112;
(5) (i) 35 Mortgage Loans with an aggregate Cut-off
Date Principal Balance of approximately $478,232 were 30 Day
Delinquent Mortgage Loans, (ii) 6 Mortgage Loans with an
aggregate Cut-off Date Principal Balance of approximately
$59,557.16 were delinquent 90 or more days one time during the
12-month period preceding the Cut-off Date, (iii) 5 Mortgage
Loans with an aggregate Cut-off Date Principal Balance of
approximately $40,317 were delinquent 60 days more than one
time during the 12-month period preceding the Cut-off Date and
(iv) 31 Mortgage Loans with an aggregate Cut-off Date Principal
Balance of approximately $405,038 were delinquent 30 days more
than two times during the 12-month period preceding the Cut-off
Date (with all delinquencies measured as of Patten's fiscal
month end);
(6) Approximately 91.7% (by Cut-off Date Principal
Balance) of the adjustable-rate Mortgage Loans have an Index
based upon the prime rate
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as reported in The Wall Street Journal, approximately
8.3% have an Index based upon another source, including 3.3%
that are Current Market Rate Loans; and
(7) Approximately eighteen Mortgage Loans with an
aggregate Cut-off Date Principal Balance of approximately
$192,302 were secured by a Mortgaged Property consisting of a
condominium.
(c) With respect to Patten as of the Closing Date:
(1) Patten and each Affiliate of Patten which
originated one or more of the Mortgage Loans (except for
Affiliates which have been merged into Patten) are (or, with
respect to each such Affiliate, was at the time of origination
of the related Mortgage Loan) duly organized, validly existing
and in good standing under the laws of the states of their
respective incorporation or formation, and are (or, with
respect to each such Affiliate, was at the time of origination
of the related Mortgage Loan) duly qualified as foreign
corporations authorized to do business in every other state
where the nature of their respective businesses requires such
qualification;
(2) Patten and each Affiliate of Patten which
originated one or more of the Mortgage Loans are (or, with
respect to each such Affiliate, was at the time of origination
of the related Mortgage Loan) duly licensed to transact
business under all applicable laws and have obtained all
governmental approvals required to be obtained in order to
conduct their respective businesses as now being and hereafter
proposed to be conducted and all such governmental approvals
are in full force and effect, except where the failure to be so
licensed or obtain such approvals would not, in any one
instance or in the aggregate, have a material adverse effect on
Patten and such Affiliates taken as a whole;
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(3) The execution and delivery of this Agreement and
the full performance thereof by Patten and any Affiliate which
is a party hereto, do not and will not violate any provisions
of the Articles of Organization or By- laws of Patten or such
Affiliate or any agreement to which Patten or any Affiliate is
a party or by which Patten or any Affiliate is bound;
(4) This Agreement has been duly and validly
authorized, executed and delivered by Patten and any Affiliate
which is a party hereto, and is a legal, valid and binding
agreement of Patten and any such Affiliate enforceable against
them in accordance with its terms, except as rights to
indemnity hereunder may be limited by applicable federal or
state securities laws;
(5) Except as set forth on Exhibit F, there is no
action, suit, proceeding, governmental investigation or
arbitration (whether or not by its terms purportedly on behalf
of Patten or any of its Affiliates) at law or in equity or
before or by any federal, state, municipal or other
governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, pending, or to the
knowledge of any of such Persons probable of assertion, against
Patten or any of its Affiliates, or any violation of any
applicable law, any of which individually or in the aggregate
could reasonably be expected to (i) result in any material
adverse change in the business, operations, properties, assets
or condition (financial or otherwise) of Patten and its
Affiliates taken as a whole or a material amount of the
Mortgage Loans, or (ii) have a material adverse effect on the
ability of Patten to perform its obligations under this
Agreement;
(6) Each assignment of the Mortgage Loans since
origination up through and including the Assignment to the
Trustee has been made for reasonably equivalent value and fair
consideration;
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(7) Neither this Agreement nor any statement, report
or other document furnished or to be furnished pursuant to this
Agreement or in connection with the transactions contemplated
hereby contains any untrue statement of a material fact or
omits to state a material fact necessary to make the statements
contained herein or therein in light of the circumstances under
which made not misleading;
(8) In selecting the Mortgage Loans, no selection
procedures were employed which are adverse to the interests of
the Certificateholders;
(9) The transfer, assignment and conveyance of the
Mortgage Notes and the Mortgages to the Trustee pursuant to
Section 2.1 are not subject to the bulk transfer or any similar
statutory provisions in effect in any applicable jurisdiction;
(10) Patten does not believe, nor does it have any
reason or cause to believe, that it or its applicable Affiliate
cannot perform each and every covenant contained in this
Agreement to be performed by them;
(11) The transfer of the Mortgage Loans in the manner
contemplated hereby is sufficient to transfer fully to the
Trustee for the benefit of the Certificateholders the ownership
of the Mortgage Loans;
(12) Patten has no knowledge of any default, breach,
violation or event existing under this Agreement or any event,
which, with the passage of time or the giving of notice, or
both, would constitute such a default, breach or violation and
Patten has not waived any such default, breach or violation;
(13) The rights of the holder of the Mortgage Loans to
receive payments of principal and interest due thereon after
the Cut-off Date is not subordinate or junior to the rights of
any other Person to receive such payments;
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(14) No information, certificate of an officer,
statement furnished in writing or report delivered to the
Trustee by Patten or any of its Affiliates will, to the
knowledge of Patten, contain any untrue statement of a material
fact or omit a material fact necessary to make the information,
certificate, statement or report in light of the circumstances
under which made or given not misleading;
(15) Patten and its affiliates, including the
Depositor, have reflected the sale of the Mortgage Loans to the
Trustee on their books and records; Patten and its Affiliates,
including the Depositor, will treat the transfer of the
Mortgage Loans to the Trustee as a sale for tax and accounting
purposes; and Patten and its Affiliates, including the
Depositor, will respond to all third party inquiries that the
Mortgage Loans have been sold to the Trustee;
(16) The transfer of the Mortgage Loans to the
Depositor and by the Depositor to the Trust Fund was not made
with the intent to hinder, delay or defraud creditors;
(17) The Depositor is solvent on the date hereof and
will be solvent after giving effect to the closing of the
transactions contemplated by this Agreement; and
(18) After giving effect to the simultaneous
transactions occurring on the Closing Date, none of Patten's
Affiliates transferring any of the Mortgage Loans to the
Depositor will have any indebtedness or liabilities of any
kind, and each of such entities and Patten will be solvent.
With respect to the representations and warranties set forth in
Sections 2.3(a)(6), (8), (9), (10), (11) and (34) that are made to the best of
Patten's knowledge or as to which Patten has no knowledge, if it is discovered
by Patten, the Servicer or the Trustee that the substance of such
representation and warranty is inaccurate and such inaccuracy materially and
adversely
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affects the interests of the Certificateholders in a Mortgage Loan then,
notwithstanding Patten's lack of knowledge with respect to the substance of
such representation and warranty being inaccurate at the time the
representation or warranty was made, such inaccuracy shall be deemed a breach
of the applicable representation or warranty.
(d) It is understood and agreed that the representations and
warranties set forth in this Section 2.3 shall survive delivery of the
Mortgage Loans to the Trustee. Upon discovery by any of Patten, the Servicer
or the Trustee of a breach of any of the foregoing representations and
warranties which materially and adversely affects the interests of the
Certificateholders in a Mortgage Loan, the party discovering such breach shall
give prompt written notice to the other. Within 60 days of its discovery
or its receipt of notice of breach, or, with the prior written consent
of a Responsible Officer of the Trustee, such longer period specified in such
consent (a copy of which shall be provided by the Trustee to the Rating Agency),
Patten shall, at its option (i) cure such breach in all material respects; (ii)
repurchase the related Mortgage Loan; or (iii) substitute in place of such
Mortgage Loan a Qualified Replacement Mortgage Loan or Loans provided such a
substitution may only be effected prior to the second anniversary of the Closing
Date and subject to Section 2.3(f). Any repurchase shall be accomplished by
Patten depositing in the Collection Account the Purchase Price for the
appropriate Mortgage Loan within such 60 day period (or such longer period as
may be specified in the Trustee's consent) and such repurchase shall be deemed
to have occurred as of the Business Day preceding the Remittance Date next
following such deposit. The Trustee shall not be charged with knowledge of any
breach of the foregoing representations unless a Responsible Officer of the
Trustee at the Corporate Trust Office has actual knowledge of such breach or
receives written notice of such breach from Patten or the Holders of
Certificates of any Class evidencing, as to such Class, Percentage Interests
aggregating not less than 25%. Notwithstanding anything to the contrary
contained in this Agreement, in the event that it is discovered that a Mortgage
Loan is in breach of the representations contained in Sections 2.3(a)(3) or
2.3(a)(36), or otherwise is not a "qualified mortgage" within the meaning of the
REMIC Provisions, Patten shall, in all events, cure such breach or repurchase or
substitute such Mortgage Loan, as described above, within 90 days of the date of
discovery of such breach.
(e) In the event of a substitution of a Defective Mortgage Loan, as to
any Qualified Replacement Mortgage Loan or
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Loans, Patten shall deliver to the Trustee for such Qualified Replacement
Mortgage Loan or Loans the Mortgage Note, the Mortgage, the related
Assignment, and such other documents and agreements as are required by Section
2.1 within the 60-day period (or such longer period as may be specified in the
Trustee's consent) referred to in subsection (d) of this Section 2.3 and such
substitution shall be deemed to have occurred as of the Business Day preceding
the Remittance Date next following such delivery. For any month during which
Patten substitutes one or more Qualified Replacement Mortgage Loans, Patten
shall determine the amount, if any, by which the sum of (i) the aggregate
Principal Balances of all such Qualified Replacement Mortgage Loans at the end
of such month is less than (ii) the aggregate Purchase Prices for the related
Defective Mortgage Loans had such Mortgage Loans been purchased on the
Business Day next preceding the Remittance Date next following such
substitution. The amount of such shortfall for any month computed by Patten
shall be deposited by it in the Collection Account on the Business Day next
preceding the Remittance Date in the Collection Period following the
Collection Period of substitution. All amounts received in respect of the
Qualified Replacement Mortgage Loan or Loans prior to the Business Day
preceding the Remittance Date on which such substitution occurs shall not be a
part of the Trust Fund and shall not be deposited by Patten in the Collection
Account. All amounts received by the Servicer prior to the Business Day
preceding the Remittance Date on which such substitution occurs in respect of
any Defective Mortgage Loan shall be deposited by the Servicer in the
Collection Account. Patten shall amend the Mortgage Loan Schedule to reflect
the removal of such Defective Mortgage Loan and the substitution of the
Qualified Replacement Mortgage Loan or Loans. Upon such substitution, the
Qualified Replacement Mortgage Loan or Loans shall be subject to the terms of
this Agreement in all respects, and Patten shall be deemed to have made with
respect to such Qualified Replacement Mortgage Loan or Loans, as of the date
of substitution, the covenants, representations and warranties set forth in
this Section.
(f) Notwithstanding any other provision of this Agreement, the right
to substitute Mortgage Loans pursuant to this Article II shall be subject to
the additional limitations that any substitution of a Qualified Replacement
Mortgage Loan for a Defective Mortgage Loan shall be made within 90 days of
the Closing Date, unless the Trustee has received an Opinion of Counsel (at
the expense of Patten) that, under the current law, such substitution will not
either (A) affect adversely the status of the Trust REMIC as a REMIC, of the
Class A and Subordinate
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Certificates as "regular interests" in the Trust REMIC or (B) cause the Trust
REMIC to be subject to a "prohibited transaction tax" pursuant to Section 860F
of the Code or "prohibited contribution tax" pursuant to Section 860G(d) of
the Code.
(g) In addition to the obligation of Patten to cure, substitute for
(to the extent permitted herein) or repurchase any Mortgage Loan as to which a
breach under this Section 2.3 occurred and is continuing, Patten shall
indemnify the Trustee and the Certificateholders and hold them harmless
against any losses, damages, penalties, fines, forfeitures, legal fees and
related costs, judgments and other costs and expenses resulting from any
claim, demand, defense or assertion to the extent resulting from a breach of
any representation or warranty contained in this Section 2.3. It is
understood and agreed that the above obligations of Patten shall constitute
the sole remedies respecting such breach available to Certificateholders or
the Trustee on behalf of Certificateholders. Nothing contained herein shall
limit the rights of the Trustee under Section 9.5.
Section 2.4 Execution, Countersignature and Delivery of Certificates.
The Trustee acknowledges the transfer and assignment to it of the Trust Fund
and, concurrently with such transfer and assignment, has caused to be
executed, countersigned and delivered to or upon the order of the Depositor,
in exchange for the Trust Fund, Certificates in authorized denominations
evidencing the entire ownership of the Trust Fund.
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ARTICLE III
ADMINISTRATION AND SERVICING OF MORTGAGE LOANS
Section 3.1 Servicer. The Servicer shall service and administer the
Mortgage Loans on behalf of the Trustee and in the best interests of and for
the benefit of the Certificateholders (as determined by the Servicer in its
reasonable judgment) in accordance with the terms of this Agreement and the
Mortgage Loans, giving due consideration to legal, proper, prudent and
customary standards of practice in the mortgage servicing business for
mortgage loans similar to the Mortgage Loans and with a view to the
maximization of timely recovery of principal and interest on the Mortgage
Loans but without regard to (i) any relationship that the Servicer or any
Affiliate of the Servicer may have with any Mortgagor or any Affiliate of any
Mortgagor; (ii) the ownership of any Certificate by the Servicer or any
Affiliate of the Servicer; (iii) the Servicer's obligations to make Monthly
Advances or to incur servicing expenses with respect to the Mortgage Loans; or
(iv) the Servicer's right to receive compensation for its services hereunder
or with respect to any particular transaction. Subject to the above-described
servicing standards (herein referred to as "Accepted Servicing Practices") and
the terms of this Agreement (and in particular Section 11.3) and of the
Mortgage Loans, the Servicer shall have full power and authority to do any and
all things in connection with such servicing and administration which it may
deem necessary or desirable and consistent with the terms of this Agreement.
Without limiting the generality of the foregoing, the Servicer shall continue,
and is hereby authorized and empowered by the Trustee, to determine the
amount, and notify the related Obligor, of any changes to the Mortgage
Interest Rate of an adjustable-rate Mortgage Loan as fully as if the Servicer
were the holder of the related Mortgage Note, and to execute and deliver, on
behalf of itself, the Certificateholders, the Trustee or any of them, any and
all instruments of satisfaction or cancellation, or of partial or full release
or discharge and all other comparable instruments, with respect to the
Mortgage Loans and with respect to the Mortgaged Properties. The Trustee
shall execute and deliver to the Servicer any such documents as are provided
to the Trustee necessary or appropriate to enable the Servicer to carry out
its servicing and administrative duties hereunder. Without limiting the
foregoing, in the event that an Obligor under a Land Contract satisfies all
obligations thereunder and is entitled to receive a deed to the related
Mortgaged Property, the Trustee shall execute and deliver a deed for such
Mortgaged Property if provided by the Servicer and in substantially the same
form as
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the Land Contract Deed pursuant to which the Trustee previously acquired title
to such Property, in favor of either the Servicer or the related Obligor as
may be directed by the Servicer.
The relationship of the Servicer to the Trustee under this Agreement is
intended by the parties to be that of an independent contractor and not that
of a joint venturer, partner or agent.
All costs incurred by the Servicer in effecting the timely payment of
taxes and assessments on the Mortgaged Properties underlying the Mortgage
Loans shall not, for the purpose of calculating monthly distributions to
Certificateholders, be added to the amount owing under the related Mortgage
Loans, notwithstanding that the terms of such Mortgage Loan so permit, and
such costs shall be recoverable by the Servicer to the extent permitted by
Section 3.4.
The Servicer is hereby directed that, with respect to any Mortgage Loan
which has the option for the holder of the Mortgage Note to adjust the
Mortgage Interest Rate thereon and such option has not been exercised on a
Rate Adjustment Date on or prior to the Closing Date, the Trustee, as owner of
the Mortgage Loan, hereby waives such option. Furthermore, the Servicer is
hereby directed that with respect to any adjustable rate Mortgage Loan, the
Mortgage Interest Rate of which adjusts more frequently than its Periodic
Payment, the Servicer shall not increase the Mortgage Interest Rate, on a Rate
Adjustment Date that is not a date on which the Periodic Payment adjusts, to a
rate that will cause any negative amortization of the Mortgage Loan.
Section 3.2 Collection of Certain Mortgage Loan Payments; Collection
Account; Certificate Account. (a) The Servicer shall proceed diligently to
collect all payments called for under the terms and provisions of the Mortgage
Loans, and shall, to the extent such procedures shall be consistent with this
Agreement, follow such collection procedures as it follows with respect to
mortgage loans comparable to the Mortgage Loans in its servicing portfolio.
Subject to Section 11.3 and consistent with the foregoing, the Servicer may in
its discretion waive any late payment charge or any assumption fees or other
fees which may be collected in the ordinary course of servicing such Mortgage
Loan.
(b) The Servicer shall establish and maintain one or more Collection
Accounts, each of which shall be an Eligible
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Account, into which the Servicer shall on the Closing Date deposit any amounts
representing Periodic Payments due after the Cut-off Date but received before
the Closing Date and any Principal Prepayments received after the Cut-off Date
but before the Closing Date. Thereafter the Servicer shall deposit into the
Collection Account on a daily basis the following payments and collections
received or made by it (other than in respect of principal of and interest on
the Mortgage Loans due on or before the Cut-off Date):
(i) All payments on account of principal, including Principal
Prepayments, received from, or on behalf of, the related Obligor;
(ii) All payments on account of interest at the Mortgage Interest
Rate on each Mortgage Loan received from, or on behalf of, the related
Obligor (net of the Servicing Fee);
(iii) All Liquidation Proceeds received by the Servicer with respect
to each Mortgage Loan;
(iv) All Insurance Proceeds which are not Liquidation Proceeds
(including, for this purpose, any amounts required to be deposited by
the Servicer pursuant to the last sentence of Section 3.5), other than
proceeds to be applied to the restoration or repair of the property
subject to the related Mortgage or released to the related Obligor in
accordance with the normal servicing procedures of the Servicer;
(v) The Purchase Price for any Defective Mortgage Loan repurchased
pursuant to Sections 2.2 and 2.3, or, if applicable, any Substitution
Adjustment, pursuant to said Sections;
(vi) All Monthly Advances made by the Servicer pursuant to Section
4.2; and
(vii) The purchase price for the Mortgage Loans repurchased
pursuant to Section 10.1.
The foregoing requirements respecting deposits by the Servicer into the
Collection Account are exclusive, it being understood that, without limiting
the generality of the foregoing, the Servicer need not deposit into the
Collection Account amounts representing fees or late charge penalties payable
by Obligors,
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which the Servicer is entitled to retain as additional servicing compensation,
or amounts received by the Servicer for the account of Obligors for
application towards the payment of taxes, insurance premiums, assessments and
similar items.
No later than the Business Day prior to each Remittance Date, the
entire Amount Available shall be remitted to the Trustee for deposit into the
Certificate Account by wire transfer in immediately available funds.
Amounts held in the Collection Account may be invested in one or more
Permitted Investments in the name of the Trustee, as trustee, in accordance
with written instructions from Patten. Such Permitted Investments shall
mature no later than the Business Day immediately preceding the Remittance
Date following such investment. Any investment earnings on funds in the
Collection Account shall be held by the Trustee for the benefit of the
Certificateholders and shall be considered part of the Collection Account for
determining the Amount Available on the Remittance Date following such
investment. Realized losses, if any, on amounts invested in the Collection
Account shall be credited against amounts in the Collection Account for
determining the Amount Available on the Remittance Date following such
investment. Permitted Investments of amounts held in the Collection Account
shall be held until maturity.
(c) On or before the Closing Date, the Trustee shall establish the
Certificate Account. The Certificate Account shall at all times be a non-
interest bearing Eligible Account and shall relate solely to the Certificates
and the Trustee shall have the exclusive right to withdraw funds therefrom.
The Trustee shall deposit into the Certificate Account on the Business Day
received all moneys remitted by the Servicer pursuant to Section 3.2(b). The
Trustee shall make withdrawals from the Certificate Account only for the
following purposes:
(i) to withdraw amounts deposited in the Certificate Account in
error;
(ii) to make distributions to the Certificateholders pursuant to
Section 5.1; and
(iii) to clear and terminate the Certificate Account pursuant to
Section 10.1.
Section 3.3 Collection of Taxes, Assessments and Other Items. The
Servicer shall pay or cause to be paid all taxes,
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assessments, hazard insurance premiums as required under Section 3.5 or
comparable items related to the Mortgage Loans when and as the same shall
become due and payable. A withdrawal from the Collection Account pursuant to
Section 3.4(viii) may be made only to reimburse the Servicer out of
collections on the related Mortgage Loan for any payments made regarding taxes
and assessments or for any payments made pursuant to Section 3.5 regarding
premiums on standard hazard insurance policies.
Section 3.4 Permitted Withdrawals from the Collection Account. The
Servicer may, on each Remittance Date, by Officers' Certificate instruct the
Trustee to make withdrawals from the Collection Account for the following
purposes and in the following order of priority:
(i) To reimburse the Servicer for Liquidation Expenses theretofore
incurred in respect of any Mortgage Loan in an amount not to exceed the
amount of the related Liquidation Proceeds deposited into the
Collection Account;
(ii) To pay to the Trustee any unpaid Trustee's Fee to which it is
entitled pursuant to Section 9.5 and to pay to the Servicer any unpaid
Servicing Fees to which it is entitled pursuant to Section 3.9 and as
additional servicing compensation the amount, if any, by which Net
Liquidation Proceeds in respect of a Liquidated Mortgage Loan are in
excess of the unpaid Principal Balance of such Liquidated Mortgage Loan
together with accrued and unpaid interest at the applicable Mortgage
Interest Rate on the declining Scheduled Principal Balance thereof from
the Installment Due Date to which interest was last paid by the
Mortgagor to the Installment Due Date next preceding the Remittance
Date on which such Mortgage Loan became a Liquidated Mortgage Loan;
(iii) To reimburse the Trustee for expenses pursuant to Section 9.5
and Patten or the Servicer to the extent permitted by Section 7.3;
(iv) To pay to Patten amounts received in respect of any Defective
Mortgage Loan repurchased by Patten to the extent that the distribution
of any such amounts on the Remittance Date upon which the proceeds of
such purchase are distributed would make the total amount distributed
in respect of any such
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Mortgage Loan on such Remittance Date greater than the Purchase Price
therefor;
(v) To pay to Patten amounts received in respect of Defective
Mortgage Loans which represent amounts due subsequent to the month of
substitution or which were not otherwise reflected in the calculation
of the related Purchase Price or any Substitution Adjustment;
(vi) To reimburse the Servicer for Monthly Advances theretofore
made in respect of any Mortgage Loan to the extent of late payments and
Liquidation Proceeds received, the Purchase Price paid or the
termination price paid pursuant to Section 10.1, in each case in
respect of such Mortgage Loan;
(vii) To reimburse the Servicer for any Nonrecoverable Advance;
(viii) To reimburse the Servicer out of collections on the related
Mortgage Loan for amounts paid by the Servicer for taxes, assessments,
hazard insurance premiums or comparable items pursuant to Sections 3.3
and 3.5, to the extent not paid or reimbursed by the related Obligor;
(ix) To withdraw from the Collection Account any amounts deposited
therein by error;
(x) To make payments to the Trustee for deposit into the
Certificate Account of the Amount Available in accordance with Section
3.2(b);
(xi) To pay any and all taxes imposed on the Trust REMIC by federal
or state governmental authorities to the extent such taxes have not
been paid pursuant to Section 11.1(c); and
(xii) To clear and terminate the Collection Account pursuant to
Section 10.1.
The Servicer shall keep and maintain a separate accounting, on a
Mortgage Loan by Mortgage Loan basis, for the purpose of justifying any
withdrawals from the Collection Account pursuant to clauses (i), (ii), (iv),
(v), (vi) and (viii) of this Section 3.4. Such justification shall be
included in every
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Officers' Certificate delivered to the Trustee pursuant to this Section 3.4.
Section 3.5 Maintenance of Hazard Insurance; Property Protection
Expenses. The Servicer shall cause to be maintained on each Mortgaged
Property on which a dwelling was located on the date of origination of the
related Mortgage Loan hazard insurance with extended coverage in an amount
which is at least equal to the maximum insurable value of the Improvements
securing the related Mortgage Loan from time to time or the Principal Balance
owing on such Mortgage Loan from time to time, whichever is less. To the
extent provided in Section 3.2(b)(iv), amounts collected by the Servicer under
any such policies shall be deposited into the Collection Account. Such costs
incurred by the Servicer in maintaining such hazard insurance shall be
recoverable by the Servicer pursuant to Section 3.3. In cases in which a
Mortgaged Property is located in a federally designated flood area and such
Mortgaged Property includes improvements thereon as of the date of origination
of the related Mortgage Loan, the hazard insurance to be maintained for such
Mortgaged Property shall include flood insurance. The Servicer shall be under
no obligation to require that any Obligor maintain earthquake or other
additional insurance and shall be under no obligation itself to maintain any
such additional insurance on a Mortgaged Property, other than pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance. If the Servicer shall obtain and maintain
a blanket policy insuring against hazard losses on all of the Mortgaged
Properties on which a dwelling is located, it shall conclusively be deemed to
have satisfied its obligations as set forth in the first sentence of this
Section 3.5, it being understood and agreed that such policy shall require
prior notice of cancellation, shall name the Trustee as an additional payee in
accordance with its interest and may contain a deductible clause, in which
case the Servicer shall, in the event that there shall not have been
maintained on the related Mortgaged Property a policy complying with the first
sentence of this Section 3.5, and there shall have been a loss which would
have been covered by such policy, deposit into the Collection Account, the
amount not otherwise payable under the blanket policy because of such
deductible clause.
Section 3.6 Assumption and Modification Agreements. In any case in
which a Mortgaged Property has been or is about to be conveyed by the Obligor,
the Servicer shall exercise its right to accelerate the maturity of such
Mortgage Loan under any "due-on-sale" clause applicable thereto. If a
Mortgage Loan contains no "due-on-sale" clause, such "due-on-sale" clause, by
its terms,
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is not operable or the Servicer is prevented, as provided in the last
paragraph of this Section 3.6, from enforcing any such clause, the Servicer is
authorized to take or enter into an assumption and modification agreement from
or with the Person to whom such Mortgaged Property has been or is about to be
conveyed pursuant to which such Person becomes liable under the Mortgage Note
and the Obligor remains liable thereon. The Servicer shall not take or enter
into any such assumption and modification agreement, however, unless (to the
extent practicable in the circumstances) it shall have received confirmation
of the continued effectiveness of any applicable hazard insurance policy. The
Servicer shall notify the Trustee that any assumption and modification
agreement has been completed and forward to the Trustee the original copy
thereof, which copy shall be added by the Trustee to the related Mortgage
Documents and shall, for all purposes, be considered a part of such Mortgage
Documents to the same extent as all other documents and instruments
constituting a part thereof. In connection with any such agreement, neither
the Servicer nor the Trustee shall permit modification of any term of the
Mortgage Loan. Any fee collected by the Servicer for entering into any such
agreement will be retained by the Servicer as additional servicing
compensation.
Notwithstanding the foregoing paragraph of this Section 3.6 or any
other provision of this Agreement, the Servicer shall not be deemed to be in
default, breach or any other violation of its obligations hereunder by reason
of any assumption of a Mortgage Loan, or transfer of the property subject to a
Mortgage without the assumption thereof, by operation of law or any assumption
or transfer which the Servicer reasonably believes, after due inquiry, it is
restricted by law from preventing, for any reason whatsoever.
Section 3.7 Realization upon Defaulted Mortgage Loans; Title and
Management of REO Property. (a) The Servicer shall foreclose upon or
otherwise comparably convert to ownership Mortgaged Properties securing such
of the Mortgage Loans as come into and continue in Default (as defined below)
and as to which no satisfactory arrangements can be made for collection of
delinquent payments pursuant to Section 3.2. For purposes of this Section
3.7(a), "Default" with respect to a Mortgage Loan shall mean a payment default
or any other material default under the terms of the Mortgage Loan, which
default continues unremedied for a period of more than 90 days. In connection
with such foreclosure or other conversion (including without limitation the
cancellation or other termination of the Obligor's rights under a Land
Contract), the Servicer shall follow such
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practices and procedures as it shall deem necessary or advisable and as shall
be normal and usual in its general mortgage servicing activities and as shall
be in accordance with Accepted Servicing Practices. The Servicer shall be
responsible for all other costs and expenses incurred by it in any such
proceedings; provided, however, that the Servicer shall be entitled to
reimbursement thereof from related Liquidation Proceeds to the extent provided
in Section 3.4. Notwithstanding the above, the Servicer shall not be entitled
to recover legal expenses incurred in connection with foreclosure proceedings
where the Mortgage Loan is reinstated and such foreclosure proceedings are
terminated prior to completion, other than sums received from the Obligor for
such expenses. The foregoing is subject to the provision that, in any case in
which property subject to a Mortgage shall have suffered damage from an
Uninsured Cause, the Servicer shall not be required to expend its own funds in
connection with any foreclosure or towards the restoration of such property
unless it shall determine in its discretion (a) that such restoration and/or
foreclosure will increase the proceeds of liquidation of the related Mortgage
Loan to Certificateholders after reimbursement to itself for such expenses and
(b) that such expenses will be recoverable by the Servicer through Liquidation
Proceeds from the related property, as contemplated in Section 3.4.
(b) In the event that title to any Mortgaged Property is acquired by
the Servicer for the benefit of Certificateholders in foreclosure or by deed-
in-lieu of foreclosure or otherwise, the deed or certificate of sale shall be
taken in the name of the Trustee, or its nominee, on behalf of the
Certificateholders. The Servicer, on behalf of the Trust Fund, shall sell any
REO Property as expeditiously as possible, but in all events within the time
period, and subject to the conditions, set forth in Section 11.2. Subject to
Section 11.2, the Servicer shall manage, conserve, protect and operate each
REO Property for the Certificateholders solely for the purpose of its prompt
disposition and sale.
If the Trust Fund acquires any REO Property, the Servicer shall have
full power and authority, subject only to the specific requirements and
prohibitions of this Agreement, to do any and all things in connection
therewith as are consistent with Accepted Servicing Practices, all on terms
and for such period as the Servicer deems to be in the best interest of
Certificateholders, and, consistent therewith, shall advance from its own
funds (i) all insurance premiums due and payable in respect of such REO
Property; (ii) all taxes and other impositions in respect of such REO Property
that could result or have resulted in the imposition
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of a lien thereon; and (iii) all costs and expenses necessary to maintain such
REO Property; in each such case, if, but only if, the Servicer would make
such an advance if it owned such REO Property, and, in the Servicer's
judgment, such amounts will be recoverable from related Liquidation Proceeds.
Section 3.8 Trustee to Cooperate; Release of Mortgage Documents. Upon
the payment in full of any Mortgage Loan, or the substitution or repurchase of
a Defective Mortgage Loan pursuant to Sections 2.2 or 2.3, the Servicer will
immediately notify the Trustee by a certification (which certification shall
include a statement to the effect that all amounts received in connection with
such payment, repurchase or substitution which are required to be deposited in
the Collection Account pursuant to Section 3.2 have been so deposited) of a
Servicing Officer and shall request delivery to it of the related Mortgage
Documents. Upon receipt of such certification and request, the Trustee shall
promptly release the related Mortgage Documents to the Servicer. Upon any
such payment in full, repurchase or substitution, the Servicer is authorized
to execute, pursuant to the authorization contained in Section 3.1, an
instrument of satisfaction regarding such Mortgage, which instrument of
satisfaction shall be recorded by the Servicer if required by applicable law
and be delivered to the Person entitled thereto, it being understood and
agreed that no expenses incurred in connection with such instrument of
satisfaction shall be reimbursed from amounts at the time deposited in the
Collection Account. From time to time and as appropriate for the servicing or
foreclosure of any Mortgage Loan, the Trustee shall, upon request of the
Servicer and delivery to the Trustee of a receipt signed by a Servicing
Officer, release the related Mortgage Documents to the Servicer and shall
execute such documents as shall be necessary to the prosecution of any such
proceedings. Such receipt shall obligate the Servicer to return the Mortgage
Documents to the Trustee when the need therefor by the Servicer no longer
exists unless the Mortgage Loan shall be liquidated, in which case, upon
receipt of a certificate of a Servicing Officer, the receipt shall be released
by the Trustee to the Servicer.
Section 3.9 Servicing Compensation; Payment of Certain Expenses by the
Servicer. The Servicer shall be entitled to instruct the Trustee to withdraw
from the Collection Account or to withhold and pay to itself as servicing
compensation out of each payment received by it on account of interest on each
Mortgage Loan an amount equal to the Servicing Fee. Additional servicing
compensation in the form of assumption fees, late payment charges or otherwise
shall be retained by the Servicer to
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the extent collected from the related Obligors and only to the extent in
excess of the full amount of the Periodic Payments on the related Mortgage
Loans. The Servicer shall be required to pay all expenses incurred by it in
connection with its activities hereunder (including payment of all other fees
and expenses not expressly stated hereunder to be for the account of the
Certificateholders) and shall not be entitled to reimbursement therefor except
as provided in Sections 3.3, 3.4 and 3.7.
Section 3.10 Annual Statement as to Compliance. The Servicer shall
deliver to the Trustee and to the Rating Agency, on or before September 30 of
each year, beginning September 30, 1995, an Officers' Certificate stating that
(a) a review of the activities of the Servicer during the 12 months ended July
31 (or from the Closing Date to July 31, 1995, with respect to the first such
Officers' Certificate) and of its performance under this Agreement has been
made under such officers' supervision and (b) to the best of such officers'
knowledge, based on such review, the Servicer has fulfilled all its
obligations under this Agreement throughout such period, or, if there has been
a default in the fulfillment of any such obligation, specifying each such
default known to such officers and the nature and status thereof.
Section 3.11 Annual Independent Public Accountant's Servicing Report.
On or before September 30 of each year, beginning September 30, 1995, the
Servicer, at its expense, shall direct a firm of independent public
accountants to furnish a statement to the Trustee and to the Rating Agency
stating that the firm has examined certain documents and records relating to
the servicing of the Mortgage Loans during the 12 months ended the last Sunday
of March of each year (or from the Closing Date to March 26, 1995, with
respect to the first such statement) and that, on the basis of the
examination, nothing has come to the attention of such firm that would cause
it to believe that the servicing has not been conducted in compliance with
this Agreement except for (a) exceptions as the firm believes are immaterial,
and (b) other exceptions as shall be set forth in the statement. Copies of the
statement shall be provided to the Certificateholders by the Servicer or by
the Trustee at the Servicer's expense if the Servicer fails to provide the
requested copies.
Section 3.12 Access to Certain Documentation and Information Regarding
the Mortgage Loans. The Servicer shall provide to the Trustee and
Certificateholders and their respective supervisory agents and examiners
access to the documentation regarding the Mortgage Loans required by
applicable laws and regulations, such access being afforded without charge but
only
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upon reasonable request and during normal business hours at the offices of the
Servicer. Nothing in this Section 3.12 shall derogate from the obligation of
the Servicer to observe any applicable law prohibiting disclosure of
information regarding the Obligors and the failure of the Servicer to provide
access as provided in this Section 3.12 as a result of such obligation shall
not constitute a breach of this Section 3.12.
Section 3.13 Maintenance of Certain Servicing Policies. (a) The
Servicer, at its expense, shall maintain in effect a Servicer Fidelity Bond
and a Servicer Errors and Omissions Insurance Policy, naming the Trustee as
loss payee, affording coverage for all directors, officers, employees and
other Persons acting on the Servicer's behalf. The Servicer Errors and
Omissions Insurance Policy and Servicer Fidelity Bond shall be in such form
and amount that would meet the requirements of the Rating Agency.
(b) The Servicer shall promptly report in writing to the Trustee any
material changes that may occur in any required Servicer Fidelity Bond or
Servicer Errors and Omissions Insurance Policy and shall furnish to the
Trustee copies of all binders and policies or certificates evidencing that
such bond and insurance policy are in full force and effect. The Servicer
shall promptly report in writing to the Trustee all cases of embezzlement or
fraud or irregularities of operation, suspected or otherwise, if such events
involve funds relating to the Mortgage Loans. The total losses, regardless of
whether claims are filed with the applicable insurer or surety, shall be
disclosed in such reports together with the amount of such losses covered by
insurance. If a bond or insurance claim report is filed with any of the
Servicer's bonding companies or insurers, a copy of such report shall be
promptly furnished to the Trustee.
Section 3.14 (a) Preparation of Tax Returns and Other Reports.
Subject to Section 11.1, the Trustee shall prepare or cause to be prepared on
behalf of the Trust Fund, in reliance upon the information, if any, furnished
by the Depositor and the Servicer in accordance with this Agreement and
pursuant to instructions given by the Holders of a majority in Percentage
Interests of the Class R Certificates, shall sign and shall file, Federal
income tax and information returns and appropriate state income tax and
information returns or such other returns as may be required by applicable law
relating to the Trust Fund. The Servicer and the Depositor shall provide to
the Trustee any information within the control of each that shall be
reasonably necessary to enable the Trustee to comply with the provisions of
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this Section 3.14(a). The Trustee shall forward to the Depositor and the
Servicer copies thereof and of quarterly and annual REMIC tax returns and Form
1099 information returns and such other information within the control of the
Trustee as the Depositor and the Servicer may reasonably request in writing.
Moreover, the Trustee shall forward to each Certificateholder such forms and
furnish such information within the control of the Trustee as are required by
the Code to be furnished to them, will prepare and file annual reports
required by the state authorities, will file copies of this Agreement with the
appropriate state authorities as may be required by applicable law and will
prepare and disseminate to Certificateholders Forms 1099 (or otherwise furnish
information within the control of the Trustee) to the extent required by
applicable law. The Servicer, the Depositor and the Class R
Certificateholders (but not the Trust Fund) shall indemnify the Trustee for
any liability of or assessment against the Trustee and any expenses incurred
in connection with such liability or assessment (including attorney's fees)
resulting from any error in any of such tax or information returns resulting
from errors in the information or instructions, as applicable, provided by the
Servicer, the Depositor or the Class R Certificateholders. The Trustee shall
indemnify the Servicer, the Depositor and the Class R Certificateholders for
any liability of or assessment against the Servicer, the Depositor or the
Class R Certificateholders and any expense incurred in connection with such
liability or assessment (including attorney's fees) resulting from any error
in any of such tax or information returns resulting from errors in the
preparation of such returns by the Trustee. Any such indemnification shall
survive the termination of this Agreement.
(b) The Trustee shall prepare, sign and file with the Internal Revenue
Service ("IRS"), on behalf of the Trust REMIC, an application for a taxpayer
identification number for the Trust REMIC on IRS Form SS-4. The Trustee, upon
receipt from the IRS of the Notice of Taxpayer Identification Number Assigned,
shall promptly forward a copy of such notice to the Servicer and the
Depositor. The Trustee shall prepare and file Form 8811 on behalf of the
Trust REMIC and shall designate an appropriate Person to respond to inquiries
by or on behalf of Certificateholders for original issue discount and related
information in accordance with applicable provisions of the Code.
Section 3.15 Trustee's Interest in the Trust Fund.
(a) Notwithstanding that the parties hereto intend that the conveyance
of the Depositor's right, title and interest
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on and to the Trust Fund pursuant to this Agreement shall constitute a
purchase and sale and not a pledge of security for a loan, the Servicer shall,
from time to time, cause to be taken such actions as are necessary to continue
the perfection of the Trustee's security interest in the Trust Fund (other
than any statutory lien arising by operation of law after the Closing Date
that is prior to such security interest), including, without limitation, the
filing of financing statements, amendments thereto or continuation statements
and the making of notations on the records or documents of title relating to
the Trust Fund.
(b) The Servicer will deliver to the Trustee and to the Rating Agency,
within 90 days after the beginning of each calendar year beginning with 1995,
an Opinion of Counsel, dated as of a date during such 90-day period, either
(i) stating that in the opinion of such counsel, all financing statements and
continuation statements have been executed and filed that are necessary fully
to continue the perfection of the Trustee's security interest in the personal
property in the Trust Fund in the event that the conveyance by the Depositor
to the Trustee pursuant to this Agreement is deemed to be a pledge for a loan,
and reciting the details of such filings or referring to prior Opinions of
Counsel in which such details are given, or (ii) stating that, in the opinion
of such counsel, no such action during that calendar year is necessary to
continue the perfection of such security interest.
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ARTICLE IV
SERVICER'S CERTIFICATE; MONTHLY ADVANCES; ETC.
Section 4.1 Servicer's Certificate. Each month, not later than 12:00
Noon Central Time on the third Business Day next preceding each Remittance
Date, the Servicer shall deliver to the Trustee and to the Rating Agency a
Servicer's Certificate stating the date (month and year), the dates of the
Collection Period and the Remittance Date to which such Certificate relates,
the Series number of the Certificates, the date of this Agreement, the Cut-off
Date Pool Principal Balance and the Class A Principal Balance, Class B
Principal Balance and Class C Principal Balances, in each case as of the
Closing Date and, as of the close of business on the Determination Date for
such month:
(i) The amount on deposit in the Collection Account as of the close
of business on the preceding Determination Date (listing separately
each amount deposited therein pursuant to Section 3.2(b)), reduced by
the sum of (a) the Amount Held for Future Distribution and (b) amounts
permitted to be withdrawn from the Collection Account pursuant to
Section 3.4 (listing separately each such amount);
(ii) The aggregate Purchase Prices for, and Principal Balances of,
any Defective Mortgage Loans which Patten will purchase on the Business
Day immediately preceding the following Remittance Date pursuant to
Sections 2.2 and 2.3 together with any Substitution Adjustment to be
deposited into the Collection Account on the Business Day next
preceding such Remittance Date pursuant to Section 2.3(e) in connection
with any substitution for a Defective Mortgage Loan;
(iii) The Principal Balances of all Mortgage Loans which were the
subject of Principal Prepayments in Full during the preceding
Prepayment Period;
(iv) The amount of all Principal Prepayments which were not
Principal Prepayments in Full and which were received during the
preceding Prepayment Period;
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(v) The Principal Balances of all Mortgage Loans which became
Liquidated Mortgage Loans during the preceding Prepayment Period;
(vi) The aggregate of Scheduled Balances of the Mortgage Loans for
the Remittance Date in the following month;
(vii) The amount of the Monthly Advance to be made on the following
Remittance Date;
(viii) The Amount Available and the Base Principal Distribution
Amount for the following Remittance Date;
(ix) The aggregate amount of the principal portion of the Periodic
Payments which were received during the preceding Collection Period;
(x) The aggregate amount of the interest portion of the Periodic
Payments which were received during the preceding Collection Period;
(xi) LIBOR used in determining the Class A, Class B and Class C
Pass-Through Rates as of the preceding Remittance Date;
(xii) LIBOR used in determining the Class A, Class B and Class C
Pass-Through Rates for the following Remittance Date;
(xiii) The Class A, Class B and Class C Pass-Through Rates for the
preceding Remittance Date;
(xiv) The Class A, Class B and Class C Pass-Through Rates for the
following Remittance Date;
(xv) The number and aggregate outstanding principal balances of
Mortgage Loans that were (a) 30 Day Delinquent Mortgage Loans, (b) 60
Day Delinquent Mortgage Loans, (c) Mortgage Loans which had a Periodic
Payment which remained unpaid for 90 or more days and (d) Mortgage
Loans that were in foreclosure, in each case as of the close of
business on the last day of the immediately preceding Collection
Period;
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(xvi) The amount of Realized Losses on the Mortgage Loans as of the
last day of the immediately preceding Collection Period;
(xvii) The statement of accounting required by Section 11.2(c); and
(xviii) The Remittance Certificate required to be delivered by the
Trustee to Certificateholders pursuant to Section 5.2.
Section 4.2 Monthly Advances. (a) If on any Determination Date, any
Periodic Payment due during the immediately preceding Collection Period has
not been received by the Servicer by such Determination Date, the Servicer
shall make a Monthly Advance unless, in the Servicer's sole discretion, the
Servicer determines that such Monthly Advance will be a Nonrecoverable
Advance. If the Servicer determines that it will make a Monthly Advance it
shall so indicate on the related Servicer's Certificate, and on the Business
Day prior to the related Remittance Date either (i) deposit in the Collection
Account an amount equal to such Monthly Advance, (ii) cause to be made an
appropriate entry in the records relating to the Collection Account that all
or a portion of the Amount Held for Future Distribution, as permitted by this
Section 4.2, has been used by the Servicer to make such Monthly Advance, or
(iii) make an advance in the form of any combination of (i) and (ii)
aggregating the amount of such Monthly Advance. Any such Monthly Advance
shall be included with the distribution to the Certificateholders on the
related Remittance Date. Any Amount Held for Future Distribution so used
shall be replaced by the Servicer by deposit from its own funds in the
Collection Account on or before any future Remittance Date to the extent that
funds in the Collection Account on such Remittance Date shall be less than
payments to Certificateholders required to be made on such date. The Servicer
shall be entitled to be reimbursed from the Collection Account for all Monthly
Advances and Nonrecoverable Advances as provided in Section 3.4.
Section 4.3 Reports of Foreclosures and Abandonment of Mortgaged
Property. Each year beginning in 1995, the Trustee shall prepare and execute
the reports of foreclosures and abandonments of any Mortgaged Property
required by Section 6050J of the Code. In order to facilitate this reporting
process, the Servicer, on or before January 25th of each year, shall provide
to the Trustee, and, on or prior to February 28th of each year, the Trustee
shall provide to the Internal Revenue Service, reports relating to each
instance occurring during the previous
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calendar year in which the Servicer (i) on behalf of the Trustee acquires an
interest in a Mortgaged Property through foreclosure or other comparable
conversion in full or partial satisfaction of a Mortgage Loan, or (ii) knows
or has reason to know that a Mortgaged Property has been abandoned. The
reports from the Trustee shall be in form and substance sufficient to meet the
reporting requirements imposed by such Section 6050J of the Code.
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ARTICLE V
PAYMENTS AND STATEMENTS TO
CERTIFICATEHOLDERS
Section 5.1 Distributions; Accrual of Interest. (a) On each
Remittance Date, the Trustee shall make distributions to the
Certificateholders, based on information provided to the Trustee by the
Servicer in the Servicer's Certificate delivered pursuant to Section 4.1, in
the following order of priority, in each case to the extent of the Amount
Available deposited in the Certificate Account pursuant to Section 3.2(b):
(i) to the Holders of the Class A Certificates, interest accrued on
the outstanding Class A Principal Balance immediately preceding such
Remittance Date during the Interest Accrual Period relating to such
Remittance Date, at a per annum rate equal to the Class A Pass-Through
Rate;
(ii) to the Holders of the Class A Certificates, principal equal to
the lesser of (A) the outstanding Class A Principal Balance and (B) the
product of (i) the Class A Percentage and (ii) the Base Principal
Distribution Amount for such Remittance Date;
(iii) to the Holders of the Class B Certificates, interest accrued
on the outstanding Class B Principal Balance immediately preceding such
Remittance Date during the Interest Accrual Period relating to such
Remittance Date, at a per annum rate equal to the Class B Pass-Through
Rate;
(iv) to the Holders of the Class B Certificates, principal equal to
the lesser of (A) the outstanding Class B Principal Balance and (B) the
product of (i) the Class B Percentage and (ii) the Base Principal
Distribution Amount for such Remittance Date;
(v) until the Class A Cross-Over Remittance Date, to the Holders of
the Class A Certificates, principal equal to the lesser of (A) the
outstanding Class A Principal Balance and (B) the remainder of the
Amount Available for such Remittance Date;
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(vi) on and after the Class A Cross-Over Remittance Date, to the
Holders of the Class A Certificates and Class B Certificates pari passu
based on the ratio of the Class A Principal Balance and the Class B
Principal Balance outstanding immediately preceding such Remittance
Date, additional principal equal in the case of the Class A
Certificates to the lesser of (A) the outstanding Class A Principal
Balance and (B) the product of (i) a fraction, the numerator of which
is the Class A Principal Balance outstanding immediately preceding such
Remittance Date and the denominator of which is the sum of the Class A
Principal Balance and the Class B Principal Balance outstanding
immediately preceding such Remittance Date and (ii) the remainder of
the Amount Available for such Remittance Date, and equal in the case of
the Class B Certificates to the lesser of (A) the outstanding Class B
Principal Balance and (B) the product of (i) a fraction, the numerator
of which is the Class B Principal Balance outstanding immediately
preceding such Remittance Date and the denominator of which is the sum
of the Class A Principal Balance and the Class B Principal Balance
outstanding immediately preceding such Remittance Date and (ii) the
remainder of the Amount Available for such Remittance Date;
(vii) provided that the Class A Certificates have been paid in
full, to the Holders of the Class B Certificates, additional principal
equal to the lesser of (A) the Class B Principal Balance and (B) the
remainder of the Amount Available for such Remittance Date;
(viii) provided that the Class B Certificates have been paid in
full, to the Holders of the Class C Certificates, interest accrued on
the outstanding Class C Principal Balance immediately preceding such
Remittance Date during the Interest Accrual Period relating to such
Remittance Date, at a per annum rate equal to the Class C Pass-Through
Rate;
(ix) provided that the Class B Certificates have been paid in full,
to the Holders of the Class C Certificates, principal equal to the
lesser of (A) the outstanding Class C Principal Balance and (B)the
remainder of the Amount Available for such Remittance Date; and
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(x) provided that the Class C Certificates have been paid in full,
to the Holders of the Class R Certificates, the balance, if any, of the
Amount Available for such Remittance Date.
(b) Distributions to Certificateholders of each Class shall be made
pro rata within such Class, in proportion to the respective Percentage
Interests of the Certificateholders within such Class. Distributions on each
Remittance Date shall be made by the Trustee to each Certificateholder of
record on the related Record Date (other than as provided in Section 10.1
respecting the final distribution), by check or money order mailed to such
Certificateholder at the address appearing in the Certificate Register, or
upon written request by the Certificateholder, by wire transfer of immediately
available funds (in the event such Certificateholder owns of record one or
more Certificates of the same Class which have denominations aggregating at
least $4,000,000 or the Class R Certificates), or by such other means of
payment as such Certificateholder and the Trustee shall agree; provided,
however, that the final distribution in retirement of any Class of
Certificates shall be made only upon presentation and surrender of the
Certificate at the office or agency of the Trustee specified in a notice from
the Trustee to the Certificateholders.
(c) If on any Remittance Date, the amount of interest distributable on
any of the Class A, Class B or Class C Certificates in accordance with Section
5.1(a) is less than an amount equal to interest at the Pass-Through Rate for
such Class accrued during the related Interest Accrual Period on the Class
Principal Balance of such Class as of the immediately preceding Remittance
Date, or, in the case of the first Remittance Date, as of the Cut-off Date,
the amount of such interest shortfall shall accrue and be added to the Class
Principal Balance of such Class on such Remittance Date.
Section 5.2 Statements to Certificateholders. With each distribution
from the Certificate Account to the Certificateholders made on a Remittance
Date, the Trustee shall mail to each Certificateholder a Remittance
Certificate prepared and delivered to the Trustee by the Servicer pursuant to
Section 4.1(xix) setting forth:
(i) the amount of such distribution allocable to scheduled
principal on the Mortgage Loans;
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(ii) the amount of such distribution allocable to Principal
Prepayments on the Mortgage Loans;
(iii) the amount of such distribution allocable to interest on the
Mortgage Loans;
(iv) the aggregate amount of any Monthly Advances by the Servicer
pursuant to Section 4.2 included in the amounts actually distributed to
the Certificateholders;
(v) the amount of such distribution allocable to Net Liquidation
Proceeds, Insurance Proceeds, the Purchase Price for Defective Mortgage
Loans, any Substitution Adjustment pursuant to Section 2.3 and the
purchase price for the Mortgage Loans pursuant to Section 10.1;
(vi) the Amount Available, Base Principal Distribution Amount and
amount of Realized Losses for such Remittance Date;
(vii) the Class A Principal Balance as of the previous Remittance
Date and the portion thereof evidenced by a Single Certificate;
(viii) the amount of such distribution allocable to interest at the
Class A Pass-Through Rate for the related Remittance Date and the
portion thereof evidenced by a Single Certificate;
(ix) the amount of such distribution allocable to amortize the
Class A Principal Balance and the portion thereof evidenced by a Single
Certificate;
(x) the Class A Principal Balance for such Remittance Date (stating
to the extent applicable any amount consisting of interest accrued,
unpaid and added to principal on such Remittance Date) and the portion
thereof evidenced by a Single Certificate;
(xi) the Class B Principal Balance as of the previous Remittance
Date and the portion thereof evidenced by a Single Certificate;
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(xii) the amount of accrued interest on the Class B Principal
Balance at the Class B Pass-Through Rate for such Remittance Date and
the portion thereof evidenced by a Single Certificate;
(xiii) the amount of such distribution allocable to amortize the
Class B Principal Balance and the portion thereof evidenced by a Single
Certificate;
(xiv) the Class B Principal Balance for such Remittance Date
(stating to the extent applicable any amount consisting of interest
accrued, unpaid and added to principal on such Remittance Date) and the
portion thereof evidenced by a Single Certificate;
(xv) the Class C Principal Balance as of the previous Remittance
Date and the portion thereof evidenced by a Single Certificate;
(xvi) the amount of accrued interest on the Class C Principal
Balance at the Class C Pass-Through Rate for such Remittance Date and
the portion thereof evidenced by a Single Certificate;
(xvii) the amount of such distribution allocable to amortize the
Class C Principal Balance and the portion thereof evidenced by a Single
Certificate;
(xviii) the Class C Principal Balance for such Remittance Date
(stating to the extent applicable any amount consisting of interest
accrued, unpaid and added to principal on such Remittance Date) and the
portion thereof evidenced by a Single Certificate;
(xix) the amount of any distribution to the Class R
Certificateholders;
(xx) LIBOR used in determining the Pass-Through Rates as of the
preceding Remittance Date;
(xxi) LIBOR used in determining the Pass-Through Rates for such
Remittance Date;
(xxii) the Pass-Through Rates for the preceding Remittance Date;
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(xxiii) the Pass-Through Rates for such Remittance Date;
(xxiv) the aggregate Principal Balances of the Mortgage Loans as of
such Remittance Date;
(xxv) the aggregate Principal Balances of the Mortgage Loans as of
such Remittance Date divided by the Cut-off Date Pool Principal
Balance;
(xxvi) the number and aggregate outstanding principal balances of
Mortgage Loans that were (a) 30 Day Delinquent Mortgage Loans, (b) 60
Day Delinquent Mortgage Loans, (c) Mortgage Loans which had a Periodic
Payment which remained unpaid for 90 or more days and (d) Mortgage
Loans that were in foreclosure, in each case as of the close of
business on the last day of the immediately preceding Collection
Period; and
(xxvii) the amount of Realized Losses on the Mortgage Loans as of
the last day of the immediately preceding Collection Period.
Within 60 days following the end of each calendar year, the Trustee
shall mail to each Person who at any time during the calendar year was a
Certificateholder on any Record Date during such calendar year (a) a statement
containing for such calendar year information as to the total amount of
distributions allocable to interest and the total amount allocable to amortize
principal on each Class of Certificates for which such distributions were made
as well as any amount of interest accrued and unpaid and added to principal on
each such Class of Certificate, and (b) such other customary information as
the Servicer deems necessary or desirable for Certificateholders to prepare
their tax returns. Such obligations of the Servicer and the Trustee shall be
deemed to have been satisfied to the extent that substantially comparable
information shall be provided by the Servicer pursuant to any requirements of
the Code from time to time in force.
Section 5.3 Determination of LIBOR. (a) For purposes of calculating
the Pass-Through Rates applicable to the Class A, Class B and Class C
Certificates, LIBOR applicable to each of the Interest Accrual Periods ending
in May 1994, June 1994, July 1994, August 1994, September 1994 and October
1994 shall be 5.0625%. Thereafter, on the Determination Date with respect to
the Remittance Date in each November and May, commencing with the
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Determination Date in October 1994, the Servicer shall determine LIBOR for the
current and the next five succeeding Interest Accrual Periods, until the Class
Principal Balances of the Class A, Class B and Class C Certificates have been
paid in full. On each Determination Date, LIBOR for purposes of calculating
the Pass-Through Rates will be LIBOR as published in The Wall Street Journal
on such Determination Date. If more than one LIBOR rate is published in The
Wall Street Journal, LIBOR for purposes of calculating the Pass-Through Rates
will be the average of the rates so published.
(b) If on any Determination Date LIBOR is not published as described
above, on such Determination Date the Servicer shall either (i) request each
of the reference banks meeting the criteria set forth herein (the "Reference
Banks") to provide the quotation offered by its principal London office for
making six-month United States dollar deposits in leading banks in the London
interbank market, as of 11:00 a.m. (London time) on such Determination Date or
(ii) in lieu of making any such request, rely on the offered rate quotations
of the Reference Banks that appear as of such time on the display page
designated as "LIBO" on the Reuters Monitor Money Rates Service (the "Reuters
Screen LIBO Page"), to the extent available. Initially, the Reference Banks
will be Bank of Tokyo LTD., Barclay's Bank plc, National Westminster Bank plc
and Bankers Trust Company. LIBOR shall then be established by the Servicer on
such Determination Date as follows:
(i) If on such Determination Date two or more Reference Banks
provide such offered quotations, LIBOR for the next Interest Accrual
Period shall be the arithmetic mean of such offered quotations (rounded
upwards, if necessary, to the nearest whole multiple of 1/32%).
(ii) If on such Determination Date only one or none of the
Reference Banks provides such offered quotations, LIBOR for the next
Interest Accrual Period shall be whichever is the lower of (i) LIBOR as
determined on the previous Determination Date or (ii) the Reserve
Interest Rate. The "Reserve Interest Rate" shall be the rate per annum
which the Servicer determines to be either (i) the arithmetic mean
(rounded upwards, if necessary, to the nearest whole multiple of 1/32%)
of the six-month United States dollar lending rates that New York City
banks selected by the Servicer are quoting, on the relevant
Determination Date, to the
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principal London offices of at least two of the Reference Banks to which
such quotations are, in the opinion of the Servicer, being so made, or (ii)
in the event that the Servicer can determine no such arithmetic mean, the
lowest six-month United States dollar lending rate which New York City
banks selected by the Servicer are quoting on such LIBOR Determination Date
to leading European banks.
Each Reference Bank (i) shall be a leading bank engaged in transactions
in Eurodollar deposits in the international Eurocurrency market and (ii) shall
have an established place of business in London. If any such Reference Bank
should be unwilling or unable to act as such or if the Servicer should
terminate the appointment of any such Reference Bank or if any of the
Reference Banks should be removed from the Reuters Screen LIBO Page or in any
other way fail to meet the qualifications of a Reference Bank, the Servicer
may designate alternative Reference Banks meeting the criteria specified
above.
(c) The establishment of LIBOR on each Determination Date by the
Servicer and the Servicer's calculation of the Pass-Through Rates for the
related Interest Accrual Period shall (in the absence of manifest error) be
final and binding. The Servicer shall furnish the then current LIBOR to any
Certificateholder upon request.
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ARTICLE VI
THE CERTIFICATES
Section 6.1 The Certificates. The Class A, Class B, Class C and Class
R Certificates shall be substantially in the forms set forth in Exhibits A, B,
C and D, respectively, and shall, on original issue, be executed on behalf of
the Trust Fund, authenticated and delivered by the Trustee to or upon the
order of the Depositor upon receipt by the Trustee of the documents specified
in Section 2.1. The Class A, Class B and Class C Certificates shall be
issuable in the minimum dollar denominations, integral dollar multiples in
excess thereof and aggregate dollar denominations per Class as set forth in
the following table (except that one Certificate of each Class may be issued
in a different denomination):
<TABLE>
<CAPTION>
Aggregate Denom-
inations of all
Minimum Integral Multiples Certificates of
Class Denomination in Excess of Minimum Class
- - - ----- ------------ -------------------- ----------------
<S> <C> <C> <C>
A $100,000 $ 1,000 $23,293,525.62
B $100,000 $ 1,000 $ 2,773,038.77
C $100,000 $ 1,000 $ 1,663,823.26
</TABLE>
The Class R Certificates have no principal balance and do not bear
interest. The Class R Certificates are issuable in Percentage Interests.
The Certificates shall be executed by manual or facsimile signature
on behalf of the Trust Fund by the Trustee by an authorized officer under its
seal imprinted thereon. Certificates bearing the manual or facsimile
signatures of individuals who were, at the time when such signatures were
affixed, authorized to sign on behalf of the Trustee shall bind the Trustee,
notwithstanding that such individuals or any of them have ceased to be so
authorized prior to the execution and delivery of such Certificates or did not
hold such offices at the date of any such Certificate. No Certificate shall
be entitled to any benefit under this Agreement, or be valid for any purpose,
unless such Certificate shall have been manually authenticated by the Trustee
substantially in the form provided for herein, and such authentication upon
any Certificate shall be conclusive evidence, and the only evidence, that such
Certificate has been duly executed and
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delivered hereunder. Each Certificate executed, authenticated and delivered
by the Trustee to or upon the order of the Depositor on the Closing Date shall
be dated as of the Closing Date. All other Certificates that are
authenticated after the Closing Date shall be dated the date of their
authentication.
Pending the preparation of definitive Certificates, the Trustee may
execute, authenticate and deliver temporary Certificates that are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the definitive
Certificates in lieu of which they may be so issued and with such variations
as the officers executing such Certificates may determine, as evidenced by
their execution of such Certificates.
If temporary Certificates are issued, the Depositor will cause
definitive Certificates to be prepared without unreasonable delay. After the
preparation of definitive Certificates, the temporary Certificates shall be
exchangeable for definitive Certificates upon surrender of the temporary
Certificates at the office or agency of the Trustee to be maintained as
provided in Section 6.2, without charge to the Certificateholder. Upon
surrender or cancellation of any one or more temporary Certificates, the
Trustee shall execute, authenticate and deliver and exchange therefor a like
aggregate initial principal amount of definitive Certificates of the same
Class and of authorized denominations. Until so exchanged, the temporary
Certificates shall in all respects be entitled to the same benefits under this
Agreement as definitive Certificates of the same Class.
Section 6.2 Registration of Transfer and Exchange of Certificates.
(a) The Trustee shall cause to be kept at an office or agency in the city in
which the Corporate Trust Office of the Trustee is located or in the City of
New York, New York, a Certificate Register in which, subject to such
reasonable regulations as it may prescribe, the Trustee shall provide for the
registration of Certificates and of transfers and exchanges of Certificates as
herein provided. The Trustee shall initially serve as Certificate Registrar
for the purpose of registering Certificates and transfers and exchanges of
Certificates as herein provided.
Upon surrender for registration of transfer of any Certificate at
any office or agency of the Trustee maintained for such purpose pursuant to
the foregoing paragraph and upon satisfaction of the conditions set forth
below, the Trustee shall execute, authenticate and deliver, in the name of the
designated
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transferee or transferees, one or more new Certificates of a like tenor, Class
and aggregate Percentage Interest.
At the option of the Certificateholders, Certificates may be
exchanged for any number of other Certificates of authorized denominations of
a like Class and aggregate Percentage Interest, upon surrender of the
Certificates to be exchanged at any such office or agency. Whenever any
Certificates are so surrendered for exchange the Trustee shall execute,
authenticate and deliver the Certificates of such Class which the
Certificateholder making the exchange is entitled to receive. Every
Certificate presented or surrendered for transfer or exchange shall (if so
required by the Trustee or the Certificate Registrar) be duly endorsed by, or
be accompanied by a written instrument of transfer in form satisfactory to the
Trustee and the Certificate Registrar duly executed by, the Holder thereof or
his attorney duly authorized in writing.
(b) No transfer of a Certificate of any Class, other than the
initial transfer to DLJ Mortgage Capital, Inc. shall be made unless such
transfer is exempt from the registration requirements of the Securities Act of
1933, as amended, and any applicable state securities laws or is made in
accordance with said Act and laws. In the event that such a transfer is to be
made within three years from the date of the initial issuance of Certificates
pursuant hereto, (i) the Trustee or Patten may require a written Opinion of
Counsel acceptable to and in form and substance satisfactory to the Trustee
and Patten that such transfer may be made pursuant to an exemption, describing
the applicable exemption and the basis therefor, from said Act and laws or is
being made pursuant to said Act and laws, which Opinion of Counsel shall not
be an expense of the Trustee or Patten, provided, however, that if the
transferee certifies in the applicable investment letter provided for in the
following clause (ii) that such transferee is a "qualified institutional
buyer" within the meaning of Rule 144A under said Act and that such transfer
is being made pursuant to Rule 144A, then the Trustee and Patten shall not
require, and the transferee shall have no obligation to provide, the Opinion
of Counsel provided for in this clause (i), and (ii) the Trustee shall require
the transferee to execute an investment letter, substantially in the form
attached hereto as Exhibit I-A, with respect to the Class A Certificates,
substantially in the form attached hereto as Exhibit I-B, with respect to the
Class B Certificates, and substantially in the form attached hereto as Exhibit
I-C, with respect to the Class C Certificates, certifying to Patten and the
Trustee the facts surrounding such transfer, which investment
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letter shall not be an expense of the Trustee or Patten. The Holder of a
Certificate desiring to effect such transfer shall, and does hereby agree to,
indemnify the Trustee and Patten against any liability that may result if the
transfer is not so exempt or is not made in accordance with such federal and
state laws.
(c) No transfer of any Subordinate Certificate shall be made unless
the Trustee shall have received either (i) a representation letter from
the transferee of such Subordinate Certificate, substantially in the form
attached hereto as Exhibit I-B or Exhibit I-C, as applicable, to the effect
that such transferee is not an employee benefit plan or other entity subject to
Section 406 of ERISA or Section 4975 of the Code, nor a person acting on behalf
of any such plan or other entity, which representation letter shall not be an
expense of the Trustee, Patten or the Trust Fund, or (ii) in the case of any
such Subordinate Certificate presented for registration in the name of an
employee benefit plan or other entity subject to Section 406 of ERISA or
Section 4975 of the Code (or comparable provisions of any subsequent
enactments), or a trustee of any such plan, an Opinion of Independent Counsel
satisfactory to the Trustee and Patten to the effect that the purchase or
holding of such Subordinate Certificate will not result in the assets of the
Trust Fund being deemed to be "plan assets" and subject to the prohibited
transaction provisions of ERISA and the Code and will not subject the Trustee
or Patten to any obligation in addition to those undertaken in this Agreement,
which Opinion of Independent Counsel shall not be an expense of the Trustee,
Patten or the Trust Fund.
(d) Notwithstanding anything to the contrary contained herein or in
this Agreement, no Class R Certificate or any Percentage Interest therein may
be owned, pledged or transferred, directly or indirectly, by or to a
Disqualified Organization. Prior to and as a condition of the registration of
any transfer, sale or other disposition of a Class R Certificate or any
Percentage Interest therein, the proposed transferee shall deliver to the
Certificate Registrar an affidavit in substantially the respective forms
attached hereto as Exhibit G-1(a) (for a U.S. Holder) or Exhibit G-1(b) (for a
foreign Holder) representing and warranting that such transferee is neither a
Disqualified Organization nor an agent or nominee acting on behalf of a
Disqualified Organization (any such transferee, a "Permitted Transferee"). In
addition, the Certificate Registrar may (but shall have no obligation to)
require, prior to and as a condition of any such transfer, the delivery by the
proposed transferee of an Opinion
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of Counsel, satisfactory in form and substance to the Certificate Registrar,
that such proposed transferee or, if the proposed transferee is an agent or
nominee, the proposed beneficial owner, is not a Disqualified Organization.
Notwithstanding the registration in the Certificate Register of any transfer,
sale, or other disposition of a Class R Certificate or any percentage therein
to a Disqualified Organization or an agent or nominee acting on behalf of a
Disqualified Organization, such registration shall be deemed to be of no legal
force or effect whatsoever and such Disqualified Organization (or such agent
or nominee) shall not be deemed to be a Certificateholder for any purpose
hereunder, including, but not limited to, the receipt of distributions on such
Class R Certificate. The Certificate Registrar shall not be under any
liability to any person for any registration or transfer of a Class R
Certificate to a Disqualified Organization or for the maturity of any payments
due on such Class R Certificate to the Holder thereof or for taking any other
action with respect to such Holder under the provisions of the Agreement, so
long as the transfer was effected in accordance with this Section 6.2(d),
unless the Certificate Registrar shall have actual knowledge at the time of
such transfer or the time of such payment or other action that the transferee
is a Disqualified Organization (or an agent or nominee thereof). The
Certificate Registrar shall be entitled to recover from any Holder of a Class
R Certificate or any Percentage Interest therein that was a Disqualified
Organization (or an agent or nominee thereof) at the time it became a Holder
or any subsequent time it became a Disqualified Organization all payments made
on such Class R Certificate at and after either such times (and all costs and
expenses, including but not limited to attorneys' fees, incurred in connection
therewith). Any payment (not including any such costs and expenses) so
recovered by the Certificate Registrar shall be paid and delivered to the last
preceding Holder of such Class R Certificate or Percentage Interest therein.
Any Percentage Interest in a Class R Certificate shall be a pro rata
individual interest.
In addition to the foregoing restrictions on transfer of a Class R
Certificate or any Percentage Interest therein, the Certificate Registrar will
not register the transfer of a Class R Certificate unless (a) it has received
a transferee letter either in the form attached as Exhibit G-2(a) or Exhibit
G-2(b) hereto and (b) in the event that the transferee letter is in the form
of Exhibit G-2(b) (a "Foreign Holder Letter"), it has received written
evidence satisfactory to the Certificate Registrar that the transferor has
paid or provided for payment of all taxes (including all accrued taxes on
excess inclusion income) accrued
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on such Class R Certificate in accordance with the provisions set forth in
Section 11.1(i), which written evidence shall include a copy of the applicable
Forms 1066Q (or other applicable form prescribed by the Internal Revenue
Service), to the extent that any such form has been filed, evidencing the
amount of excess inclusion income for the periods during which the transferor
held such Class R Certificate or any percentage interest therein; (c) it has
received the calculations and certifications described in paragraph (4) of
Exhibit G-2(b) or paragraph (14) of Exhibit G-2(a), and in the event that the
transferee letter is in the form of Exhibit G-2(b), the requirements set forth
in paragraph 3(xi) thereof have been complied with to the satisfaction of the
Certificate Registrar. Upon satisfaction of the foregoing requirements, the
Certificate Registrar shall register the Class R Certificate in the name of
the transferee on whose benefit the transferee letter is made and delivered
(and not in the name of any nominee thereof).
If any purported transferee shall become a registered Holder of a
Class R Certificate in violation of the provisions of this Section 6.2(d),
then, upon receipt of written notice to the Certificate Registrar that the
registration of transfer of such Class R Certificate was not in fact permitted
by this Section 6.2(d), the last preceding Permitted Transferee shall be
restored to all rights as Holder thereof retroactive to the date of such
registration of transfer of such Class R Certificate. The Certificate
Registrar shall be under no liability to any Person for any registration of
transfer of a Class R Certificate that is in fact not permitted by this
Section 6.2(d), for making any payment due on such Certificate to the
registered Holder thereof or for taking any other action with respect to such
Holder under the provisions of this Agreement so long as the transfer was
registered upon receipt of the affidavit described in the preceding paragraph
of this Section 6.2(d).
Each Holder of a Class R Certificate or Percentage Interest therein,
by such Holder's acceptance thereof, shall be deemed for all purposes to have
consented to the provisions of this Section.
Each Class R Certificate shall bear a legend describing the
restrictions on transferability set forth in this Section 6.2(d).
(e) The Depositor, as initial holder of all the Class C and Class R
Certificates, agrees that it shall not transfer any of such Certificates or
any interest therein to Patten or any
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Affiliate of Patten (other than a pledge of any of such Certificates to
creditors of Patten in accordance with paragraph (g) below), unless it shall
have received a letter from the Rating Agency to the effect that such Transfer
will not result in the downgrading of the rating assigned to the Class A
Certificates.
(f) Patten and the Depositor agree that any Certificate owned by
them, or any Affiliate thereof, will be registered in the name of Patten, the
Depositor or such Affiliate, as the case may be, and will not be registered in
the name of a broker or other nominee.
(g) Subject to compliance with all requirements of this Section
6.2, including delivery of an investment letter by the pledgee, the Depositor
(or Patten or an Affiliate thereof if transfer to Patten or such Affiliate
first shall have been effected in accordance with this Section 6.2) shall have
the right to pledge the Class C Certificates as security in connection with
financing transactions.
(h) No service charge shall be made for any transfer or exchange of
Certificates of any Class, but the Trustee may require payment of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer or exchange of Certificates.
(i) All Certificates surrendered for transfer and exchange shall be
destroyed by the Certificate Registrar.
Section 6.3 Mutilated, Destroyed, Lost or Stolen Certificates. If
(i) any mutilated Certificate is surrendered to the Certificate Registrar or
the Certificate Registrar receives evidence to its satisfaction of the
destruction, loss or theft of any Certificate, and (ii) there is delivered to
the Trustee, Patten and the Certificate Registrar such security or indemnity
as may be required by them to save each of them harmless, then, in the absence
of notice to the Trustee or the Certificate Registrar that such Certificate
has been acquired by a bona fide purchaser, the Trustee shall execute,
authenticate and deliver, in exchange for or in lieu of any such mutilated,
destroyed, lost or stolen Certificate, a new Certificate of like tenor, Class
and Percentage Interest. Upon the issuance of any new Certificate under this
Section, the Trustee may require the payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Trustee and the
Certificate Registrar) connected therewith. Any duplicate Certificate issued
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pursuant to this Section shall constitute complete and indefeasible evidence
of ownership in the Trust Fund, as if originally issued, whether or not the
lost, stolen or destroyed Certificate shall be found at any time.
Section 6.4 Persons Deemed Owners. Prior to due presentation of a
Certificate for registration of transfer, Patten, the Trustee, the Certificate
Registrar and any agent of Patten, the Trustee or the Certificate Registrar
may treat the Person in whose name any Certificate is registered as the owner
of such Certificate for the purpose of receiving distributions pursuant to
Section 5.1 and for all other purposes whatsoever, and neither Patten, the
Trustee, the Certificate Registrar nor any agent of Patten, the Trustee or the
Certificate Registrar shall be affected by notice to the contrary. At
Patten's request, the Trustee shall advise Patten as to the registered owners
of the Certificates or any thereof, the address for notices at which each such
owner may be contacted with respect to matters relating and limited to this
Agreement and, in the case of an institutional owner, the name of a
representative of such owner.
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ARTICLE VII
PATTEN AND THE SERVICER
Section 7.1 Liability of Patten and the Servicer. Patten and the
Servicer shall be liable in accordance herewith only to the extent of the
obligations specifically imposed upon and undertaken by Patten and the
Servicer herein.
Section 7.2 Merger or Consolidation of, or Assumption of the
Obligations of, Patten and the Servicer. (a) Patten and the Servicer each
will maintain its existence as a corporation and will obtain and preserve its
qualification to do business in each jurisdiction in which such qualification
is or shall be necessary to protect the validity and enforceability of this
Agreement or the Mortgage Loans, and to perform its duties under this
Agreement.
(b) Any Person into which Patten or the Servicer may be merged or
consolidated, or any Person resulting from any merger, conversion or
consolidation to which Patten or the Servicer shall be a party, or any
corporation succeeding to the business of Patten or the Servicer, which
executes an agreement of assumption to perform every obligation hereunder of
Patten or the Servicer, as the case may be, and, in the case of the Servicer,
which meets the requirements for a successor Servicer as provided in Section
8.2, shall be the successor hereunder of Patten or the Servicer, as the case
may be, without the execution or filing of any paper or any further act on the
part of any of the parties hereto, anything herein to the contrary
notwithstanding.
Section 7.3 Limitation on Liability of Patten, the Servicer and
Others. Neither Patten, the Servicer nor any of the directors or officers or
employees or agents of Patten or the Servicer shall be under any liability to
the Trust Fund or the Certificateholders for any action taken or for
refraining from the taking of any action by Patten or the Servicer pursuant to
this Agreement, or for errors in judgment; provided, however, that this
provision shall not protect Patten or the Servicer or any such person against
any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of duties of Patten or
the Servicer, as the case may be, hereunder or by reason of reckless disregard
of obligations and duties of Patten or the Servicer, as the case may be,
hereunder. Patten and the Servicer and any director or officer or employee or
agent of Patten or the Servicer may rely
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in good faith on any document of any kind prima facie properly executed and
submitted by any Person respecting any matters arising hereunder. Patten and
the Servicer and any director or officer or employee or agent of Patten or the
Servicer shall be indemnified by the Trust Fund and held harmless against any
loss, liability or expense incurred in connection with any legal action
relating to this Agreement or the Certificates, other than any loss, liability
or expense related to any specific Mortgage Loan or Mortgage Loans (except as
any such loss, liability or expense shall be otherwise reimbursable pursuant
to this Agreement) and any loss, liability or expense incurred by reason of
willful misfeasance, bad faith or negligence in the performance of duties
hereunder or by reason of reckless disregard of obligations and duties
hereunder. The Servicer shall not be under any obligation to appear in,
prosecute or defend any legal action which is not incidental to its duties to
service the Mortgage Loans in accordance with this Agreement and which in its
reasonable opinion may involve it in any expense or liability; provided,
however, that the Servicer may in its sole discretion undertake any such
action which it may deem necessary or desirable in respect of this Agreement
and the rights and duties of the parties hereto and the interests of the
Certificateholders hereunder. In such event, the legal expenses and costs of
such action and any liability resulting therefrom shall be expenses, costs and
liabilities of the Trust Fund and the Servicer shall be entitled to be
reimbursed therefor from amounts held in the Collection Account as provided by
Section 3.4.
Section 7.4 Patten and the Servicer Not to Resign. Subject to the
provisions of Section 7.2, neither Patten nor the Servicer shall resign from
the obligations and duties hereby imposed on it except upon determination that
the performance of its duties hereunder is no longer permissible under
applicable law. Any such determination permitting the resignation of Patten
or the Servicer shall be evidenced by an Opinion of Independent Counsel to
such effect delivered to the Trustee. No such resignation of the Servicer
shall become effective until the Trustee or a successor Servicer shall have
assumed the responsibilities and obligations of the Servicer in accordance
with Section 8.2.
Section 7.5 Sale, Assignment or Delegation of Duties by Servicer.
Except as expressly provided herein, the Servicer shall not assign or transfer
any of its rights, benefits or privileges hereunder to any other Person, or
delegate to or subcontract with, or authorize or appoint any other Person to
perform any of the duties, covenants or obligations to be performed by the
Servicer hereunder; provided, however, that the
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Servicer shall have the right without the prior written consent of the
Trustee, the Depositor or the Rating Agency to delegate or assign to or
subcontract with or authorize or appoint an Affiliate of the Servicer to
perform and carry out any duties, covenants or obligations to be performed and
carried out by the Servicer hereunder. In no case, however, shall any such
delegation, subcontracting or assignment to an Affiliate of the Servicer
relieve the Servicer of any liability hereunder. Notice of such permitted
assignment shall be given promptly by the Servicer to the Depositor, the
Rating Agency and the Trustee.
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ARTICLE VIII
DEFAULT
Section 8.1 Events of Default. If any one of the following events
("Events of Default") shall occur and be continuing:
(a) Any failure by the Servicer to deposit amounts in the
Collection Account or the Certificate Account in the amount and manner
provided herein so as to enable the Trustee to distribute to Holders of
Certificates of any Class any payment required to be made under the terms of
such Certificates and this Agreement which continues unremedied for a period
of 2 Business Days; or
(b) Failure on the part of the Servicer duly to observe or perform
in any material respect any other covenants or agreements of the Servicer set
forth in the Certificates or in this Agreement, which failure (A) materially
affects the rights of Certificateholders and (B) continues unremedied for a
period of 30 days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Servicer by
the Trustee, or to the Servicer and the Trustee by the Holders of Certificates
of any Class evidencing, as to such Class, Percentage Interests aggregating
not less than 25%; or
(c) The entry of a decree or order for relief by a court having
jurisdiction in respect of the Servicer in an involuntary case under the
federal bankruptcy laws, as now or hereafter in effect, or any other present
or future federal or state bankruptcy, insolvency or similar law, or
appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator
or other similar official of the Servicer or of any substantial part of its
property, or ordering the winding up or liquidation of the affairs of the
Servicer and the continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or
(d) The commencement by the Servicer of a voluntary case under the
federal bankruptcy laws, as now or hereafter in effect, or any other present
or future federal or state bankruptcy, insolvency or similar law, or the
consent by the Servicer to the appointment of or taking possession by a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar
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official of the Servicer or of any substantial part of its property or the
making by the Servicer of an assignment for the benefit of creditors or the
failure by the Servicer generally to pay its debts as such debts become due or
the taking of action by the Servicer in furtherance of any of the foregoing;
then, and in each and every such case, so long as an Event of Default shall
not have been remedied by the Servicer, either the Trustee, or the Holders of
Certificates of any Class evidencing, as to such Class, Percentage Interests
aggregating not less than 25%, by notice then given in writing to the Servicer
(and to the Trustee if given by Certificateholders) may, in addition to any
other remedies at law or in equity available to the Trustee for the benefit of
Certificateholders, terminate all of the rights and obligations of the
Servicer under this Agreement, including, without limitation, the right to the
Servicing Fee. On or after the receipt by the Servicer of such written
notice, all authority and power of the Servicer under this Agreement, whether
with respect to the Certificates or the Mortgage Loans or otherwise, shall
pass to and be vested in the Trustee pursuant to and under this Section 8.1,
and, without limitation, the Trustee is hereby authorized and empowered to
execute and deliver, on behalf of the Servicer and at the Servicer's sole
expense, as attorney-in-fact or otherwise, any and all documents and other
instruments, and to do or accomplish all other acts or things necessary or
appropriate to effect the purposes of such notice of termination. The
Servicer agrees to cooperate with the Trustee in effecting the termination of
the responsibilities and rights of the Servicer hereunder, including, without
limitation, the transfer to the Trustee for the administration by it of all
cash amounts that have been or should have been deposited by the Servicer in
the Collection Account and the Certificate Account or thereafter received by
the Servicer with respect to the Mortgage Loans. In addition to any other
amounts which are then, or, notwithstanding the termination of its activities
as Servicer, may become, payable to the Servicer under this Agreement, the
Servicer shall be entitled to receive out of any delinquent payment on account
of interest on a Mortgage Loan due during the period prior to the notice
pursuant to this Section 8.1 which terminates the obligations and rights of
the Servicer hereunder and received after such notice, that portion of such
payment which it would have been entitled to retain pursuant to Section
3.4(ii) if such notice had not been given and out of any delinquent payment on
a Mortgage Loan due during such period, that portion of such payment which it
would have been entitled to retain pursuant to Sections 3.4(vi) and (vii) if
such notice had not been given. Upon the occurrence of any Event of Default
hereunder, Patten
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shall give the Rating Agency written notice of the occurrence thereof.
Section 8.2 Trustee to Act; Appointment of Successor. (a) On and
after the time the Servicer receives a notice of termination pursuant to
Section 8.1, the Trustee shall be the successor in all respects to the
Servicer in its capacity as Servicer under this Agreement and the transactions
set forth or provided for herein and shall be subject to all the
responsibilities, duties and liabilities relating thereto placed on the
Servicer by the terms and provisions hereof except as otherwise provided by
law; provided, however, that, with respect to the obligation to make Monthly
Advances pursuant to Section 4.2, the Trustee shall not be required to make
any Monthly Advance if the Trustee is prohibited by law from making such
Monthly Advance, as evidenced by an Opinion of Counsel. As compensation
therefor, the Trustee shall, except as provided in Section 8.1, be entitled to
such compensation as the Servicer would have been entitled to hereunder if no
such notice of termination had been given, including, without limitation, the
Servicing Fee.
(b) The Trustee, as successor Servicer, shall during the term of
its service as Servicer maintain in force (i) a policy or policies of
insurance covering errors and omissions in the performance of its obligations
as servicer hereunder, and (ii) a fidelity bond in respect of its officers,
employees and agents to the same extent as the Servicer is so required
pursuant to Section 3.14.
(c) Notwithstanding the above, the Trustee may, if it shall be
unwilling to so act, or shall, if it is unable to so act or if the Holders of
Certificates of each Class, voting as a Class, evidencing, as to each such
Class, Percentage Interests aggregating not less than 66% so request in
writing to the Trustee, appoint, or petition a court of competent jurisdiction
to appoint, any established mortgage loan servicing institution that has a net
worth of not less than $15,000,000 as the successor to the Servicer hereunder
in the assumption of all or any part of the responsibilities, duties or
liabilities of the Servicer hereunder. The compensation of any successor
Servicer so appointed shall be as set forth in Section 8.2(a) above. In the
event the Trustee is required to solicit bids, the Trustee shall solicit, by
public announcement, bids from housing and home finance institutions, banks
and mortgage servicing institutions meeting the qualifications set forth
above. Such public announcement shall specify that the successor Servicer
shall be entitled to servicing compensation in an amount not to exceed
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1.50% per annum times the Scheduled Principal Balance of each Mortgage Loan as
of each Installment Due Date for such Mortgage Loan (the "Successor Servicer
Fee"), together with the other servicing compensation in the form of
assumption fees, late payment charges or otherwise. Within thirty days after
any such public announcement, the Trustee shall negotiate and effect the sale,
transfer and assignment of the servicing rights and responsibilities hereunder
to the qualified party submitting the highest qualifying bid. The Trustee
shall deduct from any sum received by the Trustee from the successor to the
Servicer in respect of such sale, transfer and assignment all costs and
expenses of any public announcement and of any sale, transfer and assignment
of the servicing rights and responsibilities hereunder and the amount of any
unreimbursed Monthly Advances. After such deductions, the remainder of such
sum shall be paid by the Trustee to the Servicer at the time of such sale,
transfer and assignment to the Servicer's successor. The Trustee and such
successor shall take such action, consistent with this Agreement, as shall be
necessary to effectuate any such succession. The Servicer agrees to cooperate
with the Trustee and any successor Servicer in effecting the termination of
the Servicer's servicing responsibilities and rights hereunder and shall
promptly provide the Trustee or such successor Servicer, as applicable, all
documents and records reasonably requested by it to enable it to assume the
Servicer's functions hereunder and shall promptly also transfer to the Trustee
or such successor Servicer, as applicable, all amounts which then have been or
should have been deposited in the Collection Account or the Certificate
Account by the Servicer or which are thereafter received with respect to the
Mortgage Loans. Neither the Trustee nor any other successor Servicer shall be
held liable by reason of any failure to make, or any delay in making, any
distribution hereunder or any portion thereof caused by (i) the failure of the
Servicer to deliver, or any delay in delivering, cash, documents or records to
it, or (ii) restrictions imposed by any regulatory authority having
jurisdiction over the Servicer hereunder. No appointment of a successor to
the Servicer hereunder shall be effective until written notice of such
proposed appointment shall have been provided by the Trustee to each
Certificateholder, and the Trustee shall have consented thereto. The Trustee
shall not resign as Servicer until a successor Servicer has been appointed.
Pending appointment of a successor to the Servicer hereunder, the
Trustee shall act in such capacity as hereinabove provided. In connection
with such appointment and assumption, the Trustee may make such arrangements
for the compensation of such successor out of payments on Mortgage Loans as it
and such
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successor shall agree; provided, however, that no such compensation shall be
in excess of the Successor Servicer Fee, together with other servicing
compensation in the form of assumption fees, late payment charges or otherwise
as provided in this Agreement. The Servicer, the Trustee and such successor
shall take such action, consistent with this Agreement, as shall be necessary
to effectuate any such succession.
Section 8.3 Notification to Certificateholders and Rating Agency.
Upon any termination or appointment of a successor to the Servicer pursuant to
this Article VIII, the Trustee shall give prompt written notice thereof to
Certificateholders at their respective addresses appearing in the Certificate
Register and to the Rating Agency. The Trustee also shall notify the Rating
Agency (a) if the Trustee has actual knowledge that an Event of Default has
occurred which was then either cured or waived and (b) on an annual basis,
within 60 days of each anniversary of the Closing Date during the term of this
Agreement, to the effect that the Trustee has no actual knowledge as to the
occurrence of any Event of Default such preceding year.
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ARTICLE IX
THE TRUSTEE
Section 9.1 Duties of Trustee. The Trustee, prior to the
occurrence of an Event of Default and after the curing of all Events of
Default which may have occurred, undertakes to perform such duties and only
such duties as are specifically set forth in this Agreement. If an Event of
Default has occurred (which has not been cured), the Trustee shall exercise
such of the rights and powers vested in it by this Agreement, and use the same
degree of care and skill in their exercise, as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
The Trustee, upon receipt of all resolutions, certificates,
statements, opinions, reports, documents, orders or other instruments
furnished to the Trustee which are specifically required to be furnished
pursuant to any provision of this Agreement, shall examine them to determine
whether they appear to conform to the requirements of this Agreement.
No provision of this Agreement shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default,
and after the curing of all such Events of Default which may have
occurred, the duties and obligations of the Trustee shall be
determined solely by the express provisions of this Agreement, the
Trustee shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this
Agreement, no implied covenants or obligations shall be read into
this Agreement against the Trustee and, in the absence of bad faith
on the part of the Trustee, the Trustee may conclusively rely, as to
the truth of the statements and the correctness of the opinions
expressed therein, upon any certificates or opinions furnished to
the Trustee which conform to the requirements of this Agreement and
which are reasonably believed to be genuine and duly authorized;
(ii) Neither the Trustee nor its directors,
officers, employees or agents shall be personally liable for an
error of judgment made in good faith by a
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Responsible Officer of the Trustee, unless it shall be proved that the
Trustee or such director, officer, employee or agent was negligent in
performing its duties in accordance with the terms of this Agreement;
(iii) Neither the Trustee nor its directors,
officers, employees or agents shall be personally liable with
respect to any action taken, suffered or omitted to be taken by it
in good faith in accordance with the direction of the Holders of
Certificates of any Class evidencing, as to such Class, Percentage
Interests aggregating not less than 25% relating to the time, method
and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the
Trustee, under this Agreement; and
(iv) So long as the Trustee is not the Servicer,
neither the Trustee nor its directors, officers, employees or agents
shall be charged with knowledge of any failure by the Servicer to
comply with its obligations referred to in clauses (a) and (b) of
Section 8.1 unless a Responsible Officer of the Trustee at the
Corporate Trust Office receives written notice of such failure from
Patten or the Holders of Certificates of any Class evidencing, as to
such Class, Percentage Interests aggregating not less than 25%.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers, if there is
reasonable ground for believing that the repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it, and
none of the provisions contained in this Agreement shall in any event require
the Trustee to perform, or be responsible for the manner of performance of,
any of the obligations of Patten or the Servicer under this Agreement, except
during such time, if any, as the Trustee shall be the successor to, and be
vested with the rights, duties, powers and privileges of, the Servicer, in
accordance with the terms of this Agreement.
Section 9.2 Certain Matters Affecting the Trustee. Except as
otherwise provided in Section 9.1:
(i) The Trustee may rely and shall be protected in
acting or refraining from acting upon any
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resolution, Officers' Certificate, certificate of auditors or any other
certificate, statement, instrument, opinion, report, notice, request,
consent, order, appraisal, bond or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(ii) The Trustee may consult with counsel and any
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted by
it hereunder in good faith and in accordance with such Opinion of
Counsel;
(iii) The Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Agreement,
or to institute, conduct or defend any litigation hereunder or in
relation hereto, at the request, order or direction of any of the
Certificateholders, pursuant to the provisions of this Agreement,
unless such Certificateholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby; nothing
contained herein shall, however, relieve the Trustee of the
obligations, upon the occurrence of an Event of Default (which has
not been cured), to exercise such of the rights and powers vested in
it by this Agreement, and to use the same degree of care and skill
in their exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs;
(iv) The Trustee shall not be personally liable for
any action taken, suffered or omitted by it in good faith and
believed by it to be authorized or within the discretion or rights
or powers conferred upon it by this Agreement;
(v) Prior to the occurrence of an Event of Default
and after the curing of all Events of Default which may have
occurred, the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, consent,
order, approval, bond or other paper or document, unless requested
in writing to do so by Holders of Certificates of any Class
evidencing, as to such
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Class, Percentage Interests aggregating not less than 25%; provided,
however, that if the payment within a reasonable time to the Trustee of
the costs, expenses or liabilities likely to be incurred by it in the
making of such investigation is, in the opinion of the Trustee, not
reasonably assured to the Trustee by the security afforded to it by the
terms of this Agreement, the Trustee may require reasonable indemnity
against such cost, expense or liability as a condition to such
proceeding. The reasonable expense of every such examination shall be
paid by Patten or, if paid by the Trustee, shall be reimbursed by Patten
upon demand. Nothing in this clause (v) shall derogate from the
obligation of Patten to observe any applicable law prohibiting disclosure
of information regarding the Obligors; and
(vi) The Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly or
by or through agents or attorneys or a custodian.
Section 9.3 Trustee Not Liable for Certificates or Mortgage Loans.
The recitals contained herein and in the Certificates (other than the
signature and authentication of the Trustee on the Certificates) shall not be
taken as the statements of the Trustee, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Agreement or of the
Certificates (other than the signature and authentication of the Trustee on
the Certificates) or of the Mortgage Loans or any related document. The
Trustee shall not be accountable for the use or application by the Depositor
or Patten of any of the Certificates or of the proceeds of such Certificates,
or for the use or application of any funds paid to Patten or any of its
Affiliates in respect of the Mortgage Loans or deposited in or withdrawn from
the Collection Account or the Certificate Account by the Depositor, Patten or
the Servicer, except to the extent the Trustee becomes the successor Servicer
(and in that event, then only for withdrawals or deposits made by the Trustee
in its capacity as Servicer).
Section 9.4 Trustee May Own Certificates. The Trustee in its
individual or any other capacity may become the owner or pledgee of
Certificates with the same rights as it would have if it were not Trustee.
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Section 9.5 Trustee's Fees and Expenses. The Trustee shall be
entitled to withdraw from the Collection Account pursuant to Section 3.4(ii)
the Trustee's Fee as reasonable compensation (which shall not be limited by
any provision of law in regard to the compensation of a trustee of an express
trust) for all services rendered by it in the execution of the trusts hereby
created and in the exercise and performance of any of the powers and duties
hereunder of the Trustee, and the Trustee shall be entitled to reimbursement
from the Collection Account pursuant to Section 3.4(iii) for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any of the provisions of this Agreement (including the
reasonable compensation and the expenses and disbursements of its counsel and
of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or bad faith or which
is the responsibility of Certificateholders hereunder. In addition, except as
otherwise set forth in Section 3.14, Patten covenants and agrees to indemnify
the Trustee, its directors, officers, employees and agents from, and hold them
harmless against, any and all losses, liabilities, damages, claims or expenses
other than those resulting from the negligence or bad faith of the Trustee,
its directors, officers, employees and agents.
Section 9.6 Eligibility Requirements for Trustee. The Trustee
hereunder shall not be an Affiliate of Patten, the Servicer or any Obligor
with respect to more than 5% of the Cut-Off Date Principal Balance of the
Mortgage Loans and shall at all times be a corporation organized and doing
business under the laws of any State or the United States of America,
authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000, or shall be a member of
a bank holding system, the aggregate combined capital and surplus of which is
at least $50,000,000, and subject to supervision or examination by federal or
state authority and which will not adversely affect the then current rating of
the Class A Certificates. If such corporation publishes reports of condition
at least annually, pursuant to law or to the requirements of the aforesaid
supervising or examining authority, then for the purposes of this Section 9.6,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of
condition so published. The Trustee and any successor trustee so long as such
Person is Trustee hereunder shall be covered by such insurance covering errors
and omissions and the fidelity of its officers, employees and agents as is
standard for Persons performing similar duties. In case at any time the
Trustee shall
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cease to be eligible in accordance with the provisions of this Section 9.6,
the Trustee shall resign immediately in the manner and with the effect
specified in Section 9.7.
Section 9.7 Resignation or Removal of Trustee. The Trustee may at
any time resign and be discharged from the trusts hereby created by giving
written notice thereof to Patten. Upon receiving such notice of resignation,
Patten shall promptly appoint a successor Trustee by written instrument, in
duplicate, one copy of which instrument shall be delivered to the resigning
Trustee and one copy to the successor Trustee. If no successor Trustee shall
have been so appointed and have accepted appointment within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If at any time the Trustee shall cease to be eligible in accordance
with the provisions of Section 9.6 and shall fail to resign after written
request therefor by Patten, or if at any time the Trustee shall be legally
unable to act, or shall be adjudged a bankrupt or insolvent, or a receiver of
the Trustee or of its property shall be appointed, or any public officer shall
take charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation, then Patten may remove
the Trustee. If it removes the Trustee under the authority of the immediately
preceding sentence, Patten shall promptly appoint a successor Trustee by
written instrument, in duplicate, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor Trustee.
Any resignation or removal of the Trustee and appointment of a
successor Trustee pursuant to any of the provisions of this Section 9.7 shall
not become effective until acceptance of appointment by the successor Trustee
as provided in Section 9.8.
Section 9.8 Successor Trustee. Any successor Trustee appointed as
provided in Section 9.7 shall execute, acknowledge and deliver to Patten and
to its predecessor Trustee an instrument accepting such appointment hereunder,
and thereupon the resignation or removal of the predecessor Trustee shall
become effective and such successor Trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as Trustee. The predecessor Trustee shall deliver to the successor
Trustee the Mortgage Loans and related documents and statements held by it
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hereunder; and Patten and the predecessor Trustee shall execute and deliver
such instruments and do such other things as may reasonably be required for
fully and certainly vesting and confirming in the successor Trustee all such
rights, powers, duties and obligations.
No successor Trustee shall accept appointment as provided in this
Section 9.8 unless at the time of such acceptance such successor Trustee shall
be eligible under the provisions of Section 9.6.
Upon acceptance of appointment by a successor Trustee as provided in
this Section 9.8, the Servicer shall mail notice of the succession of such
Trustee hereunder to all holders of Certificates at their addresses as shown
in the Certificate Register and to the Rating Agency. If the Servicer fails
to mail such notice within 10 days after acceptance of appointment by the
successor Trustee, the successor Trustee shall cause such notice to be mailed
at the expense of the Servicer.
Section 9.9 Merger or Consolidation of Trustee. Any corporation
into which the Trustee may be merged or converted or with which it may be
consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any corporation
succeeding to the business of the Trustee, shall be the successor of the
Trustee hereunder, provided such corporation shall be eligible under the
provisions of Section 9.6, without the execution or filing of any paper or any
further act on the part of any of the parties hereto, anything herein to the
contrary notwithstanding.
Section 9.10 Appointment of Co-Trustee or Separate Trustee.
Notwithstanding any other provisions of this Agreement, at any time, for the
purpose of meeting any legal requirements of any jurisdiction in which any
part of the Trust Fund or property securing any Mortgage Note may at the time
be located, the Servicer and the Trustee acting jointly shall have the power
and shall execute and deliver all instruments to appoint one or more Persons
approved by the Trustee to act as co-trustee or co-trustees, jointly with the
Trustee, or separate trustee or separate trustees, of all or any part of the
Trust Fund, and to vest in such Person or Persons, in such capacity and for
the benefit of the Certificateholders, such title to the Trust Fund, or any
part thereof, and, subject to the other provisions of this Section 9.10, such
powers, duties, obligations, rights and trusts as the Servicer and the Trustee
may consider necessary or desirable. If the Servicer shall not have joined in
such appointment
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within 15 days after the receipt by it of a request so to do, or in the case
an Event of Default shall have occurred and be continuing, the Trustee alone
shall have the power to make such appointment. No co-trustee or separate
trustee hereunder shall be required to meet the terms of eligibility as a
successor trustee under Section 9.6 and no notice to Certificateholders of the
appointment of any co-trustee or separate trustee shall be required under
Section 9.8.
Every separate trustee and co-trustee shall, to the extent permitted
by law, be appointed and act subject to the following provisions and
conditions:
(i) All rights, powers, duties and obligations
conferred or imposed upon the Trustee shall be conferred or imposed
upon and exercised or performed by the Trustee and such separate
trustee or co-trustee jointly (it being understood that such
separate trustee or co-trustee is not authorized to act separately
without the Trustee joining in such act), except to the extent that
under any law of any jurisdiction in which any particular act or
acts are to be performed (whether as Trustee hereunder or as
successor to the Servicer hereunder), the Trustee shall be
incompetent or unqualified to perform such act or acts, in which
event such rights, powers, duties and obligations (including the
holding of title to the Trust Fund or any portion thereof in any
such jurisdiction) shall be exercised and performed singly by such
separate trustee or co-trustee, but solely at the direction of the
Trustee;
(ii) No trustee hereunder shall be held personally
liable by reason of any act or omission of any other trustee
hereunder; and
(iii) The Servicer and the Trustee acting jointly
may at any time accept the resignation of or remove any separate
trustee or co-trustee.
Any notice, request or other writing given to the Trustee shall be
deemed to have been given to each of the then separate trustees and co-
trustees, as effectively as if given to each of them. Every instrument
appointing any separate trustee or co-trustee shall refer to this Agreement
and the conditions of this Article IX. Each separate trustee and co-trustee,
upon its acceptance of the trusts conferred, shall be vested with the estates
or property specified in its instrument of appointment,
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either jointly with the Trustee or separately, as may be provided therein,
subject to all the provisions of this Agreement, specifically including every
provision of this Agreement relating to the conduct of, affecting the
liability of, or affording protection to, the Trustee. Every such instrument
shall be filed with the Trustee and a copy thereof given to the Servicer.
Any separate trustee or co-trustee may, at any time, constitute the
Trustee, its agent or attorney-in-fact, with full power and authority, to the
extent not prohibited by law, to do any lawful act under or in respect of this
Agreement on its behalf and in its name. If any separate trustee or co-
trustee shall die, become incapable of acting, resign or be removed, all of
its estates, properties, rights, remedies and trusts shall vest in and be
exercised by the Trustee, to the extent permitted by law, without the
appointment of a new or successor trustee.
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ARTICLE X
TERMINATION
Section 10.1 Termination Upon Repurchase by Patten or Liquidation
of All Mortgage Loans. Subject to Section 10.2, the respective obligations
and responsibilities of PRT, Patten, the Servicer, the Depositor and the
Trustee created hereby (other than the obligation to make payments to
Certificateholders as hereafter set forth in this Section 10.1) shall
terminate upon (i) the later of the final payment or other liquidation (or any
Monthly Advance with respect thereto) of the last Mortgage Loan in the Trust
Fund and the disposition of all property acquired in respect of any Mortgage
Loan or (ii) the optional repurchase by Patten of the Mortgage Loans and any
other assets remaining in the Trust Fund on any Remittance Date after the date
on which the Principal Balance of all Mortgage Loans is less than 10% of the
Cut-Off Date Principal Balance, at a price equal to (A) the greater of (x)
100% of the Principal Balance of each such Mortgage Loan as of the Installment
Due Date preceding the Remittance Date upon which the proceeds of such
repurchase are to be distributed, plus interest at the applicable Mortgage
Interest Rate through the last Installment Due Date in the Collection Period
preceding the Remittance Date on which the proceeds of such repurchase are to
be distributed to Certificateholders, and (y) the fair market value of the
Mortgage Loans, plus (B) the fair market value of any other property remaining
in the Trust Fund. The fair market value, in the case of the Mortgage Loans,
REO Property or other property in the Trust Fund, is to be determined by an
independent appraiser mutually agreed upon by the Servicer and the Trustee
(net of any liquidation expenses to be incurred in connection with the
disposition of such REO Property, estimated in good faith by the Servicer);
provided, however, that in no event shall the trust created hereby continue
beyond the expiration of 21 years from the death of the last survivor of the
descendants of Joseph P. Kennedy, the late ambassador of the United States to
the Court of St. James, living on the date hereof.
If Patten exercises its right to purchase the Mortgage Loans
pursuant to clause (ii) above, Patten shall provide to the Trustee the
certification required by Section 3.8 and the Trustee shall promptly release
the Mortgage Documents pertaining to the Mortgage Loans to Patten.
Notice of any termination, specifying the Remittance Date upon which
the Certificateholders may surrender their
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Certificates to the Trustee for payment of the final distribution and
cancellation, shall be given promptly by Patten (if it is exercising its right
to purchase the assets of the Trust Fund) or by the Trustee (in any other
case) by letter to Certificateholders mailed not earlier than the 15th day and
not later than the 25th day of the month next preceding the month of such
final distribution specifying (a) the Remittance Date upon which final payment
of the Certificates will be made upon presentation and surrender of
Certificates at the office or agency of the Trustee therein designated, (b)
the amount of any such final payment and (c) that the Record Date otherwise
applicable to such Remittance Date is not applicable, payments being made only
upon presentation and surrender of the Certificates at the office or agency of
the Trustee therein specified. If Patten is obligated to give notice to
Certificateholders as aforesaid, it shall give such notice to the Trustee and
the Certificate Registrar at the time such notice is given to
Certificateholders. In the event such notice is given by Patten, Patten shall
deposit in the Collection Account on or before the Remittance Date so
specified in immediately available funds an amount equal to the amount
necessary to make the amount, if any, on deposit in the Collection Account on
such Remittance Date equal to the purchase price for the assets of the Trust
Fund computed as above provided. Any such notice, whether given by Patten or
the Trustee, shall be given to the Rating Agency by Patten at the time such
notice is given to Certificateholders.
In the event that Patten has exercised its option to repurchase the
Mortgage Loans as above provided, the proceeds of such repurchase shall be
deposited into the Certificate Account and shall be distributed to
Certificateholders as part of the Amount Available pursuant to Section 5.1.
In the event that all of the Certificateholders shall not surrender
their Certificates for final payment and cancellation on or before the final
Remittance Date, the Trustee shall on such date cause all funds in the
Certificate Account not distributed in final distribution to
Certificateholders to be withdrawn from the Certificate Account and credited
to the remaining Certificateholders by depositing such funds in a separate
escrow account for the benefit of such Certificateholders and Patten (if it
exercises its right to purchase the assets of the Trust Fund) or the Trustee
(in any other case) shall give a second written notice to the remaining
Certificateholders to surrender their Certificates for cancellation and
receive the final distribution with respect thereto. If within one year after
the second notice all the Certificates shall not have been surrendered for
cancel-
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lation, the Trustee may take appropriate steps, or may appoint an agent to
take appropriate steps, to contact the remaining Certificateholders concerning
surrender of their Certificates, and the cost thereof shall be paid out of the
funds on deposit in such escrow account.
Section 10.2 Additional Termination Requirements. (a) In
connection with any termination pursuant to Section 10.1, the Trust Fund shall
be terminated in accordance with the following additional requirements, unless
the Trustee has received an Opinion of Counsel to the effect that the failure
of the Trust Fund to comply with the requirements of this Section 10.2 will
not (i) result in the imposition of taxes on "prohibited transactions" of the
Trust Fund as defined in Section 860F of the Code or "prohibited
contributions" within the meaning of Section 860G(d) of the Code, or (ii)
cause the Trust Fund to fail to qualify as a REMIC at any time that any Class
A, Class B or Class C Certificates are outstanding:
(i) Within 89 days prior to the Remittance Date set
forth in the notice given by Patten under Section 10.1, the Trustee
shall adopt a plan of complete liquidation of the Trust REMIC,
meeting the requirements of a qualified liquidation under the REMIC
Provisions;
(ii) At or after the time of adoption of such a plan
of complete liquidation and at or prior to such Remittance Date, the
Trustee shall sell any remaining assets of the Trust Fund to Patten
for cash;
(iii) At the time of the making of the final payment
on the Certificates other than the Class R Certificates, the Trustee
shall distribute or credit, or cause to be distributed or credited,
to the Holders of the Class R Certificates all cash on hand after
such final payment (other than cash retained to meet claims), and
the Trust Fund shall terminate at that time; and
(iv) In no event may the final payment on the
Certificates (except to the extent permitted in Section 10.1 with
respect to Certificateholders who fail to surrender their
Certificates) be made after the 89th day from the date on which the
plan of complete liquidation is adopted.
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(b) By their acceptance of the Class R Certificates, the Holders
thereof hereby authorize the Trustee to adopt such a plan of complete
liquidation upon the written request of Patten and to take such other action
in connection therewith as may be reasonably requested by Patten, which
authorization shall be binding upon all successor Class R Certificateholders.
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ARTICLE XI
REMIC ADMINISTRATION
Section 11.1 REMIC Administration. (a) An election will be made
by the Trustee on behalf of the Trust REMIC to treat the segregated pool of
assets constituting the Trust Fund (other than the Collection Account) as a
REMIC under the Code (the "Trust REMIC"). Such election will be made on Form
1066 or other appropriate federal tax or information return for the taxable
year ending on the last day of the calendar year in which the Certificates are
issued. For purposes of such election, the Class A, Class B and Class C
Certificates shall be designated as the "regular interests" in the Trust REMIC
and the Class R Certificates shall be designated as the "residual interest" in
the Trust REMIC. The final scheduled Remittance Dates for the Certificates
(assuming no defaults on the Mortgage Loans) are: November 1, 2000 for the
Class A Certificates; November 1, 2000 for the Class B Certificates; and
September 1, 2001 for the Class C Certificates.
(b) The Closing Date is hereby designated as the "Startup Day" of
the Trust REMIC within the meaning of Section 860G(a)(9) of the Code.
(c) Except as provided in Section 3.14 of this Agreement, the
Trustee shall pay (without reimbursement) any and all tax related expenses
(not including any taxes, however denominated, including any additions to tax,
penalties and interest) of the Trust REMIC, including but not limited to any
professional fees or expenses related to audits or any administrative or
judicial proceedings with respect to the Trust REMIC that involve the Internal
Revenue Service or state tax authorities.
(d) The Trustee shall prepare (or caused to be prepared), sign and
file all of the Trust REMIC's federal and state income or franchise tax and
information returns as the Trust REMIC's direct representative. Except as
provided in Section 3.14 of this Agreement, the expenses of preparing and
filing such returns shall be borne by the Trustee. The Servicer shall provide
on a timely basis to the Trustee or its designee such information with respect
to the Trust REMIC as is in its possession, which the Servicer has received or
prepared by virtue of its activities as Servicer hereunder and reasonably
requested by the Trustee to enable it to perform its obligations under this
subsection, and the Trustee shall be entitled to rely on such information in
the performance of its obligations hereunder.
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(e) The Trustee shall perform on behalf of the Trust REMIC all
reporting and other tax compliance duties that are the responsibility of the
Trust REMIC under the Code, REMIC Provisions, or other compliance guidance
issued by the Internal Revenue Service or any state or local taxing authority.
Among its other duties, the Trustee shall provide (i) to the Treasury or other
Persons (including, but not limited to, the transferor of a Class R
Certificate, to a Disqualified Organization or to an agent that has acquired a
Class R Certificate on behalf of a Disqualified Organization) such information
as is necessary for the application of any tax relating to the transfer of a
Class R Certificate to any Disqualified Organization and (ii) to the
Certificateholders such information or reports as are required by the Code or
REMIC Provisions. The Servicer shall provide on a timely basis to the Trustee
or its designee such information with respect to the Trust REMIC as is in its
possession and reasonably requested in writing by the Trustee to enable it to
perform its obligations under this subsection.
(f) The Holder of the greatest percentage of Percentage Interests
of the Class R Certificates shall be the Trust REMIC's Tax Matters Person.
The duties of the Tax Matters Person for the Trust REMIC are hereby delegated
to the Trustee and each Class R Certificateholder, by acceptance of its Class
R Certificate, agrees, on behalf of itself and all successor holders of such
Class R Certificate, to such delegation to the Trustee as their agent and
attorney in fact. The Trustee shall take whatever action is necessary for the
signing of such documents and designation of a Tax Matters Person, including
the designation of such Class R Certificateholder.
(g) The Trustee, the Holders of the Class R Certificates and the
Servicer shall act in accordance with this Agreement and the REMIC Provisions
in order to create and maintain the status of the Trust REMIC as a REMIC or,
as appropriate, adopt a plan of complete liquidation.
(h) The Trustee, the Holders of the Class R Certificates and the
Servicer shall not take any action or cause the Trust REMIC to take any action
that, under the REMIC Provisions, could (i) endanger the status of the Trust
REMIC as a REMIC or (ii) result in the imposition of a tax upon the Trust
REMIC (including but not limited to the tax on prohibited transactions as
defined in Code Section 860F(a)(2) and the tax on prohibited contributions as
defined in Code Section 860G(d)) unless (A) the Trustee has received a
Nondisqualification Opinion (at the expense of the party seeking to take such
action) with respect to
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such action or (B) the Trustee has received an opinion (at the expense of the
party seeking to take such action) to the effect that such action will not
cause the Trust REMIC to fail to qualify as a REMIC and the Trustee has
calculated that no tax will actually be imposed.
(i) The Holders of the Class R Certificates shall pay when due
their pro rata share of any and all federal, state and local taxes imposed on
the Trust REMIC or its assets or transactions, including, without limitation,
"prohibited transaction" taxes, as defined in Section 860F of the Code, any
tax on contributions imposed by Section 860G(d) of the Code, and any tax on
"net income from foreclosure property" as defined in Section 860G(c) of the
Code. To the extent that such Trust REMIC taxes are not paid by the Class R
Certificateholders, the Trustee shall pay any remaining Trust REMIC taxes out
of current or future amounts otherwise distributable to the Holders of the
Class R Certificates or, if no such amounts are available, out of other
amounts held in the Collection Account pursuant to Section 3.4(xi).
(j) The Trustee and, to the extent that records are maintained by
the Servicer in the normal course of its businesses, the Servicer shall, for
federal income tax purposes, maintain books and records with respect to the
Trust REMIC on a calendar year and on an accrual basis. The books and records
must be sufficient concerning the nature and amount of the Trust REMIC's
investments to show that the Trust REMIC has complied with the REMIC
Provisions.
(k) Neither the Trustee nor the Servicer shall enter into any
arrangement by which the Trust REMIC will receive a fee or other compensation
for services.
(l) In order to enable the Trustee to perform its duties as set
forth herein, the Depositor shall provide, or cause to be provided, to the
Trustee within ten (10) days after the Closing Date all information or data
that the Trustee reasonably determines to be relevant for tax purposes on the
valuations and offering prices of the Certificates, including, without
limitation, the yield, prepayment assumption, issue prices and projected cash
flows of the Class A, Class B, Class C and Class R Certificates, as
applicable, and the projected cash flows on the Mortgage Loans. Thereafter,
the Depositor shall provide to the Trustee, promptly upon request therefor,
any such additional information or data that the Trustee may, from time to
time, reasonably request in order to enable the Trustee to perform its
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duties as set forth herein. The Trustee is hereby directed to use any and all
such information or data provided by the Depositor in the preparation of all
federal and state income or franchise tax and information returns and reports
for the Trust REMIC to Certificateholders as required herein. The Depositor
hereby indemnifies the Trustee for any losses, liabilities, damages, claims or
expenses of the Trustee arising from any errors or miscalculations of the
Trustee pursuant to this Section that result from any failure of the Depositor
to provide, or to cause to be provided, accurate information or data to the
Trustee (but not resulting from the methodology employed by the Trustee) on a
timely basis and such indemnifications shall survive the termination of this
Agreement.
The Trustee agrees that all such information or data so obtained by
it are to be regarded as confidential information and agrees that it shall use
its best reasonable efforts to retain in confidence, and shall ensure that its
officers, employees and representatives retain in confidence, and shall not
disclose, without the prior written consent of the Depositor, any or all of
such information or data, or make any use whatsoever (other than for the
purposes contemplated by this Agreement) of any such information or data
without the prior written consent of the Depositor, unless such information is
generally available to the public (other than as a result of a breach of this
Section 11.1(l)) or is required by law or applicable regulations to be
disclosed.
Section 11.2 REO Property. (a) Notwithstanding any other
provision of this Agreement, the Servicer, acting on behalf of the Trustee
hereunder, shall not rent, lease, or otherwise earn income on behalf of the
Trust Fund with respect to any REO Property which might cause such REO
Property to fail to qualify as "foreclosure" property within the meaning of
section 860G(a)(8) of the Code or result in the receipt by the Trust REMIC of
any "income from non-permitted assets" within the meaning of section
860F(a)(2) of the Code or any "net income from foreclosure property" which is
subject to tax under the REMIC Provisions unless the Trustee has received an
Opinion of Counsel (at the Trust Fund's expense) to the effect that, under the
REMIC Provisions and any relevant proposed legislation, any income generated
for the Trust REMIC by the REO Property would not result in the imposition of
a tax upon the Trust REMIC.
(b) The Trustee, or the Servicer, acting on its behalf hereunder,
shall make reasonable efforts to sell any REO Property for its fair market
value. In any event, however, the Trustee,
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or the Servicer, acting on its behalf hereunder, shall dispose of any REO
Property within two years of its acquisition by the Trust Fund unless the
Trustee or the Servicer, on its behalf, has been granted an extension of time
(an "Extension") by the Internal Revenue Service to sell such REO Property.
If the Trustee or the Servicer, on its behalf, has received such an Extension,
then the Trustee, or the Servicer, acting on its behalf hereunder, shall
continue to attempt to sell the REO Property for its fair market value for
such period longer than two years as such Extension permits (the "Extended
Period"). If the Trustee or the Servicer, on its behalf, has not received
such an Extension and the Trustee, or the Servicer acting on behalf of the
Trustee hereunder, is unable to sell the REO Property within the two year
period or if the Trustee has received such an Extension, and the Trustee, or
the Servicer acting on behalf of the Trustee hereunder, is unable to sell the
REO Property within the Extended Period, the Servicer shall before the end of
the two-year period or Extended Period, as the case may be, auction the REO
Property to the highest bidder (which may be the Servicer) in accordance with
Accepted Servicing Practices.
(c) Within 30 days of the sale of an REO Property, the Servicer
shall provide to the Trustee a statement of accounting for such REO Property,
including without limitation, (i) the date such Mortgaged Property was
acquired in foreclosure or by deed in lieu of foreclosure, (ii) the date of
disposition of such REO Property, (iii) the gross sales price and related
selling and other expenses, (iv) accrued interest calculated from the date of
acquisition to the disposition date, and (v) such other information as the
Trustee may reasonably request.
Section 11.3 Modifications of Mortgage Loans. Notwithstanding
anything to the contrary in this Agreement, neither the Trustee nor the
Servicer shall permit any modification of any material term of a Mortgage Loan
(including the interest rate, the Principal Balance, the amortization schedule,
or any other term affecting the amount or timing of payments on such Mortgage
Loan) unless (i) the Trustee and the Servicer have received a
Nondisqualification Opinion or a ruling from the Internal Revenue Service (at
the expense of the party making the request of the Servicer or the Trustee to
modify such Mortgage Loan) to the same effect as a Nondisqualification Opinion
with respect to such modification or (ii) a payment default with respect to such
Mortgage Loan is reasonably foreseeable or has occurred and the Servicer
determines that a modification, waiver or amendment of such Mortgage Loan is
reasonably likely to produce a greater recovery on a present value basis than
liquidation of the related
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Mortgaged Property; provided, however, that the Servicer agrees not to permit
any modification of a Mortgage Loan that would change the Mortgage Interest
Rate or the method of determining the Mortgage Interest Rate, extend the
maturity date of such Mortgage Loan beyond September 1, 2001 or forgive any
principal and interest thereof, unless the Servicer has notified the Trustee
and the Certificateholders of such proposed modification and such modification
has been approved by 100% in Percentage Interests of the Certificateholders;
and provided, further, that no such modification shall release the lien of the
Mortgage on the related Mortgage Property unless the Servicer has obtained a
Nondisqualification Opinion with respect to such modification.
Section 11.4 Prohibited Transactions and Activities. Except as
otherwise provided in Section 2.3, the Trustee shall not permit the sale,
disposition or substitution of the Mortgage Loans or the substitution of a
property for a Mortgaged Property (except in a disposition pursuant to (i) the
bankruptcy or insolvency of the Trust REMIC or (ii) the termination of the
Trust REMIC in a "qualified liquidation" as defined in Section 860F(a)(4) of
the Code), nor acquire any assets for the Trust REMIC (other than REO
Property), nor sell or dispose of any investments in the Collection Account or
the Certificate Account for gain, nor accept any contributions to the Trust
REMIC (other than a cash contribution during the 3-month period beginning on
the Startup Day), unless it has received an Opinion of Counsel (at the expense
of the Person requesting the Trustee to take such action) to the effect that
such disposition, acquisition, substitution, or acceptance will not (a) affect
adversely the status of the Trust REMIC as a REMIC or of the Certificates,
other than the Class R Certificates, as the regular interests therein, (b)
affect the distribution of interest or principal on the Certificates, (c)
result in the encumbrance of the assets transferred or assigned to the Trust
REMIC (except pursuant to the provisions of this Agreement) or (d) cause the
Trust REMIC to be subject to a tax on "prohibited transactions" or "prohibited
contributions" pursuant to the REMIC Provisions.
Section 11.5 Indemnification with Respect to Certain Taxes and Loss
of REMIC Status. (a) In the event that the Trust REMIC fails to qualify as a
REMIC, loses its status as a REMIC, or incurs state or local taxes, or tax as
a result of a prohibited transaction or contribution subject to taxation under
the REMIC Provisions due to the negligent performance by the Trustee of its
duties and obligations specifically set forth herein, the Trustee shall
indemnify the Holders of the Class R Certificates against any and all losses,
claims, damages, liabilities or
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expenses ("Losses") resulting from such negligence; provided, however, that
the Trustee shall not be liable for any such Losses attributable to the action
or inaction of the Servicer, the Depositor or the Holders of the Class R
Certificates nor for any such Losses resulting from misinformation provided by
the Servicer, the Depositor or such Holders of the Class R Certificates on
which the Trustee has relied. The foregoing shall not be deemed to limit or
restrict the rights and remedies of the other Holders of the Class R
Certificates now or hereafter existing at law or in equity.
(b) In the event that the Trust REMIC fails to qualify as a REMIC,
loses its status as a REMIC, or incurs state or local taxes, or a tax as a
result of a prohibited transaction or contribution subject to taxation under
the REMIC Provisions due to the negligent performance of the Servicer in the
performance of its duties and obligations set forth herein, the Servicer shall
indemnify the Holders of the Class R Certificates against any and all Losses
resulting from such negligence; provided, however, that the Servicer shall not
be liable for any such Losses attributable to the action or inaction of the
Trustee, the Depositor, or the Holders of such Class R Certificates nor for
any such Losses resulting from misinformation provided by the Trustee, the
Depositor or such Holders of the Class R Certificates on which the Servicer
has relied. The foregoing shall not be deemed to limit or restrict the rights
and remedies of the other Holders of the Class R Certificates now or hereafter
existing at law or in equity.
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ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1 Amendment of Agreement. This Agreement may be amended
from time to time by PRT, Patten, the Servicer, the Depositor and the Trustee,
without the consent of any of the Certificateholders, to cure any ambiguity,
to (i) amend any provision hereof to the extent necessary or desirable to
maintain the status of the Trust REMIC as a REMIC or (ii) correct or
supplement any provisions herein or therein which may be inconsistent with any
other provisions herein or therein, as the case may be, or to add any other
provisions with respect to matters or questions arising under this Agreement
which shall not be inconsistent with the provisions of this Agreement;
provided, however, that such action pursuant to clause (ii) shall not, as
evidenced by an Opinion of Counsel delivered to the Trustee, (i) adversely
affect in any material respect the interests of any Certificateholder not
consenting thereto or (ii) adversely affect the status of the Trust REMIC as a
REMIC. Any such amendment shall be deemed not to adversely affect in any
material respect any Holder if the Trustee receives written confirmation from
each Rating Agency that such amendment will not cause such Rating Agency to
reduce the then current rating assigned to any of the rated Certificates that
were currently being rated by the Rating Agency (and any Opinion of Counsel
requested by the Trustee in connection with any such amendment may rely
expressly on such confirmation as the basis therefor).
This Agreement may also be amended from time to time by PRT, Patten,
the Servicer, the Depositor and the Trustee, with the consent of the Holders
of Certificates of each Class, voting as a Class, evidencing, as to each such
Class, Percentage Interests aggregating not less than 66%, for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Agreement or of modifying in any manner the rights of the
Holders of Certificates; provided, however, that no such amendment shall (a)
reduce in any manner the amount of, or delay the timing of, collections of
payments on Mortgage Loans or distributions which are required to be made on
any Certificate without the consent of the Holder of each such Certificate or
(b) reduce the aforesaid percentage required to consent to any such amendment,
without the consent of the Holders of all Certificates then outstanding.
Notwithstanding any contrary provision of this Agreement, the
Trustee shall not consent to any amendment of this
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Agreement, unless it shall have first received an Opinion of Counsel to the
effect that such amendment will not cause the Trust REMIC to fail to qualify
as a REMIC at any time that any Class A, Class B or Class C Certificates are
outstanding.
Prior to the execution of any such amendment or consent the Trustee
shall notify the Rating Agency thereof and promptly after the execution of any
such amendment or consent the Trustee, shall furnish written notification of
the substance of such amendment to each Certificateholder and to the Rating
Agency.
It shall not be necessary for the consent of Certificateholders
under this Section 12.1 to approve the particular form of any proposed
amendment, but it shall be sufficient if such consent shall approve the
substance thereof. The manner of obtaining such consents and of evidencing
the authorization of the execution thereof by Certificateholders shall be
subject to such reasonable requirements as the Trustee may prescribe.
Section 12.2 Recordation of Agreement. To the extent required by
applicable law in order to protect the Trustee's interest in the Trust Fund,
this Agreement is subject to recordation in all appropriate public offices for
real property records in all the counties or other comparable jurisdictions in
which any or all of the properties subject to the Mortgages are situated, and
in any other appropriate public recording office or elsewhere, such
recordation to be effected by Patten and at its expense.
Section 12.3 Limitation on Rights of Certificateholders. The death
or incapacity of any Certificateholder shall not operate to terminate this
Agreement or the Trust Fund, nor entitle such Certificateholder's legal
representatives or heirs to claim an accounting or to take any action or
commence any proceeding in any court for a partition or winding up of the
Trust Fund, nor otherwise affect the rights, obligations and liabilities of
the parties hereto or any of them.
No Certificateholder shall have any right to vote (except as
provided in Section 12.1) or in any manner otherwise control the operation and
management of the Trust Fund, or the obligations of the parties hereto, nor
shall anything herein set forth, or contained in the terms of the
Certificates, be construed so as to constitute the Certificateholders from
time to time as partners or members of an association; nor shall any
Certificateholder be under any liability to any third person by
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reason of any action taken by the parties to this Agreement pursuant to any
provision hereof.
No Certificateholder shall have any right by virtue or by availing
itself of any provisions of this Agreement to institute any suit, action or
proceeding in equity or at law upon or under or with respect to this
Agreement, unless such Holder previously shall have given to the Trustee a
written notice of default and of the continuance thereof, as hereinbefore
provided, and unless also the Holders of Certificates of any Class evidencing,
as to such Class, Percentage Interests aggregating not less than 25% shall
have made written request upon the Trustee to institute such action, suit or
proceeding in its own name as Trustee hereunder and shall have offered to the
Trustee such reasonable indemnity as it may require against the costs,
expenses and liabilities to be incurred therein or thereby, and the Trustee,
for 60 days after its receipt of such notice, request and offer of indemnity,
shall have neglected or refused to institute any such action, suit or
proceeding; it being understood and intended, and being expressly covenanted
by each Certificateholder with every other Certificateholder and the Trustee,
that no one or more Holders of Certificates shall have any right in any manner
and to the extent whatever by virtue or by availing itself or themselves of
any provisions of this Agreement to affect, disturb or prejudice the rights of
the Holders of any other of the Certificates, or to obtain or seek to obtain
priority over or preference to any other such Holder, or to enforce any right
under this Agreement, except in the manner and to the extent herein provided
and for the equal, ratable and common benefit of all Certificateholders. For
the protection and enforcement of the provisions of this Section 12.3, each
and every Certificateholder and the Trustee shall be entitled to such relief
as can be given either at law or in equity.
Section 12.4 Governing Law. Except as set forth in the next
sentence, this Agreement shall be construed in accordance with the internal
laws of the State of New York without giving effect to principles of conflicts
of laws and the obligations, rights and remedies of the parties hereunder
shall be determined in accordance with such laws. Notwithstanding the above,
the obligations, rights and remedies of the Trustee hereunder shall be
construed and determined in accordance with the internal laws of the State of
Minnesota without giving effect to principles of conflicts of laws.
Section 12.5 Notices. All demands, notices and communications
hereunder shall be in writing and shall be deemed
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to have been duly given if personally delivered at or mailed by certified
mail, return receipt requested, to (a) in the case of the Depositor, the
Servicer or PRT, 5295 Town Center Road, Suite 400, Boca Raton, Florida 33486,
Attention: President, with a copy to Patten, (b) in the case of Patten, to
Patten Corporation, 5295 Town Center Road, Suite 400, Boca Raton, Florida
33486, Attention: President, (c) in the case of the Trustee, to First Trust
National Association, 180 East 5th Street, St. Paul, Minnesota 55101,
Attention: Corporate Trust, and in the case of the Rating Agency, to Duff &
Phelps Credit Rating Co., 55 East Monroe Street, Chicago, Illinois 60603,
Attention: Structured Finance Research and Monitoring Group or, as to each
party, at such other address as shall be designated by such party in a written
notice to each other party. Any notice required or permitted to be mailed to
a Certificateholder shall be given by first class mail, postage prepaid, at
the address of such Holder as shown in the Certificate Register. Any notice
so mailed within the time prescribed in this Agreement shall be conclusively
presumed to have been duly given, whether or not the Certificateholder
receives such notice.
Section 12.6 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be for any
reason whatsoever held invalid, then such covenants, agreements, provisions or
terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement or of the
Certificates or the rights of the Holders thereof.
Section 12.7 Assignment. Notwithstanding anything to the contrary
contained herein, except as provided in Sections 7.2, 7.4 and 7.5, this
Agreement may not be assigned by Patten or the Servicer without the prior
written consent of Holders of Certificates of each Class, voting as a Class,
evidencing, as to each such Class, Percentage Interests aggregating not less
than 66%.
Section 12.8 Certificates Nonassessable and Fully Paid. It is the
intention of the Trustee that Certificateholders shall not be personally
liable for obligations of the Trust Fund, that the beneficial ownership
interests represented by the Certificates shall be nonassessable for any losses
or expenses of the Trust Fund or for any reason whatsoever, and that
Certificates upon execution, countersignature and delivery thereof by the
Trustee pursuant to Section 2.4 are and shall be deemed fully paid.
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Section 12.9 Reports to Rating Agency. The Trustee or the
Servicer, as applicable, shall send the Rating Agency copies of all opinions,
notices, certificates, statements, schedules and reports sent to
Certificateholders.
Section 12.10 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, and all
of which together shall constitute one and the same instrument.
Section 12.11 Headings Not to Affect Interpretation. The headings
contained in this Agreement are for convenience of reference only, and they
shall not be used in the interpretation hereof.
* * *
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IN WITNESS WHEREOF, PRT, the Depositor, Patten and the Trustee have
caused this Agreement to be duly executed by their respective officers and
their respective seals, duly attested, to be hereunto affixed, all as of the
day and year first above written.
PATTEN CORPORATION REMIC TRUST,
SERIES 1994-1
By: First Trust National
Association, as Trustee
By: /s/ CHRISTINA HATFIELD
---------------------------------------------
Name: CHRISTINA HATFIELD
Title: ASSISTANT V.P.
By: /s/ KATHI BARTH
---------------------------------------------
Name: KATHI BARTH
Title: TRUST OFFICER
PATTEN RECEIVABLES FINANCE
CORPORATION IX, as Depositor
By: /s/ ALAN L. MURRAY
---------------------------------------------
Name: ALAN L. MURRAY
Title: TREASURER
PATTEN CORPORATION
By: /s/ ALAN L. MURRAY
---------------------------------------------
Name: ALAN L. MURRAY
Title: TREASURER AND CHIEF
FINANCIAL OFFICER
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FIRST TRUST NATIONAL ASSOCIATION,
as Trustee
By: /s/ CHRISTINA HATFIELD
---------------------------------------------
Name: CHRISTINA HATFIELD
Title: ASSISTANT VICE PRESIDENT
By: /s/ KATHI BARTH
---------------------------------------------
Name: KATHI BARTH
Title: TRUST OFFICER
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STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 11 day of May, 1994 before me, a notary public in and for
the State of New York, personally appeared Alan L. Murray, known to me who,
being by me duly sworn, did depose and say that he resides at Delray Beach,
Florida, that he is a Treasurer and Chief Financial Officer of Patten
Corporation, one of the parties that executed the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order of the
Board of Directors of said corporation; and that he signed his name thereto by
like order.
/s/ GEORGE N. OTI
-------------------------------------------
Notary Public
[Notarial Seal]
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STATE OF NEW YORK )
: ss.:
COUNTY OF NEW YORK )
On the 11 day of May, 1994 before me, a notary public in and for
the State of New York, personally appeared Alan L. Murray, known to me who,
being by me duly sworn, did depose and say that he resides at Delray Beach,
Florida, that he is a Treasurer of Patten Receivables Finance Corporation IX,
one of the parties that executed the foregoing instrument; that he knows the
seal of said corporation; that the seal affixed to said instrument is such
corporate seal; that it was so affixed by order of the Board of Directors of
said corporation; and that he signed his name thereto by like order.
/s/ GEORGE N. OTI
-----------------
Notary Public
[Notarial Seal]
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STATE OF MINNESOTA )
: ss.:
COUNTY OF RAMSEY )
On the 5 day of May, 1994 before me, a notary public in and for the
State of Minnesota, personally appeared Kathi Barth, known to me who, being by
me duly sworn, did depose and say that he resides at 180 E. 5 Street, St. Paul,
Minn; that he is a Trust Officer of First Trust National Association, one
of the parties that executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the Board of Directors of said
corporation; and that he signed his name thereto by like order.
/s/ Tammy Brusehauer-Derby
-----------------------------------------
Notary Public
[Notarial Seal]
116
<PAGE> 1
EXHIBIT 10.85
_____________________________________________________________
LOAN AND SECURITY AGREEMENT
by and between
PATTEN CORPORATION
and
FOOTHILL CAPITAL CORPORATION
Dated as of October 29, 1993
_____________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.3 Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.4 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.5 Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2. LOAN AND TERMS OF PAYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.1 Advances Against Pledged A Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.2 Land Inventory Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.3 Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.4 Interest: Rates, Payments, and Calculations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
2.5 Crediting Payments; Application of Collections . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.6 Statements of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.7 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3. CONDITIONS; TERM OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.1 Conditions Precedent to Initial Advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.2 Conditions Precedent to All Advances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.3 Term; Automatic Renewal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.4 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.5 Early Termination by Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.6 Termination Upon Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
4.2 Negotiable Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
4.3 Maintenance of Portfolio Collateral; Collection on Acquired Notes and Pledged Notes . . . . . . . . 22
4.4 Compromise or Settlements with Respect to Pledged Notes; Repurchase of Pledged Notes . . . . . . . . 23
4.5 Exercise of Rights and Remedies with Respect to Defaults Under Pledged Notes . . . . . . . . . . . . 23
4.6 Distributions of Lockbox Sums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.7 Release of Portions of Real Property Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.8 Release of Security Interests in the Pledged Notes; Release of Security when Advances
are Equal to Zero . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.9 Delivery of Additional Documentation Required . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.10 Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4.11 Right to Inspect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>
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<TABLE>
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5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.1 No Prior Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.2 Bona Fide Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.3 No Defenses or Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.4 Enforceable Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.5 Correct Legal Description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.6 Correct Loan Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.7 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.8 Authority To Assign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.9 Location of Chief Executive Office; FEIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.10 Due Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.11 Due Authorization; No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
5.13 No Material Adverse Change in Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . 29
5.14 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.15 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.16 Environmental Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.17 Reliance by Foothill; Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
5.18 Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6. AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.1 Accounting System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.2 Schedules of Pledged Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.3 Financial Statements, Reports, Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
6.4 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
6.5 Guarantor Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.6 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.7 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.8 Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.9 No Setoffs or Counterclaims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.10 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
6.11 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.12 Environmental Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
6.13 Sale of Portions of the Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.1 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.2 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.3 Restrictions on Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.4 Extraordinary Transactions and Disposal of Assets . . . . . . . . . . . . . . . . . . . . . . . . 39
7.5 Change Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.6 Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
7.7 Restructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.8 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.9 Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.10 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.11 Accounting Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.12 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
7.13 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
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<TABLE>
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7.14 Suspension . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.15 Intentionally Deleted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.16 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.17 Change in Location of Chief Executive Office . . . . . . . . . . . . . . . . . . . . . . . . . . 41
7.18 Use of Foothill's Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8. EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.15 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.16 Real Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9. FOOTHILL'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.1 Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
9.2 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
9.3 Foreclosure Not A Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
10. TAXES AND EXPENSES REGARDING THE COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11. WAIVERS; INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.1 Demand; Protest; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.2 Foothill's Liability for Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
11.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
12. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
14. DESTRUCTION OF BORROWER'S DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
15. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
15.1 Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
15.2 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
15.3 Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
15.4 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
15.5 Severability of Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
15.6 Amendments in Writing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
15.7 Counterparts; Telefacsimile Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
15.8 Revival and Reinstatement of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
15.9 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
<CAPTION>
SCHEDULES
---------
<S> <C>
Schedule P-1 Permitted Liens
Schedule PN-A Pledged A Notes Standards
Schedule PN-B Pledged B Notes
Schedule R-1 Real Property
Schedule 5.9 Litigation
</TABLE>
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LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT, is entered into as of October 29,
1993, between FOOTHILL CAPITAL CORPORATION, a California corporation
("Foothill"), with a place of business located at 11111 Santa Monica Boulevard,
Suite 1500, Los Angeles, California 90025-3333, and PATTEN CORPORATION, a
Massachusetts corporation ("Borrower"), with its chief executive office located
at 5295 Town Center Road, Suite 400, Boca Raton, Florida 33486.
The parties agree as follows:
1 DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement,
the following terms shall have the following definitions:
"Act" means all present and future laws, regulations,
statutes, common law, rules, ordinances, codes, licenses, permits, orders,
approvals, plans, authorizations, concessions, franchises, and similar items
of any federal, state or local government, instrumentality or body, as the
same may be amended, modified or supplemented from time to time related to
Hazardous Materials.
"Adjusted Tangible Net Worth" means Tangible Net Worth plus
subordinated debt.
"Affiliate" means, as applied to any Person, any
other Person directly or indirectly controlling, controlled by, or under common
control with, that Person. For purposes of this definition, "control" as
applied to any Person means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting securities, by contract, or
otherwise.
"Agreement" means this Loan and Security Agreement and any
extensions, riders, supplements, notes, amendments, or modifications to or in
connection with this Loan and Security Agreement.
"Authorized Officer" means any officer of Borrower.
"A Line Advances" has the meaning set forth in Section 2.1
hereof.
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<PAGE> 6
"A Line Borrowing Base" means an amount equal to the
sum of (i) eighty (80) percent of the unpaid principal balance at the time of
the advance with respect to variable rate notes; and (ii) eighty (80) percent
of the present value of the unmatured installments of principal and interest,
discounted to fourteen (14) percent, at the time of the advance with respect to
fixed rate notes.
"Bankruptcy Code" means the United States Bankruptcy
Code (11 U.S.C. Section 101 et seq.), as amended, and any successor statute.
"Borrower" has the meaning set forth in the preamble
to this Agreement.
"Borrower's Books" means all of Borrower's books and
records relating to the Collateral (other than Borrower's Books) including:
ledgers; records indicating, summarizing, or evidencing Borrower's properties
or assets relating to the Collateral; all information relating to Borrower's
business operations or financial condition relating to the Collateral; and all
computer programs, disc or tape files, printouts, runs, or other computer
prepared information relating to the Collateral.
"Business Day" means any day which is not a Saturday,
Sunday, or other day on which national banks are authorized or required to
close.
"Change of Control" shall be deemed to have occurred
at such time as a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934) becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of 1934), directly
or indirectly, of more than 35% of the total voting power of all classes of
stock then outstanding of Borrower normally entitled to vote in the election of
directors.
"Closing Date" means the date of the initial advance.
"Code" means the California Uniform Commercial Code.
"Collateral" means each of the following: the Pledged
Notes; the Real Property; the Shawmut Funds; Borrower's Books; any money, or
other assets of Borrower which now or hereafter come into the possession,
custody, or control of Foothill (unless the same shall come into the possession
of Foothill by mistake or inadvertence); and the proceeds and
2
<PAGE> 7
products, whether tangible or intangible, of any of the foregoing including
proceeds of insurance covering any or all of the Collateral, and any and all
money, deposit accounts, or other tangible or intangible property resulting
from the sale, exchange, collection, or other disposition of any of the
foregoing, or any portion thereof or interest therein, and the proceeds
thereof.
"Custodial Agreement" means any custodial agreement
entered into between Custodian, on the one hand, and Foothill, on the other
hand, (the form of which is acceptable to Borrower) respecting the agreement of
such institution to act as custodian and bailee on behalf of Foothill
respecting some or all of the collateral.
"Custodian" means the financial or other institution
acting as Foothill's custodian respecting some or all of the Collateral, whose
identity is reasonably acceptable to Borrower.
"Daily Balance" means the amount of an Obligation
owed at the end of a given day.
"Early Termination Premium" has the meaning set
forth in Section 3.5.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, or any predecessor, successor, or
superseding laws of the United States of America, together with all regulations
promulgated thereunder.
"ERISA Affiliate" means any trade or business
(whether or not incorporated) which, within the meaning of Section 414 of the
IRC, is: (i) under common control with Borrower; (ii) treated, together with
Borrower, as a single employer; (iii) treated as a member of an affiliated
service group of which Borrower is also treated as a member; or (iv) is
otherwise aggregated with the Borrower for purposes of the employee benefits
requirements listed in IRC Section 414(m)(4).
"ERISA Event" shall mean any one or more of the
following: (i) a Reportable Event with respect to a Qualified Plan or a
Multiemployer Plan; (ii) a Prohibited Transaction with respect to any Plan;
(iii) a complete or partial withdrawal by Borrower or any ERISA Affiliate from
a Multiemployer Plan; (iv) the complete or partial withdrawal of Borrower or an
ERISA Affiliate from a Qualified Plan during a plan year in which it was, or
was treated as, a "substantial employer" as defined in Section 4001(a)(2) of
ERISA; (v) a
3
<PAGE> 8
failure to make full payment when due of all amounts which, under the
provisions of any Plan or applicable law, Borrower or any ERISA Affiliate is
required to make; (vi) the filing of a notice of intent to terminate, or the
treatment of a plan amendment as a termination, under Sections 4041 or 4041A of
ERISA; (vii) an event or condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Qualified Plan or Multiemployer
Plan; (viii) the imposition of any liability under Title IV of ERISA, other
than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon
Borrower or any ERISA Affiliate; and (ix) a violation of the applicable
requirements of Sections 404 or 405 of ERISA, or the exclusive benefit rule
under Section 403(c) of ERISA, by any fiduciary or disqualified person with
respect to any Plan for which Borrower or any ERISA Affiliate may be directly
or indirectly liable.
"Event of Default" has the meaning set forth in Section 8.
"FEIN" means Federal Employer Identification Number.
"Foothill" has the meaning set forth in the preamble to
this Agreement.
"Foothill Expenses" means all: costs or expenses
(including taxes, photocopying, notarization, telecommunication and insurance
premiums) required to be paid by Borrower under any of the Loan Documents that
are paid or advanced by Foothill; documentation, filing, recording,
publication, real estate survey, environmental audit, lock-box, fees incurred
pursuant to the Custodial Agreement, search fees, and appraisal fees respecting
the Real Property, (or property proposed by Borrower to become Real Property)
and the properties subject to the Note Mortgages, which are assessed, paid, or
incurred by Foothill in connection with Foothill's transactions with Borrower;
reasonable costs and expenses incurred by Foothill in the disbursement of funds
to Borrower (by wire transfer or otherwise); reasonable charges paid or
incurred by Foothill resulting from the dishonor of checks; reasonable costs
and expenses paid or incurred by Foothill to correct any default or enforce any
provision of the Loan Documents, or in gaining possession of, maintaining,
handling, preserving, storing, shipping, selling, preparing for sale, or
advertising to sell the Collateral, or any portion thereof, irrespective of
whether a sale is consummated; costs and expenses paid or incurred by Foothill
in examining Borrower's Books; reasonable costs and expenses of third party
claims or
4
<PAGE> 9
any other suit paid or incurred by Foothill in enforcing or defending the Loan
Documents; and Foothill's reasonable attorneys fees and expenses incurred in
advising, structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including attorneys fees and expenses incurred in
connection with a "workout," a "restructuring," or an Insolvency Proceeding
concerning Borrower or any guarantor of the Obligations), defending, or
concerning the Loan Documents, irrespective of whether suit is brought.
"GAAP" means generally accepted accounting principles
as in effect from time to time in the United States, consistently applied.
"Hazardous Materials" means:
(a) those substances as defined as "hazardous
substances," "hazardous materials," "toxic substances," or "solid waste" in
CERCLA, RCRA, and the Hazardous Materials Transportation Act, 49 U.S.C. Section
1801 et seq., and in the regulations promulgated pursuant thereto;
(b) those substances designated as a "hazardous
substance" under or pursuant to the Federal Water Pollution Control Act, 33
U.S.C. Section 1257 et seq., or defined as a "hazardous waste" under or
pursuant to the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901
et seq. and in the regulations promulgated pursuant thereto;
(c) those substances listed in the United
States Department of Transportation Table (40 CFR 172.101 and amendments
thereto) or by the Environmental Protection Agency (or any successor agency) as
hazardous substances (40 CFR Part 302 and amendments thereto); and
(d) such other substances, materials and wastes
which are regulated or which are classified as hazardous or toxic under any Act.
"Indebtedness" shall mean: (a) all obligations of
Borrower for borrowed money; (b) all obligations of Borrower evidenced by
bonds, debentures, notes, or other similar instruments and all reimbursement or
other obligations of Borrower in respect of letters of credit, letter of credit
guaranties, bankers acceptances, interest rate swaps, controlled disbursement
accounts, or other financial products; (c) all obligations under capitalized
leases; (d) all obligations or liabilities of others secured by a lien or
security interest on any property or asset of Borrower, irrespective of whether
such obligation or liability is assumed; and (e) any obligation of Borrower
guaranteeing or
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intended to guarantee (whether guaranteed, endorsed, co-made, discounted, or
sold with recourse to Borrower) any indebtedness, lease, dividend, letter of
credit, or other obligation of any other Person.
"Indemnified Persons" means Foothill and its parents,
subsidiaries and affiliates, attorneys and each of their officers, directors,
agents, employees, trustees, receivers, executors and administrators, and the
heirs, successors and assigns of all of the foregoing.
"Insolvency Proceeding" means any proceeding
commenced by or against any Person under any provision of the Bankruptcy Code
or under any other bankruptcy or insolvency law, including assignments for the
benefit of creditors, formal or informal moratoria, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other similar relief.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Land Inventory Advances" has the meaning set forth
in Section 2.2 hereof.
"Land Inventory Borrowing Base" means an amount equal
to the lesser of (a) three million dollars, (b) fifty percent (50%) of the sum
of acquisition cost of real property plus Borrower's actual costs of
improvements thereon for lots which are in a ready-to-sell condition, (c)
thirty percent (30%) of the projected retail sales price (established in good
faith and supported by comparable lots) of the saleable lots, (d) the
acquisition cost of the land to be acquired, or (e) Foothill's in-house
appraisal of the Real Property.
"Loan Documents" means this Agreement, the Pledge
Agreement, the Lock Box Agreements, the Mortgages, the Term Note, any other
note or notes executed by Borrower and payable to Foothill, and any other
agreement entered into in connection with this Agreement.
"Lock Box" shall have the meaning provided in the
respective Lock Box Agreements.
"Lock Box Agreements" means those certain Lockbox
Operating Procedural Agreements and Depository Account Agreements, in form and
substance satisfactory to Borrower and Foothill, each of which is among
Borrower, Foothill, and one of the Lock Box Banks.
"Lock Box Banks" means Bankers Trust Company.
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"Losses" shall mean (i) any and all losses,
liabilities, contingent liabilities, damages, obligations, claims, contingent
claims, actions, suits, proceedings, disbursements, penalties, reasonable costs
and expenses (including, without limitation, reasonable attorneys' fees and
costs of counsel retained by Foothill to monitor the proceedings and actions of
Borrower in satisfying its obligations hereunder); and (ii) any and all losses,
liabilities, contingent liabilities, damages, obligations, claims, contingent
claims, actions, suits, proceedings, disbursements, penalties, reasonable costs
and expenses (including, without limitation, reasonable attorneys' fees and
costs of counsel retained by Foothill to monitor the proceedings and actions of
Borrower in any and all matters relating to Hazardous Materials affecting the
Real Property, the property subject to the Note Mortgages and any property in
the vicinity contaminated by releases of Hazardous Materials from such
property); and costs of counsel retained by Foothill to advise and represent
Foothill with respect to matters related hereto, including, without limitation,
fees incurred pursuant to 11 U.S.C.) and all other reasonable professional or
consultants' fees and expenses, whether or not an action or proceeding is
commenced or threatened.
"Maximum Amount" means the sum of ten million
dollars ($10,000,000).
"Mortgages" means one or more mortgages, deeds of
trust, or deeds to secure debt, executed by Borrower in favor of Foothill, the
form and substance of which shall be satisfactory to Foothill, that encumber
the Real Property and the related improvements thereto.
"Multiemployer Plan" shall mean a multiemployer plan
as defined in Sections 3(37) or 4001(a)(3) of ERISA or Section 414 of the IRC
in which employees of Borrower or an ERISA Affiliate participate or to which
Borrower or any ERISA Affiliate contribute or are required to contribute.
"Note Mortgage(s)" means those certain deeds of
trust, mortgages or security interests encumbering certain real property, which
serves as collateral for the repayment of the Pledged A Notes and the Pledged B
Notes.
"Obligations" means all loans, advances, debts,
principal, interest (including any interest that, but for the provisions of the
Bankruptcy Code, would have accrued), premiums, liabilities (including all
amounts charged to Borrower's loan account pursuant to any agreement
authorizing Foothill to charge Borrower's loan account), obligations, fees
(including Early Termination Premiums), lease payments,
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guaranties, covenants, and duties owing by Borrower to Foothill of any kind and
description (whether pursuant to or evidenced by the Loan Documents, by any
note or other instrument (including the Term Note), or pursuant to any other
agreement between Foothill and Borrower, and irrespective of whether for the
payment of money), whether direct or indirect, absolute or contingent, due or
to become due, now existing or hereafter arising, and including all interest
not paid when due and all Foothill Expenses that Borrower is required to pay or
reimburse by the Loan Documents, by law, or otherwise.
"Participant" means any Person, other than Foothill,
that has committed to provide a portion of the financing contemplated herein.
"PBGC" means the Pension Benefit Guaranty Corporation
as defined in Title IV of ERISA, or any successor thereto.
"Permitted Liens" means: (a) liens and security
interests held by Foothill; (b) liens relating to the Collateral for unpaid
taxes that are not yet due and payable; (c) liens and security interests set
forth on Schedule P-1 attached hereto; (d) purchase money security interests
for personal property, and for land and improvements acquired, and liens of
lessors under capitalized leases to the extent that the acquisition or lease of
the underlying asset was permitted under Section 7.10, and so long as the
security interest or lien only secures the purchase price of the asset; (e)
easements, rights of way, reservations, covenants, conditions, restrictions,
zoning variances, and other similar encumbrances that do not materially
interfere with the use or value of the property subject thereto; (f)
obligations and duties as lessee under any lease existing on the date of this
Agreement; (g) mechanics', materialmen's, warehousemen's, or similar liens; and
(h) exceptions listed in the title insurance or commitment therefor to be
delivered by Borrower hereunder in respect of the Real Property, (i) non
consentual liens on property other than the Real Property, and (j) refinancings
(at the same principal balance) of all of the above.
"Person" means and includes natural persons,
corporations, limited partnerships, general partnerships, joint ventures,
trusts, land trusts, business trusts, or other organizations, irrespective of
whether they are legal entities, and governments and agencies and political
subdivisions thereof.
"Plan" means an employee benefit plan (as defined in
Section 3(3) of ERISA) which Borrower or any ERISA Affiliate sponsors or
maintains or to which Borrower or any
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ERISA Affiliate makes, is making, or is obligated to make contributions,
including any Multiemployer Plan or Qualified Plan.
"Pledge Agreement" means that certain Pledge and
Security Agreement entered into between Borrower and Foothill which evidences
the pledge of the Pledged Notes.
"Pledged A Notes" means a note or notes which
conforms to the standards set forth in Schedule PN-A attached hereto and
incorporated by reference hereby, and which is pledged to secure advances under
the A Line Advances.
"Pledged B Notes" means all of the notes and other
evidences of indebtedness, along with all security securing the repayment of
same (including the Mortgages), which are more particularly described in
Schedule PN-B attached hereto and incorporated by reference hereby.
"Pledged B Note Subline" means a one time advance to
Borrower on the Closing Date in the amount of Eight Hundred Fifty Thousand
Three Hundred Eleven Dollars and Thirty-eight Cents ($850,311.38), the repayment
of which is evidenced by the Term Note.
"Pledged Note(s)" means collectively the Pledged A
Notes and Pledged B Notes.
"Prohibited Transaction" means any transaction
described in Section 406 of ERISA which is not exempt by reason of Section 408
of ERISA, and any transaction described in Section 4975(c) of the IRC which is
not exempt by reason of Section 4975(c) of the IRC.
"Real Property" means (i) the parcel or parcels of
real property and the related improvements thereto identified on Schedule R-1,
and; (ii) any parcels of real property hereafter offered by Borrower and
accepted by Foothill to serve as collateral for the Obligations and the
computation of the Land Inventory Borrowing Base; and (iii) should the
provisions of Section 2.2(f) apply, all parcels of real property acquired in
whole or in part with Land Inventory Advances.
"Qualified Plan" means a pension plan (as defined in
Section 3(2) of ERISA) intended to be tax-qualified under Section 401(a) of the
IRC which Borrower or any ERISA Affiliate sponsors, maintains, or to which any
such person makes, is making, or is obligated to make, contributions, or, in
the case of a multiple-employer plan (as described in Section 4064(a) of
ERISA), has made contributions at any time
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during the immediately preceding period covering at least five (5) plan years,
but excluding any Multiemployer Plan.
"Reference Rate" means the highest of the variable
rates of interest, per annum, most recently announced by (a) Bank of America,
N.T. & S.A., (b) Mellon Bank, N.A., and (c) Citibank, N.A., or any successor to
any of the foregoing institutions, as its "prime rate" or "reference rate," as
the case may be, irrespective of whether such announced rate is the best rate
available from such financial institution.
"Remediate" and "Remediation" shall include, but not
be limited to, the investigation of the environmental condition of the Real
Property and property subject to the Note Mortgages, the preparation of any
feasibility studies, reports or remedial plans, and the performance of any
cleanup, abatement, removal, remediation, containment, operation, maintenance,
monitoring or restoration work, whether on or off of the Real Property and
property subject to the Note Mortgages.
"Reportable Event" shall mean any event described in
Section 4043 (other than Subsections (b)(7) and (b)(9)) of ERISA.
"Shawmut Funds" means the direct withdrawal deposits
made by Shawmut Bank and forwarded to the Lock Box Banks as payments on some of
the Pledged Notes.
"Solvent" means, with respect to any Person on a
particular date, that on such date (a) at fair valuations, all of the
properties and assets of such Person are greater than the sum of the debts,
including contingent liabilities, of such Person, (b) the present fair salable
value of the properties and assets of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its debts
as they become absolute and matured, (c) such Person is able to realize upon
its properties and assets and pay its debts and other liabilities, contingent
obligations and other commitments as they mature in the normal course of
business, (d) such Person does not intend to, and does not believe that it
will, incur debts beyond such Person's ability to pay as such debts mature, and
(e) such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's properties and
assets would constitute unreasonably small capital after giving due
consideration to the prevailing practices in the industry in which such Person
is engaged. In computing the amount of contingent liabilities at any time, it
is intended that such liabilities will be computed at the
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amount that, in light of all the facts and circumstances existing at such time,
represents the amount that reasonably can be expected to become an actual or
matured liability.
"Tangible Net Worth" means, as of the date any
determination thereof is to be made, net worth less goodwill, all in accordance
with GAAP.
"Term Note" has the meaning set forth in Section 2.3
hereof.
"Unfunded Benefit Liability" means the excess of a
Plan's benefit liabilities (as defined in Section 4001(a)(16) of ERISA) over
the current value of such Plan's assets, determined in accordance with the
assumptions used by the Plan's actuaries for funding the Plan pursuant to
Section 412 of the IRC for the applicable plan year.
"Voidable Transfer" has the meaning set forth in
Section 15.8.
"Working Capital" means the result of subtracting
Consolidated Current Liabilities from Consolidated Current Assets.
1.2 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP. When
used herein, the term "financial statements" shall include the notes and
schedules thereto. Whenever the term "Borrower" is used in respect of a
financial covenant or a related definition, it shall be understood to mean
Borrower on a consolidated basis unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement
which are defined in the Code shall be construed and defined as set forth in
the Code unless otherwise defined herein.
1.4 Construction. Unless the context of this
Agreement clearly requires otherwise, references to the plural include the
singular, references to the singular include the plural, the term "including"
is not limiting, and the term "or" has, except where otherwise indicated, the
inclusive meaning represented by the phrase "and/or." The words "hereof,"
"herein," "hereby," "hereunder," and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this
Agreement. Section, subsection, clause, schedule, and exhibit references are
to this Agreement unless otherwise specified. Any reference in this Agreement
or in the Loan Documents to this Agreement or any of the Loan Documents shall
include all alterations,
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amendments, changes, extensions, modifications, renewals, replacements,
substitutions, and supplements, thereto and thereof, as applicable.
1.5 Schedules and Exhibits. All of the
schedules and exhibits attached to this Agreement shall be deemed incorporated
herein by reference.
2 LOAN AND TERMS OF PAYMENT.
2.1 Advances Against Pledged A Notes.
(A) In addition to the Land Inventory
Advances set forth in Section 2.2 hereof, and the Term Loan set forth in
Section 2.3 hereof, subject to the terms and conditions of this Agreement,
Foothill agrees to make advances to Borrower upon the pledge to Foothill of the
Pledged A Notes ("A Line Advances") in an amount not to exceed the A Line
Borrowing Base.
(b) Anything to the contrary in
subsection (a) above notwithstanding, Foothill may reduce its advance rates
without declaring an event of default if it determines, in its reasonable
discretion, that there is a material impairment of the prospect of repayment of
any or all or any portion of its Obligations, or a material impairment of the
value or priority of Foothill's security interests in the Collateral.
(c) Foothill shall have no obligation
to make A Line Advances to the extent that total lending to Borrower would
exceed the Maximum Amount.
(d) Borrower agrees to establish and
maintain a designated deposit account for the purpose of receiving the proceeds
of the advances made by Foothill hereunder. Unless otherwise agreed to in
writing by Foothill and Borrower, any advance requested by Borrower and made by
Foothill hereunder shall be made to such designated deposit account.
(e) A Line Advances made pursuant to
this Section 2.1 shall not be made more frequently than monthly, or in amounts
less than $100,000 per advance.
(f) On each annual anniversary date,
Borrower may request that Foothill make an additional advance against the then
Pledged A Notes in an amount such that the aggregate of the A Line Advances
equals eighty percent (80%) of the outstanding principal balances of the
Pledged A Notes (discounted to fourteen (14) percent for fixed rate notes).
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Foothill may refuse such request, based in its sole and absolute discretion,
without any liability therefor. From and after the second annual anniversary
date hereunder, provided there shall not have occurred an Event of Default,
Foothill will agree to such request unless it, acting in good faith and
exercising its reasonable judgment, believes that there is a material risk of
the impairment of the prospect of repayment of any or all of any portion of
Borrower's Obligations. In such an event, Borrower may terminate this Agreement
without the imposition of an Early Termination Fee.
2.2 Land Inventory Advances.
(a) In addition to the advances set
forth in Sections 2.1 and 2.3 hereof, subject to the terms and conditions of
this Agreement, and provided Borrower is not in default hereunder (subject to
grace periods, if any), including, specifically, Section 6.13 hereof, Foothill
agrees to make advances to Borrower in an amount not to exceed the Land
Inventory Borrowing Base ("Land Inventory Advances") to enable it to buy land
for subsequent resale to the public. Land Acquisition Advances shall be used
for this and for no other purpose. Only Real Property or, should the
provisions of Section 2.2(e) apply, property being acquired by the use of Land
inventory Advances will be used in the computation of the Land Inventory
Borrowing Base formula.
(b) Anything to the contrary in
subsection (a) above notwithstanding, Foothill may reduce its advance rates if
it determines, in its reasonable discretion, that there is a material
impairment of the prospect of repayment of all or any portion of the
Obligations or a material impairment of the value or priority of Foothill's
security interest in the Collateral.
(c) Foothill shall have no obligation
to make Land Inventory Advances to the extent that total lending to Borrower
would exceed the Maximum Amount.
(d) Borrower agrees to establish and
maintain a designated deposit account for the purpose of receiving the proceeds
of the advances made by Foothill hereunder. Unless otherwise agreed to in
writing by Foothill and Borrower, any advance requested by Borrower and made by
Foothill hereunder shall be made to such designated deposit account.
(e) Land Inventory Advances made
pursuant to this Section 2.2 shall not be made more frequently than monthly or
in amounts less than $100,000 per advance.
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(f) Should at any time (including such times as a Land Inventory
Advance request is made by Borrower, in which such event after giving effect to
such requested advance) the Real Property have a value less than one hundred and
fifty (150) percent of the lessor of parts (b) or (c) of the definition of Land
Inventory Borrowing Base, Foothill shall be granted a lien on all property
acquired in whole or in part with all such Land Inventory Advances.
(g) If at any subsequent time the Real Property have a value of one
hundred fifty (150) percent of the aggregate of Land Inventory Advances (after
giving effect to a requested Real Property Advance), then thereafter Foothill
shall not be given a lien on such acquired property, unless and until the
provisions of Section 2.2(f) apply.
(h) Term Loan. Foothill has agreed to make a term loan to Borrower in
the original principal amount of Eight Hundred Fifty Thousand Three Hundred
Eleven Dollars and Thirty-eight Cents ($850,311.38) Dollars, to be evidenced by
and repayable in accordance with the terms and conditions of a promissory note
(the "Term Note"), of even date herewith, executed by Borrower in favor of
Foothill. All amounts evidenced by the Term Note shall constitute Obligations.
2.4 Interest: Rates, Payments, and Calculations.
(a) Interest Rate. All Obligations (except for the Obligations
evidenced by the Term Note and Land Inventory Advances) shall bear interest, on
the average Daily Balance, at a rate of two and one half (2 1/2) percentage
points above the Reference Rate. The Obligations arising out of Land Inventory
Advances set forth in Section 2.2 shall bear interest on the average Daily
Balance, at a rate of three (3) percentage points above the Reference Rate. The
Obligations evidenced by the Term Note shall bear interest, on the average Daily
Balance, at a rate of three and one half (3 1/2) percentage points above the
Reference Rate.
(b) Default Rate. All Obligations (except for the Obligations
evidenced by the Term Note and Land Inventory Advances) shall bear interest,
from and after the occurrence and during the continuance of an Event of Default
at a rate equal to six and one-half (6-1/2) percentage points above the
Reference Rate. The Obligations evidenced by the Term Note shall bear interest,
from and after the occurrence and during the continuance of an Event of Default
at a rate equal to seven and one-half (7-1/2) percentage points above the
Reference Rate. Obligations made pursuant to the Land Inventory Advances, shall
bear interest, from and
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after the occurrence and during the continuance of an Event of Default, at a
rate equal to seven (7) percentage points above the Reference Rate.
(c) Minimum Interest. In no event
shall the rate of interest chargeable hereunder be less than seven percent (7%)
per annum. Commencing January 1, 1994 the amount of interest accrued and
payable to Foothill on the A Line Advances set forth in Section 2.1 hereof
shall be no less than twenty five thousand dollars per month; provided,
however, that if Borrower seeks to cause all of the Pledged Notes to be
released in accordance with the provision of Section 4.8 hereof, there shall be
no monthly minimum interest payments as set forth in this sentence for the two
months immediately following such release, with a five thousand dollar per
month minimum for the third month following release, a ten thousand dollar per
month minimum for the fourth month following release, a fifteen thousand dollar
per month minimum for the fifth month following release, a twenty thousand
dollar per month minimum for the sixth month following release, and a twenty
five thousand dollar per month minimum for every month thereafter. To the
extent that interest accrued hereunder at the rate set forth herein (including
the minimum interest rate) would yield less than the foregoing minimum amount,
the interest rate chargeable hereunder for the period in question automatically
shall be deemed increased to that rate that would result in the minimum amount
of interest being accrued and payable hereunder.
(d) Payments. Interest hereunder shall
be due and payable on the first day of each month during the term hereof.
Borrower hereby authorizes Foothill, at its option, without prior notice to
Borrower, to charge such interest, all Foothill Expenses (as and when
incurred), and all installments or other payments due under the Term Note or
any other note or other Loan Document to Borrower's loan account, which amounts
shall thereafter accrue interest at the rate then applicable hereunder. Any
interest not paid when due shall be compounded by becoming a part of the
Obligations, and such interest shall thereafter accrue interest at the rate
then applicable hereunder.
(e) Computation. The Reference Rate as
of this date is six percent (6%) per annum. In the event the Reference Rate is
changed from time to time hereafter, the applicable rate of interest hereunder
automatically and immediately shall be increased or decreased by an amount
equal to such change in the Reference Rate. The rates of interest charged
hereunder shall be based upon the average Reference Rate in effect during the
month. All interest and fees chargeable under the Loan Documents shall be
computed on the
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basis of a three hundred sixty (360) day year for the actual number of days
elapsed.
(f) Intent to Limit Charges to Maximum
Lawful Rate. In no event shall the interest rate or rates payable under this
Agreement or the Term Note, plus any other amounts paid in connection herewith,
exceed the highest rate permissible under any law that a court of competent
jurisdiction shall, in a final determination, deem applicable. Borrower and
Foothill, in executing this Agreement and the Term Note, intend to legally
agree upon the rate or rates of interest and manner of payment stated within
it; provided, however, that, anything contained herein or in the Term Note to
the contrary notwithstanding, if said rate or rates of interest or manner of
payment exceeds the maximum allowable under applicable law, then, ipso facto as
of the date of this Agreement and the Term Note, Borrower is and shall be
liable only for the payment of such maximum as allowed by law, and payment
received from Borrower in excess of such legal maximum, whenever received,
shall be applied to reduce the principal balance of the Obligations to the
extent of such excess.
2.5 Crediting Payments; Application of
Collections. The receipt of any wire transfer of funds, check, or other item
of payment by Foothill (whether from transfers to Foothill by the Lock Box
Banks pursuant to the Lock Box Agreements or otherwise) immediately shall be
applied to provisionally reduce the Obligations, but shall not be considered a
payment on account unless such wire transfer is of immediately available funds
and is made to the appropriate deposit account of Foothill or unless and until
such check or other item of payment is honored when presented for payment.
Foothill shall be entitled to charge Borrower for three (3) Business Days of
`clearance' at the applicable rate set forth in Sections 2.4(a) and 2.4(b)
(applicable to advances under Section 2.1) on all checks, or other items of non
immediately available funds (which does not include wire transfers of
immediately available funds) that are received by Foothill (regardless of
whether forwarded by the Lock Box Banks to Foothill, whether provisionally
applied to reduce the Obligations, or otherwise). This across-the-board three
(3) Business Day clearance charge on all receipts is acknowledged by the
parties to constitute an integral aspect of the pricing of Foothill's facility
to Borrower, and shall apply irrespective of the characterization of whether
receipts are owned by Borrower or Foothill, and irrespective of the level of
Borrower's Obligations to Foothill. Should any check or item of payment not be
honored when presented for payment, then Borrower shall be deemed not to have
made such payment, and interest shall be recalculated accordingly. Anything to
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the contrary contained herein notwithstanding, any wire transfer, check, or
other item of payment shall be deemed received by Foothill only if it is
received into Foothill's Operating Account (as such account is identified in
the Lock Box Agreements) on or before 11:00 a.m. Los Angeles time. If any wire
transfer, check, or other item of payment is received into Foothill's Operating
Account (as such account is identified in the Lock Box Agreements) after 11:00
a.m. Los Angeles time it shall be deemed to have been received by Foothill as
of the opening of business on the immediately following Business Day.
2.6 Statements of Obligations. Foothill shall
render statements to Borrower of the Obligations, including principal,
interest, fees, and including an itemization of all charges and expenses
constituting Foothill Expenses owing, and such statements shall be conclusively
presumed to be correct and accurate and constitute an account stated between
Borrower and Foothill unless, within thirty (30) days after receipt thereof by
Borrower, Borrower shall deliver to Foothill by registered or certified mail at
its address specified in Section 12, written objection thereto describing the
error or errors contained in any such statements.
2.7 Fees. Borrower shall pay to Foothill the
following fees:
(a) Closing Fee. A one time closing
fee of ninety thousand dollars ($90,000) which is earned, in full, on the
Closing Date and is due and payable by Borrower to Foothill in connection with
this Agreement on the Closing Date;
(b) Land Inventory Financing Fee. On
each and every Land Inventory Advance made pursuant to Section 2.2 hereof,
Borrower shall pay to Foothill a fee in an amount equal to one percent (1%) of
the total of each such advance.
(c) Financial Examination, Documentation,
and Appraisal Fees. Foothill's customary fee of Six Hundred Dollars ($600)
per day per examiner, plus out-of-pocket expenses for each financial analysis
and examination of Borrower performed by Foothill or its agents; Foothill's
customary appraisal fee of Seven Hundred Fifty Dollars ($750) per day per
appraiser, plus out-of-pocket expenses for each appraisal of the Collateral
performed by Foothill or its agents; and, on each anniversary of the Closing
Date, Foothill's customary fee of One Thousand Dollars ($1,000) for its loan
documentation review; and
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(d) Servicing Fee. On the first day of
each month during the term of this Agreement, and thereafter so long as any
Obligations are outstanding, a servicing fee in an amount equal to Fifteen
Hundred Dollars ($1,500) per month.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to Initial Advance.
The obligation of Foothill to make the initial advance is subject to the
fulfillment, to the satisfaction of Foothill and its counsel, of each of the
following conditions on or before the Closing Date:
(a) the Closing Date shall occur on or
before October 29, 1993;
(b) Foothill shall have received the
originals of the Pledged Notes, properly endorsed to Foothill or its agent;
(c) Foothill shall have received the
originals (except for assignments of the Note Mortgages, for which Foothill
shall receive a copy) of all security which serves as security for the
repayment of the Pledged Notes, including the Note Mortgages and policies of
title insurance insuring same, properly assigned to Foothill or its agent;
(d) Foothill shall have received
searches reflecting the filing of its financing statements and fixture filings,
if any;
(e) Foothill shall have received each
of the following documents, duly executed, and each such document shall be in
full force and effect:
(i) the Lock Box Agreements;
(ii) the Pledge Agreement; and
(iii) the Term Note;
(f) Foothill shall have received a
certificate from the Secretary of Borrower attesting to the resolutions of
Borrower's Board of Directors authorizing its execution and delivery of this
Agreement and the other Loan Documents to which Borrower is a party and
authorizing specific officers of Borrower to execute same;
(g) Foothill shall have received copies
of Borrower's By-laws and Articles or Certificate of
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Incorporation, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower;
(h) Foothill shall have received a
certificate of corporate status with respect to Borrower, dated within ten (10)
days of the Closing Date, by the Secretary of State of the state of
incorporation of Borrower, which certificate shall indicate that Borrower is in
good standing in such state;
(i) Foothill shall have received
certificates of corporate status with respect to Borrower, each dated within
fifteen (15) days of the Closing Date, such certificates to be issued by the
Secretary of State of the states in which its failure to be duly qualified or
licensed would have a material adverse effect on the financial condition or
properties and assets of Borrower, which certificates shall indicate that
Borrower is in good standing;
(j) Foothill shall have received the
certified copies of the policies of insurance, together with the endorsements
thereto, as are required by Section 6.7 hereof, the form and substance of which
shall be satisfactory to Foothill and its counsel;
(k) Foothill shall have received an
opinion of Borrower's counsel in form and substance satisfactory to Foothill in
its sole discretion; and
(l) all other documents and legal
matters in connection with the transactions contemplated by this Agreement
shall have been delivered or executed or recorded and shall be in form and
substance satisfactory to Foothill and its counsel.
3.2 Conditions Precedent to All Advances. The
following shall be conditions precedent to all advances hereunder:
(a) Foothill shall have received the
originals of the Pledged A Notes, properly endorsed to Foothill or its agent;
(b) Foothill shall have received the
originals (except for assignments of the Note Mortgages, for which Foothill
shall receive a copy) of all security which serves as security for the
repayment of the Pledged A Notes, including the Note Mortgages and policies of
title insurance insuring same, properly assigned to Foothill or its agent;
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(c) the representations and warranties
contained in this Agreement and the other Loan Documents shall be true and
correct in all respects on and as of the date of such advance, as though made
on and as of such date (except to the extent that such representations and
warranties relate solely to an earlier date);
(d) the standards for Pledged A Notes set forth
in Schedule PN-A herein shall be fully complied with;
(e) no Event of Default or event which with the
giving of notice or passage of time would constitute an Event of Default shall
have occurred and be continuing on the date of such advance nor shall either
result from the making of the advance;
(f) no injunction, writ, restraining order, or
other order of any nature prohibiting, directly or indirectly, the making of
such advance shall have been issued and remain in force by any governmental
authority against Borrower, Foothill, or any of their Affiliates;
(g) Foothill shall have received each of the
Mortgages, duly executed, and each shall have been recorded in the appropriate
county recording office;
(h) Foothill shall have received an ALTA 1970
Form Lenders Policy of Title Insurance, or its local equivalent, in form and
content acceptable to Foothill, in its sole and absolute discretion;
(i) Foothill shall have received searches
reflecting the filing of its financing statements for all Pledged Notes;
(j) Foothill shall have received an
acknowledgement letter in form satisfactory to it executed by Shawmut Bank in
which Shawmut Bank acknowledges, inter alia, (i) that it holds the Shawmut
Funds subject to the security interest of Foothill and (ii) will forward all
Shawmut Funds to Foothill until such time as Foothill directs otherwise; and
(k) Foothill shall have received an opinion of
Borrower's counsel in form and substance satisfactory to Foothill in its sole
discretion.
3.3 Term; Automatic Renewal. This Agreement
shall become effective upon the execution and delivery hereof by Borrower and
Foothill and shall continue in full force and effect for a term ending on the
date that is five (5) years
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from the Closing Date. The foregoing notwithstanding, Foothill shall
have the right to terminate its obligations under this Agreement immediately
and without notice upon the occurrence and during the continuation of an Event
of Default.
3.4 Effect of Termination. On the date of
termination, all Obligations immediately shall become due and payable without
notice or demand. No termination of this Agreement, however, shall relieve or
discharge Borrower of Borrower's duties, Obligations, or covenants hereunder,
and Foothill's continuing security interests in the Collateral shall remain in
effect until all Obligations have been fully and finally discharged and
Foothill's obligation to provide advances hereunder is terminated.
3.5 Early Termination by Borrower. Borrower
has the option, at any time upon ninety (90) days prior written notice to
Foothill, to terminate this Agreement by paying to Foothill, in cash, the
Obligations together with a premium ("Early Termination Fee") equal to the
greater of (a) the total interest owed during the prior six month period or (b)
one hundred twenty five thousand dollars ($125,000).
3.6 Termination Upon Event of Default. If
Foothill terminates this Agreement upon the occurrence of an Event of Default,
in view of the impracticability and extreme difficulty of ascertaining actual
damages and by mutual agreement of the parties as to a reasonable calculation
of Foothill's lost profits as a result thereof, Borrower shall pay to Foothill
upon the effective date of such termination, a premium in an amount equal to
the Early Termination Premium. The Early Termination Premium shall be presumed
to be the amount of damages sustained by Foothill as the result of the early
termination and Borrower agrees that it is reasonable under the circumstances
currently existing. The Early Termination Premium shall be deemed included in
the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower
hereby grants to Foothill a continuing security interest in all Collateral in
order to secure prompt repayment of any and all Obligations and in order to
secure prompt performance by Borrower of each of its covenants and duties under
the Loan Documents. Foothill's security interests in the Collateral shall
attach to all Collateral without further act on the part of Foothill or
Borrower. Anything contained in this Agreement or any other Loan Document to
the contrary notwithstanding, and other than sales of inventory to buyers in
the ordinary
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course of business, Borrower has no authority, express or implied, to
dispose of any item or portion of the Collateral.
4.2 Negotiable Collateral. In the event that
any Collateral, including proceeds, is evidenced by or consists of negotiable
collateral, Borrower shall, immediately upon the request of Foothill, endorse
and assign such negotiable collateral to Foothill and deliver physical
possession of such negotiable collateral to Foothill.
4.3 Maintenance of Portfolio Collateral;
Collection on Acquired Notes and Pledged Notes.
(a) Borrower will, at Foothill's
instruction, cause to be delivered promptly to Foothill or at Foothill's
direction to Custodian: each of the original Pledged Notes properly endorsed
(by allonge or otherwise) by Borrower, or Borrower's seller directly, in favor
of Foothill or Foothill's nominee, each original Note Mortgage together with an
assignment of the mortgagee's interest in each such Note Mortgage from
Borrower, or Borrower's seller directly, to Foothill, in recordable form; a
copy of each existing Title Policy assigned and/or endorsed, as appropriate, to
Foothill; together with any other chattel paper or instruments evidencing or
constituting a part of the Collateral. All allonges, endorsements, and
assignments shall be in a form satisfactory to Foothill.
(b) Foothill will establish a lock box
with Custodian or other financial institution acceptable to Foothill and
Borrower, for receipt of payments on the Pledged Notes. Makers of the Pledged
Notes whose payments are not made by direct withdrawal through Shawmut shall be
immediately instructed in writing by Borrower in form acceptable to Foothill to
remit all payments under the Pledged Notes directly into the lock box for
collection by Foothill.
(c) Borrower shall service all of the
Pledged Notes in accordance with all applicable laws and regulations and shall
conduct itself in accordance with the highest ethical and industry practices
for the servicing of similar types of notes and shall deposit into the lock box
all collections it may receive on such Pledged Notes, and any amounts received
by Borrower from the sale of the Collateral, and any amounts received in
settlement of any of the Pledged Notes or in respect of any Note Mortgage or
any Title Policy.
(d) Foothill shall apply all
collections as and when received from the lock box account in accordance with
Section 4.6 hereof. All costs and expenses of the
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Custodian or any third party holding the Collateral or arising
in connection with the lock box shall be Foothill Expenses.
4.4 Compromise or Settlements with Respect to
Pledged Notes; Repurchase of Pledged Notes. Prior to an Event of Default, and
with Foothill's prior written consent, Borrower shall be able to adjust,
modify, foreclose upon, repossess and or take other actions it deems necessary
to adequately monitor the Pledged Notes in order to preserve or realize the
maximum possible recovery for each such Pledged Note.
In the event any Pledged Note becomes more than sixty
(60) days delinquent of the due date (exclusive of grace periods contained in
such notes), or should it cease to comply with the standards set forth in
Schedule PN-A hereof, Borrower shall immediately (i) tender to Foothill eighty
percent (80%) of the then outstanding principal balance of such note(s); or
(ii) tender to Foothill replacement note or notes with outstanding principal
balances at least equal to that of the defaulted note. Upon receipt of either
the money or replacement notes, Foothill shall return to Borrower the complete
note files for notes which had been in default, with appropriate releases.
4.5 Exercise of Rights and Remedies with
Respect to Defaults Under Pledged Notes. In addition to other provisions
contained herein, all notices of default to be sent to the makers of the
Pledged Notes, shall be sent in the name of Borrower, unless otherwise required
by law. All foreclosure proceedings are to be conducted in the name of
Borrower, unless otherwise required by law. Any notices or proceedings brought
in the name of Foothill shall have a notation that such proceedings or actions
are brought in Foothill's capacity as a Secured Party.
Should Borrower with Foothill's prior
written consent foreclose on any of the Collateral which serves as security for
the Pledged Notes, in consideration for Foothill consenting to such transfer,
Borrower shall execute a promissory note in favor of Foothill, to be secured by
the transferred Collateral, in an amount equal to the higher of the outstanding
balance owing on the Pledged Note for which the transferred Collateral was
security, or fair market value of the Collateral transferred.
4.6 Distributions of Lockbox Sums. Lockbox
payments shall be applied against the principal balance on each appropriate
line. At the end of each month, the amount received by Foothill from the
lockbox account shall be paid by
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Foothill against the following items of indebtedness, in the order set forth:
(i) payment of Foothill Expenses; then, the balance, if
any, to;
(ii) with respect to payments received on the Pledged A
Notes, to payment of interest on the A Line Advances set forth in
Section 2.1 hereof, then, the balance, if any, to;
(iii) with respect to payments received on the Pledged A
Notes, to payment of principal on the A Line Advances set forth in
Section 2.1 hereof, then, the balance if any to pay off other
Obligations in the manner decided by Foothill;
(iv) with respect to payment received on the Pledged B
Notes, to payment of interest on the Term Note set forth in Section 2.3
hereof, then, the balance, if any, to;
(v) with respect to payments received on the Pledged B
Notes, to payment of principal on the Term Note set forth in Section
2.3 hereof, then, the balance if any to pay off other Obligations in
the manner decided by Foothill.
4.7 Release of Portions of Real Property
Collateral. Provided there shall not have occurred an Event of Default,
Foothill shall, from time to time, provided Borrower has first fulfilled and
satisfied the terms and conditions on its part to be fulfilled pursuant to the
terms of this Agreement and this Section 4.7, provide for and promptly within
ten (10) business days after request therefor (but shall endeavor to do so more
quickly if Borrower requests a shorter time), deliver to escrow or to a title
company, a partial reconveyance of a portion of the Real Property, provided all
the following conditions are met:
(i) such lot shall be sold at a price acceptable to
Borrower and Foothill acting in good faith;
(ii) the sale shall occur on terms and conditions
sufficient that Foothill shall receive in cash fifty five percent (55%)
of the sales price as consideration for such partial reconveyance, such
amount to be applied against Foothill Expenses, then interest, then
principal on the Land Inventory Advances, then the balance, if any, to
repayment of other Obligations in the manner decided by Foothill;
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(iii) Such partial reconveyance shall not create a
violation of law as to the remainder of the project which is subject to
the mortgage (including all subdivision laws);
(iv) prior to or at the time of the request for such partial
reconveyance, Borrower shall have delivered to Foothill a pro forma
settlement sheet showing the selling price of the lot sought to be
released, the release payment, and such other information as Foothill
shall require;
(v) a description sufficient to show the location of the
lot to be released with respect to the balance of the property not
released;
(vi) issuance of such title endorsements as Foothill may
reasonably require to establish the continuing priority of the lien of
the Mortgages; and
(vii) execution of an irrevocable instruction to the escrow
or title company directing that they are only authorized to record the
release of the reconveyance upon payment of the release price set forth
herein.
4.8 Release of Security Interests in the
Pledged Notes; Release of Security when Advances are Equal to Zero.
(a) Provided there shall not have occurred an Event of
Default, Borrower shall have the right to cause to be released from the lien
from Foothill's lien all (but not part of) the Pledged Notes provided such
release is to enable Borrower to securitize its notes receivable. The Early
Termination Fee provided for in Section 3.5 hereof, shall not be payable,
however the minimum interest payment shall still be payable in accordance with
the provisions of Section 2.4(c).
(b) Provided there shall not have occurred an Event of
Default, if at any time the outstanding advances under the Pledged A Notes
equals zero, Borrower may request (and Foothill shall comply) that all the
Pledged A Notes held by Foothill or its Custodian be returned to Borrower.
(c) Provided there shall not have occurred an Event of
Default, if at any time the outstanding advances under the Pledged B Notes
equals zero, Borrower may request (and Foothill shall comply) that all the
Pledged B
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Notes held by Foothill or its Custodian be returned to Borrower.
(d) Provided there shall not have occurred an Event of
Default, if at any time the Land Inventory Advances equals zero, Borrower may
request (and Foothill shall comply) that Foothill reconvey its liens and
security interest in the Real Property Collateral.
4.9 Delivery of Additional Documentation
Required. At any time upon the request of Foothill, Borrower shall execute and
deliver to Foothill all financing statements, continuation financing
statements, fixture filings, security agreements, chattel mortgages, pledges,
assignments, affidavits, reports, notices, schedules of accounts, letters of
authority, and all other documents that Foothill may reasonably request, in
form satisfactory to Foothill, to perfect and continue perfected Foothill's
security interests in the Collateral and in order to fully consummate all of
the transactions contemplated hereby and under the other Loan Documents.
4.10 Power of Attorney. Borrower hereby
irrevocably makes, constitutes, and appoints Foothill (and any of Foothill's
officers, employees, or agents designated by Foothill) as Borrower's true and
lawful attorney, with power to: (a) if Borrower refuses to, or fails timely to
execute and deliver any of the documents described in Section 4.4, sign the
name of Borrower on any of the documents described in Section 4.4; (b) at any
time that an Event of Default has occurred and is continuing, or Foothill
acting in good faith deems itself insecure (in accordance with Section 1208 of
the Code), sign Borrower's name on any document relating to any Pledged Note
and notices to makers of Pledged Notes; (c) send requests for verification of
Pledged Notes; (d) endorse Borrower's name on any checks, notices, acceptances,
money orders, drafts, or other item of payment or security that relate to the
Pledged Notes, which such sums shall be applied against the Obligations; (e) at
any time that an Event of Default has occurred and is continuing or Foothill,
acting in good faith, deems itself insecure (in accordance with Section 1208 of
the Code), notify the post office authorities to change the address for
delivery of Borrower's mail to an address designated by Foothill, to receive
and open all mail addressed to Borrower, and to retain all mail relating to the
Collateral and forward all other mail to Borrower; (f) at any time that an
Event of Default has occurred and is continuing or Foothill acting in good
faith deems itself insecure (in accordance with Section 1208 of the Code),
make, settle, and adjust all claims under Borrower's policies of insurance and
make all determinations and decisions with respect to such policies of
insurance; and (g) at any time that an Event of
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Default has occurred and is continuing or Foothill acting in good faith deems
itself insecure (in accordance with Section 1208 of the Code), settle and
adjust disputes and claims respecting the Accounts directly with Account
Debtors, for amounts and upon terms which Foothill determines to be reasonable,
and Foothill may cause to be executed and delivered any documents and releases
which Foothill determines to be necessary. The appointment of Foothill as
Borrower's attorney, and each and every one of Foothill's rights and powers,
being coupled with an interest, is irrevocable until all of the Obligations
have been fully and finally repaid and performed and Foothill's obligation to
extend credit hereunder is terminated.
4.11 Right to Inspect. Foothill (through any of
its officers, employees, or agents) shall have the right, from time to time
hereafter to inspect Borrower's Books and to check, test, and appraise the
Collateral in order to verify Borrower's financial condition or the amount,
quality, value, condition of, or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants to Foothill as follows:
5.1 No Prior Encumbrances. Borrower has good
and indefeasible title to the Collateral, free and clear of liens, claims,
security interests, or encumbrances, except for Permitted Liens.
5.2 Bona Fide Obligation. Each Pledged Note is
a bona fide, good, valid, and subsisting obligation of the account debtor
thereunder, and Borrower does not know of any fact which impairs or will impair
the validity of any such Pledged Note.
5.3 No Defenses or Setoffs. Each Pledged Note
and each Note Mortgage will be free of any claim for credit, deduction,
discount, allowance, defense (including the defense of usury), dispute,
counter-claim, or setoff.
5.4 Enforceable Agreements. Each Pledged Note
and Note Mortgage is enforceable according to its terms against each named
account debtor thereon or trustor thereunder, subject to applicable bankruptcy
laws as the same may apply to any maker of a Pledged Note who is subject to a
bankruptcy proceeding, and complies with all applicable federal, state, and
local laws, regulations, and requirements.
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5.5 Correct Legal Description. Each Note
Mortgage correctly sets forth the legal description of the subject real
property.
5.6 Correct Loan Terms. Each Pledged Note
correctly sets forth the loan terms between Borrower and the account debtor
thereunder, including, without limitation, the interest rate applicable
thereto.
5.7 Compliance with Laws. To the best of
Borrower's knowledge, after due inquiry, all state and federal laws (including
any applicable usury and/or truth-in-lending statutes) have been complied with
in conjunction with the Collateral, the non-compliance with which would have an
adverse impact on the value, enforceability, or collectibility of the
Collateral.
5.8 Authority To Assign. At the time of the
assignment of any Pledged Note and Note Mortgage to Foothill by Borrower,
Borrower shall have such title thereto as it acquired the same from the maker
thereof, and full right and authority to pledge and assign the same.
5.9 Location of Chief Executive Office; FEIN.
The chief executive office of Borrower is located at the address indicated in
the preamble to this Agreement and Borrower's FEIN is 03-0300793.
5.10 Due Organization and Qualification.
Borrower is duly organized and existing and in good standing under the laws of
the state of its incorporation and qualified and licensed to do business in,
and in good standing in, any state where the failure to be so licensed or
qualified could reasonably be expected to have a material adverse effect on the
business, operations, condition (financial or otherwise), finances, or
prospects of Borrower or on the value of the Collateral to Foothill.
5.11 Due Authorization; No Conflict. The
execution, delivery, and performance of the Loan Documents are within
Borrower's corporate powers, have been duly authorized, and are not in conflict
with nor constitute a breach of any provision contained in Borrower's Articles
or Certificate of Incorporation, or By-laws, nor will they constitute an event
of default under any material agreement to which Borrower is a party or by
which its properties or assets may be bound.
5.12 Litigation. There are no actions or
proceedings pending by or against Borrower before any court or administrative
agency and Borrower does not have knowledge or belief of any pending,
threatened, or imminent litigation,
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governmental investigations, or claims, complaints, actions, or prosecutions
involving Borrower or any guarantor of the Obligations, except for ongoing
collection matters in which Borrower is the plaintiff, matters disclosed on
Schedule 5.12, and matters arising after the date hereof that, if decided
adversely to Borrower, would materially impair the prospect of repayment of the
Obligations or materially impair the value or priority of Foothill's security
interests in the Collateral.
5.13 No Material Adverse Change in Financial
Condition. All financial statements relating to Borrower or any guarantor of
the Obligations that have been delivered by Borrower to Foothill have been
prepared in accordance with GAAP and fairly present Borrower's (or such
guarantor's, as applicable) financial condition as of the date thereof and
Borrower's results of operations for the period then ended. There has not been
a material adverse change in the financial condition of Borrower (or such
guarantor, as applicable) since the date of the latest financial statements
submitted to Foothill on or before the Closing Date.
5.14 Solvency. Borrower is Solvent. No
transfer of property is being made by Borrower and no obligation is being
incurred by Borrower in connection with the transactions contemplated by this
Agreement or the other Loan Documents with the intent to hinder, delay, or
defraud either present or future creditors of Borrower.
5.15 Employee Benefits. Each Plan is compliance
in all material respects with the applicable provisions of ERISA and the IRC.
Each Qualified Plan and Multiemployer Plan has been determined by the Internal
Revenue Service to qualify under Section 401 of the IRC, and the trusts created
thereunder have been determined to be exempt from tax under Section 501 of the
IRC, and, to the best knowledge of Borrower, nothing has occurred that would
cause the loss of such qualification or tax- exempt status. There are no
outstanding liabilities under Title IV of ERISA with respect to any Plan
maintained or sponsored by Borrower or any ERISA Affiliate, nor with respect to
any Plan to which Borrower or any ERISA Affiliate contributes or is obligated
to contribute which could reasonably be expected to have a material adverse
effect on the financial condition of Borrower. No Plan subject to Title IV of
ERISA has any Unfunded Benefit Liability which could reasonably be expected to
have a material adverse effect on the financial condition of Borrower. Neither
Borrower nor any ERISA Affiliate has transferred any Unfunded Benefit Liability
to a person other than Borrower or an ERISA Affiliate or has otherwise engaged
in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA
which could reasonably be expected to have a
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material adverse effect on the financial condition of Borrower. Neither
Borrower nor any ERISA Affiliate has incurred nor reasonably expects to incur
(x) any liability (and no event has occurred which, with the giving of notice
under Section 4219 of ERISA, would result in such liability) under Sections
4201 or 4243 of ERISA with respect to a Multiemployer Plan, or (y) any
liability under Title IV of ERISA (other than premiums due but not delinquent
under Section 4007 of ERISA) with respect to a Plan, which could, in either
event, reasonably be expected to have a material adverse effect on the
financial condition of Borrower. No application for a funding waiver or an
extension of any amortization period pursuant to Section 412 of the IRC has
been made with respect to any Plan. No ERISA Event has occurred or is
reasonably expected to occur with respect to any Plan which could reasonably be
expected to have a material adverse effect on the financial condition of
Borrower. Borrower and each ERISA Affiliate have complied in all material
respects with the notice and continuation coverage requirements of Section
4980B of the IRC.
5.16 Environmental Condition.
(a) Borrower has not used Hazardous
Materials at or affecting the Real Property in any manner which violates any
Act governing the use, storage, treatment, transportation, manufacturing,
refinement, handling, production, or disposal of Hazardous Materials.
(b) To the best of Borrower's
knowledge, no prior owner, occupant or operator of the Real Property has used
Hazardous Materials at or affecting the Real Property in any manner which
violates any Act governing the use, storage, treatment, transportation,
manufacturing, refinement, handling, production or disposal of Hazardous
Materials.
5.17 Reliance by Foothill; Cumulative. Each
warranty and representation contained in this Agreement automatically shall be
deemed repeated with each advance and shall be conclusively presumed to have
been relied on by Foothill regardless of any investigation made or information
possessed by Foothill. The warranties and representations set forth herein
shall be cumulative and in addition to any and all other warranties and
representations that Borrower now or hereafter shall give, or cause to be
given, to Foothill.
5.18 Good Standing.
Borrower is in good standing in each
jurisdiction where the conduct of its business or the
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ownership or operation of its properties and assets makes qualification
necessary.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until full and final payment of the
Obligations, and unless Foothill shall otherwise consent in writing, Borrower
shall do all of the following:
6.1 Accounting System. Borrower shall
maintain a standard and modern system of accounting in accordance with GAAP
with ledger and account cards or computer tapes, discs, printouts, and records
pertaining to the Collateral which contain information as from time to time
may be requested by Foothill. Borrower also shall keep proper books of account
showing all sales, claims, and allowances on its Inventory.
6.2 Schedules of Pledged Notes. With such
regularity as Foothill shall require, Borrower shall provide Foothill with
schedules describing all Pledged Notes. Foothill's failure to request such
schedules or Borrower's failure to execute and deliver such schedules shall not
affect or limit Foothill's security interests or other rights in and to the
Pledged Notes.
6.3 Financial Statements, Reports,
Certificates. Borrower agrees to deliver to Foothill: (a) as soon as
available, but in any event within thirty (30) days after the end of each month
during each of Borrower's fiscal years, a company prepared balance sheet and
income statement covering Borrower's operations during such period; (b)
quarterly cash flow statements as soon as available, but in any event within
forty-five (45) days after the end of Borrower's fiscal quarters; and (c) as
soon as available, but in any event within ninety (90) days after the end of
each of Borrower's fiscal years, financial statements of Borrower for each such
fiscal year, certified without any qualifications, by Borrower's accountants to
have been prepared in accordance with GAAP, together with a certificate
addressed to Foothill from Borrower's CFO stating that the CFO does not have
knowledge of the existence of any event or condition constituting an Event of
Default, or that would, with the passage of time or the giving of notice,
constitute an Event of Default. Such certified financial statements shall
include a balance sheet, profit and loss statement, and cash flow statement.
Borrower shall have issued written instructions to its independent certified
public accountants authorizing them to communicate with Foothill and to release
to Foothill
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whatever financial information concerning Borrower that Foothill may request.
Borrower agrees to deliver financial statements prepared on a consolidated
basis for it and its Subsidiaries and Affiliates.
Together with the above, Borrower also
shall deliver to Foothill Borrower's Form 10-Q Quarterly Reports, Form 10-K
Annual Reports, and Form 8-K Current Reports, and any other filings made by
Borrower with the Securities and Exchange Commission, if any, as soon as the
same are filed, or any other information that is provided by Borrower to its
shareholders, and any other report reasonably requested by Foothill relating to
the Collateral and financial condition of Borrower.
Each month, together with the financial
statements provided pursuant to Section 6.3(a), Borrower shall deliver to
Foothill a certificate signed by its chief financial officer to the effect
that: (i) all reports, statements, or computer prepared information of any
kind or nature delivered or caused to be delivered to Foothill hereunder have
been prepared in accordance with GAAP and fairly present the financial
condition of Borrower; (ii) Borrower is in timely compliance with all of its
covenants and agreements hereunder; (iii) the representations and warranties of
Borrower contained in this Agreement and the other Loan Documents are true and
correct in all material respects on and as of the date of such certificate, as
though made on and as of such date (except to the extent that such
representations and warranties relate solely to an earlier date); and (iv) on
the date of delivery of such certificate to Foothill there does not exist any
condition or event that constitutes an Event of Default (or, in each case, to
the extent of any non-compliance, describing such non-compliance as to which he
or she may have knowledge and what action Borrower has taken, is taking, or
proposes to take with respect thereto).
Borrower hereby irrevocably authorizes and
directs all auditors, accountants, or other third parties to deliver to
Foothill, following an Event of Default, at Borrower's expense, copies of
Borrower's financial statements, papers related thereto, and other accounting
records of any nature in their possession, and to disclose to Foothill any
information they may have regarding Borrower's business affairs and financial
conditions. Such parties may absolutely rely upon a signed statement by
Foothill that an Event of Default has occurred.
6.4 Tax Returns. Borrower agrees to deliver to
Foothill copies of each of Borrower's future federal income
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tax returns, and any amendments thereto, within thirty (30) days of Foothill's
reasonable request of same.
6.5 Guarantor Reports. Borrower agrees to
cause any guarantor, if any, of the Obligations to deliver its annual financial
statements at the time when Borrower provides its audited financial statements
to Foothill and copies of all federal income tax returns as soon as the same
are available and in any event no later than thirty (30) days after the same
are required to be filed by law.
6.6 Taxes. All assessments and taxes, whether
real, personal, or otherwise, due or payable by, or imposed, levied, or
assessed against Borrower or any of its property have been paid, and shall
hereafter be paid in full, before delinquency or before the expiration of any
extension period. Borrower shall make due and timely payment or deposit of all
federal, state, and local taxes, assessments, or contributions required of it
by law, and will execute and deliver to Foothill, on demand, appropriate
certificates attesting to the payment thereof or deposit with respect thereto.
Borrower will make timely payment or deposit of all tax payments and
withholding taxes required of it by applicable laws, including those laws
concerning F.I.C.A., F.U.T.A., state disability, and local, state, and federal
income taxes, and will, upon request, furnish Foothill with proof satisfactory
to Foothill indicating that Borrower has made such payments or deposits.
6.7 Insurance.
(a) Borrower, at its expense, shall
keep the Collateral (exclusive of the Real Property) insured against loss or
damage by fire, theft, explosion, sprinklers, and all other hazards and risks,
and in such amounts, as are ordinarily insured against by other owners in
similar businesses. Borrower also shall maintain public liability, and
property damage insurance, as well as insurance against larceny, embezzlement,
and criminal misappropriation.
(b) Borrower will obtain and maintain
(i) insurance of the type necessary to insure the Improvements and Chattels (as
defined in the Mortgages), for the full replacement cost thereof, against any
loss by fire, lighting, windstorm, hail, explosion, aircraft, smoke damage,
vehicle damage, earthquakes, elevator collision, and other risks from time to
time included under "extended coverage" policies, in such amounts as Foothill
may require, but in any event in amounts sufficient to prevent Borrower from
becoming a co-insurer under such polices, (ii) combined single limit bodily
injury and property damages insurance against any loss,
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liability or damages on, about or relating to the premises, in an
amount of not less than ten million dollars ($10,000,000); and (iii) such other
risk as Foothill may require. Replacement costs, at Foothill's option, be
redetermined by an insurance appraiser, satisfactory to Foothill, not more
frequently than once every twelve months at Borrower's cost.
(c) All insurance required herein shall be written by companies of
recognized financial standing, satisfactory to Foothill. Such insurance shall
be in form satisfactory to Foothill, shall with respect to hazard insurance and
such other insurance as Foothill shall specify, name as the loss payee
thereunder Borrower and Foothill, as their interests may appear, and shall
contain a California Form 438BFU (NS) mortgagee endorsement, or its local
equivalent. Every policy of insurance referred to in this Section shall
contain an agreement by the insurer that it will not cancel such policy except
after thirty (30) days' prior written notice to Foothill and that any loss
payable thereunder shall be payable notwithstanding any act or negligence of
Borrower or Foothill which might, absence such agreement, result in a
forfeiture of all or a part of such insurance payment and notwithstanding (i)
occupancy or use of the Real Property for purposes more hazardous than
permitted by the terms of such policy, (ii) any foreclosure or other action or
proceeding taken by Foothill pursuant to the Mortgages upon the happening of an
Event of Default, or (iii) any change in title or ownership of the Real
Property.
(d) Original policies or certificates thereof satisfactory to
Foothill evidencing such insurance shall be delivered to Foothill at least
thirty (30) days prior to the expiration of the existing or preceding policies.
Borrower shall give Foothill prompt notice of any loss covered by such
insurance and Foothill shall have the right to join Borrower in adjusting any
loss. If there shall have occurred an Event of Default, Foothill shall have
the exclusive right to adjust all loss payable under any such insurance
policies without any liability to Borrower whatsoever in respect of such
adjustments. Any monies received as payment for any loss of Collateral under
such insurance shall be paid over to Foothill to be applied at the option of
Foothill either to the prepayment of the Obligations without premium, in such
order or manner as Foothill may elect, or shall be disbursed to Borrower under
stage payment terms satisfactory to Foothill for application to the cost of
repairs, replacements or restorations. All restorations shall be effected with
reasonable promptness and shall be of a value at least equal to the value of
the items or property to destroyed prior to such damage or destruction. Upon
the occurrence of an Event of Default, all prepaid premiums shall be the sole
and
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absolute property of Foothill to be applied by Foothill to the payment of the
Obligations in such order or form as Foothill shall elect.
(e) Borrower shall not take out separate insurance concurrent in
form or contributing in the event of loss with that required to be maintained
under this Section 6.7, unless Foothill is included thereon as named insured
with the loss payable to Foothill under a standard California 438BFU (NS)
Mortgagee endorsement, or its local equivalent. Borrower shall immediately
notify Foothill whenever such separate insurance is taken out, specifying the
insurer thereunder and full particulars as to the policies evidencing the same,
and originals of such policies shall immediately thereafter be provided to
Foothill.
6.8 Financial Covenants. Borrower shall maintain:
(a) Tangible Net Worth. Tangible Net
Worth of at least Forty-Two Million Dollars ($42,000,000), measured on a fiscal
quarter-end basis; and
(b) Total Liabilities to Tangible Net
Worth Ratio. A ratio of Borrower's total liabilities divided by Tangible Net
Worth of not more than four to one (4:1.0), measured on a fiscal quarter-end
basis;
(c) Total Adjusted Liabilities to
Adjusted Tangible Net Worth Ratio. A ratio of Borrower's total liabilities
less subordinated debt divided by Adjusted Tangible Net Worth of not more than
two to one (2:1.0), measured on a fiscal quarter-end basis.
6.9 No Setoffs or Counterclaims. All payments
hereunder and under the other Loan Documents made by or on behalf of Borrower
shall be made without setoff or counterclaim and free and clear of, and without
deduction or withholding for or on account of, any federal, state, or local
taxes.
6.10 Compliance with Laws. Borrower shall
comply with the requirements of all applicable laws, rules, regulations, and
orders of any governmental authority, including the Fair Labor Standards Act
and the Americans With Disabilities Act.
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6.11 Employee Benefits.
(a) Borrower shall deliver to Foothill
a written statement by the chief financial officer of Borrower specifying the
nature of any of the following events and the actions which Borrower proposes
to take with respect thereto promptly, and in any event within ten (10) days of
becoming aware of any of them, and when known, any action taken or threatened
by the Internal Revenue Service, PBGC, Department of Labor, or other party with
respect thereto: (i) an ERISA Event with respect to any Plan; (ii) the
incurrence of an obligation to pay additional premium to the PBGC under Section
4006(a)(3)(E) of ERISA with respect to any Plan; and (iii) any lien on the
assets of Borrower arising in connection with any Plan.
(b) Borrower shall also promptly
furnish to Foothill copies prepared or received by Borrower or an ERISA
Affiliate of: (i) at the request of Foothill, each annual report (Internal
Revenue Service Form 5500 series) and all accompanying schedules, actuarial
reports, financial information concerning the financial status of each Plan,
and schedules showing the amounts contributed to each Plan by or on behalf of
Borrower or its ERISA Affiliates for the most recent three (3) plan years; (ii)
all notices of intent to terminate or to have a trustee appointed to administer
any Plan; (iii) all written demands by the PBGC under Subtitle D of Title IV of
ERISA; (iv) all notices required to be sent to employees or to the PBGC under
Section 302 of ERISA or Section 412 of the IRC; (v) all written notices
received with respect to a Multiemployer Plan concerning (x) the imposition or
amount of withdrawal liability pursuant to Section 4202 of ERISA, (y) a
termination described in Section 4041A of ERISA, or (z) a reorganization or
insolvency described in Subtitle E of Title IV of ERISA; (vi) the adoption of
any new Plan that is subject to Title IV of ERISA or Section 412 of the IRC by
Borrower or any ERISA Affiliate; (vii) the adoption of any amendment to any
Plan that is subject to Title IV of ERISA or Section 412 of the IRC, if such
amendment results in a material increase in benefits or Unfunded Benefit
Liability; or (viii) the commencement of contributions by Borrower or any ERISA
Affiliate to any Plan that is subject to Title IV of ERISA or Section 412 of
the IRC.
6.12 Environmental Condition.
(a) Borrower shall keep or cause the
Real Property to be kept free of Hazardous Materials and not cause or permit
the Real Property to be used to generate, manufacturer, refine, transport,
treat, store, handle,
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dispose, produce or process Hazardous Materials except in compliance with all
applicable Acts.
(b) Borrower shall ensure compliance by
all operators and occupants of the Real Property with all applicable Acts and
will ensure that all such operators and occupants obtain and comply with any
and all required approvals, registrations or permits.
(c) Upon the reasonable request of
Foothill (such request only being made if Foothill learns of facts concerning
the Real Property), Borrower shall conduct and complete all investigations,
studies, samplings and testings relative to Hazardous Materials at or affecting
the Real Property. Upon the written request of Foothill from time to time
(such request only being made if Foothill learns of facts concerning the Real
Property), Borrower shall provide Foothill at Borrower's sole cost and expense
and without any liability to Foothill, with an environmental site assessment or
an environmental audit report, or an update of such assessment or report, by an
environmental engineering firm acceptable to Foothill, all in scope, form and
content satisfactory to Foothill, to assess with a reasonable degree of
certainty the presence or absence of Hazardous Materials and the potential cost
in connection with the Remediation of any Hazardous Materials at or related to
the Real Property. Upon demand of Foothill, and at Borrower's sole cost and
expense, Borrower shall promptly take all actions to Remediate the Real
Property which are required by federal, state or local governmental agency or
political subdivision or which are reasonably necessary to mitigate a spill or
a violation of any Act or to allow full economic use of the Real Property.
Borrower shall take all actions necessary to remove all Hazardous Materials
from the Real Property notwithstanding any lessor standard of Remediation
allowable under any Act. All such work shall be performed by one or more
contractor selected by Borrower and approved in advance and in writing by
Foothill. Borrower shall proceed continuously and diligently with such
investigatory and remedial actions, provided that in all cases, such actions
shall be in accordance with all applicable requirements of all Acts. Any such
actions shall be performed in a good, safe and workman like manner and shall
minimize any impact on the business or occupation at or near the Real Property.
Borrower shall pay all costs in connection with such investigatory and remedial
activities, including but not limited to all power and utility costs, in any
and all taxes or fees that may be applicable to such activities. Borrower
shall promptly provide to Foothill copies of testing results and reports that
are generated in compliance with the above activities. Promptly upon
completion of such investigation and Remediation, Borrower shall permanently
seal
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or cap all monitoring wells and test holes to industrial standards and
compliance with all Acts, remove all associated equipment, and restore the Real
Property to the condition existing prior to the commencement of Remediation,
which shall include, without limitation, the repair of any surface damage,
including paving caused by such investigation or Remediation hereunder. Within
ten days of demand therefor, Borrower shall provide Foothill with a bond,
letter of credit or similar financial insurance evidencing that the necessary
funds are available for the obligations established by this subparagraph.
(d) Should any property subject to the
Note Mortgages violate the provisions of Sections 6.12(a) and (b), Borrower
shall immediately redeem the Pledged Note(s) for which the property is security
at eighty (80) percent of its outstanding principal balance.
(e) The obligations of Borrower and the
rights of Foothill with respect to Hazardous Materials are in addition to and
not in substitution of the obligations of Borrower and the rights of Foothill
under all applicable, federal, state and local laws, regulations and ordinances
relating to health and safety, and protection of the environment. The
obligations of Borrower and the rights of Foothill, notwithstanding anything
contained herein or in any other document or agreement which may be construed
to the contrary, (i) shall not be subject to any antideficiency laws or
protections, if any, (ii) shall survive (a) a non-judicial sale, judicial sale
or deed or other transaction in lieu of such sale hereunder, and (b) the
repayment of the Obligations. In the event Borrower does not timely perform
any of its obligations with respect to Hazardous Materials, Foothill may
perform such obligations, but is not obligated to, at the expense of Borrower
and such expense shall be added to the Obligations.
6.13 Sale of Portions of the Real Property. At
the end of each of Borrower's fiscal quarters (for the six month period
preceding same), Borrower shall have sold to qualified buyers sufficient lots
for each individual project within the Real Property, such that the proceeds
during the preceding six month period would, when extended over a three year
period, pay off the "pro rata share" of all Land Inventory Advances. As used
in this Section 6.13, "pro rata share" means a sum attributable to each
individual project which comprises the Real Property which is computed by
multiplying all Real Property by a fraction, the numerator of which is the
value of each project (computed in accordance with the Land Inventory Borrowing
Base formula) and the denominator of which is the aggregate value of the Real
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Property (computed in accordance with the Land Inventory Borrowing Base
formula).
6.14 Borrower shall provide Foothill with
conformed copies of all assignments of Note Mortgages, reflecting the filing
and recording information thereon, within thirty (30) days of Foothill's
receipt of the Pledged Notes.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until full and final payment of the
Obligations, Borrower will not do any of the following without Foothill's prior
written consent:
7.1 Intentionally Deleted.
7.2 Liens. Create, incur, assume, or permit to
exist, directly or indirectly, any lien on or with respect to any of the
Collateral, whether now owned or hereafter acquired, or any income or profits
therefrom, except for Permitted Liens.
7.3 Restrictions on Fundamental Changes. Other
than in the ordinary course of Borrower's business, enter into any acquisition,
merger, consolidation, reorganization, or recapitalization, or reclassify its
capital stock, or liquidate, wind up, or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell, assign, lease, transfer, or
otherwise dispose of, in one transaction or a series of transactions, all or
any substantial part of its business, property, or assets, whether now owned or
hereafter acquired, or acquire by purchase or otherwise all or substantially
all of the properties, assets, stock, or other evidence of beneficial ownership
of any Person.
7.4 Extraordinary Transactions and Disposal of
Assets. Enter into any transaction not in the ordinary and usual course of
Borrower's business, including the sale, lease, or other disposition of,
moving, relocation, or transfer, whether by sale or otherwise, of any of
Borrower's properties, assets.
7.5 Change Name. Without thirty (30) days
prior written notice to Foothill, change Borrower's name, FEIN, business
structure, or identity, or add any new fictitious name.
7.6 Guarantee. Except for the debt of subsidiaries,
or except for the debt of non-director employees
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consistent with past business practices, guarantee or otherwise become in any
way liable with respect to the obligations of any third Person except by
endorsement or instruments or items of payment for deposit to the account of
Borrower or which are transmitted or turned over to Foothill.
7.7 Restructure. Without thirty (30) days
prior written notice to Foothill, make any change in Borrower's financial
structure, the principal nature of Borrower's business operations, or the date
of its fiscal year.
7.8 Intentionally Deleted.
7.9 Change of Control. Cause, permit, or suffer,
directly or indirectly, any Change of Control.
7.10 Distributions. Make any distribution or
declare or pay any dividends (in cash or in stock) on, or purchase, acquire,
redeem, or retire any of Borrower's capital stock, of any class, whether now or
hereafter outstanding, in annual amounts in excess of fifty (50) percent of the
then current earnings.
7.11 Accounting Methods. Modify or change its
method of accounting or enter into, modify, or terminate any agreement
currently existing, or at any time hereafter entered into with any third party
accounting firm or service bureau for the preparation or storage of Borrower's
accounting records without said accounting firm or service bureau agreeing to
provide Foothill information regarding the Collateral or Borrower's financial
condition. Borrower waives the right to assert a confidential relationship, if
any, it may have with any accounting firm or service bureau in connection with
any information requested by Foothill pursuant to or in accordance with this
Agreement, and agrees that Foothill may contact directly any such accounting
firm or service bureau in order to obtain such information.
7.12 Investments. Except in the ordinary course
of Borrower's business, directly or indirectly make or acquire any beneficial
interest in (including stock, partnership interest, or other securities of), or
make any loan, advance, or capital contribution to, any Person.
7.13 Transactions with Affiliates. Directly or
indirectly enter into or permit to exist any material transaction with any
Affiliate of Borrower except for transactions that are in the ordinary course
of Borrower's business, upon fair and reasonable terms, that are fully
disclosed to Foothill, and that are no less favorable to
40
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Borrower than would be obtained in arm's length transaction with a
non-Affiliate.
7.14 Suspension. Suspend or go out of a
substantial portion of its business.
7.15 Intentionally Deleted.
7.16 Use of Proceeds. Use the proceeds of the
advances made hereunder for any purpose other than: (a) to pay transactional
costs, fees and expenses incurred in connection with this Agreement; and (b)
thereafter, consistent with the terms and conditions hereof, for its lawful and
permitted corporate purposes.
7.17 Change in Location of Chief Executive
Office. Borrower covenants and agrees that it will not, without thirty (30)
days prior written notification to Foothill, relocate its chief executive
office to a new location and so long as, at the time of such written
notification, Borrower provides any financing statements or fixture filings
necessary to perfect and continue perfected Foothill's security interests and
also provides to Foothill a landlord's waiver in form and substance
satisfactory to Foothill.
7.18 Use of Foothill's Name. Use Foothill's
name or the name of any person, firm, corporation or other entity controlling,
controlled by, or under common control with Foothill in connection with any of
Borrower's activities, except as such may be required by applicable law or
regulation of any government or body.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall
constitute an event of default (each, an "Event of Default") under this
Agreement:
8.1 If Borrower fails to pay within five (5)
days when due and payable or when declared due and payable, any portion of the
Obligations (whether of principal, interest (including any interest which, but
for the provisions of the Bankruptcy Code, would have accrued on such amounts),
fees and charges due Foothill, reimbursement of Foothill Expenses, or other
amounts constituting Obligations);
8.2 If Borrower fails or neglects to perform,
keep, or observe any term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between
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Borrower and Foothill and the same shall continue for a period of fifteen (15)
days;
8.3 If Borrower fails or neglects to perform,
keep or observe any terms, provisions, conditions, or agreements contained in
the Mortgages and the same shall continue for a period of fifteen (15) days;
8.4 If there is a material impairment of the
prospect of repayment of any portion of the Obligations owing to Foothill or a
material impairment of the value or priority of Foothill's security interests
in the Collateral;
8.5 If any material portion of Borrower's
properties or assets is attached, seized, subjected to a writ or distress
warrant, or is levied upon, or comes into the possession of any third Person
and any such action is not satisfactorily stayed, vacated or set aside within
sixty (60) days of such action;
8.6 If an Insolvency Proceeding is commenced
by Borrower;
8.7 If an Insolvency Proceeding is commenced
against Borrower and any of the following events occur: (a) Borrower consents
to the institution of the Insolvency Proceeding against it; (b) the petition
commencing the Insolvency Proceeding is not timely controverted; (c) the
petition commencing the Insolvency Proceeding is not dismissed within sixty
(60) calendar days of the date of the filing thereof; provided, however, that,
during the pendency of such period, Foothill shall be relieved of its
obligation to make additional advances hereunder; (d) an interim trustee is
appointed to take possession of all or a substantial portion of the properties
or assets of, or to operate all or any substantial portion of the business of,
Borrower and such appointment is not vacated within sixty (60) days after such
appointment; or (e) an order for relief shall have been issued or entered
therein;
8.8 If Borrower is enjoined, restrained, or in
any way prevented by court order from continuing to conduct all or any material
part of its business affairs;
8.9 If a notice of lien, levy, or assessment
is filed of record with respect to any of Borrower's properties or assets by the
United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, or if any
taxes or debts owing at any time hereafter to any one or more of such entities
becomes a lien, whether choate or otherwise,
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upon any of Borrower's properties or assets; provided, the same is not paid on
the payment date thereof or bonded against and diligently contested in good
faith by appropriate proceedings;
8.10 If a judgment or other claim becomes a lien
or encumbrance upon any material portion of Borrower's properties or assets;
provided, the same is not paid on the payment date thereof or bonded against
and diligently contested in good faith by appropriate proceedings;
8.11 If there is a default in any agreement
concerning more than five hundred thousand dollars ($500,000) to which Borrower
is a party with one or more third Persons resulting in a right by such third
Persons, to accelerate the maturity of Borrower's obligations thereunder and
the same is not waived within fifteen (15) days of the expiration of applicable
cure periods, if any;
8.12 If Borrower makes any material payment on
account of Indebtedness that has been contractually subordinated in right of
payment to the payment of the Obligations, except to the extent such payment is
permitted by the terms of the subordination provisions applicable to such
Indebtedness;
8.13 If any misstatement or misrepresentation
exists now or hereafter in any warranty, representation, statement, or report
made to Foothill by Borrower or any officer, employee, agent, or director of
Borrower, or if any such warranty or representation is withdrawn;
8.14 If the obligation of any guarantor or other
third Person under any Loan Document is limited in any material respect or
terminated by operation of law, or terminated or purported to be terminated by
the guarantor or other third Person thereunder, or any such guarantor or other
third Person becomes the subject of an Insolvency Proceeding and the petition
commencing the same is not dismissed within sixty (60) days of its filing; or
8.15 Employee Benefits.
(a) With respect to any Plan, the
occurrence of any of the following which could reasonably be expected to have a
material adverse effect on the financial condition of Borrower: (i) the
violation of any of the provisions of ERISA; (ii) the loss by a Plan intended
to be a Qualified Plan of its qualification under Section 401(a) of the IRC;
(iii) the incurrence of liability under Title IV of ERISA; (iv) a failure to
make full payment when due of all
43
<PAGE> 48
amounts which, under the provisions of any Plan or applicable law, Borrower or
any ERISA Affiliate is required to make; (v) the filing of a notice of intent
to terminate a Plan under Sections 4041 or 4041A of ERISA; (vi) a complete or
partial withdrawal of Borrower or an ERISA Affiliate from any Plan; (vii) the
receipt of a notice by the plan administrator of a Plan that the PBGC has
instituted proceedings to terminate such Plan or appoint a trustee to
administer such Plan; (viii) a commencement or increase of contributions to, or
the adoption of or the amendment of, a Plan; and (ix) the assessment against
Borrower or any ERISA Affiliate of a tax under Section 4980B of the IRC.
(b) The Unfunded Benefit Liability of
all of the Plans of Borrower and its ERISA Affiliates shall, in the aggregate,
exceed $15,000.
8.16 Real Property.
(a) If there shall occur during any
consecutive twelve month period, one or more uninsured losses, thefts, damage
or destruction of the Real Property, or any part thereof, having an aggregate
value in excess of three million dollars ($3,000,000); or
(b) If an event of default shall occur
under any mortgage on the Real Property, if any.
During any period in which there is a
default (including during the grace periods set forth above), Foothill shall
have no obligation to advance funds to Borrower until such time as all defaults
are cured.
9. FOOTHILL'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. In addition to the
remedies set forth in the Mortgage, upon the occurrence and during the
continuance of an Event of Default Foothill may, at its election, without
notice of its election and without demand, do any one or more of the following,
all of which are authorized by Borrower:
(a) Declare all Obligations, whether
evidenced by this Agreement, by any of the other Loan Documents, or otherwise,
immediately due and payable;
(b) Cease advancing money or extending
credit to or for the benefit of Borrower under this Agreement, under any of the
Loan Documents, or under any other agreement between Borrower and Foothill;
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(c) Terminate this Agreement and
any of the other Loan Documents as to any future liability or obligation of
Foothill, but without affecting Foothill's rights and security interests in the
Collateral and without affecting the Obligations;
(d) Without notice to or demand upon
Borrower or any guarantor, make such payments and do such acts as Foothill
considers necessary or reasonable to protect its security interests in the
Collateral. Borrower authorizes Foothill to pay, purchase, contest, or
compromise any encumbrance, charge, or lien that in Foothill's determination
appears to conflict with its security interests and to pay all expenses
incurred in connection therewith;
(e) Without notice to Borrower (such
notice being expressly waived), and without constituting a retention of any
collateral in satisfaction of an obligation (within the meaning of Section 9505
of the Code), set off and apply to the Obligations any and all (i) balances and
deposits of Borrower held by Foothill (including any amounts received in the
Lock Boxes), or (ii) indebtedness at any time owing to or for the credit or the
account of Borrower held by Foothill;
(f) Hold, as cash collateral, any and
all balances and deposits of Borrower held by Foothill, and any amounts
received in the Lock Boxes, to secure the full and final repayment of all of
the Obligations;
(g) Ship, reclaim, recover, store,
finish, maintain, repair, prepare for sale, advertise for sale, and sell (in
the manner provided for herein) the Collateral. Foothill is hereby granted a
license or other right to use, without charge, Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature, as
it pertains to the Collateral, in completing production of, advertising for
sale, and selling any Collateral and Borrower's rights under all licenses and
all franchise agreements shall inure to Foothill's benefit;
(h) Sell the Collateral at either a
public or private sale, or both, by way of one or more contracts or
transactions, for cash or on terms, in such manner and at such places
(including Borrower's premises) as Foothill determines is commercially
reasonable. It is not necessary that the Collateral be present at any such
sale;
(i) Foothill shall give notice of the
disposition of the Collateral as follows:
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<PAGE> 50
(1) Foothill shall give Borrower and each
holder of a security interest in the Collateral who has filed with Foothill a
written request for notice, a notice in writing of the time and place of public
sale, or, if the sale is a private sale or some other disposition other than a
public sale is to be made of the Collateral, then the time on or after which
the private sale or other disposition is to be made;
(2) The notice shall be personally delivered or
mailed, postage prepaid, to Borrower as provided in Section 12, at least ten
(10) days before the date fixed for the sale, or at least ten (10) days before
the date on or after which the private sale or other disposition is to be made;
no notice needs to be given prior to the disposition of any portion of the
Collateral that is perishable or threatens to decline speedily in value or that
is of a type customarily sold on a recognized market. Notice to Persons other
than Borrower claiming an interest in the Collateral shall be sent to such
addresses as they have furnished to Foothill;
(3) If the sale is to be a public sale,
Foothill also shall give notice of the time and place by publishing a notice
one time at least ten (10) days before the date of the sale in a newspaper of
general circulation in the county in which the sale is to be held;
(j) Foothill may credit bid and purchase at any public
sale; and
(k) Any deficiency that exists after disposition of
the Collateral as provided above will be paid immediately by Borrower. Any
excess will be returned, without interest and subject to the rights of third
Persons, by Foothill to Borrower.
9.2 Remedies Cumulative. Foothill's rights and
remedies under this Agreement, the Loan Documents, and all other agreements
shall be cumulative. Foothill shall have all other rights and remedies not
inconsistent herewith as provided under the Code, by law, or in equity. No
exercise by Foothill of one right or remedy shall be deemed an election, and no
waiver by Foothill of any Event of Default shall be deemed a continuing waiver.
No delay by Foothill shall constitute a waiver, election, or acquiescence by
it.
9.3 Foreclosure Not A Discharge. Foreclosure
shall not operate as a discharge to Borrower's obligations to Foothill as to
Hazardous Materials and the indemnity provisions in Section 11 hereof; and in
the event Borrower tenders a deed in lieu of foreclosure for all or part of the
46
<PAGE> 51
Real Property, Borrower shall deliver such property to Foothill (or its
designee) free of any and all Hazardous Materials. The indemnity provisions in
Section 11 hereof shall not be discharged or affected in any way by foreclosure
or by Foothill's acceptance of a deed in lieu thereof, and the same shall
continue for a period equal to the longest living child born in Los Angeles
County on January 1, 1993, plus twenty-one (21) years.
10. TAXES AND EXPENSES REGARDING THE COLLATERAL.
If Borrower fails to pay any monies (whether taxes,
rents, assessments, insurance premiums, or otherwise) due to third Persons, or
fails to make any deposits or furnish any required proof of payment or deposit,
all as required under the terms of this Agreement, then, to the extent that
Foothill determines that such failure by Borrower could have a material adverse
effect on Foothill's interests in the Collateral, in its discretion and without
prior notice to Borrower, Foothill may do any or all of the following: (a)
make payment of the same or any part thereof; (b) set up such reserves in
Borrower's loan account as Foothill deems necessary to protect Foothill from
the exposure created by such failure; or (c) obtain and maintain insurance
policies of the type described in Section 6.7, and take any action with respect
to such policies as Foothill deems prudent. Any such amounts paid by Foothill
shall constitute Foothill Expenses. Any such payments made by Foothill shall
not constitute an agreement by Foothill to make similar payments in the future
or a waiver by Foothill of any Event of Default under this Agreement. Foothill
need not inquire as to, or contest the validity of, any such expense, tax,
security interest, encumbrance, or lien and the receipt of the usual official
notice for the payment thereof shall be conclusive evidence that the same was
validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives
demand, protest, notice of protest, notice of default or dishonor, notice of
payment and nonpayment, notice of any default, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts, documents,
instruments, chattel paper, and guarantees at any time held by Foothill on
which Borrower may in any way be liable.
11.2 Foothill's Liability for Collateral. So
long as Foothill complies with its obligations, if any, under Section 9207 of
the Code, Foothill shall not in any way or manner be liable or responsible for:
(a) the safekeeping of the Collateral held by Custodian; or (b) any act or
default of
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<PAGE> 52
any carrier, warehouseman, bailee, forwarding agency, or other Person. All
risk of loss, damage, or destruction of the Collateral, other than those caused
by Foothill's gross negligence or willful misconduct, shall be borne by
Borrower.
11.3 Indemnification. Borrower agrees to
defend, indemnify, save, and hold any Indemnified Person harmless (unless the
same results from the gross negligence or willful misconduct of such
Indemnified Person) against: (a) all obligations, demands, claims, and
liabilities claimed or asserted by any other Person arising out of or relating
to the transactions contemplated by this Agreement or any other Loan Document,
and (b) all Losses, and (c) all losses (including attorneys' fees) suffered or
incurred by any Indemnified Person, regardless of negligence, whether as a
holder of security interests in Real Property, as mortgagee in possession, or
as successor in interest to Borrower as owner of the Real Property by virtue of
foreclosure or acceptance of a deed or other transaction in lieu of
foreclosure, or after partial or total reconveyance of the mortgage, arising
from, in respect of, as a consequence of (whether foreseeable or unforeseeable)
or in connection with any spill or with the present use, storage, disposal,
generation, transportation or treatment of any Hazardous Materials at, under or
related to the Real Property whether or not originating or emanating from the
Real Property. This provision shall survive the termination of this Agreement.
12. NOTICES.
Unless otherwise provided in this Agreement, all
notices or demands by any party relating to this Agreement or any other Loan
Document shall be in writing and (except for financial statements and other
informational documents which may be sent by first-class mail, postage prepaid)
shall be personally delivered or sent by registered or certified mail, postage
prepaid, return receipt requested, or by prepaid telex, TWX, telefacsimile, or
telegram (with messenger delivery specified) to Borrower or to Foothill, as the
case may be, at its address set forth below:
If to Borrower: PATTEN CORPORATION
5295 Town Center Road
Suite 400
Boca Raton, Florida 33486
Attn.: Patrick Rondeau
48
<PAGE> 53
If to Foothill: FOOTHILL CAPITAL CORPORATION
11111 Santa Monica Boulevard
Suite 1500
Los Angeles, California 90025-3333
Attn.: Business Finance Division
Manager
The parties hereto may change the address at which
they are to receive notices hereunder, by notice in writing in the foregoing
manner given to the other. All notices or demands sent in accordance with this
Section 12, other than notices by Foothill in connection with Sections 9504 or
9505 of the Code, shall be deemed received on the earlier of the date of actual
receipt or three (3) days after the deposit thereof in the mail. Borrower
acknowledges and agrees that notices sent by Foothill in connection with
Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the
mail or transmitted by telefacsimile or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER.
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION,
INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO WITH
RESPECT TO ALL MATTERS ARISING HEREUNDER OR RELATED HERETO SHALL BE DETERMINED
UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA. THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN
CONNECTION WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE
AND FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA
OR, AT THE SOLE OPTION OF FOOTHILL, IN ANY OTHER COURT IN WHICH FOOTHILL SHALL
INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER
JURISDICTION OVER THE MATTER IN CONTROVERSY. EACH OF BORROWER AND FOOTHILL
WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY HAVE
TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT TO VENUE TO THE
EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 13. BORROWER
AND FOOTHILL HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR
ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS.
BORROWER AND FOOTHILL REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY
BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
49
<PAGE> 54
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other
papers delivered to Foothill may be destroyed or otherwise disposed of by
Foothill four (4) months after they are delivered to or received by Foothill,
unless Borrower requests, in writing, the return of said documents, schedules,
or other papers and makes arrangements, at Borrower's expense, for their
return. The foregoing notwithstanding, Foothill shall not destroy any of the
Pledged Notes. Upon satisfaction of the Obligations, Foothill shall return to
Borrower all of the Collateral then in its or Custodian's possession.
15. GENERAL PROVISIONS.
15.1 Effectiveness. This Agreement shall be
binding and deemed effective when executed by Borrower and Foothill.
15.2 Successors and Assigns. This Agreement
shall bind and inure to the benefit of the respective successors and assigns of
each of the parties; provided, however, that Borrower may not assign this
Agreement or any rights or duties hereunder without Foothill's prior written
consent and any prohibited assignment shall be absolutely void. No consent to
an assignment by Foothill shall release Borrower from its Obligations.
Foothill may assign this Agreement and its rights and duties hereunder and no
consent or approval by Borrower is required in connection with any such
assignment; provided, however, that Foothill shall be responsible for any costs
associated therewith. Foothill reserves the right to sell, assign, transfer,
negotiate, or grant participations in all or any part of, or any interest in
Foothill's rights and benefits hereunder. In connection with any such
assignment or participation, Foothill may disclose all documents and
information which Foothill now or hereafter may have relating to Borrower or
Borrower's business. To the extent that Foothill assigns its rights and
obligations hereunder to a third Person, Foothill shall thereafter be released
from such assigned obligations to Borrower and such assignment shall effect a
novation between Borrower and such third Person.
15.3 Section Headings. Headings and numbers
have been set forth herein for convenience only. Unless the contrary is
compelled by the context, everything contained in each section applies equally
to this entire Agreement.
15.4 Interpretation. Neither this Agreement
nor any uncertainty or ambiguity herein shall be construed or resolved against
Foothill or Borrower, whether under any rule
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<PAGE> 55
of construction or otherwise. On the contrary, this Agreement has been
reviewed by all parties and shall be construed and interpreted according to the
ordinary meaning of the words used so as to fairly accomplish the purposes and
intentions of all parties hereto.
15.5 Severability of Provisions. Each provision
of this Agreement shall be severable from every other provision of this
Agreement for the purpose of determining the legal enforceability of any
specific provision.
15.6 Amendments in Writing. This Agreement
cannot be changed or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations, if any, are merged into this
Agreement.
15.7 Counterparts; Telefacsimile Execution.
This Agreement may be executed in any number of counterparts and by different
parties on separate counterparts, each of which, when executed and delivered,
shall be deemed to be an original, and all of which, when taken together, shall
constitute but one and the same Agreement. Delivery of an executed counterpart
of this Agreement by telefacsimile shall be equally as effective as delivery of
a manually executed counterpart of this Agreement. Any party delivering an
executed counterpart of this Agreement by telefacsimile also shall deliver a
manually executed counterpart of this Agreement but the failure to deliver a
manually executed counterpart shall not affect the validity, enforceability,
and binding effect of this Agreement.
15.8 Revival and Reinstatement of Obligations.
If the incurrence or payment of the Obligations by Borrower or any guarantor of
the Obligations or the transfer by either or both of such parties to Foothill
of any property of either or both of such parties should for any reason
subsequently be declared to be void or voidable under any state or federal law
relating to creditors' rights, including provisions of the Bankruptcy Code
relating to fraudulent conveyances, preferences, and other voidable or
recoverable payments of money or transfers of property (collectively, a
"Voidable Transfer"), and if Foothill is required to repay or restore, in whole
or in part, any such Voidable Transfer, or elects to do so upon the reasonable
advice of its counsel, then, as to any such Voidable Transfer, or the amount
thereof that Foothill is required or elects to repay or restore, and as to all
reasonable costs, expenses, and attorneys fees of Foothill related thereto, the
liability of Borrower or such guarantor automatically shall be revived,
reinstated, and restored and
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<PAGE> 56
shall exist as though such Voidable Transfer had never been made.
15.9 Integration. This Agreement, together with
the other Loan Documents, reflects the entire understanding of the parties with
respect to the transactions contemplated hereby and shall not be contradicted
or qualified by any other agreement, oral or written, whether before or after
the date hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in Los Angeles, California.
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Pamela S. Ferio
--------------------------
Pamela S. Ferio
Title: Vice President
PATTEN CORPORATION,
a Massachusetts corporation
By /s/ Alan Murray
--------------------------
Alan Murray
Title: Treasurer & Chief Financial Officer
52
<PAGE> 1
EXHIBIT 10.86
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement
("Amendment") is made and entered into this 23 day of December, 1993, by and
between FOOTHILL CAPITAL CORPORATION, a California corporation ("Foothill") and
PATTEN CORPORATION, a Massachusetts corporation ("Borrower") with reference to
the following facts:
WITNESSETH:
WHEREAS, on or about October 29, 1993, Foothill and Borrower
entered into that certain Loan and Security Agreement ("Loan Agreement")
whereby Foothill agreed to extend certain financial accommodations to Borrower,
and, upon the satisfactory condition precedent of additional provisions, extend
further accommodations from time to time; and
WHEREAS, Borrower desires to obtain Land Inventory Advances as
set forth in Section 2.2, notwithstanding that all of the conditions precedent
to further borrowing have not yet been satisfied; and
WHEREAS, Foothill has agreed to provide further advances, on
the terms and conditions set forth herein.
NOW, THEREFORE, for and in consideration of the mutual
promises and covenants contained herein, and other good and valuable
consideration, the parties agree as follows:
1. The definition of "Real Property" appearing on page 9
shall be amended to provide that lots 90, 91, and 92 of
1
<PAGE> 2
Borrower's real property located at Bradford Park shall be excluded
from the definition of Real Property.
2. Notwithstanding the provisions of Section 3.2(g) and
3.2(h), Foothill shall continue to make advances pursuant to Section 2.1 of
the Loan Agreement, provided all the other terms and provisions of the Loan
Agreement are satisfied.
3. Notwithstanding the provisions of Section 3.2(g) and
3.2(h), Foothill will make one advance pursuant to Section 2.2 concurrently
herewith, in the amount of Nine Hundred Ninety Nine Thousand Nine Hundred
Dollars ($999,900).
4. Section 4.7 of the Loan Agreement shall be amended
by adding a second new paragraph as follows:
"Notwithstanding any of the foregoing, provided
there shall not have occurred an Event of Default, Foothill shall release lots
36, 57, and 93 at the Lake Sinclair Property upon payment in full in the sum
of Fourteen Thousand Dollars per lot."
5 Except as otherwise expressly modified herein, the
Loan Agreement, and all other Loan Documents (as defined
2
<PAGE> 3
in the Loan Agreement) are unmodified, in full force and effect and reaffirmed
by the parties hereto.
"Foothill"
FOOTHILL CAPITAL CORPORATION,
a California corporation
By /s/ Scott Diehl
----------------------------------------
"Borrower"
PATTEN CORPORATION,
a Massachusetts corporation
By /s/ Alan L. Murray
-----------------------------------------
<PAGE> 1
EXHIBIT 10.87
________________________________________________________________
LOAN AND SECURITY AGREEMENT
Dated as of June 11, 1993
by and among
PATTEN RECEIVABLES FINANCE CORPORATION III,
PATTEN CORPORATION
and
GENERAL ELECTRIC CAPITAL CORPORATION
________________________________________________________________
<PAGE> 2
TABLE OF CONTENTS
(This Table of Contents is for convenience of reference
only and is not part of this Agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C> <C> <C>
PREAMBLE
Section 1 - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2 - ADVANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3 - REPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4 - SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 5 - SERVICING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6 - INFORMATION, BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . 21
Section 7 - AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8 - PORTFOLIO MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 9 - NEGATIVE COVENANTS BY THE COMPANY
AND PATTEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10 - EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 11 - REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 12 - CROSS-COLLATERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 13 - CUMULATIVE REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 14 - REPRESENTATIONS BY THE COMPANY
AND PATTEN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 15 - ADDITIONAL DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 16 - PERSONAL LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 17 - HAZARDOUS WASTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 18 - RECORDING OF MORTGAGE ASSIGNMENTS . . . . . . . . . . . . . . . . . . . . 46
Section 19 - FINDERS OR BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 20 - ACCEPTANCE BY GECC . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 21 - PUBLIC NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 22 - THE NOTE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 23 - NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 24 - PARTIAL RELEASES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 25 - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
EXHIBIT A - DEVELOPMENTS
EXHIBIT B - SERVICING AGREEMENT
EXHIBIT C - ASSIGNMENTS OF MORTGAGES
EXHIBIT D - ENDORSEMENTS OF PROMISSORY NOTES
EXHIBIT E - TITLE COMPANIES
EXHIBIT F - FORM OF TITLE COMPANY LETTER
EXHIBIT G - REQUEST FOR ADVANCE
</TABLE>
<PAGE> 3
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement") is made and entered
into as of the 11th day of June, 1993, by and among PATTEN RECEIVABLES FINANCE
CORPORATION III (the "Company"), a Delaware corporation, having its principal
office at 5295 Town Center Road, Suite 400, Boca Raton, Florida 33486, PATTEN
CORPORATION ("Patten"), a Massachusetts corporation, having its principal
office at 5295 Town Center Road, Suite 400, Boca Raton, Florida 33486, and
GENERAL ELECTRIC CAPITAL CORPORATION ("GECC"), a New York corporation, having
an office at 3379 Peachtree Road, N.E., Suite 300, Atlanta, Georgia 30326.
Patten and certain of its Affiliates are in the business of acquiring
parcels of land, subdividing such parcels and then selling such subdivided
parcels. The Company has applied to GECC for a loan in the aggregate principal
amount of $25,000,000 (the "Loan"), and has offered as security therefor
certain promissory notes and mortgages generated and to be generated from the
land sales activities of Patten and its Affiliates, which notes and mortgages
have been or will be unconditionally assigned to the Company. GECC is willing
to make the Loan to the Company upon the terms and conditions hereinafter set
forth.
1. Definitions. Except as otherwise specified or as the context
may otherwise require, the following terms shall have the respective meanings
set forth below for all purposes of this Agreement, and the definitions of such
terms are applicable to the singular as well as to the plural forms of such
terms and to the masculine as well as to the feminine and neuter genders of
such terms:
"Affiliate" (and "Affiliates" in the plural) shall mean when used with
respect to any person, corporation, partnership or other entity, any officer,
director, partner or employee of such person, corporation, partnership or other
entity, any other person, corporation, partnership or entity which, directly or
indirectly through one or more intermediaries, controls, is controlled by or is
under common control with such person, corporation, partnership or entity, or
any other person, corporation, partnership or other entity which, directly or
indirectly through one or more intermediaries, owns of record or beneficially
or has the power to vote ten percent (10%) or more of the voting stock or other
ownership interests of such person, corporation, partnership or other entity.
1
<PAGE> 4
"Agent" shall mean the servicer under the Servicing Agreement.
"Collateral" shall mean all property or interests in property now or at
any time hereafter pledged, assigned or delivered by the Company to GECC, or
otherwise received by GECC from or on behalf of the Company, as security for
the Obligations, including but not limited to, the security described in
Section 4 hereof and the Mortgages.
"Consent Decree(s)" shall mean the order and judgment rendered in
January or February 1989 (as applicable) by the court having jurisdiction in
each of the states of New York, Vermont, Maine, Massachusetts and New
Hampshire, in the action brought by the attorney general of each such state
against Patten and various Affiliates thereof for alleged fraudulent, deceptive
or illegal practices in the selling or marketing of real estate in such state,
and any modification or supplement to such order and judgment.
"Developments" shall mean the lands described in Exhibit A attached
hereto and such other lands as may be approved from time- to-time by GECC in
accordance with Section 15 hereof.
"Domestic Obligors" shall mean obligors on Receivables who are citizens
and residents of the United States.
"Eligible Receivables" shall mean Receivables created by Patten or an
Affiliate of Patten in the regular course of their respective businesses as
presently conducted, unconditionally assigned to the Company and further
assigned by the Company to GECC pursuant to the terms of this Agreement, which
meet and at all times continue to meet the requirements of this Agreement in a
manner acceptable to GECC in all respects. No Receivable shall be deemed an
Eligible Receivable unless:
(1) Such Receivable is acceptable to GECC in its sole judgment and
discretion;
(2) Such Receivable represents an existing, valid and legally
enforceable indebtedness based upon an actual and bona fide sale
and delivery of a Lot or Lots to the named Obligor, which has
been finally accepted by the Obligor and for which the Obligor
is unconditionally liable under the terms of the Mortgage
Documents to make payment in the amount stated in each Mortgage
Document in accordance with the terms thereof;
2
<PAGE> 5
(3) The Obligor has no right of rescission, rejection or return,
offset, defense, counterclaim or claim of discount or deduction
with respect to the Receivable;
(4) No default in the payment of such Receivable has been cured by
the Company or its Affiliates, any guarantor of the Receivable,
or any party other than the primary Obligor on such Receivable;
(5) All statements made and all unpaid balances appearing in the
Mortgage Documents relating to such Receivable are true and
correct and are in all respects what they purport to be;
(6) All signatures and endorsements appearing on such Receivable are
genuine and all signatories and endorsers, if any, on such
Receivable shall have full capacity to contract;
(7) The Obligor owing such Receivable is not an officer, stockholder
or partner of, and is not affiliated with, employed by or
related to the Company or of any Affiliate of the Company;
(8) Title to such Receivable, free and clear of all liens, claims or
encumbrances, is vested absolutely in the Company and no other
assignment of or security or other interest in the Receivable in
favor of others is then in effect;
(9) All recording, filing, notations of security interests on
insurance policies and similar documents and all other
procedures for giving public notice required or permitted under
any applicable law or regulation to perfect GECC's security
interest with respect to such Receivable have been duly complied
with except as provided in Section 18 hereof with respect to the
recordation of the assignments of Mortgages, and the Company has
complied with all requests by GECC to deliver to GECC such title
documents or similar instruments as GECC shall deem necessary or
advisable to perfect or protect GECC's security interest in such
Receivable;
(10) The transactions underlying or giving rise to such Receivable
and the granting of a security interest therein by the Company
to GECC hereunder do not and shall not at any time violate any
applicable state or federal law or regulation, including but not
limited to, the
3
<PAGE> 6
Interstate Land Sales Full Disclosure Act, the Federal Truth in
Lending Act, the Fair Housing Reporting Act, the Equal Credit
Opportunity Act, HUD regulations, Federal Reserve Board
Regulations B and Z, the Real Estate Settlement Procedures Act,
as amended, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, and any applicable
state securities or Blue Sky laws, usury laws, out of state land
registration laws, or laws governing the sale of lots,
condominiums, housing, estates or services, or consumer credit;
(11) The Mortgage Documents are legally sufficient under all
applicable laws and regulations, including, but not limited to,
small loan, consumer finance, installment credit and sales
finance laws and all other applicable laws and regulations, and
are legally enforceable in accordance with their terms (subject,
as to enforcement, to bankruptcy, insolvency or other laws or
equitable principles relating to the enforcement of creditor's
rights generally) without any defense or right of offset or
rescission on the part of any Obligor or group of Obligors;
(12) No contract under which such Receivable arose nor any applicable
law, rule or regulation contains a prohibition against
assignment or requires the consent of or notice to the Obligor
or any other Person with respect to any such assignment;
(13) The Obligor thereunder is acceptable to GECC for credit purposes;
(14) The Obligor on such Receivable shall have made a cash down
payment in an amount equal to at least ten percent (10%) of the
purchase price of the applicable Lot (exclusive of closing
costs);
(15) As of the date the Receivable is assigned to GECC, the Obligor
under such Receivable shall have never been more than thirty
(30) days delinquent with respect to any monthly payment and
shall be in full compliance with all other obligations required
to be performed by such Obligor, without giving effect to grace
or cure periods, if any;
(16) Such Receivable shall have a term of not more than one hundred
eighty (180) months from the date it was made;
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(17) Such Receivable shall require equal bi-weekly or monthly
payments due each month during the term thereof, which payments
shall be in an amount sufficient to fully amortize all principal
and interest thereon during the term thereof without any balloon
payment;
(18) Such Receivable shall not have been subject to a claim of
invalidity, unenforceability, illegality, defense, offset or
counter-claim. Neither the Obligor on such Receivable nor
anyone acting on behalf of the Obligor on such Receivable shall
have asserted any defense, offset claim, right of reduction,
recoupment or counter-claim relating to such Receivable,
including, but not limited to, claims of usury, right of
rescission, illegality or failure to comply with applicable
regulations or rules of governmental or regulatory authorities
or failure to comply with promises or agreements of the Company,
Patten, or any of their respective Affiliates;
(19) The Obligor on such Receivable shall not be obligated under any
applicable law or otherwise to withhold from payments on such
Receivable any interest or other withholdings for the payment of
taxes to any domestic or foreign government or governmental
body;
(20) Such Receivable shall have an interest rate of not less than the
Prime Rate plus two percent (2%) per annum;
(21) If the Obligor on such Receivable owns two (2) or more Lots, the
aggregate of all Pledged Receivables from such Obligor shall not
exceed five percent (5%) of the total value of Eligible
Receivables;
(22) Such Receivable has a history of current and timely payments in
collected or collectible funds for at least three consecutive
months immediately prior to being pledged hereunder, none of
such payments shall have been prepayments or otherwise paid in
advance of their scheduled payment date, and all of such
payments shall have been made from the Obligor's own funds and
not by anyone acting on the Obligor's behalf;
(23) The Mortgage securing such Pledged Receivable has been duly
recorded in the proper public office and is a valid first lien
on the related property subject only to taxes and assessments,
and covenants, conditions and
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<PAGE> 8
restrictions, rights of way, easements and other matters of
public record as of the date of recording of such Mortgage, such
exceptions appearing on record being acceptable to GECC;
(24) A title insurance policy was issued as of the date of the
origination of such Pledged Receivable by one of the title
insurance companies listed on Exhibit E hereto or such other
title insurance companies reasonably acceptable to GECC and
which have delivered to GECC a letter substantially in the form
of Exhibit F hereto; and is valid and remains in full force and
effect, insuring Patten or an Affiliate thereof, its successors
and assigns as to the priority of the lien of the Mortgage
(subject to printed form exceptions therein);
(25) The note and Mortgage evidencing such Pledged Receivable contain
customary and enforceable provisions such as render the rights
and remedies of the holder thereof adequate for the realization
against the related property of the benefits of the security,
including (i) in the case of a Mortgage designated as a deed of
trust, by trustee's sale and (ii) otherwise by foreclosure, and
there is no homestead or other exemption available to the
mortgagor which would interfere with such right to sell at a
trustee's sale or right to foreclosure;
(26) If the property securing such Pledged Receivable had one or more
buildings on it, at the date of origination of such Pledged
Receivable, a flood insurance policy covering such Pledged
Receivable was obtained with respect to property securing such
Pledged Receivable if it was located in a designated flood area
under the National Flood Insurance Act of 1968, as amended, and
as of the date of the advance of the Loan relating to such
Pledged Receivable each such policy is in full force and effect;
and as of the date of the advance of the Loan relating to such
Pledged Receivable, the property subject to such Pledged
Receivable is insured under a standard fire insurance policy
with extended coverage or a blanket policy;
(27) As of the date of the advance of the Loan relating to such
Pledged Receivable, the related Lot is free and clear of all
mechanics' and materialmen's liens or liens in the nature
thereof (except for liens for taxes and assessments not yet due
and payable) which
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<PAGE> 9
will or may come prior to the lien of the Mortgage securing such
Pledged Receivable, and no rights are outstanding that under law
could give rise to such liens;
(28) As of the date of the origination of such Pledged Receivable,
the Lot subject to such Mortgage was either raw land or a
one-family residence;
(29) The Mortgage files for all of the Pledged Receivables shall be
held by GECC; and any duplicate copies or portions of such
Mortgage files which may be retained by Agent or held by Agent
from time to time shall be kept in a filing area that is
segregated from other filing areas, and each file jacket
containing such portions or copies of a Mortgage file shall be
stamped as follows: "THESE DOCUMENTS HAVE BEEN PLEDGED AND
ASSIGNED TO GENERAL ELECTRIC CAPITAL CORPORATION"; and
(30) No claim has been made by Obligor under such Receivable against
Patten or any Affiliate thereof pursuant to the dispute
resolution procedure set forth in any Consent Decree.
ANY ONE OR MORE OF THE FOREGOING CRITERIA FOR ELIGIBLE RECEIVABLES MAY BE
WAIVED IN WHOLE OR IN PART BY GECC IN GECC'S SOLE DISCRETION. ACCEPTANCE BY
GECC OF A PLEDGED RECEIVABLE OR GECC'S ADVANCE OF LOAN PROCEEDS WITH RESPECT
THERETO SHALL NOT BE AN ACKNOWLEDGEMENT BY GECC THAT SUCH PLEDGED RECEIVABLE
MEETS ALL OF THE CRITERIA FOR BEING AN ELIGIBLE RECEIVABLE NOR SHALL IT
CONSTITUTE A WAIVER OF ANY CRITERIA FOR BEING AN ELIGIBLE RECEIVABLE.
Standards of eligibility shall be fixed and may be revised from time to
time with respect to Receivables theretofore or thereafter assigned to GECC
solely by GECC if GECC, in its best business judgment exercised in good faith,
determines it necessary to do so. Reliance by GECC from time to time on
listings, reports and other information furnished by or obtained from the
Company relating to Receivables shall not be deemed to limit GECC's right to
revise standards of eligibility or acceptability at any time and from time to
time.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" shall mean each trade or business (whether or not
incorporated) that, together with the Company, would be treated as a single
employer under
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<PAGE> 10
Section 4001 of ERISA, or that is a member of a group of which the Company is a
member and that is under common control within the meaning of Section 414 of
the Internal Revenue Code.
"Event of Default" shall mean those conditions or occurrences described
in Section 10 hereof.
"Foreign Obligors" shall mean obligors on Receivables who are not
citizens and residents of the United States.
"HUD" shall mean the Department of Housing and Urban Development.
"Indebtedness" shall mean all liabilities, obligations and indebtedness
of a Person of any and every kind and nature, including, without limitation,
the Obligations and all obligations to trade creditors, whether heretofore, now
or hereafter evidenced, created, incurred, acquired or owing, whether primary,
secondary, direct, contingent, fixed or otherwise. Without in any way limiting
the generality of the foregoing, Indebtedness specifically includes (i) all
obligations or liabilities of any Person that are secured by any lien, claim,
encumbrance, or security interest upon property owned by the Company, even
though the Company has not assumed or become liable for the payment thereof;
(ii) all obligations or liabilities created or arising under any lease of real
or personal property or conditional sale or other title retention agreement
with respect to property used or acquired by the Company, even though the
rights and remedies of the lessor, seller or lender thereunder are limited to
repossession of such property; (iii) all unfunded pension fund obligations and
liabilities; and (iv) deferred taxes.
"Initial Advance" shall mean the first advance of Loan proceeds made by
GECC after the date of this Agreement.
"Insufficiency" shall mean, with respect to any Plan, the amount, if
any, by which the present value of the benefit liabilities (within the meaning
of Section 4001(a)(16) of ERISA) under such Plan exceeds the fair market value
of the assets of such Plan allocable to such benefits.
"Loan Account" shall mean an account in the Company's name maintained on
GECC's books.
"Loan Documents" shall mean the Note, this Agreement and all documents
and agreements related thereto.
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<PAGE> 11
"Lock Box" shall mean the lock box account established by GECC pursuant
to Section 2.03 of the Servicing Agreement for the receipt of payments due
under the Pledged Receivables.
"Lot" shall mean a legally subdivided piece, parcel or tract of land in
a Development, which is the subject of a Receivable.
"Mortgaged Property" shall mean the property subject to a Mortgage.
"Mortgage Documents" shall mean all documents evidencing, securing or
relating to one or more Pledged Receivables.
"Mortgages" shall mean all mortgages, deeds of trust, deeds to secure
debt, contracts for deed, land contracts, conditional sales agreements and
other documents securing Pledged Receivables provided to GECC as security for
the Obligations and all first mortgages or deeds of trust on all Lots subject
to contracts for deed and on all Lots acquired through foreclosure or similar
proceedings.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Company, any of its subsidiaries or
any ERISA Affiliate is making or accruing an obligation to make contributions
or has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"Multiple Employer Plan" shall mean an employee benefit plan, other than
a Multiemployer Plan, subject to Title IV of ERISA to which the Company or any
ERISA Affiliate and one or more employers other than the Company or an ERISA
Affiliate is making or accruing an obligation to make contributions, has within
any of the preceding plan years made or accrued an obligation to make
contributions or, in the event that any such plan has been terminated, to which
the Company or any ERISA Affiliate made or accrued an obligation to make
contributions during any of the five plan years preceding the date of
termination of such plan.
"Note" shall mean that certain Promissory Note executed by the Company,
payable to the order of GECC, in the principal amount of $25,000,000.00, and
dated as of even date herewith.
"Obligors" shall mean all Persons obligated to make payments with
respect to a Pledged Receivable.
"Obligations" shall mean all loans and advances from time to time made
by GECC to the Company
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<PAGE> 12
hereunder, interest thereon as provided in the Note, and all other indebtedness
and obligations which may now or hereafter be owing to GECC by the Company or
any Affiliate of the Company under this Agreement or any amendment thereto or
under any other agreement which may now or hereafter be entered into by GECC
with the Company, howsoever arising, whether absolute or contingent, joint or
several, matured or unmatured, direct or indirect, primary or secondary,
including, but not limited to, GECC's interest or other charges hereunder or
under any other agreement between the Company and GECC.
"Patten" shall mean Patten Corporation, a Massachusetts corporation.
"PBGC" shall mean the Pension Benefit Guaranty Corporation (or any
successor).
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association, corporation,
institution, entity, party, or government (whether national, federal, state,
county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency body or department thereof).
"Plan" shall mean an employee benefit plan, other than a Multiemployer
Plan, maintained for employees of the Company, any of its subsidiaries or any
ERISA Affiliate or in which any such employees participate and subject to Title
IV of ERISA.
"Pledged Receivables" shall mean Receivables pledged to GECC under the
terms of this Agreement.
"Receivables" shall mean all notes, mortgages, deeds of trust, deeds to
secure debt, contracts for deed, land contracts, conditional sales contracts,
contract rights, security agreements, installment paper, installment sales,
time share agreements and other obligations for the payment of money, and all
documents, contract instruments and records evidencing, constituting, securing
or relating to the same and all deeds of trust, vendors' liens, security
instruments, security agreements, assignments of rent, rights to debit the
accounts of Obligors, powers of sale, policies of title insurance and casualty
insurance insuring such security, and all benefits, rights, proceeds, products
and replacements thereof or relating thereto, which are or have been created by
the Company, Patten or any Affiliate thereof from the sale of Lots in a
Development, and all cash and non-cash proceeds thereof.
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<PAGE> 13
"Servicing Agreement" shall mean the Servicing Agreement substantially
in the form of Exhibit B hereto, by and among GECC, the Company and Patten, as
servicer, or a successor servicing agreement thereto as provided in Section 5
hereof, and all amendments, supplements and modifications thereto.
"Termination Event" shall mean (i) a "reportable event", as such term is
described in Section 4043 of ERISA (other than a "reportable event" not subject
to the provision for 30-day notice to the PBGC), or an event described in
Section 4062(e) of ERISA, (ii) the withdrawal of the Company, any subsidiary of
the Company or any ERISA Affiliate from a Multiple Employer Plan during a plan
year in which it was a "substantial employer", as such term is defined in
Section 4001(a)(2) of ERISA, or the occurrence of liability by the Company, any
subsidiary of the Company or any ERISA Affiliate under Section 4063 or 4064 of
ERISA upon the termination of a Multiple Employer Plan, (iii) the filing of a
notice of intent to terminate under Section 4041 of ERISA other than in a
standard termination within the meaning of Section 4041 of ERISA, (iv) the
institution of proceedings to terminate a Plan by the PBGC under Section 4042
of ERISA or (v) any other event or condition that might reasonably constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan.
"Withdrawal Liability" shall have the meaning given such term under Part
I of Subtitle E of Title IV of ERISA.
2. Advances.
(a) Amounts. (i) Subject to the terms and conditions hereof, GECC
shall from time to time until the date which is twenty- four (24) months after
the date of the Initial Advance, and in no event more often than once in any
month, upon the Company's request, make advances of the Loan to the Company in
such amounts as the Company may request, but not in excess of the amounts
hereinafter provided.
(ii) Each advance hereunder shall be in an amount not in excess
of the least of:
(1) the difference between $25,000,000 and the aggregate
amount of all prior advances hereunder, without reducing such prior
advances by any repayments of principal which may have been made on the
Loan;
(2) 75% of the aggregate outstanding principal balance of
all Eligible Receivables to be pledged in connection with such advance;
or
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<PAGE> 14
(3) the sum of the discounted present value of the
aggregate monthly payments of principal and interest under all Eligible
Receivables to be pledged in connection with such advance, utilizing a
discount factor of fifteen percent (15%) and disregarding all payments
under such Eligible Receivables to the extent such payments are due
after ten (10) years from the date such Eligible Receivables are pledged
to GECC hereunder (it being understood that the Eligible Receivables to
be pledged in connection with such advance shall be pooled together and
the calculation shall be made based on the aggregate pool).
(b) Advances in General. GECC's obligation to make any advance of
the Loan hereunder at any time is subject to the compliance in full by the
Company and Patten with all of the terms and conditions of this Agreement, as
at any time amended, and to the further condition that at the time of the
proposed making of any such advance, (i) there shall have been no material
adverse change in the financial condition, operation, net worth, management or
business of the Company; (ii) there shall have been no material adverse change
in the financial condition, operation, net worth, management or business of
Patten and its subsidiaries taken as a whole or in the Developments taken as a
whole; (iii) there shall not have occurred and be continuing an Event of
Default or any event which with the passage of time and/or the giving of notice
could constitute an Event of Default; (iv) the Developments considered as a
whole shall not have suffered any material adverse change with respect to their
economic prospects nor any material damage by fire, flood, or other casualty,
and (v) no condemnation or adverse zoning or usage change proceedings or any
litigation shall have been commenced or threatened, and no law, regulation,
ordinance, restriction, injunctive proceeding, moratorium, litigation, or
similar matter shall have been enacted, adopted, commenced, threatened or
proposed by any federal, state or local government, or any board, authority,
commission, agency or department, which in GECC's sole judgment could
materially and adversely affect the economic prospects of the Developments
considered as a whole or the ability of GECC or the Company to continue to
effect full collection of the Pledged Receivables substantially in accordance
with their original terms and conditions.
(c) Initial Advance. GECC shall not be obligated to make the
Initial Advance hereunder unless the Company shall be eligible for and shall
request an advance of at least $2,000,000 on or before June 14, 1993. GECC's
obligation to make the Initial Advance hereunder is subject to the condition
precedent that GECC shall have received on or before the date of such
disbursement all of the following, each dated on or before the date of such
disbursement, in form, content and substance satisfactory to GECC:
(i) The Note;
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<PAGE> 15
(ii) The Mortgage Documents for all Receivables to
be pledged to GECC in connection with such advance, together
with assignments of mortgage liens, deed of trust liens,
vendor's liens and contracts for deed to GECC, in one or more of
the forms shown on Exhibit C, as appropriate, endorsements of
promissory notes to GECC in one of the forms shown on Exhibit D,
as appropriate, and the mortgagee title insurance policies, each
in an amount at least equal to the original principal amount of
the related Receivable, covering such mortgages, deeds of trust
or other encumbrances and each issued by one or more of the
title insurance companies listed on Exhibit E hereto or such
other title insurance companies reasonably acceptable to GECC
and which have delivered to GECC a letter substantially in the
form of Exhibit F hereto;
(iii) a letter from each title insurance company
listed on Exhibit E hereto substantially in the form attached as
Exhibit F hereto;
(iv) Uniform Commercial Code Financing Statements,
Form UCC-1, for filing with the applicable authorities in
Florida and such other states as may be required to perfect the
security interests granted hereby;
(v) Applicable releases, terminations, or consents
of other creditors, if any, deemed by GECC to be necessary or
advisable as a result of applicable lien searches;
(vi) Evidence that the aggregate principal amount of
delinquent Pledged Receivables does not exceed ten percent (10%)
of the aggregate principal amount of all Pledged Receivables;
(vii) A certified copy of the resolutions of the
Board of Directors of the Company evidencing approval of this
Agreement and all other matters contemplated hereby, together
with certificates of existence and good standing issued by the
appropriate officer of the state of incorporation of the Company
and all states in which the Company transacts business;
(viii) Certified copies of the resolutions of the
respective Boards of Directors of Patten and each Affiliate of
Patten which originated one or more Receivables being assigned
to GECC, evidencing, as appropriate, approval of such
assignments and all other matters contemplated hereby, together
with certificates of existence and good standing issued by the
appropriate officer of the state of incorporation of each such
company and all states in which each such company transacts
business;
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(ix) A certificate of the Secretary or an Assistant
Secretary of the Company which shall certify the names of the
officers of the Company authorized to sign each of the documents
to be delivered pursuant to this Agreement, together with the
true signature of such officers;
(x) A certificate of the Secretary or an Assistant
Secretary of Patten and each Affiliate of Patten which
originated one or more Receivables being assigned to GECC which
shall certify the names of the officers of each company
authorized to sign the documents required or contemplated by
this Agreement, together with the true signatures of such
officers;
(xi) Favorable opinions of legal counsel for the
Company, Patten and each Affiliate of Patten which originated
one or more Receivables being assigned to GECC relating to,
among other things, the authorization, organization and good
standing of such entities; the form, legal sufficiency and
enforceability of the Mortgage Documents and the assignments to
GECC thereof; usury with respect to the Receivables and the
Note; the due execution and delivery of this Agreement, the Note
and all documents related thereto; the enforceability of this
Agreement, the Note and all documents related thereto; the legal
sufficiency of the actions to be taken and the form of all
documents to be used to create and perfect GECC's security
interest in the Pledged Receivables;
(xii) A request for advance in the form of Exhibit G
hereto;
(xiii) A current plat or survey map of each
Development including, if applicable, recorded subdivision plats
approved by all necessary governmental entities;
(xiv) A soils report for each Development;
(xv) A lien search of the names of the Company and
Patten in the appropriate UCC records of such states as may be
required to show no liens, claims or other encumbrances on or
against the Receivables to be pledged hereunder;
(xvi) The Servicing Agreement;
(xvii) Such assignments and schedules of Pledged
Receivables identifying the Pledged Receivables assigned or to
be assigned to GECC, and such other instruments, contracts and
documents evidencing, constituting, pledging, assigning,
perfecting a lien upon, or relating to Pledged Receivables as
GECC may request, all of which shall bear or be accompanied by
such endorsements as GECC shall require. Any or all of such
assignments
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<PAGE> 17
shall, at the option of GECC, be in recordable form, as approved
by GECC's counsel. GECC or any of GECC's agents, employees or
representatives may in the name and on behalf of the Company
execute any missing endorsement, signature, transfer or
assignment or correct any defects therein, and the Company
hereby appoints GECC and any of its agents, employees or
representatives as attorney-in-fact for the Company to do any of
the foregoing (this power of attorney, being coupled with an
interest, is irrevocable);
(xviii) A mail audit of obligors designated by GECC in
a manner prescribed by GECC, to be performed at the Company's
cost and expense and to be satisfactory to GECC in all respects.
GECC shall have the right to conduct mail audits periodically
after the Initial Advance, to be performed at the Company's
expense. GECC shall have the right prior to the Initial Advance
or any time thereafter, at Company's expense, to audit all or
any individual accounts relating to Pledged Receivables and to
review all files relating to Pledged Receivables and to the
Developments;
(xix) GECC shall have reviewed and approved all
documents and policies pertaining to the operation and
management of, and membership in, the Developments and/or the
recreational facilities, if any, at the Developments, and all
policies and practices followed by Patten and its Affiliates in
selling the Lots and generating the Receivables;
(xx) An environmental assessment for each
Development; and
(xxi) Such other documents, certificates, letters,
information or agreements as GECC may request.
(d) Subsequent Advances. Upon the Company's written request, GECC
shall make additional advances hereunder. GECC shall not be obligated to make
any advances hereunder after the Initial Advance unless the Company shall be
eligible for and shall request an advance of at least $1,000,000, except that
the final advance for the difference between $25,000,000 and the aggregate
amount of all prior advances hereunder shall be determined without regard to
such $1,000,000 minimum limitation. Subsequent advances of the Loan hereunder
shall not be made more often than once in any month. Any such additional
advance is subject to the condition precedent that GECC shall have received at
least thirty (30) days before the date of such disbursement all of the
following, in form and substance satisfactory to GECC, unless such condition is
waived by GECC at its sole option:
(i) Request for advance in the form of Exhibit G hereto;
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<PAGE> 18
(ii) The Mortgage Documents for all Receivables to be
pledged to GECC in connection with such advance together with
assignments of mortgage liens, deed of trust liens, vendor's liens and
contracts for deed to GECC, in one or more of the forms shown on Exhibit
C, as appropriate, endorsements of promissory notes to GECC in one of
the forms shown on Exhibit D, as appropriate, and the mortgagee title
insurance policies, each in an amount at least equal to the original
principal amount of the related Receivable, covering such mortgages,
deeds of trust or other encumbrances and each issued by one or more of
the title insurance companies listed on Exhibit E hereto or such other
title insurance companies reasonably acceptable to GECC and which have
delivered to GECC a letter substantially in the form of Exhibit F
hereto;
(iii) If deemed necessary by GECC's Counsel, Uniform
Commercial Code Financing Statements, Form UCC-1 or Form UCC- 3, for
filing with the applicable authorities in Florida and such other states
as may be required to perfect the security interest granted hereby;
(iv) Applicable releases, terminations or consents of other
creditors, if any, deemed by GECC to be necessary or advisable as a
result of applicable lien searches;
(v) A certified copy of the resolutions of the Board of
Directors of the Company evidencing approval of such advance, together
with certificates of existence and good standing issued by the
appropriate officer of the state of incorporation of the Company and all
states in which the Company transacts business;
(vi) Certified copies of the resolutions of the respective
Boards of Directors of Patten and each Affiliate of Patten which
originated one or more Receivables being assigned to GECC, evidencing,
as appropriate, approval of such assignments and all other matters
contemplated hereby, together with certificates of existence and good
standing issued by the appropriate officer of the state of incorporation
of each company and all states in which each company transacts business;
(vii) A certificate of the Secretary or an Assistant
Secretary of the Company which shall certify the names of the officers
of the Company authorized to sign each of the documents to be delivered
pursuant to this Agreement, together with the true signature of such
officers;
(viii) A certificate of the Secretary or an Assistant
Secretary of Patten and each Affiliate of Patten which originated one or
more Receivables being assigned to GECC which shall certify the names of
the officers of each company authorized to sign the documents required
or contemplated by this Agreement, together with the true signatures of
such officers.
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(ix) Favorable opinions of legal counsel for the Company,
Patten and each Affiliate of Patten which originated one or more
Receivables being assigned to GECC relating to, among other things, the
authorization, organization and good standing of such entities; the
form, legal sufficiency and enforceability of the Mortgage Documents and
the assignments to GECC thereof; usury with respect to the Receivables
and the Note; the due execution and delivery of this Agreement, the Note
and all documents related thereto; the enforceability of this Agreement,
the Note and all documents related thereto; the legal sufficiency of the
actions to be taken and the form of all documents to be used to create
and perfect GECC's security interest in the Pledged Receivables;
applicable "doing business" requirements; and all applicable licensing
requirements;
(x) A lien search of the names of the Company and Patten in
the appropriate UCC records of such states as may be required to show no
liens, claims or other encumbrances or against the Receivables to be
pledged hereunder;
(xi) Such assignments and schedules of Pledged Receivables
identifying the Pledged Receivables assigned or to be assigned to GECC,
and such other instruments, contracts, and documents evidencing,
constituting, pledging, assigning, perfecting a lien upon, or relating
to Pledged Receivables as GECC may request, all of which shall bear or
be accompanied by such endorsements as GECC shall require. Any or all
of such assignments shall, at the option of GECC, be in recordable form,
as approved by GECC's counsel. GECC or any of GECC's agents, employees
or representatives may in the name and on behalf of the Company execute
any missing endorsement, signature, transfer or assignment or correct
any defects therein, and the Company hereby appoints GECC and any of its
agents, employees or representatives as attorney-in-fact for the Company
to do any of the foregoing (this power of attorney, being coupled with
an interest, is irrevocable);
(xii) A mail audit of Obligors designated by GECC, in a
manner prescribed by GECC, to be performed at the Company's cost and
expense and to be satisfactory to GECC in all respects;
(xiii) GECC shall have reviewed and approved all documents and
policies pertaining to the operation and management of, and membership
in, the Developments and/or the recreational facilities, if any, at the
Developments, and all policies and practices followed by Patten and its
Affiliates in selling the Lots and generating the Receivables;
(xiv) If applicable, the items required by Section 15 hereof;
(xv) The assignments of Mortgages for all Mortgages pledged
to GECC in connection with prior advances as required by Section 18
hereof;
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(xvi) Such other documents (including title bringdowns),
certificates, letters, information or agreements as GECC may request;
and
(xvii) Evidence that the aggregate principal amount of
delinquent Pledged Receivables does not exceed ten percent (10%) of the
aggregate principal amount of all Pledged Receivables.
3. REPAYMENT. (a) All advances made hereunder shall be disbursed
by GECC and will be repayable at the place provided for in the Note, if any,
otherwise at the office of GECC set out herein, and the Company unconditionally
promises to repay all such advances and all other Obligations to GECC in the
manner set forth in this Agreement and the Note, subject to the provisions of
Section 16 hereof. The advances under the Loan will be charged to the Loan
Account and will be evidenced by the Note. Each month GECC will render to the
Company a statement of the Loan Account which the Company hereby agrees shall
be deemed to be an account stated and correct and acceptable to and binding on
the Company, subject only to debits for uncollected items as described in
Section 5 hereof, unless GECC shall receive a written statement of exceptions
from the Company within ten (10) days after such monthly statement has been
rendered to the Company. The unpaid principal balance of the Loan together
with all accrued but unpaid interest thereon and all other charges with respect
thereto shall be due and payable in full on the date set out in the Note.
(b) Interest and principal shall be paid out of payments
received by GECC on Pledged Receivables as provided herein. In the event the
proceeds and collections from Pledged Receivables actually received by GECC are
not sufficient to pay the interest accrued under the Note on a monthly basis
because the rate of interest required to be paid by the Company under the Note
has increased to the point that such proceeds and collections are less than the
amount required to pay the full amount of such interest, or for any other
reason whatsoever, or in the event the proceeds and collections from Pledged
Receivables actually received by GECC are not sufficient to pay principal under
the Note at the maturity thereof, the Company shall pay to GECC at the times
and in the manner prescribed in the Note an amount necessary to pay the full
amount of principal and interest then due at the rate and on the terms set out
in the Note. The Company's obligations contained in this Section 3(b) are
subject to the provisions of Section 16 hereof, but such limitation shall not
prevent the Company's failure to make such payments from being a default
hereunder or under the Note.
4. SECURITY. As security for the prompt payment in full of all
present and future Obligations, the Company hereby grants to GECC a security
interest in and hereby assigns and pledges to GECC and its successors and
assigns (which grant, assignment and pledge shall continue until
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payment in full of all Obligations, whether or not this Agreement shall have
sooner terminated), all right, title and interest of the Company in and to all
Pledged Receivables, whether or not such Pledged Receivables later do not
qualify as Eligible Receivables for any reason, and whether or not now existing
or arising or created at any time hereafter, together with all rights to any
and all sums due and to become due on Pledged Receivables, all proceeds of and
collections on Pledged Receivables in whatever form (including, without
limitation, cash, checks, notes, drafts, and other instruments for the payment
of money, and rights of foreclosure, termination, dispossession, repossession
and reclamation and all other rights of an unpaid seller), all documents,
instruments, contracts, liens, security instruments, title insurance policies
and other insurance (including but not limited to, hazard and credit insurance)
and all guaranties relating to Pledged Receivables, all books and records
evidencing, securing or relating to Pledged Receivables, all collateral
security deposits and tax escrows (to the extent the same may be pledged under
applicable law), or other security securing the obligations of any person under
or relating to Pledged Receivables, all credit balances in favor of the Company
on GECC's books, all funds deposited in the Lock Box, all funds deposited in
the Lock Box, all rights of the Company under any arrangement authorizing the
Company to draw checks or drafts on the bank account of any Obligor or other
person obligated on a Pledged Receivable, and all rights and remedies of
whatever kind or nature the Company may hold or acquire for the purpose of
evidencing, securing or enforcing Pledged Receivables, and all general
intangibles relating to or arising out of Pledged Receivables (all of which,
together with any other security at any time pledged, assigned or delivered by
the Company to GECC or received by GECC in connection with any Obligations,
being herein collectively called "Collateral").
5. SERVICING. (a) The Company, Patten and GECC have entered into
the Servicing Agreement in the form of Exhibit B. Pursuant to the Servicing
Agreement, the Agent shall bill and administer the Pledged Receivables as agent
for GECC. The Servicing Agreement shall be terminable by GECC (i) upon the
occurrence of an Event of Default, as such term is defined herein or in the
Servicing Agreement or (ii) at any time that GECC reasonably determines that
GECC's security for repayment of the Loan has been materially and adversely
affected, whereupon in either event GECC may engage another servicing agent
satisfactory to GECC to perform all or any of such services or may perform such
services itself. All fees and expenses of Agent (including those of GECC,
whose fee shall be at current market rates if GECC acts as agent) shall be
borne by the Company. All collections on Pledged Receivables shall be sent by
the Obligors directly to the Lock Box under the terms of the Servicing
Agreement.
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(b) The Company shall notify GECC if any Pledged Receivable
includes any tax due to any governmental taxing authority or includes premiums
for insurance of any kind, and, if so, the Company agrees to enter into an
appropriate agreement with GECC and the Agent with respect, among other things,
to the handling of such tax or premium payments.
(c) If at any time or times the Company or any Affiliate of
the Company shall receive one or more payments with respect to a Pledged
Receivable (whether or not such payments are then due or payable pursuant to
the terms of the Receivable), the Company or such Affiliate shall promptly
deposit all such payments in the Lock Box.
(d) All funds received in the Lock Box shall be deposited
to GECC's bank account in accordance with the terms of the Servicing Agreement.
All funds shall be credited to the Loan Account promptly upon deposit thereof
in the Lock Box, and applied to delinquent or late charges, accrued interest
and principal of the Obligations. Any remittance received by the Company or
GECC from customers who are Obligors on Pledged Receivables shall be presumed
to constitute collections on Pledged Receivables subject to GECC's security
interest and shall be deposited by the party receiving the same in the Lock Box
promptly upon the receipt thereof. No checks, drafts, or other instruments
received by GECC shall constitute payment to GECC unless and until any such
instrument is actually collected by GECC's bank and if any such instrument is
returned uncollected by GECC's bank, the Loan Account shall be debited as of
the date such item was originally credited to the Loan Account.
(e) GECC shall have the right at all times and the Company
hereby appoints GECC, its employees, agents and representatives, as
attorney-in-fact for the Company (the foregoing power, being coupled with an
interest, is irrevocable until such time as the Obligations have been paid in
full) to receive, receipt for, endorse, assign, deposit and deliver, in GECC's
name or in the name of the Company, any and all checks, drafts and other
instruments for the payment of money which may at any time be delivered to or
otherwise received by or on behalf of GECC, whether the same represent payments
by Obligors on Pledged Receivables, payments of insurance proceeds on policies
insuring Lots or the improvements thereon, or otherwise. The Company hereby
authorizes GECC, its employees, agents and representatives to affix, by
facsimile signature or otherwise, the general or special endorsement of the
Company, in such manner as GECC shall deem advisable, to any such instrument in
the event the same has been delivered to or for the benefit of GECC without
appropriate endorsement, and GECC and any bank in which GECC may deposit any
such instrument are hereby authorized to consider such endorsement to be a
sufficient, valid and effective endorsement by the Company to the same extent
as though it were manually executed by the duly authorized officer of the
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<PAGE> 23
Company, regardless of by whom or under what circumstances or by what authority
such facsimile signature or other endorsement is actually affixed, without duty
of inquiry or responsibility as to such matters, and the Company and each
guarantor and endorser of the Company's Obligations hereby waives demand,
presentment, protest and notice of protest or dishonor and all other notices of
every kind and nature with respect to any such instrument.
6. INFORMATION, BOOKS AND RECORDS. (a) The Company agrees to
maintain books and records pertaining to the Collateral in such detail, form
and scope as GECC shall reasonably require, and to promptly notify GECC of any
change of name or address of the Company (including, but not limited to, the
office where records of the Company pertaining to the Receivables are kept and
the Company's executive office) or of the corporate structure of the Company
and its Affiliates or of the location of the Collateral.
(b) The Company will at any time, if GECC should so
request, mark the Company's ledger cards, books of account and other records
relating to Pledged Receivables with appropriate notations satisfactory to GECC
disclosing that they are subject to GECC's security interest. All records,
ledger sheets, correspondence, invoices, delivery receipts, documents and
instruments relating to Pledged Receivables shall, unless and until delivered
to GECC, be kept by the Company, without cost to GECC, in appropriate
containers and in safe places at its principal place of business and if GECC
should so require, shall bear suitable legends identifying them as being
subject to a security interest in favor of GECC.
(c) GECC shall at normal business hours and upon advance
written notice have full access to and the right to audit any and all of the
Company's books and records, including, without limitation, the books and
records pertaining to the Collateral and the Developments and including all
files and correspondence with creditors and customers, and the right to confirm
and verify the amounts owing on Pledged Receivables and the value and
collectibility of other Collateral and to do whatever else GECC may deem
necessary to protect its interest. GECC shall have the right at any time and
from time to time to request from Obligors, in the name of the Company or in
GECC's name, information concerning the Pledged Receivables and the amounts
owing thereon.
(d) The Company agrees to furnish to GECC from time to
time, and as frequently as GECC shall request, such reports in such detail and
in such form as is satisfactory to GECC, showing the amount of the outstanding
Pledged Receivables, the amounts collected thereon, and such other information
relating to Pledged Receivables as GECC may require.
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7. AFFIRMATIVE COVENANTS. The Company covenants that it shall:
(a) Pay on demand all costs and fees GECC may incur in
filing and recording mortgages, deeds of trust, and assignments thereof,
contracts for deed and other land sale contracts, Uniform Commercial Code
Financing Statements and other public notices or instruments to perfect GECC's
assignment or pledge of or security interest in any and all Collateral or to
protect or perfect any security for any particular Pledged Receivable,
including but not limited to, recording or filing fees, documentary stamp taxes
or other taxes incurred because of recording or filing, all out-of-pocket
expenses incurred and paid by GECC at any time for fees and costs of title
insurance, abstracts of title, and the fees of any attorney, appraiser,
examiner, auditor, or similar persons whom GECC may engage with respect to the
preparation and review of this Agreement, any loan applications or commitments
preceding this Agreement, or reviewing the Developments, Lots, Receivables or
any information relating thereto, and for filing and recording, making record
searches, handling closings and rendering opinions, and, in the event of
default by the Company hereunder, all costs and expenses (including all
out-of-pocket expenses and reasonable attorneys's fees) incurred by GECC or its
agents, employees or representatives in protecting, maintaining, preserving,
enforcing or foreclosing GECC's security interest in any Collateral, including
all efforts made to enforce the collection of any Receivable, whether through
foreclosure, trustee's sale, judicial proceedings or otherwise, or in defending
or prosecuting any action or proceeding arising out of or relating to GECC's
transaction with the Company, all of which are hereby also included in the
definition of "Obligations" and which may be charged at GECC's option to the
Loan Account in the event the same are not promptly paid after demand.
(b) Pay and cause each of the Company's Affiliates to pay
and discharge all taxes, assessments and governmental charges, levies or liens
imposed on the income, profits, sales, business or properties (including,
without limitation, the Developments) of the Company or its Affiliates prior to
the date upon which penalties attach for non-payment thereof, and promptly
discharge any other liens, security interest, encumbrances, or other claims
which may be levied or claimed against any Collateral, the Developments or the
property which relates to any Pledged Receivable, provided that any such tax,
assessment, charge or levy or such other lien or security interest need not be
paid or discharged if the payment or validity thereof is being contested in
good faith and by appropriate proceedings and for which adequate book reserves,
determined in accordance with generally accepted accounting practices, shall be
set aside; provided, further, that the failure to pay any such tax, assessment,
charge or levy shall not
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result in the imposition of any lien or encumbrance against the Collateral, any
Development or the property which relates to any Pledged Receivable. If any
such tax, assessment, charge or levy lawfully imposed shall remain unpaid after
the date upon which a lien on any Collateral, any Development or the property
which relates to any Pledged Receivable arises or may be imposed as a result of
such non-payment, or if any other lien or security interest is claimed for any
other reason against any Collateral or any Development, which if foreclosed
would, in GECC's opinion, adversely affect the value of GECC's security
interest in any Collateral, GECC may pay and discharge any such tax,
assessment, charge, levy, lien or security interest, and the amount so paid by
GECC shall be payable on demand and if not paid promptly, will be charged to
the Loan Account and shall be secured by all Collateral and shall bear interest
at the Default Rate as provided in the Note unless prohibited by law, in which
event such interest rate shall be the highest non-usurious rate permitted by
law.
(c) Comply and cause its Affiliates to comply with all laws
and all acts, rules, regulations and orders of any legislative, administrative,
or judicial body or official, applicable to Receivables, the Developments, the
Lots, or to the operation of the business of the Company or its Affiliates;
(d) Take and cause its Affiliates to take all steps and
observe such formalities as GECC may request from time to time in order to
create, perfect and maintain in GECC's favor a valid first lien upon, and
security interest in, all Pledged Receivables, including the filing or
recording of any financing statements or similar instruments which GECC deems
necessary or appropriate;
(e) Pay to GECC, on demand, any and all fees, costs or
expenses which GECC pays to a bank or other similar institution arising out of
or in connection with the forwarding by GECC to the Company (or any other
Person on behalf of the Company) of advances of the Loan made by GECC to the
Company pursuant to this Agreement and the depositing for collection by GECC of
any check or item of payment received and/or delivered to GECC on account of
the Obligations;
(f) At its sole cost and expense or at the cost and expense
of the Company's Affiliates, keep and maintain the insurable portions of the
Collateral and the Developments insured for their respective full insurable
values against losses or damage by all hazards and risks ordinarily insured
against by other owners or users of such properties in similar businesses and
notify GECC promptly of any event or occurrence which could cause a material
loss or decline in value of the Collateral or any Development and the estimated
(or actual, if available) amount of such loss or decline;
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(g) Promptly upon, but in no event later than three (3)
business days after:
(i) the Company's learning thereof, inform GECC, in
writing, of any material delay in the performance of any
obligations of the Company or any of its Affiliates to any
Obligor and of any assertion of any claim, offset or
counterclaim, credits and/or other monies granted by the
Company or any of its Affiliates to any Obligor;
(ii) the Company's receipt or learning thereof, furnish to
and inform GECC of all material adverse information relating
to the financial condition of any Obligor;
(iii) the Company's receipt or learning thereof, inform
GECC of any facts relating to any Eligible Receivable which
would render such Receivable ineligible under the standards
set forth hereunder;
(iv) the Company's receipt or learning thereof, inform GECC
of any pending or threatened litigation affecting the Company
or any Affiliate of the Company, whether or not the claim is
considered by the Company or such Affiliate to be covered by
insurance, and of the institution or threat of any suit or
administrative proceeding, any of which individually or
in the aggregate could materially and adversely affect any
Development, the operations, financial condition or business of
the Company, or Patten and its Affiliates taken as a whole, the
Collateral or GECC's security interest in the Collateral; and
(v) the Company's learning thereof, inform GECC of any
Eligible Receivable which has become sixty (60) days delinquent.
(h) Keep and cause its Affiliates to keep books of account
and prepare financial statements and cause to be furnished to GECC the
following (all of the foregoing and following to be kept and prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with the latest financial statements of the Company or its
Affiliates submitted to GECC prior to or at the closing of the Loan):
(i) as soon as available, but not later than one hundred
twenty (120) days after the close of each fiscal year of the
Company or Patten, as the case may be, audited financial
statements of the Company and Patten as of the end of such year
certified by a firm of independent certified public accountants
of recognized standing, reasonably acceptable to GECC and
selected by the Company or Patten,
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together with copies of all audit reports (including so called
management letters and responses thereto) delivered to the
Company or Patten in connection therewith;
(ii) concurrently with the delivery of the financial
statements described in Subsection (i) above, a certificate of
the aforesaid certified public accountants certifying to GECC
that, based upon their examination of the affairs of the Company
or Patten, as the case may be, performed in connection with the
preparation of said financial statements, they are not aware of
the occurrence or existence of any condition or event which
constitutes or would, upon notice or lapse of time or both,
constitute an Event of Default or, if they are aware of such
condition or event, the nature thereof;
(iii) as soon as available, but not later than forty-five
(45) days after the end of each fiscal quarter of Patten
hereafter, unaudited, interim financial statements of the
Company and Patten, including monthly sales and collection
reports for the Developments and the Pledged Receivables,
covering such quarter and the portion of the Company's or
Patten's fiscal year then elapsed, certified by the Company's or
Patten's principal financial officer as prepared in accordance
with generally accepted accounting principles;
(iv) if available to the Company or any one of its
Affiliates without undue effort or expense, annual financial
statements of any condominium, homeowner's or similar
association concerned with any land in a Development, if any,
prepared by an accounting firm acceptable to GECC to be
furnished within 120 days after the fiscal year covered by each
such statement, in scope and detail reasonably satisfactory to
GECC, together with copies of all audit reports (including so
called management letters and responses thereto) delivered in
connection therewith; and
(v) such other data and information (financial and
otherwise) as GECC from time to time may reasonably request,
bearing upon or related to the Collateral, the Developments or
the financial condition and/or results of operations of the
Company or its Affiliates.
(i) If any Pledged Receivable, the face value of which
exceeds $1,000, arises out of a contract with the United States of America, or
any department, agency, subdivision or instrumentality thereof, promptly notify
GECC thereof and execute any instruments and take any other action required or
requested
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by GECC to perfect GECC's security interest in such Receivable under the
provisions of the Federal Assignment of Claims Act;
(j) Complete promised improvements, if any, in each
Development in accordance with the plans and specifications therefor and with
any HUD property report or other document, brochure, promise or agreement
applicable thereto and no later than the earlier of the date provided in any
such property report or other document, brochure, promise or agreement or the
date provided to GECC for completion of such improvements;
(k) Maintain and cause Patten and its Affiliates which
originated one or more of the Receivables pledged to GECC hereunder to maintain
corporate existence and good standing in every jurisdiction in which each
company's business or ownership of property so requires, except that the
corporate existence of an Affiliate which originated Pledged Receivables may be
terminated in the ordinary course of business and upon full satisfaction or
assumption by the surviving corporation of such Affiliate's obligations to all
creditors thereof;
(l) Promptly report to GECC any loss, liability, damage,
cost or expense, including the costs of clean-up resulting from or consequent
to the manufacturing, holding, handling, transporting, spilling, leaking, or
dumping of toxic or hazardous wastes, waste products or substances, on any Lot
or any Development;
(m) Promptly upon learning thereof provide to GECC notice
of the non-payment of any real estate taxes or assessments on any Lot or
Development as and when the same may be due;
(n) Maintain its own records and books of account and
observe usual and customary corporate formalities in connection with its
activities, and at all times hold itself out to the public, including creditors
of its parent, in its own name as a separate and distinct entity and always
have at least one (1) director who is not an officer or employee of Patten
Corporation or any of its Affiliates;
(o) Continue and cause Patten to cause each of its
Affiliates to continue to be solvent;
(p) Within two (2) business days of learning thereof,
providing notice to GECC of the existence of any Event of Default or any event
which with the giving of notice and/or the passage of time could constitute an
Event of Default; and
(q) Maintain insurance on each Development in all respects
reasonably satisfactory to GECC, including (i) casualty insurance against all
risk of physical loss, covering all common area structural amenities at such
Development and (ii) comprehensive liability insurance. Liability insurance
shall be evidenced by a Certificate of Insurance issued to GECC. All insurance
required hereunder shall be issued by responsible carriers acceptable to GECC
(with a Best's rating guide of not
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less than "A-IX") and guarantee at least 30 days notice to GECC of
cancellation, non-renewal or material change. Liability insurance shall be for
a minimum of $5,000,000 at each Development and not less than amounts
customarily carried (as reasonably determined by GECC) by developers or owners
engaged in businesses similar to Company's. Casualty insurance shall be for
the full repair and replacement value of all improvements in each Development,
without deduction for depreciation or co-insurance. The Company shall deliver
certified copies of all insurance policies to GECC.
8. Portfolio Maintenance.
(a) Notwithstanding that a Pledged Receivable may have been deemed
by GECC to be an Eligible Receivable at the time of any advance, if at any time
thereafter (i) any Eligible Receivable becomes sixty (60) days delinquent, or
(ii) if GECC should later determine that a Pledged Receivable fails to meet, or
no longer meets, any other eligibility standard set forth in the definition of
Eligible Receivables or as provided in Sections 17(b)(ii) or 18 hereof, such
item will no longer be deemed to be an Eligible Receivable. In the event that
any Pledged Receivable no longer meets the requirement of an Eligible
Receivable, the Company or Patten shall, within ten (10) days of GECC's request
therefor, substitute another item of Eligible Receivable having an unpaid
principal balance at least equal to the unpaid principal balance of the
ineligible Pledged Receivable or pay down the Loan by an amount equal to the
then outstanding principal balance of such Pledged Receivable. In the case of
a Pledged Receivable that is or has become non-eligible for a reason other than
delinquency, the Company may at its option by notice to GECC require GECC to
release such Receivable from GECC's pledge or leave such item under GECC's
pledge, but in the latter instance the Pledged Receivable in question will not
be an Eligible Receivable. In no event will any Pledged Receivable be released
by GECC if at the time of such release there exists an uncured Event of Default
or a condition which but for the passage of time, the furnishing of notice or
both would constitute an Event of Default, or if such release could lead to any
such event.
(b) In addition to the requirements for a Receivable to qualify as
an Eligible Receivable, the aggregate of all Pledged Receivables plus the
Receivable(s) to be pledged (either in connection with an advance of the Loan
or pursuant to Section 8(a)) must at all times satisfy the following
requirements (the "Portfolio Tests"):
(i) The aggregate cash down payments for all Lots
which relate to Pledged Receivables must be equal to or greater
than twenty percent (20%) of the aggregate purchase price for
all such Lots (exclusive of closing costs);
(ii) the weighted average interest rate payable on
all Eligible Receivables must be equal to or greater
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than an annual rate equal to the Prime Rate plus three percent
(3%), as the Prime Rate changes from time-to-time;
(iii) The outstanding principal balance of the Loan
must never exceed the least of:
(1) $25,000,000;
(2) 75% of the aggregate outstanding principal
balance of all Eligible Receivables; or
(3) the sum of the discounted present value of the
aggregate monthly payment of principal and
interest under all Eligible Receivables,
utilizing a discount factor of fifteen percent
(15%) and disregarding all payments under such
Eligible Receivables to the extent such
payments are due after ten (10) years from the
date such Eligible Receivables are pledged to
GECC hereunder (it being understood that the
Eligible Receivables will be pooled together
and the calculation shall be made based upon
the aggregate pool); and
(iv) Not more than thirty percent (30%) of the
aggregate unpaid principal balance of Eligible Receivables shall
have Foreign Obligors.
9. NEGATIVE COVENANTS BY THE COMPANY AND PATTEN.
(a) Without GECC's prior written consent, which GECC may withhold in
its sole discretion, the Company covenants that it shall not:
(i) Merge or consolidate with or acquire any Person;
(ii) Other than in the ordinary course of its
business, make any investment in the securities of any Person;
(iii) Change the forms of Mortgage Documents except
as may be required by applicable law;
(iv) Change its name, the nature of its business or
its principal place of business, or engage in any business
activities other than as may be necessary for or incidental to
the pledge of Receivables to GECC and the performance of its
obligations to GECC in connection with the Loan;
(v) Sell, assign, transfer, convey or otherwise
dispose of a substantial portion of its assets except in the
ordinary course of business;
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(vi) Redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of the Company's stock or make any
material change in the Company's capital structure or in any of
its business objectives, purposes or operations, any of which
might in any way adversely affect the repayment of the
Obligations;
(vii) Enter into, or be a party to, any transaction
with any Affiliate or stockholder of the Company, except in the
ordinary course of and pursuant to the reasonable requirements
of the Company's business and upon fair and reasonable terms
which are fully disclosed to GECC and are no less favorable to
the Company than would obtain in a comparable arm's length
transaction with a Person not an Affiliate or stockholder of the
Company;
(viii) Enter into any transaction which could
adversely affect the Collateral or the Company's ability to
repay the Obligations or permit or agree to any extension,
compromise or settlement or make any change or modification of
any kind or nature with respect to any Pledged Receivable,
including any of the terms relating thereto;
(ix) Guarantee or otherwise, in any way, become
liable with respect to the obligations or liabilities of any
Person except: (A) its Affiliates' obligations to GECC; and (B)
by endorsement of instruments or items of payment for deposit to
the general account of the Company or for delivery to GECC on
account of the Obligations;
(x) Except as otherwise expressly permitted herein
or in the Mortgages or in any other agreement securing the Note,
encumber, pledge, mortgage, grant a security interest in,
assign, sell, lease or otherwise dispose of or transfer, whether
by sale, merger, consolidation, liquidation, dissolution, or
otherwise, any of the Collateral;
(xi) Incur any indebtedness for borrowed money
(other than the Obligations) secured by assets pledged or
mortgaged to GECC; or
(xii) Remove its books and records and/or the
Collateral from the Company's principal place of business set
forth in the first paragraph of this Agreement except to deliver
the same to GECC or the Agent as required hereby or by the
Servicing Agreement, or keep any of such books and records
and/or the Collateral at any other office(s) or location(s)
unless (i) the Company gives GECC written notice thereof and of
the new location of
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said books and records and/or the Collateral at least thirty
(30) days prior thereto and (ii) the other office or location is
within the continental United States of America.
(b) Without GECC's prior written consent, which GECC may withhold in
its sole discretion, Patten covenants that it shall not:
(i) Merge into any other corporation or convey,
transfer or lease substantially all of its assets as an entirety to any person
unless the corporation formed by such consolidation or into which Patten has
merged or the person which acquires by conveyance, transfer or lease
substantially all of the assets of Patten as an entirety is an entity organized
and existing under the laws of the United States or any state within the United
States or the District of Columbia and executes and delivers to GECC an
agreement in form and substance reasonably satisfactory to GECC, which contains
an assumption by such successor entity of the due and punctual performance and
observance of each covenant and condition to be performed or observed by Patten
under this Agreement;
(ii) Other than in the ordinary course of its
business, make any investment in the securities of any Person;
(iii) Change the forms of Mortgage Documents or alter
the practices and procedures followed by Patten and its Affiliates in
connection with the sales of Lots or the generation of Receivables, except as
may be required by applicable law;
(iv) Change the nature of its business in any manner
which will have a material adverse affect on the Collateral or on GECC's
prospects for repayment of the Loan;
(v) Sell, assign, transfer, convey or otherwise
dispose of a substantial portion of its assets except in the ordinary course of
business;
(vi) Redeem, retire, purchase or otherwise acquire,
directly or indirectly, any of its stock or make any material change in its
capital structure or in any of its business objectives, purposes or operations,
any of which might in any way adversely affect the repayment of the
Obligations;
(vii) Enter into, or be a party to, any transaction
with any Affiliate or stockholder of Patten, except in the ordinary course of
and pursuant to the reasonable requirements of Patten's business and upon fair
and reasonable terms which are fully disclosed to GECC and are no less
favorable to Patten than would obtain in a
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comparable arm's length transaction with a Person not an Affiliate or
stockholder of Patten;
(viii) Enter into any transaction which could
adversely affect the Collateral or the Company's ability to repay the
Obligations or permit or agree to any extension, compromise or settlement or
make any change or modification of any kind or nature with respect to any
Pledged Receivable, including any of the terms relating thereto;
(ix) Guarantee or otherwise, in any way, become
liable with respect to the obligations or liabilities of any Person if the
repayment of the Obligations would be adversely affected thereby;
(x) Except as otherwise expressly permitted herein
or in the Mortgages or in any other agreement securing the Note, encumber,
pledge, mortgage, grant a security interest in, assign, sell, lease or
otherwise dispose of or transfer, whether by sale, merger, consolidation,
liquidation, dissolution or otherwise, any of the Collateral;
(xi) Incur any indebtedness for borrowed money
(other than the Obligations) secured by assets pledged or mortgaged to GECC; or
(xii) Remove its books and records and/or the
Collateral from its principal place of business set forth in the first
paragraph of this Agreement, or keep any of such books and records and/or the
Collateral at any other office(s) or location(s) unless (i) Patten gives GECC
written notice thereof and of the new location of said books and records and/or
the Collateral at least thirty (30) days prior thereto and (ii) the other
office or location is within the continental United States of America.
10. EVENTS OF DEFAULT. Each of the following shall constitute an
"Event of Default:"
(a) If an Event of Default occurs under the Note;
(b) The failure of the Company or any of its Affiliates to pay any
Obligation (other than obligations under the Note) within five (5) days of the
date the same shall become due and payable, by acceleration or otherwise;
(c) If any representation, statement or data furnished by or on
behalf of the Company or its Affiliates relating to the Collateral, the
Developments or the operations, financial condition or business affairs of the
Company or its Affiliates shall have been false or misleading in any material
respect when made;
(d) The failure of the Company to pledge and deliver, or to cause
its Affiliates to pledge and deliver, any
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<PAGE> 34
Receivables to GECC as required hereunder or under any other agreement between
GECC and the Company, or any of its Affiliates, or any amendment or
modification hereof;
(e) The insolvency or inability to meet debts as they mature,
suspension of operations as presently conducted, discontinuation of business as
a going concern, failure to pay debts when due as provided under the Bankruptcy
Reform Act of 1978, or making an assignment for the benefit of creditors by or
of the Company, Patten or any Affiliate of Patten which originated one or more
of the Receivables pledged to GECC hereunder;
(f) The calling of a meeting of creditors by or for the Company or
Patten or any Affiliate of Patten which originated one or more of the
Receivables pledged to GECC hereunder, for purposes of requesting relief from
debts;
(g) The filing by or against the Company, Patten or any Affiliate of
Patten which originated one or more of the Receivables pledged to GECC
hereunder of a petition under any of the provisions of the Bankruptcy Reform
Act of 1978, as at any time amended, which, if involuntary, shall remain
undismissed for a period of sixty (60) days;
(h) The commencement of any proceeding against the Company, Patten
or any Affiliate of Patten which originated one or more of the Receivables
pledged to GECC hereunder by any municipal, state or federal official, agency
or tribunal purporting to have jurisdiction over the operations of the Company,
Patten or any Affiliate of Patten which originated one or more of the
Receivables pledged to GECC hereunder or over the type of business engaged in
by any of them, for the purpose of revoking or withholding any license or
authorization to conduct business material to the financial condition of all of
such companies in the aggregate or having the effect, in GECC's reasonable
judgment, of prohibiting or impairing the pledge, value or collectibility of
Pledged Receivables;
(i) The commencement of any proceedings by or against the Company,
Patten or any Affiliate of Patten which originated one or more of the
Receivables pledged to GECC hereunder under any insolvency law, or the
appointment of a receiver or trustee to administer the assets or affairs of the
Company, Patten or any Affiliate of Patten which originated one or more of the
Receivables pledged to GECC hereunder, and if said proceedings were commenced
against the Company or any such Affiliate, or if said receiver or trustee were
appointed without the consent of the Company, Patten or any such Affiliate,
said proceedings are not dismissed or discharged, as the case may be, for a
period of sixty (60) days;
(j) The entering of a judgment against or the levying of an
attachment upon, any of the assets of the Company,
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<PAGE> 35
Patten or any Affiliate of Patten which originated one or more of the
Receivables pledged to GECC hereunder which is not vacated, discharged, bonded
or superseded within thirty (30) days of such entry or levy and which, in the
reasonable judgment of GECC, could materially and adversely affect the
Company's or Patten's ability to perform under this Agreement or materially and
adversely impair the Collateral or the enforceability of GECC's security
interest in any Collateral;
(k) Any Termination Event with respect to a Plan shall have occurred
and, thirty (30) days after notice thereof shall have been given to the
Company, (i) such Termination Event shall still exist and (ii) the sum
(determined as of the date of occurrence of such Termination Event) of the
Insufficiency of such Plan and the Insufficiency of any and all other Plans
with respect to which a Termination Event shall have occurred and then exist
(or in the case of a Multiple Employer Plan with respect to which a Termination
Event described in clause (ii) of the definition of Termination Event shall
have occurred and then exist, the liability related thereto) is equal to or
greater than $100,000; provided, that, if such a Termination Event occurs with
respect to a Plan (A) that is maintained for employees of an ERISA Affiliate or
in which any such employees participate and (B) that is not maintained for
employees of the Company or any of its subsidiaries or Affiliates and in which
none of such employees participate, such Termination Event shall be included in
this Section 10(k) only if the Company or any of its subsidiaries or Affiliates
may incur liability with respect thereto in an amount equal to or greater than
$100,000;
(l) The Company or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability
to such Multiemployer Plan in an amount that, when aggregated with all other
amounts required to be paid to Multiemployer Plans in connection with
Withdrawal Liabilities (determined as of the date of such notification),
exceeds $100,000 or requires payments exceeding $100,000 per annum; provided,
that, if any ERISA Affiliate incurs such Withdrawal Liability, such event shall
be included in this Section 10(l) only if the Company or any of its
subsidiaries or Affiliates may be required to pay to Multiemployer Plans in
connection with Withdrawal Liabilities an amount or amounts that exceed
$100,000 in aggregate or $100,000 per annum;
(m) The Company or any ERISA Affiliate shall have been notified by
the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or is being terminated, within the meaning of Title IV of ERISA,
if as a result of such reorganization or termination the aggregate annual
contributions of the Company and its ERISA Affiliates (but, in the case of
ERISA Affiliates, only if the Company or any of its subsidiaries or Affiliates
would be required
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<PAGE> 36
to make such contributions to all Multiemployer Plans that are then in
reorganization or being terminated) have been or will be increased over the
amounts contributed to such Multiemployer Plans for the respective plan years
that include the date hereof by an amount exceeding $100,000;
(n) The amount of the Obligations shall exceed, without GECC's prior
written consent, the limits set out in Section 8(b)(iii) hereof and shall not
be brought within such limits by the pledging of additional Eligible
Receivables or a reduction in the amount of the Obligations within ten (10)
days after notice by GECC to the Company;
(o) A breach in meeting the conditions of Sections 8(b)(i), (ii) or
(iv) hereof, and the Company does not cause the portfolio of Eligible
Receivables to conform with such requirements by repaying a portion of the Loan
or pledging additional Eligible Receivables within ten (10) days after notice
by GECC to the Company; or
(p) A breach in the performance by the Company or any Affiliate
thereof of any of the other terms or provisions of (i) this Agreement, or (ii)
any other agreement (including without limitation the Servicing Agreement)
between GECC and the Company or any of its Affiliates, and such breach remains
uncured or unremedied to GECC's satisfaction for more than ten (10) days after
notice of such default from GECC to the Company.
11. REMEDIES. (a) Upon the occurrence and during the continuance
of an Event of Default, all Obligations shall, at GECC's option, immediately
and irrevocably become due and payable, without notice to the Company, except
as provided herein or in the Note, and GECC shall have in any jurisdiction
where enforcement is sought, in addition to all other rights and remedies which
GECC may have under law or under any other document evidencing or securing the
Loan, the following rights and remedies, all of which may be exercised with or
without further notice to the Company:
(i) to notify any and all Obligors on Pledged Receivables
that the same have been assigned to GECC and that all payments
thereon are to be made directly to GECC;
(ii) to settle, compromise or release, on terms acceptable
to GECC, in whole or in part, any amounts owing on Pledged
Receivables;
(iii) to enforce payment and prosecute any action or
proceeding with respect to any and all Pledged Receivables;
(iv) to extend the time of payment of and to make
allowances, adjustments and issue credits with respect to, the
Pledged Receivables;
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<PAGE> 37
(v) to foreclose the liens and security interests
constituting Pledged Receivables or securing any Pledged
Receivables (subject, however, to the rights of the Obligors on
such Pledged Receivables);
(vi) to foreclose the liens or security interests created
under this Agreement or under any other agreement relating to
Collateral by any available judicial procedure or without
judicial process;
(vii) to enter any premises where any Collateral may be
located for the purpose of taking possession or removing the
same;
(viii) to sell, assign or otherwise dispose of the Collateral
or any part thereof, either at public or private sale or at any
broker's board, in lots or in bulk, for cash, on credit or
otherwise, with or without representations or warranties, and
upon such terms as shall be acceptable to GECC, all at GECC's
sole option and as GECC in its sole discretion may deem
advisable, and GECC may bid or become a purchaser at any such
sale, if public, free from any right of redemption which is
hereby expressly waived by the Company, and GECC shall have the
right at its option to apply or be credited with the amount of
all or any part of the Obligations owing to GECC against the
purchase price bid by GECC at any such sale.
The net cash proceeds resulting from the collection, liquidation, sale or other
disposition of Collateral shall be applied first, to the expenses (including
all reasonable attorneys' fees and other fees) of foreclosing, posting notice
of sale, effecting trustees' or foreclosure sale, selling Collateral to third
parties, collecting, liquidating and the like, and then to the satisfaction of
all Obligations, in such order and manner as GECC in its sole and absolute
discretion may determine.
(b) If the Note has been declared due and payable following an Event
of Default and such declaration of acceleration and its consequences have not
been rescinded and annulled, GECC may, in its sole discretion and to the extent
permitted by applicable law, refrain from selling the Collateral and may apply
all amounts receivable with respect to the Collateral to the payment of the
principal of and interest on the Note as and when such principal and interest
would have become due pursuant to the terms of the Note as if there had not
been a declaration of acceleration of the maturity of the Note.
(c) To facilitate the exercise by GECC of the rights and remedies
set forth in this paragraph, the Company hereby
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<PAGE> 38
constitutes GECC or its agents, or any other person whom GECC may designate, as
attorney-in-fact for the Company (which, being coupled with an interest, shall
be irrevocable), at the Company's own cost and expense, to exercise all or any
of the following powers, which shall continue until all Obligations have been
paid in full and shall be in addition to any other rights and remedies that
GECC may have:
(i) to remove from any premises where the same may be
located, any and all documents, instruments, files and records relating
to the Collateral and any receptacles and cabinets containing the same;
(ii) to use such of the personnel, supplies and space of
the Company at its places of business as may be necessary to properly
administer and control the Collateral or the handling of collections and
realizations thereon; and
(iii) to take or bring, in GECC's name or in the name of
the Company, all steps, actions, suits or proceedings deemed by GECC
necessary or desirable to effect collection of or to realize upon the
Collateral.
12. CROSS-COLLATERAL. It is understood and agreed that all
Collateral which GECC may at any time acquire from the Company or its
Affiliates or from any other source in connection with Obligations of the
Company to GECC shall constitute cross- collateral for each and every
Obligation, without apportionment or designation as to particular Obligations,
and that all Obligations, howsoever and whensoever incurred, shall be secured
by all Collateral, howsoever and whensoever acquired, and that GECC shall have
the right, in its sole discretion, to determine the order in which GECC's
rights or remedies against any Collateral are to be exercised and which type of
Collateral or which portions of Collateral are to be proceeded against and the
order of application of proceeds of Collateral as against particular
Obligations. The Company, without any qualification whatsoever, hereby waives
all rights of marshalling in respect to all Collateral subject hereto.
13. CUMULATIVE REMEDIES. The enumeration of GECC's rights and
remedies set forth in this Agreement is not intended to be exhaustive and the
exercise by GECC of any right or remedy shall not preclude the exercise of any
other rights or remedies, all of which shall be cumulative and shall be in
addition to any other right or remedy given hereunder or under any other
agreement between the parties or which may now or hereafter exist in law or at
equity or by suit or otherwise. No delay on the part of GECC in exercising any
right, power, or privilege shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or privilege preclude other
or further exercise thereof or the exercise of any other right, power
36
<PAGE> 39
or privilege, nor be construed to be a waiver of any Event of Default. No
course of dealing between the Company and GECC or its agents or employees shall
be effective to change, modify or discharge any provision of this Agreement or
to constitute a waiver of any default. GECC shall not, under any circumstances
or in any event whatsoever, have any liability for any error or omission or
delay of any kind occurring in the liquidation of any Collateral including the
settlement, collection or payment of any Receivable or any instrument received
in payment thereof or for any damage resulting therefrom. Any provision of
this 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. Further, no
assignment or attempted assignment by the Company or Patten of any of its
rights under this Agreement or delegation or attempted delegation of its duties
under this Agreement whether express, implied or by operation of law, shall be
effective without GECC's prior written consent.
14. REPRESENTATIONS BY THE COMPANY AND PATTEN. The Company and
Patten, jointly and severally, represent, covenant and warrant to GECC that as
of the date hereof and as of the date of each and every subsequent advance
hereunder:
(a) the Company, Patten and each Affiliate of Patten which
originated one or more of the Receivables pledged to GECC hereunder are,
subject to the provisions of Section 7(k) hereof with respect to Affiliates,
duly organized, validly existing and in good standing under the laws of the
states of their respective incorporation or formation, and are duly qualified
as foreign corporations authorized to do business in every other state where
the nature of their respective businesses requires such qualification;
(b) the Company, Patten and each Affiliate of Patten which
originated one or more of the Receivables pledged to GECC hereunder are duly
licensed to transact business under all applicable laws and have each obtained
all governmental approvals required to be obtained in order to conduct their
respective businesses as now being and hereafter proposed to be conducted and
all such governmental approvals are in full force and effect;
(c) the Company, Patten and each Affiliate of Patten which
originated one or more of the Receivables pledged to GECC hereunder have the
power and authority to own, and own good and marketable title to, all
properties and assets, whether real or personal, shown on the latest balance
sheets of the Company, Patten and such Affiliates furnished to GECC
37
<PAGE> 40
under the terms of this Agreement, subject to no mortgage, pledge, lien,
encumbrance or security interest except as are shown on said balance sheets and
except for current taxes not yet due, and since the date of the most recent
audited balance sheets there has been no material adverse change in the
condition, financial or otherwise, of the Company, Patten or such Affiliates,
from that shown on said balance sheets;
(d) the Company, Patten and each Affiliate of Patten which
originated one or more of the Receivables pledged to GECC hereunder have no
liabilities or obligations of any nature, whether absolute, accrued, contingent
or otherwise, due or to become due, except for the Loan, operating expenses
incurred in the ordinary course of business since the date of the most recent
financial statements delivered to GECC, and except as shown on the most recent
financial statements delivered to GECC. The Company, Patten and its Affiliates
have no liability for federal income or excess profit taxes other than as shown
on the most recent financial statements delivered to GECC except for taxes
relating to operations since the date of said financial statements. All tax
returns required by law to be filed by the Company and its Affiliates and all
taxes which are due and payable by the Company and its Affiliates have been
paid or contested in good faith and in accordance with all requirements imposed
by the taxing authority in connection with the contest thereof, and the Company
has no reason to anticipate any additional taxes or assessments, and no federal
tax deficiency assessment has been made or proposed against the Company or any
of its Affiliates and there is no pending claim of deficiency or recommendation
of the assessment of any deficiency against the Company or any of its
Affiliates;
(e) the execution and delivery of this Agreement and the full
performance thereof by the Company and Patten and the granting of security to
GECC as contemplated hereunder do not and will not violate any provisions of
the Company's Certificate of Incorporation or By-laws or Patten's Articles of
Organization or By-laws;
(f) the Receivables, when pledged to GECC, will constitute Eligible
Receivables;
(g) the portfolio maintenance requirements contained in Section 8
hereof have been satisfied;
(h) all Collateral, including Receivables subjected to the security
interest in favor of GECC pursuant to this Agreement, will be owned by the
Company free and clear of all liens, encumbrances, claims, and warranties in
favor of others when assigned to GECC;
(i) each of the Company, Patten and each Affiliate of Patten which
originated one or more of the Receivables
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<PAGE> 41
pledged to GECC hereunder has taken all necessary action to authorize it to
execute, deliver and perform in accordance with their respective terms each of
the Loan Documents and the transactions contemplated thereby. Each of the Loan
Documents to which the Company, Patten and each Affiliate of Patten which
originated one or more of the Receivables pledged to GECC hereunder is a party
has been duly executed and delivered by the Company, Patten and each Affiliate
of Patten which originated one or more of the Receivables pledged to GECC
hereunder, as the case may be, and is a legal, valid and binding obligation of
the Company, Patten and each Affiliate of Patten which originated one or more
of the Receivables pledged to GECC hereunder, respectively. The execution,
delivery and performance of each of the Loan Documents in accordance with their
respective terms and each advance of the Loan hereunder do not and will not (a)
require (i) any governmental approval or (ii) any consent or approval of the
stockholders of the Company or any third party, (b) violate or conflict with,
result in a breach of, or constitute a default under, (i) any contract to which
the Company or any of its Affiliates is a party or by which the Company or any
of its Affiliates or any of their respective properties may be bound, or (ii)
any applicable law, or (c) result in or require the creation of any lien upon
any assets of any of the Company or its Affiliates;
(j) there is no action, suit, proceeding, governmental investigation
or arbitration (whether or not by its terms purportedly on behalf of any of the
Company or its Affiliates) at law or in equity or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency, or instrumentality, domestic or foreign, pending, or to the knowledge
of any of such Persons probable of assertion, against the Company or any of its
Affiliates, or any violation of any applicable law, any of which individually
or in the aggregate could reasonably be expected to (i) result in any material
adverse change in the business, operations, properties, assets or condition
(financial or otherwise) of the Company individually, Patten and its Affiliates
taken as a whole, a Development or the Collateral, (ii) have a materially
adverse effect on the ability of the Company or Patten to perform their
respective obligations under the Loan Documents, or (iii) have a materially
adverse effect on the ability of the Company to perform its Obligations to GECC
or GECC's ability to enforce such Obligations, and (b) there is no material
loss contingency applicable to the Company, Patten or any Affiliate of Patten
which originated one or more Receivables pledged to GECC hereunder of a type
requiring disclosure to auditors under accounting standards promulgated by the
Financial Accounting Standards Board which has not been reflected in the
financial statements of the Company, Patten or such Affiliates delivered to
GECC. There is no action, suit, proceeding, or investigation pending, or, to
the knowledge of the Company or Patten, threatened, against or affecting
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<PAGE> 42
the Company or any of its Affiliates challenging the validity or the
enforceability of any of the Loan Documents or the Collateral;
(k) in each case after giving effect to the request for any pending
advance of the Loan and the application of the amount thereof to the Company,
the fair saleable value (as defined in the Uniform Fraudulent Conveyances Act)
of the assets and properties of the Company, Patten and each Affiliate of
Patten which originated one or more of the Receivables pledged to GECC
hereunder is greater than their respective total debt (as defined in the
Uniform Fraudulent Conveyances Act) and each of the Company, Patten and each
Affiliate of Patten which originated one or more of the Receivables pledged to
GECC hereunder does not have unreasonably small capital to engage in its
business on an ongoing basis and will have the ability to pay its debt (as
defined in the Uniform Fraudulent Conveyances Act) as it matures;
(l) the assignments of the Receivables pledged to GECC hereunder
from Affiliates of Patten to Patten, from Patten to the Company and from
Affiliates of Patten to the Company have each been made for reasonably
equivalent value and fair consideration;
(m) no representation or warranty of the Company or Patten contained
in this Agreement, the other Loan Documents or any other document, certificate
or other written statement furnished to GECC for use in connection with any
transactions contemplated by this Agreement contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances under which they were made, not misleading. Neither the
Company nor Patten has intentionally withheld any fact known to it (other than
matters of a general economic nature) which may have a materially adverse
effect on the business, operations, assets or condition (financial or
otherwise) of the Company, its Affiliates, any Development or the Pledged
Receivables, which has not been disclosed herein or in such other documents,
certificates and statements furnished to GECC on or before the date hereof for
use in connection with the transactions contemplated hereby;
(n) this Agreement creates a valid first security interest and first
lien upon the Collateral covered hereby, enforceable against the Company and
all third parties and securing the payment of all Obligations purported to be
secured thereby. Upon the making of an advance hereunder, delivery of the
Collateral to GECC, the filing of the UCC-1 financing statements in Florida,
and, with respect to the Mortgages only, the recordation in the appropriate
land records of the assignments of the Mortgages as provided in Section 18
hereof, such security interest will be a
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<PAGE> 43
perfected security interest subject to no prior security interests, claims,
liens or encumbrances, and no further action is or will be required to maintain
the perfection and priority of such security interest except for the filing of
UCC continuation statements within six (6) months prior to the expiration of
each five-year period after the date of filing of the financing statements
referenced above;
(o) no Termination Event has occurred, is planned or is reasonably
expected to occur with respect to any Plan which Termination Event could result
in a material liability of the Company or its Affiliates. No condition or
event currently exists or currently is expected to occur that could result in
any such Termination Event that could result in a material obligation of the
Company or its Affiliates. If any such Plan were to be terminated as of the
last date of the most recent plan year completed, neither the Company nor its
Affiliates would incur any liability material to the Company or its Affiliates.
No Plan which is subject to Section 302 of ERISA or Section 412 of the Internal
Revenue Code has incurred any "accumulated funding deficiency" (as defined in
such Sections), whether or not waived, except that, in the case of any Plan
maintained by an ERISA Affiliate of the Company that is not a subsidiary or
Affiliate of the Company, no such Plan has incurred such an "accumulated
funding deficiency" that could result in a liability material to the Company or
its Affiliates;
(p) neither the Company nor any ERISA Affiliate has incurred, or is
reasonably expected to incur, any Withdrawal Liability to any Multiemployer
Plan that could result in a material liability of the Company or its
Affiliates;
(q) neither the Company nor any Affiliate nor any employee benefit
plan maintained by any such person provides benefits, including, without
limitation, death or medical benefits (whether or not insured) with respect to
current or former employees of the Company or its Affiliates or beyond their
retirement or other termination of service except (i) coverage mandated by
statute, (ii) death benefits under any Plan or Multiemployer Plan, (iii)
retirement benefits under any Plan or Multiemployer Plan or (iv) deferred
compensation benefits accrued as liabilities on the books of the Company or its
Affiliates;
(r) neither the Company nor any ERISA Affiliate nor any subsidiary
or Affiliate of the Company nor any Plan nor, to the best of the Company's
knowledge, any Multiemployer Plan has engaged in any transaction that could,
directly or indirectly, result in any material liability of the Company or its
Affiliates pursuant to Section 409, 502(i) or 4069 of ERISA or Chapter 43 of
Subtitle D of the Internal Revenue Code or pursuant to any statute or agreement
pursuant to which the Company or its Affiliates has agreed to indemnify or is
required to indemnify any person against liability
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incurred under, or for a violation or failure to satisfy the requirements of,
any such statute;
(s) the consummation of the transactions contemplated in this
Agreement will not to the best of the Company's and Patten's knowledge result
in any prohibited transaction described in Section 406 of ERISA or Section 4975
of the Internal Revenue Code for which an exemption is not available;
(t) neither the Company nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated, within the meaning of Title IV of ERISA, and, to the best of the
Company's knowledge, no Multiemployer Plan is reasonably expected to be in
reorganization or to be terminated within the meaning of Title IV of ERISA;
(u) true and complete copies of the Consent Decrees have been
delivered to GECC; the Consent Decrees have been executed by all required
parties and approved by the applicable court; the Consent Decrees constitute
the final settlement of all claims made against Patten and its Affiliates by
the plaintiffs therein, subject to the performance by Patten and its Affiliates
of their continuing obligations under the Consent Decrees; Patten and its
Affiliates have complied with all of their obligations under the Consent
Decrees as of the date of this Agreement and will be in compliance with all
such obligations as of the date of any advance hereunder; and no other state or
political jurisdiction has commenced or threatened any action, investigation or
similar proceeding against Patten or any Affiliate thereof based upon alleged
fraudulent, deceptive or illegal practices in the selling or marketing of real
estate in such state or jurisdiction, and
(v) the Company does not presently, and will not during the term of
this Agreement, engage in any business not necessary for or incidental to the
pledge of Receivables to GECC and the performance of its obligations to GECC in
connection with the Loan.
15. ADDITIONAL DEVELOPMENTS. Upon request of the Company, GECC
agrees from time-to-time to review additional parcels of land which the Company
may acquire for the purpose of determining whether each such additional parcel
of land is acceptable to GECC as a Development. In connection with each such
request, the Company shall deliver to GECC the following information concerning
such parcel, all of which must be acceptable to GECC in form, content and
substance:
(a) favorable opinions of legal counsel for the Company in the form
required by Section 2(c)(xi) hereof;
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<PAGE> 45
(b) a current plat or survey map of such parcel of land including,
if applicable, recorded subdivision plats approved by all necessary
governmental entities;
(c) a soils report for such parcel of land;
(d) a lien search of the appropriate UCC records;
(e) an environmental assessment for such parcel of land; and
(f) such other information as GECC may request.
If GECC in its sole and absolute discretion determines that any such additional
parcel of land is acceptable, GECC shall so notify the Company and from and
after the date of such notice, such parcel of land shall be deemed to be a
Development and Receivables generated from the sale of Lots at such additional
parcel of land may, if such Receivables otherwise qualify as Eligible
Receivables and subject to all other terms and conditions hereof, be pledged to
GECC as Collateral for the Loan or for additional advances hereunder. Without
limiting the generality of the foregoing provisions of this Section 15, GECC's
approval of any Development shall be subject to, among other things, completion
and approval by all appropriate governmental authorities of all common area
improvements promised by Patten or any Affiliate thereof in connection with the
sale of Lots in the Development, and approval of all improvements in the
Development by GECC's engineer.
16. PERSONAL LIABILITY. The Company and its officers, directors and
shareholders shall not be personally liable for the repayment of any of the
principal of or interest on the Note, for any deficiency judgment relating
thereto, or for any other amount due hereunder or under the Note; except that
the Company and Patten shall be personally liable in the event and to the
extent of any loss or damage incurred by GECC arising out of (a) the Company's
and Patten's failure to pay down the Loan or pledge to GECC a substitute or
additional Eligible Receivable for any Pledged Receivable which is no longer an
Eligible Receivable, as required by Section 8 of this Agreement and (b) the
Company's failure to pay for any loss, liability, damage, cost or expense
(including reasonable attorneys' fees) incurred by GECC as described in Section
17 of this Agreement and (c) the Company's failure to pay for any loss,
liability, damage, cost or expense incurred by GECC as described in Section
25(b) hereof.
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<PAGE> 46
17. HAZARDOUS WASTES.
(a) Representations and Warranties.
(i) Each of Patten and the Company represents and
warrants that (A) it has no knowledge of any discharge, spillage, uncontrolled
loss, seepage or filtration (a "Spill") of oil, petroleum or chemical liquids
or solids, liquid or gaseous products or any hazardous waste or hazardous
substance, as those terms are used in the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980 or in any other federal, state or local
law governing hazardous substances, as such laws may be amended from time to
time (collectively, the "Hazardous Waste Laws"), at, upon, under or within any
Development or any contiguous real estate, and (B) it has not caused or
permitted to occur, and, to the extent it has the ability to do so, shall not
permit to exist, any condition upon, under or within any Development which may
cause a Spill at, upon, under or within any Mortgaged Property.
(ii) Each of Patten and the Company further
represents and warrants that (A) neither it, nor any of its Affiliates has
been, is or will be involved in operations at or near any Development, which
operations could lead to (1) the imposition of liability on the Company, Patten
or their Affiliates, or on any subsequent or former owner of all or any part of
a Development, or (2) the creation of a lien on all or any part of a
Development under the Hazardous Waste Laws or under any similar laws or
regulations; and (B) each of the Company, Patten and their Affiliates has not
permitted, and will not permit, any tenant or occupant of all or any portion of
a Development to engage in any activity that could impose liability under the
Hazardous Waste Laws on such tenant or occupant, on the Company, Patten or
their Affiliates or on any other owner of all or any part of any Development.
(b) Covenants.
(i) The Company, Patten and their Affiliates shall
comply strictly and in all respects with the requirements of the Hazardous
Waste Laws and related regulations and with all similar laws and regulations
and the Company or Patten shall notify GECC immediately in the event of any
Spill or the discovery of any hazardous substance at, upon, under or within any
Development. The Company or Patten shall promptly forward to GECC copies of
all orders, notices, permits, applications or other communications and reports
in connection with any Spill or the presence of any hazardous substance or any
other matters relating to the Hazardous Waste Laws or any similar laws or
regulations, as they may affect any Development.
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<PAGE> 47
(ii) Promptly upon the written request of GECC from
time to time, the Company or Patten shall provide or cause to be provided to
GECC, at the Company's expense, with an environmental site assessment or
environmental audit report prepared by an environmental engineering firm
acceptable to GECC to assess with a reasonable degree of certainty the presence
or absence of any hazardous substance and the potential costs in connection
with abatement, cleanup or removal of any hazardous substance found on, under,
at or within any Development. If the Company decides not to or fails to
provide GECC with any such environmental site assessments or audit reports for
any Development, Receivables generated from the sale of Lots at such
Development shall not be Eligible Receivables.
(C) Indemnity.
(i) The Company and Patten, jointly and severally,
shall at all times indemnify and hold harmless GECC against and from any and
all claims, suits, actions, debts, damages, costs, losses, obligations,
judgments, charges, and expenses, of any nature whatsoever suffered or incurred
by GECC, under or on account of the Hazardous Waste Laws or any similar laws or
regulations, including the assertion of any lien thereunder, (A) with respect
to any Spill, the threat of any Spill, or the presence of any hazardous
substance affecting any Development including any loss of value of such
Development as a result of any of the foregoing; and (B) with respect to any
other matter affecting any Development within the jurisdiction of the
Environmental Protection Agency, any other federal agency, or any state or
local environmental agency. The Company's and Patten's obligations under this
Section shall arise upon the discovery of the presence of any hazardous
substance under the Hazardous Waste Laws, whether or not the Environmental
Protection Agency, any other federal agency or any state or local environmental
agency has taken or threatened any action in connection with the presence of
any hazardous substance.
(ii) In the event of any Spill, the threat of any
Spill, or the presence of any hazardous substance affecting any Development,
whether or not the same originates or emanates from such Development or any
contiguous real estate, and/or if the Company shall fail to comply with any of
the requirements of the Hazardous Waste Laws or related regulations or any
other environmental law or regulation, GECC may at its election, but without
the obligation so to do, give such notices and/or cause such work to be
performed at such Development and/or take any and all other actions as GECC
shall deem necessary or advisable in order to abate the Spill, remove the
hazardous substance or cure the Company's noncompliance.
(iii) The Company and Patten acknowledge that GECC
has agreed to make the Loan in reliance upon the
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<PAGE> 48
Company's and Patten's representations, warranties and covenants in this
Section. For this reason, it is the intention of the Company, Patten and GECC
that the provisions of this Section shall supersede any provisions in the Note
or this Agreement which in any way limit the personal liability of the Company
or Patten and that the Company and Patten shall be personally liable for any
obligations arising under this Section even if the amount of liability incurred
exceeds the amount of the Loan. All of the representations, warranties,
covenants and indemnities of this Section shall survive the repayment of the
Note and shall survive the transfer of any or all right, title and interest in
and to each Development or any part thereof by Company to any party, whether or
not affiliated with Company.
18. RECORDING OF MORTGAGE ASSIGNMENTS.
(a) Not later than thirty (30) days after the date of any advance
hereunder, GECC shall cause the assignments of the Mortgages to be duly
delivered to one or more title insurance companies designated by the Company
(collectively, the "Title Company") for recordation in the public records in
which the related Mortgage shall have been recorded. The Title Company shall
promptly record the assignments and shall (i) deliver to GECC the recorded
assignments (or other evidence reasonably satisfactory to GECC of the due
delivery for recordation of such assignments) and (ii) deliver to the Company
the recording information relating to the assignments. The Company shall use
its best efforts to cause the Title Company to record all of the assignments
which are required to be recorded as provided above as rapidly as may be
accomplished. If the Title Company fails to comply with its obligations under
this Section 18(a) within one hundred twenty (120) days of its receipt of any
assignment of a Mortgage, the Receivable to which such Mortgage relates shall
no longer be an Eligible Receivable.
(b) Until the Company shall have caused the Title Company to fully
comply with this Section 18, GECC will not be obligated to make any further
advances of the Loan.
19. FINDERS OR BROKERS. Neither the Company nor any of its
Affiliates has dealt with any finder or broker in connection with the
transactions contemplated by this Agreement in a manner which would cause such
finder or broker to have any valid claim against GECC for any fee, commission
or other compensation, and the Company will indemnify GECC against and hold
GECC harmless from any such claim or any loss, damage or expense resulting from
such a claim.
20. ACCEPTANCE BY GECC. This Agreement shall become effective only
upon the written execution hereof by all parties hereto. When so executed,
this Agreement shall supersede all previous verbal or written agreements,
46
<PAGE> 49
commitments or understandings relating to the transaction contemplated by this
Agreement, and shall be binding on and inure to the benefit of the respective
successors and permitted assigns of the Company and of GECC and shall continue
in full force and effect and unchanged except by agreement in writing between
the Company and GECC. No assignment of this Agreement may be made by the
Company without GECC's written consent.
21. PUBLIC NOTICE. GECC shall have the right to issue press
releases, advertisements, and other promotional materials describing in general
terms its participation in the transaction contemplated by this Agreement. The
Company shall not have any such right with respect to its or GECC's
participation without GECC's express prior written consent except where
required for public reporting purposes.
22. THE NOTE. The indebtedness secured by this Agreement is further
evidenced by the Note, the terms and provisions of which are incorporated
herein by reference the same as if copied in full.
23. NOTICES. All notices, requests, demands and other
communications under or in connection with this Agreement shall be in writing
and shall be deemed to have been given when the same are received if delivered
by hand or when the same are deposited in the United States Mail postage
prepaid, registered or certified with return receipt requested, addressed as
follows:
To the Company: Patten Receivables Finance
Corporation III
5295 Town Center Road
Suite 400
Boca Raton, Florida 33486
Attn: Patrick E. Rondeau, Esq.
with a copy to: Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attn: William P. Gelnaw, Esq.
To Patten: Patten Corporation
5295 Town Center Road
Suite 400
Boca Raton, Florida 33486
Attn: Patrick E. Rondeau, Esq.
with a copy to: Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attn: William P. Gelnaw, Esq.
47
<PAGE> 50
To GECC: General Electric Capital
Corporation
3379 Peachtree Road, N.E.
Suite 300
Atlanta, Georgia 30326
Attn: Senior Investment Manager
with a copy to: Frank H. Henneburg, Esq.
Akin, Gump, Strauss, Hauer & Feld
1333 New Hampshire Avenue, N.W.
Washington, D.C. 20036
24. PARTIAL RELEASES. GECC agrees to release particular Pledged
Receivables from the Collateral promptly upon payment in full (whether by
regular payment or prepayment) of the indebtedness evidenced by such Pledged
Receivable and the application of such payment to the Loan. In addition,
(provided there exists no Event of Default or condition which upon the
furnishing of notice and/or the passage of time could constitute an Event of
Default) from time to time upon request of Company, GECC agrees to release
particular Pledged Receivables from the Collateral upon payment to GECC of the
release price set forth below and subject to the following terms and
conditions:
(a) GECC will release particular Pledged Receivables upon written
certification by the Company to GECC that the Company desires to (i) terminate
the contract for deed or foreclose on the mortgage or other lien securing such
Pledged Receivable, or (ii) allow the Obligor under such Pledged Receivable to
effect an exchange of property covered by such Pledged Receivable.
(b) The release price with respect to each Eligible Receivable shall
be an amount equal to the then outstanding principal balance of such Eligible
Receivable. The Release price shall be applied on the Note in accordance with
the terms hereof.
(c) The obligation of GECC to furnish partial releases pursuant to
the terms hereof is subject to the further condition that the amount of the
Obligations, after taking into account any such release, shall not without
GECC's prior written consent exceed the loan-to-collateral ratio specified in
Section 8(b)(iii) above after taking into account such release. If GECC
becomes obligated to give a partial release hereunder, GECC shall promptly
deliver to the Company (i) an executed, recordable release of the assignment of
lien with respect to the applicable Lot; (ii) a UCC-3 (termination statement),
if necessary, with respect to the applicable Pledged Receivable, and (iii) the
original Mortgage Documents, if such documents are then in GECC's possession.
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<PAGE> 51
25. MISCELLANEOUS. The Company and GECC agree in general as follows:
(a) Management contracts, if any, for each Development and/or for
all recreational facilities, if any, at all Developments held by Company or any
Affiliate of Company shall at all times be satisfactory to GECC, shall be
assigned to GECC as additional collateral for the Loan and shall provide that
they may be cancelled by GECC at its option upon the occurrence of an Event of
Default.
(b) The Company and Patten shall, and shall cause their Affiliates
to, comply with all applicable federal, state and local truth-in-lending and
land sale laws, rules and regulations in a manner reasonably satisfactory to
GECC. The Company and Patten, jointly and severally, shall defend, indemnify
and hold GECC harmless from and against any and all claims, suits, actions,
debts, damages, costs, losses, obligations, judgments charges and expenses
suffered or incurred by GECC under or on account of any violation or asserted
violation by the Company, Patten or any Affiliate of Patten of federal, state
or local truth-in-lending or land sale laws, rules or regulations. The
provisions of this Section 25(b) shall supersede any provisions in the Note or
this Agreement which in any way limit the liability of the Company or Patten
and the Company and Patten shall be personally liable for any obligations
arising under this Section.
(c) This Agreement shall be governed and construed in accordance
with the laws of the Commonwealth of Massachusetts without regard to its
conflicts of law principles.
(d) All advances by GECC to or for the account of the Company under
this Agreement and the Note shall constitute one loan and all indebtedness and
obligations of the Company to GECC under this Agreement and the Note shall
constitute one general obligation secured by GECC's security interest in all
the Collateral and by all other liens now or hereafter granted by the Company
to GECC. The Company agrees that all the rights of GECC set forth in this
Agreement shall apply to any modification of or supplement to this Agreement
and the Note.
(e) This Agreement constitutes the entire agreement between the
parties relative to the subject matter hereof, there being no additional
representation or agreement with respect to the subject matter hereof not
expressly set forth herein.
(f) Reference is made to the exhibits which are attached hereto and
made a part hereof for all purposes. Any exhibits not attached to this
Agreement upon the execution hereof must be approved by all parties and
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<PAGE> 52
attached hereto no later than the date of the Initial Advance.
(g) Headings are included for reference only and not for the purpose
of interpretation of this Agreement.
(h) In the event of a conflict between the provisions hereof and the
provisions of the Note, the provisions of the Note shall prevail.
(i) Any provision of this Agreement that is prohibited or
unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the enforceability of such remaining provisions.
IN WITNESS WHEREOF, The Company, Patten and GECC have caused this
Agreement to be executed by their respective officers duly authorized thereto.
PATTEN RECEIVABLES FINANCE
CORPORATION III,
ATTEST: a Delaware corporation
By: /s/ William P. Gelnaw, Jr. By: /s/ Alan L. Murray
-------------------------- ------------------
Name: Name: Alan L. Murray
Title: Title: Treasurer
[SEAL]
PATTEN CORPORATION, a
Massachusetts corporation
ATTEST:
By: /s/ William P. Gelnaw, Jr. By: /s/ Alan L. Murray
-------------------------- ------------------
Name: Name: Alan L. Muray
Title: Title: Treasurer & CFO
[SEAL]
Accepted as of June 11, 1993.
50
<PAGE> 53
GENERAL ELECTRIC CAPITAL
CORPORATION, a New York
corporation
By: /s/ Geraldine P. Regan
---------------------
Name: Geraldine P. Regan
Title: Investment Manager
State of Mass. )
) ss:
County of Suffolk )
On this 11th day of June, 1993, before me, Oliver F. Ames, Jr., a notary
public in the jurisdiction aforesaid, personally appeared Alan L. Murray, who
acknowledged himself to be the Treasurer of Patten Receivables Finance
Corporation III, a Delaware corporation, and that he, as such Treasurer, being
authorized so to do, executed the foregoing Loan and Security Agreement for the
purposes therein contained, by signing the name of the corporation by himself as
Treasurer.
In witness whereof, I hereunto set my hand and official.
/s/ Oliver F. Ames, Jr.
-----------------------
Notary Public
[SEAL]
My Commission Expires: 6/19/98
51
<PAGE> 54
State of Mass. )
) ss:
County of Suffolk )
On this 11th day of June, 1993, before me, Oliver F. Ames, Jr., a
notary public in the jurisdiction aforesaid, personally appeared Alan L.
Murray, who acknowledged himself to be the Treasurer & CFO of Patten
Corporation, a Massachusetts corporation, and that he, as such Treasurer & CFO,
being authorized so to do, executed the foregoing Loan and Security Agreement
for the purposes therein contained, by signing the name of the corporation by
himself as Treasurer & CFO.
In witness whereof, I hereunto set my hand and official.
/s/ Oliver F. Ames, Jr.
-----------------------
Notary Public
[SEAL]
My Commission Expires: 6/19/98
State of Mass. )
) ss:
County of Suffolk )
On this 11th day of June, 1993, before me, Oliver F. Ames, Jr., a
notary public in the jurisdiction aforesaid, personally appeared Geraldine P.
Regan, who acknowledged himself to be the Investment Manager of General
Electric Capital Corporation, a New York corporation, and that he, as such
Investment Manager, being authorized so to do, executed the foregoing Loan and
Security Agreement for the purposes therein contained, by signing the name of
the corporation by himself as Investment Manager.
In witness whereof, I hereunto set my hand and official.
/s/ Oliver F. Ames, Jr.
-----------------------
Notary Public
[SEAL]
My Commission Expires: 6/19/98
52
<PAGE> 1
EXHIBIT 10.88
AMENDMENT NO. 6 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
BY THIS AMENDMENT NO. 6 TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("Amendment No. 6") dated as of May 12, 1993, PATTEN RECEIVABLES
FINANCE CORPORATION VI, a Delaware corporation ("Borrower"), and GREYHOUND
FINANCIAL CORPORATION, a Delaware corporation ("Lender"), for good and valuable
consideration, the receipt of which is hereby acknowledged, hereby confirm and
agree as follows:
ARTICLE 1 - INTRODUCTION
1.1 Greyhound Real Estate Finance Company, an Arizona corporation
("GREFCO") and Borrower entered into an Amended and Restated Loan and Security
Agreement dated as of January 9, 1990, as amended by a June 13, 1990 letter
amendment, a July 18, 1990 letter amendment, an August 31, 1990 Amendment No. 1
to the Amended and Restated Loan and Security Agreement, a March 23, 1991
Amendment No. 2 to the Amended and Restated Loan and Security Agreement,
November 21, 1991 Amendment No. 3 to the Amended and Restated Loan and Security
Agreement, a January 30, 1992 Amendment No. 4 to the Amended and Restated Loan
and Security Agreement, and an October , 1992 Amendment No. 5 to the Amended
and Restated Loan and Security Agreement (collectively, the "Agreement").
1.2 Lender has succeeded to the interest of GREFCO under the Agreement
and all agreements evidencing, securing or otherwise pertaining to the Loan.
1.3 Borrower and Lender wish to amend the Agreement, among other ways,
to increase the maximum principal amount of the Loan to $20,000,000 and to
extend the Borrowing Term, all as more fully provided below.
ARTICLE 2 - AGREEMENT
2.1 Except as otherwise defined herein or unless the context otherwise
requires, capitalized terms used in this Amendment No. 6 shall have the meaning
given to them in the Agreement.
2.2 The Agreement is hereby amended as follows:
(a) Paragraph 1.7 is deleted in its entirety and the following
is substituted in its place:
"1.7 "Borrowing Term": the period of time commencing on the date of
this Agreement and ending on the close of Lender's business day (or,
if such is not a normal business day of Lender, on the next business
day of
1
<PAGE> 2
Lender) on the earlier of (a) the date which is twelve (12)
months after the date of the first Advance of the Loan after May 12,
1993 or (b) June 23, 1994."
(b) The following is added at the end of paragraph 1.10:
"; or (c) the maker under the Eligible Instrument is more than 180
days past due in the payment-of any property owners association dues
related to the Parcel securing such Eligible Instrument.
Notwithstanding the amendments to the Agreement made by Amendment No.
6 to Amended and Restated Loan and Security Agreement ("Amendment No.
6") including, without limitation, all amendments to EXHIBIT 1 and the
revised definition of Project, all Eligible Instruments existing on
the date of Amendment No. 6 shall continue to be Eligible Instruments
unless (a) one installment on such Eligible Instrument becomes more
than 89 days past due; or (b) such Eligible Instrument fails to meet
the requirements of EXHIBIT 1 as it existed prior to execution of
Amendment No. 6."
(c) The following is added as a new paragraph 1.15A immediately
after paragraph 1.15:
"1.15A "Lender": shall mean Greyhound Real Estate Finance Company, an
Arizona corporation, for the period of time prior to which Greyhound
Financial Corporation, a Delaware corporation, succeeded to the
interest of Greyhound Real Estate Finance Company, and Greyhound
Financial Corporation, from and after such period; and the successors
and assigns of Greyhound Financial Corporation."
(d) Paragraph 1.19 is deleted in its entirety and the following
is substituted in its place:
"1.19 "Maximum Loan Amount": Twenty Million Dollars (S20,000,000.00)."
(e) Paragraph 1.21 is deleted in its entirety and the following
is substituted in its place:
"1.21 "Note": the "Amended and Restated Promissory Note" to be made
and delivered by Borrower to Lender dated May 12, 1993, as from time
to time modified, renewed, extended, replaced or stated."
(f) Paragraph 1.30 is deleted in its entirety and the following
is substituted in its place:
"1.30 "Project": a lot or parcel of land located in the following
vacation communities: (a) Eagle Creek, located in Wilson County,
Texas; (b) The Springs at Rebecca Creek,
2
<PAGE> 3
located in Comal County, Texas; (c) Sendera Lakes, located in
Montgomery County, Texas; (d) Cedar Hills, located in Jefferson
County, Montana; (e) Holiday Shores at Lake Sinclair, located in
Hancock County, Georgia; (f) North Carolina Lakes, located in Sharp's
Chappel, North Carolina; (g) North Carolina Trace, located in Sanford,
North Carolina; (h) Mallard Bay, located in Northumberland County,
Virginia; (i) Norris Shores, located in Sanford, Tennessee; (j) Valley
View Ranch, located in Hays County, Texas; (k) Summer Mountain Ranch,
located in Hays County, Texas; and (l) such other vacation communities
which satisfy the conditions set forth in Exhibit 3 to Amendment No. 6
to Amended and Restated Loan and Security Agreement, which Exhibit 3
is incorporated herein by this reference."
(g) The following is added as a new sentence after the first
sentence of paragraph 3.2:
"Solely for the purpose of replacing an ineligible Instrument pursuant
to the terms of this paragraph, Lender will accept a promissory note
which satisfies all requirements for an Eligible Instrument other than
the requirement that it arise out of the sale of a Parcel if such note
arose out of the sale of a lot or parcel of land from any vacation
community ever approved as a Project under this Agreement even though
such community is not currently a Project."
(h) The first line of paragraph 4.1(a), which states
"Notwithstanding paragraphs (j) and (k) of this section," is deleted.
(i) The following is added to the second line of paragraph 4.1(c)
(vi) after "6.9":
"and/or paragraph 9.7".
(j) Paragraph 4.1(j) is deleted in its entirety and the
following is substituted in its place:
"(j) Lender shall have no obligation to make an Advance until borrower
has delivered to Lender a true copy of each of the original Purchaser
Mortgages securing the requested Advance, certified by the public
recording office, or a photocopy of the Purchaser Mortgages with a
file stamp evidencing the recordation thereof."
(k) Paragraph 4.1(k) is deleted in its entirety and the
following is substituted in its place:
"(k) Lender shall have no obligation to make an Advance until Borrower
has delivered to Lender absolute Assignments, in form and substance
satisfactory to Lender, assigning to Lender with
3
<PAGE> 4
recourse, Borrower's entire right, title and interest under each of
the Purchaser Mortgages securing such Advance, which have been duly
recorded in the public records in which the related Purchaser Mortgage
shall have been recorded (or certified copies thereof or copies
thereof that have been stamped filed by the appropriate public
recording official)."
(l) The following is added at the end of paragraph 6.11(f):
"Additionally, once each calendar quarter Borrower shall deliver to
Lender information on the delinquency of payments of owner's
association assessments for each Purchaser under the Purchaser
Mortgages included in the Receivables Collateral."
(m) Paragraph 7.1(e) is deleted in its entirety.
(n) Paragraph 9.2 is deleted in its entirety and the following
is substituted in its place:
"9.2 Tangible Net Worth. Patten shall maintain a tangible net worth
(i.e., exclusive of good will) of at least $42,000,000, and the
failure to maintain such stated net worth shall, at the option of
Lender, be an Event of Default under this Agreement and the Documents.
As used in this paragraph, the term "tangible net worth" means net
worth less good will, all in accordance with generally accepted
accounting principles."
(o) Paragraph 9.3 is deleted in its entirety and the following
is substituted in its place:
"9.3 Limit on Expenses. Patten shall not permit its selling, general
and administrative expenses to exceed fifty percent (50%) of gross
sales revenue generated from the sale of real estate, calculated at
the end of each calendar quarter on a 12-month rolling basis. As used
in this paragraph, selling, general and administrative expenses shall
mean selling, general and administrative expenses properly allocable
to real estate calculated in accordance with generally accepted
accounting principles, as previously reflected in the financial
statements of Patten provided to Lender.
(p) Paragraph 9.4 is deleted in its entirety.
(q) Paragraph 9.7 is deleted in its entirety and the following
is substituted in its place:
"9.7 Title Insurance. Borrower shall provide, at Borrower's sole cost
and expense, a Title Insurance Policy for each
4
<PAGE> 5
Purchaser Mortgage, which Title Insurance Policy must (i) include a
title search through the date of the assignment to Lender of the
Receivables Collateral evidencing that the Purchaser Mortgage is in a
first lien position, (ii) be issued by title insurers acceptable to
Lender, in Lender's sole and absolute discretion, and (iii) be
acceptable, in form and substance, to Lender."
(r) The following is added to the Agreement as a new paragraph
9.10:
"9.10 Oversight Services. Guarantor is currently acting as Servicing
Agent pursuant to a Servicing Agreement dated as of November 15, 1988.
Simultaneously with the execution of this Agreement, Borrower and
Guarantor will enter into an agreement with Lender and GFC Portfolio
Services, Inc. ("GPSI") in the form of EXHIBIT 4 to Amendment No. 6,
which shall provide for oversight and other services to be performed
by GPSI, at Borrower's expense, with respect to the Receivables
Collateral and the obligations of Guarantor under the Servicing
Agreement.
(s) The following is added to the Agreement as a new paragraph
9.11:
"9.11 Subordination. Borrower will cause any and all indebtedness
owing by it to its shareholders, directors, officers, Guarantor, or
the relatives and affiliates of Borrower or the foregoing, to be
subordinated in all aspects to the Obligations."
(t) Borrower's address as set forth in paragraph 1.5, 6.7, on
the signature page, and Guarantor's address on the signature page and all other
references in the Loan Agreement or the Documents, is amended to be:
"5295 Town Center Road
Suite 400
Boca Raton, Florida 33486."
All references to "646 Main Road, Stamford, Vermont 05352" are deleted, and
replaced with the address set forth above.
(u) The first sentence of the second paragraph of Schedule A
to the Agreement is deleted in its entirety and the following is substituted in
its place: "Year 1 shall be the period of time commencing on the date of the
execution of the Agreement and ending twelve months after the date of the last
Advance under the Agreement (as the Agreement may be amended, restated or
extended)." The following sentence is added at the end of Schedule
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<PAGE> 6
A: "No prepayment premium shall be payable in connection with any payments
required pursuant to paragraph 3.2 of the Agreement."
(v) Paragraphs (c) and (d) of Exhibit 1 to the Agreement are
deleted in their entirety and the following are substituted in their place:
"(c) Patten or an Operating Subsidiary has received from the Purchaser
a minimum cash down payment of 10% of the total sales price, or if the
sales price is in excess of $28,000, a minimum cash down payment of 20%
of the total sales price, no part of which has been advanced or loaned
to such Purchaser by Borrower, Patten or an Operating Subsidiary,
either directly or indirectly.
(d) The Instruments must provide for consecutive monthly (or bi-weekly)
installments of principal and interest in U.S. funds over a term not
exceeding one hundred eighty (180) months from the date of its
execution with interest accruing on the unpaid principal balance of not
less than nine percent (9%) per annum for fixed rate interest, and at
not less than the Base Rate (as defined in the Note) plus three percent
(3%) on floating rate instruments; provided, however, the average
remaining term of all Eligible Instruments included in the Receivables
Collateral delivered to Lender in connection with such Advance is no
greater than one hundred twenty (120) months."
(w) The following is added to EXHIBIT 1 to the Agreement, as
new paragraphs (j), (k) and (l):
"(j) The Instrument must be no more than twenty-nine (29) days
delinquent at the time of funding.
(k) For each Advance, the average outstanding principal balance on all
Instruments being assigned to Lender in connection with such Advance
shall not exceed $28,000.
(l) The Instrument must not arise from the sale of a Parcel in a
Project for which ninety percent (90%) of the then unpaid principal
balance of Instruments arising from such Project and assigned to
Lender, exceeds $3,000,000; provided, however that such limitation
shall not apply to Instruments arising from North Carolina Lakes or
North Carolina Trace."
(x) All references in Exhibits to the Agreement to "Greyhound
Real Estate Finance Company" are deleted, and "Greyhound Financial Corporation"
is substituted in their place.
2.3 The initial Advance ("Transition Advance") made at the execution of
this Amendment No. 6 shall be secured by Eligible Instruments in the
approximate principal amount of $2,500,000
6
<PAGE> 7
arising from the sale of Parcels in the Projects (and in Point Aquarius and
Sandy Run). Solely for the purpose of the Transition Advance, Point Aquarius
and Sandy Run are included in the Projects. With respect to the Transition
Advance only, Borrower must deliver to Lender, title policy endorsements or
"nothing further" letters acceptable to Lender, from a title insurer acceptable
to Lender, for a sampling (in the percentages set forth below) of title
policies. For the Projects consisting of Mallard Bay, Norris Shores, Summer
Mountain Ranch and Valley View Ranch, the sampling shall consist of fifty
percent (50%) of the Purchaser Mortgages securing the Eligible Instruments, or
every other Purchaser Mortgage, based on Lender's random selection from all
such Purchaser Mortgages. For the remainder of the Projects, the sampling shall
consist of one in every seven Purchaser Mortgages based on Lender's random
selection from all such Purchaser Mortgages. Borrower will be required to show
evidence that Borrower has ordered the appropriate title policy endorsements or
"nothing further" letters prior to funding of the Transition Advance, however,
it shall have 45 days after the funding of the Transition Advance to deliver
the original endorsements or "nothing further" letters to Lender. All Advances
after the Transition Advance shall comply with the requirements of paragraph
9.7 of the Agreement.
2.4 Borrower shall pay Lender a non-refundable renewal fee ("Renewal
Fee") equal to one-half percent (.5%) of the difference between $15,000,000,
and the outstanding balance of the Loan on the date of this Amendment No. 6.
Borrower shall pay Lender a commitment fee ("Commitment Fee") in an amount
equal to one percent (1%) (i.e. $50,000) of the increased commitment amount,
i.e. $5,000,000. Borrower acknowledges that the Renewal Fee and the Commitment
Fee have been earned. Borrower shall pay the Renewal Fee and the Commitment Fee
in three equal monthly installments, with the entire fees to be paid in full no
later than August 9, 1993. No interest will accrue on these fees if paid on or
before August 9, 1993.
2.5 To the extent not previously paid, Borrower shall pay a
documentation fee in the amount of $10,000 for the documentation and closing of
the transaction contemplated by this Amendment No. 6 (the "Documentation Fee").
Borrower will pay on demand or, at Lender's election, reimburse Lender for all
Lender's out-of-pocket expenses (excluding outside counsel's attorneys' fees)
for the documentation and closing of the transaction contemplated by this
Amendment No. 6.
2.6 Borrower confirms and restates to Lender as of the date hereof all
its representations and warranties set forth in the Agreement, as amended
hereby, and the other documents executed by Borrower evidencing, securing or
otherwise pertaining to the Loan ("Documents"). Borrower represents and
warrants to Lender that since January 9, 1990, except for such changes shown in
the docu-
7
<PAGE> 8
ments delivered to Lender pursuant to paragraph 2.6(e) and any changes to
advertising materials in conformance with applicable law, there have been no
material changes to the documents used in connection with the sale of Parcels
or the governance of the Projects. Borrower agrees that all liens and security
interests granted by it to Greyhound Real Estate Finance Company are reaffirmed
for the benefit of Lender and shall secure the Loan as increased hereby.
Borrower further acknowledges that Lender has performed and is not in default
of its obligations under the Documents and that there are no offsets, defenses
or counterclaims with respect to any of Borrower's obligations under the
Documents.
2.7 Borrower will execute and deliver such further instruments and do
such things as in the sole and absolute judgment of Lender are necessary or
desirable to effect the intent of this Amendment No. 6 and to secure to Lender
the benefits of all rights and remedies conferred upon Lender by the terms of
this Amendment No. 6 and any other documents executed in connection herewith.
2.8 This Amendment No. 6 shall not be binding upon Lender unless and
until the following conditions have been satisfied at Borrower's expense:
(a) Borrower has delivered to Lender the following documents,
all of which shall be properly completed and executed and shall otherwise be
satisfactory in form and substance to Lender it its sole and absolute
discretion:
(i) the Amended and Restated Promissory Note in form and
substance identical to EXHIBIT 1;
(ii) "Consent of Guarantor and Amendment to Guaranty" from
Patten Corporation, a Massachusetts corporation, ("Guarantor") in form and
substance identical to EXHIBIT 2;
(iii) an "Oversight and Agency Agreement" in form and
substance identical to EXHIBIT 4;
(iv) "Environmental Certificate with Representations,
Covenants and Warranties" in form and substance identical to EXHIBIT 5;
(v) UCC-1 Financing Statements for filing in Florida with
the Secretary of State and at the county level;
(vi) an indemnity addressing all documentary stamp,
intangibles and other taxes potentially applicable to this transaction; and
8
<PAGE> 9
(b) Borrower shall have delivered to Lender at least three (3)
days prior to the date of the first Advance under Amendment No. 6:
(i) the articles of incorporation, bylaws, and any
other organizational documents plus evidence of
good standing for Borrower, Guarantor, and any
Operating Subsidiaries;
(ii) the resolutions of Borrower and any Operating
Subsidiaries, authorizing the execution, delivery,
and performance of this Amendment No. 6 and the
documents described in paragraph 2.8(a) above;
(iii) for each project not previously approved by
Lender (the "New Projects"), all of the items
described in EXHIBIT 3 attached hereto; and
(iv) an analysis of consumer location and delinquency
information for all Projects.
(c) Lender has received and approved the following in its sole
and absolute discretion:
(i) results of Dun and Bradstreet reports and credit
bureau reports on Borrower and Patten; and
(ii) results of updated tax lien, litigation and
litigation searches for Borrower and Patten.
(d) Lender has received the Documentation Fee.
(e) Lender has received all material changes made since January 9,
1990 to the documents used in connection with the sale of Parcels and/or the
governance of the Projects (except the New Projects), and copies of all public
reports/offering statements/ prospectuses required by law to be utilized in
those jurisdictions where it (or its Operating Subsidiaries) is currently
selling Parcels or offering them for sale.
(f) Lender has received evidence that Borrower (or Guarantor or
its Operating Subsidiaries) has been registered and maintained all necessary
licenses and permits as required by applicable law in all jurisdictions where
it (or Guarantor or its Operating Subsidiaries) has sold or offered Parcels for
sale since January 9, 1990.
Waiver by Lender of any of the foregoing as a condition to the effectiveness of
this Amendment No. 6 shall not relieve Borrower of the obligation to satisfy
such condition as promptly as possible thereafter.
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<PAGE> 10
2.9 The following conditions subsequent must be satisfied within five
(5) days after the Transition Advance and failure to strictly comply with,
conform to, and satisfy such conditions shall be an Event of Default under the
Agreement, and Lender shall be entitled to exercise all of its rights and
remedies under the Agreement, and the other Documents:
(a) Borrower shall deliver to Lender a unanimous written consent
executed by all of Patten's directors or a corporate resolution evidencing
that a duly authorized meeting of the board of directors of Patten was held
authorizing the execution, delivery and performance of this Amendment No. 6
and the other documents described in paragraph 2.8(a).
(b) Borrower shall deliver to Lender legal descriptions for the
Projects or another description satisfactory to Lender accompanied by a
written authorization to attached such descriptions as Exhibit A to the
Environmental Certificate.
(c) Borrower shall cause delivery of the legal opinion of
Choate, Hall & Stewart, substantially in the form the draft opinion letter
faxed to Lender's counsel on May 12, 1993 (containing, however, language
acceptable to Lender on the Massachusetts Attorney General filing
requirements).
2.10 Lender shall have no obligation to make any Advance after the
Transition Advance until the conditions and terms set forth in EXHIBIT 6
attached hereto and incorporated herein by this reference, have been satisfied.
2.11 Upon Borrower's delivery to Lender of the executed Amended and
Restated Promissory Note, attached as EXHIBIT A, Lender shall return to
Borrower the original Replacement Promissory Note dated January 9, 1990, marked
"Replaced by an Amended and Restated Promissory Note dated May 12, 1993, in the
original principal amount of $20,000,000."
2.12 This Amendment No. 6 may only be modified or terminated by a
written instrument executed by the party against which enforcement of the
modification or termination is sought.
2.13 If any provision of this Amendment No. 6 is held to be
unenforceable under present or future laws effective while this Amendment No. 6
is in effect (all of which invalidating laws are waived to the fullest extent
possible), the enforceability of the remaining provisions of this Amendment No.
6 shall not be affected thereby. In lieu of each such unenforceable provision,
there shall be added automatically as a part of this Amendment No. 6 a
provision that is legal, valid and enforceable and is similar in terms to such
unenforceable provisions as may be possible.
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<PAGE> 11
2.14 This Amendment No. 6 constitutes the entire agreement and
understanding of the parties with respect to its subject matter and this
Amendment No. 6, and the Agreement, as amended hereby, supersedes all prior
written or oral understandings and agreements between the parties in connection
with its subject matter.
2.15 All Schedules and Exhibits referred to in this Amendment No. 6 are
herein incorporated by this reference.
2.16 Borrower and Lender ratify and confirm the Agreement, as amended
by this Amendment No. 6, in all respects; and, except as expressly amended by
this Amendment No. 6, the Agreement shall remain in full force and effect.
(Intentional End of Page]
11
<PAGE> 12
IN WITNESS WHEREOF this instrument is executed as of the date
set forth above.
"BORROWER"
PATTEN RECEIVABLES FINANCE
CORPORATION VI, a Massachusetts
corporation
By: /s/ Patrick E. Rondeau
----------------------
Its: President
"LENDER"
GREYHOUND PINANCIAT CORPORATION,
a Delaware corporation
By: /s/ Jack Fields, III
-----------------------
Print Name: Jack Fields, III
Title: Sr. Vice President
<PAGE> 1
EXHIBIT 10.89
AMENDMENT NO. 7 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
BY THIS AMENDMENT NO. 7 TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT ("Amendment No. 7") dated as of February 18, 1994, PATTEN RECEIVABLES
FINANCE CORPORATION VI, a Delaware corporation ("Borrower"), and GREYHOUND
FINANCIAL CORPORATION, a Delaware corporation ("Lender"), for good and valuable
consideration, the receipt of which is hereby acknowledged, hereby confirm and
agree as follows:
ARTICLE 1
INTRODUCTION
1.1 Greyhound Real Estate Finance Company, an Arizona corporation
("GREFCO") and Borrower entered into an Amended and Restated Loan and Security
Agreement dated as of January 9, 1990, as amended by a June 13, 1990 letter
amendment, a July 18, 1990 letter amendment, an August 31, 1990 Amendment No. 1
to the Amended and Restated Loan and Security Agreement, a March 23, 1991
Amendment the Amended and Restated Loan and Security Agreement, a November 21,
1991 Amendment No. 3 to the Amended and Restated Loan and Security Agreement, a
January 30, 1992 Amendment No. 4 to the Amended and Restated Loan and Security
Agreement, an October 1992 Amendment No. 5 to the Amended and Restated Loan and
Security Agreement, and a May 12, 1993 Amendment No. 6 to the Amended and
Restated Loan and Security Agreement (collectively, the "Agreement").
1.2 Lender has succeeded to the interest of GREFCO under the Agreement
and all agreements evidencing, securing or otherwise pertaining to the Loan.
1.3 Borrower and Lender wish to amend the Agreement, among other ways,
to include cross-collateralization and cross-default provisions in the
Agreement in connection with a loan from Lender to Patten Corporation, a
Massachusetts corporation ("Patten") the sole stockholder and an affiliate of
Borrower, all as more fully provided below.
ARTICLE 2
AGREEMENT
2.1 Except as otherwise defined herein or unless the context otherwise
requires, capitalized terms used in this Amendment No. 7 shall have the meaning
given to them in the Loan Agreement.
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<PAGE> 2
2.2 The Loan Agreement is amended as follows:
(a) The following is added as new paragraphs 9.12, 9.13 and 9.14:
9.12 (a) Lender is entering into a Construction and Receivables
Loan and Security Agreement ("Other Loan Agreement") dated as of
February 18, 1994, with Patten Corporation, a Massachusetts
corporation ("Patten"), the sole stockholder and an affiliate of
Borrower, pursuant to which Lender has agreed to make to Patten a
construction loan in the maximum amount of Three Million One Hundred
Thousand Dollars ($3,100,000) and a receivables revolving line of
credit loan in the amount not to exceed Five Million Dollars
($5,000,000) at any time (collectively, "Other Loans"), subject to the
terms and conditions of the Other Loan Agreement. As used in this
Agreement, the term "Other Loan Documents" shall mean the Other Loan
Agreement and all other documents now or hereafter executed in
connection with the Other Loans, as they may be from time to time
renewed, amended, restated or replaced. An Event of Default shall
constitute an "Event of Default" as that term is defined in the Other
Loan Agreement; and an "Event of Default" as that term is defined in
the Other Loan Agreement shall constitute an Event of Default
hereunder.
(b) Without limiting the generality of any other provision
contained herein, the Security Interest granted by Borrower hereunder
and all collateral now or hereafter given under the Documents as
security for the Loan is intended to and does secure performance of
all obligations of Patten now or hereafter existing under the Other
Loan Documents ("Other Loan Obligations"); and all collateral now or
hereafter given under the Other Loan Documents as security for the
Other Loan Obligations is intended to and does secure the Obligations.
(c) If an Event of Default exists and Lender is entitled to
apply the proceeds of the Receivables Collateral to the Obligations,
it may apply such proceeds to the Obligations and to the Other Loan
Obligations in such order and manner as Lender may determine.
2
<PAGE> 3
9.13 Limitation on Debt. So long as there are outstanding obligations
under the Other Loan Documents, without the prior written consent of
Lender not to be unreasonably withheld, Borrower shall not incur any
debt, except for short term accounts payable incurred in the ordinary
course of business not to exceed Five Hundred Thousand Dollars
($500,000) at any one time and direct and indirect obligations to
Lender.
9.14 Borrowing Base. Notwithstanding paragraph 1.6 of this Agreement,
so long as there are outstanding obligations under the Other Loan
Documents, the Borrowing Base will be equal to the lesser of:
(i) ninety percent (90%) of the then unpaid principal balance
of the Eligible Instruments minus Five Hundred Thousand Dollars
($500,000); or
(ii) ninety percent (90%) of the present value of the then
unmatured installments of principal and interest under the Eligible
Instruments, discounted at the higher of (A) the then applicable
interest rate under the terms of the Note or (B) fourteen percent
(14%), in the case of Instruments which bear interest at a fixed rate,
minus Five Hundred Thousand Dollars ($500,000);
2.3 Borrower confirms and restates to Lender as of the date hereof all
its representations and warranties set forth in the Agreement, as amended
hereby, and the other documents executed by Borrower evidencing, securing or
otherwise pertaining to the Loan ("Documents"). Borrower agrees that all liens
and security interests granted by it in the Documents are reaffirmed for the
benefit of Lender and shall secure the Loan and the Other Loans (as defined in
the Agreement). Borrower further acknowledges that Lender has performed and is
not in default of its Obligations under the Documents and that there are no
offsets, defenses or counterclaims with respect to any of its Obligations under
the Documents.
2.4 Borrower will execute and deliver such further instruments and do
such things as in the sole and absolute judgment of Lender are necessary or
desirable to effect the intent of this Amendment and to secure to Lender the
benefits of all rights and remedies conferred upon Lender by the terms of this
Amendment and any other documents executed in connection herewith, including,
without limitation, amendments to security loan documents and financing
statements.
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<PAGE> 4
2.5 This Amendment shall not be binding upon Lender unless and until
the following conditions have been satisfied, which in no event shall be later
than April 1, 1994:
(a) Borrower has delivered to Lender the following documents and other
items, all of which shall be properly completed and executed and shall
otherwise be satisfactory in form and substance to Lender in its sole and
absolute discretion:
(i) resolution(s) or certificate(s) from Borrower authorizing
(A) the execution and delivery of this Amendment and the other
documents called for in this Amendment or requested by Lender pursuant
to this paragraph ("Modification Documents") and (B) the transaction
contemplated hereby;
(ii) a Consent of Guarantor and Amendment to Guarantee
(Patten);
(iii) an opinion from counsel to Borrower and Guarantor as to
such matters as Lender may require, which counsel shall be reasonably
satisfactory to Lender;
(iv) such amendments to recorded and filed Documents as Lender
may deem necessary; and
(v) such other items as Lender may reasonably require .
(b) Lender has received and approved, in its sole and absolute
discretion, the results of updated lien, litigation and judgment searches
for Borrower and credit reports for Borrower.
(c) Lender has received evidence that Borrower is in compliance with
all environmental, health and safety laws and that it does not have any
material contingent liability in connection with such matters.
Waiver by Lender of any of the foregoing as a condition to the effectiveness of
this Amendment shall not relieve Borrower of the obligation to satisfy such
condition as promptly as possible thereafter.
2.6 This Amendment may not be amended or otherwise modified except in a
writing duly executed by the parties hereto.
2.7 If any one or more of the provisions of this Amendment is held to
be invalid, illegal or unenforceable in any respect or for any reason (all of
which invalidating laws are waived to the fullest extent possible), the
validity, legality and enforceability of
4
<PAGE> 5
any remaining,portions of such provision(s) in every other respect and of the
remaining provision(s) of this Amendment shall not be in any respect Impaired.
In lieu of each such unenforceable provision, there shall be added
automatically as a part of this Amendment a provision that is legal, valid and
enforceable and is similar in terms to such unenforceable provisions as may be
possible.
2.8 This Amendment constitutes the entire agreement and understanding
of the parties with respect to the subject matter hereof and this Amendment
and the Documents, as amended hereby, supersedes all prior written or oral
understandings and agreements between the parties in connection with its
subject matter.
2.9 All Schedules and Exhibits referred to herein are herein
incorporated by this reference.
2.10 This Amendment may be executed in one or more counterparts, and
any number of which having been signed by all the parties hereto shall be taken
as one original.
2.11 Borrower and Lender hereby ratify and confirm the Loan Agreement,
as amended hereby, in all respects; and, except as expressly amended hereby,
the Loan Agreement shall remain in full force and effect.
IN WITNESS WHEREOF this instrument is executed as of the date set forth
above.
"BORROWER" PATTEN RECEIVABLES FINANCE
CORPORATION VI, a Delaware
corporation
By:/S/Daniel C. Koscher
----------------------------------
Type/Print Name: Daniel C. Koscher
Title: Vice President
"LENDER" GREYHOUND FINANCIAL CORPORATION, a
Delaware corporation
By:/s/Jack Fields, III
----------------------------------
Type/Print Name: Jack Fields, III
Title: Sr. Vice President
5
<PAGE> 1
EXHIBIT 13.1
PATTEN CORPORATION
1994 ANNUAL REPORT TO SHAREHOLDERS
With the exception of the information incorporated by reference included in
Items 7 and 8 of Part II, the 1994 Annual Report to Shareholders is not deemed
filed as part of this Annual Report on Form 10-K.
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Sources of Capital. The Company's capital resources are provided from both
internal and external sources. The Company's primary capital resources from
internal operations include down payments on real estate sales which are
financed, cash sales of real estate, principal and interest payments on the
purchase money mortgage loans ("Receivables") arising from real estate sales
and proceeds from the sale of, or borrowings collateralized by, Receivables.
External sources of liquidity have historically included borrowings under
secured and unsecured lines of credit, seller and bank financing of inventory
acquisitions and the issuance of debt and equity securities. Currently, the
primary external sources of liquidity include seller and bank financing of
inventory acquisitions and development. The Company anticipates it will
continue to require external sources of liquidity to support its operations and
satisfy its debt and other obligations.
Net cash provided by the Company's operations was $16.5 million for fiscal
1994, $13.3 million for fiscal 1993, and $10 million for fiscal 1992. The
23.9% increase in cash flow provided by operations for fiscal 1994 was
primarily attributable to an increase in cash collections from customers on
real estate sales accompanied by $8.4 million in proceeds from the sale of
Class B Real Estate Mortgage Investment Conduit ("REMIC") Certificates issued
under the Company's 1992 REMIC financing. These cash flow sources were offset
by increased levels of spending for land acquisitions and development together
with an increase in the amounts paid to suppliers and employees including sales
representatives.
During fiscal 1994, 1993 and 1992, the Company received in cash $41 million or
65.9%, $28 million or 56.3% and $27.7 million or 52.2%, respectively, of its
sales of real estate that closed during those periods. The increase in the
percentage of cash received is attributable, in part, to the Company's program
directed at obtaining increased down payments on financed sales of real estate
as well as encouraging cash sales through the structure of its compensation
program for certain regional office personnel. In addition, as a result of
strengthened relationships with local banks in certain regions, customers have
received more third party financing during the current fiscal period resulting
in higher cash sales.
Receivables arising from real estate sales generally are transferred to the
Company's wholly-owned, special purpose finance subsidiaries (the "Receivables
Subsidiaries") and then pledged to institutional lenders or sold in connection
with a REMIC financing. The Receivables Subsidiaries are generally advanced
between 75% and 90% of the face amount of the mortgage notes by lenders. The
Company has also directly sold or pledged mortgage notes receivable to banks or
other institutional investors. The Company is subject to certain obligations
and has certain contingent liabilities with respect to the mortgage notes sold.
See Note 11 to the Consolidated Financial Statements included under Item 8,
Part II. During fiscal 1994, the Company raised $20.7 million from the pledge
of Receivables. During fiscal 1993, the Company raised $74.7 million from the
1992 REMIC before associated costs of $2.1 million and $8 million paid to
repurchase notes from institutional investors at approximately par value. See
Notes 8 and 9 to the Consolidated Financial Statements for further discussion
of the 1992 REMIC. During fiscal 1992, the Company raised $17.1 million from
the pledge and sale of Receivables.
The Company has a revolving credit facility of $20 million secured by eligible
Receivables with a financial institution. Under the terms of this facility,
the Company is advanced proceeds equal to 90% of the outstanding principal
balance of the pledged Receivables. In the event that pledged Receivables
become 90 or more days delinquent, the Company is obligated to repurchase the
Receivable or substitute a performing Receivable. Aggregate repurchases and
substitutions have not been material. The interest rate charged under the
facility is prime plus 2%. At March 27, 1994, the outstanding principal
balance under the facility was $12.1 million. Accordingly, as of March 27,
1994, the Company has the ability to borrow up to an additional $7.9 million
secured by, and subject to the availability of, up to $8.8 million of eligible
Receivables. All principal and interest payments received from the pledged
Receivables are applied to the principal and interest due under this facility.
Management is currently engaged in discussions to renew the revolver which
expires in June, 1994. The indebtedness matures ten years from the date of the
last advance.
2
<PAGE> 3
The Company has a credit facility with another financial institution which
allows it to receive aggregate advances up to $25 million secured by eligible
Receivables. Under the terms of this facility, the Company is advanced
proceeds equal to 75% of the outstanding principal balance of the pledged
Receivables. During fiscal 1995, the lender agreed to increase the advance
rate to 80% of the outstanding principal balance of pledged Receivables. In
the event that pledged Receivables become more than 60 days delinquent, the
Company is obligated to repurchase the Receivable or substitute a performing
Receivable. Aggregate repurchases and substitutions have not been material.
The interest rate charged under the facility is 1.75% plus the greater of the
prime rate or commercial paper rate as published in the Wall Street Journal.
At March 27, 1994, the outstanding principal balance under this facility was
$6.5 million and the Company had received $8.7 million in aggregate advances
from the pledge of Receivables. As of that date, the Company had the ability
to borrow up to an additional $16.3 million secured by, and subject to the
availability of, up to $21.7 million of eligible Receivables. All principal
and interest payments received on the pledged Receivables are applied to the
principal and interest due under this facility. The ability to receive
advances expires June, 1995. The indebtedness matures in June, 1998.
The Company has a $10 million revolving credit facility with another financial
institution secured by Receivables and inventory. Under the terms of this
facility, the Company was advanced a one-time, initial funding of $850,000
collateralized by $1.7 million of certain specifically identified Receivables.
The Company is entitled to additional advances equal to 80% of the outstanding
principal balance of eligible pledged Receivables and advances of up to $3
million secured by inventory to fund the acquisition and development of real
estate. At March 27, 1994, the aggregate outstanding principal balance under
this facility was $7.8 million. At March 27, 1994, outstanding principal
borrowings associated with the one-time initial funding totaled $745,000
bearing interest at prime plus 3.5%. The outstanding principal balance of
borrowings secured by other Receivables was $6.3 million at March 27, 1994,
with interest at prime plus 2.5%. All principal and interest payments received
from the pledged Receivables are applied to the principal and interest due
under borrowings secured by Receivables. The outstanding Receivables advances
were repaid in full on May 11, 1994, with a portion of the proceeds from the
REMIC transaction referred to below. (See discussion to follow.) At March 27,
1994, the outstanding principal balance of borrowings secured by inventory
totaled $736,000 with interest at prime plus 3.0%. Such borrowings were
secured by inventory with an aggregate net book value of $3.5 million. The
Company is entitled to additional advances of approximately $1.7 million
against the inventory pledged at March 27, 1994. The Company is required to
pay the financial institution 55% of the contract price of land sales
associated with pledged inventory when any such inventory is sold until the
indebtedness is paid in full. The facility expires in October, 1998.
On May 11, 1994, the Company, through its wholly-owned subsidiary Patten
Receivables Finance Corporation IX, (the "Depositor") sold approximately $27.7
million aggregate principal amount of its mortgage notes receivable (the
"Mortgage Pool") to Patten Corporation REMIC Trust, Series 1994-1 (the "1994
REMIC Trust"), which Trust issued four classes of Adjustable Rate REMIC
Mortgage Pass-Through Certificates (the "Certificates"). Each Certificate
evidences a fractional undivided interest in the Mortgage Pool. The
Certificates were issued pursuant to the terms of a Pooling and Servicing
Agreement dated as of April 15, 1994 (the "Pooling Agreement") among the
Company, the Depositor, Patten Corporation REMIC Trust, Series 1994-1 and First
Trust National Association, as trustee. The initial principal balances of the
Class A, Class B and Class C Certificates were $23.3 million, $2.8 million and
$1.6 million, respectively. The Class R Certificates have no initial principal
balance and do not bear interest. The Class A, Class B and Class C
Certificates bear interest at the lesser of (a) the weighted average of the net
mortgage rates of certain of the notes in the Mortgage Pool or (b) the London
interbank offered rate for six month United States dollar deposits plus a
margin of 2.5%, 3.5% and 4.5%, respectively. The 1994 REMIC Trust is comprised
primarily of a pool of fixed and adjustable rate first mortgage loans secured
by property sold by the Company. Collections of principal and interest on the
Mortgage Pool, net of certain servicing and trustee fees, are remitted to
Certificateholders on a monthly basis. The proceeds of collections on the
Mortgage Pool are distributed to the Certificateholders in the order of
priority specified in the Pooling Agreement, with no payments on the Class C or
Class R Certificates until the Class A and Class B Certificates have been paid
in full. On May 11, 1994, the Depositor sold the Class A and Class B
Certificates issued under the Pooling Agreement to an institutional investor
for aggregate proceeds of $26 million in a private placement transaction and
retained the Class C and Class R Certificates. A portion of the proceeds from
the transaction were used to repay approximately $13.5 million of outstanding
debt, including $6.8 million of borrowings under a $10 million credit facility
secured by notes receivable, $4.3 million of borrowings under a $20 million
credit facility secured by notes receivable and $2.4 million associated with
amounts paid to retire securities previously sold pursuant to the Company's
1989 REMIC
3
<PAGE> 4
financing. The balance of the proceeds, after payment of issuance expenses and
fees, resulted in an approximate $12.4 million increase in unrestricted cash.
The Company will be paid an annualized servicing fee of .5% of the scheduled
principal balance of those loans in the Mortgage Pool on which the periodic
payment of principal and interest is collected in full. Under the terms of the
Pooling Agreement, the Company has the obligation to repurchase or replace
mortgage loans in the Mortgage Pool which did not conform to the Company's
representations and warranties at the date of sale. In addition, the Company,
as servicer, is required to make advances of delinquent payments to the extent
deemed recoverable. The Company has no obligation, however, to repurchase or
replace mortgage loans solely due to delinquency.
During the fourth quarter of fiscal 1994, the Company entered into an agreement
with an existing lender which provides for construction and receivable
financing for a timeshare project in Gatlinburg, Tennessee. Under the terms of
the construction financing, the lender will advance up to an aggregate of $3.1
million for development and the outstanding balance shall not at any time
exceed $2.1 million. The receivable loan has a maximum borrowing limit of $5
million less any outstanding balance on the construction loan. The interest
rate charged under the facility is prime plus 2.25%. The facility expires in
August, 1995. (See "Uses of Capital" below for further discussion of the
Company's timeshare operation.)
The Company continues to seek bank or seller financing for its property
acquisitions. During fiscal 1994, 1993 and 1992, the Company financed $12.8
million or 33.3%, $9.3 million or 36.6% and $5.3 million or 32.6%,
respectively, of its property inventory, including acquisition and development
costs.
During fiscal 1994, the Company entered into a dealer agreement with a national
builder of manufactured homes. Under the terms of the agreement, the builder
will finance the Company's purchase of units up to an aggregate of $300,000 for
a 45 day period beginning when a purchase and sale agreement is executed
between the Company and a customer. When the Company purchases a unit for
speculative or model home use, the builder extends 90 days financing for up to
an aggregate of $105,000. Credit is extended for 45 days in the case of sold
units or 90 days in the case of speculative or model units, interest free. A
portion of the proceeds received at closing are used to repay the obligation to
the builder. In instances when the closing takes place after expiration of the
45 or 90 day period, the Company utilizes external sources of capital from a
financial institution to repay its debt to the builder until such time that the
closing takes place with the customer. Under the terms of the credit facility,
the financial institution will advance up to $500,000 at an interest rate of
prime plus 1.75%. Additionally, on a monthly basis, the facility charges an
administrative fee of .15% per unit cost and an insurance premium charge of
approximately .11% of the weighted average outstanding indebtedness. The
agreement with the national builder expires February, 1996.
The Company is required to comply with certain financial covenants under
several of its debt agreements discussed above, including, without limitation,
the following covenants that the Company considers most restrictive:
(i) Maintain net worth of at least $42 million.
(ii) Maintain a leverage ratio of not more than 4.0 to 1.0. The
leverage ratio is defined as consolidated indebtedness of the
Company to consolidated net worth.
(iii) Maintain an adjusted leverage ratio of not more than 2.0 to
1.0. The adjusted leverage ratio is defined as consolidated
indebtedness of the Company excluding the convertible
subordinated debentures to consolidated net worth including
the convertible subordinated debentures.
(iv) Selling, general and administrative expenses are not to exceed
50% of gross sales revenue from sales of real estate.
At March 27, 1994, and for each reporting period during fiscal 1994, the
Company was in compliance with each of such covenants.
See Notes 6 and 8 to the Consolidated Financial Statements for further
discussion of the material terms of the Company's debt obligations as well as
the minimum required amortization of such indebtedness.
4
<PAGE> 5
In addition to the sources of capital available under credit facilities as
discussed above (subject to available, eligible collateral), the balance of the
Company's unrestricted cash and cash equivalents was $4.3 million at March 27,
1994. Furthermore, the Company's unrestricted cash balance increased by more
than $12 million as a result of the completion of a REMIC transaction discussed
above in May, 1994. Based upon existing credit relationships, the current
financial condition of the Company and its operating plan, management believes
the Company has, or can obtain, adequate financial resources to satisfy its
capital requirements. However, in the event one or more of the existing
facilities is suspended or terminated and the Company was not able to secure
alternative financing on acceptable terms, its ability to meet liquidity and
capital resource requirements would be materially and adversely affected.
Uses of Capital. The Company's capital resources, both internal and external,
are used to support the Company's operations, including the acquisition of real
estate, development of land, housing and timeshare properties, purchase of
building materials, financing customer purchases, meeting operating expenses
and satisfying the Company's debt obligations. The Company projects that as of
March 27, 1994, $117.5 million will be required to support such uses during
fiscal 1995. The Company intends to satisfy its capital requirements
principally from the pledge and sale of existing and estimated fiscal 1995
originations of Receivables, cash sales and down payments on sales that are
financed by the Company, principal and interest payments on the Company's
Receivables portfolio and $12.4 million received in May, 1994 from the sale of
REMIC Securities.
The Company's net inventory was $40.1 million at March 27, 1994, and $31.1
million at March 28, 1993. The Company attempts to maintain inventory at a
level adequate to support anticipated sales of real estate. Accordingly,
inventory levels in the Midwestern, Southwestern and Western regions have
increased to accommodate strong consumer demand and expanded sales efforts.
The Company intends to continue to decrease its inventory levels in the
Northeastern region of the United States due to the continued overall soft real
estate market conditions. During fiscal 1994, the Company acquired 35 projects
comprised of 12,529 acres at an aggregate purchase price of $18.8 million.
The Company estimates that the total cash required to complete preparation for
the retail sale of the inventory owned as of March 27,1994, was approximately
$29.3 million, excluding housing and timeshare unit costs subsequent to fiscal
1995 which the Company is not able to determine at this time. Of the $29.3
million of cash requirements, the Company currently estimates that
approximately $24.5 million will be required to complete preparation for sale
of inventory intended to be marketed in fiscal 1995. With respect to inventory
owned as of March 27, 1994, the Company requires capital to (a) improve land
intended for recreational, vacation, retirement or primary homesite use by
purchasers, (b) fund its housing operation in select sites and (c) develop
timeshare property as set forth in the table below. The information below
discusses the capital requirements for each operating segment further.
Land. Costs to improve land typically include expenditures for road
construction, surveys and engineering fees.
Housing Operation. The Company expends capital on building materials and other
infrastructure costs, including road construction, surveys and engineering
fees. In fiscal 1994, the Company introduced a site-built housing product in
the Southwestern region. The Company plans to expand this program into the
Southeastern region in fiscal 1995 along with a modular housing program.
Management believes the Company has, or can obtain, adequate sources of capital
to support its growth in this operation.
Timeshare Property. In November, 1993 the Company purchased property in
Gatlinburg, Tennessee, for the site of its first timeshare project. Although
plans for the final phases of the project have not been finalized, the
preliminary plans provide for approximately 171 units. Development is being
phased for the project with residential units constructed in agreed upon
intervals prompted by pre-sale levels. Certain amenities of the property are
currently under construction.
The following table sets forth the estimated funds required to complete
preparation for the retail sale of inventory intended to be marketed in fiscal
1995, by geographic region and product type. The estimated spending
attributable to land holdings includes all development costs to complete
properties for retail sale. With respect to the Company's housing operation,
estimated funding needs include costs to complete all land development as well
as costs required
5
<PAGE> 6
to construct housing units. Projected spending on timeshare property
represents funds required to complete Phase I, which is comprised of 19 units
as well as certain infrastructure and amenities which also serve subsequent
phases of the development.
<TABLE>
<CAPTION>
GEOGRAPHIC REGION LAND HOUSING TIMESHARE TOTAL
- - - ----------------- ---------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Northeast . . . . . . . . $ 383,126 $ -- $ -- $ 383,126
Mid-Atlantic . . . . . . 463,290 -- -- 463,290
Southeast . . . . . . . . 617,027 4,358,282 -- 4,975,309
Midwest . . . . . . . . . 2,290,822 -- 2,744,923 5,035,745
Southwest . . . . . . . . 7,812,334 2,240,409 -- 10,052,743
West . . . . . . . . . . 406,653 3,169,111 -- 3,575,764
Canada . . . . . . . . . 808 -- -- 808
------------ ----------- ----------- --------------
Totals . . . . . . . . . $ 11,974,060 $ 9,767,802 $ 2,744,923 $ 24,486,785
============ =========== =========== ==============
</TABLE>
The following table sets forth as of March 27, 1994, and March 28, 1993, the
aggregate cost of property owned by the Company classified by major geographic
region:
<TABLE>
<CAPTION>
MARCH 27, 1994 MARCH 28, 1993
---------------------------------------- ------------------------------------
INVENTORY INVENTORY
TOTAL VALUATION TOTAL VALUATION
GEOGRAPHIC REGION ACRES COST RESERVE ACRES COST RESERVE
- - - ----------------- ----- ----------- ------------ ----- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Northeast . . . . . . . 1,242 $7,110,231 $ 2,523,180 1,717 $8,979,960 $3,275,409
Mid-Atlantic . . . . . 2,160 5,218,675 36,497 3,049 4,856,762 129,917
Southeast . . . . . . . 1,429 13,135,384 1,932,971 3,409 13,768,159 2,919,175
Midwest . . . . . . . . 1,723 7,532,470 50,555 908 2,198,219 57,982
Southwest . . . . . . . 3,630 5,191,291 5,450 2,311 3,632,534 29,943
West . . . . . . . . . 7,384 6,102,910 14,950 8,471 3,669,354 15,099
Canada . . . . . . . . 224 386,584 --- 200 448,396 ---
------ ---------- ------------ ------ ---------- -----------
17,792 44,677,545 $ 4,563,603 20,065 37,553,384 $6,427,525
====== ============ ====== ==========
Inventory valuation
reserve . . . . . . . . (4,563,603) (6,427,525)
----------- -----------
Inventory, net . . . . $40,113,942 $31,125,859
=========== ===========
</TABLE>
The Company maintains inventory valuation reserves on a property-by-property
basis which serve as contra assets against the historical cost of such parcels.
The Company's inventory valuation reserve specifically includes the following
components: (a) the difference between the historical cost and expected
selling price of the inventory; and (b) the expected costs to dispose of the
inventory, including selling, general and administrative expense ("S,G&A"
expense) and in certain cases interest expense. As parcels are sold, inventory
is relieved from the balance sheet and a charge to cost of sales is recorded on
the statement of income at historical amounts. In addition, reserves are
released and credited against cost of real estate sold and S,G&A expense.
During fiscal 1994, approximately $765,000 and $1.1 million of the Company's
inventory reserves were released as credits to cost of real estate sold and
S,G&A expense, respectively. During fiscal 1993, approximately $5 million and
$1.7 million of the Company's inventory reserves were released as credits to
cost of real estate sold and S,G&A expense, respectively. During fiscal 1992,
approximately $6.6 million, $3.6 million and $2.8 million of the Company's
inventory reserves were released as credits to cost of real estate sold, S,G&A
expense and interest expense, respectively.
The Company's inventory holdings as of March 27, 1994, and March 28, 1993
summarized by product type are outlined in the following tables:
6
<PAGE> 7
<TABLE>
<CAPTION>
MARCH 27, 1994
------------------------------------------------------------------------------
GEOGRAPHIC REGION LAND HOUSING (1) TIMESHARE TOTAL
- - - ----------------- ---------------- -------------- ------------ ---------------
<S> <C> <C> <C>
Northeast . . . . . . . . $ 4,587,051 $ --- $ --- $ 4,587,051
Mid-Atlantic . . . . . . 5,182,178 --- --- 5,182,178
Southeast . . . . . . . . 6,808,053 4,394,360 --- 11,202,413
Midwest . . . . . . . . . 5,106,059 --- 2,375,856 7,481,915
Southwest . . . . . . . . 4,051,153 1,134,688 --- 5,185,841
West . . . . . . . . . . 4,983,355 1,104,605 --- 6,087,960
Canada . . . . . . . . . 386,584 --- --- 386,584
------------ ----------- ----------- --------------
Totals . . . . . . . . . $ 31,104,433 $ 6,633,653 $ 2,375,856 $ 40,113,942
============ =========== =========== ==============
MARCH 28, 1993
----------------------------------------------------------------------------
GEOGRAPHIC REGION LAND HOUSING (1) TOTAL
- - - ----------------- --------------- --------------- --------------
Northeast . . . . . . . . $ 5,704,551 $ --- $ 5,704,551
Mid-Atlantic . . . . . . 4,726,845 --- 4,726,845
Southeast . . . . . . . . 8,037,498 2,811,486 10,848,984
Midwest . . . . . . . . . 2,140,237 --- 2,140,237
Southwest . . . . . . . . 3,602,591 --- 3,602,591
West . . . . . . . . . . 3,654,255 --- 3,654,255
Canada . . . . . . . . . 448,396 --- 448,396
------------- ------------ --------------
Totals . . . . . . . . . $ 28,314,373 $ 2,811,486 $ 31,125,859
============= ============ ==============
</TABLE>
(1) Housing operation inventory as of March 27, 1994, includes land
inventory of $5.4 million and $1.2 million of housing unit construction-
in-progress. As of March 28, 1993, the Company had $2.8 million of land
inventory with no housing unit construction-in-progress.
The Company offers financing of up to 90% of the purchase price of real estate
sold to all purchasers of its properties who qualify for such financing.
During fiscal 1994, 1993 and 1992, the Company received 34.1%, 43.7% and 47.8%,
respectively, of its aggregate sales of real estate which closed during the
period in the form of mortgage notes receivable. The decrease in the
percentage of sales financed by the Company is attributable to the Company's
program which commenced in fiscal 1992 directed at increasing cash sales of
real estate or down payments in cases where Company financing is extended. At
March 27, 1994, $34.1 million of Receivables were pledged as collateral to
secure financings of the Company's Receivables Subsidiaries or other Company
indebtedness while $9.4 million were not pledged or encumbered. After giving
effect to the May 11, 1994 REMIC transaction, the Company had approximately
$6.4 million of Receivables that were not pledged or encumbered. At March 28,
1993, $13.9 million of Receivables were pledged as collateral to secure
financings of the Company's Receivables Subsidiaries or other Company
indebtedness, while $19.5 million were not pledged or encumbered. The increase
in pledged Receivables and related debt from March 28, 1993, to March 27, 1994,
was the result of increased sales, additional availability provided to the
Company from new credit facilities together with an increase in the size of
existing lines of credit.
Asset Quality. At March 27, 1994, 3.3% or $1.6 million of the aggregate $48.9
million principal amount of Company-originated loans which were held by the
Company or sold through programs under which the Company has a recourse
liability were more than 30 days past due. Of these $48.9 million principal
amount of loans, $43.5 million were held by the Company, while $5.4 million
were sold with limited recourse. In most cases, the recourse to the Company
terminates when the principal balance of the loan becomes 70% or less of the
original selling price of the property underlying the loan. At March 28, 1993,
4.8% of the aggregate $40 million principal amount of Company-originated loans
which were held by the Company or sold through programs under which the Company
has a recourse liability were more than 30 days past due. The decrease in the
delinquency rate from fiscal 1993 to 1994 was attributable to strengthened
underwriting and credit review policies through additional senior executive
management participation, an upgraded computerized mortgage system and an
enhanced collections department initiated in fiscal 1993. At March 27, 1994,
approximately .14% of the aggregate $16.7 million outstanding principal amount
of loans originated by the Company during fiscal 1994 were more than 30 days
past due. At March 27, 1994, approximately 1.82% of the aggregate $16.8
million outstanding principal amount of loans originated by the Company during
fiscal 1993 were more than 30 days past due. The current loan-to-value ratio
of loans originated
7
<PAGE> 8
and serviced by the Company was 59%, 63% and 64% at March 27, 1994, March 28,
1993 and March 29, 1992, respectively. The current loan-to-value ratio
reflects the outstanding principal balance of such loans as a percentage of the
original purchase price of real estate sold.
In cases of default by a customer on a mortgage note, the Company may forgive
the unpaid balance in exchange for title to the parcel securing such note. If
the Company is unable to obtain a deed in lieu of foreclosure, the Company
forecloses on the mortgage securing such note. Real estate reacquired through
foreclosure or deed in lieu of foreclosure is recorded at the lower of
estimated net realizable value or the balance of the loan. Related costs
incurred to reacquire, carry and dispose of the property are capitalized to the
extent deemed recoverable.
The Company recorded loan loss provisions of $795,000, $400,000 and $780,000
for fiscal 1994, 1993 and 1992, respectively. The adequacy of the Company's
reserve for loan losses is determined by management and reviewed on a regular
basis, considering historical frequency of default, loss experience, as well as
present and expected economic conditions. Period ending delinquencies and an
analysis of insubstance note balances compared with the valuation of underlying
collateral, are among the factors reviewed.
The following table sets forth the Receivables held by the Company and the
reserve for possible loan losses at the dates indicated. The reserve for loan
losses as a percentage of Receivables has decreased in response to reduced
delinquencies and improved performance of the portfolio.
<TABLE>
<CAPTION>
MARCH 27, MARCH 28, MARCH 29, MARCH 31, APRIL 1,
1994 1993 1992 1991 1990
----------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Receivables . . . . . . . $43,523,806 $33,415,872 $104,865,965 $109,726,685 $103,803,912
Reserve for loan
losses . . . . . . . . . 641,964 644,077 2,173,425 2,804,133 500,000
Reserve as a
percentage of
Receivables . . . . . . . 1.47% 1.93% 2.07% 2.56% .48%
</TABLE>
Debt Obligations. The following table sets forth the minimum contractual
principal payments required on the Company's line of credit and notes payable
as well as its scheduled principal reductions with respect to mortgage-backed
indebtedness for years subsequent to March 27, 1994.
<TABLE>
<CAPTION>
LINE OF CREDIT MORTGAGE-BACKED
AND NOTES PAYABLE NOTES PAYABLE
----------------- -----------------
<S> <C> <C>
Fiscal 1995 . . . . . . . . . . . . $ 2,669,380 $ 3,071,308
Fiscal 1996 . . . . . . . . . . . . 2,602,943 3,295,121
Fiscal 1997 . . . . . . . . . . . . 2,705,094 3,516,183
Fiscal 1998 . . . . . . . . . . . . 1,505,480 3,590,947
Fiscal 1999 . . . . . . . . . . . . 2,010,890 3,719,037
Thereafter . . . . . . . . . . . . 30,363 8,579,703
------------ ------------
Total . . . . . . . . . . . . . . . $ 11,524,150 $ 25,772,299
============ ============
</TABLE>
The installments due on mortgage-backed notes payable are based upon the
scheduled principal payments due from customers on the pledged Receivables.
Under the terms of the mortgage-backed note agreements, the Company is not
required to advance delinquent customer payments to the creditor. The Company
is, however, obligated to repurchase or replace notes receivable which are
delinquent more than a specified number of days, typically 60 or 90, in
accordance with the terms of the respective agreements. Replacements and
repurchases have to date not had a material adverse affect on the Company.
8
<PAGE> 9
Installments due on the line of credit and notes payable primarily consist of
payments due on indebtedness secured by property inventory. In most instances,
as inventory is sold, the Company is required to repay the creditor a
predetermined percentage of the selling price or a predetermined price per
acre. Should the Company finance a portion of the selling price for its
customer, it is required to pay the creditor with cash from other operating
activities, principally with the proceeds from the pledge or sale of
Receivables.
In April, 1994, the Board of Directors authorized a program to purchase up to
$4 million principal amount of the Company's convertible subordinated
debentures in the open market from time to time subject to the Company's
financial condition and liquidity, the terms of its credit agreements, market
conditions and other factors.
9
<PAGE> 10
RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the Consolidated
Financial Statements and related Notes.
The following table sets forth certain information derived from the Company's
Statements of Income and the percentages which certain items in the
Consolidated Statements of Income bear to total operating revenues.
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
YEARS ENDED
-----------------------------------------------------------------
MARCH 27, 1994 MARCH 28, 1993 MARCH 29, 1992
----------------- ------------------ -----------------
REVENUES:
<S> <C> <C> <C> <C> <C> <C>
Sales of real estate (1) . . . . $63,389 89.0% $53,349 84.0% $45,100 73.2%
Interest income and other (2). . 7,952 11.0 10,191 16.0 16,515 26.8
------- ---- ------- ---- ------- ----
Total revenues . . . . . . . . . 71,341 100.0 63,540 100.0 61,615 100.0
COSTS AND EXPENSES:
Cost of real estate sold . . . . 30,773 43.1 28,450 44.8 28,712 46.6
Selling, general and
administrative expense . . . . 26,444 37.1 22,652 35.6 19,570 31.8
Provision for losses and
write-downs . . . . . . . . . 795 1.1 1,550 2.4 1,480 2.5
Interest expense . . . . . . . . 6,551 9.2 7,284 11.5 10,764 17.4
------- ---- ------- ---- ------- ----
Total costs and expenses . . . . 64,563 90.5 59,936 94.3 60,526 98.3
------- ------- -------
Income from operations . . . . . 6,778 3,604 1,089
Other income . . . . . . . . . . 1,175 1,727 397
------- ------- -------
Income before income taxes . . . 7,953 5,331 1,486
Provision for income taxes . . . 3,022 1,874 118
------- ------- -------
NET INCOME . . . . . . . . . . . $ 4,931 7.0% $ 3,457 5.4% $ 1,368 2.3%
======= ==== ======= ==== ======= ====
Gross margins on sales of
real estate (3) . . . . . . . 51.5% 46.7% 36.3%
==== ==== ====
</TABLE>
(1) Sales of real estate in fiscal 1994 include land sales of $60.3 million and
$3.1 million from the Company's housing operation. Sales of real estate in
fiscal 1993 and fiscal 1992 were derived solely from the Company's land
operation.
(2) Revenue for the year ended March 28, 1993, includes a $695,000 gain from
the 1992 REMIC transaction. The Company did not sell or securitize any
notes receivable during fiscal 1994 and sold notes receivable at face value
during fiscal 1992. Accordingly, no gains or losses are included for such
fiscal years.
(3) The weighted average gross margin realized in fiscal 1994 of 51.5% included
52.1% and 39.2% from the Company's land and housing operations,
respectively.
The Company recognizes revenue on retail land sales under the criteria of
Statement of Financial Accounting Standards ("SFAS") No. 66 which requires
that a minimum of 10% of the sales price be received in cash, collectibility of
the Receivable representing the remainder of the sales price be reasonably
assured, that the Company has completed substantially all of its obligations
with respect to any development related to the real estate sold and that any
rescission period has expired. The Company recognizes revenue on other real
estate sales, which primarily
10
<PAGE> 11
includes large-acreage bulk sales and sales to investors and developers, when
the buyer's initial and continuing investment are adequate to demonstrate a
commitment to pay for the property, which requires that a minimum of 20% of the
sales price be received in cash, the collectibility of the Receivable be
reasonably assured, the Company has completed substantially all development
obligations related to the real estate sold and the expiration of any
rescission period has passed. In cases where substantially all development has
not been completed, the Company recognizes revenue in accordance with the
percentage of completion method. The excess of sales price over legally
binding deposits received is recorded as contracts receivable. Contracts
receivable are typically converted into cash and/or notes receivable, generally
within sixty days. All related costs are recorded when the sale is recorded.
Because the Company finances a portion of its sales of real estate, it pledges
and sells the Receivables to provide funds for operating purposes. The Company
recognizes revenue on housing operation sales when the unit is complete and
title is transferred to the buyer. See "Sources of Capital".
The real estate market is cyclical in nature and highly sensitive to changes in
national and regional economic conditions, including, among other factors,
levels of employment and discretionary disposable income, consumer confidence
and interest rates. Based upon the increase in the level of sales of real
estate, management believes that general economic conditions are improving in
many of its principal markets of operation. However, the real estate markets
in the Northeast and Canada continue to remain depressed and the Company has
experienced reduced levels of sales in the Mid-Atlantic region. A downturn in
the economy in general or in the market for real estate could have a material
adverse effect on the Company.
Sales of real estate increased 18.8% to $63.4 million for fiscal 1994 compared
to $53.3 million for fiscal 1993. Fiscal 1993 sales increased 18.3% to $53.3
million from $45.1 million in fiscal 1992.
The following table sets forth certain information regarding sales of parcels
for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------------
MARCH 27, MARCH 28, MARCH 29,
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Number of parcels sold (1) 2,489 2,560 2,151
Average sales price per parcel (1) $ 25,511 $ 21,368 $ 21,513
Average sales price per acre (1)(2) 3,851 1,990 2,392
Gross margins on sales of real estate 51.5% 46.7% 36.3%
</TABLE>
(1) Calculated by adding back sales of real estate deferred under the
percentage of completion method of accounting during the respective
periods. The average sales price per parcel, net of the effects of
deferred sales for fiscal 1994, 1993 and 1992, was $25,468, $20,839 and
$20,967, respectively. The average sales price of all parcels sold during
fiscal 1994 excluding those associated with house sales was $24,665 or
$3,690 per acre. The average sales price of housing parcels including the
housing unit during fiscal 1994 was $70,044. Parcels sold in fiscal 1994
included 2,445 parcels sold from the Company's land operation and 44
parcels sold from the Company's housing operation. See table to follow
outlining number of parcels sold by geographic region.
(2) The aggregate acres sold in fiscal 1994 was approximately 16,459 including
16,342 acres sold from the land operation and 117 acres sold from the
housing operation.
The improvement in the Company's gross margins since fiscal 1992 is
attributable to a greater percentage of real estate sales at higher profit
margins being generated outside of the Northeastern region. Since fiscal 1990,
all inventory acquisitions have required the prior approval of the Company's
Investment Committee. Since May, 1990, the Company has realized gross margins
of approximately 58% on such approved acquisitions. However, the sale of
certain inventory acquired prior to the formation of the Investment Committee
or sales of inventory reacquired through foreclosure or deeds in lieu of
foreclosure will continue to adversely affect overall gross margins.
Specifically, the Company anticipates little or no gross margins on the sale of
the remaining $4.6 million of net
11
<PAGE> 12
inventory holdings in the Northeast and $387,000 of inventory holdings in
Canada. The Company continues to liquidate its Northeast inventory.
The table set forth below outlines sales by geographic region for the fiscal
years indicated.
<TABLE>
<CAPTION>
REAL ESTATE SALES
(DOLLARS IN THOUSANDS)
YEARS ENDED
----------------------------------------------------------------------------
MARCH 27, 1994 MARCH 28, 1993 MARCH 29, 1992
----------------------- --------------------- ----------------------
GEOGRAPHIC REGION AMOUNT % AMOUNT % AMOUNT %
----------------- --------- ------- --------- ----- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Northeast . . . . . . . . $ 2,034 3.2% $ 3,794 7.1% $ 7,596 16.8%
Mid-Atlantic . . . . . . 7,899 12.5 12,710 23.9 12,355 27.4
Southeast . . . . . . . . 9,978 15.8 6,728 12.6 4,236 9.4
Midwest . . . . . . . . . 10,645 16.8 6,222 11.7 5,118 11.4
Southwest . . . . . . . . 24,244 38.2 16,015 30.0 10,938 24.3
West . . . . . . . . . . 8,432 13.3 7,710 14.4 4,214 9.3
Canada . . . . . . . . . 157 .2 170 .3 643 1.4
--------- ----- -------- ----- --------- -----
Totals (1)(2) . . . . . . $ 63,389 100.0% $ 53,349 100.0% $ 45,100 100.0%
========= ===== ======== ===== ========= =====
</TABLE>
The table set forth below outlines the number of parcels sold and the average
sales price per parcel by geographic region for the fiscal years indicated.
<TABLE>
<CAPTION>
YEARS ENDED
-----------------------------------------------------------------------------------
MARCH 27, 1994 MARCH 28, 1993 MARCH 29, 1992
------------------------ ------------------------- -----------------------
AVERAGE AVERAGE AVERAGE
NUMBER OF SALES PRICE NUMBER OF SALES PRICE NUMBER OF SALES PRICE
GEOGRAPHIC REGION PARCELS SOLD PER PARCEL PARCELS SOLD PER PARCEL PARCELS SOLD PER PARCEL
----------------- ------------ ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Northeast . . . . . . . 115 $ 17,687 251 $ 15,018 366 $ 20,754
Mid-Atlantic . . . . . 367 20,700 545 23,538 563 22,128
Southeast . . . . . . . 376 26,537 439 15,227 252 16,808
Midwest . . . . . . . . 437 22,767 279 23,049 225 24,741
Southwest . . . . . . . 940 27,140 740 22,970 541 21,370
West . . . . . . . . . 242 34,180 292 26,785 180 23,409
Canada . . . . . . . . 12 13,037 14 12,101 24 26,805
----- -------- ----- --------- ------ ---------
Totals (1)(2) . . . . . 2,489 $ 25,511 2,560 $ 21,368 2,151 $ 21,513
===== ===== =====
</TABLE>
(1) Calculated by adding back sales of real estate deferred under the
percentage of completion method of accounting during the respective
periods.
(2) Fiscal 1994 sales of $63.4 million include 44 housing operation unit sales
aggregating $3.1 million. The average sales price per parcel excluding
housing operation sales during fiscal 1994 was $24,665. The average sales
price of housing parcels including the housing unit during fiscal 1994 was
$70,044.
12
<PAGE> 13
Sales of real estate increased at rates in excess of 18% for the last two
fiscal years. Specifically, the Company has experienced a substantial increase
in parcels sold through its operations in the Midwestern and Southwestern
regions of the United States and intends to continue expansion in these areas
subject to changing market conditions. However, the Company continues to
experience a reduction in sales volume attributable to its operations in the
Northeastern and Mid-Atlantic regions. The downward trend in the number of
parcels sold in the Northeastern region (comprised of New York, New Hampshire,
Maine, Vermont, Connecticut and Massachusetts) resulted in part from the
effects of the continuing soft economy in that region and in part from the
Company's ongoing effort to discontinue its operations in the Northeast. The
Company intends to continue to reduce inventory in the Northeastern region
while increasing inventory in geographic areas which management believes may
have more stimulated real estate market conditions. The reduction in parcels
sold in the Mid-Atlantic geographic region resulted from decreased demand for
certain properties in that market.
Management anticipates that operating results for fiscal 1995 will reflect an
increase in the amount of sales volume contributed from additional business
segments apart from its core land operation. Specifically, management expects
an increase in housing operation sales in the Southeastern, Southwestern and
Western regions of the United States as well as sales of timeshare property
located in Gatlinburg, Tennessee.
The Company realized a 19.4% increase in the average sales price per parcel
from fiscal 1993 to fiscal 1994, which partially reflects housing operation
sales in the current fiscal year from the Southeastern and Western regions.
Excluding housing operation sales, the average sales price per parcel increased
15.4% from fiscal 1993 to fiscal 1994. The most significant increase in the
average sales price for fiscal 1994 from the land operation was realized in the
Southwestern region resulting from expansion into higher priced waterfront
properties in the state of Texas.
Effective March 29, 1993, the Company merged all its subsidiaries in the
Northeast into a single entity in order to avail itself of a Multiple Site
Subdivision exemption provided by the U.S. Department of Housing and Urban
Development, which allows the Company to advertise all of its property in the
Northeast in a single common promotional plan. Such exemption has resulted in
a reduction of advertising, selling and other disposal costs.
In July, 1992, Patten Receivables Finance Corporation VIII ("Patten Receivables
VIII") sold $74.7 million aggregate principal amount of Adjustable Rate REMIC
Mortgage Pass-Through Certificates, Class A ("1992 Class A REMIC Certificates")
in the 1992 REMIC. Each 1992 Class A REMIC Certificate evidences a fractional
undivided interest in the distributions allocable to the 1992 Class A REMIC
Certificates from a pool of mortgage notes receivable ("1992 REMIC Mortgage
Pool"). The aggregate principal amount of the 1992 REMIC Mortgage Pool, which
was originated by the Company or its affiliates, totaled $90.5 million. The
1992 REMIC Mortgage Pool was sold to Patten Corporation REMIC Trust, Series
1992-1. The REMIC consists of four classes of certificates. Patten
Receivables VIII initially retained the Adjustable Rate REMIC Mortgage
Pass-Through Certificates, Class B ("1992 Class B REMIC Certificates"), the
Adjustable Rate REMIC Mortgage Pass-Through Certificates, Class C ("1992 Class
C REMIC Certificates") and the Adjustable Rate REMIC Mortgage Pass-Through
Certificates, Class R ("1992 Class R REMIC Certificates"). On July 2, 1993,
Patten Receivables VIII sold the 1992 Class B REMIC Certificates for $8.4
million. The loss on the sale approximated $238,000 and is included as a
reduction to interest income and other in the Consolidated Statement of Income
for the year ended March 27, 1994.
The average outstanding balance of Receivables held by the Company totaled
$39.8 million, $48.1 million and $107.8 million during fiscal 1994, 1993 and
1992, respectively. In addition, the average interest rate earned on the
Company's Receivables portfolio decreased from 11.0% at March 28, 1993, to
10.9% at March 27, 1994. The average interest rate earned on the Company's
Receivables portfolio was 12.1% at March 29, 1992. These are the primary
reasons for the decrease in interest income from $16.5 million for fiscal 1992,
to $10.2 million for fiscal 1993, to $8 million for fiscal 1994. The decrease
in Receivables held was primarily attributable to the sale of Receivables
through the 1992 REMIC transaction. Substantially all of the Company's
Receivables are prime-based adjustable rate mortgages. The reduction of
average interest rate earned is attributable to adjustments in connection with
prime rate decreases as well as reduced interest rate financing programs which
the Company has offered in connection with the sale of its Northeast inventory.
S,G&A expense totaled $26.4 million, $22.7 million and $19.6 million for fiscal
1994, 1993 and 1992, respectively. As a percentage of total revenue, S,G&A
expense was 37.1%, 35.6% and 31.8% for these same periods. The
13
<PAGE> 14
increase in S,G&A expense as a percentage of total revenue during fiscal 1994
partially reflects a decrease in interest income along with an increase in the
amount of compensation paid to certain regional managers which resulted from
the growth in sales and profitability. The increase in S,G&A expense as a
percentage of total revenue during fiscal 1993 primarily reflects the decrease
in interest income which resulted from the 1992 REMIC. Selling expense, which
includes advertising, marketing and commissions, totaled $10.9 million, $8.6
million and $7.5 million for fiscal 1994, 1993 and 1992, respectively. As a
percentage of sales of real estate, such selling expense was 17.2%, 16.1% and
16.6% for these same periods. The Company incurred advertising expense of $4.5
million, or 7.1% of sales of real estate during fiscal 1994 compared to $3.6
million and $3.1 million, or 6.8% and 6.9%, of sales of real estate during
fiscal 1993 and 1992, respectively. Furthermore, during fiscal 1994, 1993 and
1992, $1.1 million, $1.7 million and $3.6 million, respectively, of the
Company's inventory reserves were released as credits against selling expense.
General and administrative expense was $15.5 million, $14.1 million and $12.1
million for fiscal 1994, 1993 and 1992, respectively. General and
administrative expense increased for fiscal 1994 compared to fiscal 1993 as a
result of expanded business operations. Additionally, compensation expense
increased for certain regional managers due to the fact that a significant
portion of the compensation plan is variable in relation to individual regional
office performance including sales volume, profitability and cash flow which
increased in fiscal 1994.
Interest expense totaled $6.6 million, $7.3 million and $10.8 million for
fiscal 1994, 1993 and 1992, respectively. The 10.1% decrease in interest
expense for fiscal 1994 was primarily attributable to a 8.8% decline in the
Company's average outstanding interest bearing liabilities to $67.3 million for
fiscal 1994 from $73.8 million for fiscal 1993. The 32.4% decrease in interest
expense for fiscal 1993 versus fiscal 1992 was primarily attributable to a
43.1% decline in average outstanding interest bearing indebtedness to $73.8
million during fiscal 1993 from $129.8 million for fiscal 1992. In addition,
during fiscal 1992, the Company released $2.8 million of its inventory reserves
as credits to interest expense while no reserves were released as credits
against interest expense during fiscal 1993. The primary reason for the
decrease in the Company's average outstanding indebtedness from fiscal 1992 to
fiscal 1993 was attributable to the repayment of $60.8 million of debt with the
proceeds of the 1992 REMIC. In addition to the declining levels of
indebtedness, the downward trend in interest expense for the last three fiscal
years also reflects the general decline in interest rates during the period.
The average rate charged on the Company's debt was 8.4%, 8.6% and 8.7% at March
27, 1994, March 28, 1993 and March 29, 1992, respectively.
Provisions for losses on notes receivable and real estate held for sale are
charged to operations when it is determined that the investment in such assets
is impaired. Management reviews property held for sale, including real estate
reacquired through foreclosure or deed in lieu of foreclosure, on a regular
basis and considers such factors as economic conditions in the area where the
parcel is located, recent selling prices of comparable parcels and estimated
costs to dispose of the parcel in determining any required provisions for
losses. During fiscal 1993 and 1992, the Company recorded provisions for the
write-down of inventory (including foreclosed real estate) to estimated net
realizable value of $1.15 million and $700,000, respectively. No provision for
the write-down of inventory was recorded for fiscal 1994.
The Company recorded provisions for loan losses totaling $795,000, $400,000 and
$780,000 for fiscal 1994, 1993 and 1992, respectively. The increase for fiscal
1994 was primarily attributable to the determination made by management that
the estimated net realizable value of property securing certain troubled loans
was less than the outstanding balance of such loans.
Income from consolidated operations was $6.8 million, $3.6 million and $1.1
million, for fiscal 1994, 1993 and 1992, respectively. The improvement for the
periods is primarily the result of increased sales of real estate at higher
gross margins.
Gains and losses from sources other than normal operating activities of the
Company are reported separately as other income (expense). Other income for
fiscal 1994 includes non-recurring income of approximately $797,000 associated
with the settlement of certain litigation and $174,000 in net gains from the
disposition of property and equipment. Other income for fiscal 1993
substantially consisted of the recognition of approximately $1.7 million in
income associated with the termination of a joint venture. Other income for
fiscal 1992 includes legal settlements and brokerage income associated with the
sale of real estate for others, offset by losses on the disposition of property
and equipment.
14
<PAGE> 15
The Company recorded a provision for income taxes of $3 million, $1.9 million
and $118,000 for fiscal 1994, 1993 and 1992, respectively. The Company adopted
SFAS No. 109, "Accounting for Income Taxes" effective April 1, 1991. The
adoption of SFAS No. 109 did not have a material effect on the financial
statements of the Company.
Net income was $4.9 million, $3.5 million and $1.4 million for fiscal 1994,
1993 and 1992, respectively.
EFFECTS OF INFLATION
Management believes that inflation has not had a material effect on the
Company.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
15
<PAGE> 16
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders and Board of Directors
Patten Corporation
We have audited the accompanying consolidated financial statements of Patten
Corporation. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Patten Corporation at
March 27, 1994 and March 28, 1993, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
March 27, 1994 in conformity with generally accepted accounting principles.
/s/ Ernst & Young
- - - -----------------
Ernst & Young
West Palm Beach, Florida
April 27, 1994, except for Note 15,
as to which the date is May 11, 1994
16
<PAGE> 17
PATTEN CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 27, MARCH 28,
1994 1993
-------------- ---------------
ASSETS
<S> <C> <C>
Cash and cash equivalents (including restricted cash of
approximately $5.0 million and $5.6 million at March 27,
1994 and March 28, 1993, respectively) . . . . . . . . . . . . $ 9,308,047 $ 10,113,748
Contracts receivable, net . . . . . . . . . . . . . . . . . . . 9,928,602 8,699,969
Notes receivable, net . . . . . . . . . . . . . . . . . . . . . 42,881,842 32,771,795
Investment in securities . . . . . . . . . . . . . . . . . . . . 26,469,714 32,031,308
Inventory, net . . . . . . . . . . . . . . . . . . . . . . . . . 40,113,942 31,125,859
Property and equipment, net . . . . . . . . . . . . . . . . . . 3,634,478 3,914,226
Debt issuance costs . . . . . . . . . . . . . . . . . . . . . . 1,724,387 1,289,285
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . 5,556,201 2,907,227
------------- --------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . $ 139,617,213 $ 122,853,417
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . $ 1,906,170 $ 1,854,023
Accrued liabilities and other . . . . . . . . . . . . . . . . . 10,079,007 11,998,781
Line of credit and notes payable . . . . . . . . . . . . . . . . 11,524,150 14,436,535
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . 3,742,928 791,181
Mortgage-backed notes payable . . . . . . . . . . . . . . . . . 25,772,299 12,165,878
Commitments and contingencies . . . . . . . . . . . . . . . . . --- ---
8 1/4% convertible subordinated debentures . . . . . . . . . . . 34,739,000 34,739,000
------------- --------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . 87,763,554 75,985,398
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value1,000,000 shares authorized;
none issued . . . . . . . . . . . . . . . . . . . . . . . . . --- ---
Common stock, $.01 par value, 90,000,000 shares authorized;
17,795,974 and 17,083,001 shares outstanding at
March 27, 1994 and March 28, 1993, respectively . . . . . . . 177,960 170,830
Capital-in-excess of par value . . . . . . . . . . . . . . . . 61,099,625 59,172,395
Retained earnings (deficit) . . . . . . . . . . . . . . . . . . (9,423,926) (12,475,206)
------------- --------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . 51,853,659 46,868,019
------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY . . . . . . . . . $ 139,617,213 $ 122,853,417
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE> 18
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------
MARCH 27, MARCH 28, MARCH 29,
1994 1993 1992
------------- ------------- ------------
REVENUES:
<S> <C> <C> <C>
Sales of real estate . . . . . . . . . . . . $ 63,389,112 $ 53,348,816 $ 45,100,165
Interest income and other . . . . . . . . . . 7,951,523 10,191,207 16,515,093
------------- ------------- ------------
71,340,635 63,540,023 61,615,258
COSTS AND EXPENSES:
Cost of real estate sold . . . . . . . . . . 30,773,203 28,449,739 28,712,204
Selling, general and administrative expense . 26,443,598 22,651,903 19,569,900
Interest expense . . . . . . . . . . . . . . 6,551,153 7,284,153 10,764,169
Provision for losses and write-downs . . . . 795,000 1,550,000 1,480,000
------------- ------------- ------------
64,562,954 59,935,795 60,526,273
------------- ------------- ------------
INCOME FROM OPERATIONS . . . . . . . . . . . 6,777,681 3,604,228 1,088,985
Other income . . . . . . . . . . . . . . . . 1,174,770 1,726,398 397,454
------------- ------------- ------------
Income before income taxes . . . . . . . . . 7,952,451 5,330,626 1,486,439
Provision for income taxes . . . . . . . . . 3,021,931 1,873,837 118,232
------------- ------------- ------------
NET INCOME . . . . . . . . . . . . . . . . . $ 4,930,520 $ 3,456,789 $ 1,368,207
============= ============= ============
INCOME PER COMMON SHARE - PRIMARY
AND FULLY DILUTED:
Net income . . . . . . . . . . . . . . . . . . $ .25 $ .18 $ .07
============= ============= ============
Weighted average number of common and
common equivalent shares used to
calculate primary and fully diluted
net income per common share . . . . . . . . 19,497,624 19,038,665 18,543,763
============= ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE> 19
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------
MARCH 27, MARCH 28, MARCH 29,
1994 1993 1992
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Cash received from customers including cash
collected as servicer of notes receivable to be
remitted to investors . . . . . . . . . . . . . $ 50,738,479 $ 39,218,756 $ 39,481,063
Interest received . . . . . . . . . . . . . . . 5,194,172 7,385,143 16,772,930
Cash paid for land acquisitions and real estate
development . . . . . . . . . . . . . . . . . . (25,618,038) (16,121,269) (11,043,337)
Cash paid to suppliers, employees and sales
representatives . . . . . . . . . . . . . . . . (28,432,333) (22,878,531) (20,697,722)
Interest paid . . . . . . . . . . . . . . . . . (5,811,807) (7,919,977) (13,307,320)
Net income taxes (paid)/recovered . . . . . . . (2,292,671) (526,587) 67,534
Land gains taxes paid . . . . . . . . . . . . . --- (997,181) ---
Proceeds from sales of notes receivable . . . . --- 49,535 842,865
Proceeds from legal settlements . . . . . . . . 797,015 --- ---
Proceeds from borrowings collateralized by
notes receivable . . . . . . . . . . . . . . . 20,693,016 7,495,243 16,249,171
Payments on borrowings collateralized by
notes receivable . . . . . . . . . . . . . . . (7,086,595) (60,629,366) (19,229,760)
Proceeds from sale of Class A REMIC Certificates,
net of transaction costs and amount paid to
repurchase notes receivable . . . . . . . . . . --- 64,559,769 ---
Proceeds from sale of Class B REMIC Certificates 8,352,973 --- ---
Proceeds from amortization of other receivables . --- 3,713,417 905,834
------------ ------------ -------------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES. . . 16,534,211 13,348,952 10,041,258
------------ ------------ -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Net cash flow from purchases and sales of property
and equipment . . . . . . . . . . . . . . . . . (719,516) 221,145 510,058
Additions to other long-term assets . . . . . . . (869,316) (232,829) (208,429)
------------ ------------ -------------
NET CASH FLOW PROVIDED/(USED) BY INVESTING
ACTIVITIES . . . . . . . . . . . . . . . . . . . . (1,588,832) (11,684) 301,629
------------ ------------ -------------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit
facility . . . . . . . . . . . . . . . . . . . . 152,342 (1,831,806) (3,958,395)
Proceeds from issuance of other debt . . . . . . --- --- 1,792,552
Borrowings under repurchase agreement . . . . . --- 6,500,000 ---
Payments under repurchase agreement . . . . . . (6,500,000) --- ---
Borrowings under short-term secured debt facility 6,500,000 --- ---
Payments under short-term secured debt facility (6,500,000) --- ---
Payments on other long-term debt . . . . . . . . (9,458,542) (23,788,228) (17,008,270)
Proceeds from exercise of employee stock options. 56,096 33,000 ---
Payment for dividends in lieu of
fractional shares . . . . . . . . . . . . . . . (976) --- ---
------------ ------------ -------------
NET CASH FLOW USED BY FINANCING ACTIVITIES . . . . (15,751,080) (19,087,034) (19,174,113)
------------ ------------ -------------
Net decrease in cash and cash equivalents . . . . (805,701) (5,749,766) (8,831,226)
Cash and cash equivalents at beginning of year . . 10,113,748 15,863,514 24,694,740
------------ ------------ -------------
Cash and cash equivalents at end of year . . . . . 9,308,047 10,113,748 15,863,514
Restricted cash and cash equivalents at end of year 5,039,036 5,596,812 11,552,382
------------ ------------ -------------
Unrestricted cash and cash equivalents at end of
year . . . . . . . . . . . . . . . . . . . . . . $ 4,269,011 $ 4,516,936 $ 4,311,132
============ ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 20
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------------
MARCH 27, MARCH 28, MARCH 29,
1994 1993 1992
------------- ------------ -------------
<S> <C> <C> <C>
RECONCILIATION OF NET INCOME TO NET CASH FLOW
PROVIDED BY OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . $ 4,930,520 $ 3,456,789 $ 1,368,207
Adjustments to reconcile net income to net cash
flow provided by operating activities:
Depreciation and amortization . . . . . . . . 1,660,475 1,556,735 2,448,867
(Gain)/loss on sale of property and equipment (173,902) 417,578 249,320
Operational provision for losses and
write-downs . . . . . . . . . . . . . . . . 795,000 1,550,000 1,480,000
Loss on sale of Class B REMIC Certificates 238,395 --- ---
Non-operational recoveries . . . . . . . . . --- --- (100,000)
Write-off of portion of debt issuance costs --- 1,344,733 ---
Proceeds from borrowings collateralized by
notes receivable net of principal repayments 13,606,421 (53,693,123) (2,980,588)
(INCREASE) DECREASE IN ASSETS:
Contracts receivable . . . . . . . . . . . . . (1,228,633) (3,579,717) (754,367)
Investment in securities . . . . . . . . . . . 5,323,199 (5,455,135) (1,156,852)
Inventory . . . . . . . . . . . . . . . . . . 4,556,303 10,890,778 10,957,114
Other assets . . . . . . . . . . . . . . . . . (2,656,580) 3,374,615 893,595
Notes receivable . . . . . . . . . . . . . . . (11,601,107) 53,006,185 (1,355,074)
INCREASE (DECREASE) IN LIABILITIES:
Accounts payable and accrued liabilities
and other . . . . . . . . . . . . . . . . . . (1,867,627) (1,411,638) (1,760,164)
Deferred income taxes . . . . . . . . . . . . 2,951,747 1,891,152 751,200
------------- ------------ -------------
NET CASH FLOW PROVIDED BY OPERATING ACTIVITIES. . $ 16,534,211 $ 13,348,952 $ 10,041,258
============= ============ =============
SUPPLEMENTAL SCHEDULE OF NON-CASH OPERATING
AND FINANCING ACTIVITIES:
Inventory acquired through financing . . . . . $ 12,806,899 $ 9,301,548 $ 5,341,560
============= ============ =============
Inventory acquired through foreclosure,
"insubstance foreclosure" or deedback in
lieu of foreclosure . . . . . . . . . . . . . $ 737,487 $ 677,899 $ 5,465,086
============= ============ =============
Revolving line of credit fee added to mortgage-
backed indebtedness . . . . . . . . . . . . . $ --- $ 500,000 $ ---
============= ============ =============
Forgiveness of indebtedness owed to creditors
in exchange for real estate . . . . . . . . . $ --- $ 562,000 $ ---
============= ============ =============
Investment in securities . . . . . . . . . . . $ --- $ 15,836,662 $ ---
============= ============ =============
Non-monetary exchange of joint venture
assets for other assets . . . . . . . . . . . $ --- $ --- $ 2,832,351
============= ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 21
PATTEN CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED MARCH 27, 1994, MARCH 28, 1993 AND MARCH 29, 1992
<TABLE>
<CAPTION>
COMMON CAPITAL IN RETAINED
STOCK $.01 PAR EXCESS OF EARNINGS
ISSUED VALUE VALUE (DEFICIT) TOTAL
------ ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1991 . . 17,061,001 $ 170,610 $59,139,615 $ (17,300,202) $42,010,023
Net income . . . . . . . . --- --- --- 1,368,207 1,368,207
---------- ---------- ----------- ------------- -----------
Balance, March 29, 1992 . . 17,061,001 170,610 59,139,615 (15,931,995) 43,378,230
Shares issued to employees
upon exercise of qualified
stock options . . . . . . . 22,000 220 32,780 --- 33,000
Net income . . . . . . . . --- --- --- 3,456,789 3,456,789
---------- ---------- ----------- ------------ -----------
Balance, March 28, 1993 . . 17,083,001 170,830 59,172,395 (12,475,206) 46,868,019
4% stock dividend . . . . . 683,005 6,830 1,871,434 (1,878,264) ---
Cash payment for dividends in
lieu of fractional shares --- --- --- (976) (976)
Shares issued to employees
upon exercise of qualified
stock options . . . . . . . 29,968 300 55,796 --- 56,096
Net income . . . . . . . . --- --- --- 4,930,520 4,930,520
---------- ---------- ----------- ------------- -----------
Balance, March 27, 1994 . . 17,795,974 $ 177,960 $61,099,625 $ (9,423,926) $51,853,659
========== ========== =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 22
PATTEN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements include the accounts of Patten Corporation and all
wholly owned subsidiaries (the "Company"). All significant intercompany
transactions are eliminated.
Cash and Cash Equivalents
The Company invests cash in excess of immediate operating requirements in cash
equivalent short-term time deposits and money market instruments generally with
original maturities of three months or less. The Company maintains cash and
cash equivalents with various financial institutions. These financial
institutions are located throughout the country and Company policy is designed
to limit exposure to any one institution. However, a significant portion of
the Company's unrestricted cash is maintained with a single bank and,
accordingly, the Company is subject to credit risk. Periodic evaluations of
the relative credit standing of financial institutions maintaining Company
deposits are performed to evaluate and mitigate, if necessary, credit risk.
At March 27, 1994, cash and cash equivalents included $3.5 million restricted
under mortgage-backed note agreements, $95,000 securing letters of credit,
$88,000 securing a road development bond and $1.3 million of customer deposits
on real estate maintained in escrow accounts. At March 28, 1993, cash and cash
equivalents included $3.7 million restricted under mortgage-backed note
agreements, $93,000 securing letters of credit and $1.8 million of customer
deposits on real estate maintained in escrow accounts.
Investment in Securities
The Company's investment in securities consists of the subordinated
certificates which were retained by the Company in connection with its 1989 and
1992 REMIC transactions. The certificates are being carried at their initial
allocated basis plus income accreted using the estimated effective yield rates.
The income accreted on the investment in securities is reported in interest
income. The carrying value of the certificates approximates fair market value.
Inventory
Real estate acquired for sale is carried at the lower of cost, including costs
of improvements and amenities incurred subsequent to acquisition, or estimated
net realizable value. Real estate reacquired through foreclosure or deedback
in lieu of foreclosure is recorded at the lower of estimated net realizable
value or the balance of the loan. Costs incurred to reacquire, carry and
dispose of the property are capitalized to the extent deemed recoverable.
Property and Equipment
Property and equipment are recorded at cost or, in the case of leased assets
which qualify as capital leases, at the present value of future lease payments.
Depreciation is computed on the straight-line method based on the estimated
useful lives of the related assets. Leased assets under capital leases are
depreciated over their respective lease term using the straight-line method.
Contracts Receivable and Revenue Recognition
The Company recognizes revenue on retail land sales when a minimum of 10% of
the sales price has been received in cash, collectibility of the receivable is
reasonably assured, the Company has completed substantially all of its
obligations with respect to any development related to the real estate sold
and any rescission period has passed.
22
<PAGE> 23
The Company recognizes revenue on other real estate sales, which primarily
includes large-acreage bulk sales and sales to investors and developers, when
the buyer's initial and continuing investment are adequate to demonstrate a
commitment to pay for the property, which generally requires a minimum of 20%
of the sales price to be received in cash, the collectibility of the receivable
is reasonably assured, the Company has completed substantially all of its
obligations with respect to any development related to the real estate sold and
any rescission period has passed. The Company recognizes revenue on housing
operation sales when the unit is complete and title is transferred to the
buyer. In cases where all development has not been completed, the Company
recognizes revenue in accordance with the percentage of completion method.
The excess of sales price over legally binding deposits received is recorded as
contracts receivable. Contracts receivable are converted into cash and/or notes
receivable generally within sixty days. All related costs are recorded when
the sale is recorded.
Provision for Losses
Provisions for losses on notes receivable, real estate held for sale and real
estate reacquired through foreclosure or deedback in lieu of foreclosure are
charged to operations when it is determined that the investment in such assets
is impaired in management's best judgment.
Income Taxes
A provision for deferred income taxes has been provided for the tax effects of
differences between the financial and tax bases of assets and liabilities and
for operating losses that are available to offset future taxable income.
Deferred income taxes have been reduced by the tax effect of net operating loss
carryforwards to the extent that deferred tax liabilities are comprised of
temporary differences which are expected to reverse during the statutory
carryforward period.
Net Income Per Common Share
Primary net income per common share is determined by dividing net income by the
weighted average number of common shares outstanding after giving effect to all
common equivalent shares outstanding during each period, when dilutive. The
common equivalent shares reflect the dilutive impact of shares reserved for
outstanding stock options. Net income per common share, assuming full
dilution, gives effect to the conversion of outstanding 8 1/4% convertible
subordinated debentures when dilutive (after elimination of related interest
expense, net of income tax effect) and the dilutive impact of shares reserved
for outstanding stock options. The weighted average number of common and
common equivalent shares used to calculate primary and fully diluted net income
per common share has been adjusted in the Consolidated Statements of Income to
give effect to certain stock dividends, including retroactive restatement of
the net income per common share amounts for the prior two fiscal years
presented. See Note 12.
Reclassifications
Certain reclassifications have been made on the Consolidated Statement of Cash
Flows for the prior year to conform to the current year presentation. See
Notes 8 and 9.
2. NOTES RECEIVABLE
The weighted average interest rate on notes receivable was 10.9% and 11.0% at
March 27, 1994 and March 28, 1993, respectively. Substantially all of the
Company's notes receivable bear interest at a variable rate.
The Company recorded loan loss provisions of $795,000, $400,000 and $780,000
during fiscal 1994, 1993 and 1992, respectively. Furthermore, the Company
charged $797,000, $990,000 and $1.4 million to its reserve for loan losses
23
<PAGE> 24
to reflect the difference between the unpaid balance of such notes receivable
and the estimated net realizable value of the reacquired inventory during fiscal
1994, 1993 and 1992, respectively. Accrual of interest on notes receivable
greater than 90 days past due is excluded from income.
Installments due on notes receivable held by the Company during each of the
five fiscal years subsequent to March 27, 1994, are set forth below.
FISCAL NOTES RECEIVABLE
YEAR PAYMENTS
----------- ----------------
1995 . . . . . . . . . . . . . . . . . . . . $ 4,307,820
1996 . . . . . . . . . . . . . . . . . . . . 4,105,140
1997 . . . . . . . . . . . . . . . . . . . . 4,358,151
1998 . . . . . . . . . . . . . . . . . . . . 4,449,197
1999 . . . . . . . . . . . . . . . . . . . . 4,608,445
Thereafter . . . . . . . . . . . . . . . . . 21,695,053
------------
Total . . . . . . . . . . . . . . . . . . . . $ 43,523,806
============
The table below sets forth activity in the reserve for estimated loan losses.
Reserve for loan losses, March 29, 1992 . . . . . . . $2,173,425
Provision for losses . . . . . . . . . . . . . . . . 400,000
Release of reserve related to notes receivable
included in REMIC . . . . . . . . . . . . . . . . (939,000)
Write-offs against reserve . . . . . . . . . . . . . (990,348)
----------
Reserve for loan losses, March 28, 1993 . . . . . . . 644,077
Provision for losses . . . . . . . . . . . . . . . . 795,000
Write-offs against reserve . . . . . . . . . . . . . (797,113)
----------
Reserve for loan losses, March 27, 1994 . . . . . . . $ 641,964
==========
3. INVESTMENT IN SECURITIES
The Company's investment in securities includes $13.3 million and $13.2 million
of securities retained by the Company in connection with the 1992 and 1989
REMIC transactions, respectively. See Notes 8 and 9. Investment in securities
are carried at their initial allocated basis plus income accreted using the
estimated effective yield rate of 12%.
24
<PAGE> 25
4. INVENTORY AND PROPERTY UNDER CONTRACT
The table below sets forth as of March 27, 1994 and March 28, 1993, property
owned by the Company classified by geographic region.
<TABLE>
<CAPTION>
MARCH 27, 1994 MARCH 28, 1993
----------------------------------------- ----------------------------------------
INVENTORY INVENTORY
TOTAL VALUATION TOTAL VALUATION
GEOGRAPHIC REGION ACRES COST RESERVE ACRES COST RESERVE
------- ----------- ------------ ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Northeast . . . . . . . 1,242 $7,110,231 $ 2,523,180 1,717 $8,979,960 $3,275,409
Mid-Atlantic . . . . . 2,160 5,218,675 36,497 3,049 4,856,762 129,917
Southeast . . . . . . . 1,429 13,135,384 1,932,971 3,409 13,768,159 2,919,175
Midwest . . . . . . . . 1,723 7,532,470 50,555 908 2,198,219 57,982
Southwest . . . . . . . 3,630 5,191,291 5,450 2,311 3,632,534 29,943
West . . . . . . . . . 7,384 6,102,910 14,950 8,471 3,669,354 15,099
Canada . . . . . . . . 224 386,584 --- 200 448,396 ---
------ ----------- ------------ ------ ----------- ----------
17,792 44,677,545 $ 4,563,603 20,065 37,553,384 $6,427,525
====== ============ ====== ==========
Inventory valuation
reserve . . . . . . . (4,563,603) (6,427,525)
----------- -----------
Inventory, net . . . . $40,113,942 $31,125,859
=========== ===========
</TABLE>
The Company's inventory holdings as of March 27, 1994 and March 28, 1993,
summarized by product type are outlined in the following tables:
<TABLE>
<CAPTION>
MARCH 27, 1994
------------------------------------------------------------------------------
GEOGRAPHIC REGION LAND HOUSING (1) TIMESHARE TOTAL
- - - ----------------- ---------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
Northeast . . . . . . . . $ 4,587,051 $ --- $ --- $ 4,587,051
Mid-Atlantic . . . . . . 5,182,178 --- --- 5,182,178
Southeast . . . . . . . . 6,808,053 4,394,360 --- 11,202,413
Midwest . . . . . . . . . 5,106,059 --- 2,375,856 7,481,915
Southwest . . . . . . . . 4,051,153 1,134,688 --- 5,185,841
West . . . . . . . . . . 4,983,355 1,104,605 --- 6,087,960
Canada . . . . . . . . . 386,584 --- --- 386,584
------------ ----------- ----------- --------------
Totals . . . . . . . . . $ 31,104,433 $ 6,633,653 $ 2,375,856 $ 40,113,942
============ =========== =========== ==============
</TABLE>
<TABLE>
<CAPTION>
MARCH 28, 1993
----------------------------------------------------------------------------
GEOGRAPHIC REGION LAND HOUSING (1) TOTAL
- - - ----------------- --------------- -------------- --------------
<S> <C> <C> <C>
Northeast . . . . . . . . $ 5,704,551 $ --- $ 5,704,551
Mid-Atlantic . . . . . . 4,726,845 --- 4,726,845
Southeast . . . . . . . . 8,037,498 2,811,486 10,848,984
Midwest . . . . . . . . . 2,140,237 --- 2,140,237
Southwest . . . . . . . . 3,602,591 --- 3,602,591
West . . . . . . . . . . 3,654,255 --- 3,654,255
Canada . . . . . . . . . 448,396 --- 448,396
------------- ------------ --------------
Totals . . . . . . . . . $ 28,314,373 $ 2,811,486 $ 31,125,859
============= ============ ==============
</TABLE>
(1) Housing operation inventory as of March 27, 1994, includes land
inventory of $5.4 million and $1.2 million of housing unit
construction-in-progress. As of March 28, 1993, the Company had $2.8
million of land inventory with no housing unit construction-in-progress.
25
<PAGE> 26
The Company estimates that the total cash required to complete preparation for
the retail sale of the inventory owned as of March 27, 1994, was approximately
$29.3 million, excluding housing and timeshare unit costs subsequent to fiscal
1995 which the Company is not able to determine at this time. Of the $29.3
million of cash requirements, the Company currently estimates that
approximately $24.5 million will be required to complete preparation for sale
of inventory intended to be marketed in fiscal 1995. The following table sets
forth the estimated funds required to complete such preparation by geographic
region and product type. The estimated spending attributable to land holdings
includes all development costs to complete properties for retail sale. With
respect to the Company's housing operation, estimated funding needs include
costs to complete all land development as well as costs required to construct
housing units. Projected spending on timeshare property represents funds
required to complete Phase I, which is comprised of 19 units as well as certain
infrastructure and amenities which also serve subsequent phases of the
development.
<TABLE>
<CAPTION>
GEOGRAPHIC REGION LAND HOUSING TIMESHARE TOTAL
- - - ----------------- ---------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Northeast . . . . . . . . $ 383,126 $ -- $ -- $ 383,126
Mid-Atlantic . . . . . . 463,290 -- -- 463,290
Southeast . . . . . . . . 617,027 4,358,282 -- 4,975,309
Midwest . . . . . . . . . 2,290,822 -- 2,744,923 5,035,745
Southwest . . . . . . . . 7,812,334 2,240,409 -- 10,052,743
West . . . . . . . . . . 406,653 3,169,111 -- 3,575,764
Canada . . . . . . . . . 808 -- -- 808
------------ ----------- ----------- --------------
Totals . . . . . . . . . $ 11,974,060 $ 9,767,802 $ 2,744,923 $ 24,486,785
============ =========== =========== ==============
</TABLE>
As a result of a continuing internal review of its inventory, the Company
recorded no provision for the write-down of inventory to the lower of cost or
estimated net realizable value for fiscal 1994 and $1.15 million and $700,000
during fiscal 1993 and 1992, respectively. The Company maintains inventory
valuation reserves on a property-by-property basis which serve as contra assets
against the historical cost of such parcels. The Company's inventory valuation
reserve specifically includes the following components: (a) the difference
between the historical cost and expected selling price of the inventory; and
(b) the expected costs to dispose of the inventory, including selling, general
and administrative expense ("S,G&A" expense) and in certain cases interest
expense. As parcels are sold, inventory is relieved from the balance sheet and
a charge to cost of sales is recorded on the statement of income at historical
amounts. In addition, reserves are released as credits against cost of real
estate sold, S,G&A expense and interest expense. During fiscal 1994, $765,000
and $1.1 million of the Company's inventory reserves were released as credits
against cost of real estate sold and S,G&A expense, respectively. During fiscal
1993, $5 million and $1.7 million of the Company's inventory reserves were
released as credits against cost of real estate sold, and S,G&A expense,
respectively. In addition, approximately $2.2 million of reserves were used
during fiscal 1993 to write-off certain capitalized indirect acquisition costs
and other costs deemed unrecoverable.
The table below sets forth activity in the inventory valuation reserve.
<TABLE>
<S> <C>
Inventory valuation reserve, March 29, 1992 . . . . . . . $14,163,107
Provision for losses . . . . . . . . . . . . . . . . . . 1,150,000
Write-offs against reserve . . . . . . . . . . . . . . . (8,885,582)
-----------
Inventory valuation reserve, March 28, 1993 . . . . . . . 6,427,525
Write-offs against reserve . . . . . . . . . . . . . . . (1,863,922)
-----------
Inventory valuation reserve, March 27, 1994 . . . . . . . $ 4,563,603
===========
</TABLE>
Included in other assets are aggregate down payments for property under
contract of $740,000 and $96,000 at March 27, 1994 and March 28, 1993,
respectively. As of March 27, 1994, the aggregate down payments of $740,000
are associated with recreational, rural and lake property under contract for
purchase. Such property requires an aggregate purchase price of $24.4 million
and represents 40,994 acres. The Company seeks to acquire a significant amount
of such inventory through financing.
26
<PAGE> 27
5. PROPERTY AND EQUIPMENT
The table below sets forth the property and equipment held by the Company at
the period end indicated.
<TABLE>
<CAPTION>
MARCH 27, MARCH 28,
1994 1993
------------ ------------
<S> <C> <C>
Land, buildings and building
improvements . . . . . . . . . . . . . . $ 2,541,522 $ 2,116,561
Office equipment, furniture and fixtures 4,259,594 4,288,548
Aircraft . . . . . . . . . . . . . . . . . 911,628 782,570
Vehicles and equipment . . . . . . . . . . 567,790 481,434
Capital leases (Note 6) . . . . . . . . . . 515,874 1,720,297
------------ ------------
8,796,408 9,389,410
Accumulated depreciation and
amortization . . . . . . . . . . . . . . (5,161,930) (5,475,184)
------------ ------------
Total . . . . . . . . . . . . . . . . . . . $ 3,634,478 $ 3,914,226
============ ============
</TABLE>
6. LINE OF CREDIT AND NOTES PAYABLE
The Company has outstanding borrowings with various financial institutions and
other lenders which has been used to finance the acquisition of inventory and
to fund operations. Significant financial data related to the Company's
borrowing facilities is set forth below.
<TABLE>
<CAPTION>
MARCH 27, 1994 MARCH 28, 1993
-------------- --------------
<S> <C> <C>
Repurchase obligation with interest at a rate
of 7.75% matured on June 9, 1993 (See Item A) . . . . . $ --- $ 6,500,000
Line of credit at a rate of prime plus 3% at
March 27, 1994 and prime plus 5% at March 28, 1993
(see Item B) . . . . . . . . . . . . . . . . . . . . . 735,819 583,478
Line of credit at a rate of prime plus 3% (see Item C) . . --- 340,285
Notes and mortgage notes secured by certain
inventory and property and equipment with
interest rates ranging from 6.2% to 11.0%.
Maturities range from 1995 to 2000 . . . . . . . . . . 10,659,874 6,236,777
Lease obligations payable in installments
through fiscal 1995 with a weighted average
interest rate of 13.8% at March 27, 1994 . . . . . . . 128,457 775,995
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,524,150 $ 14,436,535
============ ============
</TABLE>
The table below sets forth the contractual minimum principal payments required
on the Company's line of credit and notes payable. Such minimum contractual
payments may differ from actual payments due to the effect of principal
payments required on a lot release basis for certain of the above obligations.
27
<PAGE> 28
<TABLE>
<CAPTION>
MINIMUM
FISCAL YEAR PRINCIPAL PAYMENT
----------- -----------------
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . $ 2,669,380
1996 . . . . . . . . . . . . . . . . . . . . . . 2,602,943
1997 . . . . . . . . . . . . . . . . . . . . . . 2,705,094
1998 . . . . . . . . . . . . . . . . . . . . . . 1,505,480
1999 . . . . . . . . . . . . . . . . . . . . . . 2,010,890
Thereafter . . . . . . . . . . . . . . . . . . . 30,363
------------
Total . . . . . . . . . . . . . . . . . . . . . $ 11,524,150
============
</TABLE>
Further information on the Company's line of credit and other borrowings is as
follows:
ITEM A.
The Company received $6.5 million pursuant to a securities repurchase agreement
dated as of March 12, 1993, where the B-1 1989 REMIC Certificates and the Class
B Certificates associated with the 1992 REMIC were sold to a financial
institution subject to the Company's agreement to repurchase such securities
(the "Repurchase Agreement"). Proceeds of the Repurchase Agreement were used
as interim financing to retire indebtedness under a fully-secured term debt
facility scheduled to mature on April 15, 1993, in the principal amount of
$2.75 million bearing interest at the rate of 9.75% per annum and for general
operating purposes. The Repurchase Agreement matured June 9, 1993, and had an
effective interest rate of 7.75% per annum. The Company repaid the
indebtedness under the Repurchase Agreement with loan proceeds of $6.5 million
from a lender whose general partner is also a Director of the Company. Such
loan accrued interest at the Corporate Base Rate of First National Bank of
Chicago plus 2% per annum and was collateralized by the 1992 Class B REMIC
Securities discussed below. The loan was repaid in three installments with a
final payment of $2 million on September 22, 1993.
ITEM B.
At March 28, 1993, the Company had outstanding borrowings under a line of
credit facility payable to a financial institution bearing interest at a rate
of prime plus 5%, secured by inventory. Such facility was paid in full and
retired in August, 1993. In October, 1993, the Company entered into a new
credit facility with the same financial institution which provides for advances
up to $3 million secured by inventory, with interest at prime plus 3%. At
March 27, 1994, the facility was secured by inventory with an aggregate net
book value of $3.5 million. The Company is entitled to additional advances of
approximately $1.7 million against the inventory pledged at March 27, 1994.
The Company is required to pay the financial institution 55% of the sales price
when any such inventory is sold until the indebtedness is paid in full. The
facility expires in October, 1998. See Note 8.
ITEM C.
At March 28, 1993, the Company had a note payable to a financial institution
secured by inventory. The note matured and was retired in June, 1993.
The Company is required to comply with certain financial covenants under
several of its debt agreements discussed above, including, without limitation,
the following covenants that the Company considers most restrictive:
(i) Maintain net worth of at least $42 million.
(ii) Maintain a leverage ratio of not more than 4.0 to 1.0.
The leverage ratio is defined as consolidated indebtedness
of the Company to consolidated net worth.
28
<PAGE> 29
(iii) Maintain an adjusted leverage ratio of not more than 2.0 to 1.0.
The adjusted leverage ratio is defined as consolidated
indebtedness of the Company excluding the convertible
subordinated debentures to consolidated net worth including the
convertible subordinated debentures.
(iv) Selling, general and administrative expenses are not to exceed
50% of gross sales revenue from sales of real estate.
The Company was in compliance with such covenants at March 27, 1994, and for
each reporting period during fiscal 1994.
7. CONVERTIBLE SUBORDINATED DEBENTURES
As of May 21, 1987, the Company issued $46 million of its 8 1/4% convertible
subordinated debentures due 2012 (the "1987 Debentures"). The 1987 Debentures
were issued at face value. During fiscal 1989 and fiscal 1988, the Company
purchased and retired $3,308,000 and $7,953,000, respectively, of its
outstanding 1987 Debentures.
The 1987 Debentures are convertible at any time prior to maturity, unless
previously redeemed, into common stock of the Company at a conversion price of
$9.45 per share, subject to adjustment under certain conditions. Effective May
31, 1994, the 1987 Debentures are convertible into common stock at a price of
$9.09 per share, due to a change in capitalization with the declaration of a 4%
stock dividend payable on May 31, 1994. See Note 12. The 1987 Debentures are
redeemable at any time, at the Company's option, in whole or in part. The
redemption price for the 12-month period beginning May 15, 1993, was 103.3% of
the face amount. The redemption premium declines .825% each 12-month period
thereafter until May 15, 1997, at which time the redemption price is 100% of
the face amount. The Company is obligated to redeem annually 10% of the
principal amount of the 1987 Debentures originally issued, commencing May 15,
2003. Such redemptions are calculated to retire 90% of the principal amount of
the 1987 Debentures prior to maturity.
Under financial covenants of the Indenture pursuant to which the 1987
Debentures were issued, the Company is required to maintain net worth of not
less than $29 million. Should net worth fall below $29 million for two
consecutive quarters, the Company is required to make an offer to purchase 20%
of the outstanding 1987 Debentures at par, plus accrued interest. The 1987
Debentures are unsecured and subordinated to all senior indebtedness of the
Company. Interest is payable semi-annually on May 15 and November 15.
8. SALE/PLEDGE OF NOTES RECEIVABLE
The Receivables Subsidiaries, which are wholly owned consolidated finance
subsidiaries of the Company, have pledged or sold notes receivable since 1986.
The information provided below summarizes the activities of the Company and its
Receivables Subsidiaries with respect to the sale and pledging of notes
receivable.
Mortgage-Backed Notes Payable
In prior fiscal years, Patten Receivables Finance Corporation ("Patten
Receivables I"), Patten Receivables Finance Corporation II ("Patten Receivables
II") and Patten Receivables Finance Corporation III ("Patten Receivables III")
issued notes payable secured by notes receivable. In July 1992, the
indebtedness issued under these subsidiaries was retired and a substantial
portion of the related notes receivable were included as collateral under the
1992 REMIC. See discussion of 1992 REMIC below. The indebtedness was retired
at face amount and the Company was not subject to a prepayment penalty. In
connection with these transactions, approximately $2.5 million of cash was
released from restrictive reserve accounts.
Patten Receivables Finance Corporation VI ("Patten Receivables VI") has
indebtedness under a $20 million revolving credit line with a financial
institution secured by notes receivable. The indebtedness matures in March,
2004. The pledged notes receivable were acquired by Patten Receivables VI from
the Company at face value. At March 27, 1994, the notes receivable had a
weighted average interest rate of 10.4%. Payments received on the notes
29
<PAGE> 30
receivable are applied to reduce principal outstanding on the indebtedness
weekly and pay interest monthly. Interest is calculated on the weighted
average indebtedness outstanding for the month at a rate of prime plus 2%. The
outstanding indebtedness was $12.1 million and $11.8 million at March 27, 1994
and March 28, 1993, respectively. The principal balance outstanding on the
notes receivable and principal and interest collections on the notes receivable
included in cash and cash equivalents on the Consolidated Balance Sheets were
$14.1 million and $139,000, respectively, at March 27, 1994 and $13.5 million
and $113,000, respectively, at March 28, 1993. The indebtedness is guaranteed
by the Company. The pledged notes receivable are serviced by the Company.
In connection with the acquisition of a subsidiary during the year ended April
3, 1988, the Company assumed borrowing of $1.6 million under a $2 million term
facility with a financial institution secured by notes receivable. The
facility matures in June, 1997. At March 27, 1994, the notes receivable had a
weighted average interest rate of 11.6%. Payments received on the notes
receivable are applied to reduce principal outstanding on the indebtedness and
pay interest monthly. Interest is calculated daily on the unpaid principal
balance of the indebtedness at a rate of prime plus 2%. The outstanding
indebtedness was $160,459 and $323,212 at March 27, 1994 and March 28, 1993,
respectively. The principal balance on the notes receivable was $236,310 and
$385,304 at March 27, 1994 and March 28, 1993, respectively. The pledged notes
receivable are serviced by the Company.
On June 11, 1993, Patten Receivables III entered into a $25 million revolving
credit facility arrangement with a financial institution. The indebtedness is
secured by notes receivable and matures in June, 1998. The pledged notes
receivable were acquired by Patten Receivables III from the Company at face
value. At March 27, 1994, the notes receivable had a weighted average interest
rate of 10.9%. Payments received on the notes receivable are applied to
reduced principal outstanding on the indebtedness daily and pay interest
monthly. Interest is calculated on the weighted average indebtedness
outstanding for the month at a rate of 1.75% plus the greater of the prime rate
or commercial paper rate as published in the Wall Street Journal. At March 27,
1994, the principal outstanding on the pledged notes receivable and the
outstanding indebtedness under the credit facility was $9,772,350 and
$6,464,146, respectively. The pledged notes receivable are serviced by the
Company.
In addition to notes pledged by the Receivables Subsidiaries, certain notes
owned directly by the Company are pledged to secure a $10 million revolving
credit facility entered into on October 29, 1993 with another financial
institution. The facility expires in October, 1998. Under the terms of this
facility, the Company was advanced a one-time, initial funding of $850,000
collateralized by $1.7 million of certain, specifically identified notes
receivable. The Company is also entitled to additional advances equal to 80%
of the outstanding principal balance of other pledged notes receivable and
advances not to exceed $3 million at any time, collateralized by inventory to
fund the acquisition and development of real estate. See Item B of Note 6. At
March 27, 1994, the notes receivable associated with the one-time initial
funding had an outstanding principal balance of $1,570,700 with a weighted
average interest rate of 10.4%. At March 27, 1994, the other notes receivable
pledged under this facility had an outstanding principal balance of $8,445,202
with a weighted average interest rate of 11.2%. Payments received on the notes
receivable are applied to reduce principal outstanding on the indebtedness
daily and to pay interest monthly. Interest is calculated on the weighted
average indebtedness outstanding for the month at a rate of prime plus 3.5% on
borrowings associated with the initial one-time advance and a rate of prime
plus 2.5% on outstanding advances secured by other notes receivables. At March
27, 1994, the outstanding indebtedness associated with the one-time initial
funding was $744,673 and the outstanding advances secured by other notes
receivable was $6,334,814. The advances secured by notes receivable were
repaid in full on May 11, 1994, with a portion of the proceeds from the 1994
REMIC transaction. See Note 15. The pledged notes receivable are serviced by
the Company.
30
<PAGE> 31
Installments due on mortgage-backed notes payable based upon principal payments
due on notes receivable in each of the five fiscal years subsequent to March
27, 1994 is set forth below:
FISCAL MINIMUM
YEAR PRINCIPAL PAYMENT
----------- -----------------
1995 . . . . . . . . . . . . . . . . . . . . $ 3,071,308
1996 . . . . . . . . . . . . . . . . . . . . $ 3,295,121
1997 . . . . . . . . . . . . . . . . . . . . $ 3,516,183
1998 . . . . . . . . . . . . . . . . . . . . $ 3,590,947
1999 . . . . . . . . . . . . . . . . . . . . $ 3,719,037
Thereafter . . . . . . . . . . . . . . . . . $ 8,579,703
------------
Total . . . . . . . . . . . . . . . . . . . . $ 25,772,299
============
Sales of Notes Receivable/Sales of Interests in Notes Receivable
In February, 1988, Patten Receivables Finance Corporation V sold Amortizing
Collateralized Real Estate Securities evidencing a participation in a pool of
notes receivable. In connection with the 1992 REMIC transaction, the Company
reacquired the pool of mortgage notes receivable at approximately their par
value. See discussion of 1992 REMIC below. Approximately $2.3 million of cash
previously restricted under Patten Receivables Finance Corporation V was
released in connection with the 1992 REMIC transaction.
REMIC Transactions
On October 4, 1989, Patten Mortgage Trust I sold $32.2 million aggregate amount
of Adjustable Rate REMIC Mortgage Pass-Through Certificates, Series 1989-1
Class A ("1989 Class A REMIC Certificates") to institutional investors. Each
1989 Class A REMIC Certificate represented a fractional undivided interest in
an aggregate 80% participation in a $40.2 million pool of mortgage notes
receivable ("1989 REMIC Mortgage Pool") sold at face value to Patten Mortgage
Trust I by Patten Receivables Finance Corporation VII ("Patten Receivables
VII"), a wholly-owned subsidiary of the Company. The remaining 20%
participation was represented by $4 million aggregate amount of adjustable Rate
REMIC Mortgage Certificates, Series 1989-1, Class B-1 ("1989 Class B-1 REMIC
Certificates") and $4 million aggregate amount of adjustable rate REMIC
Mortgage Certificates, Class B-2 ("1989 Class B-2 REMIC Certificates"). The
1989 Class B-1 REMIC Certificates and the 1989 Class B-2 REMIC Certificates,
each representing an aggregate 10% interest in the 1989 REMIC Mortgage Pool,
were retained by the subsidiary.
At March 27, 1994, the 1989 REMIC Mortgage Pool had an outstanding principal
balance of $15.2 million and a weighted average interest rate of 10.7%. The
outstanding principal balance of the 1989 Class A REMIC Certificates at March
27, 1994 was approximately $3.1 million. The 1989 Class B-1 Certificates had a
carrying value of $6 million at March 27, 1994. The 1989 Class B-2 REMIC
Certificates had a carrying value of $7.1 million at March 27, 1994.
The Company was paid an annualized servicing fee of .5% of the scheduled
principal balance from principal payments received to service the 1989 REMIC
Mortgage Pool. The Company collapsed the 1989 REMIC in connection with its
1994 REMIC which closed May 11, 1994. See Note 15.
On July 24, 1992, Patten Receivables Finance Corporation VIII ("Patten
Receivables VIII") sold $74.7 million aggregate principal amount of Adjustable
Rate REMIC Mortgage Pass-Through Certificates, Class A ("1992 Class A REMIC
Certificates") in the 1992 REMIC. Each 1992 Class A REMIC Certificate
evidences a fractional undivided interest in the distributions allocable to the
1992 Class A REMIC Certificates from a pool of mortgage notes receivable ("1992
REMIC Mortgage Pool"). The aggregate principal amount of the 1992 REMIC
Mortgage Pool, which was originated by the Company or its affiliates, totaled
$90.5 million. The 1992 REMIC Mortgage Pool was
31
<PAGE> 32
sold to Patten Corporation REMIC Trust, Series 1992-1. The REMIC
consists of four classes of certificates. Patten Receivables VIII initially
retained the Adjustable Rate REMIC Mortgage Pass-Through Certificates, Class B
("1992 Class B REMIC Certificates"), the Adjustable Rate REMIC Mortgage
Pass-Through Certificates, Class C ("1992 Class C REMIC Certificates") and the
Adjustable Rate REMIC Mortgage Pass-Through Certificates, Class R ("1992 Class R
REMIC Certificates"). On July 2, 1993, Patten Receivables VIII sold the 1992
Class B REMIC Certificates for $8.4 million. The loss on the sale approximated
$238,000 and is included as a reduction to interest income and other in the
Consolidated Statement of Income for the year ended March 27, 1994.
The 1992 Class A REMIC Certificates bear interest at the lesser of (a) the
weighted average of the net mortgage rates of the REMIC Mortgage Pool or (b)
the London interbank offered rate for six month United States dollar deposits
("LIBOR") plus 2.5% (the "Class A pass-through rate"). The 1992 Class A REMIC
Certificates require monthly payments of all cash received as payments of
principal and interest as well as advances by the Company of scheduled payments
not received on the 1992 REMIC Mortgage Pool until the crossover date
("Crossover Date") less an annualized servicing fee of .5% of the scheduled
principal balance. The Crossover Date is defined as the first distribution
date following the distribution on which the outstanding principal balance of
the 1992 Class A REMIC Certificates is less than or equal to 50% of the initial
principal balance of the 1992 Class A REMIC Certificates or $37.3 million. The
Class B Certificates accrue interest at a rate of LIBOR plus 3.5%. On each
distribution date on and after the Crossover Date, the 1992 Class B REMIC
Certificates receive monthly payments of interest at the Class B pass-through
rate, equal to LIBOR plus 3.5%, to the extent collections on the 1992 REMIC
Mortgage Pool are available. The 1992 Class A REMIC Certificates receive the
remaining cash collected on the 1992 REMIC Mortgage Pool. The 1992 Class B
REMIC Certificates receive payments of all cash received on the 1992 REMIC
Mortgage Pool upon the 1992 Class A REMIC Certificates being paid in full.
The Class C Certificates accrue interest at a rate of LIBOR plus 4.5%. When
the 1992 Class B REMIC Certificates are paid in full, the rights to receive
cash received on the 1992 REMIC Mortgage Pool will pass to the 1992 Class C
REMIC Certificates. When the 1992 Class C REMIC Certificates are paid in full,
the rights to receive cash received on the 1992 REMIC Mortgage Pool will pass
to the Class R REMIC Certificates.
The Company is paid an annualized servicing fee of .5% of the scheduled
principal balance from payments received to service the 1992 REMIC Mortgage
Pool. Under the terms of the pooling and servicing agreement, the Company has
the obligation to repurchase or replace mortgage loans which did not materially
conform to the Company's representations and warranties at the date of sale.
In addition, the Company is required to make advances of delinquent payments to
the extent deemed recoverable. The Company has no obligation, however, to
repurchase or replace mortgage loans solely due to delinquency.
At March 27, 1994, the 1992 REMIC Mortgage Pool had an outstanding principal
balance of $64.6 million and a weighted average interest rate of 10.1%. The
outstanding principal balance of the 1992 Class A REMIC Certificates at March
27, 1994 was approximately $43.4 million, reflecting $31.3 million in principal
reduction since July, 1992. The outstanding principal balance of the 1992
Class B REMIC Certificates at March 27, 1994 was approximately $9.3 million.
The value of the 1992 Class B REMIC Certificates may be affected by the rate of
prepayments or defaults in the 1992 REMIC Mortgage Pool. Because the 1992
Class C REMIC Certificates and 1992 Class R REMIC Certificates have a carrying
value of $13.3 million at March 27, 1994, foreclosure losses, principal
prepayments in excess of those projected and/or a significant change in the
interest spread on the 1992 REMIC Mortgage pool would have to exceed that
amount before the 1992 Class B REMIC Certificates would be impaired.
At current amortization and prepayment levels, it is not anticipated that there
will be any payments with respect to the 1992 Class B REMIC Certificates until
approximately July 1994.
32
<PAGE> 33
9. RECEIVABLES SUBSIDIARIES
Presented below is summarized financial information for the Company's
Receivables Subsidiaries. See Note 8.
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF MARCH 27, 1994
------------------------------------------------------------------------
PATTEN PATTEN PATTEN PATTEN
RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES
III VI VII VIII TOTAL
------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash - principally restricted . . . $ 79,232 $ 139,492 $ 1,277,155 $ 1,636,602 $ 3,132,481
Interest receivable . . . . . . . . 39,968 51,859 2,048 --- 93,875
Notes receivable . . . . . . . . . 9,772,350 14,086,191 --- --- 23,858,54 (1)
Investment in securities . . . . . --- --- 13,150,226 13,319,488 26,469,714
Debt issuance costs . . . . . . . . 317,034 185,834 --- --- 502,868
----------- ----------- ----------- ----------- -----------
Total assets . . . . . . . . . . . $10,208,584 $14,463,376 $14,429,429 $14,956,090 $54,057,479
=========== =========== =========== =========== ===========
LIABILITIES AND EQUITY
Accrued trustee fees and
interest payable . . . . . . . . $ 44,526 $ 68,688 $ 4,000 --- $ 117,214
Payable to certificate holders
(cash collected as servicer
for the servicing period) . . . --- --- 267,291 1,668,415 1,935,706
Mortgage-backed notes payable 6,464,146 12,068,207 --- --- 18,532,35 (2)
Capital contributed from
Patten Corporation,
principally restricted . . . . . 3,699,902 2,326,471 14,158,128 13,287,665 33,472,166
Common stock . . . . . . . . . . . 10 10 10 10 40
----------- ----------- ----------- ----------- ------------
Total liabilities and equity. . . . $10,208,584 $14,463,376 $14,429,429 $14,956,090 $ 54,057,479
=========== =========== =========== =========== ============
</TABLE>
(1) Approximately $19 million of notes receivable, net of reserve for loan
losses, have not been transferred to the Receivables Subsidiaries and,
accordingly, are included in the consolidated accounts of Patten
Corporation.
(2) In addition to mortgage-backed indebtedness on the part of the Receivables
Subsidiaries, the consolidated accounts of Patten Corporation also include
approximately $7.1 million of such indebtedness secured by certain notes
receivable owned directly by the Company along with $160,000 of
indebtedness assumed in connection with the previous acquisition of a
subsidiary. See Note 8, "Mortgage-Backed Notes Payable".
33
<PAGE> 34
<TABLE>
<CAPTION>
BALANCE SHEETS AS OF MARCH 28, 1993
------------------------------------------------------------------
PATTEN PATTEN PATTEN
RECEIVABLES RECEIVABLES RECEIVABLES
VI VII VIII TOTAL
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash - principally restricted . . . $ 112,632 $ 1,473,191 $ 1,657,515 $ 3,243,338
Interest receivable . . . . . . . . 51,144 1,869 --- 53,013
Notes receivable . . . . . . . . . 13,526,408 --- --- 13,526,408 (1)
Investment in securities . . . . . --- 11,787,510 20,243,798 32,031,308
Debt issuance costs . . . . . . . . 82,277 --- --- 82,277
------------ ----------- ----------- ------------
Total assets . . . . . . . . . . . $ 13,772,461 $13,262,570 $21,901,313 $ 48,936,344
============ =========== =========== ============
LIABILITIES AND EQUITY
Accrued trustee fees and
interest payable . . . . . . . . . $ --- $ 2,000 $ --- $ 2,000
Payable to certificate holders
(cash collected as servicer
for the servicing period) . . . . --- 317,901 1,616,706 1,934,607
Mortgage-backed notes payable . . . 11,842,666 --- --- 11,842,666 (2)
Capital contributed from
Patten Corporation,
principally restricted . . . . . 1,929,785 12,942,659 20,284,597 35,157,041
Common stock . . . . . . . . . . . 10 10 10 30
------------ ----------- ----------- ------------
Total liabilities and equity . . . $ 13,772,461 $13,262,570 $21,901,313 $ 48,936,344
============ =========== =========== ============
</TABLE>
(1) Approximately $19.3 million of notes receivable, net of reserve for loan
losses, have not been transferred to the Receivables Subsidiaries and,
accordingly, are included in the consolidated accounts of Patten
Corporation.
(2) An additional $323,000 of indebtedness assumed in connection with the
acquisition of a subsidiary is included in the consolidated accounts of
Patten Corporation. See Note 8, "Mortgage-Backed Notes Payable".
34
<PAGE> 35
<TABLE>
<CAPTION>
STATEMENTS OF INCOME FOR THE YEAR ENDED MARCH 27, 1994
----------------------------------------------------------------------------
PATTEN PATTEN PATTEN PATTEN
RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES
III VI VII VIII TOTAL
------------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Interest income:
Notes receivable/securities . . $843,349 $1,465,073 $1,362,716 $1,428,664 $5,099,802
Cash investments . . . . . . . --- --- 31,224 --- 31,224
-------- ---------- ---------- ---------- ----------
843,349 1,465,073 1,393,940 1,428,664 5,131,026
Interest expense . . . . . . . 416,924 978,122 --- --- 1,395,046
Trustee and mortgage
service fees . . . . . . . . --- --- 12,521 --- 12,521
Other expense . . . . . . . . . 2,442 3,759 --- --- 6,201
Amortization of debt
issuance costs . . . . . . . 97,067 47,772 --- --- 144,839
-------- ---------- ---------- ---------- ----------
516,433 1,029,653 12,521 --- 1,558,607
-------- ---------- ---------- ---------- ----------
Income . . . . . . . . . . . . $326,916 $ 435,420 $1,381,419 $1,428,664 $3,572,419
======== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OFUINCOME FOR THE YEAR ENDED MARCH 28, 1993
-------------------------------------------------------------------
PATTEN PATTEN PATTEN
RECEIVABLES RECEIVABLES RECEIVABLES
VI VII VIII TOTAL
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Interest income:
Notes receivable/securities . . $ 1,334,958 $1,076,652 $1,801,137 $4,212,747
Cash investments . . . . . . . --- 31,549 --- 31,549
------------ ---------- ---------- ----------
1,334,958 1,108,201 1,801,137 4,244,296
Interest expense . . . . . . . 866,115 --- --- 866,115
Trustee and mortgage
service fees . . . . . . . . . --- 9,922 --- 9,922
Other expense . . . . . . . . . 4,369 10,329 12 14,710
Amortization of debt
issuance costs . . . . . . . 41,986 --- --- 41,986
------------ ---------- ---------- ----------
912,470 20,251 12 932,733
------------ ---------- ---------- ----------
Income . . . . . . . . . . . . $ 422,488 $1,087,950 $1,801,125 $3,311,563
============ ========== ========== ==========
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
STATEMENTS OF INCOME FOR THE YEAR ENDED MARCH 29, 1992
-----------------------------------------------------------------------------------------------------
PATTEN PATTEN PATTEN PATTEN PATTEN PATTEN
RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES RECEIVABLES
I II III V VI VII TOTAL
------------ ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Notes receivable/
securities. . . . . . $1,114,627 $1,028,39 $7,552,557 $520,651 $1,401,388 $1,676,040 $13,293,657
Cash investments . . . 124,353 16,228 --- 173,690 --- 44,082 358,353
---------- --------- ---------- -------- ---------- ---------- -----------
1,238,980 1,044,622 7,552,557 694,341 1,401,388 1,720,122 13,652,010
Interest expense . . . 837,436 730,658 3,877,816 --- 927,015 --- 6,372,925
Trustee and mortgage
service fees. . . . . 56,704 52,328 --- 24,828 --- 50,603 184,463
Other expense . . . . . 1,211 6,176 10,485 172,153 15,021 102,290 307,336
Amortization of debt
issuance costs. . . . 40,187 37,323 96,377 --- 32,918 --- 206,805
---------- --------- ---------- -------- ---------- ---------- -----------
935,538 826,485 3,984,678 196,981 974,954 152,893 7,071,529
---------- --------- ---------- -------- ---------- ---------- -----------
Income . . . . . . . . $ 303,442 $ 218,137 $3,567,879 $497,360 $ 426,434 $ 1,567,22 $ 6,580,481
========== ========= ========== ======== ========== ========== ===========
</TABLE>
Income tax expense, provision for possible loan losses and valuation reserves
related to asset recoverability issues are provided in the Patten Corporation
Consolidated Statements of Income for fiscal 1994, 1993 and 1992.
36
<PAGE> 37
10. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------------
MARCH 27, 1994 MARCH 28, 1993 MARCH 29, 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Federal:
Current . . . . . . . . . $ 31,582 $ 815,109 $ ---
Deferred. . . . . . . . . 2,443,387 437,376 47,829
---------- ----------- ---------
2,474,969 1,252,485 47,829
Foreign:
Current . . . . . . . . . --- (404,031) 189,689
Deferred. . . . . . . . . --- (523,434) (123,506)
---------- ----------- ---------
--- (927,465) 66,183
State:
Current . . . . . . . . . 38,601 1,510,225 ---
Deferred . . . . . . . . 508,361 38,592 4,220
---------- ----------- ---------
546,962 1,548,817 4,220
Total . . . . . . . . . . $3,021,931 $ 1,873,837 $ 118,232
========== =========== =========
</TABLE>
The fiscal 1994 current tax provision was offset by refunds and overpayments
resulting from the reduction in amounts originally estimated during fiscal
1993. Income before income taxes (excluding Canadian operations) was $7.8
million in fiscal 1994, $5.3 million in fiscal 1993 and $1.3 million in fiscal
1992.
The reasons for the difference between the provision for income taxes and the
amount which results from applying the federal statutory tax rate of 34% in
fiscal 1994, 1993 and 1992, to income before income taxes are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------------
MARCH 27, 1994 MARCH 28, 1993 MARCH 29, 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Income tax expense at statutory
rate . . . . . . . . . . . . . . . . . . . $ 2,703,833 $ 1,812,413 $ 505,389
Effect of state taxes, net of federal
tax benefit . . . . . . . . . . . . . . . 318,098 1,400,225 4,220
Financial accounting loss carry forward . . --- --- (417,250)
Rate differential due to Alternative
Minimum Tax ("AMT") . . . . . . . . . . . . --- (523,533) ---
Effect of net operating loss. . . . . . . . --- (832,879) ---
Other. . . . . . . . . . . . . . . . . . . . --- 17,611 25,873
----------- ----------- ---------
$ 3,021,931 $ 1,873,837 $ 118,232
=========== =========== =========
</TABLE>
37
<PAGE> 38
The provision for deferred income taxes results from temporary differences
which arise as a result of differences between the amounts of reported assets
and liabilities in the Consolidated Financial Statements and their tax bases.
Temporary differences are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
--------------------------------------------------------
MARCH 27, 1994 MARCH 28, 1993 MARCH 29, 1992
-------------- -------------- --------------
<S> <C> <C> <C>
Contracts receivable, not recorded for tax
purposes until closing and title passage . . $ (114,859) $ (50,615) $ 245,375
Mortgage notes receivable, installment sales
treatment . . . . . . . . . . . . . . . . . 2,607,327 (11,522,327) (1,757,207)
Accrued interest expense . . . . . . . . . . . 101,784 498,401 ---
Loss reserve . . . . . . . . . . . . . . . . . 154,972 737,460 2,582,196
Accumulated depreciation . . . . . . . . . . . (392,330) (326,461) 117,621
Loss carryforwards . . . . . . . . . . . . . . 808,289 11,622,235 (1,066,965)
Accrued inventory cost . . . . . . . . . . . . (337,378) --- ---
Investment in REMIC . . . . . . . . . . . . . . (396,898) --- ---
AMT credit . . . . . . . . . . . . . . . . . . 616,000 (616,000) ---
Other . . . . . . . . . . . . . . . . . . . . . (95,160) (390,159) (192,477)
------------- ------------- -----------
$ 2,951,747 $ (47,466) $ (71,457)
============= ============= ===========
</TABLE>
The Company and its subsidiaries file a consolidated federal income tax return.
At March 27, 1994, the Company had tax loss carryforwards of approximately
$12.7 million which begin to expire in 2005.
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109") effective April 1, 1991. In
connection with the adoption, the Company established a valuation allowance of
$417,250 which was reversed as related net operating loss carryforwards were
utilized in fiscal 1992. The cumulative effect of the adoption of SFAS No. 109
did not have a material effect on the financial statements of the Company for
fiscal 1992. SFAS No. 109 requires the use of the liability method of
accounting for income taxes. At March 27, 1994 and March 28, 1993, deferred
income taxes consists of the following components:
<TABLE>
MARCH 27, 1994 MARCH 28, 1993
-------------- --------------
<S> <C> <C>
Deferred state and federal tax liabilities:
Installment sales treatment of notes . . . . . . . . $ 9,503,426 $ 6,223,309
Deferred foreign tax liability due to installment
sale treatment of notes . . . . . . . . . . . . . 185,000 185,009
Deferred state and federal tax assets:
Loss carryforwards . . . . . . . . . . . . . . . . (5,247,120) (5,464,645)
Other . . . . . . . . . . . . . . . . . . . . . . . . (698,378) (152,493)
----------- -----------
Deferred income taxes . . . . . . . . . . . . . . . . $ 3,742,928 $ 791,180
=========== ===========
</TABLE>
11. CONTINGENCIES
The Company and its subsidiaries have sold notes receivable to banks and other
institutional investors. In the event of default by an obligor of a note
receivable, the Company and its subsidiaries that sold the note would have
direct responsibility, subject to limitation in certain cases, for satisfying
any outstanding balance. In each case, a security interest in the property
securing the note is maintained; accordingly, the Company may repossess the
property to satisfy the note. At March 27, 1994, the outstanding balance of
loans sold with limited recourse totaled $5.4 million. The delinquency on such
loans sold was not material.
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<PAGE> 39
In addition to certain ordinary course litigation, the Company is a party to
certain separate legal proceedings involving former employees, some of which
are presently in the early administrative stages and have not yet resulted in
civil lawsuits. The Company believes it has various defenses to the charges
and intends to vigorously defend the claims. However, the potential outcome or
exposure of the Company with respect to these proceedings is not determinable
at this time.
12. STOCK DIVIDENDS
On August 16, 1993, the Company paid a 4% stock dividend to shareholders of
record at the close of business on July 19, 1993 which represented the issuance
of an additional 683,005 common shares. Because fractional shares were not
issued, the Company also paid $976 in the aggregate, to certain shareholders in
lieu of fractional shares of stock. On April 15, 1994, the Company declared
another 4% stock dividend payable on May 31, 1994 to shareholders of record at
the close of business on May 2, 1994. The weighted average number of common
and common equivalent shares used to calculate primary and fully diluted net
income per common share has been adjusted in the Consolidated Statements of
Income to give effect to the stock dividends, including retroactive restatement
of the net income per common share amounts for each of the two years ended
March 28, 1993 and March 29, 1992.
13. STOCK OPTIONS AND EMPLOYEE RETIREMENT SAVINGS PLAN
Employee Stock Option Plan
The Company has adopted an employee stock option plan. Under the plan, options
may be granted at prices not less than the fair market value on the date of
grant. A summary of stock option activity, adjusted for stock dividends,
related to the Company's employee stock option plan is presented below.
<TABLE>
<CAPTION>
NUMBER NUMBER
OF SHARES OPTION PRICE OF SHARES
RESERVED OPTIONS PER SHARE EXCERCISABLE
--------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Balance at March 29, 1992 . . . . . . 1,700,681 573,119 84,802
Granted . . . . . . . . . . . . . . . --- 532,807 $1.60 - $3.96
Forfeited . . . . . . . . . . . . . . --- (201,089) $1.44 - $13.44
Exercised . . . . . . . . . . . . . . (22,000) (22,000) $1.44
--------- ---------
Balance at March 28, 1993 . . . . . . 1,678,681 882,837 185,030
Granted . . . . . . . . . . . . . . . --- 400,750 $2.64 - $3.96
Forfeited . . . . . . . . . . . . . . --- (185,624) $1.44 - $13.44
Exercised . . . . . . . . . . . . . . (29,968) (29,968) $1.44 - $3.04
Stock dividend . . . . . . . . . . . 70,380 41,475
-------- ---------
Balance at March 27, 1994 . . . . . . 1,719,093 1,109,470 204,737
========= =========
</TABLE>
The plan expires in 1995. As of March 27, 1994, there were 304 individuals
eligible to participate in the employee stock option plan and 82 were
participating in the plan.
Outside Directors Plan
In fiscal 1988, the Company's shareholders adopted a stock option plan covering
the Company's non-employee Directors (the "Director Plan"). The Director Plan
provided for the grant to the Company's non-employee directors (the "Outside
Directors") of non- qualified stock options to purchase up to an aggregate of
150,000 shares of common stock at a price not less than the fair market value
at the date of grant. The Director Plan was amended and adopted by the
Company's shareholders in September, 1991 to increase the number of issuable
shares from 150,000 to 300,000. In fiscal 1994, a 4% stock dividend was
declared which increased the number of issuable shares to 312,000. The purpose
of the Director Plan is to make service on the Board
39
<PAGE> 40
of Directors more attractive to present and future Outside Directors, since the
Company believes that the continued service of qualified Outside Directors is
essential to the sustained growth and progress of the Company. In June 1988,
options for the purchase of 30,000 shares of common stock at a price of $5.52
per share were granted. In September, 1989, options for the purchase of 30,000
shares of common stock at a price of $3.24 per share were granted. In
September, 1993, 1992, 1991 and 1990, options for the purchase of 60,000,
75,000, 60,000 and 15,000 shares of common stock currently exercisable at a
price of $3.25, $2.04, $1.68 and $.96 per share were granted. During fiscal
1992, 1991 and 1990, options for the purchase of 20,000, 5,000 and 15,000
shares of common stock were forfeited, respectively. As of March 27, 1994,
options for the purchase of 236,800 shares of common stock were outstanding of
which 104,000 are exercisable at option prices per share of $.96 to $5.52.
Employee Retirement Savings Plan
The Company's Employee Retirement Plan is a code section 401(k) profit sharing
plan. The plan became effective on April 1, 1992. All employees 21 years of
age with one year of employment with the Company are eligible to participate in
the plan. At March 27, 1994, 102 of the Company's 224 eligible employees were
participating in the plan. Employer contributions to the plan are at the sole
discretion of the Company and were not material to the operations of the
Company for fiscal 1994 and fiscal 1993.
14. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for the years ended March 27, 1994
and March 28, 1993 is presented below (in 000's except for per share
information).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------
JUNE 27, 1993 SEPT. 26, 1993 DEC. 26, 1993 MARCH 27, 1994
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales of real estate . . . . . . $ 13,318 $ 17,798 $ 14,204 $ 18,069
Interest income and other . . . . 1,744 1,964 2,141 2,103
Gross profit . . . . . . . . . . 6,911 9,476 7,003 9,226
Provision for losses and
write-downs. . . . . . . . . . . 150 265 80 300
Net income . . . . . . . . . . . $ 987 $ 1,682 $ 870 $ 1,392
Net income per common share:
Primary and assuming full . . .
dilution . . . . . . . . . . . $ .05 $ .09 $ .04 $ .07
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------
JUNE 28, 1992 SEPT. 27, 1992 DEC. 27, 1992 MARCH 28, 1993
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Sales of real estate . . . . . . $ 11,490 $ 17,205 $ 12,572 $ 12,082
Interest income and other . . . . 3,727 2,919 2,039 1,506
Gross profit . . . . . . . . . . 5,155 7,705 5,750 6,289
Provision for losses and
write-downs . . . . . . . . . . . -- 100 1,350 100
Net income . . . . . . . . . . . $ 649 $ 1,371 $ 864 $ 573
Net income per common share:
Primary and assuming full. . . .
dilution . . . . . . . . . . . $ .03 $ .07 $ .05 $ .03
</TABLE>
40
<PAGE> 41
15. SUBSEQUENT EVENT
On May 11, 1994, the Company through its wholly-owned subsidiary, Patten
Receivables Finance Corporation IX, (the "Depositor") sold approximately $27.7
million aggregate principal amount of its mortgage notes receivable (the
"Mortgage Pool") to Patten Corporation REMIC Trust, Series 1994-1 (the "1994
REMIC Trust"), which Trust issued four classes of Adjustable Rate REMIC
Mortgage Pass-Through Certificates (the "Certificates"). Each Certificate
evidences a fractional undivided interest in the Mortgage Pool. The
Certificates were issued pursuant to the terms of a Pooling and Servicing
Agreement dated as of April 15, 1994 (the "Pooling Agreement") among the
Company, the Depositor, Patten Corporation REMIC Trust, Series 1994-1 and First
Trust National Association, as trustee. The initial principal balances of the
Class A, Class B and Class C Certificates were $23.3 million, $2.8 million and
$1.6 million, respectively. The Class R Certificates have no initial principal
balance and do not bear interest. The Class A, Class B and Class C
Certificates bear interest at the lesser of (a) the weighted average of the net
mortgage rates of certain of the notes in the Mortgage Pool or (b) the London
interbank offered rate for six month United States dollar deposits plus a
margin of 2.5%, 3.5% and 4.5%, respectively.
The 1994 REMIC Trust is comprised primarily of a pool of fixed and adjustable
rate first mortgage loans secured by property sold by the Company. Collections
of principal and interest on the Mortgage Pool, net of certain servicing and
trustee fees, are remitted to Certificateholders on a monthly basis. The
proceeds of collections on the Mortgage Pool are distributed to the
Certificateholders in the order of priority specified in the Pooling Agreement,
with no payments on the Class C or Class R Certificates until the Class A and
Class B Certificates have been paid in full.
On May 11, 1994, the Depositor sold the Class A and Class B Certificates issued
under the Pooling Agreement to an institutional investor for aggregate proceeds
of $26 million in a private placement transaction and retained the Class C and
Class R Certificates. A portion of the proceeds from the transaction were used
to repay approximately $13.5 million of outstanding debt, including $6.8
million of borrowings under a $10 million credit facility secured by notes
receivable, $4.3 million of borrowings under a $20 million credit facility
secured by notes receivable and $2.4 million associated with amounts paid to
retire securities previously sold pursuant to the Company's 1989 REMIC
financing. The balance of the proceeds, after payment of issuance expenses and
fees, resulted in an approximate $12.4 million increase in unrestricted cash.
The Company will be paid an annualized servicing fee of .5% of the scheduled
principal balance of those notes in the Mortgage Pool on which the periodic
payment of principal and interest is collected in full. Under the terms of the
Pooling Agreement, the Company has the obligation to repurchase or replace
mortgage loans in the Mortgage Pool which did not conform to the Company's
representations and warranties at the date of sale. In addition, the Company,
as servicer, is required to make advances of delinquent payments to the extent
deemed recoverable. The Company has no obligation, however, to repurchase or
replace mortgage loans solely due to delinquency.
41
<PAGE> 1
EXHIBIT 23
Consent of Independent Certified Public Accountants
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Patten Corporation of our report dated April 27, 1994, except for Note 15,
as to which the date is May 11, 1994 included in the 1994 Annual Report to
Shareholders of Patten Corporation.
Our audits also included the financial statement schedules of Patten
Corporation listed in Item 14(a). These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in (i) the Registration
Statement (Form S-8 No. 33-26613) pertaining to the Second Amended and Restated
1985 Stock Option Plan of Patten Corporation and in the related Prospectus,
(ii) the Registration Statement (Form S-8 No. 33-16292) pertaining to the 1987
Employee Stock Purchase Plan of Patten Corporation and in the related
Prospectus, (iii) the Registration Statement (Form S-8 No. 33-26614) pertaining
to the 1988 Outside Directors Stock Option Plan of Patten Corporation and in
the related Prospectus and (iv) the Registration Statement (Form S-8 No.
33-48075) pertaining to the Patten Corporation Retirement Savings Plan and in
the related Prospectus of our report dated April 27, 1994, except for Note 15,
as to which the date is May 11, 1994, with respect to the consolidated
financial statements incorporated herein by reference, and our report included
in the preceding paragraph with respect to the financial statement schedules
included in this Annual Report (Form 10-K) of Patten Corporation.
/S/ Ernst & Young
West Palm Beach, Florida
June 16, 1994
