<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------- ------------
Commission File Number 1-9742
------
HARBOURTON FINANCIAL SERVICES L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1573349
- - - - - - ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7926 Jones Branch Rd., Suite 700, McLean, VA 22102
- - - - - - -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 821-0875
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- - - - - - ------------------- -----------------------------------------
Preferred Units New York Stock Exchange
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
--------- ---------
Number of units outstanding of registrant's Preferred Units at September 30,
1995 was 41,902,891.
Page 1 of 39
<PAGE> 2
HARBOURTON FINANCIAL SERVICES L.P.
INDEX TO FORM 10-Q
For the Quarter Ended September 30, 1995
<TABLE>
<CAPTION>
Page
Number
------
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1995
(unaudited) and December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations (unaudited) for the three and
nine months ended September 30, 1995 and September 30, 1994 . . . . . . . . . . 4
Consolidated Statements of Cash Flows (unaudited) for the nine
months ended September 30, 1995 and September 30, 1994 . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 24
PART II. OTHER INFORMATION
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
</TABLE>
Page 2 of 39
<PAGE> 3
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents, including restricted cash of $110
and $0, respectively $ 7,585 $ 1,670
Mortgage loans held for sale, net 180,104 45,237
Mortgage loans held for investment 1,802 1,084
Short-term investments 10,000 --
CMO bonds, residual interests and investment securities 2,771 424
Notes receivable - affiliates 1,022 988
Advances receivable, net 21,602 22,252
Mortgage servicing rights, net of accumulated amortization of
$18,855 and $13,489, respectively 70,375 33,899
Deferred acquisition, transaction and loan costs, net of
accumulated amortization of $1,114 and $598, respectively 2,781 1,394
Property, equipment and leasehold improvements, net of
accumulated amortization of $2,952 and $1,338, respectively 3,836 2,969
Investment in affiliates -- 1,907
Excess cost over identifiable tangible and intangible assets
acquired, net of accumulated amortization of $379 and $85,
respectively 5,497 540
Other assets 7,591 3,837
-------- --------
TOTAL ASSETS $314,966 $116,201
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Installment purchase obligations - servicing $ 15,445 $ 1,074
Foreclosure reserves 8,332 5,980
Lines of credit 179,280 54,065
Term loans 39,282 22,333
Notes payable - affiliates 11,345 600
Due to affiliates 1,076 46
Accounts payable and other liabilities 8,075 6,334
-------- --------
Total Liabilities 262,835 90,432
PARTNERS' CAPITAL 52,131 25,769
-------- --------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $314,966 $116,201
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 3 of 39
<PAGE> 4
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30,
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES
Loan servicing fees $ 5,188 $4,755 $14,110 $10,080
Sub-servicing fees received from affiliates -- -- -- 233
Ancillary income 1,569 1,240 4,466 2,708
Gain on sale of defaulted loans to affiliates 361 -- 907 250
Investment income net of interest expense on escrows 1,103 891 3,170 2,639
------- ------ ------- -------
Total servicing revenue 8,221 6,886 22,653 15,910
Gain (loss) on sale of mortgage loans and related mortgage
servicing rights 2,064 (432) 2,603 5,039
Interest income, net of related warehouse interest expense 426 112 887 783
Other production income 1,242 55 1,573 147
------- ------ ------- -------
Total production income (loss) - gross 3,732 (265) 5,063 5,969
Other investment and interest income 195 184 161 259
------- ------ ------- -------
Total Revenue 12,148 6,805 27,877 22,138
EXPENSES
Servicing costs 1,476 1,839 4,322 4,183
Prepayment costs and interest curtailments 295 154 1,129 501
Provision for foreclosure losses 1,381 627 2,765 1,281
Amortization of mortgage servicing rights 2,203 1,655 5,366 5,073
------- ------ ------- -------
Total servicing expenses 5,355 4,275 13,582 11,038
Loan production and secondary marketing costs 2,800 681 5,204 3,235
General and administrative costs, including management fees
and reimbursed costs to its general partner of $316, $75,
$741, and $225, respectively 1,946 1,017 4,800 3,583
Interest expense - term loans 695 254 1,611 658
Other interest expense-affiliates, net of interest income-
affiliates of $30, $89, $155 and $143, respectively 426 176 951 268
Other amortization and depreciation 482 105 1,374 321
------- ------ ------- -------
Total Expenses 11,704 6,508 27,522 19,103
NET INCOME BEFORE EQUITY IN EARNINGS OF AFFILIATES AND GAIN ON
BULK SALE OF SERVICING 444 297 355 3,035
------- ------ ------- -----
Equity in earnings of affiliates -- (170) (255) (186)
Gain on bulk sale of servicing -- -- 9,148 2,957
------- ------ ------- ------
NET INCOME $ 444 $ 127 $ 9,248 $ 5,806
======= ====== ======= =======
Net Income per Preferred Unit (including series B), based on
31,689,230; 30,087,826; 35,778,744; 30,087,826 Preferred
Units, respectively $ .01 $ .00 $ .26 $ .19
======= ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 4 of 39
<PAGE> 5
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 9,248 $ 5,806
Adjustments to reconcile net income to net cash flows from operating
activities:
Gain on bulk sale of servicing (9,148) (2,957)
Gain on sale of defaulted loans
(907) (250)
Gain on sale of retained servicing (3,638)
Unrealized loss on CMO bonds and residual interests 245 --
Amortization and depreciation
6,740 5,394
Amortization of CMO bonds, residual interests and investment
securities 680 --
Equity in earnings from affiliates 255 186
Provision for foreclosure losses 2,765 1,281
Changes in operating assets and liabilities:
Mortgage loans held for sale and investment, net (124,386) 118,937
Advances receivable 3,685 159
Other assets 3,458 529
Due to/from affiliates 1,074 (2,006)
Accounts payable and other liabilities 17 (4,527)
--------- ---------
NET CASH FLOWS FROM OPERATING ACTIVITIES (109,912) 122,552
NET CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from bulk sale of servicing 9,148 4,058
Net acquisition of mortgage servicing rights (4,870) (13,584)
Purchase of short-term investments (10,000) --
Decrease (increase) in notes receivable - affiliates 32 (4,753)
Increase in restricted cash (110) --
Funding of deferred acquisition and transaction costs (1,775) (480)
Purchases of property and equipment (1,087) (407)
Funding of acquisition advances -- (3,641)
Cash acquired in Exchange Transaction 2,715 --
--------- ---------
NET CASH FLOWS FROM INVESTING ACTIVITIES (5,947) (18,807)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on term loans (31,602) (2,571)
Term debt advances 41,350 20,308
Partner distributions -- (8,982)
Payment on partner notes receivable 300 257
Net (repayments) borrowings on lines of credit 103,743 (112,783)
Net (repayments) borrowings from notes payable - affiliates 7,873 (8,594)
---------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES 121,664 (112,365)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,805 (8,620)
CASH AND CASH EQUIVALENTS, EXCLUDING RESTRICTED CASH, AT BEGINNING OF PERIOD 1,670 9,721
---------- ---------
CASH AND CASH EQUIVALENTS, EXCLUDING RESTRICTED CASH, AT END OF PERIOD $ 7,475 $ 1,101
========== =========
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 5 of 39
<PAGE> 6
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(UNAUDITED) (IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
NON-CASH INVESTMENT AND FINANCING ACTIVITIES:
Acquisition and consolidation of HBT, TMC, HFC, and TMC Mortgage Corp.,
net of cash acquired:
Mortgage loans held for sale, net 12,922 --
Mortgage loans held for investment 222 --
CMO bonds and residual interests 3,177 --
Notes receivable - affiliates 314 --
Advances receivable 5,875 --
Mortgage servicing rights, net 16,631 --
Deferred acquisition and loan costs, net 86 --
Property and equipment, net 468 --
Investment in affiliates (1,652) --
Excess cost over identifiable tangible and intangible assets acquired 4,923 --
Other assets 7,212 --
-------
Total Assets 50,178 --
Foreclosure reserves 3,334 --
Warehouse / foreclosure lines of credit and other short-term
funding obligations 11,890 --
Term loans 7,202 --
Short-term borrowings 9,582 --
Notes payable - affiliates 5,588 --
Due to affiliates (44) --
Accounts payable and other liabilities 1,724 --
-------
Total Liabilities 39,276 --
Contribution of investment in affiliate -- 2,221
Installment purchases of mortgage servicing rights (14,371) 9,902
Distribution to affiliates (6,284) --
Conversion of debt in exchange for preferred units 9,000 --
Unrealized gain (loss) on available for sale securities (146) 53
Contribution of investment in settlement of note receivable from affiliate 249 --
Allocation of purchase price in connection with purchase of management
interest:
Purchased servicing rights 389 --
Excess cost over identifiable tangible and intangible assets acquired 238 --
------- ------
$ 627 $ --
</TABLE>
The accompanying notes are an integral part of these unaudited consolidated
financial statements.
Page 6 of 39
<PAGE> 7
HARBOURTON FINANCIAL SERVICES L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995 (UNAUDITED) AND DECEMBER 31, 1994
Note 1. Description of Business and Organization
Harbourton Financial Services L.P. ("HBT" or the "Partnership") was created
pursuant to a Certificate of Limited Partnership filed with the Secretary of
the State of Delaware on August 12, 1987 and a limited partnership agreement
(the "HBT Agreement") dated as of August 12, 1987. Harbourton Mortgage
Corporation (the "General Partner") was incorporated in the State of Delaware
on August 12, 1987. The General Partner at all times has at least a 1%
interest in HBT. The General Partner manages the business and affairs of HBT
and has exclusive authority to act on behalf of HBT. HBT's termination date is
December 31, 2050 unless sooner dissolved or terminated pursuant to the HBT
Agreement.
Harbourton Assignor Corporation ("Assignor Limited Partner") is the sole
limited partner of HBT. Pursuant to the HBT Agreement, the Assignor Limited
Partner holds for the benefit of the holders of the Preferred Units all of the
limited partnership interests underlying such Preferred Units. Each Preferred
Unit is evidenced by a beneficial assignment certificate, which is issued by
the Assignor Limited Partner and HBT in fully registered form. Each holder of
a Preferred Unit is entitled to all of the economic rights and interests in the
underlying limited partnership interest held by the Assignor Limited Partner,
and each holder of a Preferred Unit has the right to direct the Assignor
Limited Partner on voting and certain other matters with respect to such
underlying limited partnership interests.
On August 5, 1994, Harbourton Holdings, L.P. ("Harbourton"), a Delaware limited
partnership, acquired from JHM Capital Corporation ("JCC") (i) all of the
issued and outstanding capital stock of the General Partner of HBT and (ii) all
of the issued and outstanding Subordinated Units of HBT, pursuant to the terms
of a definitive acquisition agreement (the "Transfer Agreement").
Pursuant to the Transfer Agreement and New York Stock Exchange rules, on March
14, 1995, HBT obtained the approval from existing Unitholders to issue to
Platte Valley Servicing Co., L.P. ("PVSC"), an affiliate of Harbourton,
21,513,509 Preferred Units of HBT in exchange for PVSC's ownership interest of
(i) all of the issued and outstanding limited partnership interest of
Harbourton Mortgage Co., L.P. (formerly Platte Valley Funding, L.P.) ("HMCLP")
and (ii) all of the issued and outstanding capital stock of Harbourton Funding
Corporation (formerly Platte Valley Funding Corporation) ("HFC"), the general
partner of HMCLP (the "Harbourton Transaction"). Pursuant to an agreement
dated October 1, 1994 (the "TMC Mortgage Agreement"), which was joined in by
HBT with the unanimous consent of the independent directors of the General
Partner, TMC Mortgage Corp. and two of its shareholders (the "TMC Parties")
agreed to contribute to HBT their aggregate direct and indirect 50% interest in
TMC Mortgage Co., L.P. ("TMC"), a partnership engaged in the origination and
sale of mortgage loans in the eastern United States, in exchange for 829,119
Preferred Units (the "TMC Transaction"). On the same date, HMCLP agreed to
include its 50% aggregate direct and
Page 7 of 39
<PAGE> 8
indirect equity interest in TMC as part of the assets owned by it at the time
of the consummation of the Harbourton Transaction (collectively, the "Exchange
Transaction").
Upon the consummation of the Exchange Transaction, HMCLP became a subsidiary of
HBT and TMC became a subsidiary of HBT, with an aggregate 50% equity interest
owned by HBT and an aggregate 50% equity interest owned by HMCLP. The effect
of the Exchange Transaction was that PVSC acquired approximately 75.7% of the
issued and outstanding Preferred Units of HBT, and the TMC Parties acquired
approximately 2.9% of the issued and outstanding Preferred Units. HBT has
continued to exist in accordance with the provisions of the HBT Agreement,
which was unchanged by the Exchange Transaction.
On July 31, 1995 the Partnership completed its acquisition of Western Sunrise
Holdings, L.P. (the "Western Transaction") and its subsidiaries, Western
Sunrise Mortgage Co., L.P. and its general partner Western Sunrise Mortgage
Corporation (collectively "Western"). Western had been an affiliated mortgage
originator and servicer headquartered in Sacramento, California and was a
subsidiary of Harbourton. The purchase price for Western was approximately
$15.7 million, and in exchange for Western, Harbourton received approximately
8.6 million Series B Preferred Units having generally the same rights as the
outstanding Preferred Units. In addition, if the performance of the production
operations of Western exceed certain projections during a 24 month period,
Harbourton will receive additional preferred units. The Western Transaction
was accounted for as a reorganization of entities under common control similar
to a pooling-of-interests.
In conjunction with the Western Transaction, the Partnership merged Western
into HMCLP. Simultaneously, the other mortgage banking subsidiary of the
Partnership, TMC, was also merged into HMCLP and the Partnership transferred
all of HBT's mortgage banking-related assets to HMCLP.
The Partnership's primary business activity is mortgage banking which consists
of the origination, purchase, sale and servicing of residential mortgage loans,
and the purchase and sale of servicing rights associated with such loans. The
Partnership also holds investments in other mortgage related assets, including
collateralized mortgage obligations ("CMOs") and residual interests in CMOs,
some of which were held during 1994 by Harbourton REIT Corporation I (formerly
JHM REIT Corporation I) ("REIT I"), a subsidiary of HBT. On March 10, 1995,
REIT I was liquidated. The Partnership is an approved Government National
Mortgage Association ("GNMA"), Federal National Mortgage Association ("FNMA"),
and Federal Home Loan Mortgage Corporation ("Freddie Mac") licensee.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation - The consolidated financial statements include the
accounts of HBT and HBT's subsidiaries, Western, TMC, HMCLP and its general
partner, HFC. These entities are collectively referred to as the Partnership
unless otherwise noted. The consolidated financial statements and notes
reflect the Western Transaction for all periods presented in accordance with
pooling-of-interests transactions. All intercompany accounts have been
eliminated upon consolidation. Prior to March 31, 1995, HMCLP reflected its
50% interest in TMC, which was
Page 8 of 39
<PAGE> 9
contributed to HMCLP by Harbourton on September 30, 1994, using the equity
method of accounting.
The consolidated financial statements as of September 30, 1995 and for the
three and nine month periods ended September 30, 1995 and 1994 have been
prepared by the Partnership, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures, normally included in consolidated financial statements
prepared in accordance with generally accepted accounting principles, have been
condensed or omitted pursuant to such rules and regulations, although the
Partnership believes that the disclosures are adequate to make the information
presented not misleading. In the opinion of management, the unaudited
consolidated financial statements reflect all adjustments (normal recurring in
nature) considered necessary to present fairly the consolidated balance sheet
as of September 30, 1995, the results of operations for the three and nine
months ended September 30, 1995 and 1994, and cash flows for the nine months
ended September 30, 1995 and 1994. It is suggested that these unaudited
consolidated financial statements be read in conjunction with the audited
consolidated financial statements of HMCLP and Western at December 31, 1994.
Cash and Cash Equivalents - Cash and cash equivalents consist of cash on hand
and in banks and short-term instruments with original maturities of three
months or less.
Mortgage Loans Held for Sale - Mortgage loans held for sale are stated at the
lower of aggregate cost, net of deferred loan production fees and costs, or
market value.
Mortgage Loans Held for Investment - Mortgage loans held for investment are
stated at the amount of unpaid principal, reduced by an allowance for loan
losses if necessary, based upon management's evaluation of the economic
conditions of borrowers, loan loss experience, collateral value and other
relevant factors.
Short-term Investments - Short-term investments consist of highly liquid
investments with original maturities of more than three months. The
Partnership uses these short-term investments in its cash management program.
Short-term investments are stated at cost plus accrued interest, which
approximates market.
Advances Receivable - Funds advanced for the purpose of purchasing loans out of
securitized mortgage loan pools and funds advanced for mortgagor escrow
deficits, foreclosures and other investor requirements are recorded as advances
receivable in the consolidated balance sheets. Such receivables are generally
recoverable from the insurers or guarantors, which are generally government
agencies, or the mortgagors through increased monthly payments, as applicable.
A reserve for uncollectible items has been established for those receivables
which management estimates are not recoverable.
Mortgage Servicing Rights - The Partnership capitalizes the cost of mortgage
servicing rights and amortizes such costs in proportion to, and over the period
of, estimated future undiscounted net servicing income. See also Note 4.
Page 9 of 39
<PAGE> 10
CMO Bonds, Residual Interests and Investment Securities - The Partnership
classifies its CMO bonds and residual interests portfolio as trading securities
since the securities are being held with the intent of selling them in the near
term. Accordingly, such assets are stated at fair value and unrealized gains
and losses are recognized in earnings.
The amortization of CMO bonds and residual interests is determined using the
level yield method. The future expected yields of certain CMO bonds and
residual interests are adjusted using management's estimate of floating
interest rates based upon current market rates at the balance sheet date. CMO
bonds have certain characteristics similar to CMO residual interests, and,
therefore, are classified together in the accompanying consolidated financial
statements.
Deferred Acquisition, Transaction and Loan Costs - Deferred loan costs are
amortized over the life of the term loan or agreement using the effective
interest method. Deferred acquisition and transaction costs are amortized over
a period of five years using the straight-line method.
Property, Equipment and Leasehold Improvements - Property, equipment and
leasehold improvements are stated at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the assets' useful
lives, which are estimated to be 30 years for depreciable real property and 2
to 15 years for furniture, fixtures and equipment. Leasehold improvements are
amortized using the straight-line method over the lease life.
Investment in Affiliates - At December 31, 1994, HMCLP recorded its investment
in affiliates based on the equity method of accounting. HMCLP's carrying
amount of its investment in affiliates exceeded its underlying equity in net
assets by approximately $1.1 million for which amortization of $18 thousand has
been recognized in the accompanying statement of operations for the three
months ended March 31, 1995. Excess cost is amortized on a straight-line basis
over a period of 15 years.
Excess Cost Over Identifiable Tangible and Intangible Assets Acquired - Excess
cost over identifiable tangible and intangible assets acquired is amortized
using the straight-line method over 15 years.
Loan Servicing Fees - Loan servicing fees are based on a contractual percentage
of the unpaid principal balance of the related loans and are recognized in
income as earned. Loan servicing expenses are charged to operations as
incurred.
Loan Production Fees and Costs - Certain direct loan production fees and costs
associated with mortgage loans held for sale are deferred until the related
loans are sold.
Foreclosure Reserves - Foreclosure reserves are maintained to provide for an
estimate of the losses associated with delinquent loans and loans in
foreclosure or bankruptcy ("Defaulted Loans"). The reserves are established
based on management's expectations and historical loss experience and are
adjusted periodically through charges to current operations to reflect changes
in the Defaulted Loans, net of actual charge-offs. The Partnership establishes
foreclosure reserves related to Defaulted Loans for each purchased servicing
asset at the time of acquisition in accordance with its existing reserve
policy.
Page 10 of 39
<PAGE> 11
Income Taxes - The Partnership is a limited partnership and is not liable for
federal income taxes, however, individual unitholders have liability for income
taxes. The Partnership could be taxed as a corporation for federal income tax
purposes for its tax year beginning on January 1, 1998. Commencing with the
1998 tax year, (i) Unitholders may recognize gain on the deemed distribution of
stock of the "new" corporation on January 1, 1998; (ii) the taxable income of
the Partnership could be subject to corporate income tax; (iii) distributions
to Unitholders would be treated as dividends to the extent of the current or
accumulated earnings and profits of the Partnership and (iv) Unitholders would
not report income, gains or losses recognized by the Partnership on their tax
returns.
During the year ended December 31, 1993, the Partnership adopted Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS No.
109"). Under SFAS No. 109, the Partnership is required to provide deferred
taxes on any temporary differences between the basis of its assets and
liabilities for financial reporting and income tax purposes that are
anticipated to exist after the Partnership is treated as a corporation. As of
September 30, 1995, no deferred taxes had been recorded as the Partnership's
management believes that the Partnership would have a net deferred tax asset
for which collectibility is not probable.
SFAS No. 107 - In December 1991, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments ("SFAS No. 107"), which is effective for
the Partnership in its fiscal year ending after December 15, 1995. SFAS No.
107 requires that companies disclose the fair value of financial instruments,
where practicable, and the method(s) and significant assumptions used to
estimate those fair values. The Partnership will adopt the new standard for
the year ended December 31, 1995.
SFAS No. 119 - In October 1994, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 119, Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments ("SFAS
No. 119"), which is effective for the Partnership in its fiscal year ending
after December 15, 1995. SFAS No. 119 requires additional disclosures about
derivative financial instruments and how companies use them. The Partnership
will adopt the new standard for the year ended December 31, 1995.
Note 3. Mortgage Servicing Portfolio
The Partnership's mortgage servicing and subservicing portfolio included loans
in all fifty states and the District of Columbia. The following table shows
the geographic concentration of the mortgage servicing portfolio:
Page 11 of 39
<PAGE> 12
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
California 27.8% 26.0%
Texas 9.0% 9.2%
Florida 9.0% 8.9%
Colorado 4.5% 6.1%
Other* 49.7% 49.8%
----- -----
Total 100.0% 100.0%
</TABLE>
* Loans from no other state exceed 5% of the principal balance of loans in
the portfolio in either year.
The Partnership's servicing and subservicing portfolio (unpaid principal
balances and number of loans) was comprised of the following (in thousands
except number of loans):
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
---------------------------- -------------------------
Principal Number of Principal Number of
Balance Loans Balance Loans
<S> <C> <C> <C> <C>
Servicing:
GNMA Loans $3,030,045 58,501 $3,129,359 59,169
Non-GNMA Loans 1,430,872 16,869 921,171 12,786
---------- ------- ---------- ------
Total Servicing 4,460,917 75,370 4,050,530 71,955
Subservicing:
Subserviced for affiliates 143,534 2,497 1,077,235 15,920
Subserviced for others 134,778 1,428 98,702 1,038
---------- ------- ---------- ------
Total Subservicing 278,312 3,925 1,175,937 16,958
GNMA Loans subserviced by others
1,418,272 25,186 -- --
---------- ------- ---------- ------
Total Portfolio $6,157,501 104,481 $5,226,467 88,913
========== ======= ========== ======
</TABLE>
As of September 30, 1995 and December 31, 1994, the total GNMA loans serviced
and subserviced include loans insured by the FHA of 43,906 and 44,099,
respectively, and loans guaranteed by the VA of 14,893 and 15,269,
respectively. In addition, at September 30, 1995, the Partnership services
1,426 FHA loans for FNMA which are potentially subject to the same losses
experienced on GNMA FHA loans that complete the foreclosure process and are
conveyed to FHA. At December 31, 1994, loans subserviced for affiliates
consisted of loans subserviced for HBT (prior to the Exchange Transaction).
Non-GNMA loans serviced by the Partnership are generally securitized through
FNMA or FHLMC programs on a non-recourse basis, whereby foreclosure losses are
generally the responsibility of FNMA or FHLMC and not of the Partnership.
Similarly, the GNMA loans
Page 12 of 39
<PAGE> 13
serviced by the Partnership are securitized through GNMA programs, whereby the
Partnership is insured against loss by the FHA or partially guaranteed against
loss by the VA. In addition, the Partnership is not responsible for
foreclosure losses associated with loans subserviced for others.
In connection with mortgage servicing and subservicing activities, the
Partnership segregates tax and insurance ("T&I") escrow and principal and
interest ("P&I") custodial funds in separate trust accounts maintained at
federally insured financial institutions and excludes these balances from its
consolidated balance sheet. As of September 30, 1995 and December 31, 1994,
these T&I and P&I balances averaged approximately $95.6 million and $75.7
million, respectively.
At September 30, 1995, errors and omissions and fidelity bond insurance
coverage was $7.5 million and $7.5 million, respectively.
In conjunction with the performance of mortgage banking activities, the
Partnership is subject to minimum net worth requirements established by GNMA,
FNMA, Freddie Mac and HUD. At September 30, 1995, the Partnership's eligible
net worth exceeded these requirements.
Note 4. Mortgage Servicing Rights
In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122, Accounting for Mortgage Servicing
Rights--An amendment of FASB Statement No. 65 ("SFAS No. 122"), which is
effective for fiscal years beginning after December 15, 1995, with earlier
application encouraged. SFAS No. 122, however, prohibits retroactive
application to prior years. SFAS No. 122, among other things, modifies the
treatment of the capitalization of servicing rights by mortgage banking
enterprises. The change eliminates the separate treatment of servicing rights
acquired through loan origination and those acquired through purchase
transactions, as previously required under SFAS No. 65, Accounting for Certain
Mortgage Banking Activities. Accordingly, the Partnership's consolidated
financial statements for 1994 were accounted for under SFAS No. 65. The
Partnership adopted SFAS No. 122 in the quarter ended September 30, 1995 and
its consolidated financial statements for the first and second quarters of 1995
were restated to reflect the impact of adopting SFAS No. 122. The overall
impact on the Partnership's consolidated financial statements of adopting SFAS
No. 122 was an increase in net earnings for the three and nine months ended
September 30, 1995 of $2.7 million and $3.5 million, or $0.07 and $0.12 per
Preferred Unit, respectively.
SFAS No. 122 requires that a portion of the cost of originating a mortgage loan
be allocated to the mortgage servicing right based on its fair value relative
to the loan as a whole. The fair value of the mortgage servicing
rights created during the nine months ended September 30, 1995 was determined
by an independent third-party valuation based on market characteristics during
the quarter in which the mortgage servicing rights were created.
Page 13 of 39
<PAGE> 14
SFAS No. 122 also requires that all capitalized mortgage servicing rights
("MSRs") be evaluated for impairment based on the excess of the carrying amount
of the MSRs over their fair value. In determining servicing value impairment
at the end of the quarter, the mortgage servicing portfolio was disaggregated
into its predominant risk characteristics. The Partnership has determined
those risk characteristics to be loan type and interest rate. These segments
of the portfolio were then valued by an independent third party to determine
the fair value of the MSRs. The fair value was then compared with the
book value of each segment to determine if a reserve for impairment was
required. As of September 30, 1995 no such valuation allowance was required.
The following table presents a summary rollforward of the Partnership's
mortgage servicing rights, net of accumulated amortization (in thousands):
<TABLE>
<S> <C>
Balance, at December 31, 1993 $22,194
Acquisitions 18,729
Sales (867)
Scheduled Amortization* (5,692)
Amortization due to acquisitions (1,453)
Reduction in scheduled amortization due to changes in anticipated
prepayments 988
-------
Balance, at December 31, 1994 $33,899
Acquisitions transactions 36,259
Capitalized OMSRs in connection with SFAS No. 122 5,583
Scheduled Amortization* (3,900)
Amortization due to acquisitions (1,466)
-------
Balance, at September 30, 1995 $70,375
=======
</TABLE>
* Scheduled amortization is based on estimates made at the beginning of the
fiscal year.
During the quarter ended September 30, 1995, the Partnership acquired
approximately $1.5 billion of GNMA mortgage servicing rights from an
unaffiliated third party. The Partnership has negotiated with the third party
to subservice the mortgage loans until the fourth quarter of 1995, at which
time the loans will be transferred to the Partnership. During that time
period, the Partnership will receive servicing fees and ancillary income and
pay a subservicing fee.
Note 5. Mortgage Loan Production
During the nine months ended September 30, 1995 and 1994, HMCLP originated
approximately $900.7 million and $889.6 million of mortgage loans,
respectively. For the three months ended September 30, 1995 and 1994, HMCLP
originated approximately $467.7 million and $175.8 million of mortgage loans,
respectively. During the nine months ended September 30, 1995, total mortgage
loan originations consisted of government (42%) and conventional conforming and
non-conforming (58%) loans. These loans were originated primarily in
California, Florida, Virginia, Georgia and Maryland. During the nine months
ended September
Page 14 of 39
<PAGE> 15
30, 1994, total mortgage loan originations consisted of government (55%) and
conventional conforming and non-conforming (45%) loans.
Note 6. CMO Bonds, Residual Interests and Investment Securities
As of September 30, 1995, the Partnership's CMO bonds and residual interests
portfolio consisted primarily of FNMA issues with various durations ranging
from five to eleven years. These securities are classified as trading
securities since the Partnership is actively seeking to sell the portfolio. The
securities are carried at fair value and unrealized gains and losses are
reported in earnings. Because no quoted market prices are available for CMO
bonds and residual interests, fair value generally represents the estimated
amount at which such CMO bonds and residual interests could be exchanged in a
transaction between willing parties. Fair value is based on anticipated future
cash flows utilizing projections of future prepayment rates based on current
market participants' prepayment rate assumptions and future long-term estimates
of short-term interest rates. Projected cash flows are discounted using
estimates of discount rates established in market transactions for financial
instruments with similar underlying characteristics and risks.
At September 30, 1995 and December 31, 1994, the balance of investment
securities consists of a 100% and 50% interest, respectively, in an
interest-only strip derivative (see Note 9) of a pool of FNMA mortgage-backed
securities. The securities had an original principal balance of $12 million on
April 1, 1988. The interest-only security had an outstanding principal balance
of approximately $2.3 million (unaudited) as of September 30, 1995, a maturity
date of April 1, 2018, and a coupon rate of 8.5%.
Note 7. Other Mortgage-Related Securities
The Partnership owns a prepayment cap to reduce the prepayment risks associated
with the CMO bond and residual interest portfolio. The Partnership is entitled
to a monthly payment when the reference portfolio runoff rate exceeds the
strike PSA of 485%. The reference portfolio is a FNMA 10% mortgage-backed
security issued in 1986. The prepayment cap did not meet the requirements for
hedge accounting and therefore, was accounted for as a trading instrument. The
prepayment cap had a market value of $0 at September 30, 1995. The termination
date of the cap is January 31, 1997.
In addition, the Partnership owns a LIBOR interest rate floor instrument to
help manage a portion of the interest rate risk associated with its mortgage
servicing rights. The LIBOR floor did not meet the requirements for hedge
accounting and therefore, was accounted for as a trading instrument. The
Partnership is entitled to a monthly payment when the LIBOR rate falls below
the strike rate of 4.00%. At September 30, 1995, the fair market value of the
instrument was $0. The termination date of the floor is December 31, 1997.
Page 15 of 39
<PAGE> 16
Note 8. Bank Debt
Term loans consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Term loan due in quarterly principal installments
totaling approximately $2.1 million each quarter.
Interest is paid monthly. The term loan matures June
30, 2000 and is secured by substantially all of the
assets of the Partnership, other than mortgage loans
held for sale and assets securing other debt. 39,282 --
Term loan (HMCLP) due in monthly principal installments
totaling approximately $667 thousand plus accrued
interest. The term loan matured July 31, 1995. The
loan was secured by substantially all of the assets of
HMCLP, other than mortgage loans held for sale and
assets securing other debt. $ -- $22,333
------- -------
Total $39,282 $22,333
======= =======
Lines of credit held with banks consisted of the following (in thousands):
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
A warehouse line of credit to fund the purchase or
origination of residential mortgage loans with a
maximum availability of $150 million at September 30,
1995. This line of credit matures July 31, 1996 and
advances under this line are secured by the individual
mortgage loans and related assets. 150,000 --
A line of credit to fund taxes and insurance advances
made on behalf of borrowers of residential mortgage
loans with a maximum availability of $5 million at
September 30, 1995. This line of credit matures July
31, 1996 and advances under this line are secured by
the individual mortgage loans and related assets. 5,000 --
</TABLE>
Page 16 of 39
<PAGE> 17
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
A $30 million line of credit to finance the
acquisitions of high-grade short-term investments as
defined pursuant to the Investment Loan and Security
Agreement. Advances on the line of credit are secured
by the acquired investments. 10,000
A warehouse line of credit (HMCLP) to fund the purchase
or origination of residential mortgage loans with a
maximum availability of $10.0 million at December 31,
1994, and a foreclosure line sublimit for loans
purchased out of securitized pools of $6.3 million at
December 31, 1994. This line of credit matured July
31, 1995, and advances under this line were secured by
the individual mortgage loans and related assets. -- 3,861
A warehouse line of credit (HMCLP) to fund the purchase
or origination of residential mortgage loans with a
maximum availability of $12.1 million at December 31,
1994, and a foreclosure line sublimit for loans
purchased out of securitized pools of $4.5 million at
December 31, 1994. This line of credit matured July
31, 1995, and advances under this line were secured by
the individual mortgage loans and related assets. -- 3,350
A warehouse line of credit (Western) to fund the
purchase or origination of residential mortgage loans
with a maximum committed availability of $35 million at
December 31, 1994. A sublimit of $1 million was
available to finance the repurchase of foreclosure or
buyback loans. This line was secured by the individual
mortgage loans and substantially all of the assets of
Western. The line terminated concurrent with the
Western Transaction (see Note 1). -- 36,771
</TABLE>
Page 17 of 39
<PAGE> 18
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
A warehouse line of credit (Western) to fund the
purchase or origination of residential mortgage loans
with a maximum committed availability of $35 million at
December 31, 1994. The line terminated concurrent with
the Western Transaction (see Note 1). -- 5,510
Short-term funding obligations 12,474 4,573
-------- -------
Total $177,474 $54,065
======== =======
</TABLE>
Short-term funding obligations represent obligations to fund originations.
These funding obligations were met through subsequent bank borrowings
and/or the Partnership's available liquidity.
In addition, the Partnership has a line of credit to fund principal and
interest advances made on behalf of borrowers of residential mortgage loans
with a maximum availability of $15.0 million at September 30, 1995. This line
of credit matures July 31, 1996 and advances under this line are secured by the
individual mortgage loans and related assets.
At September 30, 1995, the Partnership also had borrowings consisting of
repurchase agreements with a securities dealer (Bear Stearns) of approximately
$1.8 million. The Partnership's borrowings under various repurchase agreements
with securities dealers are secured by the Partnership s CMO bond and residual
interest. The repurchase liability amounts mature monthly and bear interest at
LIBOR plus 1.50%.
Note 9. Transactions with Affiliates
Pursuant to the HBT Agreement, the General Partner manages and controls the
Partnership's business and operations. The General Partner receives an annual
fee, from HBT, equal to 1/2 of 1% of the Initial Investment. The Initial
Investment represents the cash or fair value of property contributed to the
Partnership in consideration for the issuance of Preferred Units (including
Series B). For the six months ended September 30, 1995, the Initial Investment
averaged approximately $106.5 million resulting in a management fee due to the
General Partner of approximately $266 thousand.
The General Partner is reimbursed for all direct expenses it incurs or disburses
on behalf of HBT and the portion of its indirect expenses allocable to its
activities in connection with HBT's business. The maximum aggregate amount of
allocable expenses for which HBT is obligated to reimburse the General Partner
in any fiscal year is .90% of the Initial Investment. The Partnership has
accrued approximately $252 thousand as an estimate of total allocable expenses
to be incurred by the General Partner.
Page 18 of 39
<PAGE> 19
During the third quarter of 1995, Harbourton and its affiliates converted $9.0
million of notes from the Partnership into equity in the Partnership. In
connection with the debt to equity conversion, Harbourton and its affiliates
received approximately 4.9 million of Series B Preferred Units having generally
the same rights as the outstanding Preferred Units. Following the consummation
of the Western transaction and the debt to equity conversion, Harbourton and
its affiliates own approximately 83.5% of all of the series of preferred units
of the Partnership.
As of September 30, 1995, the Partnership is indebted to Harbourton and its
affiliates for approximately $11.3 million resulting from short-term borrowings
to fund operations of the Partnership. These borrowings generally bear interest
at prime plus 1.5%. These borrowings were substantially paid down during the
fourth quarter of 1995.
Western was a party to a management services agreement with Harbourton.
Western paid Harbourton approximately $225 thousand, $225 thousand, $75
thousand, and $75 thousand in management fees under the management services
agreement during the nine months ended September 30, 1995, and 1994, and for
the three months ended September 30, 1995 and 1994, respectively.
During August 1993, Western received a promissory note for approximately $500
thousand from Harbourton as consideration for Harbourton receiving a 50%
participation interest in an interest-only security (see Note 6). The note
bears interest at a rate of 5.5%, and is due on December 31, 1995. Harbourton
was entitled to receive, as payment from Western, 50% of monthly cash flows
that are distributed to Western related to ownership of the interest-only
security (net of any interest due Western, as holder of the promissory note
given by Harbourton as consideration for its participation interest).
Harbourton was also entitled to receive, as payment from Western, 50% of sale
or distribution proceeds net of 50% of any costs incurred by Western to sell or
otherwise dispose of the security and net of any interest and/or principal that
remains payable to Western under the terms of the promissory note given by
Harbourton as consideration for its participation in the security. Further, on
September 30, 1995, Harbourton exchanged its 50% interest in its interest-only
security with the Partnership in partial settlement of a note payable to the
Partnership.
On August 21, 1992, Western issued to certain of its officers notes related to
limited partnership interests. The notes accrued interest at prime plus 1% and
had a scheduled maturity date of August 21, 1999. The notes required mandatory
prepayments for bonuses and distributions paid in future periods in accordance
with the terms of the individual notes and respective employment agreements.
Effective January 1, 1995, management exchanged their interests in Western for
limited partnership interests in Harbourton. This transaction was accounted
for as a purchase of Western s limited partnership interest by Harbourton at
fair value. The fair value of the interests in Harbourton exceeded
management's basis by approximately $627 thousand. In accordance with
Harbourton's established accounting policy, the excess fair value was
"pushed-down" to Western. Accordingly, the transaction resulted in a write-up
of purchased servicing rights and excess costs over identifiable tangible and
intangible assets of $389 thousand and $238 thousand, respectively.
Page 19 of 39
<PAGE> 20
The Partnership has entered into transactions pursuant to which it repurchases
delinquent loans from GNMA pools which it services and resells such loans on a
servicing retained basis to Santa Cruz Partners, Skillman Partners, and
Harbourton Reassurance, Inc., affiliates of the Partnership and Harbourton. As
of September 30, 1995 and December 31, 1994, loans with unpaid principal
balances totaling approximately $128.8 million and $117.3 million were
purchased out of securitized pools and sold to these affiliates. These loans
are being serviced on behalf of the affiliated companies. The associated
mortgage servicing is reflected in the Non-GNMA Loans Serviced portion of the
Partnership's servicing portfolio. Such transactions are expected to benefit
the Partnership by reducing the Partnership's related foreclosure loss through
the reduction of the pass-through rate due to the investor (owner of the loan).
The reduction in foreclosure loss reserve requirement is reflected as a gain on
sale of defaulted loans to affiliates in the accompanying consolidated
financial statements. In addition, the Partnership's remittance day advance
requirement for its GNMA servicing will be reduced as the servicing contract
with the affiliates is actual/actual as opposed to GNMA's scheduled/scheduled
requirement.
Through the ordinary course of business, the Partnership acquires mandatory
forward commitments to sell whole loans and mortgage backed securities through
a dealer, whose owners also own less than an aggregate 5% limited partnership
interest in Harbourton.
Note 10. Partners' Capital
On October 27, 1988, HBT completed its Initial Public Offering of 4,633,643
Preferred Units. Simultaneously with the closing of that offering, HBT issued
an additional 366,357 Preferred Units to JCC and certain of its subsidiaries in
exchange for their interests in certain residual cash flows. On November 4,
1991, 733,333 Preferred Units were issued in connection with the settlement of
a note issued in connection with the purchase of a servicing portfolio. On
December 31, 1993, HBT issued 334,580 Preferred Units to JCC, which have not
been registered with the Securities and Exchange Commission, to discharge
amounts owed to JCC and certain of its subsidiaries for expenses incurred on
its behalf or fees for services rendered to HBT. On March 15, 1995, in
conjunction with the Exchange Transaction, HBT issued to PVSC and the TMC
Parties 21,513,509 and 829,119 Preferred Units, respectively. On July 31, 1995,
in conjunction with the acquisition of Western, the Partnership issued to
Harbourton and its affiliates approximately 8.6 million Series B Preferred
Units having generally the same rights as the outstanding Preferred Units.
Further, on July 31, 1995, the Partnership issued to Harbourton and its
affiliates approximately 4.9 million of Series B Preferred Units having
generally the same rights as the outstanding Preferred Units in settlement of
$9.0 million in notes owed to Harbourton and its affiliates.
Note 11. Western Transaction
As noted previously, on July 31, 1995 the Partnership completed its acquisition
of Western. The Western Transaction was accounted for as a reorganization of
entities under common control similar to a pooling-of-interests. Accordingly,
the results of operations for the nine months ended September 30, 1995 and
1994, include the operations of both Western and HMCLP as though the
combination took place at the beginning of the respective periods. Similarly,
the balance sheets of the separate partnerships have been combined as of
December 31, 1994. The
Page 20 of 39
<PAGE> 21
following table summarizes the financial condition and operations for the
individual partnerships prior to the combination (in thousands):
<TABLE>
<CAPTION>
December 31, 1994 June 30, 1995
-------------------------- -------------------------
Western Partnership Western Partnership
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Total Assets $51,761 $64,440 $94,075 $124,160
Total Liabilities 43,703 46,729 87,093 89,428
Partners' Capital 8,058 17,711 6,982 34,732
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1995 June 30, 1994
-------------------------- --------------------------
Western Partnership Western Partnership
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Revenues* $ 631 $22,827 $6,877 $10,824
Expenses 2,457 13,076 3,606 8,415
------- ------- ------ -------
Net Income (1,826) 9,751 3,271 2,409
</TABLE>
* Includes gain on bulk sale of originated servicing of $0, $9,148,
$2,898 and $0, respectively, and equity in earnings of affiliates of
$0, $255, $0 and $0, respectively.
Note 12. Proforma Earnings
As noted previously, on March 15, 1995, the Exchange Transaction was
consummated. Accordingly, HMCLP became a subsidiary of HBT and TMC became a
subsidiary of HBT, with an aggregate 50% equity interest owned by HBT and an
aggregate 50% equity interest owned by HMCLP. In addition, on August 1, 1995,
the Western Transaction was completed, TMC was merged into HMCLP and HBT's
mortgage banking assets were merged into HMCLP. Had the transactions occurred
at the beginning of the periods presented in the accompanying statements of
operations, pro forma results of operations would have been as follows (in
thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1995 1994
---- ----
<S> <C> <C>
Total revenues* $40,953 $29,785
Total expenses 29,461 22,521
------- -------
Net income $11,492 $7,264
======= ======
</TABLE>
* Includes gain on bulk sale of servicing of approximately $9,148 and $2,957.
Page 21 of 39
<PAGE> 22
Note 13. Commitments and Contingencies
The Partnership is a party to transactions with off-balance sheet risk in the
normal course of business through the origination and selling of mortgage
loans. These transactions include commitments to extend credit to mortgagors
(i.e., mortgage loan pipeline) and mandatory forward commitments to sell whole
loans or mortgage-backed securities. Those transactions involve, to varying
degrees, elements of credit and interest rate risk in excess of the amount
recognized in the statements of financial condition.
The mortgage loan pipeline of the Partnership represents agreements to lend to
a mortgagor as long as there is no violation of any condition established in
the application or contract. Such commitments generally have fixed expiration
dates or other termination clauses. The Partnership evaluates each mortgagor's
credit worthiness on a case-by-case basis. Collateral is limited to
residential properties. As of September 30, 1995, the Partnership's mortgage
loan pipeline consisted of approximately $105.8 million locked interest rate
commitments with interest rate risk.
The Partnership had both mandatory and optional forward commitments outstanding
matched against mortgage loans held for sale and its mortgage loan pipeline at
September 30, 1995 and December 31, 1994. To the extent mortgage loans are not
available to fill these commitments, the Partnership has interest rate risk.
The Partnership is subject to inherent losses in its loan servicing portfolio
due to loan foreclosures. Certain agencies have the authority to limit their
repayment guarantees on foreclosed loans resulting in increased foreclosure
costs being borne by servicers. The Partnership has evaluated its exposure to
such losses based on loan delinquency status, foreclosure expectancy rates and
historical foreclosure loss experience. The Partnership has established a
reserve for advances receivable and for losses it will experience in future
periods as loans complete the foreclosure process totaling approximately $10.5
million and $7.2 million as of September 30, 1995 and December 31, 1994,
respectively. Required adjustments, if any, to the established reserve will be
reflected in earnings in the periods in which they become known. The total
reserve at September 30, 1995 and December 31, 1994 has been allocated between
reserves for advances receivable and foreclosure reserves as follows (in
thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Reserves for advances $ 2,193 $1,210
Foreclosure reserves 8,332 5,980
------- ------
Total reserves $10,525 $7,190
======= ======
</TABLE>
Page 22 of 39
<PAGE> 23
The following is a roll-forward of the total reserve for advances receivable
and foreclosure reserves for the nine months ended September 30 (in thousands):
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Beginning Balance $ 7,190 $ 1,577
Provision for foreclosure losses 2,765 1,281
Establishment of reserves in connection with
acquisitions of servicing rights 4,108 3,434
Net charge-offs (3,538) (1,730)
------- -------
Ending Balance $10,525 $ 4,562
======= =======
</TABLE>
The Partnership's liquidity is also affected by the level of loan delinquencies
and prepayments due to servicer's advance requirements on the loans it
services. Under certain types of servicing contracts, particularly contracts
to service loans that have been pooled or securitized (primarily GNMA and FNMA
mortgage-backed securities), the servicer must forward all or a part of the
scheduled payments (principal and interest) on the specified remittance day to
the security holder (owner of the loan) even though payments may not have been
received from the mortgagor. In accordance with the terms of the servicing
contracts, servicers may offset the remittance day advances against funds
collected but not required to be remitted to the security holders (including
prepayments and early payments). The servicer's advance requirement is reduced
during high refinance periods due to the amount of prepayment funds available
to offset the required delinquent payment advance. However, during periods of
reduced runoff the advance requirement of the servicer is increased. The
servicer's advance, if any, is typically recovered within 15 days, through
mortgagor payment receipts which replenish the offsetting advance within the
related custodial account.
Page 23 of 39
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following is management's discussion and analysis of the financial
condition and results of operations of the Partnership. The discussion and
analysis should be read in conjunction with the unaudited consolidated
financial statements and footnotes included herein.
RECENT DEVELOPMENTS
Completed Transactions
As a result of the Partnership's endeavor to enhance its mortgage banking
operations, the Partnership completed the following transactions during the
third quarter of 1995. The following is a brief description of each of these
completed transactions:
Western Transaction
On July 31, 1995 the Partnership completed its acquisition of Western, an
affiliated mortgage originator and servicer headquartered in Sacramento,
California. Western had been a subsidiary of Harbourton. The purchase price
for Western was approximately $15.7 million. In exchange for Western,
Harbourton received approximately 8.6 million Series B Preferred Units having
generally the same rights as the outstanding Preferred Units. In addition, if
the performance of the production operations of Western exceed certain
projections during a 24 month period, Harbourton will receive additional
preferred units. Western, which originated loans primarily on a wholesale
basis in the western United States, had mortgage origination volume of
approximately $846 million in 1994 and $466 million during the seven months
ended July 31, 1995 (i.e., prior to the acquisition by the Partnership). At
the acquisition date Western owned approximately $644 million of servicing
rights, which had been subserviced by the Partnership since the latter part of
1994. The Partnership acquired Western to provide broader geographic coverage,
economies of scale through greater production volumes, and to act as a valuable
hedge against prepayment risk associated with the Partnership's servicing
portfolio.
The Western Transaction has been accounted for as a reorganization of entities
under common control similar to a pooling-of-interests. Consistent with
pooling-of-interests accounting, the historical financial statements of the
Partnership have been combined with the historical financial statements of
Western and are presented as the consolidated financial statements of the
Partnership contained herein. See also the notes to the consolidated financial
statements for a discussion of the impact of recording the Western Transaction.
Debt Refinancing
In addition to the restructuring transactions, the Partnership refinanced the
separate credit facilities of Western, TMC, Harbourton Mortgage Co., L.P. and
itself with a new syndicated credit facility. The syndicated facility was
completed by the end of the third quarter of 1995 and consists of the
following: i) a $150.0 million warehouse facility, (ii) a $76.4 million
servicing secured facility which consists of four tranches as follows: a) a
$41.4 million servicing term facility, which was funded at closing, and
amortizes in twenty equal quarterly payments, b) a $15.0 million line of
credit, available for two years, to finance up to 65% of the purchase price of
future bulk servicing acquisitions, c) a $15.0 million revolving credit line
Page 24 of 39
<PAGE> 25
to finance mid-month principal and interest advance receivables, maturing July
31, 1996 and repaid during the first week of the month following each advance,
and d) a $5.0 million revolving credit line used to finance taxes and insurance
and foreclosure advance receivables, maturing July 31, 1996.
The syndicated facility is subject to minimum debt service coverage
requirements, net worth requirements, and loan-to-value restrictions. The
borrower on the facility is HMCLP and borrowings are guaranteed by HBT. The
Partnership incurred and paid an up-front fee in the amount of $414 thousand
on tranches a) and b), as noted above, of the servicing secured facility. See
also the notes to the consolidated financial statements for a further
description of the credit facility. This refinancing will enable the
Partnership to increase its servicing portfolio (as noted below) and its
origination operations through strategic acquisitions of servicing and
origination entities.
Debt Conversion
During the third quarter of 1995, Harbourton and its affiliates converted $9.0
million of notes from the Partnership into equity in the Partnership. In
connection with the debt to equity conversion, Harbourton and its affiliates
received approximately 4.9 million of Series B Preferred Units having generally
the same rights as the outstanding Preferred Units.
Following the consummation of the Western transaction and the debt to equity
conversion, Harbourton and its affiliates own approximately 83.5% of all of the
series of Preferred Units of the Partnership.
Servicing Acquisition
During the third quarter of 1995, the Partnership entered into a Purchase and
Sale Agreement for the acquisition of approximately $1.5 billion of GNMA
mortgage servicing rights. The Purchase and Sale Agreement, among other
things, called for an effective acquisition date of August 31, 1995 with a
November 1, 1995 transfer of the servicing responsibilities. The Partnership
funded the initial down payment during the third quarter of 1995 and has
reflected the remaining payments due to the seller in installment purchase
obligations in the accompanying consolidated balance sheets. In conjunction
with the Purchase and Sale Agreement, the Partnership entered in to an Interim
Servicing Agreement with the seller to perform the servicing functions, for the
period from August 31, 1995 to the transfer date, on behalf of the Partnership.
As a result the Partnership will not benefit from any economies of scale
achieved with this acquisition until the servicing responsibilities are
transferred.
The Partnership expects to continue to pursue transactions which management
believes will further enhance the Partnership's mortgage banking operations.
No assurance can be given that any such transactions will be consummated and if
consummated, that they will have a favorable impact on the Partnership.
Impact of Financial Accounting Standards Board Statement No. 122
The Partnership adopted SFAS No. 122 during the third quarter of 1995 effective
as of the beginning of its fiscal year, January 1, 1995. As a result, the
Partnership's operating results for the first and second quarters of 1995 have
been restated. SFAS No. 122 prohibits retroactive
Page 25 of 39
<PAGE> 26
application to prior years, therefore, the historical results for 1995 and
1994, presented herein, are reported using different accounting rules (i.e.,
SFAS No. 122 in 1995 versus SFAS No. 65 in 1994). The primary differences
between the accounting rules, as it applies to the Partnership, relate to the
accounting treatment for originated mortgage servicing rights ("OMSRs") and the
methodology for evaluating and measuring impairment of capitalized mortgage
servicing rights ("MSRs").
Prior to the adoption of SFAS No. 122, the Partnership did not capitalize its
OMSRs. As a result, the Partnership's historical financial statements, prior
to January 1, 1995, did not recognize the additional value of the OMSRs,
although the OMSRs had market value at the time they were created. Under the
new accounting rules, OMSRs are treated as an asset separate from the
underlying loan and capitalized as MSRs. Subsequent to the adoption of SFAS
No. 122, the cost of creating a mortgage loan was allocated, at the time of
origination, between the loan and the servicing right based on their respective
fair values. Additionally, gains on the sales of loans, attributable to the
allocation of value to the MSRs, were recognized at the time the related loan
was sold, although the MSR asset was recognized on the date the loan was
originated. The following table summarizes the impact of the adoption of SFAS
No. 122 to the Partnership's historical statements of operations (in
thousands):
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1995 September 30, 1995
------------------ ------------------
<S> <C> <C>
Increase in gain on sales of
mortgage loans and related
mortgage servicing rights $2,692 $3,638
Increase in amortization of
mortgage servicing rights (40) (107)
------ ------
Total increase in net earnings $2,652 $3,531
====== ======
</TABLE>
Further, the Partnership has capitalized approximately $1.9 million of MSRs for
which the underlying loan has not been sold as of September 30, 1995.
In addition to the capitalization of OMSRs as MSRs, the Partnership has changed
its methodology for evaluating and measuring the impairment of capitalized
mortgage servicing rights. Prior to September 30, 1995, the Partnership
evaluated the impairment of each purchased servicing right on an acquisition by
acquisition basis, on a disaggregated basis, based on the future undiscounted
net servicing income related to each acquired portfolio. SFAS No. 122 requires
that, for the purpose of evaluating and measuring impairment of MSRs, a
mortgage bank stratify its MSRs based on one or more predominant risk
characteristics associated with the underlying loans. The amount of impairment
recognized is the amount by which the capitalized MSRs for each risk stratum
exceed the respective fair value of the MSRs. Impairment is recognized through
adjustments to a valuation allowance to reflect changes in the measurement of
impairment. Fair value in excess of the amount capitalized as MSRs is not
recognized. In determining servicing value impairment at the end of the
quarter, the mortgage servicing portfolio was disaggregated into its
predominant risk characteristics. The Partnership has determined those risk
characteristics to be loan type and interest rate. The individual tranches of
Page 26 of 39
<PAGE> 27
the portfolio were valued by an independent third party to determine the fair
value of the MSRs. The fair value was then compared to the book value of each
risk stratum to determine if a reserve for impairment was required. As of
September 30, 1995 no such impairment adjustment was required.
As previously discussed, SFAS No. 122 prohibits retroactive application for
OMSRs created prior to the fiscal year in which the Partnership adopted the new
accounting pronouncement. As a result the Partnership, at September 30, 1995,
owns approximately $689 million of servicing rights that are not capitalized in
its consolidated financial statements. Further, SFAS No. 122 prohibits the
recognition of fair value in excess of the book basis of the MSRs. As a
result, the Partnership has off-balance sheet value associated with its
non-capitalized MSRs, as well as the excess in fair value of the MSRs
capitalized in the consolidated financial statements.
GENERAL
As previously discussed, the results of operations presented in the
consolidated financial statements herein, reflect a series of recently
completed transactions; a) the Exchange Transaction, b) the TMC Transaction and
c) the Western Transaction. The following is a brief discussion relating to
the accounting and reporting implementation of these transactions:
Exchange and TMC Transactions
On March 14, 1995, the existing Unitholders of HBT approved the issuance of
21.5 million Preferred Units of HBT (a 75.7% controlling interest in HBT) in
exchange for 100% ownership interest in HMCLP and HFC (the "Exchange
Transaction"). Because of the change in control of HBT, this transaction was
accounted for as a reverse acquisition. Concurrent with the Exchange
Transaction, HBT acquired a 50% interest in TMC in exchange for .8 million
Preferred Units of HBT (a 2.9% interest) (the "TMC Transaction"). This
interest, combined with the 50% interest previously contributed to HMCLP by
Harbourton, in June of 1994, resulted in HBT's 100% control of TMC.
Accounting for a reverse acquisition requires that the historical results of
operations (prior to the Exchange Transaction) reflect the operations of HMCLP
as the continuing accounting entity. Further, under the accounting for a
reverse acquisition, HBT is reported as if it were purchased as of the date of
the Exchange Transaction. Therefore, the historical results of operations
exclude the operating results of HBT prior to the date of the Exchange
Transaction. These results are reflected in the purchase adjustments
associated with the recognition of this transaction.
The operating results of TMC are reflected as equity in earnings in affiliates
in the operating results of HMCLP for the period from June 30, 1994 to the date
of the Exchange Transaction. Thereafter, the results of operations of TMC are
reflected as a 100% owned subsidiary of the Partnership and reported in the
consolidated statements of operations.
Western Transaction
As previously discussed, on July 31, 1995, HBT acquired Western in exchange for
8.6 million Series B Preferred Units (the "Western Transaction"). This was a
transaction between entities under common control, therefore, the transaction
was accounted for using the pooling-of-interests method of accounting. Under
the pooling method of accounting, the results of
Page 27 of 39
<PAGE> 28
operations of Western are presented as if the transaction occurred on January
1, 1994 (the earliest date presented).
In summary, the historical consolidated results of operations presented herein
primarily represent the following: i) HMCLP and Western for the periods prior
to June 30, 1994, b) HMCLP and Western plus a 50% equity interest in TMC for
the period from July 1, 1994 through March 31, 1995, c) HMCLP, Western, HBT and
TMC, from April 1, 1995 through July 31, 1995 and d) HBT consolidated with
HMCLP from August 1, 1995 to September 30, 1995.
As a result of the transactions discussed above, the Partnership has completed
name changes for the entities listed in the following table:
<TABLE>
<CAPTION>
Previous Name Current Name Abbreviated Name
- - - - - - ------------- ------------ ----------------
<S> <C> <C>
JHM Mortgage Securities L.P. Harbourton Financial Services L.P. HBT or the Partnership
JHM Mortgage Capital Corporation Harbourton Mortgage Corporation General Partner
Platte Valley Funding, L.P. Harbourton Mortgage Co., L.P. HMCLP
Platte Valley Funding Corporation Harbourton Funding Corporation HFC
</TABLE>
Business Strategy
The Partnership's primary business currently is focused on mortgage banking
which consists of (i) mortgage loan servicing activities, including the
acquisition and sale of mortgage servicing rights, (ii) the origination and
purchase of mortgage loans, including the securitization and sale of the
mortgage loans with the related servicing rights retained or released, and
(iii) investments in other mortgage-related securities.
The Partnership's concentration in mortgage banking consists primarily of
mortgage servicing and originations. Accordingly, the Partnership is subject
to the risks associated with these operations. These risks include, (i) the
possible adverse effect of regulatory changes, since virtually all aspects of
the Partnership's business are subject to federal and state regulation; (ii)
the adverse effect on loan originations and servicing costs of downturns in
real estate cycles or general economic conditions; (iii) the continued need to
maintain financing availability to fund warehouse lines, finance bulk
acquisitions of servicing rights and to fund advance requirements; (iv) the
need for efficient and sound operations to achieve profitability and to avoid
excessive foreclosure losses and underwriting problems; (v) the servicer's
responsibility in connection with GNMA pools (which constitute most of the
Partnership's servicing) for foreclosure expenses not reimbursed by FHA or VA
(such as attorneys fees, unreimbursed interest and other expenses), provided
further that VA has the authority to limit its obligation to the reimbursement
of the lesser of a percentage of the defaulted loan's outstanding principal or
a specified maximum guaranteed amount (a so-called "VA no-bid") and the
servicer then takes the market risk of disposing of the property to recover the
unreimbursed principal plus unpaid interest and foreclosure costs; and (vi)
market and interest rate risk associated with the origination and secondary
marketing of mortgage loans, such as the adverse effects of changes in interest
rates after the mortgage originator has issued commitments to the mortgage
borrower or the secondary market purchaser. The Partnership,
Page 28 of 39
<PAGE> 29
to a limited degree, is also subject to the risks associated with its
derivative securities investments, including, without limitation, other factors
(such as foreclosure rates and pay-offs from home sale activity) which affect
the rate of prepayment on the mortgage loans underlying the derivative
security, actual operating expenses with respect to the underlying
mortgage-backed security, potential tax liabilities and market conditions
unique to such securities.
Mortgage Servicing Portfolio
At September 30, 1995, the Partnership's servicing and subservicing portfolio
consisted of residential mortgage loans with underlying principal balances of
approximately $6.2 billion. The value and income from mortgage servicing rights
are affected by, among other things, changes in both short-term and long-term
interest rates. Generally, mortgage servicing portfolios increase in value as
interest rates increase (benefits from escrows being used in compensating
balance arrangements increase when short-term rates rise and the expected
income stream from servicing lengthens as prepayments slow when long-term rates
increase). The benefit from increases in short-term rates generally is
partially offset by the increased financing costs on borrowings incurred to
fund the acquisition of mortgage servicing rights and other working capital
requirements. Decreases in rates generally have the opposite effect of
decreasing the value and income from mortgage servicing rights. The
Partnership will attempt to mitigate this negative impact by adding loans to
its existing servicing portfolio through (i) refinancing a portion of the
prepaying loans, (ii) originating new loans and retaining the servicing and
(iii) purchasing servicing from third parties. In contrast, in periods of
decreasing long-term rates, which stimulate new home financing and the
refinancing of existing mortgage loans, loan production operations should
provide an increased contribution to earnings as mortgage originations rise.
Mortgage Loan Originations
The sale of originated mortgage loans to third parties may generate a gain or
loss to the Partnership. Gains or losses result primarily from two factors.
First, mortgage loans may be originated at a price (i.e., interest rate and
discount) which is higher or lower than the Partnership would receive if it
immediately sold the mortgage loan in the secondary market. These pricing
differences occur principally as a result of competitive pricing conditions in
the wholesale loan origination market. Second, gains or losses may result from
changes in interest rates which result in changes in the market value of the
mortgage loans, or commitments to purchase mortgage loans, from the time the
price commitment is given to the borrower or correspondent until the time that
the mortgage loan is sold by the Partnership or until it enters into a forward
delivery commitment.
Typically, the purchaser of mortgage loans for resale, such as the Partnership,
endeavors to minimize its interest rate risk on commitments made to customers
by entering into forward sale commitments on mortgage-backed securities and
mortgage loans. Net commitment positions are constantly adjusted by entering
into new commitments to sell or by buying back commitments to sell. The amount
of forward commitments outstanding is equal to the closed mortgage loans held
in inventory plus a portion of the mortgage loans that the Partnership has
committed to make to customers. The aggregate amount of commitments is reduced
for hedging purposes by an estimate of mortgage loans which will not close.
The Partnership's
Page 29 of 39
<PAGE> 30
projection of the portion of loans that it expects to close is based on
numerous factors including anticipated changes in interest rates. The forward
sale commitments are an effort to mitigate the Partnership's risk resulting
from potential changes in market interest rates between the time that it
commits to make or purchase a mortgage loan at an agreed price and the time
that the mortgage loan is closed and sold. The use of forward commitments as a
strategy to minimize interest rate risk requires the Partnership to make
certain assumptions and projections about future interest rates and general
economic trends.
Mortgage-Related Securities
"Mortgage-related securities" are securities that, directly or indirectly,
represent participation in, or are secured by and payable from, mortgage loans
secured by single family and multifamily residential real property and
commercial property. The cash flow generated by the mortgage assets underlying
an issue of mortgage-related securities is applied first to make the required
payments on such mortgage-related securities and second to pay the related
administrative expenses. The residual cash flow in a mortgage-related
securities transaction generally represents the excess cash flow remaining
after making such payments (the "residual cash flows" or "CMO residual
interest"). The investment characteristics of mortgage-related securities
differ from traditional debt securities. The major differences include the
fact that interest payments and principal repayments on mortgage-related
securities are made more frequently (usually monthly), and principal may be
prepaid at any time because the underlying mortgage loans or other assets
generally may be prepaid at any time. These differences can result in
significantly greater price and yield sensitivity than is the case with
traditional fixed-income securities. The Partnership's investments in
mortgage-related securities represents approximately 5% of its total partners'
capital as of September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
General
The new credit facility, coupled with the $9.0 million debt to equity
conversion, provided the Partnership with approximately $20.0 million in
liquidity. In addition, the $15.0 million acquisition revolver has provided
the Partnership with additional liquidity for a total of approximately $35.0
million, less the funds required to complete the $1.5 billion servicing
acquisition, to further expand its servicing portfolio and other investments.
As of September 30, 1995, all of the Partnership's excess liquidity has been
used to fund mortgage loans held for sale.
As an additional source of liquidity, the Partnership has a subordinated line
of credit with Harbourton. At September 30, 1995, the Partnership is indebted
to Harbourton and its affiliates for approximately $11.3 million. These
borrowings generally bear interest at prime plus 1.5%.
The Partnership's remaining sources and uses can be categorized into Mortgage
Servicing Portfolio and Mortgage Loan Production.
Page 30 of 39
<PAGE> 31
Mortgage Servicing Portfolio
A source of liquidity and cash flow available to the Partnership is its owned
portfolio of servicing rights on mortgage loans, net of its servicing term
loan, with underlying principal balances aggregating approximately $6.0 billion
at September 30, 1995. Currently, there is a liquid and active market for the
sale and acquisition of servicing rights. The Partnership has term loans
secured by its mortgage servicing portfolio. Principal and interest on the
term loans is paid monthly.
The Partnership's liquidity is affected by the level of loan delinquencies and
prepayments due to the servicer's advance requirements on the loans it
services. Under certain types of servicing contracts, particularly contracts
to service loans that have been pooled or securitized (primarily GNMA and FNMA
mortgage-backed securities), the servicer must forward all or part of the
scheduled payments (principal and interest) on the specified remittance day to
the security holder (owner of the loan) even though payments may not have been
received from the mortgagor. In accordance with the terms of the servicing
contracts, servicers may offset the remittance day P&I advances against funds
collected but not yet required to be remitted to the security holders
(including prepayments and early payments). The servicer's principal and
interest (P&I) advance requirement is reduced during high pay-off periods due
to the amount of prepayment funds available to offset the required delinquent
payment advance. However, during periods of reduced prepayments, the advance
requirement of the servicer is increased. The servicer's P&I advance, if any,
is typically recovered within 15 days, through mortgagor payment receipts which
replenish the offsetting advance within the related custodial account. The
Partnership maintains a revolving line of credit to provide necessary liquidity
to meet such advances. These lines of credit have been sufficient to meet the
Partnership's liquidity requirements relating to these items; however, the rise
in interest rates and increased delinquencies has caused an increase in the
Partnership's remittance day advance requirement.
The Partnership is also required as a servicer to fund advances for mortgage
and hazard insurance and tax payments on the scheduled due date even though
sufficient escrow funds may not be available. The Partnership's sources of
liquidity to meet these advance requirements are internally generated operating
cash flow, its existing lines of credit, and additional defaulted loan
repurchase and sale transactions with affiliated parties as discussed above.
Mortgage Loan Production
One of the Partnership's other primary financing requirements will be the
financing of its mortgage loan originations and purchases until funded by
secondary market investors and the cost of its loan originations. The
Partnership will finance its short-term loan funding requirements principally
through warehouse lines of credit. This financing requirement will begin at
the time of loan closing and extends until the loan is sold into the secondary
market.
With the acquisition of Western, the Partnership's financing requirements
became increasingly important. For the seven months ended July 31, 1995
Western originated approximately $466 million compared to HMCLP's $125 million.
Page 31 of 39
<PAGE> 32
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1995 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1994
Summary
Net income for the third quarter of 1995 totaled approximately $.4 million or
$.01 per share, an increase of approximately $.3 million or $.01 per share over
the approximately $.1 million or $.00 per share earned during the third quarter
of 1994. As previously discussed, the Partnership's third quarter 1995 results
were accounted for under the new accounting pronouncement, SFAS No. 122. SFAS
No. 122 prohibits retroactive application to prior years. Accordingly, the
Partnership's third quarter 1994 historical results were accounted for under the
original SFAS No. 65. If the Partnership had not applied this new accounting
standard in the third quarter of 1995, the Partnership would have reported a net
loss of approximately $(2.2) million or $(.07) per share. The decline in
non-adjusted SFAS No. 122 results of operations for the third quarter of 1995 as
compared to the third quarter of 1994 is primarily attributed to the following
items: i) the increased amount of retained servicing created in 1995 of
approximately $175 million compared to 1994's level of approximately $60
million. An increase in the level of retained servicing prior the implementation
of SFAS No. 122 has the negative impact of reducing earnings for the costs
associated with creating the servicing without the recognition of the positive
impact associated with the value added for the OMSRs, ii) an increase in general
and administration expenses associated with the completion of the transactions
and restructuring previously discussed, and iii) an increase in interest expense
associated with the additional leverage obtained by the Partnership, resulting
from the completion of its new credit facility. The increased leverage should
allow the Partnership to expand its mortgage banking operations.
The following table summarizes the Partnership's operating results (in
thousands):
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, 1995 September 30, 1994
------------------ ------------------
<S> <C> <C>
Net income from servicing operations $ 2,866 $ 2,611
Net income (loss) from production operations 932 (946)
General and administrative expenses (1,946) (1,017)
Net other income (expense) (1,408) (351)
Equity in earnings of affiliates -- (170)
------- -------
Net Income $ 444 $ 127
======= =======
</TABLE>
Servicing
Net income from servicing increased approximately $.3 million or 9.8% for the
third quarter of 1995 compared to the third quarter of 1994. The increase in
the contribution from servicing primarily resulted from the growth in the
servicing portfolio. The average principal balance of loans serviced for the
three month period ended September 30, 1995 (based on beginning of the month
totals) increased to approximately $5 billion from approximately $3.6 billion
for the same period during 1994.
The growth in the servicing portfolio is principally due to the acquisition of
a $1.5 billion bulk servicing portfolio with an effective acquisition date of
August 31, 1995, the acquisition of the HBT portfolio of approximately $1.1
billion effective April 1, 1995 resulting from the Exchange Transaction, and
the sale of approximately a $493 million bulk servicing portfolio effective
January 31, 1995.
The $1.5 billion bulk servicing acquisition was acquired with an effective
acquisition date of August 31, 1995 and a transfer date of November 1, 1995.
As a result, the effects of the acquisition are reflected for one month during
the third quarter of 1995. In addition, pursuant
Page 32 of 39
<PAGE> 33
to the terms of the acquisition and interim servicing agreements, the seller is
responsible for servicing the portfolio for the period prior to the transfer
date of November 1, 1995. The Partnership is obligated to compensate the
seller for performing the servicing obligations during the interim servicing
period. As a result, the Partnership will not achieve the economies of scale
normally obtained by acquiring servicing portfolios until the fourth quarter of
1995.
The increases in gross servicing revenues for the three month period ended
September 30, 1995, as compared to the same period for 1994 was principally due
to the growth in the servicing portfolio.
Although the average servicing portfolio increased in size for the three month
period ended September 30, 1995 as compared to the same period for 1994, total
servicing costs decreased to $1.5 million from $1.8 million for the respective
periods. In September 1994, Western contracted with HMCLP to subservice its
servicing portfolio. As a result, the Partnership's "as-pooled" operating
results include the cost of maintaining and operating two separate servicing
centers for most of the third quarter of 1994.
Amortization of mortgage servicing rights increased to approximately $2.2
million for the quarter ended September 30, 1995 from approximately $1.7
million for the same period in 1994, a net change of approximately $.5 million.
Approximately $.9 million of the net change relates to additional amortization
associated with the acquisitions discussed above, and the increased
amortization associated with the implementation of SFAS No. 122.
Production
Net income from production operations increased to $.9 million for the quarter
ended September 30, 1995 from a loss of $(.9) million for the quarter ended
September 30, 1994. The net income for the third quarter ended 1995 was
affected by the implementation of SFAS No. 122. Under SFAS No. 122, a higher
gain on sale of the loan is recorded as compared to SFAS No. 65 because under
SFAS No. 122 the acquisition cost of the loan is reduced by the amount
allocated to the fair value of the originated mortgage servicing rights. If
the Partnership had not applied this new accounting in the third quarter of
1995, income from production operations would have been a net loss of
approximately $(1.8) million. The decline in non-adjusted SFAS 122 production
earnings for the third quarter of 1995, as compared with 1994, relates to the
increased amount of retained servicing in 1995 (see discussion above).
The principal balance of loans produced for the third quarter increased to
approximately $468 million from approximately $176 million for the third
quarter of 1994, an increase of approximately $292 million or 166%. The third
quarter of 1994 excluded the production volume of TMC. TMC was recorded and
reported on the equity method of accounting prior to the consummation of the
TMC Transaction in March 1995. As a result, approximately $117 million of the
$292 million increase can be attributed to the addition of TMC. Excluding the
impact of TMC, the Partnership's volume increased $175 million, or 100%.
The increase in production net income is primarily related to the increase in
volume as well as an improvement in the overall profit margins realized by the
Partnership.
Page 33 of 39
<PAGE> 34
In addition, the Partnership is in the process of completing a reorganization
and consolidation of all production support functions. The reorganization
consists of centralizing and eliminating duplicate production support functions
such as accounting, treasury, secondary marketing, shipping, and quality
control. The reorganization began August 31, 1995 and is expected to be
completed by the end of 1995. The elimination of duplicate functions should
increase future profitability of the production division of the Partnership.
General and Administrative Expenses
General and administrative expenses increased to approximately $1.9 million
from $1.0 million for the third quarter of 1995 as compared to the third
quarter of 1994. The increase in general and administrative expenses can be
attributed to a number of factors including the recognition of transactional
costs associated with the completion of the transactions previously discussed
above and one time non-recurring expenses associated with the reorganization
and consolidation of the Partnership's mortgage banking operations into one
entity. In addition, the Partnership's general and administrative expenses
have increased due to the functions required to maintain and support a larger
more diverse publicly traded master limited partnership.
Net Other Income (Expense) Items
The increase in net other income (expense) items is attributed to the increase
in term interest and other interest expense associated with the completion of
the Partnership's term facility in August 1995. The increased leverage
resulted in an increase of interest expense to $.7 million for the third
quarter 1995 from approximately $.3 million for the third quarter 1994, an
increase of approximately $.4 million. The increased leverage should enable
the Partnership to expand its existing mortgage banking operations and take
advantage of achieving economies of scale within its mortgage banking
operations. The remaining net increase in other items is primarily attributable
to the increase in depreciation and amortization of excess cost over
identifiable tangible and intangible assets acquired.
Equity in Earnings of Affiliates
Equity in earnings of affiliates for the third quarter of 1994 represents the
Partnership's 50% interest in TMC. As previously discussed, prior to March 31,
1995, the Partnership reported its interest in TMC using the equity method of
accounting. Subsequent to March 31, 1995 TMC's operations are consolidated and
included in the consolidated operating results of the Partnership.
NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1994
Summary
Net income for the nine months ended September 30, 1995 totaled approximately
$9.3 million or $.26 per share, an increase of approximately $3.4 million or
$.07 per share over the approximately $5.8 million or $.19 per share earned
during the nine months ended September 30, 1994. As previously discussed, the
Partnership's 1995 results were accounted for under the new accounting
pronouncement, SFAS No. 122. This pronouncement prohibits retroactive
application to prior years. Accordingly, the Partnership's 1994 historical
results
Page 34 of 39
<PAGE> 35
were accounted for under SFAS No. 65. If the Partnership had not applied this
new accounting pronouncement in 1995, the Partnership would have reported net
income of approximately $5.7 million or $.16 per share.
The following table summarizes the Partnership's operating results (in
thousands):
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1995 September 30, 1994
------------------ ------------------
<S> <C> <C>
Net income from servicing operations $ 9,071 $ 4,872
Net income (loss) from production operations (141) 2,734
General and administrative expenses (4,800) (3,583)
Net other income (expense) 5,373 1,969
Equity in earnings of affiliates (255) (186)
------- -------
Net Income $ 9,248 $ 5,806
======= =======
</TABLE>
Servicing
Net income from servicing increased approximately $4.2 million or 86% for the
nine months ended September 30, 1995 compared to the nine months ended
September 30, 1994. The increase in the contribution from servicing primarily
resulted from the growth in the servicing portfolio. The average principal
balance of loans serviced for the nine month period ended September 30, 1995
(based on beginning of the month totals) increased to approximately $5.0
billion from approximately $3.4 billion for the same period 1994.
The growth in the servicing portfolio is principally due to the acquisition of
a $1.5 billion bulk servicing portfolio with an effective acquisition date of
August 31, 1995, the acquisition of the HBT portfolio of approximately $1.1
billion effective April 1, 1995 resulting from the Exchange Transaction, and
the sale of approximately a $493 million bulk servicing portfolio effective
January 31, 1995.
The $1.5 billion bulk servicing acquisition was acquired with an effective
acquisition date of August 31, 1995 and a transfer date of November 1, 1995.
As a result, the effects of the acquisition are reflected for one month during
the nine months ended September 30, 1995. In addition, pursuant to the terms
of the acquisition and interim servicing agreements, the seller is responsible
for servicing the portfolio for the period prior to the transfer date of
November 1, 1995. The Partnership is obligated to compensate the seller for
performing the servicing obligations during the interim servicing period. As a
result the Partnership will not achieve the economies of scale normally
obtained by acquiring servicing portfolios until the fourth quarter of 1995.
During the nine month period ending September 30, 1994, the Partnership
acquired three bulk servicing portfolios totaling approximately $2.0 billion of
GNMA servicing and sold one bulk servicing portfolio totaling approximately
$456 million all with an effective transaction date of June 30, 1994. As a
result, the effects of such transactions are reflected for the three month
period ending September 30, 1994.
Page 35 of 39
<PAGE> 36
The increases in gross servicing revenues for the nine month period ended
September 30, 1995, as compared to the same period for 1994 was principally due
to the growth in the servicing portfolio.
Although the average servicing portfolio increased in size for the nine month
period ended September 30, 1995 as compared to the same period for 1994, total
servicing costs grew only slightly to approximately $4.3 million for the nine
month period ended September 30, 1995 to $4.1 million for the nine month period
ended September 30, 1994.
Amortization of mortgage servicing rights also increased only slightly to
approximately $5.4 million for the nine months ended September 30, 1995 from
approximately $5.0 million for the same period in 1994, a net change of only
$.4 million. Approximately $1.5 million of the net change relates to
additional amortization associated with the acquisitions discussed above, and
the increased amortization associated with the implementation of SFAS No. 122.
Production
Net income from production operations decreased to near break-even for the nine
months ending September 30, 1995 from $2.7 million for the nine months ended
September 30, 1994. Origination volumes and gain on sale of originated loans
were adversely effected in early 1995 due to the increase in market interest
rates. The decrease in the profitability of the origination operations during
1995 was offset by the implementation of SFAS No. 122. Under SFAS No. 122, a
higher gain on sale of the loan is recorded as compared to SFAS No. 65 because
under SFAS No. 122 the acquisition cost of the loan is reduced by the amount
allocated to the fair value of the originated mortgage servicing rights. If
the Partnership had not applied this new accounting in 1995, income from
production operations would have been a net loss of approximately $3.8 million.
The principal balance of loans produced for the nine months ended September 30,
1995 increased to approximately $900.7 million from approximately $889.6
million for the same period of 1994, an increase of approximately $11.1 million
or 1%. The nine months ended September 30, 1994 excluded the production volume
of TMC. TMC was recorded and reported on the equity method of accounting prior
to the consummation of the TMC transaction in March 1995. Included in the
consolidated 1995 production volumes are $185 million in production for TMC for
the period from March 31, 1995 to September 30, 1995. Excluding the impact of
TMC, the Partnership's volume decreased $173.9 million or 20%.
The decrease in production net income is primarily related to increased pricing
competition in the market, resulting in a decreased profit margin.
In addition, the Partnership is in the process of completing a reorganization
and consolidation of all production support functions. The reorganization
consists of centralizing and eliminating duplicate production support functions
such as accounting, treasury, secondary marketing, shipping, and quality
control. The reorganization began August 31, 1995 and is expected to be
completed by the end of 1995. The elimination of duplicate functions should
increase future profitability of the production division of the Partnership.
Page 36 of 39
<PAGE> 37
General and Administrative Expenses
General and administrative expenses increased to approximately $4.8 million
from $3.6 million for the nine months ended September 30, 1995 as compared to
the same period of 1994. The increase in general and administrative expenses
can be attributed to a number of factors including the recognition of
transactional costs associated with the completion of the transactions
previously discussed above and one time non-recurring expenses associated with
the reorganization and consolidation of the Partnership's mortgage banking
operations into one entity. In addition, the Partnership's general and
administrative expenses have increased due to the functions required to
maintain and support a larger more diverse publicly traded master limited
partnership.
Net Other Income (Expense) Items
The increase in net other income (expense) items is attributed to the gain on
bulk sale of servicing partially offset by an increase in term interest and
other interest expense associated with the completion of the Partnership's term
facility in August 1995 and additional amortization and depreciation expense.
During the nine months ended September 30, 1995 the Partnership sold servicing
rights for a gain of $9.1 million compared to a gain on sale of servicing
rights of $3.0 million for the same period of 1994. The increased term debt
leverage resulted in an increase of interest expense to $1.6 million for the
nine months ended September 30, 1995 from approximately $.7 million for the
same period of 1994, an increase of approximately $.9 million. The increased
leverage should enable the Partnership to expand its existing mortgage banking
operations and take advantage of achieving economies of scale within its
mortgage banking operations. The remaining net increase in other items is
primarily attributable to the increase in depreciation and amortization of
excess cost over identifiable tangible and intangible assets acquired.
Equity in Earnings of Affiliates
Equity in earnings of affiliates for the period from June 30, 1994 to September
30, 1994, represents the Partnership's 50% interest in TMC. Equity in earnings
of affiliates for the period from January 1, 1995 to March 31, 1995, represents
the Partnership's 50% interest in TMC. As previously discussed, prior to March
31, 1995, the Partnership reported its interest in TMC on the equity method of
accounting. Subsequent to March 31, 1995 TMC's operations are consolidated and
included in the consolidated operating results of the Partnership.
Page 37 of 39
<PAGE> 38
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
10(b) Revolving Warehouse Credit Facility and Servicing Credit Facility
dated July 31, 1995
10(c) Mortgage Servicing Purchase and Sale Agreement dated September 15,
1995
b. Reports on From 8-K:
1) Form 8-K filed August 14, 1995 (dated July 31, 1995) and Form 8-K/A
filed October 12, 1995 (dated July 31, 1995).
Page 38 of 39
<PAGE> 39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARBOURTON FINANCIAL SERVICES L.P.
By: Harbourton Mortgage Corporation,
General Partner
Date: November 13, 1995 By: /s/ Rick W. Skogg
-------------------------------------
Rick W. Skogg
President and Chief Operating Officer
Date: November 13, 1995 By: /s/ Paul Szymanski
-------------------------------------
Paul Szymanski
Chief Financial Officer
Date: November 13, 1995 By: /s/ Bill L. Reid, III
-------------------------------------
Bill L. Reid, III
Chief Accounting Officer
Page 39 of 39
<PAGE> 40
EXHIBIT INDEX
10(b) Revolving Warehouse Credit Facility and Servicing Credit Facility
dated July 31, 1995
10(c) Mortgage Servicing Purchase and Sale Agreement dated September 15,
1995
27 Financial Data Schedule
<PAGE> 1
- - - - - - --------------------------------------------------------------------------------
CREDIT AGREEMENT
(Revolving Warehouse Credit Facility)
Dated as of July 31, 1995
Between
HARBOURTON MORTGAGE CO., L.P.,
CHEMICAL BANK,
as Administrative Agent,
FIRST BANK NATIONAL ASSOCIATION,
as Co-Agent,
And
THE LENDERS PARTY HERETO
- - - - - - --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE I DEFINITIONS................................................................. 1
Section 1.1 Defined Terms .............................................. 1
Section 1.2 Terms Generally ............................................ 31
ARTICLE II AMOUNTS AND TERMS OF LOANS ................................................ 32
Section 2.1 The Commitments ............................................ 32
(a) Tranche A Loans (Warehouse Tranche) ........................ 32
(b) Tranche B Loans (Gestation Tranche)......................... 32
(c) Swing-Line Loans .......................................... 33
Section 2.2 Termination of Commitments ................................. 33
Section 2.3 Method of Borrowing......................................... 33
(a) Borrowings.................................................. 33
(b) Swing-Line Borrowings....................................... 33
(c) Telephonic Notices ......................................... 34
(d) Notices to Lenders ......................................... 34
(e) Notice of LIBOR Rate Determination.......................... 34
(f) Affirmation of Representations.............................. 34
Section 2.4 Conversions and Continuations............................... 35
(a) Conversions and Continuations............................... 35
(b) Conversions Upon Absence of Notice.......................... 35
Section 2.5 Disbursement of Funds ...................................... 35
(a) Funds Transfers to Pre-Disbursement Account................. 35
(b) Disbursement to Funding Account............................. 35
(c) Defaulting Lender; Reimbursement of Administrative Agent ... 36
(d) Disbursement of Swing-Line Loans ........................... 36
(e) Refinancings of Swing-Line Loans ........................... 36
(f) Disbursement of Swing-Line Loan
Refinancing Proceeds; Defaulting Lender ........... 37
(g) Obligations of Lenders Several and Not Joint ............... 38
Section 2.6 Notes ...................................................... 38
Section 2.7 Interest and Fees........................................... 38
(a) Fed Funds Loans ............................................ 38
(b) Alternate Base Rate Loans .................................. 39
(c) LIBOR Loans................................................. 39
(d) Overdue Amounts ............................................ 39
(e) Interest Accrual and Payment Dates ......................... 39
(f) Interest Billing Statements ................................ 39
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
(g) Facility Fee ............................................... 40
(h) Administrative Agent's and Arranger's Fee .................. 40
(i) Computations of Interest and Fees........................... 40
(j) Reduced Interest Rates...................................... 40
Section 2.8 Payments; Distributions and Applications of Payments ....... 40
(a) Place and Time of Payments ................................. 40
(b) Next Business Day .......................................... 40
(c) Notice of Payments ......................................... 40
(d) Distributions of Payments to Lenders ....................... 41
(e) Applications of Payments;
No Potential Default or Event of Default........... 41
(f) Applications of Payments;
Potential Default or Event of Default.............. 42
(g) Applications of Payments; Maturity of Loans ................ 43
Section 2.9 Mandatory Repayments ....................................... 44
(a) Facility Maturity .......................................... 44
(b) Tranche A Loans and Swing-Line Loans........................ 44
(c) Tranche B Loans............................................. 44
(d) LIBOR Loans................................................. 44
Section 2.10 Optional Prepayments ....................................... 45
(a) Notice of Payment; Designation of Payment Applications ..... 45
(b) Failure to Designate Payment Applications .................. 45
(c) No Premiums ................................................ 45
Section 2.11 LIBOR Rate Not Determinable; Illegality or Impropriety...... 45
(a) LIBOR Rate Not Determinable................................. 45
(b) Illegality or Impropriety................................... 45
Section 2.12 Reserve Requirements; Change in Circumstances .............. 46
(a) Additional Taxes; Reserve Requirements...................... 46
(b) Capital Adequacy ........................................... 47
(c) Change in Lending Office ................................... 47
(d) Lender Compensation ........................................ 47
Section 2.13 Indemnity................................................... 47
Section 2.14 Taxes ...................................................... 48
(a) Payment of Taxes Withheld From Amounts Payable ............. 48
(b) Lender Incorporation; Certifications ....................... 49
(c) Taxes Borne by Lender ...................................... 49
Section 2.15 Sharing of Setoffs ......................................... 50
Section 2.16 Replacement of Lenders...................................... 50
ARTICLE III CONDITIONS TO BORROWINGS ................................................. 51
Section 3.1 Initial Borrowing .......................................... 51
(a) Delivery of Loan Documents ................................. 51
(b) Necessary Acts and Conditions .............................. 53
(c) Documentation Satisfactory in Form and Substance ........... 53
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
(d) Payment of Fees ............................................ 53
(e) Ownership Structure ........................................ 53
(f) Conditions to Servicing Loans............................... 54
Section 3.2 All Borrowings ............................................. 54
(a) Representations and Warranties ............................. 54
(b) No Event of Default ........................................ 54
(c) Borrowing Limitations ...................................... 54
(d) No Material Adverse Change.................................. 54
(e) Other Documentation ........................................ 54
ARTICLE IV REPRESENTATIONS AND WARRANTIES ............................................ 55
Section 4.1 Formation, Organization and Standing ....................... 55
(a) Borrower ................................................... 55
(b) General Partner............................................. 55
Section 4.2 Compliance With Law and Contractual Obligations ............ 55
Section 4.3 Power; Authorization; Enforceable Obligations .............. 55
(a) Borrower ................................................... 55
(b) General Partner............................................. 55
Section 4.4 No Legal or Contractual Bar ................................ 56
Section 4.5 Financial Information ...................................... 56
(a) Delivery of Financial Statements ........................... 56
(b) No Material Liabilities .................................... 56
(c) No Material Change ......................................... 57
(d) HTP Financial............................................... 57
Section 4.6 No Litigation .............................................. 57
Section 4.7 Taxes ...................................................... 57
Section 4.8 Investment Company Act; Other Regulations .................. 57
Section 4.9 Subsidiaries ............................................... 57
Section 4.10 Use of Proceeds ............................................ 57
Section 4.11 ERISA ...................................................... 58
Section 4.12 Security Interests ......................................... 58
Section 4.13 Agency Approvals ........................................... 58
Section 4.14 Federal Reserve Board Regulations .......................... 58
Section 4.15 Assets ..................................................... 58
Section 4.16 Environmental Matters ...................................... 59
(a) No Hazardous Materials ..................................... 59
(b) Compliance With Environmental Laws ......................... 59
(c) No Notice of Violation ..................................... 59
(d) No Transfer of Hazardous Materials ......................... 59
(e) No Pending Actions ......................................... 59
Section 4.17 Solvency ................................................... 59
(a) Sufficient Assets; Capital ................................. 59
(b) Defined Terms; GAAP ........................................ 60
Section 4.18 Intellectual Property ...................................... 60
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
Section 4.19 Principal Place of Business ................................ 60
Section 4.20 No Burdensome Restrictions ................................. 60
Section 4.21 Affiliate Transactions ..................................... 60
Section 4.22 Disclosure ................................................. 60
Section 4.23 Take-Out Commitments........................................ 60
ARTICLE V COVENANTS .................................................................. 61
Section 5.1 Affirmative Covenants ...................................... 61
(a) Reporting Requirements of the Borrower to the
Administrative Agent and the Lenders .............. 61
(i) Annual Financial Statements ....................... 61
(ii) Quarterly Financial Statements .................... 61
(iii) Annual Cash Flow Projections ...................... 62
(iv) No Default/Compliance Certificate ................. 62
(v) Notice of Default ................................. 62
(vi) Audit Reports ..................................... 62
(vii) Litigation ........................................ 63
(viii) Securities Reports and Filings .................... 63
(ix) ERISA ............................................. 63
(x) Servicing Portfolio and Other Reports ............. 64
(xi) Other Information ................................. 64
(b) Reporting Requirements of the Borrower to the
Administrative Agent and the Co-Agent.............. 65
(i) Commitment Status Report........................... 65
(ii) Loss of Qualification.............................. 65
(iii) Specialty Mortgage Products Report................. 65
(c) Maintenance of Existence and Properties;
Compliance with Laws............................... 65
(d) Maintenance of Federal Agency Status ....................... 65
(e) Inspection of Property; Books and Records;
Discussions ....................................... 65
(f) Insurance .................................................. 66
(g) Payment of Taxes and Claims ................................ 66
(h) Servicing Rights and Servicing Portfolio ................... 66
(i) Ownership Structure......................................... 66
(j) Further Documents .......................................... 66
Section 5.2 Negative Covenants ......................................... 67
(a) Accumulation of Assets...................................... 67
(b) Total Debt to Net Worth Ratios.............................. 67
(c) Net Worth; Adjusted Tangible Net Worth...................... 67
(d) Cash Flow to Scheduled Term Debt Service ................... 67
(e) Investments and Advances.................................... 67
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
(f) Indebtedness................................................ 69
(g) Liens ................................................... 70
(h) Mergers, Sales or Consolidations ........................... 72
(i) Acquisitions ............................................... 72
(j) Restricted Payments ........................................ 72
(k) Transactions With Affiliates ............................... 73
(l) Conduct of Business ........................................ 73
(m) Negative Pledge ............................................ 73
(n) ERISA ...................................................... 73
(o) Effectiveness of Take-Out Commitments ...................... 74
(p) VA Guaranties, FHA Insurance and
Private Mortgage Insurance......................... 74
(q) Recourse Servicing ......................................... 74
(r) HTP Financial Documents .................................... 74
ARTICLE VI EVENTS OF DEFAULT .......................................................... 74
Section 6.1 Events of Default .......................................... 74
(a) Payments ................................................... 75
(b) Covenants With No Grace Period ............................. 75
(c) Covenants With Five Day Grace Period ....................... 75
(d) Covenants With Thirty Day Grace Period ..................... 75
(e) Representations ............................................ 75
(f) Non-Payment of Other Indebtedness .......................... 75
(g) Cross-Default to Servicing Credit Agreement ................ 75
(h) Cross-Default to Other Agreements .......................... 75
(i) Bankruptcy or Insolvency.................................... 76
(j) Money Judgment ............................................. 76
(k) ERISA ...................................................... 76
(l) Loan Documents ............................................. 76
(m) Security Interest .......................................... 77
(n) Dissolution ................................................ 77
(o) Material Adverse Effect .................................... 77
(p) Change of Control........................................... 77
ARTICLE VII THE AGENTS ................................................................ 77
Section 7.1 Appointment of the Agents .................................. 77
Section 7.2 Nature of Duties of the Agents ............................. 78
Section 7.3 Lack of Reliance on the Agents ............................. 78
(a) Lenders' Independent Investigations ........................ 78
(b) Lack of Reliance ........................................... 78
(c) Knowledge of Default........................................ 79
Section 7.4 Certain Rights of the Agents ............................... 79
Section 7.5 Reliance by the Agents...................................... 79
</TABLE>
v
<PAGE> 7
<TABLE>
<S> <C> <C>
Section 7.6 Indemnification of the Agents .............................. 79
Section 7.7 The Agents in Their Individual Capacities .................. 80
Section 7.8 Holders of Notes ........................................... 80
Section 7.9 Successor Agents ........................................... 80
(a) Resignation of Agents;
Appointment of Successor .......................... 80
(b) Effectiveness of Successor Appointment ..................... 81
ARTICLE VIII MISCELLANEOUS PROVISIONS ................................................ 81
Section 8.1 Notices .................................................... 81
Section 8.2 Amendments; Waivers ........................................ 81
Section 8.3 No Waiver; Remedies Cumulative ............................. 82
Section 8.4 Payment of Expenses, Etc. .................................. 82
(a) Out-of-Pocket Costs ........................................ 82
(b) Stamp and Other Taxes ...................................... 83
(c) Indemnification of Administrative Agent .................... 83
Section 8.5 Right of Setoff ............................................ 83
Section 8.6 Benefit of Agreement: Assignments and Additional Lenders.... 84
SECTION 8.7 GOVERNING LAW; SUBMISSION TO JURISDICTION................... 86
Section 8.8 Counterparts................................................ 87
Section 8.9 Effectiveness; Survival of Indemnities...................... 87
Section 8.10 Headings Descriptive........................................ 87
Section 8.11 Survival of Representations................................. 87
Section 8.12 Severability................................................ 88
Section 8.13 Entire Agreement............................................ 88
Section 8.14 Confidentiality............................................. 88
Section 8.15 PWRES Collateral............................................ 89
SECTION 8.16 WAIVER OF TRIAL BY JURY..................................... 89
</TABLE>
EXHIBITS
A-1 Form of Note
A-2 Form of Swing-Line Note
B Warehouse Security Agreement
C Guaranty and Pledge Agreement (Harbourton Financial Services)
D Guaranty and Pledge Agreement (Western Sunrise)
E Opinion of Borrower's Counsel
F Officer's Certificate
G-1 Notice of Borrowing
G-2 Notice of Swing-Line Borrowing
H Notice of Conversion/Continuation
I Ownership of Structure
J Notice of Payment
vi
<PAGE> 8
K Notice Addresses
L Approved Investors
M-1 Assignment Agreement
M-2 Additional Lender Agreement
M-3 Commitment Notice
N Authorized Officers
O Indebtedness
SCHEDULES
4.6 Litigation
4.21 Affiliate Transactions
vii
<PAGE> 9
CREDIT AGREEMENT
(Revolving Warehouse Credit Facility)
THIS CREDIT AGREEMENT (Revolving Warehouse Credit Facility) is
made and dated as of July 31, 1995, by and between the Lenders party hereto from
time to time, CHEMICAL BANK, a New York banking corporation, as Administrative
Agent for the Lenders, FIRST BANK NATIONAL ASSOCIATION, a national banking
association, as Co-Agent for the Lenders, and HARBOURTON MORTGAGE CO., L.P., a
Delaware limited partnership.
Subject to and upon the terms and conditions herein set forth,
the Lenders have agreed to make from time to time: (A) Tranche A Loans to the
Borrower to finance the origination and the acquisition of residential Eligible
Mortgage Loans; and (B) Tranche B Loans to the Borrower to finance the
securitization of pools of such Eligible Mortgage Loans.
ACCORDINGLY, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms.
For purposes of this Agreement, the terms set forth below
shall have the following meanings:
"Accumulated Funding Deficiency" shall mean a funding
deficiency described in section 302 of ERISA.
"Additional Lender Agreement" shall mean the Additional Lender
Agreement, substantially in the form of Exhibit M-2 hereto.
"Adjusted Tangible Net Worth" shall mean, as of any date, with
respect to any Person, the Net Worth of such Person as of such date less the
following assets, to the extent such assets are reflected in the determination
of such Net Worth: all excess servicing fees receivable, all purchased and
capitalized value of servicing rights (less all foreclosure reserves) and all
other assets that would be classified as intangible assets under GAAP, plus the
lesser of (a) one and one-quarter percent (1.25%) of the aggregate unpaid
principal balance of Mortgage Loans included in the Servicing Portfolio (but
excluding any such Mortgage Loans for which the Borrower has only subservicing
rights) as of such date as set forth in the most recent Servicing Portfolio
Report delivered to the Administrative Agent, and (b) the appraised value of the
Servicing Portfolio (excluding any subservicing rights of the Borrower) as of
such date as reflected in the most recent Servicing Portfolio Report delivered
to the Administrative Agent.
"Administrative Agent" shall mean Chemical Bank, in its
capacity as administrative agent for the Lenders hereunder, and any successor
thereto designated pursuant to
-1-
<PAGE> 10
Section 7.9.
"Affiliate" shall mean, (i) in respect of any Person
(including the Borrower), any other Person directly or indirectly controlling,
controlled by or under direct or indirect common control with, such Person,
whether through the ownership of voting securities, by contract or otherwise,
and (ii) in respect of the Borrower, any other Person directly or indirectly
controlled by a member of the board of directors of Harbourton Financial
Services from time to time, whether through the ownership of voting securities,
by contract or otherwise. "Control" as used herein means the power to direct the
management and policies of such Person.
"Affiliate Servicing Portfolio" shall mean, at any time, the
portfolio of outstanding Mortgage Loans with respect to which the Borrower has
Excluded Servicing Rights.
"Agency" shall mean FHLMC, FNMA or GNMA.
"Agency Custodial Agreements" shall mean the FHLMC Custodial
Agreement, the FNMA Custodial Agreement and the GNMA Custodial Agreement.
"Agency Guides" shall mean the FHLMC Guide, the FNMA Guide and
the GNMA Guide.
"Agency MBS" shall mean a FNMA MBS, a FHLMC MBS and/or GNMA
MBS, as the context requires.
"Agency Mortgage Loan" shall mean (A) a whole Mortgage Loan
held by an Agency or (B) a Mortgage Loan (i) included in a pool of Mortgage
Loans in which any security (including a participation certificate) issued by
FHLMC or FNMA, or guaranteed by GNMA, represents an interest and (ii) with
respect to the Direct Servicing Rights related thereto, is covered by an
effective Acknowledgment Agreement (as defined in the Servicing Credit
Agreement) from FNMA or FHLMC, as applicable, or GNMA (if one is available and
the Administrative Agent requires the Borrower to execute and deliver it).
"Agents" shall mean the Administrative Agent and the Co-Agent.
"Agreement" shall mean this Agreement, as amended, extended or
supplemented from time to time.
"Alternate Base Rate" shall mean, for any period, a
fluctuating interest rate per annum as shall be in effect from time to time,
which rate per annum shall be at all times equal to the higher of (a) the Prime
Rate and (b) the Federal Funds Rate plus one-half of one percent (0.50%).
"Alternate Base Rate Loan" shall mean any Loan or Swing-Line
Loan bearing interest at the rate set forth in Section 2.7(b).
"Applicable Take-Out Price" shall mean, as of any date, for
(a) any Mortgage Loan included in the Tranche A Borrowing Base and covered by or
allocated to a Take-Out
-2-
<PAGE> 11
Commitment, the weighted average net purchase price of the Take-Out Commitments
held by the Borrower under which such Mortgage Loan could be sold (assuming the
simultaneous shipment of all other Mortgage Loans owned by the Borrower, other
than Mortgage Loans included in the Tranche B Borrowing Base) and (b) for any
Mortgage Loans or Agency MBS included in the Tranche B Borrowing Base, the
weighted average net purchase price of the Take-Out Commitments to which such
Mortgage Loan or Agency MBS has been allocated (as determined by reference to
the pool of Mortgage Loans or Agency MBS to which such Mortgage Loans or Agency
MBS form a part). The weighted average net purchase price of all of the Take-Out
Commitments covering Mortgage Loans in the Tranche A Borrowing Base shall be
determined weekly pursuant to the commitment status report referred to in
Section 5.1(b)(i) to the Tranche A Borrowing Base.
"Applicant Lender" shall have the meaning set forth in Section
8.6(c).
"Approved Acquired Portfolio" shall mean, at any time, the
portfolio of Agency Mortgage Loans with respect to which the Borrower has
Non-Recourse Direct Servicing Rights, which portfolio is to be financed with the
proceeds of a Tranche B Borrowing (as defined in the Servicing Credit Agreement)
and which otherwise meets the criteria set forth in the Servicing Credit
Agreement for the Borrower to finance such portfolio.
"Approved Existing Portfolio" shall mean, at any time, the
portfolio of outstanding Agency Mortgage Loans and Approved Non-Agency Mortgage
Loans with respect to which the Borrower has (i) Non-Recourse Direct Servicing
Rights other than Mortgage Servicing Rights Held for Sale; and (ii) Recourse
Direct Servicing Rights that are recourse with respect to only the Direct
Servicing Rights relating to FNMA recourse servicing as described on the
Servicing Portfolio Report required to be delivered prior to the Closing Date
pursuant to Section 3.1(a)(xiv).
"Approved Investor" shall mean FNMA or FHLMC or any other
Person listed on Exhibit L. At the request of the Borrower, the Agents may from
time to time agree in writing to add entities to the list set forth on Exhibit
L. By notice to the Borrower, the Agents may in their reasonable discretion,
based on their evaluation of the creditworthiness or funding ability of any
Person listed on Exhibit L, remove such Person from such list. Such removal
shall become effective:
(a) immediately upon the giving of such notice, if no
Take-Out Commitment of such Person is then in effect and the Borrower
is not then currently offering to originate Mortgage Loans or purchase
Mortgage Loans from brokers or correspondents based upon the
availability of the pricing and loan programs offered by such Person;
(b) subject to the subsequent giving of any
additional notice with respect to such Person under clause (c) below,
ninety (90) days following the giving of such notice, if on the date of
such notice, any Take-Out Commitment of such Person is in effect and
such Person is, in the reasonable judgment of the Agents, able to fund
such Take-Out Commitment (provided that (i) such Person shall continue
to be an Approved
-3-
<PAGE> 12
Investor during such ninety (90) day period if no additional notice
with respect to such Person is subsequently given under clause (c)
below, but only with respect to (A) Mortgage Loans included in the
Tranche A Borrowing Base and Mortgage Loans and Agency MBS included in
the Tranche B Borrowing Base at the time of such notice and allocated
to such Take-Out Commitment, and (B) Mortgage Loans that, prior to the
date of giving of such notice, the Borrower has committed to make and
has allocated to such Take-Out Commitment; and (ii) notwithstanding
anything else set forth herein, the collateral value of such Mortgage
Loans and Agency MBS during such Period shall be determined in
accordance with, as applicable, subparagraph (c) of the definition of
"Collateral Value of the Tranche A Borrowing Base" or subparagraph (c)
of the definition of "Collateral Value of the Tranche B Borrowing Base"
set forth in this Section 1.1); or
(c) notwithstanding the prior giving of any notice
with respect to such Person under clause (b) above (which notice is not
required to be given before notice under this clause (c) may be given),
five (5) Business Days following the giving of such notice, if any
Take-Out Commitment of such Person is in effect or the Borrower is then
currently offering to originate Mortgage Loans or purchase Mortgage
Loans from brokers or correspondents based upon the availability of the
pricing and loan programs offered by such Person on the date of such
notice and such Person will be, in the reasonable judgment of the
Agents, unable to fund such Take-Out Commitment (provided that (i) such
Person shall continue to be an Approved Investor during such five (5)
Business Day period only with respect to: (A) Mortgage Loans included
in the Tranche A Borrowing Base and Mortgage Loans and Agency MBS
included in the Tranche B Borrowing Base at the time of such notice and
allocated to such Take-Out Commitment, and (B) Mortgage Loans that
prior to the date of giving of such notice the Borrower has committed
to make and has allocated to such Take-Out Commitment; and (ii)
notwithstanding anything else herein set forth, the collateral value of
such Mortgage Loans and Agency MBS during such period shall be
determined in accordance with, as applicable, subparagraph (c) of the
definition of "Collateral Value of the Tranche A Borrowing Base" or
subparagraph (c) of the definition of "Collateral Value of the Tranche
B Borrowing Base" set forth in this Section 1.1).
"Approved Non-Agency Mortgage Loan" shall mean a Mortgage Loan
in respect of which the Borrower has Direct Servicing Rights covered by a duly
executed and delivered Private Investor Consent.
"Approved Servicing Portfolio" shall mean, as of any date, the
Approved Existing Portfolio and each Approved Acquired Portfolio.
"Assigning Lender" shall have the meaning set forth in
Section 8.6(d).
"Assignment Agreement" shall mean the Assignment Agreement
(Revolving Warehouse Credit Facility), substantially in the form of Exhibit M.
"Authorized Officer" shall mean each of those persons listed
on Exhibit N as an Authorized Officer of the Borrower; provided that, by notice
to the Agents, the Borrower may
-4-
<PAGE> 13
add or delete any person from the list of Authorized Officers for itself listed
on Exhibit N.
"Base LIBOR Rate" shall mean, with respect to any LIBOR
Interest Period, a rate per annum equal to the rate for U.S. dollar deposits, in
an amount equal to the aggregate principal amount of LIBOR Loans proposed to be
subject to such rate and with maturities comparable to such Interest Period,
that appears on Telerate Page 3750 as of approximately 11:00 a.m., London time,
two (2) LIBOR Business Days prior to the commencement of such Interest Period;
provided that if such rate does not appear on Telerate Page 3750, the "Base
LIBOR Rate" applicable to a particular Interest Period shall mean a rate per
annum equal to the rate at which U.S. dollar deposits, in an amount equal to the
aggregate principal amount of LIBOR Loans proposed to be subject to such rate
and with maturities comparable to such Interest Period, are offered in
immediately available funds in the London Interbank Market to the London office
of the Administrative Agent by leading banks in the Eurodollar market as of
approximately 11:00 a.m., London time, two (2) LIBOR Business Days prior to the
commencement of such Interest Period.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States and any successor thereto.
"Book-Entry MBS" shall mean an Agency MBS (a) that is not
represented by a certificate (other than the physical security issued to GNMA's
nominee, MBSCC & Co., or any successor thereto, representing an Agency MBS
guaranteed by GNMA) and (b) the ownership and transfer of which are entered upon
books maintained for that purpose by a depositary.
"Borrower" shall mean Harbourton Mortgage Co., L.P., a
Delaware limited partnership.
"Borrowing" shall mean a Tranche A Borrowing, a Tranche B
Borrowing or a Swing-Line Borrowing, as the context requires.
"Borrowing Base" shall mean a Tranche A Borrowing Base or a
Tranche B Borrowing Base, as the context requires.
"Borrowing Base Certificate" shall mean a certificate in the
form of Attachment 4 to the Warehouse Security Agreement delivered to the
Administrative Agent by the Warehouse Collateral Agent pursuant to the terms of
the Warehouse Security Agreement.
"Borrowing Date" shall mean any date on which the Swing-Line
Lender makes a Swing-Line Loan or the Lenders make Loans, notice of which is, in
all cases, submitted by the Borrower pursuant to Section 2.8, which date shall
be a LIBOR Business Day for a Borrowing consisting of LIBOR Loans and a Business
Day for a Borrowing consisting of Alternate Base Rate Loans or Fed Funds Loans.
"Bulk Check Mortgage Loans" shall mean Eligible Mortgage Loans
for which a Bulk Check Presentment has been made on a given Business Day but for
which detail as to whether any such Eligible Mortgage Loan is an Eligible Jumbo
Mortgage Loan or an Eligible
-5-
<PAGE> 14
Non-Jumbo Mortgage Loan is to be provided on the next Business Day. On the
Business Day on which such detail is received each Bulk Check Mortgage Loan
shall cease to be a Bulk Check Mortgage Loan and shall be reclassified either as
an Eligible Jumbo Mortgage Loan or Eligible Non-Jumbo Mortgage Loan, as
applicable.
"Bulk Check Presentment" shall mean the daily total amount of
all checks presented to First National Bank of Maryland on behalf of the
Borrower, to fund Eligible Mortgage Loans.
"Business Day" shall mean, any day other than a Saturday,
Sunday and any other day on which banks in New York City are required or
authorized to close.
"Cash Flow" shall mean, for any fiscal quarter, an amount
equal to the net income of the Borrower for that fiscal quarter plus all
depreciation, amortization, deferred taxes, interest and other non-cash charges
and (x) minus non-cash income or (y) plus non-cash expense, in each case
associated with the recordation of administrative fees and gain on sale of
Mortgage Loans resulting from the application of SFAS No. 91 and SFAS No. 122
for that fiscal quarter. As used herein, "SFAS" shall mean the Statements of
Financial Accounting Standards as adopted by the Financial Accounting Standards
Board.
"Certificating Custodian" shall mean any Person acting as the
Borrower's "document custodian," "custodian" or "certificating custodian," as
such terms are used in the Agency Guides, for purposes of (a) certifying that
the documentation relating to Mortgage Loans received by such Person from the
Borrower (or the Warehouse Collateral Agent) is complete and acceptable under
the applicable Agency Guide for purposes of including such Mortgage Loan in a
pool of Mortgage Loans in which Agency MBS will represent interests and (b)
holding such documentation following formation of such pools and insurance of
such Agency MBS. The Certificating Custodian shall at all times be party to the
Agency Custodial Agreements.
"Change of Control" shall mean the occurrence of any of the
following events, without the prior written consent of the Administrative Agent:
(i) the failure by Harbourton Financial Services to own directly or indirectly
80% of the limited partnership interests in the Borrower; (ii) the failure by
Harbourton Funding Corporation to own directly 100% of the general partnership
interests in the Borrower; (iii) the failure by Harbourton Mortgage Corporation
to own directly 100% of the general partnership interests in Harbourton
Financial Services; (iv) the failure by Harbourton Holdings, L.P. to own 100% of
the issued and outstanding capital stock of Harbourton Mortgage Corporation; or
(v) the failure by Harbourton Financial Services to own directly 100% of the
issued and outstanding capital stock of Harbourton Funding Corporation.
"Closing Date" shall mean that date upon which all conditions
precedent to the effectiveness of this Agreement set forth in Section 3.1 have
been satisfied.
"Co-Agent" shall mean First Bank National Association, a
national banking association.
-6-
<PAGE> 15
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"Collateral" shall mean the Warehouse Collateral, the
Servicing Collateral and the Pledge Collateral.
"Collateral Value of the Tranche A Borrowing Base" shall mean,
at any time, the aggregate collateral value of all Eligible Mortgage Loans
included in the Tranche A Borrowing Base. For the purposes of this definition:
(a) subject to subparagraph (c) below, the collateral
value of each Eligible Non-Jumbo Mortgage Loan that is included in the
Tranche A Borrowing Base shall be equal to ninety-eight percent (98%)
of the least of: (i) the original principal balance thereof, (ii) the
Applicable Take-Out Price multiplied by the current unpaid principal
balance thereof and (iii) the acquisition price thereof (minus discount
points and fees associated with yield);
(b) subject to subparagraph (c) below, the collateral
value of each Eligible Jumbo Mortgage Loan that is included in the
Tranche A Borrowing Base shall be equal to ninety-seven percent (97%)
of the least of: (i) the original principal balance thereof, (ii) the
Applicable Take-Out Price multiplied by the current unpaid principal
balance thereof and (iii) the acquisition price thereof (minus discount
points and fees associated with yield);
(c) notwithstanding subparagraphs (a) and (b) above,
with respect to any Eligible Mortgage Loan that is included in the
Tranche A Borrowing Base and that has been allocated to a Take-Out
Commitment of an Approved Investor that is to be removed from the list
of Approved Investors on Exhibit L, pursuant to the giving of notice
thereof in accordance with the terms of the definition of "Approved
Investor" set forth in this Section 1.1, the collateral value of such
Eligible Mortgage Loan shall be equal to (i) ninety-eight percent (98%)
of the least of (A) the Applicable Take-Out Price multiplied by the
current unpaid principal balance thereof, (B) the Fair Market Value
thereof and (C) the current unpaid principal balance thereof, if such
Eligible Mortgage Loan is an Eligible Non-Jumbo Mortgage Loan and
notice of removal of such Approved Investor has been given under
subparagraph (b) of the definition thereof, (ii) ninety-seven percent
(97%) of the least of (A) the Applicable Take-Out Price multiplied by
the current unpaid principal balance thereof and (B) the Fair Market
Value thereof and (C) the current unpaid principal balance thereof, if
such Eligible Mortgage Loan is an Eligible Jumbo Mortgage Loan and
notice of removal of such Approved Investor has been given under
subparagraph (b) of the definition thereof and (iii) ninety percent
(90%) of the least of (A) the Applicable Take-Out Price multiplied by
the current unpaid principal balance thereof, (B) the Fair Market Value
thereof and (C) the current unpaid principal balance thereof, if such
Eligible Mortgage Loan is an Eligible Non-Jumbo Mortgage Loan or an
Eligible Jumbo Mortgage Loan and notice of removal of such Approved
Investor has been given under subparagraph (c) of the definition
thereof; provided that if the
-7-
<PAGE> 16
Administrative Agent shall at any time believe in its sole discretion
that the Applicable Take-Out Price for any Eligible Mortgage Loan
included in the Tranche A Borrowing Base does not accurately reflect
the market value of the underlying Take-Out Commitments because of a
decline in the creditworthiness or funding ability of any Approved
Investor, but the Agents have not otherwise given any notice of removal
of such Approved Investor pursuant to the terms of the definition
thereof, then the Administrative Agent may give notice to the Borrower
that from the date of giving of such notice until the date such notice
is withdrawn by the Administrative Agent in its sole discretion, (x)
the collateral value of such Eligible Non-Jumbo Mortgage Loan shall be
equal to ninety-eight percent (98%) of the least of (aa) the Applicable
Take-Out Price multiplied by the then current unpaid principal balance
thereof, (bb) the Fair Market Value thereof and (cc) the current unpaid
principal balance thereof and (y) the collateral value of any Eligible
Jumbo Mortgage Loan shall be equal to ninety-seven percent (97%) of the
least of (aa) the Applicable Take-Out Price multiplied by the then
current unpaid principal balance thereof, (bb) the Fair Market Value
thereof and (cc) the current unpaid principal balance thereof;
(d) notwithstanding anything to the contrary set
forth in subparagraphs (a), (b) and (c) above, the collateral value of
all Bulk Check Mortgage Loans on any Business Day shall be equal to
ninety-five percent (95%) of the Bulk Check Presentment for such
Business Day;
(e) if the aggregate collateral value of all Eligible
Jumbo Mortgage Loans that are included in the Tranche A Borrowing Base
at any time exceeds an amount equal to twenty-five percent (25%) of the
aggregate Commitments then in effect, such excess shall be disregarded
for purposes of determining the Collateral Value of the Tranche A
Borrowing Base; and
(f) if the aggregate collateral value of (i) all Bulk
Check Mortgage Loans plus (ii) all Eligible Mortgage Loans that have
been included in the Tranche A Borrowing Base prior to the Warehouse
Collateral Agent's receipt of the items for such Eligible Mortgage
Loans described in Attachment 2 to the Warehouse Security Agreement, as
permitted pursuant to the terms of the proviso in subparagraph (q) of
the definition of "Eligible Mortgage Loan" set forth in this Section
1.1, exceeds thirty percent (30%) of the aggregate Commitments then in
effect, such excess shall be disregarded for purposes of determining
the Collateral Value of the Tranche A Borrowing Base.
The Collateral Value of the Tranche A Borrowing Base shall be determined by
reference to the most recent Borrowing Base Certificate delivered by the
Warehouse Collateral Agent to the Administrative Agent absent any error in such
Borrowing Base Certificate as of the date delivered.
"Collateral Value of the Tranche B Borrowing Base" shall mean,
at any time, the aggregate collateral value of all Eligible Gestation Mortgage
Loans and Eligible Agency MBS included in the Tranche B Borrowing Base. For
purposes of this definition:
-8-
<PAGE> 17
(a) subject to subparagraph (c) below, the collateral
value of each Eligible Gestation Mortgage Loan that is included in the
Tranche B Borrowing Base shall be an amount equal to ninety-nine
percent (99%) of the Applicable Take-Out Price multiplied by the then
current unpaid principal balance thereof; provided, however, in no
event shall the collateral value of any Eligible Gestation Mortgage
Loan exceed the current unpaid principal balance thereof;
(b) subject to subparagraph (c) below, the collateral
value of each Eligible Agency MBS that is included in the Tranche B
Borrowing Base shall be an amount equal to ninety-nine percent (99%) of
the Applicable Take-Out Price multiplied by the unpaid principal amount
of such Agency MBS; provided, however, in no event shall the collateral
value of any Eligible Agency MBS exceed the unpaid principal amount of
such Agency MBS; and
(c) notwithstanding subparagraphs (a) and (b) above,
with respect to any Eligible Gestation Mortgage Loan or any Eligible
Agency MBS that is included in the Tranche B Borrowing Base and that
has been allocated to the Take-Out Commitment of an Approved Investor
that is to be removed from the list of Approved Investors on Exhibit L,
pursuant to the giving of notice thereof in accordance with the terms
of the definition of "Approved Investor" set forth in this Section 1.1,
the collateral value of such Eligible Gestation Mortgage Loan or
Eligible Agency MBS shall be equal to (i) ninety-eight percent (98%) of
the least of (A) the Applicable Take-Out Price multiplied by the then
current unpaid principal balance of such Agency MBS or Mortgage Loan,
as the case may be, (B) the Fair Market Value thereof and (C) the
current unpaid principal balance thereof, if such notice of removal of
such Approved Investor has been given under subparagraph (b) of the
definition thereof and (ii) ninety percent (90%) of the least of (A)
the Applicable Take-Out Price multiplied by the then current unpaid
principal balance of such Agency MBS or Mortgage Loan, as the case may
be, (B) the Fair Market Value thereof and (C) the current unpaid
principal balance thereof, if such notice of removal of such Approved
Investor has been given under subparagraph (c) of the definition
thereof; provided that if the Administrative Agent shall at any time
believe in its sole discretion that the Applicable Take-Out Price for
any Eligible Gestation Mortgage Loan or Eligible Agency MBS that is
included in the Tranche B Borrowing Base does not accurately reflect
the market value of the underlying Take-Out Commitments because of a
decline in the creditworthiness or funding ability of any Approved
Investor, but the Administrative Agent has not otherwise given any
notice or removal of such Approved Investor pursuant to the terms of
the definition thereof, then the Administrative Agent may give notice
to the Borrower that from the date of giving of such notice until the
date such notice is withdrawn by the Administrative Agent in its sole
discretion, the collateral value of such Eligible Gestation Mortgage
Loan and such Eligible Agency MBS shall be equal to ninety-eight
percent (98%) of the least of (x) the Applicable Take-Out Price
multiplied by the then current unpaid principal balance of such Agency
MBS or Mortgage Loan, as the case may be, (y) the Fair Market Value
thereof and (z) the current unpaid principal balance thereof.
-9-
<PAGE> 18
The Collateral Value of the Tranche B Borrowing Base shall be determined by
reference to the most recent Borrowing Base Certificate delivered by the
Warehouse Collateral Agent to the Administrative Agent absent any error in such
Borrowing Base Certificate as of the date delivered.
"Commitment" shall mean, in respect of each Lender, the
commitment of such Lender to make Loans hereunder as set forth in Sections
2.1(a) and (b), provided that the aggregate amount of the Commitments shall not
exceed $150,000,000.
"Commitment Notice" shall have the meaning set forth in
Section 8.6.
"Commonly Controlled Entity" shall mean, in respect of any
Person, another Person, whether or not incorporated, that is under common
control with such first Person within the meaning of Section 414(c) of the Code.
"Contractual Obligation" shall mean, in respect of any Person,
any provision of any security issued by such Person or of any agreement,
instrument or undertaking to which such Person is a party or by which it or any
of its property is bound.
"Controlled Disbursement Account" shall mean the controlled
disbursement account in the Borrower's name (account no. 177-9286-8 maintained
at First National Bank of Maryland) established and maintained at all times with
for purposes of facilitating disbursements of funds in connection with closing
transactions related to Eligible Mortgage Loans to be originated by the
Borrower. From time to time the Borrower shall provide the Administrative Agent
with the number of and any other information relating to its Controlled
Disbursement Account as is reasonably deemed necessary by the Administrative
Agent for purposes of effecting wire transfers to such Controlled Disbursement
Account.
"Conventional Mortgage Loan" shall mean a Mortgage Loan that
is not insured or guaranteed by the federal government or any agency or
instrumentality thereof.
"Conversion/Continuation Date" shall mean (a) each date on
which the Lenders, pursuant to Sections 2.3 and 2.4, convert any Loans to LIBOR
Loans or continue outstanding LIBOR Loans for an additional LIBOR Interest
Period (which date shall be a LIBOR Business Day for conversions of Loans into,
or continuations of, LIBOR Loans) and (b) the last day of each LIBOR Interest
Period.
"Custody MBS Account" shall have the meaning given such term
in the Warehouse Security Agreement.
"Direct Servicing Rights" shall mean the rights of any Person
to service Mortgage Loans for or on the behalf of the owner or holder of such
Mortgage Loans (including investors in mortgage-backed securities supported by
Mortgage Loans) pursuant to a direct agreement between such Person and an
Agency, or such owner or holder, together with the legal titles, mortgagor
files, escrows and records relating to such Mortgage Loans and the right to
receive servicing fee income and any other income arising from or in connection
with such Mortgage
-10-
<PAGE> 19
Loans, including late charges and all other incidental fees and charges;
provided that the term "Direct Servicing Rights" shall in no event be construed
as intended to include subservicing rights or Excluded Servicing Rights.
"Eligible Agency MBS" shall mean an Agency MBS owned by the
Borrower with respect to which each of the following statements is true and
correct:
(a) such Agency MBS is a valid and binding
obligation of the Obligor thereon, is in full force and effect and is
enforceable in accordance with its terms;
(b) such Agency MBS is free of any default and
from any rescission, cancellation or avoidance, and all rights
thereof, whether by operation of law or otherwise;
(c) such Agency MBS has either been deposited
with and is held by the Warehouse Collateral Agent or the
Administrative Agent or an agent, bailee and custodian of the Warehouse
Collateral Agent or the Administrative Agent under the Warehouse
Security Agreement (or by a Person who has executed a custodial
agreement acceptable to the Administrative Agent and the Co-Agent),
properly endorsed in blank for transfer or, if such Agency MBS is a
Book-Entry MBS, such Agency MBS is the subject of a Perfected
Assignment;
(d) at all times such Agency MBS will be free
and clear of all liens, encumbrances, charges, rights and interests of
any kind (other than Take-Out Commitments), except in favor of the
Warehouse Collateral Agent, for the benefit of the Secured Parties;
(e) no Mortgage Loan included in the pool of
loans supporting such Agency MBS has been included in the Tranche B
Borrowing Base for more than sixty (60) days from the date such
Mortgage Loan was first included in the Tranche B Borrowing Base and if
applicable, has not been included in the Tranche A Borrowing Base and
Tranche B Borrowing Base (either as a pooled Mortgage Loan or as a
non-pooled Mortgage Loan) for more than one hundred eighty (180) days
from the date such Mortgage Loan was first included in the Tranche A
Borrowing Base; and
(f) such Agency MBS is covered by a Take-Out
Commitment that is in full force and effect and pledged to the
Warehouse Collateral Agent for the benefit of the Secured Parties under
the Warehouse Security Agreement, and the Borrower and such Agency MBS
are in full compliance therewith.
"Eligible Conforming Mortgage Loan" shall mean a Mortgage Loan
with respect to which each of the following statements is true and correct:
(a) such Mortgage Loan is an Eligible Mortgage
Loan;
(b) such Mortgage Loan is insured by the FHA or
guaranteed by the
-11-
<PAGE> 20
VA (or there exists a binding commitment to issue such insurance or
guaranty subject to the satisfaction of customary conditions) and/or
fully conforms to all underwriting and other requirements of FNMA or
FHLMC;
(c) such Mortgage Loan is covered by a Take-Out
Commitment that is in full force and effect and pledged to the
Warehouse Collateral Agent for the benefit of the Secured Parties under
the Warehouse Security Agreement, and the Borrower and such Mortgage
Loan are in full compliance therewith; and
(d) such Mortgage Loan is not an Eligible
Gestation Mortgage Loan.
"Eligible Gestation Mortgage Loan" shall mean a Mortgage Loan
with respect to which each of the following statements is true and correct:
(a) such Mortgage Loan meets all of the
requirements in the definition of Eligible Conforming Mortgage Loan
(except the requirements set forth in paragraph (d) of such definition
and the requirements set forth in paragraph (n) of the definition of
Eligible Mortgage Loan); and
(b) the Certificating Custodian has initially
certified that all documentation relating to such Mortgage Loan
received by the Certificating Custodian from the Borrower (or the
Warehouse Collateral Agent) is complete and acceptable under an
applicable Agency Guide for purposes of including such Mortgage Loan in
a pool of Mortgage Loans in which an Agency MBS will represent an
interest.
"Eligible Jumbo Mortgage Loan" shall mean a Mortgage Loan with
respect to which each of the following statements is true and correct:
(a) such Mortgage Loan is an Eligible Mortgage
Loan;
(b) such Mortgage Loan is covered by and
allocated to a designated Take-Out Commitment that is in full force and
effect and pledged to the Warehouse Collateral Agent for the benefit of
the Secured Parties, under the Warehouse Security Agreement, and the
Borrower and such Mortgage Loan are in full compliance therewith;
(c) such Mortgage Loan would be an Eligible
Conforming Mortgage Loan, but for the fact that it fails to conform to
FNMA and FHLMC requirements with respect to principal amount; and
(d) the original principal amount of such
Mortgage Loan is $1,500,000 or less.
"Eligible Mortgage Loan" shall mean a Mortgage Loan owned by
the Borrower conforming to the requirements of one Type of Mortgage Loan with
respect to which each of the following statements is true and correct:
(a) such Mortgage Loan is a binding and valid
obligation of the
-12-
<PAGE> 21
Obligor thereon, is in full force and effect and is enforceable in
accordance with its terms;
(b) such Mortgage Loan is secured by a first
priority mortgage (or deed of trust) on the Property encumbered
thereby;
(c) such Mortgage Loan is genuine in all
respects as appearing on its face or as represented in the books and
records of such Borrower, and all information set forth therein is true
and correct;
(d) such Mortgage Loan is free of any material
default (other than as permitted in subsection (e) below) of any party
thereto (including such Borrower), counterclaims, offsets and defenses
and from any rescission, cancellation or avoidance, and all rights
thereof, whether by operation of law or otherwise;
(e) no payment under such Mortgage Loan is more
than thirty (30) days past due the payment due date set forth in the
underlying promissory note and mortgage (or deed of trust);
(f) such Mortgage Loan contains the entire
agreement of the parties thereto with respect to the subject matter
thereof, has not been modified or amended in any respect and is free of
concessions or understandings with the Obligor thereon of any kind not
expressed in writing therein;
(g) such Mortgage Loan is in all respects in
accordance with all applicable laws and regulations governing the same,
including the federal Consumer Credit Protection Act and the
regulations promulgated thereunder and all applicable usury laws and
restrictions; and all notices, disclosures and other statements or
information required by law or regulation to be given, and any other
act required by law or regulation to be performed, in connection with
such Mortgage Loan have been given and performed as required;
(h) all advance payments and other deposits on
such Mortgage Loan have been paid in cash, and no part of such sums has
been loaned, directly or indirectly, by such Borrower to the Obligor
thereon;
(i) at all times such Mortgage Loan will be
free and clear of all liens, encumbrances, charges, rights and
interests of any kind (other than Take-Out Commitments), except in
favor of the Secured Parties under the Warehouse Security Agreement;
(j) the Property encumbered by such Mortgage
Loan is insured against loss or damage by fire and all other hazards
normally included within standard extended insurance coverage
(including flood plain insurance if such Property is located in a
federally designated flood plain) in accordance with the provisions of
such Mortgage Loan with the Borrower and its assigns named as a loss
payee thereon;
-13-
<PAGE> 22
(k) the Property encumbered by such Mortgage
Loan is free and clear of all Liens except Liens in favor of the
Borrower, which has assigned any and all such Liens to the Secured
Parties under the Warehouse Security Agreement, subject only to:
(i) the Lien of real property taxes and
assessments not yet due and payable;
(ii) covenants, conditions and
restrictions, rights of way, easements and other
matters of public record, as of the date of
recording, being acceptable to mortgage lending
institutions generally and specifically referred to
in a lender's title insurance policy delivered to the
originator of the Mortgage Loan and (A) referred to
or otherwise considered in the appraisal (if any)
made for the originator of the Mortgage Loan or (B)
that do not materially adversely affect the appraised
value of such Property as set forth in such appraisal
(if any);
(iii) other matters to which like
properties are commonly subject that do not
materially interfere with the benefits of the
security intended to be provided by the Mortgage Loan
or the use, enjoyment, value or marketability of the
related Property; and
(iv) subordinate financing and liens that
would be permitted title exceptions pursuant to (i)
the FNMA Guide and (ii) the FHLMC Guide, in each case
for loans conforming to the requirements of the
applicable Agency Guide;
(l) if such Mortgage Loan has been included in
the Tranche A Borrowing Base, and the promissory note for such Mortgage
Loan (or any other documentation relating thereto) has been withdrawn
from the possession of the Warehouse Collateral Agent on terms and
subject to conditions set forth in Section 6 of the Warehouse Security
Agreement, (i) such note or other documentation has been released to
the Borrower for purposes of correcting clerical or other
non-substantive documentation problems pursuant to a trust receipt as
permitted under Section 6(a) of the Warehouse Security Agreement, such
release has occurred within the immediately preceding fourteen (14)
Business Days provided that if the collateral value of the Mortgage
Loan for which such note or other documentation has been released, when
added to the collateral value of all other Mortgage Loans included in
the Tranche A Borrowing Base for which notes or other documentation has
been similarly released, exceeds $5,000,000, such excess shall be
deducted from the Collateral Value of the Tranche A Borrowing Base or
(ii) the promissory note and any related documentation for such
Mortgage Loan has been shipped by the Warehouse Collateral Agent
directly to an Approved Investor for purchase, as permitted under
Section 6(b) of the Warehouse Security Agreement, and such shipment has
occurred within the immediately preceding forty-five (45) days;
(m) with respect to Conventional Mortgage
Loans, if the Loan-to-
-14-
<PAGE> 23
Value Ratio of such Mortgage Loan exceeds eighty percent (80%), such
Mortgage Loan is the subject of a private mortgage insurance policy
issued in favor of the Borrower by an insurer approved by FNMA, FHLMC,
GNMA or the Approved Investor issuing the Take-Out Commitment for such
Mortgage Loan;
(n) if such Mortgage Loan has been included in
the Tranche A Borrowing Base, the date of the promissory note of such
Mortgage Loan is no earlier than one hundred and twenty (120) days
prior to the earlier of (i) the date such Mortgage Loan was first
included in the Tranche A Borrowing Base, and (ii) if applicable, the
date such Mortgage Loan was first pledged to an Existing Lender prior
to the Closing Date;
(o) if such Mortgage Loan is FHA insured or VA
guaranteed, such insurance or guaranty is in full force and effect (or
there exists a binding commitment to issue such insurance or guaranty
subject to the satisfaction of customary conditions);
(p) if such Mortgage Loan has been included in
the Tranche A Borrowing Base, such Mortgage Loan has not been included
in the Tranche A Borrowing Base for more than one hundred and twenty
(120) days from the earlier of (i) the date such Mortgage Loan was
first included in the Tranche A Borrowing Base, and (ii) if applicable,
the date such Mortgage Loan was first pledged to an Existing Lender
prior to the Closing Date; provided that if such Mortgage Loan has been
included in the Tranche B Borrowing Base, such Mortgage Loan has not
been included in the Tranche B Borrowing Base (either as a pooled
Mortgage Loan or an unpooled Mortgage Loan) for more than sixty (60)
days from the date such Mortgage Loan was first included in the Tranche
B Borrowing Base and has not been included in the Tranche B Borrowing
Base and the Tranche A Borrowing Base (either as a pooled Mortgage Loan
or an unpooled Mortgage Loan) for more than one hundred eighty (180)
days from the earlier of the two (2) dates specified in the foregoing
clauses (i) or (ii);
(q) if such Mortgage Loan is to be included in
the Tranche A Borrowing Base, then: (i) the Warehouse Collateral Agent
shall have received for such Mortgage Loan, prior to or simultaneously
with its inclusion in the Tranche A Borrowing Base those items for such
Mortgage Loan described on Attachment 2 to the Warehouse Security
Agreement (provided that if the Warehouse Collateral Agent fails to
receive the requisite items for such Mortgage Loan prior to or
simultaneously with its inclusion in the Tranche A Borrowing Base,
then, (A) the Warehouse Collateral Agent shall have received an
agreement in the form attached to the Warehouse Security Agreement as
Attachment 1 relating to such Mortgage Loan prior to or simultaneously
with such Mortgage Loan's inclusion therein; and (B) the Warehouse
Collateral Agent shall receive such items within seven (7) Business
Days after such Mortgage Loan's inclusion therein); (ii) if such
Mortgage Loan is to be included in the Tranche B Borrowing Base, the
Borrower shall have delivered (or caused to be delivered), prior to the
inclusion of such Mortgage Loan in the Tranche B Borrowing Base (A) to
the Certificating Custodian, the documentation for such Mortgage Loan
that the Certificating Custodian is required under the applicable
Agency Guide to examine, for completeness and acceptability, for
-15-
<PAGE> 24
purposes of initially determining the suitability of such Mortgage Loan
for inclusion in a pool of loans supporting an Agency MBS and (B) to
the Warehouse Collateral Agent, a FHLMC Custodial Certification
Schedule (Form 1034) (or any comparable or successor from), a FNMA
Schedule of Mortgages (Form 2005) (or any comparable or successor form)
or a GNMA Schedule of Pooled Mortgages (HUD Form 11706) (or any
comparable or successor form) listing such Mortgage Loan as a Mortgage
Loan to be pooled in an Agency MBS, in each case completed and duly
executed by such Certificating Custodian on or prior to the date such
Mortgage Loan is to be included in the Tranche B Borrowing Base; and
(iii) the Borrower holds in trust for the Secured Parties those items
described on Attachment 2 to the Warehouse Security Agreement; and (iv)
there has been delivered to the Administrative Agent, if the
Administrative Agent has so requested in writing, the additional items
described on Attachment 8 to the Warehouse Security Agreement;
(r) except for the existence of a commitment to
sell such Mortgage Loan on a servicing-released basis, such Mortgage
Loan is not subject to any servicing arrangement with any Person other
than the Borrower nor are any servicing rights relating to such
Mortgage Loan subject to any lien, claim, interest or negative pledge
in favor of any Person other than as permitted hereunder;
(s) if an appraisal is required by the
applicable Approved Investor the appraisal obtained by the Borrower in
connection with the origination of such Mortgage Loan satisfies all
appraisal requirements of such Approved Investor; and
(t) the improvements on the Property encumbered
by such Mortgage Loan consist of a completed one-to-four family
residence (other than a mobile home or other temporary housing
facility).
"Eligible Non-Conforming Mortgage Loan" shall mean a Mortgage
Loan with respect to which each of the following statements is true and correct:
(a) such Mortgage Loan meets the definition of
Eligible Conforming Mortgage Loan set forth in this Section 1.1 (other
than the requirement of subparagraph (b) of the definition thereof);
(b) such Mortgage Loan conforms to the FNMA and
FHLMC requirements with respect to the principal amount of Mortgage
Loans; and
(c) such Mortgage Loan is covered by and
allocated to a designated Take-Out Commitment issued by an Approved
Investor that is a state of the United States or a State housing
finance or similar state finance authority, including the Colorado
Housing Finance Authority and the California Housing Finance Authority
if and when such Authority becomes an Approved Investor.
"Eligible Non-Jumbo Mortgage Loan" shall mean either an
Eligible Conforming Mortgage Loan or an Eligible Non-Conforming Mortgage Loan.
-16-
<PAGE> 25
"Environmental Laws" shall mean any and all federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees or requirements of any Governmental Authority regulating,
relating to or imposing liability or standards of conduct concerning
environmental protection matters, including hazardous materials, as now or may
at any time hereafter be in effect.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may from time to time be supplemented or amended and the
rules and regulations issued thereunder as in effect from time to time.
"ERISA Affiliate" shall mean each trade or business, including
the Borrower, whether or not incorporated, that together with the Borrower would
be treated as a single employer under section 4001 of ERISA.
"Estimated Tax Amount" shall mean, with respect to any period,
an amount equal to forty-five percent (45%) of the Net Income of the Borrower
for such period.
"Event of Default" shall have the meaning set forth in
Section 6.1.
"Excluded Servicing Rights" shall mean servicing rights
arising under the HTP Servicing Agreement, any servicing agreement between the
Borrower and Skillman Partners, a New Jersey partnership, or any servicing
agreement between the Borrower and Santa Cruz Partners, a New Jersey
partnership.
"Existing Lenders" shall have the meaning set forth in
Section 3.1(a)(xvi).
"Fair Market Value" shall mean, at any date, in respect of any
Eligible Mortgage Loan or Eligible Agency MBS, (a) the market price for thirty
(30) day mandatory future delivery of such Eligible Mortgage Loan or Eligible
Agency MBS quoted by Telerate or, if not so quoted, the average bid price quoted
in writing to the Administrative Agent as of the computation date by any two (2)
nationally recognized dealers reasonably selected by the Administrative Agent
who, at such time, are making a market in similar Mortgage Loans or Agency MBS,
multiplied by (b) the outstanding principal balance thereof.
"Fed Funds Loan" shall mean a Loan that bears interest at the
per annum rate set forth in Section 2.7(a).
"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate per annum equal for each day during such period to the weighted
average of the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers, as published for such
day (or, if such day is not a Business Day, for the preceding Business Day) by
the Federal Reserve Bank of New York or, if such rate is not so published for
any day that is a Business Day, the average of the quotations for such day on
such transactions received by the Administrative Agent from three (3) Federal
funds brokers of recognized standing selected by it.
-17-
<PAGE> 26
"Fees" shall mean all fees payable pursuant to Section 2.7 or
otherwise.
"FHA" shall mean the Federal Housing Administration and any
successor thereto.
"FHLMC" shall mean the Federal Home Loan Mortgage Corporation
and any successor thereto.
"FHLMC Custodial Agreement" shall mean the agreement, as
amended, modified or supplemented from time to time, between FHLMC, the Borrower
and any Person meeting the eligibility requirements set forth in the FHLMC Guide
to serve as a "custodian," as such term is used in the FHLMC Guide, pursuant to
which such Person is authorized to act as Certificating Custodian for the
Borrower.
"FHLMC Guide" shall mean the "Sellers' & Servicers' Guide"
published by FHLMC, as amended, modified or supplemented from time to time.
"FHLMC MBS" shall mean any security (including a participation
certificate) issued by FHLMC that represents an interest in a pool of Mortgage
Loans.
"Financing Lease" shall mean any lease of property, real or
personal, the obligations of the lessee in respect of which are required in
accordance with GAAP to be capitalized on the balance sheet of the lessee.
"FNMA" shall mean the Federal National Mortgage Association
and any successor thereto.
"FNMA Custodial Agreement" shall mean the agreement, as
amended, modified or supplemented from time to time, between FNMA, the Borrower
and any Person meeting the eligibility requirements set forth in the FNMA Guide
to serve as a "document custodian," as such term is used in the FNMA Guide,
pursuant to which such Person is authorized to act as Certificating Custodian
for the Borrower.
"FNMA Guide" shall mean, collectively, the "Selling Guide" and
the "Servicing Guide" published by FNMA, as amended, modified or supplemented
from time to time.
"FNMA MBS" shall mean any security (including a participation
certificate) issued by FNMA that represents an interest in a pool of Mortgage
Loans.
"Funding Account" shall mean account no. 006 992 536, in the
name of the Borrower, maintained at Chemical Bank.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"General Partner" shall mean (i) with respect to the Borrower
and Western Sunrise, Harbourton Funding Corporation and (ii) with respect to
Harbourton Financial Services, Harbourton Mortgage Corporation.
-18-
<PAGE> 27
"GNMA" shall mean the Government National Mortgage Association
and any successor thereto.
"GNMA Custodial Agreement" shall mean the agreement, as
amended, modified or supplemented from time to time, between GNMA, the Borrower
and any Person meeting the eligibility requirements set forth in the GNMA Guide
to serve as a "certificating custodian," as such term is used in the GNMA Guide,
pursuant to which such Person is authorized to act as Certificating Custodian.
"GNMA Guide" shall mean, collectively, the "GNMA I
Mortgage-Backed Securities Guide" and the "GNMA II Mortgage-Backed Securities
Guide" published by HUD, as amended, modified or supplemented from time to time.
"GNMA MBS" shall mean any security (including a participation
certificate) guaranteed by GNMA that represents an interest in a pool of
Mortgage Loans.
"GNMA Servicing Portfolio" shall mean, at any time, the
mortgage loans included in pools of mortgage loans supporting Agency MBS
guaranteed by GNMA with respect to which mortgage loans the Borrower has Direct
Servicing Rights.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranties" shall mean the Guaranty (Harbourton Financial
Services) and the Guaranty (Western Sunrise).
"Guarantors" shall mean Harbourton Financial Services and
Western Sunrise.
"Guaranty (Harbourton Financial Services)" shall mean the
Guaranty and Pledge Agreement of Harbourton Financial Services substantially in
the form of Exhibit C, as amended, extended or supplemented from time to time.
"Guaranty (Western Sunrise)" shall mean the Guaranty and
Pledge Agreement of Western Sunrise substantially in the form of Exhibit D, as
amended, extended or supplemented from time to time.
"Harbourton Financial Services" shall mean Harbourton
Financial Services, L.P., a Delaware limited partnership.
"Harbourton Funding Corporation" shall mean Harbourton Funding
Corporation, a Delaware corporation.
"Harbourton Holdings, L.P." shall mean Harbourton Holdings,
L.P., a Delaware limited partnership.
"Harbourton Mortgage Corporation" shall mean Harbourton
Mortgage
-19-
<PAGE> 28
Corporation, a Delaware corporation.
"Hazardous Materials" shall mean any hazardous materials,
hazardous wastes, hazardous constituents, hazardous or toxic substances,
petroleum products (including crude oil or any fraction thereof), defined or
regulated as such in or under any Environmental Law.
"Hedging Contract" shall mean a contract to buy or sell an
instrument on the futures market, cash forward market, private investor whole
loan market or the options market or an option or financial future purchased
over the counter for future delivery of such instrument, each of the foregoing
issued in accordance with the requirements of a Hedging Program.
"Hedging Program" shall mean a program for hedging interest
rate risks of the Borrower, which program shall provide, without limitation,
that all Hedging Contracts will be placed with futures commission merchants,
clearing houses, or private investor whole loan purchasers, if applicable.
"HTP Financial" shall mean HTP Financial, L.P., a Delaware
limited partnership to be formed after the Closing Date pursuant to the term
sheet dated April 19, 1995.
"HTP Financial Documents" shall mean the HTP Partnership
Agreement, the HTP Servicing Agreement and the PWRES Financing Agreements.
"HTP Partnership Agreement" shall mean the agreement of
limited partnership of HTP Financial between the Borrower, as general partner,
and PWRES, as limited partner, to be entered into after the Closing Date in form
and substance satisfactory to the Administrative Agent in the exercise of its
reasonable discretion.
"HTP Servicing Agreement" shall mean the servicing agreement
between the Borrower, as servicer, and HTP Financial providing for the servicing
by the Borrower of certain mortgage loans on behalf of HTP Financial to be
entered into after the Closing Date in form and substance satisfactory to the
Administrative Agent in the exercise of its reasonable discretion.
"HUD" shall mean the Department of Housing and Urban
Development and any successor thereto.
"Indebtedness" shall mean, in respect of any Person, (i) all
items of indebtedness that would be included in determining liabilities as shown
on the liability side of a statement of condition prepared in accordance with
GAAP of such Person as of the date as of which indebtedness is to be determined,
including all obligations for money borrowed, the deferred purchase price of
property or services and capitalized lease obligations, (ii) liabilities of such
Person with respect to gestation repurchase financings (other than such
financings that are treated as true sales under GAAP), and (iii) all
indebtedness and liabilities of others assumed or guaranteed by such Person, or
secured by any Lien upon property owned by such Person, whether or not such
indebtedness is assumed, or in respect of which such Person is secondarily or
contingently liable (other than by endorsement of instruments in the course of
collection), including contingent reimbursement obligations of such Person under
undrawn letters of credit,
-20-
<PAGE> 29
whether by reason of any agreement to acquire such indebtedness or to supply or
advance sums or otherwise.
"Intellectual Property" shall have the meaning set forth in
Section 4.18.
"IRS" shall mean the Internal Revenue Service and any
successor thereto.
"Lenders" shall mean the lenders party hereto from time to
time.
"LIBOR Business Day" shall mean a Business Day upon which
commercial banks in London, England are open for domestic and international
business.
"LIBOR Interest Period" shall mean, with respect to any LIBOR
Loan, the period commencing on the Borrowing Date or a Conversion/Continuation
Date for such LIBOR Loan, as the case may be, and ending one (1) month
thereafter; provided that (a) any LIBOR Interest Period that would otherwise end
on a day that is not a LIBOR Business Day shall extend to the next succeeding
LIBOR Business Day, unless such LIBOR Business Day falls in another calendar
month, in which case, such LIBOR Interest Period shall end on the immediately
preceding LIBOR Business Day; and (b) no LIBOR Interest Period shall end after
the Maturity Date.
"LIBOR Loan" shall mean any Loan bearing interest at the per
annum rate set forth in Section 2.7(c).
"LIBOR Rate" shall mean, with respect to any LIBOR Interest
Period, a rate per annum equal to the product arrived at by multiplying the Base
LIBOR Rate applicable to such Interest Period by a fraction (expressed as a
decimal), the numerator of which shall be the number one (1) and the denominator
of which shall be the number one (1) minus the Reserve Requirement (expressed as
a decimal) applicable to such LIBOR Interest Period. The LIBOR Rate shall be
rounded, if necessary, to the next higher one one-sixteenth of one percent (1/16
of 1%).
"Lien" shall mean any security interest, mortgage, pledge,
lien, claim on property, charge or encumbrance (including any conditional sale
or other title retention agreement), any lease in the nature thereof and the
filing of or agreement to give any financing statement under the Uniform
Commercial Code of any jurisdiction.
"Loan Documents" shall mean this Agreement, the Notes, the
Swing-Line Note, the Warehouse Security Agreement, the Guaranties, and any other
document, instrument or agreement executed by the Borrower or either of the
Guarantors and delivered to the Administrative Agent, the Warehouse Collateral
Agent, or any Lender in connection herewith or therewith, as any of the same may
be amended, extended or supplemented from time to time; provided, however, that
as used herein Loan Documents shall not include "Loan Documents" as defined in
the Servicing Credit Agreement.
"Loan-to-Value Ratio" shall mean, with respect to any Mortgage
Loan, the ratio
-21-
<PAGE> 30
of the principal amount of such Mortgage Loan outstanding at the origination
thereof divided by the lesser of (a) the appraised value of the Property
encumbered thereby (as set forth in the appraisal, if any, delivered in
connection with the origination of such Mortgage Loan) and (b) the most recent
value assigned to the subject property pursuant to the requirements of the
applicable Approved Investor.
"Loans" shall mean the Tranche A Loans, the Tranche B Loans
and the Swing-Line Loans.
"Material Adverse Effect" shall mean a material adverse effect
with respect to (a) the business or financial condition of the Borrower or
Harbourton Financial Services, (b) the ability of the Borrower or either of the
Guarantors to pay or perform its Obligations, (c) the validity or enforceability
of this Agreement or the other Loan Documents or the rights or remedies of the
Secured Parties hereunder or thereunder, or (d) the value of the Collateral.
"Maturity Date" shall mean July 30, 1996; provided that upon
the request of the Borrower, the Lenders may elect to extend the Maturity Date
on terms as they may deem appropriate in their sole discretion.
"Monthly Position Report" shall mean a report prepared by the
Borrower, in form and substance reasonably satisfactory to the Administrative
Agent, indicating the aggregate principal balance of all Mortgage Loans for
which the Borrower has issued a rate and price guaranty to the potential
Obligors.
"Monthly Servicing Report" shall mean a report on the Mortgage
Loans included in the Servicing Portfolio and the Direct Servicing Rights and
Excluded Servicing Rights thereto as of the date of such report, which report
shall be in form and substance reasonably satisfactory to the Administrative
Agent, shall be prepared by the Borrower and shall contain information (when
appropriate, on both an unpaid principal balance and loan number basis) relating
to the aggregate unpaid principal amount of all such outstanding Mortgage Loans,
servicing by investor, delinquency and foreclosure, geographic breakdown,
runoff, weighted average original term, weighted average remaining term,
portfolio roll forward, weighted average coupon and any other information deemed
appropriate by the Administrative Agent from time to time.
"Moody's" shall mean Moody's Investors Service.
"Mortgage Loan" shall mean a single-family residential real
estate secured loan.
"Mortgage Loans Held for Sale" shall mean Mortgage Loans that
are acquired or originated principally for the purpose of sale within one year
of the date of the acquisition or origination thereof.
"Mortgage Servicing Rights Held for Sale" shall mean mortgage
servicing rights relating to Mortgage Loans Held for Sale, which Mortgage Loans
are subsequently sold by the Borrower on a servicing-retained basis; provided,
however, that the mortgage servicing rights related to any Mortgage Loan shall
cease to be classified as Mortgage Servicing Rights Held for
-22-
<PAGE> 31
Sale if, within one-hundred twenty (120) days of the date that the related
Mortgage Loan is sold, the Borrower has not entered into a bona fide binding
commitment with a non-Affiliate of the Borrower to sell such servicing rights.
"Multiemployer Plan" shall mean, with respect to the Borrower,
a plan described in section 4001(a)(3) of ERISA to which such Borrower or any of
its ERISA Affiliates is required to contribute on behalf of any of its
employees.
"Net Income" shall mean, with respect to any Person for any
period, the net income of such Person for such period determined in accordance
with GAAP.
"Net Worth" shall mean, as of any date, with respect to any
Person, the stockholders' or partnership equity of such Person as of such date
determined in accordance with GAAP.
"Non-Borrowing-Base Collateral" shall mean all Collateral
consisting of (i) Mortgage Loans not submitted to the Collateral Agent for
inclusion in the Tranche A Borrowing Base or the Tranche B Borrowing Base, (ii)
mortgage backed securities (including Agency MBS) not submitted to the Warehouse
Collateral Agent for inclusion in the Tranche B Borrowing Base, (iii) mortgage
servicing rights or subservicing rights (and the related Mortgage Servicing
Agreements (as defined in the Servicing Credit Agreement) and the proceeds
thereof) constituting Excluded Servicing Rights, (iv) Mortgage Servicing Rights
Held for Sale, (v) P&I Advance Receivables not included in the determination of
the Collateral Value of the Tranche C Borrowing Base (as such terms are defined
in the Servicing Credit Agreement), (vi) T&I Advance Receivables, Foreclosure
Claim Receivables and Expense Receivables not included in the determination of
the Collateral Value of the Tranche D Borrowing Base (as such terms are defined
in the Servicing Credit Agreement), (vii) all notes, mortgage, deeds of trust,
security agreements, files, documents, instruments, agreements, surveys,
certificates, correspondence, appraisals, computer records, tapes discs, cards,
accounting records, servicing records and other books, records and information
and data relating solely to the foregoing, and (viii) all accounts, contract
rights, real estate interests and general intangibles to the extent relating
solely to or arising solely out of any of the foregoing or the proceeds thereof
(provided the same is divisible) (including any rights with respect to FHA or
any other mortgage insurance or VA guaranties to the extent associated solely
with any of the foregoing or any rights with respect to the proceeds of any
other insurance, casualty, condemnation or liquidation to the extent relating
solely to any of the foregoing or the real property associated therewith).
"Non-Recourse Direct Servicing Rights" shall mean Direct
Servicing Rights that are not Recourse Direct Servicing Rights.
"Notes" shall have the meaning set forth in Section 2.6.
"Notice of Borrowing" shall have the meaning set forth in
Section 2.3(a).
"Notice of Conversion/Continuation" shall have the meaning set
forth in Section 2.3(a).
-23-
<PAGE> 32
"Notice of Payment" shall have the meaning set forth in
Section 2.8(c).
"Notice of Swing-Line Borrowing" shall have the meaning set
forth in Section 2.3(b).
"Obligations" shall mean any and all debts, obligations and
liabilities of the Borrower to the Secured Parties (whether now existing or
hereafter arising, voluntary or involuntary, whether or not jointly owed with
others, direct or indirect, absolute or contingent, liquidated or unliquidated,
and whether or not from time to time decreased or extinguished and later
increased, created or incurred) under or arising out of the Loan Documents.
"Obligor" shall mean the Person or Persons obligated to pay
the indebtedness that is the subject of a Mortgage Loan or Agency MBS, including
any guarantor of such indebtedness.
"Operating Account" shall mean the account of the Borrower
(account no. 1440-41661) maintained at Chemical Bank.
"Payment Office" shall mean the Administrative Agent's office
located at 380 Madison Avenue, New York, New York 10017 or such other office as
the Administrative Agent shall specify to the Borrower, the Warehouse Collateral
Agent and the Lenders.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any successor
thereto.
"Percentage Share" shall mean, with respect to any Lender at
any time, the percentage that the aggregate dollar amount of such Lender's
Commitments bears to the aggregate dollar amount of the Commitments of all of
the Lenders.
"Perfected Assignment" shall mean, with respect to any
Book-Entry MBS, that such Book-Entry MBS has been transferred to the
Administrative Agent or any entity designated by the Administrative Agent so
that the Administrative Agent or such entity may maintain such Book-Entry MBS as
depositary in one of its book-entry accounts with a Federal Reserve Bank, or the
Participants Trust Company and a pledge to the Secured Parties has been
registered with the Administrative Agent or such entity, or the Borrower has
taken such other action as the Administrative Agent may reasonably request to
perfect, protect and maintain the valid, perfected and first priority security
interest of the Secured Parties, in such Book-Entry MBS.
"Person" shall mean any corporation, natural person, firm,
joint venture, partnership, trust, unincorporated organization, government or
any political subdivision, department, agency or instrumentality of any
government.
"Plan" shall mean any plan (other than a Multiemployer Plan)
subject to Title IV of ERISA maintained for employees of the Borrower or any of
its ERISA Affiliates (and any such plan no longer maintained by such Borrower or
any of its ERISA Affiliates to which it or any of its ERISA Affiliates have made
or were required to make any contributions during the
-24-
<PAGE> 33
five (5) years preceding the date on which such plan ceased to be maintained).
"Pledge Collateral" shall have the meaning given the term
"Collateral" in each of the Guaranties.
"Potential Default" shall mean an event that with the lapse of
time or the giving of notice, or both, would, unless cured or waived, constitute
an Event of Default.
"Pre-Disbursement Account" shall mean account no. 006992870
which account is a "no-access" account of the Borrower maintained with the
Administrative Agent.
"Prime Credit Business" shall mean a Person or a business unit
engaged in the origination, acquisition or servicing of Eligible Conforming
Mortgage Loans and Eligible Non-Conforming Mortgage Loans.
"Prime Rate" shall mean the rate of interest that is publicly
announced from time to time by Chemical Bank in New York City as its prime
lending rate as in effect from time to time, such rate to change automatically
and without notice to the Borrower when and as such prime lending rate changes.
The Prime Rate is a reference rate and does not necessarily represent the best
or lowest rate actually charged by Chemical Bank to any customer. Chemical Bank
may make commercial loans or other loans at rates of interest at, above or below
the Prime Rate.
"Private Investor" shall mean an investor other than an
Agency.
"Private Investor Consent" shall mean an agreement between the
Borrower, a Private Investor and the Servicing Collateral Agent, on behalf of
the Secured Parties (as defined herein and in the Servicing Credit Agreement),
in form and substance satisfactory to the Administrative Agent in the exercise
of its sole discretion, in which such Private Investor acknowledges and consents
to a security interest granted by the Borrower to the Servicing Collateral
Agent, for the benefit of the Secured Parties, in the Borrower's Direct
Servicing Rights in respect of Mortgage Loans and/or Agency MBS of which such
Private Investor is the beneficial owner.
"Prohibited Transaction" shall mean any transaction described
in section 406 of ERISA that is not exempt by reason of section 408 of ERISA or
the transitional rules set forth in section 414(c) of ERISA and any transaction
described in section 4975(c)(1) of the Code that is not exempt by reason of
section 4975(c)(2) or section 4975(d) of the Code, or the transitional rules of
section 2003(c) of ERISA.
"Properties" shall have the meaning set forth in Section 4.16.
"Property" shall mean the real property, including the
improvements thereon, and the personal property (tangible and intangible) that
are encumbered pursuant to a Mortgage Loan.
"PWRES" shall mean Paine Webber Real Estate Securities Inc., a
Delaware corporation.
-25-
<PAGE> 34
"PWRES Financing Agreements" shall mean (i) the mortgage loan
repurchase agreement between PWRES and the Borrower, (ii) the mortgage loan
purchase agreement between PWRES and the Borrower, (iii) the servicing advance
credit agreement to be entered into between PWRES and the Borrower, and (iv) all
other documents or instruments evidencing the financing arrangements between
such parties permitted hereunder, in each case to be entered into after the
Closing Date in form and substance satisfactory to the Administrative Agent in
the exercise of its reasonable discretion.
"Recourse Direct Servicing Rights" shall mean Direct Servicing
Rights arising under mortgage servicing agreements with respect to which the
Investor, pool trustee or owner of the related Mortgage Loans can require the
Borrower, as servicer of such Mortgage Loans, to repurchase the Mortgage Loans
as a result of a default of the Obligors thereunder; provided, however, that for
purposes hereof, Direct Servicing Rights with respect to Mortgage Loans that are
insured by the FHA or guaranteed by the VA shall not be deemed to be Recourse
Direct Servicing Rights.
"Regulation D" shall mean Regulation D of the Board, as from
time to time in effect, and any other regulation hereafter promulgated by the
Board to replace the prior Regulation D and having substantially the same
function.
"Regulation U" shall mean Regulation U of the Board, as from
time to time in effect, and any other regulation hereafter promulgated by the
Board to replace the prior Regulation U and having substantially the same
function.
"REO Property" shall mean single (one-to-four) family
residential real estate held by the Borrower as a result of foreclosure, receipt
of a deed in lieu of foreclosure, or similar termination of the Obligor's rights
under the related Mortgage Loan in the ordinary course of the Borrower's
mortgage servicing operations.
"Reportable Event" shall mean any of the events set forth in
section 4043(b) of ERISA or the regulations thereunder, a withdrawal from a Plan
described in section 4063 of ERISA, a cessation of operations described in
section 4068(f) of ERISA, an amendment to a Plan necessitating the posting of
security under section 401(a)(29) of the Code, or a failure to make a payment
required by section 412(m) of the Code and section 302(e) of ERISA when due.
"Required Lenders" shall mean, at any time, Lenders having at
least sixty-six and two-thirds percent (66 2/3%) of the Commitments or, if there
are no Commitments, then Lenders holding at least sixty-six and two-thirds
percent (66 2/3%) of the aggregate unpaid principal amount of the Loans then
outstanding.
"Requirements of Law" shall mean, with respect to any Person,
the Articles or Certificate of Incorporation and Bylaws or other organizational
or governing documents of such Person, and any law, treaty, rule or regulation,
or a final and binding determination of an arbitrator or a determination of a
court or other Governmental Authority, in each case applicable to or binding
upon such Person or any of its property or to which such Person or any of its
property is subject.
-26-
<PAGE> 35
"Reserve Requirement" shall mean, with respect to any LIBOR
Interest Period, the daily average during such LIBOR Interest Period of the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves and taking into account any transitional adjustments
or other scheduled changes in reserve requirements during such Interest Period)
that is imposed under Regulation D on any member bank of the Federal Reserve
System, in respect of eurocurrency or eurodollar funding, lending or
liabilities.
"S&P" shall mean Standard & Poor's Corporation.
"Scheduled Term Debt Service" shall mean, for any fiscal
quarter, the sum of (i) the scheduled payments of principal on all Term Loans
for such quarter and (ii) all interest on Loans (as defined in the Servicing
Credit Agreement) due from the Borrower during such quarter.
"Secured Parties" shall have the meaning given the term
"Secured Parties" in the Warehouse Security Agreement.
"Servicing Collateral" shall have the meaning given the term
"Collateral" in the Servicing Security Agreement.
"Servicing Collateral Agent" shall mean Chemical Bank in its
capacity as collateral agent for the Servicing Secured Parties under the
Servicing Security Agreement, and any successor thereto designated pursuant to
the Servicing Security Agreement.
"Servicing Commitment" shall have the meaning given the term
"Commitment" in the Servicing Credit Agreement.
"Servicing Credit Agreement" shall mean the Credit Agreement
(Servicing Credit Facility), dated as of July 31, 1995, between the lenders
party thereto from time to time, Chemical Bank, as administrative agent for such
lenders, First Bank National Association, as co-agent for such lenders, and the
Borrower, as amended, extended or supplemented from time to time.
"Servicing Loans" shall have the meaning given the term
"Loans" under the Servicing Credit Agreement.
"Servicing Obligations" shall have the meaning given the term
"Obligations" under the Servicing Credit Agreement.
"Servicing Portfolio" shall mean, at any time, each Approved
Acquired Portfolio, the Approved Existing Portfolio, the Affiliate Servicing
Portfolio and all other Mortgage Loans with respect to which the Borrower has
Direct Servicing Rights.
"Servicing Portfolio Report" shall mean a report indicating
the fair market value, as of the date of such report, of the (i) Direct
Servicing Rights in the Approved Servicing Portfolio, (ii) Excluded Servicing
Rights in the Affiliate Servicing Portfolio, and (iii) Direct
-27-
<PAGE> 36
Servicing Rights to all other Mortgage Loans included in the Servicing Portfolio
and not otherwise covered by clauses (i) and (ii) above, with each of the
servicing rights described in clauses (i)-(iii) valued separately, which report
shall be in form and substance reasonably satisfactory to the Administrative
Agent and shall be prepared by a nationally recognized mortgage servicing broker
acceptable to the Administrative Agent in its reasonable discretion and not
affiliated with the Borrower. The parties agree that such report may be prepared
by Bayview Financial Trading Group until such time as the Administrative Agent,
acting in the exercise of its reasonable discretion, provides notice to the
Borrower that such entity is no longer acceptable to the Administrative Agent.
"Servicing Secured Parties" shall mean the "Secured Parties,"
as such term is defined in the Servicing Security Agreement.
"Servicing Security Agreement" shall mean the Security and
Collateral Agency Agreement (Servicing Credit Facility), substantially in the
form of Exhibit B to the Servicing Credit Agreement, as amended, extended or
supplemented from time to time.
"Specialty Mortgage Products" shall mean Mortgage Loans Held
for Sale consisting of the following types of Mortgage Loans: (a) home equity
lines of credit, (b) Mortgage Loans secured by a second priority mortgage (or
deed of trust) on the Property encumbered thereby, (c) FHA Title I Mortgage
Loans, (d) Mortgage Loans encumbering Property located in rural areas and
otherwise reasonably acceptable to the Administrative Agent, and (e) Mortgage
Loans purchased by the Borrower from Agency MBS pools, which Mortgage Loans are
ninety (90) days or more delinquent at the time of purchase and the principal
balance of which is insured by the FHA or guaranteed by the VA, and (f) Mortgage
Loans described in the PWRES Financing Agreements.
"Specialty Mortgage Products Report" shall mean a report,
prepared by an Authorized Officer at the end of each calendar quarter,
describing as of the end of such quarter, with respect to each Specialty
Mortgage Product, the type of such Specialty Mortgage Product, the Approved
Investor and the applicable Take-Out Commitment allocated thereto, and the
unpaid principal balance thereof.
"Subsidiary" shall mean, in respect of any Person, a
corporation, partnership or other entity of which shares of stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other managers of such corporation, partnership or other
entity are at the time owned, or the management of which is otherwise
controlled, directly or indirectly through one or more intermediaries, or both,
by such Person.
"Swing-Line Borrowing" shall mean a borrowing pursuant to a
Notice of Swing-Line Borrowing of Swing-Line Loans made by the Swing-Line Lender
to the Borrower.
"Swing-Line Commitment" shall mean the commitment of the
Swing-Line Lender to make Swing-Line Loans to the Borrower hereunder as set
forth in Section 2.1(c).
"Swing-Line Lender" shall mean Chemical Bank, in its capacity
as the sole
-28-
<PAGE> 37
Lender having a Swing-Line Commitment hereunder.
"Swing-Line Loan" shall mean a loan made to the Borrower
pursuant to Section 2.1(c) for the purposes set forth in the first sentence of
Section 4.10.
"Swing-Line Loan Note" shall have the meaning set forth in
Section 2.6.
"Take-Out Commitment" shall mean, with respect to any
specified aggregate amount of Mortgage Loans or Agency MBS included in the
Tranche A Borrowing Base or the Tranche B Borrowing Base or Specialty Mortgage
Products, as applicable, and of the type specified in the commitment, a bona
fide current, unfilled and unexpired commitment of an Approved Investor, issued
in favor of and held by the Borrower, under which such Approved Investor agrees
to purchase such specified aggregate amount of Mortgage Loans, Agency MBS or
Specialty Mortgage Products at a specified price, which commitment in the
reasonably anticipated course of events, (a) can be fully complied with prior to
the expiration thereof and (b) is not subject to any term or condition that is
not customary in commitments of like nature.
"Taxes" shall have the meaning set forth in Section 2.14.
"Telerate" shall mean the Associated Press-Dow Jones Telerate
Service.
"Telerate Page 3750" shall mean the display designated as
"Page 3750" on Telerate (or such other page as may replace Page 3750 on the
Associated Press-Dow Jones Telerate Service or such other service as may be
nominated by the British Bankers' Association as the information vendor for the
purpose of displaying British Bankers' Association interest settlement rates for
U.S. Dollar deposits). Any Base LIBOR Rate determined on the basis of the rate
displayed on Telerate Page 3750 shall be subject to corrections, if any, made in
such rate and displayed by the Associated Press-Dow Jones Telerate Service
within one (1) hour of the time when such rate is first displayed by such
Service.
"Term Loans" shall have the meaning given the term "Term
Loans" in the Servicing Credit Agreement.
"Total Debt" shall mean, as of any date, with respect to any
Person, (i) all items of indebtedness that would be included as of such date in
determining liabilities as shown on the liability side of a statement of
condition of such Person prepared in accordance with GAAP, including all
obligations for money borrowed, subordinate indebtedness, the deferred purchase
price of property or services and capitalized lease obligations, (ii) all
liabilities of such Person relating to gestation repurchase financings, and
(iii) all indebtedness of others assumed or guaranteed by such Person, or in
respect of which such Person is secondarily or contingently liable (other than
by endorsement of instruments in the course of collection), including contingent
reimbursement obligations of such Person under undrawn letters of credit, but
shall exclude (w) trade payables, (x) all liabilities of such Person as of such
date relating to gestation repurchase financings that are treated as true sales
under GAAP, (y) indebtedness described in Section 5.2(f)(viii) and (z)
indebtedness described in Section 5.2(f)(xi) for a period of eighteen (18)
months after the date of such reclassification.
-29-
<PAGE> 38
"Tranche A Borrowing" shall mean a borrowing pursuant to a
Notice of Borrowing consisting of Tranche A Loans made by the Lenders to the
Borrower.
"Tranche A Borrowing Base" shall mean, at any time, all
Eligible Jumbo Mortgage Loans and Eligible Non-Jumbo Mortgage Loans delivered by
the Borrower and held by the Warehouse Collateral Agent under the Warehousing
Security Agreement as collateral security for the Obligations.
"Tranche A Loan" shall mean a loan made to the Borrower
pursuant to Section 2.1(a) for the purposes set forth in the first sentence of
Section 4.10
"Tranche B Borrowing" shall mean a borrowing pursuant to a
Notice of Borrowing consisting of Tranche B Loans made by the Lenders to the
Borrower.
"Tranche B Borrowing Base" shall mean, at any time, all
Eligible Gestation Mortgage Loans and all Eligible Agency MBS delivered by the
Borrower to and held by the Warehouse Collateral Agent under the Warehouse
Security Agreement as collateral security for the Obligations.
"Tranche B Loan" shall mean a loan made to the Borrower
pursuant to Section 2.1(b) for the purposes set forth in the second sentence of
Section 4.10.
"Type" shall mean when used in respect of (i) any Mortgage
Loan, an Eligible Conforming Mortgage Loan, an Eligible Non-Conforming Mortgage
Loan, an Eligible Jumbo Mortgage Loan, an Eligible Non-Jumbo Mortgage Loan, or
an Eligible Gestation Mortgage Loan and (ii) any Loan, a LIBOR Loan, a Fed Funds
Loan, or an Alternate Base Rate Loan.
"VA" shall mean the Veterans Administration and any successor
thereto.
"Warehouse Collateral" shall have the meaning given the term
"Collateral" in Section 2 of the Warehouse Security Agreement.
"Warehouse Collateral Agent" shall mean Chemical Bank in its
capacity as collateral agent for the Secured Parties under the Warehouse
Security Agreement, and any successor thereto designated pursuant to Section 3
of the Warehouse Security Agreement.
"Warehouse Loan Settlement Account" shall have the meaning set
forth in the Warehouse Security Agreement.
"Warehouse Securities Settlement Account" shall have the
meaning set forth in the Warehouse Security Agreement.
"Warehouse Settlement Accounts" shall mean the Warehouse Loan
Settlement Account and the Warehouse Securities Settlement Account.
"Warehouse Security Agreement" shall mean the Security and
Collateral Agency Agreement (Revolving Warehouse Credit Facility), substantially
in the form of Exhibit B, as
-30-
<PAGE> 39
amended, modified or supplemented from time to time.
"Western Sunrise" shall mean Western Sunrise Holdings, L.P., a
Delaware limited partnership.
Section 1.2 Terms Generally.
The definitions in Section 1.1 shall apply equally to both the
singular and plural forms of the terms defined. Whenever the context may
require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include," "includes" and "including" shall be deemed to
be followed by the phrase "without limitation." All references herein to
Articles, Sections, Exhibits, Schedules and Attachments shall be deemed
references to Articles and Sections of, and Exhibits, Schedules and Attachments
to, this Agreement or to an Exhibit to this Agreement unless the context shall
otherwise require. Except as otherwise provided herein, all terms of an
accounting or financial nature shall be construed in accordance with GAAP, as in
effect from time to time; provided that for purposes of determining compliance
with any financial covenant set forth in Article V, such term shall be construed
in accordance with GAAP as in effect on the date of this Agreement; and provided
further, if the Borrower obtains knowledge of any modification to or change in
GAAP occurring after the date hereof that would result in changing the
construction of any term(s) necessary for determining compliance with any
financial covenant set forth in Article V, then the Borrower shall provide the
Administrative Agent with written notice of such modification or change as soon
as practicable after obtaining knowledge thereof, which notice shall describe
the anticipated effect of such change upon the determination of such compliance
and may, at the election of the Borrower, request that the Administrative Agent
consent to the determination of such compliance based upon the modified
construction of such term(s). Promptly following receipt of such request, the
Administrative Agent shall advise the Borrower as to whether they consent to
such determination (which consent shall not be unreasonably withheld) on the
basis of GAAP as so modified or changed or whether such determination shall
continue to be construed in accordance with GAAP as in effect on the date of
this Agreement; provided that any failure to so advise the Borrower within ten
(10) days following receipt of notice shall be deemed a refusal of such request.
-31-
<PAGE> 40
ARTICLE II
AMOUNTS AND TERMS OF LOANS
Section 2.1 The Commitments.
(a) Tranche A Loans (Warehouse Tranche). Subject to and
upon the terms and conditions herein set forth, at any time and from time to
time from the Closing Date up to but excluding the date upon which the
Commitments are terminated, the Borrower may borrow Tranche A Loans from the
Lenders, and each Lender agrees, severally and not jointly, to make Tranche A
Loans to the Borrower, in an aggregate principal amount at any time outstanding
not to exceed the Commitment set forth opposite such Lender's name on the
signature pages hereto as adjusted pursuant to the addition of an Additional
Lender or the assignment to an Assignee Lender; provided that the aggregate
principal amount of the Borrower's Tranche A Loans and Swing-Line Loans
outstanding at any time shall not exceed the lesser of: (A) the aggregate
Commitments of all of the Lenders then in effect less the aggregate principal
amount of Tranche B Loans then outstanding, and (B) the then current Collateral
Value of the Tranche A Borrowing Base. Subject to Section 2.11, each Tranche A
Loan shall be an Alternate Base Rate Loan, a Fed Funds Loan or a LIBOR Loan.
Each Tranche A Borrowing shall be in an aggregate principal amount of not less
than $1,000,000 (or any lesser amount equal to the unused Commitments). The
Lenders shall make each Tranche A Borrowing ratably in proportion to their
respective Percentage Shares. Within the foregoing limits and subject to the
conditions set forth in Article III, the Borrower may borrow and reborrow
Tranche A Loans under Section 2.3 and prepay such Tranche A Loans under Section
2.10.
(b) Tranche B Loans (Gestation Tranche). Subject to and
upon the terms and conditions herein set forth, at any time and from time to
time from the Closing Date up to but excluding the date upon which the
Commitments are terminated, the Borrower may borrow Tranche B Loans from the
Lenders, and each Lender agrees, severally and not jointly, to make Tranche B
Loans to the Borrower, in an aggregate principal amount at any time outstanding
not to exceed the Commitment set forth opposite such Lender's name on the
signature pages hereto as adjusted pursuant to the addition of an Additional
Lender or the assignment to an Assignee Lender; provided that the aggregate
principal amount of the Borrower's Tranche B Loans outstanding at any time shall
not exceed the lesser of: (A) the aggregate Commitments of all of the Lenders
then in effect less the aggregate principal amount of Tranche A Loans and
Swing-Line Loans then outstanding, and (B) the then current Collateral Value of
the Tranche B Borrowing Base. Subject to Section 2.11, each Tranche B Loan shall
be an Alternate Base Rate Loan, a Fed Funds Loan or a LIBOR Loan. Each Tranche B
Borrowing shall be in an aggregate principal amount of not less than $1,000,000
(or any lesser amount equal to the applicable unused Commitments). The Lenders
shall make each Tranche B Borrowing ratably in proportion to their respective
Percentage Shares. Within the foregoing limits and subject to the conditions set
forth in Article III, the Borrower may borrow and reborrow Tranche B Loans under
Section 2.3 and prepay such Tranche B Loans under Section 2.10.
(c) Swing-Line Loans. Subject to and upon the terms and
conditions
-32-
<PAGE> 41
herein set forth, at any time and from time to time from the Closing Date up to
but excluding the date upon which the Commitments are terminated, the Borrower
may borrow Swing-Line Loans from the Swing-Line Lender, and the Swing-Line
Lender agrees to make Swing-Line Loans to the Borrower, in an aggregate
principal amount at any time outstanding not to exceed $25,000,000; provided
that the aggregate principal amount of the Swing-Line Loans outstanding at any
time shall not exceed the limitations set forth in Sections 2.1(a) and 2.1(b).
Each Swing-Line Loan shall be an Alternate Base Rate Loan or a Fed Funds Loan.
Within the foregoing limits and subject to the conditions set forth in Article
III, the Borrower may borrow and reborrow Swing-Line Loans under Section 2.3 and
prepay such Swing-Line Loans under Section 2.10.
Section 2.2 Termination of Commitments.
The Commitments and the Swing-Line Commitment shall terminate
in their entirety on the earlier of the Maturity Date and any date upon which
all Loans become due and payable pursuant to Section 6.1. The Commitments and
the Swing-Line Commitment may not be reduced in part, but the Borrower may
terminate the Commitments of all the Lenders and the Swing-Line Commitment in
their entirety upon at least thirty (30) days' prior irrevocable written notice
to the Administrative Agent and each of the Lenders and the Swing-Line Lender.
Section 2.3 Method of Borrowing.
(a) Borrowings. Whenever the Borrower desires to make a
Tranche A Borrowing or a Tranche B Borrowing hereunder, or to convert any
Tranche A Loan or Tranche B Loan into a different Type of Loan pursuant to
Section 2.4, or to continue any Tranche A Loan or Tranche B Loan for an
additional LIBOR Interest Period, an Authorized Officer shall deliver to the
Administrative Agent notice of such proposed Borrowing, conversion or
continuation (a "Notice of Borrowing" or "Notice of Conversion/Continuation", as
the case may be) each such notice to be given (x) prior to 1:30 p.m. (New York
City time) on the date of such proposed Borrowing or conversion, in the case of
a Borrowing of Alternate Base Rate Loans or Fed Funds Loans or a conversion of
LIBOR Loans into Alternate Base Rate Loans or Fed Funds Loans and (y) prior to
11:00 a.m. (New York City time) on the third LIBOR Business Day before the date
of such proposed Borrowing, conversion or continuation, in the case of a
Borrowing of LIBOR Loans, a conversion of Alternate Base Rate Loans or Fed Funds
Loans into LIBOR Loans, or a continuation of LIBOR Loans for an additional LIBOR
Interest Period. Each such notice shall be irrevocable and shall be in the form
of Exhibit G-1 or H, as the case may be. Notwithstanding any other provision to
the contrary no more than five (5) LIBOR Interest Periods may be in effect
hereunder at any time.
(b) Swing-Line Borrowings. Whenever the Borrower desires
to make a Swing-Line Borrowing, an Authorized Officer shall deliver to the
Administrative Agent notice of such proposed Swing-Line Borrowing (a "Notice of
Swing-Line Borrowing") (with a simultaneous copy to the Swing-Line Lender), each
such notice to be given prior to 3:30 p.m. (New York City time) on the date of
such proposed Swing-Line Borrowing. Each such notice shall be irrevocable and
shall be in the form of Exhibit G-2. Each Swing-Line Loan shall be
-33-
<PAGE> 42
made as an Alternate Base Rate Loan or a Fed Funds Loan.
(c) Telephonic Notices. Without in any way limiting the
Borrower's obligation to deliver to the Administrative Agent a copy of any
written Notice of Borrowing, Notice of Swing-Line Borrowing or Notice of
Conversion/Continuation, the Administrative Agent may act without liability upon
the basis of any telephonic notice of Borrowing, Swing-Line Borrowing or notice
of conversion/continuation, as the case may be, in each case believed by the
Administrative Agent in good faith to be from an Authorized Officer prior to
receipt of written confirmation. In each such case, the Borrower hereby waives
the right to dispute the Administrative Agent's record of the terms of such
telephonic notice, absent manifest error, gross negligence or willful misconduct
by the Administrative Agent. An Authorized Officer shall promptly confirm in
writing any Notice of Borrowing, Notice of Swing-Line Borrowing or Notice of
Conversion/Continuation, as the case may be, given by telephone, no later than
the close of business on the Business Day such notice is given; provided that
such Authorized Officer's failure to confirm any notice by telephone shall not
in any way limit the ability of the Administrative Agent to act upon such
telephonic notice without liability in accordance with the preceding sentence.
(d) Notices to Lenders. The Administrative Agent shall
promptly (and in any event by 2:00 p.m. (New York City time) on the date of
receipt of such Notice of Borrowing or Notice of Conversion/Continuation give
each Lender telefacsimile notice of each proposed Borrowing, conversion or
continuation, as the case may be, of such Lender's Percentage Share thereof and
of any other matters covered by such notice. Notwithstanding the foregoing, the
Administrative Agent shall not be required to notify any Lender (other than the
Swing-Line Lender) of a Swing-Line Borrowing.
(e) Notice of LIBOR Rate Determination. Upon determining
the applicable LIBOR Rate for each LIBOR Interest Period, the Administrative
Agent shall notify the Borrower and each Lender of such LIBOR Rate prior to 2:00
p.m. (New York City time) on the second (2nd) LIBOR Business Day prior to the
date of each proposed Borrowing of LIBOR Loans, conversion of Alternate Base
Rate Loans or Fed Funds Loans into LIBOR Loans, or a continuation of LIBOR Loans
for an additional LIBOR Interest Period, and such determination by the
Administrative Agent shall be conclusive and binding absent manifest error.
(f) Affirmation of Representations. By delivering a
Notice of Conversion/Continuation to the Administrative Agent hereunder of the
continuation of any LIBOR Loan for an additional LIBOR Interest Period or the
conversion of any Alternate Base Rate Loans or Fed Funds Loans into LIBOR Loans,
the Borrower shall be deemed to have represented and warranted that no Potential
Default or Event of Default has occurred and is continuing.
-34-
<PAGE> 43
Section 2.4 Conversions and Continuations.
(a) Conversions and Continuations. Subject to the terms
and conditions hereof and in accordance with the procedures for conversions and
the other provisions set forth in Section 2.3(a), each Lender agrees to convert
outstanding Loans from Alternate Base Rate Loans or Fed Funds Loans into LIBOR
Loans and from LIBOR Loans into Alternate Base Rate Loans or Fed Funds Loans (in
each case in an aggregate principal amount not to exceed the aggregate principal
amount of the Alternate Base Rate Loans, Fed Funds Loans or LIBOR Loans, as the
case may be, then outstanding and being converted) and to continue outstanding
LIBOR Loans for additional LIBOR Interest Periods; provided that (i) any
conversion of LIBOR Loans into Alternate Base Rate Loans or Fed Funds Loans may
only be made on the last day of the LIBOR Interest Period applicable to such
LIBOR Loans being converted; and (ii) if an Event of Default has occurred and is
continuing, no outstanding Alternate Base Rate Loans or Fed Funds Loans may be
converted into LIBOR Loans and no LIBOR Loans may, at the end of the LIBOR
Interest Period applicable thereto, be continued as a LIBOR Loan for an
additional LIBOR Loan Interest Period. Each Lender will make such conversions
and continuations without an exchange of funds.
(b) Conversions Upon Absence of Notice. If the
Administrative Agent has not received a timely Notice of Borrowing or Notice of
Conversion/Continuation from the Borrower prior to the expiration of any LIBOR
Interest Period for any outstanding LIBOR Loans of the Borrower, the Borrower
shall be deemed to have irrevocably elected to convert such LIBOR Loans into
Alternate Base Rate Loans.
Section 2.5 Disbursement of Funds.
(a) Funds Transfers to Pre-Disbursement Account. Each
Lender shall make available to the Administrative Agent an amount equal to such
Lender's Percentage Share of each proposed Borrowing, in immediately available
funds by wire transfer of such funds to the Pre-Disbursement Account no later
than 3:00 p.m. on the date of the proposed Borrowing. The Administrative Agent
shall hold funds transferred to the Pre-Disbursement Account pending
disbursement in accordance with subsection (b) below.
(b) Disbursement to Funding Account. Unless the
Administrative Agent determines that any applicable condition in Article III has
not been satisfied, the Administrative Agent shall make amounts held in the
Pre-Disbursement Account with respect to a proposed Borrowing available to the
Borrower in immediately available funds by wire transfer of such amounts to the
Funding Account (or such other account as the Borrower directs in writing for
such purpose) no later than 3:00 p.m. (New York City time) on the date of the
proposed Borrowing. If any proposed Borrowing does not occur on the requested
date because any condition precedent herein specified has not been met, the
Administrative Agent shall so notify the Lenders promptly and shall return the
amounts so received to the respective Lenders.
(c) Defaulting Lender; Reimbursement of Administrative
Agent. Unless
-35-
<PAGE> 44
the Administrative Agent has been notified by any Lender before 2:30 p.m. (New
York City time) on the date of a proposed Borrowing that such Lender does not
intend to make available to the Administrative Agent on such date an amount
equal to such Lender's Percentage Share of such Borrowing, the Administrative
Agent may assume that such Lender will make such amount available to the
Administrative Agent on such date, and the Administrative Agent may (but shall
not be obligated to) make available a corresponding amount to the Borrower. If
and to the extent any Lender fails to make its full amount available to the
Administrative Agent and the Administrative Agent in such circumstances has made
available such amount to the Borrower, such Lender shall on the next Business
Day following the date of such Borrowing make such amount available to the
Administrative Agent in immediately available funds by wire transfer of such
funds to such account as the Administrative Agent directs for such purpose,
together with interest thereon at a rate per annum equal to the interest rate
applicable at the time of the Loans constituting such Borrowing for and
determined as of each day from the date of such Borrowing to the next Business
Day. A certificate of the Administrative Agent submitted to any Lender with
respect to amounts owing under this subsection (c) shall be conclusive and
binding, absent manifest error. If such amount is so made available, such
payment to the Administrative Agent shall constitute such Lender's Loan on the
Borrowing Date for all purposes of this Agreement. If such amount is not made so
available to the Administrative Agent on the next Business Day following the
Borrowing Date, the Administrative Agent shall notify the Borrower of such
failure to fund and, upon demand by the Administrative Agent, the Borrower shall
pay such amount to the Administrative Agent for the Administrative Agent's
account, together with interest thereon for each day elapsed since the date of
such Borrowing, at a rate per annum equal to the interest rate applicable at the
time to the Loans constituting such Borrowing.
(d) Disbursement of Swing-Line Loans. Unless the
Administrative Agent determines that any applicable condition in Article III has
not been satisfied and so notifies the Swing-Line Lender, the Swing-Line Lender
shall make the full amount of a proposed Swing-Line Loan available to the
Borrower in immediately available funds by wire transfer of such funds to the
Funding Account on the date of each proposed Swing-Line Borrowing within a
reasonable time after receipt of an applicable Notice of Swing-Line Borrowing
timely given. Such amounts transferred on any such date shall constitute
"Swing-Line Loans" to the Borrower for all purposes of the Loan Documents and
shall be payable, with interest to the same extent as if such amounts had been
disbursed directly to the Borrower.
(e) Refinancings of Swing-Line Loans. From time to time,
outstanding Swing-Line Loans may be refinanced with Tranche A Loans. On Thursday
of each week and at such other times as the Administrative Agent shall
determine, the Administrative Agent shall notify each Lender of the aggregate
principal amount of outstanding Swing-Line Loans of the Borrower to be
refinanced and the principal amount of Loans necessary to be made by each Lender
to refinance such outstanding Swing-Line Loans (which amount shall be equal to
each Lender's Percentage Share of the aggregate principal amount of the
Borrower's outstanding Swing-Line Loans and which notice shall be deemed
automatically given upon the occurrence of an Event of Default under Section
6.1(i)). Interest on the Swing-Line Loans being refinanced shall be payable by
the Borrower in accordance with Section 2.7.
-36-
<PAGE> 45
(f) Disbursement of Swing-Line Loan Refinancing Proceeds;
Defaulting Lender. For any refinancing of Swing-Line Loans, not later than 1:30
p.m. (New York City time) on each date that the Administrative Agent gives
notices to the Lenders of such refinancing, each Lender shall make available in
immediately available funds by wire transfer to the Administrative Agent for
payment to the Swing-Line Lender an amount equal to such Lender's Percentage
Share of the outstanding principal amount of the Swing-Line Loans being
refinanced. Each such Swing-Line Loan being refinanced shall be refinanced as
either a Fed Funds Loan or Alternate Base Rate Loan, if the Swing-Line Loan
being refinanced is a Fed Funds Loan or an Alternate Base Rate Loan,
respectively. The Administrative Agent shall pay all proceeds of Loans made
pursuant to this subsection (f) directly to the Swing-Line Lender (and not to
the Borrower), to be applied to the repayment of the outstanding Swing-Line
Loans. If any portion of any amount required to be paid by the Borrower on
account of a Swing-Line shall be recovered by or on behalf of the Borrower from
the Administrative Agent or the Swing-Line Lender in bankruptcy or otherwise,
the loss of the amount so recovered shall be ratably shared among all the
Lenders. In the event that a refinancing of any Swing-Line Loan cannot be made
for any reason on any date required by the Swing-Line Lender, each Lender hereby
agrees that it shall immediately purchase from the Swing-Line Lender (without
recourse or warranty) such assignment of the outstanding Swing-Line Loans as
shall be necessary to cause the Lenders to share in such Swing-Line Loans
ratably based on their respective Percentage Shares; provided that all interest
payable on such Swing-Line Loans shall be for the account of the Swing-Line
Lender until the date the respective assignment is purchased and, to the extent
attributable to the purchased assignment, shall be for the account of the Lender
purchasing the assignment from and after the date of such purchase. Each
Lender's obligation to make Loans pursuant to this subsection (f) shall be
absolute and unconditional and shall not be affected by any circumstance,
including (i) any setoff, counterclaim, recoupment, defense or other right that
such Lender may have against the Administrative Agent, the Warehouse Collateral
Agent, any other Lender, the Borrower, either Guarantor or any other Person for
any reason whatsoever; (ii) the occurrence or continuance of any Potential
Default or Event of Default; (iii) any adverse change in the condition
(financial or otherwise) of the Borrower or either of the Guarantors; (iv) any
breach of this Agreement or any other Loan Document by the Borrower, either of
the Guarantors, the Administrative Agent, the Warehouse Collateral Agent or any
Lender; or (v) any other circumstance, happening or event whatsoever, whether or
not similar to any of the foregoing; provided that in no event shall a Lender be
obligated to make a Loan pursuant to this subsection (f) if after giving effect
thereto, the outstanding principal amount of such Lender's Loans and its
Percentage Share of any Swing-Line Loans remaining outstanding would exceed its
Commitment. If any Lender fails to make the full amount of its Loan available to
the Administrative Agent pursuant to this subsection (f), such Lender shall, on
the next Business Day, make such amount available to the Administrative Agent,
together with interest thereon at a rate per annum equal to the interest rate
applicable at the time to the Swing-Line Loans or Swing-Line Loan being
refinanced for and determined as of each day from the date of refinancing to the
next Business Day. A certificate of the Administrative Agent submitted to any
Lender with respect to amounts owing under this subsection (f) shall be
conclusive and binding, absent manifest error. If such amount is so made
available, such payment to the Administrative Agent shall constitute such
Lender's Loan for all purposes of this Agreement. If such amount is not made
available to the Administrative Agent on the next Business Day following the
date of refinancing, the Administrative Agent shall notify
-37-
<PAGE> 46
the Borrower of such failure to fund and, upon demand by the Administrative
Agent, the Borrower shall pay such amount to the Administrative Agent for the
Administrative Agent's account, together with interest thereon for each day
elapsed since the date of such refinancing, at a rate per annum equal to the
interest rate applicable at the time to the Loans or Loan being refinanced.
(g) Obligations of Lenders Several and Not Joint. No
Lender shall be responsible for any default by any other Lender in its
obligation to make Loans hereunder, and each Lender shall be obligated to make
the Loans on the terms set forth herein, regardless of the failure of any other
Lender to fulfill its obligations hereunder.
Section 2.6 Notes.
The Borrower's obligation to repay the Loans made to it by
each Lender shall be evidenced by a promissory note (each, a "Note" and
collectively, the "Notes"), substantially in the form of Exhibit A-1, with
blanks appropriately completed in conformity therewith and payable to the order
of such Lender. The Borrower's obligation to repay the Swing-Line Loans made to
it by the Swing-Line Lender shall be evidenced by a promissory note (each a
"Swing-Line Loan Note"), substantially in the form of Exhibit A-2, with blanks
appropriately completed in conformity therewith and payable to the order of the
Swing-Line Lender. Each Lender shall, and is hereby authorized by the Borrower
to, endorse on the schedule attached to the applicable Note or Swing-Line Note
delivered to such Lender (or on a continuation of such schedule attached to such
Note or Swing-Line Note and made a part thereof), or otherwise to record in such
Lender's internal records, an appropriate notation evidencing the date and
amount of each Loan from such Lender, whether such Loan is a Tranche A Loan,
Tranche B Loan or the Swing-Line Loan (if applicable), the Type of such Loan,
each payment and prepayment of principal of any such Loan, each payment of
interest on any such Loan, applicable interest rates and LIBOR Interest Periods,
if any, and other information with respect thereto, and any such recordation
shall, absent manifest error, constitute prima facie evidence of the accuracy of
the information so recorded; provided that the failure of any Lender to make
such a notation or any error therein shall not affect the Obligations of the
Borrower, including its Obligation to repay the Loans made by such Lender in
accordance with the terms of this Agreement and the applicable Notes or
Swing-Line Note.
Section 2.7 Interest and Fees.
(a) Fed Funds Loans. The Borrower agrees to pay interest
in respect of the unpaid principal amount of each Fed Funds Loan at a rate per
annum equal to the Federal Funds Rate in effect from time to time plus (i) one
and one-quarter of one percent (1.25%) if such Fed Funds Loan is a Tranche A
Loan, (ii) thirteen-twentieths of one percent (0.65%) if such Fed Funds Loan is
a Tranche B Loan the Collateral for which is Eligible Gestation Mortgage Loans
and (iii) three-tenths of one percent (0.30%) if such Fed Funds Loan is a
Tranche B Loan the Collateral for which is Eligible Agency MBS.
(b) Alternate Base Rate Loans. The Borrower agrees to pay
interest in respect of the unpaid principal amount of each Alternate Base Rate
Loan at a rate per annum
-38-
<PAGE> 47
equal to the Alternate Base Rate in effect from time to time.
(c) LIBOR Loans. The Borrower agrees to pay interest in
respect of the unpaid principal amount of each LIBOR Loan for each day during
the LIBOR Interest Period applicable thereto at a rate per annum equal to the
LIBOR Rate for such LIBOR Interest Period plus (i) one and one-quarter of one
percent (1.25%) if such LIBOR Loan is a Tranche A Loan, (ii) thirteen-twentieths
of one percent (0.65%) if such LIBOR Loan is a Tranche B Loan the Collateral for
which is Eligible Gestation Mortgage Loans, and (iii) three-tenths of one
percent (0.30%) if such LIBOR Loan is a Tranche B Loan the Collateral for which
is Eligible Agency MBS.
(d) Overdue Amounts. Overdue principal and interest in
respect of each Loan and all other overdue amounts owing hereunder shall bear
interest for each day that such amounts are overdue (before as well as after
judgment) at a rate per annum equal to the Alternate Base Rate in effect from
time to time plus two percent (2.0%).
(e) Interest Accrual and Payment Dates. Interest on each
Loan shall accrue from and including the Borrowing Date thereof to but excluding
the date of any repayment thereof and shall be payable (i) monthly on or before
the second Business Day after receipt of the billing statement referred to in
clause (f) below, (ii) on any prepayment or repayment in full of all of any
Lender's outstanding Loans, (iii) at maturity (whether by acceleration or
otherwise) and (iv) after maturity, on demand.
(f) Interest Billing Statements. The Administrative Agent
shall deliver to the Borrower an interest billing statement for each month on or
before the third Business Day of the next succeeding month, which interest
billing statement shall set forth the interest accrued on the Loans (including
LIBOR Loans) for such month; provided that any failure or delay in delivering
such interest billing statement to the Borrower or any inaccuracy therein shall
not affect the Obligations. The Administrative Agent shall deliver to each
applicable Lender, on the Business Day following the Borrower's payment of the
accrued interest set forth on such interest billing statement, a copy of such
statement with a confirmation that the accrued interest set forth thereon has
been paid by the Borrower. Notwithstanding the foregoing, to the extent any
Lender has entered into a separate written agreement of the type described in
Section 2.7(j), such Lender shall give promptly notice thereof to the
Administrative Agent and deliver its billing statement for such month directly
to the Borrower and shall collect any interest payments due to such Lender as
set forth in such billing statements; provided that if a Potential Default or an
Event of Default shall have occurred and be continuing, such Lender shall
deliver a copy of its then current interest billing statement and each
subsequent interest billing statement to the Administrative Agent and the
Borrower shall be instructed by such Lender to remit amounts due to such Lender
to the Administrative Agent. Each Lender providing notice to the Administrative
Agent pursuant to the previous sentence shall indemnify and hold the
Administrative Agent harmless from and against the collection of interest from
the Borrower with respect to the Loans accruing interest at the reduced rates as
described in Section 2.7(j) and agrees that the Administrative Agent shall have
no liability or obligation with respect to such collections.
(g) Facility Fee. The Borrower agrees to pay to the
Administrative Agent
-39-
<PAGE> 48
for the account of each Lender a facility fee (the "Facility Fee") at a rate per
annum equal to one-eighth of one percent (0.125%) of the amount of such Lender's
Commitment (whether used or unused) until the date on which the Commitments are
terminated. Such Facility Fee shall be payable in quarterly installments in
arrears on the last Business Day of each calendar quarter commencing September
29, 1995 and on the date on which the Commitments are terminated.
(h) Administrative Agent's and Arranger's Fee. The
Borrower agrees to pay to the Administrative Agent, for its own account, fees in
the amount and on the dates separately agreed to by the Administrative Agent and
the Borrower.
(i) Computations of Interest and Fees. All computations of
interest and Fees shall be made on the basis of a year of three hundred and
sixty (360) days for the actual number of days (including the first day but
excluding the last day) occurring in the period for which such interest or Fees
are payable. Each determination by the Administrative Agent of an interest rate
or Fee hereunder shall be conclusive and binding absent manifest error.
(j) Reduced Interest Rates. Each Lender may from time to
time, in its sole discretion, offer to the Borrower to have a portion of such
Lender's Loans bear interest at a reduced interest rate in consideration of the
Borrower's maintenance of compensating balances with such Lender. Any such
agreement between such Lender and the Borrower shall be evidenced by a separate
written agreement executed by such Lender and the Borrower; provided that in no
event shall any Lender agree in such agreement to an interest rate on overdue
amounts hereunder that is less than the rate specified in Section 2.7(d).
Section 2.8 Payments; Distributions and Applications of Payments.
(a) Place and Time of Payments. Except as otherwise
specifically provided herein, all payments by or on behalf of the Borrower under
this Agreement and the Notes shall be made without defense, set-off or
counterclaim to the Administrative Agent no later than 1:30 p.m. (New York City
time) on the date when due, it being expressly agreed and understood that if a
payment is received after 1:30 p.m. (New York City time) by the Administrative
Agent, such payment shall be deemed to have been made on the next succeeding
Business Day and interest thereon shall be payable at the then applicable rate
during such extension. All payments hereunder shall be made in U.S. Dollars in
immediately available funds at the Payment Office.
(b) Next Business Day. Whenever any payment to be made
hereunder or under any Note is stated to be due on a day that is not a Business
Day, the due date thereof shall be extended to the next succeeding Business Day
and, with respect to payments of principal, interest thereon shall be payable at
the applicable rate during such extension.
(c) Notice of Payments. On any date upon which the
Borrower makes a payment hereunder (by wire transfer of funds, by requesting the
Administrative Agent to apply funds in the Warehouse Settlement Accounts and/or
the Operating Account to pay the Borrower's Obligations or otherwise), the
Borrower shall give notice to the Administrative Agent of such payment in the
form attached hereto as Exhibit J (a "Notice of Payment") by
-40-
<PAGE> 49
1:30 p.m. (New York City time). Each Notice of Payment shall be supported by a
Borrowing Base Certificate and shall advise the Administrative Agent as to: (i)
whether the Borrower is requesting application of funds in the Warehouse
Settlement Accounts to pay its Obligations; (ii) whether such payment (or what
portion thereof) is in respect of principal, interest, Fees or other amounts
payable by the Borrower hereunder; (iii) if such payment is in respect of
principal, (A) whether such payment is a mandatory repayment required under
Section 2.9 and, if applicable, the designation of the Type of Loans to be
repaid or (B) whether such payment is an optional prepayment permitted under
Section 2.10, and, if so, the Type(s) of Loans the Borrower is prepaying;
provided that a Notice of Payment delivered to the Administrative Agent shall be
for purposes of advising and assisting the Administrative Agent in its duties
hereunder and, in no event, shall the foregoing be construed as obligating the
Administrative Agent to apply funds in accordance with any Notice of Payment
delivered to it. For payments made in respect of interest, the Borrower shall
attach the applicable interest billing statement to its Notice of Payment. The
Borrower hereby irrevocably unconditionally authorizes the Administrative Agent
to debit the Operating Account in the amount of interest and Fees due and
payable on the due date for such interest and Fees specified in Section 2.7 if
such interest and Fees have not been previously paid by the Borrower.
(d) Distributions of Payments to Lenders. Upon receipt of
any payment hereunder, the Administrative Agent will promptly thereafter (and in
any event by the close of business on the day on which such funds are received
if such funds are received by the Administrative Agent at or prior to 1:30 p.m.
(New York City time) or, if such funds are received by the Administrative Agent
after 1:30 p.m. (New York City time), by the close of business on the next
succeeding Business Day) distribute funds in the form received relating to the
payment of (i) principal of or interest on any Loans and any Facility Fees
ratably to the Lenders, and (ii) any Fees and any other amount payable to any
Secured Party to such Secured Party. Prior to the maturity of the Loans and
other Obligations (upon scheduled maturity, acceleration or otherwise), if no
Potential Default or Event of Default has occurred and is continuing, the
Administrative Agent shall apply all payments of principal hereunder in
accordance with subsection (e) below, and if a Potential Default or an Event of
Default has occurred and is continuing, the Administrative Agent shall apply all
payments received hereunder in accordance with subsection (f) below. Upon and
following the maturity of the Loans (upon scheduled maturity, acceleration or
otherwise), the Administrative Agent shall apply all payments received hereunder
in accordance with subsection (g) below.
(e) Applications of Payments; No Potential Default or
Event of Default. Prior to the maturity of the Loans and other Obligations (upon
scheduled maturity, acceleration or otherwise), if no Potential Default or Event
of Default has occurred and is continuing, the Administrative Agent shall apply
all funds received on any day from the Borrower hereunder, in respect of the
principal of the Loans, or under the Warehouse Security Agreement (including
funds from the Warehouse Settlement Accounts that the Warehouse Collateral Agent
has paid over to the Administrative Agent pursuant to the Warehouse Security
Agreement), as follows: first, to the Swing-Line Lender, to repay the aggregate
principal amount of Swing-Line Loans outstanding on such day pursuant to the
order of application set forth in clause "first" of Section 2.9; second, if
interest on the Loans or any Fee is due and payable on such day, the
-41-
<PAGE> 50
Administrative Agent shall distribute such funds ratably to the Lenders, in
accordance with the amount of interest due and payable on their respective
outstanding Loans and Commitments to the Borrower, to pay all such unpaid
interest and Fees; third, if any Loans of the Borrower are due and payable on
such day under Section 2.9, the Administrative Agent shall distribute such funds
ratably to the Lenders, in accordance with the aggregate principal amounts of
their respective outstanding Loans to the Borrower that are due and payable on
such day, to repay the aggregate principal amount of such Loans, and, if
applicable, the Administrative Agent shall apply such funds pursuant to the
order of allocation set forth in Section 2.9; fourth, if any Loans of the
Borrower are to be prepaid on such day under Section 2.10, the Administrative
Agent shall distribute such funds ratably to the Lenders, in accordance with the
aggregate principal amounts of their respective outstanding Loans to the
Borrower, to prepay the aggregate principal amount of such Loans, and, if
applicable, the Administrative Agent shall apply such funds pursuant to the
order of allocation set forth in instructions received from the Borrower, or if
no such instructions are received, to the order of allocation set forth in
Section 2.10; and fifth, if any balance remains after application of such funds
in accordance with the foregoing clauses first through fourth, the
Administrative Agent shall release such balance to the Borrower by transfer to
the Operating Account or to such other account as such Borrower directs the
Administrative Agent in writing for such purpose.
(f) Applications of Payments; Potential Default or Event
of Default. Prior to the maturity of the Loans and other Obligations (upon
scheduled maturity, acceleration or otherwise), if any Potential Default or
Event of Default has occurred and is continuing, the Administrative Agent shall
apply all funds received on any day from the Borrower hereunder or under the
Warehouse Security Agreement (including funds held in the Warehouse Settlement
Accounts), as follows: first, if the Warehouse Collateral Agent has incurred
fees, costs and expenses in connection with such Potential Default or Event of
Default or fees, costs and expenses are otherwise payable to it in its capacity
as Warehouse Collateral Agent under the Warehouse Security Agreement, the
Administrative Agent shall pay such funds to the Warehouse Collateral Agent as
reimbursement therefor, in an amount equal to such reasonable fees, costs and
expenses; second, if the Administrative Agent has reasonably incurred fees,
costs and expenses in connection with such Potential Default or Event of Default
or fees, costs or expenses are otherwise payable to it in its capacity as
Administrative Agent under the Loan Documents, the Administrative Agent shall
pay such funds to itself as reimbursement therefor, in an amount equal to such
fees, costs and expenses; third, to the Swing-Line Lender, to pay all accrued
and unpaid interest on the Swing-Line Loans due hereunder and to repay the
aggregate principal amount of Swing-Line Loans outstanding on such day pursuant
to the order of allocation set forth in Section 2.9; fourth, if interest on the
Loans or any Fee is due and payable on such day, the Administrative Agent shall
distribute such funds ratably to the Lenders, in accordance with the amount of
interest and/or Fees due and payable on their respective outstanding Loans and
Commitments to the Borrower, to pay all such unpaid interest and Fees; fifth, if
any Loans of the Borrower are due and payable on such day under Section 2.9, the
Administrative Agent shall distribute such funds ratably to the Lenders, in
accordance with the aggregate principal amounts of their respective outstanding
Loans to the Borrower that are due and payable on such day, to repay the
aggregate principal amount of such Loans, and, if applicable, the Administrative
Agent shall apply such funds pursuant to the order of allocation
-42-
<PAGE> 51
set forth in Section 2.9; sixth, if other Obligations of the Borrower are due
and payable on such day, the Administrative Agent shall distribute such funds
ratably to the Lenders, in accordance with their other respective Obligations
owed to them by the Borrower that are due and payable on such day, to pay all
such Obligations; seventh, if any Servicing Obligations of the Borrower are due
and payable on such day, the Administrative Agent shall distribute such funds
ratably to the Lenders, in accordance with their respective Servicing
Obligations owed to them by the Borrower that are due and payable on such day,
to pay all such Servicing Obligations; eighth, if any balance remains after
application of such funds in accordance with clauses first through seventh above
the Administrative Agent shall hold such balance in the Warehouse Settlement
Accounts as cash collateral securing the Obligations until such Potential
Default or Event of Default, as the case may be, is no longer continuing, in
which event such balance shall be applied in accordance with subsection (e)
above, or the maturity of the Loans and other Obligations (upon scheduled
maturity, acceleration or otherwise), in which event such balance shall be
applied in accordance with subsection (g) below. The Borrower hereby consents to
the Administrative Agent's holding of such funds as cash collateral and grants
to the Administrative Agent, for the benefit of the Secured Parties a security
interest in such proceeds hereafter acquired by the Administrative Agent, as
collateral for the payment and performance of the Obligations.
(g) Applications of Payments; Maturity of Loans. Upon and
following the maturity of all Loans (upon scheduled maturity, acceleration or
otherwise), the Administrative Agent shall apply all funds in Warehouse
Settlement Accounts, the Funding Account, the Controlled Disbursement Account
and the Pre-Disbursement Account and all amounts received on any day by the
Administrative Agent hereunder, under the Warehouse Security Agreement or
otherwise on account of the Obligations of the Borrower, as follows: first, if
the Warehousing Collateral Agent has incurred fees, costs and expenses in
connection with any Event of Default or fees, costs and expenses are otherwise
payable to it in its capacity as Warehousing Collateral Agent under the
Warehouse Security Agreement, the Administrative Agent shall pay such funds to
the Warehousing Collateral Agent as reimbursement therefor, in an amount equal
to such reasonable fees, costs and expenses; second, if the Administrative Agent
has reasonably incurred fees, costs and expenses reasonably in connection with
any Event of Default or fees, costs and expenses are otherwise payable to it in
its capacity as Administrative Agent for the Lenders under the Loan Documents,
the Administrative Agent shall pay such funds to itself as reimbursement
therefor, in an amount equal to such fees, costs and expenses; third, to the
Swing-Line Lender, to pay all accrued and unpaid interest on the Swing-Line
Loans due hereunder and to repay the aggregate principal amount of Swing-Line
Loans outstanding on such day pursuant to the order of allocation set forth in
Section 2.9; fourth, if interest on the Loans or any Fee is due and payable on
such day, the Administrative Agent shall distribute such funds ratably to the
Lenders, in accordance with the amount of interest due and payable on their
respective outstanding Loans and Commitments to the Borrower, to pay all such
unpaid interest and Fees; fifth, with respect to the principal of such
Borrower's Loans due and payable on such day, the Administrative Agent shall
distribute such funds ratably to the Lenders, in accordance with the aggregate
principal amounts of their respective outstanding Loans to the Borrower, to
repay all such principal amounts and, if applicable, the Administrative Agent
shall apply such funds pursuant to the order of allocation set forth in Section
2.9; sixth, if any other Obligations of the
-43-
<PAGE> 52
Borrower are due and payable on such day, the Administrative Agent shall
distribute such funds ratably to all of the Lenders in accordance with their
respective remaining unpaid Obligations of such Borrower, to pay all such
remaining unpaid Obligations; seventh, if any Servicing Obligations of the
Borrower are due and payable on such day, the Administrative Agent shall
distribute such funds ratably to the Lenders, in accordance with their
respective Servicing Obligations owed to them by the Borrower that are due and
payable on such day, to pay all such Servicing Obligations; eighth, if any
balance remains after application of such funds in accordance with the foregoing
clauses first through seventh, the Administrative Agent shall pay such proceeds
to the Borrower by transfer to the Operating Account or to the other account as
the Borrower directs the Administrative Agent in writing for such purpose.
Section 2.9 Mandatory Repayments.
(a) Facility Maturity. The Borrower shall repay all of
its outstanding Loans on the Maturity Date and on any date upon which the
Commitments are terminated by the Borrower pursuant to Section 2.2.
(b) Tranche A Loans and Swing-Line Loans. On any date upon
which the aggregate principal amount of the outstanding Tranche A Loans and
Swing-Line Loans exceeds the limitations set forth in Section 2.1, the Borrower
shall repay the aggregate principal amount of Tranche A Loans and/or Swing-Line
Loans as is necessary so that such aggregate principal amount of such Loans
outstanding does not exceed such limitations. Notwithstanding anything to the
contrary contained in Section 2.8(e), the Borrower may designate in a Notice of
Payment, the order of application to Swing-Line Loans and the Types of its
Swing-Line Loans and Tranche A Loans to be repaid and the order of repayment
thereof. If the Borrower fails to make such a designation, the Administrative
Agent shall apply any funds received from the Borrower pursuant to this
subsection (b) as follows: first, to Swing-Line Loans that are Alternate Base
Rate Loans, second, to Swing-Line Loans that are Fed Funds Loans, third, to such
other Loans that are Alternate Base Rate Loans, fourth, to such other Loans that
are Fed Funds Loans, and fifth, to such other Loans that are LIBOR Loans.
(c) Tranche B Loans. On any date upon which the aggregate
principal amount of the Borrower's Tranche B Loans exceeds the limitations set
forth in Section 2.1, the Borrower shall repay the aggregate principal amount of
Tranche B Loans as is necessary so that such aggregate principal amount of such
Loans outstanding does not exceed such limitations. The Borrower may designate
in a Notice of Payment the Types of its Tranche B Loans to be repaid and the
order of repayment thereof. If the Borrower fails to make such a designation,
the Administrative Agent shall apply the funds received from the Borrower
pursuant to this subsection (c) as follows: first, to such Loans that are
Alternate Base Rate Loans, second to such Loans that are Fed Funds Loans, and
third to such Loans that are LIBOR Loans.
(d) LIBOR Loans. Any repayment of LIBOR Loans pursuant
to this Section 2.9 shall be subject to Section 2.13.
-44-
<PAGE> 53
Section 2.10 Optional Prepayments.
(a) Notice of Payment; Designation of Payment
Applications. The Borrower shall have the right at any time and from time to
time to prepay its outstanding Loans, in whole or in part; provided that the
Borrower shall deliver to the Administrative Agent a Notice of Payment with
respect to each of the Borrower's prepayments prior to 1:30 p.m. (New York City
time) on the day of each such proposed prepayment; and provided further, that
each partial prepayment of any Loan shall be in an aggregate principal amount of
$100,000 or any multiple of $50,000 in excess thereof. Notwithstanding anything
to the contrary contained in Section 2.8(e), the Borrower shall designate in the
Notice of Payment delivered in connection with any proposed prepayment whether
such prepayment is of Tranche A Loans, Tranche B Loans or Swing-Line Loans.
(b) Failure to Designate Payment Applications. If such
Borrower fails to make such a designation, the Administrative Agent shall apply
any funds received as a prepayment under this Section 2.10 as follows: first, to
Swing-Line Loans, second, to Tranche A Loans, and third, to Tranche B Loans. In
applying funds pursuant to this Section 2.10 the Administrative Agent: (i) shall
prepay Loans, to the extent applicable, as follows: first, such Loans that are
Alternate Base Rate Loans, second, such Loans that are Fed Funds Loans, and
third, such Loans that are LIBOR Loans.
(c) No Premiums. All prepayments of Loans under this
Section 2.10 shall be without premium or penalty; provided that any prepayment
of LIBOR Loans shall be subject to the provisions of Section 2.13.
Section 2.11 LIBOR Rate Not Determinable; Illegality or
Impropriety.
(a) LIBOR Rate Not Determinable. In the event, and on each
occasion, that on or before the day on which the LIBOR Rate for any LIBOR
Interest Period is to be determined, the Administrative Agent determines in good
faith that the LIBOR Rate cannot be determined for any reason, the
Administrative Agent shall give written notice of such determination, as soon as
practicable thereafter, to the Borrower and the Lenders. Following any such
determination until the Administrative Agent has advised the Borrower and the
Lenders that the circumstances giving rise to such notice no longer exist, any
request by a Borrower pursuant to Section 2.3 for a Borrowing of a LIBOR Loan, a
conversion of an Alternate Base Rate Loan or a Fed Funds Loan into a LIBOR Loan
or a continuation of a LIBOR Loan for an additional LIBOR Interest Period shall
be deemed to be, respectively, a request for a Borrowing of an Alternate Base
Rate Loan (in the case of a request for a Borrowing of LIBOR Loan) or a
conversion of a LIBOR Loan into an Alternate Base Rate Loan (in the case of a
request for a conversion or continuation as described above). Each determination
by the Administrative Agent hereunder shall be conclusive and binding absent
manifest error.
(b) Illegality or Impropriety. If any Lender determines at
any time that the introduction of, or any change in, any applicable law, rule,
regulation, order or decree or in the interpretation or the administration
thereof by any Governmental Authority charged with the interpretation or
administration thereof, or compliance by such Lender with any request or
-45-
<PAGE> 54
directive (whether or not having the force of law) of any such Governmental
Authority, makes it unlawful or improper for such Lender to make any LIBOR Loan,
convert any Alternate Base Rate Loan or Fed Funds Loan into a LIBOR Loan or
continue any LIBOR Loan for an additional LIBOR Interest Period, as the case may
be, as contemplated by this Agreement, then such Lender shall immediately give
notice thereof to the Administrative Agent, the Borrower and each other Lender,
which notice shall describe such illegality or impropriety in reasonable detail.
Effective immediately upon the giving of such notice, the obligation of such
Lender to make LIBOR Loans, convert any Alternate Base Rate Loans or Fed Funds
Loan into LIBOR Loans or continue any LIBOR Loans for an additional LIBOR
Interest Period, as the case may be, shall be suspended for the duration of such
illegality or impropriety. If and when such illegality or impropriety ceases to
exist, such suspension shall cease and such Lender shall notify the
Administrative Agent, the Borrower and each other Lender thereof. If any such
change makes it unlawful or improper for any Lender to maintain any outstanding
LIBOR Loan as a LIBOR Loan, such Lender shall, immediately upon the happening of
such event, notify the Administrative Agent, the Borrower and each other Lender
thereof, and the Borrower shall immediately (or if permitted by applicable law,
rule, regulation, order, decree, interpretation, request or directive, no later
than the date permitted thereby) convert each such LIBOR Loan into an Alternate
Base Rate Loan.
Section 2.12 Reserve Requirements; Change in Circumstances.
(a) Additional Taxes; Reserve Requirements.
Notwithstanding any other provision herein, if (i) after the date of this
Agreement any change in applicable law or regulation, or in the interpretation
or administration thereof, by any Governmental Authority charged with the
interpretation or administration thereof (whether or not having the force of
law) imposes any tax on or changes the basis of taxation of payments to any
Lender of the principal of or interest on any LIBOR Loan made or funded by such
Lender or any Fees or other amounts payable hereunder (other than taxes imposed
on the net income of such Lender by the jurisdiction in which such Lender has
its principal office or lending office or by any political subdivision or taxing
authority therein), OR imposes, modifies or deems applicable any reserve,
special deposit or similar requirement against assets of, deposits with or for
the account of or credit extended by such Lender (except any such reserve
requirement that is reflected in the LIBOR Rate) OR imposes on such Lender any
other condition affecting this Agreement or LIBOR Loans by such Lender, AND (ii)
the result of any of the foregoing increases the cost to such Lender of making
or maintaining any LIBOR Loan or reduces the amount of any sum received or
receivable by such Lender hereunder (whether of principal, interest or
otherwise) in respect thereof by an amount that such Lender deems to be
material, THEN the Borrower shall pay to such Lender any additional amount or
amounts necessary to compensate such Lender for such additional costs incurred
or reduction suffered. The Borrower shall pay any amount or amounts due to any
Lender under this subsection (a) to such Lender within ten (10) days after
receipt by the Borrower of a statement from such Lender setting forth in
reasonable detail the amount or amounts due and the basis for the determination
of such amount or amounts, which statement shall be conclusive and binding
absent manifest error.
(b) Capital Adequacy. If any Lender determines that the
adoption after the
-46-
<PAGE> 55
date hereof of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Lender (or any lending office of such Lender) or by the holding company
of such Lender, as the case may be, with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, will reduce the rate of return on such
Lender's capital or on the capital of such Lender's holding company, as the case
may be, as a consequence of such Lender's obligations under the Loan Documents
to a level below that which such Lender or such Lender's holding company, as the
case may be, could have achieved but for such adoption, change or compliance
(taking into consideration such Lender's policies or such Lender's holding
company's policies, as the case may be, with respect to capital adequacy) by an
amount that such Lender deems to be material, THEN the Borrower shall reimburse
such Lender or such Lender's holding company, as the case may be, for such
reduction. The Borrower shall pay any amount or amounts due to any Lender under
this subsection (b) to such Lender within ten (10) days after receipt by the
Borrower of a statement from such Lender setting forth in reasonable detail the
amount or amounts due and the basis for the determination from time to time of
such amount or amounts, which statement shall be conclusive and binding absent
manifest error.
(c) Change in Lending Office. Each Lender agrees to use
reasonable efforts to change its lending office to avoid or minimize (i) any
amounts that might otherwise be payable to such Lender pursuant to this Section
2.12 or pursuant to Section 2.14 or (ii) the effect of any event referred to in
Section 2.11(b); provided that such efforts do not impose on such Lender any
additional cost or any legal, regulatory or administrative burdens that such
Lender deems, in its sole discretion, to be material.
(d) Lender Compensation. Failure on the part of any
Lender to demand compensation for any increased costs or reduction in amounts
received or receivable or reduction in return on capital with respect to any
period shall not constitute a waiver of such Lender's right to demand
compensation with respect to such period or any other period; provided that the
Lender makes demand therefor within one-hundred eighty (180) days after it first
obtains knowledge of the specific right to, and the specific amount of,
compensation in question. The protection of this Section 2.12 shall be available
to any Lender regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline or other change or
condition that has occurred or been imposed.
Section 2.13 Indemnity.
The Borrower shall indemnify each Lender against any loss or
expense that such Lender sustains or incurs as a consequence of (a) any failure
by the Borrower to fulfill on the date of any Borrowing hereunder the applicable
conditions set forth in Article III (unless such condition is waived in writing
by the Lenders), (b) any failure by the Borrower to borrow any LIBOR Loan
hereunder, to convert any Alternate Base Rate Loan or Fed Funds Loan into a
LIBOR Loan or to continue any LIBOR Loan for an additional LIBOR Interest Period
after irrevocable notice of such Borrowing, conversion or continuation has been
given pursuant to
-47-
<PAGE> 56
Section 2.3, (c) any mandatory repayment or optional prepayment of a LIBOR Loan,
any conversion of a LIBOR Loan required by any provision of this Agreement or
otherwise made on a date other than the last day of the LIBOR Interest Period
applicable thereto, (d) any default in mandatory repayment or optional
prepayment of the principal amount of any LIBOR Loan or any part thereof or
interest accrued thereon, as and when due and payable (at the due date thereof,
by irrevocable notice of optional prepayment or otherwise) or (e) the occurrence
of any Event of Default, including, in each such case, any loss or reasonable
expense sustained or incurred in liquidating or employing deposits from third
parties acquired to effect or maintain such Loan or any part thereof as a LIBOR
Loan. Such loss or reasonable expense shall include an amount equal to the
excess, if any, as reasonably determined by such Lender, of (i) its cost of
obtaining the funds for the Loan being mandatorily repaid, optionally prepaid or
converted or not borrowed, converted or continued (based on the LIBOR Rate
applicable thereto) for the period from the date of such mandatory repayment,
optional prepayment or conversion or failure to borrow, convert or continue to
the last day of the LIBOR Interest Period for such Loan (or, in the case of a
failure to borrow, convert or continue, the LIBOR Interest Period for such Loan
that would have commenced on the date of such failure to borrow, convert or
continue) over (ii) the amount of interest (as reasonably determined by such
Lender) that such Lender would realize in re-employing the funds so mandatorily
repaid, optionally prepaid or converted or not borrowed, converted or continued
for such period or LIBOR Interest Period, as the case may be. A certificate of
any Lender setting forth in reasonable detail any amount or amounts that such
Lender is entitled to receive pursuant to this Section 2.13 shall be delivered
to the Borrower and shall be conclusive and binding absent manifest error. Any
such amount or amounts shall be due and payable no later than ten (10) days
following the Borrower's receipt of such notice.
Section 2.14 Taxes.
(a) Payment of Taxes Withheld From Amounts Payable. All
payments made by the Borrower under this Agreement and the other Loan Documents
shall be made free and clear of, and without deduction or withholding for or on
account of, any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter imposed,
levied, collected, withheld or assessed by any Governmental Authority,
excluding, in the case of the Administrative Agent, the Warehouse Collateral
Agent and each Lender, net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Administrative Agent, the Warehouse Collateral
Agent or such Lender, as the case may be, as a result of a present or former
connection between the jurisdiction of the government or taxing authority
imposing such tax and the Administrative Agent, the Warehouse Collateral Agent
or such Lender (excluding a connection arising solely from the Administrative
Agent, the Warehouse Collateral Agent or such Lender having executed, delivered,
performed its obligations or received a payment under, or enforced, this
Agreement or the other Loan Documents) or any political subdivision or taxing
authority thereof or therein (all such non-excluded taxes, levies, imposts,
duties, charges, fees, deductions and withholdings being hereinafter called
"Taxes"). If any Taxes are required to be withheld from any amounts payable to
the Administrative Agent, the Warehouse Collateral Agent or any Lender hereunder
or under other Loan Documents, the amounts so payable to the Administrative
Agent, the Warehouse
-48-
<PAGE> 57
Collateral Agent, or such Lender shall be increased to the extent necessary to
yield to the Administrative Agent, the Collateral Agent or such Lender (after
payment of all Taxes) interest or any such other amounts payable hereunder at
the rates or in the amounts specified in this Agreement and the other Loan
Documents. Whenever any Taxes are payable by the Borrower, as promptly as
possible thereafter, the Borrower shall send to the Administrative Agent for its
own account or for the account of the Warehouse Collateral Agent or such Lender,
as the case may be, a certified copy of an original official receipt received by
the Borrower showing payment thereof. If the Borrower fails to pay any Taxes
when due to the appropriate taxing authority or fails to remit to the
Administrative Agent the required receipts or other required documentary
evidence, the Borrower shall indemnify, as applicable, the Administrative Agent,
the Warehouse Collateral Agent and the Lenders for any incremental taxes,
interest or penalties that may become payable by the Administrative Agent, the
Warehouse Collateral Agent or any Lender as a result of any such failure. The
agreements in this subsection (a) shall survive the termination of this
Agreement and the payment of the Notes and all other amounts payable under the
Loan Documents.
(b) Lender Incorporation; Certifications. Each Lender
that is a party hereto on the date hereof represents and warrants that it is
incorporated under the laws of the United States of America or a state thereof.
Each Lender becoming a party hereto after the date hereof agrees that it will on
or before the first interest payment date after it becomes a party hereto
deliver to the Borrower and the Administrative Agent either a statement that it
is incorporated under the laws of the United States of America or a state
thereof or, if not so incorporated, (i) two (2) duly completed copies of United
States Internal Revenue Service Form 1001 or 4224 or an applicable successor
form, as the case may be, and (ii) an Internal Revenue Service Form W-8 or W-9
or any successor form. Each such Lender not so incorporated also agrees to
deliver to the Borrower and the Administrative Agent two (2) further copies of
such Form 1001 or 4224 and Form W-8 or W-9, or applicable successor forms or
other manner of certification, as the case may be, on or before the date that
any such form expires or becomes obsolete or after the occurrence of any event
requiring a change in the most recent form previously delivered by it to the
Borrower or the Administrative Agent, together with such extensions or renewals
thereof as may reasonably be requested by the Borrower or the Administrative
Agent, unless in any such case an event (including any change in treaty, law or
regulation) has occurred before the date on which any such delivery would
otherwise be required that renders all such forms inapplicable or that would
prevent such Lender from duly completing and delivering any such form with
respect to it, and such Lender so advises the Borrower and the Administrative
Agent. Such Lender shall certify (A) in the case of a Form 1001 or 4224, that it
is entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes and (B) in the case of a
Form W-8 or W-9, that it is entitled to an exemption from United States backup
withholding tax.
(c) Taxes Borne by Lender. This Section 2.14 shall not
require the Borrower to pay any increased amount on account of Taxes to any
Lender to the extent such Taxes would not have been payable if such Lender had
furnished a statement or form (properly and accurately completed in all material
respects) that it was required to furnish in accordance with subsection (b)
above. Such Taxes shall be borne solely by such Lender.
-49-
<PAGE> 58
Section 2.15 Sharing of Setoffs.
Each Lender (the "Setoff Lender") agrees that if (a) it
obtains payment (voluntary or involuntary) in respect of any Obligation (i)
through the exercise of a right of banker's lien, setoff or counterclaim against
the Borrower or either of the Guarantors, (ii) pursuant to a secured claim under
Section 506 of Title 11 of the United States Code, or other security or interest
arising from, or in lieu of, such secured claim, received by the Setoff Lender
under any applicable bankruptcy, insolvency or other similar law or otherwise,
or (iii) by any other means, AND (b) such payment causes the unpaid portion of
the Obligations owed to the Setoff Lender to be proportionately less than the
unpaid portion of the Obligations owed to any other Lender (the "Selling
Lender"), THEN the Setoff Lender shall purchase from the Selling Lender, and the
Selling Lender shall simultaneously sell and assign to the Setoff Lender, at
face value a portion of the Obligations of the Selling Lender, so that the
aggregate unpaid amount of the Obligations and assigned Obligations held by each
Lender after such sale and assignment are in the same proportion to the
aggregate unpaid amount of all Obligations then outstanding as the amount of
Obligations owed to such Lender prior to such exercise of banker's lien, setoff
or counterclaim or other event was to the principal amount of all Obligations
outstanding prior to such exercise of banker's lien, setoff or counterclaim or
other event; provided that if any such purchase or purchases or adjustments are
made pursuant to this Section 2.15 and the payment giving rise thereto is
thereafter recovered, such purchase or purchases or adjustments shall be
rescinded to the extent of such recovery and the purchase price or prices or
adjustments restored without interest. The Borrower expressly consents to the
foregoing arrangements and agrees that any Lender holding an assignment of an
Obligation deemed to have been so purchased may exercise any and all rights of
banker's lien, setoff or counterclaim with respect to any and all moneys owing
by it to such Lender by reason thereof, as fully as if such Lender had made a
loan directly to each of them in the amount of such assignment.
Section 2.16 Replacement of Lenders.
If (a) any Lender notifies the Administrative Agent and the
Borrower pursuant to Section 2.11 that it is unlawful or improper for such
Lender to make or maintain LIBOR Loans, (b) any Lender requires the Borrower to
pay additional amounts pursuant to Section 2.12(a) for additional costs incurred
or reductions suffered by such Lender in connection with LIBOR Loans made or
maintained by such Lender, or (c) any Lender requires the Borrower to reimburse
such Lender or such Lender's holding company pursuant to Section 2.12(b) for
reduction in the rate of return on such Lender's capital or the capital of such
Lender's holding company as a result of such Lender's obligations under the Loan
Documents, THEN the Borrower may require such Lender to sell all of its
outstanding Loans and Commitments (and if such Lender is the Swing-Line Lender,
to sell its Swing-Line Commitments) pursuant to Section 8.6(c), to another
Lender (if any other Lender agrees, in its sole and absolute discretion, to
purchase such Loans and commitments) or to any other financial institution
acceptable to the Administrative Agent in its sole and absolute discretion that
is willing to make and maintain LIBOR Loans. The purchase price for such Loans
and Commitments shall be equal to (i) the aggregate principal amount of Loans,
if any, of such Lender outstanding as of the purchase date thereof, (ii)
interest accrued on such Loans up to but excluding such purchase date, and (iii)
an amount equal to all other accrued
-50-
<PAGE> 59
but unpaid payment Obligations owed to such Lender, including any accrued but
unpaid Fees.
ARTICLE III
CONDITIONS TO BORROWINGS
Section 3.1 Initial Borrowing.
As conditions precedent to the effectiveness of this Agreement
and the other Loan Documents and to each Lender's obligation to make its initial
Loan hereunder:
(a) Delivery of Loan Documents. Each of the following
shall have been delivered to the Administrative Agent, in form and substance and
in quantities reasonably satisfactory to the Administrative Agent
and its counsel:
(i) Originals of this Agreement, duly executed
by the parties hereto;
(ii) Originals of the Warehouse Security
Agreement, duly executed by the parties thereto;
(iii) Originals of each of the Guaranties, duly
executed by the parties thereto;
(iv) Originals of the agreement between the
Administrative Agent and the Borrower relating to the fees referenced
in Section 2.7(h), duly executed by the Borrower;
(v) An original of each of the Notes for each
the the Lenders and an original of the Swing-Line Note for the Swing-
Line Lender, in each case duly executed by the Borrower;
(vi) Originals of all financing statements and
other documents, instruments and agreements, duly executed by the party
or parties thereto, that are deemed necessary or appropriate by the
Administrative Agent to create in favor of the Warehouse Collateral
Agent, for the benefit of the Secured Parties, a valid, perfected and
first priority security interest in and Lien upon the Warehouse
Collateral;
(vii) Evidence of partnership authorization, as
applicable, of the Borrower and each of the Guarantors (including
resolutions of the board of directors of such Person's General Partner
or other appropriate evidence of authorization), authorizing and
directing such Person's execution, delivery and performance of the Loan
Documents to which it is party and all related documents and
certificates required of it thereunder;
(viii) With respect to each representative of the
Borrower and each of the Guarantors that is authorized to execute and
deliver the Loan Documents to which such
-51-
<PAGE> 60
Person is party, evidence of such authorization (including resolutions
of the board of directors of such Person's General Partner or other
appropriate evidence of authorization) of such representatives to
execute and deliver such Loan Documents, together with evidence as to
the true signatures and respective incumbencies of such
representatives;
(ix) An opinion of counsel for the Borrower and
the Guarantors, substantially in the form of Exhibit E;
(x)(A) With respect to the Borrower and each of the
Guarantors, copies of such Person's certificate of limited partnership
and its General Partner's certificate of incorporation, together with
any and all amendments or supplements thereto, in each case duly
authorized and executed and certified, as of a recent date, to be true,
correct and complete copies thereof by the Secretary of State of the
state of each such Person's formation, incorporation or organization,
as applicable; (B) with respect to the General Partner of the Borrower
and each of the Guarantors, copies of its By-laws, together with any
and all amendments or supplements thereto, in each case certified by
such General Partner's Secretary or Assistant Secretary as being true,
correct and complete copies thereof; and (C) with respect to the
Borrower and each of the Guarantors, copies of its agreement of limited
partnership, together with any and all amendments or supplements
thereto, in each case certified by the Secretary or Assistant Secretary
of the General Partner of such Person as being true, correct and
complete copies thereof;
(xi) With respect to the Borrower and each of the
Guarantors, and their respective General Partners, a certificate, dated
a recent date, from the Secretary of State of the state of each such
Person's formation, incorporation or organization, certifying that each
such Person is in good standing as of a recent date;
(xii) A certificate of an executive officer of
the General Partner on behalf of the Borrower in the form of Exhibit F;
(xiii) Evidence satisfactory to the Administrative
Agent that the Warehouse Funding Account, the Warehouse Settlement
Accounts and the Custody MBS Account have been opened;
(xiv) A Servicing Portfolio Report dated not more
than thirty (30) days prior to the Closing Date;
(xv) Evidence satisfactory to the Administrative
Agent that all reasonable fees, costs and expenses of its counsel
relating to the preparation, negotiation and closing of the
transactions contemplated hereby through the Closing Date will be paid
in full on such date;
(xvi) With respect to the Borrower and each of the
Guarantors and their respective General Partners, UCC, tax lien and
judgment searches of (A) the records of the Secretary of State of the
state of each such Person's (1) formation, incorporation or
organization, as applicable (with respect to tax lien and judgment
searches only),
-52-
<PAGE> 61
(2) principal place of business, and (3) chief executive office, if
such Person has more than one principal place of business, and (B) the
filing officer of the county of such Person's principal place of
business and chief executive office, if such Person has more than one
principal place of business, which searches shall indicate no Liens are
outstanding on the Warehouse Collateral or the Pledge Collateral, other
than as permitted or required under the Loan Documents or otherwise
accepted by the Administrative Agent in its sole and absolute
discretion and other than those of lenders (the "Existing Lenders") in
warehousing facilities being refinanced with proceeds of the initial
Borrowing of Loans hereunder; and
(xvii) With respect to the Existing Lenders,
evidence of (A) the terminations of the warehousing facilities made
available by such Existing Lenders and of such Existing Lenders' Liens
on the Warehouse Collateral and the Pledge Collateral (together with
completed and duly executed UCC termination statements deemed necessary
or appropriate by the Administrative Agent with respect to such
terminations) or (B) commitments of the Existing Lenders acceptable to
the Administrative Agent in the exercise of its sole discretion to
terminate such facilities and Liens and to provide such termination
statements upon the above-referenced refinancing, and in either case,
evidence that appropriate arrangements have been made for the transfer
of collateral under such facilities to the Warehouse Collateral Agent
to be held as Warehouse Collateral or to the Administrative Agent to be
held as Pledge Collateral, as applicable.
(b) Necessary Acts and Conditions. All acts and conditions
(including the obtaining of any necessary regulatory approvals and the making of
any required filings, recordings or registrations) required to be done and
performed and to have happened precedent to the execution, delivery and
performance of the Loan Documents and to constitute the same legal, valid and
binding obligations, enforceable in accordance with their respective terms,
shall have been done and performed and shall have happened in due and strict
compliance with all applicable laws or if any of such have not been done,
performed or happened, such has been expressly disclosed to the Administrative
Agent and the Lenders and waived by all of the Lenders in writing.
(c) Documentation Satisfactory in Form and Substance. All
documentation, including documentation for corporate, partnership and legal
proceedings in connection with the transactions contemplated by the Loan
Documents, shall be reasonably satisfactory in form and substance to the
Administrative Agent and its counsel.
(d) Payment of Fees. All Fees required to have been paid
under the Loan Documents prior to the initial Borrowing of Loans hereunder shall
have been paid.
(e) Ownership Structure. The ownership structure of the
Borrower and its Affiliates or otherwise related Persons as reflected on Exhibit
I shall be in effect, and such evidence, legal opinions and other documentation
confirming the effectiveness of such ownership structure requested by the
Administrative Agent and in form and substance satisfactory to the
Administrative Agent and the Lenders, shall have been delivered to the
-53-
<PAGE> 62
Administrative Agent and each of the Lenders.
(f) Conditions to Servicing Loans. All conditions
precedent to the making of the initial Servicing Loans (other than the condition
set forth in Section 3.1(f) of the Servicing Credit Agreement) shall have been
satisfied in accordance with Article III of the Servicing Credit Agreement.
Section 3.2 All Borrowings.
As conditions precedent to each Lender's obligation to make
any Loan hereunder, including the initial Loans, at and as of the date of
Borrowing thereof:
(a) Representations and Warranties. The representations
and warranties of the Borrower and each of the Guarantors contained in the Loan
Documents shall be accurate and complete in all material respects on and as of
the date of such Borrowing as if made on and as of such date (unless such
representation and warranty is stated to be as of an earlier date).
(b) No Event of Default. No Event of Default shall have
occurred and be continuing.
(c) Borrowing Limitations. The Administrative Agent shall
have received the Borrowing Base Certificate required to be delivered by the
Collateral Agent under the Warehousing Security Agreement. Following the funding
of the requested Loans, the aggregate principal amount of Loans outstanding
hereunder shall not exceed the applicable limitations set forth in Section 2.1.
(d) No Material Adverse Change. Since March 31, 1995, no
development or event shall have occurred, nor shall there be any prospective
development or event, that could reasonably be expected to have a Material
Adverse Effect.
(e) Other Documentation. The Administrative Agent shall
have received such other documents or legal opinions as the Administrative Agent
or any Lender may reasonably request, all in form and substance reasonably
satisfactory to the Administrative Agent.
By delivering a Notice of Borrowing or a Notice of Swing-Line Borrowing, as the
case may be, to the Administrative Agent hereunder for any proposed Borrowing,
the Borrower shall be deemed to have represented and warranted the accuracy and
completeness of the statements set forth in subsections (a) through (d) above as
of the date of such proposed Borrowing. On the date of a proposed Borrowing
against Bulk Check Mortgage Loans the Borrower shall be deemed to have
represented and warranted that each Bulk Check Mortgage Loan is an Eligible
Mortgage Loan.
-54-
<PAGE> 63
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
As an inducement to the Administrative Agent and the Lenders
to enter into this Agreement and to make Loans as provided herein, the Borrower
represents and warrants to the Agents and each Lender that:
Section 4.1 Formation, Organization and Standing.
(a) Borrower. The Borrower is a limited partnership, duly
formed, validly existing and in good standing under the laws of the state of its
formation and is duly qualified to do business and is in good standing in all
other jurisdictions where it conducts its business or owns or leases its assets
and where such activity requires such qualification, except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect.
(b) General Partner. The General Partner of the Borrower
is a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation.
Section 4.2 Compliance With Law and Contractual Obligations
The Borrower has the partnership power, and authority and the
legal right to own and operate its property and to conduct business in the
manner in which it does and proposes so to do and is not in violation of any
Requirement of Law or any Contractual Obligation applicable to it if such
violation could have a Material Adverse Effect.
Section 4.3 Power; Authorization; Enforceable Obligations.
(a) Borrower. The Borrower has the partnership power and
authority to execute, deliver and perform the Loan Documents to which it is a
party and has taken all necessary partnership action to authorize the execution,
delivery and performance of such Loan Documents. Such Loan Documents have been
duly executed and delivered by or on behalf of the Borrower and constitute its
legal, valid and binding obligations, enforceable against it in accordance with
their respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally and by general principles of equity.
(b) General Partner. The General Partner of the Borrower
has the corporate power and authority to make, deliver and perform on behalf of
the Borrower, and thereby legally bind the Borrower to perform this Agreement
and the other Loan Documents to which the Borrower is party, and has taken all
necessary action to authorize the borrowings by the Borrower hereunder on the
terms and conditions of this Agreement and the Notes. The General Partner of the
Borrower has, on behalf of the Borrower, duly executed and delivered this
Agreement and the other Loan Documents to which the Borrower is party.
-55-
<PAGE> 64
Section 4.4 No Legal or Contractual Bar.
The execution, delivery and performance of the Loan Documents
by the Borrower, the borrowings of Loans hereunder and the use of the proceeds
thereof, do not and will not (i) violate any Requirement of Law applicable to or
any Contractual Obligation of the Borrower, (ii) except as contemplated by this
Agreement and the Warehouse Security Agreement, require any license, consent,
authorization, approval or any other action by, or any notice to or filing or
registration with, any Governmental Authority or any other Person, which
licenses, consents, authorizations or approvals have not been previously
obtained and remain in full force and effect, or (iii) result in the creation or
imposition of any Lien on any asset of the Borrower, except as permitted or
required by the Loan Documents.
Section 4.5 Financial Information.
(a) Delivery of Financial Statements.
(i) The audited consolidated financial
statements of each of Platte Valley Funding, L.P., Western Sunrise
Mortgage Co., L.P., TMC Mortgage Co., L.P. and JHM Mortgage Securities
L.P. as at December 31, 1994, and the Securities and Exchange
Commission Form 10-Q for the quarterly period ended March 31, 1995 for
Harbourton Financial Services, a copy of each of which have been
furnished to each Lender, are complete and correct and present fairly
the financial condition of each of Platte Valley Funding, L.P., Western
Sunrise Mortgage Co., L.P., TMC Mortgage Co., L.P., JHM Mortgage
Securities L.P. and Harbourton Financial Services, as applicable as at
the date thereof. Each of the balance sheets, including the related
schedules and notes thereto, has been prepared in accordance with GAAP
as of such date (subject to normal year-end adjustments) and the
financial statements included in the Form 10-Q described in the
preceding sentence have been prepared in accordance with GAAP as
adjusted pursuant to the rules and regulations of the Securities and
Exchange Commission.
(ii) The pro forma consolidated balance sheet of
the Borrower as at August 1, 1995, a copy of which has been furnished
to each Lender, presents fairly the pro forma financial condition of
the Borrower after giving effect to the Loans to be made on such date
and the consummation of the ownership structure described in Section
3.1(e). The pro forma balance sheet, including the related schedules
and notes thereto, has been prepared on a basis consistent with GAAP
and based on good faith reasonable assumptions and projections.
(b) No Material Liabilities. Neither the Borrower nor HTP
Financial has any material liability of any kind, whether accrued, contingent,
absolute, determined, determinable or otherwise, and no condition, situation or
set of circumstances exists that could be reasonably expected to result in such
a liability, in each case that should be reflected on such financial statements
prepared in accordance with GAAP but is not reflected in the most recent such
financial statements delivered to the Administrative Agent and the Lenders
pursuant to Section 5.1(a)(i) or (ii).
-56-
<PAGE> 65
(c) No Material Change. Since March 31, 1995, no
development or event has occurred, nor is there any prospective development or
event, in respect of the Borrower or any of its Subsidiaries, the General
Partner of the Borrower, or the Guarantors, that could reasonably be expected to
have a Material Adverse Effect.
(d) HTP Financial. The Borrower has delivered to each of
the Lenders a true and correct copy of the term sheet referenced in the
definition of HTP Financial.
Section 4.6 No Litigation.
Except as disclosed on Schedule 4.6, (a) no litigation,
investigation or proceeding (exclusive of mortgage foreclosure litigation and
bankruptcy proceedings of Obligors in which or in connection with which such
Obligors have brought no claims, counter-suits or actions against the Borrower)
of or before any arbitrator or Governmental Authority is pending or to the
knowledge of the Borrower, threatened by or against the Borrower or any of its
Subsidiaries, or the General Partner of the Borrower, or against any of the
properties or revenues of any such Person, in which the amount involved in such
litigation, investigation or proceeding, when added to amounts involved in all
other litigation, investigations or proceedings with respect to such Person,
exceeds, in the aggregate, $500,000 or in which injunctive relief, if sought and
obtained, could result in a Material Adverse Effect.
Section 4.7 Taxes.
Each of the Borrower, its Subsidiaries and the General Partner
of the Borrower has filed or caused to be filed (or obtained extensions for the
filing of) all tax returns that are required to be filed and have paid all taxes
shown to be due and payable on such returns or on any assessments made against
it or any of its property, other than taxes and assessments that are being
contested in good faith by appropriate proceedings and as to which such Person
has established adequate reserves in conformance with GAAP.
Section 4.8 Investment Company Act; Other Regulations.
The Borrower is not an "investment company" within the meaning
of the Investment Company Act of 1940, as amended. Neither the Borrower nor the
General Partner of the Borrower is subject to any Requirement of Law that limits
its ability to incur Indebtedness.
Section 4.9 Subsidiaries.
As of the Closing Date, the Borrower has no Subsidiaries.
Section 4.10 Use of Proceeds.
The Borrower shall use the proceeds of the Tranche A Loans and
the Swing-Line Loans to finance Eligible Mortgage Loans and to refinance
mortgage warehouse facilities extended to it for such purpose by Existing
Lenders. The Borrower shall use the proceeds of the Tranche B Loans to finance
Eligible Gestation Mortgage Loans and Eligible Gestation MBS.
-57-
<PAGE> 66
Section 4.11 ERISA.
No Prohibited Transactions, Accumulated Funding Deficiencies,
withdrawals from Multiemployer Plans or Reportable Events have occurred with
respect to any Plans or Multiemployer Plans that, in the aggregate, could
subject the Borrower, its Subsidiaries or the General Partner of the Borrower to
any material tax, penalty or other liability where such tax, penalty or
liability is not covered in full, for the benefit of such parties, by insurance;
no notice of intent to terminate a Plan has been filed, nor has any Plan been
terminated under Section 4041 of ERISA, nor has the PBGC instituted proceedings
to terminate, or appointed a trustee to administer, a Plan and no event has
occurred or condition exists that might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan; the present value of all benefits liabilities (as defined in Section
4001(a)(16) of ERISA) under all Plans (based on the actuarial assumptions used
to fund the Plans) does not exceed the assets of the Plans; and the execution,
delivery and performance by the Borrower of the Loan Documents to which it is a
party, the borrowing of the Loans hereunder and the use of the proceeds thereof
will not involve any Prohibited Transaction.
Section 4.12 Security Interests.
The security interests created in favor of the Warehouse
Collateral Agent, for the benefit of the Secured Parties, in the Warehouse
Collateral, and in favor of the Administrative Agent, for the benefit of the
Secured Parties, in the Pledge Collateral, constitute and will constitute valid
and enforceable security interests, and such security interests will be
perfected, first priority security interests in the Warehouse Collateral and the
Pledge Collateral, as applicable. Such Collateral is not and will not be subject
to any other Liens except as permitted or required under the Loan Documents.
Section 4.13 Agency Approvals.
The Borrower is (i) a FNMA and FHLMC approved Seller/Servicer,
(ii) a GNMA approved Issuer/Servicer, (iii) a HUD Direct Endorsement lender,
(iv) a VA approved lender in good standing and (v) an FHA approved lender in
good standing.
Section 4.14 Federal Reserve Board Regulations.
The Borrower is not engaged and will not engage, principally
or as one of its important activities, in the business of extending credit for
the purpose of "purchasing" or "carrying" any "margin stock" within the
respective meanings of such terms under Regulation U. No part of the proceeds of
any Loan made hereunder will be used for "purchasing" or "carrying" "margin
stock" as so defined or for any purpose that violates or that would be
inconsistent with, the provisions of Regulations G, T, U or X of the Board.
Section 4.15 Assets.
The Borrower has good title to, or valid leasehold interests
in, all of its properties and assets. The Borrower has no outstanding Liens on
any of its properties or assets, nor is the
-58-
<PAGE> 67
Borrower party to any security agreements, except as required or permitted by
the Loan Documents.
Section 4.16 Environmental Matters.
To the knowledge of the Borrower, after due inquiry, each of
the representations and warranties set forth in subsections (a) through (e) of
this Section 4.16 is true and correct with respect to each parcel of real
property owned or operated by the Borrower (the "Properties"), except to the
extent that the facts and circumstances giving rise to any such failure to be so
true and correct could not reasonably be expected to have a Material Adverse
Effect:
(a) No Hazardous Materials. No Hazardous Materials are
contained in, on or under the Properties, including the soil and groundwater
thereunder, in quantities that are in violation of any Environmental Law;
(b) Compliance With Environmental Laws. The Properties
and all operations and facilities at the Properties are in compliance with all
Environmental Laws, and there is no Hazardous Materials contamination or
violation of any Environmental Law that could interfere with the continued
operation of any of the Properties or impair the fair saleable value of any
thereof;
(c) No Notice of Violation. None of the Borrower, its
Subsidiaries or the General Partner of the Borrower has received any material
complaint, notice of violation, alleged violation, investigation or advisory
action of potential liability or of potential responsibility regarding
environmental protection matters or permit compliance with regard to the
Properties, nor is the Borrower aware that any Governmental Authority is
contemplating delivering to any such Person;
(d) No Transfer of Hazardous Materials. To the knowledge
of the Borrower, after due inquiry, Hazardous Materials have not been generated,
treated, stored, disposed of, at, on or under any of the Properties, nor have
any Hazardous Materials been transferred from the Properties to any other
location; and
(e) No Pending Actions. No material governmental,
administrative actions or judicial proceedings are pending or, to the Borrower's
knowledge, contemplated under any Environmental Laws, to which the Borrower, its
Subsidiaries or the General Partner of the Borrower is or will be named as a
party with respect to the Properties, and no consent decrees or other decrees,
consent orders, administrative orders or other orders, or other administrative
or judicial requirements are outstanding under any Environmental Law with
respect to any of the Properties.
Section 4.17 Solvency.
(a) Sufficient Assets; Capital. On the Closing Date, after
giving effect to any Borrowings on such date, (A) the sum of the assets, at the
fair valuation, of the Borrower, as of such date, will exceed the Borrower's
debts, (B) the present fair saleable value of the assets of
-59-
<PAGE> 68
the Borrower, as of such date, will be greater than the amount that will be
required to pay the Borrower's liabilities on its debts as such debts become
absolute and matured, and (C) the Borrower will have, as of such date,
sufficient capital with which to conduct its businesses.
(b) Defined Terms; GAAP. For purposes of this Section
4.17, "debt" shall mean "liability on a claim," and "claim" shall mean a debt
required to be reflected on a balance sheet in accordance with GAAP and any
other liability then due and owing of the Borrower.
Section 4.18 Intellectual Property.
The Borrower owns, or is licensed to use, all trademarks,
tradenames, copyrights, technology, know-how and processes necessary for the
conduct of its business as currently conducted except for those the failure to
own or license which could not reasonably be expected to have a Material Adverse
Effect (the "Intellectual Property"). No material claim has been asserted and is
pending by any Person challenging or questioning the use of any such
Intellectual Property or the validity or effectiveness of any such Intellectual
Property, and the Borrower does not know of any valid basis for any such
material claim. The Borrower's use of its Intellectual Property does not
infringe on the rights of any Person, except for such claims and infringements
that, in the aggregate, could not reasonably be expected to have a Material
Adverse Effect.
Section 4.19 Principal Place of Business.
The principal place of business and chief executive office of
the Borrower is located at 2530 South Parker Road, 5th Floor, Aurora, Colorado
80014.
Section 4.20 No Burdensome Restrictions.
No Requirements of Law applicable to or Contractual Obligation
of the Borrower, its Subsidiaries or the General Partner of the Borrower could
reasonably be expected to have a Material Adverse Effect.
Section 4.21 Affiliate Transactions.
The Borrower has not entered into any transactions with any of
its Affiliates except as described on Schedule 4.21.
Section 4.22 Disclosure.
All information furnished or to be furnished to the
Administrative Agent by or on behalf of the Borrower, each General Partner, the
Guarantors or HTP Financial in connection with the Loan Documents, the
Collateral or the Obligations is complete and accurate in all material respects.
Section 4.23 Take-Out Commitments. Each Eligible Jumbo Mortgage
Loan and each Eligible Non-Conforming Mortgage Loan included in the Tranche A
Borrowing Base is specifically allocated to a Take-Out Commitment.
-60-
<PAGE> 69
ARTICLE V
COVENANTS
Section 5.1 Affirmative Covenants.
The Borrower hereby covenants and agrees, with respect to
itself and each of the its Subsidiaries, that as long as any Obligations remain
unpaid or any Lender has any Commitment (including the Swing-Line Lender and the
Swing-Line Commitment) hereunder, the Borrower shall:
(a) Reporting Requirements of the Borrower to the
Administrative Agent and the Lenders. Furnish or cause to be furnished to the
Administrative Agent and each Lender directly:
(i) Annual Financial Statements. As soon as
available and in any event within ninety (90) days after the end of
each fiscal year of each of the Borrower, Harbourton Financial Services
and HTP Financial, a statement of income, changes in partners' capital
and cash flow for such year of the Borrower, Harbourton Financial
Services and HTP Financial and the related statement of financial
condition as at the end of such year of the Borrower, Harbourton
Financial Services or HTP Financial, as applicable, setting forth in
each case in comparative form the figures for the previous fiscal year
(to the extent such figures are available), all in reasonable detail,
in accordance with GAAP, consistently applied, and accompanied by a
report thereon of Arthur Andersen & Co. or other independent public
accountants of comparable recognized national standing (provided that
financial statements of HTP Financial shall not be audited, unless
audited statements are otherwise available), which report shall be
unqualified as to scope of audit and shall state that such financial
statements present fairly the financial condition as at the end of such
fiscal year, and the results of operations and cash flows for such
fiscal year, of the Borrower, Harbourton Financial Services L.P. and
HTP Financial, respectively, in accordance with GAAP, consistently
applied and, with respect to financial statements required to be
included by Harbourton Financial Services in Securities and Exchange
Commission Form 10-K filings, in accordance with GAAP, consistently
applied, as adjusted pursuant to the rules and regulations of the
Securities and Exchange Commission, as applicable;
(ii) Quarterly Financial Statements. As soon as
available and in any event within forty-five (45) days after the end of
each fiscal quarter of the Borrower, Harbourton Financial Services L.P.
and HTP Financial, a statement of operations, changes in partners'
capital and cash flow for such quarter and for the portion of the
fiscal year ended of the Borrower, Harbourton Financial Services L.P.
and HTP Financial, the related statement of financial condition as at
the end of such fiscal quarter of the Borrower, Harbourton Financial
Services and HTP Financial, all in reasonable detail and certified by
the president or chief financial officer of the General Partner of the
Borrower,
-61-
<PAGE> 70
the general partner of Harbourton Financial Services and the general
partner of HTP Financial, respectively, that they are complete and
correct and present fairly the financial condition as at the end of
such quarter, and the results of operations for such quarter and such
portion of the fiscal year, of the Borrower, Harbourton Financial
Services and HTP Financial, respectively, in accordance with GAAP,
consistently applied, subject to normal year-end adjustments, and with
respect to financial statements required to be included by Harbourton
Financial Services in Securities and Exchange Commission 10-Q filings,
in accordance with GAAP, consistently applied, as adjusted pursuant to
the rules and regulations of the Securities and Exchange Commission, as
applicable;
(iii) Annual Cash Flow Projections. As soon as
available and in any event within sixty (60) days after the beginning
of each calendar year, a pro forma cash flow statement for such
calendar year, in reasonable detail and accompanied by a statement of
the president or chief financial officer of the General Partner of the
Borrower that such projections are a reasonable estimate of the cash
flow of the Borrower for such calendar year;
(iv) No Default/Compliance Certificate. Together
with the financial statements required pursuant to subparagraphs (i)
and (ii) above, a certificate of the president or the chief financial
officer of the General Partner of the Borrower (A) to the effect that,
based upon a review of the activities of the Borrower and such
financial statements during the period covered thereby, no Potential
Default or Event of Default exists, or if any Potential Default or
Event of Default does exist, specifying the nature thereof and the
response thereto proposed by the Borrower, (B) demonstrating in
reasonable detail compliance as at the end of such fiscal year or such
fiscal quarter, as the case may be, with Sections 5.2(a), (b), (c) and
(j) and (C) describing any transactions entered into since the date of
the last financial statements delivered to the Administrative Agent and
the Lenders by the Borrower with any of its Affiliates (other than
those described on Schedule 4.21), and notice of any material
amendment, modification or supplement in respect of any such
transaction or any transaction described in Schedule 4.21 since such
date; provided that submission of such certificate by such officer
shall in no way make him or her liable in his or her individual
capacity, or serve as a basis for any claim by the Administrative Agent
or a Lender against such officer in his or her individual capacity, in
connection with any error contained in such certificate (to the extent
that such error does not result from such officer's gross negligence or
willful misconduct);
(v) Notice of Default. Promptly after the
occurrence of a Potential of Default or Event of Default, a certificate
of the chief financial officer of General Partner specifying the nature
thereof and the response thereto proposed by the Borrower;
(vi) Audit Reports. Copies of each HUD Single
Family Audit Report and FNMA and FHLMC audit reports on the Borrower
and its operations, promptly after receipt thereof by the Borrower;
-62-
<PAGE> 71
(vii) Litigation. Notice of the institution of or
any material adverse development in, promptly after the occurrence
thereof, any action, suit or proceeding or any governmental
investigation or any arbitration, before any court or arbitrator or any
governmental or administrative body, agency or official, by or against
the Borrower, any of its Subsidiaries or the General Partner of the
Borrower, or against any of the properties or revenues of any such
Person (exclusive of foreclosure and bankruptcy suits and proceedings
of Obligors of mortgage loans serviced by the Borrower, arising in the
ordinary course of the Borrower's servicing business in which or in
connection with which such Obligors have brought no claims,
countersuits or actions against the Borrower), in which the amount
involved in such action, suit, proceeding, governmental investigation
or arbitration, when added to amounts involved in all other actions,
suits, proceedings, governmental investigations or arbitrations, by or
against such Person, or against any of the properties or revenues of
such Person, exceeds, in the aggregate, $500,000 or in which injunctive
relief, if sought and obtained, could result in a Material Adverse
Effect;
(viii) Securities Reports and Filings. Promptly
after the filing thereof, copies of all financial statements, reports,
notices and proxy statements, if any, sent or made available generally
by the Borrower or any of its Subsidiaries to the holders of its or
their respective securities or partnership interests, of all regular
and periodic reports and other filings made by Harbourton Financial
Services, the Borrower or any of their Subsidiaries with any securities
exchange, the Securities and Exchange Commission or any other
governmental or private regulatory authority, and of all press releases
and other statements made available generally by Harbourton Financial
Services, the Borrower or any of their Subsidiaries to the public about
material developments in the business of Harbourton Financial Services
and its Subsidiaries, and the Borrower and its Subsidiaries, each taken
as a whole;
(ix) ERISA. In connection with ERISA:
(A) Promptly and in any event within ten
(10) days after the Borrower knows or has reason to know of the
occurrence of a Reportable Event with respect to a Plan with regard to
which notice must be provided to the PBGC, a copy of such materials
required to be filed with the PBGC with respect to such Reportable
Event and in each such case a statement of the chief financial officer
of the General Partner of the Borrower setting forth details as to such
Reportable Event and the action that the Borrower proposes to take with
respect thereto;
(B) Promptly and in any event within ten
(10) days after the Borrower knows or has reason to know of any
condition existing with respect to a Plan that presents a material risk
of termination of such Plan, imposition of an excise tax, requirement
to provide security to such Plan or incurrence of other liability by
the Borrower or any ERISA Affiliate, a statement of the chief financial
officer of the General Partner of the Borrower describing such
condition;
-63-
<PAGE> 72
(C) At least ten (10) days prior to the
filing by any plan administrator of a Plan of a notice of intent to
terminate such Plan, a copy of such notice;
(D) Promptly and in any event within ten
(10) days after the filing thereof with the Secretary of the Treasury,
a copy of any application by the Borrower or any ERISA Affiliate
thereof for a waiver of the minimum funding standard under section 412
of the Code;
(E) Promptly and in any event within ten
(10) days after the filing thereof with the Internal Revenue Service,
copies of each annual report that is filed on Form 5500, together with
certified financial statements for any Plan as of the end of such year
and actuarial statements on Schedule B to such Form 5500;
(F) Promptly and in any event within ten
(10) days after the Borrower knows or has reason to know of any event
or condition that might constitute grounds under section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer,
any Plan, a statement of the chief financial officer of the General
Partner of the Borrower describing such event or condition;
(G) Promptly and in any event within ten
(10) days after receipt thereof by the Borrower or any ERISA Affiliate,
a copy of each notice received by the Borrower or such an ERISA
Affiliate concerning the imposition of any withdrawal liability under
section 4202 of ERISA; and
(H) Promptly after receipt thereof a copy of
any notice the Borrower or any ERISA Affiliate may receive from the
PBGC or the Internal Revenue Service with respect to the Borrower's or
such ERISA Affiliate's liability with respect to any Plan or
Multiemployer Plan; provided that this subparagraph (H) shall not apply
to notices of general application promulgated by the PBGC or the
Internal Revenue Service;
(x) Servicing Portfolio and Other Reports.
(A) As soon as available and in any event no
later than forty-five (45) days after the end of each calendar quarter,
and on such other days as the Administrative Agent may reasonably
request, a Servicing Portfolio Report, dated as of the end of such
quarter or as of such other day, as applicable;
(B) As soon as available and in any event no
later than thirty (30) days after the end of each calendar month, and
on such other days as the Administrative Agent may reasonably request,
a Monthly Servicing Report and a Monthly Position Report; and
(xi) Other Information. Promptly after request
therefor by the Administrative Agent or any Lender, such additional
financial and other information, including financial statements of the
Borrower or any of its Subsidiaries or any Approved Investor (other
than FNMA or FHLMC) (if financial statements of such Approved
-64-
<PAGE> 73
Investor are available to the Borrower), and such information regarding
the Warehouse Collateral and/or the Pledge Collateral as any Lender,
through the Administrative Agent, may from time to time reasonably
request, including such information as is necessary for any Lender to
grant participations of its interests in Loans hereunder or to enable
another financial institution to become a Lender hereunder.
(b) Reporting Requirements of the Borrower to the
Administrative Agent and the Co-Agent. Furnish or cause to be furnished to each
of the Administrative Agent and the Co-Agent:
(i) Commitment Status Report. On the first
Business Day of each week, and on such other days as the Administrative Agent
may reasonably request, reports on the status of all Take-Out Commitments held
by the Borrower, including the weighted average Applicable Take-Out Price for
the Mortgage Loans in the Tranche A Borrowing Base, a list of allocated Take-Out
Commitments for Eligible Jumbo Mortgage Loans and Eligible Non-Conforming
Mortgage Loans in the Tranche A Borrowing Base and copies of all Take-Out
Commitments for each Agency MBS and Mortgage Loan in the Tranche B Borrowing
Base in the form and substance satisfactory to the Administrative Agent prepared
by the Borrower and dated as of the last Business Day of the immediately
preceding week or as of such other day, as applicable;
(ii) Loss of Qualification. Notice of any
change in the Type of any Mortgage Loan (other than changes of Eligible
Conforming Mortgage Loans into Eligible Gestation Mortgage Loans) included in
the Tranche A Borrowing Base or the Tranche B Borrowing Base or of any Mortgage
Loan or Agency MBS included in the Tranche A Borrowing Base or the Tranche B
Borrowing Base that shall cease to qualify as an Eligible Mortgage Loan or
Eligible Agency MBS hereunder promptly after the occurrence thereof; and
(iii) Specialty Mortgage Products Report. As
soon as available and in no event later than forty-five (45) days after the end
of each calendar quarter, a Specialty Mortgage Products Report, dated as of the
end of such calendar quarter.
(c) Maintenance of Existence and Properties; Compliance
with Laws. Preserve and maintain (i) its partnership existence, and (ii) all
rights, privileges, licenses, approvals, franchises, properties and assets
material to and necessary for the normal conduct of the business of the
Borrower, and shall comply in all material respects with all Contractual
Obligations of and Requirements of Law applicable to the Borrower (including all
servicing agreements with Private Investors), except when the failure to so
preserve, maintain and comply as set forth in clause (ii) above would not have a
Material Adverse Effect.
(d) Maintenance of Federal Agency Status. Maintain at
all times its status as a FNMA and FHLMC approved Seller/Servicer, a GNMA
approved Issuer/Servicer, a HUD Direct Endorsement Lender and an FHA approved
lender in good standing.
(e) Inspection of Property; Books and Records;
Discussions. Keep proper books of record and account in which full, true and
correct entries in conformity with GAAP and
-65-
<PAGE> 74
all Requirements of Law applicable to the Borrower shall be made of all dealings
and transactions in relation to the business and activities of the Borrower and
permit representatives of the Administrative Agent and the Lenders (at no cost
to the Borrower unless a Potential Default or Event of Default has occurred and
is continuing) to visit and inspect any of the properties of the Borrower and
examine and make abstracts from any of such books and records during normal
business hours, upon reasonable advance notice and as often as may reasonably be
desired by the Administrative Agent or any such Lender, and to discuss the
business, operations, properties and financial and other condition of the
Borrower with officers and employees of the Borrower and with its independent
certified public accountants.
(f) Insurance. Maintain or cause to be maintained with
financially sound and reputable insurers, insurance with respect to properties
and business of the Borrower against loss or damage of the kinds customarily
insured against by reputable companies in the same or similar businesses, such
insurance to be of such types and in such amounts (with such deductible amounts)
as is customary for such companies under similar circumstances, including errors
and omissions coverage and fidelity coverage in form and substance acceptable
under the Agency Guides, and furnish the Administrative Agent on request full
information as to all such insurance.
(g) Payment of Taxes and Claims. Pay (i) all taxes,
assessments and governmental charges imposed upon the Borrower or upon the
property of the Borrower prior to their becoming delinquent and (ii) all claims
(including claims for labor, materials, supplies or services) that might, if
unpaid, become a Lien upon the property of the Borrower prior to their becoming
a Lien unless, in each case, the validity or amount thereof is being contested
in good faith by appropriate proceedings and the Borrower has maintained
adequate reserves in accordance with GAAP with respect thereto or, if required
by any applicable Requirement of Law, has posted a bond in respect thereof
reasonably satisfactory to the Administrative Agent.
(h) Servicing Rights and Servicing Portfolio. Maintain at
all times a Servicing Portfolio consisting of mortgage loans with an aggregate
unpaid principal amount of at least $2,000,000,000.
(i) Ownership Structure. Perform all actions required
subsequent to the date hereof as a result of the consummation of the
reorganization contemplated in Section 3.1(e), including delivering notices that
may be required by any Agency or the FHA or the VA.
(j) Further Documents. Execute and deliver or cause to be
executed and delivered to the Administrative Agent or the Warehouse Collateral
Agent, on behalf of the Secured Parties, from time to time such confirmatory or
supplementary security agreements, financing statements, reaffirmations and
consents and such other documents, instruments or agreements, as the
Administrative Agent may reasonably request, that are in the Administrative
Agent's reasonable judgment necessary or desirable to obtain for the
Administrative Agent or the Warehouse Collateral Agent, on behalf of the Secured
Parties, the benefit of the Loan Documents, the Warehouse Collateral and the
Pledge Collateral.
-66-
<PAGE> 75
Section 5.2 Negative Covenants.
The Borrower hereby covenants and agrees that as long as any
Obligations remain unpaid or any Lender has any Commitment (including the
Swing-Line Lender and the Swing-Line Commitment) hereunder, the Borrower shall
not, directly or indirectly:
(a) Accumulation of Assets. Permit HTP Financial to at any
time accumulate Mortgage Loans (which term shall not be deemed to include
servicing rights to Mortgage Loans for purposes of this Section 5.2(a)) with an
unpaid principal balance in excess of $100,000,000.
(b) Total Debt to Net Worth Ratios. Permit (i) the ratio
of its Total Debt to its Net Worth to exceed 8.0:1 at any time or (ii) the ratio
of its Total Debt to its Adjusted Tangible Net Worth to exceed 6.0:1.0 at any
time.
(c) Net Worth; Adjusted Tangible Net Worth. Permit (i)
its Net Worth to be less than $40,000,000 at any time or (ii) its Adjusted
Tangible Net Worth to be less than $35,000,000 at any time.
(d) Cash Flow to Scheduled Term Debt Service. Permit the
ratio of its Cash Flow to Scheduled Term Debt Service for any fiscal quarter (as
determined at the end of such fiscal quarter) to be less than 1.20:1.0.
(e) Investments and Advances. Make any loans, extensions
of credit or investments other than:
(i) investments in direct obligations of the
United States or any agency thereof, or obligations guaranteed
by the United States or any agency thereof, in each case
maturing within six (6) months from the date of creation
thereof;
(ii) investments in commercial paper maturing
within six (6) months from the date of creation thereof given
the highest rating for commercial paper by Moody's or S&P;
(iii) time deposits maturing within one (1)
year from the date of creation thereof with, including
certificates of deposit issued by, any office located in the
United States of any bank or trust company that is organized
under the laws of the United States or any state thereof and
whose certificates of deposit are rated P-1 or better by
Moody's or A-1 or better by S&P;
(iv) short-term loans or advances to any
current or former officers of the Borrower, for the purpose of
assisting such officers in the payment of relocation expenses
or car loans, in an aggregate principal amount outstanding at
any time not to exceed $1,000,000;
-67-
<PAGE> 76
(v) investments made in the ordinary course of
business for the purpose of implementing the Hedging Program;
(vi) investments in Specialty Mortgage Products
in an aggregate amount not to exceed $45,000,000; provided
that all Specialty Mortgage Products shall be covered by
Take-Out Commitments from Approved Investors that are not
Affiliates of the Borrower that are in full force and effect
except for Specialty Mortgage Products with an unpaid
principal balance not exceeding $20,000,000 in the aggregate
at any time;
(vii) investments in HTP Financial;
(viii) investments in newly-formed companies or
partnerships to be engaged primarily in the business of
originating or acquiring Specialty Mortgage Products; provided
that (a) such investments shall consist solely of capital
stock and/or limited partnership interests, and (b) the
Borrower's initial investment in any such company or
partnership shall not exceed five percent (5%) of the
Borrower's Net Worth at the time of such investment (based on
the most recent financial statements of the Borrower delivered
to the Administrative Agent and each Lender pursuant to clause
(i) or (ii) of Section 5.1(a));
(ix) loans or advances to, or investments in,
Subsidiaries or Affiliates of the Borrower; provided that the
aggregate amount of loans or advances made during any calendar
quarter (reduced by any loans or advances repaid by
Subsidiaries or Affiliates of the Borrower during such
quarter) and investments made during such calendar quarter
shall not exceed an amount equal to the amount of restricted
payments permitted to be made during such current calendar
quarter under Section 5.2(j) (based on financial results as of
the end of the prior calendar quarter as described in Section
5.2(j)) after giving effect to any such restricted payments
made in respect of such calendar quarter; provided that no
such loans, advances or investments made in respect of any
calendar quarter shall be made prior to the delivery of
financial statements to the Administrative Agent and each
Lender in respect of such calendar quarter as provided in
Section 5.2(j);
(x) investments by the Borrower to purchase
Eligible Mortgage Loans, Direct Servicing Rights or Specialty
Mortgage Products in the ordinary course of its business
(subject to the limitations set forth in subsection (vi)
above);
(xi) advances constituting Eligible Mortgage
Loans, Specialty Mortgage Products or mortgage servicing
advances made in the ordinary course of the Borrower's
business; and
(xii) other investments made in the ordinary
course of Borrower's business, in an aggregate principal
amount outstanding at any time not to exceed $1,000,000.
-68-
<PAGE> 77
(f) Indebtedness. Create, incur, assume or suffer to
exist, or otherwise become or be liable in respect of any Indebtedness other
than:
(i) Indebtedness in respect of the Obligations
and the Borrower's obligations under the Servicing Credit
Agreement and the documents related thereto;
(ii) Indebtedness incurred to finance the
acquisition of fixed or capital assets (whether pursuant to a
loan, a Financing Lease or otherwise) in an aggregate
principal amount outstanding not to exceed $500,000 at any
time;
(iii) trade liabilities and accrued expenses
incurred in the ordinary course of business and payable in
accordance with customary practices;
(iv) guaranties resulting from endorsement of
negotiable instruments for collection in the ordinary course
of business;
(v) Indebtedness resulting from gestation
repurchase agreements for the repurchase of non-Agency
mortgage-backed securities supported by Eligible Jumbo
Mortgage Loans;
(vi) Indebtedness incurred in connection with
the financing of Specialty Mortgage Products; provided that
(a) the aggregate amount of such Indebtedness outstanding at
any time shall not exceed $45,000,000, (b) the Lenders shall
have a right of first refusal (but shall have no obligation)
to provide such financing to the Borrower on competitive terms
pursuant to a supplement to this Agreement and the other Loan
Documents, and (c) if the Lenders do not provide such
financing, (A) the Collateral Agent shall act as the
collateral agent for the other lender(s) providing such
financing and such Specialty Mortgage Products shall be
pledged to and held by the Collateral Agent for the benefit of
such other lender(s), and (B) such Indebtedness shall be
either (A) non-recourse to the Borrower, or (B) subject to the
terms of an intercreditor and subordination agreement in form
and substance satisfactory to the Administrative Agent in the
exercise of its sole discretion;
(vii) Indebtedness provided by PWRES to the
Borrower for the purpose of (a) originating or acquiring
Mortgage Loans (subject to the limitation set forth in clause
(vi) above) (i) to be simultaneously sold to PWRES or (ii) to
be held not more than five (5) Business Days by the Borrower
before being sold to HTP Financial or PWRES, which Mortgage
Loans are in either case financed by PWRES under the PWRES
Financing Agreements or (b) financing principal and interest,
or taxes, insurance and expense advances under the HTP
Financing Agreements; provided that in each case such
Indebtedness shall be subject to the terms of the
intercreditor agreement in form and substance satisfactory to
the Administrative Agent in the exercise of its reasonable
discretion;
-69-
<PAGE> 78
(viii) Indebtedness arising under short-term
arbitrage lines of credit with any of Chemical Bank, First
Bank National Association, Colorado National Bank or any
Lender, each borrowing under which is secured solely by
certificates of deposit issued by such lender thereunder,
A-1/P-1 commercial paper and/or marketable direct obligations
issued or guaranteed by the United States government or any
agency thereof and backed by the full faith and credit of the
United States, in each case substantially matching such
borrowings in dollar amount and maturity;
(ix) Indebtedness incurred as of July 31, 1995
and described on Exhibit O attached hereto;
(x) Indebtedness held by Harbourton Financial
Services or Harbourton Holdings, L.P. subordinated to the
Obligations in the manner and to the extent reasonably
required by the Required Lenders pursuant to written
subordination agreements satisfactory in form and substance to
the Required Lenders (which subordination agreement shall
provide, among other things, that such subordinated
Indebtedness shall be short-term, unsecured, on market terms
and at market rates, used for working capital purposes, and
that after the occurrence of Potential Default or an Event of
Default, no payments of interest or principal shall be payable
with respect thereto) which Indebtedness shall not at any time
exceed an aggregate principal amount of $15,000,000;
(xi) any Indebtedness which has been
reclassified as Indebtedness, which, at the time of the
creation of such Indebtedness, had been reasonably classified
in accordance with GAAP as a sale or transfer of defaulted FHA
or VA Mortgage Loans on a servicing retained basis to any
other Person;
(xii) Indebtedness consisting of the portion of
the purchase price for mortgage servicing rights purchased by
the Borrower that is deferred in order to secure the
indemnification obligations of the seller of such servicing
rights;
(xiii) Indebtedness consisting of reserves for
foreclosure losses incurred in the ordinary course of business
and other reserves established in accordance with GAAP in the
ordinary course of business; and
(xiv) renewals, extensions, replacements
refinancings or refundings of any of the foregoing.
(g) Liens. Create, incur, assume or suffer to exist, any
Lien upon its assets now owned or hereafter acquired other than:
(i) Liens for taxes not yet due and payable
or that are being contested in good faith by appropriate
proceedings; provided that adequate reserves with respect
thereto are maintained on the Borrower's books in conformity
with GAAP;
-70-
<PAGE> 79
(ii) carriers', warehousemen's, mechanics',
materialmen's, repairmen's or other similar Liens arising in
the ordinary course of business, which are not overdue for a
period of more than sixty (60) days or which are being
contested by the Borrower in good faith by appropriate
proceedings;
(iii) pledges or deposits in connection with
workers' compensation, unemployment insurance and other social
security legislation;
(iv) deposits to secure the performance of bids,
trade contracts (other than for borrowed money), leases,
statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a similar nature incurred in
the ordinary course of business;
(v) easements, rights-of-way, restrictions and
other similar encumbrances incurred in the ordinary course of
business that, in the aggregate, are not significant and that
do not in any case materially detract from the value of the
property (other than REO Property) subject thereto or
materially interfere with the ordinary conduct of business;
(vi) Liens securing Indebtedness permitted by
Section 5.2(f)(ii) incurred to finance the acquisition of
fixed or capital assets; provided that (A) such Liens shall be
created substantially simultaneously with the acquisition of
such fixed or capital assets, (B) such Liens shall not at any
time encumber any property other than the property financed by
such Indebtedness, (C) the amount of Indebtedness secured
thereby shall not increase and (D) the principal amount of
Indebtedness secured by any such Lien shall at no time exceed
the original purchase price of such property at the time it
was acquired;
(vii) Liens in favor of the Warehouse Collateral
Agent or the Servicing Collateral Agent, for the benefit of
the Secured Parties, created pursuant to the Loan Documents
and the Servicing Credit Agreement;
(viii) Liens on mortgages or deeds of trust
securing Mortgage Loans in favor of any Approved Investor
created pursuant to a mortgage servicing agreement;
(ix) Liens securing Indebtedness permitted
under Section 5.2(f)(v),(vi),(vii),(viii) or (xi); provided
that such Liens shall not at any time encumber any property
other than property financed by such Indebtedness; and
(x) any extension, renewal, or replacement
(or successive extensions, renewals or replacements) in whole
or in part, of any of the foregoing; provided that (A) the
Lien shall be limited to all or a part of the property
securing the Lien extended, renewed, or replaced, and (B) the
indebtedness secured thereby shall not increase.
-71-
<PAGE> 80
(h) Mergers, Sales or Consolidations.
(i) Merge into or consolidate with any other
Person or sell, lease or otherwise dispose of any of its
property or assets (other than obsolete or worn-out property)
to any other Person, except as permitted or required under the
Loan Documents.
(ii) Subject to the provisions, restrictions and
limitations set forth in the Loan Documents, (A) the Borrower
may sell Mortgage Loans (on a servicing released or servicing
retained basis), mortgage backed securities, Mortgage
Servicing Rights Held for Sale and Excluded Servicing Rights
in the ordinary course of business and (B) unless a Potential
Default or an Event of Default has occurred and is continuing
or a Potential Default or an Event of Default is reasonably
likely to occur as a result of any of the following, the
Secured Parties hereby agree to release their lien on any
Non-Borrowing Base Collateral immediately and automatically
upon the Borrower's sale, granting of a security interest,
pledge, hypothecation, or other disposition of such Collateral
to any other Person. The provisions of this Section shall be
automatic and self-operative to release the lien of the
Secured Parties on any Non-Borrowing Base Collateral without
any further documentation so long as no Potential Default or
Event of Default has occurred and is continuing or is
reasonably likely to result from such sale, grant, pledge,
hypothecation or other disposition; provided, however, that at
the request of the Borrower or any purchaser or grantee of a
security interest in any Non-Borrowing Base Collateral, the
Collateral Agent and the Administrative Agent shall each, at
the Borrower's sole cost and expense, provide such letters of
release or confirmation, in form and substance reasonably
satisfactory to the Administrative Agent, as may be necessary
in order to confirm the release of such Non-Borrowing Base
Collateral. Nothing contained in this Section shall permit the
Borrower to incur any Indebtedness or grant any Liens not
otherwise permitted pursuant to the Loan Documents. Unless a
Potential Default or an Event of Default has occurred and is
continuing, the Secured Parties agree that, notwithstanding
anything contained in this Agreement or any other Loan
Document to the contrary, the Borrower shall not be required
to deliver possession of Mortgage Loans in the Non-Borrowing
Base Collateral to the Warehouse Collateral Agent.
(i) Acquisitions. Purchase, acquire or incur liability for
the purchase or acquisition of all or substantially all of the assets or
business of any Person, except for the acquisition of Prime Credit Businesses
and as otherwise permitted or required under the Loan Documents.
(j) Restricted Payments. During any calendar quarter, make
or pay any distribution or return on capital or dividend equivalent to any of
its partners, or make any payment on account of, or set apart assets for a
sinking or other analogous fund for, the repurchase, retirement, redemption or
other acquisition of any of its partnership interests from
-72-
<PAGE> 81
any of its partners, whether in cash, property or obligations, other than (i)
such distributions and payments in an aggregate amount not to exceed the
Estimated Tax Amount for the prior quarter, and (ii) other such distributions
and payments in an aggregate amount which, when added to the aggregate amount of
all other distributions and payments made or paid pursuant to this clause (ii)
during the twelve (12) month period ending on the last day of such prior quarter
and the aggregate amount of all loans or advances made during such twelve (12)
month period (less any loans or advances repaid during such twelve month
period), and investments made during such twelve (12) month period to
Subsidiaries or Affiliates of the Borrower permitted under Section 5.2(e)(ix),
shall not exceed an amount equal to twenty-seven and one-half percent (27.5%) of
the Net Income of the Borrower for such twelve (12) month period ending with
such prior quarter; provided that no action permitted by this Section 5.2(j)
shall be taken by the Borrower in respect of any calendar quarter until delivery
of the financial statements of the Borrower described in Section 5.1(a)(i) or
(ii), as applicable, to the Administrative Agent and the Lenders in respect of
such calendar quarter.
(k) Transactions With Affiliates. Enter into any
transaction (which is not otherwise permitted under the Loan Documents),
including the purchase, sale, lease or exchange of any property, the making or
borrowing of any loan or the rendering of any service, with any Affiliate on
terms that are generally less favorable to it than those that might be obtained
at the time from Persons who are not Affiliates.
(l) Conduct of Business. Engage in any type of business
that is not substantially similar to its business as conducted as of the Closing
Date.
(m) Negative Pledge. Grant a security interest in or Lien
upon, or provide a negative pledge with respect to any of its assets, to any
Person, other than as permitted or required by the Loan Documents.
(n) ERISA. Permit any of its ERISA Affiliates, directly
or indirectly, to:
(i) Terminate or withdraw from any Plan so as
to result in any material liability to the PBGC;
(ii) Engage in or permit any Person to engage in
any Prohibited Transaction involving any Plan that would
subject such Borrower or any of its ERISA Affiliates to any
material tax, penalty or other liability;
(iii) Incur or suffer to exist any material
Accumulated Funding Deficiency involving any Plan;
(iv) Amend any Plan so as to require the posting
of security under section 401(a)(29) of the Code;
(v) Fail to make payments required under
section 412(m) of the Code and section 302(e) of ERISA that
would subject such Borrower or any of its ERISA Affiliates to
any material tax, penalty or other liability; or
-73-
<PAGE> 82
(vi) Allow or suffer to exist any event or
condition that presents a risk of incurring material liability
to the PBGC.
(o) Effectiveness of Take-Out Commitments. Amend, void,
reduce, modify, violate, terminate or commit any act that would in any way
affect its Take-Out Commitments heretofore approved by the Administrative Agent
and related to any Mortgage Loans or Agency MBS pledged to the Warehouse
Collateral Agent for the benefit of the Secured Parties as Warehouse Collateral
under the Warehouse Security Agreement, or impair coverage under such Take-Out
Commitment for any such Mortgage Loans or Agency MBS unless, either (i) such
amendment, voiding, reduction, modification or act would not result in a
Material Adverse Effect, or (ii) such Take-Out Commitment is replaced by another
Take-Out Commitment with respect to the affected Mortgage Loans or Agency MBS.
(p) VA Guaranties, FHA Insurance and Private Mortgage
Insurance. Commit, directly or indirectly, any act that would invalidate any VA
guarantee, FHA insurance or private mortgage insurance relating to any Mortgage
Loan pledged to the Warehouse Collateral Agent, for the benefit of the Secured
Parties, as Warehouse Collateral under the Warehouse Security Agreement.
(q) Recourse Servicing. Permit the aggregate unpaid
principal amount of Mortgage Loans included in the Servicing Portfolio for which
the Borrower has Recourse Direct Servicing Rights to exceed one percent (1%) of
the aggregate unpaid principal amount of all Mortgage Loans included in the
Servicing Portfolio.
(r) HTP Financial Documents. Enter into, amend, modify or
supplement any of the HTP Financial Documents or permit PWRES to assign (other
than for collateral purposes with respect to the PWRES Financing Agreements) any
of its rights or obligations thereunder without the prior written consent of the
Administrative Agent which consent shall not be unreasonably withheld provided
such document, amendment, modification, supplement or assignment does not
materially increase the liabilities or materially reduce benefits to the
Borrower in relation to the liabilities and benefits contemplated by the term
sheet referenced in the definition of HTP Financial; provided, however, that the
Borrower shall promptly deliver true, correct and complete copies of all such
documents, amendments, modifications and supplements to the Administrative Agent
promptly after the execution thereof.
ARTICLE VI
EVENTS OF DEFAULT
Section 6.1 Events of Default.
If one or more of the following events (each an "Event of
Default") shall have occurred and be continuing:
(a) Payments. The Borrower shall fail to pay when due
(whether at
-74-
<PAGE> 83
scheduled maturity, upon mandatory repayment or otherwise) any principal of or
interest on any Note or the Swing-Line Note or any of its other Obligations;
(b) Covenants With No Grace Period. The Borrower shall
fail to observe or perform any of its covenants or agreements contained in the
Warehouse Security Agreement or in Section 5.1(c)(i), 5.1(d), 5.1(e) or 5.1(f)
or Section 5.2;
(c) Covenants With Five Day Grace Period. The Borrower
shall fail to observe or perform any covenant or agreement contained in Section
5.1(a)(v), (vii), (ix), (x), (xi) or (xii), or Section 5.1(b), 5.1(g), 5.1(h),
5.1(i) or 5.1(j) and, if capable of being remedied, any such failure shall
remain unremedied for five (5) days after the earlier of (i) the Borrower's
obtaining actual knowledge thereof or (ii) notice thereof shall have been given
to the Borrower by any Lender or the Administrative Agent (provided that the
foregoing shall in no case be construed as a waiver of or consent to any
Potential Default enumerated in this subsection (c) (or any Event of Default
resulting therefrom) related to any such failure that is not capable of being
remedied);
(d) Covenants With Thirty Day Grace Period. The Borrower
shall fail to observe or perform any covenant or agreement contained in any Loan
Document, other than those referred to in Section 6.1(a), (b) or (c) and, if
capable of being remedied, such failure shall remain unremedied for thirty (30)
days after the earlier of (i) the Borrower's obtaining actual knowledge thereof
or (ii) notice thereof shall have been given to the Borrower by any Lender or
the Administrative Agent (provided that the foregoing shall in no case be
construed as a waiver of or consent to any Potential Default enumerated in the
subsection (d) (or any Event of Default resulting therefrom) related to any such
failure that is not capable of being remedied);
(e) Representations. Any representation, warranty or
statement made or deemed to be made by the Borrower or either of the Guarantors
under or in connection with any Loan Document, shall have been inaccurate,
incomplete or incorrect in any material respect when made or deemed to be made;
(f) Non-Payment of Other Indebtedness. The Borrower or
either of the Guarantors shall fail to make any payment of principal of or
interest on any of its Indebtedness (other than Indebtedness under this
Agreement or the Servicing Credit Agreement) exceeding $1,000,000 in the
aggregate when due (whether at stated maturity, by acceleration, on demand or
otherwise) after giving effect to any applicable grace period;
(g) Cross-Default to Servicing Credit Agreement. An
"Event of Default" shall have occurred and be continuing under the Servicing
Credit Agreement;
(h) Cross-Default to Other Agreements. The Borrower or
either of the Guarantors shall fail to observe or perform any covenant or
agreement contained in any agreement or instrument relating to any of its
Indebtedness (other than Indebtedness under this Agreement or the Servicing
Credit Agreement) in excess of $1,000,000 in the aggregate within any applicable
grace period, or any other event shall occur, such that the effect of such
failure or other event is to accelerate, or to permit the holder of such
Indebtedness or any other Person to
-75-
<PAGE> 84
accelerate, the maturity of such Indebtedness;
(i) Bankruptcy or Insolvency. The Borrower or either of
the Guarantors or any of their respective General Partners shall commence a
voluntary case concerning itself under Title 11 of the United States Code
entitled "Bankruptcy" as now or hereafter in effect, or any successor thereto
(the "Bankruptcy Code"); or any involuntary case is commenced against it and the
petition is not dismissed within sixty (60) days after commencement of the case;
or a custodian (as defined in the Bankruptcy Code) is appointed for, or takes
charge of, all or any substantial part of its property; or it commences any
other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law or
there is commenced against it any such proceeding that remains undismissed for a
period of sixty (60) days; or it is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding is entered;
or it shall fail to pay, or shall state that it is unable to pay, or shall be
unable to pay its debts generally as they become due; or it shall call a meeting
of its creditors with a view to arranging a composition or adjustment of its
debts; or it shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate or
partnership action is taken by it for the purpose of effecting any of the
foregoing;
(j) Money Judgment. A judgment or order for the payment of
money not covered by insurance in excess of $1,000,000 shall be rendered against
the Borrower or either of the Guarantors and such judgment or order shall
continue unsatisfied (in the case of a money judgment) and in effect for a
period of thirty (30) days during which execution shall not be effectively
stayed or deferred (whether by action of a court, by agreement or otherwise);
(k) ERISA. (i) Any Reportable Event or a Prohibited
Transaction shall occur with respect to any Plan; (ii) a notice of intent to
terminate a Plan under section 4041 of ERISA shall be filed; (iii) a notice
shall be received by the plan administrator of a Plan that the PBGC has
instituted proceedings to terminate a Plan or appoint a trustee to administer a
Plan; (iv) any other event or condition shall exist that might, in the opinion
of the Required Lenders, constitute grounds under section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Plan; (v) the
Borrower or any of its ERISA Affiliates shall withdraw from a Multiemployer Plan
under circumstances that the Required Lenders determine could have a Material
Adverse Effect; and in case of the occurrence of any event or condition
described in clauses (i) through (iv) above, such event or condition together
with all other such events or conditions, if any, could subject the Borrower to
any tax, penalty or other liabilities which in the aggregate could have a
Material Adverse Effect;
(l) Loan Documents. The Warehouse Security Agreement or
either of the Guaranties shall cease to be in full force and effect; any action
shall be taken by the Borrower or either of the Guarantors to terminate, revoke
or discontinue, or to assert the invalidity or unenforceability of any such Loan
Document to which it is party; or the Borrower or either of the Guarantors shall
deny it has any further liability under any such Loan Document to which it is
party; or either of the Guarantors shall fail to perform any of its obligations
under its respective Guaranty;
-76-
<PAGE> 85
(m) Security Interest. The Secured Parties shall cease
for any reason (other than as expressly permitted under the Loan Documents) to
have a valid, perfected and first priority security interest in the Warehouse
Collateral or the Pledge Collateral; or the Borrower, either of the Guarantors
or any other Person shall take any action to contest or assert the
unenforceability of any such security interest;
(n) Dissolution. The Borrower or Harbourton Financial
Services shall be dissolved, or Western Sunrise shall be dissolved without the
Borrower having taken all action reasonably required by the Administrative Agent
to protect and preserve the Secured Parties' lien on all limited partnership
interests in the Borrower previously held by Western Sunrise (as defined in the
Guaranty (Western Sunrise)) or any of their respective General Partners shall
dissolve or commence dissolution proceedings;
(o) Material Adverse Effect. Any event or development
(whether or not of a nature or character similar to those previously enumerated)
shall occur that could reasonably be expected to have a Material Adverse Effect;
or
(p) Change of Control. A Change of Control shall occur;
THEN, the Administrative Agent may, with the consent of the Required Lenders, or
shall, upon the written request of the Required Lenders, by written notice to
the Borrower, take any or all of the following actions: (i) declare the
Commitments and the Swing-Line Commitment terminated, whereupon the Commitment
of each Lender and the Swing-Line Commitment of the Swing-Line Lender shall
terminate immediately without any other notice of any kind; and (ii) declare the
principal of and any accrued interest on the Loans, and all other Obligations,
to be, whereupon the same shall become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; provided that, if an Event of Default specified
in Section 6.1(i) shall occur, the Commitments and the Swing-Line Commitment
shall terminate and all Obligations shall become immediately due and payable
automatically without the giving of any such notice and without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrower.
ARTICLE VII
THE AGENTS
Section 7.1 Appointment of the Agents.
Each Lender hereby designates Chemical Bank as Administrative
Agent and First Bank National Association as Co-Agent, in each case to act as
herein specified, and Chemical Bank and First Bank National Association each
agrees to act in such respective capacity. Each Lender hereby irrevocably
authorizes, and each holder of any Note by the acceptance of a Note shall be
deemed irrevocably to authorize, the Administrative Agent and the Co-Agent to
take such action on its behalf under the provisions of this Agreement and the
other Loan Documents and any other instruments and agreements referred to herein
or therein and to exercise such
-77-
<PAGE> 86
powers and to perform such duties hereunder or thereunder as are specifically
delegated to or required of the Administrative Agent and the Co-Agent,
respectively, by the terms hereof and thereof and such other powers as are
reasonably incidental thereto. Each of the Agents may perform any of its duties
hereunder or thereunder by or through its agents or employees.
Section 7.2 Nature of Duties of the Agents.
Neither of the Agents shall have any duties or
responsibilities except those expressly set forth in this Agreement and the
other Loan Documents to which it is a party. Neither of the Agents nor any of
their respective officers, directors, employees or agents shall be liable for
any action taken or omitted hereunder or thereunder or in connection herewith or
therewith, unless caused by its or their gross negligence or willful misconduct.
The duties of the Agents shall be mechanical and administrative in nature;
neither of the Agents shall have by reason of this Agreement or any other Loan
Document a fiduciary relationship in respect of any Lender; and nothing in this
Agreement or any other Loan Document, express or implied, is intended to or
shall be so construed as to impose upon either of the Agents any obligations in
respect of this Agreement or any other Loan Document except as expressly set
forth herein or therein.
Section 7.3 Lack of Reliance on the Agents.
(a) Lenders' Independent Investigations. Independently and
without reliance upon either of the Agents, each Lender, to the extent it deems
appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Borrower and the
Guarantors in connection with the taking or not taking of any action in
connection herewith and (ii) its own appraisal of the creditworthiness of the
Borrower and the Guarantors and, except as expressly provided in this Agreement,
neither of the Agents shall have any duty or responsibility, either initially or
on a continuing basis, to provide any Lender with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter.
(b) Lack of Reliance. Neither of the Agents shall be
responsible to any Lender for any recitals, statements, information,
representations or warranties herein or in any document, certificate or other
writing delivered in connection with this Agreement or any other Loan Document
or for the execution, effectiveness, genuineness, validity, enforceability,
collectibility, priority or sufficiency of this Agreement or any other Loan
Document or for the sufficiency of the Warehouse Collateral or the Pledge
Collateral or the validity, perfection or priority of any security interest
therein or the financial condition of the Borrower or the Guarantors or be
required to make any inquiry concerning either the performance or observance of
any of the terms, provisions or conditions of this Agreement or any other Loan
Document, or the financial condition of the Borrower or the Guarantors, or the
existence or possible existence of any Potential Default or Event of Default.
(c) Knowledge of Default. Neither of the Agents shall be
deemed to have knowledge or notice of the occurrence of any Potential Default or
Event of Default unless it has received notice from the other Agent, a Lender,
the Borrower, the Warehouse Collateral Agent or
-78-
<PAGE> 87
the Servicing Collateral Agent referring to the Loan Documents, describing such
Potential Default or Event of Default, and stating that such notice is a "Notice
of Default". In the event either Agent receives such a notice, it shall give
notice thereof to the other Agent, the Lenders, the Borrower, the Warehouse
Collateral Agent and the Servicing Collateral Agent.
Section 7.4 Certain Rights of the Agents.
If either of the Agents shall request instructions (whether or
not in writing) from the Lenders with respect to any act or action (including
the failure to act) in connection with this Agreement or any other Loan
Document, such Agent shall be entitled to refrain from such act or taking such
action unless and until such Agent shall have received instructions from the
Required Lenders, and such Agent shall not incur liability to any Lender by
reason of so refraining. Without limiting the foregoing, no Lender shall have
any right of action whatsoever against either of the Agents as a result of such
Agent's acting or refraining from acting hereunder or under any other Loan
Document in accordance with the instructions of the Required Lenders. The
provisions of this Section 7.4 are not intended to supersede the provisions of
Section 8.2 that require all of the Lenders to approve certain actions under the
Loan Documents.
Section 7.5 Reliance by the Agents.
Each of the Agents shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other documentary or teletransmission message believed by it
to be genuine and correct and to have been signed, sent or made by the proper
Person. Each of the Agents may consult with legal counsel (including counsel for
the Borrower), independent public accountants (including those retained by the
Borrower, subject to the provisions set forth in Section 5.1(e)) and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
Section 7.6 Indemnification of the Agents.
To the extent either of the Agents is not reimbursed and
indemnified by the Borrower, each Lender will reimburse and indemnify such
Agent, in proportion to its respective Commitment (before giving effect to any
termination of the Commitments pursuant to the terms of this Agreement), for and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including reasonable counsel fees
and disbursements) or disbursements of any kind or nature whatsoever that may be
imposed on, incurred by or asserted against such Agent in performing its duties
hereunder and under the other Loan Documents, in any way relating to or arising
out of this Agreement or the other Loan Documents; provided that no Lender shall
be liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from such Agent's gross negligence or willful misconduct.
Section 7.7 The Agents in Their Individual Capacities.
-79-
<PAGE> 88
With respect to its obligation to lend under this Agreement,
the Loans made by it and the Notes issued to it, each of the Agents shall have
the same rights and powers hereunder as any other Lender or holder of a Note and
may exercise the same as though it were not performing the duties specified
herein; and the terms "Lenders," "Required Lenders," "holders of Notes," or any
similar terms shall, unless the context clearly otherwise indicates, include
each of the Agents in its individual capacity. Each of the Agents may accept
deposits from, lend money to, and generally engage in any kind of banking,
trust, financial advisory or other business with the Borrower and any Affiliate
of the Borrower as if such Agent were not performing the duties specified
herein, and may accept fees and other consideration from the Borrower and any
Affiliate of the Borrower for services in connection with this Agreement and the
other Loan Documents and otherwise without having to account for the same to the
Lenders.
Section 7.8 Holders of Notes.
Each of the Agents may deem and treat the payee of any Note as
the owner thereof for all purposes hereof unless and until a written notice of
the assignment or transfer thereof shall have been filed with the Administrative
Agent. Any request, authority or consent of any Person who, at the time of
making such request or giving such authority or consent, is the holder of any
Note shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Note or of any Note or notes issued in exchange therefor.
Section 7.9 Successor Agents.
(a) Resignation of Agents; Appointment of Successor.
Either of the Agents may resign as Administrative Agent or Co-Agent hereunder,
as applicable, at any time by giving written notice thereof to the Lenders and
the Borrower provided that the applicable agent also resigns in such capacity
under the Servicing Credit Agreement. Upon any such resignation, the Required
Lenders, in consultation with and with the consent (which shall not be
unreasonably withheld or delayed) of the Borrower, shall appoint a successor
Administrative Agent or Co-Agent, as applicable, to act in such capacity under
both this Agreement and the Servicing Credit Agreement, which shall be a Lender.
If no successor Administrative Agent or Co-Agent, as applicable, shall have been
so appointed, and shall have accepted such appointment, within thirty (30) days
after the retiring Administrative Agent's or Co-Agent's giving of notice of
resignation, then the retiring Administrative Agent or Co-Agent, as applicable,
may, on behalf of the Lenders, in consultation with and with the consent (which
shall not be unreasonably withheld or delayed) of the Borrower, appoint a
successor Administrative Agent or Co-Agent, as applicable, to act in such
capacity under both this Agreement and the Servicing Credit Agreement, which
shall be a bank that maintains an office in the United States, or a commercial
bank organized under the laws of the United States of America or of any State
thereof, or any Affiliate of such bank, having a combined capital and surplus of
at least $250,000,000; provided that any successor Administrative Agent or
Co-Agent, as applicable, appointed pursuant to this sentence may be removed by
the Required Lenders at any time with or without cause as long as such agent is
also removed in such capacity under the Servicing Credit Agreement.
(b) Effectiveness of Successor Appointment. Any
resignation of either of
-80-
<PAGE> 89
the Agents hereunder shall be effective only upon the acceptance of any
appointment as Administrative Agent or Co-Agent, as applicable, hereunder and
under the Servicing Credit Agreement by a successor Administrative Agent or
Co-Agent. Upon such acceptance, such successor Administrative Agent or Co-Agent,
as applicable, shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent or Co-Agent, and the
retiring Administrative Agent or Co-Agent shall be discharged from its duties
and obligations under this Agreement and the other Loan Documents after the date
of such acceptance. After any retiring Administrative Agent's or Co-Agent's
resignation as Administrative Agent or Co-Agent, as applicable, the provisions
of this Article VII shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Agent or Co-Agent under
this Agreement.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1 Notices.
Except as otherwise expressly set forth herein, all notices,
requests and other communications to any party hereto shall be in writing
(including telecopy or similar teletransmission or writing) and shall be given
to such party at its address or telecopy number set forth on Exhibit K or such
other address or telecopy number as such party may hereafter specify by notice
to the Administrative Agent and the Borrower. Each such notice, request or other
communication shall be effective (a) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified herein and the receipt thereof is
confirmed by the recipient, (b) if given by mail, five (5) Business Days after
such communication is deposited in the U.S. mails with certified or registered
postage prepaid, addressed as aforesaid, or (c) if given by any other means
(including by air courier), when delivered at the address specified in this
Section 8.1; provided that notices to the Administrative Agent pursuant to
Article II shall not be effective until received.
Section 8.2 Amendments; Waivers.
No amendment or waiver of any provision of any Loan Document,
nor consent to any departure by the Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Borrower and the
Required Lenders, and then such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given;
provided that: (a) no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders do any of the following: (i) amend or waive any of the
conditions specified in Article III, (ii) amend Section 4.10, Section 6.1(a) or
the proviso to the first sentence of each of subsections (a) and (b) of Section
2.1, (iii) increase the Commitments of the Lenders or the Swing-Line Commitment
of the Swing-Line Lender or subject the Lenders to any additional obligations,
(iv) reduce the principal of, or interest on, the Notes or any Fees hereunder,
(v) postpone any date fixed for any payment in respect of principal of, or
interest on,
-81-
<PAGE> 90
the Notes or any Fees hereunder, or waive any Event of Default under Section
6.1(a), (vi) change the percentage of the Commitments or of the aggregate unpaid
principal amount of the Notes, or the number or identity of Lenders, which shall
be required for the Lenders or any of them to take any action hereunder, (vii)
release the Lien of the Secured Parties on any of the Warehouse Collateral or
the Pledge Collateral, except as provided in the Warehouse Security Agreement or
other applicable Loan Document, (viii) amend this Section 8.2 or Section 8.6,
(ix) amend, waive or modify any of the provisions contained in the definitions
of "Collateral Value of the Tranche A Borrowing Base," "Tranche A Borrowing
Base," "Collateral Value of the Tranche B Borrowing Base," "Tranche B Borrowing
Base," "Eligible Conforming Mortgage Loan," "Eligible Jumbo Mortgage Loan,"
"Eligible Agency MBS," "Eligible Mortgage Loan," "Eligible Non-Conforming
Mortgage Loan," "Eligible Non-Jumbo Mortgage Loan," "Eligible Gestation Mortgage
Loan," "Mortgage Loan" or "Agency MBS"; (b) no amendment, waiver or consent
shall, unless in writing and signed by the Administrative Agent, affect the
rights or duties of the Administrative Agent under this Agreement or any other
Loan Document; (c) no amendment, waiver or consent shall, unless in writing and
signed by the Co-Agent, affect the rights or duties of the Co-Agent under this
Agreement or any other Loan Document; and (d) no amendment, waiver or consent
shall, unless in writing and signed by the Swing-Line Lender, amend, waive or
modify Section 2.1(c), 2.3(b) or Section 2.5(d), (e) or (f) or otherwise affect
the rights or obligations of the Swing-Line Lender with respect to Swing-Line
Loans.
Section 8.3 No Waiver; Remedies Cumulative.
No failure or delay on the part of the Administrative Agent or
any Lender in exercising any right or remedy hereunder or under any other Loan
Document and no course of dealing between the Borrower or the Guarantors and the
Administrative Agent or any Lender shall operate as a waiver thereof, nor shall
any single or partial exercise of any right or remedy hereunder or under any
other Loan Document preclude any other or further exercise thereof or the
exercise of any other right or remedy hereunder or thereunder. The rights and
remedies expressly provided herein and in the other Loan Documents are
cumulative and not exclusive of any rights or remedies that the Administrative
Agent or any Lender would otherwise have. No notice to or demand on the Borrower
or either of the Guarantors not required hereunder or under the other Loan
Documents in any case shall entitle the Borrower or either Guarantor to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Administrative Agent or any Lender to
any other or further action in any circumstances without notice or demand.
Section 8.4 Payment of Expenses, Etc.
The Borrower agrees to:
(a) Out-of-Pocket Costs. (i) Pay all reasonable out-of-
pocket costs and expenses of the Administrative Agent incurred, both before and
after the execution hereof, in obtaining advice of counsel as to the rights and
duties of the Administrative Agent and the Lenders with respect to the
administration of, and in connection with the preparation, execution and
delivery of, this Agreement and the other Loan Documents, and (ii) pay all
reasonable out-
-82-
<PAGE> 91
of-pocket costs and expenses of the Administrative Agent and each Lender in the
preservation of rights under, enforcement of, and, after the occurrence of a
Potential Default or an Event of Default, refinancing, renegotiation or
restructuring of, this Agreement and the other Loan Documents and the documents
and instruments referred to herein and therein including in connection with any
bankruptcy, insolvency, liquidation, reorganization or similar proceeding and
any amendment, waiver or consent relating hereto and thereto (including the
reasonable fees and disbursements of counsel and (allocated costs of internal
counsel) for the Administrative Agent and, in the case of enforcement, for each
of the Lenders);
(b) Stamp and Other Taxes. Pay and hold the Administrative
Agent and each of the Lenders harmless from and against any and all present and
future stamp and other similar taxes with respect to the foregoing matters, and
hold the Administrative Agent and each Lender harmless from and against any and
all liabilities with respect to or resulting from any delay or omission to pay
such taxes; and
(c) Indemnification of Administrative Agent. Indemnify the
Administrative Agent and each Lender, and their respective officers, directors,
employees, representatives and agents from, and hold each of them harmless
against, any and all out-of-pocket costs, losses, liabilities, claims, damages
or expenses actually incurred by any of them (whether or not any of them is
designated a party thereto) arising out of or by reason of any investigation,
litigation or other proceeding related to any actual or proposed use by any of
the Borrower of the proceeds of any of the Loans or entering into and performing
of the Loan Documents, including the reasonable fees and disbursements of
counsel (including allocated costs of internal counsel) incurred in connection
with any such investigation, litigation or other proceeding. The foregoing
indemnification shall apply regardless of whether such costs, losses,
liabilities, claims, damages or expenses are in any way or to any extent caused,
in whole or in part, by any negligent act or omission of any kind by the
Administrative Agent or any Lender; provided that neither the Administrative
Agent nor any Lender shall have the right to be indemnified hereunder for its
own gross negligence or willful misconduct.
If and to the extent that the obligations of the Borrower under this Section 8.4
are unenforceable for any reason, the Borrower hereby agrees to make the maximum
contribution to the payment and satisfaction of such obligations which is
permissible under applicable law.
Section 8.5 Right of Setoff.
Subject to Section 2.15, in addition to and not in limitation
of all rights of offset that any Lender may have under applicable law, each
Lender shall, for so long as any Event of Default shall have occurred and be
continuing and whether or not such Lender has made any demand or the Obligations
have matured, have the right to appropriate and apply to the payment of the
Obligations, all deposits (general or special, time or demand, provisional or
final) then or thereafter held by (other than deposits or other property held by
the Borrower in which the Borrower has no beneficial interest), and other
indebtedness or property then or thereafter owing to the Borrower by, such
Lender, whether or not related to any Loan Document or any transaction
hereunder.
-83-
<PAGE> 92
Section 8.6 Benefit of Agreement; Assignments and Additional
Lenders.
(a) This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto; provided that the Borrower may not assign or transfer any of its
rights or delegate any of its obligations under this Agreement or any of the
other Loan Documents without prior written consent of all of the Lenders.
(b) Subject to the provisions of Section 2.12(c), any
Lender may make, carry or transfer Loans, at, to or for the account of, any of
its branch or agency offices or the office of an Affiliate of such Lender.
(c) So long as a Potential Default or an Event of Default
shall not have occurred and be continuing, the Borrower may at any time propose
that one or more financial institutions (each, an "Applicant Lender") become an
additional Lender hereunder and under the Servicing Credit Agreement.
Simultaneously with the addition of the Applicant Lender as a Lender hereunder,
the Lenders shall sell a portion of each of their loans and commitments under
the Servicing Credit Agreement to the Applicant Lender so that the Applicant
Lender and each other Lender shall have the same proportionate share of Loans
and Commitments hereunder that it has under the Servicing Credit Agreement. The
Borrower shall notify the other parties hereto and the parties to the Servicing
Credit Agreement of the identity of such Applicant Lender, of the proposed
increase in the aggregate Commitments hereunder resulting from the addition of
such Applicant Lender as a Lender hereunder (provided, however that the
aggregate amount of all of the Commitments hereunder shall not exceed
$150,000,000 at any time), and of such Applicant Lender's proposed Commitment
(which must be not less than $16,000,000). Upon the Applicant Lender's addition
as a Lender hereunder, such Applicant Lender shall become a party hereto and a
Lender hereunder, shall be entitled to all rights, benefits and privileges
accorded a Lender hereunder and under the other Loan Documents, and shall be
subject to all obligations of a Lender hereunder and under the other Loan
Documents.
(d) Any Lender (an "Assigning Lender") may at any time and
from time to time propose that a financial institution (an "Assignee Lender")
become a Lender hereunder and under the Servicing Credit Agreement by way of
assignment of all or a portion of such Assigning Lender's Commitment and a
proportionate share of its Loans; provided that (i) such Assigning Lender shall
retain a Commitment in an amount no less than $16,000,000 (or if such Assigning
Lender is an Applicant Lender under Section 8.6 (c) or an Assignee Lender under
this Section 8.6(d), such lesser amount equal to such Applicant Lender's
Commitment or as such Assigning Lender may have been assigned, but in no event
less than $16,000,000) after giving effect to such sale or assignment unless
such sale or assignment has been made to an existing Lender or to an Affiliate
of such Assigning Lender, in which case such Assigning Lender may retain a
Commitment in an amount less than $16,000,000; (ii) such Assigning Lender shall
simultaneously assign the same proportionate share of its Servicing Commitments
and Servicing Loans to such Assignee Lender (it being the intention of the
parties that each Lender shall at all times have the same proportionate share of
Loans and Commitments under this Agreement as it has under the Servicing Credit
Agreement); and (iii) such Assigning Lender or such Assignee
-84-
<PAGE> 93
Lender shall have paid a $2,500 assignment fee to the Administrative Agent. At
such time, such Assigning Lender shall notify the Borrower, the Administrative
Agent and each of the other Lenders of the identity of such Assignee Lender and
of such Assignee Lender's proposed Commitment hereunder (which must be not less
than $16,000,000 unless such Assignee Lender is an existing Lender or an
Affiliate of such Assigning Lender). Upon such Assignee Lender's addition as a
Lender hereunder, such Assignee Lender shall become a party hereto and a Lender
hereunder, shall be entitled to all rights, benefits and privileges accorded a
Lender hereunder and under the other Loan Documents, and shall be subject to all
obligations of a Lender hereunder and under the other Loan Documents; and such
Assigning Lender shall be released from its obligations hereunder and under the
other Loan Documents to the extent such obligations have been assumed by such
Assignee Lender.
(e) The addition of any Applicant Lender or Assignee
Lender as a Lender hereunder shall become effective upon the occurrence of each
of the following events and the events described in Section 8.6(d) of the
Servicing Credit Agreement:
(i) the Borrower and each of the Agents shall
have given their prior written consent to any Applicant Lender and to any
Assignee Lender that is not an existing Lender or an Affiliate of the Assigning
Lender, which consent shall not be unreasonably withheld (it being understood
that no consent of the Borrower or the Agents shall be required for any Assignee
Lender that is an existing Lender or an Affiliate of the Assigning Lender) and
shall be given to the Applicant Lender or the Assigning Lender, as applicable,
not later than the tenth (10th) day following receipt by the Borrower and each
of the Agents of a written request for the inclusion of such Applicant Lender or
Assignee Lender as a Lender; and
(ii) such Applicant Lender, the Borrower and the
Agents or such Assignee Lender, such Assigning Lender and the Agents, as
applicable, shall have mutually agreed on the date (the "Adjustment Date") on
which such Applicant Lender or Assignee Lender, as the case may be, shall become
a Lender hereunder and under the other Loan Documents. On such Adjustment Date:
(A) the Borrower, such Applicant Lender
and the Agents, or such Assignee Lender, such Assigning Lender, the Borrower and
the Agents, as the case may be, shall execute and deliver to each of the other
signatories thereto an Additional Lender Agreement or an Assignment Agreement,
as applicable, and the Borrower shall deliver a copy of such executed Additional
Lender Agreement or Assignment Agreement to each of the Lenders;
(B) the Borrower shall execute and
deliver to such Applicant Lender or Assignee Lender, as applicable, a Note; and
(C) the Administrative Agent shall
deliver to each of the Lenders a Commitment Notice reflecting each Lender's
respective Commitment and the aggregate Commitments of all of the Lenders as of
the Adjustment Date after giving effect to the addition of such Applicant Lender
as a Lender hereunder and under the other Loan Documents or the assignment by
the Assigning Lender to the Assignee Lender, as applicable.
-85-
<PAGE> 94
(f) Each Lender may transfer, grant or assign
participations in all or any part of such Lender's interests and obligations
hereunder pursuant to this Section to another financial institution, provided
that (i) such Lender shall remain a "Lender" for all purposes of this Agreement
and the transferee of such participation shall not constitute a Lender hereunder
and (ii) no participant under any such participation shall have rights to
approve any amendment to or waiver of this Agreement or any other Loan Document
except to the extent such amendment or waiver would (w) extend the final
scheduled maturity of any of the Loans or the Commitments in which such
participant is participating, (x) release any guarantors, (y) reduce the
interest rate (other than as a result of waiving the applicability of any
post-default increases in interest rates) or Fees applicable to any of the Loans
or Commitments or postpone the payment of any thereof or (z) release any
collateral under the Loan Documents. In the case of any such participation, the
participant shall not have any rights under this Agreement or any of the other
Loan Documents (the participant's rights against the granting Lender in respect
of such participation to be those set forth in the agreement with such Lender
creating such participation) and all amounts payable by the borrower under
Section 2.12 shall be determined as if such Lender had not sold such
participation.
(g) Any Lender may furnish any information concerning the
Borrower and its Affiliates in the possession of such Lender from time to time
to Affiliates to such Lender and to assignees and participants (including
prospective assignees and participants) and such assignee and participant shall
keep any such non-public information confidential.
(h) Any Lender may at any time pledge or assign all or any
portion of its rights under this Agreement and the other Loan Documents to any
Federal Reserve Bank without notice to or consent of the Borrower. No such
pledge or assignment shall release the transferor Lender from its obligations
hereunder.
SECTION 8.7 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(A) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER AND UNDER THE NOTES AND THE SWING-LINE NOTE SHALL BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE
OF NEW YORK LOCATED IN NEW YORK COUNTY OR OF THE UNITED STATES OF AMERICA FOR
THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, THE BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS AND, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER
HEREBY IRREVOCABLY AND
-86-
<PAGE> 95
UNCONDITIONALLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF
VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OR MAINTAINING OF ANY SUCH ACTION OR PROCEEDING
IN SUCH RESPECTIVE JURISDICTIONS.
(C) THE BORROWER IRREVOCABLY AND UNCONDITIONALLY CONSENTS
TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION
OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, AT ITS ADDRESS SET FORTH ON EXHIBIT K, SUCH SERVICE TO BECOME
EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.
(D) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE
ADMINISTRATIVE AGENT OR ANY LENDER TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE BORROWER IN ANY OTHER JURISDICTION.
Section 8.8 Counterparts.
This Agreement may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which,
when so executed and delivered, shall be an original, but all of which shall
together constitute one and the same instrument.
Section 8.9 Effectiveness; Survival of Indemnities.
This Agreement shall become effective on the Closing Date. The
obligations of the Borrower under Sections 2.12, 2.13, 2.14, 8.4, and any other
provision of this Agreement and the other Loan Documents providing for
indemnification of the Agents or the Lenders, and of each the Lenders under
Section 7.6 shall survive the termination of this Agreement for any reason
whatsoever and payment of the Notes and the Swing-Line Note.
Section 8.10 Headings Descriptive.
The headings of the several sections and subsections of this
Agreement, and the Table of Contents, are inserted for convenience only and
shall not in any way affect the meaning or construction of any provision of this
Agreement.
Section 8.11 Survival of Representations.
All covenants, agreements, representations and warranties made
herein and in any certificate delivered pursuant hereto shall survive the making
by the Lenders of the Loans and the execution and delivery to the Administrative
Agent for the account of the Lenders of the Notes and the Swing-Line Notes
regardless of any investigation made by the Administrative Agent or the Lenders
and of the Administrative Agent's and the Lenders' access to any information and
-87-
<PAGE> 96
shall continue in full force and effect so long as any Obligation is outstanding
and unpaid.
Section 8.12 Severability.
In case any one or more of the provisions contained in this
Agreement or the Notes and the Swing-Line Note should be invalid, illegal or
unenforceable in any respect in any jurisdiction, the validity, legality and
enforceability of such provisions shall not be affected or impaired in any other
jurisdiction, nor shall the remaining provisions contained herein and therein in
any way be affected or impaired thereby.
Section 8.13 Entire Agreement.
This Agreement and the other Loan Documents constitute the
entire agreement and understanding among the parties hereto and supersede any
and all prior agreements and understandings, oral or written, relating to the
subject matter hereof and thereof.
Section 8.14 Confidentiality.
Each Lender agrees not to disclose, without the prior written
consent of the Borrower, any of the financial information or other information
of the Borrower or any Affiliate of the Borrower designated in writing by the
Borrower as "confidential," and obtained under or in connection with this
Agreement or any of the other Loan Documents. Notwithstanding the foregoing,
each Lender may disclose such information: (a) as is permitted under Section
8.6; (b) as is required by law or by subpoena or similar court order, or by any
governmental, regulatory or supervisory authority or official; (c) to counsel to
such Lender in connection with the transactions contemplated by this Agreement
and the other Loan Documents; (d) to independent auditors and other advisers
retained by such Lender; and (e) to the Administrative Agent or the Collateral
Agent as contemplated by this Agreement and the other Loan Documents. In
addition, unless specifically prohibited by applicable law or court order, each
Lender shall, to the extent practical, notify the Borrower of any subpoena or
similar court order or of any request by any governmental, regulatory or
supervising authority or official (other than any such request in connection
with an examination of the financial condition of such Lender by such authority
or otherwise in the ordinary course of its business) for disclosure of any such
information prior to disclosure of such information so that the Borrower may
seek an appropriate protective order. Notwithstanding the foregoing, the Lenders
shall have no obligation to keep any such information confidential if such
information (i) becomes generally available to the public other than as a result
of the disclosure by any Lender in violation of this Section 8.14, (ii) is
available to any Lender on a non-confidential basis prior to its disclosure to
such Lender by the Borrower or, if applicable, by the Lender from whom such
Lender has purchased its participation or assignment, or (iii) becomes available
to any Lender on a non-confidential basis from a source other than the Borrower
or, if applicable, the Lender from whom such Lender has purchased its
participation or assignment; and any Lender may disclose any such information in
connection with any litigation to which such Lender is party relating to this
Agreement or any of the other Loan Documents.
Section 8.15 PWRES Collateral. The Borrower shall provide the
Administrative
-88-
<PAGE> 97
Agent with reasonable prior notice before the Borrower intends to execute and
deliver the HTP Financial Documents so that the Administrative Agent may
exercise its rights to reasonably approve the same as provided in Section
5.2(r). If the Agent approves the same, the parties shall execute and deliver
amendments to the Warehouse Servicing Agreement and the Servicing Security
Agreement, which amendments shall provide for the exclusion of the PWRES
Collateral (as hereinafter defined) from the Secured Parties' lien on the
Collateral, and which amendments shall be in form and substance reasonably
satisfactory to the Administrative Agent. All costs and fees incurred by
Administrative Agent, including legal fees, in connection with this Section
shall be for the account of the Borrower. As used herein "PWRES Collateral"
shall mean (i) Mortgage Loans originated or acquired by the Borrower and
simultaneously sold to PWRES, and Mortgage Loans originated or acquired by the
Borrower and held not more than five (5) Business Days by the Borrower before
being sold to HTP Financial or PWRES, which Mortgage Loans are in either case
financed by PWRES under the PWRES Financing Agreements, (ii) the Borrower's
retained servicing and subservicing rights relating to the Mortgage Loans sold
to HTP Financial as described in clause (i) above, (iii) receivables resulting
from advances made for principal and interest payments, taxes and insurance
payments, and foreclosure related expenses financed by PWRES under the PWRES
Financing Agreements, (iv) Mortgage Loans sold by the Borrower to PWRES pursuant
to the PWRES gestation repurchase agreements where such sale has been
recharacterized as indebtedness secured by such Mortgage Loans, and (v) all
Proceeds of the foregoing (as such term is defined in the New York Uniform
Commercial Code).
SECTION 8.16 WAIVER OF TRIAL BY JURY. THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (INCLUDING ANY CLAIM
OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION HEREWITH OR THEREWITH).
-89-
<PAGE> 98
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
HARBOURTON MORTGAGE CO., L.P.
By: Harbourton Funding
Corporation
Its: General Partner
By:
----------------------------
Rick W. Skogg
President
Commitment: CHEMICAL BANK, as Administrative Agent
$62,500,000.00 and as a Lender
By:
-----------------------------------
Katherine W. Sheppard
Commitment: FIRST BANK NATIONAL ASSOCIATION,
$62,500,000.00 as Co-Agent and as a Lender
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
S-1
<PAGE> 99
- - - - - - --------------------------------------------------------------------------------
CREDIT AGREEMENT
(Servicing Credit Facility)
Dated as of July 31, 1995
Between
HARBOURTON MORTGAGE CO., L.P.,
CHEMICAL BANK,
as Administrative Agent,
FIRST BANK NATIONAL ASSOCIATION
as Co-Agent,
And
THE LENDERS PARTY HERETO
- - - - - - --------------------------------------------------------------------------------
<PAGE> 100
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Terms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE II AMOUNTS AND TERMS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.1 The Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Tranche A Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(b) Tranche B Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(c) Tranche C Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(d) Tranche D Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.2 Reduction and Termination of Commitments . . . . . . . . . . . . . . . 25
Section 2.3 Method of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(a) Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(b) Telephonic Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(c) Notices to Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(d) Notice of LIBOR Rate Determination . . . . . . . . . . . . . . . . . . 26
(e) Affirmation of Representations . . . . . . . . . . . . . . . . . . . . 26
Section 2.4 Conversions and Continuations . . . . . . . . . . . . . . . . . . . . . 26
(a) Conversions and Continuations . . . . . . . . . . . . . . . . . . . . . 26
(b) Conversions Upon Absence of Notice . . . . . . . . . . . . . . . . . . 27
Section 2.5 Disbursement of Funds . . . . . . . . . . . . . . . . . . . . . . . . 27
(a) Funds Transfers to Pre-Disbursement Account . . . . . . . . . . . . . . 27
(b) Disbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(c) Defaulting Lender; Reimbursement of Administrative Agent . . . . . . . 27
(d) Obligations of Lenders Several and Not Joint . . . . . . . . . . . . . 28
Section 2.6 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.7 Interest and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(a) Fed Funds Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
(b) Alternate Base Rate Loans . . . . . . . . . . . . . . . . . . . . . . 28
(c) LIBOR Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(d) Overdue Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
(e) Interest Accrual and Payment Dates . . . . . . . . . . . . . . . . . . 29
(f) Interest Billing Statements . . . . . . . . . . . . . . . . . . . . . 29
(g) Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(h) Usage Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(i) Administrative Agent's and Arranger's Fee . . . . . . . . . . . . . . . 30
(j) Tranche A Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
(k) Tranche B Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
</TABLE>
i
<PAGE> 101
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(l) Reduced Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . 30
(m) Computations of Interest and Fees . . . . . . . . . . . . . . . . . . . 30
Section 2.8 Payments; Distributions and Applications of Payments . . . . . . . . . 31
(a) Place and Time of Payments . . . . . . . . . . . . . . . . . . . . . . 31
(b) Next Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(c) Notice of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 31
(d) Distributions of Payments to Lenders . . . . . . . . . . . . . . . . . 31
(e) Applications of Payments;
No Potential Default or Event of Default . . . . . . . . . . . 32
(f) Applications of Payments;
Potential Default or Event of Default . . . . . . . . . . . . . 32
(g) Applications of Payments; Maturity of Loans . . . . . . . . . . . . . 33
Section 2.9 Mandatory Repayment Events . . . . . . . . . . . . . . . . . . . . . . 34
(a) Facility Maturity. . . . . . . . . . . . . . . . . . . . . . . . . . . 34
(b) Aggregate Principal Balance Limitations of Loans . . . . . . . . . . . 34
(c) Amortization of Tranche A Loans . . . . . . . . . . . . . . . . . . . 35
(d) Amortization of Tranche B Loans . . . . . . . . . . . . . . . . . . . . 35
(e) Tranche C Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(f) LIBOR Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.10 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 36
(a) Notice of Payment; Designation of Payment Applications . . . . . . . . 36
(b) Failure to Designate Payment Applications . . . . . . . . . . . . . . 36
(c) No Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 2.11 LIBOR Rate Not Determinable; Illegality or Impropriety . . . . . . . . 36
(a) LIBOR Rate Not Determinable . . . . . . . . . . . . . . . . . . . . . . 36
(b) Illegality or Impropriety . . . . . . . . . . . . . . . . . . . . . . . 37
Section 2.12 Reserve Requirements; Change in Circumstances . . . . . . . . . . . . 37
(a) Additional Taxes; Reserve Requirements . . . . . . . . . . . . . . . . 37
(b) Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(c) Change in Lending Office . . . . . . . . . . . . . . . . . . . . . . . 38
(d) Lender Compensation . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 2.13 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 2.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
(a) Payment of Taxes Withheld From Amounts Payable . . . . . . . . . . . . 39
(b) Lender Incorporation; Certifications . . . . . . . . . . . . . . . . . 40
(c) Taxes Borne by Lender . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 2.15 Sharing of Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 2.16 Replacement of Lenders . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE III CONDITIONS TO BORROWINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.1 Initial Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(a) Delivery of Loan Documents . . . . . . . . . . . . . . . . . . . . . . 42
(b) Necessary Acts and Conditions . . . . . . . . . . . . . . . . . . . . 44
(c) Documentation Satisfactory in Form and Substance . . . . . . . . . . . 45
</TABLE>
ii
<PAGE> 102
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(d) Payment of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(e) Ownership Structure . . . . . . . . . . . . . . . . . . . . . . . . . 45
(f) Conditions to Warehouse Loans . . . . . . . . . . . . . . . . . . . . . 45
Section 3.2 All Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
(a) Representations and Warranties . . . . . . . . . . . . . . . . . . . . 45
(b) No Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . 45
(c) Borrowing Limitations . . . . . . . . . . . . . . . . . . . . . . . . 45
(d) No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . 45
(e) Other Documentation . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 3.3 Tranche B Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE IV REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 4.1 Formation, Organization and Standing . . . . . . . . . . . . . . . . . 46
(a) Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
(b) General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 4.2 Compliance With Law and Contractual Obligations . . . . . . . . . . . 47
Section 4.3 Power; Authorization; Enforceable Obligations . . . . . . . . . . . . 47
(a) Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
(b) General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 4.4 No Legal or Contractual Bar . . . . . . . . . . . . . . . . . . . . . 47
Section 4.5 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . 47
(a) Delivery of Financial Statements . . . . . . . . . . . . . . . . . . . 47
(b) No Material Liabilities . . . . . . . . . . . . . . . . . . . . . . . 48
(c) No Material Change . . . . . . . . . . . . . . . . . . . . . . . . . . 48
(d) HTP Financial . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 4.6 No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 4.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 4.8 Investment Company Act; Other Regulations . . . . . . . . . . . . . . 49
Section 4.9 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 4.10 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 4.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 4.12 Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 4.13 Agency Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 4.14 Federal Reserve Board Regulations . . . . . . . . . . . . . . . . . . 50
Section 4.15 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 4.16 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . 50
(a) No Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . 50
(b) Compliance With Environmental Laws . . . . . . . . . . . . . . . . . . 50
(c) No Notice of Violation . . . . . . . . . . . . . . . . . . . . . . . . 51
(d) No Transfer of Hazardous Materials . . . . . . . . . . . . . . . . . . 51
(e) No Pending Actions . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 4.17 Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
(a) Sufficient Assets; Capital . . . . . . . . . . . . . . . . . . . . . . 51
(b) Defined Terms; GAAP . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>
iii
<PAGE> 103
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 4.18 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 4.19 Principal Place of Business . . . . . . . . . . . . . . . . . . . . . 52
Section 4.20 No Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . . . 52
Section 4.21 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 4.22 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE V COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 5.1 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . 52
(a) Reporting Requirements of the Borrower to the
Administrative Agent and the Lenders . . . . . . . . . . . . . . . . . 52
(i) Annual Financial Statements. . . . . . . . . . . . . . . . . . 52
(ii) Quarterly Financial Statements . . . . . . . . . . . . . . . . 53
(iii) Annual Cash Flow Projections . . . . . . . . . . . . . . . . . 53
(iv) No Default/Compliance Certificate . . . . . . . . . . . . . . 53
(v) Notice of Default . . . . . . . . . . . . . . . . . . . . . . 54
(vi) Audit Reports . . . . . . . . . . . . . . . . . . . . . . . . 54
(vii) Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(viii) Securities Reports and Filings . . . . . . . . . . . . . . . . 54
(ix) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(x) Servicing Portfolio and Other Reports . . . . . . . . . . . . 56
(xi) Other Information . . . . . . . . . . . . . . . . . . . . . . . 56
(xii) GNMA Acknowledgment Agreement . . . . . . . . . . . . . . . . . 56
(b) Reporting Requirements of the Borrower to the
Administrative Agent and the Co-Agent . . . . . . . . . . . . . . . . . 56
(c) Maintenance of Existence and Properties;
Compliance with Laws. . . . . . . . . . . . . . . . . . . . . . . . 56
(d) Maintenance of Federal Agency Status . . . . . . . . . . . . . . . . . 57
(e) Inspection of Property; Books and Records;
Discussions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(f) Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(g) Payment of Taxes and Claims. . . . . . . . . . . . . . . . . . . . . . 57
(h) Servicing Rights and Servicing Portfolio . . . . . . . . . . . . . . . 57
(i) Ownership Structure . . . . . . . . . . . . . . . . . . . . . . . . . 57
(j) Further Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 5.2 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 58
(a) Accumulation of Assets . . . . . . . . . . . . . . . . . . . . . . . . 58
(b) Total Debt to Net Worth Ratios . . . . . . . . . . . . . . . . . . . . 58
(c) Net Worth; Adjusted Tangible Net Worth..... . . . . . . . . . . . . . . 58
(d) Cash Flow to Scheduled Term Debt Service . . . . . . . . . . . . . . . 58
(e) Investments and Advances . . . . . . . . . . . . . . . . . . . . . . . 58
(f) Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
(g) Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
(h) Mergers, Sales or Consolidations . . . . . . . . . . . . . . . . . . . 63
(i) Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
</TABLE>
iv
<PAGE> 104
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
(j) Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 64
(k) Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . 64
(l) Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . 64
(m) Negative Pledge... . . . . . . . . . . . . . . . . . . . . . . . . . . 64
(n) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
(o) Recourse Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . 65
(p) HTP Financial Documents . . . . . . . . . . . . . . . . . . . . . . . . 65
(q) Release of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . 65
ARTICLE VI EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 6.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 65
(a) Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
(b) Covenants With No Grace Period . . . . . . . . . . . . . . . . . . . . 66
(c) Covenants With Five Day Grace Period .. . . . . . . . . . . . . . . . . 66
(d) Covenants With Thirty Day Grace Period .. . . . . . . . . . . . . . . . 66
(e) Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
(f) Non-Payment of Other Indebtedness . . . . . . . . . . . . . . . . . . 66
(g) Cross-Default to Warehouse Credit Agreement . . . . . . . . . . . . . 66
(h) Cross-Default to Other Agreements . . . . . . . . . . . . . . . . . . 66
(i) Bankruptcy or Insolvency . . . . . . . . . . . . . . . . . . . . . . . 67
(j) Money Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(k) ERISA ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(l) Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
(m) Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(n) Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
(o) Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . 68
(p) Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE VII THE AGENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.1 Appointment of the Agents . . . . . . . . . . . . . . . . . . . . . . 69
Section 7.2 Nature of Duties of the Agents . . . . . . . . . . . . . . . . . . . . 69
Section 7.3 Lack of Reliance on the Agents . . . . . . . . . . . . . . . . . . . . 69
(a) Lenders Independent Investigations . . . . . . . . . . . . . . . . . . 69
(b) Lack of Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
(c) Knowledge of Default . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 7.4 Certain Rights of the Agents . . . . . . . . . . . . . . . . . . . . . 70
Section 7.5 Reliance by the Agents . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 7.6 Indemnification of the Agents . . . . . . . . . . . . . . . . . . . . 71
Section 7.7 The Agents in their Individual Capacities . . . . . . . . . . . . . . 71
Section 7.8 Holders of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 7.9 Successor Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
(a) Resignation of Agents; Appointment of Successor. . . . . . . . . . . . 71
(b) Effectiveness of Successor Appointment . . . . . . . . . . . . . . . . 72
</TABLE>
v
<PAGE> 105
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE VIII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
Section 8.2 Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 8.3 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . 73
Section 8.4 Payment of Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . 74
(a) Out-of-Pocket Costs . . . . . . . . . . . . . . . . . . . . . . . . . 74
(b) Stamp and Other Taxes . . . . . . . . . . . . . . . . . . . . . . . . 74
(c) Indemnification of Administrative Agent . . . . . . . . . . . . . . . . 74
Section 8.5 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 8.6 Benefit of Agreement; Assignment and Additional Lenders . . . . . . . . 75
SECTION 8.7 GOVERNING LAW; SUBMISSION TO JURISDICTION . . . . . . . . . . . . . . . 77
Section 8.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 8.9 Effectiveness; Survival of Indemnities . . . . . . . . . . . . . . . . 78
Section 8.10 Heading Descriptive . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Section 8.11 Survival of Representations . . . . . . . . . . . . . . . . . . . . . . 79
Section 8.12 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 8.13 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 8.14 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Section 8.15 PWRES Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 8.16 WAIVER OF TRIAL BY JURY . . . . . . . . . . . . . . . . . . . . . . . . 80
</TABLE>
EXHIBITS
A Form of Note
B Servicing Security Agreement
C Guaranty (Harbourton Financial Services)
D Guaranty (Western Sunrise)
E Opinion
F Officer's Certificate
G Notice of Borrowing
H Notice of Conversion/Continuation
I Ownership of Structure
J [Intentionally Deleted]
K Notice Addresses
L [Form to be agreed upon on a later date]
M-1 Assignment Agreement
M-2 Commitment Notice
N Authorized Officers
O Indebtedness
SCHEDULES
4.6 Litigation
vi
<PAGE> 106
4.21 Affiliate Transactions
vii
<PAGE> 107
CREDIT AGREEMENT
(Servicing Credit Facility)
THIS CREDIT AGREEMENT (Servicing Credit Facility) is made and dated as
of July 31, 1995, by and between the Lenders party hereto from time to time,
CHEMICAL BANK, a New York banking corporation, as Administrative Agent for the
Lenders, FIRST BANK NATIONAL ASSOCIATION, a national banking association, as
Co-Agent for the Lenders, and HARBOURTON MORTGAGE CO., L.P., a Delaware limited
partnership.
Subject to and upon the terms and conditions herein set forth, the
Lenders have agreed to make from time to time: (A) Tranche A Loans to the
Borrower to finance the Borrower's Approved Existing Portfolio; (B) Tranche B
Loans to the Borrower to finance Approved Acquired Portfolios; (C) Tranche C
Loans to the Borrower to finance Eligible P&I Advance Receivables; and (D)
Tranche D Loans to the Borrower to finance Eligible Working Capital Receivables.
ACCORDINGLY, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms.
For purposes of this Agreement, the terms set forth below shall have
the following meanings:
"Accumulated Funding Deficiency" shall mean a funding deficiency
described in section 302 of ERISA.
"Adjusted Tangible Net Worth" shall mean, as of any date, with respect
to any Person, the Net Worth of such Person as of such date less the following
assets, to the extent such assets are reflected in the determination of such Net
Worth: all excess servicing fees receivable, all purchased and capitalized value
of servicing rights (less all foreclosure reserves) and all other assets that
would be classified as intangible assets under GAAP, plus the lesser of (a) one
and one-quarter percent (1.25%) of the aggregate unpaid principal balance of
Mortgage Loans included in the Servicing Portfolio (but excluding any such
Mortgage Loans for which the Borrower has only subservicing rights) as of such
date as set forth in the most recent Servicing Portfolio Report delivered to the
Administrative Agent, and (b) the appraised value of the Servicing Portfolio
(excluding any subservicing rights of the Borrower) as of such date as reflected
in the most recent Servicing Portfolio Report delivered to the Administrative
Agent.
"Administrative Agent" shall mean Chemical Bank, in its capacity as
administrative agent for the Lenders hereunder, and any successor thereto
designated pursuant to Section 7.9.
-1-
<PAGE> 108
"Affiliate" shall mean, (i) in respect of any Person (including the
Borrower), any other Person directly or indirectly controlling, controlled by or
under direct or indirect common control with, such Person, whether through the
ownership of voting securities, by contract or otherwise, and (ii) in respect of
the Borrower, any other Person directly or indirectly controlled by a member of
the board of directors of Harbourton Financial Services from time to time,
whether through the ownership of voting securities, by contract or otherwise.
"Control" as used herein means the power to direct the management and policies
of such Person.
"Affiliate Servicing Portfolio" shall mean, at any time, the portfolio
of outstanding Mortgage Loans with respect to which the Borrower has Excluded
Servicing Rights.
"Agency" shall mean FHLMC, FNMA or GNMA.
"Agency Acknowledgment Agreement" shall mean all acknowledgment
agreements or other similar agreements that the Servicing Collateral Agent is
required by each of FHLMC and FNMA to execute and deliver as a condition to the
grant or continuation by the Borrower of a security interest or any other right
or interest in or to the Borrower's Direct Servicing Rights in respect of FHLMC
Mortgage Loans and FNMA Mortgage Loans, respectively and, if and when available,
an acknowledgment agreement required or permitted by GNMA with respect to the
grant or the continuation by the Borrower of a security interest or any other
right or interest in or to the Borrower's Direct Servicing Rights in respect of
GNMA Mortgage Loans.
"Agency Guides" shall mean the FHLMC Guide, the FNMA Guide and the GNMA
Guide.
"Agency MBS" shall mean a FHLMC MBS, a FNMA MBS and/or a GNMA MBS, as
the context requires.
"Agency Mortgage Loan" shall mean (A) a whole Mortgage Loan held by an
Agency or (B) a Mortgage Loan (i) included in a pool of Mortgage Loans in which
any security (including a participation certificate) issued by FHLMC or FNMA, or
guaranteed by GNMA, represents an interest and (ii) with respect to the Direct
Servicing Rights related thereto, is covered by an effective Acknowledgment
Agreement (as defined in the Servicing Credit Agreement) from FNMA or FHLMC, as
applicable, or GNMA (if one is available and the Administrative Agent requires
the Borrower to execute and deliver it).
"Agency P&I Custodial Accounts" shall mean custodial accounts
maintained by the Borrower from time to time pursuant to the applicable Agency
Guide for the receipt of principal and interest payments with respect to Agency
Mortgage Loans. Currently, such accounts are maintained at Chemical Bank.
"Agents" shall mean the Administrative Agent and the Co-Agent.
"Agreement" shall mean this Agreement, as amended, extended or
supplemented from time to time.
-2-
<PAGE> 109
"Alternate Base Rate" shall mean, for any period, a fluctuating
interest rate per annum as shall be in effect from time to time, which rate per
annum shall be at all times equal to the higher of (a) the Prime Rate and (b)
the Federal Funds Rate plus one-half of one percent (0.50%).
"Alternate Base Rate Loan" shall mean any Loan bearing interest at the
rate set forth in Section 2.7(b).
"Approved Acquired Portfolio" shall mean, at any time, the portfolio of
Agency Mortgage Loans with respect to which the Borrower has Non-Recourse Direct
Servicing Rights, which portfolio is to be financed with the proceeds of a
Tranche B Borrowing (as defined in the Servicing Credit Agreement) and which
otherwise meets the criteria set forth herein for the Borrower to finance such
portfolio.
"Approved Existing Portfolio" shall mean, at any time, the portfolio of
outstanding Agency Mortgage Loans and Approved Non-Agency Mortgage Loans with
respect to which the Borrower has (i) Non-Recourse Direct Servicing Rights other
than Mortgage Servicing Rights Held for Sale; and (ii) Recourse Direct Servicing
Rights that are recourse with respect to only the Direct Servicing Rights
relating to FNMA recourse servicing as described on the Servicing Portfolio
Report required to be delivered prior to the Closing Date pursuant to Section
3.1(a)(xiv).
"Approved Non-Agency Mortgage Loan" shall mean a Mortgage Loan in
respect of which the Borrower has Direct Servicing Rights covered by a duly
executed and delivered Private Investor Consent.
"Approved Servicing Portfolio" shall mean, as of any date, the Approved
Existing Portfolio and each Approved Acquired Portfolio.
"Assigning Lender" shall have the meaning set forth in Section 8.6(c).
"Assignment Agreement" shall mean the Assignment Agreement (Servicing
Credit Facility), substantially in the form of Exhibit M.
"Authorized Officer" shall mean each of those persons listed on Exhibit
N as an Authorized Officer of the Borrower; provided that, by notice to the
Agents, the Borrower may add or delete any person from the list of Authorized
Officers for itself listed on Exhibit N.
"Base LIBOR Rate" shall mean, with respect to any LIBOR Interest
Period, a rate per annum equal to the rate for U.S. dollar deposits, in an
amount equal to the aggregate principal amount of LIBOR Loans proposed to be
subject to such rate and with maturities comparable to such Interest Period,
that appears on Telerate Page 3750 as of approximately 11:00 a.m., London time,
two (2) LIBOR Business Days prior to the commencement of such Interest Period;
provided that if such rate does not appear on Telerate Page 3750, the "Base
LIBOR Rate" applicable to a particular Interest Period shall mean a rate per
annum equal to the rate at which U.S. dollar deposits, in an amount equal to the
aggregate principal amount of LIBOR Loans
-3-
<PAGE> 110
proposed to be subject to such rate and with maturities comparable to such
Interest Period, are offered in immediately available funds in the London
Interbank Market to the London office of the Administrative Agent by leading
banks in the Eurodollar market as of approximately 11:00 a.m., London time, two
(2) LIBOR Business Days prior to the commencement of such Interest Period.
"Board" shall mean the Board of Governors of the Federal Reserve System
of the United States and any successor thereto.
"Borrower" shall mean Harbourton Mortgage Co., L.P., a Delaware limited
partnership.
"Borrowing" shall mean a Tranche A Borrowing, a Tranche B Borrowing, a
Tranche C Borrowing or a Tranche D Borrowing, as the context requires.
"Borrowing Date" shall mean any date on which the Lenders make Loans,
notice of which is, in all cases, submitted by the Borrower pursuant to Section
2.8, which date shall be a LIBOR Business Day for a Borrowing consisting of
LIBOR Loans and a Business Day for a Borrowing consisting of Alternate Base Rate
Loans or Fed Funds Loans.
"Business Day" shall mean, any day other than a Saturday, Sunday and
any other day on which banks in New York City are required or authorized to
close.
"Cash Flow" shall mean, for any fiscal quarter, an amount equal to the
net income of the Borrower for that fiscal quarter plus all depreciation,
amortization, deferred taxes, interest and other non-cash charges and (x) minus
non-cash income or (y) plus non-cash expense, in each case associated with the
recordation of administrative fees and gain on sale of Mortgage Loans resulting
from the application of SFAS No. 91 and SFAS No. 122 for that fiscal quarter. As
used herein, "SFAS" shall mean the Statements of Financial Accounting Standards
as adopted by the Financial Accounting Standards Board.
"Change of Control" shall mean the occurrence of any of the following
events, without the prior written consent of the Administrative Agent: (i) the
failure by Harbourton Financial Services to own directly or indirectly 80% of
the limited partnership interests in the Borrower; (ii) the failure by
Harbourton Funding Corporation to own directly 100% of the general partnership
interests in the Borrower; (iii) the failure by Harbourton Mortgage Corporation
to own directly 100% of the general partnership interests in Harbourton
Financial Services; (iv) the failure by Harbourton Holdings, L.P. to own 100% of
the issued and outstanding capital stock of Harbourton Mortgage Corporation; or
(v) the failure by Harbourton Financial Services to own directly 100% of the
issued and outstanding capital stock of Harbourton Funding Corporation.
"Closing Date" shall mean that date upon which all conditions precedent
to the effectiveness of this Agreement set forth in Section 3.1 have been
satisfied.
"Co-Agent" shall mean First Bank National Association, a national
banking
-4-
<PAGE> 111
association.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time.
"Collateral" shall mean the Servicing Collateral, the Warehouse
Collateral and the Pledge Collateral.
"Collateral Value of the Tranche C Borrowing Base" shall mean, at any
time, an amount equal to ninety-five percent (95%) of the aggregate amount of
Eligible P&I Advance Receivables that are included in the Tranche C Borrowing
Base at such time; provided that an Eligible P&I Advance Receivable shall cease
to have any collateral value for the purpose of computing the Collateral Value
of the Tranche C Borrowing Base on the date of repayment or reimbursement of any
advanced amount which is an Eligible P&I Advance Receivable by any Obligor or
any other Person. The Collateral Value of the Tranche C Borrowing Base shall be
determined by reference to the most recent Tranche C Borrowing Base Certificate
delivered by the Borrower to the Administrative Agent absent any error in such
Tranche C Borrowing Base Certificate as of the date delivered.
"Collateral Value of the Tranche D Borrowing Base" shall mean, at any
time, an amount equal to eighty percent (80%) of the aggregate amount of
Eligible Working Capital Receivables that are included in the Tranche D
Borrowing Base at such time; provided that an Eligible Working Capital
Receivable shall cease to have any collateral value for the purpose of computing
the Collateral Value of the Tranche D Borrowing Base on the date of repayment or
reimbursement of any advanced amount which is an Eligible Working Capital
Receivable, by any Obligor or any other Person. The Collateral Value of the
Tranche D Borrowing Base shall be determined by reference to the most recent
Tranche D Borrowing Base Certificate delivered by the Borrower to the
Administrative Agent absent any error in such Tranche D Borrowing Base
Certificate as of the date delivered.
"Commitment Notice" shall have the meaning set forth in Section 8.6.
"Commitments" shall mean the Tranche A Commitments, the Tranche B
Commitments, the Tranche C Commitments and the Tranche D Commitments.
"Commonly Controlled Entity" shall mean, in respect of any Person,
another Person, whether or not incorporated, that is under common control with
such first Person within the meaning of Section 414(c) of the Code.
"Contractual Obligation" shall mean, in respect of any Person, any
provision of any security issued by such Person or of any agreement, instrument
or undertaking to which such Person is a party or by which it or any of its
property is bound.
"Conversion/Continuation Date" shall mean (a) each date on which the
Lenders, pursuant to Sections 2.3 and 2.4, convert any Loans to LIBOR Loans or
continue outstanding LIBOR Loans for an additional LIBOR Interest Period (which
date shall be a LIBOR Business
-5-
<PAGE> 112
Day for conversions of Loans into, or continuations of, LIBOR Loans) and (b) the
last day of each LIBOR Interest Period.
"Direct Servicing Rights" shall mean the rights of any Person to
service Mortgage Loans for or on the behalf of the owner or holder of such
Mortgage Loans (including investors in mortgage-backed securities supported by
Mortgage Loans) pursuant to a direct agreement between such Person and an
Agency, or such owner or holder, together with the legal titles, mortgagor
files, escrows and records relating to such Mortgage Loans and the right to
receive servicing fee income and any other income arising from or in connection
with such Mortgage Loans, including late charges and all other incidental fees
and charges; provided that the term "Direct Servicing Rights" shall in no event
be construed as intended to include subservicing rights or Excluded Servicing
Rights.
"Eligible Expense Advance Receivable" shall mean amounts receivable by
the Borrower from Obligors or an Agency or the FHA or the VA as reimbursement of
Expense Advances made by the Borrower.
"Eligible Foreclosure Claim Receivable" shall mean amounts receivable
by the Borrower from the FHA or VA in respect of a Foreclosure Claims
Receivable; provided that a Foreclosure Claim Receivable shall not be deemed an
Eligible Foreclosure Claim Receivable unless the Borrower has taken (or caused
to be taken) all steps deemed necessary by the Administrative Agent to assure
repayment to the Secured Parties of such Foreclosure Claim Receivable.
"Eligible P&I Advance Receivable" shall mean amounts receivable by the
Borrower from Obligors or any Agency or the FHA or the VA as reimbursement of
P&I Advances made by the Borrower.
"Eligible Working Capital Receivables" shall mean all Eligible Expense
Advance Receivables, Eligible T& I Advance Receivables and Eligible Foreclosure
Claim Receivables.
"Eligible T&I Advance Receivable" shall mean amounts receivable by the
Borrower from Obligors or any Agency or the FHA or the VA as reimbursement of
T&I Advances made by the Borrower.
"Environmental Laws" shall mean any and all federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes, decrees
or requirements of any Governmental Authority regulating, relating to or
imposing liability or standards of conduct concerning environmental protection
matters, including hazardous materials, as now or may at any time hereafter be
in effect.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as the same may from time to time be supplemented or amended and the rules and
regulations issued thereunder as in effect from time to time.
"ERISA Affiliate" shall mean each trade or business, including the
Borrower,
-6-
<PAGE> 113
whether or not incorporated, that together with the Borrower would be treated as
a single employer under section 4001 of ERISA.
"Estimated Tax Amount" shall mean, with respect to any period, an
amount equal to forty-five percent (45%) of the Net Income of the Borrower for
such period.
"Event of Default" shall have the meaning set forth in Section 6.1.
"Excluded Servicing Rights" shall mean servicing rights arising under
the HTP Servicing Agreement, any servicing agreement between the Borrower and
Skillman Partners, a New Jersey partnership, or any servicing agreement between
the Borrower and Santa Cruz Partners, a New Jersey partnership.
"Existing Lenders" shall have the meaning set forth in Section
3.1(a)(xviii).
"Expense Advance" shall mean amounts required to be advanced by the
Borrower from its own funds with respect to a Mortgage Loan included in the
Approved Servicing Portfolio to pay costs and expenses reasonably incurred by or
on behalf of the Borrower in connection with the recovery on such Mortgage Loan,
including but not limited to foreclosure fees and expenses, legal fees and
expenses, appraisal and property fees and expenses, and fees and expenses
reasonably incurred in connection with the maintenance, preservation, repair,
protection, operation, rehabilitation, and liquidation of the related real
property securing such Mortgage Loan (other than T&I Advances) and the costs of
collection of proceeds of any insurance policy relating to the real property
securing such Mortgage Loan.
"Fed Funds Loan" shall mean a Loan that bears interest at the per annum
rate set forth in Section 2.7(a).
"Federal Funds Rate" shall mean, for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the preceding Business Day) by the
Federal Reserve Bank of New York or, if such rate is not so published for any
day that is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three (3) Federal funds
brokers of recognized standing selected by it.
"Fees" shall mean all fees payable pursuant to Section 2.7 or
otherwise.
"FHA" shall mean the Federal Housing Administration and any successor
thereto.
"FHLMC" shall mean the Federal Home Loan Mortgage Corporation and any
successor thereto.
"FHLMC Guide" shall mean the "Sellers' & Servicers' Guide" published by
FHLMC, as amended, modified or supplemented from time to time.
-7-
<PAGE> 114
"FHLMC MBS" shall mean any security (including a participation
certificate) issued by FHLMC that represents an interest in a pool of Mortgage
Loans.
"FHLMC Mortgage Loan" shall mean a Mortgage Loan included in a pool of
Mortgage Loans in which a FHLMC MBS represents an interest.
"Financing Lease" shall mean any lease of property, real or personal,
the obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on the balance sheet of the lessee.
"FNMA" shall mean the Federal National Mortgage Association and any
successor thereto.
"FNMA Guide" shall mean, collectively, the "Selling Guide" and the
"Servicing Guide" published by FNMA, as amended, modified or supplemented from
time to time.
"FNMA MBS" shall mean any security (including a participation
certificate) issued by FNMA that represents an interest in a pool of Mortgage
Loans.
"FNMA Mortgage Loan" shall mean a Mortgage Loan included in a pool of
Mortgage Loans in which a FNMA MBS represents an interest.
"Foreclosure Claim Receivable" shall mean amounts advanced by the
Borrower in respect of the unpaid principal balance and accrued interest on
defaulted Mortgage Loans that are insured by the FHA or guaranteed by the VA and
that have completed the foreclosure process (including the sale or conveyance of
the related real property) and have been purchased by the Borrower out of pools
of Mortgage Loans in which an Agency MBS represents an interest.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"General Partner" shall mean (i) with respect to the Borrower and
Western Sunrise, Harbourton Funding Corporation and (ii) with respect to
Harbourton Financial Services, Harbourton Mortgage Corporation.
"GNMA" shall mean the Government National Mortgage Association and any
successor thereto.
"GNMA Guide" shall mean, collectively, the "GNMA I Mortgage-Backed
Securities Guide" and the "GNMA II Mortgage-Backed Securities Guide" published
by HUD, as amended, modified or supplemented from time to time.
"GNMA MBS" shall mean any security (including a participation
certificate) guaranteed by GNMA that represents an interest in a pool of
Mortgage Loans.
"GNMA Mortgage Loan" shall mean a Mortgage Loan included in a pool of
Mortgage Loans in which a GNMA MBS represents an interest.
-8-
<PAGE> 115
"GNMA Servicing Portfolio" shall mean, at any time, the mortgage loans
included in pools of mortgage loans supporting Agency MBS guaranteed by GNMA
with respect to which mortgage loans the Borrower has Direct Servicing Rights.
"Governmental Authority" shall mean any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranties" shall mean the Guaranty (Harbourton Financial Services)
and the Guaranty (Western Sunrise).
"Guarantors" shall mean Harbourton Financial Services and Western
Sunrise.
"Guaranty (Harbourton Financial Services)" shall mean the Guaranty and
Pledge Agreement of Harbourton Financial Services substantially in the form of
Exhibit C, as amended, extended or supplemented from time to time.
"Guaranty (Western Sunrise)" shall mean the Guaranty and Pledge
Agreement of Western Sunrise substantially in the form of Exhibit D, as amended,
extended or supplemented from time to time.
"Harbourton Financial Services" shall mean Harbourton Financial
Services, L.P., a Delaware limited partnership.
"Harbourton Funding Corporation" shall mean Harbourton Funding
Corporation, a Delaware corporation.
"Harbourton Holdings, L.P." shall mean Harbourton Holdings, L.P., a
Delaware limited partnership.
"Harbourton Mortgage Corporation" shall mean Harbourton Mortgage
Corporation, a Delaware corporation.
"Hazardous Materials" shall mean any hazardous materials, hazardous
wastes, hazardous constituents, hazardous or toxic substances, petroleum
products (including crude oil or any fraction thereof), defined or regulated as
such in or under any Environmental Law.
"Hedging Contract" shall mean a contract to buy or sell an instrument
on the futures market, cash forward market, private investor whole loan market
or the options market or an option or financial future purchased over the
counter for future delivery of such instrument, each of the foregoing issued in
accordance with the requirements of a Hedging Program.
"Hedging Program" shall mean a program for hedging interest rate risks
of the Borrower, which program shall provide, without limitation, that all
Hedging Contracts will be placed with futures commission merchants, clearing
houses, or private investor whole loan purchasers, if applicable.
-9-
<PAGE> 116
"HTP Financial" shall mean HTP Financial, L.P., a Delaware limited
partnership to be formed after the Closing Date pursuant to the term sheet dated
April 19, 1995.
"HTP Financial Documents" shall mean the HTP Partnership Agreement, the
HTP Servicing Agreement and the PWRES Financing Agreements.
"HTP Partnership Agreement" shall mean the agreement of limited
partnership of HTP Financial between the Borrower, as general partner, and
PWRES, as limited partner, to be entered into after the Closing Date in form and
substance satisfactory to the Administrative Agent in the exercise of its
reasonable discretion.
"HTP Servicing Agreement" shall mean the servicing agreement between
the Borrower, as servicer, and HTP Financial providing for the servicing by the
Borrower of certain mortgage loans on behalf of HTP Financial to be entered into
after the Closing Date in form and substance satisfactory to the Administrative
Agent in the exercise of its reasonable discretion.
"HUD" shall mean the Department of Housing and Urban Development and
any successor thereto.
"Indebtedness" shall mean, in respect of any Person, (i) all items of
indebtedness that would be included in determining liabilities as shown on the
liability side of a statement of condition prepared in accordance with GAAP of
such Person as of the date as of which indebtedness is to be determined,
including all obligations for money borrowed, the deferred purchase price of
property or services and capitalized lease obligations, (ii) liabilities of such
Person with respect to gestation repurchase financings (other than such
financings that are treated as true sales under GAAP), and (iii) all
indebtedness and liabilities of others assumed or guaranteed by such Person, or
secured by any Lien upon property owned by such Person, whether or not such
indebtedness is assumed, or in respect of which such Person is secondarily or
contingently liable (other than by endorsement of instruments in the course of
collection), including contingent reimbursement obligations of such Person under
undrawn letters of credit, whether by reason of any agreement to acquire such
indebtedness or to supply or advance sums or otherwise.
"Intellectual Property" shall have the meaning set forth in Section
4.18.
"Investor" shall mean the beneficial owner of a Mortgage Loan
(including the beneficial owner of a mortgage-backed security supported by a
Mortgage Loan) that the Borrower services pursuant to a Mortgage Servicing
Agreement.
"IRS" shall mean the Internal Revenue Service and any successor
thereto.
"Lenders" shall mean the lenders party hereto from time to time.
"LIBOR Business Day" shall mean a Business Day upon which commercial
banks in London, England are open for domestic and international business.
-10-
<PAGE> 117
"LIBOR Interest Period" shall mean, with respect to any LIBOR Loan, the
period commencing on the Borrowing Date or a Conversion/Continuation Date for
such LIBOR Loan, as the case may be, and ending one (1) month thereafter;
provided that (a) any LIBOR Interest Period that would otherwise end on a day
that is not a LIBOR Business Day shall extend to the next succeeding LIBOR
Business Day, unless such LIBOR Business Day falls in another calendar month, in
which case, such LIBOR Interest Period shall end on the immediately preceding
LIBOR Business Day; and (b) no LIBOR Interest Period shall end after the
Maturity Date.
"LIBOR Loan" shall mean any Loan bearing interest at the per annum rate
set forth in Section 2.7(c).
"LIBOR Rate" shall mean, with respect to any LIBOR Interest Period, a
rate per annum equal to the product arrived at by multiplying the Base LIBOR
Rate applicable to such Interest Period by a fraction (expressed as a decimal),
the numerator of which shall be the number one (1) and the denominator of which
shall be the number one (1) minus the Reserve Requirement (expressed as a
decimal) applicable to such LIBOR Interest Period. The LIBOR Rate shall be
rounded, if necessary, to the next higher one one-sixteenth of one percent (1/16
of 1%).
"Lien" shall mean any security interest, mortgage, pledge, lien, claim
on property, charge or encumbrance (including any conditional sale or other
title retention agreement), any lease in the nature thereof and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction.
"Loan Documents" shall mean this Agreement, the Notes, the Servicing
Security Agreement, the Guaranties, and any other document, instrument or
agreement executed by the Borrower or either of the Guarantors and delivered to
the Administrative Agent, the Servicing Collateral Agent, or any Lender in
connection herewith or therewith, as any of the same may be amended, extended or
supplemented from time to time; provided, however, that as used herein Loan
Documents shall not include "Loan Documents" as defined in the Warehouse Credit
Agreement.
"Loan-to-Value Ratio" shall mean, with respect to any Mortgage Loan,
the ratio of the principal amount of such Mortgage Loan outstanding at the
origination thereof divided by the lesser of (a) the appraised value of the
Property encumbered thereby (as set forth in the appraisal, if any, delivered in
connection with the origination of such Mortgage Loan) and (b) the most recent
value assigned to the subject property pursuant to the requirements of the
applicable Approved Investor.
"Loans" shall mean the Tranche A Loans, the Tranche B Loans, the
Tranche C Loans and the Tranche D Loans.
"Material Adverse Effect" shall mean a material adverse effect with
respect to (a) the business or financial condition of the Borrower or Harbourton
Financial Services, (b) the ability of the Borrower or either of the Guarantors
to pay or perform its Obligations, (c) the
-11-
<PAGE> 118
validity or enforceability of this Agreement or the other Loan Documents or the
rights or remedies of the Secured Parties hereunder or thereunder, or (d) the
value of the Collateral.
"Maximum Borrowing Limit" shall mean the sum of (a) one hundred percent
(100%) of the appraised value of the Approved Servicing Portfolio (as reflected
in the most recent Servicing Portfolio Report delivered to the Administrative
Agent, absent manifest error in such report) plus (b) fifty percent (50%) of
Eligible P&I Advance Receivables (as reflected in the most recent Tranche C
Borrowing Base Certificate delivered to the Administrative Agent, absent
manifest error in such certificate).
"Monthly Servicing Report" shall mean a report on the Mortgage Loans
included in the Servicing Portfolio and the Direct Servicing Rights and Excluded
Servicing Rights thereto as of the date of such report, which report shall be in
form and substance reasonably satisfactory to the Administrative Agent, shall be
prepared by the Borrower and shall contain information (when appropriate, on
both an unpaid principal balance and loan number basis) relating to the
aggregate unpaid principal amount of all such outstanding Mortgage Loans,
servicing by investor, delinquency and foreclosure, geographic breakdown,
runoff, weighted average original term, weighted average remaining term
portfolio roll forward, weighted average coupon and any other information deemed
appropriate by the Administrative Agent from time to time.
"Moody's" shall mean Moody's Investors Service.
"Mortgage Loan" shall mean a single-family residential real estate
secured loan other than any loan secured by a mobile home or other temporary
housing facilities.
"Mortgage Loans Held for Sale" shall mean Mortgage Loans that are
acquired or originated principally for the purpose of sale within one year of
the date of the acquisition or origination thereof.
"Mortgage Servicing Rights Held for Sale" shall mean mortgage servicing
rights relating to Mortgage Loans Held for Sale, which Mortgage Loans are
subsequently sold by the Borrower on a servicing-retained basis; provided,
however, that the mortgage servicing rights related to any Mortgage Loan shall
cease to be classified as Mortgage Servicing Rights Held for Sale if, within
one-hundred twenty (120) days of the date that the related Mortgage Loan is
sold, the Borrower has not entered into a bona fide binding commitment with a
non-Affiliate of the Borrower to sell such servicing rights.
"Mortgage Servicing Agreement" shall mean any agreement between the
Borrower and an Investor pursuant to which the Borrower agrees to service one
(1) or more Mortgage Loans for one (1) or more Investors, including without
limitation, a guaranty agreement between the Borrower, as issuer, and an
Investor or an Agency or the FHA or the VA, as guarantor, and any servicing
agreement executed by the Borrower pursuant thereto, as the same may be amended,
extended or supplemented from time to time.
"Multiemployer Plan" shall mean, with respect to any Borrower, a plan
described in section 4001(a)(3) of ERISA to which such Borrower or any of its
ERISA Affiliates is
-12-
<PAGE> 119
required to contribute on behalf of any of its employees.
"Net Income" shall mean, with respect to any Person for any period, the
net income of such Person for such period determined in accordance with GAAP.
"Net Worth" shall mean, as of any date, with respect to any Person, the
stockholders' or partnership equity of such Person as of such date determined in
accordance with GAAP.
"Non-Agency Mortgage Loan" shall mean a Mortgage Loan that would be an
Approved Non-Agency Mortgage Loan except for the fact that no Private Investor
Consent has been obtained.
"Non-Borrowing-Base Collateral" shall mean all Collateral consisting of
(i) Mortgage Loans not submitted to the Collateral Agent for inclusion in the
Tranche A Borrowing Base or the Tranche B Borrowing Base (as such terms are
defined in the Warehouse Credit Agreement), (ii) mortgage backed securities
(including Agency MBS) not submitted to the Warehouse Collateral Agent for
inclusion in the Tranche B Borrowing Base, (iii) mortgage servicing rights or
subservicing rights (and the related Mortgage Servicing Agreements and the
proceeds thereof) constituting Excluded Servicing Rights, (iv) Mortgage
Servicing Rights Held for Sale, (v) P&I Advance Receivables not included in the
determination of the Collateral Value of the Tranche C Borrowing Base, (vi) T&I
Advance Receivables, Foreclosure Claim Receivables and Expense Receivables not
included in the determination of the Collateral Value of the Tranche D Borrowing
Base, (vii) all notes, mortgage, deeds of trust, security agreements, files,
documents, instruments, agreements, surveys, certificates correspondence,
appraisals, computer records, tapes discs, cards, accounting records, servicing
records and other books, records and information and data relating solely to the
foregoing, and (viii) all accounts, contract rights, real estate interests and
general intangibles to the extent relating solely to or arising solely out of
any of the foregoing or the proceeds thereof (provided the same is divisible)
(including any rights with respect to FHA or any other mortgage insurance or VA
guaranties to the extent associated solely with any of the foregoing or any
rights with respect to the proceeds of any other insurance, casualty,
condemnation or liquidation to the extent relating solely to any of the
foregoing or the real property associated therewith).
"Non-Recourse Direct Servicing Rights" shall mean Direct Servicing
Rights that are not Recourse Direct Servicing Rights.
"Notes" shall have the meaning set forth in Section 2.6.
"Notice of Borrowing" shall have the meaning set forth in Section
2.3(a).
"Notice of Conversion/Continuation" shall have the meaning set forth in
Section 2.3(a).
"Notice of Payment" shall have the meaning set forth in Section 2.8(c).
-13-
<PAGE> 120
"Obligations" shall mean any and all debts, obligations and liabilities
of the Borrower to the Secured Parties (whether now existing or hereafter
arising, voluntary or involuntary, whether or not jointly owed with others,
direct or indirect, absolute or contingent, liquidated or unliquidated, and
whether or not from time to time decreased or extinguished and later increased,
created or incurred) under or arising out of the Loan Documents.
"Obligor" shall mean the Person or Persons obligated to pay the
indebtedness that is the subject of a Mortgage Loan or Agency MBS, including any
guarantor of such indebtedness.
"Operating Account" shall mean the account of the Borrower (account no.
1440-41661) maintained at Chemical Bank.
"P&I Advance" shall mean amounts required to be advanced by the
Borrower from its own funds in accordance with the provisions of the Agency
Guides to holders of Agency MBS included in the Approved Servicing Portfolio in
respect of scheduled monthly payments of principal and interest due from
Obligors to the extent such payments are not made by the related Obligors.
"Payment Office" shall mean the Administrative Agent's office located
at 380 Madison Avenue, New York, New York 10017 or such other office as the
Administrative Agent shall specify to the Borrower, the Servicing Collateral
Agent and the Lenders.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereto.
"Percentage Share" shall mean, with respect to any Lender at any time,
the percentage that the aggregate dollar amount of such Lender's Commitments
bears to the aggregate dollar amount of Commitments of all the Lenders.
"Person" shall mean any corporation, natural person, firm, joint
venture, partnership, trust, unincorporated organization, government or any
political subdivision, department, agency or instrumentality of any government.
"Plan" shall mean any plan (other than a Multiemployer Plan) subject to
Title IV of ERISA maintained for employees of the Borrower or any of its ERISA
Affiliates (and any such plan no longer maintained by such Borrower or any of
its ERISA Affiliates to which it or any of its ERISA Affiliates have made or
were required to make any contributions during the five (5) years preceding the
date on which such plan ceased to be maintained).
"Pledge Collateral" shall have the meaning given the term "Collateral"
in each of the Guaranties.
"Potential Default" shall mean an event that with the lapse of time or
the giving of notice, or both, would, unless cured or waived, constitute an
Event of Default.
-14-
<PAGE> 121
"Pre-Disbursement Account" shall mean account no. 006992862 which
account is a "no-access" account of the Borrower maintained with the
Administrative Agent.
"Prime Credit Business" shall mean a Person or a business unit engaged
in the origination, acquisition or servicing of Eligible Conforming Mortgage
Loans and Eligible Non-Conforming Mortgage Loans (as such terms are defined in
the Warehouse Credit Agreement).
"Prime Rate" shall mean the rate of interest that is publicly announced
from time to time by Chemical Bank in New York City as its prime lending rate as
in effect from time to time, such rate to change automatically and without
notice to the Borrower when and as such prime lending rate changes. The Prime
Rate is a reference rate and does not necessarily represent the best or lowest
rate actually charged by Chemical Bank to any customer. Chemical Bank may make
commercial loans or other loans at rates of interest at, above or below the
Prime Rate.
"Private Investor" shall mean an Investor other than an Agency.
"Private Investor Consent" shall mean an agreement between the
Borrower, a Private Investor and the Servicing Collateral Agent, on behalf of
the Secured Parties (as defined herein and in the Warehouse Credit Agreement),
in form and substance satisfactory to the Administrative Agent in the exercise
of its sole discretion, in which such Private Investor acknowledges and consents
to a security interest granted by the Borrower to the Servicing Collateral
Agent, for the benefit of the Secured Parties, in the Borrower's Direct
Servicing Rights in respect of Mortgage Loans and/or Agency MBS of which such
Private Investor is the beneficial owner.
"Prohibited Transaction" shall mean any transaction described in
section 406 of ERISA that is not exempt by reason of section 408 of ERISA or the
transitional rules set forth in section 414(c) of ERISA and any transaction
described in section 4975(c)(1) of the Code that is not exempt by reason of
section 4975(c)(2) or section 4975(d) of the Code, or the transitional rules of
section 2003(c) of ERISA.
"Properties" shall have the meaning set forth in Section 4.16.
"Property" shall mean the real property, including the improvements
thereon, and the personal property (tangible and intangible) that are encumbered
pursuant to a Mortgage Loan.
"PWRES" shall mean Paine Webber Real Estate Securities Inc., a Delaware
corporation.
"PWRES Financing Agreements" shall mean (i) the mortgage loan
repurchase agreement between PWRES and the Borrower, (ii) the mortgage loan
purchase agreement between PWRES and the Borrower, (iii) the servicing advance
credit agreement to be entered into between PWRES and the Borrower, and (iv) all
other documents or instruments evidencing the financing arrangements between
such parties permitted hereunder, in each case to be entered into after the
Closing Date in form and substance satisfactory to the Administrative Agent in
the
-15-
<PAGE> 122
exercise of its reasonable discretion.
"Recourse Direct Servicing Rights" shall mean Direct Servicing Rights
arising under mortgage servicing agreements with respect to which the Investor,
pool trustee or owner of the related Mortgage Loans can require the Borrower, as
servicer of such Mortgage Loans, to repurchase the Mortgage Loans as a result of
a default of the Obligors thereunder; provided, however, that for purposes
hereof, Direct Servicing Rights with respect to Mortgage Loans that are insured
by the FHA or guaranteed by the VA shall not be deemed to be Recourse Direct
Servicing Rights.
"Regulation D" shall mean Regulation D of the Board, as from time to
time in effect, and any other regulation hereafter promulgated by the Board to
replace the prior Regulation D and having substantially the same function.
"Regulation U" shall mean Regulation U of the Board, as from time to
time in effect, and any other regulation hereafter promulgated by the Board to
replace the prior Regulation U and having substantially the same function.
"REO Property" shall mean single (one-to-four) family residential real
estate held by the Borrower as a result of foreclosure, receipt of a deed in
lieu of foreclosure, or similar termination of the Obligor's rights under the
related Mortgage Loan in the ordinary course of the Borrower's mortgage
servicing operations.
"Reportable Event" shall mean any of the events set forth in section
4043(b) of ERISA or the regulations thereunder, a withdrawal from a Plan
described in section 4063 of ERISA, a cessation of operations described in
section 4068(f) of ERISA, an amendment to a Plan necessitating the posting of
security under section 401(a)(29) of the Code, or a failure to make a payment
required by section 412(m) of the Code and section 302(e) of ERISA when due.
"Required Lenders" shall mean, at any time, Lenders having at least
sixty-six and two-thirds percent (66 2/3%) of the aggregate unpaid principal
amount of the Loans then outstanding.
"Requirements of Law" shall mean, with respect to any Person, the
Articles or Certificate of Incorporation and Bylaws or other organizational or
governing documents of such Person, and any law, treaty, rule or regulation, or
a final and binding determination of an arbitrator or a determination of a court
or other Governmental Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Reserve Requirement" shall mean, with respect to any LIBOR Interest
Period, the daily average during such LIBOR Interest Period of the maximum
aggregate reserve requirement (including all basic, supplemental, marginal and
other reserves and taking into account any transitional adjustments or other
scheduled changes in reserve requirements during such Interest Period) that is
imposed under Regulation D on any member bank of the Federal Reserve System, in
respect of eurocurrency or eurodollar funding, lending or liabilities.
-16-
<PAGE> 123
"S&P" shall mean Standard & Poor's Corporation.
"Scheduled Term Debt Service" shall mean, for any fiscal quarter, the
sum of (i) the scheduled payments of principal on all Term Loans for such
quarter and (ii) all interest on Loans due from the Borrower during such
quarter.
"Secured Parties" shall have the meaning given the term "Secured
Parties" in the Servicing Security Agreement.
"Servicing Acquisition Costs" shall mean the purchase price paid by the
Borrower in connection with the acquisition of an Approved Acquired Portfolio.
"Servicing Acquisition Report" shall mean a report prepared by the
Borrower indicating an estimate of value based on reasonable assumptions and
projections, as of the date of such report, of Direct Servicing Rights to any
Approved Acquired Portfolio proposed to be purchased by the Borrower with
proceeds of a Tranche B Borrowing, which report shall be in form and substance
satisfactory to the Administrative Agent in its sole discretion.
"Servicing Acquisition Required Documents" shall mean, with respect to
any acquisition by the Borrower of Direct Servicing Rights to a portfolio of
Agency Mortgage Loans that the Borrower proposes to finance, in part, with the
proceeds of a Tranche B Borrowing, (a) any agreement, document, instrument or
certificate to be delivered in connection with such acquisition, as the
Administrative Agent may reasonably request, including any purchase contract
relating thereto; (b) a transaction sources and uses statement prepared by an
Authorized Officer, dated as of a date contemporaneous with the proposed
Borrowing Date for such Tranche B Borrowing reflecting the purchase price of the
portfolio, actual and estimated closing costs relating to the acquisition, the
timing of the payment of the purchase price and such closing costs and sources
of funding for the acquisition; (c) a certificate, executed by an Authorized
Officer, certifying that on and as of the Borrowing Date of such Tranche B
Borrowing, with respect to the portfolio of Mortgage Loans, the Direct Servicing
Rights of which are to be financed using the proceeds of such Tranche B
Borrowing, each Mortgage Loan meets the definition of Mortgage Loan contained
herein, and is an Agency Mortgage Loan; and (d) all Agency Acknowledgment
Agreements covering such Direct Servicing Rights, in all cases duly executed and
delivered by all parties thereto.
"Servicing Collateral" shall have the meaning given the term
"Collateral" in the Servicing Security Agreement.
"Servicing Collateral Agent" shall mean Chemical Bank in its capacity
as collateral agent for the Servicing Secured Parties under the Servicing
Security Agreement, and any successor thereto designated pursuant to the
Servicing Security Agreement.
"Servicing Portfolio" shall mean, at any time, each Approved Acquired
Portfolio, the Approved Existing Portfolio, the Affiliate Servicing Portfolio
and all other Mortgage Loans with respect to which the Borrower has Direct
Servicing Rights.
-17-
<PAGE> 124
"Servicing Portfolio Report" shall mean a report indicating the fair
market value, as of the date of such report, of the (i) Direct Servicing Rights
in the Approved Servicing Portfolio, (ii) Excluded Servicing Rights in the
Affiliate Servicing Portfolio, and (iii) Direct Servicing Rights to all other
Mortgage Loans included in the Servicing Portfolio and not otherwise covered by
clauses (i) and (ii) above, with each of the servicing rights described in
clauses (i)-(iii) valued separately, which report shall be in form and substance
reasonably satisfactory to the Administrative Agent and shall be prepared by a
nationally recognized mortgage servicing broker acceptable to the Administrative
Agent in its reasonable discretion and not affiliated with the Borrower. The
parties agree that such report may be prepared by Bayview Financial Trading
Group until such time as the Administrative Agent, acting in the exercise of its
reasonable discretion, provides notice to the Borrower that such entity is no
longer acceptable to the Administrative Agent.
"Servicing Security Agreement" shall mean the Security and Collateral
Agency Agreement (Servicing Credit Facility), substantially in the form of
Exhibit B, as amended, extended or supplemented from time to time.
"Servicing Settlement Account" shall mean account no. 006992897
maintained with the Administrative Agent, which is a "no access" account to the
Borrower.
"Specialty Mortgage Products" shall mean Mortgage Loans Held for Sale
consisting of the following types of Mortgage Loans: (a) home equity lines of
credit, (b) Mortgage Loans secured by a second priority mortgage (or deed of
trust) on the Property encumbered thereby, (c) FHA Title I Mortgage Loans, (d)
Mortgage Loans encumbering Property located in rural areas and otherwise
reasonably acceptable to the Administrative Agent, and (e) Mortgage Loans
purchased by the Borrower from Agency MBS pools, which Mortgage Loans are ninety
(90) days or more delinquent at the time of purchase and the principal balance
of which is insured by the FHA or guaranteed by the VA, and (f) Mortgage Loans
described in the PWRES Financing Agreements.
"Specialty Mortgage Products Report" shall mean a report, prepared by
an Authorized Officer at the end of each calendar quarter, describing as of the
end of such quarter, with respect to each Specialty Mortgage Product, the type
of such Specialty Mortgage Product, the Approved Investor and the applicable
Take-Out Commitment allocated thereto, and the unpaid principal balance thereof.
"SubBorrowing Limit" shall mean seventy-five percent (75%) of the
appraised value of the Direct Servicing Rights relating to the Mortgage Loans
included in the Approved Servicing Portfolio (as reflected in the most recent
Servicing Portfolio Report delivered to the Administrative Agent, absent
manifest error in such report).
"Subsidiary" shall mean, in respect of any Person, a corporation,
partnership or other entity of which shares of stock or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other managers of such corporation, partnership or other entity are
at the time owned, or the management of which is otherwise controlled, directly
or indirectly through one or more intermediaries, or both, by such Person.
-18-
<PAGE> 125
"T&I Advance" shall mean amounts required to be advanced by the
Borrower from its own funds with respect to a Mortgage Loan included in the
Approved Servicing Portfolio to (i) maintain the insurance coverage on the real
property securing such Mortgage Loan, or (ii) pay taxes, assessments, ground
rents or other charges related to the real property securing such Mortgage Loan
that give rise to liens on such property when such charges become due.
"Taxes" shall have the meaning set forth in Section 2.14.
"Telerate" shall mean the Associated Press-Dow Jones Telerate Service.
"Telerate Page 3750" shall mean the display designated as "Page 3750"
on Telerate (or such other page as may replace Page 3750 on the Associated
Press-Dow Jones Telerate Service or such other service as may be nominated by
the British Bankers' Association as the information vendor for the purpose of
displaying British Bankers' Association interest settlement rates for U.S.
Dollar deposits). Any Base LIBOR Rate determined on the basis of the rate
displayed on Telerate Page 3750 shall be subject to corrections, if any, made in
such rate and displayed by the Associated Press-Dow Jones Telerate Service
within one (1) hour of the time when such rate is first displayed by such
Service.
"Term Loan Commitments" shall mean, in respect of each Lender, such
Lender's Tranche A Commitment and Tranche B Commitment.
"Term Loans" shall mean the Tranche A Loans and the Tranche B Loans.
"Term Loan Maturity Date" shall mean June 30, 2000.
"Total Debt" shall mean, as of any date, with respect to any Person,
(i) all items of indebtedness that would be included as of such date in
determining liabilities as shown on the liability side of a statement of
condition of such Person prepared in accordance with GAAP, including all
obligations for money borrowed, subordinate indebtedness, the deferred purchase
price of property or services and capitalized lease obligations, (ii) all
liabilities of such Person relating to gestation repurchase financings, and
(iii) all indebtedness of others assumed or guaranteed by such Person, or in
respect of which such Person is secondarily or contingently liable (other than
by endorsement of instruments in the course of collection), including contingent
reimbursement obligations of such Person under undrawn letters of credit, but
shall exclude (w) trade payables, (x) all liabilities of such Person as of such
date relating to gestation repurchase financings that are treated as true sales
under GAAP, (y) indebtedness described in Section 5.2(f)(viii) and (z)
indebtedness described in Section 5.2(f)(xi) for a period of eighteen (18)
months after the date of such reclassification.
"Tranche A Borrowing" shall mean a borrowing pursuant to a Notice of
Borrowing consisting of Tranche A Loans made by the Lenders to the Borrower on
the Closing Date.
"Tranche A Commitment" shall mean, in respect of each Lender, the
commitment
-19-
<PAGE> 126
of such Lender to make a Tranche A Loan hereunder on the Closing Date.
"Tranche A Fee" shall have the meaning set forth in Section 2.7(i).
"Tranche A Loan" shall mean a loan made by a Lender to the Borrower
pursuant to Section 2.1(a) for the purposes set forth in the first sentence of
Section 4.10.
"Tranche B Borrowing" shall mean a borrowing pursuant to a Notice of
Borrowing consisting of Tranche B Loans made by the Lenders to the Borrower.
"Tranche B Commitment" shall mean, in respect of each Lender, the
commitment of such Lender to make Tranche B Loans hereunder, as set forth in
Section 2.1(b), as such commitment may be reduced from time to time pursuant to
Section 2.2 or Section 8.6(c).
"Tranche B Commitment Expiration Date" shall mean the second
anniversary of the Closing Date.
"Tranche B Fee" shall have the meaning set forth in Section 2.7(k).
"Tranche B Loan" shall mean a loan made by a Lender to the Borrower
pursuant to Section 2.1(b) for the purposes set forth in the second sentence of
Section 4.10.
"Tranche C Borrowing" shall mean a borrowing pursuant to a Notice of
Borrowing consisting of Tranche C Loans made by the Lenders to the Borrower.
"Tranche C Borrowing Base" shall mean, at any time, all Eligible P&I
Advance Receivables pledged to the Servicing Collateral Agent, for the benefit
of the Secured Parties, by the Borrower under the Servicing Security Agreement
as collateral security for the Obligations hereunder.
"Tranche C Borrowing Base Certificate" shall mean a certificate, in the
form approved by the Administrative Agent pursuant to the Servicing Security
Agreement with respect to Tranche C Borrowings, delivered by the Borrower
pursuant to the Servicing Security Agreement.
"Tranche C Commitment" shall mean, in respect of each Lender, the
commitment of such Lender to make Tranche C Loans hereunder, as set forth in
Section 2.1(c), as such commitment may be reduced from time to time pursuant to
Section 2.2 or Section 8.6(c),
"Tranche C Loan" shall mean a loan made by a Lender to the Borrower
pursuant to Section 2.1(c) for the purposes set forth in the third sentence of
Section 4.10.
"Tranche D Borrowing" shall mean a borrowing pursuant to a Notice of
Borrowing consisting of Tranche D Loans made by the Lenders to the Borrower.
"Tranche D Borrowing Base" shall mean, at any time, all Eligible
Working Capital Receivables pledged to the Servicing Collateral Agent, for the
benefit of the Secured
-20-
<PAGE> 127
Parties, by the Borrower under the Servicing Security Agreement as collateral
security for the Obligations hereunder.
"Tranche D Borrowing Base Certificate" shall mean a certificate, in the
form approved by the Administrative Agent pursuant to the Servicing Security
Agreement with respect to Tranche D Borrowings, delivered by the Borrower
pursuant to the Servicing Security Agreement.
"Tranche D Commitment" shall mean, in respect of each Lender, the
commitment of such Lender to make Tranche D Loans hereunder, as set forth in
Section 2.1(d), as such commitment may be reduced from time to time pursuant to
Section 2.2 or Section 8.6(c).
"Tranche D Loan" shall mean a loan made by a Lender to the Borrower
pursuant to Section 2.1(d) for the purposes set forth in the fourth sentence of
Section 4.10.
"Type" shall mean when used in respect of any Loan, a Fed Funds Loan,
an Alternate Base Rate Loan or a LIBOR Loan.
"Unutilized Tranche B Commitment" shall mean the Tranche B Commitment
of each Lender then in effect less the aggregate principal amount of Tranche B
Loans previously made by such Lender.
"VA" shall mean the Veterans Administration and any successor thereto.
"Warehouse Collateral" shall have the meaning given the term
"Collateral" in Section 2 of the Warehouse Security Agreement.
"Warehouse Collateral Agent" shall mean Chemical Bank in its capacity
as collateral agent for the Secured Parties under the Warehouse Security
Agreement, and any successor thereto designated pursuant to Section 3 of the
Warehouse Security Agreement.
"Warehouse Commitments" shall have the meaning given the term
"Commitments" under the Warehouse Credit Agreement.
"Warehouse Credit Agreement" shall mean the Credit Agreement (Revolving
Warehouse Credit Facility), dated as of July 31, 1995, between the lenders party
thereto from time to time, Chemical Bank, as administrative agent for such
lenders, First Bank National Association, as co-agent for such lenders, and the
Borrower, as amended, extended or supplemented from time to time.
"Warehouse Lenders" shall mean the lenders party to the Warehouse
Credit Agreement from time to time.
"Warehouse Loans" shall have the meaning given the term "Loans" in the
Warehouse Credit Agreement.
"Warehouse Loan Documents" shall have the meaning given the term "Loan
-21-
<PAGE> 128
Documents" in the Warehouse Credit Agreement.
"Warehouse Obligations" shall have the meaning given the term
"Obligations" in the Warehouse Credit Agreement.
"Warehouse Security Agreements" shall have the meaning given the term
"Security Agreements" in the Warehouse Credit Agreement.
"Warehouse Secured Parties" shall mean the "Secured Parties," as such
term is defined in the Warehouse Security Agreement.
"Warehouse Security Agreement" shall mean the Security and Collateral
Agency Agreement (Revolving Warehouse Credit Facility), substantially in the
form of Exhibit B to the Warehouse Credit Agreement, as amended, modified or
supplemented from time to time.
"Western Sunrise" shall mean Western Sunrise Holdings, L.P., a Delaware
limited partnership.
Section 1.2 Terms Generally.
The definitions in Section 1.1 shall apply equally to both the singular
and plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
The words "include," "includes" and "including" shall be deemed to be followed
by the phrase "without limitation." All references herein to Articles, Sections,
Exhibits, Schedules and Attachments shall be deemed references to Articles and
Sections of, and Exhibits, Schedules and Attachments to, this Agreement or to an
Exhibit to this Agreement unless the context shall otherwise require. Except as
otherwise provided herein, all terms of an accounting or financial nature shall
be construed in accordance with GAAP, as in effect from time to time; provided
that for purposes of determining compliance with any financial covenant set
forth in Article V, such term shall be construed in accordance with GAAP as in
effect on the date of this Agreement; and provided further, if the Borrower
obtains knowledge of any modification to or change in GAAP occurring after the
date hereof that would result in changing the construction of any term(s)
necessary for determining compliance with any financial covenant set forth in
Article V, then the Borrower shall provide the Administrative Agent with written
notice of such modification or change as soon as practicable after obtaining
knowledge thereof, which notice shall describe the anticipated effect of such
change upon the determination of such compliance and may, at the election of the
Borrower, request that the Administrative Agent consent to the determination of
such compliance based upon the modified construction of such term(s). Promptly
following receipt of such request, the Administrative Agent shall advise the
Borrower as to whether they consent to such determination (which consent shall
not be unreasonably withheld) on the basis of GAAP as so modified or changed or
whether such determination shall continue to be construed in accordance with
GAAP as in effect on the date of this Agreement; provided that any failure to so
advise the Borrower within ten (10) days following receipt of notice shall be
deemed a refusal of such request.
-22-
<PAGE> 129
ARTICLE II
AMOUNTS AND TERMS OF LOANS
Section 2.1 The Commitments.
(a) Tranche A Loans. Subject to and upon the terms and conditions
herein set forth, on the Closing Date, the Borrower may borrow Tranche A Loans
from the Lenders, and each Lender agrees, severally and not jointly, to make a
Tranche A Loan to the Borrower, in an aggregate principal amount at any time
outstanding not to exceed the Tranche A Commitment set forth opposite such
Lender's name on the signature pages hereto; provided that the aggregate
principal amount of: (i) the Tranche A Borrowing shall not exceed the lesser of
(A) one and one-quarter of one percent (1.25%) of the aggregate unpaid principal
amount of Mortgage Loans included in the Approved Existing Portfolio (as
reflected in the most recent Servicing Portfolio Report delivered to the
Administrative Agent, absent manifest error in such report) and (B) sixty-five
percent (65%) of the appraised value of the Direct Servicing Rights relating to
Mortgage Loans included in the Approved Existing Portfolio (as reflected in the
most recent Servicing Portfolio Report delivered to the Administrative Agent,
absent manifest error in such report); and (ii) Loans outstanding at any time
shall not exceed the applicable limitations set forth in Section 2.9(b). Subject
to Section 2.11, each Tranche A Loan shall be an Alternate Base Rate Loan, a Fed
Funds Loan or a LIBOR Loan. The Lenders shall fund the Tranche A Borrowing
ratably in proportion to their respective Percentage Shares. Once prepaid or
repaid, Tranche A Loans may not be reborrowed.
(b) Tranche B Loans. Subject to and upon the terms and conditions
herein set forth, at any time and from time to time from the Closing Date up to
but excluding the date upon which the Tranche B Commitments are terminated, the
Borrower may borrow Tranche B Loans from the Lenders, and each Lender agrees,
severally and not jointly, to make Tranche B Loans to the Borrower, in an
aggregate principal amount at any time outstanding not to exceed the Unutilized
Tranche B Commitment of such Lender; provided that the aggregate principal
amount of: (i) each Tranche B Borrowing shall not exceed the least of: (A) one
and one-quarter of one percent (1.25%) of the aggregate unpaid principal amount
of Mortgage Loans included in the Approved Acquired Portfolio financed with the
proceeds of such Tranche B Borrowing (as reflected in the Servicing Acquisition
Report required to be delivered to the Administrative Agent under Section 3.3
hereof in connection with such proposed Borrowing, absent manifest error in such
report), (B) sixty-five percent (65%) of the appraised value of the Direct
Servicing Rights relating to Mortgage Loans included in the Approved Acquired
Portfolio being financed with the proceeds of such Tranche B Borrowing (as
reflected in the Servicing Acquisition Report required delivered to the
Administrative Agent under Section 3.3 hereof in connection with such proposed
Borrowing, absent manifest error in such report); and (C) the Servicing
Acquisition Costs to be financed by such Tranche B Borrowing (as such costs are
reflected in the Servicing Acquisition Report required to be delivered to the
Administrative Agent under Section 3.3 hereof, absent manifest error in such
report); and (ii) Loans outstanding at any time shall not exceed the applicable
limitations set forth in Section 2.9(b). Subject to Section 2.11, each Tranche B
Loan shall be an Alternate Base Rate Loan, a Fed Funds Loan or a LIBOR Loan.
-23-
<PAGE> 130
Each Tranche B Borrowing shall be in an aggregate principal amount of not less
than $1,000,000 (or any lesser amount equal to the aggregate Unutilized Tranche
B Commitment). The Lenders shall fund each Tranche B Borrowing ratably in
proportion to their respective Percentage Shares. Once prepaid or repaid,
Tranche B Loans may not be reborrowed.
(c) Tranche C Loans. Subject to and upon the terms and conditions
herein set forth, at any time and from time to time from the Closing Date up to
but excluding the date upon which the Tranche C Commitments are terminated, the
Borrower may borrow Tranche C Loans from the Lenders, and each Lender agrees,
severally and not jointly, to make Tranche C Loans to the Borrower, in an
aggregate principal amount at any time outstanding not to exceed the Tranche C
Commitment set forth opposite such Lender's name on the signature pages hereto;
provided that the aggregate principal amount of: (i) Tranche C Loans outstanding
at any time shall not exceed the lesser of (A) the aggregate Tranche C
Commitments of all of the Lenders then in effect, and (B) the then current
Collateral Value of the Tranche C Borrowing Base; and (ii) Loans outstanding at
any time shall not exceed the applicable limitations set forth in Section
2.9(b). Subject to Section 2.11, each Tranche C Loan shall be an Alternate Base
Rate Loan, a Fed Funds Loan or a LIBOR Loan. Each Tranche C Borrowing shall be
in an aggregate principal amount of not less than $100,000 or $1,000,000 in the
case of a LIBOR Loan (or any lesser amount equal to the unused Tranche C
Commitments). The Lenders shall make each Tranche C Borrowing ratably in
proportion to their respective Percentage Shares. Within the foregoing limits
and subject to the conditions set forth in Article III, the Borrower may borrow
and reborrow Tranche C Loans under Section 2.3 and prepay Tranche C Loans under
Section 2.10. No Tranche C Loans shall be outstanding during the period
commencing on the third (3rd) Business Day of each month up to but not including
the fifteenth (15th) calendar day of such month) (or the prior Business Day if
the fifteenth (15th) day of such month is not a Business Day), during which
period the Borrower shall make no Tranche C Borrowings and the Lenders shall
make no Tranche C Loans.
(d) Tranche D Loans. Subject to and upon the terms and conditions
herein set forth, at any time and from time to time from the Closing Date up to
but excluding the date upon which the Tranche D Commitments are terminated, the
Borrower may borrow Tranche D Loans from the Lenders, and each Lender agrees,
severally and not jointly, to make Tranche D Loans to the Borrower, in an
aggregate principal amount at any time outstanding not to exceed the Tranche D
Commitment set forth opposite such Lender's name on the signature pages hereto,
provided that the aggregate principal amount of: (i) Tranche D Loans outstanding
at any time shall not exceed the lesser of (A) the aggregate Tranche D
Commitments of all of the Lenders then in effect, and (B) the then current
Collateral Value of the Tranche D Borrowing Base; and (ii) Loans outstanding at
any time shall not exceed the applicable limitations set forth in Section
2.9(b). Subject to Section 2.11, each Tranche D Loan shall be an Alternate Base
Rate Loan, a Fed Funds Loan or a LIBOR Loan. Each Tranche D Borrowing shall be
in an aggregate principal amount of not less than $100,000 or $1,000,000 in the
case of a LIBOR Loan (or any lesser amount equal to the unused Tranche D
Commitments). The Lenders shall make each Tranche D Borrowing ratably in
proportion to their respective Percentage Shares. Within the foregoing limits
and subject to the conditions set forth in Article III, the Borrower may borrow
and reborrow Tranche D Loans under Section 2.3 and prepay Tranche D Loans under
-24-
<PAGE> 131
Section 2.10.
Section 2.2 Reduction and Termination of Commitments.
The Tranche A Commitments shall terminate upon the consummation of the
Tranche A Borrowing on the Closing Date. The Tranche B Commitments shall
terminate in their entirety on the earlier of the Tranche B Commitment
Expiration Date and any date upon which all Loans become due and payable
pursuant to Section 6.1. The Tranche C Commitments and the Tranche D Commitments
shall terminate in their entirety on the earlier of July 31, 1996 and any date
upon which all Loans become due and payable pursuant to Section 6.1. The
Borrower shall have the right upon at least thirty (30) days' prior irrevocable
written notice to the Administrative Agent and each of the Lenders to (i)
terminate the Tranche B Commitments, the Tranche C Commitments or the Tranche D
Commitments in their entirety, or (ii) reduce the Tranche B Commitments, the
Tranche C Commitments or the Tranche D Commitments, provided that any such
reduction of Commitments shall reduce each Lender's applicable Commitment on a
pro rata basis in accordance with each such Lender's Percentage Share.
Section 2.3 Method of Borrowing.
(a) Borrowings. Whenever the Borrower desires to make a Borrowing
hereunder, or to convert any Loan into a different Type of Loan pursuant to
Section 2.4, or to continue any Loan for an additional LIBOR Interest Period, an
Authorized Officer shall deliver to the Administrative Agent notice of such
proposed Borrowing, conversion or continuation (a "Notice of Borrowing" or
"Notice of Conversion/Continuation", as the case may be) each such notice to be
given (x) prior to 1:30 p.m. (New York City time) on the date of such proposed
Borrowing or conversion, in the case of a Borrowing of Alternate Base Rate Loans
or Fed Funds Loans or a conversion of LIBOR Loans into Alternate Base Rate Loans
or Fed Funds Loans and (y) prior to 11:00 a.m. (New York City time) on the third
LIBOR Business Day before the date of such proposed Borrowing, conversion or
continuation, in the case of a Borrowing of LIBOR Loans, a conversion of
Alternate Base Rate Loans or Fed Funds Loans into LIBOR Loans, or a continuation
of LIBOR Loans for an additional LIBOR Interest Period. Each such notice shall
be irrevocable and shall be in the form of Exhibit G or H, as the case may be.
Notwithstanding any other provision to the contrary no more than five (5) LIBOR
Interest Periods may be in effect hereunder at any time.
(b) Telephonic Notices. Without in any way limiting the Borrower's
obligation to deliver to the Administrative Agent a copy of any written Notice
of Borrowing or Notice of Conversion/Continuation, the Administrative Agent may
act without liability upon the basis of any telephonic notice of Borrowing or
notice of conversion/continuation, as the case may be, in each case believed by
the Administrative Agent in good faith to be from an Authorized Officer prior to
receipt of written confirmation. In each such case, the Borrower hereby waives
the right to dispute the Administrative Agent's record of the terms of such
telephonic notice, absent manifest error, gross negligence or willful misconduct
by the Administrative Agent. An Authorized Officer shall promptly confirm in
writing any Notice of Borrowing or Notice of Conversion/Continuation, as the
case may be, given by telephone, no later than the close of business on the
Business Day such notice is given; provided that such
-25-
<PAGE> 132
Authorized Officer's failure to confirm any notice by telephone shall not in any
way limit the ability of the Administrative Agent to act upon such telephonic
notice without liability in accordance with the preceding sentence.
(c) Notices to Lenders. The Administrative Agent shall promptly (and in
any event by 2:00 p.m. (New York City time) on the date of receipt of such
Notice of Borrowing or Notice of Conversion/Continuation give each Lender and
the Servicing Collateral Agent telefacsimile notice of each proposed Borrowing,
conversion or continuation, as the case may be, of such Lender's Percentage
Share thereof and of any other matters covered by such notice.
(d) Notice of LIBOR Rate Determination. Upon determining the applicable
LIBOR Rate for each LIBOR Interest Period, the Administrative Agent shall notify
the Borrower and each Lender of such LIBOR Rate prior to 2:00 p.m. (New York
City time) on the second (2nd) LIBOR Business Day prior to the date of each
proposed Borrowing of LIBOR Loans, conversion of Alternate Base Rate Loans or
Fed Funds Loans into LIBOR Loans or a continuation of LIBOR Loans for an
additional LIBOR Interest Period, and such determination by the Administrative
Agent shall be conclusive and binding absent manifest error.
(e) Affirmation of Representations. By delivering a Notice of
Conversion/Continuation to the Administrative Agent hereunder of the
continuation of any LIBOR Loan for an additional LIBOR Interest Period or the
conversion of any Alternate Base Rate Loans or Fed Funds Loans into LIBOR Loans,
the Borrower shall be deemed to have represented and warranted that no Potential
Default or Event of Default has occurred and is continuing.
Section 2.4 Conversions and Continuations.
(a) Conversions and Continuations. Subject to the terms and conditions
hereof and in accordance with the procedures for conversions and the other
provisions set forth in Section 2.3(a), each Lender agrees to convert
outstanding Loans from Alternate Base Rate Loans or Fed Funds Loans into LIBOR
Loans and from LIBOR Loans into Alternate Base Rate Loans or Fed Funds Loans (in
each case in an aggregate principal amount not to exceed the aggregate principal
amount of the Alternate Base Rate Loans, Fed Funds Loans or LIBOR Loans, as the
case may be, then outstanding and being converted) and to continue outstanding
LIBOR Loans for additional LIBOR Interest Periods; provided that (i) any
conversion of LIBOR Loans into Alternate Base Rate Loans or Fed Funds Loans may
only be made on the last day of the LIBOR Interest Period applicable to such
LIBOR Loans being converted; and (ii) if an Event of Default has occurred and is
continuing, no outstanding Alternate Base Rate Loans or Fed Funds Loans may be
converted into LIBOR Loans and no LIBOR Loans may, at the end of the LIBOR
Interest Period applicable thereto, be continued as a LIBOR Loan for an
additional LIBOR Loan Interest Period. Each Lender will make such conversions
and continuations without an exchange of funds.
(b) Conversions Upon Absence of Notice. If the Administrative Agent has
not received a timely Notice of Borrowing or Notice of Conversion/Continuation
from the
-26-
<PAGE> 133
Borrower prior to the expiration of any LIBOR Interest Period for any
outstanding LIBOR Loans of the Borrower, the Borrower shall be deemed to have
irrevocably elected to convert such LIBOR Loans into Alternate Base Rate Loans.
Section 2.5 Disbursement of Funds.
(a) Funds Transfers to Pre-Disbursement Account. Each Lender shall make
available to the Administrative Agent an amount equal to such Lender's
Percentage Share of each proposed Borrowing, in immediately available funds by
wire transfer of such funds to the Pre-Disbursement Account no later than 3:00
p.m. on the date of the proposed Borrowing. The Administrative Agent shall hold
funds transferred to the Pre-Disbursement Account pending disbursement in
accordance with subsection (b) below.
(b) Disbursement. Unless the Administrative Agent determines that any
applicable condition in Article III has not been satisfied, the Administrative
Agent shall make amounts held in the Pre-Disbursement Account with respect to a
proposed Borrowing available to the Borrower in immediately available funds by
wire transfer of such amounts to such account as the Borrower directs in writing
for such purpose (except for the proceeds of a Tranche C Borrowing which shall
be funded directly into the applicable Agency P&I Custodial Account) no later
than 12:00 noon (New York City time) on the date of the proposed Borrowing. If
any proposed Borrowing does not occur on the requested date because any
condition precedent herein specified has not been met, the Administrative Agent
shall so notify the Lenders promptly and shall return the amounts so received to
the respective Lenders.
(c) Defaulting Lender; Reimbursement of Administrative Agent. Unless
the Administrative Agent has been notified by any Lender before 2:30 p.m. (New
York City time) on the date of a proposed Borrowing that such Lender does not
intend to make available to the Administrative Agent on such date an amount
equal to such Lender's Percentage Share of such Borrowing, the Administrative
Agent may assume that such Lender will make such amount available to the
Administrative Agent on such date, and the Administrative Agent may (but shall
not be obligated to) make available a corresponding amount to the Borrower. If
and to the extent any Lender fails to make its full amount available to the
Administrative Agent and the Administrative Agent in such circumstances has made
available such amount to the Borrower, such Lender shall on the next Business
Day following the date of such Borrowing make such amount available to the
Administrative Agent in immediately available funds by wire transfer of such
funds to such account as the Administrative Agent directs for such purpose,
together with interest thereon at a rate per annum equal to the interest rate
applicable at the time of the Loans constituting such Borrowing for and
determined as of each day from the date of such Borrowing to the next Business
Day. A certificate of the Administrative Agent submitted to any Lender with
respect to amounts owing under this subsection (c) shall be conclusive and
binding, absent manifest error. If such amount is so made available, such
payment to the Administrative Agent shall constitute such Lender's Loan on the
Borrowing Date for all purposes of this Agreement. If such amount is not made so
available to the Administrative Agent on the next Business Day following the
Borrowing Date, the Administrative Agent shall notify the Borrower of such
failure to fund and, upon demand by the Administrative Agent, the Borrower shall
pay such
-27-
<PAGE> 134
amount to the Administrative Agent for the Administrative Agent's account,
together with interest thereon for each day elapsed since the date of such
Borrowing, at a rate per annum equal to the interest rate applicable at the time
to the Loans constituting such Borrowing.
(d) Obligations of Lenders Several and Not Joint. No Lender shall be
responsible for any default by any other Lender in its obligation to make Loans
hereunder, and each Lender shall be obligated to make the Loans on the terms set
forth herein, regardless of the failure of any other Lender to fulfill its
obligations hereunder.
Section 2.6 Notes.
The Borrower's obligation to repay the Loans made to it by each Lender
shall be evidenced by a promissory note (each, a "Note" and collectively, the
"Notes"), substantially in the form of Exhibit A, with blanks appropriately
completed in conformity therewith and payable to the order of such Lender. Each
Lender shall, and is hereby authorized by the Borrower to, endorse on the
schedule attached to the applicable Note delivered to such Lender (or on a
continuation of such schedule attached to such Note and made a part thereof), or
otherwise to record in such Lender's internal records, an appropriate notation
evidencing the date and amount of each Loan from such Lender, whether such Loan
is a Tranche A Loan, Tranche B Loan, Tranche C Loan or Tranche D Loan, the Type
of such Loan, each payment and prepayment of principal of any such Loan, each
payment of interest on any such Loan, applicable interest rates and LIBOR
Interest Periods, if any, and other information with respect thereto, and any
such recordation shall, absent manifest error, constitute prima facie evidence
of the accuracy of the information so recorded; provided that the failure of any
Lender to make such a notation or any error therein shall not affect the
Obligations of the Borrower, including its Obligation to repay the Loans made by
such Lender in accordance with the terms of this Agreement and the applicable
Notes.
Section 2.7 Interest and Fees.
(a) Fed Funds Loans. The Borrower agrees to pay interest in respect of
the unpaid principal amount of each Fed Funds Loan at a rate per annum equal to
the Federal Funds Rate in effect from time to time plus (i) one and
three-quarters of one percent (1.75%) if such Fed Funds Loan is a Tranche C
Loan, (ii) two percent (2.0%) if such Fed Funds Loan is a Tranche D Loan and
(iii) two and one-quarter of one percent (2.25%) if such Fed Funds Loan is a
Tranche A Loan or a Tranche B Loan.
(b) Alternate Base Rate Loans. The Borrower agrees to pay interest in
respect of the unpaid principal amount of each Alternate Base Rate Loan at a
rate per annum equal to the Alternate Base Rate plus (i) seven-eighths of one
percent (.875%) if such Alternate Base Rate Loan is a Tranche C Loan, (ii) one
percent (1.0%) if such Alternate Base Rate Loan is a Tranche D Loan, and (iii)
one and one-eighth of one percent (1.125%) if such Alternate Base Rate Loan is a
Tranche A Loan or a Tranche B Loan.
(c) LIBOR Loans. The Borrower agrees to pay interest in respect of the
unpaid principal amount of each LIBOR Loan for each day during the LIBOR
Interest Period
-28-
<PAGE> 135
applicable thereto at a rate per annum equal to the LIBOR Rate for such LIBOR
Interest Period plus (i) one and three-quarters of one percent (1.75%) if such
LIBOR Loan is a Tranche C Loan, (ii) two percent (2.0%) if such LIBOR Loan is a
Tranche D Loan and (iii) two and one-quarter percent (2.25%) if such LIBOR Loan
is a Tranche A Loan or a Tranche B Loan.
(d) Overdue Amounts. Overdue principal and interest in respect of each
Loan and all other overdue amounts owing hereunder shall bear interest for each
day that such amounts are overdue (before as well as after judgment) at a rate
per annum equal to the Alternate Base Rate in effect from time to time plus two
percent (2.0%).
(e) Interest Accrual and Payment Dates. Interest on each Loan shall
accrue from and including the Borrowing Date thereof to but excluding the date
of any repayment thereof and shall be payable (i) monthly on or before the
second Business Day after receipt of the billing statement referred to in clause
(f) below, (ii) on any prepayment or repayment in full of all of any Lender s
outstanding Loans, (iii) at maturity (whether by acceleration or otherwise) and
(iv) after maturity, on demand.
(f) Interest Billing Statements. The Administrative Agent shall deliver
to the Borrower an interest billing statement for each month on or before the
third Business Day of the next succeeding month, which interest billing
statement shall set forth the interest accrued on the Loans (including LIBOR
Loans) for such month; provided that any failure or delay in delivering such
interest billing statement to the Borrower or any inaccuracy therein shall not
affect the Obligations. The Administrative Agent shall deliver to each
applicable Lender, on the Business Day following the Borrower's payment of the
accrued interest set forth on such interest billing statement, a copy of such
statement with a confirmation that the accrued interest set forth thereon has
been paid by the Borrower. Notwithstanding the foregoing, to the extent any
Lender has entered into a separate written agreement of the type described in
Section 2.7(l), such Lender shall give promptly notice thereof to the
Administrative Agent and deliver its billing statement for such month directly
to the Borrower and shall collect any interest payments due to such Lender as
set forth in such billing statements; provided that if a Potential Default or an
Event of Default shall have occurred and be continuing, such Lender shall
deliver a copy of its then current interest billing statement and each
subsequent interest billing statement to the Administrative Agent and the
Borrower shall be instructed by such Lender to remit amounts due to such Lender
to the Administrative Agent. Each Lender providing notice to the Administrative
Agent pursuant to the previous sentence shall indemnify and hold the
Administrative Agent harmless from and against the collection of interest from
the Borrower with respect to the Loans accruing interest at the reduced rates as
described in Section 2.7(l) and agrees that the Administrative Agent shall have
no liability or obligation with respect to such collections.
(g) Commitment Fee. The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a commitment fee (the "Commitment Fee") at
a rate per annum equal to one-quarter of one percent (0.25%) of the amount of
such Lender's aggregate Unutilized Tranche B Commitments, Tranche C Commitments
(whether used or unused) and Tranche D Commitments (whether used or unused). The
Commitment Fees shall be payable quarterly in arrears on the last Business Day
of each quarter, commencing September 29, 1995.
-29-
<PAGE> 136
(h) Usage Fee. The Borrower agrees to pay to the Administrative Agent
for the account of each Lender a usage fee (the "Usage Fee") at a rate per annum
equal to one-quarter of one percent (0.25%) of the amount of such Lender's
aggregate Tranche A Loans and Tranche B Loans outstanding during each calendar
quarter. The Usage Fees shall be calculated and payable quarterly in arrears on
the last Business Day of each calendar quarter, commencing September 29, 1995.
(i) Administrative Agent's and Arranger's Fee. The Borrower agrees to
pay to the Administrative Agent, for its own account, fees in the amount and on
the dates separately agreed to by the Administrative Agent and the Borrower.
(j) Tranche A Fee. The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a fee (the "Tranche A Fee") equal to one
percent (1.00%) of the amount of such Lender's aggregate Tranche A Loan made on
the Closing Date. Such Tranche A Fee shall be due and payable on the Closing
Date.
(k) Tranche B Fee. The Borrower agrees to pay to the Administrative
Agent for the account of each Lender that is a Lender as of the Closing Date a
fee (the "Tranche B Fee") equal to one percent (1.00%) of the amount of each
Tranche B Loan made by such Lender (each of which Tranche B Loans shall include,
for the purpose of determining the Tranche B Fee payable to each such Lender,
any Tranche B Loans made by assignees of such Lender). The Tranche B Fees shall
be due and payable on each date that a Tranche B Loan is made.
(l) Reduced Interest Rates. Each Lender may from time to time, in its
sole discretion, offer to the Borrower to have a portion of such Lender's Loans
bear interest at a reduced interest rate in consideration of the Borrower's
maintenance of compensating balances with such Lender. Any such agreement
between such Lender and the Borrower shall be evidenced by a separate written
agreement executed by such Lender and the Borrower; provided that in no event
shall any Lender agree in such agreement to an interest rate on overdue amounts
hereunder that is less than the rate specified in Section 2.7(d).
(m) Computations of Interest and Fees. All computations of interest and
Fees shall be made on the basis of a year of three hundred and sixty (360) days
for the actual number of days (including the first day but excluding the last
day) occurring in the period for which such interest or Fees are payable. Each
determination by the Administrative Agent of an interest rate or Fee hereunder
shall be conclusive and binding absent manifest error.
-30-
<PAGE> 137
Section 2.8 Payments; Distributions and Applications of Payments.
(a) Place and Time of Payments. Except as otherwise specifically
provided herein, all payments by or on behalf of the Borrower under this
Agreement and the Notes shall be made without defense, set-off or counterclaim
to the Administrative Agent no later than 1:30 p.m. (New York City time) on the
date when due, it being expressly agreed and understood that if a payment is
received after 1:30 p.m. (New York City time) by the Administrative Agent, such
payment shall be deemed to have been made on the next succeeding Business Day
and interest thereon shall be payable at the then applicable rate during such
extension. All payments hereunder shall be made in U.S. Dollars in immediately
available funds at the Payment Office.
(b) Next Business Day. Whenever any payment to be made hereunder or
under any Note is stated to be due on a day that is not a Business Day, the due
date thereof shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest thereon shall be payable at the
applicable rate during such extension.
(c) Notice of Payments. On any date upon which the Borrower makes a
payment hereunder (by wire transfer of funds, by requesting the Administrative
Agent to apply funds in the Servicing Settlement Account and/or the Operating
Account to pay the Borrower's Obligations or otherwise), the Borrower shall give
notice to the Administrative Agent of such payment in the form attached hereto
as Exhibit L (a "Notice of Payment") by 1:30 p.m. (New York City time). Each
Notice of Payment shall be supported by a Borrowing Base Certificate and shall
advise the Administrative Agent as to: (i) whether the Borrower is requesting
application of funds in the Servicing Settlement Accounts to pay its
Obligations; (ii) whether such payment (or what portion thereof) is in respect
of principal, interest, Fees or other amounts payable by the Borrower hereunder;
(iii) if such payment is in respect of principal, (A) whether such payment is a
mandatory repayment required under Section 2.9 and, if applicable, the
designation of the Types of Loans to be repaid or (B) whether such payment is an
optional prepayment permitted under Section 2.10, and, if so, the Type(s) of
Loans the Borrower is prepaying; provided that a Notice of Payment delivered to
the Administrative Agent shall be for purposes of advising and assisting the
Administrative Agent in its duties hereunder and, in no event, shall the
foregoing be construed as obligating the Administrative Agent to apply funds in
accordance with any Notice of Payment delivered to it. For payments made in
respect of interest, the Borrower shall attach the applicable interest billing
statement to its Notice of Payment. The Borrower hereby irrevocably
unconditionally authorizes the Administrative Agent to debit the Operating
Account in the amount of interest and Fees due and payable on the due date for
such interest and Fees specified in Section 2.7 if such interest and Fees have
not been previously paid by the Borrower.
(d) Distributions of Payments to Lenders. Upon receipt of any payment
hereunder, the Administrative Agent will promptly thereafter (and in any event
by the close of business on the day on which such funds are received if such
funds are received by the Administrative Agent at or prior to 1:30 p.m. (New
York City time) or, if such funds are received by the Administrative Agent after
1:30 p.m. (New York City time), by the close of business on
-31-
<PAGE> 138
the next succeeding Business Day) distribute funds in the form received relating
to the payment of (i) principal of or interest on any Loans and any Facility
Fees ratably to the Lenders, and (ii) any Fees and any other amount payable to
any Secured Party to such Secured Party. Prior to the maturity of the Loans and
other Obligations (upon scheduled maturity, acceleration or otherwise), if no
Potential Default or Event of Default has occurred and is continuing, the
Administrative Agent shall apply all payments of principal hereunder in
accordance with subsection (e) below, and if a Potential Default or an Event of
Default has occurred and is continuing, the Administrative Agent shall apply all
payments received hereunder in accordance with subsection (f) below. Upon and
following the maturity of the Loans (upon scheduled maturity, acceleration or
otherwise), the Administrative Agent shall apply all payments received hereunder
in accordance with subsection (g) below.
(e) Applications of Payments; No Potential Default or Event of Default.
Prior to the maturity of the Loans and other Obligations (upon scheduled
maturity, acceleration or otherwise), if no Potential Default or Event of
Default has occurred and is continuing, the Administrative Agent shall apply all
funds received on any day from the Borrower hereunder, in respect of the
principal of the Loans, or under the Servicing Security Agreement, including
funds from the Servicing Settlement Account, as follows: first, if interest on
the Loans or any Fee is due and payable on such day, the Administrative Agent
shall distribute such funds ratably to the Lenders, in accordance with the
amount of interest due and payable on their respective outstanding Loans and
Commitments to the Borrower, to pay all such unpaid interest and Fees; second,
if any Loans of the Borrower are due and payable on such day under Section 2.9,
the Administrative Agent shall distribute such funds ratably to the Lenders, in
accordance with the aggregate principal amounts of their respective outstanding
Loans to the Borrower that are due and payable on such day, to repay the
aggregate principal amount of such Loans, and, if applicable, the Administrative
Agent shall apply such funds pursuant to the order of allocation set forth in
Section 2.9; third, if any Loans of the Borrower are to be prepaid on such day
under Section 2.10, the Administrative Agent shall distribute such funds ratably
to the Lenders, in accordance with the aggregate principal amounts of their
respective outstanding Loans to the Borrower, to prepay the aggregate principal
amount of such Loans, and, if applicable, the Administrative Agent shall apply
such funds pursuant to the order of allocation set forth in instructions
received from the Borrower, or if no such instructions are received, to the
order of allocation set forth in Section 2.10; and fourth, if any balance
remains after application of such funds in accordance with the foregoing clauses
first through third, the Administrative Agent shall release such balance to the
Borrower by transfer to the Operating Account or to such other account as such
Borrower directs the Administrative Agent in writing for such purpose.
(f) Applications of Payments; Potential Default or Event of Default.
Prior to the maturity of the Loans and other Obligations (upon scheduled
maturity, acceleration or otherwise), if any Potential Default or Event of
Default has occurred and is continuing, the Administrative Agent shall apply all
funds received on any day from the Borrower hereunder or under the Servicing
Security Agreement (including funds held in the Servicing Settlement Account),
as follows: first, if the Servicing Collateral Agent has incurred fees, costs
and expenses in connection with such Potential Default or Event of Default or
fees, costs and expenses are otherwise payable to it in its capacity as
Servicing Collateral Agent under the
-32-
<PAGE> 139
Servicing Security Agreement, the Administrative Agent shall pay such funds to
the Servicing Collateral Agent as reimbursement therefor, in an amount equal to
such reasonable fees, costs and expenses; second, if the Administrative Agent
has reasonably incurred fees, costs and expenses in connection with such
Potential Default or Event of Default or fees, costs or expenses are otherwise
payable to it in its capacity as Administrative Agent under the Loan Documents,
the Administrative Agent shall pay such funds to itself as reimbursement
therefor, in an amount equal to such fees, costs and expenses; third, if
interest on the Loans or any Fee is due and payable on such day, the
Administrative Agent shall distribute such funds ratably to the Lenders, in
accordance with the amount of interest and/or Fees due and payable on their
respective outstanding Loans and Commitments to the Borrower, to pay all such
unpaid interest and Fees; fourth, if any Loans of the Borrower are due and
payable on such day under Section 2.9, the Administrative Agent shall distribute
such funds ratably to the Lenders, in accordance with the aggregate principal
amounts of their respective outstanding Loans to the Borrower that are due and
payable on such day, to repay the aggregate principal amount of such Loans, and,
if applicable, the Administrative Agent shall apply such funds pursuant to the
order of allocation set forth in Section 2.9; fifth, if other Obligations of the
Borrower are due and payable on such day, the Administrative Agent shall
distribute such funds ratably to the Lenders, in accordance with their other
respective Obligations owed to them by the Borrower that are due and payable on
such day, to pay all such Obligations; sixth, if any Warehouse Obligations of
the Borrower are due and payable on such day, the Administrative Agent shall
distribute such funds ratably to the Lenders, in accordance with their
respective Warehouse Obligations owed to them by the Borrower that are due and
payable on such day, to pay all such Warehouse Obligations; and seventh, if any
balance remains after application of such funds in accordance with clauses first
through sixth above the Administrative Agent shall hold such balance in the
Servicing Settlement Account as cash collateral securing the Obligations until
such Potential Default or Event of Default, as the case may be, is no longer
continuing, in which event such balance shall be applied in accordance with
subsection (e) above, or the maturity of the Loans and other Obligations (upon
scheduled maturity, acceleration or otherwise), in which event such balance
shall be applied in accordance with subsection (g) below. The Borrower hereby
consents to the Administrative Agent's holding of such funds as cash collateral
and grants to the Administrative Agent, for the benefit of the Secured Parties a
security interest in such proceeds hereafter acquired by the Administrative
Agent, as collateral for the payment and performance of the Obligations.
(g) Applications of Payments; Maturity of Loans. Upon and following the
maturity of all Loans (upon scheduled maturity, acceleration or otherwise), the
Administrative Agent shall apply all funds in Servicing Settlement Account, the
Controlled Disbursement Account and the Pre-Disbursement Account and all amounts
received on any day by the Administrative Agent hereunder, under the Servicing
Security Agreement or otherwise on account of the Obligations of the Borrower,
as follows: first, if the Servicing Collateral Agent has incurred fees, costs
and expenses in connection with any Event of Default or fees, costs and expenses
are otherwise payable to it in its capacity as Servicing Collateral Agent under
the Servicing Security Agreement, the Administrative Agent shall pay such funds
to the Servicing Collateral Agent as reimbursement therefor, in an amount equal
to such reasonable fees, costs and expenses; second, if the Administrative Agent
has reasonably incurred fees, costs and
-33-
<PAGE> 140
expenses reasonably in connection with any Event of Default or fees, costs and
expenses are otherwise payable to it in its capacity as Administrative Agent for
the Lenders under the Loan Documents, the Administrative Agent shall pay such
funds to itself as reimbursement therefor, in an amount equal to such fees,
costs and expenses; third, if interest on the Loans or any Fee is due and
payable on such day, the Administrative Agent shall distribute such funds
ratably to the Lenders, in accordance with the amount of interest due and
payable on their respective outstanding Loans and Commitments to the Borrower,
to pay all such unpaid interest and Fees; fourth, with respect to the principal
of such Borrower's Loans due and payable on such day, the Administrative Agent
shall distribute such funds ratably to the Lenders, in accordance with the
aggregate principal amounts of their respective outstanding Loans to the
Borrower, to repay all such principal amounts and, if applicable, the
Administrative Agent shall apply such funds pursuant to the order of allocation
set forth in Section 2.9; fifth, if any other Obligations of the Borrower are
due and payable on such day, the Administrative Agent shall distribute such
funds ratably to all of the Lenders in accordance with their respective
remaining unpaid Obligations of such Borrower, to pay all such remaining unpaid
Obligations; sixth, if any Warehouse Obligations of the Borrower are due and
payable on such day, the Administrative Agent shall distribute such funds
ratably to the Lenders, in accordance with their respective Warehouse
Obligations owed to them by the Borrower that are due and payable on such day,
to pay all such Warehouse Obligations; and seventh, if any balance remains after
application of such funds in accordance with the foregoing clauses first through
sixth, the Administrative Agent shall pay such proceeds to the Borrower by
transfer to the Operating Account or to the other account as the Borrower
directs the Administrative Agent in writing for such purpose.
Section 2.9 Mandatory Repayment Events.
(a) Facility Maturity. The Borrower shall repay all of its outstanding
Tranche A Loans and Tranche B Loans on the Term Loan Maturity Date and on any
date upon which the maturity of the Loans is accelerated pursuant to Section
6.1. The Borrower shall repay all of its outstanding Tranche C Loans and Tranche
D Loans on July 31, 1996 and on any date upon which the maturity of the Loans is
accelerated pursuant to Section 6.1.
(b) Aggregate Principal Balance Limitations of Loans. (i) On any date
upon which the aggregate principal amount of any of the outstanding Loans
exceeds the applicable limitations set forth in Sections 2.1(c) or 2.1(d), or
the limitations set forth in clause (ii) below, the Borrower shall repay the
aggregate principal amount of such Loans as is necessary so that such aggregate
principal amount does not exceed such limitations. The Borrower may designate in
a Notice of Payment the Types of its Loans to be repaid and the order of
repayment thereof. If the Borrower fails to make such a designation, the
Administrative Agent shall apply any funds received from the Borrower pursuant
to this Section 2.9 as follows: first, to Tranche D Loans; second, to Tranche C
Loans; third, to Tranche B Loans; and fourth, to Tranche A Loans, and within
each such tranche, as follows: first, to such Loans that are Alternate Base Rate
Loans then outstanding, second, to such Loans that are Fed Funds Loans then
outstanding, and third, to such Loans that are LIBOR Loans then outstanding.
(ii) Notwithstanding anything contained herein, in no event
shall the
-34-
<PAGE> 141
aggregate principal amount of: (A) Tranche A Loans and Tranche B Loans
outstanding at any time exceed the lesser of (I) one and one-quarter of one
percent (1.25%) of the aggregate unpaid principal amount of Mortgage Loans
included in the Approved Servicing Portfolio (as reflected in the most recent
Servicing Portfolio Report delivered to the Administrative Agent, absent
manifest error in such report); and (II) sixty-five percent (65%) of the
appraised value of the Direct Servicing Rights relating to Mortgage Loans
included in the Approved Servicing Portfolio (as reflected in the most recent
Servicing Portfolio Report delivered to the Administrative Agent, absent
manifest error in such report); (B) Tranche A Loans, Tranche B Loans and Tranche
D loans outstanding at any time exceed the SubBorrowing Limit; and (C) Loans
outstanding at any time exceed the Maximum Borrowing Limit.
(iii) Any repayment of Tranche A Loans or Tranche B Loans under
this Section 2.9(b) shall be applied to installments under Sections 2.9(c) or
2.9(d), respectively, in inverse order of maturities.
(c) Amortization of Tranche A Loans. The Borrower shall repay the
aggregate principal amount of the outstanding Tranche A Loans in twenty (20)
equal quarterly installments, each such installment to be in an amount equal to
five percent (5%) of the aggregate principal amount of the Tranche A Loans
outstanding on the Closing Date after giving effect to the Tranche A Borrowing.
The Borrower shall make each such payment quarterly in arrears, with the first
such payment due on September 30, 1995 and each payment due thereafter on the
last Business Day of each subsequent calendar quarter. Any funds received by the
Administrative Agent as a repayment pursuant to this subsection (c) shall be
applied, as applicable, first, to Tranche A Loans that are Alternate Base Rate
Loans then outstanding, second, to Tranche A Loans that are Fed Funds Loans then
outstanding, and third, to Tranche A Loans that are LIBOR Loans then
outstanding.
(d) Amortization of Tranche B Loans. The Borrower shall repay the
aggregate principal amount of any Tranche B Loans outstanding as of the first
anniversary of the Closing Date, in sixteen (16) equal quarterly installments,
each in an amount equal to six and one-quarter percent (6.25%) of the aggregate
principal amount of the Tranche B Loans outstanding as of the first anniversary
of the Closing Date. The Borrower shall repay the aggregate principal amount of
any Tranche B Loans made after the first anniversary of the Closing Date and
outstanding as of the Tranche B Commitment Expiration Date in twelve (12) equal
quarterly installments, each in an amount equal to eight and one-third percent
(8.33%) of the aggregate principal amount of such Tranche B Loans outstanding on
the Tranche B Commitment Expiration Date. The Borrower shall make each such
installment payment on the Tranche B Loans quarterly in arrears, with the first
such payment due on September 30, 1996 and each payment thereafter due on the
last day of each subsequent calendar quarter. Any funds received by the
Administrative Agent from the Borrower as a repayment pursuant to this
subsection (d) shall be applied first, to Loans that are outstanding Alternate
Base Rate Loans, second, to such Loans that are outstanding Fed Funds Loans, and
third, to such Loans that are outstanding LIBOR Loans.
(e) Tranche C Loans. The Borrower shall repay all outstanding Tranche C
-35-
<PAGE> 142
Loans on or before the third (3rd) Business Day of each month, so that no
Tranche C Loans remain outstanding during the period commencing on the third
(3rd) Business Day up to but not including the fifteenth (15th) calendar day of
each month (or the prior Business Day if the fifteenth (15th) is not a Business
Day).
(f) LIBOR Loans. All prepayment of LIBOR Loans under this Section 2.9
shall be subject to Section 2.13.
Section 2.10 Optional Prepayments.
(a) Notice of Payment; Designation of Payment Applications. The
Borrower shall have the right at any time and from time to time to prepay its
outstanding Loans, in whole or in part; provided that the Borrower shall deliver
to the Administrative Agent a Notice of Payment with respect to each of the
Borrower's prepayments prior to 1:30 p.m. (New York City time) on the day of
each such proposed prepayment; and provided further, that each partial
prepayment of any Loan shall be in an aggregate principal amount of $100,000 or
any multiple of $50,000 in excess thereof. The Borrower shall designate in the
Notice of Payment delivered in connection with any proposed prepayment whether
such prepayment is of Tranche A Loans, Tranche B Loans, Tranche C Loans or
Tranche D Loans.
(b) Failure to Designate Payment Applications. If such Borrower fails
to make such a designation, the Administrative Agent shall apply any funds
received as a prepayment under this Section 2.10, to the extent applicable, as
follows: first, to Loans that are Alternate Base Rate Loans, second, to Loans
that are Fed Funds Loans, and third, to such Loans that are LIBOR Loans. Any
repayment of Tranche A Loans or Tranche B Loans under this Section 2.10 shall be
applied in inverse order of maturity.
(c) No Premiums. All prepayments of Loans under this Section 2.10 shall
be without premium or penalty; provided that any prepayment of LIBOR Loans shall
be subject to the provisions of Section 2.13.
Section 2.11 LIBOR Rate Not Determinable; Illegality or Impropriety.
(a) LIBOR Rate Not Determinable. In the event, and on each occasion,
that on or before the day on which the LIBOR Rate for any LIBOR Interest Period
is to be determined, the Administrative Agent determines in good faith that the
LIBOR Rate cannot be determined for any reason, the Administrative Agent shall
give written notice of such determination, as soon as practicable thereafter, to
the Borrower and the Lenders. Following any such determination until the
Administrative Agent has advised the Borrower and the Lenders that the
circumstances giving rise to such notice no longer exist, any request by a
Borrower pursuant to Section 2.3 for a Borrowing of a LIBOR Loan, a conversion
of an Alternate Base Rate Loan or a Fed Funds Loan into a LIBOR Loan or a
continuation of a LIBOR Loan for an additional LIBOR Interest Period shall be
deemed to be, respectively, a request for a Borrowing of an Alternate Base Rate
Loan (in the case of a request for a Borrowing of LIBOR Loan) or a conversion of
a LIBOR Loan into an Alternate Base Rate Loan (in the case of a request for a
-36-
<PAGE> 143
conversion or continuation as described above). Each determination by the
Administrative Agent hereunder shall be conclusive and binding absent manifest
error.
(b) Illegality or Impropriety. If any Lender determines at any time
that the introduction of, or any change in, any applicable law, rule,
regulation, order or decree or in the interpretation or the administration
thereof by any Governmental Authority charged with the interpretation or
administration thereof, or compliance by such Lender with any request or
directive (whether or not having the force of law) of any such Governmental
Authority, makes it unlawful or improper for such Lender to make any LIBOR Loan,
convert any Alternate Base Rate Loan or Fed Funds Loan into a LIBOR Loan or
continue any LIBOR Loan for an additional LIBOR Interest Period, as the case may
be, as contemplated by this Agreement, then such Lender shall immediately give
notice thereof to the Administrative Agent, the Borrower and each other Lender,
which notice shall describe such illegality or impropriety in reasonable detail.
Effective immediately upon the giving of such notice, the obligation of such
Lender to make LIBOR Loans, convert any Alternate Base Rate Loans or Fed Funds
Loan into LIBOR Loans or continue any LIBOR Loans for an additional LIBOR
Interest Period, as the case may be, shall be suspended for the duration of such
illegality or impropriety. If and when such illegality or impropriety ceases to
exist, such suspension shall cease and such Lender shall notify the
Administrative Agent, the Borrower and each other Lender thereof. If any such
change makes it unlawful or improper for any Lender to maintain any outstanding
LIBOR Loan as a LIBOR Loan, such Lender shall, immediately upon the happening of
such event, notify the Administrative Agent, the Borrower and each other Lender
thereof, and the Borrower shall immediately (or if permitted by applicable law,
rule, regulation, order, decree, interpretation, request or directive, no later
than the date permitted thereby) convert each such LIBOR Loan into an Alternate
Base Rate Loan.
Section 2.12 Reserve Requirements; Change in Circumstances.
(a) Additional Taxes; Reserve Requirements. Notwithstanding any other
provision herein, if (i) after the date of this Agreement any change in
applicable law or regulation, or in the interpretation or administration
thereof, by any Governmental Authority charged with the interpretation or
administration thereof (whether or not having the force of law) imposes any tax
on or changes the basis of taxation of payments to any Lender of the principal
of or interest on any LIBOR Loan made or funded by such Lender or any Fees or
other amounts payable hereunder (other than taxes imposed on the net income of
such Lender by the jurisdiction in which such Lender has its principal office or
lending office or by any political subdivision or taxing authority therein), OR
imposes, modifies or deems applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of or credit
extended by such Lender (except any such reserve requirement that is reflected
in the LIBOR Rate) OR imposes on such Lender any other condition affecting this
Agreement or LIBOR Loans by such Lender, AND (ii) the result of any of the
foregoing increases the cost to such Lender of making or maintaining any LIBOR
Loan or reduces the amount of any sum received or receivable by such Lender
hereunder (whether of principal, interest or otherwise) in respect thereof by an
amount that such Lender deems to be material, THEN the Borrower shall pay to
such Lender any additional amount or amounts necessary to compensate such Lender
for
-37-
<PAGE> 144
such additional costs incurred or reduction suffered. The Borrower shall pay any
amount or amounts due to any Lender under this subsection (a) to such Lender
within ten (10) days after receipt by the Borrower of a statement from such
Lender setting forth in reasonable detail the amount or amounts due and the
basis for the determination of such amount or amounts, which statement shall be
conclusive and binding absent manifest error.
(b) Capital Adequacy. If any Lender determines that the adoption after
the date hereof of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any Governmental Authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by such Lender (or any lending office of such Lender) or by the holding company
of such Lender, as the case may be, with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, will reduce the rate of return on such
Lender's capital or on the capital of such Lender's holding company, as the case
may be, as a consequence of such Lender's obligations under the Loan Documents
to a level below that which such Lender or such Lender's holding company, as the
case may be, could have achieved but for such adoption, change or compliance
(taking into consideration such Lender's policies or such Lender's holding
company's policies, as the case may be, with respect to capital adequacy) by an
amount that such Lender deems to be material, THEN the Borrower shall reimburse
such Lender or such Lender's holding company, as the case may be, for such
reduction. The Borrower shall pay any amount or amounts due to any Lender under
this subsection (b) to such Lender within ten (10) days after receipt by the
Borrower of a statement from such Lender setting forth in reasonable detail the
amount or amounts due and the basis for the determination from time to time of
such amount or amounts, which statement shall be conclusive and binding absent
manifest error.
(c) Change in Lending Office. Each Lender agrees to use reasonable
efforts to change its lending office to avoid or minimize (i) any amounts that
might otherwise be payable to such Lender pursuant to this Section 2.12 or
pursuant to Section 2.14 or (ii) the effect of any event referred to in Section
2.11(b); provided that such efforts do not impose on such Lender any additional
cost or any legal, regulatory or administrative burdens that such Lender deems,
in its sole discretion, to be material.
(d) Lender Compensation. Failure on the part of any Lender to demand
compensation for any increased costs or reduction in amounts received or
receivable or reduction in return on capital with respect to any period shall
not constitute a waiver of such Lender's right to demand compensation with
respect to such period or any other period; provided that the Lender makes
demand therefor within one-hundred eighty (180) days after it first obtains
knowledge of the specific right to, and the specific amount of, compensation in
question. The protection of this Section 2.12 shall be available to any Lender
regardless of any possible contention of the invalidity or inapplicability of
the law, rule, regulation, guideline or other change or condition that has
occurred or been imposed.
-38-
<PAGE> 145
Section 2.13 Indemnity.
The Borrower shall indemnify each Lender against any loss or expense
that such Lender sustains or incurs as a consequence of (a) any failure by the
Borrower to fulfill on the date of any Borrowing hereunder the applicable
conditions set forth in Article III (unless such condition is waived in writing
by the Lenders), (b) any failure by the Borrower to borrow any LIBOR Loan
hereunder, to convert any Alternate Base Rate Loan or Fed Funds Loan into a
LIBOR Loan or to continue any LIBOR Loan for an additional LIBOR Interest Period
after irrevocable notice of such Borrowing, conversion or continuation has been
given pursuant to Section 2.3, (c) any mandatory repayment or optional
prepayment of a LIBOR Loan, any conversion of a LIBOR Loan required by any
provision of this Agreement or otherwise made on a date other than the last day
of the LIBOR Interest Period applicable thereto, (d) any default in mandatory
repayment or optional prepayment of the principal amount of any LIBOR Loan or
any part thereof or interest accrued thereon, as and when due and payable (at
the due date thereof, by irrevocable notice of optional prepayment or otherwise)
or (e) the occurrence of any Event of Default, including, in each such case, any
loss or reasonable expense sustained or incurred in liquidating or employing
deposits from third parties acquired to effect or maintain such Loan or any part
thereof as a LIBOR Loan. Such loss or reasonable expense shall include an amount
equal to the excess, if any, as reasonably determined by such Lender, of (i) its
cost of obtaining the funds for the Loan being mandatorily repaid, optionally
prepaid or converted or not borrowed, converted or continued (based on the LIBOR
Rate applicable thereto) for the period from the date of such mandatory
repayment, optional prepayment or conversion or failure to borrow, convert or
continue to the last day of the LIBOR Interest Period for such Loan (or, in the
case of a failure to borrow, convert or continue, the LIBOR Interest Period for
such Loan that would have commenced on the date of such failure to borrow,
convert or continue) over (ii) the amount of interest (as reasonably determined
by such Lender) that such Lender would realize in re-employing the funds so
mandatorily repaid, optionally prepaid or converted or not borrowed, converted
or continued for such period or LIBOR Interest Period, as the case may be. A
certificate of any Lender setting forth in reasonable detail any amount or
amounts that such Lender is entitled to receive pursuant to this Section 2.13
shall be delivered to the Borrower and shall be conclusive and binding absent
manifest error. Any such amount or amounts shall be due and payable no later
than ten (10) days following the Borrower's receipt of such notice.
Section 2.14 Taxes.
(a) Payment of Taxes Withheld From Amounts Payable. All payments made
by the Borrower under this Agreement and the other Loan Documents shall be made
free and clear of, and without deduction or withholding for or on account of,
any present or future income, stamp or other taxes, levies, imposts, duties,
charges, fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any Governmental Authority, excluding, in the
case of the Administrative Agent, the Servicing Collateral Agent and each
Lender, net income taxes and franchise taxes (imposed in lieu of net income
taxes) imposed on the Administrative Agent, the Servicing Collateral Agent or
such Lender, as the case may be, as a result of a present or former connection
between the jurisdiction of the government or taxing
-39-
<PAGE> 146
authority imposing such tax and the Administrative Agent, the Servicing
Collateral Agent or such Lender (excluding a connection arising solely from the
Administrative Agent, the Servicing Collateral Agent or such Lender having
executed, delivered, performed its obligations or received a payment under, or
enforced, this Agreement or the other Loan Documents) or any political
subdivision or taxing authority thereof or therein (all such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions and withholdings being
hereinafter called "Taxes"). If any Taxes are required to be withheld from any
amounts payable to the Administrative Agent, the Servicing Collateral Agent or
any Lender hereunder or under other Loan Documents, the amounts so payable to
the Administrative Agent, the Servicing Collateral Agent, or such Lender shall
be increased to the extent necessary to yield to the Administrative Agent, the
Collateral Agent or such Lender (after payment of all Taxes) interest or any
such other amounts payable hereunder at the rates or in the amounts specified in
this Agreement and the other Loan Documents. Whenever any Taxes are payable by
the Borrower, as promptly as possible thereafter, the Borrower shall send to the
Administrative Agent for its own account or for the account of the Servicing
Collateral Agent or such Lender, as the case may be, a certified copy of an
original official receipt received by the Borrower showing payment thereof. If
the Borrower fails to pay any Taxes when due to the appropriate taxing authority
or fails to remit to the Administrative Agent the required receipts or other
required documentary evidence, the Borrower shall indemnify, as applicable, the
Administrative Agent, the Servicing Collateral Agent and the Lenders for any
incremental taxes, interest or penalties that may become payable by the
Administrative Agent, the Servicing Collateral Agent or any Lender as a result
of any such failure. The agreements in this subsection (a) shall survive the
termination of this Agreement and the payment of the Notes and all other amounts
payable under the Loan Documents.
(b) Lender Incorporation; Certifications. Each Lender that is a party
hereto on the date hereof represents and warrants that it is incorporated under
the laws of the United States of America or a state thereof. Each Lender
becoming a party hereto after the date hereof agrees that it will on or before
the first interest payment date after it becomes a party hereto deliver to the
Borrower and the Administrative Agent either a statement that it is incorporated
under the laws of the United States of America or a state thereof or, if not so
incorporated, (i) two (2) duly completed copies of United States Internal
Revenue Service Form 1001 or 4224 or an applicable successor form, as the case
may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or any successor
form. Each such Lender not so incorporated also agrees to deliver to the
Borrower and the Administrative Agent two (2) further copies of such Form 1001
or 4224 and Form W-8 or W-9, or applicable successor forms or other manner of
certification, as the case may be, on or before the date that any such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form previously delivered by it to the Borrower or the
Administrative Agent, together with such extensions or renewals thereof as may
reasonably be requested by the Borrower or the Administrative Agent, unless in
any such case an event (including any change in treaty, law or regulation) has
occurred before the date on which any such delivery would otherwise be required
that renders all such forms inapplicable or that would prevent such Lender from
duly completing and delivering any such form with respect to it, and such Lender
so advises the Borrower and the Administrative Agent. Such Lender shall certify
(A) in the case of a Form 1001 or 4224, that it is entitled to receive payments
under this
-40-
<PAGE> 147
Agreement without deduction or withholding of any United States federal income
taxes and (B) in the case of a Form W-8 or W-9, that it is entitled to an
exemption from United States backup withholding tax.
(c) Taxes Borne by Lender. This Section 2.14 shall not require the
Borrower to pay any increased amount on account of Taxes to any Lender to the
extent such Taxes would not have been payable if such Lender had furnished a
statement or form (properly and accurately completed in all material respects)
that it was required to furnish in accordance with subsection (b) above. Such
Taxes shall be borne solely by such Lender.
Section 2.15 Sharing of Setoffs.
Each Lender (the "Setoff Lender") agrees that if (a) it obtains payment
(voluntary or involuntary) in respect of any Obligation (i) through the exercise
of a right of banker's lien, setoff or counterclaim against the Borrower or
either of the Guarantors, (ii) pursuant to a secured claim under Section 506 of
Title 11 of the United States Code, or other security or interest arising from,
or in lieu of, such secured claim, received by the Setoff Lender under any
applicable bankruptcy, insolvency or other similar law or otherwise, or (iii) by
any other means, AND (b) such payment causes the unpaid portion of the
Obligations owed to the Setoff Lender to be proportionately less than the unpaid
portion of the Obligations owed to any other Lender (the "Selling Lender"), THEN
the Setoff Lender shall purchase from the Selling Lender, and the Selling Lender
shall simultaneously sell and assign to the Setoff Lender, at face value a
portion of the Obligations of the Selling Lender, so that the aggregate unpaid
amount of the Obligations and assigned Obligations held by each Lender after
such sale and assignment are in the same proportion to the aggregate unpaid
amount of all Obligations then outstanding as the amount of Obligations owed to
such Lender prior to such exercise of banker's lien, setoff or counterclaim or
other event was to the principal amount of all Obligations outstanding prior to
such exercise of banker's lien, setoff or counterclaim or other event; provided
that if any such purchase or purchases or adjustments are made pursuant to this
Section 2.15 and the payment giving rise thereto is thereafter recovered, such
purchase or purchases or adjustments shall be rescinded to the extent of such
recovery and the purchase price or prices or adjustments restored without
interest. The Borrower expressly consents to the foregoing arrangements and
agrees that any Lender holding an assignment of an Obligation deemed to have
been so purchased may exercise any and all rights of banker's lien, setoff or
counterclaim with respect to any and all moneys owing by it to such Lender by
reason thereof, as fully as if such Lender had made a loan directly to each of
them in the amount of such assignment.
Section 2.16 Replacement of Lenders.
If (a) any Lender notifies the Administrative Agent and the Borrower
pursuant to Section 2.11 that it is unlawful or improper for such Lender to make
or maintain LIBOR Loans, (b) any Lender requires the Borrower to pay additional
amounts pursuant to Section 2.12(a) for additional costs incurred or reductions
suffered by such Lender in connection with LIBOR Loans made or maintained by
such Lender, or (c) any Lender requires the Borrower to reimburse such Lender or
such Lender's holding company pursuant to Section 2.12(b) for reduction in the
rate of
-41-
<PAGE> 148
return on such Lender's capital or the capital of such Lender's holding company
as a result of such Lender's obligations under the Loan Documents, THEN the
Borrower may require such Lender to sell all of its outstanding Loans and
Commitments, pursuant to Section 8.6(c), to another Lender (if any other Lender
agrees, in its sole and absolute discretion, to purchase such Loans and
commitments) or to any other financial institution acceptable to the
Administrative Agent in its sole and absolute discretion that is willing to make
and maintain LIBOR Loans. The purchase price for such Loans and Commitments
shall be equal to (i) the aggregate principal amount of Loans, if any, of such
Lender outstanding as of the purchase date thereof, (ii) interest accrued on
such Loans up to but excluding such purchase date, and (iii) an amount equal to
all other accrued but unpaid payment Obligations owed to such Lender, including
any accrued but unpaid Fees.
ARTICLE III
CONDITIONS TO BORROWINGS
Section 3.1 Initial Borrowing.
As conditions precedent to the effectiveness of this Agreement and the
other Loan Documents and to each Lender's obligation to make its initial Loans
hereunder:
(a) Delivery of Loan Documents. Each of the following shall have been
delivered to the Administrative Agent, in form and substance and in quantities
reasonably satisfactory to the Administrative Agent and its counsel:
(i) Originals of this Agreement, duly executed by the parties
hereto;
(ii) Originals of the Servicing Security Agreement, duly
executed by the parties thereto;
(iii) Originals of each of the Guaranties, duly executed by the
parties thereto;
(iv) Originals of the agreement between the Administrative Agent
and the Borrower relating to the fees referenced in Section 2.7(h), duly
executed by the Borrower;
(v) An original of each of the Notes for each of the Lenders, in
each case duly executed by the Borrower;
(vi) Originals of all financing statements and other documents,
instruments and agreements, duly executed by the party or parties thereto,
that are deemed necessary or appropriate by the Administrative Agent to
create in favor of the Servicing Collateral Agent, for the benefit of the
Secured Parties, a valid, perfected and first priority security interest in
and Lien upon the Servicing Collateral;
(vii) Evidence of partnership authorization, as applicable, of
the
-42-
<PAGE> 149
Borrower and each of the Guarantors (including resolutions of the board of
directors of such Person's General Partner or other appropriate evidence of
authorization), authorizing and directing such Person's execution, delivery
and performance of the Loan Documents to which it is party and all related
documents and certificates required of it thereunder;
(viii) With respect to each representative of the Borrower and
each of the Guarantors that is authorized to execute and deliver the Loan
Documents to which such Person is party, evidence of such authorization
(including resolutions of the board of directors of such Person's General
Partner or other appropriate evidence of authorization) of such
representatives to execute and deliver such Loan Documents, together with
evidence as to the true signatures and respective incumbencies of such
representatives;
(ix) An opinion of counsel for the Borrower and the Guarantors,
substantially in the form of Exhibit E;
(x) (A) With respect to the Borrower and each of the
Guarantors, copies of such Person's certificate of limited partnership and
its General Partner's certificate of incorporation, together with any and
all amendments or supplements thereto, in each case duly authorized and
executed and certified, as of a recent date, to be true, correct and
complete copies thereof by the Secretary of State of the state of each such
Person's formation, incorporation or organization, as applicable; (B) with
respect to the General Partner of the Borrower and each of the Guarantors,
copies of its By-laws, together with any and all amendments or supplements
thereto, in each case certified by such General Partner's Secretary or
Assistant Secretary as being true, correct and complete copies thereof; and
(C) with respect to the Borrower and each of the Guarantors, copies of its
agreement of limited partnership, together with any and all amendments or
supplements thereto, in each case certified by the Secretary or Assistant
Secretary of the General Partner of such Person as being true, correct and
complete copies thereof;
(xi) With respect to the Borrower and each of the Guarantors,
and their respective General Partners, a certificate, dated a recent date,
from the Secretary of State of the state of each such Person's formation,
incorporation or organization, certifying that each such Person is in good
standing as of a recent date;
(xii) A certificate of an executive officer of the General
Partner on behalf of the Borrower in the form of Exhibit F;
(xiii) Evidence satisfactory to the Servicing Collateral Agent
that the Servicing Settlement Account has been opened;
(xiv) A Servicing Portfolio Report, dated not more than thirty
(30) days before the Closing Date;
(xv) Originals of the Agency Acknowledgment Agreements covering
the Borrower's Direct Servicing Rights in respect of FHLMC Mortgage Loans
and FNMA Mortgage Loans included in the Approved Servicing Portfolio as of
the Closing
-43-
<PAGE> 150
Date;
(xvi) Originals of any Private Investor Consents covering the
Borrower's Direct Servicing Rights in respect of Approved Non-Agency
Mortgage Loans included in the Approved Servicing Portfolio as of the
Closing Date;
(xvii) Evidence satisfactory to the Administrative Agent that
all reasonable fees, costs and expenses of its counsel relating to the
preparation, negotiation and closing of the transactions contemplated
hereby through the Closing Date will be paid in full on such date;
(xviii) With respect to the Borrower and each of the Guarantors
and their respective General Partners, UCC, tax lien and judgment searches
of (A) the records of the Secretary of State of the state of each such
Person's (1) formation, incorporation or organization, as applicable (with
respect to tax lien and judgment searches only), (2) principal place of
business, and (3) chief executive office, if such Person has more than one
principal place of business, and (B) the filing officer of the county of
such Person's principal place of business and chief executive office, if
such Person has more than one principal place of business, which searches
shall indicate no Liens are outstanding on the Servicing Collateral or the
Pledge Collateral, other than as permitted or required under the Loan
Documents or otherwise accepted by the Administrative Agent in its sole and
absolute discretion and other than those of lenders (the "Existing
Lenders") in warehousing facilities being refinanced with proceeds of the
initial Borrowing of Loans hereunder; and
(xix) With respect to the Existing Lenders, evidence of (A) the
terminations of the servicing facilities made available by such Existing
Lenders and of such Existing Lenders' Liens on the Servicing Collateral and
the Pledge Collateral (together with completed and duly executed UCC
termination statements deemed necessary or appropriate by the
Administrative Agent with respect to such terminations) or (B) commitments
of the Existing Lenders acceptable to the Administrative Agent in the
exercise of its sole discretion to terminate such facilities and Liens and
to provide such termination statements upon the above-referenced
refinancing, and in either case, evidence that appropriate arrangements
have been made for the transfer of collateral under such facilities to the
Servicing Collateral Agent to be held as Servicing Collateral or to the
Administrative Agent to be held as Pledge Collateral, as applicable.
(b) Necessary Acts and Conditions. All acts and conditions (including
the obtaining of any necessary regulatory approvals and the making of any
required filings, recordings or registrations) required to be done and performed
and to have happened precedent to the execution, delivery and performance of the
Loan Documents and to constitute the same legal, valid and binding obligations,
enforceable in accordance with their respective terms, shall have been done and
performed and shall have happened in due and strict compliance with all
applicable laws or if any of such have not been done, performed or happened,
such has been expressly disclosed to the Administrative Agent and the Lenders
and waived by all of the
-44-
<PAGE> 151
Lenders in writing.
(c) Documentation Satisfactory in Form and Substance. All
documentation, including documentation for corporate, partnership and legal
proceedings in connection with the transactions contemplated by the Loan
Documents, shall be reasonably satisfactory in form and substance to the
Administrative Agent and its counsel.
(d) Payment of Fees. All Fees required to have been paid under the Loan
Documents prior to the initial Borrowing of Loans hereunder shall have been
paid.
(e) Ownership Structure. The ownership structure of the Borrower and
its Affiliates or otherwise related Persons as reflected on Exhibit I shall be
in effect, and such evidence, legal opinions and other documentation confirming
the effectiveness of such ownership structure requested by the Administrative
Agent and in form and substance satisfactory to the Administrative Agent and the
Lenders, shall have been delivered to the Administrative Agent and each of the
Lenders.
(f) Conditions to Warehouse Loans. All conditions precedent to the
making of the initial Warehouse Loans (other than the condition set forth in
Section 3.1(f) of the Warehouse Credit Agreement) shall have been satisfied in
accordance with Article III of the Warehouse Credit Agreement.
Section 3.2 All Borrowings.
As conditions precedent to each Lender's obligation to make any Loan
hereunder, including its initial Loans, at and as of the Borrowing Date relating
thereto:
(a) Representations and Warranties. The representations and warranties
of the Borrower and each of the Guarantors contained in the Loan Documents shall
be accurate and complete in all material respects on and as of the date of such
Borrowing as if made on and as of such date (unless such representation and
warranty is stated to be as of an earlier date).
(b) No Event of Default. No Event of Default shall have occurred and be
continuing.
(c) Borrowing Limitations. The Administrative Agent shall have received
the Borrowing Base Certificate, as required under the Servicing Security
Agreement. Following the funding of the requested Loans, the aggregate principal
amount of Loans outstanding hereunder shall not exceed the applicable
limitations set forth in Section 2.1.
(d) No Material Adverse Change. Since March 31, 1995, no development or
event shall have occurred, nor shall there be any prospective development or
event that could reasonably be expected to have a Material Adverse Effect.
(e) Other Documentation. The Administrative Agent shall have received
such other documents or legal opinions as the Administrative Agent or any Lender
may
-45-
<PAGE> 152
reasonably request, all in form and substance reasonably satisfactory to the
Administrative Agent.
By delivering a Notice of Borrowing to the Administrative
Agent hereunder for any proposed Borrowing, the Borrower shall be deemed to have
represented and warranted the accuracy and completeness of the statements set
forth in subsections (a) through (d) above as of the date of such proposed
Borrowing.
Section 3.3 Tranche B Borrowings.
In addition to the conditions precedent set forth in Sections 3.1 and
3.2, as conditions precedent to each Lender's obligation to make each Tranche B
Loan hereunder, at and as of the date of Borrowing Date relating thereto, the
Borrower shall have delivered to the Administrative Agent, in form and substance
and in quantities reasonably satisfactory to the Administrative Agent and its
counsel:
(a) not less than twenty-five (25) days prior to the proposed Tranche B
Borrowing, a Servicing Acquisition Report dated not earlier than thirty (30)
days prior to the proposed Tranche B Borrowing;
(b) not less than fifteen (15) days prior to the proposed Tranche B
Borrowing, the Servicing Acquisition Required Documents; and
(c) evidence that the Borrower has obtained all right, title and
interest (beneficial, nominal and legal) in and to the Direct Servicing Rights
being acquired.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
As an inducement to the Administrative Agent and the Lenders to enter
into this Agreement and to make Loans as provided herein, the Borrower
represents and warrants to the Agents and each Lender that:
Section 4.1 Formation, Organization and Standing.
(a) Borrower. The Borrower is a limited partnership, duly formed,
validly existing and in good standing under the laws of the state of its
formation and is duly qualified to do business and is in good standing in all
other jurisdictions where it conducts its business or owns or leases its assets
and where such activity requires such qualification, except where the failure to
be so qualified or in good standing would not have a Material Adverse Effect.
(b) General Partner. The General Partner of the Borrower is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation.
Section 4.2 Compliance With Law and Contractual Obligations
-46-
<PAGE> 153
The Borrower has the partnership power, and authority and the legal
right to own and operate its property and to conduct business in the manner in
which it does and proposes so to do and is not in violation of any Requirement
of Law or any Contractual Obligation applicable to it if such violation could
have a Material Adverse Effect.
Section 4.3 Power; Authorization; Enforceable Obligations.
(a) Borrower. The Borrower has the partnership power and authority to
execute, deliver and perform the Loan Documents to which it is a party and has
taken all necessary partnership action to authorize the execution, delivery and
performance of such Loan Documents. Such Loan Documents have been duly executed
and delivered by or on behalf of the Borrower and constitute its legal, valid
and binding obligations, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency and other similar laws affecting creditors rights
generally and by general principles of equity.
(b) General Partner. The General Partner of the Borrower has the
corporate power and authority to make, deliver and perform on behalf of the
Borrower, and thereby legally bind the Borrower to perform this Agreement and
the other Loan Documents to which the Borrower is party, and has taken all
necessary action to authorize the borrowings by the Borrower hereunder on the
terms and conditions of this Agreement and the Notes. The General Partner of the
Borrower has, on behalf of the Borrower, duly executed and delivered this
Agreement and the other Loan Documents to which the Borrower is party.
Section 4.4 No Legal or Contractual Bar.
The execution, delivery and performance of the Loan Documents by the
Borrower, the borrowings of Loans hereunder and the use of the proceeds thereof,
do not and will not (i) violate any Requirement of Law applicable to or any
Contractual Obligation of the Borrower, (ii) except as contemplated by this
Agreement and the Servicing Security Agreement, require any license, consent,
authorization, approval or any other action by, or any notice to or filing or
registration with, any Governmental Authority or any other Person, which
licenses, consents, authorizations or approvals have not been previously
obtained and remain in full force and effect, or (iii) result in the creation or
imposition of any Lien on any asset of the Borrower, except as permitted or
required by the Loan Documents.
Section 4.5 Financial Information.
(a) Delivery of Financial Statements.
(i) The audited consolidated financial statements of each of
Platte Valley Funding, L.P., Western Sunrise Mortgage Co., L.P., TMC
Mortgage Co., L.P. and JHM Mortgage Securities L.P. as at December 31,
1994, and the Securities and Exchange Commission Form 10-Q for the
quarterly period ended March 31, 1995 for Harbourton Financial Services, a
copy of each of which have been furnished to each Lender, are complete and
correct and present fairly the financial condition of each of Platte Valley
-47-
<PAGE> 154
Funding, L.P., Western Sunrise Mortgage Co., L.P., TMC Mortgage Co., L.P.,
JHM Mortgage Securities L.P. and Harbourton Financial Services, as
applicable as at the date thereof. Each of the balance sheets, including
the related schedules and notes thereto, has been prepared in accordance
with GAAP as of such date (subject to normal year-end adjustments) and the
financial statements included in the Form 10-Q described in the preceding
sentence have been prepared in accordance with GAAP as adjusted pursuant to
the rules and regulations of the Securities and Exchange Commission.
(ii) The pro forma consolidated balance sheet of the Borrower as
at August 1, 1995, a copy of which has been furnished to each Lender,
presents fairly the pro forma financial condition of the Borrower after
giving effect to the Loans to be made on such date and the consummation of
the ownership structure described in Section 3.1(e). The pro forma balance
sheet, including the related schedules and notes thereto, has been prepared
on a basis consistent with GAAP and based on good faith reasonable
assumptions and projections.
(b) No Material Liabilities. Neither the Borrower nor HTP Financial has
any material liability of any kind, whether accrued, contingent, absolute,
determined, determinable or otherwise, and no condition, situation or set of
circumstances exists that could be reasonably expected to result in such a
liability, in each case that should be reflected on such financial statements
prepared in accordance with GAAP but is not reflected in the most recent such
financial statements delivered to the Administrative Agent and the Lenders
pursuant to Section 5.1(a)(i) or (ii).
(c) No Material Change. Since March 31, 1995, no development or event
has occurred, nor is there any prospective development or event, in respect of
the Borrower or any of its Subsidiaries, the General Partner of the Borrower or
the Guarantors, that could reasonably be expected to have a Material Adverse
Effect.
(d) HTP Financial. The Borrower has delivered to each of the Lenders a
true and correct copy of the term sheet referenced in the definition of HTP
Financial.
Section 4.6 No Litigation.
Except as disclosed on Schedule 4.6, (a) no litigation, investigation
or proceeding (exclusive of mortgage foreclosure litigation and bankruptcy
proceedings of Obligors in which or in connection with which such Obligors have
brought no claims, counter-suits or actions against the Borrower) of or before
any arbitrator or Governmental Authority is pending or to the knowledge of the
Borrower, threatened by or against the Borrower or any of its Subsidiaries, or
the General Partner of the Borrower, or against any of the properties or
revenues of any such Person, in which the amount involved in such litigation,
investigation or proceeding, when added to amounts involved in all other
litigation, investigations or proceedings with respect to such Person, exceeds,
in the aggregate, $500,000 or in which injunctive relief, if sought and
obtained, could result in a Material Adverse Effect.
-48-
<PAGE> 155
Section 4.7 Taxes.
Each of the Borrower, its Subsidiaries and the General Partner of the
Borrower has filed or caused to be filed (or obtained extensions for the filing
of) all tax returns that are required to be filed and have paid all taxes shown
to be due and payable on such returns or on any assessments made against it or
any of its property, other than taxes and assessments that are being contested
in good faith by appropriate proceedings and as to which such Person has
established adequate reserves in conformance with GAAP.
Section 4.8 Investment Company Act; Other Regulations.
The Borrower is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended. Neither the Borrower nor the General
Partner of the Borrower is subject to any Requirement of Law that limits its
ability to incur Indebtedness.
Section 4.9 Subsidiaries.
As of the Closing Date, the Borrower has no Subsidiaries.
Section 4.10 Use of Proceeds.
The Borrower shall use the proceeds of the Tranche A Loans to finance
the Approved Existing Portfolio as of the Closing Date. The Borrower shall use
the proceeds of the Tranche B Loans to finance Approved Acquired Portfolios. The
Borrower shall use the proceeds of the Tranche C Loans to finance Eligible P&I
Advance Receivables. The Borrower shall use the proceeds of the Tranche D Loans
to finance Eligible Working Capital Receivables.
Section 4.11 ERISA.
No Prohibited Transactions, Accumulated Funding Deficiencies,
withdrawals from Multiemployer Plans or Reportable Events have occurred with
respect to any Plans or Multiemployer Plans that, in the aggregate, could
subject the Borrower, its Subsidiaries or the General Partner of the Borrower to
any material tax, penalty or other liability where such tax, penalty or
liability is not covered in full, for the benefit of such parties, by insurance;
no notice of intent to terminate a Plan has been filed, nor has any Plan been
terminated under Section 4041 of ERISA, nor has the PBGC instituted proceedings
to terminate, or appointed a trustee to administer, a Plan and no event has
occurred or condition exists that might constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan; the present value of all benefits liabilities (as defined in Section
4001(a)(16) of ERISA) under all Plans (based on the actuarial assumptions used
to fund the Plans) does not exceed the assets of the Plans; and the execution,
delivery and performance by the Borrower of the Loan Documents to which it is a
party, the borrowing of the Loans hereunder and the use of the proceeds thereof
will not involve any Prohibited Transaction.
-49-
<PAGE> 156
Section 4.12 Security Interests.
The security interests created in favor of the Servicing Collateral
Agent, for the benefit of the Secured Parties, in the Servicing Collateral, and
in favor of the Administrative Agent, for the benefit of the Secured Parties in
the Pledge Collateral, constitute and will constitute valid security interests,
and such security interests will be perfected, first priority security interests
in the Servicing Collateral and the Pledge Collateral, as applicable. Such
Collateral is not and will not be subject to any other Liens except as permitted
or required under the Loan Documents.
Section 4.13 Agency Approvals.
The Borrower is (i) a FNMA and FHLMC approved Seller/Servicer, (ii) a
GNMA approved Issuer/Servicer, (iii) a HUD Direct Endorsement lender, (iv) a VA
approved lender in good standing and (v) an FHA approved lender in good
standing.
Section 4.14 Federal Reserve Board Regulations.
The Borrower is not engaged and will not engage, principally or as one
of its important activities, in the business of extending credit for the purpose
of "purchasing" or "carrying" any "margin stock" within the respective meanings
of such terms under Regulation U. No part of the proceeds of any Loan made
hereunder will be used for "purchasing" or "carrying" "margin stock" as so
defined or for any purpose that violates or that would be inconsistent with, the
provisions of Regulations G, T, U or X of the Board.
Section 4.15 Assets.
The Borrower has good title to, or valid leasehold interests in, all of
its properties and assets. The Borrower has no outstanding Liens on any of its
properties or assets, nor is the Borrower party to any security agreements,
except as required or permitted by the Loan Documents.
Section 4.16 Environmental Matters.
To the knowledge of the Borrower, after due inquiry, each of the
representations and warranties set forth in subsections (a) through (e) of this
Section 4.16 is true and correct with respect to each parcel of real property
owned or operated by the Borrower (the "Properties"), except to the extent that
the facts and circumstances giving rise to any such failure to be so true and
correct could not reasonably be expected to have a Material Adverse Effect:
(a) No Hazardous Materials. No Hazardous Materials are contained in, on
or under the Properties, including the soil and groundwater thereunder, in
quantities that are in violation of any Environmental Law;
(b) Compliance With Environmental Laws. The Properties and all
operations and facilities at the Properties are in compliance with all
Environmental Laws, and
-50-
<PAGE> 157
there is no Hazardous Materials contamination or violation of any Environmental
Law that could interfere with the continued operation of any of the Properties
or impair the fair saleable value of any thereof;
(c) No Notice of Violation. None of the Borrower, its Subsidiaries or
the General Partner of the Borrower has received any material complaint, notice
of violation, alleged violation, investigation or advisory action of potential
liability or of potential responsibility regarding environmental protection
matters or permit compliance with regard to the Properties, nor is the Borrower
aware that any Governmental Authority is contemplating delivering to any such
Person;
(d) No Transfer of Hazardous Materials. To the knowledge of the
Borrower, after due inquiry, Hazardous Materials have not been generated,
treated, stored, disposed of, at, on or under any of the Properties, nor have
any Hazardous Materials been transferred from the Properties to any other
location; and
(e) No Pending Actions. No material governmental, administrative
actions or judicial proceedings are pending or, to the Borrower's knowledge,
contemplated under any Environmental Laws, to which the Borrower, its
Subsidiaries or the General Partner of the Borrower is or will be named as a
party with respect to the Properties, and no consent decrees or other decrees,
consent orders, administrative orders or other orders, or other administrative
or judicial requirements are outstanding under any Environmental Law with
respect to any of the Properties.
Section 4.17 Solvency.
(a) Sufficient Assets; Capital. On the Closing Date, after giving
effect to any Borrowings on such date, (A) the sum of the assets, at the fair
valuation, of the Borrower, as of such date, will exceed the Borrower's debts,
(B) the present fair saleable value of the assets of the Borrower, as of such
date, will be greater than the amount that will be required to pay the Borrower
s liabilities on its debts as such debts become absolute and matured, and (C)
the Borrower will have, as of such date, sufficient capital with which to
conduct its businesses.
(b) Defined Terms; GAAP. For purposes of this Section 4.17, "debt"
shall mean "liability on a claim," and "claim" shall mean a debt required to be
reflected on a balance sheet in accordance with GAAP and any other liability
then due and owing of the Borrower.
Section 4.18 Intellectual Property.
The Borrower owns, or is licensed to use, all trademarks, tradenames,
copyrights, technology, know-how and processes necessary for the conduct of its
business as currently conducted except for those the failure to own or license
which could not reasonably be expected to have a Material Adverse Effect (the
"Intellectual Property"). No material claim has been asserted and is pending by
any Person challenging or questioning the use of any such Intellectual Property
or the validity or effectiveness of any such Intellectual Property, and the
Borrower does not know of any valid basis for any such material claim. The
Borrower's use of its Intellectual
-51-
<PAGE> 158
Property does not infringe on the rights of any Person, except for such claims
and infringements that, in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
Section 4.19 Principal Place of Business.
The principal place of business and chief executive office of the
Borrower is located at 2530 South Parker Road, 5th Floor, Aurora, Colorado
80014.
Section 4.20 No Burdensome Restrictions.
No Requirements of Law applicable to or Contractual Obligation of the
Borrower, its Subsidiaries or the General Partner of the Borrower could
reasonably be expected to have a Material Adverse Effect.
Section 4.21 Affiliate Transactions.
The Borrower has not entered into any transactions with any of its
Affiliates except as described on Schedule 4.21.
Section 4.22 Disclosure.
All information furnished or to be furnished to the Administrative
Agent by or on behalf of the Borrower, each General Partner, the Guarantors or
HTP Financial in connection with the Loan Documents, the Collateral or the
Obligations is complete and accurate in all material respects.
ARTICLE V
COVENANTS
Section 5.1 Affirmative Covenants.
The Borrower hereby covenants and agrees, with respect to itself and
each of the its Subsidiaries, that as long as any Obligations remain unpaid or
any Lender has any Commitment hereunder, the Borrower shall:
(a) Reporting Requirements of the Borrower to the Administrative Agent
and the Lenders. Furnish or cause to be furnished to the Administrative Agent
and each Lender directly:
(i) Annual Financial Statements. As soon as available and in any
event within ninety (90) days after the end of each fiscal year of each of
the Borrower, Harbourton Financial Services and HTP Financial, a statement
of income, changes in partners' capital and cash flow for such year of the
Borrower, Harbourton Financial Services and HTP Financial and the related
statement of financial condition as at the end of such year of the
Borrower, Harbourton Financial Services or HTP Financial, as applicable,
setting forth in each case in comparative form the figures for the previous
-52-
<PAGE> 159
fiscal year (to the extent such figures are available), all in reasonable
detail, in accordance with GAAP, consistently applied, and accompanied by a
report thereon of Arthur Andersen & Co. or other independent public
accountants of comparable recognized national standing (provided that
financial statements of HTP Financial shall not be audited, unless audited
statements are otherwise available), which report shall be unqualified as
to scope of audit and shall state that such financial statements present
fairly the financial condition as at the end of such fiscal year, and the
results of operations and cash flows for such fiscal year, of the Borrower,
Harbourton Financial Services and HTP Financial, respectively, in
accordance with GAAP, consistently applied and, with respect to financial
statements required to be included by Harbourton Financial Services in
Securities and Exchange Commission Form 10-K filings, in accordance with
GAAP, consistently applied, as adjusted pursuant to the rules and
regulations of the Securities and Exchange Commission, as applicable;
(ii) Quarterly Financial Statements. As soon as available and in
any event within forty-five (45) days after the end of each fiscal quarter
of the Borrower, Harbourton Financial Services L.P. and HTP Financial, a
statement of operations, changes in partners' capital and cash flow for
such quarter and for the portion of the fiscal year ended of the Borrower,
Harbourton Financial Services L.P. and HTP Financial, the related statement
of financial condition as at the end of such fiscal quarter of the
Borrower, Harbourton Financial Services L.P. and HTP Financial, all in
reasonable detail and certified by the president or chief financial officer
of the General Partner of the Borrower, the general partner of Harbourton
Financial Services and the general partner of HTP Financial, respectively,
that they are complete and correct and present fairly the financial
condition as at the end of such quarter, and the results of operations for
such quarter and such portion of the fiscal year, of the Borrower,
Harbourton Financial Services and HTP Financial, respectively, in
accordance with GAAP, consistently applied, subject to normal year-end
adjustments, and with respect to financial statements required to be
included by Harbourton Financial Services in Securities and Exchange
Commission 10-Q filings, in accordance with GAAP, consistently applied, as
adjusted pursuant to the rules and regulations of the Securities and
Exchange Commission, as applicable;
(iii) Annual Cash Flow Projections. As soon as available and in
any event within sixty (60) days after the beginning of each calendar year,
a pro forma cash flow statement for such calendar year, in reasonable
detail and accompanied by a statement of the president or chief financial
officer of the General Partner of the Borrower that such projections are a
reasonable estimate of the cash flow of the Borrower for such calendar
year;
(iv) No Default/Compliance Certificate. Together with the
financial statements required pursuant to subparagraphs (i) and (ii) above,
a certificate of the president or the chief financial officer of the
General Partner of the Borrower (A) to the effect that, based upon a review
of the activities of the Borrower and such financial statements during the
period covered thereby, no Potential Default or Event of Default
-53-
<PAGE> 160
exists, or if any Potential Default or Event of Default does exist,
specifying the nature thereof and the response thereto proposed by the
Borrower, (B) demonstrating in reasonable detail compliance as at the end
of such fiscal year or such fiscal quarter, as the case may be, with
Sections 5.2(a), (b), (c) and (j) and (C) describing any transactions
entered into since the date of the last financial statements delivered to
the Administrative Agent and the Lenders by the Borrower with any of its
Affiliates (other than those described on Schedule 4.21), and notice of any
material amendment, modification or supplement in respect of any such
transaction or any transaction described in Schedule 4.21 since such date;
provided that submission of such certificate by such officer shall in no
way make him or her liable in his or her individual capacity, or serve as a
basis for any claim by the Administrative Agent or a Lender against such
officer in his or her individual capacity, in connection with any error
contained in such certificate (to the extent that such error does not
result from such officer''s gross negligence or willful misconduct);
(v) Notice of Default. Promptly after the occurrence of a
Potential of Default or Event of Default, a certificate of the chief
financial officer of General Partner specifying the nature thereof and the
response thereto proposed by the Borrower;
(vi) Audit Reports. Copies of each HUD Single Family Audit
Report and FNMA and FHLMC audit reports on the Borrower and its operations,
promptly after receipt thereof by the Borrower;
(vii) Litigation. Notice of the institution of or any material
adverse development in, promptly after the occurrence thereof, any action,
suit or proceeding or any governmental investigation or any arbitration,
before any court or arbitrator or any governmental or administrative body,
agency or official, by or against the Borrower, any of its Subsidiaries or
the General Partner of the Borrower, or against any of the properties or
revenues of any such Person (exclusive of foreclosure and bankruptcy suits
and proceedings of Obligors of mortgage loans serviced by the Borrower,
arising in the ordinary course of the Borrower''s servicing business in
which or in connection with which such Obligors have brought no claims,
countersuits or actions against the Borrower), in which the amount involved
in such action, suit, proceeding, governmental investigation or
arbitration, when added to amounts involved in all other actions, suits,
proceedings, governmental investigations or arbitrations, by or against
such Person, or against any of the properties or revenues of such Person,
exceeds, in the aggregate, $500,000 or in which injunctive relief, if
sought and obtained, could result in a Material Adverse Effect;
(viii) Securities Reports and Filings. Promptly after the filing
thereof, copies of all financial statements, reports, notices and proxy
statements, if any, sent or made available generally by the Borrower or any
of its Subsidiaries to the holders of its or their respective securities or
partnership interests, of all regular and periodic reports and other
filings made by Harbourton Financial Services, the Borrower or any of their
Subsidiaries with any securities exchange, the Securities and Exchange
Commission or
-54-
<PAGE> 161
any other governmental or private regulatory authority, and of all press
releases and other statements made available generally by Harbourton
Financial Services, the Borrower or any of their Subsidiaries to the public
about material developments in the business of Harbourton Financial
Services and its Subsidiaries, and the Borrower and its Subsidiaries, each
taken as a whole;
(ix) ERISA. In connection with ERISA:
(A) Promptly and in any event within ten (10) days after
the Borrower knows or has reason to know of the occurrence of a Reportable
Event with respect to a Plan with regard to which notice must be provided
to the PBGC, a copy of such materials required to be filed with the PBGC
with respect to such Reportable Event and in each such case a statement of
the chief financial officer of the General Partner of the Borrower setting
forth details as to such Reportable Event and the action that the Borrower
proposes to take with respect thereto;
(B) Promptly and in any event within ten (10) days after
the Borrower knows or has reason to know of any condition existing with
respect to a Plan that presents a material risk of termination of such
Plan, imposition of an excise tax, requirement to provide security to such
Plan or incurrence of other liability by the Borrower or any ERISA
Affiliate, a statement of the chief financial officer of the General
Partner of the Borrower describing such condition;
(C) At least ten (10) days prior to the filing by any plan
administrator of a Plan of a notice of intent to terminate such Plan, a
copy of such notice;
(D) Promptly and in any event within ten (10) days after
the filing thereof with the Secretary of the Treasury, a copy of any
application by the Borrower or any ERISA Affiliate thereof for a waiver of
the minimum funding standard under section 412 of the Code;
(E) Promptly and in any event within ten (10) days after
the filing thereof with the Internal Revenue Service, copies of each annual
report that is filed on Form 5500, together with certified financial
statements for any Plan as of the end of such year and actuarial statements
on Schedule B to such Form 5500;
(F) Promptly and in any event within ten (10) days after
the Borrower knows or has reason to know of any event or condition that
might constitute grounds under section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan, a statement of
the chief financial officer of the General Partner of the Borrower
describing such event or condition;
(G) Promptly and in any event within ten (10) days after
receipt thereof by the Borrower or any ERISA Affiliate, a copy of each
notice received by the Borrower or such an ERISA Affiliate concerning the
imposition of any withdrawal liability under section 4202 of ERISA; and
-55-
<PAGE> 162
(H) Promptly after receipt thereof a copy of any notice
the Borrower or any ERISA Affiliate may receive from the PBGC or the
Internal Revenue Service with respect to the Borrower's or such ERISA
Affiliate's liability with respect to any Plan or Multiemployer Plan;
provided that this subparagraph (H) shall not apply to notices of general
application promulgated by the PBGC or the Internal Revenue Service;
(x) Servicing Portfolio and Other Reports.
(A) As soon as available and in any event no later than
forty-five (45) days after the end of each calendar quarter, a Servicing
Portfolio Report, dated as of the end of such quarter; and
(B) As soon as available and in any event no later than
thirty (30) days after the end of each calendar month, and on such other
days as the Administrative Agent may reasonably request, a Monthly
Servicing Report;
(xi) Other Information. Promptly after request therefor by the
Administrative Agent or any Lender, such additional financial and other
information, including financial statements of the Borrower or any of its
Subsidiaries or any Approved Investor (other than FNMA or FHLMC) (if
financial statements of such Approved Investor are available to the
Borrower), and such information regarding the Servicing Collateral and/or
the Pledge Collateral as any Lender, through the Administrative Agent, may
from time to time reasonably request, including such information as is
necessary for any Lender to grant participations of its interests in Loans
hereunder or to enable another financial institution to become a Lender
hereunder; and
(xii) GNMA Acknowledgment Agreement. If an Acknowledgment
Agreement from GNMA, in form and substance satisfactory to the
Administrative Agent in the exercise of its sole discretion, becomes
available and if the Administrative Agent so requires, obtain, execute and
deliver the same from GNMA relating to the acknowledgment of the Servicing
Collateral Agent's security interest in the Direct Servicing Rights
relating to GNMA Mortgage Loans included in the Approved Servicing
Portfolio.
(b) Reporting Requirements of the Borrower to the Administrative Agent
and the Co-Agent. Furnish or cause to be furnished to each of the Administrative
Agent and the Co-Agent as soon as available and in any event no later than
forty-five (45) days after the end of each calendar quarter, a Specialty
Mortgage Products Report, dated as of the end of such calendar quarter.
(c) Maintenance of Existence and Properties; Compliance with Laws.
Preserve and maintain (i) its partnership existence, and (ii) all rights,
privileges, licenses, approvals, franchises, properties and assets material to
and necessary for the normal conduct of the business of the Borrower, and shall
comply in all material respects with all Contractual Obligations of and
Requirements of Law applicable to the Borrower (including all servicing
agreements with non-Agency investors), except when the failure to so preserve,
maintain and
-56-
<PAGE> 163
comply as set forth in clause (ii) above would not have a Material Adverse
Effect.
(d) Maintenance of Federal Agency Status. Maintain at all times its
status as a FNMA and FHLMC approved Seller/Servicer, a GNMA approved
Issuer/Servicer, a HUD Direct Endorsement Lender and an FHA approved lender in
good standing.
(e) Inspection of Property; Books and Records; Discussions. Keep proper
books of record and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law applicable to the Borrower
shall be made of all dealings and transactions in relation to the business and
activities of the Borrower and permit representatives of the Administrative
Agent and the Lenders (at no cost to the Borrower unless a Potential Default or
Event of Default has occurred and is continuing) to visit and inspect any of the
properties of the Borrower and examine and make abstracts from any of such books
and records during normal business hours, upon reasonable advance notice and as
often as may reasonably be desired by the Administrative Agent or any such
Lender, and to discuss the business, operations, properties and financial and
other condition of the Borrower with officers and employees of the Borrower and
with its independent certified public accountants.
(f) Insurance. Maintain or cause to be maintained with financially
sound and reputable insurers, insurance with respect to properties and business
of the Borrower against loss or damage of the kinds customarily insured against
by reputable companies in the same or similar businesses, such insurance to be
of such types and in such amounts (with such deductible amounts) as is customary
for such companies under similar circumstances, including errors and omissions
coverage and fidelity coverage in form and substance acceptable under the Agency
Guides, and furnish the Administrative Agent on request full information as to
all such insurance.
(g) Payment of Taxes and Claims. Pay (i) all taxes, assessments and
governmental charges imposed upon the Borrower or upon the property of the
Borrower prior to their becoming delinquent and (ii) all claims (including
claims for labor, materials, supplies or services) that might, if unpaid, become
a Lien upon the property of the Borrower prior to their becoming a Lien unless,
in each case, the validity or amount thereof is being contested in good faith by
appropriate proceedings and the Borrower has maintained adequate reserves in
accordance with GAAP with respect thereto or, if required by any applicable
Requirement of Law, has posted a bond in respect thereof reasonably satisfactory
to the Administrative Agent.
(h) Servicing Rights and Servicing Portfolio. Maintain at all times a
Servicing Portfolio consisting of mortgage loans with an aggregate unpaid
principal amount of at least $2,000,000,000.
(i) Ownership Structure. Perform all actions required subsequent to the
date hereof as a result of the consummation of the reorganization contemplated
in Section 3.1(e), including delivering notices that may be required by any
Agency or the FHA or the VA.
(j) Further Documents. Execute and deliver or cause to be executed and
delivered to the Administrative Agent or the Servicing Collateral Agent, behalf
of the Secured
-57-
<PAGE> 164
Parties, from time to time such confirmatory or supplementary security
agreements, financing statements, reaffirmations and consents and such other
documents, instruments or agreements, as the Administrative Agent may reasonably
request, that are in the Administrative Agent's reasonable judgment necessary or
desirable to obtain for the Administrative Agent or the Servicing Collateral
Agent, on behalf of the Secured Parties, the benefit of the Loan Documents, the
Servicing Collateral and the Pledge Collateral.
Section 5.2 Negative Covenants. The Borrower hereby covenants and
agrees that as long as any Obligations remain unpaid or any Lender has any
Commitment hereunder, the Borrower shall not, directly or indirectly:
(a) Accumulation of Assets. Permit HTP Financial to at any time
accumulate Mortgage Loans (which term shall not be deemed to include servicing
rights to Mortgage Loans for purposes of this Section 5.2(a)) with an unpaid
principal balance in excess of $100,000,000.
(b) Total Debt to Net Worth Ratios. Permit (i) the ratio of its Total
Debt to its Net Worth to exceed 8.0:1 at any time or (ii) the ratio of its Total
Debt to its Adjusted Tangible Net Worth to exceed 6.0:1.0 at any time.
(c) Net Worth; Adjusted Tangible Net Worth. Permit (i) its Net Worth to
be less than $40,000,000 at any time or (ii) its Adjusted Tangible Net Worth to
be less than $35,000,000 at any time.
(d) Cash Flow to Scheduled Term Debt Service. Permit the ratio of its
Cash Flow to Scheduled Term Debt Service for any fiscal quarter (as determined
at the end of such fiscal quarter) to be less than 1.20:1.0.
(e) Investments and Advances. Make any loans, extensions of credit or
investments other than:
(i) investments in direct obligations of the United States or
any agency thereof, or obligations guaranteed by the United States or any
agency thereof, in each case maturing within six (6) months from the date
of creation thereof;
(ii) investments in commercial paper maturing within six (6)
months from the date of creation thereof given the highest rating for
commercial paper by Moody's or S&P;
(iii) time deposits maturing within one (1) year from the date
of creation thereof with, including certificates of deposit issued by, any
office located in the United States of any bank or trust company that is
organized under the laws of the United States or any state thereof and
whose certificates of deposit are rated P-1 or better by Moody's or A-1 or
better by S&P;
-58-
<PAGE> 165
(iv) short-term loans or advances to any current or former
officers of the Borrower, for the purpose of assisting such officers in the
payment of relocation expenses or car loans, in an aggregate principal
amount outstanding at any time not to exceed $1,000,000;
(v) investments made in the ordinary course of business for the
purpose of implementing the Hedging Program;
(vi) investments in Specialty Mortgage Products in an aggregate
amount not to exceed $45,000,000; provided that all Specialty Mortgage
Products shall be covered by Take-Out Commitments from Approved Investors
that are not Affiliates of the Borrower that are in full force and effect
except for Specialty Mortgage Products with an unpaid principal balance not
exceeding $20,000,000 in the aggregate at any time;
(vii) investments in HTP Financial;
(viii) investments in newly-formed companies or partnerships to
be engaged primarily in the business of originating or acquiring Specialty
Mortgage Products; provided that (a) such investments shall consist solely
of capital stock and/or limited partnership interests, and (b) the
Borrower's initial investment in any such company or partnership shall not
exceed five percent (5%) of the Borrower's Net Worth at the time of such
investment (based on the most recent financial statements of the Borrower
delivered to the Administrative Agent and each Lender pursuant to clause
(i) or (ii) of Section 5.1(a));
(ix) loans or advances to, or investments in, Subsidiaries or
Affiliates of the Borrower; provided that the aggregate amount of loans or
advances made during any calendar quarter (reduced by any loans or advances
repaid by Subsidiaries or Affiliates of the Borrower during such quarter)
and investments made during such calendar quarter shall not exceed an
amount equal to the amount of restricted payments permitted to be made
during such current calendar quarter under Section 5.2(j) (based on
financial results as of the end of the prior calendar quarter as described
in Section 5.2(j)) after giving effect to any such restricted payments made
in respect of such calendar quarter; provided that no such loans, advances
or investments made, in respect of any calendar quarter shall be made prior
to the delivery of financial statements to the Administrative Agent and
each Lender in respect of such calendar quarter as provided in Section
5.2(j);
(x) investments by the Borrower to purchase Eligible Mortgage
Loans, Direct Servicing Rights or Specialty Mortgage Products in the
ordinary course of its business (subject to the limitations set forth in
subsection (vi) above);
(xi) advances constituting Eligible Mortgage Loans, Specialty
Mortgage Products or mortgage servicing advances made in the ordinary
course
-59-
<PAGE> 166
of the Borrower's business; and
(xii) other investments made in the ordinary course of
Borrower's business, in an aggregate principal amount outstanding at any
time not to exceed $1,000,000.
(f) Indebtedness. Create, incur, assume or suffer to exist, or
otherwise become or be liable in respect of any Indebtedness other than:
(i) Indebtedness in respect of the Obligations and the
Borrower's obligations under the Warehouse Credit Agreement and the
documents related thereto;
(ii) Indebtedness incurred to finance the acquisition of fixed
or capital assets (whether pursuant to a loan, a Financing Lease or
otherwise) in an aggregate principal amount outstanding not to exceed
$500,000 at any time;
(iii) trade liabilities and accrued expenses incurred in the
ordinary course of business and payable in accordance with customary
practices;
(iv) guaranties resulting from endorsement of negotiable
instruments for collection in the ordinary course of business;
(v) Indebtedness resulting from gestation repurchase agreements
for the repurchase of non-Agency mortgage-backed securities supported by
Eligible Jumbo Mortgage Loans;
(vi) Indebtedness incurred in connection with the financing of
Specialty Mortgage Products; provided that (a) the aggregate amount of such
Indebtedness outstanding at any time shall not exceed $45,000,000, (b) the
Lenders shall have a right of first refusal (but shall have no obligation)
to provide such financing to the Borrower on competitive terms pursuant to
a supplement to this Agreement and the other Loan Documents, and (c) if the
Lenders do not provide such financing, (A) the Collateral Agent shall act
as the collateral agent for the other lender(s) providing such financing
and such Specialty Mortgage Products shall be pledged to and held by the
Collateral Agent for the benefit of such other lender(s), and (B) such
Indebtedness shall be either (A) non-recourse to the Borrower, or (B)
subject to the terms of an intercreditor and subordination agreement in
form and substance satisfactory to the Administrative Agent in the exercise
of its sole discretion;
(vii) Indebtedness provided by PWRES to the Borrower for the
purpose of (a) originating or acquiring Mortgage Loans (subject to the
limitation set forth in clause (vi) above) (i) to be simultaneously sold to
PWRES or (ii) to be held not more than five (5) Business Days by the
Borrower before being sold to HTP Financial or PWRES, which Mortgage Loans
are in either case financed by
-60-
<PAGE> 167
PWRES under the PWRES Financing Agreements or (b) financing principal and
interest, or taxes, insurance and expense advances under the HTP Financing
Agreements; provided that in each case such Indebtedness shall be subject
to the terms of the intercreditor agreement in form and substance
satisfactory to the Administrative Agent in the exercise of its reasonable
discretion;
(viii) Indebtedness arising under short-term arbitrage lines of
credit with any of Chemical Bank, First Bank National Association, Colorado
National Bank or any Lender, each borrowing under which is secured solely
by certificates of deposit issued by such lender thereunder, A-1/P-1
commercial paper and/or marketable direct obligations issued or guaranteed
by the United States government or any agency thereof and backed by the
full faith and credit of the United States, in each case substantially
matching such borrowings in dollar amount and maturity;
(ix) Indebtedness incurred as of July 31, 1995 and described on
Exhibit O attached hereto;
(x) Indebtedness held by Harbourton Financial Services or
Harbourton Holdings, L.P. subordinated to the Obligations in the manner and
to the extent reasonably required by the Required Lenders pursuant to
written subordination agreements satisfactory in form and substance to the
Required Lenders (which subordination agreement shall provide, among other
things, that such subordinated Indebtedness shall be short-term, unsecured,
on market terms and at market rates, used for working capital purposes, and
that after the occurrence of Potential Default or an Event of Default, no
payments of interest or principal shall be payable with respect thereto)
which Indebtedness shall not at any time exceed an aggregate principal
amount of $15,000,000;
(xi) any Indebtedness which has been reclassified as
Indebtedness, which, at the time of the creation of such Indebtedness, had
been reasonably classified in accordance with GAAP as a sale or transfer of
defaulted FHA or VA Mortgage Loans on a servicing retained basis to any
other Person;
(xii) Indebtedness consisting of the portion of the purchase
price for mortgage servicing rights purchased by the Borrower that is
deferred in order to secure the indemnification obligations of the seller
of such servicing rights;
(xiii) Indebtedness consisting of reserves for foreclosure
losses incurred in the ordinary course of business and other reserves
established in accordance with GAAP in the ordinary course of business; and
(xiv) renewals, extensions, replacements, refinancings or
refundings of any of the foregoing.
(g) Liens. Create, incur, assume or suffer to exist, any Lien upon its
assets
-61-
<PAGE> 168
now owned or hereafter acquired other than:
(i) Liens for taxes not yet due and payable or that are being
contested in good faith by appropriate proceedings; provided that adequate
reserves with respect thereto are maintained on the Borrower's books in
conformity with GAAP;
(ii) carriers', warehousemen's, mechanics', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of
business, which are not overdue for a period of more than sixty (60) days
or which are being contested by the Borrower in good faith by appropriate
proceedings;
(iii) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security legislation;
(iv) deposits to secure the performance of bids, trade contracts
(other than for borrowed money), leases, statutory obligations, surety and
appeal bonds, performance bonds and other obligations of a similar nature
incurred in the ordinary course of business;
(v) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business that, in the
aggregate, are not significant and that do not in any case materially
detract from the value of the property (other than REO Property) subject
thereto or materially interfere with the ordinary conduct of business;
(vi) Liens securing Indebtedness permitted by Section 5.2(f)(ii)
incurred to finance the acquisition of fixed or capital assets; provided
that (A) such Liens shall be created substantially simultaneously with the
acquisition of such fixed or capital assets, (B) such Liens shall not at
any time encumber any property other than the property financed by such
Indebtedness, (C) the amount of Indebtedness secured thereby shall not
increase and (D) the principal amount of Indebtedness secured by any such
Lien shall at no time exceed the original purchase price of such property
at the time it was acquired;
(vii) Liens in favor of the Warehouse Collateral Agent or the
Servicing Collateral Agent, for the benefit of the Secured Parties, created
pursuant to the Loan Documents and the Servicing Credit Agreement;
(viii) Liens on mortgages or deeds of trust securing Mortgage
Loans in favor of any Approved Investor created pursuant to a mortgage
servicing agreement;
(ix) Liens securing Indebtedness permitted under Section
5.2(f)(v),(vi),(vii),(viii) or (xi); provided that such Liens shall not at
any time encumber any property other than property financed by such
Indebtedness;
-62-
<PAGE> 169
and
(x) any extension, renewal, or replacement (or successive
extensions, renewals or replacements) in whole or in part, of any of the
foregoing; provided that (A) the Lien shall be limited to all or a part of
the property securing the Lien extended, renewed, or replaced, and (B) the
indebtedness secured thereby shall not increase.
(h) Mergers, Sales or Consolidations.
(i) Merge into or consolidate with any other Person or sell,
lease or otherwise dispose of any of its property or assets (other than
obsolete or worn-out property) to any other Person, except as permitted or
required under the Loan Documents.
(ii) Subject to the provisions, restrictions and limitations set
forth in the Loan Documents, (A) the Borrower may sell Mortgage Loans (on a
servicing released or servicing retained basis), mortgage backed
securities, Mortgage Servicing Rights Held for Sale and Excluded Servicing
Rights in the ordinary course of business and (B) unless a Potential
Default or an Event of Default has occurred and is continuing or a
Potential Default or an Event of Default is reasonably likely to occur as a
result of any of the following, the Secured Parties hereby agree to release
their lien on any Non-Borrowing Base Collateral immediately and
automatically upon the Borrower's sale, granting of a security interest,
pledge, hypothecation, or other disposition of such Collateral to any other
Person. The provisions of this Section shall be automatic and
self-operative to release the lien of the Secured Parties on any
Non-Borrowing Base Collateral without any further documentation so long as
no Potential Default or Event of Default has occurred and is continuing or
is reasonably likely to result from such sale, grant, pledge, hypothecation
or other disposition; provided, however, that at the request of the
Borrower or any purchaser or grantee of a security interest in any
Non-Borrowing Base Collateral, the Collateral Agent and the Administrative
Agent shall each, at the Borrower's sole cost and expense, provide such
letters of release or confirmation, in form and substance reasonably
satisfactory to the Administrative Agent, as may be necessary in order to
confirm the release of such Non-Borrowing Base Collateral. Nothing
contained in this Section shall permit the Borrower to incur any
Indebtedness or grant any Liens not otherwise permitted pursuant to the
Loan Documents. Unless a Potential Default or an Event of Default has
occurred and is continuing, the Secured Parties agree that, notwithstanding
anything contained in this Agreement or any other Loan Document to the
contrary, the Borrower shall not be required to deliver possession of
Mortgage Loans in the Non-Borrowing Base Collateral to the Warehouse
Collateral Agent.
(i) Acquisitions. Purchase, acquire or incur liability for the purchase
or
-63-
<PAGE> 170
acquisition of all or substantially all of the assets or business of any Person,
except for the acquisition of Prime Credit Businesses and as otherwise permitted
or required under the Loan Documents.
(j) Restricted Payments. During any calendar quarter, make or pay any
distribution or return on capital or dividend equivalent to any of its partners,
or make any payment on account of, or set apart assets for a sinking or other
analogous fund for, the repurchase, retirement, redemption or other acquisition
of any of its partnership interests from any of its partners, whether in cash,
property or obligations, other than (i) such distributions and payments in an
aggregate amount not to exceed the Estimated Tax Amount for the prior quarter,
and (ii) other such distributions and payments in an aggregate amount which,
when added to the aggregate amount of all other distributions and payments made
or paid pursuant to this clause (ii) during the twelve (12) month period ending
on the last day of such prior quarter and the aggregate amount of all loans or
advances made during such twelve (12) month period (less any loans or advances
repaid during such twelve month period), and investments made during such twelve
(12) month period to Subsidiaries or Affiliates of the Borrower permitted under
Section 5.2(e)(ix), shall not exceed an amount equal to twenty-seven and
one-half percent (27.5%) of the Net Income of the Borrower for such twelve (12)
month period ending with such prior quarter; provided that no action permitted
by this Section 5.2(j) shall be taken by the Borrower in respect of any calendar
quarter until delivery of the financial statements of the Borrower described in
Section 5.1(a)(i) or (ii), as applicable, to the Administrative Agent and the
Lenders in respect of such calendar quarter.
(k) Transactions With Affiliates. Enter into any transaction (which is
not otherwise permitted under the Loan Documents), including the purchase, sale,
lease or exchange of any property, the making or borrowing of any loan or the
rendering of any service, with any Affiliate on terms that are generally less
favorable to it than those that might be obtained at the time from Persons who
are not Affiliates.
(l) Conduct of Business. Engage in any type of business that is not
substantially similar to its business as conducted as of the Closing Date.
(m) Negative Pledge. Grant a security interest in or Lien upon, or
provide a negative pledge with respect to any of its assets, to any Person,
other than as permitted or required by the Loan Documents.
(n) ERISA. Permit any of its ERISA Affiliates, directly or indirectly,
to:
(i) Terminate or withdraw from any Plan so as to result in any
material liability to the PBGC;
(ii) Engage in or permit any Person to engage in any Prohibited
Transaction involving any Plan that would subject such Borrower or any of
its ERISA Affiliates to any material tax, penalty or other liability;
(iii) Incur or suffer to exist any material Accumulated Funding
-64-
<PAGE> 171
Deficiency involving any Plan;
(iv) Amend any Plan so as to require the posting of security
under section 401(a)(29) of the Code;
(v) Fail to make payments required under section 412(m) of the
Code and section 302(e) of ERISA that would subject such Borrower or any of
its ERISA Affiliates to any material tax, penalty or other liability; or
(vi) Allow or suffer to exist any event or condition that
presents a risk of incurring material liability to the PBGC.
(o) Recourse Servicing. Permit the aggregate unpaid principal amount of
Mortgage Loans included in the Servicing Portfolio for which the Borrower has
Recourse Direct Servicing Rights to exceed one percent (1%) of the aggregate
unpaid principal amount of all Mortgage Loans included in the Servicing
Portfolio.
(p) HTP Financial Documents. Enter into, amend, modify or supplement
any of the HTP Financial Documents or permit PWRES to assign (other than for
collateral purposes with respect to the PWRES Financing Agreements) any of its
rights or obligations thereunder without the prior written consent of the
Administrative Agent which consent shall not be unreasonably withheld provided
such document, amendment, modification, supplement or assignment does not
materially increase the liabilities or materially reduce benefits to the
Borrower in relation to the liabilities and benefits contemplated by the term
sheet referenced in the definition of HTP Financial; provided, however, that the
Borrower shall promptly deliver true, correct and complete copies of all such
documents, amendments, modifications and supplements to the Administrative Agent
promptly after the execution thereof.
(q) Release of Collateral. Sell or transfer, or take any action to
contest the enforceability of or cause the release of any lien upon any
Collateral which is part of the Approved Servicing Portfolio, without the prior
consent of the Administrative Agent in the exercise of its sole discretion.
ARTICLE VI
EVENTS OF DEFAULT
Section 6.1 Events of Default.
If one or more of the following events (each an "Event of Default")
shall have occurred and be continuing:
(a) Payments. The Borrower shall fail to pay when due (whether at
scheduled maturity, upon mandatory repayment or otherwise) any principal of or
interest on any Note or any of its other Obligations;
(b) Covenants With No Grace Period. The Borrower shall fail to observe
-65
<PAGE> 172
or perform any of its covenants or agreements contained in the Servicing
Security Agreement or in Section 5.1(c)(i), 5.1(d), 5.1(e) or 5.1(f) or Section
5.2;
(c) Covenants With Five Day Grace Period. The Borrower shall fail to
observe or perform any covenant or agreement contained in Section 5.1(a)(v),
(vii), (ix), (x), (xi) or (xii), or Section 5.1(b), 5.1(g), 5.1(h), 5.1(i) or
5.1(j) and, if capable of being remedied, any such failure shall remain
unremedied for five (5) days after the earlier of (i) the Borrower's obtaining
actual knowledge thereof or (ii) notice thereof shall have been given to the
Borrower by any Lender or the Administrative Agent (provided that the foregoing
shall in no case be construed as a waiver of or consent to any Potential Default
enumerated in this subsection (c) (or any Event of Default resulting therefrom)
related to any such failure that is not capable of being remedied);
(d) Covenants With Thirty Day Grace Period. The Borrower shall fail to
observe or perform any covenant or agreement contained in any Loan Document,
other than those referred to in Section 6.1(a), (b) or (c) and, if capable of
being remedied, such failure shall remain unremedied for thirty (30) days after
the earlier of (i) the Borrower's obtaining actual knowledge thereof or (ii)
notice thereof shall have been given to the Borrower, by any Lender or the
Administrative Agent (provided that the foregoing shall in no case be construed
as a waiver of or consent to any Potential Default enumerated in the subsection
(d) (or any Event of Default resulting therefrom) related to any such failure
that is not capable of being remedied);
(e) Representations. Any representation, warranty or statement made or
deemed to be made by the Borrower or either of the Guarantors under or in
connection with any Loan Document, shall have been inaccurate, incomplete or
incorrect in any material respect when made or deemed to be made;
(f) Non-Payment of Other Indebtedness. The Borrower or either of the
Guarantors shall fail to make any payment of principal of or interest on any of
its Indebtedness (other than Indebtedness under this Agreement or the Warehouse
Credit Agreement) exceeding $1,000,000 in the aggregate when due (whether at
stated maturity, by acceleration, on demand or otherwise) after giving effect to
any applicable grace period;
(g) Cross-Default to Warehouse Credit Agreement. An "Event of Default"
shall have occurred and be continuing under the Warehouse Credit Agreement;
(h) Cross-Default to Other Agreements. The Borrower or either of the
Guarantors shall fail to observe or perform any covenant or agreement contained
in any agreement or instrument relating to any of its Indebtedness (other than
Indebtedness under this Agreement or the Warehouse Credit Agreement) in excess
of 1,000,000 in the aggregate within any applicable grace period, or any other
event shall occur, such that the effect of such failure or other event is to
accelerate, or to permit the holder of such Indebtedness or any other Person to
accelerate, the maturity of such Indebtedness;
(i) Bankruptcy or Insolvency. The Borrower or either of the Guarantors
or any of their respective General Partners shall commence a voluntary case
concerning itself under
-66-
<PAGE> 173
Title 11 of the United States Code entitled "Bankruptcy" as now or hereafter in
effect, or any successor thereto (the "Bankruptcy Code"); or any involuntary
case is commenced against it and the petition is not dismissed within sixty (60)
days after commencement of the case; or a custodian (as defined in the
Bankruptcy Code) is appointed for, or takes charge of, all or any substantial
part of its property; or it commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution,
insolvency or liquidation or similar law or there is commenced against it any
such proceeding that remains undismissed for a period of sixty (60) days; or it
is adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or it shall fail to pay, or
shall state that it is unable to pay, or shall be unable to pay its debts
generally as they become due; or it shall call a meeting of its creditors with a
view to arranging a composition or adjustment of its debts; or it shall by any
act or failure to act indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or partnership action is taken by it for
the purpose of effecting any of the foregoing;
(j) Money Judgment. A judgment or order for the payment of money not
covered by insurance in excess of $1,000,000 shall be rendered against the
Borrower or either of the Guarantors and such judgment or order shall continue
unsatisfied (in the case of a money judgment) and in effect for a period of
thirty (30) days during which execution shall not be effectively stayed or
deferred (whether by action of a court, by agreement or otherwise);
(k) ERISA. (i) Any Reportable Event or a Prohibited Transaction shall
occur with respect to any Plan; (ii) a notice of intent to terminate a Plan
under section 4041 of ERISA shall be filed; (iii) a notice shall be received by
the plan administrator of a Plan that the PBGC has instituted proceedings to
terminate a Plan or appoint a trustee to administer a Plan; (iv) any other event
or condition shall exist that might, in the opinion of the Required Lenders,
constitute grounds under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan; (v) the Borrower or any of its
ERISA Affiliates shall withdraw from a Multiemployer Plan under circumstances
that the Required Lenders determine could have a Material Adverse Effect; and in
case of the occurrence of any event or condition described in clauses (i)
through (iv) above, such event or condition together with all other such events
or conditions, if any, could subject the Borrower to any tax, penalty or other
liabilities which in the aggregate could have a Material Adverse Effect;
(l) Loan Documents. The Servicing Security Agreement or either of the
Guaranties shall cease to be in full force and effect; any action shall be taken
by the Borrower or either of the Guarantors to terminate, revoke or discontinue,
or to assert the invalidity or unenforceability of any such Loan Document to
which it is party; or the Borrower or either of the Guarantors shall deny it has
any further liability under any such Loan Document to which it is party; or
either of the Guarantors shall fail to perform any of its obligations under its
respective Guaranty;
(m) Security Interest. The Secured Parties shall cease for any reason
(other than as expressly permitted under the Loan Documents) to have a valid,
perfected and first priority security interest in the Servicing Collateral or
the Pledge Collateral; or the Borrower,
-67-
<PAGE> 174
either of the Guarantors or any other Person shall take any action to contest or
assert the unenforceability of any such security interest;
(n) Dissolution. The Borrower or Harbourton Financial Services shall be
dissolved, or Western Sunrise shall be dissolved without the Borrower having
taken all action reasonably required by the Administrative Agent to protect and
preserve the Secured Parties lien on all limited partnership interests in the
Borrower previously held by Western Sunrise (as defined in the Guaranty (Western
Sunrise)) or any of their respective General Partners shall dissolve or commence
dissolution proceedings;
(o) Material Adverse Effect. Any event or development (whether or not
of a nature or character similar to those previously enumerated) shall occur
that could reasonably be expected to have a Material Adverse Effect; or
(p) Change of Control. A Change of Control shall occur;
THEN, the Administrative Agent may, with the consent of the Required Lenders, or
shall, upon the written request of the Required Lenders, by written notice to
the Borrower, take any or all of the following actions: (i) declare the
Commitments terminated, whereupon the Commitment of each Lender shall terminate
immediately without any other notice of any kind; and (ii) declare the principal
of and any accrued interest on the Loans, and all other Obligations, to be,
whereupon the same shall become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrower; provided that, if an Event of Default specified
in Section 6.1(i) shall occur, the Commitments shall terminate and all
Obligations shall become immediately due and payable automatically without the
giving of any such notice and without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Borrower.
-68-
<PAGE> 175
ARTICLE VII
THE AGENTS
Section 7.1 Appointment of the Agents.
Each Lender hereby designates Chemical Bank as Administrative Agent and
First Bank National Association as Co-Agent, in each case to act as herein
specified, and Chemical Bank and First Bank National Association each agrees to
act in such respective capacity. Each Lender hereby irrevocably authorizes, and
each holder of any Note by the acceptance of a Note shall be deemed irrevocably
to authorize, the Administrative Agent and the Co-Agent to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and any other instruments and agreements referred to herein or therein and to
exercise such powers and to perform such duties hereunder or thereunder as are
specifically delegated to or required of the Administrative Agent and the
Co-Agent, respectively, by the terms hereof and thereof and such other powers as
are reasonably incidental thereto. Each of the Agents may perform any of its
duties hereunder or thereunder by or through its agents or employees.
Section 7.2 Nature of Duties of the Agents.
Neither of the Agents shall have any duties or responsibilities except
those expressly set forth in this Agreement and the other Loan Documents to
which it is a party. Neither of the Agents nor any of their respective officers,
directors, employees or agents shall be liable for any action taken or omitted
hereunder or thereunder or in connection herewith or therewith, unless caused by
its or their gross negligence or willful misconduct. The duties of the Agents
shall be mechanical and administrative in nature; neither of the Agents shall
have by reason of this Agreement or any other Loan Document a fiduciary
relationship in respect of any Lender; and nothing in this Agreement or any
other Loan Document, express or implied, is intended to or shall be so construed
as to impose upon either of the Agents any obligations in respect of this
Agreement or any other Loan Document except as expressly set forth herein or
therein.
Section 7.3 Lack of Reliance on the Agents.
(a) Lenders' Independent Investigations. Independently and without
reliance upon either of the Agents, each Lender, to the extent it deems
appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Borrower and the
Guarantors in connection with the taking or not taking of any action in
connection herewith and (ii) its own appraisal of the creditworthiness of the
Borrower and the Guarantors and, except as expressly provided in this Agreement,
neither of the Agents shall have any duty or responsibility, either initially or
on a continuing basis, to provide any Lender with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter.
-69-
<PAGE> 176
(b) Lack of Reliance. Neither of the Agents shall be responsible to any
Lender for any recitals, statements, information, representations or warranties
herein or in any document, certificate or other writing delivered in connection
with this Agreement or any other Loan Document or for the execution,
effectiveness, genuineness, validity, enforceability, collectibility, priority
or sufficiency of this Agreement or any other Loan Document or for the
sufficiency of the Servicing Collateral or the Pledge Collateral or the
validity, perfection or priority of any security interest therein or the
financial condition of the Borrower or either of the Guarantors or be required
to make any inquiry concerning either the performance or observance of any of
the terms, provisions or conditions of this Agreement or any other Loan
Document, or the financial condition of the Borrower or the Guarantors, or the
existence or possible existence of any Potential Default or Event of Default.
(c) Knowledge of Default. Neither of the Agents shall be deemed to have
knowledge or notice of the occurrence of any Potential Default or Event of
Default unless it has received notice from the other Agent, a Lender, the
Borrower, the Warehouse Collateral Agent or the Servicing Collateral Agent
referring to the Loan Documents, describing such Potential Default or Event of
Default, and stating that such notice is a "Notice of Default". In the event
either Agent receives such a notice, it shall give notice thereof to the other
Agent, the Lenders, the Borrower, the Warehouse Collateral Agent and the
Servicing Collateral Agent.
Section 7.4 Certain Rights of the Agents.
If either of the Agents shall request instructions (whether or not in
writing) from the Lenders with respect to any act or action (including the
failure to act) in connection with this Agreement or any other Loan Document,
such Agent shall be entitled to refrain from such act or taking such action
unless and until such Agent shall have received instructions from the Required
Lenders, and such Agent shall not incur liability to any Lender by reason of so
refraining. Without limiting the foregoing, no Lender shall have any right of
action whatsoever against either of the Agents as a result of such Agent's
acting or refraining from acting hereunder or under any other Loan Document in
accordance with the instructions of the Required Lenders. The provisions of this
Section 7.4 are not intended to supersede the provisions of Section 8.2 that
require all of the Lenders to approve certain actions under the Loan Documents.
Section 7.5 Reliance by the Agents.
Each of the Agents shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, statement,
certificate, telex, teletype or telecopier message, cablegram, radiogram, order
or other documentary or teletransmission message believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person. Each of
the Agents may consult with legal counsel (including counsel for the Borrower),
independent public accountants (including those retained by the Borrower,
subject to the provisions set forth in Section 5.1(e)) and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such counsel,
accountants or experts.
-70-
<PAGE> 177
Section 7.6 Indemnification of the Agents.
To the extent either of the Agents is not reimbursed and indemnified by
the Borrower, each Lender will reimburse and indemnify such Agent, in proportion
to its respective Commitment (before giving effect to any termination of the
Commitments pursuant to the terms of this Agreement), for and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including reasonable counsel fees and disbursements) or
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by or asserted against such Agent in performing its duties hereunder and under
the other Loan Documents, in any way relating to or arising out of this
Agreement or the other Loan Documents; provided that no Lender shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from such
Agent's gross negligence or willful misconduct.
Section 7.7 The Agents in their Individual Capacities.
With respect to its obligation to lend under this Agreement, the Loans
made by it and the Notes issued to it, each of the Agents shall have the same
rights and powers hereunder as any other Lender or holder of a Note and may
exercise the same as though it were not performing the duties specified herein;
and the terms "Lenders," "Required Lenders," "holders of Notes," or any similar
terms shall, unless the context clearly otherwise indicates, include each of the
Agents in its individual capacity. Each of the Agents may accept deposits from,
lend money to, and generally engage in any kind of banking, trust, financial
advisory or other business with the Borrower and any Affiliate of the Borrower
as if such Agent were not performing the duties specified herein, and may accept
fees and other consideration from the Borrower and any Affiliate of the Borrower
for services in connection with this Agreement and the other Loan Documents and
otherwise without having to account for the same to the Lenders.
Section 7.8 Holders of Notes.
Each of the Agents may deem and treat the payee of any Note as the
owner thereof for all purposes hereof unless and until a written notice of the
assignment or transfer thereof shall have been filed with the Administrative
Agent. Any request, authority or consent of any Person who, at the time of
making such request or giving such authority or consent, is the holder of any
Note shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Note or of any Note or notes issued in exchange therefor.
Section 7.9 Successor Agents.
(a) Resignation of Agents; Appointment of Successor. Either of the
Agents may resign as Administrative Agent or Co-Agent hereunder, as applicable,
at any time by giving written notice thereof to the Lenders and the Borrower
provided that the applicable agent also resigns in such capacity under the
Warehouse Credit Agreement. Upon any such resignation, the Required Lenders, in
consultation with and with the consent (which shall not be unreasonably withheld
or delayed) of the Borrower, shall appoint a successor Administrative Agent or
Co-Agent, as applicable, to act in such capacity under both this Agreement and
the
-71-
<PAGE> 178
Warehouse Credit Agreement, which shall be a Lender. If no successor
Administrative Agent or Co-Agent, as applicable, shall have been so appointed,
and shall have accepted such appointment, within thirty (30) days after the
retiring Administrative Agent's or Co-Agent's giving of notice of resignation,
then the retiring Administrative Agent or Co-Agent, as applicable, may, on
behalf of the Lenders, in consultation with and with the consent (which shall
not be unreasonably withheld or delayed) of the Borrower, appoint a successor
Administrative Agent or Co-Agent, as applicable, to act in such capacity under
both this Agreement and the Warehouse Credit Agreement, which shall be a bank
that maintains an office in the United States, or a commercial bank organized
under the laws of the United States of America or of any State thereof, or any
Affiliate of such bank, having a combined capital and surplus of at least
$250,000,000; provided that any successor Administrative Agent or Co-Agent, as
applicable, appointed pursuant to this sentence may be removed by the Required
Lenders at any time with or without cause as long as such agent is also removed
in such capacity under the Warehouse Credit Agreement.
(b) Effectiveness of Successor Appointment. Any resignation of either
of the Agents hereunder shall be effective only upon the acceptance of any
appointment as Administrative Agent or Co-Agent, as applicable, hereunder and
under the Warehouse Credit Agreement by a successor Administrative Agent or
Co-Agent. Upon such acceptance, such successor Administrative Agent or Co-Agent,
as applicable, shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Administrative Agent or Co-Agent, and the
retiring Administrative Agent or Co-Agent shall be discharged from its duties
and obligations under this Agreement and the other Loan Documents after the date
of such acceptance. After any retiring Administrative Agent's or Co-Agent's
resignation as Administrative Agent or Co-Agent, as applicable, the provisions
of this Article VII shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Administrative Agent or Co-Agent under
this Agreement.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1 Notices.
Except as otherwise expressly set forth herein, all notices, requests
and other communications to any party hereto shall be in writing (including
telecopy or similar teletransmission or writing) and shall be given to such
party at its address or telecopy number set forth on Exhibit K or such other
address or telecopy number as such party may hereafter specify by notice to the
Administrative Agent and the Borrower. Each such notice, request or other
communication shall be effective (a) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified herein and the receipt thereof is
confirmed by the recipient, (b) if given by mail, five (5) Business Days after
such communication is deposited in the U.S. mails
-72-
<PAGE> 179
with certified or registered postage prepaid, addressed as aforesaid, or (c) if
given by any other means (including by air courier), when delivered at the
address specified in this Section 8.1; provided that notices to the
Administrative Agent pursuant to Article II shall not be effective until
received.
Section 8.2 Amendments; Waivers.
No amendment or waiver of any provision of any Loan Document, nor
consent to any departure by the Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Borrower and the
Required Lenders, and then such amendment, waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given;
provided that: (a) no amendment, waiver or consent shall, unless in writing and
signed by all the Lenders do any of the following: (i) amend or waive any of the
conditions specified in Article III, (ii) amend Section 4.10, Section 6.1(a) or
the proviso to the first sentence of each of subsections (a) and (b) of Section
2.1, (iii) increase the Commitments of the Lenders or subject the Lenders to any
additional obligations, (iv) reduce the principal of, or interest on, the Notes
or any Fees hereunder, (v) postpone any date fixed for any payment in respect of
principal of, or interest on, the Notes or any Fees hereunder, or waive any
Event of Default under Section 6.1(a), (vi) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Notes, or the
number or identity of Lenders, which shall be required for the Lenders or any of
them to take any action hereunder, (vii) release the Lien of the Secured Parties
on any of the Servicing Collateral or the Pledge Collateral, except as provided
in the Servicing Security Agreement or other applicable Loan Document, (viii)
amend this Section 8.2 or Section 8.6, (ix) amend, waive or modify any of the
provisions contained in the definitions of "Collateral Value of the Tranche C
Borrowing Base," "Tranche C Borrowing Base," "Collateral Value of the Tranche D
Borrowing Base," "Tranche D Borrowing Base," "Eligible Expense Advance
Receivable," "Eligible Foreclosure Claim Receivable," "Eligible P&I Advance
Receivable," "Eligible Working Capital Receivables," "Eligible T&I Advance
Receivables," "Expense Advance," "Foreclosure Claim Receivable," "P&I Advance,"
or "T&I Advance"; (b) no amendment, waiver or consent shall, unless in writing
and signed by the Administrative Agent, affect the rights or duties of the
Administrative Agent under this Agreement or any other Loan Document; and (c) no
amendment, waiver or consent shall, unless in writing and signed by the
Co-Agent, affect the rights or duties of the Co-Agent under this Agreement or
any other Loan Document.
Section 8.3 No Waiver; Remedies Cumulative.
No failure or delay on the part of the Administrative Agent or any
Lender in exercising any right or remedy hereunder or under any other Loan
Document and no course of dealing between the Borrower or the Guarantors and the
Administrative Agent or any Lender shall operate as a waiver thereof, nor shall
any single or partial exercise of any right or remedy hereunder or under any
other Loan Document preclude any other or further exercise thereof or the
exercise of any other right or remedy hereunder or thereunder. The rights and
remedies expressly provided herein and in the other Loan Documents are
cumulative and not exclusive of any rights or remedies that the Administrative
Agent or any Lender would otherwise have. No
-73-
<PAGE> 180
notice to or demand on the Borrower or either of the Guarantors not required
hereunder or under the other Loan Documents in any case shall entitle the
Borrower or either Guarantor to any other or further notice or demand in similar
or other circumstances or constitute a waiver of the rights of the
Administrative Agent or any Lender to any other or further action in any
circumstances without notice or demand.
Section 8.4 Payment of Expenses, Etc.
The Borrower agrees to:
(a) Out-of-Pocket Costs. (i) Pay all reasonable out-of-pocket costs and
expenses of the Administrative Agent incurred, both before and after the
execution hereof, in obtaining advice of counsel as to the rights and duties of
the Administrative Agent and the Lenders with respect to the administration of,
and in connection with the preparation, execution and delivery of, this
Agreement and the other Loan Documents, and (ii) pay all reasonable
out-of-pocket costs and expenses of the Administrative Agent and each Lender in
the preservation of rights under, enforcement of, and, after the occurrence of a
Potential Default or an Event of Default, refinancing, renegotiation or
restructuring of, this Agreement and the other Loan Documents and the documents
and instruments referred to herein and therein including in connection with any
bankruptcy, insolvency, liquidation, reorganization or similar proceeding and
any amendment, waiver or consent relating hereto and thereto (including the
reasonable fees and disbursements of counsel and (allocated costs of internal
counsel) for the Administrative Agent and, in the case of enforcement, for each
of the Lenders);
(b) Stamp and Other Taxes. Pay and hold the Administrative Agent and
each of the Lenders harmless from and against any and all present and future
stamp and other similar taxes with respect to the foregoing matters, and hold
the Administrative Agent and each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay or omission to pay such
taxes; and
(c) Indemnification of Administrative Agent. Indemnify the
Administrative Agent and each Lender, and their respective officers, directors,
employees, representatives and agents from, and hold each of them harmless
against, any and all out-of-pocket costs, losses, liabilities, claims, damages
or expenses actually incurred by any of them (whether or not any of them is
designated a party thereto) arising out of or by reason of any investigation,
litigation or other proceeding related to any actual or proposed use by the
Borrower of the proceeds of any of the Loans or entering into and performing of
the Loan Documents to which it is a party, including the reasonable fees and
disbursements of counsel (including allocated costs of internal counsel)
incurred in connection with any such investigation, litigation or other
proceeding. The foregoing indemnification shall apply regardless of whether such
costs, losses, liabilities, claims, damages or expenses are in any way or to any
extent caused, in whole or in part, by any negligent act or omission of any kind
by the Administrative Agent or any Lender; provided that neither the
Administrative Agent nor any Lender shall have the right to be indemnified
hereunder for its own gross negligence or willful misconduct.
If and to the extent that the obligations of the Borrower under this Section 8.4
are unenforceable
-74-
<PAGE> 181
for any reason, the Borrower hereby agrees to make the maximum contribution to
the payment and satisfaction of such obligations which is permissible under
applicable law.
Section 8.5 Right of Setoff.
Subject to Section 2.15, in addition to and not in limitation of all
rights of offset that any Lender may have under applicable law, each Lender
shall, for so long as any Event of Default shall have occurred and be continuing
and whether or not such Lender has made any demand or the Obligations have
matured, have the right to appropriate and apply to the payment of the
Obligations, all deposits (general or special, time or demand, provisional or
final) then or thereafter held by, (other than deposits or other property held
by the Borrower in which the Borrower has no beneficial interest), and other
indebtedness or property then or thereafter owing to the Borrower by, such
Lender, whether or not related to any Loan Document or any transaction
hereunder.
Section 8.6 Benefit of Agreement; Assignments and Additional Lenders.
(a) This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the respective successors and assigns of the parties
hereto; provided that the Borrower may not assign or transfer any of its rights
or delegate any of its obligations under this Agreement or any of the other Loan
Documents without the prior written consent of all of the Lenders.
(b) Subject to the provisions of Section 2.12(c), any Lender may make,
carry or transfer Loans at, to or for the account of, any of its branch or
agency offices or the office of an Affiliate of such Lender.
(c) Any Lender (an "Assigning Lender") may at any time and from time to
time propose that a financial institution (an "Assignee Lender") become a Lender
hereunder and under the Warehouse Credit Agreement by way of assignment of all
or a portion of such Assigning Lender's Commitments and a proportionate share of
its Loans; provided that (i) such Assigning Lender shall retain aggregate
Commitments in an amount no less than $8,000,000 (or if such Assigning Lender is
an Assignee Lender under this Section 8.6(c), such lesser amount as such
Assigning Lender may have been assigned, but in no event less than $8,000,000)
after giving effect to such sale or assignment unless such sale or assignment
has been made to an existing Lender or to an Affiliate of such Assigning Lender,
in which case such Assigning Lender may retain aggregate Commitments in an
amount less than $8,000,000; (ii) such Assigning Lender shall assign the same
proportionate share of (A) its Tranche B Commitment, its Tranche C Commitment
and its Tranche D Commitment, and (B) its Tranche A Loans, its Tranche B Loans,
its Tranche C Loans and its Tranche D Loans; (iii) unless such assignment is
being made in connection with the addition of an Applicant Lender (as defined in
the Warehouse Credit Agreement) as a lender under the Warehouse Credit
Agreement, such Assigning Lender shall simultaneously assign the same
proportionate share of its Warehouse Commitments and Warehouse Loans to such
Assignee Lender (it being the intention of the parties that each Lender shall at
all times have the same proportionate share of Loans and Commitments under this
Agreement as it has under the Warehouse Credit Agreement); and (iv) the
Assigning Lender or
-75-
<PAGE> 182
the Assignee Lender shall have paid a $2,500 assignment fee to the
Administrative Agent, unless such assignment is being made in connection with
the addition of an Applicant Lender as a Lender under the Warehouse Credit
Agreement, in which case the Borrower shall have paid such $2,500 assignment fee
to the Administrative Agent. Such Assigning Lender shall notify the Borrower,
the Administrative Agent and each of the other Lenders of the identity of such
Assignee Lender and of such Assignee Lender's proposed aggregate Commitments
hereunder (which must be not less than $8,000,000 unless such Assignee Lender is
an existing Lender or an Affiliate of such Assigning Lender). Upon such Assignee
Lender's addition as a Lender hereunder, such Assignee Lender shall become a
party hereto and a Lender hereunder, shall be entitled to all rights, benefits
and privileges accorded a Lender hereunder and under the other Loan Documents,
and shall be subject to all obligations of a Lender hereunder and under the
other Loan Documents; and such Assigning Lender shall be released from its
obligations hereunder and under the other Loan Documents to the extent such
obligations have been assumed by such Assignee Lender. In addition to and not in
limitation of the foregoing, each Lender agrees to assign a portion of its Loans
and Commitments hereunder to any Applicant Lender under the Warehouse Credit
Agreement that becomes a Lender thereunder, as required under Section 8.6(c) of
the Warehouse Credit Agreement, so that such Applicant Lender and each other
Lender shall have the same proportionate share of Loans and Commitments
hereunder as it has under the Warehouse Credit Agreement.
(d) The addition of any Assignee Lender as a Lender hereunder shall
become effective upon the occurrence of each of the following events and the
events described in Section 8.6(e) of the Warehouse Credit Agreement:
(i) the Borrower and each of the Agents shall have given their
prior written consent to any Assignee Lender that is not an existing Lender or
an Affiliate of the Assigning Lender, which consent shall not be unreasonably
withheld (it being understood that no consent of the Borrower or the Agents
shall be required for any Assignee Lender that is an existing Lender or an
Affiliate of the Assigning Lender) and shall be given to the Assigning Lender
not later than the tenth (10th) day following receipt by the Borrower and each
of the Agents of a written request for the inclusion of such Assignee Lender as
a Lender; and
(ii) such Assignee Lender, such Assigning Lender and the Agents
shall have mutually agreed on the date (the "Adjustment Date") on which such
Assignee Lender shall become a Lender hereunder and under the other Loan
Documents. On such Adjustment Date:
(A) such Assignee Lender, such Assigning Lender, the
Borrower and the Agents shall execute and deliver to each of the other
signatories thereto an Assignment Agreement and the Borrower shall deliver a
copy of such executed Assignment Agreement to each of the Lenders; and
(B) the Borrower shall execute and deliver to such
Assignee Lender a Note; and
(C) the Administrative Agent shall deliver to each of the
Lenders
-76-
<PAGE> 183
a Commitment Notice reflecting each Lender's respective Commitments and
aggregate Commitments and the aggregate Commitments of all of the Lenders as of
the Adjustment Date after giving effect to the assignment by the Assigning
Lender to the Assignee Lender.
(e) Each Lender may transfer, grant or assign participations in all or
any part of such Lender's interests and obligations hereunder pursuant to this
Section to another financial institution, provided that (i) such Lender shall
remain a "Lender" for all purposes of this Agreement and the transferee of such
participation shall not constitute a Lender hereunder and (ii) no participant
under any such participation shall have rights to approve any amendment to or
waiver of this Agreement or any other Loan Document except to the extent such
amendment or waiver would (w) extend the final scheduled maturity of any of the
Loans or the Commitments in which such participant is participating, (x) release
any guarantors, (y) reduce the interest rate (other than as a result of waiving
the applicability of any post-default increases in interest rates) or Fees
applicable to any of the Loans or Commitments or postpone the payment of any
thereof or (z) release any collateral under the Loan Documents. In the case of
any such participation, the participant shall not have any rights under this
Agreement or any of the other Loan Documents (the participant's rights against
the granting Lender in respect of such participation to be those set forth in
the agreement with such Lender creating such participation) and all amounts
payable by the Borrower under Section 2.12 shall be determined as if such Lender
had not sold such participation.
(f) Any Lender may furnish any information concerning the Borrower and
its Affiliates in the possession of such Lender from time to time to Affiliates
of such Lender and to assignees and participants (including prospective
assignees and participants) and such assignee and participant shall keep any
such non-public information confidential.
(g) Any Lender may at any time pledge or assign all or any portion of
its rights under this Agreement and the other Loan Documents to any Federal
Reserve Bank without notice to or consent of the Borrower. No such pledge or
assignment shall release the transferor Lender from its obligations hereunder.
SECTION 8.7 GOVERNING LAW; SUBMISSION TO JURISDICTION.
(a) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER AND UNDER THE NOTES SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
LOCATED IN NEW YORK COUNTY OR OF THE UNITED STATES OF AMERICA FOR THE SOUTHERN
DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, THE
BORROWER HEREBY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
-77-
<PAGE> 184
PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS AND, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION, INCLUDING ANY
OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON
CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OR MAINTAINING OF
ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE JURISDICTIONS.
(c) THE BORROWER IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO THE
SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, AT ITS ADDRESS SET FORTH ON EXHIBIT K, SUCH SERVICE TO BECOME
EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING.
(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE ADMINISTRATIVE AGENT
OR ANY LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO
COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY
OTHER JURISDICTION.
Section 8.8 Counterparts.
This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which, when so
executed and delivered, shall be an original, but all of which shall together
constitute one and the same instrument.
Section 8.9 Effectiveness; Survival of Indemnities.
This Agreement shall become effective on the Closing Date. The
obligations of the Borrower under Sections 2.12, 2.13, 2.14, 8.4, and any other
provision of this Agreement and the other Loan Documents providing for
indemnification of the Agents or the Lenders, and of each the Lenders under
Section 7.6 shall survive the termination of this Agreement for any reason
whatsoever and payment of the Notes.
Section 8.10 Headings Descriptive.
The headings of the several sections and subsections of this Agreement,
and the Table of Contents, are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
Section 8.11 Survival of Representations.
All covenants, agreements, representations and warranties made herein
and in any
-78-
<PAGE> 185
certificate delivered pursuant hereto shall survive the making by the Lenders of
the Loans and the execution and delivery to the Administrative Agent for the
account of the Lenders of the Notes regardless of any investigation made by the
Administrative Agent or the Lenders and of the Administrative Agent's and the
Lenders' access to any information and shall continue in full force and effect
so long as any Obligation is outstanding and unpaid.
Section 8.12 Severability.
In case any one or more of the provisions contained in this Agreement
or the Notes should be invalid, illegal or unenforceable in any respect in any
jurisdiction, the validity, legality and enforceability of such provisions shall
not be affected or impaired in any other jurisdiction, nor shall the remaining
provisions contained herein and therein in any way be affected or impaired
thereby.
Section 8.13 Entire Agreement.
This Agreement and the other Loan Documents constitute the entire
agreement and understanding among the parties hereto and supersede any and all
prior agreements and understandings, oral or written, relating to the subject
matter hereof and thereof.
Section 8.14 Confidentiality.
Each Lender agrees not to disclose, without the prior written consent
of the Borrower, any of the financial information or other information of the
Borrower or any Affiliate of the Borrower designated in writing by the Borrower
as "confidential," and obtained under or in connection with this Agreement or
any of the other Loan Documents. Notwithstanding the foregoing, each Lender may
disclose such information: (a) as is permitted under Section 8.6; (b) as is
required by law or by subpoena or similar court order, or by any governmental,
regulatory or supervisory authority or official; (c) to counsel to such Lender
in connection with the transactions contemplated by this Agreement and the other
Loan Documents; (d) to independent auditors and other advisers retained by such
Lender; and (e) to the Administrative Agent or the Collateral Agent as
contemplated by this Agreement and the other Loan Documents. In addition, unless
specifically prohibited by applicable law or court order, each Lender shall, to
the extent practical, notify the Borrower of any subpoena or similar court order
or of any request by any governmental, regulatory or supervising authority or
official (other than any such request in connection with an examination of the
financial condition of such Lender by such authority or otherwise in the
ordinary course of its business) for disclosure of any such information prior to
disclosure of such information so that the Borrower may seek an appropriate
protective order. Notwithstanding the foregoing, the Lenders shall have no
obligation to keep any such information confidential if such information (i)
becomes generally available to the public other than as a result of the
disclosure by any Lender in violation of this Section 8.14, (ii) is available to
any Lender on a non-confidential basis prior to its disclosure to such Lender by
the Borrower or, if applicable, by the Lender from whom such Lender has
purchased its participation or assignment, or (iii) becomes available to any
Lender on a non-confidential basis from a source other than the Borrower or, if
applicable, the Lender from whom such Lender has purchased its participation or
assignment; and any Lender may disclose any such information in
-79-
<PAGE> 186
connection with any litigation to which such Lender is party relating to this
Agreement or any of the other Loan Documents.
Section 8.15 PWRES Collateral. The Borrower shall provide the
Administrative Agent with reasonable prior notice before the Borrower intends to
execute and deliver the HTP Financial Documents so that the Administrative Agent
may exercise its rights to reasonably approve the same as provided in Section
5.2(p). If the Agent approves the same, the parties shall execute and deliver
amendments to the Warehouse Servicing Agreement and the Servicing Security
Agreement, which amendment shall provide for the exclusion of the PWRES
Collateral (as hereinafter defined) from the Secured Parties' lien on the
Collateral, and which amendment shall be in form and substance reasonably
satisfactory to the Administrative Agent. All costs and fees incurred by
Administrative Agent, including legal fees, in connection with this Section
shall be for the account of the Borrower. As used herein "PWRES Collateral"
shall mean (i) Mortgage Loans originated or acquired by the Borrower and
simultaneously sold to PWRES, and Mortgage Loans originated or acquired by the
Borrower and held not more than five (5) Business Days by the Borrower before
being sold to HTP Financial or PWRES, which Mortgage Loans are in either case
financed by PWRES under the PWRES Financing Agreements, (ii) the Borrower s
retained servicing and subservicing rights relating to the Mortgage Loans sold
to HTP Financial as described in clause (i) above, (iii) receivables resulting
from advances made for principal and interest payments, taxes and insurance
payments, and foreclosure related expenses financed by PWRES under the PWRES
Financing Agreements, (iv) Mortgage Loans sold by the Borrower to PWRES pursuant
to the PWRES gestation repurchase agreements where such sale has been
recharacterized as indebtedness secured by such Mortgage Loans, and (v) all
Proceeds of the foregoing (as such term is defined in the New York Uniform
Commercial Code).
SECTION 8.16 WAIVER OF TRIAL BY JURY. THE PARTIES HERETO HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (INCLUDING ANY CLAIM
OR COUNTERCLAIM ARISING OUT OF OR IN CONNECTION HEREWITH OR THEREWITH).
-80-
<PAGE> 187
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
HARBOURTON MORTGAGE CO., L.P.
By: Harbourton Funding
Corporation
Its: General Partner
By:
---------------------------
Name:
---------------------------
Title:
---------------------------
TRANCHE A COMMITMENT CHEMICAL BANK, as Administrative Agent
$21,000,000.00 and as a Lender
TRANCHE B COMMITMENT
$7,500,000.00
TRANCHE C COMMITMENT By:
$7,500,000.00 ---------------------------------
TRANCHE D COMMITMENT Katherine W. Sheppard
$2,500,000.00 Vice President
TRANCHE A COMMITMENT FIRST BANK NATIONAL ASSOCIATION
$21,000,000.00 as Co-Agent and as a Lender
TRANCHE B COMMITMENT
$7,500,000.00
TRANCHE C COMMITMENT By:
$7,500,000.00 -----------------------------
TRANCHE D COMMITMENT Title:
$2,500,000.00 -----------------------------
S-1
<PAGE> 1
- - - - - - --------------------------------------------------------------------------------
MORTGAGE SERVICING
PURCHASE AND SALE AGREEMENT
between
NORWEST MORTGAGE, INC.,
Seller
and
HARBOURTON MORTGAGE CO., L.P.,
Purchaser
Dated as of September 15, 1995
$1.6 Billion GNMA Mortgage Servicing Rights
- - - - - - --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
<TABLE>
<S> <C>
Section 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
PURCHASE AND SALE OF SERVICING RIGHTS;
PURCHASE PRICE; ADDITIONAL COVENANTS
Section 2.1 Purchase and Sale of Servicing Rights. . . . . . . . . . . . . 1
Section 2.2 Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.3 Payment of Purchase Price. . . . . . . . . . . . . . . . . . . 5
Section 2.4 Interest Calculations. . . . . . . . . . . . . . . . . . . . . 6
Section 2.5 Hold-Back Reserve. . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.6 Reimbursement of Advances. . . . . . . . . . . . . . . . . . . 7
Section 2.7 Mortgage Escrow Accounts: Optional Insurance Payments. . . . . 8
Section 2.8 Purchase Price Adjustments. . . . . . . . . . . . . . . . . . . 8
Section 2.9 Interest Calaculations. . . . . . . . . . . . . . . . . . . . . 9
Section 2.10 Purchase Price Allocation . . . . . . . . . . . . . . . . . . . 9
Section 2.11 Dispute Resolution. . . . . . . . . . . . . . . . . . . . . . . 9
Section 2.12 Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1 Seller's Representations and Warranties. . . . . . . . . . . . 10
Section 3.2 Mortgage Banking Representations and Warranties. . . . . . . . 13
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 4.1 Purchaser's Representations and Warranties. . . . . . . . . . . 13
ARTICLE V
COVENANTS AND AGREEMENTS
Section 5.1 Interim Servicing; Subservicing. . . . . . . . . . . . . . . . 15
Section 5.2 Uncertified Pools. . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.3 GNMA Consents. . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.4 Notice to Mortgagors. . . . . . . . . . . . . . . . . . . . . . 17
Section 5.5 Notice to Taxing Authorities, IRS, Insurers and Agencies. . . . 17
Section 5.6 Delivery of Custodian Files and Servicing Files. . . . . . . . 18
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
Section 5.7 Post-Transfer Date Payments, Proceeds and Correspondence;
Notification of Action Items. . . . . . . . . . . . . . . . 18
Section 5.8 Recertification of Pools after Transfer. . . . . . . . . . . . 19
Section 5.9 Reserved. . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.10 Payment of Servicing Invoices. . . . . . . . . . . . . . . . . 20
Section 5.11 Sale And Transfer Documents. . . . . . . . . . . . . . . . . . 21
Section 5.12 Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . 21
Section 5.13 Access to Mortgage Documents, Files, Records, Etc. . . . . . . 21
Section 5.14 Covenant Against Solicitation. . . . . . . . . . . . . . . . . 22
Section 5.15 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . 22
Section 5.16 Third-Party Proposals. . . . . . . . . . . . . . . . . . . . . 23
Section 5.17 Refinancing. . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 5.18 Pre-Foreclosure Purchases. . . . . . . . . . . . . . . . . . . 23
Section 5.19 Advice of Changes. . . . . . . . . . . . . . . . . . . . . . . 24
Section 5.20 Supplemental Information. . . . . . . . . . . . . . . . . . . 24
Section 5.21 Best Efforts; Further Assurances. . . . . . . . . . . . . . . 24
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
Section 6.1 Conditions to the Sale Date. . . . . . . . . . . . . . . . . . 25
Section 6.2 Conditions to each Servicing Transfer Date. . . . . . . . . . . 26
Section 6.3 Conditions to each GNMA Transfer Date. . . . . . . . . . . . . 27
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
Section 7.1 Conditions to the Sale Date. . . . . . . . . . . . . . . . . . 28
Section 7.2 Conditions to each GNMA Transfer Date. . . . . . . . . . . . . 29
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION; REPURCHASE
Section 8.1 Survival of Representations and Warranties. . . . . . . . . . . 30
Section 8.2 Indemnification by Seller. . . . . . . . . . . . . . . . . . . 30
Section 8.3 Indemnification by Purchaser. . . . . . . . . . . . . . . . . . 31
Section 8.4 Indemnification Procedures. . . . . . . . . . . . . . . . . . . 32
Section 8.5 Repurchase. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.6 Special Indemnification for Seller's Escrow Practices. . . . . 34
</TABLE>
-ii-
<PAGE> 4
ARTICLE IX
TERMINATION
<TABLE>
<S> <C>
Section 9.1 Termination by Purchaser or Seller Prior to
Portfolio A Servicing Transfer Date. . . . . . . . . . . . . . 34
Section 9.2 Termination by Purchaser or Seller Prior to
Portfolio B Servicing Transfer Date. . . . . . . . . . . . . . 34
Section 9.3 Effect of Termination. . . . . . . . . . . . . . . . . . . . . 35
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 10.2 Assignment; Successors and Assigns; No Third Party Rights. . . 36
Section 10.3 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . 37
Section 10.4 Amendment, Modification and Waivers. . . . . . . . . . . . . . 37
Section 10.5 Severability. . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 10.6 Expedited Arbitration. . . . . . . . . . . . . . . . . . . . . 37
Section 10.7 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 10.8 No Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 10.9 Payments by Wire Transfer. . . . . . . . . . . . . . . . . . . 38
Section 10.10 Rules of Construction. . . . . . . . . . . . . . . . . . . . 39
Section 10.11 Reproduction of Documents. . . . . . . . . . . . . . . . . . 39
Section 10.12 No Strict Construction. . . . . . . . . . . . . . . . . . . . 40
Section 10.13 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
-iii-
<PAGE> 5
SCHEDULES AND EXHIBITS
<TABLE>
<S> <C>
Schedule I Defined Terms
Schedule II Mortgage Banking Representations and Warranties
Schedule 2.2(c) Purchase Price Schedule
Schedule 3.1(j) Litigation
Schedule 3.1(l)(1) Mortgage Loan Schedule
Schedule 3.1(l)(2) Buyout Loan Schedule
Schedule 3.1(l)(3) Pool Schedule
Schedule 3.1(l)(4) Portfolio Characteristics Schedule
Schedule 3.2(k) Condominiums, etc...
Schedule 3.2(m) Buydowns
Schedule 3.2(o) Inquiries
Schedule 3.2(q) Title Insurance Claims
Schedule 3.2(s) Real Estate Taxes
Schedule 5.2 Uncertified Pools; Actions Required
Exhibit A Form of Escrow Agreement
Exhibit B Form of Interim Servicing Agreement
Exhibit C Form of Subservicing Agreement
Exhibit D Servicing Transfer Protocol
Exhibit E Form of Opinion of Seller's Counsel
Exhibit F Form of Opinion of Purchaser's Counsel
Exhibit G Form of Bill of Sale and Assignment Agreement (Servicing Rights)
Exhibit H Form of Bill of Sale and Assignment Agreement (Buyout Loans)
Exhibit I Intentionally Omitted
Exhibit J Custodian File Contents
</TABLE>
-iv-
<PAGE> 6
THIS MORTGAGE SERVICING PURCHASE AND SALE AGREEMENT, dated as
of September 15, 1995 (this "Agreement"), is made by and between HARBOURTON
MORTGAGE CO., L.P., a Delaware limited partnership ("Purchaser"), and NORWEST
MORTGAGE, INC., a California corporation ("Seller").
BACKGROUND:
Seller owns the Servicing Rights and Advances with respect to
the Mortgage Loans and Seller desires to sell to Purchaser, and Purchaser
desires to purchase from Seller, all right, title and interest in and to the
Servicing Rights and Advances in accordance with the terms and subject to the
conditions of this Agreement.
NOW THEREFORE, the Parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions.
For the purpose of this Agreement, capitalized terms have the
meanings set out in Schedule I hereto, or elsewhere in this Agreement.
ARTICLE II
PURCHASE AND SALE OF SERVICING RIGHTS;
PURCHASE PRICE; ADDITIONAL COVENANTS
Section 2.1 Purchase and Sale of Servicing Rights and
Buyout Loans.
(a) Sale Date Conveyance. Upon the terms and
subject to the conditions of this Agreement and on the basis of the
representations, warranties and agreements contained herein, effective as of
the close of business on the Sale Date, Seller hereby sells, assigns,
transfers, conveys and delivers to Purchaser all of Seller's beneficial right,
title and interest in and to the Servicing Rights related to the Mortgage Loans
(other than the Buyout Loans), free and clear of all Liens, and Purchaser
hereby purchases and assumes the beneficial interest in the Servicing Rights
related to the Mortgage Loans (other than the Buyout Loans) from Seller as of
such date.
(b) GNMA Transfer Date Conveyance. Upon the
terms and subject to the conditions of this Agreement and on the basis of the
representations, warranties and agreements contained herein, effective as of
the commencement of business on each date set forth in the table below (or on
such other dates as the Parties may agree in writing) (collectively, the "GNMA
Transfer Dates"; individually, a "GNMA Transfer Date"), Seller shall sell,
assign, transfer, convey and deliver to Purchaser, legal title, and all of
Seller's right, title and interest in and to the Mortgage Loans (other than the
Buyout Loans) and the Servicing Rights related to the Mortgage Loans described
in the column adjacent to the respective GNMA Transfer Date in the
-1-
<PAGE> 7
table below, free and clear of all Liens, and Purchaser hereby purchases and
assumes such Servicing Rights from Seller as of such GNMA Transfer Date.
<TABLE>
<CAPTION>
GNMA TRANSFER DATE: RELATED MORTGAGE LOANS:
<S> <C>
November 2, 1995 All Certified Portfolio A Mortgage Loans
December 4, 1995 (i) All Certified Portfolio B Mortgage Loans, and
(ii) all Portfolio A Mortgage Loans that have become
Certified Portfolio A Mortgage Loans since the prior GNMA
Transfer Date
Each of January 3, 1996, February 2, 1996, All Portfolio A Mortgage Loans that have become Certified
March 4, 1996, and April 2, 1996 Portfolio A Mortgage Loans, and all Portfolio B Mortgage
Loans that have become Certified Portfolio B Mortgage
Loans, since the prior GNMA Transfer Date
May 2, 1996 All Portfolio A Mortgage Loans that have become Certified
(the "Final GNMA Transfer Date") Portfolio A Mortgage Loans, and all Portfolio B Mortgage
Loans that have become Certified Portfolio B Mortgage
Loans, since the prior GNMA Transfer Date
</TABLE>
(c) Servicing Transfer Dates; Advances. Upon the
terms and subject to the conditions of this Agreement and on the basis of the
representations, warranties and agreements contained herein: (i) as of the
commencement of business on November 2, 1995 (the "Portfolio A Servicing
Transfer Date"), Purchaser shall commence physical servicing (or subservicing
in accordance with Section 5.1) of all Portfolio A Mortgage Loans, (ii) as of
the commencement of business on December 4, 1995 (the "Portfolio B Servicing
Transfer Date"), Purchaser shall commence physical servicing (or subservicing
in accordance with Section 5.1) of all Portfolio B Mortgage Loans, and (iii) as
of the commencement of business on October 16, 1995 (the "Buyout Loan Transfer
Date"), Purchaser shall commence physical servicing of all Buyout Loans. All
Advances related to the Mortgage Loans shall be transferred and conveyed to
Purchaser as of the related Servicing Transfer Date.
(d) Buyout Loans. Upon the terms and subject to
the conditions of this Agreement and on the basis of the representations,
warranties and agreements contained herein, effective as of the commencement of
business on the Buyout Loan Transfer Date, Seller shall sell, assign, transfer,
convey and deliver to Purchaser, legal title, and all of Seller's right, title
and interest in and to the Buyout Loans and all servicing rights and Advances
related thereto, free
-2-
<PAGE> 8
and clear of all Liens, and Purchaser hereby purchases and assumes such Buyout
Loans from Seller as of such Buyout Loan Transfer Date.
NOTWITHSTANDING ANYTHING CONTAINED IN THIS SECTION 2.1 OR THE GNMA GUIDE TO THE
CONTRARY, EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, AS BETWEEN
SELLER AND PURCHASER, PURCHASER IS NOT ASSUMING, NOR SHALL IT IN ANY MANNER
BECOME LIABLE FOR, ANY LIABILITIES OR OBLIGATIONS OF ANY KIND OR NATURE
WHATSOEVER OF SELLER AND ITS AFFILIATES RELATING TO THE MORTGAGE LOANS,
SERVICING RIGHTS OR ADVANCES ARISING PRIOR TO THE SALE DATE.
Section 2.2 Purchase Price.
(a) Purchase Price. In full consideration for
the sale of the Servicing Rights, Purchaser shall pay to Seller, subject to
adjustment as provided in Section 2.8 below, a purchase price (the "Purchase
Price") equal to the difference between:
(i) the product of (x) the Purchase
Price Percentage and (y) the aggregate unpaid principal balance, as of
the Cut-Off Date, of the Mortgage Loans, excluding the aggregate
unpaid principal balance of all Delinquent Loans and Buyout Loans;
minus
(ii) the sum of (x) the number of
Mortgage Loans (other than Buyout Loans) that are In Bankruptcy and as
to which no monthly installments are past due as of the Cut-Off Date,
times fifteen hundred dollars ($1,500), plus (y) the number of
Delinquent Loans (other than Buyout Loans and without duplication of
Mortgage Loans included in the calculation of clause (x) above) as to
which five (5) or fewer monthly installments are past due as of the
Cut-Off Date, times two thousand dollars ($2,000), plus (z) the number
of Delinquent Loans (other than Buyout Loans) that are In Foreclosure
or as to which six (6) or more monthly installments are past due as of
the Cut-Off Date, times twenty-five hundred dollars ($2,500);
minus
(iii) Sixty-Four Thousand ($64,000)
Dollars.
(b) Buyout Loan Purchase Price. In full
consideration for the sale of the Buyout Loans, Purchaser shall pay to Seller,
subject to adjustment as provided in Section 2.8 below, a purchase price (the
"Buyout Loan Purchase Price") equal to the difference between
(i) the aggregate unpaid principal
balance, as of the Buyout Loan Cut-Off Date, of the Buyout Mortgage
Loans plus the aggregate
-3-
<PAGE> 9
accrued but unpaid interest on the unpaid principal balance of each
Buyout Loan calculated at the applicable Pool pass through rate on
each Buyout Loan to the date that the Buyout Loan Purchase Price is
paid in respect of such Buyout Loan in accordance with Section 2.3(e);
minus
(ii) the sum of (x) the number of Buyout
Loans that are In Bankruptcy and as to which no monthly installments
are past due as of the Cut-Off Date, times fifteen hundred dollars
($1,500), plus (y) the number of Buyout Loans (without duplication of
Buyout Loans included in the calculation of clause (x) above) as to
which five (5) or fewer monthly installments are past due as of the
Cut-Off Date, times two thousand dollars ($2,000), plus (z) the number
of Buyout Loans that are In Foreclosure or as to which six (6) or more
monthly installments are past due as of the Cut-Off Date, times
twenty-five hundred dollars ($2,500).
(c) Purchase Price Schedule. Schedule 2.2(c)
(the "Purchase Price Schedule") sets forth the Seller's calculation of the
Purchase Price, the Portfolio A Purchase Price and the Portfolio B Purchase
Price, each as of the Cut-Off Date. Seller has delivered to Purchaser a
Purchase Price Schedule containing Seller's good faith estimate of the Purchase
Price. Within two (2) Business Days after the Sale Date, Seller shall deliver
to Purchaser a complete Purchase Price Schedule that sets forth in reasonable
detail all of the relevant computations made by Seller in determining the
Purchase Price, and all information used by Seller in connection with such
computations. Seller shall deliver a revised Schedule 2.2(c), incorporating
any applicable adjustments to the Purchase Price and including the amount of
the related Advances on or before the third (3rd) Business Day after each of
the Portfolio A Servicing Transfer Date, the Portfolio B Servicing Transfer
Date, and each GNMA Transfer Date. The revised Schedule 2.2(c) to be delivered
after each GNMA Transfer Date shall include a detailed calculation of the
portion of the Purchase Price that will become due in accordance with Section
2.3(d) with respect to such GNMA Transfer Date. If a revised Purchase Price
Schedule is not delivered to Purchaser by the third (3rd) Business Day after
each of the dates set forth above, the date on which the related Purchase Price
payment is due shall be delayed and extended to the date that is two (2)
Business Days after Purchaser's actual receipt of such revised Purchase Price
Schedule.
Seller shall deliver a Purchase Price Schedule with
respect to the Buyout Loans (based on the unpaid principal balance thereof as
of the Buyout Loan Cut-Off Date) and the related Advances on Schedule 2.2(c) on
or before the third (3rd) Business Day after the Buyout Loan Transfer Date and
on each of November 1, 1995 and December 1, 1995 with respect to the payments
due on such dates. Such schedule shall include a detailed calculation of the
Buyout Loan Purchase Price and the portion due on any given date. If a revised
Purchase Price Schedule is not delivered to Purchaser by the third (3rd)
Business Day after the Buyout Loan Transfer Date, or on or before November 1,
1995 and December 1, 1995 with respect to the payments due on such dates, the
date on which the related Buyout Loan Purchase Price payment
-4-
<PAGE> 10
is due shall be delayed and extended to the date that One (1) Business Day
after Purchaser's actual receipt of such revised schedule.
Section 2.3 Payment of Purchase Price.
The Purchase Price shall be paid by Purchaser in immediately
available funds by wire transfer in accordance with the wire transfer
instructions set forth on Section 10.9 as follows:
(a) Sale Date Payment. On the Sale Date,
Purchaser shall pay to Seller, by wire transfer of immediately available funds,
twenty percent (20%) of the Purchase Price.
(b) Servicing Transfer Payments. On the fifth
(5th) Business Day following each of the Portfolio A Servicing Transfer Date
(the "Portfolio A Purchase Price Remittance Date") and the Portfolio B
Servicing Transfer Date (the "Portfolio B Purchase Price Remittance Date")
Purchaser shall (i) remit to Seller ten percent (10%) of the Portfolio A
Purchase Price or the Portfolio B Purchase Price, as the case may be, and (ii)
deposit in escrow with the Escrow Agent pursuant to the Escrow Agreement five
percent (5%) of the Portfolio A Purchase Price or the Portfolio B Purchase
Price, as the case may be, to be held and released in accordance with Section
2.4 (each such payment, a "Servicing File Reserve Payment"; collectively, the
"Servicing File Reserve")
(c) Reserved.
(d) GNMA Transfer Date Payment. On the fifth
(5th) Business Day following each GNMA Transfer Date, Purchaser shall (i) remit
to Seller sixty percent (60%) of the Purchase Price relating to the Servicing
Rights for which a GNMA Consent has been obtained and which are being
transferred to Seller on such GNMA Transfer Date and (ii) deposit in escrow
with the Escrow Agent pursuant to the Escrow Agreement five percent (5%) of the
Purchase Price relating to the Servicing Rights for which a GNMA Consent has
been obtained and which are being transferred to Seller on such GNMA Transfer
Date to be held and released in accordance with Section 2.5 (the "Hold-Back
Reserve Payment"). All payments made by Purchaser to Seller under this Section
shall be determined in accordance with Section 2.2(a) for each related Mortgage
Loan and shall include interest on the amount paid at the Applicable Rate from
the related Servicing Transfer Date to the date of payment to Seller or deposit
in escrow, as the case may be. In no event shall any payment (other than
interest payments) to be made on any date under this subsection, when added to
all Purchase Price payments previously made by Purchaser under any subsection
of this Section 2.3 (other than interest payments) exceed 100% of the Purchase
Price.
(e) Buyout Loan Payments. Provided that Seller
has complied in all material respects with Seller's covenants and obligations
hereunder, on the sixth (6th) Business Day following the date that Purchaser
receives the Custodial Files for substantially all of the Buyout Loans (the
"Buyout Loan Purchase Price Remittance Date") (which date is expected to be on
or about October 16, 1995) Purchaser shall remit to Seller one-hundred percent
(100%) of
-5-
<PAGE> 11
the Buyout Loan Purchase Price with respect to all Buyout Loans for which
Purchaser has received the related complete Custodian File as of the Buyout
Loan Transfer Date. For all Buyout Loans that do not have complete Custodial
Files as of the Buyout Loan Transfer Date and for which Purchaser receives a
complete Custodian File on or before October 31, 1995, Purchaser shall pay the
related Buyout Loan Purchase Price on November 1, 1995, and for all Buyout
Loans that do not have complete Custodial Files as of October 31, 1995 and for
which Purchaser receives a complete Custodian File on or before November 30,
1995, Purchaser shall pay the related Buyout Loan Purchase Price on December 1,
1995. Purchaser shall reconvey to Seller any Buyout Loans that do not have
complete Custodial Files as of November 30, 1995. In order to carry out the
intent and purpose of this Section, Purchaser shall use reasonable efforts to
provide Seller with exception reports indicating exceptions to the Custodian
Files as promptly as practical after receipt of the Custodial Files and Seller
shall use reasonable efforts to cure such exceptions as promptly as practical
after receipt of Purchaser's exception reports. A Custodian File shall not be
considered "complete" until all exceptions are cleared to Purchaser's
reasonable satisfaction.
Section 2.4 Servicing File Reserve.
The Servicing File Reserve shall be held by the Escrow Agent
in escrow in accordance with the terms of the Escrow Agreement against receipt
by Purchaser of the Servicing File for each Mortgage Loan. Each Servicing File
Reserve Payment, together with any interest earned thereon, shall be released
to Seller 30 days after the applicable Servicing Transfer Date; provided,
however, if Purchaser has determined after a quantitative review of the
Servicing Files that Seller has failed to deliver any Servicing File on the
related Servicing Transfer Date, the Escrow Agent shall retain $500 for each
missing Servicing File. All amounts so retained shall be released to Seller on
a weekly basis as missing Servicing Files are received by Purchaser. If
Purchaser incurs any Losses that are indemnified hereunder resulting from
Seller's delay in delivering a Servicing File, and Seller wrongfully fails or
refuses to promptly pay the amount of such Losses to Purchaser in accordance
with Article VIII, then upon notice from Purchaser (with a copy to Seller) the
Escrow Agent shall pay over to Purchaser the amount of such Loss from the
Servicing File Reserve.
Section 2.5 Hold-Back Reserve.
All Hold-Back Reserve Payments (collectively, the "Hold-Back
Reserve Fund") shall be held by the Escrow Agent in escrow in accordance with
the terms of the Escrow Agreement. All interest on the Hold-Back Reserve Fund
shall belong to Seller and shall be paid to Seller by the Escrow Agent as
earned. If Purchaser incurs any Loss that is indemnified hereunder (including
Losses relating to any delay in the recertification of the Pools or in
recording intervening assignments of Mortgages) and Seller wrongfully fails or
refuses to promptly pay the amount of such Losses to Purchaser in accordance
with Article VIII, upon notice from Purchaser (with a copy to Seller), the
Escrow Agent shall pay over to Purchaser the amount of such Loss from the
Hold-Back Reserve Fund. Each Hold-Back Reserve Payment shall be accounted for
separately (although they may be commingled in one or more escrow accounts) and
shall be released to Seller after each GNMA Transfer Date as follows:
-6-
<PAGE> 12
(a) One-third (1/3) of each Hold-Back Reserve
Payment, less any amounts offset by Purchaser against indemnified Losses, shall
be paid to Seller upon confirmation from a third party contractor or
confirmation by Seller (in the form of an officer's certificate, in form and
substance reasonably satisfactory to Purchaser), that an assignment in proper
recordable form from Seller to Purchaser of each related Mortgage Loan, has
been prepared and executed by Seller and has been sent for recording in the
appropriate recording office in the jurisdiction in which the related Mortgaged
Property is located;
(b) One-sixth (1/6) of each Hold-Back Reserve
Payment, less any amounts offset by Purchaser against indemnified Losses, shall
be paid to Seller upon confirmation from Purchaser's Document Custodian that
50% of the documents required to cause each of the related Pools to be a
Certified Pool (exclusive of the recorded assignment described in subparagraph
(a) above) have been received;
(c) One-sixth (1/6) of each Hold-Back Reserve
Payment, less any amounts offset by Purchaser against indemnified Losses, shall
be paid to Seller on a monthly basis as Purchaser receives confirmation from
Purchaser's Document Custodian that all of the documents required to cause each
of the related Pools to be a Certified Pool (exclusive of the recorded
assignment described in subparagraph (a) above) have been received, and that
there are no exceptions which remain to be cleared -- amounts released monthly
under this subsection shall be pro rated based upon the ratio of (x) the
principal balance of the related Pools for which all documents have been
received in such month to (y) the aggregate principal balance of all Pools
transferred on the related GNMA Transfer Date;
(d) One-sixth (1/6) of each Hold-Back Reserve
Payment, less any amounts offset by Purchaser against indemnified Losses, shall
be paid to Seller upon confirmation from Purchaser's Document Custodian that
the recorded assignments with respect to 50% of all of the related Mortgage
Loans have been received in an acceptable format; and
(e) The remaining balance of the Hold-Back
Reserve Fund shall be paid to Seller upon confirmation from Purchaser's
Document Custodian that all of the recorded assignments have been received in
an acceptable format.
Section 2.6 Reimbursement of Advances.
Within three (3) Business Days after each Servicing Transfer
Date, Seller shall provide Purchaser with a schedule on a loan-by-loan basis
that sets forth all Advances with respect to the Mortgage Loans, the Servicing
Rights to which were transferred on such Servicing Transfer Date. On each
Purchase Price Remittance Date, Purchaser shall reimburse Seller, by wire
transfer of immediately available funds, one hundred percent (100%) of the
Advances relating to the related Mortgage Loans and the amount advanced by
Seller to fund any overcollateralized Pools. If the Parties mutually agree,
amounts due to Seller under this Section 2.6 may be netted against amounts due
from Seller under Section 2.7.
-7-
<PAGE> 13
Section 2.7 Mortgage Escrow Accounts: Optional Insurance
Payments.
On each Purchase Price Remittance Date, Seller shall transfer,
by wire transfer of immediately available funds, to accounts in Purchaser's
name as custodian or trustee, in one (1) or more depository institutions
identified by Purchaser and acceptable to GNMA, the Mortgage Escrow Account
balances relating to the related Mortgage Loans. Such payment will be
accompanied by an itemized statement of the Mortgage Escrow Account balances
and the outstanding Advances, reflecting the balances as of the applicable
Servicing Transfer Date, sufficient to enable Purchaser to reconcile the amount
of such payment with the accounts of the related Mortgage Loans. Purchaser
shall review the accuracy of Seller's accounting statement of the Mortgage
Escrow Account balances and, in the event of an error, the amount of the
Mortgage Escrow Account balances transferred shall be adjusted and Seller shall
pay to Purchaser any additional amounts of Mortgage Escrow Account balances or
Purchaser shall reimburse Seller for any overpayment of Mortgage Escrow Account
balances, as the case may be, by wire transfer of immediately available funds.
Seller shall be obligated to credit to the Mortgage Escrow Accounts any
interest accrued on Mortgage Escrow Account balances to the applicable
Servicing Transfer Date in accordance with any applicable Mortgage Loan
Requirements prior to or on the applicable Purchase Price Remittance Date. On
or before each Purchase Price Remittance Date, Seller shall remit to all
applicable optional insurance carrier(s) all optional insurance premiums, if
any, being held by Seller for, or on behalf of, any Mortgagors that have not
yet been remitted to the optional insurance carriers.
Section 2.8 Purchase Price Adjustments.
The Purchase Price or the Buyout Loan Purchase Price shall be
adjusted by the Parties after the Sale Date for any of the following events:
(a) Insufficient Funds Payments. If the payment
on any one (1) or more of the Mortgage Loans for the month preceding the
Cut-Off Date was made by the Mortgagor by an NSF Check, and the return of such
NSF Check causes such Mortgage Loan to be three (3) or more payments past due
as of the Cut-Off Date, such Mortgage Loan shall be treated as a Delinquent
Loan. In each such case, the Purchase Price shall be adjusted accordingly, and
the payment to be made to Seller on the applicable Purchase Price Remittance
Date shall be reduced by the amount of such adjustment.
(b) Prepaid Loans. On the Portfolio A Purchase
Price Remittance Date, Seller shall provide Purchaser with a list, certified by
an officer of Seller, setting forth all Mortgage Loans that have been prepaid
in full during the period from the Cut-Off Date through October 31, 1995 (the
"Prepaid Loans"). Purchaser shall advise Seller which, if any, of the Prepaid
Loans have been refinanced by Purchaser. The amount of the aggregate Purchase
Price shall be recalculated prior to the Portfolio A Purchase Price Remittance
Date and shall be reduced by an amount equal to the product of the aggregate
unpaid principal balance (as of the date of prepayment) of all Prepaid Loans
that have not been refinanced by Purchaser (other than Delinquent Loans and
Buyout Loans) multiplied by the Purchase Price Percentage. Seller shall
reimburse Purchaser for 20% of the net Purchase Price reduction calculated in
accordance with
-8-
<PAGE> 14
the prior sentence (being the portion of the Purchase Price paid to Seller on
the Sale Date), which amount may be deducted by Purchaser from the amount
payable to Seller on the Portfolio A Purchase Price Remittance Date or on any
future Purchase Price payment date until the entire amount is recovered by
Purchaser.
(c) Correction of Errors. If any of the
information used in calculating the Purchase Price (or any installment
thereof), the Buyout Loan Purchase Price or any adjustment to the Purchase
Price or the Buyout Loan Purchase Price shall be found by a Party to have been
incorrectly computed or the Purchase Price (or any installment thereof), the
Buyout Loan Purchase Price or any adjustment thereto, shall be found by a Party
to have been otherwise calculated improperly, the Purchase Price (or any
installment thereof) or the Buyout Loan Purchase Price, as the case may be,
shall be promptly and appropriately adjusted on the basis of the correct and
proper information. Payment or reimbursement shall be promptly made by the
appropriate Party after notice from the other Party setting forth in reasonable
detail the amount of such adjustment claimed and the basis for such adjustment.
If any adjustments are made to the Purchase Price (or
any installment thereof) or the Buyout Loan Purchase Price after the applicable
Purchase Price Remittance Date in accordance with the provisions of Section
2.8(c), any such adjustment shall include interest at the Fed Funds Rate on the
amount of the adjustment from the applicable Purchase Price payment date to the
date that the payment of such adjustment is made.
Section 2.9 Interest Calculations.
For any payment to be made by Purchaser that is to include
interest at the Applicable Rate under Section 2.3, Purchaser shall provide
Seller on or before the date such payment is made a statement containing the
related interest calculation in reasonable detail.
Section 2.10 Purchase Price Allocation.
The Purchase Price and the Buyout Loan Purchase Price shall be
allocated in the manner provided in this Agreement for the calculation of the
Purchase Price and the Buyout Loan Purchase Price and reimbursement of
Advances. The Parties shall use such allocation in filing their respective
Forms 8594 for federal income tax purposes.
Section 2.11 Dispute Resolution.
The Parties shall attempt in good faith to promptly resolve
any dispute regarding any of the calculations and payments to be made under
this Article II. If any dispute or disagreement concerning the appropriate
amount of any calculation or payment to be made under this Article II cannot be
resolved by the Parties within 30 days of notice of such dispute, either Party
may submit the dispute to expedited arbitration in accordance with the
provisions of Section 10.6.
-9-
<PAGE> 15
Section 2.12 Closing.
The closing hereunder shall take place on the Sale Date, and
shall, at Purchaser's option, be either (a) by telephone, confirmed by letter,
facsimile transmission or wire as the Parties shall agree, or (b) conducted in
person, at such place as the Parties shall agree.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1. Seller's Representations and Warranties.
Seller represents and warrants to Purchaser as follows as of
the Sale Date and each GNMA Transfer Date:
(a) Organization and Qualification. It is a
corporation duly organized, validly existing, and in good standing, under the
laws of the jurisdiction of its formation, has the authority and power
necessary to own its assets and to transact the business in which it is
engaged, and is duly qualified and in good standing to do business in each
jurisdiction in which the conduct of its business or the ownership of its
assets (including the Servicing Rights or the Mortgage Loans) so requires.
(b) Authorization; Enforceability; Execution. It
has the absolute and unrestricted right, power, authority, and capacity to
execute and deliver this Agreement and each Operative Document, and to perform
its obligations hereunder and thereunder. It has duly authorized, executed,
and delivered this Agreement and each Operative Document. This Agreement and
each Operative Document constitute the legal, valid, and binding obligation of
Seller, enforceable against it in accordance with their respective terms,
except to the extent bankruptcy, insolvency, reorganization, fraudulent
conveyance, or similar laws affect the enforcement of creditors' rights
generally. The signatory executing this Agreement and each Operative Document
is duly authorized to execute and deliver each such document.
(c) Non-Contravention. Its execution and
delivery of this Agreement and each Operative Document, and the consummation
and performance of any of the transactions contemplated hereby or thereby, do
not and will not: (i)(A) violate any applicable law or any judgment, award,
order, writ, or decree of any court or other Governmental Authority, (B)
violate any Mortgage Loan Requirement, or (C) violate any provision of its
certificate of incorporation or by-laws; (ii) violate any provision of, or
cause a default under, any mortgage, indenture, contract, agreement, or other
undertaking to which it is a party or that purports to be binding upon it or
upon any of its assets; or (iii) result in the creation or imposition of any
lien on any of its assets.
(d) Consents. Other than the GNMA Consents, no
consent of any other Person (including such Person's shareholders) and no
consent, license, approval, or exemption by, or authorization of, or
registration, filing or declaration with, any Governmental Authority or any
other Person, is necessary to (i) its execution, delivery or performance of
this
-10-
<PAGE> 16
Agreement or any Operative Document, or (ii) the validity or enforceability of
this Agreement or any Operative Document.
(e) No-Default. It is not in default, and no
event or condition exists that after the giving of notice or lapse of time or
both, would constitute an event of default under any material mortgage,
indenture, contract, agreement, judgment, or other undertaking, to which it is
a party or which purports to be binding upon it or upon any of its assets.
(f) Approvals. It is a HUD, FHA and VA approved
mortgagee in good standing to service mortgages and has not been suspended as a
mortgagee or servicer by any of HUD, the FHA or the VA. It has all federal,
state and local licenses, permits, and other authorizations of Governmental
Authorities required for the conduct of its business with respect to the
Mortgage Loans, the Servicing Rights and the Advances, including but not
limited to state mortgage banking and real estate licenses in those
jurisdictions where such licenses are necessary for the conduct of Seller's
business, and Seller has not received any notice that revocation is being
considered with respect to any of such licenses, permits, or authorizations.
It knows of no reason why GNMA would not consent to the transfer contemplated
by this Agreement.
(g) Financial Statements; Solvency. It meets all
minimum net worth or similar requirements necessary in order to conduct its
business which are applicable to Seller under any law or any requirement of any
regulatory agency, Investor, or other authority. Seller has previously
provided Purchaser with a copy of its audited balance sheet as of December 31,
1994 and its unaudited balance sheet as at June 30, 1995, and, to the extent
available, the related statements of income, retained earnings and changes in
financial position for the periods then ended (collectively, the "Seller's
Financial Statements"). Seller's Financial Statements present fairly in all
material respects the financial condition of Seller as of the dates, and for
the periods, covered thereby, and were prepared in accordance with GAAP
consistently applied through the periods involved. There has been no change in
the financial condition of Seller since the date of Seller's Financial
Statements which would have a material adverse effect upon the ability of
Seller to complete the transactions contemplated herein and comply with its
responsibilities and obligations hereunder.
On the Sale Date and each Servicing Transfer Date,
and after giving effect to each of the transactions contemplated to occur on
such date, it will not be insolvent and has, or will have as of such date,
adequate net worth to meet all Investor requirements.
(h) Insurance. It maintains insurance against
liability to third parties to the extent and in the manner required by GNMA,
including without limitation errors and omissions insurance and fidelity bond
coverage in accordance with the Mortgage Loan Requirements. All such insurance
policies maintained by Seller are in full force and effect.
(i) Compliance with Law. It has complied in all
material respects with all applicable Laws, the violation of which might
materially and adversely effect its operations or financial condition or delay
the consummation of the transactions contemplated hereby.
-11-
<PAGE> 17
(j) Litigation. Except as set forth on Schedule
3.1(j), there are no lawsuits, actions, proceedings, claims, orders or
investigations by or before any Governmental Authority pending or, to Seller's
best knowledge, threatened against it or its Affiliates relating to the
Mortgage Loans, the Servicing Rights, the Escrow Balances, the Advances, the
Servicing Agreement or seeking to enjoin the transactions contemplated hereby
and there are no facts or circumstances known to Seller that could result in a
claim for damages or equitable relief which, if decided adversely, could,
individually or in the aggregate, have a material adverse effect on the value
of the Buyout Loans, the Servicing Rights or Advances, the financial condition
of Seller or Seller's ability to consummate the transactions contemplated
hereby. Schedule 3.1(j) also sets forth a true, complete and correct list of
all class-action or purported class-action litigation naming Seller as a
defendant therein and which litigation is currently pending or has been settled
or reduced to judgment within the two (2) year period prior to the Sale Date.
(k) Brokers. With the exception of BayView
Financial Trading Group, Inc. ("BayView"), it has not retained any broker,
finder, investment banker or financial advisor in connection with this
Agreement or any of the transactions contemplated hereby that would be entitled
to a broker's, finder's, investment banker's, financial adviser's or similar
fee in connection therewith. The fees and expenses of BayView are the sole
responsibility of, and shall be paid by, Seller pursuant to a separate
agreement between Seller and BayView.
(l) Purchased Asset Schedules; Portfolio
Characteristics.
(1) Mortgage Loan Schedule. Schedule
3.1(l)(1) (the "Mortgage Loan Schedule") identifies for each Portfolio, each
Mortgage Loan (including a trial balance for each such Mortgage Loan as of the
Cut-Off Date) that is serviced by Seller under the Servicing Agreement, the
Servicing Rights to which are being sold to Purchaser pursuant to this
Agreement. The Mortgage Loans do not include any Ineligible Mortgage Loans.
(2) Buyout Loan Schedule. Schedule
3.1(l)(2) (the "Buyout Loan Schedule") identifies each Buyout Loan that is
being sold to Purchaser pursuant to this Agreement. The Buyout Loans do not
include any Ineligible Buyout Loans. On or before the Buyout Loan Transfer
Date, Seller shall update Schedule 3.1(l)(2) to include a trial balance for
each Buyout Loan as of the Buyout Loan Cut-Off Date, which Schedule shall be
true, correct and complete as of the Buyout Loan Transfer Date.
(3) Pool Schedule. Schedule 3.1(l)(3) (the
"Pool Schedule") identifies for each Portfolio, each Pool included in such
Portfolio.
(4) Portfolio Characteristics Schedule.
Schedule 3.1(l)(4) (the "Portfolio Characteristics Schedule") identifies the
characteristics of each Portfolio as of the Cut-Off Date.
All of the information set forth on each of the
Mortgage Loan Schedule, Buyout Loan Schedule, Pool Schedule and Portfolio
Characteristics Schedule is true, correct and complete as of the Cut-Off Date.
Except as set forth on Schedule 3.1(l)(1) or Schedule 3.1(l)(2), no Mortgage
Loan is Delinquent, In Forbearance, In Foreclosure or In Litigation and no
-12-
<PAGE> 18
Mortgagor is In Bankruptcy. Except as set forth on Schedule 3.1 (j), no
Mortgage Loan is the subject of any class action lawsuit, and, upon the
transfer of the Mortgage Loans or the Servicing Rights to Purchaser, it will
not be the subject of any class action settlement, order, decree or judgment.
(m) Ownership of Buyout Loans, Servicing Rights
and Advances. Subject to the rights of GNMA in the Servicing Rights, Seller
has good and merchantable title to the Buyout Loans, the Servicing Rights and
the Advances, free and clear of all Liens. There are no contracts affecting
the Mortgage Loans, Servicing Rights or Advances to which Purchaser will be
bound except for the Servicing Agreement and the GNMA Guide and no other Person
has any interest in the Mortgage Loans, Servicing Rights or Advances, except
GNMA to the extent set forth in the GNMA Guide.
(n) Disclosure. No representation, warranty or
written statement made by it in this Agreement, or in any schedule, exhibit,
instrument, or any other document delivered in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
Section 3.2 Mortgage Banking Representations and
Warranties.
Seller represents and warrants to Purchaser that each of the
representations and warranties set forth on Schedule II hereto is true,
complete and correct as of the Sale Date (or, with respect to the Buyout Loans,
as of the Buyout Loan Transfer Date), and--with respect to the representations
and warranties contained in paragraphs (a), (b), (c), (d), (e), (f), (g), (h),
(i), (j), (n), (p), (r), (s), (t), and (ff) of Schedule II only--each Servicing
Transfer Date, with respect to each Mortgage Loan and the related Servicing
Rights and Advances transferred to Purchaser on such date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 4.1. Purchaser's Representations and Warranties.
Purchaser represents and warrants to Seller as follows as of
the Sale Date and each GNMA Transfer Date:
(a) Organization and Qualification. It is a
limited partnership duly organized, validly existing, and in good standing,
under the laws of the jurisdiction of its formation, has the authority and
power necessary to own its assets and to transact the business in which it is
engaged, and is duly qualified and in good standing to do business in each
jurisdiction in which the conduct of its business or the ownership of its
assets so requires.
(b) Authorization; Enforceability; Execution. It
has the absolute and unrestricted right, power, authority, and capacity to
execute and deliver this Agreement and each Operative Document, and to perform
its obligations hereunder and thereunder. It has duly
-13-
<PAGE> 19
authorized, executed, and delivered this Agreement and each Operative Document.
This Agreement and each Operative Document constitute the legal, valid, and
binding obligation of Purchaser, enforceable against it in accordance with
their respective terms, except to the extent bankruptcy, insolvency,
reorganization, fraudulent conveyance, or similar laws affect the enforcement
of creditors' rights generally. The signatory executing this Agreement and
each Operative Document is duly authorized to execute and deliver each such
document.
(c) Non-Contravention. Its execution and
delivery of this Agreement and each Operative Document, and the consummation
and performance of any of the transactions contemplated hereby or thereby, do
not and will not: (i)(A) violate any applicable law or any judgment, award,
order, writ, or decree of any court or other Governmental Authority, (B)
violate any Mortgage Loan Requirement, or (C) violate any provision of its
agreement of limited partnership; (ii) violate any provision of, or cause a
default under, any mortgage, indenture, contract, agreement, or other
undertaking to which it is a party or that purports to be binding upon it or
upon any of its assets; or (iii) result in the creation or imposition of any
lien on any of its assets.
(d) Consents. Other than the GNMA Consents, no
consent of any other Person (including such Person's general partners or
shareholders) and no consent, license, approval, or exemption by, or
authorization of, or registration, filing or declaration with, any Governmental
Authority or any other Person, is necessary to (i) its execution, delivery or
performance of this Agreement or any Operative Document, or (ii) the validity
or enforceability of this Agreement or any Operative Document.
(e) No-Default. It is not in default, and no
event or condition exists that after the giving of notice or lapse of time or
both, would constitute an event of default under any material mortgage,
indenture, contract, agreement, judgment, or other undertaking, to which it is
a party or which purports to be binding upon it or upon any of its assets.
(g) Approvals. It is a HUD, FHA and VA approved
mortgagee in good standing to service mortgages and has not been suspended as a
mortgagee or servicer by any of HUD, the FHA or the VA. It has all federal,
state and local licenses, permits, and other authorizations of Governmental
Authorities required for the conduct of its business with respect to the
Mortgage Loans, the Servicing Rights and the Advances, including but not
limited to state mortgage banking and real estate licenses in those
jurisdictions where such licenses are necessary for the conduct of Purchaser's
business, and Purchaser has not received any notice that revocation is being
considered with respect to any of such licenses, permits, or authorizations.
It knows of no reason why GNMA would not consent to the transfer contemplated
by this Agreement.
(h) Compliance with Law. Purchaser has complied
in all material respects with all applicable Laws, the violation of which might
materially and adversely effect the operations or financial condition of
Purchaser or delay the consummation of the transactions contemplated hereby.
(i) Brokers. Purchaser has not retained any
broker, finder, investment banker or financial advisor in connection with this
Agreement or any of the transactions
-14-
<PAGE> 20
contemplated hereby that would be entitled to a broker's, finder's, investment
banker's, financial adviser's or similar fee in connection therewith.
(j) Financial Statements; Solvency. It meets all
minimum net worth or similar requirements necessary in order to conduct its
business which are applicable to Purchaser under any law or any requirement of
any regulatory agency, Investor, or other authority. Purchaser has previously
provided Seller with a copy of its audited balance sheet as of December 31,
1994 and its unaudited balance sheet as at June 30, 1995, and the related
statements of income, retained earnings and changes in financial position for
the periods then ended (collectively, the "Purchaser's Financial Statements").
Purchaser's Financial Statements present fairly in all material respects the
financial condition of Purchaser as of the dates, and for the periods, covered
thereby, and were prepared in accordance with GAAP consistently applied through
the periods involved. There has been no change in the financial condition of
Purchaser since the date of Purchaser's Financial Statements which would have a
material adverse effect upon the ability of Purchaser to complete the
transactions contemplated herein and comply with its responsibilities and
obligations hereunder.
On the Sale Date, and each Servicing Transfer Date,
and after giving effect to each of the transactions contemplated to occur on
such date, it will not be insolvent and has, or will have as of such date,
adequate net worth to meet all Investor requirements.
(k) Disclosure. No representation, warranty or
written statement made by it in this Agreement, or in any schedule, exhibit,
instrument, or any other document delivered in connection with the transactions
contemplated hereby, contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary to make
the statements contained herein or therein not misleading.
ARTICLE V
COVENANTS AND AGREEMENTS
The Parties hereby covenant and agree with each other as
follows, each such covenant and agreement to survive the applicable Servicing
Transfer Date:
Section 5.1 Interim Servicing; Subservicing.
Seller shall continue to service (i) the Portfolio A Mortgage
Loans from the Sale Date to the Portfolio A Servicing Transfer Date, (ii) the
Portfolio B Mortgage Loans from the Sale Date to the Portfolio B Servicing
Transfer Date, and (iii) the Buyout Loans from the Sale Date to the Buyout Loan
Transfer Date, in each case consistent with Seller's current servicing
practices and in accordance with the applicable terms and conditions of the
GNMA Guide, the Mortgage Loan Requirements and the Interim Servicing Agreement.
Purchaser shall subservice (i) the Portfolio A Mortgage Loans
that, as of the Portfolio A Servicing Transfer Date, are not Certified
Portfolio A Mortgage Loans from the Portfolio A Servicing Transfer Date to the
GNMA Transfer Date related to such Mortgage Loans and (ii) the Portfolio B
Mortgage Loans that, as of the Portfolio B Servicing Transfer Date, are
-15-
<PAGE> 21
not Certified Portfolio B Mortgage Loans from the Portfolio B Servicing
Transfer Date to the GNMA Transfer Date related to such Mortgage Loans, in each
case in accordance with the applicable terms and conditions of the GNMA Guide,
the Mortgage Loan Requirements and the Subservicing Agreement.
Subject to the terms of the Interim Servicing Agreement,
Purchaser shall be entitled to the entire servicing fee and all Ancillary
Income with respect to the Mortgage Loans and the Servicing Rights from the
Sale Date to the applicable GNMA Transfer Date, or in the case of Buyout Loans,
to the Buyout Loan Transfer Date.
Section 5.2 Uncertified Pools.
Seller shall use its best efforts, at its sole cost and
expense, to cause each of the Uncertified Pools to become Certified Pools on or
before the Portfolio A Servicing Transfer Date or the Portfolio B Servicing
Transfer Date, as the case may be, and thereafter until each Pool becomes a
Certified Pool. Attached hereto as Schedule 5.2 is a list of each Uncertified
Pool with a list of Mortgage Loans that require further action or the delivery
or recording of further documents (and specifying with particularity the action
or document required) in order for such Pool to become a Certified Pool.
Seller shall deliver an updated Schedule 5.2 to Purchaser on a monthly basis
from the Sale Date through the Final GNMA Transfer Date.
Section 5.3 GNMA Consents.
From and after the Sale Date, Seller, at its sole cost and
expense, shall prepare and submit all documentation necessary and shall use its
best efforts to timely obtain the GNMA Consent for the Pools so that the GNMA
Transfer Date for the Certified Portfolio A Mortgage Loans is November 4, 1995,
the GNMA Transfer Date for the Certified Portfolio B Mortgage Loans is December
2, 1995, and the GNMA Transfer Date with respect to all Pools not transferred
on the Portfolio A Servicing Transfer Date or the Portfolio B Servicing
Transfer Date shall be on the GNMA Transfer Date following the date on which
such Pools become Certified Pools, but in no event later than the Final GNMA
Transfer Date.
With respect to each related Pool that has not become a
Certified Pool on or before the third (3rd) Business Day of the month preceding
each of the Portfolio A Servicing Transfer Date and the Portfolio B Servicing
Transfer Date, as the case may be, Seller, at its sole cost and expense, shall
prepare and submit all documentation necessary and shall use its best efforts
to timely obtain the consent of GNMA for Purchaser to act as a subcontract
servicer (the "GNMA Subservicing Consent") with respect to such Pool commencing
on the applicable Servicing Transfer Date.
Seller shall provide Purchaser with a copy of each GNMA
Consent and GNMA Subservicing Consent promptly after it is received. Purchaser
shall cooperate with Seller in connection with obtaining each GNMA Consent and
GNMA Subservicing Consent, and shall execute and deliver to Seller all
documentation reasonably necessary to obtain each GNMA Consent and GNMA
Subservicing Consent.
-16-
<PAGE> 22
Section 5.4 Notice to Mortgagors.
In accordance with all applicable Mortgage Loan Requirements,
Seller shall send to each Mortgagor a letter advising the Mortgagor of the
transfer of the applicable servicing rights (or, in the case of Mortgage Loans
included in Uncertified Pools, subservicing rights) to Purchaser not later than
fifteen (15) days prior to the applicable Servicing Transfer Date, the form and
content of which letters shall be mutually acceptable to Seller and Purchaser
in the exercise of reasonable judgment. Copies of all such letters shall be
provided to Purchaser. With respect to any Mortgage Loan that is In
Bankruptcy, Seller shall also notify the Bankruptcy Trustee for such Mortgagor
(if different than the Mortgagor) of the transfer of Servicing Rights
hereunder. With respect to any Mortgage Loan that is In Foreclosure, Seller
shall also notify Seller's foreclosure attorney of the transfer of Servicing
Rights hereunder.
Section 5.5 Notice to Taxing Authorities, IRS, Insurers
and Agencies.
For each Mortgage Loan, Seller shall deliver to Purchaser, at
Seller's cost and expense, on or before the applicable Servicing Transfer Date,
a life-of-the-loan transferable tax service contract with First American or
Transamerica Real Estate Tax Service, and each such contract shall be fully
paid and in full force and effect as of the applicable Servicing Transfer Date.
Seller, at its sole cost and expense, shall cause the tax service contractors
to transmit to the applicable taxing authorities and insurance companies and/or
agents, as applicable, no later than three (3) days after each applicable
Servicing Transfer Date, notification of the assignment of the Mortgage Loans
to Purchaser and instructions to deliver all notices, tax bills and insurance
statements, as the case may be, to Purchaser from and after the applicable
Servicing Transfer Date. Such notification shall request that any such tax
service contractors, insurance companies and/or agents make any notations
necessary to indicate a change in mortgagees, if appropriate. Seller shall
provide the appropriate insurer with such notice, or shall obtain such consent,
as is necessary to designate Purchaser as loss payee on the policy on or prior
to the applicable Servicing Transfer Date. On the applicable Servicing
Transfer Date, Seller shall provide to Purchaser a copy of the form of
notification to the applicable tax service contractors and other insurers.
Seller, at Seller's sole cost and expense, shall prepare and
file in a timely manner with the Internal Revenue Service any and all reports
required by law with regard to interest and real estate taxes paid by each
Mortgagor to Seller on each Mortgage Loan to the applicable Servicing Transfer
Date along with a statement of interest income, if any, paid or accrued to any
Mortgagor to the applicable Servicing Transfer Date and provide a copy of such
report, in a timely manner, to each Mortgagor.
Within fifteen (15) days after each Servicing Transfer Date,
Seller, at Seller's sole cost and expense, shall prepare and file in a timely
manner with the FHA a notification on Form 92080 (or any successor applicable
form), or on magnetic tape if permitted or required by the FHA, notifying the
FHA of the transfer of servicing, or, in the case of Buyout Loans, notifying
the FHA of the transfer of ownership of the related Mortgage Loans.
-17-
<PAGE> 23
Section 5.6 Delivery of Custodian Files and Servicing
Files.
On or before each applicable GNMA Transfer Date (or, in the
case of Buyout Loans, on or before the Buyout Loan Transfer Date), Seller, at
Seller's sole cost and expense, shall deliver, or cause to be delivered, the
applicable complete Custodian Files to Purchaser's Document Custodian by
insured courier. Seller shall provide Purchaser with a detailed list of all
Custodian Files that have been released by Seller's document custodian (other
than Custodian Files shipped to Purchaser's Document Custodian), indicating the
Person to whom such file has been released and the reason for such release.
Any Custodian Files in Seller's possession shall be delivered to Purchaser.
On or before each applicable Purchase Price Remittance Date,
Seller, at Seller's sole cost and expense, shall deliver the applicable
Servicing Files and any other books, documents and records relating to the
Servicing Rights and the Advances to Purchaser by insured courier in accordance
with, and by the dates required by, the Servicing Transfer Protocol.
If Seller has not delivered all complete Custodian Files and
Servicing Files to Purchaser's Document Custodian or to Purchaser, as
applicable, on or before each Servicing Transfer Date, Seller shall use its
best efforts to deliver all such files and documents to Purchaser's Document
Custodian or to Purchaser, as applicable, as soon as practicable after each
Servicing Transfer Date.
Seller acknowledges that Purchaser ordinarily repurchases
Delinquent Mortgage Loans out of GNMA Pools and finances such purchases through
various financing and sale facilities. Seller also acknowledges that Purchaser
may not be able to finance or sell a repurchased Delinquent Mortgage Loan if it
does not have access to a complete Custodian File. Accordingly, Seller shall
use special efforts at Purchaser's request to cause complete Custodian Files
for Delinquent Loans to be delivered, and all exceptions relating thereto to be
cleared, on a high priority basis.
Section 5.7 Post-Transfer Date Payments, Proceeds and
Correspondence; Notification of Action Items.
All payments received by Seller with respect to any Mortgage
Loan (including without limitation, all monthly payments of principal and
interest, Escrow Payments, principal prepayments, late fees, prepayment fees,
optional insurance fees and similar charges and fees, and FHA insurance, VA
Guarantee, hazard or flood insurance and condemnation proceeds) after the
applicable Servicing Transfer Date shall be held in trust for the benefit of
Purchaser. All such payments received on the applicable Servicing Transfer
Date and for a period of 60 days after the applicable Servicing Transfer Date
shall be transmitted to Purchaser in the form received, duly endorsed to the
order of Purchaser, by overnight courier within one (1) Business Day of receipt
by Seller. After the expiration of such 60 day period, Seller shall (i) forward
such payments to Purchaser by regular mail within two (2) Business Days of
receipt, and (ii) upon request of Purchaser, take such reasonable actions to
assist Purchaser obtain Mortgagor cooperation in sending payments to Purchaser
(which may include a request that Seller return the payment to the Mortgagor).
For all payoff proceeds received by Seller on the first or last
-18-
<PAGE> 24
Business Day of a month, Seller shall send to Purchaser by facsimile prior to
2:00 P.M. Mountain Time on the date such proceeds are received a copy of the
check or wire confirmation, the name of the Mortgagor(s) and the loan
number(s), and shall forward such proceeds to Purchaser in the form received,
duly endorsed to the order of Purchaser, by overnight courier on the Business
Day of receipt by Seller. In lieu of endorsing any checks so received, Seller
may provide Purchaser with an appropriate power of attorney sufficient to
permit Purchaser to endorse any such checks in Seller's name; provided, that at
Purchaser's request, Seller shall immediately endorse any checks returned to
Purchaser or otherwise not accepted by Purchaser's depositary institution as a
result of the form of endorsement by power of attorney. If Seller fails to
deliver any payment to Purchaser within the time period required by this
Section (as evidenced by Seller's date stamp on the Mortgagor's check or coupon
accompanying such payment), Seller shall reimburse Purchaser for any Losses
incurred thereby, including but not limited to per diem interest charges at the
Fed Funds Rate (except for payoffs, as to which such interest shall accrue at
the rate of the applicable Mortgage Note).
For a period of 60 days following each applicable Servicing
Transfer Date, Seller shall promptly within two (2) Business Days forward to
Purchaser by overnight courier all Mortgagor correspondence, insurance notices,
tax bills or any other correspondence or documentation related to the Mortgage
Loans received by Seller. After the expiration of such 60 day period, Seller
shall forward all such correspondence and documentation to Purchaser by regular
mail within one week of the date received.
On each applicable Servicing Transfer Date, Seller shall
provide Purchaser with a complete list of all matters which, to the best of
Seller's knowledge, must be undertaken within the thirty day period following
such applicable Servicing Transfer Date to avoid a Loss with respect to a
Delinquent Loan transferred to Purchaser on such date (e.g., by curtailment of
debenture interest on an FHA foreclosure resulting from failure timely to
initiate or process foreclosure).
Section 5.8 Recertification of Pools after Transfer.
On or before each applicable GNMA Transfer Date, the Custodian
Files transferred to Purchaser's Document Custodian in accordance with the
provisions of this Article V shall contain all of the documents required by
GNMA in order for Seller's document custodian to have finally certified or
recertified, as the case may be, all of the transferred Pools and for
Purchaser's Document Custodian to recertify the Pools upon their transfer to
Purchaser after each applicable GNMA Transfer Date. If Purchaser or
Purchaser's Document Custodian advises Seller that any of the documents
received from Seller or its custodian is either missing, incomplete or
erroneous, Seller, at its sole cost and expense, shall promptly clear any such
exceptions. Purchaser shall cause Purchaser's Document Custodian to provide
Seller with a list of all such exceptions within 75 days of receipt of each
Custodian File; provided, that any delay or failure to provide such notice
within such time period shall not affect any of Seller's obligations under this
Agreement, except to the extent, and only to the extent, (i) that any
obligation would not have arisen but for such delay or failure or (ii) such
delay or failure materially increases the expense of Seller's compliance with
any obligations under this
-19-
<PAGE> 25
Agreement (in which case Purchaser shall pay the amount of the increased
expense solely attributable to such delay or failure); provided further, that
any exceptions reported by Purchaser's Document Custodian after the expiration
of the applicable 75 day period which, in reasonable expectations, should have
been reported during the 75 day period, shall be disregarded for purposes of
the release of the Hold-Back Reserve in accordance with Section 2.5. Purchaser
shall cause Purchaser's Document Custodian to promptly recertify each of the
Pools upon its receipt of all of the documents necessary for recertification.
Seller, at its sole expense, shall engage either (i) Norwest Bank Minnesota,
N.A. or (ii) a reputable independent third-party contractor acceptable to
Purchaser, to prepare all endorsements to the applicable Mortgage Notes and
assignments of the applicable Mortgages from Seller to Purchaser and from
Purchaser to GNMA as required by the GNMA Guide in order to recertify the Pools
after the transfer contemplated by this Agreement. All such endorsements and
assignments shall be completed, and in the case of assignments of mortgages
from Seller to Purchaser, sent for recording in the applicable jurisdiction in
which the related Mortgaged Property is located, within sixty (60) days of each
applicable GNMA Transfer Date. Except as otherwise set forth in the Servicing
Transfer Protocol with respect to Delinquent Loans, Seller shall cause such
contractor to properly record each assignment and provide Purchaser with a
certified true copy of each assignment sent for recording, which certification
shall be stamped on the face of each assignment and be in form and substance
reasonably satisfactory to Purchaser. Blanket assignments may be used where
permitted by applicable jurisdictions and the Mortgage Loan Requirements.
Seller shall cause the contractor to forward to Purchaser (or Purchaser's
Document Custodian) each recorded assignment promptly upon receipt of such
recorded assignment. Seller shall track the status of the recordation process
and the clearance of exceptions, shall diligently pursue such items and shall
report to Purchaser on its progress at least monthly until all exceptions are
cleared and all assignments recorded.
Section 5.9 Reserved.
Section 5.10 Payment of Servicing Invoices.
All invoices (including, without limitation, tax and insurance
invoices) pertaining to the servicing of the Mortgage Loans and which are in
Seller's possession before the applicable Servicing Transfer Date and due and
payable within 30 days after the applicable Servicing Transfer Date shall be
paid by Seller before the applicable Servicing Transfer Date in accordance with
the Mortgage Loan Requirements. All other invoices, transmittal lists or any
other information used to pay such invoices which are received after the
applicable Servicing Transfer Date shall be forwarded by Seller to Purchaser in
accordance with the provisions of Section 5.7. All penalties and interest due
with respect to any Mortgage Loan resulting from Seller's failure to pay
invoices which are due and payable within 30 days after the applicable
Servicing Transfer Date and which were in Seller's possession as of the
applicable Servicing Transfer Date, or where Seller failed to forward invoice
information to Purchaser pursuant to this Agreement, shall be borne by Seller.
-20-
<PAGE> 26
Section 5.11 Sale And Transfer Documents.
Seller shall, prior to or on the Sale Date and each Servicing
Transfer Date and GNMA Transfer Date, execute and deliver, or cause to be
executed and delivered to Purchaser, the documents or instruments described in
Article VI. Purchaser shall, prior to or on the Sale Date and each Servicing
Transfer Date and GNMA Transfer Date, execute and deliver, or cause to be
executed and delivered, to Seller, the documents or instruments described in
Article VII.
Section 5.12 Costs and Expenses.
Seller shall bear all costs associated with transferring to
Purchaser the Servicing Rights, the Mortgage Escrow Accounts, the Custodian
Files, the Servicing Files and the Advances, including without limitation (i)
all fees and charges due to GNMA with respect to the transfer, (ii) Seller's
custodian removal fees, including shipping the Custodian Files, (iii) all costs
and expenses incurred in connection with causing each of the Pools to become
Certified Pools, (iv) costs in connection with the transfer, preparation and
recording of assignments of the Mortgage Loans from Seller to Purchaser and
from Purchaser to GNMA (subject to the provisions of the next paragraph), and
in providing Purchaser with certified copies thereof, (v) costs of insured
shipping of the Servicing Files and all other loan documents and servicing
records related to the Mortgage Loans to Purchaser's home office or to such
other location as Purchaser may direct, (vi) costs of preparing Seller's
computer tapes in a readable format with all pertinent data necessary to
service the Mortgage Loans and costs of delivery of such tapes to Purchaser,
(vii) costs of notifications to and requests of hazard insurers to change
endorsements on all hazard insurance policies, notifications to change the
mortgagee of record, and Seller's notification to Mortgagor of the change in
servicers, and (viii) costs incurred in obtaining or correcting documents that
were erroneously certified by Seller's or Prior Servicer's custodian. Except
as otherwise provided in this Agreement, Purchaser shall bear all of the costs
and expenses of its document custodian.
Purchaser shall pay Seller $1.00 for the preparation and
delivery to Purchaser's Document Custodian of each assignment of Mortgage Loan
from Purchaser to GNMA. Such fee shall be paid to Seller within 30 days of
receipt of the subject assignments and an invoice from Seller therefor.
Except as specifically provided above or elsewhere in this
Agreement, each Party shall bear the expenses and costs, including attorney
fees, it incurs in connection with the preparation of this Agreement and
consummation of the transactions contemplated by this Agreement.
Section 5.13 Access to Mortgage Documents, Files, Records,
Etc.
From the Sale Date to the applicable Servicing Transfer Date,
Purchaser and its attorneys, accountants, consultants and other
representatives, shall have reasonable access, upon reasonable notice and
during regular business hours, to the Servicing Files and to Seller's books,
records and accounts with respect to the Mortgage Loans, the Servicing Rights
and the Advances, including but not limited to the documents held by Seller's
document custodian.
-21-
<PAGE> 27
Seller shall provide Purchaser, within three (3) Business Days after written
request, with all information reasonably requested by Purchaser with respect to
the Mortgage Loans, the Servicing Rights and the Advances, including but not
limited to copies of audits of Seller by any Agency or any other federal or
state regulatory body. If Purchaser requests any data that requires the
creation of a "non-standard" or "special" report (other than reports
specifically described in the Servicing Transfer Protocol), Purchaser shall
reimburse Seller for all out-of-pocket costs and expenses incurred by Seller in
creating such report. The Parties agree that Purchaser's examination and
determination hereunder shall not evidence that Seller has complied with any of
its representations, warranties or covenants contained in this Agreement.
Section 5.14 Covenant Against Solicitation.
Since July 18, 1995, neither Seller nor any of its Affiliates
has directly or indirectly solicited, nor will Seller or any of its Affiliates
directly or indirectly solicit after the date hereof, by means of direct mail
or telephonic or personal solicitation, the Mortgagors or any of the Mortgage
Loans for the purposes of prepayment or refinancing or modification of such
Mortgage Loans or for the sale of any insurance policies, securities or other
financial products to such Mortgagors. For purposes of this Section,
advertising directed to the general public, solicitations by Seller's
Affiliates directed to their own customer base (and not based upon Seller's
customer or prospect lists) and refinances initiated by the applicable
Mortgagor, shall not be deemed a solicitation prohibited by this Section.
Seller acknowledges the reasonableness of the limitations
contained in this Section 5.14 and agrees that Purchaser has legally
protectable interests in the Mortgage Loans. Further, Seller agree that
Purchaser and its successors and assigns would be irreparably injured in a
manner not adequately compensated by money damages by a breach or violation (or
threatened breach or violation) of this Section 5.14 by Seller and that,
therefore, in the event of any such breach or violation (or threatened breach
or violation), in addition to all other rights and remedies which Purchaser may
have, whether at law or in equity, Purchaser and its successors and assigns
shall be entitled to obtain injunctive or other equitable relief against Seller
without the need to post bond or other security in connection therewith.
Section 5.15 Confidentiality.
Each Party understands that all information which has been
furnished and shall be furnished in connection with this Agreement and the
transactions contemplated hereby is confidential and proprietary, and each
Party agrees that, except to the extent any information is required to be
disclosed by law, it will maintain the confidentiality of such information and
will not disclose it to any other Person or use it except in connection with
the proposed acquisition contemplated by this Agreement, without the consent of
the Party furnishing such information. Information which is generally known in
the industry concerning a Party or among such Party's creditors generally or
which has been disclosed to the other Party by third parties who have a right
to do so shall not be deemed confidential or proprietary information for these
purposes. Notwithstanding the foregoing, if either Party is required to
disclose confidential information concerning Seller or Purchaser, as the case
may be, to any court, tribunal or regulatory authority,
-22-
<PAGE> 28
or under any securities law or other applicable law, Purchaser or Seller, as
the case may be, may disclose such information to such court, tribunal or
regulatory authority, or under any such securities or other applicable law,
without liability hereunder. No press releases or other announcements of the
terms of this Agreement that specifically identifies both of the Parties shall
be made by Purchaser or Seller without the prior consent of the other as to its
form, substance and timing, which consent shall not be unreasonably withheld.
If the proposed acquisition is not consummated, each Party agrees to return
promptly to the other all materials, and all copies thereof, which have been
furnished to it in connection with the transactions contemplated hereby.
Section 5.16 Third-Party Proposals.
Neither Seller nor any Affiliate of Seller shall solicit or
encourage inquiries or proposals with respect to, or, except as required by
law, furnish any information relating to or participate in any negotiations or
discussions concerning, any acquisition or purchase of all or a substantial
portion of the Servicing Rights other than as contemplated by this Agreement.
Seller shall notify Purchaser immediately if any such inquiries or proposals
are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated with, Seller. Seller
shall instruct its officers, directors, agents, advisors and Affiliates to
comply with the provisions of this Section.
Section 5.17 Refinancing.
Purchaser may solicit Mortgagors to refinance their Mortgage
Loans after the Sale Date, and Seller agrees to promptly provide Purchaser with
the names, addresses and telephone numbers of Mortgagors, or such other
information that Purchaser may reasonably request to effect such solicitation;
provided, that Purchaser shall obtain the prior written approval of Seller,
which shall not be unreasonably withheld or delayed, of any written or verbal
communications with the Mortgagors before Seller sends the notices required to
be provided to the Mortgagors pursuant to Section 5.4.
Section 5.18 Pre-Foreclosure Purchases.
At Purchaser's request from the Sale Date to each applicable
GNMA Transfer Date, Seller shall cooperate with and assist Purchaser in
repurchasing any Delinquent Mortgage Loans specified by Purchaser out of the
related Pools. The purchase price to be paid by Purchaser to Seller with
respect to any such Loan shall be calculated in accordance with Section 2.2(b)
as if such Mortgage Loan were a "Buyout Loan" and shall be paid to Seller on
the date that the Mortgage Loan is purchased by Seller out of the applicable
Pool. For purposes of this Agreement, such date of repurchase shall be deemed
the "Servicing Transfer Date" and the "Purchase Price Remittance Date" with
respect to any such repurchased Mortgage Loan. Seller shall deliver to
Purchaser a bill of sale or other appropriate instrument of conveyance with
respect to each such Mortgage Loan on the date of repurchase. Prior to each
such repurchase Seller shall deliver the complete Custodian File and Servicing
File to the related Mortgage Loan to Purchaser or Purchaser's Document
Custodian, together with either (i) a duly completed and executed assignment of
mortgage and the applicable recording fee for each related Mortgage (in which
case Purchaser shall be responsible for recording such assignments of mortgage)
or (ii) a
-23-
<PAGE> 29
certified true copy of each assignment sent for recording, which certification
shall be stamped on the face of each assignment and be in form and substance
reasonably satisfactory to Purchaser. Purchaser shall service each Mortgage
Loan repurchased from and after the date of such repurchase and may transfer,
sell, pledge or convey such Mortgage Loan free of any interest of Seller
therein. Except as specifically requested by Purchaser, from and after the
Sale Date, Seller shall not repurchase any Delinquent Mortgage Loan from any
Pool prior to foreclosure.
Seller, at Seller's sole cost and expense and for its own
account, shall cause all Ineligible Mortgage Loans to be bought out of Pools
prior to the related Servicing Transfer Date.
Section 5.19 Advice of Changes.
Through the applicable GNMA Transfer Date, Seller will
promptly but in no event later than two (2) Business Days following notice or
discovery thereof, advise Purchaser of any fact or occurrence or any pending or
threatened occurrence of which it has or obtains knowledge which (if existing
and known on the Sale Date) would have been required to be set forth or
disclosed in or pursuant to this Agreement or a Schedule hereto.
Section 5.20 Supplemental Information.
Seller shall use its reasonable efforts promptly, at any time
and from time to time after the Sale Date, upon the request of Purchaser, to do
or cause to be done such acts as may be reasonably required by Purchaser (i) to
locate and provide Purchaser with any documents, information, data or other
items relating to the Mortgage Loans, the Servicing Rights, the Advances, the
Custodian Files, the Servicing Files (including without limitation such
information as is reasonably required by Purchaser to defend Purchaser's
interest against any lawsuit or governmental investigation relating to the
Mortgage Loans, Servicing Rights and Advances), or (ii) to provide Purchaser
with computer generated tapes and disks containing such data with respect to
the Mortgage Loans as Purchaser may reasonably request. If Purchaser requests
any data that requires the creation of a "non-standard" or "special" report
(other than reports specifically described in the Servicing Transfer Protocol),
Purchaser shall reimburse Seller for all out-of-pocket costs and expenses
incurred by Seller in creating such report.
Section 5.21 Best Efforts; Further Assurances.
Subject to the terms and conditions herein provided, each of
the Parties shall use its best efforts to take, or cause to be taken, all
action, and to do, or cause to be done, all things reasonably necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement. Each of Seller and
Purchaser will use their respective best efforts to obtain consents of all
Governmental Authorities (including the GNMA Consents) and third parties
necessary to the consummation of the transactions contemplated by this
Agreement.
Each Party hereby covenants and agrees that it will, whenever
and as often as reasonably requested so to do by the other Party, its
successors and assigns, do, execute, acknowledge and deliver any and all such
other and further acts, assignments, limited powers of
-24-
<PAGE> 30
attorney, acknowledgments, acceptances and any instruments of further
assurance, approvals and consents as such other Party, its successors and
assigns, may hereinafter reasonably deem necessary or proper in order to
complete and perfect the conveyances to Purchaser contemplated hereby
Seller shall furnish to Purchaser (or shall cause any Prior
Servicer to furnish to Purchaser) such powers of attorney and other documents
as are reasonably necessary or appropriate to enable Purchaser to prosecute any
collection or foreclosure proceedings with respect to the Mortgage Loans in
Seller's or any applicable Prior Servicer's name; provided, that Purchaser
shall take title to any REO property relating to the Buyout Loans in
Purchaser's, or Purchaser's designee's, name.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
Section 6.1 Conditions to the Sale Date.
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement to occur on the Sale Date shall be subject to
the fulfillment prior to or on the Sale Date of each of the following
conditions:
(a) No Governmental Authority of competent
jurisdiction shall have (i) enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order
which is in effect; or (ii) commenced or threatened any action or proceeding,
which in either case would prohibit consummation of the transactions
contemplated by this Agreement.
(b) All representations and warranties made by
Seller in this Agreement and the Schedules delivered by Seller to Purchaser
pursuant hereto shall be true, correct and complete in all material respects on
the date hereof and as of the Sale Date as though such representations and
warranties were made on the Sale Date, and Seller shall have duly performed or
complied with all of the covenants, obligations and conditions to be performed
or complied with by it under the terms of this Agreement on or prior to the
Sale Date.
(c) All authorizations, consents, waivers,
approvals or other actions legally required in connection with the execution,
delivery and performance of this Agreement and the other Operative Documents by
Seller and the consummation by Seller of the transactions contemplated hereby
and thereby shall have been obtained and shall be in full force and effect;
Seller shall have obtained any authorizations, consents, waivers, approvals or
other actions required to prevent a material breach or default by Seller under
any contract to which Seller is party.
(d) Prior to or on the Sale Date, Seller shall
have duly executed and delivered to Purchaser this Agreement, the Interim
Servicing Agreement, the Subservicing Agreement, the Escrow Agreement and such
other documents as shall be requested by Purchaser in form and substance
acceptable to Purchaser's counsel, including the following:
-25-
<PAGE> 31
(i) a certificate of the President or a Vice
President of Seller, dated the Sale Date, to the effect that (1) the person
signing such certificate is familiar with this Agreement and (2) the conditions
specified in Section 6.1(a), (b) and (c) have been satisfied;
(ii) a certificate of the Secretary or
Assistant Secretary of Seller, dated the Sale Date, as to the incumbency of any
officer of Seller executing this Agreement, any other Operative Document or any
document related thereto and covering such other matters as Purchaser may
reasonably request;
(iii) a certified copy of (1) the
Certificate of Incorporation and by-laws of Seller and all amendments thereto
and (2) the resolutions of Seller's Board of Directors authorizing the
execution, delivery and consummation of this Agreement and the other Operative
Documents and the transactions contemplated hereby and thereby;
(iv) an opinion of Stephen D. Morrison,
Esq., counsel to Seller, dated the Sale Date, and substantially in the form
attached as Exhibit E; and
(v) such other documents or instruments as
Purchaser reasonably requests to effect the transactions contemplated hereby.
(e) Purchaser shall have received (at Purchaser's
expense) (i) a certificate, dated a recent date, from the Secretary of State of
the State of Seller's formation, incorporation or organization, certifying that
Seller is in good standing in such jurisdiction, and (ii) UCC, tax lien and
judgment searches of the records of the Secretary of State of the State(s) of
Seller's principal place of business and chief executive offices indicating no
Liens are outstanding on the Servicing Rights or Advances to be transferred
hereunder.
(f) On or prior to the Sale Date, Seller shall
have provided to Purchaser information reasonably satisfactory to Purchaser to
evidence that the financial condition of Seller is adequate to support the
performance by Seller on a timely basis of Seller's indemnification obligations
hereunder.
(g) Seller shall have provided an estimated
Purchase Price Schedule to Purchaser in accordance with Section 2.2(c).
(h) As of the Sale Date, there shall have been no
material adverse change in the characteristics of the Mortgage Loans, Servicing
Rights and Advances since February 28, 1995.
Section 6.2 Conditions to each Servicing Transfer Date.
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement to occur on each Servicing Transfer Date shall
be subject to the fulfillment prior to or on the applicable Servicing Transfer
Date of each of the following conditions:
-26-
<PAGE> 32
(a) All representations and warranties made by
Seller in this Agreement and the Schedules delivered by Seller to Purchaser
pursuant hereto that are made or deemed to be made as of the applicable
Servicing Transfer Date shall be true, correct and complete in all material
respects on the applicable Servicing Transfer Date as though such
representations and warranties were made as of the applicable Servicing
Transfer Date, and Seller shall have duly performed or complied with all of the
covenants, obligations and conditions to be performed or complied with by it
under the terms of this Agreement on or prior to or at the applicable Servicing
Transfer Date.
(b) All authorizations, consents, waivers,
approvals or other actions (other than the applicable GNMA Consent) necessary
to permit Purchaser to service (or subservice) the Mortgage Loans in compliance
with all applicable Mortgage Loan Requirements immediately after the applicable
Servicing Transfer Date shall have been obtained and shall be in full force and
effect.
(c) Prior to or on the applicable Servicing
Transfer Date, Seller shall have delivered to Purchaser all instruments of
assignment, transfer and conveyance as shall be requested by Purchaser in form
and substance acceptable to Purchaser's counsel, including the following:
(i) such instruments of sale, transfer,
assignment, conveyance and delivery, in form and substance reasonably
satisfactory to counsel for Purchaser, as are required in order to transfer to
Purchaser good and merchantable title to the Servicing Rights and the Advances
to be transferred on such Servicing Transfer Date, free and clear of all Liens;
(ii) on the Buyout Loan Transfer Date only,
such instruments of sale, transfer, assignment, conveyance and delivery, in
form and substance reasonably satisfactory to counsel for Purchaser (including
without limitation the Bill of Sale and Assignment Agreement set forth as
Exhibit H), as are required in order to transfer to Purchaser good and
merchantable title to the Buyout Loans to be transferred on such Buyout Loan
Transfer Date, free and clear of all Liens;
(iii) on the Portfolio A Servicing Transfer
Date only, the certificate referred to in Section 2.8(b); and
(iv) such other documents or instruments as
Purchaser reasonably requests to effect the transactions contemplated hereby.
Section 6.3 Conditions to each GNMA Transfer Date.
The obligations of Purchaser to consummate the transactions
contemplated by this Agreement to occur on each GNMA Transfer Date shall be
subject to the fulfillment prior to or at the applicable GNMA Transfer Date of
each of the following conditions:
(a) The applicable GNMA Consent and all other
authorizations, consents, waivers, approvals or other actions necessary to
permit Purchaser to service the
-27-
<PAGE> 33
Mortgage Loans in compliance with all applicable laws immediately after the
applicable GNMA Transfer Date shall have been obtained and shall be in full
force and effect.
(b) Prior to or on the applicable GNMA Transfer
Date, Seller shall have delivered to Purchaser all instruments of sale,
transfer, assignment, conveyance and delivery, in form and substance reasonably
satisfactory to counsel for Purchaser (including without limitation the Bill of
Sale and Assignment Agreement set forth as Exhibit G), as are required in order
to transfer to Purchaser good and merchantable title to the Servicing Rights
and the Advances to be transferred on such GNMA Transfer Date, free and clear
of all Liens.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
Section 7.1 Conditions to the Sale Date.
The obligations of Seller to consummate the transactions
contemplated by this Agreement to occur on the Sale Date shall be subject to
the fulfillment prior to or on the Sale Date of each of the following
conditions:
(a) No Governmental Authority of competent
jurisdiction shall have (i) enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order
which is in effect; or (ii) commenced or threatened any action or proceeding,
which in either case would prohibit consummation of the transactions
contemplated by this Agreement.
(b) All representations and warranties made by
Purchaser in this Agreement shall be true, correct and complete in all material
respects on the date hereof and as of the Sale Date as though such
representations and warranties were made as of the Sale Date, and Purchaser
shall have duly performed or complied with all of the covenants, obligations
and conditions to be performed or complied with by it under the terms of this
Agreement on or prior to the Sale Date.
(c) All authorizations, consents, waivers,
approvals or other actions legally required in connection with the execution,
delivery and performance of this Agreement and the other Operative Documents by
Purchaser and the consummation by Purchaser of the transactions contemplated
hereby and thereby shall have been obtained and shall be in full force and
effect; Purchaser shall have obtained any authorizations, consents, waivers,
approvals or other actions required to prevent a material breach or default by
Purchaser under any contract to which Purchaser is party.
(d) Prior to or on the Sale Date, Purchaser shall
have duly executed and delivered to Seller this Agreement, the Interim
Servicing Agreement, the Subservicing Agreement, the Escrow Agreement and such
other documents as shall be requested by Seller in form and substance
acceptable to Seller's counsel, including the following:
-28-
<PAGE> 34
(i) a certificate of the President or a Vice
President of the general partner of Purchaser, dated the Sale Date, to the
effect that (1) the person signing such certificate is familiar with this
Agreement and (2) the conditions specified in Section 7.1(a), (b) and (c) have
been satisfied;
(ii) a certificate of the Secretary or
Assistant Secretary of the general partner of Purchaser, dated the Sale Date,
as to the incumbency of any officer of the general partner of Purchaser
executing this Agreement, any other Operative Document or any document related
thereto on behalf of Purchaser and covering such other matters as Seller may
reasonably request;
(iii) a certified copy of (1) the
Certificate of Limited Partnership of Purchaser and all amendments thereto and
(2) the resolutions of the Board of Directors of the general partner of
Purchaser authorizing the execution, delivery and consummation of this
Agreement and the other Operative Documents and the transactions contemplated
hereby and thereby;
(iv) an opinion of Lowenstein, Sandler,
Kohl, Fisher & Boylan, P.A., counsel to Purchaser, dated the Sale Date, and
substantially in the form attached as Exhibit F; and
(v) such other documents or instruments as
Seller reasonably requests to effect the transactions contemplated hereby.
(e) Seller shall have received from Purchaser the
portion of the Purchase Price due on the Sale Date.
(f) Seller shall have received (at Seller's
expense) a certificate, dated a recent date, from the Secretary of State of the
State of Purchaser's formation, incorporation or organization, certifying that
Purchaser is in good standing in such jurisdiction.
(g) On or prior to the Sale Date, Purchaser shall
have provided to Seller information reasonably satisfactory to Seller to
evidence that the financial condition of Purchaser is adequate to support the
performance by Purchaser on a timely basis of Purchaser's indemnification
obligations hereunder.
Section 7.2 Conditions to each GNMA Transfer Date.
The obligations of Seller to consummate the transactions
contemplated by this Agreement to occur on each GNMA Transfer Date shall be
subject to the fulfillment prior to or at the applicable GNMA Transfer Date of
each of the following conditions:
(a) The applicable GNMA Consent and all other
authorizations, consents, waivers, approvals or other actions necessary to
permit Seller to service the Mortgage Loans in compliance with all applicable
laws immediately after the applicable GNMA Transfer Date shall have been
obtained and shall be in full force and effect.
-29-
<PAGE> 35
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION; REPURCHASE
Section 8.1 Survival of Representations and Warranties.
The representations and warranties provided for in this
Agreement shall survive for five (5) years from the Sale Date for the benefit
of the Parties and their successors and assigns. No investigation by Purchaser
heretofore or hereafter made shall modify or otherwise affect any
representations and warranties of Seller or any of its indemnification
obligations contained herein.
Section 8.2 Indemnification by Seller.
Seller shall indemnify and hold harmless Purchaser, its
Affiliates, officers, directors, employees, agents and representatives, and any
Person claiming by or through any of them, against and in respect of any and
all Losses arising out of, resulting from or incurred in connection with any of
the following events (collectively, the "Indemnified Events"; individually, an
"Indemnified Event"):
(a) the material inaccuracy of any representation
or the material breach of any warranty made by Seller in this Agreement or any
other Operative Document, in any agreement entered into by the Parties in
connection with this Agreement, or in any Schedule, Exhibit, written statement
or certificate furnished by Seller pursuant to this Agreement, in each case
determined without regard to any limitations contained therein as to Seller's
knowledge;
(b) the breach by Seller of any covenant or
agreement to be performed by Seller under this Agreement or any other Operative
Document;
(c) any litigation pending, threatened or arising
out of events occurring prior to the applicable Servicing Transfer Date in
connection with the Mortgage Loans, the Servicing Rights, the Mortgage Escrow
Accounts or the Advances, including any litigation, proceedings or
investigations disclosed on any Schedule to this Agreement;
(d) any VA No-Bid Mortgage Loan or VA Buy-down
for which the VA notifies the Servicer of the related Mortgage Loan within two
(2) years after the Sale Date that a buy-down or compromise sale is required to
avoid a "no-bid" by the VA (or with respect to which the VA has adjusted the
amount of the guaranteed indebtedness in order to avoid a no-bid pursuant to 38
C.F.R. 36.4321 and Section 4.04 of the VA Servicing Guide); provided, that the
Losses resulting from the indemnification provided by this subsection shall
include Losses incurred on a foreclosure of a VA No-Bid Mortgage Loan, the
amount required to be paid to effect a VA Buy-down, and any and all other
foreclosure losses incurred in connection with any such VA No-Bid Mortgage Loan
or VA Buy-down;
(e) errors and omissions in the processing,
originating or servicing any of the Mortgage Loans, as applicable, on the part
of Seller or any Prior Servicer prior to the
-30-
<PAGE> 36
applicable Servicing Transfer Date, including but not limited to errors and
omissions in the filing of FHA or VA foreclosure claims by Seller or any Prior
Servicer, and the failure of any Mortgage Loan to have in force a fully paid
flood insurance policy, to the extent such policy is required by applicable
Mortgage Loan Requirements;
(f) fraud in connection with the processing,
origination or servicing of the Mortgage Loans prior to the applicable
Servicing Transfer Date;
(g) the failure of any of the Pools transferred
to Purchaser hereunder to be initially certified and/or recertified prior to
the imposition of any administrative sanction, such as the requirement to post
a letter of credit, except to the extent such failure is caused by Purchaser or
Purchaser's Document Custodian;
(h) the failure of all intervening assignments of
each of the Mortgage Loans to be timely and properly recorded in the applicable
recording office, including any Losses resulting from (i) the failure to
receive proper notices of any other liens or claims affecting the related
Mortgaged Property, (ii) curtailment of amounts payable by the applicable
Agency in respect of any insurance or guaranty claim, or (iii) increased
foreclosure losses; or
(i) any matters listed as exceptions to Seller's
representations and warranties on the Schedules referred to in this Agreement.
If Seller is obligated to indemnify Purchaser under Section
8.2(g) with respect to the Pools transferred to Purchaser pursuant to this
Agreement and GNMA demands that Purchaser post a letter of credit or provide
other credit support in respect of such Pools, then Seller, subject to approval
by GNMA, shall be obligated to timely provide such letter of credit or other
credit support acceptable to GNMA (utilizing Seller's, not Purchaser's credit
and banking relationships) at Seller's expense. Seller shall have the right to
participate in the negotiation of the amount and structure of such letter of
credit or other credit support. In no event shall Seller be obligated to post
a letter of credit or other credit support in respect of pools not transferred
to Purchaser by Seller.
Section 8.3 Indemnification by Purchaser.
Purchaser shall indemnify and hold harmless Seller, its
Affiliates, officers, directors, employees, agents and representatives, and any
Person claiming by or through any of them, against and in respect of any and
all Losses arising out of, resulting from or incurred in connection with any of
the following events (collectively, the "Indemnified Events"; individually, an
"Indemnified Event"):
(a) the material inaccuracy of any representation
or the material breach of any warranty made by Purchaser in this Agreement or
any other Operative Document, in any agreement entered into by the Parties in
connection with this Agreement, or in any Schedule, Exhibit, written statement
or certificate furnished by Purchaser pursuant to this Agreement, in each case
determined without regard to any limitations contained therein as to
Purchaser's knowledge;
-31-
<PAGE> 37
(b) the breach by Purchaser of any covenant or
agreement to be performed by Purchaser under this Agreement or any other
Operative Document; or
(c) any failure by Purchaser to service the
Mortgage Loans after the applicable Servicing Transfer Date in accordance with
applicable Mortgage Loan Requirements, provided that whenever such failure
arises out of or relates to Seller's indemnification obligations hereunder, no
indemnification is required unless such failure materially and adversely
affects Seller's ability to cure a breach, defend a claim or otherwise result
in a material loss to Seller.
Section 8.4 Indemnification Procedures.
In the case of any claim for indemnification arising
hereunder, an Indemnified Party shall give prompt written notice to the
Indemnifying Party as and when the same becomes known to the Indemnified Party
(provided, that the failure of the Indemnified party to give such notice shall
not relieve the Indemnifying Party of its obligations hereunder unless, and
only to the extent, such failure deprives the Indemnifying Party of the right
to contest any claim, increases the amount of such claim, or decreases the
amount of the claim that could have been avoided had proper notice been given).
If the Indemnified Claim is based on a claim or demand brought by a third
party, the Indemnifying Party shall have the right to defend and to direct the
defense against any such claim or demand, in its name or in the name of the
Indemnified Party, as the case may be, at the expense of the Indemnifying
Party, and with counsel selected by the Indemnifying Party and acceptable to
the Indemnified Party unless (i) such claim or demand seeks an order,
injunction or other equitable relief against the Indemnified Party, or (ii) the
Indemnified Party shall have reasonably concluded that (x) there is a conflict
of interest between the Indemnified Party and the Indemnifying Party in the
conduct of the defense of such claim or demand or (y) the Indemnified Party has
one or more defenses not available to the Indemnifying Party. If the
Indemnified Party concludes that (x) or (y) above apply, the Indemnified Party
shall provide prompt written notice to the Indemnifying Party stating the
reasons for such conclusions. Notwithstanding anything in this Agreement to
the contrary, the Indemnified Party shall, at the expense of the Indemnifying
Party, cooperate with the Indemnifying Party, and keep the Indemnifying Party
fully informed, in the defense of such claim or demand. The Indemnified Party
shall have the right to participate in the defense of any claim or demand with
counsel employed at its own expense; provided, however, that, in the case of
any claim or demand described in clause (i) or (ii) of the second preceding
sentence or as to which the Indemnifying Party shall not in fact have employed
counsel to assume the defense of such claim or demand, the reasonable fees and
disbursements of such counsel shall be at the expense of the Indemnifying
Party. The Indemnifying Party shall have no indemnification obligations with
respect to any such claim or demand which shall be settled by the Indemnified
Party without the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld or delayed. Notwithstanding the
preceding sentence, Purchaser shall have the exclusive right, absent fraud or
bad faith, to settle any claim for less than $5,000 from Purchaser's own funds
without in any manner affecting its rights to indemnification therefor under
this Article VIII.
Notwithstanding anything to the contrary contained herein, the
Indemnified Party, without in any manner affecting the indemnity to be provided
under this Article VIII, shall have
-32-
<PAGE> 38
the right to assume the defense of any claim and shall have the right to settle
any claim on a reasonable basis without the consent or involvement of the
Indemnifying Party, if the Indemnified Party reasonably believes that such
assumption or settlement is necessary to discharge its responsibilities as
servicer of the Mortgage Loans or to preserve its authority and approvals to
service the Mortgage Loans or to maintain the manner in which it conducts its
business, if the failure to assume the defense of or settle the claim could
materially and adversely impact upon its relationship with GNMA, HUD, the FHA
or the VA, or if the Indemnifying Party does not, in the Indemnified Party's
reasonable judgment, diligently defend and/or cure any Indemnified Event
If an Indemnified Party incurs out-of-pocket costs and
expenses in connection with any Loss hereunder, the indemnification obligation
of the Indemnifying Party shall include interest on such Loss, calculated at
the Fed Funds Rate from the date such Loss is incurred by the Indemnified Party
to the date the Indemnifying Party pays its indemnity obligation hereunder,
Section 8.5 Repurchase.
If Seller is obligated to indemnify Purchaser with respect to
an Indemnified Event under Section 8.2 relating to a Mortgage Loan, and as a
result Purchaser is required by applicable Mortgage Loan Requirements to
repurchase such Mortgage Loans out of the related Pool (or Purchaser would be
required to repurchase such Mortgage Loan if it was still in a Pool), and
Seller is unable to cure any defect in the related Mortgage Loan within the
lesser of any applicable cure period permitted by GNMA or 90 days from the date
it receives notice of such defect, in addition to the obligations of Seller to
indemnify Purchaser for any Losses arising out of, resulting from or relating
to the Indemnified Event under Section 8.2, Purchaser may require Seller to
repurchase the Mortgage Loan and the related Servicing Rights and Advances from
the Investor (provided repurchase is permitted by the Investor) and Purchaser,
as the case may be. The purchase price under this Section 8.5 for any Mortgage
Loan and the related Servicing Rights repurchased hereunder shall equal the
Repurchase Price, and shall be paid within fifteen (15) days following receipt
from Purchaser of written demand therefor. In addition, Seller shall reimburse
Purchaser for all Advances related to the applicable Mortgage Loan repurchased
hereunder. Immediately upon completion of the purchase or repurchase of a
Mortgage Loan or Servicing Rights by Seller, Purchaser shall assign to Seller
all of its rights, title and interest in and to such Mortgage Loan and the
related Servicing Rights and Advances, and shall forward to Seller all Mortgage
Escrow Accounts, Servicing Files, servicing records and other documents
relating to such repurchased Mortgage Loan or Servicing Rights.
If, as of the Final GNMA Transfer Date, Purchaser has not
received a GNMA Consent with respect to any Pool, at Purchaser's election to be
exercised by written notice to Seller within 30 days after the Final GNMA
Transfer Date, Seller shall repurchase, and Purchaser shall reconvey, the
Servicing Rights and Advances related to all Mortgage Loans in such Pool or, if
permitted by GNMA, the Servicing Rights and Advances related only to the
Mortgage Loans that are preventing the initial final certification or
recertification of the affected Pools. The purchase price for any Servicing
Rights repurchased from Purchaser hereunder shall equal the Repurchase Price,
and shall be paid within fifteen (15) days following receipt from
-33-
<PAGE> 39
Purchaser of written demand therefor. Immediately upon completion of the
repurchase of such Servicing Rights by Seller, Purchaser shall assign to Seller
all of its rights, title and interest in and to such Mortgage Loans and
Servicing Rights and shall forward to Seller all Mortgage Escrow Accounts,
Custodian Files, Servicing Files and other documents relating to such
repurchased Servicing Rights.
Section 8.6 Special Indemnification for Seller's Escrow
Practices.
Seller shall indemnify and hold harmless Purchaser against,
and shall reimburse it for any Losses to the extent arising out of, relating to
or resulting from any of Seller's escrow practices in effect with respect to
the Mortgage Loans prior to the applicable Servicing Transfer Date and any
escrow practices of Seller which Purchaser continues until the earlier of (i)
the date set forth (on a state-by-state basis) on Schedule 8.6 for completion
of Purchaser's annual escrow analysis of the Servicing Rights relating to such
applicable Servicing Transfer Date, or (ii) the date that Purchaser actually
completes its escrow analysis in each state.
ARTICLE IX
TERMINATION
Section 9.1 Termination by Purchaser or Seller Prior to
Portfolio A Servicing Transfer Date.
This Agreement may be terminated at any time prior to the
Portfolio A Servicing Transfer Date as follows:
(a) by mutual consent of Seller and Purchaser;
(b) by either Seller or Purchaser, if the other
party hereto shall breach in any material respect any of its representations,
warranties or obligations contained in this Agreement;
(c) by Purchaser, if the conditions to its
obligations set forth in Sections 6.1 and 6.2 have not been satisfied or waived
on or before the Portfolio A Servicing Transfer Date; and
(d) by Seller, if the conditions to its
obligations set forth in Sections 7.1 and 7.2 have not been satisfied or waived
on or before the Portfolio A Servicing Transfer Date.
Section 9.2 Termination by Purchaser or Seller Prior to
Portfolio B Servicing Transfer Date.
This Agreement may be terminated with respect to the Portfolio
B Mortgage Loans and the related Servicing Rights to be transferred on the
Portfolio B Servicing Transfer Date at any time on or after the Portfolio A
Servicing Transfer Date and prior to the Portfolio B Servicing Transfer Date as
follows:
-34-
<PAGE> 40
(a) by mutual consent of Seller and Purchaser;
(b) by either Seller or Purchaser, if the other
party hereto shall breach in any material respect any of its representations,
warranties or obligations contained in this Agreement;
(c) by Purchaser, if the conditions to its
obligations set forth in Section 6.2 to be performed on or before the Portfolio
B Servicing Transfer Date have not been satisfied or waived on or before such
date; and
(d) by Seller, if the conditions to its
obligations set forth in Section 7.2 have not been satisfied or waived on or
before such date.
Section 9.3 Effect of Termination.
If this Agreement is terminated pursuant to Section 9.1, all
rights and obligations of Seller and Purchaser hereunder shall terminate and no
Party shall have any liability to the other Party, except for obligations of
the Parties in Sections 5.12 and 5.15 and except as provided in the last
sentence of this paragraph, each of which shall survive the termination of this
Agreement, and except nothing herein will relieve any Party from liability for
any breach of any representation, warranty, agreement or covenant contained
herein prior to such termination. Upon termination of this Agreement pursuant
to Section 9.1, any portion of the Purchase Price or other amounts delivered by
Purchaser to Seller (other than in respect of the Buyout Loan Purchase Price)
shall be promptly returned to Purchaser together with interest at the Fed Funds
Rate and any servicing income received by Purchaser under the Interim Servicing
Agreement shall be promptly returned to Seller together with interest at the
Fed Funds Rate. If the Buyout Loan Transfer Date shall have occurred prior to
any termination of this Agreement pursuant to Section 9.1, such termination
shall have no effect on the agreements and obligations of the Parties with
respect to the Buyout Loans.
If this Agreement is terminated pursuant to Section 9.2, all
rights and obligations of Seller and Purchaser relating to the Portfolio B
Mortgage Loans and the transactions contemplated to occur hereunder with
respect to such Mortgage Loans and the related Servicing Rights shall terminate
and no Party shall have any liability to the other party with respect to such
Portfolio B Mortgage Loans and the related Servicing Rights, except for
obligations of the Parties hereto in Sections 5.12 and 5.15, which shall
survive the termination of this Agreement, and except nothing herein will
relieve any party from liability for any breach of any representation,
warranty, agreement or covenant contained herein prior to such termination.
Upon termination of this Agreement pursuant to Section 9.2, any portion of the
Purchase Price or other amounts delivered by Purchaser to Seller in respect of
the Portfolio B Mortgage Loans shall be promptly returned to Purchaser together
with interest at the Fed Funds Rate and any servicing income received by
Purchaser under the Interim Servicing Agreement and the Subservicing Agreement
(reduced by a subservicing fee of $6.00 per loan per month) shall be promptly
returned to Seller together with interest at the Fed Funds Rate. Any
termination of this Agreement pursuant to Section 9.2 shall have no effect on
the agreements and obligations of the Parties with respect to the Portfolio A
Mortgage Loans and the related Servicing Rights.
-35-
<PAGE> 41
ARTICLE X
MISCELLANEOUS PROVISIONS
Section 10.1 Notices.
All notices, consents, requests, and other communications
under this Agreement shall be in writing and shall be effective: (a) upon
delivery by hand; (b) one day after being deposited with a recognized overnight
delivery service; (c) three days after being deposited in the United States
mail, first-class, postage prepaid, registered or certified, return receipt
requested; or (d) if sent by facsimile, upon receipt of a clear transmission
report--in each case addressed to such party as follows (or to such other
address as hereafter may be designated in writing by such Party to the other
Party):
If to Purchaser
Harbourton Mortgage Co., L.P.
2530 South Parker Road
Suite 500
Aurora, CO 80014-1630
Attention: Rick W. Skogg, President
Telephone: (303) 745-3661
Facsimile: (303) 338-2460
If to Seller:
Norwest Mortgage, Inc.
405 SW 5th Street
Unit 1401
Des Moines, IA 50309
Attention: Stephen D. Morrison, Esq.
Telephone: 515-221-7520
Facsimile: 515-221-5192
Section 10.2 Assignment; Successors and Assigns; No Third
Party Rights.
This Agreement shall be binding upon and inure to the benefit
of the Parties and their respective successors and permitted assigns. This
Agreement (including the right to indemnification hereunder) may not be
assigned by either Party to any Person other than an Affiliate of such Party or
a transferee of all or substantially all of the servicing rights of such Party
without the prior written consent of the other Party, which consent shall not
be unreasonably withheld or delayed. This Agreement shall be for the sole
benefit of the Parties and their respective successors, assigns and legal
representatives and is not intended, nor shall be construed, to give any
Person, other than the Parties and their respective successors, assigns and
legal representatives, any legal or equitable right, remedy or claim hereunder.
-36-
<PAGE> 42
Section 10.3 Entire Agreement.
This Agreement and the other Operative Documents, including
the Schedules and Exhibits attached hereto and thereto, constitute the entire
agreement among the Parties with respect to the matters covered hereby and
supersede all previous written, oral or implied understandings among the
Parties with respect to such matters.
In the event of any inconsistency between the provisions in
the body of this Agreement relating to the procedures to be utilized in
connection with the transfer of the Servicing Rights and the provisions of the
Servicing Transfer Protocol, the terms of the Servicing Transfer Protocol shall
govern.
Section 10.4 Amendment, Modification and Waivers.
This Agreement may only be amended or modified in writing
signed by the party against whom enforcement of such amendment or modification
is sought. Any of the terms or conditions of this Agreement may be waived at
any time by the party or parties entitled to the benefit thereof, but only by a
writing signed by the party or parties waiving such terms or conditions.
Section 10.5 Severability.
The invalidity of any portion hereof shall not affect the
validity, force or effect of the remaining portions hereof. If it is ever held
that any restriction hereunder is too broad to permit enforcement of such
restriction to its fullest extent, such restriction shall be enforced to the
maximum extent permitted by law.
Section 10.6 Expedited Arbitration.
Whenever this Agreements calls for the resolution of a
controversy or claim by arbitration, such controversy or claim shall be
resolved by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association. The arbitrator selected to hear the
controversy or claim shall be experienced in the secondary mortgage market and
the purchase and sale of mortgage servicing rights. The arbitration shall take
place in Denver, Colorado and shall be conducted using the Expedited Procedures
of the Commercial Arbitration Rules, regardless of the amount in dispute. The
Parties shall bear their own attorney fees and costs in connection with the
arbitration, and shall share equally the arbitrators' compensation charges and
the administrative fees of the American Arbitration Association. The
arbitrator may not award attorney fees and costs to the prevailing party or
otherwise reapportion attorney fees and costs as part of the award. The award
rendered by the arbitrator shall be final and binding upon the Parties, and
judgment upon the award may be entered in any court of competent jurisdiction.
-37-
<PAGE> 43
Section 10.7 Governing Law.
This Agreement shall be governed by and construed in
accordance with the laws of the State of Colorado, regardless of the conflict
of laws principles thereof.
Section 10.8 No Waiver.
Unless expressly provided to the contrary, the failure of any
Party to insist upon strict performance of any covenant or obligation in this
Agreement shall not be a waiver of such Party's right to demand strict
compliance in the future or to pursue or enforce whatever remedies may be
available to such Party for any breach or default of or in such covenant or
obligation (subject to applicable statutes of limitation). No consent or
waiver, express or implied, to or of any breach or default in the performance
of any covenant or obligation in this Agreement shall constitute a consent or
waiver to or of any other breach or default in the performance of the same or
any other covenant or obligation hereunder.
Section 10.9 Payments by Wire Transfer.
All payments required to be made by wire transfer hereunder
shall be made to the Parties as follows, or to such other location or account
as may be designated in writing by the Party entitled to payment:
If payment is to be made to Seller:
Norwest Bank Minnesota, N.A.
ABA # 091000019
Minneapolis, MN
Account # 58-595
Account Name: Norwest Mortgage, Inc.
If payment is to be made to Purchaser:
For Custodial Funds
Chemical Bank
New York, New York
ABA # 021000128
Credit: Harbourton Mortgage Co., L.P.
#144041442
Reference: GNMA Custodial Account Balances Transfer
-38-
<PAGE> 44
For All Other Transactions
Chemical Bank
New York, New York
ABA #021000128
Credit: Harbourton Mortgage Co., L.P.
#144041661
Reference: (Description of Activity)
Section 10.10 Rules of Construction.
In this Agreement, unless specified otherwise:
(a) "Any" means "any one or more"; "including"
means "including without limitation"; "day" means "calendar day," unless
"Business Day" is specified.
(b) Singular words include plural, and vice
versa. For example, the words "Party" and "Parties" each means "Party or
Parties as the case may be."
(c) Headings are for convenience only, and do not
affect the meaning of any provision.
(d) Reference to an agreement includes reference
to its permitted supplements, amendments and other modifications.
(e) Reference to a law includes reference to any
amendment or modification of the law and to any rules or regulations issued
thereunder
(f) Reference to a Person includes reference to
its permitted successors and assigns in the applicable capacity.
(g) Reference to an Article, Section, Exhibit, or
Schedule signifies reference to an Article, Section, Exhibit, or Schedule of
this Agreement, unless the context clearly indicates otherwise.
(h) "Hereunder," "hereto," "hereof," "herein,"
and like words, refer to the whole of this Agreement rather than to a
particular part hereof, unless the context clearly indicates otherwise.
Section 10.11 Reproduction of Documents.
This Agreement, each of the other Operative Documents, and
each other document or instrument executed and delivered in connection with the
transactions contemplated hereby and thereby, may be reproduced by any
photographic, photostatic, facsimile, or other similar process. Any such
reproduction shall be admissible in evidence as the original itself in any
judicial, administrative or arbitral proceeding, whether or not the original is
in existence and whether or not such reproduction was made by a Party in the
regular course of business.
-39-
<PAGE> 45
Section 10.12 No Strict Construction.
The Parties acknowledge that this Agreement and the other
Operative Documents have been prepared jointly, and shall not be strictly
construed against either Party.
Section 10.13 Counterparts.
This Agreement may be executed in counterparts, each of which,
when so executed and delivered, shall be deemed to be an original and all of
which, taken together, shall constitute one and the same agreement.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
-40-
<PAGE> 46
IN WITNESS WHEREOF, the Parties hereby duly execute and
deliver this Agreement:
HARBOURTON MORTGAGE CO., L.P.,
a Delaware limited partnership
By: Harbourton Funding Corporation,
a Delaware corporation,
its general partner
By:
--------------------------------------
Name: Rick W. Skogg
Title: President
NORWEST MORTGAGE, INC.,
a California corporation,
By:
--------------------------------------
Name:
Title:
-S-1-
<PAGE> 47
Schedule I
DEFINED TERMS
"Advance" means, with respect to a Mortgage Loan, an advance
by the servicer of such Mortgage Loan of its own funds to make payments of
principal, interest, taxes, insurance premiums, ground rents, assessments,
foreclosure related costs, amounts transferred for NSF checks, and similar
charges advanced with respect to a Mortgage Loan as required or permitted by
the applicable Mortgage Loan Requirements.
"Affiliate" means, in respect of any Person, any other Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with, such Person, whether through the ownership of voting
securities, by contract or otherwise. "Control" as used herein means the power
to direct the management and policies of such Person.
"Agencies" or "Agency" means GNMA, FHA, VA and/or a State
Agency, as applicable.
"Agreement" means this Mortgage Servicing Purchase and Sale
Agreement, together with its Exhibits and Schedules.
"Ancillary Income" means all income from or relating to the
Mortgage Loans to which the servicer is entitled other than servicing fees,
including but not limited to late charges, insufficient funds fees, assumption
fees, optional insurance amounts and all other incidental fees and charges.
"Applicable Rate" as of any date of determination, means the
Fed Funds Rate plus 2.25%.
"Business Day" means a day other than Saturday, Sunday, or any
other day on which commercial banks in Denver, Colorado, Minneapolis, Minnesota
or New York, New York are authorized or required, by law or executive order, to
close.
"Buyout Loan Cut-Off Date" means October 15, 1995.
"Buyout Loan Purchase Price Remittance Date" has the meaning
set forth in Section 2.3.
"Buyout Loan Purchase Price" means that portion of the
Purchase Price that is attributable to Buyout Loans as set forth in the
Purchase Price Schedule annexed as Schedule 2.2.
"Buyout Loan Schedule" means Schedule 3.1(l)(2) hereto.
"Buyout Loan Transfer Date" has the meaning set forth in
Section 2.1.
-I-1-
<PAGE> 48
"Buyout Loans" means all FHA-insured single (one-to-four)
family residential mortgage loans that (i) were purchased by Seller between
February 28, 1995 and the Sale Date out of Pools to be transferred to Purchaser
hereunder, (ii) were Delinquent Loans at the time of such purchase by Seller,
(iii) as of the Buyout Loan Cut-Off Date, the Mortgages and Mortgage Notes
related to such Mortgage Loans have not been extinguished by a judgment of
foreclosure, foreclosure sale or otherwise, and (iv) are listed on the Buyout
Loan Schedule.
"Certified Pool" means, as of any date, a Pool that has
received (i) original final certification in compliance with the GNMA Guide,
and (ii) if issuer responsibility with respect to such Pool has been
transferred subsequent to issuance of such Pool but prior to the transfer
contemplated by this Agreement, recertification in compliance with the GNMA
Guide with respect to each such transfer.
"Certified Portfolio A Mortgage Loans" means, as of any date
of determination, all Mortgage Loans in Portfolio A Pools that are Certified
Pools and for which a GNMA Consent has been obtained.
"Certified Portfolio B Mortgage Loans" means, as of any date
of determination, all Mortgage Loans in Portfolio B Pools that are Certified
Pools and for which a GNMA Consent has been obtained.
"Custodian File" means, for any Mortgage Loan, the file,
maintained by the applicable GNMA custodian, containing each of the original
documents referred to in Exhibit J, and such other documents as may be required
by GNMA to be maintained by a document custodian under the GNMA Guide.
"Cut-Off Date" means August 31, 1995.
"Delinquent Loan" means a Mortgage Loan that, as of the
Cut-Off Date, is either (i) three (3) or more payments past due, or (ii) In
Litigation (other than class action litigation disclosed on Schedule 3.1(j)),
In Bankruptcy or In Foreclosure. A Mortgage Loan is considered to be three (3)
payments past due when the payment due for a given month has not been received
by Seller in full on or before the close of business on the last Business Day
of the month that is two months after the month when such payment was due,
crediting all payments received in order to the oldest unpaid installment. For
example, a Mortgage Loan is three (3) payments past due on June 30, 1994 if the
payment due on April 1, 1994, has not been received by Seller in full on or
before the close of business on the last Business Day in June 1994, crediting
all payments received in order to the oldest unpaid installment.
"Escrow Agent" means Norwest Bank Minnesota, N.A.
"Escrow Agreement" means the escrow agreement to be entered
into between Purchaser, Seller and Escrow Agent, substantially in the form of
Exhibit A.
"Fed Funds Rate" means, as of any date, the rate of interest
published in the Money Rates column of The Wall Street Journal, Western
Edition, as the "Fed Funds Rate."
-I-2-
<PAGE> 49
"FHA" means the Federal Housing Administration, or any
successor thereof.
"Final GNMA Transfer Date" means March 1, 1996, or such other
date as may be agreed to by the Parties in writing.
"GNMA" means the Government National Mortgage Association, or
any successor thereof.
"GNMA Consent" means, with respect to any Pool or Mortgage
Loan, the affirmative written consent and approval of GNMA to the transfer from
Seller to Purchaser of the Servicing Rights and issuer responsibility with
respect to such Pool or Mortgage Loan in accordance with the provisions of the
GNMA Guide, without material adverse modification to the rights of the servicer
thereunder.
"GNMA Guide" means, collectively, the "GNMA I Mortgage-Backed
Securities Guide" and the "GNMA II Mortgage-Backed Securities Guide" published
by HUD, as amended, modified or supplemented from time to time, and all
contracts and agreements entered into pursuant thereto and all rules,
regulations, policies, interpretive letters and guidelines issued by HUD or
GNMA thereunder.
"GNMA Subservicing Consent" has the meaning set forth in
Section 5.3.
"GNMA Transfer Date" has the meaning set forth in Section 2.1.
"Governmental Authority" means any federal, state, municipal,
local, territorial, or other governmental department, commission, board,
bureau, agency, court, authority or instrumentality, domestic or foreign.
"Hold-Back Reserve Fund" has the meaning set forth in Section
2.5.
"Hold-Back Reserve Payment" has the meaning set forth in
Section 2.3(d).
"In Bankruptcy" means a Mortgage Loan with respect to which
the Mortgagor has (i) made an assignment for the benefit of creditors or
petitioned or applied to any tribunal for the appointment of a custodian,
receiver or trustee for him or for a substantial part of his assets, (ii) has
commenced any proceeding under any bankruptcy, reorganization, readjustment of
debt, dissolution, or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect; or (iii) has pending any such petition, application
or proceeding.
"In Foreclosure" or "Foreclosed" means a Mortgage Loan with
respect to which foreclosure proceedings have been, or, under Seller's standard
procedures or FHA/VA guidelines, should have been, referred to an attorney or
have been instituted and are pending or have been completed, or a deed in lieu
of foreclosure has been accepted or is pending. For purposes of this
Agreement, a Mortgage Loan will be deemed to be In Foreclosure when the first
action required by state law to be taken to commence proceedings in
foreclosure, or a sale under power of sale, or other acquisition of title to
the Mortgaged Property based upon a default by the Mortgagor
-I-3-
<PAGE> 50
under the Mortgage Note or Mortgage, under the law of the State wherein the
Mortgage Loan is to be enforced, has been taken or should have been taken.
"In Litigation" means a Mortgage Loan that has been referred
to an attorney for collection, or with respect to which any action, suit or
proceeding before a court, governmental agency or arbitrator has been
instituted and is pending, or has been settled or otherwise finalized in a
manner which may materially and adversely affect (1) the Mortgagor's
obligations or ability to make all payments to be made under the Mortgage Loan
in accordance with the terms thereof, or (2) the enforceability or priority of
the Mortgage granted in the residential real property and any other property
serving as collateral for the Mortgage Loan.
"Indemnified Events" has the meaning set forth in Article
VIII.
"Indemnified Party" means a Party that benefits from
indemnification or seeks indemnification from another Party pursuant to Article
VIII.
"Indemnifying Party" means a Party providing indemnification
to another Party pursuant to Article VIII.
"Ineligible Buyout Loan" means a Buyout Loan that, as of the
last Business day of the month immediately preceding the Buyout Loan Transfer
Date, is eleven (11) or more payments past due. A Buyout Loan is considered to
be eleven (11) payments past due when the payment due for a given month has not
been received by Seller in full on or before the close of business on the last
Business Day of the month that is ten months after the month when such payment
was due, crediting all payments received in order to the oldest unpaid
installment. For example, a Buyout Loan is eleven (11) payments past due on
August 31, 1995 if the payment due on October 1, 1994, has not been received by
Seller in full on or before the close of business on the last Business Day in
August 1995, crediting all payments received in order to the oldest unpaid
installment.
"Ineligible Loan" means either an Ineligible Buyout Loan or an
Ineligible Mortgage Loan.
"Ineligible Mortgage Loan" means a Mortgage Loan (other than a
Buyout Loan) that, as of the Cut-Off Date, (i) is eleven (11) or more payments
past due, or (ii) the Mortgage and Mortgage Note related to such Mortgage Loan
have been extinguished by a judgment of foreclosure, foreclosure sale or
otherwise. A Mortgage Loan is considered to be eleven (11) payments past due
when the payment due for a given month has not been received by Seller in full
on or before the close of business on the last Business Day of the month that
is ten months after the month when such payment was due, crediting all payments
received in order to the oldest unpaid installment. For example, a Mortgage
Loan is eleven (11) payments past due on August 31, 1995 if the payment due on
October 1, 1994, has not been received by Seller in full on or before the close
of business on the last Business Day in August 1995, crediting all payments
received in order to the oldest unpaid installment.
-I-4-
<PAGE> 51
"Insurer" means FHA or VA, or any insurer that provides
policies of life, hazard, disability, title or other insurance with respect to
any of the Mortgage Loans or the collateral securing a Mortgage Loan.
"Interim Servicing Agreement" means the Interim Servicing
Agreement, dated as of the Sale Date, between the Parties substantially in the
form of Exhibit B.
"Investor" means GNMA.
"Law" means any applicable statute, law, ordinance,
regulation, order, writ, injunction, or decree of any Governmental Authority.
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or otherwise), or preference,
priority, or other security agreement, or preferential arrangement of any kind
or nature whatsoever (including, without limitation, any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing, and the filing of any financing
statement under the Uniform Commercial Code or comparable law of any
jurisdiction in respect of any of the foregoing).
"Losses" means any claims, reasonable out-of-pocket costs and
expenses, damages, liabilities, losses or deficiencies (including, without
limitation, reasonable counsel's fees and other reasonable costs and expenses
incident to any suit, action or proceeding) of any kind or nature whatsoever
actually incurred, including the cost of obtaining a letter of credit required
to be posted by GNMA with respect to Pools that are not timely recertified
pursuant to the GNMA Guide, and, for repurchased Mortgage Loans, the Repurchase
Price.
"Mortgage" means, with respect to a Mortgage Loan, the
instrument securing the related Mortgage Note which creates a first lien on the
related Mortgaged Property.
"Mortgage Escrow Accounts" means all escrow, impound and
custodial accounts maintained under the GNMA Guide or otherwise relating to the
Mortgage Loans including, without limitation, all accounts established for
purposes of receiving funds for the payment of principal and interest or real
or personal property taxes, insurance premiums, ground rents, assessments,
funds due the Investor, unearned fees, hazard insurance loss drafts, Advances,
funds held in connection with buy-down loans, and similar charges relating to
the Mortgage Loans and interest accrued on such funds for the benefit of the
Mortgagors under applicable Mortgage Loan Requirements or otherwise.
"Mortgage Loan Requirements" means the (i) terms of the
Mortgage and Mortgage Note related to each Mortgage Loan, (ii) Laws pertaining
to the processing, origination insuring, purchase, sale, servicing or
subservicing of the Mortgage Loans, (iii) responsibilities and obligations set
forth in any agreement between Seller and an Agency or Insurer (including
without limitation the GNMA Guide), (iv) requirements of an Agency or Insurer
with respect to the processing, origination, insuring, purchase, sale,
servicing, subservicing or filing of claims in connection with the Mortgage
Loans, and (v) to the extent not covered by the foregoing, the
-I-5-
<PAGE> 52
reasonable and customary mortgage servicing practices of prudent mortgage
lending institutions which service mortgage loans of the same type as the
Mortgage Loans in the jurisdictions in which the related Mortgaged Properties
are located.
"Mortgage Loan Schedule" means Schedule 3.1(l)(1) hereto.
"Mortgage Loans" means all Buyout Loans and all single-family,
FHA-insured or VA-guaranteed mortgage loans secured by the related Mortgages,
the Servicing Rights to which mortgage loans are to be sold to Purchaser
pursuant to this Agreement.
"Mortgage Note" means, with respect to a Mortgage Loan, the
promissory note or other evidence of indebtedness of the related Mortgagor.
"Mortgaged Property" means, with respect to a Mortgage Loan, a
fee simple interest in residential real property, together with improvements
thereon, subject to the lien of the related Mortgage.
"Mortgagor" means, with respect to a Mortgage Loan, the
obligor on the related Mortgage Note.
"NSF Check" means a check tendered by a Mortgagor as a payment
on a Mortgage Loan that is returned by the drawee bank because of insufficient
funds, including without limitation insufficient funds due to funds being
denominated as uncollected.
"Operative Documents" means this Agreement, the Interim
Servicing Agreement, the Subservicing Agreement, the Escrow Agreement, each
GNMA assignment agreement, each bill of sale and assignment and assumption
agreement, and all other documents or instruments executed and delivered in
connection with this Agreement or any of such other agreements or any of the
transactions contemplated hereby or thereby.
"Parties" means Purchaser and Seller.
"Person" means an individual, partnership, corporation,
business trust, joint stock company, trust, incorporated association, joint
venture, Governmental Authority or other entity of whatever nature, and in each
case includes permitted successors and assigns..
"Pool" means an aggregation of one (1) or more Mortgage Loans
that have been pledged to secure mortgage-backed securities or participation
certificates guaranteed by GNMA.
"Pool Schedule" means Schedule 3.1(l)(3) hereto.
"Portfolio" means either the Portfolio A Mortgage Loans, the
Portfolio B Mortgage Loans or the Buyout Loans, as the context may require.
"Portfolio A Mortgage Loans" means the Mortgage Loans which
are indicated to be included in "Portfolio A" on Schedule 3.1(l)(1).
-I-6-
<PAGE> 53
"Portfolio A Pools" means all Pools consisting of Portfolio A
Mortgage Loans as indicated on Schedule 3.1(l)(3).
"Portfolio A Purchase Price" means that portion of the
Purchase Price that is attributable to the Portfolio A Mortgage Loans as set
forth in the Purchase Price Schedule.
"Portfolio A Purchase Price Remittance Date" has the meaning
set forth in Section 2.3.
"Portfolio A Servicing Transfer Date" has the meaning set
forth in Section 2.1.
"Portfolio B Mortgage Loans" means the Mortgage Loans which
are indicated to be included in "Portfolio B" on Schedule 3.1(l)(1).
"Portfolio B Pools" means all Pools consisting of Portfolio B
Mortgage Loans as indicated on Schedule 3.1(l)(3).
"Portfolio B Purchase Price" means that portion of the
Purchase Price that is attributable to the Portfolio B Mortgage Loans as set
forth in the Purchase Price Schedule.
"Portfolio B Purchase Price Remittance Date" has the meaning
set forth in Section 2.3.
"Portfolio B Servicing Transfer Date" has the meaning set
forth in Section 2.1.
"Portfolio Characteristics Schedule" means Schedule 3.1(l)(4)
hereto.
"Prior Servicer" means any originator or servicer of a Mortgage
Loan, other than Seller.
"Purchase Price" means the amount payable by Purchaser to
Seller for the Servicing Rights as set forth in Section 2.2 and subject to
adjustment as provided in Section 2.8.
"Purchase Price Percentage" means 1.40% (140 basis points).
"Purchase Price Remittance Date" means either the Portfolio A
Purchase Price Remittance Date, the Portfolio B Purchase Price Remittance Date
or the Buyout Loan Purchase Price Remittance Date.
"Purchase Price Schedule" has the meaning set forth in section
2.2.
"Purchaser's Document Custodian" means one or more document
custodian(s) designated by Purchaser from time to time that is party to a
Custodial Agreement (HUD Form 11715, or any successor form) between GNMA,
Purchaser and such custodian.
"Repurchase Balance" means the unpaid principal balance as of
the date of repurchase of a Mortgage Loan to be repurchased in accordance with
Section 8.5.
-I-7-
<PAGE> 54
"Repurchase Price" means the sum of (a) the Repurchase
Balance, plus all interest accrued thereon through the end of the month of
repurchase, (b) the product of the Repurchase Balance and the Purchase Price
Percentage (if paid) and (c) all reasonable unreimbursed expenses incurred by
Purchaser relating to the subject Mortgage Loan, including but not limited to
reasonable unreimbursed Advances.
"Sale Date" means as of September 15, 1995.
"Servicing Agreement" means the Servicing Agreement entered
into between Seller and GNMA with respect to the Mortgage Loans in accordance
with the GNMA Guide.
"Servicing File" means, with respect to a Mortgage Loan, the
file containing all documents in Seller's possession or control, whether on
hard copy, computer record, microfiche or any other format, evidencing and
pertaining to a particular Mortgage Loan and relating to the processing,
origination, servicing, collection, payment and foreclosure of such Mortgage
Loan, including (i) copies of certain documents executed or delivered in
connection with the closing of such Mortgage Loan, including without limitation
copies of the Mortgage Note, Mortgage and any assignments of such Mortgage, and
(ii) any servicing documentation which relates to such Mortgage Loan of the
type customarily included by mortgage loan servicers in their servicing files.
The Servicing File for each Mortgage Loan shall include all documents required
to be maintained under, or that are necessary to comply with, applicable
Mortgage Loan Requirements.
"Servicing File Reserve" has the meaning set forth in Section
2.3(b).
"Servicing File Reserve Payment" has the meaning set forth in
Section 2.3(b).
"Servicing Rights" means the rights and responsibilities of
Seller with respect to the servicing of the Mortgage Loans under the GNMA Guide
and the Servicing Agreement and the right to receive servicing fees thereunder,
and the associated right, title and interest of Seller in the related Mortgage
Loans, Pools, Mortgage Note, Mortgage Escrow Accounts, Custodian File, and
Servicing File.
"Servicing Transfer Date" means, with respect to a Mortgage
Loan or a Buyout Loan, the date on which physical servicing (or in the case of
Mortgage Loans included in Uncertified Pools, subservicing) of such Mortgage
Loan transfers from Seller to Purchaser. The Servicing Transfer Date for all
Portfolio A Mortgage Loans shall be the Portfolio A Servicing Transfer Date,
the Servicing Transfer Date for all Portfolio B Mortgage Loans shall be the
Portfolio B Servicing Transfer Date, and the Servicing Transfer Date for all
Buyout Loans shall be the Buyout Loan Transfer Date.
"Servicing Transfer Protocol" means the actions to be taken
and procedures to be followed in connection with the transfer of the Servicing
Rights to Purchaser as set forth on Exhibit D.
-I-8-
<PAGE> 55
"State Agency" means any state agency with authority to (i)
regulate the businesses of Purchaser or Seller, including without limitation
any state agency with authority to determine the investment or servicing
requirements with regard to mortgage loans originated, purchased or serviced by
Purchaser or Seller or (ii) originate, purchase, or service mortgage loans, or
otherwise promote mortgage lending, including without limitation state and
local housing finance authorities.
"Subservicing Agreement" means the Mortgage Loan Subservicing
Agreement, dated as of the Sale Date, between the Parties substantially in the
form of Exhibit C.
"Uncertified Pool" as of any date, means a Pool that is not a
Certified Pool.
"VA" means the United States Department of Veterans Affairs, or
any successor thereof.
"VA Buy-down" means with respect to a Mortgage Loan that is
guaranteed by the VA, the waiver by Purchaser of a portion of the indebtedness
of the Mortgage Loan, which can take the form of a reduction of the principal,
a credit to escrow or unapplied funds accounts, the forgiveness of accrued
interest or any combination of the foregoing, and which causes the VA to pay
off the remaining amount of the indebtedness owed and acquire the collateral
securing the Mortgage Loan. A VA Buy-down shall also include any Mortgage Loan
for which the VA would have issued "no-bid" instructions but for the VA's
adjustment of the amount of the guaranteed indebtedness in order to avoid a
no-bid pursuant to 38 C.F.R. 36.4321 and Section 4.04 of the VA Servicing Guide
"VA No-Bid-Mortgage Loan" means A Mortgage Loan guaranteed by
the VA and for which the VA provides written notice that it will not accept
conveyance of the property securing said Mortgage Loan after such Mortgage Loan
has been placed in foreclosure.
-I-9-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF HARBOURTON FINANCIAL SERVICES L.P. FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000820167
<NAME> HARBOURTON FINANCIAL SERVICES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 7,585
<SECURITIES> 2,771
<RECEIVABLES> 22,624
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 191,906
<PP&E> 6,788
<DEPRECIATION> 2,952
<TOTAL-ASSETS> 314,966
<CURRENT-LIABILITIES> 262,835
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 52,131
<TOTAL-LIABILITY-AND-EQUITY> 314,966
<SALES> 0
<TOTAL-REVENUES> 36,770
<CGS> 0
<TOTAL-COSTS> 18,786
<OTHER-EXPENSES> 6,174
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,562
<INCOME-PRETAX> 9,248
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,248
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,248
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
</TABLE>
