<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-17224
DORAL FINANCIAL CORPORATION
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
Puerto Rico 66-0312162
----------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1159 F.D. Roosevelt Avenue,
San Juan, Puerto Rico 00920-2998
- --------------------- ----------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (787) 749-7100
Former name, former address --------------
and
Former fiscal year, if changed Not Applicable
since last report --------------
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 SHARES OF COMMON STOCK OUTSTANDING AT AUGUST 13, 1999 - 40,428,920
<PAGE> 2
DORAL FINANCIAL CORPORATION
INDEX PAGE
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
PAGE
<S> <C> <C>
Item 1 - Financial Statements
Consolidated Statements of Financial Condition as of June 30, 1999 (Unaudited) and December 4
31, 1998.........................................................................................
Consolidated Statements of Income and Retained Earnings (Unaudited) - Quarters ended
June 30, 1999 and June 30, 1998 and six months ended June 30, 1999 and June 30, 1998............. 5
Consolidated Statements of Cash Flows (Unaudited) - Six months ended June 30, 1999 and June
30, 1998......................................................................................... 6
Consolidated Statements of Comprehensive Income (Unaudited)- Quarters ended June 30, 1999
and June 30, 1998 and six months ended June 30, 1999 and June 30, 1998........................... 7
Notes to Consolidated Financial Statements....................................................... 8
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations............ 13
Item 3 - Quantitative and Qualitative Disclosures About Market Risk....................................... 36
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings................................................................................ 36
Item 2 - Changes in Securities............................................................................ 36
Item 3 - Defaults Upon Senior Securities.................................................................. 36
Item 4 - Submission of Matters to a Vote of Security Holders.............................................. 37
Item 5 - Other Information................................................................................ 37
Item 6 - Exhibits and Reports on Form 8-K................................................................. 37
SIGNATURES..................................................................................................... 39
</TABLE>
2
<PAGE> 3
FORWARD LOOKING STATEMENTS
When used in this form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will allow", "intends to", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and
to advise readers that various factors, including regional and national economic
conditions, substantial changes in levels of market interest rates, credit and
other risks of lending and investment activities, competitive and regulatory
factors and legislative changes, could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.
3
<PAGE> 4
DORAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS OF DOLLARS EXCEPT FOR SHARE INFORMATION)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(unaudited) (audited)
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks $ 35,093 $ 31,945
----------- -----------
Money market investments:
Securities purchased under agreements to resell 61,154 120,733
Time deposits with other banks 76,103 51,549
Other short term investments, at cost 25,616 140,469
----------- -----------
Total money market investments 162,873 312,751
----------- -----------
Loans:
Mortgage loans held for sale, at lower of cost or market 909,983 883,048
Loans receivable, net 192,756 166,987
----------- -----------
Total loans 1,102,739 1,050,035
----------- -----------
Investment securities and other instruments:
Trading securities, at fair value 684,673 606,918
Securities available-for-sale, at fair value 28,862 408,888
Securities held-to-maturity, at amortized cost 937,186 190,778
Federal Home Loan Bank of NY (FHLB) stock, at cost 10,395 6,914
----------- -----------
Total investment securities and other instruments 1,661,116 1,213,498
----------- -----------
Receivables and mortgage servicing advances 27,857 32,568
Broker dealers' operations receivable 127,839 144,486
Accrued interest receivable 30,681 23,570
Servicing assets, net 86,590 72,568
Property, leasehold improvements and equipment, net 26,154 19,273
Cost in excess of fair value of net assets acquired, net 5,297 5,475
Real estate held for sale, net 2,738 2,987
Prepaid and other assets 10,893 8,957
----------- -----------
Total assets $ 3,279,870 $ 2,918,113
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Securities sold under agreements to repurchase $ 1,295,041 $ 1,197,328
Loans payable 331,537 426,704
Deposits 760,096 533,113
Notes payable 207,106 199,733
Advances from FHLB 55,500 32,000
Broker dealers' operations payable 130,900 142,002
Accrued expenses and other liabilities 139,128 117,674
----------- -----------
Total liabilities 2,919,308 2,648,554
----------- -----------
Commitments and contingencies -- --
----------- -----------
Stockholders' equity:
Serial Preferred Stock, $1 par value, 10,000,000 shares authorized; 8%
Convertible Cumulative Preferred Stock, $1 par value (liquidation
preference $1,000 per share), 20,000 designated, 8,460 shares issued
and outstanding; 7% Noncumulative Monthly Income Preferred Stock, $1
par value (liquidation preference $50 per share) 1,495,000 shares
issued and outstanding 1,503 8
Common stock, $1 par value, 200,000,000 shares authorized; 40,484,920 shares
issued; 40,428,920 shares outstanding 40,485 40,485
Paid-in capital 140,822 70,252
Legal surplus 2,499 2,499
Retained earnings 181,410 156,315
Accumulated other comprehensive income, net of taxes (6,101) 56
Treasury stock at par value, 56,000 shares held (56) (56)
----------- -----------
Total stockholders' equity 360,562 269,559
----------- -----------
Total liabilities and stockholders' equity $ 3,279,870 $ 2,918,113
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
DORAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF DOLLARS EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Six Month Period Ended
June 30, June 30,
------------------------ -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 17,276 $ 10,270 $ 35,477 $ 20,856
Mortgage-backed securities 13,864 14,794 26,360 26,949
Investment securities 11,656 8,216 19,196 15,435
Other interest earning assets 3,097 1,682 6,598 2,766
--------- --------- --------- ---------
Total interest income 45,893 34,962 87,631 66,006
--------- --------- --------- ---------
Interest expense:
Loans payable 5,677 6,832 11,470 12,258
Securities sold under agreements to repurchase 16,015 12,869 31,025 24,142
Deposits 7,913 3,899 14,565 7,496
Other borrowed funds 4,307 2,641 8,728 5,547
--------- --------- --------- ---------
Total interest expense 33,912 26,241 65,788 49,443
--------- --------- --------- ---------
Net interest income 11,981 8,721 21,843 16,563
Provision for loan losses 458 93 753 311
--------- --------- --------- ---------
Net interest income after provision for loan losses 11,523 8,628 21,090 16,252
--------- --------- --------- ---------
Non-interest income:
Net gain on mortgage loan sales 23,887 11,524 40,121 16,857
Trading account profit (1,007) 2,058 4,523 4,604
Gain on sale of investment securities 226 79 226 1,594
Servicing income 7,198 5,483 14,411 10,204
Gain on sale of servicing assets -- -- -- 1,829
Commissions, fees and other income 1,190 625 2,005 1,151
--------- --------- --------- ---------
Total non-interest income 31,494 19,769 61,286 36,239
--------- --------- --------- ---------
Non-interest expense:
Compensation and benefits, net (See Note f) 10,946 3,533 21,086 7,416
Taxes, other than payroll and income taxes 500 410 983 801
Maintenance 243 373 698 600
Advertising 1,201 1,511 2,599 2,814
Professional services 1,522 998 2,758 1,876
Telephone 842 661 1,726 1,265
Rent 1,132 778 2,157 1,509
Amortization of servicing assets 3,005 1,550 5,720 2,953
Depreciation and amortization 1,042 883 1,973 1,726
Other, (See Note f) 2,458 2,603 4,746 3,844
--------- --------- --------- ---------
Total non-interest expense 22,891 13,300 44,446 24,804
--------- --------- --------- ---------
Income before income taxes 20,126 15,097 37,930 27,687
Income taxes 2,858 2,093 4,991 3,586
--------- --------- --------- ---------
Net income 17,268 13,004 32,939 24,101
Retained earnings at beginning of period 168,853 123,159 156,315 114,253
Less cash dividends paid:
8% Convertible Cumulative Preferred Stock 169 169 338 338
7% Noncumulative Monthly Income Preferred Stock 1,308 -- 1,846 --
Common stock 3,234 2,426 5,660 4,448
--------- --------- --------- ---------
Retained earnings at the end of period $ 181,410 $ 133,568 $ 181,410 $ 133,568
========= ========= ========= =========
Earnings per share:
Basic $ 0.39 $ 0.32 $ 0.76 $ 0.60
========= ========= ========= =========
Diluted $ 0.38 $ 0.31 $ 0.73 $ 0.58
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
DORAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
Six Month Period Ended
June 30,
----------------------
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................................ $ 32,939 $ 24,101
----------- -----------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................ 1,795 1,362
Amortization of interest-only strips held in trading accounts ................ 3,026 1,687
Amortization of cost in excess of fair value of net assets acquired .......... 178 364
Amortization of servicing assets ............................................. 5,720 2,953
Deferred tax benefit ......................................................... (613) (3,523)
Gain on sale of servicing assets ............................................. -- (1,829)
Provision for loan losses .................................................... 753 311
Origination and purchases of mortgage loans held for sale .................... (1,413,822) (930,662)
Principal repayment and sales of mortgage loans held for sale ................ 640,003 316,440
Purchases of trading securities .............................................. (803,068) (642,745)
Principal repayments and sales of trading securities ......................... 1,483,128 782,912
(Increase) decrease in interest only strips, net ............................. (14,310) 5,014
Increase in servicing assets ................................................. (19,742) (13,861)
Decrease (increase) in receivables and mortgage servicing advances ........... 4,711 (7,143)
Decrease (increase) in broker dealers' operations receivable ................. 16,647 (56,510)
Increase in accrued interest receivable ...................................... (7,111) (7,813)
(Decrease) increase in interest payable ...................................... (2,348) 5,472
(Decrease) increase in broker dealers' operations payable .................... (11,102) 58,774
Increase (decrease) in accounts payable and other liabilities ................ 28,626 (4,596)
(Increase) decrease in prepaid and other assets .............................. (1,936) 1,971
----------- -----------
Total adjustments ......................................................... (89,465) (491,422)
----------- -----------
Net cash used in operating activities ........................................ (56,526) (467,321)
----------- -----------
Cash flows from investing activities:
Purchase of securities held to maturity ......................................... (169,700) --
Principal repayments of securities held to maturity ............................. 59,929 17,325
Origination of loans receivable ................................................. (39,109) --
Principal repayments of loans receivable ........................................ 12,940 2,168
Purchases of securities available for sale ...................................... (594,393) (345,400)
Principal repayments and sales of securities available for sale ................. 327,414 233,683
Purchase of FHLB stock .......................................................... (3,481) --
Purchase of property, leasehold improvements and equipment ...................... (8,676) (4,933)
Decrease in real estate held for sale ........................................... 249 463
Proceeds from the sale of servicing assets ...................................... -- 1,829
----------- -----------
Net cash used in investing activities ........................................ (414,827) (94,865)
----------- -----------
Cash flows from financing activities:
Increase in deposits ............................................................ 226,983 75,810
Increase in securities sold under agreements to repurchase ...................... 97,713 275,041
(Decrease) increase in loans payable ............................................. (95,167) 164,277
Issuance of common stock ........................................................ -- 40,592
Issuance of preferred stock ..................................................... 72,065 --
Proceeds from FHLB advances ..................................................... 23,500 --
Increase in notes payable ....................................................... 7,373 9,427
Dividends declared and paid ..................................................... (7,844) (4,786)
----------- -----------
Net cash provided by financing activities .................................... 324,623 560,361
----------- -----------
Net decrease in cash and cash equivalents ....................................... (146,730) (1,825)
Cash and cash equivalents at beginning of period ................................ 344,696 174,794
----------- -----------
Cash and cash equivalents at the end of period .................................. $ 197,966 $ 172,969
=========== ===========
Cash and cash equivalent includes:
Cash and due from banks ...................................................... $ 35,093 $ 9,071
Money market investments ..................................................... 162,873 163,898
----------- -----------
$ 197,966 $ 172,969
=========== ===========
Supplemental schedule of non-cash activities
Loan securitizations ......................................................... $ 753,957 $ 398,263
=========== ===========
Supplemental cash flows information:
Cash used to pay interest .................................................... $ 68,136 $ 43,971
=========== ===========
Cash used to pay income taxes ................................................ $ 2,991 $ 6,669
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE> 7
DORAL FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTH PERIOD ENDED
JUNE 30, JUNE 30,
------------------ ------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income: $ 17,268 $ 13,004 $ 32,939 $ 24,101
-------- -------- -------- --------
Other comprehensive income, net of tax:
Unrealized net gains (losses) on securities arising during the period
(net of taxes of $160,000 for the 1998 quarter, and $4.1 million -
1999 and $139,000 - 1998 for the six months) -- (251) (6,458) 218
Less: reclassification adjustment for (gains) losses
included in net income (net of taxes of $201,000 - 1999 and
$204,000 - 1998 for the quarter, and $192,000 - 1999 and
$542,000 - 1998 for the six months) (315) 319 (301) 847
-------- -------- -------- --------
Other comprehensive income (loss) 315 (570) (6,157) (629)
-------- -------- -------- --------
Comprehensive income, net of taxes $ 17,583 $ 12,434 $ 26,782 $ 23,472
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
7
<PAGE> 8
DORAL FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
a. The Consolidated Financial Statements (unaudited) include the accounts
of Doral Financial Corporation ("Doral Financial" or "the Company"),
Doral Mortgage Corporation ("Doral Mortgage"), Centro Hipotecario de
Puerto Rico, Inc., Doral Securities, Inc. ("Doral Securities"), Doral
Bank and Doral Money, Inc. References herein to "Doral Financial" or
"the Company" shall be deemed to refer to the Company and its
consolidated subsidiaries, unless otherwise provided. All significant
intercompany accounts and transactions have been eliminated in
consolidation. The Consolidated Financial Statements (unaudited) have
been prepared in conformity with the accounting policies stated in the
Company's Annual Audited Financial Statements included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, and
should be read in conjunction with the Notes to the Consolidated
Financial Statements appearing in that report. All adjustments
(consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of results for
the interim periods have been reflected.
b. The results of operations for the quarter and six month periods ended
June 30, 1999 are not necessarily indicative of the results to be
expected for the full year.
c. Cash dividends per share paid for the quarter and six month periods
ended June 30, 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTH PERIOD ENDED
JUNE 30, JUNE 30,
-------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
8% Convertible Cumulative Preferred Stock $ 20.00 $ 20.00 $ 40.00 $ 40.00
7% Noncumulative Monthly Income Preferred Stock $ 0.88 $ -- $ 1.24 $ --
Common Stock $ 0.08 $ 0.06 $ 0.14 $ 0.11
</TABLE>
d. At June 30, 1999, escrow funds include approximately $82.2 million
deposited with Doral Bank. These funds are included in the Company's
financial statements. Escrow funds also include approximately $6.8
million deposited with other banks which are excluded from the
Company's assets and liabilities.
e. The number of average shares of common stock used for computing the
basic and diluted net income per share was as follows:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTH PERIOD ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic 40,428,920 40,428,920 40,428,920 39,445,130
Diluted 42,417,211 42,406,241 42,435,528 41,400,647
</TABLE>
f. Employee costs and other expenses are shown in the Consolidated
Statements of Income and Retained Earnings net of direct loan
origination costs which, pursuant to SFAS No. 91, are capitalized as
part of the carrying cost of mortgage loans and are offset against net
gains on mortgage loan sales when the loans are sold.
8
<PAGE> 9
Set forth below is a reconciliation of the application of SFAS No. 91
to employee costs and other expenses:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTH PERIOD ENDED
JUNE 30, JUNE 30,
-------------------------------------------
(IN THOUSANDS) (IN THOUSANDS)
-------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Employee costs, gross $17,244 $12,076 $34,252 $23,506
Deferred costs pursuant to SFAS No. 91 6,298 8,543 13,166 16,090
------- ------- ------- -------
Employee cost, net $10,946 $ 3,533 $21,086 $ 7,416
======= ======= ======= =======
Other expenses, gross $ 4,503 $ 3,865 $ 8,967 $ 6,824
Deferred costs pursuant to SFAS No. 91 2,045 1,262 4,221 2,980
------- ------- ------- -------
Other expenses, net $ 2,458 $ 2,603 $ 4,746 $ 3,844
======= ======= ======= =======
</TABLE>
g. Segment information
The Company operates three reportable segments identified by line of
business: mortgage banking, commercial banking and broker dealer
operations. Management made this determination based on operating
decisions particular to each business line and because each one targets
different customers and requires different strategies. The majority of
the Company's operations are conducted in Puerto Rico.
The Company monitors the performance of its reportable segments based
on pre-established goals for different financial parameters such as net
income, interest rate spread, loan production and increase in market
share.
The information that follows presents net interest income after
provision for loan losses, non interest income, net income and
identifiable assets for the Company's reportable segments for the
quarter and six month periods ended June 30, 1999 and 1998.
(In thousands)
<TABLE>
<CAPTION>
Mortgage Commercial Broker
Banking Banking Dealer Eliminations Totals
---------- ---------- ------- ------------ ----------
QUARTER ENDED JUNE 30, 1999
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income after
provision for loan losses $ 5,104 5,709 513 197 $ 11,523
Non-interest income $ 27,685 2,692 1,702 (585) $ 31,494
Net income $ 14,540 2,690 426 (388) $ 17,268
Identifiable assets $2,030,724 1,154,604 774,769 (680,227) $3,279,870
<CAPTION>
QUARTER ENDED JUNE 30, 1998
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income after
provision for loan losses $ 4,958 3,287 383 -- $ 8,628
Non-interest income $ 17,694 975 1,119 (19) $ 19,769
Net income $ 10,770 1,999 254 (19) $ 13,004
Identifiable assets $1,823,748 519,262 631,716 (477,370) $2,497,356
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
SIX MONTH PERIOD ENDED JUNE 30, 1999
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income after
provision for loan losses $ 8,827 10,697 1,168 398 $ 21,090
Non-interest income $ 54,116 5,054 2,943 (827) $ 61,286
Net income $ 27,300 5,434 636 (431) $ 32,939
Identifiable assets $2,030,724 1,154,604 774,769 (680,227) $3,279,870
<CAPTION>
SIX MONTH PERIOD ENDED JUNE 30, 1998
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income after
provision for loan losses $ 9,553 6,011 688 -- $ 16,252
Non-interest income $ 31,811 2,112 2,209 107 $ 36,239
Net income $ 19,589 3,747 611 154 $ 24,101
Identifiable assets $1,823,748 519,262 631,716 (477,370) $2,497,356
</TABLE>
h. The fair value of the Company's trading securities and the fair values
and carrying values of its securities classified as available for sale
and held to maturity are shown below by category.
The following table summarizes Doral Financial's holdings of trading
securities as of June 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
TRADING SECURITIES JUNE 30, DECEMBER 31,
(IN THOUSANDS) 1999 1998
-------- ------------
<S> <C> <C>
Mortgage-backed securities............................ $614,128 $560,675
Interest only strips.................................. 53,418 42,202
U.S. Treasury and agencies............................ -- 202
Puerto Rico government obligations.................... 14,962 --
Other................................................. 2,165 3,839
-------- --------
Total........................................ $684,673 $606,918
======== ========
</TABLE>
The following tables summarize amortized costs, unrealized holding
gains and losses, approximate market values, weighted average yield and
contractual maturities of available for sale securities as of June 30,
1999 and December 31, 1998.
Expected maturities of certain debt securities may differ from
contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
10
<PAGE> 11
<TABLE>
<CAPTION>
WEIGHTED
SECURITIES AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE
AS OF JUNE 30, 1999 COST GAINS LOSSES VALUE YIELD
(IN THOUSANDS) ------- -------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Debt securities
FHLB Discount Notes (Maturing within 1 month) $27,280 $ -- $ -- $27,280 4.74%
US Treasury Bonds (Maturing over 10 years) 1,582 -- -- 1,582 5.50%
------- -------- ------- ------- ----
$28,862 $ -- $ -- $28,862 4.78%
======= ======== ======= ======= ====
<CAPTION>
WEIGHTED
SECURITIES AVAILABLE FOR SALE AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE
AS OF DECEMBER 31, 1998 COST GAINS LOSSES VALUE YIELD
(IN THOUSANDS) -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Debt securities
Fed Farm Credit Notes (Maturing from 1 to 10 years) $ 13,000 $ 65 $ -- $ 13,065 6.06%
FHLB Notes (Maturing within 1 year to over 10 years) 358,861 370 -- 359,231 6.64%
US Treasury Bonds (Maturing within 1 year to over 10 years) 36,935 -- 343 36,592 5.35%
-------- -------- -------- -------- ----
$408,796 $ 435 $ 343 $408,888 6.48%
======== ======== ======== ======== ====
</TABLE>
The following tables summarize amortized costs, unrealized holding
gains and losses, approximate market values, weighted average yields
and contractual maturities of held to maturity securities as of June
30, 1999 and December 31, 1998.
Expected maturities of certain mortgage-backed and debt securities
might differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
WEIGHTED
SECURITIES HELD TO MATURITY AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE
AS OF JUNE 30, 1999 COST GAINS LOSSES VALUE YIELD
(IN THOUSANDS) -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities
GNMA (Maturing over 10 years) $ 28,548 $ 938 $ 67 $ 29,419 6.89%
CMO (Maturing within 4 to over 10 years) 146,189 1,215 41 147,363 5.85%
Debt securities
Fed Farm Credit Notes (Maturing within 5 to 10 years) 15,000 -- 675 14,325 6.35%
FHLB Notes (Maturing over 9 years) 615,456 1,036 21,981 594,511 6.79%
US Treasury Bonds (Maturing over 10 years) 126,993 -- 9,812 117,181 5.42%
PRHB Notes (Maturing over 10 years) 5,000 300 -- 5,300 6.20%
-------- -------- -------- -------- ----
$937,186 $ 3,489 $ 32,576 $908,099 6.45%
======== ======== ======== ======== ====
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
WEIGHTED
SECURITIES HELD TO MATURITY AMORTIZED UNREALIZED UNREALIZED MARKET AVERAGE
AS OF DECEMBER 31, 1998 COST GAINS LOSSES VALUE YIELD
(IN THOUSANDS) -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C>
Mortgage-backed securities
GNMA (Maturing over 10 years) $ 31,511 $ 385 $ 19 $ 31,877 6.98%
CMO (Maturing from one to over 10 years) 154,267 983 2 155,248 6.05%
Debt securities
PRHB Notes (Maturing over 10 years) 5,000 -- -- 5,000 6.20%
-------- -------- -------- -------- ----
$190,778 $ 1,368 $ 21 $192,125 6.21%
======== ======== ======== ======== ====
</TABLE>
i. The following table sets forth certain information regarding
Doral Financial's loans receivable as of the dates indicated:
<TABLE>
<CAPTION>
LOANS RECEIVABLE, NET
(DOLLARS IN THOUSANDS)
AS OF JUNE 30, 1999 AS OF DECEMBER 31, 1998
------------------------- -------------------------
AMOUNT PERCENT AMOUNT PERCENT
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Construction loans $ 110,303 43% $ 72,081 33%
Residential mortgage loans 65,653 26% 80,902 37%
Commercial real estate 22,613 9% 16,443 8%
Consumer -- secured by mortgage 3,871 2% 5,005 2%
Consumer -- other 8,882 3% 6,290 3%
Commercial (non-real estate) 10,170 4% 11,051 5%
Loans on saving deposits 6,539 3% 3,676 2%
Land secured 26,474 10% 21,418 10%
--------- ---- --------- ----
Gross loans receivable(1)(2) 254,505 100% 216,866 100%
--------- ---------
Less:
Undisbursed portion of loans
in process (58,004) (47,575)
Unearned interest and deferred
loan fees (1,834) (648)
Allowance for loan losses(3) (1,911) (1,656)
--------- ---------
(61,749) (49,879)
--------- ---------
Loans receivable, net $ 192,756 $ 166,987
========= =========
</TABLE>
- -----------------------------
(1) Sum of the columns may not add up to the totals due
to rounding.
(2) Does not include mortgage loans held for sale by
Doral Financial of $910.0 million as of June 30, 1999
and $883.0 million as of December 31, 1998.
(3) Does not include $3.5 million of allowance for loan
losses allocated to mortgage loans held for sale as
of June 30, 1999 and December 31, 1998.
j. Certain amounts reflected in the 1998 Consolidated Financial
Statements have been reclassified to conform to the
presentation for 1999.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Doral Financial Corporation is a bank holding company that, together
with its wholly-owned subsidiaries, is engaged in mortgage banking, commercial
banking and broker-dealer activities. It is primarily engaged in a wide range of
mortgage banking activities, including the origination, purchase, sale and
servicing of mortgage loans on single-family residences, the issuance and sale
of various types of mortgage-backed securities, the holding of mortgage loans,
mortgage-backed securities and other investment securities for sale or
investment, the purchase and sale of servicing rights associated with such
mortgage loans and, to a lesser extent, the origination of construction loans
and mortgage loans secured by commercial real estate and land (the "mortgage
banking business").
Doral Financial is currently in its 27th year of operations. The
Company is the leading originator of mortgage loans on single-family residences
in Puerto Rico and also manages the largest portfolio of mortgage loans in the
Island. The volume of loans originated and purchased during the quarters ended
June 30, 1999 and 1998 was approximately $750.7 million and $543.8 million,
respectively. For the six month period ended June 30, 1999 and 1998 the volume
of loans originated and purchased was approximately $1.5 billion and $930.7
million, respectively. Doral Financial's mortgage servicing portfolio increased
to approximately $7.0 billion as of June 30, 1999, from $5.1 billion as of the
same date a year ago, an increase of 37% . Doral Financial's traditional
strategy has been to increase the size of its mortgage servicing portfolio by
relying principally on internal loan originations.
Doral Financial maintains a substantial portfolio of mortgage-backed
securities held for trading. This is a direct result of the Company's mortgage
securitization activities . At June 30, 1999, Doral Financial held securities
for trading with a fair market value of $684.7 million, approximately $575.7
million of which consisted of Puerto Rico tax-exempt GNMA securities, the
interest on which is tax-exempt to the Company. These tax-exempt securities are
generally held by Doral Financial for longer periods prior to sale in order to
maximize the tax-exempt interest received thereon. Pursuant to SFAS No. 115,
securities held for trading are reflected on Doral Financial's Consolidated
Financial Statements at their fair market value with resulting gains or losses
included as part of trading account profit.
As part of its strategy to maximize net interest income, Doral
Financial also invests in securities that are classified as available for sale
or held to maturity. Effective April 1, 1999, the Company reclassified
approximately $592.2 million of US agency and treasury securities held by the
Company from available for sale to held to maturity, because the Company has the
intent and ability to hold these securities until maturity. The Company had
gross unrealized losses on these securities of approximately $10.5 million at
the time of the reclassification. Such unrealized losses are included as a
component of stockholders' equity as "Accumulated other comprehensive income,
net of taxes." The unrealized losses will be amortized over the life of the
securities as a yield adjustment, pursuant to SFAS 115. During the second
quarter of 1999 the Company also purchased $169.7 million in securities
classified as held to maturity. As of June 30, 1999, Doral Financial held
approximately $937.2 million in securities and other investments that are
classified as held to maturity. As of June 30, 1999, Doral Financial also held
$28.9 million of investment securities that were classified as available for
sale and reported at fair value, with unrealized gains or losses included in
stockholders' equity and reported as "Accumulated other comprehensive income,
net of taxes," in Doral Financial's Consolidated Financial Statements.
Doral Financial, principally through Doral Bank, and, to a lesser
extent, through other specialized units, originates mortgage loans secured by
income producing residential and commercial properties, construction loans, land
loans and other commercial and consumer loans that are held for investment and
classified as loans receivable. Substantially all of Doral Financial's loans
receivable represent loans made to entities or individuals located in Puerto
Rico. The loans originated by the Company's multi-family lending operation in
the New York City metropolitan area are classified as loans held for sale.
For the quarters ended June 30, 1999 and 1998, Doral Bank, the
Company's commercial banking subsidiary, contributed approximately $2.7 million
and $1.9 million, respectively, to the Company's consolidated net income,
13
<PAGE> 14
which includes the operations of Doral Money, Inc., a wholly-owned subsidiary of
Doral Bank that became operational during the second quarter of 1998. For the
first half of 1999 and 1998, Doral Bank contributed approximately $5.4 million
and $3.7 million, respectively, to the Company's consolidated net income.
Doral Money contributed approximately 15% and 16%, respectively, to the
Company's total loan production for the second quarter and first half of 1999.
Doral Money was established during the second quarter of 1998 as a vehicle for
the Company's expansion into the mainland United States. Currently, it operates
through two divisions, a multi-family and commercial lending unit in the New
York City metropolitan area, and a residential wholesale mortgage operation in
the Chicago Metropolitan area. The Company has made a strategic decision to
phase-out the Chicago wholesale operation commencing July 31, 1999. See "Recent
Developments - Phase-out of Chicago Wholesale Operation."
The Company's broker-dealer operations are conducted through Doral
Securities, a subsidiary that provides retail and institutional, financial
advisory and investment banking services in Puerto Rico. For the quarters ended
June 30, 1999 and 1998, Doral Securities' net income was approximately $426,000
and $254,000, respectively. For the six month period ended June 30, 1999 and
1998, Doral Securities' net income was approximately $636,000 and $611,000,
respectively. Results for the quarter and six months ended June 30, 1999 reflect
increased personnel and rental expenses related to Doral Securities' continued
growth, which include the opening of an additional branch in the city of
Mayaguez, on the western side of the Island.
Doral Financial is also in the process of organizing a new federal
savings bank in the New York City metropolitan area, which it anticipates will
open for business during the third quarter of 1999.
Unlike most bank holding companies, Doral Financial has significant
assets and operations at the holding company level. HF Mortgage Bankers, one of
the Company's principal mortgage units, is organized as an operating division
within the parent company. As of June 30, 1999, Doral Financial had assets and
net income of $1.7 billion and $15.7 million, respectively, at the parent
company level.
RESULTS OF OPERATIONS FOR THE QUARTERS AND SIX MONTHS ENDED JUNE 30, 1999 AND
1998.
Doral Financial's operations are mainly the result of: (i) the level of
loan production; (ii) the behavior of the mortgage loan servicing portfolio;
(iii) the various components of the Company's revenues; (iv) the elements of
risk inherent to loan activities; and (v) the Company's ability to manage its
liquidity demands and capital resources. These factors are, in turn, primarily
influenced by: (i) the direction of interest rates; (ii) the level of demand for
mortgage credit; (iii) the strength of the economy in Puerto Rico; and (iv) the
relationship between interest rates and the cost of funds.
14
<PAGE> 15
LOAN PRODUCTION
The following table sets forth the number and dollar amount of Doral
Financial's loan production for the periods indicated:
<TABLE>
<CAPTION>
TABLE A QUARTER ENDED SIX MONTH PERIOD ENDED
LOAN PRODUCTION ------------- ----------------------
(DOLLARS IN THOUSANDS, EXCEPT FOR AVERAGE INITIAL LOAN BALANCE) JUNE 30, JUNE 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
FHA/VA mortgage loans
Number of loans................................. 2,494 1,926 4,734 3,418
Volume of loans................................. $204,607 $152,540 $ 385,982 $266,501
Percent of total volume......................... 27% 28% 27% 29%
Conventional conforming mortgage loans(1)
Number of loans................................. 2,442 2,845 6,077 3,831
Volume of loans................................. $229,463 $247,342 $ 543,322 $340,042
Percent of total volume......................... 30% 45% 37% 36%
Conventional non - conforming mortgage loans(2)(3)(4)
Number of loans................................. 2,859 1,971 4,510 4,585
Volume of loans................................. $221,609 $113,168 $ 360,957 $274,835
Percent of total volume......................... 30% 21% 25% 30%
Other(5)
Number of loans................................. 392 162 636 304
Volume of loans................................. $ 94,992 $ 30,750 $ 162,670 $ 49,284
Percent of total volume......................... 13% 6% 11% 5%
Total loans
Number of loans................................. 8,187 6,904 15,957 12,138
Volume of loans................................. $750,671 $543,800 $1,452,931 $930,662
Average initial loan balance $ 91,691 $ 78,766 $ 91,053 $ 76,673
</TABLE>
- --------------------
(1) Refers to mortgage loans that qualify for the sale or exchange
programs of FNMA or FHLMC.
(2) Refers to mortgage loans that do not qualify for the sale or
exchange programs of FNMA or FHLMC.
(3) Includes $4.8 million and $5.6 million in second mortgages for
the quarters ended June 30, 1999 and 1998, respectively, and
$7.5 million and $11.4 million in second mortgages for the six
month periods ended June 30, 1999 and 1998.
(4) Includes $8.4 million and $8.7 million in home equity or
personal loans secured by real estate mortgages of up to
$40,000 for the quarters ended June 30, 1999 and 1998,
respectively; and $14.1 million and $17.5 million for the six
month periods ended June 30, 1999 and 1998.
(5) Consists of construction loans on residential projects,
mortgage loans secured by multi-family and commercial
properties as well as other commercial, land, and consumer
loans.
A substantial portion of Doral Financial's total mortgage loan
originations has consistently been comprised of refinance loans. For the six
months ended June 30, 1999 and 1998, refinance loans represented approximately
58% and 61%, respectively, of the total dollar volume of mortgage loans
originated (excluding loans purchased from third
15
<PAGE> 16
parties). Doral Financial's future results could be adversely affected by a
significant increase in mortgage interest rates that reduces refinancing
activity.
Doral Financial customarily sells or securitizes into mortgage-backed
securities substantially all the loans it originates, except for certain
consumer, construction, land, and commercial loans originated by Doral Bank and
construction and land loans originated by other specialized units of Doral
Financial which are held for investment and classified as Loans Receivable.
The following table sets forth the sources of Doral Financial's loan
production as a percentage of total loan originations for the periods indicated:
<TABLE>
<CAPTION>
TABLE B
LOAN ORIGINATION SOURCES
SIX MONTH PERIOD ENDED JUNE 30,
------------------------------------------------------
1999 1998(1)
------------------------------ -------
PUERTO RICO US TOTAL
----------- -- -----
<S> <C> <C> <C> <C>
Retail........................................ 46% -- 46% 64%
Wholesale..................................... 25% 11% 36% 22%
New Housing Developments...................... 7% -- 7% 9%
Multi-family.................................. -- 5% 5% --
Other(2)...................................... 6% -- 6% 5%
</TABLE>
- --------------------
(1) For the second quarter and first half of 1998, originations from the
mainland United States represented less than 1% of total loan
originations.
(2) Refers to commercial, construction, land, and consumer loans originated
through Doral Bank and other specialized units.
MORTGAGE LOAN SERVICING
Doral Financial's principal source of servicing rights has
traditionally been its mortgage loan production. However, during the second
quarters of 1999 and 1998, Doral Financial purchased servicing rights to
approximately $61.0 million and $33 million, respectively, in principal amount
of mortgage loans. For the six month period ended June 30, 1999 and 1998 Doral
Financial purchased servicing rights to approximately $133.9 million and $108
million, respectively. Doral Financial intends to continue growing its mortgage
servicing portfolio by internal loan originations and will continue to seek and
consider attractive opportunities for bulk purchases of servicing rights
16
<PAGE> 17
The following table sets forth certain information regarding the total
mortgage loan servicing portfolio of Doral Financial for the periods indicated:
<TABLE>
<CAPTION>
TABLE C
MORTGAGE LOAN SERVICING
(DOLLARS IN THOUSANDS, EXCEPT FOR AVERAGE SIZE OF LOANS PREPAID)
AS OF JUNE 30,
--------------
1999 1998
---- ----
<S> <C> <C>
COMPOSITION OF SERVICING PORTFOLIO AT PERIOD END
GNMA .............................................. $2,466,371 $2,174,880
FHLMC/FNMA ........................................ 2,075,579 1,136,052
Doral Financial grantor trusts .................... 124,808 175,514
Other conventional mortgage loans(1) .............. 2,345,448 1,653,637
---------- ----------
Total servicing portfolio ......................... $7,012,206 $5,140,083
========== ==========
SELECTED DATA REGARDING
MORTGAGE LOANS SERVICED
Number of loans ................................... 108,637 90,769
Weighted average interest rate .................... 7.81% 8.03%
Weighted average remaining maturity (months) ...... 232 206
Weighted average servicing fee rate ............... .3997% .3641%
Average servicing portfolio ....................... $6,244,532 $4,864,863
Principal prepayments ............................. $ 414,591 $ 285,760
Prepayments to average portfolio (annualized) ..... 13% 12%
Average size of loans prepaid ..................... $ 53,690 $ 48,368
DELINQUENT MORTGAGE LOANS AND
PENDING FORECLOSURES AT PERIOD END
60-89 days past due ............................... 1.26% 1.63%
90 days or more past due .......................... 1.85% 2.31%
---------- ----------
Total delinquencies excluding foreclosures ........ 3.11% 3.94%
========== ==========
Foreclosures pending .............................. 1.21% 1.24%
========== ==========
SERVICING PORTFOLIO ACTIVITY
Beginning servicing portfolio ..................... $6,186,059 $4,655,135
ADD:
Loans funded and purchased(2) .............. 1,304,579 920,822
Bulk servicing acquired .................... 133,886 108,000
LESS:
Servicing sales transferred ................ -- 103,003
Run-off(3) ................................. 612,318 440,871
---------- ----------
Ending servicing portfolio ........................ $7,012,206 $5,140,083
========== ==========
</TABLE>
(1) Includes $884.6 million and $653.0 million of loans owned by the
Company at June 30, 1999 and 1998, respectively, which represented 13 %
of the total servicing portfolio as of both dates.
(2) Excludes approximately $148.4 million and $9.8 million of commercial,
construction and loans sold with servicing released not included in the
Company's mortgage servicing portfolio as of June 30, 1999 and 1998.
(3) Run-off refers to regular amortization of loans, prepayments and
foreclosures.
Substantially all of the mortgage loans in Doral Financial's servicing
portfolio are secured by single (one-to-four) family residences located in
Puerto Rico. At June 30, 1999 and 1998, less than 10% and 1%, respectively, of
Doral Financial's mortgage servicing portfolio was related to mortgages secured
by real property located outside Puerto Rico.
17
<PAGE> 18
COMPONENTS OF REVENUES
As shown in the Company's Consolidated Statements of Income, the
principal components of Doral Financial's revenues are: (i) net interest income;
(ii) net gains on mortgage loan sales; (iii) servicing income; (iv) trading
account profit; (v) gain on sale of investment securities; (vi) gain on sale of
servicing assets; and (vii) commissions, fees and other income.
NET INCOME
Doral Financial's net income for the quarter ended June 30, 1999
increased $4.3 million, or 33%, from $13.0 million for the 1998 period to $17.3
million for the 1999 period. For the first half of 1999 and 1998, the Company's
net income amounted to $32.9 million and $24.1 million, respectively, an
increase of 37%. Diluted earnings per common share for the second quarter of
1999 were $0.38, an increase of 22% over the $0.31 per diluted share recorded
for the same period a year ago. Diluted earnings per common share for the first
half of 1999 increased by 26% when compared to the same period of 1998, from
$0.58 for 1998 to $0.73 for 1999.
NET INTEREST INCOME
Net interest income is the excess of interest earned by the Company on
its interest earning assets over the interest incurred on its interest bearing
liabilities.
The increase in net interest income for the second quarter and first
half of 1999, as compared to the respective 1998 periods, was principally due to
an increase in Doral Financial's average interest earning assets. Average
interest earning assets for the quarter grew by 34% from June 30, 1998 to June
30, 1999, while net interest income grew by 31% during the same period. Average
interest earning assets grew by 37% for the six months ended June 30, 1999, as
compared to the respective 1998 period, while net interest income grew by 33%
for said period. The growth in net interest income relative to the growth in
average interest earning assets reflect both a slight increase in market
interest rates which affects the average cost of funds used to finance
operations, and a decrease in net interest earning assets, which was due in part
to the incurrence of borrowings to finance the increase in the Company's
servicing assets whose income is reflected as servicing income.
Doral Bank contributed approximately $5.7 million or 50% of the
consolidated net interest income of Doral Financial for the quarter ended June
30, 1999, compared to $3.3 million or 38% of consolidated net interest income
for the quarter ended June 30, 1998. During the first half of 1999, Doral Bank's
contribution to the Company's net interest income was $10.7 million or 51%,
compared to $6.0 million or 37% for the first half of 1998.
18
<PAGE> 19
The following tables present, for the periods indicated, the Company's
average balance sheet, the total dollar amount of interest from average
interest-earning assets and the related yields, as well as the interest expense
on average interest-bearing liabilities expressed both in dollars and rates, and
the net interest margin. The tables do not reflect any effect of income taxes.
All average balances are based on the average of month-end balances for Doral
Financial and its non-banking subsidiaries, and average daily balances for Doral
Bank, in each case during the periods presented.
<TABLE>
<CAPTION>
TABLE D
AVERAGE BALANCE SHEET AND SUMMARY OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
QUARTER ENDED JUNE 30,
-----------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest Earning Assets:
Total Loans(1) $ 991,184 $ 17,276 6.97% $ 549,412 $ 10,270 7.48%
Mortgage-Backed Securities 788,181 13,864 7.04% 82,888 14,794 6.70%
Investment Securities 677,580 11,656 6.88% 472,042 8,216 6.96%
Other Interest-Earning Assets(2) 270,850 3,097 4.57% 137,771 1,682 4.88%
---------- ---------- ------ ---------- -------- ------
Total Interest Earning Assets/Interest Income 2,727,795 $ 45,893 6.73% 2,042,113 $ 34,962 6.85%
========== ====== ======== ======
Total Non-Interest Earning Assets 495,813 300,473
---------- ----------
Total Assets $3,223,608 $2,342,586
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest Bearing Liabilities:
Loans Payable $ 394,257 $ 5,677 5.76% $ 389,966 $ 6,832 7.01%
Repurchase Agreements 1,257,214 16,015 5.10% 908,352 12,869 5.67%
Deposits 705,337 7,913 4.49% 349,056 3,899 4.47%
Other Borrowed Funds(3) 248,230 4,307 6.94% 168,481 2,641 6.27%
---------- ---------- ------ ---------- -------- ------
Total Interest Bearing Liabilities/Interest Expense 2,605,038 $ 33,912 5.21% 1,815,855 $ 26,241 5.78%
========== ====== ======== ======
Total Non-Interest Bearing Liabilities 263,525 283,791
---------- ----------
Total Liabilities 2,868,563 2,099,646
Stockholders' Equity 355,045 242,940
---------- ----------
Total Liabilities and Stockholders' Equity $3,223,608 $2,342,586
========== ==========
Net Interest Earning Assets $ 122,757 $ 226,258
Net Interest Income on a Non-Taxable Equivalent Basis $ 11,981 $ 8,721
Interest Rate Spread(4) 1.52% 1.07%
Interest Rate Margin(4) 1.76% 1.71%
Net Interest-Earning Assets Ratio 104.71% 112.46%
</TABLE>
- ----------------------
(1) Average loan balances include the average balance of non-accruing
loans, on which no interest income is recognized.
(2) Consist of money market instruments, reverse repurchase agreements and
deposits in other banks.
(3) Consist of FHLB-NY advances, notes payable and convertible subordinated
debentures.
(4) Interest rate spread represents the difference between Doral
Financial's weighted average yield on interest-earning assets and the
weighted average rate on interest-bearing liabilities. Interest rate
margin represents net interest income as a percentage of average
interest-earning assets.
19
<PAGE> 20
<TABLE>
<CAPTION>
TABLE E
AVERAGE BALANCE SHEET AND SUMMARY OF NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
SIX MONTH PERIOD ENDED JUNE 30,
------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------ ----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/RATE BALANCE INTEREST YIELD/RATE
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest Earning Assets:
Total Loans(1) $ 976,987 $ 35,477 7.26% $ 526,095 $ 20,856 7.93%
Mortgage-Backed Securities 786,375 26,360 6.70% 827,307 26,949 6.51%
Investment Securities 573,931 19,196 6.69% 440,178 15,435 7.01%
Other Interest-Earning Assets(2) 275,550 6,598 4.79% 116,776 2,766 4.74%
---------- ---------- ------ ---------- ---------- ------
Total Interest Earning Assets/Interest Income 2,612,843 $ 87,631 6.71% 1,910,356 $ 66,006 6.91%
========== ====== ========== ======
Total Non-Interest Earning Assets 469,191 272,233
---------- ----------
Total Assets $3,082,034 $2,182,589
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Interest Bearing Liabilities:
Loans Payable $ 398,300 $ 11,470 5.76% $ 348,407 $ 12,258 7.04%
Repurchase Agreements 1,216,581 31,025 5.10% 835,701 24,142 5.78%
Deposits 650,926 14,565 4.48% 339,669 7,496 4.41%
Other Borrowed Funds(3) 244,135 8,728 7.15% 174,019 5,547 6.38%
---------- ---------- ------ ---------- ---------- ------
Total Interest Bearing Liabilities/Interest Expense 2,509,942 $ 65,788 5.24% 1,697,796 $ 49,443 5.82%
========== ====== ========== ======
Total Non-Interest Bearing Liabilities 236,669 257,463
---------- ----------
Total Liabilities 2,746,611 1,955,259
Stockholders' Equity 335,423 227,330
---------- ----------
Total Liabilities and Stockholders' Equity $3,082,034 $2,182,589
========== ==========
Net Interest Earning Assets $ 102,901 $ 212,560
Net Interest Income on a Non-Taxable Equivalent Basis $ 21,843 $ 16,563
Interest Rate Spread(4) 1.47% 1.09%
Interest Rate Margin(4) 1.67% 1.73%
Net Interest-Earning Assets Ratio 104.10% 112.52%
</TABLE>
- ------------------
(1) Average loan balances include the average balance of non-accruing
loans, on which no interest income is recognized.
(2) Consist of money market instruments, reverse repurchase agreements and
deposits in other banks.
(3) Consist of FHLB-NY advances, notes payable and convertible subordinated
debentures.
(4) Interest rate spread represents the difference between Doral
Financial's weighted average yield on interest-earning assets and the
weighted average rate on interest-bearing liabilities. Interest rate
margin represents net interest income as a percentage of average
interest-earning assets.
The following tables describe the extent to which changes in
interest rates and changes in volume of interest rates on interest
earning assets and interest bearing liabilities have affected Doral
Financial's interest income and interest expense during the periods
indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes
attributable to (i) changes in volume (change in volume multiplied by
prior year rate), (ii) changes in rate (change in rate multiplied by
current year volume), and (iii) total change in rate and volume. The
combined effect of changes in both rate and volume has been allocated
in proportion to the absolute dollar amounts of the changes due to rate
and volume.
20
<PAGE> 21
<TABLE>
<CAPTION>
TABLE F
NET INTEREST INCOME ANALYSIS
(IN THOUSANDS) QUARTER ENDED
JUNE 30,
- -------------------------------------------- ----------------------------------------
1999 COMPARED TO 1998
INCREASE (DECREASE) DUE TO:
VOLUME RATE TOTAL
-------- -------- --------
<S> <C> <C> <C>
INTEREST EARNING ASSETS
TOTAL LOANS $ 33,030 $ (5,004) $ 28,026
MORTGAGE-BACKED SECURITIES (6,348) 2,629 (3,719)
INVESTMENT SECURITIES 14,310 (552) 13,758
OTHER INTEREST EARNING ASSETS 6,499 (840) 5,659
-------- -------- --------
TOTAL INTEREST EARNING ASSETS 47,491 (3,767) 43,724
-------- -------- --------
INTEREST BEARING LIABILITIES
LOANS PAYABLE 301 (4,923) (4,622)
REPURCHASE AGREEMENTS 19,770 (7,187) 12,583
DEPOSITS 15,919 137 16,056
OTHER BORROWED FUNDS 5,000 1,662 6,662
-------- -------- --------
TOTAL INTEREST BEARING LIABILITIES 40,990 (10,311) 30,679
-------- -------- --------
NET INTEREST EARNING ASSETS $ 6,501 $ 6,544 $ 13,045
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
TABLE G
NET INTEREST INCOME ANALYSIS
(IN THOUSANDS) SIX MONTH PERIOD ENDED
JUNE 30,
- -------------------------------------------- ----------------------------------------
1999 COMPARED TO 1998
INCREASE (DECREASE) DUE TO:
VOLUME RATE TOTAL
-------- -------- --------
<S> <C> <C> <C>
INTEREST EARNING ASSETS
TOTAL LOANS $ 35,749 $ (6,505) $ 29,244
MORTGAGE-BACKED SECURITIES (2,667) 1,489 (1,178)
INVESTMENT SECURITIES 9,380 (1,859) 7,521
OTHER INTEREST EARNING ASSETS 7,522 142 7,664
-------- -------- --------
TOTAL INTEREST EARNING ASSETS 49,984 (6,733) 43,251
-------- -------- --------
INTEREST BEARING LIABILITIES
LOANS PAYABLE 3,511 (5,088) (1,577)
REPURCHASE AGREEMENTS 22,006 (8,240) 13,766
DEPOSITS 13,738 400 14,138
OTHER BORROWED FUNDS 4,470 1,891 6,361
-------- -------- --------
TOTAL INTEREST BEARING LIABILITIES 43,725 (11,037) 32,688
-------- -------- --------
NET INTEREST EARNING ASSETS $ 6,259 $ 4,304 $ 10,563
======== ======== ========
</TABLE>
INTEREST INCOME
Total interest income increased from approximately $35.0 million during
the second quarter of 1998, to $45.9 million during the second quarter of 1999,
an increase of 31%. For the first six months of 1999, interest income increased
by approximately $21.6 million, to $87.6 million compared to $66.0 million for
the first six months of 1998. The increases in interest income during both
periods is primarily related to the increase in Doral Financial's total average
interest earning assets, from $1.9 billion at June 30, 1998 to $2.6 billion at
June 30, 1999.
Interest income on loans increased by $7.0 million or 68% during the
second quarter of 1999, as compared to the respective 1998 period. For the first
half of 1999, interest income on loans increased 70%, from $20.9 million
21
<PAGE> 22
for the six months ended June 30, 1998, to $35.5 million for the six months
ended June 30, 1999. The increase during 1999 reflected an increase in the level
of loans held by Doral Financial as compared to 1998, due to the increased
volume of loan originations.
Interest income on mortgage-backed securities remained fairly constant
from 1998 to 1999, for both the quarterly and six month periods. For the quarter
ended June 30, 1999, interest income on this type of interest earning asset
amounted to $13.9 million, compared to $14.8 million for the quarter ended June
30, 1998. During the first half of 1999, income on mortgage-backed securities
was $26.4 million, versus $26.9 million for the comparable period of 1998. The
results for the 1999 periods reflected a constant holding of mortgage-backed
securities, mainly comprised of tax-exempt Puerto Rico GNMA securities, which
the Company holds for longer periods prior to sale in order to maximize tax
exempt interest income on such securities.
Interest income on investment securities increased by $3.4 million
during the second quarter of 1999, as compared to the same period of 1998, from
$8.2 million to $11.6 million. Interest income on these securities was $19.2
million for the six months ended June 30, 1999, as compared to $15.4 million for
the same period a year ago. The increase reflects the increase in the average
balance of investment securities held during the period to $573.9 million as of
June 30, 1999, compared to $440.2 million as of June 30, 1998. The increase in
investment securities relates primarily to increased investment in US Government
and agency obligations, the interest on which is exempt to the Company for
income tax purposes in Puerto Rico.
Interest income on other interest earning assets increased by $1.4
million or 84% for the quarter ended June 30, 1999 as compared to the quarter
ended June 30, 1998. Interest income on other interest earning assets was $6.6
million for the six months ended June 30, 1999, as compared to $2.8 million for
the comparable period of 1998. Other interest-earning assets consist primarily
of money market instruments, overnight deposits, term deposits, and reverse
repurchase agreements. The increase from 1998 to 1999 was due primarily to
higher liquidity and the investment of such liquidity in short-term investments.
The increase in interest income from other interest-earning assets reflects
Doral Financial's strategy to diversify its sources of interest income.
INTEREST EXPENSE
Total interest expense increased to $33.9 million during the second
quarter of 1999, compared to $26.2 million for the respective 1998 period, an
increase of 29%. Total interest expense for the first half of 1999 was $65.8
million, as compared to $49.4 million for the same period of 1998, an increase
of 33%. The increase in interest expense for the 1999 period was due primarily
to the increase in the average amount of interest-bearing liabilities used to
fund the increase in interest earning assets. Average interest bearing
liabilities increased to $2.5 billion at an average cost of 5.24% as of June 30,
1999, compared to $1.7 billion at an average cost of 5.82% as of June 30, 1998.
Interest expense related to loans payable decreased by $1.2 million or
17% during the second quarter of 1999 as compared to the same period of 1998.
For the first half of 1999, interest expense associated with loans payable was
$11.5 million, a decrease of 6% from $12.3 million for the first six months
ended June 30, 1998. The weighted-average interest rate cost for borrowings
under Doral Financial's warehouse lines of credit was 5.76% and 7.01% for the
second quarter of 1999 and 1998, respectively. For the first six months of 1999
and 1998, the weighted average cost for borrowings under the Company's
warehousing lines of credit was 5.76% and 7.04%, respectively.
Interest expense related to securities sold under agreements to
repurchase increased by $3.1 million or 24% during the second quarter of 1999 as
compared to the same period of 1998. During the first six months of 1999,
interest expense related to securities sold under agreements to repurchase was
$31.0 million, versus $24.1 million for the corresponding 1998 period an
increase of 29%. The increases during these periods reflected increased
borrowings to finance the acquisition of mortgage-backed securities and other
investment securities. The weighted average interest rate of borrowings under
repurchase agreements was 5.10% and 5.67% for the second quarter of 1999 and
1998, respectively. For the first half of 1999, the average interest rate for
borrowings under repurchase agreements was 5.10%, compared to 5.78% for the same
period a year ago.
22
<PAGE> 23
Interest expense on deposits increased by $4.0 million, or 103%, for
the second quarter of 1999, as compared to the respective 1998 period. For the
first half of 1999, interest expense on deposits was $14.6 million, an increase
of 94% over the $7.5 million recorded for the same period of 1998. This increase
is primarily related to a higher deposit base, due to the fact that Doral Bank
now operates through a total of fourteen branches, compared to a total of six as
of the same date a year ago. This trend of expansion is expected to continue
throughout the remainder of 1999 and into 2000. Doral Bank's average interest
cost on deposits was 4.49% and 4.48%, respectively, for the quarter and six
month periods ended June 30, 1999, as compared to 4.47% and 4.41% for the
respective 1998 periods.
Interest expense on other borrowed funds was $4.3 million for the
quarter ended June 30, 1999, as compared to $2.6 million for the same period a
year ago, an increase of 63%. Interest expense on other borrowed funds for the
first half of 1999 and 1998 was $8.7 million and $5.5 million, respectively,
which represents an increase of 57%. For the second quarter and first half of
1999, the weighted average interest rate for other borrowed funds was 6.94% and
7.15%, respectively, compared to 6.27% and 6.38%, respectively, for the
corresponding 1998 periods. Interest expense on other borrowed funds includes
various term notes issued by Doral Bank, Doral Financial's $75 million senior
notes due October 10, 2006, and Doral Bank's advances from the FHLB-NY, as well
as various other borrowings.
PROVISION FOR LOAN LOSSES
The provision for loan losses relates to loans held by Doral Financial.
The provision is charged to earnings to bring the total allowance for loan
losses to a level considered appropriate by management based on Doral
Financial's loss experience, current delinquency rates, known and inherent risk
in the loan portfolio, the estimated value of any underlying collateral, and an
assessment of current and anticipated economic conditions. While management
believes that the current provision for loan losses is sufficient, future
additions to the allowance for loan losses could be necessary if economic
conditions change substantially from the assumptions used by Doral Financial in
determining the allowance for loan losses.
The following table summarizes certain information regarding Doral
Financial's allowance for loan losses and losses on other real estate owned
("OREO"), for both the Company's commercial banking and mortgage banking
business for the periods indicated.
23
<PAGE> 24
<TABLE>
<CAPTION>
TABLE H
ALLOWANCE FOR LOAN
LOSSES AND OREO
(DOLLARS IN THOUSANDS)
QUARTER ENDED SIX MONTH PERIOD ENDED
JUNE 30, JUNE 30,
------------------ ----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
OREO:
Balance at beginning of period ............... $ 796 $ 779 $ 1,011 $ 676
Provision for losses ......................... 135 506 350 820
Losses charged to the allowance .............. (140) (386) (570) (597)
------- ------- ------- -------
Balance at end of period .......................... $ 791 $ 899 $ 791 $ 899
======= ======= ======= =======
Allowance for Loan Losses(1):
Balance at beginning of period .................... $ 5,435 $ 4,575 $ 5,166 $ 2,866
Provision for loan losses ......................... 458 93 753 311
------- ------- ------- -------
Charge - offs:
Mortgage loans held for sale ................. (360) -- (444) --
Construction ................................. -- -- -- --
Residential mortgage loans ................... -- (25) -- (25)
Commercial real estate ....................... -- -- -- --
Consumer ..................................... (148) (34) (159) (34)
Commercial non-real estate ................... -- -- -- --
Other ........................................ 16 -- (64) --
------- ------- ------- -------
Total Charge-offs ................................. (492) (59) (667) (59)
------- ------- ------- -------
Recoveries:
Mortgage loans held for sale ................. -- -- 139 --
Construction ................................. -- -- -- --
Residential mortgage loans ................... (6) -- -- --
Commercial real estate ....................... -- -- -- --
Consumer ..................................... 10 5 14 28
Commercial non-real estate ................... -- -- -- --
Other ........................................ -- -- -- --
------- ------- ------- -------
Total recoveries .................................. 4 5 153 28
------- ------- ------- -------
Net charge offs ................................... (488) (54) (514) (31)
------- ------- ------- -------
Other ............................................. -- -- -- 1,468
------- ------- ------- -------
BALANCE AT END OF PERIOD .......................... $ 5,405 $ 4,614 $ 5,405 $ 4,614
======= ======= ======= =======
Allowance for loan losses as a percentage
of total loans outstanding ..................... 0.49% 0.61% 0.49% 0.61%
</TABLE>
- ---------------
(1) Relates to both mortgage loans held for sale and to loans receivable
held for investment.
As shown above, net charge offs are principally related to mortgage
loans held for sale, indicative of the main mortgage banking activities
conducted by the Company. This is consistent with the allocation of the
Company's allowance for loan losses, where a majority of the total allowance is
allocated to mortgage loans held for sale.
24
<PAGE> 25
The increase in the provision was primarily as a result of the increase
in the size of Doral Financial's loan portfolio and an increase in the amount of
construction loans and commercial mortgage loans for which Doral Financial
provides a higher allowance for loan losses.
The allowance for loan losses relating to loans held by Doral Financial
was $5.4 million at June 30, 1999, compared to $4.6 million as of June 30, 1998.
The increase in the allowance was primarily the result of the increase in the
size of the loan portfolio.
NON-INTEREST INCOME
Net Gains on Mortgage Loan Sales. Net gains from mortgage loan sales
increased by 107% during the second quarter of 1999 to $23.9 million, as
compared to the same period of 1998 . For the six month periods ended June 30,
1999 and 1998, mortgage loan sales were $40.1 million and $16.9 million
respectively, an increase of 138%. Results for 1999 are mainly the result of
increased mortgage production and the ability of the Company to obtain higher
profitability on sales of various loan products, including the creation of
interest only strips ("IOs") in connection with bulk sales of mortgage loans to
corporate investors. See "Amortization of IOs and Servicing Assets."
Servicing Income. Servicing income represents revenues earned for
administering mortgage loans. Loan servicing fees depend on the type of mortgage
loan being serviced and for residential mortgage loans range from 0.25% to 0.50%
of the declining outstanding principal amount of the serviced loan. The size of
Doral Financial's loan servicing portfolio and the amount of its servicing fees
have increased substantially since its inception as a result of increases in
loan originations and bulk purchases of servicing rights. During the second
quarter of 1999 and 1998, the Company purchased servicing rights to
approximately $61 million and $33 million, respectively, of mortgages through
bulk purchases. For the first half of 1999 and 1998, such purchases were
approximately $134 million and $108 million, respectively. Doral Financial
anticipates that it will continue to make bulk purchases of mortgage servicing
rights in the future to the extent it can identify attractive opportunities.
Servicing income increased 31% from the second quarter of 1998 to the
same period of 1999. For the first half of 1999, servicing income increased to
$14.4 million from $10.2 million for the first half of 1998, an increase of 41%.
The increase in the amount of loan servicing income for the second quarter and
first half of 1999 was primarily due to the increase in the principal amount of
loans serviced as compared to the 1998 period. The mortgage servicing portfolio
was approximately $7.0 billion at June 30, 1999, compared to $5.1 billion as of
June 30, 1998. At June 30, 1999, less than 10% of Doral Financial's servicing
portfolio was related to mortgages originated outside Puerto Rico.
The amount of principal prepayments on mortgage loans serviced by Doral
Financial was $414.6 million and $285.8 million for the six months ended June
30, 1999 and 1998, respectively. This represented approximately 13% and 12% on
an annualized basis, respectively, of the average principal amount of mortgage
loans serviced during such periods. The primary means used by Doral Financial to
reduce the sensitivity of its servicing income to increases in prepayment rates
is the maintenance of a strong retail origination network that has allowed it to
increase or maintain the size of its servicing portfolio even during periods of
high prepayments.
Trading Account Profit. Trading account profit includes any unrealized
gains or losses in the market value of its securities held for trading. Trading
account activities for the quarter ended June 30, 1999, resulted in losses of
$1.0 million, compared to gains of $ 2.1 million during the respective 1998
period, including $2.5 million of unrealized losses and $950,000 of unrealized
gains, respectively, on the value of its securities held for trading pursuant to
SFAS No. 115. Trading account activities for the six month period ended June 30,
1999, resulted in gains of $4.5 million compared to $4.6 million during the
respective 1998 period, including $1.5 million of unrealized losses and $2.7
million of unrealized gains, respectively, on the value of its securities held
for trading pursuant to SFAS No. 115.
For the quarters ended June 30,1999 and 1998, trading account profit
included gains of $3.0 million and losses of $261,000 on options and futures
contracts used for interest rate management purposes, including unrealized gains
or losses charged to operations as a result of mark to market adjustments. For
the six months ended June 30, 1999 and
25
<PAGE> 26
1998, trading account profit included gains of $6.5 million and $1.6 million,
respectively, on such options and futures contracts.
Gain on Sale of Investment Securities. Gain on sale of investment
securities represents the impact on income of transactions involving the sale of
securities available for sale. During the quarter ended June 30, 1999, the
Company had $226,000 in gain on sale of investment securities compared to the
same 1998 period which resulted in gains of $79,000.
Gain on Sale of Servicing Assets. During the first half of 1998, Doral
Financial sold servicing rights to $103 million of mortgage loans, realizing
pretax gains of approximately $1.8 million during such period. No such sales
were made during the corresponding 1999 period. While Doral Financial's strategy
is to continue to increase the size of its servicing portfolio by retaining the
servicing rights on the mortgage loans it originates, the Company may sell
servicing rights in the future when market conditions are favorable.
Commissions, Fees and Other Income. Other income, commissions and fees
increased 90% during the second quarter of 1999 as compared to the same 1998
period. For the first half of 1999, commissions, fees and other income increased
74%, as compared to the same 1998 period. The increases during the 1999 period
were due primarily to increased commissions and fees earned by Doral Bank and
Doral Securities.
NON-INTEREST EXPENSE
Total non-interest expense increased by 72% during the second quarter
ended June 30, 1999, as compared to the respective 1998 period, reflecting the
expansion of the Company's loan origination capacity and banking operations, the
resulting increase in employees and management, investment in technology, and
the increased costs associated with the substantial growth of the servicing
portfolio. For the six month period ended June 30, 1999, total non-interest
expense increased by 79% from the comparable 1998 period. During the second
quarter of 1999, the Company opened three mortgage offices in Puerto Rico and
two commercial bank branches. The increase in expenses also reflected the
Company's recent expansion into the mainland United States through the opening
of a wholesale residential mortgage and a multifamily lending operation.
PUERTO RICO INCOME TAXES
The Puerto Rico maximum statutory corporate income tax rate is 39%. For
the second quarters of 1999 and 1998, the effective income tax rate of Doral
Financial was 14%, while for the six month periods ended June 30, 1999 and 1998
it was 13%.
The lower effective tax rates (as compared to the maximum statutory
rate) experienced by the Company reflect the fact that the portion of the net
interest income derived from certain FHA and VA mortgage loans secured by
properties located in Puerto Rico and on GNMA securities backed by such mortgage
loans is exempt from income tax under Puerto Rico law. The Company also invests
in U.S. Treasury and agency securities that are exempt from Puerto Rico income
taxation.
Effective August 1, 1997, the Puerto Rico Internal Revenue Code was
amended to limit tax exemption to those FHA and VA loans and GNMA securities
backed by such loans that are used to finance the original acquisition of newly
constructed homes.
AMORTIZATION OF IOS AND SERVICING ASSETS
Doral Financial creates IOs (previously classified as excess servicing
fees receivable) as a result of the sale of loans in bulk or securitization
transactions. IOs are created on the sale of loans with servicing retained, by
computing the present value of the excess of the weighted-average coupon on the
loans sold over the sum of: (i) the pass-through interest paid to the investor
and (ii) normal servicing fee, based on the servicing fee permitted by FNMA and
FHLMC,
26
<PAGE> 27
and adjusting such amount for expected losses and prepayments. The amount of the
IOs is recognized at the time of sale of the related loans as an adjustment to
the resulting gain or loss on sale of loan and is recorded as a component of
"Net Gains on Mortgage Loan Sales" on Doral Financial's Consolidated Statements
of Income. Sales of mortgage loans made during the second quarter of 1999
resulted in the recording of approximately $13.2 million of IOs, compared to
$2.2 million for the corresponding 1998 period. For the six month period ended
June 30, 1999 and 1998 the Company recorded IOs in the amount of $23.6 million
and $8.0 million, respectively. The unamortized balance of the IOs is reflected
in Doral Financial's Consolidated Statement of Condition as a component of
"Securities held for trading."
IOs are amortized over the expected life of the asset and such
amortization is recorded as a reduction of interest income. The amortization of
IOs is based on the amount and timing of estimated future cash flows to be
received with respect to the IOs. Amortization of such IOs for each of the
quarters ended June 30, 1999 and 1998, was approximately $1.3 million, and
$640,000, respectively. For the first six month periods of 1999 and 1998,
amortization of IO's was approximately $3.0 million and $1.7, respectively.
Beginning with the second quarter of 1995, following the implementation
by Doral Financial of SFAS No. 122 (later superseded by SFAS No. 125), whenever
Doral Financial originates a mortgage loan, it assigns a fair value to the
related mortgage servicing right (the "servicing asset") associated with such
mortgage loan. The servicing asset represents the present value of the servicing
fees expected to be received on the loan over the expected term of the loan. The
amount of the servicing asset is recognized at the time of sale of the related
loan as an adjustment to the resulting gain or loss on sale of the loan and is
recorded as a component of "Net Gains on Mortgage Loan Sales" on Doral
Financial's Consolidated Statement of Income. The increase in the creation of
servicing assets reflects increased mortgage loan production during such periods
and bulk purchases of servicing rights. The unamortized balance of the servicing
asset is reflected on the Consolidated Statements of Condition of Doral
Financial. (Refer to Table I for servicing assets activities for the periods
indicated).
Doral Financial's servicing assets are amortized in proportion to, and
over the period of, estimated servicing income. Amortization of servicing assets
is included as a component of "Non-interest expense-Amortization of Servicing
Assets" in Doral Financial's Consolidated Statements of Income and Retained
Earnings.
The following table shows the increase in the Company's mortgage
servicing assets for each of the periods shown:
<TABLE>
<CAPTION>
TABLE I
CAPITALIZATION OF MORTGAGE SERVICING ASSETS
(IN THOUSANDS)
QUARTER ENDED SIX MONTH PERIOD
------------- ----------------
JUNE 30, ENDED JUNE 30,
-------- --------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period.............. $ 79,175 $ 51,065 $ 72,568 $ 46,416
Capitalization of rights ................... 6,466 5,559 13,704 9,162
Rights sold ................................ (7) -- (7) (54)
Rights purchased ........................... 3,961 2,250 6,045 4,753
Amortization:
Scheduled ......................... (3,005) (1,550) (5,720) (2,953)
Unscheduled ....................... -- -- -- --
-------- -------- -------- --------
Balance at end of period ................... $ 86,590 $ 57,324 $ 86,590 $ 57,324
======== ======== ======== ========
</TABLE>
Increases in prepayment rates or credit loss rates over anticipated
levels used in calculating the value of IOs and servicing assets can adversely
affect Doral Financial's revenues and liquidity by increasing the amortization
rates for servicing assets and IOs, as well as requiring Doral Financial to
recognize an impairment against income over and above scheduled amortization.
See "Interest Rate Management." The portion of Doral Financial's mortgage
servicing
27
<PAGE> 28
portfolio consisting of the servicing asset that was originated by Doral
Financial prior to the adoption of SFAS No. 122 is not reflected as an asset on
Doral Financial's Consolidated Financial Statements, and is not subject to
amortization or impairment.
CREDIT RISKS RELATED TO LOAN ACTIVITIES
With respect to mortgage loans originated for sale as part of Doral
Financial's mortgage banking business, the Company is generally at risk for any
mortgage loan default from the time the Company originates the mortgage loan
until the time it sells the loan or packages it into a mortgage-backed security.
With respect to FHA loans, the Company is fully insured as to principal by the
FHA against foreclosure loss. VA loans are guaranteed up to 25% to 50% of the
principal amount of the loan subject to a maximum, ranging from $22,500 to
$50,750. Loan-to-value ratios for residential mortgage loans generally do not
exceed 80% (85% for qualifying home purchase transactions through Doral Bank)
unless private mortgage insurance is obtained.
Loans that do not qualify for the insurance or guarantee programs of
FHA and VA, or the sale or exchange programs of FNMA or FHLMC ("non-conforming
loans"), including loans secured by multi-family projects, are often sold to
investors on a partial or full recourse basis or with put back options to the
purchasers. In such cases, the Company retains part or all of the credit risk
associated with such loan after sale. As of June 30, 1999, the maximum amount of
loans that the Company would have been required to repurchase if all loans
subject to recourse defaulted or if investors exercised their put back options
was $640.7 million. As of June 30, 1999, the Company maintained a reserve of
$1.4 million for potential losses from such arrangements which is included in
"Accrued expenses and other liabilities" in the Company's Consolidated Financial
Statements.
Loans secured by income producing residential and commercial properties
involve greater credit risk because they are larger in size and more risk is
concentrated in a single borrower. The properties securing these loans are also
more difficult to dispose of in foreclosure.
Doral Financial manages credit risk by maintaining sound underwriting
standards, monitoring the quality of the loan portfolio, assessing reserves and
loan concentrations, recruiting qualified credit officers, implementing and
monitoring lending policies and collateral requirements, and instituting
procedures to ensure appropriate actions to comply with laws and regulations.
The Company's collateral requirements for loans depend on the financial strength
of the borrower and the type of loan involved. Acceptable collateral principally
includes cash, deposit and investment accounts and real estate, and, to a lesser
extent, liens on accounts receivable, lease receivables, inventory and personal
property. In the case of non-conforming loans sold subject to recourse, the
Company also generally requires lower loan-to-value ratios to protect itself
from possible losses on foreclosure.
Because most of Doral Financial's loans are made to borrowers located
in Puerto Rico and secured by properties located in Puerto Rico, the Company is
subject to greater credit risks tied to adverse economic, political or business
developments and natural hazards, such as hurricanes, that may affect the
Island. For example, if Puerto Rico's real estate market were to experience an
overall decline in property values, the Company's rates of loss on foreclosure
would probably increase.
NON-PERFORMING ASSETS AND ALLOWANCE FOR LOAN LOSSES
Non-performing assets ("NPAs") consist of loans held for sale past due
90 days and still accruing, loans on a non-accrual basis and other real estate
owned. Mortgage loans held for sale by Doral Financial's mortgage banking units
are not normally placed on a non-accrual basis following default. Doral
Financial believes that this policy is reasonable because these loans are
generally adequately secured by real estate and the amounts due on the loans are
generally recovered in foreclosure. Doral Bank's policy is to place all loans 90
days or more past due on a non-accrual basis, at which point a reserve for all
unpaid interest previously accrued is established. Interest income is recognized
when the borrower makes a payment, and the loan will return to an accrual basis
when it is no longer 90 or more days delinquent and collectibility is reasonably
assured. For the quarters ended June 30, 1999 and 1998, Doral Bank would have
28
<PAGE> 29
recognized $489,000 and $335,000, respectively, in additional interest income
had all delinquent loans owned by Doral Bank been accounted for on an accrual
basis.
The following table sets forth information with respect to Doral
Financial's non-accrual loans, other real estate owned ("OREO") and other
non-performing assets as of the dates indicated. Doral Financial did not have
any troubled debt restructurings as of any of the periods presented.
<TABLE>
<CAPTION>
TABLE J
NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
AS OF JUNE 30, AS OF DECEMBER 31,
-------------- ------------------
1999 1998
------- -------
<S> <C> <C>
Mortgage Banking Business(1):
Loans held for sale past due 90 days
and still accruing(2) ................................ $44,270 $49,201
Other real estate owned ("OREO") ........................ 2,738 2,987
Other non-performing assets(3) .......................... -- 1,011
------- -------
Total NPAs of Mortgage Banking Business ................. 47,008 53,199
------- -------
Other Lending Activities through Doral Bank(4):
Non-accrual loans
Construction ........................................ 129 183
Residential mortgage loans .......................... 2,823 2,382
Commercial real estate .............................. 554 770
Consumer ............................................ 109 241
Commercial non-real estate .......................... 378 95
Other ............................................... -- --
------- -------
Total non-accrual loans ................................. 3,993 3,671
OREO .................................................... 59 --
------- -------
Total NPAs of Doral Bank ....................... 4,052 3,671
------- -------
Total NPAs of Doral Financial (consolidated) ............ $51,060 $56,870
======= =======
Total NPAs of Doral Bank as a percentage of
Doral Bank's loans receivable, net and OREO .......... 2.98% 2.88%
Total NPAs of Doral Financial (consolidated) as a
percentage of consolidated total assets ............. 1.56% 1.95%
Ratio of allowance for loan losses to
non-performing assets (consolidated) ................. 10.59% 9.08%
</TABLE>
- ----------------------
(1) Includes mortgage loans held for sale and OREO related to Doral
Financial's mortgage banking business.
(2) Does not include approximately $16.2 million and $6.5 million of 90
days past due FHA/VA loans as of June 30, 1999 and December 31, 1998,
respectively, which are not considered non-performing assets by the
Company because the principal balance of these loans is insured or
guaranteed under applicable FHA and VA programs and interest is, in
most cases, fully recovered in foreclosure procedures.
(3) This amount refers to a mortgage loan to a real estate partnership to
which Doral Financial previously sold OREO. This loan is included in
"Receivables and mortgage servicing advances" in Doral Financial's
Consolidated Financial Statements.
(4) Includes mortgage loans and OREO of Doral Bank.
29
<PAGE> 30
LIQUIDITY AND CAPITAL RESOURCES
Doral Financial has an ongoing need for capital to finance its lending
and investing activities. This need is expected to increase as the volume of the
loan originations increases. Doral Financial's cash requirements arise from loan
originations and purchases, repayments of debt upon maturity, payments of
operating and interest expenses and servicing advances and loan repurchases.
Servicing agreements relating to the mortgage-backed securities programs of
FNMA, FHLMC and GNMA, and certain other investors and mortgage loans sold to
certain other purchasers, require Doral Financial to advance funds to make
scheduled payments of principal, interest, taxes and insurance, if such payments
have not been received from the borrowers. The Company generally recovers funds
advanced pursuant to these arrangements within 30 days. During the six month
period ended June 30, 1999, the monthly average amount of funds advanced by
Doral Financial under such servicing agreements was approximately $8.0 million.
Doral Financial's primary sources of liquidity are sales in the
secondary mortgage market of the loans it originates and purchases, short term
borrowings under warehouse, gestation and repurchase agreement lines of credit
secured by pledges of its loans and mortgage-backed securities (in most cases
until such loans are sold and the lenders repaid) and revenues from operations.
In the past, Doral Financial has also relied on privately-placed and publicly
offered debt financing and public offerings of preferred and common stock. Doral
Financial's bank subsidiary also relies on deposits, borrowings from the FHLB-NY
as well as term notes backed by letters of credit of the FHLB-NY.
The following table shows Doral Financial's sources of borrowings and
the related average interest rate as of June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
TABLE K
SOURCES OF BORROWINGS
(DOLLARS IN THOUSANDS)
AS OF JUNE 30, 1999 AS OF DECEMBER 31, 1998
---------------------- -----------------------
AMOUNT AVERAGE AMOUNT AVERAGE
OUTSTANDING RATE OUTSTANDING RATE
----------- ---- ----------- ----
<S> <C> <C> <C> <C>
Repurchase Agreements............................... $1,295,041 4.82% $1,197,328 5.26%
Loans Payable....................................... 331,537 5.85% 426,704 6.69%
Deposits............................................ 760,096 4.48% 533,113 4.30%
Notes Payable....................................... 207,106 7.07% 199,733 7.03%
Advances from FHLB.................................. 55,500 5.75% 32,000 6.34%
</TABLE>
Doral Financial has warehousing, gestation and repurchase agreements
lines of credit totaling $4.1 billion as of June 30, 1999, of which $1.6 billion
was outstanding as of such date.
30
<PAGE> 31
The following table presents the average balance and the annualized
average rate paid on each deposit type of Doral Bank for the period indicated.
<TABLE>
<CAPTION>
TABLE L
AVERAGE DEPOSIT BALANCE
(DOLLARS IN THOUSANDS) SIX MONTH PERIOD ENDED YEAR ENDED
JUNE 30, 1999 DECEMBER 31, 1998
------------- -----------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE BALANCE RATE
------- ---- ------- ----
<S> <C> <C> <C> <C>
Certificates of deposit........... $386,378 5.64% $232,702 5.77%
Regular passbook savings.......... 49,555 4.35% 29,054 4.74%
Now accounts ..................... 80,544 4.17% 36,075 5.06%
Non-interest bearing ............. 134,449 -- 95,726 --
-------- ---- -------- ----
Total deposits........... $650,926 4.48% $393,557 4.40%
======== ==== ======== ====
</TABLE>
The following table sets forth the maturities of Doral Bank's
certificates of deposit having principal amounts of $100,000 or more at June 30,
1999.
<TABLE>
<CAPTION>
TABLE M
DEPOSIT MATURITIES
(IN THOUSANDS)
AMOUNT
--------
<S> <C>
Certificate of deposit maturing
Three months or less........................ $ 64,618
Over three through six months............... 34,394
Over six through twelve months.............. 72,987
Over twelve months.......................... 128,930
--------
Total....................................... $300,929
========
</TABLE>
As of June 30, 1999 and December 31, 1998, Doral Bank had approximately
$139.8 million and $96.8 million, respectively, in brokered deposits obtained
through broker-dealers. Doral Bank uses such deposits as a source of long-term
funds.
As of June 30, 1999, Doral Financial and Doral Bank were in compliance
with all the regulatory capital requirements that were applicable to them as a
bank holding company and state non-member bank, respectively (i.e., total
capital and Tier 1 capital to risk weighted assets of at least 8% and 4%,
respectively, and Tier 1 capital to average assets of at least 4%). Set forth
below are Doral Financial's and Doral Bank's regulatory capital ratios as of
June 30, 1999, based on existing Federal Reserve and FDIC guidelines.
<TABLE>
<CAPTION>
TABLE N
REGULATORY CAPITAL RATIOS
DORAL DORAL
FINANCIAL BANK
--------- ----
<S> <C> <C>
Tier 1 Capital Ratio (Tier 1 capital to
risk weighted assets)....................... 20.9% 14.0%
Total Capital (total capital to risk
weighted assets)............................ 21.2% 14.4%
Leverage Ratio (Tier 1 capital to
average assets)............................. 11.7% 7.2%
</TABLE>
31
<PAGE> 32
As of June 30, 1999, Doral Bank was considered a well-capitalized bank
for purposes of the prompt corrective action regulations adopted by the FDIC
pursuant to the Federal Deposit Insurance Corporation Improvement Act of 1991.
To be considered a well capitalized institution under the FDIC's regulations, an
institution must maintain a Leverage Ratio of at least 5%, a Tier 1 Capital
Ratio of at least 6% and a Total Capital Ratio of at least 10% and not be
subject to any written agreement or directive to meet a specific capital ratio.
On July 8, 1999, Doral Financial completed the sale of $200 million of
its 8.50% Medium-Term Senior Notes, Series A due July 8, 2004 at a price to the
public of 100% of the principal amount thereof, resulting in net proceeds to the
Company of approximately $199 million, after deducting related expenses of the
offering.
Doral Financial expects that it will continue to have adequate
liquidity, financing arrangements and capital resources to finance its
operations. Doral Financial will continue to explore alternative and
supplementary methods of financing its operations, including both debt and
equity financing. There can be no assurance, however, that Doral Financial will
be successful in consummating any such transactions.
ASSETS AND LIABILITIES
At June 30, 1999, Doral Financial's total assets were $3.3 billion
compared to $2.9 billion at December 31, 1998. The increase in assets was due
primarily to a net increase in the securities portfolio of $447.6 million. Total
liabilities were $2.9 billion at June 30, 1999, compared to $2.6 billion at
December 31, 1998. The increase in liabilities was largely the result of an
increase in securities sold under agreements to repurchase, deposit accounts at
Doral Bank, and FHLB-NY advances. At June 30, 1999, deposit accounts totaled
$760.1 million, compared to $533.1 million at December 31, 1998. As of June 30,
1999, Doral Bank had $1.2 billion in assets, compared to $805 million at
December 31, 1998.
INTEREST RATE MANAGEMENT
General. Interest rate fluctuations is the primary market risk
affecting the Company. The effect of changes in interest rates on the volume of
mortgage loan originations, the net interest income earned on the Company's
portfolio of loans and mortgage-backed securities, the amount of gain on sale of
loans, and the value of Doral Financial's loan servicing portfolio and
securities holdings, as well as the Company's strategies to manage such effects,
are discussed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 under "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Interest Rate Management."
In the future, Doral Financial may use alternative hedging techniques
including futures, options, interest rate swap agreements or other hedge
instruments to help mitigate interest rate and market risk. However, there can
be no assurance that any of the above hedging techniques will be successful. To
the extent they are not successful, Doral Financial's profitability may be
adversely affected. For additional information on the use of derivatives to
manage interest rate risk, see "Derivatives" below.
Interest Rate Sensitivity Analysis. The following table summarizes the
expected maturities or repricing of Doral Financial's interest-earning assets
and interest-bearing liabilities as of June 30, 1999. Condensed information as
of December 31, 1998 is also shown. For purposes of this presentation, the
interest-earning components of mortgage loans held for sale and securities held
for trading are assumed to mature within one year. Off balance sheet instruments
represent the notional amounts of interest rate swap agreements. Notional
amounts are used to calculate the contractual amounts to be exchanged under the
swap agreements.
32
<PAGE> 33
<TABLE>
<CAPTION>
TABLE O
INTEREST RATE SENSITIVITY ANALYSIS
(DOLLARS IN THOUSANDS)
- --------------------------------------------- ----------------------------------------------------------------------------------
1 YEAR 1 TO 3 3 TO 5 OVER 5 NON-INTEREST
AS OF JUNE 30, 1999 OR LESS YEARS YEARS YEARS RATE BEARING TOTAL
- --------------------------------------------- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Money Market Instruments $ 197,966 $ -- $ -- $ -- $ -- $ 197,966
Total Loans 984,859 4,283 6,901 106,980 -- 1,103,023
Securities Held for Trading 684,673 -- -- -- -- 684,673
Securities Available for Sale 27,280 -- -- 1,582 -- 28,862
Securities Held to Maturity 146,855 -- 3,030 787,301 -- 937,186
FHLB Stock -- -- -- 10,395 -- 10,395
Other assets -- -- -- -- 317,765 317,765
---------- ---------- ---------- ---------- ---------- ----------
TOTAL ASSETS $2,041,633 $ 4,283 $ 9,931 $ 906,258 $ 317,765 $3,279,870
========== ========== ========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Loans Payable $ 331,537 $ -- $ -- $ -- $ -- $ 331,537
Repurchase Agreements 1,150,484 98,400 43,120 3,037 -- 1,295,041
Deposits 499,776 53,592 71,123 648 134,957 760,096
Other Borrowed Funds 89,184 71,197 10,225 92,000 -- 262,606
Other Liabilities -- -- -- -- 270,028 270,028
Stockholders' equity -- -- -- -- 360,562 360,562
---------- ---------- ---------- ---------- ---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,070,981 $ 223,189 $ 124,468 $ 95,685 $ 765,547 $3,279,870
========== ========== ========== ========== ========== ==========
Off Balance Sheet Instruments - Interest
Rate Swaps $ 105,000 $ (5,000) $ (100,000) $ -- $ -- $ --
Interest Rate Sensitivity Gap 75,652 (223,906) (214,537) 810,573 (447,782) --
Cumulative Interest Rate Sensitivity 75,652 (148,254) (362,791) 447,782 -- --
Cumulative Gap to Interest Earning Assets 2.55% (5.01)% (12.25)% 15.12% -- --
<CAPTION>
CONDENSED INTEREST RATE
SENSITIVITY ANALYSIS 1 YEAR 1 TO 3 3 TO 5 OVER 5 NON-INTEREST
AS OF DECEMBER 31, 1998 OR LESS YEARS YEARS YEARS RATE BEARING TOTAL
- ----------------------------------------- -------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Off-Balance Sheet Instruments - Interest
Rate Swaps $ 105,000 $ (5,000) $(100,000) $ -- $ -- $ --
Interest Rate Sensitivity Gap 166,034 (113,722) (115,875) 368,371 (304,898) --
Cumulative Interest Rate Sensitivity 166,034 52,312 (63,473) 304,898 -- --
Cumulative Gap to Interest Earning Assets 6.44% 2.03% (2.46)% 11.83% -- --
</TABLE>
Gap analysis measures the volume of assets and liabilities at a point
in time and their repricing during future periods. The volume of assets
repricing is adjusted to take into consideration the expected prepayment of
certain assets such as mortgage loans and mortgage-backed securities, which can
be prepaid before their contractual maturity. The net balance of assets and
liabilities (the "gap") repricing during future periods is an indicator of the
degree of interest rate risk being assumed by the Company. A positive gap
generally denotes asset sensitivity and that increases in interest rates would
have a positive effect on net interest income while a decrease in interest rates
would have a negative effect
33
<PAGE> 34
on net interest income. A negative gap denotes liability sensitivity and means
that an increase in interest rates would have a negative effect on net interest
income while a decrease in rates would have a positive effect on net interest
income interest. As of June 30, 1999, the Company had a one year positive gap of
approximately $75.7 million compared to a positive gap position of $166.0
million as of December 31, 1998. The Company's positive gap within one year is
due primarily to its large portfolio of mortgage loans held for sale and trading
assets which the Company could attempt to sell within a short-time in a rising
interest rate environment and replace them with higher yielding assets. While
static gap analysis is a useful measure for determining short-term risk to
future net interest income, it does not measure the sensitivity of the market
value of assets and liabilities to changes in interest rates. For example, the
value of the Company's mortgage loans held for sale and trading assets would
probably fall in a rising interest rate environment thereby adversely affecting
the Company's revenues from mortgage loan originations and trading account
profit.
Derivatives. The Company uses derivatives to manage its interest rate
risk. Derivatives include interest rate swaps, futures, forwards and options.
Derivatives are generally either privately-negotiated over-the-counter ("OTC")
or standard contracts transacted through regulated exchanges. OTC contracts
generally consist of swaps, forwards and options. Exchange traded derivatives
include futures and options.
Although the Company uses derivatives to manage market risk, for
financial reporting purposes its general policy is to account for such
instruments on a marked to market basis with gains or losses charged to
operations as they occur, except for interest rate swaps entered into by Doral
Bank which are not reflected on the Company's Consolidated Financial Statements.
Contracts with positive fair values are recorded as assets and contracts with
negative fair values as liabilities after the application of netting
arrangements. For the quarter ended June 30, 1999, average assets and
liabilities related to derivatives were $3.9 million and $3.8 million,
respectively. The notional amounts of assets and liabilities related to
derivatives which are not recorded on the Company's statement of condition
totaled $4.6 billion and $2.3 billion, respectively, as of June 30, 1999.
Notional amounts indicate the volume of derivatives activity but do not
represent the Company's exposure to market or credit risk.
In addition to the use of derivatives discussed above, Doral Financial
has used interest rate swap agreements to effectively fix the cost of short-term
funding sources which are used to finance the funding and holding of
interest-earning assets with longer maturities. An interest rate swap is an
agreement where one party (in this case, Doral Financial) agrees to pay a
fixed-rate of interest on a notional principal amount to a second party
(generally a securities broker-dealer) in exchange for receiving a variable rate
of interest on the same notional amount for a pre-determined period of time. No
actual assets are exchanged in a swap of this type and interest payments are
generally netted. As of June 30, 1999, Doral Financial, through Doral Bank, had
in place various interest rate swap agreements with an aggregate notional amount
of $105 million.
The use of derivatives involves market and credit risk. The market risk
of derivatives arises principally from the potential for changes in the value of
derivative contracts based on changes in interest rates. The Company generally
manages its risks by taking risk offsetting positions.
The credit risk of derivatives arises from the potential of a
counterparty to default on its contractual obligations. Credit risk related to
derivatives depend on the following: the current fair value of outstanding
contracts with an entity; the potential credit exposure on the derivative over
time; the extent to which legally enforceable netting arrangements allow the
offsetting of contracts with the same entity to be netted against each other;
the extent to which collateral held against the contract reduces credit risk;
and the likelihood of defaults by the counterparty.
To manage this credit risk, the Company deals with counterparties of
good credit standing, enters into master netting agreements whenever possible
and, when appropriate, obtains collateral. Master netting agreements incorporate
rights of set-off that provide for the net settlement of contracts with the same
counterparty in the event of default. The credit risk associated with futures
contracts is also limited due to daily cash settlement of the net change in the
value of open contracts with the exchange on which the contract is traded.
34
<PAGE> 35
INFLATION
Doral Financial is affected by inflation mainly in the areas of loan
production and servicing fees. General and administrative expenses increase with
inflation. However, the increase in real estate values in Puerto Rico in recent
years has been a positive factor for Doral Financial's mortgage banking
business. The average size of loans originated tends to increase as home values
appreciate, which serves to increase loan origination fees and servicing income
faster than the cost of providing such services. Interest rates normally
increase during periods of high inflation and decrease during periods of low
inflation. See "Interest Rate Management" in the Company's Annual Report on Form
10-K for the year ended December 31, 1998 for a discussion of the effects of
changes of interest rates on Doral Financial's operations.
CHANGES IN ACCOUNTING STANDARDS
Accounting for Derivative and Similar Financial Instruments and for
Hedging Activities. In June 1998, the FASB issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative and Similar Financial
Instruments and for Hedging Activities" ("SFAS No. 133"). This new standard, as
amended, will become effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000, but with earlier application permitted as of the
beginning of any fiscal quarter subsequent to June 15, 1998, establishes
accounting and reporting standards for derivative financial instruments and for
hedging activities, and requires all derivatives to be measured at fair value
and to be recognized as either assets or liabilities in the statement of
financial position. Under this Standard, derivatives used in hedging activities
are to be designated into one of the following categories: (a) fair value hedge;
(b) cash flow hedge; and (c) foreign currency exposure hedge. The changes in
fair value (that is, gains and losses) will be either recognized as part of
earnings in the period when the change occurs, or as a component of other
comprehensive income (outside earnings) depending on their intended use and
resulting designation. Management has determined to adopt this Statement during
the first quarter of fiscal year 2001 and believes that such adoption will not
have a material effect on the Company's financial position or results of
operations.
YEAR 2000 ISSUES
The Year 2000 problem is caused by the situation whereby existing
computer software programs use only the last two digits to identify the year.
Those programs could read "00" as the year 1900, and thus, may not recognize
dates after December 31, 1999. This misinterpretation of data could cause
significant problems with banking and mortgage banking entities, such as the
Company, as the use of date calculations is extensive in daily operations for
matters such as interest accruals, maturity dates, delinquency status, and
customer statements. Year 2000 problems go beyond computer systems and affect
anything that uses an internal microchip such as telephone, fax machines,
security and alarm systems, vaults, elevators, heating and air conditioning.
Doral Financial does not own any proprietary software systems or
applications and relies on those provided by third party vendors. The Company
has completed the assessment of its computer hardware, software programs and
data processing applications, including those provided by third party vendors.
The Company has received revised programs from its third party vendors that have
been modified to address the Year 2000 problem for the principal applications
used in its mortgage banking, commercial banking and securities businesses. The
Company began testing these revised programs and applications during the first
week of October 1998. The testing for most of Company's software systems and
applications including those applicable to mortgage servicing and commercial
banking operations were substantially completed by December 31, 1998. Testing on
certain applications used in mortgage originations that interface with FNMA,
FHLMC and GNMA were completed during the second quarter. The Company is using
outside consultants to assist it in verifying all test results. The Company's
mainframe computer, used principally in its commercial banking operations, is
Year 2000 compliant, meaning that it can properly process and calculate
date-related information after January 1, 2000. The Company is replacing other
equipment, primarily desk top computers that are not Year 2000 compliant.
35
<PAGE> 36
Doral Financial does not anticipate that the Year 2000 problem will
have a material adverse effect on its financial condition or results of
operations. However, Year 2000 problems suffered by third parties, including
providers of basic services, such as telephone, water, sewer and electricity,
could have an adverse impact on the daily operations of the Company. The Company
has adopted contingency plans to address disruptions that could be caused by the
Year 2000 problem. These plans will include, among other things, performing
certain processes manually, contracting third parties to perform certain
operations and reducing or suspending impaired services. The Company intends to
continue to review and modify its contingency plans as it acquires additional
information through its ongoing Year 2000 program.
The Company estimates that the costs of addressing Year 2000 issues
will be approximately $1.2 million, of which $1.1 million has already been
spent. Most of such costs are directly related to the costs of replacing
existing equipment, primarily desktop computers, which have been fully
depreciated on the Company's financial statements. The Company has and intends
to continue to fund such costs through operating cash flow.
As a bank holding company, Doral Financial could be subject to
enforcement action by federal banking authorities if it fails to adequately
address the Year 2000 problem.
RECENT DEVELOPMENTS
Phase-Out of Chicago Wholesale Operation. The Company made a strategic
decision to phase-out its Chicago wholesale operation commencing July 31, 1999.
This decision was made because management felt that realized and anticipated
returns from this operation did not justify the dedication of additional
management and financial resources. The Chicago wholesale operation originated
approximately $154 million and $143 million, for the six months ended June 30,
1999 and the year ended December 31, 1998, respectively. This decision does not
affect the Company's New York based commercial lending unit or its plans to open
a de novo federal savings bank in the New York City metropolitan area by the end
of the third quarter of 1999. The Company anticipates that the costs associated
with phasing out this operation will not have a material adverse affect on
the financial condition or results of operations of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For information regarding market risk to which the Company is exposed,
see the information contained under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Interest Rate
Management."
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
In the opinion of the Company's management, the pending and threatened
legal proceedings of which management is aware will not have a material adverse
effect on the financial condition of the Company.
ITEM 2 - CHANGES IN SECURITIES
Not Applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
36
<PAGE> 37
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The proposals submitted at the Annual Meeting of Stockholders held on
April 22, 1999 together with the results of the voting thereon were reported
under Item 4 of the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1999 and such information is incorporated by reference herein.
ITEM 5 - OTHER INFORMATION
Acquisition of Sana Mortgage Bankers
On August 3, 1999, Doral Mortgage signed an agreement with Nancy
Hernandez and Salomon Levis to acquire 100% of the outstanding stock of Sana
Investment Mortgage Brokers, Inc. d/b/a Sana Mortgage Bankers for $6.0 million
in cash. Sana is a mortgage banking institution in Puerto Rico specializing in
small to mid sized residential conventional mortgage loans. The terms of the
transaction are discussed in the Company's Current Report on Form 8-K dated
August 3, 1999.
Amendment to Company's Restated Certificate of Incorporation
Effective May 14, 1999, the Company amended its Restated Certificate of
Incorporation to: (i) increase the number of authorized shares of Common Stock
from 50,000,000 to 200,000,000 shares and (ii) increase the number of authorized
shares of serial preferred stock from 2,000,000 to 10,000,000 shares. A copy of
the Certificate of Amendment was filed as an exhibit to the Quarterly Report on
Form 10-Q for the quarter ended March 31, 1999.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.87 - Purchase Contract, dated as of August 3, 1999,
among Doral Mortgage Corporation, Nancy Hernandez and Salomon
Levis (incorporated herein by reference to the same exhibit
number of the Company's Current Report on Form 8-K dated
August 3, 1999.)
Exhibit 10.88 - Amended and Restated Credit Agreement
(Warehouse Facility), dated as of June 25, 1999, between Doral
Financial Corporation, Doral Mortgage Corporation, the lenders
party thereto and Bankers Trust Company, as agent and lender.
Exhibit 10.89 - Amended and Restated Credit Agreement
(Servicing Facility), dated as of June 25, 1999, between Doral
Financial Corporation, Doral Mortgage Corporation, the lenders
party thereto and Bankers Trust Company, as agent and lender.
Exhibit 12(a) - Computation of Ratio of Earnings to Fixed
Charges.
Exhibit 12(b) - Computation of Ratio of Earnings to Fixed
Charges and Preferred Stock Dividends.
Exhibit 27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
(i) Form 8-K, dated April 8, 1999, reporting under Item 5
- "Other Items" the Company's unaudited results for
the quarter ended March 31, 1999.
(ii) Form 8-K, dated May 14, 1999, incorporating by
reference under Item 5 - "Other Items" the Company's
Indentures pertaining to senior and subordinated debt
securities and the
37
<PAGE> 38
Distribution Agreement and Administrative Procedures
relating to the Company's Medium-Term Notes.
(iii) Form 8-K, dated July 7, 1999, reporting under Item 5
- "Other Items" the Company's unaudited results for
the quarter and six months ended June 30, 1999 and
the closing on July 8, 1999 of the sale of $200
million of the Company's 8.50% Medium-Term Senior
Notes, Series A due July 8, 2004.
(iv) Form 8-K, dated August 3, 1999, reporting under Item
5 - "Other Items" the execution of a Purchase
Contract to purchase all the outstanding stock of
Sana Investment Mortgage Brokers, Inc.
38
<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.
DORAL FINANCIAL CORPORATION
(Registrant)
Date: August 16, 1999 /s/ Salomon Levis
----------------------------------
Salomon Levis
Chairman of the Board
and Chief Executive Officer
Date: August 16, 1999 /s/ Richard F. Bonini
----------------------------------
Richard F. Bonini
Senior Executive Vice President
and Chief Financial Officer
Date: August 16, 1999 /s/ Ricardo Melendez
----------------------------------
Ricardo Melendez
Vice President
Principal Accounting Officer
39
<PAGE> 40
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
10.87 - Purchase Contract, dated as of August 3, 1999, among Doral Mortgage Corporation, Nancy
Hernandez and Salomon Levis (incorporated herein by reference to the same exhibit number
of the Company's Current Report on Form 8-K dated August 3, 1999.)
10.88 - Amended and Restated Credit Agreement (Warehouse Facility), dated as of June 25, 1999,
between Doral Financial Corporation, Doral Mortgage Corporation, the lenders party thereto
and Bankers Trust Company, as agent and lender.
10.89 - Amended and Restated Credit Agreement (Servicing Facility), dated as of June 25, 1999,
between Doral Financial Corporation, Doral Mortgage Corporation, the lenders party thereto
and Bankers Trust Company, as agent and lender.
12(a) - Computation of Ratio of Earnings to Fixed Charges.
12(b) - Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
27 - Financial Data Schedule (for SEC use only).
</TABLE>
<PAGE> 1
EXHIBIT 10.88
AMENDED AND RESTATED
CREDIT AGREEMENT
(WAREHOUSE FACILITY)
Dated as of June 25, 1999
Between
DORAL FINANCIAL CORPORATION,
DORAL MORTGAGE CORPORATION,
THE LENDERS PARTY HERETO
And
BANKERS TRUST COMPANY,
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 1 DEFINITIONS....................................................................................1
Section 1.1 Defined Terms...................................................................1
Section 1.2 Terms Generally................................................................26
ARTICLE 2 AMOUNTS AND TERMS OF LOANS....................................................................27
Section 2.1 Commitments....................................................................27
Section 2.2 Method of Borrowing and of Conversions/Continuations...........................29
Section 2.3 Conversions/Continuations of Loans.............................................30
Section 2.4 Disbursement of Funds..........................................................31
Section 2.5 Notes..........................................................................33
Section 2.6 Interest.......................................................................34
Section 2.7 Termination of Commitments.....................................................34
Section 2.8 Mandatory Repayments...........................................................35
Section 2.9 Optional Prepayments...........................................................36
Section 2.10 Fees...........................................................................37
Section 2.11 Payments, Etc..................................................................37
Section 2.12 Eurodollar Rate Not Determinable; Illegality or Impropriety....................41
Section 2.13 Reserve Requirements; Change in Circumstances..................................41
Section 2.14 Indemnity......................................................................43
Section 2.15 Taxes..........................................................................43
Section 2.16 Sharing of Setoffs.............................................................44
ARTICLE 3 CONDITIONS TO LOANS...........................................................................45
Section 3.1 Conditions to Loans............................................................45
ARTICLE 4 REPRESENTATIONS AND WARRANTIES................................................................48
Section 4.1 Corporate Existence; Compliance with Law and Contractual Obligations...........48
Section 4.2 Corporate Power; Authorization; Enforceable Obligations........................48
Section 4.3 No Legal or Contractual Bar....................................................48
Section 4.4 Financial Information..........................................................49
Section 4.5 No Material Litigation.........................................................50
Section 4.6 Taxes..........................................................................50
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 4.7 Investment Company Act.........................................................50
Section 4.8 Subsidiaries...................................................................50
Section 4.9 Use of Proceeds................................................................51
Section 4.10 ERISA..........................................................................51
Section 4.11 Security Interests.............................................................51
Section 4.12 Agency Approvals...............................................................52
Section 4.13 Solvency.......................................................................52
Section 4.14 Minimum Servicing Portfolio....................................................52
Section 4.15 Year 2000 Compliance...........................................................52
ARTICLE 5 COVENANTS.....................................................................................52
Section 5.1 Affirmative Covenants..........................................................52
Section 5.2 Negative Covenants of Each Borrower............................................58
Section 5.3 Additional Negative Covenants..................................................62
ARTICLE 6 EVENTS OF DEFAULT.............................................................................63
Section 6.1 Events of Default..............................................................63
ARTICLE 7 THE AGENT.....................................................................................65
Section 7.1 Appointment of Agent...........................................................65
Section 7.2 Nature of Duties of Agent......................................................66
Section 7.3 Lack of Reliance on Agent......................................................66
Section 7.4 Certain Rights of Agent........................................................66
Section 7.5 Reliance by Agent..............................................................67
Section 7.6 Indemnification of Agent.......................................................67
Section 7.7 Agent in its Individual Capacity...............................................67
Section 7.8 Holders of Notes...............................................................68
Section 7.9 Successor Agent................................................................68
ARTICLE 8 MISCELLANEOUS PROVISIONS......................................................................69
Section 8.1 Notices........................................................................69
Section 8.2 Amendments, Etc................................................................69
Section 8.3 No Waiver; Remedies Cumulative.................................................70
Section 8.4 Payment of Expenses, Etc.......................................................70
Section 8.5 Right of Setoff................................................................71
Section 8.6 Benefit of Agreement...........................................................71
Section 8.7 GOVERNING LAW; SUBMISSION TO JURISDICTION......................................74
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 8.8 Counterparts...................................................................75
Section 8.9 Headings Descriptive...........................................................75
Section 8.10 Survival of Representations and Indemnities....................................75
Section 8.11 Severability...................................................................75
Section 8.12 Indemnification of Collateral Agent............................................75
Section 8.13 Joint and Several Nature of the Obligations....................................76
Section 8.14 Certain Waivers................................................................76
Section 8.15 Subrogation, Etc...............................................................77
Section 8.16 Confidentiality................................................................77
Section 8.17 Effectiveness..................................................................78
Section 8.18 Ratification; No Novation......................................................79
Section 8.19 Integration....................................................................79
Section 8.20 WAIVER OF JURY TRIAL...........................................................79
</TABLE>
<PAGE> 5
EXHIBITS
<TABLE>
<S> <C>
Exhibit A-1 Form of Facility 1 Note
Exhibit A-2 Form of Facility 2 Note
Exhibit B Amended and Restated Security Agreement (Warehouse Facility)
Exhibit C-1 Form of Opinion of Borrowers' New York Counsel
Exhibit C-2 Form of Opinion of Borrowers' Puerto Rico Counsel
Exhibit D-1 Officer's Certificate (DFC)
Exhibit D-2 Officer's Certificate (DMC)
Exhibit E-1 Facility 1 Borrowing Base Certificate
Exhibit E-2 Facility 2 Tranche A Borrowing Base Certificate
Exhibit E-3 Facility 2 Tranche B Borrowing Base Certificate
Exhibit F Notice of Borrowing
Exhibit G Notice of Conversion/Continuation
Exhibit H Approved Investors
Exhibit I Addresses for Notices
Exhibit J Eligible REO Criteria
Exhibit K Material Litigation
Exhibit L Form of Confidentiality Agreement
Exhibit M Permitted Subordinated Indebtedness
Exhibit N-1 REO Demand Note
Exhibit N-2 REO Pledge
Exhibit N-3 REO Mortgage
Exhibit O-1 Form of Pledged Servicing Portfolio Report
Exhibit O-2 Form of Recourse Servicing Portfolio Report
Exhibit O-3 Form of Recourse Servicing Portfolio Statistics Report
Exhibit P Authorized Officers
Exhibit Q Form of Additional Lender Agreement
Exhibit R Form of Assignment and Acceptance
</TABLE>
<PAGE> 6
AMENDED AND RESTATED CREDIT AGREEMENT
(WAREHOUSE FACILITY)
THIS AMENDED AND RESTATED CREDIT AGREEMENT (WAREHOUSE
FACILITY) is made and dated as of June 25, 1999, by and between the Lenders
party hereto from time to time, BANKERS TRUST COMPANY, a New York banking
corporation, as agent for the Lenders, DORAL FINANCIAL CORPORATION, a
corporation organized under the laws of the Commonwealth of Puerto Rico ("DFC"),
and DORAL MORTGAGE CORPORATION, a corporation organized under the laws of the
Commonwealth of Puerto Rico and a wholly-owned subsidiary of DFC ("DMC", and
together with DFC, each a "BORROWER" and collectively, the "BORROWERS") with
reference to the Credit Agreement, dated as of June 30, 1995, between the
Lenders, the Agent and the Borrowers (as amended to the date hereof, the
"ORIGINAL CREDIT Agreement"). Capitalized terms not otherwise defined herein are
defined in Article I.
The Lenders, the Agent and the Borrowers wish to amend and
restate the Original Credit Agreement in its entirety.
ACCORDINGLY, the parties hereto agree that the Original Credit
Agreement is amended and restated in its entirety as follows:
ARTICLE 1
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.
"ACKNOWLEDGMENT AGREEMENT" shall mean an acknowledgment
agreement in form and substance satisfactory to the Agent pursuant to
which FNMA, FHLMC, GNMA or any other Person which owns Mortgage Loans
or has issued mortgaged-backed securities for which either Borrower
holds direct servicing rights, acknowledges and recognizes the security
interest in such rights granted to the Lenders.
"ADJUSTED TANGIBLE NET WORTH" shall mean, as of any date, (a)
the sum of: (i) Book Net Worth as of such date, (ii) one percent (1.0%)
of the outstanding principal balance of Mortgage Loans in the Servicing
Portfolio as of such date, and (iii) the aggregate principal amount of
Permitted Subordinated Indebtedness outstanding as of such date, less
(b)(i) fifty percent (50%) of the amount of "interest only strip
securities", (ii) all purchased loan administration contracts and (iii)
all other assets that would be classified as intangible assets under
GAAP, including purchased and capitalized value of
<PAGE> 7
-2-
servicing rights, goodwill (whether representing the excess cost over
book value of assets acquired or otherwise), patents, trademarks, trade
names, copyrights, franchises, deferred charges (including unamortized
debt discount and expense, organization and acquisition costs and
research and product development costs), and in accordance with FASB
65, as amended by FASB 122, by the Financial Accounting Standards
Board, any originated mortgage servicing rights.
"ADJUSTMENT DATE" shall have the meaning given such term in
Section 8.6(h).
"AFFILIATE" shall mean, as to 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 (and all forms of the word) means the power to direct the
management and policies of a Person.
"AGENCY" shall mean FHA, FHLMC, FNMA, GNMA or VA.
"AGENCY CUSTODIAL AGREEMENT" shall mean the agreement, as
amended, modified or supplemented from time to time, between FHLMC,
FNMA or GNMA, as applicable, and the Borrowers and any Person meeting
the eligibility requirements set forth in the FHLMC Guide, FNMA Guide
or GNMA Guide, as applicable, to serve as a "custodian," "certificating
custodian," or as "document custodian", as applicable, pursuant to
which such Person is authorized to act as Certificating Custodian.
"AGENCY GUIDES" shall mean the FHLMC Guide, the FNMA Guide and
the GNMA Guide.
"AGENT" shall mean Bankers Trust Company, in its capacity as
agent for the Lenders hereunder, and any successor agent appointed
pursuant to Section 7.9.
"AGREEMENT" shall mean this Agreement, as amended, modified or
supplemented from time to time.
"AMENDMENT EFFECTIVE DATE" shall have the meaning given such
term in Section 8.17.
"APPLICANT LENDER" shall have the meaning given such term in
Section 8.6(g).
"APPROVED INVESTOR" shall mean FNMA, FHLMC or any Person
listed on Exhibit H. At the request of the Borrowers, the Required
Facility 1 Lenders may from time to time agree in writing to add
Persons to the list set forth on Exhibit H. By written notice to the
Borrowers, the Required Facility 1 Lenders or the Agent may in their or
its reasonable discretion, based on their or its evaluation of the
creditworthiness or funding ability of any Approved Investor listed on
Exhibit H, remove such Approved Investor from such list. Such removal
shall become effective immediately upon written notice from the Agent.
<PAGE> 8
-3-
"AUTHORIZED OFFICERS" shall mean those officers identified on
Exhibit P attached hereto; provided that DFC or DMC, as the case may
be, may, with respect to its Authorized Officers, by notice to the
Agent in accordance with Section 8.1, add or delete any person from the
list of Authorized Officers set forth above.
"BANKERS TRUST" shall mean Bankers Trust Company, in its
capacity as a Lender hereunder.
"BASE EURODOLLAR RATE" shall mean, with respect to any
Eurodollar Loan, a rate per annum equal to the offered rate for U.S.
Dollar deposits, in an amount equal to amount of the Eurodollar Loan
proposed to be subject to such rate and with maturities comparable to
such Eurodollar Interest Period, that appears on Telerate Page 3750 as
of approximately 11:00 a.m., London time, two (2) Eurodollar Business
Days prior to the commencement of such Eurodollar Interest Period;
provided that if such rate does not appear on Telerate Page 3750, the
"Base Eurodollar Rate" applicable to a particular Eurodollar Interest
Period shall mean a rate per annum equal to the rate at which U.S.
Dollar deposits, in an amount equal to the principal amount of the
Eurodollar Loans proposed to be subject to such rate and with
maturities comparable to such Eurodollar Interest Period, are offered
in immediately available funds in the London Interbank Market to the
London office of the Agent by leading banks in the London Interbank
Market as of approximately 11:00 a.m., London time, two (2) Eurodollar
Business Days prior to the commencement of the Eurodollar Interest
Period to which such Base Eurodollar Rate is applicable.
"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 a Mortgage-Backed Security (a)
that is not represented by an instrument (other than the physical
security issued to GNMA's nominee, MBSCC & Co., evidencing a GNMA
Mortgage-Backed Security) and (b) the ownership and transfer of which
are entered upon books maintained for that purpose by a depository.
"BOOK NET WORTH" shall mean (a) the sum of (i) the net worth,
determined in accordance with GAAP consistently applied, of (A) DFC on
a non-consolidated basis, (B) DMC, (C) Centro Hipotecaro de Puerto
Rico, Inc. and (D) other Subsidiaries of DFC engaged primarily in the
business of mortgage banking (as reasonably determined by the Agent,
but excluding Doral Bank, Doral Securities, Inc., Doral Bank FSB and
Doral Money, Inc.) and (ii) the amount of intercompany payables between
DFC and DMC, less (b) the sum of (i) the amount of intercompany
receivables between DFC and DMC and (ii) investments by DFC and/or DMC
in any Subsidiaries, which investments are listed under the account
titled "Other Assets" (as such term is used in the consolidated
statement of financial condition of DFC dated as of December 31, 1998)
or which are listed under other accounts. Notwithstanding the
foregoing, if at any time any of the entities listed in clauses (B),
(C) or (D) above become businesses engaged primarily in
<PAGE> 9
-4-
activities other than mortgage banking (as reasonably determined by the
Agent), then the net worth of such entity shall not be included in
clause (i) for the purposes of calculating Book Net Worth.
"BORROWER" and "BORROWERS" shall have the meaning given such
terms in the introductory paragraph of this Agreement.
"BORROWING" shall mean a Facility 1 Borrowing, a Facility 2
Borrowing or a Swing-Line Borrowing.
"BORROWING DATE" shall mean any date on which Bankers Trust
makes a Swing-Line Loan or the Lenders make Facility 1 Loans or
Facility 2 Loans at the Borrowers' request pursuant to Section 2.2.
"BUSINESS DAY" shall mean any day other than (i) a Saturday,
Sunday and any other day on which banks in New York City are required
or authorized to close or (ii) any public or bank holiday in the
Commonwealth of Puerto Rico.
"CERTIFICATING CUSTODIAN" shall mean any Person acting as the
Borrowers' "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 Borrowers (or the 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
Mortgage-Backed Securities will represent interests and (b) holding
such documentation following formation of such pools and issuance of
such Mortgage-Backed Securities. The Certificating Custodian shall at
all times be party to the Agency Custodial Agreements. The
Certificating Custodian shall be initially Banco Popular de Puerto
Rico.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations issues
thereunder as from time to time in effect.
"COLLATERAL" shall mean the Warehouse Collateral, the REO
Notes and the REO Property encumbered by the REO Mortgages.
"COLLATERAL AGENT" shall mean initially Banco Popular de
Puerto Rico, and any successor collateral agent thereto acceptable to
the Required Facility 1 Lenders and the Borrowers and designated as the
"Collateral Agent" under the Security Agreement.
"COLLATERAL AGREEMENTS" shall mean all REO Demand Notes, all
REO Mortgages, all REO Pledges, the Security Agreement, the Servicing
Security Agreement, and any other documents or certificates creating or
evidencing security interests granted to the Secured Parties in
connection with this Agreement and the other Loan Documents.
<PAGE> 10
-5-
"COLLATERAL VALUE OF THE FACILITY 1 BORROWING BASE" shall
mean, at any time, the sum of the Collateral Value of the Facility 1
Tranche A Borrowing Base and the Collateral Value of the Facility 1
Tranche B Borrowing Base.
"COLLATERAL VALUE OF THE FACILITY 1 TRANCHE A BORROWING BASE"
shall mean, at the time of determination thereof, the aggregate
collateral value of all Eligible Gestation Mortgage Loans and Eligible
Mortgage-Backed Securities included in the Facility 1 Tranche A
Borrowing Base. For purposes hereof, the collateral value of (x) each
Eligible Gestation Mortgage Loan shall be an amount equal to
ninety-eight percent (98%) of the current unpaid principal balance
thereof, and (y) each Eligible Mortgage-Backed Security shall be an
amount equal to ninety-eight percent (98%) of the face amount thereof;
provided, that if the Agent, in its sole discretion, at any time
believes that the collateral value of any Mortgage Loan or
Mortgage-Backed Security included in the Facility 1 Tranche A Borrowing
Base is greater than the Fair Market Value thereof, then the collateral
value of any such Mortgage Loan or Mortgage-Backed Security shall,
until further notice from the Agent, be equal to (I) in the case of
each Eligible Gestation Mortgage Loan, ninety-eight percent (98%) of
the lesser of (i) the Fair Market Value of such Eligible Gestation
Mortgage Loan and (ii) the current unpaid principal balance of such
Eligible Gestation Mortgage Loan, and (II) in the case of each Eligible
Mortgage-Backed Security, ninety-eight percent (98%) of the lesser of
(i) the Fair Market Value of such Eligible Mortgage-Backed Security and
(ii) the face amount of such Eligible Mortgage-Backed Security. The
Collateral Value of the Facility 1 Tranche A Borrowing Base shall be
determined by reference to the most recent Facility 1 Borrowing Base
Certificate delivered by the Borrowers to the Agent absent any error in
such Facility 1 Borrowing Base Certificate as of the date delivered. By
adding any Eligible Gestation Mortgage Loan or Eligible Mortgage-Backed
Security to the Facility 1 Tranche A Borrowing Base in accordance with
the Security Agreement, each Borrower shall be deemed to represent and
warrant to the Agent and each Lender at and as of the date of such
addition that, with respect to such Mortgage Loans or Mortgage-Backed
Securities, each of the statements set forth in the definition of
Eligible Gestation Mortgage Loan or Eligible Mortgage-Backed Security,
as the case may be, is true and correct. If any such statement proves
to be untrue or incorrect in any respect at any time, such then
Mortgage Loan or Mortgage-Backed Security, as the case may be, shall be
deemed to have no collateral value for purposes of computing the
Collateral Value of the Facility 1 Tranche A Borrowing Base.
"COLLATERAL VALUE OF THE FACILITY 1 TRANCHE B BORROWING BASE"
shall mean, at the time of determination thereof, the aggregate
collateral value of all Eligible Conforming Mortgage Loans and Eligible
Non-Conforming Mortgage Loans included in the Facility 1 Tranche B
Borrowing Base. For purposes hereof, the collateral value of (x) each
Eligible Conforming Mortgage Loan shall be an amount equal to
ninety-eight percent (98%) of the current unpaid principal balance
thereof, and (y) each Eligible Non-Conforming Mortgage Loan shall be in
an amount equal to ninety-five percent (95%) of the current unpaid
principal balance thereof; provided that if the Agent, in its sole
discretion, at any time believes that the collateral value of any
Mortgage Loan included in the Facility 1 Tranche B Borrowing Base is
greater than the Fair Market
<PAGE> 11
-6-
Value thereof, then the collateral value of any such Mortgage Loan
shall, until further notice from the Agent, be equal to (I) in the case
of each Eligible Conforming Mortgage Loan, ninety-eight percent (98%)
of the lesser of (i) the Fair Market Value of such Mortgage Loan and
(ii) the current unpaid principal balance of such Mortgage Loan and
(II) in the case of each Eligible Non-Conforming Mortgage Loan,
ninety-five percent (95%) of the lesser of (i) the Fair Market Value of
such Mortgage Loan and (ii) the current unpaid principal balance of
such Mortgage Loan. The Collateral Value of the Facility 1 Tranche B
Borrowing Base shall be determined by reference to the most recent
Facility 1 Borrowing Base Certificate delivered by the Borrowers to the
Agent absent any error in such Facility 1 Borrowing Base Certificate as
of the date delivered. By adding any Mortgage Loan to the Facility 1
Tranche B Borrowing Base in accordance with the Security Agreement,
each Borrower shall be deemed to represent and warrant to the Agent and
each Lender at and as of the date of such addition that with respect to
such Mortgage Loans, each of the statements set forth in the definition
of Eligible Conforming Mortgage Loan or Eligible Non-Conforming
Mortgage Loan, as the case may be, is true and correct. If any such
statement proves to be untrue or incorrect in any respect at any time,
then such Mortgage Loan shall be deemed to have no collateral value for
purposes of computing the Collateral Value of the Facility 1 Tranche B
Borrowing Base.
"COLLATERAL VALUE OF THE FACILITY 2 TRANCHE A BORROWING BASE"
shall mean, at the time of determination thereof, an amount equal to
eighty percent (80%) of the aggregate amount of Eligible Servicing
Receivables that are included in the Facility 2 Tranche A Borrowing
Base at such time. The Collateral Value of the Facility 2 Tranche A
Borrowing Base shall be determined by reference to the most recent
Facility 2 Tranche A Borrowing Base Certificate delivered by the
Borrowers to the Agent absent any error in such Facility 2 Tranche A
Borrowing Base Certificate as of the date delivered. Notwithstanding
the foregoing, no Eligible Servicing Receivable shall be deemed to have
any collateral value for purposes of computing the Collateral Value of
the Facility 2 Tranche A Borrowing Base (x) on the date of repayment of
any advanced amount which is an Eligible Servicing Receivable by any
Obligor or any other Person (including any Agency) and (y) to the
extent such reimbursement right which is an Eligible Servicing
Receivable is being contested or disputed by any applicable Agency or
by any Person who could be liable for such reimbursement or by any
other Person with standing to do so. By adding any Eligible Servicing
Receivable to the Facility 2 Tranche A Borrowing Base in accordance
with the Servicing Security Agreement, each Borrower shall be deemed to
represent and warrant to the Agent and each Lender at and as of the
date of such addition that with respect to such Eligible Servicing
Receivable, each of the statements set forth in the definition of
Eligible Servicing Receivable, is true and correct. If any such
statement proves to be untrue or incorrect in any respect at any time,
then such Eligible Servicing Receivable shall be deemed to have no
collateral value for purposes of computing the Collateral Value of the
Facility 2 Tranche A Borrowing Base.
"COLLATERAL VALUE OF THE FACILITY 2 TRANCHE B BORROWING BASE"
shall mean, at any time, an amount equal to fifty percent (50%) of the
REO Valuation of the REO Property included in the Facility 2 Tranche B
Borrowing Base at such time. The Collateral Value of the Facility 2
Tranche B Borrowing Base shall be determined by
<PAGE> 12
-7-
reference to the most recent Facility 2 Tranche B Borrowing Base
Certificate delivered by the Borrowers to the Agent absent any error in
such Facility 2 Tranche B Borrowing Base Certificate as of the date
delivered.
"COLLATERAL VALUE OF THE PLEDGED SERVICING PORTFOLIO" shall
have the meaning given such term in the Servicing Credit Agreement.
"COMMITMENTS" shall mean the Facility 1 Commitments and the
Facility 2 Commitments.
"CONFORMING LOAN" shall mean a Mortgage Loan underwritten in
conformity with the underwriting standards of FNMA or FHLMC in effect
at the time of such underwriting and that is otherwise eligible for
inclusion in a pool of Mortgage Loans supporting FNMA or FHLMC
Mortgage-Backed Securities or for sale at the FNMA or FHLMC cash
window.
"CONTRACTUAL OBLIGATION" shall mean, as to 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.
"CONVENTIONAL MORTGAGE LOAN" shall mean a Mortgage Loan that
is not insured by the FHA or guaranteed by the VA.
"CONVERSION/CONTINUATION DATE" shall mean (a) any date on
which the Lenders, pursuant to Sections 2.2 and 2.3, convert Facility 1
Loans (other than Facility 1 Tranche A Loans) to Facility 1 Loans
bearing interest at a different interest rate, or continue outstanding
Eurodollar Loans for an additional Eurodollar Interest Period (which
date shall be a Eurodollar Business Day in the case of a conversion of
Fed Funds Loans into Eurodollar Loans or the continuation of a
Eurodollar Loan) and (b) the last day of each Eurodollar Interest
Period in the case of a Eurodollar Loan.
"DEFAULTING LENDER" shall have the meaning given such term in
Section 2.4(b).
"DFC" shall have the meaning given such term in the
introductory paragraph of this Agreement.
"DMC" shall have the meaning given such term in the
introductory paragraph of this Agreement.
"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 VA (or there exists a binding commitment to
issue such insurance or guaranty subject to
<PAGE> 13
-8-
the satisfaction of customary conditions) or is a Conforming
Loan; and
(c) 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 requirement set forth in paragraph (c) of such
definition); and
(b) the Certificating Custodian has initially certified
that all documentation relating to such Mortgage Loan received
by the Certificating Custodian from the applicable Borrower
(or the 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 a
Mortgage-Backed Security will represent an interest; provided
that if such Mortgage Loan is returned to the Collateral Agent
after the date of such initial certification but before the
issuance of such Mortgage-Backed Security because of a
determination that such Mortgage Loan may not be included in
such pool, such Mortgage Loan shall be deemed an Eligible
Conforming Mortgage Loan if such Mortgage Loan meets all of
the requirements set forth in the definition of Eligible
Conforming Mortgage Loan.
"ELIGIBLE MORTGAGE-BACKED SECURITY" shall mean a
Mortgage-Backed Security owned by the Borrowers with respect to which
each of the following statements is true and correct:
(a) such Mortgage-Backed Security 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 Mortgage-Backed Security 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 Mortgage-Backed Security has either been
deposited with and is held by the Collateral Agent or an
agent, bailee and custodian of the Collateral Agent under the
Security Agreement (or by a Person who has executed a
custodial agreement acceptable to the Required Facility 1
Lenders), properly endorsed in blank for transfer or, if such
Mortgage-Backed Security is a Book-Entry MBS, such
Mortgage-Backed Security is the subject of a Perfected
Assignment;
(d) at all times such Mortgage-Backed Security will be
free and clear of all liens, encumbrances, charges, rights and
interests of any kind, except in favor of the Secured Parties
under the Security Agreement; and
<PAGE> 14
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(e) such Mortgage-Backed Security represents an interest
in Eligible Conforming Mortgage Loans.
"ELIGIBLE MORTGAGE LOAN" shall mean a Mortgage Loan owned by
the Borrowers for which each of the following statements is true and
correct:
(a) such Mortgage Loan 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) except in the case of Eligible Non-Conforming
Mortgage Loans, 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 the applicable 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 the Borrowers), 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 as required by
and 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 either 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, except in favor of the Secured Parties
under the Security Agreement;
<PAGE> 15
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(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 applicable Borrower
named as a loss payee thereon;
(k) the Property encumbered by such Mortgage Loan is free
and clear of all Liens except Liens in favor of the applicable
Borrower, which has assigned any and all such Liens to the
Secured Parties under the Security Agreement, subject only to
(i) Liens junior in priority to the Lien of such Borrower;
(ii) the Lien of real property taxes and assessments not yet
due and payable; (iii) 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 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; and (iv) 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;
(l) if the promissory note for such Mortgage Loan (or any
other documentation relating thereto) has been withdrawn from
the possession of the Collateral Agent on terms and subject to
conditions set forth in Section 6 of the Security Agreement,
the promissory note and any related documentation for such
Mortgage Loan has been shipped by the Collateral Agent
directly to an Approved Investor for purchase, as permitted
under Section 6(b) of the Security Agreement, and such
shipment has occurred within the immediately preceding
twenty-four (24) hours (or within the immediately preceding
five (5) days in the case of Mortgage Loan sales to the FNMA
or FHLMC cash window);
(m) with respect to Conventional Mortgage Loans, in the
event the Loan-to-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
applicable Borrower by an insurer approved by FNMA, FHLMC,
GNMA or by nationally recognized rating agencies or pool
insurers for inclusion in privately-issued mortgage-backed
securities;
(n) if such Mortgage Loan is included in the Facility 1
Tranche B Borrowing Base, such Mortgage Loan has not been
included in such borrowing base for a period in excess of
three hundred sixty-five (365) days from the date such
Mortgage Loan was first included in such borrowing base; and
if such Mortgage Loan is included in the Facility 1 Tranche A
Borrowing Base, such Mortgage Loan has not been included in
the Facility 1 Tranche A Borrowing
<PAGE> 16
-11-
Base (as an unpooled Mortgage Loan) for a period in excess of
thirty (30) days from the date such Mortgage Loan was first
included in the Facility 1 Tranche A Borrowing Base and has
not been included in the Facility 1 Tranche A Borrowing Base
and the Facility 1 Tranche B Borrowing Base (as an unpooled
Mortgage Loan) for a cumulative period in excess of three
hundred sixty-five (365) days from the date such Mortgage Loan
was first included in the Facility 1 Tranche B Borrowing Base;
provided that if such Mortgage Loan has been included in the
Facility 1 Tranche B Borrowing Base for a period in excess of
one hundred eighty (180) days from the date such Mortgage Loan
was first included in such borrowing base, or if such Mortgage
Loan has been included in the Facility 1 Tranche A Borrowing
Base (as an unpooled Mortgage Loan) and has been included in
the Facility 1 Tranche A Borrowing Base and the Facility 1
Tranche B Borrowing Base (as an unpooled Mortgage Loan) for a
cumulative period in excess of one hundred eighty (180) days
from the date such Mortgage Loan was first included in the
Facility 1 Tranche B Borrowing Base, then if the original
principal amount of such Mortgage Loan, when added to the
original principal amount of any other such Mortgage Loans
included in the Facility 1 Borrowing Base for a period in
excess of one hundred eighty (180) days, exceeds $50,000,000,
then such Mortgage Loan shall be deemed to have no collateral
value for purposes of computing the Collateral Value of the
Facility 1 Borrowing Base;
(o) (i) if such Mortgage Loan is to be included in the
Facility 1 Tranche B Borrowing Base, the Borrowers have
delivered (or caused to be delivered) those items described on
Attachment 2 to the Security Agreement for such Mortgage Loan
to the Collateral Agent prior to the inclusion of such
Mortgage Loan in the Facility 1 Tranche B Borrowing Base; (ii)
if such Mortgage Loan is to be included in the Facility 1
Tranche A Borrowing Base, the Borrowers have delivered (or
caused to be delivered), prior to the inclusion of such
Mortgage Loan in the Facility 1 Tranche A Borrowing Base (A)
to the Certificating Custodian, documentation for such
Mortgage Loan that the Certificating Custodian is required
under the applicable Agency Guide to examine, for completeness
and acceptability, for purposes of initially determining the
suitability of such Mortgage Loan for inclusion in a mortgage
loan pool supporting a Mortgage-Backed Security and (B) to the
Collateral Agent, a FHLMC Custodial Certification Schedule
(Form 1034) (or any comparable or successor form), 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 a
Mortgage-Backed Security, in each case completed and duly
executed by the Certificating Custodian on or prior to the
date such Mortgage Loan is to be included in the Facility 1
Tranche A Borrowing Base; (iii) the Borrowers hold in trust
for the Secured Parties those items described in Attachment 6
to the Security Agreement; and (iv) there has been delivered
to the Collateral Agent, if the Agent or the Collateral Agent
has so requested in writing, the additional items described on
Attachment 6 to the Security Agreement;
(p) such Mortgage Loan is not subject to any servicing
arrangement with any Person other than the Borrowers nor are
any servicing rights relating to such
<PAGE> 17
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Mortgage Loan subject to any lien, claim, interest or negative
pledge in favor of any Person other than as permitted
hereunder;
(q) such Mortgage Loan is not a "B or C mortgage loan"
(as such term is customarily used in the mortgage banking
industry); and
(r) if such Mortgage Loan is rated as an "A-" Mortgage
Loan (as such term is customarily used in the mortgage banking
industry), such Mortgage Loan qualifies for insurance by a
nationally recognized mortgage insurance company and is
eligible for sale to an Approved Investor, provided that the
collateral value of such Mortgage Loan, when added to the
collateral value of all other Mortgage Loans then included as
Eligible Mortgage Loans under this clause (s), shall not
exceed fifteen percent (15%) of the aggregate Facility 1
Commitments.
"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 is an Eligible Mortgage Loan;
(b) such Mortgage Loan (i) would be a Conforming Mortgage
Loan but for the fact that (A) its original principal amount
is in excess of the maximum amount eligible for purchase by
FNMA or (B) it is a second-priority Mortgage Loan, or (ii) has
been underwritten to guidelines approved by nationally
recognized rating agencies or pool insurers whose long term
debt is rated AAA by Standard & Poor's Corporation and AA by
Moody's Investors Service for inclusion in privately-issued
mortgage-backed securities;
(c) the original principal amount of such Mortgage Loan
is $600,000 or less; and
(d) if such Mortgage Loan is a second-priority Mortgage
Loan, then if the original principal amount of such
second-priority Mortgage Loan, when added to the original
principal amount of any other second Eligible Non-Conforming
Mortgage Loans which are second-priority mortgage loans
included in the Facility 1 Borrowing Base, exceeds $3,000,000,
then such Mortgage Loan shall be deemed to have no collateral
value for purposes of computing the Collateral Value of the
Facility 1 Borrowing Base.
"ELIGIBLE REO PROPERTY" shall mean REO Property meeting the
criteria set forth on Exhibit J hereto.
"ELIGIBLE SERVICING RECEIVABLE" shall mean either Borrower's
right to be reimbursed for the amount that such Borrower has advanced
to investors as servicer of, or FHA insurance claims that arise from
the servicing of, (i) any FHA-insured, VA-guaranteed or Conforming
Mortgage Loan included in the Pledged Servicing Portfolio, or (ii) any
other Mortgage Loan included in the Pledged Servicing Portfolio and
backing privately issued mortgage-backed securities, insured by
nationally recognized pool
<PAGE> 18
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insurers acceptable to the Agent, in each case in respect of principal,
interest, tax or insurance payments or any other payments in connection
with the servicing of such Mortgage Loan, which advanced amount or FHA
insurance claim, as the case may be, is fully or substantially
reimbursable by the Obligor under such Mortgage Loan or any other
Person (including any Agency), and the right of such Borrower to such
reimbursement is either subject to the Lien of the Servicing Security
Agreement or is subject to Section 5.2(o), and in either case such
receivable is also reflected on the books and records of such Borrower
as a current receivable.
"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 from time to time in
effect.
"ERISA AFFILIATE" shall mean each trade or business, including
the Borrowers, whether or not incorporated, that together with the
Borrowers would be treated as a single employer under section 4001 of
ERISA.
"EURODOLLAR BUSINESS DAY" shall mean any Business Day on which
commercial banks are open for international business (including
dealings in dollar deposits) in London, England.
"EURODOLLAR INTEREST PERIOD" shall mean, with respect to any
Eurodollar Loan, the period commencing on the Borrowing Date or a
Conversion/Continuation Date for such Eurodollar Loan, as the case may
be, and ending (i) in the case of Facility 1 Tranche A Loans, one month
thereafter, and (ii) in the case of Facility 1 Tranche B Loans, one,
two or three months thereafter as the Borrowers may elect in the
applicable Notice of Borrowing or Notice of Conversion/Continuation;
provided that (a) any Eurodollar Interest Period that would otherwise
end on a day that is not a Eurodollar Business Day shall be extended to
the next succeeding Eurodollar Business Day, unless such Eurodollar
Business Day falls in another calendar month, in which case such
Eurodollar Interest Period shall end on the next preceding Eurodollar
Business Day; (b) any Eurodollar Interest Period that begins on the
last Eurodollar Business Day of a calendar month or any Eurodollar
Interest Period that begins on a day for which there is no numerically
corresponding day in the calendar month at the end of such Eurodollar
Interest Period shall end on the last Eurodollar Business Day of such
calendar month at the end of such Eurodollar Interest Period; and (c)
no Eurodollar Interest Period shall end after the Maturity Date.
"EURODOLLAR LOAN" shall mean any Facility 1 Loan bearing
interest at the rate set forth in Section 2.6(b).
"EURODOLLAR RATE" shall mean, with respect to any Eurodollar
Interest Period, a rate per annum equal to the quotient obtained by
dividing (a) the Base Eurodollar Rate applicable to such Eurodollar
Interest Period by (b) one minus the Reserve Requirement (expressed as
a decimal) applicable to such Eurodollar Interest Period. The
Eurodollar
<PAGE> 19
-14-
Rate shall be rounded, if necessary, to the next higher one-sixteenth
of one percent (1/16 of 1%).
"EVENT OF DEFAULT" shall have the meaning given such term in
Article VI.
"FACILITY 1 BORROWING" shall mean a borrowing pursuant to a
Notice of Borrowing consisting of Facility 1 Tranche A Loans and/or
Facility 1 Tranche B Loans made concurrently by all of the Facility 1
Lenders.
"FACILITY 1 BORROWING BASE" shall mean, at any time, all
Eligible Conforming Mortgage Loans, Eligible Non-Conforming Mortgage
Loans and Eligible Mortgage-Backed Securities delivered to and held by
the Collateral Agent under the Security Agreement as collateral
security for the Obligations.
"FACILITY 1 BORROWING BASE CERTIFICATE" shall mean a
certificate in the form of and containing the information required by
Exhibit E-1, delivered to the Agent pursuant to the Loan Documents.
"FACILITY 1 COMMITMENT" shall mean, with respect to each
Lender, the commitment, if any, of such Lender to make Facility 1 Loans
hereunder as set forth in Section 2.1, as such commitment may be
modified pursuant to Section 8.6(c).
"FACILITY 1 LENDER" shall mean any Lender with a Facility 1
Commitment or an outstanding Facility 1 Loan or Swing-Line Loan.
"FACILITY 1 LOANS" shall mean the Facility 1 Tranche A Loans
and the Facility 1 Tranche B Loans.
"FACILITY 1 NOTE" shall have the meaning given such term in
Section 2.5.
"FACILITY 1 SETTLEMENT ACCOUNT" shall have the meaning given
such term in Section 6(b) of the Security Agreement.
"FACILITY 1 TRANCHE A BORROWING" shall mean a borrowing
pursuant to a Notice of Borrowing consisting of Facility 1 Tranche A
Loans made concurrently by all of the Facility 1 Lenders.
"FACILITY 1 TRANCHE A BORROWING BASE" shall mean, at any time,
all Eligible Gestation Mortgage Loans and Eligible Mortgage-Backed
Securities delivered to and held by the Collateral Agent under the
Security Agreement as collateral security for the Obligations.
"FACILITY 1 TRANCHE A LOAN" shall mean a loan made by a
Facility 1 Lender pursuant to Section 2.1(a)(i) for the purpose set
forth in Section 4.9.
<PAGE> 20
-15-
"FACILITY 1 TRANCHE B BORROWING" shall mean a borrowing
pursuant to a Notice of Borrowing consisting of Facility 1 Tranche B
Loans made concurrently by all of the Facility 1 Lenders.
"FACILITY 1 TRANCHE B BORROWING BASE" shall mean, at any time,
all Eligible Conforming Mortgage Loans and Eligible Non-Conforming
Loans delivered to and held by the Collateral Agent under the Security
Agreement as collateral security for the Obligations.
"FACILITY 1 TRANCHE B LOAN" shall mean a loan made by a
Facility 1 Lender pursuant to Section 2.1(a)(ii) for the purpose set
forth in Section 4.9.
"FACILITY 2 BORROWING" shall mean a Facility 2 Tranche A
Borrowing, a Facility 2 Tranche B Borrowing or a Facility 2 Tranche C
Borrowing.
"FACILITY 2 COMMITMENT" shall mean, with respect to each
Lender, the commitment, if any, of such Lender to make Facility 2 Loans
hereunder as set forth in Section 2.1, as such commitment may be
modified from time to time pursuant to Section 8.6(c).
"FACILITY 2 LENDER" shall mean any Lender with a Facility 2
Commitment or an outstanding Facility 2 Loan.
"FACILITY 2 LOANS" shall mean Facility 2 Tranche A Loans,
Facility 2 Tranche B Loans and Facility 2 Tranche C Loans, as the
context requires.
"FACILITY 2 NOTE" shall have the meaning given such term in
Section 2.5.
"FACILITY 2 TRANCHE A BORROWING" shall mean a borrowing
pursuant to a Notice of Borrowing consisting of Facility 2 Tranche A
Loans made concurrently by all of the Facility 2 Lenders.
"FACILITY 2 TRANCHE A BORROWING BASE" shall mean, at any time,
all Eligible Servicing Receivables, the proceeds of the repayment of
which have been pledged to the Servicing Collateral Agent under the
Servicing Security Agreement as collateral security for the
Obligations.
"FACILITY 2 TRANCHE A BORROWING BASE CERTIFICATE" shall mean a
certificate in the form of Exhibit E-2 delivered to the Agent pursuant
to the Loan Documents.
"FACILITY 2 TRANCHE A LOAN" shall mean a loan made by a
Facility 2 Lender pursuant to Section 2.1(b) for the purpose set forth
in Section 4.9.
"FACILITY 2 TRANCHE A MAXIMUM AMOUNT" shall have the meaning
given such term in Section 2.1(b).
<PAGE> 21
-16-
"FACILITY 2 TRANCHE B BORROWING" shall mean a borrowing
pursuant to a Notice of Borrowing consisting of Facility 2 Tranche B
Loans made concurrently by all of the Facility 2 Lenders.
"FACILITY 2 TRANCHE B BORROWING BASE" shall mean, at any time,
all Eligible REO Property mortgaged to the Secured Parties, as
collateral security for the Obligations.
"FACILITY 2 TRANCHE B BORROWING BASE CERTIFICATE" shall mean a
certificate in the form of Exhibit E-3 delivered to the Agent pursuant
to the Loan Documents.
"FACILITY 2 TRANCHE B LOAN" shall mean a loan made by a
Facility 2 Lender pursuant to Section 2.1(c) for the purpose set forth
in Section 4.9.
"FACILITY 2 TRANCHE B MAXIMUM AMOUNT" shall have the meaning
given such term in Section 2.1(c).
"FACILITY 2 TRANCHE C BORROWING" shall mean a borrowing
pursuant to a Notice of Borrowing consisting of Facility 2 Tranche C
Loans made concurrently by all of the Facility 2 Lenders.
"FACILITY 2 TRANCHE C LOAN" shall mean a loan made by a
Facility 2 Lender pursuant to Section 2.1(d) for the purpose set forth
in Section 4.9.
"FACILITY 2 TRANCHE C MAXIMUM AMOUNT" shall have the meaning
given such term in Section 2.1(d).
"FAIR MARKET VALUE" shall mean at any date with respect to any
Mortgage Loan or Mortgage-Backed Security, (i) the bid price (expressed
as a percentage) quoted to the Agent as of the computation date by any
nationally recognized dealer (or Puerto Rican subsidiary of such
dealer) or investor selected by the Agent or its designee who at the
time regularly purchases similar Mortgage Loans or Mortgage-Backed
Securities, as applicable, multiplied by (ii) the outstanding principal
balance thereof in the case of Mortgage Loans, or the face amount
thereof in the case of Mortgage-Backed Securities.
"FED FUNDS LOAN" shall mean any Facility 1 Tranche B Loan or
Facility 2 Loan bearing interest at the rate set forth in Section
2.6(c).
"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 Agent from three (3) Federal funds brokers
of recognized standing selected by it.
<PAGE> 22
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"FEES" shall mean all fees payable by the Borrowers to the
Agent and/or the Lenders pursuant to Section 2.10 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.
"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/FHLMC SERVICING PORTFOLIO" shall mean the portfolio of
outstanding Mortgage Loans (excluding Mortgage Loans owned by either
Borrower or its Affiliates that are not serviced pursuant to a
Permitted Affiliate Servicing Agreement) that are owned by FNMA or
FHLMC or included in pools of Mortgage Loans with respect to which FNMA
or FHLMC has issued a Mortgage-Backed Security and with respect to
which either Borrower holds direct servicing rights, and that are
covered by an effective Acknowledgment Agreement.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"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 SERVICING PORTFOLIO" shall mean the portfolio of
outstanding Mortgage Loans (excluding Mortgage Loans owned by either
Borrower or its Affiliates that are not serviced pursuant to a
Permitted Affiliate Servicing Agreement) that are guaranteed by GNMA or
included in pools of Mortgage Loans with respect to which GNMA has
issued a Mortgage-Backed Security and with respect to which either
Borrower holds direct servicing rights, and that are covered by an
effective Acknowledgment Agreement if requested by the Agent and the
Lenders.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government,
any state, commonwealth or other political subdivision thereof, and any
entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
<PAGE> 23
-18-
"HEDGING INVENTORY REPORT" shall mean a monthly report,
prepared by the Borrowers, in form and substance satisfactory to the
Agent, setting forth the existing Take-Out Commitments and all options
or cash market instruments, pursuant to which the Borrowers have hedged
against interest rate fluctuations to protect the value of Mortgage
Loans and/or Mortgage-Backed Securities owned by the Borrowers, and
whether there has been any change in the Hedging Policy since the
Amendment Effective Date.
"HEDGING POLICY" shall mean the hedging policy of the
Borrowers as approved by the Board of Directors of each Borrower and as
in effect as of the Amendment Effective Date, a copy of which has been
delivered to each of the Lenders.
"HUD" shall mean the Department of Housing and Urban
Development and any successor thereto.
"INDEBTEDNESS" shall mean, with respect to any Person, all
items of indebtedness that, in accordance with GAAP, would be included
in determining liabilities as shown on the liability side of a
statement of financial condition 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, and shall also include 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 (but excluding any
obligations (whether recourse or nonrecourse) to advance principal and
interest payments and taxes and insurance payments on Mortgage Loans in
advance of receipt of such payments from the underlying obligor under
servicing agreements entered into by either Borrower which agreements
exist on the date hereof and any similar agreements entered into after
the date hereof).
"INFORMATION SYSTEMS AND EQUIPMENT" shall mean all computer
hardware, firmware and software, as well as other information
processing systems, or any equipment containing embedded microchips,
whether directly owned, licensed, leased, operated or otherwise
controlled by either Borrower or any of their respective Subsidiaries,
including through third-party service providers, and which, in whole or
in part, are used, operated, relied upon, or integral to either
Borrower's or any of their Subsidiaries' conduct of their business.
"INTERCREDITOR AGREEMENT" shall mean the Intercreditor
Agreement dated as of June 25, 1999, between the Agent, the Lenders,
and each of the Servicing Lenders, as amended, supplemented or
otherwise modified from time to time.
<PAGE> 24
-19-
"LENDERS" shall mean the banks and other financial
institutions party hereto from time to time.
"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 Collateral
Agreements, the Notes, the Acknowledgment Agreements and any other
document, instrument or agreement executed by the Borrowers in
connection herewith or therewith, as any of the same may be amended,
modified or supplemented from time to time.
"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 appraised value
of the Property encumbered thereby (as set forth in the appraisal
delivered in connection with the origination of such Mortgage Loan).
"LOANS" shall mean the Facility 1 Loans, the Facility 2 Loans
and the Swing-Line Loans.
"MARGIN STOCK" shall have the meaning given such term in
Regulation U of the Board.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect
with respect to (a) the business, operations or financial condition of
a Borrower, (b) the ability of any Borrower to pay and perform its
Obligations, (c) the validity or enforceability of this Agreement, any
of the other Loan Documents, or the rights and remedies of the Secured
Parties hereunder or thereunder or (d) the value of the Collateral or
the Servicing Collateral.
"MATERIAL AMOUNT" shall mean, at any time, ten percent (10%)
of Book Net Worth, as set forth in the most recent annual or quarterly
statement of financial condition of DFC delivered to the Lenders,
absent manifest error in such statement.
"MATURITY DATE" shall mean June 23, 2000; provided that upon
the written request of the Borrowers to the Agent, the Lenders may
elect to extend the Maturity Date on terms as they may deem appropriate
in their sole discretion.
"MORTGAGE-BACKED SECURITY" shall mean any security (including
a participation certificate) issued by FHLMC, FNMA or any other Person,
or guaranteed by GNMA, that represents an interest in a pool of
Mortgage Loans.
"MORTGAGE LOAN" shall mean a one-to-four family, residential
real estate secured loan other than any loan secured by mobile homes or
other temporary housing facilities.
<PAGE> 25
-20-
"MULTIEMPLOYER PLAN" shall mean a plan described in section
4001(a)(3) of ERISA to which the Borrowers or any ERISA Affiliate is
required to contribute on behalf of any of its employees.
"NOTES" shall mean the Facility 1 Notes and the Facility 2
Notes.
"NOTICE OF BORROWING" shall have the meaning given such term
in Section 2.2.
"NOTICE OF CONVERSION/CONTINUATION" shall have the meaning
given such term in Section 2.2.
"OBLIGATIONS" shall mean, collectively, the unpaid principal
of and interest on the Loans and any Notes and all other obligations
and liabilities of each of the Borrowers to the Agent, the Lenders, the
Collateral Agent and any other Secured Parties (including, without
limitation, interest accruing at the then applicable rate provided in
this Agreement after the maturity of the Loans and interest accruing at
the then applicable rate provided in this Agreement after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to either Borrower, whether
or not a claim for post-filing or post-petition interest is allowed in
such proceeding), whether direct or indirect, absolute or contingent,
due or to become due, voluntary or involuntary, whether or not jointly
owed with others, liquidated or unliquidated, or now existing or
hereafter incurred, and whether or not from time to time decreased or
extinguished and later increased, created or incurred, which may arise
under, out of, or in connection with, this Agreement, the Loans, any
Notes, the Security Agreement, the Servicing Security Agreement, the
other Loan Documents or any other document made, delivered or given in
connection therewith, in each case whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses
or otherwise (including, without limitation, all reasonable fees and
disbursements of counsel to any of the Agent, the Collateral Agent or
any of the other Secured Parties that are required to be paid by the
Borrowers pursuant to the terms of this Agreement, the Security
Agreement, the Servicing Security Agreement or any other Loan
Document).
"OBLIGOR" shall mean the Person or Persons obligated to pay
the indebtedness that is the subject of a Mortgage Loan or
Mortgage-Backed Security, including any guarantor of such indebtedness.
"ORIGINAL CREDIT AGREEMENT" shall have the meaning given such
term in the introductory paragraph of this Agreement.
"PAYMENT OFFICE" shall mean the Agent's office located at One
Bankers Trust Plaza, New York, New York 10015, or such other office as
the Agent shall specify by notice to the Borrowers 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.
<PAGE> 26
-21-
"PERFECTED ASSIGNMENT" shall mean as to any Book-Entry MBS,
that such Book-Entry MBS has been transferred to the Collateral Agent
or any entity designated by the Collateral Agent so that the Collateral
Agent or such entity may maintain such Book-Entry MBS as depository in
one of its book-entry accounts with a Federal Reserve Bank or with the
Mortgage-Backed Securities Division of the Depository Trust Company or
its nominee, MBSCC & Co., and a pledge to the Secured Parties has been
registered with the Collateral Agent or such entity, or the Borrowers
has taken such other action as the Collateral Agent may reasonably
request to perfect, protect and maintain the valid, first priority
security interest of the Secured Parties in such Book-Entry MBS.
"PERMITTED AFFILIATE SERVICING AGREEMENT" shall mean an
agreement between either Borrower and an Affiliate thereof pursuant to
which such Borrower has direct servicing rights to service Mortgage
Loans owned by such Affiliate on terms and at rates no less favorable
than would be obtained from a non-Affiliate of such Borrower, including
the Master Servicing and Collection Agreement between DFC and Doral
Bank, dated as of October 1, 1995, as amended by the First Amendment to
Master Servicing and Collection Agreement, dated as of March 1, 1996.
"PERMITTED SUBORDINATED INDEBTEDNESS" shall mean any
Indebtedness (other than the Obligations) incurred by each Borrower
that is subordinated to the Obligations in accordance with the criteria
set forth on Exhibit M attached hereto.
"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 Borrowers
or any ERISA Affiliate (and any such plan no longer maintained by the
Borrowers or any of its ERISA Affiliates to which the Borrowers or any
of its ERISA Affiliates has made or was required to make any
contributions during the five years preceding the date on which such
plan ceased to be maintained).
"PLEDGED SERVICING PORTFOLIO" shall mean the FNMA/FLHMC
Servicing Portfolio and the GNMA Servicing Portfolio, in each case with
respect to which the Lenders have a valid and perfected second priority
security interest in the related direct servicing rights owned by
either Borrower.
"PLEDGED SERVICING PORTFOLIO REPORT" shall mean a report
prepared by the Borrowers in the format prescribed by the Mortgage
Bankers' Association of America listing the FNMA/GNMA/FHLMC statistics
and the other information shown on Exhibit O-1.
"PLEDGED SERVICING VALUATION REPORT" shall mean a report
prepared by a nationally recognized mortgage servicing broker
acceptable to the Agent and the Borrowers, and otherwise in form and
substance reasonably satisfactory to the Agent,
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setting forth the fair market value of the servicing rights relating to
the Mortgage Loans included in the Pledged Servicing Portfolio as of
such date (with the FNMA/FHLMC Servicing Portfolio and the GNMA
Servicing Portfolio each listed and valued separately (and, with
respect to the FNMA/FHLMC Servicing Portfolio, with the portfolio
serviced for FNMA listed separately from the portfolio serviced for
FHLMC)), with such value determined on the basis of the net present
value of the expected stream of annual cash flow generated thereby
using assumptions reasonably acceptable to the Agent.
"POWER OF ATTORNEY" shall mean a power of attorney granted by
the Borrowers, substantially in the form of Exhibit G to the Servicing
Credit Agreement.
"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.
"PRIME RATE" shall mean the rate of interest that is publicly
announced from time to time by Bankers Trust Company 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 Borrowers 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 Bankers Trust Company to any customer. Bankers Trust Company may
make commercial loans or other loans at rates of interest at, above or
below the Prime Rate.
"PROCESS AGENT" shall have the meaning given such term in
Section 8.7.
"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.
"PROPERTY" shall mean the real property, including the
improvements thereon, and the personal property (tangible and
intangible) which are encumbered pursuant to a Mortgage Loan.
"REAL ESTATE CLOSING" shall mean a real estate closing with
respect to a Borrowing of a Facility 2 Tranche B Loan.
"RECOURSE SERVICING PORTFOLIO REPORT" shall mean a report
prepared by the Borrowers in substantially the form set forth in
Exhibit O-2, including the following information: the recourse Mortgage
Loan or Mortgage-Backed Security investor; the type of recourse (i.e.
limited or full); delinquency and foreclosure rates on the Borrowers'
recourse servicing portfolio; the amount of risk weighted capital
required to support DFC's consolidated recourse exposure; and
consolidated total capital to risk weighted assets in both amount and
ratio terms.
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"RECOURSE SERVICING PORTFOLIO STATISTICS REPORT" shall mean a
report prepared by the Borrowers in substantially the form set forth in
Exhibit O-3.
"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.
"REO DEMAND NOTE" shall mean a demand note, substantially in
the form of Exhibit N-1 hereto, as amended, modified or supplemented
from time to time.
"REO MORTGAGE" shall mean the deed of mortgage, substantially
in the form of Exhibit N-3 hereto, as amended, modified or supplemented
from time to time.
"REO PLEDGE" shall mean the pledge agreement, substantially in
the form of Exhibit N-2 hereto, as amended, modified or supplemented
from time to time.
"REO PROPERTY" shall mean real property owned by either
Borrower as a result of foreclosure of a mortgage loan held by such
Borrower.
"REO VALUATION" shall mean a valuation of the fair market
value of the REO Property, as determined by (i) an appraisal of such
REO Property conducted by an appraiser, which appraisal and appraiser
meet the criteria specified by FNMA, FHLMC and HUD in connection with
the origination of Mortgage Loans and which appraisal was conducted and
had an effective date within the ninety (90) days preceding the date of
the Real Estate Closing covering such REO Property, or (ii) an
inspection report if no appraisal conducted within such preceding
ninety (90) days described in clause (i) exists, which inspection
report (A) was prepared by an appraiser described in clause (i) above
after an inspection of such REO Property, (B) is an update of a
previous appraisal described in clause (i) above, and (C) has an
effective date relating to an inspection conducted within such
preceding ninety (90) days.
"REPORTABLE EVENT" shall mean any of the events set forth in
section 4043(c) 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 FACILITY 1 LENDERS" shall mean, at any time, Lenders
holding at least sixty-six and two-thirds percent (66.66%) of the then
aggregate unpaid principal amount of the Facility 1 Loans (and, in the
case of Bankers Trust, Swing-Line Loans to the extent any Lender shall
have failed to comply with its obligation to refinance such Swing-Line
Loans as provided in Section 2.4), or if no Facility 1 Loans or
Swing-Line Loans are then outstanding, Lenders holding at least
sixty-six and two-thirds percent (66.66%) of the Facility 1
Commitments.
<PAGE> 29
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"REQUIRED FACILITY 2 LENDERS" shall mean, at any time, Lenders
holding at least sixty-six and two-thirds percent (66.66%) of the then
aggregate unpaid principal amount of the Facility 2 Loans, or if no
Facility 2 Loans are then outstanding, Lenders holding at least
sixty-six and two-thirds percent (66.66%) of the Facility 2
Commitments.
"REQUIRED LENDERS" shall mean, at any time, Lenders holding at
least sixty-six and two-thirds percent (66.66%) of the then aggregate
unpaid principal amount of all outstanding Facility 1 Loans (and, in
the case of Bankers Trust, Swing-Line Loans to the extent any Lender
shall have failed to comply with its obligations to refinance such
Swing-Line Loans as provided in Section 2.4) and Facility 2 Loans, or
if no Loans are then outstanding, Lenders holding at least sixty-six
and two-thirds percent (66.66%) of the Commitments.
"REQUIREMENTS OF LAW" shall mean as 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
Eurodollar Interest Period, the daily average during such Eurodollar
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 Eurodollar Interest Period) which is
imposed under Regulation D on any member bank of the Federal Reserve
System, in respect of eurocurrency or eurodollar funding, lending or
liabilities.
"SECURED PARTIES" shall have the meaning given such term in
the Security Agreement.
"SECURITY AGREEMENT" shall mean the Amended and Restated
Security, Custody and Collateral Agency Agreement (Warehouse
Collateral) substantially in the form of Exhibit B, as amended,
modified or supplemented from time to time.
"SERVICING AGENT" shall mean the "Agent" as such term is
defined in the Servicing Credit Agreement.
"SERVICING COLLATERAL" shall mean the "Collateral" as such
term is defined in the Servicing Security Agreement.
"SERVICING COLLATERAL AGENT" shall mean Bankers Trust Company,
in its capacity as Collateral Agent under the Servicing Security
Agreement.
"SERVICING COMMITMENTS" shall mean the "Commitments" as such
term is defined in the Servicing Credit Agreement.
<PAGE> 30
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"SERVICING CREDIT AGREEMENT" shall mean the Amended and
Restated Credit Agreement (Servicing Facility), dated as of June 25,
1999, between the Borrowers, Bankers Trust Company, as Agent
thereunder, and the lenders party thereto from time to time, as
amended, supplemented or otherwise modified from time to time.
"SERVICING EVENT OF DEFAULT" shall mean an "Event of Default"
as such term is defined in the Servicing Credit Agreement.
"SERVICING LENDERS" shall mean the "Lenders" as such term is
defined in the Servicing Credit Agreement.
"SERVICING LOANS" shall mean the "Loans" as such term is
defined in the Servicing Credit Agreement.
"SERVICING OBLIGATIONS" shall mean the "Obligations" as such
term is defined in the Servicing Credit Agreement.
"SERVICING PORTFOLIO" shall mean, at any time, the portfolio
of outstanding Mortgage Loans (excluding Mortgage Loans owned by either
Borrower or its Affiliates which are not serviced pursuant to a
Permitted Affiliate Servicing Agreement) with respect to which the
Borrowers have direct servicing rights.
"SERVICING SECURITY AGREEMENT" shall mean the Amended and
Restated Security Agreement (Servicing Collateral), dated as of June
25, 1999, between the Servicing Collateral Agent and the Borrowers, as
amended, supplemented or otherwise modified from time to time.
"SUBSIDIARY" shall mean with respect to any Person, any
corporation, association or other business entity of which more than
fifty percent (50%) of the securities or other ownership interests
having ordinary voting power is, or with respect to which rights to
control management (pursuant to any contract or other agreement or
otherwise) are, at the time as of which any determination is being
made, owned, controlled or held by such Person or one or more
subsidiaries of such Person.
"SWING-LINE BORROWING" shall mean a borrowing, pursuant to a
Notice of Borrowing, of a Swing-Line Loan made by Bankers Trust.
"SWING-LINE LOAN" shall mean a loan made by Bankers Trust
pursuant to Section 2.1(e) for the purpose set forth in Section 4.9.
"TAKE-OUT COMMITMENT" shall mean, with respect to any
specified aggregate amount of Mortgage Loans or Mortgage-Backed
Securities included in the Facility 1 Borrowing Base, a bona fide
current, unfilled and unexpired commitment of an Approved Investor,
issued in favor of and held by either Borrower, under which such
Approved Investor agrees to purchase such specified aggregate amount of
Mortgage Loans or Mortgage-Backed Securities at a specified price,
which commitment in the reasonably anticipated course of events, (a)
can be fully complied with prior to the expiration
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thereof, (b) is not subject to any term or condition that is not
customary in commitments of like nature and (c) is for a purchase to be
consummated in more than thirty (30) days from the date such commitment
was entered into.
"TAXES" shall have the meaning given such term in Section
2.15.
"TELERATE PAGE 3750" shall mean the display designated as
"Page 3750" on the Associated Press-Dow Jones Telerate Service (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 purposes
of displaying British Bankers' Association interest settlement rates
for U.S. Dollar deposits). Any Base Eurodollar 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.
"TOTAL LIABILITIES" shall mean (i) the aggregate amount of all
liabilities of each Borrower and each of its consolidated Subsidiaries
(other than Doral Bank, Doral Securities, Inc., Doral Bank FSB and
Doral Money, Inc.) determined in accordance with GAAP, consistently
applied, other than Permitted Subordinated Indebtedness, less (ii) the
aggregate amount of intercompany payables owing from one Borrower to
the other Borrower.
"TYPE" shall mean (a) when used in respect of any Mortgage
Loan, an Eligible Gestation Mortgage Loan, an Eligible Conforming
Mortgage Loan or an Eligible Non-Conforming Mortgage Loan; (b) when
used in respect of any Commitment, a Facility 1 Commitment or a
Facility 2 Commitment; and (c) when used in respect of any Loan, a
Facility 1 Tranche A Loan, a Facility 1 Tranche B Loan, a Facility 2
Tranche A Loan, a Facility 2 Tranche B Loan, a Facility 2 Tranche C
Loan or a Swing-Line Loan.
"VA" shall mean the Veterans Administration and any successor
thereto.
"WAREHOUSE COLLATERAL" shall mean the "Collateral" as defined
in Section 1 of the Security Agreement.
"YEAR 2000 COMPLIANT" shall mean that all Information Systems
and Equipment accurately process date data (including, but not limited
to, calculating, comparing and sequencing), before, during and after
the year 2000, as well as same and multi-century dates, or between the
years 1999 and 2000, taking into account all leap years, including the
fact that the year 2000 is a leap year, and further, that when used in
combination with, or interfacing with, other Information Systems and
Equipment, shall accurately accept, release and exchange date data, and
shall in all material respects continue to function in the same manner
as it performs today and shall not otherwise impair the accuracy or
functionality of Information Systems and Equipment.
<PAGE> 32
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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 and Attachments shall be deemed references to
Articles and Sections of, and Exhibits 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 covenant set
forth in Article V, such term shall be construed in accordance with GAAP as in
effect on the date of this Agreement applied on a basis consistent with the
financial statements referred to in Section 4.4(a).
ARTICLE 2
AMOUNTS AND TERMS OF LOANS
SECTION 2.1 COMMITMENTS.
(a) (i) Facility 1 Tranche A Loans. Subject to and upon the
terms and conditions herein set forth (including the limitations set
forth in Section 2.1(f)), each Facility 1 Lender agrees, severally and
not jointly, at any time and from time to time from the Amendment
Effective Date up to but excluding the date upon which the Facility 1
Commitments are terminated, to make Facility 1 Tranche A Loans to the
Borrowers in an aggregate principal amount at any time outstanding not
to exceed the Facility 1 Commitment set forth opposite such Facility 1
Lender's name on the signature pages hereto, as such commitment may be
modified from time to time pursuant to Section 8.6(c); provided that
the aggregate principal amount of Facility 1 Tranche A Loans
outstanding at any time shall not exceed the least of (i) $62,500,000,
(ii) the then current Collateral Value of the Facility 1 Tranche A
Borrowing Base, and (iii) the aggregate Facility 1 Commitments of the
Facility 1 Lenders then in effect less the aggregate amount of Facility
1 Tranche B Loans then outstanding. Subject to Section 2.12, each
Facility 1 Tranche A Loan shall be a Eurodollar Loan or a Fed Funds
Loan. Each Facility 1 Tranche A Borrowing shall be in an aggregate
principal amount of at least $1,000,000 (or in any lesser amount equal
to the unused Facility 1 Commitments) and shall be made ratably by the
Facility 1 Lenders in proportion to their respective Facility 1
Commitments. Within the foregoing limits and subject to the conditions
set forth in Article III, the Borrowers may borrow and reborrow
Facility 1 Tranche A Loans under Section 2.2 and prepay Facility 1
Tranche A Loans under Section 2.9.
(ii) Facility 1 Tranche B Loans. Subject to and upon the
terms and conditions herein set forth (including the limitations set
forth in Section 2.1(f)), each Facility 1 Lender agrees, severally and
not jointly, at any time and from time to time from the Amendment
Effective Date up to but excluding the date upon which the Facility 1
Commitments are terminated, to make Facility 1 Tranche B Loans to the
Borrowers in an aggregate principal amount at any time outstanding not
to exceed the Facility 1 Commitment set forth opposite such Facility 1
Lender's name on the signature pages
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hereto, as such commitment may be modified from time to time pursuant
to Section 8.6(c); provided that the aggregate principal amount of
Facility 1 Tranche B Loans outstanding at any time shall not exceed the
lesser of (i) the then current Collateral Value of the Facility 1
Tranche B Borrowing Base, and (ii) the aggregate Facility 1 Commitments
of the Facility 1 Lenders then in effect less the aggregate amount of
Facility 1 Tranche A Loans then outstanding. Subject to Section 2.12,
each Facility 1 Tranche B Loan shall be a Eurodollar Loan or a Fed
Funds Loan. Subject to Section 2.2(a)(ii), each Facility 1 Borrowing
shall be in an aggregate principal amount of at least $1,000,000 (or in
any lesser amount equal to the unused Facility 1 Commitments) and shall
be made ratably by the Facility 1 Lenders in proportion to their
respective Facility 1 Commitments. Within the foregoing limits and
subject to the conditions set forth in Article III, the Borrowers may
borrow and reborrow Facility 1 Tranche B Loans under Section 2.2 and
prepay Facility 1 Tranche B Loans under Section 2.9.
(b) Facility 2 Tranche A Loans. Subject to and upon the terms and
conditions herein set forth, each Facility 2 Lender agrees, severally and not
jointly, at any time and from time to time from the Amendment Effective Date up
to but excluding the date upon which the Facility 2 Commitments are terminated,
to make Facility 2 Tranche A Loans to the Borrowers in an aggregate principal
amount at any time outstanding not to exceed the Facility 2 Commitment set forth
opposite such Facility 2 Lender's name on the signature pages hereto, as such
commitment may be modified from time to time pursuant to Section 8.6(c);
provided that the aggregate principal amount of Facility 2 Tranche A Loans
outstanding at any time shall not exceed the least of (i) the aggregate Facility
2 Commitments of all of the Facility 2 Lenders then in effect less the aggregate
amount of Facility 2 Tranche B Loans and Facility 2 Tranche C Loans then
outstanding, (ii) the then current Collateral Value of the Facility 2 Tranche A
Borrowing Base, and (iii) $7,000,000 (such least amount is referred to herein as
the "FACILITY 2 TRANCHE A MAXIMUM AMOUNT"); and provided further, that the
Borrowers shall not make any Facility 2 Tranche A Borrowing, the Facility 2
Lenders shall not make any Facility 2 Tranche A Loans and, pursuant to Section
2.8(b), no Facility 2 Tranche A Loans shall be outstanding, during the period
commencing on the seventh (7th) calendar day and ending on the twelfth (12th)
calendar day of each month. Each Facility 2 Tranche A Loan shall be a Fed Funds
Loan. Each Facility 2 Tranche A Borrowing shall be in an aggregate principal
amount of at least $500,000 (or in any lesser amount equal to the unused
Facility 2 Tranche A Commitments) and shall be made by the Facility 2 Lenders
ratably in proportion to their respective Facility 2 Commitments. Within the
foregoing limits and subject to the conditions set forth in Article III, the
Borrowers may borrow and reborrow Facility 2 Tranche A Loans under Section 2.2
and prepay Facility 2 Tranche A Loans under Section 2.9.
(c) Facility 2 Tranche B Loans. Subject to and upon the terms and
conditions herein set forth, each Facility 2 Lender agrees, severally and not
jointly, at any time and from time to time from the Amendment Effective Date up
to but excluding the date upon which the Facility 2 Commitments are terminated,
to make Facility 2 Tranche B Loans to the Borrowers in an aggregate principal
amount at any time outstanding not to exceed the Facility 2 Commitment set forth
opposite such Facility 2 Lender's name on the signature pages hereto, as the
same may be modified from time to time pursuant to Section 8.6(c); provided that
the aggregate principal amount of Facility 2 Tranche B Loans outstanding at any
time shall not exceed the least of: (i) the aggregate Facility 2 Commitments of
all of the Facility 2 Lenders then in effect less the
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aggregate amount of Facility 2 Tranche A Loans and Facility 2 Tranche C Loans
then outstanding, (ii) the then current Collateral Value of the Facility 2
Tranche B Borrowing Base and (iii) $3,000,000 (such least amount is referred to
herein as the "FACILITY 2 TRANCHE B MAXIMUM AMOUNT"). Each Facility 2 Tranche B
Loan shall be a Fed Funds Loan. Each Facility 2 Tranche B Borrowing shall in an
aggregate principal amount of at least $1,000,000 (or in any lesser amount equal
to the unused Facility 2 Tranche B Commitments) and shall be made by the
Facility 2 Lenders ratably in proportion to their respective Facility 2
Commitments. No more than two (2) Borrowings for a Facility 2 Tranche B Loan may
be outstanding simultaneously hereunder. Within the foregoing limits and subject
to the conditions set forth in Article III, the Borrowers may borrow and
reborrow Facility 2 Tranche B Loans under Section 2.2 and prepay Facility 2
Tranche B Loans under Section 2.9.
(d) Facility 2 Tranche C Loans. Subject to and upon the terms and
conditions herein set forth, each Facility 2 Lender agrees, severally and not
jointly, at any time and from time to time from the Amendment Effective Date up
to but excluding the date upon which the Facility 2 Commitments are terminated,
to make Facility 2 Tranche C Loans to the Borrowers in an aggregate principal
amount at any time outstanding not to exceed the Facility 2 Commitment set forth
opposite such Facility 2 Lender's name on the signature pages hereto, as the
same may be modified from time to time pursuant to Section 8.6(c); provided that
the aggregate principal amount of Facility 2 Tranche C Loans outstanding at any
time shall not exceed the lesser of: (i) the sum of the Facility 2 Commitments
of all of the Facility 2 Lenders then in effect less the aggregate amount of
Facility 2 Tranche A Loans and Facility 2 Tranche B Loans then outstanding, and
(ii) $7,000,000 (such lesser amount is referred to herein as the "FACILITY 2
TRANCHE C MAXIMUM AMOUNT"); and provided further, that the aggregate principal
amount of Facility 2 Tranche C Loans plus the aggregate principal amount of
Servicing Loans outstanding at any time shall not exceed the then current
Collateral Value of the Pledged Servicing Portfolio. Each Facility 2 Tranche C
Loan shall be a Fed Funds Loan. Each Facility 2 Tranche C Borrowing shall in an
aggregate principal amount of at least $500,000 (or in any lesser amount equal
to the unused Facility 2 Commitments) and shall be made by the Facility 2
Lenders ratably in proportion to their respective Facility 2 Commitments. Within
the foregoing limits and subject to the conditions set forth in Article III, the
Borrowers may borrow and reborrow Facility 2 Tranche C Loans under Section 2.2
and prepay Facility 2 Tranche C Loans under Section 2.9.
(e) Swing Line Loans. Subject to and upon the terms and conditions
herein set forth, Bankers Trust may, in its sole discretion, at any time and
from time to time from the Amendment Effective Date up to but excluding the
Maturity Date, make Swing-Line Loans to the Borrowers in an aggregate principal
amount at any time outstanding not to exceed ten percent (10%) of the Facility 1
Commitments; provided that the aggregate principal amount of Swing-Line Loans
outstanding at any time shall not exceed the limitations set forth in Section
2.1(f). Each Swing-Line Loan shall be a Fed Funds Loan. Within the foregoing
limits and subject to the conditions set forth in Article III, the Borrowers may
borrow and reborrow Swing-Line Loans under Section 2.2 and prepay such Loans
under Section 2.9. If Bankers Trust, in its sole discretion, elects not to make
a Swing-Line Loan on any date, the Agent shall treat the Notice of Borrowing for
such Swing-Line Loan as a Notice of Borrowing for Facility 1 Tranche B Loans.
(f) Limitation on Aggregate Facility 1 Loans and Swing-Line Loans.
Notwithstanding anything contained herein, the aggregate principal amount of
Facility 1 Loans
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and Swing-Line Loans of all of the Facility 1 Lenders and Bankers Trust at any
time outstanding shall not exceed the lesser of (i) the sum of the Facility 1
Commitments of all of the Facility 1 Lenders then in effect, and (ii) the
Collateral Value of the Facility 1 Borrowing Base.
SECTION 2.2 METHOD OF BORROWING AND OF CONVERSIONS/CONTINUATIONS.
(a) Whenever the Borrowers desire to make a Facility 1 Borrowing,
a Facility 2 Borrowing or a Swing-Line Borrowing hereunder, to convert any
Facility 1 Tranche B Loan pursuant to Section 2.3 or to continue any Facility 1
Tranche B Loan for an additional Eurodollar Interest Period pursuant to Section
2.3, an Authorized Officer shall deliver to the Agent written 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 12:00 noon (New York City time) on the date of such proposed
Borrowing or conversion, in the case of a Borrowing of Fed Funds Loans or a
conversion of Eurodollar Loans into Fed Funds Loans; and (y) prior to 12:00 noon
(New York City time) on the third Eurodollar Business Day before the date of
such proposed Borrowing, conversion or continuation (which date shall be a
Eurodollar Business Day), in the case of a Borrowing of Eurodollar Loans, a
conversion of Fed Funds Loans into Eurodollar Loans or a continuation of
Eurodollar Loans for an additional Eurodollar Interest Period. Each such notice
shall be irrevocable and shall be in the form of Exhibit F or Exhibit G, as the
case may be. Notwithstanding any other provision hereof to the contrary, (i) no
more than four (4) Eurodollar Interest Periods for Facility 1 Tranche B Loans
may be in effect hereunder at any time; and (ii) no Facility 1 Tranche B
Borrowing of Eurodollar Loans shall be in an aggregate principal amount of less
than $1,000,000.
(b) Without in any way limiting the Borrowers' obligation to
deliver to the Agent a copy of any written Notice of Borrowing or Notice of
Conversion/Continuation, the Agent may act without liability upon the basis of
any telephonic Notice of Borrowing or Notice of Conversion/Continuation believed
by the Agent in good faith to be from an Authorized Officer prior to receipt of
written confirmation. In each such case, the Borrowers hereby waive the right to
dispute the Agent's record of the terms of such telephonic notice. An Authorized
Officer shall promptly confirm in writing any Notice of Borrowing or Notice of
Conversion/Continuation given by telephone.
(c) On the date of receipt of any Notice of Borrowing or Notice of
Conversion/Continuation), the Agent shall promptly give (and in any event by
1:00 p.m. (New York City time)) each Lender with a related Commitment
telefacsimile notice of each proposed Facility 1 Borrowing or Facility 2
Borrowing, such Lender's proportionate share thereof, each proposed conversion
or continuation and any other matters covered by the Notice of Borrowing or
Notice of Conversion/Continuation. The Agent shall not be required to notify any
Lender (other than Bankers Trust) of a Swing-Line Borrowing.
(d) Unless otherwise specified in a Notice of Borrowing, each Loan
to be made as part of a Facility 1 Borrowing shall be made as a Fed Funds Loan.
If a timely notice as specified in Section 2.2(a) is not received from the
Borrowers prior to the expiration of any Eurodollar Interest Period for any
outstanding Eurodollar Loan, the Borrowers shall be deemed to have irrevocably
elected to convert such Loan into a Fed Funds Loan. The Agent will endeavor to
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notify the Borrowers prior to the expiration of any Eurodollar Interest Period
but shall have no liability for failure to provide such notice.
(e) By delivering a Notice of Conversion/Continuation to the Agent
hereunder of the continuation of any Eurodollar Loans for an additional
Eurodollar Interest Period or the conversion of any outstanding Loans to
Eurodollar Loans, the Borrowers shall be deemed to have represented and
warranted that no Potential Default or Event of Default has occurred and is
continuing.
SECTION 2.3 CONVERSIONS/CONTINUATIONS OF LOANS.
(a) Subject to the terms and conditions hereof and in accordance
with the procedures for conversions and continuations and the other provisions
set forth in Section 2.2, each Facility 1 Lender agrees to convert outstanding
Facility 1 Tranche B Loans that are Fed Funds Loans into Eurodollar Loans and
Eurodollar Loans into Fed Funds Loans and to continue Facility 1 Tranche B Loans
that are Eurodollar Loans for an additional Eurodollar Interest Period, in each
case in an aggregate principal amount not to exceed the principal amount of the
Fed Funds Loans or Eurodollar Loans, as the case may be, being converted or
Eurodollar Loans, as the case may be, being continued; provided that no Lender
shall convert any Facility 1 Tranche B Loan into a Eurodollar Loan or continue
any Eurodollar Loan for an additional Eurodollar Interest Period if a Potential
Default or an Event of Default has occurred and is continuing.
SECTION 2.4 DISBURSEMENT OF FUNDS.
(a) No later than 2:00 p.m. (New York City time) on the date of
each Facility 1 Borrowing and Facility 2 Borrowing, each Facility 1 Lender or
Facility 2 Lender, as the case may be, will make available to the Agent the full
amount of such Lender's pro rata share of such Borrowing, in immediately
available funds, by wire transfer of such funds to the Agent at the Payment
Office; provided, that pursuant to a Borrower's request set forth in a Notice of
Borrowing, the Facility 1 Lenders shall apply the proceeds of any Facility 1
Tranche A Borrowing directly to the repayment of outstanding Facility 1 Tranche
B Loans, without any exchange of funds. Unless the Agent determines that any
applicable condition in Article III has not been satisfied, the Agent shall make
the funds so received from the Lenders available to the Borrowers by wire
transfer of such funds to such account as the Borrowers through the Agent may
direct in writing for such purpose. If a Facility 1 Borrowing or a Facility 2
Borrowing does not occur on the requested date because any condition precedent
herein specified has not been satisfied, the Agent shall so notify the affected
Lenders promptly and shall return the amounts so received to the respective
Lenders.
(b) Unless the Agent has been notified by any Facility 1 Lender or
Facility 2 Lender, as the case may be, before 2:00 p.m. (New York City time) on
the date of a proposed Facility 1 Borrowing or Facility 2 Borrowing, as the case
may be, that such Lender does not intend to make available to the Agent on such
date such Lender's portion of such Facility 1 Borrowing or Facility 2 Borrowing,
the Agent may assume that such Lender will make such amount available to the
Agent on such date and the Agent may (but shall not be obligated to) make
available to the Borrowers a corresponding amount. If such corresponding amount
is not in fact made available to the Agent by such Lender (a "DEFAULTING
LENDER") on such date, the Agent shall be entitled to
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recover such corresponding amount on demand from such Defaulting Lender,
together with interest at the overnight Federal Funds Rate for each day until
paid. A Defaulting Lender shall be deemed to have assigned to the Agent the
right to receive any and all payments due to it in respect of the Obligations
until the sum of such payments received by the Agent is equal to the amount owed
to the Agent by such Defaulting Lender pursuant to the preceding sentence. The
foregoing assignment shall be deemed to be a power coupled with an interest and
shall be absolute and irrevocable. Nothing in this subsection shall be deemed to
relieve any Lender from its obligation to fulfill its obligation to make Loans
hereunder or to prejudice any rights that the Borrowers, the Agent or any Lender
may have against any Defaulting Lender hereunder.
(c) No later than 3:00 p.m. (New York City time) on the date of
each Swing-Line Borrowing, Bankers Trust shall, unless it has elected not to
make a Swing-Line Loan pursuant to the related Notice of Borrowing, or unless it
determines that any applicable condition in Article III has not been satisfied,
make the full amount of such Swing-Line Borrowing available to the Borrowers by
wire transfer of such funds such account as the Borrowers may direct in writing
for such purpose.
(d) No later than 12:00 noon (New York City time) on any Business
Day, the Agent shall, upon Bankers Trust's request, notify each Facility 1
Lender of the aggregate principal amount of Swing-Line Loans that are
outstanding and the amount of Facility 1 Loans required to be made by each
Facility 1 Lender (including Bankers Trust) to refinance such outstanding
Swing-Line Loans (which amount shall be equal to each Facility 1 Lender's pro
rata share of such outstanding Swing-Line Loan and which notice shall be deemed
automatically given upon the occurrence of an Event of Default under 6.1(h)).
Interest on the Swing-Line Loans being refinanced shall be payable by the
Borrowers in accordance with Section 2.6. Bankers Trust may request that the
Swing-Line Loans be refinanced pursuant to this Section 2.4(d) on any Business
Day.
(e) No later than 2:00 p.m. (New York City time) on each date that
the Agent gives notices to the Facility 1 Lenders of the refinancing of
Swing-Line Loans pursuant to Section 2.4(d), each Facility 1 Lender will make
available to the Agent for payment to Bankers Trust the full amount of such
Lender's pro rata share of the outstanding amount of Swing-Line Loans being
refinanced. All amounts made available to the Agent pursuant to this Section
2.4(e) (including Bankers Trust's pro rata share of such amounts) shall be
deemed Facility 1 Loans and shall be allocated to each Type of Facility 1 Loan
in the following order of priority to the extent that such allocation can be
made without breaching the provisions of Section 2.1 or causing a mandatory
repayment under Section 2.8(c): first, to Facility 1 Tranche A Loans; and
second, to Facility 1 Tranche B Loans. Each such Swing-Line Loan being
refinanced as a Facility 1 Loan shall be a Fed Funds Loan. The proceeds of
Facility 1 Loans made pursuant to this Section 2.4(e) shall be paid to the Agent
(and not to the Borrowers ) and then paid over by the Agent to Bankers Trust, to
be applied to the outstanding Swing-Line Loans. The Borrowers authorize the
Agent to charge any account maintained by the Borrowers with the Agent in order
to immediately pay the Agent the amount of such outstanding Swing-Line Loans, to
the extent amounts received from the Facility 1 Lenders are insufficient to
repay in full the outstanding Swing-Line Loans to be refinanced. If any portion
of any amount paid to the Agent by the Borrowers pursuant to this Section 2.4(e)
(other than any amounts received by the Agent pursuant to the preceding
sentence) should be recovered by or on behalf of the Borrowers from
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the Agent or Bankers Trust in bankruptcy or otherwise, the loss of the amount so
recovered shall be ratably shared among all the Facility 1 Lenders. In the event
that a refinancing of the Swing-Line Loans cannot be made for any reason on any
date required by Bankers Trust, each Facility 1 Lender hereby agrees that it
shall immediately purchase from Bankers Trust (without recourse or warranty)
such assignment of the outstanding Swing-Line Loans as shall be necessary to
cause the Facility 1 Lenders to share in such Swing-Line Loans ratably based on
their respective pro rata Facility 1 Commitments; provided that all interest
payable on such Swing-Line Loans shall be for the account of Bankers Trust until
the date the respective assignment is purchased and, to the extent attributable
to the purchased assignment, shall be for the account of the Facility 1 Lender
purchasing the assignment from and after the date of such purchase. Each
Facility 1 Lender's obligation to make Facility 1 Loans or purchase assignments
pursuant to this Section 2.4(e) shall be absolute and unconditional and shall
not be affected by any circumstance, including, without limitation, (1) any
setoff, counterclaim, recoupment, defense or other right that such Facility 1
Lender may have against the Agent, Bankers Trust, any Lender, the Borrowers or
any other Person for any reason whatsoever; (2) the occurrence or continuance of
a Potential Default or Event of Default; (3) any adverse change in the condition
(financial or otherwise) of the Borrowers; (4) any breach of this Agreement or
any other Loan Document by the Borrowers, the Agent or any Lender; or (5) any
other circumstance, happening or event whatsoever, whether or not similar to any
of the foregoing; provided that in no event shall a Facility 1 Lender be
obligated to make a Facility 1 Loan pursuant to this Section 2.4(e) if after
giving effect thereto, the outstanding principal amount of such Facility 1
Lender's Facility 1 Loans plus its pro rata share of any Swing-Line Loans
remaining outstanding would exceed its Facility 1 Commitment. If any Lender
fails to make the full amount of its Facility 1 Loan available to the Agent
pursuant to this Section 2.4(e), Bankers Trust shall be entitled to recover such
corresponding amount on demand from such Lender together with interest for each
day until paid at the overnight Fed Funds Rate. Such Lender shall be deemed to
have assigned to Bankers Trust the right to receive any and all payments due to
it in respect of the Obligations until the sum of such payments received by the
Agent and paid over to Bankers Trust is equal to the amount owed to Bankers
Trust by such Lender pursuant to the preceding sentence. The foregoing
assignment shall be deemed to be a power coupled with an interest and shall be
absolute and irrevocable.
(f) 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. If any
Facility 1 Lender fails to make available its pro rata share of any Facility 1
Borrowing or any Facility 2 Lender fails to make available its pro rata share of
any Facility 2 Borrowing (and the Agent does not advance such Lender's share to
the Borrowers pursuant to subsection (b) above), then the Borrowers may, subject
to all of the terms and conditions set forth in Sections 2.1 and 2.2, make
additional Facility 1 Borrowings or Facility 2 Borrowings, as the case may be,
hereunder to cover the unfunded share of the original Facility 1 Borrowing or
Facility 2 Borrowing.
SECTION 2.5 NOTES.
(a) Each Borrower's joint and several obligation to pay the
principal of and interest on the Facility 1 Loans made by each Facility 1 Lender
and Swing-Line Loans made by Bankers
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Trust shall be evidenced by a promissory note (each a "FACILITY 1 NOTE" and
collectively the "FACILITY 1 NOTES") substantially in the form of Exhibit A-1,
with blanks appropriately completed in conformity therewith and payable to the
order of such Facility 1 Lender. Each Borrower's joint and several obligation to
pay the principal of and interest on the Facility 2 Loans made by each Facility
2 Lender shall be evidenced by a promissory note (each a "FACILITY 2 NOTE" and
collectively the "FACILITY 2 NOTES") substantially in the form of Exhibit A-2,
with blanks appropriately completed in conformity therewith and payable to the
order of such Facility 2 Lender. Each Lender shall, and is hereby authorized by
the Borrowers 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 of
the related Type from such Lender, each payment and prepayment of principal of
any such Loan, each payment of interest on any such Loan, and applicable
interest rates and Eurodollar Interest Periods 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 joint and several obligations of the Borrowers, including
the joint and several obligation of the Borrowers to repay the Loans made by
such Lender in accordance with the terms of this Agreement and the applicable
Notes.
SECTION 2.6 INTEREST.
(a) The Borrowers agree to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan for each day during the Eurodollar
Interest Period applicable thereto at a rate per annum equal to (i) in the case
of Facility 1 Tranche A Loans, sixty-five one-hundredths of one percent (0.65%)
plus the average daily Base Eurodollar Rate for such Eurodollar Interest Period,
and (ii) in the case of Facility 1 Tranche B Loans, ninety-five one-hundredths
of one percent (0.95%) plus the Eurodollar Rate for such Eurodollar Interest
Period.
(b) The Borrowers agree to pay interest in respect of the unpaid
principal amount of each Fed Funds Loan for each day such Fed Funds Loan is
outstanding at a rate per annum equal to (i) in the case of Facility 1 Tranche A
Loans, seventy-seven one-hundredths of one percent (0.77%) plus the Federal
Funds Rate, (ii) in the case of Facility 1 Tranche B Loans and Swing-Line Loans,
one and seven one hundredths of one percent (1.07%) plus the Federal Funds Rate,
and (iii) in the case of Facility 2 Loans, one and five-eighths percent (1.625%)
plus the Federal Funds Rate.
(c) 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 (after as well as before judgment) at a rate per annum equal
to two and one-quarter percent (2.25%) per annum plus the Prime Rate.
(d) 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) on or before the third Business Day after receipt of the
billing statement referred to in clause (f) below, (ii) on any prepayment in
full of all of any Lender's outstanding Loans, (iii) at maturity (whether by
acceleration or otherwise) and (iv) after maturity, on demand.
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(e) The Agent shall deliver to the Borrowers one 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 for such month; provided that any failure or delay in
delivering such interest billing statement or any inaccuracy therein shall not
affect the Obligations.
SECTION 2.7 TERMINATION OF COMMITMENTS.
(a) The Facility 1 Commitments shall automatically terminate on
the Maturity Date, subject to earlier termination as set forth in Section 2.7
(b) or pursuant to Section 6.1. The Facility 1 Commitments may not be reduced in
part by the Borrowers, but may be terminated in their entirety at any time by
the Borrowers upon at least fifteen (15) days' prior irrevocable written notice
to the Agent.
(b) The Facility 2 Commitments shall automatically terminate on
the earliest of: (i) Maturity Date, and (ii) the date on which the Borrowers
terminate or fail to renew the Facility 1 Commitments, in each case subject to
earlier termination pursuant to Section 6.1. The Facility 2 Commitments may not
be reduced in part by the Borrowers, but may be terminated in their entirety at
any time by the Borrowers upon at least fifteen (15) days' prior irrevocable
written notice to the Agent; provided, that upon delivery of a notice of
termination of the Facility 2 Commitments by the Borrowers, the parties to this
Agreement agree to discuss the terms and conditions upon which this Agreement
and the Facility 1 Commitments shall remain in effect; and provided further,
that if the parties shall fail to agree upon terms and conditions that are
satisfactory to the Lenders in their sole and absolute discretion, then the
Facility 1 Commitments shall terminate thirty (30) days following delivery by
the Borrowers of the notice of termination of the Facility 2 Commitments (which
thirty (30) period may be extended to sixty (60) days in the sole and absolute
discretion of the Lenders).
SECTION 2.8 MANDATORY REPAYMENTS.
(a) The Borrowers shall repay all outstanding Facility 1 Loans
(whether matured or unmatured) on the earlier to occur of the termination of the
Facility 1 Commitments and the Maturity Date.
(b) The Borrowers shall repay all outstanding Facility 2 Loans on
the earlier to occur of the termination of the Facility 2 Commitments and the
Maturity Date. Additionally, the Borrowers shall repay all outstanding Facility
2 Tranche A Loans on the seventh (7th) calendar day of each month, so that no
Facility 2 Tranche A Loans remain outstanding during the period commencing on
the seventh (7th) calendar day and ending on the twelfth (12th) calendar day of
each month.
(c) The Borrowers shall immediately prepay: (i) Facility 1 Tranche
A Loans to the extent that the aggregate outstanding principal amount of
Facility 1 Tranche A Loans exceeds the limitations set forth in Section
2.1(a)(i) or 2.1(f) or, provided no Potential Default or Event of Default has
occurred and is continuing, deliver additional Collateral of the type described
in the definition of "Collateral Value of the Facility 1 Tranche A Borrowing
Base" in Section 1.1 as shall be necessary so that the aggregate principal
amount of Facility 1 Tranche A Loans does not
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exceed such limitations, (ii) Facility 1 Tranche B Loans to the extent that the
aggregate outstanding principal amount of Facility 1 Tranche B Loans exceeds the
limitations set forth in Section 2.1(a)(ii) or 2.1(f) or, provided no Potential
Default or Event of Default has occurred and is continuing, deliver additional
Collateral of the type described in the definition of "Collateral Value of the
Facility 1 Tranche B Borrowing Base" in Section 1.1 as shall be necessary so
that the aggregate principal amount of Facility 1 Tranche B Loans does not
exceed such limitations, (iii) Swing-Line Loans to the extent that the aggregate
outstanding principal amount of Swing-Line Loans exceeds the limitations set
forth in Section 2.1(f), (iv) Facility 2 Tranche A Loans to the extent that the
aggregate outstanding principal amount of Facility 2 Tranche A Loans exceeds the
Facility 2 Tranche A Maximum Amount or, provided no Potential Default or Event
of Default has occurred and is continuing, deliver additional Collateral of the
type described in the definition of "Collateral Value of the Facility 2 Tranche
A Borrowing Base" in Section 1.1 as shall be necessary so that the aggregate
outstanding principal amount of Facility 2 Tranche A Loans does not exceed the
Facility 2 Tranche A Maximum Amount , (v) Facility 2 Tranche B Loans to the
extent that the aggregate outstanding principal amount of Facility 2 Tranche B
Loans exceeds the Facility 2 Tranche B Maximum Amount, and (vi) Facility 2
Tranche C Loans to the extent that the aggregate outstanding principal amount of
Facility 2 Tranche C Loans exceeds the Facility 2 Tranche C Maximum Amount.
(d) On any date upon which the aggregate principal amount of the
outstanding Facility 2 Tranche C Loans plus the aggregate principal amount of
the outstanding Servicing Loans exceeds the Collateral Value of the Pledged
Servicing Portfolio, the Borrowers shall repay on such date the aggregate
principal amount of the Facility 2 Tranche C Loans or Servicing Loans as shall
be necessary so that the aggregate principal amount of outstanding Facility 2
Tranche C Loans plus the aggregate principal amount of the outstanding Servicing
Loans does not exceed the Collateral Value of the Pledged Servicing Portfolio.
(e) Each repayment of Loans of a certain Type under this Section
2.8 shall be allocated among the Lenders in accordance with the aggregate
outstanding principal amounts of their respective Loans of such Type. All
repayments of the Facility 1 Tranche B Loans of any Facility 1 Lender under this
Section 2.8 shall be applied first to such Lender's Facility 1 Tranche B Loans
that are Fed Funds Loans and second, to such Lender's Facility 1 Tranche B Loans
that are Eurodollar Loans. All repayments of Loans under this Section 2.8 shall
be without premium or penalty, except that any repayment of Eurodollar Loans
shall be subject to the provisions of Section 2.14. Interest shall be payable in
accordance with the provisions of Section 2.6.
SECTION 2.9 OPTIONAL PREPAYMENTS.
The Borrowers shall have the right at any time and from time
to time to prepay outstanding Loans of any Type, in whole or in part, upon one
(1) Business Day's prior written notice to the Agent, in the case of Eurodollar
Loans, and without prior notice in the case of all other Loans; provided that
each partial prepayment of any Loan (other than a Swing-Line Loan, which may be
prepaid in any amount) shall be in an aggregate principal amount of $500,000 or
any multiple of $100,000 in excess thereof; and provided further, that the
Borrowers shall not prepay any Facility 1 Loans so long as any Swing-Line Loans
are outstanding. The Borrowers shall, at the time of making such prepayment,
designate whether it is a prepayment of Facility 1 Tranche A Loans, Facility 1
Tranche B Loans, Facility 2 Tranche A Loans, Facility 2 Tranche B
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Loans or Facility 2 Tranche C Loans. If the Borrowers fail to make such a
designation, any funds received as a prepayment pursuant to this Section 2.9
shall be applied first, to Facility 2 Tranche B Loans then outstanding; second,
to Facility 2 Tranche A Loans then outstanding; third to Facility 2 Tranche C
Loans then outstanding; fourth, to Facility 1 Tranche B Loans then outstanding;
and fifth, to Facility 1 Tranche A Loans then outstanding. If such prepayment
has not been designated by the Borrowers, the Agent shall endeavor to contact
the Borrowers for prepayment instructions before applying the prepayment as
noted herein but the Agent shall not be liable for failure to so contact the
Borrowers. Each prepayment of Loans of a certain Type under this Section 2.9
shall be allocated among the Lenders in accordance with the aggregate
outstanding principal amounts of their respective Loans of such Type. All
prepayments of the Facility 1 Loans of any Facility 1 Lender under this Section
2.9 shall be applied first, to such Lender's Facility 1 Loans that are Fed Funds
Loans, and second, to such Lender's Facility 1 Loans that are Eurodollar Loans.
All prepayments of Loans under this Section 2.9 shall be without premium or
penalty, except that any prepayment of Eurodollar Loans shall be subject to the
provisions of Section 2.14. Interest shall be payable upon such prepayment in
accordance with the provisions of Section 2.6.
SECTION 2.10 FEES.
(a) The Borrowers agree to pay to the Agent for the account of
each Facility 1 Lender a facility fee at a rate per annum equal to 0.16% on the
amount of such Lender's Facility 1 Commitment (whether used or unused). The
Borrowers agree to pay to the Agent for the account of each Facility 2 Lender a
facility fee at a rate per annum equal to 0.20% on the amount of such Lender's
Facility 2 Commitment (whether used or unused). Such fees shall be deemed to be
earned in full upon the Amendment Effective Date and shall be payable in advance
on the Amendment Effective Date and thereafter in quarterly installments on the
last Business Day of each March, June, September and December, commencing June
30, 1999; provided that if the Facility 1 Commitments or the Facility 2
Commitments are terminated at any time prior to the Maturity Date, each
remaining unpaid quarterly installment of the respective fees shall be paid in
full on the date of such termination.
(b) The Borrowers agree to pay to the Agent, for its own account,
an agency fee in the amount and on the dates separately agreed to by the Agent
and the Borrowers.
(c) In respect of any Loan which was originally made as a Facility
1 Tranche A Loan and which, after a completed review by the Collateral Agent of
the relevant Mortgage Loans included in the Facility 1 Tranche A Borrowing Base
and the relevant documentation executed in connection therewith, should have
constituted for any period a Facility 1 Tranche B Loan because the Collateral
related thereto did not satisfy the Facility 1 Tranche A Borrowing Base
requirements, the Borrowers agree to pay to the Agent for the account of each of
the Facility 1 Lenders, a gestation collateral reconciliation fee in an amount
equal to the difference between (i) the interest payable hereunder in respect of
such Loan had it been determined to be a Facility 1 Tranche B Loan for such
period and (ii) the interest paid hereunder during such period in respect of
such Loan as a Facility 1 Tranche A Loan. Such fee shall be payable promptly
after delivery of notice by the Agent to the Borrowers of the amount owing.
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(d) The fees set forth in this Section 2.10, once paid, shall not
be refundable under any circumstances.
SECTION 2.11 PAYMENTS, ETC.
(a) Except as otherwise specifically provided herein, all payments
by the Borrowers under this Agreement shall be made without defense, set-off or
counterclaim to the Agent not later than 1:00 p.m. (New York City time) on the
date when due, it being expressly agreed and understood that if a payment is
received after 1:00 p.m. (New York City time) by the Agent, such payment will 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;
provided that if the Agent receives the federal wire confirmation number with
respect to such payment before 1:00 p.m. (New York City time) on the date when
such payment is due, and the payment is actually received and credited for value
to the appropriate account at Bankers Trust before the close of business on such
due date, then the payment will be deemed to be made on such due date. All
payments hereunder shall be made in U.S. Dollars in immediately available funds
at the Payment Office. The Agent will promptly after receipt of each such
payment (and in any event by the close of business on the day on which such
funds are received or deemed to have been received) distribute funds in the form
received relating to the payment of (i) principal or interest on any Type of
Loan to the Lenders with Loans of the corresponding Type ratably in accordance
with the aggregate principal amount of the Loans of such Type of such Lenders,
(ii) Fees (other than the agency fee set forth in Section 2.10(b)) with respect
to any Type of Commitment ratably to Lenders with Commitments of the
corresponding Type, and (iii) any other amount payable to any Lender to such
Lender.
(b) Whenever any payment to be made hereunder or under any Note
shall be 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 then
applicable rate during such extension.
(c) 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
Agent of an interest rate or Fee hereunder shall be conclusive and binding
absent manifest error.
(d) Prior to the maturity of the Facility 1 Loans and Swing-Line
Loans (whether upon acceleration, upon any date that the Facility 1 Commitments
are terminated pursuant to Section 2.7(a), or otherwise), all amounts received
on any day by the Agent hereunder in respect of principal of Facility 1 Loans or
Swing-Line Loans or under the Collateral Agreements, including amounts received
by the Agent from the Facility 1 Settlement Account, and all amounts received
from the Servicing Agent in respect of the Servicing Collateral, shall be
disbursed by the Agent as follows: first, to Bankers Trust, to repay the
aggregate principal amount of Swing-Line Loans outstanding on such day; second,
ratably to the Facility 1 Lenders in accordance with the aggregate principal
amounts of their respective outstanding Facility 1 Loans to repay the aggregate
principal amount of Facility 1 Loans due and payable on such day pursuant to
Section 2.8; third, ratably to the Facility 1 Lenders in accordance with the
aggregate principal amounts of
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their respective outstanding Facility 1 Loans, to prepay outstanding Facility 1
Loans being prepaid on such day pursuant to Section 2.9; fourth, if a Servicing
Event of Default has occurred and is continuing, to the Servicing Agent to be
disbursed in accordance with Section 2.11 of the Servicing Credit Agreement; and
fifth, the balance, if any, shall be released by the Agent to the Borrowers by
transfer to such account as the Borrowers may direct in writing for such
purpose; provided that if a Potential Default or an Event of Default has
occurred and is continuing, then the Agent shall not release any such amounts to
the Servicing Agent or to the Borrowers and shall hold such amounts in the
Facility 1 Settlement Account until the earlier of (x) the cure of such
Potential Default or Event of Default, in which case such amounts shall be
released to the Servicing Agent or to the Borrowers as described above in this
subsection (d), or (y) the acceleration of the Facility 1 Loans or Swing-Line
Loans, in which case such amounts shall be disbursed in accordance with Section
2.11(h).
(e) Prior to the maturity of the Facility 2 Loans (whether upon
acceleration, upon any date that the Facility 2 Commitments are terminated
pursuant to Section 2.7(b), or otherwise), all amounts received on any day by
the Agent hereunder in respect of principal of Facility 2 Loans or in respect of
Eligible REO Property mortgaged to the Secured Parties or from the Servicing
Agent in respect of the Servicing Collateral, shall be disbursed by the Agent as
follows: first, ratably to the Facility 2 Lenders in accordance with the
aggregate principal amounts of their respective outstanding Facility 2 Loans, to
repay the aggregate principal amount of Facility 2 Loans due and payable on such
day pursuant to Section 2.8; second, ratably to the Facility 2 Lenders in
accordance with the aggregate principal amounts of their respective outstanding
Facility 2 Loans, to prepay outstanding Facility 2 Loans being prepaid on such
day pursuant to Section 2.9; third, if a Servicing Event of Default has occurred
and is continuing, to the Servicing Agent to be disbursed in accordance with
Section 2.11 of the Servicing Credit Agreement; and fourth, the balance, if any,
shall be released by the Agent to the Borrowers by transfer to such account as
the Borrowers may direct in writing for such purpose; provided that if a
Potential Default or an Event of Default has occurred and is continuing, then
the Agent shall not release any such amounts to the Servicing Agent or to the
Borrowers and shall hold such sums as cash collateral until the earlier of (x)
the cure of any Potential Default or Event of Default, in which case such
amounts shall be released to the Servicing Agent or to the Borrowers as
described in this subsection (e), or (y) the acceleration of the Facility 2
Loans, in which case such amounts shall be disbursed in accordance with Section
2.11(h).
(f) Upon the maturity of the Facility 1 Loans (whether upon
acceleration, upon any date that the Facility 1 Commitments are terminated
pursuant to Section 2.7(a), or otherwise), all amounts received by the Agent
hereunder in respect of principal of Facility 1 Loans or Swing-Line Loans or
under the Collateral Agreements, including amounts received by the Agent from
the Facility 1 Settlement Account, and all amounts received from the Servicing
Agent in respect of the Servicing Collateral, shall be disbursed by the Agent as
follows: first, to the Collateral Agent in accordance with the amounts due to
the Collateral Agent, to reimburse the Collateral Agent for all fees, costs and
expenses reasonably incurred by it in connection with a Potential Default or an
Event of Default or otherwise payable to it in its capacity as Collateral Agent
under the Security Agreement; second, to the Agent, to reimburse the Agent for
all fees, costs and expenses reasonably incurred by it in connection with a
Potential Default or an Event of Default, or otherwise payable to it in its
capacity as Agent under the Loan Documents; third, to Bankers Trust to pay all
accrued and unpaid interest on the Swing-Line Loans due hereunder and to repay
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the principal of all outstanding Swing-Line Loans; fourth, ratably to the
Facility 1 Lenders in accordance with the amount of interest and Fees on the
Facility 1 Loans due to such Lenders, to pay all accrued and unpaid interest on
and Fees with respect to the Facility 1 Loans due hereunder; fifth, ratably to
the Facility 1 Lenders in accordance with the aggregate principal amounts of
their respective outstanding Facility 1 Loans, to repay all outstanding Facility
1 Loans; sixth, ratably to all of the Facility 2 Lenders in accordance with
their respective unpaid Obligations relating to Facility 2 Loans, to pay all of
their remaining unpaid Obligations relating to Facility 2 Loans; seventh, if a
Servicing Event of Default has occurred and is continuing, to the Servicing
Agent to be disbursed in accordance with Section 2.11 of the Servicing Credit
Agreement; and eighth, provided no Obligations remain unpaid to the Borrowers by
transfer to such account as the Borrowers may direct in writing for such
purpose.
(g) Upon the maturity of the Facility 2 Loans (whether upon
acceleration, upon any date that the Facility 2 Commitments are terminated
pursuant to Section 2.7(b), or otherwise), all amounts received by the Agent
hereunder in respect of principal of Facility 2 Loans or in respect of Eligible
REO Property mortgaged to the Secured Parties or from the Servicing Agent in
respect of the Servicing Collateral, shall be disbursed by the Agent as follows:
first, to the Collateral Agent in accordance with the amounts due to the
Collateral Agent, to reimburse the Collateral Agent for all fees, costs and
expenses reasonably incurred by it in connection with a Potential Default or an
Event of Default or otherwise payable to it in its capacity as Collateral Agent
under the Security Agreement; second, to the Agent, to reimburse the Agent for
all fees, costs and expenses reasonably incurred by it in connection with a
Potential Default or an Event of Default or otherwise payable to it in its
capacity as Agent under the Loan Documents; third, ratably to the Facility 2
Lenders in accordance with the amount of interest on and Fees with respect to
the Facility 2 Loans due to such Lenders, to pay all accrued and unpaid interest
on and Fees with respect to the Facility 2 Loans due hereunder; fourth, ratably
to the Facility 2 Lenders in accordance with the aggregate principal amounts of
their respective outstanding Facility 2 Loans, to repay all outstanding Facility
2 Loans; fifth, to Bankers Trust to pay all accrued and unpaid interest on the
Swing-Line Loans due hereunder and to repay the principal of all outstanding
Swing-Line Loans; sixth, ratably to all of the Facility 1 Lenders in accordance
with their respective unpaid Obligations relating to Facility 1 Loans, to repay
all of their remaining unpaid Obligations relating to Facility 1 Loans; seventh,
if a Servicing Event of Default has occurred and is continuing, to the Servicing
Agent to be disbursed in accordance with Section 2.11 of the Servicing Credit
Agreement; and eighth, provided no Obligations remain unpaid, to the Borrowers
by transfer to such account as the Borrowers may direct in writing for such
purpose.
(h) Upon the maturity of the Loans and all other Obligations
(whether upon acceleration, upon any date that the Commitments are terminated
pursuant to Section 2.7, or otherwise), all amounts in any account of the
Borrower maintained with the Agent and all amounts (other than the amounts
referred to in subsections (f) and (g) above) received by the Agent on account
of the Obligations shall be disbursed by the Agent as follows: first, to the
Collateral Agent in accordance with the amounts due to the Collateral Agent, to
reimburse the Collateral Agent for all fees, costs and expenses reasonably
incurred by it in connection with a Potential Default or an Event of Default or
otherwise payable to it in its capacity as Collateral Agent under the Security
Agreement; second, to the Agent, to reimburse the Agent for all fees, costs and
expenses reasonably incurred by it in connection with a Potential Default or an
Event
<PAGE> 46
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of Default or otherwise payable to it in its capacity as Agent under the Loan
Documents; third, to Bankers Trust to pay all accrued and unpaid interest on the
Swing-Line Loans and to repay the principal of all outstanding Swing-Line Loans;
fourth, ratably to the Lenders in accordance with the amount of interest and
Fees due to each Lender, to pay all accrued and unpaid interest and Fees due
hereunder; fifth, ratably to the Lenders in accordance with the aggregate
principal amounts of their respective outstanding Loans, to repay all
outstanding Loans; sixth, ratably to the Lenders in accordance with their
respective unpaid Obligations, to pay all remaining unpaid Obligations; seventh,
if a Servicing Event of Default has occurred and is continuing, to the Servicing
Agent to be disbursed in accordance with Section 2.11 of the Servicing Credit
Agreement; and eighth, to the Borrowers by transfer to such account as the
Borrowers may direct in writing for such purpose.
SECTION 2.12 EURODOLLAR RATE NOT DETERMINABLE; ILLEGALITY OR IMPROPRIETY.
(a) In the event, and on each occasion, that on or before the day
on which the Eurodollar Rate for a Facility 1 Borrowing that is to include
Eurodollar Loans is to be determined, the Agent has determined in good faith
that the Eurodollar Rate cannot be determined for any reason, the Agent shall,
as soon as practicable thereafter, give written notice of such determination to
the Borrowers and the Lenders. Upon any such determination, any request by the
Borrowers for a Eurodollar Loan pursuant to Section 2.2 shall, until the Agent
has advised the Borrowers and the Lenders that the circumstances giving rise to
such notice no longer exist, be deemed to be a request for a Fed Funds Loan.
Each determination by the Agent hereunder shall be conclusive and binding absent
manifest error.
(b) 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, shall make it unlawful or improper for such
Lender to make, maintain or fund any Eurodollar Loan as contemplated by this
Agreement, then such Lender shall immediately give notice thereof to the Agent
and the Borrowers describing such illegality or impropriety in reasonable
detail. Effective thirty (30) days after the giving of such notice (or effective
upon such earlier date as required by such Governmental Authority), the
obligation of such Lender to make Eurodollar Loans shall be suspended for the
duration of such illegality or impropriety and, if and when such illegality or
impropriety ceases to exist, such suspension shall cease and such Lender shall
notify the Agent and the Borrowers thereof. If any such change makes it unlawful
or improper for any Lender to maintain any Eurodollar Loan, such Lender shall,
upon the happening of such event, notify the Agent and the Borrowers thereof,
and the Borrowers 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 Eurodollar Loan into a Fed Funds
Loan. If any Lender notifies the Agent and the Borrowers pursuant to this
Section 2.12(b) that it is unlawful or improper for such Lender to make or
maintain Eurodollar Loans but no other Lenders give similar notices, then the
Borrowers may require such Lender to sell, pursuant to Section 8.6(c) all of its
outstanding Loans and Commitments 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 reasonably acceptable to the Agent that is
willing to make and maintain Eurodollar Loans.
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SECTION 2.13 RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES.
(a) Notwithstanding any other provision herein, if 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 Eurodollar Loan made by such
Lender or any Fees or other amounts payable hereunder (other than taxes imposed
on the overall net income of such Lender by the jurisdiction in which such
Lender has its principal 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 Eurodollar Rate) or imposes on such Lender
any other condition affecting this Agreement or Eurodollar Loans, and the result
of any of the foregoing is to increase the cost to such Lender of making or
maintaining any Eurodollar Loan or to reduce the amount of any sum received or
receivable by such Lender hereunder (whether of principal, interest, fee or
otherwise) in respect thereof by an amount deemed by such Lender to be material,
then the Borrowers shall pay to such Lender such additional amount or amounts as
will compensate such Lender for such additional costs incurred or reduction
suffered. Any amount or amounts payable by the Borrowers to any Lender in
accordance with the provisions of this Section 2.13(a) shall be paid by the
Borrowers to such Lender within ten (10) Business Days of receipt by the
Borrowers from such Lender of a statement 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.
(b) If any Lender has determined 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, as the case may be) 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, has the effect of reducing 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 deemed by such Lender to be material,
then from time to time, the Borrowers shall reimburse such Lender or such
Lender's holding company, as the case may be, for such reduction. Any amount or
amounts payable by the Borrowers to any Lender in accordance with the provisions
of this Section 2.13(b) shall be paid by the Borrowers to such Lender within ten
(10) Business Days of receipt by the Borrowers from such Lender of a statement
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.
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(c) 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 2.13 or pursuant to Section 2.15
or (ii) the effect of any event referred to in Section 2.12(b); provided that
such efforts or change shall not cause the imposition on such Lender of any
additional cost or legal, regulatory or administrative burdens deemed by such
Lender, in its sole discretion, to be material.
(d) 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. The protection of this Section 2.13(d) 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 shall have occurred or been imposed.
SECTION 2.14 INDEMNITY.
(a) The Borrowers shall indemnify and hold harmless each Lender
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys' fees) that such Lender
actually sustains or incurs as a consequence of (i) any failure by the Borrowers
to fulfill on the Amendment Effective Date or on the date of any Borrowing
hereunder the applicable conditions set forth in Article III, (ii) any failure
by the Borrowers to borrow any Eurodollar Loan hereunder, to convert any Loan
into a Eurodollar Loan or to continue any Eurodollar Loan for an additional
Eurodollar Interest Period, after irrevocable notice of such borrowing,
conversion or continuation has been given pursuant to Section 2.2, (iii) any
payment, prepayment or conversion of a Eurodollar Loan required by any provision
of this Agreement or otherwise made on a date other than the last day of the
Eurodollar Interest Period applicable thereto or required by the Loan Documents
to be made on a date other than the maturity date applicable thereto, (iv) any
default in payment or prepayment of the principal amount of any Eurodollar Loan
or any part thereof or interest accrued thereon, as and when due and payable (at
the due date thereof, by irrevocable notice of prepayment or otherwise), or (v)
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 Eurodollar Loan or any
part thereof as a Eurodollar Loan. Such loss or reasonable expense shall include
but not be limited to an amount equal to the excess, if any, as reasonably
determined by such Lender, of (A) its cost of obtaining the funds for the
Eurodollar Loan being paid, prepaid or converted or not borrowed, converted or
continued (based on the Eurodollar Rate applicable thereto) for the period from
the date of such payment, prepayment, conversion or failure to borrow, convert
or continue to the last day of the Eurodollar Interest Period, as the case may
be, for such Loan (or, in the case of a failure to borrow, convert, or continue
the Eurodollar Interest Period, as the case may be, for such Loan that would
have commenced on the date of such failure to borrow, convert or continue) over
(B) the amount of interest (as reasonably determined by such Lender) that would
be realized by such Lender in re-employing the funds so paid, prepaid or
converted or not borrowed, converted or continued for such period or Eurodollar
Interest Period, as the case may be. A certificate of any Lender setting forth
in reasonable detail any amount or amounts which such Lender is entitled to
receive
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pursuant to this Section 2.14 shall be delivered to the Borrowers and shall be
conclusive and binding absent manifest error.
(b) Nothing in this Section is intended to limit the reimbursement
obligation of the Borrowers contained elsewhere in this Agreement. The
obligations of the Borrowers under this Section shall survive the termination of
this Agreement.
SECTION 2.15 TAXES.
All payments made by the Borrowers 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 Agent, the Collateral
Agent and each Lender, net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Agent, the 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
Agent, the Collateral Agent or such Lender (excluding a connection arising
solely from the Agent, the 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 Agent, the Collateral Agent or any Lender hereunder or under
other Loan Documents, the amounts so payable to the Agent, the Collateral Agent
or such Lender shall be increased to the extent necessary to yield to the 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 Borrowers, as promptly as possible thereafter the Borrowers shall send to
the Agent for its own account or for the account of the Collateral Agent or such
Lender, as the case may be, a certified copy of an original official receipt
received by the Borrowers showing payment thereof. If the Borrowers fail to pay
any Taxes when due to the appropriate taxing authority or fails to remit to the
Agent the required receipts or other required documentary evidence, the
Borrowers shall indemnify the Agent, the Collateral Agent and the Lenders for
any incremental taxes, interest or penalties that may become payable by the
Agent, any Collateral Agent or any Lender as a result of any such failure. The
agreements in this subsection shall survive the termination of this Agreement
and the payment of the Notes and all other amounts payable under the Loan
Documents.
SECTION 2.16 SHARING OF SETOFFS.
Each Lender agrees that if it shall, through the exercise of a
right of banker's lien, setoff or counterclaim against the Borrowers, or
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 such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means, obtain payment (voluntary
or involuntary) in respect of any Obligation as a result of which the unpaid
portion of its Obligations shall be
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proportionately less than the unpaid portion of the Obligations of any other
Lender, it shall simultaneously purchase from such other Lender at face value a
participation in the Obligations of such other Lender, so that the aggregate
unpaid amount of the Obligations and such participations in Obligations held by
each Lender shall be in the same proportion to the aggregate unpaid amount of
all Obligations then outstanding as the amount of its Obligations 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 2.16 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
Borrowers expressly consent to the foregoing arrangements and agrees that any
Lender holding a participation in 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 the Borrowers to such Lender by reason
thereof as fully as if such Lender had made a loan directly to the Borrowers in
the amount of such participation.
ARTICLE 3
CONDITIONS TO LOANS
SECTION 3.1 CONDITIONS TO LOANS.
(a) As conditions precedent to the initial disbursement of the
Loans hereunder:
(i) Each Borrower shall have delivered or shall have had
delivered to the Agent, in form and substance and in quantities
reasonably satisfactory to the Agent and its counsel, each of the
following:
(A) this Agreement, duly executed by the parties
hereto;
(B) each of the Security Agreement and the
Servicing Security Agreement and the Power of Attorney for
each Borrower, duly executed (and notarized where required) by
the parties thereto (which Powers of Attorney shall be
"protocolized" under the laws of Puerto Rico by counsel to the
Borrowers, and filed with the Registry of Powers of Attorneys
and Wills by counsel to the Borrowers promptly after the
closing contemplated hereunder);
(C) a duly executed Facility 1 Note for each
Lender with a Facility 1 Commitment and a duly executed
Facility 2 Note for each Lender with a Facility 2 Commitment;
(D) duly executed documents, instruments,
agreements and financing statements, properly executed, deemed
necessary or appropriate by the Agent, in its reasonable
discretion, to create in favor of the Lenders a valid and
perfected first priority security interest
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in and lien upon the Collateral and the Eligible Servicing
Receivables and a valid and perfected second priority security
interest in and lien upon the Servicing Collateral (other than
the Eligible Servicing Receivables);
(E) a certified copy of resolutions of the Board
of Directors of each of the Borrowers approving the execution,
delivery and performance of all Loan Documents required to be
delivered by such parties hereunder and the transactions
contemplated therein;
(F) a certificate of the Secretary or an
Assistant Secretary of each of the Borrowers certifying the
names and true signatures of the officers of such parties
authorized to sign the Loan Documents required to be executed
and delivered by such parties hereunder, in each case dated
the Amendment Effective Date;
(G) an opinion of New York counsel and Puerto
Rico counsel for the Borrowers in the form of Exhibit C-1 and
Exhibit C-2, respectively, and covering such other matters as
the Agent may reasonably request, dated the Amendment
Effective Date;
(H) a copy of the Certificate of Incorporation
or other equivalent document available in the applicable
jurisdiction of each of the Borrowers certified by the
appropriate officer of the jurisdiction of such party's
incorporation as of a recent date;
(I) a copy of the Bylaws of each of the
Borrowers, certified by the Secretary or an Assistant
Secretary or other appropriate officer of each such party as
of the Amendment Effective Date as being accurate and
complete;
(J) a certificate of the appropriate officer in
the jurisdiction of incorporation of each of the Borrowers
certifying that such Borrower is in good standing as of a
recent date;
(K) a certificate of an executive officer of
each of the Borrowers, in the form of Exhibits D-1 and Exhibit
D-2, respectively, dated the Amendment Effective Date;
(L) evidence satisfactory to the Agent that the
Facility 1 Settlement Account has been opened;
(M) evidence of (aa) the acceptance by the
Process Agent of its appointment pursuant to Section 8.7 and
(bb) payment of all fees required by the Process Agent for
serving in such capacity;
(N) a letter agreement from the Collateral Agent
pursuant to which the Collateral Agent agrees to serve as
Collateral Agent in connection with the REO Pledges; and
(O) the duly executed Intercreditor Agreement;
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(ii) 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 prior 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 Agent and waived by all of the Lenders in writing;
(iii) All documentation, including documentation for
corporate and legal proceedings in connection with the transactions
contemplated by the Loan Documents, shall be reasonably satisfactory in
form and substance to the Agent and its counsel; and
(iv) The Borrowers shall have paid all Fees required to
have been paid under the Loan Documents prior to or on the Amendment
Effective Date.
(b) As additional conditions precedent to the disbursement of all
Loans (including the initial Loans hereunder), at and as of the date of such
disbursement:
(i) The representations and warranties of the Borrowers
contained in the Loan Documents shall be accurate and complete in all
material respects on and as of the date of such disbursement as if made
on and as of such date;
(ii) No Potential Default or Event of Default shall have
occurred and be continuing;
(iii) Following the funding of the requested Loan, the
aggregate principal amount of Loans outstanding hereunder shall not
exceed the limitations set forth in Sections 2.1 and 2.8;
(iv) Since December 31, 1998, no material adverse change
shall have occurred in the business, financial condition or results of
operations of DFC and its Subsidiaries, taken as a whole; and
(v) The Agent shall have received such other documents or
legal opinions as the Agent or any Lender or special counsel to the
Agent may reasonably request, all in form and substance reasonably
satisfactory to the Agent.
By delivering a Notice of Borrowing to the Agent hereunder for any Loan, the
Borrowers shall be deemed to have represented and warranted the accuracy and
completeness of the statements set forth in subsections (i) through (iv) above
as of the date of such Loan.
(c) As conditions precedent to each Facility 2 Tranche B Borrowing
(in addition to those set forth in Sections 3.1(a) and (b) above):
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(i) Each Borrower shall have delivered or shall have had
delivered to the Agent, in form and substance and in quantities
reasonably satisfactory to the Agent and its counsel, each of the
following:
(A) all information reasonably requested by the
Agent contained in the files of the Borrowers relating to the
Eligible REO Property to be included in the Facility 2 Tranche
B Borrowing Base;
(B) duly executed REO Demand Note(s);
(C) duly executed REO Mortgages with respect to
all Eligible REO Property to be included in the Facility 2
Tranche B Borrowing Base;
(D) duly executed REO Pledge(s) of the REO
Demand Note(s) to the Agent and the Facility 2 Lenders; and
(E) documentation required under
3.1(a)(i)(F)-(L) above, as applicable to the related Real
Estate Closing, and as is reasonable and customary, and such
other documentation as is also reasonable and customary, in
connection with commercial real estate closings in Puerto Rico
as determined by the Agent's counsel.
(ii) Simultaneously with such Facility 2 Tranche B
Borrowing or as is otherwise customary in commercial real estate
closings in Puerto Rico, the REO Mortgages shall be filed for recording
with the applicable registries.
(iii) The Borrowers shall have paid all taxes, including
mortgage recording and documentary stamp taxes, recording fees and
charges and all other fees and charges of whatever kind in connection
with the applicable Real Estate Closing, including costs and expenses
of the Agent's outside counsel, and evidence thereof shall have been
delivered to the Agent.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
As an inducement to the Agent and each Lender to enter into
this Agreement and to make Loans as provided herein, each of the Borrowers
represents and warrants to the Agent and each Lender that:
SECTION 4.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW AND CONTRACTUAL
OBLIGATIONS.
Each Borrower (a) is duly organized, validly existing and in
good standing as a corporation under the laws of the Commonwealth of Puerto Rico
and in each jurisdiction where its ownership of property or conduct of business
requires such qualification, except where the failure to be so qualified would
not have a Material Adverse Effect; (b) has the corporate power and authority
and the legal right to own and operate its property and to conduct business in
the
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manner in which it does and proposes so to do; and (c) is not in violation of
any Requirement of Law or any Contractual Obligation if such violation could
have a Material Adverse Effect.
SECTION 4.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
Each Borrower has the corporate power and authority to
execute, deliver and perform the Loan Documents to which it is a party and has
taken all necessary corporate action to authorize the execution, delivery and
performance of such Loan Documents. Such Loan Documents have been duly executed
and delivered on behalf of such Borrower and constitute legal, valid and binding
obligations of such Borrower 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.
SECTION 4.3 NO LEGAL OR CONTRACTUAL BAR.
The execution, delivery and performance of the Loan Documents,
including the creation and perfection of the security interests contemplated
hereunder and thereunder, the borrowings of Loans hereunder and the use of the
proceeds thereof, do not and will not (a) violate any Requirement of Law or any
Contractual Obligation of either Borrower or any of its Subsidiaries, (b) except
as contemplated by this Agreement and the Collateral Agreements, 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 or (c) result in the creation or imposition of any Lien on any asset of
either Borrower or any of its Subsidiaries except as contemplated by the Loan
Documents. Without limiting the scope of the preceding representation, no
Take-Out Commitments assigned to the Secured Parties prohibit assignment thereof
to the Secured Parties.
SECTION 4.4 FINANCIAL INFORMATION.
(a) The consolidated and consolidating statement of financial
condition of DFC and its consolidated Subsidiaries as at December 31, 1998 and
the related consolidated and consolidating statements of income and cash flows
for the fiscal year then ended, including in each case the related schedules and
notes, reported on by PricewaterhouseCoopers LLP, true copies of which have been
previously delivered to each of the Lenders, are complete and correct and fairly
present the consolidated and consolidating financial condition of DFC and its
consolidated Subsidiaries as at the date thereof and the consolidated and
consolidating results of operations and cash flows for such period, in
accordance with GAAP applied on a consistent basis.
(b) The unaudited consolidated and consolidating statement of
financial condition of each Borrower and its consolidated Subsidiaries as at
March 31, 1999, and the related unaudited combined statements of income and cash
flows for the three months then ended, certified by the chief financial officer
of DFC, true copies of which have been previously delivered to each of the
Lenders, are complete and correct and fairly present the consolidated and
consolidating financial condition of DFC and its consolidated Subsidiaries as at
the date thereof and the consolidated and consolidating results of operations
and cash flows for such period in conformity with GAAP
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applied on a basis consistent with the financial statements referred to in
subsection (a) of this Section 4.4, subject to normal year-end audit
adjustments.
(c) Neither Borrower 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 is not
reflected in the financial statements referred to in Section 4.4(b) or in the
most recent financial statements delivered to the Agent and the Lenders pursuant
to Section 5.1(a)(i) or (ii) (other than liabilities permitted hereunder and
incurred after the date of such most recent financial statements and to be
reflected in the next financial statements to be delivered to the Agent and the
Lenders pursuant to Section 5.1 (a)(i) or (ii)).
(d) Since December 31, 1998, no material adverse change has
occurred in the business, financial condition or results of operations of DFC
and its Subsidiaries, taken as a whole.
SECTION 4.5 NO MATERIAL LITIGATION.
Except as set forth on Exhibit K, no litigation, investigation
or proceeding of or before any arbitrator or Governmental Authority is pending
or, to the knowledge of either Borrower, threatened by or against such Borrower
or any of its Subsidiaries, or against any of such Borrower's or any such
Subsidiary's properties or revenues that, if adversely determined, could alone,
or with any other litigation, investigation or proceeding, affect the business,
financial condition or results of operations of such Borrower and its
Subsidiaries, taken as a whole, in excess of the Material Amount or could have a
Material Adverse Effect.
SECTION 4.6 TAXES.
Each Borrower and each of its Subsidiaries have filed or
caused to be filed 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 them or any of their property other than taxes and assessments that are
being contested in good faith by appropriate proceedings and as to which such
Borrower or such Subsidiary has established adequate reserves in conformance
with GAAP.
SECTION 4.7 INVESTMENT COMPANY ACT.
Neither Borrower is an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
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SECTION 4.8 SUBSIDIARIES.
DFC has no Subsidiaries as of the Amendment Effective Date
other than DMC, Doral Bank, Centro Hipotecario de Puerto Rico, Inc., First
Florida Realty Corporation, Doral Securities, Inc., Doral Bank FSB, Doral Money,
Inc. and Doral Capital, Inc.. DFC owns, directly or through another Subsidiary
of DFC, one hundred percent (100%) of the stock of each such Subsidiary, and all
of the stock of each such Subsidiary has been duly issued and is fully paid and
nonassessable. DMC has no Subsidiaries as of the Amendment Effective Date.
SECTION 4.9 USE OF PROCEEDS.
The proceeds of all Facility 1 Tranche A Loans shall be used
by the Borrowers solely for the purpose of financing Eligible Gestation Mortgage
Loans and Eligible Mortgage-Backed Securities. The proceeds of all Facility 1
Tranche B Loans shall be used by the Borrowers solely for the purpose of
originating, acquiring or financing Eligible Conforming Mortgage Loans and/or
Eligible Non-Conforming Mortgage Loans. The proceeds of all Swing-Line Loans
shall be used by the Borrowers solely for the purpose of originating, acquiring
or financing Eligible Gestation Mortgage Loans, Eligible Mortgage-Backed
Securities, Eligible Conforming Mortgage Loans and/or Eligible Non-Conforming
Mortgage Loans. The proceeds of all Facility 2 Tranche A Loans shall be used by
the Borrowers solely to make advances (or to refinance advances previously made
by either Borrower) resulting in the creation of Eligible Servicing Receivables.
The proceeds of all Facility 2 Tranche B Loans shall be used by the Borrowers
solely to provide financing of the Eligible REO Property. The proceeds of
Facility 2 Tranche C Loans shall be used by the Borrowers for general working
capital purposes.
SECTION 4.10 ERISA.
(a) 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 either
Borrower or any of such Borrower's Subsidiaries to any material tax, penalty or
other liability where such tax, penalty or liability is not covered in full, for
the benefit of such Borrower or such Subsidiary, by insurance; (b) 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 appoint 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;
(c) 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 (d) the
execution, delivery and performance by Borrowers of the Loan Documents and the
borrowing of the Loans hereunder and the use of the proceeds thereof will not
involve any Prohibited Transaction.
SECTION 4.11 SECURITY INTERESTS.
The security interests created in favor of the Lenders under
the Security Agreement, subject to the terms of the Intercreditor Agreement,
constitute valid and perfected first priority security interests in the
Collateral and the Eligible Servicing Receivables, and the Collateral is not and
will not be subject to any other Liens except as permitted by Section 5.2(a).
The security interests created in favor of the Lenders under the Servicing
Security Agreement,
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subject to the terms of the Intercreditor Agreement, constitute valid and
perfected second priority security interests in the Servicing Collateral (other
than the Eligible Servicing Receivables), and the Servicing Collateral is not
and will not be subject to any other Liens except as permitted by Section
5.2(a).
SECTION 4.12 AGENCY APPROVALS.
Each Borrower is a FHLMC approved Seller/Servicer, a HUD
Direct Endorsement Lender and a VA approved Lender in good standing. DFC is also
a FNMA approved Seller/Servicer and a GNMA approved Issuer/Servicer.
SECTION 4.13 SOLVENCY.
Each Borrower is able to pay its debts as they mature. The
aggregate estimated fair market value of each Borrower's assets is greater than
such Borrower's liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities and any and all Obligations hereunder). Each Borrower
has capital sufficient to carry on the business and transactions in which it is
engaged and all business and transactions in which it is about to engage.
SECTION 4.14 MINIMUM SERVICING PORTFOLIO.
As of the date of this Agreement, the Mortgage Loans in the
Servicing Portfolio have an aggregate outstanding principal balance of not less
than $4,000,000,000.
SECTION 4.15 YEAR 2000 COMPLIANCE.
All Information Systems and Equipment are Year 2000 Compliant.
ARTICLE 5
COVENANTS
SECTION 5.1 AFFIRMATIVE COVENANTS.
Each Borrower hereby covenants and agrees that, as long as any
Obligations remain unpaid or any Lender has any Commitment hereunder, the
Borrowers shall:
(a) Reports to Agent. Furnish or cause to be furnished to the
Agent (with sufficient numbers of copies for each Lender which the Agent shall
forward to each Lender within a reasonable time after receipt thereof):
(i) Annual Financial Statements. As soon as available and
in any event within ninety-five (95) days after the end of each fiscal
year of DFC, a consolidated and consolidating statement of financial
condition of DFC and its consolidated Subsidiaries as at the end of
such year and the related consolidated and consolidating statements of
income and cash flows of DFC and its consolidated Subsidiaries for such
fiscal year, setting forth in each case in comparative form the figures
for the previous fiscal year, all in reasonable detail and accompanied
by a report thereon of PricewaterhouseCoopers
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LLP or other independent public accountants of comparable recognized
national standing, which report shall be unqualified as to scope of
audit and shall state that such financial statements present fairly the
consolidated and consolidating financial condition as at the end of
such fiscal year, and the consolidated and consolidating results of
operations and cash flows for such fiscal year, of DFC and its
consolidated Subsidiaries in accordance with GAAP consistently applied;
(ii) Quarterly Financial Statements. As soon as available
and in any event within fifty (50) days after the end of each fiscal
quarter of DFC, a consolidated and consolidating statement of financial
condition of DFC and its consolidated Subsidiaries as at the end of
such fiscal quarter and the related consolidated and consolidating
statements of income and cash flows of DFC and its consolidated
Subsidiaries for such fiscal quarter, setting forth in each case in
comparative form the figures for the previous fiscal quarter, all in
reasonable detail and certified by the chief financial officer of DFC
that they present fairly the consolidated and consolidating financial
condition as at the end of such fiscal quarter, and the consolidated
and consolidating results of operations and cash flows for such fiscal
quarter, of DFC and its consolidated Subsidiaries in accordance with
GAAP consistently applied, subject to normal year-end adjustments;
(iii) Monthly Financial Statements. Upon thirty (30) days'
notice from the Agent (such notice to be given no earlier than the
first day of a month to receive a statement for the previous month), a
consolidated and consolidating statement of financial condition of DFC
and its consolidated Subsidiaries as at the end of the previous month
and the related consolidated and consolidating statements of income and
cash flows of DFC and its consolidated Subsidiaries for such month
setting forth in each case in comparative form the figures for the
previous month, all in reasonable detail and certified by the chief
financial officer of DFC that they are complete and correct and that
they present fairly the consolidated and consolidating financial
condition as at the end of such month, and the consolidated and
consolidating results of operations for such month and such portion of
the fiscal year, of DFC and its consolidated Subsidiaries in accordance
with GAAP consistently applied (subject to normal year-end
adjustments);
(iv) No Default/Compliance Certificate. Together with the
financial statements required pursuant to subsections (i) and (ii)
above, a certificate of the chief financial officer or chief accounting
officer of DFC (A) to the effect that, based upon a review of the
activities of DFC and its Subsidiaries and such financial statements
during the period covered thereby, no Event of Default or Potential
Default exists, or if an Event of Default or a Potential Default
exists, specifying the nature thereof and the Borrowers' proposed
response thereto, and (B) demonstrating in reasonable detail compliance
with Section 5.3 as at the end of such fiscal year or such fiscal
quarter, as applicable;
(v) Audit Reports. Upon request by the Agent, copies of
each HUD Single Family Audit Report and FNMA and FHLMC audit reports on
each Borrower and its operations;
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(vi) Notice of Default or Misrepresentation. (a) Promptly
after obtaining knowledge of the occurrence of an Event of Default or a
Potential Default, a certificate of the chief financial officer or
chief accounting officer of DFC specifying the nature thereof and DFC's
or DMC's proposed response thereto and (b) at any time that any
representation, warranty or other information contained in any
statement or certificate required to be delivered hereunder or any
representation or warranty deemed to have been made hereunder shall
prove to be false or misleading in any material way, promptly after
obtaining knowledge thereof give notice thereof to the Agent describing
how such representation, warranty or information is misleading.
(vii) Loss of Qualification. Promptly after the occurrence
thereof, notice of any Mortgage Loan or Mortgage-Backed Security
included in the Facility 1 Borrowing Base, that ceases to qualify as an
Eligible Mortgage Loan or Eligible Mortgage-Backed Security, as the
case may be;
(viii) Litigation. Promptly after the occurrence thereof,
notice of the institution of or any material adverse development in 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, against either Borrower or any
material property of any thereof, in each case if such action, suit,
proceeding, investigation or arbitration could result in a liability to
the Borrowers in excess of the Material Amount;
(ix) ERISA. In connection with ERISA:
(A) Promptly and in any event within ten (10)
Business Days after either 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 such Borrower
setting forth details as to such Reportable Event and the
action that such Borrower proposes to take with respect
thereto;
(B) Promptly and in any event within ten (10)
Business Days after either 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 occurrence of other liability by the
applicable Borrower or any ERISA Affiliate, a statement of the
chief financial officer of the applicable Borrower describing
such condition;
(C) At least ten (10) Business 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 no event more than ten (10)
Business Days after the filing thereof with the Secretary of
the Treasury, a copy of any application by
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either Borrower or an ERISA Affiliate for a waiver of the
minimum funding standard under section 412 of the Code;
(E) Upon request by the Agent from time to time,
copies of each annual report that is filed on Internal Revenue
Service Form 5500, together with certified financial
statements for any Plan (if any) 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)
Business Days after it 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 applicable Borrower describing such
event or condition;
(G) Promptly and in no event more than ten (10)
Business Days after receipt thereof by either Borrower or any
ERISA Affiliate, a copy of each notice received by such
Borrower or 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 either Borrower or any ERISA Affiliate may receive from
the PBGC or the Internal Revenue Service 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) Borrowing Base, Commitment Status and Servicing
Reports.
(A) On Monday of each week, and on such other
days as the Agent may reasonably request, a Facility 1
Borrowing Base Certificate and a Facility 2 Tranche A
Borrowing Base Certificate, in each case prepared by the
Borrowers and dated as of the Friday preceding such Monday or
as of such other day;
(B) As soon as available and in any event no
later than five (5) days after the end of each month, and on
such other days as the Agent may reasonably request, a Hedging
Inventory Report, dated as of the last day of such month or as
of such other day;
(C) As soon as available and in any event no
later than forty-five (45) days after the end of each
six-month period ended June 30 and December 31 of each year,
commencing with the six-month period ending June 30, 1999, a
Pledged Servicing Portfolio Report dated as of the last day of
such six-month period;
(D) As soon as available and in any event no
later than forty-five (45) days after the end of each
six-month period ended June 30 and December 31 of each year,
commencing with the six-month period ending June 30, 1999, a
Pledged Servicing Valuation Report, dated as of the last day
of each such six-month period; provided, that the Agent shall
have the right to request additional
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Pledged Servicing Valuation Reports at such times as it deems
necessary or desirable, which reports shall be prepared at the
expense of the Lenders;
(E) On the first Business Day of each month, and
on such other days as the Agent may reasonably request, a
report, in form and substance reasonably satisfactory to the
Agent, prepared by the Borrowers, on the aging of Mortgage
Loans included in the Facility 1 Borrowing Base;
(F) On the first Business Day of each month, and
in connection with any Real Estate Closing, and on such other
days as the Agent may reasonably request, a Facility 2 Tranche
B Borrowing Base Certificate, dated as of the preceding
Business Day;
(G) As soon as available and in any event no
later than thirty (30) days after the end of each quarterly
period ended March 31, June 30, September 30 and December 31
of each year, commencing with the quarterly period ending June
30, 1999, a Recourse Servicing Portfolio Report dated as of
the last day of such quarterly period; and
(H) As soon as available and in any event no
later than thirty (30) days after the end of each quarterly
period ended March 31, June 30, September 30 and December 31
of each year, commencing with the quarterly period ending June
30, 1999, a Recourse Servicing Portfolio Statistics Report
dated as of the last day of such quarterly period;
(xi) Certificating Custodian. Promptly after a replacement
of any Certificating Custodian, notice thereof together with copies of
the Agency Custodial Agreements appointing a successor Certificating
Custodian; and
(xii) Other Information. Promptly, such additional
financial and other information, including financial statements of the
Borrowers or any of its Subsidiaries or any Approved Investor (other
than FNMA or FHLMC), and such information regarding the Collateral or
the Servicing Collateral as any Lender, through the 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
signatory hereto.
(b) Maintenance of Existence and Properties; Compliance with Laws;
Maintenance of Agency Status. (i) Except as provided in Section 5.2(e), preserve
and maintain, and cause each of its Subsidiaries to preserve and maintain, its
corporate existence and all rights, privileges, licenses, approvals, franchises,
properties and assets material to the normal conduct of its business; comply,
and cause each of its Subsidiaries to comply, in all material respects with all
Contractual Obligations and Requirements of Law, except when the failure to
maintain the existence of any such Subsidiary or to so comply would not have a
Material Adverse Effect; and (ii) except as permitted under Section 5.2(l),
preserve and maintain at all times its status as a FHLMC approved
Seller/Servicer, a HUD Direct Endorsement Lender and a VA approved
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Lender in good standing and, with respect to DFC, its status as a FNMA approved
Seller/Servicer and as a GNMA approved Issuer/Servicer.
(c) Inspection of Property; Books and Records; Discussions. (i)
Keep, and cause each of its Subsidiaries to keep, proper books of record and
account in which full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and transactions in relation
to its business and activities, and, (ii) permit representatives of the Agent
and the Lenders (at no cost to such Borrower unless a Potential Default or an
Event of Default has occurred and is continuing) to visit and inspect any of its
properties and examine and make copies from any of its books and records during
normal business hours, upon reasonable advance notice and as often as may
reasonably be desired by the Agent, and to discuss the business, operations,
properties and financial and other condition of such Borrower and its
Subsidiaries with officers of such parties, and, with their independent
certified public accountants (if a representative of DFC or DMC shall have been
given the right upon reasonable notice to be present by phone or in person), and
with the consent of such Borrower, which consent shall not be unreasonably
withheld, with employees of the Borrowers.
(d) Insurance. Maintain or cause to be maintained with financially
sound and reputable insurers, insurance with respect to its properties and
business, and the properties and business of its Subsidiaries, 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 Agency guidelines, and furnish
the Agent on request evidence of all such insurance.
(e) Payment of Taxes and Claims, Etc. Pay, and cause each of its
Subsidiaries to pay, (i) all taxes, assessments and governmental charges imposed
upon it or upon its property, and (ii) all genuine claims (including claims for
labour, materials, supplies or services) that might, if unpaid, become a Lien
upon its property, unless, in each case, the validity or amount thereof is being
contested in good faith by appropriate proceedings and such Borrower or such
Subsidiary has maintained adequate reserves in accordance with GAAP with respect
thereto or has posted a bond in respect thereof satisfactory to the Required
Lenders.
(f) GNMA Acknowledgment Agreement. Obtain, execute and deliver an
Acknowledgment Agreement from GNMA relating to the acknowledgment of the
Servicing Collateral Agent's security interest in the GNMA Servicing Portfolio,
if and when requested by the Agent in its sole discretion.
(g) Further Documents. Execute and deliver or to cause to be
executed and delivered to the Agent or the Collateral Agent on behalf of the
Lenders from time to time such confirmatory or supplementary security
agreements, financing statements, reaffirmations and consents and such other
documents, instruments or agreements as the Agent may reasonably request, that
are in the Agent's reasonable judgment necessary or desirable to obtain for the
Agent on behalf of the Lenders the benefit of the Loan Documents, the Collateral
and the Servicing Collateral.
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(h) Recording. Cause each Power of Attorney to be "protocolized"
under the laws of Puerto Rico and filed in the Registry of Powers of Attorneys
and Wills, pay any and all fees and charges in connection therewith, and provide
evidence of such protocolization and filing to the Agent promptly thereafter.
(i) Year 2000 Compliance. Ensure that their respective Information
Systems and Equipment are at all times after the date of this Agreement Year
2000 Compliant, except insofar as the failure to do so will not result in a
Material Adverse Effect, and shall notify the Agent promptly upon detecting any
failure of the Information Systems and Equipment to be Year 2000 Compliant. In
addition, the Borrowers shall provide the Agent with such information about
their respective year 2000 computer readiness (including, without limitation,
information as to contingency plans, budgets and testing results) as the Agent
may reasonably request.
SECTION 5.2 NEGATIVE COVENANTS OF EACH BORROWER.
Each Borrower hereby covenants and agrees that, as long as any
Obligations remain unpaid or any Lender has any Commitment hereunder, such
Borrower shall not, directly or indirectly:
(a) Liens. Create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Lien upon the
Collateral, the Servicing Collateral or the Servicing Portfolio, whether now
owned or hereafter acquired, except in favor of the Secured Parties under the
Security Agreement, other than:
(i) Liens or charges for current taxes, assessments or
other governmental charges that are not delinquent or which remain
payable without penalty;
(ii) Liens, deposits or pledges made to secure statutory
obligations, surety or appeal bonds, or bonds for the release of
attachments or for stay of execution, or to secure the performance of
bids and tenders or for purposes of like general nature in the ordinary
course of business of such Borrower or such Subsidiary;
(iii) the interests of FNMA and FHLMC with respect to the
servicing rights relating to the underlying Mortgage Loans in the
Pledged Servicing Portfolio as set forth in acknowledgment agreements
with such Agencies and the interests of GNMA as set forth in the GNMA
Guide;
(iv) involuntary Liens relating to liabilities not in
excess of $100,000 in the aggregate for each Borrower; provided that
such Borrower or such Subsidiary is making a diligent effort to remove
such Liens as soon as practicable; and
(v) a first priority Lien on the Servicing Collateral
(other than the Eligible Servicing Receivables, in which the Lenders
have a first priority security interest) in favor of the Servicing
Collateral Agent under the Servicing Security Agreement, subject to the
terms of the Intercreditor Agreement.
(b) Change of Business. Except as permitted under Section 5.2(e),
engage in any type of business that is unrelated to (i) the mortgage banking and
lending business and the
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servicing of Mortgage Loans, or (ii) any related financial services business
(including, without limitation, any activity permitted for banks, savings
associations, or savings and loan or bank holding companies), or permit any of
DFC's Subsidiaries to engage in any type of business other than financial
services (including, without limitation, any activity permitted for banks,
savings associations, or savings and loan or bank holding companies); provided
that the Borrowers may create one or more Subsidiaries for the purposes of
acquiring, developing and holding real property to be leased principally to DFC
and DFC's other Subsidiaries.
(c) Acquisitions. Except as permitted under Section 5.2(e),
purchase or acquire, or permit any of its Subsidiaries to purchase or acquire,
or incur liability for the purchase or acquisition of, or permit any of its
Subsidiaries or to incur liability for the purchase or acquisition of, any or
all of the assets or business of any Person (whether such purchase or
acquisition shall be by means of merger, stock purchase, asset purchase or
otherwise) other than (i) purchases and acquisitions in the ordinary course of
business as currently conducted and (ii) other purchases and acquisitions
relating to the mortgage banking and lending business and the servicing of
Mortgage Loans or other financial services (including, without limitation, any
activity permitted for banks, savings associations, or savings and loan or bank
holding companies).
(d) Transactions with Affiliates. Enter into, or permit any of its
Subsidiaries directly or indirectly to enter into, any transaction (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 less favorable to such Borrower or such Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates, other than the Master
Purchase, Servicing and Collections Agreement dated as of September 15, 1993
with Doral Bank, the Amended and Restated Master Production Agreement among DFC,
DMC and Doral Bank dated as of October 1, 1995, as amended by the First
Amendment to Master Production Agreement, dated as of March 1, 1996, and the
Master Servicing and Collection Agreement between DFC and Doral Bank, dated as
of October 1, 1995, as amended by the First Amendment to Master Servicing and
Collection Agreement, dated as of March 1, 1996, each as in effect on such
respective dates.
(e) Consolidation, Merger, Sale of Assets, Etc. (i) Enter into any
merger, consolidation or amalgamation, including any such transaction with a
regulated banking entity or that results in either Borrower becoming a
Subsidiary of a regulated banking entity (other than of DFC), (ii) liquidate,
wind-up or dissolve itself (or suffer or permit any of the foregoing to occur),
or (iii) sell, lease, assign, transfer or otherwise dispose of, or permit any of
its Subsidiaries to sell, lease, assign, transfer or otherwise dispose of, more
than twenty-five percent (25%) of its assets, whether now owned or hereafter
acquired, based on the book value of all such assets as set forth in the last
audited financial statement of such Borrower, provided that the following shall
be permitted so long as no Potential Default or an Event of Default has occurred
and is continuing or would result therefrom:
(A) DFC may merge or consolidate with another
Person where DFC is the surviving entity;
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(B) DMC may merge with any other wholly-owned
Subsidiary of DFC that is principally engaged in the mortgage
banking business where DMC is the surviving entity;
(C) the Borrowers may sell assets in the
ordinary course of business at fair market value (it being
expressly agreed and understood that the sale or other
disposition of Mortgage-Backed Securities and of Mortgage
Loans with or without servicing released is in the ordinary
course of business and that, subject to Section 2.8, the
Borrowers may sell all or a portion of their servicing rights
to the extent and in the manner permitted by Sections 5.2(d)
and (h) and by the Security Agreement). Notwithstanding the
foregoing, DMC may be merged into, become consolidated with or
become a Subsidiary of any Person (other than DFC) that is a
regulated banking entity so long as (x) DFC (aa) becomes the
sole borrower under the Loan Documents and affirms the same
pursuant to documentation reasonably satisfactory to Lenders
and Agent and (bb) satisfies all the representations,
warranties and covenants hereunder, including the financial
covenants, without DMC being included in its consolidated and
consolidating financial statements; (y) no Potential Default
or Event of Default exists at the time of such event and after
giving effect thereto; and (z) such event does not have a
Material Adverse Effect; and
(D) the Borrowers may sell all of the
outstanding stock or assets of Centro Hipotecario de Puerto
Rico, Inc..
(f) VA Guaranties and FHA Insurance. Commit any act that would
invalidate any VA guarantee or FHA insurance relating to any Mortgage Loan
pledged to the Secured Parties as Collateral under the Security Agreement if,
after giving effect to such action, the then aggregate outstanding principal
amount of the Facility 1 Loans and Swing-Line Loans would be less than the
Collateral Value of the Facility 1 Borrowing Base.
(g) ERISA. Take, or permit any of its Subsidiaries to take, any of
the following actions:
(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 Subsidiaries to any material tax, penalty or
other liability;
(iii) Incur or suffer to exist any material Accumulated
Funding Deficiency, whether or not waived, involving any Plan;
(iv) Allow or suffer to exist any event or condition that
presents a risk of incurring a material liability to the PBGC;
(v) Amend any Plan so as to require the posting of
security in a material amount under section 401(a)(29) of the Code; or
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(vi) 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 Subsidiaries to any material tax, penalty or
other liability.
(h) Transfer to Affiliates. Subject to the proviso in subsection
(e) above, sell, assign or otherwise transfer any of its assets to any Affiliate
of a Borrower without the prior written consent of the Required Lenders, or
permit any of its Subsidiaries to sell, assign or otherwise transfer any of
their respective assets, to any Affiliate of a Borrower without the prior
written consent of the Required Lenders other than (i) inter-company dividends
to Borrowers or Borrowers' Subsidiaries, and (ii) sales or other dispositions of
Mortgage Loans and Mortgage-Backed Securities, with or without servicing
released, in the ordinary course of business and at fair market value; provided
that (aa) any Subsidiary of a Borrower may, subject to subsection (e) above,
sell, assign or otherwise transfer any of their respective assets to such
Borrower, (bb) DMC may, subject to subsection (e) above, sell, assign or
otherwise transfer its assets to DFC, and (cc) DFC may make capital investments
in its Subsidiaries.
(i) Subsidiaries. Form or cause to be formed after the date hereof
any Subsidiaries of the Borrowers without notice thereof to the Agent prior to
or promptly after such formation.
(j) Margin Regulations. Use any or all of the proceeds of any Loan
(i) to purchase or carry Margin Stock or extend credit to others for the purpose
of purchasing or carrying Margin Stock or (ii) in any manner that will violate
or be inconsistent with the provisions of any regulation of the Board.
(k) Hedging Policy. Fail to comply in all material respects with
the Hedging Policy, change the Hedging Policy in any material way, or terminate
the Hedging Policy, in each case without prior notice to the Agent.
(l) Agency Approvals. Fail to maintain the Agency approvals
described in Section 4.12 as a result of a change in business plan of the
Borrower without the prior consent of the Agent and Lenders thereto, which
consent shall not be unreasonably withheld as long as no Material Adverse Effect
would result therefrom.
(m) Custody Account. Take any action that would cause the
custodial account maintained with the Collateral Agent into which Book-Entry
MBSs relating to Mortgage Loans included in the Facility 1 Tranche A Borrowing
Base shall be issued to cease to be in effect.
(n) Negative Pledges. Unless (i) the Facility 2 Commitments and
the Servicing Commitments have been terminated by the Borrowers, (ii) all
Facility 2 Loans and related Obligations and Servicing Loans and Servicing
Obligations have been repaid or paid, respectively, by the Borrowers, (iii) no
Potential Default or Event of Default has occurred and is continuing, and (iv)
the Borrowers and the Lenders have agreed upon the terms and conditions upon
which this Agreement and the Facility 1 Commitments shall remain in effect (as
contemplated in Section 2.7(b)), agree with any Person or Persons (other than
with the Lenders pursuant to this Agreement and the Servicing Lenders pursuant
to the Servicing Credit Agreement) not to create, incur, assume or suffer to
exist, or permit any Subsidiary to create, incur, assume or suffer to exist, any
Lien upon the Servicing Portfolio or any rights relating
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thereto, including, without limitation, any rights to receive payments in
connection with the Servicing Portfolio (including, without limitation, any
reimbursement of principal and interest advances, taxes and insurance advances
and any other servicing advances).
(o) Recourse Obligations. In the case of DFC, without the prior
written consent of the Agent, acting at the direction of the Required Lenders,
enter into any transaction whereby (i) DFC sells Mortgage-Backed Securities or
Mortgage Loans and remains obligated to repurchase (whether conditionally or
unconditionally) such Mortgage-Backed Securities or Mortgage Loans or has
retained other recourse obligations with respect thereto, or (ii) DFC assumes or
otherwise incurs recourse obligations with respect to Mortgage-Backed Securities
or Mortgage Loans included in its Servicing Portfolio, if, in either case, in
the reasonable judgment of the management of DFC, the aggregate obligations of
DFC in connection with such transaction and all previous transactions of the
type described in clauses (i) and (ii) above for which DFC is then obligated
could, if DFC is required to perform such obligations, result in a decrease in
DFC's Book Net Worth by a Material Amount.
SECTION 5.3 ADDITIONAL NEGATIVE COVENANTS.
Each Borrower hereby covenants and agrees that, as long as any
Obligations remain unpaid or any Lender has any Commitment hereunder, such
Borrower shall not at any time, directly or indirectly:
(a) Total Liabilities. Permit DFC on a consolidated basis
(excluding any Subsidiaries that are not primarily engaged primarily in the
business of mortgage banking as reasonably determined by the Agent) to incur
Total Liabilities in excess of the sum of (i) one hundred percent (100%) of
"Cash" or "Cash equivalents"; (ii) ninety-five percent (95%) of the sum of
"Mortgage Loans held for sale", "Mortgage-backed securities held for trading"
(but excluding "interest only securities" included therein), and "Securities
available for sale"; (iii) ninety percent (90%) of "Accrued interest
receivable"; (iv) ninety percent (90%) of "Securities held to maturity" provided
that such securities are tax-exempt investments for the Borrowers, including
GNMA, FNMA and FHLMC mortgage-backed securities, collateralized mortgage
obligations that are backed by GNMA, FNMA or FHLMC mortgage-backed securities
and are rated AAA by Standard & Poor's Corporation and by Moody's Investors
Service, and securities issued by the United States Treasury or an agency of the
United States Government; (v) eighty percent (80%) of "prepaid and other assets"
(excluding investment in any Subsidiary of either Borrower) and mortgage-backed
securities that are not tax-exempt and rated AAA by Standard & Poor's
Corporation and by Moody's Investors Service (including collateralized mortgage
obligations); (vi) fifty percent (50%) of the sum of (A) "Property, leasehold
improvements and equipment" and (B) "Real estate held for sale"; (vii)
sixty-five percent (65%) of "interest only securities"; (viii) one percent
(1.0%) of the principal amount of Mortgage Loans owned by Persons not affiliated
with DFC or DMC or any of their Affiliates (unless covered by a Permitted
Affiliate Servicing Agreement) for which DFC or DMC owns the direct servicing
rights (excluding subservicing); and (ix) eighty percent (80%) of "loans
receivable". All quoted terms used in the preceding sentence shall have the same
meanings, and shall continue to be calculated and classified in the same manner,
as the terms used in the statement of financial condition of DFC and its
consolidated Subsidiaries referred to in Section 4.4(a).
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(b) Adjusted Tangible Net Worth. Permit Adjusted Tangible Net
Worth at any time to be less than $180,000,000.
(c) Book Net Worth. Permit Book Net Worth at any time to be less
than $217,000,000.
(d) Minimum Servicing Portfolio. Permit DFC on a consolidated
basis (excluding any Subsidiaries that are not primarily engaged in the business
of mortgage banking as reasonably determined by the Agent) to maintain a
Servicing Portfolio with an aggregate outstanding principal balance of less than
$4,000,000,000 or such lesser amount as shall be agreed by the Lenders in their
sole discretion.
ARTICLE 6
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. (i) The Borrowers shall fail to pay when due
(whether at scheduled maturity, upon mandatory repayment or otherwise) any
principal of any Note; or (ii) the Borrowers shall fail to pay within three (3)
Business Days after the due date thereof any interest on any Note or any other
Obligation;
(b) Covenants Without Notice. The Borrowers shall fail to observe
or perform any covenant or agreement contained in Sections 5.1(b)(i), 5.1(f),
5.2 or 5.3; provided that any violation of Section 5.2(a) that is attributable
to the existence of an involuntary Lien on the Collateral or the Servicing
Collateral (other than an involuntary Lien expressly permitted by Section
5.2(a)) shall not constitute an Event of Default until thirty (30) days after
the imposition thereof if at all times during such thirty (30) day period the
Borrowers are making a diligent effort by appropriate means to remove such Lien
and the existence of such Lien will not have a Material Adverse Effect);
(c) Covenants With Seven Business Day Grace Period. The Borrowers
shall fail to observe or perform any covenant or agreement contained in Sections
5.1(a), 5.1(b)(ii) or 5.1(c)(ii), and such failure shall remain unremedied for
seven (7) Business Days after oral notice thereof to an Authorized Officer
(which shall be confirmed in writing (which may be by facsimile) before the end
of such seven (7) Business Day period);
(d) Covenants With Thirty Day Grace Period. The Borrowers shall
fail to observe or perform any covenant or agreement contained in any Loan
Document, other than those referred to in Sections 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) either Borrower's obtaining knowledge thereof or
(ii) notice thereof shall have been given to an Authorized Officer by any Lender
or the Agent before the end of such thirty (30) day period); provided that if
such failure is capable of
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being remedied but only in a period of more than thirty (30) days, then such
failure shall not constitute an Event of Default until sixty (60) days after the
earlier of the above dates if each Borrower is making a diligent effort by
appropriate means to observe or perform such covenant and there is otherwise no
Material Adverse Effect as a result of such delay;
(e) Representations. Any representation, warranty or statement
made or deemed to be made by either Borrower or any of their respective officers
under or in connection with any Loan Document shall have been inaccurate,
incomplete or incorrect in any respect when made or deemed to be made and such
inaccuracy, incompleteness or incorrectness could have a Material Adverse
Effect;
(f) Non-Payment of Other Indebtedness. Either Borrower shall fail
to make any payment of principal of or interest on any of its Indebtedness
(other than the Obligations) exceeding the Material Amount in the aggregate when
due (whether at stated maturity, by acceleration, on demand or otherwise) after
giving effect to any applicable grace period;
(g) Defaults Under Other Agreements. Either Borrower shall fail to
observe or perform any covenant or agreement contained in any agreement or
instrument relating to any of its Indebtedness (other than the Obligations) in
excess of the Material Amount in the aggregate within any applicable grace
period, or any other event shall occur if 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; or any such
Indebtedness shall be required to be prepaid (other than by a regularly
scheduled required prepayment) in whole or in part prior to its stated maturity;
(h) Bankruptcy. Either Borrower 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 either Borrower 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 the property of either Borrower; or either
Borrower 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 either Borrower any such proceeding
that remains undismissed for a period of sixty (60) days; or either Borrower is
adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or either Borrower 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 either Borrower shall call a meeting of
its creditors with a view to arranging a composition or adjustment of its debts;
or either Borrower shall by any act or failure to act indicate its consent to,
approval of or acquiescence in any of the foregoing; or any corporate action is
taken by either Borrower for the purpose of effecting any of the foregoing;
(i) Money Judgment. A judgment or order for the payment of money
in excess of the Material Amount shall be rendered against either Borrower 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);
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(j) 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
Borrowers or any ERISA Affiliate shall withdraw from a Multiemployer Plan under
circumstances that the Required Lenders determine could have a material adverse
effect on the financial condition of either Borrower; and in case of the
occurrence of any event or condition described in clauses (i) through (v) above,
such event or condition together with all other such events or conditions, if
any, could subject either Borrower to any tax, penalty or other liabilities in
the aggregate material in relation to the business, operations, property or
financial or other condition of either Borrower;
(k) Loan Documents. Any of the Loan Documents shall cease for any
reason to be in full force and effect, a breach by the Borrowers under any of
the Acknowledgement Agreements shall occur, or any action shall be taken by any
Person to terminate, revoke or discontinue, or to assert the invalidity or
unenforceability of, any of the Loan Documents;
(l) Security Interests. The Lenders shall cease for any reason,
other than in accordance with the terms of the Security Agreement or the
Servicing Security Agreement, to have valid and perfected security interests in
the Collateral or the Servicing Collateral, respectively (with the priority as
set forth in Section 4.11), or any Person shall take any action to discontinue
or to assert the invalidity or unenforceability of such security interests; or
(m) Servicing Event of Default. A Servicing Event of Default shall
occur;
THEN, the Agent shall notify the Lenders of such Event of Default and may, and
upon the written request of the Required Lenders, shall, by written notice to
the Borrowers, take any or all of the following actions: (A) declare the
Commitments terminated, whereupon the Commitments of each Lender shall terminate
immediately without any other notice of any kind; and (B) declare the principal
of and any accrued interest on the Loans, and all other Obligations to be,
whereupon the same shall become, forthwith due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrowers; provided that, if an Event of Default specified in Section 6.1(h)
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 Borrowers.
ARTICLE 7
THE AGENT
SECTION 7.1 APPOINTMENT OF AGENT.
Each Lender hereby designates Bankers Trust Company as Agent
to act as herein specified. Each Lender hereby irrevocably authorizes, and each
holder of any Note by the acceptance of a Note shall be deemed irrevocably to
authorize, the Agent to take such action on
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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 Agent by the terms hereof and
thereof and such other powers as are reasonably incidental thereto. The Agent
may perform any of its duties hereunder or thereunder by or through its agents
or employees.
SECTION 7.2 NATURE OF DUTIES OF AGENT.
The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement and the other Loan Documents.
Neither the Agent nor any of its 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 wilful misconduct as evidenced by a final judgment of a court of competent
jurisdiction. The duties of the Agent shall be mechanical and administrative in
nature; the Agent shall not 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 the Agent 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 AGENT.
(a) Independently and without reliance upon the Agent, 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
each Borrower and its Affiliates in connection with the taking or not taking of
any action in connection herewith and (ii) its own appraisal of the
creditworthiness of each Borrower and its Affiliates, and, except as expressly
provided in this Agreement, the Agent shall have no 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) The Agent shall not 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
Collateral or the Servicing Collateral or the validity, perfection or priority
of any security interest in the Collateral or the Servicing Collateral or the
financial condition of each Borrower or its Affiliates 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 each Borrower or its Affiliates, or the existence or
possible existence of any Potential Default or Event of Default.
SECTION 7.4 CERTAIN RIGHTS OF AGENT.
If the Agent shall request instructions from the Required
Lenders, the Required Facility 1 Lenders or the Required Facility 2 Lenders with
respect to any act or action (including
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the failure to act) in connection with this Agreement or any other Loan
Document, the Agent shall be entitled to refrain from such act or taking such
action unless and until the Agent shall have received instructions from the
Required Lenders, the Required Facility 1 Lenders or the Required Facility 2
Lenders, as the case may be; and the 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 the Agent as a result of the
Agent acting or refraining from acting hereunder or under any other Loan
Document in accordance with the instructions of the Required Lenders, the
Required Facility 1 Lenders or the Required Facility 2 Lenders, as the context
may require. 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 AGENT.
The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any notice, believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person. The Agent may
consult with legal counsel (including with the consent of DFC, which consent
shall not be unreasonably withheld, counsel for DFC or DMC), independent public
accountants (including those retained by DFC or DMC if a representative of DFC
or DMC, as applicable, shall have been given the right upon reasonable notice to
be present by phone or in person during such consultation) 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 AGENT.
To the extent the Agent is not reimbursed and indemnified by
DFC or DMC, each Lender will reimburse and indemnify the Agent, in proportion to
its respective Commitments (before giving effect to any termination of the
Commitments pursuant to the terms of this Agreement) from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including reasonable attorneys' fees and disbursements)
or disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the 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 the
Agent's gross negligence or wilful misconduct as evidenced by a final judgment
of a court of competent jurisdiction.
SECTION 7.7 AGENT IN ITS INDIVIDUAL CAPACITY.
With respect to its obligation to lend under this Agreement,
the Loans made by it and the Notes issued to it, the Agent 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," "Required Facility 1 Lenders,"
"Required Facility 2 Lenders", "holders of Notes" or any similar terms shall,
unless the context clearly otherwise indicates, include the Agent in its
individual capacity. The Agent may
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accept deposits from, lend money to, and generally engage in any kind of
banking, trust, financial advisory or other business with each Borrower or any
Affiliate of the Borrowers as if it were not performing the duties specified
herein, and may accept fees and other consideration from the Borrowers and any
Affiliates of the Borrowers 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.
The Agent 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 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 AGENT.
(a) The Agent may resign as Agent hereunder at any time by giving
written notice thereof to the Lenders and the Borrowers if (i) it believes that
its duties hereunder present an actual or potential conflict of interest with
any other business of the Agent or (ii) it 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 administration thereof by any Governmental
Authority charged with the interpretation or administration thereof, or
compliance by the Agent with any request or directive (whether or not having the
force of law) of any such Authority, shall make it unlawful or improper for the
Agent to continue as Agent hereunder. Upon any such resignation or any removal
of the Agent pursuant to Section 7.9(b), the Required Lenders shall have the
right, upon five (5) days' notice to the Borrowers, to appoint a successor
Agent, which shall be a Lender. If no successor Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within thirty (30) days after the retiring Agent's giving of notice of
resignation, then, upon five (5) days' notice to the Borrowers, the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a
bank which 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.
(b) The Agent may be removed by the unanimous vote of all the
Lenders hereunder (not including the vote of the Agent if the Agent is also a
Lender hereunder) if (i) the Agent has engaged in wilful misconduct with respect
to its obligations and duties hereunder as evidenced by a final judgment of a
court of competent jurisdiction and (ii) has failed to cure such wilful
misconduct after sixty (60) days notice by the Lenders to the Agent of such
wilful misconduct.
(c) Any resignation or removal of the Agent hereunder shall be
effective only upon the acceptance of any appointment as Agent hereunder by a
successor Agent. Upon such acceptance, such successor Agent shall succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents. After any
retiring
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Agent's resignation hereunder as Agent, 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 Agent under this Agreement.
ARTICLE 8
MISCELLANEOUS PROVISIONS
SECTION 8.1 NOTICES.
(a) Except as otherwise expressly set forth herein, all notices,
requests and other communications to any party hereunder 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 I hereto or
such other address or telecopy number as such party may hereafter specify by
notice to the Agent and the Borrowers. 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 or (b) if sent by overnight courier (with all charges
paid) providing for confirmation of delivery, then upon confirmation of delivery
by such courier; provided that notices to the Agent pursuant to Article II shall
not be effective until received.
(b) Any notice required to be given to one or more Borrowers
hereunder or under any other Loan Document shall be effective if delivered to
DFC, it being the intent that notice to DFC is effective notice to both
Borrowers. In connection therewith, DMC hereby irrevocably appoints DFC as its
agent to receive any and all notices hereunder and under any other Loan Document
and such appointment is coupled with an interest. In addition to the foregoing,
the Agent and the Lenders shall be entitled, but shall not be required, to rely
on notice from either Borrower as constituting notice from both Borrowers.
SECTION 8.2 AMENDMENTS, ETC.
No amendment or waiver of any provision of any Loan Document,
nor consent to any departure by the Borrowers therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Borrowers 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) notwithstanding anything else contained herein, no
amendment, waiver or consent shall, unless in writing and signed by all the
Lenders, do any of the following: (i) waive or change Section 5.2(e) or any of
the conditions specified in Article III, (ii) except as provided in Sections
8.6(g) and 8.6(h), increase the aggregate Commitments of the Lenders or subject
the Lenders to any additional obligations, (iii) reduce the principal of, or
interest on, the Notes or reduce any fees payable to the Lenders hereunder, (iv)
postpone any date fixed for any payment in respect of principal of, or interest
on, the Notes, or the payment of any fees payable hereunder, or waive any Event
of Default under Section 6.1(a), (v) change the percentage of the Commitments,
the definitions of "Required Lenders," "Collateral Value of the Facility 1
Tranche A Borrowing Base," "Collateral Value of the Facility 1 Tranche B
Borrowing Base," "Collateral Value of the Facility 2 Tranche A Borrowing Base,"
"Collateral Value of the Facility 2 Tranche B Borrowing Base," "Collateral Value
of the Pledged Servicing Portfolio", "Eligible Conforming Mortgage Loan,"
"Eligible Gestation Mortgage Loan," "Eligible Mortgage-Backed Security,"
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"Eligible Mortgage Loan," "Eligible Non-Conforming Mortgage Loan," "Eligible REO
Property" or "Eligible Servicing Receivable" (or any definitions contained in
such definitions), or the number or identity of Lenders that is required for any
or all of the Lenders to take any action hereunder, (vi) release the Lien of the
Lenders on any of the Collateral or the Servicing Collateral, except as provided
in the Security Agreement or the Servicing Security Agreement, respectively, or
(vii) amend this Section 8.2 or Section 8.6; (b) no amendment, waiver or consent
shall, unless in writing and signed by the Agent, affect the rights or duties of
the Agent under this Agreement or any other Loan Document; and (c) no amendment,
waiver or consent shall, unless in writing and signed by Bankers Trust, amend,
waive or modify Section 2.1(e) or Section 2.4(c), (d) or (e) or otherwise affect
the rights or obligations of Bankers Trust with respect to Swing-Line Loans.
SECTION 8.3 NO WAIVER; REMEDIES CUMULATIVE.
No failure or delay on the part of the Agent or any Lender in
exercising any right or remedy hereunder or under any other Loan Document and no
course of dealing between the Borrowers, on the one hand, and the Agent or any
Lender, on the other hand, 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 Agent or any Lender would otherwise
have. No notice to or demand on the Borrowers not required hereunder or under
the other Loan Documents in any case shall entitle the Borrowers to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the 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 Borrowers shall:
(a) pay all reasonable out-of-pocket costs and expenses of the
outside legal counsel of the Agent in connection with the preparation, execution
and delivery of, this Agreement and the other Loan Documents, and any amendment,
modification or supplement hereof or thereof, including the documentation
required pursuant to Section 3.1(c) and the closings contemplated thereunder,
and (ii) pay all reasonable out-of-pocket costs and expenses of the 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, any refinancing, the
renegotiating or the 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 (including allocated costs of internal counsel) for the Agent and, in
the case of enforcement, for each of the Lenders);
(b) pay and hold the 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
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save the 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) indemnify the 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 Borrowers of the proceeds of any of the Loans or the Borrowers'
entering into and performing of the Loan Documents to which they are 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; provided that neither the Agent nor any Lender
shall have the right to be indemnified hereunder for its own gross negligence or
wilful misconduct as evidenced by a final judgment of a court of competent
jurisdiction. If and to the extent that the obligations of the Borrowers under
this Section 8.4 are unenforceable for any reason, the Borrowers hereby agrees
to make the maximum contribution to the payment and satisfaction of such
obligations that is permissible under applicable law.
SECTION 8.5 RIGHT OF SETOFF.
Subject to Section 2.16, in addition to and not in limitation
of all rights of offset that any Lender may have under applicable law, for so
long as any Event of Default has occurred and is continuing and whether or not
any Lender has made any demand or the Obligations have matured, such Lender
shall 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, and other indebtedness or property then or thereafter owing
to the Borrowers by, such Lender, whether or not related to any Loan Document or
any transaction hereunder.
SECTION 8.6 BENEFIT OF AGREEMENT.
(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 neither of the Borrowers may assign or transfer any of its
interest or delegate any of its obligations under the Loan Documents without the
prior written consent of the Lenders and any such assignment or transfer without
the prior written consent of the Lenders shall be null and void.
(b) Subject to the provisions of Section 2.13(c), any Lender may
make, carry or transfer Loans at, to or for the account of, any of its branch
offices or the office of an Affiliate of such Lender.
(c) Subject to the limitations set forth below, no Lender may
assign its rights or delegate its obligations under this Agreement and the other
Loan Documents and the Intercreditor Agreement to any other financial
institution without the prior consent of the Agent and, unless an Event of
Default has occurred and is continuing, the Borrowers (such consent not to be
unreasonably withheld); provided that (i) no Lender may make an assignment
hereunder to a Person (other than an Affiliate of such Lender or an existing
Lender) that is not a financial institution, (ii) each assignment of all or a
portion of a Lender's Commitments shall include a
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corresponding portion of such Lender's Loans, (iii) no Lender may assign less
than $10,000,000 of its Commitments in any single assignment, and (iv) an
assignment fee in the amount of $3,500 for each assignment hereunder shall be
payable to the Agent by the applicable assignee. Any assignment or delegation
specifically prohibited by the preceding sentence shall be null and void.
Notwithstanding the foregoing, any Lender may assign its rights and delegate its
obligations under this Agreement and the other Loan Documents and the
Intercreditor Agreement to any Affiliate of such Lender without notice to or
consent by the Borrowers, the Agent, or any other Person, provided the fee set
forth in the proviso to the immediately preceding sentence shall be paid. Each
assignment by a Lender hereunder shall be made pursuant to an Assignment and
Acceptance in substantially the form of Exhibit R hereto. In the case of an
assignment by a Lender, upon the effective date of such assignment as set forth
in the Assignment and Acceptance executed by such Lender, the assignee shall
have, to the extent of such assignment (unless otherwise provided thereby), the
same rights and benefits as it would have if it were a Lender under the Loan
Documents and the Intercreditor Agreement and the holder of a Note and, if the
assignee has expressly assumed, for the benefit of the Borrowers, the assignor
Lender's obligations hereunder and under the other Loan Documents and the
Intercreditor Agreement, such assignor Lender shall be relieved of its
obligations hereunder to the extent of such assignment and assumption.
(d) 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 (x) extend the final scheduled
maturity of any of the Loans or the Commitment in which such participant is
participating, (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 or Servicing Collateral except as provided
in the Security Agreement or the Servicing Security Agreement, respectively. 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 Borrowers hereunder shall be determined as if such Lender
had not sold such participation, provided that such participant shall be
entitled to receive additional amounts under Sections 2.13, 2.14 and 2.15 on the
same basis as if it were a Lender.
(e) Any Lender may furnish any information concerning the
Borrowers and its Affiliates in the possession of such Lender from time to time
to Affiliates, participants and assignees, and prospective participants and
assignees, of such Lender. No Lender or its Affiliates may furnish such
information to any prospective assignee or participant without the prior written
consent of DFC, which consent will not be unreasonably withheld. Any prospective
assignee or participant shall be required to execute a confidentiality agreement
in the form of Exhibit L before receiving any such information.
<PAGE> 78
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(f) Any Lender may at any time pledge all or any portion of its
rights under the Loan Documents to a Federal Reserve Bank without notice to or
consent of either Borrower, the Agent or any other Lender. No such pledge shall
release the transferor Lender from its obligations hereunder.
(g) So long as no Potential Default or Event of Default has
occurred and is continuing, the Borrowers may at any time propose that one or
more commercial banks (each, an "APPLICANT LENDER") become an additional Lender
hereunder. At such time, the Borrowers shall notify each of the Lenders of (i)
the identity of such Applicant Lender, (ii) the proposed increase in the
aggregate Commitments resulting from the addition of such Applicant Lender as a
Lender hereunder, and (iii) such Applicant Lender's proposed Commitments (which
must be not less than $15,000,000 in the case of a Facility 1 Commitment and not
less than $1,000,000 in the case of a Facility 2 Commitment). Upon the Applicant
Lender's addition as a Lender hereunder, such Applicant Lender shall become a
party to this Agreement and the Intercreditor Agreement and a Lender hereunder
and under the other Loan Documents and the Intercreditor Agreement, shall be
entitled to all rights, benefits and privileges accorded a Lender under this
Agreement and under the other Loan Documents and the Intercreditor Agreement,
and shall be subject to all obligations of a Lender under this Agreement and
under the other Loan Documents and the Intercreditor Agreement.
(h) The addition of any Applicant Lender as a Lender hereunder
shall become effective upon the occurrence of each of the following events:
(i) the Agent shall have given its prior written consent
to such Applicant Lender, which consent shall not be unreasonably
withheld, delayed or conditioned;
(ii) such Applicant Lender, the Borrowers and the Agent
shall have mutually agreed on the date (the "ADJUSTMENT DATE") on which
such Applicant Lender shall become a Lender hereunder and under the
other Loan Documents and the Intercreditor Agreement; and
(iii) on such Adjustment Date:
(A) such Applicant Lender, the Borrowers and the
Agent shall execute and deliver to each of the other
signatories thereto an Additional Lender Agreement in
substantially the form of Exhibit Q hereto, the Agent shall
deliver a copy of such executed Additional Lender Agreement
and a copy of the Commitment Notice attached as Schedule I
thereto to each of the Lenders, and the Commitments of each of
the Lenders shall be modified as set forth in such Commitment
Notice;
(B) the Borrowers shall execute and deliver to
such Applicant Lender (x) a duly executed Facility 1 Note
and/or a duly executed Facility 2 Note, as the case may be,
(y) a reliance letter from counsel to the Borrowers addressed
to such Applicant Lender and in form and substance
satisfactory to such Applicant Lender, providing that such
Applicant Lender may rely on any opinion letters of
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such counsel addressed to the existing Lenders, as if such
opinion letters were addressed directly to such Applicant
Lender, and (z) certified copies of the resolutions of the
Board of Directors of each of the Borrowers evidencing the
authorization of such Borrower to enter into such Additional
Lender Agreement and consummate the transactions and matters
contemplated thereby; and
(C) no Potential Default or Event of Default
shall have occurred and be continuing as of such date.
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 TO WHICH EITHER BORROWER IS A PARTY 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, EACH OF THE BORROWERS HEREBY ACCEPTS
FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO HEREBY IRREVOCABLY AND
UNCONDITIONALLY WAIVE TRIAL BY JURY, AND, TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE BORROWERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OR MAINTAINING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS.
(c) EACH OF THE BORROWERS 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, TO EACH SUCH BORROWER AT ITS SAID ADDRESS, SUCH SERVICE TO
BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. IN ADDITION, EACH BORROWER
HEREBY IRREVOCABLY APPOINTS CT CORPORATION, 1633 BROADWAY, NEW YORK, NEW YORK
10019 (THE "PROCESS AGENT") TO RECEIVE, FOR IT AND ON ITS BEHALF, SERVICE OF
PROCESS IN ANY PROCEEDINGS OR ACTIONS IN NEW YORK. IF FOR ANY REASON THE PROCESS
AGENT IS UNABLE TO ACT AS SUCH, EACH BORROWER WILL PROMPTLY NOTIFY THE AGENT AND
WITHIN THIRTY (30) DAYS APPOINT A SUBSTITUTE PROCESS AGENT ACCEPTABLE TO THE
AGENT.
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(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY
LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST EITHER BORROWER IN ANY OTHER
JURISDICTION.
(e) EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN THIS SECTION 8.7, ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES. THIS WAIVER IS MADE KNOWINGLY AND
VOLUNTARILY.
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 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 8.10 SURVIVAL OF REPRESENTATIONS AND INDEMNITIES.
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 Agent for the
account of the Lenders of the Notes regardless of any investigation made by the
Agent or the Lenders and of the Agent's and any Lender's access to any
information and shall continue in full force and effect so long as any
Obligation is outstanding and unpaid. The Borrowers' obligations under Sections
2.13, 2.14, 2.15 and 8.4 and under any other indemnification provisions of the
Loan Documents and each Lender's obligations under Sections 7.6 and 8.12 and
under any other indemnification provisions of the Loan Documents shall survive
the termination of this Agreement for any reason whatsoever and payment of the
Notes.
SECTION 8.11 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.
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SECTION 8.12 INDEMNIFICATION OF COLLATERAL AGENT.
To the extent that the Collateral Agent is not reimbursed and
indemnified by the Borrowers pursuant to the applicable Security Agreement, each
Lender will reimburse and indemnify the Collateral Agent, in proportion to the
unpaid principal amount of its outstanding Loans, or if no Loans are then
outstanding, in proportion to its Commitments, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses (including reasonable attorneys' fees and disbursements) or
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by or asserted against the Collateral Agent in performing its duties under the
Loan Documents, in any way relating to or arising out of the 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 the Collateral Agent's gross negligence
or wilful misconduct as evidenced by a final judgment of a court of competent
jurisdiction. The Collateral Agent shall be entitled to rely on the provisions
of this Section 8.12 as if it were a party to this Agreement.
SECTION 8.13 JOINT AND SEVERAL NATURE OF THE OBLIGATIONS.
The Borrowers agree that any and all of the Obligations of the
Borrowers hereunder and under each other Loan Document shall be the joint and
several obligation of each of them notwithstanding any absence herein or therein
of a reference such as "jointly and severally" with respect to any such
obligation.
SECTION 8.14 CERTAIN WAIVERS.
Each of the Borrowers agrees that its joint and several
liability under this Agreement and each of the other Loan Documents shall be
absolute, unconditional and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of the
Obligations of the other Borrower or any other Person under this Agreement or
any other Loan Document;
(b) the failure of any Lender:
(i) to assert any claim or demand or to enforce any right
or remedy against the other Borrower or any other Person (including any
guarantor) under the provisions of this Agreement or any other Loan
Document or otherwise, or
(ii) to exercise any right or remedy against any guarantor
of, or Collateral or Servicing Collateral securing, any Obligations;
(c) any change in the time, manner or place or payment of, or in
any other term of, all or any of the Obligations, or any other extension,
compromise or renewal of any Obligation with respect to the other Borrower or
any other Person;
(d) any reduction, limitation, impairment or termination of any of
the Obligations of the other Borrower or any other Person for any reason,
including any claim of waiver, release, surrender, alteration or compromise, and
the liability of each of the Borrowers shall not be subject to (and each of them
hereby waives any right to or claim of) any defense or setoff, counterclaim,
recoupment or termination whatsoever by reason of the invalidity, illegality,
non-
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genuineness, irregularity, compromise, unenforceability of, or any other event
or occurrence affecting, any of the Obligations of the other Borrower or any
other Person;
(e) any rescission, waiver, amendment or other modification of, or
any consent to departure from, any of the Obligations of the other Borrower or
any other Person under the terms of this Agreement or any other Loan Document;
(f) any exchange, release or non-perfection of any Collateral or
Servicing Collateral, or any release, amendment or waiver of, or consent to
departure from, any guaranty or other agreement from the other Borrower or any
other Person, securing any of the Obligations; or
(g) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the other Borrower
or any surety or any guarantor. Each of the Borrowers waives any right to
require that any resort be made by any Lender to any of the Collateral or the
Servicing Collateral.
SECTION 8.15 SUBROGATION, ETC.
At any time that a payment is made by either Borrower with
respect to the Obligations, such Borrower shall have a right of contribution
against the other Borrower in the maximum amount permitted by applicable law,
which right of contribution shall be subject to adjustment at the time of any
subsequent payment with respect to the Obligations; provided, that the maximum
aggregate liability of either Borrower with respect to such contribution rights
of the other Borrower shall not exceed the maximum amount of liability that such
first Borrower can incur without rendering such contribution rights void or
voidable under applicable law relating to fraudulent conveyance or fraudulent
transfers, and not for any greater amount, and provided further, that neither
Borrower will exercise any such contribution rights or any other rights which it
may acquire by reason of any payment made hereunder, whether by way of rights of
subrogation, reimbursement or otherwise, until the prior payment, in full and in
cash, of all Obligations and the termination of all Commitments. Any amount paid
to either Borrower on account of any payment made hereunder prior to the payment
in full of all Obligations other than intercompany payments or reimbursements
made in the ordinary course of the businesses of each Borrower shall be held in
trust for the benefit of the Agent and the Lenders and shall immediately be paid
to the Agent and credited and applied against the Obligations, whether matured
or unmatured, in accordance with the terms of this Agreement and the other Loan
Documents. In furtherance of the foregoing, for so long as any Obligation or any
Commitment remains outstanding, each Borrower shall refrain from taking any
action or commencing any proceeding against the other Borrower (or its
successors or assigns, whether in connection with a bankruptcy proceeding or
otherwise) to recover any amounts in respect of payments made under this
Agreement to the Agent and the Lenders.
SECTION 8.16 CONFIDENTIALITY.
Each Lender agrees not to disclose, without the prior written
consent of the Borrowers, any of the financial information or other information
of the Borrowers or any Affiliate of either of the Borrowers, designated in
writing by either Borrower as "confidential" and obtained under or in connection
with this Agreement or any of the other Loan Documents.
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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 or as otherwise required to be provided by the Lender in the
ordinary course of its business; (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 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 Borrowers 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) for disclosure of any such
information prior to disclosure of such information so that the Borrowers 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 8.16, (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 8.17 EFFECTIVENESS.
(a) This Agreement shall become effective as of the date (the
"AMENDMENT EFFECTIVE DATE"), on which each of the following conditions have been
satisfied to the satisfaction of the Agent:
(i) the Borrowers shall have delivered to the Agent, in
form and substance and in quantities reasonably satisfactory to the
Agent and its counsel, all of the instruments and documents described
in Section 3.1(a);
(ii) the Borrowers shall have paid all Fees and other
Obligations required to have been paid under the Original Credit
Agreement, this Agreement and the other Loan Documents prior to or on
the Amendment Effective Date;
(iii) all conditions precedent set forth in Section 3.1(b)
shall have been satisfied at and as of such date (both before and after
giving effect to this Agreement and the other Loan Documents); and
(iv) 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 prior to the execution, delivery and performance
of this Agreement and the other Loan Documents and for the same to
constitute the legal, valid and binding obligations of the Borrowers,
enforceable in accordance with their respective terms, shall have been
done and performed and shall
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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 Agent and waived by all of the Lenders in
writing.
(b) If each of the above conditions has been satisfied, on the
Amendment Effective Date, all Loans of each Type outstanding under the Original
Credit Agreement shall remain outstanding and shall be deemed to be Loans of the
same Type under this Agreement governed by the terms hereof. Upon receiving the
Notes delivered pursuant to subsection (a)(i) above, each Lender that was a
party to the Original Credit Agreement shall promptly cancel its promissory note
delivered under the Original Credit Agreement and return such promissory note to
the Borrowers. No failure of a Lender to cancel or return such promissory note
shall affect the validity of the new Notes delivered hereunder.
SECTION 8.18 RATIFICATION; NO NOVATION.
Except as set forth herein and therein, all Loan Documents are
hereby ratified and confirmed in all respects. The term Loan Documents, as used
in the Loan Documents, shall mean the Loan Documents as amended hereby and
thereby. The parties do not intend for this Agreement or any of the other Loan
Documents to effect, nor does this Agreement or any of the Loan Documents
constitute, a novation of the obligations of the Borrowers evidenced by the
Original Credit Agreement and the Loan Documents referred to therein. This
Agreement and the other Loan Documents constitute an amendment and restatement
of the terms governing such obligations.
SECTION 8.19 INTEGRATION.
This Agreement and the other Loan Documents represent the
entire agreement of the Borrowers, the Agent and the Lenders with respect to the
subject matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to the subject
matter hereof or thereof not expressly set forth or referred to herein or in the
other Loan Documents.
SECTION 8.20 WAIVER OF JURY TRIAL.
THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THE SUBJECT
MATTER OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
DORAL FINANCIAL CORPORATION,
as a Borrower
By: /s/ Mario S. Levis
--------------------------------------
Mario S. Levis
Executive Vice President and Treasurer
DORAL MORTGAGE CORPORATION,
as a Borrower
By: /s/ Mario S. Levis
--------------------------------------
Mario S. Levis
Executive Vice President
Facility 1 Commitment: BANKERS TRUST COMPANY,
$60,250,000 as Agent and as a Lender
Facility 2 Commitment:
$1,750,000 By: /s/ Kevin M. McCann
---------------------------------
Name: Kevin M. McCann
---------------------------------
Title: Managing Director
---------------------------------
Facility 1 Commitment: FIRST UNION NATIONAL BANK,
$40,000,000 as a Lender
Facility 2 Commitment:
$1,000,000 By: /s/ R. Steven Hall
---------------------------------
Name: R. Steven Hall
---------------------------------
Title: Vice President
---------------------------------
Facility 1 Commitment: BANKBOSTON, N.A.,
$32,000,000 as a Lender
Facility 2 Commitment:
$1,000,000 By: /s/ Paul A. Chmielinski
---------------------------------
Name: Paul A. Chmielinski
---------------------------------
Title: Vice President
---------------------------------
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Facility 1 Commitment: THE BANK OF NEW YORK,
$28,000,000 as a Lender
Facility 2 Commitment:
$1,000,000 By: /s/ Robert A. Tweed
---------------------------------
Name: Robert A. Tweed
---------------------------------
Title: Vice President
---------------------------------
Facility 1 Commitment: NATIONAL CITY BANK OF KENTUCKY,
$27,000,000 as a Lender
Facility 2 Commitment:
$1,000,000 By: /s/ Robert J. Ogburn
---------------------------------
Name: Robert J. Ogburn
---------------------------------
Title: Vice President
---------------------------------
Facility 1 Commitment: CREDIT LYONNAIS, NEW YORK BRANCH,
$24,250,000 as a Lender
Facility 2 Commitment:
$750,000 By: /s/ W. Jay Buckley
---------------------------------
Name: W. Jay Buckley
---------------------------------
Title: Vice President
---------------------------------
Facility 1 Commitment: HIBERNIA NATIONAL BANK,
$19,250,000 as a Lender
Facility 2 Commitment:
$750,000 By: /s/ Stephanie F. Tyner
---------------------------------
Name: Stephanie F. Tyner
---------------------------------
Title: Assistant Vice President
---------------------------------
Facility 1 Commitment: COLONIAL BANK,
$19,250,000 as a Lender
Facility 2 Commitment:
$750,000 By: /s/ Amy J. Nunnley
---------------------------------
Name: Amy J. Nunnley
---------------------------------
Title: Senior Vice President
---------------------------------
<PAGE> 1
EXHIBIT 10.89
AMENDED AND RESTATED
CREDIT AGREEMENT
(SERVICING FACILITY)
Dated as of June 25, 1999
Between
DORAL FINANCIAL CORPORATION,
DORAL MORTGAGE CORPORATION,
THE LENDERS PARTY HERETO
And
BANKERS TRUST COMPANY,
as Agent
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE 1 DEFINITIONS...................................................................................1
Section 1.1 Defined Terms.........................................................................1
Section 1.2 Terms Generally......................................................................13
ARTICLE 2 AMOUNTS AND TERMS OF LOANS...................................................................13
Section 2.1 Commitments..........................................................................13
Section 2.2 Method of Borrowing and of Conversions/Continuations.................................13
Section 2.3 Conversions/Continuations of Loans...................................................14
Section 2.4 Disbursement of Funds................................................................15
Section 2.5 Notes................................................................................15
Section 2.6 Interest.............................................................................16
Section 2.7 Termination of Commitments...........................................................16
Section 2.8 Mandatory Repayments.................................................................17
Section 2.9 Optional Prepayments.................................................................17
Section 2.10 Fees.................................................................................17
Section 2.11 Payments, Etc,.......................................................................18
Section 2.12 Eurodollar Rate Not Determinable; Illegality or Impropriety..........................19
Section 2.13 Reserve Requirements; Change in Circumstances........................................20
Section 2.14 Indemnity............................................................................21
Section 2.15 Taxes................................................................................22
Section 2.16 Sharing of Setoffs...................................................................23
ARTICLE 3 CONDITIONS TO LOANS..........................................................................23
Section 3.1 Conditions to Loans..................................................................23
ARTICLE 4 REPRESENTATIONS AND WARRANTIES...............................................................25
Section 4.1 Corporate Existence; Compliance with Law and Contractual Obligations.................26
Section 4.2 Corporate Power; Authorization; Enforceable Obligations..............................26
Section 4.3 No Legal or Contractual Bar..........................................................26
Section 4.4 Financial Information................................................................26
Section 4.5 No Material Litigation...............................................................27
</TABLE>
<PAGE> 3
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<TABLE>
<S> <C>
Section 4.6 Taxes................................................................................27
Section 4.7 Investment Company Act...............................................................27
Section 4.8 Subsidiaries.........................................................................27
Section 4.9 Use of Proceeds......................................................................28
Section 4.10 ERISA................................................................................28
Section 4.11 Security Interests...................................................................28
Section 4.12 Agency Approvals.....................................................................28
Section 4.13 Solvency.............................................................................29
Section 4.14 Minimum Servicing Portfolio..........................................................29
Section 4.15 Year 2000 Compliance.................................................................29
ARTICLE 5 COVENANTS....................................................................................29
Section 5.1 Affirmative Covenants................................................................29
Section 5.2 Negative Covenants of Each Borrower..................................................34
Section 5.3 Additional Negative Covenants........................................................38
ARTICLE 6 EVENTS OF DEFAULT............................................................................39
Section 6.1 Events of Default....................................................................39
ARTICLE 7 THE AGENT....................................................................................41
Section 7.1 Appointment of Agent.................................................................41
Section 7.2 Nature of Duties of Agent............................................................41
Section 7.3 Lack of Reliance on Agent............................................................42
Section 7.4 Certain Rights of Agent..............................................................42
Section 7.5 Reliance by Agent....................................................................43
Section 7.6 Indemnification of Agent.............................................................43
Section 7.7 Agent in its Individual Capacity.....................................................43
Section 7.8 Holders of Notes.....................................................................43
Section 7.9 Successor Agent......................................................................44
ARTICLE 8 MISCELLANEOUS PROVISIONS.....................................................................44
Section 8.1 Notices..............................................................................44
Section 8.2 Amendments, Etc......................................................................45
Section 8.3 No Waiver; Remedies Cumulative.......................................................45
Section 8.4 Payment of Expenses, Etc.............................................................46
Section 8.5 Right of Setoff......................................................................46
Section 8.6 Benefit of Agreement.................................................................47
</TABLE>
<PAGE> 4
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<TABLE>
<S> <C> <C>
Section 8.7 GOVERNING LAW; SUBMISSION TO JURISDICTION............................................49
Section 8.8 Counterparts.........................................................................50
Section 8.9 Headings Descriptive.................................................................50
Section 8.10 Survival of Representations and Indemnities..........................................50
Section 8.11 Severability.........................................................................51
Section 8.12 Indemnification of Collateral Agent..................................................51
Section 8.13 Joint and Several Nature of the Obligations..........................................51
Section 8.14 Certain Waivers......................................................................51
Section 8.15 Subrogation, Etc.....................................................................52
Section 8.16 Confidentiality......................................................................53
Section 8.17 Integration..........................................................................53
Section 8.18 Effectiveness........................................................................54
Section 8.19 Ratification; No Novation............................................................55
Section 8.20 WAIVER OF JURY TRIAL.................................................................55
</TABLE>
<TABLE>
<S> <C>
EXHIBITS
Exhibit A Form of Note
Exhibit B Amended and Restated Security and Collateral Agency Agreement
Exhibit C-1 Form of Opinion of Borrowers' New York Counsel
Exhibit C-2 Form of Opinion of Borrowers' Puerto Rico Counsel
Exhibit D-1 Officer's Certificate (DFC)
Exhibit D-2 Officer's Certificate (DMC)
Exhibit E Notice of Borrowing
Exhibit F Notice of Conversion/Continuation
Exhibit G Form of Power of Attorney
Exhibit H Addresses for Notices
Exhibit I Material Litigation
Exhibit J Form of Confidentiality Agreement
Exhibit K Permitted Subordinated Indebtedness
Exhibit L-1 Form of Pledged Servicing Portfolio Report
Exhibit L-2 Form of Recourse Servicing Portfolio Report
Exhibit L-3 Form of Recourse Servicing Portfolio Statistics Report
Exhibit M Authorized Officers
Exhibit N Form of Assignment and Acceptance
Exhibit O Form of Additional Lender Agreement
</TABLE>
<PAGE> 5
AMENDED AND RESTATED CREDIT AGREEMENT
(SERVICING FACILITY)
THIS AMENDED AND RESTATED CREDIT AGREEMENT (SERVICING
FACILITY) is made and dated as of June 25, 1999, by and between the Lenders
party hereto from time to time, BANKERS TRUST COMPANY, a New York banking
corporation, as agent for the Lenders, DORAL FINANCIAL CORPORATION, a
corporation organized under the laws of the Commonwealth of Puerto Rico
("DFC"), and DORAL MORTGAGE CORPORATION, a corporation organized under the laws
of the Commonwealth of Puerto Rico, and a wholly-owned subsidiary of DFC
("DMC"), and together with DFC, each a "BORROWER" and collectively, the
"BORROWERS"), with reference to the First Amended and Restated Credit
Agreement, dated as of June 26, 1998, between the Borrowers, the Banker Trust
Company, as agent thereunder, and the lenders party thereto (as amended to the
date hereof, the "ORIGINAL CREDIT AGREEMENT"). Capitalized terms not otherwise
defined herein are defined in Article I.
The Lenders, the Agent and the Borrowers wish to amend and restate the
Original Credit Agreement in its entirety.
ACCORDINGLY, the parties hereto agree that the Original Credit
Agreement is amended and restated in its entirety as follows:
ARTICLE 1
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.
"ACKNOWLEDGMENT AGREEMENT" shall mean an acknowledgment
agreement in form and substance satisfactory to the Agent pursuant to
which FNMA, FHLMC, GNMA or any other Person which owns Mortgage Loans
or has issued mortgaged-backed securities for which either Borrower
holds direct servicing rights, acknowledges and recognizes the
security interest in such rights granted to the Secured Parties.
"ADJUSTED TANGIBLE NET WORTH" shall mean, as of any date, (a)
the sum of: (i) Book Net Worth as of such date, (ii) one percent
(1.0%) of the outstanding principal balance of Mortgage Loans in the
Servicing Portfolio as of such date, and (iii) the aggregate principal
amount of Permitted Subordinated Indebtedness outstanding as of such
date, less (b)(i) fifty percent (50%) of the amount of "interest only
strip securities", (ii) all purchased loan administration contracts
and (iii) all other assets that would be classified as intangible
assets under GAAP, including purchased and capitalized value of
<PAGE> 6
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servicing rights, goodwill (whether representing the excess cost over
book value of assets acquired or otherwise), patents, trademarks,
trade names, copyrights, franchises, deferred charges (including
unamortized debt discount and expense, organization and acquisition
costs and research and product development costs), and in accordance
with FASB 65, as amended by FASB 122, by the Financial Accounting
Standards Board, any originated mortgage servicing rights.
"ADJUSTMENT DATE" shall have the meaning given such term in
Section 8.6(h).
"AFFILIATE" shall mean, as to 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 (and all forms of the word) means the power to direct the
management and policies of a Person.
"AGENCY" shall mean FHA, FHLMC, FNMA, GNMA or VA.
"AGENT" shall mean Bankers Trust Company, in its capacity as
agent for the Lenders hereunder, and any successor agent appointed
pursuant to Section 7.9.
"AGREEMENT" shall mean this Agreement, as amended, modified
or supplemented from time to time.
"AMENDMENT EFFECTIVE DATE" shall have the meaning given such
term in Section 8.18.
"APPLICANT LENDER" shall have the meaning given such term in
Section 8.6(g).
"AUTHORIZED OFFICERS" shall mean those officers identified on
Exhibit M attached hereto; provided that DFC or DMC, as the case may
be, may, with respect to its Authorized Officers, by notice to the
Agent in accordance with Section 8.1, add or delete any person from
the list of Authorized Officers set forth above.
"BASE EURODOLLAR RATE" shall mean, with respect to any
Eurodollar Loan, a rate per annum equal to the offered rate for U.S.
Dollar deposits, in an amount equal to amount of the Eurodollar Loan
proposed to be subject to such rate and with maturities comparable to
such Eurodollar Interest Period, that appears on Telerate Page 3750 as
of approximately 11:00 a.m., London time, two (2) Eurodollar Business
Days prior to the commencement of such Eurodollar Interest Period;
provided that if such rate does not appear on Telerate Page 3750, the
"Base Eurodollar Rate" applicable to a particular Eurodollar Interest
Period shall mean a rate per annum equal to the rate at which U.S.
Dollar deposits, in an amount equal to the principal amount of the
Eurodollar Loans proposed to be subject to such rate and with
maturities comparable to such Eurodollar Interest Period, are offered
in immediately available funds in the London Interbank Market to the
London office of the Agent by leading banks in the London Interbank
Market as of approximately 11:00 a.m., London time, two (2) Eurodollar
Business Days prior to the commencement of the Eurodollar Interest
Period to which such Base Eurodollar Rate is applicable.
<PAGE> 7
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"BOARD" shall mean the Board of Governors of the Federal
Reserve System of the United States and any successor thereto.
"BOOK NET WORTH" shall mean (a) the sum of (i) the net worth,
determined in accordance with GAAP consistently applied, of (A) DFC on
a non-consolidated basis, (B) DMC, (C) Centro Hipotecaro de Puerto
Rico, Inc. and (D) other Subsidiaries of DFC engaged primarily in the
business of mortgage banking (as reasonably determined by the Agent,
but excluding Doral Bank, Doral Securities, Inc., Doral Bank FSB and
Doral Money, Inc.) and (ii) the amount of intercompany payables
between DFC and DMC, less (b) the sum of (i) the amount of
intercompany receivables between DFC and DMC and (ii) investments by
DFC and/or DMC in any Subsidiaries, which investments are listed under
the account titled "Other Assets" (as such term is used in the
consolidated statement of financial condition of DFC dated as of
December 31, 1998) or which are listed under other accounts.
Notwithstanding the foregoing, if at any time any of the entities
listed in clauses (B), (C) or (D) above become businesses engaged
primarily in activities other than mortgage banking (as reasonably
determined by the Agent), then the net worth of such entity shall not
be included in clause (i) for the purposes of calculating Book Net
Worth.
"BORROWER" and "BORROWERS" shall have the meaning given such
terms in the introductory paragraph of this Agreement.
"BORROWING" shall mean a borrowing pursuant to a Notice of
Borrowing consisting of Loans made concurrently by all of the Lenders.
"BORROWING DATE" shall mean any date on which the Lenders
make Loans at the Borrowers' request pursuant to Section 2.2.
"BUSINESS DAY" shall mean any day other than (i) a Saturday,
Sunday and any other day on which banks in New York City are required
or authorized to close or (ii) any public or bank holiday in the
Commonwealth of Puerto Rico.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the rules and regulations issues
thereunder as from time to time in effect.
"COLLATERAL" shall have the meaning given such term in
Section 2 of the Security Agreement.
"COLLATERAL AGENT" shall mean initially Bankers Trust
Company, in its capacity as "Collateral Agent" under the Security
Agreement, and any successor collateral agent thereto acceptable to
the Required Lenders and the Borrowers and designated as the
"Collateral Agent" under the Security Agreement.
"COLLATERAL VALUE OF THE PLEDGED SERVICING PORTFOLIO" shall
mean, at the time of determination thereof, an amount equal to the
lesser of (i) 70% of the fair market value of the servicing rights
relating to the Mortgage Loans included in the Pledged Servicing
Portfolio and (ii) 1.10% of the unpaid principal balance of the
Mortgage Loans included in the Pledged Servicing
<PAGE> 8
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Portfolio (in each case as reflected on the most recent Pledged
Servicing Valuation Report delivered to the Agent, provided that if no
Pledged Servicing Valuation Report has been delivered to the Agent in
accordance with Section 5.1(a)(ix)(B), then the Collateral Value of
the Pledged Servicing Portfolio shall be an amount determined by the
Agent in its sole discretion).
"COMMITMENT" shall mean, with respect to each Lender, the
commitment of such Lender to make Loans hereunder as set forth in
Section 2.1, as such commitment may be modified pursuant to Section
8.6(c).
"COMMITMENT FEE" shall have the meaning given such term in
Section 2.10(a).
"CONTRACTUAL OBLIGATION" shall mean, as to 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) any date on
which the Lenders, pursuant to Sections 2.2 and 2.3, convert Loans to
Loans bearing interest at a different interest rate, or continue
outstanding Eurodollar Loans for an additional Eurodollar Interest
Period (which date shall be a Eurodollar Business Day in the case of a
conversion of Prime Loans into Eurodollar Loans or the continuation of
a Eurodollar Loan) and (b) the last day of each Eurodollar Interest
Period in the case of a Eurodollar Loan.
"DEFAULTING LENDER" shall have the meaning given such term in
Section 2.4(b).
"DFC" shall have the meaning given such term in the
introductory paragraph of this Agreement.
"DMC" shall have the meaning given such term in the
introductory paragraph of this Agreement.
"ELIGIBLE SERVICING RECEIVABLE" shall have the meaning given
such term in the Warehouse Credit Agreement.
"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 from time
to time in effect.
"ERISA AFFILIATE" shall mean each trade or business,
including the Borrowers, whether or not incorporated, that together
with the Borrowers would be treated as a single employer under section
4001 of ERISA.
"EURODOLLAR BUSINESS DAY" shall mean any Business Day on
which commercial banks are open for international business (including
dealings in dollar deposits) in London, England.
<PAGE> 9
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"EURODOLLAR INTEREST PERIOD" shall mean, with respect to any
Eurodollar Loan, the period commencing on the Borrowing Date or a
Conversion/Continuation Date for such Eurodollar Loan, as the case may
be, and ending one, two or three months thereafter as the Borrowers
may elect in the applicable Notice of Borrowing or Notice of
Conversion/Continuation; provided that (a) any Eurodollar Interest
Period that would otherwise end on a day that is not a Eurodollar
Business Day shall be extended to the next succeeding Eurodollar
Business Day, unless such Eurodollar Business Day falls in another
calendar month, in which case such Eurodollar Interest Period shall
end on the next preceding Eurodollar Business Day; (b) any Eurodollar
Interest Period that begins on the last Eurodollar Business Day of a
calendar month or any Eurodollar Interest Period that begins on a day
for which there is no numerically corresponding day in the calendar
month at the end of such Eurodollar Interest Period shall end on the
last Eurodollar Business Day of such calendar month at the end of such
Eurodollar Interest Period; and (c) no Eurodollar Interest Period
shall end after the Maturity Date.
"EURODOLLAR LOAN" shall mean any Loan bearing interest at the
rate set forth in Section 2.6(a).
"EURODOLLAR RATE" shall mean, with respect to any Eurodollar
Interest Period, a rate per annum equal to the quotient obtained by
dividing (a) the Base Eurodollar Rate applicable to such Eurodollar
Interest Period by (b) one minus the Reserve Requirement (expressed as
a decimal) applicable to such Eurodollar Interest Period. The
Eurodollar Rate shall be rounded, if necessary, to the next higher
one-sixteenth of one percent (1/16 of 1%).
"EVENT OF DEFAULT" shall have the meaning given such term in
Article VI.
"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 Agent from three (3) Federal
funds brokers of recognized standing selected by it.
"FHA" shall mean the Federal Housing Administration and any
successor thereto.
"FHLMC" shall mean the Federal Home Loan Mortgage Corporation
and any successor thereto.
"FNMA" shall mean the Federal National Mortgage Association
and any successor thereto.
"FNMA/FHLMC SERVICING PORTFOLIO" shall mean the portfolio of
outstanding Mortgage Loans (excluding Mortgage Loans owned by either
Borrower or its Affiliates that are not serviced pursuant to a
Permitted Affiliate Servicing Agreement) that are
<PAGE> 10
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owned by FNMA or FHLMC or included in pools of Mortgage Loans with
respect to which FNMA or FHLMC has issued a Mortgage-Backed Security
and with respect to which either Borrower holds direct servicing
rights, and that are covered by an effective Acknowledgment Agreement.
"GAAP" shall mean generally accepted accounting principles in
the United States of America in effect from time to time.
"GNMA" shall mean the Government National Mortgage
Association and any successor thereto.
"GNMA SERVICING PORTFOLIO" shall mean the portfolio of
outstanding Mortgage Loans (excluding Mortgage Loans owned by either
Borrower or its Affiliates that are not serviced pursuant to a
Permitted Affiliate Servicing Agreement) that are guaranteed by GNMA
or included in pools of Mortgage Loans with respect to which GNMA has
issued a Mortgage-Backed Security and with respect to which either
Borrower holds direct servicing rights, and that are covered by an
effective Acknowledgment Agreement if requested by the Agent and the
Lenders.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government,
any state, commonwealth or other political subdivision thereof, and
any entity exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"HUD" shall mean the Department of Housing and Urban
Development and any successor thereto.
"INDEBTEDNESS" shall mean, with respect to any Person, all
items of indebtedness that, in accordance with GAAP, would be included
in determining liabilities as shown on the liability side of a
statement of financial condition 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, and shall also include 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 (but excluding
any obligations (whether recourse or nonrecourse) to advance principal
and interest payments and taxes and insurance payments on Mortgage
Loans in advance of receipt of such payments from the underlying
obligor under servicing agreements entered into by either Borrower
which agreements exist on the date hereof and any similar agreements
entered into after the date hereof).
"INFORMATION SYSTEMS AND EQUIPMENT" shall mean all computer
hardware, firmware and software, as well as other information
processing systems, or any
<PAGE> 11
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equipment containing embedded microchips, whether directly owned,
licensed, leased, operated or otherwise controlled by either Borrower
or any of their respective Subsidiaries, including through third-party
service providers, and which, in whole or in part, are used, operated,
relied upon, or integral to either Borrower's or any of their
Subsidiaries' conduct of their business.
"INTERCREDITOR AGREEMENT" shall mean the Intercreditor
Agreement dated as of June 25, 1999, between the Agent, the Lenders,
and each of the Warehouse Lenders, as amended, supplemented or
otherwise modified from time to time.
"LENDERS" shall mean the banks and other financial
institutions party hereto from time to time.
"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" shall mean a loan made by a Lender pursuant to Section
2.1 for the purposes set forth in Section 4.9.
"LOAN DOCUMENTS" shall mean this Agreement, the Security
Agreement, the Warehouse Security Agreement, the Notes, the
Acknowledgment Agreements and any other document, instrument or
agreement executed by the Borrowers in connection herewith or
therewith, as any of the same may be amended, modified or supplemented
from time to time.
"MARGIN STOCK" shall have the meaning given such term in
Regulation U of the Board.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse
effect with respect to (a) the business, operations or financial
condition of a Borrower, (b) the ability of any Borrower to pay and
perform its Obligations, (c) the validity or enforceability of this
Agreement, any of the other Loan Documents, or the rights and remedies
of the Secured Parties hereunder or thereunder or (d) the value of the
Collateral or the Warehouse Collateral.
"MATERIAL AMOUNT" shall mean, at any time, ten percent (10%)
of Book Net Worth, as set forth in the most recent annual or quarterly
statement of financial condition of DFC delivered to the Lenders,
absent manifest error in such statement.
"MATURITY DATE" shall mean June 23, 2000; provided that upon
the written request of the Borrowers to the Agent, the Lenders may
elect to extend the Maturity Date on terms as they may deem
appropriate in their sole discretion.
<PAGE> 12
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"MORTGAGE-BACKED SECURITY" shall mean any security (including
a participation certificate) issued by FHLMC, FNMA or any other
Person, or guaranteed by GNMA, that represents an interest in a pool
of Mortgage Loans.
"MORTGAGE LOAN" shall mean a one- to four-family residential
real estate-secured loan other than any loan secured by mobile homes
or other temporary housing facilities.
"MULTIEMPLOYER PLAN" shall mean a plan described in section
4001(a)(3) of ERISA to which the Borrowers or any ERISA Affiliate is
required to contribute on behalf of any of its employees.
"NOTE" shall have the meaning given such term in Section 2.5.
"NOTICE OF BORROWING" shall have the meaning given such term
in Section 2.2.
"NOTICE OF CONVERSION/CONTINUATION" shall have the meaning
given such term in Section 2.2.
"OBLIGATIONS" shall mean, collectively, the unpaid principal
of and interest on the Loans and any Notes and all other obligations
and liabilities of each of the Borrowers to the Agent, the Lenders,
the Collateral Agent and any other Secured Parties (including, without
limitation, interest accruing at the then applicable rate provided in
this Agreement after the maturity of the Loans and interest accruing
at the then applicable rate provided in this Agreement after the
filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to either
Borrower, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding), whether direct or indirect,
absolute or contingent, due or to become due, voluntary or
involuntary, whether or not jointly owed with others, liquidated or
unliquidated, or now existing or hereafter incurred, and whether or
not from time to time decreased or extinguished and later increased,
created or incurred, which may arise under, out of, or in connection
with, this Agreement, the Loans, any Notes, the Security Agreement,
the Warehouse Security Agreement, the other Loan Documents or any
other document made, delivered or given in connection therewith, in
each case whether on account of principal, interest, reimbursement
obligations, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all reasonable fees and disbursements
of counsel to any of the Agent, the Collateral Agent or any of the
other Secured Parties that are required to be paid by the Borrowers
pursuant to the terms of this Agreement, the Security Agreement, the
Warehouse Security Agreement, or any other Loan Document).
"ORIGINAL CREDIT AGREEMENT" shall have the meaning given such
term in the introductory paragraph hereof.
"PAYMENT OFFICE" shall mean the Agent's office located at One
Bankers Trust Plaza, New York, New York 10015, or such other office as
the Agent shall specify by notice to the Borrowers and the Lenders.
<PAGE> 13
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"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA and any
successor thereto.
"PERMITTED AFFILIATE SERVICING AGREEMENT" shall mean an
agreement between either Borrower and an Affiliate thereof pursuant to
which such Borrower has direct servicing rights to service Mortgage
Loans owned by such Affiliate on terms and at rates no less favorable
than would be obtained from a non-Affiliate of such Borrower,
including the Master Servicing and Collection Agreement between DFC
and Doral Bank, dated as of October 1, 1995, as amended by the First
Amendment to Master Servicing and Collection Agreement, dated as of
March 1, 1996.
"PERMITTED SUBORDINATED INDEBTEDNESS" shall mean any
Indebtedness (other than the Obligations) incurred by each Borrower
that is subordinated to the Obligations in accordance with the
criteria set forth on Exhibit K attached hereto.
"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 Borrowers
or any ERISA Affiliate (and any such plan no longer maintained by the
Borrowers or any of its ERISA Affiliates to which the Borrowers or any
of its ERISA Affiliates has made or was required to make any
contributions during the five years preceding the date on which such
plan ceased to be maintained).
"PLEDGED SERVICING PORTFOLIO" shall mean the FNMA/FLHMC
Servicing Portfolio and the GNMA Servicing Portfolio, in each case
with respect to which the Secured Parties have a valid and perfected
first priority security interest in the related direct servicing
rights owned by either Borrower.
"PLEDGED SERVICING PORTFOLIO REPORT" shall mean a report
prepared by the Borrowers in the format prescribed by the Mortgage
Bankers' Association of America listing the FNMA/GNMA/FHLMC statistics
and the other information shown on Exhibit L-1.
"PLEDGED SERVICING VALUATION REPORT" shall mean a report
prepared by a nationally recognized mortgage servicing broker
acceptable to the Agent and the Borrowers, and otherwise in form and
substance reasonably satisfactory to the Agent, setting forth the fair
market value of the servicing rights relating to the Mortgage Loans
included in the Pledged Servicing Portfolio as of such date (with the
FNMA/FHLMC Servicing Portfolio and the GNMA Servicing Portfolio each
listed and valued separately (and, with respect to the FNMA/FHLMC
Servicing Portfolio, with the portfolio serviced for FNMA listed
separately from the portfolio serviced for FHLMC)), with such value
determined on the basis of the net present value of the expected
stream of annual cash flow generated thereby using assumptions
reasonably acceptable to the Agent.
<PAGE> 14
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"POWER OF ATTORNEY" shall mean a power of attorney granted by
the Borrowers, substantially in the form of Exhibit G attached hereto.
"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.
"PRIME LOAN" shall mean any Loan bearing interest at the rate
set forth in Section 2.6(b).
"PRIME RATE" shall mean the rate of interest that is publicly
announced from time to time by Bankers Trust Company 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 Borrowers 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 Bankers Trust Company to any customer. Bankers Trust
Company may make commercial loans or other loans at rates of interest
at, above or below the Prime Rate.
"PROCESS AGENT" shall have the meaning given such term in
Section 8.7.
"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.
"RECOURSE SERVICING PORTFOLIO REPORT" shall mean a report
prepared by the Borrowers in substantially the form set forth in
Exhibit L-2, including the following information: the recourse
Mortgage Loan or Mortgage-Backed Security investor; the type of
recourse (i.e. limited or full); delinquency and foreclosure rates on
the Borrowers' recourse servicing portfolio; the amount of risk
weighted capital required to support DFC's consolidated recourse
exposure; and consolidated total capital to risk weighted assets in
both amount and ratio terms.
"RECOURSE SERVICING PORTFOLIO STATISTICS REPORT" shall mean a
report prepared by the Borrowers in substantially the form set forth
in Exhibit L-3.
"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.
"REPORTABLE EVENT" shall mean any of the events set forth in
section 4043(c) 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.
<PAGE> 15
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"REQUIRED LENDERS" shall mean, at any time, Lenders holding
at least sixty-six and two-thirds percent (66.66%) of the then
aggregate unpaid principal amount of the Loans or, if no Loans are
then outstanding, Lenders holding at least sixty-six and two-thirds
percent (66.66%) of the Commitments.
"REQUIREMENTS OF LAW" shall mean as 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
Eurodollar Interest Period, the daily average during such Eurodollar
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 Eurodollar Interest
Period) which is imposed under Regulation D on any member bank of the
Federal Reserve System, in respect of eurocurrency or eurodollar
funding, lending or liabilities.
"SECURED PARTIES" shall have the meaning given such term in
the Security Agreement.
"SECURITY AGREEMENT" shall mean the Amended and Restated
Security and Collateral Agency Agreement (Servicing Collateral)
substantially in the form of Exhibit B, as amended, modified or
supplemented from time to time and any other documents or certificates
creating or evidencing security interests granted to the Secured
Parties under such agreement.
"SERVICING PORTFOLIO" shall mean, at any time, the portfolio
of outstanding Mortgage Loans (excluding Mortgage Loans owned by
either Borrower or its Affiliates which are not serviced pursuant to a
Permitted Affiliate Servicing Agreement) with respect to which the
Borrowers have direct servicing rights.
"SUBSIDIARY" shall mean with respect to any Person, any
corporation, association or other business entity of which more than
fifty percent (50%) of the securities or other ownership interests
having ordinary voting power is, or with respect to which rights to
control management (pursuant to any contract or other agreement or
otherwise) are, at the time as of which any determination is being
made, owned, controlled or held by such Person or one or more
subsidiaries of such Person.
"TAXES" shall have the meaning given such term in Section
2.15.
"TELERATE PAGE 3750" shall mean the display designated as
"Page 3750" on the Associated Press-Dow Jones Telerate Service (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
purposes of displaying British Bankers' Association interest
settlement rates for U.S.
<PAGE> 16
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Dollar deposits). Any Base Eurodollar 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.
"TOTAL LIABILITIES" shall mean (i) the aggregate amount of
all liabilities of each Borrower and each of its consolidated
Subsidiaries (other than Doral Bank, Doral Securities, Inc., Doral
Bank FSB and Doral Money, Inc.) determined in accordance with GAAP,
consistently applied, other than Permitted Subordinated Indebtedness,
less (ii) the aggregate amount of intercompany payables owing from one
Borrower to the other Borrower.
"VA" shall mean the Veterans Administration and any successor
thereto.
"WAREHOUSE AGENT" shall mean the "Agent" as such term is
defined in the Warehouse Credit Agreement.
"WAREHOUSE COLLATERAL" shall mean the "Collateral" as such
term is defined in the Warehouse Security Agreement.
"WAREHOUSE CREDIT AGREEMENT" shall mean the Amended and
Restated Credit Agreement, dated as of June 25, 1999, between the
Borrowers, Bankers Trust Company, as Agent, and the lenders party
thereto from time to time, as amended, supplemented or otherwise
modified from time to time.
"WAREHOUSE EVENT OF DEFAULT" shall mean an "Event of Default"
as such term is defined in the Warehouse Credit Agreement.
"WAREHOUSE FACILITY 1 COMMITMENTS" shall mean the "Facility 1
Commitments" as such term is defined in the Warehouse Credit
Agreement.
"WAREHOUSE FACILITY 2 TRANCHE C LOANS" shall mean the
"Facility 2 Tranche C Loans" as such term is defined in the Warehouse
Credit Agreement.
"WAREHOUSE LENDERS" shall mean the "Lenders" as such term is
defined in the Warehouse Credit Agreement.
"WAREHOUSE OBLIGATIONS" shall mean the "Obligations" as such
term is defined in the Warehouse Credit Agreement.
"WAREHOUSE SECURITY AGREEMENT" shall mean the "Security
Agreement" as such term is defined in the Warehouse Credit Agreement.
"WAREHOUSE SECURITY AGREEMENTS" shall mean the "Security
Agreements" as such term is defined in the Warehouse Credit Agreement.
"YEAR 2000 COMPLIANT" shall mean that all Information Systems
and Equipment accurately process date data (including, but not limited
to, calculating, comparing and
<PAGE> 17
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sequencing), before, during and after the year 2000, as well as same
and multi-century dates, or between the years 1999 and 2000, taking
into account all leap years, including the fact that the year 2000 is
a leap year, and further, that when used in combination with, or
interfacing with, other Information Systems and Equipment, shall
accurately accept, release and exchange date data, and shall in all
material respects continue to function in the same manner as it
performs today and shall not otherwise impair the accuracy or
functionality of Information Systems and Equipment.
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 and Attachments shall be deemed references to
Articles and Sections of, and Exhibits 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 covenant set
forth in Article V, such term shall be construed in accordance with GAAP as in
effect on the date of this Agreement applied on a basis consistent with the
financial statements referred to in Section 4.4(a).
ARTICLE 2
AMOUNTS AND TERMS OF LOANS
SECTION 2.1 COMMITMENTS.
Subject to and upon the terms and conditions herein set
forth, each Lender agrees, severally and not jointly, at any time and from time
to time from the date of this Agreement up to but excluding the date upon which
the Commitments are terminated, to make Loans to the Borrowers 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 such commitment
may be modified from time to time pursuant to Section 8.6(c); provided that the
aggregate principal amount of Loans plus the aggregate principal amount of
Warehouse Facility 2 Tranche C Loans outstanding at any time shall not exceed
the then current Collateral Value of the Pledged Servicing Portfolio. Subject
to Section 2.12, each Loan shall be a Eurodollar Loan or a Prime Loan. Each
Borrowing shall be made ratably by the Lenders in proportion to their
respective Commitments. Within the foregoing limits and subject to the
conditions set forth in Article III, the Borrowers may borrow and reborrow
Loans under Section 2.2 and prepay Loans under Section 2.9.
SECTION 2.2 METHOD OF BORROWING AND OF CONVERSIONS/CONTINUATIONS.
(a) Whenever the Borrowers desire to make a Borrowing hereunder,
to convert any Loan pursuant to Section 2.3 or to continue any Loan for an
additional Eurodollar Interest
<PAGE> 18
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Period pursuant to Section 2.3, an Authorized Officer shall deliver to the
Agent written 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 12:00 noon (New York City time)
on the date of such proposed Borrowing or conversion, in the case of a
Borrowing of Prime Loans or a conversion of Eurodollar Loans into Prime Loans;
and (y) prior to 12:00 noon (New York City time) on the third Eurodollar
Business Day before the date of such proposed Borrowing, conversion or
continuation (which date shall be a Eurodollar Business Day), in the case of a
Borrowing of Eurodollar Loans, a conversion of Prime Loans into Eurodollar
Loans or a continuation of Eurodollar Loans for an additional Eurodollar
Interest Period. Each such notice shall be irrevocable and shall be in the form
of Exhibit E or Exhibit F, as the case may be. Notwithstanding any other
provision hereof to the contrary, (i) no more than three (3) Eurodollar
Interest Periods for Loans may be in effect hereunder at any time; and (ii) no
Borrowing shall be in an aggregate principal amount of less than $5,000,000.
(b) Without in any way limiting the Borrowers' obligation to
deliver to the Agent a copy of any written Notice of Borrowing or Notice of
Conversion/Continuation, the Agent may act without liability upon the basis of
any telephonic Notice of Borrowing or Notice of Conversion/Continuation
believed by the Agent in good faith to be from an Authorized Officer prior to
receipt of written confirmation. In each such case, the Borrowers hereby waive
the right to dispute the Agent's record of the terms of such telephonic notice.
An Authorized Officer shall promptly confirm in writing any Notice of Borrowing
or Notice of Conversion/Continuation given by telephone.
(c) On the date of receipt of any Notice of Borrowing or Notice of
Conversion/Continuation, the Agent shall promptly give (and in any event by
1:00 p.m. (New York City time)) each Lender telefacsimile notice of each
proposed Borrowing, such Lender's proportionate share thereof, each proposed
conversion or continuation and any other matters covered by the Notice of
Borrowing or Notice of Conversion/Continuation.
(d) Unless otherwise specified in a Notice of Borrowing, each Loan
to be made as part of a Borrowing shall be made as a Prime Loan. If a timely
notice as specified in Section 2.2(a) is not received from the Borrowers prior
to the expiration of any Eurodollar Interest Period for any outstanding
Eurodollar Loan, the Borrowers shall be deemed to have irrevocably elected to
convert such Loan into a Prime Loan. The Agent will endeavor to notify the
Borrowers prior to the expiration of any Eurodollar Interest Period but shall
have no liability for failure to provide such notice.
(e) By delivering a Notice of Conversion/Continuation to the Agent
hereunder of the continuation of any Eurodollar Loans for an additional
Eurodollar Interest Period or the conversion of any outstanding Loans to
Eurodollar Loans, the Borrowers shall be deemed to have represented and
warranted that no Potential Default or Event of Default has occurred and is
continuing.
SECTION 2.3 CONVERSIONS/CONTINUATIONS OF LOANS.
(a) Subject to the terms and conditions hereof and in accordance
with the procedures for conversions and continuations and the other provisions
set forth in Section 2.2, each Lender
<PAGE> 19
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agrees to convert outstanding Loans that are Prime Loans into Eurodollar Loans
and Eurodollar Loans into Prime Loans and to continue Loans that are Eurodollar
Loans for an additional Eurodollar Interest Period, in each case in an
aggregate principal amount not to exceed the principal amount of the Prime
Loans or Eurodollar Loans, as the case may be, being converted or Eurodollar
Loans, as the case may be, being continued; provided that no Lender shall
convert any Loan into a Eurodollar Loan or continue any Eurodollar Loan for an
additional Eurodollar Interest Period if a Potential Default or an Event of
Default has occurred and is continuing.
SECTION 2.4 DISBURSEMENT OF FUNDS.
(a) No later than 2:00 p.m. (New York City time) on the date of
each Borrowing, each Lender will make available to the Agent the full amount of
such Lender's pro rata share of such Borrowing, in immediately available funds,
by wire transfer of such funds to the Agent at the Payment Office. Unless the
Agent determines that any applicable condition in Article III has not been
satisfied, the Agent shall make the funds so received from the Lenders
available to the Borrowers by wire transfer of such funds to such account as
the Borrowers through the Agent may direct in writing for such purpose. If a
Borrowing does not occur on the requested date because any condition precedent
herein specified has not been satisfied, the Agent shall so notify the affected
Lenders promptly and shall return the amounts so received to the respective
Lenders.
(b) Unless the Agent has been notified by any Lender before 2:00
p.m. (New York City time) on the date of a proposed Borrowing that such Lender
does not intend to make available to the Agent on such date such Lender's
portion of such Borrowing, the Agent may assume that such Lender will make such
amount available to the Agent on such date and the Agent may (but shall not be
obligated to) make available to the Borrowers a corresponding amount. If such
corresponding amount is not in fact made available to the Agent by such Lender
(a "DEFAULTING LENDER") on such date, the Agent shall be entitled to recover
such corresponding amount on demand from such Defaulting Lender, together with
interest at the overnight Federal Funds Rate for each day until paid. A
Defaulting Lender shall be deemed to have assigned to the Agent the right to
receive any and all payments due to it in respect of the Obligations until the
sum of such payments received by the Agent is equal to the amount owed to the
Agent by such Defaulting Lender pursuant to the preceding sentence. The
foregoing assignment shall be deemed to be a power coupled with an interest and
shall be absolute and irrevocable. Nothing in this subsection shall be deemed
to relieve any Lender from its obligation to fulfill its obligation to make
Loans hereunder or to prejudice any rights that the Borrowers, the Agent or any
Lender may have against any Defaulting Lender hereunder.
(c) 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 2.5 NOTES.
(a) Each Borrower's joint and several obligation to pay the
principal of and interest on the Loans made 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
<PAGE> 20
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completed in conformity therewith and payable to the order of such Lender. Each
Lender shall, and is hereby authorized by the Borrowers 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 the Loan from such Lender, each
payment and prepayment of principal of any such Loan, each payment of interest
on any such Loan, and applicable interest rates and Eurodollar Interest Periods
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 joint and several
obligations of the Borrowers, including the joint and several obligation of the
Borrowers to repay the Loans made by such Lender in accordance with the terms
of this Agreement and the applicable Notes.
SECTION 2.6 INTEREST.
(a) The Borrowers agree to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan for each day during the Eurodollar
Interest Period applicable thereto at a rate per annum equal to one and
one-quarter percent (1.25%) per annum plus the Eurodollar Rate for such
Eurodollar Interest Period.
(b) The Borrowers agree to pay interest in respect of the unpaid
principal amount of each Prime Loan for each day such Prime Loan is outstanding
at a rate per annum equal to one-quarter percent (0.25%) per annum plus the
Prime Rate.
(c) 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 (after as well as before judgment) at a rate per annum
equal to two and one-quarter percent (2.25%) per annum plus the Prime Rate.
(d) 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) on or before the third Business Day after receipt of the
billing statement referred to in clause (e) below, (ii) on any prepayment in
full of all of any Lender's outstanding Loans, (iii) at maturity (whether by
acceleration or otherwise) and (iv) after maturity, on demand.
(e) The Agent shall deliver to the Borrowers one 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 for such month; provided that any failure or delay in
delivering such interest billing statement or any inaccuracy therein shall not
affect the Obligations.
SECTION 2.7 TERMINATION OF COMMITMENTS.
The Commitments shall automatically terminate on the earliest
of: (i) Maturity Date, and (ii) the date on which the Borrowers terminate or
fail to renew the Warehouse Facility 1 Commitments, in each case subject to
earlier termination pursuant to Section 6.1. The Commitments may not be reduced
in part by the Borrowers, but may be terminated in their
<PAGE> 21
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entirety at any time by the Borrowers upon at least fifteen (15) days' prior
irrevocable written notice to the Agent.
SECTION 2.8 MANDATORY REPAYMENTS.
(a) The Borrowers shall repay all outstanding Loans on the earlier
to occur of the termination of the Commitments and the Maturity Date.
(b) On any date upon which the aggregate principal amount of the
outstanding Loans plus the aggregate principal amount of the outstanding
Warehouse Facility 2 Tranche C Loans exceeds the Collateral Value of the
Pledged Servicing Portfolio, the Borrowers shall repay on such date the
aggregate principal amount of the Loans or the Warehouse Facility 2 Tranche C
Loans as shall be necessary so that the aggregate principal amount of
outstanding Loans plus the aggregate principal amount of the outstanding
Warehouse Facility 2 Tranche C Loans does not exceed the Collateral Value of
the Pledged Servicing Portfolio.
(c) All repayments of the Loans of any Lender under this Section
2.8 shall be applied first to such Lender's Loans that are Prime Loans and
second, to such Lender's Loans that are Eurodollar Loans. All repayments of
Loans under this Section 2.8 shall be without premium or penalty, except that
any repayment of Eurodollar Loans shall be subject to the provisions of Section
2.14. Interest shall be payable in accordance with the provisions of Section
2.6.
SECTION 2.9 OPTIONAL PREPAYMENTS.
The Borrowers shall have the right at any time and from time
to time to prepay outstanding Loans, in whole or in part, upon one (1) Business
Day's prior written notice to the Agent, in the case of Eurodollar Loans, and
without prior notice in the case of Prime Loans; provided that each partial
prepayment of any Loan shall be in an aggregate principal amount of $5,000,000
or any multiple of $1,00,000 in excess thereof. All prepayments of the Loans of
any Lender under this Section 2.9 shall be applied first, to such Lender's
Loans that are Prime Loans, and second, to such Lender's Loans that are
Eurodollar Loans. All prepayments of Loans under this Section 2.9 shall be
without premium or penalty, except that any prepayment of Eurodollar Loans
shall be subject to the provisions of Section 2.14. Interest shall be payable
upon such prepayment in accordance with the provisions of Section 2.6.
SECTION 2.10 FEES.
(a) The Borrowers agree to pay to the Agent for the account of
each Lender a commitment fee in an amount equal to one-quarter of one percent
(1/4 of 1%) on the amount of the Commitments (the "COMMITMENT FEE"). Such fee
shall be deemed to be earned in full upon the Amendment Effective Date and
shall be payable in advance on the Amendment Effective Date.
(b) The Borrowers agree to pay to the Agent an agency fee in the
amount and on the dates separately agreed to by the Agent and the Borrowers.
(c) The fees set forth in this Section 2.10, once paid, shall not
be refundable under any circumstances.
<PAGE> 22
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SECTION 2.11 PAYMENTS, ETC,
(a) Except as otherwise specifically provided herein, all payments
by the Borrowers under this Agreement shall be made without defense, set-off or
counterclaim to the Agent not later than 1:00 p.m. (New York City time) on the
date when due, it being expressly agreed and understood that if a payment is
received after 1:00 p.m. (New York City time) by the Agent, such payment will
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;
provided that if the Agent receives the federal wire confirmation number with
respect to such payment before 1:00 p.m. (New York City time) on the date when
such payment is due, and the payment is actually received and credited for
value to the appropriate account at Bankers Trust Company before the close of
business on such due date, then the payment will be deemed to be made on such
due date. All payments hereunder shall be made in U.S. Dollars in immediately
available funds at the Payment Office. The Agent will promptly after receipt of
each such payment (and in any event by the close of business on the day on
which such funds are received or deemed to have been received) distribute funds
in the form received relating to the payment of (i) principal or interest on
Loan to the Lenders ratably in accordance with the aggregate principal amount
of the Loans of such Lenders, (ii) the Commitment Fee ratably to the Lenders
and (iii) any other amount payable to any Lender to such Lender.
(b) Whenever any payment to be made hereunder or under any Note
shall be 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 then
applicable rate during such extension.
(c) All computations of interest 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 is payable. Each determination by the Agent of an
interest rate hereunder shall be conclusive and binding absent manifest error.
(d) Prior to the maturity of the Loans (whether upon acceleration,
upon any date that the Commitments are terminated pursuant to Section 2.7 or
otherwise), all amounts received on any day by the Agent hereunder in respect
of principal of the Loans or under the Security Agreement or from the Warehouse
Agent in respect of the Warehouse Collateral shall be disbursed by the Agent as
follows: first, ratably to the Lenders in accordance with the aggregate
principal amounts of their respective outstanding Loans, to repay the aggregate
principal amount of Loans due and payable on such day pursuant to Section 2.8;
second, ratably to the Lenders in accordance with the aggregate principal
amounts of their respective outstanding Loans, to prepay outstanding Loans
being prepaid on such day pursuant to Section 2.9; third, if a Warehouse Event
of Default has occurred and is continuing, to the Warehouse Agent to be
disbursed in accordance with Section 2.11 of the Warehouse Credit Agreement;
and fourth, the balance, if any, shall be released by the Agent to the
Borrowers by transfer to such account as the Borrowers may direct in writing
for such purpose; provided that if a Potential Default or an Event of Default
has occurred and is continuing, then the Agent shall not release any such
amounts to the Warehouse Agent or to the Borrowers until the earlier of (x) the
cure of any Potential Default or Event of Default, in which case such amounts
shall be released to the Warehouse Agent or to the Borrowers as described in
this subsection (d), or (y) the acceleration of the Loans, in which case
<PAGE> 23
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such amounts shall be applied in accordance with Section 2.11(e); and provided
further, that if a Warehouse Event of Default has occurred and is continuing,
notwithstanding the foregoing provisions of this Section 2.11(d), all amounts
received by the Agent hereunder in respect of Eligible Servicing Receivables
shall be paid by the Agent to the Warehouse Agent to be disbursed in accordance
with Section 2.11 of the Warehouse Credit Agreement.
(e) Upon the maturity of the Loans (whether upon acceleration,
upon any date that the Commitments are terminated pursuant to Section 2.7, or
otherwise), all amounts received by the Agent on account of the Obligations
shall be disbursed by the Agent as follows: first, to the Collateral Agent in
accordance with the amounts due to it, to reimburse it for all fees, costs and
expenses reasonably incurred by it in connection with a Potential Default or an
Event of Default or otherwise payable to it in its capacity as Collateral Agent
under the Security Agreement; second, to the Agent, to reimburse the Agent for
all fees, costs and expenses reasonably incurred by it in connection with a
Potential Default or an Event of Default or otherwise payable to it in its
capacity as Agent under the Loan Documents; third, ratably to the Lenders in
accordance with the amount of interest due to each Lender, to pay all accrued
and unpaid interest due hereunder; fourth, ratably to the Lenders in accordance
with the aggregate principal amounts of their respective outstanding Loans, to
repay all outstanding Loans; fifth, ratably to the Lenders in accordance with
their respective unpaid Obligations, to pay all remaining unpaid Obligations;
sixth, if a Warehouse Event of Default has occurred and is continuing, to the
Warehouse Agent to be disbursed in accordance with Section 2.11 of the
Warehouse Credit Agreement; and seventh, to the Borrowers by transfer to such
account as the Borrowers may direct in writing for such purpose; provided that
if a Warehouse Event of Default has occurred and is continuing, notwithstanding
the foregoing provisions of this Section 2.11(e), all amounts received by the
Agent hereunder in respect of Eligible Servicing Receivables shall, after the
payments provided for in clauses first and second above have been made, be paid
by the Agent to the Warehouse Agent to be disbursed in accordance with Section
2.11 of the Warehouse Credit Agreement.
SECTION 2.12 EURODOLLAR RATE NOT DETERMINABLE; ILLEGALITY OR IMPROPRIETY.
(a) In the event, and on each occasion, that on or before the day
on which the Eurodollar Rate for a Borrowing that is to include Eurodollar
Loans is to be determined, the Agent has determined in good faith that the
Eurodollar Rate cannot be determined for any reason, the Agent shall, as soon
as practicable thereafter, give written notice of such determination to the
Borrowers and the Lenders. Upon any such determination, any request by the
Borrowers for a Eurodollar Loan pursuant to Section 2.2 shall, until the Agent
has advised the Borrowers and the Lenders that the circumstances giving rise to
such notice no longer exist, be deemed to be a request for a Prime Loan. Each
determination by the Agent hereunder shall be conclusive and binding absent
manifest error.
(b) 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, shall make it unlawful or improper for
such Lender to make, maintain or fund any Eurodollar Loan as contemplated by
this Agreement, then such Lender shall immediately give notice thereof to the
Agent and the Borrowers describing such illegality or impropriety in reasonable
detail. Effective thirty (30) days after the giving of such notice (or
effective upon such earlier date as required by such Governmental Authority),
the obligation of such Lender to make Eurodollar Loans shall be suspended for
the duration of such
<PAGE> 24
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illegality or impropriety and, if and when such illegality or impropriety
ceases to exist, such suspension shall cease and such Lender shall notify the
Agent and the Borrowers thereof. If any such change makes it unlawful or
improper for any Lender to maintain any Eurodollar Loan such Lender shall, upon
the happening of such event, notify the Agent and the Borrowers thereof, and
the Borrowers 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 Eurodollar Loan into a Prime
Loan. If any Lender notifies the Agent and the Borrowers pursuant to this
Section 2.12(b) that it is unlawful or improper for such Lender to make or
maintain Eurodollar Loans, as the case may be, but no other Lenders give
similar notices, then the Borrowers may require such Lender to sell, pursuant
to Section 8.6(c) all of its outstanding Loans and its Commitment to another
Lender (if any other Lender agrees, in its sole and absolute discretion, to
purchase such Loans and Commitment) or to any other financial institution
reasonably acceptable to the Agent that is willing to make and maintain
Eurodollar Loans.
SECTION 2.13 RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES.
(a) Notwithstanding any other provision herein, if 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 Eurodollar Loan made by
such Lender or any fees or other amounts payable hereunder (other than taxes
imposed on the overall net income of such Lender by the jurisdiction in which
such Lender has its principal 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 Eurodollar Rate) or imposes on such Lender
any other condition affecting this Agreement or Eurodollar Loans, and the
result of any of the foregoing is to increase the cost to such Lender of making
or maintaining any Eurodollar Loan, or to reduce the amount of any sum received
or receivable by such Lender hereunder (whether of principal, interest, fee or
otherwise) in respect thereof by an amount deemed by such Lender to be
material, then the Borrowers shall pay to such Lender such additional amount or
amounts as will compensate such Lender for such additional costs incurred or
reduction suffered. Any amount or amounts payable by the Borrowers to any
Lender in accordance with the provisions of this Section 2.13(a) shall be paid
by the Borrowers to such Lender within ten (10) Business Days of receipt by the
Borrowers from such Lender of a statement 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.
(b) If any Lender has determined 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, as the case may be) or by
the
<PAGE> 25
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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, has the effect of
reducing 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 deemed by such Lender to be material,
then from time to time, the Borrowers shall reimburse such Lender or such
Lender's holding company, as the case may be, for such reduction. Any amount or
amounts payable by the Borrowers to any Lender in accordance with the
provisions of this Section 2.13(b) shall be paid by the Borrowers to such
Lender within ten (10) Business Days of receipt by the Borrowers from such
Lender of a statement 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) 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 2.13 or pursuant to Section
2.15 or (ii) the effect of any event referred to in Section 2.12(b); provided
that such efforts or change shall not cause the imposition on such Lender of
any additional cost or legal, regulatory or administrative burdens deemed by
such Lender, in its sole discretion, to be material.
(d) 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. The protection of this Section 2.13(d) 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 shall have occurred or been imposed.
SECTION 2.14 INDEMNITY.
(a) The Borrowers shall indemnify and hold harmless each Lender
against any and all claims, demands, liabilities, damages, losses, costs,
charges and expenses (including reasonable attorneys' fees) that such Lender
actually sustains or incurs as a consequence of (i) any failure by the
Borrowers to fulfill on the Amendment Effective Date or on the date of any
Borrowing hereunder the applicable conditions set forth in Article III, (ii)
any failure by the Borrowers to borrow any Eurodollar Loan hereunder, to
convert any Loan into a Eurodollar Loan or to continue any Eurodollar Loan for
an additional Eurodollar Interest Period, after irrevocable notice of such
borrowing, conversion or continuation has been given pursuant to Section 2.2,
(iii) any payment, prepayment or conversion of a Eurodollar Loan required by
any provision of this Agreement or otherwise made on a date other than the last
day of the Eurodollar Interest Period applicable thereto or required by the
Loan Documents to be made on a date other than the maturity date applicable
thereto, (iv) any default in payment or prepayment of the principal amount of
any Eurodollar Loan or any part thereof or interest accrued thereon, as and
when due and payable (at the due date thereof, by irrevocable notice of
prepayment or otherwise), or
<PAGE> 26
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(v) 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 Eurodollar Loan
or any part thereof as a Eurodollar Loan. Such loss or reasonable expense shall
include but not be limited to an amount equal to the excess, if any, as
reasonably determined by such Lender, of (A) its cost of obtaining the funds
for the Eurodollar Loan being paid, prepaid or converted or not borrowed,
converted or continued (based on the Eurodollar Rate applicable thereto) for
the period from the date of such payment, prepayment, conversion or failure to
borrow, convert or continue to the last day of the Eurodollar Interest Period,
as the case may be, for such Loan (or, in the case of a failure to borrow,
convert, or continue the Eurodollar Interest Period, as the case may be, for
such Loan that would have commenced on the date of such failure to borrow,
convert or continue) over (B) the amount of interest (as reasonably determined
by such Lender) that would be realized by such Lender in re-employing the funds
so paid, prepaid or converted or not borrowed, converted or continued for such
period or Eurodollar Interest Period, as the case may be. A certificate of any
Lender setting forth in reasonable detail any amount or amounts which such
Lender is entitled to receive pursuant to this Section 2.14 shall be delivered
to the Borrowers and shall be conclusive and binding absent manifest error.
(b) Nothing in this Section is intended to limit the reimbursement
obligation of the Borrowers contained elsewhere in this Agreement. The
obligations of the Borrowers under this Section shall survive the termination
of this Agreement.
SECTION 2.15 TAXES.
All payments made by the Borrowers 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 Agent, the
Collateral Agent and each Lender, net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Agent, the 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 Agent, the Collateral Agent or such Lender (excluding a connection
arising solely from the Agent, the 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 Agent, the Collateral Agent or any Lender
hereunder or under other Loan Documents, the amounts so payable to the Agent,
the Collateral Agent or such Lender shall be increased to the extent necessary
to yield to the 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 Borrowers, as promptly as possible
thereafter the Borrowers shall send to the Agent for its own account or for the
account of the Collateral Agent or such Lender, as the case may be, a certified
copy of an original official receipt received by the Borrowers showing payment
thereof. If the Borrowers fail to pay any Taxes when due to the appropriate
taxing authority or fails to
<PAGE> 27
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remit to the Agent the required receipts or other required documentary
evidence, the Borrowers shall indemnify the Agent, the Collateral Agent and the
Lenders for any incremental taxes, interest or penalties that may become
payable by the Agent, the Collateral Agent or any Lender as a result of any
such failure. The agreements in this subsection shall survive the termination
of this Agreement and the payment of the Notes and all other amounts payable
under the Loan Documents.
SECTION 2.16 SHARING OF SETOFFS.
Each Lender agrees that if it shall, through the exercise of
a right of banker's lien, setoff or counterclaim against the Borrowers, or
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 such Lender under any applicable bankruptcy, insolvency or
other similar law or otherwise, or by any other means, obtain payment
(voluntary or involuntary) in respect of any Obligation as a result of which
the unpaid portion of its Obligations shall be proportionately less than the
unpaid portion of the Obligations of any other Lender, it shall simultaneously
purchase from such other Lender at face value a participation in the
Obligations of such other Lender, so that the aggregate unpaid amount of the
Obligations and such participations in Obligations held by each Lender shall be
in the same proportion to the aggregate unpaid amount of all Obligations then
outstanding as the amount of its Obligations 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 2.16 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 Borrowers expressly
consent to the foregoing arrangements and agrees that any Lender holding a
participation in 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 the Borrowers to such Lender by reason thereof as fully
as if such Lender had made a loan directly to the Borrowers in the amount of
such participation.
ARTICLE 3
CONDITIONS TO LOANS
SECTION 3.1 CONDITIONS TO LOANS.
(a) As conditions precedent to the initial disbursement of the
Loans hereunder:
(i) Each Borrower shall have delivered or shall have had
delivered to the Agent, in form and substance and in quantities
reasonably satisfactory to the Agent and its counsel, each of the
following:
(A) this Agreement, duly executed by the parties
hereto;
(B) each of the Security Agreement and the
Warehouse Security Agreement and the Power of Attorney for
each Borrower, duly executed (and notarized where required)
by the parties thereto (which Powers of Attorney shall
<PAGE> 28
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be "protocolized" under the laws of Puerto Rico by counsel to
the Borrowers, and filed with the Registry of Powers of
Attorneys and Wills by counsel to the Borrowers promptly
after the closing contemplated hereunder);
(C) a duly executed Note for each Lender;
(D) duly executed documents, instruments,
agreements and financing statements, properly executed,
deemed necessary or appropriate by the Agent, in its
reasonable discretion, to create in favor of the Lenders a
valid and perfected first priority security interest in and
lien upon the Collateral (other than the Eligible Servicing
Receivables) and a valid and perfected second priority
security interest in and lien upon the Warehouse Collateral
and the Eligible Servicing Receivables;
(E) a certified copy of resolutions of the Board
of Directors of each of the Borrowers approving the
execution, delivery and performance of all Loan Documents
required to be delivered by such parties hereunder and the
transactions contemplated therein;
(F) a certificate of the Secretary or an
Assistant Secretary of each of the Borrowers certifying the
names and true signatures of the officers of such parties
authorized to sign the Loan Documents required to be executed
and delivered by such parties hereunder, in each case dated
the Amendment Effective Date;
(G) an opinion of New York counsel and Puerto
Rico counsel for the Borrowers in the form of Exhibit C-1 and
Exhibit C-2, respectively, and covering such other matters as
the Agent may reasonably request, dated the Amendment
Effective Date;
(H) a copy of the Certificate of Incorporation
or other equivalent document available in the applicable
jurisdiction of each of the Borrowers certified by the
appropriate officer of the jurisdiction of such party's
incorporation as of a recent date;
(I) a copy of the Bylaws of each of the
Borrowers, certified by the Secretary or an Assistant
Secretary or other appropriate officer of each such party as
of the Amendment Effective Date as being accurate and
complete;
(J) a certificate of the appropriate officer in
the jurisdiction of incorporation of each of the Borrowers
certifying that such Borrower is in good standing as of a
recent date;
(K) a certificate of an executive officer of
each of the Borrowers, in the form of Exhibit D-1 and Exhibit
D-2, respectively, dated the Amendment Effective Date;
<PAGE> 29
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(L) evidence of (aa) the acceptance by the
Process Agent of its appointment pursuant to Section 8.7 and
(bb) payment of all fees required by the Process Agent for
serving in such capacity;
(M) a schedule of servicing rights included in
the Pledged Servicing Portfolio, including the owner of such
servicing rights and otherwise in form and substance
acceptable to the Agent; and
(N) the duly executed Intercreditor Agreement;
(ii) 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 prior 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 Agent and waived by all of the Lenders in
writing;
(iii) All documentation, including documentation for
corporate and legal proceedings in connection with the transactions
contemplated by the Loan Documents, shall be reasonably satisfactory
in form and substance to the Agent and its counsel; and
(iv) The Borrowers shall have paid all fees required to
have been paid under the Loan Documents prior to or on the Amendment
Effective Date.
(b) As additional conditions precedent to the disbursement of all
Loans (including the initial Loans hereunder), at and as of the date of such
disbursement:
(i) The representations and warranties of the Borrowers
contained in the Loan Documents shall be accurate and complete in all
material respects on and as of the date of such disbursement as if
made on and as of such date;
(ii) No Potential Default or Event of Default shall have
occurred and be continuing;
(iii) Following the funding of the requested Loan, the
aggregate principal amount of Loans outstanding hereunder shall not
exceed the limitations set forth in Sections 2.1 and 2.8;
(iv) Since December 31, 1998, no material adverse change
shall have occurred in the business, financial condition or results of
operations of DFC and its Subsidiaries, taken as a whole; and
(v) The Agent shall have received such other documents
or legal opinions as the Agent or any Lender or special counsel to the
Agent may reasonably request, all in form and substance reasonably
satisfactory to the Agent.
<PAGE> 30
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By delivering a Notice of Borrowing to the Agent hereunder for any Loan, the
Borrowers shall be deemed to have represented and warranted the accuracy and
completeness of the statements set forth in subsections (i) through (iv) above
as of the date of such Loan.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
As an inducement to the Agent and each Lender to enter into
this Agreement and to make Loans as provided herein, each of the Borrowers
represents and warrants to the Agent and each Lender that:
SECTION 4.1 CORPORATE EXISTENCE; COMPLIANCE WITH LAW AND CONTRACTUAL
OBLIGATIONS.
Each Borrower (a) is duly organized, validly existing and in
good standing as a corporation under the laws of the Commonwealth of Puerto
Rico and in each jurisdiction where its ownership of property or conduct of
business requires such qualification, except where the failure to be so
qualified would not have a Material Adverse Effect; (b) has the corporate 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 (c)
is not in violation of any Requirement of Law or any Contractual Obligation if
such violation could have a Material Adverse Effect.
SECTION 4.2 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
Each Borrower has the corporate power and authority to
execute, deliver and perform the Loan Documents to which it is a party and has
taken all necessary corporate action to authorize the execution, delivery and
performance of such Loan Documents. Such Loan Documents have been duly executed
and delivered on behalf of such Borrower and constitute legal, valid and
binding obligations of such Borrower 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.
SECTION 4.3 NO LEGAL OR CONTRACTUAL BAR.
The execution, delivery and performance of the Loan
Documents, including the creation and perfection of the security interests
contemplated hereunder and thereunder, the borrowings of Loans hereunder and
the use of the proceeds thereof, do not and will not (a) violate any
Requirement of Law or any Contractual Obligation of either Borrower or any of
its Subsidiaries, (b) except as contemplated by this Agreement, the Security
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 or (c) result
in the creation or imposition of any Lien on any asset of either Borrower or
any of its Subsidiaries except as contemplated by the Loan Documents.
SECTION 4.4 FINANCIAL INFORMATION.
(a) The consolidated and consolidating statement of financial
condition of DFC and its consolidated Subsidiaries as at December 31, 1998 and
the related consolidated and
<PAGE> 31
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consolidating statements of income and cash flows for the fiscal year then
ended, including in each case the related schedules and notes, reported on by
PricewaterhouseCoopers LLP, true copies of which have been previously delivered
to each of the Lenders, are complete and correct and fairly present the
consolidated and consolidating financial condition of DFC and its consolidated
Subsidiaries as at the date thereof and the consolidated and consolidating
results of operations and cash flows for such period, in accordance with GAAP
applied on a consistent basis.
(b) The unaudited consolidated and consolidating statement of
financial condition of each Borrower and its consolidated Subsidiaries as at
March 31, 1999, and the related unaudited combined statements of income and
cash flows for the three months then ended, certified by the chief financial
officer of DFC, true copies of which have been previously delivered to each of
the Lenders, are complete and correct and fairly present the consolidated and
consolidating financial condition of DFC and its consolidated Subsidiaries as
at the date thereof and the consolidated and consolidating results of
operations and cash flows for such period in conformity with GAAP applied on a
basis consistent with the financial statements referred to in subsection (a) of
this Section 4.4, subject to normal year-end audit adjustments.
(c) Neither Borrower 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 is not
reflected in the financial statements referred to in Section 4.4(b) or in the
most recent financial statements delivered to the Agent and the Lenders
pursuant to Section 5.1(a)(i) or (ii) (other than liabilities permitted
hereunder and incurred after the date of such most recent financial statements
and to be reflected in the next financial statements to be delivered to the
Agent and the Lenders pursuant to Section 5.1 (a)(i) or (ii)).
(d) Since December 31, 1998, no material adverse change has
occurred in the business, financial condition or results of operations of DFC
and its Subsidiaries, taken as a whole.
SECTION 4.5 NO MATERIAL LITIGATION.
Except as set forth on Exhibit I, no litigation,
investigation or proceeding of or before any arbitrator or Governmental
Authority is pending or, to the knowledge of either Borrower, threatened by or
against such Borrower or any of its Subsidiaries, or against any of such
Borrower's or any such Subsidiary's properties or revenues that, if adversely
determined, could alone, or with any other litigation, investigation or
proceeding, affect the business, financial condition or results of operations
of such Borrower and its Subsidiaries, taken as a whole, in excess of the
Material Amount or could have a Material Adverse Effect.
SECTION 4.6 TAXES.
Each Borrower and each of its Subsidiaries have filed or
caused to be filed 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 them or any of their property other than taxes and assessments
that are being contested in good faith by appropriate proceedings and as to
which such Borrower or such Subsidiary has established adequate reserves in
conformance with GAAP.
<PAGE> 32
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SECTION 4.7 INVESTMENT COMPANY ACT.
Neither Borrower is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 4.8 SUBSIDIARIES.
DFC has no Subsidiaries as of the Amendment Effective Date
other than DMC, Doral Bank, Centro Hipotecario de Puerto Rico, Inc., First
Florida Realty Corporation, Doral Securities, Inc., Doral Bank FSB, Doral
Money, Inc. and Doral Capital, Inc.. DFC owns, directly or through another
Subsidiary of DFC, one hundred percent (100%) of the stock of each such
Subsidiary, and all of the stock of each such Subsidiary has been duly issued
and is fully paid and nonassessable. DMC has no Subsidiaries as of the
Amendment Effective Date.
SECTION 4.9 USE OF PROCEEDS.
The proceeds of all Loans shall be used by the Borrowers
solely for the purpose of financing the Borrowers' servicing portfolios and the
purchase of servicing portfolios and for general working capital purposes.
SECTION 4.10 ERISA.
(a) 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 either Borrower or any of such Borrower's Subsidiaries to any material
tax, penalty or other liability where such tax, penalty or liability is not
covered in full, for the benefit of such Borrower or such Subsidiary, by
insurance; (b) 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 appoint 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; (c) 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 (d) the execution, delivery and performance by Borrowers of
the Loan Documents and the borrowing of the Loans hereunder and the use of the
proceeds thereof will not involve any Prohibited Transaction.
SECTION 4.11 SECURITY INTERESTS.
The security interests created in favor of the Lenders under
the Security Agreement, subject to the terms of the Intercreditor Agreement,
constitute valid and perfected first priority security interests in the
Collateral (other than the Eligible Servicing Receivables), and the Collateral
is not and will not be subject to any other Liens except as permitted by
Section 5.2(a). The security interests created in favor of the Lenders under
the Warehouse Security Agreement, subject to the terms of the Intercreditor
Agreement, constitute valid and perfected second priority security interests in
the Warehouse Collateral and the Eligible
<PAGE> 33
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Servicing Receivables, and the Warehouse Collateral is not and will not be
subject to any other Liens except as permitted by Section 5.2(a).
SECTION 4.12 AGENCY APPROVALS.
Each Borrower is a FHLMC approved Seller/Servicer, a HUD
Direct Endorsement Lender and a VA approved Lender in good standing. DFC is
also a FNMA approved Seller/Servicer and a GNMA approved Issuer/Servicer.
SECTION 4.13 SOLVENCY.
Each Borrower is able to pay its debts as they mature. The
aggregate estimated fair market value of each Borrower's assets is greater than
such Borrower's liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities and any and all Obligations hereunder). Each Borrower
has capital sufficient to carry on the business and transactions in which it is
engaged and all business and transactions in which it is about to engage.
SECTION 4.14 MINIMUM SERVICING PORTFOLIO.
As of the date of this Agreement, the Mortgage Loans in the
Servicing Portfolio have an aggregate outstanding principal balance of not less
than $4,000,000,000.
SECTION 4.15 YEAR 2000 COMPLIANCE.
All Information Systems and Equipment are Year 2000 Compliant.
ARTICLE 5
COVENANTS
SECTION 5.1 AFFIRMATIVE COVENANTS.
Each Borrower hereby covenants and agrees that, as long as
any Obligations remain unpaid or any Lender has any Commitment hereunder, the
Borrowers shall:
(a) Reports to Agent. Furnish or cause to be furnished to the
Agent (with sufficient numbers of copies for each Lender which the Agent shall
forward to each Lender within a reasonable time after receipt thereof):
(i) Annual Financial Statements. As soon as available and
in any event within ninety-five (95) days after the end of each fiscal
year of DFC, a consolidated and consolidating statement of financial
condition of DFC and its consolidated Subsidiaries as at the end of
such year and the related consolidated and consolidating statements of
income and cash flows of DFC and its consolidated Subsidiaries for
such fiscal year, setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and
accompanied by a report thereon of PricewaterhouseCoopers LLP or other
independent public accountants of comparable recognized national
standing, which report shall be unqualified as to scope of audit and
shall state that such financial statements present fairly the
consolidated and consolidating financial condition
<PAGE> 34
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as at the end of such fiscal year, and the consolidated and
consolidating results of operations and cash flows for such fiscal
year, of DFC and its consolidated Subsidiaries in accordance with GAAP
consistently applied;
(ii) Quarterly Financial Statements. As soon as available
and in any event within fifty (50) days after the end of each fiscal
quarter of DFC, a consolidated and consolidating statement of
financial condition of DFC and its consolidated Subsidiaries as at the
end of such fiscal quarter and the related consolidated and
consolidating statements of income and cash flows of DFC and its
consolidated Subsidiaries for such fiscal quarter, setting forth in
each case in comparative form the figures for the previous fiscal
quarter, all in reasonable detail and certified by the chief financial
officer of DFC that they present fairly the consolidated and
consolidating financial condition as at the end of such fiscal
quarter, and the consolidated and consolidating results of operations
and cash flows for such fiscal quarter, of DFC and its consolidated
Subsidiaries in accordance with GAAP consistently applied, subject to
normal year-end adjustments;
(iii) Monthly Financial Statements. Upon thirty (30) days'
notice from the Agent (such notice to be given no earlier than the
first day of a month to receive a statement for the previous month), a
consolidated and consolidating statement of financial condition of DFC
and its consolidated Subsidiaries as at the end of the previous month
and the related consolidated and consolidating statements of income
and cash flows of DFC and its consolidated Subsidiaries for such month
setting forth in each case in comparative form the figures for the
previous month, all in reasonable detail and certified by the chief
financial officer of DFC that they are complete and correct and that
they present fairly the consolidated and consolidating financial
condition as at the end of such month, and the consolidated and
consolidating results of operations for such month and such portion of
the fiscal year, of DFC and its consolidated Subsidiaries in
accordance with GAAP consistently applied (subject to normal year-end
adjustments);
(iv) No Default/Compliance Certificate. Together with the
financial statements required pursuant to subsections (i) and (ii)
above, a certificate of the chief financial officer or chief
accounting officer of DFC (A) to the effect that, based upon a review
of the activities of DFC and its Subsidiaries and such financial
statements during the period covered thereby, no Event of Default or
Potential Default exists, or if an Event of Default or a Potential
Default exists, specifying the nature thereof and the Borrowers'
proposed response thereto, and (B) demonstrating in reasonable detail
compliance with Section 5.3 as at the end of such fiscal year or such
fiscal quarter, as applicable;
(v) Audit Reports. Upon request by the Agent, copies of
each HUD Single Family Audit Report and FNMA and FHLMC audit reports
on each Borrower and its operations;
(vi) Notice of Default or Misrepresentation. (a) Promptly
after obtaining knowledge of the occurrence of an Event of Default or
a Potential Default, a certificate of the chief financial officer or
chief accounting officer of DFC specifying the nature thereof and
DFC's or DMC's proposed response thereto and (b) at any time that any
representation, warranty or other information contained in any
statement or certificate
<PAGE> 35
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required to be delivered hereunder or any representation or warranty
deemed to have been made hereunder shall prove to be false or
misleading in any material way, promptly after obtaining knowledge
thereof give notice thereof to the Agent describing how such
representation, warranty or information is misleading.
(vii) Litigation. Promptly after the occurrence thereof,
notice of the institution of or any material adverse development in
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, against either Borrower or
any material property of any thereof, in each case if such action,
suit, proceeding, investigation or arbitration could result in a
liability to the Borrowers in excess of the Material Amount;
(viii) ERISA. In connection with ERISA:
(A) Promptly and in any event within ten (10)
Business Days after either 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 such
Borrower setting forth details as to such Reportable Event
and the action that such Borrower proposes to take with
respect thereto;
(B) Promptly and in any event within ten (10)
Business Days after either 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 occurrence of other liability by the
applicable Borrower or any ERISA Affiliate, a statement of
the chief financial officer of the applicable Borrower
describing such condition;
(C) At least ten (10) Business 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 no event more than ten (10)
Business Days after the filing thereof with the Secretary of
the Treasury, a copy of any application by either Borrower or
an ERISA Affiliate for a waiver of the minimum funding
standard under section 412 of the Code;
(E) Upon request by the Agent from time to time,
copies of each annual report that is filed on Internal
Revenue Service Form 5500, together with certified financial
statements for any Plan (if any) 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)
Business Days after it 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
<PAGE> 36
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of a trustee to administer, any Plan, a statement of the
chief financial officer of the applicable Borrower describing
such event or condition;
(G) Promptly and in no event more than ten (10)
Business Days after receipt thereof by either Borrower or any
ERISA Affiliate, a copy of each notice received by such
Borrower or 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 either Borrower or any ERISA Affiliate may receive
from the PBGC or the Internal Revenue Service 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;
(ix) Servicing Reports.
(A) As soon as available and in any event no
later than forty-five (45) days after the end of each
six-month period ended June 30 and December 31 of each year,
commencing with the six-month period ending June 30, 1999, a
Pledged Servicing Portfolio Report dated as of the last day
of such six-month period;
(B) As soon as available and in any event no
later than forty-five (45) days after the end of each
six-month period ended June 30 and December 31 of each year,
commencing with the six-month period ending June 30, 1999, a
Pledged Servicing Valuation Report, dated as of the last day
of each such six-month period; provided, that the Agent shall
have the right to request additional Pledged Servicing
Valuation Reports at such times as it deems necessary or
desirable, which reports shall be prepared at the expense of
the Lenders;
(C) As soon as available and in any event no
later than thirty (30) days after the end of each quarterly
period ended March 31, June 30, September 30 and December 31
of each year, commencing with the quarterly period ending
June 30, 1999, a Recourse Servicing Portfolio Report dated as
of the last day of such quarterly period;
(D) As soon as available and in any event no
later than thirty (30) days after the end of each quarterly
period ended March 31, June 30, September 30 and December 31
of each year, commencing with the quarterly period ending
June 30, 1999, a Recourse Servicing Portfolio Statistics
Report dated as of the last day of such quarterly period; and
(E) Promptly upon the request of the Agent, a
schedule of servicing rights then included in the Pledged Servicing
Portfolio, including the owner of such servicing rights and otherwise
in form and substance acceptable to the Agent; and
(x) Other Information. Promptly, such additional
financial and other information, including financial statements of the
Borrowers or any of its Subsidiaries,
<PAGE> 37
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and such information regarding the Collateral or the Warehouse
Collateral as any Lender, through the 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 signatory hereto.
(b) Maintenance of Existence and Properties; Compliance with Laws;
Maintenance of Agency Status. (i) Except as provided in Section 5.2(e),
preserve and maintain, and cause each of its Subsidiaries to preserve and
maintain, its corporate existence and all rights, privileges, licenses,
approvals, franchises, properties and assets material to the normal conduct of
its business; comply, and cause each of its Subsidiaries to comply, in all
material respects with all Contractual Obligations and Requirements of Law,
except when the failure to maintain the existence of any such Subsidiary or to
so comply would not have a Material Adverse Effect; and (ii) except as
permitted under Section 5.2(j), preserve and maintain at all times its status
as a FHLMC approved Seller/Servicer, a HUD Direct Endorsement Lender and a VA
approved Lender in good standing and, with respect to DFC, its status as a FNMA
approved Seller/Servicer and as a GNMA approved Issuer/Servicer.
(c) Inspection of Property; Books and Records; Discussions. (i)
Keep, and cause each of its Subsidiaries to keep, proper books of record and
account in which full, true and correct entries in conformity with GAAP and all
Requirements of Law shall be made of all dealings and transactions in relation
to its business and activities, and, (ii) permit representatives of the Agent
and the Lenders (at no cost to such Borrower unless a Potential Default or an
Event of Default has occurred and is continuing) to visit and inspect any of
its properties and examine and make copies from any of its books and records
during normal business hours, upon reasonable advance notice and as often as
may reasonably be desired by the Agent, and to discuss the business,
operations, properties and financial and other condition of such Borrower and
its Subsidiaries with officers of such parties, and, with their independent
certified public accountants (if a representative of DFC or DMC shall have been
given the right upon reasonable notice to be present by phone or in person),
and with the consent of such Borrower, which consent shall not be unreasonably
withheld, with employees of the Borrowers.
(d) Insurance. Maintain or cause to be maintained with financially
sound and reputable insurers, insurance with respect to its properties and
business, and the properties and business of its Subsidiaries, 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 Agency guidelines, and furnish
the Agent on request evidence of all such insurance.
(e) Payment of Taxes and Claims, Etc. Pay, and cause each of its
Subsidiaries to pay, (i) all taxes, assessments and governmental charges
imposed upon it or upon its property, and (ii) all genuine claims (including
claims for labour, materials, supplies or services) that might, if unpaid,
become a Lien upon its property, unless, in each case, the validity or amount
thereof is being contested in good faith by appropriate proceedings and such
Borrower or such Subsidiary has maintained adequate reserves in accordance with
GAAP with respect thereto or has posted a bond in respect thereof satisfactory
to the Required Lenders.
<PAGE> 38
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(f) GNMA Acknowledgment Agreement. Obtain, execute and deliver an
Acknowledgment Agreement from GNMA relating to the acknowledgment of the
Collateral Agent's security interest in the GNMA Servicing Portfolio, if and
when requested by the Agent in its sole discretion.
(g) Further Documents. Execute and deliver or to cause to be
executed and delivered to the Agent or the Collateral Agent on behalf of the
Lenders from time to time such confirmatory or supplementary security
agreements, financing statements, reaffirmations and consents and such other
documents, instruments or agreements as the Agent may reasonably request, that
are in the Agent's reasonable judgment necessary or desirable to obtain for the
Agent on behalf of the Lenders the benefit of the Loan Documents, the
Collateral and the Warehouse Collateral.
(h) Recording. Cause each Power of Attorney to be "protocolized"
under the laws of Puerto Rico and filed in the Registry of Powers of Attorneys
and Wills, pay any and all fees and charges in connection therewith, and
provide evidence of such protocolization and filing to the Agent promptly
thereafter.
(i) Year 2000 Compliance. Ensure that their respective Information
Systems and Equipment are at all times after the date of this Agreement Year
2000 Compliant, except insofar as the failure to do so will not result in a
Material Adverse Effect, and shall notify the Agent promptly upon detecting any
failure of the Information Systems and Equipment to be Year 2000 Compliant. In
addition, the Borrowers shall provide the Agent with such information about
their respective year 2000 computer readiness (including, without limitation,
information as to contingency plans, budgets and testing results) as the Agent
may reasonably request.
SECTION 5.2 NEGATIVE COVENANTS OF EACH BORROWER.
Each Borrower hereby covenants and agrees that, as long as
any Obligations remain unpaid or any Lender has any Commitment hereunder, such
Borrower shall not, directly or indirectly:
(a) Liens. Create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Lien upon the
Collateral, the Warehouse Collateral or the Servicing Portfolio, whether now
owned or hereafter acquired, except in favor of the Secured Parties under the
Security Agreement, other than:
(i) Liens or charges for current taxes, assessments or
other governmental charges that are not delinquent or which remain
payable without penalty;
(ii) Liens, deposits or pledges made to secure statutory
obligations, surety or appeal bonds, or bonds for the release of
attachments or for stay of execution, or to secure the performance of
bids and tenders or for purposes of like general nature in the
ordinary course of business of such Borrower or such Subsidiary;
(iii) the interests of FNMA and FHLMC with respect to the
servicing rights relating to the underlying Mortgage Loans in the
Pledged Servicing Portfolio as set forth
<PAGE> 39
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in acknowledgment agreements with such Agencies and the interests of
GNMA as set forth in the GNMA Guide;
(iv) involuntary Liens relating to liabilities not in
excess of $100,000 in the aggregate for each Borrower; provided that
such Borrower or such Subsidiary is making a diligent effort to remove
such Liens as soon as practicable; and
(vi) a first priority Lien on the Warehouse Collateral and
the Eligible Servicing Receivables, in favor of the Warehouse
Collateral Agent under the Warehouse Security Agreement and subject to
the terms of the Intercreditor Agreement.
(b) Change of Business. Except as permitted under Section 5.2(e),
engage in any type of business that is unrelated to (i) the mortgage banking
and lending business and the servicing of Mortgage Loans, or (ii) any related
financial services business (including, without limitation, any activity
permitted for banks, savings associations, or savings and loan or bank holding
companies), or permit any of DFC's Subsidiaries to engage in any type of
business other than financial services (including, without limitation, any
activity permitted for banks, savings associations, or savings and loan or bank
holding companies); provided that the Borrowers may create one or more
Subsidiaries for the purposes of acquiring, developing and holding real
property to be leased principally to DFC and DFC's other Subsidiaries.
(c) Acquisitions. Except as permitted under Section 5.2(e),
purchase or acquire, or permit any of its Subsidiaries to purchase or acquire,
or incur liability for the purchase or acquisition of, or permit any of its
Subsidiaries or to incur liability for the purchase or acquisition of, any or
all of the assets or business of any Person (whether such purchase or
acquisition shall be by means of merger, stock purchase, asset purchase or
otherwise) other than (i) purchases and acquisitions in the ordinary course of
business as currently conducted and (ii) other purchases and acquisitions
relating to the mortgage banking and lending business and the servicing of
Mortgage Loans or other financial services (including, without limitation, any
activity permitted for banks, savings associations, or savings and loan or bank
holding companies).
(d) Transactions with Affiliates. Enter into, or permit any of its
Subsidiaries directly or indirectly to enter into, any transaction (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 less favorable to such Borrower or such Subsidiary than those that might be
obtained at the time from Persons who are not Affiliates, other than the
existing Master Purchase, Servicing and Collections Agreement dated as of
September 15, 1993 with Doral Bank, the Amended and Restated Master Production
Agreement among DFC, DMC and Doral Bank dated as of October 1, 1995, as amended
by the First Amendment to Master Production Agreement, dated as of March 1,
1996, and the Master Servicing and Collection Agreement between DFC and Doral
Bank, dated as of October 1, 1995, as amended by the First Amendment to Master
Servicing and Collection Agreement, dated as of March 1, 1996, each as in
effect on such respective dates.
(e) Consolidation, Merger, Sale of Assets, Etc. (i) Enter into any
merger, consolidation or amalgamation, including any such transaction with a
regulated banking entity or that results in either Borrower becoming a
Subsidiary of a regulated banking entity (other than of
<PAGE> 40
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DFC), (ii) liquidate, wind-up or dissolve itself (or suffer or permit any of
the foregoing to occur), or (iii) sell, lease, assign, transfer or otherwise
dispose of, or permit any of its Subsidiaries to sell, lease, assign, transfer
or otherwise dispose of, more than twenty-five percent (25%) of its assets,
whether now owned or hereafter acquired, based on the book value of all such
assets as set forth in the last audited financial statement of such Borrower,
provided that the following shall be permitted so long as no Potential Default
or an Event of Default has occurred and is continuing or would result
therefrom:
(A) DFC may merge or consolidate with another
Person where DFC is the surviving entity;
(B) DMC may merge with any other wholly-owned
Subsidiary of DFC that is principally engaged in the mortgage
banking business where DMC is the surviving entity;
(C) the Borrowers may sell assets in the
ordinary course of business at fair market value (it being
expressly agreed and understood that the sale or other
disposition of Mortgage-Backed Securities and of Mortgage
Loans with or without servicing released is in the ordinary
course of business and that, subject to Section 2.8, the
Borrowers may sell all or a portion of their servicing rights
to the extent and in the manner permitted by Sections 5.2(d)
and (g) and by the Security Agreement). Notwithstanding the
foregoing, DMC may be merged into, become consolidated with
or become a Subsidiary of any Person (other than DFC) that is
a regulated banking entity so long as (x) DFC (aa) becomes
the sole borrower under the Loan Documents and affirms the
same pursuant to documentation reasonably satisfactory to
Lenders and Agent and (bb) satisfies all the representations,
warranties and covenants hereunder, including the financial
covenants, without DMC being included in its consolidated and
consolidating financial statements; (y) no Potential Default
or Event of Default exists at the time of such event and
after giving effect thereto; and (z) such event does not have
a Material Adverse Effect; and
(D) the Borrowers may sell all of the
outstanding stock or assets of Centro Hipotecario de Puerto
Rico, Inc..
(f) ERISA. Take, or permit any of its Subsidiaries to take, any of
the following actions:
(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 Subsidiaries to any material tax, penalty or
other liability;
(iii) Incur or suffer to exist any material Accumulated
Funding Deficiency, whether or not waived, involving any Plan;
<PAGE> 41
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(iv) Allow or suffer to exist any event or condition that
presents a risk of incurring a material liability to the PBGC;
(v) Amend any Plan so as to require the posting of
security in a material amount under section 401(a)(29) of the Code; or
(vi) 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 Subsidiaries to any material tax, penalty or
other liability.
(g) Transfer to Affiliates. Subject to the proviso in subsection
(e) above, sell, assign or otherwise transfer any of its assets to any
Affiliate of a Borrower without the prior written consent of the Required
Lenders, or permit any of its Subsidiaries to sell, assign or otherwise
transfer any of their respective assets, to any Affiliate of a Borrower without
the prior written consent of the Required Lenders other than (i) inter-company
dividends to Borrowers or Borrowers' Subsidiaries, and (ii) sales or other
dispositions of Mortgage Loans and Mortgage-Backed Securities, with or without
servicing released, in the ordinary course of business and at fair market
value; provided that (aa) any Subsidiary of a Borrower may, subject to
subsection (e) above, sell, assign or otherwise transfer any of their
respective assets to such Borrower, (bb) DMC may, subject to subsection (e)
above, sell, assign or otherwise transfer its assets to DFC, and (cc) DFC may
make capital investments in its Subsidiaries.
(h) Subsidiaries. Form or cause to be formed after the date hereof
any Subsidiaries of the Borrowers without notice thereof to the Agent prior to
or promptly after such formation.
(i) Margin Regulations. Use any or all of the proceeds of any Loan
(i) to purchase or carry Margin Stock or extend credit to others for the
purpose of purchasing or carrying Margin Stock or (ii) in any manner that will
violate or be inconsistent with the provisions of any regulation of the Board.
(j) Agency Approvals. Fail to maintain the Agency approvals
described in Section 4.12 as a result of a change in business plan of the
Borrower without the prior consent thereto of the Agent and Lenders, which
consent shall not be unreasonably withheld as long as no Material Adverse
Effect would result therefrom.
(k) Recourse Obligations. In the case of DFC, without the prior
written consent of the Agent, acting at the direction of the Required Lenders,
enter into any transaction whereby (i) DFC sells Mortgage-Backed Securities or
Mortgage Loans and remains obligated to repurchase (whether conditionally or
unconditionally) such Mortgage-Backed Securities or Mortgage Loans or has
retained other recourse obligations with respect thereto, or (ii) DFC assumes
or otherwise incurs recourse obligations with respect to Mortgage-Backed
Securities or Mortgage Loans included in its Servicing Portfolio, if, in either
case, in the reasonable judgment of the management of DFC, the aggregate
obligations of DFC in connection with such transaction and all previous
transactions of the type described in clauses (i) and (ii) above for which DFC
is then obligated could, if DFC is required to perform such obligations, result
in a decrease in DFC's Book Net Worth by a Material Amount.
<PAGE> 42
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SECTION 5.3 ADDITIONAL NEGATIVE COVENANTS.
Each Borrower hereby covenants and agrees that, as long as
any Obligations remain unpaid or any Lender has any Commitment hereunder, such
Borrower shall not at any time, directly or indirectly:
(a) Total Liabilities. Permit DFC on a consolidated basis
(excluding any Subsidiaries that are not primarily engaged primarily in the
business of mortgage banking as reasonably determined by the Agent) to incur
Total Liabilities in excess of the sum of (i) one hundred percent (100%) of
"Cash" or "Cash equivalents"; (ii) ninety-five percent (95%) of the sum of
"Mortgage Loans held for sale", "Mortgage-backed securities held for trading"
(but excluding "interest only securities" included therein), and "Securities
available for sale"; (iii) ninety percent (90%) of "Accrued interest
receivable"; (iv) ninety percent (90%) of "Securities held to maturity"
provided that such securities are tax-exempt investments for the Borrowers,
including GNMA, FNMA and FHLMC mortgage-backed securities, collateralized
mortgage obligations that are backed by GNMA, FNMA or FHLMC mortgage-backed
securities and are rated AAA by Standard & Poor's Corporation and by Moody's
Investors Service, and securities issued by the United States Treasury or an
agency of the United States Government; (v) eighty percent (80%) of "prepaid
and other assets" (excluding investment in any Subsidiary of either Borrower)
and mortgage-backed securities that are not tax-exempt and rated AAA by
Standard & Poor's Corporation and by Moody's Investors Service (including
collateralized mortgage obligations); (vi) fifty percent (50%) of the sum of
(A) "Property, leasehold improvements and equipment" and (B) "Real estate held
for sale"; (vii) sixty-five percent (65%) of "interest only securities"; (viii)
one percent (1.0%) of the principal amount of Mortgage Loans owned by Persons
not affiliated with DFC or DMC or any of their Affiliates (unless covered by a
Permitted Affiliate Servicing Agreement) for which DFC or DMC owns the direct
servicing rights (excluding subservicing); and (ix) eighty percent (80%) of
"loans receivable". All quoted terms used in the preceding sentence shall have
the same meanings, and shall continue to be calculated and classified in the
same manner, as the terms used in the statement of financial condition of DFC
and its consolidated Subsidiaries referred to in Section 4.4(a).
(b) Adjusted Tangible Net Worth. Permit Adjusted Tangible Net
Worth at any time to be less than $180,000,000.
(c) Book Net Worth. Permit Book Net Worth at any time to be less
than $217,000,000.
(d) Minimum Servicing Portfolio. Permit DFC on a consolidated
basis (excluding any Subsidiaries that are not primarily engaged in the
business of mortgage banking as reasonably determined by the Agent) to maintain
a Servicing Portfolio with an aggregate outstanding principal balance of less
than $4,000,000,000 or such lesser amount as shall be agreed by the Lenders in
their sole discretion.
<PAGE> 43
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ARTICLE 6
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. (i) The Borrowers shall fail to pay when due
(whether at scheduled maturity, upon mandatory repayment or otherwise) any
principal of any Note; or (ii) the Borrowers shall fail to pay within three (3)
Business Days after the due date thereof any interest on any Note or any other
Obligation;
(b) Covenants Without Notice. The Borrowers shall fail to observe
or perform any covenant or agreement contained in Sections 5.1(b)(i), 5.1(f),
5.2 or 5.3; provided that any violation of Section 5.2(a) that is attributable
to the existence of an involuntary Lien on the Collateral or the Warehouse
Collateral (other than an involuntary Lien expressly permitted by Section
5.2(a)) shall not constitute an Event of Default until thirty (30) days after
the imposition thereof if at all times during such thirty (30) day period the
Borrowers are making a diligent effort by appropriate means to remove such Lien
and the existence of such Lien will not have a Material Adverse Effect);
(c) Covenants With Seven Business Day Grace Period. The Borrowers
shall fail to observe or perform any covenant or agreement contained in
Sections 5.1(a), 5.1(b)(ii) or 5.1(c)(ii), and such failure shall remain
unremedied for seven (7) Business Days after oral notice thereof to an
Authorized Officer (which shall be confirmed in writing (which may be by
facsimile) before the end of such seven (7) Business Day period);
(d) Covenants With Thirty Day Grace Period. The Borrowers shall
fail to observe or perform any covenant or agreement contained in any Loan
Document, other than those referred to in Sections 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) either Borrower's obtaining knowledge thereof or
(ii) notice thereof shall have been given to an Authorized Officer by any
Lender or the Agent before the end of such thirty (30) day period); provided
that if such failure is capable of being remedied but only in a period of more
than thirty (30) days, then such failure shall not constitute an Event of
Default until sixty (60) days after the earlier of the above dates if each
Borrower is making a diligent effort by appropriate means to observe or perform
such covenant and there is otherwise no Material Adverse Effect as a result of
such delay;
(e) Representations. Any representation, warranty or statement
made or deemed to be made by either Borrower or any of their respective
officers under or in connection with any Loan Document shall have been
inaccurate, incomplete or incorrect in any respect when made or deemed to be
made and such inaccuracy, incompleteness or incorrectness could have a Material
Adverse Effect;
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(f) Non-Payment of Other Indebtedness. Either Borrower shall fail
to make any payment of principal of or interest on any of its Indebtedness
(other than the Obligations) exceeding the Material Amount in the aggregate
when due (whether at stated maturity, by acceleration, on demand or otherwise)
after giving effect to any applicable grace period;
(g) Defaults Under Other Agreements. Either Borrower shall fail to
observe or perform any covenant or agreement contained in any agreement or
instrument relating to any of its Indebtedness (other than the Obligations) in
excess of the Material Amount in the aggregate within any applicable grace
period, or any other event shall occur if 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; or any such
Indebtedness shall be required to be prepaid (other than by a regularly
scheduled required prepayment) in whole or in part prior to its stated
maturity;
(h) Bankruptcy. Either Borrower 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 either
Borrower 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 the property
of either Borrower; or either Borrower 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 either Borrower any such proceeding that remains undismissed for a
period of sixty (60) days; or either Borrower is adjudicated insolvent or
bankrupt; or any order of relief or other order approving any such case or
proceeding is entered; or either Borrower 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 either Borrower shall call a meeting of its creditors with
a view to arranging a composition or adjustment of its debts; or either
Borrower shall by any act or failure to act indicate its consent to, approval
of or acquiescence in any of the foregoing; or any corporate action is taken by
either Borrower for the purpose of effecting any of the foregoing;
(i) Money Judgment. A judgment or order for the payment of money
in excess of the Material Amount shall be rendered against either Borrower 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);
(j) 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 Borrowers or any ERISA Affiliate shall withdraw from a Multiemployer Plan
under circumstances that the Required Lenders determine could have a material
adverse effect on the financial condition of either Borrower; and in case of
the occurrence of any event or condition described in clauses (i) through (v)
above, such event or
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condition together with all other such events or conditions, if any, could
subject either Borrower to any tax, penalty or other liabilities in the
aggregate material in relation to the business, operations, property or
financial or other condition of either Borrower;
(k) Loan Documents. Any of the Loan Documents shall cease for any
reason to be in full force and effect, a breach by the Borrowers under any of
the Acknowledgement Agreements shall occur, or any action shall be taken by any
Person to terminate, revoke or discontinue, or to assert the invalidity or
unenforceability of, any of the Loan Documents;
(l) Security Interests. The Lenders shall cease for any reason
(other than in accordance with the terms of the Security Agreement or the
Warehouse Security Agreement) to have valid and perfected security interests in
the Collateral or the Warehouse Collateral (with the priority as set forth in
Section 4.11), or any Person shall take any action to discontinue or to assert
the invalidity or unenforceability of such security interests; or
(m) Warehouse Event of Default. A Warehouse Event of Default shall
occur;
THEN, the Agent shall notify the Lenders of such Event of Default and may, and
upon the written request of the Required Lenders, shall, by written notice to
the Borrowers, take any or all of the following actions: (A) declare the
Commitments terminated, whereupon the Commitment of each Lender shall terminate
immediately without any other notice of any kind; and (B) declare the principal
of and any accrued interest on the Loans, and all other Obligations to be,
whereupon the same shall become, forthwith due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby waived by
the Borrowers; provided that, if an Event of Default specified in Section
6.1(h) 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 Borrowers.
ARTICLE 7
THE AGENT
SECTION 7.1 APPOINTMENT OF AGENT.
Each Lender hereby designates Bankers Trust Company as Agent
to act as herein specified. Each Lender hereby irrevocably authorizes, and each
holder of any Note by the acceptance of a Note shall be deemed irrevocably to
authorize, the 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 Agent by the terms hereof and thereof and such other powers as
are reasonably incidental thereto. The Agent may perform any of its duties
hereunder or thereunder by or through its agents or employees.
SECTION 7.2 NATURE OF DUTIES OF AGENT.
The Agent shall have no duties or responsibilities except
those expressly set forth in this Agreement and the other Loan Documents.
Neither the Agent nor any of its officers,
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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 wilful misconduct as evidenced by a final
judgment of a court of competent jurisdiction. The duties of the Agent shall be
mechanical and administrative in nature; the Agent shall not 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
the Agent 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 AGENT.
(a) Independently and without reliance upon the Agent, 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
each Borrower and its Affiliates in connection with the taking or not taking of
any action in connection herewith and (ii) its own appraisal of the
creditworthiness of each Borrower and its Affiliates, and, except as expressly
provided in this Agreement, the Agent shall have no 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) The Agent shall not 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
Collateral or the Warehouse Collateral or the validity, perfection or priority
of any security interest in the Collateral or the Warehouse Collateral or the
financial condition of each Borrower or its Affiliates 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 each Borrower or its Affiliates, or the existence
or possible existence of any Potential Default or Event of Default.
SECTION 7.4 CERTAIN RIGHTS OF AGENT.
If the Agent shall request instructions from the Required
Lenders with respect to any act or action (including the failure to act) in
connection with this Agreement or any other Loan Document, the Agent shall be
entitled to refrain from such act or taking such action unless and until the
Agent shall have received instructions from the Required Lenders; and the 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 the Agent as a result of the Agent 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.
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SECTION 7.5 RELIANCE BY AGENT.
The Agent shall be entitled to rely, and shall be fully
protected in relying, upon any notice, believed by it to be genuine and correct
and to have been signed, sent or made by the proper Person. The Agent may
consult with legal counsel (including with the consent of DFC, which consent
shall not be unreasonably withheld, counsel for DFC or DMC), independent public
accountants (including those retained by DFC or DMC if a representative of DFC
or DMC, as applicable, shall have been given the right upon reasonable notice
to be present by phone or in person during such consultation) 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 AGENT.
To the extent the Agent is not reimbursed and indemnified by
DFC or DMC, each Lender will reimburse and indemnify the Agent, in proportion
to its respective Commitment (before giving effect to any termination of the
Commitments pursuant to the terms of this Agreement), from and against any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses (including reasonable attorneys' fees and disbursements)
or disbursements of any kind or nature whatsoever which may be imposed on,
incurred by or asserted against the 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 the Agent's gross negligence or wilful misconduct, as evidenced
by a final judgment of a court of competent jurisdiction.
SECTION 7.7 AGENT IN ITS INDIVIDUAL CAPACITY.
With respect to its obligation to lend under this Agreement,
the Loans made by it and the Notes issued to it, the Agent 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 the Agent
in its individual capacity. The Agent may accept deposits from, lend money to,
and generally engage in any kind of banking, trust, financial advisory or other
business with each Borrower or any Affiliate of the Borrowers as if it were not
performing the duties specified herein, and may accept fees and other
consideration from the Borrowers and any Affiliates of the Borrowers 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.
The Agent 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 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
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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 AGENT.
(a) The Agent may resign as Agent hereunder at any time by giving
written notice thereof to the Lenders and the Borrowers if (i) it believes that
its duties hereunder present an actual or potential conflict of interest with
any other business of the Agent or (ii) it 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 administration thereof by any
Governmental Authority charged with the interpretation or administration
thereof, or compliance by the Agent with any request or directive (whether or
not having the force of law) of any such Authority, shall make it unlawful or
improper for the Agent to continue as Agent hereunder. Upon any such
resignation or any removal of the Agent pursuant to Section 7.9(b), the
Required Lenders shall have the right, upon five (5) days' notice to the
Borrowers, to appoint a successor Agent, which shall be a Lender. If no
successor Agent shall have been so appointed by the Required Lenders, and shall
have accepted such appointment, within thirty (30) days after the retiring
Agent's giving of notice of resignation, then, upon five (5) days' notice to
the Borrowers, the retiring Agent may, on behalf of the Lenders, appoint a
successor Agent, which shall be a bank which 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.
(b) The Agent may be removed by the unanimous vote of all the
Lenders hereunder (not including the vote of the Agent if the Agent is also a
Lender hereunder) if (i) the Agent has engaged in wilful misconduct with
respect to its obligations and duties hereunder as evidenced by a final
judgment of a court of competent jurisdiction and (ii) has failed to cure such
wilful misconduct after sixty (60) days notice by the Lenders to the Agent of
such wilful misconduct.
(c) Any resignation or removal of the Agent hereunder shall be
effective only upon the acceptance of any appointment as Agent hereunder by a
successor Agent. Upon such acceptance, such successor Agent shall succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring Agent, and the retiring Agent shall be discharged from its duties and
obligations under this Agreement and the other Loan Documents. After any
retiring Agent's resignation hereunder as Agent, 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 Agent under this Agreement.
ARTICLE 8
MISCELLANEOUS PROVISIONS
SECTION 8.1 NOTICES.
(a) Except as otherwise expressly set forth herein, all notices,
requests and other communications to any party hereunder 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
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forth on Exhibit H hereto or such other address or telecopy number as such
party may hereafter specify by notice to the Agent and the Borrowers. 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 or (b) if sent by
overnight courier (with all charges paid) providing for confirmation of
delivery, then upon confirmation of delivery by such courier; provided that
notices to the Agent pursuant to Article II shall not be effective until
received.
(b) Any notice required to be given to one or more Borrowers
hereunder or under any other Loan Document shall be effective if delivered to
DFC, it being the intent that notice to DFC is effective notice to both
Borrowers. In connection therewith, DMC hereby irrevocably appoints DFC as its
agent to receive any and all notices hereunder and under any other Loan
Document and such appointment is coupled with an interest. In addition to the
foregoing, the Agent and the Lenders shall be entitled, but shall not be
required, to rely on notice from either Borrower as constituting notice from
both Borrowers.
SECTION 8.2 AMENDMENTS, ETC.
No amendment or waiver of any provision of any Loan Document,
nor consent to any departure by the Borrowers therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Borrowers 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) notwithstanding anything else contained herein, no
amendment, waiver or consent shall, unless in writing and signed by all the
Lenders, do any of the following: (i) waive or change Section 5.2(e) or any of
the conditions specified in Article III, (ii) except as provided in Sections
8.6(g) and 8.6(h), increase the aggregate Commitments of the Lenders or subject
the Lenders to any additional obligations, (iii) reduce the principal of, or
interest on, the Notes, (iv) postpone any date fixed for any payment in respect
of principal of, or interest on, the Notes, or waive any Event of Default under
Section 6.1(a), (v) change the percentage of the Commitments, the definitions
of "Required Lenders" or "Collateral Value of the Pledged Servicing Portfolio"
(or any definitions contained in such definitions), or the number or identity
of Lenders that is required for any or all of the Lenders to take any action
hereunder, (vi) release the Lien of the Lenders on any of the Collateral or the
Warehouse Collateral, except as provided in the Security Agreement or (vii)
amend this Section 8.2 or Section 8.6; and (b) no amendment, waiver or consent
shall, unless in writing and signed by the Agent, affect the rights or duties
of the 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 Agent or any Lender in
exercising any right or remedy hereunder or under any other Loan Document and
no course of dealing between the Borrowers, on the one hand, and the Agent or
any Lender, on the other hand, 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 Agent or any Lender would
otherwise have. No notice to or demand on the Borrowers not required hereunder
or under the other Loan Documents in any case shall entitle
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the Borrowers to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the 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 Borrowers shall:
(a) (i) pay all reasonable out-of-pocket costs and expenses
of the outside legal counsel of the Agent in connection with the preparation,
execution and delivery of, this Agreement and the other Loan Documents, and any
amendment, modification or supplement hereof or thereof, and (ii) pay all
reasonable out-of-pocket costs and expenses of the 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, any refinancing, the renegotiating or
the 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 (including
allocated costs of internal counsel) for the Agent and, in the case of
enforcement, for each of the Lenders);
(b) pay and hold the 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 save the 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) indemnify the 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 Borrowers of the proceeds of any of the Loans or the Borrowers'
entering into and performing of the Loan Documents to which they are 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; provided that neither the Agent nor any Lender
shall have the right to be indemnified hereunder for its own gross negligence
or wilful misconduct as evidenced by a final judgment of a court of competent
jurisdiction. If and to the extent that the obligations of the Borrowers under
this Section 8.4 are unenforceable for any reason, the Borrowers hereby agrees
to make the maximum contribution to the payment and satisfaction of such
obligations that is permissible under applicable law.
SECTION 8.5 RIGHT OF SETOFF.
Subject to Section 2.16, in addition to and not in limitation
of all rights of offset that any Lender may have under applicable law, for so
long as any Event of Default has occurred and is continuing and whether or not
any Lender has made any demand or the Obligations have matured, such Lender
shall 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
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thereafter held by, and other indebtedness or property then or thereafter owing
to the Borrowers by, such Lender, whether or not related to any Loan Document
or any transaction hereunder.
SECTION 8.6 BENEFIT OF AGREEMENT.
(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 neither of the Borrowers may assign or transfer any of
its interest or delegate any of its obligations under the Loan Documents
without the prior written consent of the Lenders and any such assignment or
transfer without the prior written consent of the Lenders shall be null and
void.
(b) Subject to the provisions of Section 2.13(c), any Lender may
make, carry or transfer Loans at, to or for the account of, any of its branch
offices or the office of an Affiliate of such Lender.
(c) Subject to the limitations set forth below, no Lender may
assign its rights or delegate its obligations under this Agreement and the
other Loan Documents and the Intercreditor Agreement to any other financial
institution without the prior consent of the Agent and, unless an Event of
Default has occurred and is continuing, the Borrowers (such consent not to be
unreasonably withheld); provided that (i) no Lender may make an assignment
hereunder to a Person (other than an Affiliate of such Lender or an existing
Lender) that is not a financial institution, (ii) each assignment of all or a
portion of a Lender's Commitment shall include a corresponding portion of such
Lender's Loans, (iii) no Lender may assign less than $2,500,000 of its
Commitment in any single assignment, and (iv) an assignment fee in the amount
of $3,500 for each assignment hereunder shall be payable to the Agent by the
applicable assignee. Any assignment or delegation specifically prohibited by
the preceding sentence shall be null and void. Notwithstanding the foregoing,
any Lender may assign its rights and delegate its obligations under this
Agreement and the other Loan Documents and the Intercreditor Agreement to any
Affiliate of such Lender without notice to or consent by the Borrowers, the
Agent, or any other Person, provided the fee set forth in the proviso to the
immediately preceding sentence shall be paid. Each assignment by a Lender
hereunder shall be made pursuant to an Assignment and Acceptance in
substantially the form of Exhibit N hereto. In the case of an assignment by a
Lender, upon the effective date of such assignment as set forth in the
Assignment and Acceptance executed by such Lender, the assignee shall have, to
the extent of such assignment (unless otherwise provided thereby), the same
rights and benefits as it would have if it were a Lender under the Loan
Documents and the Intercreditor Agreement and the holder of a Note and, if the
assignee has expressly assumed, for the benefit of the Borrowers, the assignor
Lender's obligations hereunder and under the other Loan Documents and the
Intercreditor Agreement, such assignor Lender shall be relieved of its
obligations hereunder and under the other Loan Documents and the Intercreditor
Agreement to the extent of such assignment and assumption.
(d) 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
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waiver would (x) extend the final scheduled maturity of any of the Loans or the
Commitment in which such participant is participating, (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 or Warehouse Collateral except as provided in the Security Agreement
or the Warehouse Security Agreement, respectively. 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 Borrowers hereunder shall be determined as if such Lender had not sold
such participation, provided that such participant shall be entitled to receive
additional amounts under Sections 2.13, 2.14 and 2.15 on the same basis as if
it were a Lender.
(e) Any Lender may furnish any information concerning the
Borrowers and its Affiliates in the possession of such Lender from time to time
to Affiliates, participants and assignees, and prospective participants and
assignees, of such Lender. No Lender or its Affiliates may furnish such
information to any prospective assignee or participant without the prior
written consent of DFC, which consent will not be unreasonably withheld. Any
prospective assignee or participant shall be required to execute a
confidentiality agreement in the form of Exhibit J before receiving any such
information.
(f) Any Lender may at any time pledge all or any portion of its
rights under the Loan Documents to a Federal Reserve Bank without notice to or
consent of either Borrower, the Agent or any other Lender. No such pledge shall
release the transferor Lender from its obligations hereunder.
(g) So long as no Potential Default or Event of Default has
occurred and is continuing, the Borrowers may at any time propose that one or
more commercial banks (each, an "APPLICANT LENDER") become an additional Lender
hereunder. At such time, the Borrowers shall notify each of the Lenders of (i)
the identity of such Applicant Lender, (ii) the proposed increase in the
aggregate Commitments resulting from the addition of such Applicant Lender as a
Lender hereunder, and (iii) such Applicant Lender's proposed Commitment (which
must be not less than $2,500,000). Upon the Applicant Lender's addition as a
Lender hereunder, such Applicant Lender shall become a party to this Agreement
and the Intercreditor Agreement and a Lender hereunder and under the other Loan
Documents and the Intercreditor Agreement, shall be entitled to all rights,
benefits and privileges accorded a Lender under this Agreement and under the
other Loan Documents and the Intercreditor Agreement, and shall be subject to
all obligations of a Lender under this Agreement and under the other Loan
Documents and the Intercreditor Agreement.
(h) The addition of any Applicant Lender as a Lender hereunder
shall become effective upon the occurrence of each of the following events:
(i) the Agent shall have given its prior written consent
to such Applicant Lender, which consent shall not be unreasonably
withheld, delayed or conditioned;
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(ii) such Applicant Lender, the Borrowers and the Agent
shall have mutually agreed on the date (the "ADJUSTMENT DATE") on
which such Applicant Lender shall become a Lender hereunder and under
the other Loan Documents and the Intercreditor Agreement; and
(iii) on such Adjustment Date:
(A) such Applicant Lender, the Borrowers and the
Agent shall execute and deliver to each of the other
signatories thereto an Additional Lender Agreement in
substantially the form of Exhibit O hereto, the Agent shall
deliver a copy of such executed Additional Lender Agreement
and a copy of the Commitment Notice attached as Schedule I
thereto to each of the Lenders, and the Commitments of each
of the Lenders shall be modified as set forth in such
Commitment Notice;
(B) the Borrowers shall execute and deliver to
such Applicant Lender (x) a duly executed Note, (y) a
reliance letter from counsel to the Borrowers addressed to
such Applicant Lender and in form and substance satisfactory
to such Applicant Lender, providing that such Applicant
Lender may rely on any opinion letters of such counsel
addressed to the existing Lenders, as if such opinion letters
were addressed directly to such Applicant Lender, and (z)
certified copies of the resolutions of the Board of Directors
of each of the Borrowers evidencing the authorization of such
Borrower to enter into such Additional Lender Agreement and
consummate the transactions and matters contemplated thereby;
and
(C) no Potential Default or Event of Default
shall have occurred and be continuing as of such date.
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 TO WHICH EITHER BORROWER IS A PARTY 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, EACH OF THE BORROWERS HEREBY ACCEPTS
FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. THE PARTIES HERETO HEREBY IRREVOCABLY AND
<PAGE> 54
-50-
UNCONDITIONALLY WAIVE TRIAL BY JURY, AND, TO THE MAXIMUM EXTENT PERMITTED BY
APPLICABLE LAW, EACH OF THE BORROWERS HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED
ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE BRINGING OR MAINTAINING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS.
(c) EACH OF THE BORROWERS 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, TO EACH SUCH BORROWER AT ITS SAID ADDRESS,
SUCH SERVICE TO BECOME EFFECTIVE THIRTY (30) DAYS AFTER SUCH MAILING. IN
ADDITION, EACH BORROWER HEREBY IRREVOCABLY APPOINTS CT CORPORATION, 1633
BROADWAY, NEW YORK, NEW YORK 10019 (THE "PROCESS AGENT") TO RECEIVE, FOR IT AND
ON ITS BEHALF, SERVICE OF PROCESS IN ANY PROCEEDINGS OR ACTIONS IN NEW YORK. IF
FOR ANY REASON THE PROCESS AGENT IS UNABLE TO ACT AS SUCH, EACH BORROWER WILL
PROMPTLY NOTIFY THE AGENT AND WITHIN THIRTY (30) DAYS APPOINT A SUBSTITUTE
PROCESS AGENT ACCEPTABLE TO THE AGENT.
(d) NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY
LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST EITHER BORROWER IN ANY OTHER
JURISDICTION.
(e) EACH PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN THIS SECTION 8.7, ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES. THIS WAIVER IS MADE KNOWINGLY AND
VOLUNTARILY.
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 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 8.10 SURVIVAL OF REPRESENTATIONS AND INDEMNITIES.
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
<PAGE> 55
-51-
the execution and delivery to the Agent for the account of the Lenders of the
Notes regardless of any investigation made by the Agent or the Lenders and of
the Agent's and any Lender's access to any information and shall continue in
full force and effect so long as any Obligation is outstanding and unpaid. The
Borrowers' obligations under Sections 2.13, 2.14, 2.15 and 8.4 and under any
other indemnification provisions of the Loan Documents and each Lender's
obligations under Sections 7.6 and 8.12 and under any other indemnification
provisions of the Loan Documents shall survive the termination of this
Agreement for any reason whatsoever and payment of the Notes.
SECTION 8.11 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 8.12 INDEMNIFICATION OF COLLATERAL AGENT.
To the extent that the Collateral Agent is not reimbursed and
indemnified by the Borrowers pursuant to the Security Agreement, each Lender
will reimburse and indemnify the Collateral Agent, in proportion to the unpaid
principal amount of its outstanding Loans, or if no Loans are then outstanding,
in proportion to its Commitment, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including reasonable attorneys' fees and disbursements) or
disbursements of any kind or nature whatsoever that may be imposed on, incurred
by or asserted against the Collateral Agent in performing its duties under the
Loan Documents, in any way relating to or arising out of the 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 the Collateral Agent's gross
negligence or wilful misconduct as evidenced by a final judgment of a court of
competent jurisdiction. The Collateral Agent shall be entitled to rely on the
provisions of this Section 8.12 as if they were a party to this Agreement.
SECTION 8.13 JOINT AND SEVERAL NATURE OF THE OBLIGATIONS.
The Borrowers agree that any and all of the Obligations of
the Borrowers hereunder and under each other Loan Document shall be the joint
and several obligation of each of them notwithstanding any absence herein or
therein of a reference such as "jointly and severally" with respect to any such
obligation.
SECTION 8.14 CERTAIN WAIVERS.
Each of the Borrowers agrees that its joint and several
liability under this Agreement and each of the other Loan Documents shall be
absolute, unconditional and irrevocable irrespective of:
(a) any lack of validity, legality or enforceability of the
Obligations of the other Borrower or any other Person under this Agreement or
any other Loan Document;
<PAGE> 56
-52-
(b) the failure of any Lender:
(i) to assert any claim or demand or to enforce any right
or remedy against the other Borrower or any other Person (including
any guarantor) under the provisions of this Agreement or any other
Loan Document or otherwise, or
(ii) to exercise any right or remedy against any guarantor
of, or Collateral or Warehouse Collateral securing, any Obligations;
(c) any change in the time, manner or place or payment of, or in
any other term of, all or any of the Obligations, or any other extension,
compromise or renewal of any Obligation with respect to the other Borrower or
any other Person;
(d) any reduction, limitation, impairment or termination of any of
the Obligations of the other Borrower or any other Person for any reason,
including any claim of waiver, release, surrender, alteration or compromise,
and the liability of each of the Borrowers shall not be subject to (and each of
them hereby waives any right to or claim of) any defense or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality, non-genuineness, irregularity, compromise, unenforceability of, or
any other event or occurrence affecting, any of the Obligations of the other
Borrower or any other Person;
(e) any rescission, waiver, amendment or other modification of, or
any consent to departure from, any of the Obligations of the other Borrower or
any other Person under the terms of this Agreement or any other Loan Document;
(f) any exchange, release or non-perfection of any Collateral or
Warehouse Collateral, or any release, amendment or waiver of, or consent to
departure from, any guaranty or other agreement from the other Borrower or any
other Person, securing any of the Obligations; or
(g) any other circumstances which might otherwise constitute a
defense available to, or a legal or equitable discharge of, the other Borrower
or any surety or any guarantor. Each of the Borrowers waives any right to
require that any resort be made by any Lender to any of the Collateral or the
Warehouse Collateral.
SECTION 8.15 SUBROGATION, ETC.
At any time that a payment is made by either Borrower with
respect to the Obligations, such Borrower shall have a right of contribution
against the other Borrower in the maximum amount permitted by applicable law,
which right of contribution shall be subject to adjustment at the time of any
subsequent payment with respect to the Obligations; provided, that the maximum
aggregate liability of either Borrower with respect to such contribution rights
of the other Borrower shall not exceed the maximum amount of liability that
such first Borrower can incur without rendering such contribution rights void
or voidable under applicable law relating to fraudulent conveyance or
fraudulent transfers, and not for any greater amount, and provided further,
that neither Borrower will exercise any such contribution rights or any other
rights which it may acquire by reason of any payment made hereunder, whether by
way of rights of subrogation, reimbursement or otherwise, until the prior
payment, in full and in cash, of all Obligations and the termination of all
Commitments. Any amount paid to either Borrower on
<PAGE> 57
-53-
account of any payment made hereunder prior to the payment in full of all
Obligations other than intercompany payments or reimbursements made in the
ordinary course of the businesses of each Borrower shall be held in trust for
the benefit of the Agent and the Lenders and shall immediately be paid to the
Agent and credited and applied against the Obligations, whether matured or
unmatured, in accordance with the terms of this Agreement and the other Loan
Documents. In furtherance of the foregoing, for so long as any Obligation or
any Commitment remains outstanding, each Borrower shall refrain from taking any
action or commencing any proceeding against the other Borrower (or its
successors or assigns, whether in connection with a bankruptcy proceeding or
otherwise) to recover any amounts in respect of payments made under this
Agreement to the Agent and the Lenders.
SECTION 8.16 CONFIDENTIALITY.
Each Lender agrees not to disclose, without the prior written
consent of the Borrowers, any of the financial information or other information
of the Borrowers or any Affiliate of either of the Borrowers, designated in
writing by either 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 or as otherwise required to be provided by the Lender in
the ordinary course of its business; (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 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 Borrowers 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) for disclosure of any
such information prior to disclosure of such information so that the Borrowers
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 8.16, (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 8.17 INTEGRATION.
This Agreement and the other Loan Documents represent the
entire agreement of the Borrowers, the Agent and the Lenders with respect to
the subject matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to the
subject matter hereof or thereof not expressly set forth or referred to herein
or in the other Loan Documents.
<PAGE> 58
-54-
SECTION 8.18 EFFECTIVENESS.
(a) This Agreement shall become effective as of the date (the
"AMENDMENT EFFECTIVE DATE"), on which each of the following conditions have
been satisfied to the satisfaction of the Agent:
(i) the Borrowers shall have delivered to the Agent, in
form and substance and in quantities reasonably satisfactory to the
Agent and its counsel, all of the instruments and documents described
in Section 3.1(a);
(ii) the Borrowers shall have paid all fees and other
Obligations required to have been paid under the Original Credit
Agreement, this Agreement and the other Loan Documents prior to or on
the Amendment Effective Date;
(iii) all conditions precedent set forth in Section 3.1(b)
shall have been satisfied at and as of such date (both before and
after giving effect to this Agreement and the other Loan Documents);
and
(iv) 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 prior to the execution, delivery and
performance of this Agreement and the other Loan Documents and for the
same to constitute the legal, valid and binding obligations of the
Borrowers, 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 Agent and waived by all of the Lenders in writing.
(b) If each of the above conditions has been satisfied, on the
Amendment Effective Date, all Loans outstanding under the Original Credit
Agreement shall remain outstanding and shall be deemed to be Loans under this
Agreement governed by the terms hereof. Upon receiving the Notes delivered
pursuant to subsection (a)(i) above, each Lender that was a party to the
Original Credit Agreement shall promptly cancel its promissory note delivered
under the Original Credit Agreement and return such promissory note to the
Borrowers. No failure of a Lender to cancel or return such promissory note
shall affect the validity of the new Notes delivered hereunder.
<PAGE> 59
-55-
SECTION 8.19 RATIFICATION; NO NOVATION.
Except as set forth herein and therein, all Loan Documents,
including the Security Agreement, are hereby ratified and confirmed in all
respects. The term "Loan Documents", as used in the Loan Documents, shall mean
the Loan Documents as amended hereby and thereby. The parties do not intend for
this Agreement or any of the other Loan Documents to effect, nor does this
Agreement or any of the Loan Documents constitute, a novation of the
obligations of the Borrowers evidenced by the Original Credit Agreement and the
Loan Documents referred to therein. This Agreement and the other Loan Documents
constitute an amendment and restatement of the terms governing such
obligations.
SECTION 8.20 WAIVER OF JURY TRIAL.
THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY IN ANY ACTION OR PROCEEDING WITH RESPECT TO THE SUBJECT
MATTER OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
DORAL FINANCIAL CORPORATION,
as a Borrower
By: /s/ Mario S. Levis
--------------------------------------
Mario S. Levis
Executive Vice President and Treasurer
DORAL MORTGAGE CORPORATION,
as a Borrower
By: /s/ Mario S. Levis
--------------------------------------
Mario S. Levis
Executive Vice President
<PAGE> 60
-56-
Commitment: $12,000,000 BANKERS TRUST COMPANY,
as Agent and as a Lender
By: /s/ Kevin M. McCann
--------------------------------------
Kevin M. McCann
Principal
Commitment: $7,000,000 FIRST UNION NATIONAL BANK,
as a Lender
By: /s/ R. Steven Hall
------------------------------------
Name: R. Steven Hall
------------------------------------
Title: Vice President
------------------------------------
Commitment: $7,000,000 BANKBOSTON, N.A. (formerly known as The
Bank of Boston),
as a Lender
By: /s/ Paul A. Chmielinski
------------------------------------
Name: Paul A. Chmielinski
------------------------------------
Title: Vice President
------------------------------------
Commitment: $7,000,000 THE BANK OF NEW YORK,
as a Lender
By: /s/ Robert A. Tweed
------------------------------------
Name: Robert A. Tweed
------------------------------------
Title: Vice President
------------------------------------
Commitment: $7,000,000 NATIONAL CITY BANK OF KENTUCKY,
as a Lender
By: /s/ Robert J. Ogburn
------------------------------------
Robert J. Ogburn
------------------------------------
Vice President
------------------------------------
<PAGE> 61
-57-
Commitment: $5,000,000 CREDIT LYONNAIS, NEW YORK BRANCH,
as a Lender
By: /s/ W. Jay Buckley
------------------------------------
Name: W. Jay Buckley
------------------------------------
Title: Vice President
------------------------------------
Commitment: $5,000,000 HIBERNIA NATIONAL BANK,
as a Lender
By: /s/ Stephanie F. Tyner
------------------------------------
Name: Stephanie F. Tyner
------------------------------------
Title: Assistant Vice President
------------------------------------
Commitment: $5,000,000 COLONIAL BANK,
as a Lender
By: /s/ Amy J. Nunneley
------------------------------------
Name: Amy J. Nunneley
------------------------------------
Title: Senior Vice President
------------------------------------
<PAGE> 1
EXHIBIT 12 (A)
DORAL FINANCIAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED JUNE 30, 1999
-------------------
<S> <C>
INCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $ 37,930
Plus:
Fixed Charges (excluding capitalized interest) 66,500
--------
TOTAL EARNINGS $104,430
========
FIXED CHARGES:
Interest expensed and capitalized $ 65,251
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 611
An estimate of the interest component within rental expense 712
--------
TOTAL FIXED CHARGES 66,574
========
RATIO OF EARNINGS TO FIXED CHARGES 1.57
========
EXCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $ 37,930
Plus:
Fixed Charges (excluding capitalized interest) 51,935
--------
TOTAL EARNINGS $ 89,865
========
FIXED CHARGES:
Interest expensed and capitalized $ 50,686
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 611
An estimate of the interest component within rental expense 712
--------
TOTAL FIXED CHARGES $ 52,009
========
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS 1.73
========
</TABLE>
<PAGE> 1
EXHIBIT 12(B)
DORAL FINANCIAL CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE
SECURITY DIVIDENDS
<TABLE>
<CAPTION>
SIX-MONTH PERIOD
ENDED JUNE 30, 1999
-------------------
<S> <C>
INCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $37,930
Plus: Fixed Charges (excluding capitalized interest) 66,500
--------
TOTAL EARNINGS $104,430
========
FIXED CHARGES:
Interest expensed and capitalized $ 65,251
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 611
An estimate of the interest component within rental expense 712
--------
TOTAL FIXED CHARGES BEFORE PREFERRED DIVIDENDS 66,574
--------
Preferred dividend requirements 2,184
Ratio of pre tax income to net income 1.133
--------
PREFERRED DIVIDEND FACTOR 2,474
--------
TOTAL FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS $ 69,048
========
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS 1.51
========
EXCLUDING INTEREST ON DEPOSITS
EARNINGS:
Pre-tax income from continuing operations $37,930
Plus: Fixed Charges (excluding capitalized interest) 51,935
--------
TOTAL EARNINGS $ 89,865
========
FIXED CHARGES:
Interest expensed and capitalized $ 50,686
Amortized premiums, discounts, and capitalized
expenses related to indebtedness 611
An estimate of the interest component within rental expense 712
--------
TOTAL FIXED CHARGES BEFORE PREFERRED DIVIDENDS 52,009
--------
Preferred dividend requirements 2,184
Ratio of pre tax income to net income 1.133
--------
PREFERRED DIVIDEND FACTOR 2,474
--------
TOTAL FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS $ 54,483
========
RATIO OF EARNINGS TO FIXED CHARGES AND PREFERENCE SECURITY DIVIDENDS 1.65
========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DORAL FINANCIAL CORPORATION FOR THE SIX MONTH PERIOD
ENDED JUNE 30, 1999 AND IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 35,093
<INT-BEARING-DEPOSITS> 76,103
<FED-FUNDS-SOLD> 86,770
<TRADING-ASSETS> 684,673
<INVESTMENTS-HELD-FOR-SALE> 28,862
<INVESTMENTS-CARRYING> 937,186
<INVESTMENTS-MARKET> 908,098
<LOANS> 1,108,144
<ALLOWANCE> 5,405
<TOTAL-ASSETS> 3,279,870
<DEPOSITS> 760,096
<SHORT-TERM> 1,571,205
<LIABILITIES-OTHER> 270,028
<LONG-TERM> 317,979
0
1,503
<COMMON> 40,485
<OTHER-SE> 318,574
<TOTAL-LIABILITIES-AND-EQUITY> 3,279,870
<INTEREST-LOAN> 35,477
<INTEREST-INVEST> 45,556
<INTEREST-OTHER> 6,598
<INTEREST-TOTAL> 87,631
<INTEREST-DEPOSIT> 14,565
<INTEREST-EXPENSE> 51,223
<INTEREST-INCOME-NET> 21,843
<LOAN-LOSSES> 753
<SECURITIES-GAINS> 44,870
<EXPENSE-OTHER> 44,446
<INCOME-PRETAX> 37,930
<INCOME-PRE-EXTRAORDINARY> 37,930
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,939
<EPS-BASIC> .76
<EPS-DILUTED> .73
<YIELD-ACTUAL> 1.47
<LOANS-NON> 3,993
<LOANS-PAST> 60,438
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,166
<CHARGE-OFFS> 667
<RECOVERIES> 153
<ALLOWANCE-CLOSE> 5,405
<ALLOWANCE-DOMESTIC> 5,405
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
